Comment, analysis and other offerings from Friday’s FT,
Martin Wolf: Why curbing finance is hard to do
About a month ago, I visited the aero engine factory of Rolls-Royce, in Derby. I was hugely impressed. Making jet engines able to work at extreme temperatures is an extraordinary achievement. Why does the financial industry not work this way? How might we bring the performance of finance close to that of other sophisticated businesses? This is, in its essence, the question Mervyn King, governor of the Bank of England, was addressing in his controversial speech this week.
Insight: Gillian Tett — Rally fuelled by cheap money brings a sense of foreboding
Six months ago, the financial system was in deep distress, reeling from a meltdown. Now despair and panic have been replaced not simply by relief — but, in some quarters, euphoria. Never mind the high-profile rally that has occurred in the equity markets; what is perhaps most stunning is the less visible rebound in debt and derivatives markets, as risk assets have displayed what Barclays describes as a “stellar performance”.
Bruce Bartlett: Why Congress must now abolish its debt limit
Any day now there is going to be a uniquely American political crisis when Congress must raise the limit on how much the federal government may borrow, writes Bartlett, author of “The New American Economy: The Failure of Reagonomics and a New Way Forward.” If it fails to do so, the Treasury department loses the legal authority to issue new bonds.
Richard Branson: Rein in Sky and offer the consumer a choice
The Virgin Group founder writes: It may be hard to imagine now, but in 1990 the only UK airline that was allowed to fly between Heathrow airport and the US was British Airways. It wasn’t until the Conservative government dismantled the barriers to competition and loosened BA’s grip on transatlantic landing slots that Heathrow was opened up to Virgin Atlantic. The benefits quickly flowed through to the consumer: prices fell, there was suddenly more choice and, as a result, airlines had to innovate to provide new, more attractive services. This is how competition works and at Virgin we think it’s a good thing.
The two-stage de-risking of banks
Mohamed El-Erian of Pimco writes: The first stage of de-risking of the banking sector was led by the markets. Fueled by massive concern about the banks’ lax risk management practices and related over-exposure to toxic assets, the process was vicious and indiscriminate. The question is whether this is the end of the story. It is not.
Lex on Meriwether
Will the third time be the charm? Ten years after John Meriwether almost vaporised the global financial system with Long Term Capital Management, he was just another victim last autumn when his new firm, JWM Partners, was crippled. But the news that he already is launching another venture raises questions about investors’ short memories. Faith in mathematically elegant, supposedly low-risk strategies has hardly been tempered by two financial crises only a decade apart that turned exploiting small inefficiencies with borrowed money into big problems.
Analysis: Emirate re-engineered
The need to diversify economies and develop private sectors has become a common theme in the Emirates. But Abu Dhabi is pushing ahead with arguably the most ambitious programme of all. More than $300bn (€200bn, £181bn) worth of infrastructure and property projects have been announced for the UAE capital; billions more dollars are also being spent by state investment vehicles to tap into the latest technology and lure businesses to the emirate.
Editorial: The White House versus Fox News
The White House has lately assaulted its critics at Fox News — one of the most popular and exuberantly conservative cable news channels. Any media outlet is reluctant to draw attention to another, so the controversy took a while to build, but the fight has now become a matter for debate.
John Authers’ The Short View: Chinese growth
Every time China produces a new download of economic numbers, it prompts the same question outside the country: do we believe them?
Auction rate securities facing tough scrutiny
For investors stuck with securities they once thought were cash-like holdings, a new danger has emerged. Auction rate securities litigationsE-mail scammers are promising at least $1.5m in compensation for holders of auction rate securities, the $330bn market that seized up in February of 2008 and remains frozen over. Though the e-mails look as if they come from Finra, an industry regulator, they do not.