Prieur’s readings (October 11, 2009)

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This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• John Authers (Financial Times): Financialisation genie set loose, October 7, 2009.
Not long ago, there were three asset classes: stocks, bonds and cash. Some were not even sure if cash counted as an asset class. The last few decades, however, have seen the “financialization” of swathes of the world economy where prices were not previously set by markets, or at least not by markets led by the same investors who also set the prices of stocks and bonds. But financialization has led to controversy since last year’s crisis.

• Randall Forsyth (Barron’s): Away from Wall Street, credit keeps contracting, October 8, 2009.
Financial markets party on Fed largesse, little of which flows to Main Street.

• Eamon Javers (Politico): Whodunit? Sneak attack on US dollar, October 8, 2009.
With the US economy on the ropes and America by far the world’s biggest debtor, investors aren’t feeling as secure about the dollar as they used to.

• Dave Cohen (Peak Watch): The future of the dollar, October 8, 2009.
No one can know how all this will play out, but I find little room for optimism regarding the dollar’s longer term future.

• Bull in a china shop, October 8, 2009.
China does not yet have dangerous bubbles in housing and shares that could threaten its recovery. Indeed, rising asset prices will help boost consumer spending over the next year, which will in turn help broaden China’s recovery. But to minimise the risk that China is starting to inflate its biggest bubble ever, the government does need to curb excessive liquidity. That means allowing the yuan to appreciate.

• Bill Powell (Fortune): It’s China’s world. (We just live in it.), October 8, 2009.
After a shopping spree for natural resources, the Chinese are shifting to automakers, high-tech firms, and real estate. Where will they strike next?

• Mure Dickie (Financial Times): Japan’s savers pressed to alter their ways, October 8, 2009.
Can Japan’s new leaders persuade their fellow citizens to stop hoarding money and thus ease one of the biggest structural problems plaguing the world’s second-largest economy?

• Dylan Ratigan (Clusterstock): Corporate communism is killing us, October 7, 2009.
Lately I have been using the phrase “Corporate Communism” on my television show. I think it is an especially fitting term when discussing the current landscape in both our banking and health care systems.

• Arthur Levitt (Financial Times): We need an orderly way to let institutions fail, October 8, 2009.
To avoid another financial crisis, we must find a process that includes the efficient and orderly write-down of assets and restructuring of debt, and draws on public funds only as a last resort.

• Bob Davis (Real Time Economics): Q&A: Joseph Stiglitz sees welcome change at the IMF, October 7, 2009.
For years, Joseph Stiglitz has been the scourge of the International Monetary Fund. Since the Asia financial crisis of a decade ago, he has excoriated the IMF for making matters worse in developing countries by pushing them to cut budget deficits during recessions, rather than help them pursue expansionary policies. But the Nobel-prize-winning economist and best-selling author has seen a change in the IMF’s behavior. He discussed his views with Bob Davis of the Wall Street Journal during the IMF’s annual meeting in Istanbul.

• Russell Napier (Financial Times): Crisis leads to conflict, October 7, 2009.
One consequence of the financial crisis is that fund managers are increasingly going to come into conflict with governments. Actions taken in the best interest of fund managers’ clients are likely to be considered against the national interest. Preserving clients’ capital in the “great recession” is a big enough challenge. But this ignores the much more important structural change that has just occurred.

• Gillian Tett (Financial Times): Dangers of silo thinking, October 8, 2009.
The hot new fad among regulators, for example, is macro-prudential surveillance (a posh word for proactive regulation that tries to join up all the dots.) Investment banks are scurrying to beef up their risk management functions, and stressing the importance of holistic oversight. Meanwhile, a host of asset managers are champions of lateral thought, and are trying to understand what is happening in seemingly disconnected silos – be that in the Chinese auto industry, carbon trading markets or CDS. The bad news is that the curse of silos will not be easy to beat.

• David Corn (Mother Jones): Bank buster, November/December 2009.
Elizabeth Warren: Can a middle-class populist in Ivy League garb change the world – or at least Big Finance?

• GSI (via Fullermoney): Behavioral finance since the ’80s, October 2009.
Old habits die hard as greed is an inherent part of human nature. Rising dollar-funded carried trades, should they continue, would drive a faster decline in the dollar. The dollar would thus be a useful barometer on the greed factor.

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