Central Perk: Mish's Global Economic Trend Analysis

joi, 24 ianuarie 2013

Mish's Global Economic Trend Analysis

Italian PM Under Fire; Italy's 3rd Largest Bank Hid Derivative Losses: ECB Says "Matter for the Italian Authorities" (To Sweep Under the Rug)
Walmart Explores Offering Private Health Insurance for Small Businesses; In Praise of Walmart
Gallup Poll on Obama's Proposals to Address Gun Violence; Republicans and Democrats Agree on 7 of 9 Items; Is Now the Time?

Italian PM Under Fire; Italy's 3rd Largest Bank Hid Derivative Losses: ECB Says "Matter for the Italian Authorities" (To Sweep Under the Rug)

Posted: 24 Jan 2013 04:06 PM PST

When Mario Draghi (now ECB President), had oversight of the Italian bank system as Bank of Italy Governor, the Italian bank Monte dei Paschi di Siena (Italy's third largest bank) hid information on the derivatives transactions between 2006 and 2009.

This information is just now out, and shares of the bank have plunged 22% in a few days. Mario Draghi ought to be under fire, but he says it's a "Matter for the Italian Authorities".

The Mish translation is "It's a Matter for the Italian Authorities, to Sweep Under the Rug".

With that backdrop, let's take a look at the other Super-Mario (Mario Monti) who is Under Fire Over bank Crisis.

Mario Monti, Italy's prime minister, was forced to offer to recall parliament on Thursday amid questions about his government's handling of the financial crisis at Monte dei Paschi di Siena and the role of the central bank.

Shares in Italy's third-largest bank by assets, which has requested a second state bailout in four years, have fallen more than 22 per cent in the past few days since revelations five days ago of derivatives transactions that may force the 500-year-old bank to restate hundreds of millions of euros of losses.

Supervision of the struggling institution by the Bank of Italy while Mario Draghi, European Central Bank president, was governor has come under attack as an increasingly fierce political outcry erupts in the run-up to national elections next month.

Among the most vocal criticisms of the central bank, which traditionally has oversight of the Italian banking system, was Mr Draghi's long-time rival Giulio Tremonti, the former finance minister who is again running for office on February 25 for the centre-right.

In a sign of the severity of the situation, Giorgio Napolitano, Italy's head of state, made a rare entry into the financial arena. "If the situation is serious we are right to be concerned but I have full confidence in the operations of the Bank of Italy," he told reporters.

In a statement released late on Wednesday, the central bank said Monte dei Paschi had "hidden" information on the derivatives transactions struck between 2006 and 2009, a period during which Mr Draghi was governor.

The Bank of Italy said the "true nature" of some of the deals emerged only recently, "following the discovery of documents kept hidden from the supervisory authority and brought to light by the new management of MPS."

The ECB told the Financial Times that it was a matter for the Italian authorities and declined to comment.

Italy's centre-right party, led by Silvio Berlusconi, has seized on the issue to attack its centre-left opponents, who have had long institutional ties with MPS. "Monte dei Paschi is close to collapse," commented Angelino Alfano, secretary of the People of Liberty. "This is an example of how the left would govern the country."

Il Giornale, a Milan daily owned by the Berlusconi family, ran banner headlines saying the more than €4bn paid by Italians in a widely hated property tax imposed by Mr Monti was in effect going to prop up a failed bank.

Analysts remain concerned that the derivative losses, which are expected to push the bank to a €2bn annual loss for 2012, may increase the risk of the bank being partially nationalised as it will force the state to take an equity stake because the bank will not be able to repay its bail out bonds.

Sweeping Efforts Underway

Note the curious statement by Giorgio Napolitano, Italy's head of state (a largely ceremonial post): "If the situation is serious we are right to be concerned but I have full confidence in the operations of the Bank of Italy."

IF the situation is serious? Is there a question here?

I think not. And I wonder what Mario Draghi actually knew. Efforts are probably underway to determine if Draghi actually said anything about this in writing.

Meanwhile, there is a good chance Italy's third largest bank may be nationalized, and an even larger chance this will affect national elections coming up in February.

However, Please don't worry. Apparently it's not serious.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Walmart Explores Offering Private Health Insurance for Small Businesses; In Praise of Walmart

Posted: 24 Jan 2013 09:07 AM PST

Once again I am here to sing the praises of Walmart. Over the years I have done so on many occasions.

Many misguided souls take the other side. They blame Walmart for ruining mom and pop grocery stores, mom and pop hardware stores, etc.

Not me, I praise cheaper prices. Moreover, it's what consumers voted for with their hard-earned dollars.

If anyone wants to pay more for stuff, all they have to do is shop at a mom and pop hardware store, grocery store, or pharmacy. Most don't because they want a bargain.

Today, I have good news. Walmart-style competition may be on the way in the healthcare business.

The Orlando Business Journal writes Wal-Mart exploring private health insurance exchange for small biz.

Wal-Mart is exploring the idea of building a private health insurance exchange tailored to offer cheaper health insurance to small businesses, a vice president told Orlando Business Journal Jan. 11.

Marcus Osborne, vice president of health and wellness payer relations for Wal-Mart Stores Inc. (WMT), spoke to OBJ after his keynote speech at the Foundation of Associated Industries of Florida's 2013 Health Care Affordability Summit. Osborne said Wal-Mart wants to work with insurers and managed care companies to find new, low-cost health insurance options tailored for small companies, which historically have limited options.

The idea is to offer those products through a health insurance exchange — or as Osborne said, simply a marketplace — that would leverage Wal-Mart's buying and marketing power to make the exchanges widely available and used. "It would allow small employers to piggyback Wal-Mart," Osborne said. "We haven't got it all figured out, but it's one of the things we're looking at."

"The biggest problem today small employers face from a health insurance perspective is they have no alternatives," Osborne said. "If they find anything, they've got to take it. There's something wrong with that."

In Praise of Walmart

Obamacare is going to raise the cost of healthcare. Walmart will lower costs. I have been waiting for this since Summer of 2008.

Flashback June 22, 2008: Trade Wars, Health Care, and Wal-Mart

This post is about trade wars, tariffs, health care, and Wal-Mart. I will tie these themes together starting with a look at Wal-Mart and health care.

I have many disagreements with Jim Jubak, but he hits the nail on the head with Let Wal-Mart fix US health care.

I know who can fix our broken health care system -- and who can't:

Not presumptive Republican nominee John McCain. He proposes a tax credit of $5,000 per family to encourage us to buy private health insurance.

Not Democratic presidential candidate Hillary Clinton. She proposes universal health insurance supported by tax credits.

Not Democratic presidential candidate Barack Obama. He proposes a mix of public and private health insurance with government subsidies to those who don't qualify for government insurance plans such as Medicaid.

I say, let Wal-Mart Stores (WMT) do it. Hold your guffaws. Stifle your impulse to scoff. Control those sputters of rage.

Wal-Mart has done more to expand coverage and lower costs in the past year than any government program to come out of Washington in the past 10 years. And I'd bet the new programs that this company -- known for stiffing its own part-time workers on health care benefits -- has announced in the past year will do more to expand coverage and cut costs than anything likely to come out of a McCain, Clinton or Obama first term.

Letting Wal-Mart run the health care system would fix many of those problems. It's a company that understands how low prices can build market share and thus increase profits. Furthermore, it's a company with a culture of cutting costs that has shown no compunction in pushing suppliers to the wall over price. The Wal-Mart motto ought to be, "Make it cheaper, or we'll find someone who can." I'd love to see that attitude brought to bear in health care.
Inquiring minds will want to read the rest of the article. It's surprisingly good.

Jubak makes a compelling case. He never said this explicitly but I will. "We do not need higher wages or higher prices. We need lower prices and a dollar that buys more".

Hopefully a good idea, long overdue, is about to happen. I repeat what I said in 2008: "We do not need higher wages or higher prices. We need lower prices and a dollar that buys more".

Walmart-style competition would do just that.

My primary fear is regulators will kill the idea based on trumped up charges of some sort (or bribes from healthcare providers who fear competition) before the idea takes hold.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Gallup Poll on Obama's Proposals to Address Gun Violence; Republicans and Democrats Agree on 7 of 9 Items; Is Now the Time?

Posted: 23 Jan 2013 11:45 PM PST

Gallup has an interesting poll on Gun control. Republicans, Independents, and Democrats are in agreement far more than one might have thought.

Of course I am talking about the population in general, not the extremists on both sides of the aisle in Congress.

Poll questions were specifically worded by Gallup to follow President Obama's "Now is the Time" gun control agenda.

The results are in: Americans Back Obama's Proposals to Address Gun Violence.

Most Proposals Have Bipartisan Support

Although Democrats show more support than Republicans for each proposal, majorities of both partisan groups favor seven of the nine proposals. That includes nearly universal support among Republicans and Democrats for requiring criminal background checks for all gun sales. A majority of Republicans also favor a ban on armor-piercing bullets and increasing penalties for straw purchasers, as well as the various school security, police funding, and mental health funding proposals tested.

The two proposals favored by majorities of Democrats, but not Republicans, relate to enacting bans on the sale of guns or ammunition.

Support for Proposals by Political Affiliation

click on table for sharper image

Discussion

My personal check list is sure to disappoint some Republicans, some Democrats, some Independents, and some Libertarians. So be it.

Requiring criminal background checks for all guns is a seemingly reasonable thing to do. Overall, 92% of the people favor such an action. Checks will not stop a desperate criminal, but it may stop others. Nonetheless, I have reservations as explained below.
The proposal to increase mental health programs for youth will not be affordable. What would likely start out as a modest program will end up costing tens if not hundreds of billions of dollars down the road once bureaucrats get behind it. Ask taxpayers if they support increasing taxes to pay for the programs and I bet the answer is different. The same applies to other funding questions.
Similarly, we do not need funding to increase training. Police departments have ample money already. Money is wasted in union graft, overpaid officers, and untenable pension programs. There is nothing wrong with increased training. However, there is everything wrong with assuming extra funds are needed.
Increasing penalties for straw purchasers may not help a lot. However, it cannot hurt either. In conjunction with item 1, there may be a modest benefit. If not, at least item 4 will not cost anything.
Funding 15,000 extra police is of course ridiculous. Having extra officers may not be. The solution is getting rid of collective bargaining of public unions to drive down costs, not to throw more money at the problem.
By now you should be tuned into my line of thinking. Funding school emergency response plans is also ridiculous. This is not to say I oppose having a plan. Rather, I simply oppose spending additional taxpayer money on the idea. Schools ought to be doing this already. All it takes is for schools to schedule time with police departments to go over some common sense ideas. Do this for one school and it will apply to thousands. Throw money at it, and every school will seek 1000 times more money than they need.
There is absolutely no need for anyone to have an assault weapon to protect themselves. Nor do citizens need hand grenades, nuclear missiles, or any other such devices. It is beyond idiotic to ascertain assault weapons are constitutionally protected.
A ban on armor-piercing bullets is of course a no-brainer. There is no legitimate use of armor-piercing bullets for private citizens.
A ban on magazines with over 10 rounds is also a common-sense proposal. No one can possibly need more than 10 rounds in a clip to defend themselves in public or in their homes.

Cost Effective Analysis

From a cost-effective standpoint, the items that would likely do the most good, at the least cost, were the items that had the least support. Items 7, 8, 9, and 4 would not cost a dime. I solidly support all four.

I support preparing emergency plans (item 6), but that should not cost a dime either. As worded, I have to vote no.

I am fearful that the most supported idea (item 1) will end up costing too much in relation to the benefit. I voted yes, for now, but I need to see details of the plan as well as realistic measures of the cost.

As it stands, I am solidly in favor of 4 things that will not cost a dime. Those 4 items will not trudge on any conceivable rights either. I support an additional item, with reservations.

Once again, if Gallup asked taxpayers if they support increasing taxes to pay for these programs, I bet the answers would be different and the order of priorities would be different.

How Helpful Are Concealed Weapons?

Inquiring minds may be interested in a post by Barry Ritholtz How Helpful Are Concealed Weapons?

Click on the link to see a couple of interesting videos.

Note that Barry took a lot of flak for his post. Read the comments and see for yourself. I side with Barry.

The most sensible comments came from Disinfectant and GreenTom.

Disinfectant says ...

It is amazing, but not at all surprising, that so many watch these videos and utterly fail to understand the message. The point is simple and should be uncontroversial – unless you are well trained, defending yourself with a gun in a live scenario is very difficult; your body and mind are not prepared for this. It doesn't matter how often you go to the gun range or how heroic you imagine yourself to be. Going through the motions of protecting yourself, getting the gun out, then firing at the target (and ONLY at the target) does not happen naturally.

To the critics: nowhere does it imply that a gun will never be useful in defense. Obviously, if you are not in the immediate line of fire and can take cover, you will have more time to prepare yourself. But if the shooter is standing right in front of you, your odds are likely much lower than you think. And as far as anecdotal evidence goes, I'm sure 0% of you can actually say that you have been in such a situation and performed as flawlessly as your imagination would have you believe.

GreenTom says ...

I'd agree this is kind of staged, but more rigorous studies show the same thing. Study below reports that people carrying weapons are about 5 times more likely to be shot than those who don't carry. It's funny, I predict a lot of negative reactions to this comment, but does anyone really claim that escalating a robbery to a gunfight isn't a risky move?

Investigating the Link Between Gun Possession and Gun Assault

Here is the study cited by GreenTom: Investigating the Link Between Gun Possession and Gun Assault

...Individuals in possession of a gun were 4.46 times more likely to be shot in an assault than those not in possession. Among gun assaults where the victim had at least some chance to resist, this adjusted odds ratio increased to 5.45.

Among a long list of issues facing the American public, guns are third only to gay marriage and abortion in terms of people who report that they are "not willing to listen to the other side." In concert with this cultural rift, scholarly discussion over guns has been similarly contentious.1 Although scholars and the public agree that the roughly 100 000 shootings each year in the United States are a clear threat to health, uncertainty remains as to whether civilians armed with guns are, on average, protecting or endangering themselves from such shootings.

I commend Barry for taking a controversial stand on a controversial topic. Most bloggers stay away from controversial subjects, generally out of fear of offending readership. As my readers know full well, I will not shy away from controversial topics either.

By the way, gun control may not seem like an economic topic but it is. Many of Obama's proposals will require significant expenses to implement down the road (even if hidden initially).

Reflections on Libertarianism

I am certain to be charged by some of violating Libertarian beliefs.

However, libertarianism is not anarchy. Rules exist to protect property. Reasonable legislation will prevent some of these incidents, and no amount of legislation will stop all of them.

Moreover, common sense says that encouraging average citizens or teachers to walk around with assault weapons or concealed guns (the actual remedy proposed by some gun advocates) would cause a lot of needless deaths and property damage as a result would-be John Wayne types trying to be heroes, but accidentally killing innocent bystenders.

Reflections on the Constitution

As passed by Congress, the Second Amendment reads "A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed."

As ratified by the states, the Second Amendment reads "A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed."

Notice the dispute over commas. Also note how the concept of a "well regulated militia" is completely dropped by gun advocates.

The Supreme Court did rule the Second Amendment protects an individual's right to possess a firearm, unconnected to service in a militia.

Regardless, the rights to bear arms to protect oneself certainly can and should have limits.

To clarify that its ruling does not invalidate a broad range of existing firearm laws, the majority opinion, written by Justice Antonin Scalia, said:

"Although we do not undertake an exhaustive historical analysis today of the full scope of the Second Amendment, nothing in our opinion should be taken to cast doubt on longstanding prohibitions on the possession of firearms by felons and the mentally ill, or laws forbidding the carrying of firearms in sensitive places such as schools and government buildings, or laws imposing conditions and qualifications on the commercial sale of arms."

One does not need bazookas, hand grenades, missiles, assault weapons, armor-piercing bullets, or 10-clip magazines to defend one's person or one's house. Those items all need to be outlawed.

Gun advocates argue we need to enforce existing laws, while arguing against every law on the books. Meanwhile, state-to-state variations in laws make enforcement a nightmare, at best.

Now Is The Time

Obama says "now is the time". I agree but only where costs are low and benefits high. There are four (perhaps five) items out of nine on the president's agenda that meet that criteria.

My top three ideas are 7, 9, and 8 (pretty much in that order, but possibly 9 ahead of 7 which I will leave to the experts). Unfortunately, Republicans are likely to fight 7 and 9 (if not 7, 8, 9, and 1).

Given the sad state of Congressional compromises, Republicans may even agree to waste taxpayer money on programs simply to appease voters who clearly want something done.

Unfortunately, the end result is highly likely to be a combination of the most money spent for the least benefit.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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joi, 24 ianuarie 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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