Sep 262015
 
 September 26, 2015  Posted by at 9:27 am Finance Tagged with: , , , , , , , , ,  4 Responses »


Russell Lee Dillon, Montana, trading center for prosperous cattle and sheep country 1942

VW’s Systematic Fraud Threatens To Engulf The Entire Industry (Economist)
Volkswagen Scandal Spreads Throughout Europe’s Credit Markets (Bloomberg)
EU Warned On Devices At Centre Of VW Scandal Two Years Ago (FT)
VW Bungles Restart With New CEO From Old Guard (Reuters)
More Volkswagen Engines May Be Implicated, German Minister Says (Bloomberg)
Did -Political- Privilege Enable Volkswagen’s Diesel Deception? (Bloomberg)
Problems at Volkswagen Start in the Boardroom (NY Times)
Boehner Resigns From Congress: ‘House Leadership Turmoil Would Do Harm‘ (CNBC)
It’s All ‘Perverted’ Now as U.S. Swap Spreads Tumble Below Zero (Bloomberg)
Junk-Debt Investors Fight for Scraps as US Shale Rout Deepens (Bloomberg)
Wall Street Braces For Grim Third Quarter Earnings Season (Reuters)
It’s Carnage Out There For Emerging Markets (CNBC)
Emerging Markets Are Facing a Big Foreign FX Debt Bill (Tracy Alloway)
Bill and Melinda Gates Foundation Sues Petrobras, Auditor for Fraud (WSJ)
How Much Longer Can Consumers Underpin Canada’s Economy? (Reuters)
British Spies Track “Every Visible User On The Internet” (Intercept)
Industrial Farming Is One Of The Worst Crimes In History (Guardian)
Europe’s Refugees Are Modern-Day Pioneers (McArdle)
EU To Use Warships To Curb Human Traffickers (Al Jazeera)

“Hidden within the German firm is a big finance operation that makes loans to car buyers and dealers and also takes deposits, acting as a bank.”
“..more than half Europe’s claimed gains in efficiency since 2008 have been “purely theoretical”, says T&E.”

VW’s Systematic Fraud Threatens To Engulf The Entire Industry (Economist)

Class-action lawsuits from aggrieved motorists will arrive at the speed of a turbocharged Porsche. On September 22nd VW announced a €6.5 billion provision to cover the costs of the scandal but that is likely to prove too little. By that stage the company’s value had fallen €26 billion. The financial damage could go further. Hidden within the German firm is a big finance operation that makes loans to car buyers and dealers and also takes deposits, acting as a bank. Its assets have more than doubled in the past decade and make up 44% of the firm’s total. And it may be vulnerable to a run. In previous crises “captive-finance” arms of industrial firms have proven fragile. After the Deepwater Horizon disaster BP’s oil-derivative trading arm was cut off from long-term contracts by some counterparties.

General Motors’ former finance arm, GMAC, had to be bailed out in 2009. With €164 billion of assets in June, VW’s finance operation is as big as GMAC was six years ago, and it appears to be more dependent on short-term debts and deposits to fund itself. Together, VW’s car and finance businesses had €67 billion of bonds, deposits and debt classified as “current” in June. This means—roughly speaking—that lenders can demand repayment of that sum over the next 12 months. The group also has a big book of derivatives which it uses to hedge currency and interest-rate risk and which represented over €200 billion of notional exposure at the end of 2014. It is impossible to know if these derivatives pose a further risk, but if counterparties begin to think VW could be done for they might try to wind down their exposure to the car firm or demand higher margin payments from it.

If depositors, lenders and counterparties were to refuse to roll over funds to VW, the company could hang on for a bit. It has €33 billion of cash and marketable securities on hand, as well as unused bank lines and the cashflow from the car business. The German government would lean on German banks to prop up their tarnished national champion, 20% of which is owned by the state of Lower Saxony. So far the cost of insuring VW’s debt has risen, but not to distressed levels. Still, unless the company convinces the world that it can contain the cost of its dishonesty, it could yet face a debt and liquidity crisis.

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The losses accelerate.

Volkswagen Scandal Spreads Throughout Europe’s Credit Markets (Bloomberg)

A week after it admitted to cheating on U.S. emissions tests for years, Volkswagen’s pain is beginning to spread throughout Europe’s credit markets. The Bank of France stopped trading two securities backed by Volkswagen auto loans on Friday, while executives of parts supplier Schaeffler AG find themselves fielding questions about their biggest customer as they drum up support for an initial public offering, according to people familiar with the matters. Since Volkswagen admitted Sept. 18 that it had cheated on U.S. air pollution tests since 2009, the chief executive officer resigned, the company became the target of a joint investigation by 27 U.S. states and the stock price tumbled 28%. Matthias Mueller, the former Porsche chief who was appointed Volkswagen’s CEO Friday, said his most urgent task is to win back trust for the company.

“Under my leadership, Volkswagen will do everything it can to develop and implement the most stringent compliance and governance standards in our industry,” he said in a statement. The two Volkswagen-related securities weren’t in an updated list the Bank of France distributed on Friday after being included in the original version sent to investors earlier this week, said the people, who asked not to be identified because they aren’t authorized to discuss the matter publicly. The Paris-based bank is buying asset-backed securities under a ECB purchase program designed to help boost lending in the euro area. Volkswagen Financial Services has €22.8 billion of outstanding asset-backed debt, according to a September presentation on its website.

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Everyone knew. And everyone was involved.

EU Warned On Devices At Centre Of VW Scandal Two Years Ago (FT)

EU officials had warned of the dangers of defeat devices two years before the Volkswagen emissions scandal broke, highlighting Europe’s failure to police the car industry. A 2013 report by the European Commission’s Joint Research Centre drew attention to the challenges posed by the devices, which are able to skew the results of exhaust readings. But regulators then failed to pursue the issue — despite the fact the technology had been illegal in Europe since 2007. EU officials said they had never specifically looked for such a device themselves and were not aware of any national authority that located one. The technology is at the heart of a scandal that exploded last Friday when US regulators revealed Volkswagen had used it to rig emissions tests, potentially laying itself open to criminal charges and substantial fines.

The Environmental Protection Agency said the defeat devices turn on emissions controls when vehicles are being tested but turn them off during regular driving. This means that while on the road, the cars are able to emit up to 40 times the amount of nitrogen oxides that US environmental standards allow. Initially the focus was exclusively on cars sold by Volkswagen into the US market. But Germany has now said that the company cheated in the same way in Europe as well. The inability of regulators across the EU to expose this deceit has shone a spotlight on the lobbying power of the European motor industry, which has made a huge gamble on diesel. Some 53% of new car sales in the EU are diesels, up from just more than 10% in the early 1990s.

Meanwhile the British government came under fire on Friday from the opposition Labour party after it admitted receiving evidence nearly a year ago that some diesel cars were fitted with equipment to rig emissions tests. The Department for Transport received evidence in October 2014 that there was a “real world nitrogen oxides compliance issue” for diesel passenger cars. The evidence was contained in a 60-page report by the International Council on Clean Transportation. It tested 15 vehicles and found they produced an average of seven times the legal limit for the deadly gas. One car produced 25 times the limit. The DfT said the report demonstrated the shortcomings in the old testing system and that ministers had been pushing for the EU to accelerate the introduction of a real-driving emissions test.

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Defense!

VW Bungles Restart With New CEO From Old Guard (Reuters)

Matthias Mueller is the wrong chief executive for Volkswagen. The scandal-hit German carmaker on Sept. 25 appointed the 62-year-old CEO of its brand Porsche to replace Martin Winterkorn, who resigned days earlier after VW admitted tampering with its cars to falsify regulatory emissions tests. Just as with new chair Hans Dieter Poetsch, it has chosen an insider when it should have looked beyond its Wolfsburg base. Mueller knows the gigantic carmaker inside out, and has what it takes to fix operational woes. But having been at the group since the late 1970s, he is also a deeply entrenched member of the Wolfsburg old guard. His insider status suggests he is an imperfect investigator of the scandal. From 2007 and 2010, he was the group’s head of product management, responsible for all vehicle projects of the Volkswagen brand.

The company started to fit diesel cars with so-called “defeat devices” that manipulated emission tests in 2009. VW’s supervisory board has stressed that the new CEO is personally untainted by the wrongdoing. Investors have no choice but to take its word. But given VW’s investigation is in its early days, it still seems an unnecessary risk, especially as a well-versed auto manager with no Wolfsburg history was readily available. Herbert Diess, the new head of VW’s passenger-car group, was poached from rival BMW earlier this year. The scope of the misconduct is massive, and the scandal is still evolving. This week, Volkswagen has admitted 20% of all its passenger cars sold from 2009 to 2014 might be affected by the emissions manipulations.

On Sept. 25, Germany’s transport minister Alexander Dobrindt said VW falsified emission data of light commercial vehicles too. Switzerland banned the sale of affected models. And Bloomberg reported on the same day that executives in Wolfsburg controlled key aspects of the rigged emissions tests, referring to three unnamed people familiar with the company’s U.S. operations. Winterkorn’s speedy exit was the right move. But the departed CEO is still around, as chief executive of Porsche SE, the holding company that owns 50.7% of VW voting shares. The group as a whole urgently needed a proper restart to cope with the emission scandal. For now, it does not look like it is getting one.

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Of course there are.

More Volkswagen Engines May Be Implicated, German Minister Says (Bloomberg)

Volkswagen may also have used software to fake diesel-emission tests in 1.2-liter engines, widening the number of vehicles under scrutiny, German Transportation Minister Alexander Dobrindt said. “There’s also discussion now about 1.2-liter cars being affected,” Dobrindt said in a speech to parliament in Berlin on Friday. “At least for now we believe that possible manipulations can come to light here, too. That’s being further investigated in the current talks with Volkswagen.” So far, the “illegal” tampering with emission controls affects about 2.8 million Volkswagen vehicles in Germany with 1.6-liter and 2-liter diesel engines, including light utility vans, Dobrindt said.

Germany’s motor-vehicle certification bureau has asked VW for “a binding statement on whether the company can redress the technical manipulations it has acknowledged so the vehicles can be returned to a condition that meets technical regulations,” said Dobrindt, who set up a government investigating commission this week after Volkswagen’s actions came to light. Volkswagen “has pledged full support for the commission’s work and to cooperate in the investigation,” he said.

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“..’das VW-Gesetz,’ the Volkswagen Law.”

Did -Political- Privilege Enable Volkswagen’s Diesel Deception? (Bloomberg)

In Italy, the privilege is called potere speciale; in France, action spécifique; in the U.K., it’s a “golden share.” Those are all different names for an ownership stake that gives a government—be it national or local—special powers above any other shareholder. That makes a crucial difference in running a business. Governments, for example, have good reason to prevent jobs from moving to more competitive labor markets. A golden share can help with that. In Europe, most golden shares are held in utilities and telecoms, companies that were state monopolies before being privatized. For more than a decade, the European Union, as it expanded and liberalized its common open market, has been trying to undo the persistence of state control. But there is one golden share that has endured, a German law so breathtakingly exceptional it can only be called what it is in fact called—“das VW-Gesetz,” the Volkswagen Law.

It is explicitly designed for a single company. Germany has managed to defend its golden share against the EU because VW had built a reputation as a force for good: responsible corporate citizen, pioneer in environmental progess. That reputation has just run out of Fahrvergnügen. Regulators in the U.S., France, South Korea, Italy, and now Germany have announced investigations into whether Volkswagen purposely designed software so its diesel engines could defeat emissions tests. The company will recall 11 million cars, and its stock has fallen as much as 30% on the news. The company quickly set aside $7.3 billion to cover costs related to the scandal, a figure that may fall short of the mark. On Sept. 21, Martin Winterkorn, Volkswagen’s chief executive officer, apologized, looking panicked.

A metallurgist with a Ph.D. who used to run technical development for Volkswagen, Winterkorn has a reputation as an engineer’s engineer. But there was no easy fix here. On Sept. 23 he offered his resignation to the company’s supervisory board. The board quickly accepted. “The damage done,” said a board member at a press conference in Braunschweig, “cannot be measured.” The same day, Stephan Weil, prime minister of Lower Saxony, the state where Volkswagen is headquartered, announced that “whoever’s responsible would be aggressively sued.” He spoke at the same press conference—and on behalf of the company. Weil sits on Volkswagen’s supervisory board, because Lower Saxony owns 20% of the company.

Per the Volkswagen Law, Saxony has a controlling interest with virtual veto power—the golden share. Weil is both government minister and owner. This is a coziness that is exceptional even in consensus-driven Germany. Publicly held German companies have two boards. Executives sit on the management board. They are in turn controlled by the supervisory board, which includes shareholders and labor leaders. Broadly, Germany’s dual-board structure preserves executive independence. Yet at Volkswagen, labor has an extra friend on the top board: the state. “You have the voice of the government present in the shareholder meetings,” says Carsten Gerner-Beuerle at the London School of Economics. “That is not something you’d see in any other board.”

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“It’s been a soap opera ever since it started.”

Problems at Volkswagen Start in the Boardroom (NY Times)

There is a long tradition of scandal and skulduggery in the auto industry, but few schemes appear as premeditated as Volkswagen’s brazen move to use sophisticated software to circumvent United States emissions standards. That such a thing could happen at Volkswagen, Germany’s largest company and the world’s largest automaker by sales — 202.5 billion euros last year — has mystified consumers and regulators around the world. But given Volkswagen’s history, culture and corporate structure, the real mystery may be why something like this didn’t happen sooner. “The governance of Volkswagen was a breeding ground for scandal,” said Charles M. Elson, professor of finance and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “It was an accident waiting to happen.”

The company, founded by the Nazis before World War II, is governed through an unusual hybrid of family control, government ownership and labor influence. Even by German standards, “Volkswagen stands apart,” said Markus Roth, a professor at Philipps-University Marburg and an expert in European corporate governance. “It’s been a soap opera ever since it started.” Volkswagen’s recent history — a decades-long feud within the controlling Porsche family, a convoluted takeover battle and a boardroom coup — has dominated the German financial pages and tabloids alike. This week, the German newspaper Süddeutsche Zeitung compared Volkswagen’s governance to that of North Korea, adding that its “autocratic leadership style has long been out of date.” It said “a functioning corporate governance is missing.”

Until a forced resignation this spring, the company was dominated by Ferdinand Piëch, 78, the grandson of Ferdinand Porsche and the father of 12 children. He reigned over Volkswagen’s supervisory board and directed a successful turnaround at the luxury brand Audi before taking the reins at its parent, Volkswagen, in 1993. Mr. Piëch set the goal of Volkswagen’s becoming the world’s largest automaker by sales, a goal the company achieved this past year. He stepped down as chairman in April after unsuccessfully trying to oust the company’s chief executive, Martin Winterkorn, who himself was forced out this week. One measure of Mr. Piëch’s influence: In 2012, shareholders elected his fourth wife, Ursula, a former kindergarten teacher who had been the Piëch family’s governess before her marriage to Ferdinand, to the company’s supervisory board.

Although many shareholders protested her lack of qualifications and independence, they have little or no influence. Porsche and Piëch family members own over half the voting shares and vote them as a bloc under a family agreement. Labor representatives hold three of the five seats on the powerful executive committee, and half the board seats are held by union officials and labor. Of the remaining seats, two are appointed by the government of Lower Saxony, the northwestern German state that owns 20% of the voting shares. Two are representatives of Qatar Holding, Qatar’s sovereign wealth fund, which owns 17% of Volkswagen’s voting shares. Members of the Piëch and Porsche families hold three more seats, and a management representative holds another. Outside views rarely penetrate. “It’s an echo chamber,” Professor Elson said.

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“I know this, I’m doing this for the right reasons and you know what, the right things will happen as a result.”

Boehner Resigns From Congress: ‘House Leadership Turmoil Would Do Harm‘ (CNBC)

House Speaker John Boehner, under fire from conservatives over a looming government shut down, said Friday he will resign from Congress at the end of October. “Prolonged leadership turmoil would do irreparable damage to the institution,” he said. In an afternoon news conference, Boehner became emotional when expressing gratitude to his family and constituents, and said he was proud of what he’s accomplished. However, Boehner said he plans to get as much work done as he can on outstanding fiscal issues before he leaves Congress at the end of October. He said although he doesn’t know what he will do in the future, “I know this, I’m doing this for the right reasons and you know what, the right things will happen as a result.”

Boehner, 65, told House Republicans of his decision earlier in the morning. Later, he left a meeting and answered a reporter’s shouted question about how he felt with, “It’s a wonderful day.” President Barack Obama said he was taken by surprise by Boehner’s decision, adding that he called the Republican leader after hearing the news. “John Boehner is a good man. He is a patriot. He cares deeply about the House, an institution in which he has served for a long time. He cares about his constituents and he cares about America,” Obama told reporters at a joint press conference with China’s president.

“We have obviously had a lot of disagreements, and politically we’re at different ends of the spectrum, but I will tell you he has always conducted himself with courtesy and civility with me,” Obama said. House Majority Leader Kevin McCarthy of California will likely be Boehner’s successor, political observers told CNBC. Boehner said that although the choice of the next speaker is up to members of Congress, he thinks McCarthy would make an “excellent speaker.”

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“.. it theoretically signals that traders view the credit of banks as superior to that of the U.S. government..”

It’s All ‘Perverted’ Now as U.S. Swap Spreads Tumble Below Zero (Bloomberg)

At the height of the financial crisis, the unprecedented decline in swap rates below Treasury yields was seen as an anomaly. The phenomenon is now widespread. Swap rates are what companies, investors and traders pay to exchange fixed interest payments for floating ones. That rate falling below Treasury yields – the spread between the two being negative – is illogical in the eyes of most market observers, because it theoretically signals that traders view the credit of banks as superior to that of the U.S. government. Back in 2009, it was only negative in the 30-year maturity, a temporary offshoot of deleveraging and market swings following the credit crisis. These days, swap spreads are near or below zero across maturities.

The shift is a result of a confluence of events, says Aaron Kohli, an interest-rate strategist in New York at BMO Capital Markets. It’s a ripple effect of regulations spawned by the credit crunch, combined with large-scale selling of Treasuries and surging corporate issuance.
“All of these effects have been pushing swap spreads the same way – lower,” Kohli said. “If this doesn’t go away after quarter-end, it could be the fact that a lot of the structural changes that have taken place in the marketplace are now manifesting. And this might then be one of the most visceral examples.”

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Take your losses and pull the plug.

Junk-Debt Investors Fight for Scraps as US Shale Rout Deepens (Bloomberg)

It’s every U.S. shale investor for himself as the worst oil rout in almost 30 years drags down its latest victims. Investors in $158.2 million of Goodrich Petroleum’s debt agreed to take 47 cents on the dollar in exchange for stock warrants for some note holders and a lien on Goodrich’s oil acreage, according to a company statement today. That puts them second in line if the Houston-based company liquidates its assets in bankruptcy and pushes the remaining holders of $116.8 million in original bonds to the back of the pack. “In the industry it’s called ‘getting primed,’” said Spencer Cutter, a credit analyst with Bloomberg Intelligence. “It’s every man for himself. They’re trying to get in and get exchanged, and if you can’t you’re getting left out in the cold.”

Wildcatters attracted billions of dollars during the boom after years of near-zero interest rates sent investors hunting for returns in riskier corners of the market. U.S. high-yield debt has more than doubled since 2004 to $1.3 trillion while the amount issued to junk-rated energy companies has grown four-fold to $208 billion, according to Barclays. Most of the companies spent money faster than they made it even when oil was $100 a barrel and are struggling to stay afloat with prices at $45. Goodrich didn’t name the bondholders who participated in the swap. The largest holder was Franklin Resources, which owned about 24% of the bonds, according to data compiled by Bloomberg. Franklin has invested in the debt of other distressed drillers, including Halcon Resources, SandRidge Energy and Linn Energy.

This was Goodrich’s second exchange this month. Three weeks ago, the company swapped $55 million on convertible notes for bonds worth half as much. To sweeten the deal, it lowered the share price at which investors can turn their notes into stock to $2. Investors who didn’t participate in Goodrich’s earlier exchange took another hit with today’s swap because it put holders of the new bonds ahead of them in liquidation. Prices fell four cents to 18 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

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Caterpillar is set to drag down a wide swath of shares.

Wall Street Braces For Grim Third Quarter Earnings Season (Reuters)

Wall Street is bracing for a grim earnings season, with little improvement expected anytime soon. Analysts have been cutting projections for the third quarter, which ends on Wednesday, and beyond. If the declining projections are realized, already costly stocks could become pricier and equity investors could become even more skittish. Forecasts for third-quarter S&P 500 earnings now call for a 3.9% decline from a year ago, based on Thomson Reuters data, with half of the S&P sectors estimated to post lower profits thanks to falling oil prices, a strong U.S. dollar and weak global demand. Expectations for future quarters are falling as well. A rolling 12-month forward earnings per share forecast now stands near negative 2%, the lowest since late 2009, when it was down 10.1%, according to Thomson Reuters I/B/E/S data.

That’s further reason for stock investors to worry since market multiples are still above historic levels despite the recent sell-off. Investors are inclined to pay more for companies that are showing growth in earnings and revenue. The weak forecasts have some strategists talking about an “earnings recession,” meaning two quarterly profit declines in a row, as opposed to an economic recession, in which gross domestic product falls for two straight quarters. “Earnings recessions aren’t good things. I don’t care what the state of the economy is or anything else,” said Michael Mullaney, chief investment officer at Fiduciary Trust in Boston.

The S&P 500 is down about 9% from its May 21 closing high, dragged down by concern over the effect of slower Chinese growth on global demand and the uncertain interest rate outlook. The low earnings outlook adds another burden. China’s weaker demand outlook has also pressured commodity prices, particularly copper. This week, Caterpillar slashed its 2015 revenue forecast and announced job cuts of up to 10,000, among many U.S. industrial companies hit by the mining and energy downturn. Also this week, Pier 1 Imports cut its full-year earnings forecast, while Bed Bath & Beyond gave third-quarter guidance below analysts’ expectations.

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The continuing story. Getting worse by the day.

It’s Carnage Out There For Emerging Markets (CNBC)

It’s been another week of bloodshed in emerging markets, with the Brazilian real, South African rand and Turkish lira all pummelled to record lows as China growth concerns and uncertainty about U.S. rate hikes continue to bite. Remarks by Fed Chair Janet Yellen late Thursday suggesting the central bank could still raise rates this year sparked fresh selling on Friday, with the Malaysian ringgit and Indonesian rupiah falling to their lowest levels since the Asian financial crisis in 1998. “EM currencies are being squeezed between concerns about the severity of China’s economic slowdown and increasing uncertainty regarding U.S. monetary policy,” Nicholas Spiro at Spiro Sovereign Strategy, told CNBC.

“Country-specific vulnerabilities, notably in Brazil and Turkey, are also weighing on sentiment – indeed more so than external factors in the case of many EMs,” he said. A rout in Brazil’s currency – what has shed almost 10% this month and almost 60% this year – against a backdrop of a political crisis and an economy mired in recession, has also soured sentiment towards other emerging markets. “In short, the world is not falling apart. Yet for EM, Brazil is vital,” analysts at Standard Bank said in a note. “Too big to fail but not big to save. IMF, would you please step in and save us all?” To stem the slide, Brazil’s central bank on Thursday warned it would use its foreign exchange reserves to defend the currency.

These strong words bought some respite to the real, which bounced more than 5% and off a record low of about 4.248 per dollar hit earlier on Thursday. Brazil isn’t the only country bank taking action to shore up a battered currency. Indonesia’s central bank on Friday said it will announce new steps to increase onshore supply of dollars – part of a move to support the rupiah, which has shed about 20% of its value this year.

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Brazil will soon need capital controls. Like Greece. And like Greece, it needs debt retsructuring.

Emerging Markets Are Facing a Big Foreign FX Debt Bill (Tracy Alloway)

The extent of emerging markets’ foreign-currency borrowing binge is laid bare in new number-crunching from CreditSights. With EM currencies down a collective 15% since the start of the year, the cost of repaying debt and loans denominated in foreign currencies, such as the U.S. dollar and the euro for EM countries, is likely to increase. With that scenario in mind, CreditSights analysts Richard Briggs and David Watts have analyzed cross-border lending data from the Bank for International Settlements and corporate bond index data from Bank of America Merrill Lynch to try to figure out just how big EM’s foreign debt bill could be.

First up are the BIS data on cross-border lending, scaled against a country’s foreign currency revenue (i.e. exports). Bank figures range from a mere 6% in South Korea to a whopping 56% in Brazil. Next up are corporate bonds, via BofAML’s hard-currency, emerging-market corporate bond index, as a% of foreign-currency revenue. Brazil dominates again, with a big chunk of its foreign FX bonds having been sold by energy companies. Combine cross-border lending, plus foreign FX corporate bonds, then add a smattering of government debt, and you get the CreditSights chart below, showing total hard-currency borrowing by country Brazil is the standout, followed by Turkey and Colombia.

It’s not a pretty chart, and unfortunately, as the CreditSights analysts note, the real picture of emerging markets’ foreign-currency borrowing is probably even uglier. (When it comes to corporate bonds, for instance, the BofAML index excludes dollar or euro-denominated debt that exceeds certain thresholds.)

We have tried to capture as much of the hard currency debt as we can reliably get for a cross country comparison using BIS and the bond index data but the actual total will almost certainly be higher given that only BIS reporting banks are included and the bond debt only includes the index eligible deals.

Oh dear.

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Isn’t Gates just getting what he deserves for his large fossil fuel investments?

Bill and Melinda Gates Foundation Sues Petrobras, Auditor for Fraud (WSJ)

The Bill and Melinda Gates Foundation is suing Brazil’s Petróleo Brasileiro SA and its auditor in a New York court, claiming a vast corruption scheme centered on the state-run oil company caused the charitable organization to lose tens of millions of dollars. The foundation, started by the billionaire co-founder of Microsoft and his wife, joins a long list of plaintiffs seeking to recoup money they lost as the scandal hammered the value of their investments in Petrobras shares. It is just the latest bad news for the troubled oil company, which is scrambling to restore its reputation, rebuild investor confidence and pay down ballooning debt amid a global slump in oil prices.

Petrobras has long maintained it was a victim of a yearslong bid-rigging and bribery ring that Brazilian prosecutors say was cooked up by suppliers and a few crooked insiders who fleeced the oil company for at least $2 billion. The Gates lawsuit, filed against Petrobras and the Brazilian unit of PricewaterhouseCoopers LLP or PwC, alleges that corruption at the oil company was so widespread as to be “institutional” and that wrongdoing was “willfully ignored” by its auditor. “The depth and breadth of the fraud within Petrobras is astounding. By Petrobras’s own admission, the kickback scheme infected over $80 billion of its contracts, representing approximately one-third of its total assets,” the lawsuit said.

“Equally breathtaking is that the fraud went on for years under PwC’s watch, who repeatedly endorsed the integrity of Petrobras’ internal controls and financial reports. This is not a case of rogue actors. This is a case of institutional corruption, criminal conspiracy, and a massive fraud on the investing public.” The Gates Foundation filed the lawsuit late Thursday in the Southern District Court of New York. A co-plaintiff in the lawsuit is WGI Emerging Markets Fund, LLC, which managed investments for the Gates Foundation. The Gates Foundation held more than $27 million in Petrobras shares as of 2013, according to a tax filing.

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Must. Get. Rid. Of. Harper.

How Much Longer Can Consumers Underpin Canada’s Economy? (Reuters)

The Bank of Canada is hoping the average Canadian continues to do the heavy lifting for the economy and gets it out of its rut from the first half of the year, even with dangerously high household debt levels. That may be a big ask. Canada’s average household debt-to-income ratio is back at a record high of 164.6% in the second quarter, driven by mortgages, after inching lower in the previous two quarters. Since the financial crisis Canadian household debt has increased at the second-fastest pace among developed nations, according to a recent McKinsey Global Institute study. Greece topped the list. Citing figures from Ipsos Reid, a 2014 Bank of Canada report concluded that 40% of all household debt was held by borrowers who had a total debt-to-income ratio greater than 250%, compared to the average of 162.3%.

This segment of heavily indebted borrowers rose to about 12% in 2014 from around 6% in 2000. Consumer spending – primarily related to the housing market – has been the main driver of the Canadian economy over the past five years. It buoyed and boosted Canada through the worst of the global financial crisis, even as the U.S. housing market and economy crashed. But now Canada’s economy has taken a sharp turn for the worse. The jobless rate hit a one-year high of 7% in August as sharp falls in oil prices took their toll. Even U.S. Federal Reserve Chair Janet Yellen cited the slowdown in Canada, an important U.S. trade partner, in its concerns about the global economy that led it to hold off yet again on its first rate rise in nearly a decade.

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Because they can.

British GCHQ Spies Track “Every Visible User On The Internet” (Intercept)

There was a simple aim at the heart of the top-secret program: Record the website browsing habits of “every visible user on the Internet.” Before long, billions of digital records about ordinary people’s online activities were being stored every day. Among them were details cataloging visits to porn, social media and news websites, search engines, chat forums, and blogs. The mass surveillance operation — code-named KARMA POLICE — was launched by British spies about seven years ago without any public debate or scrutiny. It was just one part of a giant global Internet spying apparatus built by the United Kingdom’s electronic eavesdropping agency, Government Communications Headquarters, or GCHQ.

The revelations about the scope of the British agency’s surveillance are contained in documents obtained by The Intercept from National Security Agency whistleblower Edward Snowden. Previous reports based on the leaked files have exposed how GCHQ taps into Internet cables to monitor communications on a vast scale, but many details about what happens to the data after it has been vacuumed up have remained unclear. Amid a renewed push from the U.K. government for more surveillance powers, more than two dozen documents being disclosed today by The Intercept reveal for the first time several major strands of GCHQ’s existing electronic eavesdropping capabilities. One system builds profiles showing people’s web browsing histories. Another analyzes instant messenger communications, emails, Skype calls, text messages, cell phone locations, and social media interactions.

Separate programs were built to keep tabs on “suspicious” Google searches and usage of Google Maps. The surveillance is underpinned by an opaque legal regime that has authorized GCHQ to sift through huge archives of metadata about the private phone calls, emails and Internet browsing logs of Brits, Americans, and any other citizens — all without a court order or judicial warrant. Metadata reveals information about a communication — such as the sender and recipient of an email, or the phone numbers someone called and at what time — but not the written content of the message or the audio of the call. As of 2012, GCHQ was storing about 50 billion metadata records about online communications and Web browsing activity every day, with plans in place to boost capacity to 100 billion daily by the end of that year.

The agency, under cover of secrecy, was working to create what it said would soon be the biggest government surveillance system anywhere in the world. The power of KARMA POLICE was illustrated in 2009, when GCHQ launched a top-secret operation to collect intelligence about people using the Internet to listen to radio shows. The agency used a sample of nearly 7 million metadata records, gathered over a period of three months, to observe the listening habits of more than 200,000 people across 185 countries, including the U.S., the U.K., Ireland, Canada, Mexico, Spain, the Netherlands, France, and Germany.

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“The animals suffer greatly, yet they live on and multiply. Doesn’t that contradict the most basic principles of Darwinian evolution?”

Industrial Farming Is One Of The Worst Crimes In History (Guardian)

At first sight, domesticated animals may seem much better off than their wild cousins and ancestors. Wild buffaloes spend their days searching for food, water and shelter, and are constantly threatened by lions, parasites, floods and droughts. Domesticated cattle, by contrast, enjoy care and protection from humans. People provide cows and calves with food, water and shelter, they treat their diseases, and protect them from predators and natural disasters. True, most cows and calves sooner or later find themselves in the slaughterhouse. Yet does that make their fate any worse than that of wild buffaloes? Is it better to be devoured by a lion than slaughtered by a man? Are crocodile teeth kinder than steel blades?

What makes the existence of domesticated farm animals particularly cruel is not just the way in which they die but above all how they live. Two competing factors have shaped the living conditions of farm animals: on the one hand, humans want meat, milk, eggs, leather, animal muscle-power and amusement; on the other, humans have to ensure the long-term survival and reproduction of farm animals. Theoretically, this should protect animals from extreme cruelty. If a farmer milks his cow without providing her with food and water, milk production will dwindle, and the cow herself will quickly die. Unfortunately, humans can cause tremendous suffering to farm animals in other ways, even while ensuring their survival and reproduction.

The root of the problem is that domesticated animals have inherited from their wild ancestors many physical, emotional and social needs that are redundant in farms. Farmers routinely ignore these needs without paying any economic price. They lock animals in tiny cages, mutilate their horns and tails, separate mothers from offspring, and selectively breed monstrosities. The animals suffer greatly, yet they live on and multiply. Doesn’t that contradict the most basic principles of Darwinian evolution? The theory of evolution maintains that all instincts and drives have evolved in the interest of survival and reproduction. If so, doesn’t the continuous reproduction of farm animals prove that all their real needs are met? How can a cow have a “need” that is not really essential for survival and reproduction?

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“They have had enough to fear. Now they have hope.”

Europe’s Refugees Are Modern-Day Pioneers (McArdle)

“They lose everything when their boats overturn – everything from their cell phones to their babies,” the Belgian nurse told me. He said it in a matter-of-fact tone that I recognized from my days giving tours of the cleaned-up Ground Zero site. It is not the sound of people who don’t care; it is the sound of people who have been living in the middle of horror for so long that they cannot keep stopping to cry. I cried when I got on the boat to leave the island of Lesbos, walking past the tent city that has sprung up at the docks. I cried all over again when my mother called to ask how my trip to Greece had been. But the refugees weren’t crying. So many of them looked happy, sitting under makeshift tents put together out of reams of netting and whatever cloth they could find.

Some smiled as they walked down the road with a backpack or a garbage bag that contained everything they had in the world. Others smiled as they walked down the road without one. Children laughed, men waved, mothers grinned shyly. “They’re safe now,” said one of the doctors at Kara Tepe, the temporary camp where refugees, largely from Syria, wait for passage to the European mainland. “They’re happy because they’re safe.”

[..] These hundreds of thousands survived the Taliban, the Islamic State, the Syrian civil war. They survived a perilous crossing, clinging to their children in a flimsy raft. They have finally arrived on safe shores. Where will these refugees go? America is willing to eventually take 100,000 Syrians a year. Where will these refugees go? Europe is squabbling over the distribution of 120,000 people over the next two years. Where will these refugees go? Mostly, no one knows. There is no plan for most of the estimated 4 million who have fled Syria so far, or for the thousands who are still coming every day. Where will these refugees go? The few I was able to talk to had no answer, but they were not afraid. They have had enough to fear. Now they have hope.

Europe and the U.S. have seen these people as a problem to be solved, or at best an obligation to be fulfilled. Take another look: These people are pioneers. Future citizens, teachers, engineers, P.T.A. dads, entrepreneurs, valedictorians, doctors. They are following in the footsteps of the immigrants who built the United States: the ones who chose to strike out for unknown territory, heading west with not much more than a knapsack. The modern-day pioneers striving toward Europe shouldn’t have to beg for a chance to build productive lives in Germany or Britain or the U.S. We should be going out to invite them in. We should have started much sooner.

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Criminally insane.

EU To Use Warships To Curb Human Traffickers (Al Jazeera)

The EU will use warships to catch and arrest human traffickers in international waters as part of a military operation aimed at curbing the flow of refugees into Europe, the bloc’s foreign affairs chief has said. “The political decision has been taken, the assets are ready,” Federica Mogherini said on Thursday at the headquarters of the European Union’s military operation in Rome. The first phase of the EU operation was launched in late June. It included reconnaissance, surveillance and intelligence gathering, and involved speaking to refugees rescued at sea and compiling data on trafficker networks. The operation currently involves four ships – including an Italian aircraft carrier – and four planes, as well as 1,318 staff from 22 European countries.

Beginning on October 7, the new phase will allow for the seizure of vessels and arrests of traffickers in international waters, as well as the deployment of European warships on the condition that they do not enter Libyan waters. “We will be able to board, search, seize vessels in international waters, [and] suspected smugglers and traffickers apprehended will be transferred to the Italian judicial authorities,” Mogherini said. “We have now a complete picture of how, when and where the smugglers’ organisations and networks are operating so we are ready to actively dismantle them,” she said. The new measures come at a time when Europe is enduring the largest refugee crisis since World War II.

An estimated 13.9 million people became refugees in 2014, while an average of 42,500 were displaced from their homes each day due to conflict and persecution, according to the UN refugee agency. Europe has already received more than 700,000 asylum applications in 2015. The Organisation for Economic Co-operation and Development predicts that number will exceed one million by the end of the year. Expanding the operation into Libyan waters is still pending the approval of the EU’s security council and the Libyan government. “We have a lot to do in high seas, and in the meantime we are continuing to work on the legal framework that could make it possible for us to operate also in Libyan territorial waters,” she added.

Gerry Simpson, a senior researcher at Human Rights Watch’s refugee programme, described the operation as “lawful but misguided”. “EU officials are misguided when they treat smugglers and traffickers as the root of the refugee problem,” he told Al Jazeera. “The roots of the problem are the violence in their home countries, as well as the conditions in the first countries where they take refuge – Egypt, Libya, Turkey [and] Sudan.” “Instead of wasting tax payers money on tackling smugglers who will always find a way to bring their clients to Europe, officials should pressure or support those first countries of asylum to properly protect and help refugees,” Simpson said.

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Sep 242015
 
 September 24, 2015  Posted by at 8:02 am Finance Tagged with: , , , , , , , , ,  9 Responses »


David Myers Theatre on 9th Street. Washington, DC July 1939

EU Refugee Summit In Disarray, Greatest Refugee Tide ‘Yet To Come’ (Guardian)
China Consumers Tighten Belts, A Red Flag For The Global Economy (Reuters)
China Prosecutor To Intensify Financial Markets Crackdown (Reuters)
China Is Sitting on an Ocean of Diesel Fuel (Bloomberg)
Bill Gross: “Mainstream America Is Being Slowly Cooked Alive” (Zero Hedge)
Deflation Supercycle Is Over As World Runs Out Of Workers (AEP)
Volkswagen Could Pose Bigger Threat To German Economy Than Greek Crisis (Reuters)
UK, France And Germany Lobbied For Flawed Car Emissions Tests (Guardian)
Volkswagen Emissions: Automakers’ Tobacco Moment? (CNBC)
Volkswagen Test Rigging Follows a Long Auto Industry Pattern (NY Times)
VW Chief Winterkorn Steps Down After Emissions Scandal (Bloomberg)
Volkswagen CEO Likely to Get $32 Million Pension After Leaving (Bloomberg)
What Volkswagen’s Crisis Could Mean for Auto Asset-Backed Securities (Alloway)
VW Recall Letters In April Warned Of An Emissions Glitch (Reuters)
How Smog Cops Busted Volkswagen and Brought Down Its CEO (Bloomberg)
West Virginia Engineer Proves To Be A David To VW’s Goliath (Reuters)
Forget ‘Developing’ Poor Countries, It’s Time To ‘De-Develop’ Rich Countries (Guardian)
‘Downsizing Could Free Up 2.5 Million British Homes’ (Guardian)
Prepare For A Catastrophic NHS Winter Meltdown (Guardian)

Absolutely nothing was achieved. €1 billion goes to UN to feed refugees outside Europe. Hollow vapor.

EU Refugee Summit In Disarray, Greatest Refugee Tide ‘Yet To Come’ (Guardian)

European heads of government met in Brussels on Wednesday night in an attempt to bury months of mutual mudslinging over the EU’s biggest ever refugee crisis, but failed to come up with common policies amid signs they were unable to contain and manage the migration emergency. The emergency Brussels summit decided little but to throw money at aid agencies and transit countries hosting millions of Syrian refugees and to step up the identification and finger-printing of refugees in Italy and Greece by November. Calls for European forces to take control of Greece’s borders – the main entry point to the EU from the Middle East – fell on deaf ears. The summit’s chairman delivered coded criticism of the German chancellor, Angela Merkel, and of the European Commission while warning that the refugee crisis would get much worse before it might get better.

Turkey, which is the main source of Syrians trying to move to Germany, was recognised as the lynchpin of any strategy for containing the crisis and it emerged that Ankara was demanding a high price for its cooperation. Donald Tusk, the president of the European Council who chaired the summit, warned: “The greatest tide of refugees and migrants is yet to come.” In a barb directed at Merkel and Jean-Claude Juncker, the president of the European Commission, Tusk added: “We need to correct our policy of open doors and windows.” The summit pitted the governments of central Europe against Germany and France after Berlin and Paris on Tuesday forced a new system of imposed refugee quotas on a recalcitrant east.

There was talk of boycotts and threats to take the issue to court from the Czechs and Slovaks. The EU’s most robust anti-immigration hardliner, Viktor Orbán, the prime minister of Hungary, warned Merkel, against any “moral imperialism”. He argued that Greece was incapable of securing its borders with Turkey and that the job should be given to a pan-European force. He admitted he got no support, adding that he was left with two options – retaining the razorwire fences he has built on the borders with Serbia and Croatia or sending any refugees who enter Hungary straight through to Austria. The Austrian chancellor, Werner Faymann, replied that he should send the refugees through and take down the fence. Merkel said: “Setting up fences between members states is not the solution.” “The conditions for a comprehensive solution are not yet in place.”

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Chinese have lost trust in their government.

China Consumers Tighten Belts, A Red Flag For The Global Economy (Reuters)

Terry Xu considers himself one of the lucky ones. The 32-year-old father-of-one invested 10% of his savings earlier this year in Chinese stocks. Now, with markets down around 40% since mid-June, he’s selling off his portfolio at a loss. Painful, but not a catastrophe – he says his colleagues lost more, and he earns well above the average wage. But the equity market turmoil, coupled with signs the economy is slowing means Xu, and millions of other middle class Chinese consumers like him, is scaling back his spending in an ominous sign for China’s policymakers and the global economy. “This year’s economy has been uncertain,” he said. “It’s not like before, where we just used to buy everything for our child. Now, we only buy and spend what we need”.

Xu earns 20,000 yuan ($3,140) a month as a product development manager for a Western headphone maker in Shenzhen. A flat he bought in 2012 for 900,000 yuan, which he shares with his 4-year-old daughter, wife and parents-in-law, is now worth 2.5 million. Still, he plans to keep his Apple iPhone 4 rather than upgrade to the latest iPhone 6S, and his next pair of trainers will be from the Chinese brand Anta Sports rather than his preferred Nike. Xu’s worries are typical of middle class families – relatively minor compared with the millions of his compatriots who get by on lower incomes. But his belt-tightening jars with the Chinese government’s hopes that consumers will pick up the slack as exports fall and it tries to rebalance the economy away from a long-running reliance on trade and government spending.

Domestic consumption contributed 60% of China’s economic growth in the first half of 2015, up from 51.2% in the whole of 2014, suggesting Beijing’s desired rebalancing is on track. But forward looking indicators and companies’ experiences in China are more worrying. A China consumer confidence index produced by ANZ Bank and polling company Roy Morgan fell to a record low in August. Car sales in China could drop this year for the first time in two decades, while smartphone sales recorded their first fall in China during the second quarter, consumer research firm Gartner said. If that translates into a slowdown in overall consumer spending, the impact will be felt beyond China.

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Chasing shadows.

China Prosecutor To Intensify Financial Markets Crackdown (Reuters)

China’s state prosecutor will intensify its crackdown on criminal activities in its stock and futures markets, following a series of high-profile cases involving one of the country’s market regulators and securities firms. The prosecutor told a news conference in Beijing it would strengthen coordination with market regulators as part of efforts to halt activities such as insider trading and spreading of false information, state radio said on its website on Wednesday. The authorities have stepped up investigations on market participants since June, when wild gyrations sent the equity market down as much as 40%. Amid the crackdown, investors, fund managers and watchdog officials have all been the subject of investigations. The China Securities Regulatory Commission said on Sept. 18 it has recently started investigating 19 cases of suspected illegal share sales and speculative activities.

Meanwhile, executives at the country’s largest broker CITIC Securities, including its general manager, are being investigated by authorities for alleged offences including insider trading and leaking information. The country’s securities watchdog has also been swept up in the crackdown. China’s Communist Party sacked CSRC Assistant Chairman Zhang Yujun, state media reported on Sept. 22, days after it was announced he was the subject of a graft probe. The campaign to identify and punish those deemed responsible for the market sell-off started shortly after June’s turmoil. However, most analysts attribute the summer crash to the bursting of a typical stock market bubble which was earlier spurred by official media and fueled in large part by borrowed money.

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Perfect timing.

China Is Sitting on an Ocean of Diesel Fuel (Bloomberg)

Add diesel to the commodities flooding global markets from China. The nation exported a record volume of the fuel last month after already shipping unprecedented amounts of steel and aluminum overseas. The weakest economic growth since 1990 is sapping domestic demand for commodities, while refineries, mills and smelters grapple with excess capacity after years of expansion. “A lot of it has to do with slowing demand at a time when companies had plans for much a better demand environment, so capacities had been increased,” said Ivan Szpakowski at Citigroup in Hong Kong. “As demand slows, that’s led to an overcapacity in the domestic market and producers have sought to export the surplus.”

Exports of Chinese raw materials are exacerbating a global glut that drove prices to the lowest since the 2008 financial crisis and prompted steel and aluminum producers around the world to protest against the deluge. While diesel exports are principally a risk to Asian refiners, the additional shipments threaten to worsen a glut that already extends from Singapore to Europe and the U.S. Refining profits, or cracks, from making diesel in the Asian oil trading hub of Singapore have shrunk about 30% from a year ago as exports from China, India and the Middle East create an oversupply, according to Ehsan Ul-Haq, an analyst at KBC Advanced Technologies in London.

“The world is becoming an ocean of diesel,” said Ul-Haq. “Demand in China is not as high as it was previously expected. Chinese refiners are becoming more export oriented.” China’s August shipments of the fuel, also known as gasoil, surged 77% from a year earlier to a record 722,516 metric tons, or about 175,000 barrels a day, according to data released this week by the General Administration of Customs. They may rise to about 250,000 barrels a day later this year, according to ICIS China and JBC Energy GmbH, industry consultants. “Inevitably, this should prevent gasoil cracks in Asia from going higher than they already are,” said David Wech, managing director of Vienna-based JBC.

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Talking his book.

Bill Gross: “Mainstream America Is Being Slowly Cooked Alive” (Zero Hedge)

While hardly as dramatic as Bill Gross’ last letter in which he urged readers to “go to cash” as a result of the “Frankenstein creation” that ZIRP has created, his latest letter “Saved by Zero” takes a calmer stance and urges central banks to “get off zero” as the “developed world is beginning to run on empty because investments discounted at near zero over the intermediate future cannot provide cash flow or necessary capital gains to pay for past promises in an aging society. And don’t think that those poor insurance companies and gargantuan pension funds in the hundreds of billions are the only losers.” His punchline:

“Mainstream America with their 401Ks are in a similar pickle. Expecting 8-10% to pay for education, healthcare, retirement or simply taking an accustomed vacation, they won’t be doing much of it as long as short term yields are at zero. They are not so much in a pickle barrel as they are on a revolving spit, being slowly cooked alive while central bankers focus on their Taylor models and fight non-existent inflation.”

We are not so sure about that non-existant inflation: sure, if one ignores healthcare, food, tuition and expecially rental costs, then sure. But let that slide for the time being. Gross’ conclusion: “get off zero and get off quick. Will 2% Fed Funds harm corporate America that has already termed out its debt? A little. Will stock and bond prices go down? Most certainly. But like Volcker recognized in 1979, the time has come for a new thesis that restores the savings function to developed economies that permit liability based business models to survive – if only on a shoestring – and that ultimately leads to rejuvenated private investment, which is the essence of a healthy economy. Near term pain? Yes. Long term gain? Almost certainly. Get off zero now!” Sure, it makes all the sense in the world… and that’s why the Fed won’t do it precisely because of the “stock prices going down” part.

The Fed clearly confirmed that the stock market mandate is the only one it cares about, and as such it will let Wall Street trample over Main Street any day. Confirming this is the latest Fed Funds projection which has a December rate hike now at just 42% odds, meaning the majority of the market no longer believes the rate hike will come before 2016 (just as Goldman demanded), and is acting accoridngly. The real question, one not addressed by Gross in this letter, is the dramatic shift in the market’s posture, one where a continuation of easy conditions no longer leads to a surge in stocks. It is this that is the biggest threat to the Fed, as the market is now confirming a major easing episode such as QE4 or NIRP may not be what the Econ PhD doctor ordered to get new all time highs. This is why the Fed is not only trapped, but pushing on a string. And the longer it keeps rates at zero the greater the pain in the long-run.

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“..scarce labour will set off a bidding war for workers, all spiced by a state of latent social warfare between the generations.” “The last time Europe’s serfs suddenly found themselves in huge demand was after the Black Death in the mid-14th century. They say it ended feudalism.”

Deflation Supercycle Is Over As World Runs Out Of Workers (AEP)

Workers of the world are about to get their revenge. Owners of capital will have to make do with a shrinking slice of the cake. The powerful social forces that have flooded the global economy with abundant labour for the past four decades years are reversing suddenly, spelling the end of the deflationary super-cycle and the era of zero interest rates. “We are at a sharp inflexion point,” says Charles Goodhart, a professor at the London School of Economics and a former top official at the Bank of England. As cheap labour dries up and savings fall, real interest rates will climb from sub-zero levels back to their historic norm of 2.75pc to 3pc, or even higher. The implications are ominous for long-term US Treasuries, Gilts or Bunds. The whole structure of the global bond market is a based on false anthropology.

Prof Goodhart says the coming era of labour scarcity will shift the balance of power from employers to workers, pushing up wages. It will roll back the corrosive inequality that has built up within countries across the globe. If he is right, events will soon discredit the sweeping neo-Marxist claims of Thomas Piketty, the best-selling French economist who vaulted to stardom last year. Mr Piketty’s unlikely bestseller – Capital in the 21st Century – alleged that the return on capital outpaces the growth of the economy over time, leading ineluctably to greater concentrations of wealth in an unfettered market system. “Piketty was wrong,” said Prof Goodhart. What in reality happened is that the twin effects of plummeting birth rates and longer life spans from 1970 onwards led to a demographic “sweet spot”, a one-off episode that temporarily distorted labour economics.

Prof Goodhart and Manoj Pradhan argue in a paper for Morgan Stanley that this was made even sweeter by the collapse of the Soviet Union and China’s spectacular entry into the global trading system. The working age cohort was 685m in the developed world in 1990. China and eastern Europe added a further 820m, more than doubling the work pool of the globalised market in the blink of an eye. “It was the biggest ‘positive labour shock’ the world has ever seen. It is what led to 25 years of wage stagnation,” said Prof Goodhart, speaking at a forum held by Lombard Street Research. We all know what happened. Multinationals seized on the world’s reserve army of cheap leader. Those American companies that did not relocate plant to China itself were able play off Chinese wages against US workers at home, exploiting “labour arbitrage”.

US corporate profits after tax are now 10pc of GDP, twice their historic average and a post-war high. It was much the same story in Europe. Volkswagen openly threatened to shift production to Poland in 2004 unless German workers swallowed a wage freeze and longer hours, tantamount to a pay cut. IG Metall bowed bitterly to the inevitable. Cheap labour held down global costs and prices. China compounded the effect with a factory blitz – on subsidised credit – that pushed investment to a world record 48pc of GDP and flooded markets with cheap goods – first clothes, shoes and furniture, and then steel, ships, chemicals, mobiles and solar panels. Lulled by low consumer price inflation, central banks let rip with loose money – long before the Lehman crisis – leading to even lower real interest rates and asset bubbles. The rich got richer.

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One in 7 German jobs is related to car industry.

Volkswagen Could Pose Bigger Threat To German Economy Than Greek Crisis (Reuters)

The Volkswagen emissions scandal has rocked Germany’s business and political establishment and analysts warn the crisis at the car maker could develop into the biggest threat to Europe’s largest economy. Volkswagen is the biggest of Germany’s car makers and one of the country’s largest employers, with more than 270,000 jobs in its home country and even more working for suppliers. Volkswagen Chief Executive Martin Winterkorn paid the price for the scandal over rigged emissions tests when he resigned on Wednesday and economists are now assessing its impact on a previously healthy economy. “All of a sudden, Volkswagen has become a bigger downside risk for the German economy than the Greek debt crisis,” ING chief economist Carsten Brzeski told Reuters.

“If Volkswagen’s sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the German economy as a whole,” he added. Volkswagen sold nearly 600,000 cars in the United States last year, around 6% of its 9.5 million global sales. The U.S. Environmental Protection Agency said the company could face penalties of up to $18 billion, more than its entire operating profit for last year. Although such a fine would be more than covered by the €21 billion the company now holds in cash, the scandal has raised fears of major job cuts. The broader concern for the German government is that other car makers such as Daimler and BMW could suffer fallout from the Volkswagen disaster. There is no indication of wrongdoing on the part of either company and some analysts said the wider impact would be limited.

The German government said on Wednesday that the auto industry would remain an “important pillar” for the economy despite the deepening crisis surrounding Volkswagen. “It is a highly innovative and very successful industry for Germany, with lots of jobs,” a spokeswoman for the economy ministry said. But analysts warn that it is exactly this dependency on the automobile sector that could become a threat to an economy forecast to grow at 1.8% this year. Germany is already having to face up to the slowdown in the Chinese economy. “Should automobile sales go down, this could also hit suppliers and with them the whole economy,” industry expert Martin Gornig from the Berlin-based DIW think tank told Reuters.

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“Just four months before the VW emissions scandal broke, the EU’s three biggest nations mounted a push to carry over loopholes from a test devised in 1970..”

UK, France And Germany Lobbied For Flawed Car Emissions Tests (Guardian)

The UK, France and Germany have been accused of hypocrisy for lobbying behind the scenes to keep outmoded car tests for carbon emissions, but later publicly calling for a European investigation into Volkswagen’s rigging of car air pollution tests. Leaked documents seen by the Guardian show the three countries lobbied the European commission to keep loopholes in car tests that would increase real world carbon dioxide emissions by 14% above those claimed. Just four months before the VW emissions scandal broke, the EU’s three biggest nations mounted a push to carry over loopholes from a test devised in 1970 – known as the NEDC – to the World Light Vehicles Test Procedure (WLTP), which is due to replace it in 2017.

“It is unacceptable that governments which rightly demand an EU inquiry into the VW’s rigging of air pollution tests are simultaneously lobbying behind the scenes to continue the rigging of CO2 emissions tests,” said Greg Archer, clean vehicles manager at the respected green thinktank, Transport and Environment (T&E). “CO2 regulations should not be weakened by the backdoor through test manipulations.” Vehicle emissions are responsible for 12% of Europe’s carbon emissions and by 2021, all new cars must meet an EU emissions limit of 95 grams of CO2 per km, putting accurate measurements of real emissions at a premium. The loopholes would not only raise real world CO2 emissions from new cars to 110g CO2 per km – well above the EU limit – but increase fuel bills for drivers by €140 per year according to T&E.

Huw Irranca-Davies, Labour MP and chair of an influential select committee of MPs, the environmental audit committee, said: “Given that the UK is struggling to bring down carbon emissions and other harmful pollutants from road vehicles it is extremely worrying that the UK government appears to be trying to water down the EU’s proposed new road testing regime. “As well as cutting CO2 emissions, improving the efficiency of vehicles can save lives by reducing the illegal levels of air pollution in UK cities, so the Department for Transport should be making these tests more rigorous not less.” The WLTP test was supposed to remove loopholes that had allowed a gap between real world CO2 emissions and test cycle ones to develop, which EU consultants have estimated at up to 20%.

But the UK lobbied for car makers to be allowed to exploit flexibilities such as externally charging their batteries to full before testing. The Department for Transport also argued that the best available technologies should be shunned in favour of outdated ‘inertia classes’, which involve manually adding 100 kilo weights to the car to see what effect greater weight on the amount of CO2 the car pumps out. Research by the International Council on Clean Transportation has found that car manufacturers often game these tests by optimising test car performances at one pound below the desired inertia class. Germany went further than the UK, calling for the tests to be conducted on sloping downhill tracks, and for allowing manufacturers to declare a final CO2 value 4% lower than the one measured. France supported all the proposed loopholes, bar the 4% lower CO2 value.

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Can governments keep protecting their carmakers from the law?

Volkswagen Emissions: Automakers’ Tobacco Moment? (CNBC)

The decimation of share prices across the autos industry this week highlights growing concerns that Volkswagen’s problem could quickly turn into one for the entire carmaking industry. The U.S. Environmental Protection Agency has accused Volkswagen of installing a device in its diesel vehicles to run maximum anti-pollution controls only when emissions tests were taking place. VW has admitted the mistake and apologised, with its U.S. boss, Michael Horn, saying the company had “totally screwed up.” No other car manufacturers have been accused of this kind of behavior. However, the light shone on what Volkswagen was trying to sell as emission-reducing cars, which were in fact pumping more nitrogen dioxide (NOx) into the air than thought, could be uncomfortable for others.

The scandal should be “a massive wake up call to governments and regulators around the world,” Friends of the Earth air pollution campaigner Jenny Bates told CNBC. “More than fifty thousand people die early every year in the UK due to our illegally filthy air. Vehicle pollution is the main problem, with diesel vehicles the biggest culprit. Tough pollution standards are crucial for cleaning up our sub-standard air quality – which is why an urgent investigation is needed to ensure that the motor industry is complying with EU regulations.” Even given the drastic share price falls, investors are likely to stay away from the automobile sector for a while as they wonder which company will be next.

Analysts have been producing gloomy forecasts for both Volkswagen and the sector as a result, with one typical example from Societe Generale, which downgraded the sector from Overweight to Neutral, deeming it “dead money”. Yet the fallout could be even worse than feared, if it emerges that the problem of promoting cars as more environmentally friendly than they are goes beyond Volkswagen. This kind of industry-wide problem is sometimes called a “tobacco moment” after the cigarette industry’s early denials of the links between smoking and lung cancer, which eventually proved futile.

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Industry + governments.

Volkswagen Test Rigging Follows a Long Auto Industry Pattern (NY Times)

Long before Volkswagen admitted to cheating on emissions tests for millions of cars worldwide, the automobile industry, Volkswagen included, had a well-known record of sidestepping regulation and even duping regulators. For decades, car companies found ways to rig mileage and emissions testing data. In Europe, some automakers have taped up test cars’ doors and grilles to bolster their aerodynamics. Others have used “superlubricants” to reduce friction in the car’s engine to a degree that would be impossible in real-world driving conditions. Automakers have even been known to make test vehicles lighter by removing the back seats. Cheating in the United States started as soon as governments began regulating automotive emissions in the early 1970s.

In 1972, certification of Ford Motor’s new cars was held up after the EPA found that the company had violated rules by performing constant maintenance of its test cars, which reduced emissions but did not reflect driving conditions in the real world. Ford walked away with a $7 million fine. The next year, the agency fined Volkswagen $120,000 after finding that the company had installed devices intended specifically to shut down a vehicle’s pollution control systems. In 1974, Chrysler had to recall more than 800,000 cars because similar devices were found in the radiators of its cars. Such gadgets became known as “defeat devices,” and they have long been banned by the EPA. But their use continued to proliferate, and they became more sophisticated, as illustrated by Volkswagen’s admission this week that 11 million diesel cars worldwide were equipped with software used to cheat on emissions tests. [..]

In the United States, automakers’ lobbying has ensured that the statute giving powers to the National Highway Traffic Safety Administration “has no specific criminal penalty for selling defective or noncompliant vehicles,” says Joan Claybrook, a former administrator of the agency and a longtime advocate of auto safety. There are no criminal penalties under laws applying to the E.P.A. for violations of motor vehicle clean air rules, though there is a division of the Justice Department devoted to violations of environmental law. “I don’t see them changing this behavior unless criminal penalties are enacted into law that allow the prosecutor to put the executives in jail,” Ms. Claybrook said.

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Criminal investigation MUST follow.

VW Chief Winterkorn Steps Down After Emissions Scandal (Bloomberg)

Volkswagen CEO Martin Winterkorn resigned after U.S. officials caught the company cheating on emissions tests, leaving the world’s top-selling automaker to appoint a fresh leader to repair its reputation among customers, dealers and regulators around the globe. Stepping down after almost a decade in charge, Winterkorn said he was accepting the consequences of the mushrooming scandal that has wiped €20 billion off the company’s market value. Possible replacements include Matthias Mueller, head of the Porsche brand who has the support of the family that controls a majority stake of Volswagen, and Herbert Diess, who recently joined from rival BMW, a person familiar with the matter said.

Meantime, the company expects more executives to be targeted in the coming days in its investigation, the executive committee of the supervisory board said in a statement, exonerating Winterkorn of being involved in the manipulations. Volkswagen also asked local German prosecutors to assist and open a criminal probe. “The incident must be cleared up mercilessly, and it must be assured that such things cannot ever happen again,” said Stephan Weil, a member of the board committee and the prime minister of Lower Saxony, a key Volkswagen shareholder. “We are very much aware of the scope of this issue, the economic damage and the implications for VW’s reputation.”

Winterkorn, who was supposed to receive a contract extension on Friday, had a dramatic fall from grace that began last week with the revelation that the Wolfsburg, Germany-based company fitted diesel-powered vehicles with software that circumvented air pollution controls, then lied about it to the U.S. Environmental Protection Agency for nearly a year. The 68-year-old CEO, who had repeatedly apologized for the manipulations, was unable to hang on as the stock price plummeted 35% over two days and pressure grew from the German government for quick action. “He had little choice,” said Erik Gordon at the University of Michigan. “The company’s reputation is in tatters.” Volkswagen shares rose 5.2% to close at €111.50 on Wednesday, clawing back some of the losses earlier this week. “Volkswagen needs a fresh start,” Winterkorn said in a statement. “I am clearing the way for this fresh start with my resignation.”

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Insanity squared.

Volkswagen CEO Likely to Get $32 Million Pension After Leaving (Bloomberg)

Martin Winterkorn, engulfed by a diesel-emissions scandal at Volkswagen AG, amassed a $32 million pension before stepping down Wednesday, and may reap millions more in severance depending on how the supervisory board classifies his exit. After Winterkorn disclosed Wednesday that he had asked the board to terminate his role, company spokesman Claus-Peter Tiemann declined to comment on how much money the departing CEO stands to get. Volkswagen’s most recent annual report outlines how Winterkorn, its leader since 2007, could theoretically collect two significant payouts. Winterkorn’s pension had a value of 28.6 million euros ($32 million) at the end of last year, according to the report, which doesn’t describe any conditions that would lead the company to withhold it.

And under certain circumstances, he also can collect severance equal to two years of “remuneration.” He was Germany’s second-highest paid CEO last year, receiving a total of 16.6 million euros in compensation from the company and majority shareholder Porsche SE.
While the severance package kicks in if the supervisory board terminates his contract early, there’s a caveat. If the board ends his employment for a reason for which he is responsible, then severance is forfeited, according to company filings. The supervisory board’s executive committee said in a statement Wednesday that Winterkorn “had no knowledge of the manipulation of emissions data,” and that it respected his offer to resign and request to be terminated. It also thanked him for his “towering contributions” to the company.

Winterkorn, 68, said in his statement Wednesday that he was stunned to learn of the scope of alleged misconduct occurring at the company. U.S. officials said Sept. 18 the carmaker had cheated during tests of diesel-powered vehicles sold since 2009. “As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the supervisory board to agree on terminating my function as CEO,” he said. “I am doing this in the interests of the company even though I am not aware of any wrongdoing on my part.” The annual report also mentions another piece of his pension: He can use a company car in the years that benefit is being paid out.

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Being a VW dealership is a nightmare right now.

What Volkswagen’s Crisis Could Mean for Auto Asset-Backed Securities (Alloway)

From the Environmental Protection Agency to … securitized bonds? The emissions scandal currently rocking Volkswagen is having ripple effects across markets, potentially moving all the way to sliced-and-diced bonds tied to car loans and leases. Sales of auto asset-backed securities, or ABS, have been booming in recent years as investors seek out higher-yielding products. According to Deutsche Bank estimates, about $5.6 billion worth of VW auto ABS is outstanding, with some $4.39 billion of that figure coming from bonds backed by loans and leases. Volkswagen, now facing potential fines and litigation, could find its ability to attract new business temporarily crimped, forcing down the values of the cars backing such loans. But that will probably have little impact on ABS investors, according to Elen Callahan, Deutsche Bank analyst.

“Given that the vehicles are still ‘safe and legal to drive’ and that the repairs will come at no cost to the owner, we do not expect borrowers to become disincentivized from making their contractual monthly payment on their VW vehicle,” she wrote in a note published on Wednesday. Still the $1.25 billion worth of bonds that Deutsche bank estimates are backed by car dealer inventories of VW cars—known as dealer floorplan ABS—could be a more complicated story. “As is typical for dealer floorplan ABS, the ABS trust benefits from VW financing assistance including but not limited to VW’s pledge to repurchase unsold new vehicles and inventory,” Callahan said. “We believe that despite the financial burdens associated with the recalls, VW will continue to honor this commitment given the importance of its dealer network to its primary business.”

The revelations made public last week by the EPA have reminded some auto bond analysts of recalls that hit Toyota Motor in 2009 and 2010, which affected some 9 million vehicles. Car dealers, told to immediately halt sales of popular 2015 and 2016 models, including Volkswagen’s Jetta and Beetle convertible, “are now saddled with unsalable product, at least for the time being,” Barclays analyst Brian Ford told clients in a Tuesday report. “Dealers now have a number of cars that they cannot sell; so inventory will not turn over as rapidly,” he said in a follow-up interview. “The ABS most affected by VW’s sales stoppage of certain 2015 and 2016 diesel models is the dealer floorplan securitizaiton.”

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This is not new.

VW Recall Letters In April Warned Of An Emissions Glitch (Reuters)

In April of 2015, Volkswagen of America, Inc. sent letters to California owners of diesel-powered Audis and Volkswagens informing them of an “emissions service action” affecting the vehicles. Owners were told they would need to take their cars to a dealer for new software to ensure tailpipe emissions were “optimized and operating efficiently.” The company didn’t explain that it was taking the action in hopes of satisfying government regulators, who were growing increasingly skeptical about the reason for discrepancies between laboratory emissions test results and real world pollution from Volkswagen’s diesel cars. Officials at the California Air Resources Board and the EPA agreed in December of 2014 to allow a voluntary recall of the company’s diesel cars to fix what Volkswagen insisted was a technical – and easily solved – glitch.

The recall was rolled out nationally over a period of months. On Wednesday, California Air Resources Board spokesman Dave Clegern confirmed that the letters were part of that recall. “This is one of the fixes they presented to us as a potential solution. It didn’t work,” he said. Volkswagen, which had no obligation at the time it initiated the recall to disclose the discussions that had led to it, declined to comment on the letter. The controversy came to public attention last week after Volkswagen acknowledged it had deliberately deceived officials about how much its diesel cars polluted. The recall letter instructed owners of certain 2010-2014 Volkswagen vehicles with 2-liter diesel engines to contact dealers for a software update in order to fix an issue with the malfunction indicator light illuminating.

“If the [light] illuminates for any reason, your vehicle will not pass an IM emissions inspection in some regions,” the letter warned, noting that California required the update before it would renew vehicle registrations. “The vehicle’s engine management software has been improved to assure your vehicle’s tailpipe emissions are optimized and operating efficiently,” read the letter, which said an earlier software update increased the likelihood of the light illuminating.

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“We had 10 meetings with VW..” “Time and again they refused to tell us what was going on.”

How Smog Cops Busted Volkswagen and Brought Down Its CEO (Bloomberg)

The revelation that ended Martin Winterkorn’s career at Volkswagen AG came on Sept. 3 in a meeting at an office park east of Los Angeles. After months of obfuscation, company engineers finally divulged a secret to engineers at the California Environmental Protection Agency’s Air Resources Board: Volkswagen had installed a “defeat device” to cheat on vehicle emissions tests — and then lied about it to the board and the U.S. EPA for more than a year. On Sept. 23, Europe’s largest automaker announced that Winterkorn, its 68-year-old chief executive officer, had resigned. While the company exonerated him of involvement in the manipulations, it said it will conduct an internal investigation and has asked local German prosecutors to assist and open a criminal probe.

The unraveling began in 2013. European regulators, concerned about diesel pollution there, wanted to test emissions on vehicles sold in the U.S. under actual driving conditions. The results were expected to show real-world emissions were closer to lab performance in America than in Europe. But they weren’t. That prompted investigations in California that ultimately involved 25 technicians working almost full time. They discovered the software Volkswagen used to circumvent air-pollution regulations in at least 11 million cars. “This is going to become a very, very serious problem for Volkswagen and any other companies that may have had such practices,” said Donald W. Lyons, who founded the Center for Alternative Fuels, Engines and Emissions at West Virginia University.

The nonprofit International Council on Clean Transportation, with offices in Washington, Berlin and San Francisco, got the emissions-testing contract from European regulators. It then hired researchers at the Morgantown, West Virginia, center in early 2013. The center, which has studied engine emissions and use of alternative fuels since 1989, was going to evaluate three diesel passenger cars, including a Volkswagen Passat and Jetta. m“We never went into it saying,‘we’re going to catch a manufacturer,”’ said Arvind Thiruvengadam, a research assistant professor at the center. “We were totally looking and hoping to see something different.”[..]

Using portable measuring equipment with hoses attached to vehicle exhaust pipes, researchers drove the Jetta and BMW through Los Angeles and took the Passat to Seattle and back. They also worked with the California Air Resources Board’s laboratory in El Monte, which tested the cars on a dynamometer, a device that measures engine performance. When the Volkswagen cars were in the lab, they met the Clean Air Act standards. In the real world, they were belching out oxides of nitrogen at much higher levels than allowed. “There was a lot of texting and e-mailing back and forth,” among the two groups: “‘Whoa, things aren’t looking good here,”’ Carder said. In May 2014, the West Virginia center published the results of its study, prompting the California board to start an investigation.

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“..his team’s findings were made public nearly a year and a half ago..”

West Virginia Engineer Proves To Be A David To VW’s Goliath (Reuters)

Daniel Carder, an unassuming 45-year-old engineer with gray hair and blue jeans, appears an unlikely type to take down one of the world’s most powerful companies. But he and his small research team at West Virginia University may have done exactly that, with a $50,000 study which produced early evidence that Volkswagen AG was cheating on U.S. vehicle emissions tests, setting off a scandal that threatens the German automaker’s leadership, reputation and finances. “The testing we did kind of opened the can of worms,” Carder says of his five-member engineering team and the research project that found much higher on-road diesel emission levels for VW vehicles than what U.S. regulators were seeing in tests.

The results of that study, which was paid for by the nonprofit International Council on Clean Transportation (ICCT) in late 2012 and completed in May 2013, were later corroborated by the U.S. Environmental Protection Agency and California Air Resources Board (CARB). Carder’s team – a research professor, two graduate students, a faculty member and himself – performed road tests around Los Angeles and up the West Coast to Seattle that generated results so pronounced that they initially suspected a problem with their own research. “The first thing you do is beat yourself up and say, ‘Did we not do something right?’ You always blame yourself,” he told Reuters in an interview. “(We) saw huge discrepancies. There was one vehicle with 15 to 35 times the emissions levels and another vehicle with 10 to 20 times the emissions levels.”

Despite the discrepancies, a fix shouldn’t involve major changes. “It could be something very small,” said Carder, who’s the interim director of West Virginia University’s Center for Alternative Fuels, Engines and Emissions in Morgantown, about 200 miles (320 km) west of Washington in the Appalachian foothills. “It can simply be a change in the fuel injection strategy. What might be realized is a penalty in fuel economy in order to get these systems more active, to lower the emissions levels.” Carder said he’s surprised to see such a hullabaloo now, because his team’s findings were made public nearly a year and a half ago. “We actually presented this data in a public forum and were actually questioned by Volkswagen,” said Carder.

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Perpetual growth.

Forget ‘Developing’ Poor Countries, It’s Time To ‘De-Develop’ Rich Countries (Guardian)

This week, heads of state are gathering in New York to sign the UN’s new sustainable development goals (SDGs). The main objective is to eradicate poverty by 2030. Beyoncé, One Direction and Malala are on board. It’s set to be a monumental international celebration. Given all the fanfare, one might think the SDGs are about to offer a fresh plan for how to save the world, but beneath all the hype, it’s business as usual. The main strategy for eradicating poverty is the same: growth. Growth has been the main object of development for the past 70 years, despite the fact that it’s not working. Since 1980, the global economy has grown by 380%, but the number of people living in poverty on less than $5 (£3.20) a day has increased by more than 1.1 billion. That’s 17 times the population of Britain. So much for the trickle-down effect.

Orthodox economists insist that all we need is yet more growth. More progressive types tell us that we need to shift some of the yields of growth from the richer segments of the population to the poorer ones, evening things out a bit. Neither approach is adequate. Why? Because even at current levels of average global consumption, we’re overshooting our planet’s bio-capacity by more than 50% each year. In other words, growth isn’t an option any more – we’ve already grown too much. Scientists are now telling us that we’re blowing past planetary boundaries at breakneck speed. And the hard truth is that this global crisis is due almost entirely to overconsumption in rich countries.

Scientists tell us our planet only has enough resources for each of us to consume 1.8 “global hectares” annually – a standardised unit that measures resource use and waste. This figure is roughly what the average person in Ghana or Guatemala consumes. By contrast, people in the US and Canada consume about 8 hectares per person, while Europeans consume 4.7 hectares – many times their fair share. What does this mean for our theory of development? Economist Peter Edward argues that instead of pushing poorer countries to “catch up” with rich ones, we should be thinking of ways to get rich countries to “catch down” to more appropriate levels of development.

We should look at societies where people live long and happy lives at relatively low levels of income and consumption not as basket cases that need to be developed towards western models, but as exemplars of efficient living. How much do we really need to live long and happy lives? In the US, life expectancy is 79 years and GDP per capita is $53,000. But many countries have achieved similar life expectancy with a mere fraction of this income. Cuba has a comparable life expectancy to the US and one of the highest literacy rates in the world with GDP per capita of only $6,000 and consumption of only 1.9 hectares – right at the threshold of ecological sustainability. Similar claims can be made of Peru, Ecuador, Honduras, Nicaragua and Tunisia.

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Move over, darling.

‘Downsizing Could Free Up 2.5 Million British Homes’ (Guardian)

More than 2.5m homes could be released on to the property market if older owners were given better incentives and information on downsizing, the Royal Institution of Chartered Surveyors (Rics) has claimed. It said tackling the housing crisis needed to address barriers to supply, rather than simply addressing demand, and that 2.6m homes worth a combined £802bn could be released if homeowners received greater support to move into specialist retirement or smaller properties. The group’s Residential Policy Review also recommended that second homeowners should be charged full council tax to encourage them to sell or let the property, and that new developments should have a statutory percentage of affordable rented accommodation.

The report comes just days after the City regulator was forced to deny its policy was to encourage older homeowners to move, after comments made by a member of staff on its mortgage team sparked controversy. Increased life expectancy means that there around 11.4 million over-65s in the UK, and the figure is projected to rise to around 17.2 million by 2033. Currently, homeownership is concentrated in older age groups, with many owning their properties outright. Rics said communication about alternatives to staying in the family home were poor, meaning that options like retirement rental, housing co-operatives and shared housing were not being fully exploited. It acknowledged “there is a very strong emotional dimension to people’s homes, with considerable effort, both physical and emotional, to moving”.

Jeremy Blackburn, head of policy at Rics said: “Britain’s older homeowners are understandably reluctant to move out of much-loved, but often under-occupied family homes. “Clearly, it’s an emotive issue and one that needs to be treated with sensitivity, but we would like to see central and local government provide older people with the information, practical and financial support they need to downsize if that is their choice.” Blackburn cited the example of Bristol City council, which said it was offering a fund to support moving costs. “Almost a third of over 55s have considered downsizing in the last five years; yet we know that only 7% actually did,” he said.

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Not the first NHS warning in recent days.

Prepare For A Catastrophic NHS Winter Meltdown (Guardian)

The NHS is on the brink of a major, messy failure. If nothing is done to address the underlying issues now, the failure will be deep with grave consequences and a long recovery. This winter things are set to go catastrophically wrong. Pressure on health services normally reduces in summer, often producing undue optimism about how they will cope come winter and delaying necessary preparations. Last summer there was virtually no reduction in pressure. Oddly, this failed to dent the optimism. The revised story was that unrelenting pressure had become a year-round phenomenon, so increased numbers and longer waits were now normal and the coming winter wouldn’t be any worse. Unfortunately it was, the worst in 20 years.

Demand for healthcare had simply reached a new (summer) plateau, with new peaks of winter demand inevitable and predictable – but not predicted and not prepared for. Waits and delays soared, even though demand increased modestly, following a well-established trend. The crisis happened because the NHS starved itself of the capacity it needed, in the futile belief that lack of supply would constrain demand and so save money. This led not only to running out of spare capacity, but to shortages and the loss of the elasticity to cope with new peaks in demand. The result was waits and delays multiplied rather than increased, and it contributed to the worst NHS deficit in a decade.

Despite this, the lesson has not been learned that the NHS’s struggles this summer foreshadow a meltdown this winter. Some 90% of trusts are predicting a deficit this year. The deficits add up to £2bn, double last year’s figure. Performance continues to wallow, with little or no recovery from the long delays and extended waiting times of last winter. Crucially, performance this summer was worse than last summer, which prefigured last winter’s crisis. The obvious conclusion is that it prefigures something worse.

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Sep 222015
 
 September 22, 2015  Posted by at 8:26 am Finance Tagged with: , , , ,  7 Responses »


NPC Oldsmobile Golden Rocket 88 Holiday Sedan for 1957, Columbus GA 1908

Angela Merkel has another huge headache on her plate. She seems to attract those these days. And given how she’s been dealing with the last few migraines coming her way, perhaps she deserves them.

For now, it’s a story of one carmaker, Volkswagen. And in one country, the USA. A country in which the diesel engine is somewhat of an orphan, making up just a few percent of the total car market. But the “defeat device” scandal will not stop there.

In Europe, diesel accounts for about half of all vehicles sold. And there’s no reason to presume VW didn’t use the same software tricks in Europe that it did in America. Nor, for that matter, does it seem reasonable to think VW is the only carmaker to apply sleight of hand to its emissions tests. The competition would have had to be profoundly asleep at the wheel not to know about the “device”.

What Volkswagen has been caught cheating on concerns emissions of nitrous oxide. As for its CO2 levels, who knows what can, and maybe will, be found? The crucial question perhaps is, are we ever going to know?

Volkswagen spent the past few years as the biggest carmaker in the world. It’s safe to put that in the past tense now. But given the size of the company, it’s equally safe to assume that Merkel’s people are cooperating with the company on damage control. Whoever may come down hardest on VW, it won’t be Merkel. There’s too much at stake, economically and therefore politically.

Perhaps France, where way more than half the cars are diesel powered, will see an opportunity to bash VW in order to provide a boost to its own automobile industry. But Merkel would see that coming from miles away, and threaten Hollande into submission. Moreover, how ‘clean’ are French engines? Can Hollande be confident about that?

Perhaps this will not go anywhere unless private investors and citizens align in massive litigation, class action suits. That might work, but it also might take many years to move through court.

The EPA has acted at least somewhat faster, though not as fast as you might think. It has forced VW to recall 500,000 cars in the US, and suspend all further sales. However, it took over a year of EPA pressure for Volkswagen to even admit to what it was doing.

And it took a while before that for the EPA to pick up on research conducted by the California Air Resources Board. Who in turn had joined up with studies already underway at West Virginia University and the non-profit International Council on Clean Transportation, which started ‘investigating’ diesel emissions two years ago.

The fact that the EPA has ordered recalls of vehicles dating back as far as 2009 is an indication of how long’s it’s taken to get this thing to the surface.

Sales of diesel luxury cars are set to plummet; not only Volkswagens, and not only in the US. Which is a big headache, too, for the likes of Mercedes, Renault, Peugeot-Citroën, and a handful of Japanese carmakers.

It’s time for everyone, government agencies, environmental groups, to engage in very thorough testing. We at least know what to look for, and at, now. Or let’s say we know at least one thing that requires severe scrutiny.

But this risks turning into one big political game, being conducted from Merkel’s offices in Berlin. Carmakers are powerful corporations, as of course are diesel producers.

We must first of all look at the reasons why Volkswagen went as far as to develop specialized software systems to hide real emissions. Surely it must have tried to develop engines that would not emit the 10-40 times legal limits they have been found to do at present, before turning to its programmers to ‘solve’ the issue.

And if Volkswagen couldn’t make those engines, why should other carmakers be able to? They all have the ability to take each other’s vehicles apart and find out exactly how they function. It’s not an industry that has too many secrets lying around. Once your product’s on the market, your secrets are too.

Investigators should go talk to the programmers who wrote the software, see what they have to say about why they did it, and who ordered them to. There must be pockets of deep shame and guilt, and fear of repercussions, among programmers and engineers alike. Someone’s bound to give up the goods.

If anything, this could be a good test of the transparency of our societies, our legal systems, and the political clout of major corporations. And that last bit should temper our expectations.