LyrArc Article Gist
Related to Mervy King's stand as Governor of the Bank of England about moral hazard, that if you let them off easy then these crises will recur and no penalty for excesses. But we can see that when this happens people who committed wrongdoing will be investigated, their reputations destroyed and the prospect of jail time.

LyrArc Article Gist
Nour Malas and Joe Parkinson report from the town of Makhmour, retaken by Kurdish Peshmerga forces following airstrikes on ISIS militant positions. The crisis situation 20 miles from Erbil, capital of the Iraqi Kurdistan region and the coordination between Iranian advisors, U.S. military advisors, and the Peshmerga to push back the ISIS. Peshmerga say young Sunnis in the town joined the ISIS in droves, something never seen before. It also reveals the situation after the failure of the Maliki administration to build a state with support from all parts of the Iraqi population- Shiite, Sunni, Kurds and tribes- leading to the radical alienation of Sunnis. The late awakening of Iran, the U.S., and moderate Iraqis both Sunni and Shiite, to the dangers of the Maliki policies. The unraveling of the decade of Iraq rebuilding by the U.S. in such rapid manner leads to the stepping down of Maliki and beginning of a new non-sectarian approach and policies. The vacillating in the Obama adminstration's policies towards Syria and Iraq leads to a lack of direction in the region. ...

LyrArc Article Gist
In an interview with the Wall Street Journal Deutschland, Hans Werner Sinn, head of the Ifo Institute in Germany, says Greece's bondholders are overly exaggerating the effects on the eurozone of an exit by Greece. He sees it in the best interests of Greece to improve its competitiveness and return to growth by going back to the drachma. Just to get to the level of Turkey Greece would need to reduce prices by 31%, which is impossible to do within the eurozone without risking a complete breakdown in civil order. The best way to use the 130 billion euro second bailout package is to use it to recapitalize its banking system, says Sinn. Sinn says Portugal's faces the risk of a debt crisis following the crisis in Greece.

LyrArc Article Gist
ECB president, Mario Draghi, is interviewed at his office in Frankfurt by the Wall Street Journal's Blackstone, Karnitschnig, and Thomson. Draghi quotes economist Rudi Dornbusch, who told him in the old days that the Europeans were rich enough to afford paying for it if everybody didn't work. Draghi, was head of the Bank of Italy, before becoming president of the ECB. He is acutely aware of the problems faced by Italy and other countries like Spain which have let labor markets become rigid, with extensive job protections and generous benefits for the unemployed. The result is that employers are reluctant to hire and young people face high unemployment rates- as high as 50% in Spain. For this reason Draghi sees the old social model in Europe as obsolete and already out. Draghi's sees austerity measures and spending cuts with the structural changes underway in Spain, Italy and other countries as the only way to generate economic renewal. On the Long Term Financing Operation launched by the ECB in Dec. 2011, Draghi says there was agreement within the ECB and the decision was unanimous. He makes it one of his objectives to achieve as much consensus as he can, to do what is right for Europe and to do it together with his colleagues in the ECB and the EU. That financing operation, and the binding deficit controls achieved at a recent summit of European leaders, he sees as all part of the pathway to fiscal union. ...

LyrArc Article Gist
Galston focusses attention on the major problem facing democracies in Europe and the U.S.- that of providing decent paying jobs and improved economic prospects for lower and middle income households. He cites the surveys from the Pew Research Report and the U.S Bureau of Labor Statistics showing how middle income households median net income remains stuck at levels of 1997, and lower income households at levels of 1996. The median net worth of American households adjusted for inflation presents an alarming picture of being at $96,000 in 1983 and $98,000 in 2013 for middle income families, and being at the level of $12,000 for lower income families the level of 1975. Most of the new jobs as much as 95% are being created in the low wage service sector and the BLS statistics show the future looking much the same- with huge numbers of low wage jobs, fewer decent manufacturing jobs because of automation and jobs shifts to low cost locations overseas, remaining manufacturing jobs in the U.S shrinking by another 800,000 to 7% of the workforce by 2025. The result is the alarming rise of populist politicians like Trump in the U.S., Le Pen in France , and populist politicians in Hungary and Poland. Cultural liberals in the Democratic Party and the Republican establishment are both threatened by the rise of cultural illiberalism, xenophobia, and nationalism, as economic anxiety increases, and fears of terrorism and immigrants add to this anxiety. Progressive tendencies in the Republican party since the days of Theodore Roosevelt and of professional elites in the Democratic Party could become endangered if no serious effort is made to come up with solutions to the problems these trends present. The disconnect between the concerns of the working and middle class and the professional elites as the gap widens and the social compact in America and Europe breaks apart, means a new mindset will be required in America and Europe to deal with this. ...

LyrArc Article Gist
The IMF's changing views on the value of fiscal austerity. In the current debate about the value of fiscal austerity, there is the IMF view, a German view based on its own experience, and the views of other countries in Europe. The IMF's view has shifted over time. The IMF World Economic Outlook 2010, describes its view of the effects of austerity measures in the form of spending cuts and tax increases- "Fiscal consolidation typically has a contractionary effect on output. A fiscal consolidation equal to 1% of GDP typically reduces GDP by about 0.5% within 2 years and raises the unemployment rate by about 0.3% percentage points." Over the longer term there are benefits as the private sector is not crowded out in the search for captal funding by the excessive government borrowing. The IMF's economic models suggest that it would take 5 years before reaching the breakeven point when the benefits of austerity measures exceed the effects of austerity. The German view held by German central bankers is that the actions stimulate growth in the short term. Manfred Neumann, professor emeritus at the Institute for Economic Policy at the University of Bonn, says this is called the "German hypothesis" as it reflects the experience of Germany from austerity actions taken by Germany. Laurence Ball, professor of Economics at John Hopkins University, is critical of the "German hypothesis" and its application across Europe in different situations. Germany is a large exporting nation and exports helped counterbalance the effects of austerity measures. Within the eurozone with fixed exchange rates the exports of less competitive countries cannot be boosted through devaluing the currency to gain price competitiveness. The other problem is that with interest rates close to zero in the euro zone the central banks cannot cut rates aggressively to counteract the effects of spending cuts. The problem gets compounded when a number of countries are taking austerity measures at the same time accentuating the downturn....

LyrArc Article Gist
Cochrane says the best option today is for Europe to accept a sovereign default for Greece. He says the European Central Bank which stands behind the euro, should not be used for buying bonds of troubled countries with shaky "collateral." This would only lead to a situation where EU countries would have to recapitalize the ECB. He emphasizes the fact that Greece will not pay back this debt. And the only way out is to have a situation similiar to Argentina where it needs to start over, and it would at some point be able to borrow again. Austerity is deeply unpopular in Greece and with higher unemployment Greece's financial situation is rapidly deteriorating. Making austerity something that was tried to buy time but will not work. Cochrane also makes the point that the euro itself acts like the euro bonds that EU countries are reluctant to support, it means the ECB backs the currency and supports it- which makes it vital to keep the ECB whole and prevent the dilution of its financial strength. Axel Weber, former head of the Bundesbank, resigned to express his opposition to the ECB buying the bonds of troubled eurozone countries, which he said was outside the ECB's mandate to conduct monetary policy....

LyrArc Article Gist
Interview with Honda CEO Takeo Fukui. In June Honda will rollout a new hydrogenpowered fuel cell vehicle called the FCX Clarity. Its powered with electricity produced by combining hydrogen and oxygen in batterylike fuel cells. Honda will have this vehicle available for lease this summer in California and aims to deliver about 200 of these cars by 2010. Fukui's attitude is refreshing when compared to that of other automakers when answering a question by John Murphy of the WSJ about why try to build a hydrogen car when the stations to power the cars do not exist yet. He tells Murphy if you asked were there any gas stations when Henry Ford came up with the Model T, there weren't any, lets build the cars first and the infrastructure will follow. And Honda is working on the technology that will make it possible to charge hydrogen into fuel-cell vehicles at home . He sees it happening first in California and some other states, and in Japan and Europe. And he sees it taking about 10 years to get some sort of infrastructure in place. Considering the long term nature of the demand side with the gradual inclusion of billions of people in China and India as well as Brazil and Russia into the world economy as well as people in other developing countries this is a solution that takes patient and focused development of technology which Honda is setting out to do. He does not see a safety issue in use of hydrogen vehicles as he is confident Honda can develop the expertise to handle the safety issue for hydrogen. What is his thinking on green vehicles? What happened to the Insight the first hybrid car that Honda introduced? The Insight was never intended to be a mass seller, only to establish Honda's record as having the best record in fuel efficiency. What is Honda doing in this area. Honda does see a problem in this area. Toyota he says developed a green image largely on the back of one car the Prius. Honda will come up in 2009 with a dedicated hybrid vehicle to match the Prius. And Honda is setting the bar high for this Honda hybrid, saying that his feeling that this model will have to overwhelm and overtake the Prius. He goes on to say that this is key for us. Honda he says will take on the challenge and compete with Toyota with its products, its technology, and its racing spirit. This gasoline-electric hybrid will be introduced early next year in the USA, Japan, and Europe, and it will be the first of 4 hybrid models Honda will introduce by 2015. Regarding price the company says it will be "affordable". Honda's goal is to sell 500,000 hybrid vehicles a year. Toyota aims to sell 1 million hybrid vehicles early in the next decade and is working on developing its own hydrogen fuel-cell vehicle. Is Honda developing electric cars? Takeo Fukui thinks the practical feasibility of the electric vehicle is very limited. The two biggest issues in his view being driving distance and recharging time. The FCX Clarity can be recharged in one minute, compared to the several hours for an electric vehicle. In his view the electric vehicles will be uselful only for restricted applications like golf carts. Nissan and General Motors are planning to launch electric vehicles. What is Honda's environmental strategy? Honda being a smaller company has to focus its resources wisely with strategic choices. His focus is on the hybrid as the core product, and after that comes fuel cell and clean diesel as the core products to tackle fuel eficiency and CO2 issues. Takeo has spent more than a decade on Honda's racing teams. He drives a CR-V and enjoys driving up and down the mountains, does not race but does get on Honda's test track once or twice a year. And what has he learned from all the years in racing. When he was fully engaged in the motorcycle racing teams he says the pressure was very high and if they did not do well they got bashed by managers and the media. And actually the results were disappointing for years and the teams kept losing. For hime the series of difficulties and challenges was something that he feels everyone should experience because in some ways he acquired wisdom and creativity to get through these experiences. This is some thing Honda and Fukui will need as they try to develop their own hybrid to take the lead from Toyota and come up with industry leading technology in tackling fuel efficiency and CO2 issues. His own approach to management? Two things he always keeps in mind are take time to keep up good communication with associates at work, and testing Honda's own products with his own hands. What does he think about the auto industry in 2008, is it a turning point? He says it has becom clear in 2008 that a company has to have the technology to deal with carborn dioxide and fuel efficiency issues. And its clear that smaller vehicles are more attractive than larger vehicles. And its possible he says that we may go back from automobiles to motorcycles. In fact in India Honda is promoting motorcycles in a big way, while Tata is developing the Nano for mass market, so Takeo is talking about something that Honda sees happening in some places. ...

LyrArc Article Gist
A large increase in fuel efficiency as planned by new EPA rules creates a different environment for electric cars. Current average fuel economy is 26. New rules that raise the average fuel economy to higher than 47 mpg will result in cars that conserve gasoline, reduce emissions, and make these vehicles more attractive to operate than electric cars on a cost basis, without sacrificing too much in conservation and emissions. A new study shows that achieving the increase to 47 mpg with new technologies will cost automakers about $2000 per vehicle. At $4.50 a gallon for gasoline it takes six years for a hybrid to be more cost effective than a 47 mpg car, according to this study. For a plug-in it would take 7 years and a pure electric vehicle 8 years. This suggests gasoline would have to cost more than $4.50 for electric cars to get an economic advantage. Technological breakthroughs and new technologies in electric cars which are a nascent industry at this time are not worked into these calculations. This could result in a different situation and favor the companies doing the pioneering effort to learn these technologies and develop cost effective solutions....

LyrArc Article Gist
Gen. Martin Dempsey took a cautious approach to U.S. involvement in Afghanistan and Syria. He did not approve of the way Gen. McChrystal expanded U.S. involvement in Afghanistan, and the hasty manner in which the Iraqi army was trained under his predecessors leading to some commanders being appointed who later became members of sectarian death squads. Under his command the U.S. limited its role in Afghanistan and Iraq and handed more responsibility to local forces. Gen. Dunford who succeeded Dempsey as chairman Joint Chiefs of Staff for the U.S. follows the cautious approach set by Dempsey. Dempsey's approach extends to what he believes is an Heisenberg effect in physics where when you you observe or touch something it changes the way it functions and operates. For critics such as Senator McCain, who served in Vietnam as a pilot, if Dempsey did not want to intervene in some country, he could invent the reasons not to get involved. President Obama exceeded the caution exercized by Dempsey, leading to a situation where the U.S. after hasty action under a Republican president seemed to lurch in the opposite direction under his Democratic successor by not taking action where U.S. presence was needed, followed by a corrective course to make up for this....

LyrArc Article Gist
Liu He, the author of the 2013 DRC report on recommended changes to China's banking and financial system, is now the director of the Communist party's top financial policy committee and senior advisor to president Jinping. Changes he is pushing for relate to increasing focus on credit risk for China's banks, promoting competiion between banks, a mechanism for letting banks fail, and a deposit insurance program to protect the public against failing banks. To open up the sector dominated by state owned banks, opening private banks would be encouraged. Local governments would be allowed to issue bonds in an effort to reduce their dependence on land sales and opaque off-market borrowing. The urgency of this agenda comes from the realization in top Chinese policy circles and the Jinping-Keqiang administration of the risks to the banking sysem from the lack of attention to credit risks in bank lending.

LyrArc Article Gist
The new minimum wage of $15 effective Nov. 1, 2018, applies to 250,000 current employees at Amazon, 40% of its global  workforce. An additional 100,000 seasonal workers also get the $15 wage. California's minimum wage is set to go to $15 an hour in 2022. The Amazon move helps it attract and retain workers in competition with other retailers such as Target, UPS and Fedex. In doing this Amazon is removing certain incentive pay and stock compensation for these hourly employees. Target has set 2020 as the date for $15 per hour wage, currently it is $12 at Target. Walmart with 1.5 million employees set $11 per hour as the starting hourly pay for workers in 2018. Overall median salary annually for Amazon workers worldwide was $28,446 in 2017, which works out to about $13.68 an hour, but this includes software engineers and lower wage workers overseas. That figure is lower than the poverty level set by the U.S. government for a family of four. Much of the criticism has focused on wages at companies such as Amazon, as lack of upward mobility is a major issue in the U.S. - growing worse over two decades of tech advances, also carrying with it literacy levels for children which have also deteriorated. ...

LyrArc Article Gist
R.E.O. is lingo for "Real Estate Owned," the term for homes taken in by banks that are from foreclosures. Reomac is the industry group that specializes in the sales of such homes. And "REO tsunami" refers to the flood of some 700,000 bank properties now on the market nationwide. Therre were just 100,000 in 2006. In February, nearly 45% of the home sales natinwide were called short sales in which homeowners under duress sell a property for less than their mortgage, according to the National Associaiton of Realtors. These sales have worsened a natiowide decline in home values, as REO homes typically sell at a 20% discount. Reomac just held its 2009 conference at Palm Desert. The extravagance and the excess at the conference is amazing considering that the whole country is facing this crisis and California is one of the hardest hit states. From the way people are trying to get these properties one could not imagine that the rest of the country is going through a crisis, and millions in developing countries might at this very moment be plunged below the poverty line!...

LyrArc Article Gist
Shows what the different states are doing and why the response at the state level is slow even though its better than the respose at the federal level. Most of this action willhelp future borrowers and rlieve some of the effects on current borrowers but only to a small degree otherwise the foreclosure process will probably continue to play out.

LyrArc Article Gist
How the mortgage restructuring process might take shape to mitigate the effects on homeowner, on lenders and on the overall economy of rising foreclosures in 2008 as the Alt-A mortgages rest to higher rates. Active intervention by California's governor to obtain mass restructuring through agreements with lenders, four servicers agreed to extend the teaser rate for several years and fast tract the procedures for whole masses of struggling but not hopeless borrowers to get the lower rate.

LyrArc Article Gist
The House of Representatives just passed a bill to stem foreclosures and stabilize house prices by having the government through the Federal Housing Administration reinsure upto $300 billion of problem loans. The bills backers estimate 1.5 million foreclosures could be prevented by this bill but the Congressional Budget Office estimates only about 500,000 foreclosures can be averted this way. Under this bill lenders would have to writedown their loans to 85% of current value of the house. Borrowers pay a fee for the insurance and give up any share in future price appreciation to the government. According to the Congressional Budget Office the cost to the government is modest about $1.7 billion over years. The reason for the limited effectiveness of this bill is that it is voluntary, not much government money is extended. Many of the comments in the blog on this article as is the case with other articles on help to homeowners facing foreclosure show the widespread idea that its a bailout of irresponsible decisions by homeowners and mortgage companies who made the loans. This may be the reason why so little has been done in this regard and the limited government money extended even in plans put forth by Congressional Democrats like Barney Frank. Feldstein who is a former Chairman of the Council of Economic Advisors under Reagan has taken a different approach focussing on homeowners who may see the rational decision is to walk away from homes where they have no equity in their homes as prices drop by 20% and for government to prevent a wave of foreclosures in this manner. The danger is if not much is done there could be a downward spiral in home prices as foreclosure reach a new high in 2009. Last year according to Economist's charts foreclosures were averaging more than 100,000 a month now they are averaging more than 200,000 a month, this would take it from 1.5 million foreclosures in 2007 to 2.5 million in 2008. According to the Economist 9 million people owe more than their house is worth, the homeowners who have negative equity, and if they were to foreclose at the rate of 2-3 million a year and accelerating as the economy deteriorates, this could be enough to start a downward spiral. At that point a new President and Congress would have to take drastic action with a substantial amount of the government's money. In that kind of crisis not much thought would be given to the cost because like the financial meltdown that was feared during the Bear Stearns crisis the fears of a global severe economic crisis would make action necessary on many fronts of which housing would be one....