Opinion

The Great Debate

Why the federal government should help bail out Detroit

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Starting last month, and continuing through July, Detroit’s 170,000 creditors will vote on the terms of the “Grand Bargain” that will end the city’s bankruptcy.

Different groups are contributing to the deal: the state of Michigan, the city of Detroit, as well as philanthropic organizations including the Knight and Ford foundations. They’ll either contribute money or reduce salaries of city employees, in order to restore Detroit’s solvency and ability to pay its retirees.

So far, absent in the bargain is support from the federal government. On April 24 Treasury Secretary Jack Lew visited Detroit, raising hopes that a $100 million bailout from the government would materialize. The money would come under the category of “blight eradication,” a pre-existing federal program designated for urban renewal. The federal government is careful to avoid setting a precedent of bailing out state or municipal pensions because it doesn’t want to take on a massive liability and, in doing so, encourage local governments to make more unsustainable promises.

This is a mistake. The federal government should use Detroit as an opportunity to take a more active role in state and municipal pensions. Unless the American economy experiences unprecedented growth, future federal bailouts of state and municipal retirement benefits are inevitable. The more likely scenario of low or normal growth will make these retirement benefits a burden to all taxpayers, regardless of where they live. At some point the federal government will inevitably be stuck with the tab, either from increased political pressure or from states gaming existing federal programs.

detroit555The sooner the federal government acts, the lower the cost to taxpayers because the financial hole will only get bigger. In both the mortgage and European debt crises, the world saw how much damage an unacknowledged, but expected government guarantee can cause. Debts became unmanageable and creditors looked to the central government for bailouts. The lack of clarity caused uncertainty and wreaked havoc on financial markets. Rather than staying on the sidelines or engaging in backdoor bailouts, this time the federal government should take a more active role in shoring up state pension finances.

from Hugo Dixon:

EU needs more non-bank finance

The European Union needs more non-bank finance. Banks are on the back foot. On their own, they won’t be able to fund the jobs and growth the EU is desperate for. Non-bank finance needs to take up the slack.

The European Central Bank and Bank of England have made a good start by identifying the importance of reviving securitisation - the process of packaging loans into bond-like securities which can then be traded on the market. The two central banks have just published a joint paper describing blockages in the system which have all but killed EU securitisation since the financial crisis.

But securitisation is only one piece of the non-bank finance landscape. Similar leadership is needed to invigorate venture capital, equity investment, bond issues for small companies, shadow banking and so forth.

Senate must rein in the NSA

An illustration picture shows the logo of the U.S. National Security Agency on the display of an iPhone in Berlin

The House of Representatives seemed poised last month to rein in the government’s ability to spy on its citizens by prohibiting the bulk collection of Americans’ telephone records. On the eve of the vote, however, the Obama administration and House leadership intervened. In secret negotiations, they took a carving knife to the bill, removing key privacy protections.

It is now up to the Senate to breathe life back into this National Security Agency reform effort. The Senate Judiciary Committee is expected to take up the bill, known as the USA Freedom Act, this month. Panel members must hold firm on ending the bulk collection program and restoring limits on the NSA’s ever-expanding surveillance activities.

The laws that Congress passed after 9/11 sought to aid intelligence gathering against foreign terrorist threats. They have now morphed, however, into tools for the mass collection of information about U.S. citizens as well as foreigners.

Let Japan help defend America — and itself

Members of Japan's Self-Defence Forces' airborne troops stand at attention during the annual SDF troop review ceremony at Asaka Base in Asaka

Japanese Prime Minister Shinzo Abe is now following through on actions laid out in his recent bold speech calling for Japan to defend allies who might be under attack.

But wait, you may ask, hasn’t the United States had a mutual security treaty with Japan for more than half a century?

Well, not quite. Yes, Washington has had a mutual defense-security treaty with Tokyo since 1951. But Japan is not committed to defending the United States or any of its armed forces. In fact, Japanese forces are prohibited from helping Washington in time of war — even if the war is in defense of Japan.

What’s a leveraged ETF and what makes it dangerous?

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Larry Fink is sounding the alarm. The chairman and CEO of $4.4 trillion asset manager BlackRock is worried about leveraged ETFs (exchange-traded funds). Fink thinks they could “blow up the industry.” His statement is a little unclear, but the industry he’s referring to is probably ETFs themselves, not the global financial system.

Blackrock is itself a huge player in ETFs, but Fink says they’ll never get into leveraged version of the financial instruments.

So, what’s the difference between regular and leveraged ETFs?

Regular ETFs are designed to track the price of a specific set of securities, taking the place of traditional mutual funds that focuses on particular investment sectors or classes of stock. ETFs started in stocks, particularly indexes, but now cover all types of assets. In this way they are similar to a mutual or index fund, but can be bought or sold like a stock. Regular ETFs, particularly the ones that track broad indexes like the S&P 500, are pretty vanilla financial products. Sure, an index fund might be slightly better for achieving individual investment objectives, but ETFs generally have much lower fees than actively managed mutual funds.

NFL: Last sports bastion of white, male conservatives

New York Giants kicker Lawrence Tynes kicks the opening kick-off to start the first regular season game in the Giants new stadium against the Carolina Panthers in their NFL football game in East RutherfordBy almost any measure — TV ratings, the value of franchises, overall revenue, polls — the National Football League is by far both the most popular and successful professional sports league in America. A veritable juggernaut. Nothing seems to damage that popularity — not widely reported homophobia or the growing awareness of the dangers of head injuries or the accusations leveled in a lawsuit filed last week by 500 former players that they were pumped up with painkillers and sent back onto the field after being injured.

Why does the NFL have such a tenacious hold on the national consciousness — particularly that of white males, the primary fans of professional sports? It might be that the NFL, in both its high points and its low ones, encapsulates the prevailing white male conservative ethos of modern America better than any other league. The triumph of the NFL is a tribute to the triumph of American conservatism.

The Baltimore Ravens Chris Carr (25) fumbles the opening kickoff as he is hit by the New England Patriots Matt Slater (bottom) in the first quarter of their NFL football game in FoxboroughThe popularity of a sport is, to a large extent, a function of how well it expresses the zeitgeist — at least the male zeitgeist. For more than a century, baseball was America’s national pastime. It was pastoral — born in the 19th century, played on expansive greenswards, with  a leisurely pace and a deliberate strategy. All of which was a large part of its appeal in a rapidly modernizing society that surrendered those rural values grudgingly.

In Africa: U.S. promotes security, China does business

kerry-li4Secretary of State John Kerry and Chinese Premier Li Keqiang both made high-profile visits to Africa within a week of each other this month. Kerry sought to resolve the continuing violence in South Sudan and the Central African Republic, Li came bearing aid and investment deals.

The United States could learn something from Beijing’s economic playbook.

The two leaders’ agendas could not offer a more vivid picture of the different priorities that each power pursues in Africa. Washington plays regional peacemaker, while Beijing focuses intently on its long-term economic interests.

China’s two-way trade with Africa, for example, has grown by 30 percent a year over the last decade. It is now Africa’s largest trading partner, importing largely natural resources.  More than 85 percent of China’s imports from Africa consist of petroleum, copper, iron, and other raw materials needed to build China’s growing domestic infrastructure and fuel its continued economic growth.

from Breakingviews:

James Hoffa: Let sun shine on corporate donations

By James Hoffa
The author is a Reuters Breakingviews guest columnist. The opinions expressed are his own.

Companies increasingly are playing an outsized role in U.S. elections. In many cases, they donate money to advocate controversial policies that could antagonize their customers and undermine their businesses. Because so many of these contributions are not disclosed, however, shareholders are left in the dark and unable to evaluate potential conflicts or risks.

Investors are demanding improved corporate disclosures through shareholder resolutions and by urging the Securities and Exchange Commission to adopt new rules. Despite hundreds of thousands of letters from investors urging the agency to take action, it dropped the issue from its list of regulatory priorities earlier this year.

Eyewitness Views: From hope to horror in Tiananmen Square


Eyewitness View: From hope to horror in Tiananmen Square On Changan Avenue, a small crowd confronts the People's Liberation Army (PLA) in Tiananmen Square after the army stormed the square and the surrounding area the night before. This is near the location a day later where "Tank Man" confronted and momentarily halted a column of the army's tanks leaving the square. (Alan Chin)June 4, 1989. In Chinese the reference is usually made with just the numbers “Six Four,” like in English, “9/11.” As the 25th anniversary of the Tiananmen ...

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Why Egyptians voted for Sisi

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Former army chief Abdel Fattah al-Sisi is set to win the presidential elections in Egypt this week, almost a year after Egypt’s military reasserted formal control following widespread revolts against Mohamed Mursi.

While a popular uprising preceded the military’s intervention last June, the counter-revolutionary crackdown that followed over the past nine months has soured many Egyptians against the current order. So why is Sisi going to be Egypt’s next president, and why would the same Egyptians who ousted Hosni Mubarak now clamor for another authoritarian military man to take power, rather than support a more inclusive democratic process? Is the clock being turned back?

Few observers outside Egypt understand the reason for Sisi’s popularity, which is based largely on the desire for security. Many Egyptians feel that the country has become chaotic: if forced to choose between the Muslim Brotherhood and the military, they prefer the military. While both are authoritarian organizations, the military has more experience, national loyalty, and respect for Egypt as a country, rather than part of a wider pan-Islamic region. Its view of Islam is more mainstream.

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