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from Breakingviews:
Why China’s “Minsky moment” may be a long way off
By Peter Thal Larsen
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
China may be a long way from its “Minsky moment”. Rising leverage has prompted many to predict the kind of financial meltdown theorized by the economist Hyman Minsky. But China’s closed, state-controlled system is well placed to postpone such market panics. The bigger challenge is managing social tensions arising from slowing growth.
Minsky’s “financial instability hypothesis” described what the academic considered a structural feature of capitalist financial systems. The “speculative finance” of an economic boom, loans refinanced before they are repaid, yields to the “Ponzi finance” of a bubble, where borrowers take on new debt just to pay the interest on existing loans. A crash follows.
Many investors believe speculative finance is rampant in China. The total amount of new credit expanded by roughly 60 percent in the first quarter, but GDP growth was a mildly disappointing 7.7 percent. Corporate balance sheets are deteriorating: according to the International Monetary Fund, the earnings of Chinese companies were just 2.4 times interest payments in mid-2012, down from 4.4 times in 2003.
from Edward Hadas:
Banker-think in welcome retreat
For once, investors have got it right. In 2008, their panic turned a financial crisis into a long multinational recession, but they have mostly yawned right through the drama in Nicosia. They hardly twitched at a stream of warnings from investment banks and pundits: bank deposits are no longer sacrosanct; the European Union has been exposed as despotic and incompetent; the Russians are coming; the Russians are going; capital controls will destroy everything; “bail in” (taking losses on loans that cannot be repaid) is the end of the world as we once knew it.
Such talk was out of proportion. Cyprus is a small country - its GDP would put it at 116 on the Fortune 500 list of the largest quoted U.S. companies - with a financial sector that had expanded excessively for two decades, almost entirely by attracting flight capital from Russia. A national financial collapse was both insignificant and merited. Besides, the EU and the International Monetary Fund had a plan to deal with the collapse: a combination of financial help from other countries and managed pain for depositors in Cypriot banks.
from Edward Hadas:
The menace of financial markets
Financial markets are unstable, unhelpful and often immoral. They should be kept under better control.
My disdain will be dismissed by free-market enthusiasts. For them, lively markets where equities, bonds and currencies are sold at publicly disclosed prices are clearly a good thing; they may even be capitalism at its best. Such open markets, they say, both improve economic efficiency and make society more free.
from Expert Zone:
Budget 2013: Need to review tax incentives
(Any opinions expressed here are those of the author and not those of Reuters)
It's going to be a tight budget this year and Finance Minister P. Chidambaram will be looking to save every rupee in revenue to reduce the budget deficit, to which he has committed. One option would be to withdraw tax incentives which have outlived their purpose.
The finance ministry is only too aware of revenue lost from tax incentives. In 2011/12, it was a loss of 5.29 trillion rupees. If tax incentives are withdrawn, the 2013/14 budget would be in surplus. Nothing would amuse the finance minister more.
from Unstructured Finance:
Wall Streeters find life really is greener on the other side
Ex Wall Streeters talk about the better life working at a startup
Here's a post from UF contributor and intrepid Wall Street reporter Lauren T. LaCapra, who is on assignment:
By Lauren Tara LaCapra
"One last question," the moderator asked the panel of former Wall Streeters now working for fast-growing tech startups. "Would any of you go back to banking?"
from MacroScope:
Interview with IMF Managing Director Christine Lagarde
IMF Managing Director Christine Lagarde sat down for an interview with Thomson Reuters Editor of Consumer News Chrystia Freeland to discuss the European debt crisis and U.S. fiscal problems.
Lagarde also outlined the Fund's agenda for 2013 at a news conference following the release of a $4.3 billion tranche of aid to Greece, which she said is moving in the right direction with reforms.
from Edward Hadas:
What Islamic finance can offer
The Islamic approach to finance was once the most advanced in the world. The period of pre-eminence ended six or seven centuries ago, but the religion’s fundamental insights into the field could help form a financial system suitable for the 21st century.
From the beginning, Muslim teaching took a religious view of commercial relations and responsibilities. There are a few injunctions in the Koran and far more in the teachings traditionally attributed to Mohammad. I am not an expert, but the basic ideas seem clear enough: merchants should be fair, risks should be moderate and understood, and God condemns all rapacious financial practices.
from Edward Hadas:
Greed, justice and deception
Greed contributes to all the economic and financial woes of prosperous societies. The United States and other rich countries produce much more than is needed to support all of their people in comfort, so if desires were all truly modest, there would be few problems. Greed encourages people to decide that their own share is too small. Greed influences the popular desire for GDP growth (more, faster), financial gains (higher house prices as a human right) and total economic security (guaranteed pension, come what may). Voters’ greed encourages governments to spend more and tax less.
During the boom years, politicians and economists consistently underestimated greed’s disruptive power. While few endorsed the extremist view that greed is actually good, even fewer acted as if it were dangerous. The rhetoric changed during the crisis. It has become fashionable to add “greedy” to the description of any unpopular group - bankers, highly paid executives, rich people in general, welfare cheats.
from MacroScope:
Bank safety is in the eye of the beholder
Too-big-to-fail banks are bigger than ever before. But top regulators tell us not to worry. They say the problem has been diminished by financial reforms that give the authorities enhanced powers to wind down large financial institutions. Moreover, supervisors say, the new rules discourage firms from getting too large in the first place by forcing them to raise more equity than they had prior to the financial meltdown of 2007-2008.
New York Fed President and former Goldman Sachs partner William Dudley said in a recent speech:
from Unstructured Finance:
The new Goldman way: Less cushy compensation?
By Lauren Tara LaCapra
On a conference call to discuss Goldman Sachs' new chief financial officer yesterday, an analyst asked departing CFO David Viniar why he was leaving when the stock is at a historic low.
Viniar avoided the question by joking that his successor, Harvey Schwartz, would trump that performance. But some investors think they have a better way to fix Goldman's stock slump: cut back further on comp.
