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Wednesday's Top 10 with NZ Mint: Magical ECB pixie dust; Christchurch's section affordability outrage; US Libor probe; Iran wants gold, not US$; Dilbert; Muppets
Here's my Top 10 links from around the Internet at 2 pm in association with NZ Mint.
I welcome your additions in the comments below or via email email@example.com.
I'll pop the extras into the comment stream. See all previous Top 10s here.
My must read today is #2 -- an impassioned plea from Christchurch about section prices.
1. The ECB's magical pixie dust - Felix Salmon at Reuters does a nice job of explaining the delicacies of whether or not Greece will be judged to have officially defaulted.
It's important because a default will trigger Credit Default Swap contracts,. which may (or may not) cause some grief in financial markets.
Salmon looks at the way the European Central Bank has exempted itself from having to take haircuts on its Greek debt.
He says the extension of that 'pixie dust' to the European Investment Bank (EIB) is further complicating the ruling.
A private body, the International Swaps and Derivatives Association (ISDA), is the official arbiter on defaults.
Its members may have very sore arms by the end of this.
If the decision to exempt the ECB from the Greece haircut was ugly, then the decision to exempt the EIB is, at the margin, even uglier. I’m not saying it’s the wrong decision, necessarily. After all, sovereign restructurings necessarily have an ad hoc, make-it-up-as-you-go-along element to them.
Indeed, if the ECB’s magical pixie dust means that there’s substantially more EU support for this deal, then it might well be worth spreading it around a bit. But at the same time, predictability and consistency are important as well. And both of those seem to have gone out the window at this point. I wouldn’t be at all surprised if ISDA’s Determinations Committee just said “enough already” and declared an event of default. Because in recent weeks private-sector bondholders have been treated in an extremely cavalier manner. And those decisions have consequences.
2. 'Stretched to breaking point' - Reverend Mike Coleman writes with passion in The Press about how the red-zoners in Christchurch are feeling about receiving NZ$100,000 for their sections but having to pay NZ$240,000 for sections elsewhere, if they're available.
New sections aren't due on the market for two to three years, but red-zoners have to leave in 3 months.
Does not compute.
HT Hugh via email.
We now know there were very few sections available. (The city council announced last Friday there are only 600 sections in the city ready to go. Their values are up to $180,000 more than the rateable value on red-zone land.)
Prices of sections were always out of range for many red-zoners. Today they sit on the east stressed and upset. Some have taken their own lives. True.
As it stands today: There is no affordable land in Christchurch. There will be thousands of sections in two to three years, Brownlee now says, which "may" drive the price down, but red-zoners have to leave next April. Figure that out?
3. How about a 75% tax? - BBC reports France's socialist Presidential candidate Francois Hollande has proposed a 75% tax rate on those earning more than €1 million a year.
Mr Hollande himself renewed his call on Tuesday, saying the 75% rate on people earning more than one million euros a year was "a patriotic act".
"It's a signal that has been sent, a message of social cohesion, there is an effort to be made," he explained. "It is patriotic to agree to pay a supplementary tax to get the country back on its feet."
4. Greece vs Iceland - In 2008 Iceland's economy crashed with its banks. Yet now it is rebounding quickly. Greece, meanwhile, fell into the abyss in 2008 also and is still falling fast.
CNN has done a 'compare and contrast' excercise to see which apples compare with what olives and whether the Icelandic solution (nationalise its banks, devalue the krona and impose capital controls) is better than the Greek solution (slash public spending, hike taxes and stay in the euro zone).
The key difference I think is that Iceland has its own currency and devalued its way out of trouble.
5. Gold instead of dollars - Reuters reports Iran will now accept gold instead of US dollars as payment for its oil.
This is obviously connected to sanctions on any banks dealing with Iran, but it does again raise the question of how long before gold returns more as a global trading currency rather than just as a store of value, replacing the US dollar.
6. 'Come to New Zealand' - Matt Yglesias writes at Slate that New Zealand universities look mighty attractive for Americans because we have relatively low tuition fees and lots of government subsidies and support (ie interest free student loans).
He compares America and New Zealand Universities in the chart below:
The gap in tuition being charged across those two countries is enormous, particularly when you consider that the possibilities for mobility of both instructors and students across Anglophe countries. It looks like Americans could reap giant savings by enrolling in New Zealand universities
7. More Libor problems - Reuters reports the US Justice Department has launched a criminal probe into the way Libor is set.
Remember, Libor is the interest rate (London Interbank Offer Rate) agreed by a select few banks that sets the base for trillions of dollars of debt securities globally. British authorities have been looking at this for a while.
Now it's all on in America.
8. 'The richer you are the less ethical you are' - Wired's Brandon Keim reports on a UC Berkeley study showing the richer a person is the more likely they are to be unethical.
The study included seven different experiments that spanned real-world and laboratory settings, from rude San Francisco drivers to test subjects given a chance to take candy from children.
“Occupying privileged positions in society has this natural psychological effect of insulating you from others,” said psychologist Paul Piff of the University of California, Berkeley. “You’re less likely to perceive the impact your behavior has on others. As a result, at least in this paper, you’re more likely to break the rules.”
The findings, announced Feb. 27 in the Proceedings of the National Academy of Sciences, come at a moment when historical tensions over wealth and class have reached a fever pitch: Is greed good, and extreme wealth a sign of virtue? Does wealth corrupt, and should a society strive to be egalitarian in income as well as principles?
9. Modern Monetary Theory - Michael Hudson talks at counterpunch about a three day Modern Monetary Theory conference in Italy where more than 2,100 people turned up to listen to a new brand of economics.
It has a roll on.
Just one week earlier the Washington Post published a review of MMT, followed by a long discussion in the Financial Times. But the theory remains grounded primarily at the UMKC’s economics department and the Levy Institute at Bard College, with which most of us are associated.
The basic thrust of our argument is that just as commercial banks create credit electronically on their computer keyboards (creating a bank account credit for borrowers in exchange for their signing an IOU at interest), governments can create money. There is no need to borrow from banks, as computer keyboards provide nearly free credit creation to finance spending.
The difference, of course, is that governments spend money (at least in principle) to promote long-term growth and employment, to invest in public infrastructure, research and development, provide health care and other basic economic functions. Banks have a more short-term time frame. They lend credit against collateral in place. Some 80% of bank loans are mortgages against real estate. Other loans are made to finance leveraged buyouts and corporate takeovers. But most new fixed capital investment by corporations is financed out of retained earnings.
Unfortunately, the flow of earnings is now being diverted increasingly to the financial sector – not only to pay interest and penalties to banks, but for stock buybacks intended to support stock prices and hence the value of stock options that managers of today’s financialized companies give themselves. As for the stock market – which textbook diagrams still depict as raising money for new capital investment – it has been turned into a vehicle to buy out companies on credit (e.g., with high interest junk bonds) and replace equity with debt. Inasmuch as interest payments are tax-deductible, as if they were a necessary cost of doing business, corporate income-tax payments are lowered. And what the tax collector relinquishes is available to be paid out to the bankers and bondholders who get rich by loading the economy down with debt.
For those who've seen this story this morning about the British Police giving a retired horse to News Corp's Rebekah Brook, here's a typically British cartoons:
10. Totally The Muppets do Bohemian Rhapsody. I think I've linked to it before, but I needed a laugh.