Author Archives: Yves Smith

How Much Success is Syriza Likely to Have in Ending Austerity?

While the election results in Greece have sent shockwaves through European technocratic elites and have rattled investors, it is not clear how successful Syriza will be in getting big enough changes implemented in Eurozone policies and its own bailout terms to end the humanitarian crisis, rather than just create the sort of bounce off the bottom growth that analysts like to depict as progress. Indeed, once you walk though the likely bargaining positions of the various parties, there is little reason to be optimistic on Syriza’s behalf.

Read more...

Media Demonization of Syriza: Pretending that Neoliberalism is Popular and Mainstream

We’re having two posts on the Greek elections tonight, since the media accounts are so slanted as to merit discussion. The notion that a democratically elected government would put broad social interest over continued, self-destructive sacrifices to financiers and their allies in European governments is so threatening that a large swathe of media outlets seem […]

Read more...

Ilargi: Brussels is a Bunch of Criminals

I was going to start out saying yesterday was the saddest day in Europe in 50 years, or something like that, because of the insane and completely nonsensical largesse the ECB permits itself to launch, aimed at once again saving a banking system, but which will not only not help the European people, it will make things even much worse than they already are. Which is also, lest we overlook that ‘detail’, entirely thanks to the ECB/EU/IMF Troika.

Read more...

Announcing (Actually, Confirming) Our Focus on the CBO’s Dubious Models and Political Bias

We’ve been writing about abuses of power and process at the Congressional Budget Office and will be ramping up our coverage further now that ranking member Bernie Sanders has a new team at the Budget Committee, which among other things supervises the CBO. And the CBO is going to be the subject of a major political fight over how it prepares its estimates of the economic and fiscal impact of pending legislation. As we’ll discuss below, Republicans plan to mandate that the CBO use something called dynamic scoring, which has the effect of making tax cuts look far more beneficial to the economy than they are, by effectively claiming that tax cuts boost growth, which then boosts tax receipts. It would effectively institutionalize the Laffer curve, which has been widely and repeatedly debunked. As troubling as this development is, there’s already a lot not to like in how the CBO operates.

Read more...

KKR’s Botched Document Cover-Up Reveals Washington Public Pension Fund Cronyism

As we’ve been examining private equity abuses, readers have been incredulous that investors have put up with one-sided, deliberately vague, complex, and/or obfuscatory contracts, unreasonable demands for secrecy, and lack of access to critically important information, such as the financial statements of the portfolio companies that they own. This failure of investors to protect their own interest is particularly troubling given that so many are fiduciaries.

We have another example of this sort of conduct that comes out of an important story in the Wall Street Journal yesterday. Private equity kingpin KKR made what amounted to an admission of guilt by rebating fees that the SEC had found were improperly charged, meaning stolen from the limited partners. We’ve obtained the document that was the foundation of the story and are embedding it at the end of this post. It’s a remarkable example of how cronyistic the relationships are between hapless, captured investors and the general partners who led them by the nose.

We are about to do some document forensic work, so put on your gumshoes!

Read more...

Removing the Social Security Tax Cap Would Benefit Most Workers

As we and others have discussed at some length, the concern over Social Security funding is vastly overhyped. As Nicole Woo discusses in this Real News Network interview, one simple fix, that of eliminating the cap on who is subject to the tax, would solve most of the gap that is anticipated in long-term projections. That’s before we get to the MMT issue that “taxing” to fund any government activity is a political mechanism that is a holdover from the gold standard days, and not how government functions are funded operationally.

In fact, with more and more promised pensions being slashed, and investment returns flagging thanks to QE and ZIRP, the notion that ordinary people can save enough for their retirement is a chimera. Thus preserving and strengthening Social Security is more important than ever.

Read more...

Poroshenko Makes Battle of Donetsk Airport Precondition for New $50 Billion Bailout – Ukrainians Repelled in the Battle of Davos

The machinations over the next round of funding in Ukraine are wild. No one, particularly the US, wants to fund Ukraine and debt default looks likely, yet Ukrainian President Petro Poroshenko is demanding a huge amount of additional funds. Soros is trying to end run the IMF, albeit with not much success so far.

Read more...

KKR Rebates Some Ill-Gotten Fees to Investors Due to Dodd Frank Reforms

KKR made what amounted to an admission of guilt to the blistering charges that the SEC laid at the doorstep of the private equity industry last May. Then, Andrew Bowden described in unusually specific detail the widespread, serious abuses it was finding in its initial private equity examinations, including what amounted to embezzlement.

Mark Maremont of the Wall Street Journal, based on a document obtained by FOIA from the Washington State Investment Board, learned that KKR had disgorged some ill-gotten fees.

Read more...

Benchmarking the ECB’s QE Program

The ECB is set to announce the details of its QE program tomorrow. Many analysts and investors have been trying to puzzle out how its operations might work, since those details will make a difference in what impact if any it has.

Frankly, we are hugely skeptical of this initiative. The US version, which is bizarrely touted as a success, further zombified the economy. It goosed asset prices, which widened wealth and income inequality. Now respectable economists are decrying the widening gap between rich and poor and the lack of class mobility as a brake on growth, yet they also refused to endorse debt restructuring and much more aggressive fiscal spending. And some experts contend that the reason the Fed decided to end QE last summer was that it came to recognize the costs outweighed what if anything it produced in the way of benefits. Of course, they can never admit that publicly or even privately if true.

In Europe, there is even more reason to be expect QE to be at best ineffective. Unlike the US, where as a matter of policy, a lot of financing takes place through the capital markets (for instance, credit card debt, subprime auto loans, home loans are all securitized to a large degree), in Europe, far more credit is on bank balance sheets, and small to medium sized corporate lending is far more important than in the US. Thus, while as we have repeatedly explained, putting money on sale is unlikely to result in more borrowing unless the cost of money is the biggest cost of running your business (ie, you are a bank or a speculator), in Europe you have the added layer that reducing investment yields is unlikely to change how credit officers view lending to small/medium sized enterprises (assuming they even want to borrow) in a weak, deflationary economy.

This Bruegel post describes the major options that the ECB has in designing its QE program, which will help readers benchmark tomorrow’s announcement. One might politely describe the choices as bad and less bad.

Read more...