Monthly Archives: January 2010

Martin Wolf is writing for the FT’s Davos blog. Here is a copy of his third entry.

Here are further glimpses of the Davos kaleidoscope.

First, my friend Moises Naim, editor of Foreign Policy, gave me a new acronym on the global recovery. It is LUV. The L is for the L-shaped recovery of the European economies. The U is for the U-shaped recovery of the US economy. The V is for the shape of the recovery of big emerging economies.

This looks depressingly right to me. In particular, the eurozone seems to have decided on an adjustment to its huge internal imbalances that is loaded entirely on the weak countries of the periphery. But the periphery cannot adjust if the core – namely, Germany – does not adjust too, by expanding demand. Neither the ECB nor the German government seems to understand this simple point, though one coalition partner – the FDP – does seem to do so. Read more

Martin’s column – “Volcker’s axe is not enough to cut banks to size” – drew many responses. Here is a selection of them:

Robert Johnson: Read more

Briefly, during the takeover bid for Cadbury by Kraft, I thought the UK might proclaim a “strategic chocolate” doctrine. Fortunately, that did not happen. Less fortunately, if history is any guide, the takeover of Cadbury is quite likely to be a flop. If so, the winners will be the shareholders of Cadbury, the advisers for both sides and those who arranged the loans. The right question, then, is not about chocolate. It is about the market in corporate control itself.

For high priests of Anglo-American capitalism, this question is heresy. They would insist that shareholders own the business and have a right to dispose of their property as they see fit. They would add that an active market in corporate control is an essential element in “shareholder value maximisation”, on which an efficient market economy rests. Yet, after financial markets have gone so spectacularly awry, the question whether companies should be left to the markets is being raised. Read more

Martin Wolf is writing for the FT’s Davos blog. Here is a copy of his second entry.

Another weird day has passed. But all days at Davos are weird. One never knows what is going on, except for the fact that, wherever one is, one would be far better off somewhere else.

The highlight of yesterday evening was the opening address of President Nicolas Sarkozy of France. The speech is so classically French as to be a caricature of itself: bombastic, high-flown and verbose, it addresses a vast range of contemporary challenges, around the grand theme of moralising and containing capitalism. Yet, I have to admit, there is much in it with which I find myself in agreement.

“Purely financial capitalism is a distortion, and we have seen the risks it involves for the world economy. But anti-capitalism is a dead end that is even worse.” Read more

From the FT:
Volcker has the measure of the banks – John Gapper
Why we should expect low growth amid debt – Carmen Reinhart and Kenneth Rogoff
An early warning system for asset bubbles – Charles Roxburgh and Susan Lund
How to make the difference between a bleak future and a bright one – Bill Gates in Davos

From elsewhere:
‘Obama sounded like a good old-fashioned mercantilist’- Economist’s View
Global financial regulatory reform falls apart – Felix Salmon
Dialing back the deflation watch – Free Exchange
A proposal for genuine financial reform – Marshall Auerback via the New America Foundation
Off with their heads – Simon Johnson via Project Syndicate
The Fed’s best man – Alan Blinder via the New York Times

By Roger E.A. Farmer

For the past nine months I have been presenting some new ideas at academic conferences where economists have been grappling with the current financial crisis. Boston, Montreal, Amsterdam, London, Cleveland, Sydney, Atlanta … Only the venues change.  The participants and the papers are always the same. Read more

Martin Wolf is writing for the FT’s Davos blog. Here is a copy of his first entry.

I spent my day being interviewed by other media organisations and preparing my Friday column. So I did not attend any sessions. I rely on the excellent reporting of my colleagues to tell me what is happening in Davos, just like all the other readers of the FT and But I have still managed to learn something from chance encounters here.

So what have I learned so far?

First, my criticism of the “Volcker rule” in banking, subject of my column this morning, is controversial. The desire of many non-bankers to cut the bankers down to size is, even here, quite noticeable. Have I gone soft on bankers? I do hope not. But this new addition to the already pressing weight of uncertainty worries me greatly.

Second, the US administration is effectively absent, though Larry Summers will be here later in the week, representing the White House. Whether this absence is because of the State of the Union, Congressional hearings (as in the case of poor Tim Geithner) or a reluctance to be seen junketing with the world’s financial and business elite, I do not know. I suspect the latter. Read more

From the FT:
Why trade war is very likely to break out this year – Michael Pettis
Lessons for the American housing market – Robert Pozen
A very small mercy – Editorial comment
Recovery at risk if contradictory forces collide – Ben Funnell
Short View: Axis of worry shifts to Asia – John Authers

From elsewhere:
The US ‘spending freeze’ in context – Free Exchange
IMF revises up its global economic forecast – IMF Direct
The myth of China’s blithe consensus- Michael Pettis
Meryvn King calls for structural overhaul to banking industry – Naked Capitalism

Ferguson illustration

Today, the people see in the financial sector not the skilful hands of erstwhile masters of the universe, but the grabbing hands of greedy ingrates. It is little wonder, then, that a desperate President Obama, battered by the voters in Massachusetts, has turned upon a group even less popular than his party. He has duly added the axe of Paul Volcker, 82-year-old former chairman of the Federal Reserve, to the regulatory scalpel offered by his Treasury secretary, Tim Geithner. Read more

By Michael Pomerleano and Andrew Sheng

As the Financial Crisis Inquiry Commission begins looking at the causes of the recent financial crisis, we need to consider that crisis is a failure of governance. Lucian Bebchuk from Harvard Law School has written extensively on the failure of private sector governance: boards that failed to make informed judgments or control the risks incurred by their institutions, self-serving management that lost control over reckless risk taking and compensation systems that invited speculation by traders. Although Sheila Bair, chair of the Federal Deposit Insurance Corporation (FDIC), has openly expressed her discontent with the governance of the banks and the FDIC is considering tying premiums to compensation, we are likely to witness the largest bonus season the industry has ever seen. Read more