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What We Read Today 29 June 2014

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

  • Why elites hate it when you say giant student debts arenít the problem (Matt Phillips, Quartz) Matt Phillips has written a good piece on factors that are big problems in the student loan debt situation and other factors that are not significant problems. But he does miss the point that an article discussed yesterday (in the public portion of WWRT) by Choire Sicha was a takedown of a Brookings Institute study Econintersect has also attacked. Phillips seems to think Sicha was attacking a New York Times article by David Leonhardt which was only obliquely criticized by Sicha in his discussion of the misleading Brookings Institute publication. Is it any wonder mass confusion can develop on a subject when the discussion gets so fragmented? Phillips' essay would be much better at making his valid points if he avoided bringing the Sicha article (or the Leonhardt article for that matter) into his article in any substantive way. Sicha and Leonhardt are discussing the Brookings Institute report and Phillips is not. But Econintersect will wager that the Phillips article will be used to represent support for the Brookings work when it doesn't go near the issues in dispute there. Perhaps he could update his piece with a note stating that he is not discussing issues with Brookings study which have been a major consideration in the Sicha and Leonhardt blogs he references.
  • If the World Began Again, Would Life as We Know It Exist?If the World Began Again, Would Life as We Know It Exist? (Zach Zorich, Nautilus) Experiments with 60,000 generations of 12 different colonies of E. coli which at generation 1 were identical have shown that dramatically different results can evolve in different colonies all maintained in identical external environments for that many generations. In terms of modern humans 60,000 generations would be of the order of 1 million years, a few hundredths of 1% of the time that life has been evolving on earth. The author's conclusion from the scientists involved in the experiments is that of we could start earth all over again the current outcome would be highly improbable.

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  • Credit Growth Continues To Boom (Myles Udland, Business Insider) In 2014 the year-over-year growth in credit issued by banks has more than doubled from less than 2% to more than 5%, This amount of credit growth is associated with strong economic growth, yet the first quarter GDP contracted by nearly 3%. Something's gotta give.


  • Ukraine signs landmark agreement with E.U. (Michael Birnbaum, The Washington Post) Ukraine signed an historic trade deal 27 June which brings it closer to an eventual membership in the EU (European Union). Other former Soviet republics, Georgia and Moldova, are also following a pathway toward EU membership. Russia is not happy.
  • Hedge Fund vs. Sovereign (Felix Salmon, Foreign Affairs) The SCOTUS has for the second time taken an action that is contrary to centuries of practice in settlement of sovereign debts when a country is unable to pay its creditors. The process has been to negotiate a debt restructuring with any creditors not agreeing to the restructuring having no standing to collect more in settlement. In a case involving hedge fund Elliott Associates and Argentina, the Supreme Court has refused to hear a case settled in favor of Elliott on lower courts. The position now establishes a new condition for restructuring: all creditors must agree or no settlement can occur. This creates a condition where default rather than restructuring is the only outcome possible when a sovereign cannot service its debt. The net effect is that international finance is crippled and the sovereignty of nations is reduced. What is most troubling about the decision of the court is that the suit for full payment was brought by vulture hedge funds which had purchased the debt at deep discounts and would have profited from the restructuring. However they elected to try for more and sued for full face value. The court has not taken a position to protect the original creditors who have taken deep losses by selling at a discount. The court is protecting the carrion feeders.
  • Weekly Market Summary (Urban Carmel, Advisor Perspectives The second quarter has just one more day left and it looks like bonds will have outperformed stocks by about 1.8%. The only two sectors doing better than bonds were energy and utilities. And while you probably weren't paying attention, so far in 2014 bonds have returned 5.6% more than stocks. (References are NYSE:TLT (20+ year treasuries) for bonds and the S&P 500 (NYSE:SPY) for stocks.)


  • Does He Pass the Test? (Paul Krugman, The New York Times) Prof. Krugman reviews the Timothy Geithner book, "Stress Test". The short summary: Geithner got the "account of the crisis" done well but the reaction to the crisis, not so much. The lengthy review is very good reading and Econintersect recommends it.


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