Category Archives: Finance

Bad new for whoever wins: Financial crisis ahead


While Democrats are nursing hopes of control of one or both houses of Congress, victory might contain a poison pill that could redound to the Donald Trump and his fellow Republicans benefit two years down the road.

Make no mistakes. The warning signs are already quite clear, as embodied in this series of 10-year graphs we’ve assembled from the marvelous resources of the Federal Reserve Bank of St. Louis:

First up, housing prices are soaring again, already reaching well above the levels of the 2007-9 Great Recession [indicated by the shaded areas of the charts], a crash triggered by shady mortgage lending by the nation’s leading banks [click on the images to enlarge]:

And as housing prices rise, so does mortgage debt, which has also topped pre-Great Recession levels as the Trump Administration slashes protection passed under the Obama administration::

Credit card debt is also soaring:

Yet another form of debt is also rising as states and the federal government slash colleges and university  funding, sending tuition rates through the roof:

The next graphs is particularly ominous.

While Donald Trump claims that under his administration, unemployment levels have hit record lows.

But that’s only because soaring numbers of folks have simply given up and dropped out of the labor force:

For our final graph we look at the growing amount of U.S. debt held overseas, trillions of dollars that could explode in the face of Donald Trump’s self-declared trade wars:

And now, with this graphic introduction we turn to a very important documentary from VPRO Backlight, a creation of producer Marije Meerman for Dutch public television and a warning of dark times ahead:

Lessons from Lehman and the Coming Crash

Program notes:

Have we learned the Lessons from Lehman and could we have predicted the Coming Crash? Ten years ago, the crash on Wall Street took us by surprise when Lehman Brothers’ bank went bankrupt. The financial crisis that followed this crash on Wall Street was like a chain reaction; a pole dancer with her five mortgages turned out to be connected to the huge gap in the Greek national budget. Is it possible to predict the coming crash? What are the lessons learned from the collapse of Lehman Brothers? Can we predict the coming crash of Wall Street by looking back to the last 10 years and take a lesson from Lehman?

Sometimes, it is important to look back in order to predict what we might be heading for. Ten years ago, we were taken by surprise when Lehman Brothers’ investment bank went bankrupt. In the followinf months, banks needed saving. Millions of tax payers money was used. Worldwide, banks, villages, cities, and even countries went bankrupt or were hanging by a thread. Few, if any, bankers were convicted. Crypto currencies like bitcoins thrived on the growing suspicion towards banks and governments. Finally, central banks around the world set up buying asset purchasing programmes in order to create cash out of nothing. A strategy to pump money into the financial system, hoping to keep it afloat. What have we learned from this crash and its consequences? Over a period of ten years, VPRO Backlight reported on the snowballing financial crisis. It turned out that a journalist, a former banker and an economist had predicted the 2008 credit crash and are now warning against a new crash. We pay them another visit to find out what they had seen, where many others were blind.

If we look hard enough, can we see why we are now in the calm before the next crash?

With: Nomi Prins [author and former banker for Goldman Sachs and Lehman Brothers], Ann Petifor [economist] and Isabella Kaminska [journalist for the Financial Times] with cameos by Jim Rogers [super investor], Roger Ver [bitcoin-evangelist], Joris Luyendijk [journalist], and Yanis Varoufakis [former Greek Minister of Finance].

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Charts of the day: Billionaire wealth soars again


UBS Group AG, together with Credit Suisse, hold a legal monopoly on all private banking in Switzerland, and is one of the leading global players in private banking for much of the world’s elite.

Every year the bank issues a fascinating document called the UBS PwC Billionaires Report, detailing the growth of the fortunes of the global financial elite.

This year’s report reveals the the rich are getting richer at an accelerating rate, as exemplified in this graphic charting the growing wealth of billionaires, as comparing that acceleration with the MSCI World Index, a measure of global stock market capitalization:

From the report summary:

Billionaire wealth returned to growth in 2016 after falling the year before.

  • Billionaire wealth expanded in 2016. Globally, the total wealth of billionaires rose by 17 percent to USD 6.0 trillion, double the rate of the MSCI World Index.
  • For the first time, Asian billionaires outnumbered their US counterparts. On average, a new billionaire was created in Asia every two days, with the total number of Asian billionaires rising by almost a quarter to 637, compared to 563 in the US and 342 in Europe. The US still retains the greatest concentration of wealth, growing by 15 percent from USD 2.4 trillion to USD 2.8 trillion, driven by technological innovation, financial services and materials.

Josef Stadler, Head Global Ultra High Net Worth, UBS, said: “This year we have seen not only a return to growth for billionaire wealth, but also a significant shift in its geographic dimensions. Dramatic growth in Asian wealth shows it could overtake the US in just four years.”

But what about the rest of us?

While the rich are getting richer, the rest of us, at least in the U.S., are struggling to break even, as illustrated in this graphic from the Pew Research Center:

From the accompanying report:

The disconnect between the job market and workers’ paychecks has fueled much of the recent activism in states and cities around raising minimum wages, and it also has become a factor in at least some of this year’s congressional campaigns.

Average hourly earnings for non-management private-sector workers in July were $22.65, up 3 cents from June and 2.7% above the average wage from a year earlier, according to data from the federal Bureau of Labor Statistics. That’s in line with average wage growth over the past five years: Year-over-year growth has mostly ranged between 2% and 3% since the beginning of 2013. But in the years just before the 2007-08 financial collapse, average hourly earnings often increased by around 4% year-over-year. And during the high-inflation years of the 1970s and early 1980s, average wages commonly jumped 7%, 8% or even 9% year-over-year.

After adjusting for inflation, however, today’s average hourly wage has just about the same purchasing power it did in 1978, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms average hourly earnings peaked more than 45 years ago: The $4.03-an-hour rate recorded in January 1973 had the same purchasing power that $23.68 would today.

Quotes of the day: On FDR’s unfulfilled vision


Franklin Delano Roosevelt, like Donald Trump, was born into wealth and power. While the rump wealth came from , the son of wealthy parents whose fortunes dated back to colonial days [the Roosevelts descended Dutch settlers of New Amsterdam [New York], while his mother’s family, the Delanos, arrived on the Mayflower.

A cousin of President Theodore Roosevelt, FDR, unlike Trump, grew up with a sense of noblesse oblige, the belief that haves bear an obligation toward have-nots.

Educated at all the best schools — Groton, Harvard, and Columbia Law — he abandoned a lucrative law career to enter politics, serving as New York state senator, then as Assistant Secretary f the Navy during World War I, two terms as governor of New York, and finally as the only man elected to serve four terms as President of the United States.

He entered the White House in 1933 as the Great Depression was tearing the nation apart.

Once in office, he introduced seeping reforms, embodied in his New Deal agedna, including the creation of Social Security, the Securities and Exchange Commission, the National Labor Relations Board, asnd the Federal eposit Insurance Corporation.

He lea the nation through the planets second great global conflagration, and played a seminal role in creation of the United Nations.

But his greatest vision would remain unfulfilled,m an agenda he laid out in his 1944 State of the Union Address, given on 11 January 1944.

With the war’s end in sight, he spelled out his agenda in a call for second Bill of Rights, the Economic Bill of Rights:

We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.

Among these are:

  • The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;
  • The right to earn enough to provide adequate food and clothing and recreation;
  • The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
  • The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
  • The right of every family to a decent home;
  • The right to adequate medical care and the opportunity to achieve and enjoy good health;
  • The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
  • The right to a good education.

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.

America’s own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for our citizens. For unless there is security here at home there cannot be lasting peace in the world.

One of the great American industrialists of our day—a man who has rendered yeoman service to his country in this crisis-recently emphasized the grave dangers of “rightist reaction” in this Nation. All clear-thinking businessmen share his concern. Indeed, if such reaction should develop—if history were to repeat itself and we were to return to the so-called “normalcy” of the 1920’s—then it is certain that even though we shall have conquered our enemies on the battlefields abroad, we shall have yielded to the spirit of Fascism here at home.

I ask the Congress to explore the means for implementing this economic bill of rights- for it is definitely the responsibility of the Congress so to do. Many of these problems are already before committees of the Congress in the form of proposed legislation. I shall from time to time communicate with the Congress with respect to these and further proposals. In the event that no adequate program of progress is evolved, I am certain that the Nation will be conscious of the fact.

After winning  a fourth term in 1944, he returned to his agenda in his final State of the Union address on 6 January 1945:

An enduring peace cannot be achieved without a strong America– strong in the social and economic sense as well as in the military sense.

In the state of the Union message last year I set forth what I considered to be an American economic bill of rights.

I said then, and I say now, that these economic truths represent a second bill of rights under which a new basis of security and prosperity can be established for all–regardless of station, race or creed.

Of these rights the most fundamental, and one on which the fulfillment of the others in large degree depends, is the “right to a useful and remunerative job in the industries or shops or farms or mines of the Nation.” In turn, others of the economic rights of American citizenship, such as the right to a decent home, to a good education, to good medical care, to social security, to reasonable farm income, will, if fulfilled, make major contributions to achieving adequate levels of employment.

The Federal Government must see to it that these rights become realities–with the help of States, municipalities, business, labor, and agriculture.

His death and replacement by the much more conservative Harry S Truman spelled the defeat of his agenda.

Our final quotation shws just how much we have failed. It comes from Lelani Farha, the United Nations Special Rapporteur to the Right to Adequate Housing in a new report focusing on one aspect of FDR’s Economic Bill of Rights, revealing just how much the U.S. has failed in the fulfillment of Roosevelt’s agenda laid out 74 years ago:

Attempting to discourage residents from remaining in informal settlements or encampments by denying access to water, sanitation and health services and other basic necessities, as has been witnessed by the Special Rapporteur in San Francisco and Oakland, California, United States of America, constitutes cruel and inhuman treatment and is a violation of multiple human rights, including the rights to life, housing, health and water and sanitation. Such punitive policies must be prohibited in law and immediately ceased. Following expressions of concern from the Human Rights Committee, the United States federal Government introduced funding incentives for municipalities to rescind by-laws that criminalize homelessness. More robust measures, however, are required.

Mapping America, the very rich, unhappy bully


We love Worldmapper, a website run by some British cartographers who look at the world in very interesting ways.

Whilst exploring their extensive collection of maps, we came across three that reveal some very interesting connections, revealing a deeply troublesome portrait of the country Donald Trump wants to “make great again.”

In fact, the nation is already great, in a deeply and very troubling way.

First, it’s the world leader, as revealed in this graphic, in which the nations of the globe are resized according to they number of their billionaire inhabitants, with America leading the way:

Billionaires 2018

“Part of the beauty of me is that I am very rich.”

— Donald Trump in ABC TV’s ‘Good Morning America’ [2011]

 In 2018, “Forbes found a record 2,208 billionaires, collectively worth $9.1 trillion. Among them are 259 newcomers who made their fortunes in everything from wedding dresses to children’s toys to electric cars.” [Quoted from the Forbes World’s Billionaires 2018 Ranking]

Another graphic shows another field another field of American greatness, with each nation resized according spending on another field dominated by Old Gory:

Military Spending 2017

The biggest spender – by far- are the United States, followed by China, Saudi Arabia, India, France and Russia. The United States spent more than double than China on military expenses. The United Kingdom, Japan, Germany and South Korea complete the top 10 spenders. Six of the top spending countries are also nuclear powers.

Some countries have no military, thus no military spending, like Iceland or Costa Rica. Iceland is a member of NATO nonetheless and contributes to NATO operations with both financial contributions and civil personnel. How much of their GDP NATO members are spending on military has always caused discussions within the alliance.

Finally, another map resizes nations according to population,shaded according to their relative happiness as reported in the New Economics Foundation’s Happy Planet Index [HPI]:

The Happy Planet Index

This map shows the results of the most recent Happy Planet Index 2016 report from the perspective of people. The gridded population cartogram, showing world resized according to the number of people living in each area, combined with the national HPI score.

The indicators that are used for calculating the HPI score cover life-satisfaction, life expectancy, inequality of outcomes and the ecological footprint. As argued in the report, “GDP growth on its own does not mean a better life for everyone, particularly in countries that are already wealthy. It does not reflect inequalities in material conditions between people in a country.” This explains, why consumption patterns are seen as more important for well-being than production. It also acknowledges that inequalities in well-being and life expectancy are important factors in the overall happiness of the population in a country.

When taking these notions into account, the rich industrialised countries score much worse in achieving sustainable well-being for all. Of the 140 countries included in the HPI, Luxembourg is the most extreme example for a wealthy nation scoring very badly: The country does well on life expectancy and well-being, and also has low inequality, but sustains this lifestyle with the largest ecological footprint per capita of any country in the world. It would require more than nine planets to sustain this way of life if every person on Earth would live the same way, showing that the standard of living comes at a high cost to the environment.

Chart of the day: Greek working class miseries


From the Hellenic Statistical Authority, the grim nrews about paychecks yunder the reign of the Austerians:

Kathermini adds some detail:

More than half of private sector employees in Greece are paid less than 800 euros per month, compared with just 11 percent in the public sector, while the real unemployment rate is more than 30 percent, the country’s biggest union claimed in its annual report published on Monday.

The Labor Institute of the General Confederation of Greek Labor (INE-GSEE) noted in its 2016 report on the Greek economy that crisis-induced inequalities among different groups of workers and the decimation of the labor market have had a negative impact on productivity. The increase in labor market flexibility last year translated into 51.6 percent of private sector salary workers receiving less than 800 euros per month at the same time as half of all civil servants were being paid more than 1,000 euros per month.

After processing the salary data in the private sector, INE-GSEE found that net pay was up to 499 euros per months for 15.2 percent of workers, between 500 and 699 euros for 23.6 percent, and 700 and 799 euros per month for 12.8 percent. Just over one in six (17.3 percent) received between 800 and 999 euros. Meanwhile, 38.5 percent of civil servants had net earnings of between 1,000 and 1,299 euros and 15.7 percent collected more than 1,300 euros per month.

The large decline in private sector salaries and the fact that the institute’s economists estimate that the unemployment rate is much higher than the official 23.1 percent are particularly ominous developments which could erode social cohesion and lead large parts of the population into poverty.

The report highlights the increase in the rate of households unable to cover some of their basic needs from 28.2 percent in 2010 to 53.4 percent in 2015. This is due to the major decline in disposable income and the drop in savings. A rise was also noted in the rate of households delaying loan and rent payments (from 10.2 percent in 2010 to 14.3 percent in 2015). Worse, households’ inability (or unwillingness) to pay utility bills soared from 18.8 percent in 2010 to 42 percent five years later.

Life is bitter under the dominion of the Troikarchs

The Wall Street Crash that triggered the Great Recession was followed immediately by the decisions of governments, central banksters, and the money lords of the International Monetary Fund to bail out the banks, and not the lenders.

Those decisions weighed hardest on indebted nations, and proved especially onerous in Southern Europe, where reckless lending by German and other banks had undergirded economic expansion during the boom.

To ensure repayment, the European Central Bank, European Commission, and the International Monetary Fund mandated ongoing wage cuts, pension and healthcare benefit reductions, new taxes, and sellff of large sectors of public infrastructure and resources, most notably in Greece.

The measures have brought no real relief, and Greeks are continuing to pay a high price.

Woman workers hit especially hard

From Kathimerini again:

Women, especially young women, have been hit particularly hard by Greece’s economic crisis, Labor and Social Insurance Minister Effie Achtsioglou told the Parliament in Athens on Wednesday on the occasion of International Women’s Day.

Of all the registered unemployed in Greece, 61 percent are women, Achtsioglou said, noting that although joblessness has dropped 3 percentage points over the past two years of the SYRIZA-Independent Greeks coalition, more needs to be done to curb unemployment generally, and in particular among women.

Cuts in social welfare spending over the years have fallen most heavily on the shoulders of women, Achtsioglou said, adding that the current government remains determined to ease austerity as soon as possible.

And a foreclosure epidemic rocks the nation

Because of lost jobs and smaller paychecks, many Greeks are faced with a hard choice.

From Kathimerini again:

The austerity measures introduced by the government are forcing thousands of taxpayers to hand over inherited property to the state as they are unable to cover the taxation it would entail. The number of state properties grew further last year due to thousands of confiscations that reached a new high.

According to data presented recently by Alpha Astika Akinita, real estate confiscations increased by 73 percent last year from 2015, reaching up to 10,500 properties.

The fate of those properties remains unknown as the state’s auction programs are fairly limited. For instance, one auction program for 24 properties is currently ongoing. The precise number of properties that the state has amassed is unknown, though it is certain they are depreciating by the day, which will make finding buyers more difficult.

Financial hardship has forced many Greeks to concede their real estate assets to the state in order to pay taxes or other obligations. Thousands of taxpayers are unable to pay the inheritance tax, while others who cannot enter the 12-tranche payment program are forced to concede their properties to the state. Worse, the law dictates that any difference between the obligations due and the value of the asset conceded should not be returned to the taxpayer. The government had announced it would change that law, but nothing has happened to date.

Charts of the day: A look at the Greek debt burden


We have two charts from the just-published edition of The Greek Economy, a monthly update from the Hellenic Statistical Authority.

Of the many charts in the document, we picked these two because they depict to loss of national financial sovereignty in a dramatic way.

Our first chart is straightforward, showing the dramatic rise in the ratio of Greek debt to the national GDP:

The second graph charts the radical change in the nature of Greece’s debt, a changed mandated by the financial overlords of the International Monetary Fund, the European Central Bank, and the European Central Bank — the Troika — as a condition of financial aid.

In the chart, debt in the form of securities such as government bonds is represented by the broken blue line, while second broken line represents debt in the form of outright loans. The radical shift was the result of the Troika’s demands on becoming the nation’s financial overlords.

The third and constant line in the graph represents debt in the form of cash and cash deposits:

When lawmakers buy stock, the price rises


It really is the best Congress money can buy, one might reasonably conclude from the findings of a new academic study.

Yep, it seems to be one of those mysterious laws of the universe that when a member of Congress buys stock in a company, the value of that stock soon rises.

Oh, and when a member of Congress buys into a company, the business cuts back on lobbying because, presumably, their interests are financially merged.

More from the University of Arkansas [emphasis added]:

From 2005 to 2010, the average S&P 500 firm had seven members of Congress who owned stock in the firm, and some companies had closer to 100 members owning stock, according to a new study co-authored by a management professor at the University of Arkansas.

The study also found that firms in which a greater percentage of lawmakers invest in a given year performed significantly better the subsequent year.

“Each percentage of congressional membership owning stock was worth about a 1 percent improvement in return on assets,” said Jason Ridge, assistant professor of management in Sam M. Walton College of Business. “We think this suggests that it’s possible that members of Congress use their influence to benefit firms in which they invest.”

Ridge and co-authors Aaron Hill, associate professor at Oklahoma State University, and Amy Ingram, assistant professor at Clemson University, discussed these findings in a Harvard Business Review article [$36 for non-subscribers] published last week. The article was based on “The Signaling Role of Politician Stock Ownership: Effects of Lobbying Intensity,” their study that was published in the Journal of Management.

Ridge, Hill and Ingram confirmed previous research that members of Congress, on both sides of the political aisle, have substantial stock holdings in firms that are affected by their legislative actions. Ridge, Hill and Ingram wanted to understand how this works at the company level. To do this, they compared a sample of S&P 500 performance data from 2005 to 2010 with public disclosure information about Congress members’ stock holdings as compiled by the Center for Responsive Politics.

Firms are possibly using required public disclosure laws as a new way to influence lawmakers, Ridge said. For example, he and his co-authors found that firms, armed with knowledge of which members of Congress hold stock in their companies, scale back the intensity of their lobbying efforts with lawmakers, presumably because the companies assume that owning stock aligns the interests of firms with those of stock-holding lawmakers.

Ridge’s research focuses on executive leadership, compensation and political strategy.