Monday, August 24, 2009

Green shoots, what green shoots?

Hopes of a quick recovery in the world economy are overblown. Emerging markets may bounce back but the advanced economies are mired in problems, especially the US. Nouriel Roubini thinks the chances of a double-dip recession are rising. He gives several reasons for this, including the damage to the US financial system and the failure to revive it. He also thinks the rise in oil prices, driven by excess liquidity, may well stymie a quick recovery.

The Obama administration has ducked the banking challenge, I argue in EPW. Not only is there no quick solution to the present crisis, I am increasingly sceptical about long-term proposals for reform after seeing the US treasury proposals. We have a serious problem of government capture by the financial system in the US. The proposals do not tackle the too big to fail problem, they do are not tough enough on bank compensation and it is unlikely that rules for bank capital will be stringent enough, as and when they emerge in the US. We probably need another serious crisis for banking reform to take place.

Meanwhile, China has circulated draft proposals for increasing bank capital to 12%. We in India should do likewise. We have a golden opportunity to create an even stronger, more competitive banking system in the near five years as the international banks struggle to get out of the present mess.

5 comments:

wow gold buy said...

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wow gold said...

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Aji Issac said...

Hi Sir,
>> golden opportunity to create an even stronger, more competitive banking system in the near five years as the international banks struggle to get out of the present mess.

I completely agree to it. A golden opportunity to create international presence in banking sector.

(Just noticed that your blog is having few spam comments)

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