Экономические науки / 2.Внешнеэкономическая деятельность.

Postoyankina T.O.

Tanasienko K.M.

Vlasova I.A.

Donetsk state university of economics and trade

after Michael Tugan-Baranovsky, Ukraine

The world has a chance to make finance work better. It should tread carefully

The world is only beginning to count the cost of the bust. In America the share of household and consumer debt alone went up from 100% of GDP on 1980 to 173% today, equivalent to around $6 trillion of extra borrowing, according to Martin Barnes of BCA Research, a Canadian investment-research firm. We saw the growing burden on households.

Some of this extra debt was the healthy outcome of a deepening financial system. It was bearable while households appeared to be getting richer, thanks to inflating house and share prices. But now it has become too much of a burden. At the same time the financial-services industry is condemned to suffer a horrible contraction. In America the industry's share of total corporate profits climbed from 10% in the early 1980s to 40% at its peak in 2007. Its share of the stock market’s value grew from 6% to 23%, according to Mr. Barnes. It is hard to believe that financial services create enough value to command such pre-eminence in the economy. At the peak, the industry accounted for only 14% of America's GDP and a mere 5% of private-sector jobs. Financial markets are still in distress. Although some assets, such as good-quality corporate debt seem cheap, nobody is buying them. Perhaps that is because valuations are so confusing, with assets priced far outside their familiar range; or perhaps it is because people expect prices to fall further. Meanwhile, rescues are the priority as the authorities rightly guard against one collapse triggering others, as seemed possible after Lehman went down. The banks will need even more government money. In effect the state will take on much of the debt that the private sector has decided to jettison. Some people will complain about mat, but it makes sense to borrow to bring government spending forward.

During that time the task will be to reregulate finance. Everywhere, countries need to look at their mortgage markets. As housing recovers, they should phase out tax relief on mortgage payments. America should give mortgage lenders a claim on more than just the borrower's house, so as to deter speculative buying. At the same time, mortgage origination should be tightened up: too often lenders connived with borrowers to swell the size of mortgages, or worse, sell borrowers the wrong policy Stopping housing from being a subsidized asset may not prevent booms or miss-selling-after all, unsubsidized Britain saw one of the bigger booms-but it should moderate them. The presumption should be for transparency That favours market-based accounting.

Securities such as credit-default swaps which trade in huge volumes should - pass through clearing houses. That would have the added benefit of limiting the damage from a collapse. The system can be made more robust in other ways. Rather than regulate institution by institution, as at present, the authorities need to watch the overall level of credit creation and leverage. In this spirit, regulators can push against a boom by asking banks to hold more capital (though the markets will be pushing in the other direction). Senior financiers could take more of their pay in equity-and hand some back if the bank does badly. To mitigate future crises, the system needs to cope with capital flows by intro-dicing reforms in emerging markets. And the rich world should aim to get the politics of regulation right for the long haul. The next 18 months to two years will offer a rare chance to do that the rules need to be able to evolve along with the financial services themselves. That means regulating by function rather than by institution. If a hedge fund or any other type of fund looks large enough to threaten the system, it will need watching. A single supranational regulator is out of the question - indeed it may not even be wise to have one, as limited competition between regulators is useful. But international standards can guide do mestic regulators. Centuries of boom and bust show that you cannot avoid financial crises altogether, but you can exercise some choice over what kind of crisis you get Charles Wyplosz, professor of economics at the Graduate Institute in Geneva, envisages a spectrum, with an innovative, lightly regulated but crisis-prone financial system at one extreme and a stable, heavily regulated but stodgy one at the other.

Depression-era America tried to tame finance's most dangerous traits by moving towards safety Gradually, modern finance has reverse that shift, creeping towards innovation and light regulation. There will now be strong calls to restore some of the old values. Is that the best balance to strike? The answer depends on what you think you gain from innovation and lost from crises. In fact, the choice hinges on the interests of the economy as a whole. After all, it is taxpayers and savers who pay for financial crises. As a rule, innovation is a source of wealth. It would be odd if financial services were an exception. Arguments in other fields that there is nothing left to discover have usually proved false. You can imagine how computer technology might lead to further financial innovation, even if it also sometimes creates instability. In addition, Mr. Lerner believes that financial services need to be adapted to the economy of which they form part, and the economy is always changing. A time will come when today's fear is equally hard to fathom Greedy once again, people will wonder why they did not buy shares at that price why they did not realize corporate bond-were a steal and why they did not foresee bout of inflation or a weak dollar. Such shifts in perception are the result not of madness or criminality, but of individually rational responses to what Keynes saw as the inherent uncertainty financial markets.

Finance feeds on trust and mistrust, and amplifies whichever ascendant. That is what makes finance markets dangerous. Just now that probably seems like a risen to tie finance down. And indeed could be better regulated, as the crisis shown. Finance is a mark able creation. Do not suppress it, use it wisely.