Category Archives: Banking

The dangers of ultra-long-term bonds

By Judd Gregg – The dollar is the key to world commerce. It is used by most nations as their reserve currency. It is essentially other countries’ insurance against their governments pursuing profligate fiscal policy.

This fact would possibly make the sale of 50- or 100-year U.S. bonds acceptable in the world market. But it should also give us significant pause.

If we want our currency to be the reserve currency of choice around the world, then we need that currency to be respected.

If we start issuing general obligation bonds that have 50- or 100-year terms, we will inevitably call into question the long-term integrity of our nation’s fiscal house. Financing current expenses for 5, 10 or even 30 years may be an accepted practice, but to go out 50 or 100 years is not. more> https://goo.gl/t5bjEg

Updates from GE

Charged Up: GE Shows Investors Its Energy Playbook
By Tomas Kellner – The acquisition of Alstom’s energy assets delivered $1.5 billion in synergies in 2016, $300 million above GE’s original five-year target for Alstom synergies, GE’s Chief Financial Officer Jeff Bornstein told investors at a conference in New York held by GE’s Power and Renewable Energy businesses last week. “Alstom makes us more competitive,” Bornstein said. “It broadens the service base and creates long-term incremental value.”

Jobs, cash, costs and software were the key themes at the conference. Bornstein said GE Oil & Gas was now “applying the same methodology” to its planned merger with Baker Hughes. “The businesses are very complementary,” he said. “It’s going to be a merger of equals.” Bornstein said he was “highly confident” the deal would “deliver a lot more value than $1.6 billion” in synergies by 2020, the target the companies released when they announced the deal last October.

Bornstein also talked about the need to speed up the shrinking of GE’s $25 billion in “structural costs,” which are funding support functions, R&D, corporate operations and other expenses. more> https://goo.gl/z07MkD

The Ghost Bosses

By Brian Alexander – Lancaster’s decline wasn’t the result of some sort of natural and inevitable evolution of technology, like the demise of the buggy-whip industry, nor of the pressures of free trade and offshoring, as intense as those have been.

It is the culmination of a series of decisions over a period of roughly 35 years. As one former CEO of EveryWare Global told me, “It’s not about making the product. It’s about making money appear and the 99 percent doesn’t understand that.”

The Plant 1 employees certainly don’t. They only know that the old social contract has disintegrated and that nothing has come to take its place.

Back in 1984, A. Bartlett Giammatti, who was then the president of Yale University, and who would later become the commissioner of Major League Baseball, warned that the tide of deal-making and the financialization of the economy could lead to disillusionment and drift as “the impulse to private gain has nothing to connect itself to except itself.” more> https://goo.gl/pdCRz1

Adequate Housing: Global Financial Institutions Hold the World to Ransom

By Aisha Maniar – Global real estate is valued at around USD 217 trillion, representing 60% of all global assets.

At a recent press conference, the UN Special Rapporteur on the Right to Adequate Housing, Leilani Farha, stated that “Residential real estate is valued at $USD 163 trillion or more than twice the world’s total GDP.” She added, “Imagine if that capacity was harnessed for the realization of the right to housing instead of speculation and profit.’

In presenting a new hard-hitting report on 1 March, which “focuses on the “financialization of housing” and its impact on human rights”, Farha stated that “Housing has lost its currency as a human right” and “has been financialized: valued as a commodity rather than a human dwelling.”

The housing crisis, which “has not often been considered from the standpoint of human rights,” is global.

Many Western governments have adopted a “let them eat cake” response to the crisis. Rather than address the question of affordable and adequate housing, governments have acquiesced to market forces, with the governments of the UK and Ireland, for example, seeing a solution in building more private homes, to the benefit of developers, even though many properties lie empty in both states.

The Australian government continues to grant tax concessions to developers. more> https://goo.gl/5vYwcy

Brexiters and Remainers both fail to grasp the challenges facing Britain

By Tom Kibasi – Neither Remainers nor Brexiters are facing up to our problems – and their failures are letting Britain down. During the referendum, Remain campaigners argued that things were fine when they were not and, since the result, Brexiters have argued that things will be fine when without serious change they will not be.

Immigration is such an important issue precisely because free movement of labor is the crucial enabler of the low skill, low productivity, low wage economic model that has been imposed on much of the country. It is this economic model – combined with the cultural and identity challenge of large-scale immigration – that has created such discontent with the status quo.

What’s more, there is nothing progressive about declining to invest in skills in this country, while plundering poor countries of nurses or doctors or carers and then approaching immigration as if people were commodities to be bought up on the open market. more> https://goo.gl/ctcTto

The Blockchain Will Do to the Financial System What the Internet Did to Media

By Joichi ItoNeha NarulaRobleh Ali – Even years into the deployment of the internet, many believed that it was still a fad.

Fast forward two decades: Will we soon be seeing a similar impact from cryptocurrencies and blockchains?

There are certainly many parallels. Like the internet, cryptocurrencies such as Bitcoin are driven by advances in core technologies along with a new, open architecture — the Bitcoin blockchain. Like the internet, this technology is designed to be decentralized, with “layers,” where each layer is defined by an interoperable open protocol on top of which companies, as well as individuals, can build products and services.

Like the internet, in the early stages of development there are many competing technologies, so it’s important to specify which blockchain you’re talking about.

The internet and its layers took decades to develop, with each technical layer unlocking an explosion of creative and entrepreneurial activity.

Early on, Ethernet standardized the way in which computers transmitted bits over wires, and companies such as 3Com were able to build empires on their network switching products.

The TCP/IP protocol was used to address and control how packets of data were routed between computers. Cisco built products like network routers, capitalizing on that protocol, and by March 2000 Cisco was the most valuable company in the world.

In 1989 Tim Berners-Lee developed HTTP, another open, permissionless protocol, and the web enabled businesses such as eBay, Google, and Amazon. more> https://goo.gl/LCuZG0

When Bankers Started Playing With Other People’s Money

By William D. Cohan – On April 10, 1970, nearly a year after first filing its IPO prospectus with the SEC, DLJ pulled it off, raising $12 million from the public and as a result fundamentally altering how Wall Street has functioned ever since. “Going public changed Wall Street permanently and forever,” Richard Jenrette (the J in DLJ) told the Times.

On April 10, 1970, nearly a year after first filing its IPO prospectus with the SEC, DLJ pulled it off, raising $12 million from the public and as a result fundamentally altering how Wall Street has functioned ever since. “Going public changed Wall Street permanently and forever,” Richard Jenrette (the J in DLJ) told the Times.

The truth was going public made perfect sense for DLJ and the many Wall Street firms—nearly every one—that followed its lead.

The problem is that the country is still dealing with the unintended consequences of the DLJ IPO to this day. And, of course, back in 1970, very few people, if any, were paying attention to what a small private partnership on Wall Street was trying to do to change the system. And honestly, the importance of the DLJ IPO has still not been fully appreciated. But it was a seminal event.

Ultimately, the unintended consequences of the DLJ IPO would be devastating. In October 1970, Weeden & Co. followed DLJ’s lead and went public. Then the floodgates opened. more> https://goo.gl/z6MzwK

How the baby boomers destroyed everything

By Bruce Cannon Gibney –  My indictment of boomers may seem overbroad, but the thesis is quite specific: the unusual prevalence of sociopathy in an unusually large generation. How does that disorder manifest?

Improvidence is reflected in low levels of savings and high levels of bankruptcy.

Deceit shows up as a distaste for facts, a subject on display in everything from Enron’s quarterly reports to daily press briefings. Interpersonal failures and unbridled hostility appeared in unusually high levels of divorce and crime from the 1970s to early 1990s.

These problems expressed themselves at generationally unique levels in boomers, to a greater extent than in boomers’ parents or children at comparable ages. (My forthcoming book lays out all these data in detail.)

When problems grow large, boomers resort to deceit, and the huge degradation of truth suggests just how bad things have gotten. Whether it be misrepresentations by Worldcom, Lehman Brothers, Bill Clinton, Newt Gingrich, or General Michael Flynn, boomer culture has wallowed in duplicity for decades. more> https://goo.gl/9FOqFv

In praise of cash

BOOK REVIEW

The Heretic’s Guide to Global Finance, Author: Brett Scott.
The Curse of Cash, Author: Kenneth Rogoff.

By Brett Scott – So here I am, the tired individual rationally seeking sugar. The market is before me, fizzy drinks stacked on a shelf, presided over by a vending machine acting on behalf of the cola seller. It’s an obedient mechanical apparatus that is supposed to abide by a simple market contract: If you give money to my owner, I will give you a Coke. So why won’t this goddamn machine enter into this contract with me?

This is market failure.

To understand this failure, we must first understand that we live with two modes of money. ‘Cash’ is the name given to our system of physical tokens that are manually passed on to complete transactions. This first mode of money is public. We might call it ‘state money’. Indeed, we experience cash like a public utility that is ‘just there’.

This second mode of money is essentially private, running off an infrastructure collectively controlled by profit-seeking commercial banks and a host of private payment intermediaries – like Visa and Mastercard – that work with them. The data inscriptions in your bank account are not state money.

Rather, your bank account records private promises issued to you by your bank, promising you access to state money should you wish. Having ‘£500’ in your Barclays account actually means ‘Barclays PLC promises you access to £500’. The ATM network is the main way by which you convert these private bank promises – ‘deposits’ – into the state cash that has been promised to you. The digital payments system, on the other hand, is a way to transfer – or reassign – those bank promises between ourselves.

The cashless society – which more accurately should be called the bank-payments society – is often presented as an inevitability, an outcome of ‘natural progress’. This claim is either naïve or disingenuous. Any future cashless bank-payments society will be the outcome of a deliberate war on cash waged by an alliance of three elite groups with deep interests in seeing it emerge. more> https://goo.gl/KRlMGW

The Only Thing, Historically, That’s Curbed Inequality: Catastrophe

By Walter Scheidel – The pressures of total war became a uniquely powerful catalyst of equalizing reform, spurring unionization, extensions of voting rights, and the creation of the welfare state. During and after wartime, aggressive government intervention in the private sector and disruptions to capital holdings wiped out upper-class wealth and funneled resources to workers; even in countries that escaped physical devastation and crippling inflation, marginal tax rates surged upward.

Concentrated for the most part between 1914 and 1945, this “Great Compression” (as economists call it) of inequality took several more decades to fully run its course across the developed world until the 1970s and 1980s, when it stalled and began to go into reverse.

This equalizing was a rare outcome in modern times but by no means unique over the long run of history. Inequality has been written into the DNA of civilization ever since humans first settled down to farm the land.

Throughout history, only massive, violent shocks that upended the established order proved powerful enough to flatten disparities in income and wealth. They appeared in four different guises:

  1. mass-mobilization warfare,
  2. violent and transformative revolutions,
  3. state collapse, and
  4. catastrophic epidemics.

Hundreds of millions perished in their wake, and by the time these crises had passed, the gap between rich and poor had shrunk. more> https://goo.gl/b2D6Dj