"Second Deleveraging"

A term coined by Manmohan Singh, of the IMF, a "second deleveraging" refers to the unwinding of debt to meet the demands of tightening demand for collateral. For example, the $2,000bn of the derivatives sector functions without collateral.

India's Power Problems

Coverage from the Financial Times on the Indian crisis:

- Anil Ambani, the head of Reliance Power warns that "our version of the U.S. subprime crisis"

- Energy networks need fresh investments, but the banks are already overexposed to energy companies in frail health. Debt laden energy companies and frail financial industry are in a perilous embrace.

- The rich are investing heavily in power plants and generators, but resources and quality grid systems are in need. Coal India, 80% of which is owned by the Indian government, is inefficient  and fails to meet regulatory and environmental clearances. Despite owning 7% of the world's recoverable coal reserves, Coal India spent $5bn on importing cool.

- According to a director at StanChart, half of new credit went to infrastructure in power from 2008 and 2011. Now $500bn of loans to power sector is at risk. 90% could default.

- Only two out of India's states are not loss-makers, and cannot pay producers or invest in distribution and transmission.

Oakland vs. Goldman Sachs

The different municipalities entered interest-rate swaps with Goldman Sachs, in which the city paid the bank fixed amounts in return of payments that rise with interest rates. Now that these interest rates are zero, the cities are paying big -the Refund Transit Coalition estimates $2.5bn a year for the city. Litigate Goldman and face higher interest rates in the future, or suffer the necessary pains of honoring private conflicts.

Data Dump 3

- Japan Airlines plans for an IPO that could raise $8.5bn. It went bankrupt in 2000, was bailed out by the government that has exempted it from a significant amount of taxes. It's cut its staff by a third and slashed pensions. It now operates smaller planes which could be disadvantageous in the long-run.

Banking Q2 Reports

- BNP Paribas' profits fall 13%. Capital markets revenue down 33%

- Standard Charter's is up 11.3%

Data Dump

- UBS' cost-to-income ratio is 85%

- India caps power prices. India's state power utilities have a lot of debt and import lots of energy.

- 860tn cubic feet of technicall recoverable resources in shale according to the EIA.

- Man. U in a seven year deal with Chevrolet

- Assets managed by private equity hit $3tn.

- People are demonstrating in Swaziland, the last remaining absolute monarchy, for political representation.

- Deutsche is to slash 1,900 jobs. Outch.

- Korean Development bank will not buy HSBC's retail arm in ROK.

- Aer Lingus management urges shareholders to reject Ryanair's bid for takeover. Ryanair's been squeezed to raise prices as a result of falling demand for summer travel.

"Dormant Membership"

Hans Werner Sinn and Friedrich Sell have a shining new idea for the eurozone: let the struggling eurozone countries freeze their membership, re-introduce their national currency, and return to the euro through ERM II. Exchange rate can then re-enter as a tool to restore competitiveness. They cite good historical examples, such as the time Germany decoupled the D-mark from its link to the dollar in October 1969 and later resetting it at a rate 9% lower or Argentina breaking its peg. MR=MC would question the legal aspects of putting a freeze on struggling Eurozone countries' membership to the euro though. How would bonds be re-denominated? At what rate?

Economics Shall Prevail

"Equally, economics is not the only social science engaged in this race: our friends in political science and sociology use similar tools; computer scientists are grappling with “big data” and machine learning; and statisticians are developing new tools.  Whichever field adapts best will win.  I think it will be economics.  And so economists will continue to broaden the substantive areas we study.  Since Gary Becker, we have been comfortable looking beyond the purely pecuniary domain, and I expect this trend towards cross-disciplinary work to continue."
- Justin Wolfers, UPenn

Points Against Sarbox

Francis McKenna provides the following points about Sarbox:

- PwC was unable to detect Satyam's $1bn fraud

- Big Four audited the banks before the crisis.

- PwC has been paid $500m in fees over the five years but J.P. Morgan's trades mistakes still happened.

- Audit companies still encourage partners to sell additional services to audit partners.

- They are paid by the companies they audit.

Economics of Scale in Finance and Independence

Mr. Weil, who caught the headlines last week for calling the break-up of banks, discovered something else in 2001 -that economics of scale in financial firms could have the effect magnifying risks. As you "cross-sell" to customers (for example to the subprime mortgage owner Joe Citi's car insurance), the independence of risk between those two events perish. That is, in simple terms, bad. No wonder that Citi is less than half its book value. It's worth more dead than alive.

Tower Dumps and Privacy

- Foreign Intelligence Surveillance Act (FISA) allows intelligence agencies to eavesdrop on people. And from 1979 to 2011, it rejected only 11 applications and is subject to no other review.

- Between July and December, Google received 4,601 requests for information about its users. Google has complied with 93% of the requests from American authorities.

- The Electronic Communications Privacy Act (ECPA), passed in 1986, still remains the main law governing access to electronic communication.

Greek Government Spending ALlocation, 2012

According to the Greek Finance Ministry, 

43% on wages and pensions

33% on health and welfare

14% on operating expenses

8% on transfers

2% on reserves

Total spending:  €47.7bn 

Lethargy and Development

According to a paper in the Lancet, insufficient activity has nearly the same effect on life expectancy as smoking. Bad thing that another paper in the Lancet, this one by Pedro Hallal of the Federal University of Pelotas in Brazil, finds that 31% of adults across the world are not getting enough exercise. Malta wins the prize of being the laziest, exercise being defined as 30 minutes of moderate exercise five days a week or 20 minutes of vigorous exercise three days a week.