Of Prancing Horses and Bolted Stable Doors

Of Prancing Horsesand Bolted Stable Doors

“The Chaplain’s Interesting Questions 2008/9” No 1

Sidney Sussex College17th October 2008

Mr. Massimo M BeberFellow in Economics

Sidney Sussex CollegeCambridge CB2 3HU

http://people.pwf.cam.ac.uk/mb65/

INTERNATIONAL ECONOMIC SECURITY

Redland/ MBA - Cambridge INSTEP Programme 2010

http://people.pwf.cam.ac.uk/mb65/redland

The Pitt Building,: Tue 3rd May 2011

Lt. Gen. Mikhail Kalashnikov with vodka (20th September 2004)

EVOLUTIONARY LIBERALISM: FROM POWER TO PLENTY?

“Greed is good”

Prudential Ratios in Banking

Assets Liabilities

Liquidity Reserves Deposit Liabilities

Government Securities Non-Deposit Liabilities

Loans

Equity (Shareholders’ wealth.

“You stupid boy!”

Two Hypotheses on finance

• Efficient Markets– Finance “oils the wheels”

of the market– It speeds up income

convergence at lower cost in current consumption

– Rational expectations ensure stability

– Competition empowers rational expectations

• Financial Instability– Expectations

intrinsically volatile– Volatility creates

real economic damage

– This damage can be long-lasting (hysteresis)

– Prudential regulation must be strict

EUROPEAN FINANCIAL REGULATION: BETWEEN EMH AND FIH

Source: Committee of European Banking Supervisors Annual Report 2004.

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