Free Exchange has Anthony Gottlieb’s recollections of interviewing Bernie Madoff about financial regulation:
at the time he came across merely as calm, strikingly rational, devoid of ego, and the last person you would expect to make your wealth vanish. I certainly would have trusted him with my money. I cannot say the same of other financial superstars I interviewed. . . . Perhaps it is the most confidence-inspiring ones that you have to look out for.
1) The world is heading into a severe slump, with declining output in the near term and no clear turnaround in sight.
2) Consumers in the US and the nonfinancial corporate sector everywhere are trying to “rebuild their balance sheets,” which means they want to save more.
1. Debt and equity prices for U.S. banks at the close on Friday, November 21, indicated that the market is testing the resolve of the government to support the banking system. Allowing major banks to fail is not an option, as was made explicit in the G7 statement in mid-October. Significant recapitalization will be necessary to stem the pace of global deleveraging (the contraction of loans and sale of assets by banks around the world). However, the administration’s strategy is not clear.
The current global financial crisis has clearly underlined the need for more effective mechanisms of international cooperation. The stumbling initial response of the G7 risked prolonging the credit crunch. Today, while panic has eased somewhat in wealthy countries, the crisis is spilling into developing countries, with potentially devastating effects. Yet there is no coordinated effort to address the problems faced by emerging markets.
The Treasury plans to invest up to $250 billion in individual banks and has already allotted half that amount to nine leading banks. For now, the key questions are: Will the plan work? And what consequences will it have for our financial system and our economy? Several issues bear examination.
The government plans to bail out the banking sector by buying up to $700bn (for now) of “impaired assets” … but at what price? Pay too little, and the banks will not have sufficient capital to remain solvent; pay too much, and the wealth of the American taxpayer will be unilaterally handed to the banks […]