Presented within is the newly reformulated Ng and Cohen Candy Hierarchy, which aims to rank Halloween candy received during trick or treating. This version is seen as an improvement of the 2010 edition, which culled massive peer review in the form of several hundred comments.
Like before, we placed a high value on this process, as past attempts had produced noteworthy revelations, including establishment of reference samples, hereafter termed index candies, as well as the discovery of the importance of caramel in defining the upper tiers.
In its previous form, we were hopeful that some of the new potential advances in the hierarchy would be due to evaluating context setting. In our last report, we had suggested that "rarely in practice do eaters eat just one piece of candy. Anecdotal evidence indicates that, in general, eaters throw multiple pieces of Halloween candy down their gullets. (When so much is being eaten, research shows the Pelican-gullet-eating-fish imagery is apt.) It thus matters which are eaten earlier and which later. Some tests, for example, indicate that you can only consume so many premier grade chocolate based candies before you need the zip or zing of a Spree or a Smarty to 'cleanse the pallet'."
Indeed, from our data, we found that context was key. Perhaps most significant were frameworks that revolved around the geography of palates. Specifically, it was noted that there was a strong North American bias, which often led to heated disagreement. In light of this, we strongly suggest a parallel attempt at defining a Sweets Hierarchy to further explore global preferences.
Politico reporter Jonathan Martin ... told MSNBC this morning that he just isn't "going to get into the details" of what Cain allegedly said, did or "gestured." Martin cites an incident that may or may not have happened where Cain may or may not have invited a woman up to his hotel room.
. . .
"We're just not going to get into the details of exactly what happened with these women beside what's in the story."
Amazon is a highly unusual American corporation, for several reasons:
- Amazon unapologetically builds its business for the long-term, without worrying about what short-term Wall Street traders think.
- Amazon sacrifices near-term profits for long-term investments, again without worrying about what short-term traders think.
- Amazon operates at a much lower profit margin than it could have if it were trying to "maximize near-term returns," which is what many (most) American corporations try to do.
- Amazon is investing--and hiring--aggressively for the future, at a time when most American corporations are cutting costs, laying off workers, and hoarding humongous piles of cash.
In other words, Amazon is doing what many more American corporations could and should do: Balance the near-term "profit motive" with a more holistic mission of focusing on the long-term and serving customers, employees, shareholders, and the community at large.
The most pressing problems in the US economy right now are two-fold:
- Near-record-high unemployment at the same time as near record-high profit margins;
- Income inequality that is now the highest since the late 1920s, just before the Great Depression.
By balancing near-term profits with investing for the long-term, Amazon is helping to address these problems.
Amazon's profit "disappointment" this quarter was largely due to the fact that the company opened more fulfillment centers and hired more people than it expected to--8,100 people in just this quarter alone.
Amazon's projection of lower-than-expected profit margins next quarter, meanwhile, is likely the result of Amazon investing heavily in an innovative new product, the Kindle, that is revolutionizing the way media is distributed.
The Kindle "ecosystem," which did not exist four years ago, is providing jobs and opportunity for tens of thousands of people in the US and abroad. It is taking advantage of one of America's remaining strengths, technology innovation. Like Amazon itself, it is making consumer's lives better and easier and more convenient.
. . .
If more American companies started to do what Amazon does--ignore short-term pressures, sacrifice near-term profits, and invest for the long-term--the American economy would start to heal itself quickly. America would create more innovation, more jobs, and more long-term wealth. And, just as important, more Americans would be able to go back to being proud of our corporations and innovators and entrepreneurs... instead of camping in parks and protesting them.
French newspapers have this month been reporting in torrid detail the latest accusations to hit Strauss-Kahn -- that while head of the International Monetary Fund he attended sex soirees with prostitutes paid for by businessmen.
The case began after the manager and the public relations chief of the luxury Carlton hotel in the northern city of Lille were arrested and charged with arranging prostitutes for guests with the help of a pimp based in Belgium.
Lille police chief Jean-Christophe Lagarde, who was detained by police for questioning as part of the pimping probe, allegedly attended evenings at a luxury Paris hotel along with prostitutes and Strauss-Kahn.
David Roquet, head of a subsidiary of construction giant Eiffage, allegedly paid part of the tab from the Paris hotel sex soirees, billing his company with invoices marked with Strauss-Kahn's initials "DSK".
Reporting on the scandal this week, news magazine Marianne described the probe as "an investigation into the French Berlusconi," comparing Strauss-Kahn to the Italian prime minister famed for his raunchy parties.
The reports emerged after French prosecutors said Strauss-Kahn had admitted to acts "that could be qualified as sexual assault" against French writer Tristane Banon in 2003 but that they were halting an investigation because the statute of limitations had expired.
Strauss-Kahn is also still facing a US civil suit by Nafissatou Diallo, the Guinean chambermaid who alleges he assaulted her at the New York hotel.
Strauss-Kahn has told AFP that he wanted the authorities to question him as soon as possible over the latest allegations in order to end the "insinuations".
But unlike after his arrest in New York, the French left has not rushed to defend Strauss-Kahn this time, instead denouncing his alleged sexual escapades and seeking to distance him from the Socialists.
"I am flabbergasted by his inability to face up to his responsibilities," a former ally told Le Point.
"The page on DSK has been turned, without regrets," a Socialist lawmaker said.
The Socialists are now pinning their hopes on Francois Hollande, a party insider who was chosen as the candidate in a primary this month.
The French people also seem to have turned against him, with Strauss-Kahn coming last in a recent poll measuring trust in public figures.
The Ipsos poll released on Monday showed 71 percent of respondents saying they had an unfavourable view of Strauss-Kahn and only 20 percent a favourable one. He was ranked 35th out of 35 in the poll, down seven spots from only a month ago.
"How is it possible that such a vulnerable man was carried up to the steps of the presidency, to the point that he was declared the victor before even being a candidate?" Le Point said.
"The accumulation of revelations is turning into a sad farce, putting without a doubt the final nail in the coffin of a man who had been so glorified."
Scott Olsen, a 24-year-old Marine who served two tours of duty in Iraq, stood calmly in front of a police line as tear gas canisters that officers shot into the Occupy Oakland protest Tuesday night whizzed past his head.
"He was standing perfectly still, provoking no one," said Raleigh Latham, an Oakland filmmaker shooting footage of the confrontation between police and hundreds of protesters at 14th Street and Broadway. "If something didn't hit him directly in the face, then it went off close to his head and knocked him down."
The something was a projectile that apparently came from police lines, fractured Olsen's skull and put him in Highland General Hospital.
. . .
Olsen's injury added to the national attention focused on Occupy Oakland in the aftermath of the repeated police tear-gassing of protesters Tuesday. In Las Vegas, protesters projected a photo of the Marine in uniform onto the corrugated-metal side of a building at their camp, the Associated Press reported. Vigils for Olsen were planned at Occupy sites in other cities.
. . .
While Olsen lay wounded in the street, other protesters rushed to his aid. Video footage appears to show an officer tossing another canister toward the group helping him.
One protester can be heard screaming "What the f-" at police as the device emits a loud bang, while a demonstrator angrily pounds his sign on the street. The group eventually carried Olsen away.
Scott Olsen, the former Marine who was injured while rioting in Oakland on Wednesday night, is the founder of I Hate the Marine Corps.
. . .
Verum Serum added this comment by Scott on his facebook page.
The Marine Corps thrives on its image. They convince young men and women that they’re joining a professional military organization. But that’s not the case at all, every Marine knows it, and most have no problem downplaying the bullshit to outsiders so they can protect their “beloved corps”. I noticed some of the other posters have told you not to pay any attention to my site because we’re just a bunch of ********* who couldn’t hack it, right? Maybe not hacking it means we saw through the bullshit and don’t want to take it. Maybe the brainwashing didn’t work on us. I’m not here to tell you if you should join or not. I’m here to advise you to take the people who visit my website just as seriously as anybody who tries to sell you the MC as a good thing.
My site is anonymous, these people don’t have to worry about hiding from the MC, or protecting the MC’s image or anything. It is unfiltered truth.
Source(s):
Former Marine, owner of http://www.ihatethemarinecorps.com
No wonder the lefties love him!
In United States law, the term Glomar response (aka Glomarization or Glomar denial) refers to a "neither confirm nor deny" response to Freedom of Information Act requests.
. . .
The Glomar Explorer was a large salvage vessel built by the Central Intelligence Agency for its covert "Project Azorian" — an attempted salvaging of a sunken Soviet submarine. Aware of the pending publication of a story in the Los Angeles Times, the CIA sought to stop the story's publication. Journalist Harriet Ann Phillippi requested that the CIA provide disclosure of both the Glomar project and its attempts to censor the story, to which the CIA chose to "neither confirm nor deny" both the project's existence and its attempts to keep the story unpublished.
. . .
The "Glomar response" precedent still stood, and has since had bearing in FOIA cases ...
In March 1968 a Soviet submarine of the G-II class was lost with all hands, 16,500 feet below the surface of the Pacific Ocean.
On 8 August 1974, ... [redacted] ... that submarine was brought to the surface in ... [redacted] ... a recovery system designed and developed specifically for that mission.
AZORIAN ranks in the forefront of imaginative and bold operations undertaken in the long history of intelligence collection. It combined immense size and scope, advanced technological development, complex systems engineering and testing, unusually severe cover and security requirements, a demanding mission scenario in an unforgiving marine environment, the potential for a serious confrontation with the Soviet Union, a difficult and technically unusual exploitation phase, and high cost.
I want last week's European bail-out to work. My sincere hope is that collective and decisive action by the eurozone's large member states will stabilize global markets, at least for a while, so allowing the global economy to catch its breath.
. . .
Yet the responses of our politicians to recent financial troubles – hiding behind complexity and kicking the can down the road – have not only failed to temper the volatility, but have actually made it much worse.
Last week's eurozone "agreement", for all the related fanfare, was a case in point. Far from making the situation clearer, allowing investors to make considered assessments, this latest announcement made Western Europe's grotesque debt crisis even more acute, sowing further infectious spores of confusion.
. . .
By late Thursday ... and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone's deeply indebted governments can roll-over their enormous liabilities and keep the show on the road.
Some say Western governments shouldn't "accept" what the market says. "Who do these trading people think they are," I hear from the lips of the educated but financially-illiterate political elite. Let's be clear – if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals – sparking the prospect of serious civil unrest. Forgive my intemperate tone, but these are the dangers we face. And I'm afraid the only rational response to Thursday's announcement is that the probability of such undesirable outcomes has just been increased.
. . .
So, the centre-piece of last week's "package" is far less decisive than meets the eye. It was, in fact, singularly indecisive. The hope that Greece will clean-up its balance sheet autonomously now relies even more on a privatization programme that is already laughably behind schedule. So the moral hazard will go on, making it tougher still for the governments of Portugal, Ireland and the other eurozone "peripheries" to sell to their electorates the virtues of fiscal responsibility. These are not clever-clever academic points. I'm pointing-out, quite simply, what the bond markets will have noticed.
. . .
What is needed, urgently, is a clean, transparent Greek default – allowing this flailing semi-developed economy to leave the eurozone, re-establish a weaker drachma and regain its self-respect. Portugal should leave too, its membership of the same currency bloc as Germany is as absurd, and self-defeating, as that of Greece. There would be further market turmoil, yes, but a few more months of volatility, leading to an ultimately more stable outcome, is surely better than the current situation where the entire world is living in fear of a massive "euroquake".
The eurocrats, of course, lack the guts to trim back monetary union to a more manageable size. Too much face would be lost. So "euroquake" fears, once viewed as outlandish, are gaining pace. Despite Thursday's deal, and all the reassurances of a "durable solution", the Italian government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A default by Italy, the eurozone's third-biggest economy, and the eighth-largest on earth, would make Lehman look like a picnic.
The eurozone must be consolidated. World leaders should similarly force European banks to disclose their losses, we all take the hit and then we move on. Instead, we are served-up, in ever more complex variants, the same "extend and pretend" non-solutions. It gives me no pleasure to write this, but I give this deal two weeks.
Democracy went down in a blaze of glory last week. Both the German Bundestag and our own House of Commons put up one hell of a fight against the dying of the light. Maybe history will record that fact in an elegy on the demise of the great 18th-century experiment in government by the people: they were eloquent to the end. Because at the end, eloquence was all they had.
Trying to hold back the resurgence of oligarchy – the final dismantling of democratic responsibility in the governing of Europe – has been looking pretty hopeless for a long time. That eruption of excellent rhetoric and faultless argument which sprang to the defence of the rights of the governed (and in Germany’s case, of constitutional legality) made the loss seem all the more tragic, but no less inevitable.
So this is where we are. The agreed EU “stability union” triumphantly paraded before the media in Brussels will have the power to approve or disapprove budgets of countries in the eurozone – that is, to vet and police them – before they are submitted to the elected parliaments of those countries. In other words, parliaments which are directly mandated by, and answerable to, their own populations will not control the most essential functions of government: decisions on taxation and spending. Even without the ultimate institutions of economic and political union, which still elude the EU, actual power over fiscal policy will be taken from the hands of national leaders. And if, as a voter, you cannot influence your prospective government’s tax and spending policies, what exactly are you voting for?
. . .
Indeed, it is often quite eerie how the statements and mannerisms of EU officials, seemingly so dedicated to being the precise opposite of earlier, infamous generations, end up echoing (or parodying) the more memorable moments of the war-torn 20th century. When the president of the European Commission, José Manuel Barroso, proclaimed, “I am pleased to stand before you this morning and confirm that Europe is closer to resolving its financial and economic crisis… We are showing that we can unite in the most difficult of times”, I half expected him to wave a piece of paper in the air and proclaim economic stability in our time.
In reality, everybody’s historical experience stands in the way of the EU economic and political union steamroller.
. . .
Far from being an antidote to the ideological delusions of the past century, a trans-national superstate is the same sort of utopian, unnatural, ahistorical folly that earlier generations attempted to foist on the recalcitrant populations of Europe. Its doctrine of “co-operation” is simply coercion by another name. It relies on unswerving belief and enforced conformity, just like all the “year zero” political movements that ended in totalitarianism and terror in the past. The one hope is that the great mass of the people, unlike most of their political leaders, seem to understand all this quite clearly. It remains to be seen whether they will have to go out on the streets to make their case.
Assessing the Damage of the European Banking Crisis
Europe faces a banking crisis it has not wanted to admit even exists.
The formal authority on financial stability, International Monetary Fund (IMF) chief Christine Lagarde, made her institution’s opinion on European banking known back in August when she prompted the European Union to engage in an immediate 200 billion-euro bank recapitalization effort. The response was broad-based derision from Europeans at the local, national and EU bureaucratic levels. The vehemence directed at Lagarde was particularly notable as Lagarde is certainly in a position to know what she was talking about: Until July 5, her title was not IMF chief, but French finance minister. She has seen the books, and the books are bad. Due to European inaction, the IMF on Oct. 18 raised its estimate for recapitalization needs from 200 billion euros to 300 billion euros ($274 billion to $410 billion).
Sovereign Debt: The Expected Problem
The collapse in early October of Franco-Belgian bank Dexia, a large Northern European institution whose demise necessitated a state rescue, shattered European confidence. Now, Europeans are discussing their banking sector. A meeting of eurozone ministers Oct. 21 is largely dedicated to the topic, as is the Oct. 23 summit of EU heads of government. Yet European governments continue to consider the banking sector largely only within the context of the ongoing sovereign debt crisis.
This is exemplified in Europeans’ handling of the Greek situation. The primary reason Greece has not defaulted on its nearly 400-billion euro sovereign debt is that the rest of the eurozone is not forcing Greece to fully implement its agreed-upon austerity measures. Withholding bailout funds as punishment would trigger an immediate default and a cascade of disastrous effects across Europe. Loudly condemning Greek inaction while still slipping Athens bailout checks keeps that aspect of Europe’s crisis in a holding pattern. In the European mind — especially the Northern European mind — a handful of small countries that made poor decisions are responsible for the European debt crisis, and while the ensuing crisis may spread to the banks as a consequence, the banks themselves would be fine if only the sovereigns could get their acts together.
This is an incorrect assumption. If anything, Europe’s banks are as damaged as the governments that regulate them.
When evaluating a problem of such magnitude, one might as well begin with the problem as the Europeans see it — namely, that their banks’ biggest problem is rooted in their sovereign debt exposure.(Click this and other diagrams for a larger view)
The state-bank contagion problem is fairly straightforward within national borders. As a rule the largest purchaser of the debt of any particular European government will be banks located in the particular country. If a government goes bankrupt or is forced to partially default on its debt, its failure will trigger the failure of most of its banks. Greece does indeed provide a useful example. Until Greece joined the European Union in 1981, state-controlled institutions dominated its banking sector. These institutions’ primary reason for being was to support government financing, regardless of whether there was a political or economic rationale justifying that financing. The Greeks, however, have no monopoly on the practice of leaning on the banking sector to support state spending. In fact, this practice is the norm across Europe.
Spain’s regional banks, the cajas, have become infamous for serving as slush funds for regional governments, regardless of the government in question’s political affiliation. Were the cajas assets held to U.S. standards of what qualifies as a good or bad loan, half the cajas would be closed immediately and another third would be placed in receivership. Italian banks hold half of Italy’s 1.9 trillion euros in outstanding state debt. And lest anyone attempt to lay all the blame on Southern Europe, French and Belgian municipalities as well as the Belgian national government regularly used the aforementioned Dexia in a somewhat similar manner.
Yet much debt remains for outsiders to own, so when states crack, the damage will not be held internally. Half or more of the debt of Greece, Ireland, Portugal, Italy and Belgium is in foreign hands, but like everything else in Europe the exposure is not balanced evenly — and this time, it is Northern Europe, not Southern Europe, that is exposed. French banks are more exposed than any other national sector, holding an amount equivalent to 8.5 percent of French gross domestic product (GDP) in the debt of the most financially distressed states (Greece, Ireland, Portugal, Italy, Belgium and Spain). Belgium comes in second with an exposure of roughly 5.5 percent of GDP, although that number excludes the roughly 45 percent of GDP Belgium’s banks hold in Belgian state debt.
When Europeans speak of the need to recapitalize their banks, creating firebreaks between cross-border sovereign debt exposure dominates their thoughts — which explains why the Europeans belatedly have seized upon the IMF’s original 200 billion-euro figure. The Europeans are hoping that if they can strike a series of deals that restructure a percentage of the debt owed by the Continent’s most financially strapped states, they will be able to halt the sovereign debt crisis in its tracks.
This plan is flawed. The figure, 200 billion euros, will not cover reasonable restructurings. The 50 percent writedowns or “haircuts” for Greece under discussion as part of a revised Greek bailout — likely to be announced at the end of the upcoming Oct. 23 EU summit — would absorb more than half of that 200 billion euros. A mere 8 percent haircut on Italian debt would absorb the remainder.
Moreover, Europe’s banking problems stretch far beyond sovereign debt. Before one can understand just how deep those problems go, we must examine the role European banks play in European society.
The Centrality of European Banking
Several differences between the European and American banking sectors exist. By far the most critical difference is that European banks are much more central to the functioning of European economies than American banks are to the U.S. economy. The reason is rooted in the geography of capital.
Maritime transport is cheaper than land transport by at least an order of magnitude once the costs of constructing road and rail infrastructure is factored in. Therefore, maritime economies will always have surplus capital compared to their land transport-based equivalents. Managing such excess capital requires banks, and so nearly all of the world’s banking centers form at points on navigable rivers where capital richness is at its most extreme. For example, New York is where the Hudson meets the Atlantic Octen, Chicago is at the southernmost extremity of the Great Lakes network, Geneva is near the head of navigation of the Rhone, and Vienna is located where the Danube breaks through the Alps-Carpathian gap.
Unity differentiates the U.S. and European banking system. The American maritime network comprises the interconnected rivers of the Greater Mississippi Basin linked into the Intracoastal Waterway, which allows for easy transport from the U.S.-Mexico border on the Gulf of Mexico all the way to the Chesapeake Bay. Europe’s maritime network is neither interlinked nor evenly shared. Northern Europe is blessed with a dozen easily navigable rivers, but none of the major rivers interconnect; each river, and thus each nation, has its own financial capital. The Danube, Europe’s longest river, drains in the opposite direction but cuts through mountains twice in doing so. Some European states have multiple navigable rivers: France and Germany each have three major ones. Arid and rugged Spain and Greece, in contrast, have none.
The unity of the American transport system means that all of its banks are interlinked, and so there is a need for a single regulatory structure. The disunity of European geography generates not only competing nationalities but also competing banking systems.
Moreover, Americans are used to far-flung and impersonal capital funding their activities (such as a bank in New York funding a project in Nebraska) because of the network’s large and singular nature. Not so in Europe. There, regional competition has enshrined banks as tools of state planning. French capital is used for French projects and other sources of capital are viewed with suspicion. Consequently, Americans only use bank loans to fund 31 percent of total private credit, with bond issuances (18 percent) and stock markets (51 percent) making up the balance. In the eurozone roughly 80 percent of private credit is bank-sourced. And instead of the United States’ single central bank, single bank guarantor and fiscal authority, Europe has dozens. Banking regulation has been expressly omitted from all European treaties to this point, instead remaining a national prerogative.
As a starting point, therefore, it must be understood that European banks are more central to the functioning of the European system than American banks are to the American system. And any problems that might erupt in the world of European banks will face a far more complicated restitution effort cluttered with overlapping, conflicting authorities colored by national biases.
Demographic Limitations
European banks also face less long-term growth. The largest piece of consumer spending in any economy is done by people in their 20s and 30s. This cohort is going to college, raising children and buying houses and cars. Yet people in their 20s and 30s are the weakest in terms of earning potential. High consumption plus low earning leads invariably to borrowing, and borrowing is banks’ mainstay. In the 1990s and 2000s much of Europe enjoyed a bulge in its population structure in precisely this young demographic — particularly in Southern European states — generating a great deal of economic activity, and from it a great deal of business for Europe’s banks.
But now, this demographic has grown up. Their earning potential has increased, while their big surge of demand is largely over, sharply curtailing their need for borrowing. In Spain and Greece, the younger end of population bulge is now 30; in Italy and France it is now 35; in Austria, Germany and the Netherlands it is 40; and in Belgium it is 45. Consumer borrowing in general and mortgage activity in particular probably have peaked. The small sizes of the replacement generations suggests there will be no recoveries within the next few decades. (Children born today will not hit their prime consumptive age for another 20 to 30 years.) With the total value of new consumer loans likely to stagnate (and more likely, decline) moving forward, if anything there are now too many European banks competing for a shrinking pool of consumer loans. Europe is thus not likely to be able to grow out of any banking problems it experiences. The one potential exception is in Central Europe, where the population bulges are on average 15 years younger than in Western Europe. The younger edge of the Polish bulge, for example, is only 25. In time, these states may be able to grow out of their problems. Either way, the most lucrative years for Western European banking are over.
Too Much Credit
Germany has extremely high capital accumulation and extremely competent economic management. One of the many results of this pairing is extremely inexpensive capital costs. When Germans — governments, corporations or individuals — borrow money, it is accepted as a near-fact that they will pay back what they owe, on time and in full. Reflecting the high supply and low risk, German borrowing rates for governments and corporations have long been in the low to mid single digits.
The further you move from Germany the less this pattern holds. Capital availability shrivels, management falters and the attitude toward contract law (or at least as defined by the Germans) becomes far less respectful. As such, Europe’s peripheral economies — most notably its smaller peripheral economies — have normally faced higher borrowing costs. Mortgage rates in Ireland stood near 20 percent less than a generation ago. Government borrowing rates in Greece have in the past topped 30 percent.
With that sort of difference, it is not difficult to see why many European states have striven for inclusion in first, the European Union, and second, the eurozone. Each step of the European integration process has brought them closer in financial terms to the ultra-low credit costs of Germany. The closer the German association, the greater the implicit belief that German financial resources would help them in a crisis (despite the fact that EU treaties explicitly rejected this).
The dawn of the eurozone era prompted lenders and investors to take this association to an extreme. Association with Germany shifted from lower lending rates to identical lending rates. The Greek government could borrow at rates that only Germany could demand in the past. Irish borrowers were able to qualify for 130 percent mortgages at 4 percent. Compounding matters, the collapse of borrowing costs and the explosion of loan activity occurred at the same time as Southern Europe’s demographic-driven consumption boom. It was the perfect storm for explosive banking growth, and it laid the groundwork for a financial collapse of unprecedented proportions.
Drastic increases in government debt are the most publicly visible outcome, but it is far from the only one. The least visible outcome is that extraordinarily cheap credit to consumers triggers an explosion in demand that local businesses cannot hope to fill. The result is unprecedented trade deficits as money borrowed from foreigners is used to purchase foreign goods. Cyprus, Greece, Portugal, Bulgaria, Romania, Lithuania, Estonia and Spain — all states whose cheap labor when compared to the Western European core should encourage them to be massive exporters — instead have run chronic trade deficits in excess of 7 percent of GDP. Most routinely broke 10 percent. Such developments do not directly harm the banks, but as credit costs return to more rational levels — and in the ongoing debt crisis borrowing costs for most of the younger EU members have tripled and more — consumption is coming to a halt. In the few European markets that demographically may be able to generate consumption-based growth in the years ahead, credit is drying up.
Foreign Currency Risk
Much of this lending into weaker locations was carried out in foreign currencies. For the three states that successfully made the early sprint into the eurozone — Estonia, Slovenia and Slovakia — this was a nonfactor. For those that did not make the early leap into the eurozone it was a wonderful way to get something for nothing. Their association with the European Union resulted in the steady strengthening of their currencies. Since 2004, the Polish, Czech, Romanian and Hungarian currencies gained roughly one-third versus the euro, driving down the monthly payments on any euro-denominated loan. That inverted, however, in the 2008 financial crisis. Then, every regional currency but the Czech koruna (and Bulgarian lev, which is pegged to the euro) gave back their gains. For Central Europeans who had taken out loans when their currencies were at their highs, payments ballooned. More than 10 percent of Polish and Hungarian mortgages are now delinquent, largely because of currency movements.
New Banking ‘Empires’
The cheap credit of the eurozone’s first decade allowed several peripheral European states a rare opportunity to expand their network of influence, even if they were not in the eurozone themselves. They could borrow money from core European banking centers like Germany, France, Switzerland and the Netherlands and pass that money on to previously credit-starved markets. In most cases, such credit was offered without the full cost-increase that these states’ poorer and smaller statures would have justified. After all, these would-be financial centers had to undercut the more established European financial centers if they were to gain meaningful market share. This pushed far more credit into Central Europe than the region otherwise would have attracted, speeding up the development process at the cost of poor underwriting and a proliferation of questionable lending practices. The most enthusiastic crafters of new banking empires have been Sweden, Austria, Spain and Greece.
- Sweden has the happiest record of any of the states that engaged in such expansionary lending. Being one of the richest countries in Europe and yet not being a member of the eurozone, Sweden did not experience a credit expansion nearly as much as other states, instead it served as a conduit for that credit — augmented by its own — to its former imperial territories. Alone among the forgers of new banking empires, Sweden’s superior financial stability has allowed it (so far) to continue financial activities in its target markets — Estonia, Latvia, Lithuania and Denmark — despite the ongoing financial crisis. But instead of lending, Swedish banks are now purchasing regional banks outright. Swedish command of the Danish banking sector, for example, has increased by 80 percent since the crisis. Through its new local subsidiaries, Swedish banks now lend more in per capita terms to Danes than they do to their own citizens, and there is no longer a domestic Estonian banking sector — it is 97 percent Swedish-owned. Such expansionary activity is likely to continue so long as Sweden can sustain it, as there is a geopolitical angle to Sweden’s effort: It is seeking to deepen its regional influence not only for economic purposes, but also to mitigate the rising role of its longtime competitor, Russia.
- Austria has tapped not only eurozone credit but also taken advantage of favorable carry trades to serve as a conduit for Swiss franc credit into Central Europe. Just as Sweden is using foreign capital to re-create its historic sphere of influence in the Baltic, Austria is doing the same in the lands of the former Austro-Hungarian Empire. Now, the majority of all mortgages in Poland, Hungary, Croatia and Romania — and a sizable minority in Austria — are denominated in foreign currencies, courtesy of Austrian banking activity. With the Swiss franc now locked in at record highs, many of these mortgages are not serviceable. The Hungarian government has felt forced to abrogate the terms of many of these loans, knowing that the Austrian banks are now so overexposed to Central Europe that they have no choice but to take the losses. As the financial crisis has continued apace, Austria has found itself with more exposure, fewer domestic resources and greater vulnerability to external forces than Sweden. So instead of being able to take advantage of regional weakness, it is finding itself losing market share both at home and in its would-be financial empire to Russia.
- Spain’s banking empire isn’t even in Europe. Spanish firms BBVA-Compass and Santander have used the cheap euro credit to massively expand credit to Latin America. And Spain’s expansion took a somewhat novel route: The combination of cheap lending at home and in Latin America encouraged more than a million Latin American Spanish speakers to relocate to Spain and gain citizenship. To smooth the naturalization process, Madrid mandated that the new Spaniards be granted top-notch credit, a factor that only added to an already hyperactive construction sector. Spanish banks’ nearly 500 billion-euro exposure to Latin America is, for now, holding; only time will tell its impact to Spain’s bottom line.
- The Greek government used its access to cheap credit to build up debt levels that are now the subject of much discussion across Europe. But much less is made of its banks, who encouraged consumers both at home and across the southern Balkans to increase their own debt levels. Being the least experienced of the four would-be financial centers, Greek banks offered the steepest credit breaks to the countries with the weakest repayment potential. Like Spain, Greece also did not make EU membership a condition for lending; vast volumes accordingly were fed into Macedonia, Serbia and even Albania.
Housing Bubbles
Large volumes of suddenly cheap credit made available to eager consumers obviously generated a series of sizable housing bubbles.
Spain’s tapping of European credit markets also underwrote the largest housing boom in Europe. More construction projects have been completed in Spain in recent years than in Germany, France, Italy and the United Kingdom combined. The construction sector — both commercial and residential — has now collapsed and there are about 1 million homes now sitting vacant in a country with just 16.5 million families. Outstanding loans to various real estate interests total some 400 billion euros, all backed by collateral that has lost 20 percent of its value since the housing market peaked.
In relative terms, Ireland actually did more than Spain. At its peak, nearly 10 percent of Irish gross national product was dependent upon construction, with 70 percent of that purely from residences. Half of the mortgages extended during the Irish real estate boom were made at the peak of the market between 2006 and 2008. That sector remains in the midst of a fairly rapid collapse. Residential home prices have reduced by half since their peak in 2007 and are showing few signs of stabilizing. The Irish government hopes that with their eurozone bailout package, their banking sector will become functional again by 2020. Until then, Ireland in effect has no banking sector and has been financially sequestered from the rest of the eurozone.
Two other European states — the United Kingdom and Sweden — have both experienced massive increases in home price growth, and both suffered from price corrections due to the 2008 financial crisis. But prices in both markets have recovered smartly, with Sweden even bouncing back above its pre-crisis highs. Sweden, in fact, is still experiencing a massive housing boom, with annual mortgage credit still expanding at a 30 percent annualized rate.
The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. Our clock shows the global figure for all (or almost all) government debts in dollar terms.(Screen capture of the interactive Global Debt Clock - not up to date)
Does it matter? After all, world governments owe the money to their own citizens, not to the Martians. But the rising total is important for two reasons. First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future. Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments, rather as reality TV show contestants face a public phone vote every week. Fail that vote, as the Greek government did in early 2010, and the country can be plunged into imminent crisis. So the higher the global government debt total, the greater the risk of fiscal crisis, and the bigger the economic impact such crises will have.
Sometimes when you buy a pair of shoes, one of them can feel snug while the other one does not quite fit.
Tom Boddingham certainly knows the feeling.
When the 27-year-old ordered a special monster-design slipper to fit his oversized left foot, he was sent this size 1,450 one – because manufacturers failed to spot a decimal point.
He had requested a 14.5, as well as a smaller size 13 for his right foot. The pair cost £15.50 [about US $25].
However, manufacturers in China misread the measurement and accidentally made the whopping seven foot-long slipper, which was shipped to him along with the correct smaller size.
Sometime in 2012, I will begin the ninth year of my life under an FBI gag order, which began when I received what is known as a national security letter at the small Internet service provider I owned. On that day in 2004 (the exact date is redacted from court papers, so I can’t reveal it), an FBI agent came to my office and handed me a letter. It demanded that I turn over information about one of my clients and forbade me from telling “any person” that the government had approached me.
National security letters are issued by the FBI, not a judge, to obtain phone, computer, and banking information. Instead of complying, I spoke with a lawyer at the American Civil Liberties Union and filed a constitutional challenge against the NSL provision of the Patriot Act, which was signed into law 10 years ago Wednesday.
. . .
For years, the government implausibly claimed that if I were able to identify myself as the plaintiff in the case, irreparable damage to national security would result. But I did not believe then, nor do I believe now, that the FBI’s gag order was motivated by legitimate national security concerns. It was motivated by a desire to insulate the FBI from public criticism and oversight.
In 2007, this newspaper made an exception to its policy against anonymous op-eds and published a piece I wrote about my predicament. In August 2010, the government agreed to a settlement, and I was finally allowed to reveal my name to the public in connection with my case, but I am still prevented — under the threat of imprisonment — from discussing any fact that was redacted in the thousands of pages of court documents, including the target of the investigation or what information was sought.
I don’t believe that it’s right for Americans’ free speech rights to be bound by perpetual gag orders that can’t be meaningfully challenged in a court of law. The courts agreed, but the NSLs and the gag orders live on. Now the FBI is supposed to notify NSL recipients that they can challenge a gag order — but the government refuses to say how the court’s ruling has been put into practice, or how many gag orders have been issued, challenged or reversed. This information is especially important since internal Justice Department investigations have found widespread violations of NSL rules by the FBI.
