By Paul GOLDSCHMIDT, former director at Goldman Sachs International, former director at the European Commission (1993-2002), member of the Advisory Board of the Thomas More Institute. Published in French in the Belgian Newspaper La Libre Belgique (10-02-2008).

In the eye of the storm that is sweeping through the financial markets, one European Government after the other has been forced to intervene so as to avoid a melt down of the international financial system. If on an ad hoc basis, some cooperative e initiatives have emerged within the Benelux and between France and Belgium (Fortis, Dexia), the main responses in individual markets remain the responsibility of the individual Member States.

However, in view of the integrated (...)

By Paul GOLDSCHMIDT, former director at Goldman Sachs International, former director at the European Commission (1993-2002), member of the Advisory Board of the Thomas More Institute.

The financial turmoil that is sweeping the globe is creating excessive volatility affecting many markets including foreign exchange, commodities, equities, fixed income instruments or their derivatives. Under normal conditions, stable correlations tend to appear: for example between the dollar exchange rate and interest rates prevailing in other currency markets or between the value of the dollar and commodity prices (mainly oil); there are also correlations between dividend and fixed income yields, etc. The picture becomes singularly more complex (...)

By Paul GOLDSCHMIDT, former director at Goldman Sachs International, former director at the European Commission (1993-2002), member of the Advisory Board of the Thomas More Institute.

The intervention of the Federal Reserve Bank of the United States, granting a line of credit of 85 billion dollars to AIG was indispensable to avoid bankruptcy, the systemic consequences of which were potentially too great to risk. Whatever the moral or economic judgement one makes concerning the concept of “too big to fail”, it was necessary to act rapidly and one should pay tribute to the American authorities for the speed of their action. There ends the “good news”!

That being said, it is important to decipher the implications of this (...)

By Paul GOLDSCHMIDT, former director at Goldman Sachs International, former director at the European Commission (1993-2002), member of the Advisory Board of the Thomas More Institute.

The dramatic decision by the American Government to remove uncertainty as to the solvency of the two giant Government Sponsored Entities (GSE) active in the home mortgage market is very welcome. The initial market reaction was positive, as expected, particularly in the financial sector. Indeed, the announcement confirms the full assumption by the United States government of the responsibility for meeting the debt service (senior and subordinated) in timely fashion, risk to which the financial sector was particularly exposed.

In acting decisively, (...)

By Paul GOLDSCHMIDT, former director at Goldman Sachs International, former director at the European Commission (1993-2002), member of the Advisory Board of the Thomas More Institute.

Most actors and commentators, be they monetary or political authorities, economists, analysts or media reporters, are flooding us with pronouncements on the financial crisis, its unfolding and its likely consequences. While diversity of opinion is – in principle – a stimulus to constructive debate, one should fear that the cacophony surrounding the subject is dictated by the well – or not so well – understood interests of the protagonists: monetary authorities defend contradictory policies (inflation vs. economic stimulus) while aiming at (...)