The Ticker Quick Views on Politics, Economics and Finance
The New York Times reports today that the Justice Department had an investigation underway of the mortgage-bond ratings of Standard & Poor's before the service downgraded the U.S. government's debt on Aug. 5. If so, the followup should be: What's taking so long? And more to the point: Did Justice dust off a dormant investigation in retaliation for the downgrade?
These are serious questions, and one hopes the nation's top law enforcement agency would never stoop so low. But the suspicion arises because, three years ago, Bloomberg News articles quoted former high-level S&P employees -- some of them even allowed their names to be used -- saying the service, in order to reap fatter fees, placed a "for sale" sign on its reputation by slapping top grades on real-estate securities that violated S&P policy.READ MORE
The U.S. Treasury, as manager of the $700 billion Troubled Asset Relief Program, relies heavily on law firms, banks and financial companies for services and advice.
How heavily? As of July 31, Treasury spent more than $510 million for legal, banking and financial services alone. That's a big haul for the lawyers, asset managers and accountants with contracts under the program Congress created in October 2008.READ MORE
In the eyes of European market regulators, it seems there is no such thing as a bad policy when it comes to banning short selling. If stocks rise, it shows the new bans must be working. If they fall, it shows an even bigger crackdown on short selling must be needed.
European bank stocks are in free fall again, notwithstanding last week's decision by France, Spain, Italy and Belgium to temporarily ban investors from shorting the shares of those countries' largest banks. In response to questions from Bloomberg News, Michel Barnier, the European Union's financial services commissioner, today said the recent plunge showed the need for tight restrictions on so-called naked short selling, in which traders sell a security they have not already arranged to borrow. Readers may recall that U.S. regulators in 2008 similarly tried to blame the crash in U.S. bank stocks on naked short sellers. That, predictably, turned out to be a canard.READ MORE
A moribund real-estate market should have the advantage of reducing peoples' housing costs. Unfortunately, for the growing ranks of U.S. families who rent their homes, the opposite is happening.
Shelter costs in the U.S. -- a category that includes houses, apartments, hotels and college dorms -- rose at an annualized rate of 2.7 percent in the three months through July, the Labor Department reported Thursday. That's the fastest rate of growth since January 2008, just after the recession began (see chart).READ MORE
All the hubbub about China dumping its U.S. Treasuries ignores America's other big customer: Japan.
There are good reasons why China won't go on a selling binge after Standard & Poor’s stripped the U.S. of its AAA rating. For one, the $1.17 trillion of U.S. debt China held as of June keeps the yuan from rising and protects exporters. For another, markets would panic if China gave up on the dollar and global interest rates would soar.READ MORE
How worrisome is the economic situation in Europe? Even the traditional Sommerloch (literally "summer gap"), when entire countries seem to take weeks off at a time, has become endangered. It wasn't just Chancellor Angela Merkel and French President Nicolas Sarkozy who had to work on Tuesday -- bond traders have postponed their vacations to spend more time demanding higher and higher interest rates from the region's laggards.
So, is another recession brewing at a time when economic growth is most needed to rid the weaklings of their sovereign-debt burden?READ MORE
For two years, European leaders have sought to tax financial transactions as a two-fer: simultaneously to raise revenue and to tame speculative market behavior. French President Nicolas Sarkozy and German Chancellor Angela Merkel emerged from a meeting in Paris today backing the idea.
The Tobin Tax lives.READ MORE
The moment is already receding into a hazy, Youtube past, eclipsed by news of Texas Governor Rick Perry eating a vegetarian corn dog and other spectacles. Yet it's worth recalling, and possibly even spending a few seconds examining, what occurred last week on a stage in Ames, Iowa. All eight Republican candidates appearing at the Fox News debate on August 11 were asked if they would accept a budget deal that trades $10 in spending cuts for every $1 in tax increases. All eight raised their hands to signal they would oppose such a deal.
Liberals were predictably appalled, but even some conservatives were stunned by the lockstep opposition. At Commentary's blog, Peter Wehner wrote that "if taxes cannot be raised under any circumstance -- then we have veered from economic policy to religious catechism." Over at National Review's blog, Kevin Williamson concluded: "Chalk one up to the crazies."READ MORE
In July, the average cost of U.S. imports from China, where Wal-Mart and many other U.S. retailers source a large share of their products, was up 0.4 percent from June and up 3.5 percent from a year earlier, according to the Labor Department. That might not seem like a lot, but it's a big change from July 2009, when the China price was down more than 3 percent from a year earlier.READ MORE
Two U.S. chief executive officers have finally jumped into the debate over how to tame the federal deficit. Warren Buffett, the chairman and CEO of Berkshire Hathaway Inc., is calling for tax increases on the rich. Howard D. Schultz, the chairman and CEO of Starbucks Corp., is urging his peers to withhold campaign contributions until Congress deals with the fiscal crisis.
Buffett, in a New York Times op-ed yesterday, said the mega-rich had been “coddled long enough by a billionaire-friendly Congress.” He wrote that his total tax bill -- payroll taxes as well as federal income taxes -- came to just 17.4 percent of his total income in 2010. The reason: He makes most of his money from investments, which are taxed at the low capital gains rate of 15 percent. And nothing is deducted for Medicare and Social Security.READ MORE
So much for patience in Thailand.
The nation's new foreign minister starts Wednesday, yet the most tantalizing diplomatic question isn't waiting for Surapong Tovichakchaikul to come to work: When will exiled former Thai leader Thaksin Shinawatra return to Bangkok? A lot sooner than many of us thought, it appears.READ MORE
Now that the U.S. has survived the debt-ceiling debate, the downgrade and the topsy-turviest Wall Street week in recent memory, we can get back to focusing on the gloomy big picture. Specifically, are we going to have a double-dip recession? More specifically, are we already in one?
The Wall Street Journal did an informal poll of 46 economists who "put the odds that the U.S. is already in another recession at 13%, while they peg the chances of going that way in the next year at 29% -- up from 17% only a month ago." USA Today followed suit: "The 39 economists polled Aug. 3-11 put the chance of another downturn at 30% -- twice as high as three months ago, according to their median estimates." OK, insert your own "two economists walked into a bar" joke here if you'd like, but I'm going to take a more thorough look at what the big brains have been saying recent days.READ MORE
Even as China's leaders criticize the U.S. for its poor fiscal management, their central bank remains remarkably loyal to U.S. government bonds.
Chinese holdings of U.S. Treasuries rose $5.7 billion to $1.166 trillion in June, the U.S. Treasury reported today. The increase came as other foreign investors -- including Brazil and "Caribbean Banking Centers," which some see as a proxy for hedge funds -- pulled out of Treasuries amid growing concerns over the U.S. debt-ceiling debate. Total foreign holdings of U.S. Treasuries fell by about $17 billion to $4.499 trillion in June, the first drop since April 2009.READ MORE
Michele Bachmann won the greatest victory of her political career the same day much of the rationale for her candidacy evaporated. The Minnesota congresswoman came in first in the Iowa Republican straw poll, effectively removing former Minnesota governor Tim Pawlenty from contention in the presidential race. But Texas governor Rick Perry entered the race today, too, and he may do to her what she just did to Pawlenty.
Bachmann appeals to Republican voters who are searching for an articulate and uncompromising conservatism, and to an overlapping set of voters who prefer their leaders to be evangelical Protestants. They can find those traits in Perry, too—but Perry also has executive experience and a record of accomplishment that Bachmann lacks.READ MORE
Every Republican candidate on the stage in Ames last night would've looked slightly better had Ron Paul been elsewhere. Debating Paul is a losing proposition for any conventional politician -- even though his peculiar ideology puts him on the losing side of virtually every argument. Former Pennsylvania Senator Rick Santorum, for example, relished his debate battle with Paul over Iran, knowing that few Republican primary voters share Paul's nonchalance about a nuclear theocracy in the Middle East.
Yet regardless of the topic, Paul always seems to be the most honest person on the stage; his sincerity emits a harsh light on his rivals and, by extension, on virtually every national politician. He doesn't fudge like Mitt Romney, whose past performance (on health care or abortion or . . . ) is no guarantee of future returns. He doesn't fib like Newt Gingrich, who managed to blame Fox News for exposing his contradictory -- and expedient -- improvisations on U.S. policy in Libya.READ MORE
Europe's market regulators should be learning from America's mistakes. Instead they are imitating them.
Effective today, and with less than one day of notice, France, Belgium, Italy and Spain imposed new bans on short-selling financial stocks. The restrictions vary in scope from one country to another. This doesn't necessarily mean the affected companies' shares are unshortable. Many are listed on exchanges outside their home countries, including the New York Stock Exchange. Greece already had introduced a ban on short selling on Aug. 8.READ MORE
The loss of the U.S. government's AAA credit rating from Standard & Poor's, together with the failure by lawmakers to resolve the country's long-term fiscal problems, have so far had no obvious negative effect on the country's borrowing costs. In fact, those borrowing costs have declined: As of Friday, the 10-year U.S. Treasury note yielded 2.3%, down from 2.7% at the beginning of the month.
The low yields can be interpreted in various ways. For one, they could be a vote of confidence in the U.S. and its leadership. By this logic, investors are demonstrating that they don’t care what S&P says. They still see U.S. government bonds as the world's safest investment, and they have faith that politicians will ultimately fix the country's long-term finances.READ MORE
It's safe to say Sony Corp.'s Carlos Ghosn experiment has flopped.
In 2005, the embattled electronics giant turned to its first non-Japanese chief executive officer. The hope was that Howard Stringer would shake up and turn around Sony the way Ghosn, a Brazilian-born Frenchman, did at Nissan Motor Co. No such magic came from the gambit; Stringer, a Welsh-born U.S. citizen, has overseen a 60 percent decline in Sony's share value.READ MORE
After a nine-month study, a U.S. Department of Energy panel has issued strong recommendations to minimize air and water pollution from hydraulic fracturing, or fracking, the extraction of natural gas from deep rock.
As Bloomberg View recommended in a July 25 editorial, the panel advised that drilling companies immediately be compelled to disclose the full list of ingredients they use in fracking.READ MORE
For 10 months, RealtyTrac, a real-estate database company, has been downplaying declines in home foreclosure rates as illusory. The lower numbers are more likely an indicator of processing delays stemming from October's robo-signing scandal, RealtyTrac kept saying.
But today's number, showing a 35 percent decline in July from a year earlier -- the lowest level in almost four years -- may have convinced RealtyTrac that the downward trend is more than a paperwork logjam. The processing delays, "combined with the smorgasbord of national and state-level foreclosure prevention efforts," RealtyTrac CEO James Saccacio said in a statement, "may be allowing more distressed homeowners to stave off foreclosure."READ MORE