Monday's Top 10: Fed looks at new banker restrictions; wealth taxes; more big fines; eco-conservatives anti-science?; money easy to hide; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today.

Bernard is back tomorrow with his version.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

1. Restraining big banks
Unusual for this daily column, but we are starting today's list with straight news rather than opinion.

Both Bloomberg and Reuters reported on Saturday that the US Federal Reserve is about to clamp down on banks trading in commodities.

It could well relate to #3 below.

The Fed statement came with no detail, but is likely to signify a big shift, a return to more regulation and more constraints on US banks and their holding companies.

The 10 largest US banks generated about US$6 billion in revenue from commodities, including dealings in physical materials as well as related financial products. Goldman Sachs ranked No. 1, followed by JPMorgan Chase.

The Federal Reserve is "reviewing" a landmark 2003 decision that first allowed regulated banks to trade in physical commodity markets, it said on Friday, a move that may send new shockwaves through Wall Street.

The one-sentence statement suggests the Fed is taking a much deeper, wide-ranging look at how banks operate in commodity markets than previously believed, amid intensifying scrutiny of everything from electricity trading to metals warehouses.

2. Coming to a country near you - wealth taxes
Tyler Cowan writing in the NY Times notes that historically, economists - and he includes himself in that - have generally favoured taxes on consumption, on the grounds that they would do the least damage to long-term savings, investment and economic growth.

Yet many will see a new paper written by two economists in Paris as showing why rising wealth will become a tempting target for funding governments. That paper shows that capital will continue to earn a bigger share of national income - and that the 1950's and 1960's were unusually egalitarian in the grand sweep of history. More from Cowan:

If you’d like to know where ... political debates are headed, the data suggest a simple answer. The next major struggle - in economic terms at least - will be over whether taxes on personal wealth should rise - and by how much.

The mathematical reality is that wealth is becoming more important, relative to income. In a new paper, “Capital Is Back: Wealth-Income Ratios in Rich Countries 1700-2010,” Professors Thomas Piketty and Gabriel Zucman of the Paris School of Economics have performed the heroic task of measuring wealth for eight leading economies: the United States, Canada, Britain, France, Italy, Germany, Japan and Australia.

Their estimates reveal some striking trends. For instance, wealth accumulation in these eight countries has risen relative to yearly production. Wealth-to-income ratios in these nations climbed from a range of 200 to 300 percent in 1970 to a range of 400 to 600 percent in 2010. Behind the changing ratios is some bad news, namely that slow productivity growth and slow population growth have depressed income growth, but also some good news — that relative peace and capital gains have preserved wealth.

3. JP Morgan Chase: Out of control
JP Morgan Chase is up for another big fine. Matt Tabai reckons that in the three-year period between 2009-2012, they have paid out over US$16 billion in litigation costs.

Now they are about to be hit with a fine which could be close to US$1 billion for their role in manipulating US electricity markets. The Wall Street Journal has this latest story.

But the back story is equally fascinating, here, and possibly even more interesting than the current WSJ news item.

J.P. Morgan Chase is in discussions with U.S. electricity regulators about paying what would be a record fine to settle allegations that the bank manipulated electricity markets in California and the Midwest, according to people familiar with the talks.

The Federal Energy Regulatory Commission and the New York bank are exchanging drafts of an agreement that would result in J.P. Morgan paying hundreds of millions of dollars, these people said. The fine, they said, likely will be larger than the record $435 million fine levied by FERC on Tuesday against British bank Barclays for its alleged manipulation of the California energy markets from 2006 to 2008. Barclays said on Wednesday that it intends to fight the matter in court.

The settlement discussions had included a possible fine of close to $1 billion, but the figure has gotten smaller as talks have progressed, these people said.

The possible deal is a sign of the increasingly aggressive stance taken by FERC, a low-profile federal agency that oversees transmission lines, natural-gas pipelines and power trading markets across the U.S. Using enforcement muscle beefed up in the wake of Enron Corp.'s collapse, the agency is broadly scrutinizing potential manipulation of energy markets and has sought fines from Wall Street firms that include Barclays and Deutsche Bank which settled with FERC.

4. Today's raw market data ...
A quick new-week update:

5. 'Starved for science'
Dutch researcher Louise Fresco thinks middle class anti-science trends may be the biggest threat to global food security. Are western enviro-conservative attitudes punishing the poor?

Of course, future food production is subject to significant uncertainty. Population growth may not slow down as rapidly as expected. Protectionism threatens open markets and GDP growth. And price volatility, whether triggered by drought or short-sighted national policies, could deter investments in agriculture and decrease the poor’s purchasing power.

Whether climate change will be a source of yield uncertainty in the coming decades remains unclear as well. Although precipitation may be affected, higher temperatures would enable agricultural production in colder regions, and CO2 is known to bolster plant growth, even in dry areas.

In addition, while food hygiene, traceability, and labeling are improving, any amount of negligence when it comes to food safety could have far-reaching consequences in the complex and interconnected global food chain. Rising demand for animal products highlights microbiological risks, with animal-welfare measures sometimes creating new hazards. For example, open pens for poultry may increase the spread of communicable diseases like avian influenza.

Despite such risks, the outlook for future food security is promising. Our food is safer and our diets are more diverse than ever before; production methods are becoming increasingly sustainable, clean, and efficient; and we are constantly becoming better at protecting biodiversity.

Yet many in Europe and the United States – which have benefited most from agricultural advances – are mistrustful of this progress, viewing scientific advancement and free trade as a dangerous combination. To the extent that this perception impedes progress, it is the real threat to global food security.

6. We don't know how lucky we are #37
Take a look at the the chart below. Then read this piece by Jeffrey Frankel. And look at his equivalent charts. He is concerned that the Europeans have been using dodgy data when concluding they have been coming out of their recession(s).

By his measures (ie by US measures) they have never gotten out so they can't be going back in. "Growth" is one thing, but none have climbed back to their 2007 levels yet. The comparison with New Zealand is stark. Some of us might whine like Europeans, but there is no comparison. By any measure, New Zealand is in a good place.

There is a potentially more far-reaching and serious disadvantage as well. Because citizens in Ireland and Italy have been told that their economies have entered new recessions, they are likely to conclude that their political leaders must have done something wrong recently. But if these countries have been in the same recession for five years, the implication may be that the leaders have been doing the same wrong things throughout that period. That is hardly an insignificant difference.

7. A curious case
It urban myth that 'crime' is getting worse. New Zealand stats mirror what is going on around the world - crime rates are going down. True, the easiest things to see are 'reported crime' but more broader, but also mire difficult measures also show the crime trends are down. Both 'liberals' and 'conservatives' who both thought the trends would go the other way - for their own reasons - have egg on their face.

Here is the Economist on what has been happening:

Cherished social theories have been discarded. Conservatives who insisted that the decline of the traditional nuclear family and growing ethnic diversity would unleash an unstoppable crime wave have been proved wrong. Young people are increasingly likely to have been brought up by one parent and to have played a lot of computer games. Yet they are far better behaved than previous generations. Left-wingers who argued that crime could never be curbed unless inequality was reduced look just as silly.

There is no single cause of the decline; rather, several have coincided. Western societies are growing older, and most crimes are committed by young men. Policing has improved greatly in recent decades, especially in big cities such as New York and London, with forces using computers to analyse the incidence of crime; in some parts of Manhattan this helped to reduce the robbery rate by over 95%. The epidemics of crack cocaine and heroin appear to have burnt out.

The biggest factor may be simply that security measures have improved. Car immobilisers have killed joyriding; bulletproof screens, security guards and marked money have all but done for bank robbery. Alarms and DNA databases have increased the chance a burglar will be caught. At the same time, the rewards for burglary have fallen because electronic gizmos are so cheap. Even small shops now invest in CCTV cameras and security tags. Some crimes now look very risky - and that matters because, as every survey of criminals shows, the main deterrent to crime is the fear of being caught.

​

8. Good borrowing / bad borrowing
We haven't heard much about Ireland and their fiscal crisis in a while. But time has been marching on there, and things are not going to end well, I fear. I suppose that is what happens when there is no practical plan to get back to surplus.

Their national debt grew from 119.1 billion to 137.6 billion. And almost all that increase was for borrowing just to pay their Government's daily bills. Not many would think they can continue to to do that forever. The Irish Times has the story:

Ireland’s national debt rose by €18.5 billion in 2012 to a record €137.6 billion, according to figures published yesterday by the National Treasury Management Agency (NTMA).

The bill for servicing Ireland’s national debt also rose by just under €1.1 billion to €6.5 billion last year.

The biggest component in the increase in our national debt last year was €14.9 billion borrowed to fund the exchequer deficit. This was used to pay the day-to-day bills of the State.

9. 'Money is easy to hide'
HSBC may be facing even more reputation problems related to their insider money laundering schemes. The MIS Global Technologies computer system, which makes it possible to use a form of double-entry accounting to conceal illegal income, costs several million dollars and such investments are approved by a bank's most senior managers. A key whistleblower explains how:

At the end of 2008, Hervé Falciani committed what is believed to have been the most portentous theft of banking data in history. The systems engineer and former employee at the Geneva offices of HSBC left Switzerland for France and took data from around 130,000 customers at the Anglo-Asian bank along with him.

France's finance minister at the time, current International Monetary Fund head Christine Lagarde, then handed data supplied by Falciani on to other countries. With the help of the information, authorities were able to uncover hundreds of cases of tax evasion, including those involving members of Spain's Botín banking family. In Greece, the data, which is often referred to as the "Lagarde List," was largely forgotten until it returned to the headlines during the debt crisis.

Falciani, 41, has also cooperated with the American authorities. Indeed, on the strength of the information he provided, HSBC was forced to pay a $1.9 billion settlement with the United States after a Senate committee found that failures in HSBC's money-laundering controls had enabled terrorists and drug cartels to gain access to the US financial system.

Last year, officials in Spain arrested Falciani in Barcelona. After a Spanish court rejected a Swiss extradition request for the Franco-Italian, he returned a few weeks ago to France, where examining magistrates have opened a new investigation into HSBC. SPIEGEL met with Falciani for an interview near Place d'Italie. He came wearing a beard and accompanied by three body guards with dark sunglasses. Flaciani says he is still the subject of a Swiss international arrest warrant.

10. Today's quote
"It is pretty hard to tell what does bring happiness; poverty and wealth have both failed." - Kin Hubbard