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What We Read Today 21 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.

  • EU divided over severity of sanctions (Alex Barker, Hugh Carnegy, Jim Pickard and Chris Bryant, Financial Times) EU members Britain, France and Germany issued warnings over possible further sanctiosn if Russia did not "help establish a safe environment to recover bodies and investigate the MH17 crash". But if past is prelude, when the EU foreign ministers meet on Tuesday there may be as many different recipes as there are ministers for a sanction stew, and some might hardly qualify as hors d'oeurves rather than a main course entré.
"I just think we know a lot less than We think. My goal was not to produce a counter-narrative, but push to the limits of evidence and implication in each of the three topic areas; there are others. The results are as you see. Things don't add up because they don't add up. Personally, I think we should wait for them to do so before beating the war drums. If that's confusing, so be it."
"This amendment received unanimous support from Commissioners because it is a measured approach. It reduces prison costs and populations and responds to statutory and guidelines changes since the drug guidelines were initially developed, while safeguarding public safety."

Responding to a massive increase in shipments of highly explosive crude oil along the Hudson River, the Center for Biological Diversity today filed a lawsuit against the U.S. Coast Guard and Environmental Protection Agency for failing to update their oil-spill plans to ensure that spill-response activities do not harm the many endangered species dependent on the river. The lawsuit, filed under the Endangered Species Act, identifies 17 federally protected endangered species, including Atlantic sturgeon, sea turtles and piping plovers that, like the millions of people living along the river, are threatened by the increased risk of spills.

"With little public scrutiny or input, there's been a massive increase in transport of highly flammable crude oil by rail and barge, which puts communities, rivers and wildlife in danger," said Mollie Matteson, a senior scientist at the Center. "We need a spill-response plan that actually protects residents and the precious endangered wildlife of the Hudson and northeast coast - animals like the Atlantic sturgeon, red knot and loggerhead sea turtle. We have to take immediate action to make sure these rare and marvelous creatures aren't casualties of a reckless industry."

The amount of crude oil being brought by rail to the port of Albany and then barged down the Hudson to East Coast refineries has jumped from essentially nothing, two years ago, to close to 3 billion gallons a year. The recent history of fiery derailments across North America indicates the urgency of addressing this growing threat to the environment from the rapid increase in oil trains. The U.S. Coast Guard and EPA, lead agencies on the region's spill-response plan, have not completed required Endangered Species Act consultation to keep up with rapid increases of crude oil cargos from North Dakota and the potential impacts of oil-spill response measures.

"Oil trains pose an enormous danger we can't overlook," said Matteson. "Further shipments into Albany and along the Hudson River should be stopped until there's an adequate plan in place to deal with the spills that are almost certain to occur." Read more...


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

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  • Currencies Recovering After Sharp Declines (Barry Norman, FX Empire) The Malayasian airliner tragedy drove a sharp spike in the U.S. dollar (flight to safety) and the greenback was up 0.9% from Monday's low (80.05) to Friday's high (80.775, not shown on chart below). As big as this range was there were 14 larger weekly ranges previously this year. So the range in the past week just made the 50th percentile for 2014.


  • The Sovereign State of Pigovia (David Collyer, Prosper Australia) A strident attack on what the author proclaims is a weakness of libertarianism: The support of the "freedom" of individuals to shift the costs of their profits onto the backs of others. Pollution creating industries unhindered by any costs for externalities (like ill health effects in the general population or destruction of the natural environment) support a degradation of the lives of others and consequential costs known as "externalities", according to the author. Collyer says that libertarians have a philosophical support of for unlimited property rights and have denied that these can produce inefficiencies in capitalism where many pay for the consequences following after the profits of a few. To remain logically consistent, Collyer says, libertarianism requires "the existence of externalities must be denied". Caution: This article is all attack and no solutions. Who will determine the "value" of externalities, and how? The cop out by libertarians is that the "free market" will do that. The "free market" (to the extent it actually exists) is ill suited for the task, in the opinion of Econintersect. The free market optimization is focused on the here and now, possibly extended a very few years forward. When the decisions are made by "society" (code word for government) what mechanisms exist to assure that inefficiencies are not introduced that are worse than the inefficiencies of the "free market"?
  • In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates (Jessica Silver-Greenberg and Michale Corckery, The New York Times) The article starts with a liar's loan case, with the used car salesman telling the lie. Then some details indicating that buyers getting subprime credit are often paying three times and more the purchase price of the car if they complete all payments. Not surprising many end up defaulting. Here is how the NYT summarized the situation:

The New York Times examined more than 100 bankruptcy court cases, dozens of civil lawsuits against lenders and hundreds of loan documents and found that subprime auto loans can come with interest rates that can exceed 23 percent. The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy, according to the court records, as well as interviews with borrowers and lawyers in 19 states.

In another echo of the mortgage boom, The Times investigation also found dozens of loans that included incorrect information about borrowers' income and employment, leading people who had lost their jobs, were in bankruptcy or were living on Social Security to qualify for loans that they could never afford.


  • Republicans have reneged on their pact with business (Edward Luce, Financial Times) This article says that business groups and interests no longer get what they want from Washington. And the article lays the blame on the Republicans. We say "blame" and not "credit" because the opinion of the author is clearly that what is going on is not good.

Legislation introduced in Congress would require the Federal Reserve to "submit to the appropriate congressional committees...a Directive Policy Rule", which shall "describe the strategy or rule of the Federal Open Market Committee for the systematic quantitative adjustment of the Policy Instrument Target to respond to a change in the Intermediate Policy Inputs." Should the Fed deviate from the rule, the Fed Chair would have to "testify before the appropriate congressional committees as to why the [rule] not in compliance." Enacting this provision would improve monetary policy outcomes in the U.S.


  • The Ethics of Inequality (Unlearning Economics, Pieria) A student tackles the question: Is equality a requirement for an ethical world? And the alternative question: Is inequality unethical? The three approaches involve "just desserts", "personal choices" and "growing the pie". By the end we think that unfortunately the author has raised many questions about ethics but has not definitively answered any. And that is probably what should be expected because one man's ethic may be another man's obsession.
  • Income Inequality Is Not Rising Globally. It's Falling. (Tyler Cowen, The New York Times) China, India and other developing economies have been growing very rapidly. this has produced a rate of income growth for the lower percentiles globally that rivals that of the 1% in the developed world. Cowen does concede that there are income distribution problems in some countries but over the entire world "capitalism and economic growth are continuing their historical roles as the greatest and most effective equalizers the world has ever known." See the next article for the research details.
  • Global income distribution: From the fall of the Berlin Wall to the Great Recession (Christoph Lakner and Branko Milanovic, Since 1988, rapid growth in Asia has lifted billions out of poverty. Incomes at the very top of the world income distribution have also grown rapidly, whereas median incomes in rich countries have grown much more slowly. This column asks whether these developments, while reducing global income inequality overall, might undermine democracy in rich countries. This has produced a most unusual distribution curve where the "hole" from 70% to 99% is produced by the decline of the middle class in the developed world.


  • Emerging market debt issuance hits record high (Elaine Moore, Financial Times) This is oh-oh #1 for today. Emerging market sovereign debt is exploding in a bubble style manner. The first six months of this year has more than 50% greater debt issuance than the same period in 2013 and is more than three times as much as either 2006 or 2007. China is not included in this data.


  • China's First Mortgage Debt Since Crisis Shows Li Concern (Judy Chen, Bloomberg) This is oh-oh #2 for today. China will revive mortgage-backed debt sales this week after a six-year hiatus, as the government extends help to home buyers in a flagging property market. The securities will be offered to the public through the Postal Savings Bank of China. Today is the first day of sales and the bank expects to sell 6.8 billion yuan ($1.1 billion) of the new securities. The last MBS sold in China were in 2007 ... and you remember what happened shortly thereafter? Here is an excerpt from Bloomberg:

Premier Li Keqiang is seeking to avert a collapse of the real-estate market after data last week showed new home prices dropped in a record number of cities in the world's second-largest economy. The central bank in May called on the nation's biggest lenders to accelerate the granting of mortgages to first-home buyers, and cities including Nanning, Hohhot and Jinan eased property restrictions.

"The government has eased its attitude toward the property market since property demand plunged this year," said Wang Ying, an analyst in Shanghai at Fitch Ratings Ltd. "The policy measures it has taken this year have conveyed a message that property curbs will not be as strong as before."

Selling mortgage-backed securities can help banks free up space on their balance sheets for more lending by transferring the risk of the loans to buyers of the products. Authorities are allowing the revival of such offerings after housing prices fell in 55 of the 70 cities last month from May, the National Bureau of Statistics said on July 18, the most since January 2011 when the government changed the way it compiles the statistics. New mortgages in Shanghai, China's financial center, declined 2.2 percent in the first half, according to a statement posted on the central bank's Shanghai head office website last week.

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