Tag Archives: Perverse Incentives

Bill Bonner: Three Signs That Never Fail to Predict a Bear Market

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“Too much money (or credit) raises prices, lowers yields, forces investors into subprime investments, increases debt and dooms markets to disaster.   As ultra-low rates continue, milestones are hit. In 1946, the Union Pacific Railroad was able to borrow at 2.51% – a record low at the time. But it was a solid business. Today’s credit-financed lending bubble finds borrowers with neither tracks nor trains.  Rwanda recently borrowed $400 million – an amount equal to 5% of GDP –at less than 7% interest.  [LendingClub also has a] great business model, no? You get money from people who are desperate for yield… you lend it to people who are desperate for cash… and you take your fees off the top.”

http://bonnerandpartners.com/three-signs-that-never-fail-to-predict-a-bear-market/

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JPMorgan Joins Goldman in Designing Derivatives for a New Generation

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“Derivatives that helped inflate the 2007 credit bubble are being remade for a new generation.  JPMorgan Chase & Co. is offering a swap contract tied to a speculative-grade loan index that makes it easier for investors to wager on the debt. Goldman Sachs Group Inc. is planning as much as 10 billion euros ($13.4 billion) of structured investments that bundle debt into top-rated securities, while ProShares last week started offering exchange-traded funds backed by credit-default swaps on company debt.  The instruments are springing back to life as investors seek new ways to boost returns that are being suppressed by central bank stimulus.”

http://www.bloomberg.com/news/2014-08-12/swaps-reincarnate-boosting-debt-bets-in-new-era-credit-markets.html

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FICO Recalibrates Its Credit Scores, Targeting Easier Credit

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“A change in how the most widely used credit score in the U.S. is tallied will likely make it easier for tens of millions of Americans to get loans.  Fair Isaac Corp. said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.  The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk.”

http://online.wsj.com/articles/fico-recalibrates-its-credit-scores-1407443549

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Dry California Fights Illegal Use of Water for Cannabis

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“Amid the state’s crippling drought, many communities are fighting the growers’ use of water.  Environmentally minded marijuana growers say that illegal operators and water guzzlers are giving them a bad reputation.  Because there are countywide restrictions on the number of marijuana plants even legitimate growers may keep, Mr. Chaitanya said, they have an incentive to make those plants as robust as possible — and that means using more water. Mr. Chaitanya suggested that the problem was exacerbated by confusing regulations.  Sheriff Allman of Mendocino County was skeptical of this. ‘That sounds like logic they’ve made up after smoking a joint,’ he observed.”

http://www.nytimes.com/2014/08/07/us/dry-california-fights-illegal-use-of-water-for-cannabis.html

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New Mom Charged With Drug ‘Assault’ on Fetus

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“A Tennessee woman is the first to be charged under a new state law that specifically makes it a crime to take drugs while pregnant, calling it ‘assault.’  The law, which just went into effect, allows a woman to be “prosecuted for assault for the illegal use of a narcotic drug while pregnant” if her infant is harmed or addicted to the drug.  Monroe County Sheriff Bill Bivens said he hoped the arrest would deter other pregnant women from drug use.  ‘Hopefully it will send a signal to other women who are pregnant and have a drug problem to seek help. That’s what we want them to do,’ he said. Critics say that the law will hinder drug-addicted pregnant women from getting help and treatment.”

http://abcnews.go.com/US/woman-charged-controversial-law-criminalizes-drug-pregnancy/story?id=24542754

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What Really Drove the Children North

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“To make the ‘Obama did it’ hypothesis work, it is necessary to defeat the claim that the migrants are fleeing intolerable violence. This has given rise to the oft-repeated line that ‘those countries’ have always been very violent.   That is patently untrue.  Back in the early 1990s, drugs from South America flowed through the Caribbean to the U.S. But when a U.S. interdiction strategy in the Caribbean raised costs, trafficking shifted to land routes up the Central American isthmus and through Mexico. With Mexican President Felipe Calderón’s war on the cartels, launched in 2007, the underworld gradually slithered toward the poorer, weaker neighboring countries.”

http://online.wsj.com/articles/mary-ogrady-what-really-drove-the-children-north-1405892801

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China Finds $15 Billion of Loans Backed by Fake Gold Trades

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“Twenty-five bullion processors in China, the biggest producer and consumer of gold, made a combined profit of more than 900 million yuan from the loans, according to a report on the National Audit Office’s website.  Public security authorities are also probing alleged fraud at Qingdao Port, where copper and aluminum stockpiles may have been pledged multiple times as collateral for loans. Steps by the Chinese government to rein in credit by raising borrowing costs in recent years created a surge in commodities financing deals that Goldman Sachs Group Inc. estimates to be worth as much as $160 billion.”

http://www.bloomberg.com/news/2014-06-26/china-finds-15b-of-loans-backed-by-falsified-gold-trades.html

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Italy joins France to launch tax on high-frequency trades [2013]

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“The tax – which will apply regardless of where the transaction is executed – follows an introductory scheme launched in March in the country which taxed both exchange-based and over-the-counter share trading.  The new levy will subject high-frequency trading (HFT) to a 0.02 percent tax on trades occurring every 0.5 seconds or faster.  The idea has gained traction with 11 EU countries, also including Germany, Greece, and Spain, planning to introduce a pan-European financial transaction tax in January 2014 which will affect most equity, debt and derivative transactions. But the project has had notable critics, with many believing that trade will just seek new jurisdictions such as the U.K.”

http://www.cnbc.com/id/101002422

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Spanish Firm Uses Copyright to Silence Ecuador’s Critics

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“A shady law firm in Spain called Ares Rights has found a way to take advantage of US law in order to remove content that originated in Ecuador, sending Digital Millennium Copyright Act (DMCA) takedown notices on behalf of several Ecuadorian state officials, targeting documentaries, tweets, and search results that include images of those officials, alleging copyright infringement. Most of the companies receiving these requests, including Google, Twitter, and Vimeo, have unfortunately responded by automatically removing the content.  Some have re-instated removed works after a successful counter-notice was filed by the uploaders.”

https://www.eff.org/deeplinks/2014/05/state-censorship-copyright-spanish-firm-abuses-DMCA

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Europe’s Pain is the World’s Gain

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“Last week the ECB announced that it was cutting its headline lending rate to 0.15 percent and taking its deposit rate to negative 0.10 percent. That means banks must pay the ECB to hold their money, a move the ECB hopes will spur lending.  It will also make $545 billion worth of inexpensive loans available to banks with the caveat that they lend more to the private sector. First tranche euro zone banks will be permitted to borrow up to 7% of the value of their corporate loans with additional tranches of funding [on the way].  While the goal of easing is to improve economic conditions at home, the money will ultimately flow to where it can find the greatest returns, as our own experience has shown.”

http://www.investingdaily.com/20513/europes-pain-is-the-worlds-gain-2/

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