Opinion

The Great Debate

from Reuters Editors:

And the band played on: covering the economic crisis

dean-150I recently visited one of the most frightening sites on the Web—the place where I look at my shrinking retirement account.

As I calculated the investment loss since the steep decline in the markets began, and particularly since the collapse of Lehman Brothers in mid-September, some questions arose (in addition to: Will I ever be able to retire?).

--Did we in the media do our job in reporting on the run-up to the crisis?

--Now that an “official” recession has been declared in the U.S. and the depth of the crisis is becoming clearer around the world, are we in the media keeping things in perspective? Should we even be using words like “crisis” or “meltdown?”

On the first question, I can’t help thinking of Claude Rains’ “Casablanca” character Captain Renault, who was “shocked, shocked to find that gambling is going on” in Rick’s club. In hindsight, given the current state of the financial markets, wasn’t it obvious a problem was brewing?

Not necessarily. And it probably wouldn’t have been obvious to anyone reading online or print coverage or watching television news in the United States.

EU prosperity at stake in crisis disunity

Paul Taylor Great Debate– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

The global financial crisis has been a stark reality check for the European Union, exposing divergences over economic policy and highlighting the European Commission’s growing difficulty in enforcing common rules.

The European response to the turmoil shows that most real power still resides with member states, not in Brussels. Even after 50 years of integration, governments instinctively reach for national solutions at the risk of harming EU partners.

Credit cards unkindest cut for U.S. consumers

James Saft Great Debate — James Saft is a Reuters columnist. The opinions expressed are his own –

Government intervention or not, banks will be cutting up America’s credit cards at an unprecedented rate, with grave implications for the economy and company profits.

The U.S. Federal Reserve last week added more nutrition to its alphabet soup of rescue programs when it unveiled the Term Asset-backed Securities Loan Facility (TALF), under which, among other things, it will lend up to $200 billion to investors in securities backed by credit-card, auto and student loans.

Uncertainty paralyzes U.S. banking system

John Kemp Great Debate– John Kemp is a Reuters columnist. The opinions expressed are his own –

Extreme uncertainty about the economic outlook and the depth of the recession has paralyzed normal lending activity by commercial banks in the United States and elsewhere. Even as the Federal Reserve has added liquidity and boosted bank reserves, the credit creation process has remained stalled as banks struggle to identify good borrowers willing and able to repay in a wide range of future economic conditions.

The attached chart is adapted from the Federal Reserve’s weekly H.8 release on “Assets and Liabilities of Commercial Banks in the United States” (https://customers.reuters.com/d/graphics/US_CRDT1108.gif).

Light at the end of the tunnel

John Kemp Great Debate– John Kemp is a Reuters columnist.  The opinions expressed are his own –

After more than a year of denial, misdirected policies and a steadily worsening outlook, the past fortnight has witnessed a marked improvement. For the first time, there are reasons to be cautiously optimistic that the economy faces a recession rather than a prolonged slump, and recovery could get underway in H2 2009.

Markets share some of that optimism. The Dow Jones Industrial Index has risen 15.5 percent over four consecutive sessions, the most sustained rally since April 2008. It is not yet time to break out the champagne. But there are reasons to start looking through short-term weakness to focus on an eventual, albeit modest, recovery by the end of next year.

The world’s expanding top table

– Paul Taylor is a Reuters columnist, the views expressed are his own –

LONDON (Reuters) – Move over America! Make space Europe! The world’s top leadership table is expanding to bring in emerging powers from Asia, Africa and Latin America to help rescue the global economy.

This week’s Washington summit of 20 nations, called to discuss reforming the international financial system and avert a further worsening of the credit crisis that began in the United States, sets a precedent for a new international order.

Ten commandments for the first 30 days in office

juan-enriquezJuan Enriquez is managing director of Excel Medical Ventures and the author of “As The Future Catches You.” Any opinions expressed are his own.

There are two ways of viewing this debt crisis. One is that it is simply a temporary dislocation in the credit markets and a liquidity problem. The second is that it is a crisis triggered by subprime lending, accentuated because most people still can’t afford their houses, and compounded because almost every bad loan was highly leveraged. If it is the second type of crisis, one should remember: if trapped in a ditch full of debt, quit digging.

We are piling debt on debt. U.S. consumers are tapped out. Net household savings have gone negative. Corporate debt, particularly derivatives exposure, has reached truly dangerous levels. (Outstanding derivatives exceed $655 trillion. The U.S. economy is around $13 trillion). Government indebtedness is also approaching levels that exceed even those reached in the Depression and World War II. Add these three sources of debt together and the U.S. already owes almost four times its GDP. Now we are adding trillions in bailouts and face rocket-fueled mandatory spending programs. These trends may end up being fatal if we do not act. Right now.

TARP, bonuses, dividends and Waxman’s letter

John Kemp –John Kemp is a Reuters columnist. The views expressed are his own–

By John Kemp

LONDON (Reuters) – The bitter political divisions between middle America and Wall Street on display when the House of Representatives first rejected the Emergency Economic Stabilization Act last month look set to be re-opened in even more dramatic form in the remaining months of the year.

Rep Henry Waxman, chairman of the powerful House Committee on Oversight and Government Reform, on Tuesday sent identical letters to the chief executives of nine major banks receiving $125 billion of capital injections under the Troubled Assets Relief Program (TARP) demanding details of total bonus payments for 2006, 2007 and 2008 (see http://oversight.house.gov/documents/20081028142314.pdf).

The issue of bonuses and dividend payouts from banks that accepted the TARP injection looks set to become highly charged.

Tidings of a bear market rally

James Saft — James Saft is a Reuters columnist. The opinions expressed are his own –

By James Saft
NEW YORK (Reuters) – Some time before the end of the year it is a good bet that stock markets will throw off their gloom and begin a powerful rally of as much as 15 or 20 percent.

Some time one to three months after that it is a good bet that the prospect of a deep global recession and shockingly bad earnings will send them right back down again to make new lows. Rallies in the midst of bear markets can be sustained, powerful and feel very much like the ones that often mark the beginning of a real recovery.

The Fed as lender of first and only resort

John KempJohn Kemp is a Reuters columnist. The opinions expressed are his own.

LONDON (Reuters) – The Federal Reserve has unveiled a dizzying array of new lending and liquidity support facilities over the last six weeks, but the diminishing law of marginal returns already looks to have set in. Each new lending and liquidity facility announced by the Fed is providing a smaller boost to confidence than the last.

The market is increasingly focused on how the Treasury and the Fed will fund the ever-expanding array of facilities, and the huge overhang of very short-term paper that needs to be rolled over into longer-term securities in a market that already looks queasy about the forthcoming flood of notes.
Rather than multiplying the number of acronymned facilities further, restoring confidence now rests on solving two issues.

First, the market needs to see buyers for all this new Treasury paper that will have to be issued in the coming year.

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