Thank the Nazis bitch (Merkel) when Europeans freeze to death this winter!
John Authers today:
"Finally, there is the issue of Russia’s role as a gas exporter to Europe. This could be held to involve malign or Machiavellian behavior by a country keen to isolate Ukraine and supply Germany through the controversial Nord Stream 2 pipeline. But as Helm pointed out, the problem runs deeper, and involves policy mistakes in western Europe. As Helm put it:
Russia is the first immediate cause of the current gas crisis. Russia claims that it is fulfilling all its gas contracts. Presumably it could add some spot gas too, and especially at these prices… Did nobody see what was going on, as storage in Europe remained unfilled, the German election approached, and Biden engaged with the Ukrainian government? The Russian motivations surrounding Nord Stream 2 have always been in plain daylight for all to see. There have been repeated attempts to manipulate supplies through Ukraine since Putin came to power, and the Nord Stream pipelines have all the hallmarks of a Russian–German project bypassing the Baltic States and Poland, and deliberately isolating Ukraine. The EU failed to centralise its buyer bargaining power, as Donald Tusk once proposed, and allowed Russia to divide up the market and exploit its market power. Nothing unpredictable about all this.
For further evidence that this crisis is above all about Russia, Wednesday’s market turn and the sudden fall in gas futures came after Vladimir Putin voiced some willingness to help. This is what he said, as translated by the Financial Times:
“Let’s think through possibly increasing supply in the market, only we need to do it carefully. Settle with Gazprom and talk it over,” Putin said. “This speculative craze doesn’t do us any good.”
That’s true, but he could have done this a while ago, and he is offering no specifics. The strength of the market reaction showed both that the previous rise had become extreme, and that traders genuinely feared Russia would do nothing to ease the crisis. There is a decent chance that Putin has marked the top, but prices remain extreme, and more progress is needed."
And thank the Greens!
Here is the full Authers note:
Jumping Jack Gas Is a Flash Flash Flash
What is happening in the natural gas markets is extraordinary, and it could create serious human hardship. On that we can all agree. Here is how natural gas futures in the U.K. (FN on the chart), Germany (LYA) and the U.S. (NG) have moved over the last five years:
And here is how U.K. natural gas futures moved in the first three days of this week:
Such things don’t happen often. And while natural gas has seen the most extreme moves, the trend of suddenly rising energy prices goes further. This is how Europe’s most widely traded forward contract for coal has traded since the beginning of the financial crisis 14 years ago:
Two questions now matter. First, how did this happen (and therefore, how might the situation be resolved)? And second, what could be the contagion effects for the economy and for global markets?
What Happened?
The answer has surprisingly little to do with the pandemic, and in Britain (as the problems elsewhere make clear), Brexit has been little more than an aggravating factor.
One part of the problem is that the EU (and the U.K.) did a poor job of storing gas in advance, as this chart from BofA Securities Inc. shows:
Europeans also seem to have been blindsided by increased demand from Asia, particularly China. Over the first eight months of this year, total imports of liquid natural gas were far higher in non-European countries than in the first eight months of 2019. Imports by North America and Europe fell:
In part this was a byproduct of another geopolitical skirmish. China stopped importing coal from Australia last year as punishment for its call for an international investigation into the origins of Covid-19. As this chart from BofA shows, this forced them to step up imports from everyone else:
Beyond this, the climate issue arises in two ways. First, as has always been the case, demand for heating fuel tends to rise when people grow worried there will be a cold winter. Climate change and a succession of freak weather events have amped up concern. Second, there is the attempt to “de-carbonize” and move from fossil fuels to renewable energy sources. The problem is to make sure that sufficient carbon-rich energy remains available until renewables are able to pick up the load. That hasn’t happened.
Finally, what has happened looks worryingly like another example of belief that markets could be relied on both to reduce prices for consumers and to police themselves. As was discovered during the financial crisis, this wasn’t a great assumption. Numerous different suppliers can now offer energy in the U.K., but Sir Dieter Helm, professor of energy policy at Oxford University, this week offered a withering assessment of the way energy had been opened to market discipline:
[I]t is remarkable that any supplier could hold a licence whilst being unable to meet its contractual obligations with customers under the price cap in the event of commodity price rises. There has been a big regulatory failure, and behind this lies the core issue of the reliance on spot real-time pricing and the relative absence of long-term contracts. This bears a remarkable resemblance to the failure of Northern Rock [a U.K. home lender which collapsed in 2007], which relied on spot market funding. The socialised cost of supplier failures may cost over £1 billion. The state – in the guise of the regulator – has to step in to make all customers pay. So much for the one-way bet of supplier competition.
Finally, there is the issue of Russia’s role as a gas exporter to Europe. This could be held to involve malign or Machiavellian behavior by a country keen to isolate Ukraine and supply Germany through the controversial Nord Stream 2 pipeline. But as Helm pointed out, the problem runs deeper, and involves policy mistakes in western Europe. As Helm put it:
Russia is the first immediate cause of the current gas crisis. Russia claims that it is fulfilling all its gas contracts. Presumably it could add some spot gas too, and especially at these prices… Did nobody see what was going on, as storage in Europe remained unfilled, the German election approached, and Biden engaged with the Ukrainian government? The Russian motivations surrounding Nord Stream 2 have always been in plain daylight for all to see. There have been repeated attempts to manipulate supplies through Ukraine since Putin came to power, and the Nord Stream pipelines have all the hallmarks of a Russian–German project bypassing the Baltic States and Poland, and deliberately isolating Ukraine. The EU failed to centralise its buyer bargaining power, as Donald Tusk once proposed, and allowed Russia to divide up the market and exploit its market power. Nothing unpredictable about all this.
For further evidence that this crisis is above all about Russia, Wednesday’s market turn and the sudden fall in gas futures came after Vladimir Putin voiced some willingness to help. This is what he said, as translated by the Financial Times:
“Let’s think through possibly increasing supply in the market, only we need to do it carefully. Settle with Gazprom and talk it over,” Putin said. “This speculative craze doesn’t do us any good.”
That’s true, but he could have done this a while ago, and he is offering no specifics. The strength of the market reaction showed both that the previous rise had become extreme, and that traders genuinely feared Russia would do nothing to ease the crisis. There is a decent chance that Putin has marked the top, but prices remain extreme, and more progress is needed.
What Happens Next?
What of financial contagion? Any moves on this scale might have inflicted losses on some funds that could lead to forced sales. There is no evidence of this so far, but there can always be domino effects when investors are taken seriously by surprise.
The risks of economic contagion are more immediate. If this is allowed to lead to power outages, that will take a direct bite out the economy, much as last year’s Covid shutdown did. Beyond that, higher fuel prices can displace other economic activity.
The 2008 oil spike brought the concept of the “oil burden” — the share that energy expenditure took out of global GDP. The 1973 surge inflicted much more damage because at that point the global economy was much more “oil-intense.” Now, with services predominant and energy use generally more efficient, paying for oil is less of a drag. As the following chart from BofA shows, even current prices imply energy is barely half its weight at the end of the 1970s. Higher prices for fossil fuels are still bad news for the economy in the short term, and power cuts would also inflict great damage. But as it stands, the economic hit from the natural gas crisis isn’t enough to tip Europe or anywhere else into recession:
More significant is the indirect impact via inflation. Much of the rise in U.S. inflation this year can be attributed to fuel price increases. These should be, to use the word of the moment, “transitory.” A renewed bout of rising energy prices helps keep inflation higher for longer, and raises the risk that employees demand higher wages to compensate. And of course higher inflation, all else equal, increases the risk that central banks will raise interest rates. That crimps economic activity:
Within the U.K., particularly exposed to the problem, the gas crisis has fed into a startling rise in market-based inflation expectations, which make it all the harder for the Bank of England to avoid taking action:
Looking at calculations for a U.K.-specific “oil burden”, there is a clear danger that price increases could take a full percentage point out of disposable incomes. That sounds like a recipe for 1970s-style stagflation. However, as this chart from Credit Suisse Group AG illustrates, pandemic after-effects mitigate this to an extent. British households have a lot of money saved up. They’d doubtless prefer not to spend any of it on higher fuel bills, but this does limit the potential economic damage:
In short, this is a dangerous crisis, but need not be as serious as the recurring energy crises of the 1970s. The greatest risk is that it will force up inflation, and force tighter money from central banks.
American Idiots
My colleague Mark Gongloff has been writing about “idiot plots.” The great movie critic Roger Ebert coined the phrase to describe “any plot that would be resolved in five minutes if everyone in the story were not an idiot.”
It’s harsh to call the natural gas crisis an idiot plot, but it has elements. It’s happened in large part because a lot of people have behaved like idiots, and Putin has treated them accordingly. For a true idiot plot, Mark suggests the latest furor over the U.S. debt ceiling. For historical reasons, the U.S. has a fixed amount of debt that the government is allowed to take on, and needs congressional approval to raise it. This has happened dozens of times, and the ceiling hasn’t stopped politicians from both parties making spending commitments that can only be met by borrowing more than the limit.
If Uncle Sam were to default, the consequences for the global financial system are hard to imagine. It would be a disaster, caused solely by Congress. Everyone has an interest in avoiding a default. You would think that the debt ceiling (which doesn’t exist in any other major economy) could only become the center of a crisis if everyone involved were an idiot. Politicians might threaten not to raise the limit to give themselves some leverage, but to go through with such a thing would be insanity.
Mitch McConnell, the Republican minority leader in the Senate, isn’t an idiot, and he isn’t insane, but it appears that markets truly feared he might be. Early Wednesday afternoon he made a statement that signaled a potential end to the crisis. Like Putin’s, his comments were disingenuous in the extr
Continued:
Mitch McConnell, the Republican minority leader in the Senate, isn’t an idiot, and he isn’t insane, but it appears that markets truly feared he might be. Early Wednesday afternoon he made a statement that signaled a potential end to the crisis. Like Putin’s, his comments were disingenuous in the extreme:
“To protect the American people from a near-term Democrat-created crisis, we will also allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December”
It’s true that the Democrats played their full part in increasing spending. It’s also true that the big tax cut McConnell shepherded through Congress four years ago had a huge role in creating the need for more borrowing — and that there would have been no crisis if he hadn’t refused to raise the debt ceiling. Machiavellian behavior by politicians is to be expected in today’s febrile environment but it’s no less distasteful for that. Also, note that all McConnell has really done is give the Democrats two more months. If anything, you could argue that his statement prolongs the agony.
The comments prompted a dramatic afternoon surge in markets, showing just how much traders had grown to worry that everyone on Capitol Hill was indeed an idiot:
The way that equities and bond yields have moved together shows that the markets are rigorously “top down” at present. It is macro and political developments that move prices. And the tale of Wednesday’s tape said something profound about lack of trust. Gas markets and U.S. stock and bond markets reacted with joy to comments by Putin and McConnell that did no more than suggest they might help avert an almost unthinkable crisis that they themselves largely caused.
John Roskam argues today in the AFR what i've been saying for a while. The upshot is that as the Courts become more politicised, the separation of powers and the legitimacy of parliamentary democracy wanes. Very dangerous course our "elotes" are taking. Again. it won't end well...
"‘Americanised’ politics is the seemingly unstoppable transfer of the power of decision-making from the electorate and the process of politics to judges and lawyers and the process of law.
In America, political questions are increasingly adjudicated not in the court of public opinion, but in courts by legal argument. Two of the most controversial questions in US politics of the last half century, abortion and same-sex marriage, were decided by a vote of judges, not the people.
Interesting article in the WSJ today. (You can read if you enlarge.) It provides a riposte to Paul Krugman’s sensationally inept last column in the NYT where he… barks at the wrong tree by denying that low interest rates cause asset inflation. It’s not interest rates, Paul! It’s “quantitative easing”! I have often argued that Krugman simply has no idea of monetary theory and policy. He just proved me right!
Just to clarify: in that column, Krugman suggests correctly that interest rates reflect profitability: low profit rates, low interest rates. But he forgets that now it is central banks that fix interest rates, if need be even by buying company shares directly!!!
When that happens, profitability no longer determines interest rates - which is why we get the Ponzi scheme of “zombie companies” as in China right now! That is not how capitalism is supposed to work in theory… and it will never work like that for long… in practice!
Don’t know if you saw this “scary” Friedman column in the NYT (I out on my blog). Those cowardly Europeans are committing collective suicide. I think they deserve to sink into the Atlantic, just like the Atlantis of Greek legend…
https://www.afr.com/companies/energy/energy-crisis-is-getting-scarier-by-the-day-20211006-p58xpx
The apocalyptic, colossal, gargantuan imbecility of Europeans is just impossible to fathom! I know that “ beggars can’t be choosers”. What I can’t understand is how an entire Continent with the proudest history and culture of Humanity itself can PROSTRATE itself with such infamy and bestial cowardice! THAT is hard to contemplate, I confess…
MacGregor suggests what I have been hinting at: that Xi may be deposed. Clearly, China is staring down the abyss, not prijecting power from the barrel of a gun, as Mao directed. Their strategy - economic, diplomatic, even military - is fast turning into irreparable disaster. Like Europe, hundreds of thousands of Chinese will die of cold this winter.
I would project that at least 10,000 people will freeze in each of France, Spain, Italy, even Germany and Britain this winter. Possibly upwards of 100,000. But Europeans deserve all the woes they get!
As you can see from Fubini and Panebianco at Corriere, they are tearing out all their remaining hair at the notion of a "normative Europe" - a Europe that leads by...MORAL EXAMPLE!
Incidentally, if you look at that Panebianco piece again (Europa come ;a Svizzera: un elefante che cerca di nascondersi dietro a un albero!"). You will notice that Panebianco fails to name by far the greatest reason why Switzerland was never invaded by the Nazis. Panebianco lists the fact that it is mountainous and hard to invade and has a dedicated courageous army. That is NONSENSE of course. And I am very surprised that he should fall for that "bufala".
The rea; reason, of course, is that Switzerland has always been a refuge for the European bourgeoise to hide its...MONEY, for settling international trade, and above all to settle gold payments (see my good professor Marcello De Cecco, lovely fellow, Abruzzese, in his fabulous monograph, "Money and Empire", Moneta e Impero).
In poche parole: "It's the Swiss banks, stupid!"
This Editorial from the FT this evening:
Facebook’s moment of regulatory reckoning
Lawmakers ought not to squander a rare moment of bipartisan consensus
Frances Haugen appears before the Senate Commerce, Science, and Transportation Subcommittee in Washington, DC, this week
Facebook whistleblower Frances Haugen appears before the Senate Commerce, Science, and Transportation Subcommittee in Washington, DC, this week © Matt McClain/Pool/EPA-EFE/Shutterstock
October 7, 2021 12:11 pm by The editorial board
“It’s been quite a week,” wrote Mark Zuckerberg, Facebook’s chief executive. This is an understatement. On Monday, there was an outage of the company’s three main apps, freezing 3.5bn users out of their accounts for over six hours. On Tuesday, a former employee-turned-whistleblower alleged to Congress that Facebook knowingly prioritises profits from online engagement over harm to users. As embarrassing as the first event was for Facebook, it is the second that will be the most consequential.
Frances Haugen, who worked at Facebook’s “civic integrity unit”, detailed to Congress how the company pushes content designed to elicit strong responses, enticing users to share posts and to linger on the platform, where they can be bombarded with advertising. That social media manipulates division for clicks, and makes teenagers feel worse about themselves are not new claims. What feels novel is the bipartisan consensus, which should not be squandered, that something ought to be done to curb the power of social media. The question is what.
Lawmakers have dubbed it Facebook’s “Big Tobacco” moment, akin to when the US decided to rein in cigarette manufacturers, despite the industry’s claim that its products did no serious harm. Rather than tobacco, it may be more apposite to think of sugar; indeed, that is a comparison one Facebook executive made in 2019. Sugar is known to be unhealthy, addictive and readily available. But it is not banned, even if America’s children consume far too much of it.
Tighter oversight now seems inevitable. Congress is considering options, from tightening privacy laws to strengthening the hand of antitrust watchdogs. Facebook — with evident self-interest — has tried to position itself to help shape new rules. Zuckerberg has broken rank with his peers to back (partial) reform of Section 230 of the 1996 Communications Decency Act, which currently gives tech platforms immunity from being sued over user-generated content.
But the bigger issue is whether shoehorning the social media world into existing laws and regulations suffices. Antitrust and markets regulators may feel they have enough fertile ground: Haugen also complained to the securities watchdog, accusing Facebook of misstating key user metrics. She advocates forcing Facebook to turn over its algorithms that determine what content users see. That is a meritorious proposal that neatly sidesteps arguments over policing of free speech that bog down debates on whether content should be moderated more closely.
But with whom should Facebook be forced to share algorithms? A new sectoral watchdog ought to be considered. Social media are no longer disrupters to be shielded from regulation. They are part of a digital economy where personal data is traded for convenience. Yet they have no sectoral oversight, as applies to, for example, banking. It is notable that in the highly regulated area of finance that Facebook tried to enter, a co-ordinated response from policymakers and watchdogs around the world rightly forced it to rethink plans for a digital currency.
After Haugen’s testimony Zuckerberg used a Facebook post to hit back at the “false picture” he claims was painted. He called for Congress to determine whether there should be a legal age for using the internet. Age limits, and how those are policed, are legitimate points for Congress to now debate. But Haugen has raised a broader range of issues on which lawmakers should consider legislating. She is right that Facebook will not change without it.
Once again, what we have is "the theory of salame": the idea that you can sort out a problem by breaking slicing it into thinner bits.
But this will not do. Because Facebook is not a disease: it is a symptom. The disease itself extends to too many social organs to be cured piecemeal. And that is because the disease is political and economic: it has to do with the untenability of the now archaic distinction and separation of the state from society.
Just as with China, and just as China does, the approach must be an "all-of-government" or even an "all-of-society" approach. The cure for the incipient "totalitarianism" into which capitalism has slid by turning "capitalist society" into "the society of capital" is a thoroughgoing reform of the machinery of government aimed at a "new total constitutional order" in which the social political and economic consequences of capitalist enterprise are weighed carefully before and during their utilisation to prevent and forestall developments that in a "mass society" can assume catastrophic and irreversible outcomes.
The ultimate aim is precisely the undoing of this "massification" of society that allows a single idea (a Harvard sophomore club sharing friends, or a handheld phone combining internet and photo services) to spread so rapidly - "to go viral" - that it threatens the very fabric of society and indeed it's entire existence!
Either the political class manages to grab this bull (Big Tech) by the horns, or we shall soon see the end of society through irresoluble social conflict, or else again through inter-national global conflict with untold and unknown denouement...
Earlier, I posted an article in The Atlantic contending that Facebook has become "an enemy state". I think that is right because it conveys the idea that Big Tech has now reached proportions where it seriously undermines the ability of the State to regulate society. In effect, we are living through a period when our State threatens to become a "failed state", the only outcome of which is either a totalitarian dictatorship or else the total dissolution of society itself. No halfway solution or compromise is possible.
It reminds me of a character in Robert Musil's great novel "The Man Without Qualities" who says:
"I know that leaders must lead; and I know that leaders must listen to the led. What I don't understand is why all this has suddenly become an either...or!"
Here are the two essays from The Atlantic:
https://www.theatlantic.com/ideas/archive/2021/10/last-best-hope/620309/
https://www.theatlantic.com/magazine/archive/2021/11/facebook-authoritarian-hostile-foreign-power/620168/
Franco Venturini in Corriere today:
“Ora il tempo delle illusioni sta finendo. E serve invece quella riflessione strategica europea della quale molto si discute, perché si comincia a capire che l’allargamento dell’Atlantico pone la questione, pura e semplice della sopravvivenza dell’Europa, anche di quella zoppicante di oggi. Diventa necessario e urgente, per l’Europa, la definizione di una mission adattata ai nuovi tempi ed efficace come lo fu, nel dopoguerra, quella di scongiurare future guerre franco-tedesche e di contribuire al contenimento dell’Unione Sovietica non più alleata.”
Note the timely warning about “la questione, pura e semplice, della sopravvivenza dell’ Europa”. Europeans are drowning without even realising that their sheer survival is “purely and simply in question “!
Frank, when you have a moment, have a slow careful read of this Matt Levine effort, which superbly exposes the folly of our financial system, and start wondering about the chances of its eventual catastrophic collapse, unless our irresponsible monetary authorities wake up very soon from their deep comatose slumber!
The standard story of Tether — the story that Tether tells — is the one that I have called the “blockchain depositary receipt.” Tether takes dollars, it puts them into very safe dollar-denominated traditional finance assets (bank accounts, highly rated commercial paper), and it issues stablecoins against them. If you want your dollar back, Tether basically takes it out of the bank and gives it to you in exchange for your stablecoin. Easy peasy.
The standard objection to this story is that nobody can figure out where Tether actually keeps the money:
Elsewhere on the website, there’s a letter from an accounting firm stating that Tether has the reserves to back its coins, along with a pie chart showing that about $30 billion of its dollar holdings are invested in commercial paper—short-term loans to corporations. That would make Tether the seventh-largest holder of such debt, right up there with Charles Schwab and Vanguard Group.
To fact-check this claim, a few colleagues and I canvassed Wall Street traders to see if any had seen Tether buying anything. No one had. “It’s a small market with a lot of people who know each other,” said Deborah Cunningham, chief investment officer of global money markets at Federated Hermes, an asset management company in Pittsburgh. “If there were a new entrant, it would be usually very obvious.”
That sort of thing. In particular, people worry that a lot of the money might be in Chinese commercial paper that is riskier than its ratings would suggest. Why would Tether do this? Well, partly because it is somewhat difficult for a crypto company that has had a few regulatory run-ins to put $69 billion somewhere safe and normal; some traditional counterparties might not want that business. But there is also a reaching-for-yield theory:
Tether’s website had long displayed a pledge: “Every Tether is always backed 1-to-1, by traditional currency held in our reserves.” But, according to [Tether’s former banker in Puerto Rico, John] Betts, [Tether Chief Financial Officer and former plastic surgeon Giancarlo] Devasini wanted to use those reserves to make investments. If the $1 billion in reserves Tether said it had at the time earned returns at, say, 1% a year, that would be $10 million in annual profit. Betts saw this as a conflict of interest for Devasini, since any investment gains would go to Devasini and his partners, but Tether holders would potentially lose everything if the investments went bad. When Betts objected, Devasini accused him of stealing. “Giancarlo wanted a higher rate of return,” Betts said. “I repeatedly implored him to be patient and do the work with auditors.”
Fine, all traditional stuff. And most of the story of Tether is in fact that it invests dollars in traditional dollar assets, and some of those assets are very safe, and maybe some of them are a bit less safe than you’d like and that might worry you, but it’s still hard to tell.
But the part I want to talk about here is … I’ll quote it again:
I also learned that Tether had lent billions of dollars more to other crypto companies, with Bitcoin as collateral. One of them is Celsius Network Ltd., a giant quasi-bank for cryptocurrency investors, its founder Alex Mashinsky told me. … Hoegner, Tether’s lawyer, [said] … that its secured loans are low-risk, because borrowers have to put up Bitcoin that’s worth more than what they borrow.
There! That part! That seems to be only a minority of the Tether story, but it’s the interesting part:
Various crypto “quasi-banks” give people levered exposure to Bitcoin and take senior claims on their Bitcoin.
Those quasi-banks borrow dollars from Tether, giving Tether a senior claim on the Bitcoins they hold.
Tether uses those pools of Bitcoin to back its stablecoins.[5]
Tether transmutes risky Bitcoins into risk-free stablecoins. Or does it, ha ha ha; of course you can object to the notion that anything risk-free can be extracted from Bitcoin (“it could go to zero tomorrow!”). Or you can say “well that's fine in theory, but for safety you need way more collateral than Tether demands,” though I have no idea how much collateral Tether actually demands, because it doesn’t say.
Again, I think if you told that story five years ago people would think you were nuts. “No no no,” they would say, “you can’t manufacture safe dollar assets out of Bitcoin, Bitcoin is too volatile, there is no floor, it could go to zero, this is nonsense.” I think there is a good chance that if you tell that story five years from now it will be unremarkable. “Yes right of course the Bank of Tether issues deposits worth one Tether and uses those deposits to fund margin loans to levered Bitcoin investors, that’s just how banking works,” people will say. It is just a function of how confident people are in Bitcoin’s permanence and its function as a store of value. Right now we are in between; the story is plausible but still weird. It’s not the story that Tether wants to tell, and it’s not the main story of Tether. But it's the interesting part.
This has gone on long enough but I do want to end on a couple of discussion questions:
Traditional financial regulators seem very worried about the implications of stablecoins for financial stability. (Faux: “If enough traders asked for their dollars back at once, the company could have to liquidate its assets at a loss, setting off a run on the not-bank. The losses could cascade into the regulated financial system by crashing credit markets.”) If you found out that, instead of being backed by U.S. Treasury bills and highly-rated commercial paper of large multinational companies, Tether is mostly backed by loans collateralized by Bitcoins, how would that make you feel about the threat that Tether does or does not pose to the traditional financial system?
Same question except not about the stability of the traditional financial system, but about the stability of the crypto financial system. If Tether’s always-worth-a-dollar value came from the value of senior claims on levered Bitcoin positions, rather than from Treasury bills etc. — if the value of Tether comes in essence from people’s confidence in the value of Bitcoin — could a strong wind blow the whole thing over?
I think the Americans are sending a message to Xi with that one. "Keep this airshow going, and we will put thousands of Marines between you and Taiwan". Meaning: an attack on Taiwan is an attack on the US...
Essentially, the capitalist West has sought "to export" its "internalities" to China. But there is only ONE PLANET...and they forgot conveniently that a Dictatorship of 100 million can rule over a "poor empire" of 1.4 billion people...and still draw resources from these slaves sufficient to build an imposing Army, the PLA!
A round of applause, everyone, for Obama, Merkel and Co.!
The RBA keeps slapping lipstick on this pig, but if there is one “law” in political economy, it is that asset “values” that can no longer “command” living labour will result either in those values crashing down to earth, or in social upheaval that will annihilate those values in any case…
Go to the etymology of the word: “value” comes from Valor, the ability to stand your ground in a fight. That should clarify things.
As Oscar Wilde said, “A cynic is someone who knows the price of everything and the value of nothing”.
Markets are getting exuberantly…cynical…
This Chinese Rat will soon have to change his name to... Xen Zha Un-a Lir (in Italian, "without a cent"). It is only a matter of a few short weeks before Xi has him arrested, sentenced by express trial...and executed as he deserves to be.
The FT almost suggests as much here:
Evergrande chair’s wealth under scrutiny as developer faces default
Hui Ka Yan who was once the embodiment of success, now faces a stunning reversal of fortunes
Evergrande chair Hui Ka Yan
Evergrande’s woes have thrown an uncomfortable spotlight on Hui Ka Yan’s lavish lifestyle, with some angry investors now demanding he personally pay them back © Imagine China/Oriental Image via Reuters
October 8, 2021 12:10 am by Primrose Riordan and Thomas Hale in Hong Kong
Striding into the ballroom of one of his company’s hotels, glad-handing football stars and pouring champagne into a tower of flutes, Evergrande boss Hui Ka Yan was riding high.
It was 2015, and former Chelsea manager Luiz Felipe Scolari had just guided Hui’s football team, Guangzhou Evergrande, to victory in Asia’s Champions League. Also in the ballroom were team co-owner Chinese tech billionaire Jack Ma and Britain’s Prince Andrew.
Once a symbol of success and the embodiment of the incredible growth of China’s real estate sector over the past 20 years, Hui today faces a stunning reversal of fortunes. Evergrande is teetering on the brink of default, with more than $300bn of total liabilities and having missed an interest payment on a bond last month, which could spark China’s biggest debt restructuring.
The developer’s woes have thrown an uncomfortable spotlight on Hui’s lavish lifestyle and the offshore wealth he amassed while Evergrande expanded. Many Chinese retail investors who bought his flats or invested in wealth management products connected to his company are now demanding that he personally pay them back.
“What about his private jets, his luxury houses in Hong Kong? He has so much money,” said a woman who attended a creditor meeting with the company last month in a video that went viral on Weibo, calling on Hui to liquidate his assets.
His troubles coincide with a campaign by China’s president Xi Jinping against corporate excesses that has targeted some of the country’s highest profile entrepreneurs. But tracking down the assets of a man who mixed with the global elite and used shell companies to buy properties around the world will not be easy for angry creditors.
A screen grab taken from video showing Prince Andrew, left, Jack Ma. centre, and Hui Kan Yan, right in a ballroom in of one of Evergrande’s hotels
A screen grab taken from video showing Prince Andrew, left, Jack Ma. centre, and Hui Kan Yan, right in a ballroom in of one of Evergrande’s hotels © qq.com
Dining with Prince Andrew
Only four years ago, Hui, who worked in the steel industry before setting up Evergrande in 1996, was China’s richest man, with a fortune estimated at $45bn.
Hui’s rise was marked by his extensive network of powerful Chinese and foreign friends. He courted Hong Kong tycoons as investors at card games and enlisted Chinese movie stars such as Fan Bingbing and Jackie Chan to help market his products.
Among his flashier international contacts was Prince Andrew, who he hosted as a guest at his luxury home in Hong Kong’s exclusive Peak neighbourhood during the royal’s visits to the territory, according to a person familiar with the soirées. Neither Hui nor Evergrande responded to a request for comment.
Hui met Prince Andrew over 2015 and 2016, photos and Chinese media reports show. The nature of these exchanges is unknown — they were not documented in the Court Circular, the public record of official royal engagements. Prince Andrew declined to comment.
When Xi visited London in October 2015, Chinese media reported that Hui joined the Chinese delegation and visited Buckingham Palace with the Duke of York. The prince sent a congratulatory message to Evergrande’s 20-year anniversary party a year later.
Shell companies and exuberant spending
Hui, who was named in the Panama papers, a leak of documents from offshore law firm Mossack Fonseca, often bought assets outside China and Hong Kong through shell companies.
These included one of Australia’s most luxurious houses in Sydney’s Point Piper, Villa del Mare, in 2014, which was bought through a company called Golden Fast Foods.
When he was ordered to divest the property under Australia’s foreign investment laws, Hui shunned real estate agents and held a private sale. “It was done fairly quickly and in house,” a person with knowledge of the sale told the Financial Times.
The 60-metre mega yacht called ‘Event’ from Dutch boat designer Amels, which Hui bought in 2015
The 60-metre mega yacht called ‘Event’, which Hui bought in 2015. A similar boat is listed by Dutch boat designer Amels for €67m © Damen Yachting/YouTube
Hui also bought his Peak property in Hong Kong through a shell company. The price of the 2009 purchase is undisclosed, but in 1997, land documents for the address showed a transaction of about $94m. In August this year, as Evergrande’s liquidity crisis mounted, he transferred the directorship in the company to Tan Haijun, an associate, documents showed.
Some of the billionaire’s other assets include Rolls Royces and private jets, such as a Gulfstream G450, which can cost up to $43m, according to Chinese media. More well known is his $90m Airbus A319 — a commercial passenger-size jet that can seat up to 160 people — which Hui used to scout for properties on Australia’s Queensland’s Gold Coast in 2014, including the city’s Sheraton Mirage Resort and Spa.
He also bought a 60-metre mega yacht called “Event” from Dutch boat designer Amels in 2015, according to two people familiar with the matter. A similar yacht from the same builder is listed for €67m. A former employee who worked on the yacht said it had hosted a member of the British royal family.
Desmond Shum, the author of Red Roulette — an account of the “golden age” for Chinese entrepreneurs in the mid-1990s — wrote that Hui “envisioned a floating palace to wine and dine officials off China’s coast, away from the prying eyes of China’s anti-corruption cops and its nascent paparazzi”.
Shum also detailed how Hui bought two $1m rings on a whim at a Beijing jewellery store. He wrote: “In China, there are several ways to get the attention of those in power . . . [Hui’s] preferred method was through giving outrageously expensive gifts.”
Despite Evergrande’s mounting problems, Hui seemed to remain in favour with China’s senior leadership as Xi launched a crackdown on the country’s most prominent entrepreneurs over the past year. As recently as July 1, Hui was photographed in Beijing with the ruling elite at a celebration of the party’s 100-year anniversary.
“Doing big business on the mainland is mostly dependent on big networks,” said Zhiwu Chen, a professor of finance at Hong Kong university. Hui “has been known as a pretty nice, generous friend to have”.
The mansion Villa del Mare in Sydney’s Point Piper
The mansion Villa del Mare in Sydney’s Point Piper © Richard Milnes/Alamy
Value destruction
But Hui’s luck ran out this year as Beijing enforced rules to reduce leverage in the real estate sector. Since July, as Evergrande’s liquidity crisis has worsened, its value has fallen more than 80 per cent, hitting Hui’s personal wealth through his 71 per cent stake. However, he is still worth $11.8bn, according to Forbes.
As Hui’s fortune crumbles, few may step in to save him. His companions from the football celebration in 2015 increasingly resemble a line-up of the fallen — Ma has been humbled by Xi’s “common prosperity” drive and Prince Andrew is facing a scandal over his association with the late sex offender Jeffrey Epstein.
Even Hong Kong tycoon Joseph Lau, a longstanding Hui ally, has been offloading his company’s stake in Evergrande. “Now, he’s a friend nobody wants to have,” Chen said. “The golden era for making big money multiple times over is over.”
Where do you start with the IDIOTS at the AFR? Or rather...WHEN DO YOU STOP HEAPING SCORN AND RIDICULE on their peahen sized brains?
Exhibit One: "Beijing is well aware of the issues and in recent times moved to reduce risk. The current financial stress among some property developers is connected with tighter regulatory restrictions." This preposterous statement implies that the Evergrande crisis is due principally if not entirely to the strictures imposed by Beijing. But those "three red lines" were imposed...BECAUSE THE WHOLE FINANCIAL PYRAMID WAS ON THE VERGE OF IMPLODING!!!!
And it will implode a lot sooner unless Beijing does what it is doing! In other words, the Beijing Rats are trying desperately to avoid the inevitable or at least to delay it! It is not because of their preventive measures that this financial crisis is taking place!
Munckton is a helpless IMBECILE. How do you contain a financial crisis? Once panic spreads, loan contract breaches and financial arrangements are irreversible! Capital values are destroyed and "vaporized" within hours, if not minutes! A financial or credit pyramis IS NOT A LEGO SET that can be put together again piece by piece. As the "Alice in Wonderland" refrain goes: "Humpty Dumpty sat on the wall./ Humpty Dumpty had a great fall./ And all the king's horses/And all the king's men/ Couldn't put Humpty....together again!!!"
THIS HAS NOTHING TO DO WITH FOREIGN DEBT! Foreign bondholders know very well that they will NOT be paid! The problem is now ALL INTERNAL...and there is nothing the CCP can do except delay the INEVITABLE! An economy is not a lego set. Contracts are "entropic", the y have a "time arrow", they cannot be "reversed" once their "value" is wiped out!
The Chinese economy is now a Wile E. Coyote economy: it was running on "credit", on blind faith. But once Coyote looks down - or the boy says"The Emperor is naked!" - Coyote falls into the abyss...and the courtiers admit finally that "the Emperor has no clothes". As Warren Buffett sid, once the tide of fictitious capital recedes, we will see who has been swimming naked!
No comments:
Post a Comment