Less debt, more equity

Willem Buiter argues that the financial sector in most countries is too large partly because of the implicit government guarantee the sector, and in particular depositors, enjoy. This subsidy (in conjunction with the fact that interest expenses can be deducted for tax purposes) makes debt finance and saving in the form of deposits more attractive than investment and financing conducted in the equity markets. We think that a reduction of this subsidy would have the additional benefit of putting more companies on a more stable financial footing and stimulate the growth of business in general as start-ups and smaller companies in particular would benefit from the reduced attraction of parking money in supposedly safe investments.

A poisoned chalice?

Congratulations to Lloyd Blankfein, CEO of Goldman Sachs, on being ranked Number One on Vanity Fair's Power List. But maybe this is not the most opportune time to receive such a nomination, - however well deserved it may be.

Reading list for Insomniacs

The most recent Bundesbank circular about the regulation of market risk is a hefty 34 pages long, 4 pages more than a similar circular issued 2 years earlier. While some readers who are used to study regulations issued by the FSA or the Basel Committee may consider these publications the equivalent of a short story we still challenge all market professionals subject to these detailed bureaucratic prescriptions to go through the publication with a fine tooth comb. What a paradise for lawyers and nitpickers alike! Every sentence is in effect a rubber paragraph without any specific meaning. Time and again the word 'sufficient' is (ab)used to cover up a meaningless generalisation. As economic thinkers have predicted decades ago, any effort to subject the economy to planning makes it necessary to issue ever more detailed regulations and the final destination of the journey into the paradise dreamt up by socialists from right and left can be seen on a short trip to Cuba. (It MUST be paradise for the as there are no banks worth the description to be found there!).