Examine the Anglo - Saxon model

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					Examine the Anglo - Saxon model
Examine the Anglo - Saxon model

Xie / text "Finance" magazine [2008-04-28]

Anglo - Saxon model of financial supervision was relaxed too far, but this model is
still applicable in the real economy
Bubble shadow
In March, the British house prices fell 2.5%, for the biggest decline since 1992. Over
the past decade, the UK house prices rose by 171%, twice the rate of increase in
personal disposable income. Tightening credit markets means the United Kingdom,
March price data is not an accident. When the liquid drops, the bubble inevitably burst
the real estate market bubble seems to have come.
You may also recall that the British mortgage lender Northern Rock, it has been
bankrupt and was nationalized. It has 113 billion pounds of assets, accounting for
8.2% of UK GDP, while the Bear Stearns assets accounted for only 3.6% of U.S. GDP.
At great length compared to the U.S. media's extensive coverage of Bear
Stearns, the British public on the Northern Rock incident looked very calm.
In addition, April's "World Economic Outlook", IMF
(International Monetary Fund) warned that Australia is the world's
fourth-largest real estate market in the country risk. IMF says Australian house prices
are overvalued by 25% (I expect higher). Although some areas such as
Perth's house prices seems weak, but Australia still does not appear similar
to the United Kingdom or the United States, signs of price adjustment. Australian
market are safe because the carry trade (carry trade) - International investors to
borrow dollars at 2.25% interest rate, or 0.5% interest rate to borrow yen to buy
Australian dollars, and enjoy a high 7.25% interest rate, the results Financial support
is continuing to flow into the country's real estate market.
High commodity prices to improve Australia's export earnings, and
maintain the country's high interest rates. The high interest rates may
inhibit the housing bubble. Signs of bubble burst there, the Australian central bank
will cut interest rates, so that reversal of carry trades, capital will flow out of the
country, which will accelerate the decline of its price. In the end, Australia will
complete breakdown of the real estate bubble, similar to the current U.S. or Britain.
All because of the high commodity prices in the support of the emergence of this
scenario need more time.
IMF believes that Ireland's housing market is the highest valuation in
developed countries. Ireland with its rival on the GDP growth rate of Asian countries,
known as the "Celtic Tiger."大多数 people will attribute their
success in enabling business environment, Dan the Jingji prosperity 多大程度上
benefit in real estate Pao Mo, is still unclear. Over the past five years, the prices
soared 200%. In 2005, the Irish construction sector of the labor force accounted for
13% of the total labor force. All existing housing stock, 25 million are vacant (15%),
while five years ago, that figure was only 100,000. Recently, real estate in Dublin,
Ireland offer appeared sharply. It appears that Ireland seems to be repeating the Hong
Kong housing market collapse.
United States, Britain, Australia, Ireland often referred to as the Anglo - Saxon
(Anglo-Saxon) countries, their language is English, and in the political economy
distinct from other countries has many common features. They often because of its
good economic performance by the intellectuals and the mass media praise. IMF and
World Bank praised the "Washington Consensus", in fact,
encouraged developing countries to follow the example of Anglo - Saxon countries.
However, when the real estate bubble burst, the Anglo - Saxon economies will face
difficulties. This may be off a pair of Anglo - Saxon economic model of the great
I do not think that the real estate bubble only appears in the Anglo - Saxon economies.
China, Eastern Europe, India, Middle East and Spain and other countries and regions
are currently experiencing the real estate bubble, which has become a global
phenomenon. Spain, with British and American, like the bubble has burst. Greenspan
basis that they should not be blamed. But the problem is that his policy is triggered
the most important factor in the global bubble. Because of globalization and IT
technology reduces the sensitivity of inflation on money supply, Greenspan loose
monetary policy led to a comprehensive asset prices continue to rise. Other central
banks will remain the same loose monetary policy in order to avoid sharp appreciation
of the currency exports less competitive. As a result, Greenspan has successfully
exported its monetary policy worldwide. Not only the United States, the world should
condemn today's financial disaster Greenspan buried seeds.
IMF and other research organizations to rent, interest rates, income and other
independent variables to model to predict the real estate market valuations. The
problem is, when the housing bubble inflated economic performance, all the variables
are also distorted. I have been observing a national real estate-GDP ratio. Currently
those countries facing the bubble burst, the ratio rose range -100% up to 50% once.
Different gains represent different bubble size.
At present, the global real estate market is likely to overestimate the value of more
than 50% of GDP (or 25 trillion). With the bubble burst one by one, the adjustment
process will be painful, and the emergence of house prices and inflation. The global
economy is entering a stagnation phase, and may last for three years or more.
Gains and Losses
Bubble to the Anglo - Saxon model cast a shadow. The model believes in minimal
government intervention, the greatest degree of competition, free trade and capital
flows, and in promoting economic growth and to withstand shocks shows remarkable
ability and flexibility.
Many people believe that the lack of adequate regulation is the root of the bubble.
This may lead to the "Cold War" after leading the market values
of intellectual freedom of thought under intense challenge. I believe that the Anglo -
Saxon model of financial supervision was relaxed too far, but this model is still
applicable in the real economy.
People need to learn from the lessons of the current crisis is - the financial industry is
not an ordinary industry, it needs strict supervision to avoid financial crisis. The whole
world has forgotten the 20th century, the lessons of the Great Depression 30 years in
the late 90s to relax a lot to protect the financial system regulations as long as 60
Britain's Margaret Thatcher believed in monetary theory, she came to
power in 1979 after sweeping deregulation reform. She will be the privatization of
state-owned enterprises, to combat union efforts, internal implementation of the free
market to take a free-trade and the implementation of free movement of capital. These
measures to revive the British economy, its GDP growth rate of 1.9% from the
70's to 80's of 2.6%. Economic growth continued into the
90's and first decade of the 21st century.
When Ronald Reagan entered the White House in 1980, he and Margaret Thatcher
have the same idea. He weakened union power, to lift the market control, believe in
free trade. And deregulation in the telecommunications industry, competition, led to
meaningful reform and innovation. In fact, there is no deregulation, there is no
emergence of the Internet.
Although not known in 1983 after Australia had deregulation reforms. More
remarkably, the reform of the Australian Labor Party in power in the period, it relaxed
currency controls in the financial, telecommunications, transportation sector
competition, undermine the industrial sector of trade protection, but the Government
does not crack down on union power. This last point became the country's
mining industry one of the reasons for the slow expansion.
In contrast, Europe and Japan since "World War II," The strict
regulatory approach has not changed. Compared to the Anglo - Saxon countries, the
economic slowdown in Europe and Japan frequently for evidence to the contrary
Anglo - Saxon model of superiority.
However, the late 90's Anglo - Saxon revolution too far to do in both areas.
First of all, imposed since the Great Depression of the financial sector appeared to
relax the regulation. For example, once again approved the establishment of universal
banking. When Travelers Group merger with Citigroup, it needs to be implemented in
1933 aimed at overthrowing the investment banking and commercial banking
separated "Glass - Steagall Act." Travelers Group, Sandy Weill
(Sandy Weil) persuaded Congress to change the program, led the merger of the two
90 20th century, the Anglo - Saxon State Government to the policy of the financial
sector risk shifted by the control to promote the financial industry. The policy change
stems from the financial sector lobbying. In the U.S., the total profits of financial
companies listed on the share of corporate profits from 20 years ago, rose 5% to 40%
of the peak. Bulging wallet has enabled the financial sector with greater force to lobby
the Government, so that the latter removed the obstacle to hinder the expansion of the
financial industry.
Finance is the service the real economy, and therefore relative to the real economy, its
size should remain stable. When it maintains fast pace of expansion in the real
economy, the risks may emerge.
Because information asymmetry, it can profit from manipulating the real economy.
This "predatory finance" (predatory finance) is often referred to
as "financial capitalism." Rising oil prices is the best financial
capitalism, the most damaging example. During the Great Depression, most
government officials recognized that lead to economic collapse of financial capitalism
is the most important factors, such as "Glass - Steagall Act" and
other regulatory provisions were adopted to limit the financial industry business areas.
90 years of the 20th century, regulators and financial industry, the antagonistic
relationship into partnership. Regulators of the financial sector gradually increase
reliance on self-regulation, that is, that the financial industry risk management
through self-restraint. However, the outbreak of the subprime crisis has been so lax
regulators of the internal control of financial institutions was shocked.
The regulator is not lack of good faith or ignorance. In my opinion, lax internal
controls of financial institutions intentionally. They are not for the shareholders, the
state or client work, but to get huge bonuses, This is reflected in senior management
more clearly. When profits soared, they can give themselves high pay bonuses; when
profits decline, they do not need to pocket the money shown with money-back
guarantee. Without strict regulation, the financial system has the inherent nature of the
outbreak of the crisis, which is uncommon because the financial crisis.
Second, the Anglo - Saxon countries have failed to recognize that deregulation of the
economy after the explosive growth of the phenomenon is only temporary, not
sustainable. Governments and central banks in these countries try to maintain a high
growth rate not sustainable. Low inflation environment allows them to take a relaxed
monetary policy, a policy that caused the trade deficit is increasing. U.S. annual trade
deficit has more than 800 billion U.S. dollars (or 1.6% of global GDP). Even benefit
from rising commodity prices, significant growth in Australian exports, the trade
deficit also reached the last century, 10 times 90.
A country is usually not sustainable economic growth will bring inflation. In the era
of globalization, trade deficit increased by short-term effect on inflation is replaced.
But with its trading partners, increased capacity utilization, inflation will occur
simultaneously worldwide. In fact, this scene was staged. From the Anglo - Saxon
countries, excess demand, over-stimulate the global economy and led to global
High economic growth rate will continue in the faith, not only in the policy-makers,
the general public have also convinced of this. Their loans to consumers is, I believe
the future revenue growth could repay the loan. Of course, financial innovation also
makes their behavior in practice feasible. Through innovative products such as
subprime loans, families can use real estate as collateral for loans. These credit
products has pushed up prices, in turn, so as to real property as collateral for loans
When the housing bubble burst, the Anglo - Saxon economies have to face the sharp
decline in asset prices, the losses caused by the earlier and superior standard of living
reduced to a sustainable level. The next few years, these countries will face a painful
Lax financial regulation, financial institutions, moral hazard behavior and high
economic growth will continue to promote the false belief that the three factors of the
bubble, all three are indispensable. To avoid bubble again, reconstruction of financial
regulation will be very effective, I think the Anglo - Saxon countries will do so within
the next few years.
However, if the current financial crisis led to deregulation policies in the real
economy has been completely negated, it would be a tragedy. I believe that the
Thatcher - Reagan reforms to relax control of the real economy very successful. It has
been maintained up to ten years to promote economic growth, and may even have
improved the long-term economic growth.
Competition is the best way leading to efficiency. However, asymmetric information,
the financial industry because of its nature, a special case. Should be strict monitoring
of the financial sector, rather than the real economy. ■