Comment, analysis and other offerings from Monday’s FT,
Henry Paulson: Reform the architecture of regulation
The former Treasury secretary argues that we will need to reflect on the long-held premise that sophisticated investors have the wherewithal to look out for themselves and require minimal, if any, supervision. In these areas and others, regulations must be crafted to foster market stability while maintaining the fundamental tenet of capitalism: if investors are to reap the rewards of taking risks they must also bear the negative results of their risk-taking.
Martin Wolf: Saving the world should be affordable
Can we afford this crisis? Will governments destroy their solvency, as they use their balance sheets to rescue over-indebted private sectors?
Editorial: the return of Glass-Steagall
While better financial regulation is necessary, however, the dichotomy at the core of Glass-Steagall is better left at rest. The regulatory answer is not to constrain who does what, but to control the risk.
Lex: reinstating the uptick rule
Never underestimate the ability of Congress to focus on a problem’s symptoms rather than its cure. By seeking to revive the archaic “uptick rule” that limits short selling of stocks when their last price move was down, Congress is doing just that.
Analysis: the Swedish model
In calmer times, Stockholm would not be an obvious destination for economic policymakers hoping to improve their understanding of the financial system. Yet in the past year growing numbers of eminent visitors have passed through the revolving doors of the imposing black granite block on the Brunkebergstorg that houses the Riksbank, Sweden’s central bank. Their mission: to learn whether Sweden’s response to the crisis that rocked its financial system in 1992 can offer lessons for dealing with the current global meltdown.
John Kay: How the ‘Madoff twist’ entices the astute
Sophisticated confidence tricksters have used a similar tactic for thousands of years. The fraudster hints at impropriety, but implies that the target will be the beneficiary rather than the victim. The suggestion – I will call it the “Madoff twist” – has two advantages. It provides a possible explanation of the source of promised gains. And it encourages the victims to keep quiet until – perhaps even after – the deception is exposed.
The South African finance minister argues that from Adam Smith’s defence of moral sentiment before economic self-interest to Debreu’s algebraic articulation of the informational requirements for a welfare-maximising equilibrium, economists have been clear that markets are incomplete and cannot be left to themselves.
Gappperblog: The penalty of being American at AIG
The US Congress is now so angry about the $165m in retention payments to employees in AIG’s financial products group that it wants to impose a tax to recoup the money, or perhaps 90 per cent of it, from anyone who gets such a bonus. But what about those employees that aren’t American?