Hi there all you US Citizens,
It's been a remarkable couple of months, hasn't it?
Your democracy, known for its delicate set of checks and balances, has unbalanced itself into a situation where a Presidential candidate that wins the popular vote by 3 million is not becoming President. Instead an extreme narcissist has now entered the White House and everybody is wondering how to read and understand his 'politics'.
Let me try and help you, the US public, in understanding how to deal with this new President. Because over here in the Netherlands we already have (had) some similar politicans running around and that has provided us with sufficient learning material.
It's always and exclusively about inflated self-esteem
The major rule for understanding narcissist is not to listen to their talk. It's never about the things they say. Narcissist have an intrinsic lack of self-esteem which they want to compensate by getting attention and compliments. As deep as their lack of self-esteem, as high is their need for compliments and admiration.
Narcissist lie by definition. They adapt their stance to make sure one thing is constant: their own image in the mirror of a reputable, God-like human being who can and will get all they want. And in order to preserve this image, they will manipulate their environment with a psychopathic lack of conscience.
When caught in the act (of lying), narcissist will deny and manipulate for so long that in the end people stop calling them out. We've heard footage of denigrating talk about the treatment of women and even that has not stopped a large chunk of US citizens from denying this erratic person entry into their most important public office.
How to understand their inside thinking: reverse their statements and accusations
The best way to understand what's going on in the mind of narcissist is to fully reverse all statements that they make. So when a narcissist says his opponent is rigging the elections, this explains exactly what he is doing at that moment. Or when he says that the press is lying about the turnout for inaguration day, you can bet that he is lying himself about it.
The one thing not to do is to expect continuity in thinking. A narcissist will never be caught in being consistent. They refrase, ly and don't care about being inconsistent. Trying to construct this consistence from the outside is of no use: there is none. The only consistent thing happening is that the narcissist is playing the power stadium just as long as he gets what he wants: attention and compliments.
For the current US president it is quite obvious that he has had a youth with a cold, ambitious father who never really cared about his own kids. The closest thing to true fathers that Trump ever came in contact with are the generals and corporals in the army. This explains his high ratio of former military among his staff. He tries to assemble support from fatherly figures.
The eternal tragedy of all this is that as hard as one can try, you can never end up with the so much desired self-esteem this way. Self-esteem is something gained from within and no manipulation or even US Presidency will help you get it.
How to end this: neglect the attention seeker or overcompliment into oblivion
The essential way out of an unhealthy narcist relation is to not share anything personal and try and cut all ties. In doing so one either fully neglects the narcissists or overcompliments them into oblivion. Alas to say that both strategies may be hard to execute when the person in question holds such an important office.
Yet, it could well be the case that the other players in the world game of power recognize Trump for what he is and seek more stable alliances with each other rather than deal with the erratic treats of Trump. Which gets you exactly where you don't want to be.
How this will end for the US?
I am sorry to say, but the end of a narccisist is always somewhat destructive. If we summarize Trump his whole business consists of lying, constructing an image, selling the image and moving forward to a next adventure before anyone discovers that his previous adventure was a full fail and financial disaster. The tiny info that was provided on his tax deductions already shows this.
Given that he is now playing his game on a national level, you may expect the US to spend more than it can, to alienate all international stakeholders until some geopolitical or health incident happens. When all the dust settles, the US will discover that Trump has only worked towards a greater image of himself and funds for his children. But the country itself will be worse off, unless perhaps for some costly highways, built by former business friends of the president.
The so called angry Americans that have voted for him, will then discover that he was indeed a con artist that robbed them not only of their vote, but also of their self-esteem as well as their health care. All that the US will have left is nice pictures, selfies of Trump golfing at Balmoral castle, a golden plated and redecorated White House and - god forbid - most likely an extra Trump face carved out in Mount Rushmore.
This beautiful country of yours will thus experience the reversed American Dream. Trumps reign will send you from a millionaires position into an isolated newspaper delivery boy (with a big mouth).
Hope?
I just hope for your sake that there won't be time enough during this 45th President's reign to ruin all the good things of the US. And I very much hope you will be able to see and live the next years as an intermediary phase, needed to learn a costly lesson about democracy.
Showing posts with label Review. Show all posts
Showing posts with label Review. Show all posts
30/08/2013
Dutch government deeply involved in illusionary budgets and politics (just like the bankers)
In my previous post, one year ago, I outlined that it would be possible that with the PvdA at the helm, the Dutch politics would enter a time of less populist talk and more stability. Boy, was I wrong about that. What happened here in the Netherlands is that the elections turned into a shoot-out between right wing VVD and left wing PvdA. All votes sucked into a battle where right wing voters chose VVD to prevent the PvdA from becoming too big and vice versa.
The end result was that PvdA and VVD both became very big and have a majority in the House of Representatives (Tweede Kamer) but not in the Senate (Eerste Kamer). Rather than seeking a bigger coalition, the two leaders: Rutte (VVD) and Samsom (PvdA) chose to develop a government policy plan within a brief period of time, with very few consultations. This didn't work well for a number of reasons.
It turned out that VVD and PvdA had compromised on important positions by using some simple cards. The result was that the VVD agreed to a very strong income adjustment whereby high income earners would significantly pay more tax than before. This was a PvdA desire that was one bridge too far. After a lot of hassle, the plan was revoked. But it showed the core of the problem: the agreed package of compromises between PvdA and VVD hadn't been thought through sufficiently. This was enough for me to coin their policies: Illusion policies.
Where are we now?
Right now, we are almost one year underway and it seems that the prime Minister has taken aboard some of the criticism that all the government plans were made without sufficient backing in society. As a result he is now setting up deals on healthcare, prison-policy and so on. The number of deals ('akkoorden') is immense and each changes a bit in the start policy of the government. One of the involved social partners at some point in time said: 'I'm getting a bit of tired from al these deals'.
But there is a bigger problem here in the Netherlands. In an effort to fullfil the EU criteria, our government is trying hard to cut expenses. It does so however, without making fundamental choices. It tries to avoid some of the hot issues, such as deductibility of mortgage interest. The reason for this is that ever since the death of Fortuyn, our politicians are scared to lose their votes to the populistic players that promise a lot but cannot deliver a consistent policy (see my previous post).
Meanwhile the public is smart enough to recognize that things aren't going well and they revert to an old Dutch quality and habit: save money, stop spending. Because in this political climate it is quite likely that even if you don't expect it, some sort of measure may affect your personal budget. Until revoked or replaced by an adapted plan or deal.
Much of the macro economic debate focuses on the housing and mortgage market as politicians believe that in this area the solution of the crisis can be found. The paradox here is that polls show that the Dutch public assumes the interest deductibility to disappear and understands that that is necessary. But this government doesn't want to do that and reverts to additional measures to fix the market (a government guaranteed mortgage fund being the latest plan). While in itself useful it keeps consumers in uncertainty as to when the deductibility will be abolished.
Illusionary cuts and budget
We should also note that significant part of the budget cuts of this government only exist on paper. The idea that it is possible to delegate central government task to municipalities while reducing the expenditure with many billions is unreal. It allows the government to book a reduction while municipalities will be blamed afterwards for not achieving their targets.
A similar illusionist trick is done with the government financial assistance (for childcare, raising kids, housing). By reorganising the existing range of reglementations and procedures into 1, it is expected to save us some other billions. Quite unlikely given the bad track record of the government and tax department in automation and procedural change.
Essentially we have thus sent a paper tiger to Brussels stating that we achieve our budget goals, but we will undoubtedly be in for some surprises. Our government is living on borrowed time, hoping that the other countries pull us out of the mud (which might work as we are an open community, earning in the slipstream of Germany). And it would be a wrong idea to see a role for the ECB here. The ECB can't of course solve the deficiencies and absence of our political statesmanship with monetary instruments.
What do the Dutch think of all this?
In my view, those of us who suffer from the budget cuts do tend to align with the populist parties at the left and right side of the spectrum. Other than that we maybe more mature than the politicians assume. Mortgages are being repaid and there is an understanding that we all need to pay our fair share. But the problem is that the political debate is not about fair shares but about finding easy and quick wins in order not to lose votes. There is a longing for stability and trustworthiness which our politicians are unable to provide.
In analogy with the banking sector: the incentive structure for politicians is skewed towards the short term just as heavily as it was in the banking domain. While in the bank domain this is now being corrected, the politicians lack the self-reflection to apply similar lessons to themselves. The result is that the general trust in politicians is getting steadily lower.
Meanwhile the Dutch draw their own conclusions: stop spending, start saving until the outlook improves and becomes more predictable. Unlocking this spending stop will not just require certainty on the mortgage market. It requires more stability and fairness from politicians, but they are too busy going for votes, to notice that.
In sum: we had our opportunity for a Dutch spring here in the Netherlands, but as in other countries, we let the momentum slip away.
The end result was that PvdA and VVD both became very big and have a majority in the House of Representatives (Tweede Kamer) but not in the Senate (Eerste Kamer). Rather than seeking a bigger coalition, the two leaders: Rutte (VVD) and Samsom (PvdA) chose to develop a government policy plan within a brief period of time, with very few consultations. This didn't work well for a number of reasons.
It turned out that VVD and PvdA had compromised on important positions by using some simple cards. The result was that the VVD agreed to a very strong income adjustment whereby high income earners would significantly pay more tax than before. This was a PvdA desire that was one bridge too far. After a lot of hassle, the plan was revoked. But it showed the core of the problem: the agreed package of compromises between PvdA and VVD hadn't been thought through sufficiently. This was enough for me to coin their policies: Illusion policies.
Where are we now?
Right now, we are almost one year underway and it seems that the prime Minister has taken aboard some of the criticism that all the government plans were made without sufficient backing in society. As a result he is now setting up deals on healthcare, prison-policy and so on. The number of deals ('akkoorden') is immense and each changes a bit in the start policy of the government. One of the involved social partners at some point in time said: 'I'm getting a bit of tired from al these deals'.
But there is a bigger problem here in the Netherlands. In an effort to fullfil the EU criteria, our government is trying hard to cut expenses. It does so however, without making fundamental choices. It tries to avoid some of the hot issues, such as deductibility of mortgage interest. The reason for this is that ever since the death of Fortuyn, our politicians are scared to lose their votes to the populistic players that promise a lot but cannot deliver a consistent policy (see my previous post).
Meanwhile the public is smart enough to recognize that things aren't going well and they revert to an old Dutch quality and habit: save money, stop spending. Because in this political climate it is quite likely that even if you don't expect it, some sort of measure may affect your personal budget. Until revoked or replaced by an adapted plan or deal.
Much of the macro economic debate focuses on the housing and mortgage market as politicians believe that in this area the solution of the crisis can be found. The paradox here is that polls show that the Dutch public assumes the interest deductibility to disappear and understands that that is necessary. But this government doesn't want to do that and reverts to additional measures to fix the market (a government guaranteed mortgage fund being the latest plan). While in itself useful it keeps consumers in uncertainty as to when the deductibility will be abolished.
Illusionary cuts and budget
We should also note that significant part of the budget cuts of this government only exist on paper. The idea that it is possible to delegate central government task to municipalities while reducing the expenditure with many billions is unreal. It allows the government to book a reduction while municipalities will be blamed afterwards for not achieving their targets.
A similar illusionist trick is done with the government financial assistance (for childcare, raising kids, housing). By reorganising the existing range of reglementations and procedures into 1, it is expected to save us some other billions. Quite unlikely given the bad track record of the government and tax department in automation and procedural change.
Essentially we have thus sent a paper tiger to Brussels stating that we achieve our budget goals, but we will undoubtedly be in for some surprises. Our government is living on borrowed time, hoping that the other countries pull us out of the mud (which might work as we are an open community, earning in the slipstream of Germany). And it would be a wrong idea to see a role for the ECB here. The ECB can't of course solve the deficiencies and absence of our political statesmanship with monetary instruments.
What do the Dutch think of all this?
In my view, those of us who suffer from the budget cuts do tend to align with the populist parties at the left and right side of the spectrum. Other than that we maybe more mature than the politicians assume. Mortgages are being repaid and there is an understanding that we all need to pay our fair share. But the problem is that the political debate is not about fair shares but about finding easy and quick wins in order not to lose votes. There is a longing for stability and trustworthiness which our politicians are unable to provide.
In analogy with the banking sector: the incentive structure for politicians is skewed towards the short term just as heavily as it was in the banking domain. While in the bank domain this is now being corrected, the politicians lack the self-reflection to apply similar lessons to themselves. The result is that the general trust in politicians is getting steadily lower.
Meanwhile the Dutch draw their own conclusions: stop spending, start saving until the outlook improves and becomes more predictable. Unlocking this spending stop will not just require certainty on the mortgage market. It requires more stability and fairness from politicians, but they are too busy going for votes, to notice that.
In sum: we had our opportunity for a Dutch spring here in the Netherlands, but as in other countries, we let the momentum slip away.
10/09/2012
Dutch elections 2012: finally we have our Dutch spring
This fall, the Dutch elections will provide us with something we have all been waiting for: a true Dutch spring. While in the past years our country became a mock of a democracy with too much populist talk and too little true cooperation, we can see that there is change in the air. And I'll try to explain the sequence of events for you: the non-Dutch public.
From Fortuyn to Wilders: enter the populists...
As you know, ten years ago, we had a politician, Fortuyn, who sensed an enormous amount of dissatisfaction of the public with standard-politics and politicians. And he used this intelligently to mobilize the electorate to support his party. For many politicians, his strong emergence came out of nowhere and it was in fact the dawn of a different style of politics. More direct, more populistic and seeking the populist consensus rather than an optimal solution for all the public.
In a twist of history, Fortuyn was murdered. But PM Wilders had been looking closely and chose to emulate Fortuyn with clear and simple statements about Islam, mass-immigration. Essentially he played the classroom-bully for regular politicians, who found it hard to counteract his verbal agility. And in doing so he gained a lot of support. He also found it a good tactic to do some hate-speeching with respect to Islam/moslims but wasn't found guilty. Events in Norway later proved the effect of his hate-speech, but Wilder of course didn't want to take responsibility for infecting a young man's brain with nonsense.
As the 'Freedom Party' of Wilders grew quite big, he could enter into a construction where he helped a minority government rule the country for the past two years. But his party started to crumble from the inside, with some members leaving and explaining the inner workings of the party (Wilders rule is the one and only law). Given that there was no mass immigration of moslims he chose Europe as the new enemy to be used in campaigning. And he set up a notification-site to complain about Eastern European workers. But essentially the paint of his party started to fade and lose its effect.
At the same time, on the far left side, the Socialist Party adopted many of the stylistic elements of Wilders. In true populist style they banged similar drums on issues as Europe (no good), health care (don't touch it) and so on. Given that our Labour party was having too much internal debate due to a too decent leader (Cohen), this far left wing gained a lot of support in polls. The grand power party of the past, the Christian Democrats found themselves being punished once again and discovered that they alienated their constituency considerably by cooperating with Wilders in government.
Wilders breaks up the coalition
This spring, Wilders had to negotiate with the minority government on reforms to ensure that the Netherlands would remain within the 3% deficit criterium. After seven weeks, in which he dropped many of his previous populistic important demands, he suddenly stepped out. And thus, we were heading for new elections. And it is only through the responsible behaviour of five other parties (VVD, CDA, D66, GroenLinks and ChristenUnie) that we managed -in one week - to design and agree on a reform package that would keep us within the 3%
Since then it appeared we would see all the parties banging a populistic drum. Because that is what happened here in the Netherlands. In the last ten years our political debate became quite uncivilized, with name-calling and all kinds of unpoliteness. As such it may have been a reflection of a more general trend in society. Then again, when looking at the deepest desire of the Dutch (we have a government agency doing hefty research into this..: SCP), there was a loud and clear appeal for: less individualism, more respect, more collectivity, more honesty.
Meanwhile, our minority government had grown the habit of not listening to the representative organisations of the citizens. They didn't listen to their formally appointed Counsels of Advice. And they even ignored the negative advice of our Council of State (Raad van State) on legal proposals that were just unfit, undoable or unconstitutional. And thus, over on my Dutch blog, in february this year I wrote a longer blog-posting: Time for a Dutch spring.
The blog post outlines that the Dutch both need and desire a revolt in politics, just as badly as those in other countries of the world (even if we don't think we need it). I pleaded for more balance and more nuance in the political debate. And I hoped for a society where media don't go for the hype and the incident. In sum, the blog outlined that the true Dutch spring is within reach if we all, individually, act resposibly towards each other without letting the economic mantra's getting too much in the way.
Developments in the Dutch election campaign: we respond to decency and honesty !
The essence of what happened here in the Dutch election campaign is that the old populist talk didn't work any more. Citizend could see Wilders doing his usual kinds of populistic stuff, but in the back of our minds they all thought that his previous tough talk turned out to be nothing but a charade. And the same line of thinking was applied to the Socialist Party, at the other end of the politicial spectrum. So far right and far left were losing in the polls.
And while everyone had believed all the debat would be between Socialist Party leader Roemer and Liberal Party leader (and prime Minister) Rutte, a change was happening. Labour Party Leader Samsom chose to not sweet-talk the citizens. He outlined clearly the tough choices to be made (including possible help for a 3rd rescue package for Greece) rather than pretend that no more support would be given. And it is this, more true, nuanced approach that started to resonate. Within a time frame of weeks Samsom suddenly started making up to become just as big as the Labour Party (in the polls).
Rutte, the prime-Minister, made some errors in his campaign, resorting to verbalities rather than seriously answering legitimate questions. In an effort to steer his success he even tried to avoid sitting at the same table in a talk show, with a famous Dutch comedian: Freek de Jonge. The net result was negative however, because the one comedian filling in for Freek, was quite outspoken and well able to counter the verbalities of Rutte with spirited arguments.
Will we have a Dutch spring?
What I think (or perhaps hope) is that the Labour Party has rightly assessed that the public is fed up with the populist talk and scamming that all politicans were resorting to. They chose to position themselves differently than others and chose for honesty and nuance. And it looks as if that approach will get them the majority of votes and the chance to be in the lead for the formation of a new cabinet.
If indeed the PvdA turns out to become the biggest party, then we can rightly state that our election day: September 12, will have marked the beginning of a Dutch spring.
From Fortuyn to Wilders: enter the populists...
As you know, ten years ago, we had a politician, Fortuyn, who sensed an enormous amount of dissatisfaction of the public with standard-politics and politicians. And he used this intelligently to mobilize the electorate to support his party. For many politicians, his strong emergence came out of nowhere and it was in fact the dawn of a different style of politics. More direct, more populistic and seeking the populist consensus rather than an optimal solution for all the public.
In a twist of history, Fortuyn was murdered. But PM Wilders had been looking closely and chose to emulate Fortuyn with clear and simple statements about Islam, mass-immigration. Essentially he played the classroom-bully for regular politicians, who found it hard to counteract his verbal agility. And in doing so he gained a lot of support. He also found it a good tactic to do some hate-speeching with respect to Islam/moslims but wasn't found guilty. Events in Norway later proved the effect of his hate-speech, but Wilder of course didn't want to take responsibility for infecting a young man's brain with nonsense.
As the 'Freedom Party' of Wilders grew quite big, he could enter into a construction where he helped a minority government rule the country for the past two years. But his party started to crumble from the inside, with some members leaving and explaining the inner workings of the party (Wilders rule is the one and only law). Given that there was no mass immigration of moslims he chose Europe as the new enemy to be used in campaigning. And he set up a notification-site to complain about Eastern European workers. But essentially the paint of his party started to fade and lose its effect.
At the same time, on the far left side, the Socialist Party adopted many of the stylistic elements of Wilders. In true populist style they banged similar drums on issues as Europe (no good), health care (don't touch it) and so on. Given that our Labour party was having too much internal debate due to a too decent leader (Cohen), this far left wing gained a lot of support in polls. The grand power party of the past, the Christian Democrats found themselves being punished once again and discovered that they alienated their constituency considerably by cooperating with Wilders in government.
Wilders breaks up the coalition
This spring, Wilders had to negotiate with the minority government on reforms to ensure that the Netherlands would remain within the 3% deficit criterium. After seven weeks, in which he dropped many of his previous populistic important demands, he suddenly stepped out. And thus, we were heading for new elections. And it is only through the responsible behaviour of five other parties (VVD, CDA, D66, GroenLinks and ChristenUnie) that we managed -in one week - to design and agree on a reform package that would keep us within the 3%
Since then it appeared we would see all the parties banging a populistic drum. Because that is what happened here in the Netherlands. In the last ten years our political debate became quite uncivilized, with name-calling and all kinds of unpoliteness. As such it may have been a reflection of a more general trend in society. Then again, when looking at the deepest desire of the Dutch (we have a government agency doing hefty research into this..: SCP), there was a loud and clear appeal for: less individualism, more respect, more collectivity, more honesty.
Meanwhile, our minority government had grown the habit of not listening to the representative organisations of the citizens. They didn't listen to their formally appointed Counsels of Advice. And they even ignored the negative advice of our Council of State (Raad van State) on legal proposals that were just unfit, undoable or unconstitutional. And thus, over on my Dutch blog, in february this year I wrote a longer blog-posting: Time for a Dutch spring.
The blog post outlines that the Dutch both need and desire a revolt in politics, just as badly as those in other countries of the world (even if we don't think we need it). I pleaded for more balance and more nuance in the political debate. And I hoped for a society where media don't go for the hype and the incident. In sum, the blog outlined that the true Dutch spring is within reach if we all, individually, act resposibly towards each other without letting the economic mantra's getting too much in the way.
Developments in the Dutch election campaign: we respond to decency and honesty !
The essence of what happened here in the Dutch election campaign is that the old populist talk didn't work any more. Citizend could see Wilders doing his usual kinds of populistic stuff, but in the back of our minds they all thought that his previous tough talk turned out to be nothing but a charade. And the same line of thinking was applied to the Socialist Party, at the other end of the politicial spectrum. So far right and far left were losing in the polls.
And while everyone had believed all the debat would be between Socialist Party leader Roemer and Liberal Party leader (and prime Minister) Rutte, a change was happening. Labour Party Leader Samsom chose to not sweet-talk the citizens. He outlined clearly the tough choices to be made (including possible help for a 3rd rescue package for Greece) rather than pretend that no more support would be given. And it is this, more true, nuanced approach that started to resonate. Within a time frame of weeks Samsom suddenly started making up to become just as big as the Labour Party (in the polls).
Rutte, the prime-Minister, made some errors in his campaign, resorting to verbalities rather than seriously answering legitimate questions. In an effort to steer his success he even tried to avoid sitting at the same table in a talk show, with a famous Dutch comedian: Freek de Jonge. The net result was negative however, because the one comedian filling in for Freek, was quite outspoken and well able to counter the verbalities of Rutte with spirited arguments.
Will we have a Dutch spring?
What I think (or perhaps hope) is that the Labour Party has rightly assessed that the public is fed up with the populist talk and scamming that all politicans were resorting to. They chose to position themselves differently than others and chose for honesty and nuance. And it looks as if that approach will get them the majority of votes and the chance to be in the lead for the formation of a new cabinet.
If indeed the PvdA turns out to become the biggest party, then we can rightly state that our election day: September 12, will have marked the beginning of a Dutch spring.
03/02/2012
Bernankes blunder or Bernankes brilliance ?
About one year ago, the FED-President Bernanke started giving press conferences to explain the policy decisions of the Federal Open Markets Committee. I was pleasantly surprised then, but I was also a bit wary of the continued low interest rates. With the risk of being hilariously wrong I think his recent choice to state that the FED will keep the interest rate low for a number of years, is a horrible mistake that will cost us significantly.
One thing to remember of course, is that monetary policy at low interest rates is really Bernanke's cup of tea and expertise. In this research paper of 2003, he essentially describes all the possible policy measures of the FED:
- committing to low interest rates for a longer time frame (thus shaping expectations),
- changing the composition of the balance sheet (for example buying treasuries or swapping maturities),
- changing the size of the FED-balance sheet.
And in hindsight we can see that this is precisely the road map that the FED has been following the last years.
So why do I think this long period of low interest rates is wrong?
My main argument is quite simple. For markets to function properly, there must be uncertainty with respect to the real economy but also with respect to the behaviour of monetary authorities. This uncertainty by definition leads to a distribution of market expectations with some being more bearish and others more bullish. Thus, uncertainty is helpful as it creates the maximum liquidity in a market and maintains an overall balance with respect to divergence of expectations of the future.
Following this line of thought, the announcement of future low interest rate (for a long period) by the FED is the equivalent of giving a serious prolongued committment. And while this is done on purpose, with the aim to help out financial markets, I think it reduces uncertainty too much. Market participants will expect the FED to behave this way and the market will be robbed of an important uncertain factor. Thus, the market will become flawed and market expectations will not be balanced or evenly distributed any more. As a consequene the FED only stands to lose now, if for some sudden reason the market circumstances require a reversion of the outspoken low interest course.
I think that right now we are already seeing the effect of the FED behaviour. The effect of the low interest rate now leads some players in the US to desire negative interest rates on bonds. And in my view this is only the beginning. And therefore I am now officially going on record stating that Bernanke - brilliant as he may be - has blundered into a serious misstake here.
One thing to remember of course, is that monetary policy at low interest rates is really Bernanke's cup of tea and expertise. In this research paper of 2003, he essentially describes all the possible policy measures of the FED:
- committing to low interest rates for a longer time frame (thus shaping expectations),
- changing the composition of the balance sheet (for example buying treasuries or swapping maturities),
- changing the size of the FED-balance sheet.
And in hindsight we can see that this is precisely the road map that the FED has been following the last years.
So why do I think this long period of low interest rates is wrong?
My main argument is quite simple. For markets to function properly, there must be uncertainty with respect to the real economy but also with respect to the behaviour of monetary authorities. This uncertainty by definition leads to a distribution of market expectations with some being more bearish and others more bullish. Thus, uncertainty is helpful as it creates the maximum liquidity in a market and maintains an overall balance with respect to divergence of expectations of the future.
Following this line of thought, the announcement of future low interest rate (for a long period) by the FED is the equivalent of giving a serious prolongued committment. And while this is done on purpose, with the aim to help out financial markets, I think it reduces uncertainty too much. Market participants will expect the FED to behave this way and the market will be robbed of an important uncertain factor. Thus, the market will become flawed and market expectations will not be balanced or evenly distributed any more. As a consequene the FED only stands to lose now, if for some sudden reason the market circumstances require a reversion of the outspoken low interest course.
I think that right now we are already seeing the effect of the FED behaviour. The effect of the low interest rate now leads some players in the US to desire negative interest rates on bonds. And in my view this is only the beginning. And therefore I am now officially going on record stating that Bernanke - brilliant as he may be - has blundered into a serious misstake here.
09/10/2011
Exceptional, depressing and amazing interview by Peter van Ingen on Buitenhof (Dutch tv) this morning
This morning. Both the terms Peter van Ingen and Buitenhof became trending on Twitter Netherlands. And the reason is that we could all be amazed at the style of interview by Mr. van Ingen. I dedicated a Dutch blog on the implications of such an interview style, but the foreign readers may want a bit of background information.
So what happened here in the Netherlands in the media?
Our labour party, PvdA is strongly in decline. While they reached 30 seats in parliament during elections, they have considerable less seats in polls now (see here) which creates an uncomfortable position. The Socialist Party eats up a lot of votes and there is a lot of discussion in public on the style of Job Cohen, the chair of the 30 members of Parliament. He remains the gentlemen rather than choosing for the quote-style of politics that we can see a lot these days. In doing so he is the exception.
This week, the chair of the Labour Party, Ploumen, left the party. But she also gave an exit-interview in the Volkskrant (a bit left-oriented newspaper in the Netherlands). And as a result, the pressure on Job Cohen mounts. See also this article. Cohen has outlined that he will take the criticism to heart and therefore all eyes in the Netherlands were turning to Buitenhof, this Sunday morning. Buitenhof is the main political debate program, which often serves as a platform for political discussion.
The interview in Buitenhof
This mornings edition of Buitenhof had a particularly agressive interviewer, Peter van Ingen, who fist wanted to discuss in detail what exactly had happened this week, with the exit interview of Ploumen. Then Cohen explained this but also stated: I prefer not to further engage on this issue in public, but within the party. Van Ingen kept pushing, but Cohen outlined his stance.
In a lof of the rest of the interview van Ingen effectively sort of played the devils advocate and repeated some of the criticism of Ploumen on Cohen. Which was all about style and conduct. Cohen made it clear that he was choosing his own style, his own tone of voice and that insulting nicknames said more about the insultor than himself. Yet van Ingen pushed on, not willing to listen to the content of Cohen's message.
Essentially, the interviewer kept on moaning and complaining about how Cohen conducted himself in the political arena while Cohen tried to outline his partys vision for the future. And although the tv-interview was advertised on the web as: 'Cohen's reply', (suggesting that Cohen would get the floor for his vision on developments) the interviewer didn't allow for much space and often interrupted. So we ended up with very little content in the discussion and an awful lot of tit-for-tat talk on process.
The most striking element was that the last question was: 'Did you arrange already for your succession?'. Many comments on twitter described this as impertinent, given also the previous line of questioning by the interviewer. It's not nice to wrap up the interview and throw this prepared granate to the guest. But Cohen handled it competently. And this ended the interview.
Annoyed
The style of interview -and the last question as the cherry on the cake- got many people annoyed. This was more about the opinion of the interviewer than giving the floor to Cohen.It got me to immediately write an analysis and comment on my Dutch blog that:
1. the choice by a tv show to not focus on content but only short time actuality/gossip is in itself also a political choice; it's not a neutral choice but a choice that also shapes the political climate,
2. the choice by an interviewer to go for an offensive style can be made, but the talk should in the end be about the guest and the opinion of the guest, rather than the opinion of the interviewer. And this interview contained quite a lot of display of morality and opinion of the interviewer, blocking the message of the guest. And underneath, the interviewer did not appear to be interested at all in the opinion of the guest. Which showed.
3. the last question about succession planning, was an impertinent one; comparable to kicking a man when he is own on the ground. And I noted that this tough-style interviewing is becoming more and more popular in the Netherlands. And thus, the Dutch media themselves play a role in creating a more rude and inpolite political climate: a serious trend that they might want to reflect on.
Action
To vent out my amazement I wrote this Dutch blog. And in it I placed two links so that readers who would agree, could easily send out e-mails to the journalist team at Buitenhof. So that the team may reflect on what happened today in the interview with Cohen.
I hope they will succeed in getting their interview standards to a higher level, because a good functioning political system also requires solid journalists keeping up their standards.
So what happened here in the Netherlands in the media?
Our labour party, PvdA is strongly in decline. While they reached 30 seats in parliament during elections, they have considerable less seats in polls now (see here) which creates an uncomfortable position. The Socialist Party eats up a lot of votes and there is a lot of discussion in public on the style of Job Cohen, the chair of the 30 members of Parliament. He remains the gentlemen rather than choosing for the quote-style of politics that we can see a lot these days. In doing so he is the exception.
This week, the chair of the Labour Party, Ploumen, left the party. But she also gave an exit-interview in the Volkskrant (a bit left-oriented newspaper in the Netherlands). And as a result, the pressure on Job Cohen mounts. See also this article. Cohen has outlined that he will take the criticism to heart and therefore all eyes in the Netherlands were turning to Buitenhof, this Sunday morning. Buitenhof is the main political debate program, which often serves as a platform for political discussion.
The interview in Buitenhof
This mornings edition of Buitenhof had a particularly agressive interviewer, Peter van Ingen, who fist wanted to discuss in detail what exactly had happened this week, with the exit interview of Ploumen. Then Cohen explained this but also stated: I prefer not to further engage on this issue in public, but within the party. Van Ingen kept pushing, but Cohen outlined his stance.
In a lof of the rest of the interview van Ingen effectively sort of played the devils advocate and repeated some of the criticism of Ploumen on Cohen. Which was all about style and conduct. Cohen made it clear that he was choosing his own style, his own tone of voice and that insulting nicknames said more about the insultor than himself. Yet van Ingen pushed on, not willing to listen to the content of Cohen's message.
Essentially, the interviewer kept on moaning and complaining about how Cohen conducted himself in the political arena while Cohen tried to outline his partys vision for the future. And although the tv-interview was advertised on the web as: 'Cohen's reply', (suggesting that Cohen would get the floor for his vision on developments) the interviewer didn't allow for much space and often interrupted. So we ended up with very little content in the discussion and an awful lot of tit-for-tat talk on process.
The most striking element was that the last question was: 'Did you arrange already for your succession?'. Many comments on twitter described this as impertinent, given also the previous line of questioning by the interviewer. It's not nice to wrap up the interview and throw this prepared granate to the guest. But Cohen handled it competently. And this ended the interview.
Annoyed
The style of interview -and the last question as the cherry on the cake- got many people annoyed. This was more about the opinion of the interviewer than giving the floor to Cohen.It got me to immediately write an analysis and comment on my Dutch blog that:
1. the choice by a tv show to not focus on content but only short time actuality/gossip is in itself also a political choice; it's not a neutral choice but a choice that also shapes the political climate,
2. the choice by an interviewer to go for an offensive style can be made, but the talk should in the end be about the guest and the opinion of the guest, rather than the opinion of the interviewer. And this interview contained quite a lot of display of morality and opinion of the interviewer, blocking the message of the guest. And underneath, the interviewer did not appear to be interested at all in the opinion of the guest. Which showed.
3. the last question about succession planning, was an impertinent one; comparable to kicking a man when he is own on the ground. And I noted that this tough-style interviewing is becoming more and more popular in the Netherlands. And thus, the Dutch media themselves play a role in creating a more rude and inpolite political climate: a serious trend that they might want to reflect on.
Action
To vent out my amazement I wrote this Dutch blog. And in it I placed two links so that readers who would agree, could easily send out e-mails to the journalist team at Buitenhof. So that the team may reflect on what happened today in the interview with Cohen.
I hope they will succeed in getting their interview standards to a higher level, because a good functioning political system also requires solid journalists keeping up their standards.
13/09/2011
Interesting development... default Greece confirmed/rumoured (sort of) by Dutch Ministry of Finance..
This morning, Bert Bruggink, CFO Rabobank, was quoted in Financieele Dagblad, saying that -looking at the markets- it was not the question if but when Greece would default. And RTL Nieuws informed the public that the Ministry of Finance was now preparing for all possible (and unthinkable) options in the crisis. Which lead to clippings in the press: 'Dutch Ministry of Finance thinks that default of Greece is imminent.'
Tomorrow, Dutch parliament will discuss the EFSF in parliament. But PvdA (Labour) does not wish to support the extension of the fund if Finland still has its demand for collateral on the table. The 'Green-Left'-party states that with the extension, the EU should also decide on the Euro-commissioner for budget (the MarkRutte proposal). And the Socialist Party doesn't want the EFSF to take over bond-buying from the ECB as, the ECB has 'unlimited funds'.
Meanwhile, national radio bulletins send out the message that sources near to the Ministry of Finance outline that it is preparing for default (19.57). While formally the Ministry may not be calling for orderly default and denies it (20.20). Which means that the 'open' and transparant communication of Minister de Jager, once again creates more confusion than necessary. It's a bit like BNP formally denying the informal rumour about its financial health.
So, looking at this confusion, it does indeed look as if the default of Greece is imminent...
Tomorrow, Dutch parliament will discuss the EFSF in parliament. But PvdA (Labour) does not wish to support the extension of the fund if Finland still has its demand for collateral on the table. The 'Green-Left'-party states that with the extension, the EU should also decide on the Euro-commissioner for budget (the MarkRutte proposal). And the Socialist Party doesn't want the EFSF to take over bond-buying from the ECB as, the ECB has 'unlimited funds'.
Meanwhile, national radio bulletins send out the message that sources near to the Ministry of Finance outline that it is preparing for default (19.57). While formally the Ministry may not be calling for orderly default and denies it (20.20). Which means that the 'open' and transparant communication of Minister de Jager, once again creates more confusion than necessary. It's a bit like BNP formally denying the informal rumour about its financial health.
So, looking at this confusion, it does indeed look as if the default of Greece is imminent...
05/09/2011
Eurocrisis: a clash of old (long term) and new (opportunistic) political thinking
These days I'm trying to get my head around the current developments in international and European markets and politics. There's a real flood of former politicians emphasizing that Europe is the solution, rather than the problem (see for example the statement by the Council for the Future of Europe). And here in the Netherlands we had former Prime Minister Wim Kok as well as former Minster of Finance Gerrit Zalm explaining to us on television that we need to remember the benefits of Europe and use it as a road to the solution. And I fully agree. As a whole, the eurozone is not doing so bad, but we do have a serious internal management and discipline problem.
Leadership today may be far more difficult than when the euro was formed..
Many commentators outline that now is the time to show leadership, based on a long term vision. And that is most certainly an important element of any solution. But I sense there may be more to it. There are some tectonic plates moving beneath todays politics. And the theory that I'm forming right now, is that most commentators are overlooking the movements of those plates as they are standing on those plates themselves (and incorrectly assume that they're not moving).
My theory is that, due to these slowly moving tectonic plates in the political environment, it might be much harder for todays leaders to exhibit the same leadership as their predecessors. So the solution to the eurocrisis is not just about leadership, but requires an appreciation of those fundamental trends as well.
What are the fundamental trends that now constrain our leaders?
The slowly moving 'tectonic plates' that constrain our leaders are:
1- a long period without war and a fading memory of bad economic circumstances,
2- a growing mastering of technology, leading to a shift in risk-sensitivity and a new control-perspective on the ability to control developments,
3- less religious attitudes, loss of self-discipline and focus on individual welfare,
4- electoral behaviour that is no longer focused on full political vision or ideology but can be seen as short-term shopping behaviour; the contract term of citizen and politicians decreased considerably,
5- the rise of the internet and social media, leading to increased scrutiny by the public, less margin for politicians to implement long term solutions and to oversimplification of complex problems in the public debate.
So what am I saying is:
1- In Europe, we have forgotten how rich we really are and where we came from. So the financial and geopolitical benefits of Europe (income, peace and peace of mind) are taken for granted. And as we grow older, this individual and collective memory fades more and more.
2- The advancing technology incites a sense of control into the modern human being and people are less inclined to accept the limitations of life; we are used to demand more, get more, expect more, demand more and so on. The succes of technology also provides us with a sense that we can control more than we really can. And it shifts our risk-sensitivity. Risks that in former times were acceptable or considered an act of God, are now subject to preventive and containment measures, with the people seeking a culprit if insufficient measures were taken. Essentially technology makes us become spoilt brats that don't want to bite the sour apple for our health if there is a sweeter alternative around the corner.
3- The increased welfare and growing economy allow for the realization of many wishes. And the traditional religions slowly lose ground to an economic religion in which there is little place for self restraint or group thinking and solidarity.
4- In the political domain, the economization also occurs and voting becomes more an act like shopping than an act like determining which church/religion you wish to belong to. The lifelong committment to ideologies fades away and needs to make place for opportunistic electoral behaviour. In turn, the political parties need to focus more on short term issues and popularity to survive and represent the interest of their electorate.
5- Whereas in former times some leeway in government and politics could be created by controlling and restraining the flow of information, the rise of Internet and social media make it almost impossible to create time/intellectual room for debate/solutions. These media also allow for collective intelligence and feedback which is very much quicker than before. So politicians can no longer design political solutions which do not work in practice or contain design-errors. Similarly they cannot decide or choose open-ended solutions, hoping that some underlying fundamental problem will be solved by time rather than politics.
Thus, in order to solve the Eurocrisis, we don't just need leadership, but also:
- increased awareness about the benefits peace, peace of mind and economic growth that Europe has brought us and brings us,
- the ability to bite through a sour apple rather than postpone solutions,
- the awareness that we're in it together, even if it doesn't feel like that,
- politicians with the leadership to appeal to the publics desire for stability and growth and the fact that only with their prolonged loyalty can the public expect a better long term outcome,
- consistent solutions to the technical, financial and political issues at stake; any backdoor or design error will get back at us within a years time-frame.
See also the Dutch version of this post here.
Leadership today may be far more difficult than when the euro was formed..
Many commentators outline that now is the time to show leadership, based on a long term vision. And that is most certainly an important element of any solution. But I sense there may be more to it. There are some tectonic plates moving beneath todays politics. And the theory that I'm forming right now, is that most commentators are overlooking the movements of those plates as they are standing on those plates themselves (and incorrectly assume that they're not moving).
My theory is that, due to these slowly moving tectonic plates in the political environment, it might be much harder for todays leaders to exhibit the same leadership as their predecessors. So the solution to the eurocrisis is not just about leadership, but requires an appreciation of those fundamental trends as well.
What are the fundamental trends that now constrain our leaders?
The slowly moving 'tectonic plates' that constrain our leaders are:
1- a long period without war and a fading memory of bad economic circumstances,
2- a growing mastering of technology, leading to a shift in risk-sensitivity and a new control-perspective on the ability to control developments,
3- less religious attitudes, loss of self-discipline and focus on individual welfare,
4- electoral behaviour that is no longer focused on full political vision or ideology but can be seen as short-term shopping behaviour; the contract term of citizen and politicians decreased considerably,
5- the rise of the internet and social media, leading to increased scrutiny by the public, less margin for politicians to implement long term solutions and to oversimplification of complex problems in the public debate.
So what am I saying is:
1- In Europe, we have forgotten how rich we really are and where we came from. So the financial and geopolitical benefits of Europe (income, peace and peace of mind) are taken for granted. And as we grow older, this individual and collective memory fades more and more.
2- The advancing technology incites a sense of control into the modern human being and people are less inclined to accept the limitations of life; we are used to demand more, get more, expect more, demand more and so on. The succes of technology also provides us with a sense that we can control more than we really can. And it shifts our risk-sensitivity. Risks that in former times were acceptable or considered an act of God, are now subject to preventive and containment measures, with the people seeking a culprit if insufficient measures were taken. Essentially technology makes us become spoilt brats that don't want to bite the sour apple for our health if there is a sweeter alternative around the corner.
3- The increased welfare and growing economy allow for the realization of many wishes. And the traditional religions slowly lose ground to an economic religion in which there is little place for self restraint or group thinking and solidarity.
4- In the political domain, the economization also occurs and voting becomes more an act like shopping than an act like determining which church/religion you wish to belong to. The lifelong committment to ideologies fades away and needs to make place for opportunistic electoral behaviour. In turn, the political parties need to focus more on short term issues and popularity to survive and represent the interest of their electorate.
5- Whereas in former times some leeway in government and politics could be created by controlling and restraining the flow of information, the rise of Internet and social media make it almost impossible to create time/intellectual room for debate/solutions. These media also allow for collective intelligence and feedback which is very much quicker than before. So politicians can no longer design political solutions which do not work in practice or contain design-errors. Similarly they cannot decide or choose open-ended solutions, hoping that some underlying fundamental problem will be solved by time rather than politics.
Thus, in order to solve the Eurocrisis, we don't just need leadership, but also:
- increased awareness about the benefits peace, peace of mind and economic growth that Europe has brought us and brings us,
- the ability to bite through a sour apple rather than postpone solutions,
- the awareness that we're in it together, even if it doesn't feel like that,
- politicians with the leadership to appeal to the publics desire for stability and growth and the fact that only with their prolonged loyalty can the public expect a better long term outcome,
- consistent solutions to the technical, financial and political issues at stake; any backdoor or design error will get back at us within a years time-frame.
See also the Dutch version of this post here.
24/05/2011
Appointing the new President and two directors of our central bank: butterfingered fiddling with an aftertaste of sprouts...
Well, the dust has now settled in the Netherlands on the announcements with respect to the new President and directors of our central bank: De Nederlandsche Bank (DNB). It is clear that our Minister of Finance, de Jager, has appointed one of his own top-managers, Klaas Knot, as the next President of DNB, to succeed Nout Wellink. And Jan Sijbrand (former NIBC and ABN AMRO), is to become the Executive Director in charge of Supervision. And as a result of the clumsy process, one of the internal DNB-candidates, Lex Hoogduin, who was proposed/favoured by the Supervisory Board, drew his conclusions and decided to leave. So what we can also read in the press release of DNB is that a third new appointment is announced: that of Frank Eldersohn, who will be Executive Director in charge of the 'internal operations'; the day to day functioning in organisational/HR terms.
Let's review this appointment process from a distance, drawing on the numerous reports and bits of work that are available with respect to the functioning of DNB, AFM and financial supervision.
First some colours in the background
Traditionally, both DNB and the Authority Financial Markets (AFM) were given quite some leeway in how they organised their business and executed their constitutional supervisory roles. The consequence was that the AFM developed a policeman-style under Chairman Arthur Dokters van Leeuwen. His successor, Hans Hoogervorst, combined this approach with a political savyness and unnecessary PR-agressiveness. Hoogervorst used publicity incidents to hurt banks in their image and bashed the banks into his prescription: an academic frame-of-mind in which consumers are rational, yet deserve paternalistic protection from overcrediting and in which any form of kick-back is to be eliminated in the marketplace. I am afraid that the AFM is going to need quite some years to discover that they were wrong in assuming the consumer rationality and that they will in the end discover that the elimination of kick-backs means that financial advice for consumers has become far too expensive (and thus: out of reach) for the consumers. So through enforcement of their academic yoke, they will eventually make financial advice more costly, cumbersome and less available to the public at large. Similarly, we will find out in about 5 years -when the market has come to a complete standstill- that they have been beating to loud on the mortgages drum.
Now for DNB. While the AFM is noisily supervising the banks, DNB kept up their appearences in their old-fashioned supervisory stile in which banks are invited over for a cup of tea to discuss business. Whereas AFM was showing too much teeth, DNB showed too little. And that had an effect on the cooperation between the policing AFM and the ever-so-polite DNB. And then DNB got traumatized in 2006, by the failure of Bank van der Hoop. From that moment on, all things in DNB-life became legal. External advisors advised on each step of supervision, thus paralyzing DNB. DNB became afraid to move at all and also got stuck under the spell of Wellink. Wellink was in the Board since 1983 and had arrived at his second 7-year term. Which is impractical, as it is impossible to organise the required internal criticism and openness for such a long period. It just doesn't work as we can see from the examples of Kohl, Thatcher and Lubbers. As a consequence, the oil-tanker DNB was not able to respond promptly and properly in discussions on the ABN AMRO take-over, the failing of Icesave and the demise of DSB. Our readers should note however that it is not so helpful for the central bank to be surrounded by inconsistent and populist claptrap on complex banking issues. But that's all part of the game, so as a President you have to be able to handle that as well.
Our Ministry of Finance meanwhile lacked all vision on how to organise financial supervision. And I know this sounds harsh and crude, but it is a simple fact. Our independent Court of Auditors reported their amazement about the fact and the response of our Ministry was: our supervisory policy is embedded in the Law on Financial Supervision (WFT in Dutch). Well, the connoisseurs of that law will shrug their shoulders, smiling politely. Because the WFT is a beautiful, idealistic legal project that had the potentially to become a great legal structure for the financial sector, also through the nuanced use of open standards. In practice, however, every chapter of the WFT-law was introduced in a hurry so at present there is literally no understanding it any more. If we would consider the WFT to be a computer-application, it would be immediately classified as a spaghetti-bomb and a threat to business-continuity, requiring a comprehensive revamp and structural re-engineering.
Equally important is the fact that in the late nineties the internal organization of Finance was overturned. While the former Ministry would have a department dealing with the financial sector as such, the new departments were split up on the basis of regulatory aspects such as: stability, market conduct, generally and so on. This led to less visibility and understanding of the impact of legislative changes for the sector as such. Thus, the sector was facing a Ministry that looked like a conveyor belt pushing out partial amendments.
Change, but how?
It is clear that the above institutional and supervisory framework is not sufficiently apt to deal with large market shocks and changes. And it is not surprising that the various players in the field reflected on the best way forward. So there were reports of what had happened on DNB's supervision (report Scheltema). Politicians came up with an examination (de Wit), largely a rehashing of international reports. The banks founded a Maas Committee that emphasized in the final report the importance of good governance, stronger risk management and a more integrated assessment of societal interests. And the Ministry of Finance started thinking about a supervisory policy version 0.1 or 1.0.
What surprised me was how the discussion on the desired culture-change at DNB took place. This followed from the report Scheltema, but everyone could know that for such a change to have effect, it is necessary to embed it in a good institutional structure and to be supported and spearheaded by a good leader: the President himself. I looked with increasing astonishment at the senseless rush that was displayed by all actors in the play. Within one month an implementation plan for cultural change should be made. And while DNB met this request of parliament without complaint, it goes without saying that this will have absolutely no effect whatsoever. Because the President, spearheading the change, was going to be replaced in a years time.
While in the Netherlands we were discussing and pondering the above, our Government fell apart in February 2010, which meant that no ravishing or fundamental changes could be expected. Still, it appeared that our Ministry of Finance had decided that their links to supervisors AFM and DNB should be strengthened. So they colluded with Members of Parliament to obtain the discretion to guide and demand action from supervisors (without the realization that the WFT does not really allow them such an action). Furthermore, the Minister of Finance quickly said he was changing the appointment rules for Presidents to a maximum of one re-election. In doing so he inelegantly and unnecessarily bruised Wellink. And our Minister became more responsible for the succession planning at DNB, which requires a forward-looking approach.
The appointment process of the President and directors of the Dutch central bank (DNB)
What I noticed last year is that the tone of voice and the noise-level of publicity by the AFM appeared to decrease, already while Hoogervorst was still running the AFM. The penalties for banks were lower and the public reactions of banks with respect to the behavior of the AFM were milder. Hoogervorst was sent on (or perhaps: off) to his beloved international work. And at the same time the Ministry of Finance appointed his Treasurer, Ronald Gerritsen as the new Chairman at the AFM. Which brings the Ministry of Finance closer to the fire.
As for DNB, there is of course the weekly lunch-meeting de Jager and Wellink. I imagine that early-on they discussed how to organise the succession. And it must have been obvious that Hoogduin was the intended successor, as such a preference (of the Supervisory Board) doesn’t suddenly fall from a blue sky down. Yet, both Wellink and De Jager will have noted that Hoogduin had little track record in Bank Supervision. And my idea is that the Ministry of Finance proposed a division of responsibilities between supervisory and monetary policy, so that Hoogduin could be appointed as new president of DNB. And that part of the succession planning proceeded nicely: Parliament agreed with the idea and we moved on.
But then, in May things suddenly went wrong. The discussion on succession hit the streets, the public and parliament. This surprised me, but also allowed me a moment to share my views on my preference. But the Members of Parliament did not want Hoogduin to be the next DNB-President as he was no outsider and could thus not be the one to spearhead the culture change at DNB. And then, one of the three candidates, Kremers, also stepped out of the race. To him, the Supervisory Board of DNB was unable to outline clearly what his position would be (no doubt this was a discussion on the relationship between the President and the almost independent director of Bank Supervision at the DNB).
What struck me was that we were very much running out of time. It was May, while we needed a President as of July. And you don’t want to be choosing your next central bank President in such a time-squeeze (it seems that shows such as Idols and X-factor even use more time to pick their winner). Anyway, we went through somewhat indistinct and misty weeks, to find out that one of the other top officials of Finance, Knot (who has a DNB-ring to him as he worked their for many years) will become our next President at DNB. With former Crown-prince Hoogduin choosing to leave, because he undoubtedly envisaged his future to be different than it now had become.
The net effect of all this fiddling: there are suddenly two new directors and a new President at DNB as of July 1, 2011. And do note that Klaas Knot is not really an outsider. He originally worked for the Insurance Supervisor and had a quick career at DNB for some 10 years. He became the right-hand advisor of Wellink in his international meetings/work. And a number of years ago he was appointed as a top-civil servant at the Ministry of Finance, possibly as part of a master plan in which Wellink arranged his long-term succession (or simply just took good care of the career of his closest advisor). Now, with the butterfingered public discussion on the succession and role of Hoogduin underway, the choice for Klaas Knot was advanced in time (he might have been on the schedule to succeed Hoogduin). And my guess is that the lack of enthousiasm of Knot for internal and organisational matters may have led him to outline that he didn’t wish to take up the ‘internal affairs’ portfolio of Hoogduin as a part of his role of President.
What struck me is that perhaps Kees van Dijkhuizen and Nout Wellink may have still played important roles behind the curtains. The new director supervision of DNB is currently working for NIBC, (the same bank where van Dijkhuizen is CFO). So both Wellink and van Dijkhuizen, may have each supported their trusted candidates/protegees in view of their qualities. And those qualities certainly do not need to be questioned as the competences of both Knot and Sijbrand speak for themselves.
What I do have a concern about, is that the new management at DNB may get a structure that was focused on the old idea of Hoogduin as the new President. And there now is a separation of the domain of internal affairs and organisation (Eldersohn), Bank Supervision (Sijbrand) and general management and monetary affairs (the President). If the DNB-improvement for the future lies in a cultural change, it is clear that this requires leadership from the future President. But that President is not directly responsible; his two Directors are. And that is a rather unfortunate organizational setting. Furthermore, Knot may not be willing to tighten the knots for his old colleagues when doing the cultural/organisation change. Nevertheless, with sufficient quality, coordination and perhaps a good fresh breeze in the organisation as a result of the new Director Supervision, we should just hope for the best.
Incidentally, I should also mention that the Supervisory Board has not made any statement at all. It appears to me that the unhealthy intervention of the Ministry of Finance with respect to the succession of the President (not a minor job) does not bode well for the future. And this is the same Ministry that formally provides the Supervisory Board with very strong powers in the future. In my view, it is strange to have a Ministry doing your job as the Supervisory Board, so I am amazed that none of them respond or resign. It’s a stunning silence that we can witness, which seems to imply that the Supervisory Board Members rather stick to the status and prestige of being the DNB-Supervisory Board Member than to the content of their job: ensure proper governance at DNB.
Conclusion: butterfingered fiddling with an aftertaste of sprouts...
If we look at the importance of proper supervision and a good central bank in a country, we must realize that DNB is a central element of the most vital (financial) infrastructure in the Netherlands. And that means we must do our utmost best to maintain this infrastructure and to ensure that is and will be functioning properly. I am therefore quite surprised about:
- the lack of debate on financial supervision and resulting institutional structure (the right for a Minister to mandate specific action to the Supervisor is absolutely undesirable),
- the faulty structure imposed on DNB (the split of responsibilities between supervisory director and president, the unworkable role for the Supervisory Board)
- the stunning silence that from the Supervisory Board, now that their preferred candidate has not been chosen and decided to leave,
- the outright poor planning, timing and limited secrecy surrounding the reappointment process. The fact that the process became public domain didn’t do anyone good and was quite awkward to observe, leaving some of the people involved with a bit of a stain on their image.
We can conclude that we have now effectively already built in the core structural weaknesses that will give rise to future incidents with respect to DNB and Bank Supervision. It's all quite embarassing given that the essence of government is planning and designing ahead in order to prevent incidents and structural weaknesses, rather than to ensure them.
For now I am left with a sense of shame about how we have executed this succession planning process in the Netherlands. If my English vocabulary and Google Translate are correct I could qualify this as a major bit of butterfingered fiddling that leaves an aftertaste of our beloved Dutch sprouts. It makes me realize that the Netherlands is too small in size and population to be able to achieve the proper professional levels necessary that suit a mature democracy and financial market. That is a bit depressing, but that’s the way it is.
Of course the biggest role of the Netherlands in the financial world stems from the Golden Age. And since then we were in decline until former President Vissering lifted us up by his international stature and authority. Similarly, Duisenberg was special and President Wellink has done an incredible good job (although in the end hindered by a monoculture within his own organization). But alas, if we continue conducting ourselves the way we have been doing recently, we can be certain to slide away into a pragmatist way of doing that certainly does not justify a place at the international financial conference tables.
With only ourselves to blame for that.
Let's review this appointment process from a distance, drawing on the numerous reports and bits of work that are available with respect to the functioning of DNB, AFM and financial supervision.
First some colours in the background
Traditionally, both DNB and the Authority Financial Markets (AFM) were given quite some leeway in how they organised their business and executed their constitutional supervisory roles. The consequence was that the AFM developed a policeman-style under Chairman Arthur Dokters van Leeuwen. His successor, Hans Hoogervorst, combined this approach with a political savyness and unnecessary PR-agressiveness. Hoogervorst used publicity incidents to hurt banks in their image and bashed the banks into his prescription: an academic frame-of-mind in which consumers are rational, yet deserve paternalistic protection from overcrediting and in which any form of kick-back is to be eliminated in the marketplace. I am afraid that the AFM is going to need quite some years to discover that they were wrong in assuming the consumer rationality and that they will in the end discover that the elimination of kick-backs means that financial advice for consumers has become far too expensive (and thus: out of reach) for the consumers. So through enforcement of their academic yoke, they will eventually make financial advice more costly, cumbersome and less available to the public at large. Similarly, we will find out in about 5 years -when the market has come to a complete standstill- that they have been beating to loud on the mortgages drum.
Now for DNB. While the AFM is noisily supervising the banks, DNB kept up their appearences in their old-fashioned supervisory stile in which banks are invited over for a cup of tea to discuss business. Whereas AFM was showing too much teeth, DNB showed too little. And that had an effect on the cooperation between the policing AFM and the ever-so-polite DNB. And then DNB got traumatized in 2006, by the failure of Bank van der Hoop. From that moment on, all things in DNB-life became legal. External advisors advised on each step of supervision, thus paralyzing DNB. DNB became afraid to move at all and also got stuck under the spell of Wellink. Wellink was in the Board since 1983 and had arrived at his second 7-year term. Which is impractical, as it is impossible to organise the required internal criticism and openness for such a long period. It just doesn't work as we can see from the examples of Kohl, Thatcher and Lubbers. As a consequence, the oil-tanker DNB was not able to respond promptly and properly in discussions on the ABN AMRO take-over, the failing of Icesave and the demise of DSB. Our readers should note however that it is not so helpful for the central bank to be surrounded by inconsistent and populist claptrap on complex banking issues. But that's all part of the game, so as a President you have to be able to handle that as well.
Our Ministry of Finance meanwhile lacked all vision on how to organise financial supervision. And I know this sounds harsh and crude, but it is a simple fact. Our independent Court of Auditors reported their amazement about the fact and the response of our Ministry was: our supervisory policy is embedded in the Law on Financial Supervision (WFT in Dutch). Well, the connoisseurs of that law will shrug their shoulders, smiling politely. Because the WFT is a beautiful, idealistic legal project that had the potentially to become a great legal structure for the financial sector, also through the nuanced use of open standards. In practice, however, every chapter of the WFT-law was introduced in a hurry so at present there is literally no understanding it any more. If we would consider the WFT to be a computer-application, it would be immediately classified as a spaghetti-bomb and a threat to business-continuity, requiring a comprehensive revamp and structural re-engineering.
Equally important is the fact that in the late nineties the internal organization of Finance was overturned. While the former Ministry would have a department dealing with the financial sector as such, the new departments were split up on the basis of regulatory aspects such as: stability, market conduct, generally and so on. This led to less visibility and understanding of the impact of legislative changes for the sector as such. Thus, the sector was facing a Ministry that looked like a conveyor belt pushing out partial amendments.
Change, but how?
It is clear that the above institutional and supervisory framework is not sufficiently apt to deal with large market shocks and changes. And it is not surprising that the various players in the field reflected on the best way forward. So there were reports of what had happened on DNB's supervision (report Scheltema). Politicians came up with an examination (de Wit), largely a rehashing of international reports. The banks founded a Maas Committee that emphasized in the final report the importance of good governance, stronger risk management and a more integrated assessment of societal interests. And the Ministry of Finance started thinking about a supervisory policy version 0.1 or 1.0.
What surprised me was how the discussion on the desired culture-change at DNB took place. This followed from the report Scheltema, but everyone could know that for such a change to have effect, it is necessary to embed it in a good institutional structure and to be supported and spearheaded by a good leader: the President himself. I looked with increasing astonishment at the senseless rush that was displayed by all actors in the play. Within one month an implementation plan for cultural change should be made. And while DNB met this request of parliament without complaint, it goes without saying that this will have absolutely no effect whatsoever. Because the President, spearheading the change, was going to be replaced in a years time.
While in the Netherlands we were discussing and pondering the above, our Government fell apart in February 2010, which meant that no ravishing or fundamental changes could be expected. Still, it appeared that our Ministry of Finance had decided that their links to supervisors AFM and DNB should be strengthened. So they colluded with Members of Parliament to obtain the discretion to guide and demand action from supervisors (without the realization that the WFT does not really allow them such an action). Furthermore, the Minister of Finance quickly said he was changing the appointment rules for Presidents to a maximum of one re-election. In doing so he inelegantly and unnecessarily bruised Wellink. And our Minister became more responsible for the succession planning at DNB, which requires a forward-looking approach.
The appointment process of the President and directors of the Dutch central bank (DNB)
What I noticed last year is that the tone of voice and the noise-level of publicity by the AFM appeared to decrease, already while Hoogervorst was still running the AFM. The penalties for banks were lower and the public reactions of banks with respect to the behavior of the AFM were milder. Hoogervorst was sent on (or perhaps: off) to his beloved international work. And at the same time the Ministry of Finance appointed his Treasurer, Ronald Gerritsen as the new Chairman at the AFM. Which brings the Ministry of Finance closer to the fire.
As for DNB, there is of course the weekly lunch-meeting de Jager and Wellink. I imagine that early-on they discussed how to organise the succession. And it must have been obvious that Hoogduin was the intended successor, as such a preference (of the Supervisory Board) doesn’t suddenly fall from a blue sky down. Yet, both Wellink and De Jager will have noted that Hoogduin had little track record in Bank Supervision. And my idea is that the Ministry of Finance proposed a division of responsibilities between supervisory and monetary policy, so that Hoogduin could be appointed as new president of DNB. And that part of the succession planning proceeded nicely: Parliament agreed with the idea and we moved on.
But then, in May things suddenly went wrong. The discussion on succession hit the streets, the public and parliament. This surprised me, but also allowed me a moment to share my views on my preference. But the Members of Parliament did not want Hoogduin to be the next DNB-President as he was no outsider and could thus not be the one to spearhead the culture change at DNB. And then, one of the three candidates, Kremers, also stepped out of the race. To him, the Supervisory Board of DNB was unable to outline clearly what his position would be (no doubt this was a discussion on the relationship between the President and the almost independent director of Bank Supervision at the DNB).
What struck me was that we were very much running out of time. It was May, while we needed a President as of July. And you don’t want to be choosing your next central bank President in such a time-squeeze (it seems that shows such as Idols and X-factor even use more time to pick their winner). Anyway, we went through somewhat indistinct and misty weeks, to find out that one of the other top officials of Finance, Knot (who has a DNB-ring to him as he worked their for many years) will become our next President at DNB. With former Crown-prince Hoogduin choosing to leave, because he undoubtedly envisaged his future to be different than it now had become.
The net effect of all this fiddling: there are suddenly two new directors and a new President at DNB as of July 1, 2011. And do note that Klaas Knot is not really an outsider. He originally worked for the Insurance Supervisor and had a quick career at DNB for some 10 years. He became the right-hand advisor of Wellink in his international meetings/work. And a number of years ago he was appointed as a top-civil servant at the Ministry of Finance, possibly as part of a master plan in which Wellink arranged his long-term succession (or simply just took good care of the career of his closest advisor). Now, with the butterfingered public discussion on the succession and role of Hoogduin underway, the choice for Klaas Knot was advanced in time (he might have been on the schedule to succeed Hoogduin). And my guess is that the lack of enthousiasm of Knot for internal and organisational matters may have led him to outline that he didn’t wish to take up the ‘internal affairs’ portfolio of Hoogduin as a part of his role of President.
What struck me is that perhaps Kees van Dijkhuizen and Nout Wellink may have still played important roles behind the curtains. The new director supervision of DNB is currently working for NIBC, (the same bank where van Dijkhuizen is CFO). So both Wellink and van Dijkhuizen, may have each supported their trusted candidates/protegees in view of their qualities. And those qualities certainly do not need to be questioned as the competences of both Knot and Sijbrand speak for themselves.
What I do have a concern about, is that the new management at DNB may get a structure that was focused on the old idea of Hoogduin as the new President. And there now is a separation of the domain of internal affairs and organisation (Eldersohn), Bank Supervision (Sijbrand) and general management and monetary affairs (the President). If the DNB-improvement for the future lies in a cultural change, it is clear that this requires leadership from the future President. But that President is not directly responsible; his two Directors are. And that is a rather unfortunate organizational setting. Furthermore, Knot may not be willing to tighten the knots for his old colleagues when doing the cultural/organisation change. Nevertheless, with sufficient quality, coordination and perhaps a good fresh breeze in the organisation as a result of the new Director Supervision, we should just hope for the best.
Incidentally, I should also mention that the Supervisory Board has not made any statement at all. It appears to me that the unhealthy intervention of the Ministry of Finance with respect to the succession of the President (not a minor job) does not bode well for the future. And this is the same Ministry that formally provides the Supervisory Board with very strong powers in the future. In my view, it is strange to have a Ministry doing your job as the Supervisory Board, so I am amazed that none of them respond or resign. It’s a stunning silence that we can witness, which seems to imply that the Supervisory Board Members rather stick to the status and prestige of being the DNB-Supervisory Board Member than to the content of their job: ensure proper governance at DNB.
Conclusion: butterfingered fiddling with an aftertaste of sprouts...
If we look at the importance of proper supervision and a good central bank in a country, we must realize that DNB is a central element of the most vital (financial) infrastructure in the Netherlands. And that means we must do our utmost best to maintain this infrastructure and to ensure that is and will be functioning properly. I am therefore quite surprised about:
- the lack of debate on financial supervision and resulting institutional structure (the right for a Minister to mandate specific action to the Supervisor is absolutely undesirable),
- the faulty structure imposed on DNB (the split of responsibilities between supervisory director and president, the unworkable role for the Supervisory Board)
- the stunning silence that from the Supervisory Board, now that their preferred candidate has not been chosen and decided to leave,
- the outright poor planning, timing and limited secrecy surrounding the reappointment process. The fact that the process became public domain didn’t do anyone good and was quite awkward to observe, leaving some of the people involved with a bit of a stain on their image.
We can conclude that we have now effectively already built in the core structural weaknesses that will give rise to future incidents with respect to DNB and Bank Supervision. It's all quite embarassing given that the essence of government is planning and designing ahead in order to prevent incidents and structural weaknesses, rather than to ensure them.
For now I am left with a sense of shame about how we have executed this succession planning process in the Netherlands. If my English vocabulary and Google Translate are correct I could qualify this as a major bit of butterfingered fiddling that leaves an aftertaste of our beloved Dutch sprouts. It makes me realize that the Netherlands is too small in size and population to be able to achieve the proper professional levels necessary that suit a mature democracy and financial market. That is a bit depressing, but that’s the way it is.
Of course the biggest role of the Netherlands in the financial world stems from the Golden Age. And since then we were in decline until former President Vissering lifted us up by his international stature and authority. Similarly, Duisenberg was special and President Wellink has done an incredible good job (although in the end hindered by a monoculture within his own organization). But alas, if we continue conducting ourselves the way we have been doing recently, we can be certain to slide away into a pragmatist way of doing that certainly does not justify a place at the international financial conference tables.
With only ourselves to blame for that.
23/05/2011
Dutch coalition has to lean on PVV and SGP for support of government...
Today was the day that the Dutch Members of the Provinces voted for the Members of the First (Upper) Chamber of Parliament. Traditionally this is called the 'reflection' Chamber, because it is not so much a political arena as the Second Chamber. It's role is, traditionally, to ensure quality of rules, rule-making and check the fundamentals of law. Only on occasion do the discussions in the First Chamber lead to parliamentary crises.
Well, as you can read here, it turned out that the current minority-coalition of VVD and CDA has failed to win an outright majority of seats in the upper house of parliament, or senate, according to the latest prognosis from Nos television. Even when combined with the PVV, the result is a mere 37 seats, which means that the coalition alliance (VVD, CDA and PVV) is still one seat short as the Chamber has 75-seat Members.The SGP has publicly stated however, that it will tend to support the coalition. And their support was of course much helped by the withdrawal of support (by VVD) for legislation which lifts the ban on blasphemy.
As a result, Prime Minister Mark Rutte is now facing the most serious balancing act since a long time. Rutte needs the support of PVV in the Second Chamber (Lower House) and needs the PVV for that. Meaning he has to side with a party with strong anti-islam sentiments, that wishes Greece to step out of the euro and so on. And in the First Chamber (Upper House) he sides with the SGP, that has the political position that women should not be active in politics (and should focus on their maternal tasks primarily). And this is quite a combination... leading us in the Netherlands into ad-hocracy territory, due to the minority character of our governing coalition. And we haven't had situations before in which each government issue/thema had to be battled for independently in the Chambers. So we're up for some Realpolitik here in the Netherlands.
We should note however that this outcome is essentially doing proper justice to the outcome of the elections for the Upper and Lower House here. The Dutch were strongly divided, which resulted in a situation where it was no longer clear how to form a majority-coalition. So the voters have condemned the politicians to cooperation, despite their strong differences of opinion (and sometimes unagreeable manners or political views on other subjects). And it remains to be seen if this will be accompanied with proper conduct in the Houses of Parliament or whether we will see more name-calling and pub-talk. So the end result is that the voters have gotten what they represented: a divided caretaker government that will steer on a day-to-day basis, and will be unable to steer on long-term policy goals or to achieve fundamental changes.
I am curious to see if our Prime Minister, Mark Rutte, will succeed in his balancing act. Time will tell.
Well, as you can read here, it turned out that the current minority-coalition of VVD and CDA has failed to win an outright majority of seats in the upper house of parliament, or senate, according to the latest prognosis from Nos television. Even when combined with the PVV, the result is a mere 37 seats, which means that the coalition alliance (VVD, CDA and PVV) is still one seat short as the Chamber has 75-seat Members.The SGP has publicly stated however, that it will tend to support the coalition. And their support was of course much helped by the withdrawal of support (by VVD) for legislation which lifts the ban on blasphemy.
As a result, Prime Minister Mark Rutte is now facing the most serious balancing act since a long time. Rutte needs the support of PVV in the Second Chamber (Lower House) and needs the PVV for that. Meaning he has to side with a party with strong anti-islam sentiments, that wishes Greece to step out of the euro and so on. And in the First Chamber (Upper House) he sides with the SGP, that has the political position that women should not be active in politics (and should focus on their maternal tasks primarily). And this is quite a combination... leading us in the Netherlands into ad-hocracy territory, due to the minority character of our governing coalition. And we haven't had situations before in which each government issue/thema had to be battled for independently in the Chambers. So we're up for some Realpolitik here in the Netherlands.
We should note however that this outcome is essentially doing proper justice to the outcome of the elections for the Upper and Lower House here. The Dutch were strongly divided, which resulted in a situation where it was no longer clear how to form a majority-coalition. So the voters have condemned the politicians to cooperation, despite their strong differences of opinion (and sometimes unagreeable manners or political views on other subjects). And it remains to be seen if this will be accompanied with proper conduct in the Houses of Parliament or whether we will see more name-calling and pub-talk. So the end result is that the voters have gotten what they represented: a divided caretaker government that will steer on a day-to-day basis, and will be unable to steer on long-term policy goals or to achieve fundamental changes.
I am curious to see if our Prime Minister, Mark Rutte, will succeed in his balancing act. Time will tell.
28/04/2011
Bernanke sticks to low rates.... risky... but understandable
These days I watched and listened the first press conference by Ben Bernanke, in which he elaborated on the US-FOMC monetary policy. After a nervous start, he started getting the hang of it when it all became 'technical'. Whereas Trichet is a fully certified clueless-empty-can-but-very-capable-regent who brushes off all complicated questions with a number of standard mantras, Bernanke was in good shape. The guy very obviously knows what he is talking about and that is a huge relief in comparison to Trichet. I noticed that in general, also the US-FED-watchers shared the view that this was a good first premiere by Bernanke (see also here).
Wat Bernanke told us, is that the FOMC, with its double mandate on price stability and employment, chose to prioritize the economic growth and employment by maintaining low interest rates for the time being. The quantitative easing will end in June, but there will be reinvestments of matured bonds. The Fed considers a stop on this reinvesting as a tightening of monetary policy and will only do so after due consideration and on the basis of an explicit FOMC decision. So, for now, we will face a prolongued period (at least three months) of low interest rates in the US. Employment is the main thing.
The market effects were quickly visible with a happy stock market and a diving dollar. Meanwhile I was pondering the thought if the economy in the US would really be in such a bad shape that it deserved further easy-money? Or could there be another angle at all this?
I realised that we are in the run up to new elections and recalled literature from a while ago: research by the FED that observed a correlation between the behaviour of the FED/FOMC and the pre-election year. This would be either an explicit or implicit case of the principal-agent situation. Meaning that in the year before the elections, the US Presidents appreciates a solid economy which then creates jobs that he can show off with in the election year. And from that perspective, the FED-decision is quite clear (and a case in point).
Still, this is playing with fire, as we are in the same situation that brought us the financial crisis: a prolongued perod with low interest rates, which may seduce markets into taking too much risk. Which may lead to the situation where we get rid of the hangover by taking a new beer, the day after (as we all know, the recipe for die-hard alcoholism). En also our central bank (De Nederlandsche Bank NV) states a serious warning in its financial stability report which does not sound happy at all:
Just as in the run-up to the crisis, we can observe overliquidity in the worldwide financial system, with global imbalances. These developments may, in the medium term, threathen the financial stability, when once again bubbles in financial markets or unsustainable debts will come into being. We have almost stretched the accomodative monetary policies that we see worldwide, to their maximum limits.
In sum, the historic days are not over yet. As we are very much aware how we came into this crisis, it remains a risky approach to stick to low interest rate policies. Time will tell.
Wat Bernanke told us, is that the FOMC, with its double mandate on price stability and employment, chose to prioritize the economic growth and employment by maintaining low interest rates for the time being. The quantitative easing will end in June, but there will be reinvestments of matured bonds. The Fed considers a stop on this reinvesting as a tightening of monetary policy and will only do so after due consideration and on the basis of an explicit FOMC decision. So, for now, we will face a prolongued period (at least three months) of low interest rates in the US. Employment is the main thing.
The market effects were quickly visible with a happy stock market and a diving dollar. Meanwhile I was pondering the thought if the economy in the US would really be in such a bad shape that it deserved further easy-money? Or could there be another angle at all this?
I realised that we are in the run up to new elections and recalled literature from a while ago: research by the FED that observed a correlation between the behaviour of the FED/FOMC and the pre-election year. This would be either an explicit or implicit case of the principal-agent situation. Meaning that in the year before the elections, the US Presidents appreciates a solid economy which then creates jobs that he can show off with in the election year. And from that perspective, the FED-decision is quite clear (and a case in point).
Still, this is playing with fire, as we are in the same situation that brought us the financial crisis: a prolongued perod with low interest rates, which may seduce markets into taking too much risk. Which may lead to the situation where we get rid of the hangover by taking a new beer, the day after (as we all know, the recipe for die-hard alcoholism). En also our central bank (De Nederlandsche Bank NV) states a serious warning in its financial stability report which does not sound happy at all:
Just as in the run-up to the crisis, we can observe overliquidity in the worldwide financial system, with global imbalances. These developments may, in the medium term, threathen the financial stability, when once again bubbles in financial markets or unsustainable debts will come into being. We have almost stretched the accomodative monetary policies that we see worldwide, to their maximum limits.
In sum, the historic days are not over yet. As we are very much aware how we came into this crisis, it remains a risky approach to stick to low interest rate policies. Time will tell.
11/04/2011
The successor to Wellink: why I think van Dijkhuizen is the best for the job !
These days, decisions are in the making about the best man to succeed Wellink as the President of De Nederlandsche Bank (our central bank). There are three candidates for the job: Hoogduin, Kremers, en van Dijkhuizen. Whereas in former days, the President used to be responsible for both monetary and supervisory matters, the Minister of Finance, JanCees de Jager, is now choosing for a separation of duties (see here Dutch source 1 and here Dutch source 2). Due to the failures in Dutch banking supervision of the last years, there will be a separate executive director responsible for bank supervision. That director can independently judge and committ the whole central bank board (and its President). And as to the general set-up for bank supervision in the Netherlands, I am amazed at the following statement of the Ministry of Finance:
The Minister trusts very strongly on the internal systems of checks and balances of De Nederlandsche Bank (DNB) and the Authority for Financial Markets (AFM). Both supervisors are themselves responsible for the proper functioning of their internal governance, the legality of their expenditure, the execution of supervision and the determination of priorities and accents of their work.
I find the above quote highly interesting and surprising because things haven't gone that well at the two Dutch supervisors of financial institutions. Too much money has been billed to the institutions under supervision, which had to be corrected by the administrative judge in an appeal (while the Ministry of Finance and supervisors for years ignored the complaints of representative organisation that highlighted this excessive billing). Three banks have failed, not the least as the result of a strong monoculture at the prudential supervisor, DNB. And the AFM has shot bullets as well as blanks by using open norms on anything that moved. So with a Ministry of Finance that doesn't change any of this and just trusts those supervisors to continue doing their job well, we don't have to wonder why the Netherlands will be quite likely to soon face another financial crisis or failing bank. Perhaps the only positive thing that we can say for the Ministry of Finance is that at last, they have formulated some sort of vison on supervision 0.1, because so far it was the only Ministry in the Government that hadn't done its homework properly.
Yet,it might also be the case that the Ministry does not aim to steer policies by a proper structure, but by manning the supervisors with the proper President. It might be this choice that underlies the choice of the Ministry for Ronald Gerritsen, currenty it's own secretary-general, for the role of President of the Authority for Financial Markets (AFM). And similarly one might expect a choice for Kees van Dijkhuizen (former Treasury of the State, just as Wellink was), for the new boss at DNB. But let's not rush too much with my personal preference.
Apart from all the above, we have to be aware of the challenges for the successor of Wellink. The first one is that he (a she could not be found apparently) needs to work with an impossible governance structure in which a pigheaded Director of Supervision can committ the whole DNB-board without consulting them in advance. Second of all, the new President needs to be someone who is able to change the internal culture at DNB from a Kings-Court attitude to more street-wisdom. it must be someone that not just thinks, or prefers study of legal implications, but is also able and willing to act. So we are looking for a pro-active and inspiring leader, with sufficient political flexibility and insight.
Looking at the candidates it is obvious that not all of them are known to the public. Hoogduin, is an abstract macro-economic expert and doing very well in that role. But it is also clear that the analytical approach isn't suited to the public and staff: it's not the man to inspire staff with a warm / human vision and he appears to be less able in communicating simple messages to the public at large. In his way of work he is thus quite likely to condense problems into a set of mathematical equations of an economic logic, which dictate the outcome in the long run. Finally it is unknown whether his political antenna is sufficiently well tuned.
Kremers is the architect of the current supervisory (Twin Peaks) system. After his job at the Ministry of Finance (in the nineties), he joined IMF. From there he congratulated the Ministry with te well chosen twin peaks regulatory system. In fact, he thus complimented himself over a distance and this was quite embarrassing to watch. It is unclear what job he holds exactly at RBS, after the merger. He does fit the criterion however, that he used to work at the Ministry of Finance worked. And he will also be politcially versatile, though lacking in hands-on experience. He seems too self-involved in his mental ideas and recipes. Placing him in the chair of President of DNB, means that DNB gets a new version of a mastermind at the top who has an audience bowing for his great thoughts. It is exactly this symbiotic groupthink relationship between Wellink and his staff that needs to be changed and with Kremers, it seems unlikely that his unhealthy relationship between leader / staff will change. So Kremers is not the right candidate, although many may say he is the right man because of the increasing importance of avoiding systemic risk (and relationship with the IMF).
Finally, Kees van Dijkhuizen. He worked as the Dutch Treasurer and then at NIBC, which wasn't the most obvious choice as it was a bank in special circumstances and trouble (takeover by Kaupthing didn't succeed so NIBC is still in the hands of a a consortium of JC Flowers). He actually worked there in silence, introduced a new consumer savings account (NIBC Direct), to broaden its funding, and made some steps into expansion abroad. All are quite healthy and logical steps, and what appeals to me in this is the hands-on nature. Dijkhuizen, then, is the only candidate that demontrates his ability in hands-on management in both public and private sector, surrounded by complex political, macroeconomic and market dynamics. It seems to me that the richness and diversity of qualities you need to succeed as he does, are precisely the qualities that we require of the new president of DNB.
Henceforth my sincere advice and conclusion: van Dijkhuizen is the best man for the job!
The Minister trusts very strongly on the internal systems of checks and balances of De Nederlandsche Bank (DNB) and the Authority for Financial Markets (AFM). Both supervisors are themselves responsible for the proper functioning of their internal governance, the legality of their expenditure, the execution of supervision and the determination of priorities and accents of their work.
I find the above quote highly interesting and surprising because things haven't gone that well at the two Dutch supervisors of financial institutions. Too much money has been billed to the institutions under supervision, which had to be corrected by the administrative judge in an appeal (while the Ministry of Finance and supervisors for years ignored the complaints of representative organisation that highlighted this excessive billing). Three banks have failed, not the least as the result of a strong monoculture at the prudential supervisor, DNB. And the AFM has shot bullets as well as blanks by using open norms on anything that moved. So with a Ministry of Finance that doesn't change any of this and just trusts those supervisors to continue doing their job well, we don't have to wonder why the Netherlands will be quite likely to soon face another financial crisis or failing bank. Perhaps the only positive thing that we can say for the Ministry of Finance is that at last, they have formulated some sort of vison on supervision 0.1, because so far it was the only Ministry in the Government that hadn't done its homework properly.
Yet,it might also be the case that the Ministry does not aim to steer policies by a proper structure, but by manning the supervisors with the proper President. It might be this choice that underlies the choice of the Ministry for Ronald Gerritsen, currenty it's own secretary-general, for the role of President of the Authority for Financial Markets (AFM). And similarly one might expect a choice for Kees van Dijkhuizen (former Treasury of the State, just as Wellink was), for the new boss at DNB. But let's not rush too much with my personal preference.
Apart from all the above, we have to be aware of the challenges for the successor of Wellink. The first one is that he (a she could not be found apparently) needs to work with an impossible governance structure in which a pigheaded Director of Supervision can committ the whole DNB-board without consulting them in advance. Second of all, the new President needs to be someone who is able to change the internal culture at DNB from a Kings-Court attitude to more street-wisdom. it must be someone that not just thinks, or prefers study of legal implications, but is also able and willing to act. So we are looking for a pro-active and inspiring leader, with sufficient political flexibility and insight.
Looking at the candidates it is obvious that not all of them are known to the public. Hoogduin, is an abstract macro-economic expert and doing very well in that role. But it is also clear that the analytical approach isn't suited to the public and staff: it's not the man to inspire staff with a warm / human vision and he appears to be less able in communicating simple messages to the public at large. In his way of work he is thus quite likely to condense problems into a set of mathematical equations of an economic logic, which dictate the outcome in the long run. Finally it is unknown whether his political antenna is sufficiently well tuned.
Kremers is the architect of the current supervisory (Twin Peaks) system. After his job at the Ministry of Finance (in the nineties), he joined IMF. From there he congratulated the Ministry with te well chosen twin peaks regulatory system. In fact, he thus complimented himself over a distance and this was quite embarrassing to watch. It is unclear what job he holds exactly at RBS, after the merger. He does fit the criterion however, that he used to work at the Ministry of Finance worked. And he will also be politcially versatile, though lacking in hands-on experience. He seems too self-involved in his mental ideas and recipes. Placing him in the chair of President of DNB, means that DNB gets a new version of a mastermind at the top who has an audience bowing for his great thoughts. It is exactly this symbiotic groupthink relationship between Wellink and his staff that needs to be changed and with Kremers, it seems unlikely that his unhealthy relationship between leader / staff will change. So Kremers is not the right candidate, although many may say he is the right man because of the increasing importance of avoiding systemic risk (and relationship with the IMF).
Finally, Kees van Dijkhuizen. He worked as the Dutch Treasurer and then at NIBC, which wasn't the most obvious choice as it was a bank in special circumstances and trouble (takeover by Kaupthing didn't succeed so NIBC is still in the hands of a a consortium of JC Flowers). He actually worked there in silence, introduced a new consumer savings account (NIBC Direct), to broaden its funding, and made some steps into expansion abroad. All are quite healthy and logical steps, and what appeals to me in this is the hands-on nature. Dijkhuizen, then, is the only candidate that demontrates his ability in hands-on management in both public and private sector, surrounded by complex political, macroeconomic and market dynamics. It seems to me that the richness and diversity of qualities you need to succeed as he does, are precisely the qualities that we require of the new president of DNB.
Henceforth my sincere advice and conclusion: van Dijkhuizen is the best man for the job!
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