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Can we afford to fix our financial systems? The answer is yes. We cannot afford not to fix them. The big question is rather how best to do so. But fixing the financial system, while essential, is not enough.
The International Monetary Fund’s latest Global Financial Stability Report provides a cogent and sobering analysis of the state of the financial system. The staff have raised their estimates of the writedowns to close to $4,400bn (€3,368bn, £3,015bn). This is partly because the report includes estimates of writedowns on European and Japanese assets, at $1,193bn and $149bn, respectively, and on emerging markets assets held by banks in mature economies, at $340bn. It is also because writedowns on assets originating in the US have jumped to $2,712bn, from $1,405bn last October and a mere $945bn last April. Read more
The FT’s Arena blog will this week recreate a virtual editorial conference by allowing readers to take part in the debate which helps shape a Financial Times editorial.
Over the course of this week, our editorial writers and specialists will debate an issue which will form the subject of an FT leader. One of our leader writers will open the debate. Readers are then invited to comment at the end of each post and the best comments will be picked up by us and added onto the main blog as posts. Read more
Is the UK once again the economic sick man? Or is it, as Alistair Darling, chancellor of the exchequer, argued in his Budget speech on Wednesday, just one of a number of hard-hit high-income countries? The answers to these questions are: yes and yes. The explanation for this ambiguity is that the fiscal deterioration is extraordinary, but the economic collapse is not. Read more
By Ricardo J. Caballero
Ben Bernanke, US Federal Reserve chairman, and Tim Geithner, US Treasury Secretary, have reminded us recently that it is time to start thinking about the financial system of the future. This is important not just for the future itself, but also because doing so helps to narrow the types of policies that are desirable during the current crisis. The measures taken today should not hamper, and ideally should facilitate, the transition into the financial system of the future. Read more
Spring has arrived and policymakers see “green shoots”. Barack Obama’s economic adviser, Lawrence Summers, says the “sense of freefall” in the US economy should end in a few months. The president himself spies “glimmers of hope”. Ben Bernanke, chairman of the Federal Reserve, said last week “recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding and consumer spending, including sales of new motor vehicles”. Read more
By Michael Pomerleano
My education (Harvard Business School and economics department) and professional experience prime me to advocate finance’s role in the growth of economies. Politically, I am moderate and not a flaming liberal. However, the conduct of professionals in the financial crisis leads me to reassess these beliefs. I am not alone. Read more
By Douglas W. Diamond and Raghuram G. Rajan
Why are banks so reluctant to lend? One possibility is that they worry about borrower credit risk, though worries need to be extreme to justify the substantial drop in term lending. A second is that they may worry about having enough liquidity of their own, if their creditors demand funds. Yet, the many Federal Reserve facilities that have been opened should assuage these concerns. Read more
Is the US Russia? The question seems provocative, if not outrageous. Yet the person asking it is Simon Johnson, former chief economist at the International Monetary Fund and a professor at the Sloan School of Management at the Massachusetts Institute of Technology. In an article in the May issue of the Atlantic Monthly, Prof Johnson compares the hold of the “financial oligarchy” over US policy with that of business elites in emerging countries. Do such comparisons make sense? The answer is Yes, but only up to a point. Read more
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