Finance: Past, Present and Future

Robert Shiller has written an op-ed piece in City A.M., where he talks about the importance and beauty of finance (hat tip - Graham Brownlow).  Shiller has a unique vision for the future of finance as you will see from the quotes below taken from his op-ed. There is still work to do in making finance into a more effective tool for advancing our fundamental goals. Finance needs to be democratised, to serve all the people more effectively than it has been. It needs to be humanised, so that it respects human values, and human foibles, in a grander design for society. Financial innovations, from practitioners, self regulatory organisations and government regulators, are still needed. Young people who feel a moral obligation to exert leadership for positive good in society should well consider finance as a field to enter now. It puts them on the cutting edge where human activities are moulded and directed, it gets them involved in the minutiae of activities that are pri...

My postgraduate Money and Banking class had to set up a blog on a topic of their choosing.  There were many interesting blogs created by my students, but the top Blogger in the class was Berta Kruminaite, who blogged about the Dutch tulip mania.  The Dutch tulip mania, which occurred in Amsterdam in 1536-7, saw a dramatic reversal in the price of tulip bulbs.  This mania episode is traditionally regarded as the first famous 'bubble'.  However, over the years, economists have taken different positions as to whether the Dutch tulip mania really was a ‘bubble’.  Berta does a great job of presenting these different views.  She even manages to include a video clip of Newt Gingrich discussing the tulip mania!  You can access Berta’s blog here .

Slate has an interesting article on the high remuneration of US university presidents and vice-chancellors, whose pay in real terms has increased substantially over the past two decades. Is this a further manifestation of the higher education bubble (see earlier post ) in the US? Have increased tuition fees resulted in higher university CEO pay?  According to the study carried out for Slate, it seems that the upward movement in pay comes from the fact that a couple of decades ago, the pay of university presidents was benchmarked against the private sector instead of the public sector. Consequently, as executive pay has gone up in the private sector over the last few decades so has the pay of university CEOs.  Could there be another reason? One possibility is that the expansion of the university sector over the past few decades has resulted in universities becoming large, diverse and complex organizations, and in order to attract the best managerial talent, universi...

In the US, a bank cheque is spelt 'check'.  Is this just another case of the debasement (please excuse the monetary pun) of the English language by our colonial cousins?    Following on from an earlier post , check comes from the French word for chess - eschec .  In chess, when your opponent puts you in check, your options are limited.  Thus check began to mean a person who prevented things going wrong or a person who prevented dishonesty. According to Forsyth in The Etymologicon ,   “Bank checks were originally introduced as a replacement for promissory notes and got their name because they checked fraud........Bank checks started out being spelled with a -ck on both sides of the Atlantic.  But British people, perhaps under the influence of the Chancellor of the Exchequer, decided to start calling them cheques.  This has a peculiar etymological result.  A blank cheque is a cheque with no check on it.”    ...

Since 24th November 2011, the FTSE 100 has increased by 14.6%, the S&P 500 by 21.1%, the DAX by 30.2% and the CAC 40 by 25.1%.  Why has there been a rally in equity markets over the past four months?   There are several possibilities ranging from an improved outlook for the US economy (the equity market is usually an economic bellwether), further  quantitative  easing by central banks, the ECB's huge liquidity injection into the European banking system, and an easing of the severity of the European debt crisis.   David Glasner has posted an interesting explanation for the rally over at his Blog - click here .  He basically suggests that the market rally is due to an increase in inflationary expectations, which has resulted in a fall in real interest rates and a rise in stock prices.  As a UCLA graduate, Glasner was no doubt influenced by Alchian and Kessel's famous paper entitled "The Effects of Inflation" .  In this paper, Alch...

George Osborne is delivering the UK Budget speech in Westminster this afternoon.  Why is the minister in charge of the UK Treasury called the Chancellor of the Exchequer?    An interesting book which I have just read, Mark Forsyth's The Etymologicon , provides the answer.  Persia was ruled by shahs .  This word came into Vulgar Latin as scaccus and then into French as eschec , and then into English as chess - after all chess is a game of kings.   Henry II did his accounts on a board that looked like a chessboard - an Escheker in French (most of the English ruling elite spoke French at this time).  Thus the finances of Britain are controlled by the Chancellor of the Exchequer.  According to Forsyth, the "S changed to X through confusion and foolishness".  

Following on from my post last week, Apple announced yesterday that it will pay its first dividend in 17 years and repurchase $10 billion of its stock. How did investors respond? They seemed to like the news as Apple stock went up by 2.65%. Why? One possible reason is that Apple could be signalling that it is confident that future cash flows are going to be high. Another possibility is that by paying out some of its $98.6b in cash, it is assuring investors in a post-Jobs world that managers will not dissipate cash flows.