Articles by Gillian Tett at IntCom

Gillian Tett är en briljant kollega som efter en avhandling i socialantropologi – om Tadzjikistan – specialiserat sig på hur finansmarknaderna opererar.
Tett, som förvarnade om finanskrisen, kom för två år sedan ut med en genomträngande analys (Fool’s Gold) av hur giriga och kreativa ungdomar hos JP Morgan utvecklade instrument för billiga krediter till amerikanska egnahem (”sub-prime”)
Rolf Gustavsson, SvD 10 juki 2011

Gillian Tett is an assistant editor of the Financial Times and
oversees the global coverage of the financial markets.

If the Financial Times' Gillian Tett were hit by a bus, I'd be in a lot of trouble.
With all due respect to her colleagues, she is the best source of financial news.
naked capitalism blog, August 13, 2007
Click here for more of her articles

Similarly, my colleague Gillian Tett made headway because she asked simple but probing questions:
Where had all these derivatives come from?

Last week, I received a poignant invitation:
Paul Volcker, the legendary former chairman of the US Federal Reserve, asked me to visit his apartment to discuss his legacy.
Gillian Tett FT 25 October 2018

Have we learnt the lessons of the financial crisis?
One day in the early summer of 2007, I received an email out of the blue from an erudite Japanese central banker called Hiroshi Nakaso.
“I am somewhat concerned,” he began
Gillian Tett FT 31 August 2018

The US central bank is planning to shed trillions in assets, but markets are calm
Gillian Tett FT 1 March 2018

I believe that low rates have distorted the financial system so deeply that they are now doing more harm than good, creating perverse effects;
FT colleagues such as Martin Wolf disagree and think rates should stay low.
Gillian Tett, FT Magazine 20 October 2017

This argument will not disappear until either the central banks decisively raise rates or the debt bubble implodes.

Let us just hope that the first can happen without sparking the second.

BIS. Starting in 2003, officials at the Basel-based institution, started to warn that the world economy was plagued by excessive levels of debt.
This made the system dangerously distorted; so went the off-the-record murmurs from men such as William White (a genial Canadian, BIS chief economist) and Claudio Borio (an Italian, who was White’s deputy).

Why have markets reached their exposed position?
The answer is that success breeds excess.
This is the argument of a fascinating new paper from William White,
Martin Wolf, Financial Times 24/5 2008

Claudio Borio, the BIS's chief economist,
says this refusal to let the business cycle run its course and to purge bad debts is corrosive.
and pulls the interest rate structure far below its (Wicksellian) natural rate.
"The risk is that the global economy may be in a deceptively stable disequilibrium," he said.
Ambrose Evans-Pritchard 4 June 2014

Systems flooded with cash can sometimes freeze.
Having lots of money in the system does not guarantee that funding will flow freely
Gillian Tett, FT October 16, 2014

A “sizeable” number of them, he observed, probably presumed that they could exit their positions before any sell-off.
“History tells us that this is generally not a successful strategy,” he warned.
“The exits tend to get jammed unexpectedly and rapidly.”
Gillian Tett, FT October 16, 2014

In recent years an astonishing amount of money has quietly flooded into fixed income funds,
which buy corporate bonds, emerging markets bonds and mortgage debt.
And as the US looks more likely to raise interest rates, creating potential losses for bondholders,
the flows could reverse – creating destabilising shocks for regulators and investors alike.
Gillian Tett, 13 March 2014

Why the dollar stays steady as America declines
Eswar Prasad, a former IMF economist, points out in his new book The Dollar Trap, there is a paradox.
While common sense would say that these developments should have sparked a dollar crisis, precisely the opposite has occurred.
Against a trade-weighted basket of currencies, the value of the dollar is little changed from 2008.
Gillan Tett, FT 6 February 2014

Eight ways conventional financial wisdom has changed post crisis
Nobody assumes subprime mortgage bonds are safe, for example, or blithely trusts triple-A credit ratings.
Nor do they presume that big banks cannot collapse, or that western central banks cannot keep rates at zero.
Gillian Tett, Financial Times December 26, 2013

Are the markets going mad?
That is a question many investors might have asked in recent weeks,
as stocks in the UK, eurozone and US have soared – even as bond spreads decline. Phoney QE peace masks rising risk of instability
Gillian Tett, Financial Times 16 May 2013

Dad, you were right
So the question I keep asking myself today is,
why did so many people (like me) get swept along by the hype – while others (like my Dad) did not?
Why was his cynicism a minority view, in a sea of hope?
Gillian Tett, Financial Times, 28 September 2012

Back then, in 1996, I was working as a (relatively new) economics correspondent for the Financial Times, covering the preparations for the euro. And as I analysed the technicalities of that euro-tale, I was becoming consumed with a sense of historical drama – and excitement about the project.

My father, however, took a radically different view: as he listened to me describe how the euro would transform Europe, he repeatedly and grumpily shook his head. “It won’t work,” he muttered, pointing out the problem of running monetary policy without fiscal union. “It just doesn’t make sense.”

I vehemently disagreed. So much so, that as the red wine flowed and the fondue bubbled, we had an explosive, blazing row which lasted even as we later tramped out into the snow, and has gone into family lore.

But now, with the benefit of hindsight – and a little more maturity – it is time for me to utter the words I never thought I’d say: “Dad, you were right, and I was wrong!”

As the policy debate intensifies, investors might spare a thought for Korekiyo Takahashi,
Bank of Japan governor from 1911 to 1913.
Gillian Tett, FT September 2 2010

Watch out for tail risks hanging over the $14,300bn US Treasuries market
Risky to fund long-term holdings with short-term debt.
Gillian Tett, Financial Times, 19 May 2011

"a loss of confidence – not merely in the idea that the future will be a brighter place, but also, most crucially, about whether anybody is able to predict that future at all."
So what on earth is going on? Optimists like to blame it on a summer lull, or temporary jitters about US unemployment or the eurozone. They may be right. But personally, I suspect that there is something more fundamental going on too.
Gillian Tett, FT August 5 2010

And just to make matters worse, the memory of the May 6 “flash crash” haunts the markets. In the past three months, US regulators and bankers have scurried around trying to work out what caused equity prices to gyrate so wildly that day. But, thus far, they have not offered any convincing explanation

Back in 2008 the US government effectively nationalised Fannie and Freddie
under the fig leaf of a “conservatorship” scheme.
$145bn of taxpayers’ money to prop them up, more than was spent on direct injections into the US banks or car sector.
Gillian Tett, FT July 22 2010

One fascinating idea now provoking a chorus of behind-the-scenes debate among regulators and central banks
to force creditors – not taxpayers – to swallow losses if disaster strikes
Gillian Tett, FT July 15 2010

When central banks start implementing exit strategies,
there is the potential to deliver a whole new range of currency upheaval,
particularly in relation to the crucial, but oft-ignored, issue of the dollar carry trade.
Gillian Tett in Davos January 28 2010

The $6,000bn dollar question for the wider financial system.
After all, it was a turn in the US property market that triggered the financial crisis.
And while many other financial disasters have since followed,
the state of the US property market remains crucial to the banking world as a whole.
Gillian Tett, July 9 2009

While the prices of mortgage-linked bonds have already slumped to reflect house price falls, the value of many tangible loans have not been fully marked down, because they are lodged in hold-to-maturity books – and the banks do not believe that prices will continue to fall. Indeed, in the town that I visited in West Virginia, some local bankers are refusing to sell foreclosed properties, because they think prices will soon rise. Thus, if prices fall instead, it can only mean one thing: yet more bank pain.

So will US property prices stabilise? Not if you believe a startling presentation I saw this week from a large, global financial group. This particular bunch of analysts – who have done a remarkably good job at predicting the credit crisis during the past four years – are currently warning their clients to expect a peak-to-trough fall in US residential prices of more than 40 per cent in this cycle.

The bad news is that houses are not yet cheap enough to prevent more price falls. On the contrary, this particular team of analysts thinks that when the problems of excess house inventory and rising unemployment are added into the model, average US house prices will still fall by another 14 per cent in the next few years – on top of the declines seen so far.
Taken as a whole, these projections imply that about 25m households in America end up in negative equity.

One is the degree to which the western banking system could face a secondary round of real estate losses (particularly as these analysts are even more alarmed about the commercial property outlook than the residential sector.)

The second fascinating question is what further house prices falls might do to consumer psychology. America has never experienced negative equity on this scale before. Thus nobody is entirely sure how households might respond. Will they default en masse? Will voters become so angry that they demand more populist public bail-outs of the housing sector (or financial reform)? Will consumers cut spending further?

The former Fed chairman urged central banks to avoid suppressing asset bubbles, which is "exceptionally difficult" to do. "The critical issue on the whole subprime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory," /-houses/
Alan Greenspan, CNN 2007-11-06

The collapse of Lehman Brothers has shown the havoc that can ensue when large, interconnected banks implode.
Quite apart from the fact that the world is littered with banks which are too big to fail (but too costly to keep saving),
the world also has banks that are too big to manage.
Gillian Tett, Financial Times June 18 2009

Until this week, most policymakers were reluctant to attack the big banks too publicly, in terms of size. After all, this has been the decade when global leaders – or the infamous “Davos man” – worshipped at the altar of free-market capitalism, globalisation and innovation.

Philipp Hildebrand, the next head of the Swiss National Bank, revealed that the central bank was considering introducing “direct and indirect measures to limit the size” of large international banks (which in the case of Switzerland means Credit Suisse and UBS).