Monday, January 26, 2015

Russia credit in junk status for first time in decade; Germany warns Greece over debt commitments; Rising wealth and increasing self-absorption

1 Russia credit in junk status for first time in decade (Jill Treanor in The Guardian) Russia’s credit rating has been downgraded to junk status for the first time in a decade due to the collapsing oil price, the tumbling value of the rouble and sanctions imposed because of its intervention in Ukraine.

Ratings agency Standard & Poor’s said the downgrade was caused by the country’s reduced flexibility to cut interest rates and a weakening of the financial system. Attempts to shore up the value of the rouble have had only a temporary effect, Standard & Poor’s said, noting that the 750 basis point rise in interest rates last month to take interest rates up to 17% had only a limited impact on the rouble-dollar exchange rate.

Rival agencies have not pushed Russia’s rating into junk territory although there are expectations that they will echo the S&P decision. The lower the debt rating the more expensive it is to borrow and makes its impossible for some investors to hold the debt at all.

The country is one of the world’s biggest energy exporters and the reduction in the oil price by more than half in the past six months to below $50 a barrel is reverberating through the economy. The central bank has warned that GDP could shrink by as much as 4.8% this year if oil prices fail to recover.

The banking system is already being bailed out and economists have calculated that further support may be need for the financial sector. According to the analysis by S&P, inflation could rise above 15% this year and the banks will suffer an increase in bad debts on their balance sheets.


2 Germany warns Greece over debt commitments (BBC) Germany has warned the new Greek government that it must live up to its commitments to its creditors. German government spokesman Steffan Seibert said it was important for Greece to "take measures so that the economic recovery continues".

The far-left Syriza party, which won Sunday's poll, wants to scrap austerity measures demanded by international lenders, and renegotiate debt payments. However Jeroen Dijsselbloem, president of the Eurogroup, said: "There is very little support for a write-off in Europe."

Meanwhile the German government said that Greece's new leadership should take measures to ensure the economic recovery continues. Syriza's victory has caused some concern in the financial markets. In a volatile start to the week the euro briefly touched an 11-year low against the dollar, before recovering to trade almost 0.7% higher against the US currency.

Syriza leader Alexis Tsipras helped calm investors' nerves when he said in a speech that he wanted negotiation, not confrontation, with international lenders. The troika of lenders that bailed out Greece - the European Union, European Central Bank, and International Monetary Fund - imposed big budgetary cuts and restructuring in return for the money. But Mr Tsipras said: "The troika for Greece is the thing of the past."


3 Rising wealth and increasing self-absorption (Heather Knight in San Francisco Chronicle) If it seems that San Franciscans are getting more entitled and self-absorbed, a series of psychology studies performed at UC Berkeley indicates there could be a scientific reason: the city’s increasing wealth.

Paul Piff, an assistant professor in the Department of Psychology and Social Behavior at UC Irvine, has spent the past decade conducting about 50 studies on how wealthy people and poorer people behave in the same situations. Again and again, he’s found a common thread: Rich people are more likely to behave unethically even if they get very little benefit.

They’re more likely to take candy from a jar labeled as just for kids, cheat at games and cut off pedestrians in crosswalks. They’re also more likely to say they’d do the same thing when told about somebody who accepts bribes, lies to customers, cheats on an exam or pockets the money when a clerk gives too much change.

Piff speculated that wealthier people don’t have the same sensitivity to others as poor people do because they don’t need to rely on their neighbors and the wider community as much. One of Piff’s most interesting studies found that just half the drivers of luxury cars stopped for a pedestrian about to enter a crosswalk, whereas just about all drivers of old beaters stopped. “BMW drivers were the worst,” Piff said. “They were most likely to break the law.”

Tom Cebollero, 48, drives a BMW and bought the independent auto shop eight years ago after getting sick of his job in corporate finance. He was intrigued by Piff’s study and said it makes sense because BMWs are “confidence builders.”

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