Tag: FINANCE

REPUBLICANS in the House of Representatives had hoped to cut a swathe through the Dodd-Frank act, a titanic set of financial regulations passed in 2010 in the wake of the 2007-09 crisis. The “Financial Choice Act”, drafted last year, would have lessened bureaucratic oversight and relied more on stiff capital requirements. Responsibilities and penalties would have been made clearer and regulators’ discretionary powers would have been reined in. President Donald Trump, who had promised on the campaign trail to “do a number on Dodd-Frank”, was effusive when the House endorsed the Choice Act last year.

But the bill approved by the House on May 22nd, and expected soon to be signed into law by Mr Trump, is a distinctly tamer affair. It moves the line between big, systemically risky banks and the rest, set in Dodd-Frank at $50bn in assets, to $250bn. That cuts the number of institutions subjected to stress tests and stricter supervision from 38 to 12. It also eases some restrictions on proprietary trading. But only the very smallest banks will be allowed to substitute higher capital for strict regulation. Even as bold thinking was thrown out, one truly bad idea made it in, presumably under pressure from representatives from heavily indebted states. Municipal bonds will be granted special treatment in the composition of bank capital, incentivising lenders to load up…Continue reading

LIFE insurance is among the oldest financial products. The Amicable Society, founded in London in 1706, charged members a set contribution and paid out annually to widows and children of those who had died in the previous 12 months. Today it is a vast industry: life and health insurers employ over 800,000 people in America alone. It protects hundreds of millions against the risk of dying early, through death benefits, or the risk of living longer than expected, for example through annuities. According to Allianz, a German insurer, total life-insurance premiums are above 5% of GDP in many rich countries, including Britain, France, Italy and Japan. In America, the world’s biggest market, annual premiums total more than $550bn.

But life insurers are struggling as never before. Those parts of the industry that have not evolved fast enough, says Clive Bannister, the head of Phoenix Group, a “closed” life insurer that buys and manages old policies but issues no new ones, have experienced a…Continue reading

On May 16th Callum Williams, our Britain economics correspondent, was named joint winner of the Young Financial Journalist of the Year at the Wincott Awards, an annual set of prizes for British journalists.

IN 2011 Kathleen started work at an insurance-and-benefits consultancy in Boston. A couple of years later the firm gave her an ultimatum: sign a “non-compete” agreement within 30 days or wave goodbye. She signed, which meant that, if she left, she would be barred for three years from working for a rival or any firm that had been contacted as a potential client, and from starting a competing business. In 2015, when she accepted a new job in a different industry at an unrelated company, her former bosses threatened to sue. The job offer was withdrawn, and reinstated only when she offered to pay any legal costs that resulted. The matter never came to court, but the fear of legal action has kept her out of her old industry ever since.

Non-compete agreements are widely used to stop ex-employees walking out of the door with valuable know-how, or poaching suppliers and customers when they move jobs. Sometimes a great deal of money and intellectual property is at stake. When Paul English, an entrepreneur,…Continue reading

IN 2017 the global economy broke out of a rut. It grew by 3.8%, the fastest pace since 2011. Surging animal spirits accompanied a rebound in business investment across the rich world. Global trade growth rose to 4.9%, also the fastest rate since 2011. Emerging-market currencies appreciated against the dollar, keeping inflation low and debts affordable. Financial markets wobbled in February, but only after reaching all-time highs. In April the IMF said that the global economic upswing had become “broader and stronger”.

Since then that healthy glow has begun to fade. First, economic surveys in Europe took a turn for the worse (presaging…Continue reading

MANY of the most famous hedge-fund trades have been bets that things were about to go wrong. Think of Enron’s bankruptcy or the souring of subprime mortgage bonds in America. The best trade made by “the Professor” was very different. It was a bet that something was starting to go right.

A visit almost 20 years ago convinced him that Turkey was serious about fixing its economy. The yield on its one-year Treasury bills was then above 100%. “It was a serious mispricing,” he tells Steven Drobny in “The Invisible Hands”, a book of interviews with pseudonymous hedge-fund managers. The IMF gave its approval to Turkey’s reforms soon afterwards. The price of T-bills surged. The one-year interest rate fell to 40%.

The wheel has since turned almost full circle for Turkey, which now seems to attract more sellers than buyers. The lira is sinking. S&P has cut the country’s credit rating from junk to junkier, partly because of concerns about its reliance on foreign capital. The…Continue reading

THE manufacture of airliners may be the world’s most globalised industry. Only two firms make big civil jets: Boeing of America and Airbus of Europe. Most of their revenues—55% for Boeing and 70% for Airbus—are earned outside their home territory. Both source parts from dozens of countries. But a ruling by the World Trade Organisation (WTO) on subsidies in the industry could deal another blow to the beleaguered international trading system.

On May 15th the WTO’s final appeals body upheld parts of a previous ruling, finding that the European Union wrongly provided subsidies to Airbus to develop new aircraft. That, it concluded, had hit sales of Boeing’s jets. As soon as the WTO gives the go-ahead America will have the right to impose retaliatory tariffs on EU imports. Trade experts warn they could be the highest in the WTO’s history.

Boeing crowed that the ruling showed that the EU had given $22bn in “illegal subsidies” to Airbus. But Tom Enders, Airbus’s chief executive,…Continue reading

WHEN people stop working, they need a retirement income. Some are lucky enough to have an employer-provided pension linked to their salary. Everyone else faces a difficult choice.

Some keep their pension pot in cash and watch as it is eroded by inflation. Others use savings products with high fees and risk being hurt by a stockmarket downturn. A third option is an annuity, which guarantees a lifelong income but vanishes at death, even if that is a week after retirement.

Lionel Martellini of EDHEC, a French business school, and Robert Merton of the Massachusetts Institute of Technology (a Nobel laureate in economics) have come up with an alternative. Workers would buy government-issued bonds while in employment; these would pay no interest until retirement. Over the next 20 years (the typical life expectancy on retirement) bondholders would receive payments comprising interest plus the return of the capital. These would be linked to inflation, or another measure such as average…Continue reading

AS FAR back as the campaign trail, President Donald Trump had promised to renegotiate or rip up the North American Free Trade Agreement (NAFTA). But Paul Ryan, the Speaker of the House of Representatives, has said that if this Congress is to have time to approve a new version, it needs word that a deal is going ahead by May 17th. As The Economist went to press, that deadline seemed unlikely to be met.

Negotiations seemed to stall on May 11th over rules relating to carmaking. After a brief meeting between ministers, and despite reports that momentum has been building in recent weeks, wide differences remained. Representatives of the Mexican car industry had planned to return to Washington on May 14th to resume talks, but were told by their government not to bother.

The impasse is over “rules of origin”, which must be satisfied if a car is to qualify for tariff-free export within the trade bloc. Such rules normally set minimum requirements for the…Continue reading

NOT long ago China was a leading culprit in global economic imbalances. Whether blame was ascribed to its undervalued yuan or its frugal people, the problem seemed clear. China was selling a lot abroad and buying too little back. One data-point summed this up: its currentaccount surplus reached 10% of GDP in 2007, well above the level that is generally seen as reasonable. Far less attention has been paid to its steady decline since then. In the first quarter of 2018 China ran a current-account deficit, its first since joining the World Trade Organisation in 2001. Just as its massive surpluses of yore had big consequences for the global economy, so does this swing in the opposite direction.

China still exports many more goods than it imports, to the tune of nearly $500bn annually. But its share of global exports appears to have peaked. At the same time its trade deficit in services is getting bigger, largely thanks to all its tourists venturing abroad (see chart).

At bottom, a current-account…Continue reading