Opinion

James Saft

Diamond’s parting gift: James Saft

Jul 3, 2012 04:07 UTC

By James Saft

(Reuters) – Bob Diamond’s gift to the UK, perhaps a parting one, is that he has managed his bank badly enough to provoke real reform but, perhaps out of luck, not so badly as to blow up the whole economy.

That Diamond should go is obvious; that he hasn’t is further evidence of why he should.

Not that Diamond, the CEO of Barclays Plc, has made the case for root and branch reform all on his own. While Barclays has been heavily fined in the UK and U.S. for submitting fictitious borrowing rates to the key LIBOR and EURIBOR panels, it is very likely that it was not alone, either in masking its weakness during the height of the crisis or in manipulating figures for gain in good times. Nor was the bank alone in the further scandal of mis-selling complex and destructive interest-rate swaps to small businesses, a plea it copped along with HSBC, Lloyds Banking Group PLC and Royal Bank of Scotland Group Plc.

This represents a golden opportunity for the UK, a chance to harness public outrage in the service of reform before its banking system, as it very well may someday, causes a crisis too big for the state to handle. Think on this: Barclays’ balance sheet is about the size of annual UK GDP, and the balance sheet of the system of the whole is several times that. At the same time, as recently as the end of last year, median UK bank leverage was still well above 20 times capital, meaning that a typical bank might be rendered insolvent by a decline of less than 5 percent in the value of its assets.

And don’t be fooled by Britain’s AAA rating, already on review for downgrade by several ratings agencies. It, like Iceland, Ireland, Greece and Spain before it, could find itself with a banking crisis it cannot bankroll.

Saft on Wealth: The consumer finance mess

Jun 15, 2012 09:53 UTC

By James Saft

(Reuters) – It won’t be the American consumer who powers the economy and financial markets.

An examination of the Federal Reserve’s new tri-annual Survey of Consumer Finances goo.gl/AxYTJ shows we didn’t just suffer a debt bubble – we had an income drought.

The statistics are stark: in the three years through 2010 the median family saw its net worth fall by nearly 40 percent, wiping almost two decades of asset accumulation off of the books. The real source of concern was a 7.7 percent drop in real income in the period, leaving many families still struggling with intractable debts.

SAFT ON WEALTH: The consumer finance mess

Jun 14, 2012 20:10 UTC

June 14 (Reuters) – It won’t be the American consumer who
powers the economy and financial markets.

An examination of the Federal Reserve’s new tri-annual
Survey of Consumer Financesshows we didn’t
just suffer a debt bubble – we had an income drought.

The statistics are stark: in the three years through 2010
the median family saw its net worth fall by nearly 40 percent,
wiping almost two decades of asset accumulation off of the
books. The real source of concern was a 7.7 percent drop in real
income in the period, leaving many families still struggling
with intractable debts.

Watch German bunds for euro fate: James Saft

Jun 14, 2012 09:42 UTC

By James Saft

(Reuters) – The recent fall in German bunds is the most interesting development in markets in months, and may contain hints of the fate of the euro itself.

German bunds have sold off sharply in June, driving yields higher. In recent days they have also broken a longstanding relationship and are now falling along with Italian and Spanish bonds, rather than, as they have almost throughout the crisis, rising as things in the periphery get hairy.

Since June 1, benchmark German 10-year yields have risen by nearly a quarter to 1.42 percent. To be sure, German yields are still very low, and the rise in and of itself is meaningless to Germany’s ability to manage its debt and borrow.

Same thing, same results in Spain: James Saft

Jun 12, 2012 12:09 UTC

By James Saft

(Reuters) – It is shaping up to be a vintage year for doing the same thing over and over again but expecting different results.

The latest: Europe’s attempt to bail out Spain’s banks but not, somehow, have it count against Spain. This is akin to a dieter eating a cookie and telling himself he’s feeding his arms and legs but not his belly.

And while there are different bells and whistles this time, the thread that connects all of the European crisis resolution efforts is an unwillingness, or inability, to address the issue of who will pay for the destruction of excess debt. All efforts, from the LTRO to the bailouts, successively, of Greece, Ireland and Portugal dissembled on this point.

U.S. bonus culture limits equity returns: Jame Saft

Jun 7, 2012 20:30 UTC

By James Saft

(Reuters) – Quarter-by-quarter management and a compensation-driven obsession with company share prices may be impairing the long-term prospects of U.S. stocks as executives live off of their companies’ seed corn rather than disappoint a market obsessed with short-term results.

U.S. corporations are holding a record $1.74 trillion in liquid assets, according to the Federal Reserve’s quarterly “flow of funds” report released on Thursday.

That’s up 16 percent since the end of the last recession in June 2009. A variety of explanations has been posited for this – ranging from fear of regulation to a reluctance to repatriate gains and pay taxes.

US bonus culture limits equity returns

Jun 7, 2012 20:28 UTC

June 7 (Reuters) – Quarter-by-quarter management and a
compensation-driven obsession with company share prices may be
impairing the long-term prospects of U.S. stocks as executives
live off of their companies’ seed corn rather than disappoint a
market obsessed with short-term results.

U.S. corporations are holding a record $1.74 trillion in
liquid assets, according to the Federal Reserve’s quarterly
“flow of funds” report released on Th ursday.

That’s up 16 percent since the end of the last recession in
June 2009. A variety of explanations has been posited for this -
ranging from fear of regulation to a reluctance to repatriate
gains and pay taxes.

Monetary policy the wrong weapon: James Saft

Jun 7, 2012 04:07 UTC

By James Saft

(Reuters) – Ben Bernanke and Mario Draghi are keeping their powder dry but may find, in the end, that there is a limit to the usefulness of monetary policy bullets.

The Federal Reserve and the European Central Bank are both keeping their options open as global economic conditions worsen and the euro zone looks, if anything, more fragile than in recent months.

The ECB did the absolute minimum at its meeting on Wednesday, leaving rates unchanged and extending some liquidity provisions until the end of the year. This despite clear signs of broad-based weakening in the euro zone economy and a widespread credit drought which looks very likely to worsen.

For euro zone, life does not equal hope: James Saft

Jun 5, 2012 04:02 UTC

By James Saft

(Reuters) – As events in Europe show, an unhappy marriage can be prolonged indefinitely but where there is life there is not always hope.

The two current arguments for enthusiasm about asset and risk markets seem to be these: that policy forbearance and the European Central Bank can keep the euro zone intact until someone thinks of something, and; that coordinated central bank and fiscal policy will rescue the global economy anyway.

Both are untrue but, like most untruths, both contain interesting elements of truth.

No banking union without fiscal union: James Saft

May 31, 2012 04:08 UTC

By James Saft

(Reuters) – A banking union, as espoused by the European Commission, is probably totally unworkable unless accompanied by a full fiscal union.

Which is to say a euro zone which features banking union is no different than the current state of affairs, the solution to which, short of a break-up, also almost certainly requires much greater centralization of taxing and spending.

The Commission, the European Union’s executive arm, on Wednesday floated the idea of a banking supervision union to run alongside the 17-nation currency zone.

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