Harold James writes” During the early years of the global financial crisis, exchange rates were the least interesting part of the macroeconomic debate. A French proposal in 2011 for a sweeping reform of the international monetary regime went nowhere. Today, the subject has become the focus of intense anxiety – and with good reason.

Currency wars are a reminder of the fragility of the process of globalization.

The expectation that interest rates in the United States will rise is driving up the value of the dollar, even as monetary easing in Japan and Europe is pushing down the yen and the euro.

The euro’s depreciation has been greeted with delight by Europe’s business leaders. But in the US, where the dollar’s gains are threatening to choke off economic recovery, officials at the Federal Reserve are expressing signs of concern.

The swing in exchange rates could have an impact that extends far beyond the short-term rebalancing of the global marketplace.

Indeed, surges in the dollar’s value have long coincided with increased political pressure for trade protectionism. After all, the most obvious way to compensate for the apparent overvaluation of a country’s currency is by imposing import restrictions.

In the mid-1980s, the dollar’s appreciating exchange rate undermined US competitiveness, inaugurating a period of rapid and painful deindustrialization.

If anything, today’s exchange-rate swings are likely to be more extreme, and to last longer, than the surge in the dollar’s value in the 1980s or the volatility of the 1930s, when, in the aftermath of the financial crash that triggered the Great Depression, countries competed to devalue their currencies.

The problem is what is known as the carry trade, a common financial strategy in which an investor borrows money in a currency subject to a low interest rate in order to buy assets in a currency subject to a higher rate. The interest-rate differential, often combined with high amounts of leverage, provides a profit when the loans are paid off.

When exchange rates are stable and predictable, the carry trade is relatively safe. But this is rarely the case. For starters, the practice has the tendency to push exchange rates further apart, as investors sell the currency in which they borrowed to make their purchases.

The large corporate borrowers engaged in the carry trade consider themselves sophisticated investors, capable of predicting when exchange rates are about to reverse. Unfortunately, this only increases the risk, boosting the possibility of a sudden reversal as money pours back into the borrowed currency in an attempt to repay loans before the exchange rate soars to loss-generating levels.

The dangers are very real.

There is one historical precedent that could serve as a model, should we be able to muster the political will to consider it. In the 1930s, John Maynard Keynes championed limits on the movement of capital in order to blunt the more damaging consequences of globalization. The equivalent today would be to introduce regulations on the carry trade. Policymakers would do well to consider this option – before it is too late.

The Economist:  Misreading the public mood can be costly when the government owns your bank, as the directors of ABN AMRO found out last week. The bank has been in the hands of the Dutch state since it was bailed out in 2009 as part of the global financial crisis that also dumped Royal Bank of Scotland in the laps of British taxpayers. The Dutch government had hoped to begin privatising ABN AMRO this autumn—until the news broke that the bank’s directors had awarded themselves a salary bump of €100,000 ($107,000) a year. An outcry in parliament led the directors to forgo their raises and Jeroen Dijsselbloem, the Netherlands’ finance minister, to postpone indefinitely the bank’s return to the markets.

The directors’ error of judgment is perhaps understandable. As in Britain, public sentiment in the wake of the collapse was furious with fat-cat bankers. But the Dutch board had been correspondingly cautious. The directors receive no bonuses, and their raise had been approved by parliament in 2011 but renounced each year until now.

Why, despite the good economic news, is the Dutch public mood still sour? Partly because of a problem that many European governments face: they have not delivered the policies their constituents were promised. The Dutch government, like the German one, is a centrist, two-party grand coalition. In the 2012 election, leftists voted for the largest centre-left party, Labour (PvdA), in opposition to austerity and the dismantling of the welfare state. Conservatives voted for the largest centre-right party, the Liberals (VVD), in opposition to redistribution, Europe and immigration. What they got instead was a Liberal prime minister, Mark Rutte, at the head of a hybrid government whose horse-trading led to an unsatisfying mix of policies.

That Dutch government has carried out a series of far-reaching reforms which have left nobody entirely happy.

Confusingly, voters have scattered in all directions.

It all chimes oddly with a brightening economy. The government’s reforms, disruptive at first, have started working, says Dimitry Fleming, an economist at ING Bank. “People feel we have seen the major necessary reforms, so policy uncertainty is diminishing.” House prices and residential investment are rising. Exports are up. The tulips are sprouting. Maybe public enthusiasm will too.

William K. Black writes:  HSBC got a sweetheart deal from the Obama administration. It laundered vast amounts of money for Mexico’s murderous Sinaloa cartel, helped bust sanctions for terrorists and mass murderers, and did not cooperate with the investigation. The U.S. Attorney in charge of the case, Loretta Lynch, refused to prosecute any of the HSBC bankers or even sue them individually. Instead, there was a pathetic non-prosecution agreement limited to HSBC.  HSBC’s Sweetheart Deal