Prieur’s readings (January 16, 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.

• Gregory White (The Business Insider): The 15 costliest financial and political risks looming in the next decade, January 15, 2010.
If you thought all you had to worry about was Chinese growth collapsing and a double dip recession, think again. The World Economic Forum has put together their best of collection of potential economy crushing crises and there are far more than you might imagine.

• Paul Krugman (The New York Times): Bankers without a clue, January 14, 2010.
The official Financial Crisis Inquiry Commission – the group that aims to hold a modern version of the Pecora hearings of the 1930s, whose investigations set the stage for New Deal bank regulation – began taking testimony on Wednesday. In its first panel, the commission grilled four major financial-industry honchos. What did we learn? Well, if you were hoping for a Perry Mason moment – a scene in which the witness blurts out: “Yes! I admit it! I did it! And I’m glad!” – the hearing was disappointing. What you got, instead, was witnesses blurting out: “Yes! I admit it! I’m clueless!”

• Nicole Gelinas (City Journal): Deriving the truth, January 14, 2010.
At yesterday’s Financial Crisis Inquiry Commission hearings, Brooksley Born, one of the 10 commissioners on the Congressional panel, didn’t use her time taking cheap shots. Born, who ran the Commodity Futures Trading Commission (CFTC) under President Clinton, asked modest questions of Goldman Sachs chief Lloyd Blankfein. The details that she tried to uncover are the financial crisis, distilled.

• Stephen Grocer (The Wall Street Journal): Banks set for record pay, January 14, 2010.
Major US banks and securities firms are on pace to pay their people about $145 billion for 2009, a record sum that indicates how compensation is climbing despite fury over Wall Street’s pay culture. An analysis by The Wall Street Journal shows that executives, traders, investment bankers, money managers and others at 38 top financial companies can expect to earn nearly 18% more than they did in 2008 – and slightly more than in the record year of 2007.

• Joanna Chung and Francesco Guerrera (Financial Times): SEC subpoenas big banks over CDOs, January 16, 2010.
Several leading international banks have received subpoenas from US regulators investigating one of the complex securities markets at the heart of the financial crisis, people familiar with the probe say. The Securities and Exchange Commission sent subpoenas last month to banks including Goldman Sachs, Credit Suisse, Citigroup, Bank of America/Merrill Lynch, Deutsche Bank, UBS, Morgan Stanley and Barclays Capital, these people said. Requests for information were also made by the Financial Industry Regulatory Authority, which oversees broker-dealers.

• Joseph Stiglitz (Mother Jones): Moral bankruptcy, January 13, 2010.
It is said that a near-death experience forces one to reevaluate priorities and values. The global economy has just escaped a near-death experience. The crisis exposed the flaws in the prevailing economic model, but it also exposed flaws in our society. Much has been written about the foolishness of the risks that the financial sector undertook, the devastation that its institutions have brought to the economy, and the fiscal deficits that have resulted. Too little has been written about the underlying moral deficit that has been exposed – a deficit that is larger, and harder to correct.

• Ben Rooney (CNNMoney.com): Volcker: More financial reform needed, January 14, 2010.
Former Federal Reserve Chairman Paul Volcker said Thursday that more needs to be done to regulate the financial system before the lessons of the recent crisis are forgotten. “We must not shrink away from change but accept the need for basic financial reform,” said Volcker, currently chairman of President Obama’s Economic Advisory Board, in remarks to the Economic Club of New York.

• John Mauldin (Thoughts from the Frontline via InvestorsInsight.com): When the Fed stops the music, January 15, 2010.

• Colin Barr (Fortune): More and more states on budget brink, January 15, 2010.
Economists warn that without a new round of federal stimulus spending, states could face another round of layoffs that could kneecap an already shaky economic recovery.

• Jim Jubak (MSN Money): The coming economic collapse in China, January 14, 2010.
Investors and analysts worry about a financial meltdown like the one that slammed the US and other developed nations. But Chinese leaders have other, more pressing problems. A bigger worry is a long-term slide into a lower-growth or no-growth world in which nations strive to beggar their neighbors and all portfolios slump. As crises go, it’s very different but ultimately just as painful for investors as the asset bubbles that draw all our attention now.

• Bruce Bartlett (Forbes): Venezuela – the futility of price controls, January 15, 2010.
One of the key reasons why it is important to keep inflation in check is that it inevitably leads to price controls–a cure that is often worse than the disease. Venezuela is only the latest in a long line of countries that have tried and failed to cure inflation with such methods.

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