GOOD generals know that the next war will be fought with different weapons and tactics from the last. Similarly, financial regulators are right to worry that the next crisis may not resemble the credit crunch of 2007-08.
The last crisis arose from the interaction between the market for mortgage-backed securities and the banking system. As investors became unsure of the banks’ exposure to bad debts, they cut back on their lending to the sector, causing a liquidity squeeze. Since then, central banks have insisted that commercial banks improve their capital ratios to ensure they are less vulnerable.
Might the next crisis originate not in the banking system, but in the bond market? That is the subject of a new paper* from the Bank of England. The worry centres on the “liquidity mismatch” between mutual funds, which offer instant redemption to their clients, and the corporate-bond market, where many securities may be hard to trade in a crisis. The danger is that forced…Continue reading
FOR A man poised for combat with evil spirits, Philippe Moscato looks remarkably at ease. In casual clothes and chatting about the tools of his trade—a “Vogel” crystal, compass, steel crucifix, pendulum and bag of salt from Jerusalem—he says he can deliver unreal results. Hired to exorcise an apartment in a wealthy district of central Paris, he predicts that the air will change. In the winter, he says, the owners will no longer need their central heating, the result of beneficial vibrations.
Mr Moscato’s work involves first waggling a pendulum, supposedly to assess the flat’s readiness, then lighting a candle, reciting from an exorcism manual, before blessing salty water that he splashes in every room. As he sprinkles, he delivers a flow of incantations. For an hour’s work he pockets €155 ($178). He has requests three or four times a week to de-spook property, and exorcises a person on average once a week. Paris, Lyon and the French Riviera are the areas most contaminated…Continue reading
IN THE litany of bosses’ gripes about Brazil’s inclement business climate, rigid labour laws vie for pride of place with its convoluted tax laws and its licensing rules (on everything from health and safety to protection of cultural heritage). No wonder: Brazil ranks a miserable 117th out of 138 countries on labour-market efficiency, according to the World Economic Forum. Its rigid labour law was transplanted from Benito Mussolini’s Italy in 1943. Employers find it thoroughly unsuited to a modern economy and cheered on July 13th, when the president, Michel Temer, signed into law the biggest overhaul of the unwieldy statute in 50 years.
The reform is a big victory for the unpopular Mr Temer, who is under investigation in a corruption scandal (he denies wrongdoing). It introduces more flexible working hours, eases restrictions on part-time work, relaxes how workers can divvy up their holidays and cuts the statutory lunch hour to 30 minutes. It also scraps dues that all employees must pay to…Continue reading
ACCORDING to company lore, Yunnan Baiyao, a musty-smelling medical powder, played a vital role during the Long March. As China’s Communist troops fled from attacks in the 1930s, trekking thousands of miles to a new base, they spread its yellow granules on their wounds to stanch bleeding. To this day, instructions on the Yunnan Baiyao bottle recommend application after being shot or stabbed. Many Chinese households keep some in stock to deal with more run-of-the-mill cuts. But the government has recently put its maker into service to treat a different kind of ailment: the financial weakness of state-owned enterprises (SOEs).
Yunnan Baiyao has emerged as a poster-child of China’s new round of SOE reform. The company, previously owned by the south-western province of Yunnan, sold a 50% stake to a private investor earlier this year. The same firm had tried to buy a slice of Yunnan Baiyao in 2009 but was blocked. Its success this time has been held up in the official press as proof that a…Continue reading
“COASTER through the Clouds” in Nanchang, a city in the southern province of Jiangxi, is China’s tallest and fastest rollercoaster (see picture). It carries terrified customers up to heights of 78 metres and down again at speeds reaching 130kph. The ride towers above an amusement park built by Dalian Wanda, a Chinese property-and-entertainment conglomerate, which has aspired to outdo Disney’s resort in Shanghai.
But this month the group said it was selling 13 such projects and 77 hotels to rival developers. It would use the proceeds, its owner said, to repay loans. Last month China’s regulator asked banks to provide more details about their overseas loans to Wanda. Standard & Poor’s said it would reassess the group’s credit rating, noting that the abrupt sale of assets had raised questions about Wanda’s strategy and finances.
Wanda is the most prominent of China’s highly geared companies, of which there are many. Corporate liabilities, including those of…Continue reading
IN 2012 Bo Xilai, the Communist Party leader of Chongqing, a region in the south-west, was stripped of his post, expelled from the party and later jailed. Mr Bo’s downfall cleared the way for Xi Jinping, his rival, to become the country’s leader. On July 15th lightning struck again. Sun Zhengcai, who had succeeded Mr Bo in Chongqing following a brief interregnum, was sacked.
A cloud appeared over Mr Sun in February, when party investigators accused him of failing to clear Mr Bo’s “toxic residue”. Now Mr Sun is said to be under investigation for violating party rules. His offences are unclear, but he might become the first serving member of the ruling Politburo to be booted out of that body since Mr Bo. Mr Sun is the Politburo’s youngest member and had been considered a possible successor to Mr Xi. Not since the 1980s has someone being groomed in this way been so unceremoniously purged.
Earlier expulsions from the Politburo (this would be the fourth in…Continue reading
The Chinese government got rid of Liu Xiaobo in hugger-mugger. After arranging a short memorial service for the Nobel peace-prize laureate (family members and secret police only), it hastily took the group out to sea to deposit his ashes. Mr Liu’s elder brother thanked the Communist Party for carrying out the family’s wishes. But nothing was heard from his widow, Liu Xia (pictured on the boat). She remains under house arrest—guilty by association. In a letter to her from his deathbed, Mr Liu praised her “calmness that confronts suffering”. Tributes to him could only be oblique. Tens of thousands shared online a Taiwanese pop song. Its first verse runs: “You disappeared from the far end of the sea…. I wanted to say something but didn’t know where to start. I just bury you in the bottom of my heart.” Despite no-holds-barred censorship of everything connected with Mr Liu, this eulogy slipped through the censors’ net.
SCAN the Latin American newspapers and it is hard to find much sign of a convincing economic recovery. True, Brazil’s industrial production is perking up after a two-year slump. Mexico’s energy reform is starting to pay off, at last, with a big new oil discovery by an international consortium. And Peruvian restaurateurs celebrated “National Char-roasted Chicken” day on July 16th, hoping to dispatch a million birds, up from last year’s 720,000.
Otherwise, animal spirits are in short supply. After five years of deceleration and one of recession, Latin America should register modest economic growth of 1-1.5% this year, according to forecasters. The picture varies from country to country. The return to aggregate growth is largely thanks to Brazil and Argentina, which are coming out of recessions. Venezuela’s economy is collapsing. Mexico, Chile, Colombia and Peru are expanding at a sluggish rate of 2-3%. Only in Central America, the Dominican Republic and Bolivia is growth a respectable…Continue reading
FOR months President Donald Trump has veered between threatening to terminate the North American Free-Trade Agreement (NAFTA) and merely proposing to bring it “up to date”. On July 17th, in a letter to Congress, the United States trade representative, Robert Lighthizer, made the administration’s intentions clearer. They are closer to revision than destruction, which is a relief for Mexico and Canada, the United States’ NAFTA partners. But alongside conventional-sounding negotiating objectives are flashes of Trumpian aggression and hints that the United States will demand painful changes to the deal.
The stakes are high. A quarter of American trade in goods and services is with Mexico and Canada. The three economies tend to grow or shrink together and have integrated supply chains. Fears that the United States would abandon NAFTA have caused volatility in the markets for the Mexican peso and Canadian dollar, and talk of possible recessions.
Mr Lighthizer’s letter,…Continue reading
WHEN the deal was struck just over a decade ago, for $1.8bn, 666 Fifth Avenue, a 41-storey Manhattan skyscraper, became the most expensive office building ever sold in America. Now it is in limbo, awaiting billions of dollars of investment to rebuild it and raise it almost twice as high. Across the Hudson River, another hunt for money is under way, to build a property called One Journal Square in Jersey City. In June a property-investing start-up called Cadre attracted financial backing from Silicon Valley luminaries including Andreessen Horowitz, a venture-capital company.
The thread linking these ventures is Jared Kushner, Donald Trump’s senior adviser and son-in-law, whose family business, like that of the president, is in property. Mr Kushner helped conceive all three projects. He has a “passive ownership interest” in Cadre (meaning he is not actively involved in its management). His family co-owns 666 Fifth Avenue and One Journal Square.
Unlike the president, Mr…Continue reading