Early Headlines: China Bear Market, Finland Basic Income, Greek Bank Bail-ins Rumored, Watch Greeks Voting, Varoufakis to Quit If . . . and More
Early Bird Headlines 05 July 2015
Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.
- Obama: US Should Set Rules for World Economy (Sputnik) Hat tip to Roger Erickson. Here is how a Russian media outlet presents President Obama's statements made in trying to sell new trade agreements to the American people. The president said in a speech at the University of Wisconsin in La Crosse on Thursday:
"At a moment where our economy is in a position of global strength, because we are going faster than most other countries, advanced countries, we have to write the economic rules for the global economy before countries like China do."
- World Markets Weekend Update: The Shanghai Bear in Ten Sessions (Doug Short, Advisor Perspectives dshort.com) Doug Short is a regular contributor to GEI. The India's BSE SENSEX was only index of the eight indexes tracked that posted a weekly gain, up 1.01%. China's Shanghai Composite was down -6.68% for the week. From its 59.72% year-to-date gain on June 12th, it took the Shanghai a mere 10 sessions to register a -20% decline ("officially" a bear market) on Monday of this week, and it's now down -24.26% three sessions later.
- Regulators Warn Banks on Loans to Oil, Gas Producers (The Wall Street Journal) U.S. regulators are sounding the alarm about banks' exposure to oil-and-gas producers, a move that could limit their ability to lend to companies battered by a year-long slump in prices.
- Inside The ‘July 4th’ Terror Busts (The Daily Beast) Several arrests were made of members of terror cells within the U.S. as the July 4 and Ramadan holidays approached.
- Let’s Face It, America — We’re Addicted to War (War is Boring) Hat tip to Roger Erickson. Story lede: The first step toward recovery is admitting there’s a problem.
- FINLAND: New Government Commits to a Basic Income Experiment (BIEN) Hat tip to Roger Erickson. The new Finnish government has committed to a Basic Income experiment as part of its program for government, published last month. Details have not been announced.
- Watch live: Greek referendum (The Telegraph) The polls have been open for 5 hours with 9 more hours to go in the voting day (if the polls can close on time). Check the video below for live reports throughout the day.
- Varoufakis Says he Will Quit if Greeks Vote 'Yes' (Bloomberg Business, YouTube) Speaking to Guy Johnson on Bloomberg TV's The Pulse, Greek Finance Minister Yanis Varoufakis said he'll quit if Greece votes to accept creditors' bailout proposals in Sunday's referendum. He said he would "rather cut my arm off" than sign a new accord that doesn't restructure Greece's outstanding debt. Varoufakis expects Greeks to follow the government's recommendation to reject the bailout proposals, which would require further tax increases and spending cuts in exchange for continued aid. But if Greeks vote to accept austerity he expects the government to implement those wishes. He said he will work to help his replacement in such a situation but could not in good conscience put his signature on an unworkable document.
- Greece (Steve Randy Waldman, Interfluidity) SRW has contributed to GEI. Hat tip to Roger Erickson. Here is a good summary of the systemic problems involved in building up to a crisis:
Greek governments - not the current, much maligned Syriza, but decades of its predecessors - treated the state like a teat from which clients and friends of electoral victors might suck. The Greek state has been a shady, opportunistic borrower, no doubt, the kind of character no one would lend money to with any great expectation of seeing it back.
And yet, that's precisely what bankers in the relatively not-fucked-up Eurozone countries did! These people were not naïfs. They knew the Greek state was sketchy. But precisely because it was sketchy, prior to the financial crisis its debt paid slightly higher interest rates than that of safer Eurozone sovereigns. European banking regulations attached zero risk weights to all EU sovereigns, rendering it nearly costless for banks to simply manufacture deposits to purchase sovereign debt. Eurozone sovereigns were default-risk-free as a regulatory matter and currency-risk-free from the perspective of Eurozone banks. The European financial system was architected to make lending to Greece - and Spain and Portugal and Italy - a money machine for bankers with little career risk over a medium term. Sketchy credits tend to punch above their weight in terms of volume of issuance, so there was a lot of nice paper to buy. The bankers who lent to these states understood perfectly well that there was in fact a long-term risk, an uncertainty, a constructive ambiguity. They lent anyway, and took home very nice salaries and bonuses for doing so. It was conventional to lend, the mainstream consensus was that credit risk was over and worry warts were old-fashioned, Europe was strong and would work this out. If the worry warts turned out to be right, it was likely years away, IBGYBG.
- Your Greek primer (Macro Business)
- Greek Banks Considering 30% Haircut On Deposits Over €8,000: FT (Zero Hedge) A quick "bail-in" by depositors is rumored under evaluation. (A bail-in is when deposits are converted to equity shares (stock) in a bank.) Although there has been much rhetoric between those who argue for a "Yes" vote and those supporting a "No" vote, the potential for bail-ins exist for both outcomes. ZH provides the following cartoon representing a bail-in process:
- Canadian Dealers Say More Regulation May Stifle Bond Trading (Bloomberg) Econintersect: Of course they would say that.
Cartoon forwarded by Roger Erickson
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