Creating wealth

Are banks returning to their bad old ways? We look at media comment on the financial crisis, as well as on the planned free-trade agreement between India and ASEAN.

Collective delusion

At the London School of Economics last year, Queen Elizabeth II asked why no one had foreseen the credit crunch. Now, British economists have replied in a letter saying it was “a failure to understand the risks of the system as a whole". The truth, writes the Financial Times, is more depressing.

"… Too much of what happens in an economy depends on what people expect to happen. Even state-of-the-art forecasts are therefore better guides to the present mood than the future, though they may also be self-fulfilling prophecies. … Collective delusion must therefore be blamed as much on the consumers of economics — companies, investors, the media — as its producers. ..."

Not a bonus

Banks should have learned that paying big bonuses for short-term gains leads to excessive risk-taking. Yet Goldman Sachs and Morgan Stanley have announced plans to pay big bonuses and to increase risk-taking. The New York Times is very critical.

"... This from a couple of firms that 1) probably wouldn’t even be around today were it not for ongoing government rescues of the financial system and 2) by dint of being too big to fail, now enjoy an implicit guarantee of future bailouts if their bets go wrong. The financial system may be stabilizing for now, but the danger to taxpayers if markets were to buckle again is at least as great as ever. …"

Trading wealth

India has just approved a free trade agreement (FTA) with the Association of Southeast Asian Nations (ASEAN). India-ASEAN trade has risen from about $7 billion in 2000–2001 to $39 billion in 2007–2008. The advantages of the FTA are enormous, writes The Times of India.

"… Fears about influx of foreign goods flattening domestic players are unfounded if India's experience with cheap Chinese imports is anything to go by. If anything, trade regularisation via FTAs creates an institutional framework that spells out the rules of the game. There's also the bigger picture. Asia's globally recognised economic clout in the 21st century would be reinforced if Asian nations did business with each other on the basis of mutual synergies."