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08SAOPAULO487 2008-09-18 11:09:00 UNCLASSIFIED Consulate Sao Paulo
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1.The Bubble of Omission

Lead editorial in center-right O Estado de S. Paulo (09/18) says:
"The U.S. authorities permitted the bankruptcy of Lehman Brothers, a
major investment bank, and several small banks, but refused to watch
passively, in the name of principles, the collapse of an institution
such as AIG, capable of carrying with it several smaller financiers.
At this point, it is useless to discuss whether the moral hazard
concept is valid only in certain situations and whether the
government, after all, will be willing to rescue badly administered
companies if their bankruptcy were capable of causing major damage
to the system. .. According to the doctrine, capitalism is a system
of risks and everyone should pay for his mistakes and the government
should never, by its intervention, stimulate irresponsible action.
But how can one not intervene, when the damages may affect the whole
system? ... The present situation, however, is not only a result of
uncontrolled factors, but mainly of factors not controlled because
of a political decision. By not having foreseen the risks, the
authorities now improvise solutions, unable of re-establishing the
security for more than a few hours or days."

2.Regulation, the key word in the global financial crisis

Editorial in economic newspaper Valor Economico (09/18) comments:
"One of the many lessons to be learnt from the world financial
crisis is the urgent need to re-think the role and extent of market
regulation, especially in times of globalization such as today. For
years, specialists in international finance and representatives of
the banking system publicly defended the thesis that less regulation
in the sector, following the recent American model, would benefit
Brazil a lot by favoring credit expansion, the essential fuel for
the accelerated economic growth so much desired by the country in
recent decades.... What we can affirm from this scene of bankruptcy
of traditional U.S. investments banks and billion-dollar
intervention by central banks ... is that there were terrible flaws
in the evaluation and implementation of regulatory norms in certain
segments of the U.S. credit system, which now serve as an alert for
other government leaders."