Ben Walsh Thu, 10 Nov 2016 18:34:54 +0000 en-US hourly 1 Standard incompetence Wed, 20 Aug 2014 21:05:44 +0000 Click here to sign up for the Counterparties email.

Standard Chartered’s compliance department is apparently pretty bad at complying. In 2012, the bank was fined $340 million for hiding transactions with sanctioned Iran. As part of the settlement, Standard Chartered bank (SCB) was required to “remediate anti-money-laundering compliance problems,” Dealbook’s Ben Protess and Chad Bray report, and hire an outside monitor to judge whether the problems were in fact remediated.

They weren’t, and the bank will pay $300 million for “anti-money laundering failings in its United Arabs Emirates and Hong Kong businesses,” Reuters Michelle Price reports. The failures, laid out in a settlement with the New York Department of Financial Services, display an almost comical or willful ineptitude, depending on your perspective. SCB, the settlement says, “created a rulebook with procedures to aid it in detecting high-risk transactions.” But the rulebook was filled with errors that SCB didn’t know about, because it didn’t try to find out if the rulebook was adequate before or after it wrote it. This allowed transactions that should have been closely scrutinized to sail through unimpeded. To top it all off, SCB didn’t properly monitor its own transaction monitoring system. You can see why an independent monitor would be necessary.

As part of its settlement, the bank will also suspend clearing payments in dollars for certain clients, and take even more remedial measures. One of those is extending for two more years the term of Navigant, the independent monitor that caught the latest slip up.

Matt Levine wonders why, given how bad SCB seems to be at understanding and preventing money-laundering, the monitor should content itself with just reporting SCB’s problems: “If the monitor knows so much about anti-money-laundering procedures, shouldn't it have just designed the procedures? Isn't the goal to have less money laundering?”

The bank’s management isn’t taking the fall. CEO Peter Sands, Protess and Brayreport, says he has “no other plans” than to remain in his position. Earnings per shareare down, though, and the board is under pressure to make a change. If Sands is ousted, it wouldn’t be the first time a board used scandal as a pretext for a financially-motivated decision.  — Ben Walsh

On to today’s links:

Primary Sources
The full FOMC minutes - Federal Reserve

Generation Debt
"Young borrowers are actually among the least likely to experience a serious credit card default" - Richmond Fed

Correlation of the Day
The richer you are, the more likely you are to think trophies are only for winners - Alex Tabarrok
And another: Colorado has drastically reduced its teen pregnancy rate by giving teens access to long-term contraceptives - WaPo

Regional cost disparities are all about housing - Squarely Rooted

Patent Power
"Patent trolls are emerging as the world’s most nefarious rentier types" - Izabella Kaminska

FYI re: Your Mortality
Mortality spikes on payday: "It’s not the wages of sin that are death. It may be just the wages of wages" - John Carney

Investigating the variation in how much it costs to raise a kid - Nick Bunker

For the Wages
"The fantasy of finding someone who is punctual, productive and willing to be paid a pittance is hard to let go" - WSJ
"If we were brave enough, we'd say our survey data indicate [a] quick wage uptick is 'unlikely'" - Atlanta Fed

Legal Arcana
"...eventually that hope will turn into lawsuits, as hope does" - Matt Levine

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Putting stock in the market Mon, 18 Aug 2014 21:11:55 +0000 Robert Shiller wants us to talk about stock prices. “We are in an unusual period, and that it’s time to ask some serious questions about it,” he says.  Specifically, Shiller wants to discuss just how far above normal they currently are:

The CAPE [cyclically adjusted price-earnings ] ratio, a stock-price measure I helped develop — is hovering at a worrisome level... It is above 25, a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks.

That measure of stock price valuation has, Shiller writes, moved all over the place, “yet it has consistently reverted to its historical mean” of just over 15. (If you prefer purely anecdotal signs of effervescence, those exist too. Actor Jared Leto has become aventure capitalist and NBA All Star Carmelo Anthony is becoming a tech investor.) Shiller tries, but can’t quite come up with a good, fundamental reason why the market should be so elevated.

In May, the NYT’s David Leonhardt pointed to a plausible, if unsettling basis for high valuations: “Despite the mediocre economy, corporate profits are fairly strong, because companies have the upper hand on workers today and wage growth is modest. Inequality, in other words, tends to be good for stocks.” His colleague Neil Irwin wrote in July that it’s not just stocks that are on a tear. Everything – real estate, bonds, etc. – is booming and/or bubbling. Accurate as that is, it is a description, not a justification.

Brad DeLong looks at whether you should really worry too much about the market being too high. Over a ten-year investment horizon, stocks are almost always a winner. DeLong charts cumulative returns on stocks and finds “the dominant feature is not mean reversion but rather exponential growth.”

Dean Baker tries to take a middle ground, arguing that stocks are still a “pretty good deal,” and will continue to be so “even if there is some decline in the profit share of income and also some reversion toward long-term trends in price to earnings ratios.” Baker’s conclusion is sort of comforting for the stock-owning: even if things get a little worse, they’ll be far from bad. — Ben Walsh

On to today’s links:

Financial Innovation
An update on Fantex, the company that let's you buy equity in athletes (sort of) - Sujeet Indap

Good Internet
The outlaw Instagrammers of New York City - Adrian Chen

The theory behind the universal basic income - Ed Dolan

Home renting scams proliferate on AirBnB competitor HomeAway - BuzzFeed

Food insecurity is a huge problem among students — most of whom are too proud to admit it - Ned Resnikoff

Niche Markets
The biggest business in the Bridal Veil, Oregon - Katie Baker

Skipping subway fare has become one of the most common reasons for incarceration in NYC - Daily News

Facebook wants to label The Onion links as "satire" - The Guardian

Ferguson and growing suburban poverty - Brookings

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Hungry, heavy and poor in America Tue, 12 Aug 2014 22:30:19 +0000 Click here to sign up for the Counterparties email.

America’s hungriest region is also its heaviest,  Eli Saslow reported as part of his Pulitzer Prize-winning investigation. Saslow documented the perverse coincidence of hunger, obesity, and poverty in Texas’ Rio Grande Valley. In one county in the region, 32 percent of the residents are obese and 40 percent have been severely hungry in the last month. The problem is complex, but the crux of it comes down to trying to feed families on minuscule budgets and limited aid. “It is unrealistic to expect someone stretching their dollars to be highly worried and focused on nutritional content,” Saslow quotes a food policy analyst saying. “They just need to eat.”

Talk of “food deserts” is trendy – witness former sexting Congressman Anthony Weiner’s latest redemption effort –  but it’s probably not as big of a problem as it seems, James McWilliams writes in the Pacific Standard. McWilliams says there have been cracks in the thesis that a lack of access to healthy food causes obesity since at least 2012. But now, the evidence is fulsome and convincing. Food deserts aren’t the problem – poverty is.

Bad nutrition and obesity are, of course, not phenomena confined to the poor, even though the poor are disproportionately affected by them. Everyone gets bombarded with things – from labels to menus to ads – that fool us into eating terribly. But the poor, McWilliams point out, “live lives defined by persistent scarcity—not necessarily food scarcity, but a generalized and even traumatizing kind of material instability. Absolutely nothing about their lives is secure.”

That feeling of powerlessness, Ta-Nahisi Coates wrote in 2009, can drive overeating: “The deeper the five train wended into Brooklyn, the blacker it became, and the blacker it became, the fatter it got. I was there among them--the blacker and fatter--and filled with a sort of shameful self-loathing at myself and my greater selves around me.” Food in America – particularly high sugar, high fat junk food – is really, really cheap. Speaking from experience, Coates said that “[p]ut under the proper amount of stress – long day, Breyer's in the fridge – I would break.” Surrounded by deep uncertainty, food becomes a controllable, affordable, and reliable pleasure.

Food that is bad for you is, unfortunately, very inexpensive. “America is a place where luxuries are cheap and necessities costly. A big-screen TV costs much less than it does in Europe, but health care will sink you,” sociologist Joseph Cohen told the Washington Post in April. There’s also the problem that, much as we’d like to believe otherwise, doctors still can’t unequivocally identify a truly healthy diet.The result, writes Dr. David Seres: the public gets “the message that all dietary guidelines should be dismissed as the latest fad.”

The best way to help the poor and the hungry seems to be to give them cash, not send them to a food bank. Food stamps, which are a more politically viable way to deliver aid to the hungry, apparently aren’t politically viable enough. The 2014 Farm Bill, signed by Barack Obama in February, cuts food stamp spending by $8.7 billion over a decade. That probably won’t help poor Americans afford more or better food. — Ben Walsh

On to today’s links:

Biotech firm didn't enjoy its six days as a public company - Matt Levine

FICC revenues are down everywhere, and they're probably not coming back - Tracy Alloway

Generation Debt
Half of federal student loan borrowers aren't paying on time - Shahien Nasiripour

Crisis Retro
Six years later, we've decided that nameless "executives" are to blame for Lehman's failure - Matthew Goldstein

That’s So Gross
Bill Gross is doing Wizard of Oz tweets now - PIMCO

Welcome to Russia’s Hunger Games - Izabella Kaminska

The robot economy: Art museum tours edition - The Guardian

"The median farm income was negative $1,453 in 2012" - NYTimes

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Inverted tax logic Wed, 30 Jul 2014 21:42:58 +0000 Tax arbitrage trend stories are rare – the last time we had one was the summer of 2012 when carried interest was all the rage. Now we have another. Corporate America’s hottest new tax avoidance strategy is the inversion. This structure has everything: acquisitions of non-U.S. domiciled companies, presidential umbrage at a lack of C-suite patriotism, unreliable data, proposed but unlikely to ever be enactedlegislation, and Mark Cuban twirling a basketball and tweeting his opinion.

Matt Yglesias explains the nuts and bolts of how tax inversions work. American Company A acquires Non-American Company B. If Company B is based in a country with lower corporate tax rates than the U.S. – and it probably is because the U.S. has the highest statutory rates in the developed world – “the merged company will probably domicile itself for tax purposes in Company B's country. In a pure tax inversion... Company A would be acquiring Company B not so much to obtain its technology or its brand or its supply chain but its tax status.”

Unlike most trend stories, this one has solid data backing it up. Reuters’ Kevin Drawbaugh reported in April that since 2008, about two dozen companies completed tax inversions, “versus about the same number over the previous 25 years.” Drawbaugh says the most desired tax residences are Britain, Canada, Ireland, the Netherlands, and Switzerland. The UK is particularly attractive for pharmaceutical companies, the WSJ reports, because patent-related revenue is taxed at just 10 percent, versus the 35 percent nominal U.S. corporate tax rate.

So what can or should be done? Treasury Secretary Jack Lew has proposed effectively ending this type of acquisition. Lew, along with the Economist and seemingly everyone in Washington, D.C., thinks the better solution is comprehensive corporate tax reform.Paul Krugman thinks a wide-ranging debate on corporate taxes is fine, but shouldn’t stop quick action on inversions.

There is solid evidence that tax inversions do lower the amount of taxes companies pay to the U.S. Martin Sullivan studied the rise of inversion and the fall of effective tax rates in the oil and gas industry. And tax inversions, he noted, don’t happen in a vacuum. They’re also, “accompanied by planning techniques that strip income out of the United States.” Corporations are simply paying a much, much smaller share of taxes than they used to. Tax inversions are just part of that trend. — Ben Walsh

On to today’s links:

History Repeating
A brief history of Argentine economic crises - Reuters
Argentina’s default: here’s what’s happening today - Shane Ferro

Mean Recovery
GDP grew at a 4% annualized rate in the second quarter - BEA
The US economy grew faster than thought in 2013. But the recovery still looks the same - The White House

The Fed
FOMC statement in a nutshell: asset purchases down to $25 billion, no change in interest rates, Plosser dissents - Federal Reserve

Terror ransoms disguised as aid: "Europe has become an inadvertent underwriter of Al Qaeda" - NYT

Poor Bankers
How are those protected weekends going for junior bankers? - Alison Griswold

Selfie Nation
Snapchat is worth $10 billion - Bloomberg

Data Points
The cost of new financial regulations might be somewhere between $6.5 billion and $70 billion - Federal Financial Analytics

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Weeding out the prison population Mon, 28 Jul 2014 22:13:08 +0000 Click here to sign up for the Counterparties email!

The New York Times’ editorial board – America’s barometer of what cautious, moderately liberal elites are supposed to think  – wants America’s war against weed to end. States, they say, should be allowed to make their own marijuana policies. And states already are: nearly three-quarters have reformed their marijuana laws to legalize all use, medical prescriptions, or cut the consequences of possession.

Reforming America’s marijuana laws, along with the rest of its war on drugs, seems like the just thing to do. Vox’s German Lopez writes that based on a study by the American Civil Liberties Union, “blacks were 3.73 times more likely to be arrested than whites for marijuana possession, with the black arrest rate at 716 per 100,000 and the white arrest rate at 192 per 100,000 in 2010.” Lopez shows that racism is endemic in the enforcement of drug laws, affecting everything from sentence lengths to the neighborhoods targeted by police SWAT teams.

The policing costs alone of enforcing the criminalization of marijuana are almost $8 billion annually. America spends a staggering $80 billion on prisons and jails each year: with just 5 percent of the world’s population, it has 25 percent of the world’s inmates (17 percent of all people in U.S. prisons are there for drug offenses. In federal prisons, the number is a jarring 50 percent.)

From 1978 and 2009, the U.S. prison population grew by 430 percent. It is impossible to understand what Emily Badger calls the “the meteoric, costly and unprecedented rise of incarceration in America” without looking at the nation’s drug policy. “Between 1980 and 2010,” she writes, “the incarceration rate for drug crimes increased tenfold.” (Recently, America’s prison population has fallen fractionally, largely thanks to state reforms.)

The economic impact of this is immense, and cannot be ameliorated by a change to marijuana laws alone. John Tierney wrote last year that “black men in their 20s and early 30s without a high school diploma... [are] more likely to be behind bars than to have a job.” Harvard sociologist Bruce Western told Tierney that “prison has become the new poverty trap... creating an enduring disadvantage at the very bottom of American society.”

If legalization becomes federal law, the U.S.’s ability to effectively undo massive human damage and economic inefficiency will come down, in large part, to the deeply glamorous task of regulating the market. Mark Kleiman thinks that “letting legalization unfold state by state, with the federal government a mostly helpless bystander, risks creating a monstrosity.” He’s against commercialized legalization, but regulation, with the tax revenue it generates, and the lobbyists it attracts, looks to be where things are headed. – Ben Walsh

On to today’s links:

Barack Obama, market timer in chief  - Business Insider

So Hot Right Now
"In a data-chic world, a chief economist is the new marketing must-have" - Lydia DePillis

When bad journalism becomes a joke: the origin of "whoa, if true" - The Daily Dot

Sovereign Debt Problems
Why Argentina's credit spreads are going down while the probability of default is going up - Felix Salmon

The Coconut Water Wars: "Attempts at psychological point-scoring that could charitably be described as sophomoric" - NYT

New Normal
"The precariat: insecure, unorganised, taking on too much work for fear of famine, or frighteningly underemployed" - LRB

It's unclear that cutting unemployment benefits in North Carolina cut unemployment -Justin Wolfers
And yet, North Carolina likely hurt people when it cut unemployment benefits - Jared Bernstein

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A guide to Paul Ryan’s anti-poverty plan Thu, 24 Jul 2014 21:42:41 +0000 Like Ronald Reagan, Paul Ryan thinks that we’ve lost the war on poverty. Ryan, the chairman of the House Budget Committee, released a draft anti-poverty plan today. About 45 million Americans are living in poverty — making less than $23,850 for a family of four — and Ryan’s proposal would “shift the federal government's anti-poverty role largely to one of vetting state programs to distribute aid,” Reuters’ David Lawderreports. Benefits would be distributed by a single agency or charity group, and recipients would be required to set up and follow a contract to receive benefits.

James Pethokoukis pithily scores the approach as “Thomas Aquinas 1, Ayn Rand 0” — more caritas, and less ruthless, laissez faire libertarianism. Josh Barro says the plan is a huge change for Republican policy because it’s not a spending cut. Instead, “as drafted, it would not increase or decrease federal spending on anti-poverty programs.”Reihan Salam describes today’s proposals as “the most ambitious conservative anti-poverty agenda since the mid-1990s,” and argues that Ryan’s main objective is “combatting entrenched poverty” by offering a “a useful distinction between situational poverty, in which individuals fall on hard times” briefly, and “generational poverty.”Research shows more Americans are affected by the former, but Ryan argues policy does not sufficiently address the latter.

Jared Bernstein, a former White House economist, disagrees with Ryan’s assumption that U.S. anti-poverty programs are structurally flawed, arguing that there is nothing “fundamentally wrong with the safety net.” Government programs cut the poverty rate almost in half compared to the pure market outcome, he says. More than that, Bernstein highlights the point made by the Center of Budget and Policy Priorities’Robert Greenstein: the safety net is a great investment in the long-term outcomes of its beneficiaries and should not necessarily be tied to short-term requirements of a contract.

Annie Lowrey says that while “there’s a lot for liberals to like” in the proposal (see,reducing mass incarceration), it’s nonetheless paternalistic. Its central problem, she says, is the manner in which it structures aid as a contract:

This is condescending and wrongheaded. First, it presupposes that the poor somehow want to be poor... Second, it isolates the poor... Third, it threatens to punish the poorest and most unstable families for their poverty and instability... Fourth, it does not address the core problem of a lack of jobs — or the problem of a lack of jobs paying a living wage

Of course, this is just the reaction to a draft proposal of a pilot program. There will be a whole new set of analysis and reaction if Ryan is able to translate his ideas into actual legislation. — Ben Walsh

On to today’s links:

Half of America’s obese kids don’t know they’re obese - Wonkblog

The relationship between CEO pay and stock price is pretty much random - Bloomberg Businessweek

A history of autocorrect - Wired

The Chinese government may lift restrictions on property purchases - WSJ

The More You Know
Hong Kong is the ideal city for a spy - Global Times

The tally of financial crisis-related fines - WSJ

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Facebook leaves niche competitors behind Wed, 23 Jul 2014 20:38:16 +0000 These are good times for Facebook. The social media site reported second quarter earnings of $0.42 per share and revenue of $2.91 billion on Wednesday afternoon. Analysts polled by Thomson Reuters expected $0.32 in earnings per share and revenue of $2.8 billion. The company's stock is up just under 1% in after hours trading. Reuters' Stephen Culp charts Facebook's share price relative to the S&P 500 and five of its competitors. The comparison is striking and decidedly in Facebook's favor.

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It was only back in April that tech stocks, Facebook included, were falling and people were scrambling to explain why.  In the intervening months, Facebook has not been alone in reversing that decline. While its more niche competitors like those charted above have performed poorly on an absolute and relative basis, year-to-date, a host of bigger tech companies' stocks beaten the S&P 500's 7.3% return: Google (up 8.9%); Apple (up 20.2%); Microsoft (up 20.8%). The NASDAQ itself is up 22.7%.

Perhaps the reason why Facebook's stock performance varies so dramatically from the Zyngas and Yelps of the world is because those companies aren't Facebook's real competition.  It's being treated by the market like a tech and advertising behemoth it is, not the single desktop product company it was, with performance in line multi-hundred billion dollar market cap companies. The idea that Mark Zuckerberg is building a "holding company for various properties in world domination," as Joseph Cotterill put it, is close to the consensus view. Or, a slightly less ominous conclusion is that the market really does believe that Facebook is becoming a P&G-style brand holding company that sucks ad dollars from phones around the world.



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Obamacare’s circuitous path Tue, 22 Jul 2014 21:49:56 +0000 U.S. federal courts don’t agree on whether the federal government is allowed to subsidize health insurance costs. The final decision, which seems likely to be made by the Supreme Court, will have massive political, economic and human impact. Not only does healthcare make up 18% of U.S. GDP, but the idea that the federal government can subsidize insurance is a key to the Affordable Care Act and the health insurance of more than 5 million Americans.

Here’s what happened today: first, the District of Columbia Circuit ruled in Halbig v. Burwell that the subsidies Obamacare has been providing for health insurance in 36 states were illegal. According to the decision, states alone, not the federal government, can provide subsidized health insurance. The court’s reasoning is based on imprecise wording in the law and contains an even worse pizza metaphor. Only 16 states, including California, Massachusetts and New York, have set up markets without the federal government's involvement. Then, Fourth Circuit, which covers a large portion of the Southeast U.S., came to the exact opposite conclusion in King v. Burwell, in part using a tangled pizza metaphor. Any changes in policy are on hold pending appeal of the D.C. Circuit’s decision by the government.

The affordability of Obamacare, for citizens and the government, is at stake here: premiums could rise by more than 76% if states do not create their own markets, depending on the size of the subsidy currently provided in each state. Generally, the poorer the state, the more premiums will rise. Not only would that mean some people who have already purchased health insurance could no longer afford it, it could make providing care to those who remain in the pool more expensive, as healthy people begin to drop their coverage. In healthcare wonk-speak, this is called a death spiral, and it is indeed as bad as it sounds: when only the sick have any incentive to buy insurance, only the sick are insured. That’s not a good business model.

Mike Konczal takes a look at the argument that Obamacare’s authors actually wantedfederally supported exchanges to be illegal precisely so that states would be coerced into setting up their own exchanges. The problem with that, Konczal says, is that no one let states know this was the intent. As Dr. Strangelove points out, “a doomsday machine only works if you tell others about it.” Based on its actions – the government is appealing the Halbig ruling – there is no evidence that the administration really wanted a doomsday machine. — Ben Walsh

CORRECTION: The pizza metaphor was made in a concurring decision from the Fourth Circuit supporting federally supported exchanges, not the D.C. Circuit decision striking them down.

On to today’s links:

Bill Ackman's Herbalife presentation was... underwhelming - DealBook
It's "a lousy business but it is a business in which people have integrated their lives and their families" - John Hempton
Herbalife's pre-response to Ackman. "Spolier: [the company thinks] it is legitimate" -Dan McCrum

Classic Bess
Bill Ackman Hates The Hell Out Of Herbalife Because God Damnit He Loves America - Dealbreaker

On The Internet
weev: Profiling the internet's best-known troll - Matter

Financial Arcana
Trading around Volcker: Banks are reducing hedges and holding more Treasuries - John Carney

Secular Declines
The decline of the full-time, middle-class American clergy - The Atlantic

Please Update Your Records
It's easier to hire skilled workers if you pay them more - Rob Garver

Your Retirement Plans
The best and worst 401(k) plans - Bloomberg

The worst cliche online today: "All you need to know" - WaPo

So Hot Right Now
“It’s like gold, but better": Investing in farmland income streams - DealBook

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Bank of Inchoate Sense Fri, 18 Jul 2014 21:24:01 +0000 Brad DeLong is confused. The Berkeley economics professor has read the Bank for International Settlements' (BIS) – often called the central bank for central banks –annual report and he just cannot understand what its positions on the global economy and monetary policy actually are: “It calls for raising interest rates now... It fears activist expansionary fiscal policy even more than it fears monetary ease... It seems hostile to any increase in the demand for risky assets.”

The BIS’s position, DeLong writes, fits with no current understanding of the the crisis, recession, or current economy. It does not buy into the Janet Yellen or Ben Bernanke view that interest rates should be kept low for a long time (we wrote about Yellen’s response here). Nor is it the view taken by Harvard economist Ken Rogoff and Nomura’s chief economist Richard Koo that we just need to wait for the credit mess of the financial crisis to work itself out. Nor is it DeLong’s own view that the government should get things going by borrowing more money.

Paul Krugman thinks the whole thing is actually really simple. “You need to see this in terms of an attitude, not a coherent model,” he says. Like political philosopher Michael Oakeshott said about conservatism: it’s “not a creed or a doctrine, but a disposition.” Since 2010, Krugman says, the BIS has been advocating against stimulus because it would limit the necessary harm of the recession. That may sound odd, but Krugman says it’s a retread of Schumpeter’s good old-fashioned theory of creative destruction. When the facts changed – most research doesn’t support the skills mismatch explanation of elevated unemployment – the BIS just looked for new reasons to support the same policies, which left it, Krugman writes, without “any method at all... I see an attitude, looking for justification.”

Oxford University macroeconomist Simon Wren-Lewis has a similar reaction as Krugman’s to the BIS report: it’s understandable, if not rigorously defensible. The BIS, says Wren-Lewis, is saying that low interest rates are dangerous. So dangerous that they, not a lack of regulation or fraudulent behavior, are what caused financial crisis. The BIS just wants higher interest rates instead of new financial regulation.

Noah Smith throws some cold water on the idea that just because asset prices are high – for stocks, bonds, real estate, farmland – the Fed and other central banks need to raise interest rates as soon as possible. “The Fed has raised asset prices,” through quantitative easing and low interest rates, he writes, “but there’s no sign that it has caused an irrational rise in prices.” If markets acted rationally in response to Fed policy, there really isn’t a bubble to burst: “Causing a crash today will just cause a crash today, period.” The Fed, thankfully, isn’t doing that. Instead, it is slowly and deliberately phasing out post-crisis monetary policy. – Ben Walsh

On to today’s links:

EU Mess
Espirito Santo files for bankruptcy protection - Bloomberg

Crisis Retro
"This is the Apocalypse Now point of the banking industry" - The Independent

Why churn is so important for the labor market - WSJ

"The Justice Department has massively distorted and perverted the notion of accountability" in bank settlements - David Dayen

"The symbol is not supposed to be a symbol, it’s supposed to be something with meaning” - Recode

Domestic abuser & CEO Gurbaksh Chahal is back with an inspirational video and "the world's first high frequency marketing OS" - Valleywag

Billionaire Whimsy
Warren Buffett enjoys free baseball hats from car dealerships - GM

Good Questions
"Why do they need us to join Airbnb nation?" - Kate Losse

Morningstar does not care for Jeff Gundlach, and the feeling is mutual - Bloomberg

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Losing participation points Thu, 17 Jul 2014 22:18:50 +0000 Not signed up for the Counterparties newsletter yet? Click here.

Today, the White House tried to answer one of the thorniest questions about the U.S.’s post-recession economy: why, despite the recovery, has the percentage of working-age Americans that are either working or looking for work steadily fallen? At the beginning of the recession in December 2007, what economists call the labor force participation rate was 66%. It is currently 62.8%, the lowest it’s been since the 1970’s.

About half the answer, the Council of Economic Advisors says, is that America’s workforce is getting older and “older individuals participate in the labor force at lower rates than younger workers.” Another third of the drop is due to pre-recession trends like declining participation by so-called prime age workers, plus the particularly nasty but inchoate effects of the Great Recession, like a big rise in the ranks of the long-term unemployed (economists think this pushes down the participation rate but are not completely sure why). Another sixth of the decline is due cyclical factors (the normal ups and downs of the economy).

Business Insider’s Myles Udland points out that the White House is chiming in on a highly politicized debate regarding just how strong the labor market is. The Obama administration is saying, the WSJ’s Josh Zumburn writes, that “only one-sixth of the decline is clearly attributable to the weak economy.”

Matt Yglesias thinks the most important issue for ordinary people isn’t about demographics or business cycles, but about what the paper calls the “residual”: the fall in the participation rate that we can’t quite figure out. Unfortunately, he says the study doesn’t come up with any firm answers about what’s causing this chunk of the decline. As Felix Salmon pointed out in 2012, the last time the participation rate was this low, trends like women joining the workforce en masse were still unfolding. Other factors are at work now, and are part of the reason why the US is in the midst of its weakest post-war recovery. — Ben Walsh

On to today’s links:

Possibly Useless Data
Business is looking up for at least one Spanish bespoke tailor - Bloomberg

Russians hacked the NASDAQ - Bloomberg Businessweek

Americans have no good reasons to complain about food prices - AEI

Billionaire Whimsy
William Koch claims victory in his fight for consumers against a "dark industry" (wine auctioneers) - Reuters

Please Update Your Records
The $400 million ISIS bank robbery may never have happened - FT

True Truisms
The best way to make cities safer for pedestrians and cyclists: slow down cars - Mike the Mad Biologist

Shadow Stats is complete nonsense. Ignore anyone who cites it - Matt O’Brien

"Microsoft’s strategy is... [11 paragraphs later] an estimated reduction of 12,500 employees" - Business Insider

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