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What We Read Today 02 July 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.

  • Macau overtakes Switzerland in wealth tables (Demetri Sevastopulo, Financial Times) Chinese tourist traffic, especially gamblers, has produced an explosion in income for the former Portuguese colony of Macau by 557% over the past 15 years. In 2013 the Chinese territory reached a per capita GDP of $91,376 to move it into fourth place globally, ahead of now number five Switzerland with $80,528. Luxembourg, Norway and Qatar have higher GDP. These rankings are by the World Bank; other sources have different rankings. The World Bank ranks the U.S. ninth with per capita GDP of $51,749 (2012).

  • The Hobby Lobby Case and our Diminishing First Amendment (Charles P.Pierce, Esquire) This is a discussion of observations during the hearings by the SCOTUS in March. Pierce foresaw a potential eventuality from this case that all laws could become judged through a religious prism of specific beliefs. (Econintersect net of what he wrote.) So will we see the United Christian Caliphate of America (UCCA) with only laws that fit a given religious prescription allowed to exist? For a discussion of the religious dilemma this case has established see John Lounsbury's discussion at GEI Opinion. See also next article by Charles P. Pierce written after the ruling was announced.
  • The Supreme Court Has a Favorite Religion, and That's a Big Problem (Charles P.Pierce, Esquire) Pierce says the Hobby Lobby ruling is another step toward establishing a de facto official state religion for the U.S. This ruling has strengthened precedent that future cases involving religious belief will require the court to sort such beliefs into two buckets: those that will be afforded protection under the law and those that will not. (See yesterday's GEI Opinion article.) The SCOTUS will become a board of Christian Ayatollahs, passing judgement on the ethical, philosophical and religious merits of all secular activity brought before it. We are one step closer to the UCCA, the successor to the old USA.
  • 10 grad school degrees worth the debt (Stacy Rapacon, Kiplinger, MSN Money) With many college grads (and especially dropouts) struggling to pay off college debt, there are some graduate degrees that will , on average, pay off median debt levels between $51k and $67k in less than than 10 years of payments at 10% of median salary (several in less than 6 years). The top 10 for quick payoff for advanced degrees do not include some that you might expect: doctors, dentists, lawyers,many fields of engineering and science are missing. The most prevalent degrees are in fields involving business, economics and finance (6) with computer related advanced degrees a distant second (2).
  • 10 Worst States to Live In (Scott Cohn and Betsy Cline, CNBC, MSN Real Estate) When it comes to quality of life, the "shining city on a hill" of Ronald Reagan has developed a slum at its center. The country has congestive heartland failure. And the life of America is rotting at the core. The 10 worst states are west of the East Coast and east of the Great Plains (except for one state which is technically in the Great Plains).

There are 11 articles discussed today 'behind the wall'.

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uncertainty-index-sober-2014-jul-01

  • How Wall Street Plays the Dark Pool Game (Shah Gilani, Wall Street Insights & Indictments) Shah Gilani has contributed to GEI. Gilani traces the historical development of high frequency trading (HFT) and dark pools. Dark pools are so-called because there is anonymity for the participants in the pools of stocks being exchanged. The scandal is that the anonymity does not apply for the people running the dark pools - they can see every order, every trade. And they can insert themselves as intermediaries with mark-ups any time they chose, which is often and maybe actually always. The process is called "front running". See next article.
  • Goldman Sachs fined in dark pool debacle (Nicole Bullock and Philip Stafford, Financial Times) In the most blatant cases of systematic front running in dark pools, examination of trading data will show a consistently inferior pricing pattern for customers' trades. Such was the case with Goldman Sachs and their dark pool (named "Sigma-X") which FINRA (Financial Industry Regulatory Authority) found systematically short-changed customers on more than 395,000 trades for eight trading days between 29 July and 09 August 2011. The execution prices for Goldman were compared to national best bid and offer. FINRA has fined Goldman $800,000 for "failing to insure that trades executed in the bank's own trading venue met US laws protecting investors' right to best market prices". Goldman has paid approximately $1.67 million in restitution to customers on top of the fine.

If these eight days are representative of all trading days over the four years 2010-2013 and $1.67 million is a true representation of Goldman's front running skim then the firm reaped a total skim of about $200 million over the four years. This case constitutes restitution of a tiny fraction (0.8%) of the ill-gotten gain and the fine only 0.4%. Almost 99% of the estimated booty remains with Goldman. The FINRA action is less than a "slap on the wrist"; it is more like a tickle with a feather.

Click on image for larger image at The Washington Post.
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Asset prices have indeed in many cases reached stunning levels, quite obviously out of line with 'fundamentals,' for example in credit or government bond markets. The most dangerous of bubbles are deemed to be those in housing markets as their bursting could wreck whole economies.

Richter concludes that banks are again taking the same risks that triggered the financial crisis. He emphasizes that they are understating these risks. Read about the report from the Office of the Comptroller of the Currency: Federal Regulator Details Crazy Risk-Taking By Banks, Blames Fed

An ironic attitude towards collective ethics is adaptive. It helps basically decent individuals participate in coalitions that ruthlessly contend for rents. But perhaps we'd have a better society if, rather than turning our ethical discomfort into an object of aesthetic consideration, lots of us worked straightforwardly to remedy it. And perhaps more of us would do so if the risk of losing our place were not so terrible. Ethical behavior is endogenous. "Inequality" renders it costly.
  • The Daily Shot (email, no url) There has been quite a run for the pound against the dollar so far this year:

gbp-usd

Yes, it's true - as I've noted repeatedly, the economy is doing better than it gets credit for. But we could be doing a lot better. And if we'd had policies more geared towards the household sector (like middle class tax cuts) and fixing what I repeatedly said was the real problem - the bankrupt middle class - then I think we'd be much better off than we are. But we're muddling along and underperforming our potential because we've decided that political fearmongering is more important than actually helping people. So I guess we'll have to let the Fed continue to try to prop this ship up all because we're afraid that budget deficits cause hyperinflation and high interest rates.

It's a sad state of affairs and I only hope that it doesn't take another big collapse in the economy to get politicians to start making decisions that help those who need it most.

  • New economics – not much will change at the current rate (Bill Mitchell, billy blog) Bill Mitchell thinks that the INET (Institute for New Economic Thinking) sponsored effort at Oxford to define a new economic curriculum (CORE) is being subverted by "neo-liberals [who] were reinventing themselves as 'progressive' or 'heterodox' and hi-jacking the reform process". Mitchell ascribes the process to "group think" and suggests considering the work of Solomon Asch who studied group pressure and prestige suggestion, conformity. Mitchell includes two videos:


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