Recently, in an email to investors, John Burbank's $2 billion investment firm Passport Capital sent out a few links of suggested reading. If you're unfamiliar with Passport, their investment process "uses a combination of macroeconomic analyses to develop major themes and rigorous fundamental research on individual companies to create global portfolios" (as per their website). Since we here at Market Folly have Recommended Reading Lists (books) and "What We're Reading" posts (articles), we thought it would be interesting to post up what Passport is suggesting. Here are their recommendations, with the underlined titles as links to the original articles:
Current US Situation
Beyond the age of leverage: new banks must arise
Niall Ferguson, 2/03/09
"Two things must happen. First, banks that are de facto insolvent need to be restructured - a word that is preferable to the old-fashioned "nationalization". Existing shareholders will have to face that they have lost their money. Too bad; they should have kept a more vigilant eye on the people running their banks. Government will take control in return for a substantial recapitalisation after losses have meaningfully been written down. Bond-holders may have to accept either a debt-for-equity swap or a 20 per cent "haircut" (a reduction in the value of their bonds) - a disappointment, no doubt, but nothing compared with the losses when Lehman went under."
We can do better than a bad bank
George Soros, 2/04/09
"Although the amount needed to recapitalize the banks would be more than $1 trillion, it would be possible to mobilize a significant portion of the required total amount from the private sector. In the current environment, a good bank would enjoy exceptionally good margins. Margins would narrow as a result of competition, but by then the banking system would be revitalized and nationalization avoided."
Nationalized Banks Are "Only Answer," Economist Stiglitz Says
Interview with Joseph Stiglitz, 2/06/09
"I think many governments of emerging nations actually have a much better central banking system than the United States. They realized the risks of excessive leverage, excessive dependance on real estate lending and so they took much more prudent actions. Many developing countries also built up large reserves and are in a better position to meet this crisis than they were a decade ago."
IMF Outlines Dire Consequences if World Fails to Act on Banks
IMF Survey, 2/07/09
"The United States and Western Europe could learn from the previous experience of countries like Korea, Malaysia, Thailand, and also Sweden, which set up public resolution agencies, and often recovered a lot of public money. “Even with these measures, it will take time to restore credit growth. They will also be expensive for governments. But you know very well that the costs of banking crises increase if problems are not addressed quickly. This is not the time for hesitation," Strauss-Kahn said."
Why Obama’s new Tarp will fail to rescue the banks
How Washington can prevent ‘zombie banks’
Former Banking Crises
Bank Failures, Danish Style
The Swedish Experience
Stopping a Financial Crisis, the Swedish Way
"A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar? It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent. But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing."
The Asian Crisis: A View from the IMF
The Aftermath of Financial Crises
Carmen Reinhart and Kenneth Rogoff, 12/19/08"Reinhart and Rogoff (2008a) included all the major postwar banking crises in the developed world (a total of 18) and put particular emphasis on the ones dubbed “the big five” (Spain 1977, Norway 1987, Finland, 1991, Sweden, 1991, and Japan, 1992). It is now beyond contention that the present U.S. financial crisis is severe by any metric."
Worse than Japan?
The Economist, 2/12/09
"A similar dynamic will surely play out in America’s over-indebted households. With their assets worth less and credit tight, people will be forced to save much more than they used to. The household saving rate has risen to 3.6% of disposable income after being negative in 2007. For much of the post-war period it was around 8%, and in the short-term it could easily exceed that. But, whereas dis-saving by Japanese households countered the corporate balance-sheet adjustment, American firms are unlikely to invest more while consumers are in a funk. Propping up demand may therefore require more persistent, and sustained, budget deficits than in Japan."
-----
Special thanks to Passport Capital for sharing their suggested reading list. And, as always, if you have any articles you think are essential reads, feel free to contact us.
