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Europe’s financial vulnerability
The most notable innovations of the past two decades have been financial. Like technological innovation, financial innovation is concerned with the perpetual search for greater efficiency – in this case, reducing the cost of transferring funds from savers to investors. Cost reductions that represent a net benefit to society should be regarded favorably. But as the current financial crisis demonstrates, where financial innovation is designed to circumvent regulation or taxation, we need to be more circumspect. Sadly, the financial revolution has been mostly rent-seeking rather than welfare-enhancing in character. It has been based on elimina... -
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Plugging the leaks
With pain and misgiving, the United States Congress bailed out Wall Street in order to prevent a meltdown of America’s financial system. But the $700 billion to be used may flow into a leaky bucket, and so may the billions provided by governments throughout the world. The US financial institutions that went bankrupt in 2008 – or that would have gone bankrupt without government help – were in trouble because they lacked equity capital. They did not lack that capital because they never had it, but because they paid out too much of their abundant earnings in previous years to shareholders, leveraging their operations excessively with debt ... -
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Who killed Wall Street?
You don’t have to break a sweat to be a finance skeptic these days. So let’s remind ourselves how compelling the logic of the financial innovation that led us to our current predicament seemed not too long ago. Who wouldn’t want credit markets to serve the cause of home ownership? So we start by introducing some real competition into the mortgage lending business. We allow non-banks to make home loans and let them offer creative, more affordable mortgages to prospective homeowners not well served by conventional lenders. Then we enable these loans to be pooled and packaged into securities that can be sold to investors, reducing risk in ... -
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Ethical business
Research recently carried out by Ethical Investment Research Services (EIRIS), a research organisation designed to reflect the investment principles of the group of churches and charities that helped set it up, found that the top listed companies on the London Stock Exchange have made great strides in the past five years to tackle ethical issues head on, spurred on by the demands of “responsible” investors and stakeholders. According to the research, in the last three years (2005 – 2007) over 80% of company policies and over 70% of management systems with regards to environmental policy are assessed as being “good” or “exceptional... -
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A waiting game
The OECD sounded cautiously optimistic when it published its latest economic outlook in the middle of September. “Banks appear to have recognised most of the losses and write-downs related to sub-prime based securities,” it said. Yet within days, Lehman Brothers had slumped into bankruptcy protection, Bank of America had stepped in to bail our Merrill Lynch – buying it for about €35bn, half its value a year ago – and AIG was asking the Federal Reserve for a €28bn bridging loan. That, of course, is the risk of making forecasts in such turbulent times. No doubt the irony of the timing was clear in Nice, France, where the EU’s fina... -
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Blooming portfolio
Instead of being defeated by the political upheavals in Lebanon, the nation’s leading financial institution has acquired valuable banking lessons from repeated domestic crises as it embarks on a second wave of growth beyond its home borders. Blom Bank is parlaying its historic reputation for low-risk, innovative trade finance into full-service operations in some of the fastest-growing, most promising regions in the world. Liquidity highly-prizedIn troubled times, as Beirut-headquartered Blom Bank has learned, liquidity is the secret to survival and prosperity. Like other financial institutions in Lebanon, it maintains levels of reserves tha... -
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Captain’s knock
Editor’s note This is an archived article. For the cover story concerning Sir Allen Stanford please click here. Sir Allen’s new and innovative cricketing enterprise is merely the latest innings in a business empire that spans financial services to upmarket real estate development, hospitality and professional sports. We talked to the Sir Allen about his ability to keep investments on track, whether there’s a formula for making financing work, and his interest in cricket. Wise investment decisions Tireless research, meticulous planning and hard work have been the core principles of Stanford Financial Group’s success since the first Sta... -
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The rising sun
Japan’s big banks, unburdened by heavy subprime losses, and stuck with sputtering growth at home, are once again investing and lending abroad, but investors should not expect a string of blockbuster buyouts. Only a few years removed from a bad-loan crisis that pushed many lenders to the brink of collapse and sparked widespread industry consolidation, Tokyo banks will continue to keep their acquisitions conservative, bankers and analysts say. Recently, Sumitomo Mitsui Financial Group, Japan’s thirdlargest bank, said it would pay about €1.5bn to take a two percent stake in Britain’s subprime-scorched Barclays. This would inject funds ne... -
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