Oct 272015
 
 October 27, 2015  Posted by at 10:56 am Finance Tagged with: , , , , , , , ,  


‘Daly’ Store, Manning, South Carolina 1941

What’s Happened To International Bank Lending? (WEF)
Greek Creditors Refuse To Make Next Loan Payment (Zero Hedge)
‘Giant Wave of Money’ Headed for Sweden Creates Policy Nightmare (Bloomberg)
Oil Supply Hits 85-Year High in US (Bloomberg)
Bakken Oil Companies Declare Bankruptcy (BT)
Economists Prove That Capitalism Is Unnecessary (Steve Keen)
Keen vs. Keen: Will the Real Steve Keen Please Stand Up? (Mish)
Bernanke’s Bogus Contra-Factual, 1: The Myth Of Great Depression 2.0 (Stockman)
Something Happened (Jim Kunstler)
Rajoy Calls Election for Spain Against Backdrop of Party Unrest (Bloomberg)
Portugal’s Constitutional Crisis Threatens All European Democracies (Telegraph)
Goldman Sachs Banker Likely To Face Jail Amid Rare Criminal Charges (Guardian)
EC Approves Aid As Greece Prepares To Host More Migrants (Kath.)
Slovenia To Hire Private Security Firms To Manage Migrant Flows (Reuters)
Italy Says EU’s Response ‘Inadequate’ as Refugee Numbers Surge (Bloomberg)
Using The Refugee Crisis (Boukalas)
Big-Game Hunters Are Killing African Lions In Record Numbers (Bloomberg)
Indonesia’s Forest Fires Labelled A ‘Crime Against Humanity’

Deflation.

What’s Happened To International Bank Lending? (WEF)

The Bank of International Settlements has just released its latest international banking statistics, which run until the end of June 2015, and they make for some pretty horrible reading. Cross-border lending fell by $910 billion (£589 billion), an enormous slump, and the largest since the fourth quarter of 2008, the worst bit of the global financial crisis. BIS is often referred to as the central bank of central banks, collating information on financial flows around the world and trying to make sense of what’s happening on a global scale. According to today’s data, cross-bank lending retreated at the fastest pace in more than six years. The period between Q1 2014 and Q1 2015 was the strongest run since the crash, with a (very small) contraction recorded in only one quarter, and decent growth in the others. Then it fell off a cliff:

There’s a precise definition of cross-border lending from BIS, which the crucial definition being “when the ultimate obligor or guarantor resides in a country that is different from the residency of the reporting institution.” During the worst quarter of the financial crisis, Q4 2008, cross-border lending shrank more than twice as quickly, plunging by more than $2 trillion, and making Q2 2015’s decline look decidedly less dramatic:

The longer timeframe also offers some perspective on the post-crisis period generally, showing how small the increases in cross-border lending have been, when it’s increased at all. That’s in stark contrast to the years leading up to the crisis, when lending across borders exploded: 10 of the 16 quarters from 2004 to the end of 2007 saw stronger growth than any single quarter since. Taking a look even further back, to 1978, three more things become clear — firstly, cross-border lending has exploded in size over the last 40 years. Secondly, the figures show just how strange the period since the crisis is, interrupting decades of growth (with some interruptions in the early 1990s). And finally, it shows that Q2 2015 was the worst quarter ever, other than Q4 2008. Take a look:

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Not surprised.

Greek Creditors Refuse To Make Next Loan Payment (Zero Hedge)

At first it was cute: when Greece got its first “dramatic” bailout in 2010 sending the global markets and the EUR first plunging then soaring, it was a melodrama of sorts – people still cared. Then, by the time the second and third bailouts rolled around, especially in the aftermath of the most ridiculous referendum in modern history, where a majority of Greeks voted for one thing only to get the other, it became a tragicomedy in what everyone hoped would be its final, “German colonial” season. It wasn’t. Moments ago, Germany’s Suddeutsche Zeitung reported that just two (or is it three, this past summer is one big blur) months after Greece voted through its third bailout, one which will raise its debt/GDP to over 200% on a fleeting promise that someone, somewhere just may grant Greece a debt extension (which will do absolutely nothing about the nominal amount of debt), its creditors have already grown tired with the game and are refusing to pay the next Greek loan tranche of €2 billion.

Specifically, the payment of the first €2b tranche of €3b is now sait to be delayed because Greek Prime Minister Alexis Tsipras failed to implement reforms on schedule, Sueddeutsche Zeitung reports, citing unidentified senior EU official. Wait, you mean the Greeks (over)promised and never delivered? Who could have possibly seen this coming? Not the unidentified EU official who blasts Athens as having implemented only a third of the required projects. As a result, the tranfer probably will only take place in November, if then, since only 14 of the 48 “milestones” linked to payments have been decided on. The report goes on to tell us what we already knew: talks between the government in Athens and the Troika + the ESM (or Quadriga, or whatever it’s called) ended last week without success.

SZ goes into the unpleasant details, noting that there are inconsistencies in how the banks deal with bad loans, estimated that 320,000 apartment owners have mortgage payments in arrears, threatened with foreclosures, evictions, and so on. In other words, the Greek holiday from being held accountable for anything which started in July and lasted until October is over. Yet, there is still hope: in a separate report, Germany’s Bild tabloid cites Deutsche Bank analysts as anticipating a debt reduction for Greece of €200 billion by year-end, and amount which Bild conveniently calculates corresponds to €700 per inhabitant of the Eurozone. It adds that, as noted above, Greek debt would total €340b by year-end, or 200% of Greek GDP, some 140% higher than allowed by European treaties. It concludes by citing Lueder Gerken, Chairman of the Centre for European Policy, as saying that a Greek “haircut is economically inevitable, as well as a fourth rescue package.”

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It’s all in the housing market.

‘Giant Wave of Money’ Headed for Sweden Creates Policy Nightmare (Bloomberg)

European Central Bank President Mario Draghi said boo last week and the krona jumped. With the ECB signaling a new wave of stimulus to prop up the euro zone, the question is how Sweden’s central bank can fight the monetary expansion coming from the south with its own, much smaller toolbox as it tries to stop the krona appreciating. “The nightmare for the Riksbank board is maybe something like this: they are gathered in the south of Sweden, looking out over the Baltic Sea, when they see a giant wave of money coming in from the euro zone and try to fight it with a hose,” Robert Bergqvist, chief economist at SEB in Stockholm and a former researcher at the Riksbank, said by phone. The Riksbank is due to announce its next rate decision on Oct. 28.

Most economists surveyed by Bloomberg see the bank keeping its repo rate at minus 0.35%, though there’s speculation policy makers will need to expand their quantitative easing program. Failure to do so would lead to the krona strengthening “markedly,” Nordea Bank says. Draghi’s stimulus measures to date have already forced his Swedish counterpart, Stefan Ingves, to resort to unprecedented measures to drive up consumer prices in Scandinavia’s largest economy. He cut Sweden’s main rate below zero for the first time in February and started buying bonds, expanding the QE program several times since. Underlying price growth has stayed below the Riksbank’s 2% target since the beginning of 2011.

The stimulus program marks a departure from the cautious approach Ingves had adopted earlier, as he argued that excessively low rates risked overheating Sweden’s already hot property market. Now, there’s a growing chorus of voices from bank executives to analysts warning of unsustainable housing price developments. But Ingves can’t afford to take his attention away from consumer prices. “The Riksbank is fully focused on the inflation target,” Pierre Carlsson, an analyst at Handelsbanken, said by phone. “They’ve let go of the housing market, at least officially, and it’s not something that should keep them from further action. But they’re hardly happy.”

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Consumption vs supply.

Oil Supply Hits 85-Year High in US (Bloomberg)

Hedge funds placed the most bets on falling oil prices since July as rising piles of crude dashed hopes of a near-term recovery. Money managers’ short position in West Texas Intermediate crude jumped by 18% in the week ended Oct. 20, the largest surge since July 21, according to data from the Commodity Futures Trading Commission. That pulled their net-long position down by more than 16,000 contracts of futures and options. Crude stockpiles in the U.S. rose 22.6 million barrels in the past four weeks to the highest October level since 1930, even as producers have idled more than half their drilling rigs in the past year. A global surplus of crude could last through 2016, according to the International Energy Agency. “The decline in U.S. drilling and production is not enough to rebalance even the U.S. market, let alone the global market,” said Tim Evans at Citi Futures Perspective.

“How much do you really want to pay for the next million barrels of inventory you don’t need?” WTI fell 2.4% in the report week to $45.55 a barrel on the New York Mercantile Exchange. The front-month contract dropped 1.4% to settle at $43.98 a barrel on Monday. Oil inventories in the U.S. have risen 5% in the past four weeks to 477 million barrels, the highest seasonal in 85 years, when massive production in east Texas caused the state to empower its Railroad Commission to regulate output. Supplies have risen as refineries have slowed processing to perform seasonal maintenance. U.S. plants ran at 86.4% of capacity last week, compared with 96.1% at the end of July. “We’re in the middle of refinery maintenance season. Utilization is low, imports are up, and we’re building crude,” said David Pursell at investment bank Tudor Pickering Holt & Co. in Houston, said in a phone interview. “The middle of October is an easy time to be bearish on crude.”

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“..the most recent operator in the state to declare bankruptcy, filing in mid-September in hopes of clearing more than $3.25 billion in debt.”

Bakken Oil Companies Declare Bankruptcy (BT)

As crude oil prices hang low, about $43 per barrel Monday, some North Dakota operators are trying to divest interests in the Bakken. Two debt-heavy operators in the state, Tulsa, Okla.-based Samson Resources and Denver-based American Eagle Energy, filed for Chapter 11 bankruptcy, planning to sell off Bakken assets to pay back what they owe. Samson, with production acres in the Three Forks and Middle Bakken plays, has not yet succeeded in selling off acreage, spokesman Brian Maddox said. “We have not currently entered into agreements to divest other larger packages, including our Bakken, Wamsutter, San Juan and non-core Mid-Con assets, because we perceived the value offered was less than the value of retaining those properties when economic factors and the impact to our credit position were considered,” the company said in first-quarter 2015 filings with the U.S. Securities and Exchange Commission.

“Even if we are successful at reducing our costs and increasing our liquidity through asset sales, we do not expect to have sufficient liquidity to satisfy our debt service obligations, meet other financial obligations and comply with restrictive covenants contained in our various credit facilities.” The company is the most recent operator in the state to declare bankruptcy, filing in mid-September in hopes of clearing more than $3.25 billion in debt. As part of the company’s restructuring agreement, second lien lenders own all of the equity of the reorganized company in exchange for providing at least $450 million of new capital to increase liquidity.

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Stevo!!

Economists Prove That Capitalism Is Unnecessary (Steve Keen)

Actually they’ve done no such thing. But they do effectively assume that it’s unnecessary all the time. This transcendental truth became apparent to me in the reactions I have had from mainstream economists to a lecture I gave to my Kingston students this month. In it I explained that, at a very basic level, the original “Neoclassical” mathematical model of a market economy is mathematically unstable: it doesn’t converge to a stable pattern of relative prices and a stable growth path for the economy, as its developer Leon Walras thought it did. Mainstream economists reacted to my lecture by saying that, while the argument, which was first made in the 1960s by Jorgenson (who was applying a mathematical theorem from the early 1900s) was mathematically correct, all one had to do was assume that “economic agents” would then notice the instability and change their behavior. The model would then converge to equilibrium—problem solved.

And how would “economic agents” notice this instability? They would realize that a pattern of relative prices that had occurred once before in the past happened again. Hmmm. O.K.A.Y… I’ve read this sort of nonsense in dozens of mainstream academic papers over the years, and railed against it in an academic sort of way. But maybe because I’d just been reading and teaching Hayek to the same class, the true absurdity of this standard mainstream riposte stood out clearly to me. It’s an assumption that individuals in a market economy are so all-knowing that, in effect, they don’t need markets at all: they can just work it all out in their heads. Yet if anything defines a capitalist economy, it’s the dominance of markets. So effectively the mainstream reaction to anything which disturbs their preferred way of modeling a market economy is to make assumptions that, if they were true, would make a market economy itself unnecessary in the first place.

I know I’m not being original in saying this, by the way: this is the same point that Hayek made, in many different ways, when pointing out that the strength of a market economy was how it let people combine fragmented and incomplete knowledge in a way that no centralized system could do. As he put it:

“The fact that much more knowledge contributes to form the order of a market economy than can be known to any one mind … is the decisive reason why a market economy is more effective than any known type of economic order”.

Hayek’s main target here were socialists who believed that a complex economy could be centrally planned—thus doing away with markets institutionally. But he also criticized his mainstream rivals for assuming the existence of all-seeing, all-knowing “economic agents” to overcome mathematical problems in their equilibrium-obsessed models of the economy. Here he was actually in agreement with his great rival Keynes, since they both said that the only way equilibrium could be achieved would be if people’s expectations about the future were both shared and correct. Quoting Hayek:

“It appears that the concept of equilibrium merely means that the foresight of the different members of the society is in a special sense correct.”

And quoting Keynes:

“I accuse the classical economic theory of being itself one of these pretty, polite techniques which tries to deal with the present by abstracting from the fact that we know very little about the future.”

If the mainstream fantasies about the knowledge levels of individual agents were to be taken seriously, they’d need a convincing model to explain how such a state of mutual wisdom might come about. But as Hayek noted, rather than doing so, mainstream economists simply assumed that everyone was Nostradamus:

“instead of showing what bits of information the different persons must possess in order to bring about that result, we fall in effect back on the assumption that everybody knows everything and so evade any real solution of the problem.”

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Mish’s reaction to Steve’s piece above.

Keen vs. Keen: Will the Real Steve Keen Please Stand Up? (Mish)

In his Debtwatch Manifesto Keen proposes three mechanisms for dealing with the debt crisis. The first is a debt jubilee. The second is a mechanism that would act to restrict share prices. In his third proposal, Keen states “Lenders would only be able to lend up to a fixed multiple of the income-earning capacity of the property being purchased—regardless of the income of the borrower. A useful multiple would be 10, so that if a property rented for $30,000 p.a., the maximum amount of money that could be borrowed to purchase it would be $300,000.”

Hmm. How can Keen, me, or anyone else discern the correct “useful multiple”? Shouldn’t this be left to the free market? Keen also discusses full reserve proposals, one by Irving Fisher, the other HR2990 a bill Proposed by Congressman Dennis Kucinich in 2011.

Keen: Technically, both these [full reserve] proposals would work. I won’t go into great detail on them here, other than to note my reservation about them, which is that I don’t see the banking system’s capacity to create money as the causa causans of crises, so much as the uses to which that money is put. The problem comes when that money is created instead for Ponzi Finance reasons, and inflates asset prices rather than enabling the creation of new assets.

Mish: I propose, the system’s capacity to create money at will is the very problem. The fact of the matter is central banks can create money but not dictate where it goes. Curiously, Keen is willing to let bureaucrats decide what constitutes Ponzi financing, even though history shows government bodies and central banks have a 100% failure rate at identifying bubbles. Keen is concerned about “where the money goes”, yet is willing to trust bureaucrats more than the free market. To quote Keen directly … “And how would economic agents notice this instability? They would realize that a pattern of relative prices that had occurred once before in the past happened again. Hmmm. O.K.A.Y.”

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“..what better excuse to override every principle of free market economics, financial discipline and public policy fairness than stopping a reenactment of the 1930s – putative soup-lines and all?”

Bernanke’s Bogus Contra-Factual, 1: The Myth Of Great Depression 2.0 (Stockman)

It took no “courage” whatsoever to inflate the Fed’s balance sheet from $900 billion to $2.3 trillion during just 17 weeks in September-December 2008. What it actually took was an epochal con job by a naïve Keynesian academic whose single idea about economics was primitive, self-serving, borrowed and wrong. The claim that the Great Depression was caused by the Fed’s failure to go on a bond buying spree in 1930-1933 was Milton Friedman’s monumental error. Professor Bernanke’s scholarship amounted to little more than xeroxing Friedman’s flawed work, and then shouting loudly in the Eccles Building boardroom at the time of the Lehman bankruptcy that Great Depression 2.0 was lurking just around the corner. That was just plain hysterical malarkey.

But at the time, it served the interests of the Wall Street/Washington Corridor perfectly. As Wall Street’s decade long spree of leveraged speculation was being liquidated in September 2008, Goldman Sachs, Morgan Stanley and their posse of hedge fund speculators desperately needed rescue from their own reckless gambles – especially their funding of giant balance sheets swollen by long-dated, illiquid, risky assets with cheap hot funds in the wholesale money market. So what better excuse to override every principle of free market economics, financial discipline and public policy fairness than stopping a reenactment of the 1930s – putative soup-lines and all? At the same time, beltway politicians and fiscal authorities were tickled pink.

They would be able to unleash a monumental $800 billion potpourri of K-street pork and tax and entitlement giveaways to “fight” the recession, knowing that Bernanke & Co would finance it with an eruption of public debt monetization that was theretofore unimaginable. In short, no public official has ever committed an economic folly greater than the horrific misdeed of Ben S. Bernanke when he provided the Great Depression 2.0 cover story for the lunatic outbreak of central bank money printing shown below. It destroyed the last vestige of Wall Street discipline in a financialized economy that had already been bloated and deformed by two decades of Greenspan era Bubble Finance.

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Bernanke on tour.

Something Happened (Jim Kunstler)

Ben Bernanke’s memoir is out and the chatter about it inevitably turns to the sickening moments in September 2008 when “the world economy came very close to collapse.” Easy to say, but how many people know what that means? It’s every bit as opaque as the operations of the Federal Reserve itself. There were many ugly facets to the problem but they all boiled down to global insolvency — too many promises to pay that could not be met. The promises, of course, were quite hollow. They accumulated over the decades-long process, largely self-organized and emergent, of the so-called global economy arranging itself. All the financial arrangements depended on trust and good faith, especially of the authorities who managed the world’s “reserve currency,” the US dollar.

By the fall of 2008, it was clear that these authorities, in particular the US Federal Reserve, had failed spectacularly in regulating the operations of capital markets. With events such as the collapse of Lehman and the rescue of Fannie Mae and Freddie Mac, it also became clear that much of the collateral ostensibly backing up the US banking system was worthless, especially instruments based on mortgages. Hence, the trust and good faith vested in the issuer of the world’s reserve currency was revealed as worthless. The great triumph of Ben Bernanke was to engineer a fix that rendered trust and good faith irrelevant.

That was largely accomplished, in concert with the executive branch of the government, by failing to prosecute banking crime, in particular the issuance of fraudulent securities built out of worthless mortgages. In effect, Mr. Bernanke (and Barack Obama’s Department of Justice), decided that the rule of law was no longer needed for the system to operate. In fact, the rule of law only hampered it. Mr. Bernanke now says he “regrets” that nobody went to jail. That’s interesting. More to the point perhaps he might explain why the Federal Reserve and the Securities and Exchange Commission did not make any criminal referrals to the US Attorney General in such cases as, for instance, Goldman Sachs (and others) peddling bonds deliberately constructed to fail, on which they had placed bets favoring that very failure.

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“Rajoy’s party has the support of about 27% of voters compared with almost 45% in the previous general election..”

Rajoy Calls Election for Spain Against Backdrop of Party Unrest (Bloomberg)

Spanish Prime Minister Mariano Rajoy called a general election for Dec. 20, insisting he is the best candidate to win the ballot despite unrest within his party. Speaking in Madrid, the 60-year-old premier said his government has turned the economy around and honored its pledge to bring down unemployment after it reached a record high on his watch. Rajoy urged Spaniards to vote for continuity and stability, arguing that he’s best placed to safeguard the recovery and create more jobs. “If I didn’t think I was the best candidate I wouldn’t be running,” he said at a televised press conference Monday. Asked about potential coalitions, Rajoy avoided going into detail about what his preferred options would be, but insisted that he wouldn’t try to form a government if his party didn’t win the most votes.

He batted away speculation that he would be prepared to step down to facilitate a coalition government if a junior partner “called for his head.” “My head is well placed and I’m not letting anyone change that place,” he said. Rajoy’s party has the support of about 27% of voters compared with almost 45% in the previous general election, when it secured its best result ever. With the prime minister’s party dogged by corruption allegations, many of its traditional voters have been drawn to pro-market party Ciudadanos, led by 35-year-old former lawyer Albert Rivera. Rajoy denies any wrongdoing. For a party that prides itself on internal discipline, Rajoy has had to suffer a raft of dissent in recent weeks. His predecessor Jose Maria Aznar criticized the party’s performance, Budget Minister Cristobal Montoro launched an attack on his cabinet colleagues and lawmaker Cayetana Alvarez de Toledo announced in a newspaper column that she wouldn’t run again on a list led by the prime minister.

Spaniards will go to the polls with the economy growing at the fastest pace since 2007 and unemployment at the lowest in almost four years. Still, opinion polls suggest about 40% of PP voters are considering other options. “The economic recovery is helping Rajoy recover moderate voters,” said Narciso Michavila, chairman of pollster GAD3. “The question is whether that’s enough.” The PP is outpacing Socialists, the other Spanish incumbent party, by about four%age points, according to the average of 10 polls publicly released since Oct. 5. Ciudadanos is running third with an average support of 18.2%, while Syriza’s ally Podemos is on 13.6%.

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Lots of different views on this, coup or no coup. Wonder how it’ll play out. President plays strange role, but he’s out in January.

Portugal’s Constitutional Crisis Threatens All European Democracies (Telegraph)

On October 4, the ruling conservative coalition that has governed Portugal for four years lost its parliamentary majority. The centre-right alliance, led by Prime Minister Pedro Passos Coelho, had overseen the implementation of one of the toughest austerity packages in the euro following a €78bn bail-out in 2011. The incumbents still emerged as the biggest party with 36.8pc of the vote share, but lost 17 seats and their parliamentary majority in the process. In second place was the main opposition Socialists (PS) led by Antonio Costa. Mr Costa – a moderate who supports Portugal’s euro membership – gained 32.4pc of the vote share. The result was disappointing but not catastrophic for the former mayor of Lisbon, who had been narrowly leading the polls in the electoral run up. But Portugal’s more stridently anti-austerity, eurosceptic parties on the Left – the radical Left Bloc and the anti-euro Communists, saw a surprising surge in support.

Combined, they gained 18.5pc of the vote. Despite the inconclusive result, the election indicated an overall dissatisfaction with Portugal’s dominant pro-austerity, pro-bail-out forces (including the Socialists). The electoral result pointed to the likely continuation of a minority centre-right government led by Mr Passos Coelho. However, for any new government to carry out painful economic reforms demanded by the EU, the PM would require opposition support in parliament. Mr Costa, however, vowed never to back the conservatives. Instead, after a few weeks of political horsetrading, he brokered a historic coalition deal with the radical Left Bloc and Communists in order to clump together a workable political majority of just under 51pc.

Hailed as a “Berlin Wall moment” for the country, the three main parties on the Left managed to put aside internecine squabbles to present themselves as the only government that could secure political stability for Portugal. Despite getting into bed with hardened eurosceptic Communists, Mr Costa promised not to jettison his pro-European principles and to notionally abide by the stringent fiscal targets imposed by Portugal’s former creditors in Brussels. However, the Leftist alliance is of a decidedly anti-austerity bent. Its policies would likely jeopardise the fiscal consolidation of the centre-right, and poison Portugal’s relationship with Brussels, say analysts. “The minimum wage would probably be raised, further tweaks to the social security system would probably be off the table, as would a further liberalisation of the labour market, or a reduction in the tax-burden,” notes Federico Santi at Eurasia Group.

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Goat.

Goldman Sachs Banker Likely To Face Jail Amid Rare Criminal Charges (Guardian)

A Goldman Sachs banker is expected to be jailed over the leaking of confidential information from the New York Fed, the investment banker’s former employer. Federal prosecutors are preparing to this week announce criminal charges against the banker, Rohit Bansal, and an employee of the regulator, according to the New York Times. Lawyers for the men, who were both fired in the wake of the leak, are said to be hammering out a deal with prosecutors. Even if they agree on the plea deal, they are likely to face up to a year in jail. It is rare for criminal charges to be brought directly against bankers in the US, but the attorney general, Loretta Lynch, has set out new guidelines designed to ensure that more executives, bankers and other businesspeople are held personally accountable for their actions.

Under the planned deal, Goldman would not face criminal charges but would pay a fine of as much as $50m and would be forced to admit that it failed to properly supervise Bansal. A spokesman for Goldman said: “Upon discovering that a new junior employee had obtained confidential supervisory information from his former employer, the New York Fed, we immediately began an investigation and notified the appropriate regulators, including the Fed. “That employee and a more senior employee who failed to escalate the issue, were terminated shortly thereafter. We have zero tolerance for improper handling of confidential information. We have reviewed our policies regarding hiring from governmental institutions and have implemented changes to make them appropriately robust.” The case highlights the dangers of a revolving door between banks and regulators. Bansal had spent seven years at the New York Fed before joining Goldman, where he advised one of the same banks he had previously regulated.

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It’s completely unclear to me what, if any, funds the EU has sent to date to Athens to deal with the refugee crisis. Can’t find a single report on the topic. This, too, has been approved, but not paid yet.

EC Approves Aid As Greece Prepares To Host More Migrants (Kath.)

A day after a crisis summit on the refugee problem, where Prime Minister Alexis Tsipras agreed to increase Greece’s reception capacity for migrants to 50,000 by the end of the year, the European Commission approved the release of emergency aid to Athens. Confirming the approval of €5.9 million to help Greece cope with the large numbers of migrants and refugees arriving in the country daily from Turkey, European Commissioner for Migration Dimitris Avramopoulos said on Monday that the aid was aimed at enabling authorities to “cover the transportation costs for a significant number of these persons from the eastern Aegean islands to reception centers in mainland Greece once they have been properly registered, identified and fingerprinted.” A statement issued by the EC indicated that the sum was aimed at paying for the transport of 60,000 people. It remained unclear, however, where those people would stay as Greek authorities are still seeking venues.

Sources in Brussels indicated that Tsipras came under huge pressure at the Sunday summit to set up a large facility for migrants in Athens. In comments after the meeting, Tsipras said the creation of such a facility, “the size of a small city,” was among a series of “unacceptable demands” that he rejected. On Monday, government spokeswoman Olga Gerovasili also presented the outcome of the summit as a minor victory for Greece. “What was asked of us, to place 20,000 people in a giant camp, was rejected,” she said, adding that “there will be no concentration camps in our country.” She added that authorities were preparing a housing program to help up to 20,000 migrants, indicating that this too would require European funding.

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Blackwater looms.

Slovenia To Hire Private Security Firms To Manage Migrant Flows (Reuters)

Slovenia is planning to employ private security firms to help manage the flow of thousands of migrants and refugees travelling through the country toward northern Europe, a senior official has said. Bostjan Sefic, state secretary at the interior ministry, said 50-60 private security guards would assist the police where necessary. More than 76,000 people have arrived in Slovenia from Croatia in the past 10 days. More than 9,000 were in Slovenia on Monday, hoping to reach Austria by the end of the day, while many more were on their way to Slovenia from Croatia and Serbia. The emergency measure was announced by the prime minister, who described the migrant crisis as the biggest challenge yet to the EU.

If a joint solution is not found, [the trade bloc] will start breaking up, Miro Cerar warned. About 2,000 migrants waited in a field in Rigonce on the Croatian border on Monday for buses to take them to a nearby camp to be registered before they are allowed to proceed north. [..] Slovenia, the smallest country on the Balkan migration route, has brought in the army to help police. Other EU states have pledged to send a total of 400 police officers this week to help manage the flow of people. Over the past 24 hours, 8,000 people arrived in Serbia en route to northern Europe, the UN refugee agency, UNHCR, said.

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“The idea that EU border countries should solve 80% of the problem is completely out of touch with reality.”

Italy Says EU’s Response ‘Inadequate’ as Refugee Numbers Surge (Bloomberg)

European Union agreements on the free movement of people may be at risk of collapse unless the bloc eases the burden for border countries forced to handle asylum-seekers, Italian Foreign Minister Paolo Gentiloni said. Gentiloni, whose country has borne the brunt of the influx from Africa and the Middle East, said that common policies to share the burden would leave the EU much better placed to help people fleeing conflict. He also called for clear criteria to define so-called safe countries that migrants could be sent back to. “Europe – with hundreds of millions of people – can accept hundreds of thousands of migrants” so long as there is a common policy, Gentiloni said. “The idea that EU border countries should solve 80% of the problem is completely out of touch with reality.”

Europe’s worst refugee crisis since World War II intensified at the end of summer after German Chancellor Angela Merkel said there could be no limit on granting asylum to those who legitimately met the criteria. Migrants also began shifting from a route that once led mainly through Libya to southern Europe to one winding from Turkey to Greece, through the Balkan states, and then further north. With winter approaching and more than a million migrants set to reach the EU this year, the bloc’s leaders are struggling to present a united front as national authorities have tightened their borders and waved asylum seekers through to neighboring countries. Slovenia said at a Sunday meeting in Brussels that Croatia is causing chaos by sending migrants across its frontier with little warning.

In yet another sign of the divisions, Dutch Finance Minister Jeroen Dijsselbloem on Monday said it was a concern that Poland wasn’t accepting more refugees. “Poland is taking only a limited number of people and I find that disturbing,” he said at an event in The Hague. “Poland gets a lot of subsidies. We help to build Poland – they should take up asylum seekers in return.” Gentiloni’s warning came as the United Nations said the influx on the region’s southeastern fringe is growing. As many as 49,000 migrants entered the former Yugoslav Republic of Macedonia, which isn’t an EU member, last week, Mirjana Milenkovski of the UNHCR, said on Monday. The daily average number of people entering Serbia increased to 7,000 from 5,000 a week earlier, she said. “Nothing has been done really adequately,” Gentiloni said. “We are still perhaps not adequate to the dimension and the perspective of these flows.”

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“They are using the refugee crisis as another way to apply pressure on Athens, to demand even more asphyxiating measures. Is this opportunism? Cynicism? Crudeness? Whatever term we choose, none is a synonym for solidarity.”

Using The Refugee Crisis (Boukalas)

Splitting the refugee crisis into three or more parts does not make any political sense nor is it morally acceptable. You can’t say that it’s a Balkan problem or an Italian problem or a French problem. The alliance of 28 states is still called the European Union even though it is blatantly dominated by Germany and even though we see countries expecting to better serve their own interests by gravitating toward Berlin. Therefore, a summit on the refugee crisis organized by the EU is from the onset incomplete when it does not include Italy and France, if, of course, the objective is to find a way to help the refugees and not to solve the refugee “problem” challenging individual states and leaders.

Yet even if we were to accept that the priority is to meet the challenges faced by the so-called Balkan corridor, then it is incomprehensible why Turkey was not invited to attend, given its key role in this avenue of arrival into the European Union. Of course, it is also very understandable given that Angela Merkel’s recent visit to Turkey was as the head of the EU rather than the chancellor of Germany. She’s already taken care of business so discussions with and the participation of the other parties involved, even those which are at the vanguard, is unnecessary. Greece’s position is particularly delicate. There have been many times in history when being at the crossroads of three continents was a problem rather than advantage.

The reality of the refugee crisis in this country is symbolized by a recent photograph showing a girl on the island of Lesvos giving a doll to another little girl, a refugee in her father’s arms, and in the father’s smile, which is full of gratitude and trust. Because of the crisis, which has thrown the welfare state and all of its institutions into complete disarray, what Greece can offer these people is about as much as that offered by the Lesvos girl: a gesture of kindness and whatever has been scraped together. So far, Greece has managed to do this, mainly thanks to the excellent work and dedication of volunteers, both Greek and foreign. Of course there is no shortage of scumbags who charge refugees €20 for access to a plug to charge their cell phones or €5 for a piece of plastic to keep the rain off.

The contribution of the European Union to Greece’s refugee management is extremely small and in many respects restricted to promises. It is also becoming clearer that the problems Greece faces in dealing with the influx does not constitute an important reason for foreign creditors to relax their control of finances but an opportunity to become even stricter. They are using the refugee crisis as another way to apply pressure on Athens, to demand even more asphyxiating measures. Is this opportunism? Cynicism? Crudeness? Whatever term we choose, none is a synonym for solidarity.

Read more …

Death penalty.

Big-Game Hunters Are Killing African Lions In Record Numbers (Bloomberg)

Big-game hunters are killing African lions in record numbers as U.S. regulators threaten to curtail one of world’s most exclusive, expensive and controversial pursuits. The U.S. Fish and Wildlife Service has an Oct. 29 deadline to make a final determination on the status of the African lion, which it has proposed to list as threatened under the Endangered Species Act. The agency has also recommended requiring a special permit to import lion trophies. Those findings could curtail the number of slain lions entering the U.S., while also driving up safari costs that are often more than $100,000.

That’s leading to a rush of Americans taking their guns to Africa in pursuit of the king of the jungle. Last year, Americans imported a record 745 African lions as trophies, up 70% since 2011 and more than double the total in 2000, according to data from the Fish and Wildlife Service. “Guys fearing that I’ll never get my opportunity to get a lion, they’re getting it while the getting’s good,” said Aaron Neilson, an African safari broker based in Colorado whose exploits, including lion hunts, are featured on a Sportsman Channel television show. “The overall consensus among everybody selling lion hunts has been, ‘Man, get it now.”’

Read more …

Palm oil.

Indonesia’s Forest Fires Labelled A ‘Crime Against Humanity’

Raging forest fires across Indonesia are thought to be responsible for up to half a million cases of respiratory infections, with the resultant haze covering parts of Malaysia and Singapore now being described as a “crime against humanity”. Tens of thousands of hectares of forest have been alight for more than two months as a result of slash and burn – the fastest and quickest way to clear land for new plantations. Indonesia is the world’s largest producer of palm oil and fires are frequently intentionally lit to clear the land with the resulting haze an annual headache. But this year a prolonged dry season and the impact of El Niño have made the situation far worse, with one estimate that daily emissions from the fires have surpassed the average daily emissions of the entire US economy.

The fires have caused the air to turn a toxic sepia colour in the worst hit areas of Sumatra and Kalimantan, where levels of the Pollutant Standard Index (PSI) have pushed toward 2,000. Anything above 300 is considered hazardous. Endangered wildlife such as orangutans have also been forced to flee the forests because of the fires. Six Indonesian provinces have declared a state of emergency. Across the region Indonesia’s haze crisis has been causing havoc – schools in neighbouring Singapore and Malaysia have been shut down, flights have been grounded, events cancelled and Indonesian products boycotted, as millions try to avoid the intense smoke. In the worst affected parts, on Sumatra and Kalimantan, ten people have died from haze-related illnesses and more than 500,000 cases of acute respiratory tract infections have been reported since July 1.

Read more …

Oct 272015
 
 October 27, 2015  Posted by at 9:24 am Finance Tagged with: , , , , , , , , ,  


LIFE How to kiss 1942

On the day after a bunch of European countries headed into yet another -emergency- meeting, and as the refugee situation in Greece and the Balkans was more out of hand than ever before, not in the least because the numbers of refugees arriving from -in particular- Turkey are larger than ever, let’s reiterate what should always be the guiding principle driving the response to issues like this.

That is, the only way to approach a crisis such as this one is to put the people first. To say that whatever happens, we will do what we can, first and foremost, to not allow for people to drown, or go hungry or cold, or contract diseases. Because that contradicts our basic morals. The loss of lives and prevention of misery should be the most important thing for everyone involved, all the time, from politicians to citizens.

If we cannot approach both the issue and the people with decency and humanity, we are as lost as they are. If only because we have no claim to being treated better than we ourselves treat others. After all, if someone else’s life is neither sacred nor valuable, why should yours be?

Looking through the response across Europe to the growing numbers and the growing crisis, what’s remarkable is the difference between individual citizens and the governments that are supposed to represent them. Apart from outliers like Hungary PM Victor Urban and the ubiquitous fascist groups from Greece through Germany, citizens win hands-down and across the board when it comes to humanity.

The arguably worst record is set by the European Union, ironically the one body that claims to represent everyone in the 500 million strong continent. Individual politicians in leading nations like Germany, France and the UK are close behind. European ‘leaders’ are not looking for a European solution, they’re all only trying to deal with their own part of the problem. As long as the refugees don’t burden their nations, they’re satisfied.

After a year of increasing refugee arrivals it’s safe to say that the pan-European approach, to the extent that it can even be said to exist, is a dismal and deadly failure.

Yesterday’s ‘Balkan+’ mini-summit was no exception. The AP headline says it all: “EU Agrees To Tighten Border Controls And Slow Migrant Arrival”. Europe’s priority is not to fight or minimize the suffering, it’s to make the problems go away by making the people go away. The new deal that came out of the summit cannot possibly work because it is based on unrealistic predictions of stopping the flow of refugees.

Greece has agreed to ‘host’ 50,000 refugees, but with 10,000 arriving daily that is a meaningless number. Apart from that, this is supposed to take place in ‘holding camps’, and the term all by itself should make one shiver. The ‘hotspots’, another EU initiative, are already making the refugee situation even worse than they have been for months.

Moreover, these people don’t want to stay in Greece, because in Greece economic prospects are so bleak as to be non-existent for the simple reason that the EU itself has demolished the Greek economy. Those responsible for that demolition now seek to force Greece to keep refugees from traveling north in holding camps and severely undermanned fingerprint facilities.

Disgrace comes in spades. It was therefore good to see that Greece had the pretty perfect answer:

Greece Says Refugees Are Not Enemies, Refuses to Protect Borders From Them

Greece’s migration minister has rejected accusations by Germany and other European countries that Greece is failing to defend its borders against mass migration, insisting that the refugees and other migrants trekking to Europe constitute a humanitarian crisis, not a defense threat. “Greece can guard its borders perfectly and has been doing so for thousands of years, but against its enemies. The refugees are not our enemies,” Yiannis Mouzalas said in an interview.

Greece is under pressure from other European governments to use its coast guard and navy to control the huge influx of migrants who are making their way, via the Aegean Sea and Greece’s territory, from the Middle East to Northern Europe, especially Germany. [..] leaders from Greece and other countries on the latest migration route through the Balkans are facing allegations from Germany, Hungary and others that they are passively allowing migrants to pass through.

“In practice what lies behind the accusation is the desire to repel the migrants,” said Mr. Mouzalas. “Our job when they are in our territorial sea is to rescue them, not [let them] drown or repel them.”

Last week alone, Greece received about 48,000 migrants and refugees on its shores, the highest number of weekly arrivals this year, the International Organization for Migration said Friday.

Athens opposes an idea floated by European Commission President Jean-Claude Juncker to set up joint Turkish-Greek border patrols. Greece and Turkey have long-standing disputes over their territorial waters, which have led to military tension over the years.

“This was an unfortunate statement by Mr. Juncker,” Mr. Mouzalas said. “The joint patrols have never been on the table. They have no point anyway, as they wouldn’t help ease the situation.”

Mr. Mouzalas said Turkey should have been invited to Sunday’s summit. “Turkey is the door and Greece is the corridor; Europe should not treat Greece as the door..”

But count on Brussels and Berlin to issue Athens with more threats. It worked over the summer, so… Still, Europe as a whole, the 28 nations that make up the EU, can and will not agree on the entire issue and all its aspects. And that is why Yanis Varoufakis is wrong in his approach, and his call to Britain (which he shares with Xi Jinping of all people) and the rest of Europe:

Yanis Varoufakis Says Britons Should Vote To Stay In Union

Yanis Varoufakis, the former Greek finance minister, has called on Britons to vote to remain in the European Union in the upcoming referendum. The bête noire of the European political elite was speaking at a Guardian Live event at Central Hall in Westminster, central London, on Friday night. He said: “You have a referendum coming up. My message is simple yet rich: those of us who disdain the democratic deficit in Brussels, those of us who detest the authoritarianism of a technocracy which is incompetent and contemptuous of democracy, those of us who are most critical of Europe have a moral duty to stay in Europe, fight for it, and democratise it.”

Yanis is wrong because the EU is not a democratic institution, and can therefore not be “democratized”. It’s a pipedream gone horribly awry. It should be exorcised. And even if “democratization” were possible in theory, before you can reform the EU, you’re 10-20 years or more down the road. And there’s no such time available. The problems exist in the presence, not just in the future.

The EU is a loose collection of separate sovereign nations that came together in times of plenty. These nations will always, when pressured, seek their own advantages, never that of the collective if it means a disadvantage for themselves. The whole idea behind the union has been, from the start, that of a tide that lifts all boats. And that promise has already been smashed into a corner, bruised and broken beyond repair.

After Greece there can be no doubt of that. And the other separate EU-member economies are not exactly doing well either. Mario Draghi pumps €60 billion a month into the eurozone engine, but it keeps leaking just as hard and the best it can do is sputter.

In institutions such as the EU, organized like the EU, power will inevitably flow towards the center. And at some point in that process, democracy will vanish into thin air. Draghi’s €60 billion will just as inevitably benefit the power center most, and leave the periphery ever poorer. This is not an unfortunate coincidence, it’s built into the union’s structure. Which is therefore not merely undemocratic, it’s inherently anti-democratic.

Nobody in Europe ever voted for Jean-Paul Juncker -or had the chance to- to represent them, at least not in any direct democratic fashion. And nobody outside of Germany ever voted for Angela Merkel -or had the chance to- . Yet, these are arguably the most powerful people in the EU. That in a nutshell is what’s wrong with and in Europe.

Financial and political power reside with the rich and powerful nations, and they acquire more of each as they go along. This is unavoidable in the present situation. It can only be corrected by decentralization of power, but since that would run counter to what Brussels and Berlin envision (more power for themselves), it’s not going to happen. Europe will not be ‘democratized’.

Or put it this way: the only way EU nations can regain democratic values is by leaving the union. That is also the only real vote Europeans have left; a vote within the EU structure goes wasted. Ask the Greeks.

Europeans need to acknowledge that the EU has failed, and inexorably so. Schengen is already dead, walls and fences are popping up everywhere. All the rest is just make-believe. There will never be a consensus on the ‘distribution’ of the numbers of refugees. Views and national interests are too far apart.

And the vested interests in the centers of power are too strong. Merkel may be Europe’s unelected leader, but she will always put German interests before those of the 27 other nations. This may be accepted in 7 years of plenty, but it won’t be in the 7 lean years.

Meanwhile, it’s the hundreds of thousands of refugees who pay the price for the fundamental faultlines in what was supposed to bring and hold Europe together. And an interesting additional issue, which so far flies largely under the radar, arises.

First, refugee numbers keep rising, as Reuters reports:

Immigration flows to Greece surged to 48,000 in the five days to October 21, the highest weekly total so far this year, bringing the number of Mediterranean migrant arrivals in Europe to 681,000 the International Organization for Migration said today. Amin Awad, the Middle East director for the UN refugee agency UNHCR, said Russian airstrikes and increased fighting around the Syrian city of Aleppo had contributed to the “dynamic of displacement”, with about 50,000 displaced, but had not contributed much to the refugee exodus. But he said the number of internally displaced people within Syria had fallen from 7.6 million people to 6.3 million, a decline that could be attributed to the refugee flows to Europe, as well as people being missed from the latest count.

48,000 in 5 days in Greece from October 17-21, 12,000 in one day in Slovenia. Over 5,000 in 5 hours on Lesvos Friday. 52 refugees died off Greece in 10 days. That’s five lives lost every day. While Brussels stand by and watches, as does Merkel, paralyzed by fears of losing votes and power at home. And when they do act, it’s most of all to try and quell the refugee flood, not to minimize the suffering.

Turkey gets offered billions to built camps on its territory, Greece is threatened into doing the same. Makes you wonder where Juncker and Merkel think the people they want to lock up in these camps will eventually wind up.

Slovenia is the latest bottleneck, after many miles of walls and and fences and razorwire have been installed elsewhere.

Last Tuesday, Slovenia was first reported to be asking for “additional police forces”.

Slovenia Asks For EU Police Help As Thousands Enter Country

Around 19,500 have entered Slovenia since Friday after Hungary sealed its southern border with Croatia. Speaking after a meeting with European Council President Donald Tusk and EU chief executive Jean-Claude Juncker, President Borut Pahor said:

We need fast assistance of the European Union. Slovenia will formally ask for additional police forces to guard the border between Slovenia and Croatia and for financial help.

The country has deployed 140 soldiers to the border to assist police and hasn’t ruled out building a fence as part of its efforts to control the influx of migrants.

And I thought: police? What police? There is no EU police force. At least not a ‘boots on the ground’ one. There’s Europol, Europe’s own Interpol, but they do intelligence. There’s the European Gendarmerie Force, but that’s a (para-)military police force. And we’re dealing with sovereign nations here, so any police force, let alone a military one, would face huge legal issues; at least if people pay attention.

Then a few days later, Reuters had this:

Worried Slovenia Might Built Fence To Cope With Migrant Crisis

Slovenia said it will consider all options, including fencing off its border with Croatia, if European leaders fail to agree a common approach to the migrant crisis as thousands stream into the ex-Yugoslav republic. Migrants began crossing into Slovenia last Saturday after Hungary closed its border with Croatia. The Slovenian Interior Ministry said that a total of 47,000 had entered the country since Saturday, including some 10,000 in the past 24 hours. Slovenian officials said the country is too small and does not have enough resources to handle such large numbers of people. [..]

According to Slovenia’s interior ministry, the cost of fencing off the 670-km long border with Croatia would be about €80 million. Slovenia has asked for the EU for assistance and officials said Austria, Germany, Italy, France, Hungary, the Czech Republic, Slovakia and Poland offered to send police reinforcements.

That’s 8 different countries offering to send policemen. But what status would these people have? Would they be allowed to bear arms? In a foreign sovereign nation? I’d love to see the legal documents that justify such a move. Would these foreign police officials also enjoy immunity, as Europol officers do? Under whose command would they operate?

I can imagine perhaps these new policemen, or border guards, could be Frontex, but Slovenia is not on Europe’s border. And Frontex already lacks the personnel to execute its intended policies (halt the refugees) in places where Europe does have borders.

This looks like a deep and dark legal quagmire. So perhaps it’s not surprising that Slovenia digs a little deeper still, as the Guardian noted yesterday:

Slovenia To Hire Private Security Firms To Manage Migrant Flows

Slovenia is planning to employ private security firms to help manage the flow of thousands of migrants and refugees travelling through the country toward northern Europe, a senior official has said. Bostjan Sefic, state secretary at the interior ministry, said 50-60 private security guards would assist the police where necessary. More than 76,000 people have arrived in Slovenia from Croatia in the past 10 days. More than 9,000 were in Slovenia on Monday, hoping to reach Austria by the end of the day, while many more were on their way to Slovenia from Croatia and Serbia. The emergency measure was announced by the prime minister, who described the migrant crisis as the biggest challenge yet to the EU.

If a joint solution is not found, [EU] will start breaking up, Miro Cerar warned. About 2,000 migrants waited in a field in Rigonce on the Croatian border on Monday for buses to take them to a nearby camp to be registered before they are allowed to proceed north. [..] Slovenia, the smallest country on the Balkan migration route, has brought in the army to help police. Other EU states have pledged to send a total of 400 police officers this week to help manage the flow of people. Over the past 24 hours, 8,000 people arrived in Serbia en route to northern Europe, the UN refugee agency, UNHCR, said.

Now I know it all perhaps depends on what tasks the various ‘additional’ crew are supposed to handle. Frontex could be doing registration and finger printing. Europol could do some stuff behind the scenes, like sniffing out alleged terrorists. But actual policemen and soldiers and even private security operating inside a sovereign European nation?

The overarching question is how this is different, how far removed is it, from German soldiers and policemen patrolling in for instance Greece? And what would be the reaction from the Greek people to such a development? Or we can turn it around: how would Germans react to Greek soldiers operating on German soil? Once you provide a legal justification for one situation, this should cover all 28 nations, and equally.

Another question is Slovenia once hires private security, how far away are we from employing some subsidiary of Blackwater to patrol the Aegean and/or other parts of the Mediterranean? Or land-based border crossings for that matter?

It will become clearer, fast, what an awful mess Brussels and Berlin have created here, because with winter approaching more refugees will fall victim to the conditions under which they’re forced to live once they’ve entered Europe. Which, in their own eyes, will still be preferable to the conditions in their homelands. And then what will we do, when dozens start dying from cold and diseases? Send in more police and military?

This is a road to a very bleak nowhere. We can only possibly return to what I started out with: “the only way to approach a crisis such as this one is to put the people first.” That is, pay for and send in aid agencies, not officers bearing arms.

And perhaps Europe should begin to ponder the possibility that this is not something it can stop at will. That the 500 million citizens of the EU may have to share their bounty with a few million newcomers. Who, on the whole, look a lot fitter, more determined and more motivated than scores of Europeans do, by the way.

Oct 242015
 
 October 24, 2015  Posted by at 10:03 am Finance Tagged with: , , , , , , , , , , ,  


William Henry Jackson Hospital Street, St. Augustine, Florida 1897

China Cuts Interest Rates, Reserve Ratios to Counter Slowdown (Bloomberg)
China Interest Rate Cut Fuels Fears Over Ailing Economy (Guardian)
Why The Chinese Rate Cut Will Not Slow China’s Economic Decline (Coward)
Reactions To Rate Cut: “China Is Getting More And More Desperate” (Zero Hedge)
China Takes ‘Riskiest’ Step by Ending Deposit-Rate Controls (Bloomberg)
Draghi’s Signal Adds $190 Billion to Negative-Yield Universe (Bloomberg)
Eurozone Crosses Rubicon As Portugal’s Anti-Euro Left Banned From Power (AEP)
Italy ex-PM Monti: Ignoring Greek Referendum A Violation Of Democracy (EurActiv)
Rare Metals: The War Over the Periodic Table (Bloomberg)
$6.5 Billion in Energy Writedowns and We’re Just Getting Started (Bloomberg)
Greece’s Creditors Demand Further Reform (La Tribune)
Investment Grade Ain’t What It Used to Be in Nervous Bond Market (Bloomberg)
An All Too Visible Hand (WSJ)
EU Negotiators Break Environmental Pledges In Leaked TTIP Draft (Guardian)
Populist, Pernicious and Perilous : Germany’s Growing Hate Problem (Spiegel)
Germany To Push For Compulsory EU Quotas To Tackle Refugee Crisis (Guardian)
Worried Slovenia Might Built Fence To Cope With Migrant Crisis (Reuters)

This cannot end well.

China Cuts Interest Rates, Reserve Ratios to Counter Slowdown (Bloomberg)

China’s central bank cut its benchmark lending rate and reserve requirements for banks, stepping up efforts to cushion a deepening economic slowdown. The one-year lending rate will drop to 4.35% from 4.6% effective Saturday the People’s Bank of China said on its website on Friday. The one-year deposit rate will fall to 1.5% from 1.75%. Reserve requirements for all banks were cut by 50 basis points, with an extra 50 basis point reduction for some institutions. The PBOC also scrapped a deposit-rate ceiling. The expanded monetary easing underscores the government’s determination to meet its 2015 growth target of about 7%. Moderated consumer inflation and a deeper slump in producer prices have given policy makers room for further easing.

Read more …

If growth numbers were anywhere near the IMF’s predictions, China wouldn’t be cutting rates.

China Interest Rate Cut Fuels Fears Over Ailing Economy (Guardian)

China fuelled fears that its ailing economy is about to slow further after Beijing cut its main interest rate by 0.25 percentage points. The unexpected rate cut, the sixth since November last year, reduced the main bank base rate to 4.35%. The one-year deposit rate will fall to 1.5% from 1.75%. The move follows official data earlier this week showing that economic growth in the latest quarter fell to a six-year low of 6.9%. A decline in exports was one of the biggest factors, blamed partly by analysts on the high value of China’s currency, the yuan. The rate cut sent European stock markets higher as investors welcomed the boost from cheaper credit in China, together with the hint of further monetary easing by the European Central Bank president, Mario Draghi, on Thursday.

Investors were also buoyed by the likelihood that the US Federal Reserve would be forced to signal another delay to the first US rate rise since the financial crash of 2008-2009 until later next year. The FTSE 100 was up just over 90 points, or 1.4%, at 6466, while the German Dax and French CAC were up almost 3%. The People’s Bank of China’s last rate cut in August triggered turmoil in world markets after Beijing combined the decision with a 2% reduction in the yuan’s value. Shocked at the prospect of a slide in the Chinese currency, investors panicked and sent markets plunging. Some economists have warned that the world economy is about to experience a third leg of post-crash instability after the initial banking collapse and eurozone crisis.

The slowdown in China, as it reduces debts and a dependence for growth on investment in heavy industry and property, will be the third leg. World trade has already contracted this year with analysts forecasting weaker trade next year. The IMF in July trimmed its forecast for global economic growth for this year to 3.1% from 3.3% previously, mainly as a result of China’s slowing growth. The Washington-based fund also warned that the weak recovery in the west risks turning into near stagnation. At its October annual meeting, it said growth in the advanced countries of the west is forecast to pick up slightly, from 1.8% in 2014 to 2% in 2015 while growth in the rest of the world is expected to fall from 4.6% to 4%.

Read more …

“The continued and dramatic slowing of the Chinese economy in the years ahead is baked in the cake.”

Why The Chinese Rate Cut Will Not Slow China’s Economic Decline (Coward)

Today the Peoples Bank of China cut the benchmark interest rate by .25% and lowered banks’ reserve requirements by .5%. The measure is supposed to spur growth and make life a little easier on debt-ridden Chinese companies. In the immediate term it may give a slight boost to the economy, but there is no chance this measure, or others like it, will keep the Chinese economy from slowing much further in the years ahead. Let us explain… The continued and dramatic slowing of the Chinese economy in the years ahead is baked in the cake. For the last decade Chinese growth has been fueled by investment in infrastructure (AKA fixed capital formation). In an effort to sustain a high level of growth massive and unprecedented investment in fixed capital was carried out and fixed investment has now become close to 50% of the Chinese economy.

On the flip side, consumption as a% of GDP has shrunk from about 46% of GDP to only 38% of GDP. Most emerging market countries run with fixed investment of around 30-35% of GDP and with consumption accounting for about 40-50% of GDP – exactly the opposite dynamic of the Chinese economy. China has run into a ceiling in terms of the percentage of the economy accounted for by fixed investment and now fixed investment must shrink to levels more appropriate for China’s stage of economic development. This necessarily implies a slowing of the Chinese economy from what the government says is near 7% to something closer to 2-4%, and that is in the optimistic scenario in which consumption growth picks up the pace to mitigate the slowdown in investment.

This is why cuts in rates mean practically nothing for China’s long-term economic prospects. In the short-term rate cuts may postpone corporate bankruptcies by allowing companies to refinance debt at lower rates. Rate cuts may also make housing more affordable, on the margin. But these are cyclical boosts that act as tailwinds to China’s economic train.

No amount of wind, save a hurricane, is going to keep the train from slowing. As a reminder, it has not been working…

Read more …

“..easing shows China is “getting more and more desperate” and that “things are really bad there.”

Reactions To Rate Cut: “China Is Getting More And More Desperate” (Zero Hedge)

To say that China, which a few days ago reported GDP of 6.9% which “beat” expectations and which a few hours ago reported Chinese home prices rose in more than half of tracked cities for the first time in 17 months, stunned everyone with its rate cut on Friday night, meant clearly for the benefit of US stocks, as well as the global commodity market, is an understatement: nobody expected this. As a result strategists have been scrambling to put China’s 6th rate cut in the past year (one taking place just ahead of this weekend’s Fifth plenum) in context. Here are the first responses we have seen this morning. First, from Vikas Gupta, executive vice president at Arthveda Fund Management, who told Bloomberg that “China rate cut will spur fund flows to EMs.” He adds that “the move rules out U.S. rate increase this yr; Fed’s “hands are getting tied” concluding that “easing shows China is “getting more and more desperate” and that “things are really bad there.”

While there is no debate on just how bad things in China are, one can disagree that the Fed’s hands are tied – after all the Fed’s biggest “global” concern was China. The PBOC should have just taken that concern off the table. The second reaction comes from Citi’s Richard Cochinos: “Bottom line: Impacts of China rate announcements on the G10 are falling. Investors remain cautious ahead of this weekend’s announcements, and what policy cuts imply for the region. One day after a dovish ECB, China cuts interest rates by 25bp and RRR cut by 50bps. Accommodative policy begets accommodative policy it seems. Our economics team has been expecting further policy accommodation out of China, the issue was just a matter of timing.

Unlike other major central banks, the PBOC doesn’t announce policy on a set schedule – but this doesn’t mean there isn’t a pattern to it. Before today, it had announced cuts to the RRR or interest rate six times in 2015 – the last being on 25 August. So today was a surprise in terms of action, but not completely unexpected. We prefer to see the easing can be seen in the larger picture of China adjusting to weaker growth in a systematic and controlled manner, rather than a reaction to a new economic shock.”

This view helps explain the muted reaction in the G10. So far, AUDUSD (0.27%) and USDJPY (0.18%) have borne the bulk of price action, but we note price action so far is muted relative to April, June or August. Clearly stimulus is beneficial to both Japan and Australia – but we are cautious not to sound too optimistic. Today’s rate cut comes ahead of this weekend’s Fifth plenum, and previous ones haven’t been sufficient to reverse the economic slowdown. Additionally, this weekend it has been expected GDP targets for the next 5-years will be announced (currently at 7%, but broadly expected to fall), along with other fiscal plans and goals. Without knowing the full baseline of what China expects and is working towards, it is difficult to chase price action. The main drivers of EM Asia lower has been poor growth and trade in the region – hence we main cautious. Policy adjustments now could be a way to soften the impact of further weak economic growth.

Read more …

Will adding more leverage save Beijing?

China Takes ‘Riskiest’ Step by Ending Deposit-Rate Controls (Bloomberg)

China scrapped a ceiling on deposit rates, tackling what the central bank has called the “riskiest” part of freeing up the nation’s interest rates. The move came as the central bank cut benchmark rates and banks’ reserve requirements to support a faltering economy. The changes take effect on Saturday, the People’s Bank of China said in a statement on Friday. Scrapping interest-rate controls boosts the role of markets in the economy, part of efforts by Premier Li Keqiang to find new engines of growth. While officials must be on guard for any excessive competition for deposits that could increase borrowing costs for companies or lead to lenders going bust, weakness in the economy may be mitigating the risks.

Ending the ceiling is an important milestone but comes in the wake of “a tremendous amount of deposit-rate liberalization over the last several years,” especially in the shape of wealth management products, according to Charlene Chu at Autonomous Research Asia. Wealth products issued by Internet firms are increasingly siphoning away deposits, making rate controls less effective and adding urgency to accelerating reform, the central bank said in a question-and-answer statement after the move. History shows that the best time to deregulate rates is when they’re being cut and inflation is easing, it said. The risks may not be as high as they would’ve been two or three years ago, because competition for deposits has cooled, with weaker demand for funding and a decline in banks’ willingness to lend, Chu, formerly of Fitch Ratings, said ahead of the PBOC announcement. Banks aren’t fully using the deposit-rate flexibility that they already have, she said.

Read more …

Remember that Draghi et al have no idea what the effect of negative rates will be. None. All they have is theories.

Draghi’s Signal Adds $190 Billion to Negative-Yield Universe (Bloomberg)

With his confirmation that policy makers had discussed cutting the region’s deposit rate, Mario Draghi extended the euro area’s negative yield universe by $190 billion. Those comments by the ECB chief on Thursday sparked a rally that left yields on German sovereign securities at less than zero for as long as six years. Across the currency bloc, the value of securities issued by governments at negative yields rose to $1.57 trillion, from $1.38 trillion before Draghi’s comments. That’s equivalent to about a quarter of the market. German and French two-year yields set fresh record-lows Friday, while their longer-dated peers pared weekly gains. Draghi also said the ECB will re-examine its quantitative-easing plan in December.

“This is certainly an exceptional environment,” said Christian Lenk at DZ Bank in Frankfurt. “We have to admit that the discussion about the deposit rate being cut further came as a surprise. It takes the curve very much into negative territory. In the time being the short-end looks a bit artificial.” Germany’s two-year yield was little changed at minus 0.32% as of 9:58 a.m. London time, after earlier reaching a record-low minus 0.348%. The price of the 0% security maturing September 2017 was at 100.605% of face value. French two-year yields dropped to a record minus 0.292% on Friday, also below the current level of the deposit rate, which is at minus 0.20%. There are about $752 billion of securities in the euro region with yields below that rate, making them ineligible for the ECB’s €1.1 trillion bond-buying plan

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Next major Brussels headache: “Public debt is 127pc of GDP and total debt is 370pc, worse than in Greece. Net external liabilities are more than 220pc of GDP.”

Eurozone Crosses Rubicon As Portugal’s Anti-Euro Left Banned From Power (AEP)

Portugal has entered dangerous political waters. For the first time since the creation of Europe’s monetary union, a member state has taken the explicit step of forbidding eurosceptic parties from taking office on the grounds of national interest. Anibal Cavaco Silva, Portugal’s constitutional president, has refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika. He deemed it too risky to let the Left Bloc or the Communists come close to power, insisting that conservatives should soldier on as a minority in order to satisfy Brussels and appease foreign financial markets. Democracy must take second place to the higher imperative of euro rules and membership.

“In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO,” said Mr Cavaco Silva. “This is the worst moment for a radical change to the foundations of our democracy. “After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets,” he said. Mr Cavaco Silva argued that the great majority of the Portuguese people did not vote for parties that want a return to the escudo or that advocate a traumatic showdown with Brussels.

This is true, but he skipped over the other core message from the elections held three weeks ago: that they also voted for an end to wage cuts and Troika austerity. The combined parties of the Left won 50.7pc of the vote. Led by the Socialists, they control the Assembleia. The conservative premier, Pedro Passos Coelho, came first and therefore gets first shot at forming a government, but his Right-wing coalition as a whole secured just 38.5pc of the vote. It lost 28 seats. The Socialist leader, Antonio Costa, has reacted with fury, damning the president’s action as a “grave mistake” that threatens to engulf the country in a political firestorm. “It is unacceptable to usurp the exclusive powers of parliament. The Socialists will not take lessons from professor Cavaco Silva on the defence of our democracy,” he said.

Mr Costa vowed to press ahead with his plans to form a triple-Left coalition, and warned that the Right-wing rump government will face an immediate vote of no confidence. There can be no fresh elections until the second half of next year under Portugal’s constitution, risking almost a year of paralysis that puts the country on a collision course with Brussels and ultimately threatens to reignite the country’s debt crisis. The bond market has reacted calmly to events in Lisbon but it is no longer a sensitive gauge now that the ECB is mopping up Portuguese debt under quantitative easing. Portugal is no longer under a Troika regime and does not face an immediate funding crunch, holding cash reserves above €8bn. Yet the IMF says the country remains “highly vulnerable” if there is any shock or the country fails to deliver on reforms, currently deemed to have “stalled”. Public debt is 127pc of GDP and total debt is 370pc, worse than in Greece. Net external liabilities are more than 220pc of GDP.

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“Europe has steadily departed from its principal founding goals, democracy, human rights and freedoms and the prosperity of its people and its societies..”

Italy ex-PM Monti: Ignoring Greek Referendum A Violation Of Democracy (EurActiv)

By disregarding the resounding ‘No’ of the recent Greek referendum, Europe clearly violated democracy, said the former Italian premier, Mario Monti. At the “Regaining Public Trust in Europe” event organised this week in Brussels by Friends of Europe, Zoe Konstantopoulou, the former speaker of the Greek Parliament, strongly criticized the EU institutions for the unfolding humanitarian crisis in Greece. “Would you trust the EU if they told you that your vote or the court decisions in your countries do not matter?”, Konstantopoulou wondered. Zoe Konstantopoulou served as a speaker of the Greek parliament under the first term of Syriza coalition government and was a close ally of the Greek premier, Alexis Tsipras.

But shortly after the deal agreed on between Athens and its international creditors this summer, Konstantopoulou resigned from Syriza, and joined the newly established leftist Popular Unity party led by former energy minister Panagiotis Lafazanis. In the recent snap election in Athens, Popular Unity did not manage to enter the Greek parliament, scoring below the required 3% threshold. Konstantopoulou and Monti had a vivid dialogue during the panel discussion. The former Greek lawmaker was quite critical of the EU, and said that at times when the democratic principles of the EU are shaken, “it is our duty to speak clearly and honestly”.

“Europe has steadily departed from its principal founding goals, democracy, human rights and freedoms and the prosperity of its people and its societies,” she stressed. Konstantopoulou noted that “Greeks have been sacrificed and crucified for more than 5 years now, to pay a debt which has been evaluated to be wholly unsustainable ever since 2010 to the knowledge of the IMF and the EU.” “And it was baptised as public, although it was initially private, involving private banks in Germany, France and Greece,” she added.

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Must. Read. Whole. Article.

Rare Metals: The War Over the Periodic Table (Bloomberg)

A little past 9:30 on the morning of Sept. 7, 2010, a Japanese Coast Guard vessel in the East China Sea spots a Chinese fishing trawler off the coast of islands, known as Senkaku in Japanese and Diaoyu in Chinese. The Japanese have little tolerance for such incursions in the Senkakus, which they annexed in 1895 after the Sino-Japanese War. But recently China has asserted claims to these islands extending hundreds of years earlier. The island dispute is wrapped up in a morass of misunderstanding and oneupmanship, with an eye toward the rich seabed resources nearby. When you ask Japanese officials about the territorial dispute, they will look at you as if it is almost insulting to answer the question. “It’s our land,” one government official told me, as if an American diplomat had been asked if Hawaii is part of the US.

On that morning, the Japanese vessel pulls alongside the smaller Chinese trawler and blares messages to the crew in Chinese from loudspeakers: “You are inside Japanese territorial waters. Leave these waters.” Videos from the day show that instead of leaving, the Chinese boat bends toward the stern of the Japanese cutter, hitting it and then sailing on. Forty minutes later, the same captain veers into another Japanese coast guard ship. Tokyo has managed previous incursions with little fanfare. However, the newly elected Democratic Party of Japan detained the trawler’s crew and captain. It planned to put the captain on trial. China retaliated by detaining four Japanese citizens.

Then, on Sept. 21, Japanese trading houses informed its Ministry of Economy, Trade and Industry that China was refusing to fill orders for rare-earth elements – a set of 17 different, obscure rare metals. What seemed like a battle over seabed resources became a new conflict, one that is potentially far larger, a War over the Periodic Table. Japanese officials and manufacturers were frightened. These elements – essential materials in Japan’s high-tech industry, well known for its high quality components – were virtually all produced in China. Beijing never acknowledged an export ban or said it would use the rare-metal trade as a political weapon. But no other country reported such delays. And Beijing never explained why all 32 of the country’s rare-earth exporters halted trade on the same day.

Restricting these exports was an astute move if Beijing’s goal was to escalate the political conflict between the two countries without the use of force. Tokyo worried that rare earths were just the beginning of what China might withhold because China is also the leading global producer of 28 advanced metals also vital to Japanese industry. Bowing to Beijing’s pressure, Tokyo quickly released the Chinese captain. But the damage to Japan and the rare-earth market had only just begun. Prices for rare earths started to climb, some as much as 2,000% over the next year and a half. Prices have since returned to lower levels, and China changed its export regime after being found in violation of global trade rules last year. But the lessons from this episode have not yet been fully realized as a fundamental market instability remains. A little perspective is in order.

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It’s already much much more.

$6.5 Billion in Energy Writedowns and We’re Just Getting Started (Bloomberg)

The oil and gas industry’s earnings season is barely underway, and already there’s been $6.5 billion in writedowns. On Thursday, Freeport-McMoRan reported a $3.7 billion charge for the third quarter, while Southwestern Energy – which has a market value of $4.5 billion – booked $2.8 billion. And that’s just the beginning. Barclays estimated in an Oct. 21 analysis that there could be $20 billion in charges among just six companies. Southwestern’s writedown was double Barclays’ forecast. Oil prices have tumbled 44% in the past year, and natural gas is down 35%, making the write-offs a foregone conclusion from an accounting standpoint. The companies use an accounting method that requires them to recognize a charge when estimates of future cash flow from their properties falls below what the companies spent buying and developing the acreage. The predictions of future cash flow have fallen along with prices.

Since it’s no secret oil and gas prices have plunged, “the majority of write-offs are typically non-events,” said Barclays’ analysts led by Thomas R. Driscoll in the report. Southwestern’s shares have declined 64% in the past year, and Phoenix-based Freeport-McMoRan’s are down 61%. Barclays predicted ceiling-test impairments for Apache, Chesapeake Energy , Devon Energy, Encana and Newfield. All five companies are scheduled to report third-quarter results in November. “Many companies will have writedowns as the price of oil is about half of where it once was and gas is also down,” Timothy Parker at T. Rowe Price said in an e-mail. “However, it won’t generally hurt the companies because very few have debt covenants that are linked to book value, which the writedowns affect.”

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The troika wants to evict Greeks from their homes.

Greece’s Creditors Demand Further Reform (La Tribune)

The European institutions and the IMF are increasing their demands on Greece, despite the recent reforms adopted by the Greek parliament. Athens can hardly afford to resist. Our partner La Tribune reports. Discussions between Greece and its creditors are tense, despite the major reforms accepted by the Greek parliament, the Vouli, on Monday (19 October). The talks between Greece and the new institutional ‘quartet’ began on Wednesday (21 October). The old troika of the Commission, the ECB and the IMF has been joined by the European Stability Mechanism (ESM). On Wednesday afternoon, Olga Gerovasili, a spokesperson for the Greek government, spoke of a “very hard battle” with the institutions.

At the heart of this battle are the Greek banks, which were severely weakened by the massive withdrawal of deposits in the first half of this year. Added to this is the increasing cost of debt. According to the Bank of Greece, in 2014 this represented 34% of the total deposits held by all the Hellenic banks put together. This figure has risen since 2014, and will continue to rise as Greek GDP contracts in 2015 and 2016. Fewer deposits mean more toxic debt: the Greek banking system needs a bailout. The Greek government says it needs a recapitalisation fund of €25 billion. But the creditors clearly hope to provide only the bare minimum. As the supervisor of the process, the ECB plans to carry out an asset quality review (AQR) to determine exactly how much money the banks need before bailing them out.

But the conditions attached to this bailout may create a raft of other problems. Greece’s creditors are now demanding that borrowers who cannot afford to repay their loans be evicted from their homes. The vacated properties would then be sold in order to settle the exact payment due on each loan. Up to now, households with modest incomes have been protected from eviction as long as their main residence was worth less than €250,000; a measure that has helped to keep many families hit by unemployment off the streets. But the creditors want this limit lowered so more bank loans can be recovered in this way. Olga Gerovasili said that the government was “fighting to maintain the protection of main residences”.

A similar issue arose in Cyprus last year. The Cypriot parliament refused to implement the tougher eviction conditions demanded by the troika, and the ECB responded by excluding Cyprus from its quantitative easing programme. The troika then froze all transfers to Nicosia, pushing the island to the verge of bankruptcy. Under pressure from the government, the parliament finally accepted the demand to make evictions easier to carry out.

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Where and why debt deflation starts: “Companies have increased leverage massively, and that is starting to catch up..”

Investment Grade Ain’t What It Used to Be in Nervous Bond Market (Bloomberg)

After six years of a credit boom in which investors distinguished less and less between ratings, rewarding companies across the spectrum with favorable borrowing costs, the market is becoming more discriminating. Fear of low growth, which has largely been focused on the riskiest of energy companies, is spilling over to other industries and into the lower rungs of investment grade as the strength of balance sheets comes back into focus. Just being investment grade, it seems, isn’t good enough anymore. “The chickens are coming home to roost,” said Freddie Offenberg at Andres Capital Management. “Companies have increased leverage massively, and that is starting to catch up, especially given the worries in the economy.” Earnings for Standard & Poor’s 500 companies contracted 1.7% last quarter, the most since 2009.

And more than half of companies in the index that reported earnings this quarter have disappointed analysts’ sales expectations. The credit-ratings companies have noticed: There have been 1.6 investment-grade companies upgraded for every one downgraded so far this year, compared with last year’s 3.5-1 ratio. “It’s not time to panic, but the market is paying closer attention to performance and quality, and rightly so,” said David Leduc at Standish Mellon Asset Management. Companies like Fossil are paying nearly half a percentage point more for their debt since May, based on secondary prices of comparable securities, according to Bank of America Merrill Lynch Indexes. Companies with the best balance sheets, such as Microsoft and Johnson & Johnson, only pay 0.05 percentage point more.

Among companies that have had to pay up in debt markets is Hewlett-Packard. The Baa2 rated computer maker sold $14.6 billion of bonds on Sept. 30 that yielded half apercentage point more than the average for bonds with similar ratings and maturities in the secondary market, according to Bank of America Merrill Lynch index data. That’s not good news for companies that still need to raise debt to finance $356 billion of takeovers that are expected to be completed by the end of the year. This includes Charter Communications, which is attempting to complete its $55.1 billion takeover of Time Warner Cable with the lowest investment-grade rating from S&P and Fitch Ratings, and a junk rating from Moody’s Investors Service.

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“On the basis of its record, the financial system as constituted in the years 1900-1913 must be considered to have been successful to an extent rarely equalled in the United States.”

An All Too Visible Hand (WSJ)

When Woodrow Wilson signed the Federal Reserve Act into law in 1913, the dollar was defined as a weight of gold. You could exchange the paper for the metal, and vice versa, at a fixed and statutory rate. The stockholders of nationally chartered banks were responsible for the solvency of the institutions in which they owned a fractional interest. The average level of prices could fall, as it had done in the final decades of the 19th century, or rise, as it had begun to do in the early 20th, without inciting countermeasures to arrest the change and return the price level to some supposed desirable average. The very idea of a macroeconomy—something to be measured and managed—was uninvented. Who or what was in charge of American finance? Principally, Adam Smith’s invisible hand.

How well could such a primitive system have possibly functioned? In “The New York Money Market and the Finance of Trade, 1900-1913,” a scholarly study published in 1969, the British economist C.A.E. Goodhart concluded thus: “On the basis of its record, the financial system as constituted in the years 1900-1913 must be considered to have been successful to an extent rarely equalled in the United States.” The belle epoque was not to be confused with paradise, of course. The Panic of 1907 was a national embarrassment. There were too many small banks for which no real diversification, of either assets or liabilities, was possible. The Treasury Department was wont to throw its considerable resources into the money market to effect an artificial reduction in interest rates—in this manner substituting a very visible hand for the other kind.

Mr. Lowenstein has written long and well on contemporary financial topics in such books as “When Genius Failed” (2000) and “While America Aged” (2008). Here he seems to forget that the past is a foreign country. “Throughout the latter half of the nineteenth century and into the early twentieth,” he contends, “the United States—alone among the industrial powers—suffered a continual spate of financial panics, bank runs, money shortages and, indeed, full-blown depressions.” If this were even half correct, American history would have taken a hard left turn. For instance, William Jennings Bryan, arch-inflationist of the Populist Era, would not have lost the presidency on three occasions. Had he beaten William McKinley in 1896, he would very likely have signed a silver-standard act into law, sparking inflation by cheapening the currency. As it was, President McKinley signed the Gold Standard Act of 1900, which wrote the gold dollar into the statute books.

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Well, that’s a surprise…

EU Negotiators Break Environmental Pledges In Leaked TTIP Draft (Guardian)

The EU appears to have broken a promise to reinforce environmental protections in a leaked draft negotiating text submitted in the latest round of TTIP talks in Miami.. In January, the bloc promised to safeguard green laws, defend international standards and protect the EU’s right to set high levels of environmental protection, in a haggle with the US over terms for a free trade deal. But a confidential text seen by the Guardian and filed in the sustainable development chapter of negotiations earlier this week contains only vaguely phrased and non-binding commitments to environmental safeguards. No obligations to ratify international environmental conventions are proposed, and ways of enforcing goals on biodiversity, chemicals and the illegal wildlife trade are similarly absent.

The document does recognise a “right of each party to determine its sustainable development policies and priorities”. But lawyers say this will have far weaker standing than provisions allowing investors to sue states that pass laws breaching legitimate expectations of profit. “The safeguards provided to sustainable development are virtually non-existent compared to those provided to investors and the difference is rather stark,” said Tim Grabiel, a Paris-based environmental attorney. “The sustainable development chapter comprises a series of aspirational statements and loosely worded commitments with an unclear dispute settlement mechanism. It has little if any legal force.” The document contains a series of broadly sympathetic statements about the importance of conservation and climate action.

But it offers no definitions of what core terms – such as “high levels of protection” for the environment or “effective domestic policies” for implementing them – actually mean. Last year, more than a million people across Europe signed a petition calling for the Transatlantic Trade and Investment Partnership (TTIP) talks to be scrapped. Their concern was that multinationals could use the treaty’s investor-state dispute settlement (ISDS) provisions to sue authorities in private tribunals, not bound by legal precedent. In one famous case, Lone Pine launched an unresolved $250m suit against the state of Quebec after it introduced a fracking moratorium, using ISDS provisions in the North American Free Trade Agreement (Nafta).

US officials maintain that few such cases are ever likely to be brought under the TTIP, which could wipe away tariffs in the world’s largest ever free trade deal. However, environmental cases accounted for 60% of the 127 ISDS cases already brought against EU countries under bilateral trade agreements in the last two decades, according to Friends of the Earth Europe. Europe’s taxpayers paid out at least $3.5bn to private investors as a result.

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Seen this before: “..a shift in norms that will be difficult to get back under control.”

Populist, Pernicious and Perilous : Germany’s Growing Hate Problem (Spiegel)

Germany these days, it seems, is a place where people feel entirely uninhibited about expressing their hatred and xenophobia. Images from around the country show a level of brutalization that hasn’t been witnessed for some time, and attest to primitive instincts long believed to have been relegated to the past in Germany. The examples are as myriad as they are shocking, and include the bloody attack in Cologne as well as the mock gallows for Angela Merkel and her deputy Sigmar Gabriel carried by a demonstrator at a Pegida rally in Dresden on Oct. 12.

But they also include the abuse shouted at the German chancellor when she visited a refugee hostel in Heidenau near Dresden in August, where she was called a “slut” and other insults, or the placards held aloft by demonstrators on the first anniversary of the Pegida rallies listing the supposed “enemies of the German state” – Merkel, Gabriel and their “accomplices.” The lack of inhibition when it comes to vicious tirades took on a whole new scale on Monday, when Turkish-born German author and Pegida supporter Akif Pirincci, said there are other alternatives in the refugee crisis, but “the concentration camps are unfortunately out of action at the moment.”

There have been more than twice as many attacks on refugee hostels during the first nine months of this year as in the whole of 2014. The rising tide of hatred is now reaching the politicians many hold responsible for the perceived chaos besetting Germany. The national headquarters of Merkel’s conservative Christian Democratic Union (CDU) party in Berlin fields thousands of hate mails every week. As the architect of the “we can do it” policy of allowing masses of refugees into the country, Chancellor Merkel is their primary target. Within the SPD, it is General Secretary Yasmin Fahimi, whose father is Iranian. “Open the doors to the showers, fire up the ovens. They’re going to be needed,” read one recent anonymous mail addressed to her.

The hatred comes in many forms. It’s expressed on the streets and on the Internet. Sometimes it’s loud. Other times it’s unspoken. It eminates from every class and every section of society. According to studies conducted by Andreas Zick, the respected head of the Institute for Interdisciplinary Research on Conflict and Violence at the University of Bielefeld, who has been researching German prejudices against different groups for many years, almost 50% of Germans harbor misanthropic views. Zick warns of a shift in norms that will be difficult to get back under control.

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Rinse and repeat?!

Germany To Push For Compulsory EU Quotas To Tackle Refugee Crisis (Guardian)

Germany is to push for more ambitious and extensive common European policies on the refugee crisis, according to policymakers in Berlin, with compulsory and permanent EU quotas for sharing probably hundreds of thousands of people to be brought to Europe directly from the Middle East. New European powers replacing some national authority over border control, and the possible raising of a special EU-wide levy to fund the new policies are also on Berlin’s agenda. The plans, being prepared in Berlin and Brussels, are certain to trigger bitter resistance and major clashes within the EU. Berlin backs European commission plans to make the proposed scheme “permanent and binding”. But up to 15 of 28 EU countries are opposed.

The plans will not apply to the UK as it is not part of the EU’s passport-free Schengen zone and has opted out of EU asylum policy, saying it will not take part in any proposed European refugee-sharing schemes. Angela Merkel, appears determined to prevail, as she grapples with a crisis that will likely define her political legacy. The German chancellor is said to be angry with the governments of eastern and central Europe who are strongly opposed to being forced to take in refugees. She is said to resent that these EU member states are pleading for “solidarity” against the threats posed by Russia and Vladimir Putin while they resist sharing the burdens posed by the refugee crisis. EU government leaders agreed last month to share 160,000 asylum seekers already inside the EU, redistributing them from Greece and Italy over two years.

But the decision had to be pushed to a majority vote overruling the dissenters, mainly in eastern Europe, with the Hungarian prime minister, Viktor Orban, accusing Merkel of “moral imperialism” by forcing the issue. It is highly unusual in the EU for sensitive issues of such deep national political impact to be settled by majority voting. But Berlin appears prepared to go there if no consensus can be reached. The opponents of quotas insist last month’s decision was a one-off. But according to policymakers in Berlin, Merkel now wants to go much further, shifting the emphasis of burden-sharing from redistribution of refugees inside the EU to those collecting en masse in third countries, notably Turkey where more than two million Syrians are hosted.

Under one proposal being circulated in Berlin, the EU would strike pacts with third countries such as Turkey agreeing to take large but unspecified numbers of refugees from them directly into Europe. In return the third country would need to agree on a ceiling or a cap for the numbers it can send to Europe and commit to keeping all other migrants and refugees, and accommodate them humanely. This effectively means Europe will be financing large refugee camps in those third countries, which will also be obliged to take back any failed asylum seekers returned from Europe.

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Foreign cops on sovereign territory?

Worried Slovenia Might Built Fence To Cope With Migrant Crisis (Reuters)

Slovenia said it will consider all options, including fencing off its border with Croatia, if European leaders fail to agree a common approach to the migrant crisis as thousands stream into the ex-Yugoslav republic. Migrants began crossing into Slovenia last Saturday after Hungary closed its border with Croatia. The Slovenian Interior Ministry said that a total of 47,000 had entered the country since Saturday, including some 10,000 in the past 24 hours. A Reuters cameraman said about 3,000 people broke the fence at the border crossing at Sentilj and walked in to Austria on Friday morning. Slovenian officials said the country is too small and does not have enough resources to handle such large numbers of people. Prime Minister Miro Cerar accused Croatia of transporting too many people too quickly to Slovenia.

When asked if there was the possibility of building a fence on the border, Cerar told Slovenian state TV: “We are considering also those options.” “At first we are seeking a European solution. If we lose hope on the European level, if we do not get enough on Sunday … then all options are possible as that would mean that we are on our own,” Cerar said. Several European leaders are due to meet in Brussels on Sunday under the auspices of the European Commission to discuss the latest developments in the migrant crisis, Europe’s biggest since World War. [..] According to Slovenia’s interior ministry, the cost of fencing off the 670-km long border with Croatia would be about €80 million. Slovenia has asked for the EU for assistance and officials said Austria, Germany, Italy, France, Hungary, the Czech Republic, Slovakia and Poland offered to send police reinforcements.

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Oct 222015
 
 October 22, 2015  Posted by at 11:09 am Finance Tagged with: , , , , , , , , , , , ,  


Jack Delano Spectators at annual barrel rolling contest, Presque Isle, ME 1940

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)
HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)
Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)
Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)
Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)
China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)
China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)
Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)
ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)
Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)
3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)
The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)
The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)
The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)
UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)
EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)
Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)
A Cultural Revolution To Save Humanity (Serge Latouche)
Why Too Much Choice Is Stressing Us Out (Guardian)

Envy of the entire world. “We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.”

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)

In a move that would make many capitalists’ head explode if it ever happened here, Iceland just sentenced their 26th banker to prison for their part in the 2008 financial collapse. In two separate Icelandic Supreme Court and Reykjavik District Court rulings, five top bankers from Landsbankinn and Kaupping — the two largest banks in the country — were found guilty of market manipulation, embezzlement, and breach of fiduciary duties. Most of those convicted have been sentenced to prison for two to five years. The maximum penalty for financial crimes in Iceland is six years, although their Supreme Court is currently hearing arguments to consider expanding sentences beyond the six year maximum.

After the crash in 2008, while congress was giving American banks a $700 billion TARP bailout courtesy of taxpayers, Iceland decided to go in a different direction and enabled their government with financial supervisory authority to take control of the banks as the chaos resulting from the crash unraveled. Back in 2001, Iceland deregulated their financial sector, following in the path of former President Bill Clinton. In less than a decade, Iceland was bogged down in so much foreign debt they couldn’t refinance it before the system crashed. Almost eight years later, the government of Iceland is still prosecuting and jailing those responsible for the market manipulation that crippled their economy. Even now, Iceland is still paying back loans to the IMF and other countries which were needed just to keep the country operating.

When Iceland’s President, Olafur Ragnar Grimmson, was asked how the country managed to recover from the global financial disaster, he famously replied, “We were wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.” Meanwhile, in America, not one single banking executive has been charged with a crime related to the 2008 crash and U.S. banks are raking in more than $160 billion in annual profits with little to no regulation in place to avoid another financial catastrophe.

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Sweden, Norway, New Zealand, Australia. And the rest of the emerging markets.

HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)

“Forecasters spend much of their time finessing central projections. But sometimes by focusing on the most likely outlook for growth we lose track of vulnerabilities that are accumulating,” HSBC Economist James Pomeroy writes in the latest edition of the bank’s “Macro Health Check.” And while global markets may have stabilized since the volatile days of summer, there seems to be no shortage of potential vulnerabilities worth keeping an eye on. Here are the major trends Pomeroy is watching:

• Weakness in Asia: Lower commodity prices as well as capital flight is hurting a number of Asian economies, not to mention lowering their growth prospects. In particular, HSBC says it’s newly concerned about Malaysia and Indonesia thanks to their proximity to China – both geographically and in terms of trade. As Pomeroy puts it: “The downturn in Chinese data has hit sentiment. Currencies have weakened and borrowing costs have risen, putting the sustainability of the corporate sector at risk.”

• Bubbles in developed economies: Asset prices that are historically high as well as household debt levels well above the norm is concerning, according to Pomeroy. He notes that in Sweden and Norway, high levels of household debt and rising house prices are combining with central banks that have already cut interest rates to record lows. “This leaves them vulnerable to financial stability risks that could leave the economies exposed to any downturn or, at some later stage, a rise in rates,” he says.

• Commodities continue to struggle: Energy is still a huge topic for the world and emerging markets in particular, with Saudi Arabia and the United Arab Emirates on track to see big hits to their economies, the HSBC economist noted. There are also worries over the macroeconomic backdrops in countries like Brazil, Russia, Colombia, and Chile, where 50% of exports are commodities -related, Pomeroy adds.

Based on these concerns, HSBC presents a “diagnosis” showing how a number of economies are and are not seeing impacts from these and other macro factors. New entries on the bank’s list of concerns include the previously-mentioned Malaysia, Indonesia, Sweden and Norway, while New Zealand also makes the cut thanks to its links to China, rising asset prices and tumbling milk prices. “Although low risk, New Zealand may be one to watch,” Pomeroy says.

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Losing money way before the oil price crash… “..cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010..”

Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)

“Energy Investments After The Fall: Opportunity Or Slippery Slope?” So begins the latest presentation from renowned short-seller Jim Chanos. What follows is a powerful outlining of the spirally debt dynamics now dominating the future of the oil industry. At the heart of Chanos’s thesis is the contention that years of low interest rates, cheap financing, over-eager investors and ambitious managers have helped propel the boom in U.S. shale and imbue it with near unstoppable momentum; U.S. oil production is expected to grow 6% in 2015 despite a stunning 59% drop in the U.S. rig count over the past year. The extent of the capital market’s support for energy over the past half-decade is laid bare in the financial figures.

According to Chanos, cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010, meaning the firms have consistently outspent their income. That trend is present even at the larger “big oil” firms such as Exxon, Chevron and Royal Dutch Shell, Chanos claims, with cash flow following distributions to shareholders also firmly in the red. The question hovering over the energy sector now is whether the continuous flow of capital investment that has propped up shale firms for so long continues. There are signs that it might not. Spreads on the bonds issued by energy companies are currently 480 basis points wider than average yield on the debt of junk-rated companies, meaning investors are (finally) demanding extra return to compensate them for the added risk of E&P.

Many oil companies have large revolving credit facilities from which they could draw financing to help replace the hole left by suddenly skittish investors – an argument that has been picked up by energy bulls and managers with some aplomb. However, Chanos says that even the most reliable E&P firms will be reluctant to tap such revolvers, given the negative publicity around such a move. And while banks have so far largely continued to renew and extend credit lines to energy firms (opting perhaps to keep such companies afloat rather than cut them off and suffer the consequences on their own balance sheets) those renewals have been accompanied by a tightening of terms. It’s a reversal of an historic trend that has seen the balance of power firmly in favor of energy firms as the sheer amount of investors and bankers willing to lend to exploratory shale has meant the vast majority of debt and loans sold and issued in recent years came with far fewer protections for lenders, known as “covenants.”

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Trouble brewing. A very imbalanced society.

Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)

Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the IMF said, underscoring the need of measures to shore up public finances amid the drop in oil prices. The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said. Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to cut its budget deficit.

Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain. But the IMF said measures being considered by oil exporters “are likely to be inadequate to achieve the needed medium-term fiscal consolidation,” the IMF said. “Under current policies, countries would run out of buffers in less than five years because of large fiscal deficits.” Saudi Arabia accumulated hundreds of billions of dollars in the past decade to help the economy absorb the shock of falling prices. The kingdom’s debt as a percentage of GDP fell to less than 2% in 2014, the lowest in the world.

The recent decline in the price of crude, which accounts for about 80% of Saudi’s revenue, is prompting the government to delay projects and sell bonds for the first time since 2007. Net foreign assets fell to the lowest level in more than two years in August, with the kingdom fighting a war in Yemen and avoiding economic policies that could trigger social or political unrest. The IMF expects Saudi’s budget deficit to rise to more than 20% of gross domestic product this year after King Salman announced one-time bonuses for public-sector workers following his accession to the throne in January. The deficit is expected to be 19.4% in 2016.

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Pension funds, mom and pop.

Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)

Banks, when reporting earnings, are saying a few choice things about their oil-and-gas loans, which boil down to this: it’s bloody out there in the oil patch, but we made our money and rolled off the risks to others who’re now eating most of the losses. On Monday, it was Zions Bancorp. Its oil-and-gas loans deteriorated further, it reported. More were non-performing and were charged-off. There’d be even more credit downgrades. By the end of September, 15.7% of them were considered “classified loans,” with clear signs of stress, up from 11.3% in the prior quarter. These classified energy loans pushed the total classified loans to $1.32 billion. But energy loans fell by $86 million in the quarter and “further attrition in this portfolio is likely over the next several quarters,” Zions reported.

Since the oil bust got going, Zions, like other banks, has been trying to unload its oil-and-gas exposure. Wells Fargo announced that it set aside more cash to absorb defaults from the “deterioration in the energy sector.” Bank of America figured it would have to set aside an additional 15% of its energy portfolio, which makes up only a small portion of its total loan book. JPMorgan added $160 million – a minuscule amount for a giant bank – to its loan-loss reserves last quarter, based on the now standard expectation that “oil prices will remain low for longer.” Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves.

Once a borrower reached the limit of the revolving line of credit, the bank pushed the company to issue bonds to pay off the line of credit. The company could then draw again on its line of credit. When it reached the limit, it would issue more bonds and pay off its line of credit…. Banks made money coming and going. They made money from interest income and fees, including underwriting fees for the bond offerings. It performed miracles for years. It funded the permanently cash-flow negative shale revolution. It loaded up oil-and-gas companies with debt. While bank loans were secured, many of the bonds were unsecured. Thus, banks elegantly rolled off the risks to bondholders, and made money doing so. And when it all blew up, the shrapnel slashed bondholders to the bone.

Banks are only getting scratched. Then late last year and early this year, the hottest energy trade of the century took off. Hedge funds and private equity firms raised new money and started buying junk-rated energy bonds for cents on the dollar and they lent new money at higher rates to desperate companies that were staring bankruptcy in the face. It became a multi-billion-dollar frenzy. They hoped that the price of oil would recover by early summer and that these cheap bonds would make the “smart money” a fortune and confirm once and for all that it was truly the “smart money.” Then oil re-crashed.

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Coming from a steel man, this can only mean it’ll be much worse.

China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)

China’s steel industry, the largest in the world, is bleeding cash and every producer is feeling the pain, according to the head of the country’s second-biggest mill by output, which raised the prospect that nationwide production may shrink 20%. Losses for the industry totaled 18 billion yuan ($2.8 billion) in the first eight months of the year compared with a profit of 14 billion yuan in the same period a year earlier, Shanghai Baosteel Group Corp. Chairman Xu Lejiang said on Wednesday. Output may eventually contract by a fifth, matching the experience seen in the U.S. and elsewhere, he said. After decades of expansion, China’s steel industry has been thrown into reverse as local demand contracts for the first time in a generation amid slowing economic growth and a property downturn.

The slowdown has pummeled steel and iron ore prices and prompted Chinese mills to seek increased overseas sales, boosting trade tensions. The country is the linchpin of the global industry, accounting for half of worldwide production. “If we extrapolate the previous experience in Europe, the United States, Japan, their steel sectors have all gone through painful restructuring in the past, with steel output all contracting by about 20%,” Xu told reporters at a forum in Shanghai. “China will eventually get there as well, regardless how long it takes.” Crude-steel output in China surged more than 12-fold between 1990 and 2014, and the increase was emblematic of the country’s emergence as Asia’s largest economy. Output probably peaked last year at 823 million metric tons, according to the China Iron & Steel Association.

The country produced 608.9 million tons in the first nine months, 2.1% less than the same period last year, the statistics bureau said on Monday. “The whole steel sector is struggling and no one can be insulated,” Xu said. “The sector is facing increasing pressure on funding as banks have been tightening lending to the sector – both loans and the financing provided for steel and raw material stockpiles.” Losses in China’s steel industry are unprecedented, Macquarie Group Ltd. said in a report on Monday that summarized deteriorating sentiment in the industry. While small mills have already cut production significantly, big mills are still holding out, the bank said, forecasting further cuts.

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When you can’t afford empire anymore.

China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)

The slowdown in the world’s second-largest economy has seen Chinese cross-border investment in Africa plunge. Beijing has invested just $568 million in greenfield projects and expansion of existing projects in the first 6 months of 2015, down from $3.54 billion the previous year. That investment has been focused on China’s primary interest in Africa, namely its raw materials, writes Adrienne Klasa for The Financial Times. While overall investment plunged, investment in extractive industries almost doubled from $141.4 million to $288.9 million over the period. Chinese investment in Africa has at times been controversial, but has played a major role in regional growth. The African growth story has been complicated by global headwinds such as low prices of oil and other commodities.

Many African states rely on raw materials for large parts of their revenues. Although foreign direct investment has fallen, China has been Africa’s main trade partner since 2009. In 2013 there was more than $170 billion in trade between China and sub-Saharan Africa, compared to less than $10 billion in 2002. “FDI has dipped across the board from emerging markets into other emerging markets, and into Africa in particular,” says Vera Songwe, the IFC’s director for West and Central Africa. FDI reflects changing patterns of investment. There are some concerns that a bursting Chinese real estate bubble could see demand for African raw materials reduce even further. This could have a knock-on effect on investment in the sector, and in Africa in general.

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“..if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks..”

Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)

The delayed fuse on the eurozone’s debt-deflation policies has finally detonated in a second country. Portugal has joined the revolt against austerity. The rickety scaffolding of fiscal discipline and economic surveillance imposed on southern Europe by Germany is falling apart on its most vulnerable front. Antonio Costa, Portugal’s Socialist leader and son of a Goan poet, has refused to go along with further pay cuts for public workers, or to submit tamely to a Right-wing coalition under the thumb of the now-departed EU-IMF ‘Troika’. Against all assumptions, he has suspended his party’s historic feud with Portugal’s Communists and combined in a triple alliance with the Left Bloc. The trio have demanded the right to govern the country, and together they have an absolute majority in the Portuguese parliament.

The verdict from the markets has been swift. “We would be very reluctant to invest in Portuguese debt,” said Rabobank, describing the turn of events as a political shock. The country’s president has the constitutional power to reappoint the old guard – and may in fact do so over coming days – but this would leave the country ungovernable and would be a dangerous demarche in a young Democracy, with memories of the Salazar dictatorship still relatively fresh. “The majority of the Portuguese people did not vote for the incumbent coalition. They want a change,” said Miriam Costa from Lisbon University. Joseph Daul, head of conservative bloc in the European Parliament, warned that Portugal now faces six months of chaos, and risks going the way of Greece.

Mr Costa’s hard-Left allies both favour a return to the escudo. Each concluded that Greece’s tortured acrobatics under Alexis Tspiras show beyond doubt that it is impossible to run a sovereign economic policy within the constraints of the single currency. The Communist leader, Jeronimo de Sousa, has called for a “dissolution of monetary union” for the good of everybody before it does any more damage to the productive base of the European economy. His party is demanding a 50pc write-off of Portugal’s public debt and a 75pc cut in interest payments, and aims to tear up the EU’s Lisbon Treaty and the Fiscal Compact. It wants to nationalize the banks, reverse the privatisation of the transport system, energy, and telephones, and take over the “commanding heights of the economy”.

Catarina Martins, the Left Bloc’s chief, is more nuanced but says that if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks,” she said. She is surely right about that. The lesson of the Greek drama is that the ECB is the political enforcer of monetary union, willing to bring rebels to their knees by pulling the plug on a nation’s banking system.

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Any real action will send the message that there are problems.

ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)

Mario Draghi’s challenge on Thursday is to show that he’s readier than ever to step up stimulus, without panicking investors over the euro area’s health. In the run-up to the European Central Bank’s meeting in Malta, the institution’s president and most of his Governing Council said it’s too early to decide whether to expand their €1.1 trillion bond-buying program. Yet with economists seeing the need for a fresh boost before year-end, he’ll probably be pressured to provide reassurance that the penultimate monetary-policy session of 2015 won’t leave the ECB behind the curve. Officials sitting down to talk will have to deal with a complex scenario of mixed domestic economic signals, an uncertain global outlook, and divergent opinions on what’s needed to combat feeble inflation.

The paradox for Draghi is that when he holds his regular press conference, he may find himself addressing the risks to the recovery without yet committing to action. “The ECB seems more worried about the economy yet less inclined to act; markets are more confident in the economy yet expect something will be done,” said Francesco Papadia, chairman of Prime Collaterised Securities and a former director general of market operations at the ECB. “For Draghi, it’ll be difficult to even hint that something was discussed because it would send two messages: ‘Good, they’re doing something, and wait, the situation is worse than we thought.’

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Full insanity.

Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)

A modern diesel car pumps out more toxic pollution than a bus or heavy truck, according to new data, a situation described as a “disgrace” by one MEP. The revelation shows that effective technology to cut nitrogen oxides (NOx) pollution exists, but that car manufacturers are not implementing it in realistic driving conditions. Diesel cars tested in Norway produced quadruple the NOx emissions of large buses and lorries in city driving conditions, according to a report from the Norwegian Centre for Transport Research. A separate study for Transport for London showed that a small car in the “supermini” class emitted several times more NOx than most HGVs and the same amount as a 40-tonne vehicle.

“It is crackers,” said emissions expert James Tate from the University of Leeds. His own research, which uses roadside equipment to measure passing traffic, also shows the latest diesel models cars produce at least as much NOx as far heavier buses and trucks. The issue of NOx pollution, thought to kill 23,500 people a year in the UK alone, gained prominence when VW diesels were discovered to be cheating official US emissions tests. The scandal also led to revelations that the diesels of many car manufacturers produce far more NOx on the road than in EU lab tests, though not via illegal means. The UK government say the failure to keep NOx from vehicles low in the real world means road transport is “by far the largest contributor” to the illegal levels of NOx in many parts of the country.

“It is disgraceful that car manufacturers have failed to reduce deadly emissions when the technology to do so is affordable and readily available,” said Catherine Bearder, a Liberal Democrat MEP and a lead negotiator in the European parliament on the EU’s new air quality law. “The dramatic reduction in NOx emissions from heavier vehicles is a result of far stricter EU tests, in place since 2011, that reflect real-world driving conditions. If buses and trucks can comply with these limits, there’s no reason cars can’t as well.”

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VW is set to shrink a lot.

3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)

Volkswagen will need hardware fixes for about 3 million cars in Europe affected by the diesel-emission manipulations as the region’s largest automaker scrambles to meet demands from regulators. Cars featuring a 1.6-liter engine require technical tweaks, while software updates are sufficient to make the other affected engines compliant, a VW spokesman said by phone. VW said last week it will recall about 8.5 million cars across Europe through 2016 and acknowledged efforts to fix all cars might drag on until 2017. VW has also stated the fallout from the scandal will cost more than the €6.5 billion already set aside.

Worldwide some 11 million cars with diesel engines are affected by the wide-ranging emissions rigging that was uncovered by U.S. regulators and triggered the resignation of Chief Executive Officer Martin Winterkorn. Moody’s Investors Service said Wednesday that uncertainties about the potential impact on VW’s reputation, earnings and cash flows could weigh on the manufacturer’s credit profile into 2017. New CEO Matthias Mueller said last week protecting the company’s credit rating is a top priority. The manufacturer can recover from the scandal in two-to-three years if the right decisions are made now to make VW more efficient, agile and cost competitive, he said.

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“The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.”

The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)

One of the planet’s exemplars in preventing climate change, the EU has instituted tough emissions rules and strong support for renewable energy. Yet this doesn’t necessarily mean more solar panels or wind turbines dotting Europe’s skyline. Nope, the EU’s biggest source of renewable energy is old-school: burning wood. There’s just one problem with this. Torching wood has the potential to warm the atmosphere faster than burning coal does. So why does Europe get nearly half of its renewable energy that way? As Climate Central argues in this three-part piece, a legal loophole in the EU’s climate rules means it turns a blind eye to tens of millions of CO2 emissions that it pumps into the atmosphere each year. Worse, this policy means European governments issue hundreds of millions of dollars in incentives to encourage power plants to burn even more wood.

The core issue lies in how to count the CO2 pollution released when wood is burned for electricity and heat. Because trees grow back, EU law deems wood a “renewable energy” just like solar or wind (a source of fuel, in other words, that can be used to meet its fairly tough climate action target of sourcing 20% of its final energy consumption to come from renewable energy by 2020). But in many ways, wood is more like coal or oil—it must be burned to generate power. This process releases a lot of CO2, which traps heat in the atmosphere, warming the planet. But since trees also absorb CO2, they act as what’s been described as a “brake” on the rate of global warming. The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.

This makes complete sense—provided the wood you’re burning comes from already-dead wood that would release its carbon as it decomposed anyway. This includes dust and chips from sawmills, for example. And since the energy created when that wood is burned isn’t coming from fossil fuels, it’s ultimately a net positive for the atmosphere, as the CarbonBrief explains. However, that equation changes once you start clear-cutting forests for the sole purpose of fueling power plants. Wood tends to emit more carbon than fossil fuels to generate the same amount of energy, according to the Natural Resources Defense Council (pdf). Eventually, trees grow back and absorb this carbon. However, a growing body of peer-reviewed research suggests it can take decades—or even centuries—before a forest grows back enough to balance out the atmospheric CO2 created when its trees were burned.

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Like the Bloomberg title.

The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)

It has choked Singapore with smoke, triggered Pacific typhoons and left Vietnamese coffee growers staring nervously at dwindling reservoirs. In Africa, cocoa farmers are blaming it for bad harvests, and in the Americas, it has Argentines bracing for lower milk production and Californians believing that rain is finally, mercifully on the way. El Nino is back and in a big way. Its effects are just beginning in much of the world – for the most part, it hasn’t really reached North America – and yet it’s already shaping up potentially as one of the three strongest El Nino patterns since record-keeping began in 1950. It will dominate weather’s many twists and turns through the end of this year and well into next. And it’s causing gyrations in everything from the price of Colombian coffee to the fate of cold-water fish.

Expect “major disruptions, widespread droughts and floods,” Kevin Trenberth, distinguished senior scientist at the National Center for Atmospheric Research in Boulder, Colorado. In principle, with advance warning, El Nino can be managed and prepared for, “but without that knowledge, all kinds of mayhem will let loose.” In the simplest terms, an El Nino pattern is a warming of the equatorial Pacific caused by a weakening of the trade winds that normally push sun-warmed waters to the west. This triggers a reaction from the atmosphere above. Its name traces back hundreds of years to the coast of Peru, where fishermen noticed the Pacific Ocean sometimes warmed in late December, around Christmas, and coincided with changes in fish populations. They named it El Nino after the infant Jesus Christ. Today meteorologists call it the El Nino Southern Oscillation.

The last time there was an El Nino of similar magnitude to the current one, the record-setting event of 1997-1998, floods, fires, droughts and other calamities killed at least 30,000 people and caused $100 billion in damage, Trenberth estimates. Another powerful El Nino, in 1918-19, sank India into a brutal drought and probably contributed to the global flu pandemic, according to a study by the Climate Program Office of the National Oceanic and Atmospheric Administration. As the Peruvian fishermen recognized in the 1600s, El Nino events tend to peak as summer comes to the Southern Hemisphere. The impact can be broken down into several categories. Coastal regions from Alaska to the Pacific Northwest in the U.S., as well as Japan, Korea and China may all have warmer winters. The southern U.S., parts of east Africa and western South America can get more rain, while drier conditions prevail across much of the western Pacific and parts of Brazil.

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Strong graphs. More El Niño.

The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)

If there is one chart that might finally put to rest debate of a pause or “hiatus” in global warming, this chart created by the US National Oceanic and Atmospheric Administration has just supplied it. For years, climate change sceptics relied on a spike in global temperatures that occurred during the monster 1997-98 El Nino to say the world had stopped warming because later years struggled to set a higher mark even as greenhouse gas emissions continued to rise. Never mind that US government scientists found the hiatus was an illusion because the oceans had absorbed most of the extra heat that satellites could tell the Earth was trapping. Nor that 2005, 2010 and 2014 all set subsequent records for annual heat.

Those record years were too incrementally warmer compared with the 1997 mark to satisfy those who wanted to believe climate change was a hoax. But it is 2015, which is packing an El Nino that is on track to match the record 1997-98, that looks set to blow away previous years of abnormal warmth. “This one could end the hiatus,” said Wenju Cai, a principal research scientist specialising in El Nino modelling at the CSIRO. “Whether it beats [the 1997-98 El Nino] will be academic – it’s already very big.” NOAA data released overnight backs up how exceptional this year is in terms of warming, with September alone a full quarter of a degree above the corresponding month in 1997. As the chart above shows, for the first nine months, 2015 has easily been the hottest year on record, with sunlight second.

[..] El Ninos typically add 0.1-0.2 degrees to the background global warming. US climate expert John Abraham has estimated how year-to-date temperatures are adding another step-up to temperatures, as seen in this chart published by Think Progress. Climate change sceptics will probably not concede in their battle to avoid action to curb emissions. Satellite or meteorological data must have been manipulated, the oceans might be producing chemical compounds never detected before that counter carbon dioxide, or perhaps the sun is about to burn a lot less brightly. Still, they now have one more inconvenient chart they have to find a reason to ignore.

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114 people. That’s the whole story. But the UK won’t have none of it.

UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)

The UN refugee agency, the UNHCR, has said that the UK is legally obliged to resettle more than a hundred Syrian refugees who arrived by boat at a British military base in Cyprus, contradicting claims from the Ministry of Defence (MoD) that they were a Cypriot responsibility. Two overloaded wooden boats carrying 114 refugees from Syria, including 28 children, have been transferred to a temporary reception area in the sovereign base at Akrotiri on the southern coast of the Mediterranean island. According to the Cypriot coastguard, the refugees were abandoned offshore by people smugglers and left to fend for themselves.

The arrival on British territory of asylum seekers fleeing the Syrian conflict intensifies the scrutiny on the UK’s response to Europe’s worst refugee crisis since the second world war. David Cameron has offered to take in 20,000 Syrian refugees over five years – significantly less than most other western European countries, though the government has pointed out it gives more aid for refugee camps along Syria’s borders. Reacting to the arrivals at Akrotiri, the MoD said: “At the moment our key priority is ensuring everybody on board is safe and well. We have had an agreement in place with the Republic of Cyprus since 2003 to ensure that the Cypriot authorities take responsibility in circumstances like this.”

Asked whether the refugees would be able to claim asylum in Britain, an MoD official said: “That’s not our understanding.” A spokeswoman for the Home Office also stated: “The resettlement of refugees landing on the southern bases in Cyprus is not the responsibility of the United Kingdom.” But the UNHCR said in a statement that the 2003 UK-Cyprus memorandum made it clear that “asylum seekers arriving directly on to the SBA [Sovereign Base Area] are the responsibility of the UK but they would be granted access to services in the republic at the cost of the SBA.”

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They’ll throw -promises of- more money around. And that’ll be it, again.

EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)

The EU has called a mini summit with Balkan countries on the migrant crisis as Slovenia became the latest state to buckle under a surge of refugees desperate to reach northern Europe before winter. The leaders of Austria, Bulgaria, Croatia, Germany, Greece, Hungary, Romania and Slovenia will meet in Brussels on Sunday with their counterparts from non-EU states Macedonia and Serbia, the office of EC president Jean-Claude Juncker said. “In view of the unfolding emergency in the countries along the western Balkans migratory route, there is a need for much greater cooperation, more extensive consultation and immediate operational action,” a statement said. The continent has been struggling to find a unified response on how to tackle its biggest migration crisis since 1945.

More than 600,000 migrants and refugees, mainly fleeing violence in Syria, Iraq and Afghanistan, have braved the dangerous journey to Europe so far this year, the UN said. Of these, more than 3,000 have drowned or gone missing as they set off from Turkey in inflatable boats seeking to reach Greece, the starting point for the migrants’ long trek north. With the crisis showing no sign of abating, France’s interior minister Bernard Cazeneuve reinforced security in the port city of Calais from where migrants and refugees try to cross to Britain. He also announced that women and children would be given heated tents, as arrivals in a makeshift camp face a dip in temperature.

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EU police? Don’t think that exists. So, German and French cops patrolling in Slovenia? Really?

Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)

Slovenia has asked the European Union for police to help regulate the inflow of migrants from Croatia, Interior Minister Vesna Gyorkos Znidar told TV Slovenia. Over the past 24 hours, more than 10,000 migrants, many fleeing violence in Syria, have arrived in Slovenia, the smallest country on the Balkan migration route, on their way to Austria. “Slovenia has already asked other EU member states for police units,” Znidar said late on Wednesday. European Commissioner for Migration and Home Affairs Dimitris Avramopoulos on Thursday will visit Slovenia to discuss the migrant crisis, while Commission President Jean-Claude Juncker called an extraordinary meeting of several European leaders for Sunday.

Juncker invited the leaders of Austria, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Germany, Greece, Hungary, Romania, Serbia and Slovenia. Slovenia’s parliament has given more power to the army which is helping police control the border, while the country also plans to rehire retired police to help. Huge number of migrants started coming to Slovenia on Saturday after Hungary on Friday sealed its border with Croatia with a bottleneck building up through the Balkans.

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I’m all for it, but not for the We Must.. It will take a lot more than that.

A Cultural Revolution To Save Humanity (Serge Latouche)

We’ve reached a point that means we can no longer go on as we are doing! Everyone’s talking about crisis and it’s slightly paradoxical because I’ve always been hearing about a crisis ever since 1968 when there was a cultural crisis, then in 1972, with the publication of the work by The Club of Rome, there was talk of an ecological crisis, then there was the neoliberal counter-revolution and the social crisis with Margaret Thatcher and Reagan, and now there’s the financial crisis and the economic crisis after the collapse of Lehmann Brothers. Finally, all these crises are getting mixed up and we re seeing a crisis of civilisation, an anthropological crisis. At this point, the system can no longer be reformed – we have to exit from this paradigm – and what is it? It s the paradigm of a growth society.

Our society has been slowly absorbed by an economy based on growth, not growth to satisfy needs – and that would be a good thing – but growth for the sake of growth and this naturally leads to the destruction of the planet because infinite growth is incompatible with a finite planet. We need a real reflection when we talk about an anthropological crisis. We need to take this seriously because we need a decolonisation of the imagination. Our imagination has been colonised by the economy. Everything has become economics. This is specific to the West and it’s fairly new in our history. It was in the seventeenth century when there was a great ethical switch with the theory expounded by Bernard Mandeville. Before, people said that altruism was good and then: “no, we have to be egoists, we have to make as much profit as possible; greed is good . Yes – to destroy our “oikos (our home) more quickly. And we have actually got to that point.

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“Monstromart’s slogan was “where shopping is a baffling ordeal”.

Why Too Much Choice Is Stressing Us Out (Guardian)

Once upon a time in Springfield, the Simpson family visited a new supermarket. Monstromart’s slogan was “where shopping is a baffling ordeal”. Product choice was unlimited, shelving reached the ceiling, nutmeg came in 12lb boxes and the express checkout had a sign reading, “1,000 items or less”. In the end the Simpsons returned to Apu’s Kwik-E-Mart. In doing so, the Simpsons were making a choice to reduce their choice. It wasn’t quite a rational choice, but it made sense. In the parlance of economic theory, they were not rational utility maximisers but, in Herbert Simon’s term, “satisficers” – opting for what was good enough, rather than becoming confused to the point of inertia in front of Monstromart’s ranges of products.

This comes to mind because Tesco chief executive Dave Lewis seems bent on making shopping in his stores less baffling than it used to be. Earlier this year, he decided to scrap 30,000 of the 90,000 products from Tesco’s shelves. This was, in part, a response to the growing market shares of Aldi and Lidl, which only offer between 2,000 and 3,000 lines. For instance, Tesco used to offer 28 tomato ketchups while in Aldi there is just one in one size; Tesco offered 224 kinds of air freshener, Aldi only 12 – which, to my mind, is still at least 11 too many. Now Lewis is doing something else to make shopping less of an ordeal and thereby, he hopes, reducing Tesco’s calamitous losses. He has introduced a trial in 50 stores to make it easier and quicker to shop for the ingredients for meals.

Basmati rice next to Indian sauces, tinned tomatoes next to pasta. What Lewis is doing to Tesco is revolutionary. Not just because he recognises that customers are time constrained, but because he realises that increased choice can be bad for you and, worse, result in losses that upset his shareholders. But the idea that choice is bad for us flies in the face of what we’ve been told for decades. The standard line is that choice is good for us, that it confers on us freedom, personal responsibility, self-determination, autonomy and lots of other things that don’t help when you’re standing before a towering aisle of water bottles, paralysed and increasingly dehydrated, unable to choose.

That wasn’t how endless choice was supposed to work, argues American psychologist and professor of social theory Barry Schwartz in his book The Paradox of Choice. “If we’re rational, [social scientists] tell us, added options can only make us better off as a society. This view is logically compelling, but empirically it isn’t true.”

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