Prieur’s readings (October 26, 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.

• George Soros (Financial Times): Do not ignore the need for financial reform, October 25, 2009.
It is not the right time to enact permanent reforms. The financial system is far from equilibrium. The short-term needs are the opposite of what is needed in the long term.

• Paul Sandison: The two main threats to democracy and modern capitalism, October 20, 2009.
In the present burgeoning economic crisis, already well over a hundred million people across the globe have been thrown into poverty, despair, sickness and are struggling to avoid a premature death. Billions of people abroad are vowing never to allow the United States and the United Kingdom to do this to them again. The remaining question is whether the peoples of these two countries will put their political and economic systems right so that they themselves are never hit like this again.

• Sree Vidya Bhaktavatsalam (Bloomberg): Miller says odds may not favor El-Erian’s new normal, October 23, 2009.
Legg Mason Inc.’s Bill Miller said odds may not favor Mohamed El-Erian’s forecast for a prolonged period of below-average economic growth. Miller, the manager of the Legg Mason Value Trust, wrote in a letter sent today to investors that El-Erian’s perspective is an “inside view” that makes a prediction about the future based on current conditions. Such a view doesn’t take historical precedents into account, something Miller called the “outside view”.

• Rick Bookstaber: Why do bankers make so much money? October 23, 2009.
A tenet of economics is that in competitive markets there are no economic rents. That is, people get fairly paid for their efforts, their capital input, and for bearing risk. They are not paid any more than is necessary as an incentive for production. In trying to understand the reason for the huge pay scale within the finance industry, we can either try to justify the pay level as being a fair one in terms of the competitive market place, or ask in what ways the financial industry deviates from the competitive economic model in order to allow economic rents.

• Wolfgang Münchau (Financial Times): A polite discourse on bankers and bubbles, October 25, 2009.
I suspect we are in another bubble in the global equity, bonds and commodity markets. Central banks should be prepared to prick them before they cause calamity.

• Geoff Dyer (Financial Times): Top China banker warns on asset bubbles, October 21, 2009.
China needs an “urgent” tightening of monetary policy to prevent the huge stimulus measures introduced this year from inflating stock and property bubbles, one of the country’s leading bankers has warned. Qin Xiao – chairman of China Merchants Bank, the country’s sixth-biggest – says that the government should not be afraid of a “moderate slowdown” in the economy.

• Tom Stevenson (Telegraph): Gold gives a precious insight into economy, October 24, 2009.
What a strange and fascinating commodity gold is – a store of value that is no one’s liability, which cannot be printed or debauched by governments but which, with no income stream, has no objective value. A simultaneous hedge against both deflationary slump and inflationary spiral, it is little wonder gold should be the investment of choice for the Armageddon crowd.

• Gretchen Morgenson (The New York Times): If lenders say “the dog ate your mortgage”, October 25, 2009.
But if our current financial crisis has taught us anything, it is that many borrowers entered into mortgage agreements without a clear understanding of the debt they were incurring. And banks often lacked a clear understanding of whether all those borrowers could really repay their loans. Even so, banks and borrowers still do battle over foreclosures on an unlevel playing field that exists in far too many courtrooms.

• Donald J. Boudreaux  (The Wall Street Journal): Learning to love insider trading, October 24, 2009.
Here’s a hot tip: Want to keep companies honest, make the markets work more efficiently and encourage investors to diversify? Let insiders buy and sell.

• Paul Farrell (MarketWatch): Death of “Soul of Capitalism”: Bogle, Faber, Moore, October 20, 2009.
Jack Bogle published “The Battle for the Soul of Capitalism” four years ago. The battle’s over. The sequel should be titled: “Capitalism Died a Lost Soul”. Worse, we’ve lost “America’s Soul”. And, worldwide, the consequences will be catastrophic.

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