James Saft

A financial widening, not deepening

Mar 3, 2011 13:23 UTC

While Treasury Secretary Tim Geithner prepares for a “financial deepening” he hopes will be a boon to U.S. banks, we may be steering instead for broader, shallower waters which will drive down margins in financial services and favor simplicity.

Geithner told The New Republic that he sees a coming boom for demand for financial services from emerging markets as a newly affluent middle class seeks new and more sophisticated financial products.

“I don’t have any enthusiasm for … trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world,” Geithner said.

The vision, perhaps unspoken, is for a recapitalized U.S. banking system with strong enough titans at the top to compete globally to sell complex financial services to Indian corporations as well as Chinese households.

On this reading, the decision to not take effective action to whittle down the too-big-to-fail banks makes sense; the new world will need Citigroups, not community banks.

from Davos Notebook:

Of confidence and coconut trees

Jan 31, 2009 10:17 UTC

"Confidence grows at the rate that a coconut tree grows, but confidence falls at the rate that the coconut falls," Montek Singh Ahluwalia, deputy chairman of India's Planning Commission, told a panel in Davos.

He also indicated that India's decision not to float its currency and to build up massive reserves was correct, noting that this gave it a cushion during the downturn.

"Floating (currencies) would be fine, if that was what was meant, but what they mean by floating is crashing upwards and crashing downwards."