Years after the financial crisis of 2007/08, a sufficient amount of time has passed to ask whether we have learned the lesson, and, if this is answered positively, if the right consequences have been drawn, both on the political as on the scientific side. To discuss these questions, five eminent scholars came to Bielefeld’s Center for Interdisciplinary Research to share their insights with the research group on “Robust Finance” and 70 invited guests.
The long-time director of the Ifo Institute, Hans-Werner Sinn, opened the conference with a talk on “The Real Side of the Crisis”. Sinn analyzed the current economic state of the European Union from which he derived the need for several European countries to change their relative prices and wages. Sinn first discussed dismal options. The transfer union, i.e. a unified Europe working according to similar principles as the different Länder do in Germany at the moment, will easily lead to the “Dutch Disease” – an import of the weaknesses of one country via the subsidy mechanisms to other countries. Deflating the periphery of the European Union by austerity politics or inflating the core of Europe were also excluded by Sinn as reasonable options. The irreversible exit of countries like Greece from the Euro Zone would also have many negative externalities like bank runs, capital flight etc, as we can currently observe. What are better options? Hans-Werner Sinn makes three proposals: in a first step, a debt conference should cut the debts of the crisis countries; afterwards, a “breathing monetary union” where countries are allowed to leave the Euro zone temporarily with an option of reentry should be implemented; in the third step, harder local budget constraints after the example of the United States of America should be introduced.
The Director of the Max-Planck-Institute for Research on Collective Goods, Martin Hellwig, asked “Has The Financial System Become Safer?” and started right away with the remark: “Safer is not safe”. Indeed, in his opinion, the current changes in regulation that we have seen so far, can be compared to lowering the speed limit for trucks from 150 km/h to 140 km/h after a heavy truck accident in a tunnel has been observed. In other words: the changes of regulatory rules so far would not prevent the crisis of 2007/08! Basel III, in Hellwig’s words, is rather Basel 2.0.1. Hellwig also pointed to a failure of academia with an unwillingness to question “established” results. A good example how to deal with a banking crisis was set by Sweden in 1992 by a governmental takeover of the banking sector and a later re-privatization. The resolution of uncertainty and transparency in the sector could thus be restored.
The former director of the Cowles Foundation for Research in Economics, John Geanakoplos, discussed the role of collateral on investment with a theoretical paper. His contribution indicated a way of thinking for economic theory in the aftermath of the crisis. His main result shows that the set of assets that may be used as collateral has effects on prices and investment in the economy. The introduction of collateralized debt obligations, e.g., can then lead to underinvestment.
The economic theorist Itzhak Gilboa from Tel Aviv discussed the role of economic models as a basis to understand social sciences. In particular, the basic philosophical concept of refutability was discussed in detail. The idea of refuting a theory by an experiment as derived from Physics by Popper might not be a useful approach for the social sciences. As Amos Tversky pointed out, our theories “are embarrassed, not refuted”.
The leading mathematician Walter Schachermayer from Vienna discussed the historical background of “Mathematics in Finance”; starting with an overlooked thesis by Louis Bachelier in 1903, the theory of Brownian motion made a spectacular career in Finance with the help of Paul Samuelson and Robert Merton. This allowed to spawn the spectacular success of mathematics in finance, but led also to misdevelopments as the theory was applied to fields where its assumptions are simply not satisfied. Schachermayer asked for more modesty in applying our mathematical models.
|9:00–9:15||Martin Egelhaaf (Vice-rector of Bielefeld University, Director of the ZiF)
The ZiF Research Group “Robust Finance: Strategic Power, Knightian Uncertainty, and the Foundations of Economic Policy Advice”
The real side of the crisis
Has regulatory reform made the financial system safer?
Collateral and Investment
A model of modeling
Mathematics in finance
Peter Bank (Berlin, GER), Dietmar Bauer (Bielefeld, GER), Dirk Becherer (Berlin, GER), Geghard Bedrosian (Bielefeld, GER), Patrick Beißner (Bielefeld, GER), Stefan Berens (Bielefeld, GER), Philip Bergmann (Bielefeld, GER), Peter Bernholz (Basel, SUI), Philippe Blanchard (Bielefeld, GER), Gregor Böhl (Bielefeld, GER), Volker Böhm (Bielefeld, GER), Sonja Brangewitz (Paderborn, GER), Berno Büchel (Hamburg, GER), Rainer Buschmeier (Bielefeld, GER), Lasha Chochua (Bielefeld, GER), Oliver Claas (Bielefeld, GER), Fernando Cordero (Bielefeld, GER), Rose-Anne Dana (Paris, FRA), Ghislain Herman Demeze (Bielefeld, GER), Frederik Diermann (Bielefeld, GER), Bernhard Eckwert (Bielefeld, GER), Jürgen Eichberger (Heidelberg, GER), Tolulope Fadina (Bielefeld, GER), Giorgio Ferrari (Bielefeld, GER), Bettina Fincke (Bielefeld, GER), Florian Gauer (Bielefeld, GER), John Geanakoplos (New Haven, USA), Itzhak Gilboa (Tel Aviv, ISR), Simon Grant (Acton, AUS), Michael Günther (Bielefeld, GER), Philipp Harting (Bielefeld, GER), Tim Hellmann (Bielefeld, GER), Tobias Hellmann (Bielefeld, GER), Martin Hellwig (Bonn, GER), Niklas Herzig (Bielefeld, GER), Jan-Otmar Hesse (Bielefeld, GER), Ulrich Horst (Berlin, GER), Hermann Jahnke (Bielefeld, GER), Stefan Jonitz (Kirchlengern, GER), Klebert Kentia Tonleu (Berlin, GER), Hartmut Kliemt (Frankfurt am Main, GER), Philipp Külpmann (Bielefeld, GER), Jakob Landwehr (Bielefeld, GER), Andreas Lange (Hamburg, GER), Yuanyuan Li (Bielefeld, GER), Nadja Maraun (Paderborn, GER), Sujoy Mukerji (Oxford, GBR), Igor Muraviev (Bielefeld, GER), Elena Orlova (Bielefeld, GER), Daniele Pennesi (Cergy-Pontoise, FRA), Lavinia Perez-Ostafe (Zurich, SUI), Luca Rigotti (Pittsburgh, USA), Walter Schachermayer (Vienna, AUT), Willi Semmler (Bielefeld, GER), Gerlinde Sinn (Munich, GER), Hans-Werner Sinn (Munich, GER), Mathias Staudigl (Bielefeld, GER), Jan-Henrik Steg (Bielefeld, GER), Nina Stephan (Paderborn, GER), Yuliia Stupnytska (Bielefeld, GER), Lan Sun (Bielefeld, GER), Andreas Szczutkowski (Bielefeld, GER), Jean-Marc Tallon (Paris, FRA), Jacco Thijssen (York, GBR), Johannes Tiwisina (Bielefeld, GER), Hale Utar (Bielefeld, GER), Sander van der Hoog (Bielefeld, GER), Nikoleta van Welbergen (Bielefeld, GER), Carl Christian von Weizsäcker (Bonn, GER), Stefan Weber (Hanover, GER), Nicole Ziemnicki (Bielefeld, GER), Benteng Zou (Luxemburg, LUX)
(Foto: Alexandra Polina)