Prieur’s readings (March 23, 2010)
This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.
• Editorial (The Wall Street Journal): The doctors of the house, March 21, 2010.
While the passage of ObamaCare marks a liberal triumph, its impact will play out over many years. We fought this bill so vigorously because we have studied government health care in other countries, and the results include much higher taxes, slower economic growth and worse medical care. As for the politics, the first verdict arrives in November.
• Daniel Kruger and Bryan Keogh (Bloomberg): Obama pays more than Buffett as US risks AAA rating, March 22, 2010.
The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama. Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.
• Robert Samuelson (Real Clear Markets): Alan Greenspan’s myriad misconceptions, March 22, 2010.
Rarely has a public figure’s reputation suffered a reversal as dramatic as Alan Greenspan’s. When he left the Federal Reserve in early 2006 after nearly 19 years as chairman, he was hailed as the “maestro” and credited with steering the country through numerous economic shoals. Four years later, his policies are widely blamed for fostering the 2007-09 financial crisis. Now Greenspan is offering an elaborate “not guilty” defense.
• Simon Johnson (The Baseline Scenario): Volcker and Bernanke – so close and yet so far, March 22, 2010.
In case you were wondering, Paul Volcker is still pressing hard for the Senate (and Congress, at the end of the day) to adopt some version of both “Volcker Rules“. It’s an uphill struggle – the proposed ban on proprietary trading (i.e., excessive risk-taking by government-backed banks) is holding on by its fingernails in the Dodd bill and the prospective cap on bank size is completely missing. But Mr. Volcker does not give up so easily – expect a firm yet polite diplomatic offensive from his side (although the extent of White House support remains unclear), including some hallmark tough public statements. It’s all or nothing now for both Volcker and the rest of us.
• James Lardner and Nomi Prins (Demos): Bigger banks, riskier banks, January 28, 2010. (Hat tip: The Big Picture.)
After trillions of dollars in taxpayer funds, cheap loans and other forms of direct and indirect support, the biggest banks are bigger and more complex than ever; and for all the talk of newfound caution and tougher regulation, their recent record reveals an undiminished commitment to the kind of risky practices that inflate short-term profits when they go right but hold the potential to decimate the economy when they go wrong.
• Thomas Huertas (Financial Times): Too big to fail is too costly to continue, March 22, 2010.
The world is well aware that it needs an exit strategy from the massive monetary and fiscal stimulus that started in the final months of 2008. But we also need an exit strategy from too big to fail.
• George Magnus (Financial Times): Renminbi reform is just the start for China, March 22, 2010.
The excess savings that sustain a development model built on exports will not decline without extensive political reform.
• Vince Veneziani (Business Insider – The Money Game): GMO’s Edward Chancellor – watch out for China’s 10 big red flags, March 22, 2010.
Edward Chancellor of GMO has put out an excellent piece on the Chinese market and the “red flags” for investors. The paper addresses how to identify the proper “speculative manias” and associated financial crises in the country.
• Ruth Sullivan (Morningstar): Appetite returning for frontier markets, March 21, 2010.
Interest is reviving in these small, exotic and often illiquid markets as risk appetite picks up.
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