Europe Leaders Debate Severe Options for Accord – WSJ.com

“For the first time, I found the leadership of the euro zone focusing on the fundamentals here in respect to the situation arising from Greece, and the fear of contagion,” said Irish Prime Minister Enda Kenny. “There was clearly an understanding that the world is watching Europe and that there isn’t any point in doing this in a half-hearted fashion.”

The options being debated now are more severe and far-reaching than those under consideration in months past. Last year, when the crisis first threatened the euro zone’s stability, leaders insisted that Greece would not default and that assistance would only be provided to countries on the brink of collapse, and at punitive cost to discourage free-riders.

Now, the question is how big a default Greece will have, and leaders are scrambling to open floodgates of aid to several countries.

via Europe Leaders Debate Severe Options for Accord – WSJ.com.

Podcast: Paul Volcker’s Warnings, the S.E.C.’s Privacy Problem and Some Economic Pitfalls – NYTimes.com

Paul Volcker, the former Federal Reserve chairman, warns that we are not out of the woods yet….. Mr. Volcker focuses on two big problems.

First, he says, money market funds should be treated like other mutual funds — whose price can fluctuate — rather than as guaranteed stores of value, like bank accounts. In addition, he says, the United States needs to plan on eventually shutting down Fannie Mae and Freddie Mac, the two agencies that now dominate the mortgage market.

via Podcast: Paul Volcker’s Warnings, the S.E.C.’s Privacy Problem and Some Economic Pitfalls – NYTimes.com.

France appears to have conceded to German-ECB position on bailout fund | Credit Writedowns

France appears to have backed down in the face of a German-ECB joint position that strenuously objected to the EFSF becoming a bank to borrow from the ECB. Instead, it appears that the insurance/guarantee function of the EFSF is going to dominate. Although the situation still appears fluid, the momentum seems to favor those who want to have this guarantee function only for new issuance of Spain and Italy.

via France appears to have conceded to German-ECB position on bailout fund | Credit Writedowns.

Crunch Time for Franco-German Relations – WSJ.com

…what euro-zone leaders appear to be inching toward is yet another fudge: a Greek deal that avoids default but still falls short of putting debt on a sustainable basis; a bank recapitalization that’s not sufficient to withstand multiple defaults and an expanded bailout fund that isn’t big enough to restore the confidence of sovereign and bank debt markets. That would send a worrying signal that the rift between Germany and France hasn’t been mended. And the longer they leave it, the wider it is sure to grow.

via Crunch Time for Franco-German Relations – WSJ.com.

The Dismal Optimist by Peter T. Treadway

Supply side measures are something most macro economists – with a few exceptions – never consider. By supply side I mean those rules, regulations, laws and taxes that hold back economic growth. Supply side measures are growth enhancers and would include:

1. A simplified tax code that maximizes revenue and does not punish the successful. Raising taxes in the midst of a recession, as is now being tried in Greece, is simply the wrong approach.

2. Reform and liberalization of the labor markets. This is particularly important in Europe which suffers from rigid labor laws. German labor reforms under former Chancellor Gerhard Schroeder have been cited as a major reason for increased German productivity over the last few years.

3. The removal of massive regulatory burdens and government bureaucracies supporting them. The recent media report that the government-based Washington DC area now has the highest income of any area in the United States is not good news. (I am told by people in the energy field that the US is now swimming in oil and natural gas thanks to new discoveries and new technologies. But the current US Administration is blocking their development).

4. The removal of barriers to commerce such as protectionist tariff and non-tariff regulations etc.

5. The elimination of government subsidies to pet industries be they green or gray.

6. A privatized approach to education to train people to compete in the globalized, technologically accelerating, highly competitive twenty first century world.

via The Dismal Optimist by Peter T. Treadway.

Toddler’s Death Stirs Ire in China – WSJ.com

“The most important thing for Chinese people right now is making money and pursuing their own interests,” said Jin Liang, deputy director of the Shandong Institute of Behavioral Science in eastern China. “Our education system doesn’t teach ethics. Environment is very important in determining people’s behavior, and right now Chinese culture is sick.”

Others have argued that the problem is largely a legal one. They point to a series of cases in which Chinese Good Samaritans have helped strangers only to be later blamed and sued.

The most famous such case occurred in Nanjing in 2007, when a young man named Peng Yu was sued after he escorted an elderly woman to the hospital after she had fallen and broken her leg. The court ordered Peng Yu to pay 40% of the woman’s medical bills, explaining that “according to common sense” he wouldn’t have helped her if he weren’t in some way responsible for her fall.

via Toddler’s Death Stirs Ire in China – WSJ.com.

Humanity seems to vary greatly between countries …. and sometimes within countries. I myself can only recall experiencing kindness when I lived in Africa, but at the same time would read news stories like the Cape Town woman whose car overturned on a country road, leaving her trapped inside with a broken leg and pelvis. Passersby dragged her free of the car before raping her and making off with her handbag.

If there was some way of measuring humanity in a country, on a scale of 1 to 10, I am sure that you would find a strong correlation between humanity, stability and economic prosperity.

Scandinavian countries would probably rank highest on such a scale. Interesting that, before introduction of a religion (Christianity) which emphasizes humanity toward your fellow man, their Viking ancestors would have ranked near the bottom. Perhaps there is hope for all of us.

Regulators Seize Main PMI Subsidiary – WSJ.com

The main subsidiary of mortgage insurer PMI Group Inc. has been seized by insurance regulators in Arizona, and will begin paying just 50% of claims beginning Monday, according to its website…… Mortgage insurers have suffered from billions of dollars in losses on policies they sold in the years just before the housing bubble burst. PMI alone has reported about $3 billion in losses since the fourth quarter of 2007.

via Regulators Seize Main PMI Subsidiary – WSJ.com.

Europe’s highly-leveraged banking sector

Comparing common equity to total assets, 10 major European banks are leveraged more than 25 to 1 (a ratio of less than 4.0%).  According to The Big Picture, Dexia is the highest at close to 77 times, but the others are:

  • Deutsche Bank
  • Credit Agricole
  • Credit Suisse
  • Commerzbank
  • Barclays
  • ING
  • BNP Paribas
  • Societe Generale
  • UBS.

Using total equity may indicate slightly lower leverage but the results offer some idea as to why the  issue of recapitalizing banks is taking so long to resolve.

Obama Announces Complete Drawdown of U.S. Troops From Iraq by Year’s End – ABC News

“Today, I can report that as promised, the rest of our troops in Iraq will come home by the end of the year,” the president [Obama] said. “After nine years, America’s war in Iraq will be over.”

via Obama Announces Complete Drawdown of U.S. Troops From Iraq by Year’s End – ABC News.

Doesn’t it just inspire you with confidence in the political system when battlefield decisions are made to coincide with the presidential election campaign — and enemies are notified of troop withdrawals two months in advance — so they can plan a “going away” party for your troops.

Three Ways to Save the Eurozone – Jean Pisani-Ferry – Project Syndicate

The eurozone’s creeping fragmentation is primarily the result of the mutual dependence of banks and governments. In the eurozone, banks are vulnerable to sovereign-debt crises because they hold a lot of government bonds – frequently issued by their country of origin. Governments, for their part, are vulnerable to bank crises because they are individually responsible for rescuing national financial institutions. Each episode in the current crisis illustrates the fragility caused by this interdependence.

via Three Ways to Save the Eurozone – Jean Pisani-Ferry – Project Syndicate.