In which: Ernst & Young has a really really bad Monday, Anna Wintour may be US Ambassadoring to the UK, Mr Boehner presents a plan, and Greece launches a debt repurchasing program

Good morning

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The headlines:

  1. Anna Wintour.

    Link: Obama is not serious.

    Anna Wintour, the editor-in-chief of Vogue, was one of the biggest fund-raisers for the Obama campaign.

    And now, the Devil-Wearing-Prada herself is being considered (by Obama) for ambassadorship in either the UK or France. Apparently – the standard “according to two people close to the matter” disclaimer.

    It just goes to show. Britain and France are nothing but baubles on the exfoliating face of the world’s politics. And Anna can fix them. Long live the queens.

  2. Greece buys back debt.

    Link: a Dutch auction.

    The Athens-based Public Debt Management Agency announced that it was putting up €10 billion to repurchase debt issued earlier in the year. The price being quoted is approximately 33% of face value, and the offer will stand until the day after tomorrow. The implication being that Greece should be able to retire €30 billion of debt for €10 billion, which is effectively €20 billion of debt forgiveness.

    Unless you’re facing a liquidity squeeze, and/or bought the debt at a super-significant discount, I’m not sure why you would opt to opt out at this point at such a loss.

    And when you think about it, in terms of game theory, holding onto your Greek bonds is a win-no-lose situation. If no one sells, you’re no worse off than you were before, really. If others sell, then Greece’s fiscal position has improved, and the chances of your bond being repaid are that much higher.

  3. Olam raises money.

    Link: restoring confidence, or desperation?

    Olam International, of much muddied water scandal (read news item 4 and news item 1), is now raising funds. It’s selling $1.25 billion worth of bonds and warrants to existing shareholders (not the most encouraging sign of market confidence), but the sale is being underwritten by Singapore’s state-owned investment company Temasek Holdings (more encouraging – although it could just be protectionism).

    Carson Block, from Muddy Waters, immediately told everyone that this was just a temporary bailout by the State. Obviously.

    Olam International has also said that it is relying on its auditors, Ernst & Young Inc, to “deflect questions about its accounting”. This may be, um, super awkward. Because, like, check out news item 5 below.

  4. Boehner presents.

    Link: I want to use the word “shafted”.

    The Republicans have come back with a plan. And according to the Democrats, it results in lower taxes for the rich and leaves the bulk of the burden resting on the middle class. Hence: “shafted”.

    On the other hand, the primary beneficiaries of the fiscal spending are the middle class. So…

    But back to the main part of the story, the Republican plan involves $1.4 trillion in spending cuts, and $800 billion of increased taxes by closing loopholes and limiting the deductions allowed by the rich. A major part of those spending cuts is changing the age of eligibility for Medicare.

    Luckily, this time at least, the extra tax revenue comes from “conventional scoring”.

    In previous Republican submissions, some of that $800 billion increase in tax revenue would have come from “dynamic scoring” – which is saying “if we close the loopholes but keep the tax rate constant, there will be greater investment, which will result in growth, which will increase the tax base, which therefore means higher taxes – so we, um, calculated an estimate for that and included it to make up the $800 billion”. Another name for that could be “crystal-balling”. Or “Enron-type accounting”.

    But conventional scoring does mean a tax increase. And I don’t see how the Dems can argue that capping the deductions for the rich is not going to result in them paying more taxes… Because the only alternative is that they weren’t using the deductions at all – which implies that they’re actually not paying tax in general. So a tax rate increase would make no difference to them either…

  5. Ernst & Young settles.

    Link: another Muddy Waters fiasco.

    EY has settled a class action suit by the investors in Sino-Forest Corp for $117 million. The allegation was that the directors, auditors and underwriters “misled investors concerning the business and accounting at the now-insolvent Chinese timber trader”.

    Sino-Forest Corp. was also a Muddy Waters target – and its stock price fell 74% before the company filed for bankruptcy protection in March.

    Oh EY.

  6. And speaking of the audit firms.

    Link: a SEC filing.

    The SEC is investigating potential fraud by Chinese-based, US-listed companies, and is now suing the big 4 accounting firms (KMPG, Deloitte, EY, Pricewaterhouse Coopers) and BDO for withholding documents and working papers from them.

    The five auditing firms have Chinese branches that are conducting the audits in China. Under the Sarbanes-Oxley Act, the SEC should have access to their working papers. Under Chinese law, company records can be claimed as state secrets. Which makes for a rock and a hard place.

    Cue: the SEC. Who have said: “Firms that conduct audits knowing they cannot comply with laws requiring access to these work papers face serious sanctions.”

    EY is not having a good week.

  7. A bumper coffee harvest.

    Link: I know I’m excited.

    Record coffee harvest in Brazil = Arabica bean glut = maybe some real Christmas specials at Starbucks?

    Probably not. But now I want an eggnog latté.

That’s all for now.

Have a good day.