Jamie Dimon And The Fall Of Nations [baselinescenario.com]

From baselinescenario.com

Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” by Daron Acemoglu and James Robinson, is a brilliant and sometimes breathtaking survey of country-level governance over history and around the world. Professors Acemoglu and Robinson discern a simple pattern – when elites are held in check, typically by effective legal mechanisms, everyone else in society does much better and sustained economic growth becomes possible. But powerful people – kings, barons, industrialists, bankers – work long and hard to relax the constraints on their actions. And when they succeed, the effects are not just redistribution toward themselves but also an undermining of economic growth and often a tearing at the fabric of society. (I’ve worked with the authors on related issues, but I was not involved in writing the book.)

The historical evidence is overwhelming. Many societies have done well for a while – until powerful people get out of hand. This is an easy pattern to see at a distance and in other cultures. It is typically much harder to recognize when your own society now has an elite less subject to effective constraints and more able to exert power in an abusive fashion. And given the long history of strong institutions in the United States, it appears particularly difficult for some people to acknowledge that we have serious governance issues that need to be addressed.

The governance issue of the season is Jamie Dimon’s seat on the board of the Federal Reserve Bank of New York. Mr. Dimon is the chief executive of JPMorgan Chase, currently the largest bank in the United States. This bank is “too big to fail” – meaning that if it were to get into difficulties, substantial financial support would be provided by the Federal Reserve System (and perhaps other parts of government) to prevent it from collapsing.

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Eurozone is ‘unsustainable’ warns Mario Draghi [Telegraph]

The head of the European Central Bank hit out at the political paralysis gripping the region as he warned the eurozone’s set-up was “unsustainable”.

The head of the European Central Bank hit out at the political paralysis gripping the region as he warned the eurozone's set-up was

Mario Draghi said the central bank could not “fill the vacuum” left by member states’ lack of action as it was claimed the zone is on the point of “disintegration”.

Amid escalating talk of a potential bail-out for Spain, the president of the ECB said the central bank was powerless to stop the debt tornado. “It’s not our duty, it’s not in our mandate” to “fill the vacuum left by the lack of action by national governments on the fiscal front,” he said.

Olli Rehn, the EU’s top economic official, called for urgent action to “avoid a disintegration of the eurozone.” The economic affairs commissioner said that politicians had made progress but it had been “uneven and seemingly inefficient.”

Underling the fears gripping many investors, the FTSE closed down 7.5pc in May, suffering its worst month since February 2009 when the banking crisis was at its height.

A raft of poor economic data in America compounded fears for the eurozone and the global economy. US GDP expanded by just 1.9pc in the first quarter, rather than the 2.2pc first estimate, while jobless claims climbed.

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Facebook & the Bubble Mentality [Azizonomics]

From azizonomics.com

So Facebook keeps falling, and is now floating around the $27 mark.  We’re a third of the way down to my IPO valuation of FB as worth roughly $2-4 a share (or 5-10 times earnings), although I wouldn’t be surprised for the market to stabilise at a higher price (at least until the next earnings figures come out and reveal — shock horror — that Facebook is terrible at making money).

The really stunning thing is that even after all these falls, FB is still trading at 86 times earnings. What the hell did Morgan Stanley think they were doing valuing an IPO without any viable profit model at over 100 times earnings? The answer is that this was an exit strategy. This IPO was about the people who got in early passing on a stick of dynamite to a greater fool which incidentally is precisely the same bubble mentality business model as bond investors who are currently buying negative-real-yielding treasuries at 1.6% hoping to pass them onto a greater fool at 0.5% (good luck with that).

This was achieved by convincing investors to ignore actual earnings and instead focus on projected future earnings. From Bloomberg:

Facebook, with a market capitalization of $79.1 billion, is trading at 29.5 times the company’s projected 2014 profit of $2.69 billion, data compiled by Bloomberg show.

Or much more simply, counting chickens before they hatch.

 

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More China stimulus coming [SoberLook]

From soberlook.com

The ISI Group believes that more China stimulus is on the way, as the nation is facing a real slowdown. The measures taken so far have been relatively insignificant, particularly as a percentage of total GDP (chart below).

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JPMorgan CIO swaps pricing said to differ from bank’s: report [Reuters]

(Reuters) – The JPMorgan Chase & Co (JPM.N) unit responsible for $2 billion in losses on credit derivatives valued some of its trades at prices that differed from those of its parent investment bank, Bloomberg News reported.

The two different pricing tracks used by the chief investment office and J.P. Morgan’s credit-swaps dealer may have obscured by hundreds of millions of dollars the size of the loss before it was disclosed earlier this month, the Bloomberg News report said, citing a person familiar with the matter.

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Indian growth weakest in 9 years, rupee slides [Reutershttp://www.reuters.com/article/2012/05/31/us-india-economy-gdp-idUSBRE84U0RI20120531]

By Manoj Kumar and Ross Colvin

(Reuters) – India’s economic growth slumped to its lowest level in nine years in the first three months of 2012, marking a dramatic slide in the fortunes of a country whose economy boasted nearly double-digit growth before the global recession.

“Urgent and bold steps are immediately needed to prevent the economy from descending into a full blown crisis. This must be averted at all costs,” said Rajiv Kumar, secretary-general of the Federation of Indian Chambers of Commerce and Industry.

The economy grew 5.3 percent in the last quarter from a year earlier, a sharp slowdown from 9.2 percent growth in the last quarter of the previous year, government data showed. The figures were the latest confirmation that the slowdown of Asia’s third-biggest economy is deepening.

Finance Minister Pranab Mukherjee blamed the weak data on the poor performance of the manufacturing sector, which shrank 0.3 percent from a year earlier, and promised to take “all necessary steps” to trim the country’s ballooning budget and current account deficits, which are a major drag on growth.

The data was released as the rupee plunged to yet another record low. Adding to a sense of crisis, a general strike called by opposition parties to protest a steep petrol price hike shut down government offices and shops and stalled trains and buses in some of the country’s 28 states.

The poor growth figures will add to mounting pressure on Prime Minister Manmohan Singh’s government to act more decisively and with greater speed to arrest the economy’s slide.

“This is definitely a very important signal for the government – this is a make or break situation for India and the government has to step on the panic button,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.

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Keiser Report: With Hugo Salinas Price

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