Comment, analysis and other offerings from the FT on Tuesday,
Martin Wolf: The government takes a huge gamble on investor confidence
The era of soaring borrowing and the associated boom in finance is over. The government should indeed act as borrower of last resort at this traumatic time. But the aim cannot be to tide the economy over until households start borrowing madly again.
Philip Stephens: Goodbye to New Labour
Things could yet get worse. The striking feature of the global economic crisis has been the speed with which events have turned the unthinkable into the inevitable. Listening to the chancellor, my first thought was that we may not have reached the end of that road.
Editorial Comment: Extraordinary optimism for extraordinary times
A new top rate of income tax at 45 per cent, a temporary cut in value-added tax and government borrowing of £118bn in the next financial year: we knew the eye-catching parts of Alistair Darling’s statement on Monday before he stood up. What was missing ahead of the chancellor’s words was the most important element: where the money is to come from to put the UK public finances back on a credible footing. Even after he sat down this question lacked a full and compelling answer.
Full Pre-Budget Report coverage from the FT here.
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Editorial Comment: Lessons from the Citigroup rescue
Another weekend, another bank rescue. On Sunday night, the US Treasury moved to shore up Citigroup. There was no choice – the banking giant could not be allowed to keep stumbling. The rescue seems to have been generous to Citigroup, but the insurance scheme it uses is a model that deserves wider consideration. Shaken by the announcement by Hank Paulson, the US Treasury secretary, that the troubled asset relief programme would not buy distressed mortgage assets, investors gave Citigroup a wide berth. Last week, its share price fell by more than 60 per cent.
Gideon Rachman: Is America’s new declinism for real?
Texas A&M is not the obvious place to pick if you want to discuss American decline. The university sends more of its graduates straight into the military than any other civilian college in the US. Its officer training corps prowl the campus in crisply pressed uniforms and knee-high leather boots, greeting each other with brisk “howdys”. Agonised introspection and crises of confidence are not Texan traits.
Opinion: The world’s central banks must buy assets
John Muellbauer, writer is professor of economics at Oxford University, writes: The world economy is suffering from a Keynesian shortage of demand. Worse, it is trapped in a dangerous downward spiral of falling asset prices, rising bankruptcies, foreclosures and unemployment feeding into more of the same, along with falling commodity and now goods prices. Since no country is exempt, international co-ordination is needed and made easier because of the obvious common interest. The rapidity of the current contraction also means that fiscal solutions, though helpful, are not timely enough and create obvious free rider problems.
Michael Skapinker: The search for work-life balance goes offshore
The most famous Christmas truce was in 1914, when British and German soldiers climbed from their trenches and wandered into no-man’s land to talk, bury their dead and play football. In the Philippines, Christmas sees a fraught game, as the government and the communist New People’s Army declare a wary and often disputed truce.
Willem Buiter:The diminished role of monetary policy
The paralysis of financial intermediation today means that monetary policy (cuts in the official policy rates) have become largely ineffective in stimulating demand. Such cuts now appear to have little if any effect on either the marginal cost or the availability of external funds to non-financial enterprises and households. For individual open economies, the exchange rate provides a mechanism for stealing aggregate demand from the neighbours. If most of the neighbours are also in a situation of deficient aggregate demand, this redistribution of global effective demand - which is all that changes in exchange rates accomplish - robs Peter to pay Paul and is not part of a global solution at all.
Interactive graphics: Bank Street
Take a walk down Bank Street and follow the fortunes of some of the world’s largest banks as they navigate the global financial crisis.
Lex on Anheuser-Busch Inbev
So dire are the markets that Anheuser-Busch InBev has priced its €6.36bn rights issue at a whopping 69 per cent discount to Friday’s closing price - already one-third below the level when it postponed the issue last month. But the clock was ticking for InBev to start paying down the €54.8bn financing for its mega-acquisition of the Budweiser brewer. It has probably now done enough to get the issue away. Since the initial postponement, InBev has completed the deal, and Brazilian and Belgian shareholders, controlling 60-odd per cent of the group, are stumping up €2.8bn of funds to exercise their rights, not the €1.2bn they indicated previously. Belgian shareholders are also placing €1.2bn of ex-rights shares in an accelerated book build, whose proceeds they will use to exercise more of their total €4bn rights - largely removing any stock “overhang”.
