Tag: Finance and economics
As inequality grows, so does the political influence of the rich
SQUEEZING the top 1% ought to be the most natural thing in the world for politicians seeking to please the masses. Yet, with few exceptions, today’s populist insurgents are more concerned with immigration and sovereignty than with the top rate of income tax. This disconnect may be more than an oddity. It may be a sign of the corrupting influence of inequality on democracy.
You might reasonably suppose that the more democratic a country’s institutions, the less inequality it should support. Rising inequality means that resources are concentrated in the hands of a few; they should be ever more easily outvoted by the majority who are left with a shrinking share of national income.
Indeed, some social scientists think that historical expansions of the franchise came as governments sought credible ways to assure voters that resources would be distributed more equitably. Daron Acemoglu and James Robinson argue that in the 19th century governments across the West faced the threat of…Continue reading
David Solomon will be the new CEO of Goldman Sachs
LAME-DUCK periods can last for only so long. It was clear beforehand that a Goldman Sachs earnings call this week would be packed with questions about succession. When would the chief executive, Lloyd Blankfein, step down? (He had said in March he was leaving, but gave no date.) What would his departure mean for the firm’s other over-achievers? Several had already decamped, including Harvey Schwartz, the bank’s co-president and co-chief operating officer. Left as heir-apparent was the man he had shared both jobs with, David Solomon, but with no hint of when his elevation would take place.
On July 17th Goldman ended the speculation by confirming the choice of Mr Solomon as CEO and saying that he would take over in October, earlier than predicted. Quarterly results presented that day by Martin Chavez, the chief financial officer, who is thought to be in his own succession battle to replace Mr Solomon, beat forecasts. Still, the share price sagged….Continue reading
Income-share agreements are a novel way to pay tuition fees
TO PAY for his professional flight degree at Purdue University in Indiana, Andrew Hoyler had two choices. He could rely on loans and scholarships. Or he could cover some of the cost with an “income-share agreement” (ISA), a contract with Purdue to pay it a percentage of his earnings for a fixed period after graduation.
Salaries for new pilots are low. Mr Hoyler made $1,900 per month in his first year of work. Without the ISA, monthly loan payments would have been more than $1,300. Instead, for the next eight-and-a-half years he will pay 7.83% of his income. He thinks that, as his pay accelerates, he will end up paying $300-400 more each month than with a loan. But low early payments, and the certainty that they would stay low if his earnings did, made an ISA the better option, he says. “I’ve been able to pay what I could afford.”
What Venezuelan savers can teach everyone else
ASK the chief investment officer of a fund-management firm how to spread your investments and you will be told to put so much in stocks, so much in bonds and something in hedge funds or private equity. Chances are that white-elephant buildings, eggs and long-life milk will not feature. But in Venezuela, where the inflation rate is in the tens of thousands, things that people elsewhere would shun for fear they will lose value have become stores of real wealth.
That is why you can see scaffolding and other signs of a building boom dotted around Caracas, the capital of a country that has endured an economic collapse. Businesses need to park their earnings where they will not be wiped out by inflation. A smaller-scale response to galloping prices is the emerging “egg economy”. Eggs hold their value better than cash, for a while at least. They make for a convenient currency, too. It is easier to carry around a half-dozen eggs than a trunkful of banknotes. And many tradespeople would be happier to…Continue reading
Football talent scouts become more rational
CHEERS erupted from Calais to Cannes when Kylian Mbappé, a 19-year-old striker, thumped in France’s fourth goal in the World Cup final on July 15th. Among the smuggest onlookers were the accountants at Paris Saint-Germain, Mr Mbappé’s club. He was already a prized asset before the tournament, having broken the record for goals scored by a teenager in the Champions League, Europe’s premier-club competition. CIES Football Observatory, a research organisation, reckoned then that his club could charge €190m ($223m) for him. But an electrifying World Cup, with four goals, has surely increased his value.
That, at least, is how the transfer market usually responds to international tournaments. According to 21st Club, a consultancy, each time a player found the net in the World Cup and European Championship tournaments in 2004-16, his price went up by, on average, 13%. After the 2014 World Cup James Rodríguez, whose six goals for Colombia made…Continue reading
In China, a rare public spat between officials as debt pressures build
LIKE other countries, China has bureaucratic infighting. But it does better than most at keeping tussles hidden from outside view, especially under Xi Jinping, a president who brooks no dissent. So it has been highly unusual to see a spat between the central bank and finance ministry spill into the open. It reveals cracks in the government’s façade of unity as a campaign to control debt exacts a toll on the economy.
The disagreement started on July 13th when Xu Zhong, head of the central bank’s research department, spoke at a forum in Beijing. Officially, China is committed to a “proactive fiscal policy”, meaning that the government will spend to prop up growth. But Mr Xu argued that the finance ministry was not delivering what it had promised, thus making deleveraging more painful.
Mario Draghi’s replacement is already being discussed
A LOT rests on the shoulders of the euro zone’s top central banker. The president of the European Central Bank (ECB) is not just in charge of ensuring monetary and financial stability in one of the world’s largest economies. In the absence of a single European fiscal authority, it also falls to the ECB to act as a backstop for the currency bloc. In times of crisis, the very survival of the monetary union seems to depend on the president’s words and actions. Central-bank bosses in America, Japan or Britain bear no burden as great.
With such demands, though, comes great influence. Those in need of convincing need only cast their minds back to July 2012. Greek interest rates were soaring and investors were entertaining the possibility that the euro zone would break up. But Mario Draghi, the ECB’s boss, soothed markets with a promise to do “whatever it takes” to save the euro. Six years on, that commitment still helps to contain Italy’s sovereign-bond yields, despite unease about its new…Continue reading
Is North Korea the next Vietnam? Don’t count on it
AS AMERICA presses North Korea to abandon nuclear weapons, it has pointed to Vietnam as an example of the prosperity that awaits the isolated state. “It can be your miracle in North Korea as well,” Mike Pompeo (pictured), the secretary of state, said on July 8th, on a visit to Hanoi. It is not the first time Vietnam has been held up as a model for North Korea. Over the years, officials from the two countries have discussed lessons from Vietnam’s reforms. North Korea sees Vietnam as less threatening than China and more of a peer, making it a more welcome mentor. But North Korea’s economic path is likely to be more fraught.
Yes, there are similarities. Like North Korea’s economy today, Vietnam’s used to be largely collectivised. The Vietnamese Communist party’s ability to retain power at the same time as freeing markets must appeal to Kim Jong Un, North Korea’s dictator, who has vowed to improve his country’s economy. In 1985, on the eve of Vietnam’s
Even stockmarket bulls are more cautious than at the start of the year
BEARS sound clever; bulls make money. This piece of financial acumen, imparted by a trader to a colleague, is hard to beat for brevity. It also makes a good point. There is something about market pessimism that endows bears with an aura of wisdom that is not always deserved. The cautious sound clever because they appear to have weighed the odds. Optimists seem heedless by comparison. Yet it is only by taking on risk that investors can hope to make money.
So it is telling that even bulls are now sounding cautious. The economy and stockmarket in America have had a good run, after all. The expansion, which started in 2009, is now the second-longest on record. Unemployment is low. The Federal Reserve is hawkish. This mix tends to kill a bull market sooner rather than later. The question is how much further stocks can rise. Is there still time for bulls to make money? Or will being a bear save you money as well as make you sound clever?
In this debate, each side has a distinctive way of looking at…Continue reading
Why the euro zone hasn’t seen more cross-border bank mergers
MERGERS of euro-area banks from different countries, a banker jokes, are “very much like teenage sex. There’s a lot of talk, but little action. And when it does happen, there’s a lot of disappointment.” In recent months gossip has linked each of France’s three biggest banks (BNP Paribas, Crédit Agricole and Société Générale), as well as UniCredit, Italy’s largest, with Commerzbank, Germany’s second-biggest listed bank. Lately chatter has connected UniCredit and Société Générale. But no big, cross-border takeover is imminent.
A stream of deals in the 2000s—notably UniCredit’s purchase of HypoVereinsbank, another leading German lender, in 2005—has slowed to a trickle (see chart, top panel). Policymakers at both the European Commission and the European Central Bank (ECB) would like the flow to revive. The euro area’s banking markets are still essentially national ones. “European banking remains as fragmented today as it was in 2012,” notes Magdalena Stoklosa…Continue reading