Linking ≠ endorsement.
⇧ Michael Greenberger: Setting the Stage for the Next Financial Crisis – YouTube
This video is very heavy on political campaign issues in its second half. We don’t agree with much of that discussion but won’t go into it.
We have too many views concerning especially international politics for that part of the discussion to suit us.
Also, what a candidate will say to get elected versus what he or she will actually do once elected often differ greatly and that’s not because the candidate was necessarily naive going into the campaign.
We definitely agree with the statement that Bill Clinton disavowed but reneged (has been inconsistent).
The parts where the video deals with regulation versus anti-regulation we will say do, however, echo our views very much.
With those caveats, we recommend the video.
Here’s the YouTube video description:
Proprietary trading by Wall Street banks precipitated the 2008 financial crisis that resulted in a near 13 trillion dollar bailout by American taxpayers of Too Big To Fail financial institutions. As early as 2007, Morgan Stanley lost $9 billion dollars due to bullish bets on complex derivatives related to mortgages and in 2008 American International Group famously lost billions of dollars betting on complex derivatives. Similarly, toward the end of 2008, Merrill Lynch lost nearly $16 billion and Deutsche Bank lost nearly $2 billion due to complex bets on risky securities. Additionally, JPMorgan?s $9 billion loss on a giant derivatives trade made by its London trading desk known colloquially as the London Whale is a stark reminder that proprietary trading by Too Big To Fail financial institutions poses an acute risk to U.S. financial markets and exposes U.S. taxpayers to the risk of future bank bailouts.
The whole rationale for what ultimately became known as the “Dodd-Frank” bill was to prevent a recurrence of the 2008 crisis. Has it served its purpose? No, according to Michael Greenberger, a Professor at the University of Maryland Francis King Carey School of Law, and a former top official with the Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC) working directly for then-Chairperson Brooksley Born. He focused on issues relating to financial regulation and derivatives.
In the interview below, Professor Greenberger discusses the current state of play of regulatory reform and gives a barely passing grade. He argues that investors have little confidence in banks because they’ve grown since the financial crisis and have managed to delay or water down much of the most robust regulatory proposals initially outlined in the wake of the crisis.
“The reason their current and prospective investors are concerned is that there’s every likelihood that what happened in 2008 will repeat itself,” he said, calling the rigging of global interest rates and recurrent trading losses since the 2009 as evidence of ongoing systemic instability.
⇧ 5 Habits of Highly Miserable New Real Estate Investors (& How to Kick Them!)
This business of real estate investing is not easy. Anybody who tells you it is is quite literally selling you something. Hard work and persistence are the name of this game. Starting in this business can be extremely daunting, between choosing your niche, how much money you have to start, the amount of time you can devote to it, etc.
You don’t want to add misery to the beginning process — it’s important to get your mental attitude straightened out early. Otherwise it might take you twice as long to build your business at the start, if at all. Ask me how I know! I lost easily a few years at the beginning with spotty consistency and a scattered mind-set. I fell into each of these categories below at one time or another, and at times these can even plague established investors.
Here are some common misery pitfalls and helpful solutions to avoid them.
As for “Being Paralyzed by Analysis,” it’s true, but do not fail to do proper due diligence.
On “Having No Clarity/Goals,” some people need to write down goals and some people don’t. If you are a procrastinator or you are easily sidetracked, you should probably write them down. If you never procrastinate and never get sidetracked, we don’t need to tell you that you don’t need to write down your goals.
⇧ Containment grows of California fire that has destroyed 40 homes | OregonLive.com
A fire burns at Wheeler Crest near Bishop, California, on Friday. Firefighters have gained the upper hand on a wind-driven wildfire that destroyed 40 homes, burned nearly 11 square miles and forced about 150 people to leave two small California towns at the eastern base of the Sierra Nevada.
A three-year drought across California has created extremely dry timber brush that fueled the flames and pushed them all the way up the Sierra slopes to the snow line at about 8,000 feet….
⇧ America’s ‘middle’ holds its ground after the Great Recession | Pew Research Center
In the years following the Great Recession, the share of Americans who live in middle-income households held steady at 51% in 2013, the same share as in 2010, according to a new Pew Research Center analysis.
While the muddled recovery has yet to bolster the middle, this flat trend might actually be good news because, for now, it stems a decades-long slide. Back in 1970, 61% of adults lived in middle-income households.
But who, exactly, is middle income? First, we should note that middle income is not necessarily the same thing as middle class.
…data points are further confirmation of the nation’s growing economic inequality. A previous analysis by the Pew Research Center using a different data source determined that only upper-income families have experienced significant gains in wealth since the early 1990s. Researchers who focus on consumption have also found evidence of rising inequality, albeit not necessarily to the same degree as the increase in income disparities. Americans are seeing it too. In a January 2014 Pew Research Center survey, 65% of adults said the gap between the rich and everyone else had increased in the past 10 years.
⇧ A Greek Morality Tale by Joseph E. Stiglitz – Project Syndicate
Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, gives no quarter:
Every (advanced) country has realized that making capitalism work requires giving individuals a fresh start. The debtors’ prisons of the nineteenth century were a failure — inhumane and not exactly helping to ensure repayment. What did help was to provide better incentives for good lending, by making creditors more responsible for the consequences of their decisions.
At the international level, we have not yet created an orderly process for giving countries a fresh start. Since even before the 2008 crisis, the United Nations, with the support of almost all of the developing and emerging countries, has been seeking to create such a framework. But the US has been adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay).
Seldom do democratic elections give as clear a message as that in Greece. If Europe says no to Greek voters’ demand for a change of course, it is saying that democracy is of no importance, at least when it comes to economics. Why not just shut down democracy, as Newfoundland effectively did when it entered into receivership before World War II?
One hopes that those who understand the economics of debt and austerity, and who believe in democracy and humane values, will prevail. Whether they will remains to be seen.
We couldn’t agree more.
⇧ Six Things Technology Has Made Insanely Cheap – Bloomberg Business
For anyone bearish on the progress made by the U.S. economy, consider this: Computers are now one-1,100th of their price 35 years ago.
Innovation makes things cheaper, which frees up cash for consumers to buy other things. That drives the virtuous cycle of economic growth. We dug into the inflation data, more formally known as the personal consumption expenditures price index, to highlight some of the items that have seen the biggest discounts.
They better become cheaper since wages have been fairly stagnant and it’s now almost impossible to look for and hold down a decent-paying job without at least some tech products.
The prices don’t look right to us. The first two charts are zeroed out. They can’t be right.
A $1K TV in 1970 was one hell of a TV. What are they showing there for the current price, $30? What kind of TV is that?
⇧ ‘Free trade’ isn’t what Trans-Pacific Partnership would deliver – LA Times
…”free trade” has little to do with the trade deal that President Obama hopes will be a high-water mark for his administration’s foreign policy: the Trans-Pacific Partnership talks, which now involve the U.S. and 11 Pacific Rim countries — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.
The pact — which has been under negotiation virtually since the turn of the century — is in trouble on Capitol Hill, where its enemies include conservatives and liberals. The overall problem may be that the TPP, as it’s known in shorthand, has become a symbol of everything that’s wrong with free trade agreements today.
The pact is being negotiated in secret, although U.S. trade negotiators have given big industries nice long looks behind the curtain. The White House is demanding “fast-track” approval from Congress, which limits the say lawmakers will have and requires them to ratify in haste. And public interest advocates say it could undermine rules and regulations governing the environment, health, intellectual property and financial markets (to name only a few topics).
Especially worrisome is a procedure allowing corporations to file claims in arbitration courts against sovereign countries over changes in their laws and regulations. As is the case in some previous trade agreements, commercial interests will be able to seek compensation for “injuries” from anything from minimum-wage increases to environmental and health regulations. Mexican truckers filed a $30-billion case objecting to safety and environmental rules on U.S. roads; Eli Lilly & Co. is seeking $481 million from Canada for its invalidation of Lilly patents on several drugs; and Philip Morris has sued Australia because its rule requiring plain packaging for cigarettes deprives the company of its property rights in trademarks and logos.
Even conservatives who otherwise favor the TPP detest this provision. The Cato Institute has urged that it be “purged” from the pact. By giving special privileges to corporations operating abroad, Cato said, the provision allows them to undermine domestic sovereignty and “effectively encourages outsourcing.”
⇧ Banking Giant HSBC Sheltered Murky Cash Linked to Dictators and Arms Dealers | International Consortium of Investigative Journalists
Secret documents reveal that global banking giant HSBC profited from doing business with arms dealers who channeled mortar bombs to child soldiers in Africa, bag men for Third World dictators, traffickers in blood diamonds and other international outlaws.
The leaked files, based on the inner workings of HSBC’s Swiss private banking arm, relate to accounts holding more than $100 billion. They provide a rare glimpse inside the super-secret Swiss banking system — one the public has never seen before.
The documents, obtained by the International Consortium of Investigative Journalists via the French newspaper Le Monde, show the bank’s dealings with clients engaged in a spectrum of illegal behavior, especially in hiding hundreds of millions of dollars from tax authorities. They also show private records of famed soccer and tennis players, cyclists, rock stars, Hollywood actors, royalty, politicians, corporate executives and old-wealth families.
These disclosures shine a light on the intersection of international crime and legitimate business, and they dramatically expand what’s known about potentially illegal or unethical behavior in recent years at HSBC, one of the world’s largest banks.
⇧ Negative interest rates are here to stay
Far from rising, global interest rates will fall in the medium term. And since global interest rates are already on the floor, that means that they will eventually turn negative everywhere.
Hmmm, no recovery in the US then. It’s either that or the Fed will ditch the Phillips Curve altogether. We don’t see that in the foreseeable future. Eventually, yes.
⇧ Greek finance minister says euro will collapse if Greece exits | Reuters
The euro zone faces a risk of fragmentation and “de-construction” unless it faces up to the fact that Greece, and not only Greece, is unable to pay back its debt under the current terms, Varoufakis said.
“I would warn anyone who is considering strategically amputating Greece from Europe because this is very dangerous,” he said. “Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity?”
Varoufakis said his government would propose a “new deal” for Europe like the one enacted in the United States in the 1930s. This would involve the European Investment Bank investing ten times as much as it has so far, Varoufakis said.
If Europe continues to pursue counterproductive austerity policies the only people who will benefit will be “those who hate European democracy,” he said, citing the Golden Dawn party in Greece, the National Front in France and the United Kingdom Independence Party in Britain.
We largely agree.
⇧ Greece should bail-in the eurozone | The Exchange
Frances Coppola again:
Syriza is a populist government, and some of the policies it has already implemented are disturbingly similar to those of other populist governments that eventually failed disastrously. It must resist the siren voices that want to wipe out the pain of the past and restore lost prosperity through a highly expansive fiscal programme. This is a road that must not be travelled. There can be no magic wand: recovery requires hard work and enterprise, and there will still be pain to come.
We completely disagree here.
If done responsibly, “a highly expansive fiscal programme” can work very well. The New Deal in the US proved it. The German recovery leading up to WWII proved it even better. Unfortunately, the Nazis built a war machine rather than a peacetime prosperity machine: the only difference.
⇧ Markets to Watch for Multifamily Growth – Daily News Article – GlobeSt.com
From the Northeast to the West, panelists at NMHC’s Apartment Strategies Outlook Conference here last week gave an overview of where the hot spots are and where rent growth is cooling for apartments. During the panel “The Markets: A Full Sweep,” moderator Jay Lybik, VP of market research for Equity Residential, said he expects continued demand for apartments in 2015 because national vacancy has been at or below 5.8% since 2012.
Lybik added that with Millennials’ shift toward delaying marriage and away from homeownership, the multifamily sector has great fundamentals. “Boomerang kids living home” after college are moving out as the economy has picked up, and they’re moving into apartments. “The 24-to-25 age cohort is the largest in the Millennial generation, and this is the prime age for starting households.”
Nationally, supply is not a problem for multifamily, Lybik said. “Oversupply is not happening since permitting numbers are half of what they were in the ’80s.”
When Lybik asked the panelists which market is stellar or concerning for 2015, Witten said, “Houston is the most interesting because of the oil industry.” Denton agreed, adding that he is more bullish on L.A., Atlanta and Orlando. Buss said, “Wage growth may come in and surprise us in all markets,” while Lybik predicted that Southern California will have a fantastic 2015.
Denton summed up: “The apartment industry should remain strong for the next five years,” while Lybik said, “Global instability helps keep demand for apartments higher.”
⇧ Home Values in Black, Hispanic Neighborhoods Bouncing Back More Slowly – Yahoo Homes
It’s the story of beleaguered communities across the country in the wake of the Great Recession: Some people still cannot sell their homes; others do not recognize their neighborhoods. A Zillow analysis released this week found that black and Hispanic communities, which were hit disproportionately hard by foreclosures, are further behind in their recovery. Their home values trail those in white and Asian areas, and black and Hispanic applicants are denied home loans twice as often as whites.
“The minute you say you want Congress to subsidize homeownership, you’re leaving a majority of blacks and Hispanics behind,” she said. “Then you look at the group that’s most likely to benefit, and it’s the highest-income homeowners.”
Until this is straightened out, it makes sense to provide quality, affordable rentals.
⇧ Suburbs May Excel CBDs in MF Metrics – Daily News Article – GlobeSt.com
Urban multifamily is hardly losing its edge, but lately the industry has gotten the memo that being in the suburbs is no bad thing. A panel of experts at last week’s National Multifamily Housing Council 2015 Apartment Strategies Outlook Conference elaborated on the premise that development outside the urban core is in fact thriving, contrary to widespread perceptions, and SNL Financial charted similar territory in a recent report on multifamily REIT activity.
Among the participants at the NMHC panel on suburban apartments were two experts from another multifamily analytics firm, MPF Research, which recently published a study of “good” suburbs and how they compare to CBDs. “‘Good’ suburbs perform in line with CBDs because they share many of the same characteristics: more jobs, higher incomes, higher home prices, more amenities and proximity to major highways or rail stations,” according to Carrollton, TX-based MPF.
The company’s study of the nation’s top 50 metro areas defines “good” suburbs as submarkets outside a CBD that had two factors in common: “They’re located within economically healthier metro areas (those with net employment growth of at least 3.0% over the past six years) and have average monthly rents that top their parent metro’s norm. It’s a fairly simple line of demarcation, but it tells a compelling story.”
Lower gas prices, if they last, will only increase this.
⇧ Greece’s crisis — in five charts – YouTube
Greek PM Alexis Tsipras says he won’t seek an extension of the bailout plan when it expires at the end of February — putting Athens on a collision course with creditors. FT capital markets editor Ralph Atkins explains Greece’s crisis in five charts.
⇧ Gallup CEO: I May ‘Suddenly Disappear’ After Claiming Obama Unemployment Rate Is ‘Big Lie’
Honestly, the title is severely overstated.
Jim Clifton, the Chairman and CEO of Gallup, recently told CNBC that he was worried he might “suddenly disappear” if he disputed the accuracy of what the U.S. government is reporting as unemployed Americans, Wall Street on Parade reported.
“None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job — if you are so hopelessly out of work that you’ve stopped looking over the past four weeks — the Department of Labor doesn’t count you as unemployed,” the venerable firm’s chief executive officer and chairman last week wrote in his blog.
We’ve reported many, many times how people drop off the unemployment rolls without finding a job. We’ve reported others publishing it. We’ve reported the BLS stating it openly in their reports.
Its right to complain about the number of unemployed who aren’t counted but who want work, but it’s wrong to say that it’s ever remotely a secret and especially that one might be disappeared for informing people how the BSL handles it.
⇧ Buried in Boston? Blame it on climate change — maybe
Boston is used to snow, but not like this — nearly 6 feet in two weeks, including the biggest two snowstorms since records began after the Civil War.
And two more storms carrying a foot of snow each are forecast in the next week.
⇧ Sober Look: Improvements in the euro area credit conditions should not be ignored
Nice work by Walter Kurtz:
While there is almost no coverage of this topic in the financial media and the blogosphere, credit conditions in the Eurozone are showing marked improvements. This is an unpopular view these days, but ignoring the trend results in an incomplete view of the area’s economy and markets.
Why then do we need such an aggressive monetary response from the ECB? The answer has to do with rising deflationary risks in the euro area. While some have associated falling inflation with sharp declines in energy prices, the issue in the Eurozone is broader than energy (see “core” CPI) [https://twitter.com/SoberLook/status/56 1174339262095361]. And deflation could easily extinguish this nascent improvement in credit.
Clearly the area faces significant headwinds such as the mess related to Greece. Rising probability of “Grexit” for example could dampen lending in other nations. The improvements to date however have been impressive and should not be ignored.
⇧ Robert Reich (Back to the Nineteenth Century)
…after decades of labor strife and political tumult, the twentieth century brought an understanding that capitalism requires minimum standards of decency and fairness — workplace safety, a minimum wage, maximum hours (and time-and-a-half for overtime), and a ban on child labor.
We also learned that capitalism needs a fair balance of power between big corporations and workers.
We achieved that through antitrust laws that reduced the capacity of giant corporations to impose their will, and labor laws that allowed workers to organize and bargain collectively.
By the 1950s, when 35 percent of private-sector workers belonged to a labor union, they were able to negotiate higher wages and better working conditions than employers would otherwise have been “happy” to provide.
But now we seem to be heading back to [the] nineteenth century.
We don’t think we seem to be. We are positive that we have been doing that since the 1980’s. We’ve known it since then, and the regressive process started in the early 1980’s.
We aren’t simply referring to aggregate deregulation but selective deregulation aimed at ultimately producing the Great Recession and the current terrible state of affairs.
As for the “right to work” issue, federal regulation should be such that workers need not organize at all but be protected by law from bad ownership and management: anti-worker objectives.
⇧ globalinequality: Between the two chimeras and a world war
We don’t entirely agree with this but include it because it certainly contains a great deal of food for thought.
Why include such a piece on an insurance agency blog? Well, if risk management doesn’t include the threat of nuclear war, what does?
Do we think we’re at the edge of such war? No. We aren’t close to that at all. Both Barack Obama and Vladimir Putin will move Heaven and Earth to reach a peaceful settlement concerning Ukraine before using nuclear weapons. Such a peaceful settlement is doable short of either side having to cave in entirely to the other side.
Since neither side cared about Ukraine as such, nor cared to give country money, support, free migration of labor or a meaningful role in either Europe or Eurasia, the only way Russia and Europe could pretend to do so was to offer chimeras in the hope of playing a geopolitical game that would upset the other side. Ukraine was thus pushed to choose between the two nothings, and divided as it is, chose a war. But soon the full costs of that choice, and irresponsible behaviors of Russia and the West, will come to haunt us all, when the direct military conflict between the countries with a total of 20,000 nuclear missiles becomes a real possibility.
Note that Branko said “becomes,” meaning we aren’t there yet.
⇧ Why Social Insurance Is a Necessary Part of Capitalism | The Fiscal Times
The rich might object by asking why they should be forced to purchase insurance they will never need. But fortunes are sometimes lost and, in any case, the rich have their own forms of social insurance. During the Great Recession, who benefitted the most from bank bailouts and quantitative easing that propped up asset values? It was the people who hold most of the financial assets, the wealthy. Yes, Main Street was helped too, and helping Main Street, not Wall Street, was the main goal according to policymakers. But there is no doubt that the wealthy were insured against large losses.
Social insurance that protects us from the inevitable downturns that capitalist systems experience, and also insulates us from the rising insecurity due to globalization and technological change should not be limited to the wealthy, it should be available to us all. We need more social insurance, not less, and it’s shameful to see those who have the most and are protected themselves — the wealthy such as Romney — leading the charge to reduce or eliminate the social insurance that protects those who aren’t so fortunate.
We don’t agree with them, but Libertarian liquidators will say to pull all social insurance given to the wealthy too.
Removing everything but “the market” would result in many violent swings in what’s called the business cycle. We did away with that starting in 1913 and reinforced it via the New Deal.
It wasn’t until this latest crash, resulting from the undoing of much of the New Deal letter and spirit, that we almost arrived completely back where we started. Without Fed actions and what little fiscal stimulus we did get, we would have been targeted for another crash much sooner than otherwise.
To do what the libertarians are calling for definitely would put us back in the 19th-Century situation Robert Reich described, only worse, much, much worse. That’s because their capacity to ruin the planet is much greater now due to more powerful technology and a much increased population.
Planetary unbridled capitalism would result in the worse evil possible on the planet including total war because it would lead directly to it. Planetary unbridled capitalism would be a nightmare, an utter dystopia.
Anarcho-capitalists are anti-government except where government would defend the anarcho-capitalists rights to do whatever they want letting the market decide, as if hugely terrible things wouldn’t be created, sold, bought, and used that would destroy the Earth. It’s bad enough now.
We need to go in the opposite direction without creating a socialist dictatorship. That can be done via bottom-up democracy, as we’ve described before on this blog.
⇧ Cheap Oil for Change by Kaushik Basu and Sri Mulyani Indrawati – Project Syndicate
Kaushik Basu, Senior Vice President and Chief Economist of the World Bank, is Professor of Economics at Cornell University.
Sri Mulyani Indrawati is Managing Director of the World Bank Group, and was Finance Minister of Indonesia from 2005 to 2010. She was Euromoney’s Finance Minister of the Year for 2006, Emerging Markets’s Asian Finance Minister of the Year for 2007 and 2008, and in 2008 was ranked by Forbes as one of …
…the price trajectory is likely to be determined by a new player in the energy game: shale oil. The marginal cost of shale-oil production (the expense of continuing to pump an existing well) varies from $55 to $70 per barrel. Add a $5 profit margin, and the oil-supply curve now has a long, near-horizontal segment in the range of about $60-75 per barrel. Regardless of demand, this will be the natural nesting range for the price of oil — call it the “shale shelf” — and will likely remain in place for a protracted period.
Of course, this pattern could be disrupted, if, say, a war or major conflict in an oil-exporting region constrained supply enough to cause prices to spike beyond the shale shelf. But, in the absence of a major unexpected shock, oil companies will remain under pressure to continue selling oil, even at low prices, as they struggle to service the large debts they incurred on investments when oil prices were high. This pressure is precisely what drove oil prices so low in December and January.
⇧ Why equality makes cold, hard economic sense – Agenda – The World Economic Forum
On paper, preventing people from working later in life looks like a sound way of freeing up jobs for those entering the jobs market. But economists call this the “lump of labor” fallacy [https://en.wikipedia.org/wiki/Lump_of_l abour_fallacy]: in fact, an active, dynamic silver workforce is an excellent way of providing work for the young.
The lump-of-labor fallacy is debatable especially during a downturn. However, it is not completely meritless regardless; but we won’t hold that debate here right now.
⇧ Judge Threatens Plan for Puerto Rico to Avert Financial Catastrophe – NYTimes.com
America’s Greece: Michael Corkery:
Critical elements of Puerto Rico’s plan to avert financial disaster are in jeopardy, after a federal judge struck down a law that allowed the government to restructure certain debts.
The law, known as the Recovery Act, was meant to give Puerto Rico’s public corporations protections similar to bankruptcy. Unlike American cities like Detroit, which used federal bankruptcy law to sort out its finances, Puerto Rico, a United States commonwealth, is not permitted to declare bankruptcy.
⇧ Justice Department Is Seeking Felony Pleas by Big Banks in Foreign Currency Inquiry – NYTimes.com
In the final stages of a long-running investigation into corruption in the world’s largest financial market, federal prosecutors have recently informed Barclays, JPMorgan Chase, the Royal Bank of Scotland and Citigroup that they must enter guilty pleas to settle the cases, according to lawyers briefed on the matter. The pleas would be likely to carry a symbolic stigma, if limited actual fallout, in handing felony convictions to some of the world’s biggest banks.
The currency case is expected to ensnare traders but not top-level executives. As a result, it may add fuel to the criticism that prosecutors have not charged one top executive on Wall Street. Without charges to mollify the public anger over the financial crisis, the recent cases have presented little more than a pyrrhic victory for the Justice Department.
… The banks, before entering a guilty plea for any entity, will likely seek assurances that the charges would not prompt a revocation of their licenses or cost them any major business lines. If the banks resist, the Justice Department has warned that an indictment and ultimately a trial await.
For the Justice Department, the currency case represents a last opportunity to shape the white-collar legacy of Attorney General Eric H. Holder Jr., who has announced plans to step down once his replacement is confirmed. Blamed for the lack of criminal cases against Wall Street executives, Mr. Holder has emphasized that “no financial institution, at home or abroad, is too powerful to be held accountable for wrongdoing.”
We feel that this is a slap on the wrist designed to lessen the very real and correct criticism that the Obama administration turned a blind eye to the accounting-control fraud (https://neweconomicperspectives.org/tag /accounting-control-fraud) that was rampant on Wall Street and caused the 2008 crash, which turning a blind eye created huge moral hazard going forward (extremely bad risk management).
⇧ Greece is Playing to Lose by Project Syndicate – Project Syndicate
Greece’s idealistic new leaders seem to believe that they can overpower bureaucratic opposition without the usual compromises and obfuscations, simply by brandishing their democratic mandate. But the primacy of bureaucracy over democracy is a core principle that EU institutions will never compromise.
The nation that never comes up in this discussion is Iceland. See the next link below.
⇧ Michael Hudson: Will Greece Let EU Central Bankers Destroy Democracy? | naked capitalism
This is from June 6, 2011, but it’s very timely concerning Greece and democracy versus Germany. Michael Hudson, research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College:
As an alternative to such financial demands, Iceland has provided a model for what Greece may do. Responding to British and Dutch demands that its government guarantee payment of the Icesave bailout, the Althing recently asserted the principle of sovereign debt:
The preconditions for the extension of government guarantee according to this Act are:
1. That … account shall be taken of the difficult and unprecedented circumstances with which Iceland is faced with and the necessity of deciding on measures which enable it to reconstruct its financial and economic system.
This implies among other things that the contracting parties will agree to a reasoned and objective request by Iceland for a review of the agreements in accordance with their provisions.
2. That Iceland’s position as a sovereign state precludes legal process against its assets which are necessary for it to discharge in an acceptable manner its functions as a sovereign state.
Instead of imposing the kind of austerity programs that devastated Third World countries from the 1970s to the 1990s and led them to avoid the IMF like a plague, the Althing is changing the rules of the financial system. It is subordinating Iceland’s reimbursement of Britain and Holland to the ability of Iceland’s economy to pay:
In evaluating the preconditions for a review of the agreements, account shall also be taken to the position of the national economy and government finances at any given time and the prospects in this respect, with special attention being given to foreign exchange issues, exchange rate develop ments and the balance on current account, economic growth and changes in gross domestic product as well as developments with respect to the size of the population and job market participation.
This is the Althing proposal to settle its Icesave bank claims that Britain and the Netherlands rejected so passionately as “unthinkable.” So Iceland said, “No, take us to court.” And that is where matters stand right now.
Greece is not in court. But there is talk of a “higher law,” much as was discussed in the United States before the Civil War regarding slavery. At issue today is the financial analogue, debt peonage.
Will it be enough to change the world’s financial environment? For the first time since the 1920s (as far as I know), Iceland made the capacity-to-pay principle the explicit legal basis for international debt service. The amount to be paid is to be limited to a specific proportion of the growth in its GDP (on the admittedly tenuous assumption that this can indeed be converted into export earnings). After Iceland recovers, the Treasury offered to guarantee payment for Britain for the period 2017-2023 up to 4% of the growth of GDP after 2008, plus another 2% for the Dutch. If there is no growth in GDP, there will be no debt service. This meant that if creditors took punitive actions whose effect is to strangle Iceland’s economy, they wouldn’t get paid.
No wonder the EU bureaucracy reacted with such anger. It was a would-be slave rebellion. Returning to the applicable of Newton’s Third Law of motion to politics and economics, it was natural enough for Iceland, as the most thoroughly neoliberalized disaster area, to be the first economy to push back. The past two years have seen its status plunge from having the West’s highest living standards (debt-financed, as matters turn out) to the most deeply debt-leveraged. In such circumstances it is natural for a population and its elected officials to experience a culture shock — in this case, an awareness of the destructive ideology of neol iberal “free market” euphemisms that led to privatization of the nation’s banks and the ensuing debt binge.
The Greeks gathering in Syntagma Square seem to need no culture shock to reject their Socialist government’s cave-in to European bankers. It looks like they may follow Iceland in leading the ideological pendulum back toward a classical awareness that in practice, this rhetoric turns out to be a junk economics favorable to banks and global creditors. Interest-bearing debt is the “product” that banks sell, after all. What seemed at first blush to be “wealth creation” was more accurately debt-creation, in which banks took no responsibility for the ability to pay. The resulting crash led the financial sector to suddenly believe that it did love centralized government control after all — to the extent of demanding public-sector bailouts that would reduce indebted economies to a generation of fiscal debt peonage and the resulting economic shrinkage.
As far as I am aware, this agreement is the first since the Young Plan for Germany’s reparations debt to subordinate international debt obligations to the capacity-to-pay principle. The Althing’s proposal spells this out in clear terms as an alternative to the neoliberal idea that economies must pay willy-nilly (as Keynes would say), sacrificing their future and driving their population to emigrate in a vain attempt to pay debts that, in the end, can’t be paid but merely leave debtor economies hopelessly dependent on their creditors. In the end, democratic nations are not willing to relinquish political planning authority to an emerging financial oligarchy.
No doubt the post-Soviet countries are watching, along with Latin American, African and other sovereign debtors whose growth has been stunted by predatory austerity programs imposed by IMF, World Bank and EU neoliberals in recent decades. We should all hope that the post-Bretton Woods era is over. But it won’t be until the Greek population follows that of Iceland in saying no — and Ireland fin ally wakes up.
Financial Times columnist Martin Wolf writes that the eurozone “has only two options: to go forwards towards a closer union or backwards towards at least partial dissolution. … either default and partial dissolution or open-ended official support.” But ECB intransigence leaves little alternative to breakup. Europe’s payments-surplus nations are waging financial war against the deficit countries. Without a common union based on mutual support within a mixed economy — one capable of checking financial aggression — the European Central Bank replaced the military high command. Its bold gamble is whether the Greeks will be as stupid as the Irish, not as smart as the Icelanders.
Spain, Portugal, and others are watching. Even Ukraine won’t be able to keep its eyes off how things turn out for Greece.
⇧ China’s Pile of Debt Keeps Rising – Bloomberg Business
Charlene Chu, the former Fitch Ratings Ltd. analyst known for her warnings over China’s debt risks, said last month that the dangers are increasing with the “biggest debt bubble that the world has ever seen,” as the outlook for the nation’s growth deteriorates.
⇧ Rats! History does repeat itself | Real-World Economics Review Blog
“It was all very well for the rich, who could raise all the credit they needed, to clamp rigid deflation and monetary orthodoxy on the economy … it was the little man who suffered, and demanded easy credit and financial unorthodoxy.”
That’s the voice of E. J. Hobsbawm in his book, “The Age of Revolution 1789 — 1848?, and he is talking about post Napoleonic Europe.
But how contemporary is that sentiment?
We are stuck in a similar situation. Our elite, both here and in Europe, is managing the economy for its own ends. The disconnect with everyday folk is astonishing. The hubris and plain meanness of it all is equally astonishing.
One of the common themes of those doing the political agitating back in the immediate aftermath of the Napoleonic wars, whether they were in France, Britain, or these United States, was their desire to follow heterodox economics. Orthodoxy is an intellectual defense of the elite.
Same as now. Right?
⇧ EDGEWATER, N.J.: In fire aftermath, reforms push up against industry norms | National Business News | The State
Marcus Marino, a New York-based architect and developer who has consulted on New York City building codes, said he’s surprised that the fire spread in a building equipped with sprinklers.
“We need to know, were the systems working? What architectural codes was the building built under? And was it built according to the architect’s plan?” Marino said.
… a variety of fire safety measures need to be reviewed, including sprinklers, wall materials, alarms and barriers that keep fires from spreading. Wisniewski called for automatic alarm systems that notify fire officials immediately; at the Avalon, a preliminary investigation determined that the workers tried to subdue the blaze themselves and didn’t call 911 for about 15 minutes.
⇧  Has Greece had its ‘Lehman moment’? – YouTube
We posted a Steve Keen interview a few posts back, so we won’t point directly to his interview in this video but will rather focus your attention on Part 2 of the interview with Richard Werner.
[@14:23] Erin sits down with Richard Werner — director of international development and founding director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton. Richard talks to us about the Federal Reserve’s quantitative easing and gives us his take on wage growth and household debt levels. The credit easing that Ben Bernanke did in the first round of quantitative easing, qualitatively was closer to what Werner proposed when he first created the idea of quantitative easing in the early 1990s. But the other forms of QE will not increase credit growth because bank balance sheets are still encumbered. Richard believes a target for nominal growth would be an improvement over present central bank policy.
He’s not a demand-sider there, which puts him at odds with most Keynesians. We are a combination of the two: supply-side and demand-side.
On the issue of reserves not being “spent,” we’d like to clarify that in the US, where 10% reserves are required, the problem with reserves has been that banks have not been lending against those reserves. They have cited a lack of qualified borrowers looking for money because (hold onto your hat) there isn’t enough demand for products and services because the people haven’t had enough discretionary money because they are either saving in case things get worse, paying down debts, or simply living hand to mouth already. Therefore, jobs and wages and salaries are the issues: which is the demand-side argument versus the “Say’s law” (https://en.wikipedia.org/wiki/Say's_law ) argument Richard put forth, that supply creates its own demand.
⇧ Greece: An Economic Tragedy in Six Charts – YouTube
Greece’s economy has spiraled downward since 2009, at great human cost. A newly elected government headed by Prime Minister Alexis Tsipras is demanding relief from its reform and restructuring program. How did Greece arrive at this situation?
The country’s descent into its difficulties is narrated and visualized through six charts, focusing on the severity of the economic recession and compression of government expenditure, as well as the increase in the public debt and its shift from the hands of the foreign private sector to the foreign official sector.
This video is part of an effort by the Peterson Institute for International Economics to invigorate its dissemination of reliable economic data and analysis to the broad public on important issues of general interest.
Nicely done with the exception of the audio balancing:
⇧ Germany Toughens Tone With Greece Before EU Meetings – Bloomberg Business
Speaking to reporters in Istanbul yesterday after a two-day meeting of finance chiefs from the Group of 20, Schaeuble said “it’s over” if Greece doesn’t want the final tranche of the current aid program. Greece’s creditors also “can’t negotiate about something new,” Schaeuble said. For his part, Deutsche Bundesbank President and European Central Bank Governing Council member Jens Weidmann said Greek efforts to get bridge financing through debt instruments was a non-starter.
In a word, heartless.
⇧ Greek defence minister says Greece has Plan B if EU rigid on deal | Reuters
Germany is being extremely shortsighted. Germany’s leadership lacks vision.
Greek Defence Minister Panos Kammenos said that if Greece failed to get a new debt agreement with the euro zone, it could always look elsewhere for help.
“What we want is a deal. But if there is no deal – hopefully (there will be) – and if we see that Germany remains rigid and wants to blow apart Europe, then we have the obligation to go to Plan B. Plan B is to get funding from another source,” he told a Greek television show that ran into early Tuesday. “It could be the United States at best, it could be Russia, it could be China or other countries,” he said.
Does Germany also want Greece out because Greece said it won’t agree to additional sanctions on Russia?
⇧ REFILE-UPDATE 1-Halliburton to cut thousands of jobs as oil slumps | Reuters
U.S. oil services company Halliburton said on Tuesday it expects to cut potentially more than 6,000 jobs across the globe because of a “challenging market environment” resulting from low oil prices.
Halliburton, the latest in a growing list of major oil industry companies laying off workers because of a worldwide glut of crude, said it expects to let go 6.5 percent to 8 percent of its 80,000-strong workforce, amounting to between 5,200 and 6,400 jobs.
There’s a lag before these numbers will be reflected in the BLS stats. If oil prices settle somewhere, it will still take a few months to see where unemployment will mostly land as a result.
⇧ Wealthy Chinese investors eschew residential real estate for hotels, wineries, mineral water in British Columbia | Financial Post
Vancouver has been a top destination for Asian immigrants for decades, helping make it Canada’s most expensive housing market and one consistently ranked as North America’s least affordable. Houses and luxury condos in the Vancouver area have been the investment of choice for both well-heeled new arrivals and China-based investors putting money abroad.
But with the Vancouver market looking pricey, many of these investors are seeking other opportunities. They range from hotels and golf courses targeting Chinese tourists to berry farms, mineral water sources, and wineries that export to Asia.