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Thursday's Top 10 with NZ Mint: US banks quadrupled their profit share since mid 1940s; 'Let's wipe the global debt slate clean in a Mesopotamian way'; Why China's rate cut isn't working; Dilbert
Here's my Top 10 links from around the Internet at midday today in association with NZ Mint.
We welcome your additions in the comments below or via email to email@example.com.
My must read today is #3 on the need for debt jubilee.
1. How the financiers took charge - Paul Krugman points to a long term chart of the share of income going to the financial sector in the United States over the last 150 years.
This is clearly a massive shift. It has quadrupled since World War II.
And how much has it benefited real workers and the economy, rather than the financiers themselves?
This fact is central to the debate now about how our economies should be run.
These Too Big To Fail banks in the Northern Hemisphere have to be broken up and regulated back into a box.
At the moment they're fighting successfully through lobbying and threats of financial armageddon to avoid this re-regulation.
Here's Krugman and that chart:
So we’re hearing a lot of people — including some alleged progressives — declaring that you can’t criticize the way we’ve run our economy for the past 30 years. Why not? The metastasizing finance sector eventually led us into the worst economic catastrophe since the Great Depression; that seems reason enough to question the model.
This chart here tells the story.
3.'Back to Mesopotamia' - Here's a September 2011 report from Boston Consulting Group about the need for a Biblical style debt restructure to deal with the huge overhang of debt weighing down growth rates in the developed world.
This is my world view at the moment.
It is likely that wiping out the debt overhang will be at the heart of any solution. Such a course of action would not be new. In ancient Mesopotamia, debt was commonplace; individual debts were recorded on clay tablets. Periodically, upon the ascendancy of a new monarch, debts would be forgiven: in other news, the slate would be wiped clean. The challenge facing today's politicians is how clean to wipe the slates. In considering some of the potential measures likely to be required, the reader may be struck by the essential problem facing politicians: there may be only painful ways out of the crisis.
4. 196 very powerful people - Ezra Klein points out at Washington Post that just 196 Americans contribute 80% of the 'Super PAC' political contributions in US Congressional races.
It's not a democracy. It's a plutocracy.
“We have reached a profound point in economic history where the truth is unpalatable to the political class – and that truth is that the scale and magnitude of the problem is larger than their ability to respond – and it terrifies them.”
He believes that financial markets are single-digit years away from a crash that will present investors with opportunities of a lifetime. “Bad things are going to happen and I still think the closest analogy is the 1930s.”
6. Is the Chinese housing market rebounding? - Kate Mackenzie looks at the evidence in this FTAlphaville piece pointing to an apparent rebound last month in prices. It may not be enough, she says, to get the developers building again.
A few tactics suggest the bounce isn't real.
The problem is, the construction industry that fuels much actual economic activity — and which is the real aim of the targeted easing on property restrictions — has not been revived. Property developers are after all still stuck with extremely large inventories. Increased sales may be helping them meet existing debts, but it’s not enough to encourage them to start new projects.
Cash-poor developers are paying construction companies in apartments. This has become so common that it has its own catch phrase in Chinese, (di gongcheng kuan fang, or “apartment to reduce project expense”). Several listed developers have been reported to be using this strategy.
Developers lend buyers the down-payment: Developers are providing one-year loans to buyers so that they can meet the down-payment requirements. Some also help investors find nominee buyers who will process the purchase in order to evade restrictions on speculation.
Dummy buyers: There are also reports of developers setting up paper companies to sign purchase agreements and obtain loans. Note that pre-sales of properties that will not be completed for about 1.5-2 years account for about 80% of total sales, meaning that there is generous room for returns.
7. Germany's choice - Ambrose Evans Pritchard does a nice job here of explaining Germany's current debate over the euro.
Mr Sarrazin said EMU has demonstrably failed. Germany must draw the proper conclusion: either abandon the euro or accept the revolutionary step towards a European superstate. Morton’s Fork has arrived, with all its fateful consequences.
Europe’s integration process stands at a parting of the ways and we must now choose between a dangerous step back on the one side and a full-blown loss of sovereignty to Europe on the other."
8. Bypassing the banks - CNBC reports China's recent rate cut isn't working because small businesses are bypasssing the banks and going to loan sharks instead.
Twin moves to cut and deregulate interest rates have effectively chopped borrowing costs by up to 170 basis points, a potentially eye-popping squeeze on bank lending margins.
Still, that rate-reduction has not been nearly enough to tempt a dozen small factories and wholesalers around Beijing visited by Reuters in the wake of July's policy shift.
Red tape and tough collateral requirements mean business owners prefer to borrow from family and friends to expand in good times and, with the economy in its worst downtrend in three years, the inclination to take on bank debt is close to zero.
"Business this year has fallen by two-thirds compared to last year," said a bed linen seller surnamed He, who last took a bank loan in 2009 for 400,000 yuan ($63,500).
9. Totally a party for bankers in the City of London - The Telegraph reports this is how British taxpayers' money propping up salaries and bonuses for investment bankers in London is being spent. This is a picture from a party in The City.
Friday 13 saw over 1,000 finance professionals from banks such as UBS, Barclays and Citigroup descend on McQueen bar & club in the heart of Shoreditch for the annual Square Mile Summer Party.
Guests were entertained by the all-girl dance troupe, Girls Roc, fire-breathing strippers, snake dancers and sword swallowers.
The army of suited bankers were treated to free drinks laid on my Square Mile including bottles of Iceberg Vodka and Louis Roederer champagne.
A retreat was offered in the form of a chill out room sponsored by Small Luxury Hotels of the world with Ibiza Angels massage girls offering their service to tired bankers.
'We're known for throwing the most lavish parties for the banking industry' says Head of PR for Square Mile magazine 'and this year was no exception'.
(Updated with cartoons)