MacroScope

Just as the proverbial shoemaker’s children can go without shoes so, apparently, can a cleaner of corporate office bathrooms not have time for a bathroom break. And with the lack of time to use one of the 24 bathrooms Adriana Vasquez must clean in a five-hour shift at the JP Morgan Chase Tower in Houston, Texas – 22 of them with multiple stalls – comes the absence of a living wage.

So on Tuesday, Vasquez had a question for JP Morgan Chief Jamie Dimon, whose bank is the prime tenant in the 60-story building where she cleans bathrooms five evenings a week.

“Why do you deny the people cleaning your buildings a living wage?” she asked Dimon after he testified about the bank’s multi-billion dollar trading loss in front of Congressional committees on financial institutions and consumer credit. Dimon said to call his office to arrange a meeting, according to the Service Employees International Union.

During her five-hour evening shift, Vaquez makes just $8.35 per hour, says Leslie Mendoza Kamstra, communications director at Local 1 of the SEIU.

The SEIU is trying to negotiate a new contract with Vaquez’s employer, ISS Facility Services, the U.S. arm of Copenhagen-based ISS World Services A/S, after the previous one expired on May 31. On its website, ISS World Services says it strongly believes its long-term success “depends on the balance” of social, environmental and economic aspects of its business.

Seemingly lost in the talk about whether or not the Federal Reserve should ease again is the idea that financial conditions have tightened and the U.S. central bank may have to offer additional stimulus if only to offset that tightening. Writes Goldman Sachs economist Jan Hatzius:

Alongside the slowdown in the real economy, financial conditions have tightened. Our revamped GS Financial Conditions Index has climbed by nearly 50 basis points since March, as credit spreads have widened, equity prices have fallen, and the U.S. dollar has appreciated.

Goldman’s new GS Financial Conditions Index is based on the firm’s simulations with a modified version of the Fed’s FRB/US Model. It includes credit spreads and housing prices and has a closer relationship with subsequent GDP growth than the previous version of the index, the firm says. A 100-basis-point shock to the GSFCI shaves 1-1/5 percent from real GDP growth over the following year. Still, it’s not quite as bad as it sounds:

If anything positive can be said to have come out of the global financial crisis of 2008-2009, it may be that the theory arguing major economies could “decouple” from one another in times of stress was roundly disproved. Now that Europe is the world’s troublesome epicenter, economists are already on the lookout for how ructions there will reverberate elsewhere.

Luis Oganes and his team of Latin America economists at JP Morgan say Europe’s slowdown is already affecting the region – and may continue to do so for some time. The bank this week downgraded its forecasts for Brazilian economic growth this year to 2.1 percent from 2.9 percent, and it sees Colombia’s expansion softening as well. More broadly, it outlined some key ways in which Latin American economies stand to lose from a prolonged crisis in Europe.

Latin America has exhibited an above-unit beta to growth shocks in the U.S. and the euro area over the past decade; resilient U.S. growth until now had offset some of the pressure coming from lower Euro area growth, but U.S. activity is now weakening too.

Another panel, another group of rich guys talking about income inequality in America.

That seemed to be a running theme of the Milken Global Conference by the time Tuesday afternoon rolled around in Los Angeles – particularly when the well-known and notably tart Harvard historian Niall Ferguson took to the stage to decry single welfare moms as lazy drags on society.

Ferguson was responding to comments made by Jeff Greene, the billionaire real estate investor and Democrat who lost (badly) a 2010 bid to represent Florida in the Senate.

There was an awkward moment of tension at the Milken Global Conference in Los Angeles, when a buysider on one panel asked a Wall Street banker whether he had pocketed taxpayers’ bailout cash.

The tit-for-tat began when several panelists at the “Outlook for M&A” session began griping about the U.S. government’s tax policy, which they said dissuades corporations from bringing overseas profits back home because of punitive taxes.

The panelists – including James Casey, co-head of global debt capital markets for JP Morgan, Anthony Armstrong, an investment banker at Credit Suisse, and Raymond McGuire, global head of corporate and investment banking at Citigroup – predicted that the M&A market might get a big boost if the U.S. were to offer a tax holiday of sorts for repatriated profits.

Citigroup, the third largest U.S. bank, is actively soliciting donations from its employees for its political action committee (PAC) or fundraising group. In a letter to staff obtained by Reuters, the bank stressed the importance of the upcoming presidential and Congressional elections, urging staff to give to Citi’s PAC. From the letter:

Our Government Affairs team already does a great job promoting our positions on important issues to lawmakers, but there is one thing that each of us can do to enhance their efforts: contribute to Citi’s Political Action Committee (PAC).

Citi PAC is one of the most effective tools we have to amplify the voice of the company in Washington and enhance our profile with lawmakers.  The PAC provides the resources to help suport government officials who share our views on key policy objectives and who understand the impact various policy decisions may have on overall economic investment and growth.

Want the recent rally in stocks to last? Don’t count on it, says John Praveen of Prudential Financial. The Dow Jones industrial average is up over 20 percent since September, and has gained 7 percent since the start of the year. But Praveen sees too many headwinds for the boom to continue.

The pace of gains thus far in 2012 is likely to be unsustainable and volatility is likely to remain high as several downside risks remain. These include:

1) Greek risks: The second Greek bailout and debt restructuring deal are likely to be a short-term reprieve, with still high Greek debt/GDP burden and Greek elections due in April.  A negative election outcome with no clear mandate and/or a new government reneging on its commitments (to reduce debt) could potentially roil markets.

Dallas Federal Reserve Bank President Richard Fisher wants the biggest U.S. banks broken up, calling them a danger to financial system stability and their perpetuation a drag on the economy.  It’s an argument he’s made before – in full-length speeches, asides to reporters, parries to audience questions. (For the latest iteration, see Dallas Fed bank’s annual report published Wednesday.)

Indeed, Fisher is among the most consistent of Fed policymakers. He’s against further quantitative easing – has been ever since QE2, back in 2010. (By contrast, Minneapolis Fed President Narayana Kocherlakota supported QE2, before reversing course and opposing new rounds of monetary easing in 2011 and 2012). He’s against big banks, of course. He says repeatedly that uncertainty over taxes and regulation, not too-high borrowing costs, is what is holding back businesses from investing and hiring.

He’s even consistent with his jokes: several times last year Fisher lampooned the Fed’s increasing emphasis on transparency, quipping that no one wants to see a “full frontal” view of a 100-year-old institution. That particular joke dates back to at least 2006, according to a transcript of a Fed policy-setting meeting from October of that year. “Uncertainty is the enemy of decisionmaking,” Fisher said then, lambasting market participants eager for the Fed to provide more clarity on its views. “Of course they want more frequent forecasts. Governor Kohn and I talked about this before. They want a full frontal view. I find a full frontal view most unbecoming.”

Wall Street-made financial instruments purportedly created to protect investors against default actually hasten corporate bankruptcies, according to a new study. And it’s not Occupy protesters bashing these credit default swaps (CDS) –  the report comes from none other than the New York Society of Security Analysts. Its findings are as follows:

We present evidence that the probability of credit rating downgrade and the probability of bankruptcy both increase after the inception of CDS trading. […]

Lenders who insure themselves by buying CDS protection help push borrowers into bankruptcy, even though restructuring may be a better choice for the firm from the conventional (without CDS protection) lenders’ perspective.

The words “European bailout” normally conjure up images of inefficient public sectors, bloated pensions, corrupt governments. But market analyst John Hussman, in a recent research note cited here by Barry Ritholtz, says the reality is a bit more complicated:

The attempt to rescue distressed European debt by imposing heavy austerity on European people is largely driven by the desire to rescue bank bondholders from losses. Had banks not taken on spectacular amounts of leverage (encouraged by a misguided regulatory environment that required zero capital to be held against sovereign debt), European budget imbalances would have bit far sooner, and would have provoked corrective action years ago.

In other words, even if state actors mishandled government finances, Wall Street was, at the very least, an all-too-willing enabler.