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from Edward Hadas:

Don’t bother with share-based pay

Coca-Cola’s plan to give generous awards of shares to executives has angered some of its shareholders. They have good reason to complain about the potential transfer of about 15 percent of the company to the top 1 percent of its staff. But Coke is only pushing the already bad idea of share-based pay to a foolish extreme.

The justification for paying workers in their employer’s paper is simple and superficially appealing. Worker-owners might be more motivated to push for higher profit than if they just received salaries, even salaries which have bonuses in the millions tied to company performance.

The argument relies on a narrow view of corporate purpose: the sole goal is to maximise the share price, that is, the present value of future profit. Even if that doubtful assertion is accepted, the connection between an individual worker’s contribution and the movement of the share price is too weak for stock awards to motivate behaviour.

In fact, it’s worse than that. Changes in the share price have little to do with actual improvement or setbacks to corporate prospects at all. Financial theory says otherwise. It relies on a claim that the current share price is always the best available estimate of value. The messy reality is different. Economics Nobel laureate Robert Shiller identified one problem in 1999, saying “prices change in substantial measure because the investing public en masse capriciously changes its mind.” The subsequent gyrations of stock markets have demonstrated that financial conditions also have a great influence on share prices.

from Breakingviews:

Europe’s banks lose their cover on leverage ratio

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By Dominic Elliott

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Europe’s banks have lost their cover on the leverage ratio. European lenders used to contend that American rivals had an easier ride on newly vogue-ish equity-to-asset yardsticks. New rules published on April 8 mean they can carp no longer.

from Edward Hadas:

When credit is too much of a good thing

What does credit do after it has finished the job it was designed for? The supply of credit ought to stop at funding productive activity. But the reality is different. Surplus credit fuels dangerous asset price inflation and funds profligate governments. As leverage increases, so too does the risk of crisis and recession.

Credit, otherwise known as debt or loans, is not necessarily monstrous. It can be a most helpful economic beast of burden, carrying resources to the places where they can be best used. Loans from households to businesses fund helpful investments, and loans from rich older households to poor younger ones help spread property, especially houses and cars, more equitably. Even loans to governments can be a useful alternative to taxes.

from Breakingviews:

China tech rout sifts IPO haves from don’t-needs

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By John Foley 

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Falling prices of internet stocks are a headache for companies yet to join the market. The sell off that began in the first week of March and broke on April 8 hit Chinese companies particularly hard. It may leave investors pickier about coming initial public offerings of tech companies from the People’s Republic. The haves will be sorted from the don’t-needs.

from MacroScope:

Ukraine inching back to the brink

Pro-Moscow protesters in eastern Ukraine took up arms in one city and declared a separatist republic in another yesterday and the new build-up of tensions continues this morning.

The Kiev government has launched what it calls “anti-terrorist” operations in the eastern city of Kharkiv and arrested about 70 separatists. Moscow has responded by demanding Kiev stop massing military forces in the south-east of the country.

from Lawrence Summers:

The right agenda for the IMF

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The world’s finance ministers and central bank governors will gather in Washington this week for the twice yearly meetings of the International Monetary Fund. Though there will not be the sense of alarm that dominated these meetings after the financial crisis, the unfortunate reality is that the global economy’s medium-term prospects have not been so cloudy for a long time.

The IMF in its current World Economic Outlook essentially endorses the secular stagnation hypothesis -- noting that the real interest rate necessary to bring about enough demand for full employment has declined significantly and is likely to remain depressed for a substantial period. This is evident because inflation is well below target throughout the industrial world and is likely to decline further this year.

from Edward Hadas:

Wealth buys less lifestyle, more power

Many serious people think economic inequality in the United States and other developed economies should be a hot political topic. But the general public hardly cares. There is a bad reason behind lack of public interest.

President Barack Obama said last December that a “dangerous and growing inequality” is “the defining issue of our time,” but the most recent Gallup poll suggests that view is not widely shared. Only 3 percent of Americans chose the “gap between rich and poor” as the country’s “most important problem” and 4 percent went for poverty. Unemployment scored 19 percent.

from Global Investing:

Ukraine and the IMF: a sense of deja vu

The West has just agreed to stump up a load of cash for Ukraine but there is a distinct sense of deja vu around it all.

Let's face it - Ukraine's track record on how it manages ts economy and foreign affairs isn't great. This is the third aid programme Kiev has signed with the International Monetary Fund in a decade and two of them have failed. The IMF has its fingers crossed that this one will not go the way of the past two. Reza Moghadam, the IMF's top European official, tells Reuters in an interview:

from MacroScope:

Erdogan unfettered

Investors have spent months looking askance at Turkey’s corruption scandal and Prime Minister Tayyip Erdogan’s response to it – purging the police and judiciary of people he believes are acolytes of his enemy, U.S.-based cleric Fethullah Gulen. But it appears to have made little difference to his electorate.

Erdogan declared victory after Sunday’s local elections and told his enemies they would now pay the price. His AK Party was well ahead overall but the opposition Republican People's Party (CHP) appeared close to seizing the capital Ankara. 

from Photographers' Blog:

Precious by name, precocious by nature

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Chelsea, United States
By Brian Snyder

When I first met Precious Perez, she was with a group of blind children and adolescents who had come to meet horses performing in an acrobatic show.

The kids stood with their chaperones in the middle of a practice tent, taking in the sounds, smells and vibrations as riders rode horses around them in circles. Afterwards, Perez went up to one of the animals and softly sang the Taylor Swift songs “Love Story” and “Safe and Sound” to him.

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