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.
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Topics today include:
Professional Credentials Used for Corruption
America's Opioid (Painkiller) Epidemic Compares to HIV/AIDS of 30 Years Ago
Some Stay Home from Rio for Economic Reasons, Not Because of Zika
FCC Has Abandoned Economics
Modern Portfolio Theory May Have Limits for Stocks, Maybe Not for Oil Wells
Americans' Home Equity Swells But Much Remains Untapped
Trump Can Win If "Angry" Sanders Supporters Vote for Him
Sanders Endorses Clinton (and Vice Versa)
The U.S. Has a Dangerous Commercial Real Estate Bubble
What Will Happen to George Osborne?
House of Commons Debates a 'Brepeat'
UK Banking Sector is Rallying
The Hague Rejects China's South Sea Claims
China Rejects The Hague
Military Takes Over Venezuela Food Supply
Diamonds in the Canadian Arctic
Articles about events, conflicts and disease around the world
Owners could be pulling $260 billion more from their homes — here's why they aren't (CNBC) Higher home prices may be frustrating potential homebuyers, but they are funneling a strong new flow of "tappable" cash into homeowners' pockets. How much: $260 billion in additional home equity just in the first quarter of this year. With that increase, 38 million borrowers now have at least 20% equity in their homes — averaging about $116,000 per borrower, according to Black Knight Financial Services. That is a far cry from just 24 million who had that much equity when home prices finally hit bottom at the start of 2012. Borrowers today, however, are still cautious. While 42% of refinances in the first quarter of this year were "cash-out," homeowners only tapped a collective $20 billion. That may sound like a lot, but it was just one half of 1% (0.5%) of the cash available to borrowers, according to Black Knight.
Now that Senator Bernie Sanders is effectively dropping out of the presidential race and endorsing Hillary Clinton, what's Donald Trump's best strategy for courting the former Sanders voters? I've already made the case that Trump can grab a very small but still significant number of Sanders' supporters simply because he is now the only "change" candidate still standing. And Trump is pulling no punches today, already expressing his "surprise" and accusing Sanders of selling out by joining the "rigged system."
That kind of sharp rhetoric makes sense because the one kind of Sanders voter Trump is most likely to have a shot at co-opting is the angry voter who believes both parties have sold out a large segment of the public for decades. These angrier voters will also tend to be a bit older than the average Sanders backer, who tended to be younger and more idealistic as opposed to being "angry."
Clinton gets Sanders endorsement in show of party unity (Reuters) Democrat Bernie Sanders endorsed former rival Hillary Clinton for president in a display of party unity on Tuesday, describing her as the best candidate to fix the United States' problems and beat Republican Donald Trump in the Nov. 8 election. With Clinton nodding in agreement beside him, Sanders put aside their bitter campaign for the Democratic nomination and said she would take up the fight to ease economic inequality, make college more affordable and expand healthcare coverage for all Americans.
Regulator Warns Commercial Real Estate Bubble Is Biggest US Bank Risk (Yves Smith, Naked Capitalism) YS has contributed to GEI. Yves says that ZIRP and a flat yield curve are leading to all sorts of imprudent behavior. The latest, flagged by the Office of the Comptroller of the Currency, is profligate commercial real estate lending. The OCC warned that the rise in risky real estate lending is far more dangerous than subprime auto loans, which have been a pet worry of analysts for some time. The reason commercial real estate lending is so hazardous is banks routinely lose more than 100% of the loan when the projects go bad. Not only do all the loan proceeds go “poof,” but when they foreclose, they are typically stuck with a completed or partially completed project. If it is completely and not fundamentally unsound (say an office building in an up-and-coming area), it’s possible to get a partial recovery. But for a white elephant or a half-finished building, the bank will need to clear the property, which means throwing good money after bad, and is stuck with land plus perhaps some general previous owner improvements (if a subdivision, getting zoning and running in plumbing; in an urban setting, doing the assemblage). Moreover, commercial properties are idiosyncratic, so liquidating them is also inherently time-consuming.
As May Becomes Prime Minister, Who’s the Next Osborne? (Bloomberg) Home Secretary Theresa May is preparing to succeed David Cameron as U.K. prime minister on Wednesday after her only rival pulled out of the Conservative Party leadership contest. The person she chooses to be chancellor of the exchequer will be keenly scrutinized by investors shaken by Britain’s vote to leave the European Union. He or she will play a key role in the Brexit negotiations and oversee an economy at risk of sliding into a recession. It’s quite possible May will keep George Osborne in the post, in a message to business and the markets that she’s not going to shake up the levers of government at a time when Britain is craving certainty. See also What Theresa May should do with George Osborne (The Telegraph)
Banking sector rallies on increasing confidence, as Carney hints at stimulus (The Telegraph) The financial sector as a whole appears to be steadying following the news that Theresa May will become the UK’s next Prime Minister on Wednesday, once David Cameron has held a final Prime Minister’s questions in the House of Commons, rather than having to wait for a leadership contest in September. Also, appearing before a parliamentary select committee this morning, Mark Carney, governor of the Bank of England, said that the Bank may have to react to a weaker economic outlook after Britain’s decision to leave the EU, suggesting that it is ready to provide the economy with more stimulus. This could happen as soon as this week’s Monetary Policy Committee meeting on Thursday when the Bank will say whether it has cut rates.
Beijing’s South China Sea Claim Rejected (The Daily Beast) A tribunal in The Hague has rejected China’s claims to the economic rights to resources in large sections of the South China Sea. The Philippines requested the arbitration, and the ruling is widely viewed as a victory for the country. China has responded by arguing that the tribunal’s ruling is “illegal and invalid”. China added, “The arbitration tribunal has no jurisdiction on this matter.”
Venezuela army deployed to control food production and distribution (BBC News) Venezuela's military has started monitoring ports and food processing plants, in a new effort to guarantee supplies of food and medicines. In a decree, President Nicolas Maduro has ordered the army to co-ordinate the production and distribution of items. Venezuela is going through a deep economic crisis, despite having the world's largest oil reserves. Basic products are increasingly scarce and many say they struggle to feed their families. Mr Maduro says the measure is to fight the "economic war" he claims is being waged against his government by political foes and businessmen, with US backing. But the opposition says the government has mismanaged the economy, and has called for a referendum to oust the president.
Hunting for Diamonds under Canada's Frozen Tundra (Bloomberg) It may sound like a great way to get rich, but many go broke. Twenty-five years after the first diamonds were found in Canada’s Northwest Territories, it’s still a game of hurry-up-and-wait. For every thousand grassroots exploration projects, only one becomes a mine. Snap Lake, one of three operating mines in the region, was shuttered by De Beers last year, a casualty of harsh geography and falling diamond prices. Government attempts to add production value with a cutting industry collapsed years ago; all that remains of “Diamond Row” in the territorial capital Yellowknife is a line of derelict buildings behind barbed wire.
Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea
Credentialism and Corruption: The Opioid Epidemic and “the Looting Professional Class” (Lambert Strether, Naked Capitalism) Hat tip to Roger Erickson. LS has contributed to GEI. Econintersect: At risk of giving a too-limited summary, we will try to explain this brilliantly constructed piece. Strether compares the use of credentialed professionals to create a "disease vector" for opioid addiction (via OxyContin, but other drugs as well) which is comparable to the AIDS epidemic of 30 years ago. Strether says the comparison is valid for rapidity of spreading, extent of impact as well as social and mortality affects. But the demographics are not the same. While HIV/AIDS was disporportionately experienced in a demographic of homosexuals and recreational drug users of all races, the opioid epidemic is concentrated in the white middle class with only representative levels of recreational drug usage. Strether castigates the developer, manufacturer and marketer of the drug OxyContin, Purdue Pharma. His list of those complicit is accompanied by the charge that compensation for the spread of the opioid addiction disease was a force for corruption; that professional credentials were "sold" for profit to legitimize the pain killer medications that "carried the disease". He suggests that, while greed could be blamed for some of the incentives, many others became complicit because "dishonesty or exploitation of others in some way" was a way to "get and hang on to a middle class job". Three excerpts from Strether's conclusion:
CEOs, marketing executives, database developers, marketing collateral designers, the sales force, middle managers of all kinds, and doctor: All these professions are highly credentialed. And all have, or should have, different levels of responsibility for the mortality rates from the opoid epidemic; executives have fiduciary responsibility; doctors take the Hippocratic Oath; those highly commissioned sales people knew or should have known what they were selling. Farther down the line, to a database designer, OXYCONTIN_DEATH_RATE might be just another field. Or not! And due to information asymmetries in corporate structures, the different professions once had different levels of knowledge. For some it can be said they did not know. But now they know; the story is out there.
And you’ve got to admit that serving as a transmission vector for an epidemic falls into the category of “exploitation of others.”
Consider trust as a public good. We might, then, look at that public good as “good will” on the balance sheet of the professional class. The looting comes as professionals draw down the good will for (as executives) stock options, for (as managers) bonuses, for (as sales people) commissions, and for the small fry salaries, wages, and the wonderful gift of continued employment status. And all the professionals who willingly served as transmission vectors for the AIDS-like opioid epidemic will be seen to have looted their professional balance sheet as the workings of the system of which they were a part become matters of public knowledge.
Former FCC Chief Economists Say Wheeler Has Left Economics Behind (Inside Sources) Two former chief economists at the Federal Communications Commission highlighted Monday what they describe as a growing trend of absentee economics at the agency under Chairman Tom Wheeler, who led the agency’s landmark adoption of net neutrality rules last year. Those rules like many others since in the business broadband, data privacy and TV set-top box market were advanced without any prior economic analysis on their potential impact — a departure from some 30 years of prior agency rulemaking, and one that threatens to set a dangerous policy precedent, according to former FCC chief economists Gerald Faulhaber and Tim Brennan. The two argue that the dropping of cost-benefit analysis has set a dangerous precedent.
Race, politics and economics in America (The Nation) This article charges that race relations in America were set back by the election of Barack Obama in 2008. And not because of any actions Obama took or failed to take. Read this article to find out why that argument is made.
A Hybrid Approach To Well Economics (Oil & Gas Financial Journal) The Modern Portfolio Theory (MPT) which has failed because of its underlying assumption that stock prices are ergodic, may be successful in determining how to maximize profits from oil and gas wells because those ouputs may indeed be ergodic. This article demonstrates just how effective the repurposing of MPT to well development can be. The two graphs below show the MPT produced efficient frontier prediction, followed by the data produced from the four fields from which data was examined. Not in the second graphic just how sharp the "efficient frontier" actually is from the real empirical field data.
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