Mindful Money’s news round-up: Thursday 23rd June 2011

23rd June 2011

Story of the day:

From the Independent, Shareholders must tackle excessive boardroom pay – or face political meddling

And the best of the rest:

Today on the Telegraph, David Cameron will today tell EU leaders to "agree a plan and to stick to it" amid fears that Europe's disunited response to the Greek debt crisis will engulf the eurozone and drag down the pound.

David Cameron calls for unity over EU strategy on Greece

Also from the Telegraph, Another round of money printing may be necessary to keep the recovery on track, Bank of England policymakers have warned.

Quantitative easing back on Bank of England's agenda

The World Wealth report is out, and according to the Guardian the world's wealthiest people are getting more prosperous – and more numerous – by the day.

World's wealthiest people now richer than before the credit crunch

Also in the Guardian, The US recovery is slower and weaker than expected, the Federal Reserve said, as it decided to hold interest rates at historic low levels and hinted that more government relief could come if the recovery stalls.

Federal Reserve holds interest rates again as US recovery remains fragile

How the markets are looking from the Financial Times. The FTSE All-World equity index is down 0.5 per cent, commodity prices are lower, while the dollar and US Treasuries are in demand. To some investors' minds, this traditional "risk-off" scenario comes courtesy of the US Federal Reserve, which on Wednesday said the world's biggest economy faced slower than expected growth and higher inflation.

Risk assets soften on downbeat Fed view

Also from the Financial Times, Aviva has sold its RAC roadside rescue business to Carlyle Group, the private equity group, for £1bn ($1.6bn) as part of a broader strategic overhaul that will see the insurer refocus on core products in 12 countries.

Aviva sells RAC to Carlyle in £1bn deal

The Independent is discussing  the LSE and TMX merger. The London Stock Exchange (LSE) yesterday hit back at the rival bid for Canada's TMX group as it proposed handing shareholders a sweetener worth more than £400m to secure the deal.

LSE offers £400m in TMX sweetener

The BBC News are reporting that the Dutch airline KLM says it plans to use recycled cooking oil on 200 flights between Paris and Amsterdam.

KLM plans to fly planes on reused cooking oil

From This is Money, Every adult in Britain could be handed free bank shares worth £1,000 when nationalised institutions are sold off.

'£1,000 bank shares to all' plan moves closer

The Wall Street Journal are writing, Swedish Automobile NV on Thursday said it won't be able to pay workers' wages at the Swedish car maker Saab because it hasn't secured short-term funding, an indication of the dire state of the company's finances as it tries to finalize agreements with suppliers to resume production and while it waits for regulators to approve a deal with Chinese investors.

Sweden's Saab Can't Pay Wages

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13 thoughts on “Mindful Money’s news round-up: Thursday 23rd June 2011”

  1. Anonymous says:

    Shaun – another valuable post. Stock market reaction was I feel short term euphoria without reading the small print, which could be questionable in the medium term. You quoted the Marrs song; may I amend the title slightly “Pump up the Inflation”. 

  2. Sean Fernyhough says:

    With computers you reset to a configuration that works. That doesn’t happen with the financial sector.

    1. Anonymous says:

      Hi Sean

      I guess is the “configuration that works” that currently has nearly everybody stumped……

  3. Bkester says:

    But, to play Devil’s Advocate here, what choice did the Americans have?  The ECB is restricted by its own legal framework.  EU Governments appear to be frozen in the headlights.  Were the Americans supposed to sit back, watch the European banking system grind to a halt and then risk a second global credit crunch?  Faced with two evils did they not choose the lesser one?

  4. Drf says:

    “As I do not agree with him often let me point out that the Governor of
    the Bank of England has pointed out today that the crisis is one of
    solvency and not liquidity.”  Hm, of course that is the essence of the problem; but in management accounting terms the two are one and the same thing, because they are dependencies.  If you do not have sufficient liquidity you are not solvent!  This is the whole point of the pyramid of ratios and in particular the quick acid ratio.  The difficulty is as usual with King that his words are like an asp and without any efficacy. The proposed action will not solve this foundational problem, whether one tries to pretend that it is due to either liquidity or solvency and not the other! The reality is that when insolvency is heralded there is only one solution, and that is not to borrow more or debase currencies to pay the debts and for servicing the debt. The only workable solution is the one which none of them will face – cutting spending drastically to become solvent again.

  5. JW says:

    Shaun, I think the Fed operated as much in self interest for US banks as any other reason. If say Unicredit folded the CDS links would go right back to Goldman. You are quite correct that this is just yet another bail out for bankers with the tax payer to pick up the bill in due course, on both sides of the Atlantic. Indeed a possible ‘exit route’ for intra-national QE, that of taxation, would not be available here; unless the US has devised a way of taxing EU citizens? Perhaps I am being very naive in posing this question.
    Anyway, it looks like we are very close to the start of Phase 3 of the crisis that started in 2007. will it lead to disintegration of the system or the complete capture of economies by the banksters. Whichever way it pans out, its going to be either very horrible for a period , or just horrible for a protracted period.

    1. Anonymous says:

      Fed prints dollars at zero cost. Loans them out to banks without taking taxpayers money. Hopefully receive repayment from banks which is profit even allowing for debasement.

      There is no such thing as a free lunch and QE will probably bring painfully high inflation.

    2. Anonymous says:

      Hi JW

      You make an interesting point about taxation except I would like to alter the geography if I may. The problem has at least partly come about because the Euro zone has no Euro zone-wide system of taxation and has let individual countries tax (or not..). So if the Americans manage it they are doing really well!

  6. pavlo says:

    All of the fiddling around with credit, buying bonds etc fails to address the fundamental problem which is that the citizens of a number of countries in the Euro zone enjoy a lifestyle that is not commensurate with their countries economic performance and has been financed by credit. As a result costs, salaries and benefits are (still) too high and need to be radically reduced. Everything else is re-arranging the deck chairs on the Titanic – and the markets know this.

    1. Anonymous says:

      Hi pavlo and welcome to my blog

      Much of what you say is true about the UK too. Here the official answer is to depreciate the currency and inflate prices whilst denying either is happening or intended…..

  7. DLinneridge says:

    Shaun, your usual clear thinking just makes me think the financial situation is even worse than I could imagine, but its nice to see (probably) some of the truth of the matter.  The worry is that we are all seeing a subset and that the ‘real reality’ could be awful.

    ‘The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank’

    Does this indicate the IMF is about to start morphing into the Global Monetary Fund?  Presumably it would need to be able to leverage its funds (maybe not if its a GMF), do its own QE, print its own money, collect its own taxes,……

    It could make the EU look like a practice run.

    Now thats scary.

    1. JW says:

      DL, it goes by the name ‘vampire squid’.

    2. Anonymous says:

      Hi DL

      In that vein this is from Bloomberg.

      “International Monetary Fund chief Christine Lagarde said Group of 20 nations are prepared to boost the fund’s resources as the European debt crisis threatens the global recovery.

      “If circumstances require, the G-20 will commit the resources that are necessary for the IMF to play its systemic role,” she said during a joint press conference with Brazilian Finance Minister Guido Mantega in Brasilia today. “That gives you a range that is almost without a cap, without a limitation.” ”

      However care is needed as Madame Lagarde is exceptionally prone to hyperbole and bombast which are contributory factors to my view that she was a bad choice for IMF MD. Also most countries havent paid up for the last round of expansion…..

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