Comment, analysis and offerings from Wednesday’s FT,
Martin Wolf: East and west converge on a problem
How is the “great convergence” – the topic of last week’s column – going to shape the world in the 21st century?, asks the FT columnist. Happily, in tackling this huge question, there is a guide: Ian Morris of Stanford, who has written a brilliant analysis of where we are, how we got here and where we might be going in a book that covers 16,000 years of human history.
MoneySupply: Why it’s difficult to solve eurozone woes
If you want to understand why it is so difficult to solve the eurozone sovereign debt crisis and why pro-euro commentators such as the FT’s Wolfgang Münchau are so pessimistic, you need do no more than read Wednesday’s comments in the FT from Otmar Issing, former chief economist of the European Central Bank and highly respected economist in Germany, writes the FT’s economics editor Chris Giles.
Philip Augar: Only global action can curb bonuses
The UK government’s current current embarrassment over banking bonuses illustrates three uncomfortable truths, writes Augar, author of ‘The Greed Merchants: How the Investment Banks Played the Free Market Game’ and ‘Reckless: The Rise and Fall of the City’. First, the global response to the banking crisis of 2007-09 was flawed in many crucial respects. Second, the financial services industry is US-led and the rest of the world has little option but to salute the US flag. Third, British politicians either misunderstood the industry they were trying to reform or, chose to exaggerate their influence in order to appease a bloodthirsty electorate in 2010.
Lex: Basel filtered
Credit where it is due, says Lex. The Basel III banking reforms include a laudable new technique to help banks deal with credit bubbles. It was announced last month, but is only now getting the attention it deserves. If only it can work as planned. This may, however, be too much to ask.
John Plender: The hidden dangers of passive bond investing
Bond markets may be twitchy at the prospect of a deluge of refinancing by Spain, Portugal and Italy this week, but at least southern European finance ministers can rely on managers of indexed funds to absorb much of the supply of new sovereign debt, writes the FT’s Plender. A big question for the rest of us is whether passive bond investment that seeks to replicate index returns might have wider malign consequences. The short answer is, yes.
James Mackintosh: EM financial propaganda
Propaganda is a vital part of any war, writes the FT’s investment editor. Currency wars are no different. Emerging markets – led by Brazil and its outspoken finance minister, Guido Mantega – are engaged in currency skirmishes against each other and the US. Since the Fed deployed a second round of quantitative easing, the screams of anger from emerging markets have become deafening. But they should worry less about QE2-inspired hot money flows destabilising their currencies and more about how they will stop inflation becoming embedded.
John Kay: A smart business dressed in principles not rules
Exactly 15 years ago I wrote an article in the FT about the adoption of an extended dress code in a major company, writes Kay. I thought the editor’s insistence that I should make clear that the story was a spoof was unnecessary. But last month’s news that UBS had issued a 43-page dress code to some of its employees confirms that, as always, the editor was right.
Currencies: Has the mood swung too far against the euro?
As the euro tumbles below $1.30 to four-month lows against the dollar and speculation about more sovereign bail-outs grows, single currency bears have dominated debate in financial markets. But has the mood turned too bleak?, asks George Saravelos, currency strategist at Deutsche Bank. All is not yet lost in the eurozone, he says, not least because the bloc has the financial capacity to provide funding to Portugal, as well as Spain if needed.
Luke Johnson: Don’t be fooled by illusory numbers
So often investors and entrepreneurs look at the wrong financial numbers and ratios when analysing companies, writes the FT columnist. They focus obsessively on the latest year’s pre-tax profits, or perhaps post-tax earnings. But these can often be manipulated, or temporary. What matters much more are underlying sales, strong gross margins and free cash flow. Study these numbers over several years to see if a business really owns a solid franchise.
BeyondBrics: No capital controls for Malaysia
During the Asian financial crisis in the late 1990s, Malaysia became a hero to anti-globalization protesters by defying the IMF and introducing capital controls to defend its beleaguered currency, writes BeyondBrics’ Ranjit Lall. Now that many of its Asian counterparts are doing the same thing, one might have thought that the old master was getting ready to reopen his toolbox. Not according to Nor Mohamed Yakcop, the minister in charge of Malaysia’s Economic Planning Unit, who said the country has “no intention of introducing capital controls in the short term.”