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Financial Crisis Perspectives: Labor, Debt, Bubbles, Banking

Engage in an insightful discussion on labor market recovery, debt crisis management, bubble phenomena, and banking challenges amidst ongoing financial crises. Explore global perspectives and policy implications.

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Financial Crisis Perspectives: Labor, Debt, Bubbles, Banking

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  1. Perspectives on Financial CrisesDiscussion of Prof. Peter Diamond Gernot Doppelhofer Perspectives on Financial Crises

  2. Discussion • Labor Markets and Recovery • Debt and Crises • Bubbles • Banking Perspectiveson Financial Crises

  3. Labor Markets and Recovery • Is the ongoing recovery in the US different from previous recoveries? • How can policymakers improve recovery in labor markets? • recent US policies: extension of Bush tax cuts, extension of unemployment benefits • how to deal with mismatch and structural problems? • Risk of rising unemployment in European countries • UK: unemployment rate 7.9% (Oct 2010), employment rate from 16 to 64 age group 70.6% • Peripheral euro countries: structural reform and fiscal consolidation implying weak recoveries • Germany: strong export-led growth sustainable? Stronger domestic demand. Perspectives on Financial Crises

  4. Debt and Crises • Bond market awakening • increase in 10 year bond yields in US, Germany, UK over last month • real rates vs. inflationary expectations • widening spreads in euro countries between highly indebted countries and German bonds • How to deal with unsustainable sovereign debt levels? • “ordered” restructuring vs. bailout of euro member countries • consolidation of structural debt: pension • government spending and tax reform • How to deal with contagion • EU wide coordination? • ECB intervention Perspectives on Financial Crises

  5. Bubbles • recurrent nature of boom and busts (Reingard & Rogoff) • rapid expansion of credit: US subprime, Irish and Icelandic Banks • ”this time is different” • incentive for excessive risk taking: private gains, social losses • lack of supervision or regulation • Policy issues • ”leaning against the wind” during ”good times” vs. ”cleaning up” after crisis • increasingly globalized and integrated financial markets and institutions • who is responsible/accountable: national vs. international policies? • more bubbles in emerging markets due to loose monetary policy (China) Perspectives on Financial Crises

  6. Banking • Banks at the center of ongoing credit and debt crises • Deleveraging and restructuring • illiquidity vs. insolvency • stress tests? • public support for illiquid (some insolvent) banks? • haircuts for bank share and bond holders • Adequacy of existing system • capital requirements, accounting guidelines, Basel agreements • rating agencies and market discipline • conditional liquidity support Perspectives on Financial Crises

  7. Financial Crisis – what crisis? • Ongoing crises moderate impact on Norway • Norway was “lucky” with timing of rebound of oil • Norwegian “Pension Fund” (NBIM) did well in crises • Scandinavian countries learned some lessons from big financial crisis in early 1980s • regulation and role of state • financial stability • do we have institutional framework in place to ensure internal/external discipline • Can we be complacent? No! • Some of themes also apply to Norway/Scandinavia • efficiency of labor markets: skills mismatch, tight labor markets • tight housing markets (Oslo) Perspectives on Financial Crises

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