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Financial risk can emerge in unexpected places — as the world learnt to its cost a decade ago. The policy response to the financial crisis saw banks subjected to much new regulation so that there would be no re-run of the disaster that hit the global economy.

Today it might be wise to look at the financial market activities of America’s biggest companies, says Rana Foroohar in her latest column. In particular, she says, pay attention to the debt offerings and corporate bond purchases of the likes of Apple, Alphabet and other cash-rich tech companies. In a low interest rate world they have been issuing very cheap debt and then using that to buy up the higher-yielding corporate debt of other businesses. “In a search for higher returns and something to do with all their money, they were in a way acting like banks, taking large anchor positions in new corporate debt offerings and essentially underwriting them,” writes Rana.

Merchants morphing into banks is nothing new. Some of the banking industry’s most venerable names — the Rothschilds, say — started out in other lines of business. Yet this current development is on a whole new scale: new research from Credit Suisse says that there is an estimated $1tn in corporate offshore savings, much of it held in bonds — and its unintended consequences could be considerable. Rana writes that if companies bring their overseas earnings home to the US and start investing in growth-enhancing projects then they will have to sell their bond stash. This has serious implications for interest rates, especially at a time when the Federal Reserve is deleveraging its own balance sheet. With a lot of bonds coming on to the market the interest rate needle is sure to move up. As Rana notes, “We saw last week the effect that even a mild change in interest rate expectations can have.”

Referendum blues
Is German politics turning British? Wolfgang Munchau thinks that may be the case as Germany waits to see whether a forthcoming referendum of members of the Social Democratic Party will give their backing to the grand coalition agreement reached with chancellor Angela Merkel’s Christian Democrats. Even though the coalition package saw the SPD scoop a score of plum cabinet posts and get through a number of its key policy positions, Wolfgang writes that it is by no means certain that party members will back the deal. If they don’t, it could mean new elections or even the end of Ms Merkel’s chancellorship. As in Britain, a referendum is causing “total havoc” with the political system, he says.

Basic mistake
As the scale of the potential job losses arising from the artificial intelligence and robotics revolution become clearer, a growing chorus is calling for Universal Basic Income. But, argues Ian Goldin, while recognising the threat posed by these dislocations is welcome and timely, seeking solace in UBI is a bad idea.

Fair trade
The central point of President Donald Trump’s speech in Davos seems irresistible, writes Nick Butler. Unless trade is fair it won’t stay free for long. Free and fair go together. When it comes to trade policy reciprocity is everything.

Best of the rest

Nixon fired the man investigating him. Will Trump? — by Bob Woodward and Carl Bernstein in the Washington Post

I won’t butt out of the Brexit debate — by George Soros in the Daily Mail

The roadblock hard Brexiteers can’t drive around: Ireland — by Polly Toynbee in the Guardian

The perfect botched job. A year with Martin Schulz has dealt the SPD a brutal blow — by Volker Zastrow in the Frankfurter Allgemeine (in German)

What you’ve been saying

Divisions that date back to the founding of America. Letter from Ethan Schwartz, New York, regarding Edward Luce’s column “The discreet terror of the American bourgeoisie

The economic and cultural anxieties to which Mr Luce partly attributes the current state of affairs were arguably much greater in the 1960s and 70s, a time of dramatic changes in manufacturing, depletion of the “rust belt”, far higher unemployment and inflation, significantly greater urban crime, and revolutionary changes in norms regarding sexuality and race. As to broad divisions between urban and rural, northern and southern, elite and populist: these cleavages go back to the founding of the Republic, and recur throughout American history. Are the current manifestations of class, economic and social divisions intriguing and somewhat surprising? Undoubtedly. Do they adequately explain the causes of the unprecedented emergence of populism and divisiveness in American politics? That is far less clear.

Comment from English Rose regarding Sarah O’Connor’s column “Theresa May still has work to do to fix Britain’s gig economy

I started this morning by completing the tax consultation and wish I had never started! Gosh there are so many questions and it took ages even with my fairly brief answers and I ended up concluding whilst it seemed like a good idea to consult on this we are better off leaving well alone. The tests are so complex. May be Brexit will give us the chance to ditch the “worker” category which might be useful but anything else is just too hard to tackle as there are so many different kinds of self employed.

Poland in no way agreed to collaboration. Letter from Arkady Rzegocki, Polish ambassador to the UK, regarding an opinion piece from Jan Gross, “Poland’s death camp law distorts history

This article is yet another example of Professor Gross undermining the good intentions behind the new law, the purpose of which is opposition to the wrongful assigning to the Polish state and nation as a whole the blame for the crimes of the Holocaust meticulously planned and mercilessly carried out by Nazi Germany. It should be emphasised that the law is mainly a reaction to the systematic misrepresentation of Poland’s history, especially through wrongly describing concentration camps set up and operated by Nazi Germany in occupied Poland as “Polish”. Let me be clear: in contrast to what Prof Gross claims, the law does not limit scientific research nor artistic activity. Nor does it ban referring to some criminal acts of individual or groups of Poles on Jewish people during the second world war. There is a crucial difference, which apparently Prof Gross does not want to accept, between those single acts and institutionalised criminal activities of a state, to which Poland never subscribed.

Today’s opinion

Inside Business: Tinkering with franchises is not the answer to UK’s rail woes If private capital is to take part, government must either reform the system or hold operators to their promises

Instant Insight: Escalating hostilities in Middle East signal new conflicts The likely triggers for war between Israel and Iran will spring from chaos in Syria

FT View: Kenya is on a slippery slope to lawlessness President Kenyatta has taken a wrecking ball to hard-won freedoms

Five reasons why universal basic income is a bad idea Providing better living standards for those left behind by change will be more complex

FT View: America’s balancing act on debt grows trickier The budget drama was resolved, but the day of reckoning still looms

Britain has exported its political mess to Germany A youth-led grassroots revolt of SPD members threatens Angela Merkel’s new coalition

Tech companies are the new investment banks The much-lauded overseas ‘cash’ pile is actually a giant bond portfolio

Equity melt up turns towards melt down Volatility is back as equity markets pay attention to inflation and interest rate risks

The Big Read: Xi takes aim at military in anti-graft drive The president’s campaign has bitten deep into the PLA with thousands of officers probed and hundreds detained

FT View

FT View: Kenya is on a slippery slope to lawlessness President Kenyatta has taken a wrecking ball to hard-won freedoms

FT View: America’s balancing act on debt grows trickier The budget drama was resolved, but the day of reckoning still looms

The Big Read

The Big Read: Xi takes aim at military in anti-graft drive The president’s campaign has bitten deep into the PLA with thousands of officers probed and hundreds detained

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