U.S. stocks rally as bond insurers' ratings are affirmed - International Herald Tribune

U.S. stocks rallied Monday after Standard & Poor's affirmed its ratings for Ambac Financial Group and MBIA, raising hopes that troubled bond insurers will emerge from the credit market crisis on solid footing. The Dow Jones industrials rose more than 100 points.

"This is essentially evidence that S&P has signed off any tentative deal," said Charlie Smith, chief investment officer at Fort Pitt Capital Group.

Chris Johnson, president of Johnson Research Group, said the market continued to look for any sign that financial stocks would make it through the credit crisis. Experts believe keeping bond insurers whole will spare greater losses for major global banks and brokerages.

"Even the smallest bit of positive news and the market takes off," he said. "Investors get excited if they sense a bottom in the financials because they've been the Achilles' heel of this market."

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

Have they learned from the East Asia crisis, or are they hypocritical?

You're joking rhetorically, right?

The Hun is always either at your throat or at your feet. Winston Churchill

I think it was one of the Monty Python where a whole medieval town is in an uproar. A fair young fair lass everyone likes has been denounced as a witch, and vigorously pleads her innocense. But a witch is not a trifling business -- how to tell for certain if the lass is or is not a witch?

The village wiseman steps forward. "Tie her to a rock and throw her in the pond," he declares.

The crowd falls silent, perplexed. What to make of this test? "If she is a witch, she shall free herself with magic," the wiseman explains.

All the villagers nod in understanding. But someone speaks up from back in the crowd. "But what if she drowns?"

"Well, then," replies the wiseman, "we will have learned that she was an honest woman."

I would deal with Wolf and Munchau the same way.

"and the European Central Bank cut interest rates,"
Can you explain this a bit more? The leading interest rate of the ECB remained stable. All intervention had at least a small penalty rate. How has the ECB cut interest rates?

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

The poll needs another option.

"The global financial crisis leads to an apocalyptic collapse of civilization, and the scattered survivors return to the ways of our distant ancestors."

I mean, ET has a reputation for top-quality Doom Porn, and I think it's an important reputation to keep.

One more point why even standard theory may result in different advises for developing nations and the US in the current situation may be the that the US holds it debt in its own currency, while many developing nations have a big part in foreign currency.
For Europe I see no political theory, which would it make attractive to make the Euro even more expansive as it is right now, but that point my be better discussed in Jeromes diary "Is Greenspan now trying to sink the dollar?"

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

We must curb international flows of capital

First large downhill flows of capital - from rich countries to poor countries - led to the Latin American debt crisis of the early 1980s. In the 1990s similar flows begat the Asian financial crisis.

Since 2002 the flows have been uphill, from emerging markets and oil-exporting countries to the developed world, especially the US. But the outcome has not been very different. So, it does not seem to matter how capital flows. That it flows in sufficiently large quantities across borders - the celebrated phenomenon of financial globalisation - seems to spell trouble.

(...)

Some would claim that the problem in all these instances was not liquidity but lax regulation, which turned what should have been prudent borrowing into a destructive binge. But this argument is too optimistic about the potential of prudential regulation to stem excessive risk-taking. In the US the entire policy apparatus avoided any regulatory action against lax lending. Even when the will is there, prudential regulation is bound to remain one step behind financial innovation.

If the risk-taking behaviour of financial intermediaries cannot be regulated perfectly, we need to find ways of reducing the volume of transactions. Otherwise we commit the same fallacy as gun control opponents who argue that "guns do not kill people, people do". As we are unable to regulate fully the behaviour of gun owners, we have no choice but to restrict the circulation of guns more directly.

What this means is that financial capital should be flowing across borders in smaller quantities, so that finance is "primarily national", as John Maynard Keynes advised. If downhill and uphill flows are both problematic, capital flows should be more level.

(...)

Financial globalisation has not generated increased investment or higher growth in emerging markets. Countries that have grown most rapidly have been those that rely least on capital inflows. Nor has financial globalisation led to better smoothing of consumption or reduced volatility. If you want to make an evidence-based case for financial globalisation today, you are forced to resort to indirect and speculative arguments.

They call for taxes on oil, an appreciation of Asian currencies, and stricted capital controls. And this is Dani Rodrik and Arvind Subramanian, is senior names in the economics field...

We no longer need ATTAC - se have the FT!

In the long run, we're all dead. John Maynard Keynes