Pink Picks: Expert views of financial crises and bailout machinations | FT Alphaville

Pink Picks: Expert views of financial crises and bailout machinations

Comment, analysis and other offerings from Wednesday’s FT,

The experts’ view: Faber, Draaisma, Roche, Paulsen, Bond, Wieting
After the collapse of the US bail-out plan in Washington, six experts take stock and look at the implications. Marc Faber, fund manager and author of the Gloom, Boom, Doom newsletter, says the world is focusing too much on the bail-out package which, compared to the total credit market and derivatives market, is insignificant. Teun Draaisma, equity strategist at Morgan Stanley, says confidence is crucial for the financial system, but with the Tarp bill’s defeat, it will be hard to regain confidence in the run-up to the US elections. So the key phrase in this bear market will be capital preservation, until decisive leadership and drastic policy action are seen to stabilise the financial system. Now read on…

Comment: George Soros – how to recapitalise the banking system
The emergency legislation currently before Congress was ill-conceived – or more accurately, not conceived at all. As Congress tried to improve what Treasury originally requested, an amalgam plan has emerged that consists of Treasury’s original Tarp plan and a quite different capital infusion programme in which the government invests and stabilises weakened banks. Instead of just purchasing troubled assets, however, the bulk of the funds ought to be used to recapitalise the banking system. The result would be more economic recovery and the chance for taxpayers to profit from the recovery.

Editorial comment – the bailout failure and blame game
The US impasse over the proposed $700bn bailout plan was the result of a tragic failure of leadership. Presenting a complicated and expensive policy likely to be unpopular with voters weeks before an election season and in need of opposition support requires a nerve and finesse missing in the administration. The choice lawmakers face is between spending now on these schemes or spending even more later in the teeth of an unimaginable financial collapse. These modern day heirs to Smoot and Hawley should realise that now is not a time for Hoovernomics.

Insight: Gerald Corrigan – addressing stress in the markets
Within the past few weeks the financial crisis that started more than a year ago has deepened by several orders of magnitude, notes Corrigan, managing director at Goldman Sachs and a former president of the New York Federal Reserve. The core problem is that even sophisticated investors have lost confidence in financial reporting, including loss recognition for certain classes of assets and financial instruments. This issue is of particular concern as it applies to residential and commercial real estate and, for somewhat different reasons, as it applies to the market for credit default swaps and other derivatives. Here is a suggested course of action.

Analysis: Complex finance contemplates a more fettered future
A growing perception among regulators that derivatives are exacerbating the financial crisis could herald big changes in the way such instruments are traded, write FT reporters, who also examine lessons from the losses at AIG.

The Short View: Black swans and credit crises
At last, we have a black swan, says John Authers. The credit crisis began last year soon after publication of Nassim Nicholas Taleb’s bestselling Black Swan, which tackled the impact of unexpected events, such as the discovery of black swans in Australia by explorers who had thought all swans were white. It is popular to call the credit crisis a black swan. It led to dislocations that many risk managers had not anticipated. But it is hard to see the US mortgage crisis as a true black swan. It has deep roots and many had long warned of risks.

Comment: Howard Davies – New banking rules, tread carefully
Even at the best of times, nobody loves banks, notes Davies, director of the London School of Economics. There is a strong populist strain of anti-banking sentiment in the US and UK. Banks are especially unpopular in two circumstances: first, when they are very profitable; and second, when they are very unprofitable. The US and UK banking sectors (and in parts of continental Europe too) have achieved the unusual feat of swinging from one extreme to the other in very short order, so incurring criticism of both kinds almost simultaneously. What, then, comes next?

Lex goes for gold

The financial meltdown has gold bugs buzzing with delight. Often slightly eccentric, gold investors have long warned that the end is nigh. Certainly gold looks like a one-way bet for now. Panic is in the air. But that is only one side of the equation and over the medium term, , there are many reasons to limit the number of bars one buries in the garden.