FT… how come?

Sir I refer to your Special Report World Economy 2008 published with occasion of the meetings of the World Bank and the International Monetary Fund in Washington this week.

In it Paul J Davies in "High noon chimes for collateral with no name" says "A system that simply trusts in collateral without regards to its particulars is one that fosters the creation of ever more hideously complex problem". Since the principal reason for the current turmoil is not that the system trusted too much the collateral but that it trusted too much others to do their job of analyzing it, I would have worded it instead as "A system where participants are led to believe so much in the opinions of some few credit rating agencies…"

Also Norma Cohen in “Race against the storm” mentions that “The infection in the credit markets, by all accounts, began with mortgages, specifically those to borrowers with poor and patchy credit” but this completely ignores the fact that most of the market did not lend to borrowers with “poor and patchy credits”, most of the market bought AAA rated securities.

UNCTAD for instance is perfectly clear about what has happened and in their policy brief titled "The Crisis of the Century", released on October 6 they state "There are a few quick regulatory fixes that can be taken at both the national and international levels. The first is to reassess the role of credit rating agencies. These agencies, which should solve information problems and increase transparency, seem to have played the opposite role and made the market even more opaque."

Now in your 12 page special report, surprisingly, the credit rating agencies are referenced only once, and that is when you have to report on the opinions of Christine Lagarde, France’s finance minister.

How come? What strange and dark silencing forces are in action at the Financial Times? They seem to be much present at the World Bank and IMF meetings too.

I have saved a copy of this Special Report by the Financial Times as evidence… though I do not know of what, yet.

Why does Martin Wolf keep mum!

Sir Martin Wolf in “Asia’s revenge” October 9, (the why for the title is not very clear), spends many paragraphs describing the accumulations of huge surpluses with many origins that recycling went to pursuit better opportunities in the US and failed miserably. Wolf puts much of the blame on a “housing bubble” but as he admits this is partially a circular argument since part of the house bubble was also a response to the huge demand for investments those surpluses created. Also let us remember that in all other countries, house bubbles as large as or even larger than that in the US, have not resulted in anything as destructive like what came out of the build up of financial instruments around the subprime mortgage sector in the US.

Wolf quotes Carmen Reinhart and Kenneth Rogoff saying “Over a trillion dollars was channelled into the subprime mortgage markets, which is comprised of the poorest and least creditworthy borrowers within the US” and which is of course true. The question though is how come Martin Wolf avoids even posing the most natural and most important question of… How come they did that?

UNCTAD in their policy brief titled “The Crisis of the Century”, released on October 6 state “There are a few quick regulatory fixes that can be taken at both the national and international levels. The first is to reassess the role of credit rating agencies. These agencies, which should solve information problems and increase transparency, seem to have played the opposite role and made the market even more opaque.

And of course Unctad is absolutely right. It was the credit rating agencies, empowered by the regulators that guided the recyclable funds into subprime swamplands.

Again, why does Martin Wolf keep mum on it?

Unctad more on top of financial issues than FT?

P.S. Why can I be accused of monomania, writing so much on what I believe is the very harmful error of empowering the credit rating agencies too much while those ignoring this blatant mistake are not accused of a similar obsession?

WTO, please take your time!

Sir, Fred Bergsten’s “Plan B for world trade: go regional” August 16, reads a bit like a bewildered courtiers screaming out “The Kings is dead, long live the King” anxious to regain their footing and sense of order in life.

As I see it though, instead of rushing into new negotiations, desperately looking for results, any results, more could be gained from using the declared time out for some very serious house cleaning activities, destined to put some order into what is frequently described as the spaghetti bowl of trade agreements. Any global trading system, in order to be credible, needs at one point of time to be understandable and there is a feeling that there has been quite a long time since ordinary subjects, as I, have been able to understand and much less identify with what the monarchs were up to.

I have recently had the luck of being able to participate in a course about the Integrated Trade Solution (WITS) software being developed by The World Bank in collaboration with the United Nations Conference on Trade and Development (UNCTAD) and that helps to provide access to the major trade and tariffs data. After that course, the real unanswered question for me was how on earth did we get anywhere without instruments like these? Or, does anyone really know where we really are as a world in terms of trade? WTO, please, take your time before you start rushing again, otherwise you might really lose us.