The Lack of Safe Places to Invest

  • There’s a dark cloud building behind the world’s best period of synchronous growth among developed and emerging economies this decade — one that in time could rain down volatility in global markets.
  • The problem, identified by strategist and hedge fund manager Stephen Jen, is a deepening imbalance in the lack of new safe-haven assets as the world’s output expands.
  • China and other developing nations are accumulating wealth, but failing to create sophisticated local markets that feature their own risk-free instruments. That’s left a dangerous reliance on U.S. Treasuries, according to Jen’s argument, perpetuating a bond bubble and pushing investors into riskier assets.
  • The continued growth of emerging markets while their financial systems lag behind produces “a situation whereby the genuine safe-haven assets such as the U.S. Treasuries, German bunds, and the British gilts become increasingly rare and in short supply,” they wrote.
  • … emerging markets haven’t yet been able to develop assets that investors are willing to hold as stores of value and collateral when times get tough. Doing that requires strong levels of confidence in the rule of law, equitable regulation and belief that money can be withdrawn by the investor whenever needed. » The Bloomberg article -By Chris Anstey and Enda Curran – June 13, 2017
  • Links between trade and currency values (Jupiter images)

    Global banks admit guilt in forex probe, fined nearly $6 billion

  • Four major banks pleaded guilty .. to trying to manipulate foreign exchange rates and, with two others, were fined nearly $6 billion in another settlement in a global probe into the $5 trillion-­a-­day market.
  • The settlements .. stood out in part because the U.S. Department of Justice forced Citigroup’s main banking unit Citicorp, and the parents of JPMorgan, Barclays and Royal Bank of Scotland to plead guilty to U.S. criminal charges.
  • The investigations are far from over. Prosecutors could bring cases against individuals, using the banks’ cooperation pledged as part of their agreements. Probes by federal and state authorities are ongoing over how banks used electronic forex trading to favor their own interests at the expense of clients.
  • Citicorp will pay $925 million, the highest criminal fine, as well as $342 million to the U.S. Federal Reserve. Its traders participated in the conspiracy from as early as December 2007 until at least January 2013, according to the plea agreement.
  • Traders at Citi, JPMorgan and other banks were part of a group known as “The Cartel” or “The Mafia,” participating in almost daily conversations in an exclusive chat room and coordinating trades and otherwise fixing rates. » The Reuters article – BY Karen Freifeld, David Henry and Steve Slater – May 21, 2015.

Stricter Regulation of Foreign banking in the the U.S.

  • Federal Reserve Governor Daniel Tarullo defended the central bank’s rules requiring stricter supervision of foreign banking companies operating in the U.S., saying the global financial crisis made it clear that regulation needed to be expanded.
  • “The most important contribution the United States can make to global financial stability is to ensure the stability of our own financial system,” Tarullo said in a speech today to a Harvard Law School symposium in Armonk, New York.
  • Foreign bank reliance on short-term wholesale liabilities such as commercial paper to fund longer-term securities created instability in 2008 as sources of cash grew tight. The Fed provided backstop loans to both domestic and foreign bond dealers through the Primary Dealer Credit Facility, and to foreign banks directly through the discount window.
  • The Fed “provided substantial liquidity to the broker-dealer affiliates of the bank holding companies, as well as to the primary dealer subsidiaries of foreign banks,” Tarullo said.
  • The biggest borrowers from the discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record.
  • Under the rule issued in February, foreign banks with non-branch assets of $50 billion or more must hold their subsidiaries in holding companies that are subject to capital and liquidity standards applied to U.S. banks, and meet special risk management standards. » The full Bloomberg article – By Craig Torres and Susanne Walker – March 28, 2014

News from Wall Street

Image source – The Globe and Mail
    “Laws, like sausages, cease to inspire respect in proportion as we know how they are made.”
    John Godfrey Saxe, American poet and lawyer, 1869

  • Add bond ratings to that list. » More in this New York Times article – By Floyd Norris November 8, 2012.

S&P found guilty of misleading investors

  • Standard & Poor’s misled investors by awarding its highest rating to a complex derivative product that collapsed in value less than two years after it was created by ABN Amro, an Australian judge has ruled, in a landmark case that paves the way for legal action in Europe.
  • In a damning verdict the Federal Court of Australia ruled S&P and ABN Amro, now owned by RBS, had “deceived” and “misled” local councils that bought triple-­A rated constant proportion debt obligations (CPDOs) from an intermediary in 2006. » The full Financial Times article – By Neil Hume in Sydney – November 5, 2012.

  • Bank Investors Dismiss Moody’s Cuts as Years Too Late

    • Moody’s Investors Service suffered a downgrade of its own as markets responded to the company’s rating cuts of 15 of the world’s largest banks by bidding up the value of their stocks and bonds.
    • “We view the Moody’s downgrade as another overhyped story of 2012,” David Trone, analyst at JMP Securities LLC, wrote to his clients. “The corporate market thinks for itself and credit rating agencies are often lagging indicators.” » The full Bloomberg article – By Dakin Campbell and Michael J. Moore on June 22, 2012.
    • Looking back
    • A report by the Senate’s Permanent Subcommittee on Investigations said that S&P, Moody’s and Fitch Ratings helped trigger the financial crisis when they cut thousands of mortgage securities they rated AAA to junk status. The raters had engaged in a “race to the bottom” to win business, lawmakers said.
    • Even after Congress included rules in the Dodd-Frank Act last year designed to cut reliance on ratings, S&P and its competitors remain a key part of the financial markets. Pension and mutual funds often require minimum ratings to buy debt securities. Banks are generally required to hold less capital to back higher rated bonds as regulators including the Federal Reserve have yet to find an alternative. » The full Bloomberg background article – By Zeke Faux and Jody Shenn – Sep 1, 2011

    • The New York Times – Learning Network – Examining Key World Economies and Comparing Their Current Volatility
      Overview: Students review key economic terms and ideas necessary for understanding world economies. They then research the economies of countries in the Group of 10 and present how their economies have changed over the past five years and how the relationships among these countries affect each other in light of world events.  Go to this Economy and Society Lesson.
    • The New York Times – Learning Network – Understanding Credit Cards and Credit Card Debt
      Overview: Students examine and learn the basics about credit cards and credit card debt, then create an informational brochure for young students. Go to this Economy and ESL Lesson.

    When the News Ignites a Fuse

      Thailand’s censors ban ‘Tropico 5′ video game

    • Ever since the military coup of May 22, 2014 the junta that is ruling Thailand has imposed strict censorship measures on the media and has shown repeatedly that it will not tolerate criticism.
    • Journalists, if they have been temporary detained or reprimanded, have toned their reports down and partisan satellite channels (read: those of political parties) are still off air. The same heavy hand also extends to online and social media, where hundreds of websites have been blocked that carry anti-coup and anti-monarchy contents.
    • Now, the junta’s censorship measures have taken their strangest turn so far:
    • Censors under Thailand’s military junta have banned a city-building simulation computer game, saying it could hurt the country’s security, a video game distributor said Monday.
    • The film and video censorship office blocked sales of “Tropico 5″ because they feared “some part of its content might affect peace and order in the country,” New Era said.
    • She said the office, part of the Culture Ministry’s cultural promotion department, did not provide any further explanation in a written statement received by the distributor on Monday.
  • A video game distributor says Thailand’s film and video censors have banned a city-building simulation game for computers because it could hurt the country’s security.
  • In fact, the whole game franchise is a parody of a stereotypical Latin American banana republic and other historical figures that have meddled there. That has been the case in the previous four games, but the fifth one is apparently too much for the ThaiMiniCult to handle. At this point, the censorship seems already baseless and frivolous – if it wasn’t for this cherry on top:
  • “Playing a game is different from watching a movie, as this game allows all players to express their beliefs without fear of law, so it is inappropriate to distribute such a game, especially during the current situation,” Cultural Promotion Department chief Chai Nakhonchaihe. » The Asian Correspondent article – By Saksith Saiyasombut & Siam Voices August 06, 2014.

    • Thailand marketing manager Nonglak Sahavattanapong said the company will not appeal the decision.
    • Thailand has been under a military dictatorship since May 22, when soldiers overthrew a civilian government in a coup. » The AP article – August 5, 2014.

    Fighting intolerance Image source

    • The New York Times – Learning Network – When the News Ignites a Fuse
      Overview | Students examine news stories and images that have incited violence in the past to put into historical context recent news coverage. Go to this Media and Building a Healthy Society Lesson.
    • The New York Times – Learning Network – Keeping It Quiet
      Overview | Students consider ways in which countries use censorship to control information. Go to this Law and Society Lesson.
    • World Wise SchoolLooking at ourselves and others
      | Students will recognize that their classmates hold a variety of opinions. Students will see how personal tastes and experiences – in addition to culture – influence our perspectives. Go to this Building Society Lesson.
    • The New York Times – Learning Network – The Political is Personal
      Overview | Students explore their own personal political philosophies by identifying events, people and experiences that have helped shape their beliefs and writing an essay. Go to this Building Society and ESL Lesson.

    Cash, Charge or Save?

    Secret Millionaires Club
    Original Guardian image and article »

    Nebraska-based Buffett has built a vast army of US followers who admire his flair for picking successful investments and acquisitions. His fortune is estimated at $37bn (£22.5bn), ranking second only to Bill Gates’s $40bn on Forbes magazine’s annual ranking of the world’s richest people.
    Buffett said the credit crunch served as a reminder of the need to teach children about money: “What better time to help educate our kids about financial responsibility.” From this Guardina article » By Andrew Clark.

    • The New York Times – Learning Network – Preparing an Annual Budget
      Overview: Students play a game to determine if they know the costs of common items. As consumers, they then develop their own personal finance budgets to determine how they might reduce their personal spending.Go to this Economy and ESL Lesson.
    • The New York Times – Learning Network – Understanding Credit Cards and Credit Card Debt
      Overview: Students examine and learn the basics about credit cards and credit card debt, then create an informational brochure for young students. Go to this Economy and ESL Lesson.