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What We Read Today 21 February 2015

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 (and sometimes longer ones) 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.

This feature is published every day late afternoon New York time. For early morning review of headlines see "The Early Bird" published every day in the early am at GEI News (membership not required for access to "The Early Bird".).

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Tax Hacks: Beware the Dirty Dozen Tax Scams (MSN Money)  Click below for short video with 12 common tax scams.

tax.fraud.video.msn.money



Articles about events, conflicts and disease around the world

U.S.

EU

Greece

Nigeria

Yemen

  • Yemen's Hadi says Houthi coup illegal (Al Jazeera)  Ex-president Abd Rabbu Mansour Hadi has escaped house arrest and declared as invalid and unconstitutional all actions taken by the Shia Houthis.

Russia

Afghanistan


Low Yields Entice Corporate Debt Issuers (Moody's Analytics)  Look what happens when corporate bond spreads increase between the two largest currencies in the world, graphs below.  Over the past 15 years there have been three periods with substantial spreads between U.S. investment grade bond yields and those in the Eurozone:  1998-2001, 2004-2007 and 2012 to date.  In all three periods U.S. yields were 1.5 to 1.8 times those in the Eurozone.  There was nor capital flow evident for U.S. corporations into euro based bond issuance in the first period.  This may be attributed to the newness of the euro which was not fully implemented until the beginning of 1999.  (See next article.)  But in the second and third periods of large spread the issuance of U.S. corporate debt denominated in euros soared.  This surge came late in the period of large spread (middle of 2006 to late 2007) and was followed by a period from early 2007 to early 2008 where EUR/USD  surged by 1/3 from about $1.20 to $1.60.  Part of the lower coupon was given up in currency exchange losses for the U.S. issuers of euro bonds who jumped in before the peak in early 2007.

So what will happen this time?  Will the new spike in "carry trade" corporate bond issuance in euros by U.S. corporations be followed by euro appreciation (or dollar depreciation) to cancel out some of the coupon difference advantage?  It is hard to rationalize how that will happen in the next few years, but one rule of markets the Econintersect finds often obtains is:  The course of events will unfold to spread losses as far as possible, but only up to the point that your own losses are maximized.

Finally, what a mess will remain to be sorted out if the euro collapse and is replaced by multiple new currencies.  Unless the bonds have specified some limits on exchange rate changes, all parties will fight to force all losses on their counterparties.

bonds.corp.dollar.euro.1998.2014


The Ups and Downs of the Euro – Graphic of the Day  (Thompson Reuters)  The chart below shows the Dollar to euro ratio since its creation, highlighting key events throughout its history. How do you think things will unfold with the euro?  Will it survive with the extreme imbalances evident within the Eurozone?  The Greek story is far from over.  Will the Eurozone survive a "Grexit" should it come to that?


Who Caused The Financial Crisis?  Prosecutors Face 3-Month Deadline For Bringing Charges In The Subprime Mortgage Mess (Owen Davis, International Business Times)  Hat tip to Rob Carter.  Outgoing Attorney General Attorney General Eric Holder said in a speech this week that U.S. federal prosecutors haven just 90 days to tell whether they have enough material to bring cases against individuals for wrongdoing in the 2008 financial crisis.  That information was hidden in a speech.  No press conference.  No announcement.  Nor press release.  Just a line in a speech.

Econintersect:  This is emblematic of the focus (rather, lack of focus) by Holder on the criminal activities of the nation's largest financial institutions over the past two decades, or more.

Here is part of what Owen Davis wrote:

Despite protestations from Holder as to the difficulty of charging individuals, the government’s own disclosures in bank settlements seem to provide ample grist for such cases. “For Bank of America, JPMorgan and [ratings agency] Standard & Poor’s, there are actually individuals named, either with their formal names in the complaints or by reference to their job titles,” says Bartlett Naylor, financial policy advocate at the organization Public Citizen.

Since the fraud-riddled subprime mortgage market blew up in 2007, sparking a crisis that brought the financial system to its knees, major banks have paid tens of billions to settle criminal allegations with the DOJ. In most cases, however, they have neither formally admitted wrongdoing nor felt serious sanctions.

What's more, no Wall Street executive or top-level manager has faced criminal charges. That fact has rankled accountability advocates and ordinary Americans alike – not to mention outspoken officials like U.S. District Judge Jed Rakoff and Benjamin Lawsky, New York’s top financial regulator.


Apple Wants to Start Producing Cars as Soon as 2020 (Tim Higgins)  Apple is joining Google, Tesla and who knows who else in the electric car space.  And of course these wannabes are trying to enter a space with giants like GM, Ford, Toyota, Volkswagen, etc. looking into their own crystal balls.  So there is more than a little uncertainty about what will eventually come out of these efforts.  And maybe it is not electric - maybe it is hydrogen fuels cells, which is really another kind of electric power and possibly more efficient.

Click for short video from Bloomberg.
apple.car.bloomberg.video



Other Economics and Business Items of Note and Miscellanea

Solar Storm Produces Ultrarelativistic, Killer Electrons in Just Seconds (Scientific Computing)

Beer Sales Spike As Food Stamps Hit (The Wall Street Journal)

One More Saturday Night: Food Stamp Timing and Monthly Consumption Patterns (Social Science Research Network)  This is the eresearch paper referred to in previous article.

Yellen Confronts Economists’ Ignorance (Bloomberg Business)  Productivity is the subject.

Seven Myths about Scientists Debunked (Scientific Computing)



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