Bill Mitchell explains how the BIS mouths some of the right words but recommends more of the same failed neoliberal medicine:
The BIS tell us that the GFC was a ‘balance sheet recession’. This is true and highlights that it is imperative to understand the nature of any real downturn because when they are linked to financial downturns the consequences for the economy and the correct policy response is different to situations when the real cycle is self-promoting….
The sequence of events that define a balance sheet recession are:
• The private sector builds up massive debt levels to buy property and speculative assets.Increased public deficits above the norm are required for an extended period to support income growth that allows the private sector to save and restore the viability of their balance sheets.
• The asset prices rise as demand rises but then eventually the bubble bursts and the private sector is left with declining wealth but huge debt.
• The private sector then start restructuring their balance sheets – and stop borrowing – no matter how low interest rates go.
• All effort is devoted to paying back debt (de-leveraging) and households increase their saving and reduced spending because they become pessimistic about the future.
• A credit crunch emerges – not because there is enough funds but because banks cannot find credit-worthy borrowers to lend to.
• Attempts at pumping liquidity into the banks will fail because they are not reserve-constrained. They are not lending because no-one worthy wants to borrow.
• The faltering spending causes the macroeconomy to melt and output collapses and unemployment rises.
• Balance sheet restructuring for the private sector is a long process of saving and debt retrenchment.
• With this private contraction (reducing debt, saving) the only way out of the balance sheet recession is via public sector deficit spending.
2--Another global financial crisis in the making, Bank for International Settlements warns, wsws
3---Federal Regulator Details Crazy Risk-Taking By Banks, Blames Fed , Testosterone Pit
Low market volatility causes banks to “understate trading risk”
First the culprit: the Fed’s “unprecedented monetary policy easing has resulted in sharply lower interest rates, higher stock prices, and lower market volatility.” That volatility is a “key factor” in how banks compute risk measures. When volatility is very low, something happens to the Value at Risk models that banks use to measure and disclose the risk of their trading activities:
Aggregate VaR has dropped significantly since the end of the financial crisis at the five largest U.S. banking companies with trading operations. While some of the VaR decline is a result of lower client activity and reduced bank trading risk appetite, the low-volatility environment is the primary cause of lower VaR. In a more normal volatility environment, one without sustained monetary policy accommodation by the Federal Reserve, bank VaR would be meaningfully higher. Thus, current VaR calculations may understate trading risk in the banking system....
Subprime auto loans
Auto lending jumped 12.9% in the fourth quarter 2013 from a year earlier – the report uses data through December 31, leaving banks with $250 billion or 31% of outstanding auto loans. A mad scramble has ensued across the industry to lend to auto buyers. Deadbeats, no problem. Subprime auto lending is booming. Loan to value ratios are on average over 100% across the industry. Used vehicle LTV ratios are hitting 120% at banks (and 150% at finance companies!). Everything gets rolled into the new loans: title and taxes, aftermarket warranties, credit life insurance, and other fluff-and-buff, plus the amount buyers are upside-down in their trade-in. To bring the payments down on these monster loans, banks lengthen the terms. Average charge-offs have been rising. “Signs of increasing risk are evident,” the report notes dryly. Then it swings from retail to corporate subprime....
Ballooning leveraged loans accompanied by loosey-goosey underwriting:
Syndicated leveraged loan issuance reached a record high in 2013 as the search for yield in the low interest rate environment drove an increase in risk appetite across institutional investors such as collateralized loan obligations (CLO) and retail loan funds.
4--Russia Reveals "Plan B": Gazprom Says Gas Transit Via Ukraine May Be Stopped Completely, zero hedge
5--Waging war against Russia, one pipeline at a time, RT
6--The deflating Chinese real estate bubble could destabilize the world economy , oc housing
Chinese leaders want to shift from export-driven to domestic-led growth. But in promoting a consumer-led economy, China is way behind the goal post. The latest data from 2012 show that consumer spending only accounted for about 36 percent of GDP, far behind the developed countries. …
The government knows that to increase consumer spending it must increase incomes and reduce savings. Chinese households don’t have much of a safety net to fall back on, so they save almost 30 percent of their income to cover health care, retirement and education.
7---Who is responsible for the catastrophes in the Middle East?, wsws
The destruction that the US oligarchs have wrought in the Middle East, with all of its terrible human consequences, is the external manifestation of their destructive role within the US itself—smashing up the country’s manufacturing base, turning its economy into a gambling casino for financial parasites, destroying the jobs and living standards of millions of people. With no answers to the growing crisis at home, they turn to violence abroad, only compounding the catastrophes they have created overseas.
8--In Japan, dividends, buybacks take the stage, marketwatch
Mr. Abe is pushing the biggest Japanese institutional investor, the Government Pension Investment Fund, to shed its conservatism and seek higher- yielding investments.
Another catalyst is a growing number of return-conscious foreign investors, who have shown renewed interest in Japanese stocks since Mr. Abe took over a year and a half ago. Foreigners and overseas institutions held a record 31% of Japanese stocks at the end of March, according to the Tokyo Stock Exchange, up from 28% a year earlier. ...
The quest for more dividends is prompting a slight uptick in public activism. During the current annual-meeting season, which peaks at the end of June, research firm IR Japan has tallied 15 formal shareholder proposals seeking higher returns for investors, including dividends and buybacks. While that is tiny given the 2,400-plus listed companies IR Japan tracks, it was the highest total ever, up from 10 a year earlier.
Behind the scenes, analysts say, more is happening. A greater number of investors are demanding increased dividends and share buybacks than they have seen before.
"I think this is going to be a much more interesting season for annual meetings," said Nicholas Smith, Japan strategist at the brokerage firm CLSA.
Japanese companies are already responding, partly because they are sitting on a record amount of cash: about $3 trillion at the end of March, when the most recent fiscal year ended, according to the Ministry of Finance. The companies have been helped by government policies that weakened the yen, lifting the value of overseas sales when converted into the Japanese currency...
In addition to raising dividends, a number of large Japanese companies, including Toyota, NTT Docomo and Mitsubishi Corp., have announced plans for big stock buybacks, which improve shareholder returns by increasing the value of the remaining shares outstanding. ...
He said he expected an increase in shareholders demanding higher returns. "The distinctive feature this year is likely to be the inclusion of shareholder proposals for share buybacks," he wrote.
9---Sunni vs Shiite? Not really, Bert Sachs, cp
Do you remember the famous deck of cards given to American soldiers, with pictures of the key members of Saddam Hussein’s regime? If this story were true, of the deck of 55 cards why were 35 of them Shiites? Like it or not, Saddam Hussein was an equal opportunity employer and oppressor.
The major Shiite population in Iraq is in and around the city of Basra. Yet when the British troops arrived to liberate the oppressed Shiites of Basra, they were not welcomed. The Shiite population fought them off, seeing themselves first as Iraqis being invaded by foreigners. Some while later, two British soldiers were captured driving in Basra, dressed as Arabs and carrying explosives in their vehicle. This was reported in The Boston Globe for about two days, then the story disappeared from our press, as far as I could tell. What were they doing? Perhaps planting explosives in a Shiite mosque, the crime to be blamed on Sunnis¾certainly the 2006 bombing of the Shia Golden mosque was only attributed to (the predominantly Sunni) al-Qa’ida, never proven. They usually claim their actions