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Monthly Archives: May 2013

The amount owed on loans secured by investments rose to $384 billion at the end of April, according to data compiled by Finra, the Financial Industry Regulatory Authority. It was the first time the total had surpassed the 2007 peak of $381 billion, a peak that was followed by the Great Recession and credit crisis.

The accompanying charts show the level of outstanding margin debt since 1960, both in dollars and as a percentage of gross domestic product. The latest total of borrowing amounts to about 2.4 percent of G.D.P., a level that in the past was a danger signal.

Rising margin debt was once seen as a primary indicator of financial speculation, and the Federal Reserve controlled the amount that could be borrowed by each investor as a way to damp excess enthusiasm when markets grew frothy. But the last time the Fed adjusted the margin rules was in 1974, when it reduced the down payment required for stocks to 50 percent of the purchase price, from 65 percent. That came during a severe bear market.

Since then, the Fed has been on the sidelines. The view there, and among professional investors, has been that far greater leverage was available through options and futures, not to mention more exotic derivatives, so changing the rule would have little effect on levels of speculation.

Nonetheless, margin loans have remained popular among many individual investors, who tend to raise their borrowings during times of market optimism and to reduce them when markets are falling. Thus the margin debt levels now may provide an indication of popular enthusiasm for investments.

The first time in recent decades that total margin debt exceeded 2.25 percent of G.D.P. came at the end of 1999, amid the technology stock bubble. Margin debt fell after that bubble burst, but began to rise again during the housing boom — when anecdotal evidence said some investors were using their investments to secure loans that went for down payments on homes. That boom in margin loans also ended badly.

The charts show the changes in the Standard & Poor’s index of 500 stocks during the 12 months before the margin debt level reached 2.25 percent of G.D.P., while it stayed at that level, and during the 12 months after the debt level fell below that figure. The figures are indexed to zero at the end of the first month that margin debt reached 2.25 percent of G.D.P.

In each case, there were double-digit increases in share prices during the year before margin debt got to that level. In the first two, the stock market decline began while margin debt was at the high level, and accelerated as debt levels fell — presumably because investors were liquidating securities that were losing money.

If that pattern repeats, it could indicate that the stock market rally, which carried the S.&P. 500 to record levels in May, will not last much longer.

Perhaps offering some hope that pattern will not repeat is the fact share prices are lower now — at least relative to the size of the economy — than they were at the prior peaks. As it happens, the S.&P. 500 was a little below 1,500 in 1999, and again in 2007, and again this past January, when margin debt rose to 2.25 percent of G.D.P. But corporate profits now are more than double what they were in 1999, according to government estimates.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Guy Hands, center, of Terra Firma Capital Partners, with his lawyer David Boies, left, outside Manhattan Federal Court in 2010.Jessica Rinaldi/ReutersGuy Hands, center, of Terra Firma Capital Partners, with his lawyer David Boies, left, outside Manhattan Federal Court in 2010.

12:43 p.m. | Updated

In a blow to Citigroup, a federal appeals court on Friday ordered a new trial in the legal battle between the bank and the British financier Guy Hands over the buyout of the music company EMI.

The United States Court of Appeals for the Second Circuit in Manhattan vacated a 2011 jury verdict clearing Citigroup of any wrongdoing over its role in the sale of EMI to Mr. Hands’s private equity firm, Terra Firma Capital Partners. It ruled that improper jury instructions from the trial court judge related to English law relevant to the case mandated a reversal.

Mr. Hands had accused the bank of defrauding him during its handling of an auction of EMI. He said that a Citigroup investment banker lied to him that there was another bidder for EMI, which tricked him into paying $6.8 billion for EMI at the market peak in August 2007. After the financial crisis struck and the music industry tanked, Mr. Hands lost billions on the investment.

He sued Citigroup in federal court, seeking $8 billion in damages. The bank said it had done nothing wrong, as accused Mr. Hands of having buyer’s remorse.

After a three-week trial in 2010, the jury awarded him nothing. Citigroup, which had also provided Mr. Hands with billions of dollars of loans to pay for EMI, took ownership of the company and sold it off in pieces. Universal Music Group, a division of Vivendi, bought EMI’s recorded-music business, and a Sony-led group acquired EMI’s publishing assets.

With EMI seized from Terra Firma and in the hands of new owners, the revived dispute now becomes merely a fight over money. Should Citigroup and Mr. Hands fail to reach a financial settlement, the case will again go to trial before Judge Jed S. Rakoff, who presided over the original case. A spokesman for Citigroup, Danielle Romero-Apsilos, said that that’s where the parties were heading.

“We are confident we will again prevail at trial as Citi’s conduct in the EMI transaction was entirely proper,” Ms. Romero-Apsilos said. “The original verdict made clear that Terra Firma’s baseless accusations of fraud were simply an attempt to gain leverage in debt restructuring negotiations.”

The reversal of a jury’s verdict in a civil dispute is rare, and the federal appeals court said is was loath to overturn the case.

“We are particularly reluctant to overturn a jury verdict when, as here, it appears that both parties have had a fair bite at the proverbial apple,” wrote Judge John M. Walker, who wrote the opinion for a unanimous three-judge panel. “The principal actors on both sides provided their version of events, exceptional trial lawyers marshaled and clarified the evidence, and a gifted judge presented the issue to the jury for its evaluation.”

Despite the praise for Judge Rakoff, the court said that he erred in his description of English law related to fraudulent misrepresentation, which applied to the case. Judge Rakoff incorrectly told the jury that Terra Firma had the burden of proof in showing that it relied on Citigroup supposed misrepresentations, when according to English law, the burden fell upon Citigroup to prove that it did not lie.

“We continue to believe that we have a strong claim, and with the jury instructions now resolved in our favor, we expect to prevail in any subsequent trial,” Terra Firma said through its spokesman, Jonathan Doorley.

The decision is a resounding victory for Mr. Hands’s star lawyer, David Boies of Boies, Schiller & Flexner, who argued the appeal. If the case gets tried again, Mr. Boies will likely find himself in a rematch against Citigroup’s lawyer, Theodore V. Wells Jr., and his colleagues at Paul Weiss Rifkind Wharton & Garrison.

In a concurring opinion, Judge Raymond Lohier noted that federal appeals courts were being asked to determine and apply foreign law in a growing number of international disputes. He suggested a new formalized process for a federal appeals court to ask courts of a foreign country to clarify foreign law, just as they frequently ask state tribunals to weigh in on difficult state-law issues.

“This case illustrates the trend,” Judge Lohier said. “We will encounter more and more cases involving unsettled questions of foreign law that implicate important policy preferences of a foreign nation.”

LONDON – Lloyds Banking Group is on a selling spree.

On Friday, the bank announced that it had agreed to sell a portfolio of United States real estate-backed securities for £3.3 billion ($5 billion) to a number of American investors, including Goldman Sachs. The British firm said it expected to generate a pretax income of £540 million from the deal.

The disposal is part of Lloyds’ mounting efforts to increase its capital reserves after British regulators demanded that the country’s banking sector raise a combined £25 billion to fill a capital shortfall by the end of the year.

By offloading the American mortgage-backed securities, the British bank has benefited from a resurgent American property market, where housing prices in March rose almost 11 percent compared to the same period last year, according to the S.&P. Case-Shiller home price index.

Lloyds said it had sold the portfolio at a 22 percent premium to the combined £2.7 billion value of the securities. The deal is expected to close in the first week of June.

The transaction is the latest in a series of asset sales by the British bank, which is 39 percent owned by local taxpayers after receiving a bailout during the financial crisis.

Earlier this week, Lloyds announced the sale of its private banking unit in Miami to the Spanish firm Banco Sabadell, while the British bank also offloaded its international private banking subsidiary to Union Bancaire Privée for around £100 million

The transactions follow a £450 million share sale in the wealth management firm St. James’s Place last week, the second time that Lloyds has reduced its stake in the company in a bid to boost its capital reserves.

In total, the disposals have pushed the bank’s common equity Tier 1 capital ratio, a measure of a firm’s ability to weather financial shocks, from 8.1 percent in the first quarter of the year to around 8.7 percent, under the accountancy rules known as Basel III. Lloyds has said that it plans to reach a 9 percent ratio by the end of the year.

Shares in the British bank fell less than one percent, to 61.5 pence, in trading in London on Thursday, though the firm’s stock price has risen 143 percent over the last 12 months.

The British government previously has said that it would break even if its sells its stake in Lloyds at around 61 pence a share.

As part of the deal, Lloyds TSB Group Pension Trust also will generate pretax income of £360 million from selling its share of the securities, which have a book value of £805 million. The proceeds will be used to reduce the pension fund’s deficit, according to a company statement.

BRUSSELS — Unemployment in the 17 European Union countries that use the euro hit another record high in April, official figures showed Friday, the latest in a series of low points for the economically ailing single-currency zone.

Eurostat, the bloc’s statistics office, said unemployment rose to 12.2 percent in April from the previous record of 12.1 percent the month before. Another 95,000 people lost their jobs, taking the total of unemployed workers to 19.38 million. At this pace, unemployment in the euro area could breach the 20 million mark this year.

The figures once again mask big disparities among countries. While more than one in four people are unemployed in Greece and Spain, Germany’s jobless rate is stable at 5.4 percent.

The differences reflect the varying performances of the euro economies. Greece, for example, is in its sixth year of a savage recession. Germany’s economy has until recently been growing at a healthy pace.

As a whole, the euro area is in its longest recession since the single currency was introduced in 1999. The six quarters of economic decline is longer even than the recession that followed the financial crisis of 2008, though it is not as deep.

Part of the cause, economists say, has been European governments’ focus on cutting debt by raising taxes and slashing spending programs.

The European Central Bank sought to make life easier for Europe’s hard-pressed businesses and consumers by cutting its main interest rate to a record low 0.5 percent earlier this month.

Another cut is possible, economists say, even though the inflation rate still stands below the central bank’s target of just below 2 percent. Still, the central bank is more likely to take measures to increase lending to small and medium-sized businesses, which are among the most important job creators.

Eurostat also said Friday that inflation in the euro area rose to 1.4 percent in the 12 months through May from 1.2 percent the previous month. It blamed rising prices for food, alcohol and tobacco for the increase.

Book Chat

Talking with authors about their work.

Jeffrey Selingo, the former editor of The Chronicle of Higher Education and currently an editor at large there, is the author of a new book, “College (Un)Bound.” In it, he argues that the higher-education system is both vital to the American economy and “broken.” My exchange with him, edited slightly, follows.

You start your book by telling the story of a young woman named Samantha Dietz and describing the widespread phenomenon of enrolling in college without graduating. You write: “Only slightly more than 50 percent of American students who enter college leave with a bachelor’s degree. Among wealthy countries, only Italy ranks lower.” Why does the United States do a worse job of getting people through college than enrolling them in it?

Jeffrey Selingo, author of “College (Un)Bound.”Jay Premack Photography Jeffrey Selingo, author of “College (Un)Bound.”

College is one of the biggest financial investments we make in our lifetime, yet many families largely make their decision based on emotion. Prospective students start touring colleges in high school, well before they know how much a particular school might actually cost them. They are distracted by the bells and whistles on campus tours, fall in love with a campus and fail to ask the right questions. (Tools like collegerealitycheck.com and the Obama administration’s College Scorecard can help.)

So many students end up poorly matching to their campus. That’s why a third of students now transfer before earning a degree, and many unfortunately simply drop out.

At the same time, we have this fascination with the bachelor’s degree in the United States, and we think everyone needs to earn one at the same point in their lifetime, enrolling at 18 years old. The economy demands that more students have an education after high school, but not everyone is ready for college at 18. Many of them end up in college because we have few maturing alternatives after high school, whether it’s national service, apprenticeships or structured “gap year” experiences.

Finally, campus culture and money play a role. If you go to a college with a low graduation rate, your peers have an impact on your thinking: if no one else is graduating in four years, why should I? Others drop out because their financial situation changes while they are there and they can no longer afford it.

There is an economic reason we have a fascination with the bachelor’s degree, isn’t there? It brings a huge economic return. The jobless rate for four-year college grads is less than 4 percent, and the wage premium is very large — much larger than it once was. As you write, “By almost every measure, college graduates lead healthier and longer lives, have better working conditions, have healthier children who perform better in school, have more interest in art and reading, speak and write more clearly, have a greater acceptance of differences in people and are more civically active.”

How would you respond to the argument that everyone should aspire to a bachelor’s degree? Not everyone will make it. Many would need to start at a community college or with remedial work. But I can’t help but notice that most of the people arguing that “college isn’t for everyone” insist that their own kids go.

I’m not arguing that you shouldn’t aspire to a bachelor’s degree because, as you note, it does bring great economic returns. But why does it need to happen for everyone at 18?

Jacket design by Archie Ferguson; jacket art by Alessandroiryna/iStock photon

For some, a two-year degree might be more appropriate at 18. And recent studies of wage data of college graduates in Virginia, Tennessee and a few other states show that the wage returns of technical two-year degrees are greater than many bachelor’s degrees in the first year after college.

Someone who isn’t ready for a four-year college at 18 and ends up dropping out is in some ways worse off than a high-school graduate who never went to college at all. Sure, college dropouts have some credits, but still no degree, and it’s likely that they have debt.

Let’s think of extending the period for a bachelor’s to be sure more students succeed in getting one. We don’t need alternatives to the bachelor’s degree, just more constructive detours on the pathway to college for those who are not ready at 18.

That’s a fascinating way of thinking about it: different paths, more than a different destination. (And whatever that study of Tennessee and Virginia shows about the first year after college, I have yet to see evidence that any alternative beats the long-term returns of a bachelor’s degree.)

Given how problematic it is for people to have college debt without a college degree — as many people unfortunately do — what do you think federal and state policy makers should do to change colleges with low graduation rates?

Well, the first thing federal and state policy makers can do is come up with a better way to measure graduation rates. The current rate counts only first-time students who enroll in the fall and complete degrees in “150 percent of normal time” – six years, for students seeking bachelor’s degrees. It doesn’t include students who transfer to other colleges and then graduate or those who transfer in and graduate. By one estimate, it excludes up to 50 percent of enrolled students.

A national student record database would allow policy makers to track students as they move among colleges. Once we have a better measure, then colleges that do well in actually graduating students should be rewarded, especially for those students who are not expected to complete college. For example, colleges that graduate Pell Grant recipients above the national average or students who are first in their family to go to college should get access to more federal aid for those students.

And all colleges need more skin in the student-loan game. Students are being saddled with higher amounts of debt, and the schools have little responsibility as they encourage more and more families to take on more debt. Right now, the only punishment is that colleges with high default rates are thrown out of the federal program. But that rarely happens. Colleges need to put some of their own dollars at risk if they are asking students and their parents to take on loans above certain amounts.

The last major section of your book is called “The Future.” So let me ask you to look ahead and predict one significant way in which a typical campus experience at a four-year college will be significantly different in 2023 than it is in 2013.

The biggest difference will be the injection of technology into the curriculum, with more courses taught in hybrid format, meaning a mix of face to face and online. That will allow for a more personalized experience for students so they can learn at their own pace and break the traditional idea of the academic calendar where everyone needs to start in September and end in May.

FRANKFURT — Demonstrators blocked a large swath of central Frankfurt early Friday, standing in streaming rain to show their opposition to austerity policies in Europe.

The police estimated that between 500 and 1,000 people were in scattered groups at multiple sites around the headquarters of the European Central Bank in Frankfurt. Organizers had expected more protesters, and the police had planned for thousands.

A group called Blockupy organized the demonstrations and is planning a full day of protests at various sites in the city, including at the airport and in the central shopping zone. The group includes members of the Occupy movement, which protested the role of global capitalism by camping out at cities in several countries.

A Blockupy spokeswoman, Frauke Distelrath, told The Associated Press on Thursday that the protest was not aimed at central bank employees but at the bank’s role “as an important participant in the policies that are impoverishing people in Europe, in the cutbacks that are costing people their ability to make a living.”

The central bank, along with the European Commission and the International Monetary Fund, is part of the so-called troika of international lenders that has authorized bailouts of troubled euro zone countries in exchange for those countries’ pledges to cut their budgets and reduce debt.

Demonstrations were also planned in Frankfurt at the headquarters of Deutsche Bank, the biggest German bank and one of the largest in Europe.

Directly in front of the European Central Bank building, organizers instructed protesters via loudspeaker to make sure no bankers could reach their offices. An older man, who was apparently not a banker, was rushed by the crowd when he tried to cross the barricade, a police officer said. The police moved forward to help the man and he was able to pass. A Red Cross worker said 20 people were injured by pepper spray and force. The police pushed back demonstrators from barricades around the bank and elsewhere.

A woman named Sabrina, who would only give her first name, was physically blocked by protesters as she tried to pass a barricade to reach the law office where she works. Demonstrators shoved her and stepped on her feet as she tried to get by, she said.

“I find this pretty brash,” she said. “I support the right to express your opinion, but the demonstrators shouldn’t be able to rough me up like that.”

One demonstrator named Sven, who said he was an anthropology student in Frankfurt and who also did not want to be identified further, said he had been hit in the face by the police and got pepper spray in his eyes.

“I came because I don’t believe corporations should have the highest position in society and control all the money,” he said. “I think our demonstration is a legitimate protest for democracy and against capitalism, and it should be allowed. The police shouldn’t be here with such a huge presence to try to repress us.”

Opinion »

Op-Ed: The Drone War Is Far From Over

Attacks by remote control are alive and well in Pakistan, where they have caused lasting damage on tribal communities.

Industrial production rose by a better-than-expected 1.7 percent in April from a month earlier, as exports started to recover on the back of a yen that has weakened by almost 20 percent in the last six months. But exports were still down 2.3 percent from the same month a year earlier.

Core consumer prices, which exclude fresh food, fell 0.4 percent in April from a year earlier, for the sixth straight month of declines, though the clip was slower than the 0.5 percent decline in the year to March.

Prices were supported partly by rising energy costs, as the weak yen added to Japan’s fuel import bills.

Consumer prices in Tokyo for the month of May rose 0.1 percent from a year earlier, the first increase in more than four years, a sign that nationwide prices could soon follow suit, ending the deflation that has long weighed on Japan’s economy.

Household spending cooled slightly after a strong showing in the first quarter, rising 1.5 percent in April from a year earlier in price-adjusted real terms. That uptick fell short of a median market forecast of 3.1 percent, though economists still expect spending to gain traction as consumer sentiment continues to improve.

The data offered a reprieve to recent market anxiety. A rally in the Japanese stock market, propelled by optimism over Prime Minister Shinzo Abe’s efforts to overhaul the long-suffering economy, has faltered in the last week as investors became nervous over the effectiveness of those efforts, as well as their potential side effects.

A 5.2 percent slide in Tokyo shares on Thursday took the Nikkei 225-share index to more than 13 percent below its peak last week. The sharp market correction followed a surge of more than 80 percent in the index from mid-November to mid-May, when trading suddenly turned volatile as investors took stock of the challenges that face Mr. Abe’s economic turnaround program.

Tokyo shares rebounded on Friday morning, with the Nikkei index jumping over 200 points, or 1.59 percent, in the opening minutes of trade.

Still, it remains unclear whether Mr. Abe’s agenda, nicknamed Abenomics, can bring about a goal, set by the Bank of Japan, to achieve 2 percent inflation over the next two years in a country where prices have fallen for over a decade.

To jolt Japan out of its deflationary slump, the central bank unleashed an audacious stimulus program last month, promising to inject $1.4 trillion into the economy to kick-start growth. In addition, the government bolstered spending on public works projects. The stimulus has also driven the yen to a 4 1/2-year low against the dollar, a boon to Japan’s exporters.

But many economists have called the two-year time frame ambitious. A recent Reuters poll of analysts suggested that the Bank of Japan might have to pursue its program for up to five years before it stokes enough inflation.

Some members of the Bank of Japan’s policy board are also skeptical of the two-year time frame, according to minutes released this week.

A spike in long-term interest rates, which poses high risks for Japan’s highly indebted government, has added to the worries.

Analysts and investors are also eager for progress on promised structural overhauls, which many see as crucial to the overall economy-lifting efforts of Mr. Abe’s government.

“The falling share prices point to the dangers that are inherent in Abenomics,” Ryutaro Kono, chief economist for Japan at BNP Paribas, said in a research note.

The program “at first triggered an asset bubble and brought about an economic euphoria,” Mr. Kono said. “But the endgame is a higher risk of financial ruin.”

Other analysts took a brighter view. “A lot of investors were sitting on the sidelines as the market soared, hoping for a pullback,” Nicholas Smith, Japan strategist at CLSA Asia-Pacific Markets, said in a note to clients Friday. “They now have that opportunity.”

Bettina Wassener contributed reporting from Hong Kong.

9:56 p.m. | Updated to clarify that precise impact of Volcker Rule depends on final form.

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Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The race is on to determine who will succeed Ben Bernanke as chairman of the Board of Governors of the Federal Reserve System. Mr. Bernanke’s term expires at the end of January 2014 and, while he might still decide he wishes to stay on, indications from the White House increasingly suggest that a change will be made — most likely with a preliminary decision in the next few months.

Today’s Economist

Perspectives from expert contributors.

The leading candidates are Janet Yellen, current vice chairwoman of the Fed; Timothy Geithner, former Treasury secretary and former president of the Federal Reserve Bank of New York; and Lawrence Summers, former Treasury secretary (under President Clinton) and former head of the National Economic Council (under President Obama).

None of these candidates has made or is likely to make a clear statement about the critical issue for the next decade – how the Federal Reserve should view the financial sector, particularly the various potential causes of systemic risk. This is unfortunate, because the role of the central bank has changed considerably in recent decades, and how to deal with global megabanks will be central to the macroeconomic policy agenda going forward.

In the 1960s and 1970s, the mounting threat to the economy was inflation. At the end of the 1970s, the newly appointed Fed chairman, Paul A. Volcker, and his colleagues decided to bring down inflation through tight monetary policy. This was considered highly contentious at the time, but looking back, it seems sensible.

Inflation is a regressive tax – it hits relatively poor people hardest, in part because they lack access to investments that are good hedges against inflation (like real estate and some kinds of equity). It also distorts all kinds of economic activity and makes it hard to plan for the future. Bringing down inflation was costly – higher interest rates caused a recession, with many jobs lost. But the result was a long period of relatively low inflation.

Through at least the end of the 1960s, people at the top of the Fed thought there was a stable trade-off between inflation and unemployment, so policy makers could lower unemployment by allowing inflation to creep higher. That turned out to be illusory.

Not many people argue in favor of high inflation today.

At an event in his honor last week, Mr. Volcker was interviewed by Donald Kohn (a former vice chairman of the Fed; the two of them and I belong to the Federal Deposit Insurance Corporation’s Systemic Resolution Advisory Committee) and emphasized the way in which the policy consensus had shifted by the late 1970s. (I recommend watching the video of this interview, which should be available in a few days on the event Web site.) Mr. Volcker was characteristically modest – and also typically perceptive. When everyone on Main Street sees a problem every day, this helps concentrate the minds of people in power.

The issue today is not control over inflation. There is no sign yet that the crisis of 2008 and resulting easy monetary policy has pushed up inflation, in part because people’s expectations regarding future inflation remain remarkably low and stable.

But the post-Volcker environment of low inflation and low interest rates ushered in a period of hyper-sized finance, both in terms of financial-sector growth relative to the economy and the size of our largest financial institutions. The problems associated now with too-big-to-fail banks, broadly defined, are in part an unintended consequence of successful monetary policy in the 1980s and ’90s. Of course, financial deregulation also played a significant reinforcing role.

More than three years ago, Mr. Volcker himself proposed one of our more significant efforts at re-regulation — what is now known as the Volcker Rule, which is designed to take some very high-risk activities out of financial institutions that are central to the functioning of the economy. On Wednesday, Mr. Volcker referred to the lack of progress in putting his eponymous rule into action as a disgrace.

The problem is that the economic rise of very big banks – the only financial institutions, I expect, that will be adversely affected by the Volcker Rule, which would limit their “proprietary trading” – also greatly increased their political power. The Volcker Rule was enshrined in the Dodd-Frank financial reform legislation, but our regulators are a fragmented lot, and in the details of rule-writing, the banks have played regulator vs. regulator with great skill. (To be clear, the final rule is not yet public, so we do not know its precise impact.)

More broadly, the new head of the Fed needs to be able and willing to confront the financial sector before threats become too large. Inflation was very much in everyone’s faces in the late 1970s. Inflation is often referred to as a hidden tax, but it’s relatively transparent compared with what happens with the buildup on financial sector risk.

In the boom, people working at megabanks receive very high levels of compensation. In a huge financial crash, there are bailouts – various forms of downside protection – for those people and their creditors. Everyone else has to confront a deep and nasty recession, or worse. This is even more regressive than higher inflation, but it is also less obvious than the falling purchasing power of what is in your wallet and your checking account (i.e., the result of inflation).

Richard Fisher, president of the Federal Reserve Bank of Dallas, has made clear his skepticism of our current financial system – he and Harvey Rosenblum have also made very sensible reform proposals. He would be the ideal candidate to become next Fed chair. Unfortunately, the political power of megabanks means Mr. Fisher is unlikely to be called upon. (In a debate sponsored recently by The Economist, I supported Mr. Fisher’s views and carried the readers’ vote, 82 percent to 18 percent. I doubt that this outcome will sway even the editorial policy of that magazine.)

Eventually, we will need Mr. Fisher or someone with similar views, and a president willing to nominate such a person. Before we get there, however, it seems unavoidable that another destructive credit cycle will ensue.

On they go, the canonical brassiere sizes, up to at least a 50N. They have been around since the 1930s, maddeningly unconventional standards, varying from brand to brand, from demi-cup to strapless — a kaleidoscopic vision, in lace and elastic, of fashion, culture and the enduring power of marketing.

But is anyone ready for measurements like 1-30, 7-36 and 9-42?

Those are just three of 55 new sizes that a major American manufacturer has devised to address a lament as old as the bra itself: many don’t fit.

The undergarment industry, eager to sell its wares, has seized on the complaint, offering an ever-growing assortment of sizes and shapes — often at ever-growing prices — to entice women to buy that next bra.

Jockey International, a grand old name in undergarments, if a somewhat unglamorous one, has spent eight years developing the new measurement system, which the company says takes into account the shape of a woman’s breasts, not merely bust size. The bras are a mass-market answer to custom fittings that have become increasingly popular in boutiques and high-end department stores.

Whether Jockey’s approach will catch on is uncertain. But the Jockey Bra, formally introduced Thursday, is nonetheless another step in the evolution of the modern brassiere.

In the 1920s flappers opted for snug bras for a boyish silhouette. By the 1950s bras that created a fuller, pointier bust were the rage. The ’70s brought more comfortable, unstructured bras — and then Victoria’s Secret.

By the ’90s, the Miracle Bra was battling with the Wonderbra for the title of queen of cleavage. The 2000s brought larger sizes for bigger women.

Now, as the cycle turns again, the industry is talking up the benefits of a better fit. The pitch may appeal to women newly conversant in fashion. “People are becoming more knowledgeable about fashion minutiae, and they’re focusing on things like fit,” said Valerie Steele, director of the Museum at the Fashion Institute of Technology.

It may seem surprising but the lingerie industry itself pushes the notion that off-the-shelf bras often don’t fit well. The bra manufacturer Wacoal, for instance, says about eight out of 10 women wear the wrong size.

Until now, however, standard sizes have barely changed, although the range has expanded. Cup sizes are based on two measurements — the breast at its fullest point, minus the rib cage measurement. If it’s a one-inch difference, it’s an A cup; a two-inch difference, a B cup; and so forth. That approach, Jockey executives say, doesn’t account for different breast shapes.

Jockey began the project by scanning 800 women, getting “data points about all of the different measurements of a woman’s torso and the breast size,” said Sally Tomkins, a senior vice president. Researchers followed women in their homes as they chose bras and dressed, and heard “complete dissatisfaction about every aspect of the bra purchasing process, from the inaccuracy to the way you get measured,” said Dustin Cohn, the company’s chief marketing officer.

In the end, Jockey came up with 10 cup sizes. “Our bras don’t necessarily get bigger, bigger, bigger, but in different proportions — they get larger, but in different shapes,” Mr. Cohn said.

To fit the bras, Jockey uses a kit with 10 plastic cups in varying shapes, along with a measuring tape. Customers are meant to try on the cups and see what works best, then measure their rib cage. Someone with a 34-inch rib cage and medium-size breasts might wear a 5-34 or a 6-34, for instance.

Charla Welch, who reviewed the fitting process on her blog, The Bra Crusader, said the plastic-cup approach “wasn’t very comfortable.” “Maybe it’s just larger breasts, but I had to work it into the plastic cup,” she said. In standard sizes, Ms. Welch is a 32H, a 9-32 in Jockey’s size.

The Jockey Bra confronts several business challenges. First, the sizing kit costs online customers $19.95, although Jockey says it includes a $20 coupon, plus a money-back guarantee on a bra if it does not fit. Other companies that sell difficult-to-fit items, such as Warby Parker with eyeglasses, send customers try-on versions at no cost.

“Essentially they’re being asked to shell out cash upfront to be part of this experiment,” said Jennifer O’Brien, director of strategic planning at Laird & Partners, an advertising agency, who did not work on the Jockey bra. “At least for the introductory phase, I would think that would be free. You want to remove as many barriers as possible to get people engaged with this, because it is a new world.”

And the bra itself costs $60, more than many competitors, despite its functional looks and a limited choice of colors: beige, white or black.

“It is a high price point,” Ms. Tomkins of Jockey conceded. She said the company was selling the bra only online and in its boutiques to try to get women to understand what is behind it.

As for converting women to new ways of sizing, Ms. O’Brien pointed to premium denim jeans, where women now shop by waist size, but most other approaches have not caught on.

Ms. Tomkins said that had been a concern.

“It’s something that worried us all the way through,” she said. “It’s always a risk when you change something that’s been in the market for a very long time, but not only are we changing the fit, we’re changing the whole product.”