A member of the board of the Bundesbank in Germany said recently that the European Central Bank should crack down on a political practice engaged in by many of the member states, that of keeping private banks that are effectively insolvent artificially alive on whatever is their available means of life support. The issue has become known in Europe as that of "zombie banks." I say "Europe" but sense at once that I am guilty of presentism. The term "zombie bank" got its start in the United States in the late 1980s. Remember the days of the "Savings and Loan" scandal? Ah, they seem innocent now. Or ... not. But recently the zombie's are a specter haunting Europe. (Gee, somebody once said that about communism, did he not?) If a bank has a negative asset value, then depositors will have reason to fear frozen accounts and even notwithstanding national insurance systems the banks may well empty out. If they are still kept alive d...
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David Stockman, who decades ago served as President Reagan's budget director, he of the "Trojan horse" gaffe, has written a wonderful brief essay on the latest move by the European Central Bank, which has jumped pumped one trillion new euros into circulation with a mammoth bond-buying program. Trillion. With a "t". This has all the looks of a desperation move to keep together a single-Eurozone system where the centrifugal forces are powerful. Here is Stockman's take on it. Charlatan of the Apparatchiks . Stockman introduces the graph above, which shows Europe's consumer price index since 1990. There has been a good deal of talk about how the ECB's dramatic move is necessary to slay the monster of "deflation." But as you can see below, that isn't much of a dragon worth slaying. The lowest the CPI has gotten since 1990 was -0.5, a mark it hit only once, briefly, in 2009. Then it quickly rose back to 3% and has fallen since, fo...
I generally ask myself at this time of year what were the biggest stories of the past twelve months in business/financial news. Of course, I choose the ones I do largely because they illustrate an important theme, and in the list below I'll spell out and italicize the theme. Yet the theme itself isn't the story. In terms of regional mix, with this line-up I've got two Asian stories (Feb., April), four European stories (January, June, October, December) and six North America (March, May, July, August, September, Nov.). A nice thematic point: I both begin and end with Russia. All that said, here is this year's list. January 2014: Russian oligarchs. The Supreme Court of Russia releases Platon Lebedev, formerly of NFO Menatep, and a man who had spent more than a decade in lock-up. Russia has two oligarch problems: the oligarchs have a stranglehold on key parts of the economy, and the govt., when it does try to break that stranglehold, is ham-fisted an...
As regular readers of this blog surely know, I published a book early in 2012, Gambling with Borrowed Chips. I'm thinking of that book anew because one of its key contentions received some support in recent days from an unlikely source, Janet Yellen, the new chair of the Federal Reserve. One of my book's central contentions was that overly the permissive credit policy by the Federal Reserve throughout the early years of the new century under both Greenspan and Bernanke fueled the housing and housing derivatives boom, a boom that was bound to burst. Entering the new century, the Fed Funds rate was at 6.5 percent. Greenspan pressed to lower the target in several steps starting in January, so that in early September, before the 9/11 attacks, the rate was 3.5 percent. Of course, after those attacks the Fed sought to forestall panic by lowering the rate further, to 1.25. If you only have a hammer (or only think you have a hammer) all problems look like nails. ...