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Of 21 reader comments to this piece on banker pay, all except for 4-5, were very critical of the bankers behaviour, including many of their colleagues in the financial industry who commented. The lack of any response from the FSA on the grounds that its not the FSA's job, or from the Treasury, is disconcerting. Treasury is said to have not said a word, when RBS hired a head trader for a rumored 7 million pounds. All this coming on the heels of the RBS and Lloyds debacle, makes the Labor government open to attack from the Conservatives under Osborne and Cameron. and from Mervyn King of the Bank of England. They have expressed strong disapproval of the busines as usual attitude of bankers.

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This is an exceptionally humorous operating room story of Dr. Trump and Dr. McConnell by Kristof of the NYT. Sometimes humor tells the story- and Kristof does this using a story of a surgeon president Trump in the operating Room trying to address the concerns of the patient Janet, as he keeps telling her she needs a new heart with great benefits, great benefits, before she implodes or goes down failing. Flat out take the old heart out even if a replacement hasn't been found, believe me great benefits the surgeon tells her, just that the patient just isn't getting convinced as its happening to her. The analogy is with replacing a health care plan, not just the Obama plan, any plan without something to take its place. For a few days before this article by Kristof, the Republican effort to repeal the Affordable Care Act without having a replacement was presented as a good idea. Janet is like the three Republican women- Collins of Maine, Capito of West Virginia, and Murkowski of Alaska who wanted to keep the heart they had till a replacement was found, against the surgeon Trump's advice. In a way it is about politicians in the last decade who never had any discussions as they rushed through with their own agendas, as the Republican and Democratic health care plans were rushed through Congress with relatively little participation and debate to hear all viewpoints. ...

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Some key features of the Iraqi effort to retake Ramadi are evident in the effort by new prime minister to keep out Shiite militias called Popular Mobilization Forces from Sunni areas. The effort to retake Ramadi involves American air support and retrained Iraqi units after the disasters in 2014 when Iraqi army units ill equipped and poorly led fled the area. By using tribal forces and Iraqi army units the effort keeps down sectarian tensions- essential for it to work in Sunni areas.

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This report in the Economist says that the days of double digit increases in the car market are a thing of the past. Future increases will be in the mid to high single digits, according to McKinsey consulting firm. China's economy is slowing and official estimates of GDP growth of 7% are described by experts as overstated, with real estimate of growth for the 1st quarter of 2015 by Citi, Conference Board and Capital Economics all below 5%, as reported in the WSJ. A sign of the change in the market is the need for higher use of incentives. The growth in the used car market offers buyers other alternatives. The new plants being added will increase production by 5.3 million light vehicles a year and come online in 2015 and 2016, this is in addition to the 22.8 million in sales in 2014. Average Chinese auto plants operate at 70% of capacity and the added volume will lower capacity utilization further. China's local automobile companies, with the exception of companies in joint ventures with foreign companies, have failed to gain customer loyalty. Many of these companies may be absorbed by foreign car makers or shut down as the industry consolidates. Foreign companies will find doing business less attractive as sales decline. ...

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This NY Times editorial cites Defense Secretary Aston Carter's comments after the fall of Ramadi to Islamic State, that the Iraqi army units at Ramadi outnumbered the Islamic State militants but "lacked the will to fight." It points out the problem of the Iraqi government using Shiite militias which further aggravates sectarian tensions.

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The first signs of a return to growth are seen in the European automobile market. The European Automobile Manufacturers Association reports a 1.7% increase in new passenger car registrations for May compared to April 2013.

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Basel 2 got its start in 1999 in the midst of the Asian banking crisis. By 2004 financial regulators had come up with a set of rules for Basel 2. The idea was to make banking safer and reduce unsafe lending. It makes lending safer by requiring banks to match the size of their capital cushion to the riskiness of their loans and securities. Because banks are in such a precarious state with amny risky loans and securities the implementation of Basel 2 in the USA in 2009 would mean that the banks have to set aside an even bigger capital cushion and this would mean an even lower lending for capital needs of business than otherwise in a lending environment that is already constrained, thus making the economic conditions worsen. Critics point to this to show their concern that this would be a good thing but at the wrong time leading to a bad result. But Basel 2 is so far along that its likely to be implemented especially since the current crisis is partly a result of extensive leveraging and not enough capital has been set aside to account for higher risk for loans and securities. Basel 2's plus point is that it requires more shareholder capital for riskier loans a bank makes, and its shareholders who are first on the hook in a default protecting depositors and tapayers and creating an incentive to lend with due diligence and carefully. In the current situation though once a credit crisis has started its extremely difficult to get more money from shareholders. European countries have implemented Basel 2 starting in January 2008 and no adverse effects on credit have been seen. But the US credit crisis much worse and is expected to worsen in 2009 so the timing for Basel 2 is sure to cause concern. Regulators can ease up on implementation of Basel 2 if this is the case. Note that these regulatory rulebooks are always a work in progress as for instance Basel 1. Under Basel 1 financial firms were not required to have capital backing up lines of credit if they were for less than 1 year, so banks decided to game the system by issuing short term lines of credit and rolling them over. And banks learned to get the loans off their books so they were not required to have capital to back these loans by securitizing the loans. Basel 2 also uses mark to market acccounting which would put more pressure on securties prices in times of distress. But Stefan Walter of the Federal reserve Bank of New York who is secretary general of the Basel Committee on Banking Supervision says theree are built in stabilizers such as letting banks estimate their risks on average using historical data and lets national regulators use their own judgement as to what is acceptable. Note that a research paper by greenlaw of Morgan stanley Hatzius of Goldman Sachs , Kashyap of the University of Chicago, and Song Shin of Princeton Unicersity, 4 leading economists, released feb 29, states that highly leveraged financial institutions reduce their lending by $10 for every $1 of capital they lose. by this estimate bank lending could be down by as much as $900 billlion from the $90 billion in mortgage loans losses that have been seen. ...

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The Indian economy is expected to grow by 8.5% this year compared to 6.5% in 2009. But a major problem looms in the high inflation facing India. The poor monsoon in 2009 led to higher prices for foodgrains, lentils, and sugar. And the government's cut in the fuel subsidies will lead to more efficient use of energy, but will lead to one additional percentage point in wholesale price inflation according to the Reserve Bank of India, India's central bank. The whoesale price index in India went up by 10.5% in June from the prior year, and this after a 10.1% increase in May. Bloomberg's tracking of consumer prices in the Asia-Pacific region shows India at the top of 17 countries in inflation, and consumer prices paid by industrial and farm workers in India are shown to be increasing at 14% annually. The government is coming under criticism for not releasing more grains from its stocks to soften the impact of last year's monsoon. The Manmohan Singh government finds inflation at above 10% unacceptable and is looking for further action from the central bank. Reserve Bank of India governor Subbarao has raised rates 3 times since March 2010 to 5.5%, and a further increase is expected at its next meeting on July 27. A better harvest in September, from a better monsoon season, could help lower food prices. If this does not happen, more tightening by the central bank could hurt economic growth, putting the government in a quandary....

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Greece defaulted on a loan payment to the IMF for 1.55 billion euros ($1.73 billion) on June 30, 2015.

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Once again the unemployment statistics lie- women's unemployment at 5.7% in 2014 does not reflect the real story. The number of women employed in 2014 is 55.2%, worse than in Oct. 2010. Many women looking for work give up and drop out of the work force, these women have not vanished, they are simply not being counted in the frequently quoted unemployment statistic. This spells bad news for Democrats in the midterm 2014 elections- today the households making less than 30,000 are almost evenly split on whether they vote Republican or Democratic 43% to 46%, according to polls by Pew Research Center, compared to the 2012 presidential election figures of 35% to 63%. Interestingly the reverse is true for voters with incomes over $100,000 where voters are about evenly split for Republican or Democratic choices for Congress. In 2012 presidential elections the Republicans had a 10 percentage point lead for this income group. Democratic advisors Carville and Greenberg advise not even mentioning the word "recovery" for the U.S. midterm 2014 Congressional elections. About 6.7 million people had multiple jobs in 2010, the figure now is 7 million. About 2.62 million people say they had part time jobs because they could not find full time work in April 2014 up from 2.57 million in Oct. 2010. A separate piece in the WSJ May 20, 2014, shows 10 million U.S. households under water on mortgages and another 10 million households having less than 20% equity in their homes in 2014....

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Krugman says earlier profits at Citigroup and BofA were a figment of the accountants imagination. Both announced losses for the third quarter. He says the moment for radical action for banks has passed but now its all upto luck that even as the banks are not lending job growth can be supported. Beyond that there is he says a desperate need for financial reforms.

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The Economist points out that China's total debt of government, corporate and households has grown by about 100% of GDP since 2008. The 2009 crisis led to rapid increase in debt. It is now about 250% of GDP, according to the Economist. Slower growth of below 7% risks reducing China's ability to service this debt. About half of this debt is owed by state owned companies and property developers. China can use its sovereign reserves to continue supporting bank and state owned companies. Investor's are pricing bank shares to reflect about 10% of this debt as bad debt even though government estimates are much lower. The reserves provided China time to fix the banking system since 2008, yet the debt keeps growing and China has failed to take strong action in the last 6 years. Complacency is a problem, and the incentives for local governments to continue prior practices that increase debt continue. As Krugman and other experts have pointed out at some point the rules of finance will apply to China as they have for other countries that faced a debt crisis- Japan in the late 1980's, South Korea and other Aisan countries in 1997, and the U.S. in 2008. Even without a crisis through deft managemen and use of reserves China risks zombifying the economy as old loans are backed up by new loans, with the further risk of misallocation of capital or poor use of capital. This lowers productivity of capital and hurts development. With poor statistics such as the figure of 1% of debt being bad debt cited here, the problems of complacency can be magnified, as there is less reason for a strong response....

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Fitch Ratings downgrades Brazil's bonds to double-B-plus in Dec. 2015, a junk rating from an investment grade rating. The yield on Brazil's 10 year benchmark dollar denominated bond increased to 6.97% from 6.7%. Other emerging markets such as Turkey and South Africa now expect ratings downgrades in 2016 as the U.S. Fed raises interest rates. Standard & Poors downgraded Brazil's sovereign debt to junk status in September 2015. GDP in Brazil declined 4.5% in the third quarter of 2015 from a year earlier. Brazil's currency, the real, declined by 32% in 2015, making it harder for companies that borrowed in dollars to pay off debts. President Dilma Rousseff is facing impeachment proceedings following a corruption scandal at Petrobras.

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Goldfarb says everyone is focussed on the "fiscal cliff," yet there are other issues which when put together could lead to a drop of 1 percentage point in growth and add a million people to the jobless. The temporary payroll tax cut for 160 million workers was setup in Dec. 2010. The payroll tax which funds Social Security is 4.2% since then, down from 6.2%, adding about $1000 for the average family to spend. The unemployment insurance benefits which expire for millions of people will also have an impact. As will the $60 billion in spending cuts on domestic and defense spending under an agreement made in the summer of 2012.