Thursday, September 13, 2018

Midweek reading links

1. Arguably the biggest suffering caused by the sub-prime mortgage meltdown involved the 7.8 m home foreclosures during the 2007-16 period. While the TBTF firms got bailed out, households got foreclosed out!
And who purchased them? Sample this
Since the crisis Blackstone has marched into markets that others have been forced to vacate. Its credit arm finances businesses that would once have borrowed from Wall Street banks. But nothing underscores Mr Schwarzman’s rise more clearly than the portfolio of more than 80,000 single-family homes that have made his firm one of America’s biggest private landlords. With so many people unable to get on the property ladder, Blackstone reckoned the rental market would be highly lucrative. Beginning in 2012, the firm dispatched representatives to buy houses in fast-growing metropolitan areas across the nation, including southern California, Chicago and Atlanta. About one-third of the properties were bought in foreclosure auctions, typically without anyone even inspecting them first. The result of that effort is a company called Invitation Homes that floated on the stock market last year. Today it is worth $21.6bn including debt, buoyed by a 35 per cent increase in US house prices since the start of 2013 and an unyielding approach that few private landlords can match.
People lose their houses and with it their hard-earned life-time savings. Hedge funds, benefiting from the extraordinary monetary accommodation, pocket these houses for fire-sale prices!

2 Interesting take on Trump by Peter Beinart who argues that Trump's supporters fear the corruption of American traditional identity, not American law. In the context of a murder in Iowa of a white woman by a Latino immigrant,

In a forthcoming book titled How Fascism Works, the Yale philosophy professor Jason Stanley makes an intriguing claim. “Corruption, to the fascist politician,” he suggests, “is really about the corruption of purity rather than of the law. Officially, the fascist politician’s denunciations of corruption sound like a denunciation of political corruption. But such talk is intended to evoke corruption in the sense of the usurpation of the traditional order.”... When Trump instructed Cohen to pay off women with whom he’d had affairs, he may have been violating the law. But he was upholding traditional gender and class hierarchies. Since time immemorial, powerful men have been cheating on their wives and using their power to evade the consequences. The Iowa murder, by contrast, signifies the inversion—the corruption—of that “traditional order.” Throughout American history, few notions have been as sacrosanct as the belief that white women must be protected from nonwhite men. By allegedly murdering Tibbetts, Rivera did not merely violate the law. He did something more subversive: He violated America’s traditional racial and sexual norms.



Once you grasp that for Trump and many of his supporters, corruption means less the violation of law than the violation of established hierarchies, their behavior makes more sense... Why were Trump’s supporters so convinced that Clinton was the more corrupt candidate even as reporters uncovered far more damning evidence about Trump’s foundation than they did about Clinton’s? Likely because Clinton’s candidacy threatened traditional gender roles. For many Americans, female ambition—especially in service of a feminist agenda—in and of itself represents a form of corruption... For many Republicans, Trump remains uncorrupt—indeed, anticorrupt—because what they fear most isn’t the corruption of American law; it’s the corruption of America’s traditional identity. And in the struggle against that form of corruption—the kind embodied by Cristhian Rivera—Trump isn’t the problem. He’s the solution.
3.Tirthankar Roy draws attention to the serious limitations of historical economic data.
Maddison’s work shows growing inequality in average incomes between countries. The data is – to put it mildly – bad data. Look closely, you will see that the average income of India was USD533 for 1820-1870. Year after year for 50 years Indians earned exactly USD533 on average (and exactly USD550 for 320 years before that). These numbers contain no worthwhile information about Indian history. Such is the quality of the statistics on which the divergence debate has so far been based.
4. Fascinating essay on the rise of India's Rs 23 trillion mutual funds industry which today attracts Rs 75 bn every month.
5. FT has a nice story on the emergence of a united US-Japan-US front in the trade war with China and how it is starting to bite in Beijing.

In recent months the EU and Japan have joined forces with the US in WTO complaints against “forced technology transfers” in China through mandatory joint venture structures with local partners... Tokyo has been pleasantly surprised by a Beijing-initiated rapprochement over the past year. According to one Japanese official, a recent spate of Chinese overtures are all “thanks to Trump”. The official adds: “Trump’s trade policies have been influencing China’s diplomatic stance.” ... “The Chinese should be worried about Trump,” says Steve Bannon, Mr Trump’s former political adviser. “They’ve never had to confront anything like this.”... Wang Chong at the Charhar Institute, a Beijing-based think-tank, says China’s current problem in the US is not just related to Mr Trump: “Both the Republican and Democratic parties have reached a consensus that they should try to curb China’s development.”



... the only trade deal he would accept from China is one Mr Xi could not possibly offer, because it would include concessions on how the party manages everything from industrial policy to state-owned enterprises and the renminbi. Others argue that Mr Trump’s ideal outcome is in fact no deal at all, so he can implement long-term tariffs on all Chinese exports to the US in a bid to bring about a radical overhaul of global supply chains. “People in the administration now understand that Trump may be flexible on so much stuff, but the hill he’s willing to die on is China,” says Mr Bannon. “Trump’s focus is shifting the supply chains out of China.”
Donald Trump gets eviscerated in the mainstream media for pretty much everything he does. And rightly too in many cases. But he deserves some applause here.

Not too many people will disagree that China resorts to extremely unfair trade practices, those which hurts manufacturers in other developing countries as much as in the US. In a fair world the Chinese actions should have long since been called to account. No American President who would have represented the mainstream establishment would have had the resolve and courage to do so. Trump has called the bluff and, in his own bluster-filled way, shaken up the entrenched equilibrium. 

6. The popular reaction to Serena Williams' abhorrent antics at the just concluded US Open Women's Final is a great illustration of the duplicity associated with the liberals. Serena has made a mockery of the existing rules of the game, behaved disgracefully (and has a track record of doing so),  and like the classic opportunist taken shelter behind race and sex to justify her actions. The referee has done what he was supposed to do as per the rule book and has a track record of doing so. And what do we get from the liberal establishment? Serena is portrayed as the victim and Carlos Ramos as the aggressor, in fact as a straw man who represents the racist and sexist establishment.

Evidently gender and race are very politically sensitive subjects. It is a mark of a liberal to be always on the right side of any gender and race debate. Serena Williams, also due to the politics surrounding her, ticks both boxes. So, it is almost suicidal to be seen to be taking on Serena, whatever the provocations. Liberals, therefore, rallied to her support. 

Add to the sex and race dimension, Serena is also a powerful persona in the tennis world. Besides being the GOAT, she also wields enormous influence among tennis administrators, sponsors, media, and players associations. Add everything in and the strong reactions in her favour is unsurprising. 

Martina Navratilova is among the very few sane voices trying to put matters in perspective.

This also highlights the contrast between the on-field governance of tennis and cricket. A tantrum like this is just impossible. Just remember the flak Steve Smith got with his "brain fade" moment when he apparently turned back to get dressing room reaction for an on-field review.

7. As emerging economies face turmoil, Times has a graphic that captures the external vulnerability, in terms of external debt to GDP ratio for the major emerging market economies.

8. As its new CEO, David Solomon, prepares to take charge, Times carries the story of sensational leak alleging unethical practices by a Goldman Sachs Partner, James C Katzman. Katzman, while leading Goldman's US West Coast M&A practice, complained to the bank's whistle-blower hotline about repeated attempts to obtain and then share confidential client information and hire a customer's child. Senior Goldman bankers apparently tried to "extract confidential client information from him that they intended to share with other Goldman customers or otherwise use for the bank’s benefit".

But the law firm managing the hotline, instead of independently investigating and presenting it before the Company Board, referred it to the Company's General Counsel and quietly buried it. Worse still, insiders, including the incoming CEO, tried to dissuade Katzman, who resigned from the firm, from pressing forward his complaints.

9. Finally, the Eritrea-Ethiopia border is open for trade after 20 years following the bitter separation of the two countries. Sample this,
Eritrea gained its independence from Ethiopia in the early 1990s, and war broke out later that decade, locking the two nations in unyielding hostilities that left more than 80,000 people dead. The turning point came in June, when Mr. Abiy announced that Ethiopia would “fully accept and implement” a peace agreement that was signed in 2000 but never honored. The formal deal was signed weeks later. Few people expected such a quick turn of events. Embassies have reopened, telephone lines have been restored and commercial flights between the capitals have resumed. An Ethiopian commercial ship docked in an Eritrean port last Wednesday — the first to do so in more than two decades.
Is this the most dramatic reversal of cross-border relations between countries in recent times?

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