Tag: Finance and economics

WHEN bankruptcy trustees were appointed over a hectic weekend late in 2008, there seemed no end to the losses caused by the collapse of Bernie Madoff’s Ponzi scheme. Cash in the bank was no more than $150m. But the losses have been less, and the assets available for compensation greater, than had been feared.

On February 22nd Irving Picard, the bankruptcy trustee overseeing the liquidation of Mr Madoff’s firm, announced that a fund set up to reimburse customers would make its ninth distribution, of $621m, bringing the total handed out so far to $11.4bn. Another $1.8bn in held in reserve for contested claims. This is on top of a separate distribution of $723m last November from a separate fund run by the Department of Justice. Another $3bn remains to be distributed in that fund and the bankruptcy trustees hold out hope that substantially more will be recovered and returned.

Mr Madoff, who will turn 80 in April, is serving a 150-year sentence in a North Carolina prison. At his…Continue reading

RARELY in corporate history has a giant come and gone so quickly. Anbang was founded in 2004 as a small Chinese car-insurance company. By the start of last year it ranked among the world’s biggest insurers with some $300bn of assets, including stakes in hotels and financial firms across America, Europe and Asia. Given another ten years, boasted Wu Xiaohui, its swashbuckling founder, Anbang’s scale would “exceed your imagination”. But then, just as vertiginous as its ascent, came its fall. Alarmed at its debt-fuelled expansion, regulators started blocking its overseas deals, reined in its insurance business and detained Mr Wu. On February 23rd its disgrace became complete: the Chinese government announced that it had taken over Anbang and would prosecute Mr Wu for economic crimes.

The insurance regulator said it had intervened because illegal operations could have “seriously endangered” the company’s solvency. It did not spell out the exact nature of Anbang’s alleged…Continue reading

Spirit and flesh

CAN religion make people wealthier? In 1905 Max Weber, a German sociologist, argued that it had happened in Europe. Protestants did not invent capitalism in the 16th century, he suggested. But, by discarding monastic asceticism and embracing the notion that diligence and self-improvement are pleasing to God, they became particularly good at it.

Weber’s idea is unfashionable these days, partly because so many non-Protestant countries have become rich and partly because of a cause-and-effect problem. Were Protestants truly better at business, or were ambitious, business-minded people drawn to Protestantism? One way of settling that question is through a randomised controlled trial of religion. A National Bureau of Economic Research working paper released on February 19th reports on an experiment in the Philippines that suggests Weber was onto something.

International Care Ministries (ICM), an evangelical charity, tries to help the…Continue reading

YOU spend 38 years at a mighty global bank, the last seven as chief executive. As boss you clean up a stinking mess, the legacy of ill-conceived acquisitions and shoddy practice. You shell out billions in fines and legal costs. You shed businesses and cut jobs by a quarter. You build a solid capital base. You maintain dividends. On your last day, you announce decent results, with revenue growing after five years of shrinkage and profits up nicely. The market’s parting gift to you? The share price falls by 3%.

Analysts had expected better from Stuart Gulliver’s final report as boss of Britain’s HSBC, the world’s seventh-biggest bank by assets, on February 20th. They were surprised by charges for impaired loans to two companies, thought to be Carillion, a failed British contractor, and Steinhoff, a troubled South African retailer, and miffed that HSBC put off buying back more shares. That, the bank said, must wait until it has raised $5bn-7bn of “additional tier-1” capital…Continue reading

GOVERNORS of the Bank of Japan (BoJ) tend not to linger long in their post. Twenty-two people have headed the institution since 1914, compared with 16 at the Federal Reserve and 12 at the Bank of England. The last time a BoJ governor won a second term was 1961, when Japan’s economy was growing by over 11% and inflation was over 5%. As Richard Werner, the author of “Princes of the Yen”, a history of the central bank’s failures, points out, by tradition the job alternates every five years between a candidate backed by the finance ministry and a “true-born” BoJ insider.

This tradition will be broken by the reappointment of Haruhiko Kuroda, who was nominated for a second term on February 16th. If he completes it, he will become the longest-serving governor in the BoJ’s history.

With luck that might be long enough for him to reach the central bank’s elusive inflation target of 2%, a goal set five years ago which he had hoped to meet by 2015. Although the BoJ has…Continue reading

TEN months ago the Trump administration took aim at steel and aluminium imports, giving itself a year to decide whether they threatened national security and, if so, what to do about it. On February 16th it concluded that America is indeed under threat. The president has until mid-April to choose whether to respond.

The reports handed to Donald Trump by the Department of Commerce, which led the investigations, describe America as effectively under siege. Its steel industry might struggle to respond to a crisis similar to the second world war, they fret, as foreigners are filling a third of American demand for steel, even as 28% of national capacity lies idle. The share of primary aluminium (the kind smelted from ore, rather than recycled metal) that is imported is 91%, and 61% of local smelting capacity lies cold. Doubters can point out that the Department of Defence requires a tiny slice of American steel supply, and that America’s largest supplier for both metals, Canada, is an ally (see…Continue reading

OIL bears beware. On February 20thSuhail al-Mazrouei, OPEC’s rotating president and energy minister of the United Arab Emirates, said the 14-member producers’ group is working on a plan for a formal alliance with ten other petrostates, including Russia, aimed at propping up oil prices for the foreseeable future. If it comes to anything, it could be OPEC’s most ambitious venture in decades.

The result will not be, he insists, a “supergroup”. The notion of Saudi Arabia and Russia joining forces as the Traveling Wilburys of the oil world may be a bit jarring. It remains an idea in “draft” form. But whatever its chances, it attempts to shift a belief widely held by participants in oil markets: that non-American oil producers are helpless against the shale revolution.

That belief has strengthened because of a renewed flood of American shale production in the latter part of 2017 after prices of West Texas Intermediate climbed above $50 a barrel. The International Energy Agency…Continue reading

BONDS, shares and Treasury bills are all very well, but in the end they are just pieces of paper. They are not assets you can hang on the wall or display to admiring neighbours. Many rich people like to invest their wealth in more tangible form; property, of course, but also collectibles such as art, fine wine and classic cars.

Is that wise? Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School (LBS) have run the numbers for their annual analysis of the financial markets in the Credit Suisse global investment-returns yearbook. Some of these assets have done rather better than others (see chart). Fine wine delivered the best returns; surprising to cynics who might assume that, in the long run, the value of wine vanishes as it turns into vinegar. Really old wine often has historical resonance. A bottle of Chateau Lafite Rothschild from 1787 was sold for $156,450 in 1985 because it was thought to belong to Thomas Jefferson.

Estimating the returns from these assets, after…Continue reading

ON A clear day, sunset over Lake Zug is magnificent. Snow-dusted mountains cut through the orange glow above and are mirrored in the lake below. “Zug is our spiritual home,” says Jeremy Epstein, from Washington, DC, who has just taken 40 foreigners to tour the small Swiss town south of Zurich. They came not for sunsets, though, but to find out how Zug has become known as “crypto-valley”—meaning the home of many firms dealing in crypto-currencies and related activities.

Switzerland’s famous banking secrecy is falling to a global assault on money-laundering and tax evasion. But financial security remains in demand. The country should seek to become the “crypto-nation”, said the economy minister, Johann Schneider-Ammann, last month. Zug aims to be the capital of that nation.

To that end, Switzerland is maintaining loose rules for crypto-businesses, even as other countries are tightening theirs. An industry is developing to store tangible crypto-assets, such as the hard…Continue reading

AMID the name-calling and bluster that mar many fights between economists are a few common tactics. Belligerents may attack the theory used to support a claim, or the data analysis used to quantify an effect. During the debate over President Donald Trump’s tax bill, to take a recent example, economists bickered over which side had more credibly calculated the economic effect. They did not, for the most part, argue about whether it was morally acceptable to pass a regressive tax reform after years of wage stagnation and rising inequality. To do so would strike many economists as entirely un-economist-like. Yet economics has not always been so shy about moral philosophy. As well as “The Wealth of Nations”, Adam Smith wrote a “Theory of Moral Sentiments”. Great 20th-century economists like Paul Samuelson and Kenneth Arrow also took questions of values very seriously. Their successors would do well to take several pages from their books.

Modern economists have attempted…Continue reading