Sunday, October 12, 2008

Markets are the cure

Chris Dillow
How would you fancy a week’s unpaid holiday next year? Answers range, I guess, from: “I’d rather not, as I’ve mortgage to pay and it’s a bit of a squeeze” to “good. I need to recharge my batteries and tidy up the garden.” Net, it’s no big deal.

And yet this is what recession means on average; one week’s unpaid holiday a year is equivalent to a 2.2 per cent fall in national income.

The prospect of a fall in GDP of this magnitude is a bad thing only because the pain of recession is concentrated in a few people; recessions see 4% of people lose half their income, not 100% lose 2%.

But minority losses are in principle an insurable event.

Paul Kedrosky on the state of the economy in Pakistan, where they solved the problem of falling share prices by forbidding prices from falling.
It looks more than a little reminiscent of a dying patient hooked up to an EKG. After a few palpitations, the Karachi market has now flat-lined. It has fallen to the 9100 floor -- okay 9182 -- and now sits there, in the uncomfortable the way non-viable markets do. Volumes have collapsed, going from a healthy 186-million shares a day to a comatose million shares a day, a 99.4% decline. It is simply no longer a viable exchange, with companies unable to raise money and investors unable to get liquidity or -- heaven forfend -- buy shares. Nothing. Traders are reduced to sleeping and playing video games.

The Karachi Stock Exchange and the Karachi SEC are meeting this weekend to decide whether or not to simply close the exchange for good. At the same time, the "badla" rate, a sort of interest rate at which investors can borrow money, soared to 100% on Friday, making the record-high Libor look positively like a giveaway.

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