Both the EU Central Bank and the International Monetary Fund published reports recently on the growth and risk of the shadow-banking sector. While estimating the size of the sector and identifying some immediate risks, both reports fail to identify the rise of finance, and in particular non-bank credit-creating entities, over recent decades as a systemic
by PETE DOLACK Taken from http://www.counterpunch.org/2015/05/15/how-speculation-for-its-own-sake-pays-billions/ The absurdity of the tsunami of money crammed into speculators’ bank accounts is illustrated in the fact that the 25 highest-paid hedge-fund managers vacuumed up a collective $11.6 billion in 2014 — and that was considered to be a bad year for them by the business press. Stratospheric though
Taken from the National Union of Public & General Employees (Canada) While Canada’s Conservative government continues to reject the idea of a Financial Transactions Tax (FTT) evidence is growing that it is a proposal that could bring big benefits. Eleven governments in the European Union are working out final details of a regional financial transactions tax,
by PETE DOLACK
The absurdity of the tsunami of money crammed into speculators’ bank accounts is illustrated in the fact that the 25 highest-paid hedge-fund managers vacuumed up a collective $11.6 billion in 2014 — and that was considered to be a bad year for them by the business press. Stratospheric though that total is, it is barely more than half of what the top 25 took in a year earlier.
All together now: Awwww. Yes, somehow these speculators will have to get by on a paltry average of $467 million.
Institutional Investor’s Alpha magazine — one can hear their editors’ teeth gnashing at their heroes’ bitter fate — lamented that 2014 was the worst year since the 2008 stock meltdown for hedge-fund managers in announcing its “Rich List.”
Nonetheless, some observers might believe that these moguls earned somebody serious money to collect such enormous paychecks. But that wasn’t necessarily the case. For the sixth consecutive year, hedge funds fell short of the average stock-market performance, returning a composite average of three percent. Perhaps the 25 hedge-fund managers who hauled in the most money for themselves were better? Not really. Alpha reports that the hedge funds of at least 12 of the individuals on its top 25 list posted gains below the 2014 average.
The S&P 500 Index, the broadest measure of U.S. stock markets, gained 11.4 percent in 2014 and the benchmark Dow Jones Industrial Average gained 7.5 percent. So somebody throwing darts, or parking their money in a passive fund that tracks a major index, would have done as well or better in many cases. Despite their subpar performances, hedge-fund managers continue to receive an annual fee of two percent of the value of the total assets under management and 20 percent of any profits. The fee gets paid even when the fund loses money.
So it’s heads, Wall Street wins and tails, Wall Street wins. And hedge funders pay less in taxes. Much of their income is classified as capital gains under U.S. tax law, and the tax rate on capital gains are much less than on regular income.
Imposing austerity on others is a job never finished
What is that hedge-fund managers do to “earn” such enormous sums of money? Let us take a look. The top person on the 2014 list is Kenneth Griffin of Citadel Capital, who hauled in $1.3 billion for the year. Citadel makes lots of money through computerized high-speed trading — buying and selling securities in microseconds to take advantage of momentary price changes. Apparently allowing computers to do the work leaves Mr. Griffin with time to pursue his hobby of widening inequality still more.
Not content with the fact that his 2014 earnings are equal to the combined median wage of 26,000 U.S. workers, he contributed $10 million to an Illinois campaign that seeks to cut workers’-compensation benefits, make it illegal for employees to contribute to political campaigns through their union, abolish prevailing-wage laws and render union dues collections much more difficult. He’s also contributed millions to the Koch brothers’ war chest. Mr. Griffin’s firm also owns a stake in ServiceMaster, a company that profits from the privatization of public services by firing employees and rehiring them at lower wages.
A Huffington Post article, noting that Mr. Griffin is also a major donor to Chicago Mayor Rahm Emanuel, nonetheless reports that he believes Mayor 1% is too soft on public employees despite the mayor’s attacks on pensions and teachers. The article said:
“Griffin, alone, could fund all of Chicago’s pension liabilities for  (estimated at $692 million) and still have $208 million [from his 2013 income] left to scrap by on. Yet Griffin is terribly worried that the mayor is being too soft on retirees. He castigated Chicago and Illinois politicians for not making ‘tough choices,’ blaming Democrats who control city, county and state government for not fixing pension, education and crime problems.”
Second on the hedge-fund list is James Simons of Renaissance Technologies. Although Alpha reported that he no longer runs his firm on a day-to-day basis and “spends a good chunk of the year on his 226-foot yacht,” Mr. Simons hauled in $1.2 billion in 2014. His firm employs physicists, others scientists and mathematicians to develop models for its computerized trading. Alas, speculation pays much more than scientific research that might benefit humanity.
Buy, strip, profit, repeat
Third on the list is Raymond Dalio of Bridgewater Associates, who took in $1.1 billion in 2014. He specializes in bond and currency speculation. Fourth on the list is William Ackman of Pershing Square Capital Management, who is what the corporate media likes to call an “activist investor.” In other words, someone who buys stock in a company and immediately demands massive cuts so he can make a large short-term profit is an “activist investor” because he does this more loudly than others.
Mr. Ackman hauled in $950 million in 2014. Forbes magazine, as consistent a cheerleader for the corporate overclass as any institution, summed him up this way last year:
“[H]edge fund billionaire William Ackman has tried to destroy a company that sells diet shakes, played a prominent role in nearly driving a 112-year-old retailer into the ground [and] helped launch a hostile takeover of a pharmaceutical company in a way that the Securities & Exchange Commission is reportedly examining for potential violations of insider trading law. Now, Ackman is suing the U.S. government.”
He is suing the U.S. government because it is taking the profits from federal housing-loan programs Fannie Mae and Freddie Mac to recoup money used to bail them out rather than handing the profits over to speculators such as himself. Never mind that the government spent hundreds of billions of dollars bailing out speculators. Among his most recent exploits, he was involved in two separate deals that would have moved a U.S. corporation’s headquarters to Canada so that it could avoid paying taxes, savings that would be earmarked for speculators’ wallets.
No summation of hedge-fund greed would be complete without a mention of Paul Singer, another entrant on the Alpha list. The vulture capitalist specializes in buying debt at pennies on the dollar and then demands to be paid the full face value, regardless of human cost. Among other exploits, he has seized an Argentine naval ship, demanded $400 million from the Republic of the Congo for bonds he bought for less than $10 million and compelled the government of Peru to pay him a 400 percent profit on the debt of two banks he bought four years earlier.
The outsized renumeration of financiers is due to the disproportionate size of the financial industry. A rough calculation estimates that in 11 business days speculators trade instruments and contracts with a value greater than all the products and services produced by the entire world in one year. In other words, a year’s worth of gross world product is traded in about two weeks on the world’s stock, bond, derivative, futures and foreign-exchange markets.
Such frenzied trading, often involving high-speed computers and ever more exotic betting, has little to do with actual economic needs and much to do with extracting money by ever more imaginative needs. Such is a system that values financial engineering more than human life.
Pete Dolack writes the Systemic Disorder blog. He has been an activist with several groups.
Taken from the National Union of Public & General Employees (Canada)
While Canada’s Conservative government continues to reject the idea of a Financial Transactions Tax (FTT) evidence is growing that it is a proposal that could bring big benefits.
Eleven governments in the European Union are working out final details of a regional financial transactions tax, with a January 2016 deadline for implementation. As part of this process, the German Social Democratic Party commissioned a study from the prestigious German Institute for Economic Research (known as DIW).
Advocates for a Robin Hood Tax have argued that applying a small tax to trade of stocks and derivatives would discourage short-term, speculative trading while generating significant revenue. The study released by DIW indicates that the money raised would exceed what has been previously projected.
Massive benefit to Germany
Sarah Anderson, from the Global Economy Project at the Institute for Policy Studies, notes (link is external)that “Germany alone can expect anywhere from 18 to nearly 45 billion euros per year from a serious regional financial transactions tax, depending on how the tax affects trading levels, according to DIW. That translates into a potential benefit of about US$48 billion in an economy one-fifth the size of the United States.”
DIW estimates are based on the European Commission’s proposed rates of 0.1 percent on stock and bond trades and 0.01 percent on derivatives.
The DIW also assumed that the 11 governments would adopt the European Commission’s anti-avoidance mechanism.
Similar benefits to other countries studied
DIW also examined three of the other participating countries and came up with revenue estimates of 14 to 36 billion euros for France, 3 to 6 billion for Italy, and 700 million to 1.5 billion for Austria.
“For these four European countries combined, the total potential revenue estimate comes to considerably more than a previous European Commission projection of up to 31 billion euros for all 11 participating governments,” said Anderson.
Opposition from banks
“These impressive revenue numbers could shrivel, of course, if the European governments cave in to pressure from the financial industry. After several years of trying to kill the initiative altogether, European financial institutions have had to accept the inevitability of a financial transaction tax. Their focus now: pushing for exemptions that would render a new financial transactions tax virtually meaningless,” explained Anderson.
“In particular, the big banks would like to exclude from the tax all trades in derivatives, the potentially highly lucrative financial instruments that played a major role in the 2008 financial crisis.”
However, DIW notes that if derivatives are exempted, “most of the potential revenue from FTT is lost.” Indeed, Germany and France would lose approximately 90 percent of the expected revenues.
This is partly due to expectations that traders would respond to the exemption by shifting into derivatives to circumvent the tax.
Still, advocates point out that the case for a Financial Transactions Tax (or Robin Hood Tax) is becoming stronger.
The National Union of Public and General Employees (NUPGE) is one of Canada’s largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good.
Oxfam report on global wealth distribution, accumulation and inequality.
Full report below:
article reprinted from the LA Times –
Cheaper, better robots will replace human workers in the world’s factories at a faster pace over the next decade, pushing manufacturing labor costs down 16 percent, a report Tuesday said.
The Boston Consulting Group predicts that investment in industrial robots will grow 10 percent a year in the world’s 25-biggest export nations through 2025, up from 2 percent to 3 percent a year now. The investment will pay off in lower costs and increased efficiency.Robots will cut labor costs by 33 percent in South Korea, 25 percent in Japan, 24 percent in Canada and 22 percent in the United States and Taiwan. Only 10 percent of jobs that can be automated have already been taken by robots. By 2025, the machines will have more than 23 percent, Boston Consulting forecasts.
Robots are getting cheaper. The cost of owning and operating a robotic spot welder, for instance, has tumbled from $182,000 in 2005 to $133,000 last year, and will drop to $103,000 by 2025, Boston Consulting says.
And the new machines can do more things. Old robots could only operate in predictable environments. The newer ones use improved sensors to react to the unexpected.In a separate report, RBC Global Asset Management notes that robots can be reprogrammed far faster and more efficiently than humans can be retrained when products are updated or replaced — a crucial advantage at a time when smartphones and other products quickly fade into obsolescence.
“As labor costs rise around the world, it is becoming increasingly critical that manufacturers rapidly take steps to improve their output per worker to stay competitive,” said Harold Sirkin, a senior partner at Boston Consulting and co-author of the report. “Companies are finding that advances in robotics and other manufacturing technologies offer some of the best opportunities to sharply improve productivity.”
Boston Consulting studied 21 industries in 25 countries last year, interviewing experts and clients and consulting government and industry reports.
The rise of robots won’t be limited to developed countries with their aging, high-cost workforces. Even low-wage China will use robots to slash labor costs by 18 percent, Boston consulting predicts.Increasing automation is likely to change the way companies evaluate where to open and expand factories. Boston Consulting expects that manufacturers will “no longer simply chase cheap labor.” Factories will employ fewer people, and those that remain are more likely to be highly skilled. That could lure more manufacturers back to the United States from lower-wage emerging market countries.
This Chapter 2 of an IMF economic report.
The chapter describes the growth and risks of and regulatory responses to shadow banking—financial intermediaries or activities involved in credit intermediation outside the regular banking system, and therefore lacking a formal safety net.
The largest shadow banking systems are found in advanced economies, where more narrowly defined shadow banking measures indicate stagnation, while broader measures (which include investment funds) generally show continued growth since the global financial crisis. In emerging market economies, the growth of shadow banking has been strong, outpacing that of the traditional banking system.
Budget 2014 introduced significant cuts to Jobseeker’s Allowance (which is means tested) for young workers. The payment to new entrants aged 22-24 is reduced from €144 to €100 per week, and for those aged 25 the payment is reduced from €188 to €144 per week. The stated aim is to “ensure that young people are better off in education, employment or training than claiming”, and the Government hopes to save €32 million from the measure.
Full report by NERI Neri research