Sensibility in short supply at modern-day Babel

So the ECB has finally relented, grudgingly inching its benchmark interest rate a lower as the European economy slowly suffocates. Economists note that Trichet has fewer "unconventional" weapons at his disposal than the Fed, in that he doesn't have a European treasury whose bonds he can buy and therefore create phantom Euros in the process. So he may be holding back, they say, to leave himself a bit more room to cut later if need be. Here's a prediction: need will be.   European leaders seem determined to fix some future crisis, imposing new financial regulations, than on cleaning up the current mess. Rather than spend any more money and risk inflation, they plan to launder their rescue efforts by pumping more funds into the IMF and saddling it with the task of saving their cousins to the east and in the process save Europe's own banks. Who knows? This may prove in retrospect to have been the wisest course, punishing their own electorate and taking the economic pain in one sharper, shorter shock than trying to wean their economy from overleveraging slowly as the US is doing. But one has to wonder if their increasingly jobless voters will see it that way. It may well be that this crisis has turned the G7 countries into emerging markets, creating a balance of payments crisis in which capital flight is moving from risk assets - from subprime to dollar-denominated emerging market stocks and bonds - into the only relatively safe asset around, US Treasuries. Resisting the temptation to slash rates and print money could be the more painful, but more prudent, way to restore creditworthiness to an economy suffering from a credit collapse. Witness the Euro's appreciation in recent weeks.   British PM Brown is trumpeting an agreement to "name and shame" countries that in the process of boosting their economy adopt measures that hurt trading partners. Does he think such schoolyard tactics are going to work in an environment when real grown-up politicians are faced with real, angry, unemployed, grown-up voters? Come on: even Europe's single market is showing signs of protectionist strain.   Never reluctant to play up a paradox, today's Wall Street Journal splashes the irony of the US helping the UAE develop nuclear power. A much larger threat to American security was buried in yesterday's Money & Investing section: 'Mark' Rule Change May Subvert Treasury Plan. This story tells how the Financial Accounting Standards Board is easing rules requiring banks to mark the value of assets on their books down to their demonstrated market value. And as reported, today the FASB voted to allow banks to value assts at what they would earn from an "orderly" sale instead of a fire sale, although how one would distinguish between the two remains unclear. Allowing them to do this could enable banks to do just what Japanese banks did after its own bubble burst in the early 1990s, hold on for dear life to those assets, keeping them at book value. This would subvert Geithner's new PPIP plan by removing any incentive for banks to sell toxic assets, and forever defer the cleanup needed to get banks lending again. Instead they will just warehouse their frozen billions, where it will be effectively removed from the economy.   Whether it does or not, the PPIP puts pressure on banks elsewhere to help their own banks get rid of toxic assets, which unlike governments, are borderless. Dominique Strauss-Kahn, head of the IMF, is warning as much to the G20 leaders this week, calling for global efforts to clean up the financial industry's balance sheet. warnold@thenational.ae