Prieur’s readings (September 25, 2009)
This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.
• David Rosenberg (Financial Times): Equities carry too much risk, September 23, 2009.
The banker J.P. Morgan was fond of saying: “I never buy at lows, I never sell at the highs, I play the middle 60 per cent.” Well, from our lens, we are well past that middle 60 per cent point of this bear market rally.
• Roman Frydman and Michael Goldberg (Financial Times): An economics of magical thinking, September 23, 2009.
Confidence seems to be returning to markets almost everywhere, but the debates about what caused the worst crisis since the Great Depression show no sign of letting up. Instead, the spotlight has shifted from bankers, financial engineers and regulators to economists and their theories. This is not a moment too soon. These theories continue to shape the debate about fiscal stimulus, financial reform, and, more broadly, the future of capitalism, which means that they remain a danger to all concerned.
• Ambrose Evans-Pritchard (Telegraph): HSBC bids farewell to dollar supremacy, September 20, 2009.
The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.
• Nouriel Roubini (Forbes): Busy, busy, busy, September 24, 2009.
The policy actions taken by the G-20 countries and others – including aggressive fiscal and monetary stimulus, increased funding to the IMF and backstopping financial systems globally – helped stop the economic freefall. The economic outlook has improved since the last G-20 meeting in April, but the challenge of navigating toward sustainable growth is equally difficult, and the coming period brings the risk of policy missteps as countries begin to plan their exit strategies.
• Jeremy Warne (Telegraph): Why much of the G20 debate on banking reform is futile, September 21, 2009.
What do we want from our banks? The answer might seem fairly obvious. First and foremost, we require safety for our money. That’s what banks were originally for. But these days we expect more than a simple safe deposit box. We also want our money to be put to good use, so that it can generate a return. Banks attempt to do so by lending the money out. Understandably, this can never be an entirely risk free process, but the “maturity transformation” of money thereby achieved is a vital part of any thriving, free market economy.
• Philip Stephens (Financial Times): Four things you must know about the global puzzle, September 24, 2009.
The UN and G20 jamborees leave the new world landscape a work in progress. But some contours stand in sharp relief. Philip Stephens looks at Chinese multilateralism; the Middle Eastern challenge to US power; Obama’s effort to frame new rules for the global game; and Europe’s place on the margins.
• Edmund Conway (Telegraph): We are entering a new age of protectionism, September 23, 2009.
The 21st-century form of protectionism is no less deadly than its 1930s predecessor – just less visible.
• Andy Kessler (The Wall Street Journal): Bank pay controls aren’t the answer, September 23, 2009.
In his weekly radio address on Saturday, President Barack Obama said that “we cannot allow the thirst for reckless schemes that produce quick profits and fat executive bonuses to override the security of our entire financial system and leave taxpayers on the hook for cleaning up the mess.” A day earlier, Treasury Secretary Tim Geithner told the New York Times that “you don’t want people being paid for taking too much risk.” So now the administration wants to control the pay of employees of banks and Wall Street investment firms. The administration has it wrong. It wasn’t reckless schemes and excessive risk that sunk banks and Wall Street; it was excessive leverage. And thanks to cheap money and twisty regulations, risk was extremely undervalued.
• John Zogby (Forbes): The recession isn’t over, Mr. Bernanke, September 24, 2009.
Just because Ben Bernanke says the recession is over doesn’t make it so. The chairman of the Federal Reserve may be technically correct that the economy is in recovery, but the average American is not impressed by slight upticks in the indicators. The disconnect is enormous between Wall Street – where stock prices have improved and banks are prospering again and paying big bonuses – and Main Street, where unemployment levels frighten even those with jobs and discourage consumers from buying and going into further debt.
• Caroline Baum (Bloomberg): Fed’s focus on exit ignores unguarded entrance, September 23, 2009.
In an effort to determine what went wrong and enshrine “never again” as their motto, central bankers are focusing on what they did, or didn’t do, in their role as regulators to aid and abet the financial crisis.
• Spiegel Online: Spiegel interview with Goldman Sachs CEO – “We didn’t realize how bad things would get”, September 22, 2009.
In a Spiegel interview, Goldman Sachs CEO Lloyd Blankfein, 55, discusses his astronomical bonuses, the mistakes and failures of his bank prior to the start of the global financial crisis and his proposals for better regulating financial markets.
• Elisabeth Eaves (Forbes): Michael Moore: An ironically capitalist story, September 22, 2009.
Capitalism, A Love Story, takes aim at nothing less than the whole capitalist system.
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