Financial eras, like social periods, are often defined by moments or epiphanies when decision makers and/or citizens realized that a serious flaw/mistake/problem was occurring through time, and across space, and needed to be corrected.

The ever-incisive FT columnist and economist Martin Wolf describes one contemporary concern that's likely to be addressed: the failure to align the interests of managers with those of investors.

My BloggingStocks colleagues Peter Cohan and Zac Bissonnette have also written on the subject on several occasions in this space, and now the FT's Wolf has assembled additional data that may very well lead to public policy changes, both in Wolf's United Kingdom and in the United States.

The ever-incisive FT columnist and economist Martin Wolf offers fairly harsh advice for those in the United Kingdom (and the United States) considering a house purchase, on the belief that home prices have bottomed and will recover soon: that recovery is not happening any time soon. Nor should it, he argues.

The U.K. Government, Wolf said, should not try to protect banks to save the housing market. To do this would encourage innocent prospective buyers (new borrowers) to buy at what is probably the top of "a hugely stretched market."

And the characteristics of the U.K.'s housing bubble versus the United States' deflating housing balloon/bursting bubble? Tax laws differ by nation, of course, but there are strong indications the U.K.'s bubble may at least be equal to the U.S.'s: U.K. home prices have increased 150%, in real terms, since 1996. At the same time, the ratio of U.K. household liabilities to disposable income is 175% in 2008, compared to slightly more than 100% in the mid-1990s. Wolf's conclusion: that's an unsustainable growth in debt that is coming to an end.

Financial Times columnist Martin Wolf, an economist, poses the question, "Will CO2 emissions limits lead to a zero-sum global economy?" – an economy characterized by stagnant (or declining) incomes, and armed conflict among nations?

Wolf argues that increased energy consumption per capita, primarily oil from fossil fuel, has been a key causal factor in creating the plus-sum economic world we live in, which he calls the positive-sum economy. Or in other words, rising energy consumption has helped produce rising productivity / real incomes / wealth, and the expanding global economy that we know today.

In addition, Wolf further argues that rising energy consumption transformed politics -- assisting both the birth of democratic politics at home and more-consensual foreign relations among states -- by increasing the size of the economic pie. Elites in a country, Wolf argues, became more willing to tolerate the enfranchisement of the masses because it was in the elites' economic interest to do so: i.e. that energy consumption created a more-productive (and more-valuable) citizenry with higher incomes.

Internationally, a nation's gains from the increased trade that characterizes the high-energy consumption era far exceed its gains from making war with another nation: the plus-sum global economy that trade produces supports today's norm of trade as opposed to the limited-sum world's norm of conflict and war.

In an essay/column in this week's issue of The New Yorker magazine ("Paulson's Plan," December 17, 2007) writer James Surowiecki offers a more-somber analysis of the subprime mortgage default issue than, say, Financial Times' columnist Martin Wolf.

In Surowiecki's analysis, (which, readers should note, was researched and published before the European Central Banks' infusion of $500 billion Tuesday to ensure year-end liquidity for banks), the current problem is one unlike any other that Wall Street has faced. The problem is not liquidity, as Martin Wolf argued, but 1) high-risk home owners who spent way too much n overpriced houses, and 2) a deep mistrust of the financial system because of the way the system rates and values assets like mortgages.

At issue: Wall Street?

Hence, the Bush Administrations' proposed assistance plan to the mortgage sector and some homeowners, even if it becomes more-encompassing, would not solve the problem: the financial system - - and presumably Wall Street - - simply does not rate and value assets correctly, and the government package doesn't speak to that dimension.

Once again, the ever-incisive Financial Times columnist Martin Wolf, an economist, identifies with laser-accuracy what ills the current market. The problem, Wolf argues, is not a lack of solvency but a lack of liquidity (i.e. 'panic').

Wolf does not deny that there have been bad loans (there have been) or that no companies will go out of business (some will). But the circumstance that froze credit markets, that caused quality corporate bonds to fail to price, and that leads to 100-point spreads between the LIBOR rate (what banks charge each other) and the ECB's benchmark interest rate, is rooted more in a lack of confidence, than a lack of sound economic fundamentals or a lack of resources.

A lack of liquidity

And a lack of liquidity or 'panic' is something that central bankers can address. With the above in mind, the U.S. Federal Reserve's plan, in consultation with the European Central Bank, the Bank of England, the Swiss National Bank, and the Bank of Canada, to inject $40 billion via auctions into the financial system is appropriate and prudent. (Further, in addition to reciprocal currency arrangements, the companion central banks will take related actions, including the Bank of England's decision to accept a wider range of collateral on 3-month loans).

MOST NOTEWORTHY: The Gaming sector and CBS Corp (CBS) were the most notable companies on today's initiation list.

• Prudential initiated the Gaming sector with a Favorable rating,
  
• They initiated Boyd Gaming Corp (NYSE: BYD), Town Sports International Holdings (NASDAQ: CLUB), Penn National Gaming (NASDAQ: PENN), Shuffle Master Inc (NASDAQ: SHFL), Steiner Leisure Ltd (NASDAQ: STNR) and Great Wolf Resorts Inc (NASDAQ: WOLF) with Outperform ratings.
  
• Ameristar Casinos Inc (NASDAQ: ASCA), MGM Mirage (NYSE: MGM) and WMS Industries Inc (NYSE: WMS) were initiated with Neutral ratings.
• Underweight ratings were given to International Game Tech (NYSE: IGT), Isle of Capri Casinos Inc (NASDAQ: ISLE), Life Time Fitness Inc (NYSE: LTM), Pinnacle Entertainment Inc (NYSE: PNK) and Trump Entertainment Resorts Inc (NASDAQ: TRMP).

• UBS initiated CBS Corp (NYSE: CBS) with a Buy rating and $38 target, citing valuation, dividends and buybacks.

OTHER INITIATIONS:

• Nollenberger believes International Rectifier Corp (NYSE: IRF) is the way to play the trend for energy efficiency, initiating the company with a Buy rating and $60 target.

• Goldman Sachs resumed coverage of AT&T Inc (NYSE: T) with a Buy rating and Level 3 Communications inc (NASDAQ: LVLT) with a Neutral rating.

• Stanford started EDO Corp (NYSE: EDO) with a Hold rating and $25 target; the firm believes EDO can be a turnaround story in 2007, but they recommend investors to stay on the sidelines until after Q4 earnings given their concerns over the quarter and guidance.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).