What is interesting about compounding interests is that you get not only on you initial deposit, called principal, but also on the interest you get every year.

Usually, it compounds continuously but we would assume, that it is compounding annually.

So, if you take the actual interest rates on regulated deposits in France, that’s 1,25% per year. Let’s assume that you have 100€, so you will get 100+ 100(0,0125), for two years it’s 100+ 100 (0,0125) ²;, or for n years : 100 + 100 (0,0125) ⁿ. It’s not easy to calculate.

But how solve this question ? How long does it take to get a certain amount of money, given your principal deposit and the interest rate ? Woooh. This is where the log (logarithm) function is  useful. So let’s put this following equation ….

100(0.0125) ^x; = 200
How to calculate “x” ?

First we need to simplify :

1(0.0125) ^x = 2  or

0.0125 ^x=2

x = log _0,0125 2

Let’s enjoy here the original video …

• Well, today I want to stress something about debts in the eurozone. You probably heard a huge amount of fuss regarding public debts, especially in Greece, Spain, Italy, Ireland… but is it the real issue? It may not be.
• In fact, private debt, either from companies or private corporations, either by households through mortgages, credit card debt, student debt or car debt, is a big issue. The real thing that matters about the banking union in the EU is that from 2014 and 2015, there will be a systemic investigation from the ECB into the balance sheets of all european banks. Balance sheet is composed of liabilities (what the bank borrowed), assets (what the bank owns) and equity. I don’t remember well about all these category but I strongly recommend you to watch this tutorial in the khan academy website. This is the major step towards a better regulation. I can’t help quoting Dominique Strauss Khan (former managing director of the IMF) when he was interviewed for the first time in a english-speaking channel, CNN, a few months ago : “the European banking system is ill”. We need to add implicitly : more ill than in the US. ECB officials will then start peering into the banks’ balance sheets and impose common standards for loan quality.
• Watching a documentary such as Noire Finance from Arte will help you to understand that EU banks are vastly more important than in the US. A big bank can represent half of the GDP of its member state whereas in the US, it’s not possible. So a rescue from governments is possible in the US but very costly in the EU. This process is supposed to find out which banks are viable now, which will need more capital and which should just be closed down quickly.
• Europe is always thought of as having a sovereign-debt crisis, and it has. But the origins of the problem lay less with government spending than with excessive private borrowing. Corporate debt in Spain, Ireland and Portugal represent no less than 200% of GDP before the crisis. Thanks to mortgage write-downs and faster growth, America’s households have unwound about two thirds of the excess debt built up during the boom years. Most Euro-zone countries have achieved far less private sector “deleveraging”, for three reasons. First the fiscal austerity imposed on Europe’s peripheral economies deepened their recessions. Second, weak banks have been reluctant to recognize, and then make provisions for, non performing loans. And third, European bankruptcy law is less debtor-friendly than America’s. Europeans typically remain liable for unpaid mortgage debt.
• The household debt burden is especially extremely important in Ireland and the Netherlands (around 100% of GDP). Paying the mortgage strains household finances and crimps consumer spending.

• As you already may know I love the work of Charles Ferguson and I watched around 10 times his documentary “inside job“. He did a wonderful job and explained very well the dark side of finance through plenty of relevent interview : Gillian Tett, Dominique Strauss Khan, Charles Morris, Nouriel Roubini, the dean of columbia business school, Christine Lagarde and so on..
• I learnt recently that he also wrote a book in 2010-2011 and started reading it even though the book itself is not easy to get in France (and of course no translation available). I just had time to read the two first chapters but what I can already say is that it is far more interesting than the movie, far more explanations, analysis and facts.

Let’s just quote a sentence that shocked me among a few things:

“The rating agencies started consulting for the banks, receiving huge fees for advising how to construct a security such that it would receive a high rating.“

• It is common to hear that judgments and ratings from rating agencies were flawed by the very fact that they were paid by the issuers of securities, but this sentence is really more than that : it is how to pay in order to cheat in a smart way so you can get a “AAA” mark for a piece of crap such abacus for instance !

• Sorry to be late for this not so fresh news but I felt obligated to quote the economist because I was told Larry Summers was awaited to become chairman of the FED and I’m quite happy a woman passed the selection …

“Barack Obama nominated Janet Yellen to replace Ben Bernanke as chairman of the Federal Reserve (FED) in february. Ms Yellen is Mr Bernanke’s deputy and became the out-right favourite for the top job when Larry Summers withdrew his name from consideration. She has been instrumental in creating the Fed’s policy of monetary stimulus and the ‘forward guidance’ on interest rates that many central banks now give. However, she could get a rough ride from Republicans at her confirmation hearing in the Senate“

• I was told by a friend of mine who work in the financial sector that I should read publications of Alan Greenspann mostly his work published after the crisis in 2010 or 2011. Lots of things and remarks to be done in the future about that …
• Stay in touch with this blog. I am currently doing all my best about it but it’s not always easy to find spare time for blogging as well as improving the design of my website.