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Aug 04
2010

When confidence is merely a con

Posted by Ron F in Timothy GeithnerRegulationObama Administrationfinancial crisisEUcomplianceBanksbanking reformbanking industryBankingbailouts

Ron F

A column published on Tuesday by Project Syndicate sums up the world's flailing (if not downright cynical) response to the financial crisis in particularly apt terms, I'd say.

The governments' efforts to restore confidence in the banking sector without really addressing the causes of its loss of confidence is akin to trying to tickle oneself, observed Paul Seabright of the University of Toulouse in the piece, entitled "Financial History's False Lessons."

Aug 03
2010

Why corporations may not care about the domestic economy

Posted by Ron F in recoveryrecessionoutsourcingoffshorejoblessnessglobal economyemployment growthemploymentemerging marketseconomyearningsdemandcutting costscorporations

Ron F

Paul Krugman today once again bemoans the lack of Keynesianism in what passes for economic policymaking discussions these days, and I share that complaint.

However, Krugman may be missing part of the problem here, which is that those who pooh-pooh the prospect of deflation may actually not much care if it materializes, though they would be mistaken to do so.

Jul 29
2010

The battle to reform banks is far from over

Posted by Ron F in RiskRegulationObama AdministrationFederal ReservecomplianceBanksbanking reformBanking

Ron F

Anyone who thinks the financial reform bill is all that was necessary to finish fixing the banking system needs to read a couple of pieces published in recent days.

As Simon Johnson points out over at Baseline Scenario, a new paper by several respected academics shows that the stiffer capital requirements that the Obama administration is focused are not only easily gamed, but can have major unintended consequences, and these can amount a repeat of the systemic crisis we saw two years ago.

Jul 27
2010

Time to reread Keynes

Posted by Ron F in recoveryrecessionObama Administrationjobsjoblessnessinvestmentfinancial crisisenvironmental policyenergyemploymenteconomydemandCongressCareers/Management

Ron F

I've avoided rehearsing the on-going debate over the bleak macroeconomic picture, because it quickly descends into endless political back and forth along with the usual name-calling, as my colleague Steve Taub and I have been discussing internally today.  But it's time to make an exception:

Is the private sector not hiring because it fears more aggressive action from the public sector, and so the public sector (read Obama administration) should leave the economy to itself, as those on the right claim? Or is the lack of private sector hiring a reflection of a lack of private sector hiring, and thus a vicious circle and market failure that requires the public sector (read Obama administration) to step in with a serious jobs program involving infrastructure, alternative energy and schools, as those on the left insist?

Not to speak for Steve, but my sense is he tends to agree with the first perspective, at least for the most part, and I can safely report that I agree with the second, and would recommend James Surowiecki's recent column to help make my case if I could find it. Since I can't, suffice it to say Surowiecki made the useful observation that the two sectors where hiring is picking up, banking and health care, are those where the government has taken the most aggressive regulatory action.

Jul 20
2010

Let your supplier lean on you for payment?

Posted by Ron F in cash managementCash

Ron F

Our editorial partner, the Benche.com has an interesting item up on how companies can help their suppliers without tying up working capital. The trick involves the customer leveraging its stronger credit rating to finance the payment of suppliers' invoices.

While that is hardly a novel concept, I haven't seen it expressed in terms of its potential impact on working capital before.

Jul 08
2010

Why companies aren't spending

Posted by Ron F in recoveryrecessionObama AdministrationObamajobsjoblessnessemploymenteconomyearningsdemandcash positioncash managementCashcapital expenditurescapex

Ron F

There's a political debate heating up about companies' hesitancy to invest the cash they're sitting on.

Essentially, the Democrats--or at least those in favor of further government stimulus measures such as a jobs program or at least extended unemployment benefits--argue that companies are wary of spending because of the lack of aggregate consumer demand.

Jul 07
2010

The financial crisis is only "on pause"

Posted by Ron F in Volcker RuleRiskRegulationObama Administrationfinancial market reformfinancial crisisCongresscomplianceBanksbanking reformBankingbailouts

Ron F

There's some additional recent work out there that's worth citing in connection with Karen's post on Tuesday.

In particular, I would point readers to the piece posted Monday on voxeu.org by Enrico Perotti, a finance professor at the Amsterdam Business School. Essentially, Perotti's piece explains why Kotlikoff's prescription is necessary. As it did the US Congress, the banking industry has fought off international attempts to get the so-called Basel Committee to force the industry to de-leverage its business model. And Kotlikoff's idea does exactly that, simply because mutual funds are financed entirely by equity.

Jul 01
2010

AIG vs. Goldman reveals the flaw in financial reform

Posted by Ron F in RiskRegulationGoldman SachsGAAPfinancial reform billfinancial market reformfinancial crisisFASBderivativescredit default swapsCongresscomplianceBanksbanking reformBankingbank failuresbailoutAIGAccounting

Ron F

The latest revelations  concerning the dispute between AIG and Goldman over collateral show how weak the new financial reform package really is.

After all, Goldman's demands for collateral from AIG as it was failing ended up costing taxpayers billions of dollars. Yet according to the testimony today during the crisis panel's latest hearings, the whole question hinged on what constituted fair value.

Jul 01
2010

Companies sitting on still more cash

Posted by Ron F in TaxTARPrecoveryrecessioneconomydemanddefaultconsumer spendingCongresscash managementcash concernsCashCarmen ReinhartCareers/Managementcapital expenditurescapexBanks

Ron F

A survey released today by the Association of Financial Professionals will do nothing to dampen the austerity versus stimulus debate.

To wit: Forty-three percent of US corporations had larger US cash and short-term investment holdings this May than they did six months earlier. Only 24 percent of respondents reported that their short-term holdings had shrunk during the past six months.

Jun 30
2010

Bad governance at root of crisis

Posted by Ron F in RiskRegulationfinancial reformfinancial market reformfinancial crisisexecutive compensationderivativescorporate culturecompliancecompensationBanksbanking industryBankingbank failuresauditorsAccounting

Ron F

Anyone counting on regulation alone to prevent the world from falling into another financial black hole will be sorely disappointed, a group of experts warned in an article published yesterday by the International Federation of Accountants.

The experts say that all key parties to the financial disaster--from regulators to managers and investors--share the blame and that tighter regulation alone can therefore go only so far to prevent another crisis from materializing. 

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