dkf
dkf's JournalCompetition Is Killing Higher Education
http://www.bloomberg.com/news/2012-05-17/competition-is-killing-higher-education-part-1-.html
Competition, we are constantly told, encourages individuals, institutions and companies to take the risks necessary for innovation and efficiency. But in higher education, competition often discourages risk taking, leads to overly cautious short-term decisions, produces a mediocre product for the price, and promotes excessive spending on physical plants and bureaucracies.
The construction arms race on campus is the most visible example of competition run amok. To become more attractive to potential consumers, many colleges and universities undertake overly ambitious expansions. In some cases, new facilities contribute to educational programs, but too often they are tangential and trap institutions in a costly cycle: The new athletic center, dorm or student center starts to look faded when competing schools open theirs, and it never ends.
It’s about “keeping up with the Joneses,” an official at Wright State University said in a Dayton Daily News article last fall detailing why colleges in Ohio were spending hundreds of millions of dollars on student centers and other nonacademic attractions in a down economy. In Georgia, state legislators are reviewing questionable practices used to fund 173 projects to build student housing, parking garages, stadiums and recreation centers.
Gaming the System
This is not the only cause of financial difficulties, but it makes them worse. Richard Kneedler, who was president of Franklin and Marshall College in Pennsylvania for 14 years, estimated in 2009 that an astonishing two-thirds of the 700 private colleges he studied were at risk of financial failure.
G-8 Meets as Schaeuble Says Markets Face Two Years of Turmoil
German Finance Minister Wolfgang Schaeuble said that turmoil in the financial markets caused by Europe’s debt crisis may last another two years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy.
More than 2 1/2 years after Greece revealed its bloated budget deficit, Europe has “known a lot of crisis,” Schaeuble said in a recorded interview broadcast today on France’s Europe 1 radio. “It’s practically normal.” Even so, “in 12 to 24 months we’ll see a calming of financial markets,” he said.
German Chancellor Angela Merkel and fellow European leaders will again face pressure from their G-8 counterparts to do more to quell the crisis after speculation that Greece will exit the euro wiped almost $4 trillion from global equity markets this month. The U.S., which hosts the G-8 summit beginning today, still faces economic challenges from the “damaging” situation in Europe, Treasury Secretary Timothy F. Geithner said yesterday.
http://mobile.bloomberg.com/news/2012-05-18/g-8-meets-as-schaeuble-says-markets-face-two-years-of-turmoil?category=%2F
Irony 101 Or How The Fed Blew Up JPMorgan's 'Hedge' In 22 Tweets
Many pixels have been 'spilled' trying to comprehend what exactly JPMorgan were up to, where they are now, and what the response will likely end up becoming. Our note from last week appears, given the mainstream media's 'similar' notes after it, to have struck a nerve with many as both sensible and fitting with the facts (and is well worth a read) but we have been asked again and again for a simplification. So here is our attempt, in 22 simple tweets (or sentences less than 140 characters in length) to describe what the smartest people in the room did and in possibly the most incredible irony ever, how the Fed (and the Central Banks of the world) were likely responsible for it all going pear-shaped for Bruno and Ina.
Of course we do not know exactly what positions were undertaken and what the mandate was for the CIO Office but our assumption is that they are 'smart people', had no positional constraint (i.e. any asset class, any instrument), and more than likely were human emotionally.
1) Post QE2, JPM's CIO group needed to hedge tail-risk of bank debt portfolio.
Credit risk was rising rapidly and had reached levels not seen since the crisis...as the real chance of tail events was creeping up fast...
http://www.zerohedge.com/news/irony-101-or-how-fed-blew-jpmorgans-hedge-22-tweets
Greeks withdraw $894 million in a day: Is this beginning of a run on banks?
Updated at 12:05 p.m. ET: Political leaders in Athens were due to discuss an emergency government Wednesday to deal with a possible run on banks as it emerged Greeks withdrew almost $900 million in a single day, fearing their country could crash out of the euro currency by the end of the week.
An interim government would take the country through to new elections on June 17, triggered by the collapse on Tuesday of talks to form a coalition between winners of the inconclusive May 6 election.
Greeks are withdrawing euros from banks, apparently afraid of the prospect of rapid devaluation if the country leaves the European single currency and returns to the drachma.
President Karolos Papoulias warned of “great fear that could develop into a panic,” the minutes of Papoulias' negotiations with political leaders showed, according to Reuters.
The minutes also reveal Papoulias was warned by George Provopoulos, head of the country’s central bank, that savers withdrew at least 700 million euros ($894 million) on Monday, Reuters said.
http://worldnews.msnbc.msn.com/_news/2012/05/16/11729795-greeks-withdraw-894-million-in-a-day-is-this-beginning-of-a-run-on-banks?lite
(Money Watch) There are indicators that the run on Greek banks is already over, leaving many institutions near complete collapse. Depositors have pulled out a record amount of money in the last 10 days and there are reports that the ECB is no longer willing to lend to either them or the Greek central bank, which is also in a precarious situation.
Since May 6, depositors fearful over a Greek exit from the Euro have taken more than $6.42 billion out of the nation's banks, with $898 million coming on Monday alone. May 6 was the day of the last round of Greek elections where anti-bailout parties received most of the votes cast. Monday was the deadline for Greece's political parties to form a government. Their failure to do that means a new round of elections will be held on June 17.
Before the May 6 election, Greece's banks had been seeing an increase in deposits. Roughly $2.5 billion had returned to the banks in March and April after international lenders agreed to provide $51 billion of funding to recapitalize the banks. Prior to this run of withdrawals, Greek banks had lost between 25 percent and 30 percent of their deposits since 2009.
http://www.cbsnews.com/8301-505123_162-57435327/greek-banks-may-be-nearing-complete-collapse/
[JPM Whale-Watching Tour] Too Big To Hedge
Ft alphaville surmises what may have gone wrong with the JPM trade...
A flattener trade is just fine in reasonable doses, i.e. if there’s enough liquidity in the market to support it.
Unfortunately, with curve trades, you have to rebalance them reasonably actively, due to spread movements and the passage of time. “Rebalancing” here means keeping the ratio of protection bought at the short end to protection sold at the long end just right. Get this wrong and your position will start to look even more risky and volatile — as it seems JP Morgan has recently discovered. But before talk about recent events, let’s look at the build up to it.
Judging from the total net notional amounts outstanding in the market for the CDX.NA.IG.9, it looks like the CIO (or whoever else was doing something similar) may have really screwed the pooch in terms of managing this trade, possibly increasing its overall size too in a fit of doubling down. That large size meant that rebalancing in order to keep the trade on in its true form would ultimately become impossible. Which is what we think led to this Thursday’s announcement.
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So the trades to take advantage of the technical (cheap index) were on and hedge funds gleefully waited for the market to correct back to fundamentals, turning a handsome profit in the process.
Only the market didn’t correct. Someone, or several someones, were selling so much protection and sitting on it, that the market couldn’t correct. The pressure was too much for the arbitrage to make profits. The trades sat in the loss position while the selling pressure making the index cheap, stayed on.
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But the hedge funds were very, very angry that their trades were unprofitable while believing it was one bank’s fault.
They complained… to… journalists.
Now for something to go wrong
Our guess is that at some point, either the risk of the trades was spotted for real (see above, re: journalists) and/or, as previously mentioned, the CIO stopped managing the hedge ratio on the curve trades. Stop managing the ratio, and the trade will turn into an outright long or short position on credit.
http://ftalphaville.ft.com/blog/2012/05/11/996131/too-big-to-hedge/
April 6, 2012 'London Whale' Rattles Debt Market
In recent weeks, hedge funds and other investors have been puzzled by unusual movements in some credit markets, and have been buzzing about the identity of a deep-pocketed trader dubbed "the London whale."
That trader, according to people familiar with the matter, is a low-profile, French-born J.P. Morgan Chase & Co. employee named Bruno Michel Iksil.
Mr. Iksil has taken large positions for the bank in insurance-like products called credit-default swaps. Lately, partly in reaction to market movements possibly resulting from Mr. Iksil's trades, some hedge funds and others have made heavy opposing bets, according to people close to the matter.
Those investors have been buying default protection on a basket of companies' bonds using an index of the credit-default swaps, or CDS. Mr. Iksil has been selling the protection, placing his own bet that the companies won't default.
http://online.wsj.com/article/SB10001424052702303299604577326031119412436.html
If you google the title you may have access to the entire article which is fascinating.
london whale rattles debt market
Even the Maya Didn't Think the World Would End in 2012
Technology //
National Geographic has a new feature up today in which they discuss the new finding of a cave in the midst of an unexplored Mayan megacity - a cave with very particular glyphs on the walls. Those writings include charts to predict lunar cycles and other calendrical workings - including a cyclical Mayan calendar that counts many thousands of years in the future. Which means, um, that stuff about the Maya predicting the end of the world is kind of... factually problematic.
The article's pretty great; this kind of calculation room was probably a part of every Mayan city, but it's the first to be found well-preserved enough to examine. This particular city, named Xultún, was "discovered" about a hundred years ago, north of Tikal and south of San Bartolo, two other Mayan cities. The calendar-type charts on the wall of the cave emphasize the Mayan concept of cyclical time, and counts some 7,000 years in the future, which pretty much debunks the 2012 myth (which is itself based on a calendar that shows the year "starting over" in 2012).
http://www.popsci.com.au/technology/even-the-maya-didn-t-think-the-world-would-end-in-2012
http://news.nationalgeographic.com/news/2012/05/120510-maya-2012-doomsday-calendar-end-of-world-science/
Why the Job Market Will Continue Shrinking
The paradox of an advanced post-industrial economy is that the number of jobs needed declines even as the cost of living rises.
The fundamental dynamic of America's job market is simple: we need relatively few workers to provide the absolute essentials of life even as the cost-basis of the economy inexorably rises. In other words, there are fewer jobs even as the costs of maintaining a "middle class" life rise.
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One key reality that is rarely if ever discussed is that the number of workers needed to provide the bare essentials of life to the 313 million residents of America is modest. Let's stipulate that bare essentials include food, heat in winter, clean water, sewage and waste disposal, public health (innoculations against pandemics, etc.), public safety and enough energy to fuel these essentials. If life were suddenly reduced to these basics, and no energy were available for anything but these essentials, then how many full-time workers would be needed?
Roughly 1% of the workforce raises the vast majority of our food, and a modest number of workers maintain the water and sewage systems, natural gas pipelines, furnaces, etc., A similarly modest number of workers maintain public health and safety and provide transport of essentials.
Of the official workforce of 154 million, how many fall into this "absolute essentials of life" category? Perhaps 10% or 15 million people? Even if we double that to include all sorts of non-essential but "critical" goods and services, then that's perhaps 30 million workers, roughly 10% of the population and about 12.5% of the real workforce of 240 million (the Federal government has relegated roughly 88 million working-age people to the zombie-status of "not in labor force" to keep the official unemployment rate low).
http://www.zerohedge.com/news/guest-post-why-job-market-will-continue-shrinking
The next massive debt bubble to crush the economy
10 charts examining the upcoming implosion of the student loan market.
In the land of predatory bubbles it looks like higher education is now fully caught up in the credit market implosion. In the same debt produced vein as housing, college used to be a relatively cheap bet with decent results in the long-term. Even if you went to public universities and picked up a degree in a field with low job prospects, at least you didn’t have the cloud of student loans hanging over your head when you graduated. Today it is a very different ballgame and the mythology behind college is being used to lure people into institutions that are little more than paper mill factories. Even quality institutions are having a harder time justifying tuition and fees that cost upwards of $50,000 per year (or the median household income of an American family). Can the next major crisis come from the student loan market? There is currently close to $1 trillion in student loan debt outstanding. During this crisis most debt sectors contracted except for student loans. Let us examine 10 charts to see why a bubble in student loan debt is about to implode.
Chart #1 – Student loan balance rising
Moody’s Analytics came out with a comprehensive analysis of the student loan bubble. The data presented does not add confidence to the problems occurring in higher education. More to the point, it is the way people are financing their college endeavors. Part of the problem is college costs are soaring while incomes are stagnant or falling. So you have graduates coming out with heavier debt burdens and their incomes are much lower. It is a mathematical problem that was destined to cause issues. As the chart above shows, high cost states which already eat deeply into middle class incomes also have the highest student loan balances only doubling the problem in these states.
http://www.mybudget360.com/student-loan-bubble-next-massive-debt-bubble-to-crush-the-economy-student-debt-higher-edudation-bubble-bust-crash-credit-markets/
Declining Consumer Confidence Echoes Jittery Stock Market
NEW YORK (TheStreet) -- Americans may have thought they had escaped the clutches of the five-year economic downturn, but the latest consumer confidence data says "not so fast" and mirrors this week's swoon in the stock market.
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Souring attitudes on the economy are particularly prevalent among middle-class consumers, widely viewed as the demographic group squeezed hardest by the Great Recession -- and its harsh aftermath.
"The reversal of gains in confidence has been particularly pronounced in middle-income groups that are likely caught between sluggish wage increases and rising inflation that has eroded their real purchasing power," notes Joseph Brusuelas, a senior economist at Bloomberg LP in New York City. The deterioration "does not bode well for household consumption."
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But for everyone else, the decline in consumer confidence is what it is: a signal that, once again, Americans have little faith in the U.S. economy, and aren't inclined to spend much to support it.
http://www.thestreet.mobi/story/11522500/1/declining-consumer-confidence-echoes-jittery-stock-market.html
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