An excellent compilation of reports on current mess and how bankers got us here:
A special report on the future of finance: The collapse of finance | Greed—and fear | The Economist
Of particular interest is this:
A special report on the future of finance: Fallible mathematical models | In Plato's cave | The Economist:
"Mathematical models are a powerful way of predicting financial markets. But they are fallible"
My Mantra : Banking Should Be Boring
High returns come from high risk - not what banks should have gotten into.
How to make bad banks work | The spectre of nationalisation | The Economist:
"Economists have long recognised that banks are special. Through decades-old relationships with millions of households and businesses, they normally (though, sadly, not recently) steer savings to productive and lucrative endeavours. Letting banks collapse would wipe out this critical mechanism; nationalising them could, eventually, do it similar damage."
From Jan 29th '09
Fiscal stimulus is the right policy when consumers and business close their wallets, but ...
Will governments' fiscal stimulus plans work? | Big government fights back | The Economist:
"This need not be calamitous. Governments can work off huge debt burdens without default or high inflation. During the second world war, for instance, Britain’s gross debt burden rose above 200% of GDP; America’s topped 120%. During the 1990s, fast growth and fiscal prudence allowed countries from Ireland to Canada to cut their debt levels sharply.
The difference this time is that the rich world already faces the costs of an ageing population, which promise a fiscal burden many times greater than even the darkest scenarios for the financial crisis. Right now fiscal activism is indispensable, but the consequences will be bigger and longer-lasting than many realise."
I'm wondering if part of the current problem is that the leading edge of the boomers are pulling out, never to return.
From Jan 22nd '09:
Because China has no other place to invest, rates were driven too low, and bankers didn't recycle funds as maybe they should have.
Capital flows and the financial crisis | When a flow becomes a flood | The Economist:
"The deep causes of the financial crisis lie in global imbalances—mainly, America’s huge current-account deficit and China’s huge surplus"
"What persuades developing countries to export capital to the rich world that might be better used at home? Influences on saving vary from region to region. The income of oil-exporting countries, for instance, has ballooned since 2004 because of higher prices for crude. It would have been neither feasible nor wise for oil-rich nations to spend this windfall at home, so much of it was saved and sent abroad. Economists who have looked for something that unifies the saving behaviour of a disparate group of countries, from oil-exporters to metal-bashers, have converged on one important motive: the need to acquire reliable stores of value that can be sold easily when trouble strikes.
This idea has been developed in a series of papers by Ricardo Caballero of the Massachusetts Institute of Technology (MIT), Emmanuel Farhi of Harvard University and Berkeley’s Mr Gourinchas. Their thesis is that emerging countries cannot create enough trustworthy saving vehicles to keep up with the pace of economic growth, because their financial markets are immature. Householders cannot rely on a ready supply of credit—or on government safety nets—so must save hard for a rainy day. But the domestic supply of financial assets is unreliable so the thrifty plump for foreign assets instead. America is the favoured place because it has broad and liquid markets for securities."