Good morning

The headlines:

1. Christine Lagarde expresses sympathy for Greece, but says that their rich must pay taxes. Link: And the Greek politicians were apoplectic with rage. This comes the day after an interview where she said that the starving children of Africa need the IMF’s help more than a country where many are “trying to escape tax all the time”. Cue: every Greek politician’s time to shine. A litany of “how dare yous” and “Greek workers pay heavy taxes”. Whatever. The examples of Greek tax evasion border on the bizarre. Let’s just be clear: “paying taxes” is not the same as “paying all your taxes”. Tokens are not the same as dues. Be serious. And yes – the starving children of Africa, despite the slightly patronising cliché, definitely deserve more help.
2. Greek pro-bailout parties gain in the polls. Link: Finally playing the “this is what will happen if we leave the euro” card. New Democracy was placed first in new polls, after explaining that a Euro exit will involve incomes, bank deposits and property losing half their value within days. I’m just glad that the Greek politicians are actually acknowledging how damaging a Euro exit will be – so much worse than anything austerity will bring. At the same time, there is a part of me that wonders how much of a role was played in this by Christine Lagarde – nothing unifies the Greeks like outside criticism! We’re all happy to squabble amongst ourselves – until someone foreign feels like making a comment…
3. Spain is rescuing the Bankia Group with public debt instead of cash. Link: Hmmm – sounds safe! The original plan was to sell debt to the market, raise cash, and then inject said cash into the bank. But in theory, treasury bills work well as banking capital – after all, the difference between cash and a t-bill is almost nothing at all*. And this way, there is recapitalisation without too significant a market impact: because if the bank is required to hold the capital, it’s not about to go sell the t-bills immediately (otherwise they won’t be capital anymore). I like this solution. Viva España!
4. Hoboken homes sold in sixty minutes. Link: Therefore, the US mortgage crisis must be over. The anecdote is the Hobroken couple that were torn between two condos, went for lunch, and when they got back an hour later (give or take a bottle of wine), both condos were sold. Purchases of new homes are up by 3.3%. Everyone is excited – because the demand is for new homes, not existing real estate. And mortgage rates are practically the lowest they have ever been. Maybe some optimism wouldn’t be too bad. However, my inner Austrian economist would point out that low interest rates promote malinvestment** – what’s to stop the Americans from going back to being strippers owning five homes? Credit-background checks? Frankly – I think that the banks will just be delighted to have anyone applying for mortgages at all.
5. Half of Detroit may go dark as the city shrinks. Link: What do you do when your city loses its point? Currently, 40% of the Detroit streetlights are broken and the city can’t afford to fix them. But that’s fairly good when you consider that your city has only 40% the number of residents as it had in 1950. Easily, one of today’s big tasks is preparing to deal with cities that are no longer relevant. Do you scale them down, with the outer rim becoming a scene-stage for Sci-fi movies set in a post-apocalyptic world? Or do you let free-market forces have their way***? Sad, but fascinating.
6. A trade war looms. Link: Between the US and China. The surface issue is renewable energy: China is accusing the US of violating free trade rules by having renewable energy incentives in five states. This is just weeks after the US placed a 250% tariff on the import of Chinese solar cells; because the US Commerce department determined that the cells were being sold for less than production cost in an attempt to drive out domestic competition. Uh – China will win. Just because China does NOT care – if it doesn’t want facebook, it doesn’t let facebook in; if it doesn’t want twitter, it doesn’t let twitter in; if it doesn’t want foreign investors, it doesn’t let foreign investors in. Why the US continues to operate under the assumption that China will play fair is beyond me – just look at the status quo and draw your own conclusions.
7. South Africa and Australia to share a telescope. Link: The Important Search for Aliens. It’s called the “square kilometer array”. And it’s probably going to be in the Karoo.

*It’s true. Finance loves to talk about a mythical “risk-free rate of return”. In practice, that’s the yield on a short-term treasury bill. And what’s the difference between holding cash today and holding a treasury bill? In risk terms – there is none (unless you’re in Greece – in which case, there is definitely some risk attached to a government debt instrument). But for most countries, this risklessness is why banking capital can consist of cash and/or short term t-bills. 

**Malinvestment is, obviously, a bad decision – made based on ability rather than need. For example: “If I can manage the repayments of five auto-loans – why not own five cars?” Rather than: “What the bloody hell am I going to do with five cars?”

***In theory, as the city fails, so the demand for workers falls, there’s an over-abundant supply of labour, and the wage rates drop. This then attracts labour-intensive firms back into the fold. But this economic rebalancing is ruined by trade unions, unemployment state benefits, and the migration of workers.