From the FT:

Germany still in credit crunch danger: James Wilson investigates the suggestion that Germany could still suffer as the financial crisis reaches its lowest point

Singh’s big chance to unchain the Indian economy: Eswar Prasad says financial sector reforms will determine the pace and quality of India’s growth

Elsewhere:

Easing job losses don’t change weak prospects for US recovery: RGE Monitor

Undersized: Could Greenland be the new Iceland? Should it be? Anne Sibert in VoxEU.org

By Michael Pomerleano

Josef Ackermann, Deutsche Bank chief executive and chairman of the Institute of International Finance, wrote last month in the FT: “There is a danger that changes in the regulatory environment will, by accident or design, lead to a refragmentation of markets…Consequently, we should not seek answers in the perceived safety of nation-based structures, but rather establish effective processes for cross-border crisis management”.

According to Mr Ackermann, the inability to reach binding cross-border standards and insolvency systems is likely to lead domestic regulators to abandon trust in home/host regulatory arrangements, and encourage financial institutions to contract to their home turf.  Should we support to Mr Ackermann’s recommendations? No. Continue reading "Ring-fence cross-border financial institutions"

If the government of the UK wishes to find a suitable motto, it should adopt the advice of a great Scot. “Great Britain should,” wrote Adam Smith in The Wealth of Nations, “…endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.” Smith offers wise counsel. The country’s circumstances are more mediocre than imagined two years ago. The question is how to respond. Continue reading "Adapting to Britain’s mediocre prospects"

By Richard Robb

In their classic routine, Carl Reiner asks Mel Brooks, the 2000 Year Old Man, to explain how he has managed to live for so long. Brooks replies that he avoids fruits, vegetables, meats, grains - each of which causes some comic side effect. All that’s left for him is “cool mountain water.” “Just that,” the old man says, “and a stuffed cabbage.” Reiner asks whether stuffed cabbage is allowed on his diet. The answer, of course, is “What, you think for a little mountain water I’m gonna keep myself alive?”

Financial risk-taking has come to a similar juncture. Politicians and regulators agree that risk doesn’t belong in banks because it might require another taxpayer bailout. It doesn’t belong in hedge funds either - they are murky and generally wicked. Be sure not to imperil insurance companies or government agencies. And keep risk far away from retail investors, who need protection most of all. Oh yeah, we want risk-taking somewhere so we can have a dynamic economy. It’s our financial stuffed cabbage. Continue reading "Fixing banks quickly"

By Ricardo Caballero

Perhaps one of the economic phenomena most akin to witch-hunting is the diagnostic and policy response that develops during the recovery phase of a financial crisis.  Understandably, pressured politicians and policymakers rush to find culprits and sources of instant gratification. All too often they find a ready supply of these in preconceptions and superficial analyses of correlations.  This time around the scapegoats are global imbalances and leverage. Continue reading "Economic witch-hunting"

With one bound the banks are free, or so it seems. Already, the panic of the autumn of 2008 is fading. The period within which lessons can be learnt and changes made is closing. Yet without radical changes, another crisis is certain. It may not even be that long delayed.

In a recent speech, governor Elizabeth Duke of the Federal Reserve told an anecdote from just after the failure of Lehman Brothers last September. Ben Bernanke, chairman of the Federal Reserve, was asked: “Well, what if we don’t do anything?” To which he replied: “There will be no economy on Monday.” Instead, all institutions deemed systemically significant were saved, by shifting almost all of the risk on to taxpayers.

“Never again” might be too much to ask. But “not for a generation” is essential. Governments cannot afford an early repeat, financially, politically, perhaps morally: the lives of so many cannot soon be sacrificed to the whims of a foolish few.

The remainder of the article can be read here. Debate from our panel of economists appears below.

Proposals for reform of financial regulation are now everywhere. The most significant have come from the US, where President Barack Obama’s administration last week put forward a comprehensive, albeit timid, set of ideas. But will such proposals make the system less crisis-prone? My answer is, no. The reason for my pessimism is that the crisis has exacerbated the sector’s weaknesses. It is unlikely that envisaged reforms will offset this danger. Continue reading "Reform of regulation has to start by altering incentives"

By Michael Pomerleano

Reforms typically take place when the urgency of now is evident in the midst of a crisis. That is when vested interests are weak, and policy makers and regulators are no longer complacent. Recently there is a sense that the financial crisis is abating,  that business is returning to normal and a false sense of stability in taking hold; but it does not imply that the crisis is almost over. The belief that the world has overcome the crisis is faulty for several reasons. Continue reading "Five financial reform policies for a crisis-wracked world - a scorecard"