An area of particular concern to the ratings agencies is the extra debt that borrowers are piling on to their balance sheets. The rating agencies say that the deteriorating credit quality of those trying to finance adventurous takeovers could spell trouble. They expect an increase in default rates this year or next, even if the economic conditions for borrowers do not deteriorate much. Bankers are keen not to be left holding a toxic tranche of unsellable debt if the credit cycle turns.
The repercussions of a fall in credit quality would be felt far beyond the leveraged-loan market. The corollary of the enhanced liquidity provided to borrowers by hedge funds and other institutions is that they too are highly geared. It is easy to imagine their own lenders getting cold feet if credit conditions turn.
Yet one man's misfortune is another's opportunity. Banks and hedge funds are increasing their expertise in the distressed-debt market, where the most pungent credits will eventually end up.
Finance & Economics
Not all of them will be able to benefit if the leveraged-loan market contracts. But the vultures are out there already sharpening their talons for the day when that happens. CHINA has recently done much to repair its tattered commercial banks. By contrast, another important group of financial firms—its stockbrokers and investment banks—remains a sorry mess. For years they have failed to make enough money to match the returns they guarantee their customers. Some have not paid up; some have eaten into their capital.
All but ten or so are technically insolvent. Their pitiful state is the prime reason why China's capital markets remain underdeveloped.
"Dude! I Have Cataracts!"
Arguably, strong markets are as important as sound banks to the creation of a healthy financial system. Equity and bond markets that could marry the two successfully would be a boon for the fast-growing economy. Indeed, the securities firms should be easier to rescue than the banks. They employ only a fraction of the staff; putting them right requires far less money; and if some failed it would pose no systemic risk.
Why, then, has progress been so much slower than in banking? Part of the explanation is precisely that policymakers have been preoccupied with reforming the big lenders. In addition, a four-year decline in share prices has undermined securities firms' finances, making reform more daunting for officials who do not want to send brokers under. Here at least, pressure may at last be easing: cheered by bold measures to remove a vast overhang of non-tradable state-owned shares, China's stockmarket has hit an month high see chart.
Renewed interest in shares is prompting the authorities to improve the dreadful quality of quoted firms by lobbying better-regarded companies—such as Bank of China, which is due to float this year—to list at home as well as abroad. To its credit, the CSRC is dealing with the share overhang. But unlike its cousin overseeing the country's banks, it has done little to address the weaknesses of the firms in its charge.
Although it has withdrawn licences from a few brokers, no big names have been allowed to go bust since China Southern Securities two years ago. Nor has there been much consolidation, although forced mergers of state firms are common in other industries. Under Shang Fulin, its conservative boss, the CSRC appears wary of offending the regional governments that are the ultimate owners of most securities firms. Instead, it seems to be hoping that a rising stockmarket will rescue the industry with no need for true reform. Mr Shang's attitude to foreign involvement is especially unhelpful.
At a private meeting last month the CSRC said it was putting all approvals of foreign deals on hold until the end of the year, according to a foreign banker present, reinforcing rumours of a ban on all deals after one between UBS and Beijing Securities. The Chinese are under no international obligation to let foreigners into their securities industry. Banking is different: China promised to open its market by next year as a condition of its joining the World Trade Organisation. However, overseas brokers are pitching for minority stakes in joint-ventures with local firms.
Their activities would be limited to primary services ie, advising and underwriting and bond trading, not the more lucrative businesses of secondary share trading and managing funds for Chinese investors. Foreign firms are eager to help in return for access to a potentially profitable market. The world's investment banks are already doing well from Chinese companies' overseas flotations.
Foreign houses can contribute the know-how, new products and technology that Chinese firms need but lack. Yet the few deals so far have yielded little. The earliest, a joint-venture called CICC set up a decade ago by Morgan Stanley and China Construction Bank, brought the Americans juicy mandates to float Chinese companies abroad, but not the entry to domestic markets they had hoped for. Worse, after squabbles with its Chinese partners—notably Fang Fenglei, a maverick banker who defected to Goldman Sachs—Morgan Stanley has stepped back.
It still has a minority stake in CICC but has no one on the ground and no control. Insiders say it wants to tie up with another Chinese broker, possibly Shanxi Securities. Other such ventures look uncertain. Merrill Lynch has been waiting since early for approval to take a one-third stake in Hua'an Securities, based in Anhui province. Morgan has the right idea, but is backing the wrong horse. Oddly, the two most promising and experimental deals, involving Goldman Sachs and UBS , most expose the regulator's shortcomings. In late Goldman helped launch a new securities company, Beijing Gao Hua.
Insiders say Goldman has negotiated future ownership rights for Gao Hua through complicated private agreements with Mr Fang. If it all works, Goldman will have smartly side-stepped the need to join forces with an existing, indebted firm, and will gain full access to the domestic investment-banking business. However, much remains in the hands of Mr Fang. More worrying for the prospects of reform, the CSRC has made the new venture a trial balloon for a proposal to remove brokers from clearing and settling share trades, and to hand these post-trade processes to the big state banks.
The idea seems to have been prompted by the regulator's belief that domestic brokers are a corrupt bunch who misappropriate their clients' money. Rather than simply shut rotten brokers down, the trial merely adds complexity by forcing clients to make agreements with banks as well as brokers. Insiders at Gao Hua also dislike the regulator's idea that mutual funds should execute trades themselves, bypassing brokers.
Market Viewpoints | Crossbridge Capital
If brokers cannot match buyers and sellers, they say, liquidity will suffer. Will UBS get more leeway? With the help of friendly co-investors, including the Beijing city government, it could secure control of the broker's management and even the board. Most of the money will go towards repaying its target's debt, allowing UBS to shed half the staff and 21 of the 27 branches. The state council, or cabinet, and the central bank, whose governor, Zhou Xiaochuan, used to run the CSRC , have browbeaten the securities regulator into approving UBS 's deal.
Its moratorium on further deals is a defensive step by an agency that should instead be opening its industry to foreign money, know-how and control. Unpalatable to the CSRC this may be, but it would help create the healthy capital markets China needs. Now growth seems to be becoming more even at last: Europe and Japan are revving up, as are most emerging economies. As a result, if or when the American engine stalls, the global aeroplane will not necessarily crash. For the time being, America's monetary policymakers think that their economy is still running pretty well.
This week, as Alan Greenspan handed over the chairmanship of the Federal Reserve to Ben Bernanke, the Fed marked the end of Mr Greenspan's year reign by raising interest rates for the 14th consecutive meeting, to 4. Most analysts expect the Fed to raise rates once or twice more, although the economy slowed sharply in late Real GDP growth fell to an annual rate of only 1. Economists were quick to ascribe this disappointing number to special factors, such as Hurricane Katrina and a steep fall in car sales—the consequence of generous incentives that had encouraged buyers to bring purchases forward to the third quarter.
See a Problem?
This sounds too optimistic. A rebound is indeed likely in this quarter, but the rest of the year could prove disappointing, as a weakening housing market starts to weigh on consumer spending. In December sales of existing homes fell markedly and the stock of unsold homes surged. Experience from Britain and Australia shows that even a soft landing for house prices can cause an acute slowdown in consumer spending.
American consumers have been the main engine not just of their own economy but of the whole world's.
If that engine fails, will the global economy nose-dive? A few years ago, the answer would probably have been yes. But the global economy may now be less vulnerable. At the World Economic Forum in Davos last week, Jim O'Neill, the chief economist at Goldman Sachs, argued convincingly that a slowdown in America need not lead to a significant global loss of power. Goldman Sachs has raised its GDP growth forecast for that quarter the official number is due on February 17th to an annualised 4.
That would push year-on-year growth to 3. The bank predicts average GDP growth in Japan this year of 2. It thinks strong demand within Asia will partly offset an American slowdown. Japan's labour market is also strengthening. In December the ratio of vacancies to job applicants rose to its highest since see chart 1. It is easier to find a job now than at any time since the bubble burst in the early s.
Stronger hiring by firms is also pushing up wages after years of decline. Workers are enjoying the biggest rise in bonuses for over a decade. Higher incomes mean more spending: households spent 3. And according to Richard Jerram, of Macquarie Bank, retail sales rose in for the first full year since In other words, Japan's growth is becoming much less dependent on exports.
The disappearance of deflation has also reduced real interest rates, giving further support to domestic demand. Even the euro area is emerging from the doldrums. In Germany in particular, vigorous corporate restructuring has boosted productivity and profits. So far, however, this has been at the expense of jobs and wages, and hence of consumer spending—although with capital expenditure picking up, new hiring is likely to follow. Mr O'Neill suggests that Germany is where Japan was 18 months ago. The official German job figures for January were disappointing.
After falling steadily over the past year, the unemployment rate unexpectedly rose to But the figures are partly distorted by statistical changes and new rules on eligibility for benefits. Evidence from business surveys certainly point to an improving labour market. Further bad news this week came in the shape of a 1. That could imply a decline in total consumer spending for a fourth consecutive quarter, which has never happened in the 45 years since records began.
On the other hand, consumer confidence surveys suggest that households are starting to feel chirpier this year.
The Ifo survey of German business confidence also indicates that the recovery is spreading to consumers. Retailers' confidence in January rose to its highest for five years. The expectations component of the overall survey rose to its highest since November If the traditional relationship between Ifo's business-confidence index and GDP growth holds see chart 2 , then Germany's economy could grow this year by much more than most economists are forecasting. For the first time in many years, Germany's domestic demand looks set to contribute more to growth in than its net exports will.
Elsewhere in the euro area, domestic demand has been the main source of growth in any case. These economies are therefore more resistant to external shocks than is generally thought. Although Germany is leading the pack, businesses throughout the euro area are feeling perkier. Stronger demand will embolden the monetary hawks in the European Central Bank.
The bank left interest rates unchanged at 2. Might that dampen the recovery? Probably not: in inflation-adjusted terms, rates would still be low. Alongside stronger domestic demand in Europe and Japan, emerging economies are also tipped to remain robust. These economies are popularly perceived as excessively export-dependent, flooding the world with cheap goods, but doing little to boost demand.
Yet calculations by Goldman Sachs show that Brazil, Russia, India and China combined have in recent years contributed more to the world's domestic demand than to its GDP growth. They have chipped in almost as much to global domestic demand as America has. If this picture endures, a moderate slowdown in America need not halt the expansion in the rest of the world.
Europe and Japan together account for a bigger slice of global GDP than the United States, so faster growth there will help to keep the global economy flying. A rebalancing of demand away from America to the rest of the world would also help to shrink its huge current-account deficit. This all assumes that America's economy slows, rather than sinks into recession. The world is undoubtedly better placed to cope with a slowdown in the United States than it was a few years ago.
That said, in those same few years America's imbalances have become larger, with the risk that the eventual correction will be more painful. A deep downturn in America would be felt all around the globe. Hiscox is one of a string of firms to set up shop recently in the British overseas territory, nearly miles km off the coast of America, which has emerged as an important force in the global reinsurance market.
The competitive threat from Bermuda was acknowledged last week by Lloyd's itself, which unveiled a new strategic plan belatedly, say some to counter rival centres. Lloyd's is not alone: Germany and Switzerland, two other giants in reinsurance the business of insuring insurers , are watching Bermuda closely too. Although the island has been a rising force for 15 years, thanks largely to a favourable tax climate, it has had an extra boost lately thanks to billions of dollars of new capital.
Much of this has come from hedge funds and private-equity firms that entered the market expecting prices to rise after Hurricane Katrina. The inflow comes despite stinging losses for some existing Bermudian reinsurers. Some of the factors that account for the island's latest boost—the arrival of those new investors and its light regulatory touch—have led to calls for the closer scrutiny of a huge but poorly understood industry. The group notes how important reinsurance is in the wake of catastrophes, such as the terrorist attacks of September 11th and last year's hurricanes.
The report answers its most serious question—might this big, relatively opaque industry somehow destabilise the global financial system? However, it points to several areas for improvement, including consistency in regulatory supervision, transparency, risk management and the calculation of capital requirements. It argues that the trend towards securitisation, in which insurance risk is transferred to capital markets, underscores the need for all this.
The rise of Bermuda is by no means the only change under way. Concentration is intensifying. This effect is greater in life and health reinsurance, which is usually sold directly, than property and casualty, which is sold through brokers and where many smaller Bermudian firms offer specialised cover. Investors, therefore, are taking on more concentrated risk than they do with the industry's giants such as Munich Re and Swiss Re, which are broadly diversified.
Lloyd's writes a dazzling assortment of bespoke direct insurance as well as reinsurance which is roughly a quarter of its total. Now that General Electric's reinsurance operations are being sold to Swiss Re, America has only one big reinsurer—General Re, owned by Berkshire Hathaway—although America is the biggest source of claims.
Despite the risks, Bermuda has been remarkably successful at attracting equity investors, which is one of the broader industry's main difficulties. Nearly a dozen reinsurance start-ups have been registered on the island in recent months. They are focused on parts of the market where price increases are expected, such as marine and energy reinsurance. Low taxes are Bermuda's biggest draw.
The vast majority of business written there is from America, where insurers are taxed on the reserves they amass to prepare for large payouts. Increasingly, though, European and Asian business is flowing to Bermuda as well. A dose of caution is offered by the big rating agencies, though, some of which express worries about risk concentration in categories with exposure to extreme events.
The response in some cases has been to increase capital requirements. The attractions remain. None of this means traditional centres such as London need be deprived of a future. Best, a rating agency. Investment in reinsurance, however, is a gamble that may not pay off for everyone, partly because the flood of new capital has made competition even more intense. Although rates have risen in areas of the American market most affected by last year's hurricanes, they have not risen across the board—contrary to what many expected last autumn.
By one measure at least, that era may be over. According to estimates by The Economist , in the combined output of emerging or developing economies rose above half of the global total. We have adjusted the IMF 's numbers in two ways. These countries might well now be classed as developed, but should surely be counted in any estimate of the long-term success of developing countries. Arkhivirovano from the primary source on January Hymal The consolidated group of taxpayers admits created from the 1st of the tax period on a profit tax of the organizations, but less experienced in natural sciences.
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And if so, any reminiscence of a past is not effaced, and at need and other materials of actions of tax control. What delusion! It will lead to war between Arabs and Jews and eventually to war between Muslims and non-Muslims. That will be the turning point of history. How have presidents and prime ministers been led to compete for the approval of this faction like bridesmaids for the bride's bouquet?
Why do leading men suffer themselves to be paraded at hundred-dollar-a-plate banquets for Zion, or to be herded on to Zionist platforms to receive "plaques" for services rendered? Douglas Reed in his book "The Controversy of Zion" [published in the s].
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Israel is a key member of the American empire. What we are doing in the occupied territories [since ] has aroused the Palestinians. I understand them. If somebody had done the same things to us, we would have reacted exactly like them. If it has been played more insistently and aggressively in recent years, that is because it is now the only card left.
The habit of tarring any foreign criticism with the brush of anti-Semitism is deeply ingrained in Israeli political instincts: Ariel Sharon used it with characteristic excess but he was only the latest in a long line of Israeli leaders to exploit the claim. David Ben-Gurion and Golda Meir did no different. But Jews outside of Israel pay a high price for this tactic. Not only does it inhibit their own criticisms of Israel for fear of appearing to associate with bad company, but it encourages others to look upon Jews everywhere as de facto collaborators in Israel's misbehavior.
When Israel breaks international law in the occupied territories, when Israel publicly humiliates the subject populations whose land it has seized -- but then responds to its critics with loud cries of "anti-Semitism" -- it is in effect saying that these acts are not Israeli acts, they are Jewish acts: The occupation is not an Israeli occupation, it is a Jewish occupation, and if you don't like these things it is because you don't like Jews.
In many parts of the world this is in danger of becoming a self-fulfilling assertion: Israel's reckless behavior and insistent identification of all criticism with anti-Semitism is now the leading source of anti-Jewish sentiment in Western Europe and much of Asia. Both men later became prime ministers of Israel. Finally Israel has acknowledged its true Jewish nature. Instead of pretending to be a 'Jewish Democracy" - a contradiction in terms, the Jewish State admits that it is a theocracy guided by Jewish racial supremacist ideology.
The bill, which is intended to become part of Israel's Basic Laws, recognises Israel's Jewish character, institutionalises Jewish law as an inspiration for legislation and delists Arabic as an official second language. As if until now Arabic had been equal to Hebrew. According to some Israeli critics, the new Israeli bill would weaken the wording of Israel's declaration of independence, which states that the new state would "be based on the principles of liberty, justice and freedom expressed by the prophets of Israel [and] affirm complete social and political equality for all its citizens, regardless of religion, race or gender.
The deepest truth is that universal humanism and ethical culture is foreign to Judaic thinking that is tribal and legalistic.