duminică, 19 ianuarie 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

French Banks Face €285 Bn Capital Shortfall, Germany €199 Bn, Spain €92 Bn; Mish French Fine Update

Posted: 19 Jan 2014 11:04 PM PST

At the risk of incurring another nonsensical fine for quoting someone on leverage and capital ratios of French banks, please consider European Banks Face $1 Trillion Gap Before Review.
European banks have a capital shortfall of as much as 767 billion euros ($1 trillion) before the European Central Bank's probe into the financial health of the region's lenders, according to a study.

French banks show the biggest gap of 285 billion euros, followed by German lenders with as much as 199 billion euros, Sascha Steffen of the European School of Management and Technology in Berlin and Viral Acharya at New York University said in their study dated Jan. 15. The figures assume a benchmark capital ratio for other book measures of leverage of 7 percent, they wrote.

"A comprehensive and decisive AQR will most likely reveal a substantial lack of capital in many peripheral and core European banks," the authors wrote, referring to the central bank's Asset Quality Review stage of the Comprehensive Assessment.

Spanish banks have a shortfall of 92 billion euros, while Italian banks lack 45 billion euros, the study showed.

"Our results suggest that with common equity issuance and haircuts on subordinated creditors, it should be possible to deal with many banks' capital needs," the authors wrote. "Some will, however, require public backstops, especially if bail-ins are difficult to implement without imposing losses on bondholders, who may themselves be other banks and systemically important financial institutions."

Particularly the banking sectors in Belgium, Cyprus and Greece "seem likely to require backstops," they said.
Shortfall? What Shortfall?

To ensure there will not be any major capital shortfalls in the next round of stress-free tests, please note ECB Waters Down 2014 Stress Tests Second Time

In what translates into yet another sham stress test, the ECB reduced bank capital requirements from 8% to 6% then effectively declared all sovereign bonds held in non-trading portfolios to be risk-free.

Without a doubt, banks will put all their sovereign bonds in hold-to-maturity buckets (at least for the duration of the stress test).

Fine Update

In case you missed it, please note Mish Fined 8,000 Euros for Quoting French Blog.

Here's an update:

A French lawyer volunteered to represent me in an appeal to reduce the fine. His cost was €9,000 (without vat tax at 20%), plus judicial fees of another €1,000.

I quickly pointed out that legal costs (with uncertain odds of success) exceeded the fine.

The lawyer then reduced his cost to €4,000 upfront (again without the 20% VAT) plus 50% of any reduction in fine, plus judicial fees of another €1,000.

I am wondering about the mindset of French lawyers willing to waste their time and mine with such ludicrous proposals.

My original plan, which I am sticking with because the appeal period is now over, is to not pay the fine and never go to France (and I had no such desire anyway).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bottom 5 States in Fiscal Condition: New Jersey, Connecticut, Illinois, Massachusetts, California

Posted: 19 Jan 2014 01:49 PM PST

Inquiring minds are digging into a George Mason University paper on State Fiscal Conditions, a ranking of 50 states, by Sarah Arnett.

PolicyMic Produced this Chart of State Fiscal Conditions based on the working paper.



Highlights and Lowlights

Let's return to the original working paper for some highlights and lowlights.
At the bottom of the rankings are New Jersey and Illinois. New Jersey faces long-run solvency problems due in part to nearly 15 years of underfunding its state and local pensions. It has an estimated unfunded pension liability of around $25.6 billion as well as $59.3 billion in unfunded liabilities for the health benefits of retired teachers, police, firefighters, and other government workers (State Budget Crisis Task Force 2012).

Illinois has also underfunded its public pensions, resulting in an estimated state retirement system combined unfunded liability of $ 96.8 billion as of 2012 (Illinois Commission on Government Forecasting and Accountability 22 2013). To cover the costs of its pension obligations, Illinois has also sold bonds to cover its annual contributions — 60 percent of Illinois' total outstanding debt is in pension bonds (State Budget Crisis Task Force 2012). In essence, Illinois is using long-term debt instruments to meet current year pension obligations.

[In Contrast] Nebraska is constitutionally prohibited from incurring debt. As such, the long-term liabilities reflected in Nebraska's long-run solvency score are mainly due to claims payable for worker's compensation, Medicaid claims, and other employee-related items. With no significant bond debt, Nebraska has a much lower long-term liability per capita and a much lower long-term liability ratio than most other states.
Bottom 5 in Long-Term Solvency



In terms of long-term solvency (the most critical issue), New Jersey and Illinois are at the bottom of the heap. Pension plans and union activism are to blame.

All five states at the bottom of the list have one thing in common: they got that way via "progressive" extreme-liberal politics, fueled by union activism, and promises that cannot possibly be met.

Compare to the top five.

Top 5 in Long-Term Solvency



The top five states all have something in common as well: none of them are the hotbed of "progressive" activism and unions.

Although there are other issues, I strongly suggest the performance of the top five and bottom five is directly related to "progressive" politics.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

More Christie Allegations: Mayor of Flooded Hoboken Claims "Christie Held City Hostage"

Posted: 19 Jan 2014 11:45 AM PST

New Jersey Governor Chris Christie has been damaged by numerous allegations involving political paybacks regarding lane closures on the George Washington Bridge that disrupted traffic for days.

That scandal was bad, but at least Christie has claimed no personal involvement. He cannot say the same thing now. Dawn Zimmer, mayor of Hoboken, alleges Christie camp held Sandy relief money hostage.
Two senior members of Gov. Chris Christie's administration warned a New Jersey mayor earlier this year that her town would be starved of hurricane relief money unless she approved a lucrative redevelopment plan favored by the governor, according to the mayor and emails and personal notes she shared with msnbc.

The mayor, Dawn Zimmer, hasn't approved the project, but she did request $127 million in hurricane relief for her city of Hoboken – 80% of which was underwater after Sandy hit in October 2012. What she got was $142,000 to defray the cost of a single back-up generator plus an additional $200,000 in recovery grants.

In an exclusive interview, Zimmer broke her silence and named Lt. Gov. Kim Guadagno and Richard Constable, Christie's community affairs commissioner, as the two officials who delivered messages on behalf of a governor she had long supported.

"The bottom line is, it's not fair for the governor to hold Sandy funds hostage for the City of Hoboken because he wants me to give back to one private developer," she said Saturday on UP w/ Steve Kornacki. "… I know it's very complicated for the public to really understand all of this, but I have a legal obligation to follow the law, to bring balanced development to Hoboken."

"I'd be more than willing to testify under oath and – and answer any questions and provide any documents, take a lie detector test," Zimmer said, referring to the Christie administration's denials. "And, you know, my question back to them is, 'Would all of you? Would all of you be willing do that same thing, to testify under oath, to take a lie detector test?'"

Zimmer's interview comes on the heels of a scandal in which other members of Christie's inner circle conspired to create huge traffic swells, possibly in an act of political retribution, on another New Jersey town on the outskirts of Manhattan.
It's possible to believe Christie had no knowledge of lane closures on the George Washington Bridge. Still, the person responsible was a part of his administration, and with considerable delay Christie finally offered an apology.

In this case, if the charges by Zimmer are true, Christie himself is personally involved. There is no other reasonable way to look at it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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