The Great Debate

The equity illusion

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

Even after its recent decline, the U.S. equity market does not look especially “cheap” or “undervalued” when viewed over time; the bear market has simply brought valuations back into line with long-term trends.

At a fundamental level, equity is a claim on a corporation’s residual cash flow after wages, interest, taxes and other costs have been paid.

In aggregate, the total value of equity outstanding cannot grow faster than nominal GDP (which is simply the economy-wide sum of cash flows). Otherwise, corporations and their owners would need to capture an ever-increasing share of national income at the expense of everyone else.

For four decades between 1952 and 1992 this stable relationship between equity valuation and nominal GDP did indeed seem to hold in the United States.

A middle ground in the banking crisis

pauldanos– Paul Danos is the dean of the Tuck School of Business at Dartmouth College. The views expressed are his own. –

A major question in the government response to the banking crisis is choosing between the “evils” of nationalization of banks that would however provide stability, versus the “benefits” of saving of the private banks that would innovate and compete in a market system.

As the dean of the Tuck School of Business I’m privileged to speak with a wide range of economists, bankers, Wall Street executives and our own students, and what I’m interested in is finding an answer somewhere in the middle ground:

Here comes another set of dodgy U.S. loans

jimsaftcolumn1– James Saft is a Reuters columnist. The opinions expressed are his own –

Banks in the U.S. face a new source of write-downs and failures in the coming year as loans made to developers to finance residential and commercial property development rapidly go bad.

And as these loans are old-fashioned and concentrated in smaller banks, their fate is particularly interesting as it indicates that issues with the banking system go far deeper than the so-called “toxic assets” belonging to the largest lenders that have thus far gotten most of the attention and government aid.

Buck-passing augurs ill for G20 summit

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

The foreplay to next month’s G20 summit is degenerating into a buck-passing exercise rather than crafting a Grand Bargain to save the world economy and regulate capitalism.

The industrialized powers do not agree on how to arrest the steep slide in output, how to handle collapsing banks, how much market regulation is needed, how to reach a world trade deal and prevent protectionism, or how to redistribute power to emerging nations in exchange for their money.

Buffett’s big bet


– Jonathan Ford is a Reuters columnist. The views expressed are his own –

The credit crunch has exposed many one-time financial heroes as having feet of clay. Even the great Sage of Omaha, Warren Buffett has fallen from grace.

The shift in mood has been brutal. The price of shares in the Sage’s investment company, Berkshire Hathaway, has more than halved since last September. Meanwhile, his one-time iron-clad balance sheet now looks rather frail. The credit default swap market is saying that the company’s vaunted AAA rating is so much baloney. Berkshire’s bonds are trading close to junk levels.

Should there be limits on commodity investment?

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

The commodity boom and bust in the last 5 years suggests there is a natural limit on how much investment money these markets can absorb before price-setting mechanisms become distorted and prices unmoored from supply and demand fundamentals.

Exchange operators and dealers have a strong interest in increasing turnover and volume, since it boosts income from fees and commissions. But most also argue that increased turnover makes markets more efficient because it sharpens price discovery and makes them more liquid.

from The Great Debate UK:

International Women’s Day and the global financial crisis

sam_cook- Sam Cook is the director of the PeaceWomen Project – a project of the Women’s International League for Peace and Freedom – the world’s oldest women’s peace organization founded in 1915 in the Hague. WILPF is an international non-governmental organization with national sections in 35 countries, covering all continents. Its international secretariat is based in Geneva with a New York United Nations office. The opinions expressed are her own. -

With the global financial crisis seemingly in every headline and a looming economic meltdown foremost on everyone's minds, the observance of International Women's Day on March 8 may not seem of immediate relevance. But it is.

Clara Zetkin, who is credited with first putting forward the idea of an international women's day in 1910, would likely have a lot to say about where we are today. She and other committed socialists of the women's and the peace movements in the U.S. and Europe whose work inspired this Women's Day would probably not be entirely surprised at what the dominant economic and political power ideologies of the last century have delivered.

Climate change and the WSJ

wsjIn “The Wall Street Journal of Atmospheric Sciences“, Stuart Gaffin, a climate researcher at Columbia University, takes on the newspaper’s presentation of global warming.

“They have fed their readers so much misinformation and confusion one can only conclude they consider complete fabrication fair play in the discussion,” Gaffin writes.

Holman Jenkins, a Wall Street Journal columnist and member of the WSJ editorial board, rejected the critique, stating:

The CEO is the latest endangered species

ericauchard1– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

The revolving doors are spinning ever faster in the executive suites of corporations.

CEO turnover has reached an all-time high, according to figures kept by recruiting firm Challenger & Gray. Last year, 1,484 U.S. CEOs resigned, stepped down or were fired — six casualties every business day.

Let sleeping shadow banking systems lie

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

Rather than vainly trying to refloat the shadow banking system, the U.S. would be better off grappling with the inevitable ultimate solution — debt destruction and inflation.

The common denominator of policies like the Term Asset-Backed Loan Facility (TALF) that was detailed on Tuesday, is that they try to solve fundamental problems with indebtedness by attempting to float asset prices high enough that they are back in proportion with the debt.