Opinion

Ben Walsh

from Felix Salmon:

Counterparties: Resolution without reconciliation

Ben Walsh
Dec 31, 2012 20:30 UTC

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The fiscal cliff deal is here -- at least in the Senate.

The President confirmed in an afternoon appearance that a deal was “close”, but offered no specifics and blasted Congress for their procrastinating ways. It’s not even clear that the latest deal would have the support to be put to a vote in the House, let alone pass.

Depending on which baseline is used, the deal includes between $600 billion and $800 billion in debt reduction, Ezra Klein tweeted; Sam Stein and Ryan Grim report that this will come “almost entirely through revenue hikes.”  But as Justin Wolfers tweeted, any last-minute deal that doesn’t include raising the debt ceiling pretty much guarantees another round of panicked negotiations.

The latest deal raises income taxes for families who earn more than $450,000 per year or individuals who earn more than $400,000. Taxes on inheritances larger than $10 million for families or $5 million for individuals would increase to 40% from 35%.

Left unaddressed is the “sequester”, which would result in painful automatic spending cuts. Gone also are cuts to social security, through “chained CPI”, which Republicans abandoned on Sunday. Still, Joshua Green judges the whole thing a winner for the GOP, not least because “Republicans would hold onto their greatest point of leverage” -- their ability to hold the country hostage over debt-ceiling negotiations.

Counterparties: Today’s links

Ben Walsh
Dec 26, 2012 22:51 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

The Counterparties team remains on a semi-hiatus and will return in full force in the New Year.

Wonks
Japan is moving toward “explicit monetizing of deficit spending” – Tim Duy
Paul Krugman considers robots, wonders if economic growth could be over – NYT
Artifical intelligence is the key to economic growth — or economic stagnation – Mother Jones
Philanthropy: You’re doing it wrong – Felix

from Felix Salmon:

Counterparties: 2012 — The year of bank fraud

Ben Walsh
Dec 19, 2012 23:28 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

It’s been a relatively decent year for financial stocks: they’ve had their best performance since 2003. It’s truly been a boom year, though, in investigations, lawsuits, fines, and settlements at the world’s biggest and most important banks. There are 28 banks on the FSB’s list of systemically important financial institutions, and as Felix writes, “pretty much the whole financial sector is still trading at less than book value”.

What follows is a list of notable accusations, admissions and settlements in 2012 alone. (It’s long, so just scroll down if you just want the links):

from MediaFile:

In a crisis, Twitter morphs into cable news

Ben Walsh
Dec 19, 2012 13:33 UTC

Twitter calls itself a “real-time information network that connects you to the latest stories, ideas, opinions and news about what you find interesting.” That network is defined by its personalization: The person who assembles her feed is the person who reads it. This is usually a benefit. Last Friday it became a distraction.

My unfiltered Twitter feed was basically unusable as an information source -- a repetition of facts shared space with anger, and grief, and commentary, and still more of the same facts. Instead, I relied on filters, and the individual streams of people who are extremely talented at culling what’s important and cutting out the repetition.

Those who load Twitter feeds with news organizations, journalists, and news junkies encounter a – how else to put it but in Twitterspeak? – #firstworldproblem. Jay Rosen, from New York University’s school of journalism has described it well: “7 out of 10 posts in my incoming Twitter feed are about the same story.” And when that kind of critical mass is reached, no matter if they’re trivial (Felix Baumgartner’s space jump), national (presidential election night) or tragic (last week), these moments have a particular rhythm.

from Felix Salmon:

Counterparties: Bushmasters and baksheesh

Ben Walsh
Dec 18, 2012 23:21 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

We found out in April, thanks to the NYT’s David Barstow, that Wal-Mart de Mexico was a corrupt organization and that the US parent company had seemingly no interest in what was going on there. But just how bad did things get? Barstow’s now back, showing that the corruption at Mexico’s largest employer was systemic and integral to its growth:

Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance — public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals.

Who cares about rising rates?

Ben Walsh
Dec 14, 2012 18:56 UTC

At this week’s Dealbook Conference,  Lloyd Blankfein, David Rubenstein and Ray Dalio each fretted about a “bond bubble”.  This isn’t necessarily a new or unique fear. It was already a “constant refrain” in 2010. Jeff Gundlach exemplifies a more extreme version of the same point, and it’s been recently covered in the FT and WSJ.  Here’s Blankfein:

“I think [investor complacency about low interest rates] is one of the big risks that are looming out there right now…What’s going to happen when growth picks up and interest rates rise? There’s going to be a reversal and people will have losses.”

Blankfein is right: if you’re a fixed-income investor, rising interest rates are a risk. That statement is correct now, but it’s also always correct; There’s no way rising rates can’t not be a risk to bond buyers. The same goes for inflation, which bond-investor extraordinaire Bill Gross is worried about.

In the wake of the financial crisis, it’s easy to hear the phrase “bond bubble” and think economy stability is at risk. Blankfein feeds into this perception when he says that “one of the big risks that is looming… is that people are once again complacent about this low level of interest rates”. That sounds scary in isolation, but in context  his comments are actually positive. The bubble will be over, he says, when “growth… come[s] back”. But Fortune cut that crucially important caveat when it published its story. Blankfein and others’ worries might sound like they are meant for a wide audience, but the idea that the bond bubble is a risk is a message aimed squarely at bond portfolio managers.

from Felix Salmon:

Counterparties: Central bankers are the new rockstars

Ben Walsh
Dec 14, 2012 21:57 UTC

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Here’s a type of attention that has escaped most of the financial world in the last few years: resounding praise. And it’s being directed at practitioners of that dullest of financial professions, central banking.

Mario Draghi, the head of the European Central Bank, is the FT’s person of the year. Draghi gets the nod for standing against an existential threat with almost Churchillian resolve and rhetoric: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro... And believe me, it will be enough”. The FT calls that July statement a “turning point in the three-year-old crisis”  that “in effect dared financial markets to challenge the ECB’s unlimited firepower”. Draghi has necessarily made the job deeply political: Matt Yglesias compared Draghi’s ECB to a “shadow government” enforcing budget cuts.

from Felix Salmon:

Counterparties: Aggressive Doves

Ben Walsh
Dec 12, 2012 22:54 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

For the first time, the Fed has explicitly tied its interest rate policy to specific levels of unemployment and inflation. Short-term rates will stay at essentially zero as long as unemployment is above 6.5% and inflation is under 2.5%, the Fed announced today. WaPo’s Neil Irwin says Fed policymakers “unveiled a huge surprise”.

If you’ve been following Chicago Fed president Charles Evans, this policy -- a version of which is known as the “Evans Rule” -- is familiar. The surprise is that Bernanke delivered almost exactly what Evans advocated: monetary policy that is tied to economic conditions, rather than the Gregorian calendar. Jon Hilsenrath and Brian Blackstone point out that the move comes in the context of increasingly coordinated and unprecedented actions by central bankers around the world; this is certainly the latter, if not the former.

from Felix Salmon:

Counterparties: 43 words you can’t say on Facebook

Ben Walsh
Dec 7, 2012 22:59 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

Facebook is unlikely to become your go-to source for corporate announcements any time soon. In July, Netflix CEO Reed Hastings said on his Facebook page that viewers had watched over one billion hours of video using his company’s service in June. Now, the SEC may bring a civil suit against the company for improperly disclosing that information.

As the NYT’s Michael de la Merced reports, the regulator is “concerned that the post violated the Regulation Fair Disclosure rule...which requires a company to announce information that is material to its business to all investors at the same time”.

from Felix Salmon:

Counterparties: Return of the Mac

Ben Walsh
Dec 6, 2012 23:27 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

American manufacturing has gained boosters recently, with politicians from President Obama to Rick Santorum championing its merits. The Atlantic’s current cover proclaims “Comeback”. Even Apple -- the epitome of the Made-in-China multinational -- is bringing a mini portion of its manufacturing back to the US: CEO Tim Cook says that “next year, we will do one of our existing Mac lines in the United States”.

Cook’s announcement, which came in the form of an interview with Businessweek, is a savvy move by a company that has faced questions about its reliance on an overseas suppply chain. Still, it’s not much of a homecoming. The FT’s Tim Bradshaw, looking at the $100 million that Cook says he will invest in US manufacturing, notes that it pales in comparison to the billions Apple has invested in Asian manufacturing in the last year alone.

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