IPE Views: What governments should do with financial markets

first_imgThe creation of the US EXIM bank is a clear case in point. As Shah argues, financing and risk-taking in connection with international trade or cross-border investment is the ordinary stuff the financial industry does. The self interest of financial firms will produce these services. There is no case for the government to subsidise exporters – but, even if that were desired, there are more efficient ways to do this rather than subsidised credit, a view that I would also certainly agree with.Shah characterises the Indian Financial Code as having nine components, and it is interesting to see how these look in a European context. The first is consumer protection. Financial firms, left to themselves, will mistreat consumers. This is the heart of how regulators should think about financial economic policy. Europe seems to have taken this on board with gusto since the problem that many perceive is too much EU legislation along these lines.Second is micro-prudential regulation. Left to themselves, financial firms will take on too much risk and fail too often, which will hurt unsophisticated consumers and impose externalities upon bystanders. The imposition of Solvency II, Basel II and MIFID, etc, certainly ensures Europe cannot be accused of a failure to try. But the consequences may not have been fully thought through.Third is what Shah calls resolution. The ordinary bankruptcy process does not work for financial firms, where failure can be disruptive. The government is required in the field of resolution to identify financial firms that are not viable before they are insolvent and gracefully handle the situation in ways that don’t hurt innocent bystanders and protect unsophisticated consumers. Europe is still struggling to find an effective way to put this in place. But the problem is that it will take another crisis to test whether it works.Fourth is systemic risk regulation. As Shah points out, this is about seeing the woods and not the trees. Financial regulation inevitably induces pro-cyclicality, and we need ways to combat this. We need ways to reduce the probability of systemic crises, and better ways to deal with them when they do come about. The reaction to the global financial crisis by European regulators is a case in point. Imposing draconian capital rules on holding risky assets forces investors into holding excess sovereign debt at a time when QE is forcing bond yields down, giving rise to unprecedented negative yields. Meanwhile, markets such as the European ABS market, which could provide a stimulus to European recovery, are unduly penalised. Europe clearly has not found a holistic approach to this that works.Fifth, Shah sees India as requiring a public debt management agency that will do investment banking for the government and figure out the right ways to organise the market for government bonds. In the European context, the arguments over the extent of mutual support for government debt lie at the heart of the euro-zone crisis.Sixth, India has capital controls, and Shah sees the need for the rule of law, and equal treatment of non-residents, in the working of capital controls. In the European context, so far, that is not relevant, but if Greece defaults whilst remaining within the euro-zone, such issues may come to the fore.Seventh, Shah argues that monetary policy is also a key activity of the state, with an accountable central bank that will safely produce fiat money, through a sound monetary policy process. Whether in the European context, the ECB is doing that through its QE programme is up for debate.The eighth activity for Shah is the use of finance as a tool for development and redistribution, whilst Shah’s ninth activity is in the legal framework that underlies financial markets, covering contracts, trading and market abuse. These again are well covered in Europe by the plethora of regulations.With the UK looking to renegotiate its relationship with the EU, whilst Greece at the other end is desperately struggling to stay in, debating what governments should and should not be doing in finance may be essential to finding a workable compromise.Joseph Mariathasan is a contributing editor at IPE The debate over what governments should and should not be doing in finance is more important than ever, says Joseph MariathasanWhat should be the role of governments in financial markets? There is no right answer, and attitudes can vary with the circumstances and with your politics. The US Export-Import Bank, for example, is likely to lose its charter on 30 June, having served the interests of US industry since president Franklin D Roosevelt established the agency in 1934. Whether you regard the EXIM Bank as an extension of crony capitalism that provides corporate welfare for big business, or a worthwhile entity that helped boost US exports by nearly $28bn (€25bn) and supported more than 160,000 domestic jobs last year alone, depends on your ideological stance.Ajay Shah, an Indian economist and a keen advocate of the benefits of free markets, makes some points in the Indian context that should also resonate in Europe, both at the national and EU level. Shah believes the job of government is to address market failures in areas such as public goods, asymmetric information, market power and externalities.It is difficult to argue with this, but where there is debate is how much of a focus there should be on welfare programmes, which is the inevitable consequence of universal suffrage. But that leaves a class of issues where the government is doing something that is not grounded in market failure and does not have political importance.last_img read more

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Hockey girls aim to put past behind

first_imgThe Indian women’s hockey team hasn’t had it good in recent months. If it was the ‘sex scandal’ involving former coach MK Kaushik that rocked the camp before the Argentina World Cup, it was worse at home when Delhi hosted the Commonwealth Games, where a miscalculation by the team management pushed India out of medal reckoning.The Indian women’s hockey players practise before the Asian Games.It became such a major issue for the Indian contingent that an inquiry was launched but without any worthwhile result. Nevertheless, before the CWG began India had high hopes for the women hockey players providing a medal after their excellent showing in Manchester (gold) and Melbourne (silver). But things changed overnight, thanks to the goof-up, and India went out of the medal bracket. That is now behind us and as we move on to the Asian Games for continental supremacy and an automatic berth in the London Olympics — the Indian women launch their campaign against Malaysia on Saturday.Yet, it will not be as easy as they have six other teams in the round-robin league. The Malaysian women, unlike their men counterparts, may be easy opposition but teams like Japan, China and Korea will be the real hard nuts to crack.The Indian team has youth and experience in its ranks With former India player Sandeep Somesh as coach the girls may have picked up vital clues against the Malaysians. Sandeep was, however, confident of his team’s chances. He said the players had put their bad run at the Commonwealth Games behind them.advertisement”The girls are a well-knit unit and putting their best foot forward. We know we have to face some bigger hurdles when we meet the hosts and the Koreans. But we are not taking any team lightly,” said the coach.last_img read more

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Merger with CPI not on CPI(M)’s agenda: Prakash Karat

first_imgMerger of CPI(M) and CPI was not on the agenda of CPI(M) but the party would strive to strengthen the Left unity in the country, CPI-M General Secretary Prakash Karat said on Thursday. CPI-M would work for closer co-ordination with CPI to strengthen the unity of Left forces in the prevailing political circumstances, Karat told reporters on the sidelines of a seminar organised in memory of veteran Marxist leader late E M S Namboodiripad. On questions about his continuance as general secretary of the party despite the drubbing it received in the assembly polls in West Bengal and Kerala, Karat said it was the party which has to decide the matter. “If the party desired so (continuance as general secretary), I will abide by that,” he said. Earlier inaugurating the seminar, Karat said Marxism had faced challenges during the last three decades both in theory and practice. Many of these challenges emanated out of the globalised finance capitalism, he said. He said it was important to look at Marxism, in theory and practice, in “a new way” with an “authentic understanding” of its theories and their applications in the changed context.- With PTI inputsFor more news on India, click here.For more news on Business, click here.For more news on Movies, click here.For more news on Sports, click here.last_img read more

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Minister Valcourt to meet with AFN National Chief Bellegarde

first_imgAPTN National News OTTAWA–Aboriginal Affairs Minister Bernard Valcourt has agreed to meet with Assembly of First Nations National Chief Perry Bellegarde in the wake of the deadly fire on a Saskatchewan First Nation that left two children dead.Valcourt’s office said Tuesday the minister would meet with Bellegarde who requested the encounter in a letter sent Friday.The time and location for the meeting is still being worked out with AFN officials, said Valcourt’s spokesperson Emily Hillstrom in an email.The AFN issued a statement from Bellegarde saying an immediate meeting was necessary.“Our letter to the minister calling for an immediate meeting is because of the urgent need to protect First Nations families and children,” said Bellegarde’s statement. “That’s our focus going into the meeting and we’re seeking a shared commitment for action and change.”Bellegarde sent the letter requesting the meeting to Valcourt via fax on Friday. Bellegarde said in the letter he wanted to discuss lifting the two per cent cap placed on yearly funding for First Nations.Bellegarde said the cap has left many First Nation communities struggling with limited resources which creates situations like the tragic one last Tuesday on the Makwa Sahgaiehcan First Nation.“The situation is at a crisis level and the reasons all point to the fact the government of Canada provides insufficient funds to First Nations to adequately provide their members a safe and healthy environment,” said Bellegarde, in the letter. “The time is now to work together to address the challenges facing First Nations in terms of fire prevention and protection. Directly related to this is an open and honest discussion on lifting the 2 per cent cap on First Nations funding.”Valcourt has blamed Makwa Sahgaiehcan First Nation for not having the ability to fight the fire last Tuesday that killed the two children. Facing questions from the NDP during question period Thursday, Valcourt said his department was giving First Nations adequate resources to deal with things like fire prevention and firefighting.“This particular band has received consistent funding for fire protection services,” said Valcourt. “And the fact of the matter is that each band council is responsible for fire protection on the reserve…That First Nation, like others, received sufficient funds to deal with fire safety.”Bellegarde said in his letter there was no point in blaming First Nations.“It is not the time to play politics or blame First Nations that are trying to do what they can with inadequate resources,” said Bellegarde. “That will not change the outcome of these tragic events.”The Chretien Liberals imposed the two per cent cap in the mid-1990s. Under the cap, overall funding for First Nations can’t grow more than two per cent a yearThe Loon Lake volunteer fire department did not respond to the fire in Makwa Sahgaiehcan because the band was three months behind on its fire bill.Local RCMP officers were the first responders on the scene and they saw the biological father bring his two-year-old boy and 18-month-old daughter out of the burning home.Valcourt’s office says the department gave Makwa Sahgaiehcan $34,000 for fire prevention and services in the 2014-2015 fiscal [email protected]@APTNNewslast_img read more

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