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A decade on from the crash, how stable is the global financial system? Is it growing at a stable pace? Is debt at a safe level? Could the markets withstand another big shock? These questions keep economists awake at night — particularly those who missed the signs last time — and the lessons learnt are a frequent topic of debate on our opinion pages (check out our series on the crash’s anniversary).
Martin Wolf digs into the latest IMF’s global financial stability report in his column, concluding that while the financial system is roaring ahead, the medium term dangers are growing. A future shock to the credit and financial markets could lead to another global recession — albeit not one as deep as last time. The banks have become a bit safer in his view, with better capitalisation and liquidity, but yields on high-quality bonds have collapsed and debt remains high.
Martin points out it must be possible to create a financial system that can cope with changes in asset prices without blowing up the world economy. In his view, not enough has been done to deleverage and strengthen the intermediaries, such as banks, to ensure this is the case. The red warning lights might be gently flashing on the global dashboard once more. Central bankers will need to keep these dangers in mind when balancing the needs of their economies with the health of the financial system.
Catalan extremes: Miriam González Durántez argues that a moderate response is needed to calm the constitutional stand off in Spain. Whereas Madrid and Barcelona have been pumping out increasingly extreme rhetoric, she argues that a compromise can be found if the moderate voices can wrestle control back from the mooted testosterone-driven measures.
Prison rodeo: Courtney Weaver reports from a Louisiana rodeo hosted by prison inmates and looks at whether the community event is driving reform. Some locals she spoke to think it is helping inmates to relieve the boredom of prison, while others argue it is luring them into gladiator-style events.
Best of the rest
Is the Czech Republic Turning on the West? — Jochen Bittner in the New York Times
A second Brexit referendum would tear this country apart. Remainers like me must accept that we lost — William Hague in The Telegraph
Et Tu, Steve Bannon? — William Mcgurn in the Wall Street Journal
Westminster’s hall of mirrors is about to shatter — Rachel Sylvester in The Times
How Trump broke conservatism — Michael Gerson in the Washington Post
What you’ve been saying
It is always a nation’s poorest that suffer most — letter from Maddalena Campioni and Patrick Noack
“The International Monetary Fund’s World Economic Outlook takes a global, regional and country view, as that is where appropriate policy action is most urgent, given the large populations at stake. However, as in all complex challenges, the aggregate representation of realities hide the extremes. While it is true that the damage caused by recent hurricanes was greater in the Caribbean than in the US, it is the poorest within any nation that suffer the most.”
Comment from maximus on Europe could see more Catalonias by Janan Ganesh
“The EU seems to have an ongoing problem here: it is not merely misbehaving nation states whether Britain, Poland, or Hungary, but the values that held together the nation state is fast unraveling, partly this is frustration with dysfunctional political systems, Italy and Greece are obvious examples, but so is Britain. Technology is also loosening the state’s grip, it is relatively cheap and easy to create pressure groups with a particular agenda and essential public services cannot be funded from fluid companies with equally fluid tax arrangements. Politico-economic blocs like the EU seem have no coherent answer, other than to pretend the status quo prevails.”
Treasury’s mistakes over Brexit’s long-term impact — letter from Dr Graham Gudgin
“The shortcomings of the forecast of four quarters of recession in the Treasury’s report on the immediate impact of a Leave victory in the referendum are well known. Less well known are the mistakes in the Treasury’s more important report on the long-term impact of Brexit. One clear mistake was made in estimating the amount of trade likely to be lost by the UK on leaving the EU. By not examining the trade impact specifically for the UK, and instead taking an average across all EU countries, the Treasury exaggerated the impact by at least double.”
Instant Insight: Chris Heaton-Harris takes the Brexit fight to universities Those backing Britain’s exit from the EU are picking a battle of ideas with the Remain establishment, writes Sebastian Payne
Courtney Weaver: Bittersweet tastes of freedom at the Louisiana prison rodeo Split view: is it exploitative with gladiator-style contests or a welcome distraction
Martin Wolf: Central banks alone cannot deliver stable finance Government policy must counter the growing risk of a crash in asset valuations
Instant Insight: Curbs on posted workers will not fix the EU labour market Emmanuel Macron should focus on domestic reform, not immigration, writes Alan Beattie
Free Lunch: Trump team’s tax cut defence is outlandish and incoherent The corporate levy is not what stops companies from investing
FT View: Weinstein case shows a need to curb gagging clauses Companies must be incentivised to justify use of confidentiality deals
FT View: Germany’s coalition requires compromise Merkel must be willing to loosen her grip and forge a ruling majority
The Big Read
The Big Read: UAE: the Middle East’s power broker flexes its muscles From the rise of Iran’s influence, to frustration over US engagement, events have shaken up the once risk-averse, oil-rich Gulf state