Jun 192016
 
 June 19, 2016  Posted by at 2:39 pm Finance Tagged with: , , , , , , , ,  


DPC White Star liner S.S. Olympic, sister ship of Titanic, NY 1911

The reason the Brexit debate has gotten so out of hand is nobody understands what it’s about.

The Brexit campaigns have started anew in the UK, and from what I’ve seen here from left field barely a thing has changed since the murder of MP Jo Cox. Neither side has any qualms about using her death to make their respective points. The main, and perhaps only real, point is that nobody understands what the vote is about. Jo Cox, bless her soul, didn’t either.

This lack of understanding is also, at the same time, the reason why the debate has gotten so out of hand. Nobody seems to understand it’s not about Cameron or Nigel Farage, or Michael Gove vs Boris Johnson, it’s about voting for or against the EU, for or against Juncker and Tusk and five other unelected presidents having a say in one’s life.

And that’s not all either. It’s about voting to leave, or remain in, a Union that is already dead and preserved only in a zombie state. Brexit is just one vote and many more will inevitably follow. Brexit is not the first, Grexit had that ‘honor’ last year. Later this month, elections in Italy and Spain have the potential to turn into preliminary Italix and Spexit votes. And then there will be more.

The reason why these things are taking place, and will be, going forward, is that the economies of all these countries are fast deteriorating. The sole reason why people have accepted the rule of Brussels coming from far away over their daily lives, is the promise that it would make those lives better and more comfortable.

That promise has been shattered. The EU has made things worse for most Europeans, not improved them. And when seen in that light, why should people agree to continue to be told what to do by those who’ve made them poorer? There’s no democratic model in which that remotely makes sense. There are only undemocratic models left.

Britain’s Brexit referendum has run head first into global developments, and there is no sign that any voice in the discussion recognizes this. They all think it’s about something else. And of course Cameron’s policies have devastated the country, and of course the even more right wing Leave campaigners would make that worse. But that’s not what this is about.

 

What Cameron missed when he called the referendum is not that some of his friends could turn on him and go Leave, what he missed is that so many Brits from both the left and the right would turn on him. He never expected that to happen. He always figured his manipulated rosy pink economic numbers would outweigh people’s actual daily lives.

This is a global phenomenon, it has little to do with Cameron himself, other than his neoliberal budget cuts are often even more extreme than those of many of his pan-European and indeed American and global peers. It has a lot more to do with the neoliberalism embedded in Brussels, which has installed technocratic governments in many countries, especially in southern Europe, all with disastrous consequences for the populations.

It’s an exact mirror image of what is happening in the US. The jobs numbers the government and media feed Americans look good once filtered through a hundred layers of manipulation, but people look at what job they themselves have, and what it pays them, and they look at their families, friends and neighbors, and then decide this just ain’t working out or adding up.

The Brexit vote is, in a nutshell, Britain’s last chance to hit the lifeboats and jump the Titanic before it hits the iceberg. This is not even because of the dictatorial character Brussels has taken on, which is starting to display cartoonish properties, it’s because the global economy has hit the debt iceberg well before the EU has.

Voting Remain in next week’s referendum comes down to “Let’s stay onboard so we can help rearrange the deckchairs. And while we’re at it, pick some nice tunes for the orchestra to play on the way down as we sink.”

 

If there’s one outstanding advantage to the Brexit debate, it must be that it has opened up British society to reveal all its festering boils, pimples, pustules, ulcers and neoplasms that had before remained veiled by either stiff upper lips or outright dumb-ass ignorance. Not that the ‘discussion’ has done anything to lift the dumb-assery, mind you; the intelligence level of the Brits has been exposed as yet another hidden sore.

Nothing typically British there either. Neither the people nor the politicians nor the media in the country show any sign of comprehending what is happening to them. Nobody is capable of taking a step back and seeing a bigger picture. Jo Cox’s death has done nothing to fix that issue. Indeed, if there’s one thing Britain has been, and still is, showing the world it’s that it’s incapable of solving its problems.

But that incompetence is not going to be alleviated by handing the reins to Cameron or Johnson, or Corbyn, or indeed Juncker and Tusk. The only remedy is a cold hard look at what’s really going on in Britain itself, a look at its place in a rapidly imploding global economic system, and a look at what being a part of the EU actually means.

To gauge that last bit, all one has to do is to look at Greece, at how the EU has forced the demise of the Greek economy, of its once magnificent health-care system, and of countless other segments of a society still mired today in inexorable decline. A look at the treatment of refugees holds a lesson or two as well.

The summarized lesson from all this is that Brussels will happily throw you under a bus if it feels that would further its ambitions. Of which the EU has many.

The treatment of Greece and the refugees has redefined the term ‘Union’, and everyone should take note.

 

In America, the Democratic and Republican parties have all but internally combusted and destroyed themselves. In Britain, Labo(u)r did that years ago through Tony Blair, and the Tories are doing it today by infighting over Brexit. None of these things are incidents or stand-alone events.

They are part of a much larger pattern, as evidenced by the popularity numbers of people like French president Hollande (8%?!). All but a few incumbent parties in the west are evaporating. And all for the same reason: the demise of the existing economic models and systems that they have based their policies and popularity on.

An economy in decline means the end of centralization and the end of existing political power structures. This is inevitable. Because both can exist only by the grace of ever growing economies. It’s what our economies are based on. It’s what our entire world view is based on. Sometime in the future historians will have a hard time understanding this, but for now it’s all we have, because it’s all we’re willing to consider: growth to infinity and beyond.

Which was, or seemed to be, kind of alright as long as there indeed was growth. But there no longer is any growth. And it will not return for a long time, arguably not in our lifetimes. Which makes it a problem that we haven’t prepared for the end of growth. Which is not terrible smart given that making a point for growth having stopped decades ago looks quite solid.

 

People in Britain try desperately to link Jo Cox’s murder to some sort of larger movement or entity, even if for all they know, for all they can know, the killer is just another warped individual who didn’t take his meds for a long enough period to make him go fully off kilter.

Yeah, he ordered some right wing magazines and books. But that doesn’t mean there’s a conspiracy behind the murder. Nor does it make this fascist and/or right-wing terrorism. Those claims are made solely in an effort to connect the tragedy to the Brexit vote. And that effort all by itself is a huge blemish on Jo Cox’s life, her death and her legacy.

To truly honor her would be to make sure you understand, and help others understand, what she herself did not.

May 252016
 
 May 25, 2016  Posted by at 1:31 pm Finance Tagged with: , , , , , , , , ,  


G.G. Bain Immigrants arriving at Ellis Island, New York 1907

There’ve been a bunch of issues and topics on my -temporarily non-writing- mind, and politics, though as I’ve often said it’s not my preferred focus, keeps on slipping in. That’s not because I’ve gotten more interested in ‘the game’, but because the game itself is changing in unrecognizable fashion, and that is intricately linked to subjects I find more appealing.

For instance, in the past few days, I’ve read Matt Taibbi’s epos on the demise of America’s Republican Party in R.I.P., GOP: How Trump Is Killing the Republican Party, and Shaun King on a similar demise of the Democrats in Why I’m Leaving the Democratic Party After This Presidential Election and You Should Too, and both make a lot of sense.

But I think both also miss out on the main reason why these ‘demises’ are happening. In my view, it’s not enough, not satisfactory, to talk about disgruntled voters and corrupt politicians and the antics of Donaldo, and leave it at that. There is something bigger, much bigger, going on that drives these events.

But that I will explain in a later article (soon!). Right now, I want to address another piece of the same pie (though it’s perhaps not obvious that it is): the Brexit ‘discussion’ in Europe. A May 11 piece by ex-World Banker Peter Koenig provides as good a starting point as any:

The Collapse of the European Union: Return to National Sovereignty and to Happy Europeans?

Imagine – the EU were to collapse tomorrow – or any day soon for that matter. Europeans would dance in the streets. The EU has become a sheer pothole of fear and terror: Economic sanctions – punishment, mounting militarization, the abolition of civil rights for most Europeans. A group of unelected technocrats, representing 28 countries, many of them unfit to serve in their own countries’ political system, but connected well enough to get a plum job in Brussels – are deciding the future of Europe. In small groups and often in secret chambers they decide the future of Europe.

Koenig makes much work of connecting what’s bad about the EU, to the TTiP and TiSA trade deal negotiations. And though the TTiP deal has lately come under rapidly increasing fire in Europe, that is a relevant point. Koenig also, perhaps more importantly, concludes that the EU has no future.

If the TTIP is ratified despite all logic, and if subsequently the EU fell apart – each country would still be held accountable to the terms of the agreement. Hence, time for an EU collapse before signing of the TTIP and TiSA is of the essence. This radical solution may be too much even for staunch EU / Euro opponents. Many of them still seek, hope and dream of a reformed EU. They still live under the illusion that ‘things’ could be worked out. Believe me – they cannot.

The Machiavellian US-invented venture called EU with the equally US-invented common currency – the Eurozone – has run its course. It is about to ram the proverbial iceberg. The EU-Euro vessel is too heavy to veer away from disaster. Europe is better off taking time to regroup; each nation with the objective of regaining political and economic sovereignty – and perhaps with an eye a couple of generations down the road envisaging a new United Europe of sovereign federal states, independent, totally delinked from the diabolical games of the western Anglo-American empire.

That last bit is- or should be- highly relevant to the Brexit discussion that’s ongoing in Britain, working up to an undoubtedly grotesquely clownesque climax on June 23, the day some 40 million by then supremely confused Britons get to vote. Koenig’s last words also contradict the goals and aspirations of Yanis Varoufakis’ new initiative DiEM25, which seeks to democratize the EU from the inside out.

Now, I appreciate Yanis quite a bit, and certainly much more than most Greeks seem to do these days, but ever since DiEM25 announced itself I haven’t been able to keep from thinking: have you looked at the EU lately, like, really looked? I get the idea, obviously, but why would you, to use a convenient metaphor, want to go through the trouble of renovating a building that’s been structurally condemned for good reasons, instead of tearing it down and build a new one?

The only reason I can think of is that DiEM25 thinks the building is still salvageable. Question then: is it? And that’s a question Britain should ask itself too in the run-up to June 23. If you vote yes, what exactly are you voting to belong to, what -sort of- edifice are you electing to continue living in? A delapidated structure bound and waiting to be torn down? If so, why would you do that, and what would be the consequences?

And what about the alternative, what if you voted to leave the building? It’s not as if the present EU is the only way for European countries to work together. There are a zillion others, and arguably some of those might actually do what the EU portends to do but is failing miserably at: that is, prevent violence from breaking out. The narrative of Brussels as a grand peacemaker sounds less credible by the minute.

It is perhaps open to personal interpretation, but when I look at what the EU has done, and is still doing to Greece, the country I’m visiting again trying to relieve some of the pain inflicted on it by the EU, and I look at how the refugee issue has been handled by ‘Brussels the peacemaker’s actions and inactions, causing thousands of deaths and infinitely more misery, you’d have to be a darn great orator to make me support the what I have come to call Unholy Union.

What Greece shows is that there is no Union, other than in times of plenty. What Aylan Kurdi and the sorrowful litany of other drowned toddlers of the Aegean show is that there are no moral values inside the -leadership of the- Union. One drowned child can be an accident. Hundreds of them constitute criminal moral deficiency.

Of course you can argue that since Britain’s handling of the refugee crisis is just as obscene as the rest of Europe’s, this is not in and of itself a reason to vote Leave, but it’s no ground to vote Remain either. If anything, it’s a reason to indict politicians across the European board. Their behavior contrasts sharply with that of many of their constituents, as countless stories testify and as I’ve seen in such sparkling bright light here in Athens.

But we can take this back a few steps. I was surprised to see PM David Cameron appear as the big voice for “Remain”, for the UK to stay within the EU. Cameron was never exactly a fan of the Union. And as the Daily Mail observes, just 6 months ago Mr Cameron “declared there was ‘no question’ that Britain could survive and do well outside the EU.”

But then, he’s a man who’ll happily blow along with whatever wind is prevalent. I was even more surprised to see Boris Johnson try to take the lead of the “Leave” side, because Boris, a weather vane as much as Cameron, had always belonged to the same side as the latter on everything, and now suddenly differs on Remain or Leave. A shrewd career gamble?

The British Conservative Party has managed to corner the entire debate, both yes and no, between them. I mean, kudos and well done old boys, but what a farce that is. Labour’s Jeremy Corbyn sides with Cameron’s Remain side, without wanting to, but has failed utterly to make sure he has a realistic part in the discussion. Exit Jeremy. Where was their spin team when Corbyn fell into that hole?

Of course, there’s Nigel Farage and UKIP, but Nigel will forever be a fringe character. Which is not necessarily a bad thing, by the way; the British Lower House is not that fine of a place to sit in on a daily basis. Whenever I see footage of it I can’t help thinking AA meeting for masochists.

Farage’s main contribution to the discussion will forever be the countless YouTube clips in which he very succinctly explains how dysfunctional the European Parliament he is (was?) a member of, is, to the very same parliamentarians. Maybe more Brits should watch those and think again about what their vote is about.

An apt comparison would seem to lean towards a Tower of Babel much bigger than the original one, and in which between mountains of paper not a single scrap can be found that pertains to the prevention of poverty, misery and the drowning deaths of 4- and 5-year olds. Or at least such, most basic, principles are nowhere near the top of any lists.

Inside the pretend Union, it is obvious that the people of Germany, Holland, France find their own children’s lives more valuable than those of other children. And their futures too; half of Spanish and Greek youngsters are out of work and out of a future. And Brits are asked to vote to keep that demonic apparatus intact and join the oppressors.

Framing it in those terms also tells you something about the DiEM25 question: is it worth one’s while to try and democratize the EU from within? Given how entrenched the predators vs prey positions have become, and how unlikely the predators are to defend their advantages tooth and nail, and how their ‘chosen’ people have taken over Brussels, does that look like a project to put a lot of energy in?

The Euro is just 15 years old, but the EU goes back many decades. Strategic positions have long been taken in trenches that have long been dug. Is that the fight you want to fight? There’ll always be a Europe, but there’s nothing inevitable or incontrovertible about the EU, or about Brussels being its capital. All it takes is perhaps for one country to say “Thanks, but no, thanks.” The EU for all its bluster is very vulnerable.

So there’s your voting options. But it should be clear that the Brexit vote is headlined by the wrong people, for all the wrong reasons, and with all the wrong arguments. It can’t be exclusively about money, but it is. And if the Unholy Union falls apart sometime further down the line regardless, a vote for Remain on purely financial grounds will take on a whole different light: wasted energy, wasted money, wasted morals.

Besides, nobody knows what the -financial- effects of a Brexit will be, and any claims that are made to the contrary are just guesses based on whatever political -career- preferences the person or institution making them has. ‘Things’ ‘could’ crash on Trump victories and they could crash on Brexit, but any numbers attached to these potential events are 100% made up. It’s hilarious to see Treasurer George Osborne declare with a straight face that a Brexit would cause UK home prices to fall by 18%, but that’s all it is.

First question is: you sure it’s not 18.5%? What genius advisor came up with that number? Or did they have a committee of wise men in a week-long cigar-fueled brainstorming session that split their differences? Second question: do you guys realize that falling home prices are exactly what at least half of Britain is looking for? That distorting your real estate market to the extent that nobody can afford a home anymore is a dead-end street that kills cities and communities and people in the process?

I should stop here right? I can write a book about this, not because Brexit is such a huge subject (just see if anyone in Europe cares), but because the EU is such a yuuge disaster, and there will be many more opportunities to return to the topic. I have tons more little notes scribbled down, and a flood more crazy claims and comments will be made by various parties in the ‘fight’. Just wanted to say that this whole ‘debate’ -if you can call it that- has so far been very different from what it should have been.

Why would you want to belong to a team like the EU? I know that Cameron does, and so does Corbyn, but none of that is reason you should too. Nor should you want to ‘Leave’ because Boris Johnson wants to. You need to look out over the whole landscape. But that’s just me.

Apr 112016
 
 April 11, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , , , ,  


Dorothea Lange Butter bean vines across the porch, Negro quarter, Memphis, Tennessee 1938

US Banks’ Dismal First Quarter Spells Trouble For 2016 (Reuters)
US Faces ‘Disastrous’ $3.4 Trillion Pension Funding Hole (FT)
Abenomics Rebuked As BlackRock Joins $46 Billion Japan Pullout (BBG)
Beijing Risks ‘Sterling-Style’ Currency Crisis As Deflation Persists (AEP)
Chinese Buyers Double Their Aussie Property Investments, Again (BBG)
In BP’s Final $20 Billion Gulf Settlement, US Taxpayers Pay $15.3 Billion (F.)
British Banks’ ‘Misconduct Bill’ Has Reached Nearly $75 Billion (Reuters)
The 1% Hide Their Money Offshore – Then Use It To Corrupt Our Democracy (G.)
Hit By Panama Row, Cameron Announces New Tax Evasion Law In 2016 (Reuters)
Italy Pushes For ‘Last Resort’ Bank Rescue Fund (FT)
Austria Regulator Imposes 54% Haircut, Long Wait On Heta Bank Creditors (R.)
As Ukraine Collapses, Europeans Tire of Us Interventions (Ron Paul)
State Of Emergency Over Suicide Epidemic In Canada’s First Nations (G.)
Mass Coral Bleaching Now Affects Half Of Great Barrier Reef (G.)
Fewer Than 0.1% Of Syrians In Turkey In Line For Work Permits (G.)
Hundreds Hurt As Refugees Confront FYROM Border Police Tear Gas (AP)

When TBTF starts failing, watch your wallet.

US Banks’ Dismal First Quarter Spells Trouble For 2016 (Reuters)

It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks. Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week. Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth. Analysts forecast a 20% decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs, are expected to report the worst results in over ten years.

This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year. “What’s concerning people is they’re saying, ‘Is this going to spill over into other quarters?'” Goldman’s Richard Ramsden said in an interview. “If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium.” Investors will get some insight on Wednesday, when earnings season kicks off with JPMorgan, the country’s largest bank. That will be followed by Bank of America and Wells Fargo on Thursday, Citigroup on Friday, and Morgan Stanley and Goldman Sachs on Monday and Tuesday, respectively, in the following week.

Banks have been struggling to generate more revenue for years, while adapting to a panoply of new regulations that have raised the cost of doing business substantially. The biggest challenge has been fixed-income trading, where heavy capital requirements, new derivatives rules, and restrictions on proprietary trading have made it less profitable, leading most banks to simply shrink the business. Bank executives have already warned investors to expect major declines across other areas as well. Citigroup CFO John Gerspach said to expect trading revenue more broadly to drop 15% versus the first quarter of last year. JPMorgan’s Daniel Pinto said to expect a 25% decline in investment banking. Several bank executives have warned about declining quality of energy sector loans.

Read more …

“California, Illinois, New Jersey, Chicago and Austin, would need to put at least 20% of their revenues into their pension plans to prevent a rise in their deficits, while Nevada would have to contribute almost 40%.”

US Faces ‘Disastrous’ $3.4 Trillion Pension Funding Hole (FT)

The US public pension system has developed a $3.4tn funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies. According to academic research shared exclusively with FTfm, the collective funding shortfall of US public pension funds is three times larger than official figures showed, and is getting bigger. Devin Nunes, a US Republican congressman, said: “It has been clear for years that many cities and states are critically underfunding their pension programmes and hiding the fiscal holes with accounting tricks.” Mr Nunes, who put forward a bill to the House of Representatives last month to overhaul how public pension plans report their figures, added: “When these pension funds go insolvent, they will create problems so disastrous that the fund officials assume the federal government will have to bail them out.”

Large pension shortfalls have already played a role in driving several US cities, including Detroit in Michigan and San Bernardino in California, to file for bankruptcy. The fear is other cities will soon become insolvent due to the size of their pension deficits. Joshua Rauh, a senior fellow at the Hoover Institution, a think-tank, and professor of finance at the Stanford Graduate School of Business, who carried out the study, said: “The pension problems are threatening to consume state and local budgets in the absence of some major changes. “It is quite likely that over a five to 10-year horizon we are going to see more bankruptcies of cities where the unfunded pension liabilities will play a large role.” The Stanford study found that the states of Illinois, Arizona, Ohio and Nevada, and the cities of Chicago, Dallas, Houston and El Paso have the largest pension holes compared with their own revenues.

In order to deal with the large funding shortfall, many cities and states will have to increase their contributions to their pension funds, either by raising taxes or cutting spending on vital services. Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania, told FTfm last month that US public pension plans face “grave difficulties”. “I do believe that US cities and towns will continue to suffer, and there will be additional bankruptcies following the examples of Detroit,” she said. Currently, states and local governments contribute 7.3% of revenues to public pension plans, but this would need to increase to an average of 17.5% of revenues to stop any further rises in the funding gap, the research said. Several cities and states, including California, Illinois, New Jersey, Chicago and Austin, would need to put at least 20% of their revenues into their pension plans to prevent a rise in their deficits, while Nevada would have to contribute almost 40%.

Read more …

“A lot of people are starting to doubt Abenomics.” Very few have ever believed in it. But there was free money to be had.

Abenomics Rebuked As BlackRock Joins $46 Billion Japan Pullout (BBG)

For global equity investors and Shinzo Abe, it’s splitsville. Starting in the first days of 2016, foreign traders have been pulling out of Tokyo’s stock market for 13 straight weeks, the longest stretch since 1998. Overseas traders dumped $46 billion of shares as economic reports deteriorated, stimulus from the Bank of Japan backfired and the yen’s surge pressured exporters. The benchmark Topix index is down 17% in 2016, the world’s steepest declines behind Italy. Losing the faith of foreigners would be a blow to the Japanese prime minister – they’re the most active traders in a market Abe has held up as a litmus on his growth strategies. “Japan is back,” and “Buy my Abenomics!” he proclaimed during a visit to the New York Stock Exchange in September 2013, when shares were marching to an eight-year high.

Now about half of those gains are gone and BlackRock, the world’s largest money manager, is among firms ending bullish calls on Japan equities. “Japan has been disappointing,” said Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors, which oversees about $115 billion. He’s a long-time fan of Tokyo equities who says he’s now looking for opportunities to sell. “A lot of people are starting to doubt Abenomics.” While markets elsewhere are climbing back from a global selloff, investors in Japan see fewer reasons for optimism. Growing concern that Abenomics – the three-pronged strategy of fiscal and monetary stimulus and structural reform – is falling flat has spurred speculation the nation will slip into deflation, setting back efforts to end three decades of malaise.

Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui, fears a downward spiral. Foreigners are needed to boost the stock market, and if equities don’t rise the public will lose confidence and curb spending, as he sees it. That could send Japan back into deflation. “If foreigners don’t come back, the future of Abenomics could be jeopardized,” he said.

Read more …

“Reserves will continue to fall until we devalue. Once we get towards $2 trillion the markets will start to panic. They won’t believe that the government can control it any longer..”

Beijing Risks ‘Sterling-Style’ Currency Crisis As Deflation Persists (AEP)

A top adviser to the Chinese government has warned that Beijing risks a currency blow-up akin to Britain’s traumatic ordeal in 1992, if it continues trying to defend its exchange rate peg amid a deepening deflation crisis. Yu Hongding, a director of the Chinese Academy of Social Sciences, said China is caught in two concurrent “deflationary spirals” that are feeding on the other. A major devaluation and a blast of well-targeted fiscal stimulus will be needed to break out of the trap. “They must stop intervening on the exchange market. China needs to devalue by 15pc. They are creating conditions for speculators,” he told the Daily Telegraph, speaking at the Ambrosetti forum of global policymakers on Lake Como.

Prof Yu, a former rate-setter for the PBOC and currently a member of the national planning committee, said the government is making a serious mistake in trying to defend the yuan by burning through foreign exchange reserves, already down to $3.2 trillion from $4 trillion in mid-2014. He warned that the slowdown in capital outlows in March may prove fleeting. “Reserves will continue to fall until we devalue. Once we get towards $2 trillion the markets will start to panic. They won’t believe that the government can control it any longer,” he said. Prof Yu said Beijing had been caught off guard by the relentless slowdown over the last five years. “In 2011 we thought the economy would stabilize, and we thought the same thing in 2012, and again in 2013, and it continued to slide,” he said.

It is far from clear whether the world could handle a 15pc devaluation given the vast scale of Chinese overcapacity, or that the US Treasury and Congress would tolerate such a move. Fears of uncontrollable capital flight and a yuan devaluation were key reasons for the plunge in global equity markets earlier this year, and are clearly what prompted the US Federal Reserve to delay rate rises. The fate of China’s currency has become the most neuralgic issue in global finance. One worry is that a sharp drop in the yuan would set off a second round of ‘currency wars’ across East Asia, transmitting a deflationary shock through the international system as cheap Asian exports flooded into Western markets.

Prof Yu’s life is a remarkable story of achievement in Maoist China. He worked for ten years in a machine factory, wrestling with Marx’s Das Kapital at night before discovering western economics. He devoured Paul Samuelson’s classic text, ‘Foundations of Economic Analysis’, first in a Chinese translation and then in the original after teaching himself English, no easy feat in the Cultural Revolution. He went onto to earn a doctorate at Oxford University, and was still in England when sterling was blown out of the European Exchange Rate Mechanism in September 1992. He still recalls the exact details of the debacle, including the two desperate rate rises by the Bank of England in a single day. “The British experience is very interesting for us,” he said.

Read more …

Keeps the bubble alive until it doesn’t.

Chinese Buyers Double Their Aussie Property Investments, Again (BBG)

Chinese appetite for property in Australia shows no sign of waning after buyers doubled investment in the nation’s homes and offices for a second straight year. Spending on Australian residential and commercial real estate rose to A$24.3 billion ($18.4 billion) in the 12 months through June 2015, up from A$12.4 billion a year earlier and A$5.9 billion in 2013, according to the Foreign Investment Review Board’s annual report. All Chinese investors in a survey conducted by KPMG and the University of Sydney want to allocate more money to Australia, a separate report showed on Monday. Real estate is fueling inflows from the world’s second largest economy, which last year overtook the U.S. as Australia’s largest foreign investor.

“Overall we are seeing a strong story of Chinese investment into Australia’s broader economy which is in line with premium products, services and lifestyle-oriented themes,” Doug Ferguson, head of KPMG Australia’s Asia and International Markets and co-author of the report, said in a statement. Purchases by foreigners, many with a connection to China, helped drive an almost 55% jump in home prices across Australia’s capital cities in the past seven years as mortgage rates dropped to five-decade lows. The rising demand has triggered community concern that locals are being priced out of the property market, prompting the government to tighten scrutiny of foreign investment.

Read more …

Like so many other things these days, perfectly legal.

In BP’s Final $20 Billion Gulf Settlement, US Taxpayers Pay $15.3 Billion (F.)

Now that a judge has approved BP’s $20 billion settlement over the 2010 gulf oil spill, it is appropriate to look at the overall societal costs, as well as the bottom line to BP. And at tax time, people understandably think about their own taxes, too. The government struck a $20 billion settlement with BP, which is a big number. Yet BP should be able to deduct the vast majority, a whopping $15.3 billion, on its U.S. tax return. That means American taxpayers are contributing quite a lot to this settlement, whether they know it or not. BP can write off the natural resource damages payments, restoration, and reimbursement of government costs. Only $5.5 billion is labeled as a non-tax-deductible Clean Water Act penalty. One big critic of the deal is U.S. Public Interest Research Group, which often rails against tax deductions by corporate wrongdoers.

U.S. Public Interest Research Group has asked the Justice Department to deny tax deductions for BP and other corporate defendants. U.S. PIRG’s has a research report on settling for a lack of accountability that details the tax deductions corporations can claim for legal settlement. However, a change to the tax code may be the only way to get there. The proposed Truth in Settlements Act (S. 1898) would require agencies to report after-tax settlement values. Another bill, S. 1654, would restrict tax deductibility and require agencies to spell out the tax status of settlements. The present tax code allows businesses to deduct damages, even punitive damages. Restitution and other remedial payments are also fully deductible. Only certain fines or penalties are nondeductible. Even then, the rules are murky, and companies routinely deduct payments unless it is completely clear that they cannot.

Read more …

No bankers have been indicted, and no shareholder has taken them to court.

British Banks’ ‘Misconduct Bill’ Has Reached Nearly $75 Billion (Reuters)

Lawsuits and misconduct fines have cost Britain’s largest retail banks and customer-owned lenders almost 53 billion pounds ($74.86 billion) over the past 15 years, a new study has found. The scale of the payouts has hampered banks’ efforts to rebuild capital, restricted the amount they are able to lend and reduced dividends for investors. Britain’s banks have been hit by scandals ranging from the manipulation of foreign exchange and benchmark interest rates to the mis-selling of loan insurance and complex interest-rate hedging products. While lenders have struggled to return money to shareholders because of the charges, they have continued to pay billions of pounds in bonuses to staff, the study by the independent think-tank New City Agenda said.

“The profitability of UK retail banks has been imperilled by persistent misconduct,” said John McFall, a director of New City Agenda and former Treasury Committee chairman. “This has made every citizen poorer through our pension funds and our ownership of the bailed out banks.” The report said the mis-selling of payment protection insurance alone cost banks at least 37.3 billion pounds in Britain’s costliest consumer scandal. Lloyds had to set aside 14 billion pounds to cover misconduct between 2010 and 2014, almost twice the amount of any other British lender, the report said.

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Yup, that’s how it works.

The 1% Hide Their Money Offshore – Then Use It To Corrupt Our Democracy (G.)

Over the past 72 hours, you have seen our political establishment operating at a level of panic rarely equalled in postwar history. Britain’s prime minister has had yanked out of him some of his most intimate financial details. Complete strangers now know how much he’s inherited so far from his mum and dad, and the offshore investments from which he’s profited. Yesterday he even took the unprecedented step of revealing the taxes he’d paid over the past six years. Leaders of other parties have responded by summarily publishing their own HMRC returns. In contemporary Britain, where one’s extramarital affairs are more readily discussed in public than one’s tax affairs, this is jaw-dropping stuff. And it will not stop here.

Whatever the lazy shorthand being used by some commentators, David Cameron has not released his tax returns, but merely a summary certified by an accountants’ firm. That halfway house will hardly be enough. If Jeremy Corbyn, other senior politicians and the press keep up this level of attack, then within days more details of the prime minister’s finances will emerge. Nor will the flacks of Downing Street be able to maintain their lockdown on disclosing how many cabinet members have offshore interests: the ministers themselves will break ranks. Indeed, a few are already beginning to do so. But the risk is that all this will descend into a morass of semi-titillating detail: a string of revelations about who gave what to whom, and whether he or she then declared it to the Revenue.

The story will become about “handling” and “narrative” and individual culpability. That will be entertaining for those who like to point fingers, perplexing for those too busy to engage in the detail – and miss the wider truth revealed by the leak which forced all this into public discussion. Because at root, the Panama Papers are not about tax. They’re not even about money. What the Panama Papers really depict is the corruption of our democracy. Following on from LuxLeaks, the Panama Papers confirm that the super-rich have effectively exited the economic system the rest of us have to live in. Thirty years of runaway incomes for those at the top, and the full armoury of expensive financial sophistication, mean they no longer play by the same rules the rest of us have to follow. Tax havens are simply one reflection of that reality.

Discussion of offshore centres can get bogged down in technicalities, but the best definition I’ve found comes from expert Nicholas Shaxson who sums them up as: “You take your money elsewhere, to another country, in order to escape the rules and laws of the society in which you operate.” In so doing, you rob your own society of cash for hospitals, schools, roads… But those who exited our societies are now also exercising their voice to set the rules by which the rest of us live. The 1% are buying political influence as never before. Think of the billionaire Koch brothers, whose fortunes will shape this year’s US presidential elections. In Britain, remember the hedge fund and private equity barons, who in 2010 contributed half of all the Conservative party’s election funds – and so effectively bought the Tories their first taste of government in 18 years.

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He will have to reveal a lot more of his own finances, no matter what laws he has lying on the shelf.

Hit By Panama Row, Cameron Announces New Tax Evasion Law In 2016 (Reuters)

British Prime Minister David Cameron will say on Monday that new legislation making companies criminally liable if employees aid tax evasion will be introduced this year, as he seeks to repair the damage from a week of questions about his personal finances. Cameron published tax records on Sunday to try and defuse criticism over his handling of the fallout from the Panama Papers, in which his late father was mentioned for setting up an offshore fund. After four carefully worded statements in four days, Cameron bowed to pressure and admitted that he had benefited from selling his share in his father’s fund in 2010. He recognized on Saturday that he had mishandled the disclosure. Cameron is leading efforts to persuade British voters to stay in the EU in a June 23 referendum that the polls suggest will be tight, and the tax row has raised concerns among the “in” camp that their cause may have been damaged.

The prime minister will attempt to regain the upper hand when he appears in the House of Commons later on Monday. “This government has done more than any other to take action against corruption in all its forms, but we will go further,” Cameron will say, according to advance excerpts of his statement circulated by his Downing Street office. “That is why we will legislate this year to hold companies who fail to stop their employees facilitating tax evasion criminally liable,” he will say. The plan had already been announced by finance minister George Osborne in March 2015, but previously the commitment was to introduce the legislation by 2020, Downing Street said. The decision to speed up that particular measure is unlikely to satisfy Cameron’s many critics in opposition parties and in some campaign groups that say Britain already has the tools it needs to crack down on tax evasion but lacks the will.

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Debt restructuring is still a four letter word in Europe.

Italy Pushes For ‘Last Resort’ Bank Rescue Fund (FT)

Italy is rushing to cobble together an industry-led rescue to address mounting concerns over the solidity of a banking sector whose woes pose a risk to the wider eurozone economy. Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan. Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks, Monte dei Paschi di Siena, from contagion, according to people involved in the talks. Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. Lenders’ profitability has been hit by a crippling three-year recession.

The plan being worked on, which could be officially announced as soon as Monday evening, recalls the Sareb bad bank created in 2012 by the Spanish government to deal with financial crisis in its smaller cajas banks, say people involved. Although the details remain under discussion, it foresees the establishment of a private vehicle that will include upwards of €5bn in equity contributions – mostly from Italy’s banks, insurers and asset managers – and then a larger debt component. The fund will then mop up shares in distressed lenders. A second vehicle will seek to buy non-performing loans at market prices. “It is a backstop fund,” said one person involved in the talks. The Italian government can provide only limited financial backing because of EU state aid rules and because it is already struggling under a public debt load that amounts to 132.5% of GDP.

The bailout marks the latest and most wide-reaching attempt by Italy to shore up confidence having already sponsored the rescue of four small banks last year and passed a law intended to speed up the sale of bad loans. Both earlier measures failed to eradicate market concerns. [..] people involved in the talks question whether the plan would have the financial scope to provide a buffer of last resort for Monte dei Paschi di Siena. Italy’s third-largest bank was the worst performer in the 2014 European stress tests, with about €170bn in assets and about €50bn in bad loans. It is considered by many bankers to be the major risk to Italian financial stability and regarded as too big to fail. “Monte Paschi is the elephant in the room,” says one of Italy’s top bankers.

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Is this an attempt to let Carinthia go broke after all?

Austria Regulator Imposes 54% Haircut, Long Wait On Heta Bank Creditors (R.)

Austria’s financial markets regulator FMA on Sunday cut the nominal value of “bad bank” Heta Asset Resolution’s senior bonds by more than half, highlighting the long struggle creditors face for repayment if a settlement is not reached. The FMA, which is overseeing the wind-down of Heta, on Sunday announced measures including the bail-in, or haircut, of 54%, the extension of bonds’ maturities to 2023 and the cancellation of coupon payments as of March of last year.The announcement is the latest chapter in a standoff between the province of Carinthia and Heta’s creditors, many of which insist on repayment in full because their bonds were guaranteed by Carinthia, which could push the province into insolvency.

Carinthia guaranteed the bonds of local lender Hypo Alpe Adria before it collapsed and Heta was formed to wind it down. Carinthia says it cannot afford to fully honour the remaining guarantees, which the FMA put at €11.1 billion. Creditors are likely to sue Carinthia to recover the difference between what is paid out to them under Heta’s wind-down and their bonds’ full face value. The FMA put that difference at €6.4 billion, roughly three times the annual budget of Carinthia, a southern province of about 560,000 people that borders Italy and Slovenia and was long the stronghold of far-right politician Joerg Haider. The haircut’s size is based on the amount the FMA expects will be recovered from the sale of Heta’s assets by 2020.

It had said the estimate would be conservative to ensure that, if it is wide of the mark, there is extra revenue to be shared out. Only by the end of 2023 will it be possible to pay out all funds owed, the FMA said, partly in anticipation of many court cases, meaning creditors face a wait of seven years for their repayment of 46% of senior bonds’ face value. Carinthia offered to buy back the bonds it guaranteed, with loans from the Austrian government, for 75% of senior bonds’ face value, plus a last-minute sweetener by the Austrian government that brought the offer to around 82%. Too few creditors accepted the offer when it expired last month, and the question is now whether a compromise can be found or whether the dispute will be settled in court.

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Ron Paul doesn’t capture the entire picture, but from a US perspective he’s largely right.

As Ukraine Collapses, Europeans Tire of Us Interventions (Ron Paul)

On Sunday Ukrainian prime minister Yatsenyuk resigned, just four days after the Dutch voted against Ukraine joining the European Union. Taken together, these two events are clear signals that the US-backed coup in Ukraine has not given that country freedom and democracy. They also suggest a deeper dissatisfaction among Europeans over Washington’s addiction to interventionism. According to US and EU governments – and repeated without question by the mainstream media – the Ukrainian people stood up on their own in 2014 to throw off the chains of a corrupt government in the back pocket of Moscow and finally plant themselves in the pro-west camp. According to these people, US government personnel who handed out cookies and even took the stage in Kiev to urge the people to overthrow their government had nothing at all to do with the coup.

When Assistant Secretary of State Victoria Nuland was videotaped bragging about how the US government spent $5 billion to “promote democracy” in Ukraine, it had nothing to do with the overthrow of the Yanukovich government. When Nuland was recorded telling the US Ambassador in Kiev that Yatsenyuk is the US choice for prime minister, it was not US interference in the internal affairs of Ukraine. In fact, the neocons still consider it a “conspiracy theory” to suggest the US had anything to do with the overthrow. I have no doubt that the previous government was corrupt. Corruption is the stock-in-trade of governments. But according to Transparency International, corruption in the Ukrainian government is about the same after the US-backed coup as it was before.

So the intervention failed to improve anything, and now the US-installed government is falling apart. Is a Ukraine in chaos to be considered a Washington success story? This brings us back to the Dutch vote. The overwhelming rejection of the EU plan for Ukrainian membership demonstrates the deep level of frustration and anger in Europe over EU leadership following Washington’s interventionist foreign policy at the expense of European security and prosperity. The other EU member countries did not even dare hold popular referenda on the matter – their parliaments rubber-stamped the agreement.

Brussels backs US bombing in the Middle East and hundreds of thousands of refugees produced by the bombing overwhelm Europe. The people are told they must be taxed even more to pay for the victims of Washington’s foreign policy. Brussels backs US regime change plans for Ukraine and EU citizens are told they must bear the burden of bringing an economic basket case up to European standards. How much would it cost EU citizens to bring in Ukraine as a member? No one dares mention it. But Europeans are rightly angry with their leaders blindly following Washington and then leaving them holding the bag.

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This continues to make my half-Canadian heart bleed. It’s been going on for so long.

State Of Emergency Over Suicide Epidemic In Canada’s First Nations (G.)

A Canadian First Nation community of 2,000 people has declared a state of emergency after 11 of its members tried to take their own lives, national media reported. CTV News reported on Sunday that the remote northern community of the Attawapiskat First Nation in Ontario experienced an additional 28 suicide attempts last month. More than 100 people in the community have attempted suicide since last September, and one person died, according to CTV. The youngest was 11, the oldest 71. Charlie Angus, the local member of parliament, told the Canadian Press it was part of a “rolling nightmare” of more and more suicide attempts among young people throughout the winter. The Canadian Press said the regional First Nations government was sending a crisis response unit including social workers and mental health nurses to the community following the declaration.

The Health Canada federal agency said in a statement that it had sent two mental health counsellors as part of that unit. Attawapiskat resident Jackie Hookimaw told The Canadian Press that the epidemic started in the autumn when her 13-year-old niece Sheridan killed herself after being bullied at school. “There’s different layers of grief,” she said. “There’s normal grief, when somebody dies from illness or old age. And there’s complicated grief, where there’s severe trauma, like when somebody commits suicide.” Canadian prime minister Justin Trudeau said on Twitter: “The news from Attawapiskat is heartbreaking. We’ll continue to work to improve living conditions for all Indigenous peoples.” Another Canadian First Nation community in the western province of Manitoba appealed for federal aid last month, citing six suicides in two months and 140 suicide attempts in two weeks.

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“..three to four times worse than in 1998 or the second great bleaching in 2002.”

Mass Coral Bleaching Now Affects Half Of Great Barrier Reef (G.)

The mass coral bleaching event smashing the Great Barrier Reef has severely affected more than half its length and caused patches of bleaching in most areas, according to scientists conducting an extensive aerial survey of the damage. “The good news with my last flight is that I found 50 reefs that weren’t bleached, so that may be the southern boundary,” said Terry Hughes from James Cook University. Hughes is the head of the national coral bleaching task force, which has been conducting flights over the length of the reef, mapping bleached areas and recording the severity of the damage. Climate change and a strong El Niño have caused hundreds of kilometres of the reef to bleach, as the higher water temperatures stress the coral, and they expel their symbiotic algae.

If the bleaching is bad enough, or the temperatures remain high for long enough, the corals die, putting the future of reefs at risk. The mass bleaching on the Great Barrier Reef is part of what the US National Oceanographic and Atmospheric Administration has called the third global bleaching event – the first occurred in 1998. Initial reports suggested only the most northern and remote areas of the Great Barrier Reef were bleaching, but as aerial surveys have continued, scientists have struggled to find a southern boundary. The latest find of a stretch of unaffected reefs around Mackay was a small piece of good news, Hughes said. But he said its significane would be unclear until reefs further south were examined. “It may be a false southern boundary,” Hughes said.

The reefs around Mackay have unusually large tides, which might have pulled in cooler water and saved the coral there. [..] Two weeks ago, the Great Barrier Reef Marine Park Authority reported half the coral in the northern parts of the reef were dead. Hughes said that was consistent with reports from divers north of Port Douglas. Hughes said this was by far the worst bleaching event to have hit the Great Barrier Reef. He said it was three to four times worse than in 1998 or the second great bleaching in 2002. Last year, the Great Barrier Reef narrowly escaped being listed as “in danger” by Unesco, even though environmental groups said it clearly met the criteria. Hughes said the “outstanding universal value” of the reef was now “severely compromised”.

Ariane Wilkinson, a lawyer at Environmental Justice Australia, said the bleaching might cause Unesco to reconsider its decision. “[Unesco] weren’t scheduled to examine the reef this year but in light of the terrible bleaching it is entirely possible that they may decide to look at the reef,” she said. “If the World Heritage system is to have any value, it must address the most serious threats to the most iconic examples of world heritage,” she said. “If any site falls into this category, it is the … Great Barrier Reef.”

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Safe third country.

Fewer Than 0.1% Of Syrians In Turkey In Line For Work Permits (G.)

Fewer than 0.1% of Syrians in Turkey currently stand to gain the right to work under much-vaunted Turkish labour laws, undermining EU claims that the legislation excuses a recent decision to deport Syrian asylum-seekers back to Turkey. Turkish employers have allowed roughly 2,000 – or 0.074% – of Turkey’s 2.7 million Syrians to apply for work permits under new legislation enacted two months ago, according to government figures provided to aid workers at a meeting in late March. The number of permits granted has not yet been disclosed. More applications are expected in the coming months, but the statistic nevertheless highlights how the new law, enacted in January, does not offer blanket access to the labour market for all Syrians in Turkey.

Instead work permits can only be given to those who have the blessing of their employers, many of whom may still be unaware of the law, or unwilling to comply with it since it would require them to pay their employees the minimum wage. The figure was revealed in a speech to aid groups by the head of Turkey’s general directorate for migration management, who said he hoped the number would rise once more people became aware of the law. The news will complicate the new EU-Turkey deal to deport all asylum-seekers arriving to Greece back to Turkey, since the EU has justified the controversial agreement by claiming Turkey was a place that upheld internationally agreed obligations to refugees, including access to legal work. While Turkey is not a full signatory to the 1951 UN refugee convention, EU politicians have sometimes cited the January law as an example of how Turkey maintains the values of the convention by other means.

But in reality the law does not automatically offer most refugees a route out of the black market, several Syrians argued in interviews. Most problematically, the law requires an employer to give his employees a contract before they can apply for a permit. But this is an unattractive proposition for many employers, since they often employ Syrians precisely because they are easily exploited, said Hussam Orfahli, CEO of an Istanbul-based firm that helps Syrians apply for paperwork in Turkey. “If he wants you to have a work permit, then you can get it – but if he doesn’t, then you won’t,” said Orfahli, who has applied for permits on behalf of 60 wealthy clients, but has yet to hear whether any of them have been successful. “The minimum wage is 1,300 Turkish lira [£320] and most employers refuse to give contracts so that they can pay less, and don’t have to pay your health insurance.”

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Children injured by (8 hours of!) tear gas. Europe 2016.

Hundreds Hurt As Refugees Confront FYROM Border Police (AP)

Migrants waged running battles with Macedonian police Sunday after they were stopped from scaling the border fence with Greece near the border town of Idomeni, and aid agencies reported that hundreds of stranded travelers were injured. Macedonian police used tear gas, stun grenades, plastic bullets and a water cannon to repel the migrants, many of whom responded by throwing rocks over the fence at police. Greek police observed from their side of the frontier but did not intervene. More than 50,000 refugees and migrants have been stranded in Greece after Balkan countries closed their borders to the massive flow of refugees pouring into Europe. Around 11,000 remain camped out at the border with Macedonia, ignoring instructions from the government to move to organized shelters as they hold out hope to reach Western Europe.

Clashes continued in the afternoon as migrant groups twice tried to overwhelm Macedonian border security. The increasing use of tear gas reached families in their nearby tents in Idomeni’s makeshift camp. Many camp dwellers, chiefly women and children, fled into farm fields to escape the painful gas. Observers held out hope that evening rainfall, which began about seven hours into the clashes, would dampen hostilities. The aid agency Doctors Without Borders estimated that their medical volunteers on site treated about 300 people for various injuries. Achilleas Tzemos, deputy field coordinator of Doctors Without Borders, told the AP that the injured included about 200 experiencing breathing problems from the gas, 100 others with cuts, bruises and impact injuries from nonlethal plastic bullets.

He said six of the most seriously injured were hospitalized. The clashes began soon after an estimated 500 people gathered at the fence. Many said they were responding to Arabic language fliers distributed Saturday in the camp urging people to attempt to breach the fence Sunday morning and “go to Macedonia on foot.” A five-member migrant delegation approached Macedonian police to ask whether the border was about to open. When Macedonian police replied that this wasn’t happening, more than 100, including several children, tried to scale the fence. Greece criticized the Macedonian police response as excessive. Giorgos Kyritsis, a spokesman for the government’s special commission on refugees, said Macedonian forces had deployed an “indiscriminate use of chemicals, plastic bullets and stun grenades against vulnerable people.”

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Apr 102016
 
 April 10, 2016  Posted by at 9:43 am Finance Tagged with: , , , , , , , ,  


Jack Delano Bridge with 5-ton coal bucket, Milwaukee Western Fuel Co 1942

Britain Is The Heart And Soul Of Tax Evasion (RT)
How a US president and JP Morgan Made Panama and Turned It Into A Tax Haven (G.)
Cameron Faces Questions Over £200,000 Gift From Mother (Observer)
Panama Papers: Act Now. Don’t Wait For Another Crisis (Piketty)
The Next Recession Will Blow Out the US Budget (Mauldin)
Schäuble: Time is Near to End Central Banks’ Easy-Money Policies (WSJ)
Why US Infrastructure Costs So Much (BBG)
SYRIZA, IMF and EU: Gambling With The Future Of Greece (SE)
Lesbos Hopes Pope’s Visit Will Shine Light On Island’s Refugee Role (Observer)
Greece Says It Will Take At Least Two Weeks To Fix Deporation System (Kath.)

Why the City of London got so big.

Britain Is The Heart And Soul Of Tax Evasion (RT)

The British government’s claim to be tackling tax evasion is about as credible as Al Capone claiming to be leading the fight against organized crime. In fact, Britain is at the heart of the global tax haven network, and continues to lead the fight against its regulation. The 11 and a half million leaked documents from Panamanian law firm Mossack Fonseca have proven, once again, what we have already known for some time – that the ‘offshore world’ of tax havens is a den of money laundering and tax evasion right at the heart of the global financial system. Despite attempts by Western media to twist the revelations into a story about the ‘corruption’ of official enemies – North Korea, Syria, China and, of course, Putin, who is not even mentioned in the documents – the real story is the British government’s assiduous cultivation of the offshore world.

For whilst corruption exists in every country, what enables that corruption to flourish and become institutionalized is the network of secretive financial regimes that allow the world’s biggest criminals and fraudsters to escape taxation, regulation and oversight of their activities. And this network is a conscious creation of the British state. Of the 215,000 companies identified in the Mossack Fonseca documents, over half were incorporated in the British Virgin Islands, one single territory in what tax haven expert Nicholas Shaxson calls a “spider’s web” of well over a dozen separate UK-controlled dens of financial chicanery. In addition, the UK was ranked number two of those jurisdictions where the banks, law firms and other middlemen associated with the Panama Papers operate, only topped by Hong Kong, whose institutional environment is itself a creation of the UK.

And of the ten banks who most frequently asked Mossack Fonseca to set up paper companies to hide their client’s finances, four were British: HSBC, Coutts, Rothschild and UBS. HSBC, recently fined $1.9bn for laundering the money of Mexico’s most violent drug cartels, used the Panamanian firm to create 2,300 offshore companies, whilst Coutts – the family bank of the Windsors – set up just under 500. And, of course, David Cameron’s own father was named in the papers, having “helped create and develop” Blairmore Holdings, worth $20million, from its inception in 1982 till his death in 2010.

Blairmore, in which Cameron junior was also a shareholder, was registered in the Bahamas, and was specifically advertised to investors as a means of avoiding UK tax. The Daily Mail noted that: “Even though he lived in London, the Prime Minister’s father would leave the country and fly to Switzerland or the Bahamas for board meetings of Blairmore Holdings – to ensure it would not have to pay UK income tax or corporation tax. He hired a small army of Bahamas residents, including a part-time bishop, to sign its paperwork – as part of another bid to show his firm was not British-based.”

That Britain should emerge as central to this scandal is no surprise. For as Nicholas Shaxson, a leading authority on tax havens put it when I interviewed him in 2011, “The City of London is effectively the grand-daddy of the global offshore system.” Whilst there are various different lists of tax havens in existence, depending on how exactly they are defined, on any one of them explains Shaxson, “you will see that about half of the tax havens on there, of the ones that matter, are in some way British or partly British.” Firstly, are “Jersey, Guernsey and the Isle of Man: the crown dependencies. They’re very fundamentally controlled by Britain.” Then there are the Overseas Territories, such as the Caymans, Bermuda, and the Virgin Islands, in which “all the things that matter are effectively controlled by Great Britain.”

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History counts too.

How a US president and JP Morgan Made Panama and Turned It Into A Tax Haven (G.)

This goes back a long way. The Panamanian state was originally created to function on behalf of the rich and self-seeking of this world – or rather their antecedents in America – when the 20th century was barely born. Panama was created by the United States for purely selfish commercial reasons, right on that historical hinge between the imminent demise of Britain as the great global empire, and the rise of the new American imperium. The writer Ken Silverstein put it with estimable simplicity in an article for Vice magazine two years ago: “In 1903, the administration of Theodore Roosevelt created the country after bullying Colombia into handing over what was then the province of Panama. Roosevelt acted at the behest of various banking groups, among them JP Morgan, which was appointed as the country’s ‘fiscal agent’ in charge of managing $10m in aid that the US had rushed down to the new nation.”

The reason, of course, was to gain access to, and control of, the canal across the Panamanian isthmus that would open in 1914 to connect the world’s two great oceans, and the commerce that sailed them. The Panamanian elite had learned early that their future lay more lucratively in accommodating the far-off rich than in being part of South America. Annuities paid by the Panama Railroad Company sent more into the Colombian exchequer than Panama ever got back from Bogotá, and it is likely that the province would have seceded anyway – had not a treaty been signed in September 1902 for the Americans to construct a canal under terms that, as the country’s leading historian in English, David Bushnell, writes, “accurately reflected the weak bargaining position of the Colombian negotiator”.

Colombia was, at the time, riven by what it calls the “thousand-day war” between its Liberal and Historical Conservative parties. Panama was one of the battlefields for the war’s later stages. The canal treaty was closely followed by the “Panamanian revolution”, which was led by a French promoter of the canal and backed by what Bushnell calls “the evident complicity of the United States” – and was aided by the fact that the terms of the canal treaty forbade Colombian troops from landing to suppress it, lest they disturb the free transit of goods. The Roosevelt/JP Morgan connection in the setting-up of the new state was a direct one. The Americans’ paperwork was done by a Republican party lawyer close to the administration, William Cromwell, who acted as legal counsel for JP Morgan.

JP Morgan led the American banks in gradually turning Panama into a financial centre – and a haven for tax evasion and money laundering – as well as a passage for shipping, with which these practices were at first entwined when Panama began to register foreign ships to carry fuel for the Standard Oil company in order for the corporation to avoid US tax liabilities.

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He’s not done answering. In his circles, everyone has offshore accounts. That being PM means holding a higher standard is a mere nuisance to him.

Cameron Faces Questions Over £200,000 Gift From Mother (Observer)

The prime minister took the unprecedented decision to release his personal tax records on Saturday, as growing anger over revelations in the Panama Papers threatened to derail his premiership. But the extraordinary move seems set to plunge David Cameron into further controversy, as it emerged that his mother transferred two separate payments of £100,000 to his accounts in 2011, allowing the family estate to avoid a potential £80,000 worth of inheritance tax. Four years after first promising to open his financial affairs to public view, Downing Street published a document detailing Cameron’s income and tax payments from 2009-10 to 2014-15. The move came after an emotional Cameron admitted to the Conservative party’s spring forum that he alone was to blame for the furore caused by his failure to be frank about his profits from an offshore investment fund.

On Monday, Cameron will announce the establishment of a taskforce, led by HM Revenue & Customs and the National Crime Agency, to examine the legality of the financial affairs of companies mentioned in the Panama Papers, where documents relating to his father’s offshore fund were discovered by the Guardian and the International Consortium of Investigative Journalists. The taskforce will draw on investigators, compliance specialists and analysts from HMRC, the National Crime Agency, the Serious Fraud Office and the Financial Conduct Authority. There will be new money provided of up to £10m. But following the release of the prime minister’s tax records, Cameron now faces questions over whether his family took elaborate steps to minimise the amount of inheritance tax that would eventually be due on their estate.

The records show that the prime minister received a considerable boost to his savings in 2011. Following the death of his father in 2010, Cameron was left £300,000 tax free as an inheritance. However, his mother also transferred two payments of £100,000 to him in May and July 2011. Inheritance tax is not payable on gifts up to £325,000 that are paid at least seven years before the source of the possession dies, be it property or money. A spokesman for the prime minister said that Cameron’s mother and father had “some years earlier” transferred the family home to their eldest son, Alexander Cameron, and the sums paid in 2011 were considered to be Cameron’s share.

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Not going to happen. Too much money means too much power.

Panama Papers: Act Now. Don’t Wait For Another Crisis (Piketty)

The question of tax havens and financial opacity has been headline news for years now. Unfortunately, in this area there is a huge gap between the triumphant declarations of governments and the reality of what they actually do. In 2014, the LuxLeaks investigation revealed that multinationals paid almost no tax in Europe, thanks to their subsidiaries in Luxembourg. In 2016, the Panama Papers have shown the extent to which financial and political elites in the north and the south conceal their assets. We can be glad to see that the journalists are doing their job. The problem is that the governments are not doing theirs. The truth is that almost nothing has been done since the crisis in 2008. In some ways, things have even got worse.

Let’s take each topic in turn. Exacerbated fiscal competition on the taxing of profits of big companies has reached new heights in Europe. The United Kingdom is going to reduce its rate to 17%, something unheard of for a major country, while continuing to protect the predatory practices of the Virgin Islands and other offshore centres under the British Crown. If nothing is done, we will all ultimately align ourselves on the 12% of Ireland, or possibly on 0%, or even on grants to investments, as is already sometimes the case. In the meantime, in the United States where there is a federal tax on profits, that rate is 35% (not including the taxes levelled by states, ranging between 5% and 10%). It is the political fragmentation of Europe and the lack of a strong public authority which puts us at the mercy of private interests.

The good news is that there is a way out of the current political impasse. If four countries, France, Germany, Italy and Spain, who together account for over 75% of the GDP and the population in the eurozone put forward a new treaty based on democracy and fiscal justice, with as a strong measure the adoption of a common tax system for large corporations, then the other countries would be forced to follow them. If they did not do so they would not be in compliance with the improvement in transparency which public opinions have been demanding for years and would be open to sanctions.

There is still a complete lack of transparency as far as private assets held in tax havens are concerned. In many areas of the world, the biggest fortunes have continued to grow since 2008 much more quickly than the size of the economy, partly because they pay less tax than the others. In France in 2013 a junior minister for the budget calmly explained that he did not have an account in Switzerland, with no fear that his ministry might find out about it. Once again, it took journalists to reveal the truth.

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“Next year, the US national debt will top $20 trillion. The deficit is running close to $500 billion, and the Congressional Budget Office projects that figure to rise. Add another $3 trillion or so in state and local debt.”

The Next Recession Will Blow Out the US Budget (Mauldin)

The weakest recovery in modern history has stretched on for 69 months. By 2017, it will be the third-longest recovery without a recession since the Great Depression. By 2018, it will be the second longest. Only during the halcyon economic days of the 1960s have we seen a longer recovery; but that record, too, will be eclipsed sometime in 2019—if we don’t see a recession first. And note that we were growing at well over 3% in the 1960s, not the anemic 2% we have averaged during this recovery and certainly not the positively puny 1.5% we have endured lately. Global growth is slowing down. Given the limited number of arrows left in the Federal Reserve’s monetary policy quiver, the US is going to have a difficult time dealing with the fallout from a recession. Even worse, a number of factors are coming together that will require serious crisis management.

Next year, the US national debt will top $20 trillion. The deficit is running close to $500 billion, and the Congressional Budget Office projects that figure to rise. Add another $3 trillion or so in state and local debt. As you may imagine, the interest on that debt is beginning to add up, even at the extraordinarily low rates we have today. Sometime in 2019, entitlement spending, defense, and interest will consume all the tax revenues collected by the US government. That means all spending for everything else will have to be borrowed. The CBO projects the deficit will rise to over $1 trillion by 2023. By that point, entitlement spending and net interest will be consuming almost all tax revenues, and we will be borrowing to pay for our defense. Let’s look at the following chart, which comes from CBO data:

By 2019, the deficit is projected to be $738 billion. There are only three ways to reduce that deficit: cut spending, raise taxes, or authorize the Federal Reserve to monetize the debt. At the numbers we are now talking about, getting rid of fraud and wasted government expenditures is a rounding error. Let’s say you could find $100 billion here or there. You are still a long, long way from a balanced budget. But implicit in the CBO projections is the assumption that we will not have a recession in the next 10 years. Plus, the CBO assumes growth above what we’ve seen in the last year or so.

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Trouble with Berlin is brewing.

Schäuble: Time is Near to End Central Banks’ Easy-Money Policies (WSJ)

German Finance Minister Wolfgang Schäuble called on governments in Europe and the U.S. to encourage their central banks to gradually exit easy-money policies, in the strongest sign yet of Berlin’s growing impatience with the ultralow interest rates of the ECB. “There is a growing understanding that excessive liquidity has become more a cause than a solution to the problem,” Mr. Schäuble said, comparing the move away from easy-money policies to ending a drug addiction. The unusually blunt comments from Chancellor Angela Merkel’s closest political ally come as the ECB has repeatedly ramped up its stimulus in recent months, seeking to support economic growth in the face of rising global headwinds and financial-market volatility.

While Mr. Schäuble’s opposition to the ECB’s monetary policy is well known, the veteran politician has voiced his criticism more openly lately, suggesting Berlin is growing impatient amid a mounting popular backlash against a policy that has depleted the returns on the savings of millions of Germans. Government officials and central bankers are preparing to converge on Washington, D.C., next week for the Spring meetings of the IMF, where they are expected to discuss policies to revive global growth. Speaking in Kronberg near Frankfurt late Friday at a prize ceremony organized by a German economic think tank, Mr. Schäuble said he had just discussed central-bank policies with his U.S. counterpart, Treasury Secretary Jacob Lew. “I just said to Jack Lew that you should encourage the Federal Reserve and we should encourage the ECB and the Bank of England in a concerted action, to carefully but slowly exit,” Mr. Schäuble said.

In the U.S., the Treasury secretary doesn’t have authority over the Federal Reserve, which is tasked with setting monetary policy. The ECB has twice ramped up its €1.5 trillion stimulus since December, most recently in March, when it rolled out a series of rate cuts, cheap loans for banks and an acceleration of bond purchases. Top ECB officials have stressed in recent days that they are ready to do even more to support the bloc’s economy. Meanwhile Federal Reserve officials have signaled that the U.S. central bank will raise rates only gradually until the global economy picks up steam, according to the minutes of their March policy meeting. Japan’s central bank stunned the markets in January by setting the country’s first negative interest rates.

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Not sure this explains the entire issue.

Why US Infrastructure Costs So Much (BBG)

The U.S. ought to be spending more on infrastructure. This is the view of all right-thinking people, and as a right-thinking person I of course endorse it. With interest rates near record lows and the working-age population still, by historical and international standards, underemployed, governments (or in some cases entrepreneurs) should be borrowing much more to repave roads, shore up bridges, expand mass-transit systems, build new sewage-treatment plants, replace water mains, you name it. Such borrowing and spending would make the nation richer by stimulating economic activity now and paving the way for stronger economic growth in the future.

That said, the U.S. probably also ought to be spending less on infrastructure. Not overall, but on something like a per-mile basis. Broad international cost comparisons across all kinds of infrastructure don’t seem to be available, but there is a growing body of evidence on one particular infrastructure area that matters a lot to me as a New York City commuter: subways and other rail systems. And it shows that U.S. construction costs are among the world’s highest.

Transportation blogger Alon Levy has probably done the most to raise awareness of this, with five years of posts documenting the cost differences. And last year, Tracy Gordon of the Urban-Brookings Tax Policy Center and David Schleicher of Yale Law School examined 144 planned and finished rail projects in 44 countries and found that the four most expensive on a per-kilometer basis (and six of the top 12) were in the U.S. To put these numbers in global perspective, New York’s Second Avenue Subway will cost roughly eight times more than Tokyo’s Koto Waterfront line and 36 times more than Madrid’s Metrosur tunnels on a per-kilometer, purchasing power parity (PPP) basis.

Why is this? It’s actually pretty hard to answer. Here’s Levy, writing in November 2014: “I try to avoid giving explanations for these patterns of construction costs. If I knew for certain what caused them, I would not be blogging; I would be forming a consultancy and teaching New York and other high-cost cities how to build subways for less than $100 million per kilometer.” Still, others have been willing to offer explanations. In a 2012 Bloomberg View piece, New York land-use and transit writer Stephen Smith blamed over-reliance on outside consultants, overly ambitious station architecture and a legal system that favors contractors over the agencies paying them to build things.

Gordon and Schleicher agreed that the legal system may be an issue, but for other reasons: “Many of the world’s most expensive projects are in the United Kingdom, Australia, and New Zealand, which, like the United States, have common-law systems. So it might be that common-law systems provide legal protections for property owners – allowing more lawsuits over noise, smoke, and other nuisances, as well as limits on eminent domain – that increase costs by forcing the government to pay off opponents or to locate projects inefficiently to avoid angering property owners.” They also cite political fragmentation as a factor that drives up costs – U.S. commuter rail systems often cross city and state lines, which brings coordination challenges – and note that when regional authorities are created to manage these challenges, they can bring a whole new set of problems.

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“The agreement is effectively dead and all parties involved are aware of that, even if they are not openly admitting it.”

SYRIZA, IMF and EU: Gambling With The Future Of Greece (SE)

The latest flare up regarding Greece has followed publication by Wikileaks of illegally taped discussions among IMF officials. To analyse the significance of this event it is vital to bear one point in mind: Greece cannot meet the terms of the bailout agreement struck on July 2015 by Prime Minister, Alexis Tsipras. The agreement is effectively dead and all parties involved are aware of that, even if they are not openly admitting it. To establish this point there is no need to engage either in Debt Sustainability Analysis, or in macroeconomic projections of output. Suffice to mention that the agreement requires Greece to ensure a primary surplus of 3.5% of GDP in 2018.

The Greek economy actually returned to recession in the last quarter of 2015 and the available indicators since the end of 2015 have ranged from bad to appalling: industrial turnover in December was down 13.5%, retail turnover in January down 3.8%, unemployment in the last quarter of 2015 up to 24.4%, job vacancies for the whole of the economy in the last quarter of 2015 stood at a pitiful 3119, and the banking system currently has perhaps €115bn of non-performing exposure, roughly 50% of its loan book. Once the austerity measures of the bailout agreement kick in, substantially reducing aggregate demand for 2016-17 via tax increases and lower pensions, the recession will become deeper. There is no way that this ruined economy could generate a 3.5% primary surplus in 2018. The problems thereby created for all parties to this disastrous bailout are legion.

In the worst position is the Greek government, which signed up to the bailout in direct contravention of everything that it had promised to do in 2015. As the reality of its deception and the harshness of the squeeze have begun to sink in, electoral support for Tsipras has vanished. All competent polls show the opposition New Democracy – with a new leader – comfortably ahead. The outlook has become even worse for SYRIZA via the refugee wave, which has turned Greece into a kind of EU repository for refugees and migrants. For the time being the country has avoided a major crisis, but the situation remains extremely fraught as the deportation of migrants to Turkey has just started.

In this context, the last thing that the Tsipras government would like to do is to impose further pressure on wage earners, or tax payers in an attempt to meet the impossible target of 3.5%. On the contrary, it is extremely keen to complete the first review of the bailout programme on a nod and a wink, pretending that current measures are sufficient to hit the bailout targets. It then hopes to receive a tranche of bailout money that will give it breathing space for a few months. The government’s further hope is that investment will pick up by the end of 2016, possibly through foreign capital inflows, thus allowing the economy to recover somewhat.

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He should put his money where his mouth is.

Lesbos Hopes Pope’s Visit Will Shine Light On Island’s Refugee Role (Observer)

The island of Lesbos tends to go to town when celebrities descend. The last time it welcomed a VIP, the razorwire running along large parts of its infamous detention centre was hastily removed. Angelina Jolie got a brief glimpse of it as she walked in, but reportedly not as she later walked around the camp greeting migrants and refugees. The superstar special envoy of the UN high commissioner for refugees (UNHCR) was instead given an edited view of the camp, volunteers say. It will be different when Pope Francis flies in on Saturday. The purpose of the pontiff’s visit to the Aegean is to see the migrant emergency up close, and the authorities are keen that no blinkers are involved. This time, the island on the frontline of the biggest movement of people in modern times intends to show it as it is.

“We won’t be changing anything,” says mayor Spyros Galinos when asked if municipal workers will at least be cleaning up the graffiti on the camp’s walls. “His visit has huge symbolism. It is what we have wanted, what we have seen in our sleep, what we have dreamed of for years.” For four hours, Francis will grant that wish when he arrives in Greece for what will be a rare papal visit. The leader of the worldwide Catholic church will be accompanied by the Istanbul-based spiritual leader of the world’s 300 million Orthodox Christians, Bartholomew I, and Ieronymos II of Athens, head of the Greek Orthodox church. It will be a whirlwind tour of the island traversed by many of the 1.1 million men, women and children who have streamed into Europe, mostly from Syria but also from other parts of the Middle East, Africa and Asia last year.

The pope has long had refugees in his sights – and encyclicals. The trip, say Vatican officials, is aimed squarely at drawing attention to the centre of Europe’s migration crisis. By highlighting the “increasingly precarious living conditions for thousands of refugees and migrants” who have reached Lesbos, the Holy See’s newspaper, L’Osservatore Romano, said Francis hoped to offer a “Christian response to the tragedy that is unfolding”. [..] “His visit is not going to do anything for one single refugee in this country,” laments Alison Terry-Evans, who runs Dirty Girls, an organisation in Lesbos that launders blankets distributed by the UNHCR and the wet clothes of arriving refugees. “It is so hypocritical that a man who heads a multibillion-dollar corporation like the Vatican is unlikely to take any action that will contribute financially. That is the pity of it. ”

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It won’t be fixed. Wanna bet? Europe goes for chaos as a deterrent. The use of the term ‘deportation system’ says it all in all its ugliness.

Meanwhile, this morning FYROM started shooting dozens of tear gas cannisters across its border with Greece to disperse the refugees camped out there.

Greece Says It Will Take At Least Two Weeks To Fix Deporation System (Kath.)

Greece says it will take at least two weeks to fix the process of deporting migrants from the eastern Aegean islands to Turkey. The country’s deputy foreign minister for European affairs, Nikos Xydakis, admitted as much at a press conference attended also by his colleagues from France, Italy, Malta and Portugal, as well as the foreign ministers of the Netherlands and Slovakia. Deportations from Greece to Turkey have been temporarily halted as most of the 6,750 migrants in the Greek islands are applying for asylum and there is a lack of qualified officials such as translators to process the applications.

Most of the experts promised by the EU have not yet arrived. French European affairs minister Harlem Desir is urging refugees from war-torn Syria and Iraq to follow legal procedures to seek asylum in Europe rather than risk their lives in the perilous sea crossing into Greece, which now leads only back to Turkey, since Balkan countries north of Greece have shut their borders. Desir says France will welcome 200 refugees directly from Turkey “in the coming days and weeks.”

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Apr 092016
 
 April 9, 2016  Posted by at 10:20 am Finance Tagged with: , , , , , , , , ,  


Wyland Stanley Pedestrians ascending steep grade, San Francisco 1935

David Cameron’s Gift To The World: Trickle-Down Tax-Dodging (G.)
The Brexit Nightmare Is Becoming Reality (G.)
Swiss Finance Minister Offers Defense For Rich Caught Up In Panama Papers (R.)
Tax Scandal Reheats Iceland Politics (FT)
Germany Takes Aim at the European Central Bank (Spiegel)
The Eurodollar As An Economic No-Man’s Land (Kaminska)
Iran Steps Up Offense in Oil Market War With Price Discount (BBG)
China’s Robot Army Set To Surge (FT)
Shanghai Wealth Management Firm Crashes To Earth As Executives Arrested (R.)
Melting Ice Sheets Change The Way The Earth Wobbles On Its Axis (AP)
Weaknesses Emerge in EU-Turkey Refugee Deal (Spiegel)
5 Refugees Drown Off Greek Island Of Samos In Aegean (AP)

Demonstrations as we speak in London for Cameron to stand down. He will release tax files instead. But will that stem the protests?!

David Cameron’s Gift To The World: Trickle-Down Tax-Dodging (G.)

An intriguing approach to damage limitation by Panama prat David Cameron, particularly considering the prime minister’s only real life job ever was as a PR. The prime minister appears to have been the last person to realise what everyone else in Westminster could see on Monday. Namely, that he’d be sitting down for an awkward tell-all – or at least a tell-some – by Thursday. My absolute favourite tale from Cameron’s era as press chief for the culturocidal Carlton Television comes courtesy of the Guardian’s then media correspondent, who rang him up on a story. Like all mediocre PRs, a large part of his strategy was ignoring calls, but having accidentally answered this one he was cornered – and consequently pretended to be his own cleaner. “I can’t prove it was him,” the journalist reflected later, “but it certainly sounded a lot like him.”

Well, he does have that central casting cleaner’s voice, so perhaps we ought to leave the case file open. Even so, for the journalists who recall the barefaced whoppers Cameron was able to tell them back in those days, this week has not been an occasion to break out the smelling salts. “I’ve never tried to be anything I’m not,” Cameron claimed to Robert Peston in his belated confession. What about a cleaner? Or a football fan? Evidently the PM judged it the wrong moment to bring up either impersonations of the help, or Aston Villa. Or, indeed, West Ham. Still, at some point, Fortune was always going to collect on the deal Cameron foolishly made when he called the comedian Jimmy Carr’s (also legal) tax arrangements “morally wrong”. Showbiz now joins football on the list of things upon which he ought never to comment again.

Explaining to Peston that “my dad was a man I love and miss every day”, Cameron admitted that he and his wife had in fact invested in Ian Cameron’s offshore firm Blairmore in 1997, then sold their stake in 2010 for “something like £30,000”. That Cameron’s shifty cover-up has been more damaging than his non-crime is almost too insultingly obvious to state. He will not be assisted by the subconscious dismissiveness in that styling – “something like £30,000”. There is a fine line between fastidious precision and sounding like something north of the average British salary is rather forgettable, and the PM fell on the wrong side of it.

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Cameron as PM now guarantees a Brexit vote. But who to replace him? Can’t be Osborne.

The Brexit Nightmare Is Becoming Reality (G.)

[..] Three years ago Cameron put the future of the UK – and even its territorial integrity (think Scotland) – at stake by setting off towards an in-out referendum on the EU as a way of managing his own party. It is obvious he has failed to put internal Tory dissent to rest. That Boris Johnson has sided with leave brings to mind how in 2005 Laurent Fabius, one of France’s socialist heavyweights, opted for no against his own party’s leadership in the referendum campaign on the EU constitution. That led to disastrous results – despite a majority of the French media calling for a yes vote. In Britain the media has long been Eurosceptic. Even the BBC seems hesitant these days. The Daily Telegraph describes the EU as either a threatening entity for Britain, or too weak an institution to protect it.

And long gone are the days when authoritative European voices could reach out to British voters in a convincing manner – as when Jacques Delors singlehandedly swayed the British left towards a pro-European position in 1988. The French president, François Hollande, is dismally weak, and Angela Merkel is less politically sturdy than she once was. Populist movements whose leaders believe they stand to benefit from a British exit are on the rise across the continent. The deeper phenomenon at work is a wider one. British society suffers from an identity crisis not unlike those that have hit other western countries in the wake of globalisation and the 2008 financial crisis. Fragmentation is spreading everywhere as nations become more inward-looking and worried about how the world is changing.

In the British case this general sense of disarray now has the opportunity to express itself in a referendum. Britain’s image has often been associated with common decency, sober assessment and cool-headedness. But this is an age of extremes when moderate voices are fast drowned out by radical slogans. Of course, Cassandras have been wrong before about the European project. The eurozone has held together. Grexit didn’t happen. Merkel may be weaker, but she has not lost power. Yet it would be foolish not to see that the omens for Britain remaining in the EU are very poor. But does anyone care? If they do, they need to wake up now and shout stop.

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Curious: in defense of tax evaders, saying that they pay so much tax.

Swiss Finance Minister Offers Defense For Rich Caught Up In Panama Papers (R.)

Switzerland’s finance minister has defended the use of offshore companies by the world’s wealthy to cut their tax bills, now under scrutiny after publication of the “Panama Papers”. “You have to create these opportunities,” Finance Minister Ueli Maurer, from the right-wing Swiss People’s Party (SVP), told Swiss newspaper Blick in an interview published on Friday. “Rich people pay a lot more tax than me,” said Maurer. “I am not rich – and without the rich I would have to pay more tax.” Four decades of documents from Panamanian law firm Mossack Fonseca, which specializes in setting up offshore companies and has offices in Zurich and Geneva, showed widespread use of those instruments by global banks and triggered investigations around the world.

Maurer’s comments were not echoed by the head of Switzerland’s financial watchdog Mark Branson on Thursday. He said the country’s banks must clamp down on money laundering in the wake of the Panama Papers. The Geneva prosecutor has also opened a criminal inquiry in connection with the millions of documents leaked to the German newspaper Sueddeutsche Zeitung. They then became part of a broader investigation coordinated by the International Consortium of Investigative Journalists. Switzerland is the world’s biggest international wealth management center with around $2.5 trillion in assets and has taken on more wealth of late from emerging markets, from which it is harder determine the origin of assets, Branson said.

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Iceland is all of us, on a more practical scale.

Tax Scandal Reheats Iceland Politics (FT)

In the years since the 2008 financial crisis, Iceland – one of its unlikely epicentres – has recovered far better than most. It is enjoying robust economic growth, low income inequality and a 4 per cent unemployment rate that would make southern Europe’s lost generation salivate. So why are so many Icelanders now trying to topple their government, hurling eggs, Skyr yoghurt and even fish heads at the parliament? The immediate answer is buried within the Panama Papers of the Mossack Fonseca law firm, which this week revealed prime minister Sigurdur David Gunnlaugsson’s links with an offshore company. In so doing, they prompted protests that rocked Reykjavik and eventually forced Mr Gunnlaugsson’s resignation.

Yet the episode has also laid bare the deep divisions and unresolved anger still festering beneath the subarctic island’s social surface since the 2008 crisis. The politics that have flowed from it are all the more intimate on an island of just 330,000 souls. There are two nations in this country, the ones who own everything… and the rest of us, said Kristjan Saevald, a 28-year-old graphic designer and keen participant in demonstrations outside Iceland’s parliament and presidential residence. “We are sick of it. It’s not just a change of government we want, it’s a change of the system,” Mr Saevald said. For him and others who feel that the pain of Iceland’s rebuilding has not been shared equally, the ruling coalition’s replacement of Mr Gunnlaugsson with his fisheries minister, Sigurdur Ingi Johannsson, is unlikely to assuage their anger.

Just minutes after Mr Johannsson’s appointment, Asdis Thoroddsen, a tour guide and film-maker, stood in a chill wind outside Iceland’s presidential residence on a spit of coastal land near Reykjavik to show the new prime minister a symbolic red card. Ms Thoroddsen accused Mr Johannsson’s Progressives and his coalition partner, the Independence party, of presiding over a longstanding political system of patronage and state favour. “The cronyism here is very deep rooted and very hard to get rid of,” she said. Iceland’s ills were papered over by the extraordinary boom that preceded the last crisis, when a fishing-dominated economy suddenly became a global banking hub — sucking in foreign money with promises of high returns. Its citizens suddenly enjoyed among the world’s highest per-capita GDP.

Of course, the country’s overly-leveraged banks ended up crashing in spectacular fashion. This week’s demonstrations have echoed Iceland’s 2009 “pots and pans revolution”, when large crowds bashing kitchen utensils together to make more noise besieged parliament in fury and eventually forced then Independence party-led government to resign.

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One delusion fights the other.

Germany Takes Aim at the European Central Bank (Spiegel)

There was a time when the German chancellor and the head of the ECB had nice things to say about each other. Mario Draghi spoke of a “good working relationship,” while Angela Merkel noted “broad agreement.” Draghi, said Merkel, is extremely supportive “when it comes to European competitiveness.” These days, though, meetings between the two most powerful politicians in the euro zone are often no different than their face-to-face at the most recent summit in Brussels. She observed that his forced policy of cheap money is endangering the business model of Germany’s Sparkassen savings banks and retirement insurance companies. He snarled back that the sectors would simply have to adapt, just as the American financial sector has. The alienation between Germany and the ECB has reached a new level.

Back in deutsche mark times, Europeans often joked that the Germans “may not believe in God, but they believe in the Bundesbank,” as Germany’s central bank is called. Today, though, when it comes to relations between the ECB and the German population, people are more likely to speak of “parallel universes.” ECB head Draghi doesn’t understand why he is getting so much resistance from the country that has profited from the euro more than any other. Yet Germans blame Draghi for miniscule yields on savings accounts and life/retirement insurance policies. Frustration is growing. Draghi has pushed the prime rate down to zero and now even charges commercial banks a fee for parking their money at the ECB. He has also bought almost €2 trillion worth of bonds from euro-zone member states, making the ECB one of the largest state creditors of all time.

During his most recent appearance before the Frankfurt reporter pool, he went even further. The idea of pumping money directly into the economy, he said, was a “very interesting concept,” with a helicopter to distribute the money across the country if necessary, as economists have half-jokingly recommended. Doing so is seen as a way of boosting the economy. German money being thrown out of a helicopter: It would be difficult to find a more fitting image to show people that the money they have set aside for retirement may soon be worth very little. The criticism of Draghi had already been significant, but his public ruminations about so-called “helicopter money” have magnified it to extreme levels.

Even economists that tend to back the ECB, such as Peter Bofinger, who is one of Merkel’s economic advisors, are now accusing Draghi of constantly “pulling new rabbits out of the hat.” Leading representatives of the banking and insurance sectors are openly speaking of legal violations. And strategists within Merkel’s governing coalition, which pairs her conservatives with the center-left Social Democrats (SPD), are concerned that Draghi is handing the right-wing populist Alternative for Germany (AfD) yet another issue where they can score points with the voters. There is hardly any other issue that enrages Germans at town meetings and political party conventions as much as the disappearance of their savings due to the “unconventional measures” adopted by the ECB in Frankfurt.

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“..laissez-faire market experimentation intended to prove a fundamental point about the capacity of free markets to organise the economy without the necessary subjugation of free will..”

The Eurodollar As An Economic No-Man’s Land (Kaminska)

What’s the euro really? The collective currency of sovereigns subscribed to the European monetary system? Or an international bridging platform — a no man’s land if you will — for laissez-faire market experimentation intended to prove a fundamental point about the capacity of free markets to organise the economy without the necessary subjugation of free will? The euro-zone, we propose, is not what it seems. And if we see it as something it’s not, it’s mainly because we’ve forgotten the history which made it the thing it is today. That though is the story of the rise and dominance of European-brokered international capital markets from the 1960s onwards, a system itself predicated on the rise of the no-man’s land neutral security: Eurodollars. Euromoney. Eurocurrency. Eurobonds. Eurosecurities.

But also… Offshore arrangements. Through this particular looking glass, offshore doesn’t stand for a safe haven loophole which allows the elite to escape their social duties and obligations. It stands for something entirely different. A honey trap designed to lure capital away from outrageous spending in the consumption markets today, and over to the funding of much riskier development in territories or classes yet to be assimilated to westernised cultural norms. It also provides a neutral territory or common ground were capital can be ranked pari passu irrespective of where it’s come from, for the good of international agreement, trade and neutrality. Hence why the likes of James Quarmby, a wealth structuring expert at law firm Stephenson Harwood, argue the offshore system is the essential “grease on the wheels in international trade”.

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Let the price wars begin.

Iran Steps Up Offense in Oil Market War With Price Discount (BBG)

Iran ratcheted up its offense in the oil market after breaking a pricing tradition, signaling it’s seeking to win market share at a time when rival producers are trying to forge a deal on freezing output. State-run National Iranian Oil Co. will sell the Forozan Blend crude for May to Asia below the level offered by rival Saudi Aramco for Arab Medium, the third month the Persian Gulf state is giving the discount after setting it at a premium for almost seven years through February 2016, data compiled by Bloomberg show. NIOC will also sell the Iranian Light grade to Asian customers at 60 cents below Middle East benchmark prices, a company official said on Friday, asking not to be identified because of internal policy.

While producers including Saudi Arabia, OPEC’s biggest member, and Russia are due to meet in Doha on April 17 to discuss a deal to freeze output in a step toward clearing a global glut, Iran is determined to regain market share lost over the past few years due to sanctions over its nuclear program. To pry away customers relishing oil that is cheaper than mid-2014 levels by more than 50 percent, the Persian Gulf state is expected to focus on pricing and boosting supply. “Unquestionably, since the lifting of sanctions, the Iranians have become a force to be reckoned with in global oil markets,” said John Driscoll, chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. “Their mission is to recapture market share, pure and simple.”

NIOC will sell the Forozan Blend in May for Asian customers at $2.43 a barrel below the average of the Oman and Dubai benchmark grades, according to the company official. That’s 3 cents lower than state-run Saudi Aramco’s price for the similar Arab Medium variety for a third month, data compiled by Bloomberg show. Forozan was at a premium of 7 cents to the Saudi oil for February sales. The Iranian Heavy grade will sell in May to Asia at a discount of $2.60 a barrel to the Oman-Dubai average while the Soroosh variety’s price was set at $5.65 a barrel below Iranian Heavy, according to the official.

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How about that consumer society, though?!

China’s Robot Army Set To Surge (FT)

China’s uptake of industrial robots is set to rise rapidly in the coming years as higher labour costs and the heightened aspirations of workers push manufacturers to embrace automation. The development may add to fears that workers in poorer countries are most in danger of being displaced by automation, with analysis by Citi and the Oxford Martin School, a research and policy unit of the UK university, published earlier this year suggesting that more than 75% of jobs in China are at a “high risk” of computerisation. Mirae Asset Management, an Asia-focused house with $75bn of assets, predicts that China’s robot army will expand at a compound annual growth rate of 35% until 2020.

Given that the International Federation of Robotics estimates that China had 260,000 industrial robots last year, Rahul Chadha, chief investment officer of Mirae, says: “Using the rule thumb that one industrial robot replaces four to five workers, this suggests that robots have rendered more than 1m people jobless.” This figure is set to rise sharply in the coming years. As the first chart shows, the number of robots per 1,000 employees in China, as of 2013, was just 30% of the level in North America, 11% of the German figure, 9% of Japan’s tally and 7% of that in South Korea. Mirae argues that China’s use of robots is tracing the path blazed by Japan a quarter of a century ago, and still has several years of rapid expansion ahead of it, as the second chart shows.

This concurs with forecasts from the IFR, which says China acquired 57,000 robots in 2014 but is likely to be buying 150,000 a year by 2018. Mr Chadha, who calculates that robots will replace around 3.5m Chinese workers over the next five years, says: “The message that comes from the leadership is on improving productivity via automation. They are paranoid about doing things quickly, they believe they have got to because their competitors will do the same. “When I meet companies on the ground, they say ‘the demand environment is not great, what we can do is improve our processes, improve our productivity’.”

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Shadow banking.

Shanghai Wealth Management Firm Crashes To Earth As Executives Arrested (R.)

Zhongjin Capital Management made a splash in the past couple of years in Shanghai. The wealth management firm’s imposing branch office on Shanghai’s historic Bund pulled in many eager investors seeking the double-digit returns it promised on short-term financing products. It had a big profile, sponsoring popular Shanghai TV dating program “Saturday Date” and signed up domestic billiards star Pan Xiaoting as a spokesperson. But this week, the image of riches and success that it had cultivated came crashing down. Police said they arrested 21 executives linked to Zhongjin Capital on April 5 on suspicion of “illegal fundraising,” a loosely defined term applied to irregular behavior in China’s energetic but opaque shadow banking sector.

The only person named by Shanghai police so far has been top executive Xu Qin, who local media said had been arrested at the Shanghai airport on his way to get married in the Vatican. Xu has been described by domestic media as a high roller, who is under 30 years of age. Chen Jiajing, the 29-year-old chairwoman of Zhongjin’s parent Guotai Investment Holdings, cannot be located. Public statements issued this week by two Hong Kong-listed companies in which Guotai is a major stakeholder indicated they had been unable to reach her. Zhongjin employees told Reuters that other senior managers had been arrested during a raid on company offices. They were interrogated, allowed to use the bathroom only if they had a police escort, then hauled off, the staff said.

Calls to Zhongjin and Guotai headquarters in Shanghai went unanswered. Both company websites were inaccessible on Friday. The authorities did not provide further information about the case, and what the investigation’s focus is. “The really strange part was that our business hit a new all-time high on April 5, but the next day the offices were closed,” one employee who gave her name as Jiang said in a phone interview, adding that investors had been paid off on schedule the day prior to the arrests, but were unable to withdraw funds that were scheduled to mature on April 6. “The victims are the small investors and the low-level employees. We all got our friends and family to invest in the company’s products,” she said.

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Playing God.

Melting Ice Sheets Change The Way The Earth Wobbles On Its Axis (AP)

Global warming is changing the way the Earth wobbles on its polar axis, a new Nasa study has found. Melting ice sheets, especially in Greenland, are changing the distribution of weight on Earth. And that has caused both the North Pole and the wobble, which is called polar motion, to change course, according to a study published on Friday in the journal Science Advances. Scientists and navigators have been accurately measuring the true pole and polar motion since 1899, and for almost the entire 20th century they migrated a bit toward Canada. But that has changed with this century, and now it’s moving toward England, according to study lead author Surendra Adhikari at Nasa’s Jet Propulsion Lab. “The recent shift from the 20th-century direction is very dramatic,” Adhikari said.

While scientists say the shift is harmless, it is meaningful. Jonathan Overpeck, professor of geosciences at the University of Arizona, who wasn’t part of the study, said that “this highlights how real and profoundly large an impact humans are having on the planet.” Since 2003, Greenland has lost on average more than 272 trillion kilograms of ice a year, and that affects the way the Earth wobbles in a manner similar to a figure skater lifting one leg while spinning, said Nasa scientist Eirk Ivins, the study’s co-author. On top of that, West Antarctica loses 124 trillion kgs of ice and East Antarctica gains about 74 trillion kgs of ice yearly, helping tilt the wobble further, Ivins said. They all combine to pull polar motion toward the east, Adhikari said.

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“Monday was an expensive, but meaningless show..”

Weaknesses Emerge in EU-Turkey Refugee Deal (Spiegel)

When the Greek authorities announced last week that they were unable to carry out additional mass deportations because some migrants had suddenly disappeared, they were referring to people like Mohammed. Just as quickly as the deportations had begun, they came to a halt. In the dawn hours on Monday, the EU began implementing the refugee deal it recently reached with Turkey. At least that’s the way things looked. That day, 202 migrants were deported from Lesbos and Chios to Dikili in Turkey. The action was intended to show that the major exchange of refugees had begun. The same day, Syrian refugees arrived in Germany legally on flights from Turkey. By the middle of the week, no more refugees were arriving on the Greek islands. The message appeared to be getting across.

So was the deal working? The short answer is: No. “Perhaps we should wait and see a bit longer,” Dimitris Vitsas, the deputy Greek defense minister responsible for addressing the refugee crisis, says. He says the weather may have played a part and that he doesn’t want to draw premature conclusions. “But the numbers do show that something is working.” But what? Is it the deal with Turkey or the PR machinery that has accompanied it? The deportations that took place on Monday aren’t very telling in terms of whether the mechanism will ultimately work or not. The EU had set April 4 as the day of implementation because it wanted to finally show that it could produce results. The overly hasty operation had one aim: that of sending a strong message.

What went unnoticed by most, though, is that the people sent back to Turkey from Lesbos and Chios on Monday were exclusively migrants who had wanted to continue their journey to Northern Europe and had not submitted applications for asylum in Greece. But Greece had already had the ability to deport these “illegal” migrants to Turkey since 2002 within the scope of a so-called readmission agreement that both countries had agreed to. So the new deal hadn’t even been necessary for the deportations to happen. “Monday was an expensive, but meaningless show,” says Angeliki Dimitriadi, a visiting researcher at the European Council on Foreign Relations in Berlin. “Now the truly delicate work begins.”

Of the more than 3,000 migrants who are still on Lesbos, almost all have since submitted asylum applications. They hope that doing so will enable them to prevent being deported. The refugees are assuming that it will take weeks or months to process their applications. With the submission of the applications, the Greek government no longer has the right to automatically deport them; the country is legally obligated to review every application. Refugees who have applied can only be deported once asylum status has been rejected. The worry now is that thousands of people may be stuck on the island for months to come without any certainty.

Things will get more difficult when Greece soon begins rejecting Syrian refugees as planned and sending them back to Turkey. At that point, a complicated legal dispute is expected to ensue. First, it remains questionable whether Greece will be capable of carrying out the asylum procedures within only a matter of days as planned. The country lacks both money and the necessary personnel. The Greek asylum agency currently has only 295 employees at its disposal across the entire country. It often takes months if not years before decisions are made.

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And the beat goes on..

5 Refugees Drown Off Greek Island Of Samos In Aegean (AP)

Greece’s coast guard says at least five refugees have drowned in the eastern Aegean Sea after a small plastic boat capsized. The five victims, four women and a child, were found around dawn Saturday northeast of the Greek island of Samos, close to the Turkish coast. A coast guard spokeswoman says there were also five survivors: two women, two men and a child. The spokeswoman spoke on customary condition of anonymity. She says the coast guard has no information about the ages and nationalities of the refugees or the children’s gender. The survivors, who are in a state of shock, told authorities a total of 11 people were aboard the 3.5-meter boat.

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Apr 082016
 
 April 8, 2016  Posted by at 9:30 am Finance Tagged with: , , , , , , , , ,  


Wyland Stanley Golden Gate Bridge under construction 1935

US Braces for Worst Earnings Season Since 2009 (BBG)
Albert Edwards: Coming ‘Tidal Wave’ Will Throw The US Into Recession (BI)
Asian Shares Drop As Banks Come Under Pressure (Reuters)
KKR’s Chilling Message about the ‘End of the Credit Cycle’ (WS)
China Steel Exports Will Stay At High Levels For Years (BBG)
US Politics Is Closing The Door On Free Trade (FT)
VW Managers ‘Refuse To Forego Bonuses’ (AFP)
It’s Time To Start Worrying About The Health Of European Banks (BBG)
More Than 40% of Student Borrowers Aren’t Making Payments (WSJ)
UK’s Cameron Admits He Profited From Father’s Offshore Fund (AFP)
European Bankers Step Down as Panama Papers Pile on Pressure
Pirate Party Backed By Almost Half Of Iceland’s Voters (Ind.)
Turkey Will Ditch Migrant Deal If EU Breaks Promises: Erdogan (AFP)
Amnesty: ‘Serious Flaws’ Mar Greek Side Of EU-Turkey Migrants’ Deal (Reuters)
Questions Mount Over EU’s Role In Processing Greece Asylum Requests (IT)
Greece Ferries Second Boat Of Migrants To Turkey Under EU Pact (Reuters)
Refugees In Greece Warn Of Suicides (G.)

See under ‘Recovery’ in your dictionary.

US Braces for Worst Earnings Season Since 2009 (BBG)

U.S. corporate profits are expected to drop the most in 6 1/2 years in the first quarter, led by a wipeout in the embattled energy sector. Earnings for companies in the Standard & Poor’s 500 Index will fall 9.8% year-over-year, which would be the sharpest decline since the third quarter of 2009 and a fourth consecutive quarter of contraction, according to Bloomberg data. Results will be insufficient to justify current stock valuations, says Alex Bellefleur, head of global macro strategy and research at Pavilion Global Markets.

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“The US is in for a full-blown end to the economic cycle.”

Albert Edwards: Coming ‘Tidal Wave’ Will Throw The US Into Recession (BI)

A tidal wave is coming to the US economy, according to Albert Edwards, and when it crashes it’s going to throw the economy into recession. The Societe Generale economist, and noted perma-bear, believes that the profit recession facing American corporations is going to lead to a collapse in corporate credit. “Despite risk assets enjoying a few weeks in the sun our fail-safe recession indicator has stopped flashing amber and turned to red,” wrote Edwards in a note to clients on Thursday. He continued (emphasis added): “Whole economy profits never normally fall this deeply without a recession unfolding. And with the US corporate sector up to its eyes in debt, the one asset class to be avoided — even more so than the ridiculously overvalued equity market — is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default.

Edwards said that many economic researchers discredit profits as a measure of the business cycle, and it is one of the reasons why they are so bad at predicting recessions. Profits are on the decline for two reasons, according to Edwards. On the one hand, they are dropping because of margin pressure from rising labor costs. But this sort of decrease because of higher wages does not always signal a recession, like in 1986. Additionally, much like the mid-1980s decline, an oil-price crash is disproportionately dragging down profits. The second reason is because companies cannot pass on these increasing wage pressures to consumers through prices. In turn, they decrease spending and hiring, and the most vulnerable cannot make debt payments.

Edwards enumerated three reasons why this time around is a recessionary decrease, not a 1986-style aberration. They are:
• “When the oil price slumped in 1986 the economy was steaming ahead at a 4% pace and so withstood the downturn in business investment.”
• “In 1986 Fed Funds were cut from over 8% to less than 6% at a time when the consumer was re-leveraging, i.e. not debt averse as now.”
• “Finally, companies in 1986 were not up to their necks in debt as they currently are, and their solvency now is far more vulnerable to a profits downturn.”

So this time will not be a quick, oil-driven recovery. The US is in for a full-blown end to the economic cycle. Edwards did include some advice to investors on how to weather the coming wave, though. “And if I had to pick one asset class to avoid it would be US corporate bonds, for which sky high default rates will shock investors,” he wrote. You’ve been warned.

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This will only lead to more stimulus until and unless financial markets start applying serious pressure.

Asian Shares Drop As Banks Come Under Pressure (Reuters)

Asian shares extended losses to three-week lows on Friday, while the yen soared to a 17-month high against the dollar as investors bet Japan would be hard pressed to drive down its currency in the face of widespread foreign opposition. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, heading for a weekly drop of 1.8%. Japan’s Nikkei pared earlier losses to near-two-month lows to trade 0.6% lower, with financials under pressure. It’s on track for a decline of 3.1% for the week. China’s Shanghai Composite slid 0.9%, poised for a similar drop for the week. The CSI 300 was down 0.8%, set for a 1.2% weekly decline. Hong Kong’s Hang Seng slipped 0.7%, headed for 1.9% loss for the week.

Bank shares led losses in Europe and the U.S. markets on Thursday, amid talk of more layoffs and cutbacks planned by Europe’s major lenders as they struggle with zero rates. The U.S. S&P 500 lost 1.2%, with financial shares falling 1.9%. In Europe, the FTSE closed down 0.8%, hurt by a drop of more than 2% in financials. “When bank shares are making big falls and their CDS spreads are rising like this, obviously you would think something is afoot. If they keep falling in today’s session, that is going to be really worrying,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. U.S. stock futures slipped about 0.1% further in Asian trade after Federal Reserve Chair Janet Yellen, in a conversation with former Fed chairmen, said the U.S. economy is on a solid course and still on track to warrant further interest rate hikes.

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All vultures all the way.

KKR’s Chilling Message about the ‘End of the Credit Cycle’ (WS)

After seven years of “emergency” monetary policies that allowed companies to borrow cheaply even if they didn’t have the cash flow to service their debts, other than by borrowing even more, has created the beginnings of a tsunami of defaults. The number of corporate defaults in the fourth quarter 2015 was the fifth highest on record. Three of the other four quarters were in 2009, during the Financial Crisis. At stake? $8.2 trillion in corporate bonds outstanding, up 77% from ten years ago! On top of nearly $2 trillion in commercial and industrial loans outstanding, up over 100% from ten years ago. Debt everywhere! Of these bonds, about $1.8 trillion are junk-rated, according to JP Morgan data. Standard & Poor’s warned that the average credit rating of US corporate borrowers, at “BB,” and thus in junk territory, hit a record low, even “below the average we recorded in the aftermath of the 2008-2009 credit crisis.”

The risks? A company with a credit rating of B- has a 1-in-10 chance of defaulting within 12 months! In total, $4.1 trillion in bonds will mature over the next five years. If companies cannot get new funds at affordable rates, they might not be able to redeem their bonds. Even before then, some will run out of cash to make interest payments. A bunch of these companies are outside the energy sector. They have viable businesses that throw off plenty of cash, but not enough cash to service their mountains of debts! Among them are brick-and-mortar retailers that have been bought out by private equity firms and have since been loaded up with debt. And they include over-indebted companies like iHeart Communications, Sprint, or Univsion.

The “end of the credit cycle” has dawned upon the markets. As credit tightens, companies that can’t service their debts from operating cash flows may be denied new credit with which to service existing debts. The recipe of new creditors’ bailing out existing creditors worked like a charm for the past seven years. But it isn’t working so well anymore. What follows is a debt restructuring — either in bankruptcy court or otherwise. Money is now piling up in funds run by private equity firms, to be deployed at the right moment to profit from this. But not by playing the entire market, or to bail out existing investors. No way. This money will be deployed at the expense of existing investors. One of the biggest players is PE firm KKR, which just raised $3.35 billion to take advantage of opportunities in “distressed assets.” Existing investors, brace yourself!

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The west doesn’t stand a chance without protectionism.

China Steel Exports Will Stay At High Levels For Years (BBG)

Exports of steel from China will remain at high levels as local demand shrinks for years, according to Li Xinchuang, president of the country’s Metallurgical Planning Institute, who said mills in developed markets including the U.K. are struggling because their competitiveness is weak. While export volumes won’t increase from last year’s record, they won’t decline significantly either, Li said. Steel overcapacity is a global problem and China is already playing its part with proposals to close as much as 150 million tons that will put more than half a million people out of work, Li said, speaking in an interview and at a conference. Steel shipments from China surged in 2015 as Asia’s largest economy slowed and domestic demand shrank, with the flood of cargoes boosting global competition, hurting prices and squeezing profits. Britain faces an industry crisis after India’s Tata Steel said last week it was considering selling its unprofitable U.K. division, jeopardizing about 15,000 jobs.

Some steelmakers in the U.K. and U.S. “can’t meet local demand and they can’t compete globally,” Li said on Wednesday, rejecting claims that shipments from China are traded unfairly. “China is competitive for three reasons: good price, good service, good quality.” Tata Steel’s plan to sell its British plants has led to U.K. calls for tougher trade measures against China, which accounts for half of global output. China is prepared to defend itself at the World Trade Organization, according to Li, who’s also deputy secretary general of the China Iron & Steel Association. Fortescue CEO Nev Power sees the country becoming more competitive. “The new steel mills that are being built in China are very efficient, very energy-efficient, very productive,” he said in a Bloomberg TV interview on Thursday. “China is setting itself up to be a very competitive supplier to other emerging economies throughout Asia.”

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Sign of the times.

US Politics Is Closing The Door On Free Trade (FT)

Donald Trump wants to slap punitive tariffs on China. Hillary Clinton opposes the 12-nation Trans-Pacific Partnership she once hailed as a gold standard for a new generation of free trade deals. Republicans are embracing Democrat demands for “fair” trade. The US, the architect of the open global system, is turning inwards. The rest of the world should sit up. This is about more than the raw political emotions stirred by a US presidential race. The WTO’s failed Doha Round saw the end of the multilateral trade liberalisation that gave us the globalised economy. The failure of the TPP would read the rites over the big plurilateral deals that promised an alternative. Free trade has been a powerful source of prosperity. It has lost political legitimacy. And not only in the US: European populists of left and right share the Trumpian disposition to throw up the barricades.

Optimists hope the protectionist turn in the US is cyclical. Things will get back to normal once the cacophony of the presidential contest subsides. Freed from the primary challenge of Bernie Sanders, Mrs Clinton, the most likely successor to President Barack Obama, will find a way to change her mind again. The TPP could yet be smuggled through Congress during the lame-duck interlude after November’s elections. Such is the line from Mr Obama’s White House and from a diminishing band of Republicans true to their free trade heritage. All the evidence points the other way. Globalisation has gone out of fashion. Shrewd Washington observers have concluded that, as one puts it, “ there is not a chance in hell” of the next president or the next Congress – of whatever colour – backing the TPP.

As for the mooted, and now being negotiated, Transatlantic Trade and Investment Partnership (TTIP) designed to integrate the US and European economies, dream on. Mr Trump has struck a powerful chord among his core constituency in blaming foreigners for America’s economic ills. The backlash against free trade, though, runs deeper than cheap populism. The middle classes have seen scant evidence of the gains once promised for past deals. Republicans, fearful that they have already lost the presidency, do not want to risk handing Congress to fair-trade Democrats. Some problems are specific to the TPP. The prospective wins for the US are heavily tilted towards technology businesses on the west coast.

Manufacturing America thinks it secures little in the way of better access to Asian markets and complains that the deal leaves US companies vulnerable to currency manipulation by overseas competitors. Many more Americans than would ever gift their votes to Mr Trump question whether they get anything out of trade deals. Free trade has always created losers, but now they seem to outnumber the winners. There is nothing populist about noticing that globalisation has seen the top 1% grab an ever-larger share of national wealth.

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Time for shareholders.

VW Managers ‘Refuse To Forego Bonuses’ (AFP)

Top executives at Volkswagen are refusing to forego their bonuses this year, despite prescribing belt-tightening for the carmaker’s workforce in the wake of the massive emissions-cheating scandal, the weekly magazine Der Spiegel reported on Thursday. Without naming its sources, the magazine said that shortly before a supervisory board decision that executive board members had made it clear they were willing to “accept a cut in their bonuses, but not forego them entirely”, even though they have repeatedly told the workforce that the crisis threatens the group’s very existence. VW’s former chief executive Martin Winterkorn received a bonus of more than €3 million a year ago. A company spokesman told AFP that the board pay would be published in VW’s annual report on April 28.

“The management board is determined to set an example when it comes to the adjustment in the bonuses,” he said, dismissing the Spiegel article as “pure speculation.” Winterkorn’s successor Matthias Mueller was parachuted in last year to steer the carmaker out of its deepest-ever crisis which erupted when VW was exposed as having installed emissions-cheating software into 11 million diesel engines worldwide. At the time, Mueller told the workforce that there would have to be “belt-tightening at all levels” from management down to the workers. But according to Der Spiegel, the former finance chief Hans-Dieter Poetsch, who was appointed to the head of the supervisory board in October, pocketed nearly €10 million as “compensation” for the lower pay he would receive as a result.

The scandal is expected to cost VW still incalculable billions of euros in fines and possible legal costs. Unions are concerned that the belt-tightening needed to cope with the fallout from the engine-rigging scandal could lead to job cuts. “We have the impression that the diesel engine scandal could be used as a backdoor for job cuts that weren’t up for discussion until a couple of months ago,” the works council wrote in a letter to the management of VW’s own brand and published on the website of the powerful IG Metall labour union.

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“.. 90% of the world’s banks will have disappeared in the next 20 years..”

It’s Time To Start Worrying About The Health Of European Banks (BBG)

European banks have lost their mojo. A toxic combination of negative interest rates, comatose economies and a regulatory backdrop that might euphemistically be described as challenging is wreaking havoc with bank business models. Their collective market value has dropped by a quarter so far this year. The smoke signals emanating from the European Central Bank in recent weeks suggest regulators aren’t blind to this. Daniele Nouy, who chairs the ECB’s bank supervisory board, said earlier this week that the central bank “is aware that the low-interest-rate environment is putting pressure on the profitability of European banks.” Regulators may respond by going easier when drafting new rules.

Bank-failure rules to prescribe how banks design their balance sheets to absorb potential losses may be eased, according to a European Commission discussion paper prepared last month. Meanwhile, a global panel of regulators will hold a meeting in London this month to let banks give additional feedback on proposed rules about how much capital they must set aside to back their trading activities. This comes none too soon. The drop in industry capitalization, which reflects investor unease about future profitability, is rearranging the pecking order in European finance. Deutsche Bank, for example, was the most active manager of European bond sales in 2014 with a market share approaching 6.5%; last year it slipped to third, and so far this year it ranks fourth. At the end of 2015 the German lender was Europe’s 14th biggest bank; now it’s 20th:

Deutsche Bank Chief Executive Officer John Cryan said last month that, burdened by restructuring and legal costs, he doesn’t expect his firm to be profitable this year. It’s far from the only one struggling; on Tuesday, Barclays warned that its first-quarter investment banking income will be worse than it was last year. In Italy, officials are scrambling to create a state-backed fund to prop up an industry burdened by more than €200 billion of the €1.2 trillion of bad loans hampering the euro zone’s recovery. No wonder ECB President Mario Draghi spent much of his press conference a month ago answering questions about the damage negative interest rates are doing to banks. They have to pay for the privilege of holding cash on deposit at the central bank, but can’t pass those costs onto their own depositors.

The current structure of the banking system is “unfeasible,” and 90% of the world’s banks will have disappeared in the next 20 years, Banco Bilbao Vizcaya Argentaria SA Chairman Francisco Gonzalez said in an interview published by El Pais newspaper last week. Banks that can’t cover their cost of capital aren’t viable, making industry consolidation inevitable, he said.

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Subprime revisited. The weight will shift from borrowers to lenders.

More Than 40% of Student Borrowers Aren’t Making Payments (WSJ)

More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay. The new figures represent the fallout of a decadelong borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools. While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio. About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment.

Three million more owing roughly $66 billion were at least a month behind. Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans. The situation improved slightly from a year earlier, when the nonpayment rate was 46%, but that progress largely reflected a surge in those entering a program for distressed borrowers to lower their payments. Enrollment in those plans, which slash monthly bills by tying them to a small%age of a borrower’s income, jumped 48% over the year to 4.6 million borrowers as of Jan. 1.

Advocacy groups, some members of Congress and the federal Consumer Financial Protection Bureau fault loan servicers—companies the government hires to collect debt—for not doing enough to reach troubled borrowers to offer such payment options. “The servicers aren’t quite promoting them in the way they should be—I think some of it’s information failure,” said Rachel Goodman, a staff attorney at the American Civil Liberties Union.

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Foot. Mouth.

UK’s Cameron Admits He Profited From Father’s Offshore Fund (AFP)

British Prime Minister David Cameron admitted Thursday he had held a £30,000 stake in an offshore fund set up by his father, after days of pressure following publication of the so-called Panama Papers. Cameron sold the stake in the Bahamas-based trust in 2010, four months before he became prime minister, he said in an interview with television channel ITV. Downing Street have issued four statements on the affair this week following Sunday’s publication of the leaked Panama Papers, which showed how Panama-based law firm Mossack Fonseca had helped firms and wealthy individuals set up offshore companies. “We owned 5,000 units in Blairmore Investment Trust, which we sold in January 2010. That was worth something like £30,000,” Cameron said.

“I sold them all in 2010, because if I was going to become prime minister I didn’t want anyone to say you have other agendas, vested interests.” He insisted he had paid income tax on the dividends from the sale of the units, which he bought in 1997. Downing Street first dismissed the story as a private matter on Monday before saying Cameron had no offshore funds, then saying he and his wife and children did not benefit from any offshore funds. It later added that Cameron would not benefit from such funds in the future. The row is the latest headache for Cameron, who faces a tight race to ensure Britain stays in the European Union in a referendum due to be held on June 23.

The prime minister has been under intense pressure from the main opposition Labour party and media this week to come clean over his financial arrangements past and present. Labour’s deputy leader Tom Watson told Sky News that, while it was too early to say whether Cameron should quit, “he may have to resign over this but we need to know a lot more about what his financial arrangements have been”.

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A wave of lost jobs.

European Bankers Step Down as Panama Papers Pile on Pressure

European regulators pressed the region’s banks for details of their offshore business dealings, as two senior bankers resigned over allegations arising from the Panama document leak. Britain’s financial watchdog sent out letters asking banks and other financial companies to disclose any ties to Panama law firm Mossack Fonseca, said a person with knowledge of the situation. Swiss regulator Finma said it would also investigate “suspicious” connections unearthed by the Panama Papers. “The leaked database from Panama is just the latest proof of how money flows like water through multiple jurisdictions, sometimes for legitimate purposes, sometimes not,” Finma director Mark Branson told reporters in Bern on Thursday.

Media reports this week based on millions of documents leaked from Mossack Fonseca revealed how its lawyers, including a Geneva team, worked with Credit Suisse, UBS and other banks to create offshore shell companies for world leaders, athletes and other rich clients. On Thursday, ABN Amro announced the resignation of supervisory board member Bert Meerstadt after his name appeared in the leaked records. He said in a statement that he had already planned to leave but was now resigning immediately “to prevent any detrimental effects to the bank.” Meerstadt was a shareholder of a British Virgin Island-based entity in March 2001, Dutch newspaper Het Financieele Dagblad reported Thursday. ABN Amro CEO Gerrit Zalm said he had never heard of Mossack Fonseca before the leak and that he doesn’t know the facts of the case but considers it a private matter. In Austria, the chief executive officer of Vorarlberger Landes- und Hypothekenbank, resigned after the province-owned bank was mentioned in reports about offshore companies.

Michael Grahammer cited “biased” local media reports about offshore accounts linked to Gennady Timchenko, a Russian billionaire targeted by U.S. sanctions since 2014. “I’m still 100 percent convinced that the bank has at no time violated laws or sanctions,” Grahammer said. “At the end of the day, the media bias against Hypo Vorarlberg and myself that showed in the last few days was the main reason for me to take this step.” In its letters, the U.K. Financial Conduct Authority gave firms an April 15 deadline to disclose any connections to Mossack Fonseca. In Sweden, the government will consider tightening laws against money laundering and tax evasion. Financial Markets Minister Per Bolund said. He said authorities are investigating allegations that Nordea Bank, the biggest bank in Scandinavia, helped clients evade tax through shell companies in low-tax countries.

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More signs of the times.

Pirate Party Backed By Almost Half Of Iceland’s Voters (Ind.)

The Pirate Party would receive nearly half of voters’ support if Iceland held a general election now, new statistics have revealed. The anti-establishment party received 43% of the vote according to research by Icelandic media organisations Frettabladid, Stod 2 and Visir. The Progressive Party, currently in a coalition with the Independence Party, would only receive 7.9% support, Iceland Monitor reports. The rising popularity of the Pirate Party, which campaigns in favour of transparency and direct democracy, among people in Iceland is in response to the leak of the Panama Papers. The documents from Panamanian law firm Mossack Fonseca reportedly revealed that Sigmundur David Gunnlaugsson, who stood aside as Prime Minister for an unspecified amount of time earlier this week, owned an offshore company in the British Virgin Islands with his wife.

Mr Gunnlaugsson did not declare Wintris, which held millions in the bonds of failed Icelandic banks, when he entered parliament, according to the International Consortium of Journalists. He has denied any wrongdoing and says he sold his shares in the company to his wife. But MPs in the opposition have said it is a conflict of interest with his duties. The government has named Fisheries Minister Sigurdur Ingi Johannsson as Prime Minister and he is due to meet Iceland’s president Olafur Ragnar Grimsson on Thursday. However the opposition in planning on pursuing a vote of no confidence in the government in parliament. Earlier, Pirate Party member Helgi Hrafn Gunnarsson said: We will still push forward for a proposal to dissolve parliament and hold earlier elections. Elections have now been brought forward to autumn.

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The EU will cause the deaths of many more people.

Turkey Will Ditch Migrant Deal If EU Breaks Promises: Erdogan (AFP)

Turkish President Recep Tayyip Erdogan on Thursday warned the European Union that Ankara would not implement a key deal on reducing the flow of migrants if Brussels failed to fulfil its side of the bargain. Erdogan’s typically combative comments indicated that Ankara would not sit still if the EU fell short on a number of promises in the deal, including visa-free travel to Europe for Turks by this summer. Meanwhile, the Vatican confirmed that the pope would next week make a brief, unprecedented trip to the Greek island of Lesbos where thousands of migrants are facing potential deportation to Turkey under the deal. “There are precise conditions. If the European Union does not take the necessary steps, then Turkey will not implement the agreement,” Erdogan said in a speech at his presidential palace in Ankara.

The March 18 accord sets out measures for reducing Europe’s worst migration crisis since World War II, including stepped-up checks by Turkey and the shipping back to Turkish territory of migrants who land on the Greek islands. In return, Turkey is slated to receive benefits including visa-free travel for its citizens to Europe, promised “at the latest” by June 2016. Turkey is also to receive a total of €6 billion in financial aid up to the end of 2018 for the 2.7 million Syrian refugees it is hosting. Marc Pierini, visiting scholar at Carnegie Europe, described the visa-free regime as one of the “biggest benefits for Turkey” in the migrant deal. He told AFP that Turkey still has to fulfil 72 conditions on its side to gain visa-free travel to Europe’s passport-free Schengen zone and that the move would also have to be approved by EU interior ministers.

“We shall see if that is a realistic prospect,” he said. Turkey’s long-stalled accession process to join the EU is also supposed to be re-energised under the deal. But Pierini said there were many conditions still to be fulfilled here. “The worst reading of the EU-Turkey deal would be to imagine that Turkey is about to get a ‘discount’ on EU membership conditions just because of the refugees,” he said. Erdogan argued Turkey deserved something in return for its commitment to Syrian refugees, on whom it has spent some $10 billion since the Syrian conflict began in 2011. “Some three million people are being fed on our budget,” the president said. “There have been promises but nothing has come for the moment,” he added.

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Europe’s true character is being revealed.

Amnesty: ‘Serious Flaws’ Mar Greek Side Of EU-Turkey Migrants’ Deal (Reuters)

Migrants held on the Greek islands Lesbos and Chios live in “appalling” conditions with little access to legal aid or information about their fate under a European Union agreement that will send some back to Turkey, Amnesty International said on Thursday. Under a deal between the EU and Ankara in place since March 20, undocumented migrants who cross to Greek islands will be kept in holding centers until their asylum claims are processed. Those who do not qualify will be returned to Turkey. The first group of 202 migrants to be returned, most of them from Pakistan and Afghanistan, were sent back to Turkey on Monday.

“People detained on Lesbos and Chios have virtually no access to legal aid, limited access to services and support, and hardly any information about their current status or possible fate,” said Amnesty Deputy Director for Europe Gauri van Gulik. “The fear and desperation are palpable,” she said. In a report published Thursday, Amnesty said among those held in the centers are a small baby with complications after an attack in Syria, heavily pregnant women, people unable to walk, and a young girl with a developmental disability. Many refugees spoke about the lack of access to doctors or medical staff. Legal aid is scarce and inaccessible to the vast majority, and asylum procedures are expected to be rushed, it said. Refugees told Amnesty that they did not get enough information about what the asylum process will entail. Many have received no or incomplete documentation of their registration.

“It is likely that thousands of asylum seekers will be returned to Turkey despite it being manifestly unsafe for them,” Amnesty wrote. Monitors visited the islands this week. One Syrian woman told Amnesty she and her family signed several documents despite not having an interpreter present, and were not provided with copies. “I don’t need food, I need to know what is happening,” the woman was quoted as saying. “Serious and immediate steps must be taken to address the glaring gaps we’ve documented in Lesbos and Chios,” Amnesty’s van Gulik said. “They show that in addition to Turkey not being safe for refugees at the moment, there are also serious flaws on the Greek side of the EU-Turkey deal. Until both are fully resolved, no further returns should take place.”

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Chaos is the MO.

Questions Mount Over EU’s Role In Processing Greece Asylum Requests (IT)

Four days after the deportation by the EU border agency Frontex of the first group of migrants from Greece to Turkey following the signing of the EU-Ankara deal, questions are mounting as to the EU’s role in processing asylum applications from the thousands of people who have arrived on Greece’s islands since March 20th, when the agreement came into force. While no more deportations have taken place since Monday, almost 5,500 people are now in detention on four Greek islands, 3,100 of them in the Moria hotspot on Lesbos alone, including women, children and other vulnerable groups. According to Boris Cheshirkov of the UN’s refugee agency, the UNHCR, “close to everyone” in Moria has submitted an asylum application.

Under the new regime created by the EU-Turkey agreement, asylum applications from island detainees must be processed within two weeks, in a fast-tracked time frame that includes the appeal process. Previously, the Greek asylum service took an average of three months to adjudicate on each application. A key aspect sees the European Asylum Support Office (Easo), another EU agency, advise overburdened Greek asylum officials on the “admissibility” of each asylum seeker at the initial stage of processing. Easo spokesman Jean Pierre Schembri told the BBC: “This is a relatively short process involving our experts … accessing every applicant on his or her own merits. We then issue an opinion and the Greek authorities then issue the final decision.”

But human rights organisations fear the outcome of this truncated, two-step process, where Greek officials will essentially sign off on Easo recommendations, is predetermined to result in most applicants being returned to Turkey, a “safe third country” according to the agreement. Referring to Syrians, Schembri said Turkey “for one may be safe, but for the other it might not be”. Groups such as Amnesty International say that far too many questions remain about how Easo will make its recommendations. “You can’t have confusion or doubt around these procedures before you kick it off,” said Gauri van Gulik, Amnesty’s deputy director for Europe.

“The biggest question for us is what information and which criteria will be used to decide whether someone is or isn’t at risk in Turkey . . . In some cases, it is quite random how some people are targeted, so it’s not about the individual’s experience or how long they’ve lived in Turkey, alone. It’s also about Afghans not getting any status legally in Turkey if they go back. “The bottom line is that here is no permanent protection for anyone [in Turkey]. There’s only temporary protection status for Syrians and then there’s the practice of certain groups being tolerated for a certain while, which is very different to having protection, access to work and access to social services.”

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After saying yesterday nothing would happen for 2 weeks…

Greece Ferries Second Boat Of Migrants To Turkey Under EU Pact (Reuters)

A ferry carrying 45 migrants left the Greek island of Lesbos for Turkey on Friday, the second such journey carried out under a controversial EU deal to stem mass irregular migration to Europe. A second boat carrying a larger group was scheduled to leave the island later in the morning, state TV reported. Those who left early on Friday were from Pakistan, it said. The first group of 202 migrants to be returned, most of them from Pakistan and Afghanistan, were sent back to Turkey on Monday. At the port of Mytilene, at least two activists jumped into the water close to the small ferry, dangling from the heavy chain of the anchor and flashing the ‘v’ sign for victory. They were hoisted out of the water by the Greek coastguard.

The first group of 202 migrants to be returned, most of them from Pakistan and Afghanistan, were sent back to Turkey on Monday. Under the EU-Turkey deal, Ankara will take back all migrants and refugees, including Syrians, who enter Greece through irregular routes in return for the EU taking in thousands of Syrian refugees directly from Turkey and rewarding it with more money, early visa-free travel and progress in its EU membership negotiations.

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No decency, no mercy, no nothing.

Refugees In Greece Warn Of Suicides (G.)

Syrians and Afghans threatened with deportation from the Greek islands of Lesbos and Chios have said they would rather take their own lives than be expelled from the EU under its migration deal with Turkey. On Monday, 202 migrants were forcibly returned from Lesbos and Chios to the Turkish coast under the landmark deal aimed at halting “irregular” migration to Europe. But Souaob Nouri from Kabul, who is held in the high-security camp in Chios, said: “If they deport us, we will kill ourselves. We will not go back.” A man next to him warned of “terrible scenes” if Greek authorities insisted on pursuing policies that have already caused alarm among human rights groups.

“We are not terrorists,” said the man, who gave his name as Akimi. “We are refugees. The conditions here are very bad. There is no water. They hit pregnant women. Why do they treat us like this? All we want is asylum.” Similar threats of self harm were echoed on Lesbos this week. In a letter passed to the Guardian by aid volunteers on the island, inmates held in the Moria detention centre wrote that they would rather “accept death” than be deported to Turkey. “We will accept death but not return back,” the letter said, adding: “We will all commit suicide if they deport us.” The expulsions have been fraught with controversy.

Thirteen of the 66 deportees who were sent back across the Aegean Sea from Chios under armed guard are believed to have “expressed intent” to apply for asylum – enough, say UN officials, to have kept them in Greece until their requests were examined. “Between 20 March when the deal came into effect and 1 April when it was voted into legislation [by Greek MPs] we have seen limits in the ability of authorities to process claims,” said Katerina Kitidi with the UN refugee agency on Chios, an east Aegean island south of Lesbos. “There has been a definite lack of clarity.” The uncertainty has quickly fuelled tensions on the island. More than 800 inmates broke out of the vastly overcrowded detention facility last week in violent scenes that ultimately saw men, women and children march into Chios town.

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Apr 072016
 
 April 7, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , ,  


John M. Fox “The new Hudson” 1948

Time To Stop Dancing With Equities On A Live Volcano (AEP)
Hillary Clinton’s Corporate Cash and Corporate Worldview (Naomi Klein)
How Bad Is China’s Debt Problem, Really? (Balding)
China Traders Flee to Hong Kong in Record Stock-Buying Streak (BBG)
China Set To Shake Up World Copper Market With Exports (Reuters)
Panama Papers Reveal Offshore Secrets Of China’s Red Nobility (G.)
David Cameron’s EU Intervention On Trusts Set Up Tax Loophole (FT)
Panama Papers Reveal London As Centre Of ‘Spider’s Web’ (AFP)
How Laundered Money Shapes London’s Property Market (FT)
London Luxury-Apartment Sales Slump Triggers 20% Bulk Discounts (BBG)
US Readies Bank Rule On Shell Companies Amid ‘Panama Papers’ Fury (Reuters)
US Government, Soros Funded Panama Papers To Attack Putin: WikiLeaks (RT)
Bookmakers Set Odds For Next Leader To Resign After Panama Papers (MW)
Brexit May Force Europe’s Banks To Dump $123 Billion Of Securities (BBG)
Economics Builds a Tower of Babel (BBG)
Dutch ‘No’ Vote On Ukraine Pact Forces Government Rethink (Reuters)
Greece Sees Two-Week Lag In Migrant Returns To Turkey (AFP)

Ambrose sees inflation?!

Time To Stop Dancing With Equities On A Live Volcano (AEP)

Be very careful. The US economic expansion is long in the tooth and starting to hit the time-honoured constraints that mark the last phase of the business cycle. Wall Street equities are more stretched by a host of measures than they were at the peak of sub-prime bubble just before the Lehman crisis. All it will take to bring the S&P 500 index back to earth is a catalyst, and that is exactly what is coming into view on the macro-economic horizon. This does not mean we are on the cusp of recession or racing headlong towards some imminent reckoning, but we are probably in the final innings of this epic asset boom. Didier Saint-Georges, from fund manager Carmignac, says the “massive and indiscriminate equity market rally” since February’s panic-lows is a false dawn driven by short-covering, telling us little about the world’s deformed economic, financial, and political landscape.

Corporate earnings peaked at $1.845 trillion (£1.3 trillion) in the second quarter of 2015, and recessions typically start five to seven quarters after the peak. “We will not be dancing on the volcano like so many others,” said Saint-Georges. If we are lucky it will be a slow denouement with a choppy sideways market going nowhere for another year as the US labour market tightens, and workers at last start to claw back a greater share of the economic pie. The owners of capital have had it their way for much of the post-Lehman era, exorbitant beneficiaries of central bank largesse. Now they may have to give a little back to society. Yet this welcome “rotation” spells financial trouble. Strategists Mislav Matejka and Emmanuel Cau, from JP Morgan, have told clients to prepare for the end of the seven-year bull run, advising them to trim equities gradually and build up a safety buffer in cash.

“This is not the stage of the US cycle when one should be buying stocks with a six to 12-month horizon. We recommend using any strength as a selling opportunity,” they said. Their recent 165-page report on the subject is a sobering read. The price-to-sales ratio (P/S) of US stocks is higher than any time in the sub-prime boom. Share buy-backs are at an historic high in relation to earnings (EBIT). Net debt-to-equity ratios have blown through their historical range. This is happening despite two quarters of tighter lending by US banks. Spreads on high-yield debt have doubled since 2014, jumping by 300 basis points even after stripping out the energy bust. The list goes on; the message is clear. “One should be cutting equity weight before the weakness becomes obvious,” they said.

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Hillary equals more of the same. The same disaster.

Hillary Clinton’s Corporate Cash and Corporate Worldview (Naomi Klein)

There aren’t a lot of certainties left in the US presidential race, but here’s one thing about which we can be absolutely sure: The Clinton camp really doesn’t like talking about fossil-fuel money. Last week, when a young Greenpeace campaigner challenged Hillary Clinton about taking money from fossil-fuel companies, the candidate accused the Bernie Sanders campaign of “lying” and declared herself “so sick” of it. As the exchange went viral, a succession of high-powered Clinton supporters pronounced that there was nothing to see here and that everyone should move along. The very suggestion that taking this money could impact Clinton’s actions is “baseless and should stop,” according to California Senator Barbara Boxer. It’s “flat-out false,” “inappropriate,” and doesn’t “hold water,” declared New York Mayor Bill de Blasio.

New York Times columnist Paul Krugman went so far as to issue “guidelines for good and bad behavior” for the Sanders camp. The first guideline? Cut out the “innuendo suggesting, without evidence, that Clinton is corrupt.” That’s a whole lot of firepower to slap down a non-issue. So is it an issue or not? First, some facts. Hillary Clinton’s campaign, including her Super PAC, has received a lot of money from the employees and registered lobbyists of fossil-fuel companies. There’s the much-cited $4.5 million that Greenpeace calculated, which includes bundling by lobbyists. One of Clinton’s most active financial backers is Warren Buffett, who is up to his eyeballs in coal. But that’s not all. There is also a lot more money from sources not included in those calculations. For instance, one of Clinton’s most prominent and active financial backers is Warren Buffett.

While he owns a large mix of assets, Buffett is up to his eyeballs in coal, including coal transportation and some of the dirtiest coal-fired power plants in the country. Then there’s all the cash that fossil-fuel companies have directly pumped into the Clinton Foundation. In recent years, Exxon, Shell, ConocoPhillips, and Chevron have all contributed to the foundation. An investigation in the International Business Times just revealed that at least two of these oil companies were part of an effort to lobby Clinton’s State Department about the Alberta tar sands, a massive deposit of extra-dirty oil. Leading climate scientists like James Hansen have explained that if we don’t keep the vast majority of that carbon in the ground, we will unleash catastrophic levels of warming.

During this period, the investigation found, Clinton’s State Department approved the Alberta Clipper, a controversial pipeline carrying large amounts of tar-sands bitumen from Alberta to Wisconsin. “According to federal lobbying records reviewed by the IBT,” write David Sirota and Ned Resnikoff, “Chevron and ConocoPhillips both lobbied the State Department specifically on the issue of ‘oil sands’ in the immediate months prior to the department’s approval, as did a trade association funded by ExxonMobil.”

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“All this leads one to think that the government doesn’t recognize the severity of the problem.”

How Bad Is China’s Debt Problem, Really? (Balding)

For months now, China’s regulators have been warning about the dangers of rapidly expanding credit and the need to deleverage. With new plans to clean up bad loans at the country’s banks, you might conclude that the government is getting serious about the risks it faces. But there’s reason to doubt the effectiveness of China’s approach. In fact, it’s running a serious risk of making its debt problems worse. After the financial crisis, China embarked on a credit binge of historical proportions. In 2009, new loans grew by 95%. The government offered cheap credit to build apartments for urban migrants, airports for the newly affluent and roads to accommodate a fleet of new cars. Yet as lending grew at twice the rate of GDP, problems started bubbling up. Companies gained billion-dollar valuations, then collapsed when they couldn’t profit.

Enormous surplus capacity drove down prices. Excessive real-estate lending led to the construction of “ghost cities.” Asset bubbles popped and bad loans mounted. China’s policy makers say they recognize these problems. The government’s most recent 5-year plan, released in December, notes the need for deleveraging. The PBOC has talked up the party line about slowing credit growth and making high-quality loans. Yet officials still say that only about 1.6% of commercial-banking loans are nonperforming. Some analysts put the real figure closer to 20%. And Beijing’s primary plan to address the problem – allowing companies to swap their debt with banks in exchange for equity – actually creates new risks. For one thing, while a debt-for-equity swap may help excessively indebted firms, it will wreak havoc with banks.

Directly, a given bank will no longer receive the cash flow from interest and principal payments. Indirectly, it won’t be able to sell equity to the PBOC or to other banks as it could with a loan. Valuing the equity could present a bigger problem. In China, banks must count 100% of loans made to non-financial companies against their reserve requirements. When they invest in equity, however, they must set aside 400% of the value of the investment. If the debt isn’t worth face value to the bank, it seems unlikely that the equity is worth far more – suggesting that large write-downs will be required. The swaps program also creates a number of big-picture problems. Consider the tight relationship between banks and large government-linked companies.

If banks were under pressure to roll over loans when they were creditors hoping to get repaid, what will their incentive be when they own the firm and have essentially unlimited lending capacity? Another problem is that Chinese industry exists in a deflationary debt spiral: Prices have been falling for years, raising the real cost of repaying loans. If companies are relieved of their debt, they’ll have an incentive to reduce prices to gain market share, thus worsening one of the primary causes of the current malaise. All this leads one to think that the government doesn’t recognize the severity of the problem. Debt-for-equity swaps and loan rollovers simply aren’t long-term solutions for ailing companies on the scale China faces.

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All that monopoly money behaves like liquid gas.

China Traders Flee to Hong Kong in Record Stock-Buying Streak (BBG)

Cash is pouring into Hong Kong stocks from across the mainland border. Chinese investors have been net buyers of the city’s shares for 104 consecutive trading days, sinking 43.8 billion yuan ($6.8 billion) into equities from October through Tuesday, according to data compiled by Bloomberg tracking investments via the exchange link with Shanghai. Mainland traders have now put more money into Hong Kong than global asset managers have invested in Shanghai, a reversal of flows in the link’s first year, the data show. As concern persists about a further slide in the yuan, Chinese investors are piling into cheaper shares across the border that have lagged behind mainland counterparts for years.

While the flows are small relative to estimates of the record capital flight from China in 2015, they’re another sign of what’s at stake for policy makers seeking to stabilize the currency and stem outflows by providing credible investment options at home. “In China, there is talk of an asset drought – people don’t find domestic assets particularly attractive,” said Tai Hui at JPMorgan. “They are investing overseas in any way possible including via the southbound stock connect.” Buying mainland Chinese stocks has been a losing proposition this year, with the benchmark Shanghai Composite Index down 14%. Other investment alternatives such as property are coming under scrutiny as authorities impose fresh curbs after home prices jumped in the biggest cities such as Shanghai and Shenzhen.

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What’s next? Compete with OPEC?

China Set To Shake Up World Copper Market With Exports (Reuters)

China may be about to shock the global copper market by unleashing some of its stockpiles of the metal, which are near record highs, onto the global market. Four traders of copper, including two from state-owned Chinese smelters, said they expect China to raise its copper exports – which are usually tiny – in the next few months. China’s refined copper exports averaged less than 10,000 tonnes a month in the first two months of 2016, and around 17,000 a month in 2015. If higher exports materialize, they will be a major jolt to producers and investors in the metal across the world – in particular because it would come during what is traditionally the strongest period of demand for copper from China, the world’s largest consumer of the metal. It will also be a further sign that the Chinese economy is still struggling against headwinds. Some sectors that buy copper – such as construction and manufacturing – have been hit especially hard in the past couple of years.

Traders and analysts in China say slowing building construction and electronics manufacturing has stifled demand for refined copper from the nation’s massive smelting sector at a time when the country is already swimming in the metal. China’s copper consumption has been a crucial measure of the country’s economic growth as the metal forms the essential network of its infrastructure, carrying water, conducting electricity and comprising the circuits in its machines. “The situation for copper smelters in China is probably the worst it has been in 20 years. But they won’t admit it. It wouldn’t surprise me in the least (if they start exporting),” said a source at an Asian copper producer, who declined to be named because he is not authorized to speak to the media. Increasing Chinese exports would mark an abrupt turnaround in global copper trade flows as China’s refined copper imports hit a record in 2015.

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Looking at China, it’s hard not to think of 1789, Robespierre, Marie-Antoinette, Bastille. Napoleon next?

Panama Papers Reveal Offshore Secrets Of China’s Red Nobility (G.)

The eight members of China’s Communist party elite whose family members used offshore companies are revealed in the Panama Papers. The documents show the granddaughter of a powerful Chinese leader became the sole shareholder in two British Virgin Islands companies while still a teenager. Jasmine Li had just begun studying at Stanford University in the US when the companies were registered in her name in December 2010. Her grandfather Jia Qinglin was at that time the fourth-ranked politician in China. Other prominent figures who have taken advantage of offshore companies include the brother-in-law of the president, Xi Jinping, and the son-in-law of Zhang Gaoli, another member of China’s top political body, the politburo standing committee.

They are part of the “red nobility”, whose influence extends well beyond politics. Others include the daughter of Li Peng, who oversaw the brutal retaliation against Tiananmen Square protestors; and Gu Kailai, wife of Bo Xilai, the ex-politburo member jailed for life for corruption and power abuses. The relatives had companies that were clients of the offshore law firm Mossack Fonseca. There is nothing in the documents to suggest that the politicians in question had any beneficial interest in the companies connected to their family members. Since Monday, China’s censors have been blocking access to the unfolding revelations about its most senior political families. There are now reports of censors deleting hundreds of posts on the social networks Sina Weibo and Wechat, and some media organisations including CNN say parts of their websites have been blocked.

The disclosures come amid Xi Jinping’s crackdown on behaviour that could embarrass the Communist party. Two more well-connected figures – the brother of former vice-president Zeng Qinghong and the son of former politburo member Tian Jiyun – are directors of a single offshore company. They have previously been linked in a court case that highlighted how some Chinese “princelings” have used political connections for financial gain. They have emerged from the internal data of the offshore law firm Mossack Fonseca. [..] China and Hong Kong were Mossack Fonseca’s biggest sources of business, with clients from these jurisdictions linked to a total of 40,000 companies past and present. About a quarter of these are thought to be live: in 2015, records show the firm was collecting fees for nearly 10,000 companies linked to Hong Kong and China. The Mossack Fonseca franchise now has offices in eight Chinese cities, according to its website

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How much pressure will he get?

David Cameron’s EU Intervention On Trusts Set Up Tax Loophole (FT)

David Cameron personally intervened in 2013 to weaken an EU drive to reveal the beneficiaries of trusts, creating a possible loophole that other European nations warned could be exploited by tax evaders. The disclosure of the prime minister’s resistance to opening up trusts to full scrutiny comes as he faces intense pressure to make clear whether his family stands to benefit from offshore assets linked to his late father. Although Mr Cameron championed corporate tax transparency, he wrote in November 2013 to Herman Van Rompuy, president of the European Council at the time, to argue that trusts widely used for inheritance planning in Britain should win special treatment in an EU law to tackle money laundering.

In the letter, seen by the Financial Times, Mr Cameron said: “It is clearly important we recognise the important differences between companies and trusts. This means that the solution for addressing the potential misuse of companies, such as central public registries, may well not be appropriate generally.” Britain has emerged as the strongest European rival to Switzerland for private banking and wealth management, administering £1.2tn of assets, according to Deloitte. The sector contributed £3.2bn to the economy, according to 2014 estimates from the British Bankers’ Association. A senior government source said that Mr Cameron’s letter reflected official advice that creating a central registry for trusts would have been complex and would have distracted from the main objective of shining a light on the ownership of shell companies.

“It would have slowed down the process because of the different types of trust involved,” the official said. “They are sometimes used to protect vulnerable people, so that would have been an extra complication. “As the directive went through we reached a position where trusts which generate tax consequences had to demonstrate their ownership to HM Revenue & Customs.” According to officials, the UK stance in 2013 prompted clashes with France and Austria as well as with members of the European Parliament, who accused Britain of double standards in the fight against tax avoidance. Maria Fekter, the Austrian finance minister at the time, had attacked Britain earlier that year as “the island of the blessed for tax evasion and money laundering”. She cited trusts as a specific problem.

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“London is the epicentre of so much of the sleaze that happens in the world..”

Panama Papers Reveal London As Centre Of ‘Spider’s Web’ (AFP)

As-well as shining a spotlight on the secret financial arrangements of the rich and powerful, the so-called Panama Papers have laid bare London’s role as a vital organ of the world’s tax-haven network. The files leaked from Panama law firm Mossack Fonseca exposed Britain’s link to thousands of firms based in tax havens and how secret money is invested in British assets, particularly London property. Critics accuse British authorities of turning a blind eye to the inflow of suspect money and of being too close to the financial sector to clamp down on the use of its overseas territories as havens, with the British Virgin Islands alone hosting 110,000 of the Mossack Fonseca’s clients. “London is the epicentre of so much of the sleaze that happens in the world,” Nicholas Shaxson, author of the book “Treasure Islands”, which examines the role of offshore banks and tax havens, told AFP.

The political analyst said that Britain itself was relatively transparent and clean, but that companies used the country’s territories abroad – relics of the days of empire – to “farm out the seedier stuff”, often under the guise of shell companies with anonymous owners. “Tax evasion and stuff like that will be done in the external parts of the network. Usually there will be links to the City of London, UK law firms, UK accountancy firms and to UK banks,” he said, calling London the centre of a “spider’s web”. “They’re all agents of the City of London – that is where the whole exercise is controlled from,” Richard Murphy, professor at London’s City University, said of the offshore havens. The files showed that Britain had the third highest number of Mossack Fonseca’s middlemen operating within its borders, with 32,682 advisers.

Although not illegal in themselves, shell companies can be used for illegal activities such as laundering the proceeds of criminal activities or to conceal misappropriated or politically-inconvenient wealth. Around 310,000 tax haven companies own an estimated £170 billion (210 billion euros, $240 billion) of British real estate, 10% of which were linked to Mossack Fonseca. The files appeared to show that the United Arab Emirates President Sheikh Khalifa bin Zayed Al-Nahyan owned London properties worth more than £1.2 billion and that Mariam Safdar, daughter of Pakistani prime minister Nawaz Sharif, was the beneficial owner of two offshore companies that owned flats on the exclusive Park Lane.

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“..the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”

How Laundered Money Shapes London’s Property Market (FT)

For three-quarters of Londoners under 35, owning a home in the capital remains out of reach. But according to the leaked Panama Papers, buying property in London presented little problem for associates of Bashar al-Assad, the Syrian president; for a convicted embezzler who is also the son of a former Egyptian president; or for a Nigerian senator facing corruption charges. The leaks from the Panamanian law firm Mossack Fonseca have brought back into focus the ownership of London property via offshore companies by people suspected of corruption overseas — a phenomenon that has helped to shape the capital’s housing market, where prices are up 50% since 2007. “We think it very likely that the influx of corrupt money into the housing market has pushed up prices,” said Rachel Davies, senior advocacy manager at Transparency International.

Donald Toon, head of the National Crime Agency, has gone further, saying last year that “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”. Since 2004 £180m of UK property has been subject to criminal investigation as suspected proceeds of corruption, according to Transparency International data from 2015. Yet this probably represented “only a small proportion of the total”, added the campaign group. Most of these properties were bought using anonymous shell companies based in offshore tax havens such as the British Virgin Islands. Overseas companies own 100,000 properties in England and Wales, Land Registry data show. Owning property through a company can present tax advantages but, depending where that company is based, it can also offer anonymity.

According to Transparency International figures, almost one in 10 properties in the London borough of Kensington & Chelsea is owned through a “secrecy jurisdiction” such as the British Virgin Islands, Jersey or the Isle of Man. “UK property can be acquired anonymously, anti-money-laundering checks can be bypassed with relative ease, and if you invest in luxury property in London you know your investment is safe. All that comes from the flaws in the UK anti-money-laundering system,” said Ms Davies. According to the documents leaked to the International Consortium of Investigative Journalists, Soulieman Marouf, an al-Assad associate whose assets in Europe were frozen for two years from 2012, holds luxury flats in London worth almost £6m through British Virgin Islands companies.

The family of a deceased former Syrian intelligence chief owns a £1.2m Battersea home, the Guardian reported. The documents also link Alaa Mubarak — a son of Hosni Mubarak, the former Egyptian president — who was jailed and released last year for corruption, to an £8m Knightsbridge property. Bukola Saraki, the president of the Nigerian senate who faces charges in his home country of failing to declare assets, owns a Belgravia property, while a second is held by companies in which his wife and former special assistant are shareholders. Mr Saraki denies any wrongdoing and says he declared his assets in accordance with the law.

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This bubble too will burst.

London Luxury-Apartment Sales Slump Triggers 20% Bulk Discounts (BBG)

Developers in central London are offering institutional investors discounts of as much as 20% on bulk purchases of luxury apartments as demand from international buyers slumps amid higher taxes and low commodity prices. Concessions of about that magnitude are being offered to investors willing to take 100 homes or more, according to Killian Hurley, chief executive officer of London developer Mount Anvil. Broker CBRE is negotiating discounts of as much as 15% for bulk purchases on the fringes of the capital’s best districts, said Chris Lacey, head of U.K. residential investment. A record number of high-end homes are planned in London districts such as Nine Elms and Earls Court even as demand wanes.

Sales of properties under construction in the U.K. capital slumped 19% in the fourth quarter of 2015, according to researcher Molior, while the percentage of overseas buyers fell to 20% from about 33% a year earlier, broker Hamptons International data show. “We will see distress in prime central London and in Nine Elms, where there has been a lot of international investment,” Andrew Stanford at LaSalle Investment said in an interview. “There have been a number of house builders who have approached us directly with schemes as a direct result of off-plan sales falling, particularly in central London.” Bulk buyers may be hard to find because the apartments being built aren’t designed for the rental market, lacking features such as equal-size bedrooms, said Stanford, whose company has invested more than $457 million in U.K. multifamily housing on behalf of clients.

Many developers traveled to Asia to sell homes in advance of construction and secure cheaper development loans because the down payments made projects less risky. The imposition of higher purchase taxes has now reduced the appeal of the costliest properties, leaving developers wondering how they will secure funding, said Dominic Grace, head of London residential development at broker Savills. “It is a question everyone is asking, and the truth is no one really knows,” Grace said.

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Sure..

US Readies Bank Rule On Shell Companies Amid ‘Panama Papers’ Fury (Reuters)

The U.S. Treasury Department intends to soon issue a long-delayed rule forcing banks to seek the identities of people behind shell-company account holders, after the “Panama Papers” leak provoked a global uproar over the hiding of wealth via offshore banking devices. A department spokesman said on Wednesday the rule would “soon” be turned over to the White House for review and issuance, but did not confirm any timetable for the initiative, which has taken years. Governments around the globe have launched probes into possible financial wrongdoing after 11.5 million documents from the Panamanian law firm Mossack Fonseca, nicknamed the “Panama Papers,” were leaked to the media and reports emerged Sunday. Mossack Fonseca has said it was the victim of a computer hack, and that it has consistently acted appropriately.

The papers offer “validation for those who have been screaming for a decade” about the need for financial institutions in the United States and elsewhere to address risks of money laundering, terror finance and other crime by identifying people who clandestinely control legal entities, former Treasury official Chip Poncy told Reuters. The leaked documents may give banks a glimpse into the kind of information on true, or “beneficial” owners, that they regularly should be obtaining to better understand the cross-border money flows they facilitate, said Poncy, one of the architects of the Treasury rule, which has been in the works since 2012.

But simply having a client who is linked to the offshore shell companies highlighted in the Panama papers “doesn’t necessarily mean much,” said a former FinCEN official who asked not to be named due to his role in the private sector. What would be significant is “inconsistent information or payment flows that now connect” in ways that suggest possible illicit activity, he said.

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“We have innuendo, we have a complete lack of standards on the part of the western media, and the major mistake made by the leaker was to give these documents to the corporate media..”

US Government, Soros Funded Panama Papers To Attack Putin: WikiLeaks (RT)

Washington is behind the recently released offshore revelations known as the Panama Papers, WikiLeaks has claimed, saying that the attack was “produced” to target Russia and President Putin. On Wednesday, the international whistleblowing organization said on Twitter that the Panama Papers data leak was produced by the Organized Crime and Corruption Reporting Project (OCCRP), “which targets Russia and [the] former USSR.” The “Putin attack” was funded by the US Agency for International Development (USAID) and American hedge fund billionaire George Soros, WikiLeaks added, saying that the US government’s funding of such an attack is a serious blow to its integrity. Organizations belonging to Soros have been proclaimed to be “undesirable” in Russia.

Last year, the Russian Prosecutor General’s Office recognized Soros’s Open Society Foundations and the Open Society Institute Assistance Foundation as undesirable groups, banning Russian citizens and organizations from participation in any of their projects. Prosecutors then said the activities of the institute and its assistance foundation were a threat to the basis of Russia’s constitutional order and national security. Earlier this year, the billionaire US investor alleged that Putin is “no ally” to US and EU leaders, and that he aims “to gain considerable economic benefits from dividing Europe.” “The American government is pursuing a policy of destabilization all over the world, and this [leak] also serves this purpose of destabilization. They are causing a lot of people all over the world and also a lot of money to find its way into the [new] tax havens in America. The US is preparing for a super big financial crisis, and they want all that money in their own vaults and not in the vaults of other countries,” German journalist and author Ernst Wolff told RT.

Earlier this week, the head of the International Consortium of Investigative Journalists (ICIJ), which worked on the Panama Papers, said that Putin is not the target of the leak, but rather that the revelations aimed to shed light on murky offshore practices internationally. “It wasn’t a story about Russia. It was a story about the offshore world,” ICIJ head Gerard Ryle told TASS. His statement came in stark contrast to international media coverage of the “largest leak in offshore history.” Although neither Vladimir Putin nor any members of his family are directly mentioned in the papers, many mainstream media outlets chose the Russian president’s photo when breaking the story.

“We have innuendo, we have a complete lack of standards on the part of the western media, and the major mistake made by the leaker was to give these documents to the corporate media,” former CIA officer Ray McGovern told RT. “This would be humorous if it weren’t so serious,” he added. “The degree of Putinophobia has reached a point where to speak well about Russia, or about some of its actions and successes, is impossible. One needs to speak [about Russia] in negative terms, the more the better, and when there’s nothing to say, you need to make things up,” Kremlin spokesman Dmitry Peskov has said, commenting on anti-Russian sentiment triggered by the publications. WikiLeaks spokesman and Icelandic investigative journalist Kristinn Hrafnsson has called for the leaked data to be put online so that everybody could search through the papers. He said withholding of the documents could hardly be viewed as “responsible journalism.”

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Almost funny.

Bookmakers Set Odds For Next Leader To Resign After Panama Papers (MW)

Whose scalp will the Panama Papers scandal claim next? Irish bookmaker Paddy Power has opened betting lines on which head of state could be the next to go. “Who needs the Grand National when you’ve got the Panama Papers to punt on?” the betting line boasted in a press release on Wednesday. Icelandic Prime Minister Sigmundur Gunnlaugsson, announced yesterday he was stepping down after Panama Papers revelations that he and his wife sought to hide their claims on Icelandic banks that were bailed out by his administration during the financial crisis. Paddy Power puts the odds of British Prime Minister David Cameron resigning next at 20-1. The leaked documents outed Cameron’s father Ian Cameron as a client of the Panamanian law firm, Mossack Fonseca, at the center of the scandal.

Cameron’s father used a secret but legal offshore structure to set up a fund for investors. After saying all day Monday that his tax affairs were a “private matter”, media questions about his family’s remaining interest in the fund forced Cameron’s office, according to BBC reports, to issue a statement affirming that his family “[does] not benefit from any offshore trusts.” A surer bet according to the bookmaker is Argentina’s President Mauricio Macri at 8-1 odds. Macri won last year’s general election campaigning on a platform promising to fight corruption but the leaked documents say he was a director of Fleg Trading Ltd, founded in 1998 by his father Franco Macri, one of the richest men in Argentina. The company was dissolved in January 2009. “It was an offshore company to invest in Brazil, an investment that ultimately wasn’t completed, and where I was director,” he said in a television interview with a local program.

A Paddy Power spokesman told MarketWatch that to pay off, the leader has to leave “after being implicated specifically in the Panama Papers.” There have already been a few bets made that Macri and Cameron are next, he said. Paddy Power also has laid odds that the President of Pakistan Nawaz Sharif will leave at 10-to-1 and Ukraine’s President Petro Poroshenko almost as good at 12-1. Sharif is mentioned in the leak as the result of a £7 million loan from Deutsche Bank backed up by four London apartments owned by offshore companies established by Mossack Fonseca. Poroshenko – nicknamed the ‘chocolate king’ – hid his ongoing interest in his candy company, Roshen, in a blind trust offshore when he became president in 2014. He had promised to sell it after being elected. Longshots to leave include President Xi Jinping of China, Russia’s Putin and France’s Francois Hollande, all set at 33-1.

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Coming closer.

Brexit May Force Europe’s Banks To Dump $123 Billion Of Securities (BBG)

If Britain decides to leave the EU, a corner of the credit market may depart with it and European banks could be left having to replace as much as €108 billion ($123 billion) of securities. Lenders from the EU that bought bonds backed by U.K. mortgages, bank loans and credit-card debt may find themselves caught up in the fallout of a “Brexit” because the debt might no longer count toward their emergency cash reserves. While a settlement with the bloc would take years to reach, lawyers and analysts are beginning to flag concerns about holdings of the asset-backed securities, a market that’s already been hammered since the financial crisis.

“Banks could find themselves having a liquidity issue if these assets no longer count,” said Vincent Keaveny at law firm DLA Piper, who specializes in structured credit. “There are big risks out there, but there aren’t any easy fixes.” Under the Basel Accords, a set of agreements by global regulators, banks must meet minimum standards meant to make them more resilient to shocks after the financial crisis highlighted their weaknesses. One standard, known as the Liquidity Coverage Ratio, requires banks maintain an adequate amount of high-quality assets that can be quickly converted to cash to meet liquidity needs for 30 days.

Certain securitized notes are counted, but their underlying assets must originate from a member state, according to the European Commission’s Delegated Act for the standard. That means some bonds backed by collateral from a newly go-it-alone Britain may be excluded. “‘Brexit’ could result in certain U.K. ABS no longer qualifying as eligible assets for current LCR purposes,” Angela Clist and Nicole Rhodes, London-based lawyers specializing in securitization at Allen & Overy LLP, wrote in a note to clients in February.

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“When economists say “equilibrium,” what they really mean is “any solution to any equations I decide to write down.”

Economics Builds a Tower of Babel (BBG)

In Lewis Carroll’s “Through the Looking Glass,” Humpty Dumpty proudly declares: “When I use a word, it means just what I choose it to mean – neither more nor less.” To which Alice replies: “The question is whether you can make words mean so many different things.” Humpty Dumpty could have been an economist. The modern economics profession made a collective decision, long ago, to develop a system of jargon in which words have multiple, sometimes contradictory meanings. Unfortunately, the general public’s reaction tends to be similar to that of poor Alice. Want some examples? There’s no shortage. Let’s take the word “investment.” Most people think this means buying some financial assets, such as stocks or bonds. That’s basically a form of lending – you give someone money today, and you hope they’ll give you back more money tomorrow.

Economists call that “financial investment,” but the kind of investment they usually talk about is business investment, meaning a company’s purchase of capital goods. Since companies use debt to buy capital goods (or use their own cash, which is essentially the same thing), this kind of “investment” is actually a type of borrowing. So economists use the same word to mean both borrowing and lending! That couldn’t possibly result in any confusion, right? Two similar examples are “capital” and “equity.” “Equity” can mean stock – partial ownership of a company – or it can refer to “shareholders’ equity,” which is a measure of the value of a business. “Capital” in econ can mean financial capital, i.e. money in the bank. More commonly, it refers to capital goods – productive stuff such as buildings or machines that help you create more stuff.

Though economists usually use the term in the second way, many people outside the profession refer to financial capital as “economic capital.” Confused yet? We’re just getting started. Everyone knows that economists love models where rational agents interact in an efficient market that reaches equilibrium, right? Except that almost every word in that sentence is complete nonsense, thanks to econ’s Humpty Dumpty-like tendency to redefine words without telling anyone. So how about “equilibrium”? The word used to refer to a situation where prices adjust in order to clear markets, so that supply matches demand. Later, game theorists came up with “Nash equilibrium,” named after mathematician John Nash, which refers to a situation where everyone is responding optimally to everyone else in a strategic situation. Other concepts proliferated, and so by now the word has lost all meaning entirely. When economists say “equilibrium,” what they really mean is “any solution to any equations I decide to write down.”

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Will the EU survive?

Dutch ‘No’ Vote On Ukraine Pact Forces Government Rethink (Reuters)

The Dutch government said on Wednesday it could not ignore the resounding “No” in a non-binding referendum on the EU’s association treaty with Ukraine, but that it may take weeks to decide how to respond. Although the results were preliminary, they exposed dissatisfaction with the Dutch government and policy-making in Brussels – signalling a anti-establishment mood in a founding EU member weeks before Britain votes on membership. There could also be far-reaching consequences for the fragile Dutch coalition government, which currently holds the rotating EU presidency and which has lost popularity amid a wave of anti-immigrant sentiment. Exit polls indicated roughly 64% of Dutch voters voted “No” and 36% said “Yes”. Although turnout was too close to call, early tallies indicated it was just ahead of a turnout minimum of 30% required for the vote to be valid.

“It’s clear that ‘No’ have won by an overwhelming margin, the question is only if turnout is sufficient,” Dutch Prime Minister Mark Rutte said in a televised reaction. “If the turnout is above 30% with such a large margin of victory for the ‘No’ camp, then my sense is that ratification can’t simply go ahead,” Rutte added. That sentiment was shared by Diederik Samsom, leader of the Labour Party, the junior partner the governing coalition. “We can’t ratify the treaty in this fashion,” he said. A person familiar with internal EU discussions on how leaders in Brussels would respond said EU officials had been hoping for very low turnout that would disqualify or diminish the impact of a “No” vote. The European Commission, the bloc’s executive, will play for time, waiting for the Dutch government to suggest a way forward, the official said. The political, trade and defence treaty is already provisionally in place, but has to be ratified by all 28 EU member countries for every part of it to have full legal force. The Netherlands is the only country that has not done so.

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Monday there was a lot of media and brouhaha, and then they have a 17-day hiatus? EU-Assclowns.

Greece Sees Two-Week Lag In Migrant Returns To Turkey (AFP)

A last-minute flurry of asylum applications by migrants desperate to avoid expulsion from Greece to Turkey will likely cause a two-week “lag” in an EU deportation plan slammed by rights groups, a Greek official said Wednesday. Nikos Xydakis, junior foreign minister for European affairs, indicated there would likely be few migrants sent back to Turkey over the next two weeks, following the first deportation of around 200 people on Monday. “We knew there would be a lag, an intermediate period before the program takes off, of at least two weeks to get through the first batch of (asylum) applications,” Xydakis told reporters. He nevertheless said the next set of expulsions would likely take place “from Friday onwards”, without going into further detail.

Athens stressed that the people shipped back to Turkey on Monday were migrants who had not claimed asylum. But the UN’s refugee agency has expressed concern that 13 of them, mostly Afghans, had expressed a wish to claim asylum but were not registered in time. Xydakis said some two dozen EU legal experts had arrived so far to assist the asylum process, compared to hundreds of security agents from EU border agency Frontex. “This is the weakness of the whole procedure. It is easier to deploy police officers than experts in refugee law, interpreters, debriefers,” he said. But he added: “They are coming.” Once the system is fully up and running, Greece has said it can process asylum claims in two weeks. “In two weeks (authorities) can get through 400 to 500 applications,” Xydakis said.

Under the terms of the EU-Turkey deal, all “irregular migrants” arriving on the Greek islands from Turkey since March 20 face being sent back, although the accord calls for each case to be examined individually. And for every Syrian refugee returned, another Syrian refugee will be resettled from Turkey to the EU, with numbers capped at 72,000. “It was overestimated that in five days everything would begin, it was crazy. We told them many times in Brussels, we knew,” Xydakis said. “Things must be done by the book, we cannot bundle people together, they have to be certified and checked,” the minister said. Out of around 6,000 migrants who have arrived on the islands of Chios and Lesvos after the March 20 deadline, more than 2,300 have now applied for asylum. And many others had previously complained of not having had access to the asylum procedure.

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May 112015
 
 May 11, 2015  Posted by at 10:58 am Finance Tagged with: , , , , , , , , , , ,  


Unknown Wharf, Federal artillery, and schooners, City Point, Virginia 1865

ECB’s Nowotny: Greece Much More Political Than Economic Question (Reuters)
Greece’s ‘War Cabinet’ Prepares To Battle EU Creditors As Anger Mounts (AEP)
IMF and ECB Loom Large Over Greece’s Debt Talks (NY Times)
How The ECB Became The Real Villain Of Greece’s Debt Drama (Telegraph)
No Solution In Sight For Greek Crisis – Tsipras’ Impossible Dilemma (Guardian)
EU’s Unraveling Plans For Greek Debt Risks Split Among Creditors (Bloomberg)
IMF Works With Greece’s Neighbors to Contain Default Risks (WSJ)
It’s Not Just Greece, China’s Retreat Threatens European Bonds (Bloomberg)
Farewell To The United Kingdom- Let It Bleed (Tariq Ali)
Cameron Must Accept SNP’s Anti-Austerity Mandate, Or The UK Is Finished (IBT)
Sturgeon Says SNP Is Real Opposition in Commons Amid Labour Woes (Bloomberg)
Anti-Austerity Group Plans Major Protest Outside Bank Of England (Guardian)
The Economist’s Racist Headline Must be Retracted Immediately (Bill Black)
Goldilocks Unemployment: A Disgusting Bowl Of Porridge (Mark St.Cyr)
Italy Must Become A Civilised Country With A Citizen’s Income (Grillo)
The Killing of Osama bin Laden (Seymour Hersh)
Inequality: How Rich Countries Can Make A Difference (Ken Rogoff)
EU Plans Refugee Quotas Forcing States To ‘Share’ Burden (Guardian)

It was always just politics.

ECB’s Nowotny: Greece More Political Than Economic Question (Reuters)

Any solution to Greece’s financial woes is much more of a political than an economic question, European Central Bank policymaker Ewald Nowotny said on Monday, as eurozone finance ministers meet to continue Greek debt talks. Top officials have voiced little optimism about a breakthrough at the meeting. Nowotny declined to suggest a way out of the impasse, reiterating that the ECB’s role was to ensure price and financial stability. Referring to Monday’s Eurogroup meeting he said: “It would be premature to give any details.”

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“We have agreed on a tougher strategy to stop making compromises. We were unified and we have a spring our step once again..”

Greece’s ‘War Cabinet’ Prepares To Battle EU Creditors As Anger Mounts (AEP)

Greece’s “war cabinet” has resolved to defy the European creditor powers after a nine-hour meeting on Sunday, ensuring a crescendo of brinkmanship as the increasingly bitter fight comes to a head this month. Premier Alexis Tsipras and the leading figures of his Syriza movement agreed to defend their “red lines” on pensions and collective bargaining and prepare for battle whatever the consequences, deeming the olive-branch policy of recent weeks to have reached a dead end. “We have agreed on a tougher strategy to stop making compromises. We were unified and we have a spring our step once again,” said one participant. The Syriza government knows that this an extremely high-risk strategy. The Greek treasury is already empty and emergency funds seized from local authorities and state entities will soon run out.

Greece’s mayors warned over the weekend that they would not release any more funds to the central government. The Greek finance ministry must pay the International Monetary Fund €750m (£544m) on Tuesday, the first of an escalating set of deadlines running into August. “We have enough money to pay the IMF this week but not enough to get through to the end of the month. We all know that,” said one minister, speaking to The Telegraph immediately after the emotional conclave. The war council came a day before Greece’s three-headed team – deputy premier Giannis Dragasakis, finance minister Yanis Varoufakis and deputy foreign minister Euclid Tsakalotos – are due to go to Brussels for a crucial meeting with Eurogroup ministers Time is running out for a deal opening the way for the disbursement of €7.2bn under an interim agreement, due to expire in June.

It is even harder to see how the two sides can narrow their enormous differences on a new bail-out programme, which must be intricately negotiated and then approved by the parliaments of the creditor states. German finance minister Wolfgang Schauble said over the weekend that Greece risked spinning into default unless there was a breakthrough soon. “Such processes also have irrational elements. Experiences elsewhere in the world have shown that a country can suddenly slide into insolvency,” he told the Frankfurter Allgemeine.
Greek officials retort that this is a conceptual misunderstanding by the German and North European authorities. Syriza officials say they may trigger the biggest sovereign default deliberately if pushed too far, concluding that it is a better outcome than national humiliation and the betrayal of their electoral vows to the Greek people.

“If it comes to the crunch, Greece must default and go its way,” said Costas Lapavitzas, a Syriza MP and member of the party’s standing committee. “There is no point raiding pension funds to buy time. We just exhaust ourselves for no purpose.” “We went up and down Greece in the elections urging the voters to throw out the old government. The question now is whether we mean what we say, and whether we have the courage of our convictions.”

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“At some point, you have to give up this orthodoxy of saying, ‘This is the right way of doing things.’ This is an unusual case.”

IMF and ECB Loom Large Over Greece’s Debt Talks (NY Times)

Greek leaders have fought fiercely in recent months with politicians from other European countries over relief on Greece’s vast debt load. Yet the power to decide the fate of Greece lies not just in the hands of these national governments, but also with unelected officials at two powerful institutions: the ECB and the IMF. Each is a creditor to Greece, and each is expecting the country to repay it billions of dollars of debt in the coming weeks. The influence of the ECB and the IMF will be felt behind the scenes on Monday, when finance ministers from Greece and other European nations meet in their latest effort to break an impasse that is paralyzing the Greek economy and frightening global markets. Greece is expected to repay €750 million to the monetary fund on Tuesday as scheduled.

For the rest of the year, however, its debt repayments to the fund and the central bank total nearly €12 billion. The politicians at the meeting are racing against the clock to forge a deal that would give Greece enough money to repay both this summer. In theory, both institutions could greatly ease the situation by agreeing to delay repayment, or even forgiving some of their Greek debt. But they see themselves as a special class of creditors — so-called lenders of last resort — that should not write off the money they lend. Still, some sovereign debt specialists say that there is a case for the monetary fund to take a hit on its Greek loans. The institution, they assert, backed the policies that deflated Greece’s economy, making it harder for Greece to service its debt.

“There is no question in my mind that the I.M.F. needs to be part of the debt forgiveness,” said Ashoka Mody, a visiting professor at Princeton and formerly a senior official at the fund. “At some point, you have to give up this orthodoxy of saying, ‘This is the right way of doing things.’ This is an unusual case.” Debt forgiveness from the central bank has even broader support from outside investors and economists because the bank avoided taking a loss on €27 billion worth of Greek bonds in its portfolio while private sector investors lost more than half of their money in the 2012 Greek debt restructuring. Still, there has been no sign that either institution is considering yielding on its payment schedule.

If there are no concrete signs of progress in the talks Monday, a majority of the central bank’s governing council would be in favor of placing additional restrictions on lending to Greek banks as early as this week, people briefed on the council’s discussions said. “Their interest is to get their money back,” said Zsolt Darvas, a senior fellow at Bruegel, a research organization in Brussels. Greek officials, meanwhile, have contemplated steps that would test the institutions’ hard-line stance. Discussions in the Greek government have included assessing the pros and cons of not paying the central bank and the monetary fund. In such a case, which was described as a last-ditch option and not a plan for action, Greece would keep paying debts owed to private sector bondholders and other European governments.

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“In their attempt to respect their duties, the ECB’s policymakers have made themselves political..”

How The ECB Became The Real Villain Of Greece’s Debt Drama (Telegraph)

When a rogue protester scaled the platform occupied by European Central Bank president Mario Draghi at his monthly press conference in April, the usually unruffled Italian could be forgiven for being paralysed by fear. Confronted with female activist shouting “end the ECB dictatorship”, Mr Draghi was showered with pamphlets bearing a list of inchoate threats, accusing the central bank of “autocratic hegemony” and Mr Draghi of being an evil “master of the universe”. As she was swiftly whisked away by ECB henchman, the Twittersphere was soon abuzz with rumours of the identity and possible motivation behind Mr Draghi’s “confetti-bomber.” As it turned out, 21-year old German Josephine Witt, was not a disgruntled Greek citizen demanding answers from the ECB chief.

But the feminist agitator was a stark reminder that technocratic central bankers are not immune from public anger over eurozone economic policy. In the last three months, the Frankfurt-based ECB has become the target of vociferous criticism for its handling of the Greek crisis. Weeks before the confetti attack, Mr Draghi was heckled by a Greek journalist at a press conference in Nicosia. Before that, he was the subject of a tirade from a Greek MEP during an address at the European Parliament. On both occasions, the Italian was shouted down as he was forced to defend his institution’s role in Greece’s debt drama. “In their attempt to respect their duties, the ECB’s policymakers have made themselves political,” Greece’s finance minister Yanis Varoufakis told an audience of academics and economists in Paris last month.

The refrain strikes at the heart of his government’s complaints against the notionally independent ECB. As one of Greece’s three main creditors – alongside the IMF and the European Commission – the central bank is unique in wielding the power that can ultimately force the country out of the single currency. Despite not officially being party to the political negotiations over extending Greece’s bail-out, the ECB has made a number of discretionary moves since the Syriza government was elected just over 100 days ago. When he first swept into power, Prime Minister Alexis Tsipras appealed to Mr Draghi to provide some form of bridging finance to keep the country afloat as he sought to re-write the terms of Greece’s rescue programme. It soon became clear the Italian would not be playing ball. Not only has the ECB rebuffed requests for temporary financial relief, but its disciplinarian stance has led to accusations that it is acting ‘ultra vires’ – taking politically motivated action outside of its legal remit to ensure financial stability in the eurozone.

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“It’s not in anyone’s interests to have a crisis now..”

No Solution In Sight For Greek Crisis – Tsipras’ Impossible Dilemma (Guardian)

“Nothing will change this week,” said Aris Karnachoritis confidently as the waitress handed out bottles of beer and frosted glasses to him and his friends. Constantinos Neocleous, sitting beside him at a table on the beach at Vouliagmeni near Athens, nodded in agreement. “It’s not in anyone’s interests to have a crisis now,” he said. Beyond the beach lay shallow waters of radiant turquoise. Children paddled. Teenagers romped. And from nearby, where a group of young men were playing beach tennis, came the comforting “plock-plock” sound of bat on ball. The talks between Alexis Tsipras’s government and its creditors have dragged on for so long that it has become hard to believe there will ever be a decisive make-or-break juncture.

And never has that been harder to believe than now, with the arrival of summer and the entrancing distractions it brings to a country like Greece. There is a striking disconnection in Athens between the blithe lack of concern that the government evinces, and which it has successfully communicated to much of the public, and the objective seriousness of Greece’s plight. This week Greece and the eurozone face a week of fresh nail-biting uncertainty as the single currency area’s finance ministers prepare to report on progress towards an agreement with Tsipras’s government. On Tuesday Greece is due to repay €770m (£560m) to the IMF. A deal with its creditors on moves to liberalise the economy would give it access to the remaining €7.2bn from a €240bn bailout.

But it has refused to budge on two “red-line” demands – for pension cuts and looser rules on hiring and firing – and hopes of reaching an agreement in time for a meeting of the finance ministers on Monday have gradually seeped away. On Thursday Greece’s finance minister, Yanis Varoufakis, promised that the IMF would nevertheless get its money. Armageddon – a Greek default on its borrowings followed in all likelihood by exit from the eurozone – may once again have been postponed. But for how long?

Beyond the IMF deadline loom far bigger repayments the government has to make to the ECB in the summer. Yet it is already so desperately short of funds that it has ordered local authorities and public bodies to turn over their cash reserves to the central bank. “We have only the money to pay for this month,” conceded Karnachoritis, a young civil engineer, as he sipped his beer. “But that has been the situation for the past two months.” Like his companions, he thought it would take several more months to reach an agreement. “I don’t believe anything will happen before September,” he said.

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“The uneasy relationship with the Eurogroup, which wanted IMF rigor in bailout reviews but not its debt sustainability and financing criteria, is looking increasingly unsustainable..” “Just like the Greek debt.”

EU’s Unraveling Plans For Greek Debt Risks Split Among Creditors (Bloomberg)

Greece’s ballooning debt load is casting doubt over the IMF’s role in future bailouts. The IMF typically needs debt to be sustainable to provide more funds and, with the economy faltering, Greece is heading in the wrong direction. Creditors preparing for talks on Greece this week have just one positive scenario and three negative ones, the most extreme of which is that the government starts paying employees in IOUs, German newspaper Die Welt reported. The European Commission forecast last week that the country’s debt will be 174% of gross domestic product next year, 15 percentage points above the level projected in February. And even that assumes Prime Minister Alexis Tsipras reaches a deal to get previously agreed aid flowing.

The projection means that if there’s an agreement, the Greek leader is still going to hit bureaucratic and political resistance to longer-term support. While the euro area has denied debt relief to Greece and insisted Tsipras observe the terms of the existing bailout, the IMF has signaled its concern over the deterioration in the country’s finances. “The uneasy relationship with the Eurogroup, which wanted IMF rigor in bailout reviews but not its debt sustainability and financing criteria, is looking increasingly unsustainable,” said Michael Michaelides a rates strategist at Royal Bank of Scotland Plc. “Just like the Greek debt.” Asked about the implications of the Commission’s forecasts for Greece, IMF spokeswoman Angela Gaviria referred to a November 2012 statement in which Managing Director Christine Lagarde said Greece’s debt was expected to decrease to 124% of GDP by 2020.

As Greece’s chances of hitting the target recede, it makes it more difficult for the IMF to justify extending additional funds because the Washington-based lender is prohibited by its own rules from lending to countries with unsustainable debts. If the euro area concedes that the debt burden is not sustainable, that would add weight to Greece’s appeal for more debt relief, an offer that its creditors have dangled since 2012 as an incentive to make good on the terms of its bailout. Greece could win a cut in its interest payment and an extension of its repayment period if it sticks to the deal and delivers a primary budget surplus.

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How the IMF grabs more control.

IMF Works With Greece’s Neighbors to Contain Default Risks (WSJ)

The IMF is working with national authorities in southeastern Europe on contingency plans for a Greek default, a senior fund official said—a rare public admission that regulators are preparing for the potential failure to agree on continued aid for Athens. Greek banks are big players in some of its neighbors’ financial systems. In Bulgaria, subsidiaries of National Bank of Greece, Alpha Bank, Piraeus Bank and Eurobank Ergasias own around 22% of banking assets, roughly the same as Greek banks own in Macedonia. Greek banks are also active in Romania, Albania and Serbia. “We are in a dialogue with all of these countries,” said Jörg Decressin, deputy director of the IMF’s Europe department. “We are talking with them about the contingency plans they have, what measures they can take.”

As part of the discussions, the IMF has asked national supervisors to ensure that subsidiaries of Greek banks have enough assets that they can exchange for emergency financing at their own central banks—in case financing from their parent institutions is suddenly cut off—and that deposit-insurance funds are at sufficient levels, he said. Negotiations between Greece and its international creditors—the other eurozone countries and the IMF—have been advancing slowly, despite warnings from Greek officials that the government is close to running out of money. “It would be foolish for anyone in the policy world not to be worried at this stage,” Mr. Decressin said.

European officials expect no breakthroughs at a meeting of the currency union’s finance ministers on Monday. That means Greek lenders will remain under pressure, dependent on relatively expensive liquidity from the Greek central bank and at risk of bank runs in case doubts emerge over their ability to pay out deposits. Overall, the IMF believes that subsidiaries of Greek banks in southeastern Europe should be able to withstand the failure of their parent companies. “Our assessment of the Greek banks in that region is that they are fairly liquid; we have not seen major deposit outflow,” Mr. Decressin said. Because they are subsidiaries, rather than branches, the lenders have to hold their own capital buffers and can refinance themselves at national central banks. That would make it easier to split them off from their parent banks if necessary.

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Elephant, meet room.

It’s Not Just Greece, China’s Retreat Threatens European Bonds (Bloomberg)

European policy makers will be focused on Greek aid talks in Brussels on Monday. Investors may need to look further afield to fully explain the sell-off in the continent’s sovereign debt market. China’s foreign currency reserves had their biggest quarterly drop on record in the first three months of the year and the yuan is trading at the closest to fair value since 2010, according to Goldman Sachs. That means less demand for assets in dollars and euros from the world’s biggest creditor. The Chinese central bank has amassed $3.73 trillion in currency reserves over the past decade in a bid to hold down the value of the yuan and underpin the competitiveness of its exporters.

As the government in Beijing changes gear, cultivating domestic demand to sustain economic growth, it may affect European bond markets just as much as the Greek efforts to win better terms from creditors. “It’s quite clear that China’s foreign exchange reserves can’t grow like before,” said Li Jie, head of the foreign-exchange reserve research center at the Central University of Finance and Economics in Beijing. “There will be fewer and fewer funds available from China for European treasury bonds.” The People’s Bank of China said Sunday it will reduce the one-year lending rate by a quarter of a%age point to 5.1%, in a further sign of the shift in focus.

Germany’s 10-year borrowing costs almost quadrupled over the past three weeks as investors turned against negative yields and those on Italian and Spanish securities breached 2% for the first time this year on May 7. Bonds fell even as the European Central Bank pressed ahead with its €1.1 trillion program of government debt purchases. Euro-area finance ministers are meeting in Brussels on Monday to assess Greece’s plans to meet the terms of its bailout and obtain the aid it needs to stave off a default.

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View from the left.

Farewell To The United Kingdom- Let It Bleed (Tariq Ali)

In England the third party in terms of number of votes cast is UKIP. It gained votes from both Labour and Conservatives, but its 4 million votes (12.6%) obtained just a single seat in Parliament. The Greens with over a million also have a single MP. The absurdity of an electoral system that gives the Conservatives an overall majority (331 seats) with 36.9% of the votes cast, Labour (232 seats) with 30.4% reducing the other English parties to nothingness is clearly long past its sell by date. A serious campaign for a proportional system is needed. The first-past-the-post, winner-takes all system is a malignant cancer that needs to be extracted from the body politic.

What of English radicalism? It’s not a pure accident that a right-wing party like UKIP has become the third force. The effective collaboration between the major trades unions and the Labour leadership meant that building social movements to challenge privatizations and demanding public ownership for utilities, more public housing, local democracy, and the renationalization of the railways fell by the wayside. No other force was capable of organizing an extra-parliamentary base for a rejection and reversal of extreme centre policies. This is the challenge that now confronts all those who want a strategic break with the Thatcher-Blair consensus in England. Not an easy task. Possibilities, however, exist but they require forces on the ground to help create a new movement that speaks for the oppressed and exploited.

The Labour leadership contest is a no-hoper for the Left. The names being touted are worse than useless. What would help a great deal is if early in the new parliament, the handful of left MPs effectively broke from Labour and established a new, radical caucus to link up with forces outside. I doubt that they will and here the Bennite tradition is, to put it at its mildest, unhelpful. Its attachment to Labour at a time when the party broke with its own social-democratic past and opted for a full-blown capitalism was wrong-headed and led to an impasse.

We need an alliance of all radical forces to build an anti-capitalist movement in England. A movement that is both new but also prepared to search the past for help: the Grand Remonstrance of the 17th century, the Chartist rebellions of the 19th century, the more recent developments in South America, Greece and Spain also offer a way forward. As for the Labour Party, I think we should let it bleed. Here the Scottish route offers hope.

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More or less what I was saying yesterday.

Cameron Must Accept SNP’s Anti-Austerity Mandate, Or The UK Is Finished (IBT)

The electoral divergence between Scotland and England is, of course, even more extreme this time. The Tory government has just one seat in Scotland, compared to the 10 Thatcher was left with after the 1987 rout. The other seats are not dominated by a Labour party content to bide its time until it can build a UK-wide majority, but by a pro-independence party that will not accept the legitimacy of Tory rule unless the “vow” which secured the No vote in last year’s referendum is implemented in full. That perhaps wouldn’t pose such a problem for Cameron if the policies that he has received a clear English mandate to implement weren’t so utterly irreconcilable with the policies that the SNP have won an even clearer (in fact much, much clearer) Scottish mandate for.

In Scotland, the democratic will is for an end for austerity, in England it is for swingeing cuts. The ‘One Nation’ rule that Cameron rather oddly promises is almost a contradiction in terms when the nation in question has just spoken with two distinct voices. If London rule is to be maintained, the only way of respecting the Scottish people’s wishes is to exempt them from the austerity imposed on everyone else. That is surely inconceivable. Ironically, a compromise to cover the whole UK probably could have been reached if a Labour minority government had taken office with the support of the SNP.

Cameron chose to whip up irrational fear about that possibility in England, and now he must live with the consequences. In the light of Thursday’s result, the circle can only be squared by constitutional change. Any previous distinction between Nicola Sturgeon’s demands for an end to austerity and for more powers to be transferred to the Scottish Parliament has suddenly vanished, because under a Tory majority government the first is literally impossible without the second.

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But can she speak for all Britons?

Sturgeon Says SNP Is Real Opposition in Commons Amid Labour Woes (Bloomberg)

Scottish First Minister Nicola Sturgeon staked a claim for her nationalists to be seen as the effective opposition to David Cameron’s Tories in the U.K. Parliament as Labour seeks a new leader in the wake of its election defeat. “Given that Labour are entering a period of introspection, questioning their very purpose in life, the SNP is going to be the principal opposition to the Conservatives,” Sturgeon said on BBC Television’s “Andrew Marr Show” Sunday. “There are people in England, Wales and Northern Ireland who will be as disappointed as people in Scotland that we’re looking at a majority Conservative government. We can be a voice for them.”

Sturgeon’s Scottish National Party took 50% of the vote and 56 of the 59 House of Commons seats in Scotland in Thursday’s election, in which the Tories unexpectedly won a parliamentary majority. Labour leader Ed Miliband resigned after the party’s defeat, which saw it lose 40 seats in Scotland. SNP support surged after the failure to achieve a majority for independence from the U.K. in September’s referendum. Cameron “cannot act now as if it’s business as usual in Scotland” and will have to offer the semi-autonomous Scottish government and the Parliament in Edinburgh more additional powers than have already been promised in the wake of the referendum, Sturgeon said.

The prime minister said in a victory speech on Friday that he intends to implement his devolution plans for Scotland as quickly as possible, “to create the strongest devolved government anywhere in the world with important powers over taxation.” “Scotland voted overwhelmingly for change and I think that has to be heeded,” she said, repeating calls for “priority devolution of powers over business taxes, employment, the minimum wage, welfare.” Another independence referendum is not “on the immediate horizon,” Sturgeon said. “What we have to do now is make sure we get the best deal for Scotland within the Westminster system.”

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The Guardian conveniently focuses on ‘disorder’.

Anti-Austerity Group Plans Major Protest Outside Bank Of England (Guardian)

The anti-austerity group behind a protest that escalated into violent clashes with riot police outside Downing Street on Saturday is planning another demonstration outside the Bank of England next month. The People’s Assembly has told campaigners to assemble “right on the doorstep of the very people who created the crisis in the first place” in central London on 20 June, sparking what could become a summer of anti-austerity protests across the UK. Hundreds of people attended the group’s impromptu demonstration outside Downing Street on Saturday after David Cameron was returned to No 10 with a Conservative majority. The protest quickly turned ugly, with green smoke bombs and tomato ketchup thrown at riot police officers in clashes that led to 15 arrests for violent disorder or assaulting police.[..]

In a Facebook post announcing its 20 June march, the People’s Assembly said it was arranging travel for supporters from across the country to the Bank of England for a demonstration that would be “bigger and bolder than ever we have done before”. More than 32,000 people on Facebook have said they will attend the rally, which would draw significant resources from both City of London police and the Metropolitan police if it is on the same scale as a 50,000-strong protest organised by the group last summer. The group says in its invitation to supporters: “With the Tories going it alone in government we know exactly what to expect. More nasty, destructive cuts to the things ordinary people care about – the NHS, the welfare state, education and public services.

“We’ll be assembling the demonstration in the heart of the City of London right on the doorstep of the very people who created the crisis in the first place, the banks and their friends in Westminster. We demand that the bankers and elite should pay for the crisis and not the vast majority who had nothing to do with it. “Now is the time to get organizing, to mobilize our communities, to prepare transport and spread the word. We need to do all that we can to make this demonstration bigger and bolder than ever we have done before.”

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English media exposed as bigots.

The Economist’s Racist Headline Must be Retracted Immediately (Bill Black)

It took exactly one day for the Tory election victory in the UK to produce the confidence among the Conservatives only remaining media organ with even a semblance of journalistic professionalism to reveal its true racism against the Scots. The Economist felt empowered to headline its article about the other electoral triumph, by the Scots, as “Ajockalypse now.” Wow, that is such a clever title. One can only imagine the back-slapping among the staff in the magazine’s halls at the ability to go full-racist given the election results. (The English have historically treated the Celts as separate “races.”) Here is a translation of the headline for a non-UK audience. “Jock” is defined in the Urban Dictionary (with a helpful example of usage after the definition):

A term used by English people to generally describe Scottish people in a derogatory fashion (was once a common male nickname within Scotland). It is now considered to verge on racism when used by a non-Scot. The Scottish equivalent for the Irish “Paddy” or “Bog-trotter”. “Those bloody Jocks are at it again with their whinging over the Barnett Formula and North Sea oil revenues.” Another major dictionary’s definition is similar. British Informal: a Scottish soldier or a soldier in a Scottish regiment. Usually Offensive. a term used to refer to or address a Scot”. The Oxford Dictionary agrees. “noun, informal , chiefly derogatory A Scotsman (often as a form of address).”

So the “cleverness” is that the once-respected magazine managed to use an ethnic slur and add an ending to it suggesting that the rise of the Scots as a political power in the House of Commons represents an “apocalypse” – a catastrophe of biblical proportions. Such fun! Let’s see what analogous fun we can have using slurs about other ethnic groups that the English have long despised. Jews, blacks, Catholics, Muslims, and Asians all have such endearing slurs that rhyme with so many words and allow “clever” word play in headlines. Oh, except if the Economist chose any of those groups it would result within the day in a retraction and apology. Celts, however, are fair game and the Scots are the Celtic target of choice today for the Tories. Indeed, Prime Minister Cameron’s paramount election strategy was demonizing the Scots as a “threat” to the English – a fact that the Economist chose to omit in favor of the myth that the Scots were on the “warpath” against the English.

The English papers were littered with other forms of “clever” ethnic slurs in the run-up to the election. “Sweaty sock” rhymes with “jock” and insults Scots as “sweaty” because they are more likely to be industrial laborers. The deliberately doubly offensive “Jockestan” – insulting the Scots and Muslims simultaneously – is a favorite of one of the UK’s prominent “journalists.” A Tory media troll whose claim to “fame” was not being chosen by the Donald as his “Apprentice” uses these slurs. She attacks the SNP leader as a “terrorist” and denounces her because she has red hair. Yes, red hair. Calling someone with red hair “ginger” is a common ad hominem insult in the UK. [..] I confess to a wicked wish that the Donald had picked her as his “Apprentice” – they richly deserve each other.

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“We now have the lowest participation rate since 1977 [..] I will tell you this: one of the words never bandied about during that period when it came to describe any jobs or employment report was “Goldilocks.”

Goldilocks Unemployment: A Disgusting Bowl Of Porridge (Mark St.Cyr)

It’s no wonder we find ourselves in this collective business environment of malaise and atrophy when people who are supposed to be informed, or anything else relating to business, use terms to describe the most recent jobs report as a “Goldilocks” print: i.e., “Not too bad – Not too good.” This term was the moniker de jure of Friday’s cadre of financial media economists, analysts, and next in rotation fund manager. Nothing more than cheerleaders to stagflation is what they’ve all proven themselves to be in my opinion than anything else. The actual print was that the economy created 223K new jobs vs expectations of 228K. Where the overall jobless rate now stands at 5.4 vs 5.5. The kicker? Not in the labor force: 93,194,000 up from 93,175,000. Let that last number sink in a moment.

We currently have over 93 Million able-bodied people without jobs – and growing. This is why it’s near incomprehensible, as well as outright disgusting to me that such a dismal showing in both the headline number as well as the onerous implications of such a downward revision to the month prior, coupled with the outright fallacy of suggesting the rate of unemployment has moved closer still to statistical “full employment” came with near giddiness and if not outright back slapping. i.e., “This is a Goldilocks print. Not too hot – not too cold. With a report like this – The Federal Reserve won’t dare raise rates and might actually have to contemplate instituting another round of QE if not outright QE4ever!” And yes; that was the reaction paraphrased across the financial media outlets. Again, personally – I found it all repulsive.

We now have the lowest participation rate since 1977 when Jimmy Carter was president. Although I was young during that period, I was around and working. (and when I wasn’t working, I was out looking daily) I will tell you this: one of the words never bandied about during that period when it came to describe any jobs or employment report was “Goldilocks.” As a matter of fact it was during that period of time the term “stagflation” came into prominence. The difference? It was used to describe an abysmal economy while hoping at some point the winds would change and we could regain our bearings to move out from under such stifling economic conditions. Today?

As these conditions have once again reared their ugly head the difference is today: these conditions are celebrated by the so-called “smart crowd” as reason to JBTFD! (just buy the dip) For this malaise sends the “right” signals to the Federal Reserve they should dare not raise interest rates off the zero bound anytime soon, and instead prolong this economic atrophy with the possible infusion of yet another round of QE. After all with economic malaise like this – NASDAQ™ 10K here we come!

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All EU countries except Italy, Greece and Hungary have one.

Italy Must Become A Civilised Country With A Citizen’s Income (Grillo)

“There are those that have said that it cannot be done, that the money’s not there, that it’s a gift to lazy people. And yet it’s enough to go round all the European capital cities to see that that’s not true. The Citizen’s Income exists in 25 of the 28 European countries (everywhere except in Italy, Greece and Hungary), even in countries with a GDP that’s just a tenth of what we have in Italy. In Spain the citizen’s income came into existence in 2008, right in the middle of the economic crisis, and it provides €532 a month to anyone with an income less than €5,000 a year. In the Netherlands people get €1,400 a month. In Ireland and Romania there’s no time limit and it keeps going until the person finds a job. In Estonia the law says that the national parliament must adjust the sum each year to allow for alterations in the cost of living.

In Finland the amount is doubled for families. In Lithuania as well as the Citizen’s Income people get their heating costs paid back by the State. In France anyone getting the Citizen’s Income has to sign an agreement that they will cooperate with the social services. In Denmark the citizen’s income is also given to those people under the age of 30 who are living with their parents. In all these countries, anyone who is underhand or who is working without declaring it, is severely punished. In Europe, the laws differ in their content. The requirements and the duration vary from country to country, but the lowest common denominator is there and it’s called the Citizen’s Income. The economic crisis has created a sea of desperation. In Italy, with the bonds brought in by Tremonti and Monti, the world of politics saved the banks, and they gave the financiers shields to protect them against the weapons that they themselves had created. The citizens were abandoned and left to their own devices.

In Europe there’s no such thing as “exited” people because they would have the Citizen’s Income. In Europe, fathers separated from their wives are not sleeping in their cars because they would have the Citizen’s Income. In Europe there are no “bamboccioni” {adult men living off their parents} because, thanks to the Citizen’s Income, they can shop for themselves without waiting for pocket money from mother. In Europe, unemployed people are not committing suicide, because after unemployment benefit ends, they get the Citizen’s Income. Are graduates sending off thousands of CVs to get their first job? While waiting for a response, those in Europe have the Citizen’s Income.

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Great, as Hersh always is.

The Killing of Osama bin Laden (Seymour Hersh)

It’s been four years since a group of US Navy Seals assassinated Osama bin Laden in a night raid on a high-walled compound in Abbottabad, Pakistan. The killing was the high point of Obama’s first term, and a major factor in his re-election. The White House still maintains that the mission was an all-American affair, and that the senior generals of Pakistan’s army and Inter-Services Intelligence agency (ISI) were not told of the raid in advance. This is false, as are many other elements of the Obama administration’s account. The White House’s story might have been written by Lewis Carroll: would bin Laden, target of a massive international manhunt, really decide that a resort town forty miles from Islamabad would be the safest place to live and command al-Qaida’s operations? He was hiding in the open. So America said. [..]

This spring I contacted Durrani and told him in detail what I had learned about the bin Laden assault from American sources: that bin Laden had been a prisoner of the ISI at the Abbottabad compound since 2006; that Kayani and Pasha knew of the raid in advance and had made sure that the two helicopters delivering the Seals to Abbottabad could cross Pakistani airspace without triggering any alarms; that the CIA did not learn of bin Laden’s whereabouts by tracking his couriers, as the White House has claimed since May 2011, but from a former senior Pakistani intelligence officer who betrayed the secret in return for much of the $25 million reward offered by the US, and that, while Obama did order the raid and the Seal team did carry it out, many other aspects of the administration’s account were false.

‘When your version comes out – if you do it – people in Pakistan will be tremendously grateful,’ Durrani told me. ‘For a long time people have stopped trusting what comes out about bin Laden from the official mouths. There will be some negative political comment and some anger, but people like to be told the truth, and what you’ve told me is essentially what I have heard from former colleagues who have been on a fact-finding mission since this episode.’ As a former ISI head, he said, he had been told shortly after the raid by ‘people in the “strategic community” who would know’ that there had been an informant who had alerted the US to bin Laden’s presence in Abbottabad, and that after his killing the US’s betrayed promises left Kayani and Pasha exposed.

The major US source for the account that follows is a retired senior intelligence official who was knowledgeable about the initial intelligence about bin Laden’s presence in Abbottabad. He also was privy to many aspects of the Seals’ training for the raid, and to the various after-action reports. Two other US sources, who had access to corroborating information, have been longtime consultants to the Special Operations Command. I also received information from inside Pakistan about widespread dismay among the senior ISI and military leadership – echoed later by Durrani – over Obama’s decision to go public immediately with news of bin Laden’s death.

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Rogoff sounds confused here.

Inequality: How Rich Countries Can Make A Difference (Ken Rogoff)

Europe’s migration crisis exposes a fundamental flaw, if not towering hypocrisy, in the ongoing debate about economic inequality. Wouldn’t a true progressive support equal opportunity for all people on the planet, rather than just for those of us lucky enough to have been born and raised in rich countries? Many thought leaders in advanced economies advocate an entitlement mentality. But the entitlement stops at the border: though they regard greater redistribution within individual countries as an absolute imperative, people who live in emerging markets or developing countries are left out. If current concerns about inequality were cast entirely in political terms, this inward-looking focus would be understandable; after all, citizens of poor countries cannot vote in rich ones.

But the rhetoric of the inequality debate in rich countries betrays a moral certitude that conveniently ignores the billions of people elsewhere who are far worse off. One must not forget that even after a period of stagnation, the middle class in rich countries remains an upper class from a global perspective. Only about 15% of the world’s population lives in developed economies. Yet advanced countries still account for more than 40% of global consumption and resource depletion. Yes, higher taxes on the wealthy make sense as a way to alleviate inequality within a country. But that will not solve the problem of deep poverty in the developing world. Nor will it do to appeal to moral superiority to justify why someone born in the west enjoys so many advantages.

Yes, sound political and social institutions are the bedrock of sustained economic growth; indeed, they are the sine qua non of all cases of successful development. But Europe’s long history of exploitative colonialism makes it hard to guess how Asian and African institutions would have evolved in a parallel universe where Europeans came only to trade, not to conquer. Many broad policy issues are distorted when viewed through a lens that focuses only on domestic inequality and ignores global inequality. Thomas Piketty’s Marxian claim that capitalism is failing because domestic inequality is rising has it exactly backwards. When one weights all of the world’s citizens equally, things look very different. In particular, the same forces of globalization that have contributed to stagnant middle-class wages in rich countries have lifted hundreds of millions of people out of poverty elsewhere.

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The media still talk about migrants, whereas Brussels says: “The EU needs a permanent system for sharing the responsibility for large numbers of refugees and asylum seekers among member states.”

EU Plans Refugee Quotas Forcing States To ‘Share’ Burden (Guardian)

The EU’s executive body is to unveil radical new proposals on immigration, imposing migrant quotas on the 28 countries of the union under a distribution “key” system set by Brussels. The plan, which is supported by Germany and will be fiercely resisted by the new Conservative government, will be launched by the European commission on Wednesday in response to migrant boat crisis in the Mediterranean. The bold move by Brussels comes as the EU draws up plans for military attacks in Libya to try to curb the flow of people across the Mediterranean by targeting the trafficking networks. The EU’s top diplomat is to unveil an attempt on Monday to secure a UN mandate for armed action in Libya’s territorial waters.

Britain is drafting the UN security council resolution that would authorise the mission, senior officials in Brussels said. It would come under Italian command, have the participation of about 10 EU countries – including Britain, France, Spain and Italy – and could also drag in Nato, although there are no plans for the initial involvement of the alliance. While there is broad support within the EU for the military plans, the proposals for sharing the immigration burden are highly controversial and divisive. On Sunday night the Home Office said the plans were unacceptable to the UK, putting Cameron on a collision course with German chancellor Angela Merkel and other EU leaders as he begins attempts to renegotiate Britain’s relationship with Brussels ahead of a promised in/out referendum in 2017.

“The UK has a proud history of offering asylum to those who need it most, but we do not believe that a mandatory system of resettlement is the answer. We will oppose any EU commission proposals to introduce a non-voluntary quota,” a spokesman said. The policy document, obtained by the Guardian, demands new and binding rules establishing a quota system of sharing refugees among the member states. The migration agenda declares: “The EU needs a permanent system for sharing the responsibility for large numbers of refugees and asylum seekers among member states.” By the end of the year, Brussels is to table new legislation “for a mandatory and automatically triggered relocation system to distribute those in clear need of international protection within the EU when a mass influx emerges”.

The proposals will lay bare deep divisions between national governments over immigration, with the German chancellor, Angela Merkel, backing the scheme and Britain leading the resistance. Germany and Sweden between them take almost half the asylum seekers in the EU, and Berlin is predicting that the numbers this year could almost double to about 400,000 in Germany, two-thirds of the total number in the EU last year.

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May 102015
 
 May 10, 2015  Posted by at 7:30 pm Finance Tagged with: , , , , , , ,  


Jack Delano Worker inspecting locomotive, Proviso Yard 1942

From where we’re sitting, the biggest victory in the May 7 British election will turn out to be not that of the Conservatives, but of the SNP, the Scottish nationalists. The party took 56 out of 59 Scottish seats in the United Kingdom’s Westminster parliament in London (with just half of the total votes..). Perhaps even more significant is the increased divide between Scotland and ‘the rest of the UK’.

While Cameron’s ‘unexpected’ victory marks a sharp turn to the right, the SNP’s landslide win sets the Scots on a course that’s close to a 180º opposite, even sharper turn to the left. Or in other words: while Britain voted for more of the same, Scotland voted for change. And never the twain shall ever see eye to eye again?! The left side of the spectrum was represented by the SNP, not by Labour, who Tony Blair now claims should run even more to the right – which he calls center.

Perhaps it’s nice to start off with a more philosophical angle about the future viability and/or inevitable fate of the United Kingdom. Just to set the overarching and underlying tone. Ian Jack had this for the Guardian yesterday:

Did The End Of The British Empire Make The Death Of The Union Inevitable?

.. what some of us were in Denmark to consider is the now almost-conventional wisdom about British identity: that it rose and fell with the empire, and with the empire’s going the United Kingdom will almost inevitably break up. Stuart Ward, professor of global and imperial history at Copenhagen University, reminded us of this theory’s several advocates, from Tom Nairn, writing presciently in 1977, to Linda Colley in her book Britons, published in 1992.

David Marquand took the idea to the extreme when he announced in 1995 that shorn of empire, Britain had “no meaning” and it was therefore impossible “for Britain as such to be post-imperial”. In a what-goes-up-must-come-down way, it looks a plausible argument. The logic is, as Ward said, that if you can demonstrate that the empire forged an idea of Britain, then Britain’s vanishing two centuries later “is merely a question of the laws of physics – remove the load-bearing pillar, and the structure falls”.

Is Britain destined to fall to pieces? Are all empires? How long can the center hold?

There are more interesting angles besides these, not least of which is the similarities between Greece vs Eurozone and Scotland vs United Kingdom. The keyword in this is ‘austerity’. The Greek people voted en masse to end it, and so did the Scots. Here’s what SNP leader Nicola Sturgeon had to say post-election:

Nicola Sturgeon Tells Westminster: ‘Scotland Will No Longer Be Sidelined Or Ignored”

“Scotland has given the SNP a mandate on a scale unprecedented for any political party, not just in Scotland but right across the UK. “We will use that mandate to speak up for and protect the interests of Scotland. “Let us be very clear, the people of Scotland on Thursday voted for an SNP manifesto which had ending austerity as its number one priority, and that is the priority that these men and women will now take to the very heart of the Westminster agenda.” Ms Sturgeon said: “After Thursday, and as I told the Prime Minister when I spoke to him yesterday, it simply cannot be and it will not be business as usual when it comes to Westminster’s dealing with Scotland.”

Sturgeon has hinted that she aims to end austerity across the UK, not just in Scotland. That may be a bit much to ask given that her mandate is limited, but at the same time it’s hard to see how ending austerity only in some parts of a union would work out in practice. The EU certainly doesn’t seem eager to grant Greece an austerity-free status, and how Cameron would tackle this mandate issue is unclear. Can he abandon austerity in Scotland and continue it in the rest of the UK? And if he can’t do it in Scotland, then how can he in Wales?

Cameron thinks he’s riding a major victory, and he will now be called upon to deliver on his election promises, which just so happen to include a deepening and acceleration of austerity measures. At a time when we can see even such sworn antagonists as Steve Keen and Paul Krugman agree on the failure of austerity as a financial/fiscal policy measure, David Cameron insists on inflicting more of it on Britain in the exact same way that the Troika insists on more of the same for Greece. And he’s not kidding.

Here are two British pieces on the topic; first the Mirror:

100 Days Of Tory Cuts Carnage As George Osborne Plans To Fast-Track £12 Billion In Savings

George Osborne is preparing to drastically speed up the pace of £12 billion in brutal spending cuts. Before the election, Tories feared proposals to slash cash from the welfare bill would have to be watered down under any coalition deal. But now the party has a majority, the Chancellor plans to race ahead with his austerity cuts to meet his pledge of eliminating the deficit by 2018. Senior Tories revealed how ministers would try to push through the majority of the welfare cuts within two years instead of the original three-year timescale.

But Prime Minister David Cameron hopes to kick it off with a 100-day policy blitz. One senior party source admitted: “When it comes to cuts, we want the pain to be out of the way long before the next general election. Without the restraint of the Lib Dems, it means we can go further and faster when it comes to controlling the welfare bill.” The new Conservative Government is due to present its programme of legislation to Parliament through the Queen’s Speech on May 27. But officials are already drawing up worrying plans to squeeze a host of benefits.

Ministers are looking at means testing unemployment benefits like Jobseeker’s Allowance, according to a document leaked earlier this year. Other proposals to slash the £125 billion welfare bill include limiting Child Benefit payments to the first two children and taxing Disability Living Allowance and Personal Independence Payments. The Tories also want to reduce the maximum any household can receive in benefits from the current £26,000 a year to £23,000. Other cuts include a £3.8 billion raid on tax credits, which are relied on by millions of families on low wages.

The number of people who get Carer’s Allowance could also fall by 40%. Such moves are likely to pile the pressure on food banks and charities as the cost of living crisis deepens. Senior Labour MP John Mann warned: “People don’t realise what’s going to hit them. The entire benefits system is going to crumble and almost everyone will lose out apart from private landlords who will remain untouched. It will be a return to the Victorian age.” “Everyone will have to stand on their own two feet, even people with no legs.”

And second, this is from Here Is The City:

Tories Weigh Up Options For £12 Billion Welfare Cuts

Either the poorest in society or the “hard-working people” courted by the Conservatives face being targeted under the party’s commitment to £12bn of welfare cuts, experts have said. One way of achieving the £12bn goal could be by reducing the £38bn cost of out-of-work payments to working-age families, for example by cutting entitlements to a third of the recipients, according to John Hills at the London School of Economics.

“But that would mean hitting lone parents and disabled people and create pressure on food banks and hardship on a scale that would be hard to imagine,” Hills said. “Alternatively you could take it from hard-working families who rely on housing benefit and tax credits. That’s a lot of pain from a large number of people who have just voted for you.”

[..] To justify the cuts, the Tories are likely to employ a narrative of skivers v strivers, suggesting a clear division between a large, permanently welfare-dependent group and the rest of the population who pay taxes to support it. The Tories know this is a fiction, but it is a politically useful one. Welfare is mainly about taking money from those of working age – when incomes are high on average – and giving cash and services to older people, and families with children.

A DWP paper setting out options was leaked to the BBC in March. [..] if the BBC’s document is any guide, George Osborne – reappointed as chancellor – could look to strip £1bn from carers’ allowances; means-test national insurance-backed unemployment benefits, saving another £1.3bn; and tax disability benefits to raise another £1.5bn. Then there’s limiting child benefit to two children – affecting a million families to save another £1bn.

The Institute For Fiscal Studies noted: “These may well not be the decisions that a future Conservative government would make. But it is likely they would have to make changes at least as radical as this to find £12bn a year.” Not all these changes would require a new bill, but if past form is anything to go by then the Tories would want to lay a trap for their opponents with new legislation so as to paint anyone who votes against it – such as the anti-austerity Scottish Nationalists – as pro-welfare parties prepared to spend lavishly on the idle poor.

How this will not end badly and ugly is hard to see. As we quoted in an earlier article, the number of foodbanks in Britain went from 66 to 421 in the first 5 years of Cameron rule. How many more need to be added before people start setting cities on fire? Or even just: how much more needs to happen before the Scots have had enough?

Very much like the Greeks, the Scots unambiguously voted down austerity. And in very much the same fashion, they face an entity that claims to be more powerful and insists on forcing more austerity down their throats anyway. It seems inevitable that at some point these larger entities will start to crack and break down into smaller pieces. As empires always do. Now, the EU was of course never an empire, there’s just tons of bureaucrats dreaming of that, and Britain is a long-decayed empire.

Larger entities like empires are more powerful only for a limited period of time, for as long as the center can make the periphery benefit; once the center starts feeding off the periphery, the endgame starts. This can take a while, but it will happen, it’s a law of nature. When periphery regions figure out they have nothing to lose by splitting off, they will elect to stand on their own two feet and be their own boss.

And it’s not as if either Scotland or Greece lack a history of fighting for their independence. Just a reminder.

What’s next for Greece is by now anybody’s guess. And a whole other story too. What’s next for Britain and Scotland is or seems -for now- somewhat less convoluted.

Nicola Sturgeon will have conversations with Cameron. Who will offer her more ‘autonomy’ for Scotland. But the budget, also for Scotland, is decided in London, not in Edinburgh. How Cameron’s austerity 2.0 can be made to fit with the SNP’s anti-austerity message, their number 1 priority in last week’s elections, is hard to fathom. Label us curious to see what happens.

It would seem that there are two referendums in Britain’s future. First, the EU in-or-out referendum Cameron promised his voters. It looks like the majority of British voters will opt to leave the EU, or at least partially; things may change if or when Cameron convinces Brussels to change the entire concept of the Union to ‘pacify’ the UK. But that majority will probably come from England only. Scotland, Wales and Northern Ireland will -almost certainly- choose to remain in the EU. And it just so happens that Sturgeon addressed the issue in the Guardian in no uncertain terms:

There are huge issues and challenges ahead – not least the looming question of the UK and Scotland’s place in Europe. A key requirement of the prime minister’s in-out referendum should be a “double-lock” requiring the assent of all four UK home nations before any withdrawal from the EU..

It doesn’t look like there will a general endorsement for the Tories’ vision for leaving the EU. So what’s your run of the mill Cameron to do? Ignore the Scottish demand for that ‘double-lock’? That wouldn’t be very democratic, and it would raise the chance of the UK falling to pieces. No easy choices, no easy pieces for David.

The other referendum, brought closer, as time passes, by Cameron’s multiple conundrums, is of course about Scottish independence. If London holds on to its position on austerity, it’s hard to see how there can not be another of these plebicites, soon.

Granted, it would depend on how much of a warrior Nicola Sturgeon is. Just like in Greece, the outcome of the Syriza vs Troika battle depends on how much chutzpah each side carries. And how much integrity. That last one should be an easy contest. London and Brussels have none, Athens and Edinburgh may yet find some.

All in all, yours truly is going for the center cannot hold.

May 082015
 
 May 8, 2015  Posted by at 6:39 pm Finance Tagged with: , , , , , , ,  


Jack Delano Long stairway in mill district of Pittsburgh, Pennsylvania 1940

We at the Automatic Earth always try to steer clear of elections as much as possible, because there are no functioning democracies left in the west -no more than there are functioning markets-, and no journalists reporting on them either. Interesting question, by the way: how can a journalist report on a democracy that isn’t there? And where in that setting does news turn to mere opinion, and where does opinion then become news ?

Still, of course we caught some bits of the UK elections along the way regardless. The decisive moment for us must have been when Jeremy Paxman interviewed David Cameron at the BBC, and asked him if he knew how many foodbanks had been added in Britain since he took office 5 years ago.

Cameron, well duh obviously, had no idea, and instead of answering the question he started a flowery discourse praising the many volunteers who work in the foodbanks he didn’t know existed. Paxman cut him short and said there were 66 when Cameron came to power, and 421 now. Apparently in Britain, volunteers are needed to take care of the needy, they’re not going to pay people to do that. You would think that takes care of Cameron’s candidacy, but you couldn’t be more wrong.

At least Paxman seemed to try, but interviews like his should take place on the eve of an election, not 6 weeks before them like this one. That leaves far too much time for spin doctors to repair damage done by their candidate’s ignorance and gullibility. It’s crazy enough that party leaders can refuse to discuss each other, let alone the public, in public. Then again, that too would only be significant if there would be an actual democracy in Britain.

As things are, they might as well have put the royal baby in charge as soon as she was born, or for that matter the newborn macaque in Japan that ‘stole’ her name (at least there was an honest public ballot for that). Or perhaps the adorable little monkey can take over polling in the UK, since we can’t imagine any British pollsters still being employed tomorrow morning, not with the degrees to which they missed any and all election outcomes today.

A whole bunch of ‘leaders’ will leave too, but there’s plenty of shades of dull grey humanoids waiting in the wings to replace them. Besides, though Nigel Farage has often been dead on in describing, in the European Parliament, the inherent failures of Brussels, at home he’s never been more than a sad lost clown. I had to think hard about LibDem Clegg’s first name, even needed to look it up -it’s Nick- , and that sort of says it all: he would do well to change his name to Bland.

And perhaps Ed Milibland should do the same. Can anyone ever really have believed that this lady’s underwear salesman could have won this election? Or did they all just fudge the numbers so they had material to print? Ed Milibland never stood a chance. And Russell Bland can now go lick his wounds from supporting the guy, and no, Russell, saying now that you’re just a comedian won’t do the trick. You’ve been tainted. If it’s any consolation, you screwed up the same way Springsteen did when he played Obama’s support act. No surrender, no excuses.

Milibland, by the way, had one last no-no to offer in stepping down. He tweeted: “I am grateful to the people who worked on our campaign and for the campaign they ran. The responsibility for the result is mine alone.” Sorry, boyo, but that just ain’t so. The responsibility lies at least as much with the people who put you in the leader’s chair that doesn’t fit you, and with those who kept you in that chair throughout the campaign.

All Brits should feel blessed that they’re not in America, where these campaigns, which are equally hollow and devoid of democratic principles, last ten times as long. If your blessings are few, do count them.

But then, we all get what we deserve. If the Brits want to be governed and gutted by the same people who raised the number of foodbanks the way they have, by a factor of seven in five years, and who fabricated the pretense of a functioning economy by blowing the biggest bubble in British history in selling off London town to monopoly money printing Chinese, Russian expat oligarchs and other such impeccable and blameless world citizens, if that’s what the Brits want, then let them have it.

One things’s for sure: Cameron and his ilk, now that they have a majority, will let them have it. And then some. In reality, though, even if they deserve what they get, there’s no vox populi here: the people have not spoken, the people have done what the press told them to do. Like in so many countries, there effectively is no press anymore in Britain, at least not in the sense that we used to knowl; the press no longer asks questions. Which begs yet another question: what is first to go, the media or the democratic values?

Peter Yukes wrote this for Politico just before the election:

The British Press Has Lost It

For months polls have put Conservatives and Labour close with about third of the vote each, and smaller parties destined to hold some balance of power. But there has been no balance in the papers. Tracked by Election Unspun, the coverage has been unremittingly hostile to Ed Miliband, the Labour challenger, with national newspapers backing the Conservative incumbent, David Cameron over Labour by a ratio of five to one.

Veteran US campaign manager David Axelrod finds this politicization of the print media one of the most salient differences with the US. “I’ve worked in aggressive media environments before,” he told POLITICO, “but not this partisan.” Axelrod may have ax to grind as he advises the Labour Party, but even a conservative commentator and long-serving lieutenant of Rupert Murdoch has been shocked. “Tomorrow’s front pages show British press at partisan worst,” Andrew Neil, former editor of the Sunday Times rued. “All pretense of separation between news and opinion gone, even in ‘qualities.’”

Excuse me, but how is ‘this politicization of the print media one of the most salient differences with the US’? Which US paper has not long been grossly politicized? It’s a shame Yukes devalues his article with such statements.

And that’s the difference. The whole newspaper industry seems to be affected by the tabloid tendentiousness trade-marked by Murdoch’s best-selling the Sun when it roared, in 1992, “It’s the Sun Wot Won It.” The Daily Mail specializes in political character assassination and the ‘Red Ed’ tag was predictable. But when the paper went on from attacking Miliband’s dead father to a hit-job on his wife’s appearance, the politics of personal destruction sank from gutter to sewer.

In this precipitous race to the bottom, perhaps the Daily Telegraph had the steepest fall. Known as a bastion of the Tory thinking, it had long been respected for separating fact from comment. During this election cycle is was caught sourcing its front pages direct from Conservative Campaign HQ, seeming to confirm the parting words of its senior political commentator, Peter Oborne, that it was intent on committing “a fraud on its readership.”

Well, at least it’s no surprise that the Telegraph does what it’s always done. Nobody expects them to be impartial.

The paper of record, The Times, fared a little better, in that there has been two vaguely positive front pages about Miliband — compared to 18 for Cameron.Meanwhile, the publication that arose in rebellion to Murdoch’s acquisition of the Times in the 80s, The Independent, shocked most its staff and readership by backing a continued Lib Dem/Tory Coalition. Reports said the endorsement was a ‘diktat’ from the wealthy Russian-born owner, Evgeny Lebedev, causing many to mock its original ad slogan “The Independent: It’s Not. Are You?” or renaming it ‘The Dependent’.

Even the sober, tight-lipped Financial Times, which once supported Blair and endorsed Obama, lost credibility. The paper said it backed another Conservative-led coalition because Ed Miliband was too “preoccupied with inequality.” But that magisterial tone was undermined when it emerged the leader writer, Jonathan Ford, was pictured in the notorious 1987 photo of Oxford’s elite hard drinking Bullingdon Club next to the Tory mayor Boris Johnson and just below David Cameron.

A bigger problem would seem to be that Milibland can’t have been far from that club; he attended much of the same educational institutions the other ‘leader elites’ did. Yukes is on to something, but he’s missing the point.

Therein lies the problem, and an indication the newspaper world is a microcosm of a wider malaise. The Conservative politician John Biffen once said “whenever you find a senior politician and a powerful media owner in private conclave, you can be certain that the aims of healthy, plural democracy are not being well-served.” This election that conclave looks like an exclusive club.

Rarely have the economic interests of the handful of wealthy men who own most the press (nine men own 90% of all national and regional titles) appeared so brutally transparent. Most of the conservatives among them don’t like Cameron’s modernizing project, or the fact he looks set to fail to get a majority for a second time. But they fear Miliband with a passion because he threatens their power in several ways.

They fear(ed) Milibland? I don’t believe that for a second. I think it’s much more likely that they’ve all intentionally exaggerated Milibland’s poll numbers to make it look like there was an actual race going on. That they were only too happy to have a guy run against theirs that everybody could see from miles away would never be a contender (maybe if his first name would have been Marlon? or Stanley?)

Plus they have the outdated and somewhat inane electoral system, in which for instance the Green Party got – roughly – one million votes and 1 seat, while the Conservatives accumulated 10 million votes and 331 seats. If you can work that system in your favor, you’re half way home. Moreover, if and when you hire the cream of the crop American spin doctors, as the Cons have certainly done, who love purchasing media, you’re way past halfway.

The system can certainly be given some sort of name, but a functioning democracy it’s not. If anything, a democracy is “A system of government in which power is vested in the people”. Makes us wonder how many clients of the 421 foodbanks and counting have voted Con. and figured they were proudly doing their democratic duty.