tag:blogger.com,1999:blog-8764541874043694159.post3874353169064091471..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: That shocking UK debt chart Frances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-8764541874043694159.post-4219485026041421512013-06-21T12:08:38.455+01:002013-06-21T12:08:38.455+01:00Sorry to be late for the party... I've always...Sorry to be late for the party... I've always assumed that the Morgan Stanley chart did include interbank lending. While you're right that this would be "incorrect" and most charts would net interbank debt, the Lehmans fallout demonstrated that netting falls apart in the face of counterparty collapse. If you want a chart that shows debt exposure during happy times net the interbank lending, but if you want a chart that shows potential exposure should counterparties start falling...<br /><br />I'm just guessing obviously, as we never did get any solid information about the chart, but it would surprise me if risk managers at major institutions weren't wanting to track ALL debt these days, as events since 2007 show that we need complacency in theory like we need a bullet in the head.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-81011360618053182952013-06-19T04:32:06.007+01:002013-06-19T04:32:06.007+01:00I am curious about the assets held by financial in...I am curious about the assets held by financial institutions. Does anyone have a breakdown of what they comprise. For example, is a significant proportion of it UK housing mortgage debts?<br />Anonymoushttps://www.blogger.com/profile/03227371151636701188noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-88306330420959531642013-04-17T16:32:36.951+01:002013-04-17T16:32:36.951+01:00I tend to agree with Frances. Indeed, this is abo...I tend to agree with Frances. Indeed, this is about the only sensible material I've found on the general net before drudging through academic journals (not much use so far). The two Rs have come in for much criticism since they divulged the dubious spreadsheet used in their pro-austerity paper.<br />I teach university economics but remain a biologist at heart. I'm appalled at the lack of data available in economics and finance - one can take almost nothing at face value. R&R's famous (infamous?) paper reworked shows growth not negative but 2% positive after 90% debt/GDP.<br />The actual figure of financial sector debt is likely less important than its quality, though if quality is lousy we'd prefer the lower figure. I have few ideas on how we can satisfactorily ascertain quality in today's accounting conditions. In small company analysis one can 'visit' the assets and determine the quality (£100K claimed for plant may turn into a liability of £10K to remove the scrap etc.)<br />What we need to know is whether the 'debts' are profit making or a collection of Enron/RBS-style accounting frauds waiting to be revealed when the music stops and who will be holding the parcel at that point. I tend to gloom on this on account of the criminality rife in the financial sector, but lack anything like data on which to decide.<br />The winding-up of a small sample of assets through real sales would tell us a great deal - but pigs might fly. When even peer reviewed material is deeply flawed and company accounts unreadable until we know claimed sales were repo 105s, the company is actually counter-party to its own claimed hedges and so on - the numbers just can't tell us the real position.archytashttps://www.blogger.com/profile/14991743176807323992noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-82256972048810055202012-09-27T06:37:40.410+01:002012-09-27T06:37:40.410+01:00Thanks to everyone for give useful information.Thanks to everyone for give useful information.Wilson sorinhttp://www.qrventures.co.uk/business-finance/asset-finance.htmlnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-33157825318890527552012-09-06T23:03:36.587+01:002012-09-06T23:03:36.587+01:00Noel,
It is very evident from your comment that n...Noel,<br /><br />It is very evident from your comment that neither you nor James Meadway have properly read and understood my post. <br /><br />To take your points in order:<br /><br />1) I have never disputed that the UK's financial sector debt is higher than any other nation. In fact I produced two other charts both of which showed that it was (although I did note Global Finance's comment regarding the effect of including ABS on the US's financial sector debt). But there is a very considerable difference between 219% of GDP and 600% of GDP. Morgan Stanley's figures are way out of line with everyone else's and I was attempting to explain the discrepancy.<br /><br />2) It is not pedantry to point out that a chart is comparing apples and pears, as this one does when it compares US federal debt with Eurozone debt. Nor is it pedantic to point out that "Europe" has more than one definition. <br /><br />3) I did not say that UK public debt was high. I said that household and non-financial corporate debt were both high - which is true - and that public debt was actually not as bad. You have misread what I said and unfairly accused me of ineptness. You should retract that statement.<br /><br />4) Your lecture on the risks of debt is out of place on a post which is simply questioning the figures on one chart because they are out of line with other charts that purport to show the same thing. And it is patronising, frankly. I know every bit as much about the risks of debt as you and James Meadway do, as you would know if you had read my previous posts - but it is not the point of this post.<br /><br />You and James have both overlooked the fact that the other two charts I quote both include overseas liabilities of UK banks, but they are still 400% of GDP lower than the Morgan Stanley chart. That is why I suggest that Morgan Stanley not only includes the overseas liabilities of UK banks, as the other charts do, but ALSO includes the UK liabilities of overseas banks trading in London - which would include rather a lot of the global derivatives bubble.<br /><br />I am very disappointed that you and James Meadway were so anxious to defend the chart and prove me wrong that you missed the main conclusion of the post, which is that the global financial system transcends nation states, and international agreement is needed to ensure that no one nation ever again has to bear the full cost of systemic failure. I would have thought you would be in sympathy with this conclusion.<br /><br />The provenance of this chart is really quite dubious. I spent a considerable amount of time trying to find the original sources for this chart, but to no avail. The furthest back I was able to go in the provenance chain was a paper from Mercatus which was presented to the US Congress: we know that Zero Hedge lifted the graph from that paper. The Mercatus paper has accompanying Bloomberg screen prints that show the derivation of the public debt figures - that's how I know that the public debt figure in the chart is marked to market. Have you and James never thought to query the fact that it shows UK public debt as 80% when the actual figure for end 2011 is 60%? But even in the Mercatus paper, there is no information on the data sources and no explanation of the 600%. I'm happy to provide a link to the Mercatus paper if you are interested. <br /><br />The chart does not seem to be available from Morgan Stanley themselves (I did try), and Haver Analytics provide datasets not final charts. Morgan Stanley created their chart from Haver Analytics data, just as McKinsey did: why the two charts are so different is the mystery I was trying to solve. <br /><br />The data sets for the other two charts I have quoted are both available, and both McKinsey and ONS explain how they have constructed their charts. I would strongly suggest that you stop using this chart and use McKinsey or ONS instead. You do your cause no favours by using unsubstantiated and inexplicable charts. <br /><br />If James Meadway has comments to make on my blog he should make them himself, not use you as his gofer. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-81954060547126784282012-09-06T22:04:04.023+01:002012-09-06T22:04:04.023+01:00Hi Frances,
as I use this graph in talks I though...Hi Frances,<br /><br />as I use this graph in talks I thought I'd run you thoughts by my friend James Meadway the economist at the New Economics Foundation as he sent me it originally, this is what he says in a critique of your text.<br /><br />I think it makes one good point - where do these numbers come from? - but mixes it up with a whole load of less convincing economics.<br /><br />First, the blunt facts. Even on the alternative figures given the blogpost, UK financial sector debt is still seriously higher than that of other advanced economies. (The points about Europe and the eurozone are just pedantic, sorry.)<br /><br />UK national debt (what the government owes), on the other hand, is neither high by international nor historical standards. It's just inept to claim otherwise: it's below (for instance) the Rogoff 90% marker (Rogoff claims, on the basis of past experience, that any national debt over 90% starts to have detrimental effects on previous growth). It only tips over that point if you also throw in the interventions for the financial sector.<br /><br />Which is the second point. Debt matters beacuse it is a liability for the debtor - it is something on their balance sheet that is a claim on their future income, since the debt has to be repaid (with interest). On the other side, for the creditor, it is an asset - it is something expected to produce a stream of future income.<br /><br />But should the debtor be able to default on the debt, that liability can change. The creditor still wants repaying. But the debtor either cannot or will not do this. Should someone else step in they, instead, will hold the liability for the debt. This is more or less what happened during the 2007-8 crash: the bailouts were us stepping in to take on the liabilities of the banking system. That meant we, instead of the banks, were the ultimate holders of the liability.<br /><br />The problem with the analysis here is that I think it understates that element of the crisis. The banks may well have all this debt, and it may well be carefully balanced by (financial) assets on their balance sheets. But should there be another banking crisis - say arriving from the eurozone - we may find that we, not they, are the ones left holding the liabilities. The costs of the debt, then, will transfer to us.<br /><br />The blog touches on this (in order to dismiss the point) when it says that the high financial sector debt figure may include the UK-based subsidiaries of overseas financial operations, which it says is unreasonable, since the UK will not bail out what are in effect foreign banks. That's fine. Except that it seems equally reaosnable to assume (unless I'm missing something) that the Morgan Stanley figure includes the overseas subsidiaries of UK banks and financial institutions - which will be enormous, and whose liabilities will, other things being equal, fall onto the UK government in the event of a crisis.<br /><br />That's the real risk in the situation - not from government debt (neither particularly high, nor unmanageable) - but from financial system debt functioning (in effect) as additional government liabilities. We are most likely going to have to start writing some of this stuff off over the next few years, as it becomes clear capitalism is not returning to growth any time soon. This will be a messy, unpleasant process (just look at Greece!) in which the political battle will be to try and force the costs away from workers and wider society, and back onto the 1%. Fun times.<br /><br />Hope that's useful. Would be interested to see if you dig up anything more on the Morgan Stanley graph. I generally trust Zero Hedge (where I got it from) in these things, but it'd be useful to know how it was put together if it's being questioned.<br /><br />Jamesnoel douglashttp://www.noeldouglas.netnoreply@blogger.com