A Weekly Digest of The World's Financial Press


On regulatory moves to monitor Americans through

their bank accounts

WASHINGTON wants your bank to spy on you. Four federal financial regulatory agencies have proposed "know your customer" rules that would force every bank to "determine its customers' sources of funds; determine the normal and expected transactions of its customers; monitor account activity for transactions that are incon-sistent with normal transactions; and report any transactions of its customers that are determined to be suspicious". Ostensibly this programme would help fight crime. In reality, it is a Soviet-style intrusion into your privacy. Who says the era of big government is over?

[As one Republican representative is] correctly pointing out, the government should have access to this kind of information only under a search warrant.


The Economist

In the search for stability, deflation is as much of a worry as rising prices

THE world economy is precariously lop-sided. Even as America's economy continues to surge, much of the rest of the globe is drifting towards deflation. It is scary that America's boom, fuelled by an unsustainable stock market, is now the main prop for global demand. For how much longer? Global deflationary pressures are already choking American profits, making its share prices look ever more overvalued. This could yet topple the stock market. No wonder American policy makers are urging Japan and Europe to reflate.

Most economists believe that a repeat of the 1930s is unlikely. Yet central banks failed to foresee either the 1930s depression or the great inflation of the 1970s. A big concern may now be that central bankers, having scotched inflation, will prove too slow to come to grips with the prospect of deflation.

Financial Times

Why banks are so profitable amid widespread criticism and increased competition

THE FACT is that customers get the banks they deserve. Competition in financial services did not begin with the arrival of those newcomers - the traditional high street clearing banks have been steadily losing market share, notably to building societies, since the 1980s. Yet the British consumer remains more likely to swap spouse than bank.

While that inertia prevails, the UK's traditional banks will get away with interest rates that are merely good enough, rather than having to match the best in the market. With such undemanding customers, Andrew Buxton's successors [as chairman of Barclays] and their opposite numbers at the other leading banks could have years of fat profits ahead of them.

20/21 February - George Graham

Business Week

Why Cor Boonstra, president of Philips, should break the electronics giant up

BREAKING up Philips would be wrenching. It's a national institution in the Netherlands. But as Philips confronts the Internet age, staying whole may be its greatest handicap. And with European stock markets close to records, the moment is ripe. Boonstra should divide Philips into its main businesses: semiconductors, consumer electronics, and lighting. Allowing each to trade separately, analysts reckon, would boost market capitalisation, now $25bn, by 30 to 60 per cent.

Scarred as he is, Boonstra can no longer avoid radical action. Cost-cutting and tinkering with production might have been right for the TV age. For the sprint-or-die Internet markets, here's betting that a few pint-sized Philips companies would run a whole lot faster than their big daddy in Amsterdam.

Stephen Baker

Wall St Journal

Why politicians do not have the right to spend America's $70bn surplus

MOST pernicious about Washington directing the use of any budget surplus is the premise that somehow all this money belongs by right to the government. Such was the mind-set in Treasury Secretary Robert Rubin's 4 February testimony to Congress. "We must save the great preponderance of projected budget surpluses," Mr Rubin said, "not consume them for tax cuts and spending programs." To talk of tax cuts as a way of "consuming" federal funds is absurd.

Republicans are now proposing a 10 per cent tax cut. It seems the least Washington can do toward letting Americans grow richer on the strength of resources best described not as a "surplus", but as the rightful private property of the individual Americans who worked to earn them.

19/20 February


Wall Street's leader board is showing signs of distress

AS A postscript, we might add - in case it has escaped your notice - breadth on the Big Board has been atrocious as well.

Even on Friday, when most of the averages managed a rise of some sort, more stocks were down than up.

The same melancholy snapshot of a market obviously in distress is furnished by the tally of new highs and new lows.

On Thursday, for example, when the Dow Jones Industrial Average rose more than 100 points and both the S&P and Nasdaq posted solid advances, there were 29 new highs compared with 146 new lows.

On Friday, new lows were three times as numerous as new highs.

Forget the smiling faces, this old bull has wobbly pins.


How the US Federal Reserve is becoming the world's central banker

WHAT IS less understood, especially in America, is how much the renewed dominance of the dollar is changing the role of the Fed. In commenting on Argentina's dollarisation debate, US Treasury officials said Argentina could do as it liked, but it would not affect the way the Fed handled its business.

In fact, Alan Greenspan is already tortured by the incompatible demands between an American asset bubble that is swelling dangerously and a global thirst for dollar liquidity in an increasingly deflationary environment.

It is hard to believe that those three interest rates cuts would have been made last fall if the Fed chairman, despite his denials, had not had one eye on the world at large. Power has a way of imposing responsibility.

Jim Rohwer

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