Showing posts from February 10, 2016

Why coco bonds are worrying investors

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[This is a good piece for explaining coco bonds, which are the source of the hoopla over Deutsche Bank. *RON*]

Thomas Hale and Dan McCrum, Financial Times, 9 February 2016

Shares and debt of eurozone banks are being hammered as investors question the sector’s ability to make coupon payments on contingent convertible bonds, popularly known as “cocos”.

What are cocos?

At a simple level a company has owners, and it borrows money from lenders who expect to get their money back. If the business runs into trouble, the owners lose their stake and the debt becomes equity — lenders turn into owners — in what can be a drawn-out process of restructuring.

Because a bank in trouble would not have time for such negotiation, coco bonds are designed to anticipate that process and transform automatically from debt to equity when certain conditions are met. Their full name is tier one contingent convertible bonds, and most are also known as additional tier 1 capital …

Is the European banking industry facing its own Lehman Brothers moment?

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["Lenders have been spending their investors' cash like drunken sailors on shore leave for nearly eight years now. Patience is running out." My sense is that things are being exaggerated. But the breathless headlines continue: Deutsche Bank’s Hybrid Bonds Are in a Death SpiralSo, People Are Getting Nervous About Germany’s Biggest Bank, and Paul Krugman's Bonds on the Run. "...the spirit of Lehman Brothers is looming over the market turmoil like Banquo’s ghost." *RON*]

By Ben Wright, The Telegraph, 9 Feb 2016

A bad year for European banks just got a whole lot worse. The Euro Stoxx 600 Index of leading bank shares has lost nearly a fifth of its value in the past 30 days after a spectacular sell-off on Monday.

Few have been spared. The share prices of Barclays, BNP Paribas and Unicredit all slid around 5pc, those of Deutsche Bank fell 10pc, and the value of Greece’s three largest banks all slumped nearly 30pc – from not …

The costs of inequality: Increasingly, it’s the rich and the rest

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[Economic and political inequities are interlaced, leaving many poor and voiceless. “Smart poor kids are less likely to graduate from college now than dumb rich kids. That’s not because of the schools, that’s because of all the advantages that are available to rich kids.” — Robert Putnam. “In the current election cycle, 158 families have given half the money to candidates.” — Lawrence Lessig. “What is quite new in recent times is … very systematically, that government really responds much more to the privileged than to even middle-income people who vote.” — Theda Skocpol *RON*]
By Christina Pazzanese, Harvard Gazette, 8 February 2016
Second in a series on what Harvard scholars are doing to identify and understand inequality, in seeking solutions to one of America’s most vexing problems.

“We can either have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both,” Associate Supreme Court Ju…

Children with a Religious Upbringing Show Less Altruism

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[When allowed to be secretly greedy or generous, religious children chose not to share. As usual the research raises as many questions than it answers, but they are good questions worth pursuing. *RON*]

By Victoria Sayo Turner, Scientific American, 9 February 2016

Organized religion is a cornerstone of spiritual community and culture around the world. Religion, especially religious education, also attracts secular support because many believe that religion fosters morality. A majority of the United States believes that faith in a deity is necessary to being a moral person.

In principle, religion’s emphasis on morality can smooth wrinkles out of the social fabric. Along those lines, believers are often instructed to act selflessly towards others. Islam places an emphasis on charity and alms-giving, Christianity on loving your neighbor as yourself. Taoist ethics, derived from the qualities of water, include the principle of selflessness

However, new …

The predators behind the TPP

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["The TPP and TPIP accords are about power, not trade. More specifically, the agreements are about changed power relations between a collectivity of politically well-connected large corporations and the sovereign states in which these entities want to sink new roots. In particular, these treaties would allow U.S. corporations to engage in conduct unchecked by national rules of the participating countries. In eyes not fogged over through neoliberal dogma, such a thing would be recognized as predation." *RON*]
By Karel Van Wolferen, Japan Times, 6 February 2016

Misnomers that hide what the strong and rich control — and aspire to control — help promote our world’s numerous political ills. “Spreading democracy” in the Middle East and Africa has been used to excuse much slaughter, ruin and higher risks of wider war for purposes not remotely connected with democracy.

The designation “trade” used by politicians and the media when talking about …

Robert Reich: A Huge Slice of the Democratic Establishment Wants to Play It Safe at a Time When Millions Are Desperate

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["Some establishment Democrats ... have grown comfortable with the way things are. They’d rather not rock the boat they’re safely in." This is very much the mis-reading that allowed the NDP to throw the federal election away. "We must get big money out of our democracy, end crony capitalism, and make our economy and democracy work for the many, not just the few." *RON*]
By Robert Reich, Robert Reich's Blog, 8 February 2016

Instead of “Yes we can,” many Democrats have adopted a new slogan this election year: “We shouldn’t even try.”

We shouldn’t try for single-payer system, they say. We’ll be lucky if we prevent Republicans from repealing Obamacare.

We shouldn’t try for a $15 an hour minimum wage. The best we can do is $12 an hour.

We shouldn’t try to restore the Glass-Steagall Act that used to separate investment and commercial banking, or bust up the biggest banks. We’ll be lucky to stop Republicans from repealing Dodd-Frank.

Canada's Income Inequality May Be Larger Than Previously Thought: OECD Study

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[New research suggests that income inequality is higher than has previously been estimated. *RON*]
By Daniel Tencer, Huffington Post, 9 February 2016

The gap between rich and poor in Canada, and in many developed countries, is wider than previously thought, says a new study from the OECD.

Economists Nicolas Ruiz and Nicolas Woloszko argue in a new working paper that the existing data on income inequality is incomplete because it’s based on household surveys. High-end earners tend to under-report their income in these surveys, they argue.

To fix the problem, the researchers looked at income tax data from the 34 OECD member countries, and then adjusted the data based on these numbers.

“The results point to a significant increase of the level of inequality,” they concluded.

In Canada, it was believed that the top 10 per cent of earners took home nearly three times as much income, on average, as the median earner.

A very special version of Russian democracy

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[When asked whether their country is a democracy, Russians struggle to answer. "Perhaps unsurprisingly, no one could elaborate on the specifics of the desired model... 'Russia needs a strong leader, a disciplinarian. Russians cannot be ruled with a carrot, they understand only the stick.'" Interesting to read in conjunction with The Elephant in the Room: Islam and the Crisis of Liberal Values in Europe*RON*]
By Jana Bakunina, New Statesman, 22 January 2016
Russia cannot be understood with mere intellect
Or measured by a common yardstick.
Russia is so special
That you can only believe in it.

These famous lines, written by a Russian poet Feodor Tutchev in 1866, are rightfully timeless. Last week an independent Moscow-based market research agency Levada Centre published the results of its recent survey on democracy in Russia. At the risk of asking the obvious (according to its constitution, Russia is a democratic, federal repub…