Goldsmiths were the forerunners to modern bankers. Originally, they would issue receipts to certify gold was deposited in their vaults. These eventually gave rise to fractional reserve banking, as goldsmiths used a portion of the gold to make loans.
Well, we might be on our way back to the original version, but instead of keeping our gold safe, banks will be keeping our dollar, Swiss franc, yen, and euro notes safe!
Read MoreInterview with Jeremy Stein
Moise Y. Safra Professor of Economics at Harvard University; former member of the Board of Governors of the Federal Reserve System; former senior advisor to the Treasury Secretary.
Has the experience of the crisis changed your view of the central bank policy toolkit?
Governor Stein: Yes, on two dimensions. First, on the toolkit insofar as it has to do with crisis prevention; and second, insofar as it has to do with what you do in the aftermath, when the economy is very weak and you are stuck at the zero lower bound...
Read MoreIf you have been abroad, at some point you probably had the same reaction we did: How can things be so expensive? Or, how can things be so cheap? Go out for pizza in Zurich, or a beer in Oslo, and you will have the first reaction. Try buying a cup of coffee in Mexico City or a souvenir in Buenos Aires, and you are likely to have the second...
Read MoreOn January 22, the ECB crossed the Rubicon twice – but in opposite directions. In an effort to combat deflation and years of anemic growth, the central bank announced a sustained program of large-scale asset purchases. At the same time, it capped the amount of risk-sharing in the Eurosystem. Other central banks have done the first, but not the second. And, while outright balance sheet expansion helped ease euro area financial conditions somewhat, the limit on risk-sharing works in the other direction. Rowing toward both shores at the same time doesn’t move a boat far or fast...
Read MoreInterview with Donald Kohn
Robert S. Kerr Senior Fellow, Brookings Institution; Member of the Financial Policy Committee of the Bank of England; former Vice Chairman of the Federal Reserve Board.
Has the experience of the crisis changed your view of the central bank policy tool kit?
Vice Chairman Kohn: My answer is yes, to some extent. It changed my view on asset purchases. Before the crisis I was skeptical that asset purchases, particularly the possibility of U.S. Treasury bond purchases that we were talking about in the U.S. before the crisis, would have much effect. I thought that the Treasury market was extremely liquid and dominated by expectations about future Federal Reserve policy and other things, so that it would take massive purchases to change interest rates….
Read MoreYou can set your watch by the Swiss trains. They are the envy of the world in many ways. Everyone believes that the trains will run on time because they do.
Credibility is at the core of central banking as well. When a credible central banker speaks, households, businesses, and governments listen. And, because they expect the banker to do what she says, their response – measured in terms of how much they work, save, and invest – will reinforce the outcome policymakers seek.
But credibility is tough to earn and – as the Swiss National Bank (SNB) recently learned when it ended a three-year commitment to prevent a rise in the franc versus the euro – easy to lose....
Read MoreInterview with Jean-Claude Trichet
Chairman, Group of Thirty; Former President, European Central Bank; Honorary Governor, Banque de France.
Has the experience of the crisis changed your view of the central bank policy tool kit?
President Trichet: I would say say yes, of course. We had to invent in these exceptional circumstances new concepts that were difficult to think of or even unthinkable before the crisis. We had to cope with an absolutely dramatic situation, particularly after the Lehman Brothers collapse, which we did not foresee. The fragility of the financial system appeared to be much greater than anything we had in mind, even though we were convinced the system was fragile...
Read MoreAngered by a foreign downing of a U.S. airliner, and frustrated by the ineffectiveness of customary retaliation, fictional West Wing President Bartlet challenged his military advisors to devise a “disproportional response” that would go beyond “the cost of doing business” to deter future attacks and make Americans safe.
Financial corruption does not put our lives directly at stake. Yet, it is easy to imagine how widespread and recurring corruption could lead a future U.S. President – frustrated by the failure of markets, regulators, and the courts to change financial intermediaries for the better – to ask her financial and legal advisors for a similar disproportional response to make Americans safe...
Read MoreSixteenth birthdays can be momentous occasions. A coming of age of sorts. Well, New Year’s Day 2015 the European Central Bank turned 16. It is a momentous birthday, but not all that sweet.
To be sure, there is notable good news. The new headquarters in Frankfurt recently opened. Lithuania has entered the euro area. The frequency of ECB monetary policy meetings is about to decline. And there will soon be timely publication of minutes of these meetings.
But the risk of deflation amid sustained economic weakness makes for a very anxious birthday...
Read MoreIn 2013, Robert Shiller shared the Nobel Prize for Economics with Eugene Fama and Lars Peter Hansen for their research on asset pricing. While Shiller is known as a critic of the efficient markets hypothesis and as a proponent of behavioral finance, less appreciated is his work on advancing financial technology to help societies manage fundamental economic risks.
At a time when the recent crisis has given financial innovation a bad name, Shiller’s contrarian message is that well-designed financial instruments and markets are an enormous boon to social welfare. We agree.
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