Fannie Mae Archives - The Automatic Earth

Donald Trump forged ahead on Saturday and proposed a deal to end the US government shutdown, despite Democrats having rejected it before he began to speak. If its timing was striking, the rejection was no surprise. In exchange for temporary concessions on the status of threatened migrant groups, the president doubled down on his demand for a border wall. A senior House Democratic aide told the Guardian the party, which has vowed not to give Trump funding for any wall, was not consulted. Speaking from the White House, the president outlined a plan that would extend protections for young undocumented migrants brought to the US as children, known as Dreamers, and individuals from some Central American and African nations, in exchange for $5.7bn for a wall on the US-Mexico border.

“A wall is not immoral,” he said, adding: “The radical left can never control our borders. I will never let that happen.” “As a candidate for president,” he said, “I promised I would fix this crisis, and I intend to keep that promise one way or the other.” Trump spoke as the partial shutdown of the federal government, the longest in US history, rolled through its 29th day. Prompted on 22 December over Trump’s demand for a wall, the partial closure of departments and services has left around 800,000 federal workers without pay. Hundreds of thousands of contractors are also going without a check.

Before the president took the podium, House speaker Nancy Pelosi panned his proposal. “Democrats were hopeful that the president was finally willing to re-open government and proceed with a much-need discussion to protect the border,” she said in a statement. “Unfortunately … his proposal is a compilation of several previously rejected initiatives, each of which is unacceptable and in total do not represent a good faith effort to restore certainty to people’s lives. It is unlikely that any one of these provisions alone would pass the House, and taken together, they are a non-starter.”

“..a little dust-up in the meadows and cornfields known as the Civil War..”

• Battle Royale (Jim Kunstler)

The effrontery of Ms. Pelosi, Speaker of the House, in cancelling Mr. Trump’s State of the Union address in the chamber she controls is perhaps the worst insult to institutional protocol since the spring day in 1856 when Congressman Preston Brooks (D-SC) skulked into the senate chamber and smashed Senator Charles Sumner (R-Mass) about the head within an inch of his life with a gold-headed walking stick. Brooks’s attack was launched after Sen. Sumner gave his “Bleeding Kansas” speech, arguing that the territory be let into the union as a “free” state, and denouncing “the harlot slavery,” whom he imputed was Rep. Brooks’s dearest consort.

Many of us — except perhaps students immersed in intersectional gender studies — know how that worked out: a little dust-up in the meadows and cornfields known as the Civil War. We’re about at that level of animosity today in the two federal houses of legislature, though it is very hard to imagine how Civil War Two might play out on the ground. Perhaps opposing mobs (not even armies) meet in the Walmart parking lots of Pennsylvania and go at it demolition derby style, with monster trucks bashing their enemies’ Teslas and Beemers. Throw in clown suits instead of blue and gray uniforms and we’ll really capture the spirit of the age.

Not to be outdone, days after the SOTU cancellation, the Golden Golem of Greatness cancelled a Democratic Party grandstanding junket to the Middle East, led by Ms. Pelosi. A US Air Force bus has just departed for Andrews Air Force Base, where an Air Force jet waited for the junketeers. But then, with impeccable timing, Mr. Trump cancelled the junket — denying the use of military aircraft as Commander-in-Chief — and forcing the bus back to town with its load of elected dignitaries and their luggage — making the reasonable suggestion that they fly a commercial airline instead.

Trump trolling America.

• No President Since Lincoln Treated Worse Than Me – Trump (RT)

Not since Abraham Lincoln has a US president been treated so badly by the media, Donald Trump lamented in a series of Twitter rants before going to Delaware to honor the four Americans killed in Syria. “Will be leaving for Dover to be with the families of four very special people who lost their lives in service to our Country,” Trump wrote on Twitter on Saturday. Two US troops, a civilian and a contractor were killed in a suicide bombing in the Kurdish-controlled northern Syrian city of Manbij on Wednesday. But the president had no intention to focus on his surprise visit to Dower Airforce Base in Delaware for too long.

His next Twitter post was dedicated to a completely different subject, as Trump cited former House Speaker, Newt Gingrich, who – according to him – said: “There has been no president since Abraham Lincoln who has been treated worse or more unfairly by the media than your favorite President, me!” At the same time, he insisted that “there has been no president who has accomplished more in his first two years in office!” Trump’s invocation of Lincoln prompted reactions from his supporters and opponents.

May cannot have a bilateral treaty with Irleand that would essentially be designed to bypass the EU, as long as Ireland is part of the EU.

• Theresa May Wants Irish Treaty To Break Brexit Impasse (R.)

British Prime Minister Theresa May plans to seek a bilateral treaty with the Irish government as a way to remove the contentious backstop arrangement from Britain’s divorce deal with the European Union, a newspaper reported. The Sunday Times said aides to May thought a deal with Ireland would remove the opposition to her Brexit plan from the Democratic Unionist Party that supports May’s minority government and from pro-Brexit rebels in her Conservative Party. However the Irish edition of the same newspaper quoted a senior Irish government source as saying the bilateral treaty proposal was “not something we would entertain” and a second senior political source as saying it would not work with the European Commission.

May suffered a heavy defeat in parliament on Tuesday when Conservative lawmakers and members of other parties rejected her Brexit plan by an overwhelming majority. That left Britain facing the prospect of no deal to smooth its exit from the EU in little more than two months’ time. May is due to announce on Monday how she plans to proceed. Many Conservatives and the DUP oppose the backstop that the EU insists on as a guarantee to avoid a hard border between the Irish Republic and Northern Ireland. Earlier on Saturday, Ireland’s foreign minister Simon Coveney said Dublin’s commitment to the Brexit divorce deal struck with the British government was “absolute,” including the border backstop arrangement. The Sunday Times also said a group of lawmakers in Britain’s parliament would meet on Sunday to consider ways they could suspend the Brexit process, wresting control away from May’s government.

There’s that question again: a sign of confidence or despair?

• One Thing To Be Grateful To Brexit For: Britons Are Buying Less On Credit (G.)

A sharp decline in household spending on the never-never, and especially spending on credit cards, is a trend that must surely be welcomed. The Bank of England said last week in its quarterly credit health check that high street banks were about to witness the biggest decline in such borrowing since records began 12 years ago. Threadneedle Street said its index of demand for credit card lending over the three months to the end of March had dropped to -20.7 from -7.2. That is a far cry from the summer of 2017, when consumer borrowing soared above £200bn and MPs across the political spectrum became alarmed at the return of binge buying on plastic.

At that time, with wages flat or at least not rising by more than inflation, policymakers feared that households were supplementing their incomes with borrowing to the degree that they had in the run-up to the 2008 financial crash. Regulators reacted to the rise by telling banks to tighten up their lending criteria. Most institutions obeyed, as anyone tracking the trend for borrowing across 2018 can see. So far, so good. That, after all, was supposed to be how the regulators looked after the interests of the country and its economy, and kept individual households from borrowing more than they could afford to repay.

However, it also seems clear that another force was at play – the Brexit effect, which began to have an impact once it became clear that Theresa May’s government was struggling to find a formula that could win over a majority in the House of Commons. The fall in sentiment since last summer has proved to be dramatic – far sharper than the banks would ever have expected from a few little tweaks to their lending rules. And the lack of consumer borrowing has been felt in few places more than it has in the car industry. Since 2010, cars have increasingly been sold through complex lease deals that fall under the credit figures. By 2017, nine out of 10 cars were being sold this way. Then came the diesel emissions scandal and a confused government reaction, which discouraged sales.

Brexit made the situation worse. Consumers were already reluctant to make major purchases such as a new home, or big-ticket household items like furniture. Next on the list of things not to buy was a car. Figures from the industry show that car sales in the UK declined by almost 7% in 2018. With a major slice of credit no longer in demand, the borrowing figures were bound to tumble. The shocking element of the story is how much harm a fall in personal lending can cause to the British economy, which has already suffered a lopsided expansion since the financial crash.

Excellent essay on what the Yellow Vests actually are.

• ‘The Gilets Jaunes Are Unstoppable’ (Guilluy)

‘Paris creates enough wealth for the whole of France, and London does the same in Britain. But you cannot build a society around this. The gilets jaunes is a revolt of the working classes who live in these places. ‘They tend to be people in work, but who don’t earn very much, between 1000€ and 2000€ per month. Some of them are very poor if they are unemployed. Others were once middle-class. What they all have in common is that they live in areas where there is hardly any work left. They know that even if they have a job today, they could lose it tomorrow and they won’t find anything else. ‘Not only does peripheral France fare badly in the modern economy, it is also culturally misunderstood by the elite. …

One illustration of this cultural divide is that most modern, progressive social movements and protests are quickly endorsed by celebrities, actors, the media and the intellectuals. But none of them approve of the gilets jaunes. Their emergence has caused a kind of psychological shock to the cultural establishment. It is exactly the same shock that the British elites experienced with the Brexit vote and that they are still experiencing now, three years later. ‘The Brexit vote had a lot to do with culture, too, I think. It was more than just the question of leaving the EU. Many voters wanted to remind the political class that they exist. That’s what French people are using the gilets jaunes for – to say we exist. We are seeing the same phenomenon in populist revolts across the world. [ … ]

‘The Parisian economy needs executives and qualified professionals. It also needs workers, predominantly immigrants, for the construction industry and catering et cetera. Business relies on this very specific demographic mix. The problem is that ‘the people’ outside of this still exist. In fact, ‘Peripheral France’ actually encompasses the majority of French people. [ … ] Think of the ‘deplorables’ evoked by Hillary Clinton. There is a similar view of the working class in France and Britain. They are looked upon as if they are some kind of Amazonian tribe. The problem for the elites is that it is a very big tribe.

Really, you think Macron can have his national debate? “..98 cases of serious injuries, including 15 cases of people losing an eye..”

• Yellow Vests Defy Macron ‘National Debate’ In 10th Saturday Of Protests (F24)

Around 84,000 “Yellow Vest” demonstrators marched all around France on Saturday, marking a 10th straight weekend of anti-government protests, defying attempts by President Emmanuel Macron to channel their anger into a series of town hall debates. In Paris, Protesters assembled by the Invalides plaza near the National Assembly and marched through the city’s Left Bank in freezing temperatures. These demonstrations were largely peaceful but, according to reporters, clashes broke out late in the afternoon between police and demonstrators, some wearing masks, in Paris’ central Invalides district. Protesters threw firecrackers, bottles and stones at the police who responded with water cannon and tear gas to push them back.

Authorities said there were around 7,000 protesters in Paris, some of whom gathered near the world-famous Champs Elysees, while there were similar demonstrations in major cities across France. Rallies took place in Toulouse, Lyon, Rouen and other cities. According to the French Interior Ministry, some 84,000 people marched across France on Saturday, as many as last week. In the French capital though, there were fewer protestors on this 10th consecutive weekend than on the previous Saturday, when there were 8,000.

[..] the protesters behind the biggest crisis in Macron’s presidency remain fully mobilised. The centrist leader is hoping that the launch this week of a “grand national debate” on policy will mark a turning point. [..] many yellow vests have announced plans to boycott the discussions scheduled in dozens of towns and villages, seeing them as an attempt to drain support from a movement that erupted in mid-November over fuel taxes and quickly broadened into a campaign of weekly protests that have regularly ended in clashes with police and destruction of property. The growing number of demonstrators to suffer serious injuries at the hands of the police has compounded their anger towards the state. The “Disarm” collective, a local group that campaigns against police violence, has counted 98 cases of serious injuries, including 15 cases of people losing an eye, mostly after being hit by rubber bullets.

Probably means they see a huge plunge come in housing.

• Fannie Mae And Freddie Mac Regulator Has Plan To End Conservatorship (MW)

The acting director of the Federal Housing Finance Agency has told the agency’s employees that the regulator will announce a plan within weeks to take the government-sponsored enterprises out of conservatorship. Joseph Otting, who is leading the FHFA as Mark Calabria awaits Senate confirmation, said at an all-hands meeting on Thursday that a plan to lift Fannie Mae and Freddie Mac out of the conservatorship that has permeated the institutions since the financial crisis will soon be announced, according to an attendee of that gathering. A spokesperson for the agency confirmed there was discussion about ending Fannie and Freddie conservatorship but denied there was any talk of timing or details.

“Acting Director Otting held the internal meeting to meet FHFA staff and establish open lines of communication,” the FHFA said. “He mentioned, as he previously has, that Treasury and the White House are expected to release a plan for housing that will include details about reform and will likely include a recommendation for ending Fannie Mae and Freddie Mac conservatorships. [Treasury] Secretary Mnuchin has said that the goal of the [Trump] administration is to take the GSEs out of conservatorship. Acting Director Otting said that he and FHFA will work to advance that plan.” Fannie and Freddie were rushed into government control at the height of the financial crisis. Then, in 2012, the terms of the 2008 bailout were amended to steer the quarterly profits of both enterprises to Treasury. That wiped out holders of the companies’ stock, and they’ve fought the federal government in court ever since.

Shoshana Zuboff’s new book The Age of Surveillance Capital sounds like a treat.

• ‘The Goal Is To Automate Us’: The Age Of Surveillance Capitalism (O.)

Surveillance capitalism is a human creation. It lives in history, not in technological inevitability. It was pioneered and elaborated through trial and error at Google in much the same way that the Ford Motor Company discovered the new economics of mass production or General Motors discovered the logic of managerial capitalism. Surveillance capitalism was invented around 2001 as the solution to financial emergency in the teeth of the dotcom bust when the fledgling company faced the loss of investor confidence. As investor pressure mounted, Google’s leaders abandoned their declared antipathy toward advertising. Instead they decided to boost ad revenue by using their exclusive access to user data logs (once known as “data exhaust”) in combination with their already substantial analytical capabilities and computational power, to generate predictions of user click-through rates, taken as a signal of an ad’s relevance.

Operationally this meant that Google would both repurpose its growing cache of behavioural data, now put to work as a behavioural data surplus, and develop methods to aggressively seek new sources of this surplus. The company developed new methods of secret surplus capture that could uncover data that users intentionally opted to keep private, as well as to infer extensive personal information that users did not or would not provide. And this surplus would then be analysed for hidden meanings that could predict click-through behaviour. The surplus data became the basis for new predictions markets called targeted advertising.

Here was the origin of surveillance capitalism in an unprecedented and lucrative brew: behavioural surplus, data science, material infrastructure, computational power, algorithmic systems, and automated platforms. As click-through rates skyrocketed, advertising quickly became as important as search. Eventually it became the cornerstone of a new kind of commerce that depended upon online surveillance at scale. The success of these new mechanisms only became visible when Google went public in 2004. That’s when it finally revealed that between 2001 and its 2004 IPO, revenues increased by 3,590%.

[..] Google began by unilaterally declaring that the world wide web was its to take for its search engine. Surveillance capitalism originated in a second declaration that claimed our private experience for its revenues that flow from telling and selling our fortunes to other businesses. In both cases, it took without asking. Page [Larry, Google co-founder] foresaw that surplus operations would move beyond the online milieu to the real world, where data on human experience would be free for the taking. As it turns out his vision perfectly reflected the history of capitalism, marked by taking things that live outside the market sphere and declaring their new life as market commodities.

We were caught off guard by surveillance capitalism because there was no way that we could have imagined its action, any more than the early peoples of the Caribbean could have foreseen the rivers of blood that would flow from their hospitality toward the sailors who appeared out of thin air waving the banner of the Spanish monarchs. Like the Caribbean people, we faced something truly unprecedented. Once we searched Google, but now Google searches us. Once we thought of digital services as free, but now surveillance capitalists think of us as free.

Bowie in 1999. He was a long way ahead.

David Bowie in 1999 about the impact of the Internet on society pic.twitter.com/aPcG9CO9MS

— Bret Taylor (@btaylor) January 15, 2019

Debt Rattle August 2 2017

Aug 022017

August 2, 2017 Posted by Raúl Ilargi Meijer at 9:04 am Finance Tagged with: bees, China, Fannie Mae, Monsanto, reactor, sanctions, slump, turtle, union, unmasking 1 Response »

Stanley Kubrick Men’s fashion show, New York 1948

• New Rule Makes It Easier To Get A Mortgage With Student Loan Debt (F.)

• US Auto Market Slump Persists (BBG)

• US Plans Trade Measures Against China (WSJ)

• US Begins Russia Drawdown After Kremlin Retaliates For Sanctions (R.)

• Former Obama Aide Rhodes A Person Of Interest In Unmasking Investigation (C.)

• For Sale: Two Half-Finished Nuclear Reactors -Never Used- (BBG)

• Nissan Runs One Of ‘Nastiest Anti-Union Campaigns’ In Modern US History (G.)

• Monsanto’s Sway Over Research Is Seen in Disclosed Emails (NYT)

• Pesticide ‘Drifting’ Wreaks Havoc Across US Crops (BBG)

• Bees Are Bouncing Back From Colony Collapse Disorder – A Little (BBG)

• 8 Migrants Dead Off Libya, 500 Rescued As Italy Prepares Naval Mission (AFP)

• EasyJet Passengers Left High And Dry In Greece Due to Mating Turtles (G.)

Desperately mining for a new generation of greater fools. Courtesy of government-owned Fannie Mae. What a world.

• New Rule Makes It Easier To Get A Mortgage With Student Loan Debt (F.)

For millions of Americans drowning in student loan debt, the prospect of getting a mortgage might seem out of reach. Last week, Fannie Mae changed underwriting rules that could make it much easier for people with student loan debt to qualify for a mortgage. The new rule impacts people with federal student loan debt who are currently on an income-driven repayment program. An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based upon your income and family size. Depending upon the plan, your monthly payment could be capped as low as 10% of your discretionary income. And if your discretionary income is low enough, your monthly payment could be as low as $0.

In order to qualify for a mortgage, a borrower needs to meet certain debt-to-income (DTI) requirements. That seems simple enough. However, there was confusion regarding federal student loan debt on an income-driven repayment program. When calculating a debt burden, should the underwriter include the standard student loan payment, the reduced payment, or something in between? The new statement from Fannie Mae makes it clear: the reduced payment can be used, even when the payment is $0. According to Fannie Mae, “if the lender obtains documentation to evidence the actual monthly payment is $0, the lender may qualify the borrower with the $0 payment as long as the $0 payment is associated with an income-driven repayment plan.”

This is important, because the payment calculation for a student loan (10% of the discretionary income) is different from the DTI requirement of a mortgage. Many Americans could find it easier to qualify for a mortgage while in student loan debt. Michigan-based mortgage broker Cassandra Evers told MagnifyMoney that the changes “allow a lot more borrowers to qualify for a home.” Previously, there was a lot of confusion among borrowers, lenders, and brokers, Evers said. “[The rules have] changed at least five or six times in the last five years.”

“You can’t jawbone the economy..”

• US Auto Market Slump Persists (BBG)

Here’s a bad sign for the U.S. economy: Auto sales just fell the most since August 2010, a year after the federal government’s “Cash for Clunkers” program to stimulate demand came to an end. Sales at General Motors plunged 15% in its home market in July, the biggest drop in more than a year. Its Detroit rivals didn’t fare much better: Ford reported its biggest sales decline since October and Fiat Chrysler had its second worst tumble this year. The disappointing showing underscores how Detroit has been struggling to live up to President Donald Trump’s prediction that it would become “the car capital of the world again.” The hometown automakers are instead laying off U.S. workers, particularly those who build passenger cars that have fallen out of favor with American consumers.

A demand slump has rendered spending on vehicles and parts a drag on U.S. economic growth, after years of contributing to expansion. “You can’t jawbone the economy,” said Diane Swonk, CEO and founder of DS Economics. “The auto industry was stronger than the rest of the economy for a while because they were giving credit to people who couldn’t pay loans. Sales crested sooner and now they are paying the price.” The traditional U.S. automakers each missed projections for declines that analysts gave in a Bloomberg News survey. While Nissan and Honda both beat projections, only Toyota posted a gain. Industrywide deliveries fell 7%, the steepest drop since the anniversary of “Cash for Clunkers,” a program that inflated U.S. sales in August 2009 as buyers traded in for more fuel-efficient wheels. The annualized pace of light-vehicle sales, adjusted for seasonal trends, slowed to 16.7 million in July, according to Autodata Corp., from 17.8 million a year earlier.

China is not liking this.

• US Plans Trade Measures Against China (WSJ)

The Trump administration is planning trade measures to force Beijing to crack down on intellectual-property theft and ease requirements that American companies share advanced technologies to gain entry to the Chinese market. The administration is considering invoking a little-used provision of U.S. trade law to investigate whether China’s intellectual-property policies constitute “unfair trade practices,” according to people familiar with the matter. That would pave the way for the U.S. to impose sanctions on Chinese exporters or to further restrict the transfer of advanced technology to Chinese firms or to U.S.-China joint ventures. American business frustration with Chinese trade and market-access practices has mounted in recent years, with U.S. business groups urging the government to take a tougher trade line with China.

Many organizations have complained that the Trump administration hasn’t pushed hard enough in areas like intellectual property, as it has focused more on Chinese manufacturing and China’s $347 billion trade surplus with the U.S. last year. That discontent has intensified as China’s economy continued to expand and its computer and software sectors became bigger competitors internationally. Western firms fear China will use the regulations to bar foreign investments in areas that Beijing targets for investment, including semiconductors, advanced-machine tools and artificial intelligence. One big question hanging over the White House review is whether the administration pursues any complaint through the World Trade Organization, or whether it chooses to impose penalties on its own without first seeking permission from the international body, which some Trump advisers have argued is incapable of dealing with China’s trade practices.

Has Trump even signed the new sanctions yet?

• US Begins Russia Drawdown After Kremlin Retaliates For Sanctions (R.)

The United States began removing furniture and equipment from a diplomatic property in Moscow on Tuesday in the first sign of compliance with a Kremlin order to slash its presence in Russia as retaliation for new U.S. sanctions. President Vladimir Putin has ordered the United States to cut around 60% of its diplomatic staff in Russia by Sept. 1, and said Moscow will seize two U.S. diplomatic properties in response to sanctions approved by Congress last week. The White House has said U.S. President Donald Trump will sign the sanctions bill, meant as a response to alleged Russian meddling in the 2016 U.S. presidential election and to further punish Moscow for its 2014 annexation of Crimea from Ukraine.

On Tuesday, removal men began dismantling play equipment and barbecues at a U.S.-owned dacha (country villa) on the outskirts of Moscow, after being refused access the day before, according to a Reuters journalist at the scene. The dacha, which is being confiscated along with a U.S. warehouse in the south of the Russian capital, was used by U.S. diplomatic staff at the weekends and to host parties for students, journalists and other diplomats. [..] The ultimatum issued by the Russian leader is a display to voters at home that he is prepared to stand up to Washington – but is also carefully calibrated to avoid directly affecting the U.S. investment he needs, or burning his bridges with Trump. One person at the embassy, who spoke on condition of anonymity because they are not authorized to talk to the media, said staff there were feeling depressed and despondent as they came to terms with the Kremlin’s order. “The mood in the office is very pessimistic,” the person said. “Everyone is just loitering, or sitting on job websites looking for a new job.”

Strange things were taking place.

• Former Obama Aide Rhodes A Person Of Interest In Unmasking Investigation (C.)

Former Obama White House National Security Adviser Ben Rhodes is now an emerging as a person of interest in the House Intelligence Committee’s unmasking investigation, according to a letter sent Tuesday by the committee to the National Security Agency (NSA). This adds Rhodes to the growing list of top Obama government officials who may have improperly unmasked Americans in communications intercepted overseas by the NSA, Circa has confirmed. The House Intelligence Committee Chairman Devin Nunes, R-CA, sent the letter to the National Security Agency requesting the number of unmaskings made by Rhodes from Jan. 1, 2016 to Jan. 20, 2017, according to congressional sources who spoke with Circa.

Rhodes, who worked closely with former National Security Adviser Susan Rice and was a former deputy national security adviser for strategic communications for President Obama, became a focus of the committee during its review of classified information to assess whether laws were broken regarding NSA intercepted communications of President Trump, members of his administration and other Americans before and after the election, according to congressional officials. The committee is requesting that the NSA deliver the information on Rhodes by August, 21. Former U.S. Ambassador to the United Nations Samantha Power, Rice and former CIA Director John Brennan have all been named in the House Intelligence Committee’s investigation into the unmasking of Americans.

A letter sent last week from Nunes to Dan Coats, the director of National Intelligence, suggested that top Obama aides made hundreds of unmasking requests during the 2016 presidential elections. The story, which was first reported by The Hill last week, stated that the requests were made without specific justifications as to why the unmasking was necessary. Rice and Brennan have confirmed they sought the unredacted names of Americans in NSA-sourced intelligence reports but insisted their requests were routine parts of their work and had no nefarious intentions. Power also has legal authority to unmask officials, though the practice has not reportedly been common for someone in her position. Rhodes also had legal authority to unmask Americans in NSA-source intelligence reports. But intelligence and congressional sources question the extent of the unmasking.

Testament to insanity and waste.

• For Sale: Two Half-Finished Nuclear Reactors -Never Used- (BBG)

Looking to buy two half-finished nuclear reactors? It may be your lucky day. U.S. utility owner Scana Corp. dropped a plan to build two reactors at the V.C. Summer power plant in South Carolina on Monday after the projected total costs exceeded $20 billion. The cancelation of the project is another blow to the much-hyped (and thus far non-existent) nuclear renaissance in the U.S. As cheap natural gas squeezes the margins of nuclear generators, there’s only one company currently building reactors in the country — Southern Co., at its Vogtle plant in Georgia. So what’s a utility to do with two unfinished nukes laying around in South Carolina? Scana CEO Kevin Marsh said in a call with analysts that he wants to keep the equipment in operating condition in case someone in China, India or the U.K. wants to buy it.

A sale like that is easier said than done. “The Chinese are developing a competitive product, the Brits are in trouble with their nuclear projects and the Indians want to develop their own supply chain,” said Chris Gadomski, a nuclear industry analyst for Bloomberg New Energy Finance. It’s more likely the South Carolina project is “mothballed,” he said. Reactors have found new buyers and new life in the past. In 2016, the Tennessee Valley Authority turned on its Watts Bar 2 reactor after work had been suspended in 1985. Franklin L. Haney bought an unfinished, decades-old nuclear plant in northern Alabama at an auction last November for $111 million. The Bellefonte plant came with two partially built nuclear reactors, one that’s about 55% complete and another about 35% finished.

Haney still has to get the mothballed station into working order, find customers for its power and qualify for a federal nuclear production tax credit. Perhaps a similar fate awaits the V.C. Summer plant. “It makes more sense to let them sit in place, maintain them, and see if they can be revisited,” Gadomski said.

What, there are still unions?

• Nissan Runs One Of ‘Nastiest Anti-Union Campaigns’ In Modern US History (G.)

Days before a potentially historic union vote at the Nissan plant in Canton, Mississippi, the car company has been accused of running one of the “nastiest anti-union campaigns in the modern history of the American labour movement”. The vote, a fiercely contested effort by the United Auto Workers (UAW) union to represent a foreign automaker’s US plant, is planned for Thursday and Friday this week. It comes as US unions are hopeful they can overturn a series of defeats as they seek to build membership in southern states, where manufacturers have moved to take advantage of lower wages and non-union workforces. In the closing days of the campaign, which has attracted support from the former presidential hopeful Bernie Sanders, UAW officials and their allies have become increasingly confident of victory even as managers have pressured workers to vote no.

“People are rallying,” says Frank Figgers, co-chair of the Mississippi Alliance for Fairness at Nissan. The UAW is undertaking an extensive door-to-door campaign to visit workers in their homes to discuss the union. The UAW has shipped in staff from all over the country to help in the effort. Other unions from around the south have shipped in organizers from across the country to assist in the outreach to the plant’s nearly 4,000 workers. Nissan has responded with fierce opposition. The company has blitzed local TV with anti-union ads and stands accused of both threatening and bribing workers to vote no. It requires workers to regularly attend anti-union roundtable group meetings as well as one-on-one meetings with their direct supervisors, some of whom have worn “vote no” T-shirts to work. The Republican governor, Phil Bryant, has also come out hard for Nissan. “If you want to take away your job, if you want to end manufacturing as we know it in Mississippi, just start expanding unions,” Bryant said last week.

Evil incorporated.

• Monsanto’s Sway Over Research Is Seen in Disclosed Emails (NYT)

Documents released Tuesday in a lawsuit against Monsanto raised new questions about the company’s efforts to influence the news media and scientific research and revealed internal debate over the safety of its highest-profile product, the weed killer Roundup. The active ingredient in Roundup, glyphosate, is the most common weed killer in the world and is used by farmers on row crops and by home gardeners. While Roundup’s relative safety has been upheld by most regulators, a case in federal court in San Francisco continues to raise questions about the company’s practices and the product itself. The documents underscore the lengths to which the agrochemical company goes to protect its image. Documents show that Henry I. Miller, an academic and a vocal proponent of genetically modified crops, asked Monsanto to draft an article for him that largely mirrored one that appeared under his name on Forbes’s website in 2015.

A similar issue appeared in academic research. An academic involved in writing research funded by Monsanto, John Acquavella, a former Monsanto employee, appeared to express discomfort with the process, writing in a 2015 email to a Monsanto executive, “I can’t be part of deceptive authorship on a presentation or publication.” He also said of the way the company was trying to present the authorship: “We call that ghost writing and it is unethical.” A Monsanto official said the comments were the result of “a complete misunderstanding” that had been “worked out,” while Mr. Acquavella said in an email on Tuesday that “there was no ghostwriting” and that his comments had been related to an early draft and a question over authorship that was resolved. The documents also show internal talk about Roundup’s safety.

“If somebody came to me and said they wanted to test Roundup I know how I would react — with serious concern,” one Monsanto scientist wrote in an internal email in 2001. Monsanto said it was outraged by the documents’ release by a law firm involved in the litigation. “There is a standing confidentiality order that they violated,” said Scott Partridge, vice president of global strategy for Monsanto. He said that while “you can’t unring a bell,” Monsanto would seek penalties on the firm. “What you’re seeing are some cherry-picked things that can be made to look bad,” Mr. Partridge said. “But the substance and the science are not affected by this.”

How does a farmer protect himself from Monsanto, DuPont and BASF?

• Pesticide ‘Drifting’ Wreaks Havoc Across US Crops (BBG)

Larry Martin in Illinois says he’s never seen anything like it in his 35 years of farming. Arkansas soybean grower Joe McLemore says he faces the loss of his life savings. They’re among farmers across the U.S. suffering from a pesticide “drifting” across from neighboring fields onto their crops, leaving behind a trail of damage. Although not a new problem, it’s re-emerged with a vengeance this year. At least 2.5 million acres (1 million hectares) have been damaged in this growing season through mid-July, according to estimates from Kevin Bradley, a professor of plant sciences at the University of Missouri. Dicamba, the offending herbicide, is produced by seed and crop-chemical giants Monsanto, DuPont and BASF.

It’s been around for decades, but in recent years it gained a new lease of life after the companies developed new dicamba-resistant soybean and cotton seeds, allowing farmers to spray crops later in the growing process. Dicamba is fine if you’re growing those genetically modified varieties, but not if you’re cultivating others and the chemical wafts over from another farm. The situation is so bad that states including Missouri, Arkansas, and Tennessee have placed restrictions on dicamba use at various times during the summer. Martin, a third-generation farmer, says an 80-acre soybean field of his has been damaged by dicamba. McLemore, who started out on his own eight years ago, after two decades working on someone else’s farm, says 800 of his 1,026 acres of soybeans have suffered damage.

3%? That’s hardly ‘bouncing back’.

• Bees Are Bouncing Back From Colony Collapse Disorder – A Little (BBG)

The number of U.S. honeybees, a critical component in the agriculture industry, rose in 2017 from a year earlier, and deaths of the insects attributed to a mysterious malady that’s affected hives in North America and Europe declined, according a U.S. Department of Agriculture honeybee health survey released Tuesday. The number of commercial U.S. honeybee colonies rose 3% to 2.89 million as of April 1, 2017 compared with a year earlier, the Agriculture Department reported. The number of hives lost to Colony Collapse Disorder, a phenomenon of disappearing bees that has raised concerns among farmers and scientists for a decade, was 84,430 in this year’s first quarter, down 27% from a year earlier. Year-over-year losses declined by the same%age in April through June, the most recent data in the survey.

Still, more than two-fifths of beekeepers said mites were harming their hives, and with pesticides and other factors still stressing bees, the overall increase is largely the result of constant replenishment of losses, the study showed. “You create new hives by breaking up your stronger hives, which just makes them weaker,” said Tim May, a beekeeper in Harvard, Illinois and the vice-president of the American Beekeeping Federation based in Atlanta. “We check for mites, we keep our bees well-fed, we communicate with farmers so they don’t spray pesticides when our hives are vulnerable. I don’t know what else we can do.” Environmental groups have expressed alarm over the 90% decline during the past two decades in the population of pollinators, from wild bees to Monarch butterflies. Some point to a class of pesticides called neonicotinoids as a possible cause, a link rejected by Bayer AG and other manufacturers.

In the USDA study, beekeepers who owned at least five colonies, or hives, reported the most losses from the varroa mite, a parasite that lives only in beehives and survives by sucking insect blood. The scourge, present in the U.S. since 1987, was reported in 42% of commercial hives between April and June this year, according to the USDA. That’s down from 53% in the same period one year earlier. Among other factors, beekeepers said 13% of colonies in the second quarter of this year were stressed by pesticides, 12% by mites and pests other than varroa and 4.3 by diseases. Bad weather, starvation, insufficient forage and other reasons were listed as problems with 6.6% of hives.

What does it mean to be human?

• 8 Migrants Dead Off Libya, 500 Rescued As Italy Prepares Naval Mission (AFP)

The bodies of eight migrants have been found at sea off the coast of Libya by rescuers coming to the aid of four rubber dinghies, the Italian coast guard said Tuesday. Some 500 survivors were pulled to safety, the coast guard told AFP, illustrating the huge challenge that continues to bedevil authorities as people try to reach Europe. The latest deaths came as the Italian government presented plans for a naval mission in Libyan territorial waters that aims to reduce the flow of migrants from the coast. Spanish NGO Proactiva Open Arms, which was taking part in the rescues, said the corpses were recovered by the Santa Lucia merchant ship.

“We are here to stop more people drowning, today eight dead and four drifting boats” in distress, Proactiva’s founder, Oscar Champs, said on Twitter. The charity said there were 79 women and 39 minors — including four young children — among those rescued. Nearly 95,000 people have been brought to safety in Italy this year, a rise of 1% on the same period last year, according to the interior ministry. The government intends to send a logistics ship that could support Libyan units and will also offer a patrol boat, Italian Defense Minister Roberta Pinotti told lawmakers on Tuesday. However, Italy has no intention to create a naval blockade, which would be a “hostile act,” she said, insisting that support for the Libyan mission was the aim and cooperation was necessary.

If you read between the whining, what a lovely story. Night curfew because turtles are important. Perhaps that’s what it means to be human.

• EasyJet Passengers Left High And Dry In Greece Due to Mating Turtles (G.)

Scores of easyJet passengers were stranded on the Greek island of Zakynthos (also known as Zante) after their plane developed technical difficulties and a replacement aircraft was prevented from flying in because of mating turtles. [..] The airline said the night curfew – apparently in place because of vulnerable loggerhead turtles breeding nearby – had prevented an alternative aircraft being sent out. The sea turtle breeding season is well under way in Zakynthos. According to Archelon, a group dedicated in protecting sea turtles in Greece, late June to early July see the highest levels of spawning. The group has recorded 500 nests on the island so far, but that is fewer than in previous years.

Debt Rattle February 20 2016

Feb 202016

February 20, 2016 Posted by Raúl Ilargi Meijer at 9:18 am Finance Tagged with: Brexit, China, commodities, crash, EMU, Fannie Mae, FX, oil, refugees, Shale 3 Responses »

Russell Lee “Yreka, California. Magazine stand” 1942

• Commodities’ $3.6 Trillion Black Hole (BBG)

• ‘It’s Going To Be Much Worse Than 2008’ (FS)

• Has The Market Crash Only Just Begun? (ZH)

• The US Economy Has Not Recovered and Will Not Recover (PCR)

• Worldwide M&A Activity Falls 23% (Reuters)

• US Shale Faces March Madness With $1.2 Billion in Interest Due (BBG)

• Moody’s Tallies 28 Downgrades In The Energy Sector Since December (MW)

• Why Oil Rout Is Hurting The Global Economy Instead Of Helping (MW)

• China’s Foreign Exchange Reserves Dwindling Rapidly (NY Times)

• China ‘Removes’ Top Securities Regulator (Reuters)

• Fannie Mae At Risk Of Needing A Bailout (FT)

• Independent Modelling May Show Way Out Of Oz Housing Bubble (SMH)

• Brexit!? France And Germany Can Not Wait (Gefira)

• Tsipras, Merkel, Hollande Agree On Open Borders Until March 6 Summit (Kath.)

• EU Summit On Refugee Crisis Ends In Disarray (FT)

• Two Children Drown Every Day On Average Trying To Reach Europe (UNHCR)

” If the remaining $1.5 trillion is indeed on the balance sheets of financial institutions, that would represent about 1.5% of the total assets of all the world’s publicly traded banks. [..] U.S. subprime mortgages represented less than 1% of listed banks’ assets at the end of 2007.

• Commodities’ $3.6 Trillion Black Hole (BBG)

Markets rallied this week after it became clear that some of the world’s biggest oil producers were going to curb production to stop prices from dropping any further. The news also buoyed other commodities, from coal to iron ore. Then everything dropped on Thursday with oil. Before the global financial crisis, a rise in raw-materials prices used to be bad news for the economy and stocks in general. Since central bank easy-money policies took off, that’s become a thing of the past:

One possible explanation is the level of exposure that banks and investors have to the industry. The 5,000 biggest publicly traded companies tracked by Bloomberg in the iron and steel, metals and mining, and energy sectors have a combined $3.6 trillion in debt, according to their most recent financial reports, double what they had at the end of 2008. Much of the increase is due to money that was borrowed to dig mines and wells whose output, at previous prices, would have easily repaid most maturing bonds and loans. But as commodity prices have tumbled, so has the ability of companies to meet their obligations. The Bloomberg Commodity Index is still only 3.9% higher than a 25-year low hit on Jan. 20. Five years ago, those companies tracked by Bloomberg had more operating income than debt, on average. Now, it would take them more than eight years’ worth of current earnings, without provisioning for interest, taxes, depreciation or amortization, to clear their combined net obligations.

Yield-hungry bond investors sucked up a lot of the debt that was issued and now hold about $2.1 trillion of outstanding notes. They’ll be first to feel the pain considering Standard & Poor’s has already downgraded securities equivalent to 47% of that amount and made some 400 negative-ratings moves in the basic materials and energy sectors over the past 12 months alone. Such scale and depth is reminiscent of the way banks were slaughtered by ratings companies during the 2008 financial crisis. It’s unclear where the other portion of the $3.6 trillion in liabilities lies but probably, most of it is owed to banks. If the remaining $1.5 trillion is indeed on the balance sheets of financial institutions, that would represent about 1.5% of the total assets of all the world’s publicly traded banks. That doesn’t seem very significant, or any cause for concern. But to put it in some context, U.S. subprime mortgages represented less than 1% of listed banks’ assets at the end of 2007.

“You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one.” (h/t Stockman)

• ‘It’s Going To Be Much Worse Than 2008’ (FS)

Bert Dohmen, founder of Dohmen Capital Research, is uber-bearish and believes that it is time for investors to panic (before everyone else does) given a potential collapse of the stock market greater than what we saw in 2008. Here’s what he had to say on Thursday’s podcast: “Over a year ago we said that we are now in a transition year from a bull market to a bear market and from a growing economy to a recession—and this could be a very deep recession… now we see that we are finally there and more and more people are starting to realize it. But I raise the question here, ‘Is it too late to panic?’ Because…the advice given by so many analysts is ‘Don’t panic, don’t sell, don’t panic.’ And I say, ‘Yes, panic!’ And it’s not too late to panic. Panicking at the right time can save you a lot of money…

I predict in this bear market you will see the majority of stocks—majority meaning over 50% of the stocks—selling at $5 or less. Okay, just put that into your portfolio and see if you should be selling some stocks… We here other analysts say, ‘Oh, this is nothing like 2008’ and I agree with that, but I say that because I think it’s going to be much worse. 2008 was really a crisis triggered by the subprime mortgage market and the confetti that the Wall Street firms distributed around the world. They took those subprime mortgages, put them into pools, they sold participations in these pools, in these CDOs…they got a triple-AAA rating on all this garbage and sold it around the world and then they started defaulting. That caused ripples throughout the financial system and a global financial crisis, okay; but it was basically a mortgage crisis—that’s how it started.

Now, look at what we have currently. We have every major economic zone in the world in financial trouble. You have Japan with a debt-to-GDP ratio of 280%. You have China at 300% debt-to-GDP. China has over $34 trillion of debt and the banking system is flooded with bad loans. The best estimate—and this was two years ago I wrote a book called The Coming China Crisis—and I said the best estimate is that they have $11 trillion of bad loans in the banking system. $11 trillion is the annual GDP of China—this is huge! You have Europe, you have Latin America in trouble, you have Russia in big trouble, you have Saudi Arabia even thinking about doing an IPO on their big oil company in order to make up for the shortfall of oil revenues. You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one.”

“..it can’t be done in a non-messy way.”

• Has The Market Crash Only Just Begun? (ZH)

Having successfully called the market’s retreat in the fall of 2015, Universa’s Mark Spitznagel is not taking a victory lap as he warns Bloomberg TV that “the crash has only just begun.” Investors are facing the most binary “let’s make a deal” market in history in Spitznagel’s view: choose Door #1 to bet on Keynesianism, central planners, and monetary interventionism; or Door #2 to bet on free markets and natural price discovery. “There is massive cognitive dissonance here,” Spitznagel explains as history teaches us that door #2 is the right choice… but it’s not possible to do that today as investors have been coerced to choose door #1, but when door #1 is slammed open “we will see that dreaded black swan monster.” That is what is going on right now:

“Investors want to go with The Fed when it’s working – like David Zervos… the problem is, when do you know that it is not working?” “At some point this stops working…” “the market is going through a resolution process, transitioning from the cognitive dissonance of Door #1 to the harsh reality of Door #2… if everyone were to change doors at the same time, that is a market crash… it can’t be done in a non-messy way.”

Must watch reality check behind the smoke and mirrors we call markets… (we note Mark’s excellent analogy starting at around 3:10)

Amen Paul Craig Roberts.

• The US Economy Has Not Recovered and Will Not Recover (PCR)

The US economy died when middle class jobs were offshored and when the financial system was deregulated. Jobs offshoring benefitted Wall Street, corporate executives, and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits. However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.

The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits. Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low interest rate policy made possible.

Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it. The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized. Under Fed chairman Bernanke the economy was kept going with Quantitative Easing, a massive increase in the money supply in order to bail out the “banks too big to fail.” Liquidity supplied by the Federal Reserve found its way into stock and bond prices and made those invested in these financial instruments richer.

Corporate executives helped to boost the stock market by using the companies’ profits and by taking out loans in order to buy back the companies’ stocks, thus further expanding debt. Those few benefitting from inflated financial asset prices produced by Quantitative Easing and buy-backs are a much smaller%age of the population than was affected by the Greenspan consumer credit expansion. A relatively few rich people are an insufficient number to drive the economy. The Federal Reserve’s zero interest rate policy was designed to support the balance sheets of the mega-banks and denied Americans interest income on their savings. This policy decreased the incomes of retirees and forced the elderly to reduce their consumption and/or draw down their savings more rapidly, leaving no safety net for heirs.

As trade plummets, so does M&A. So how are they going to pump up stock prices now? All buybacks all the time?

• Worldwide M&A Activity Falls 23% (Reuters)

Worldwide mergers and acquisitions deals have fallen 23% to $336 billion so far this year compared with last year, but cross-border activity by amount targeting U.S.-based companies reached a record high, Thomson Reuters data shows. After hitting a record high by deals value in 2015, worldwide M&A activity has been hurt this year by falling oil prices, worries about slowing growth in China and the health of the financial sector. A trio of deals for U.S. companies topped the list of M&A announced this week, including Chinese company Tianjin Tianhai’s $6.3 billion offer for U.S.-based Ingram Micro, bringing year-to-date China outbound M&A targeting the U.S. to $23.3 billion. China, Ireland and Canada account for 88% of cross-border acquirers in the U.S. so far this year. European M&A activity, which lagged the U.S. in 2015, has hit $92 billion so far this year, up 4% compared with a year ago, after state-owned ChemChina announced it would buy Swiss seeds and pesticides group Syngenta for $43 billion in February.

$9.8 billion for the year. With hedges disappearing.

• US Shale Faces March Madness With $1.2 Billion in Interest Due (BBG)

The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30-a-barrel oil makes it harder for companies to scrape up the cash needed to stay current on their debts. Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge announced that it didn’t make a $21.7 million interest payment. “You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due,” said Jason Wangler at Wunderlich in Houston.

Energy XXI may not be able to meet its commitments in the next 12 months, raising “substantial doubt regarding the Company’s ability to continue as a going concern,” according to a company filing with the U.S. Securities and Exchange Commission. A company representative didn’t return a phone call and e-mail seeking comment. SandRidge “has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders,” the company said in a statement released Wednesday. “Today’s actions will preserve liquidity and flexibility as we continue to engage in constructive dialogue with our stakeholders,” James Bennett, SandRidge president and chief executive officer, said in the statement.

Oil has tumbled about 70% since a June 2014 peak of $107 a barrel. While prices were high, many drillers spent more money than they earned, plugging the shortfall with debt. That debt has become increasingly burdensome as prices collapse. Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion, according to law firm Haynes & Boone. Deloitte said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession.

And with hedges gone, borrowing gets much more expensive at the same time.

• Moody’s Tallies 28 Downgrades In The Energy Sector Since December (MW)

Moody’s Investors Service said Friday it has downgraded a total of 28 energy companies since December, as it continues a global review of the troubled sector. The agency surprised investors in January when it placed the credit ratings of 120 energy companies and 55 mining companies from around the world on review for a possible downgrade. The move came after a deep slump in the price of oil and other commodities, hurt by oversupply and the slowdown in China, a major consumer of natural resources. Today’s tally includes issuers that had already been placed on review in December and surprised some in the market. “Moody’s drops another hammer,” is how analysts at credit research firm CreditSights described the move Friday.

“Over the past several weeks, it has become increasingly clear in our discussions with clients and in hearing from company managements that the agency was taking a very Draconian view of the sector,” they wrote in a note. Moody’s said it downgraded two energy companies by five notches each, sending them deep into speculative-grade, or “junk” territory. Denbury Resources was cut to Caa2 from Ba3, and Whiting Petroleum was cut to Caa1 from Ba2. The agency downgraded seven energy companies by four notches, nine companies by three notches and five companies by two notches. The agency affirmed ratings on another nine companies. It continues to review a total of 137 global issuers for a possible downgrade.

Oil is everywhere in society. And lots of places rely on mostly high, but certainly somewhat stable, prices.

• Why Oil Rout Is Hurting The Global Economy Instead Of Helping (MW)

Saudi Arabia saw Standard & Poor’s cut its credit rating cut two notches this week to A-minus—an unsurprising move that nevertheless helps illustrate why collapsing oil prices haven’t seemed to be the economic boon many had anticipated. In a Thursday note, Carl Weinberg, chief economist at High Frequency Economics, used the downgrade—along with cuts in ratings for Bahrain, Oman and Kazakhstan—to remind clients of his explanation of how falling commodity prices can weigh on global growth. Weinberg has calculated that a $100 drop in the price of a barrel of crude would reduce global income from extraction alone by $3.2 trillion, or about 4.5% of world gross domestic product. That’s to say nothing of the impact on global economic activity from oil sales, transportation and exploration.

The U.S. benchmark settled below $31 a barrel on Thursday, or about $76 below its mid-2014 high after settling as low as $26.21 earlier this month. Brent crude, the global benchmark, ended Thursday at $34.28. It traded around $115 a barrel in mid-2014. It isn’t wrong to assume that those losses would rebound to the benefit of oil consumers, Weinberg says. But the rub lies in the fact that consumers in oil-importing countries may be more likely to stash those savings away while workers in oil-exporting countries would have been more likely to spend that lost income. That means it can take “years or decades” before that savings is translated into spending. He writes:

If purchasing power is transferred from one country to another, and if the countries receiving the windfall have a higher marginal propensity to save than the countries that are paying the transfer, then world GDP will be reduced. So if oil-importing countries tend to have higher incomes and higher savings rates, then world GDP will be reduced. In other words, halving the weekly income of an oil field worker in Nigeria earning near-subsistence wages will likely affect his or her consumption more than reducing the monthly auto fuel bill of a dentist in Belgium by the equivalent amount.

Needless to say, the oil market carnage has translated into real fiscal problems for oil-producing nations. It feeds into ideas that this week’s talk of a production freeze that would include OPEC members and Russia—seemingly shot down by Saudi Arabia after Iran refused to comply—was a sign of desperation. While freezing output at record levels wasn’t seen as likely to do much to alleviate a global glut, oil futures have rallied on the idea that producers are at least talking to each other is an important step. Helima Croft, global head of commodities at RBC Capital Markets, said this week’s talks were “one of the first clear acknowledgments by the oil heavyweights that all isn’t entirely well in the current price environment.”

It might even lay the groundwork for a “more proactive” approach later in the year after OPEC has had a chance to gauge the impact of Iran’s post-sanctions return to the global oil market as well as the trajectory of non-OPEC production, Croft said in a Tuesday note. ”Recently, some leading Saudi experts have suggested that by the June meeting, those variables will be known, and with the supply-and-demand balance expected to be tighter by then, it will be easier for cartel to pull additional barrels if needed in order to accelerate a price recovery,” she wrote.

“Beijing has also instructed bank branches in Hong Kong to limit their lending of renminbi to make it harder for traders and investors to place bets against the Chinese currency in financial markets.”

• China’s Foreign Exchange Reserves Dwindling Rapidly (NY Times)

During China’s biggest boom years, its currency could have risen in value as huge sums in dollars, euros and yen flowed into the country. Instead, Beijing tightly controlled the value of the renminbi, buying up much of the inflows and putting them into its reserves instead. That brought angry accusations from the United States and Europe that it was manipulating its currency to help keep Chinese exports inexpensive and competitive in foreign countries. Now that the renminbi faces pressure to fall, China is spending its reserves in an effort to prop up the currency. But many American lawmakers and presidential candidates still accuse China of keeping its currency artificially weak. The reserves are still considerable, more than double Japan’s, which has the world’s second-largest amount.

The central bank chief, Mr. Zhou, and others have questioned whether the reserves are too big and the money could be better invested if left in the private sector. Mr. Zhou led a move over the last two years to make it easier for Chinese companies and families to invest their own money overseas, only to find in recent months that the outflows have been disconcertingly fast at times. China has taken steps to stem further flows out of the country. This winter the Chinese authorities arrested the leaders of underground banks that were converting billions of renminbi into dollars and euros. They also made it harder for Chinese citizens to use their renminbi to buy insurance policies in dollars. More quietly, Beijing bank regulators have halted sales within China of investment funds known as wealth management products that are denominated in dollars.

Beijing has also instructed bank branches in Hong Kong to limit their lending of renminbi to make it harder for traders and investors to place bets against the Chinese currency in financial markets. “We did receive notice from Beijing in the earlier part of January to be more stringent in approving renminbi-denominated loans,” said a Hong Kong-based China bank executive, who insisted on anonymity for fear of employer retaliation. “It is no fun being caught in the middle, with marketing officers wanting to do more business and the higher-ups telling you to be tougher when reviewing credit proposals.” The erosion of reserves is also politically awkward, given public perception, and Beijing has taken steps aimed directly at shoring them up.

Big deal. He offered to step down last month. Beijing should understand that heavy-handedness does not boost confidence. What does this say about how Chinese securities have been regulated until today? Not much good.

• China ‘Removes’ Top Securities Regulator (Reuters)

China has removed the head of its securities regulator following a turbulent period in the country’s stock markets, appointing a top state banking executive as his replacement, as leaders move to restore confidence in the economy. The announcement on the official Xinhua news agency on Saturday follows a string of assurances from senior leaders following the Lunar New Year holiday that China will underpin its slowing economy and steady its wobbly currency. Xinhua said Xiao Gang, chairman of the China Securities Regulatory Commission (CSRC) since 2013, had been succeeded by Liu Shiyu, chairman of the Agricultural Bank of China Ltd. (AgBank) and a former deputy governor of the central bank. “Xiao’s departure is not a surprise following the recent stock disaster. This is a role vulnerable to public criticism because most Chinese retail investors are destined to lose money in such a market,” said Zhang Kaihua, a fund manager of Nanjing-based hedge fund Huyang Investment.

Xiao and the CSRC came under fire as China’s Shanghai and Shenzhen stock markets slumped as much as 40% in just a few months last summer. In a further blow, a stock index “circuit breaker” introduced in January to limit stock market losses was deactivated after four days of use because it was blamed for exacerbating a sharp selloff. Online media nicknamed Xiao “Mr. Circuit Breaker.” Reuters reported in January that Xiao, 57, had offered to resign following the “circuit-breaker” failure. The CSRC said at the time the information did not conform to the facts. The gyrations in China’s stock markets, an unexpected devaluation of the yuan in August and sharp falls in currency reserves rattled global markets, raising concerns about the health of the economy and Beijing’s ability to steer the country through both a protracted slowdown in growth and a shift away from manufacturing towards services.

They do it on purpose. Set it up so poorly losses are inevitable, and meanwhile use it to keep housing prices propped up. The taxpayer can fork over the difference.

• Fannie Mae At Risk Of Needing A Bailout (FT)

Fannie Mae, the state-sponsored U.S. mortgage backer, is at risk of needing a government bailout that could shake confidence in the housing finance market, senior officials have warned. Fannie Mae’s chief executive and its regulator are sounding the alarm on a decline in the institution’s capital cushion, which is on course to vanish in 2018, when it would have to ask the US Treasury for emergency funds. Their warnings highlight Washington’s inaction on housing policy and its failure to reform the institution, which guarantees nearly $3 trillion of securities and enables 30-year fixed rate loans, following the last financial crisis. Since 2008 Fannie Mae has been in the post-crisis limbo of state-sponsored “conservatorship,” neither fully nationalized nor private, following several unsuccessful attempts by Congress to overhaul it.

Because the government does not let Fannie Mae retain profits, Tim Mayopoulos, its chief executive, told the Financial Times on Friday that its capital buffer, which has dwindled from $30 billion before the crisis to $1.2 billion today, was on track to disappear by January 2018. At that point it would be unable to weather quarterly losses and would need to draw on Treasury funds to avoid being placed into receivership. So far investors who own Fannie Mae’s mortgage-backed securities have not been spooked, Mr. Mayopoulos said, but he added: “We are a major source of liquidity to the mortgage markets and it would be better to avoid testing the market as to what the breaking point is well in advance of us getting to that point.” His comments came the day after Mel Watt, Fannie Mae’s top regulator, thrust the issue into the spotlight.

Addressing both Fannie Mae and its counterpart Freddie Mac, Mr Watt, director of the Federal Housing Finance Agency, said: “The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital.” “If investor confidence in enterprise securities went down and liquidity declined as a result, this could have real ramifications on the availability and cost of credit for borrowers,” he said in a speech. Fannie Mae’s inability to retain profits, which must instead be swept into government coffers, also makes it almost impossible for the institution to exit federal control.

Refusing to kill the golden goose.

• Independent Modelling May Show Way Out Of Oz Housing Bubble (SMH)

Independent modelling has dented the Turnbull government’s attack on Labor’s negative gearing policy, finding it will generate billions for the Commonwealth with the vast bulk of revenue coming from just the top 10% of households who negatively gear their properties. The report’s author says the policy would likely slow the pace of house-price growth and boost new housing construction, making it “potentially the biggest housing affordability policy the country has seen.” Prime Minister Malcolm Turnbull launched a scathing attack on Labor’s negative gearing policy on Friday, saying home owners across the country would see the value of the family home “smashed” by the “very blunt, very crude” idea.

In a clear sign his government is preparing to launch a massive scare campaign in the lead-up to the 2016 election over Labor’s proposal, which is designed to save $32 billion over a decade, Mr Turnbull warned the policy was “calculated” to reduce the value of all homes. n”The Labor Party’s negative gearing policy and its wind-back on the capital gains discount – its increase in tax on capital gains – is a very dangerous one. It’s been very, very poorly thought out,” Mr Turnbull said on Friday. “The consequence of it will be a decline in property prices, every home owner in Australia has a lot to fear from Bill Shorten.”

But independent modelling shows there will be “significant” long-term savings from Labor’s proposal to quarantine negative gearing to new housing investments from July 2017, eventually raising between $3.5 to $3.9 billion a year. It also shows Labor’s proposal to cut the capital gains tax discount from 50% to 25% would raise about $2 billion a year in the long term. It shows the vast majority of savings would be at the expense of the top 10% of earners who negatively gear their properties. It also estimates that by restricting negative gearing to new housing, the policy would “increase the share of investment housing devoted to newly built housing” by 10 to 20%. It does not say house prices would drop. “Our modelling shows that negative gearing benefits high-income families with 52.6% of the benefit going to the top 20% of incomes,” the paper says.

EU must turn into EMU. Which nobody wants outside of Brussels and EU capitals. Anyway, the coming economic downturn will turn the EMU into a crumbling ruin.

• Brexit!? France And Germany Can Not Wait (Gefira)

If London decides to leave the European Union nobody in Europe will even notice. Great Britain is an entirely separate country, isolated from the European Union and does not participate in the Euro or Schengen Agreement. The EU as a political platform is disintegrating and becoming more and more irrelevant and will be displaced by the European Monetary Union (EMU). The center of power in Europe has shifted from the EU to the EMU and London politicians are fully aware of it. A Brexit will accelerate the process of political integration of the EMU members and make the EU politically less significant.

Over the past decade we saw:
• Countries can enter the European Union;
• The very core values of the European Union can be set aside as we saw happening in Turkey just before the European Commission announced to restart Turkey’s accession negotiations;
• Trade relations with Great Britain can be suspended without any upheaval, as we saw it concerning non-EU member Russia;
• Borders can be opened and closed as is the case in south-east Europe due to the refugee crisis;
• The Dublin Regulation can be dissolved overnight in the face of the fact that more than a million refugees have entered Europe since the summer of 2015;

All these events hardly changed the life of the Europeans. Being a member of the European Monetary Union is of another magnitude. The Greek euro crisis changed the lives of millions of Greeks. During the tense days in July 2015, when the future of Greece, the EMU and indirect the future of Europe was at stake, Chancellor Merkel and President Hollande held 24 hours emergency meetings as did the Eurogroup. Great Britain and the European Parliament did not play any role whatsoever in these decisive moments for the future of Europe. Cameron was not even invited to share his opinion.

The European Monetary Union is doomed for further political integration; the euro members have no other option but to create a fiscal union and a banking union. Without these two pillars, the whole Euro will fall apart dragging with it the complete Western financial system. A fiscal and banking union means that these countries have to integrate far beyond the European Union framework. Prime Minister Cameron is an annoyance for the already struggling EMU. The European Monetary Union faces extreme difficulties, as on one hand further integration of the Euro countries is inevitable and on the other hand, the widespread support for this integration is eroding. In 2011, French President Sarkozy told Cameron:”We’re sick of you criticizing us and telling us what to do. You say you hate the euro, you didn’t want to join, and now you want to interfere in our meetings”.

The EMU countries face a big political problem that is to be solved. Germany and France will never let countries outside the EMU have a say in their affairs as Cameron proposed. The diplomatic words from French Prime Minister Manuel Valls make it all clear to London as he said; “a Brexit is a shock for Europe but still members can not pick and choose rules that suit them”. The UK leaving the EU will make life easier for Paris and Berlin as Figaro writes: “Brexit? An opportunity for Europe, for France and for Paris”. When the UK is outside the EU Frankfurt and Paris will have more opportunities to crush London as a financial center. London could not miss Merkel’s warning against gains for British banks under ‘Brexit’. If the UK decides to leave, Berlin and Paris will do definitely more than prevent London banks from making any gain; they will do everything to establish Paris or Frankfurt as the financial center of the EMU at London’s expense.

Expect refugee numbers to soar over next 2 weeks.

• Tsipras, Merkel, Hollande Agree On Open Borders Until March 6 Summit (Kath.)

Greek Prime Minister Alexis Tsipras met with German Chancellor Angela Merkel and French President Francois Hollande on the sidelines of a European Union summit in Brussels on Friday. At the meeting, which reportedly lasted for an hour, the three leaders discussed the refugee crisis and the Greek bailout. According to a close Tsipras aide, the Greek premier reiterated that Greece would not accept any action against its interests. The three leaders agreed that the key with regard to decreasing the migration flow was Turkey and that NATO’s involvement was a positive development. Tsipras reportedly received assurances from Germany and France that assistance would be provided if necessary.

A pivotal point in the discussion was that the three leaders stressed that there would be no change in the European borders’ status quo until March 6, when a new summit on the refugee crisis is scheduled to take place, after Turkish PM Ahmet Davutoglu canceled his trip to Brussels following a bomb attack in Ankara which claimed the lives of 28 people on Wednesday. The leaders also agreed that representatives of the institutions should return to Athens as soon as possible in order to complete the review.

Because Brexit allows convenient alternate story line. Much more important than human misery.

• EU Summit On Refugee Crisis Ends In Disarray (FT)

Chancellor Angela Merkel hoped this week’s EU summit on migration would provide at least a show of European unity in the refugee crisis. Instead, it ended in disarray. An Austrian plan to cap the entry of asylum-seekers at just 80 a day left the German leader isolated, Greece threatening to scupper any deal on Brexit in response, and leaders more divided than ever over the EU’s biggest challenge in decades. European leaders, from Berlin to Vienna to Athens, are now improvising and pursuing often contradictory policies. Ms Merkel took even her own officials by surprise when she demanded another summit on the refugee crisis on March 6, just before three key German regional elections on March 13 and before the onset of spring boosts the numbers crossing the Aegean.

Refugee arrivals have picked up, with more than 4,800 arriving in Greece from Turkey on Thursday a rate not far off the autumn peak, when an average of 7,000 people a day were arriving. A backlog is building up along the western Balkans route, where fractious states have had to pull together to cope with the arrival of more than 1m people since the start of 2015. In private, previously optimistic officials are starting to despair, with worries shifting to a potential humanitarian disaster on the bloc s south eastern border. An EU leader said: “It’s a serious situation”. Ms Merkel is still banking on a deal with Ankara to secure the vulnerable Greek-Turkish frontier. As the chancellor said in the early hours on Friday: “It is an absolute given that we must urgently move faster”.

But bad luck waylaid even this plan: Turkish prime minister Ahmet Davutoglu cancelled a planned trip to Brussels to discuss migration following a car-bomb attack in Ankara. After the stormy summit debate, a tired looking Ms Merkel put a brave face on events at the 2.30am press conference, pointing to the efforts made in recent weeks to engage with Turkish president Recep Tayyip Erdogan and boost Greece’s sea defences by deploying Nato ships. Meanwhile, Vienna has been accused of trampling on international law, including the Geneva Convention on refugees, throwing already barely enforced rules on asylum into further doubt. “Conventions are like fairies; if you stop believing in them, they die”, said Elizabeth Collett, a director at the Migration Policy Institute.

However, the Austrian public backs its chancellor Werner Faymann’s migrant cap, with Der Standard newspaper on Friday defending him, saying that Brussels had scored “an own goal” by criticising Vienna. Ms Merkel, who rarely criticises EU partners in public, said that she had been “surprised” by Mr Faymann. Privately, German officials are furious that an old ally has broken ranks. Brussels had desperately attempted to force member states to abide by the rules, with little success. Despite EU member states agreeing to share out 160,000 refugees from Italy and Greece among themselves, fewer than 600 have actually been moved. While some leaders such as Viktor Orban, Hungary’s prime minister, have noisily disagreed, others — such as Madrid and Paris — have simply dragged their feet.

Here’s warning you once again, Brussels, you’re not going to survive this, somone will have your head on a platter for it, and it ain’t going to be silver. Even this UNHCR piece tries to blame the smugglers, but Europe could have provided safe passage all along.

• Two Children Drown Every Day On Average Trying To Reach Europe (UNHCR)

Two children have drowned every day on average since September 2015 trying to cross the eastern Mediterranean to find safety with their families in Europe, UNHCR, the UN Refugee Agency, said today. In a joint statement, issued in Geneva, UNHCR, UNICEF and the IOM warned that the number of child deaths was on the increase and called for more measures to increase safety for those escaping conflict and despair. Since last September, when the tragic death of toddler Aylan Kurdi captured the world’s attention, more than 340 children, many of them babies and toddlers, have drowned in the eastern Mediterranean. The total number of children who have died may be even greater, the sister organisations said, with their bodies lost at sea and never recovered.

One of those statistics was seven-year-old Houda from Afghanistan who went missing in a shipwreck off the Greek island of Kos at the end of January. Her mother, father, two sisters and one of her brothers had left Kabul for Istanbul earlier that month after her father, a middle-ranking police officer, received death threats. In Turkey, the family made a deal with a smuggler who promised them an “extra-safe trip in a spacious large boat” to Greece. To pay for the trip, Houda’s father had sold his house and borrowed money from family and friends. At night in a dark bay as they prepared to leave, they saw the boat was little more than a sailing coffin. It was small, old and massively overcrowded with around 80 passengers covering a few metres of deck. They tried to step back, but were forced by the smuggler to board the boat with no questions.

Smugglers allow no last-minute change of mind. Houda’s sister Aisha and her brother Aziz survived that deadly trip, along with 26 others, but her mother, father and an older sister perished. Their bodies were recovered. Houda’s was never found. Aisha and Aziz, 16 and 15 respectively, had learned to swim in school and that saved them. The stretch of the Aegean Sea between Turkey and Greece is now among the deadliest routes in the world for refugees and migrants. “These tragic deaths in the Mediterranean are unbearable and must stop,” said UN High Commissioner for Refugees Filippo Grandi. “Clearly, more efforts are needed to combat smuggling and trafficking. Also, as many of the children and adults who have died were trying to join relatives in Europe, organising ways for people to travel legally and safely, through resettlement and family reunion programmes for example, should be an absolute priority if we want to reduce the death toll,” he added.

With children now accounting for 36% of those on the move, the chance of them drowning on the Aegean Sea crossing from Turkey to Greece has grown proportionately. During the first six weeks of 2016, 410 people drowned out of the 80,000 people crossing the eastern Mediterranean. This amounts to a 35-fold increase year-on-year from 2015. Aisha and Aziz are now accommodated at a transit facility UNHCR runs with a national NGO offering specialized services to unaccompanied refugee children in Greece until they are assigned to a permanent facility. They wish to reunite as soon as possible with what remains of their family. They have a brother in Germany and hope one day to be able to join him there.

“These children expressed incredible dignity and courage throughout the many challenges they faced after the shipwreck. After already identifying the corpses of his own family members at the Coast Guard, Aziz insisted on seeing more pictures in order to recognize fellow travellers and help in their identification so that their families could also find out what had happened to them. They repeatedly expressed their gratitude towards me and other colleagues for the help we provided,” said Georgios Papadimitriou, a senior protection officer with UNHCR.