Death Star Economics



Fixing Libor, fixing the law

After the worst of the storm has gone, the Financial Services Authority has announced its reform of Libor. Unfortunately, the quest for an alternative benchmarking index failed, and so the new-old-Libor will just use transaction data instead of banks’ estimates to calculate the London Inter-Bank Offered Rate. However, there is no rule on the publishing of said transaction data so far.The BBA, the British Banker’s Association, will be stripped of its responsibility for monitoring the rate, passing the job on to the FSA, at least for the interim. The BBA’s administrator role will be publicly tendered (apparently, Bloomberg has its own proposal).

Alphaville summarizes: more banks will be involved (i.e. transactions from more banks will be taken into account), rate submissions will be kept confidential for three months, daily fixings will be reduced to 20 (from 150 and five less for currencies), the FSA will approve every individual in the banks involved in submitting rates, banks will need to add an explanation/reasoning to their rate estimates, the BAA will be replaced and manipulation will become a crime.

The Spanish budget was announced, featuring all those expected austerity measures that are likely to infuriate the Spanish people. According to the new plan, government spending will be cut by 8.9%, while tax revenues are forecasted to rise by €5bn to €175bn in 2013, partly through an increase in sales tax. Although Spain’s Finance Minister Luis de Guindos said the EU had still not specified the terms and conditions of a possible bailout, the new budget follows many of Brussel’s recommendations.

Also on the budget bandwagon: France. In an effort to reduce the budget deficit, the FT calls it the harshest budget in 30 years. Despite the sensationalist sound of that, they may not be far off. Tax revenues will increase by €20bn, mostly through increased taxes on corporations and the upper income tax brackets. And yes, that includes the 75% marginal income tax rate on earnings above €1m. Most people who are subject to this tax increase will have left by now, or are heading to the airports as I type. At least, it spares France the kind of austerity measures and cuts that cause riots in other parts of Europe. For 2013, France’ debt to GDP ratio is expected to be 91.3%, with net debt issuance falling by €8bn [to €170bn] from this years rate. read article

With quarter three ending today, the spotlight turns to the US presidential election. According to the German Handelsblatt, George Soros put $1m towards Obama’s re-election last night. Gillian Tett writes in the FT’s Market Insight column that according to a recent study by Absolute Strategy Research shows that in terms of economic data, voters care most about real estate prices. Following the housing bubble and subprime mortgage crisis that tore holes in the US economy, this is little surprising.

Weekend reading:

– Gender debate: Heidi Miller (formerly JP Morgan) an how women are weakread article

– The US’ states of play: an election infographicread article

– China’s first aircraft carrierread article

– Popculture explosion: “Gangnam style” actually made it into BusinessWeek, read article

Have a good one.


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In Europe, the rate of concern keeps rising

If we think about for how long concerns about the eurozone have been growing already, it makes me wonder just how muchconcern is necessary (also, is this a compounded rate of concern?), before it turns into some ludicrous version of panic

News of the day: The ECB left its core interest rate where it was before (1.00%), just as everyone had predicted. This will probably end up with an idealistic discussion about monetary policy that could last for the rest of the week. Also, now that the rate has been left alone, it is more likely that it’ll get cut even further next month.
As MarketBeat puts it:

But there is only so much the ECB can doThe fix for the euro-zone’s woes must come from its governments. Any relief the ECB could provide would be temporary in nature, and ultimately would allow Europe’s governments to put off making any hard decisions to solve the crisis.

Sounds inefficient and pretty much exactly like what we’ve been seeing in all those EU summits. Tell me again that the EU has turned into ze German Union, ja…

Speaking of Germany. YesterdayGermany has rejected using the various European bailout funds to directly inject cash into Spain’s crumbling banking system. It’s a game of chicken to achieve more or less the same thing. Germany wants Spain to request a bailout from the EFSF and then do with it whatever they please, while Spain wants Germanyto agree to direct financial aid for its struggling banks only. The difference seems mostly semantic and legal, but either way, it might be time for things to get going.

Oh, look at what happened there! Confusingly using the same picture, the FT reports that Spain is now down on its knees, begging for European institutions to please do something and suddenly liking the idea of eurobonds.

Here’s what else happened over the long weekend:

– At the EU-Russia summit on Monday, leaders (always has a communist ring to it, doesn’t it?) discussed Syria and, who would have guessed, the euro.

– Also on Monday, Portugal injected €6.6bn in three of its banks (Banco Commercial Portuges, Banco BPI and Caixa Geral de Depositos) to help them meet European capital requirements. Portugal is sort of following its recovery plan, but the EU appears to keep planning for another bailout. The plan, which states that the country could go back to raising funds from the private sector again next year, is endangered by Portugal’s current high borrowing costs.

– Finally, George Soros gave a speech about the eurozone and the end of civilization as we know it on Saturday, here’sEzra Klein’s dissection of it.

All this is making the topic of discussion for this week: the European stab at a banking union.

Maybe we all need something to laugh this day off. Thank god, Charlie Sheen is on the cover of Rolling Stone this month. That ought to be good.

So long.

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