Monday, August 6, 2012

NEWS,06.08.2012


NY: Standard Chartered hid huge Iran trade


Standard Chartered Bank (SCB) was accused on Monday by New York state regulators of hiding $250bn in allegedly illegal transactions with Iran for almost a decade.The regulators accused the London-based global bank of "systematic misconduct" which might have allowed terrorists and criminals to gain access to the country's banking system.New York's Department of Financial Services threatened Standard Chartered with fines and possible suspension of its license to operate in the state, the hub of the US financial industry, if it could not explain the transactions which allegedly violated US sanctions on Iran.The bank was ordered to appear before the department on August 15 "to explain these apparent violations of law and to demonstrate why SCB's license to operate in the State of New York should not be revoked.""For almost ten years, SCB schemed with the Government of Iran and hid from regulators roughly 60 000 secret transactions, involving at least $250bn, and reaping SCB hundreds of millions of dollars in fees."The transactions involved major state-owned Iranian banks including the country's central bank.The regulator said Standard Chartered falsified records and obstructed oversight "in its evident zeal to make hundreds of millions of dollars at almost any cost."The transactions "left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity," it said.The department said its investigation into the bank's also included evidence of possible illegal transactions with Libya, Myanmar and Sudan while those countries were under US sanctions.


European shares touch 4-month highs


European equities touched fresh four-month highs on Monday, with investors shifting into financials from the more defensive drug makers and food producers after the European Central Bank (ECB) opened the way for measures to fight the euro zone debt crisis.ECB President Mario Draghi last week laid out plans to buy bonds to lower borrowing costs for Spain and Italy. Although the plan was heavily conditional and markets were originally disappointed by the lack of immediate intervention, the prospect of eventual action has since helped drive down sovereign bond yields and boost risk appetite."He put enough in place to tide the market over for the next few months. He said he would be introducing more information over the next few weeks... so you can easily get caught offside by making the wrong decision," said Kevin Lilley, European equities fund manager at Old Mutual Asset Managers."My overweight position is in financials and the good thing is that financials are outperforming the cyclicals ... He is showing that he will take the necessary action, so I think people will become less risk averse as time progresses."Eurozone banks added 0.8%, taking their rebound over the past two weeks from an all-time low to around 21%, while insurers gained 2.4%. Other cyclical sectors, such as autos also outperformed, while healthcare and food sold off as investors adopted a more pro-risk stance in their portfolios. The improved sentiment helped the pan-European FTSEurofirst 300 was up 0.2% to 1083.22 by 1016 GMT, hitting levels not seen since early April after rallying 2.5% on Friday and posting its ninth consecutive weekly gain.The STOXX 50 index of euro zone bluechips rose 0.5% to 2,384.50, and technical strategist at SEB said more gains could follow."An alternated wave count points towards possible further gains up into the 2,422/2,499 Fibonacci projection area," they said in a note, highlighting resistance at 2,398 ahead of that.Germany's DAX, up 0.6% at 6,906.50 points, made its way towards the psychologically key 7,000 mark, above which it has only traded in two months since last August.Trading on the Spanish bourse was halted due to a technical glitch, but Italy, another possible beneficiary of ECB action, outperformed other major markets with a 0.8% rise. Some sign of an easing of nerves in the crisis was industry numbers showing Spanish and Italian equity funds posted their biggest weekly inflows since the first quarter of 2011 last week, even as Europe as a whole saw outflows.With policymakers signalling a willingness to backstop markets, strategists at Nomura suggested playing the market through the 'value' style."We still see room for inexpensive, under-owned risk assets to outperform in the second half ... Value in the global equity space is robust and capturable, leading us to continue emphasising a fairly cyclical, and higher-beta (1.2) global Focus List," its strategists said, highlighting stocks including car maker Daimler and miner Rio Tinto.Euro zone woes, however, continued to resonate through the second quarter earnings season, with 50% of European companies missing expectations to-date against just 29% of U.S. ones, according to Thomson Reuters StarMine. Companies that make money outside Europe outperformed, with Richemont topping the gainers board on Monday after the Swiss-listed luxury goods maker said its first half net profit could rise by as much as 40% thanks to strong demand from Asia and emerging markets.


Waiting in Vain for the Quick Fix

 

Investors are awaiting the miraculous delivery from crisis by the ECB and the Fed, but they are waiting in vain. The economic problems in the U.S. and Eurozone are mostly structural, not monetary. Unfortunately ideologues and politicians on both sides of the spectrum are interested in quick fixes rather than the real groundwork of economic progress. Consider the new U.S. unemployment announcement. If you are a college graduate, there is no employment crisis. 72.7 percent of the college-educated population age-25 and over is working. The unemployment rate is 4.1 percent. Incomes are good. If you have less than a high-school diploma, however, you are barely scrapping by. Only 40.4 percent of those without a high-school diploma have a job. Their unemployment rate is 12.7 percent. Incomes are too low to make ends meet. There are two Americas: the college-educated crowd that may have taken a hit in their retirement accounts, but who are generally doing well. Then there are the rest, around 60 percent of the population, who are increasingly dropping out of the middle class. Nearly one-half of American households are now classified as low-income, within twice the poverty line. Most observers other than the ideologues and economists can see why this is so. Those at the top have been favored in three ways during the past 30 years. The ongoing digital revolution has been their friend, adding heft to the knowledge economy. The globalization of trade has brought a surfeit of low-priced consumer goods (including the computers and smart phones that are their daily companions). And the money-fed political system has ensured a stream of political favors for the affluent: low tax rates, offshore tax havens, financial deregulation, mere hand-slaps for corporate abuse, and more. The rest of the labor force, however, is hurting. The digital revolution has automated millions of jobs. Globalization has offshored millions more jobs. And politics has increasingly neglected the bottom half of the population. The bottom half are fodder for TV-based campaign propaganda but not for policymaking. Tax cuts at the top are paid for by budget cuts on education, environment, and infrastructure. The Democrats are slightly better than the Republicans on this count, but the practical as opposed to rhetorical differences should not be exaggerated. And then there are the three miracle cures. Keynesians propose to solve the unemployment problem by another dose of temporary deficit-financed stimulus. The approach doesn't work. A stimulus might at best create another temporary construction bubble. Yet the effect would be at best temporary and the hangover would again be serious. In practice, the outcomes of stimulus packages are even more meager. The temporary tax cuts and transfer payments in the recent Obama packages have been more saved than spent, adding to public debt rather than to aggregate demand even in the short term. Quantitative easing by the Fed is a similarly weak salve. Monetary easing can potentially stoke more asset bubbles large and small, but cannot solve structural problems. Arguably the monetary hangovers are as bad as the fiscal hangovers. We are, after all, still digging out from the Hayek-type crisis of misplaced investment in real estate caused by excessive liquidity expansion during the past decade. Tax cuts combined with budget cuts are the third miracle cure: the idea of getting government "out of the way" to let the private sector lift the economy out of its doldrums. The absurdity is that this policy is that it's the opposite of what's needed to overcome a structural crisis of insufficient education and job skills. Poor kids need society's help, not its neglect. The Eurozone of course has its own added structural challenges. When German banks over-lent for most of a decade, and Spanish, Greek, Irish, Portuguese and Italian banks over-borrowed, the boom-bust cycle crossed national boundaries. ECB President Mario Draghi cannot solve the basic political problem that resulted. Southern Europe's debts need to be written down, and owners of German banks need to bear the losses. If that means that the German taxpayer ultimately must pay to recapitalize the banks, then so be it. A few northern European countries have successfully avoided the deep structural problems. They've done this not through monetary, Keynesian, or tax-cut policies, but by ensuring that every child receives a decent education and skill training, no matter whether they are born poor or rich. Families are backed by generous family support of various kinds. Active labor market policies promote school-to-job transitions. Therein lie the successful formulas of the German social-market economy, Scandinavia's famed social democracies, or the Netherland's polder model. In all of those countries, ample public financing levels the playing field across households. Structural crises between the haves and have-nots have been contained even as market forces have tended to widen income and skill inequalities. So where does that leave the U.S. and Europe in macroeconomic policymaking? The U.S. needs long-term public investments -- in education, skills, and infrastructure -- so that its dual economy can once again become an inclusive middle-class economy. Out kids should be in school and training, rather than in unemployment or low-skilled work. The Eurozone needs debt relief, cleaned-up banks, and social inclusion in the south that matches the more successful north. The entire rich world needs to understand that it faces a new era, in which its growth will be earned the hard way, by having sufficient skills and technology to warrant a significant wage premium over the emerging economies. And all countries rich and poor will need to plug two more structural holes. The first is the explosion of tax havens, the kind where Mr. Romney reportedly keeps his savings. Without adequate taxation of corporate and high-end income, there is no way to close budget gaps in the U.S. and Europe. The second is ecological. No economic trick, no amount of education and training, will suffice, if we do ourselves in by human-induced droughts, heat waves, famines, and floods. It's time, in short, to put away the gimmicks and to start thinking about the sustainable economic prosperity, built on education, skills, social inclusion, and environmental responsibility.








No comments:

Post a Comment