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As only 8 out of 90 banks fail in E.U. stress tests, there is considerable skepticism about the rigor of the stress tests in July 2011. All the banks are relatively smaller banks, with five in Spain, two in Greece and one in Austria. The failed banks have a total capital shortage of 2.5 billion euros. Analysts had expected over 20 banks to fail and requiring tens of billions of euros of capital injections. The 2010 tests had experienced the same criticism, with seven lenders failing and a capital deficit of 3.5 billion euros. European Banking Authority officials concede the lack of sufficient rigor in the tests and attribute this to conflicting political pressures from regulators and banks. EBA officials say their main usefulness is in the added transparency and information it brings. In the 2010 stress tests each bank had to show 149 pieces of data. In the 2011 tests this went up to 3200 points of data about exposures from government debt to derivatives. EBA Chairman Andrea Enria put it this way: "There is this perception that there are things hidden under the carpet, this will help the market to make up its own mind." About 1000 pages of documents were released by EBA to analysts, investment bankers, and investors after the tests....

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Economic growth in India has slowed to 6.9% for the June to September period 2011, compared with the prior year, according to a government report. The sequence of rate increases by India's central bank have failed to slow inflation, and foreign investment is declining. Economists now forecast growth at 6% for 2012, a low rate of growth for India, which has a growing population approaching 1.2 billion people and serious infrastructure problems. This creates a scenario of stagflation- high inflation and low growth. The fears are now for a combination of high government debt, infrastructure issues, and lack of foreign investment. This is leading to moves by the Indian government to bring up long delayed efforts in the area of opening the retail industry to foreign investment. And lifting quotas on foreign ownership of Indian bonds, allowing foreign pension managers into India. The value of the Indian currency has declined 15%, in 3 months since August 2011. The eurozone crisis and the combination of slowgrowth and high unemployment in the U.S. are leading to foreign investors withdrawing from emerging markets, with a sharp impact on India. A combination of domestic and international factors are hitting India after two decades of high growth. ...

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The economist argues that home ownership is not benficial as social policy as it was made out to be. People in negative equity, or holding subprime mortgages, or people in foreclosure with blighted neighborhoods and acceleration in falling prices, and the lack of mobility that comes with home ownership in states that have high home ownership, and disappearing wealth with falling prices, make it a poor tool of social policy and a failed way of accumulating wealth. Experts say that one in four recesssions are caused by housing market collapse, and these recessions take longer to heal. The heavy borrowing against home equity of $9 trillion between 1997 and 2006- equal to more than 90% of disposable income- also makes this inr reality a way of adding debt not of accumulating wealth, as the wealth has an illusory aspect when prices are pushed up by the constant trading of homes as investments setting up a bubble phenomena, and renters who do not have what it takes to own a home are pushed into home ownership. About 10 million homeowners have negative equity in their homes. The value of American homeowners equity has dropped from the peak of $12.5 trillion in 2005 to just $8.5 trillion at the end of 2008. All that $9 trillion in debt is piled up against illusory gains in wealth based on transitory house price jumps. These numbers suggest that the $9 trillion in debt from borrowing aginst home equity is more than the entire value of homeowner equity in the USA, meaning if Americans had aliquid market and sold all their homes today they could not pay off the debt generated from home equity borrowing during the bubble years. Worse still cutbacks in consumption are severe in such situations, and this situation weakens banks balance sheets as foreclosures increase, creating a vicious cycle and downward trend as investment and employment are also hit hard, one that is hard to break....

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WSJ reporters Corkery and Yoon give a remarkable account of the individual homeowners and investors inside one toxic subprime mortgage security from Countrywide Financial Corp. named CWABS- 2006-2007. There is Amanda Gavini of Fort Myers who continued making mortgage payments against the odds after a illness and death in the family. And a couple Donald Mudd- Patricia Starr who were approved by Countrywide for a $171,000 adjustable rate mortgage loan at 8% with a $10,000 down payment for a home in Port Charlotte, Florida. The approval came only 3 months after the couple emerged from personal bankruptcy in 2006, and by 2009 Mudd was missing payments. Other borrowers such as Mrs. Gavini in Florida took out two loans at 7% and 11% in 2006, have continued making payments and are still unable to refinance under the HAMP or HARP government programs. It is because of these homeowners who continue to make payments helping the security price recover, that one of PIMCO's funds which owns a stake in this security has made good returns. Hedge fund Marathon Asset has also made good returns on this security because of the U.S. government's Public Private Investment Program to help banks recover by providing government incentives for purchase of these securities from banks. This was a way to get banks holding these subprime securities to resume normal lending in financial markets....

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The US Federal Reserve, America's central bank, would rather see a recession than for inflation to get a hold in the US. Another way of saying this is that the Fed sees the American economy fundamentally strong under the Biden administration as it strengthens protections for workers and families, corrects flaws in policies for rural America and in other areas, moves to attract foreign investment and gets US companies to invest in America. This makes the danger of inflation greater than a recession, so that a policy of aggressive action with interest rates is justified.

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To make custom loan modifications of the type that became necessary overnight on a large scale requires resources, investment in people and technology. On top of this a bank makes about $500 a year on a $200,000 mortgage loan, and if the loan is delinquent the bank may already have lost $2500, say experts, so there is little incentive to do much about custom loan modification. As a result, they used what a former J.P. Morgan executive called "Burger King kids." Or the banks outsourced the operation, some to law firms like David Stern, which in turn used outsourcing firms in Guam or the Philippines. The result is a largely chaotic process according to former mortgage officers of banks, and clerical staff that did not know what they were doing. Now atttorneys general in all 50 states have stated that they will investigate foreclosure practices of banks. It all started with the lone effort of Pine Tree Legal Assistance in Denmark, Maine, in succesfully challenging one of these improperly conducted foreclosures. See the NYT article on Pine Tree. In that case it was about a mother with two children who had her payment go up to $474 after loan modification, who is on food stamps after losing her job as an employment counselor....

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The European Central Bank left all its interest rates unchanged on September 7, 2016. No changes were made to asset purchase program, which will run until March 2017 or beyond as needed. The ECB left interest rates at 0% for its lending operations, and for overnight deposits at 0.4%.  Inflation is a special concern, as inflation was at 0.2% for August. Business activity and investment in the EU and in the U.S. is weak, and Brexit is still a concern.

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Former World Bank chief Zoellick points to the need for investments in human capital and productivity improvements in emerging markets such as India, China and Brazil to overcome the problem of slow growth in 2013.

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After the rate cut by the Bank of England the best that Britons can hope for, says the Economist magazine, is that the recession is mild and the warnings of the Remain campaign on the economy do not turn out to be true. The QE and the rate cut will not be enough to stave off a recession. The Economist calls for public investment spending to improve business confidence, but says this is unlikely with the chancellor, Philip Hammond, not preparing any immediate action.

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The New York Attorney General Andrew Cuomo filed a civil fraud lawsuit against Ernst & Young LLP. Cuomo wrote in the complaint that "Ernst & Young substantially assisted Lehman Brothers, now bankrupt, to engage in a massive accounting fraud." The suit says Ernst & Young ignored warnigs from Lehman employees and from its own staff about the improper transactions. Lehman shifted $50 billion in assets off its balance sheet to foreign banks at critical financial reporting periods with a promise to buy back the securities at a premium price a few days later. With the cash held in the meantime, Lehman would pay down other debts, appearing to have less debt and give investors a better impression about the firm's financial condition than was really the case. Lehman and Bear Stearns were the most highly leveraged investment banks during the financial crisis of 2008. The unraveling of Lehman led to cracks in the world financial system because of interrelationships in the banking system. By taking this action the New York Attorney General's office is taking an important step to prevent the recurrence of such systemic crises from buildup of excessive leverage in the financial system....

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Chinese exporters are required to bring their revenue in dollars after covering costs such as imported materials, back into China, exchanging it with the central bank for yuan. This foreign currency is the main source of the Chinese foreign exchange reserves of $2.6 trillion. The system was based on an earlier period when China worried about capital outflows. Now with rising inflation, and a lot of money circulating in the economy after the recent stimulus and huge lending surge, China is rethinking this practice. Hu Xiaolian, vice governor of the People's Bank of China, says it makes it harder to control liquidity levels in China in todays situation.Because of this China's government is easing controls and letting exporters keep more of their revenues earned overseas. However with the expected declining value of the dollar Chinese exporters may prefer to convert their dollars into yuan. Some companies may want to accumulate dollars and other overseas foreign currency for investments abroad. The difference with Japan is striking. For Japan, also a major exporter, the bulk of foreign currency assets are held by companies, which are available for use to invest in manufacturing and other assets. By concentrating these decisions in the state, China has accumulated a huge reserve of foreign exchange. But this also creates major problems as China is concerned about the impact of the declining dollar on its huge holdings of US treasury debt. ...

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Except for a couple of investment banks at the top which are also taking on high levels of trading risk, the test of the pyramid of American banks is shaky says the Economist. The banks at the bottom, the smaller banks are in deep deep trouble, with CreditSights estimating that upto 1100 of 8200 of these smaller banks needing help from the FDIC to wind down. And the other banks like Citigroupa and BofA with some state ownership in amessy situation with bad loans.

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Gao Xiqing, vice chairman, president of China Investment Corporation, told a panel discussion during meetings of the International Monetary Fund, on September 24, 2011, China cannot be expected to provide solutions to the eurozone debt crisis. Xiqing said: "We're not saviors. We have to save ourselves." He added that CIC would consider buying bonds of troubled eurozone countries -"if it has a risk profile that fits into our allocation, but don't expect us to buy more than our risk appetite would take." And the head of China's central bank, Zhou Xiaochuan, told the panel that China cannot raise its growth rate because of inflation and other problems from unsustainable growth.

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Spending a minimum of 250,000 euros on a house in Greece gets an investor a five year renewable visa. Chinese investors seeking a European base are buying or constructing homes in Athens, and the islands of Santorini and Corfu. This is reviving the residential building market in Greece after years of bailouts by the European Central Bank. Chinese middle class investors see the presence of Chinese companies such as Cosco which owns part of the port of Piraeus as a sign it is safe to invest in Greece. Property prices dropped 40% in 2010. In 2018 prices went up by 2% and building permits by 10%, according to the Bank of Greece. Real estate investment was up 20% in 2018 with Chinese investment companies buying into whole apartment blocks in Athens to draw investors.

Greece had a record 33 million tourists in 2018. A 320 billion euros bailout ended in 2018. 

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The Putin administration in Russia has set a goal for 2.5% GDP growth for 2013. The figures for the first 5 months of 2013 show growth at 1.8%. Russian president Putin told the St. Petersburg Economic Forum that central bank policies will continue inflation targeting. Putin's economic aide Ms. Elvira Nabiullina will become the new head of the central bank in July 2013. David Lipton, deputy head of the IMF told the forum the IMF assessment is that there is no slack in the Russian economy. Putin announced $13.6 billion in infrastructure investment for rail and road links, and liberalization of gas export rules, and improvements in the judicial system.

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Taxpayers not the banks are Secretary Paulson's clients and he needs to remind himself of that says the NYT editorial page. It wants to see the government bring in new more competent management and not use the management that got us into this mess in the first pace especially where that management has demonstrated poor judgement and made errors that caused the bank to be in trouble. And it does not want to see the government a passive investor. It want the government to have a sy in mergers an acquisitions. Its not saying tha the government should take on the job of running the banks but protecting its investment means Treasury has to be involved in critical decisions that affect its investment and in the way the business is run and what risks are taken. Also Treasury is asked to watch for and take steps against conflicts of interest. Many of the same banks that are selling their assets to Treasury will also be asked to help Treasury to run the troubled asset program. Treasury to take care that these banks do not end up writing the rules on one side for Treasury and selling Treasury the assets by being on the other side because it won't be good for taxpayers. See Guillermo Ortiz's advice to Fed chairman Bernanke at the recent G20 meetings which says says be sure to take ownership stakes, as there was serious, lasting and damaging political fallout in Mexico during the 1994-95 peso crisis, from conflicts of interest and the failure to take ownership stakes and dividends on preferred shares. ...

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The European bank stress tests could trigger the restructuring of the troubled landesbank sector in Germany say German experts. The landesbanks do about 25% of the lending in Germany and are in severe financial stress. The landesbanks suffered hundreds of billions of losses in the US subprime mortgage securities. There has been no serious reform of the landesbanks. Even though the management of one of the landesbanks Bayerische Landesbank in Munich was under criminal investigation- the management made bad decisions that led to the losses in bad investments totalling 25% of the Bavarian state's yearly budget. A similiar problem is unfolding in Spain where the Spanish government has initiated action for the troubled cajas bank sector, the regional savings banks in Spain. In Spain the government and opposition came together to reach an agreemet to consolidate the cajas from 45 to about 20 and set aside a fund of 99 billion euros for this task. In Germany the landesbanks are controlled by German states and regional savings banks, so the German government has no direct control over this failing banking sector....

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Philip Alston, UN expert on extreme poverty and professor at New York University School of Law, says most of the progress on poverty that the UN agencies  and elites talk about is based on one country China. In the rest of the world, in Latin America, in Africa, and in other countries in Asia the situation is not any better than it was in 1990. About half of the world's population 3.4 billion people live on less than $5.50 a day, and this is not much changed since 1990. The improvements in China could also mean that the situation has worsened in other parts of the world. The pandemic has taken the lid off the situation in Latin America with Mexico, Brazil, Colombia and other places there showing extreme weakness.  Alston studied this as UN's representative for looking at extreme poverty 2014-2020. He is clear in describing what happened. The World Bank he says set $1.90 a day for poverty line, artificially low and what will not pay for housing or food even. He calls it "scandalously unambitious as a benchmark" what would pay for "a mere miserable subsistence." By using this he says a devastating effect is being allowed to happen as more of the investment is drawn into a pro-growth narrative which pushes allocation of capital in the direction where it profits short term speculative capital and profits rather than the long term investments in health, education and public services that are vital for any country. The improvements in China have also come at the expense of communities in Europe and the U.S. as industries were being shifted with their jobs overseas since 1990, first imperceptibly and then in waves after 2000, which leaves millions exposed to poverty and social decay for the first time in history in the advanced countries. It is an unhealthy and destabilizing situation. Alston's other points are that the so called progress narrative has been used to drown out the appalling effects of policies that misallocate capital away from the vast numbers of people. And in doing this he says it has entirely upended or turned upside down the social contract with the people. From Carl Sandburg's "The People Yes" in the 1950's after the tragedies of war we have come to "The People No." Nothing could be more reprehensible than capital being allocated for dog walking apps and other speculative investments by investment funds pooling hundreds of billions of dollars when basic sanitation services, health care investments are neglected in countries like Brazil, and smaller towns and communities are being systematically uprooted for jobs and social services over three decades in advanced countries in parts of Europe and the U.S.   ...

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In this interview with Gerald Seib of the WSJ, U.S. president Obama responds to criticism within his party as he pushes for the Trans Pacific Partnership free trade agreement with Japan and other countries in Latin America and Asia. European nations and India have joined the Asian Infrastructure Investment Bank setup by China, creating pressure for the U.S. to respond to China's influence in the region. The interview shows president Obama taking the criticism from inside the Democratic party personally about his lack of concern for middle class and working class families during his six and half years in office.

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To meet the budget deficit Russia plans to issue $50 billion worth of ruble denominated bonds and privatize $10 billion in state assets every year until 2014. Russia is also changing its policy to attract foreign investment. For the first time since the 1998 financial crisis Russia will turn to international banks and pension funds in the US and Europe to maintain financing for a whole range of activities- from modernizing the military to paying high public sector wages. Russia is planning the sale of a stake in state bank VTB. And shares in oil companies, hydroelectric dams and shipping lines are also expected to go on the market.

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Brazilian animal protein company JBS SA CEO, Wesley Batista, talks to the WSJ's Cowley and Magalhaes about its growth and acquisition strategies. Brazil's National Economic and Social Development Bank, Bndes, has supported JBS with large investments and now has a 20% equity stake in JBS. JBS now owns cattle and chicken properties in North America, South America and Brazil. It sees improving profitability in beef after Japan reduced restrictions on beef imports from the U.S. Batista sees growth coming from chicken as people in emerging market countries consume more chicken. Billions of dollars in investment in the U.S. to buy beef, poultry and pork plants have made JBS the leading company in this market, and the largest chicken producer in the world. JBS investments in the U.S. include Swift & Company, Pilgrim's Pride Corp.

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A live interview by BBC Hindi with Arvind Kejriwal, chief minister of Delhi. In the interview Kejriwal says there are 55 deaths from the demonentisation by removal of 500 and 1000 rupee notes in India. When questioned about this and proof, Kejriwal says BBC is biased. The effort by the the Modi government to  remove these rupee notes is an effort to get people in the informal economy,  the deals in real estate, and people in other parts of the economy which pay little or no taxes to bring the cash to banks and pay the taxes due. This is intended to increase government revenue for investments in infrastructure and education, healthcare. services. The large scale of the shift has caused difficulties for ordinary people, and the upper classes, and the government is working to work through these problems. In India the black money as it is called is estimated to run to about 1 trillion dollars. It is also the result of corruption and has deprived the economy of needed investments and modernization. ...

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James Galbraith's ideas on the bailout in the Washington Post. He would remove the cap of $100,000 on FDIC insurance and put $500 billion into the FDIC and more resources for the FBI and hire the auditors and investigators needed to clean up the mess. Next he would use $200 billion to buy the preferred shares in the banks that need the money. He would let the investmet banks and hedge funds to themselves. And he woul provide federal funds to stte and local governments in a Nixon administration type of revenue sharing scheme so that local governments do not cut essential services and investments in education and so on. And he would focus on energy and climate change issues for the next 10-20 years as national goals. His point that even with freeing up the illiquid assets two things dont change one the borrowing still will be weak as the economy slows, and the recession and slowing economic conditions will not change.

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Britain and Britain's parliament now faces some tough choices as the economic costs of Brexit are spelled out by government and Bank of England forecasts. Already GDP per person is below what it would have been without the Brexit vote by some 2%, according to the Centre for European Reform think tank. The main problem is the expected drop in trade with the European Union of as much as 40%. Ending free movement also curbs European immigration, and add to this a drop in foreign investment. The government says the cost of the deal with the EU made by prime minister Theresa May could cost 2.7% in loss for GDP per head. Estimates range from 1.7% to 3%. A loss of 3% comes to an average annual loss at 2016 prices of 1090 British pounds per head. Worse a no deal Brexit could see this jump to 8.1%, according to the government. The Bank of England agrees and says the pound would go down by a quarter. Offsets from Britain making free trade deals are pathetically small of only only 0.2% if at all, and o.1% from likely deregulation. Not a picture that makes Brexit anything but a chaotic option for Britain. ...

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Russian economy is faltering under the strain of the global financial crisis. The stock market is plunging, with the RTS Index down 19% on October 6, 2008, and the market down 60% since the high in May, 2008. Construction spending is winding down. Th economy growth rate was 8.1% in 2007 but its slipping. If oil prices hit $50 and they were already at $78 on October 10, 2008, then says Anders Aslund at the Peterson Institute for International Economics in Washington, there will be a sharp decline in the growth rate. Moscow analysts say the growth rate could drop to 4%. For Americans Russia may seem remote excpt for investors. But in a global economy there are connections to emerging markets and Russia is one big emerging market, next to China, India and Brazil. When General Motors shares dropped 31% and Ford's 22% on one day on October 9, 2008, the news that spooked the markets was ofcourse a credit watch and questions about liquidity from Standard and Poors rating agency, but alsoimportant was that the one bright spot for GM and Ford in Europe and in Russia in particular was disappearing as GM sales declined in Europe and in Russia. In the prior 12 months GM had seen sales jump by 40% in Russia giving it 10% of a car market that passed Germany recently as the largest car market in Europe. Couple of important things about Russia. Russians today are big spenders, savings are small and Russians do not trust their banks so bank deposits are very low. Household deposits are equivalent of 17% of GDP, compared with 45% in the USA. Only 4% of Russians trust commercial banks according to a poll by National Financial Research Agency in Moscow. So Russia depends on the outside world for much odf the cash flowing through its financial system. Foreigners purchased two thirds of the $170 billion in bonds isued by Russian companies and foreign banks put up half of the accumulated $900 billion in bank loans including almost all longterm debt estimates Moscow investment bank Troika Dialog. With global credit markets in a lockdown mode Russia is simply running short of cash. The government has $560 billion in foreign exchange reserves from years of high oil prices plus $160 billion in two sovereign wealth funds with most of this money in fixed income securities abroad as a rainy day cushion should oil prices tumble. On October 7 the governmet announced $36 billion in emergency loans to Russian banks following earlier pledges in September of $150 billion in loans and relief for Russian companies in danger of defaulting on international debts. One danger here is that about 55% of outstanding corporate loan are of maturity less than 1 year. One of Russia's largest developers Mirax Group is putting 50 projects on hold as bank financing for developers has almost ceased. On the other hand Russia's financial sector is relatively small and the credit crisis cannot hurt Russia as much as it will USA ad Europe. Bank loans account for 10% of corporate finance and the bond market is only a decade old, so about half of all capital investment by companies comes from retained earnings. And Russia has huge needs for investments in infrastructure after years of underinvestment, a stable political structure, an educated workforce, and an economy that is just getting started. As Secretary Paulson answered questions after the G7 meeting October 10, this was another point on the minds of the secretary and questoners, the hope that emerging markets like Russia, India, and China would continue to grow though slower than before, even as the US and Europe slipped into a long recession, and provide a little cushion to the global economy....