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Q: What was your initial motivation for joining the financial blogosphere?
A: Well originally it was my brother who suggested that I wrote. On Twitter I found myself in conversations with his friends, who were talking about economics and finance, and I read a number of articles through them that I didn’t agree with so I started to write about those. I think the first one was an article by George Monbiot in the Guardian on short selling. I read it and thought: you don’t really know what you’re talking about. And I did know something about that so I wrote an article explaining short selling in a way that people could understand. I reckoned that even if only a few people read it, it would still be worth doing. After that I wrote several things along the lines of trying to help people get a better understanding of banking, both the investment and the retail side. In the end I wrote because I thought I had something to say.
Q: One of the big discussions of the crisis has been about “too-big-to fail” banks. Do you think that this is leading us towards the causes of the crisis or obscuring them further?
A: As time has gone on I’ve been convinced that the myths about what went wrong in 2007-2008 are becoming more firmly established. For example, the belief that investment banks caused the crisis is simply wrong. They didn’t. In the UK it was retail banks that failed while the US crisis can be traced to mortgage originators. It’s very interesting that in response to the crisis the US actually created universal banks while in Europe we’re talking about splitting them up. It seems to be a case of assuming that the way the banking sector was operating must have been the problem so you just seize on the next available model. For me neither side is really seeing the wood for the trees. They are looking too much at institutions and too little at a system. If you have 60 small banks all failing at once they can pose as much of a systemic problem as one large bank going down, as we saw in the UK in the 1970s.
Q: Do you think that the general public understand the role that we as individuals played in creating the conditions of the crisis?
A: I would agree with that. We got used to a type of lifestyle and a short-term outlook whereby we didn’t have to wait for things we could simply get them on credit. I think we all bought into that. We can blame banks, or governments but anybody who bought and sold their house or used rising house prices to fund their spending benefitted hugely from that environment. However you look at it, a lot of people were doing very well out of it and nobody was really looking at whether it was sustainable. People like to talk about “black swan events”, but this was not unforeseeable, indeed it was quite widely predicted by a lot of people. It is just that people weren’t listening.
Q: Do you think that it is possible for people on an individual basis to moderate their expectations when wages are rising and credit is easy to access?
A: I think it’s really difficult actually. If you believe that you’re working very hard, you’re being well paid for it and your company’s doing well it’s not surprising that people feel they can borrow against that. Rising productivity fuels the credit bubble, and vice versa. So it really helps to fuel itself. Where we went wrong was not seeing that the rising productivity was being fuelled by credit. In Minsky’s terms it was effectively a Ponzi scheme. The problem is that you don’t know when you’re in it that what you’re buying into isn’t real.
Q: Do we simply need to become more self-aware in these situations or do you think it will take a regulatory response to curb these types of credit bubbles?
A: It’s immensely difficult for people and governments to recognise when you’re in a bubble. You’re part of it, and the government is part of it so how can you expect to see the problem? Though we castigate Gordon Brown for claiming that we had fixed “boom and bust” nonetheless you can kind of see why he believed it. Along with a number of others I have been arguing that productivity growth is currently rebasing itself to a lower, shallower trend. If much of the pre-crisis productivity was the consequence of a credit bubble we can’t simply jump back to it because it wasn’t real, unless we want to re-inflate that credit bubble. We will do better if our productivity growth is sustainable, even if it means we have a lower standard of living.
Q: What does that suggest about the output gap in the UK economy?
A: I don’t see this crisis as the end of UK Plc. I think we are a creative, hard- working bunch of people and are capable of producing great things. That said, I don’t think it’s either necessary or desirable to quickly return to pre- crisis levels of productivity. It would be more sensible to look at what we really can do given our resources and our energy availability. To my mind not enough attention is being paid to the impact of the rising cost of energy on growth and output.
Q: Do you think that the advent of new technology will ultimately put a cap on labour demand?
A: People got new jobs, better jobs and previously unanticipated jobs as a consequence of the Industrial Revolution. There were losers, there always are, and they suffered terribly but overall many of the jobs that were lost were in low-skilled areas that could easily be automated. I’m of the opinion that we need to start working out what we value in we regard as human skills. We have a tendency not to value very highly those things that people naturally do – our interpersonal skills and social interactions. Currently jobs such as childcare or caring for the elderly are not highly prized, or well remunerated but I think that might well change in future. Once you can replace things that we train people to do now, such as pushing paper around or doing complex sums, you’re left with human interaction. Robots may be able to interact with people but will there be a premium paid for human companionship? I rather like the idea of freeing people from the burden of having to work doing things that they don’t enjoy in order to earn a crust, and making them able to do things that they enjoy and can create value from.
As the introspection of the last thirty years gives way to technology-led interconnection and transparency, what is the new role of design?
Damning report from the LSE's CEP criticises all political parties for "fake reforms" that fail to address the UK's growing housing affordability crisis.
Gregor Logan argues that the combination of very high debt, very low interest rates and very large central bank balance sheets means governments would struggle to respond to another crisis.
Dr. Andrew Lilico argues that orthodox finance theory adequately explains the 2008 financial crisis. But what about orthodox macroeconomic theory?
"Scotland can run its own affairs. It doesn't need the UK." "Yes, of course it can. But what about oil prices and that fiscal deficit?" "Oh, they don't matter. The UK will pay." Really?
It is often said that the Eurozone's unemployment problem arises from the fact that it is not an optimum currency area. But the real problem is Eurozone governance.
The third of the LSE Centre for Economic Performance's pre-election briefings looks at the UK's productivity problem. What should the next government do about it?
In the second of a series of pre-election briefings, John Van Reenen of the LSE's Centre for Economic Performance assesses the costs of austerity and the realism of the main parties' fiscal plans.
The failure of a medium-size Austrian bank raises questions about the resilience of the Austrian-German banking system.
Anti-immigration campaigners say that Britain is suffering from an influx of low-skilled immigrants crowding out British workers and placing pressure on public services. Are they right?
The Eurogroup insists that Greece must complete the "current programme". Greece says the programme is not fit for purpose and a "new arrangement" is needed.
Central banks are cutting interest rates because of oil-price induced deflationary pressures. But interest rates are falling anyway - because we're all getting older.
The sad story of Ireland in the Eurozone, as told by the IMF.
Could the ECB's QE programme really work?
The ECB is about to embark on QE, and its trading partners are already preparing their defences. The game is afoot......
Leading economists assess the impact on the Eurozone of a Syriza victory in the Greek elections.
The global economy is dominated by a private debt bubble that governments and mainstream economists ignore.
People of the Left looking for dragons to slay in the financial system really need to understand the nature of the beast.
Supporters of fiscal austerity talk about the need to reduce the "structural deficit". But what is it, and how can we measure it? Does it even really exist?
New research suggests that low interest rates made the US recession worse. But it's wrong....
The forces that draw the Eurozone countries closer together also threaten to tear it apart.
Politicians are obsessed with fiscal deficit reduction. But unless they also reduce the trade deficit, a debt crisis looms....
The traditional contract between man and woman is broken beyond repair. But it was a contract that institutionalised inequality and antagonism between the sexes. We should not mourn its passing.
A survey of macroeconomists conducted by the Centre for Macroeconomics overwhelmingly supports the view that the Chancellor's planned spending cuts are not credible.
The story of Austria's failed bank Hypo Alpe Adria raises serious questions for Juncker's approach to EU investment.
Growing opposition to immigration masks the real divisions in our society.
The G20's obsession with supply-side reforms fails to address the real causes of slowing global growth.
The UK Government's flagship Universal Credit scheme is in trouble. And not only from potential users....
There is much talk about the sovereign-bank "doom loop". But the bank-to-bank relationship is just as widespread - and just as dangerous.
Japan is back in recession. Will it ever emerge from its deflationary trap?
How banks allegedly rigged the $5.3bn foreign exchange market.
It is completely understandable that older people think their pensions should be protected at the expense of younger people. But it is also foolish.
Unemployment across the EU is shockingly high, and inflation shockingly low. And they appear to be stabilising at these levels. Is a toxic equilibrium developing?
The Fed has ended large-scale asset purchases. But that doesn't mean interest rate rises are on the horizon. Indeed, where is the horizon anyway?
My verdict on the ECB and EBA's AQR and stress test results.
Expansion of the Eurodollar market played a vital role in the credit boom that led to the 2008 financial crisis. What drove that expansion?
The Conservatives are promising tax cuts. But their fiscal plans have a huge unfunded hole.....
Ed Miliband forgot about the deficit because his priorities were elsewhere. But there is another Ed in the Labour party, and he sings a different tune....
Scotland has chosen to remain in the United Kingdom. But now the United Kingdom itself must undergo fundamental change.....
We are used to hearing about the Co-Op Bank's disasters. But there was another bank involved too.....
Draghi's Jackson Hole speech is about the tragedy of long-term unemployment. He calls for fundamental reform of the Eurozone's institutional structure.
Fear of future debt obligations is preventing governments taking the fiscal measures needed to restore growth.
Technology changes and post-crisis monetary policy are making financial assets and money indistinguishable. Central banks now need to work in partnership with fiscal authorities.
How can institutional design and policy create better incentives for innovation to drive growth?
What insights do the models, experiments and econometric regressions of scientific research provide about the economy – and are they ever really useful in dealing with real-world problems?
As Nobel Laureates and young economists gather for the 5th Lindau Meeting on Economic Sciences, 20-23 August 2014, inequality is the subject most on everyone' s minds.
Remembering World War I is not enough. We must learn from it.
The half-year results for Banco Espírito Santo are grim reading. It is, in a word, bust. What caused this disaster? And will the bank be rescued?
The last time the UK's trade deficit was as large as it is now was at the height of the Lawson boom. And we all know what happened next....
Turning deprived areas into mixed communities by demolishing ghetto estates displaces the poor. We need better social housing and services in those communities, not gentrification.
There have been calls for interest rate rises to discourage risky new lending. But the Resolution Foundation shows that it is the stock of existing debt that is the real problem.
History shows that central banks delay raising interest rates for too long after a recession, then panic and raise them too much, causing another one. Will they do this again? Probably....
Portugal's Espirito Santo Group shows that complex, opaque corporate structures with embedded banks create moral hazard and the risk of fraud.
The size of new mortgages compared with borrower incomes is rising, suggesting households are becoming more vulnerable to income and interest rate shocks. Will macroprudential regulation be enough?
Google Venture's new European investment fund is welcome news for tech firms.
We don't understand inflation, we can't reliably measure it and we don't even agree what it is. But we believe government can and should prevent it.
The number of working-age people claiming housing benefit is rising fast.
A majority of economists surveyed by the Centre for Macroeconomics think it is time to use macroprudential tools to calm the UK's housing market.
Andrew Hughes-Hallett of the University of St. Andrews explains why, contrary to views expressed by many professional economists in a recent survey, Scottish independence could be good for Scotland.
Attitudes to the housing market, illustrated with a game of Monopoly.
The private equity industry has an important role to play in generating economic growth and jobs. It must abandon opacity and engage openly and honestly with public and private sector enterprises.
We could be at the dawn of a new Golden Age. But for this to happen, there needs to be radical change in current social structures and norms. Do we have the vision and courage to make this happen?
The desire to own property is a British national obsession. How do we resolve the conflict between housing as investment and housing as essential shelter?
Disaster follows when wealth effects from rising house prices create opportunities for households to borrow excessively for consumption. But that doesn't mean we have a problem at the moment.
An overwhelming majority of professional economists surveyed by the independent Centre for Macroeconomics (CFM) think independence is not in Scotland's best interests.
Does the boom in London house prices mean a new role for property- or is it just the latest version of something much, much older?
The UK's tax credits system is expensive, inefficient and hurts the very people it is supposed to help. It is not fit for purpose.
Distinguishing between deserving and undeserving poor is impossible. And forcing people to work is counterproductive. It's time for a new approach.
Free movement of labour is economically beneficial, but it can come at a very high social and psychological cost.
Martin Wolf proposes that banks should be stripped of their ability to create money when they lend.
Labour markets don't clear because we don't want them to.
The Chancellor's target of highest employment in the G7 fails to address the UK's real problems - poor productivity, low wages and declining competitiveness.
An attempt to show how a classical economic model can give important insights in an endogenous money framework.
The Chancellor's budget is long on inadequately funded commitments and short on realistic revenue estimates. Will something turn up?
To what extent are policy makers influenced by economic ideas?
Will the legacy of QE be uncontrollable inflation?
The Bank of England has comprehensively debunked conventional theories of bank lending and money creation. Welcome to endogenous money.
Monetary conditions in the Euro area are horrible, and there is little the ECB can do about it. The Euro is a failure and its effects are toxic. End it now, before it's too late.
The feminist arguments for basic income.
What is the distinctive role of "father" when men and women are equally capable of providing for their children?
Student loans in the US are at record levels - but the value of a degree is falling and delinquencies are rising. Is this the next subprime crisis?
Recent headlines have highlighted declining male employment in the US and claimed that this shows that "America isn't working". But how true is this, really?
The world is undergoing three "perfect economic storms". Do they signal a fundamental economic realignment? And what is the principal driver of that change?
Central banks should coordinate monetary policy on a global basis. "Our currency, your problem" is no longer appropriate in a globalised financial world.
Tax policy is more a matter of morality and justice than economics.
A timely reminder of a few economic facts - especially for Eurozone policy makers.
The Speenhamland system of poor relief in 19th-century England was an experiment with basic income. It worked.....but it was still abolished. Why?
Ideas are the natural wealth of humans. But they are only valuable when they are shared, not owned.
The risk-free interest rate being below the growth rate of the economy is not weird, it's normal. Get used to it.
Why hasn’t the Eurozone crisis been solved by now? It is hard to avoid concluding that the crisis has not been solved because there is no intention of solving it. So who doesn't intend to solve it?
Aggregate demand stimulus that benefits the asset-rich at the expense of everyone else creates inequality and poverty, not prosperity. What is needed is irrigation, not more waterholes.
There is a prevalent view that part of the reason for the UK’s slow recovery is the existence of "zombie companies" that should have died in the recession. But what is the evidence for this?
Throughout history, humans have dreamed of a world of plenty....but now it is on the horizon, it doesn't look quite so attractive. Do we really want abundance?
Banking is different from any other business. At the heart of it are risks that cannot be eliminated, only managed. So those who run banks must be competent to manage those risks.
It seems negative interest rates are being seriously considered as a monetary policy instrument. But they may have some extremely strange effects. Would the world ever be the same again?
Some think the future will be networks of independent cities, others supranational groupings such as the EU. But Frances Coppola argues that reports of the death of the nation state are premature.
The ever-smaller size of modern houses is due to planning restrictions that aim to preserve green belt, not profit-seeking housebuilders, says Simon Cooke.
The Coalition's plans for new towns appear to have been put on the back burner. Could short-term political objectives be sabotaging structural reforms in the housing market?
Smart technology can transform the lives of those who live and work in large cities - but it is not without costs and dangers.
P0pular belief has it that big banks are intrinsically unsafe due to systemic risk. "Break them up!", is the call. But the most systemically dangerous banks are small unregulated property lenders.
In the second of two articles discussing matters raised at the ICAEW's recent conference on banking, Frances Coppola wonders if the extent of regulatory reform may make banking impossible.
The ICAEW's Audit Insight report into banking discusses the challenges ahead in banking reform. Restoring trust in banking will take a long time and be very hard work.
Hedge funds serve a useful purpose. They clean up the mess others leave behind - such as the mess the Co-Op Group management have made of their bank.
Alex Marsh argues that Help to Buy is not an appropriate Keynesian stimulus for a weak economy, but a profound policy error which puts at risk the quality of life of millions of households.
Sargent & Wallace's 1981 paper "Some Unpleasant Monetarist Arithmetic" said fiscal policy should be constrained by the monetary policy framework. But austerity-addicted governments ignore this.
People like to believe that property rights are both simple and easily enforced. But in fact ownership is difficult to define and almost impossible to enforce in a civilised society.
The high price of housing is driven not by the dream of home ownership, but by the desire to save for the future. Property has become the safe savings vehicle of choice.
The apparently irrational response of markets to monetary policy signals from central banks is too often caused by simple ignorance. Trading strategists should do their homework.
Five years on from the collapse of Lehman, Frances Coppola explains the psychological game-playing that caused the 2007/8 financial crisis - and that still continues today.
The Co-Op Bank is in a mess. The former CEO says it's not his fault. Is this believable? If it's not his fault, whose fault is it? And just how bad is this mess, anyway?
Simon Rose of Save Our Savers describes the Bank of England as "Stalinist" and calls for an end to managed interest rate policy. Is he right? Far from it, according to Frances Coppola.
Frances Coppola says it is time that people took responsibility for managing their own money, and stopped expecting banks to do it for them.
Current deposit insurance schemes are flawed, creating distorted incentives for banks. We propose a new approach that would help to ensure safety and stability while avoiding moral hazard.
The UK has a trade balance problem. It imports too much and doesn't export enough. It should aim to become more like Germany - or so we are told. But who has the biggest problem really?
Are flexible labour markets and structural reforms always a good thing? Or are there circumstances under which they make matters worse? A lesson from the Eurozone.
The rise of China as a new superpower, and the increasing indebtedness of the US, has led to calls for reintroduction of the gold standard. Could this end currency wars and preserve US dominance?
If the world as a whole starts putting up significant barriers to trade, the global rebalancing that is bringing prosperity to millions will be replaced with global misery.
If automation means that the majority of people either won't work at all or will do poorly paid unskilled work that doesn't use their skills and talents, it is a shocking waste of human capital.
The financial system has become dislocated from the real economy, seeing its own activities as an end in themselves. It must be restored to its real function of supporting people and businesses.
As traditional skilled jobs are automated, the labour market is splitting in two. A highly-paid, internationally mobile elite is surrounded by a "shanty town" of low-paid, insecure workers.
There is a fundamental conflict at the heart of banking that makes it untenable as a business proposition in the current climate. The traditional model of deposit-taking and lending is broken.
Frances Coppola makes the case for why the banking industry is unlikely to return to business as usual after the crisis.
Frances Coppola explores how increasing automation is fundamentally shifting the nature of work away from 'making stuff' towards personal services.
Frances Coppola argues that flexibility in the labour market could be harming the UK's prospects.
Pieria expert Frances Coppola argues Carmen Reinhart & Kenneth Rogoff not only missed some data, they also missed the point.
Frances Coppola, Finance writer, talks about 'too-big-to-fail' banks, the role we all played leading up to the crisis, and how George Monbiot got her into blogging.
The entire culture in bank executive management is one of irresponsibility. While people with this attitude remain in place at the top of banks, there will be no real change in banking.
For about five years now, Greece has been giving the euro area authorities a test in economics and politics. The test must be retaken until the authorities produce the right answers.
Visiting Professor of International Economic Policy, Princeton University12 articles | View profile
Approaching peak loneliness? - by @resi_analyst http://t.co/pp1spdwZhd
Europe’s integration overdrive - http://t.co/2n7EFQr63t
RT @diane1859: Be afraid - very afraid: Nick Stern on climate change: http://t.co/6Fzb3JetNx
The Rise of the Digital Capital Economy - http://t.co/Iw6rdInU5J