Archive

April 11th, 2016

New reasons to question health of Europe's banks

    European banks have lost their mojo. A toxic combination of negative interest rates, comatose economies and a regulatory backdrop that might euphemistically be described as challenging is wreaking havoc with bank business models. Their collective market value has dropped by a quarter so far this year.

    The smoke signals emanating from the European Central Bank in recent weeks suggest regulators aren't blind to this. Daniele Nouy, who chairs the ECB's bank supervisory board, said earlier this week that the central bank "is aware that the low-interest-rate environment is putting pressure on the profitability of European banks." Regulators may respond by going easier when drafting new rules.

    Bank-failure rules to prescribe how banks design their balance sheets to absorb potential losses may be eased, according to a European Commission discussion paper prepared last month. Meanwhile, a global panel of regulators will hold a meeting in London this month to let banks give additional feedback on proposed rules about how much capital they must set aside to back their trading activities.

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A better model for regulating prostitution

    In recent days, two major European countries, France and Germany, have moved to amend their prostitution laws to make it riskier to pay for sex. The French and German approaches, however, are fundamentally different.

    France decided this week, after almost three years of deliberations, to switch to the so-called Swedish or Nordic model, which exists in Sweden, Norway, Iceland and Northern Ireland: Sex work is legal, but paying for it isn't. Johns will be fined 1,500 euros ($1,700) for the first offense and 3,700 euros for the second.

    It doesn't just sound absurd to the uninitiated. French prostitutes marched against the law, carrying typically irreverent signs such as "Whores Are Angry: Don't Touch Our Clients." In real life, of course, France's 30,000 to 40,000 prostitutes still won't be paid in flowers and champagne. They will simply have fewer clients, and those they still get won't care too much whether the sex worker is involved in a legal business or some exploitative underground scheme.

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Why tax avoidance is a lousy business strategy

    Earlier this week, the Obama administration put in place new rules - ones with pretty sharp teeth - to block tax inversions, where companies move their "tax residence" to a low-tax country.

    I know, what does that mean and where do you sign up? It means that a U.S. company merges with a foreign company and declares itself, for tax purposes, a U.S. subsidiary of the new foreign parent. The new rules out of the Treasury Department don't outlaw this process, but by blocking some of the most lucrative tax-avoidance tactics that motivate inverters - "earnings stripping" (the parent loads up the subsidiary with debt, who then deducts interest payments from its tax bill), "hopscotch loans" (tax free access to foreign profits), and more - they seriously dampen major incentives.

    So much so, in fact, that the pharmaceutical firm Pfizer decided not to go ahead with their planned merger with the "Irish" firm Allergan, a firm that, according to Bloomberg, "is run from New Jersey but has a legal domicile in Dublin."

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When the 'kindness of strangers' is no longer enough

    One of the biggest unanswered questions of Britain's looming referendum is how much capital might flee the nation if it decides to go it alone.

    As it stands, foreign investors do better in Britain than British investors abroad, and that investment has been a big driver in the U.K. economy. It also helps explain why there's so much concern about the nation's growing deficit in its current account -- the gap between what Britain pays foreigners and what it receives.

    Britain's economy is one of Europe's strongest in terms of growth. But in 2015 the country's current account deficit hit a record, meaning more money was flowing out of the U.K. than into it. After widening for four consecutive years, the deficit reached 32.7 billion pounds ($46.47 billion) in the fourth quarter -- that's 7 percent of GDP, the highest of any developed nation's economy.

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The Clinton Broadway revival

    It will not be the first time that a Clinton relies on the tough-minded voters of New York to salvage a front-running presidential candidacy.

      On March 24, 1992, an insurgent candidate named Jerry Brown (yes, California's current governor) upended Bill Clinton, the Democrats' nominee-in-waiting, in the Connecticut primary. To re-establish his primacy, Clinton went to work in New York.

     A few days after his Connecticut defeat, Clinton spoke to reporters about "all this crap I've put up with" and how he had to deal with "attacks, attacks, attacks on me."

     Of Brown, Clinton said: "I think he gives them easier answers to problems than I do. And a lot of people who are frustrated and angry want simple solutions."

     Sound familiar?

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Sanders, like Clinton, has 'what it takes'

    Hillary Clinton and Bernie Sanders are trading swipes about each other's qualifications (or lack thereof) to be U.S. president. Both may be misinterpreting the credentials required.

    Clinton fired the opening salvo when she assailed Sanders for fumbling an answer about his plan to break up the big banks:

    "I think he hadn't done his homework and he'd been talking for more than a year about doing things that he obviously hadn't really studied or understood, and that does raise a lot of questions."

    Reacting less to the content of her comments than to a headline in The Washington Post -- "Clinton Questions Whether Sanders Is Qualified to Be President" -- Sanders issued a harsh response. He said that Clinton was the unqualified one because she has accepted campaign contributions from Wall Street, voted for the war in Iraq and supported "disastrous" trade deals.

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Sanders Over the Edge

    From the beginning, many and probably most liberal policy wonks were skeptical about Bernie Sanders. On many major issues — including the signature issues of his campaign, especially financial reform — he seemed to go for easy slogans over hard thinking. And his political theory of change, his waving away of limits, seemed utterly unrealistic.

    Some Sanders supporters responded angrily when these concerns were raised, immediately accusing anyone expressing doubts about their hero of being corrupt if not actually criminal. But intolerance and cultishness from some of a candidate’s supporters are one thing; what about the candidate himself?

    Unfortunately, in the past few days the answer has become all too clear: Sanders is starting to sound like his worst followers. Bernie is becoming a Bernie Bro.

    Let me illustrate the point about issues by talking about bank reform.

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Read the law, judge, to see that marijuana can be a sacrament

    A U.S. appeals court says that the federal law protecting religious liberty doesn't shield a Hawaiian church that uses cannabis in its rituals. That's pretty outrageous.

    The decision's perverse logic relies on a cartoonishly rigid idea of religious obligation. And it suggests that the religious-freedom law only protects mainstream religious groups like the Catholic Church, not smaller denominations.

    The case involves the Oklevueha Native American Church of Hawaii, founded by Michael Rex "Raging Bear" Mooney, who is also described as the "Medicine Custodian" of the church. The church draws on an eclectic range of Native American traditions. Its sacraments include sweat lodge ceremonies that take place at the full moon and the new moon. Church members use drugs including cannabis in what they describe as a "communion," seeking to achieve mystical union with the divine.

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Panama is the new Switzerland

    Another century, another tax haven. In the 20th century, the very rich used to park their money in secret Swiss bank accounts. How quaint. And how old-fashioned.

    In the 21st century, as we've just learned, Panama is the new Switzerland. That's where many of today's most wealthy prefer to shelter their money, and for the same reasons: to hide their personal fortune and avoid paying taxes. All you need is a shady law firm to grease the skids, and many families worldwide found just what they were looking for in the boutique Panamanian firm of Mossack Fonseca.

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Obama's sly dig at conservative decline

    You have to admire the multi-level trolling by President Barack Obama. Obama speaks Thursday at the University of Chicago law school, where he taught in the 1990s, and give an interview to Fox News. The law school discussion is targeted at Republican Senate leader Mitch McConnell and his obstruction of Obama's Supreme Court nomination. The interview is an assault on contemporary American conservatism.

    The Supreme Court nomination of Merrick Garland, chief judge of the United States Court of Appeals for the District of Columbia Circuit, is the proximate cause of Obama's visit. "We are going to continue to make the case to Republicans in the United States Senate that they should fulfill their constitutional responsibility," White House press secretary Josh Earnest said. "The president will certainly make that case."

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