Comment, analysis and other offerings from Thursday’s FT,
Insolvent banks should feel market discipline
Professor Matthew Richardson and economist Nouriel Roubini write: Joseph Schumpeter famously argued that the essence of capitalism was creative destruction, by which new economic structures are born from the rubble of older ones. The government stress tests on the 19 largest US banks, the results of which are due be announced on Thursday, could have facilitated this process. The opportunity looks likely to be missed.
How banks learnt to play the system
The FT’s John Gapper writes: If governments want to do better this time, they must learn the lesson that banks faced with new balance sheet rules will expend an inordinate amount of time and effort trying to evade those rules. Indeed, the cleverer the rules, the greater the opportunity for financiers to arbitrage them. This is why investors have lost faith in tier 1 and prefer a more basic sum.
Until death or a downturn do us part
The FT’s Jonathan Guthrie writes: Does a downturn wreck marriages? Divorce lawyers report no great surge in business. However, Diane Benussi of Benussi & Co, a firm specialising in high-value divorces, says: “A lot of people are paying retainers to lawyers but hanging fire.” That suggests the divorce rate will rise if the economy has stopped deteriorating.
Lex on bank stress tests
It’s oddly masochistic to be so looking forward to something called a “stress test”. While the anticipation has been universal, however, few agree on what Thursday’s results will achieve – or even whether the tests were a good idea in the first place. The debate is muddled because the main protagonists have completely differing expectations.
Willem Buiter’s Maverecon: Negative interest rates
I agree with Greg Mankiw[1] that it is time for central banks to stop pretending that zero is the floor for nominal interest rates. There is no theoretical or practical reason for not having the Federal Funds target rate and market rates at, say, minus five percent, if that is what your Taylor rule, or whatever heuristic guides your official policy rate, suggests.
John Authers’ The Short View: Bond yields
There is no shortage of reasons for bond yields to move in the next few days. After yesterday’s US news on supply by the Treasury and purchases by the Federal Reserve, the week ends with a 24-hour period that includes a European Central Bank meeting (which may consider buying bonds to push down their yields), the “stress tests” of US banks, and April’s US unemployment data.
Analysis: A delicate detente
The global economic crisis is accelerating Taiwan’s reconsideration of its stance towards China. For years, Taiwanese companies have profited from using cheap Chinese labour to make computers and high-technology gadgets for US and European consumers. Now, as those western markets wilt, contributing to a near halving in Taiwan’s exports between June and December last year, the groups are recognising the increasing importance of China itself as a market.
Editorial comment: A Budget blast for Downing Street
Gordon Brown’s bad patch just got worse. Even as the prime minister sought to turn the political focus away from questions about his authority and on to his vaunted ability to handle the financial crisis, he has taken a direct hit on his core competence. The blast came from a cross-party committee of MPs, which on Wednesday produced a withering critique of the Budget.