The Great Debate
Activity in the U.S. housing market has bottomed – a huge plus for the economy – but a recovery in prices will not be sustained and the threat from real estate to bank capital remains acute.
A proposal to give banks, hedge funds and private equity firms “affordable” credit default swap-based insurance against market panics will be very effective: it will effectively encourage even more risk taking and turn the next crisis into one about government credit.
Investors met the news that Japan’s economy has emerged from a bone-breaking recession calmly and rationally: they sold shares quickly and in large amounts and made bets that consumer prices are going to be falling for years to come.
Things in the U.S. economy are moving in the right direction, but the pace will be slow, frustrating and very likely to disappoint investors betting on a rip roaring old-fashioned recovery.