The Economist - UK (2019-06-29)

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The EconomistJune 29th 2019 Finance & economics 73

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conomicsisthestudyofhowsociet-
iesallocatescarceresources.Butwhy
leteggheadshaveallthefun?A museum
aimingtobringthedisciplinetothe
massesopenedinParisonJune14th.A
visittoCitécooffersbothseasonedand
neophytedismalscientistsa chanceto
reflectonthefield’simportance.
Plentyofcentralbanksrunmuseums
ofcoinsandbanknotes.TheBanquede
France,lookingtorepurposea branch
closedin2006,hadhigherambitions.It
aimsto“reconciletheFrenchwitheco-
nomics”,asif a lovers’tiffhaddriven
themapart.Thatit ishousedina neo-
gothicmansion,completewitha moat
defendingwhatusedtobeitsunder-
groundvault,addstothemystique.
Butit turnsoutthereisa reasonwhy
onlyoneothereconomicsmuseum
exists(inMexicoCity).Thoughbooksin
the“Freakonomics”mouldhavepitched
economicsasanendeavourthatgoes
beyondgdpestimatesandinflation
targeting,bringingit tolifeishard.Barbs
thateconomicsisbutthe“painfulelab-
orationoftheobvious”willresonate
withvisitorstraipsingthroughgallery
aftergalleryrunningthegamutofeco-
nomicactors,fromfirmstoconsumers
andgovernments.ExhibitsontheBasel
Committeeandtarget2paymentswill
straintoexcitethehordesofschool
pupilsCitécoaimstoattract.
Frenchstatistbiasesareondisplay:
thestockmarketispresentedaslittle
morethana glorifiedcasino.Butthe
privatesectorisalsocelebrated.The

curatorsarekeeneronglobalisationthan
are most French policymakers, cheering
global trade’s ability to boost incomes
across the world.
Does trade create domestic winners
and losers, exacerbating inequality? On
this, and just about anything conten-
tious, Citéco is frustratingly silent. Per-
haps its biggest shortcoming is its tech-
nocrat’s vision. There is only the vaguest
sense that economists and policymakers
do not all agree. The biases and political
framing that define economics in real
life are set aside rather than taken on.
The juiciest debates are absent.
But it does not dumb down compli-
cated subjects. An explainer on how
money is created by commercial banks
issuing loans goes beyond the simplifi-
cations of most textbooks. A game that
allows players to set what they think is
the correct interest rate is fun (try to visit
before Jens Weidmann, a hawkish Ger-
man in the running to lead the European
Central Bank, pulls the lever out of the
wall). A photo booth that prints bank-
notes with visitors’ faces in a watermark
is a witty prompt to ponder what it is that
makes currency worth its face value.
But presenting economics as a settled
discipline allowing for a dispassionate
display of its various facets, as Citéco
tries to do, turns out to be beyond the wit
of homo economicus. There is too much
for a mere building, no matter how
grand. Perhaps the best reason to visit is
the impression it conveys that econom-
ics might not belong in a museum at all.

Museumpiece


Citéco

PARIS
Displaysdedicatedtotheexpositionof economics offer marginal returns

Not from the benevolence of the curator

able price should the need arise. In theory,
that might result in the fund being unable
to repay its own customers immediately,
should many of them demand the on-the-
spot access they had been promised.
Investors took fright. It hardly helped
that the illiquid bonds in question (worth
€1.4bn, or $1.6bn, out of about €30bn in as-
sets under management) were issued by a
slew of companies connected to Lars
Windhorst, a flamboyant German finan-
cier famed for past blow-ups. Assets man-
aged by h2omelted faster than an ice cube
in a heatwave, down over €5bn as investors
headed for the exit. Shares in Natixis, a
French bank that owns half of h2o, fell 12%
on June 20th after Morningstar, a fund-
research adviser, raised its own concerns.
Banks usually benefit from central
banks acting as lenders of last resort if large
numbers of depositors suddenly demand
their money back. Not so fund managers.
Their mismatches used not to matter
much. Funds like h2omostly invested in
mainstream bonds and shares, for which
sufficient buyers could be found in a pinch.
But the past decade’s low interest rates
have seen fund managers take on greater
risk, in more obscure corners of finance.
Investing in less liquid securities boosts
returns—and management fees.
h2o is not the first to be caught out. Last
summer gam, a Swiss fund manager, sus-
pended a star trader who had loaded up on
esoteric paper. Its shares have since lost
over 60% of their value. Neil Woodford,
once a star stockpicker, ran into similar
trouble earlier this month. When the big-
company shares he was famed for invest-
ing in started to offer ho-hum returns, he
turned to taking stakes in small unlisted
companies. These stakes are far trickier to
unload in a hurry. But investors were still
entitled to money back on demand.
Or not. gam and Woodford had to “gate”
their clients’ money as client redemptions
threatened to overwhelm their ability to
generate cash by selling their funds’ assets.
That annoyed investors, but helped ensure
the funds are not forced to sell illiquid as-
sets at fire-sale prices. h2o’s funds include
provisions whereby investors pulling their
money amid a wider outflow have to accept
a small discount. So far it has proved capa-
ble of meeting hefty redemptions.
There are other reasons to worry about
liquidity in the bond market. Investment
banks that match buyers and sellers of se-
curities used to grease the system by hold-
ing troves of bonds on their own balance-
sheets. Rules curtailing that practice since
the financial crisis may have worsened li-
quidity mismatches elsewhere. Regulators
seem aware of the problem. On June 26th
Mark Carney, the Bank of England’s gover-
nor, denounced funds promising daily re-
demptions while investing in hard-to-shift
paper as “built on a lie”. Too true. 7

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