Socially useful finance

Evidence from Nigeria shows that access to finance can help households reduce the impact of bad luck, reducing the fall in consumption that they suffer. * Yesterday I was part of a group discussing a draft research paper on the ethics of banking, prepared for the Cambridge Judge Business School Centre for Compliance and Trust. IContinue Reading

Should we be trying to change the world?

After introducing the MFin to a group of new joiners to Cambridge Judge Business School last week, one asked me whether we on the MFin were actually trying to change the finance industry? I think his unspoken assumption was that the industry needs changing, and that if we teach students the same old finance stuff thenContinue Reading

Can a central bank go bust?

Central banks have balance sheets like other banks and in theory their liabilities can exceed their assets, meaning they are insolvent. But they can always create new money so they can settle their debts. So can they really go bust? * A bank (or any other company) is insolvent if its assets are less thanContinue Reading

Too much debt? There is a better way

Pretty much all financial crises involve too much debt. The global financial crisis was triggered by excessive lending for US property purchase. The slow recovery from the crisis is probably because of too much debt. China’s successful plan to insulate its economy from the post-crisis recession has left it with its own debt problem. ThoseContinue Reading

Africa and the “resource curse”

Sub-Saharan Africa (SSA) is abundantly endowed with natural resources, whose value has increased in recent decades. But this has not led to increased benefits for the majority of the people. A recent IMF working paper sheds more light on the challenge of making Africa’s wealth work for most Africans. Ahead of the forthcoming annual CambridgeContinue Reading

Greece repays IMF using the IMF’s own “currency”

Greece this week repaid €750m to the International Monetary Fund (IMF) which it funded by drawing on its SDR account at the IMF. This legitimate but unusual move caught many commentators by surprise and drew attention to the little known SDR. * The SDR – Special Drawing Right – is something of a curiosity inContinue Reading

Still debating the causes of the world financial crisis

Major world historical events such as the financial crisis that swept much of the world in 2007-09 typically have multiple causes. In 2014 there was an outpouring of new books about the causes of the First World War which started a century before. Historians continue to disagree about why the nations of Europe went toContinue Reading

How can we tell if a bank is strong?

This week it was reported (*) that the European Commission was investigating some southern EU nations to see if they had unfairly and illegally allowed banks to count deferred tax assets towards their capital. What does this mean and what does it tell us about bank financial strength? We can assess bank strength by askingContinue Reading

Why forecasting exchange rates is near-impossible

As an economist, over the years I’ve been asked two things repeatedly by people who hold economics in touchingly high regard. One is, which way will house prices move? And the other is, what will happen to the value of the pound against the dollar (or euro or yen etc.). I’ll defer the first questionContinue Reading

Nice new cafe opens in Cambridge

Feeling guilty about the way that working on the first draft of my book about nuclear power in the UK is squeezing out blogging at present, here’s a quick one on a new cafe that recently opened and which brings something new to the crowded and mostly well provided Cambridge cafe society. I’m not talkingContinue Reading

Barriers to negotiating mutually beneficial outcomes: the example of Greece

The current stand off in talks to renegotiate the Greek debt bailout shows the difficulty of achieving an outcome that could be good for both sides. * Why lenders sometimes rationally forgive part of a loan There is plenty of excellent commentary on the Greek debt situation, arising from a newly elected Greek government whichContinue Reading

Letter from Mumbai

I recently visited Mumbai for the first time in over ten years. A lot had changed and India may be poised to take over from China as the fastest growing major economy. * Mumbai is the commercial, financial and film-making capital of India. I visited the city several times from 2003-2005 to set up aContinue Reading

Western capitalism is no longer working well for most people

Since the collapse of communism, capitalism in its various different flavours is the only realistic option for countries wanting high living standards. But the US/UK variant is failing to deliver mass prosperity, which threatens to undermine it and generate a potentially ugly backlash. * The US, Sweden and Japan are all capitalist societies, meaning thatContinue Reading

The oil price and short and long run supply

The biggest topic in the global economy remains the oil price. It’s notoriously difficult to forecast commodity prices but how can we make sense of what would push the price up or down? A basic demand and supply framework gets us quite a long way * A market consists of demand, supply and some mechanismContinue Reading

Why is it riskier to be a worker than a capitalist?

We take it for granted that capitalists hire workers rather than workers hiring capital, but why? The main reason is the difficulty of diversifying labour, which means that workers ideally require some form of insurance to offset their concentration of risk. But that is only imperfectly available through the market and this is an importantContinue Reading