Sunday, August 5, 2012

Three myths that sustain economic crisis; Dark reality of India; Post Libor scam, every bank for itself; Zuckerburg falls on his Facebook; Phelps starts rest of his life

1 Three myths that sustain economic crisis (The Guardian) For the global economy, things may get worse before they get better. The summer of 2012 has seen signs of a general slowdown. The eurozone is heading for a double-dip recession, the US is growing far more slowly than has been the norm after previous downturns, while China's economy is feeling the impact of policy tightening deemed necessary to curb the inflationary effects of the stimulus injected in 2008-09.

There is no real comparison between the past five years and the half-decade after the Wall Street Crash in October 1929. In the 1930s, a quarter of the American workforce was out of work and industrial production fell by 50%. A better historical parallel may be the Great Depression of the 19th century, a slowdown in growth and deflationary pressure that lasted from 1873 to 1896.

The reason the crisis has been so long comes down to three myths. The Anglo-Saxon myth is that big finance is a force for good, rather than rent-seeking and corrupt. The German myth is you can solve a problem of demand deficiency with belt tightening and export growth. The right policy involves tough curbs on the banks, international co-operation so creditor countries increase domestic demand to help debtor countries, and a measured pace of deficit reduction governed by the pace of growth rather than arbitrary targets.

The chances of this happening are slim. Because there is a third myth – that there was not much wrong with the global economy in 2007. But the old model was financially flawed as it operated with high levels of debt, socially flawed in that the spoils of growth were captured by a small elite, and environmentally flawed in that all that mattered was ever-higher levels of growth. It is possible to move on, but only when it is recognised that the genie will not go back into the bottle.

2 The dark reality of India (Jason Burke in The Guardian) In the centre of Delhi, one of the world's biggest, dirtiest, noisiest cities, is an island of calm. Here, government ministers live in vast, state-owned villas; judges, generals and senior bureaucrats walk their dogs across well-watered lawns as servants scrub their government cars; top politicians confer in compounds and the wives of unimaginably wealthy industrialists hold lunch parties catered by top chefs. You live here and visit India. Last week, India visited this island in the shape of a giant power cut.

Such outages are a daily occurrence for the rest of the population – or at least the two-thirds of India's 1.2bn inhabitants who actually have any electricity supply. But they are not for India's elite. For the latter, power guarantees power. The bureaucrats in charge of Delhi's grids switch off the supply to hospitals before they plunge the homes of top politicians into darkness. But this time the lights did go off. And so the residents of the most upmarket parts of the city – so confident of their power supplies that they do not have generators – had to sit in the fetid monsoon temperatures of 35 degrees like everyone else.

The north Indian outage, possibly the biggest in the history of mankind, affected an estimated 700m people. It was a global news story. It revealed the parlous state of Indian infrastructure and provided a dramatic example of how public institutions have failed to keep pace with economic growth. And it also revealed quite to what degree the conclusion, so deeply rooted in the west, that India is not only "shining" but will only get progressively shinier, is complacent in the extreme.

3 The case of bankrupt states (San Francisco Chronicle) Should California do more to help its cities stay out of bankruptcy? Two reports issued by municipal bond experts last week say yes, but it probably won't happen unless borrowing costs start rising for California cities not in imminent danger of bankruptcy. And so far, that hasn't happened. Three bankruptcy filings - by Stockton, Mammoth Lakes and San Bernardino - in the past five weeks have not curbed investor appetite for California municipal bonds.

Funds that invest in California munis attracted more assets than they lost last week for a 19th consecutive week - the longest streak of net inflows since 2007, according to Lipper. The bankruptcy filings - including San Bernardino's on Wednesday - have had little impact on demand because they were foreseeable and represent a small sliver of the state's municipal bond market, says Peter Hayes, head of Blackrock's municipal bonds group.

4 Debt, depression, DeMarco (Paul Krugman in The New York Times) Many economists believe that the overhang of excess household debt, a legacy of the bubble years, is the biggest factor holding back economic recovery. How should policy respond? One answer is government spending to support the economy while the private sector repairs its balance sheets; now is not the time for austerity, and cuts in government purchases have been a major economic drag. Another answer is aggressive monetary policy, which is why the Federal Reserve’s refusal to act in the face of high unemployment and below-target inflation is a scandal.

But fiscal and monetary policy could, and should, be coupled with debt relief. Reducing the burden on Americans in financial trouble would mean more jobs and improved opportunities for everyone. The obvious place to provide debt relief is on mortgages owned by Fannie Mae and Freddie Mac, the government-sponsored lenders that were effectively nationalized in the waning days of the George W. Bush administration. But Edward DeMarco, the acting director of the agency that oversees Fannie and Freddie, refuses to move on refinancing. And, this week, he rejected the administration’s relief plan.

Who is Ed DeMarco? He’s a civil servant who became acting director of the housing finance agency after the Bush-appointed director resigned in 2009. He is still there, in the fourth year of the Obama administration, because Senate Republicans have blocked attempts to install a permanent director. And he evidently just hates the idea of providing debt relief. The DeMarco affair nonetheless demonstrates, once again, the extent to which US economic policy has been crippled by unyielding, irresponsible political opposition. If our economy is still deeply depressed, much of the blame rests not with Mr. Obama but with the very people seeking to use that depressed economy for political advantage.

5 Post Libor scam, every bank for itself (The New York Times) Major banks, which often band together when facing government scrutiny, are now turning on one another as an international investigation into the manipulation of interest rates gains momentum. One official involved in the case said that banks are emphasizing that "we’re not as bad as the next guy."

Authorities around the world are investigating more than 10 big banks for their roles in setting global interest rates like the London interbank offered rate, or Libor. Such benchmarks underpin trillions of dollars of financial products, including mortgages and student loans. Regulators are examining whether banks colluded to move the rates up or down to get extra profits and limit losses on their trading positions. Some banks are also under investigation for reporting artificially low rates to make themselves appear financially healthier. The extent of the evidence has created an every-bank-for-itself attitude.

6 Reproduction dilemma (Neeta Lal in Khaleej Times) "Wanted: A fair, good-looking, educated, healthy lady, preferably a Brahmin of 20-30 years of age in Chennai with a good background for egg donation." If this ad – which mimics the millions of matrimonial ads that flood Indian newspapers -- in a women’s magazine, doesn’t amplify the crass commercialisation that drives the country’s $500-million fertility industry, then perhaps the following recent episodes will.

In May, Premila Vaghela, 30 – who had agreed to become a surrogate mother for an American couple to supplement her family income—died in the eighth month of a surrogate pregnancy. Sushma Pandey, barely 17 years old, reportedly died due to procedures related to egg harvesting conducted on her by a clinic in Mumbai. Neither Sushma nor Premila are with us today to tell us about the exact circumstances that drove them into these murky commercial dealings.

Both cases, while now reduced to being cold statistics in the annals of medical history, underscore the glaring deficit of laws governing the industry. Dubbed as the "surrogacy capital of the world", India’s fertility industry (growing at seven per cent annually), is poised to become a whopping US$2.3 billion enterprise by 2015, according to the Confederation of Indian Industry. Due to the spiraling demand, the trade is dominated by unscrupulous middlemen who entice and push marginalised women into surrogate motherhood.

7 Zuckerburg falls on his Facebook (Toby Shapshak in Johannesburg Times) There is something rotten in the state of Facebook. There has been a string of bad news in the past week about the recently Nasdaq-listed company, not least that nearly 10% of its users might be fake. Facebook knew its future earnings would be compromised - but only some preferred buyers were told, it is alleged. This might be blamed on the advising banks but it's just the latest in a long string of actions that shows Facebook's fundamental disregard for its 955million users.

There is an entirely different argument to be made about the nature of interaction on Facebook and how superficial it is - that it does not enable true friendship but merely provides a list of pictures and articles to "like". But let's look only at the business and ethical issues today. Facebook's share price is less than half the $38 it listed at. It's the market's way of saying that it doesn't value Facebook or believe the hype.
A recent study showed that only one user in 2,000 clicked on an advert. The public listing and strict disclosure rules have forced Facebook to tell the truth: its growth has slowed and it has no idea how to make money from cellphones. This is its biggest business problem.

Cellphone technology is where all the growth is expected to come from, both in users and revenues. There is no immediate likelihood that Facebook will implode. But, like other once-dominant monolithic internet companies - like AOL, Yahoo, MySpace and Digg - a new upstart will come along and take down this giant.

8 Crazy weather around the world (Straits Times) The relentless, weather-gone-crazy type of heat that has blistered the US and other parts of the world in recent years is so rare that it can't be anything but man-made global warming, says a new statistical analysis from a top government scientist. The research by a man often called the "godfather of global warming" says that the likelihood of such temperatures occurring from the 1950s through the 1980s was rarer than 1 in 300.

Now, the odds are closer to 1 in 10, according to the study by Nasa scientist James Hansen. He says that statistically what's happening is not random or normal, but pure and simple climate change. "This is not some scientific theory. We are now experiencing scientific fact," Prof Hansen said. In a landmark 1988 study, Prof Hansen predicted that if greenhouse gas emissions continue, which they have, Washington, DC, would have about nine days each year of 95 degrees or warmer in the decade of the 2010s. So far this year, with about four more weeks of summer, the city has had 23 days with 95 degrees or hotter temperatures. Prof Hansen says now he underestimated how bad things would get.

9 Phelps starts rest of his life (Straits Times) On the first day of the rest of his life, Michael Phelps found old habits are hard to break. He popped out of bed around 6am in the morning on Sunday, as if it were another normal training session. "I wish I could sleep a little longer," Phelps said. "I've been used to getting up early the last 20 years. We're going to work on getting on a little different schedule."

Phelps can start sleeping later now. He can do whatever he wants. At 27, he ended his swimming career in London as the most decorated Olympian ever with 18 golds - twice as many as anyone else - and 22 medals overall. The only thing left to do is sign the retirement papers, which will remove him from the list of athletes who must undergo regular doping tests.

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