De-financialising the real economy

Mariana Mazzucato organiser of this week’s Mission-Oriented Finance conference in London and RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex, is attempting to rescue the idea of The Entrepreneurial State, debunking myths about private and public sector innovation. Here is her latest contribution to the Mission Finance series at FT Alphaville.

Today our mission-oriented finance for innovation conference begins at the Houses of Parliament. Vince Cable, UK secretary of state for business, innovation and skills will be kicking off this evening arguing that a serious commitment to funding innovation means doubling innovation spend. Read more

Fighting poverty: how the wealthy can help

This guest post is from Mark Haefele, global chief investment officer at UBS Wealth Management and also chairman of the UBS Global Investment Committee.

Note that Mark will be fielding questions on the topic of poverty during Markets Live at 11am on Tuesday. A UBS white paper on fighting poverty is available here.


Global economic growth, the rise of China, and the fall of communism have all contributed to lifting hundreds of millions out of poverty in the past 25 years. Unfortunately, the ‘easy gains’ have been made. The aforementioned factors are either one-off in nature, or likely to be less supportive in the future. As a result, private individuals, particularly wealthy investors, have a potentially significant role to play in reducing poverty, through a combination of sustainable and impact investing, and philanthropy. Read more

Mission Finance: why money matters – Randall Wray

The second guest post in this series comes from L Randall Wray, professor of economics at the University of Missouri-Kansas City. If the first was a call to arms for role of the state as entrepreneur, this is another big idea: we need to rethink the role of money in order to recognise the true challenge for finance.

Our Mission Oriented Finance conference explores how to direct funding toward what Hyman Minsky called “the capital development of the economy”, broadly defined to include private investment, public infrastructure, and human development.

But to understand how, we need to understand what money is and why it matters. After all, finance is the process of getting money into the hands of those who will spend it. Read more

Mission Finance: starting to think big again – Mariana Mazzucato

This is the first guest post in a series to coincide with the Mission Oriented Finance Conference starting in London on Tuesday. Mariana Mazzucato organiser of the get together and RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex, is attempting to rescue the idea of The Entrepreneurial State, debunking myths about private and public sector innovation. It is time, she writes, for big ideas. To think them will require loosening some intellectual chains.

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. …I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.

Keynes – The General Theory of Employment Interest and Money, 1936 (p. 383) Read more

Guest post: RRP and the rusting of the financial plumbing

An earlier guest post by Manmohan Singh, senior economist at the IMF, argued that it is not likely that the market will be allowed to bid for the entire Fed balance sheet, as repo rates need to be contained before lift-off. In this follow-up he suggests that the Fed’s RRP (reverse repo program), if done in size, will rust the market plumbing. Views expressed are his own and not that of the IMF or IMF policy.

Think of the bilateral repo market via the analogy for old clothing trade: Typically, merchants in developed countries shrink wrap old clothes in shipping container sized bundles (under pressure) and send the plastic wrapped block to poor countries. There, a clothing broker buys it, and resells it by weight to jobbers. So if the block weighs 500 pounds and they sell it in 10 pound lots, all 50 people gather around. But some people pay slightly more to be at the front of the crowd, and some pay slightly less to be at back. Then the jobber pops the bundle open with a big knife and the shrink wraps literally explodes; everyone gathered around jumps for the best pieces. Read more

Guest post: Does the VIX really measure volatility?

This guest post is from Peter Cookson, founder of Perels, a consulting firm focused on emerging financial trends.

The CBOE Vix volatility index fell 12 per cent, closing at its lowest level since February 2007 — FT, June 19th Read more

Guest post: No, you can’t have your risk-free returns back

From Tomas Hirst, editorial director of Pieria, commissioning editor at the World Economic Forum and sometime playwright…

Governor Mark Carney, author and champion of the Bank of England’s Forward Guidance policy, appeared to depart from the usual script in his speech at the Mansion House yesterday. Having downplayed the likelihood of a rate rise any time soon at the launch of the Inflation Report in May many were surprised to hear him caution:

There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect.

The Monetary Policy Committee last voted to move the Base Rate in March 2009 when they agreed on a drop to 0.5 per cent. In the months that followed, however, inflation remained above the Bank’s 2 per cent target for 48 consecutive months: Read more

Smithers: Yellen and hindsight capital

This is an abridged version of a post by Andrew Smithers for his FT blog, one that lays out why using next year’s PE ratio to value the stock market is absurd. Taking the Fed Chair to task for her language, it is also ripost to the critique of long term valuation measures we have also featured.

Janet Yellen, the Fed’s head, rather bizarrely used the prospective price/earnings ratio, one of the weakest of all measures, to justify a statement that Wall Street was not overvalued. (This was doubly strange since her husband, George Akerlof, co-wrote a book with Robert Shiller, who has championed a much better measure…

I quote from a recent Buttonwood column in The Economist. Calling Ms Yellen’s comment “strange” seems very kind. Many people would rate the use of bad data in preference to better as irresponsible rather than strange, particularly when it carries with it the authority of the US Federal Reserve. Read more

Guest post: About that UK property bubble…

From Tomas Hirst, editorial director of Pieria, commissioning editor at the World Economic Forum and sometime playwright…

Commentators have been huffing and puffing themselves breathless with warnings of an imminent market correction in Britain’s property market. Even the European Commission has got in on the act warning policymakers of the risk of “excessive house price rises and increases in mortgage indebtedness”.

What there is no disagreement over is that prices have been rising strongly. According to the Nationwide House Price Index the average UK house price sold for a record £186,512 in May pushing annual pace of price growth up to 11.1 per cent:

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Fordham: Volatile public opinion – Vox Populi – is the new political risk

This is a guest post from Tina Fordham, chief global political analyst at Citi. The full report discussed below is available here.

People power is on the march, for better or worse. Read more

Guest post: When anyone can be a money issuer

By David GW Birch, a director of the secure electronic transactions consultancy, Consult Hyperion. Birch was recently named one of Wired magazine’s top 15 global sources of business information.

The Maltese thinker Edward de Bono is famous, to older readers, for having originated the concept of “lateral thinking” back in the 1960s. He has a long track record of trying to bring new thinking to old problems.

In 2000, de Bono advised a UK Foreign Office committee that the Arab–Israeli conflict might be due, in part, to low levels of zinc found in people who eat unleavened bread (e.g. pita flatbread), a known side-effect of which is aggression. He suggested shipping out jars of Marmite to compensate.

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Guest post: When float is bad in Portugal but good in Omaha

Professor Pablo Triana of the ESADE Business School is a derivatives expert whose work we have featured extensively in this series on the very large put options written by Warren Buffett’s Berkshire Hathaway. In this post he contrasts the fate of bets made by a Portuguese rail operator with those of the Sage of Omaha, where the main difference is the judgement of hindsight.

What separates the greatest ever trade and the worst is, obviously, the outcome. But should the traders be viewed any differently for responding to the same motivation: money now for the risk of having to pay more back in the future? Read more

The currency question Alex Salmond cannot answer

This guest post on the issue of Scottish independence is from Paul Donovan, Global Economist at UBS in London…


As the referendum on Scottish independence approaches, the rhetoric around the currency arrangements for an independent Scotland has escalated. An unnamed British cabinet minister has been cited as suggesting that currency union could be used as a bargaining chip (specifically in exchange for Trident bases). The casual assumption that a fundamental economic structure can be bargained for political capital is deeply troubling; it is just such approach that created the Euro with the flawed architecture that it has today. Read more

Guest post: The SEC could find new uses for an old law

It is probably too late to change the number of individuals charged in relation to the financial crisis, even if US regulators reconsider their treatment of offending corporations, but there may be a route to more aggressive enforcement by dusting off a little used part of a 1934 statute. Jordan Thomas, a former SEC Enforcement Director and chairman of the whistleblower representation practice at Labaton Sucharow, outlines a way the Commission could go after malign managers in the future.

Since the Financial Crisis, the Securities and Exchange Commission has been criticized for not holding senior executives accountable for corporate wrongdoing. But Wall Street’s top cop has now signaled that it will begin using a statute that has been off the radar for decades to pursue charges against parties who violate the securities laws “through or by means of any other person.” Read more

Guest post: Making a non-western payment card system, in Russia

Russia’s Duma is hearing the final version of a draft law to create a national system for payment cards on Friday — a direct response to US sanctions over the Ukraine crisis.

Natalia Kaurova, Associate Professor at the Financial University under the Government of the Russian Federation, and Anastasia Nesvetailova, Director of the City Political Economy Research Centre at City University London, discuss how the system could be built. Read more

Guest post: What if Putin had bought Crimea?

The prospect of selling any sovereign territory to resolve disputes may seem like a taboo — especially so when it comes to the conflicted territory of Crimea. However, Joseph Blocher and Mitu Gulati, both law professors at Duke University, argue that such a “market” should in future be considered in public international law.

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Guest post: The IMF approach to sovereign debt restructuring

This year’s IMF-World Bank Spring Meeting is likely to include discussion of proposals to change the fund’s policy on sovereign debt restructuring. Gabriel Sterne, senior economist at Exotix with IMF experience, and Charles Blitzer, Principal at Blitzer Consulting and a former IMF staff member, argue in favour of a case-by-case approach.

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Gnawing the bones in China

By Anne Stevenson-Yang of Beijing based J Capital Research and author of “China Alone” who argues against any misguided faith in the magical powers of China’s leadership.

Between mid January and late March, China’s renminbi depreciated by 2.8 per cent, before settling into a few days of small and shifting up-and-down movements. The official line painted the fall as an intentional move by regulators trying to reduce speculation in the currency. Belief in such intent, however, relies on a dangerous conviction that China’s policymakers want to stop that inbound flow of capital and are in complete control of the system.

Within China’s banks, the view is quite different: “No one will take our calls or meet with us,” said one investment banker about the regulators. Government officials are too afraid of political reprisals to take responsibility for policy moves which could expose them to reprisals and prefer to stay as inconspicuous as possible. Read more

Guest post: Bitcoin, derivatives, and the IRS

This guest post is by Tim Karpoff, a partner at Jenner & Block and formerly Director of the Treasury Department’s Office of Financial Institutions Policy and Counsel to CFTC Chairman Gary Gensler, and Israel Klein, a Principal at the Podesta Group and formerly a senior Capitol Hill staffer. The authors do not represent clients with interests related to Bitcoin.

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Guest post: Outtakes from the American Express informercumentary & the Andreessen Bitcoin circus

This is a guest post by Aaron Greenspan the founder of Think Computer and creator of the FaceCash mobile payment system.

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Crimeanomics favours the West

This guest post on the Ukraine crisis is from Jorge Mariscal and Alejo Czerwonko, emerging markets chief investment officer and emerging markets economist, respectively, at UBS Wealth Management.

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Guest post: Ukraine’s debt — now comes the interesting bit

When your creditor takes some of your territory — can you make that territory take some of your debt? Mitu Gulati, a law professor at Duke University, last wrote for us on Russia’s $3bn Ukrainian bond. With Russia reinforcing its annexation of Crimea, Mitu considers Ukraine’s options with its debt after the secession.

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Overshooting and the Fed

This post by the FT’s US economics editor Robin Harding is cross-published from FT Money Supply.

I think people are confusing two separate questions in the recent debate about wage rises and spare capacity in the US economy: first, the amount of slack left in the labour market, and second, whether the Fed should deliberately try to overshoot its inflation objective of 2 per cent. Read more

Guest post: Mr Putin’s clever bond issue

What to do when your creditor invades? Beyond its occupation of Crimea, Russia remains a lender to Ukraine — even as IMF teams ponder the Kiev government’s financial sustainability. Mitu Gulati, a law professor at Duke University, considers both sovereigns’ options.

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GT Pellizzi, Financial Times, Mary Boone Gallery, NY

Something to catch in New York before it closes this weekend – a view of the times will live in by Mexican artist GT Pellizzi, exhibiting at the Mary Boone Gallery, close by Bergdorf Goodman on 5th Ave…

David Adler, a New York-based economic analyst and artist in his own right, offers a last minute review and discusses the belated rise of a movement focused on finance as an artistic inspiration and subject of critical commentary. Read more

Guest post: In defence of FX traders

From Joy Rajiv, who formerly worked in the Foreign Exchange trading divisions at both Morgan Stanley and Deutsche Bank. He left the industry in early 2013 for personal reasons unrelated to the current regulatory probe into the FX industry, and writes in a private capacity here drawing on his experience in the industry.

As someone who has worked in FX trading for three years at Morgan Stanley and Deutsche Bank from 2010 to 2013, I have been dismayed and discouraged by the recent coverage of alleged manipulation by FX traders at major banks. Traders have been fired, lawsuits have been filed and comparisons to Libor have been thrown around without much concern for detail. Media reports have focused their attention on abuse of a daily benchmark, called the WM/R (World Markets/Reuters) fix. Read more

An EM credit crunch, not a sudden stop

This post by Gavyn Davies has been cross-published at Gavyn’s own blog.

The crisis in the emerging markets’ “fragile 8″ , which threatened to sweep all before it a few weeks back, seems to have settled down almost as quickly as it erupted onto the scene. Investors are already asking whether it is now safe to enter the undoubted attractive valuations in the emerging world. Read more

Guest post: Back to the future with Scottish currency

The following is a guest post from Chris Cook, a senior research fellow at the Institute for Security and Resilience Studies at University College London. His work is focused on a new generation of networked markets – which will, in Chris’s view, necessarily be dis-intermediated, open, decentralised and, therefore, resilient. But his approach is informed by the past, and it is there that he finds a framework for an independent Scotland to use the pound, a Plan A Plus.

The rejection by all the Westminster parties collectively of the SNP’s Plan A for a post-independence UK currency union has elicited a string of possible Plan B solutions, several of them already considered and rejected as inferior to Plan A by the SNP’s expert group of ‘wise men’.

But the current debate is ill-founded, since the UK can have no more control over who uses the £ symbol as a unit of account, than they can have control over the use of metres and kilogrammes. Read more

The Fed, reverse repos and tri-party/bilateral repo market wedges

This is a guest post by Manmohan Singh, a senior economist at the IMF. Views expressed are his own and not those of the IMF.

The idea of eliminating the present wedge between Fed’s reverse repo program (RRP) floor and the interest on excess reserves (IOER) is intriguing because such a change would only allow the Fed to set the price on such operation (P), and would leave the market to determine the quantity of reserves (Q) on Fed’s balance sheet (Gagnon/Sack proposal).

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Russia must use Olympics to shrug off contagion talk

On the eve of the Sochi opening ceremony, FT Alphaville is pleased to present this guest post by Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management…

As it hosts this month’s Winter Olympics in Sochi, Russia will spend more time entertaining the world than educating it about the Russian economy. But financial market conditions mean it must also use the Games as a platform to prove some serious economic points.

This year, a tidal wave of capital outflows has engulfed emerging market currencies. Although Russia is stronger than the average developing nation, its currency and stock market have underperformed emerging market averages, with declines of 7.3 per cent and 11.6 per cent in US dollar terms, respectively. Against this backdrop, Russia needs to use the Games as a platform to advertise its resilience and competitiveness to investors. Otherwise, contagion from weaker countries risks sweeping it up. Read more