Sunday, September 28, 2014

Highlights of the Leir Bubble Center 2014 Bubble Conference

Highlights Leir Bubble Center 2014 Bubble Conference

Globalization, Bubbles and Too Big To Fail

September 19 -20, 2014

The Conference Participants met at the Leir Retreat in Ridgefield, CT that was formerly the estate of Henry J. Leir to discuss over two days various research presentations related to issues and concerns arising from an apparent increase since the 1970s in the frequency of financial bubbles and their impact on the global financial system. The topics covered ranged from the role of globalization or the reduction since the early 1970s in the barriers to international trade, investment and financial flows in creating bubbles to the creation of mega-banks that are deemed too big to fail when a bubble bursts.


Sponsorships & memberships for 2015 Leir Bubble Conference now available

New Jersey Institute of Technology's (NJIT) School of Management (SOM) 
Leir Center for Financial Bubble Research:

4th Annual Two-day Bubble Conference, September 19-20, 2014: 
"Bubbles and Globalization and the Emergence of Too-Big-to-Fail Financial Organizations"

Held at: The Leir Retreat Center, 220 Branchville Road, Ridgefield, CT 06877

Funded and Supported by: The Leir and Ridgefield Foundations; 
The Leir Retreat Center; and NJIT SOM

2015 Co-Sponsorships / Memberships NOW Available: $5,000, which includes: invitation to the conference, opportunity to present, sponsor research, access to NJIT Academic team, access to research in progress, co-op student programs, and recruiting and speaking opportunities throughout the year.


Tuesday, September 16, 2014

Agenda for 2014 Leir Bubble Conference

Agenda September 2014

Conference on Globalization, Bubbles, Too-Big-to-Fail-or-Prosecute

Friday September 19, 2014

Morning - Arrival

Noon – Lunch at the Leir Center Retreat – Welcome By Arthur Hoffman – President Leir and Ridgefield Foundations

Introduction Bill Rapp (NJIT) – Primary Purpose Of The Conference Is To Improve Our Understanding Of Global Systemic Risk And How It Has Evolved

12:45 – 1:30pm Overview and Introduction Relationship Globalization, Increased Frequency Of Bubbles and Emergence Financial Firms Too Big to Fail or Prosecute – Bill Rapp

Defining “Globalization” as trend since mid-1970s for increasing connectedness global economy and financial system due to declining national barriers to trade and FDI combined with historic advances in communications and transport.

Increase in frequency and international character of Financial Bubbles during this period and identification of apparent link between decrease in regulatory barriers and technological change and “shocks” leading to specific bubbles. Role FDI and shifts in comparative and competitive advantage [International Product Cycle] in contributing to Emerging Market Bubbles.

Emergence 1990s of highly interconnected mega-financial institutions as part of the globalization process that became SIFIs and too big to fail or prosecute.

1:30-2:15pm: Data and Regulations related to Too Big to Fail or Prosecute  – Discussion led by Ben Chou

2:15-3:00 SIFIs and Concept Of Too Big To Fail as Failure Federal Reserve Bank Regulation – Discussion from Notes led by Bob Aliber

3:00-3:15 – Break

3:15-4:15 Identifying The Potential Bad Actors Through Facial Recognition And Content Technology– Discussion led by James Cicon and Ali Akansu (NJIT)

4:15-4:45 – Globalization and the Growth in Derivatives Markets and Global Financial Interconnectedness – Ron Sverdlove [NJIT]

4:45-5:00 – Break

5:00-5:45 – Globalization and Development of the Unloved Dollar Standard Discussion led by Ron McKinnon

5:45-6:15 – Bubbles as Function of Reaching For Yield, Foreign Investor Optimism and Undervalued Risk - Discussion led by Marty Lowy

6:15-6:30 - Break

6:30-7:00 – Cocktails

7:00 -8:45 Dinner and Open Discussion on “The Everything Boom And Bubble” led by Mike Ehrlich (NJIT), and Michael Stockman – based distribution of article from the NY Times.

Saturday September 20, 2014

8-8:30am – Breakfast at the Leir Center or if you are an early riser at the hotel.

8:30-10:30am – Further Presentations Of Some Research Results

8:30-9:15 – Using an Agent based Model to Assess Systemic Risk – Richard Bookstaber (Office Treasury).

9:15 -10:00 – Media and the Market Timing of Financial Asset Price Increases - Discussion led by Mike Ehrlich and Songhua Xu [NJIT]

10:00-10:15 – Break

10:15 – 11:00 – Too Big To Fail from a Legal Perspective – Randy Guynn

11:00 – 11:45 - More on Too Big To Fail  - Discussion led by Tom Synott

11:45-12:00 - Break

12:00 – Lunch – Legal Aspects Of Too Big To Prosecute or Jail – Randy Guynn

1:15 – 2:00 – Open Discussion with focus on question whether China is a possible source of Systemic Risk

Download a copy of the agenda here.

Thursday, July 3, 2014

Notes from 2013 Conference on 1929, Japan 1980s, Dot.Com Boom & Bust

The Conference began with a warm welcome by Arthur Hoffman the President of the Leir and Ridgefield Foundations. He noted that Bubbles or financial crises are evitable as long as there are banks and markets. However he did not see a bubble as occurring now because there is no optimism as compared to the atmosphere that existed between 2003 and 2007. He then quoted from the Leir Center’s book Boil, Bubble, Toil And Trouble about JP Morgan Chase’s ad for just having to “sign name” to get a home loan mortgage. He then concluded there was clearly a need for raising more cautions when bubbles do appear. 

Bill Rapp from NJIT then introduced the topics for the conference by giving an overview of the three great financial bubbles [1929, Japan 1980s, Dot.Com Boom & Bust] through the analytical lens about bubbles developed in the prior two conferences. His presentation and comments used data on broker loans in 1929 and compared this to the surge in credit issued in Japan during the 1980s. 

He also defined and measured these Bubbles by using the definitions for the different types of Bubbles developed in the previous two conferences, noting role of contracts and the legal system’s support as influencing these bubbles’ evolution including the three-sided optimism of borrowers, lenders and regulators that promoted these bubbles’ expansion and the use of leverage. This optimism created asymmetric incentives to enter into reciprocal contractual obligations where short-term optimism completely overwhelmed a longer-term view of what might happen when an over-expanded credit bubble finally collapsed. This asymmetry included government related actions and policies. 

He noted that in the case of these three great bubbles, the bubbles could have been easily seen even inside the bubble. This is because real asset prices rose sharply and dramatically with leverage also playing an important role in the process. Other contributing factors to the rapid price rise such as contracting were perhaps less clear or not emphasized in the historical record.

Wednesday, April 23, 2014

Bank Regulation In Era Of Globalization And Financial Bubbbles

In this paper the author argues that the regulatory and technological changes that define globalization can be directly linked to particular Bubbles beginning with the deregulation of gold in the 1970s, then Reagan and Thatcher's privatization, Japan's Yen/$ dollar accord, etc. This also explains why the idea of regulating financial bubbles has met so much resistance including Alan Greenspan's since it goes against the prevailing anti-regulation winds of the globalization trend and the prevailing view that free markets know best. 

However the recent financial crisis not only undermines the credibility of this view but also shows why a different bank regulatory approach is required to retain the benefits of globalization and market liberalization while avoiding or moderating the negative impacts from the re-emergence of larger and more frequent Bubbles with global impacts as happened before 1929. 

The Increased Role of Markets and Capitalism in the Global Economic System Should Lead to More Bubbles.

Over the last 35 years there has been a surge in the frequency and size of financial bubbles as compared to the prior 50 years. Robert Aliber, Ron McKinnon and others believe this surge in bubble frequency is due to the large and very mobile global movement of hot capital and its impact especially on smaller economies. However this explanation is not quite complete for while these oscillating flows are clearly a contributing factor they cannot themselves be the initial causes. Leir Center research as well as that of Charles Kindleberger and Hyman Minsky indicate that some dislocation must first create an economic or investment opportunity and this is what attracts both local and international money flows. So an important research question is whether the increased bubble frequency is due to random increases in such events or is part of a larger trend that the hot money follows and with which it interacts.

The Leir Center is starting a research project to show the latter is the case and that the increased frequency of bubbles is due to globalization, that is the identified trend since the early 1980s for a reduction in national barriers to trade, foreign investment and financial flows including among other events the fall of Communism, increased Privatization, and weaker unions complemented by large technological advances in transport and telecommunications. This is because Bubbles are a natural result of markets and capitalism. Therefore it is logical that the increased role of markets and capitalism in the global economic system should lead to more Bubbles. 

It is the intention of this research effort to produce a series or papers and a monograph to demonstrate this development and assess its implications for financial policy. We thus invite comments and ideas from those with an interest. To get this process started the Leir Center has posted working paper #15 on “Banking Regulation In An Era Of Globalization And Financial Bubbles”. In this paper Professor Rapp introduces the argument that the regulatory and technological changes that define globalization can be directly linked to particular Bubbles beginning with the deregulation of gold in the 1970s, then Reagan and Thatcher's privatization, Japan's Yen/$ dollar accord, etc. He also argues this is one reason the idea of more direct regulation of financial bubbles has met so much resistance including Alan Greenspan's because it goes against the prevailing anti-regulation winds of the globalization trend and view free markets always know best. Yet the recent financial crisis not only undermines the credibility of this perception but also shows why a different bank regulatory approach is required to retain the benefits of globalization and market liberalization while avoiding or moderating the negative impacts from the re-emergence of larger and more frequent Bubbles with global impacts as happened before 1929. 

Monday, March 17, 2014

Where Are We In Understanding Bubbles?

Most Bubbles have been identified retrospectively. “Yes, that was a financial Bubble.” Similarly from an historical perspective we can divide our understanding of Bubbles into three major stages, though in all three stages Bubbles have been recognized and analyzed after the fact. These three major analytical stages are Pre-1978; 1978 to 2000; and then after 2000. 

In the Pre-1978 stage financial Bubbles were recognized and assessed as a social or crowd-based phenomenon [Bagehot], even a type of sickness that could affect the masses [Dickens]. There were also detailed descriptions and analyses of specific Bubbles such as the great South Sea, Mississippi, and 1929 Bubbles. Already in the 19th Century Walter Bagehot observed “Much has been written about panics and manias, …; but one thing is certain, that at particular times a great deal of stupid people have a great deal of stupid money; it seeks for someone to devour it; … there is speculation; it is devoured and there is panic.”