Maxwell Fry Global Finance Lecture 2019

A silent run on shadow banks: due to sunspots or chicanery? By Marcus Miller

Can ‘externalities’ undermine financial stability? To address this question an account of investment banking developed by Hyun Shin will be used. (Shin was one of the LSE economists who warned of global financial instability back in 2001 -  and was  recently listed as one of the ‘world’s top 50 thinkers’ in Prospect Magazine.) With reference to the subprime crisis of 2008/9 in particular, this will show how collateral externalities can so amplify the effects of Good News and Bad News as to cause boom and bust. 

The canvas will then be widened to consider other views, as in ‘The blind monks and the elephant: contrasting narratives of financial crisis’, published last year in Manchester School, Miller, Rastapana and Zhang (2018).  

The lecture will conclude with a focus on moral hazard issues:  on whether the bank run on shadow banking was due to ‘sunspots’, as some have argued; or whether it was due to something closer to home such as ‘fake news’, as Akerlof and Shiller claim in their book on Phishing for Phools: The Economics of Manipulation and Deception.

Speaker’s Bio

Marcus Miller has been Professor of Economics at the University of Warwick and Research Fellow at the CEPR for more than forty years.

After a first degree in PPE at Oxford, and graduate training at Yale University with James Tobin as thesis supervisor, his first post was at LSE; and studying the effects of UK entry to the European Customs Union a key element of his research there. But when backbench Parliamentary Committees were first set up - and he was recruited as advisor to the Treasury Committee to help draft its 1981 report on Mrs Thatcher’s monetary policy - the focus shifted to monetary and exchange rate matters. Results included a Warwick conference volume, coedited with Paul Krugman, on Exchange Rate Targets and Currency Bands.

Appointment as Associate Director of the ESRC Centre for the Study of Globalisation and Regionalisation at Warwick just before the onset of the Asian financial crisis triggered an abiding interest in why things can go so wrong and how they might be fixed - as discussed, for example, in The Asian Financial Crisis, coedited with P-R Agenor and others. A visit to the World Bank, where Joseph Stiglitz was Chief Economist, led ultimately to a joint paper on ‘Leverage and Asset Bubbles: Averting Armageddon by Chapter 11’.[1]  That what began as a commentary on the Thai crisis was finally published as applied to the North Atlantic crisis of 2008/9 seems to confirm Max Fry’s insistence that emerging market issues and those in OECD economies should be painted with the same brush! 

After completing an ESRC Professorial Fellowship on sovereign debt issues  - and a short play in Prospect Magazine on the British banking crisis “Richard Fausto:  his Rise and Fall” -  Miller’s research has focused on policy externalities. Looking at how  the Gulag prison camps helped Stalin enforce labour discipline in Russia,  for example;  and how micro-prudential banking regulation failed to achieve global financial stability – the focus of the this year’s Max Fry lecture.