European banks: More stress ahead | The Economist

European banks: More stress ahead | The Economist – Whatever the merits of their recent stress tests, that ongoing flaw explains why Europe’s banks may still battle to finance themselves. Some firms are still being stigmatised, and have to borrow from the ECB even as American rivals have been weaned off public money. The unspoken assumption of the regulators’ stress tests, the results of which were announced on July 23rd, is that this is due to “one-off” problems: the risk that some governments in the euro zone might go bust and the perception that the murkier bits of the system, particularly unlisted banks in Spain and Germany, are hiding their risks. If reassured that banks have enough capital and are not fibbing, the logic goes, investors will start lending freely to them again. After all, the stress tests in America in 2009 helped restore confidence there. Judged on this basis, the tests get half marks (see article). They do not prove that banks could withstand another severe shock.

Mark Zandi and John Taylor debate stimulus (PBS Newshour) video & transcript – A new study by economists Mark Zandi and Alan Blinder showed the U.S. government’s nearly $800 billion economic stimulus and the Wall Street bailout likely steered the American economy away from another depression. Jeffrey Brown moderates a debate between Zandi and Stanford University economist John Taylor.

What SEC Sources Say About FinReg and FOIA – The impetus for the Securities and Exchange Commission to seek broader exemptions from public-disclosure law in the new Dodd-Frank financial-reform law came from a concern that the SEC must keep confidential the proprietary data it picks up in its examinations of financial concerns, SEC sources say.The SEC intends for the provision only to be used to protect the confidentiality of data the agency gets when it examines financial companies. The SEC sources say the clause is needed now because the Dodd-Frank bill forces the SEC to audit more financial companies than ever before—including new audits of hedge funds, private equity funds, and venture capital funds. The fear is that these funds have threatened to not comply with their new SEC audits required under the Dodd-Frank bill if the SEC did not protect their proprietary trading information—and the SEC says it could not catch the “bad guys” if they balked.

US House Votes to End Deepwater Drilling Moratorium – The U.S. House of Representatives Friday voted to end the federal moratorium on deepwater drilling for oil companies that meet new federal safety requirements. The proposal to end the moratorium was an amendment to a pending energy bill the House was poised to vote on. The moratorium will not end unless the Senate also votes to terminate it and President Barack Obama signs the legislation into law. The fate of the proposal in the Senate is uncertain.

Gingrich: Renew Bush Tax Cuts or Economy Will SinkIn an exclusive interview with Newsmax.TV, former House Speaker Newt Gingrich said, “If we have large tax increases in January, this economy will sink deeper into recession, there will be higher unemployment, the recovery will be longer. This was exactly the mistake made in 1937 and ’38 and it created a second mini-depression . . . I think the simple battle cry ought to be ‘No tax increase in 2011, period.’ Keep current law exactly as it is through 2011.”The architect of the "Contract with America" also excoriated the financial overhaul law as "one more job-killing bill" Democrats have passed.

UK Gov’t Department of Energy and Climate Change Pathways 2050 report –  We need a transformation of the UK economy to ensure secure low carbon energy supplies to 2050. We are committed to reducing greenhouse gas emissions in the UK by at least 80% by 2050, relative to 1990 levels. We face major choices about how to move to a secure, low carbon economy over this period. Should we do more to cut demand, or rely more on increasing and decarbonising the energy supply? How will we produce our electricity? Which technologies will we adopt? The analysis in the 2050 Pathways work presents a framework through which to consider some of the choices and trade-offs which we will have to make over the next forty years. It is system-wide, covering all parts of the economy and all greenhouse gas emissions released in the UK. It shows that it is possible for us to meet the 80% emissions reduction target in a range of ways, and allows people to explore the combinations of effort which meet the emissions target while matching energy supply and demand.

BP’s Deepwater Horizon – Static Top Kill vs. Bottom Kill: Weighing the Risks –A permanent solution to the BP Macondo blowout in the Gulf of Mexico may be achieved soon but there are risks. Admiral Thad Allen announced on Monday, July 26 that a static top kill would be attempted on August 2. The schedule may be accelerated to July 31 or August 1 according to an announcement today (July 29). The sealing cap has successfully stopped the flow of oil and gas from the well and the pressure continues to build slowly. Temperature at the wellhead has not increased, and seeps near the well are mostly nitrogen and biogenic methane unrelated to leakage. BP Senior Vice President Kent Wells’ technical update on July 21 explained these findings and showed how the well will be killed.

Reforming the global financial systemNice interactive graphic from the FT on reforming the financial system
 

Should We Buy Fed’s Reports of Gains on AIG Bailout Vehicles? Yves Smith – Readers may recall that the Federal Reserve created three vehicles to hold dodgy assets it obtained via the Bear and AIG bailouts, namely Maiden Lane (for Bear), Maiden Lane II (for AIG residential mortgage backed securities) and Maiden Lane III (for CDOs the Fed bought as part of taking out AIG credit default swap counterparties at 100% of notional value).Per the Financial Times: The Fed yesterday reported gains on its exposures in these entities due to improved market conditions. Our Tom Adams, who has done extensive valuation work on Maiden Lane III, weights in on the latest report. Not surprisingly, the central bank bank does not provide enough information on its website to allow for quantitative analysis. Tom’s bottom line is that while he finds the change in value reported this quarter to be not entirely implausible, he finds the earlier valuation to be exaggerated. In other words, the percentage gains shown may be defensible, but they were applied to a base number that looks inflated.

Blunt opinions, supported elsewhere but not here -The current downturn is a mix of AD and real shocks, in uncertain proportions, and in a manner which is hard to separate empirically.  It is now obvious there is a lot of structural unemployment and there is a quick and probably unjustified rush to define it all as AD-influenced unemployment turned sour.  The structural theories have their problems, but they can better explain why corporate profits are high and can better explain the distribution of unemployment across income and educational classes.  The regional distribution of unemployment is persisting because of labor immobility, which involves both AD and structural issues.  The sectoral shift view is more about shifting out of optimism-linked activities, within any particular sector, rather than about shifting out of construction and finance per se.

The latest dialogue on interchange –  Lots of people talking about interchange fees recently: Matt Yglesias: Once you keep in mind the fact that the median household income in 2008 was slightly above $52,000 it’s not at all obvious to me that this is any kind of scam. Instead, it appears to be a classic positive sum business interaction. Megan McArdle: I never understood why the progressive consumer finance types got so worked up about interchange fees, which are essentially a knock-down fight between two very powerful business lobbies, not a cosmic injustice perpetrated against the American consumer….Kevin Drum Beyond that, let’s make it clear what I’m proposing. I don’t want to eliminate interchange fees. Card payment networks cost money to operate and there’s nothing wrong in theory with using interchange fees as a way of offsetting those costs. So let’s step back for a second. Plastic is becoming the new form of checking for the 21st century. Right now the Federal Reserve steps in and backstops the clearing risks on the checking system to make sure that checks clear at par. If I write you a check from Bank A you can cash it at your account at Bank B for the value of it. This is not a state of nature event; it happens because the government steps in. If interchange regulation is a bad thing at a meta level, then so is this, and we should roll back that checking regulatory enforcement to the late 19th century.

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