Tuesday, March 12, 2013

Today's links

1---Firms Send Record Cash Back to Investors, Big Picture


Source: WSJ

2---Shadow banking and housing bubble pose threat to China and the world, naked capitalism

If the international media are to be believed the world, still struggling with recession, is faced with a potential new threat emanating from China. Underlying that threat is a rapid rise in credit provided by a “shadow banking” sector to developers in an increasingly fragile property market. Efforts to address the property bubble or reduce fragility in the financial system can slow China’s growth substantially, aggravating global difficulties.

The difficulty here is that the evidence is patchy and not always reliable. According to one estimate, since the post-crisis stimulus of 2008, total public and private debt in China has risen to more than 200 per cent of GDP. Figures collated by the World Bank show that credit to the private sector rose from 104 per cent of GDP in 2008 to 130 per cent in 2010, before declining marginally in 2011. The evidence suggests that 2012 has seen a further sharp increase.

The problem is not merely the rapid rise in credit as a means to spurring investment and growth. More significant is the rapid growth of lending by the “shadow banking” system, at the forefront of which are off-balance sheet vehicles of banks to which deposits mobilised by offering relatively higher interest rates, through means such as wealth management products (WMPs), are diverted. Such loans are then provided to borrowers such as real estate developers to whom lending by the banks is being restricted. As of now WMPs are placed at around 10 per cent of total deposits in Chinese banks, but the rate of growth of this relatively new phenomenon is high. Further, banks are diverting these resources even to securities brokerages for management. Overall, central bank figures indicate that conventional bank loans have fallen from 95 per cent of total financing in 2002 to as low as 58 per cent in 2012.

3---There is no containment at Fukushima, washingtons blog

Large quantities of radiation are still leaking into the Pacific Ocean. And see this.

The operator of the Fukushima plants says it's "impossible" to keep storing radioactive water in tanks, and Tepco will need to intentionally dump it into the ocean.

The area around Fukushima has become so contaminated that even the trees are radioactive.

And Tokyo is almost as irradiated as Fukushima.

Agence France-Presse notes:
Beach walkers are likely to encounter a disturbing but relentless flow of flotsam [from Japan] for years to come.

4---Schapiro Is Nominated to G.E. Board, NYT

Mary L. Schapiro is starting to get a taste of opportunities in the private sector after stepping down as chairwoman of the Securities and Exchange Commission in December.
General Electric announced on Monday that it had nominated Ms. Schapiro to serve as one of its directors. She will stand for election at the company’s annual meeting on April 24.

5---After Watering Down Financial Reform, Ex-Senator Scott Brown Joins Goldman Sachs’ Lobbying Firm, TP

During his nearly three years in the U.S. Senate, Scott Brown (R-MA) frequently came to the aid of the financial sector — watering down the Dodd-Frank bill and working to weaken it after its passage — and accepted hundreds of thousands of dollars in campaign cash from the industry. Now, the man Forbes Magazine called one of “Wall Street’s Favorite Congressmen” will use those connections as counsel for Nixon Peabody, an international law and lobbying firm.

The Boston Globe noted Monday that while Brown himself will not be a lobbyist — Senators may not lobby their former colleagues for the first two years after leaving office, under the Honest Leadership and Open Government Act of 2007 — “he will be leaning heavily on his Washington contacts to drum up business for the firm.” The position will also allow him “to begin cashing in on his contacts with the financial services industry, which he helped oversee in the Senate

6--Millions of Europeans Require Red Cross Food Aid, speigel

Needy families and individuals in the European Union are becoming increasingly reliant on charity organizations like the Red Cross for basic needs like food, water and shelter. While Germany is relatively unaffected, unemployment and austerity in countries like Spain are making the problem even more severe

7---Afghan War Falling Apart at the Seams, antiwar

Hagel, Karzai Meet in Private, as Anger Grows at Occupation Forces...

Yesterday, Afghan university student Abdul Qayum detailed his kidnapping and tortured at the hands of an apparent CIA strike force, while protesters in the Wardak Province today blasted US special forces for ignoring a deadline to withdraw from the province after being caught in a series of “disappearances” and murders of their own. Some villagers are threatening an outright revolt if the troops remain, while the US seems opposed to removing them.
The dirty war behind the Afghan occupation has always been smoldering just under the surface, but is becoming more and more obvious and ugly, with US commanders openly refusing to ever hand over detainees held without charges unless the Karzai government promises never to give them trials. Officials maintain the detainees are “dangerous,” but concede they don’t have the evidence to ensure them being convicted in an actual court of law.

8---New record: 15 percent of Americans on food stamps, RT

9---A short history of austerity: it almost never works, Guardian

severe austerity tends to turn recessions into depressions, consign millions to the dole or under-employment and lead to frightening political turbulence.

The most famous episode of austerity was during the interwar years, as Germany, Britain, France and Japan all fought to stay on the Gold Standard even amid the Great Depression. The deflationary impact of keeping their currencies pegged to gold, along with the austerity policies they followed to do so, was disastrous.

In Britain, unemployment jumped from 10.4% in 1929 to 22.1% by early 1932, even while government debt surged. In Germany, the Social Democrats stupidly clung to the orthodoxy of austerity, pushing joblessness up to to 30% by 1932, and opening the door to the Nazis.
In Japan, the Showa Depression saw household incomes more than halve within two years between 1929 and 1931. Tokyo cut spending by nearly 20%, with the military bearing the brunt of the privations. The result was a wave of assasinations of government ministers and bankers and attempted coups. As the political scientist Mark Blyth says in his new book, Austerity: "Austerity didn't just fail – it helped blow up the world. That's the definition of a very dangerous idea."

10--Climber knocked off mountain by falling ice, Guardian video

11--Impact of the Housing Crash on Consumption, CEPR-

Bruce Bartlett has an interesting blogpost in the NYT talking about changes in patterns of wealth distribution in recent years. Bartlett points out that the recent rise in the stock market is likely to provide little benefit to most middle income families since they have little if any wealth in the stock market. By contrast, the value of the housing stock is still far below its pre-recession level,at $17.7 trillion at the end of 2012 compared to a peak of $22.7 trillion in 2006. Bartlett notes that this is likely to have a large impact on consumption and the economy, citing recent work by Karl Case, John Quigley, and Robert Shiller showing that a $1 decline in housing wealth is associated with a 10 cent drop in annual consumption.

It is worth noting that the drop in the nominal value of the housing stock understates the impact of the housing crash on consumption. Potential GDP was almost 30 percent higher in 2012 than in 2006. This means that to provide the same spark to the economy as it did in 2006 the value of the housing stock in 2012 would have to be almost $30 trillion in 2012.

12---The political significance of Beppe Grillo’s Five-Star Movement, wsws

Grillo’s program stands in stark contrast with the class interests of those who fell victim to his populist appeals. They will soon confront the reality of his reactionary, right-wing program.
To understand Grillo’s rise, one must take account of two things: the deep crisis of Italian and European capitalism and the complete bankruptcy of the traditional “left” parties.
....
The real centrepiece of its programme, its economic policy, however, is unmistakably right-wing. Under the guise of a struggle against corruption, monopolies and bureaucracy, it calls for an historic assault against workers and the entire framework of the postwar welfare state. While M5S claims to oppose the corrupt political class, its target is the social gains of the Italian working class.

In the name of cutting waste and eliminating red tape, hundreds of thousands of public sector jobs are to be cut. M5S proposes to simply do away with all the provinces and eliminate municipalities with less than 5,000 residents.

To prepare the way for further deregulation and privatisation, state regulatory bodies would be removed. In education, the demand for closer integration of universities and businesses would drive forward privatisation. In the media, M5S intend to maintain just one public television channel, further restricting the right to information.

Under the pretence of protecting public health care, the M5S program paves the way for a major revision to universal medical access. It calls for “additional charges for non-essential treatment”, and “limits of second level of prevention (screening, early diagnosis, predictive medicine)” in favour of “first-level prevention (healthy eating, physical activity, quitting smoking).”...

According to Grillo, the key division in society is not between the working class and the bourgeoisie, but between these two blocs. Group A wants renewal, Group B continuity. Group A has nothing to lose, Group B do not want to yield up anything and “often have two homes, a decent current account and a good pension or the security of public employment.”

“A generational conflict in which the issue is age, not classes” is looming, according to Grillo. The young generation carries the burden of the present without prospects of a future and cannot be expected to do this much longer. “Every month,” Grillo writes, “the state must pay 19 million pensions and 4 million state salaries. This burden is no longer sustainable.”

In this context Grillo proposes an unconditional basic income of 1,000 euros, which is often described as a “socialist” element in M5S’s program. In fact, it is aimed at replacing existing pensions and state salaries and reduce these to a minimum subsistence level.....

Support from entrepreneurs

Grillo himself does not belong to the A block he wants to mobilize against state employees and workers covered by contract: he is one of the richest people in Italy. In 2005, his annual income amounted to 4.3 million euros. He is widely regarded as the mouthpiece and not the actual head of the movement. This role is attributed Gianroberto Casaleggio, a wealthy IT entrepreneur from Milan who rarely appears in public and pulls the strings behind the scenes.

His communications company, Casaleggio Associati, founded in 2004, is well networked. One of his key collaborators up until recently was Enrico Sassoon, longtime head of the American Chamber of Commerce in Italy, and editor of the Harvard Business Review Italia. In September last year, Sassoon retired from the company so that revelations of his role would not politically damage Grillo.

Casaleggio and Grillo lead M5S along the lines of a private company. Though they extol the merits of “direct democracy” via the Internet and local meetings of members, the movement lacks any democratic structures. All decisions relating to personnel and program are made by them personally.

The statute of M5S—which is officially called a “non-statute”—stipulates Grillo’s total control over the organization. The origin, centre and seat of the organization is the blog www.beppegrillo.it. The function of M5S is the preparation and selection of candidates, “who support campaigns for social, cultural, and political awareness, which reflect the goal exposed by Beppe Grillo and are presented within the blog www.beppegrillo.it.” Both the name “MoVimento 5 Stelle” and its logo “are registered on behalf of Beppe Grillo, the sole owner of the rights of use.” The organisation lacks any sort of regional or federal structure which means there is no way to control Grillo or ensure he abides by party decisions.

Many Italian entrepreneurs understand that Grillo defends their interests. Some, like 77-year-old billionaire and Luxottica founder Leonardo Del Vecchio, openly declare their support for Grillo. Steel entrepreneur Francesco Biasion from Vicenza said he had voted for Grillo because “the companies today are in the grip of the bureaucracy and the unions.”

Under the heading “Grillonomics,” the Süddeutsche Zeitung commented: “While most Grillo voters cast their vote because they long to escape from the sclerotic structures of their country, business circles are increasingly concluding they must be freed from the shackles of a bloated state.”

13---Where the renters live. San Francisco and the big jump in rents and home prices. The least affordable place in California just got more expensive. San Francisco median rent now at $3,100., Dr Housing Bubble

 In expensive Los Angeles County about 50 percent of households own their home. In San Francisco County it is closer to 36 percent. San Francisco rents have gone up dramatically in the last year or so with the median rent in San Francisco hitting $3,100. Keep in mind this isn’t for a typical home and more likely for your standard apartment. The rise in rents obviously hits the bulk of the city given that most rent...

The median rent in San Francisco is now $3,100. The median home price is $789,000. The median home in San Francisco County went up by 9.6 percent. Most areas saw double-digit increases in rents and home prices in the last year. San Mateo County saw home prices go up by 15 percent and rents go up by 9.9 percent....

Well of course in California’s older areas, most of the building took place prior to 1979 with very little new construction since that period. Of course San Francisco is plagued by the same massive drop in inventory that we are seeing throughout the state. Year over year inventory fell to the tune of 68 percent. And what you see is that a large percent of inventory in San Francisco is already rented. Given the hot rental market, you probably have fewer landlords tempted to sell and they are already used to the business.
 

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