Showing posts with label Financial Times. Show all posts
Showing posts with label Financial Times. Show all posts
Wednesday, 19 October 2011
Abandon hope all ye who enter here
Tom McDonnell: Martin Wolf has an excellent and honest appraisal of the chances of the Euro crisis being successfully resolved in a way that is sustainable in the long term here.
Thursday, 10 March 2011
The Survival of the Eurozone
Paul Sweeney: Economics editor, Martin Wolf, writes in the Financial Times: “I find it unforgivable that the last Irish government guaranteed bank debt so insouciantly and that the rest of the European Union has supported this decision. For a sovereign to destroy its own credit, to save creditors of its banks, is plainly wrong. It does not make it better, but worse, that it is doing so largely to protect financial systems in other countries.”
He is so right. The question remains, will the new Government seriously address this problem with our EU member state partners. It will test the mettle of the Union and of the meaning of partnership. Wolf points out the in the context of the Eurozone, Ireland’s problems are almost small. The full article is here.
He is so right. The question remains, will the new Government seriously address this problem with our EU member state partners. It will test the mettle of the Union and of the meaning of partnership. Wolf points out the in the context of the Eurozone, Ireland’s problems are almost small. The full article is here.
Tuesday, 23 November 2010
FT on bailout and banking
"Ireland’s uninvited helpers seem set on perpetuating Dublin’s dysfunctional policy of throwing good money after bad and filling holes into which creditors refuse to step". You can read the rest of today's Financial Times editorial here.
Wednesday, 23 December 2009
Ireland seeks Hedge Funds
Nat O'Connor: A article in the Financial Times states that the Government is seeking to attract hedge funds to Ireland.
Dublin to open door for hedge funds (19 December 2009): "The Irish government has passed legislation to make it easier for hedge funds based in the Cayman Islands and other tax havens to move to Dublin."
The new legislation reportedly "cuts red tape to a minimum" in terms of moving companies to Ireland.
The Minister for Finance is quoted as saying that the finance bill early next year to will "strengthen Ireland's competitive edge in this important sector".
Howver, the FT states that many investors are looking for hedge funds to be more tightly regulated. Billy Kelleher, Minister of State for Trade and Commerce, is quoted as saying that "Funds are looking for stronger oversight, and better regulation, and we believe Ireland has that in spades."
Patrick Honohan, Governor of the Central Bank in a speech (1 Dec 2009) has written that "I will certainly not allow Ireland to become a soft option for firms or activities that are no longer welcome elsewhere."
However, Honohan concludes "the primary onus for sound operation must fall on the directors and management of the banks themselves. They must renew and reform their business models and culture to ensure that a recurrence of such a collapse becomes unthinkable. As has been suggested by one former regulator abroad, a watchword for supervisors in the new era must be: trust less, verify more."
How is this different from what has gone before? Is Irish banking regulation really tightening up? And can it be tight enough (and expert enough) to regulate an influx of hedge funds?
Dublin to open door for hedge funds (19 December 2009): "The Irish government has passed legislation to make it easier for hedge funds based in the Cayman Islands and other tax havens to move to Dublin."
The new legislation reportedly "cuts red tape to a minimum" in terms of moving companies to Ireland.
The Minister for Finance is quoted as saying that the finance bill early next year to will "strengthen Ireland's competitive edge in this important sector".
Howver, the FT states that many investors are looking for hedge funds to be more tightly regulated. Billy Kelleher, Minister of State for Trade and Commerce, is quoted as saying that "Funds are looking for stronger oversight, and better regulation, and we believe Ireland has that in spades."
Patrick Honohan, Governor of the Central Bank in a speech (1 Dec 2009) has written that "I will certainly not allow Ireland to become a soft option for firms or activities that are no longer welcome elsewhere."
However, Honohan concludes "the primary onus for sound operation must fall on the directors and management of the banks themselves. They must renew and reform their business models and culture to ensure that a recurrence of such a collapse becomes unthinkable. As has been suggested by one former regulator abroad, a watchword for supervisors in the new era must be: trust less, verify more."
How is this different from what has gone before? Is Irish banking regulation really tightening up? And can it be tight enough (and expert enough) to regulate an influx of hedge funds?
Sunday, 14 June 2009
Green shoots, slugs and the banking sector
Paul Sweeney: I’m sceptical of all the talk around “Green Shoots.” As a bit of a gardener, my green shoots this year have been eaten by slugs. That’s why I believe that, unless we put up barriers to the slugs in the enterprise sector in Ireland, green shoots wont take deep roots. All our endeavours will, in the long run, be in vain.
The Financial Times headline on Friday, June 12th shouted about “Green Shoots”. It said that the pound surged to its highest level this year against major currencies. It was boosted by increased “investor confidence that the British economy is on the road to recovery.”
Sterling's strength “comes as City analysts are tearing up their forecasts of a prolonged recession, increasingly convinced that tentative signs of economic "green shoots" show the worst of the downturn is past,” the headline FT article said.
“Green shoots” is the term used to indicate signs of economic recovery during a recession. Its overuse by desperate optimists is getting a bit tiresome. It was first used by Norman Lamont, Chancellor of the Exchequer in the United Kingdom, during the 1991 Recession. Lamont got it wrong!
This week the pound rose 2.8 per cent against the currencies of the UK’s trading partners and was 14 per cent higher than where it started the year. This was its biggest gain in a single week since January, “demonstrating optimism around the UK's possible prospects for recovery.”
"It seems increasingly likely that the UK recession will end soon," said Michael Saunders of Citi, previously one of the most gloomy forecasters, the FT said.
Japan also revised its first-quarter GDP fall to a 3.8 per cent contraction, slightly better than the estimate of 4 per cent. Also Australia reported better-than-expected jobs figures. South Korea and New Zealand left interest rates unchanged, pointing to positive signs in their economies, also according to the FT
Commodities have been rising recent months, but it should be noted that they are way down on a year ago when they were at a major peak. Crude oil reached an eight-month high this week because it seemed that investors continued to speculate on an economic upturn. Oil has doubled in price in six months, but at the same time is half what it was a year ago. Metals were up 50 per cent from their base and agricultural commodities are up 34.3 per cent from their low.
It may be that demand is now exceeding supply. Manufacturers did cut production last year, with less demand and or because of the crisis meant poor access to loans. The FT admitted it was basing it headline on “anecdotal signs of recovery.” It claimed that carmakers are restarting production lines and hiring staff and to a few other positive indicators.
However, it could be that we are just at the beginning of an inventories/stocks recovery. As the business cycle turns, when companies which may have cut too much during the financial crisis last year and producing again. If it is just a re-stocking, then don’t expect the green shoots to take root.
Being a bit of pessimist as yet, one must note that a sudden rise in commodities prices could stifle the economic recovery. First, higher oil prices depress economic activity. Second, they create inflation, and help to drive inflationary expectations.
Last week the stockbroker economists hogged the news in the compliant business sections of the newspapers on the fall in Irish inflation, asserting also that wages are also falling… which the evidence so far shows is an untruth. But a huge proportion in the CPI was the fall in interest rates, a fall of 42% in the year and energy products which fell by over 10%. (interest rates have a weighting of 7% and energy of 8% in the Irish CPI).
Now interest rates will not fall any more and oil is rising ... so expect inflation to rise. And the recent rise in Sterling, if sustained, will push up prices too.
Further, on average, contrary to the opinions of Garret Fitzgerald and the bevy of stockbroker economists, nominal wages are not falling, but appear to be standing still, though the evidence is yet to be produced by the CSO. Last year, wages rose by 4.6% per hour, according to CSO data last week. So one cant be so sure that another green shoot is that workers’ wages are falling in nominal terms and so costs will fall. Further, most commentators leave out the business elite and professionals classes contributing (non employees who make up a good one-third of the remuneration bill) to the deflation of Ireland’s high costs. Could there possibly be a bias with economists / commentators?
On green shoots - all of my lettuce, which appeared this year as green shoots, disappeared. The exception was in a tray, in the greenhouse. Transplanted out, all the lettuce green shoots were gone the next day, repeatedly. SLUGS! The wet weather.
Don’t expect green shoots to root in Ireland till the slugs in the banks, and in other high places, especially in economic areas of the public sector, are effectively dealt with! A spell of dry weather will help in the short run, but a resort to chemicals/barriers may be necessary. This must be in the form of major governance rule changes, including where the corporate / enterprise elite is supervised effectively, with dual board structures, like in Europe.
The Financial Times headline on Friday, June 12th shouted about “Green Shoots”. It said that the pound surged to its highest level this year against major currencies. It was boosted by increased “investor confidence that the British economy is on the road to recovery.”
Sterling's strength “comes as City analysts are tearing up their forecasts of a prolonged recession, increasingly convinced that tentative signs of economic "green shoots" show the worst of the downturn is past,” the headline FT article said.
“Green shoots” is the term used to indicate signs of economic recovery during a recession. Its overuse by desperate optimists is getting a bit tiresome. It was first used by Norman Lamont, Chancellor of the Exchequer in the United Kingdom, during the 1991 Recession. Lamont got it wrong!
This week the pound rose 2.8 per cent against the currencies of the UK’s trading partners and was 14 per cent higher than where it started the year. This was its biggest gain in a single week since January, “demonstrating optimism around the UK's possible prospects for recovery.”
"It seems increasingly likely that the UK recession will end soon," said Michael Saunders of Citi, previously one of the most gloomy forecasters, the FT said.
Japan also revised its first-quarter GDP fall to a 3.8 per cent contraction, slightly better than the estimate of 4 per cent. Also Australia reported better-than-expected jobs figures. South Korea and New Zealand left interest rates unchanged, pointing to positive signs in their economies, also according to the FT
Commodities have been rising recent months, but it should be noted that they are way down on a year ago when they were at a major peak. Crude oil reached an eight-month high this week because it seemed that investors continued to speculate on an economic upturn. Oil has doubled in price in six months, but at the same time is half what it was a year ago. Metals were up 50 per cent from their base and agricultural commodities are up 34.3 per cent from their low.
It may be that demand is now exceeding supply. Manufacturers did cut production last year, with less demand and or because of the crisis meant poor access to loans. The FT admitted it was basing it headline on “anecdotal signs of recovery.” It claimed that carmakers are restarting production lines and hiring staff and to a few other positive indicators.
However, it could be that we are just at the beginning of an inventories/stocks recovery. As the business cycle turns, when companies which may have cut too much during the financial crisis last year and producing again. If it is just a re-stocking, then don’t expect the green shoots to take root.
Being a bit of pessimist as yet, one must note that a sudden rise in commodities prices could stifle the economic recovery. First, higher oil prices depress economic activity. Second, they create inflation, and help to drive inflationary expectations.
Last week the stockbroker economists hogged the news in the compliant business sections of the newspapers on the fall in Irish inflation, asserting also that wages are also falling… which the evidence so far shows is an untruth. But a huge proportion in the CPI was the fall in interest rates, a fall of 42% in the year and energy products which fell by over 10%. (interest rates have a weighting of 7% and energy of 8% in the Irish CPI).
Now interest rates will not fall any more and oil is rising ... so expect inflation to rise. And the recent rise in Sterling, if sustained, will push up prices too.
Further, on average, contrary to the opinions of Garret Fitzgerald and the bevy of stockbroker economists, nominal wages are not falling, but appear to be standing still, though the evidence is yet to be produced by the CSO. Last year, wages rose by 4.6% per hour, according to CSO data last week. So one cant be so sure that another green shoot is that workers’ wages are falling in nominal terms and so costs will fall. Further, most commentators leave out the business elite and professionals classes contributing (non employees who make up a good one-third of the remuneration bill) to the deflation of Ireland’s high costs. Could there possibly be a bias with economists / commentators?
On green shoots - all of my lettuce, which appeared this year as green shoots, disappeared. The exception was in a tray, in the greenhouse. Transplanted out, all the lettuce green shoots were gone the next day, repeatedly. SLUGS! The wet weather.
Don’t expect green shoots to root in Ireland till the slugs in the banks, and in other high places, especially in economic areas of the public sector, are effectively dealt with! A spell of dry weather will help in the short run, but a resort to chemicals/barriers may be necessary. This must be in the form of major governance rule changes, including where the corporate / enterprise elite is supervised effectively, with dual board structures, like in Europe.
Tuesday, 5 May 2009
The root cause of the recession
Paul Sweeney: Too much competition can be bad. It is heresy to most liberal economists, but the low interest rate and liberalisation of markets did generate intense competition between financial institutions which led to this crisis. It happened in the US and it happened in Ireland. In Ireland Seanie Fitzpatrick and his boys in Anglo Irish were so aggressive on lending that the big boys in AIB and BOI got really angry with the loss of market share to this upstart. So the Big Boys decided to loosen the rules on lending to compete with Anglo Irish. So the contagion spread in this fair isle!
In the US, it was even worse. Competition led to some banks inventing new financial products. Is not that what competition is about? It generates innovation and new ideas. Yes… up to a point. Here they created the famous toxic debt and wrapped it up as something really nice with a big bow on it and a “triple A” stamp from the also compromised Rating Agencies.
Part of this story is told in a new book, "Fools' Gold" , by Financial Times writer Gillian Tett.
Tett is an excellent writer and this extract in last Saturdays Financial Times magazine is really worth reading if you want to know what went on the big US finance houses. She tells us what financial derivatives are and much more. Such as why the lack of regulation was so important of the innovators:-
“But within AIG, an upstart entrepreneurial subsidiary was booming. In the late 1980s the company hired a group of traders who had previously worked for Drexel Burnham Lambert, the infamous – and now defunct – champion of the junk-bond business under Michael Milken in the mid-1980s. These traders had developed a capital markets business, known as AIG Financial Products and based in London, where the regulatory regime was less restrictive. It was run by Joseph Cassano, a tough-talking trader from Brooklyn. Cassano was creative, bold and highly ambitious. More important, he knew that, as an insurance company, AIG was not subject to the same burdensome rules on capital reserves as banks.”
Click here to read on……
In the US, it was even worse. Competition led to some banks inventing new financial products. Is not that what competition is about? It generates innovation and new ideas. Yes… up to a point. Here they created the famous toxic debt and wrapped it up as something really nice with a big bow on it and a “triple A” stamp from the also compromised Rating Agencies.
Part of this story is told in a new book, "Fools' Gold" , by Financial Times writer Gillian Tett.
Tett is an excellent writer and this extract in last Saturdays Financial Times magazine is really worth reading if you want to know what went on the big US finance houses. She tells us what financial derivatives are and much more. Such as why the lack of regulation was so important of the innovators:-
“But within AIG, an upstart entrepreneurial subsidiary was booming. In the late 1980s the company hired a group of traders who had previously worked for Drexel Burnham Lambert, the infamous – and now defunct – champion of the junk-bond business under Michael Milken in the mid-1980s. These traders had developed a capital markets business, known as AIG Financial Products and based in London, where the regulatory regime was less restrictive. It was run by Joseph Cassano, a tough-talking trader from Brooklyn. Cassano was creative, bold and highly ambitious. More important, he knew that, as an insurance company, AIG was not subject to the same burdensome rules on capital reserves as banks.”
Click here to read on……
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