CoCo with its mandatory conversion presents the unappetising combination of bond returns with equity-type risk. Sub-debt with an option to convert offers bond risks with the potential for equity-type returns. Which one would you choose?
Tag Archives: Financial Times
How to design a fair bank tax [Financial Times]
It is unfair to impose a bank tax on all financial institutions with over $50bn in assets regardless of whether they received any direct federal assistance during the financial crisis. Congress should raise roughly the same amount by imposing the tax only on the very large financial institutions that received direct federal assistance and it should base the size of the tax on the amount of that assistance.
America’s budget deficit needs bipartisan action [FT]
Although a bipartisan agreement will be hard to achieve in the current Washington environment, both parties should recognise that a package of entitlement reforms is less dangerous than an explosion of US interest rates in the coming years.
Financial crisis served up with relish [Financial Times]
By John Plender. After two and a half years of relentless financial pounding, the crisis literature is becoming mountainous. To command the weary reviewer’s attention, any new book on the aberrations of the financial community has to have a clear focus and make a compelling case. In Too Big To Save? Robert Pozen, chairman of mutual fund group MFS Investment Management and a former vice-chairman of Fidelity Investments, pulls off the trick.
Lessons for the American housing market [Financial Times]
American subsidies are justified as necessary to promote home ownership in the US. Indeed, the rate of home ownership in the US rose to 68 per cent by 2006. Yet, without these governmental subsidies, the rate of home ownership in Canada also rose to 68 per cent in 2006. This comparison suggests that the large American subsidies for home purchases have led to higher home prices in the US rather than significant increases in the rate of US home ownership.
A mistake that will make banks riskier [Financial Times]
If Glass-Steagall were reinstated, we would be recreating the short-term funding weakness that forced Bear Stearns and Lehman Brothers into insolvency.
How to restore confidence in loan securitisation [FT]
By Robert Pozen. On Monday, President Barack Obama pressed 12 large US banks – all recipients of federal assistance – to increase their lending to businesses and consumers. In fact, during the third quarter of 2009, total loans at US banks fell by $210bn (€144bn, £129bn), or 3 per cent, the biggest quarterly decline since 1984.
Give credit to create jobs – but only where it’s due [FT]
In short, while any tax credit for new jobs is bound to involve some unnecessary government expenditure, a proper design can substantially restrict the ability of employers to game the system. Moreover, the cost of the tax credit can be dramatically reduced to the extent that the new jobs go to workers currently drawing unemployment benefits. It makes more sense to incentivise companies to hire the unemployed than to pay those same people not to work.