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French Constituional Court Approves 75% Tax On High Earners | Zero Hedge

French Constituional Court Approves 75% Tax On High Earners | Zero Hedge.

Almost a year ago, the French constitutional court ruled against Francois Hollande’s triumphal blast into socialist wealth redistribution, with his proposed 75% tax rate on high earners, and so indefinitely delayed the exodus of the bulk of French high earners (even if some, like Obelix, aka Gerard Depardieu, promptly made their way to the country that has become the land of solace for all oppressed people everywhere, Russia) into more tax-hospitable  climes. That delay is now over, when earlier today the same court approved a 75% tax on all those earning over €1 million. The proposal passed after the government modified it to make employers liable for the 75% tax. As BBC reports, the levy will last two years, affecting income earned this year and in 2014.

And with the tax passage, the preparations for an exodus by all high earnings begin, first among the local football teams. BBC reports:

Football clubs in France went on strike earlier this year over the issue, saying many of France’s clubs are financially fragile and say the plans could spark an exodus of top players who are paid huge salaries.

 

The Qatari-owned Paris Saint-Germain has more than 10 players whose pay exceeds 1m euros, including the Swedish striker Zlatan Ibrahimovic.

 

There has also been a chorus of protest from businesses and wealthy individuals who have condemned the tax – including film star Gerard Depardieu, who left the country in protest.

 

Polls suggest a large majority in France back the temporary tax.

 

Unlike many other countries in Europe, France aims to bring down its huge public deficit by raising taxes as well as some spending cuts. The highest tax rate in the UK is 45% and is applied to individuals.

While the numerous unintended consequences of this shock and awe tax hike will be amusing to watch in real time as this move will almost certainly be the long-awaited catalyst to push France into its long-predicted recession (to the benefit of countries like Belgium where the French uber-rich are already relocating to), one wonders if the drop in the value of French ultra-high end real estate will be offset by the soaring valuations of London’s already “beyond housing bubble” home prices, and just what the local response will be now that domestic real estate is even more inaccessible to anyone but the wealthiest global oligarchs and billionaires (aside from the capital gains tax of course, which as we wrote previously, is about to be launched first in London, and then everywhere else).

 

UK braced for more storms and floods | UK news | theguardian.com

UK braced for more storms and floods | UK news | theguardian.com.

Flooding in Maidstone

Flooding in Maidstone, Kent: about 1,000 homes in south-east and south-west England have been flooded and at one stage 300,000 properties were without power. Photograph: Matthew Aslett/Demotix/Corbis

Weather forecasters are warning that more storms could cause further significant flooding in parts of southern England on Thursday as more than 10,000 properties remain without power.

About 1,000 homes in south-east and south-west England have already been flooded and at one stage 300,000 properties in the south-east, the east of England and London had no electricity as bad weather threw many people’s Christmas celebrations into chaos.

The Met Office said widespread gales were likely to develop late during Thursday night or in the early hours of Friday morning bringing gusts of more than 50mph inland and of 70mph to 80mph to some coastal areas and high ground. On Thursday morning, the Environment Agency had 83 flood warnings in place, the bulk of them in the south-east (37), south-west (16), and the Midlands (18).

A Met Office spokesman said: “The public should be aware of the potential for disruption, especially where the high winds are combined with heavy rainfall.”

He said a deep area of low pressure developing over the Atlantic Ocean would bring more wet and windy weather across the UK as it tracked north-eastwards past north-western Britain later on Thursday and during Friday.

“Peak winds are thought most likely to occur during the early hours of Friday and Friday morning with the highest gusts probably being over Irish Sea coastal areas,” he said.

There was some consolation as he said the likely impact was presently thought to be “less severe” relative to other recent storms to have hit the UK.

The Energy Network Association said 13,000 properties remained without power on Thursday morning after 50,000 had no supplies on Christmas Day.

UK Power Networks, which delivers power to about 8 million customers in the south-east, the east of England and London, said that by Thursday morning there were around 8,000 without power in the area.

The director of customer services, Matt Rudling, said: “All our efforts today remain fully focused on reconnecting power supplies in the quickest way possible. Extra staff are on duty, many of whom have cancelled their leave to help with the repair effort or to join our additional call centres. We know this is a very difficult time for our customers and we want to thank them for their understanding.”

The bad weather also hampered the annual Christmas getaway. Some of the most chaotic scenes were at Gatwick airport, where a power outage at its north terminal led to more than 35 cancellations and long delays. Police stepped in to calm angry passengers. The Civil Aviation Authority (CAA) has said it may launch an investigation into the problems, which came two months after flights were hit by an earlier storm.

A CAA spokesman said: “We need to know exactly what happened at the airport. Once we have that information we can decide if there is any further action we need to take.”

The airport said heavy rain caused flooding from the River Mole into airfield substations and the north terminal.

 

Dead Currency Walking | project chesapeake

Dead Currency Walking | project chesapeake.

By: Tom Chatham

The Chinese have made no secret of their discontent with the massive money printing by the U.S. that is threatening to diminish their massive holdings. They are currently on a massive buying spree to get every ounce of gold they can as fast as they can. The U.S. interests are holding down the price of PMs in an effort to fool the average person into believing that everything is just fine. This manipulation is playing right into the hands of China as they continue to buy.

The amount of gold moving from London to the east is creating a drain on vaults in the west and it is only a matter of time before they go empty. When that happens, the price of physical will skyrocket and no amount of paper will be able to stop it. The end of the line for paper gold and silver is getting close. With China buying over 1,000 tons of gold every year for the past few years plus what they mine themselves, their vaults are filling up fast. Once they have a sufficient amount, they will complete the destruction of the Dollar with massive dumping of their U.S. bonds.

China has already signaled the end of the dollar when it recently announced it would start invoicing all of its oil imports in Renminbi. It has also announced it will no longer be adding any more foreign reserves to its holdings. This is an indication that China will begin to build up its own middle class to absorb much of its production just as the U.S. did in the last century. This is a clear signal that the loss of reserve currency status for the U.S. is not far off.

As if to make an even bolder statement, China is working on an agreement with Nicaragua to build a canal that rivals the Panama Canal. China is also talking about operating their own oil futures market that will be priced in Yuan. At least half of the OPEC nations have expressed interest in the endeavor.

As if life were not difficult enough in the U.S. right now, the loss of reserve currency status will hit like a financial tsunami that will push Americans over the edge before they know what hit them. This will cause all of our imports to increase in price until we can no longer afford them. This is a fact that few Americans know or understand. Most like to pretend everything will be fine and keep their head in the sand to stop any negative information from getting through but this crisis is going to run up and bite them in the ass whether they want to know or not. This is why so many will lose everything they have in the coming months. They can ignore reality but they will not be able to ignore the consequences of ignoring reality.

There are going to be rough times ahead and most Americans refuse to admit it and prepare for the worst. There has usually been someone or some thing to step in in the past and cushion the fall for most but this time there will be no one there to stop the pain. The death of the dollar will be one of those times in life that everyone will remember for many years to come.

 

Vince Cable: interest rates may have to rise to combat housing boom | Business | theguardian.com

Vince Cable: interest rates may have to rise to combat housing boom | Business | theguardian.com.

Vince Cable<br />

Vince Cable has again called for the government to rethink its help to buy scheme. Photograph: David Cheskin/PA

The business secretary, Vince Cable, has warned that interest rates may have to rise to constrain a “raging housing boom” in London and the south-east.

Speaking on BBC1’s Andrew Marr Show, he said if interest rates were not increased by the Bank of England, there was a danger that large parts of London could be inhabited only by foreigners and bankers as house prices spiralled.

He added that, on the other hand, if interest rates were increased it would have a negative impact on UK manufacturing since exchange rates would rise, making exports harder.

It is the first time Cable has spoken so openly about the possibility of interest rates rising due to the imbalance in the economic recovery.

He again called for the government to rethink its Help to Buy scheme, which he said was conceived in entirely different circumstances. He also hinted strongly he did not want to follow the Conservative path on spending cuts after the election in 2015, saying the social fabric was under strain.

Cable said: “There is a raging housing boom in London and the south-east, and not in other parts of the country. The danger of raising interest rates is that you hit those parts of the country which are not yet fully recovered, you push up the exchange rate and that hits manufacturing. We don’t want that. On the other hand, if you do not increase interest rates – if that is the way the governor and the Bank of England go – then this boom that is taking place in housing prices gets out of control and the only people that can afford to live in large parts of London are foreigners and bankers, and we don’t want that either.”

He said the government needed to look again at the Help to Buy scheme, which involves government backing for mortgages so that buyers do not have to provide such a large deposit, saying “it was conceived in very different circumstances”.

Cable also said he noted the rating agency Standard & Poor’s hadreaffirmed the UK’s AAA rating, but had expressed concerns about imbalance in the UK economy.

He said: “We have got to have a sensible balance on public spending cuts – which is getting very severe. Some very good services are now being seriously affected.”

 

Define “Market” Irony: When JPMorgan’s Chief Currency Dealer Is Head Of An FX Manipulation “Cartel” | Zero Hedge

Define “Market” Irony: When JPMorgan’s Chief Currency Dealer Is Head Of An FX Manipulation “Cartel” | Zero Hedge.

Now that everyone is habituated to banks manipulating every single product and asset class, and for those who aren’t, see this explanatory infographic

Foreign Exchanges

Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.

Energy Trading

Banks have been accused of manipulating energy markets in California and other states.

Libor

Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.

Mortgages

Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.

…revelations that this market and that or the other are controlled by a select group of criminal bankers just don’t generate the kind of visceral loathing as 2012’s Libor fraud bombshell.

As much was revealed when the second round of exposes hit in the middle of 2013, mostly focusing on manipulation in the forex market, and the general population largely yawned, whether due to the knowledge that every market is now explicitly broken (explaining the abysmal trading volumes and retail participation in recent years) or because nobody ever gets their due punishment and this kind of activity so not even a perp-walk spectacle can be enjoyed, this is accepted as ordinary-course action.

Nonetheless, we are glad that the actions of the FX cartel continue to get regular exposure in the broader media, in this case Bloomberg who, among other things, reminds us that it was none other than JPM’s Dick Usher who was the moderator of the appropriately titled secret chat room titled “The Cartel” which we noted previously.  It is this alleged criminal who “worked at RBS and represented the Edinburgh-based bank when he accepted a 2004 award from the publication FX Week. When he quit RBS in 2010, the chat room died, the people said. He revived the group with the same participants when he joined JPMorgan the same year as chief currency dealer in London.”

Yes, the chief currency dealer of JP Morgan, starting in 2010 until a few months ago when he quietly disappeared, was one of the biggest (allegedly) FX manipulators in the world. Define irony…

What are some of the other recent revelations?

Here is a reminder of the prehistory from Bloomberg. First came the chat rooms:

At the center of the inquiries are instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia,” in which dealers exchanged information on client orders and agreed how to trade at the fix, according to the people with knowledge of the investigations who asked not to be identified because the matter is pending. Some traders took part in multiple chat rooms, one of them said.

The allegations of collusion undermine one of society’s fundamental principles — how money is valued. The possibility that a handful of traders clustered in a closed electronic network could skew the worth of global currencies for their own gain without detection points to a lack of oversight by employers and regulators. Since funds buy and sell billions of dollars of currency each month at the 4 p.m. WM/Reuters rates, which are determined by calculating the median of all trades during a 60-second period, that means less money in the pension and savings accounts of investors around the world.

One focus of the investigation is the relationship of three senior dealers who participated in “The Cartel” — JPMorgan’s Richard Usher, Citigroup’s Rohan Ramchandani and Matt Gardiner, who worked at Barclays and UBS — according to the people with knowledge of the probe. Their banks controlled more than 40 percent of the world’s currency trading last year, according to a May survey by Euromoney Institutional Investor Plc.

Entry into the chat room was coveted by nonmembers interviewed by Bloomberg News, who said they saw it as a golden ticket because of the influence it exerted.

And after that came unprecedented hubris and a sense of invincibility:

The men communicated via Instant Bloomberg, a messaging system available on terminals that Bloomberg LP, the parent of Bloomberg News, leases to financial firms, people with knowledge of the conversations said.

The traders used jargon, cracked jokes and exchanged information in the chat rooms as if they didn’t imagine anyone outside their circle would read what they wrote, according to two people who have seen transcripts of the discussions.

Since nobody investigated, next naturally, come the profits and the crimes:

Unlike sales of stocks and bonds, which are regulated by government agencies, spot foreign exchange — the buying and selling for immediate delivery as opposed to some future date — isn’t considered an investment product and isn’t subject to specific rules.

While firms are required by the Dodd-Frank Act in the U.S. to report trading in foreign-exchange swaps and forwards, spot dealing is exempt. The U.S. Treasury exempted foreign-exchange swaps and forwards from Dodd-Frank’s requirement to back up trades with a clearinghouse. In the European Union, banks will have to report foreign-exchange derivatives transactions under the European Market Infrastructure Regulation.

A lack of regulation has left the foreign-exchange market vulnerable to abuse, said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business in Manhattan.

If nobody is monitoring these benchmarks, and since the gains from moving the benchmark are possibly very large, it is very tempting to engage in such a behavior,” said Abrantes-Metz, whose 2008 paper “Libor Manipulation” helped spark a global probe of interbank borrowing rates. “Even a little bit of difference in price can add up to big profits.

… along with a lot of banging the close:

Dealers can buy or sell the bulk of their client orders during the 60-second window to exert the most pressure on the published rate, a practice known as banging the close. Because the benchmark is based on the median value of transactions during the period, breaking up orders into a number of smaller trades could have a greater impact than executing one big deal.

… and much golf and “envelopes stuffed with cash

On one excursion to a private golf club in the so-called stockbroker belt beyond London’s M25 motorway, a dozen currency dealers from the biggest banks and several day traders, who bet on currency moves for their personal accounts, drained beers in a bar after a warm September day on the fairway. One of the day traders handed a white envelope stuffed with cash to a bank dealer in recognition of the information he had received, according to a person who witnessed the exchange.

Such transactions were common and also took place in tavern parking lots in Essex, the person said.

Personal relationships often determine how well currency traders treat their customers, said a hedge-fund manager who asked not to be identified. That’s because there’s no exchange where trades take place and no legal requirement that traders ensure customers receive the best deals available, he said.

In short – so simple the underwear gnomes could do it:

  1. Create a cartel
  2. Corner and manipulate the market
  3. Profit.

And that’s why they (and especially Jamie Dimon) are richer than you.

 

Yet another massive nail in the dollar’s coffin

Yet another massive nail in the dollar’s coffin.

On the other side of the world today, a couple of gentlemen that few people have ever heard of signed an agreement that has massive consequences for the global financial system.

It was a Memorandum of Understanding signed by representatives of the Singapore Exchange and Hong Kong Exchange. Their aim– to combine their forces in rolling out more financial products denominated in Chinese renminbi.

This is huge.

Hong Kong and Singapore are THE two dominant financial centers in Asia. For years they’ve been locked in competition with one another, much like New York and London. So their public partnership is a very big deal… indicative of the clear objective they have in front of them.

Bottom line– finance executives in Asia see the writing on the wall. They can see that the dollar is in a period of terminal decline, and it’s clear that the Chinese renminbi is going to take tremendous market share away from the dollar. They want a big piece of the action.

The renminbi has already surpassed the euro to become the #2 most-used currency in the world when it comes to trade settlement, according to a report released yesterday by the Society of Worldwide Interbank Financial Telecommunication (SWIFT).

Right now the renminbi has about an 8.6% share of the global market for trade settlement. Granted, the dollar has the lion’s share of trade settlement at more than 80%.

But just look at how quickly the renminbi has grown; in January 2012, its share of the global market was just 1.9%. So it’s grown by nearly a factor of 5x in less than two years.

With today’s agreement between Hong Kong’s and Singapore’s financial exchanges, that growth will likely accelerate.

As we’ve discussed before, the dollar is in a unique position simply because it is the world’s dominant reserve currency.

This means that when a rice distributor in Vietnam does business with a Brazilian merchant, they’ll close the deal by trading US dollars with each other… even though neither nation actually uses the dollar.

It’s been this way since World War II, simply because there has been such a long tradition of trust in the United States, and a steady supply of dollars throughout the world.

But this confidence is fading rapidly as merchants and banks around the world have been seeking alternatives, primarily the Chinese renminbi.

As the dollar’s market share in international trade decreases, it will mean the end of US financial privilege. No longer will the US be able to print money without repercussions.

And as so many other nations have learned the hard way, when you print money with wanton abandon and indebt your nation to the hilt, there are severe consequences to pay.

Today’s move between Hong Kong and Singapore gives us a glimpse into this future.

We’ll soon see more financial products– oil, gold, Fortune 500 corporate bonds, etc. denominated in renminbi and traded in Asia.

And as trade in these renminbi products grows, the dollar will be closer and closer to its reckoning day.

Years from now when this has played out, it’s going to seem so obvious.

Just like the post-Lehman crash in 2008, people will scratch their heads and wonder– ‘why didn’t I see that coming? Why didn’t I recognize that it was a bad idea to loan millions of dollars to unemployed / dead people?’

Duh. Same thing. People will look back in the future and wonder why they didn’t see the dollar collapse coming… why they didn’t recognize that it was a bad idea for the greatest debtor nation in the history of the world to simultaneously control the global reserve currency…

The warning signs are all in front of us. And today’s agreement between Hong Kong and Singapore is one of the strongest signs yet.

 

How Isaac Newton went flat broke chasing a stock bubble

How Isaac Newton went flat broke chasing a stock bubble.

How Isaac Newton went flat broke chasing a stock bubble

Newton2

December 10, 2013
London, England

[Editor’s Note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]

For practitioners of Schadenfreude, seeing high-profile investors losing their shirts is always amusing.

But for the true connoisseur, the finest expression of the art comes when a high-profile investor identifies a bubble, perhaps even makes money out of it, exits in time – and then gets sucked back in only to lose everything in the resultant bust.

An early example is the case of Sir Isaac Newton and the South Sea Company, which was established in the early 18th Century and granted a monopoly on trade in the South Seas in exchange for assuming England’s war debt.

Investors warmed to the appeal of this monopoly and the company’s shares began their rise.

Britain’s most celebrated scientist was not immune to the monetary charms of the South Sea Company, and in early 1720 he profited handsomely from his stake. Having cashed in his chips, he then watched with some perturbation as stock in the company continued to rise.

In the words of Lord Overstone, no warning on earth can save people determined to grow suddenly rich.

Newton went on to repurchase a good deal more South Sea Company shares at more than three times the price of his original stake, and then proceeded to lose £20,000 (which, in 1720, amounted to almost all his life savings).

This prompted him to add, allegedly, that “I can calculate the movement of stars, but not the madness of men.”

20131210 image How Isaac Newton went flat broke chasing a stock bubble

The chart of the South Sea Company’s stock price, and effectively of Newton’s emotional journey from greed to satisfaction and then from envy and more greed, ending in despair, is shown above.

A more recent example would be that of the highly successful fund manager Stanley Druckenmiller who, whilst working for George Soros in 1999, maintained a significant short position in Internet stocks that he (rightly) considered massively overvalued.

But as Nasdaq continued to soar into the wide blue yonder (not altogether dissimilar to South Sea Company shares), he proceeded to cover those shorts and subsequently went long the technology market.

Although this trade ended quickly, it did not end well. Three quarters of the Internet stocks that Druckenmiller bought eventually went to zero. The remainder fell between 90% and 99%.

And now we have another convert to the bull cause.

Fund manager Hugh Hendry has hardly nurtured the image of a shy retiring violet during the course of his career to date, so his recent volte-face on markets garnered a fair degree of attention. In his December letter to investors he wrote the following:

“This is what I fear most today: being bearish and so continuing to not make any money even as the monetary authorities shower us with the ill thought-out generosity of their stance and markets melt up. Our resistance of Fed generosity has been pretty costly for all of us so far. To keep resisting could end up being unforgivably costly.”

Hendry sums up his new acceptance of risk in six words: “Just be long. Pretty much anything.”

Will Hendry’s surrender to monetary forces equate to Newton’s re-entry into South Sea shares or Druckenmiller’s dotcom capitulation in the face of crowd hysteria ? Time will tell.

Call us old-fashioned, but rather than submit to buying “pretty much anything”, we’re able to invest rationally in a QE-manic world by sailing close to the Ben Graham shoreline.

Firstly, we’re investors and not speculators. (As Shakespeare’s Polonius counselled: “To thine own self be true”.)

Secondly, our portfolio returns aren’t exclusively linked to the last available price on some stock exchange; we invest across credit instruments; equity instruments; uncorrelated funds, and real assets, so we have no great dependence on equity markets alone.

Where we do choose to invest in stocks (as opposed to feel compelled to chase them higher), we only see advantage in favouring the ownership of businesses that offer compelling valuations to prospective investors.

In Buffett’s words, we spend a lot of time second-guessing what we hope is a sound intellectual framework. Examples:

  • In a world drowning in debt, if you must own bonds, own bonds issued by entities that can afford to pay you back;
  • In a deleveraging world, favour the currencies of creditor countries over debtors;
  • In a world beset by QE, if you must own equities, own equities supported by vast secular tailwinds and compelling valuations;
  • Given the enormous macro uncertainties and entirely justifiable concerns about potential bubbles, diversify more broadly at an asset class level than simply across equity and bond investments;
  • Given the danger of central bank money-printing seemingly without limit, currency / inflation insurance should be a component of any balanced portfolio
  • Forget conventional benchmarks. Bond indices encourage investors to over-own the most heavily indebted (and therefore objectively least creditworthy) borrowers. Equity benchmarks tend to push investors into owning yesterday’s winners.

In the words of Sir John Templeton,

“To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.”

So be long “pretty much everything”, or be long a considered array of carefully assessed and diverse instruments of value. It’s a fairly straightforward choice.

 

Why the financial system’s fairness matters: Amanda Lang – Business – CBC News

Why the financial system’s fairness matters: Amanda Lang – Business – CBC News.

I didn’t study business before I became a business reporter. I studied architecture, and of all the knowledge I acquired the most important was that I was not destined to be an architect.

Journalism was a lucky accident, born of necessity, and business journalism even more so. The underdog paper that would hire me in 1994 was the Financial Post and so I dove into the world of business.

From the beginning, I admired the untidy elegance of the way an economy functions. I believed in and even came to revere the importance of markets — that is, well-oiled machines whose only real job is to set prices.

Markets work to ensure that resources are allocated efficiently. Accurate prices are at the heart of that efficiency and the result isn’t some remote or arcane thing, it is prosperity and happiness for humans. Well-priced markets are essential. Fairness is essential.

‘Whenever it is possible to fix a price for personal gain, someone is doing it’

Over time, I watched a number of changes take place aimed at levelling the playing field. From the long ago days when stocks were traded by a group of men who met under a buttonwood tree in lower Manhattan, to a game that is pitched to grandmothers — “Manage your own money! You too can be wealthy!” — the rules have changed.

In the late 1990s, as technology stocks bubbled to a temperature that would burn some investors for a decade or more, rules about fairness of pricing were implemented. The point of the most important such rule, known as Regulation Fair Disclosure, was that insiders — or the “smart money,” as professional money managers are sometimes called — shouldn’t have an unfair edge in the form of access to information. Prices are only perfect if all information is priced in and the more participants there are to that process, the more pristine the outcome. Or so the thinking went.

hi-currency-exchange-rateIf obscure financial systems are rigged, the backbone underpinning the entire economy is broken, says Amanda Lang. (Maxim Shemetov/Reuters)

How naive that view now seems. How innocent. Because for the last two years, as the globe staggered back to its feet in recovery from the body blow delivered by fast moving investment banks that lost sight of basic risk management policies, the number of examples of ways in which the markets are rigged are too numerous to count.

Each one seems more shocking than the last.

Insider trading, as old as the hills, is now a billion-dollar enterprise at certain investment funds and part of the culture of many. Investment banks may be gaming the price of some commodities, with a subsequent cost that reaches every corner of the planet. Currency traders collude with each other to make tiny profit on their trades, writ large over billions of executions.

The system is rigged

Then the most shocking of all, a key international interest rate used to set trillions of dollars of prices, is being manipulated. LIBOR, the London Interbank Offered Rate, is like the foundation of a house that holds billions of people. If that foundation is askew — as we now know it was — what does that say about huge parts of the markets and those prices we thought were based on real information? A mirage.

For this business journalist, the shock of that was intense. There will always be fraudsters — smooth-talking snake oil pitchmen — and regulators are on the lookout for them. But the evidence is mounting that whenever it is possible to fix a price for personal gain, someone is doing it.

That’s not just a disappointment; it undermines the entire system. Tiny price distortions get magnified across the global economy. We all pay, even if we don’t really know it. Most important, if market participants — from a sophisticated bond trader trying to price a bond based off a benchmark rate, to your grandmother putting her life savings into a stock  — don’t believe in its fundamental soundness, don’t believe that prices are as fair as prices can be, the entire thing falls apart.

It happened in Holland in the 17th century, when tulip bulbs became an irrational bubble. It has happened often in fact, in tiny pockets, from land in Florida to London Bridge. The outcome of those incidents is distrust and an unwillingness to invest there again.

So what is the outcome if those kinds of mispricings are everywhere? That’s a thought too stark to contemplate. Better that investors — the “dumb money” that is you and me — sit up and take notice before it’s too late. If indeed it isn’t already.

 

Brits Draw Down Record Amounts Of Savings To Cover Rising Cost of Living | Zero Hedge

Brits Draw Down Record Amounts Of Savings To Cover Rising Cost of Living | Zero Hedge.

In the most dramatic evidence yet that Britons are paying for the rising cost of living by raiding savingsYahoo UK reports that households are pulling money out of their savings accounts at the fastest rate in modern record, according to Bank of England figures. Since the recent recession began, millions of workers have suffered repeated effective pay cuts as inflation has outstripped pay rises, and while consumer spending was one of the main contributors to the sharp rise in gross domestic product in the third quarter, “consumer strength usually reflects increased borrowing but this hasn’t been the key factor recently.”

In the year to October, the amount of cash in time deposits and cash ISAs fell by 4.7%, while the amount families have in their instant access current accounts or in their pockets rose by 11.2%. This inflationary shift of cash is the biggest since comparable records began in the 1970s.

 

Via Yahoo UK,

In the past year, families have withdrawn £23bn from their long-term savings accounts to convert into cash and put into current accounts – the equivalent of around £900 for every household in the country.

 

It is the most dramatic evidence yet that Britons are paying for the rising cost of living by raiding their savings accounts.

 

 

According to economists, the shift of cash is the biggest since comparable records began in the 1970s, and reverses much of the sharp increase in saving that happened at the height of the recession.

 

On Thursday, the Chancellor’s Autumn Statement is expected to focus on measures to help households deal with the rising cost of living, including energy bills.

 

Since the recent recession began, millions of workers have suffered repeated effective pay cuts as inflation has outstripped pay rises.

 

 

Consumer spending was one of the main contributors to the sharp rise in gross domestic product in the third quarter, and a further strong increase is implied by the Bank’s money figures.

 

But while the figures suggest that the economy is strengthening, they will also be taken as further evidence that savers are being deterred from putting money aside by record low interest rates.

 

 

Some also suspect that with households still facing a significant squeeze as a result of higher living costs, many are having to dig into their savings in order to afford day-to-day items.

So the UK economy is surging and being lauded as evidence of QE’s efficacy but the reality is inflation is eating away at people’s wealth and hot money flows have caused the cost of living to rise dragging out the mainstay of future growth – savings – to meet consumption needs today. How long before government inflation data reflects this?

 

George Osborne distances himself from Boris Johnson’s IQ comments | Politics | theguardian.com

George Osborne distances himself from Boris Johnson’s IQ comments | Politics | theguardian.com.

George Osborne on The Andrew Marr show

George Osborne on The Andrew Marr show Photograph: BBC

The chancellor, George Osborne, has distanced himself from Boris Johnson‘s suggestion that some people cannot do well in life because of their low IQ, but agreed with the idea that economic equality is impossible.

Osborne is the first senior Conservative to reject the controversial remarks made last week by the London mayor, who said it was futile to try to end inequality when “16% of our species have an IQ below 85 while about 2% have an IQ above 130”.

The chancellor dismissed the language of Johnson, a fellow rival to succeed David Cameron as Tory leader, but suggested there was an element of truth to what he was saying about inequality.

Speaking on the BBC’s Andrew Marr Show, he said: “I wouldn’t have put it like that and I don’t agree with everything he said. Where I think there is increasingly common agreement about across the political spectrum is that you can’t achieve equality of outcome but you should be able to achieve equality of opportunity. You should give everyone wherever they come from the best chance and actually education is the absolute key to this.”

Ed Balls, the shadow chancellor, told the same programme that Johnson’s remarks were not uncommon in Westminster.

“That idea that greed is good and the poor are poor because they are stupid is pretty outdated set of views and there’s rather too much of those attitudes around in politics,” he said.

Johnson’s highly provocative comments were made during a speech in memory of Margaret Thatcher last week, in which he appeared to mock the 16% “of our species” with an IQ below 85 as he called for more to be done to help the 2% of the population who have an IQ above 130.

“Whatever you may think of the value of IQ tests it is surely relevant to a conversation about equality that as many as 16% of our species have an IQ below 85 while about 2% …” he said as he departed from the text of his speech to ask whether anyone in his City audience had a low IQ. To muted laughter he asked: “Over 16% anyone? Put up your hands.” He then resumed his speech to talk about the 2% who have an IQ above 130.

Johnson then told the Centre for Policy Studies thinktank, which helped lay the basis for Thatcherism in the 1970s: “The harder you shake the pack the easier it will be for some cornflakes to get to the top.”

Johnson moved to associate himself with what were seen as the excesses of 1980s Thatcherism as he said: “I stress – I don’t believe that economic equality is possible; indeed some measure of inequality is essential for the spirit of envy and keeping up with the Joneses that is, like greed, a valuable spur to economic activity.”

The deputy Prime Minister Nick Clegg said that Johnson’s comment revealed an “unpleasant, careless elitism”.

 

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