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The price of oil has surged by 8% after the 14-nation cartel Opec agreed to its first cut in production in eight years. Confounding critics who said the club of oil-producing nations was too riven with political infighting to agree a deal, Opec announced it was trimming output by 1.2m barrels per day (bpd) from 1 January. The deal is contingent on securing the agreement of non-Opec producers to lower production by 600,000m barrels per day. But the Qatari oil minister, Mohammed bin Saleh al-Sada, said he was confident that the key non-Opec player – Russia – would sign up to a 300,000 bpd cut. Russia’s oil minister, Alexander Novak, welcomed the Opec move but said his country would only be able to cut production gradually due to “technical issues”. A meeting with non-Opec countries in Moscow on 9 December has been pencilled in.

Al-Sada said the deal was a great success and a “major step forward”, but the news that Saudi Arabia had effectively admitted defeat in its long-running attempt to drive US shale producers out of business was enough to send the price of crude sharply higher on the world’s commodity markets. Brent crude was trading at just over $50 a barrel following the completion of the Opec meeting in Vienna – an increase of almost $4 on the day. Saudi Arabia will bear the brunt of Opec’s production curbs, having agreed to a reduction in output of just under 500,000 bpd. Iraq has agreed to a 210,000 bpd cut, followed by the United Arab Emirates (-139,000), Kuwait (-131,000) and Venezuela (-95,000). Smaller countries are also reducing output, but Iran – which has only recently returned to the global oil market after the lifting of international sanctions – has been allowed to continue raising output.

Let’s say that the jury’s out.

• Preet Bharara to Stay On as Manhattan US Attorney Under Trump (WSJ)

Preet Bharara, the Manhattan U.S. attorney, has agreed to stay in his current role under the Trump administration, a surprise move that could signal the president-elect is serious about cracking down on Wall Street wrongdoing. Mr. Bharara, famous for his aggressive prosecutions of insider trading and corruption in New York, met with President-elect Donald Trump in Trump Tower on Wednesday. Afterward, Mr. Bharara told reporters that Mr. Trump asked whether he was prepared to remain as U.S. attorney, and Mr. Bharara said he was. “We had a good meeting,” Mr. Bharara said. “I agreed to stay on.” Since 2009, Mr. Bharara has served as the U.S. Attorney for the Southern District of New York, one of the highest-profile U.S. attorney’s offices in the country.

An appointee of President Barack Obama, he rose to prominence after pursuing dozens of insider-trading cases, leading to his moniker as the “sheriff of Wall Street.” The office is also seen as a leader in public corruption, cybercrime and terrorism prosecutions. His office has brought corruption charges against a dozen state lawmakers in New York and convicted the leaders of both legislative houses. Keeping Mr. Bharara appears to be at odds with other picks Mr. Trump has made. Despite campaigning against Wall Street excesses and the largest banks, Mr. Trump has tapped Wall Street investors for key positions in his cabinet, including a former Goldman Sachs executive, Steven Mnuchin, for Treasury Secretary and a billionaire private-equity investor, Wilbur Ross, to run the Commerce Department.

Partly as a result, financial services executives have quickly warmed to the prospect of a Trump presidency. His team has promised to roll back parts of the 2010 Dodd-Frank financial overhaul law enacted in the wake of the financial crisis, saying it has cut back on lending. But the decision to keep Mr. Bharara is likely to temper speculation that a Trump administration might focus less on corporate wrongdoing, white-collar lawyers said.

“In one fell swoop, a significant part of their net worth goes up in smoke.”

• Trump’s Tax Cut Means Billion-Dollar Writedowns for US Banks (BBG)

Donald Trump’s planned U.S. corporate tax cuts could translate to a big one-time earnings hit for many of the biggest U.S. banks, thanks to tax benefits they generated during the 2008 financial crisis. Citigroup would take the deepest earnings hit – perhaps $12 billion or more, according to recent estimates by the bank’s chief financial officer and several banking analysts. Others, including Bank of America and Wells Fargo could face multibillion-dollar writedowns. The banks might have to write down deferred tax assets, which often pile up when a company loses money and can’t immediately enjoy the tax benefits of those losses.

Any writedowns won’t have much impact on capital levels for the banks for regulatory purposes, and lower taxes will allow for higher earnings in the long run. But a one-time hit to earnings can make for a bruising quarter – and even year – for a bank’s results. “It’s a traumatic experience for companies with large” amounts of such assets, said Robert Willens, an independent tax and accounting expert in New York. “In one fell swoop, a significant part of their net worth goes up in smoke.” Deferred tax assets, as disclosed in securities filings, consist of benefits that companies expect to use to cut their future tax bills.

For most companies, the bulk of their value is tied to the current U.S. corporate tax rate of 35%. (Assets stemming from, say, state tax bills are tied to state tax rates.) The assets include unused credits for foreign taxes companies have paid; deductions they’re allowed to take in future years for prior losses; and future tax advantages that stem from so-called “timing differences” – or gaps between when income or expenses are reported to shareholders and to the Internal Revenue Service. Analysts say that calculating the value of assets associated with timing differences can be as much an art as a science.

America without a car.

• 6 Million Americans Are Delinquent On Auto Loans (MW)

The number of subprime auto loans sinking into delinquency hit their highest level since 2010 in the third quarter, with roughly 6 million individuals at least 90 days late on their car-loan payments. It’s behavior much like that seen in the months heading into the 2007-2009 recession, according to data from Federal Reserve Bank of New York researchers. “The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years,” the researchers, led by Andrew Haughwout, said Wednesday in a blog on their Liberty Street Economics site. Weakness among the lowest-rated borrowers plays out against a robustly growing vehicle lending market.

Originations of auto loans have continued at a brisk pace over the past few years, with 2016 shaping up to be the strongest of any year within the NY Fed’s data, which began in 1999. It’s worth noting that the majority of auto loans are still performing well—it’s the subprime loans, those with associated credit scores below 620, that heavily influence the delinquency rates, the researchers said. Consequently, auto finance companies that specialize in subprime lending, as well as some banks with higher subprime exposure are likely to have experienced declining performance in their auto loan portfolios. Credit officials have stressed that the contagion risk to the financial system from poor auto loans isn’t like the risk posed when subprime mortgage lending pushed the U.S. into the Great Recession.

That’s in large part because repossessed cars are easier to resell than bank-owned homes. Cars can’t sink whole neighborhoods with foreclosure blight. Subprime mortgage lending remains at very low levels since the financial crisis. But as the financial system has recovered, subprime auto lending has ramped up with little hesitation. New auto loans to borrowers with credit scores below 660 have nearly tripled since the end of 2009. So far in 2016, about $50 billion of new auto loans per quarter have gone to those borrowers and about $30 billion each quarter has gone to borrowers with scores below 620, according to data the Fed provided, citing credit-score tracker Equifax.

WHAT? “Property experts disagree furiously about whether prices are in a bubble..”

• ‘Classic Ponzi Scheme’: Sydney House Prices 12 Times Annual Income (SMH)

Sydney houses now cost 12 times the annual income, up from four times when Gough Whitlam was dismissed. As many first time buyers turn to the bank of mum and dad to top up their deposits, a new report “Parental guidance not recommended” warns Australians are being caught up in a classic “Ponzi scheme”. The report by economic consultancy LF Economics – which has previously sensationally warned of a “bloodbath” when Sydney’s property bubble bursts – estimates it will now take the average first time buyer in Sydney nine years to save a deposit, up from three years in 1975. Baby boomers, who have benefited from skyrocketing prices, are increasingly able to fast track their children’s path to property ownership by either stumping up part of the deposit or putting up their own homes as collateral.

LF Economics, founded by Lindsay David and Philip Soos, warns this may be helping a new generation to over-leverage into mortgages they can’t afford, leaving their parents’ homes exposed. “Unfortunately, this loan guarantee strategy in a rising housing market for securing ever-larger amounts of debt is essentially pyramid or Ponzi finance. This leaves many parents in a dangerous predicament should their children experience difficulties making loan payments, let alone defaulting and suffering foreclosure.” “In reality, many parents – the Baby Boomer cohort – are asset-rich but income-poor. The blunt fact is few parents have enough savings and other liquid assets on hand to meet their legal obligations without selling their home if their children default,” the report warns.

Property experts disagree furiously about whether prices are in a bubble and about the best measure of housing affordability. Treasury secretary John Fraser has said that Sydney house prices are in a “bubble”. But many economists remain wary of the term and point out that supply constraints and strong population growth will underpin prices, even if slower wages growth inhibits further price gains. LF Economics argues that price gains have outstripped the fundamental worth of properties. “Financial regulators have ignored the Ponzi lending practices by lenders, believing the RBA will have the adequate ability to bail them out at taxpayers’ expense the day this classic Ponzi lending scheme breaks down.”

Bailout?

• Melbourne Apartment Prices Drop by Most Since 2014 (BBG)

Apartment prices in Melbourne fell at the fastest pace in more than two years in November, reinforcing concerns about a looming oversupply of units in Australia’s second-largest city. The 3.2% month-on-month drop is the largest such decline since May 2014, according to figures from data provider CoreLogic Inc. This dragged down the overall increase in dwelling values across the nation’s state capitals to 0.2%, the smallest rise since March this year. Record low interest rates put in place by the Reserve Bank of Australia to help ease the economy’s shift away from mining investment and combat low inflation have helped to spur a housing boom in the nation’s biggest centers and the central bank has repeatedly voiced concern that apartment gluts are developing in central Melbourne and Brisbane.

“Risks around the projected large increases in supply in some inner-city apartment markets are coming to the fore,” the RBA said in its quarterly financial stability review in October. Shayne Elliott, CEO of Australia and New Zealand Bank, said Wednesday that the lender had become increasingly cautious about parts of the housing market. He warned about pockets of over-building, particularly in the small apartments segment. “There are emerging signs of stress” in the economy, the head of Australia’s third-biggest bank told a Reuters event in Sydney. The difficulty for both the RBA and commercial lenders in judging the state of the market is that in other areas house prices have been accelerating. In Sydney, where auction clearance rates have been around the 80% mark for the past three months, the median dwelling price has risen to A$845,000 ($625,000).

Schäuble invites in the vultures.

• Greece Isn’t ‘Crying Wolf’ on Debt Relief (BBG)

Paul Kazarian says he’s spent “tens of millions of dollars” mobilizing a team of a hundred analysts to scrutinize Greece’s assets and liabilities. According to him, everyone else – including the IMF, the credit-rating agencies, the EU and the Greek government itself — is massively overstating the problem of the nation’s debt burden relative to economic output. The problem is, the more he tries to convince the world to accept his version of the numbers, the harder it may get for Greece to win the additional debt relief that most economic observers agree is vital to its recovery. Kazarian, an alumnus of (where else) Goldman Sachs, says the investment firm he founded in 1988, Japonica Partners, is the largest private holder of Greek government debt.

Since he first made his interest known about four years ago, he’s declined to be specific about how much he’s invested, or what prices he paid, or whether he’s up or down or sideways on the trade. This isn’t just your standard tale of a bondholder trying to boost the value of his investments by talking his book. What Kazarian has tried to do for the past four years is treat the sovereign nation of Greece the same way he might a private company he’d taken over: by detailing its assets and liabilities, looking for ways to enhance asset value while reducing liabilities, and, most importantly, seeking to install his own managers to take charge. The more you reflect on that latter notion, the more disturbing Kazarian’s larger-than-life presence on the Greek financial scene becomes.

As the keynote speaker at a conference organized by the American-Hellenic Chamber of Commerce in Athens on Monday, the bespectacled, straight-talking American succeeded in turning the afternoon into The Paul Kazarian Show, berating his audience and his fellow speakers with an odd combination of derision and self-effacing charm and dominating the proceedings by sheer force of personality. (In a previous existence, he gained notoriety for firing BB guns into the empty executive chairs in the boardroom of a company he’d seized control of, accompanying the shots with shouts of “Die!”) Presenting a selection of gems from a presentation that runs to more than 110 slides (Kazarian clearly knows them all by heart), the financier leveled a damning accusation against his hosts: Greece, he said, is “crying wolf for debt relief.”

Payday coming up.

• Angry Mobs Lock Up Indian Bankers As Cash Chaos Soars (ZH)

India’s demonetization campaign is not going as expected. Overnight, banks played down expectations of a dramatic improvement in currency availability, raising the prospect of queues lengthening as salaries get paid and people look to withdraw money from their accounts the Economic Times reported. While much of India has become habituated to the sight of people lining up at banks and cash dispensers since the November 8 demonetisation announcement, bank officials said the message from the Reserve Bank of India is that supplies may not get any easier in the near future and that they should push digital transactions. “We had sought a hearing with RBI as we were not allocated enough cash, but we were told that rationing of cash may continue for some time,” said a banker who was present at one of several meetings with central bank officials.

“Reserve Bank has asked us to push the use of digital channels to all our customers and ensure that we bring down use of cash in the economy,” said a banker. This confirms a previous report according to which the demonstization campaign has been a not so subtle attempt to impose digital currency on the entire population. Bankers have been making several trips to the central bank’s headquarters in Mumbai to get a sense of whether currency availability will improve. Some automated teller machines haven’t been filled even once since the old Rs 500 and Rs 1,000 notes ceased to be legal tender, they said. Typically, households pay milkmen, domestic helps, drivers, etc, at the start of the month in cash. The idea is that all these payments should become electronic, using computers or mobiles.

This strategy however, appears to not have been conveyed to the public, and as Bloomberg adds, “bankers are bracing for long hours and angry mobs as pay day approaches in India.” “Already people who are frustrated are locking branches from outside in Uttar Pradesh, Bihar and Tamil Nadu and abusing staff as enough cash is not available,” said CH Venkatachalam, general secretary of the All India Bank Employees’ Association. The group has sought police protection at bank branches for the next 10 days, he added. Joining many others who have slammed Modi’s decision, the banker said that “this is the fallout of one of the worst planned and executed government decisions in decades.”

He estimates that about 20 million people – almost twice the population of Greece – will queue up at bank branches and ATMs over the coming week, when most employers in India pay their staff. In an economy where 98% of consumer payments are in cash, banks are functioning with about half the amount of currency they need. As Bloomberg notes, retaining public support is crucial for Modi before key state elections next year and a national contest in 2019, however it appears he is starting to lose it. “We are bracing ourselves for payday and fearing the worst,” said Parthasarathi Mukherjee, CEO at Laxmi Vilas Bank. “If we run out of cash we will have to approach the Reserve Bank of India for more. It is tough.”

It’s kind of funny that Trump is seen as the end of a 70-year era.

• The Pillars Of The New World Order (Pieraccini)

Looking at US history over a fairly long period of time, it is easy to see the destructive path that has accompanied the expansion of the American empire over the last seventy years. While World War II was still raging, US strategists were already planning their next steps in the international arena. The new target was immediately identified in the assault and the dismemberment of the Soviet empire. With the collapse of the Berlin Wall and the end of the Soviet economic model as an alternative to the capitalist system, the West found itself faced with what was defined as ‘the end of’ history, and proceeded to act accordingly. The delicate transition from bipolarity, the world-order system based on the United States and the Soviet Union occupying opposing poles, to a unipolar world order with Washington as the only superpower, was entrusted to George H. W. Bush.

The main purpose was to reassure with special care the former Soviet empire, even as the Soviet Union plunged into chaos and poverty while the West preyed on her resources. Not surprisingly, the 90’s represented a phase of major economic growth for the United States. Predictably, on that occasion, the national elite favored the election of a president, Bill Clinton, who was more attentive to domestic issues over international affairs. The American financial oligarchy sought to consolidate their economic fortunes by expanding as far as possible the Western financial model, especially with new virgin territory in the former Soviet republics yet to be conquered and exploited. With the disintegration of the USSR, the United States had a decade to aspire to the utopia of global hegemony. Reviewing with the passage of time the convulsive period of the 90’s, the goal seemed one step away, almost within reach.

The means of conquest and expansion of the American empire generally consist of three domains: cultural, economic and military. With the end of the Soviet empire, there was no alternative left for the American imperialist capitalist system. From the point of view of cultural expansion, Washington had now no adversaries and could focus on the destruction of other countries thanks to the globalization of products like McDonald’s and Coca Cola in every corner of the planet. Of course the consequences of an enlargement of the sphere of cultural influence led to the increased power of the economic system. In this sense, Washington’s domination in international financial institutions complemented the imposition of the American way of life on other countries. Due to the mechanisms of austerity arising from trap-loans issued by the IMF or World Bank, countries in serious economic difficulties have ended up being swallowed up by debt.

Not surprised. A country that needs to refind itself.

• More Than 250,000 People Are Homeless In England (BBC)

More than a quarter of a million people are homeless in England, an analysis of the latest official figures suggests. Researchers from charity Shelter used data from four sets of official 2016 statistics to compile what it describes as a “conservative” total. The figures show homelessness hotspots outside London, with high rates in Birmingham, Brighton and Luton. The government says it does not recognise the figures, but is investing more than £500m on homelessness. For the very first time, Shelter has totted up the official statistics from four different forms of recorded homelessness. These were: • national government statistics on rough sleepers • statistics on those in temporary accommodation • the number of people housed in hostels * the number of people waiting to be housed by social services departments (obtained through Freedom of Information requests).

The charity insists the overall figure, 254,514, released to mark 50 years since its founding, is a “robust lower-end estimate”. It has been adjusted down to account for any possible overlap and no estimates have been added in where information was not available. Charity chief executive Campbell Robb said: “Shelter’s founding shone a light on hidden homelessness in the 1960s slums. “But while those troubled times have faded into memory, 50 years on a modern-day housing crisis is tightening its grip on our country. “Hundreds of thousands of people will face the trauma of waking up homeless this Christmas.

Just in case you thought things are bad now.

• Climate Change Will Stir ‘Unimaginable’ Refugee Crisis, Says Military (G.)

Climate change is set to cause a refugee crisis of “unimaginable scale”, according to senior military figures, who warn that global warming is the greatest security threat of the 21st century and that mass migration will become the “new normal”. The generals said the impacts of climate change were already factors in the conflicts driving a current crisis of migration into Europe, having been linked to the Arab Spring, the war in Syria and the Boko Haram terrorist insurgency. Military leaders have long warned that global warming could multiply and accelerate security threats around the world by provoking conflicts and migration. They are now warning that immediate action is required.

“Climate change is the greatest security threat of the 21st century,” said Maj Gen Munir Muniruzzaman, chairman of the Global Military Advisory Council on climate change and a former military adviser to the president of Bangladesh. He said one metre of sea level rise will flood 20% of his nation. “We’re going to see refugee problems on an unimaginable scale, potentially above 30 million people.” Previously, Bangladesh’s finance minister, Abul Maal Abdul Muhith, called on Britain and other wealthy countries to accept millions of displaced people.

Brig Gen Stephen Cheney, a member of the US Department of State’s foreign affairs policy board and CEO of the American Security Project, said: “Climate change could lead to a humanitarian crisis of epic proportions. We’re already seeing migration of large numbers of people around the world because of food scarcity, water insecurity and extreme weather, and this is set to become the new normal. “Climate change impacts are also acting as an accelerant of instability in parts of the world on Europe’s doorstep, including the Middle East and Africa,” Cheney said. “There are direct links to climate change in the Arab Spring, the war in Syria, and the Boko Haram terrorist insurgency in sub-Saharan Africa.”

Debt Rattle October 23 2015

Oct 232015

October 23, 2015 Posted by Raúl Ilargi Meijer at 9:27 am Finance Tagged with: aluminum, car loans, China, crisis, currency war, Draghi, EU, oil, Putin, refugees Comments Off

DPC Harlem River Speedway and Washington Bridge, New York 1905

• ECB Rings The Bell For Pavlov’s Market Dogs (AFR)

• ECB President Mario Draghi Reignites Currency War Talk (AFR)

• The Great Negative Rates Experiment (Bloomberg)

• Every Day’s a Crisis for Europe as Merkel Heads Back to Brussels (Bloomberg)

• Oil’s Big Slump Looks Like the 1980s ‘Lost Decade’ (Bloomberg)

• As China Weakens, Recession Stalks North Asia (Reuters)

• Credit Suisse Exiting Bond Role Sounds Alarm for Debt Market (Bloomberg)

• US Regulator Raises Red Flag on Auto Lending (WSJ)

• US Junk-Bond Default Rate May Nearly Double in a Year: UBS (Bloomberg)

• Valeant Slump Poses Big Threat To Small Hedge Funds (Reuters)

• Revised US Swaps Rule to Spare Big Banks Billions in Collateral (Bloomberg)

• The ‘Miserable’ Metal Sinks to Its 2009 Low (Bloomberg)

• ‘Flash Crash’ Trader’s Lawyer Calls US Extradition Request False (Guardian)

• Inside Massive Injury Lawsuits, Clients Get Traded Like Commodities (BBG)

• Millennials Face ‘Great Depression’ In Retirement: Blackstone COO (CNBC)

• American Farmers Want Student Loans Forgiven (MarketWatch)

• Inside Swiss Banks’ Tax-Cheating Machinery (WSJ)

• Greece, A Unit For Measuring Catastrophe (Konstandaras)

• A New Low: Czech Authorities Strip-Searched Refugees To Find Money (Quartz)

• Rights Group Reports Fresh Assaults On Migrants In Aegean Sea (AFP)

• Permafrost Thawing In Parts Of Alaska ‘Is Accelerating’ (BBC)

Excellent metaphor.

• ECB Rings The Bell For Pavlov’s Market Dogs (AFR)

Sharemarkets around the world are as well-trained as Pavlov’s dogs. This time, it was the European Central Bank giving them good news with the pledge of more cheap money – and it didn’t take them long to start salivating again. But in the next few weeks it could just as easily be the Federal Reserve talking about taking that cheap money away, and sharemarkets may well retreat whimpering with their tail between their legs. Friday was definitely a salivating day, however, sparked by the inevitable rally in Europe and on Wall Street after the ECB said it was on alert to adjust the “size, composition and duration” of its quantitative easing policy. Each month the bank buys €60 billion of predominantly government bonds and it will keep doing this until at least September 2016.

It’s now been just over three years since Mario Draghi, the ECB’s president, said he would do whatever it takes to hold the euro together and since then the S&P 500, and a benchmark of Europe’s top 50 stocks, have increased by more than 50%. The major S&P ASX 200 index is up around 30% over that same period. But apart from the United States, economic growth in Europe and Australia has been hard to come by while earnings from companies has been very sluggish. Sharemarkets don’t rise and fall precisely in line with economic activity, they are more a forward-looking indicator and, despite lots of requests to do so, no one rings the bell or waves the white flag when the sharemarket hits the top or bottom. But for the past three years or so growth forecasts have been revised down and bond yields have tumbled, implying that all is not well, and yet there has been no break in the sharemarket’s psychology; shares are the place to be.

The bottom will hurt.

• ECB President Mario Draghi Reignites Currency War Talk (AFR)

Global currency wars are back on in earnest, with the euro tumbling after ECB boss Mario Draghi signalled the bank stood ready to boost the “size, composition and duration” of the bank’s bond-buying program. The ECB’s move to boost its monetary stimulus, which drives down eurozone bond rates and puts downward pressure on the euro, comes as US Federal Reserve board members appear deeply divided on whether to proceed with plans to raise US interest rates this year. While the Fed dithers, the market has already ruled out an interest rate cut this year, which has pushed lower both US bond yields and the greenback. But as it grapples with feeble economic activity and inflation falling into negative territory, the last thing the ECB wants is to see the euro strengthening against the US dollar.

A stronger euro will act as a drag on eurozone growth, because it will make the region’s exports more expensive in global markets. And the ECB cannot stand by idly and watch as the slight progress it has made in terms of boosting economic activity is destroyed by a strong currency. As a result, Draghi has little choice but to fire up the printing presses even more by signalling that the central bank’s €1.1 trillion bond-buying program could be “re-examined” in December, and by refusing to rule out further interest rate cuts. Speaking in Malta, Draghi said the European central bank’s “governing council recalls that the asset purchase programme provides sufficient flexibility in terms of adjusting its size, composition and duration.”

At the moment, the ECB is buying €60 billion of mostly government bonds each month, and many analysts expect this will be increased to €80 billion a month at the ECB’s December meeting. The ECB might also cut the rate charged on banks’ deposits parked at the ECB, which is minus 0.2% at present, even further. “The degree of monetary policy accommodation will need to be re-examined at our December policy meeting when the new … projections will be available,” Draghi told reporters. Not surprisingly, the euro sank against the US dollar on Draghi’s comments and bond yields, which move inversely to prices, dropped sharply. Benchmark 10-year Italian and Spanish bond yields fell to their lowest level since April, while the yield on two-year German bonds hit a record low of 0.32%.

Why does this make me think of alchemy?

• The Great Negative Rates Experiment (Bloomberg)

When the Federal Open Market Committee decided in September to leave its main policy rate where it’s been for seven years—close to zero—it included an extraordinary detail. According to the “dot plot,” the display of unattributed individual policy recommendations, one committee member believed that the rate should be below zero through 2016. That is, rates should go to a place the U.S. has never had them before. In theory, it shouldn’t be possible for a central bank to keep short-term interest rates below zero. Banks would have to pay the Fed to hold reserves. Consumers would have to pay banks to hold deposits. Banks and people can hold physical cash, which charges no interest. This is why economists see zero as the lowest possible rate. It’s just theory, though; real-world experience shows the actual lower bound is somewhere below zero.

Denmark’s key bank rate dipped below zero in 2012 and is at minus 0.75%. Economists recently surveyed by Bloomberg see negative rates in that country continuing at least into 2017. Switzerland has kept the rate at minus 0.75% since early this year, and Sweden’s is minus 0.35%. These countries have a different monetary goal from that of the Fed. Denmark and Switzerland have been working to remove incentives for foreigners to deposit money in their banks. Massive foreign inflows would drive their currencies to appreciate so much they would become seriously misaligned with the euro, the currency of their main trading partners. Sweden has been attempting to create inflation. The strategy has had some success. Denmark has been able to hold on to its peg to the euro.

Switzerland dropped its euro peg, and after an initial runup, the Swiss franc has traded within a predictable band. Sweden’s inflation has seesawed. In all three countries, banks were reluctant to pass negative rates on to their domestic customers. In Denmark deposit rates have fallen, and some banks have raised fees for their services, but “real rates for real people were actually never negative,” says Jesper Rangvid, a professor of finance at the Copenhagen Business School. The same is true for Sweden, according to a paper by the Riksbank, the central bank. In Switzerland, one bank, the Alternative Bank Schweiz, will impose an interest charge on retail deposits starting in January.

There’s no evidence of a flight to cash in any of the three countries. According to central bank data, Danish households have added 28 billion kroner ($4.3 billion) to bank deposits since rates shrank to their record low on Feb. 5. That’s because a sack of bills has to be stashed somewhere safe, and protection costs money. According to Rangvid, rates would have to drop as low as minus 10% before people start “building their own vaults.” In its paper, Sweden’s Riksbank pointed out the same possibility but declined to say how far below zero rates would have to go to trigger depositors’ exit from the banks in the largely cash-free country.

Europe’s crises are only just starting.

• Every Day’s a Crisis for Europe as Merkel Heads Back to Brussels (Bloomberg)

Welcome to Europe, where almost every problem is a crisis. If it’s not Greece’s debt threatening to topple a currency or the largest influx of refugees since World War II, it’s Russian aggression toward its neighbors. The EU’s response: hold another summit. Over the past 10 months, leaders and government finance chiefs have trudged to Brussels for 19 summits and emergency meetings – with a 20th planned for Sunday – as they wrangled over a financial lifeline for Greece, the surge of migrants and Russia’s violent inroads in Ukraine. That tally compares with eight meetings last year and nine in 2013. While summit inflation illustrates the proliferation of crises on Europe’s doorstep, it also underscores the difficulty of doing business when 28 leaders with 28 sets of domestic concerns talk through the night and then blame the EU when they fail to make progress.

“These summits are happening almost permanently because the EU is in the middle of an existentialist crisis,” said Drew Scott, a professor of EU studies at the University of Edinburgh who argues that only national leaders have the legitimacy to take on major challenges. “In a world of euro-skepticism, we’ve seen a major return to domestic politics that we haven’t seen since the sixties.” As the refugee crisis worsens, the next gathering – little over a week after the last fractious summit – will see German Chancellor Angela Merkel join leaders from eight countries in central and southeastern Europe gather in Brussels to focus on the flow of migrants through the Western Balkans. “The EU decision-making itself has become so infuriatingly complex that it becomes a source of crisis itself,” said Fredrik Erixon, director of the European Centre for International Political Economy.

European decision-making has never been straightforward, of course, and there were arguments and crises before – the lifting of the Iron Curtain posed a threat to the EU’s very rationale. The bloc’s last-minute success in preventing Greece’s euro-area exit in July and leaders’ willingness to at least discuss a common solution to the refugee crisis show the system still has enough resilience to avoid a major breakdown. With more than a million migrants set to reach the EU this year, that system faces further tests. Leaders at last week’s summit in Brussels clashed over sharing the cost of refugees from countries riven by violence in the Middle East and Africa and how to police the bloc’s borders.

“It takes years to clear the additional capacity that a bull market generates, meaning a “long winter in commodities” lies ahead..”

• Oil’s Big Slump Looks Like the 1980s ‘Lost Decade’ (Bloomberg)

Crude oil’s collapse is bringing back memories of the decade of low prices that started in 1985 when Saudi Arabia began targeting market share. Oil has dropped by almost half since last October when crude entered a bear market as the U.S. pumped near record rates and China’s economic growth slowed. Despite the longest decline in decades, some including Shell CEO Ben Van Beurden and Morgan Stanley head of Emerging Markets Ruchir Sharma think there’s more pain to come. The current downturn resembles that of 1985 and 1986, Bloomberg Intelligence analysts Peter Pulikkan and Michael Kay wrote in a report on Thursday. Just as price gains in the 1970s saw new technology open up fields in the North Sea and Alaska, Chinese-led demand in the first decade of this century helped unlock oil and gas from shale rocks in the U.S.

Now, companies such as BP Plc are predicting crude will stay “lower for longer.” “The lower-for-longer scenario will likely be even lower and even longer,” Pulikkan said. “In 1985, Saudi Arabia changed policy to raise its market share, ushering in a lost decade for oil. There’s a possibility there’s another lost decade.” [..] As prices dropped, the Saudis refused to cut production, opting to defend market share instead, Pulikkan said. Oil averaged less than $20 in the 12 years from 1987. In November last year, OPEC, led by Saudi Arabia, adopted a similar strategy and chose not to defend oil prices. A 200-year history of commodity prices shows they typically move between a decade of a bull market and two decades of a bear market, Sharma said last month. It takes years to clear the additional capacity that a bull market generates, meaning a “long winter in commodities” lies ahead, he said.

“..new orders falling at the fastest pace since early 2009, and inventories piling up..”

• As China Weakens, Recession Stalks North Asia (Reuters)

The slowdown in China’s economy, the world’s second largest, is sucking the growth out of North Asia and tilting some economies toward recession. As China undergoes a painful rebalancing of an economy that accounts for 16% of global GDP – up from below a tenth a decade ago – the IMF predicts 5.5% growth this year for a region that also includes export powerhouses Japan, South Korea, Hong Kong and Taiwan. That would be the weakest growth rate since the global financial crisis. Japan’s exports grew by 0.6% from a year earlier in September, the slowest since August last year, data showed on Wednesday, as shipments to China dropped by 3.5%.

“Without a doubt, as long as China remains in a very soft spot … it’s natural that North Asia, which is very highly oriented to China’s market, whether directly or as a conduit, also takes a knock,” said Vishnu Varathan, a senior economist at Mizuho Bank in Singapore. Japan’s weak export numbers have heightened concerns that its economy may slip into recession in the third quarter, with a weak yen not doing enough to support its overseas shipments. Singapore narrowly missed a third-quarter recession after the export-reliant economy expanded just 0.1% from the previous three months, but Taiwan still looks very close to one.

China’s rapid growth and liberalization, especially after accession to the World Trade Organisation in 2001, gave a tremendous boost to Asian trade. Supply chains spread across the region, sucking in everything from coal to fuel its factories, to electronic components for mobile phones to be shipped to markets in the West. Now, though, things are different. PMI readings are contracting across most of Asia-Pacific, with new orders falling at the fastest pace since early 2009, and inventories piling up, meaning that production may have further to fall before economies shake off spare capacity, according to HSBC.

Only 800-pound gorillas will remain.

• Credit Suisse Exiting Bond Role Sounds Alarm for Debt Market (Bloomberg)

Credit Suisse shook Europe’s bond markets by deciding to drop its role as a primary dealer across the continent, the latest signal that some the world’s biggest banks are scaling back in one of their key businesses. The move coincides with the Zurich-based bank’s overhaul of its trading and advisory services, after fixed-income revenue plunged. Credit Suisse will withdraw from the U.K market on Friday, the nation’s Debt Management Office said. It’s the first time a gilt primary dealer – which buys sovereign debt directly from the government – walked away since December 2011, when State Street’s European division withdrew. “This is a dramatic move for Credit Suisse, and a step back for bond-market liquidity,” said Christopher Wheeler, an analyst at Atlantic Equities in London.

“This is probably designed to reduce costs and capital tied to its investment bank business. I hope it’s not a shape of things to come for the bond market.” The world’s biggest banks are shrinking their bond-trading activities to comply with regulations such as higher capital requirements imposed following the financial crisis. These restrictions have curbed their ability to build inventory or warehouse risk. The result is that prices can be more volatile for money managers and private investors. The situation has worsened in the past five years. The size of U.S. Treasury market, for example, has expanded by more than 45% in five years to $12.9 trillion, according to data compiled by Bloomberg.

At the same time, the five largest primary dealers – those financial institutions that trade with the Treasury – have cut their balance sheets by about 50% from 2010, according to data from Tabb Group. Credit Suisse will remain a primary dealer for the U.S. Treasuries market, according to a London-based company spokesman, Adam Bradbery. “This is part of scaling back the macro business,” Bradbery said. “We are in the process of exiting all our European primary dealer roles.” [..] “You’re seeing pressure at every single bank,” said Harvinder Sian at Citigroup in London. “If you’re not something of a monster in terms of presence and market share, then the economics just don’t stack up.”

Why not say this two years ago?

• US Regulator Raises Red Flag on Auto Lending (WSJ)

A top financial regulator warned of risks in the fast-expanding auto-lending sector, raising the prospect of fresh regulatory pressure in an area that has been a bright spot for banks. While policy makers have generally declared the U.S. banking system recovered from the financial crisis, Comptroller of the Currency Thomas Curry raised a rare red flag, saying in a speech that some activity in auto loans “reminds me of what happened in mortgage-backed securities in the run-up to the crisis.” “We will be looking at those institutions that have a significant auto-lending operation,” he told reporters after the speech. Many mortgage-backed securities thought to be safe turned sour during the financial crisis, leading to heavy losses across Wall Street.

The comments are likely to raise concerns in particular at firms like Wells Fargo and other national banks active in auto lending that are regulated by the comptroller’s office. Mr. Curry’s vow of closer scrutiny wouldn’t affect their competitors at lenders owned by large auto manufacturers. When the comptroller in the past has raised questions about loans being risky—as it has done since 2013 with leveraged loans to heavily indebted corporations—regulators have turned up the heat to the point that banks have dialed back products, even when they were profitable. Auto lenders denied they were taking excessive risks.

Richard Hunt, president of the Consumer Bankers Association, said the lenders his group represents “are applying prudent underwriting standards in order for consumers to have access to safe and affordable transportation.” [..] This isn’t the first time regulators have cast a spotlight on auto lenders. In March, the Consumer Financial Protection Bureau raised concerns about consumers taking on too much auto debt, and some large financial firms have faced investigations regarding unfair auto-lending practices. But Mr. Curry’s concerns focused on the risks auto loans may pose to banks’ safety and soundness. Lower-level OCC officials have previously raised similar concerns.

The edge of finance.

• US Junk-Bond Default Rate May Nearly Double in a Year: UBS (Bloomberg)

U.S. junk-bond defaults could nearly double by the third quarter of next year, led by energy, metal and mining companies under pressure from depressed commodities prices, according to UBS. The high-yield default rate may climb as high as 4.8%, UBS analysts wrote in a note to clients Thursday. The default rate for speculative-grade debt in the U.S. was at 2.5% at the end of September, according to Moody’s Investors Service, up from 2.1% in the second quarter and 1.6% a year earlier. The default rate for junk-rated energy and natural-resources companies – which make up the bulk of speculative-grade debt – may increase to 15% over the next year, Zurich-based UBS said, up from the current 10% rate reported by Moody’s.

“The sector is out of whack,” UBS strategist Matthew Mish said. “Capital markets are showing much greater tiering of credit quality. It’s not just energy issuers that can’t tap the market right now.” The default rate increased as the price of oil plunged by about 60% from last year’s June high amid slowing growth in China, the world’s biggest commodity importer. The lowest-rated debt is poised for more pain, said Mish, even as what investors demand to hold debt rated CCC and below versus the broader high-yield market has risen to the highest level since the financial crisis, according to Bank of America Merrill Lynch Indexes. “Valuations there are still too tight for the underlying risk,” Mish said.

Enron redux.

• Valeant Slump Poses Big Threat To Small Hedge Funds (Reuters)

Valeant Pharmaceuticals’ market slide has hurt the returns of several large U.S. hedge funds, but for smaller players with outsized bets on the drug company the fallout could be far more painful, according to industry watchers. Among smaller hedge funds invested in Valeant, at least three had more than 20% of their assets tied up in the stock as of June 30, according to data from Symmetric.IO, a research firm that provided the data to Reuters on Thursday. They include Tiger Ratan Capital Management, Marble Arch Investments, and Brave Warrior Advisors, according to the numbers, which are based on publicly reported stock positions and may not include hedges. It is not known whether the funds have maintained their holdings into this week, but if they did, they could be looking at losses worth hundreds of millions of dollars.

“The major risk is with funds that have an unstable, short- term oriented capital base, where a poor few months of performance can lead to significant capital flight,” said Jonathan Liggett, Managing Member at JL Squared Group, an investment advisor. Smaller hedge funds can quickly collapse if investors demand their money back all at once, forcing managers to exit profitable positions to raise cash quickly. Valeant shares are down 35% this week after a short-seller’s report accused the company of improperly inflating revenues, igniting fears about federal prosecutors’ probes into its pricing and distribution. Valeant has denied the allegations and its Chief Executive Michael Pearson and other board members are due to address them in more detail in a call with investors on Monday.

The slump has trimmed billions of dollars off the ledgers of investors such as hedge fund mogul William Ackman’s Pershing Square Capital Management, activist hedge fund ValueAct Capital, and investment firm Ruane, Cunniff & Goldfarb. But the impact could be far worse at smaller funds that typically have less than $5 billion in assets and also bet on a stock that had been one of this year’s early winners. Nehal Chopra’s Tiger Ratan owned roughly 1 million shares of Valeant at the end of the second quarter, accounting for about one fifth of her $1.6 billion fund. Through August, Chopra had been one of the year’s best performers, showing a gain of 21.6% for the year. But people familiar with her numbers said heavy losses in September wiped out all gains putting the fund into the red for the year. If the firm still held that Valeant position this week its losses on that bet alone would have totaled roughly $370 million for the week.

Because derivatives are so devoid of risk?

• Revised US Swaps Rule to Spare Big Banks Billions in Collateral (Bloomberg)

Wall Street banks will escape billions of dollars in additional collateral costs after U.S. regulators softened a rule that would have made their derivatives activities much more expensive. Two agencies approved a final rule on Thursday that will govern how much money financial firms must set aside in derivatives deals. A key change from recent draft versions of the rule – and the focus of months of debate among regulators – cut in half what the companies must post in transactions between their own divisions. A version proposed last year called for both sides to post collateral when two affiliates of the same firm deal with one another, such as a U.S.-insured bank trading swaps with a U.K. brokerage. The final rule requires that only the brokerage post, cutting collateral demands by tens of billions of dollars across the banking industry.

Those costs would still be significantly higher than the collateral they currently set aside. “Establishing margin requirements for non-cleared swaps is one of the most important reforms of the Dodd-Frank Act,” Federal Deposit Insurance Corp. Chairman Martin Gruenberg said before his agency’s vote, noting that changes were made in response to objections raised by the industry. While the bank regulators’ approach is good news for Wall Street, all eyes now turn to the Commodity Futures Trading Commission, which is writing a parallel rule. Firms also would need that rule to be softened before claiming a clear victory. Like the CFTC, the Securities and Exchange Commission is also drafting a final version of similar requirements to be imposed on separate parts of banks.

Aluminum.

• The ‘Miserable’ Metal Sinks to Its 2009 Low (Bloomberg)

Dwight Anderson had a point when it came to aluminum. The price sank to the lowest level in more than six years on Friday on concern that a global glut will endure, extending a losing run after the hedge fund manager dubbed the metal as miserable. Three-month futures fell as much as 0.4% to $1,484.50 metric ton on the London Metal Exchange, the lowest level since June 2009. The metal is set for an eighth daily loss. Aluminum fell 20% this year as global supply exceeded demand, with output from top producer China surging even as economic growth slowed, spurring increased exports. Anderson, founder of hedge fund Ospraie Management, described aluminum in an interview this week as “miserable,” probably forcing closures and bankruptcies. BNP Paribas expects a surplus of 1 million tons this year.

“The fundamental outlook is weak for the metal with some miserable factors like oversupply not easing in China even as prices keep falling,” Wang Rong, an analyst at Guotai & Junan Futures Co. in Shanghai, said on Friday. Speculation about government subsidies for local producers worsened sentiment in recent days as smelters were seen continuing producing with the policy encouragement, according to Wang. Primary aluminum production in China expanded 12% in the first nine months of this year while the expansion of the country’s gross domestic product was the weakest since 2009. Shipments of unwrought aluminum and aluminum products from Asia’s top economy surged 18% between January and September.

Alcoa, the top U.S. aluminum maker, said last month it will break itself up by separating manufacturing operations from a legacy smelting and refining business that’s struggling to overcome the booming production from China. While the company forecast a global surplus this year, it sees a shift to a deficit in 2016. A total of 58% of traders and executives picked aluminum as their “favorite short” in a survey by Macquarie at this month’s London Metal Exchange’s annual gathering. It was the only LME metal seen with downside over the coming year, Macquarie said. “Aluminum is miserable and is going to stay miserable and will have to force closures and bankruptcies,” Anderson told Bloomberg. “For most industrial metals, we have a negative outlook for the near term.”

“..because it misrepresented the way markets work..”

• ‘Flash Crash’ Trader’s Lawyer Calls US Extradition Request False (Guardian)

The US request to extradite London-based trader Navinder Sarao, accused of helping to spark the 2010 Wall Street “flash crash”, is “false and misleading” because it misrepresented the way markets work, his lawyer has told a court. Sarao is wanted by US authorities after being charged on 22 criminal counts including wire fraud, commodities fraud, commodity price manipulation and attempted price manipulation. The 36-year-old, who lives and worked at his parents’ modest home near Heathrow airport, is accused of using an automated trading programme to “spoof” markets by generating large sell orders that pushed down prices. He then cancelled those trades and bought contracts at lower prices, prosecutors say.

The flash crash saw the Dow Jones Industrial Average briefly plunge more than 1,000 points, temporarily wiping out nearly $1tn in market value. Sarao’s team are looking to block extradition on the grounds that the US charges would not be offences under English law, and if they are, that he should be tried in Britain. At a court hearing in London on Thursday to consider whether a US trading expert could give evidence when the case is decided next year, Sarao’s lawyer James Lewis said his testimony was needed to debunk the US extradition request because it demonstrated that there was nothing unusual in traders cancelling orders.

“Americans had to create the crime of spoofing,” Lewis told Westminster Magistrates’ court in London, citing a report by Prof Lawrence Harris from the Marshall School of Business at the University of Southern California. “The [US extradition] request is false and misleading,” he added. “It’s simply not the reality of what happens in any market. It’s arrant nonsense.” Mark Summers, representing the US authorities, said they were not suggesting cancelling trades was in itself wrong, but that Sarao had never planned to execute the orders he had posted. “His intention was to manipulate the market process by creating a false impression of liquidity. It was bogus from the outset,” Summers said, adding the US disputed the report by Prof Harris, a former chief economist at the US Securities and Exchange Commission.

How distorted has the US justice system become?

• Inside Massive Injury Lawsuits, Clients Get Traded Like Commodities (BBG)

For all the black robes and ceremony, the American legal system often operates more like a factory assembly line than a citadel of individualized justice. 95% of criminal prosecutions end in plea deals. Many defective-product claims settle in mass pacts that benefit attorneys more than putative victims. Now a legal dispute within a plaintiffs’ law firm that organizes massive torts is threatening to pull back the curtain on the mechanics of high-volume litigation. It’s not a pretty picture. Amir Shenaq, a 30-year-old financier, sued his former employer, the Houston law firm AkinMears, over $4.2 million in allegedly unpaid commissions. To earn those fees, Shenaq says he raised nearly $100 million used to purchase thousands of injury claims from other lawyers.

The suit portrays a claim-brokering marketplace that normally operates in secret, with clients recruited en masse through TV and Internet advertising who are then bundled and traded among attorneys like so many securitized mortgages. AkinMears “is not run like a traditional plaintiffs’ law office, and the firm’s lawyers do not do the types of things that regular trial lawyers do,” according to the Shenaq suit, which was filed in Texas state court in late September by another Houston firm, Oaks, Hartline & Daly. AkinMears doesn’t do “things like meet their clients, get to know their clients, file pleadings/motions, attend depositions/hearings, or, heaven forbid, try a lawsuit,” Shenaq alleges.

Rather, AkinMears “is nothing more than a glorified claims-processing center, where the numbers are huge, the clients commodities, and the paydays, when they come, stratospheric.” In court filings, AkinMears denied wrongdoing and said Shenaq had been fired last July 31 for unspecified reasons. Shenaq, a former Wells Fargo Securities leveraged-finance banker, alleges Akin fired him to avoid paying the multimillion-dollar commissions. AkinMears asked the trial judge to seal Shenaq’s suit, saying his disclosures “will cause immediate and irreparable harm to the continued nature of financial and other information belonging to AkinMears and those with whom it does business under terms of confidentiality.” Judge Randy Wilson granted the gag order earlier this month, but only after the original filing had been disseminated online.

He’s right about the problem, but so wrong on the “solution” (forced savings supposed to yield 7-8%) it’s clear all he wants is easy access to all that ‘capital’.

• Millennials Face ‘Great Depression’ In Retirement: Blackstone COO (CNBC)

Americans in their 20s and 30s are facing a retirement crisis that could plunge them back into the Great Depression, Blackstone President and Chief Operating Officer Tony James said Wednesday. “Social Security alone cannot provide enough for these people to retain their standard of living in retirement, and if we don’t do something, we’re going to have tens of millions of poor people and poverty rates not seen since the Great Depression,” he told CNBC’s “Squawk Box.” The solution is to help young people save more by mandating savings through a Guaranteed Retirement Account system, he said. Right now, young people cannot save enough on their own because they face stagnant incomes and heavy student-debt burdens.

The Guaranteed Retirement Account was proposed by labor economist Teresa Ghilarducci in 2007 as a solution to the problem of retirement shortfalls that inevitably arise when contributions are voluntary. A GSA system would require workers to make recurring retirement contributions, which would be deducted from paychecks. Employers would be mandated to match the contribution, and the federal government would administer the plan through the Social Security Administration.

Ghilarducci has proposed a mandatory 5% contribution, but James said a 3% requirement rolled into GRAs could outperform retirement savings vehicles like IRAs and 401(k)s. He noted that a 401(k) typically earns 3 to 4%, while a pension plan yields 7 to 8%. The average American pension plan has a 25% allocation to alternative investments — including real estate, private equity and hedge funds — with the remainder invested in markets, he said. “The trick is to have these accounts invested like pension plans, so the money compounds over decades at 7 to 8%, not at 3 to 4,” he said.

We’re going to need robot farmers.

• American Farmers Want Student Loans Forgiven (MarketWatch)

Are the farmers who grow the nation’s food public servants? Not according to the government — but some advocates and bipartisan legislators are trying to change that, pushing a proposal to add farming to the list of public service fields entitled to student debt forgiveness. The effort is an indication that the student debt crisis has fueled concerns about the future of one of the country’s oldest professions and, perhaps, even endangered the food supply. Advocates say that debt may be keeping young Americans from starting farms, buying land, or even considering farming to begin with, perhaps meaning there won’t be enough farmers to take over when the current generation retires.

“We’re increasingly moving toward a system where the barriers to entry in farming as a young person are too high,” said Eric Hansen, a policy analyst at the National Young Farmer’s Coalition, the advocacy group behind a push to include farming in the Public Service Loan Forgiveness Program. But some question whether characterizing for-profit farming as a public service is the right way to tackle issues facing potential farmers — and, more broadly, whether the program, meant to encourage educated workers to enter relatively low-paying professions such as social work, early childhood education and government — is in need of refinement, rater than expansion.

It’s hard to find precise statistics on the share of farmers who have student loan debt, but available data nevertheless suggests a sizable population. Nearly a quarter of principal farm operators had completed college in 2007, according to a U.S. Department of Agriculture survey, and more than 70% of bachelor’s degree recipients graduate with student debt. Just 6% of the nation’s approximately 2.1 million farmers were under 35 in 2012, according to the U.S. Department of Agriculture, down from nearly 16% 20 years earlier. Mechanization has allowed farmers to work longer, raising average ages, and farm families often struggle to convince their children to stay in the business. But student loan debt is also a large part of the problem, some say.

MO.

• Inside Swiss Banks’ Tax-Cheating Machinery (WSJ)

Some Swiss banks loaded funds onto untraceable debit cards. At another, clients who wanted to transfer cash used code phrases such as “Can you download some tunes for us?” One bank allowed a client to convert Swiss francs into gold, which was then stored in a relative’s safe-deposit box. Dozens of Swiss banks have been spilling their secrets this year as to how they encouraged U.S. clients to hide money abroad, part of a Justice Department program that lets them avoid prosecution. It is part of a broader U.S. crackdown on undeclared offshore accounts that has ensnared big Swiss banks such as UBS, but has received scant attention because it mostly involves little-known firms and relatively small fines.

A Wall Street Journal analysis of Justice Department documents from more than 40 settlements with these banks provides a rare window into foreign firms’ tax-haven techniques and their myriad methods of keeping clients’ accounts under wraps. The offenders range from international banks to small-town mortgage lenders, which together helped secrete more than 10,000 U.S-related accounts holding more than $10 billion, according to the analysis. “Helping Americans conceal assets from the IRS was a big business for many sizes and types of firms in Switzerland, and now we’re seeing how extensive it was,” said Jeffrey Neiman, who led the Justice investigation of UBS in 2009 that pierced the veil of Swiss-bank secrecy. He is now at law firm Marcus Neiman & Rashbaum LLP in Fort Lauderdale, Fla.

The firms that have admitted to the misconduct have paid a total of more than $360 million to resolve the cases and avoid criminal charges. Lawyers for U.S. account holders and Swiss banks estimate that 40 other firms in this program are in talks with the Justice Department. “Banks large and small are naming individuals and firms that helped U.S. taxpayers hide foreign accounts and evade taxes,” said acting Assistant Attorney General Caroline Ciraolo. “It is now clear that asset-management firms, investment-advisory groups, insurance companies and corporate service providers—not just banks—facilitated this criminal conduct.” More than 54,000 U.S. taxpayers with undeclared accounts have paid more than $8 billion to the Internal Revenue Service to resolve their cases and avoid criminal prosecution.

It’s now Putin’s monologue.

• Vladimir Putin Accuses US Of Backing Terrorism In Middle East (Guardian)

The Russian president, Vladimir Putin, has launched a stinging attack on US policy in the Middle East, accusing Washington of backing terrorism and playing a “double game”. In a speech on Thursday at the annual gathering of the Valdai Club, a group of Russian and international analysts and politicians, Putin said the US had attempted to use terrorist groups as “a battering ram to overthrow regimes they don’t like”. He said: “It’s always hard to play a double game – to declare a fight against terrorists but at the same time try to use some of them to move the pieces on the Middle Eastern chessboard in your own favour. There’s no need to play with words and split terrorists into moderate and not moderate. I would like to know what the difference is.”

Western capitals have accused Moscow of targeting moderate rebel groups during its bombing campaign in Syria, which Russia says is mainly aimed at targets linked to Islamic State. However, Putin’s talk of “playing with words” and other statements by government officials suggest Moscow believes all armed opposition to Bashar al-Assad is a legitimate target. Putin received Assad at the Kremlin on Tuesday, and on Thursday he underlined that he considered the Syrian president and his government to be “fully legitimate”. He said the west was guilty of shortsightedness, focusing on the figure of Assad while ignoring the much greater threat of Isis. “The so-called Islamic State [Isis] has taken control of a huge territory. How was that possible? Think about it: if Damascus or Baghdad are seized by the terrorist groups, they will be almost the official authorities, and will have a launchpad for global expansion. Is anyone thinking about this or not?”

“Greece has become synonymous with a country that cannot meet its obligations. It has become a unit of measure. Like Richter, decibels, kilos…”

• Greece, A Unit For Measuring Catastrophe (Konstandaras)

“Is Kenya Africa’s Greece?” a newspaper poster in South Africa asked a few days ago in a photo on Twitter that caused a stir in Greece. Kenya is finding it difficult to pay its state employees, raising questions about the state of its finances. A couple of days later, Paulo Tafner, an economist and authority on Brazil’s pension system, described his country’s problems to the New York Times in this way: “Think Greece but on a crazier, more colossal scale.” Greece has become synonymous with a country that cannot meet its obligations. It has become a unit of measure. Like Richter, decibels, kilos…

Our prime minister, Alexis Tsipras, boasts that his government made the Greek problem an international issue. He may believe that the resistance he put up against our creditors for several months gained the international public’s sympathy – and, up to a point, he is right – but our country’s international image is not his achievement alone. Greece became a symbol because of decades of mismanagement, waste and populism. The SYRIZA-Independent Greeks coalition inherited these problems but it differed from previous governments in that it made no effort to correct Greece’s failings; instead, it presented them as virtues that could be maintained and imposed on those who lend us money. This effort resulted in resounding defeat and has not won any admirers.

Even SYRIZA’s Spanish brethren, Podemos, are trying to persuade their compatriots that they are very different from the Greeks. It is sad and humiliating to see Greece being used as a symbol of failure. After having inherited so much, it is a heavy burden to be known chiefly for an inability to manage the present. But the very fact that our country is a unit for measuring failure reveals the only comforting fact in this sorry tale: Obviously we are not the only country to screw up so badly. The problems that we face challenge other countries, too, whether in Europe or Africa or South America, whether they are small and poor or emerging giants.

Mismanagement, waste, corruption and supporting specific groups at the expense of the general public are not exclusively Greek phenomena. Our problem here is that we allowed them to grow without any serious effort to control them. For decades. Like investors thrilled by bubbles, we were seduced. We forgot that what goes up comes down. And when we crashed and needed help we still behaved as if we did not need a radical change of mentality. It was as if we did not want to save ourselves.

But by no means the lowest.

• A New Low: Czech Authorities Strip-Searched Refugees To Find Money (Quartz)

The Czech Republic is locking up refugees and migrants in degrading conditions, according to a scathing criticism by the United Nations High Commissioner for Human Rights released Oct. 22. Not only are new arrivals kept involuntarily in detention centers, but many are being forced to pay $10 per day for it. In some cases, refugees have been strip-searched by authorities looking for the money. The required payment does not have “clear legal grounds,” said UNHCR commissioner Zeid Ra’ad Al Hussein in the release. It leaves many of the detainees destitute by the end of their stay, which in some cases can last 90 days. Children have also been detained, a violation of minors’ rights by UN standards.

“International law is quite clear that immigration detention must be strictly a measure of last resort,” emphasizes Zeid. “According to credible reports from various sources, the violations of the human rights of migrants are neither isolated nor coincidental, but systematic: they appear to be an integral part of a policy by the Czech Government designed to deter migrants and refugees from entering the country or staying there.” Zeid points out in his statement that the Czech Republic’s own Minister of Justice Robert Pelikán has described conditions in the Bìlá-Jezová detention facility as “worse than in a prison.”

Can things get any worse? You bet.

• Rights Group Reports Fresh Assaults On Migrants In Aegean Sea (AFP)

Human Rights Watch on Thursday reported fresh assaults by unidentified gunmen in the Aegean Sea endangering the lives of migrants trying to reach Europe. The rights group said witnesses had described eight incidents in which assailants “intercepted and disabled the boats carrying asylum seekers and migrants from Turkey toward the Greek islands, most recently on October 7 and 9.” A 17-year-old Afghan called Ali said a speedboat with five men armed with handguns had rammed their rubber dinghy on October 9. “At first when they approached, we thought they had come to help us,” Ali told HRW.

“But by the way they acted, we realised they hadn’t come to help. They were so aggressive. They didn’t come on board our boat, but they took our boat’s engine and then sped away,” he said. The Afghan teen said the masked men attacked three other boats in quick succession before speeding off toward the Greek coast “They spoke a language we didn’t know, but it definitely was not Turkish, as we Afghans can understand a bit of Turkish,” he said. Similar allegations had been made by migrants and rights groups during the summer. The latest attacks had occurred near the island of Lesvos, HRW said. A Greek coastguard source said the claims were under investigation but despite a search for the alleged perpetrators on land and at sea, no evidence had been found.

One word: methane.

• Permafrost Thawing In Parts Of Alaska ‘Is Accelerating’ (BBC)

One of the world’s leading experts on permafrost has told BBC News that the recent rate of warming of this frozen layer of earth is “unbelievable”. Prof Vladimir Romanovsky said that he expected permafrost in parts of Alaska would start to thaw by 2070. Researchers worry that methane frozen within the permafrost will be released, exacerbating climate change The professor said a rise in permafrost temperatures in the past four years convinced him warming was real. Permafrost is perennially frozen soil that has been below zero degrees C for at least two years. It’s found underneath about 25% of the northern hemisphere, mainly around the Arctic – but also in the Antarctic and Alpine regions.

It can range in depth from one metre under the ground all the way down to 1,500m. Scientists are concerned that in a warming world, some of this permanently frozen layer will thaw out and release methane gas contained in the icy, organic material. Methane is a powerful greenhouse gas and researchers estimate that the amount in permafrost equates to more than double the amount of carbon currently in the atmosphere. Worries over the current state of permafrost have been reinforced by Prof Romanovsky. A professor at the University of Alaska, he is also the head of the Global Terrestrial Network for Permafrost, the primary international monitoring programme.

He says that in the northern region of Alaska, the permafrost has been warming at about one-tenth of a degree Celsius per year since the mid 2000s. “When we started measurements it was -8C, but now it’s coming to almost -2.5 on the Arctic coast. It is unbelievable – that’s the temperature we should have here in central Alaska around Fairbanks but not there,” he told BBC News. In Alaska, the warming of the permafrost has been linked to trees toppling, roads buckling and the development of sinkholes. Prof Romanovsky says that the current evidence indicates that in parts of Alaska, around Prudhoe Bay on the North Slope, the permafrost will not just warm up but will thaw by about 2070-80.

Debt Rattle April 16 2015

Apr 162015

April 16, 2015 Posted by Raúl Ilargi Meijer at 9:07 am Finance Tagged with: bonds, car loans, China, Draghi, ECB, endgame, Greece, Grexit, Growth, pope, rate hike, Schaeuble, student loans 12 Responses »

NPC Sidney Lust Leader Theater, Washington, DC 1920

• Greece In ‘Slow-Death Scenario’ Amid Defaults Fears (CNBC)

• IMF Knocks Greek Debt Rescheduling Hopes (FT)

• The Endgame For Greece Has Arrived (Zero Hedge)

• Why The Grexit Is Inevitable – How About May 9th? (Raas Consulting)

• UBS Says Europe Risks Bank Runs On Grexit (Zero Hedge)

• Fed’s Bullard Says Rate Hikes Are Needed For Coming ‘Boom’ (MarketWatch)

• Warren Says Auto Lending Reminds Her Of Pre-Crisis Housing Days (MarketWatch)

• 27% Of US Students Are Over A Month Behind On Their Loan Payments (Zero Hedge)

• China’s True Economic Growth Rate: 1.6% (Zero Hedge)

• The South (China) Sea Bubble (Corrigan)

• Don’t Invest In ‘Unsustainable’ China: Professor (CNBC)

• The Major Paradox at the Heart of the Chinese Economy (Bloomberg)

• China Seen Expanding Mortgage Bonds to Revive Housing (Bloomberg)

• Bonds Beware As Money Catches Fire In The US And Europe (AEP)

• ECB’s Mario Draghi Says Stimulus Is Working (WSJ)

• Schaeuble Says Greece Must Ditch False Hopes, Commit to Reform (Bloomberg)

• Schaeuble Criticizes Greece for Backsliding as Time Runs Out (Bloomberg)

• Australia’s Economy: Is The Lucky Country Running Out Of Luck? (Guardian)

• US Military Lands in Ukraine (Ron Paul Inst.)

• Greece In Talks With Russia To Buy Missiles For S-300 Systems (Reuters)

• Putin to Netanyahu: Iran S-300 Air Defense System is .. Defensive (Juan Cole)

• Vatican Announces Major Summit On Climate Change (ThinkProgress)

“It would be a slow-death scenario and in a way we are in this scenario. Something needs to change in order to avoid an accident..”

• Greece In ‘Slow-Death Scenario’ Amid Defaults Fears (CNBC)

Greece faces a “slow-death scenario”—including a default and messy exit from the euro zone—one analyst warned Thursday, as the country’s economic crisis took another turn for the worse following a credit rating downgrade. BofA’s Thanos Vamvakidis warned Thursday that if Greece fails to reach a deal with its European partners, a Grexit—or Greek exit from the euro zone becomes inevitable. His comments come after Greece’s unresolved negotiations with its international creditors prompted ratings agency Standard & Poor’s to cut its credit rating to “CCC+” from “B-” with a negative outlook.

“Without an agreement (with creditors over reforms), without official funding, there is a very high probability that Greece will default sometime in May and this could lead to a very negative scenario,” Vamvakidis told CNBC Thursday. He said that although nobody wants that, “the more they delay the higher the risks.” “(A Grexit) is not going to be overnight. It would be a slow-death scenario and in a way we are in this scenario. Something needs to change in order to avoid an accident,” he added. Reform discussions between Greece and the bodies overseeing its bailout program—the EC, ECB and IMF—have been unsuccessful over recent weeks. The country’s creditors agreed to extend its bailout program by four months in February in order to give Greece’s new leftwing government more time to enact reforms.

Lack of progress on reforms means Greece’s last tranche of aid—needed in order to make loan repayments to the IMF and ECB in the coming weeks and months—has not been released. [..] Despite growing fears of a euro zone exit, some euro zone officials have refused to countenance such a scenario, which could bring with it significant upheaval and potentially disastrous consequences for the euro zone. Not only could a default and Grexit prompt capital controls to prevent bank runs, international financial isolation and the introduction of a new currency in Greece, it could threaten the future of the 19-country single currency bloc.

Knowing that any such talk could spark international panic over Greece and the intergrity of the euro zone and its currency, the European Central Bank’s President Mario Draghi dismissed fears of a Greek default Wednesday, saying he was not ready to even “contemplate” such a scenario. Officials in the U.S. have openly warned over the risks posed by Greece, however. Greek Finance Minister, Yanis Varoufakis, is due to meet U.S. President Barack Obama on Thursday, and U.S. Treasury Secretary Jacob Lew on Friday (along with the ECB’s Draghi and IMF officials).

Time for some US pressure?

• IMF Knocks Greek Debt Rescheduling Hopes (FT)

Greek officials have made an informal approach to the IMF to delay repayments of loans to the international lender, highlighting the parlous state of Greek finances, but were told that no rescheduling was possible. According to officials briefed on the talks by both sides, Athens was persuaded not to make a specific request for a delay to the Fund, which is owed almost a €1bn in two separate payments due in May. Although Athens was rebuffed, the discussions, which occurred in private earlier this month, are a sign that the Greek government is finding it increasingly difficult to scrape together enough money to continue to pay wages and pensions while meeting its debt payments to external lenders.

Officials representing Greece’s creditors are unsure whether Athens will be able to make the payments in May. Even if they do, they are certain that the matter will come to a head by June, before much larger payments on bonds held by the ECB start coming due.
IMF officials have repeatedly said that a rescheduling of repayments can only come as part of a completely renegotiated new bailout programme. Were it to miss a payment, Greece would become the first developed economy to go into arrears at the Fund, something only counties like Zaire and Zimbabwe have done in the past.

Greece informally raised the precedent of delaying IMF payments by at least one other developing country a generation ago in the 1980s. But IMF officials stuck to their guns saying that none of the underlying problems had been solved by payment delays. One source briefed on the approach said the proposal was to “reshuffle the repayment schedule for the IMF loan over the coming months,” allowing the new Greek government led by Alexis Tsipras to have the money to pay bills for pensions and public sector salaries while negotiating with European creditors over payment of the next tranche of bailout loans.

“..the Greek Finance Minister “will on Friday meet with infamous sovereign debt lawyer Lee Buchheit, who has helped numerous countries restructure their debt.”

• The Endgame For Greece Has Arrived (Zero Hedge)

To think it was just recently in September of last year when the S&P, seemingly unaware of the tragic reality facing Greece in just a few months (by reality we meen democratic elections which overthrew the previous regime which was merely a group of Troika picked technocrats), upgraded Greece to B and said “The upgrade reflects our view that risks to fiscal consolidation in Greece have abated.” Well, the risks have unabated, and two months after S&P flip-flopped and downgraded Greece back to B- on February 6, moments ago it downgraded it again, this time to triple hooks, aka the dreaded CCC+. S&P said that without deep economic reform or further relief, S&P expects Greece’s debt, other financial commitments to be unsustainable. S&P views that Greece increasingly depends on favorable business, financial, and economic conditions to meet its financial commitments.

The rater adds that “conditions have worsened due to the uncertainty stemming from the prolonged negotiations between the Greek govt and its official creditors” and that economic prospects could deteriorate further unless talks between Greece and its creditors conclude soon.” In short: Greece is about to default and/or exit the Eurozone so this time at least S&P is prepared. Ironically this comes a day before Varoufakis is set to meet with Obama. It will be followed by meetings with European Central Bank head Mario Draghi on Friday, Secretary of the Treasury Jack Lew, Italy’s finance minister Pier Carlo Padoan and IMF officials. But, as City AM reports, the biggest news is that the Greek Finance Minister “will on Friday meet with infamous sovereign debt lawyer Lee Buchheit, who has helped numerous countries restructure their debt. Buchheit is a partner at top US law firm Cleary Gottlieb.”

It comes just a week before a vital meeting of Eurozone finance ministers on 24 April which could be the last chance Greece has of gaining extra funds before hefty repayments are due to its creditors in May.

As a reminder, “Lee Buchheit, a leading sovereign-debt attorney and the man who managed the eventual Greek debt restructuring in 2012, was harshly critical of the authorities’ failure to face up to reality. As he put it, “I find it hard to imagine they will now man up to the proposition that they delayed – at appalling cost to Greece, its creditors, and its official-sector sponsors – an essential debt restructuring.” The endgame for Greece has arrived.

One kind of logic.

• Why The Grexit Is Inevitable – How About May 9th? (Raas Consulting)

One thing in common for almost all of my Pinewood International Schools (TiHi to some) class of ’78 is that we left. Many still live in Greece and in Thessaloniki or have returned, and they are closest to the pain. The real pain of the past decade, that has destroyed wealth and hope. Unemployment is running at levels not see in Europe since after the war, and at levels that encouraged the socialist – fascist civil wars of the 1930s. Those did not end well.

But that does not explain why the Grexit is inevitable, and why it will happen very soon.
1) This is what the Greek people voted for. No, they did not vote to stay in the Euro, they voted for the party that said it would reduce the debt and meet pension obligations. The Greek people and voters are not stupid. They knew this could only happen by either the rest of Europe bailing out Greece again, or by leaving the Euro.
2) The Greek people know perfectly well that Europe is not going to bail them out, because to do so will only set everyone up for the next bailout.
3) The Greek people, and the rest of Europe, know full well that the debt will never be repaid, and that the Troika are now acting as nothing better than the enforcers of loan sharks.
4) Syriza knows that it had six months before the voters would throw them out, and once out, Syriza would never come back.
5) The Greeks needed to show “good faith” in actually attempting to negotiate a resolution with the Troika. This has now been done, and is failing.
6) The demand for reparations from Germany is designed not to actually extract the reparations, but to anger the Germans to the point that they will block any compromise that Syriza would have been required to accept.

The Greek government, elected by a battered and exploited Greek people, has been establishing the conditions that will give them the moral high ground (in the eyes of their voters) needed to actually leave the Euro. Having set the conditions, when will it happen? I’m still guessing May 9th. Why? Greece will leave the Euro, and they will do it sooner than later. They’ve made the April payment, but simply do not have the money for the May or June payments, and they cannot pass the legislation required by Europe and the Germans and stay in power. That gives us a late May or June date. So why earlier?

Capital flight. Imposing currency controls will be a fundamental element of any Grexit. Accounts will be frozen, and any money in accounts will be re-denominated in New Drachmas. Once the bank accounts are unfrozen, the residual, former Euros will now be worth whatever the New Drachma has dropped to, and the drop will be significant, over–correcting to the downside. Once it is accepted that the Grexit is coming and there will be no last minute deal, and with memories of Cyprus too fresh in every Greek’s mind, the money will flow out of the country. Not just corporate money (most of which is probably off-share already) but any remaining personal money in bank accounts. So Greece has to move before the coming Grexit is perceived as inevitable, and the money starts to flow out.

Weekend event. When the Grexit happens, it will be on a weekend. The banks will be closed, parliament will be called into emergency session, and a packet of laws will be passed. As this needs to be on a Saturday to avoid wholesale capital flight the moment that parliament is called into session, were it a weekday. This leaves only a few possible dates. And where there are few possible dates, I’m punting on the earlier date, so earlier in May. And looking at the calendar, that leaves us with May 2nd, 9th or 16th. My own guess is that the 2nd is too soon, and the 16th is too late. That leaves me guessing May 9th.

It is pretty silly that anyone would doubt this. Or believe reassurances to the contrary.

• UBS Says Europe Risks Bank Runs On Grexit (Zero Hedge)

UBS: When examining the risk of contagion from any possible Greek exit from the Euro we come back again and again to the fact that in every monetary union collapse of the last century, the trigger for breakup was not the bond markets, current account positions, or political will, but banks. If ordinary bank depositors lose faith in the integrity of a monetary union they will hasten its demise by shifting their money out of their banks – either into physical cash, or into banks domiciled in areas of the monetary union that are perceived as “stronger”. Both of these traits were evident in the US monetary union breakup, and have been in evidence in more recent events this century.

The contagion risk after a possible Greek exit arises if bank depositors elsewhere in the Euro area believe that a physical euro note held “under the mattress” at home today is worth more than a euro in a bank – because a euro in a bank might be forcibly converted into a national currency tomorrow. In a breakup scenario it is more likely that retail bank deposits withdrawn will end up as physical cash, owing to the difficulties of opening and using a bank account in a different country. This is not a question of banking system solvency. Highly solvent banks will be subject to deposit flight if it is the value of the currency in that country that is uncertain…

The contagion story is serious. Even if a depositor thinks that there is only a 1% chance their country will exit the Euro, why take a 1% chance that your life savings are forcibly converted into a perceived worthless currency if by acting quickly (and withdrawing deposits) one can have 100% certainty that your life savings remain in Euros? If Greece were to walk away from the Euro, then the policy makers of the Euro area would have to convince bank depositors across the Euro area that a Euro in their local banking system was worth the same as a Euro in another country’s banking system, and that the possibility of any other country exiting the Euro was nil. If that double guarantee was not utterly credible, then the risk of other countries joining Greece in exiting the Euro would be high.

This suggests that financial markets are treating the risks around Greek exit with too little regard for the probable dangers.

Like before the recovery gets out of hand.

• Fed’s Bullard Says Rate Hikes Are Needed For Coming ‘Boom’ (MarketWatch)

A leading hawk on the Federal Reserve on Wednesday made a case for raising interest rates soon, arguing the level needs to be appropriate for the coming “boom” for the U.S. economy. St. Louis Fed President James Bullard, speaking at the annual Hyman Minsky conference here, acknowledged a boom by current standards might not be the same as the growth in the late 1990s. He pointed out that even if gross domestic product expanded just 1.5% in the first quarter, the four-quarter growth rate would be about 3.3%.With the current potential growth around 2%, growth in the low 3% range “represents growth well above trend,” he said. The first reading on first-quarter GDP is due April 29. Unlike his colleagues, Bullard expects the unemployment rate to fall below 5% from a current level of 5.5%. Bullard said jobless rates in the 4% range are consistent with a boom.

In his remarks, he notably did not specify a month to lift interest rates, and asked by reporters afterwards, he said, “I’m being deliberately vague.” The June meeting is considered the first in which the Federal Open Market Committee will give serious consideration to lifting interest rates. His biggest fear from keeping low rates — they have been near zero for 6.5 years — is that they could lead to financial-stability problems later. He said asset valuations currently look fairly valued, with the notable exception of bonds which Fed policy influences. “So it’s hard to know what that really means.” But he pointed out that Fed policy typically impacts the economy with a lag. “Boom times ahead, plus us already charting out low interest rates, sounds like risky from a bubble perspective,” he said.

She’s not the only one. But perhaps she should have said this a year ago.

• Warren Says Auto Lending Reminds Her Of Pre-Crisis Housing Days (MarketWatch)

Senator Elizabeth Warren on Wednesday used a major address on financial regulation to chide automobile lending practices as she continued her criticism of the country’s largest banks. Warren was speaking on the topic of the unfinished business of financial reform, and looking at the financial sector five years after the passage of the Dodd-Frank reform law. Warren, the leading contender to block a Hillary Clinton presidential nomination on the Democratic side if she were to step into the race, took particular aim at the fast-growing automobile lending category. “Right now, the auto loan market looks increasingly like the pre-crisis housing market, with good actors and bad actors mixed together,” the Massachusetts Democrat said.

“The market is now thick with loose underwriting standards, predatory and discriminatory lending practices, and increasing repossessions.” Warren pointed out that car dealers got a specific exemption from the Consumer Financial Protection Bureau, the agency which Warren all but singlehandedly brought to life. “It is no coincidence that auto loans are now the most troubled consumer financial product. Congress should give the CFPB the authority it needs to supervise car loans – and keep that $26 billion a year in the pockets of consumers where it belongs,” she said, referring to an estimate of dealer markups.

The CFPB has taken some steps in the area of automobile loans and has proposed a rule that would bring larger auto lenders that are not already banks under its jurisdiction. Warren was on more familiar ground with her call to break up the nation’s banks. She pointed out that last summer the Federal Reserve and the Federal Deposit Insurance Corp. said 11 banks were risky enough to bring down the U.S. economy if they were to fail. She also blasted the Justice Department, the Federal Reserve and the Securities and Exchange Commission for timidity in going after major banks. “The DOJ and SEC sit by while the same giant financial institutions keep breaking the law — and, time after time, the government just says, ‘Please don’t do it again.’ ”

How much further must this go before something is done?

• 27% Of US Students Are Over A Month Behind On Their Loan Payments (Zero Hedge)

As we’ve documented exhaustively in the past, the country is laboring under around $1.3 trillion in non-dischargeable loans to students which isn’t a good thing, especially in a country where the jobs driving the economic “recovery” have, until last month, been created in the food service industry and where wage growth is a concept reserved for only 20% of the workforce. It would seem that this could make it increasingly difficult for students to repay their debt, especially considering how quickly tuition costs have risen. In other words, tuition is going up, wages aren’t, and the latter point there is only relevant in the event you find a job that pays you a wage in the first place (i.e. where your compensation isn’t determined by the generosity of the “supervisory” Americans who can still afford to eat out).

The severity of the problem has been partially masked at times by the tendency to inflate the denominator when one goes to calculate delinquency rates. That is, if you include all student debt outstanding, even that in deferment or forbearance in the denominator, then clearly the delinquency rate will be biased to the downside because the numerator will by necessity only include those students who are currently in repayment. That’s really convenient if you want to make things look less bleak than they actually are.

Of course you can’t be delinquent when you aren’t yet required to make payments, so the more accurate way to calculate the figure would be to include only those students in repayment in the denominator. This apples-to-apples comparison is likely to paint much more accurate picture and sure enough, a new St. Louis Fed (who recently documented the shrinking American Middle Class) study finds that the delinquency rate for students in repayment is 27.3%, well above the 17% figure for all student borrowers. Here’s more:

[..] if we adjust the delinquency rate to consider that only a fraction of the borrowers have payments due, this level of delinquency is very concerning: A delinquency rate of 15% for all student loan borrowers implies a delinquency rate of 27.3% for borrowers with loans in repayment. This level of delinquency is much higher than for any other type of debt (credit cards, auto loans, mortgages, and so on).

That feels more like it. Over 70% of capital invested in housing, which fell 6%…

• China’s True Economic Growth Rate: 1.6% (Zero Hedge)

Cornerstone Macro reports, “Our China Real Economic Activity Index Slowed To Just 1.6% YY In 1Q.” The indicator in question looks at many of the components shown above, such as retail sales, car sales, rail freight, industrial production, and several others, to determine an accurate indicator of the true state of China’s economy. It finds that not only is China’s economic growth rate not rising at a 7.0% Y/Y rate, but is in fact the lowest it has been in modern history! And a 1.6% growth rate by what was formerly the world’s most rapidly growing (and largest according to the IMF) economy explains perfectly what happened with the US economy over the past 6 months. Hint: it has nothing to do with the winter, and everything to do with China hard landing into a brick wall.

“China is currently enjoying the somewhat dubious fruits of one of the all-time great stock manias.”

• The South (China) Sea Bubble (Corrigan)

The first hard data release of the month for China was hardly guaranteed to reassure. Two-way trade in USD terms dropped 6.3% in the first quarter from its level of a year ago, the second most severe setback since the Crash and only the third such instance in the whole era of ‘Opening Up’. From a strictly local perspective, the bad news was mitigated by the fact that exports managed to eke out a modest YOY gain of 4.7% (though that still means they were effectively unchanged from 2013 levels) and so the trade surplus was left at a record seasonal high. For the rest of us, however, anxious as we are to sell more of our wares to China, there was no such comfort. Imports plunged by more than a sixth to a four-year low, registering a drop which, if nowhere near as large in percentage terms, was, when measured in numbers of dollars, equal to that suffered in the global freeze which ensued in the aftermath of the Lehman collapse.

Though it always does to await the full data release for the first quarter – given the inordinate impact on comparisons of that highly moveable feast, the Lunar New Year – these numbers are fully consonant with the evidence presented during the first two months which showed flat non-residential electricity use and rail freight volumes down to seven year seasonal lows. It is undoubtedly the case that the bulk of the pain being felt is concentrated where it should be – up in the dirty, surplus capacity-plagued end of heavy industry and extraction – but, nevertheless, Chinese data show that 12-month running profits have dwindled to zero (if we strip out companies’ non-core – qua speculative – activities) and that for the last three months for which we have numbers they had actually declined in a manner not seen since the world stood still in late 2008/early 2009.

Revenue growth was also sickly, while balance sheets continue to swell with debt and receivables. Granted, private joint-stock companies continue to outperform their state-owned peers – or so the NBS would have us believe – but, even here, core profit growth over the whole of 2014 was a mere 4.2% with turnover up 9.2% (suggesting that margins simultaneously contracted). In such an environment, you might think that investor spirits would be dampened but, as anyone who has opened a paper in recent days will be aware, that is very much far from being the case.

Indeed, China is currently enjoying the somewhat dubious fruits of one of the all-time great stock manias. The CSI300 composite of Shanghai and Shenzhen equities has double since last July, with the seven-eighths of those gains coming in the last six months and almost a third of them in the past six weeks. With first Y1 trillion then Y1.5 trillion trading days being recorded and with 1.6 million [sic] new trading accounts being opened in the latest week for which we have the numbers, it is easy to see that this has rapidly degenerated into an indiscriminate free-for-all.

“..a Keynesian-on-steroids stimulus that occurs at the municipal level by building all sorts of public infrastructure that requires stealing land from farmers..”

• Don’t Invest In ‘Unsustainable’ China: Professor (CNBC)

China bear Peter Navarro is telling investors not to put their money in the country because its economic model is unsustainable. “What you got is a mercantilist export-driven model for China coupled with a Keynesian-on-steroids stimulus that occurs at the municipal level by building all sorts of public infrastructure that requires stealing land from farmers,” the University of California, Irvine economics professor told CNBC’s “Power Lunch” on Wednesday. Navarro, who co-wrote “Death By China,” attributes China’s slowing growth to less demand coming from the U.S. and Europe for Chinese exports.

“The problem is simply that Europe and the U.S., which provided the 10% growth year after year for three decades, are now too weak to sustain that,” he said. In addition, China is facing rising wages, labor issues, water shortages and a stock market and real estate bubble, Navarro said. On Wednesday, China’s statistics bureau announced that GDP grew an annual 7% in the first quarter, slowing from 7.3% in the previous quarter. That was the country’s slowest pace of growth in six years, suggesting the world’s second-largest economy was still losing momentum.

“..every investment-led growth miracle in the last 100 years has broken down.”

• The Major Paradox at the Heart of the Chinese Economy (Bloomberg)

“The latest GDP report underscores offsets coming from China’s services-led transformation — a key underpinning of consumer demand,” said Stephen Roach… “I suspect the economy is close to bottoming and could well begin to pick up over the balance of this year.” Chinese officialdom has little choice but to tap on the brakes of the old-line economy. Years of politically driven investment with diminishing returns led to too much debt and industrial overcapacity, as well as ghost towns with unfinished hotels and unoccupied residential towers. Bad debt piled up at a faster pace at China’s big state banks in the fourth quarter. Meanwhile, the country’s total debt — government, corporate and household — rose to about $28 trillion by mid-2014, according to an estimate by McKinsey, or about 282% of GDP.

Xi and Premier Li Keqiang are trying to defuse that debt bomb, rein in banks and local governments and promote the nation’s stock markets as a primary way for innovative and smaller companies to raise capital. Both leaders say they’ve mapped out more than 300 reforms that over time will reduce state intervention in the economy. Among the initiatives is scaling back energy-price controls that favor manufacturers. The changes are also designed to improve the social safety net and encourage market-driven deposit rates to get Chinese families saving less and spending more.

Few countries with the scale of China’s credit boom have escaped unscathed without experiencing some sort of banking crisis. Research by Michael Pettis, a finance professor at Peking University, shows that “every investment-led growth miracle in the last 100 years has broken down.” Avoiding that fate requires a high-wire balancing act for the government. It needs to wind down the torrent of investment – 49% of China’s GDP from 2010 to 2014 – without cratering the economy and worsening the situation for indebted local governments or the bad-debt burden of Chinese banks.

Anything goes by now?!

• China Seen Expanding Mortgage Bonds to Revive Housing (Bloomberg)

China is poised to expand mortgage bonds to lift its slumping real estate market that accounts for a third of the economy. Officials will likely allow banks to sell commercial mortgage-backed notes for the first time by the end of the year after reviving securities tied to home loans in 2014, according to China Merchants Securities Co. and China Chengxin International Credit Rating Co. The offerings, which help banks boost mortgage lending by freeing space on balance sheets, will grow “substantially” this year, China Credit Rating Co. said. The government of Premier Li Keqiang eased home-purchase rules after new housing prices slid in many cities across China in February.

Authorities, who halted securitization in 2009 after subprime mortgage bonds triggered the global financial crisis, are returning to such offerings to spur an economy growing at the slowest pace since 1990. “The launch of commercial mortgage-backed securities may send a strong policy signal because it will give banks more space to lend money directly to property developers,” said Zuo Fei, a Shenzhen-based director of structured finance at China Merchants Securities, underwriter of the first RMBS deal this year. “The regulators are trying to improve property purchases in a gradual and an appropriate way.”

The People’s Bank of China on March 30 cut the required down payment for some second homes to 40% from 60% and has reduced benchmark interest rates twice since November. The central bank and the China Banking Regulatory Commission said on Sept. 30 that they will encourage lenders to issue mortgage-backed securities. The government is trying balance efforts to provide new financing with steps to rein in unprecedented borrowing. Real estate companies sold a record $44.4 billion-equivalent of bonds in 2014, data compiled by Bloomberg show. In the latest sign of industry stress, Kaisa Group Holdings Ltd., based in the southern city of Shenzhen, is seeking a restructuring that would impose noteholder losses, fueling speculation that builder defaults may spread.

Is Ambrose seeking to offset the bleak views he posted lately?

• Bonds Beware As Money Catches Fire In The US And Europe (AEP)

Be thankful for small mercies. The world economy is no longer in a liquidity trap. The slide into deflation has, for now, run its course. The broad M3 money supply in the US has been soaring at an annual rate of 8.2pc over the past six months, harbinger of a reflationary boomlet by year’s end. Europe is catching up fast. A dynamic measure of eurozone M3 known as Divisia – tracked by the Bruegel Institute in Brussels – is back to growth levels last seen in 2007. History may judge that the ECB launched quantitative easing when the cycle was already turning, but Italy’s debt trajectory needs all the help it can get. The full force of monetary expansion – not to be confused with liquidity, which can move in the opposite direction – will kick in just as the one-off effects of cheap oil are washed out of the price data.

“Forecasters ignore broad money at their peril,” says Gabriel Stein, at Oxford Economics. Inflation will soon be flirting with 2pc across the Atlantic world. Within a year, the global economic landscape will look entirely different, with an emphasis on the word “look”. In my view this will prove to be mini-cyclical in a world of “secular stagnation” and deficient demand, but mini-cycles can be powerful. Mr Stein said total loans in the US are now growing at a faster rate (six-month annualised) than during the five-year build-up to the Lehman crisis. “The risk is that the Fed will have to raise rates much more quickly than the markets expect. This is what happened in 1994,” he said. That episode set off a bond rout. Yields on 10-year US Treasuries rose 260 basis points over 15 months, resetting the global price of money. It detonated Mexico’s Tequila crisis.

Bonds are even more vulnerable to a reflation shock today. You need a very strong nerve to buy German 10-year Bunds at the current yield of 0.16pc, or French bonds at 0.43pc, at time when EMU money data no longer look remotely “Japanese”. Granted, there may be tactical reasons for buying Bunds, even at negative yields out to eight years maturity. Supply is drying up. Berlin is pursuing a budget surplus with religious zeal, paying down €18bn of debt over the past year. It has left the Bundesbank little to buy as it launches its share of QE. Yet this is collecting pfennigs on the rails of a high-speed train. The German property market is on the cusp of a boom. David Roberts, of Kames Capital, warns of a “poisonous cocktail” of resurgent inflation and rising wages. “If you look at Bunds in anything other than the shortest possible timescale, the risk becomes very clear.”

Dick Tator. Mr. Dick Tator.

• ECB’s Mario Draghi Says Stimulus Is Working (WSJ)

European Central Bank President Mario Draghi said the bank’s stimulus efforts are beginning to take hold in the European economy and batted away concerns in financial markets that the bank may have to end its more than €1 trillion ($1.1 trillion) asset purchase program early. Mr. Draghi’s Wednesday news conference, held after the ECB decided to keep interest rates and other policies unchanged, was briefly interrupted by a confetti-throwing protester who jumped on the table where Mr. Draghi was seated and shouted “end the ECB dictatorship” as he began his opening remarks.

Mr. Draghi, who appeared unfazed by the ruckus after being whisked away by his bodyguards to a side room for a few minutes, said the bank’s stimulus drive is “finally finding its root” in the economy through easier credit conditions and lower inflation-adjusted interest rates. “The euro area economy has gained further momentum since the end of 2014,” said Mr. Draghi. “We expect the economic recovery to broaden and strengthen gradually.” Still, Mr. Draghi said the region’s recovery depends on full implementation of the ECB’s policies. Those include a record-low lending rate that the ECB kept unchanged Wednesday; cheap four-year loans to banks; and a €60 billion-a-month program to buy mostly government bonds that the ECB launched last month and intends to continue through September 2016.

On Tuesday, the IMF raised its forecast for eurozone growth this year to 1.5% from 1.2%. Though well below the levels of growth the U.S. has achieved during its recovery, it was a welcome development for a region that last year narrowly escaped its third recession in six years. Mr. Draghi cited a long list of reasons why this recovery should continue whereas previous ones have faltered. Lower oil prices, which cut costs for businesses and households, are joining the ECB’s stimulus in boosting the economy, Mr. Draghi said, noting that business and consumer confidence is up and that there should be fewer headwinds from fiscal policy.

[..] Mr. Draghi also played down concerns that the superlow interest rates brought on by the ECB’s policies could fuel bubbles in financial markets. “So far we have not seen evidence of any bubble,” he said, adding that regulatory policies, known as macroprudential tools, would be “the first line of defense” if imbalances started to form. He sidestepped questions about how the ECB would react in the event Greece isn’t able to reach agreement with its international creditors to unlock bailout funds, saying developments are “entirely in the hands of the Greek government.”

Schaeuble needs to stop telling Greece what to do.

• Schaeuble Says Greece Must Ditch False Hopes, Commit to Reform (Bloomberg)

German Finance Minister Wolfgang Schaeuble ruled out further concessions to Greece, saying it’s up to the Greek government to commit to the reforms needed to release aid rather than give false hopes to its people. Schaeuble, speaking in a Bloomberg Television interview in New York on Wednesday, said that another debt restructuring wasn’t up for discussion now, and that Greek demands for war reparations from Germany were “completely unrealistic.” “It’s entirely down to Greece,” said Schaeuble, 72. While some kind of restructuring might be on the agenda in 10 years, “today the issue for Greece is reforming its economy in such a way that it becomes competitive at some point.”

Greece’s plight is deepening with no end in sight to the standoff with creditors over releasing the final installment of bailout aid that has been stalled since the January election of Prime Minister Alexis Tsipras’s anti-austerity government. Greek 10-year bond yields surged and bank stocks plunged to their lowest level in at least 20 years on Wednesday after a report in Die Zeit newspaper the German government was working on a plan to keep Greece in the euro area if the country defaulted, triggering a halt to European Central Bank funding. “We don’t have such plans, and if we were working on them – because ministry staff are taking just about everything into consideration – then we would definitely not talk about it,” said Schaeuble. “It makes no sense to speculate about it.”

With a monthly bill of about €1.5 billion for pensions and salaries and repayments to its international creditors looming, Greece is targeting next week’s meeting of euro-area finance ministers in Riga, Latvia, as a deadline for unlocking the funds. While Schaeuble said earlier Wednesday that “no one” in the euro region expects a resolution of the standoff by the Riga meeting on April 24, he softened his tone in the interview, saying that the end of the program on June 30 was the only deadline that mattered. “If Greece wants support, we will give this support as in recent years, but of course within the framework of what we agreed,” he said. While the decisions ultimately lie with Greece, “whatever happens: we know that Greece is part of the European Union and that we also have a responsibility for Greece and we will never disregard this solidarity.”

“..Tsipras’s government had “destroyed” progress made by previous administrations..” That’s the progress that led to hungry children?!

• Schaeuble Criticizes Greece for Backsliding as Time Runs Out (Bloomberg)

German Finance Minister Wolfgang Schaeuble criticized Greece for backsliding on reforms, saying that “no one” expects a resolution next week of the standoff with Alexis Tsipras’s government over untapped bailout funds. Schaeuble, in his first comments on the matter since before the Easter holidays, said Tsipras’s government had “destroyed” progress made by previous administrations in overhauling the Greek economy. “It’s a tragedy,” he said Wednesday at the Council on Foreign Relations in New York, adding that the country needed to become competitive to stop being a “bottomless pit.” The comments by the finance chief of the region’s biggest economy underscored the rising concern in European capitals that Greece is running out of time to unfreeze the aid needed to keep the country afloat.

Standard & Poor’s cut Greece’s rating Wednesday, citing the country’s deteriorating outlook. Schaeuble is among European officials who are skeptical that there’s enough time to work out a deal ahead of a meeting of euro-area finance ministers at the end of next week in Riga, Latvia, to assess whether Greece has made enough progress to warrant a disbursement from its €240 billion bailout fund. Leaders are pressuring Greece to submit specific reforms as the country runs out of cash and faces debt payments and monthly salary obligations in the coming weeks.

Germany said Wednesday that an aid payment from the bailout fund won’t happen this month, and that Greece’s negotiations with creditors have failed to move forward. “I said last time that there has been progress, but that really there is still a considerable need for negotiations,” Friederike von Tiesenhausen, a German Finance Ministry spokeswoman, said. “Things have not really changed.” Greece’s credit rating was lowered one level to CCC+, with a negative outlook, by S&P, which estimated that the country’s economy contracted close to 1% in the past six months. The downgrade leaves the nation’s rating seven steps into junk territory.

“..taxes might have to go up to cover a $25bn budget black hole caused by falling commodity prices..” “..BHP Billiton and Rio Tinto launched a huge expansion which saw mining investment as a percentage of the Australian economy peak at a whopping 7% in 2012. ”

• Australia’s Economy: Is The Lucky Country Running Out Of Luck? (Guardian)

After 24 years of uninterrupted economic growth, Australia is entering the kind of difficult waters experienced by every other major developed country in the past decade. Even if Thursday’s unemployment figures show more jobs were added last month, the Coalition is set to go into the next election with an unusually gloomy outlook. Australians are finding it harder to get a job than at any time in more than decade and those who are in work are seeing the weakest wage growth for two decades. There are even fears that taxes might have to go up to cover a $25bn budget black hole caused by falling commodity prices. As one leading economist put it, the lucky country is running out of luck. Growth is still on target for a healthy at 2.8% for this year, according to the IMF, the kind of number that would send European leaders scrambling for the tweet button.

But the question of whether Australia loses its remarkable record of continuous growth depends, as with almost everything else in the economy, on what happens in China. “Australia has gone 24 years without a recession thanks to good management and good luck,” said Saul Eslake at BoA in Sydney. “Up to the early 2000s it was managed well and then it wasn’t. But then the luck improved because of China’s huge stimulus after the global financial crisis. Now the luck is running out.” The slowdown in the world’s second biggest economy is now well and truly underway. Demand for Australia’s iron ore and coal has plummeted from a decade ago as Beijing seeks to scale back its huge building schemes and create a more consumer-led economy. The price of the steel-making commodity, Australia’s biggest export, has fallen from $130 at the start of 2014 to around $50. Coal has halved in price in the past four years.

Buoyed by the good times, resource companies led by BHP Billiton and Rio Tinto launched a huge expansion which saw mining investment as a percentage of the Australian economy peak at a whopping 7% in 2012. The new output from their giant mines in Western Australia is now hitting the market, making export figures look healthy but adding to the pressure on prices and leaving Australia with a potentially wretched hangover.

How does this not violate the Minsk agreement?

• US Military Lands in Ukraine (Ron Paul Inst.)

Paratroopers from the US Army’s 173rd Airborne Brigade have arrived in Ukraine to begin training that country’s national guard and provide it with new military equipment. The Ukrainian government took power in a US-backed coup in early 2014 and has waged war on eastern provinces that wish to breakaway from what they see as an illegitimate government. The US military action, dubbed “Operation Fearless Guardian,” will improve the Washington-backed faction’s ability to wage war against the breakaway regions, but at least in spirit will violate the “Minsk II” ceasefire agreement which mandates a “pullout of all foreign armed formations, military equipment.”

The US military involvement on behalf of the US-backed government in Kiev comes at a key time in the shaky ceasefire. The Organization for Security and Cooperation in Europe (OSCE) has noted a serious increase in fighting in the breakaway eastern regions of Ukraine and OSCE monitors have pointed the finger at US-backed Kiev as the instigator of these new attacks. The relevant OSCE report finds:

…that the Ukrainian side (assessed to be the Right Sector volunteer battalion) earlier had made an offensive push through the line of contact towards Zhabunki (“DPR”-controlled, 14km west-north-west of Donetsk…

The US military’s “Operation Fearless Guardian” will ultimately involve some 300 US Army personnel “training three battalions of Ukrainian troops in a range of infantry tactics.” With Ukraine’s US-backed president promising to “retake” the breakaway regions in the east despite having signed the ceasefire, it is clear that US training constitutes the beginning of direct US military involvement in the Ukrainian conflict. As such it is undeniably an escalation.

Well, they sure have no money to buy entirely new systems.

• Greece In Talks With Russia To Buy Missiles For S-300 Systems (Reuters)

Greece is negotiating with Russia for the purchase of missiles for its S-300 anti-missile systems and for their maintenance, Russia’s RIA news agency quoted Greek Defense Minister Panos Kammenos as saying on Wednesday. The report followed a visit by Greek Prime Minister Alexis Tsipras last week to Moscow, where he won pledges of Russian moral support and long-term cooperation but no fresh funds to help avert bankruptcy for his heavily indebted nation. NATO member Greece has been in possession of the Russian-made S-300 air defense systems since the late 1990s.

“We are limiting ourselves to replacement of missiles (for the systems),” RIA quoted Kammenos, who is in Moscow for a security conference, as saying. “There are negotiations between Russia and Greece on the maintenance of the systems … as well as for the purchase of new missiles for the S-300 systems,” he said. The Greek defense ministry in Athens later issued a statement quoting Kammenos as saying: “The existing defense cooperation programs will continue. There will be maintenance for the existing programs.”

Paid for years ago.

• Putin to Netanyahu: Iran S-300 Air Defense System is .. Defensive (Juan Cole)

Russian President Vladimir Putin spoke by phone with Israeli Prime Minister Binyamin Netanyahu Tuesday with regard to the Russian Federation’s decision to go ahead with the sale to Iran of S-300 anti-aircraft batteries. Iran bought the batteries several years ago, but delivery was delayed by Moscow because of US and international pressure. The US has led the imposition of severe economic sanctions on Iran, perhaps the most severe ever applied to any country in modern history, including having Iran kicked off the SWIFT bank exchange. In deference to US wishes, Russia did not ship the system.

Two things have now changed. First, Russia and the US are not getting along nearly as well in the wake of the Russian annexation (or reclaiming, from Moscow’s point of view) of Crimea from Ukraine and its support for ethnically Russian fighters in Ukraine’s east. In fact, the US has begun imposing sanctions on Russia. In turn, Russia no longer has great regard for US wishes. Second, the five permanent members of the UN Security Council plus Germany have concluded a framework agreement permitting Iran’s civilian nuclear enrichment program, which is aimed at imposing inspections and equipment restrictions that would make it very difficult if not impossible for Iran to break out and create a nuclear weapon.

Russia and China have been the least supportive of severe sanctions on Iran, and Russia appears to have decided that since the negotiations have reached a serious phase, it is time to go ahead with this deal, concluded some time ago. The announcement alarmed Israeli Prime Minister Binyamin Netanyahu, whose government has often hinted around that it might bomb Iran. The Putin government issued a communique that “gave a detailed explanation of the logic behind Russia’s decision…emphasizing the fact that the tactical and technical specifications of the S-300 system make it a purely defensive weapon; therefore, it would not pose any threat to the security of Israel or other countries in the Middle East.”

“..safeguard Creation … Because if we destroy Creation, Creation will destroy us!”

• Vatican Announces Major Summit On Climate Change (ThinkProgress)

Catholic officials announced on Tuesday plans for a landmark climate change-themed conference to be hosted at Vatican later this month, the latest in Pope Francis’ faith-rooted campaign to raise awareness about global warming. The summit, which is scheduled for April 28 and entitled “Protect the Earth, Dignify Humanity. The Moral Dimensions of Climate Change and Sustainable Development,” will draw together a combination of scientists, global faith leaders, and influential conservation advocates. UN Secretary General Ban Ki-moon is slotted to offer the opening address, and organizers say the goal of the conference is to “build a consensus that the values of sustainable development cohere with values of the leading religious traditions, with a special focus on the most vulnerable.”

“[The conference hopes to] help build a global movement across all religions for sustainable development and climate change throughout 2015 and beyond,” read a statement posted on several Vatican-run websites. According to a preliminary schedule of events for the convening, attendees hope to offer a joint statement highlighting the “intrinsic connection” between caring for the earth and caring for fellow human beings, “especially the poor, the excluded, victims of human trafficking and modern slavery, children, and future generations.” The gathering will undoubtedly build momentum for the pope’s forthcoming encyclical on the environment, an influential papal document expected to be released in June or July.

The Catholic Church has a long history of championing conservation and green initiatives, but Francis has made the climate change a fixture of his papacy: he directly addressed the issue during his inaugural mass in 2013, and told a crowd in Rome last May that mistreating the environment is a sin, insisting that believers “safeguard Creation … Because if we destroy Creation, Creation will destroy us! Never forget this!” The Vatican also held a five-day summit on sustainability in 2014, calling together microbiologists, economists, legal scholars, and other experts to discuss ways to address climate change.