Opinion

Ben Walsh

from Felix Salmon:

Counterparties: The American growth divide

Ben Walsh
Jan 22, 2013 19:16 UTC

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The world’s plutocrats are currently heading to a more “dynamically resilient” -- and possibly more complacent -- Davos. Don’t expect much introspection, and definitely don’t expect much debate on the hard-to-define “value of finance”.

At the DLD Conference in Munich today, Peter Thiel had an interesting take on the rise of financial services. America’s past 80 years, he said, can be divided into two periods: From 1933 to 1973, real incomes rose 350%; from 1973 to 2013, they rose just 20%. While Americans have remained optimistic about economic growth, Thiel thinks they’ve become uncertain about its sources. That uncertainty, Thiel says, drives Americans to try to benefit from the economic value of others rather than creating it themselves. Because of this, investing in markets generally takes priority over funding specific businesses.

Thiel’s theory of how America prefers to take risks may help explain why the financial reform has been so slow. Washington has been working on finalizing the Dodd-Frank financial reform laws for four years, and it will be another four before we know if it worked, the Washington Post’s Suzy Khimm writes. Along the way, regulators have missed 37% of their rulemaking deadlines. It’s not that the sweeping Dodd-Frank bill has been delayed in full -- Jared Bernstein notes that the Consumer Financial Protection Board is thankfully up and running. But the wait to see the Volcker Rule, in particular, will be a long one, Dan Primack writes: Goldman Sachs has gotten around the rule by simply waiting for it to be finalized.

Thiel’s theory also helps explain why today’s reforms aren’t likely to change finance’s role in the economy, and why the white-collar service sector more broadly is a larger and larger part of GDP. It also provides a structural rationale for Bob Rubin’s twenty years of “extraordinary proximity to political power”. -- Ben Walsh

from Felix Salmon:

Counterparties: Like water for profit

Ben Walsh
Jan 16, 2013 23:10 UTC

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In the unlikely event that you were harboring deep anxiety about the profitability of Goldman Sachs or JP Morgan, you can skip the Xanax. At the big banks, profits are very much back.

The new Goldman Sachs, Stephen Gandel writes, looks “a little bit like the old Goldman Sachs”. Goldman today reported that its fourth quarter profit rose 53% and full year earnings jumped 70%. The bank also pulled $6 billion in revenue from its own investments for the year, or 17% of its overall revenue. Goldman even found time to placate the rival -- and overlapping -- factions of employees and shareholders by cutting the amount of revenue going to employees, reports Lauren LaCapra. At 38%, Goldman’s compensation ratio is second lowest since the bank went public. Still, in absolute dollars, bank employees got a bump: comp rose 6% over last year.

from Felix Salmon:

Counterparties: RoboCapitalists

Ben Walsh
Jan 14, 2013 22:57 UTC

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The robots are coming for your job.

In the past few months there’s been a boomlet of very smart people worrying about the economic consequences of our increasingly robotic future. Kevin Kelly, in a cover story for Wired last month, describes this imminent -- but not yet sentient -- threat: “before the end of this century, 70 percent of today’s occupations will likewise be replaced by automation... robot replacement is just a matter of time”. He’s not worried, however, because “The one thing humans can do that robots can’t (at least for a long while) is to decide what it is that humans want to do”. You will always have a job; it will just consist primarily of telling robots what to do.

Robot servants and factory workers may give us more leisure time, but Noah Smith worries they’ll further erode labor’s declining share of national income. Even more problematic, they will cause “old mechanisms for coping with inequality break [to] down”. Paul Krugman agrees that a shift is necessary: if labor’s share if income continues to decline, “it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets”.

from Felix Salmon:

The Tim Geithner Legacy Project

Ben Walsh
Jan 10, 2013 22:57 UTC

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Step One in the Tim Geithner Legacy Project is complete: Barack Obama delivered a ringing endorsement of the Treasury secretary, who’ll be stepping down on January 25. Here’s the president:

“With the wreckage of our economy still smoldering and unstable, I asked Tim to help put it back together. So when the history books are written, Tim Geithner is going to go down as one of our finest Secretaries of the Treasury.”

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.

Counterparties: Today’s links

Ben Walsh
Dec 26, 2012 22:51 UTC

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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

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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.

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