Missing the wood for the trees

This morning, I read a story written by one Gavin Jackson of FT on July 21, 2016 on the ‘effectiveness’ of the European Central Bank (ECB) bond buying programme. Is the programme effective merely because the prices of the bonds that the ECB buys have appreciated more than that of the bonds that the ECB does not buy? Was the aim of ECB to act as a campaign manager or lead banker for these companies? Or, was it to ensure that the companies used their lower cost of capital to borrow, to invest in real assets and to create jobs?

Indeed, the so-called effectiveness that the journalist talks about may actually be ‘ineffectiveness’. It may be distorting markets and creating more moral hazard than causing good to the economy. It is evident that pension plans are hurting and so are insurance companies. More zombie companies might be staying alive and longer than they deserve to.

In the ABFER conference in Singapore in May, a paper was presented by Prof. Christian Eufinger, Assistant Professor at the IESE Business School from the University of Navarra i Barcelona, Spain. It was a co-authored paper. The other authors were Viral V. Acharya, Tim Eisert and Christian Hirsch.  The paper clearly noted that the intended real economy effects of ECB bond buying programme were not coming through. Instead, there were perverse consequences. You can download the paper from here.

By missing the wood for the trees, financial journalists, in their ignorance, are harming the public and encouraging unwise and bad public policy. They should reflect on their contribution to the state of angst in the world today.


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