Download Explaining the credit crunch

Explaining the credit crunch
Real World Economics, 10-11
Rodrigo Fernandez
UvA
The topics I will discuss
• Basic functions of money and capital
• Facts and figures
• Overview of the new landscape: how did we
get here?
• Selection of theoretical approaches
The topics I will not discuss
•
•
•
•
Broader setting
Overview of the current crisis
Second round effects
Bretton Woods and exchange rates
Main argument
• Solving the current mess is not merely a
technical matter, it is politicized
• There are different interest between
different actors, markets and countries
• We need to formulate our answer and seize
the current window of opportunity
Crash course (1): money as a
social product
• Functions of money
• Unit of account
• Medium of exchange
• Store of value
• Money is derives its power from the social
fabric
• What happens when these functions
contradict?
Crash course (2): The historical
development of capital
C
C-M-C
M-C-M’
M-M-M’
C=commodity, labor M=money (broad sense)
Crash course on money (3): The
traders of money
• Beauty contest
• Things are not what they seem
• Epistemic structure can collapse
Summarizing money
• It is socially produced
• It tries to get away from the ‘real economy’
in cycles
• Agent in the markets do not act rational
Facts and figures
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•
•
•
Size of capital markets
Size of different types of actors
Different national characteristics
Securitization
Capital Markets in selected OECD countries, 2006
900
800
700
In percent of GDP
600
500
400
300
200
100
0
Ireland
Netherlands
Belgium
UK
France
Bank Assets
Denmark
Sweden
Debt Securities
US
Italy
Stock Market Capitalization
World
Germany
Austria
Assets under management by institutional investors in trillions
of dollars 1990-2003
insurance companies
pension funds
investment companies
hedge funds
other institutionsl investors
50
45
40
35
30
25
20
15
10
5
0
1990
1995
2000
2001
2002
2003
0
Korea
Germany
Belgium
Austria
France
Norway
Hungary
Poland
Spain
2004
New Zealand
2003
Portugal
Sweden
2002
Japan
2001
Denmark
Ireland
Australia
Finland
United Kingdom
Total OECD
United States
Switzerland
Iceland
Netherlands
Evolution of the size of pension funds relative
to GDP, 2001-2005
2005
140
120
100
80
60
40
20
Pension fund assets and financial assets as % of
GDP in OECD countries in 2001
250
Correlation = 0,8178
Financial assets of all institutional
investors as % of GDP in 2001
CHE
200
UK
USA
NL
SWE
150
FRA
AUS
BEL
ITA
JPN
DEU FIN
AUT
ESP
PRT
100
50
CAN
DNK
Average
NOR
CZE HUN
MEX
SVK
0
0,0
20,0
40,0
60,0
80,0
Pension fund assets as % of GDP in 2001
100,0
120,0
Emissions in the Netherlands (bonds and shares), 1958-2002
120000
Source: CBS historische reeks, DNB: financiele markten
100000
60000
40000
20000
-20000
total emissions
public debt
stock market
private bonds
SPV bonds (part of private bonds)
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
19
60
0
19
58
Million of Euro
80000
Overview of the new landscape:
how did we get here?
• Bank and capital market intermediation
• Two areas of innovation:
– Securitization
– Derivatives
• Re-intermediation through web of actors
Where did innovation occur?
•
•
•
•
•
•
Mobilizing fixed income streams/collateral
Credit creation
Risk assessment and management
Non-bank financial intermediaries
OTC markets
Diversification through interrelated,
competing and complementary markets
Historical development of US GDP and total (households,
corporate and government) outstanding debt, 1964-2006
GDP
Total Credit Market Debt
50000
340%
45000
40000
Billion US Dollar
35000
30000
25000
20000
243%
15000
10000
5000
0
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2006
Theories
• Long duree, systemic cycles of
accumulation
• IPE, ‘states’ versus ‘markets’
• Regulation school, financialization as
mode of capitalist regulation
• Financialization, culture of risk
• Pension fund capitalism, wall of money
Thank you
Growth of pension assets and the national
income in the Netherlands, indexed
(1990=100)
Net national income
Pension assets
160
140
Pension assets = 388 BillionFl
120
100
NNP = 457 Billion Fl
80
60
40
20
0
1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995