Understanding and debating Islam

One of the scholars at the Notre Dame conference whom I particularly admire is Nasr Hamid Abu Zayd, an Egyptian Muslim who argues eloquently that if the Koran is interpreted sensibly in context then it carries a strong message of social justice and women’s rights.

Dr. Abu Zayd’s own career underscores the challenges that scholars face in the Muslim world. When he declared that keeping slave girls and taxing non-Muslims were contrary to Islam, he infuriated conservative judges. An Egyptian court declared that he couldn’t be a real Muslim and thus divorced him from his wife (who, as a Muslim woman, was not eligible to be married to a non-Muslim). The couple fled to Europe, and Dr. Abu Zayd is helping the LibForAll Foundation, which promotes moderate interpretations throughout the Islamic world.

“The Islamic reformation started as early as the 19th century,” notes Dr. Abu Zayd, and, of course, it has even earlier roots as well. One important school of Koranic scholarship, Mutazilism, held 1,000 years ago that the Koran need not be interpreted literally, and even today Iranian scholars are surprisingly open to critical scholarship and interpretations.

-Islam, Virgins and Grapes

A meeting of government accountants

ICGFM Blog

The Thomas C. Schelling Symposium

The Thomas C. Schelling Symposium

Featuring amongst others Kenneth Arrow, George Akerlof and Daniel McFadden

'Assessment is cautiously positive'- IMF

The Financial Market Crisis and Risks for Latin America;

Asset price bubbles? Are there similar asset price bubbles that could threaten Latin America? Here the assessment is cautiously positive. No substantial exposure is reported in Latin America to the subprime-related distressed credit products that we have seen in the United States, even though the trend in some countries has been toward increased domestic securitization. It has helped that in many countries, including here in Brazil, regulatory frameworks have made it difficult for banks to either buy the kind of structured products that have been at the center of events in the United States or accumulate significant off-balance sheet exposures. Second, housing price trends do not indicate the kind of price run-up that we have seen in the United States and some European economies, although the data here is very incomplete. Against this, equities have boomed in the region, especially for commodity-linked companies, which account for a substantial share of market capitalization in Brazil, Peru, and Chile. It should help that, broadly speaking, valuations appear in line with real earnings prospects, although the performance of more commodity-dependent stock markets will depend greatly on the impact on global commodity prices if a global recession were to unfold.

Related;
The international role of the euro and its potential in Latin America

Macroeconomics Lecture of the Day

Ronald McKinnon Professor Emeritus of Economics at Stanford and Senior Fellow of SIEPR and SCID, John B. Taylor, Professor of Economics at Stanford and Hiroshi Watanabe, Special Advisor to the Japan Center for International Finance spoke about What Will Happen to the Dollar? Managing International Exchange Rates at a SCID SIEPR breakfast on February 20.

Download the video

Thinking the unthinkable- Fixing Financial Markets

At a lectern in a room of venture capitalists, Silicon Valley executives and professors at the Stanford Institute for Economic Policy Research last week, Larry Summers, former Treasury secretary and now Harvard professor and hedge-fund adviser, was at his gloomiest.

In the audience, Myron Scholes -- Nobel laureate in finance, veteran of the Long-Term Capital Management hedge-fund debacle and now chairman of his own hedge fund -- was listening and scribbling on a yellow legal pad. His conclusion, one gaining momentum, is that the government eventually will spend a lot of taxpayer money to clean up the current credit mess and prevent economic catastrophe...

Wall Street would love what Treasury Secretary Henry Paulson derides as "a bailout," a way to unload its mistakes onto taxpayers. But unless the tide turns soon, the severity of the housing bust and fragility of the financial system may force even his hand.

There's all sorts of talk about ways for Washington to buy mortgages, essentially purchasing assets of the financial system. The Fed is trading some U.S. Treasurys for mortgage-backed securities to arrest the decline in prices that is pushing up mortgage-interest rates. Several leading Democrats are calling for a new government entity or an enlarged Federal Housing Administration to buy mortgages from lenders and investors, and to offer more-favorable terms to beleaguered homeowners.

Mr. Scholes takes a different tack, seeking ways to leave the assets (mainly mortgages) in the private sector, which he says can manage them better, and get capital flowing into the banking system so banks don't dump assets at distressed prices and worsen an already bad situation.

Mortgages and other bank assets aren't worth what banks thought. The losses erode the banks' capital cushion. Bank leverage, described in last week's Capital column, magnifies the effect.

In response, banks either (A) reduce lending and sell assets or (B) raise new capital on terms that dilute existing shareholders. Provided they can find investors willing to bet that bank assets eventually will be worth more than they are today, shareholders tend to prefer option A, the smaller bank. But that market solution could destroy value and produce a crippling credit crunch. Society prefers option B, hence exhortations from Messrs. Paulson and Summers for banks, Fannie Mae, Freddie Mac and others to raise capital.

Raising capital privately would be best, but what if that doesn't happen? What might government do? If a bank collapses, the government wipes out shareholders, owns everything and pumps in money. That's what the United Kingdom did with Northern Rock this year, and it's pretty much what the U.S. did with Continental Illinois in 1984.
Should the government (the U.S. government, that is, not foreign governments' sovereign wealth funds) put capital into banks?

"I think they should be considering it, at least thinking about it," Mr. Scholes said. "It seems to me that recapitalizing these entities would give us an opportunity to preserve the assets -- as opposed to dissipating their value through liquidation or foreclosure -- and provide a way for more capital to be infused into them without destroying value."

As John Lipsky, No. 2 official at the International Monetary Fund, argued in a speech yesterday: "Policy makers . . . need to 'think the unthinkable.'" He called for government "contingency plans" in case "investors aren't willing, as they have been up to now, to provide capital injections" to banks.

But there's a conundrum. If the government guarantees or buys debt from the bank, it makes the equity holders better off. If it buys equity and dilutes existing shareholders, it makes debt holders better off.
Mr. Scholes's solution: Let government invest both in debt senior to existing debt and in preferred stock senior to existing shares. Neither is advantaged versus the other. The bank doesn't dump assets and expands lending. If all goes well, the government gets out with a profit. One big caveat: This works only if assets truly are worth more tomorrow than they'll fetch today.

The practical wrinkles are many. ("I'm a theorist, not an institutionalist," Mr. Scholes quips.) He acknowledges the risk that some banks will take the taxpayers' money and bet it on risky assets to make a profit. He suggests auctioning off this government capital broadly to all banks, not just the sickest.

There are reasons to be skeptical. Banks do need new capital, said Hyun Song Shin, a Princeton finance professor. "It took the Japanese 10 years to learn this lesson." But he calls the Scholes notion "self-serving" for existing shareholders. They should be wiped out before the government puts capital in any bank, he argued. (What would he do? For starters, advise Mr. Paulson to summon the nation's top bankers to his office and strongly suggest they conserve capital by suspending dividends.)

-Brainstorming About 'Bailouts'

Related;
2008 SIEPR Economic Summit (highly recommended, include lot big names like David Walker, George Shultz, Summers and even Ben Stein)

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Featuring;

Moderator: William A. Niskanen,Chairman, Cato Institute
Bennett T. McCallum
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Lawrence H. White
F. A. Hayek Professor of Economic History, University of Missouri–St. Louis
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Senior Economist, Federal Reserve Bank of Richmond

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Another Climate Change Event

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World Trade Indicators

World Trade Indicators 2007 has been soft launched.

A interesting event from World Bank

Krugman on Davos

But I also have to say that the scene at Davos, with all the great, good, wise, and, especially, rich gathered together to celebrate their greatness, goodness, wisdom, and, especially, wealth, has always made me uncomfortable. I usually end up skipping a couple of big dinner affairs and sneaking off to feast on the modern Swiss national dish — which is, of course, spaghetti carbonara

Krugman's blog

What is Davos

Rodrik explains it;

To begin with, the weirdness of the setting. This little skiing town is hardly where you would expect to find the leading lights of business, politics, arts, and academia. For one thing, it's damn hard to get to (unless you are arriving on an helicopter). The town of Davos itself does not have enough hotel rooms to accommodate everyone, so unlucky guests have to stay in nearby Klosters and commute to the event by bus. The conference site itself is small and feels terribly cramped. Lunch and dinner sessions are held in a variety of locations, which you are sure to miss if you rely on the shuttle service (run with Italian rather than Swiss efficiency). OK, the skiing is better than in Maine, but that's really about it. The whole thing is a marketing and PR miracle, pulled off by one man.

Has Davos done any good to the world

'There is going to be a big global brainstorming of world economy'

I wish that could make a difference.

Making Foreign Aid work

Interesting event at AEI featuring Wolfowitz, Simeon Djankov,Aart Kraay, Sherri Kraham, (Millennium Challenge Corporation) and Guido Schmidt-Traub, (United Nations Development Program)

Conferences and Panels

On Disaster Economics- by Economists for Peace and Security, formerly ECAAR, works to inform social scientists, citizens, journalists and policy-makers worldwide about the full costs of war and conflict, and to propose feasible alternative approaches to building international security.

Gregory Clark Talk

Gregory Clark at Beyond Belief conference

AEA 2008 Conference Papers

AEA Conference Papers- some of the papers are now online

Related;
The economics of climate change

* Introduction
* Part 1
* Part 2
* Part 3
* Q & A

Assorted on AEA Meetings

Mood and Views at the American Economic Association Meetings: Recession Ahead;

This author spent the weekend in New Orleans at the Annual Meetings of the American Economic Association (AEA). At a session on the subprime mess moderated by David Wessel of the Wall Street Journal I was a panelist together with Paul Krugman, Bob Shiller and Larry White, a housing expert at NYU/Stern; a crowd of over 400 listeners followed the two hour debate and asked probing questions.

The mood at the panel was gloomy. Bob Shiller spoke of the subprime meltdown, of how households are still deluding themselves – in polls – that home prices will keep on rising for the next decade while they have already fallen by 10% in real terms and need to fall by a cumulative 30% before they bottom out (a loss of home values of about $6 trillion); he also argued that the probability of an economy wide recession is now about 75%....

Paul Krugman also summarized the subprime debacle – an “unmitigated disaster” in his words – but he was more cautious and sanguine on whether this housing meltdown and the large financial losses will lead to a recession. In his view the fall in residential investment – as a share of GDP – has been compensated by a comparable increase in the share of exports in GDP (thanks to a weaker dollar); also so far consumption has held up rather than faltering. So maybe a recession will be avoided event if the ugly December employment figures made him a little more cautious about whether a recession can be avoided. So paradoxically Krugman was the most cautious in his assessment of an economy wide recession.

Probabilities in finance
Joe Stiglitz, today at the American Economic Association Meetings, talking about financial crises: “Once-in-a-hundred-years events occur every 10 years.”

Screw your neighbor

Why is Latin America Poor? Honoring Ken Sokoloff

I’m sitting in an AEA session honoring economic historian Ken Sokoloff, with speakers Claudia Goldin, Bob Allen, Jim Robinson, and Nobel prize winner Douglass North. Ken passed away last year at a still young age. It is a tragic thing to eulogize one’s graduate student, as Claudia did today. Teachers, like parents, should not have to bury their own children.

Two From the Sun on the Knicks

AEA Highlights

The coda would be when Duncan Foley asks Krugman not only about bipartisanship, but also extended the question to whether Krugman himself has been contacted by anyone from the other side.

Recession Predictions

Economists Say Movie Violence Might Temper the Real Thing

The Market for Street Prostitution

Climate Report Warnings ‘Underestimated’ Risks

Kohn Defends Fed’s Communications

Economists Ask: Deal or No Deal?

What's traffic in Hanoi and St. Petersburg got to do with institutional reform?

Is Foreign Aid Helping?

An interesting session from AEA meetings-last year;

Presiding: William Easterly (New York University)
Aid Effectiveness -- Opening the Black Box
Bourguignon, Francois (World Bank)

Does Aid Affect Governance?
Rajan, Raghuram (International Monetary Fund)
Subramanian, Arvind (International Monetary Fund)

Was Development Assistance a Mistake?
Easterly, William (New York University)