Yves here. The US media has given considerably more attention to the TransPacific Partnership, the western sister of an ugly multinational-enrichment-scheme-billed-as-a-trade-deal called the Transatlantic Trade and Investment Partnership. The comparative silence about the US-European deal has led many observers to assume that it is more or less on track.
Maybe not.
Read more...Yves here. I have to admit I never focused on what turns out is a blindingly obviously reason why the European bank stress tests are an exercise in optics. Even though this website derided the US stress tests as a cheerleading exercise, and earlier criticized the Administration for failing nationalize Citigroup as FDIC chairman Sheila Bair sought to do, the US authorities were in a position to Do Something about sick banks. Consider the European case (note I consider Yanis to be too charitable toward US bank regulators, but keep in mind that he’s comparing them to his home-grown version). And then you have the additional problem, which was widely discussed in 2009 to 2011 or so, that the apparent insolvency of states was the result of and bound up with the overindebtedness of European nations. Perversely, tha is almost never put front and center these days when the topic of seriously unwell European banks comes up.
Read more...Yves here. As we’ve repeatedly pointed out, bank “stress tests” are officially-orchestrated bank PR. And the reason they worked so well the first time was that exercise was accompanied by all sorts of Administration “we’re fully behind the banks” messaging, including a commitment that any banks that fell short would get a heapin’ helping of new capital. But the effort to talk bank stock prices up worked so well that many, even the weaker ones, were able to float new shares.
The Europeans have tried emulating the Americans, but with more emphasis on the optics and less on prodding the banks to take meaningful steps to shore up their capital bases. Ilargi describes how even this exercise in porcine maquillage is failing to cover up the unhealthy state of many banks.
Read more...Yves here. While investors remain fixed on how much more the Fed and the ECB will pump into financial assets via QE, Eurozone banks lumber on in their walking wounded state. Deflationary pressures and lousy growth grind down weak and even once-good borrowers. And it’s not as if the banks who lent to them in the first place were good shape themselves.
As we wrote at the onset of the Eurozone bank stress tests, they were designed to be even more cosmetic than the US bank stress tests. Just a month ago, we posted an analysis that showed that many countries in Europe have banking systems weaker than those in Latin America.
Even with the efforts to use the stress tests as a confidence-building exercise, the result of the current exam of Eurozone banks is expected to be less than impressive.
Read more...Yves here. Pop star Bono is a case study in hypocrisy thanks to his use of corporate-friendly tax dodges and and advocacy of creating tax havens as a viable form of economic development. Ireland exemplifies of how well, as in badly, this approach has worked.
Read more...As things go from bad to worse in the eurozone the putative adults have begun to fight openly in front of the kids. The putative adults, of course, have refused to act like adults for six years and instead have lived in a fantasy world in which austerity – bleeding the patient – is the optimal response to a recession. As many of us have been warning for six years, this is a great way to create gratuitous recessions and even the Great Depression levels of unemployment in three nations of the periphery with 100 million citizens.
Read more...Asian stock markets continued to fall today, propelled at least in part by the adverse reaction to the Saudi announcement yesterday that they would let oil prices fall to $80 a barrel. And further reports indicate that the Saudis intend to keep oil prices low enough to force a realignment of prices not just among various grades of crude, but also for intermediate and long-term substitutes.
It is critical to remember that the Saudis have no compunction about imposing costs on other nations to maximize the value of their oil resource long term and hence the power they derive from it. Their oil price cut looks to be a strategic masterstroke.
Read more...Yves here. For US readers, the posture of the IMF may not seem like a terribly important topic. But most countries in the world face decent prospects of being subject at some point to its tender ministrations. And even those that would seem to be exempt, like Germany, nevertheless also are subject to its impact through how IMF programs affect its export markets and Eurozone arrangements.
The IMF’s policies received a great deal of attention last year as its chief economist, Olivier Blanchard, effectively admitted that austerity did not work. The formulation was that in most cases, fiscal multipliers are greater than one. That means that cutting government deficits, in an effort to lower government debt, is ultimately counterproductive because the economy shrinks even more than the reduction in spending. The result is that the debt to GDP ratio actually gets worse. This outcome is no surprise to anyone who has been paying attention, since the neoliberal experiment has produced the same bad results when administered in Greece, Latvia, Ireland, and Portugal, to name a few.
But what did this rare bout of empiricism mean for the IMF? This post gives that question a hard look.
Read more...Is the European crisis over, or chronic? Must the EU be transformed, or can it be tweaked? Economists respond to the “Modest Proposal”
Read more...Yves here. This post is more important than it might seem. I find it is taking more and more effort to navigate through the hall of mirrors of propagandizing, particularly in the geopolitical realm. Thus it is critical to read news on two levels: its content, and how it is presented, as in how it is framed, what experts are cited, what issues are buried or omitted. Living with all Pravda, all the time, is intellectually taxing, at least if you care to understand what is really going on.
Read more...The Modest Proposal will stem the European crisis without breaking any rules, without having the core countries pay one euro for the debts and losses of the periphery, and without any further diminution of national sovereignty.
Read more...With the recent Global Crisis, the interest in systemic risk and the interconnection between financial institutions has increased. This column investigates the case of European financial firms, where several factors can jeopardise a firm’s financial health. Using data since 2000 to evaluate the firms’ systemic risk, the authors find that for certain countries, the cost to rescue the riskiest domestic banks is too high. They might be considered too big to be saved.
Read more...Yves here. A new ruling by the European Union Court of Justice is tantamount to shutting the gate door after the horses are in the next county. Nevertheless, it’s a striking if not well publicized indictment of US casualness about lobbing charges against countries on its enemies list.
Read more...We’re expecting to have some more thoughtful commentary in the next day or so from some close observers of the Scottish independence vote. On the surface, the results look more decisive than expected earlier. The margin of victory, at 55% against and 45% for, was wider than the forecast 54%/46% split. And the English press looks to be rubbing it in, with most UK media outlets showing celebratory images of the victors.
But keep a few things in mind….
Read more...Yves here. Bill Black shellacks a New York Times article that gives a big dose of unadulterated neoliberal propaganda supporting austerity. To give you a sense of the intellectual integrity of this piece, it including citing a Peterson Institute staffer without cluing readers in to the fact that the Institute has what is left of the middle class in its crosshairs.
Black stresses that one of the major lies behind the continuing for more, better hairshirts for long-suffereing Europeans is that the explosion in debt levels in Europe was the result of overly-generous social safety nets. In fact, as in the US, the tremendous rise in government debt levels was the direct result of the crisis. Tax revenues collapsed due to GDP whackage (and the costs continue as GDP is well below potential). And any economist worth their salt will also say that social safety nets ameliorated the severity of the damage, that those automatic stabilizers increased government spending when it was needed most, at the depth of the implosion, and prevented a spiral into a much deeper downturn.
Read more...