[Reuters] S Korea vows cooperation with China, Japan on financial crisis

S Korea vows cooperation with China, Japan on financial crisis
FUKUOKA, Japan, (Reuters) - South Korea vowed on Saturday to beef up cooperation with Japan and China to tackle the fallout from a global financial crisis battering the economies of the North Asian neighbours.

South Korean President Lee Myung-bak met Japanese Prime Minister Taro Aso and Chinese Premier Wen Jiabao in southern Japan in separate bilateral meetings ahead of a rare trilateral summit between the three countries, which have a long history of animosity towards each other.

”The two leaders agreed to closely cooperate in having follow-up efforts implemented to those made under the (recent) G20 financial summit meeting,” the South Korean presidential office said in a statement after the two-way talks with Japan’s Mr Aso.

Japan’s Mr Aso called for an early resumption of talks on a bilateral free trade agreement with South Korea during the talks, a Japanese official told reporters.

Mr Lee agreed on the need to expand trade between the two countries, but on the trade talks said only that continued working level dialogue would be beneficial.

Mr Wen and Mr Lee would ”closely cooperate in improving the international financial regime” to prevent a repeat of the crisis, Mr Lee’s office said following the meeting with the Chinese premier.

The summit among the leaders of the three North Asian countries, which account for 75 per cent of the region’s economy and two-thirds of its trade, follows the collapse of a bailout for US auto makers that sparked sell-offs in global stock markets and sent the dollar to a 13-year low against the yen.

The White House on Friday was considering emergency aid for the teetering auto firms after Congress failed to approve a $14bn bailout plan.

Japan’s ties with its neighbours have long been plagued by their bitter memories of Tokyo’s past military aggression and two-way feuds still rankle. But the financial crisis means the focus is likely to be on cooperation rather than rivalry.

On Friday, Seoul -- whose economy has been the worst-hit among the three countries -- agreed new currency swap deals with Tokyo and Beijing worth the equivalent of nearly $50bn, the latest effort to stabilise an economy the central bank says is set for its slowest growth in over a decade.

Seoul is keen to boost a regional web of bilateral currency swap deals known as the Chiang Mai Initiative (CMI), and the three leaders are likely to back efforts to speed up those discussions, which experts say have been too slow.

The three leaders will issue a statement on the international financial and economic situation and are likely to commit to stimulating their stumbling economies, but are not likely to unveil new stimulus plans, a Japanese official said earlier.

Japan announced on Friday that it would expand its stimulus plans and bolster a war chest for bank rescues to $131 billion, but kept markets guessing on whether Tokyo would intervene to stop a surging yen from pushing the economy deeper into recession.

China, threatened with a slowdown in its dynamic economy, launched a 4 trillion yuan ($586bn) stimulus plan on Nov. 9 and on Wednesday pledged to boost public spending and cut taxes.

China is targeting growth of about 8 per cent next year but will have to contend with a host of potential challenges from deflation to capital outflows, the country’s banking regulator said on Saturday.

South Korea has this year offered $130bn in measures to shore up its banking system and another $25bn in fiscal spending and tax cut plans to try to prevent a recession in its export-driven economy.

Its central bank has slashed interest rates to a record low, while promising to do more if needed.

Despite the expected show of unity, bilateral feuds can still flare up. As the summit got under way, a small group of Japanese right-wing activists gathered near Fukuoka City Hall to protest the meeting and demand the return of disputed territory.

Japanese media said Mr Aso would protest again to Beijing over an incident in which two Chinese survey ships entered waters near disputed islands in the East China Sea which are thought to lie near potential oil and gas reserves.

South Korea and Japan have a running dispute of their own over another remote crop of islets which lie near fertile fishing grounds and possible maritime deposits of natural gas hydrate that could be worth billions of dollars.
© Reuters Limited

한국, 중국, 일본이 통화스왑을 통해 금융위기에 공동대처하기로 했다는 내용이다. 이미 한국은행에서 발표한 내용이기에 큰 의미가 있지는 않다. 다만 3개국 정상회담을 정기적으로 개최하기로 했다는 점이눈길을 끈다. 과거에 한국과 중국을 침략했던 일본과 피해국들이 협력을 다져나갈 개기이기 때문이다.

문제는 남아있다. 중국과 일본은 동중국해에서 영토분쟁을 하고 있으며, 한국과 일본은 독도를 두고 다투고 있다. 영토분쟁이 이뤄지고 있는 곳들은 모두 천연자원이 매장되있는 돈되는 땅이다. 3개국은 그 동안 이 문제를 해결하지 못했다.

작은 섬문제를 해결하지 못하고 있는 3개국이 금융위기에 함께 맞서기로 한것은 의미가 있다. 하지만 섬하나 때문에 몇십년을 다퉈온 그들이 미래를 향한 협력에 최선을 다할것인지 의문이다.

[Reuters] E-Land plans to raise up to $369 mln in HK IPO

UPDATE 1-E-Land plans to raise up to $369 mln in HK IPO
Wed Apr 23, 2008 10:34am IST

(Adds details)

By Kennix Chim

HONG KONG, April 23 (Reuters) - Retailer E-Land Fashion China Holdings Ltd, a spin-off from South Korea's E-Land World Ltd, plans to raise as much as $369 million in a Hong Kong initial public offering as the stock market rebounds.

The women's apparel retailer, which kicks off a marketing roadshow on Wednesday, is Hong Kong's second IPO since March and will be closely watched after the poor trading performance of this year's market newcomers. For a related story, click [ID:nHKG285789]

The company is selling 496.3 million shares, or 25 percent of its enlarged share capital at HK$3.80-HK$5.80 each, according to a document obtained by Reuters that details the terms of the deal. Of the shares on offer, 60 percent are new shares and 40 percent are existing shares.

E-land focuses on managing a portfolio of seven women's apparel brands including E-Land, Scofield and Teenie Weenie, which are operated under a licence from its parent. The company plans to increase the number of brands under its portfolio to 10 by the end of 2010.

E-Land has an overallotment option to issue 74.4 million shares, or up to 15 percent of the offering, all of which would be secondary shares, the document said.

The price range represents a price-to-earnings multiple of 15 to 22.8 times UBS's earnings forecast for 2008.

By comparison, high-end luxury apparel retailer Ports Design (0589.HK: Quote, Profile, Research) trades at 26.4 times 2008 forecast earnings. Other peers include Esprit (0330.HK: Quote, Profile, Research) and Giordano (0709.HK: Quote, Profile, Research), which trade at 18 times and 15 times, respectively, 2008 forecast earnings.

E-Land will start its Hong Kong public offering on May 2, with a trading debut scheduled for May 16.

Its IPO comes as Hong Kong's benchmark index .HSI rebounds after losing 18 percent in the first quarter of the year. The index was up nearly 1 percent on Wednesday.

The company has 1,084 outlets in 428 department stores in 125 cities across China. It plans to add 1,200 retail outlets within three years, UBS (UBSN.VX: Quote, Profile, Research), which is one of its sponsors, said in a research report.

The firm outsources nearly all of its manufacturing to independent third parties in China.

UBS estimates the firm could post 452 million yuan ($64.66 million) in net profit in 2008, a 56 percent increase over last year.

Goldman Sachs (GS.N: Quote, Profile, Research), UBS and Citigroup (C.N: Quote, Profile, Research) are sponsoring the deal.

(US$1=HK$7.8=6.99 yuan)

(Reporting by Kennix Chim; Editing by Anne Marie Roantree)

The opposition's opening remarks by Professor Joseph E. Stiglitz

The current crisis is caused, in part, by inadequate regulation. Unless we have an adequate regulatory system—regulations and a regulatory structure that ensures their implementation—we are bound to have another crisis.
현재 위기는 부분적으로 불충분한 규제에서 비롯되었다. 만약 우리가 적당한 규제시스템-완벽한 규제와 규제구조-을 갖추지 않는다면 우리는 또다른 위기를 맞게 돼있다.

This is not the first such crisis in the financial system that we have had in recent decades. Indeed, around the world, it is more unusual for a country not to have had a financial crisis than to have had one. They have occurred in societies with “good institutions”—like those in Scandinavia—and in societies without such institutions. They have occurred in developed and in developing countries. The only countries to have been spared so far are those with strong regulatory frameworks.
이번 사건은 십여년 사이에 갖추어진 금융시스템상에서 처음 있는 위기가 아니다. 게다가 세계를 둘러보아도 위기를 겪은 나라가 겪지 않은 나라보다 많은 편이다. 스칸디나비아처럼 좋은 기관들이 있는 나라에서도 위기는 발생했다. 강력한 규제정책을 가진 나라만 이번 위기에서 벗어 날 수 있었다.

In each case, the crisis has affected not just the lenders and borrowers, but also innocent bystanders. Workers have been thrown out of jobs as the economy plummets into a downturn, a recession or depression. Governments inevitably intervene, whether there is explicit deposit insurance or not. No democratic government can sit idly by while there is such suffering. There are, to use the economists’ jargon, externalities, and whenever there are externalities, there is a need for government intervention. There is, to some extent, some government insurance. Private insurance companies take actions to prevent the insured against losses occurring—for example, fire insurance companies insist on sprinklers in commercial buildings. The government has a responsibility to protect taxpayers, workers and others in our society and to do what it can to make sure that such crises are less frequent, and when they occur, less severe.


Wall Street has asked for a massive bail-out—some $1.6 trillion so far, but most believe that this is just a down payment. The American taxpayer has bailed out Wall Street repeatedly—the S & L bailout, Mexico, Indonesia, Korea, Thailand, Argentina, Russia, Brazil and now this, the largest ever. One cannot keep asking for bigger hospitals and argue that nothing should be done to prevent hospitalisation in the first place.

Regulations (including those relating to corporate governance, incentive structures, speed limits, lending practices) are necessary to restore confidence. When, a hundred years ago, Upton Sinclair depicted graphically America’s stockyards and there was a revulsion against consuming meat, the industry turned to the government for regulation, to assure consumers that meat was safe for consumption. Regulatory reform would help restore confidence in our financial markets. We have seen how badly the banks have behaved; we have yet to reform the regulatory structure or change the regulators. Why, with the extra cushion of taxpayer money, of the kind proposed in the British bail-out, without such reforms, should we expect them to behave much better in the future than in the past?

Indeed, anyone who has seen America’s political processes at work knows that after Wall Street gets its money, it will begin fighting the regulations. It will say: Government must be careful not to overreact; we have to maintain the financial markets’ creativity. The fact of the matter is that most of that creativity was directed to circumventing regulations and regulatory arbitrage, creative accounting so no one, not even the banks, knew their financial position, and tax arbitrage. Meanwhile, the financial system didn’t create the innovations which would have addressed the real risks people face—for instance, enabling ordinary Americans to stay in their home when interest rates change—and indeed, has resisted many of the innovations which would have increased the efficiency of our economy. In some places, there has been real innovation—the Danish mortgage market (though it’s hardly new) is an excellent example, with low transactions costs and much greater security. But elsewhere in Europe, there has been resistance to adopting this model.

Markets have failed, but so too has our regulatory system. No one would suggest that because our tax system is imperfect, with evasion and avoidance, we should abandon taxation. No one is suggesting that because our markets have failed, and failed miserably, we should abandon a market-based economy. And no one should suggest that because our regulatory system is imperfect, it should be abandoned. As Paul Volcker once put it in the middle of the East Asia crisis, even a leaky umbrella can be helpful in a rainstorm. To be sure, both markets and our regulatory structures need to be improved upon.

Not only new regulations are required, but also new regulatory structures. The Fed and other regulators didn’t do everything they could have done with the regulations at their disposal. This is the not surprising consequence of appointing as regulators people who don’t believe in regulation.

A regulatory structure that worked after the Great Depression, before the invention of derivatives, is not one appropriate for the 21st century. We need to make sure that not just the voice and interest of Wall Street is heard, but so too the rest of the country, and we need to reduce the chance of regulatory capture. There was a party going on, and no one linked with Wall Street wanted to be a party pooper. As the old saw has it, the job of a good regulator is to take away the punch bowl when the party gets too raucous. But the Fed kept refilling the punch bowl, and now, we the taxpayer are asked to pay for the clean-up.

Those entrusted with looking after retirement funds, those who realise what an economic downturn can mean for workers, those without a vested interest in keeping Wall Street’s parties going have to have a large voice in a reformed regulatory system.

A good regulatory system has to take account of the asymmetries of information and other asymmetries between financial markets and government regulators. Those testing whether drugs are safe and effective may not have the creativity of those coming up with new drugs, but their tasks are different. Few would propose abandoning government oversight of drugs, simply because government salaries will be uncompetitive with those for testing the drugs in the private sector.

Part of a new regulatory system must be a financial products safety commission, to make sure that no products bought or sold by commercial banks or pension funds are “unsafe for human consumption”. Ideally, such a commission would try to encourage the kind of innovation that would protect homeowners and make our economy more efficient.

The question, more generally, is not so much too little or too much regulation, but the right regulation and a regulatory system that enforces the regulations we have. The risk we face is not that we will have too much regulation in the aftermath of the crisis but too little. After the crisis is over, the financiers who have done very well by themselves in recent years will use some of that money to distort the political process—campaign contributions have proven in the past to be high return investments.

The system we had didn’t serve the country well. Financial systems are supposed to allocate capital and manage risks. However, risks were not managed, they were created, and capital was massively misallocated. But it did serve those in the financial system well. Many of these would like the old system to continue, with as little modification as possible. To do so would be a mistake.

이코노미스트에 스티글리츠가 올린 글.

[FT]Darling plans tax hit to fund £20bn fiscal stimulus

Darling plans tax hit to fund £20bn fiscal stimulus
By Jamie Chisholm

Published: November 24 2008 15:37 | Last updated: November 24 2008 18:02

Alistair Darling said Britain faced an unprecedented global crisis as he delivered his pre-Budget report on Monday.

“These are extraordinarily challenging times for the global economy,” the chancellor of the exchequer told the House of Commons.


To jeers from the opposition benches, Mr Darling said the UK economy had entered the downturn in good health. But he accepted that the importance of the financial services sector in the UK meant the economy would be hit hard by the worldwide financial crisis.

Mr Darling downgraded the government’s 2008 forecast for growth to 0.75 per cent, while in 2009 gross domestic product would fall by between 0.75 per cent and 1.25 per cent, he said. Growth in 2010 would be between 1.5 per cent to 2 per cent.

To combat this slowdown, the government would introduce “a substantial fiscal loosening”, totalling £20bn or 1 per cent of GDP, he said.

Borrowing would rise to £78bn this year and then £118bn in 2009-10, and would only fall to the level of net investment by 2015-16. Public sector net debt would surge above the current limit of 40 per cent of national income this year, reaching 57 per cent by 2013-14.

His pre-Budget report was condemned by George Osborne, shadow chancellor, as “a huge unexploded tax bombshell, timed to go off at the time of the next economic recovery”.

The headline proposal was for a reduction in value-added tax from December 1 from 17.5 per cent to 15 per cent until the end of 2009. Mr Darling said the measure was intended “to help everyone and deliver a much need injection into the economy.”

In the short term, there would also be extra spending on infrastructure and social housing, the chancellor said, with £775m being spent this year and next on new homes and renovation projects in social housing.

To help multinational companies, he announced he would exempt foreign dividends from corporation tax. Small businesses would be able to spread over time payment of all their tax bills, including corporation tax, national insurance and VAT.

To help fund the big expansion in spending, Mr Darling said the government would find £5bn in efficiency savings in 2010-11. Public spending would be squeezed after 2011, while the growth rate after inflation would be cut from 1.9 per cent a year to 1.2 per cent a year.

He confirmed that from April 2011 he would introduce a 45 per cent rate of income tax to those earning £150,000 a year, and would cut the value of personal income tax allowance for those with incomes above £100,000.

Addressing homeowners in difficulty in the wake of the credit squeeze, Mr Darling said lenders had agreed to wait for three months before initiating repossession proceedings.

The chancellor was also at pains to give a green tinge to his statement. A raft of energy efficiency measures included providing £100m for home insulation.

He increased petrol duty to help offset the effect of the VAT cut on fuel consumption. Mr Darling said the government would also force energy companies to cut prices if their charges to consumers did not reflect the fall in wholesale prices.

The chancellor said he wanted the UK to be well-positioned to benefit from the return to growth of the world economy. He insisted, however, that the global financial crisis had originated in the US, and this had exacerbated an economic slowdown that was already under way.

영국정부는 부가가치세는 줄이는 대신 소득세율을 높히고, 과세구간도 낮추기로 했다. 경기부양을 위해 부채비율을 늘려 공공주택개선작업을 시행할 것이다. 중소기업들에게는 법인세도 면제해 주기로 했다. 과연 과거와 달라진 고든브라운이 세계 경기회복기에 영국을 떠오르는 해로 만들 것인가?

[FT]The government takes a huge gamble on investor confidence

The government takes a huge gamble on investor confidence
By Martin Wolf

Published: November 24 2008 17:47 | Last updated: November 24 2008 17:47

Stuff happens. Stuff has certainly happened to both the UK economy and the government’s fiscal position. What Alistair Darling delivered on Monday was a crisis budget. He scrapped the hallowed rules of his predecessor and boss, Gordon Brown. Profligacy has replaced prudence as the chancellor’s watchword.
어리석은 일이다. 영국경제와 정부의 재정정책에서 정말 대책없는 일이 일어났다. 알리스테어 달링이 월요일 발표한 내용은 충격적인 예산안이다. 그는 전임자이자 현재 그의 상사인 고든 브라운의 좋은 규칙들을 폐기해 버렸다. 장관의 말때문에 낭비가 성실의 자리를 차지하게 되었다.

The government is taking a huge gamble on its ability to sustain the confidence of investors in the UK. I believe it is right to do so. But nobody knows. The risk that these monstrous fiscal deficits – with public sector net borrowing of 8 per cent in 2008-09, forecast to fall to 2.9 per cent in 2013-14 – will trigger a sterling crisis and a massive sell-off of UK government debt is not a small one. The decision to raise the top rate of tax to 45 per cent, after more than two decades, however popular with the backbenches, is symbolic. If 45 per cent today, why not 50 or 60 per cent tomorrow? Expectations are no longer firmly anchored.
정부는 영국의 투자자들의 확신을 유지할 수 있는가에 대한 거대한 도박을 시작했다. 나는 그렇게 하는게 맞다고 믿는다. 그러나 아무도 모른다. 영국화폐의 위험과 영국국채 매도사태가 발생할 끔찍한 재정적자-공공부문의 순부채는 2008-9년 사이 8%였다. 2013-14년에는 2.9%로 떨어질 것이다.-의 위험은 작지 않다. 20년 뒤 까지 최고세율을 45%로 높이겠다는 정부의 결정은 초선의원들의 환영에도 불구하고 상징적이다. 만약 오늘날 45%를 허용한다면 50%,60%까지 오르지 말란 법은 없지 않나? 예상은 더이상 고정되어 있지 않는다.

What is certain is that this statement failed to admit either that the crisis has domestic roots or how far the past policies of this government explain the enormity of the current fiscal position: the UK did not have to have a huge housing boom financed, in large part, by the wholesale financial markets; and the UK did not have to go into the downturn with sizeable fiscal deficits.


Also serious, I believe, is the failure to admit that a fundamental structural change must now be under way – from soaring household borrowing, a booming housing market, a bloated financial sector and rapidly growing public spending, towards higher savings and current account surpluses. The economy has to become far better balanced in the years ahead. The UK has enjoyed the fat years. Now come the lean ones. It is unclear from the chancellor’s speech that the government recognises the scale of the structural challenge.

It is evident that its forecasts are not worth the paper they are written on. Nobody’s now are. The Treasury forecasts recovery from the third quarter of next year, as lower commodity prices, lower interest rates and the fiscal boost start to work. The economy is expected to contract at between -¾ per cent and -1¼ next year and then to grow at 1½ -2 per cent in 2010.

If so, this would be a mild recession. Anything is possible. But I do not believe it, given the scale of the shocks. The frightening possibility is that the chancellor is still understating the fiscal deficits ahead. Net borrowing for 2009-10 is already supposed to be 5.5 percentage points higher than was forecast in the Budget. It could well end up higher still.

[WSJ]Memories of the Depression Still Sear

Memories of the Depression Still Sear
As hard times return, witnesses to the 1930s recall lessons they learned

When the Great Depression hit, people came to the front porch of William Hague's home near Pittsburgh pleading for food. One well-dressed young woman asked Mr. Hague's mother if she would hire her for $2 a week. Why would she work for so little? his mother asked. "We have nothing to eat at home," she replied.

Dorothy Womble and William Hague survived the Great Depression. They share their stories of living during that time as children. (Nov. 14)
Mr. Hague, 89, was just 10 years old during the Crash of 1929. His father was a prosperous small-town lawyer and the family led a relatively privileged life during the Depression years. Yet even as Mr. Hague found success as an editor and author he says he remained careful about food and money. He monitors the news intently, on the lookout for signs of "trouble." Now that trouble has come, he says he wonders if younger generations have the mettle to survive tough times.
"We had unlimited prosperity for more than 60 years," says Mr. Hague, who lives in an independent senior residence on Manhattan's East Side. "I don't know if people are ready for hard times."
There are 11.5 million Americans who are 80 and older, according to the U.S. Census Bureau. The period from the Crash of 1929 to the start of World War II shaped their lives, affected how they raised their children, and influences their reactions to today's economic turmoil.
The memories aren't all negative. For many, President Franklin D. Roosevelt "was like a god," recalls Mr. Hague, and there was hopefulness amid the desperation. "People had confidence in the American way -- which I am not sure they have now."
Ethan Hill for The Wall Street Journal
James Dickinson
James Dickinson, 87, is Mr. Hague's friend and neighbor at the James Lenox House. Mr. Dickinson once worked on Wall Street, and for him the recent stream of economic calamities has been like watching a "horror movie," he says. "The horror is the people being pushed into unemployment," he says. "Bank managers, mutual-fund managers, hedge-fund operators, technical support people -- the horror is there are no jobs for these people."
Mr. Dickinson also grew up near Pittsburgh, but in an impoverished household where his widowed mother had to scrape by with help from relief. As a boy, he would accompany his mother as she stood on lines to get government food relief. The supplies were barely enough to live on: powdered milk, dried fruits, margarine, raisins, he recalls. Often, he found himself with men who had lost jobs in the steel mills and were devastated at being dependent on handouts.
Mr. Dickinson went on to work in Wall Street brokerage houses, he says, and retired as a manager of human resources. He says during the last five years, he annoyed his friends with repeated warnings that a day of reckoning was coming.
'This recession is like a picnic compared to what we had back then," says Dorothy Womble.
Mrs. Womble, 89, lives at a residence for low-income seniors and the disabled in New York's Harlem neighborhood. She grew up in a small house on a dirt road in Winston-Salem, N.C. People around her were so poor, she says, "They couldn't even get money to get seeds" to plant vegetables.
She can still picture the strangers who wandered through with nothing but a bundle on their backs. Her family also struggled, though her dad was able to hold onto his job on the railroads. Even so, says Mrs. Womble, no matter how little people had, they shared it with one another -- and that is one of her defining memories of the period, as much as the dire poverty. Her mother, for instance, used to share precious supplies of flour.
When FDR was elected in 1932, there was a "big jubilee" in the neighborhood, Mrs. Womble says. "It wasn't a big celebration like it was on 42nd Street" in New York this year, she says. But when people heard Roosevelt became president, "everybody came out and they were laughing and clapping their hands."
Ethan Hill for The Wall Street Journal
Gloria O'Loughlin
Her neighbor at Logan Gardens, Gloria O'Loughlin, 88, was a girl in Harlem during the Great Depression but has the same memory of people giving each other what they could. "If you were sick, they helped you. If you were hungry, they'd feed you. That was the Harlem I knew," she says.
Ms. O'Loughlin, one of the first women to drive a yellow cab in New York City, was born in Harlem and says she plans to die there. The Depression hit the neighborhood hard. While unemployment in the U.S. was about 25%, it was closer to 50% in Harlem. All over the streets, she saw men selling apples for five cents each.
At home, there was barely enough to eat. Her mother baked "Johnny Cakes," a kind of pancake made with flour and yeast and served with butter. It was a way to fill an empty stomach and stave off hunger. "You got used to eating what you got," Ms. O'Loughlin says starkly.
To survive, her family received a form of welfare that entailed standing on lines for supplies. Simply being on the line was embarrassing, and she and her sister used to argue about whose turn it was to go.
Marion Leonard, 99, was shielded from the worst of the Great Depression. Still, in 1931, she took a sailing trip around Puget Sound on a yacht belonging to her husband's uncle. From the boat, she could see hordes of unemployed men standing at the dock staring and staring at her. Ms. Leonard recalls she ran and hid in a stateroom out of embarrassment. She also witnessed great poverty as she drove across the country with her new husband in a $100 Ford.
Ms. Leonard still recalls how kind people were as she and her husband drove from town to town -- people were anxious to rent rooms for a couple of dollars, both because they needed the money and because they wanted to help. The experiences helped compel her to devote her life to social change and environmental activism.
Now, living in Vermont, she thinks only someone in Roosevelt's mold can rescue America from its slump. "I keep thinking, why doesn't someone do what Roosevelt did -- shut down and start from scratch and give everyone jobs," she says. "He put a lot of people -- young people, older people -- immediately in jobs. There were artists painting murals inside post offices and young kids out in the woods clearing away the brush."
Farmer Richard G. Hendrickson, 96, has been predicting another Great Depression for years, even decades. He warned family members and friends that America's profligate ways would bring back the hard times he had experienced in the 1930s when he watched his father almost lose the family farm.
He repeated the dire prediction so frequently, says his wife, Lillian, 90, his own children thought he was "getting old."
Mr. Hendrickson lives today on a farm in Bridgehampton, N.Y., a short walk from the one his family nearly lost. He can easily conjure up the day seven decades ago his dad faced financial ruin because of debt he had incurred on the farm. Three men in fancy "business suits and vests" descended on his family's property: The president of the local bank, the president of the lumber company, and the head of the feed company.
With his father in the room, the men sat silently in the living room for what "seemed like an eternity," Mr. Hendrickson says. Though shy, he decided to make a bold personal appeal. "If it makes any difference, I like outside work," he remembers saying. "And I think if we are given some more time, I believe we can keep our head above water and make the farm pay." He then stood up and walked out.
His father later got a loan from a bank in Springfield, Mass., he remembers, and the farm stayed with the family.
Bridgehampton, Mr. Hendrickson says, was a farming community so breadlines weren't an issue. Even so, there were signs of widespread misery. At one point, he recalls, the government set up a Civilian Conservation Corps encampment about a mile and a half from the farm. Men of varying ages lived in communal housing and were given jobs as part of Roosevelt's efforts to get the country working again. The men, who typically wore overalls, were a moving sight, and stood out in the small farming community.
Ethan Hill for The Wall Street Journal
Dorothy Womble
One Sunday, he and his first wife picked up one of the CCC workers and drove him to church. He told them he had come all the way from Michigan.
Long after the Depression, Mr. Hendrickson worked as if he were about to lose the farm. For years, he worked seven days a week, his only son, Richard H. Hendrickson, 68, says. The elder Mr. Hendrickson worked day, evening and night.
Mrs. Womble's son, Larry Womble, believes that his mom's Depression-era experiences, as well as those of his grandparents, deeply influenced the way he was brought up. Being frugal was a cardinal value, as was avoiding excess. But so was sharing with those who had even less.
"As a little boy I used to hear them in the room talking about how they were able to survive the Depression," says Mr. Womble, a Democratic state representative in Winston-Salem. "We shared whatever we had. When people didn't have rent money, we took up donations and helped them pay the rent, when someone died without a burial, we took up a collection."
His grandparents and mom would often cite a favorite proverb: "They used to say, 'Even in good times, a squirrel will hide his nuts because wintertime is coming.' "
Write to Lucette Lagnado at lucette.lagnado@wsj.com

[FT]Land leased to secure crops for South Korea

Land leased to secure crops for South Korea
한국의 식량안보를 위해 땅을 빌리다.
By Javier Blas in London
Published: November 18 2008 18:45 Last updated: November 18 2008 18:45

Daewoo Logistics of South Korea has secured farmland in Madagascar to grow food crops for Seoul, in a deal that diplomats and consultants said was the largest of its kind.
대우로지스틱스는 한국에 조달할 식량재배를 위해 마다가스카르의 농지를 확보했다. 컨설턴트와 외교관에 따르면 이번 계약은 농지임대건중 가장 규모가 크다.

The company said it had leased 1.3m hectares of farmland – about half the size of Belgium – from Madagascar’s government for 99 years. It plans to ship the maize and palm oil harvests back to South Korea. Terms of the deal were not disclosed.
회사는 130만핵타르규모의 농지-벨기에영토의 절반에 이른다-를 마다가스카르 정부로부터 99년동안 빌린다고 밝혔다. 옥수수와 야자기름을 한국으로 운송하는 계획이다. 계약조건은 공개하지 않았다.

The pursuit of foreign farm investments is a clear sign of how countries are seeking food security following this year’s crisis – which saw record prices for commodities such as wheat and rice and food riots in countries from Egypt to Haiti.
외국 농장투자건은 많은 나라들이 이번 년도에 발생한 식량위기를 보며 식량안보를 걱정하고 있다는 것을 보여준다. 식량위기로 밀이나 쌀같은 식량상품가격이 폭등하여 이집트, 아이티에서는 폭동이 일어나기도 했다.

Prices for agricultural commodities have tumbled by about half from such levels but countries remain concerned about long-term supplies.
농작물상품가격은 절반이하로 떨어졌지만 여러 나라들은 여전히 장기적인 공급에대해 걱정하고 있다.

The United Nations’ Food and Agriculture Organisation warned this year that the race by some countries to secure farmland overseas risked creating a “neo-colonial” system. Those fears could be increased by the fact that Daewoo’s farm in Madagascar represents about half the African country’s arable land, according to estimates by the US government.
유엔 식품농업 사무국은 이번 년도에 일부 국가에서 농장을 사들이면서 신제국주의가 발생할 수 있다고 경고하기도 했다. 미국정부에 따르면 대우의 마다가스카르농장 매수로 아프리카 나라에 소재한 경지들 중 절반에 대해 이러한 걱정이 늘어다고 있다 .

Shin Dong-hyun, a senior manager at Daewoo Logistics in Seoul, said the company would develop the arable land for farming over the next 15 years, using labour from South Africa, and intended to replace about half South Korea’s maize imports.
대우 로지스틱스의 관리자인 신동현씨는 남아프리카 노동력을 활용하여 향후 15년 동안 경지를 개발할 것이고, 이는 한국의 옥수수수입량 중 절반을 대체할 것이라고 말했다.

South Korea, a heavily populated but resource-poor nation, is the fourth-largest importer of maize and among the 10 largest buyers of soyabeans.
한국은 인구는 많으나 자원이 부족한 국가이다. 전세계 옥수수 수입국가 중 4위를 차지하며 10대 콩수입국가이기도 하다.

Carl Atkins, of consultants Bidwells Agribusiness, said Daewoo Logistics’ investment in Madagascar was the largest it had seen. “The project does not surprise me, as countries are looking to improve food security, but its size – it does surprise me.”
비드웰 아그리비지니스의 컨설턴트인 칼 아트킨스는 대우로지스틱스의 투자가 역대 최대건이라고 했다. "이번 계약은 그리 놀라운 것이 아니다. 여러 국가들이 식량안보에 노력하고 있기 때문이다. 하지만 계약규모는 놀라울 정도로 크다."

Concepción Calpe, a senior economist at the FAO in Rome, said the investment came after this year’s food crisis. “Countries are looking to buy or lease farmland to improve their food security,” she said.
FAO의 선임연구원인 콘텝시온 칼페는 이번 투자는 올 해 식량위기때문에 체결된 것이라고 말했다. "여러 나라들은 자신들의 식량안보를 위해 경지를 임대하거나 사려고 하고 있다."고 그녀는 말했다.

Al-Qudra Holding, an investment company based in Abu Dhabi, said in August it planned to buy 400,000 hectares of arable land in countries in Africa and Asia by the end of the first quarter of 2009.
아부다비에 위치한 투자회사인 알쿠드라 홀딩은 8월에 아프리카와 아시아에 위치한 400,000헥타르의 경지를 2009년 1분기까지 사들이겠다고 발표했다.

Meles Zenawi, prime minister of Ethiopia, said this year its government was “very eager” to provide hundreds of thousands of hectares of agricultural land to Middle Eastern countries for investment.
이디오피아의 수상인 멜레스 즈나위는 이디오피아 정부의 수십만헥타르에 달하는 경작지가 중동국가들 투자에 "매우 목말라 있다"고 말했다.
Copyright The Financial Times Limited 2008

[FT]Interest rate cut may further weaken won

Interest rate cut may further weaken won
금리인하가 원화약세로 이어질 것이다.

By Andrew Wood in Hong Kong
Published: November 6 2008 18:16 Last updated: November 6 2008 18:16

The South Korean won fell 4.9 per cent in value to Won1,330.70 to the dollar in Seoul on Thursday as foreign investors worried that the export-led economy would suffer badly during a global slowdown and sought the safety of dollars.
원화는 수출부진과 달러부족에 대한 우려로 가치가 떨어졌다.

Since the start of the year the won has depreciated by 30 per cent, making it Asia’s worst performing major currency.
원화는 연초대비 30%나 떨어졌다. 아시아 주요국 통화 중 하락세가 가장 크다.

The Bank of Korea meets on Friday and is widely expected to cut interest rates to help promote economic growth, which may weaken the won further.
한국은행은 경기부양을 위해 이자를 내렸지만 이로인해 원화의 가치는 더욱 떨어질 것이다.

The Korean currency has been exceptionally volatile in recent weeks. On October 28 it fell to Won1,467 to the dollar for the first time since early 1998. Two days later it jumped 14.2 per cent in value on news of a $30bn currency swap deal between the Bank of Korea and the US Federal Reserve. The government has intervened aggressively to support the won, draining $27.4bn, or 11 per cent, of the country’s ­foreign exchange reserves last month.
최근 원화는 변동이 심했다. 10월 28일에는 1998년 이후 처음으로 1,467원까지 떨어졌다. 이틀 후에는 정부가 달러스왑계약을 발표하자 14.2%나 올랐다. 정부는 274억달러를 시장에 풀어서 원화의 하락을 막았다.

Lee Myung-bak, the president, came to power this year saying he would ­promote business and help the economy. But the former Hyundai executive has struggled to maintain confidence in the country’s ability to withstand a worldwide recession and deliver on his promise of 7 per cent annual growth.
이명박대통령은 경제와 기업을 살리겠다는 공약으로 당선되었다. 그러나 세계경기침체로 7%성장을 이루겠다는 그의 공약은 점점 지키기 힘들어지고 있다.

Last month the government announced a $130bn package to help banks, which needed to roll over short-term, foreign-denominated debt, and a plan to spend Won5,000bn to support construction and housing.
지난 달 정부는 은행이 단기외채를 상환할 수 있도록 1300억달러를 지원하겠다고 했다. 또한 건설사에 5조원을 사용하겠다고 했다.

“Given that [savings] rates are lower than inflation, you are actually losing money on deposits in the bank,” said Hank Morris, director of corporate financial advisory services at the consultants IRC in Seoul. “The smart money people, whether they are Korean or foreigners, are converting their won and sending it overseas.
금리를 물가상승률보다 낫게 책정한다면 외국인이든 한국인이든 똑똑한 사람은 돈을 해외로 보낼 것이다.

“The government has put emphasis on building strength into the economy. That’s a good story, and it’s fortunate that we are generally in a deflationary environment, with commodity prices coming down. But it’s hard to get around the fact that Korean exports are going to be shrinking and not expanding.”
정부는 건설업을 지원하겠다고 했다. 경기침체국면에서 이는 좋은 방안이다. 그러나 해외경기침체로 수출이 어려워지는 상황을 바꾸기는 어렵다.

Foreigners were net sellers of Won282.6bn ($212m) of Korean shares on Thursday, bringing their total net liquidation this year to more than Won33,500bn, according to Korea Exchange figures.
외국인들은 목요일에 주식을2826억원이나 팔았다. 연초부터 지금까지 외국인들이 판 주식은 모두 33조 5000억원이다.

The Kospi, the main index, closed 7.6 per cent lower at 1,092.22, in spite of news that Korea’s stock exchange would launch a $395m fund to invest in domestic shares. The Kospi has lost more than 40 per cent in value so far this year.
증권거래소가 3억 9500만 달러로 국내 주식에 투자하는 펀드를 만들겠다고 발표했지만 코스피는 전날보다 7.6%하락한 1092.22포인트로 마감했다. 코스피는 연초보다 40%나 하락했다.
Copyright The Financial Times Limited 2008

[FT]China authorises ‘massive’ stimulus package

China authorises ‘massive’ stimulus package
By Geoff Dyer in Beijing
중국당국의 강력한 경기부약대책
Published: November 9 2008 19:14 Last updated: November 10 2008 02:00

China announced on Sunday a “massive infrastructure spending programme” as part of a new fiscal stimulus plan aimed at boosting the country’s rapidly slowing economy.
둔화하는 경기를 살리기 위해 강력한 경기부양책을 사용하겠다.

The State Council, China’s cabinet, authorised Rmb4,000bn ($586bn) of investment on infrastructure and social welfare over the next two years, although it did not say how much of the spending would be on new projects not already in the budget.
사회간접자본과 복지에 2년 동안 4조위안을 투자할 것이다.

The government said the spending plan reflected a decision to adopt an “active” fiscal policy to deal with the global financial crisis, while monetary policy would be “moderately active”.
이번 경기부양책은 세계 금융위기에 적극적으로 대처하겠다는 의지를 드러낸 것이다.

The announcement reflects mounting anxiety in Beijing that China’s economy is cooling much more quickly than was initially expected in the face of weaker international demand and a slowdown in the local property market.
예상보다 급격하게 나빠지고 있는 세계수요와 국내자산시장의 침체가 반영되었다.

Two recent surveys of manufacturers showed a slump in activity in October, confirming anecdotal evidence that the slowdown has accelerated in recent weeks. Some economists believe that growth, which was nearly 12 per cent last year, could fall to as low as 6 per cent next year without a substantial fiscal stimulus.
10월 생산자지수가 떨어지고, 일부 이코노미스트들은 중국이 내년도에는 6%만 성장할 것이라고 한 것도 영향을 미쳤다.

Beijing has also been under growing international pressure to take fiscal measures to boost its economy in the hope that continued strong growth can provide some counter-balance to recession in the developed world.
중국에 영향을 받는 다른 나라들의 기대도 반영되었다.

The government has already cut interest rates three times, scrapped quotas for bank lending and unveiled measures to help housebuyers and some exporters. However, economists said those measures had not been enough to overcome growing gloominess among companies and consumers.
중국은 이미 이자율을 세차례나 내렸고, 은행대출을 늘려 주택소유자와 수출업자를 도왔지만 전문가들은 세계경기침체를 이겨내기에는 부족하다고 말했다.

According to the official Xinhua news agency, the State Council decided on Friday to “map out more forceful measures to expand domestic demand”, which would include “massive” infrastructure spending.
신화통신에 따르면 중국당국은 지난 금요일 더욱 강력한 대책을 내놓겠다고 결정했고, 그것이 사회간접자본 투자이다.

The investments will focus on low-income housing, water, electricity, disaster relief and transport, with railways expected to see a big increase. Spending in the fourth quarter of this year would be boosted by Rmb120bn beyond what was planned.
투자대상은 저소득층 주택건설, 수도 및 전기시설 건설, 재난지역 복구, 철도부설 이다. 이번 4분기에만 1200억 위안을 사용할 것이다.

The government said it would introduce a long-awaited reform of value added tax which would cut costs for Chinese companies by Rmb120bn, Xinhua said.
부가가치세를 재정비하여 기업들이 내는 세액을 1200억 위안 깎을 것이다.

In China’s 2006-10 Five Year Plan, the government said it would spend Rmb5,100bn on infrastructure projects.
중국의 2006-10년 계획에는 중국정부가 5조1천억 위안을 사회간접자본투자에 사용하기로 되어있었다.
Copyright The Financial Times Limited 2008
중공업측에 호재, 중서부 개발착수-> 중산층 증가?, 부의 분배로 신소득층 유발? 파생효과를 생각해 봐야 한다.

[FT]Wall St rallies on election day

선거일 현재 주가는 오르고 있다.
Wall St rallies on election day
By Alistair Gray in New York
Published: November 4 2008 14:08 Last updated: November 4 2008 21:55
Wall Street stocks enjoyed their strongest election day rally since the New York Stock Exchange first opened for trading on presidential polling day.
The prospect of a clear winner helped lift the market to its highest level in three weeks as investors looked forward to strong political leadership to deal with the financial and economic crisis, ending months of uncertainty.
“The last time you had an election with this level of focus in the market was on the eve of World War Two,” said Doug Roberts, strategist at Channel Capital Research.
Most observers agreed that equities did not prefer one candidate over another, although futures markets continued to indicate the strong likelihood of a Barack Obama presidency.
Investors hoped that with the election out of the way authorities would be freer to take decisive action without partisan interference.
Stocks shrugged off glum economic news for a third consecutive session – data showed new factory orders fell more than expected – and all 10 sectors were firmly in positive territory.
The S&P 500 closed back above the psychologically significant 1,000-point level, up 4.1 per cent at 1,005.74.
The Dow Jones Industrial Average was up 3.3 per cent at 9,625.28 points while the Nasdaq Composite Index was up 3.1 per cent at 1,780.12 points, giving it six successive sessions of gains. The gains were comfortably the greatest of all presidential election days since 1984. In the years before then, markets had been closed on the day of the ballot.
The Chicago Board Options Exchange Volatility Index, Wall Street’s fear gauge, shed 11.2 per cent to 47.69 points.
Upbeat corporate earnings, further easing of strain in money markets, and the prospect of more policy measures to help prevent a global recession also gave a boost.
A diverse range of companies, such as MasterCard, Emerson Electric and Viacom reported better-than-expected quarterly figures. Shares in the three companies roose 18.3 per cent to $170.24, 10.1 per cent to $35.86 and 7.5 per cent to $22.65, respectively.
Energy led the gains, up 6.4 per cent as oil settled above $70 a barrel. Materials, industrials and financials followed closely behind.
Archer Daniels Midland leapt 15.3 per cent to $24.33 after the food processor comfortably beat forecasts that had been lowered after rival Bunge’s failure to meet expectations. The later rose 8.6 per cent to $45.31.
Elsewhere, CIT Group and General Electric jumped 36.1 per cent to $6.15 and 7.6 per cent to $20.77 respectively, on reports the Treasury might buy stakes in a wide range of financial companies, not only banks and insurers, under its $700bn rescue package.
In technology, Google and Yahoo edged up 5.9 per cent to $366.94 and 4.7 per cent to $13.35, respectively, on reports the companies scaled back their proposed web advertising deal to win over antitrust officials.
VMware shed 3.9 per cent to $30.56 on news that Intel was in the process of halving its stake in business software maker. The chipmaker gained 4 per cent to $16.26.
Dell rallied 5.6 per cent but fell back to stand 2.5 per cent higher at $12.93 after reports emerged that the computer group had instituted a hiring freeze and asked employees to consider taking up to five days of unpaid leave.
On the downside, Dean Foods dropped 17.6 per cent to $18.25 after the food group’s results fell short of expectations. The figures failed to drag down either peer Kraft Foods or the wider consumer staples sector, which were higher by 4.1 per cent at $30.51 and 2.3 per cent, respectively.
An interest rate cut in Australia sparked hopes of further policy measures around the world. Tueday’s rally, coupled with the muted trading of the previous session, comes after the wild volatility that characterised October.
“You may be asking yourself what exactly has changed in the last few days to stage this dramatic turn of events. Good question,” said Randy Frederick, director of trading and derivatives at Charles Schwab.
Analysts remained divided on whether the market would extend its rally.
Quincy Krosby, strategist at The Hartford, wrote in a note: “Given the oversold condition in the market, it is quite clear that we can build on this rally toward the year-end.”
Copyright The Financial Times Limited 2008

[NYT]Buy American. I Am. By WARREN E. BUFFETT

Op-Ed Contributor
Buy American. I Am.
By WARREN E. BUFFETT
Omaha
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
금융위기가 실물위기로 이어진다.(실업률 상승, 기업의 투자감소)

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
그래서 주식을 사겠다. 주가가 계속 떨어져도 사겠다. 전부를 사모을 때까지 사겠다.

Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
공포에 사라! 단기전망을 할 수는 없다. 하지만 길게보면 오를거다. 특히 공포때문에 우량기업의 주가마저도 빠지고 있는 상황이라면 장기적 안목을 가지고 주식을 사는게 당연하다.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
역사적으로 봐도 주식을 사는게 옳다. 대공황때 주가는 바닥을 쳤지만 강력한 리더쉽을 가진 루즈벨트가 취임하고나서 30%나 올랐다. 1980년대에도 경기는 바닥이었지만 그 때 주식을 산 사람들이 이득을 얻었다. 투자자에게 나쁜 소식은 가장 좋은 친구이다.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
20세기 동안 미국은 대공황, 세계대전, 또 다른 두번의 전쟁, 냉전, 금융위기를 겪었다. 그 동안 다우지수는 66포인트에서 11,497포인트까지 올랐다.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
지난 세기동안 돈을 번 사람이 없을거라고? 천만에, 일부는 돈을 벌었다. 불행히도 남들이 살 때 사고 안좋은 소식에 판사람들은 손해를 보긴 했다.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
많은 사람들이 현금을 가지고 있다. 그래서는 안된다. 정부는 돈을 풀어서 경기를 되살리려고 하기 때문에 인플레이션이 올테고, 현금성자산의 가치는 떨어질 것이 분명하다. 주식은 현금보다 수익률이 좋을 것이다. 현명한 투자자라면 웨인 그레츠기가 말했던 것을 따라야 한다. 그는 공이 있는 곳이 아니라 공이 있을 곳에 간다고 말했다.
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
나는 단기전망을 할 수 없다. 하지만 나는 내 돈으로 주식을 살거고 샀다고 말할거다.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

오바마와 절친한 친구라는 버펫이 10월 중순경에 쓴 글이다. 그는 장기적 안목을 가지고 주식을 사야 한다고 주장한다. 장기적으로 보면 위기는 기회라는 것이다. 물론 10년 뒤에 주식은 오를 것이다. 그렇다고 해서 돈을 버는 사람이 있을지는 모르겠다. 여전히 시장은 불안하기 때문이다.

글 중간에 강력한 리더쉽을 갖춘 루즈벨트가 대통령이 되고서부터 주가가 42%나 올랐다는 내용이 있다. FT를 보면 오바마를 미국을 아우르는 카리스마를 가진 사람이라고 쓴 글을 볼 수 있다. 또한 상하원 모두 민주당이 장악하고 있는 상황에서 오바마는 행정부와 의회간 협조를 이끌어 낼 수 있는 인물이다. 오바마가 당선되면 주식을 살지 말지 고민해 볼만 하다. (어쩌면 버펫이 은근히 오바마를 지지하기 위해 이글을 쓴것 같기도 하다. 특히 NYT에 이 글을 썼다는 것도 그렇다.)

[Economist] Will we see a "Bernanke put"?

Market.view

The long and short of it

Nov 2nd 2008From Economist.com

Will we see a "Bernanke put"?

우린 버냉키 풋을 보게 될까?
THE “Greenspan put” was a term devised to describe the habit of the former Federal Reserve chairman, who would cut interest rates whenever the stockmarket seemed in crisis. The idea was that equity investors had insurance in the form of a put option, with Alan Greenspan agreeing to limit their losses.

그린스펀은 주식시장에 위기가 오면 금리를 내렸다. 그래서 주식투자자들은 그린스펀이 손해를 막아주는 풋옵션 같은 사람이라고 생각했다.

Now David Rosenberg, a well-respected economist at Merrill Lynch, thinks the current Fed chairman, Ben Bernanke, may introduce a “Bernanke put”, this time for the bond market. The topic arises because of the Fed’s recent cut in interest rates to 1%, posing the question of what the central bank can do if rates drop down to zero.

메릴린치의 로젠버그는 이제 버냉키를 버냉키풋이라고 생각한다. 하지만 이번에는 채권시장이다. 연준이 금리를 1%까지 내리면서 제로금리가 되면 이제 무얼할지가 논란거리로 떠 올랐다.

After all, interest rates cannot be cut below zero. But as Mr Bernanke pointed out in a November 2002 speech, the central bank would have other options, notably targeting short-term bond yields. “The Fed could enforce these interest-rate ceilings by committing to make unlimited purchasers of securities up to two years from maturity at prices consistent with targeted yields”, Mr Bernanke said. If necessary, the Fed could target bonds at even longer maturities.

금리는 0밑으로 떨어질 수 없다. 하지만 버냉키는 2002년 11월에 중앙은행이 또다른 방안을 쓸 수 있다고 말했다. 단기채 수익률을 조정하는 것이다. "연준은 이자상한선을 정해서 정해진 수익률에 따라 2년간 빌려줄 수 있다." 필요하다면, 장기채에도 이를 적용할 수 있다.

The idea behind such a strategy would be to keep longer-term borrowing rates low, thus encouraging companies (whose loan costs are priced in relation to Treasury-bond yields) to invest in new production. That would help stimulate the economy.

버냉키의 전략뒤에 담긴 생각은 장기대출이자율을 낮춰서 기업들이 투자하도록 촉진하는 것이다. 그렇게 되면 경기는 점차 살아날 수 있다.

For bond investors, this would be a one-way bet. They would know that yields could not rise above the targeted level, so the scope for capital losses on their bond portfolios would be limited (yields move in an inverse relationship to prices).

채권투자자에게는 이것이 one-way bet일 수 있다. 그들은 채권수익률이 상한선 이상으로 오를 수 없다는 것을 알고 있다. 따라서 그들이 투자한 채권들의 손실은 제한될 것이다. (수익률은 가격과 반대로 움직인다.)*채권은 만기상환액이 정해져있기 때문에 가격이 떨어지면 수익률이 오른다.

The tricky question is whether such an approach would conflict with another well-worn Fed strategy for reviving the economy—creating an upward-sloping yield curve. To explain, the yield curve comprises the range of interest rates at different maturities, from overnight to 30-year bonds. Traditionally, long-term rates have been higher than short-term ones because investors have to be paid more to make them willing to lock away their money. Occasionally, however, the yield becomes inverted (short-term rates are above long). That is normally seen as a sign that recession is on the way.

The basic business of banks is to borrow short and lend long. Thus an upward-sloping yield curve is good news for them. After the savings-and-loan debacle of the late 1980s and early 1990s, the Fed deliberately kept short rates low in order to generate an upward-sloping curve and boost the profits of the banking sector. The banks could do with a similar boost today, and sure enough short rates are well below 10-year yields (see chart).

If the crisis were sufficiently stark, the Fed would, of course, try to keep both short and long-term rates low; if the former were zero, the latter could be 2% or so. The obvious example is Japan, where 10-year yields are still just 1.5%.

It all makes for a tricky gamble for bond investors. Some are clearly worried that the cost of bailing out the banking sector will ultimately prove inflationary, especially as the spending-happy Democrats are set to increase their hold on Congress. That would suggest much higher bond yields in the medium term. But investors who place that bet could lose heavily if the Bernanke put swings into action.

[FT]VW vies for title of world’s biggest company

VW vies for title of world’s biggest company
By Richard Milne in London
Published: October 28 2008 09:34 Last updated: October 28 2008 11:02
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Volkswagen briefly became the world’s largest company by market capitalisation on Tuesday as panic-buying by hedge funds desperate to cover losses caused its value to shoot up by up to €150bn.
Shares in Europe’s largest carmaker soared as high as €1,005 in early trading, having closed at about €210 on Friday. That gave it a market capitalisation of around €296bn ($369bn), higher than that of ExxonMobil, the oil company that closed on Monday with a value of $343bn.
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EDITOR’S CHOICE
Daily View: VW briefly the world’s largest company - Oct-17
Lex: Japanese carmakers - Oct-28
In depth: Auto crunch - Oct-24
Hedge funds hit as Porsche moves on VW - Oct-27
Porsche accelerates towards VW control - Oct-27
Porsche plans to raise VW stake to 75% - Oct-26
VW’s share price was highly volatile on Tuesday morning and was up 50 per cent in late morning trade at €788, giving it a market capitalisation of €237bn ($296bn), still bigger than that of Wal-Mart, Microsoft and General Electric – the second, third and fourth-largest companies in the US.
“I have hedge fund managers literally in tears on the phone,” said one London-based auto analyst. Hedge funds had bet that VW’s share price would fall but after Porsche disclosed it held 74 per cent of the carmaker rather than the previously assumed 35 per cent there was a huge scramble to cover positions.
Analysts and investors said some hedge fund failures were likely because of the size of the losses, which reached about €20bn-€30bn on Tuesday. They also called for a full investigation by Bafin, Germany’s financial regulator, into whether there was market manipulation.
Porsche has denied that it lent its shares out to hedge funds. It said that it revealed it held 74 per cent directly and indirectly to allow hedge funds to unwind their short positions in “an orderly manner”.
Bafin on Monday repeated its comments from last week that it was looking at, but not formally investigating, the share price movements.
But analysts, investors and corporate governance experts said the share price movements were bringing Germany’s capital markets into disrepute.
Max Warburton, analyst at Sanford Bernstein, said: “It is a huge question for regulators and arguably an embarrassment for all European capital markets.”
Christian Strenger, a board member at Germany’s largest fund manager, DWS, and a leading corporate governance expert, said: “It should get the politicians and supervisory authorities to think again about allowing this untransparent situation.”

[Economist] Second time around

한국에 다시 외환위기가 올 것인가? 외국 애널리스트들은 그렇다고 생각하고, 한국정부는 그렇지 않다고 주장한다. 누가 맞는 말을 하는건가?

정부는 1300억달러를 시장에 풀겠다고 발표했다. 1000억달러는 지급보증을 위해 쓸 것이다. 나머지 300억 달러는 은행에 지원할 돈이다. 정부는 이틀전에 92억달러를 건설회사에 지원하겠다고 말했다. 정부관료들은 에너지절약, 국산품사용, 해외여행자제 등 국민들의 애국심에 호소하고 있다.

이명박 대통령은 1997년과 지금은 다르다고 주장한다. 경제적 기초가 튼튼해 졌다는 것이다. 은행의 자기자본비율은 높아졌고, 대기업들의 부채비율은 낮아졌으며 외환보유액은 세계 6위에 이를 정도다. 외환위기 속에서도 한국은 이번년도에는 4%정도를 내년에는 2.5-3.5%대로 성장할 것이다. 이는 이명박 대통령이 약속한 7%에는 못 미치지만 위기상황에서는 긍적적인 전망치이다.

이렇게 긍적적인 전망치가 나오는 이유는 조선업이 호황을 누리고 있기 때문이다. 그러나 조선업은 금융압박의 원인이기도 하다. 조선업계에 외채비율이 급속히 늘어났기 때문이다. 이 중 10분의 1은 선수금이다. 또한 절반정도는 헷지거래 때문에 발생한 외환평가손실액이다.

한국이 금융위기를 겪고 있는 것처럼 보이는 것은 이러한 미실현 손실때문이다. 무디스는 한국의 은행들이 자산 중 12%정도를 외채에 의존하고 있는 것으로 추정했다. 은행간 거래는 국제금융위기 때문에 침체되어 있다. S&P는 한국의 은행들 중 7개를 위험대상으로 설정하고 관찰하고 있다고 말했다.

원화는 외인들이 주식과 채권을 팔고 떠나면서 가치가 떨어졌다. 또한 연초 유가급등과 상품가격상승으로 경상수지적자가 발생했기 때문에 달러수요가 많았다. 정부가 내놓은 구제대책은 원화와 주가의 하락을 잠깐 동안만 막았을 뿐이다.

어떤 이들은 금융위기가 비껴나갈 것이라고 말하고 있다. 하지만 거래자들은 세계경제의 주변국가들에게 금융위기는 이제 시작일 뿐이라는 것을 알고 있다.

South Korea

Second time around
Oct 23rd 2008 SEOUL
From The Economist print edition

Shock, denial, anger and a massive bail-out for good measure

OF ALL the Asian countries worst ravaged by the regional financial turmoil of 1997-98, South Korea has come closest in recent weeks to seeing history repeat itself—not as farce, but as renewed financial tragedy. As its stockmarket has slid downhill and the currency, the won, has fallen by nearly 30% this year, the government has been telling all-comers that the economy is sound and the banks liquid and solvent. Its officials have blamed their troubles on the ignorant or malicious refusal of foreign analysts to believe them.

Yet on October 19th the government announced a $130 billion rescue for Asia’s fourth-largest economy. Of this, $100 billion is in the form of guarantees for foreign-currency debts. Another $30 billion—about one-eighth of the country’s foreign-exchange reserves—was to be available to banks suffering a drought of dollars. It followed this up two days later with a promise to spend 12 trillion won ($9.2 billion) to help the building industry—for example by refinancing debts and buying unsold houses. The president, Lee Myung-bak, described the overall economic situations as “more serious” than in 1997, because of the global sweep of the crisis. The government had already appealed to the grass-roots patriotism that helped South Korea through the late 1990s: cutting back on energy bills; buying local products; and surrendering any dollars left over from overseas jaunts.

Mr Lee and his officials, however, are quite right that the economy is on a much sounder footing than in 1997. Banks are better capitalised, big companies less indebted and reserves of foreign exchange bigger than all but five other countries’. The economy has been growing solidly for a decade. Even after the recent buffeting, analysts still expect GDP to grow by more than 4% this year, and by 2.5-3.5% in 2009. That is nowhere near the 7% growth President Lee promised at his inauguration in February, but in the current doom-laden climate it looks positively robust.

One reason for this relative optimism is the shipbuilding industry, one of South Korea’s great success stories. Yet it is also one cause of the financial stresses. There has been a sharp rise in foreign debt. More than one-tenth of the rise is in down-payments for ships still being built, which appear in the accounts as trade credits. And around half of the increase in short-term debt comes from banks hedging their exposure to purchases of shipbuilders’ dollar receivables in the forward market.

That helps explain the way in which the global credit crunch first made itself felt in South Korea—in a shortage of dollars for the banks. Moody’s, a credit-rating agency, estimates that South Korea’s banks rely on foreign sources for 12% of their funding. As inter-bank markets worldwide clammed up, they began to look vulnerable. Standard & Poor’s, another rating agency, this month put seven of them on a “watch-list”, because of the pressure they faced.

The won itself has been battered as foreign investors have fled Korean shares and bonds. Its decline also reflects the current account’s fall into deficit as the cost of South Korea’s oil and other commodity imports soared earlier this year. The government rescue stemmed the tumble in the won and the stockmarket only briefly. As elsewhere, financial catastrophe seemed to have been averted. But also as elsewhere, traders knew that the impact of the market turmoil on the rest of the economy was only beginning to be felt.

[FT]Opec cut fails to stop oil price slide

Opec cut fails to stop oil price slide
By Carola Hoyos in Vienna and Javier Blas in London

Published: October 24 2008 10:34 | Last updated: October 24 2008 20:10

Opec on Friday slashed production but oil prices continued to fall as concerns about the global economic crisis sent crude to its lowest level in 16 months.

The cartel, which produces 40 per cent of the world’s oil, agreed to cut output by 1.5m barrels a day, or about 4.5 per cent, from November. Some members, including Venezuela and Iran, had wanted a cut of as much as 2m b/d.


But the reduction, which in normal times should have led to a jump in prices, failed to stop the slide in the crude price. It fell on Friday to $62.65 a barrel, the lowest level since June 2007, on the strength of the US dollar and falling equity markets.

The prospect of further falls sent investors scrambling for protection, with the cost of insuring against a drop in the price to $50 before the end of the year almost tripling overnight. The price of put options at $50 for December – giving the holders the right to sell then at that price – jumped to $1.50 per contract, up 142 per cent from 62 cents on Thursday.

Edward Meir of MF Global in New York said: “The cartel is pushing against a hostile market environment towards energy, nurtured primarily by the increasingly dire economic backdrop.”
hostile:적의가 있는 nurtured:보살핌을 받는 dire:끔찍한

However, some analysts warned that Opec’s decision would tighten the market in two to three months, resulting in higher prices in early 2009.

Paul Horsnell of Barclays Capital said the market could often be slow to react to a production cut.

“Prices did not bottom for three months after the last cycle of formal Opec cuts began in October 2006,” he said.

Saudi Arabia at first resisted Friday’s emergency meeting in Vienna, which was pushed by Algeria and Libya. Initially the group had widely divergent views on the depth of the cuts but as oil prices fell and put options indicated that traders were betting they could slip to $50 a barrel, Opec members agreed they had to act decisively.
divergent:갈라지는

Rafael Ramirez, Venezuela’s energy minister and one of the most hawkish members of the group, said Opec had to “avoid a price collapse like 1998”, when Asia’s financial crises pushed oil to below $10 a barrel.

Ali Naimi, Saudi oil minister, hinted that Opec could meet in the short term, even before December’s planned meeting. “We’re prepared to meet more often to stabilise the market,” he said.

Opec’s total reduction could amount to as much as 1.8m b/d, or 6 per cent, as members first cut the 300,000b/d they are producing in excess of Opec’s ceiling and then implement the 1.5m agreement.
implement:이행하다/도구

Washington, London and the International Energy Agency, the western countries’ energy watchdog, all attacked Opec’s cut, warning that it could aggravate the current economic crisis. But Opec ministers dismissed the criticism.
aggravate:부담지우다 dismissed:기각하다

“Oil prices have witnessed a dramatic collapse – unprecedented in speed and magnitude,” the cartel said in a communiqué. Opec went on to explain its action as a way of contributing to more investment in the oil sector, warning that falling prices “may put at jeopardy many existing oil projects and lead to the cancellation or delays of others, possibly resulting in a medium-term supply shortage”.
witnessed:입증했다. jeopardy:위험성

Beyond Friday’s price fall, the key signal for prices in the medium term will be Opec’s adherence to its agreement. Many traders doubt that it will fully implement the cuts, noting that historically the group has managed about a 60 per cent adherence rate. But Chakib Khelil, Algeria’s energy minister and Opec’s president, insisted that the group had “no other choice” and it was having trouble selling its oil as buyers stayed away or were unable to secure letters of credit.
adherence::집착, 충실

Many of the cutbacks will also hit international energy groups working in Opec countries, including ExxonMobil and Chevron of the US, and Total, Royal Dutch Shell, Eni and Statoil of Europe.

Saudi Arabia, which produces its oil without the help of international energy groups, has already quietly cut its production. Other countries will shoulder less of a burden because they produce fewer barrels of oil.
shoulder:떠맞다 burden:짐

But their adherence will be a key indicator of whether Opec is able to act cohesively as it embarks on its most critical but also most difficult challenge in more than a decade.
cohesively:단결력있는 embarks:착수하다
Copyright The Financial Times Limited 2008

scrambling: 애쓰다.

오펙이 감산하기로 결정했지만 석유값은 떨어졌다.(현물:60달러대, 풋옵션 160%상승)
오펙이 꾸준히 감산한다면 분명 석유값은 오를 것이다. 문제는 그들이 약속을 이행하느냐다. 역사적으로 볼 때 60%정도만 약속을 지켰다.
의문점: 오펙은 석유가격을 올리면서 석유를 생산하기 어려워졌다는 말을 했다. 단지 핑계일까? 아니면 진실일까?

[NLR] FINANCIAL REGIME CHANGE?

New Left Review 53, September-October 2008

As stock markets plunge and governments scramble to bail out the finance sector, Robert Wade argues that we are exiting the neoliberal paradigm that has held sway since the 1980s. Causes and repercussions of the crisis, and errors of the model that brought it to fruition.
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ROBERT WADE
FINANCIAL REGIME CHANGE?
Since the 1930s the non-communist world has experienced two shifts in international economic norms and rules substantial enough to be called ‘regime changes’. They were separated by an interval of roughly thirty years: the first regime, characterized by Keynesianism and governed by the international Bretton Woods arrangements, lasted from about 1945 to 1975; the second began after the breakdown of Bretton Woods, and prevailed until the First World debt crisis of 2007–08. This latter regime, known variously as neoliberalism, the Washington Consensus [1] or the globalization consensus, centred on the notion that all governments should liberalize, privatize, deregulate—prescriptions that have been so dominant at the level of global economic policy as to constitute, in John Stuart Mill’s phrase, ‘the deep slumber of a decided opinion’.

The two regimes differed in the role allotted to the state, in both developed and developing countries. The Bretton Woods regime favoured ‘embedded liberalism’, as it was later called, which sanctioned market allocation in much of the economy but constrained it within limits set through a political process. The successor neoliberal regime, particularly associated with Reagan and Thatcher, moved back towards the norms of laissez-faire embraced by classical liberalism, and hence prescribed a roll-back of state ‘intervention’ and an expansion of market allocation in economic life. But it gave more emphasis than classical liberalism to the idea that competition is not the ‘natural’ state of affairs, and that the market can produce sub-optimal results wherever producers have monopoly power (as in Adam Smith’s observation that ‘people of the same trade seldom meet together [without concocting] a conspiracy against the public’).

Neoliberalism accordingly sanctioned state intervention not only to supply a range of public goods that could not be provided through competitive profit-seeking (as did classical liberalism), but also to frame and enforce rules of competition, overriding private interests in order to do so; hence the ‘neo’. Its principal yardstick for judging business success was shareholder value, and its central notion of the national economic interest was efficiency as determined by competition in an economy fully open to world markets; there should be no ‘artificial’ barriers between national and world market prices, such as tariffs or subsidies to particular industries. Of course, at the level of policy, many tactical, pragmatic modifications were made to these principles, in order to subsidize corporations, channel more wealth to the rich, and stabilize the economy and society with covertly Keynesian policies. [2] But at the level of norms, the difference was clear.

In the realm of finance, neoliberal prescriptions were justified by the ‘efficient markets hypothesis’, which claimed that market prices convey all relevant information and that markets clear continuously—rendering sustained disequilibria, such as bubbles, unlikely; and making policy action to stop them inadvisable, since this would constitute ‘financial repression’. Milton Friedman and the Chicago School gave their name to this theory; but as Paul Samuelson said, ‘Chicago is not a place, it is a state of mind’, and it came to prevail in finance ministries, central banks and university economics departments around the non-communist world.

The shocks of the past year—another thirty years on from the last major shift—support the conjecture that we are witnessing a third regime change, propelled by a wholesale loss of confidence in the Anglo-American model of transactions-oriented capitalism and the neoliberal economics that legitimized it (and by the us’s loss of moral authority, now at rock bottom in much of the world). Governmental responses to the crisis further suggest that we have entered the second leg of Polanyi’s ‘double movement’, the recurrent pattern in capitalism whereby (to oversimplify) a regime of free markets and increasing commodification generates such suffering and displacement as to prompt attempts to impose closer regulation of markets and de-commodification (hence ‘embedded liberalism’). [3] The first leg of the current double movement was the long reign of neoliberalism and its globalization consensus. The second as yet has no name, and may turn out to be a period marked more by a lack of agreement than any new consensus.

Some caution is in order. There is a recurrent cycle of debate in the wake of financial crises, as an initial outpouring of radical proposals gives way to incremental muddling through, followed by resumption of normal business. Ten years ago the East Asian, Russian and Brazilian crises of 1997–98 struck panic in the High Command of world finance, and were followed by vigorous discussion around a ‘new international financial architecture’. But once it became clear that the Atlantic heartland would not be affected, the radical talk quickly subsided. The upshot was a raft of new or reinvigorated public and private international bodies tasked with formulating standards of good practice in corporate governance, bank supervision, financial accounting, data dissemination and the like. [4] Such efforts diverted attention from the issue of re-regulation, and the financial sector in the West was able to ensure that governmental initiatives did not include new constraints, such as limits on leverage or on new financial products. There was no change of norms regarding the desirability of lightly regulated finance.

Systemic tremors
When the Bank for International Settlements (bis) said in its June 2007 Annual Report that ‘years of loose monetary policy have fuelled a giant global credit bubble, leaving us vulnerable to another 1930s slump’, its analysis was largely ignored by firms and regulators, notwithstanding the bis’s reputation for caution. As recently as May 2008 some commentators were still arguing that the crisis was a blip, analogous to a muscle strain in a champion athlete which could be healed with some rest and physiotherapy—as opposed to a heart attack in a 60-a-day smoker whose cure would require surgery and major changes in lifestyle.

The events of September 2008, however, make it hard to avoid the conclusion that we have entered a new phase. Financial market conditions in much of the oecd have sunk to their lowest levels since the banking shut-down of 1932, which was the single most powerful factor in making the 1929 downturn and stock market crash become the Great Depression. (Some 11,000 national and state banks failed in the us between 1929 and 1933.) One bond trader described the current situation as ‘the financial equivalent of the Reign of Terror during the French Revolution’. [5] In these circumstances, the efficient markets hypothesis and the prescriptions derived from it have been thoroughly discredited.

In particular, the second fortnight of September of this year saw not one but three ‘game-changing’ convulsions in the world’s most sophisticated financial system. These do not include the nationalization of Freddie Mac and Fannie Mae: giant though they are, these ‘quasi-government institutions’ had an established claim to a public safety net. Rather, the first upheaval was the run on two more of the big five Wall Street-based broker-dealers or investment banks, following the earlier run on Bear Stearns—in each case followed by the banks’ demise. Only Morgan Stanley and Goldman Sachs remain standing—for the time being—and they have switched their legal status to that of bank holding companies, which means they will be subject to closer regulation than before. The bankruptcy of Lehman Brothers in mid-September trapped the funds of mega-investors, ratcheting up the panic throughout financial markets and shutting down credit flows even for normal business. It could have especially far-reaching consequences, since Lehman had a huge volume of derivative business, and there has never been a default of a counterparty to derivative contracts on anything like this scale.

The loss of three of the five giants fundamentally changes the politics of international finance, because these investment banks were immensely powerful actors in the political process—not only in the us but also in the eu. From their London bases, the us investment banks had a shaping influence on the content of eu financial legislation in Brussels. The upside of their disappearance, then, is that it weakens one major obstacle to financial re-regulation.

The second September game-changer was the us Treasury’s bail-out of aig for a promised $85 bn. aig was not just America’s but the world’s biggest insurer. Since it stood outside the banking system, its bail-out broke through the firewall separating financial intermediaries from the ‘real’ economy. The contagion is now likely to spread to other insurers, and to thousands of highly leveraged hedge funds, as lock-in periods expire at the end of the next two quarters and investors are able to withdraw their funds. The third great convulsion outdid even the second: in the most dramatic government rescue operation in history, the us Treasury announced a plan to buy up to $700 bn of toxic securities from troubled banks, at a price well above current market value. Remarkably, it was improvised almost on the spot—Secretary Paulson’s original proposal ran to only three typed pages—indicating that the Treasury had been convinced that it could muddle through without a contingency plan. As proposed, it would have given Wall Street almost unrestrained access to public revenues at little cost. At the end of September the bail-out was rejected by the House of Representatives, and subsequently modified by the Senate, both parts of Congress alarmed at the public’s fury in an election year. The version approved by Congress in early October promises to make a larger share of any subsequent profits into public revenues, but nonetheless uses tax revenues to socialize the losses of the finance sector—an unprecedented hand-out to those responsible for the crisis in the first place.

Repercussions
Falls in the us and uk property markets, meanwhile, continue to drive the downward spiral. The us futures market is estimating a 33 per cent drop in us prices from peak to trough (based on the Case-Shiller Home Price Index), with the trough still a year away. The uk, which since 2000 has had the second biggest property bubble after the Japanese land bubble of the 1980s, may experience a 50 per cent fall from peak to trough; but even this would leave house prices higher than in 1997 as a multiple of income. As the credit contraction spreads across sectors and across regions, the damage to the real economy is growing, as measured by rising unemployment—in the us, the jobless total has risen by 2.2 million in the last 12 months—and slowing consumption; though it is surprising how gradually this has taken place since mid-2007. As of early October 2008, the crisis has swept into many continental European banks, which had previously prided themselves on having escaped the turmoil.

So far, however, the crisis has remained centred on the Atlantic economy, and there has as yet been little blow-back from East Asia. Indeed, it is notable that extreme illiquidity in Western financial markets co-exists with overflowing savings and foreign exchange reserves in East Asia and the petro-economies of Russia and the Gulf. Yet another feature of the current crisis that makes it unprecedented is the fact that the West is pinning its hopes for recovery on fast growth in the developing world, especially East Asia—and that Western banks seeking to avoid bankruptcy are increasingly looking for capital injections from these countries, and from the sovereign wealth funds of such states as China, Dubai and Singapore, among others.

Japan, the world’s second largest economy, looks thus far to be relatively unscathed. There are few signs of a credit crunch, although growth stands almost at zero. The short explanation for this is that Japanese banks remained very cautious after the bitter experience of the 1990s, when they were obliged to clean up after the 1980s bubble. They have been criticized at home and abroad for holding too much cash and too little debt; a recent example from the International Herald Tribune makes plain the norms that have dominated Anglo-American and therefore ‘global’ economic policy over the past three decades:

The country has a $14 trillion pile of household savings . . . This blessing has also been a curse to investors . . . Japan’s wealth shields it from pressures to meet global standards of economic growth or corporate profitability. This is what allowed the country to accept near-zero growth rates in the 1990s and what allows the survival of Japanese corporate practices like valuing employees and clients over shareholders. [6]
China, however, is another story. Since 1980 it has experienced several booms followed by sharp slumps; despite the phenomenal improvement in its economic performance in the last decade, a further slump is quite possible. One potential source of trouble is the prc’s accumulation of vast quantities of us asset-backed securities whose value has fallen precipitously; in June 2007, us Treasury data estimated the value of these to be $217 bn. Another is the high ratio of non-performing loans in Chinese banking—more than 6 per cent in the last quarter of 2007, according to official data. A third is high inflation, especially in food prices. Other East and Southeast Asian investors are also thought to be holding large quantities of toxic securities. This suggests that there could sooner or later be a blow-back from East Asia into the us and Europe, generating another downward twist.

Causes of the crunch
If the wars in Iraq, Kosovo and Afghanistan were one expression of American post-Cold War triumphalism, globalized finance, launched during the Clinton Administration, was another. The mainstream press boasted that the us financial system had broken through the sound barrier and was now operating in a new dimension, as it undertook more and more dazzling gambles. They were right to emphasize the novelty of the way in which us finance operated in the 2000s, and the sense that it had no limits. The deeper causes, however, lay in economic developments. In much of the Western world the rate of profit of non-financial corporations fell steeply between 1950–73 and 2000–06—in the us, by roughly a quarter. In response, firms ‘invested’ increasingly in financial speculation, and the us government helped offset the resulting shortfall of non-residential private investment by boosting military spending (the Pentagon’s annual budget happens to be around the same as the figure put on the Treasury’s recent rescue plan).

In addition, foreign currency markets have since 2000 persistently driven exchange rates in the wrong direction, causing many economies running large external deficits to experience currency appreciation, and others running surpluses to experience depreciation or no change. External deficits and surpluses have grown, increasing the fragility of the global economy. However, commentators who insist that the present turmoil is simply the latest in a long line of crises driven by bubble dynamics miss the point that this time, the asset bubble was propagated across the world through securitization technology and the ‘originate and distribute’ model of banking, which only came to fruition in the 2000s. The model encouraged high leverage, complex financial instruments and opaque markets, all of which put this crisis in a league of its own.

Too much stress has been laid specifically on the housing bubble, as though it was a necessary and sufficient condition of the crisis. It was only one part of a much wider run-up of debt. Table 1, overleaf, shows the ratio of debt to gdp for the us economy as a whole, and for the two most indebted sectors—households and finance—for 1980 and 2007. The overall ratio more than doubled, and that for the financial sector increased more than fivefold.








The toxic combination of debt, asset bubble and securitization technology was itself enabled by lax regulation. The locus of the blow-up was not unregulated hedge funds, but supposedly regulated banks. Until recently it was acceptable in the eyes of the authorities for investment banks to operate with a debt to equity ratio of 30–35:1. It is no exaggeration to say that the crisis stems from the biggest regulatory failure in modern history. Many politicians and commentators are stressing that ‘we are all to blame’—the international economy, bankers, investors, ratings agencies, consumers. But this simply diverts attention from those whose job it was to regulate: the regulators and the political authorities who sanctioned them.

The uk’s role in the crisis deserves emphasis, because contrary to conventional wisdom, the dynamics at its heart started there. The Thatcher government set out to attract financial business from New York by advertising London as a place where us firms could escape onerous domestic regulation. The government of Tony Blair and Chancellor Gordon Brown continued the strategy, leading Brown to boast that the uk had ‘not only light but limited regulation’. In response, political momentum grew in the us over the course of the 1990s to repeal the Depression-era Glass–Steagall act, which separated commercial from investment banking. Its repeal in 1999 produced a de facto financial liberalization, by facilitating an unrestrained growth of the unregulated shadow-banking system of hedge funds, private equity funds, mortgage brokers and the like. This shadow system then undertook financial operations which tied in the banks, and it was these that eventually brought the banks’ downfall.

The striking thing about the uk Financial Services Authority, set up with great fanfare by Brown in 1997, at the same time as he granted the Bank of England semi-autonomy in monetary policy, is that it has sweeping jurisdiction over the British financial sector—in contrast to the us system of multiple and fragmented regulators. Yet it regulates diffidently, and was evidently intended as little more than window-dressing. Howard Davies, the fsa’s first chairman, described its guiding principle with striking candour: ‘The philosophy from when I set it up has been to say, “Consenting adults in private? That’s their problem, really.”’ [7] Hence the fsa, in its covert and successful bid to attract us companies to London, allowed banks and insurance companies operating from the City to do so with much less capital than similar organizations in New York. Its commitment to light and limited regulation meant that to deal with British financial markets one-third the size of those in the us, it had eleven times fewer enforcement agents than the Securities and Exchange Commission (sec)—98 as compared to 1,111.

It is ironic that the crisis may end up saving Brown from having to resign as prime minister. Yet it is now clear that his aversion to financial regulation, and his lack of concern about the housing bubble—which in the period since Labour came to power has made the uk’s economic performance look much better than it would otherwise have done—are deeply implicated in the build-up to the crisis. For a decade, the combined tails of the housing market and financial sector have wagged the dog of the British economy. As in the us, consumption grew much faster than gdp, financed by rising debt, thanks to booming house prices. A grateful electorate returned the Labour government to office twice in a row.

Governmental responses
The downward spiral of credit contraction is being driven by a pervasive collapse of trust in the entire structure of financial intermediation that underpins capitalist economies. With debt levels running high and the economic climate worsening, many enterprises in the real economy must be close to bankruptcy; hence lenders and equity buyers are staying out of the market. Governments have therefore moved to stabilize credit markets by taking steps to encourage buyers to re-enter the market for securities—most notably the us Treasury, with its $700 bn bail-out scheme. Several European states have moved to steady the banking sector, with Ireland, Greece, Germany, Austria and Denmark guaranteeing all savings deposits in early October 2008. Competition rules have been set aside, as governments foster mega-mergers. In the uk, the recent merger of hbos and Lloyds tsb creates a bank with a 30 per cent share of the retail market.

The sheer monopoly power of such new financial conglomerates is likely to prompt a stronger regulatory response. Another key area to watch in terms of gauging the robustness of governmental responses is the market for Over the Counter (otc) derivative contracts—which Warren Buffet famously described in 2003 as ‘financial weapons of mass destruction’. Buffet went on to say that, while the Federal Reserve system was created in part to prevent financial contagion, ‘there is no central bank assigned to the job of preventing the dominoes toppling in insurance or derivatives’. In the event that more regulation of the otc market is implemented—even in the minimal form of requiring the use of a standard contract format and registration of the details of each contract with a regulatory body—Brooksley Born will have some satisfaction. She was head of the Chicago Futures Trading Commission in the late 1990s, and proposed in a discussion paper that the otc market should come under some form of regulation. Alan Greenspan, sec Chairman Arthur Levitt and Treasury Secretary Robert Rubin were so angry at her for even raising such an idea that they sought Clinton’s permission to have her fired; in January 1999 she duly resigned for ‘family reasons’.

Beyond such immediate, fire-fighting responses, the crisis has also drawn attention to the matter of the system’s overall stability—and specifically to the impact of international financial standards on national systems. A furious debate has been under way in recent years about international accounting standards. Both the leading sets used by listed companies around the world—the us Generally Accepted Accounting Principles and the International Financial Reporting Standards (also known as ias)—require listed companies to ‘mark to market’; that is, frequently to revalue their assets at current market prices or, if the assets are illiquid and have no market price, to revalue them according to the cost of guaranteeing them. Defenders of this method—principally investors—tendentiously call it the ‘fair value’ standard (who could oppose ‘fair value’?), arguing that its adoption is crucial to maintaining investors’ confidence in firms’ published accounts. [8]

Critics, including the International Institute of Finance—the main lobbying group for bankers—counter that it amplifies booms and busts. During downswings ‘fair value’ accounting obliges banks to record a drop in asset value which may be unjustified by economic ‘fundamentals’. To maintain their solvency ratios they are then obliged to raise new capital at high cost or reduce lending. Upswings, meanwhile, permit banks to boost their balance sheets beyond levels justified by ‘fundamentals’. But the alternative methods of ‘mark to historical prices’ or ‘mark to model’, in which each firm uses its own model to estimate shadow prices, are in turn open to attack. Warren Buffet observed that ‘mark to model’ tends to degenerate into ‘mark to myth’, while Goldman Sachs in June 2008 resigned its membership of the iif in protest at the prospect of a move to what it called Alice in Wonderland accounting.

Critics of ‘mark to market’ tend to conflate the important distinction between accounting standards and prudential standards. The former are concerned with the information provided to shareholders and others about the ‘integrity’ of the market; their function is to ensure continuous and accurate information on the situation of companies as the basis for investment decisions. Prudential standards, on the other hand, focus on financial stability, and on preventing financial actors from behaving in ways that put stability at risk. Maintaining this distinction, and overhauling some prudential standards, is important in the current context.

Credit and credibility
One type of prudential standard ripe for revision concerns banks’ capital adequacy. The Basel II standard of capital adequacy, which came into force at the start of 2007 after some nine years of negotiation, marked a shift from the external regulation of Basel I to self-regulation—making it an invitation to careless behaviour and ‘moral hazard’ at a time when big banks are more confident than ever that they will be bailed out by the state. Basel II requires banks to use agencies’ ratings and their own internal risk-assessment models—both of which have been shown to be pro-cyclical and to have failed spectacularly in the run-up to the present crisis—while raising capital standards during periods of illiquidity, precisely when banks are less able to meet them. Moreover, experience of Basel I and simulation of the effects of Basel II suggest that both sets of rules tip capital flows from developed-country banks to the developing world in favour of short-term bank credit, the most dangerous kind. [9] Basel II also raises the cost of finance for banks in the global South relative to those in the developed world, cementing the competitive advantage of the latter. Incremental revision of Basel II will not address any of these issues; for that, wholesale renegotiation will be required.

Among the many victims of the crisis, then, is the dominant ‘global’ model of financial architecture of the last two decades, the credibility of which has been seriously damaged. All three of its main pillars malfunctioned in the run-up to the current crisis. Firstly, a financial services regulator is supposed to protect bank depositors and consumers from unsound behaviour by individual firms, such as holding inadequate reserves; as we have seen, however, regulation was lax in the extreme. Second, financial markets are meant independently to allocate investment capital and consumer credit between individuals, firms and states, with little influence from government; but the opacity created by leveraging and complex financial engineering resulted in market meltdown and eventual state rescue.

The third pillar is the maintenance of monetary stability—defined as keeping a tight lid on inflation—by the central bank. Focusing on the retail price index, central banks opted to keep interest rates very low and permit fast credit growth, lulled by low price inflation due to cheap imports from China. The rapid growth of credit blew out asset bubbles, especially in housing—which many central banks ignored, since their mandate was confined to consumer prices. Indeed, they and the politicians behind them applauded the housing boom because it propelled sharp increases in gdp. The new regime that emerges from the ongoing crisis, then, is likely to include attempts to revise the role of the third pillar by expanding the mandate of central banks, and ensuring they give more weight to asset prices. Since the interest rate is a very blunt instrument, central bankers and regulators will have to rely on an expanded set of prudential measures. Examples would include a requirement for new financial products to obtain regulatory approval, to ensure that their risk characteristics can be readily determined by a third party; or a demand that any organization that can expect a public safety net—and especially public deposit insurance—should submit to controls of its loan portfolio, so as to reduce credit to ‘overheating’ sectors. [10]

Demise of the consensus?
Neoliberal economics has powerful antibodies against evidence contrary to its way of seeing things. However, the current crisis may be severe enough to awaken economists from the ‘deep slumber of a decided opinion’, and render them more receptive to proof that the post-Cold War globalization consensus has strikingly weak empirical foundations. According to the conventional view, in the decades after 1945, governments routinely ‘intervened’ in the economy, especially in developing countries where import-substituting industrialization was the norm. While the developed world liberalized, the global South kept to isi and, consequently, its relative economic performance lagged. But as of around 1980, under encouragement from the World Bank, imf and the American and British governments, developing countries increasingly adopted the prescriptions of the globalization consensus and switched to a strategy of market-friendly, export-led growth and supply-side development. As a result, their performance improved relative not only to the past but also to that of the developed countries; they finally began to catch up. This empirical evidence in turn validated World Bank and imf pressure on their borrowers to adopt neoliberal policies.








The trouble with this story is that it is largely wrong. Figure 1 shows the average income of a number of regions relative to that of the North, expressed in purchasing power parity dollars (ppp$), from 1950 to 2001. Latin America and Africa display a relative decline both before and after 1980; Eastern Europe, not shown, tracks the Latin America line. China, at the bottom of the graph for most of the period, starts to rise in the 1980s and continues thereafter, reaching the average for the South by 2001; the Asia line rises a little, too, after a lag—but this also includes China, which accounts for a large part of its ascent.








Figure 2, opposite, shows the average income of the developing world, excluding the ‘transitional economies’ of the former Soviet bloc, as a proportion of that of the North, expressed in market exchange rates. The top line represents the whole of the global South, the bottom line the global South excluding China. In both cases, the trend from 1960 to 2008 is very different from that postulated by the globalization narrative. The ratio was higher in the period before 1980, fell steeply during the 1980s, flattened out at a low level during the 1990s, and had a small uptick after 2004 because of the commodity boom induced by rapid growth in the prc. With incomes expressed in terms of ppp, the trend line is consistent with the globalization narrative, turning upwards in the early 1980s and continuing to ascend thereafter; but exclude China and the trend is much the same as in Figure 2. [11]

The notion that globalization generates catch-up growth, then, rests principally on the rise of China. Yet the policies Beijing has pursued are far from identical to those endorsed by the Washington Consensus; it has followed the precepts of Friedrich List and of American policy-makers of the nineteenth century, during the us’s catch-up growth, more than those of Adam Smith or latter-day neoliberals. The state has been an integral promoter of development, and has adopted targeted protection measures as part of a wider strategy for nurturing new industries and technologies; it is now investing heavily in information systems to help Chinese firms engineer their way around Western patents.

The American Economic Association carried out surveys of its members’ opinions in 1980, 1990 and 2000. [12] The results indicate a broad consensus on propositions about the desirable effects of openness and the harmful effects of price controls. For example, in all three surveys the proposition that ‘tariffs and import controls lower economic welfare’ elicited very high agreement; in 1980, 79 per cent of us economists said they ‘agree’ with the statement, as distinct from ‘agree with qualifications’ or ‘disagree’. (Economists in four continental European countries were also surveyed in 1980; only 27 per cent of French economists said they agreed with the same statement.) It seems a safe bet that the 2010 survey will report significantly less agreement about the desirability of free trade, free capital movements and other forms of economic openness—providing concrete evidence of a weakening of the globalization consensus among us economists, and further support for the conjecture that we have entered a new regime.

Rethinking the model
In times of crisis, arguments that had previously been on the margins can gain greater currency. If the disappearance of three out of five big investment banks indicates the seriousness of the present turmoil, it also provides an opportunity to broaden the range of possibilities for an overhaul of the way global finance operates; the fall in pension funds and declining house prices should also enlarge the constituency for major reform. Scholars today face the challenge of rethinking some of the basic intellectual models that have legitimized policy over the past three decades. The fallout from complex, opaque financial products may persuade many of the benefits of a substantially smaller financial sector relative to the real one, and perhaps of a ‘mixed economy’ in finance, where some firms would combine public and private purposes—operating more like utilities than profit maximizers.

But more fundamentally, the globalization model itself needs to be rethought. It over-emphasized capital accumulation or the supply side of the economy, to the detriment of the demand side (since the stress on export-led growth implied that demand was unlimited). [13] The failure of catch-up growth, seen in Figures 1 and 2, stems in part from neoliberalism’s lack of attention to domestic demand, reflecting the dominance of neoclassical economics and the marginalization of Keynesian approaches. Developing domestic and regional demand would involve greater efforts towards achieving equality in the distribution of income—and hence a larger role for labour standards, trade unions, the minimum wage and systems of social protection. It would also necessitate strategic management of trade, so as to curb the race-to-the-bottom effects of export-led growth, and foster domestic industry and services that would provide better livelihoods and incomes for the middle and working classes. Controls on cross-border flows of capital, so as to curb speculative surges, would be another key instrument of a demand-led development process, since they would give governments greater autonomy with regard to the exchange rate and in setting interest rates.

The recent strengthening of regional integration processes, meanwhile, should direct attention away from global standards and arrangements which, because of their maximal scope, are necessarily coarse-grained at best. Regional trade agreements between developing countries have distinct advantages over multilateral trade deals, whose terms often serve to break open economies of the global South while preserving intact protections for industry and agriculture in the North. Regional currencies—such as the Asian Currency Unit being discussed by East Asian states, based on a weighted average of key local currencies—could act as a benchmark independent of the us dollar, reducing vulnerability to market turbulence on Wall Street. [14]

Global economic regimes need above all to be rethought to allow a diversity of rules and standards, instead of imposing ever more uniformity. Rather than seeking, in Martin Wolf’s terms, to make the whole world attain the degree of economic integration found within the federal structure of the us, such that nation-states would have no more influence over cross-border flows than us states have over domestic transactions, [15] we might draw inspiration from an analogy with ‘middleware’. Designed to enable different families of software to communicate with each other, middleware offers large organizations an alternative to making one program span their entire structure; it allows more scope for a decentralized choice of programs. If the second leg of the present ‘double movement’ turns out to be a period from which consensus is largely absent, it may also provide space for a wider array of standards and institutions—economic and financial alternatives to the system-wide prescriptions of neoliberalism. This may give the new regime that emerges from the current upheavals greater stability than its predecessor. Whether it provides the basis for a more equitable world, however, will remain an open question—and an urgent challenge—for some time to come.

7 October 2008