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This report shows an alarming trend in China which is fueling a real estate bubble similar to the one that Japan, and more recently the U.S., experienced. State owned companies are actively speculating in real estate, and are buying real estate from local governments eager to profit from the real estate boom. Local governments obtain land and build infrastructure on it to raise the price that they can get for it in an auction. In many cases one state owned company outbids another state owned company from different sectors such as oil, chemical, military, telecom and highway. Land records reveal that 82% of land auctions in Beijing in 2010 were won by state-owned companies up from 59% in 2008. The National Bureau of Economic Research in Cambridge, Massachusetts, has estimated that land prices leaped by 750% from 2003, with half of this happening in 2008-2010. In many cities housing prices have doubled in the last 2 years. The National Bureau estimates that on average these state owned companies paid 27% more for the same piece of land than other bidders. China's $586 billion stimulus and its aggressive lending program by state owned banks may have helped in other ways after the 2008 economic crisis, but in this area it has fueled a real estate speculation boom, with the local government and state owned companies being the key participants in this speculation. Local governments earned an estimated $230 billion in land auctions in 2009. The demolition of older neighborhoods and poorly compensating residents are all part of the effort by local governments to profit from this speculative boom. The implications for the banks are serious. Local governments use other companies created for the purpose to engage in this investment in land. And off-balance sheet accounts create the danger that China's state owned banks may have enormous amounts of debt that is not showing up in the regular accounting. Analysts say that the $1.4 trillion in loans made by state banks in 2009 was twice that in 2008, and a large portion of this was diverted into real estate speculation with records set in land bids and booming prices. All this is happening as China's Ginni coefficient has deteriorated rapidly. And the simple fact remains that even as apartment prices exceeded $200,000 in Shanghai, the average disposable income is about $4000 per year. Prof. Shih of Northwesten University has followed the investment companies of the local governments closely and comes to similar conclusions about the size and implications of this real estate bubble in progress. Shih estimates LIC (local investment companies) debt owed to banks at $1.68 trillion or 34% of China's GDP. See the link to BW's Dexter Roberts. ...

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Some insights into the thinking of Robert Rubin from an interview by Ken Brown and David Enrich with the former Treasury Secretary in the Clinton administration about the 2008 financial crisis. As Justice John Paul Stevens. the longest serving Supreme Court justice on the bench once said, those who administer the judicial system form the backbone of the law. In a like manner those who administer the financial and economic system form its backbone, which is why Rubin faces some tough questions in this interview. At the time he was Treasury Secretary, the NYT magazine ran a story on Robert Rubin, as the kind of person who liked to put things down rationally on a note pad, and think things through on the basis of this rational analysis. This is how he approached the Mexican financial crisis of 1994 and the 1997 Asian financial crisis. Here is some of that note pad Rubin, in the context of CDO's and risk taking, with something gone awry. Risks that according to this NYT report Rubin encouraged at Citigroup in 2004 and 2005, on the basis of the idea that Citi's competitors were taking on more risk and making bigger profits. His note pad approach appears to have led to conclusions by Rubin that considering the additional profits that could be made by Citi by ramping up the risk taking in 2004 and 2005 and afterwards like its competitors, it could lead to losses if things went wrong, but these losses would'nt come close to wiping out the profits made during the good times. The cyclical downturn he expected to see in 2004 and 2005 when he is reported to have added his voice to others that the bank take on more risk, was a cyclical downturn of the type he had seen during the 1994 Mexican devaluation and the 1997 Asian financial crisis. He had no idea that it would be a cyclical undervaluing of risk added on to a housing bubble, and to a triple A ratings issuance that was misguided. Rubin says here that there was hardly anyone who saw that low-probability event as a possibility. Was the housing bubble a low probability event, and were the issuance of ratings by the credit ratings agencies compromised by the drive for more business a normal pattern, or would some digging up of facts and some innate skepticism of the prevailing current in favor of one's own instincts that something was overdone missed in the notepad analysis of a supposedly rational approach? Or was there a feeling that somehow the U.S. with its long tradition of technology, its work ethic and sophisticated financial system was somehow immune to something as severe as what the Asian countries were experiencing in 1997, or what happened in the 1930's. Asked about his view of what happened Rubin says that looking back there was an enormous amount that needs to be learned. Rubin is also in a quandary when he has to respond to the public concerns about excessive executive compensation. Rubin made $115 million in pay since 1999, excluding stock options, while under his purview as the highest ranking board member Citigroup let some of the problems that it faces now accumulate. As Citigroup faces $20 billion in losses in 2008, a bear raid on its stock by short sellers who ironically were able to do this because of some of the lax regulation set in motion in the Rubin Greenspan years leading to the suspension of the Uptick rule, and the $45 billion government bailout last week. Rubin may have helped Citi but in a different sort of way. He was able to persuade Treasury- Treasury Secretary Paulson was a fellow executive at former employer Goldman Sachs- through the days before the bailout, ensuring government help was on its way. Citigroup shares had dropped to $3.77 a share in the third week of November 2008, losing 50% of their value in one week, as the discussions took place. ...

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Senator Mitch McConnell, the U.S. Senate Majority leader, and Speaker Ryan, achieved a win in the U.S. Congress which is expected to set a new trend of bipartisan cooperation, as the House passed the bill in Dec. 2015 for $1.1 trillion spending with a vote of 316 to 113, and the Senate with vote of 65 to 33. The persuasion on the Republican side was based on giving Speaker Ryan a strong hand in negotiations with the White House in 2016. Ryan secured a lifting of the oil export ban for the Republican side in return for flexibility in spending. Ryan deftly sent the issue of Puerto Rico having access to bankruptcy laws to the committe chairmen to come up with a plan in March to get the needed votes. Democrats had pushed for aid to Puerto Rico. Also included in the bill that passed is giving more voice to emerging market countries China and India in the running of the IMF.

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Local investment companies were allowed to borrow beyond their limits after the financial crisis of 2008. There are about 8000 local investment companies (LIC's) and they were used during 2008-2010 to get funds quickly to projects. The LIC's borrowed for local governments, and borrowed extensively to build roads, railroads, power plants, and other infrastructure and buildings. Northwestern University Professor Shih has followed this carefully, and estimates LIC debt owed to banks at $1.68 trillion, or 34% of China's GDP. Some of the banks have collateral in land, but many banks are relying on the ability of the local governments to pay back the loans. And some of this is in money losing projects.

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The Fed gets tougher on "too big to fail" but how tough? Does it have the guts to go after this problem asks Peter Eavis. If he does Bernake would go down in history as a hero says Eavis. Meanwhile Fed Governor Tarullo clearly point to the utterly inconceivable fact that after a crisis of these proportions with large banks being bailed out, the remaining banks and financial institutions are larger than before the crisis. And the banking lobby has stalled regulation to control the problems in derivatives trading and other areas. Splitting up or downsizing the banks and separating their social function as deposit takers in the economy from their trading desks and investment activity, is being advocated by central bankers from Volcker to Mervyn King. See links.

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Daniel Tarullo, the new Fed Governor is the architect of the Fed's new pay guidelines. Fed officials at all the Fed banks around the country met the leaders of the large banks and thier compensation committee leaders. Tarullo has set up the principle based framework to guide pay which covers compensation practices that discourage risktaking that endangers the firm while enriching the employee, including risk management people in setting pay, better corporate governance and other principles.

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Mitt Romney describes his experiences with different companies he worked with at Bain Capital and how he would use that experience in his job as President. One approach he emphasizes is proactive problem solving and tackling problems early.

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The WSJ's Alessandra Galloni speaks with Mario Monti, the Italian premier, for in-depth interviews. Here Galloni and Walker provide an account of what happened during and after the June 28, 2012 summit of European leaders. Monti described the comments of ECB president Draghi in early August- about ECB buying of bonds of Italy and Spain being within the mandate of the ECB if monetary transmission channels were not working properly to reduce yields- as a bold effort following the agreement made at the June 28 summit to support Italy and Spain. Monti expressed the idea that Draghi should feel morally and politically justified if and when he makes the bold moves to rescue the euro. The only problem he says is whether one has to wait till the night before the euro is about to disintegrate for this to happen. This is the first time Monti has publicly expressed the possibility of this happening.

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This editorial in the New York Times is strongly critical of former president Barack Obama for accepting $400,000 in speaking fees from Wall Street for a single speech. It says the news is causing people to question the ideas and words presented by Obama in his books about the dangers of losing sight of the interests of ordinary people. It gives the impression says the NYT, that Obama is cashing in like everybody else, and that his talk was empty. The editorial says the millions raised by Hillary Clinton led to her defeat in the election. Obama is reported to plan a foundation with the work of training a new generation of political leaders. This NYT editorial says it would be better to stay true to vision and purpose, to walk the talk for president Obama, especially now that a recent poll shows two thirds of voters, including about half of Democrats say that the Democratic Party is out of touch with the interests of the American People. By associating this closely with wealthy donors leading Democrats contributed to this. During a period when some of the remarkable achievements of the last fifty years such as the European Union are being called into question, when ordinary working people, young people and older people are struggling, this is all the more a tone deaf approach by politicians. The idea of helping train a new generation of political leaders through a foundation sounds bizarre in this context, and seems to suggest politicians believe there is always a solution through marketing their audacity and money.   ...

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The European Banking Authority has lost credibility after two rounds of stress tests by the EBA failed to turn up the problems at Spanish banks that required a $125 billion recapitalization by the EU rescue fund. Now EU officials are turning to the European Central Bank as the eurozone's main banking regulator. The U.S. Federal Reserve is performing this role after the 2008 financial crisis, with the FDIC in charge of bank closures and resolution. ECB president Mari Draghi says, letting the ECB perform supervisory tasks, a decision made at the June 28 EU summit talks, is fully in line with the bank's mandate. Separate decisions will be needed for a bank resolution authority like the FDIC. The ECB will then have to hire hundreds of banking experts to make on site visits to eurozone banks and check their loan books and make independent assessments of bad loans, bank risks, and capital requirements. The important thing is an agency which is free of local and political interference to make the correct evaluations....

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Romney's advisors work to re-focus the campaign with more time spent by the candidate in the swing states and states too close to call- Iowa, Colorado, Wisconsin. This is in addition to Ohio, Florida and Virginia, which are seen as critical.