Cyprus has imposed temporary capital controls. This column sheds light on how temporary and how damaging they are likely to be, based on Iceland’s experience. The longer controls exist, the harder they are to abolish. Icelandic capital controls, which have been ‘temporary’ for half a decade, deeply damage the economy by discouraging investment.
Read more...By John C.K. Daly, the chief analyst for Oilprice.com. Cross posted from OilPrice
As the practice of hydraulic fracturing to produce natural gas continues to spread not only in the U.S. but worldwide, the scientific community has increasingly focused on the environmental consequences of the technique. The most worrisome side effect of “fracking” is the rise of earthquakes in areas where the practice is extensive.
Read more...A couple months ago, Elizabeth Warren and Elijah Cummings opened what they described as an investigation into the Independent Foreclosure Reviews. We all knew the IFRs deserved some form of response by Congress, and we knew that the OCC and the Fed wanted no part of any questioning of their latest gift to predatory banks and their fraudulent practices.
But we didn’t know how much they would try to stonewall this investigation right from the outset – at least not until today, when Warren and Cummings released some of their recent correspondence with the federal regulators.
Read more...Yves here. Readers have asked us to write about the ginormous scale of the derivatives market. This article is a layperson-friendly discussion of bank efforts to stymie the not-onerous safeguards in Dodd Frank and why you should be up in arms about it.
Read more...Yves here. I’ve heretofore avoided the topic of Bitcoin, since I recall the brief fad of the Second Life currency, which then flamed out impressively. And Bitcoin already has had the US Treasury clear its throat and say if market participants try exchanging Bitcoin for dollars, it takes a dim view of that. Recall that the IRS threatened to tax frequent flier miles, but later dropped that idea. But there is a more obvious choke point with Bitcoin, and the Treasury may come up with others if it were to be used as commercial tender. Nevertheless, the fact that Treasury has taken notice suggests that at least some readers are interested in it as well.
Read more...Not surprisingly, Sheila Bair was appalled by the revelations from Carl Levin’s hearings on the JP Morgan London Whale losses. She discusses not only what it says about the bank, but about the state of regulation in the US.
Read more...By Patrick Bond, a political economist with longstanding research interests and NGO work in urban communities and with global justice movements in several countries. He teaches political economy and eco-social policy, directs the Centre for Civil Society and is involved in research on economic justice, geopolitics, climate, energy and water. Cross posted from Triple Crisis
A secondary objective of the Copenhagen deal – aside from avoiding emissions cuts the world so desperately requires – was to maintain a modicum of confidence in carbon markets. Especially after the 2008 financial meltdown and rapid decline of European Union Emissions Trading Scheme, BASIC leaders felt renewed desperation to prop up the ‘Clean Development Mechanism’ (CDM), the Third World’s version of carbon trading
Read more...Bloomberg tweeted about 40 minutes ago that Cyprus had approved the legislation necessary for the EU bailout, but still does not have a news story up. The Wall Street Journal as of now has a “Breaking News” item on its website, again no story yet, “Cyprus lawmakers approve key bills aiming to secure broader bailout package.” So this looks to be a done deal.
Read more...Mr. Market decided yesterday that the fact that the Cypriot finance minister, Michalis Sarris, was meeting as previously scheduled with Russian officials meant all would be well. And even better…Bernanke said the Cyprus banking mess would be contained. So why worry?
The ECB just announced that it will extend the ELA to Cyprus only through Monday. After that, it will cut off Cyprus if it has not knuckled under to an EU/IMF deal.
Read more...Yves here. You will notice that this list of options for Cyprus is very depressing and does not envision Russia riding in to the rescue in a big way. It also treats a 20% fall in GDP as a possibly optimistic base case.
Read more...Cyprus, as its President Nicos Anastasiades predicted but no one outside Cyprus quite believed would happen, has resoundingly defied the will of the Eurozone in failing to surrender a single Parliamentary vote to a diktat to haircut depositors to save its number two bank, whose failure would in all likelihood bring down Cyprus’s entire banking system. The members of the President’s own party abstained despite his resigned support for the deal. And mind you, this was after the terms revised to allow for deposits under €20,000 to be spared.
The EU was utterly unprepared for this rebellion.
Read more...A quick run-down on the impressively stupid handling of the “Cyprus bailout” by the EU.
Read more...The state of play in Cyprus is that negotiations in Parliament are underway, with the hope of a yes vote on a “Plan B” today. The Cypriot officialdom has allowed for slippage in this timetable, with the bank holiday in effect till Thursday. The latest events were largely a nothingburger, aside from the big news of the failure to approve the president’s plan yesterday: European ministers confirmed that they’ll approve an agreement so long as Cyrpus obtains €5.8 billion from depositors. Monday night, President Nicos Anastasiades gave his version of the Hank Paulson armageddon speech on national TV, laying out the fact that no deal means an immediate collapse of “one bank” (presumably Liaki), and a possible exit from the Eurozone.
The widespread assumption is that the Cypriots will fall into line, since the alternative really does look even uglier. But the runway is pretty short.
Read more...One of the big lessons of the fraught negotiations over bailing out (or more accurately, in) Cyprus’s banks is that deregulating institutions with an implicit or explicit state guarantee is a bad idea. You’ve just given them a license to gamble with the public’s money, and you can rest assured that they will eventually avail themselves of it. A bit more than a week ago, Jim Himes (an ex Goldman officer) and Randy Hultgren introduced bills that not only aim perpetuate this situation but will make it worse.
Read more...By Edward Kane, Professor of Finance at Boston College and founding member of the hadow Financial Regulatory Committee
“We are a moving company not a storage company”
…Apocryphal Bear Stearns executive
Regulators define a financial institution’s capital as the difference between the value of its asset and liability positions. The idea that capital requirements can serve as a stabilization tool is based on the presumption that, other things equal, the strength of an institution’s hold on economic solvency can be proxied by the size of its capital position. That in turn assumes you can rely on those figures.
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