LyrArc Article Gist
Production declines by a steep 80% in the first half of 2014 in Venezuela's auto industry. Ford, GM and Toyota cut production and leave facilities idle with a lack of parts supplies and other problems.

LyrArc Article Gist
The slowing growth in China is reducing growth and depreciating the currencies of iron ore producing countries Brazil and Australia. China makes 50% of the world's steel and imports 1.2 billion tons of iron ore traded annually. Australia exports 80% of its iron ore to China valued at $67 billion in 2013. Brazil sends 50% of production to China. For the first time in 15 years China's steel use declined 0.3% to 500 million tons in the Jan-Aug. 2014 period. The mining companies have invested heavily in ports and railroads for expanded production. BHP CEO Mackenzie says the strategy is to maximize production because reducing production increases costs on a unit basis. The result is a decline in price from $135 a ton at the beginning of 2014 to $69.80 on Nov. 28, 2014. Prices could decline to the $50 range in 2015, according to Citigroup analysts, because of an estimated iron ore surplus of 300 million tons by 2018. As China expands recycling of older cars and washing machines to produce steel this will reduce future iron ore demand in China. JP Morgan forecast for Australia reduces GDP growth to 2.8% from 3.3% for 2015, and Brazil reduced its forecast for 2015 to 0.9% from 1.8%....

LyrArc Article Gist
The view from Germany on Trump's economic plan and the need for changes by his advisors. DW.com's Wenkel says Trump needs to understand that 80% of job losses in recent years have come from not from globalization, but automation and higher productivity, rationalization. He says higher tariffs on Mexico could backfire.

LyrArc Article Gist
Serious doubts remain about the effectiveness of value at risk or VAR quant models used by JP Morgan Chase to measure potential losses on a trade on a bad day. A newer model used by Chase in the first quarter showed smaller losses. When the old model was run this trade showed double the losses according to Chase managers. Greenberger, a former CFTC official and a professor at the University of Maryland School of Law, says if the trade become hard to unwind it shows poor risk management. And experts say it is not much of a hedge if it is done in an obscure part of credit markets and hard to unwind without serious losses. Peter Tchir, a former head of index trading at RBS bank, says CEO Dimon must have seen these kinds of hedges as part of his overall strategy, which is why he supported them in April 2012. The problem lies in that the bank size has grown to such proportions that its simply too big to manage, with trades it has to make becoming massive as a consequence.

LyrArc Article Gist
Simon Johnson and Peter Boone say not taking forceful action with the large banks- taking them through bankruptcy and restructuring procedures as advocated by senior Federal Reserve officials like Peter Hoenig- will only lead to irreversible damage. The current Geithner-Summers policy being followed by the Obama administration is simply to hope that by fiscal stimulus and economic recovery the banks may be brought to sustained profits and be able to muddle through their financial problems. This Johnson argues is not likely to happen and the cost will be higher debt levels for America, irreversible damage as America faces low debt and financially stronger countries in Asia and sees its position in the world weaken. The muddle through policies for banks of the Obama administration have little prospects in the face of an IMF estimated $275 billion shortfall in capital on balance sheets at large banks (from the IMF Global Financial stability Report). Without aggressive action on the banks America's recovery and renewal will only delayed....

LyrArc Article Gist
Trump says he supports the House Republican tax plan for three brackets 12%, 25% and 33%. In his earlier proposal Trump has supported a top rate of 25%. He made these comments, including support for deducting childcare costs, in a speech at the Economic Club of Detroit. Trump did not repeat a call for repealing Dodd-Frank bank supervision legislation. Clinton was critical of Trump's economic team of business people from hedge funds and the real estate industry, saying this was another example of "trickle down economics,"  for giving  "super big tax breaks to large corporations." Michigan has not voted Republican since 1988, and the auto industry rescue was organized by president Obama, a point heavily advertised in the 2012 presidential campaign. Romney had opposed the rescue effort, and during the 2012 campaign the WSJ reports say  Trump called the bailout of automakers a mistake because of expansion overseas.

LyrArc Article Gist
Andrew Jacobs provides this exceptional accoount of disillusionment of ordinary people in Brazil with the corruption scandals, deep recession, and the drop in president Rousseff's popularity from 50 percent in 2014 to 16 percent in April 2016.

LyrArc Article Gist
Chile's experience in Latin America stands out for the painful experience of the dictatorship years and the mismanagement of the economy by the government preceding it. The governments of the last 20 years of the Concertacion have studied the mistakes of these years and corrected them to aremarkable degree, like no other country in Latin America. The new politicians decided that the economy had to be managed so that inflation was under control and these Concertacion administrations produced budget surpluses in all but 4 years says Finance Minister Velasco. Velasco himself was 13 years old when the dictatorship of Augusto Pinochet was set up, and his father a law professor had to leave the country for criticizing human rights abuses. He studied economics at Columbia University, and his principal focus there was he says, " to understand how did this happen to Chile and how do we make sure it will nhot happen again." His finding was that runaway inflation had created so much unrest among the people that coup plots could take place, and that political stability could not be maintained without good management of the economy. It also meant that Chile must avoid extremes, try to take amoderate position, which meant preserving the free market reforms that had taken place, and introducing policy measures, projects and investment which helped to bring up the vast majority of the people including the least well off of society. Velasco also studied the history of Latin American economies with their boom and bust cycle, the situation in countries especially Argentina and sometimes in Brazil and other countries since the fifties. He found as he says that when " a country seems very creditworthy, everyone wants to lend to you, capital flows in and consumption booms." At some point excessive amounts of capital flow in which cannot be absorbed and is wasted in unproductive ways, which becomes adebt burden as the bust part of the cycle takes hold. So Chile has been careful to control speculative inflows of capital. But Velaco went further. In 2006 he left a Professorship at Harvard University to become finance minister of Chile under President Ms. Bachelet. Copper prices were surging and Velasco insisted on caution. In 2006 he pushed through a law requiring the annual budget to be based on an independedt committtee's estimate of the average price of copper in the next 10 years. Any copper income above the budgeted price goes into a savings fund maintained outside the country. In 2007 the copper price used in the calculation was $1.21 a pound, while the market price was $3.23 a pound. The profits $6 billion for 2007 went into the rainy day fund, which is invested conservatively in government bonds or money market instruments denominated in dollars, euros and yen. This fund is now at$20 billion. What is remarkable for Velasco is the way this was executed. The price used was conservative, the political pressures from unions and students and other groups was resisted effectively, and the whole exercize was carried out to successful conclusion even as popular support for the government dropped. When the crisi hit in December 2007 copper prices plummeted. Velasco announced a stimulus package, getting the $4 billion stimulus package through both Houses of Congress in January 2009. Chile expects only adrop of 0.5% in GDP in 2009 year over year. $500 million was given to stae owned bank BancoEstado, which reduced consumer lending rates by half. The package offers subsidies for businesses to hire younger workers, $700 million for large infrastructure program designed to create 60,000 jobs in road paving, airport upgrades and housing construction. And 1.7 million families, the poorest 40% of the population received cash stipends from the government equivalent to $70, with another stipend due in August....

LyrArc Article Gist
The Bush administration's and Paulson's thinking that letting the government buy parts of the banking system was unthinkable, as recently as late September, may have led to squandering of valuable time. Now Paulson is following Gordon Brown's lead in planning an injection of capital in banks in return for equity stakes, using much of the $700 billion Congress has authorized, and Paulson says the package that passed Congress gives Treasury all the authority it needs to do so. The failure to be open to this thinking earlier may have cost valuable time in addressing this crisis. And now there are second thoughts on whether it was wise to let Lehman fall into bankruptcy, because the Administration had not correctly anticipated or calculated the true cost of the Lehmann bankruptcy in terms of the way it created a crisis in the rest of the financial system. Paulson has still not taken Gordon Brown's lead in guaranteeing lending between the banks which the British are doing as part of their plan. Is the administration too slow in its response and a bit wrongheaded or stubborn headed as each step of the crisis has moved faster than its ability to respond, and its response being one step behind. Frederic Mishkin of Columbia University a former Fed Governor says, "if you delay and create uncertainty, the amount of money you have to put up goes up." It appears from Paulson's remarks over time first turning down proposals for capital injection into banks for equity stakes, and now in making that route central to his plan, that Paulson and Bernanke simply did not anticipate the shutting down of credit markets and the collapse of stock market prices that occurred, and they had no backup plan prepared for a situation such as this. And on top of this the backup plan they went out to sell to Congress turned out to be short on details and in this sense naive for the amount requested. And then by refusing to consider alternatives such as capital injection for equity stakes, it was wrong headed, if not closed minded. William Poole who retired in August as President of the Federal Reserve Bank of St. Louis, says that " I am not aware that Treasury presented any evidence on auctions that have been successful when they are used for assets that are so heterogenous", referring to the reverse auctions that would take weeks to set up and would be terribly complicated to buy up troubled assets, as part of the plan presented to Congress in but 3 pages. Now the plan appears to be to let Fannie and Freddie, which were given $100 billion by the Treasury as authorized by Congress, to move ahead with the purchase of troubled mortgage securities, something for which Fannie and Freddie have the capabilities. In the end the crisis in confidence and near panic generated in the markets and the climate of fear may go way beyond the actual losses incurred from debt securities, and some of this may be the result of a clumsy and poorly thought out approach by Bernanke and Paulson. The cost of fixing the problem will be higher and the recession more prolonged because of this. It is a situation of capable people blinded by ideological reasons to see what is happening and in Bernanke's case not making enough of a case to Treasury about his reservations and his own thinking that capital injection was the right approach, as people familiar with the early planning say Bernanke argued that it would be easier and more efficient to inject capital directly into banks. ...

LyrArc Article Gist
Biden's student loan cancellation plan is targeted at low income people who are struggling to make a living and for whom it means putting less food on the table. The plan eliminates the debt of millions of borrowers because about one third of borrowers owe about $10,000. The plan cancels $10,000 in debt for people making below $125,000 and extends this to $20,000 for the poorest borrowers who received Pell Mell grant loans. A Columbia University study shows that the loan default rate for borrowers without a college degree is 40% and that for borrowers with a college degree is 8%. Biden said when unfolding the plan that these people have the worst of both worlds no college degree and student loans to pay off. College degrees give borrowers a much higher income. Biden's plan is to also cap payments on loans to 5% of discretionary income as opposed to 10% or 15% that it is today. The effects are also not understood by most economists. For a society to do well over the next 10 years to 20 years, 2030 or 2035, it has to increase opportunities for all its citizens. Young people with these burdensome loans grew up in a period when unrestrained so called "free markets" distorted markets and manipulated public opinion to favor a small segment of the people, leading to a false concept that 12 years of universal instruction were enough. Biden pointed this out and the importance of higher education beyond these 12 years to compete in the world in manufacturing and technology. The income and wealth generated by this investment in the people is what made America what it was in the early post war years. The income and wealth created will more than pay for not just removing a big part of this burden but also extending universal instructiuon beyond 12 years in future legislation. Rerouting some of the waste in capital allocation of so-called "free markets" alone could more than pay for most of these investments, with extra for additional investments in science and technology that would make the US what it was, the most advanced and highly educated society in the world. ...

LyrArc Article Gist
Experts say CEO's have constituencies in the form of employees, shareholders and customers. This has affected CEO's as they responded to president Trump's comments on the Charlottesville attack.  Even the cautious optimism that CEO's maintained during the early months of the Trump administration- as they sought not to miss out on representation on advisory councils- has now faded. Most CEO's have decided that it is not worth having this voice in advisory councils when they have to be seen as supporting positions on racism and culture they cannot support. One by one the actions by Trump on the travel ban, climate change agreement withdrawal, Charlottesville attack,  has led to a shrinking of support. From non-involvement in Trump's campaign but cautious optimism, to a sense that it is not possible to work with the president without violating deeply held beliefs. Gini Rometty of IBM told employees that dialogue was critical to progress, but that " this group can no longer serve the purpose for which it was formed."  A sense that not much would be accomplished, and the reputational cost for business was too high to make it worth the effort. In the span of 3 days three advisory councils to the president were disbanded. ...

LyrArc Article Gist
Glen Hubbard, who was Chairman of the Council of Economic Advisors under President George W. Bush and is now Dean of Columbia University Business School, Hal Scott professor of International Fiancial Systems at Harvard Law School, and Luigi Zingales professor of finance at the University of Chicago Booth School of Business, say a different plan of action is needed from what the Obama administration is doing to tackle the banking crisis. They are really skeptical about the the Public Private Investment Program and other plans put forth upto now for several reasons. First, in every case they say there is a lot of carrot but very little stick, and this won't work. TARP program was mostly carrot, with Treasury getting back securities worth $78 billion less than the $254 billion invested, as pointed out by the Congressional Oversight Panel.The FDIC's guarantee of short term debt was worth $100 billion just for the original nine TARP participating banks, and the mortgage related asset guarantees offered Citibank and Bank of America were worth tens of billions. They see anew round of TARP injections with the conversion of the government's preferred stock into equity after release of the stress test results. Then there is PPIP the Public Private Investment Program, and its plans to subsidize the purchase of bank's"toxic assets" by hedge funds and other investors. They estimate the government will spend $2 for every $1 the private sector puts up. And even with this subsidy their thinking is that the probability of succes is low for the same reason that has prevailed since the earlier efforts by Treasury Secretary Paulson- there is just too big a gap between the bid and ask prices on the toxic assets, and add to that the reluctance of investors to partner with the government. Its time for more stick say these experts as the problem of toxic assets, and of credit and lending in the economy, will hang like a large shadow over the economy, as long as these tough problems are not wrestled with. This is the Hubbard-Scott-Luigi Plan: 1) The FDIC should announce that its guarantees of short term debt set to expire in October will not be renewed. Insolvent banks, defined not by stress tests but as those that cannot fund themselves in the private market, will be taken over by the FDIC under aclear and credible action plan. 2) The FDIC lacks the resources to run several large and complex banks which may become insolvent. And waving the idea of nationalization the creditors may try to get the government to bail them out. The authors of this plan say the FDIC should solit each bank into a "bad bank" and a "good bank." The "bad bank" would carry all the residential and commercial real estate loans and securitized mortgages as assets, and all the long term debt as liabilities. THe "bad bank" would obtain along term laon from the good bank to fund the assets of the bad bank. Al the remaining assets including the derivative contracts and the loan to the bad bank would be assets of the good bank. It would also have all the insured deposits and the FDIC guaranteed short term debt as liabilities. With the split accomplished the good bank can be released from FDIC receivership. 3) The long term debt holders would be compensated by receiving all the equity of the good bank. The old shareholders would get the equity in the bad bank. And in any restructuring bondholders should do better than equity holders. If banks are not really insolvent as some say and just facing temporary dislocations, then the bad bank will eventually surge in value, and the equity holders will do alright, and if not they will receive nothing as they should. 4) For this to work legislation needs to take effect before October for FDIC procedures for handling failed banks to be also applicable to bank holding companies. And this new legislation puts no new cost on the taxpayer....

LyrArc Article Gist
 Donald trumps economic plan would worsen the country's economy through extravagant borrowing and lower economic growth in the long run. Because it lowers taxes by 15 percent without any paired cuts Trump's plan would worsen the deficit, so that large debt would hurt the economy in the long run. Clinton's plan would increase taxes by 4  percent largely on high incomes so as not to hurt consumer spending, with paired spending to help lower income households. Because Trump's tax cuts benefits go disproportionately to higher incomes the benefits in terms of consumer spending are slight or insignificant. In the current state of weak income gains of the last ten years it would take some time for the middle and working class to recover. Clinton's plan carefully nudges that recovery forward without aggravating the debt, so that as incomes and net worth recovers across broad parts of the population, the U.S. is poised to go forward with strong growth as in the postwar years. Trump's plan frontloads tax benefits to higher incomes at the expense of worsening debt and enlarging future debt. In the process it worsens income disparities already aggravated by the 2008 financial crisis. Reducing the chances of a broad based recovery for all parts of the population, necessary for a strong recovery.                       ...

LyrArc Article Gist
Sanford Weill built Citigroup into a mega bank through repeated acquisitions. He was the strongest voice for the repeal of the Depression era Glass Steagall Act banning banks from risk taking activities in investment banking. The Glass Steagall Act was repealed in 1999, and repeal legislation was given the name of "Citigroup Authorization Act." On July 23, 2012, Weill told CNBC: "I am suggesting that they (the big banks) be broken up so that the taxpayer will never be at risk, the depositors won't be at risk... Mistakes were made." Weill said that the housing bubble and the financial crisis has proved that the repeal was a mistake.

LyrArc Article Gist
Zara which started with one store in La Coruna aport town in a remote part of northern Spain is the second largest retail clothing chain after Gap Stores now has3691 stores in 68 countries, adding 560 stores in the last 12 months and entering new markets in places like Croatia, Columbia, Guatemala, and Oman. Its best known for fast fashion and updating fashion frequently with new fashion clothing coming in twice a week. Lower volumes mean they sell out fast and don't require writedowns and fashions that fly can be resupplied quickly because Zara does most of its manufacturing (two thirds) in Spain or in countries nearby like Portugal, Morocco and Turkey. The closeness of manufacture and the logistics are set up such that the orders can be made quickly with sales monitored constantly on computers at La Coruna HQ and at stores locations and the manufacture and shipping can be done speedily. Not requiring writedowns and selling lower cost fashion at higher prices especially outside Spain where prices are higher (40% higher in New York for instance) and having an efficient system with costs weeded out and focus on building the brand and pleasing customers to command good profit margins enables Zara to continue manufacturing in Spain where costs are not what they would be in China or Vietnam. As other stores are learning from Zara and doing this in their stores Zara is working on refocussing its formula and fine tuning it to stay ahead of competitors. For example its making sure costs do not rise faster than sales, for first half 2007 costs went up 16% and sales went up 19%. Staff is being scheduled using new software based on sales volume at differen times, so that more salespeople work at peak times such as lunchtime or early evening, which enable Zara to cut 2% of hours worked. Alarm tags are attached at the factory, and the newest collections get labelled NEWC and are rushed to the floor on plastic hangars and only later switched to wooden hangers, and store managers now use handheld computers to sho garments ranking by sales so reordering can be done quickly in less than an hour....