Comment, analysis and other offerings from Thursday’s FT:
John Gapper: Whatever is good for Goldman …
A lot of people used to think that Goldman Sachs ran the US economy. Now we know it does. Goldman partners are not only smarter than the average Wall Street bear, but often turn up in “public service”, running finance ministries and central banks. Most of the time, this intermingling is not pernicious. Yet the next president should recruit from elsewhere, says Gapper
Analysis: Lehman collapse puts prime broker model in question
Many hedge funds are still buried in the rubble of Lehman, but others are pondering their future banking relationships, says the FT’s James Mackintosh. Their concerns go to the heart of the prime brokerage business model, which is built on a practice known as rehypothecation. A proportion of assets used to back loans can usually be “rehypothecated” into the prime broker’s name, so the broker can use them to raise cash.
Gillian Tett: Are the dominos about to fall into Main Street?
During recent wrenching weeks, America has received an unpleasant tutorial about what happens when a market freeze hits wacky corners of the mortgage-bond world. Now, however, this cancer is threatening to spread to one corrner of the corporate sector too. On Tuesday, the Federal Reserve quietly admitted it had been temporarily unable to calculate yield levels for non-financial commercial paper, issued by AA-rated companies for one to three months. This spasm raises serious questions about the spread of the crisis.
US bailout (1): Insight: Mohamed El-Erian: The future of banking
Who would have ever thought that the most sophisticated financial system in the world – that of the US – would trigger the most dramatic government rescue operation in history?, says El-Erian, co-CEO and co-chief investment officer of PIMCO and author of “When Markets Collide”. Some may see this as a sad indication of the sharp and rapid deterioration in the standing of the country. More accurately, it speaks to how quickly the cruel realities of an unanticipated deleveraging process can alter the policy and institutional landscape.
US bailout (2) Comment: George Soros: Paulson cannot be allowed a blank cheque
Hank Paulson’s $700bn rescue package has run into difficulty on Capitol Hill, chairman of Soros Management. Rightly so: it was ill-conceived. Congress would be abdicating its responsibility if it gave the Treasury secretary a blank cheque. The bill submitted to Congress even had language in it that would exempt the secretary’s decisions from review by any court or administrative agency – the ultimate fulfillment of the Bush administration’s dream of a unitary executive.
US bailout (3): Editorial comment: Fixing the bail-out
Wall Street and Washington are never soulmates and building a coalition to bail out financiers with public money would never be easy. Congress is offering improvements to Paulson’s scheme including a provision insisting that banks insure the Treasury against any losses. But the US also needs a plan for recapitalising its fragile financial sector.
US bailout (4) Lex: Debt and the dollar
The financial rescue plan is still being hammered out on Capitol Hill, but early estimates put next year’s fiscal deficit at about $1,000bn; a doubling of this year’s, to perhaps 7 per cent of GDP. Adding in the need to roll over existing borrowing, the Treasury will have to raise about $1,500bn in 2009. Yet the implications for the dollar are not all bad, if only because prospects are little better elsewhere
US bailout (5) The Short View: Dual realities
John Authers examines the latest thinking in the credit markets about the Troubled Assets Relief Act Markets and notes that equity markets on Wednesday behaved with what could almost be called calm while credit markets returned to the historic distress seen last week. That is down to the conflict between Tara (the troubled assets relief act) and Warren (Buffett, the world’s most famous investor). Warren can move equity markets, but all the credit markets care about is the congressional drama of Tara – and whether it will give them the relief they want.
US bailout (6): Economists’ forum: Will it work?
Hear the experts: Top economists and commentators critique the US Treasury’s $700bn plan to bail out the banking sector