Monthly Archives: November 2009

From the FT’s comment section:

Martin Wolf: Give us fiscal austerity, but not quite yet
John Kay: Labour’s digital plan gets in the way of real progress
Robert Zoellick: Heed the danger of asset bubbles
John Coates: Alpha males must trade on more than machismo
Editorial Comment: UK’s House of Commons needs more teeth
Editorial Comment: Murdoch attempts to weaken Google
Editorial Comment: Philippine carnage
Notebook: Sue Cameron, Whitehall’s revenge for Iraq damage
Global Insight: Chrystia Freeland, The public shrugs at Goldman’s claims to genius
Market Insight: John Plender, Will rising debt trigger eurozone break-up?
Lex: The agenda-setting column on business and finance

Kiran Stacey

The Telegraph
Mary Riddell, In Afghanistan hope starts here, down a dirt track on the edge of Taliban country
David Green, Why school league tables must be kept, but reformed

The Times
Rachel Sylvester, Dave’n'George: there may be trouble ahead
Chris Mullins MP, I do not accept that £64,000 a year for a politician is peanuts

The Guardian
Sami Ramadani, The Chilcot Inquiry inspires no faith
Michael White, Make ready the smokeless rooms: a hung parliament is on the cards

Wall Street Journal
Myroslava Gongadze, Ukraine: A democracy at risk
Bret Stephens, Jimmy Carter’s presidency shows how pure intentions can lead to disastrous results

New York Times
Roger Cohen, Obama in his labyrinth
Editorial: Turkey and the Kurds

From the FT’s comment section:
David Gardner: Obama still has leverage over Israel
Michael Skapinker: The perils of trying to get down with the kids
William Cohan: Goldman Sachs: the case for the defence
Peter Mandelson: Europe needs action, not quiet consensus
Moises Naim: Mexico moves from Latin leader to laggard
Oleh Rybachuk and Taras Chornovil: The west should not lose patience with Ukraine
Editorial Comment: Soaking the rich
Editorial Comment: Rethinking the role of the state
Editorial Comment: A vitriolic climate
Notebook: Brian Groom, Wordsworth’s fair friend turns nasty
Global Insight: Edward Luce, Obama treads fine line with India and China
Market Insight: Jose Manuel Gonzalez-Paramo, Rejuvenating the ABS sector
Lex: The agenda-setting column on business and finance

Kiran Stacey

Nobody quite knows whether Rupert Murdoch is a visionary or a doddering old fool. But today’s news in the FT that News Corp is in talks with Microsoft about receiving a fee to block its pieces from Google shows that either way, he is determined to press ahead with his plans to squeeze revenues from search engines.

The piece has got media commentators understandably excited. Two weeks ago, Murdoch’s stance was simply to block out content from Google for the sake of it, and seemed borne more out of anger with Google than a credible business plan. But the idea that the company could be paid not to allow content from its papers to be accessible on Google marks a major step forward.

The FT’s John Gapper, who has been supportive of Murdoch’s efforts to make the internet pay, says it could be a “pivotal moment in internet economics”. He notes calculations by Ryan Chittum of the Columbia Journalism Review that being listed on Google brings in relatively little for News Corp, which suggest it wouldn’t take much for Miscrosoft to lure the company away from the world’s biggest search engine.

Many others have been on the “Rupert is a dinosaur who doesn’t understand the web” side recently. Here’s an example from, in which Staci Kramer points out that he doesn’t seem to know how Google uses the WSJ, getting his facts wrong on the pay wall.

But even Peter Preston in the Observer, part of the Murdoch-hating, free content-loving Guardian Media Group, admits Rupert’s dilemma is a tough one to solve, saying he faces “a forest of questions without pat answers”. Having said that, he also takes the opportunity to stick the boot in to newspapers, saying “press websites are outgunned, and falling back against the likes of cable network and service provider sites”.

Is Murdoch’s move the future of newspapers or a retrogressive, futile stand against the irrepressable forces of modernism? As a newspaper journalist who thinks what we do might actually be of some value to readers, I hope it is the former. If he is proved right, perhaps the fact that the Times had to issue a clarification after running an obituary taken without permission from someone’s blog this week, will be merely an ironic footnote.

From the FT’s comment section:
Clive Crook: A risky trial that offers little reward
Wolfgang Münchau: Van Rompuy is the right man for the job
Gillian Tett: Could sovereign debt be the new subprime?
Karl Inderfurth and Raja Mohan: Put space at the heart of US-India relations
Editorial: Having their cake and eating it too
Editorial: Aftermath of the Fort Hood atrocity
Global Insight: Quentin Peel, US underwhelmed by top EU appointments
Undercover Economist: Tim Harford, I love Walmart, my wife hates it. Help!
Lex: The agenda-setting column on business and finance

From the FT’s comment section:
Tony Barber: Europe risking irrelevance as world moves on
Christopher Caldwell: France and the culture wars
Matthew Engel: Outside Edge – A woman’s fight to air her dirty laundry
Andrea Felstead : Man in the News – Marc Bolland
Kenneth Ballen: Inside the dreams of Mullah Omar
Editorial: A pitiful exercise in Euro-minimalism
Editorial: The Gaul of it
Editorial: Deficit attention
Global Insight: Daniel Dombey, Foreign policy tests Obama-Clinton bond
Lex: The agenda-setting column on business and finance

From the FT’s comment section:
Martin Wolf: Tax the windfall banking bonuses
Roula Khalaf : Why Saudi Arabia should rethink its Yemen strategy
William Donaldson and Arthur Levitt: Tackling systemic risk is no job for the status quo
Liu Mingkang: China can build on the base of its sound banks
Eamonn Butler: Politicians must tell the truth: immigrants help society
Editorial: Karzai now needs to move to deeds
Editorial: Anti-anti-dumping
Editorial: Diversity on boards
Global Insight: James Kynge, China’s growth dictates fresh view of the world
Market Insight: Gillian Tett, Can today’s philanthropy fend off future bank-bashing?
Notebook: Jonathan Guthrie, No soft soap from Lord Sugar
Lex: The agenda-setting column on business and finance

James Mackintosh

Contingent convertibles are the idea of the moment in the seemingly never-ending debate on what to do about the banks. They are a rather neat solution to the problem of banks not having enough capital. Rather than forcing the banks to hold far more capital against potential losses – very simple, but also dangerous to the economy as the more capital they hold, the less the banks can lend – proponents of “CoCos” suggest banks issue bonds which convert into equity, boosting capital, when capital ratios fall below a pre-defined point.

Two weeks ago Lloyds Banking Group in the UK set out plans to convert £7.5bn of subordinated bonds into CoCos, which would turn into equity if the bank’s tier one capital drops below a certain trigger. This has the disadvantage of costing Lloyds a lot, as Neil Unmack points out: the coupon is up to 16 per cent. It is also, as PrefBlog says, “thoroughly insane” to link conversion to a measure which is going to change, but in so-far undefined ways. Gillian Tett, in the FT, fears their conversion could itself create panic.

But CoCos are a fabulous instrument for solving almost all the problems with the banking system at once. They just need to be used differently.

First, they give the banks the potential to receive new slugs of capital from the private sector, which should end the need for banks to go cap in hand to governments – as long as enough of their capital is convertible.

Second, they cost a lot. Yes, I know that sounds like a disadvantage. But one of the reasons they cost a lot is that they should be properly priced. The implicit guarantee of a government bailout if a bank hits a crisis is hard to put a value on (some 2002 research on Thai banks modelled it as a put option), but for bond holders is clearly high, and far higher than the payments made by banks in some countries, such as the US, for deposit insurance. With CoCos, that value is priced into the market: they should convert into equity long before any government bailout, so investors put zero, or very little, value on the implicit government guarantee. That has a positive knock-on effect: if bank capital is properly priced, the financial sector should shrink back to become a more reasonable proportion of the economy, helping rebalance the US and UK, in particular. (The cost should be far lower than the Lloyds bonds – the trigger is what matters, something I’ll come back to)

Third, CoCos should reduce the risk of a run on a bank. While they don’t have any direct benefits to liquidity, they should boost confidence by providing the (contingent) boost to capital and the assurance that the bank will not go bust if hit by big losses.

Finally, CoCos should give governments a way to convince investors (and taxpayers) that they will not rescue banks the next time they hit problems. It is hard to get this message across, because everyone knows that when faced by the collapse of the financial system, governments will step in. CoCos, though, provide a handy way to almost eliminate any need for governement involvement: just as long as there are enough of them.

The solution is not to have a small amount of extra contingent capital, as some are suggesting, and as Lloyds will have. Banks should be forced to turn a big chunk of existing bank debt into CoCos, with a conversion trigger based on a minimum level of capital – the worst case scenario – *or* on the bank failing. In effect, this would be a bank resolution regime which automatically converts debt to equity, avoiding the need for government rescues. Debt would cost a lot more, but bondholders would also have a far bigger incentive to keep an eye on bank management. Perhaps only 50 per cent of debt, or some other very large amount, rather than 100 per cent, would need to be convertible – but it would have to be far more than the normal belief of what might be needed in order to deal with the “black swan” events which lead to the need for government intervention.

Ordinary CoCos could still be produced, which would convert on various other triggers, such as a higher capital ratios, and so act to protect the more senior bondholders.

The disadvantage – apart from the cost to banks, which I see as an advantage – is that uninsured lenders to banks would be subordinated to customers of the banks, leaving those customers with less of an incentive to avoid weak banks. But given the Lehman and Bear Stearns failures happened when their customers jumped ship, it would be better for everyone if the customers were given priority.

Unfortunately, governments are unlikely to push this through, because the banks will be joined in their lobbying by all the investors who like being able to buy high-quality bank debt with an implicit government guarantee. But this solution would be far simpler and more effective than trying to break up the “too big to fail” banks, or trying to regulate them to ensure they don’t make mistakes.

From the FT’s comment section:
John Gapper: How to reinvent China’s growth
Jacques Delors: Modesty would become Europe’s new duo
Paul Myners: New rules will make British banks stronger
David Pilling: Obama seeks change Beijing can believe in
Michael Fullilove: Palin and the sex-tape beauty queen are spookily similar
Chandran Nair: Time for the greening of global trade
Editorial: Brown’s own goal
Editorial: A lawless apparat
Editorial: US fiscal fightback
Global Insight: Tony Barber, World watches EU experiment
Market Insight: Richard Bernstein, Lessons of investing are ignored
Notebook: Robert Shrimsley, A Queen’s Speech for our time  
Lex: The agenda-setting column on business and finance

From the FT’s comment section:
Martin Wolf: Grim truths Obama should have told Hu
John Kay: How the market proved no panacea for BT
Bill Owens: America must start treating China as a friend
Nancy Birdsall and Arvind Subramanian: Forget emissions, focus on research
Editorial: Balls’ bid to evade the axe must fail
Editorial: Lagarde en garde
Editorial: Mideast brinksmen
Global Insight: Alan Beattie, The many roads to food security
Market Insight: Trevor Greetham, Doomed to repeat history?
Notebook: Sue Cameron, Crown dethroned in Whitehall
: The agenda-setting column on business and finance

FT dot comment

FT dot comment is no longer updated but it remains open as an archive.

Politics, economics, high finance and morality – this blog addresses the issues being considered by the FT’s comment team, and their thoughts.

FT dot comment: a guide

Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.