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By July 2013 only about 40% of the Dodd-Frank financial reform legislation rules were completed, 60% of deadlines were missed, according to law firm Davis Polk & Wardwell LLP. A singular aspect of the Dodd-Frank legislation was that rule making was left to regulators in different agencies and open to lobbying by the financial industry. This has the effect of delaying the rule making until a consensus is reached, diluting some of the original intent as financial firms jockey for advantage, and making it voluminous in many cases because of the wording designed to achieve consensus and account for objections by various interests. Reform legislators such as Barney Frank openly said they had no interest in learning enough about the financial industry to do the rule making, and may have left an excessive amount of the rule making to regulators in the future. A consumer protection agency was established under the new law and derivatives are required to be traded on exchanges. The Volcker Rule to separate investment banking from deposit taking and a requirement that banks hold onto a portion of mortgage securities marketed are not completed. The S.E.C. has to write the rule on how much money brokerages must set aside for losses on swap trades. Another bubble in financial markets would leave the U.S. and European economies vulnerable to problems similiar to the global financial crisis of 2008, which is why the U.S. Federal Reserve, the Bank of England and the European regulatory authorites are requiring large banks to set aside more capital reserves. The S.E.C. under its new chief is also taking a more active role in overseeing the banks for violations of securities laws, including a series of actions taken against JP Morgan Chase bank in 2013. This has a deterrent effect as the huge monetary easing by the U.S. Federal Reserve to reduce unemployment also creates bubble conditions in financial markets, according to Fed governor, Jeremy Stein. Former FDIC chief, Sheila Bair, says the lack of leadership in this area is simply astonishing....

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Treasury facilitates the setting up of a new $100 billion fund to buy troubled assets so that they do nothave to be sold at distress prices, and in this way bring some stability to the market and bring buyers back to the market for commercial paper of all types. The companies setting up this fund would earn fees for their efforts. secretary Paulson is behind this effort and so are Citigroup, JP Morgan Chase and bank of America.

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China's Finance Ministry is having a difficult time controlling local governments using local government financing vehicles to invest in more infrastructure, airports roads and subways. One such city is Wuhan which plans six subway lines, three bridges over the Yangste river and a new airport. Much of the money comes from land sales. The Finance Ministry in a 2013 report pointed to the unreliability of land sales for future borrowing as the property market is slowing, and because it is highly unpopular to requisition land for land sales. This matters because the IMF says debt is growing faster in China than when Japan, South Korea and the U.S. fell into deep recessions at different times between the late 1980's and 2009. Local government debt accounts for one fourth of the increase in China's domestic debt since 2008. New rules by China's bond agency in Dec. 2014 prevents investors from using low grade debt to borrow cash. In the past local governments found a way around the central governments effort to curb growth of debt by restructuring the local government vehicles or some other way, as Wuhan has done. Wuhan Urban is the local government financing vehicle for Wuhan and its debt increased by 20% in 2013. Wuhan's mayor, Tang Liangzhi, is pushing construction to the point where he is known as Mr. Dig, Dig. One reason for China's slowing growth below 6-7% is the need to control the growth of debt. Local government debt in China reached 36% of GDP in 2013, double the figure in 2008, and will increase to 52% of GDP in 2019, according to the IMF. And the increase is not proportionally delivering the same results as before. JP Morgan estimates that over 4 units of borrowing are needed in 2015 for every unit of investment, compared to less than 2 units of borrowing for every unit of investment in 2007. PRC Macro Advisors of Hong Kong says half of the borrowing by financing vehicles goes to pay interest on existing debt in 2014. There are 8000 such local government financing vehicles in China today each competing to build infrastructure in its neighborhood, in the case of Wuhan to build a computing back office for financial companies and as transportation hub, even though its uncertain whether this will be realized or not. The problem is that alternative investments as an opportunity cost are being neglected, the hospital not being built as China's population ages with underinvestment in health care, and the private company with better returns that is unable to find financing. A classic example of crowding out of better return investments as a glut of housing and road/bridge/ airport infrastructure gets built. The central government is wary but faced with slowing growth pushes problems down the road, what experts call a Japan syndrome....

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Voters in France who in towns like Chartres, home of the famous cathedral, say France has lost its social cohesion based on old values. The old Catholic France appears to be awakened, in a nation of small churches and abbeys that dot the countryside. Voters in France say Francois Fillon is a candidate of this France of old forgotten values as France adopted a more cosmopolitan tone. The Christian church is a source of comfort for so many, says a church official in Lyon, home of the cathedral of St Jean, and more and more secular people are going back to church in the midst of increasing uncertainty.

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This article clearly shows that Russia is turning the corner for full scale use of western technology to tap oil and gas fields in the North. Note the efforts to bring in western expertise include- 1. Efforts to hire Donald Evans, former U.S. Commerce Secretary, to be Chairman of Rosneft. Evans turned down the offer. The hiring of Peter O'Brien a former Morgan Stanley investment banker as chief financial advser.2. With China National Petroleum as a strategic partner. 2. The financial backing and expertise of state run oil companies around the world now give them the ability to contract directly with Schlumberger or Baker Hughes or other oil field technology suppliers. This changes the whole playing field with less need to negotiate with the major oil companies and the ability to do it themselves at their own pace and strategic advantage and execute their own oil policy. Previously negotiating with the oil companies meant giving up some of the ownership of the oil fields to the oil companies in return for the technology. The oil services companies sell the technologies on a fee basis. 3. The pressure to move ahead aggressively with new technology. Estimates from IEA in Paris by Chief Economist Fatih Birol, show that increasing oil production by one and half million barrels a day to level of ten and half million barrels a a day requires Russia to invest $900 billion dollars by 2030 or about 40 billion a year. The only way to generate this kind of investment is to grow its oil development capabilities, keep prices high but stable, invest in the latest technology and bring some of it inhouse....

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The Large Institution Supervision Coordination Committee (LISCC) was setup by Fed chairman Bernanke and Fed governor Tarullo, in 2010. The Fed's 200 PhD's, bank examiners and other experts at headquarters are now tapped for the the task of looking at adverse scenarios, checking on assumptions made by the banks in their analysis, requesting data from large banks on their loan and securities portfolios, and asking banks to consider adverse scenarios. Such adverse scenarios include a decline in the U.S. economic growth of 1.5% in 2011, and decline in housing. The Fed checks the banks estimate of its financial position aginst the Fed's own standard and prods the banks to consider new risks. Before the 2008 crisis the Fed's 12 Reserve Banks did the day to day supervision and reported back to Board of Governors, a system that led to a diffusion of responsibility and did not work. Former Fed vice chairman, Alan Blinder, says the bank boards did not exercize responsibility, and "blew it, big time," during the financial crisis. This approach has the effect of acting as a early warning for the banks for things that could go wrong. J.P. Morgan Chase CFO Braunstein made a Feb 15 presentation to show that Chase's stress scenario was more stringent than the Fed's. The current review says Tarullo includes asking banks to do a check before issuing dividends to shareholders, and consider what would happen if the economy is in trouble in the next 9 quarters. According to Fed guidelines issued in November if the bank's plan does not show enough capital to handle economic, regulatory and lending risks, the Fed can challenge the bank's decision....

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British Prime minister Gordon Brown meets bankers from Merrill, Lehman and Chase JP Morgan, Thain, Fuld and Dimon to discuss issues relating to credit recovery, disclosure, valuation, and injecting funds into the market and passing on benefits to mortgage holders and urge banks to bring transparency and disclosure so that writeoffs from offbalance sheet activity can be taken quickly and openly. He is for coordinated international action and the British government is talking with the Bank of England on steps to calm the credit markets.

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Economic mismanagement that Barrack Obama deplores in some of the African countries that are independent. Zimbabwe stands out in the extent of collapse of infrastructure, living conditions and complete collapse of currency. And strikingly leaders of its neighbors in South Africa and other larger African countries have not spoke out. Mugabe's government has stolen elections and not tolerated any opposition. The MDC Movement for Democratic Change led by Morgan Tsvangirai is trying to correct things in the coming elections but does it stand a chance if Mugabe again intimidates the opposition at the elections.

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The huge investments that president Biden has made in America, including rebuilding aging infrastructure are part of the reason that the economy has been resilient with unemployment at about 3% and inflation coming down from 9% to 3%. In March 2022 leaders in finance such as Ray Dalio of Bridgewater Associates and Jamie Dimon of JP Morgan Chase were convinced that inflation would not come down and the economy would be in recession. Instead Fed's Jay Powell with repeated rate increases and Joe Biden by investing trillions of dollars in rebuilding infrastructure and creating new jobs and new factories have done what the leaders of American corporations were skeptical about, doubtful about whether this could be done.

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Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, provides insights into the economc problems facing Brazil in 2016. He points out that 41% of Brazil's GDP goes into public spending by local, regional and national government, crowding out private investment. The tax burden is high at 35% of GDP. And under the Rousseff administration budget discipline has been lacking. Compared to the Lula government running consistent surplus Ms. Rousseff ran a deficit of 10% of GDP. With a large welfare state, the budget has rigidities, says Sharma, with public pensions increasing since 2000 from 3% to 7% of GDP, and heavy state spending tending to push interest rates up and increase borrowing costs. Retirement age is 54 and 52 for men and women respectively, and pensioners get 90% of salary, compared to 60% in advanced countries. The decline in commodity prices has hit Brazil hard because 67% of exports are from commodities such as soyabeans in 2016 compared to 46% in 2000. Manufacturing accounts for only 11% of the economy. As long as high commodity prices supported the lavish welfare and public spending Rousseff's popularity remained high at 60% as recently as 2013. The collapse of commodity prices has hurt the economy leading to growth of negative 3.5% in GDP. Rousseff's popularity hit a low of 11% as public protests over poor public services, were followed by a series of corruption scandals. Even if impeachment led to new leadership the problems are deep rooted, with neglect of education, healthcare, public services, and manufacturing industries, and heavy public spending no longer supported by high commodity prices. Some of the problems existed in the boom years of the Lula administration, only covered up by the commodities boom cycle, and becoming evident in the down cycle of the Rousseff years. ...

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This article in The Economist magazine looks at the internal debate in Germany after the July crisis in Greece following a "no" referendum and the position taken by Germany on turning down any ideas on debt renegotiation to reduce the debt burden. Centre right parties say this is simply enforcing the rules. The left parties say this is moving Germany to post post-nationalist. German chancellor Kohl and post war Germany took the position that Germany was a "post-national society." Thomas Mann, a well known German writer, said Germany needed to come out " not for a German Europe, but for a European Germany." And Hans Dietrich Genscher, a foreign minister stated that Germany's only interest was that of the EU. This was a recognition of the situation of the idea presented since reunification in 1871 that the new country was too large for a balance of power in Europe, yet too small to impose its will on Europe. This was shown in the July negotiations when chancellor Merkel accepted the position put forward by Valls and Hollande of France that a Greek exit from the eurozone was not an option. Germany did not seek to impose its will, say centre right parties. In fact chancellor Merkel sees Britain as a serious partner and cannot understand why some in her party can see no problem with a British exit from the EU. In fact many people in Germany will be relieved when this phase of the crisis is over, when the diminishing of moral hazard makes it possible to consider debt reduction for Greece and the austerity programs have introduced discipline to national budgets, so that the next phase of tighter and closer union for the European Union can take place- restoring Germany's aspirations for a "post-nationalist society." ...

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According to real estate data firm CoreLogic, 38% of U.S. home owners who took a second mortgage on their homes are under water on their loans. 18% of borrowers who did not take a second mortgage are under water and have negative equity in their homes. Second mortgages are loans taken out on a property that are subordinate to first mortgages, including home equity loans and lines of credit. Borrowers with second mortgages have an average of $83,000 in negative equity compared to $52,000 for borrowers without second mortgages according to CoreLogic. During the boom borrowers took out cash using home equity loans and lines of credit for everything from home renovations and automobiles to tution and other expenses. Federal Reserve Board data show homeowners took out a huge amount, $2.69 trillion, from their homes for 2004-2006. Overall the number of underwater homeowners, or homeowners with negative equity in their homes, remained steady, according to CoreLogic's report- 10.9 million Americans in the first quarter of 2011, compared to 11.1 million for the fourth quarter of 2010, 22.7% of all homeowners nationwide compared to 23.1%. The slight decline reflected completed foreclosures, suggesting that the market conditions have not changed. Roubini and other experts predicted large housing losses in 2011-2012. This also affects America's largest banks. While the large part of the first mortgages were bundled and sold as securities, the home equity loans remain on bank balance sheets. About three fourths of the $950 billion in home equity loans outstanding were held by commercial banks at the end of 2010. Over 40% of this is on the books of Wells Fargo, Bank of America, J.P. Morgan Chase, and Citigroup. A writedown on these loans could use up a significant part of the bank's capital....

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Societe General's Jerome Kerviel worked at a Delta trading desk in the investment banking operation. Kweku Adaboli, 31, a UBS trader, worked at a Delta One trading desk specialized in exchange-traded funds and other securities positions. He is charged with two counts of false accounting and one count of fraud. Delta is a term in the banking industry for how a bank can customize a security for a client, and following this closely replicate another transaction that acts to mitigate the risk. The first transaction is a "derivative" trade, which is basically a bet on the direction of a group of stocks or other securities. Jerome Kerviel was accused of trying to hide $7.2 billion in losses and was sentenced to three years in prison. The Delta One trading desks can generate $1 billion in annual revenue for banks and are used by Societe Generale, BNP Paribas, Goldman Sachs and Morgan Stanley U.S. At the same time risk is increasing with unpredictability and higher volatility in the financial markets in 2011. Another feature of the trader problems at UBS and Societe Generale is the relative youth and lack of experience of the traders, and that risk management systems allow traders with insignificant experience to make such large transactions. Other questions about how much risk a bank should be allowed to take, and about ring fencing the investment banking units of each bank, are relevant. Swiss banking regulators were working to ringfence the investment banking units of UBS and other Swiss banks after earlier problems at Swiss banks in the global financial crisis of 2008. Under the proposed regulation by Swiss regulators UBS investment banking unit would be headquartered in another country and hold its own capital, and be subject to local regulators. ...

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Ian Talley provides this excellent account of how this drop in oil prices is likely to add to economic growth in major world economies, removing any ambiguity about the positive effect on the global economy. West Texas Intermediate crude dropped to about $65 from $105 between June and December 2014. The IMF estimates growth in 2015 will increase from 3.1% to 3.5% largely because of the lowering in energy costs. JP Morgan Chase economists see an addition of 0.7% points in global growth in the first half of 2015. ECB president Draghi sees the lower oil prices as an unambiguous positive. Estimates from Rhodium Group show major oil importing countries seeing import bills cut by $500 billion if prices remain low for 6-8 months, with $90 billion going into the U.S. economy. IMF estimate is that only 20% of the drop in oil prices is from lower demand, about 80% from higher fuel efficiency, increased supply using new technologies, decisions by OPEC to lower oil price, increases in supply. Based on estimates by the Rhodium Group, IEA and the IMF, the extra money flowing into the economies of the U.S., Asia and Western Europe from reduced oil import bills, as measured in percentage of GDP is: the U.S. 0.5%, Germany 0.8%, Japan 1.2%, China 0.8%, India 1.8%, South Korea 2.4%. Italy and France and other oil importing countries benefit. The impact comes at a time when Japan, China, India and eurozone economies badly needed a boost after significant slowdown in growth in 2014. It could not have come at a better time and because it is technologically driven as in the case of highly fuel efficient automobiles and new oil exploration technologies, a self sustaining process. The corresponding impact for oil exporters is: Russia -4.7%, Nigeria -5.4%, Venezuela -10.2%....

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China's shadow banking system of trust companies and insurance companies with trust company units and other informal lenders are the fastest growing part of its banking system. Between 2010 and 2012 trust companies and other shadow banks doubled outstanding loans to 36 trillon yuan ($5.8 trillion) or about 69% of China's GDP, according to J.P. Morgan Chase & Co. Hidden debt that is likely to default in this poorly regulated sector is seen as a large risk in the banking system by the central bank and China's government planners. Tightening of credit by the central bank, the People's Bank of China, sent interbank lending rates from 3% to as high as 25% in late June 2013, finally settling on June 24 at 6.64%. China's state owned banks lend to trust companies in this market. Trust companies get additional financing by selling wealth management products promising investors returns of 8-10%. Even with China's high savings rate and large government reserves, the hidden debt and large unknowns about the loans in default, are seen by the central bank as posing risks to the target rate of economic growth of 7.5% if the government has to bailout a significant number of troubled banks. Much of the money funnelled through the trust companies since 2008 has been poorly invested. The trust companies such as Citic and Ping An Trust channel lending to borrowers for projects ranging from steel mills to infrastructure projects, such as highways and property developments that cannot obtain the financing through the large state owned banks. Fitch Ratings estimate is that since the financial crisis of 2009 these loans generated only one third of the economic growth per yuan as they did before 2009. ...