Monday, June 17, 2013

17/6/2013: ESM Rules Book Draft


Reuters recently reported [Updated: link is here http://pdf.reuters.com/pdfnews/pdfnews.asp?i=43059c3bf0e37541&u=2013_06_17_11_43_b16e8d8f95d140d2a6693737fcd98885_PRIMARY.pdf  H/T to @Taleof2Treaties] on a document prepared for the Eurogroup meeting in Luxembourg that puts forward more detailed set of rules for ESM deployment in recapitalising the banks.  The rules, as seen by Reuters, involve:

  • A private sector bail-in to be required before any ESM contribution can be made. More on this below; and
  • The ESM will apply a two-tier test in deciding whether recapitalisation can be carried out: the capital must fall below critical adequacy levels, and the bank must be considered systemic for the eurozone as a whole, not a national system. Which means in the case of Ireland - no recapitalisations of ANY irish bank, neither BofI, nor AIB, nor Anglo. Per ESM rule book, the whole country can go insolvent, as long as Deutsche Bank or Credit Agricole are still floating.

When a bank gets into trouble, the Euro-Troika: ECB, the European Commission and the ESM,

  • Will stress-test / value bank’s assets. Euro-Troika will set the required level of capital the bank will require, thus opening the process to the transfer of foreign-held liabilities onto the shoulders of the country taxpayers. For example, suppose an Irish bank X holds 10% of its liabilities against external foreign subordinated lenders. In normal case, these would be forced to take a haircut first. But Euro-Troika can determine that is must make good on full 10%, thus transferring liability fully to the sovereign of bank X domicile via the first requirement that the sovereign must step in ahead of any ESM recapitalization. 
  • After determining the amount of capital required, the ESM will also determine if the bank has the minimum legal common equity Tier 1 ratio, currently at 4.5%. If the bank does not meet the minimum, the government would inject between 10% and 20% of the funds shortfall. The ESM will provide the residual.
  • If the government cannot meet the demands for 10-20% injection, the ESM will not step in to recap the bank
  • Once the bank is recapitalised using ESM funds, ESM will take equity in the bank and will engage in setting bank strategy and business model. The ESM will also track bank performance to targets and will also have power to change bank management and board. This will be a major departure from the modus operandi of the Irish authorities, but to what extent it will be effective / significant remains to be see. After all, pro forma changes can be put in place with minor alteration to the pre-crisis status quo.

The document says ESM will deal with legacy assets, which is an ambiguous statement, but potentially holds some hope for Ireland.

17/6/2013: Latvia's Mistake


An excellent piece by ex-IMF Ashoka Mody for Bruegel blog on Latvia's bizarre, one-way (the wrong way) bet on entering the Euro: http://www.bruegel.org/nc/blog/detail/article/1108-latvia-in-the-eurozone-a-bet-with-no-upside/

Mody - having completed pensionable tenure at the IMF - is now going 'free agent' so political correctness can be set aside. He argues, quite correctly, that Latvia's membership in the Euro simply ties its hands on currency valuations and interest rates, without giving it anything tangible in return.

"But the economics does not favor euro adoption by Latvia. The Latvian authorities are giving up the extremely valuable option of floating their exchange rate at a future time. And what may be the offsetting gain? Establishing policy credibility is not one of them. Having proven to the world that Latvia will endure the most intense economic pain to preserve its exchange rate parity, why is a further commitment needed? If the argument is that a future government may be irresponsible and the country may be faced with a new crisis, it is presumptuous to judge that the floating option will not be right one at that time. Binding a future government in this manner is particularly overreaching given how little Latvian public support there is today for a move into the Eurozone."

"More importantly, long-term competitiveness requires a healthy pace of technical change and higher quality products. …If Latvia does successfully climb the technology ladder, it will do as well outside of the Eurozone as inside it; but if it fails that bigger competitiveness challenge, it will face an unpleasant rerun of its recent crisis. Again, Portugal offers a warning: the competitiveness problems that forced a painful adjustment under the Exchange Rate Mechanism in 1993 remerged less than two decades later."

Crucially, per Mody, "...the Eurozone is itself largely dysfunctional. By the admission of its own stewards, the “monetary transmission mechanism” is inoperative. Put simply, when the ECB changes its interest rates, its member countries feel no impact. It is as if the countries were operating on their own. This may improve with time. Those in the Eurozone have no choice; but does Latvia need to rush into this setting?

Indeed, if there was a moment for Latvia to float its exchange rate, this would be it."

Mody does not ask the other question: Why would the euro zone want so urgently for Latvia to join? The answer to this question is even less palatable politically and economically. Euro zone does need another country with a clearly divergent economy and no real dynamic of convergence (shallow growth across the euro zone and still crisis-driven dynamics in Latvia). Nor does Latvia suit the euro zone core - with slower growth and lower inflation targeted by demographically challenged Germany et al. Which means that the only reason for Latvia to be welcomed by the euro zone is geopolitical. Just the same as the only reason for Latvia to enter the euro zone is geopolitical as well. Both, the club and the entrant smell Russia in the distance and feel their early 20th century-stuck fears.

Sunday, June 16, 2013

16/6/2013: De ATMs, De Sacred ATMs... Co-Op Bank Haircuts?


So how, oh how on earth an the UK now sustain its ATMs working, wonders (most likely) half of the Irish Cabinet… Per Guardian report: http://m.guardian.co.uk/business/2013/jun/16/co-op-bank-deal-regulators?CMP=twt_fd the Cooperative Bank is planning on plugging a GBP1.5 billion hole in its capital reserves by soaking it bondholders with a 30% haircut.

Of course, there is little new here, as investors expected the haircut for some time now: http://citywire.co.uk/money/co-op-sells-tranche-of-loan-book-as-investors-fear-haircut/a683473

Per citywide: "Britannia building society, which Co-op acquired in 2009, is seen as the root of the bank’s problems, specifically the poor grade corporate loans it acquired."

Obviously, there will be tears when Co-op busts the bondholders bubble, but the tears might be less significant now, given the fact that the bonds have been trading at discounts for some time and that many of the few retail investors have probably sold out of the bonds by now, leaving behind the usual speculative risk-takers. Still, this is a significant test for the small, but very strategic institution that came to challenge the usual banking establishment.

16/6/2013: A Minister in Northern Ireland is Fond of Slaying Dragons

Readers of this blog are aware where I stand on excessively aggressive tax optimisation by some companies that the Irish system permits. There is, however, a major distinction implied by my arguments: Irish system of taxation is fully legal and does not violate other nations' laws. From economics point of view it is a form of tax haven. From legal point of view it is not.

This fine distinction is too often lost on some of this blog's readers, some Irish politicians (not readers of this blog) and, self-evidently after the below, to the Northern Ireland's  Finance Minister.


As reported by BBC (http://www.bbc.co.uk/news/uk-northern-ireland-22925772) "...Sammy Wilson has accused the Irish government of "stealing" UK tax revenue. The DUP minister said he was concerned companies were using the Republic of Ireland to pay tax which he claims should be paid in the UK. ..."My view is that the British government does have some leverage on the Irish government there, because they have a £7.5bn loan, that is a lot of leverage," he told the BBC programme Sunday Politics."

The terms of the loans conditions from the UK to Ireland are explained here: http://www.telegraph.co.uk/finance/financialcrisis/8203912/Key-points-terms-of-UK-loan-to-Ireland.html clearly showing the amount extended to be capped at maximum £3.25 billion (€3.76 billion) - subject to the exchange rate differences.

It might be possible that Minister Wilson was referencing some headline he read somewhere, e.g. http://www.independent.ie/business/irish/uk-slashes-its-interest-rate-on-our-7bn-bailout-loans-26863834.html but even the article headlined with '£7 billion loan' cites in the body of the text correct amount of £3.25 billion.

Another similar headline relates to the orignal estimates of the potential loan, e.g. http://www.guardian.co.uk/business/2010/nov/22/ireland-bailout-uk-lends-seven-billion, which was capped less a month after, e.g. http://www.guardian.co.uk/politics/2010/dec/08/george-osborne-cap-uk-loan-ireland ... at £3.25 billion.

NTMA reports the latest drawdown amounts here: http://www.ntma.ie/business-areas/funding-and-debt-management/euimf-programme/
According to the NTMA, Ireland has drawn down only £2.42 billion worth of UK funds so far.

We are, indeed, thankful to the UK taxpayers for providing these loans and for offering them on terms that reflected broader restructuring of these loans by other lenders.


On Minister Wilson's tax 'theft' charge, per Journal.ie report: "The Republic’s junior finance minister Brian Hayes, speaking on the same programme, said it was up to other countries to change their own tax laws if they wished to stop companies headquartered there from being able to avoid tax."

I often disagree with Minister Hayes on many matters, but on this occasion he is correct.

16/6/2013: NPRF, Stimulus & Futility of Policy: Sunday Times June 9, 2013


This is an unedited version of my Sunday Times article from June 9, 2013.



With the coalition mulling over the idea of investment 'stimulus', there are only two questions everyone in the Leinster House should be asking: Where is the money coming from? and Is there value for money in these investments?

Since the beginning of this crisis, the State piggy bank, aka the National Pensions Reserve Fund (NPRF) has been as rich of a target for Government raids as the taxpayers pockets. Back in 2007, NPRF assets were valued at EUR21,153 million with almost 94% of these, or EUR19,817 million, held in liquid financial instruments, such as cash, listed equities and bonds. Q1 2013 data shows that the fund discretionary portfolio (portfolio of assets excluding government-mandated 'investments' in AIB and Bank of Ireland) has declined to EUR6,449 million with only EUR4,243 million of this held in relatively liquid assets that can be meaningfully used to fund any stimulus.

The reason for the NPRF’s disastrous demise has nothing to do with the fund management or strategy - both of which were relatively good, compared to some of Ireland's 'leading' private sector asset managers. The cause of the precipitous 79% drop in liquid assets held by the NPRF was the banking sector collapse and the Government decision alongside the Troika to waste some EUR20,700 million of NPRF funds to 'invest' in two pillar banks equity stakes, with EUR16,000 million of this sunk into the black hole of AIB. As of Q1 2013, the NPRF 'investments' in the banks were valued at EUR8,800 million. This, accounting for dividends paid and disposals made to-date, implies a loss of some 47% of the original investment outlay.

The sheer absurdity of the use of the NPRF to fund every possible twist and turn of the State financial crisis is magnified by the latest Government plans. The exchequer returns through May 2013 released this week show clearly that as in previous years, the heaviest burden of spending cuts by the public sector is once again falling onto the capital expenditure side. January-May current voted spending is running 1.6% ahead of the target, with capital spending outstripping targeted cuts by 12.6%. Now, the same state that has been for years slashing voted capital expenditures is angling to raise a capital investment stimulus by raiding the remaining liquid NPRF funds.

The key issue with NPRF asset holdings is that even theoretically liquid funds will have to be leveraged in order to raise cash for any meaningfully sizeable Government investment. Leveraging NPRF funds via Public-Private partnership-type schemes can yield, realistically speaking, around EUR8-10 billion of total funding for the proposed seven years-long investment envelope, or just about 8% of the cumulated gross domestic capital formation taken at the 2011-2012 running levels.

Use of NPRF funds to finance economic stimulus while the state continues to borrow cash for day-to-day management of unsustainable deficits is of a dubious virtue to begin with. The costs of leveraging the NPRF funds will add further pain to the economics of stimulating investment in the environment of already high levels of government and private sector indebtedness. Worse than that, leveraging NPRF will either increase the Government debt and deficits or put a hefty new cost onto the taxpayers and users of services funded via the stimulus. In effect, the very attractiveness to the Government of the leveraged finance via NPRF is that such funding for capital programmes will most likely be off the official balancesheet of the State. This, however, means that it will also become a direct cost to consumers and, possibly, also to the taxpayers.

Let me explain the last point in greater detail. In 2012, Irish Government spent 3.7% of the country GDP or EUR6,133 million on paying interest on its debts implying an average effective interest rate of 3.19%. With the markets in a relative calm, our latest issue of Government bonds on March 20 this year saw NTMA raising EUR5 billion in 10-year debt at 3.9% annual coupon. This is the benchmark rate for any long-term lending in the country.

Even assuming the markets conditions will not change in the wake of a significant leveraging of funds from the NPRF, current cost of funds to the State is well in excess of recent returns earned by the NPRF on its liquid assets portfolio. In Q1 2013, NPRF delivered annualised rate for return of 2.8% on its discretionary portfolio and over 2000-2011 period, compounded returns earned by the NPRF run at 3.23% per annum.

Now, consider the second question posited above. Much of the public investment in infrastructure and general economic activities, as detailed in September 2011 Strategic Investment Fund (SIF) initiative issued by the current Government requires heavy involvement of the Private Sector co-funding. Quoting NPRF annual report for 2011, under  the SIF, "investment on a commercial basis from the NPRF will be channeled towards productive investment into sectors of strategic importance to the Irish economy (including infrastructure, water, venture capital and provision of long-term capital to the SME sector) and matching commercial investment from private investors would be sought." In other words, we are already leveraging the state finances for previous rounds of stimuli.

Private co-investment requires two things to succeed: sovereign assurances and preferential treatment to reduce overall levels of risk, plus annual return well in excess of sovereign debt returns. In other words, in any PPP and joint co-investment scheme, the State must assure premium return to the co-investing private sector agents.

If the State investments were to be financed at a sovereign cost of funding absent any negative effects on Government bond yields from increased borrowings, the underlying returns on public investments through the 'stimulus' scheme, based on a 50:50 split with private funding, would have to be yielding well in excess of 7-8% per annum. These returns will have to come either from the users of services backed by the PPP investments or from the taxpayers via minimum return guarantees.

Do the math: we can borrow at 3.9% in the markets or we can borrow at 7-8% via PPPs. The only difference is that under the latter arrangement, Minister Noonan can pretend that we didn’t borrow at all, as most of the money to repay the PPP investments will simply come out of the economy directly, instead of via the Exchequer.

That is the hope that is driving the Government to use NPRF instead of its own funds to fund capital spending. This hope, however, is based on rather thin analysis of the economic realities of the PPPs.

It is worth noting that between 1999 and the end of 2011, the total volume of PPP-based investments in Ireland, both committed and allocated, was just over EUR6.4 billion - or a fraction of the hoped-for amount of funds currently under the discussion for the next stage stimulus on foot of NPRF assets. This excludes EUR2.25 billion stimulus announced in July 2012 by the Government, which is not producing much of a desired effect of a stimulus on the economy so far.

Setting aside the issues of financial returns feasibility, it is highly doubtful that this level of investment can be economically efficiently deployed in the economy. And this is on foot of rather poor PPPs performance documented for pre-crisis period, as was highlighted in a number of studies on the subject. Several reports found that the final PPP deals involving capital funding for schools, water infrastrcture and transport programmes returned final costs well above the costs of direct procurement. Severe cost transfers to the state from the PPP projects have been found in the cases of major roads contracts in Ireland, including Clonee-Kells project and Limerick Tunnel project.

An in-depth research note on the problems inherent in PPP funded capital investments in Ireland published by the NERI Institute in January 2013 concluded that "it is striking that after thirteen years of procurement under PPP, there has been no official in-depth analysis of the experience to date. Yet PPP is now a major part of the current governments plan to stimulate the economy. The absence of any publicly available body of evidence in support of this plan represents a major shortcoming in terms of the formation of economic policy."

In contrast to the pre-crisis periods, current business, investment and economic environment in Ireland is characterised by high levels of debt overhang in the private sector, involuntary entrepreneurship, falling rates of growth in global demand for indigenous exports out of Ireland, stagnant or declining real assets valuations and a number of other factors significantly increasing the risk of any new investment. In other words, any new stimulus will have to come at the time when investment opportunities are thinner on the ground and risks associated with such investments are higher.

All of the risks associated with PPP-funded projects, thus, are only exacerbated in the current economic environment.

Instead of first attempting to fix the problems with the core financing schemes, the Government is setting out to drive more forcefully into the troubled waters of privately co-funded schemes. Previously announced stimuli, ranging from capital investment supports to stamp duty and R&D tax incentives, to the 2011-2012 announcements of similar PPP-based leveraged capital investment programmes have been insufficient to stimulate the domestic economy out of its structural collapse. This time around, the Government is attempting to up the ante by increasing the amounts of funds it aims to pump into the economy. The hope, obviously, is that doing more of the same on an increasing scale will yield a different outcome.

More likely, the outcome will be a further debasing of the consumers’ disposable incomes via higher taxation and higher cost of services, in exchange for wiping out completely the NPRF – our only remaining cushion against any potential future risks. Doubling-up when losing repeatedly in the economic policy roulette is not a good idea.  Doubling-up using granny’s pension cheques might be outright reckless.




Box-out:

Back in April this year, the IMF stole the headlines in Ireland after pointing that combined unemployment and underemployment rate in Ireland stood at a staggering 23%. However, the only really surprising thing about the IMF statement was that this data was already reported by the CSO before. In fact, CSO reports quarterly broader unemployment statistics since Q1 1998. Last week, CSO database showed that in Q1 2013, the broadest measure of unemployment – the measure that includes unemployed, discouraged workers and underemployed workers – has hit 25%, rising from 23.7% in Q1 2011 when the current Government took office. However, the above measure is still incomplete, as it excludes those workers who are drawing unemployment supports but are classified as participants in state training programmes, e.g. JobBridge. Adding these workers to the broader measure referenced by the IMF, Irish broad unemployment rate in Q1 2013 stood at a massive 29% - a historical high for the metric and up 2.7 percentage points on Q1 2011.


16/6/2013: Euromoney Country Risk Scores Update

Some updates from Euromoney Country Risk (ECR) reports. First a summary of latest credit risk assessment scores moves:


And on foot of Russia's score move, a related story on Russian government delaying issuance of much expected sovereign bond. Via Euroweek:


"Russia is likely to wait until autumn before bringing its mandated sovereign bond, said analysts. Forcing through a $7bn bond in one deal might also be unwise, but demand is deep and the sovereign could spread its funding plan out across separate transactions, said bankers... Investors have already priced in a large sovereign issue and Russia would not struggle to drum up demand, he added. But the problem is price."Everything is 100bp wider than a month ago and so the sovereign will hope things calm down and allow them to issue closer to the historic tights they were looking at just a few weeks ago," said another syndicate banker."

Saturday, June 15, 2013

15/6/2013: Weekend reading links: Part 2


The second part of my Weekend Reading links on Art and Science and No-Economics (see the first part here: http://trueeconomics.blogspot.ie/2013/06/1462013-weekend-reading-links-part-1.html)

Let's start with this:

http://vida.fundaciontelefonica.com/project/may-the-horse-live-in-me/
It's not a horse meets artist or vice versa, but an artist 'becomes' a horse. Literally, physiologically. Amazing stuff, although MrsG thought it is taking performance art a bit too far.


Next up - amazing show of new work by one of my favourite artists of all times: Gerhard Richter
http://www.mariangoodman.com/exhibitions/2012-09-12_gerhard-richter/%20and%20related
Couple of images:




The migration of Richter's work toward more linear, form-focused, less figurative work over recent years has been in tune with what is happening around the world of abstract art today. I love it, but the 'old' Richter (second image above from 2005: http://www.mariangoodman.com/exhibitions/2009-11-07_gerhard-richter/) is much more dynamic and still more appealing to my aged self. From that vantage point, an even more brilliant show of works by the artist is here: http://www.ludorff.com/en/exhibition/gerhard_richter_abstrakte_bilder/works . Art Basel 2013 has more vintage Richters too.


http://www.mariangoodman.com/artists/ has some very interesting artists I knew far less about. Great example is Julie Mehretu: http://www.mariangoodman.com/exhibitions/2013-05-11_julie-mehretu/#/images/7/

Reminds me of one of my old favourites: a merger of abstraction by Cy Thombly (http://www.cytwombly.info/) and mathematical / architectural precision of Alberto Giacometti: http://www.fondation-giacometti.fr/en/art/16/discover-giacometti/ scroll down to Encounters, Portraits and Fifty Years of Prints sections for the likes of



Wyeth cross over too… for some reason… maybe geometry or Giacometti-esque reference to line?




Lastly for the arts: cool images from the Arctic spying outpost: http://www.wired.com/rawfile/2013/06/charles-stankievech-northernmost-settlement/



On science: a quick link to the Science Gallery - brilliant place, brilliant coffee, brilliant crowd: http://sciencegallery.com/


On a personal note: I came across this wonderful set of radio spots recorded for Mount Juliet. Followers of mine would know I was recently privileged to cast a fly (more like nymphs and wet flies) at the estate and can attest to the superb quality of water there. The spots are lovely and worth listening to: http://www.mountjuliet.ie/radio-adverts/

My favourite is The Ghillie one. I did not use ghillie's services on my day on the Nore, preferring the 'risk' of reading the river on my own, but I had wonderful help and conversation with the staff member who helped me with the waders and dry room and fishing room. Superb. And superb doesn't even begin to describe the late-very-late breakfast I got on my return from 5am-noon fishing.

Loved it. And here's one of my friends from the Nore who is still happily swimming in his pool…




Update: I rarely update the Weekend Reading Links posts after they are out, but here are more interesting links, this time on science.


A convoluted title of this paper: "Action video game playing is associated with improved visual sensitivity, but not alterations in visual sensory memory" should not be a deterrent from reading its very interesting findings. Basically, games players (for electronic games that is) tend to be able to see more in the faster-paced and more complex scenes than non-gamers. However, what they see they don't remember all too well after the fact. I am not even sure they comprehend what they see any deeper either, but that a different topic all together. http://link.springer.com/article/10.3758%2Fs13414-013-0472-7


Further evidence that Anglo Irish Bank was lending well beyond the constraints of our planet was found by Nasa: http://arstechnica.com/science/2013/06/nasa-finds-unprecedented-black-hole-cluster-near-andromedas-central-bulge/ In brief, the Andromeda's core is about as concentrated with black holes as Dublin docklands: http://www.independent.ie/business/irish/nama-behind-70pc-of-the-vacant-docklands-sites-29346104.html

15/6/2013: Irish Health Pricing Policy: Stupid, Short-Termist & Costly


Per Irish Times article, the Government is planning to impose a massive price hike on hospital beds, leading to health insurance prices hike of estimated 30%.

This Government has been disastrous when it comes to containing the costs of healthcare. Here are three charts showing:
  1. That the within the category of Miscellaneous Goods and Services, to which Insurance Services belong, Insurance Connected with Health posted the highest price inflation since December 2011, with index of prices rising to 127.4 in May 2013 against the benchmark of 100 in December 2011. 
  2. In last 12 months, through May 2013, health insurance costs rose 12.5%. This represents the highest rate of cumulated inflation over 17 months from January 1, 2012 through May 2013 for any non-food item of expenditure recorded by the CSO and the second highest rate of annual inflation for any non-food line of expenditure after a bizarre 21.2% price hike in 'Cultural admittance' costs.
  3. Across all categories of consumer expenditure, Irish Government controlled or regulated prices (with controls exerted either via high incidence of specific goods and services taxation, where taxes imposed by the state account for over 1/2 of the product final cost; or via State regulation setting prices; or via semi-states dominance in the sector allowing monopoly power pricing, etc) dominate heaviest price increases categories.
The charts below are easy to read: in Yellow, I mark the State-dominated sectors, with blue bars marking other sectors. All price indices are through May 2013. All data is from CSO.




Charts above confirm the observations made in points (1)-(3).

This Government is clearly on an economic suicide course. Raising health insurance costs will multiply demand for public healthcare & increase the cost of this demand by forcing more patients into emergency rooms. Worse, the completely moronic (and I cannot find any other way of expressing this) system will create a cascading cost increase to public system.

Currently, an insured patient in a hospital yields: vat and other tax revenues to the State, and generates positive return per bed occupied. In addition, the patient is pre-screened for hospital admission by a private doctor 9also generating vat and other tax revenues to the state) thus avoiding emergency room admission.

Forcing this patient from insurance into public system removes all of the above tax revenues and leads to the patient going via emergency room into admission. This means higher emergency room costs, plus higher treatment costs, because by the time a patient goes through with emergency room their admitting point condition would be most likely worse than were they to go through more preventative care and monitoring with private doctor pre-screening.

The word for this policy on health costs inflation is idiocy. Pure and simple.

Friday, June 14, 2013

14/6/2013: Weekend reading links: Part 1


Weekend reading links as usual, and as in previous week - in two posts.

Let's start with some fun. After a week of reading economics on this blog, why not leaf through 12 "random and obscure laws" that still exist. I know the USofA is a liberty paradise but… allegedly, not in Maine and not when it comes to Christmas lights and wreaths… or in Wisconsin as it goes for margarine...
http://likes.com/facts/totally-random-and-obsucre-laws-that-actually-exist?pid=95328&utm_source=mylikes&utm_medium=cpc&utm_campaign=ml&utm_term=25124720


My favourite visualisation of Big Data this time around comes from North Korea



And do check out the rest of the fab pics here…
http://likes.com/facts/wtf-north-korea?v=eyJjbGlja19pZCI6IDExMTkzMDIyNzksICJwb3N0X2lkIjogMjUxMjQ3MjB9

Note: on a serious side, I do find the above pic almost artistic - in the same vein as Andreas Gursky's real art: http://artblart.com/tag/andreas-gursky-tokyo-stock-exchange/


which (the above) also came from DRNK… and his very famous
http://artblart.files.wordpress.com/2008/11/gursky-99cent.jpg
My students from UCD courses in Masters in Management programme would remember the linked image.


From the sublime above to the atrocious below: The Kitsch of Ashgabat http://www.theatlantic.com/infocus/2013/06/the-city-of-white-marble-ashgabat-turkmenistan/100528/
My favourite is

The bizarre, tortured, almost shredded geometry of the totalitarian PhysEd comes to memory. No, the true derangement of the tyrant is measured not so much by thousands starved or banished or destroyed, but by grandiose waste of beauty, the more forced, the more permanent, the better. It is hard to explain, but violence to intrinsically beautiful is more characteristic of the delusion than violence to human. perhaps because nature usually poses no political threat, thus defacing nature is purely violent without any purpose.

Perhaps this would do for a better explanation: by Joseph Brodsky
 

Space is memory. The above photo records the former to sustain the latter.


A more modern - almost real-time - Duchampianization in Cyprus:
http://www.reuters.com/article/2013/06/10/us-cyprus-toilets-idUSBRE9590IA20130610
and it's inspiration:
http://www.tate.org.uk/art/artworks/duchamp-fountain-t07573
I could have chosen to term this Duchampianism - and almost did - except some attribute Duchamp's inspiration to a positive value - the ready made reproduction of the curvature similar to Constantin Brancusi's marbles, which obviously would not have been an appropriate allegory for Nicosia's installation. So perhaps we have amore ad hoc ready made analogy in two pieces, hence, Duchampianization term.


Take this quote for a teaser: "Most people have no clue that quantum computing exists. Even fewer know how it works. But once you understand it, and its vast processing power, you'll understand that this new Digital Age we're living in has barely scratched the surface of the computer potential."
Read more: http://www.businessinsider.com/what-is-quantum-computing-2013-6#ixzz2WE8s9ZjW
You will want to read more... I know - I did. And here's the source: http://dwave.wordpress.com/ Just awesome!


Two sets of links on time:

The first one is of two watches - the diametrically opposing works of art:
2013 - Vianney Halter

http://basel.watchprosite.com/show-forumpost/fi-636/pi-5864183/ti-862138/
But do watch the video - a fascinating story, also told in the article linked below:

http://live.wsj.com/video/the-most-important-watch-of-2013/62A235B4-BF3A-4BA0-B500-21048E3B3C30.html?mod=WSJ_article_outbrain&obref=obnetwork#!62A235B4-BF3A-4BA0-B500-21048E3B3C30
http://online.wsj.com/article/SB10001424127887324063304578523182943531780.html


And Ukraine's brilliant entry to Basel 2013:
http://basel.watchprosite.com/page-slide.new/ti-867538/pi-5909858/msid-26618318/fi-/nalbumforum.all_bLoB_s-/
and more pics:
http://basel.watchprosite.com/?show=photo&fi=636&imgid=3355653&msid=26618318&ti=867538&pi=5909858


But time (we are on dimensions theme here - following the note about space) is also linked to memory:
And thus - to round up the first post of weekend reading links: of space and time... together:


14/6/2013: EU's FTT: One Tax, Multiple Problems

FTT - Financial Transactions Tax - has been the pet project of pure love for Eurocrats and Socialistas in the Member States, hungry for revenue. It has been labelled a 'Robin Hood Tax' because the politicians attempted to sell it as a tax on filthy-rich financial services to redistribute to starving unemployed, presumably, despite the simple fact that in the un-competitive and fragmented market for financial services that is Europe, such a tax - any tax - will be fully passed onto ordinary savers, investors, depositors and in general onto the users of financial services.

The EU Commission published volumes of commissioned - made-to-order - research that shows just how brilliant an idea the FTT really is: it will raise loads of revenues, harm no one and will not reduce financial markets efficiency. Stopping just short of declaring the FTT to be a panacea to common cold, the EU enthusiastically propagandized the idea despite the simple fact that vast majority of academic research on the topic of transactions taxes finds that they are either ineffective as means for revenue raising or costly in terms of economic efficiency.

I wrote about this (see link at the bottom of this post below) and will continue to write, not because I long for an easy life for the bankers or financial investors, but because I recognise the fact that investment markets are necessary to the functioning of the society and the economy, and because I also recognise that more open, less restricted, but well-regulated and strictly enforced financial services are better than anything that Brussels et al can conceive in their technocratic dreams.

So in line with the past record, here's another study (http://www.cpb.nl/en/publication/an-evaluation-of-the-financial-transaction-tax) that explores "...whether the FTT is likely to correct the market failures that have contributed to the financial crisis, how well the FTT is likely to succeed in raising revenues, and how the FTT compares to alternative taxes in terms of efficiency."

The study finds (emphasis is mine) "... little evidence that the FTT will be effective in correcting
market failures. Taxing of transactions is not well targeted at behaviour that leads to excessive risk and
systemic risk creation. The empirical evidence does not suggest that the introduction of an FTT reduces
volatility or asset price bubbles. Transaction taxes will likely reduce investment in trading activity and
information acquisition, but also raise the costs of insurance against currency and interest risks by
companies, insurers and pension funds. The welfare effect of that is unclear."

"The FTT will likely raise significant revenues, in spite of the fact that the tax base is highly elastic. In the short term, the incidence of the tax will be chiefly on the current holders of securities. Ultimately, the tax will be borne in part by end users, and we estimate the likely effects on economic growth."

"When compared to alternative forms of taxation of the financial sector, the FTT is likely less efficient given the amount of revenues. In particular, taxes that more directly address existing distortions (such as the current VAT exemption for banks, and the bias towards debt financing) provide more efficient alternatives."


And here's a report from the Open Europe think-tank on the FTT, assessing the EU Commission response to the concerns of the eleven - that right, eleven - member states: (http://openeuropeblog.blogspot.co.uk/2013/05/if-you-had-kept-quiet-you-would-have.html)

Quote: "The Commission's response ranges from weak to capricious to outright ridiculous. For example, when it says that "we're not aware of any credit crunch" in Europe."

What else is new?

Note: I wrote about the concerns around the issues of repos and hedging here: http://trueeconomics.blogspot.ie/2013/05/3052013-ftt-up-down-down-again-climbing.html


Links to past articles on FTT: http://trueeconomics.blogspot.ie/search?q=FTT&max-results=20&by-date=true
You can search this blog for key words and sort the posts by relevance or date.

14/6/2013: Detroit suspends payments on unsecured debt

I recently wrote (albeit in distinct context) about Detroit's bankruptcy. Here's the latest on the saga:
http://www.bloomberg.com/news/2013-06-14/detroit-on-bankruptcy-s-brink-stops-paying-some-debts-orr-says.html

I love this city because it gave me (via Chicago) my greatest partner in the crime of life. And my students in Smurfit Graduate School of Business are certainly familiar with the imagery of the urban collapse from Detroit and Flint, Michigan on foot of my lecture notes slides penchant for dramatic photography.

Sadly, it is totally, comprehensively, irreparably destroyed. Its only hope is a structured and comprehensive default followed by a bottom-up restructuring of its economy, demographics, politics, policies and institutions. Let's hope Michigan State will not commit the errors committed by the Euro area 'leaders' in Greece, Ireland, Portugal, Cyprus, Spain, Italy...

14/6/2013: G8 Summit: pure laughs

G8 Summit has been transforming Northern Irish country towns into prosperous villages... (see the first image in this post: http://trueeconomics.blogspot.ie/2013/05/3152013-bank-holidays-links-on-art.html), but all along, the real winners in the Best Bizarreville News Contest was the host resort itself: