Jan 162018
 
 January 16, 2018  Posted by at 10:33 am Finance Tagged with: , , , , , , , , ,  


Jean-Francois Millet The flight into Egypt 1864

 

Crytocurrencies Crashing Fast On South Korea Regulation Plans (Ind.)
PBOC Official Says China’s Centralized Cryptocurrency Trade Must End (R.)
China’s Shutdown Of Bitcoin Miners Isn’t Just About Electricity (F.)
China Is Heaping Debt on Its Least Productive Companies (CFR)
Xi Jinping’s Debt Clampdown Has Left a Trail of Dead Projects (BW)
Here’s What Historically Happens to Stocks When Bull Markets End (GoldSilver)
UK’s Carillion Crisis Deepens Amid Scramble To Save Jobs After Collapse (G.)
Quarter Of UK’s Poorest Households Are Getting Deeper In Debt (G.)
Greek Parliament Votes Through Raft Of Tough Reforms (K.)
Australia Offers Cash For Great Barrier Reef Rescue Ideas (AFP)
UK Supermarket Iceland To Eliminate Plastic On All Own-Label Products (G.)

 

 

As I’m writing this, I’m seeing bitcoin being obliterated. Other crypto’s were even worse off earlier. BTC down some 16% today at 5 AM ET, at $11,400. It was over $17,000 10 days ago.

Crytocurrencies Crashing Fast On South Korea Regulation Plans (Ind.)

Cryptocurrencies across the market are in the middle of a huge crash. All cryptocurrencies are falling amid a major selloff. Most have fallen more than 10% over the morning, and the price of bitcoin has dropped below $12,000. Just days ago, bitcoin was marching towards $20,000. But just today it has fallen more than 10% – taking it down almost 40% over the last month, but still having risen more than 1,300% over the year. Bitcoin is the best performing of the various cryptocurrencies over the morning. Ripple, the third largest cryptocurrency, had dropped by as much as 25% amid major volatility. Ethereum fell by more than 15%.

The price of cryptocurrencies tends to fluctuate wildly, and far more quickly than other more traditional assets and currencies. But the plunge on Tuesday morning is extreme even in that market. The drop came amid increasing suggestions in South Korea that officials might look to impose new regulations on the currency. Finance minister Kim Dong-yeon suggested that the country might ban trading in the currencies entirely, pending a government review. The government has said that the plans are only a suggestion and that more talks are needed. But another government minister said that trading could be banned last week, triggering another instant sell-off, and the plans have already led 200,000 people to petition the government asking to keep bitcoin trading legal.

Read more …

Little hope left for crypto in China. Korea shaky at best.

PBOC Official Says China’s Centralized Cryptocurrency Trade Must End (R.)

A senior Chinese central banker says authorities should ban centralized trading of virtual currencies as well as individuals and businesses that provide related services, an internal memo from a government meeting seen by Reuters showed. In the memo outlining details of discussions at a meeting of internet regulators and other policymakers last week, PBOC Vice Governor Pan Gongsheng said the government would continue to apply pressure to the virtual currency trade and prevent the build up of risks in that market. National and local authorities should ban venues that provide centralized trading of virtual currencies, of which bitcoin is the biggest, Pan said. They also need to ban individuals or institutions that provide market-making activities, guarantees, or settlement services for centralized trading of the currencies, such as online “wallet” service providers.

Chinese regulators last year banned initial coin offerings, shut down local cryptocurrency trading exchanges and limited bitcoin mining – but activity in the cryptocurrency and bitcoin space has continued through alternative channels in China despite the crackdown. “The financial work conference clearly called for limiting ‘innovations’ that deviate from the need of the real economy and escape regulation,” Pan said, according to the memo, referring to last week’s meeting. Authorities should also block domestic and foreign websites and close mobile apps that provide centralized virtual currency trading services to Chinese users, and sanction platforms that provide virtual currency payment services, Pan said. He also called for local authorities to investigate services that help people move funds overseas.

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It’s a power game.

China’s Shutdown Of Bitcoin Miners Isn’t Just About Electricity (F.)

China is planning to limit electricity to Bitcoin miners, and government bodies have expressed concern about energy usage. Bitcoin mining is estimated to use up to 4 gigawatts of electricity, equivalent to three nuclear reactors’ production levels. However, this move isn’t just about the electricity. In fact, it is telling that it was China’s central bank that met on the issue of Bitcoin mining, underscoring the fact that the issue is not only, or even primarily, an energy issue. It’s about clamping down on perceived risks of the cryptocurrency, which regulators have associated with malicious acts like fraud and money laundering. Authorities have already cracked down on thousands of criminal cases associated with alternative cryptocurrencies, including Onecoin and Ticcoin. These cryptocurrencies were viewed as Ponzi schemes used to raise illicit funds.

Later, officials shut down cryptocurrency exchanges and banned fundraising through initial coin offerings (ICOs). On Monday, it was reported that Chinese authorities would block cryptocurrency platforms that permit centralized trading. Cracking down on fraud and money laundering alone does not appear to be the way China is addressing risks associated with Bitcoin, however. Authorities are going after the industry more broadly. This may be because China has enough financial risks to regulate at the moment, and it is at capacity, or it could be that officials really do view Bitcoin as insufficiently transparent to represent an appropriate means of exchange or store of value.

Chinese Bitcoin mining companies may be out of luck doing business in a favorable environment. To combat this, some companies have already moved operations overseas. Most recently, Bitmain Technologies set up a subsidiary in Switzerland, which will extend its branches, currently in Amsterdam, Hong Kong, Tel Aviv, Qingdao, Chengdu, Shanghai and Shenzhen. Bitcoin miners have also been attracted to the Canadian province of Québec for its advertised cheap electricity. However, other companies may be forced to shut down. Moving abroad is likely to result in higher energy costs, which can dramatically reduce profit margins gained from mining.

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“By some estimates, China’s real growth rate, accounting for bad debt, is roughly half the official one of about 6.9%..”

China Is Heaping Debt on Its Least Productive Companies (CFR)

When Chinese President Xi Jinping failed to mention the word “deleveraging” in his long-awaited new economic blueprint in December it was clear that the political tug of war between the advocates of “reform” and “growth” had been won by the latter. In the short-run, growth, as defined by changes in GDP, can be increased by more lending and investing. In the longer-term, however, lending and investing can’t boost GDP if it results in bad debt that is properly written down. The big question is how much bad debt China currently has, and how much more it will be producing in the years ahead. By some estimates, China’s real growth rate, accounting for bad debt, is roughly half the official one of about 6.9%. To gauge whether China has been creating good debt—debt that will produce positive returns—or bad, we’ve examined who the beneficiaries of corporate lending are.

As shown in the left-hand figure below, profits at private-sector enterprises rose 18% between 2011 and 2016, while profits at state-owned enterprises (SOEs) plunged by 33%. As shown in the right-hand figure, however, the share of corporate liability growth accounted for by SOEs soared from 59% in 2010 to 80% by 2016. This is the opposite of what one would expect in a market economy. As we highlighted last year, China’s non-performing loans (NPLs) have been growing. Given the evidence that Xi has abandoned any pretense of concern with NPLs, and our evidence that China is shoveling new loans to companies with the least ability to pay them back, we think China is heading towards a debt crisis.

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Xi plays a high stakes game.

Xi Jinping’s Debt Clampdown Has Left a Trail of Dead Projects (BW)

A pile of rusty pipes and materials are all that remain of Lanzhou New Area’s tram project. Only a year ago it was a flagship public-private partnership for the planned city in Central China, before it fell victim to President Xi Jinping’s debt clampdown. “The project is dead,” said a guard at the office, who gave only his surname, Le. Nearby, the tram tracks are paved over, the mismatched lines of asphalt scarring a six-lane road that leads to a dead end on the edge of one of China’s most ambitious urban developments. The size of New York City, the zone is a satellite of Lanzhou, capital of China’s poorest province, Gansu, and a place where Xi’s efforts to wean the country off debt and onto services and consumer spending can be seen in stark relief.

In most of China, the economy is powering through Xi’s borrowing bottleneck, with economists surveyed by Bloomberg projecting the nation’s GDP grew 6.8% last year, the first annual acceleration in seven years. But for less-developed areas like Gansu the story is not so simple. Away from the industrial centers along the coast, Gansu came late to the nation’s debt-fueled investment party. During the nation’s economic ascent in the 1990s and 2000s, it became infamous for having the most polluted air in the country, a cocktail of chemicals from petroleum plants and heavy industry mixed with desert dust storms. Lanzhou New Area was only approved in 2012, just before Xi took office, driven by a central government investment spree designed to spread wealth to western regions.

Now, Xi wants to neutralize the risk of soaring debt derailing growth that accounts for more than a third of the global economic expansion. He reinforced that aim at a twice-a-decade Communist Party Congress in October and at the annual Central Economic Work Conference in December, where elite cadres set goals for 2018. From the yuan and bitcoin to banking and housing, taming potential threats is the new priority. Economists and policy makers see the restraints on borrowing as a necessary step toward choking off some of the nation’s construction and investment excesses and building a more sustainable economy. But there are casualties, including Lanzhou New Area’s tram, a network of tunnels for underground utility lines in the city, and more than 200 other public-private projects — almost half the total in Gansu.

Read more …

Average last year of bull market: +16%. Average first year of bear market: -16%.

Here’s What Historically Happens to Stocks When Bull Markets End (GoldSilver)

You undoubtedly know that 2017 was a record-setting year for the broad stock markets. And while gold was up last year despite numerous headwinds, most mainstream investors aren’t paying much attention to gold since they keep seeing so much green in their stock portfolios. Even I was taken back by some of the data from the bull market in stocks… • The Dow hit a record high 71 times last year. On average, a new high was hit more frequently than once a week. • For the first time ever in its almost 90-year history, the S&P 500 rose every month in 2017. And historically there have only been four years with gains in 11 months of the year. • The S&P’s largest pullback in 2017 was 2.8%, the smallest since 1995. • To start 2018, the S&P 500 has risen in each of the five trading sessions, hitting a new record high every day. The last time the index opened the year with at least five straight record highs was 1964.

And as Mike pointed out in his 2018 predictions, the CAPE (Cyclically Adjusted Price-Earnings) ratio has now matched its 1999 level, the second highest reading in over 100 years of data. The CAPE now has a higher reading only in 1929. This all begs the question: is the bull market about to come to an end? This is exactly the kind of frothy behavior a market sees near its apex, so it’s definitely a prudent question to ask. If last year ends up being the top of this bull market, what does history say could happen to stocks this year? We dug up the data for all bull markets in the S&P since the year 1900, and then examined what happened in the very first year after each of those bull markets ended. In other words, what did the first year of the bear market look like after the last full year of the bull market? This could be useful data, if 2017 ends up being the peak of the bull market. Here’s what history shows.

First Year Performance of Bear Market After Bull Market Ends

While the declines for the first year of the bear market varied greatly, you can see that on average, the S&P lost 16% the year immediately following the last year of the bull market. Also notice that in only four cases was the decline measured in single digits—all others were double digit losses. Mike Maloney believes this is the year overvalued stocks begin their descent. If he’s right, the decline could be higher than the historical average, since this is the second longest bull market in history.

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The fruits of privatization.

UK’s Carillion Crisis Deepens Amid Scramble To Save Jobs After Collapse (G.)

Thousands of staff who worked for the collapsed construction firm Carillion inside private sector companies will have their wages stopped on Wednesday unless their jobs are rescued by other firms, the government has said. Experts also said up to 30,000 small firms were owed money by Carillion, which crashed into liquidation on Monday morning, with insolvency practitioners reporting an immediate rush of calls from worried business owners. Ministers gathered for an emergency meeting on Monday night in an effort to limit the damage caused by the collapse of the sprawling construction and support services business. As the fallout spread, the Cabinet Office minister, David Lidington, faced mounting pressure over the government’s oversight of the firm’s increasingly precarious finances in the months leading up to its failure.

Lidington told parliament the government would continue to pay those among Carillion’s 19,500 UK staff who work in public sector jobs, such as NHS cleaners and school catering. But he admitted thousands of Carillion’s private sector workers – who perform jobs ranging from cleaning to catering, security and postroom services for organisations such as the Nationwide building society and BT Openreach – would be cut loose after 48 hours. “The position of private sector employees is that they will not be getting the same protection that we’re offering to public sector employees, beyond a 48-hour period of grace,” Lidington said. He added that this would give time for Carillion’s private clients to decide if they wanted to terminate the contracts or step in to cover wages themselves. “I think that is a reasonable gesture towards private sector employees,” he said, adding that a Jobcentre Plus helpline had been set up.

Read more …

Only debt leaves the country standing.

Quarter Of UK’s Poorest Households Are Getting Deeper In Debt (G.)

One in four of Britain’s poorest households are falling behind with debt payments or spending more than a quarter of their monthly income on repayments, according to a study. The latest evidence of mounting debt problems for some of the most vulnerable in society is shown in a report by the Institute for Fiscal Studies, on behalf of the Joseph Rowntree Foundation, at a time when borrowing on credit cards, loans and car finance deals returns to levels unseen since before the 2008 financial crisis. The poorest tenth of households are also more likely to be in net debt, owing more on plastic or on overdrafts and loans than they hold in savings. About a third of the poorest homes are in net debt, compared with only 10% of the highest-income tenth.

For a household of two adults and two children aged between 30 and 44 to be in the poorest tenth, they would have a net annual income of up to £23,200. Young adults are much more likely to be in households in arrears or paying large chunks of their income to banks or credit card providers, the study found. David Sturrock, a research economist at the IFS, said: “Debt looks like a real problem for a significant minority of those on low incomes.” [..] Debt problems for the poorest households can prove persistent, and are of growing concern to the Financial Conduct Authority. Of the poorest fifth of households who were in arrears or spending more than a quarter of their income on debt repayments and charges in 2010, more than 40% were found to be stuck in a similar position two years later.

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Tsipras has become the oppressor. Credibility of the entire Greek political system is gone for many years to come. That does not bode well.

Greek Parliament Votes Through Raft Of Tough Reforms (K.)

As thousands of protesters rallied in Athens and Thessaloniki on Monday, Parliament approved the prior actions included in an all-inclusive bill which the leftist-led coalition government hopes will be the last significant batch of spending cuts and reforms the country has to implement before its bailout program ends in August. The 1,500-page austerity bill, which includes the demands by Greece’s international creditors to expedite auctions of foreclosed properties and changes to labor law that will make it harder for unions to call strikes, was approved by 154 lawmakers in the 300-seat Parliament. Some 141 lawmakers from main opposition New Democracy, Democratic Alignment, Golden Dawn and the Union of Centrists voted against all the provisions included in the bill. Prime Minister Alexis Tsipras told lawmakers that the approval of the multi-bill brings Greece “just one step from the end of the bailout.”

“In the summer, we will… leave behind a tough, unfair and harmful period,” he said, adding that the conclusion of the third review “gives hope to millions of our fellow citizens” but has caused agitation to others, referring to the parties of the opposition. Tsipras rejected claims by the opposition that the new bill will ban the right to strike. “The right to strike is a sacred conquest of the working class. It is not being scrapped and it is not under threat from this government,” he said. For his part, New Democracy leader Kyriakos Mitsotakis denounced Tsipras for “ransoming the country’s future” and damaging its economy. “You are legislating articles that even you don’t agree with,” Mitsotakis said, addressing Tsipras in Parliament, adding that the leftist leader was pushing through measures he was elected to oppose and that he “turned lying into a profession and cynicism into an art.”

Mitsotakis also accused Tsipras and his SYRIZA party of “threatening” investors while they were in the opposition and refuted the government’s narrative that the country is heading for a clean bailout exit in August. The vote in Parliament took place as around a total of 20,000 people in Athens and Thessaloniki marched in protest. Police used pepper spray to disperse rock-throwing protesters outside Parliament. Some demonstrators also sprayed police with red paint. Meanwhile, Monday’s public transport strike – bus, tram, trolley and metro services – in opposition to the bill caused problems for commuters in the Greek capital. The disruption also impacted state-run schools and public hospitals, with teachers and doctors holding work stoppages, while a three-hour walkout by air traffic controllers led to the rescheduling or cancellation of flights.

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Obvious suggestion: stop pumping mining sludge into the reef system. Did I just make $1 million? Didn’t think so. Don’t be fooled by this sort of crap.

Australia Offers Cash For Great Barrier Reef Rescue Ideas (AFP)

Australia is calling on the world’s top scientific minds to help save the Great Barrier Reef, offering hundreds of thousands of dollars to fund research into protecting the world’s largest living structure. The UNESCO World Heritage-listed reef is reeling from significant coral bleaching due to warming sea temperatures linked to climate change. The 2,300-kilometre (1,400-mile) site is also under pressure from farming runoff, development and predatory crown-of-thorns starfish, with experts warning it could be suffering irreparable damage. On Tuesday, the Australian government announced a Aus$2.0 million (US$1.6 million) funding pot available to people with bright ideas on how to save the reef.

“The scale of the problem is big and big thinking is needed, but it’s important to remember that solutions can come from anywhere,” said Environment Minister Josh Frydenberg. He said the money would be available to the world’s “greatest scientific minds, industry and business leaders, innovators and entrepreneurs”. “Solutions could focus on anything from reducing the exposure of corals to physical stressors, to boosting coral regeneration rates by cultivating reef-building coral larvae that attract other important marine species,” Frydenberg added. Up to Aus$250,000 is available for an initial feasibility stage, where researchers can test the technical and commercial viability of their proposals for up to six months.

More than one proposal is expected to be accepted at this stage, the government said. A further Aus$1 million will then be made available to the best solutions at the proof of concept stage, where applicants develop and test their prototypes for up to 12 months. Those that are successful will retain intellectual property rights and will be able to try to commercialise their innovation.

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No force suppliers to do the same.

UK Supermarket Iceland To Eliminate Plastic On All Own-Label Products (G.)

Iceland has become the first major retailer to commit to eliminate plastic packaging for all its own-brand products. The supermarket chain, which specialises in frozen food, said it would go plastic-free within five years to help end the “scourge” of plastic pollution. The current plastic packaging would be replaced with paper and pulp trays and paper bags, which would be recyclable through domestic waste collections or in-store recycling facilities. The supermarket recently carried out a survey in which 80% of 5,000 people polled said they would endorse the move to go plastic-free. Iceland managing director, Richard Walker, said: “The world has woken up to the scourge of plastics. A truckload is entering our oceans every minute, causing untold damage to our marine environment and ultimately humanity – since we all depend on the oceans for our survival.

“The onus is on retailers, as leading contributors to plastic packaging pollution and waste, to take a stand and deliver meaningful change.” He also said Iceland would ensure all packaging was fully recyclable and would be recycled, through support for initiatives such as a bottle deposit return scheme for plastic bottles. As it was technologically and practically possible to create less environmentally harmful alternatives, “there really is no excuse any more for excessive packaging that creates needless waste and damages our environment”, Walker added. Iceland has already removed plastic disposable straws from its own label range and new food ranges in the next few months will use paper-based food trays. The move, which has been welcomed by environmental campaigners, comes amid growing concern over plastic pollution in the world’s oceans, where it can harm and kill wildlife such as turtles and seabirds.

Read more …

Apr 262015
 
 April 26, 2015  Posted by at 9:48 am Finance Tagged with: , , , , , ,  


Harris&Ewing Streamlined street car passing Washington Monument 1938

The ECB Needs to Know Its Place (Philippe Legrain)
Will Greece Run Out Of Cash? – No! – (Bruegel)
Isolated In Debt Talks, Greek Finance Rebel Gets The Cold Shoulder (Reuters)
Migrant Influx Strains Greece As Economy Suffers (Reuters)
Greeks’ View Of Crisis: ‘What Lies Ahead Is Great, Great Hardship’ (Guardian)
Euro Ministers Alarmed as Bloc Shuts Down Greece Plan B (Bloomberg)
Greece Not Playing A Game Of Chicken On Debt (Reuters)
Is Greece About To “Lose” Its Gold Again? (Zero Hedge)
The Migrants Who Took Over A Sicilian Palace (BBC)
Petrobras’s Next Steps May Be Tougher Than $17 Billion Loss (Bloomberg)
What A $1.5 Million Home In Sydney Looks Like (News.com.au)
7th-Largest Economy At $24 Trillion? Our Oceans, Says WWF (CNBC)
US Thinktank Seeks To Change Pope Francis’s Mind On Climate Change (Guardian)
Trillion-Dollar Questions, The Flash Crash And The Hound Of Hounslow (Guardian)
The Story Of The Greek Hero On The Beach (Guardian)

Must read. “Irrespective of the merits of fiscal consolidation and structural reforms, it is not the role of unelected central bankers to demand them — let alone dictate them.”

The ECB Needs to Know Its Place (Philippe Legrain)

The rot began under Draghi’s predecessor, Jean-Claude Trichet. The former governor of the Banque de France fought tooth and nail to prevent a restructuring of an insolvent Greece’s debt in 2010, which would have imposed hefty losses on French banks. To give credence to the spurious claim that Greece was merely going through temporary funding difficulties, the ECB then started buying Greek government bonds. That gave Frankfurt a further reason to oppose the subsequent restructuring of Greece’s market-issued debt in 2012 — and the ECB’s threat to inflict chaos on the eurozone if it was disobeyed greatly limited the debt relief that Athens obtained, as I explain at length in my book European Spring. Both Trichet and Draghi have threatened, in effect, to force Greece out of the euro if it defaulted.

Now, the ECB’s ownership of Greek bonds is a further obstacle to the debt relief that Greece needs. Frankfurt is also squeezing Greek banks to pressure the government to comply with its eurozone creditors’ demands in a nakedly political manner. Trichet’s treatment of another crisis victim, Ireland, was equally outrageous. In November 2010, he threatened to cut off Irish banks’ access to ECB funding — which would have forced Ireland out of the euro — unless the government applied for an EU-IMF loan, bailed out the banks’ (often German) creditors, and implemented austerity and structural reforms. That abuse of power lumbered Irish taxpayers with some €64 billion in bank debt — €14,000 for every person in Ireland. Irrespective of the merits of fiscal consolidation and structural reforms, it is not the role of unelected central bankers to demand them — let alone dictate them.

Yet ECB officials routinely do. Trichet repeatedly espoused austerity, claiming (falsely) that it would be expansionary. Until he changed his tune in Jackson Hole last August, Draghi, too, demanded that eurozone governments tighten their belts. The president of Germany’s Bundesbank, Jens Weidmann, regularly lectures foreign governments, notably France’s, on what they ought to do. Yet were French officials to give the Bundesbank advice, Weidmann would scream bloody murder. It’s not just inappropriate jawboning. In the summer of 2011, Trichet and Draghi wrote to Italy’s then-prime minister, Silvio Berlusconi, demanding that he embark on austerity and reforms as a condition for the ECB buying Italian government bonds to limit the panic that threatened to force it to default.

When Berlusconi failed to comply, the ECB, in effect, forced the elected prime minister out of office, by letting it be known that it would only buy Italian bonds if he was replaced with a more pliable technocrat. In December 2011, when it seemed as if panic could cause the euro to collapse within weeks, Draghi demanded that eurozone governments agree to a “fiscal compact” that would entrench much tighter discipline, hinting that this might prompt the ECB to step in to quell the panic. Eurozone governments duly complied and are now locked into this new fiscal straitjacket through treaty obligations transposed into national constitutions. The ECB has also had a direct hand in setting fiscal policy and economy-wide reforms as part of the Troika (which also includes the IMF and the European Commission), which has run countries that have received EU-IMF loans — Greece, Ireland, Portugal, and Cyprus — as quasi-colonies.

Read more …

Make that a ‘no’.

Will Greece Run Out Of Cash? – No! – (Bruegel)

For many weeks now it has been regularly reported that Greece will run out of money if an agreement is not reached with the official lenders in the next few days. So far this has not happened. Given the huge stock of financial assets the Greek government has, I am always cautious about reports that it will soon run out of cash. At the end of September 2014, the Greek government had assets worth €86.6 billion. The data is unfortunately outdated, and assets have most likely been depleted significantly during the past six months. Some of the deposits are earmarked for banking issues. It may be difficult to sell some of the equity holdings, in particular bank shares.

Still, even if the €86.6 billion has declined by a dozen or two, and even if not all of the remaining assets could be easily used to pay for obligations, there is still a lot, and much more than the €30 billion assets the Greek general government had at the end of 1997. As a share of financial assets in GDP, Greece ranked seventh among the 28 EU countries in September 2014, so asset holdings were relatively high in a European comparison too. Greece has looming repayment deadlines: as Silvia Merler recently showed, Greece has to repay €6.7 billion to the ECB and €9.8 billion to the IMF in 2015. (There are also maturing treasury bills, but these are rolled over by the largely state-owned Greek banks).

Greece also has to pay some interest on its liabilities, though not that much, because interest payments on EFSF loans (the largest creditor of the country) are deferred (see my earlier post on Greek interest payments here). The question is therefore whether the primary budget surplus and the possible liquidation of some financial assets would be sufficient for the Greek government to carry on paying financial obligations until an agreement is reached with the creditors in the coming weeks or months. My guess is yes, at least perhaps till the summer, when large repayment will become due.

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“..his eurozone peers insist only painful changes can lift Greece out of one of the deepest economic depressions in Europe since the 1950s.”

Isolated In Debt Talks, Greek Finance Rebel Gets The Cold Shoulder (Reuters)

As the buses carrying European finance ministers left for a gala dinner in the Latvian capital on Friday night, one of the party hung back at the hotel and then wandered off alone into the dusk.Greece’s Yanis Varoufakis had other dinner plans, he said, after a bruising first day of meetings in Riga that underlined his isolation as he tries to avert national bankruptcy. While other ministers were feted by their entourages with food and warm clothing during the meeting in Riga, Varoufakis was seen alone at almost every turn, eschewing aides or any security detail. “He is completely isolated,” a senior euro zone official told Reuters on condition of anonymity. “He didn’t even come to the dinner to represent his country,” the official said of the event where ministers, serenaded by a Latvian choir, ate salmon and sea bass.

At breakfast before the meeting, Varoufakis and European Central Bank President Mario Draghi avoided eye contact as they picked up food at the buffet, Reuters reporters observed. The hardening of the mood against Varoufakis risks deepening the divide that Greece must bridge with its creditors if Athens is to avert default. After three months of largely fruitless negotiations, euro zone ministers warned him on Friday that the radical leftist Greek government will get no more aid until it agrees a complete economic reform plan, before the end of June. Some countries are so frustrated by what they see as Greece’s failure to compromise that one minister said it may be time to prepare for a Greek default.

Varoufakis, the only male minister at the meeting without a tie, said he was unfazed by the tone of Friday’s meeting – which Jeroen Dijsselbloem, the chairman of the euro zone finance ministers, described as “very critical” of Athens. In a sign of the coolness creeping in, Dijsselbloem referred to Varoufakis as “the Greek colleague” to reporters in Riga, although he addresses him by his first name in meetings. “I’m not surprised,” Varoufakis told reporters. “When you are approaching the end of negotiations, the stance hardens.”He denied reports that he had been insulted by ministers in Riga. “All these are false.”

While his economic demands have fallen on deaf ears, Varoufakis has become an improbable heartthrob in Germany. ZDF public television lampooned its own news anchor for enthusiastically comparing the minister with Hollywood tough guy Bruce Willis, while Stern magazine published a gushing article on Varoufakis’s “classical masculinity”. But some ministers say they resent being lectured by an academic who has studied in Britain, taught in Australia and the United States and challenged the theoretical basis of European policymaking.

While Varoufakis criticizes the spending cuts demanded by international creditors, his euro zone peers insist only painful changes can lift Greece out of one of the deepest economic depressions in Europe since the 1950s. According to people present in the room, several ministers rolled their eyes, closed their eyes or put their hands over their ears during Varoufakis’ interventions at Friday’s meeting. “Eurogroup ministers don’t like the fact that he is giving a small lecture when he is speaking to them,” one euro zone official said. “And for that reason (chairman) Dijsselbloem stopped him yesterday, saying: ‘Yanis, you don’t tell us what we want to hear.'”

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”It’s true the infrastructure [to house the migrants elsewhere] does not exist, but it’s not the fault of those being held.”

Migrant Influx Strains Greece As Economy Suffers (Reuters)

Shortly after taking power in January, Greece’s new government opened the gates of one of the main detention centers where thousands of undocumented migrants had been held against their will after arriving on the country’s Mediterranean shores. Many of the inmates, including refugees and children, were driven to Athens and released, in what Prime Minister Alexis Tsipras’s leftist government hailed as the beginning of the end of inhumane migrant policies of the past. Now the move has created other problems. With the influx of migrants from Africa and the Middle East rising this year, hundreds have ended up like 40-year-old Syrian Dia Qasem and her three sons: stuck in the Greek capital’s public squares with nowhere to sleep and little eat.

“The only help is from God,” sobbed Qasem, a neat hazel-eyed woman with chipped red nail varnish, one afternoon this week. Qasem and her sons fled Damascus last year and, after a dangerous voyage from Turkey, they landed on the island of Kos. They have enough money to stay in a hotel on occasion. But most nights Qasem settles down to sleep with her sons, other Syrians and migrants from other nationalities, under a tree in a central Athens’ square. Above her hung a billboard with a photo of the Acropolis and the slogan “Welcome to Greece!!!” The migrant crisis came into focus this week after the death of hundreds in a shipwreck off Libya. In Greece, the influx is testing the social and economic limits of a country already crippled by financial crisis.

Greek reaction to foreigners pouring into city centers, lining up at food banks and shelters already crowded with impoverished Greeks, is turning hostile. “Where are all these people going to stay? Where will all these people go? Where will they find a place to rest? asked Babis Karagianidis, an Athens resident. “With all the internal problems that we have? We can’t solve our own problems.” For Tsipras, an open-door policy on detention centers that was meant to help migrants is turning into a big political problem — largely because Greece doesn’t have the money to find alternative housing for the foreigners. According to a survey by the University of Macedonia, Greeks see the government’s response to the migrant crisis as barely passable. “Immigration is up there with finances as the government’s priorities,” said Theodore Couloumbis, an Athens political analyst. “And the government hasn’t got the luxury to add fronts to the problems it’s fighting.”

Greece is one of the main routes into the European Union for tens of thousands of Asian and African migrants fleeing war and poverty every year. The state of the country’s detention centers — seven in all still holding 2,000 people — received much international scrutiny. Greece was fined €1 million by the EU because of their poor conditions, which include intense crowding and no heating or hot water, says Tasia Christodoulopoulou, Greece’s minister for immigration.She says the government’s policy, and the emptying out of the Amygdaleza detention center near Athens, was a necessity. Other centers still house detainees and it is unclear what the government plans to do. “People that were there were living an indescribable barbarity,” she said in an interview. ”It’s true the infrastructure [to house the migrants elsewhere] does not exist, but it’s not the fault of those being held.”

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“Anyone who can is taking their money abroad. Nothing is moving; the market is dead.”

Greeks’ View Of Crisis: ‘What Lies Ahead Is Great, Great Hardship’ (Guardian)

Another week. Another crisis. Another make-or-break meeting that may, or may not, throw Greece into the unchartered waters of default, eurozone exit, destitution and despair. It is a sliding scale of drama, of high-octane intensity that Greeks have learned to watch with a mixture of shock, angst, bewilderment and dismay. Today dismay predominates. Five years on – Thursday was the fifth anniversary of the debt-stricken nation’s request for a bailout – there is an overriding sense of worse to come. “All I see is worried faces,” sighs Giorgos Pappas, who has a bird’s-eye view of central Athens from his appropriately named Cosmos café. “Anyone who can is taking their money abroad. Nothing is moving; the market is dead.”

Riding high on the promise of hope, Alexis Tsipras’s anti-austerity government initially enjoyed unparalleled support. But three months later, with a life-saving deal no nearer with its creditors – the EU, ECB and IMF – hope is ebbing. Greece desperately needs to find €7.2bn in funds under its €240bn bailout, but Athens’ inability to agree reforms in exchange for the money is pushing it to the brink of default. Last week, surveys showed the Syriza party-led coalition haemorrhaging the popular backing that has kept it buoyant. Support for the leftists and their hard-line stance in negotiations has dropped precipitously. Only 45.5 % told pollsters at the University of Macedonia that they endorsed the government’s stance, compared with 72% in February.

After an unusually long, wet winter, the sun has come out, which has helped lift the mood. Tourists are pouring in and with them comes the feelgood spirit of spring. But no amount of coping can hide the exhaustion of a nation with no idea of what tomorrow will bring. What everyone does know, thanks to regular newspaper headlines, is that time is running out. The endgame is here because cash reserves are perilously close to running dry. The light at the end of the tunnel remains cutbacks and reforms: that is to say more misery for a country that has seen its economy contract by a quarter since 2010.

On the street foreboding grows. The sight of the government now scrambling to find funds, which included ordering local authorities and state organisations to hand over cash reserves last week, has sparked panic that bank deposits could be next. Amid talk of a parallel currency being introduced and civil servants being paid in IOUs, anxious savers have rushed to clear out their accounts. “Everyone thinks their savings will be next,” said an official at the Bank of Greece.

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“Any mention of a plan B is profoundly anti-European..”

Euro Ministers Alarmed as Bloc Shuts Down Greece Plan B (Bloomberg)

Europe’s refusal to draw up contingency plans to prepare for the failure of negotiations with Greece is alarming some euro-area finance ministers. Slovenian finance chief Dusan Mramor led the calls at a meeting of the bloc’s 19 finance chiefs on Friday to consider a “plan B” to mitigate the fallout if negotiations with Greece fail. Several others raised similar concerns during official talks and in private conversations at a meeting in Riga, Latvia, on Friday, two people with knowledge of the discussions said. “What my discussion was about was what we will do if no new program will be achieved in time for Greece to be able to refinance itself or improve liquidity,” Mramor told reporters on Saturday. “A plan B can be anything.”

As Greece struggles to pay pensions and salaries, its government has failed to present a plan to revamp its economy that passes muster with euro-area officials who are withholding further aid. In February, finance ministers gave the Greek government until the end of June to complete the deal and said they expected a list of reforms by the end of April. Friday’s meeting, which European Union officials had for weeks identified as the moment when the list would be considered, instead descended into attacks on Greek Finance Minister Yanis Varoufakis for his failure to deliver. “Some countries have said, because of their concern on the lack of progress and the attitude on the Greek side, ‘if it continues like this, we will really get into trouble,’” Dutch Finance Minister Jeroen Dijsselbloem, who led Friday’s meeting, told reporters on Saturday. “In that context plan B has been mentioned.”

Still, ministers were left frustrated that European Economic Commissioner Pierre Moscovici clamped down on discussions of a backup plan. They went on to air their concerns without him, one of the people said. Finance chiefs aren’t saying in public that they’re contemplating alternative outcomes because that would send the message to markets that it’s game over, the person said “The central scenario is that in the Greece case we’re going to reach an agreement,” Spanish Economy Minister Luis de Guindos told reporters on Saturday. “That’s the only one that we’re considering.” Varoufakis joined Moscovici’s effort to prevent others in the group taking precautions in case the talks fail. “Any mention of a plan B is profoundly anti-European,” Varoufakis told Euronews on Friday. “My immediate response was to say there is no such plan B, there cannot be such plan B.”

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“So you are not giving a solution to Greece, you press the Greek government? What can be the solution? Golden Dawn is coming. Nobody has an interest in that..”

Greece Not Playing A Game Of Chicken On Debt (Reuters)

Greek Foreign Minister Nikos Kotzias said on Friday he respects Germany just not German politics, nor the way Berlin views Greece’s economy, which faces the prospect of running out of money if it cannot agree to new bailout terms with creditors. Kotzias is part of the leftist government that took over in January after an anti-austerity campaign promising to roll back reforms and cutbacks agreed by the prior government to improve Greece’s finances. Kotzias said Greece and its euro zone partners need to compromise on creating political policies that will foster growth and allow the country to pay its debts. Asked if he is simply asking the rest of Europe to trust Greece, he said: “No. To be pragmatic. Trust is a very important thing but they have to be pragmatic.”

“Do they want to support us to have growth… or do they decide to have Greece struggle, to punish Greece and to create an example of what happens to a country that has a left government,” Kotzias said at the end a four-day visit to Washington and New York. German Chancellor Angela Merkel said in Brussels on Thursday that everything must be done to prevent Greece from going into bankruptcy. However, Friday’s meeting of euro zone finance ministers in Riga brought a stark warning to Athens that its leftist government will get no more aid until a complete economic reform plan is agreed. Greece has scraped up enough cash to meet its obligations, but faces a big test on May 12 when it is due to pay a €750 million payment to the IMF. Now the question is how long could it last without fresh funds.

He further dismissed talk the 19-nation euro zone currency area could better handle a Greek default now versus the financial crisis that resulted in a Greek bailout of 240 billion euros. “It is like a game of chicken, but not the kind of game you know. What our friends are forgetting is that we don’t have gas to move… We like to come back to compromising and at the end we will do it,” said Kotzias, a fluent German speaker. “So you are not giving a solution to Greece, you press the Greek government? What can be the solution? Golden Dawn is coming. Nobody has an interest in that, so that is why they will find a solution,” said Kotzias, highlighting the far-right political party that is the third largest in parliament.

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“Ms. Katseli was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal.

Is Greece About To “Lose” Its Gold Again? (Zero Hedge)

When it comes to the topic of Greece, most pundits focus on two items: i) when will Greece finally run out of confiscated cash, and ii) will Greece fold to the Troika (and agree to another bailout(s) with even more austerity) or to Russia (and agree to the passage of the Russian Turkish Stream pipeline, potentially exiting NATO and becoming the most important European satellite of the USSR 2.0) once that moment arrives. And yet what everyone appears to be forgetting is a nuanced clause buried deep in the term sheet of the second Greek bailout: a bailout whose terms will be ultimately reneged upon if and when Greece defaults on its debt to the Troika (either in or out of the Eurozone). Recall that as per our report from February 2012, in addition to losing its sovereignty years ago, Greece also lost something far more important. It’s gold: To wit:

Ms. Katseli, an economist who was labor minister in the government of George Papandreou until she left in a cabinet reshuffle last June, was also upset that Greece’s lenders will have the right to seize the gold reserves in the Bank of Greece under the terms of the new deal.

The “new deal” referred to is the Second Greek Bailout, which either will be extended and lead to a third (and fourth, and fifth bailout, each with every more draconian terms until finally Greece does default), or will collapse at which point the Troika will indeed have the right to seize the Greek gold reserves. What makes this case particularly curious, however, is that it won’t be the first time Greece will have “lost” its gold. In The Tower of Basel, citing the BIS archive from Febriary 9, 1931, Adam LeBor writes:

In February 1931, Gates McGarrah, the [BIS’s] American president, wrote to H. C. F. Finlayson, in Athens, asking about the Bank of Greece’s gold. Finlayson, a former British financial attaché in Berlin, was now an adviser to the Bank of Greece. Some of the Greek bank’s gold may have gone missing. Rather like nowadays, it seemed the accounting at the Bank of Greece left something to be desired. “What has ever happened to the gold of the Bank of Greece, some of which you thought might be left in our custody in Paris or elsewhere?” inquired McGarrah, who, as the president of the BIS might have been expected to know what it held and where. It might, McGarrah suggested, be a good time to find the Greek gold and place it with the BIS.

The BIS, wrote McGarrah, could give the Bank of Greece “all sorts of facilities, rather greater than those of a local Central Bank.” For example, if the Bank of Greece held gold at the Bank of France and wanted to buy another currency, it first had to buy francs from the Bank of France. The Bank of Greece then converted the francs to the second currency, with all the usual losses of exchange rates and commissions. However, if the Bank of Greece held gold at the Bank of France in the name of the BIS, the BIS could “give the Bank of Greece any currency it desires at any time and can fix an agreed rate without going through the actual exchange operation.” And, the BIS did not charge any commission.

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After I published the article, I was thinking perhaps I should have called it “Europe, The Lost Continent”.

But then again, something tells me I may yet have time to use that title sometime soon.

They should take over the new ECB buiding in Frankfurt.

The Migrants Who Took Over A Sicilian Palace (BBC)

As thousands of desperate African migrants arrive on Sicily’s shores, they must suddenly find their footing in a country in the grip of recession. They have something in common, though, with the island’s own homeless and unemployed – and in fact, working together with Sicilians, a group of migrants recently moved into a palace sitting empty in Palermo. When I visited, the elegant building appeared empty, its windows shuttered against the sun. I rang the buzzer and waited. Unsure if anyone had heard me, I banged on the heavy wooden door, but there was no answer. At last, a woman opened the door. Behind her, several of her housemates looked on nervously. They had been reluctant to come to the door, she explained, in case I was from the police. Some of the residents knew I was coming but my knocking had scared them.

We stood in a long, dimly lit corridor, lined with several ornately carved doors. The woman introduced herself. “My name is Wubelem Aklilu,” she told me. She had three rooms and shared the palace with 18 other people from Ethiopia and Eritrea, and one from Sicily. Wubelem means “Beauty” in Amharic, so that’s the English name the Italians have given her. Her housemates call her Mommy. Beauty agreed to show me around. One of the first rooms we entered was pitch black. When she hit the lights I found myself standing in front of an altar, below a vivid religious oil painting. This impressive mansion, which Italians call a palazzo, was built in the 19th Century by one of the most important families in Palermo – the Florios – whose name still adorns a brand of Marsala wine.

The Florios eventually gave the building to an order of nuns, the Daughters of St Joseph. After their numbers dwindled over the years, the nuns tried to sell it – but without success. For a decade the palace stood empty. It was also 10 years ago that Beauty left Ethiopia. She had been running a shop near the university in Addis Ababa. But as well as selling food she handed out pamphlets and sold T-shirts in support of a political party – a party in opposition to the government. It was a dangerous thing to do. One day, she saw police waiting for her as she approached the shop, so she turned round and walked quickly away.

Afraid for her life, she crossed over the border to Sudan, leaving behind her mother and children. She trekked across the Sahara to Libya, and eventually decided to attempt the sea crossing to Europe. The number of migrants making this perilous journey has rapidly increased since Libya descended into civil war. More than 1,727 have died on the route this year, and the death toll could be as high as 30,000 by the end of 2015, it’s estimated, if current trends continue. More than 85% of those making the journey come from sub-Saharan Africa.

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“It was Mantega’s concern about inflation that led Petrobras to buy fuel abroad to sell to Brazilians at a loss..”

Petrobras’s Next Steps May Be Tougher Than $17 Billion Loss (Bloomberg)

Petrobras’s massive writedowns this week answer the question about the cost of its corruption and pose a much bigger one: whether the state-run driller can restore its role as Brazil’s economic anchor and source of national pride. The problem is not just graft. The writedown for its executives’ transgressions represents less than one-eighth of Petrobras’s $17 billion in charges reported for 2014. The bulk of the impairment was due to mismanagement of two refinery projects. It was enough to give Petrobras its first annual operating loss since 1991. The former state bankers now running the world’s most indebted oil company averted disaster by getting long-delayed 2014 earnings audited, thus removing grounds for creditors to accelerate repayment of part of Petrobras’s $135 billion debt.

What remains to be seen is how well they can insulate the oil giant from decisions that make sense politically but turn out to be calamitous in a business context, while reducing debt and delivering projects on time and budget. “The biggest lesson to understand is that Petrobras’s management structure, built from political appointments, doesn’t work,” said Alvaro Marangoni at Quadrante Investimentos in Sao Paulo. The first sign of a new direction at Petroleo Brasileiro is the absence of government ministers on the new board of directors, said Joao Augusto de Castro Neves, Latin America director for Washington-based consultant Eurasia Group. The previous board was chaired by former Finance Minister Guido Mantega, and before him Dilma Rousseff, who was chief of staff to Brazilian President Luiz Inacio Lula da Silva at the time and is now the country’s president herself.

It was Mantega’s concern about inflation that led Petrobras to buy fuel abroad to sell to Brazilians at a loss, keeping prices low for consumers but running up Petrobras’s debt. Other instances of government meddling, from letting political allies appoint executives to investing in far-flung refineries that were never finished, were just as costly.

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We saw the same in Vancouver a few years ago. Million dollar crackshacks.

What A $1.5 Million Home In Sydney Looks Like (News.com.au)

Would you pay 1.5 million dollars for a house you couldn’t live in? That is exactly what you would be expected to cough up for this dilapidated, mould-infested home in the inner Sydney suburb of Annandale. The house comes complete with holes in the floor, ceilings that are nearly rusted through, decaying walls and a backyard that requires more than a little TLC. It is the first time the house, located on Johnson street, has gone on the market since 1953 and the real estate agent in charge of the sale is under no illusions as to its run down state. “It needs so much work,” says James Bourke, from Callagher. With housing prices steadily growing in major cities, the “Australian dream” of owning your own house appears to be a distant reality for many young Australians.

Sydney has seen the highest rate of growth in housing prices leading some to speculate that the country’s biggest city is leading a nationwide housing bubble. Earlier in the month real estate group PRDnationwide tipped Sydney to be “minutes” away from its property price growth peak. But if you ever needed prooof that a million dollars doesn’t stretch as far as it used to, this is it. Despite its run-down state, the property has had a lot of interest since going on the market. Last Saturday, Mr Bourke had 31 groups “come through” to see the house and is frequently giving private viewings. However the reactions have been mixed. “A lot of people have come in and said this is well beyond what we can do,” Mr Bourke says.

But others are prepared for the challenge, which, given the level of work required, could take quite some time. “It might even take a year to get any changes through the council,” he said. The high price tag shouldn’t come as a surprise given the growing popularity of the inner west suburb. “There is a premium in this area because there’s so much demand. You don’t see bargains around here,” says Mr Bourke.

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The very attempt to express the value of the oceans in monetary terms shows how deep we’ve sunk.

7th-Largest Economy At $24 Trillion? Our Oceans, Says WWF (CNBC)

If our oceans were considered a country, their worth would outshine the likes of Russia and Brazil’s economies, according to a new report. The world’s oceans are worth $24 trillion and generate $2.5 trillion in goods and services annually, making it technically the seventh-largest economy worldwide, according to the “Reviving the Ocean Economy” report, commissioned by the WWF, this week. This eye-watering asset value was determined by four components: direct output of resources ($6.9 trillion), productive coastline ($7.8 trillion), trade/transport ($5.2 trillion) and carbon absorption ($4.3 trillion). World Wide Fund for Nature (WWF) admits, however, that this trillion-dollar figure is an “underestimate,” as wind energy and offshore oil and gas drilling weren’t factored in, due to the difficulty in calculating their exact amounts.

So if the oceans are worth so much, this should be good, right? Wrong. With enviable value and precious assets come several threats, and the WWF suggest that with not enough being done it is becoming a “matter of global urgency” for governments to combat the man-made and natural factors impacting the oceans. In light of the report, WWF is calling upon governments and individuals worldwide with eight action proposals, asking those such as the U.K. government to progress the development of marine conservation zones and sustainable goals. Threats impacting the functioning of this system include pollution and destruction of marine habitats, yet one of the most destructive is climate change, which contributes to ocean acidity and impacts how marine animals live.

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The Koch brothers team up against the Vatican.

US Thinktank Seeks To Change Pope Francis’s Mind On Climate Change (Guardian)

A US activist group that has received funding from energy companies and the foundation controlled by conservative activist Charles Koch is trying to persuade the Vatican that “there is no global warming crisis” ahead of an environmental statement by Pope Francis this summer that is expected to call for strong action to combat climate change. The Heartland Institute, a Chicago-based conservative thinktank that seeks to discredit established science on climate change, said it was sending a team of climate scientists to Rome “to inform Pope Francis of the truth about climate science”. “Though Pope Francis’s heart is surely in the right place, he would do his flock and the world a disservice by putting his moral authority behind the United Nations’ unscientific agenda on the climate,” Joseph Bast, Heartland’s president, said.

Jim Lakely, a Heartland spokesman, said the thinktank was “working on” securing a meeting with the Vatican. “I think Catholics should examine the evidence for themselves, and understand that the Holy Father is an authority on spiritual matters, not scientific ones,” he said. A 2013 survey of thousands of peer-reviewed papers in scientific journals found that 97.1% agreed that climate change is caused by human activity. The lobbying push underlines the sensitivity surrounding Pope Francis’s highly anticipated encyclical on the environment, whose aim will be to frame the climate change issue as a moral imperative.

While it is not yet clear exactly what the encyclical will say, Pope Francis has been an outspoken advocate for action on the issue. In a speech in March, Cardinal Peter Turkson, who has played a key role in drafting the document, said Pope Francis was not attempting a “greening of the church”, but instead would emphasise that “for the Christian, to care for God’s ongoing work of creation is a duty, irrespective of the causes of climate change”.

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“HFT is now reckoned to account for three-quarters of trading on US stock markets..”

Trillion-Dollar Questions, The Flash Crash And The Hound Of Hounslow (Guardian)

High-frequency trading may sound like a minority, and rather frowned-upon, sport, but it’s not. HFT is now reckoned to account for three-quarters of trading on US stock markets, and regulators have done nothing to halt its rise. More trading in more places, runs their thinking, creates more activity, which leads to keener pricing that benefits everybody. So where does Sarao fit in? According to the allegations, he was illegally “spoofing” these constantly churning markets – trying to trick other investors’ computers into making false moves from which he could profit. He was trading contracts called e-minis, whose price rises and falls with movements in the S&P500 index, on the largest US futures market, the Chicago Mercantile Exchange.

The US department of Justice alleges that he used a system called “layering” – for example sending out a series of “sell” orders he intended to cancel but which created the illusion of downward pressure on the market. As other computers reacted to that artificial pressure, he would profit by buying at a lower price and then selling when prices returned. All faster than a blink of an eye. On the day of the flash crash, the DoJ alleges Sarao used layering “extensively and with particular intensity”, and made a net profit of $879,018 on that day alone. Overall, the DoJ claims Sarao fraudulently made $40m in five years. We’ll have to wait and see how the prosecutors make their case, if it goes to trial. But many have pointed out that the idea of Sarao helping cause the flash crash seems far-fetched.

First, Sarao was running his algorithm on several occasions from June 2009 and the market did not plunge. Second, he’d turned off his computer two minutes before the big fall started. Third, if he merely “contributed” to the crash, were others more to blame? If so, why single out Sarao? There’s another oddity, too. The Chicago Mercantile Board questioned Sarao about his suspicious trading before the flash crash. Indeed, on the very day, it wrote to him to say that all orders “are expected to be entered in good faith for the purpose of executing bona fide transactions”. He was hardly unknown to authorities, so why did they let him continue trading after May 2010, and wait almost five years to demand his extradition?

One school of thought has it that Sarao, whatever the legality of his techniques, should be hailed as a hero. Hedge fund manager John Hempton of Bronte Capital regards conventional HFT firms as the real villains because their goal is to “rip off” regular investors by “front running” their orders – using computers to spot trading patterns and getting in ahead. “I would prefer the front running computers to go away,” says Hempton. “And the way to make that happen is to allow spoofing. Spoofing makes the world unsafe for front-running high-frequency traders.” He calls the DoJ’s case “plain silly”.

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“I’ve never seen anything like it, the terror that can haunt a human’s eyes: Babis Manias, fisherman”

The Story Of The Greek Hero On The Beach (Guardian)

It was an image that came to symbolise desperation and valour: the desperation of those who will take on the sea – and the men who ferry human cargo across it – to flee the ills that cannot keep them in their own countries. And the valour of those on Europe’s southern shores who rush to save them when tragedy strikes. Last week on the island of Rhodes, war, repression, dictatorship in distant Eritrea were far from the mind of army sergeant Antonis Deligiorgis. The world inhabited by Wegasi Nebiat, a 24-year-old Eritrean in the cabin of a yacht sailing towards the isle, was still far away. At 8am on Monday there was nothing that indicated the two would meet. Stationed in Rhodes, the burly soldier accompanied his wife, Theodora, on the school run. “Then we thought we’d grab a coffee; We stopped by a cafe on the seafront.”

Deligiorgis had his back to the sea when the vessel carrying Nebiat struck the jagged rocks fishermen on Rhodes grow up learning to avoid. Within seconds the rickety boat packed with Syrians and Eritreans was listing. The odyssey that had originated six hours earlier at the Turkish port of Marmaris – where thousands of Europe-bound migrants are now said to be amassed – was about to end in the strong currents off Zefyros Beach. For Nebiat, whose journey to Europe began in early March – her parents paid $10,000 for a voyage that would see her walk, bus and fly her way to “freedom” – the reef was her first contact with the continent she had prayed to reach. Soon she was in the water clinging to a rubber buoy.

“The boat disintegrated in a matter of minutes,” the father-of-two recalled. “It was as if it was made of paper. By the time I left the café at 10 past 10, a lot of people had rushed to the scene. The coastguard was there, a Super Puma [helicopter] was in the air, the ambulance brigade had come, fishermen had gathered in their caiques. Without really giving it a second’s thought, I did what I had to do. By 10:15 I had taken off my shirt and was in the water.” Deligiorgis brought 20 of the 93 migrants to shore singlehandedly. “At first I wore my shoes but soon had to take them off,” he said, speaking by telephone from Rhodes. “The water was full of oil from the boat and was very bitter and the rocks were slippery and very sharp. I cut myself quite badly on my hands and feet, but all I could think of was saving those poor people.”

In the chaos of the rescue, the 34-year-old cannot remember if he saved three or four men, or three or four children, or five or six women: “What I do remember was seeing a man who was around 40 die. He was flailing about, he couldn’t breathe, he was choking, and though I tried was impossible to reach. Anyone who could was hanging on to the wreckage.” Deligiorgis says he was helped by the survival skills and techniques learned in the army: “But the waves were so big, so relentless. They kept coming and coming.” He had been in the water for about 20 minutes when he saw Nebiat gripping the buoy. “She was having great problems breathing,” he said. “There were some guys from the coastguard around me who had jumped in with all their clothes on. I was having trouble lifting her out of the sea. They helped and then, instinctively, I put her over my shoulder.”

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Apr 252015
 
 April 25, 2015  Posted by at 9:20 am Finance Tagged with: , , , , , , ,  


Russell Lee South Side market, Chicago 1941

How The Stock Market Destroyed The Middle Class (MarketWatch)
The Trans-Pacific Partnership and the Death of the Republic (Ellen Brown)
US Bridges Falling Down Get No Help From Record 2015 Muni Sale (Bloomberg)
Crash Boys (Michael Lewis)
Flash Crash Trader Sarao Is A ‘Hero’, Says Fund Manager (Telegraph)
Can The Hound Of Hounslow Really Be A Wolf Of Wall Street? (Telegraph)
Chances of Greek Deal ‘Virtually Nil’ (CNBC)
Greece’s Varoufakis Takes Hammering From Riled EU Ministers (Bloomberg)
The Greek Crisis Has A New Buzzword: Grimbo (CNBC)
Greece Said To Get Respite Until May 6 For Next IMF Payment (Bloomberg)
ECB Has Started Buying Covered Bonds With Negative Yields (Bloomberg)
China Bad Debt Spikes By More Than A Third (CNBC)
Sweden’s Debt Headache Grows More Painful as Court Blocks Curbs (Bloomberg)
Washington Started All Modern Military Conflicts – Russia’s General Staff (RT)
EU Allows Sale Of More GMO Food Crops (BBC)

“The ‘buyback corporation’ is in large part responsible for a national economy characterized by income inequality, employment instability, and diminished innovative capacity..”

How The Stock Market Destroyed The Middle Class (MarketWatch)

There’s something seriously wrong with an economy that nurtures a few billionaires but can’t sustain the middle class. Many factors have been blamed for the plummeting fortunes of the American middle class: globalization, technology, deregulation, easy credit, the winner-take-all economy, and even the inevitable tide of history. But one under-appreciated factor is a pervasive business model that encourages top managers of American corporations to loot their company for short-term gains, depriving those companies of the funds they need to build and enlarge, and invest in their workers for the long haul. How do they loot their company? By using large stock buybacks to manage the short-term objectives that trigger higher compensation for themselves.

By using those stock buybacks to manipulate the share price, which allows them to use inside information to time their own stock sales. By using buybacks to funnel most of the company’s profits back to shareholders (including themselves). They use the stock market to loot their companies. “The ‘buyback corporation’ is in large part responsible for a national economy characterized by income inequality, employment instability, and diminished innovative capacity,” wrote William Lazonick, an economics professor at the University of Massachusetts at Lowell in a new paper published by the Brookings Institution. Lazonick argues that corporations — which once retained a sizable share of profits to reinvest (including investing in their workforce by paying them enough to get them to stay) — have adopted a “downsize-and-distribute” model.

It’s not just lefty academics and pundits who think buybacks are ruining America. Last week, the CEOs of America’s 500 biggest companies received a letter from Lawrence Fink, CEO of BlackRock, the largest asset manager in the world, saying exactly the same thing. “The effects of the short-termist phenomenon are troubling both to those seeking to save for long-term goals such as retirement and for our broader economy,” Fink wrote, adding that favoring shareholders comes at the expense of investing in “innovation, skilled work forces or essential capital expenditures necessary to sustain long-term growth.”

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Somebody better challenge this as unconstitutional.

The Trans-Pacific Partnership and the Death of the Republic (Ellen Brown)

“The United States shall guarantee to every State in this Union a Republican Form of Government.” — Article IV, Section 4, US Constitution A republican form of government is one in which power resides in elected officials representing the citizens, and government leaders exercise power according to the rule of law. In The Federalist Papers, James Madison defined a republic as “a government which derives all its powers directly or indirectly from the great body of the people . . . .” On April 22, 2015, the Senate Finance Committee approved a bill to fast-track the Trans-Pacific Partnership (TPP), a massive trade agreement that would override our republican form of government and hand judicial and legislative authority to a foreign three-person panel of corporate lawyers.

The secretive TPP is an agreement with Mexico, Canada, Japan, Singapore and seven other countries that affects 40% of global markets. Fast-track authority could now go to the full Senate for a vote as early as next week. Fast-track means Congress will be prohibited from amending the trade deal, which will be put to a simple up or down majority vote. Negotiating the TPP in secret and fast-tracking it through Congress is considered necessary to secure its passage, since if the public had time to review its onerous provisions, opposition would mount and defeat it. James Madison wrote in The Federalist Papers:

The accumulation of all powers, legislative, executive, and judiciary, in the same hands, . . . may justly be pronounced the very definition of tyranny. . . . “Were the power of judging joined with the legislative, the life and liberty of the subject would be exposed to arbitrary control, for the judge would then be the legislator. . . .”

And that, from what we now know of the TPP’s secret provisions, will be its dire effect. The most controversial provision of the TPP is the Investor-State Dispute Settlement (ISDS) section, which strengthens existing ISDS procedures. ISDS first appeared in a bilateral trade agreement in 1959. According to The Economist, ISDS gives foreign firms a special right to apply to a secretive tribunal of highly paid corporate lawyers for compensation whenever the government passes a law to do things that hurt corporate profits — such things as discouraging smoking, protecting the environment or preventing a nuclear catastrophe. Arbitrators are paid $600-700 an hour, giving them little incentive to dismiss cases; and the secretive nature of the arbitration process and the lack of any requirement to consider precedent gives wide scope for creative judgments.

To date, the highest ISDS award has been for $2.3 billion to Occidental Oil Company against the government of Ecuador over its termination of an oil-concession contract, this although the termination was apparently legal. Still in arbitration is a demand by Vattenfall, a Swedish utility that operates two nuclear plants in Germany, for compensation of €3.7 billion ($4.7 billion) under the ISDS clause of a treaty on energy investments, after the German government decided to shut down its nuclear power industry following the Fukushima disaster in Japan in 2011.

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New new deal? Does the US need a Marshall Plan?

US Bridges Falling Down Get No Help From Record 2015 Muni Sale (Bloomberg)

The cheapest borrowing costs in five decades aren’t enough of an incentive for states and cities to address their crumbling bridges and roads. While municipalities have issued a record $130 billion of long-term, fixed-rate bonds this year, an unprecedented 70% of the deals have gone to refinance higher-cost debt, rather than fund capital expenditures, according to Bloomberg and Bank of America Merrill Lynch data. At about $40 billion, muni sales to finance projects are unchanged from the same period last year – even though the nation’s aging infrastructure has become a problem so dire and obvious that it was the subject of a feature by comedian John Oliver last month on HBO’s “Last Week Tonight.”

“Refunding has taken precedence over infrastructure financing,” said Phil Fischer, head of municipal research at Bank of America in New York. “It’s going to save state and local governments a lot on debt-service costs, and it’s going to help them catch up in terms of their pensions and other fixed obligations.” “That can’t go on forever,” he said. “Infrastructure projects are needed all over the country.” The country requires about $3.6 trillion of investment in infrastructure by 2020, according to the American Society of Civil Engineers. The group’s 2013 report gave the country a “D+” grade.

This year’s issuance mix shows state and local officials are reluctant to add debt even though the recession ended almost six years ago and yields on 20-year general obligations, at about 3.5%, are close to a generational low set in 2012. The $3.6 trillion municipal market shrank in 2014 for the fourth-straight year, the longest stretch of declines in Federal Reserve data going back to 1945. Municipalities often sell bonds that they can refinance after a set period, which is a windfall if interest rates decline. California lowered debt-service payments by about $180 million through a $1 billion refunding this week, according to the state treasurer’s office. Four of the five largest muni deals this year were for refinancing, including tobacco debt from California.

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Are the regulators going to claim incompetence?

Crash Boys (Michael Lewis)

The first question that arises from the Commodity Futures Trading Commission’s case against Navinder Singh Sarao is: Why did it take them five years to bring it? A guy living with his parents next to London’s Heathrow Airport enters a lot of big, phony orders to sell U.S. stock market futures; the market promptly collapses on May 6, 2010; it takes five years for the army of U.S. financial regulators to work out that there might be some connection between the two events. It makes no sense. A bunch of news reports have suggested that the CFTC didn’t have the information available to it to make the case. After the flash crash, the commission focused exclusively on trades that had occurred that day, rather than orders designed not to trade – at least until some mysterious whistle-blower came forward to explain how the futures market actually worked. But this can’t be true.

Immediately after the flash crash, Eric Hunsader, founder of the Chicago-based market data company Nanex, which has access to all stock and futures market orders, detected lots of socially dubious trading activity that May day: high-frequency trading firms sending 5,000 quotes per second in a single stock without ever intending to trade that stock, for instance. On June 18, 2010, Nanex published a report of its findings. The following Wednesday, June 23, the website Zero Hedge posted the Nanex report. Two days later the CFTC’s chief economist, Andrei Kirilenko, e-mailed Hunsader. “He invited me out to D.C. and I talked with everyone there (and I mean everyone – including a commissioner),” Hunsader says. “The CFTC then flew out a programmer to our offices where we showed him how to work with our data. Took all of a day. We sent him back with our flash crash data, and that was pretty much the last we heard about that project.”[..]

It would also be interesting to know how it occurred to Sarao that his trick might work. There’s a fabulous yet-to-be-told story here, about a smart kid in the U.K. who somehow figures out that the machines that execute the stock market trades of others might be gamed – and so he games them. One day while he is busy trying to trick the U.S. stock market into falling, the market collapses, more sensationally than it has ever collapsed. And instead of digging some hole in Hounslow in which he might hide for a decade or so, or fleeing to Anguilla, where he has squirreled away his profits, he stays in his parents’ home and keeps right on spoofing the U.S. stock market – and then is shocked when people turn up to accuse him of wrongdoing. He’s not some kind of exception to the standard operating procedure in finance. He’s a parody of it.

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“..a kid who is spoofing the market with a few thousand e-mini contracts and hence taken money from the front-running computers whose real goal is to rip you off.”

Flash Crash Trader Sarao Is A ‘Hero’, Says Fund Manager (Telegraph)

Navinder Singh Sarao has been hailed a “hero” who helps make financial markets “safe for ordinary investors” by a respected fund manager. Mr Sarao is accused of making bogus offers to trade on one of the world’s biggest financial markets, helping to bring about a market crash in 2010 from a house in Hounslow. He denies any wrongdoing. John Hempton, manager of Bronte Capital Management, said the trading methods allegedly used by Mr Sarao had actually helped to protect real investors and their clients. In a blog post, Mr Hempton said that it was “ludicrous” to say Mr Sarao could have brought about the crash through the trading of “a few thousand [futures] contracts”.

His comments echo those of former Barings trader Nick Leeson, who said that Mr Sarao may just be a scapegoat. The US Commodity Futures Trading Commission (CFTC) does not directly blame Mr Sarao for the 2010 Flash Crash, but said that his “manipulative activities … contributed to market conditions that led to the flash crash”. The US watchdog listed “at least” 12 days on which Mr Sarao was using his “automated system”. However, there’s only been one flash crash. Mr Hempton said: “I probably will contribute to his [Mr Sarao’s] defence.” The Australian fund manager said that the so-called “spoofing” techniques employed by Mr Sarao helped to fend off high-frequency traders, which he claimed rip off “real investors”.

Many investors believe that spoofing, the practice of creating fake demand or supply in the market to influence prices, could be widespread. But Mr Hempton argued that the losers from this are “front running” high-frequency traders who attempt to capitalise from ordinary investors. High-frequency traders try to place their orders before conventional investors when they see their orders to make a profit. Mr Hempton said: “[Regulators] have arrested a kid who is spoofing the market with a few thousand e-mini contracts and hence taken money from the front-running computers whose real goal is to rip you off.”

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“Ultimately, there are two possibilities. Either Sarao’s role in the flash crash is being overstated and the real cause remains a mystery, or it is frighteningly easy to bring the world’s financial markets to its knees.”

Can The Hound Of Hounslow Really Be A Wolf Of Wall Street? (Telegraph)

You can almost hear the scriptwriters cracking their knuckles over their keyboards. The prospective film even has a catchy title. You’ve watched The Wolf of Wall Street, now meet The Hound of Hounslow. Want something pithier? How about Flash Crash? This story has everything, except (as far as we know) a love interest. A lone trader has been accused of illegally earning millions of pounds and bringing chaos to the world’s financial markets from a computer in his parents’ semi-detached home in Hounslow. US financial regulators claim that Navinder Singh Sarao’s actions contributed to the so-called “flash crash” in May 2010, when hundreds of billions of dollars were wiped off the value of stocks in a matter of minutes.

They believe Sarao may have made more than $40m (£27m) over the past five years, with nearly $900,000 on the day of the flash crash alone. The 36-year-old trader has been arrested on charges of fraud and market manipulation. If extradited to America and convicted, he will spend the better part of the rest of his life in a federal prison. For the US regulators, this is a story with a happy ending. They’ve been searching for answers to what caused the flash crash since it happened. Sarao’s arrest provides a neat denouement. But, for the rest of us, this week’s developments have raised more questions than answers. Art might benefit from ambiguity, but not financial regulation. Here are some of the many things we still don’t know.

How did Sarao contribute to the 2010 flash crash? First, we need to look at what Sarao was supposedly up to. The thing to realise is that traders have access to a huge amount of information. A company’s share price may be, say, $10. But traders can also see how many people are prepared to sell how many shares at $10.01 and $10.02 and so on, or how many people are prepared to buy how many shares at $9.99, $9.98 and so on. That’s because there are open orders in the market, which, in effect, say: “I’ll buy or sell shares in this company but only when the price hits X.” This is what is meant by the term “liquidity” – the sum total of all the different buy and sell orders at different prices in the market. It’s one of the ways that the market works out what something is worth.

But what if some of those orders aren’t what they seem? What if someone said they wanted to buy or sell stock but actually had no intention of doing so? The financial regulators claim Sarao flooded the market with fake sell orders (saying: “I’ll sell at x”, but systematically cancelling the orders as the price approached x). This convinced other market participants that the quoted price was too high and put downward pressure on the relevant securities. It’s called spoofing. The idea is to try to create small but predictable movements in the market from which you can make a little money lots of times. Most definitely not a lot of money once – that would (or should) attract the attention of regulators. Crashing the market would be the very opposite of what a spoofer would be aiming to do.

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Strong: “Our task is to convince our partners that our undertakings are strategic, rather than tactical, and that our logic is sound. Their task is to let go of an approach that has failed,..”

Chances of Greek Deal ‘Virtually Nil’ (CNBC)

Greece appeared no closer to a reforms-for-aid deal after the country’s finance minister met with his euro zone counterparts on Friday. After the talks, which took place in Latvia’s capital city of Riga, the president of the Eurogroup of euro zone finance ministers issued a stark warning to Athens. “A comprehensive and detailed list of reforms is needed,” Jeroen Dijsselbloem, told reporters, according to Reuters. “A comprehensive deal is necessary before any disbursement can take place… We are all aware that time is running out.” According to Reuters, the discussion with Greece lasted little more than an hour, and Dijsselbloem warned that a remaining €7.2 billion in frozen funds would unavailable after June.

After the meeting, Greek Finance Minister Yanis Varoufakis stated that Athens was willing to make compromises to reach a deal. Varoufakis added that “the cost of not having a solution would be huge for all of us, Greece and the euro zone,” according to Reuters. Finding a compromise between Greece and the bodies which have overseen its two bailouts—the IMF, ECB and European Commission—over required reforms is proving difficult, despite numerous meetings on the issue. Ahead of Friday’s meeting, German Finance Minister Wolfgang Schaeuble said he did not believe there would be decisive progress on Greece in Riga, while his Austrian counterpart said he was “quite annoyed” with the lack of progress, Reuters reported.

Lenders want Greece to implement far-reaching pension and labor market reforms, as well as implement privatization programs and more cost-cutting measures. However, Greece’s leftwing government, which was elected in January in large part because of its opposition to austerity measures, is strongly resistant to doing so. Varoufakis said in in a regular blog post on Thursday that Greece’s partners needed to let go of an approach focused on austerity that had “failed.” “Our task is to convince our partners that our undertakings are strategic, rather than tactical, and that our logic is sound. Their task is to let go of an approach that has failed,” he wrote.

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And he does it with a smile.

Greece’s Varoufakis Takes Hammering From Riled EU Ministers (Bloomberg)

Euro-area finance ministers hurled abuse at Greek Finance Minister Yanis Varoufakis behind closed doors as they shut down his bid to find a shortcut to releasing financial aid. Jeroen Dijsselbloem, the Dutch chairman of the euro-zone finance chiefs’ group, categorically ruled out making a partial aid payment in exchange for a narrower program of reforms after a stormy meeting in Riga, Latvia, in which Varoufakis was heavily criticized by his euro-area colleagues over his failure to deliver economic reforms. Euro-area finance chiefs said Varoufakis’s handling of the talks was irresponsible and accused him of being a time-waster, a gambler and an amateur, a person familiar with the conversations said, asking not to be named because the discussions were private.

“It was a very critical discussion and it showed a great sense of urgency around the room,” Dijsselbloem said at a press conference after the meeting. Asked if there was any chance of a partial disbursement, he said, “The answer can be very short: No.” Varoufakis said the two sides have come “much closer together” and Greece is aiming for a deal as soon as possible. European Central Bank President Mario Draghi added to the pressure on the Greek finance chief warning that policy makers may review the conditions of the emergency funding keeping his country’s banks afloat.

Euro-area governors will “carefully monitor” the haircuts imposed on Greek banks’ collateral when borrowing from the Bank of Greece, Draghi said, to take into account the “change in the environment.” “The higher are the yields, the bigger is the volatility, the more collateral gets destroyed,” he said. “Time is running out as the president of the Eurogroup said, and speed is of the essence.” The euro erased an advance against the dollar on the remarks. The single currency had gained earlier after Kathimerini newspaper reported that Greece secured €450 million from local authorities to boost government coffers.

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“Grexit in the next few months is not inconceivable, and it is certainly more likely if we consider Grimbo durations of a year or more..”

The Greek Crisis Has A New Buzzword: Grimbo (CNBC)

If you’ve been following the ongoing Greek solvency crisis, you have probably heard the terms “Grexit” – referring to Greece exiting the euro zone – and “Grexident” – if it accidentally leaves the bloc – being branded about. But now there’s a new term on the block to sum up the current impasse over reforms: a “Grimbo” – or Greece in limbo. The latest buzzword sums up the drawn-out negotiations between the Greek government and its creditors over its bailout program, which was extended by four months in February to give the country time to enact reforms. The word was coined by the same group of Citi economists – led by Chief Economist Willem Buiter – which thought up the now widely-used “Grexit” term in February 2012, when Greece leaving the euro zone first became a possibility.

In a note published this week, the term said “Grimbo” described a possible “drawn-out” process of negotiations between Greece and its lenders that could result in the country leaving the euro zone. “In our view, a last-minute agreement on a new program (and additional funding) without capital controls or a government default remains plausible. But it is similarly plausible that capital controls will be imposed in Greece or a government default takes place before an agreement is struck or that no agreement will be reached,” the economists said. If Greece did default on its debts and capital controls were issued, a Grexit would not necessarily be inevitable, the economists said. But they added that this could lead to a drawn-out process – a Greek limbo that could, if the gridlock persisted, lead to a Grexit. “Grexit in the next few months is not inconceivable, and it is certainly more likely if we consider Grimbo durations of a year or more,” Buiter and his colleagues remarked.

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That leaves May 9 open as a Grexit date, though it seems more likely that there’ll be more extend and pretend at the moment. Still, Athens must wonder what the use is of continuing on this path. And the election/referendum timing is a big one as well.

Greece Said To Get Respite Until May 6 For Next IMF Payment (Bloomberg)

The ECB prepares to debate on May 6 whether to make access to emergency cash for Greece’s banks more difficult if aid talks remain deadlocked, just as the cash-strapped country will be faced with yet another debt payment. While Prime Minister Alexis Tsipras’s government struggles to pay pensions and salaries at the end of the month, Greece may get a brief respite in interest of about €201 million on its IMF loans due on May 1. As the deadline coincides with a holiday, followed by a weekend, the payment can be delayed until May 6, a person familiar with the matter said. The Fund will only send the payment notification on May 4, and Greece will have two days to make the payment, the person said.

The deadline for a principal repayment of about €766 million, which is due May 12, won’t change. The May 6 interest payment will be due on the same day that the ECB’s Governing Council will meet to discuss whether to extend funds from its Emergency Liquidity Assistance lifeline to Greek lenders. If the review of the country’s bailout remains stalled until then, euro area central bank governors may raise the haircut they apply on collateral they accept in exchange for the funds, which may eventually curb ELA access due to insufficient collateral, a separate person familiar with the matter said. Greek banks are being kept afloat thanks to €75.5 billion of ELA provision, subject to weekly review by the ECB. [..]

If talks over the disbursement of bailout funds reach a dead end, the government would consider the options of snap elections or a referendum, according to Greece’s deputy Prime Minister, Yannis Dragasakis. These alternatives are “at the back of our mind, as options to seek a solution, in case of deadlock” Dragasakis was cited as saying in an interview with To Vima newspaper, on April 19. A referendum on measures requested by creditors and euro membership looks to be the most likely way out of current impasse with a probability of 55%, Dimitris Drakopoulos and Lefteris Farmakis, analysts at Nomura said. If Greece were to act on one of these options, time is running short. The constitution dictates a minimum of three weeks after an election is called for the ballot to be held. This would mean that Tsipras would probably have to decide on this option by next week, or risk the country running out cash in the middle of the campaign trail.

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The absurdity intensifies.

ECB Has Started Buying Covered Bonds With Negative Yields (Bloomberg)

The European Central Bank started buying covered bonds with negative yields as its asset-purchase program reduces the supply of the highly rated debt, according to two people familiar with the matter. The central bank bought the debt in the past two weeks, said the people. The notes were from Germany, one of the people said. The ECB has bought €69.7 billion of covered bonds since October as part of its latest measures designed to stimulus growth in the euro area. The accumulation of assets is driving down yields and the central bank now holds about 15% of the market, according to ABN Amro.

“The ECB has caused this situation by being a big buyer and has exacerbated the already negative net supply of covered bonds,” said Joost Beaumont, a fixed-income strategist at ABN Amro in Amsterdam. “If the ECB buys more, yields will go still lower and that’s going to affect the ECB itself.” The ECB, which is also buying government bonds and asset-backed debt, has said it will buy negative-yielding securities up to its cash deposit rate of minus 0.2%. A negative yield means investors buying the securities now will get back less than they paid if they hold them to maturity. Investors are willing to hold the notes because of their relative safety and because they still offer higher rates than top-rated government bonds and the ECB’s deposit rate.

The central bank’s covered-bond purchase program is its third since the financial crisis and has prompted some of the biggest buyers of the notes from Union Investment to MEAG Munich to scale back holdings. Negative-yielding covered notes account for 20% of the €747.4 billion iBoxx Euro Covered Index, a benchmark used by investors in the debt, according to Credit Agricole. “Supply in positive yields is getting scarce and the ECB may have no other choice to fulfill its targeted purchase volume than to buy negative-yielding bonds,” said Tobias Meyer, an analyst at Norddeutsche Landesbank in Hanover, Germany.

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Perhaps the biggest question concerning China: how does Beijing plan to eat all the bad debt?

China Bad Debt Spikes By More Than A Third (CNBC)

Chinese banks face a spike in bad loans amid slowing economic growth, PwC warns in a new report. “There are a variety of indications that credit risk exposure is accelerating,” said PwC China Banking and Capital Markets leader Jimmy Leung in a press release published on Thursday. Asset quality continues to worsen, while the average overdue loan period is constantly increasing, Leung said, noting there is growing pressure on overdue loans to be downgraded to the non-performing loan category. Slowing growth in the world’s second largest economy prompted the People’s Bank of China (PBoC) to stimulate lending, but that has seen the quality of loans deteriorate.

China’s economy expanded at its slowest full-year pace in 24 years in 2014, undershooting the government’s target for the first time since 1998. The economy continued to lose momentum in the first quarter of 2015 with on-year growth marking its slowest pace in six years. The PBoC has undertaken easing measures to prevent the economy from slowing further. Most recently, the central bank cut the reserve requirement ratio (RRR) for banks by 100 basis points on April 19 to stimulate lending – the second RRR cut in as many months. As the economy slows, the loan books at China’s 12 biggest listed banks are growing, but the quality of their loans appears to be deteriorating.

Banks’ combined loan balance grew 11.49% on-year in 2014 to 52.31 trillion yuan ($8.44 trillion), according to PwC. But NPL, or bad loans, rose at a much higher rate of 38.23% to 641.5 billion yuan, the report said. Loans that could turn bad increased at an even faster pace; overdue, but not NPL loans, jumped 112.65% on-year. “The banks need to get to grips with credit asset quality pressures,” said PwC’s Leung. At the same time, interest rate liberalization, the introduction of deposit insurance and the stock market rally “will affect the stability of [banks’] liabilities,” he said.

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Housing bubbles tend to bite.

Sweden’s Debt Headache Grows More Painful as Court Blocks Curbs (Bloomberg)

Sweden’s central bank abandoned its efforts to cool household debt growth and the financial regulator’s plan was killed by a court. That’s left the new government with the responsibility of coming up with an answer no matter how unpalatable it may be for voters. Finance Minister Magdalena Andersson said on Thursday there’s a need for broad talks in parliament to address Sweden’s household debt headache. Measures could include lowering tax deductions on interest payments, a step that’s likely to be unpopular with voters. So far, most politicians, including Andersson, are rejecting such a move even as the subsidy cost could almost double by 2019.

The government was left holding Sweden’s macroprudential hot potato after the Financial Supervisory Authority dropped a plan to force Swedes to pay down their home loans faster after a key court said the proposal could be illegal. “It’s central that we have talks with the right-wing parties, because we need stable conditions,” Andersson said in an interview after a speech in Stockholm. “It’s important that everyone takes responsibility in this area.” The watchdog said the government now needs to act. It’s seeking to protect the economy after household debt rose to a record as home prices surged over the past decade. It has previously capped mortgage lending at 85% of property values and raised bank capital requirements.

Its preference is for tools that affect households directly over using measures such as raising banks’ capital requirements, already among the world’s highest. It also doesn’t want to lower a cap introduced in 2010. “The government and parliament must give us a clearer mandate,” acting Director-General Martin Noreus said, backed up by both the central bank and debt office. “But the government and parliament can also deal with this in other ways, there are also other tools.” “The FSA still thinks the amortization requirement is relevant, but we also need to look at other alternatives,” including the mortgage deductions, Financial Markets Minister Per Bolund told reporters. “If changes are to be made to mortgage interest deduction, it needs to be done at a slow pace that households can handle.”

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Not something you’ll see written in the western press.

Washington Started All Modern Military Conflicts – Russia’s General Staff (RT)

The US is the sole initiator of all modern military conflicts, maintains Russia’s top brass, adding that Washington and its allies have used military force against third parties over 50 times in a matter of just one decade. The central focus of the American administration has been consistent containment of Russia to prevent alternative center of power emerging, said Lieutenant General Andrey Kartapolov, head of the Main Operation Directorate of Russia’s General Staff. In January, Russian President Vladimir Putin warned the support that Washington provides to the Kiev authorities and Ukrainian army is aimed at “achieving the geopolitical goals of restraining Russia.” Now the US has deployed hundreds of military instructors to Ukraine to train troops.

Yet Russia’s Defense Ministry spokesman Major General Igor Konashenkov accused Washington of sending its soldiers not to training ranges, “but directly in the combat zone near Mariupol, Severodonetsk, Artyomovsk and Volnovakha.” “The US appears to be the ultimate instigator of all military conflicts in the world. The Western countries have begun to hold themselves out as ‘architects’ of the international relations system, leaving to the US the role of the world’s only superpower,” Kartapolov said at a military-scientific conference dedicated to the 70th anniversary of Russia’s victory in WWII. In September 2014, RT reported that although the US has not declared war since 1942, Syria became the seventh country that Barack Obama, the holder of the Nobel Peace Prize, has bombed in the years of his presidency.

Since that recent campaign, US allies in the Persian Gulf, Sunni monarchies armed primarily with American-made weapons, launched a military offensive against Shiite Houthi rebels in Yemen, bombing out country’s military depots and infrastructure. Kartapolov stressed that this position of the west has been officially spelled out in the US national security strategy, presented to American Congress by Obama on February 6. The course being pursued by the White House is determined by strategic ambition to keep the leading geopolitical and economic positions, Kartapolov said.

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But the US is still ‘disappointed’.

EU Allows Sale Of More GMO Food Crops (BBC)

The EU has approved the sale of 17 more genetically modified crops – mostly used in animal feed – and two types of GM carnation. The European Commission’s authorisation process is controversial. The latest approvals were condemned by Green MEPs and Greenpeace environmentalists. 58 GM crops are already used in food and animal feed in the EU. But cultivation is restricted to just one – a type of maize. US biotech firms want the rules eased. The 17 new crop authorisations consist of: soybean (five types), cotton (seven types), maize (three types) and oilseed rape (two types). Cottonseed meal and oil is used in animal feed. GM crops are used widely in the US, South America and Asia, but many Europeans are wary of their impact on health and wildlife.

In the EU, 60% of animal feed is imported. The protein-rich soya in that feed comes overwhelmingly from countries that plant GM soybeans – Brazil, Argentina and the US, the Commission says. GM in food is one of the toughest issues at the EU-US talks on a free trade deal, known as TTIP. Green MEP Bart Staes, a food safety specialist, accused the Commission of ignoring widespread opposition to GMOs among EU citizens. “This gung-ho approach to GMOs also has to be seen in the context of the EU-US TTIP negotiations and the long-running US campaign to force their GMOs on to the EU market,” he said. On Wednesday, the Commission proposed a new law allowing individual EU countries to restrict or ban imported GM crops, even if those crops have been authorised EU-wide by the European Food Safety Authority (Efsa).

A country would have to justify its opt-out from a certain GM crop type, stating specific national or regional grounds for the restriction. Social or environmental impact could be cited as justification for a national ban, rather than purely health concerns. US Trade Representative Michael Froman said the proposal left the US “very disappointed” and he called it “hard to reconcile with the EU’s international obligations”. The only GM crop cultivated in the EU – Monsanto’s maize variety MON 810 – is banned in several EU countries. Spain is by far the biggest grower of MON 810 in Europe, but the crop accounts for just 1.56% of the EU’s total maize-growing area. The UK government is among several countries, including Spain and Sweden, calling for the EU’s GM rules to be eased. However, there is strong opposition in many other countries, including in Austria, France and Germany.

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Apr 242015
 
 April 24, 2015  Posted by at 9:37 am Finance Tagged with: , , , , , , , , , ,  


John Vachon Window in home of unemployed steelworker, Ambridge, PA 1941

Steen Jakobsen Sees “Zero Growth, Zero Inflation, & Zero Hope” (Zero Hedge)
Fed Should Make Bond Buys a Regular Policy Tool, Boston Fed Paper Finds (WSJ)
Why Wall Street Is Scoffing At ‘Flash Crash’ Bust (CNBC)
The Flash Crash Patsy and The ‘Mass Manipulation Of High Frequency Nerds’ (ZH)
Financial Experts Cast Doubt On Case Against ‘Flash Crash Trader’ (Guardian)
A New Deal for Greece (Yanis Varoufakis)
Greece Can Still Put Together Deal Before Money Runs Out: Eurozone (Guardian)
Varoufakis Tells Magazine: Grexit No Bluff If More Austerity Imposed (Reuters)
Greek Bank Offers Up To €20,000 Relief To Poverty-Stricken Borrowers (Reuters)
Alexis Tsipras Seeks Interim Deal For Greece In Talks With Merkel (Guardian)
EU Leaders Show Plan To Thwart Mediterranean Migration Wave (CNBC)
France Declared “Lost In Stagnation” (Telegraph)
Oil Slump May Deepen As US Shale Fights OPEC To A Standstill (AEP)
Chinese Scientists Edit Genes of Human Embryos (NY Times)
Deutsche Bank Hit By Record $2.5 Billion Libor-Rigging Fine (Guardian)
The Secret Country Again Wages War On Its Own People (John Pilger)
The EU-Gazprom War (Pepe Escobar)
A War Waged From German Soil: US Ramstein Base Key in Drone Attacks (Spiegel)
Giant New Magma Reservoir Found Beneath Yellowstone (Smithsonian)

“..a Fed hike will act as a margin call on the global economy.”

Steen Jakobsen Sees “Zero Growth, Zero Inflation, & Zero Hope” (Zero Hedge)

Entrepreneurs around the world are “drowning in this nothingness reality,” and Saxobank CIO Steen Jakobsen sees a crisis correction as the only outcome of a zero environment in his opinion. “We have zero growth, zero inflation and zero hope,” he explains based on his recent global travels meeting business leaders and key investors whose shared negative outlook was striking. The following brief clip concludes ominously, with Jakobsen noting that he “believes a Fed hike will act as a margin call on the global economy.”

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Because if we just buy everything in sight with Monopoly money, what could possibly go wrong?

Fed Should Make Bond Buys a Regular Policy Tool, Boston Fed Paper Finds (WSJ)

The Federal Reserve should consider keeping bond buys as a regular tool of monetary policy rather than return to a more conventional policy relying just on setting short-term rates, a newly-released paper from the Federal Reserve Bank of Boston says. In particular, the central bank’s new de-facto third mandate, overseeing financial stability, might benefit from a broader array of available policy measures, argues Michelle Barnes, a senior economist adviser at the Boston Fed. “Largely missing from discussions about the Fed’s ‘exit strategy’ is a consideration that perhaps it should retain, not discard, the balance sheet tools,” Ms. Barnes writes.

“Since the Dodd-Frank Act has added maintaining financial stability to the Fed’s existing dual mandate to achieve maximum sustainable employment in the context of price stability, it might be beneficial to have several tools to achieve multiple policy objectives.” In response to the financial crisis and its aftermath, the Fed has held short-term interest rates near zero since December 2008. It also has purchased trillions of dollars-worth of Treasury and mortgage-backed securities to hold down long-term rates in hopes of spurring stronger economic growth. It’s portfolio of assets is now about $4.5 trillion, up from less than $1 trillion before the crisis. The Fed has stopped buying assets but is maintaining the size of its balance sheet by reinvesting the payments of principal on the bonds it holds.

Fed Chairwoman Janet Yellen told the Senate Banking Committee in February the central bank had no plans to reduce the portfolio through asset sales. The Fed intends at some point to let the balance sheet shrink gradually by ceasing the reinvestment process, she said. The Fed’s long-run intention is to hold “no more securities than necessary for the efficient and effective implementation of monetary policy,” she added. But Ms. Barnes says the Fed should be open to buying more bonds in the future if necessary to influence interest rates and to maintaining a large balance sheet. “Having more than just one primary policy tool confers greater flexibility and may allow the Fed to better fulfill what are now its three policy goals,” the author writes.

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What’s worse than stupid?

Why Wall Street Is Scoffing At ‘Flash Crash’ Bust (CNBC)

In arresting Navinder Sarao this week and charging him with manipulating markets, regulators indicated they’d gotten to the bottom of 2010’s “flash crash.” Many on Wall Street, though, believe the work is only starting. That’s probably a gentle way of stating the Street’s reaction to Sarao’s arrest Tuesday. Many pros openly scoffed at the notion that Sarao was the sole culprit of the spectacular plunge on May 6, 2010. On that day, the Dow industrials rapidly lost about 600 points, taking the average down nearly 1,000 points on the session, only to rebound within a matter of minutes. According to separate indictments, Sarao masterminded a scheme in which he was able to send orders to the market that he had no intention of executing, a practice called “spoofing” that caused a market plunge on which Sarao capitalized.

The practice happened within minutes of the crash and was a direct cause of it, according to regulators. Authorities allege he acted mostly alone rather than as part of a large, sophisticated operation. However, many experts believe the explanation is at least an oversimplification and at most an intent to deflect attention away from more fundamental weaknesses in the financial markets. “The real issue here is that markets have dramatically changed over the past two decades but regulators have not kept up,” Joe Saluzzi and Sal Arnuk, who run Themis Trading and have been ardent supporters of changes to market structure, said in a blog post Thursday. “While technology has increased efficiency and brought down trading costs, it has also changed the way traders access the markets.”

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” Shockingly, the SEC appeared in front of Congress claiming it has everything under control, when it now admits it never even looked at spoofing.”

The Flash Crash Patsy and The ‘Mass Manipulation Of High Frequency Nerds’ (ZH)

There are several notable items in Bloomberg’s comprehensive overnight summary of the epic humiliation America’s market regulators are about to undergo, complete with yet another round of theatrical Congressional kangaroo courts, which will lead to a lot of red faces, a wrist slap or two and maybe even the termination of one or two lowly employees and… nothing else. Because what difference does it make? At this point only a bottom-up overhaul can “fix” the fragmented, broken market which by definition can only come after the next market crash, one which will promptly be blamed on HFTs (which leaving the central bankers unscathed). Back to the Bloomberg piece in which we first discover that it wasn’t even the CFTC that, 5 years later, “figured out” the flash crash was one person’s fault:

When Washington regulators did a five-month autopsy in 2010 of the plunge that briefly erased almost $1 trillion from U.S. stock prices, they didn’t even consider whether it was caused by individuals manipulating the market with fake orders. Their analysis was upended Tuesday with the arrest of Navinder Singh Sarao — a U.K.-based trader accused by U.S. authorities of abusive algorithmic trading dating back to 2009. Even that action was spurred not by regulators’ own analysis but by that of a whistle-blower who studied the crash, according to Shayne Stevenson, a Seattle lawyer representing the person who reported the conduct.

Your tax money not at work. But fear not: after today’s Deutsche Bank $2.5 billion “get out of jail” card, the CFTC will be $800 million richer and can finally even afford to hire a former trader who has some understanding of how the market works. [..] Second, the reason why the SEC wrote a 104-page report with “findings explaining the Flash Crash” which it will have no choice but to retract in light of the latest news and developments, is the following:

Spoofing wasn’t even part of the CFTC’s analysis of the crash, said James Moser, a finance professor at American University who was the agency’s acting chief economist in May 2010. The flash-crash review marked the first time that the agency worked through the CME’s massive order book. CFTC officials often needed to call the exchange for help interpreting the data, he said in an interview. “We didn’t look for any sort of spoofing activity,” said Moser, who added that he doubts that Sarao’s activity was the main cause of the crash. “At that point in 2010, that wasn’t high on the radar, at least in our minds.”

So the CME, which is the exchange that trades the E-mini, “concluded within four days of the 2010 flash crash that algorithmic trading on futures exchanges didn’t exacerbate losses in the market,” and a few months later, so did the SEC, which instead pinned the entire crash on Waddell & Reed. And the way it did it was by completely ignoring about 99% of all posted quotes: the layered and rapidly canceled trades or what we dubbed “quote stuffing” one whole month after the Flash Crash, in June. In fact we even explained it to anyone who cared to listen: “How HFT Quote Stuffing Caused The Market Crash Of May 6, And Threatens To Destroy The Entire Market At Any Moment.” Shockingly, the SEC appeared in front of Congress claiming it has everything under control, when it now admits it never even looked at spoofing.

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“..there’s no way they didn’t know about this; You cannot miss it; it really is that easy.”

Financial Experts Cast Doubt On Case Against ‘Flash Crash Trader’ (Guardian)

Financial experts have raised questions about how a 36-year-old Londoner could have almost single-handedly caused the 2010 “flash crash” that wiped billions off the value of US stocks in seconds. Navinder Singh Sarao, 36, from Hounslow, west London, appeared in court in the UK on Wednesday charged with crimes the Department of Justice believes helped cause the Dow Jones industrial average to plunge 600 points in five minutes, wreaking havoc on Wall Street. The DoJ and Commodity Futures Trading Commission (CFTC) have accused Sarao of multiple charges of wire fraud, commodities fraud and market manipulation, and are seeking his extradition to the US.

US authorities have offered several explanations for the flash crash, which rattled stock markets worldwide. Sarao’s arrest comes five years after the SEC and CFTC’s official report said the crash was caused in part by an automated sale algorithm at a mutual fund, widely identified as Waddell Reed. There was no mention in the report of Sarao, or an unidentified individual trader that could have been Sarao. Eric Hunsader, chief executive of financial data company Nanex which monitors all market trades, said it was very unlikely that a single trader could have caused the crash – and questioned why it had taken so long for the authorities to discover Sarao’s suspect trades.

“I think he’s a small fish, it’s really disappointing to see the Justice Department laying the blame on a small guy, [it is as if] they are afraid of the big players,” he told the Guardian. “I don’t think they thought this through. If one guy can do this what [could] a well capitalised country or terrorists do? The only thing preventing him from causing total destruction was fear of getting caught. A terrorist wouldn’t have that fear.” Hunsader said trade data also showed that Sarao’s trading algorithm was switched off two minutes before the crash which started at 14:42:44 on 6 May 2010. “The CTFC had audit trail data [at the time of the report], there’s no way they didn’t know about this,” Hunsader said. “You cannot miss it; it really is that easy.”

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“..working backward to the present. The result of this method, in our government’s opinion, is an “austerity trap.”

A New Deal for Greece (Yanis Varoufakis)

Three months of negotiations between the Greek government and our European and international partners have brought about much convergence on the steps needed to overcome years of economic crisis and to bring about sustained recovery in Greece. But they have not yet produced a deal. Why? What steps are needed to produce a viable, mutually agreed reform agenda? We and our partners already agree on much. Greece’s tax system needs to be revamped, and the revenue authorities must be freed from political and corporate influence. The pension system is ailing. The economy’s credit circuits are broken. The labor market has been devastated by the crisis and is deeply segmented, with productivity growth stalled.

Public administration is in urgent need of modernization, and public resources must be used more efficiently. Overwhelming obstacles block the formation of new companies. Competition in product markets is far too circumscribed. And inequality has reached outrageous levels, preventing society from uniting behind essential reforms. This consensus aside, agreement on a new development model for Greece requires overcoming two hurdles. First, we must concur on how to approach Greece’s fiscal consolidation. Second, we need a comprehensive, commonly agreed reform agenda that will underpin that consolidation path and inspire the confidence of Greek society. Beginning with fiscal consolidation, the issue at hand concerns the method.

The “troika” institutions have, over the years, relied on a process of backward induction: They set a date (say, the year 2020) and a target for the ratio of nominal debt to national income (say, 120%) that must be achieved before money markets are deemed ready to lend to Greece at reasonable rates. Then, under arbitrary assumptions regarding growth rates, inflation, privatization receipts, and so forth, they compute what primary surpluses are necessary in every year, working backward to the present. The result of this method, in our government’s opinion, is an “austerity trap.” When fiscal consolidation turns on a predetermined debt ratio to be achieved at a predetermined point in the future, the primary surpluses needed to hit those targets are such that the effect on the private sector undermines the assumed growth rates and thus derails the planned fiscal path.

Indeed, this is precisely why previous fiscal-consolidation plans for Greece missed their targets so spectacularly. Our government’s position is that backward induction should be ditched. Instead, we should map out a forward-looking plan based on reasonable assumptions about the primary surpluses consistent with the rates of output growth, net investment, and export expansion that can stabilize Greece’s economy and debt ratio. If this means that the debt-to-GDP ratio will be higher than 120% in 2020, we devise smart ways to rationalize, re-profile, or restructure the debt – keeping in mind the aim of maximizing the effective present value that will be returned to Greece’s creditors.

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Greece already has. The ‘partners’ just haven’t accepted it.

Greece Can Still Put Together Deal Before Money Runs Out: Eurozone (Guardian)

There is still time for Greece to stitch together a deal with Brussels before it runs out of money, according to eurozone finance ministers speaking privately at last week’s International Monetary Fund spring conference. And the betting must be that crisis-plagued Athens will eventually find a way to retain its membership of the eurozone with a messy compromise. But the odds are getting slimmer with every passing week. On Friday, finance minister Yanis Varoufakis meets his counterparts in the Latvian capital Riga in what many analysts believe is the penultimate gathering to work out a deal before Athens’s coffers run dry.

With only an outline sketch of an agreement on the table, many of Europe’s most senior policymakers are of the opinion that a crisis point will be reached and Athens’s radical left Syriza government will be forced to either capitulate to Brussels or quit the euro. Tsipras said on Thursday that a deal was close, contradicting an IMF statement that it had only just started to discuss a methodology for talks with the aim of slimming down the number of reforms required from double figures to nearer five. Until this week Varoufakis has worked to a longer timetable than the one set out by the eurogroup of finance ministers. While they want a deal tied down in May, Varoufakis has insisted he has until June.

That’s not just a ruse to buy more time. It is a more fundamental difference over what to discuss and what kind of agreement will stabilise Greek finances and provide the best long term solution for the currency union. As Varoufakis said last week: “Greece wants time … to persuade our partners, especially in northern Europe, that this government does not want to go back to the profligacy of recent years. And they need to persuade us that they do not want to impose a programme … that has failed.”

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And it’s not, you can count on that.

Varoufakis Tells Magazine: Grexit No Bluff If More Austerity Imposed (Reuters)

The risk that Greece would have to leave the euro if it has to accept more austerity is no bluff, Greek Finance Minister Yanis Varoufakis told a French magazine, saying that no one could predict what the consequences of such an exit would be. In a conversation with philosopher Jon Elster conducted at the end of March and published in France’s Philosophie Magazine, Varoufakis, a specialist in game theory, said this was not the time to bluff over Greece’s debt talks. “We cannot bluff anymore. When I say that we’ll end up leaving the euro, if we have to accept more unsustainable austerity, this is no bluff,” Varoufakis is quoted as saying.

Greek PM Alexis Tsipras called for a speeding up of work to conclude a reform-for-cash deal with euro zone creditors to keep his country afloat after talks with German Chancellor Angela Merkel on Thursday. The leftist Greek premier met the conservative German leader a day before euro zone finance ministers meet in Riga to review progress – or the lack of it – in slow-moving negotiations between Athens and its international lenders. The Greek government has insisted it will remain a euro zone member, and its currency bloc partners have said they want it to stay.

However, in contrast to the height of the debt crisis in 2012, when Grexit fears spurred panic selling of other weak euro zone sovereigns, investors now seem relaxed about the fate of Greece, which accounts for just 2% of the region’s economy. Asked what would happen if Greece was to leave the euro, Varoufakis mentioned comments made by European policymakers who say any contagion effect could be avoided and added that, on the contrary, he believed the consequences would be unpredictable. “Anyone who pretends they know what would happen the day we’ll be pushed over the cliff is talking nonsense and is working against Europe,” he said.

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This is what Syriza is all about.

Greek Bank Offers Up To €20,000 Relief To Poverty-Stricken Borrowers (Reuters)

Piraeus Bank will write off credit cards and retail loans up to €20,000 for Greeks who qualify for help under a law the leftist government passed to provide relief to poverty-stricken borrowers, it said on Thursday. Greece has received two EU/IMF bailouts totalling €240 billion since it was hit by a debt crisis. The austerity programme imposed as a condition of the rescue has left one in four people out of work, and thousands struggling to pay debts. The Syriza party was elected in January on a promise to end the belt-tightening. Its first legislative act was to pass a bill offering free food and electricity to thousands of struggling Greeks. Piraeus said it would also write off interest on mortgages for qualifying borrowers, but did not provide details on how many people might benefit.

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He knows the answer in advance, but the motions need to be gotten through..

Alexis Tsipras Seeks Interim Deal For Greece In Talks With Merkel (Guardian)

Greece’s increasingly desperate financial state was highlighted on Thursday when the country’s prime minister Alexis Tsipras urged the German chancellor Angela Merkel to use her influence to speed up deadlocked negotiations over a new aid package. Amid signs that the long-running talks between Athens and its creditors are having a dampening effect on the eurozone economy, Tsipras used a meeting with Merkel in Brussels to seek an interim deal by the end of the month that would provide money in return for a Greek commitment to reform. The conversation between Tsipras and Merkel came on the fifth anniversary of Greece’s first call for a financial bail out, and raised hopes in the financial markets that a deal could be done before the stricken eurozone country ran out of money to pay pensions, salaries and debts to the IMF.

Shares in Athens rose by 2.4% after falling to a three-year low on Wednesday while interest rates (the yield) on two-year Greek bonds fell from 27.6% to 25.5%. A Greek official said the meeting between Tsipras and Merkel took place in a “positive and constructive atmosphere” and expressed confidence that a deal was close. The official gave no details of the discussion but said: “During the meeting, the significant progress made since the Berlin meeting until today was noted. The prime minister asked that the procedures be speeded up so that the 20 Feb decision, which foresees a first interim agreement by the end of April, be implemented.”

An interim deal would give Greece some of the money it needs to meet its €2bn wages and pensions bill on 30 April, and to make two payments to the IMF totalling €970m in early May. But the mood among European Commission officials was less upbeat, with Brussels sources saying that the refusal of Athens to provide information meant little real progress had been made. It had been hoped that a meeting of finance ministers from the 18-strong eurozone would sign off a new package of help for Greece when it meets in Riga on Friday. That, though, has proved impossible, prompting speculation that Greece is moving closer to a debt default that could eventually lead to its departure from the eurozone.

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It doesn’t get emptier than this: “Europe is declaring war on smugglers..”

EU Leaders Show Plan To Thwart Mediterranean Migration Wave (CNBC)

European Union leaders Thursday pledged to step up efforts to try to stem a wave of deadly migration across treacherous Mediterranean waters that has claimed hundreds of lives in just the past week. But the plan to thwart the lucrative smuggling trade faces huge political and economic obstacles, as millions of refugees in war-torn and impoverished nations seek better lives in Europe. “There is such a mass of people who are disposed at any cost to leave and come with the prospect of jobs or liberty and a better future,” said Marianna Vintiadis, who heads the Italian office of Kroll Associates, a risk management consultancy. “They’re spending 15 to 20 times the price of a plane ticket to make the most atrocious journey of their lives.”

A draft of the plan obtained by The Associated Press includes a pledge by the 28-nation bloc to double its spending on search and rescue operations to save lives, as well as to seize and destroy vessels used for human smuggling before they leave shore. British Prime Minister David Cameron committed his country’s navy flagship, HMS Bulwark, along with three helicopters and two border patrol ships to the EU effort. Germany reportedly pledged to send a troop supply ship and two frigates to assist in the effort. Belgium and Ireland also offered to deploy navy ships. The stepped-up efforts to halt a lethal wave of northward migration come as search and rescue operations have brought hundreds of bodies ashore in a series of deadly shipwrecks carrying migrants seeking passage to Europe.

The immigrant wave is being driven by strong demand for passage from people fleeing civil unrest, persecution or chronic unemployment in their home countries. “Europe is declaring war on smugglers,” AP quoted the EU’s top migration official, Dimitris Avramopoulos, who was in Malta to attend the funeral of 24 migrants who perished at sea.Italy’s proximity to Africa has made it another favored smuggling route. Italian ships recently rescued some 10,000 migrants in a single week, according to the IOM, bringing the total number of migrants reaching Italian shores to more than 21,000 so far this year. In 2013, more than 26,000 migrants arrived through April 30, the IOM said, citing the Italian Ministry of Interior figures.

Though northern African ports are popular transit points, millions of refugees are making their way from trouble spots across the continent, according to data collected by the United Nations High Commissioner for Refugees. Many more are displaced in their home country, unable to flee or seek asylum abroad.

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If you’re big, you get a BIG stagnation. And then you die.

France Declared “Lost In Stagnation” (Telegraph)

The French economy remained a blot on the eurozone’s economic landscape in April, as leading surveys of the private sector showed the country lagging the pack. Closely-followed indicators for France revealed that the country’s private sector growth slowed this month. The all-sector purchasing managers’ index (PMI) slipped from March’s 51.5 to 50.2, according to preliminary estimates compiled by Markit. Any number above 50 would imply that the private side of the economy was growing, a threshold the French index narrowly managed to remain above. While the currency bloc’s other large economies enjoyed stronger scores, analysts at French banks declared that the country was still limp. Frederik Ducrozet, an economist at Crédit Agricole, said that France was “still lost in stagnation”. Ken Wattret, of BNP Paribas, said that the reading “looks very disappointing”.

Both the manufacturing and services components of the French PMI fell in April, to 48.4 and 50.8 respectively, as the country’s industrial sector continues to shrink. Jack Kennedy, an economist at Markit, said: “Output growth stuttered almost to a halt in April, signalling a continuation of the moribund economic environment.” The data came as Benoit Coeure, a European Central Bank (ECB) board member, said that: “The eurozone recovery is clearly there.” The PMI for the entire eurozone came in at 53.5 in April, 0.5 points weaker than March’s reading. The euro stumbled against the dollar, dropping by 0.4pc as the euro’s nascent revival appeared slightly weaker. Mr Coeure said that “growth is coming back” but that at present the recovery has been “insufficient and somewhat unequally spread from country to country”.

Jessica Hinds, an economist at Capital Economics, said that the fall “suggests that fears over Greece might already be starting to dampen growth in the region”. She added: “The PMI for the region as a whole suggests that the region’s economic recovery failed to gain momentum at the start of the second quarter.” Chris Williamson, Markit’s chief economist, said: “The weaker rate of expansion is a big disappointment, given widespread expectations that the European Central Bank’s QE will have boosted the fledgling recovery seen at the start of the year.” However, he cautioned that it was too early to say that euro area growth was faltering again. “The slowdown in April was in fact therefore a symptom of weaker expansions in both Germany and France,” he said.

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“The freight train of North American tight oil has just kept on coming. This is a classic price discovery exercise..”

Oil Slump May Deepen As US Shale Fights OPEC To A Standstill (AEP)

The US shale industry has failed to crack as expected. North Sea oil drillers and high-cost producers off the coast of Africa are in dire straits, but America’s “flexi-frackers” remain largely unruffled. One starts to glimpse the extraordinary possibility that the US oil industry could be the last one standing in a long and bitter price war for global market share, or may at least emerge as an energy superpower with greater political staying-power than OPEC. It is 10 months since the global crude market buckled, turning into a full-blown rout in November when Saudi Arabia abandoned its role as the oil world’s “Federal Reserve” and opted instead to drive out competitors. If the purpose was to choke the US “tight oil” industry before it becomes an existential threat – and to choke solar power in the process – it risks going badly awry, though perhaps they had no choice.

“There was a strong expectation that the US system would crash. It hasn’t,” said Atul Arya, from IHS. “The freight train of North American tight oil has just kept on coming. This is a classic price discovery exercise,” said Rex Tillerson, head of Exxon Mobil, the big brother of the Western oil industry. Mr Tillerson said shale producers are more agile than critics expected, which means that the price war will go on. “This is going to last for a while,” he said, warning that any rallies are likely to prove false dawns. The US “rig count” – suddenly the most-watched indicator in global energy – has fallen from 1,608 in October to 747 last week. Yet output has to continued to rise, stabilizing only over the past five weeks.

Mr Tillerson said this is more or less what happened in the sister market for US shale gas. In 2009, some 1,200 rigs produced 5.5bn cubic feet (bcf) of gas per day at a market price near $8. Today the price is just $2.50. Nobody would have believed back then that the industry would continue boosting supply to 7.3 bcf, and be able to do so with just 280 rigs. “Will we see the same phenomenon in five years in tight oil? I don’t know, but this is a very resilient industry. I think people will be surprised,” Mr Tillerson said, speaking at the IHS CERAWeek forum in Houston. “We’ve really only begun to scratch the surface. Shale can keep growing by 500,000 to 700,000 b/d easily,” said Harold Hamm, founder of Continental Resources. His company has cut costs by 20pc to 25pc over the past four months.

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Man will kill itself while looking for better man.

Chinese Scientists Edit Genes of Human Embryos (NY Times)

The experiment with human embryos was dreaded, yet widely anticipated. Scientists somewhere, researchers said, were trying to edit genes with a technique that would permanently alter the DNA of every cell so that any changes would be passed on from generation to generation. Those concerns drove leading researchers to issue urgent calls in major scientific journals last month to halt such work on human embryos, at least until it could be proved safe and until society decided if it was ethical. Now, scientists in China report that they tried it. The experiment failed, in precisely the ways that had been feared.

The Chinese researchers did not plan to produce a baby — they used defective human embryos — but did hope to end up with an embryo with a precisely altered gene in every cell but no other inadvertent DNA damage. None of the 85 human embryos they injected fulfilled those criteria. In almost every case, either the embryo died or the gene was not altered. Even the four embryos in which the targeted gene was edited had problems. Some of the embryo cells overrode the editing, resulting in embryos that were genetic mosaics. And speckled over their DNA was a sort of collateral damage – DNA mutations caused by the editing attempt.

“Their study should give pause to any practitioner who thinks the technology is ready for testing to eradicate disease genes during I.V.F.,” said Dr. George Q. Daley, a stem cell researcher at Harvard, referring to in vitro fertilization. “This is an unsafe procedure and should not be practiced at this time, and perhaps never.” David Baltimore, a Nobel laureate molecular biologist and former president of the California Institute of Technology, said, “It shows how immature the science is,” adding, “We have learned a lot from their attempts, mainly about what can go wrong.”

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Which individual manager paid what though? If they didn’t pay a dime, how are they not going to do the same thing all over again?!

Deutsche Bank Hit By Record $2.5 Billion Libor-Rigging Fine (Guardian)

Germany’s Deutsche Bank has been fined a record $2.5bn for rigging Libor, ordered to fire seven employees and accused of being obstructive towards regulators in their investigations into the global manipulation of the benchmark rate. The penalties on Germany’s largest bank also involve a guilty plea to the Department of Justice (DoJ) in the US and a deferred prosecution agreement. The regulators released a cache of emails, electronic messages and phone calls showing the attempts to move the rate used to price £3.5tn of financial contracts. “I’m begging u pleassssseeeee I’m on my knees” is among the examples provided by regulators in hundreds of pages of detail accompanying the fine – the eighth related to rigging interest rates.

Another trader, on learning a rate was unchanged, sent a message saying: “Oh bullshit…..strap on a pair and jack up the 3M (month). Hahahahaha.” . Georgina Philippou, the acting director of enforcement and market oversight at the Financial Conduct Authority, said the UK’s portion of the fine – £227m – was a record for Libor because the bank had been misleading the regulator. The manipulation took place to generate profits and was pervasive, the FCA said. “This case stands out for the seriousness and duration of the breaches by Deutsche Bank – something reflected in the size of today’s fine. One division at Deutsche Bank had a culture of generating profits without proper regard to the integrity of the market. This wasn’t limited to a few individuals but, on certain desks, it appeared deeply ingrained,” she said.

“Deutsche Bank’s failings were compounded by them repeatedly misleading us. The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems and controls,” said Philippou. The German bank had said on Wednesday that it would still remain profitable in the first quarter when it reports results next week before a major restructuring that could involve the bank pulling back from the high street. For the first time in a Libor-rigging settlement, New York state’s Department of Financial Services (NYDFS) was involved and it ordered the bank to sack seven employees – one managing director, four directors and one vice-president, all based in London, together with one Frankfurt-based vice-president. The bank immediately took action to comply with this demand.

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It somehow seems fitting: “100,000 years of life lost due to premature death”. “First, the government closed the services,” wrote Tammy Solonec of Amnesty International, “It closed the shop, so people could not buy food and essentials. It closed the clinic, so the sick and the elderly had to move, and the school, so families with children had to leave, or face having their children taken away from them. The police station was the last service to close, then eventually the electricity and water were turned off. ”

The Secret Country Again Wages War On Its Own People (John Pilger)

Australia has again declared war on Indigenous people, reminiscent of the brutality that brought global condemnation on apartheid South Africa. Aboriginal people are to be driven from homelands where their communities have lived for thousands of years. In Western Australia, where mining companies make billion dollar profits exploiting Aboriginal land, the state government says it can no longer afford to “support” the homelands. Vulnerable populations, already denied the basic services most Australians take for granted, are on notice of dispossession without consultation, and eviction at gunpoint. Yet again, Aboriginal leaders have warned of “a new generation of displaced people” and “cultural genocide”.

Genocide is a word Australians hate to hear. Genocide happens in other countries, not the “lucky” society that per capita is the second richest on earth. When “act of genocide” was used in the 1997 landmark report Bringing Them Home, which revealed that thousands of Indigenous children had been stolen from their communities by white institutions and systematically abused, a campaign of denial was launched by a far-right clique around the then prime minister John Howard. It included those who called themselves the Galatians Group, then Quadrant, then the Bennelong Society; the Murdoch press was their voice. The Stolen Generation was exaggerated, they said, if it had happened at all. Colonial Australia was a benign place; there were no massacres.

The First Australians were victims of their own cultural inferiority, or they were noble savages. Suitable euphemisms were deployed. The government of the current prime minister, Tony Abbott, a conservative zealot, has revived this assault on a people who represent Australia’s singular uniqueness. Soon after coming to office, Abbott’s government cut $534 million in indigenous social programmes, including $160 million from the indigenous health budget and $13.4 million from indigenous legal aid. In the 2014 report Overcoming Indigenous Disadvantage Key Indicators, the devastation is clear. The number of Aboriginal people hospitalised for self-harm has leapt, as have suicides among those as young as eleven.

The indicators show a people impoverished, traumatised and abandoned. Read the classic expose of apartheid South Africa, The Discarded People by Cosmas Desmond, who told me he could write a similar account of Australia. Having insulted indigenous Australians by declaring (at a G20 breakfast for David Cameron) that there was “nothing but bush” before the white man, Abbott announced that his government would no longer honour the longstanding commitment to Aboriginal homelands. He sneered, “It’s not the job of the taxpayers to subsidise lifestyle choices.”

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“One just needs to look at the nations involved in pushing against Gazprom’s supposedly monopolistic practices: Lithuania, Estonia, Bulgaria, Czech Republic, Hungary, Latvia, Slovakia and Poland.”

The EU-Gazprom War (Pepe Escobar)

The European Commission is slapping anti-trust charges against Russia’s Gazprom under the pretext the energy giant is blocking competition in Central and Eastern Europe. This is yet another graphic example of the extreme politicization involving what should have been Europe’s energy policy. There is no such policy – even after virtually a decade of “discussions” inside that glassy Kafkaesque Brussels nightmare, the Berlaymont. The EC investigation started in September 2012. Why did it take the Berlaymont bureaucrats so long to reach an initial verdict? Simple; it’s always been about politics – not energy. One just needs to look at the nations involved in pushing against Gazprom’s supposedly monopolistic practices: Lithuania, Estonia, Bulgaria, Czech Republic, Hungary, Latvia, Slovakia and Poland.

With the exception of Hungary, all these are, or have been forced to act, anti-Russian. The argument that Gazprom is “dominant” and prevents competition is bogus; there’s no competition because there are no other viable energy sources for the European market. The Europeans should blame the US instead, for keeping a nasty package of sanctions on Iran for so long. But of course EU Competition Commissioner Margrethe Vestager would never do that. If Gazprom is finally ruled guilty, fines may be as steep as 10% of overall sales to Europe – which were the ruble equivalent of €93 billion ($100 billion) in 2013, according to the latest data. Vestager has been busy lately. She already formally charged Google with abusing its also “dominant” position. Yet another case of no European company able to compete with Google.

It will be fascinating to watch the reaction in US business circles. Bets can be made on plenty of outrage in the Google case contrasting with plenty of rejoicing in the Gazprom case. Gazprom supplies roughly a third of the EU’s gas; half of the gas transits Ukraine. As even a low-level IMF clerk knows, Kiev is not exactly keen on paying its gas bills. So Gazprom had to go to great lengths to try to get the fees due – even suspending the gas flow on occasion as Kiev would be rerouting gas meant for the EU for its own internal needs. Anyway failed state Ukraine, for Gazprom, is finished as a transit route. Gazprom CEO Aleksey Miller has already announced that will end by 2019. By then, all the action will be around Turkish Stream.

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“..the Americans’ secretiveness also comes in handy for Berlin. Not knowing anything officially prevents the government from having to take any action.”

A War Waged From German Soil: US Ramstein Base Key in Drone Attacks (Spiegel)

Knowledge is power. Ignorance often means impotence. But sometimes ignorance can be comfortable, if it protects from entanglements, conflicts and trouble. This even applies to the German chancellor. In the heart of Germany’s Palatinate region — just a few kilometers from the city of Kaiserslautern — the United States maintains its largest military base on foreign soil. The base is best known as a hub for American troops making their way to the Middle East But another strategic task of the headquarters of the United States Air Force in Europe (USAFE) remained a national secret for years. Even the German government claimed to know nothing when, two years ago, the base became the subject of suspicion.

It was alleged that Ramstein is also an important center in President Barack Obama’s drone war against Islamist terror. A former pilot claimed that the data for all drone deployments is routed through the military base. The report caused quite a stir. Were the deadly precision weapons – which can eliminate al-Qaida terrorists, Taliban fighters or members of the Shabaab militia on the Horn of Africa with apparent clinical precision – guided toward their targets via German soil? No, the German government said at the time, that’s not quite correct. But even today, the government says it still has “no reliable information” about what exactly is going on. The United States has refused to provide it.

But the Americans’ secretiveness also comes in handy for Berlin. Not knowing anything officially prevents the government from having to take any action. Berlin’s comfortable position, though, could soon be a thing of the past. Classified documents that have been viewed by SPIEGEL and The Intercept provide the most detailed blueprint seen to date of the architecture of Obama’s “war on terror.” The documents, which originate from US intelligence sources and are classified as “top secret,” date from July 2012. A diagram shows how the US government structures the deployment of drones. Other documents provide significant insight into how operations in places like Somalia, Afghanistan, Pakistan or Yemen are carried out. And they show that a central – and controversial – element of this warfare is played out in Germany.

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Blow baby blow! What other way are they ever going to wake up?!

Giant New Magma Reservoir Found Beneath Yellowstone (Smithsonian)

Enough hot rock sits beneath Yellowstone National Park to fill the Grand Canyon nearly 14 times over, according to our best view yet of the supervolcano that lies below the famous landscape. The first three-dimensional image of the inner workings of the Yellowstone supervolcano has revealed an 11,200-cubic-mile magma reservoir about 28 miles below the surface. A previously known 2,500-cubic-mile magma chamber sits above that, at about 12 miles deep. Both serve as conduits between a hotspot plume that may originate in the Earth’s core and the Yellowstone caldera at the planet’s surface.

“Every additional thing we learn about the Yellowstone volcanic system is one more piece in the puzzle, and that gets us closer to really understanding how the volcanic system works,” says study co-author Fan-Chi Lin of the University of Utah. “If we could better understand the transport properties of magmatic fluids, we could get a better understanding of the timing and, therefore, where we are in the volcanic cycle.” The Yellowstone hotspot plume has been producing eruptions for the last 17 million years.

Due to plate tectonics, Earth’s surface has moved over the hotspot, creating a track of ancient eruptions that stretches from the Oregon-Idaho-Nevada border—the site of the first eruption—to the Yellowstone caldera. Since the hotspot reached Yellowstone some 2 million years ago, the supervolcano has erupted three times, most recently about 640,000 years ago. The hotspot currently feeds the geysers, hot springs and steam vents that are part of the draw of Yellowstone National Park. The chance that the supervolcano will erupt anytime soon is low—only about 1 in 700,000 annually. But should there be another eruption, the supervolcano could spew some 640 cubic miles of debris, covering large swathes of North America in ash and darkening skies for days.

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Apr 222015
 
 April 22, 2015  Posted by at 9:34 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle April 22 2015


Jack Delano Engineer at AT&SF railroad yard, Clovis, NM 1943

Europe’s Debt Mountain Just Got A Whole Lot Bigger (Telegraph)
$5.3 Trillion Of Government Bonds Now Have Negative Yields (David Stockman)
IMF Needs To Correct Its Big Fat Greek Bailout Mistake (Ashoka Mody)
Mythology That Blocks Progress In Greece (Martin Wolf)
Why the Real Deadline for Greece Is July 20 (Bloomberg)
Greece Buys Six Weeks’ Space With Transfer of City Funds (Bloomberg)
Varoufakis Sees ‘Clear Convergence’ in Greek Creditor Talks (Bloomberg)
Greece Hopes To Strike A Deal With Gazprom Soon (DW)
China Sees First Bond Default by State Firm (Bloomberg)
China Will Keep Growing Because It Has To (Bloomberg)
Hank Paulson Tells China to Be Wary (Sorkin)
Europe Should Protect People, Not Borders (Spiegel)
The Next Era of Campaign-Finance Craziness Is Already Underway (NY Times)
British Regulator Challenges US Over Scrutiny of Buffett’s Berkshire (FT)
‘Pipelines Blow Up And People Die’ (Politico)
Who Is Saudi Arabia Really Targeting In Its Price War? (Berman)
How to Avert a Nuclear War (James E. Cartwright and Vladimir Dvorkin)
UK Financial Trader Arrested Over 2010 Global Markets ‘Flash Crash’ (Guardian)
Metro Vancouver Is Swept Up In A Real Estate Frenzy (Vancouver Sun)
Decisions: Life and Death on Wall Street, by Janet M. Tavakoli (Nomi Prins)
The Food Production System is Criminal (Beppe Grillo’s blog)

“Despite attempts by governments across the bloc to rein in spending..”

Europe’s Debt Mountain Just Got A Whole Lot Bigger (Telegraph)

It’s official. The eurozone is drowning in debt. According to the latest figures from the bloc’s official statistical authority, government debt in the eurozone reached nearly 92pc of GDP last year – the highest level since the single currency was introduced in 1999. Unsurprisingly, debt-stricken Greece is the worst offender, with its public debt topping 177pc of national economic output. Italy is not far behind at 132pc of GDP, with bailed-out Cyprus at 107pc. The figures also show that only four of the eurozone’s 19 countries are below the Maastricht Treaty’s 60pc debt limit. Across Europe as a whole, 16 of out the 26 member states are officially in breach of the debt criteria.

Despite attempts by governments across the bloc to rein in spending, stagnant growth and insipid demand has seen debt ratios on the continent soar. Coupled with the ominous threat of deflation, the advanced world’s debt burden is now the foremost threat facing the global economy, according to the likes of the IMF. Total public and private debt levels have reached a record 275pc of GDP in rich countries, and 175pc in emerging markets. Both are up 30 points since the collapse of Lehman Brothers. But as the woes of Greece have shown, the prospect of mass debt write-offs is not on the cards. In the words of Margaret Atwood and beloved of the IMF: “And then the revenge that comes when they are not paid back.”

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Part of the game.

$5.3 Trillion Of Government Bonds Now Have Negative Yields (David Stockman)

The level of complacency in world financial markets is downright astounding – even stupid. Today there are two more signs of extreme mania – a brokerage firm calculation that there are now $5.3 trillion of government bonds trading at negative yields and the cross-over of eurolibor into the neither world of negative yields, as well. These deformations cannot be explained with reference to macroeconomic conditions – such as weak growth or a temporary spot of minimal CPI gains. Instead, they are the destructive work of central banks and a few hundred monetary mandarins who have literally usurped control of the entire world economy. And they have done it through a deft maneuver.

That is, by disabling the pricing system in financial markets entirely and displacing market forces with central command and control in the form of pegged money market rates, manipulated yield curves, invitations to speculators to front-run massive central bank bond buying programs and both implied and explicit promises that rising risk asset prices will be favored and facilitated at all hazards. All of this monetary mayhem is being done in the name of an astoundingly primitive Keynesian premise. Namely, that there is insufficient “aggregate demand” in the world and too little inflation in consumer goods and services as measured by the CPI and other consumption deflators; and that these insufficiencies can be magically remedied by ZIRP, massive government debt monetization and the rest of the easy money tool kit .

How? Why, by inducing businesses and households to borrow more and spend more when they are otherwise not inclined to spend income they don’t have; and to rid them of a reluctance to spend even what they can afford because the price of toilet paper, tonic water, TVs and trips to the mall may be going down tomorrow. Here’s the thing. Both of these alleged barriers to spending are postulates of Keynesian economic models, not conditions extant in the real world. Upwards of 85% of US households, for example, are not borrowing because they are already tapped out and trapped in “peak debt”. Even the borrowing rebound that has happened since the 2008 crisis has occurred for reasons that are irrelevant to the central bankers’ Keynesian predicate.

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Restructuring.

IMF Needs To Correct Its Big Greek Bailout Mistake (Ashoka Mody)

The Greek government’s mounting financial woes are leading it to contemplate the unthinkable: defaulting on a loan from the International Monetary Fund. Instead of demanding repayment and further austerity, the IMF should recognize its responsibility for the country’s predicament and forgive much of the debt. Greece’s onerous obligations to the IMF, the European Central Bank and European governments can be traced back to April 2010, when they made a fateful mistake. Instead of allowing Greece to default on its insurmountable debts to private creditors, they chose to lend it the money to pay in full. At the time, many called for immediately restructuring privately held debt, thus imposing losses on the banks and investors who had lent money to Greece.

Among them were several members of the IMF’s board and Karl Otto Pohl, a former president of the Bundesbank and a key architect of the euro. The IMF and European authorities responded that restructuring would cause global financial mayhem. As Pohl candidly noted, that was merely a cover for bailing out German and French banks, which had been among the largest enablers of Greek profligacy. Ultimately, the authorities’ approach merely replaced one problem with another: IMF and official European loans were used to repay private creditors. Thus, despite a belated restructuring in 2012, Greece’s obligations remain unbearable – only now they are owed almost entirely to official creditors. Five years after the crisis started, government debt has jumped from 130% of gross domestic product to almost 180%.

Meanwhile, a deep economic slump and deflation have severely impaired the government’s ability to repay. Almost everyone now agrees that pushing Greece to pay its private creditors was a bad idea. The required fiscal austerity was simply too great, causing the economy to collapse. The IMF acknowledged the error in a 2013 report on Greece. In a recent staff paper, the fund said that when a crisis threatens to spread, it should seek a collective global solution rather than forcing the distressed economy to bear the entire burden. The IMF’s chief economist, Olivier Blanchard, has warned that more austerity will crush growth. Oddly, the IMF’s proposed way forward for Greece remains unchanged: Borrow more money (this time from the European authorities) to repay one group of creditors (the IMF) and stay focused on austerity. [..]

Five years from now, the country’s economic and social stress could well be even more acute. The question will be: Why was more debt not forgiven earlier? No one is willing to confront that unpleasant arithmetic, and wishful thinking prevails. Having failed its first Greek test, the IMF risks doing so again. It remains trapped by the priorities of shareholders, including in recent years the U.K. and Germany. To reassert its independence and redeem its lost credibility, it should write off a big chunk of Greece’s debt and force its wealthy shareholders to bear the losses.

(Mody is a former IMF mission chief)

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I like this: “Forgiveness is inevitable.”

Mythology That Blocks Progress In Greece (Martin Wolf)

The Greek epic continues. It will not end well if the people involved do not recognise they are clinging on to myths. Here are six, each of which poses intellectual and emotional obstacles to reaching a solution.

A Greek exit would help the eurozone. “Will no one rid me of this turbulent priest?” This is the question Henry II is supposed to have asked about Archbishop Thomas Becket. Wolfgang Schäuble, Germany’s finance minister, must think much the same of his Greek partners. For the English king, however, the gratification of his wish was a disaster. A similar thing is likely to be true if Greece leaves. Yes, if Greece suffered a calamitous aftermath, populist campaigns elsewhere would be less effective. But euro membership would cease to be irrevocable. Each crisis could trigger destabilising speculation.

A Greek exit would help Greece. Many believe a weak new drachma offers a painless path to prosperity. But this is only likely to be true if the economy can easily expand its production of internationally competitive goods and services. Greece cannot. And the immediate consequences are likely to include exchange controls, defaults, a halt to foreign credit, and more political turbulence. Stable money counts for something, particularly in a mismanaged country. Ditching it carries a cost.

It is Greece’s fault. Nobody was forced to lend to Greece. Initially, private lenders were happy to lend to the Greek government on much the same terms as to the German government. Yet the nature of Greek politics, tellingly described in The 13th Labour of Hercules by Yannis Palaiologos , was no secret. Then, in 2010, it became clear the money would not be repaid. Rather than agree to the write-off that was needed, governments (and the IMF) decided to bail out the private creditors by refinancing Greece. Thus, began the game of “extend and pretend”. Stupid lenders lose money. That has always been the case. It is still the case today.

Greece has done nothing. Greece has undergone a huge adjustment of its fiscal and external positions. Between 2009 and 2014, the primary fiscal balance (before interest) tightened by 12% of gross domestic product, the structural fiscal deficit by 20% of GDP and the current account balance by 12% of GDP. Between the first quarter of 2008 and the last of 2013, real spending in the Greek economy fell by 35% and GDP by 27%, while unemployment peaked at 28% of the labour force. These are huge adjustments. Indeed, one of the tragedies of the impasse over the conditions for support is that the adjustment has happened. Greece does not need additional resources.

The Greeks will repay. This myth derives partly from the refusal to recognise sunk costs. The bad lending and the adjustment to the cessation of that lending both lie in the past. What is open is whether the Greeks will devote the next few decades to repaying a mountain of loans that should never have been made. What makes this far worse is that the debt burden has doubled, relative to GDP, despite a restructuring, since the crisis. Forgiveness is inevitable. Indeed, a report from the Centre for Economic Policy Research notes that excessive debt hangs over the entire eurozone, not just Greece.

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Is it in Greece’s interest to wait that long?

Why the Real Deadline for Greece Is July 20 (Bloomberg)

Greece probably has until late July to come to an agreement with its creditors. Possible delays in payments to the IMF shouldn’t prompt the European Central Bank to shut off vital liquidity to Greek banks. By contrast, a default on marketable debt, specifically the failure of the Greek government to pay €3.5 billion due to the ECB on July 20, would probably force the central bank’s hand. The Greek government and its creditors are still likely to reach a deal on a list of reforms before that crucial date. Greek banks are relying on liquidity from the ECB to avoid financial collapse. That support is currently provided by the Emergency Liquidity Assistance scheme from the monetary authorities in Frankfurt.

In the event of a sovereign default, the banks, which are large holders of Greek debt, would probably be ruled insolvent because the value of the assets on their balance sheets would fall sharply. Under the rules of the ELA, the ECB would be unlikely to be able to continue providing liquidity to lenders in the beleaguered country – users of the scheme must be solvent. Rolling over Treasury bills of about €11 billion between now and July 20 is unlikely to create a problem, as long as ECB liquidity remains available. The debt management office will probably be able to complete those operations because Greek banks have continued to be loyal buyers of those assets. A more pressing concern is a payment to the IMF. Greece must pay about €774 million on May 12.

Still, a failure to make that payment would be unlikely to cause the ECB to cut off liquidity to the country’s banks. Since the ability to pay depends on the ability to reach an agreement on reforms, that might be considered a matter of liquidity rather than solvency, allowing the ECB to keep funding Greek banks. In addition, the IMF wouldn’t even have to make a public announcement about the country being in arrears until three months have passed since the missed payment, though the country is immediately shut off from the Fund’s resources.

The IMF could still sign off on a “successful conclusion of the review” that would officially end Greece’s second bailout even if the country were in arrears. The four-month extension granted in February stipulates that this must be done by the end of June, though it’s a soft deadline. The “successful conclusion” would release the outstanding tranche of the current European Financial Stability Facility program – €1.8 billion – and the profits from the ECB’s Securities Markets Programme – €1.9 billion%. Those funds from Greece’s euro-area creditors, which sum to €3.7 billion, would be sufficient to repay the IMF about €3 billion that are due between now and July 13.

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Yeah, but those just make Syriza new enemies.

Greece Buys Six Weeks’ Space With Transfer of City Funds (Bloomberg)

Greek officials expect an order that local governments transfer funds to the central bank will keep the country afloat until the end of May as European policy makers turn up the heat on Prime Minister Alexis Tsipras. Municipalities’ reserves are estimated at about €1.5 billion, according to a person familiar with the matter, who spoke on condition of anonymity. Officials in Athens ruled out also seizing pension funds and the cash reserves of state companies because there wasn’t a need and the move would unnecessarily fuel anxiety, the person said. With bailout talks stalled, access to cash is becoming increasingly critical. Resistance at the ECB to further aiding the country’s stricken lenders is growing and the ECB is studying measures to rein in emergency funding for Greek banks.

“A bigger effort by the Greek side is needed so that we can close the topic in the interest of both sides,” European Commission President Jean-Claude Juncker said in Vienna. “The intensity of the talks has increased in the past 4-5 days but not to the extent that they are ripe enough to come to a quick conclusion.” Tsipras may meet with German Chancellor Angela Merkel on the sidelines of a European Union summit in Brussels on April 23, a Greek government official said Tuesday. Although a final accord is unlikely at a meeting of euro-area finance ministers in Latvia on Friday, another extraordinary meeting could be called at the end of April if needed.

“The sooner they come up with some kind of an agreement the better, but so far Europe has never missed the opportunity to miss an opportunity,” Standard Chartered Bank Global Chief Economist Marios Maratheftis said in a Bloomberg TV interview. Since Tsipras assumed office in January, Greece has been using up its cash reserves to meet its obligations. Greek lenders are mostly locked out of regular ECB cash tenders and instead have access to about €74 billion of emergency liquidity assistance from their own central bank – an amount that has been reviewed weekly by the ECB.

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Right.

Varoufakis Sees ‘Clear Convergence’ in Greek Creditor Talks (Bloomberg)

Greece and its creditors are narrowing their differences as officials on both sides recognize that the best chance for success is an accord that leaves them all a bit unsatisfied, Finance Minister Yanis Varoufakis said. “The convergence is absolutely clear, and the institutions are admitting that now,” Varoufakis told reporters in Athens late on Tuesday. Both sides “have invested a huge amount in achieving an agreement, and neither they nor we will let the opportunity slip to arrive at an agreement that’s clearly to the benefit of everyone.” Failure to do so would be “catastrophic,” he added. Greek Prime Minister Alexis Tsipras on Monday ordered local governments to move their funds to the central bank after failing to make sufficient progress in talks with European and IMF officials to release further bailout aid.

His government needs the cash for salaries, pensions and a payment to the IMF, and is running out of options to stay solvent. Municipalities’ reserves are estimated at about €1.5 billion, which will keep the country afloat until the end of May, according to a person familiar with the matter, who spoke on condition of anonymity. Greece is unlikely to meet the end-April target for it to submit a list of measures to revamp its economy, a European Union official said Tuesday. The euro area now views the end of June to be Greece’s main deadline to unlock aid payments, he added. While an April 24 meeting of euro area finance ministers in Latvia is probably too soon to seal an agreement, “an agreement will come,” Varoufakis said.

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“The proposed pipeline, which has not been approved by the European Union..”

Greece Hopes To Strike A Deal With Gazprom Soon (DW)

The Greek prime minister and Gazprom chief Alexei Miller held talks in Athens on Tuesday over a multibillion dollar gas pipeline project. Reports said both sides would work towards setting up a “road map” detailing the responsibilities the two parties would commit to in the coming months. Government sources said Athens hoped an agreement would be signed shortly. The proposed pipeline, which has not been approved by the European Union, could deliver Russian gas through Turkey and Greece to Europe. The visit by Miller came after Tsipras met Russian President Vladimir Putin in Moscow at the beginning of April and expressed his country’s interest in taking part in the so-called Turkish Stream gas pipeline project.

The pipeline is expected to transport Russian gas though Turkey and then in to Europe by 2017. Some observers, however, doubt the pipeline will be built on time, or even at all. “The pipeline is of big interest to our country and is among our priorities,” said Greek Energy Minister Panagiotis Lafazanis. “We are continuing talks with the Russian side and we hope to reach an agreement very soon,” he added, terming the talks as constructive. According to the Greek Kathimerini newspaper, Athens stands to earn several billion dollars in advance of the deal.

However, Lafazanis declined to comment when asked by reporters about any advance payments. Talking to reporters after meeting Tsipras, Gazprom’s Chief Executive Alexei Miller also did not make any reference to any advance payments to Greece from the pipeline. Greece is heavily dependent on Russian energy imports and is looking to negotiate a deal with Moscow for the reduction of the price of gas that it imports from Russia. Furthermore, Athens has indicated its interest in becoming a European hub for the natural gas pipeline project.

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Nothing is safe anymore?

China Sees First Bond Default by State Firm (Bloomberg)

A Chinese power-transformer maker became the country’s first state-owned company to default on an onshore bond, signaling the government’s willingness to let market forces decide an enterprise’s fate. Baoding Tianwei, the unit of central government-owned China South Industries Group Corp., said it will fail to pay 85.5 million yuan ($13.8 million) of bond interest due Tuesday. Kaisa Group Holdings Ltd. became the first Chinese developer to default on its U.S. currency debt Monday. Until now, only private-sector companies have defaulted in China’s domestic bond market even as state-owned enterprises have sold the vast majority of debt.

Tianwei’s default highlights a shifting attitude toward financial risk, underscored by Premier Li Keqiang’s pledge to open a cooling economy to market forces and strip power from the government. “It’s probably a start of more defaults in China,” said Qu Qing, a bond analyst at Huachuang Securities Co. in Beijing. “The economic slowdown has given a huge blow to some industries.” Baoding Tianwei’s 1.5 billion yuan of 5.7% April 2016 notes have dropped 7.1% since March 31 to 85.3% of par as of Monday, set for the sharpest monthly decline since they were issued in 2011.

The company will continue to raise payment funds via various means including asset disposal, according to today’s statement posted to Chinamoney.com.cn, the China Foreign Exchange Trade System website. The bonds’ rating is now B versus AA+ at issuance. “Our company suffered huge losses in 2014 and the debt to asset ratio surged quickly,” Baoding Tianwei said in today’s statement. “Our company has lost financing ability and suffered from a capital shortage. We can’t raise enough money to repay interest, despite all the efforts we have made.”

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There’s irony in that headline somewhere.

China Will Keep Growing Because It Has To (Bloomberg)

Can China’s economic policy makers maneuver their way out of this one? Let’s see: there’s a property bubble that’s beginning to deflate, a construction boom that’s now going in reverse and a financial system that’s riddled with bad debts. Oh, and the air is still really dirty. On the bright side, though, Cirque du Soleil and Segway are coming to China. With the success of the new Asian Infrastructure Investment Bank, the country has established itself as a global economic leader. And the Shanghai Composite Index has more than doubled during the past nine months. The outside world has a hard time fitting all this evidence together into a coherent picture. Is the stock boom a sign of hope, or a policy-driven bubble?

How about that bond default today by state-owned Baoding Tianwei – is it an indication of new financial maturity or the beginning of a great unraveling? Is the slowdown in construction, however scary for the world’s metal producers, a welcome signal that the economy is moving away from its dependence on exports and infrastructure to more sustainable consumer-driven growth? The common thread here is the Chinese government using every tool it has to keep its long growth run going. As the U.S. and the U.K. grew into industrial powers in the 19th century, they were tripped up every 10 to 20 years by financial crises and economic depressions. Measuring from December 1978, when the Chinese Communist Party “shifted its center of gravity from propagandizing class struggle and organizing political campaigns to economic construction,” China is now in its 37th straight year of economic expansion.

That quote is from a new biography of Deng Xiaoping by historians Alexander V. Pantsov and Steven I. Levine. I’ve just been reading the chapter about Deng’s 1977-78 battle with the charmingly named but otherwise not so great Whateverists, which set the course that China more or less still follows. In the months after founding father Mao Zedong’s death in September 1976, the Whateverist motto was:

We will resolutely defend whatever political decisions were taken by Chairman Mao; we will unwaveringly follow whatever directives were issued by Chairman Mao.

Mao’s handpicked successor, Hua Guofeng, defended these “two whatevers” even as he tried to tweak some of Mao’s decisions and directives. Deng, just rehabilitated after a year on the political outs, saw this as a disastrous approach to governing, given how often Mao had changed his mind and contradicted himself. He dug up an old Mao slogan to back himself up: “Seek truth from facts.” He then endorsed a polemic by several party intellectuals titled “Practice is the Sole Criterion of Truth” that pushed the two whatevers aside as the party’s guiding line.

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I know, I know, Paulson and Sorkin…

Hank Paulson Tells China to Be Wary (Sorkin)

About 340 pages into Henry M. Paulson’s new book on China, a sentence comes almost out of nowhere that stops readers in their tracks. “Frankly, it’s not a question of if, but when, China’s financial system,” he writes, “will face a reckoning and have to contend with a wave of credit losses and debt restructurings.” Mr. Paulson, the former Treasury secretary, knows a thing or two about financial crises, having been the lead firefighter during the 2008 financial collapse, the worst financial crisis since the Great Depression. Mr. Paulson also knows more about China, its politics and the players behind it than most Westerners, having been the former chief executive of Goldman Sachs and one of the first businessmen to seek to establish ties with China more than two decades ago, regularly making trips to the country and befriending top officials.

A crisis in China, even a small one, would be contagious, especially in the United States. Already, fears of a slowdown in China in recent months have led to jitters about the trajectory of the American economy. Mr. Paulson stresses that he’s not saying a crisis is inevitable, and he believes that one can be averted if officials make the right policy decisions. But Mr. Paulson’s anxieties about China have an unnerving similarity to the financial crisis in the United States, and his warnings demand attention. Like the United States crisis in 2008, Mr. Paulson worries that in China “the trigger would be a collapse in the real estate market,” and he declared in an interview that China is experiencing a real estate bubble. He noted that debt as a %age of GDP in China rose to 204% in June 2104 from 130% in 2008.

“Slowing economic growth and rapidly rising debt levels are rarely a happy combination, and China’s borrowing spree seems certain to lead to trouble,” he wrote. Mr. Paulson’s analysis in his book, “Dealing With China: An Insider Unmasks the New Economic Superpower,” are all the more remarkable because he has long been a bull on China and has deep friendships with its senior leaders, who could frown upon his straightforward comments. Mr. Paulson is hopeful that the book, an eye-opening account that praises China while acknowledging the challenges, will be published there and that the government won’t seek to press him to remove his critique. “I have just begun discussions with a Chinese publisher,” he said. “I will only authorize publication if it is published completely and accurately. I am unwavering on that.”

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Or banks.

Europe Should Protect People, Not Borders (Spiegel)

Workers at the Warsaw headquarters of Frontex, the European border protection agency, track every single irregular boat crossing and every vessel filled with refugees. Since December 2013, the authority has spent hundreds of millions of euros deploying drones and satellites to surveil the borders. The EU registers everything that happens near its borders. In contrast to the claims that are often made, they do not look away when refugees die. They are watching very closely. And what is happening here is not negligent behavior. They are deliberately killing refugees. People have been perishing as they sought to flee to Europe for years now. They drown in the Mediterranean, bleed to death on the border fences of the Spanish North African conclaves of Ceuta and Melilla or freeze to death in the mountains between Hungary and Ukraine.

But the European public still doesn’t appear to be entirely aware of the dimensions of this humanitarian catastrophe. We have become accomplices to one of the biggest crimes to take place in European postwar history. It’s possible that 20 years from now, courts or historians will be addressing this dark chapter. When that happens, it won’t just be politicians in Brussels, Berlin and Paris who come under pressure. We the people will also have to answer uncomfortable questions about what we did to try to stop this barbarism that was committed in all our names. The mass deaths of refugees at Europe’s external borders are no accidents — they are the direct result of European Union policies.

The German constitution and the European Charter of Fundamental Rights promise protection for people seeking flight from war or political persecution. But the EU member states have long been torpedoing this right. Those wishing to seek asylum in Europe must first reach European territory. But Europe’s policy of shielding itself off from refugees is making that next to impossible. The EU has erected meters-high fences at its periphery, soldiers have been ordered to the borders and war ships are dispatched in order to keep refugees from reaching Europe. For those seeking protection, regardless whether they come from Syria or Eritrea, there is no legal and safe way to get to Europe. Refugees are forced to travel into the EU as “illegal” immigrants, using dangerous and even fatal routes. Like the one across the Mediterranean.

A Darwinist situation has emerged on Europe’s external borders. The only people who stand a chance of applying for asylum in Europe are those with enough money to pay the human-traffickers, those who are tenacious enough to try over and over again to scale fences made of steel and barbed wire. The poor, sick, elderly, families or children are largely left to their fates. The European asylum system itself is perverting the right to asylum.

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One dollar one vote.

The Next Era of Campaign-Finance Craziness Is Already Underway (NY Times)

There may be no political adviser closer to Rand Paul than Jesse Benton. Benton was integral to Paul’s Senate run in 2010 and was a top strategist for both of Ron Paul’s Republican presidential campaigns. When a fellow Kentuckian, Senator Mitch McConnell, needed help with his re-election campaign last year, Rand Paul lent him Benton. Benton also happens to be married to Paul’s niece. So it would have been natural to expect Benton to move into Paul’s campaign headquarters as soon as he declared his candidacy for president. Not going to happen.

On April 6, the day before Paul made his formal announcement, National Journal reported that instead, Benton will be running America’s Liberty PAC, the principal Paul-supporting super PAC — the class of technically independent campaign organization that is free to spend as many millions of dollars as it can raise, without all those nettlesome regulations that limit donations to formal presidential campaigns to $5,400 a person. Then there is the longtime Jeb Bush adviser Mike Murphy. Murphy guided Bush through the rocky shallows of early-stage presidential politics and helped manage Bush’s successful push to lock down most of the Republican Party’s top donors for the 2016 race, effectively sidelining Mitt Romney and hobbling Chris Christie.

Not long ago, it would have been taken as a given that Murphy would join Bush’s formal campaign once it was announced — but people close to the campaign expect he will join Bush’s super PAC, Right to Rise, instead. And Gov. Scott Walker’s former campaign manager and chief of staff, Keith Gilkes, announced late last week that he would not be joining Walker’s formal campaign but rather Walker’s super PAC, Unintimidated PAC — this in spite of legal investigations into Walker’s aides’ interactions with outside conservative groups. All these moves point to the next stage in the great unraveling of the presidential campaign-finance system. And they make the few remaining prohibitions against coordination between these “independent” groups and campaigns look trifling, if not absurd.

Outside groups have played influential roles in presidential races for decades. Forerunners of the super PAC include groups like the National Security Political Action Committee, which produced the “Willie Horton” ads against Michael Dukakis in 1988, and the Swift Boat Veterans for Truth, which in 2004 brought false charges that John Kerry lied about his Vietnam War record. That same year, the Democratic-aligned groups America Coming Together and the Media Fund tried to help Kerry with get-out-the-vote operations and campaign ads attacking President George W. Bush.

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Nobody stateside dares touch Warren.

British Regulator Challenges US Over Scrutiny of Buffett’s Berkshire (FT)

British regulators have challenged their US peers over their apparent reluctance to subject Warren Buffett’s Berkshire Hathaway to tougher scrutiny as part of a worldwide push to make the financial system safer. The Bank of England has written to the US Treasury asking why Berkshire’s reinsurance operation — among the world’s most powerful — was left off a provisional list of “too big to fail” institutions drawn up by the Financial Stability Board. Regulators have already deemed nine primary insurance companies — including AIG of the US, Germany’s Allianz and UK-based Prudential — globally “systemically important”, a designation that could lead to higher capital requirements. But they have put off saying which reinsurers — groups such as Swiss Re, Munich Re and Berkshire, which provide insurance for insurers — should be included.

The failure to designate reinsurers has angered insurance companies, which argue reinsurers are more important to the financial system. In a separate move that underscores concern about the increased scrutiny brought by designation, MetLife has sued the US government to try to escape being deemed systemically important by Washington. Insurers deemed systemically important on a global level may need to hold more capital to cover unexpected losses and could face a requirement to draw up “living wills” to make them easier to wind down in a crisis. Yet regulators have yet to quantify the scale of the HLA requirements and the consequences of designation remain unclear. The Basel-based FSB was expected to make the reinsurance list public last year. But in November, following consultation with national authorities, it postponed the decision “pending further development of the methodology”.

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“Tens of thousands of miles of pipeline go completely unregulated by federal officials..”

‘Pipelines Blow Up And People Die’ (Politico)

Oil and gas companies like to assure the public that pipelines are a safer way to ship their products than railroads or trucks. But government data makes clear there is hardly reason to celebrate. Last year, more than 700 pipeline failures killed 19 people, injured 97 and caused more than $300 million in damage. Two of the past five years have been the worst for combined pipeline-related deaths and injuries since 2000. To understand the failure revealed by these numbers, POLITICO talked to more than 15 former and current federal pipeline officials and advisers, as well as dozens of safety experts, engineers and state regulators. We reviewed more than a decade of government data on fatalities, injuries, property damage, incident locations, inspections, damages and penalties.

The picture that emerges is of an agency that lacks the manpower to inspect the nation’s 2.6 million miles of oil and gas lines, that grants the industry it regulates significant power to influence the rule-making process, and that has stubbornly failed to take a more aggressive regulatory role, even when ordered by Congress to do so. This is a particularly bad time for a front-line safety agency to take a backseat. The current boom in fossil fuel production has created intense pressure for massive new pipelines like Keystone XL. Many of the pipes already in the ground are more than half a century old. Tens of thousands of miles of pipeline go completely unregulated by federal officials, who have abandoned the increasingly high-pressure lines to the states.

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“Stupid money”.

Who Is Saudi Arabia Really Targeting In Its Price War? (Berman)

Saudi Arabia is not trying to crush U.S. shale plays. Its oil-price war is with the investment banks and the stupid money they directed to fund the plays. It is also with the zero-interest rate economic conditions that made this possible. Saudi Arabia intends to keep oil prices low for as long as possible. Its oil production increased to 10.3 million barrels per day in March 2015. That is 700,000 barrels per day more than in December 2014 and the highest level since the Joint Organizations Data Initiative began compiling production data in 2002. And Saudi Arabia’s rig count has never been higher. Market share is an important part of the motive but Saudi Minister of Petroleum and Mineral Resources Ali al-Naimi recently emphasized that “The challenge is to restore the supply-demand balance and reach price stability.”

Saudi Arabia’s need for market share and long-term demand is best met with a growing global economy and lower oil prices. That means ending the over-production from tight oil and other expensive plays (oil sands and ultra-deep water) and reviving global demand by keeping oil prices low for some extended period of time. Demand has been weak since the run-up in debt and oil prices that culminated in the Financial Collapse of 2008. Since 2008, the U.S. Federal Reserve Board and the central banks of other countries have further increased debt, devalued their currencies and kept interest rates at the lowest sustained levels ever.

These measures have not resulted in economic recovery and have helped produce the highest sustained oil prices in history. They also led to investments that are not particularly productive but promise higher yields that can [not] be found otherwise in a zero-interest rate world. The quest for yield led investment banks to direct capital to U.S. E&P companies to fund tight oil plays. Capital flowed in unprecedented volumes with no performance expectation other than payment of the coupon attached to that investment. This is stupid money. These capital providers are indifferent to the fundamentals of the companies they invest in or in the profitability of the plays. All that matters is yield. The financial performance of most companies involved in tight oil plays has been characterized by chronic negative cash flow and ever-increasing debt.

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2 generals, one of each.

How to Avert a Nuclear War (James E. Cartwright and Vladimir Dvorkin)

We find ourselves in an increasingly risky strategic environment. The Ukrainian crisis has threatened the stability of relations between Russia and the West, including the nuclear dimension — as became apparent last month when it was reported that Russian defense officials had advised President Vladimir V. Putin to consider placing Russia’s nuclear arsenal on alert during last year’s crisis in Crimea. Diplomatic efforts have done little to ease the new nuclear tension. This makes it all the more critical for Russia and the United States to talk, to relieve the pressures to “use or lose” nuclear forces during a crisis and minimize the risk of a mistaken launch. The fact is that we are still living with the nuclear-strike doctrine of the Cold War, which dictated three strategic options: first strike, launch on warning and post-attack retaliation.

There is no reason to believe that Russia and the United States have discarded these options, as long as the architecture of “mutually assured destruction” remains intact. For either side, the decision to launch on warning — in an attempt to fire one’s nuclear missiles before they are destroyed — would be made on the basis of information from early-warning satellites and ground radar. Given the 15- to 30-minute flight times of strategic missiles, a decision to launch after an alert of an apparent attack must be made in minutes. This is therefore the riskiest scenario, since provocations or malfunctions can trigger a global catastrophe. Since computer-based information systems have been in place, the likelihood of such errors has been minimized. But the emergence of cyberwarfare threats has increased the potential for false alerts in early-warning systems.

The possibility of an error cannot be ruled out. American officials have usually played down the launch-on-warning option. They have argued instead for the advantages of post-attack retaliation, which would allow more time to analyze the situation and make an intelligent decision. Neither the Soviet Union nor Russia ever stated explicitly that it would pursue a similar strategy, but an emphasis on mobile missile launchers and strategic submarines continues to imply a similar reliance on an ability to absorb an attack and carry out retaliatory strikes. Today, however, Russia’s early warning system is compromised. The last of the satellites that would have detected missile launches from American territory and submarines in the past stopped functioning last fall. This has raised questions about Russia’s very ability to carry out launch-on-warning attacks.

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Fishy narrative. 2 questions: 1) if he’s so smart, how come he only made $40 million? 2) why let him continue for another 5 years if they were on to him even before the flash crash?

UK Financial Trader Arrested Over 2010 Global Markets ‘Flash Crash’ (Guardian)

A financial trader who played the world’s futures markets from a small suburban house in Hounslow, west London, has been arrested and faces extradition to the US after supposedly making $40m (£27m) for his alleged role in the so-called “flash crash” of 2010. The US Department of Justice (DoJ) said on Tuesday that it was seeking the extradition of Navinder Singh Sarao, 37, who it claims “spoofed” financial markets using commercially available trading software to place $200m of false trades from his home in Hounslow. The US agency added that Sarao’s supposed manipulation contributed to the flash crash on 6 May 2010, when the Dow Jones industrial average plunged 600 points in five minutes and created havoc on Wall Street.

Sarao is expected to appear in custody at Westminster magistrates court on Wednesday. He is accused of duping the market into believing there were a lot more sellers than there really were and profiting from the market movement. He is said to have changed his orders more than 19,000 times before cancelling them. The episode, although not attributed to him, formed the backdrop for the Robert Harris novel The Fear Index. A DoJ spokesman would not speculate on how one person, using widely available commercial software, might have been able to crash the world’s financial markets. Nor would he comment on how an individual, who appears to live in a street populated by unremarkable three-bedroom semi-detached houses, seemed to make such huge rewards from his alleged scheme.

However, the US regulator, the Commodity Futures Trading Commission, said Sarao and his company had profited by more than $40m. The DoJ detailed a series of supposed coups, including episodes where Sarao is said to have made profits of more than $820,000 during a day’s trading. In an affidavit published by the DoJ in support of its complaint, FBI special agent Gregory LaBerta said Sarao was “a futures trader who operated from his residence in the United Kingdom and who primarily traded through his company, Nav Sarao Futures Limited.

“On numerous occasions between at least in or about April 2010 and in or about April 2014, Sarao spoofed the market and manipulated the intra-day price for … S&P 500 futures contracts on the Chicago Mercantile Exchange, including on or about 6 May 2010, when the US stock markets plunged dramatically in a matter of minutes in an event that came to be known as the ‘Flash Crash’.”

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Hongcouver has been crazy for years.

Metro Vancouver Is Swept Up In A Real Estate Frenzy (Vancouver Sun)

It is no exaggeration to use an F-word to describe Vancouver’s current real estate scene. As in, the market is in a Frenzy. Observers describe a perfect storm of forces coming together to create a tempestuous result: A 5.8-per-cent jobless rate in B.C., low interest rates, a devalued Canadian dollar attracting more foreign buyers, and panic over prices going even higher if buying is delayed. Even the particularly vicious winters of recent years in Eastern Canada may be having an impact. Meanwhile, the Bank of Canada warned last Wednesday about the risk of correction in three Canadian property markets — Vancouver, Toronto and Calgary. For the moment, few are heeding the caution.

A press release sent out last week by WestStone Properties, regarding its Evolve condominium project in Surrey, reported sales in a single day (April 11) of 300 condo units, worth $70 million. And get this — project completion is still three years into the future. The release described the purchasers’ enthusiasm: “Excited early buyers who stood in line for hours, grappled for position and swarmed the buying counter in a frenzy that hasn’t been seen in recent years.” Who was buying? Everyone. “Today’s buyers included first-time homeowners, parents purchasing for children and a large number of buyers from throughout Canada, the U.S. and overseas.” The Greater Vancouver Real Estate Board reported earlier this month, bidding wars are taking place with greater frequency.

And Royal Lepage last week cited a rush on Vancouver’s detached homes, resulting from a scarcity of product and high demand to live here. It seems that real estate enthusiasm is not limited to the Lower Mainland. The B.C. Real Estate Association has just reported: “B.C. home sales post the strongest March in eight years. … More homes traded hands last month than any March since 2007.” Property sales jumped 37.6% over March 2014 and sales dollar volume was up 57.1%. In Greater Vancouver, activity was even more robust, with year-over-year sales jumping 53.2%. Association chief economist Cameron Muir says: “Many board areas are now exhibiting sellers’ market conditions, with home prices advancing well above the overall rate of inflation.” The average sale price in March for all types of Vancouver-area housing was $891,000 — up from $801,000 12 months earlier.

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Sounds like a book.

Decisions: Life and Death on Wall Street, by Janet M. Tavakoli (Nomi Prins)

Janet Tavakoli is a born storyteller with an incredible tale to tell. In her captivating memoir, Decisions: Life and Death on Wall Street, she takes us on a brisk journey from the depravity of 1980s Wall Street to the ramifications of the systemic recklessness that crushed the global economy. Her compelling narrative sweeps through her warnings about the dangers of certain bank products in her path-breaking books, speeches before the Federal Reserve, and in talks with Jaime Dimon. She probes the moral complexity behind the lives, suicides and murders of international bankers mired in greed and inner conflict. Some of the people that touched her Wall Street career reflect broken elements of humanity. The burden of choosing money and power over values and humility translates to a loss for us all.

To truly understand the stakes of the global financial game, you must know its building blocks; the characters, testosterone, and egos, as well as the esoteric products designed to squeeze investors, manipulate rules, and favor power-players. You had to be there, and you had to be paying attention. Janet was. That’s what makes her memoir so scary. In Decisions, she breaks the hard stuff down with humor and requisite anger. As a side note, her international banking life eerily paralleled my own – from New York to London to New York to alerting the public about the risky nature of the political-financial complex. Her six chapters flow along various decisions, as the title suggests. In Chapter 1 “Decisions, Decisions”, Janet opens with an account of the laddish trading floor mentality of 1980s Wall Street.

In 1988, she was Head of Mortgage Backed Securities Marketing for Merrill Lynch. Those types of securities would be at the epicenter of the financial crisis thirty years later. Each morning she would broadcast a trade idea over the ‘squawk box.‘ Then came the stripper booked for a “final-on-the-job-stag party.” That incident, one repeated on many trading floors during those days, spurred Janet to squawk, not about mortgage spreads, but about decorum. Merrill ended trading floor nudity and her bosses ended her time in their department. Her bold stand would catapult her to “a front row seat during the biggest financial crisis in world history.” Reading Decisions, you’ll see why this latest financial crisis was decades in the making.

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“Making a vegetable garden is a political statement”.

The Food Production System is Criminal (Beppe Grillo’s blog)

Italian foodstuffs are subject to strict controls in order to guarantee the quality of the end product and the health of the consumer. Thanks to the strictness of these controls and the hard work of small Italian livestock and vegetable farmers and fishermen, the food in our Country is considered to be a source of excellence worldwide. One of the few things that we have left but that we will soon lose even that as soon as the TTIP is approved, a treaty that will allow cheap, low quality US products to find their way onto our tables.

As the crisis deepens, Italian consumers will lower their expectations and purchase chlorine flavoured chickens , beef and pork grown and nourished on hormones and fruit and vegetables with pesticides. Their health will undoubtedly suffer, farmers breeders and fishermen will close up shop and “Made in Italy” foods will become little more than a distant memory. We simply cannot allow this crime against our health! My friend Carlo Petrini, the founder of the Slow Food movement, explains how each and every one of us can sink this Criminal Foodstuff System by supporting our small Italian producers through their purchasing choices.

Blog – Slow Food is at the Expo with this slogan: “SAVE OUR BIODIVERSITY. SAVE THE PLANET. Can you explain to us why biodiversity is such an important asset?

Carlo Petrini – Biodiversity is the real driving force behind human understanding so we have to respect it. If we continue sticking to this foodstuff production model, with this criminal foodstuff system that destroys biodiversity by virtue of the fact that we must favour strong and more productive breeds and cultivars because we are only interested in the bottom line and never in Mother Earth or nature, all we will hand down to future generations is a far, far weaker genetic legacy.

Blog – Let’s talk about the TTIP: you have often mentioned your concern about the effect that this treaty will have on the European food industry. Why is there such a rush to get it approved very quickly? Who will profit from the TTIP? Who will the losers be? What will the long term effects be for Italy and for the consumer? And what about the planet’s equilibrium?

Carlo Petrini – I think that it is dishonest and improper to come up with these treaties in total and absolute secrecy and without involving the community at all. When things are done in secret it usually means that those involved are being dishonest! We must not allow these treaties to be introduced on the backs of millions of farmers, fishermen and food producers that are working all around the world and must be protected like now when they are facing this fetish called the free market, which is anything but free and often destroys the lives of these communities. Now, by virtue of the free market, I am allowed to bring in products made from meat that is not subject to the strict requirements that our breeders have to comply with and is full of chemicals, antibiotics, anabolic steroids and growth hormones, all of which are banned in Italy and in Europe but not banned in the United States.

It is unfair on our breeders because the law should be the same for everyone. We citizens can become co-producers because our choices can lead to certain agricultural choices. If I eat products that come from local small-scale farmers who don’t use pesticides, in other words who farm cleanly, then I’m helping that kind of farming along. If instead I buy and eat products produced by the multinationals, products that perhaps come from elsewhere in the world without any of the rules that our farmers have to adhere to, and perhaps obtained by means of slave labour, then equally I am helping that kind of farming.

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