Comment, analysis and other offerings from Wednesday’s FT,
Martin Wolf: Faltering in a stormy sea of debt
It is astonishing that Standard & Poor’s can say anything about the best-known debt class in the world that is deemed to add value, writes the FT’s Martin Wolf. This business is, after all, one of a class whose failures contributed mightily to the financial crisis. Nevertheless, the announcement that it was shifting its long-term rating on US federal debt from stable to negative reminded us all of something vital: the world economy is not on a stable path.
Tony Barber: Chernobyl’s guide to tyranny
Japan’s nuclear safety authorities raised the alert level at the Fukushima plant last week to a maximum seven, says the FT’s Barber. This means they consider the emergency to be as serious as the Chernobyl disaster in the Soviet Union. That seems a rather overstated comparison to me. Twenty-five years after the explosion at the Ukrainian facility, I vividly recall every detail of those terrible days of April 1986.
Brad DeLong: S&P aims to whip Congress into debt action
A spokesperson for Standard & Poor’s said on Monday that there was a one-in-three likelihood that the rating agency “could lower” its long-term view on US debt within two years, writes DeLong, a professor of economics at the University of California, Berkeley. Equities quickly dropped by more than 1.5 per cent but, importantly, the dollar did not weaken and US Treasury interest rates did not rise. The reason for this unusual pattern is simple: the markets think S&P’s move is important not because it signals something new about the economy, but because of its political impact in Washington.
Lex on Goldman Sachs
Goldman Sachs and its results tend to function like a financial Rorschach test. Perceptions reflect the biases and psychoses of the viewer as much as the underlying performance of the world’s most admired investment bank (or, if you prefer, vampire squid). However, the aggregate judgment of those who have to decide how much to pay for a stake in Goldman seems to be clear: its franchise is less valuable than it used to be.
John Kay: Consistency depends on the context
Consistency is the first siren of beauty, the FT’s John Kay notes. The claim is made by John Cochrane, professor of economics at the University of Chicago, in a blistering response to Paul Krugman’s critique of modern economics. A little over the top perhaps. It is not consistency that takes our breath away when we see the Taj Mahal or the Mona Lisa. But Prof Cochrane correctly identifies consistency as the most prized virtue in economic reasoning. If I am faced with the same menu of options, I will always make the same choice. This is the premise on which rational choice models are based. Such models not only dominate economics but have been widely used across the social sciences.
John Plender: UK banks’ rush into property needs watching
While the financial crisis that began in 2007 had a plethora of causes, property was at the heart of the problem, says the FT columnist. The fact that the big UK-based banks, with the exception of Lloyds Banking Group which is battling with the dismal property legacy it acquired with HBOS, have been significantly increasing their exposure to the sector should thus prompt eyebrows to twitch.
Material World: Burberry and LVMH’s sales in Japan
I read the peppy sales figures from Burberry and LVMH about their recent financial performances around the world – but I was left wondering about what is really happening to luxury goods sales in Japan, writes Vanessa Friedman. There were enthusiastic nods to China at Burberry, which released quarterly figures. Angela Ahrendts, chief executive, said: “Burberry had a strong finish to the year, driven by our design, digital marketing and retail initiatives, as well as good early progress in China.”Japan, however, used to be the greatest luxury market on earth and luxury-watchers are interested in what’s going to happen to that market after the earthquake