A multidisciplinary view of the financial crisis: some introductory

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1 Roy Cerqueti A multidisciplinary view of the financial crisis: some introductory words «Some years ago something happened somewhere and, we don t know why, people are poor now». This sentence captures, by my point of view, the common sense of the current financial crisis. Scientists and economists have replaced the words something, somewhere, some (years ago) with appropriate terms. However, such a scientific debate seems to be not so exciting. In fact, the failure of Lehman Brothers has already occurred, and we are not able to travel in the past and implement strategies to avoid such a bankruptcy. A more concrete effort should be destined to explore why the economic systems are experiencing the crisis. This means that the analysis of the contagion of a bad news like Lehman Brothers failure seems to have a greater relevance than the failure itself. Furthermore, by a scientific point of view, the phenomenon of the contagion can be fully grasped only by observing the premises and the causes of the contagious fact. And attention should be paid to the widest number of possible perspectives. The ground for an effective struggle against financial crises is, indeed, the knowledge of all of their aspects. This target is particularly ambitious, since the different fields of science cannot be contained in a unique vision. Hence, a multifocal representation of the financial crisis can be pursued only by including the action of a broad set of researchers within an unified product.

2 10 ROY CERQUETI This book has this precise scope, and moves from the need of formalizing the debate raised by the current crisis in the Department of Economics and Law at the University of Macerata. It is structured in two main sections: Invited papers and Contributions. The first section contains two papers by Marcel Ausloos and Iacopo Savelli, while the second one includes papers by colleagues affiliated to the Department of Economics and Law. The motivations for inviting Ausloos and Savelli are totally different. The former is a worldwide recognized scientist, whose scientific contributions cannot be captured in few words. In his more than 500 scientific papers, he also studied financial crashes and economic crises under the perspective of a physicist. It is a distinct honour for the University of Macerata to have a scientific collaboration with such a prominent researcher, and I am deeply indebted to Marcel for having accepted to write a contribution for this volume. The latter is a young man and a brilliant student. His paper summarizes the Bachelor degree thesis which was awarded with the dignity of press that he defended at the University of Macerata. I have decided to offer Iacopo the possibility of join Marcel as an officially invited contributor for this volume to promote his natural attitude to research and to properly introduce him to the scientific community. The polymorphic nature of the economic crises is satisfactorily represented in this volume. Indeed, this theme has been treated under a wide set of different points of view. The causes and consequences of the current financial turmoil have been explored, and several aspects have been described and explained. In this respect, I feel that the original target of this scientific project has been achieved. To convince the reader, I propose a panoramic overview of the contributions of the book. The macroeconomic analysis of the causes and the consequences of the crisis is the main theme of four papers, which propose different views of the current recession. Marconi contextualizes the crisis in the framework of financial markets and monetary

3 A MULTIDISCIPLINARY VIEW OF THE FINANCIAL CRISIS: SOME INTRODUCTORY WORDS 11 theory. He argues that the distress of the real estate market an apparently negligible sector of the financial market system represents one of the main causes of the crisis, and identifies the interconnection of the financial markets as the reason of the fast growth of the severity of the situation. Tartufoli carries out an empirical analysis of some macroeconomic indicators in the period for the EU countries. She also performs a socialbased analysis of the economic performances, which leads to a discussion of the poverty risk. A different perspective is proposed by Ramazzotti and Perri and Lampa. The former outlines the action of Monti s cabinet, with a scientifically supported criticism of Monti s economic laws. The analysis is based on the assumption that policy makers should pursue the well-being of the population, which should then become the research target of the economists. Perri and Lampa s work focuses on the Italian situation, and identifies the deterioration of income distribution which leads to a reduction of aggregate demand and of innovative investments as the cause of the economic crisis. In accord with Ramazzotti, the authors argue that austerity cannot be the way to overcome the current recession, by conducting an historical analysis of the past crises (mainly, the 1929 s one) and a statistical representation of the current one to support their arguments. The role of innovation and research and development which may be instruments that companies employ to contrast the effects of the financial distress is here extensively treated. In this respect, six contributions are of particular interest. One of the Bartolacci s contributions the one written in English, see the conclusive technical remark below- explores a sample of small medium sized companies from the Marche region, and focuses on how innovation affects productivity. The analysis focuses also on the relevance of the size of the companies and their level and type of innovation. Grasso introduces the concept of crowdfunding, and mentions the relevance of such a source of financing to promote innovation and improve companies performances. The author deals particularly with the Italian situation by outlining also the

4 12 ROY CERQUETI country s normative setup. The three-authors paper by Bartolacci, Paolini and Zigiotti is the companion research of the three singleauthor contributions by the same researchers. In these papers, the authors offer a detailed view of a high-quality data set related to several Italian companies. The data contains the number of products patented by each company over the period Such information is matched with the main microeconomic indicators, to grasp whenever a highly innovative company exhibits also good performances. In particular, Bartolacci (the Italian paper) considers sales, Paolini productivity index (ROI) and Zigiotti market capitalization. The delay in appreciating the effects of innovation is also considered. Interesting insights are provided by an extensive statistical analysis of the data, involving also the rank-rank relationship between innovation and performance. A more theoretical analysis of the crisis is provided by the invited papers of Ausloos and Savelli, and also by Castellano and Scaccia. Ausloos explores the recurrence of financial crashes with a focus on the role played by information and its manipulation by markets, media and politicians. His contribution also has a philosophical nature, in that it discusses how physicists treat economic facts, thereby leading to the econophysics field. By employing techniques based on stochastic calculus, Savelli s paper develops a framework for discussing the toxicity of the market s order flow in the context of the action of informed/uninformed traders. The theoretical model is also validated through an empirical analysis carried out on high-frequency data. Castellano and Scaccia support the theory that a financial crisis is preannounced by the fluctuations of the Credit Default Swaps (CDSs) indices. To this end, Markov switching models which is a statistical tool particularly powerful and useful in this specific context are applied. The relation between the companies financial statements and their default probability shows that a crisis can be also associated to the lack of transparency and financial frauds. This important issue is covered by three papers. Franceschetti compares 21 selected bankrupt and non-bankrupt companies by adopting the

5 A MULTIDISCIPLINARY VIEW OF THE FINANCIAL CRISIS: SOME INTRODUCTORY WORDS 13 statistical measure of the Beneish M score. The author argues that financial frauds occur more often in the former rather than in the latter, and provides also a measure of how often this happens: 3 times more. Soverchia discusses the lack of transparency in the management of public finance and in reports on public sector financing. Specifically, she elaborates on the International Public Sector Accounting Standards, which seem to maintain a high level of transparency in their areas of application. In the context of the institutions devoted to the control of business activities, Ricci proposes an interesting normative focus. In particular, the author describes the set of laws that determine the functions of the auditor and board of auditors of a company. The role of such institutions in preventing company sufferance which concurs to the recession phases of a country is also highlighted. The financial crisis, under a political and institutional perspective, is defined by Maestri. The author argues that an incomplete democracy may be identified as responsible of the current economic depression, and proposes institutional policies for overcoming the recession phase. To sum up: the financial crisis is analysed under several perspectives, ranging from pure macroeconomic theory to law and regulation. It is conceptualized in the analysis of companies financial statements, in the discussion of the role of countries institutional setting, in the explanation of the important role of innovation investments. Statistical and quantitative tools are also useful to show some specific aspects and may play a role in highlighting the causes and consequences of a recession phase. There is still much to do to completely understand the polymorphic life of the current great depression, but this volume may represent a first, shy step. A conclusive, technical remark. Not all the papers are written in English, some of them are in Italian. This choice has been driven also by the wide range of fields covered in this monograph, some of them being strongly related to the Italian context and not meaningful when reported in a foreign language.

6 14 ROY CERQUETI Acknowledgments The Editor would like to thank all the contributors and the reviewers for their effort. A special thank goes to Silvana Tartufoli, for her patience and valuable help in the editorial activity. The financial support of the Department of Economics and Law is also acknowledged.

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