"Des waerelds doen en doolen, is maar een mallemoolen,"

"Des waerelds doen en doolen, is maar een mallemoolen," engraving from Het Groote Tafereel der Dwaasheid, 1720.

"The actions and designs of the world go round as if in a mill." South Sea bubble financial crisis.

Tuesday, April 24, 2012

It is NOT about inequality II

The TED speech of Frans de Waal about the moral behavior of animals offers some great footage of the importance of fairness in a game. Watch the reaction to unequal pay at 14.05m. "So, this is basically the wall street protest that you see here..."

Monday, April 9, 2012

Financial sectors in post-communist economies

Data from World Bank

The last EBRD report mentions the importance of sound financial systems as a shield to crisis. The graph above shows to what extent financial sectors in various economies in transition are efficient intermediaries. Germany is taken as a benchmark. 

Sunday, April 1, 2012

Trust no one

Guiso explores the impact of the financial crisis on people's trust, using the Financial Trust Index Survey from the University of Chicago conducted several time after the crisis on a sample of American households. It doesn't look pretty. Traditionally Americans trusted banks and financial markets 50 percent more than they trusted a random person, which is normal since we don't rely on a random person to keep our savings. This measure experienced a u-turn: 
The fall in trust was so strong that after the crisis people show more trust towards a generic unknown individual than towards a bank or a banker, that is towards those institutions and people that should deserve to be trusted the most in light of the role they play as the custodians of our savings.
Guiso also aptly separates two kind of confidence and ties it to the risks an investment implies. Confidence about an institution's ability to repay its debt, which implies intrinsic riskiness is different from the confidence that one will not be cheated when entering economic relationships. That second notion of confidence entails a social risk and is much harder to rebuild than the first one. The trust measures below taken from Guiso's study "reflect the greater perceptions of an increased social risk that has deteriorated the relation between investors and financial intermediaries".  


Now add to this the notion of  trust in political systems (national and European institutions) which has been tracked by Roth, Nowak-Lehman and Otter, and you get the beginning of a picture where economic crises (that financial sectors may cause or not) have political repercussions.