• Tag Archives Financial Crisis
  • We Need A Public Inquiry Into The Economics Profession

    Britain is preparing to leave the European Union with no real plan and a government in disarray, writes economist, Ann Pettifor. How can we trust economists at the Treasury not to impose more disastrous policies?
    If the British economy crashes as a result of Brexit, it will not vindicate economists. It will simply illustrate once again, their failure.
    I and my colleagues at Policy Research in Macroeconomics (PRIME) believe there is urgent need for an independent, public inquiry into the economics profession, and its role in precipitating both the financial crisis of 2007-9, the subsequent very slow ‘recovery’; and in the British European referendum campaign.
    Financial disarray is not unlikely under Brexit, but whether this turns into anything material depends in the first instance on economic policy. How can we trust economists at the Treasury not to impose more disastrous policies?

    This post was published at Zero Hedge on Jun 21, 2017.


  • Barclays charged with fraud in Qatar case

    The Serious Fraud Office charges come at the end of a five-year investigation and relate to the bank’s fundraising at the height of 2008’s financial crisis.
    Former chief executive John Varley is one of the four ex-staff who will face Westminster magistrates on 3 July.
    Barclays says it is considering its position and awaiting further details.

    This post was published at BBC


  • Top Executives of Barclays Charged

    The British Serious Fraud Office (SFO) has brought charges against Barclays and four former executives surrounding the Qatari investment during the 2008 financial crisis. You may remember at the time Lloyds and RBS were offered UK government support with certain strict conditions attached. However, Barclays declined the government offer and instead turned to Qatar which eventually became the biggest single shareholder, with around 6%.

    This post was published at Armstrong Economics on Jun 21, 2017.


  • Hong Kong Warns: Its Housing Bubble is a ‘Dangerous Situation’

    The HK financial system is ‘very strong’ and ‘can withstand an adjustment in the property market.’
    The Hong Kong dollar is pegged to the US dollar. Hong Kong’s monetary policy is follows the Fed’s monetary policy. The Fed has embarked on a tightening cycle, raising rates four times so far. The Hong Kong Monetary Authority has followed each time. Last week, it raised its policy rate by 25 basis points to 1.5%. This will have consequences for the most expensive and ludicrously inflated housing bubble in the world.
    ‘We have to warn our people about the dangerous situation of the property market at the moment,’ Hong Kong Financial Secretary Paul Chan told Bloomberg TV.
    ‘No one can tell how deep the adjustment will be or what is the appropriate level of adjustment because it is market force,’ he said. ‘It is not up to the government to dictate, but I think it is important for people to recognize it is risky.’
    But he doesn’t expect a repeat of what happened when Hong Kong’s prior housing bubble imploded during the Asian Financial Crisis.

    This post was published at Wolf Street on Jun 20, 2017.


  • Why The (Collapsing) Global Credit Impulse Is All That Matters: Citi Explains

    One week ago, we reported that UBS has some “very bad news for the global economy”, when we showed that according to the Swiss bank’s calculations, the global credit impulse showed a historic collapse, one which matched the magnitude of the impulse plunge in the immediate aftermath of the financial crisis.
    ***
    But why is the credit impulse so critical?
    To answer this question Citi’s Matt King has published a slideshow titled, appropriately enough, “Why buying on impulse is soon regretted”, in which he explains why this largely ignored second derivative of global credit growth is really all that matters for the global economy (as well as markets, as we will explain in a follow up post).
    King first focuses on the one thing that is “wrong” with this recovery: the pervasive lack of global inflation, so desired by DM central banks.

    This post was published at Zero Hedge on Jun 20, 2017.


  • Barclays, Former CEO Criminally Charged Over Qatar Fundraising

    Two familiar names are in the news this morning, after the UK’s Serious Fraud Office filed criminal charges against Barclays Plc and four former executives, including former CEO John Varley, for conspiracy to commit fraud regarding the bank’s 2008 capital raising from Qatar. The SFO said Tuesday that former Chief Executive Officer John Varley, former chairman of investment banking for the Middle East Roger Jenkins, ex-deputy head of investment banking Richard Boath and ex-wealth chief Thomas Kalaris face charges along with the bank.
    The SFO allegations focus on how Barclays arranged two capital injections from Qatari investors during the 2008 financial meltdown, when the bank raised 11.8 billion ($15 billion) to prop it up and avoid a state bailout unlike peers RBC and Lloyds. Barclays said it paid 322 million in ‘advisory services’ to Qatari investors, which wasn’t initially disclosed after the capital was raised. The SFO charged the individuals and the bank with conspiracy to commit fraud. Two individuals, including its former Chief Executive John Varley, were also charged with the provision of unlawful financial assistance. Additionally, the SFO’s charges also relate to a $3 billion loan facility Barclays made to the State of Qatar acting through the ministry of economy and finance in November 2008, just after its second capital raise.
    The WSJ adds that the case marks the first time that top executives at a U. K. bank face criminal charges for their actions during the financial crisis. If Barclays is found guilty it faces a fine but wouldn’t lose its banking license. Barclays said in a statement it is ‘considering its position in relation to these developments.’
    More from the WSJ:

    This post was published at Zero Hedge on Jun 20, 2017.


  • The $31 Billion Hole in GE’s Balance Sheet That Keeps Growing

    It’s a problem that Jeffrey Immelt largely ignored as he tried to appease General Electric Co.’s most vocal shareholders.
    But it might end up being one of the costliest for John Flannery, GE’s newly anointed CEO, to fix.
    At $31 billion, GE’s pension shortfall is the biggest among S&P 500 companies and 50 percent greater than any other corporation in the U.S. It’s a deficit that has swelled in recent years as Immelt spent more than $45 billion on share buybacks to win over Wall Street and pacify activists like Nelson Peltz.
    Part of it has to do with the paltry returns that have plagued pensions across corporate America as ultralow interest rates prevailed in the aftermath of the financial crisis. But perhaps more importantly, GE’s dilemma underscores deeper concerns about modern capitalism’s all-consuming focus on immediate results, which some suggest is short-sighted and could ultimately leave everyone — including shareholders themselves — worse off.

    This post was published at bloomberg


  • El-Erian Warns “The Fed No Longer Has Your Back”

    In hiking rates and, more notably, reaffirming its forward policy guidance and setting out plans for the phased contraction of its balance sheet, the Federal Reserve signalled last week that it has become less data dependent and more emboldened to normalise monetary policy. Yet, judging from asset prices, markets are failing to internalise sufficiently the shift in the policy regime. Should this discrepancy prevail in the months to come, the Fed could well be forced into the type of policy tightening process that could prove quite unpleasant for markets.
    Setting aside multiple signs of an economic soft patch and sluggish inflation, the Federal Reserve did three things on Wednesday that lessen monetary stimulus, only the first of which was widely expected by markets: It raised interest rates by 25 basis points, reiterated its intention to hike four more times between now and the end of next year (including one in the remainder of 2017), and set out a timetable for reducing its $4.5bn balance sheet.
    These three actions confirm an evolution in the Fed’s policy stance away from looking for excuses to maintain a highly accommodative monetary policy – a dovish inclination that dominated for much of the aftermath of the 2008 global financial crisis. Rather, the Fed is now more intent on gradually normalising both its interest rate structure and its balance sheet. As such, it is more willing to ‘look through’ weak growth and inflation data.
    This evolution started to be visible in March when Fed officials worked hard, and successively, to aggressively manage upwards expectations that were placing the probability of an imminent rate hike at less than 30 per cent. With that, the hike that followed was an orderly one.

    This post was published at Zero Hedge on Jun 19, 2017.


  • Inflation Trade: AMZN + WFM

    ‘Markets go up on an escalator, they come down on an elevator. This is the most hideously overvalued market in history.’
    David Stockman
    Last week’s action by the Fed was an effort to restore normalcy, but in the context of extraordinary action by the central bank. When you tell markets that the risk free rate is zero, it has profound implications for the cost of debt and equity, and resulting in different asset allocation decisions. Ending this regime also has profound implications for investors and markets.
    In the wake of the financial crisis, some investors found comfort in the fact that when risk free interest rates are at or near zero, the discounted future value of equity securities was theoretically infinite. Markets seem to have validated this view. But to us the real question is this: If a company or country has excessive and growing amounts of debt outstanding against existing assets, what is the value of the equity? The short answer is non-zero and declining. But hold that thought.
    Reading through Grant’s Interest Rate Observer over the weekend, we were struck by the item on China Evergrande Group (OTC:ERGNF), a real estate development company and industrial conglomerate that has reported negative free cash flow since 2006, but has made it up in volume so to speak. The stock is up over 200% this year, Grant’s reports. The real estate conglomerate has its hands into all manner of businesses and seems to typify the China construction craze.

    This post was published at Wall Street Examiner on June 19, 2017.


  • The Worst Financial Nightmare In Illinois History Erupts As State Comptroller Declares ‘We Are In Massive Crisis Mode’

    Margaret Thatcher once said that the big problem with socialist governments is that ‘they always run out of other people’s money’, and unfortunately we are witnessing this play out in a major way in the state of Illinois right now. At this point, the Illinois state government has more than 15 billion dollars of unpaid bills. Yes, you read that correctly. They are already 15 billion dollars behind on their bills, and they are on pace to take in 6 billion dollars less than they are scheduled to spend in 2017. It is the worst financial crisis in the history of Illinois, and State Comptroller Susana Mendoza sounds like she is about ready to tear her hair out in frustration…
    ‘I don’t know what part of ‘We are in massive crisis mode’ the General Assembly and the governor don’t understand. This is not a false alarm,’ said Mendoza, a Chicago Democrat. ‘The magic tricks run out after a while, and that’s where we’re at.’
    It’s a new low, even for a state that’s seen its financial situation grow increasingly desperate amid a standoff between the Democrat-led Legislature and Republican Gov. Bruce Rauner. Illinois already has $15 billion in overdue bills and the lowest credit rating of any state, and some ratings agencies have warned they will downgrade the rating to ‘junk’ if there’s no budget before the next fiscal year begins July 1.

    This post was published at The Economic Collapse Blog on June 18th, 2017.


  • What Housing Recovery? Real Home Prices Still 16% Below 2007 Peak

    Since the financial crisis, home equity has gone from being America’s biggest driver of (illusory) wealth to one of the biggest sources of economic inequality.
    And while the post-crisis recovery has returned the national home price index to its highs from early 2007, most of this rise was generated by a handful of urban markets like New York City and San Francisco, leaving most Americans behind.
    To wit: home prices in the 10 most expensive metro areas have risen 63% since 2000, while home prices in the 10 cheapest areas have gained just 3.6%, according to Harvard’s annual State of the Nation’s Housing report. And while nominal prices may have returned to their pre-recession levels, when you adjust for inflation, real prices are as much as 16 percent below past peaks.

    This post was published at Zero Hedge on Jun 16, 2017.


  • How Much Do People Actually Make From “Gigs” Like Uber And Airbnb

    Coined shortly after the financial crisis in 2009, the so-called ‘gig economy’ or ‘sharing economy’ refers to the growing cadre of companies like Airbnb, Lyft, and TaskRabbit – platforms that employ temporary workers who provide a wide variety of services: delivery, ridesharing, rentals, and odd jobs. A recent Pew study estimated that nearly a quarter of all Americans earn some money through these platforms.

    This post was published at Zero Hedge on Jun 16, 2017.


  • Quiet Start To Quad Witching: Stocks Rebound Around The Globe, BOJ Hits Yen

    Today is quad-witching opex Friday, and according to JPM, some $1.3 trillion in S&P future will expire. Traditionally quad days are associated with a rise in volatility and a surge in volumes although in light of recent vol trends and overnight markets, today may be the most boring quad-witching in recent history: global stocks have again rebounded from yesterday’s tech-driven losses as European shares rose 0.6%, wiping out the week’s losses.
    USD/JPY climbed to two-week high, pushing the Nikkei higher as the BOJ maintained its stimulus and raised its assessment of private consumption without making a reference to tapering plans, all as expected. Asian stocks were mixed with the Shanghai Composite slightly softer despite the PBOC injecting a monster net 250 billion yuan with reverse repos to alleviate seasonal liquidity squeeze, and bringing the net weekly liquidity injection to CNY 410 billion, the highest in 5 months, while weakening the CNY fixing most since May. WTI crude is up fractionally near $44.66; Dalian iron ore rises one percent. Oil rose with metals. Treasuries held losses as traders focused on Yellen hawkish tone.
    The MSCI All Country World Index was up 0.2%, and after the latest global rebound, the value of global stocks is almost equal to that of the world’s GDP, the highest such ratio since th great financial crisis, BBG reported.

    This post was published at Zero Hedge on Jun 16, 2017.


  • We Are Getting Very Close To An Inverted Yield Curve – And If That Happens A Recession Is Essentially Guaranteed

    If something happens seven times in a row, do you think that there is a pretty good chance that it will happen the eighth time too? Immediately prior to the last seven recessions, we have seen an inverted yield curve, and it looks like it is about to happen again for the very first time since the last financial crisis. For those of you that are not familiar with this terminology, when we are talking about a yield curve we are typically talking about the spread between two-year and ten-year U. S. Treasury bond yields. Normally, short-term rates are higher than long-term rates, but when investors get spooked about the economy this can reverse. Just before every single recession since 1960 the yield curve has ‘inverted’, and now we are getting dangerously close to it happening again for the first time in a decade.
    On Thursday, the spread between two-year and ten-year Treasuries dropped to just 79 basis points. According to Business Insider, this is almost the tightest that the yield curve has been since 2007…
    The spread between the yields on two-year and 10-year Treasurys fell to 79 basis points, or 0.79%, after Wednesday’s disappointing consumer-price and retail-sales data. The spread is currently within a few hundredths of a percentage point of being the tightest it has been since 2007.
    Perhaps more notably, it is on a path to ‘inverting’ – meaning it would cost more to borrow for the short term than the long term – for the first time since the months leading up to the financial crisis.

    This post was published at The Economic Collapse Blog on June 15th, 2017.


  • Bundesbank’s Weidmann: Digital Currencies Will Make The Next Crisis Worse

    When global financial markets crash, it won’t be just “Trump’s fault” (and perhaps the quants and HFTs who switch from BTFD to STFR ) to keep the heat away from the Fed and central banks for blowing the biggest asset bubble in history: according to the head of the German central bank, Jens Weidmann, another “pre-crash” culprit emerged after he warned that digital currencies such as bitcoin would worsen the next financial crisis.
    As the FT reports, speaking in Frankfurt on Wednesday the Bundesbank’s president acknowledged the creation of an official digital currency by a central bank would assure the public that their money was safe. However, he warned that this could come at the expense of private banks’ ability to survive bank runs and financial panics.
    As Citigroup’s Hans Lorenzen showed yesterday, as a result of the global liquidity glut, which has pushed conventional assets to all time highs, a tangent has been a scramble for “alternatives” and resulted in the creation and dramatic rise of countless digital currencies such as Bitcoin and Ethereum. Citi effectively blamed the central banks for the cryptocoin phenomenon.

    This post was published at Zero Hedge on Jun 14, 2017.


  • Jim Rogers Sounds The Alarm On The Coming Economic Crash: ‘It’s Going To Be The Worst In Your Lifetime’

    When it comes to economists, investors, and all manner of financial observers, there is only one way to measure the value of their opinion. Are they good at predicting the future? Obviously, no one can predict the future with 100% certainty, but they should be able to make some broad predictions with reasonable accuracy. If they don’t have a good track record of that, then their opinions are worthless.
    World famous investor Jim Rogers doesn’t have that problem. Since the 1970’s, he’s consistently made a killing every time the global economy has taken a nosedive. You can only do that if you have gift for prognostication, and Jim Rogers has it. However, his latest prediction is alarming to say the least.
    During a recent interview with Business Insider CEO Henry Blodget, Rogers predicted that another global economic crash will arrive within the next year or two, and that it will largely be fueled by the massive debt obligations and financial bubbles that grew to mind boggling levels after the last financial crisis. When asked how serious this crash is going to be, he gave a sobering warning.

    This post was published at shtfplan on June 13th, 2017.


  • 2017 Is Going To Be The Worst Retail Apocalypse In U.S. History – More Than 300 Retailers Have Already Filed For Bankruptcy

    Not even during the worst parts of the last recession did things ever get this bad for the U. S. retail industry. As you will see in this article, more than 300 retailers have already filed for bankruptcy in 2017, and it is being projected that a staggering 8,640 stores will close in America by the end of this calendar year. That would shatter the old record by more than 20 percent. Sadly, our ongoing retail apocalypse appears to only be in the early chapters. One report recently estimated that up to 25 percent of all shopping malls in the country could shut down by 2022 due to the current woes of the retail industry. And if the new financial crisis that is already hitting Europe starts spreading over here, the numbers that I just shared with you could ultimately turn out to be a whole lot worse.
    I knew that a lot of retailers were filing for bankruptcy, but I had no idea that the grand total for this year was already in the hundreds. According to CNN, the number of retail bankruptcies is now up 31 percent compared to the same time period last year…
    Bankruptcies continue to pile up in the retail industry.
    More than 300 retailers have filed for bankruptcy so far this year, according to data from BankruptcyData.com. That’s up 31% from the same time last year. Most of those filings were for small companies – the proverbial Mom & Pop store with a single location. But there are also plenty of household names on the list.

    This post was published at The Economic Collapse Blog on June 13th, 2017.


  • This Toxic Trifecta for Auto Loans is Fueling #Carmageddon

    Subprime Auto-Loan Backed Securities from 2015 on track to be Worst Ever.
    Institutional investors that manage other people’s money grabbed subprime auto-loan backed securities because of their slightly higher yields. These bonds are backed by subprime auto loans that have been sliced and diced and repackaged and stamped with high credit ratings. But those issued in 2015 may end up the worst performing ever in the history of auto-loan securitizations, Fitch warned.
    And then there are those issued in 2016. They haven’t had time to curdle.
    The 2015 vintage that Fitch rates is now experiencing cumulative net losses projected to reach 15%, exceeding the peak loss rates during the Financial Crisis.
    Fitch Ratings’ Auto Loan Annualized Net Loss Index shows the strong seasonality, with either May or June forming the low point each year and the winter months forming the peaks. A terrible trend took off in 2014. The winter peak last year occurred in November with a net annualized loss of 10.9%. The latest data point is for April, at 7.8%, up from 7.4% last year. The index peaked in February 2009 at 13.1%. The trend is pointing that way (via Fitch Ratings ABS):

    This post was published at Wolf Street on Jun 13, 2017.


  • Bill Gross: “All Markets Are Increasingly At Risk”

    Picking up where he left off last week, when Bill Gross told Bloomberg that U. S. markets are at their highest risk levels since before the 2008 financial crisis “because investors are paying a high price for the chances they’re taking”, in his latest monthly investment outlook, the Janus Henderson bond manager says that investors should be wary as low interest rates, aging populations and global warming which inhibit real economic growth and intensify headwinds facing financial markets:
    Excessive debt/aging populations/trade-restrictive government policies and the increasing use of machines (robots) instead of people, create a counterforce to creative capitalism in the real economy, which worked quite well until the beginning of the 21st century. Investors in the real economy (not only large corporations but small businesses and startups) sense future headwinds that will thwart historic consumer demand and they therefore slow down investment.

    This post was published at Zero Hedge on Jun 13, 2017.