Pundits from Berlin to Beijing assess the fallout from Wall Street's rash of bankruptcies, buyouts, and ratings downgrades
Remember the old chestnut about Wall Street sneezing and the world catching cold? Well, now much of the planet is wondering what happens when Wall Street is in intensive care. With Lehman Bros.(LEH) shuttered, Merrill Lynch (MER) stumbling into the warm embrace of Bank of America (BAC), and insurer AIG (AIG) passing the hat, pundits from Berlin to Beijing are assessing the fallout from Treasury Secretary Hank Paulson's busy weekend.
There's no shortage of schadenfreude. Many blame the meltdown on a culture of greed and an outsize appetite for risk on Wall Street. Some call for greater regulation of the U.S. financial sector, others say the events will give the Democrats a boost in November's elections, and still others worry about the effect on their own economies.
In London, the Daily Mail says that "for decades, we have worshipped at the shrine of gold…. Investment bankers, hedge fund managers, private equity bosses have…launched fleets of yachts and squadrons of Lear jets in a fashion which many of history's dictators would have envied. Today, we awaken to discover that like so many wizards of Oz, these supremely confident figures are in reality foolish old men—and some young ones—mouthing hollow incantations from behind curtains."
British Economy At Risk
The Guardian says that the current turmoil is the most serious financial shock since 1929. Although it's early to talk of a 1930s-style depression, the London paper says, there's a strong chance that the troubles will take their toll on the British economy. "Take away the credit-fueled housing market," the paper writes, "and Britain is an economy with all its eggs in one basket. The stench from Canary Wharf is proof of what has long been suspected: Many of those eggs were rotten."
The Daily Telegraph, meanwhile, says Paulson was right to let Lehman go to the wall. "It marks a long-overdue restatement of the principle of moral hazard whereby banks cannot be allowed the one-way bet of trading recklessly in the knowledge the taxpayer will, in extremis, pick up the tab." The paper accused Lehman of hubris, saying "few firms so embodied the uglier aspects of Wall Street swagger." The troubles "will shake America's image of itself—aggressive capitalism is a brand it has exported to the world, and it has been found wanting. This will be a gift to the candidacy of Barack Obama…. The U.S. is experiencing something not witnessed since the Depression, and it has happened on the Republicans' watch. They may pay a high price on Nov. 4."
Across the Channel in Paris, Le Figaro writes that market watchdogs shouldn't necessarily rush to "reinforce the existing hodgepodge of regulations. But the current crisis shows the limited effectiveness of a multiplication of purported safeguards. It would be healthier to instead deepen the practices already in place in the banks, for instance by reining in unreasonable bonuses and incentives that encourage speculation."
In Germany, the Süddeutsche Zeitung says that the rise and fall of the big investment banks shows the danger of too much greed and laments the toll that is likely to take on the rest of the world. "America's climb to become the biggest economic power of the world would not have been possible without the Wall Street money machine," the Munich daily writes. "[Now] America's economy no longer functions the way it used to. The nation stands before a recession the likes of which it has not experienced for a long time. And the whole world suffers."
Germans Question Incentives
The German business daily Handelsblatt says that Lehman's bankruptcy could be one of the final acts in the financial crisis. But "if Lehman remains an exception to the rule that the government blocks big bank insolvencies, then the failure of the investment bank won't have any lasting effect on the professional speculators. Only if the government continues to take a hard line, for example also leaving the teetering insurance company AIG at the mercy of the market, can the crisis come to an end in the foreseeable future. The necessary shakeout must follow its terrible course in order for world financial markets to shake the government doping habit."
The Frankfurter Allgemeine Zeitung uses the crisis to question the incentives in finance. "Managers from investment banks, hedge funds, and buyout funds get a big share of the profits," the Frankfurt daily writes, "but the losses are carried by stockholders, fund investors, creditors, or the general public. The relationship between gain and risk used to be more balanced…. As soon as the storm passes, there will be a discussion about the rules of the game. The size or interdependency of banks must no longer automatically justify assumption of risks by the state; the costs can't simply be socialized. And central banks should no longer close their eyes to bubbles on wealth markets. They must intervene sooner, rather than later expecting the general public to pick up the tab."
Japanese papers compare the current U.S. troubles to 1997, when the Japanese financial system seized up. "Back then, Japan was criticized by the U.S. and other nations for possibly sparking a global financial panic," writes the Nikkei financial daily. "Ultimately, it would take another five or six years to resolve the Japanese banks bad loans. A prolonged U.S. financial crisis would have a far bigger impact on the global economy than Japan's banking turmoil had. U.S. financial authorities should do everything they can to prevent that from happening."
Tokyo's Yomiuri Shimbun, meanwhile, worries about the $3.8 billion that Lehman borrowed from Japanese banks, and the effect of the crisis on Japanese companies. "These institutions must do everything they can to figure out what will happen to those liabilities and possible related losses…Meanwhile, many Japanese export industries are at risk as the yen continues to appreciate against the dollar. The government should consider drawing up relief measures as soon as possible to prevent the credit crunch from debilitating small and mid-sized companies."
In Seoul, the Chosun Ilbo faults U.S. regulators for not keeping a closer eye on the financial system. "The subprime situation reveals the fragility of U.S.-style financial capitalism devoted to a money game aimed at raising yields without sufficient supervision by regulators," the paper writes.
Chinese Fear Fallout
In Beijing, the English-language China Daily urges the country's leadership to keep the troubles in the U.S. from taking a toll on growth in China. "A financial tsunami on the other side of the Pacific may hit the country even faster than the shockwaves in water will do. Chinese policymakers must move quickly to come up with preventive measures that can cushion the national economy against a much dimmer global growth outlook. There are already talks that deflation is starting to play upon investors' minds again as a result of falling house prices, failing financial institutions, and weaker growth in major developed economies."
The Chinese financial magazine Caijing calls the Lehman bankruptcy "a very positive step. …. This is a clear message to the market that the government will no longer take measures to save troubled financial institutions, and these institutions should not expect to be bailed out. The market needs to solve this crisis through reliance on its own strength."
And the Shanghai Securities News expresses the hope that Washington will stave off a broader global crisis "with effective prescriptions to control this once-in-a-hundred-years financial pestilence. It must fix the investment banks which are the cause of global economic turbulence. It must do this for the long-term development of the global economy, and work together to reform the current international financial system with other countries."