Commentaries

Now raising intellectual capital

from Rolfe Winkler:

Evening links 12-14

Substantial bank losses needed to fix housing (Bloomberg) To avoid foreclosures, principal has to be written down. That implies hefty losses, especially for banks that hold lots of home equity loans on their balance sheet. Such loans get wiped out before first mortgages lose a penny. Complicating matters, many big banks service both the first and the second mortgage, which means they are highly conflicted. They don't want to eat a loss on the second mortgage, even if writing it down would make the first perform much better...

Greece defies Europe as crisis grows deadly serious (Evans Pritchard, Telegraph) Provocative idea: To relieve its debt burden, Ambrose says Greece should devalue its currency. That's not easy since they use the Euro. He recommends Greece ditch the Euro, "restore its currency, devalue, pass a law switching internal euro debt into drachmas, and "restructure" foreign contracts. This is the 'kitchen-sink' option. Such action would allow Greece to break out of its death loop." Call it the nuclear option... (ht Implode-o-Meter)

Whole Foods Republicans (Petrilli, WSJ) The Republican party is missing an opportunity to reach independent college-educated voters...

Cuts come to New York: Two subway lines may get eliminated, along with subsidized fares for students. In the meantime, Gov. Paterson announced that he will withhold payments to schools and local governments.

Euro at $1.50 — a disaster or an alibi?

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OUKTP-UK-FINANCIALThe French can never resist blaming a strong currency for their misfortunes. So it should come as no surprise that Henri Guaino, President Nicolas Sarkozy’s influential political adviser, has said that having the euro at $1.50 is “a disaster for European industry and the economy”. Since the euro stood at just above $1.49 as he spoke on Tuesday, Guaino presumably sees the single currency area as on the edge of the abyss. 

This is manifest nonsense. European exports to the rest of the world, including the dollar zone, were booming in mid-2008 when the euro stood at just short of $1.60. The euro area had a trade surplus with the United States at the time. The steep slide in exports over the last 15 months has been due to a collapse in demand, even though the euro fell as low as $1.25.

Latvia: let the lat go

Do as you would be done by. This excellent rule surely applies as much in monetary affairs as it does in other fields of human endeavour. Those who loudly urge Latvia not to devalue its currency should reflect upon it.

Since Latvia’s monetary crisis started in 2007, a host of non-Latvians — led by the European Commission — have urged the small Baltic state to cleave to its currency board system, which pegs the lat at the wildly uncompetitive rate of 0.702804 to the euro. Regardless of the cost in terms of spending cuts, higher taxes and lower wages, this is supposedly all for the Latvians’ own good.

IMF undermines EU fight for Lativa peg

 Just when it looked as if Latvia’s currency peg to the euro had weathered the storm, the International Monetary Fund has raised fresh doubts by withholding funds for the Baltic European Union newcomer. 

 The IMF is right to demand a credible medium-term strategy for budget reform, but it would be wrong to risk contagion in eastern Europe by questioning the currency board. If one thing
could undermine the EU’s bid to avoid a wave of devaluations around the Baltic states, with knock-on effects for Swedish banks and potentially for central and eastern Europe, it is conspicuous differences between the IMF and Brussels.
  

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