Comment, analysis and other offerings from Friday’s FT,
Roula Khalaf: Towards a new order in the Arab world
An email from a Tunisian organisation I’ve never heard of landed in my inbox this week, with a warning about the disastrous consequences of an Islamist success in Sunday’s election in the country which launched the Arab spring and is holding its first democratic poll. A victory for Nahda, the Islamist party, would frighten investors, discourage tourism and throw thousands of Tunisians out of work, warned the “Citizens for a free world,” who signed the document. To illustrate the doomed Nahda-led future, they included a video clip. With a heart-rending melody playing, an elderly Tunisian mourns his life in “frustration and misery” and “the loss of 400 years of civilisation”, writes FT columnist Roula Khalaf.
Gillian Tett: Central bankers must update outdated analytical toolkit
Eight years ago, Claudio Borio, a senior economist at the Bank for International Settlements, co-authored a paper which warned that the world’s financial system was spinning out of control, due to excess in the complex credit world. At the time, the paper was largely ignored, if not derided by many senior policymakers. But now it looks prescient; so much so, in fact, that Borio and his co-author, Bill White (who also used to work at the BIS), are some of the few economists who have emerged from the recent financial crisis with their reputations intact, writes the FT’s Gillian Tett.
Gary Silverman: All the accounts that are fit for print
Bankers need role models like anyone else, and I believe I have found one for our financial friends in an unlikely place – a trade-journal article written 80 years ago about a small bank that no longer exists, writes the FT’s Gary Silverman. The story – which first appeared in the American Banker in 1931 and was published again five years ago – made it into my search results while I was Googling at work, and I was glad it did, because it details a remarkable moment in US financial history. Consider this: in Chicago, during the Depression, the First National Bank of Englewood published “the most complete possible” statement of its accounts in a double-page advertisement in a local newspaper, the Southtown Economist.
Samuel Brittan: The splintered opposition to fiscal austerity
What has a logical error to do with the economic doldrums in which many countries find themselves? Absolutely everything. The error in question is the “fallacy of composition”. This is defined by the Oxford Dictionary of Philosophy as that “of arguing that because something is true of members of a group, it is true of the group as a whole”. The application to economics is to suppose that the principles of sound finance, such as avoiding debt and balancing the books, that may apply to a family or small business are applicable to governing nations. Despite economic stagnation and rising unemployment, most industrial countries, with the honourable exception of the US under the Obama administration, are engaged in fiscal austerity. These programmes are likely to fail in their own budget-balancing terms because of their kickback effects on growth; but that is not the main argument against them, says the FT’s Samuel Brittan.
Lex: Cash doubt, going with the flow
When companies borrow money, it is usually a sign of confidence in their business. If a raft of emerging market corporate bond deals this week is a guide, some bosses are positively exuberant. And why not? The MSCI index of emerging market stocks has in the past nine days posted its biggest rise since November 2008. The question is whether investors really should be quite so cheerful, says Lex.
Money Supply: Should the troika have ‘gambled for redemption’?
For economists Juan Carlos Conesa and Timothy Kehoe, what puts countries most at risk of suffering what they label a “self-fulfilling debt crisis” – for which there is no option but default – is the sharp drop in revenues that occurs as a result of recession. Because of this, the research argues that – in some instances – it is better for governments to “gamble for redemption”, ie, avoid cuts and hope for a recovery in revenues to ease their debt burdens, writes FT Money Supply’s Claire Jones.
Accept banks will fail, warns FSA chief
Politicians and the public must accept that banks will fail, some retail investors will make poor decisions and both will cause monetary losses, if the UK’s plan to revamp financial regulation is to succeed, Lord Turner, chairman of the Financial Services Authority said on Thursday. “There is no point in saying that we are abolishing ‘too big to fail’ status unless we mean it,” Lord Turner told an audience of business leaders in his annual speech at the Mansion House. Noting that he was likely to be making his penultimate appearance because the FSA is due to be split into two new authorities in 2013, Lord Turner called on the government to think carefully about the trade-offs involved in more intrusive regulation, particularly in terms of cost and time, writes the FT’s chief regulation correspondent, Brooke Masters.