– Agnes T. Crane is a Reuters columnist. The views expressed are her own –

Reasons people give to explain the quick switch-back movements in stocks and other risky assets are becoming, well, just bizarre.

On Monday, it was the World Bank’s dire outlook for the global economy — no matter that the organization’s president already said output was likely to decline by close to three percent earlier this month.

On Tuesday, it was Moody’s Investors Service reaffirming the Aaa rating of the United States that gave stocks a brief lift, even though few expected any rating agency to make a move on its credit standing any time soon.

Investors should take these kinds of explanation and moves with a grain of salt, especially during the summer months when trading volumes are light and conviction easily undermined.

Those taking the long view shouldn’t let the noise, whether it be a World Bank report on the economic outlook or a perceived change in a data point, distract them from the fact that the financial system is still on life support and therefore susceptible in a very real way to a downturn once governments start to pull the plug.

The Federal Reserve is well on its way to purchasing $1.45 billion of mortgage-related assets in addition to $300 billion of Treasuries, which it could expand if central bankers decide they need more power to drive down interest rates.

This week, in an attempt to drive down rates even further, the European Central Bank is offering funds at a bargain basement rate of one percent for one year. The Bank of England, meanwhile, is keeping rates in that country at a record low while earmarking 125 billion pounds to buy up debt as part of its quantitative easing policy. And the list goes on.

The trillions of dollars injected into the global financial system have helped bolster short-term lending markets to such an extent that few are even talking about such hot-spot gauges as Libor/OIS that flashed beet red last year when banks balked at lending to one another.

By driving down short-term borrowing costs, this money, among other things, encourages banks and investors to invest in higher-yielding, riskier assets that had been beaten down by the crisis.

The return of risk appetite has in turn bred comfort that things are returning to normal. But they’re not, yet.

That’s why the timing of when governments begin to mop up this excess liquidity will be key to where markets go from here. There will be plenty of trading opportunities between now and then, to be sure, but it will be some time before we’ll see anything that we can call normal. Yet, normalcy is what many crave.

Many had hoped that the run-up in stocks and other risky assets since March was the real deal — a sustained rebound, in the manner of 2003.

Real money had been moving into stocks and risky corporate debt not because of isolated headlines but a growing, and I would argue misplaced, belief that the stabilization of financial markets held out the possibility of a rapid rebound, and the opportunity to rebuild 401(k) accounts and other investments pancaked by last year’s crisis.

After taking out $31.5 billion in March, investors rechanneled funds back into equities, adding approximately $36 billion to stock funds since then, according to AMG Data Services, which tracks mutual fund activity.

This isn’t surprising, as it’s hard to turn your nose up at 32 percent gains in the S&P 500 since it hit rock bottom in early March or the even more impressive 36 percent returns seen in the Merrill Lynch Master II high-yield corporate bond index.

But these returns are being juiced by easy money, which means the picture could look much different when cheap funding is harder to find.

– Mark Hannam is a guest columnist, the views expressed are his own. He formerly worked at the Bank of England and Barclays. He is currently chairman of Fair Finance, a microfinance company –

Some banks have come out of the financial crisis in better shape than others. We should encourage them rather than lump them together with the failures.

Public anger at the recent failings of many of our leading banks, while justified, is not a sound basis for future policy. The temptation facing policy makers — that of failing to distinguish between better capitalized, better managed banks and under-capitalized, poorly managed banks — should be avoided.

The period leading up to the financial crisis was characterized by an insufficient differentiation of risk in the financial markets. Across many asset classes risk premia were compressed to such an extent that the difference in price between low-risk and high-risk assets was insufficiently wide.

Prices are signals and in the past few years they have signaled incorrectly.

Public policy that treats all banks as if they were the same perpetuates the problem of erroneous signaling: JP Morgan does not have the same problems as Citibank; Barclays’ prospects are not identical to those of RBS.

The stress tests in the U.S. — however crude and dubious in methodology — are likely to demonstrate this. We can and should distinguish between those banks that benefit from general government support for the financial system and those that require specific government intervention to remain solvent.

Last autumn, when Lehman Brothers collapsed, there were legitimate concerns that the entire financial system might disintegrate, causing sustained and substantial damage to the global economy. At that moment blanket government guarantees covering all market participants were welcome because they were necessary. That moment has now passed.

Today’s problem is not contagion, but the shortage of beds available for restorative surgery. The public purse isn’t bottomless. We cannot be sure there will be no further fatalities but we do know which banks are on the critical list and which are not.

It makes sense to clear the walking wounded out of the hospital, even though they are not yet fully recovered.

We should welcome Goldman Sachs’ and JP Morgan’s desire to pay back money to the TARP scheme, and Barclays’ willingness to sell assets to improve its capital position without taking additional government funding.

These banks have some way to go before they make a complete recovery, but at least they are making progress.

Those banks that have survived the past two years with less damage than their peer group are those that are cleverer or luckier than the average. They should be allowed to take advantage of the opportunities that the economic situation offers. They are our best hope for a return to normal activity in the financial markets, which in turn will initiate the slow process of economic recovery.

The news that some banks were able to make substantial profits in the first quarter has provoked some predictable venting of spleens: Goldman Sachs dares to be successful again!

Last year’s schadenfreude has metamorphosed into this year’s ressentiment. Whether bankers are losing vast sums of money or making vast sums of money, there will always be people who love to hate them. To indulge such hatred, at the cost of a longer and deeper economic recession, is pure adolescent posturing.

The events of the past two years have demonstrated beyond doubt that all banks depend upon governments (and therefore taxpayers) as their ultimate guarantors. No bank can avoid the consequences of systemic risk so all banks should pay for protection against them.

In the future these premia are likely to be higher than in the past and should be calculated according to the level of risk posed to the public purse.

Increased revenue from bank licensing should be invested in the reform financial regulatory system, which has demonstrated itself to be inadequate for its task. There are plenty of failed banks still to sort out and the process of bank supervision requires substantial redesign.

We need better quality regulators; but we will probably end up just with a bigger quantity of them. One lesson from the financial crisis that governments appear unwilling to learn is that size gives no indication of ability.

The stronger banks want to avoid the full embrace of the state. They appear confident that they can survive better without it. Some of them will be profitable this year. This is one of the few pieces of good news to come out of the financial markets of late.

As the Romans used to say, pecunia non olet: money does not smell. So then, two cheers for the walking wounded!

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

Besides being a human tragedy, a deadly pandemic is, quite literally, the last thing a global economy suffering a huge drop off in trade and activity needs.

To be very clear, we’ve no idea how severe or widespread the evolving outbreak of a new form of swine flu will be and indications that it seems to be becoming milder as it travels from Mexico are reassuring.

You only need to look at photos of deserted streets, shops and theatres in Mexico City to get a sense of the hit to consumer demand, but the potential for damage to production and distribution is profound too.

One guide for the impact of a dire pandemic is the experience during the Spanish Flu, which spread rapidly across much of the world during 1918 and 1919. About a quarter of the global population was infected and somewhere between 50 and 100 million people lost their lives, according to estimates.

Economic data from the time is woefully thin, but the period of the outbreak in the U.S. corresponds almost exactly with a period the National Bureau of Economic Research deems a contraction.

Businesses of all sorts were badly affected, from life insurers, many of which had to suspend dividends to deal with higher claims, to a telephone company in Tennessee which had so many operators out sick that it had to issue a plea for fewer “unnecessary calls”.

Wages were probably pushed upward by the pandemic, according to a survey of studies of the flu by Thomas Garrett published by the St. Louis Federal Reserve. Click here for PDF.

This is similar to what happened to England following the Black Death, when agricultural labourers were able to make huge strides in pay.

Ironically, Spanish Flu was so called because wartime censorship was less in Spain, leaving people with the false impression that it originated or was more prevalent there because there was more coverage of the illness.

The lack of censorship today and current communications capability probably argue that the economic impact will be both greater proportionally and front loaded. If the flu spreads and is deadly, people will know and their reaction will be to hunker down. We could therefore have a magnified economic effect compared to the actual medical danger.

And just as information spreads more quickly now, the global economy is more tightly knit and the supply lines and chains of most businesses are far more efficient, and as a result more fragile than 90 years ago.

THERE IS NO GOOD TIME FOR A PANDEMIC

Estimates of the economic toll of a pandemic vary widely. The Congressional Budget Office has estimated that another Spanish flu would knock five percent off of U.S. gross domestic product.

The World Bank in 2005 put the global cost at $800 billion for a global pandemic, while the U.S. Centers for Disease Control and Protection in 1999 put the domestic cost at about 1.5 percent of GDP.

So, if there is a pandemic, we can expect it to pull any green shoots of recovery up by the roots and send economic activity and confidence tumbling yet again.

It would also represent yet another claim, really an imperative, on already strained government resources. If a country weakened by the economic crisis were to be particularly badly hit, it could damage that government’s ability to sell debt or drive its currency lower.

The impact on the financial system, however, might not be so bad, according to a study of the Spanish Flu by the Philadelphia Federal Reserve.

The payments system continued to function throughout the crisis and, at least as measured by the number of bank failures, the period of the pandemic was not a bad one. That said, the banking system in 1918 was almost certainly in nothing approaching the perilous state it is today.

Bond and stock markets also continued to function, with volumes in stocks actually increasing. Almost unbelievably the Dow Jones Industrial Average ended 1918 with a gain of 10.5 percent, setting the stage for a 30 percent post-war rally in the early part of 1919.

That could be because government censorship left investors in the dark, but after all a horrific European war was ending and the seeds of the 1920s boom were being sowed.

All of what will happen now however, is fundamentally unknowable and the best we can do is to hope that, unlike subprime, this crisis is contained.

- At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund-

– Kenichi Kawasaki is managing director and senior analyst at Nomura Securities’ Financial and Economic Research Center. The views expressed are his own –

The G20 leaders failed to come up with any concrete policy steps to pull the global economy out of recession at the London summit. The leaders vowed to restore growth and jobs, but lacked specifics about fiscal measures by each country and there were no binding promises.

There were expectations that the summit would tackle the issue of rising protectionism, but the summit is not an appropriate place to discuss international trade and investment. We saw a measure of results in expanding assistance to emerging economies, but it made the summit look as if it were a mere international conference on aid to emerging economies.

Since the collapse of Lehman Brothers last September, G20 countries have been trying to stabilize the financial markets with central banks taking exceptional action and cutting interest rates aggressively. The governments’ focus now appears to have shifted to restoring growth and protecting jobs from reacting to contingencies arising from the financial crisis.

The G20 leaders vowed fiscal stimulus totalling $5 trillion and to raise output by 4 percent by the end of next year. However, it failed to break down how much spending each country would bear. There is no indication that there are any binding targets. Since the financial crisis erupted, it has become increasingly difficult to coordinate policy given differences in the economic, fiscal and financial situations of the member countries.

Japan fleshed out its own $150 billion economic stimulus package on April 10, but the impact on boosting gross domestic product remains to be seen. The Japanese government had previously dished out economic packages with spending totalling 12 trillion yen ($120 billion). Government spending in the last fiscal year ended in March, however, only increased by 2.6 trillion yen (equivalent to about 0.5 percent of GDP). The “real water” spending will likely be limited even with the new stimulus package.

On the concern that world trade is falling for the first time in 25 years, the G20 leaders promised to extend the pledge made last year to “refrain from raising new barriers to investment or to trade” by one year to the end of 2010. Certainly, protectionist measures in any country will not protect jobs, but rather hinder economic growth. Moreover, economic model analysis on the economic effects of liberalizing trade and investment shows that “free-rider” gains from other countries’ free-trade policy would be limited. The analysis also indicates that it is important to liberalize the domestic market to maximize the benefits of global trade and investment.

On the issue of building a new order for the global economy, there are concerns about leadership struggles between industrialized economies and emerging economies. Although emerging economies may be gaining influence in the field of trade, it is unlikely that their competence in financial matters will match that of industrialised economies anytime soon.

We saw some advancement in extending assistance to emerging economies at the G20 summit. Japan pledged an additional $22 billion to assist with trade and to expand official development assistance (ODA) to other Asian countries to about $20 billion. But the biggest contribution Japan can make for the sake of the global economy may simply be pulling itself out of recession.

– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Some of the world’s biggest mobile operators say they can stimulate the global economy by luring $550 billion in new investment, but only with the implied trade-off that they retain their monopoly market powers.

AT&T, Deutsche Telekom, NTT DoCoMo, Telefonica and Vodafone are among the carriers who have called on national regulators to provide a “minimally intrusive” regulatory environment to encourage new investment.

In a letter to world leaders gathered at the G20 Summit in London, the industry is looking to showcase its power to create jobs and stoke business activity by arguing for rule-making that would ensure their ability to make decent monopoly profits on new networks.

A group of executives representing 24 of the world’s biggest carriers and phone equipment makers such as Alcatel-Lucent, Ericsson and Nokia also say regulators should free up more radio airwaves for their services.

The mobile industry is suggesting a lighter regulatory touch that would effectively end efforts to promote greater competition among smaller players and new market entrants.

It’s a self-serving argument, but they make strong points, worth considering.

The executives cite a study by consulting firm AT Kearney that suggests that 25 million jobs could be created and global gross domestic product (GDP) would increase by 3-4 percent over five years if upward of $500 billion in private capital is invested in new networks and services. They point to evidence that in emerging economies, a 10 percent rise in mobile subscribers boosts annual GDP growth by 1.2 percent.

Governments around the world are running up against limits to how much fiscal stimulus can be applied to get economies moving again without the money going to waste or reviving inflation. Once financial markets are stabilized and consumer confidence can be restored, it will be up to industries to drive the economy forward.

The mobile phone industry is presenting governments with a devil of a choice: Go light on our entrenched powers and efforts to reform the industry’s monopoly structure or carry on making it hard for us to invest in new businesses and do without our help in the next wave of recovery and economic stimulus.

These are just the sort of regulatory trade-offs that are an important part of what got us into the current economic mess. On the downside, the vast consolidation of the banking and financial services sector, along with steel and raw materials, have made economic recovery harder in these key sectors.

Don’t these hard lessons apply to the mobile phone industry? Economic stimulus benefits today could lead to more monopoly problems tomorrow.