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The Lubricant Of The Global Financial System Is Not Working Anymore

Via WorldOutOfWhack.com,

Nedbank’s Mehul Daya writes and I concur… it’s simple: it’s all about Dollar-Liquidity.

Slowdown in global trade is putting pressure on creation and velocity of Dollars via value-chains/Dollar-leverage since the Dollar is the lubricant of the global financial system.

Chart 2 – this is how the dollar gets transmitted into the world

Chart 3 – global trade vs USD vs Triffin dilemma

BIS writes in ”The geography of dollar funding of non US banks”

  • US dollar liabilities of non-US banks grew after the Great Financial Crisis (GFC). At end-June 2018, they stood at $12.8 trillion ($14.0 trillion including net off-balance sheet positions) – as large as at the peak of the GFC.

  • Banks raise relatively fewer dollar liabilities in their affiliates in the US since the GFC. This is due to a rise in the share of dollar liabilities booked in the country where banks are headquartered.

  • European banks, which traditionally have had a large US footprint, have shrunk their dollar business and the role of their US affiliates since the GFC. At the same time, non-European banks expanded their dollar borrowing quite rapidly, but in recent years have also raised relatively fewer dollars in the US.

  • A large share of US dollar liabilities of non-US banks are cross-border (51% at end-June 2018), implying that the location where US dollar funding is raised is different from the location of the funding provider.

  • The global share of US dollar funding provided by US residents is significantly higher than that raised at foreign banks’ US branches and subsidiaries, though these shares vary across banking systems.

Global trade is slowing down and cross border trade is the largest supplier of USD into the global economy and financial system and as BIS summaries…

How might this funding configuration behave in times of market stress? Non-US creditors may be pressured to withdraw funding as they might face a dollar funding squeeze themselves. This in turn is akin to margin call on all assets which were beneficiary of dollar based monetary system.

Nedbank’s Daya concludes:

“The consensus is that should the trade wars accelerate it will be inflationary. We agree there obviously be a price shock on the back of the tariffs, but we do not expect an inflationary cycle, we expect the opposite.

As the USD monetary base contracts, it will slow down money/credit growth which is deflationary. This will favour bonds and other yielding assets over growth assets.”

The macroeconomic tailwind arising from the growth in the USD monetary base is under threat, leaving the global economy and financial system vulnerable to tighter financial conditions.

Investment implications: We remain structural USD bulls supported by our view that USD creation is slowing down. However, we expect central bank balance sheets to become even more important role in the financial landscape to manage the changes in the quantum of USD in the global economy – leaving traditional signals like the yield curve, volatility and IR differentials difficult to interpret compared to previous cycle. We will continue to rely on the USD and our measurement of USD monetary base.

via ZeroHedge News http://bit.ly/2HOmOPe Tyler Durden

After Helping OxyContin Maker ‘Turbocharge’ Sales, McKinsey Cuts Ties With Purdue Pharma

McKinsey’s reputation has taken a beating over the past year, largely thanks to a flurry of New York Times’ stories detailing the secretive consulting giant’s work with authoritarian governments, while exposing conflicts of interest involving the firm’s bankruptcy business and its internal hedge fund (the former led to a wrist-slap fine from the DoJ).

Unwilling to countenance another PR hit, McKinsey has apparently tried to head off more questions about the firm’s commitment to ethical business practices by announcing that it has cut ties with Purdue Pharma and all other businesses involved in the sale of opioid pain pills.

Oxy

The fact that McKinsey and other consulting firms haven’t faced more of a backlash for their work with opioid makers is, frankly, surprising, as details from the Massachusetts AG’s lawsuit against Purdue would suggest: During Mckinsey’s decade-long relationship with Purdue, the consulting firm helped the OxyContin maker boost sales and circumvent government efforts to tighten restrictions.

According to Bloomberg, which quoted from the Massachusetts lawsuit, McKinsey even formulated a pitch that it said would help Purdue “turbocharge” sales.

But McKinsey isn’t the only big firm cutting ties with Purdue this week. JP Morgan, which was among the banks that treid to ‘limit’ ties to gun-makers and sellers after the Parkland shooting, has told Purdue that it will need to do its banking somewhere else.

JPM’s decision makes it “the most high-profile corporation known to have distanced itself from Purdue and its wealthy owners, the Sackler family,” Reuters said. JPM reportedly informed Purdue back in March that it had six months to find another bank. It has reportedly tapped Dallas-based regional bank Comerica to handle its financial transactions. JPM reportedly told Purdue that its decision was motivated by ‘reputational risks’. Though it never lent money to Purdue, JPM’s commercial bank manged the company’s cash and bill payments.

Many museums and nonprofits have already cut ties with the Sacklers, who were known for their philanthropy.

Unfortunately for Purdue (and maybe for McKinsey given its bankruptcy business), cultivating new banking relationships might not be a problem in the very near future: The company is reportedly considering filing for bankruptcy to avoid payouts in the roughly 2,000 lawsuits accusing it of misleading doctors and patients about the addictive qualities of OxyContin. The company and its owners, the Sackler family, have already reached a nearly $300 million settlement with the state of Oklahoma.

via ZeroHedge News http://bit.ly/2K4o2bF Tyler Durden

Environmental Group Behind California’s Paper Receipt Crackdown Is Chaired by CEO of Digital Payment Company

They’re at it again. On Thursday the California Assembly passed a bill that would require customers to request a paper receipt before they can be given one.

“Most of us don’t need a physical receipt for every transaction. It doesn’t make sense to kill so many trees and unnecessarily expose people to toxins for something we don’t often need,” said the bill’s sponsor, Assemblyman Phil Ting (D–San Francisco), after its passage. The bill now moves to the state Senate.

Starting in 2022, AB 161 would forbid businesses from providing customers with a traditional paper receipt unless they ask for one. Beginning in 2024, businesses would also be required to provide digital proof of purchase should a customer so request.

Cash-only businesses, health care providers, and retailers doing less than $2 million in business each year are exempted from the bill. Should you be caught printing up receipts in violation of the law, you’ll get two warnings, after which you could be fined up to $300 a year.

To make the environmental case against receipts, Ting’s bill relies on Green America, a D.C.-based group whose “Skip the Slip” report says that receipts produce about 150,000 tons of waste each year.

The chairman of Green America’s Board of Directors is Jeff Marcous. Marcous also serves as CEO of Dharma Merchant Services, which sells digital point-of-sale technology—the kind that Ting’s bill would require stores to adopt.

In the May 2018 version of Green America’s “Skip the Slip” report, the group estimates that 10 million trees were felled each year to produce America’s paper receipts. A January 2019 version of the report says the country uses only 3 million trees to produce all our receipts. The report does not explain this dramatic fall in the estimate, and Reason‘s request for clarification about the change was not addressed as of press time.

Green America’s newest estimates of receipt paper usage actually appear to be on the low side. The American Forest and Paper Association (AFPA) estimates that the U.S. goes through about 181,000 tons of paper receipts year. Grand View Research, a market research firm, puts the amount of receipt paper at 282,000 tons a year.

But this is a tiny fraction of even California’s own paper waste. According to analysis from the California Assembly’s Committee on Natural Resources, 17 percent of waste deposited in California landfills, roughly 5.95 million tons, is comprised of paper.

No state-specific data exists on receipt usage. But for the sake of argument, let’s assume per capita receipt consumption is uniform across the country.

Given the state comprises 11 percent of the country’s total population, this would mean Californians use 11 percent of all the country’s receipts, or 31,000 tons. (That’s relying on the highest estimate of receipt paper consumption.) That would mean receipts make up .5 percent of the state’s paper waste, and .08 percent of total waste.

Even if all of the country’s receipts were dumped in California, they’d still comprise about 5 percent of its paper waste and at most 1 percent of total waste.

Ting and Green America say receipts also pose a health risk because they contain Bisphenol-A (BPA) and Bisphenol-S (BPS).

“Implementing phenol-free paper is an essential immediate step to ensure worker and customer health,” says Green America’s report. A press release from Ting’s office similarly calls the public health impacts of receipts “especially alarming.”

But both the American Food and Drug Administration (FDA) and the European Food Safety Authority (EFSA) have said that the levels of BPA found in food containers and packaging are safe, and do not pose a risk to consumer health. In 2015 the EFSA—generally a hypercautious group—released a report concluding that “BPA poses no health risk to consumers of any age group.”

Meanwhile, paper receipts are popular. A May poll from Tulchin Research found that 72 percent of California voters prefer paper receipts.

In short, receipts are a tiny, tiny fraction of paper waste, and safety watchdogs in both the U.S. and Europe have found that they do not pose a health risk. The push against them is as misguided and invasive at best, cynically self-interested at worst.

If California legislators really wanted to reduce unnecessary paper consumption, they should consider printing fewer nonsense bills.

from Latest – Reason.com http://bit.ly/2QoiKJf
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Houston, We Have A Problem

Authored by Marc Orsley of PrismFP

  • Oil sell off coming at the most inopportune time with PMI’s melting
  • If oil sell off persists, US growth is going to contract and that is why Fed cut pricing is reasonable

Back after a couple days on the road and would have to say I missed watershed price action.

I have constantly seen over the past few years the market underestimating the effects of a meaningful rise or fall in crude oil prices. First in 2014 when most economists thought falling oil would be a stimulus (wrong, collapsing production killed growth and the petrodollar) and then in 2017-2018 when rising oil helped provide the market with an inflationary impulse when most were stuck in a lowflation mindset (inflation rose and put the Fed into a consistent hiking cycle).

This week, crude oil has fallen over 7% and it’s safe to say the bull market WTI has been in since December, is now over.

I find the 7% collapse in crude this week more than interesting. What is the read through here that prices are collapsing in the face of multiple bullish elements such as:

  • The highest geopolitical risk regime we have seen in a while in the Mid-East with US-Iran precariously close to military escalation
  • Venezuela continuing to languish with continued production shrinkage
  • Saudi Energy Minister al-Falih saying its possible to rollover the OPEC production cuts in 2H
  • US production, which has been on a secular two year ascent, has now shifted lower
  • Entering the peak seasonal demand/summer driving period
  • OMO 2020 product demand starting to gain momentum (this is the marine sulfur output story where cargo ships will need a higher quality of crude to omit less sulfur).

If all that supply disruption and disruption potential is not able sustain WTI over $60, we must make the read through that global demand, and thus global growth, is weak. That is the important signaling here. That was confirmed by the IEA last week who cut global oil demand from 1.4m bpd to 1.3m bps and the IEA’a Atkinson who indicated that that lower oil demand growth outlook was “modest” and there was “no demand shock.”

The breakdown in WTI could not be coming at a more inopportune moment. Regular readers will know that I focus less on lagging indicators such as the unemployment rate and more on forward indicators such as PMI’s. Doing so has allowed to accurately project the current economic environment we are in today. Thus, this week’s atrocious PMI data is signaling further weakness to say the least.

Here is my rub though, while the US Markit PMI is not the gold standard (NAPM still is), at 50.6; this index is perilously close to falling into contraction. That data was collected pre-WTI breakdown. I can assure you that falling crude prices will only add to the malaise and that means we should assume manufacturing PMI’s in the US will fall into contraction territory relatively soon.

Do not underestimate how much oil and all the “downstream” industries means to the US economy. At roughly 12m barrels/day of production, the US is now by far the largest crude producer in the world (Saudi’s are currently producing around 10m barrels/day).

To be clear, this is not a big call on oil prices. It is just to say that if WTI remains sub-$60 and/or continues to fall; US growth will further deteriorate especially as trade wars persist too long.

You may say well manufacturing makes up roughly 15% of the US economy but as we also saw yesterday; US Markit Service PMI hit the lowest level since the summer of 2016. Therefore, there are signs that manufacturing/export led weakness caused by trade wars is bleeding through to the larger economy. There is a clear slowdown occurring, and the S&P 500 and the Unemployment rate are a bit of false signals (or lagging ones)

This is why it is perfectly reasonable to price in Fed cuts with S&P’s still within 5% of the all-time highs and the Unemployment rate at all-time lows. Growth is soft and it is about to get softer if crude oil does not recover. With almost 70% of a chance of a Fed cut by September, I continue to think that is not the play here. The wiser position is to play the terminal amount of cuts which has risen from 40bps when I first showed the underpricing earlier this month to now 72bps.

In a world where the Fed has become obsessed with inflation, the move this week in oil is crushing inflation expectations.

This inflation expectation decline is one big reason (I have about 8 others if you want to go over it) why Fed cut pricing will persist and likely grow in the face of still sky high equity prices and a tight labor market. The Fed has two mandates and their main focus/obsession, inflation, is now falling out of bed.

via ZeroHedge News http://bit.ly/2X4RvGi Tyler Durden

Environmental Group Behind California’s Paper Receipt Crackdown Is Chaired by CEO of Digital Payment Company

They’re at it again. On Thursday the California Assembly passed a bill that would require customers to request a paper receipt before they can be given one.

“Most of us don’t need a physical receipt for every transaction. It doesn’t make sense to kill so many trees and unnecessarily expose people to toxins for something we don’t often need,” said the bill’s sponsor, Assemblyman Phil Ting (D–San Francisco), after its passage. The bill now moves to the state Senate.

Starting in 2022, AB 161 would forbid businesses from providing customers with a traditional paper receipt unless they ask for one. Beginning in 2024, businesses would also be required to provide digital proof of purchase should a customer so request.

Cash-only businesses, health care providers, and retailers doing less than $2 million in business each year are exempted from the bill. Should you be caught printing up receipts in violation of the law, you’ll get two warnings, after which you could be fined up to $300 a year.

To make the environmental case against receipts, Ting’s bill relies on Green America, a D.C.-based group whose “Skip the Slip” report says that receipts produce about 150,000 tons of waste each year.

The chairman of Green America’s Board of Directors is Jeff Marcous. Marcous also serves as CEO of Dharma Merchant Services, which sells digital point-of-sale technology—the kind that Ting’s bill would require stores to adopt.

In the May 2018 version of Green America’s “Skip the Slip” report, the group estimates that 10 million trees were felled each year to produce America’s paper receipts. A January 2019 version of the report says the country uses only 3 million trees to produce all our receipts. The report does not explain this dramatic fall in the estimate, and Reason‘s request for clarification about the change was not addressed as of press time.

Green America’s newest estimates of receipt paper usage actually appear to be on the low side. The American Forest and Paper Association (AFPA) estimates that the U.S. goes through about 181,000 tons of paper receipts year. Grand View Research, a market research firm, puts the amount of receipt paper at 282,000 tons a year.

But this is a tiny fraction of even California’s own paper waste. According to analysis from the California Assembly’s Committee on Natural Resources, 17 percent of waste deposited in California landfills, roughly 5.95 million tons, is comprised of paper.

No state-specific data exists on receipt usage. But for the sake of argument, let’s assume per capita receipt consumption is uniform across the country.

Given the state comprises 11 percent of the country’s total population, this would mean Californians use 11 percent of all the country’s receipts, or 31,000 tons. (That’s relying on the highest estimate of receipt paper consumption.) That would mean receipts make up .5 percent of the state’s paper waste, and .08 percent of total waste.

Even if all of the country’s receipts were dumped in California, they’d still comprise about 5 percent of its paper waste and at most 1 percent of total waste.

Ting and Green America say receipts also pose a health risk because they contain Bisphenol-A (BPA) and Bisphenol-S (BPS).

“Implementing phenol-free paper is an essential immediate step to ensure worker and customer health,” says Green America’s report. A press release from Ting’s office similarly calls the public health impacts of receipts “especially alarming.”

But both the American Food and Drug Administration (FDA) and the European Food Safety Authority (EFSA) have said that the levels of BPA found in food containers and packaging are safe, and do not pose a risk to consumer health. In 2015 the EFSA—generally a hypercautious group—released a report concluding that “BPA poses no health risk to consumers of any age group.”

Meanwhile, paper receipts are popular. A May poll from Tulchin Research found that 72 percent of California voters prefer paper receipts.

In short, receipts are a tiny, tiny fraction of paper waste, and safety watchdogs in both the U.S. and Europe have found that they do not pose a health risk. The push against them is as misguided and invasive at best, cynically self-interested at worst.

If California legislators really wanted to reduce unnecessary paper consumption, they should consider printing fewer nonsense bills.

from Latest – Reason.com http://bit.ly/2QoiKJf
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Short Circuit: A Roundup of Recent Federal Court Decisions

Please enjoy the latest edition of Short Circuit, a weekly feature from the Institute for Justice.

IJ’s own Diana Simpson was on NPR discussing Chicago’s vehicle impound system, which imposes tens of millions of dollars in fines and fees annually and is insanely unfair to residents, afflicting the innocent as well as the guilty and the poor most of all. Click here to listen.

  • Fan of the Libertarian Party dies, leaves the party a surprise gift of $235k. Uh oh! Campaign finance law imposes limits on contributions to political parties. Libertarian Party: The limits exist to prevent quid pro quo corruption, and we can’t repay a favor to a dead guy. D.C. Circuit (en banc): Yeah, but it’s conceivable that a donor might strike a corrupt bargain with a campaign before they die, so the limit is fine. Dissent: This is the First Amendment; you need real evidence, not just speculation.
  • Federal law authorizes retired law enforcement officers to carry concealed firearms all over the country (subject to some conditions), overriding state and local laws to the contrary. D.C.: Retired corrections officers don’t count, as they didn’t have the power to arrest anyone. D.C. Circuit: They do and did.
  • Friends, please enjoy this vocab quiz from Judge Selya of the First Circuit: Perfervid, salmagundi, immurement, plaint, ossature, praxis, and tenebrous. Plus, a scrutable idiom: “nose-on-the-face plain.”
  • Lawful permanent resident, a hairdresser from the Bronx, is jailed for several months awaiting deportation hearing, during which time she experiences severe mental health breakdown. She prevails at her hearing; Orange County, N.Y. officials release her in sub-zero temperatures without her medication or any way of obtaining more (or even knowing what medication she needed). Second Circuit: She’s plausibly alleged officials failed to provide adequate discharge planning in violation of the Fourteenth Amendment. The suit should not have been dismissed.
  • The Trump Administration failed to adequately explain its reasons for rescinding DACA, an Obama administration program delaying deportation for immigrants who came to the U.S. illegally as children. Which violated the Administrative Procedure Act. So says the Fourth Circuit (over a dissent).
  • Man buys gift for friends on Amazon—a headlamp. It’s defective; it burns down his friends’ Montgomery County, Md. home. Must Amazon pay the friends’ insurer? The Fourth Circuit says no; under state law, Amazon is not a “seller” as it never took title to the lamp. Concurrence: Which is about the only thing Amazon didn’t do; it warehoused the lamp, took payment for it, and assumed the risk of credit card fraud, among things. Maryland legislators and judges might want to look into this.
  • Litigation financing, heartbreak, and recusal collide in this Texas-sized debacle. A litigation financing company has a stake in 21 lawsuits being litigated by a Mexican law firm. But one of the law firm’s owners is embroiled in a divorce in Texas, and his interest in the law firm is part of the marital estate. So the litigation financing company intervenes in the divorce proceeding to protect its investment in the law firm and to collect debts owing to the firm. But the lawyer the company hires to collect the soon-to-be-divorced lawyer’s debts turns out to also be law partners with the divorce court judge. Which—when uncovered—explodes the litigation financing company’s efforts to recover its investment and leaves it having wasted $2 mil in attorney fees. Yikes! But that’s just the beginning. The litigation financing company then sues the lawyer for malpractice. No, not the lawyer getting the divorce. The other one; the one it originally hired to recover its investment but who had the business relationship with the judge. And in response to the company’s suit, the lawyer commits what the Fifth Circuit later describes as a “litany of litigatory misbehavior.” Which leads to the district court’s striking the lawyers’ pleadings, entering a default judgment in favor of the litigation financing company, and awarding nearly $3 mil in damages. Fifth Circuit: The default judgment shall stand, but the district court needs to recalculate the damages award.
  • Man allegedly violates his probation; his probation officer gets a Houston County, Tenn. judicial commissioner to revoke it. He goes to jail for several months. But wait! A state court judge rules that Tennessee judicial commissioners, who can issue search and arrest warrants, do not have the authority to issue probation revocation warrants. Can the man sue the commissioner? The Sixth Circuit says no. Judicial immunity.
  • Since 2014, Bel-Nor, Mo. resident has displayed a “Black Lives Matter” sign in his front yard; since 2016, he has also displayed two (now-outdated) political signs. City: Under our ordinance, you’re allowed one “sign” and one “flag”—which we’ve defined to mean a piece of fabric that is a “symbol of a government or institution”—and none of your signs are a flag. Eighth Circuit: The city’s different treatment of “signs” and “flags” is content based. A banner with an Army logo would qualify as a “flag,” but one with a Cardinals logo wouldn’t. That makes the ordinance likely invalid under the First Amendment, so the resident gets a preliminary injunction while the case proceeds.
  • Man is sent to prison for 145 years on strength of his eighth grade stepdaughter’s testimony that he abused her. She recants, but a state court determines the recantation was not credible, and the Colorado Supreme Court declines to order a new trial. Tenth Circuit: His claim that the trial court relied on false testimony (in violation of due process) doesn’t work since the allegedly false testimony was from a private citizen and he can’t show the gov’t knew it was false.
  • Gorilla Gym infringes Gorilla Playsets’ trademark, as both use a similar size and type of gorilla for their children’s playground equipment, says the Eleventh Circuit. But the district court was monkeying around when it ordered the infringer to pay its profits for continuing to use the trademark after being sued. After all, it was, at the time, a legal trademark that no judge had ruled against.
  • And in en banc news, the Ninth Circuit has asked the Montana Supreme Court for its view on whether dinosaur fossils are owned by the owner of the land on which they’re found or instead by them that own the rights to mine minerals under that land.
  • And in further en banc news, the Seventh Circuit will not reconsider its decision applying the “doctrine of consular nonreviewability.” Come for the initial decision (a U.S. citizen cannot challenge a consular official’s decision to deny his Yemeni wife and children a visa because it isn’t clear that the ability to live in America with one’s spouse is a protected constitutional right (and, even if it were, the decision was legit)), stay for the fiery back and forth between the dissental and concurrence regarding the denial of rehearing. (Judicial abdication! Rights of citizenship! Bad faith of immigration officials!)

It was a good week for the First Amendment. In North Dakota, a federal judge issued a temporary restraining order barring the city of Mandan from imposing thousands of dollars in fines on the owners of the Lonesome Dove saloon (for now). The owners’ crime? Commissioning a painted mural on the side of their building that features a sunset over a landscape with mountains and cowboys and the words “Lonesome Dove,” which the city deemed an unlawful commercial message. Click here to learn more. In Savannah, Ga. a federal judge ruled that the city’s tour guide licensing law, which, among other things, had imposed a 100-question test filled with picayune trivia on would-be guides, violated the First Amendment. “Today’s ruling vindicates a simple principle,” says IJ Senior Attorney Robert McNamara. “In this country, we rely on people to decide whom they want to listen to. We do not rely on government to decide who will get to speak.” Click here for more.

from Latest – Reason.com http://bit.ly/2VQ7ruG
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Trump Bypasses Congress To Approve $8 Billion In Arms Sales To Saudi Arabia, UAE

Not long after he reportedly agreed to send another 1,500-2,000 troops to the Middle East in yet another show of strength to combat an increasingly belligerent Iran, President Trump steamrolled Congress on Friday to approve $8 billion in arms sales to the UAE and Saudi Arabia and expedite delivery, WSJ reports.

The administration invoked a rarely used provision of American arms control laws to bypass Congress and approve the weapons sales, citing the escalating tensions with Iran as justification. WSJ’s sources said the $8 billion figure encapsulates a package of 22 separate deals.

Saudi

Predictably, Democratic lawmakers who have opposed selling more arms to Saudi Arabia groused about the administration’s latest Congressional end-run.

“If Iran’s provocations or the Syrian civil war is an emergency under the statute, then there’s a permanent emergency in the Middle East that will never allow Congress to oversee an arms sale,” said Sen. Chris Murphy (D., Conn.), a critic of Trump administration policy in the Middle East.

Rep. Eliot Engel (D., N.Y.), chairman of the House Foreign Affairs Committee, called the decision “another slap in Congress’s face.”

“Congress wrote the law so that weapon sales would reflect broad consensus on foreign policy, consistent with our values, and the notion that there’s an emergency that justified upending our checks and balances is false, plain and simple,” he said.

For the past two years, Saudi Arabia has led the world in arms purchases – and the US has been its top supplier.

KSA

Support has been growing in Congress – among both Democrats and Republicans – to oppose more arms sales to Saudi Arabia over the kingdom’s involvement in the proxy war in Yemen. But given its longstanding rivalry with Iran, Saudi Arabia remains an important ally in that fight.

via ZeroHedge News http://bit.ly/2W2Ebpw Tyler Durden

It Begins: For The First Time Ever, China Takes Over An Insolvent Bank

There was a time when in the years following the financial crisis, every Friday the FDIC would report of one or more small and not small banks failing, as their liabilities exceeded their assets, who were taken over by larger peers with a taxpayer subsidy to cover the shortfall.  And while this weekly event, also known as “FDIC Failure Friday” has faded from the US for now, it has made a grand appearance in China.

China’s financial regulators said on Friday the country’s banking and insurance regulator and the central bank, will take control of the small, troubled inner Mongolia-based Baoshang Bank due to the serious credit risks it poses. The regulator’s control of Baoshang will last for a year starting on Friday, the People’s Bank of China (PBOC) and China Banking and Insurance Regulatory Commission (CBIRC) said on their websites.

China Construction Bank (CCB) will be entrusted to handle the business operations of the small lender, based in the industrial city of Baotou, the statement said.

Such a takeover by national authorities is extremely rare, and takes place amid gathering concerns among regulators and financial analysts about a renewed surge in bad debts…

… a record pace of corporate defaults, amounting to 39.2 billion yuan of domestic bond defaults in the first four months of the year, 3.4 times the total for the same period of 2018…

… and the deteriorating health of small-scale banks in rural areas and small cities as China’s economy slows and enormous debts come due.

“It’s a rare move for the Chinese central government to take over a bank,” said Shujin Chen, an analyst with Huatai Securities.

Moody’s analyst Yulia Wan told the WSJ that regulators likely decided to take over Baoshang to limit any fallout to businesses in Inner Mongolia. “The move is to reduce the risk of a shock to the local economy,” said said, adding that the Baoshang takeover appeared to be the first time that national authorities seized control of a bank since Chinese lenders started listing on stock markets in the 1990s. In the past when banks came under pressure, local authorities would pull together funds from local state-owned firms and investors, or have another bank stage a takeover.

As Reuters adds, this extremely rare takeover – the first in nearly three decades – comes at a time when the PBOC has aggressively eased financial standards and cut reserve ratios for smaller banks to avoid just this outcome, and highlights the long struggle of some smaller regional lenders in China, which suffer from deteriorating asset qualities, inadequate capital buffers, and poor internal controls and corporate governance

Baoshang Bank rose to prominence after its key stakeholder Tomorrow Holdings was targeted in a government crackdown on systemic risks posed by financial conglomerates. The bank was also linked to financier Xiao Jianhua, according to the WSJ. Xiao left Hong Kong and crossed the border into mainland China in early 2017, according to statements from Hong Kong police and his company, and he hasn’t been heard from since.

Later that year, Baoshang “unexpectedly” reported a capital shortage. Chinese ratings agency Dagong Global Credit Rating Co. then revised its outlook on Baoshang to negative, questioning the lender’s ability to repay borrowings. They were right.

There is concern the Baosheng takeover “will add to the vulnerability of country’s financial system amid the economic slowdown.”

While it has been generally described as a “small” bank, Baoshang had a total of 156.5 billion yuan ($22.68 billion) of outstanding loans by the end of 2016, a 65% jump from the end of 2014, according to the bank’s last filing on its assets and liabilities on its website. What is absolutely bizarre, however, is that the bank’s “official” non-performing loan ratio then was only 1.68% as of December 2016. That, in itself, would never have been sufficient to force a takeover, and suggests that not only was the bank’s real bad debt ratio much higher, but that China continues to chronically under-represent the true state of its NPLs to avoid bank runs.

The last time Baoshang disclosed financial data was in the third quarter of 2017. Then it had 576 billion yuan in assets and 543 billion yuan in liabilities, with a net profit of 3.2 billion yuan. Based on those 2017 numbers, analyst Long Chen with consulting firm Gavekal Dragonomics estimated that Baoshang back then was ranked around the 50th largest bank in the nation.

Naturally, to avoid a panic bank run among other smaller, less capitalized banks, the CBIRC said that principal and interest on personal saving accounts in the bank will be fully guaranteed, and the business operations of Baoshang bank will not be affected by the takeover.

The takeover of the bank is the first in decades, and takes place amid China’s crackdown on systemic financial risks, which in February 2018 resulted in the take over of former roll-up giant and conglomerate Anbang Insurance, which in 2015-2016 made eyebrow-raising investments in overseas property, including the Waldorf Astoria hotel in New York. Anbang’s chairman, Wu Xiaohui, was sentenced to 18 years in prison later that year after being convicted of fraud and abuse of power. Wu expressed remorse, according to the court that sentenced him, but he also said he doubted he violated any laws. He hasn’t made a public statement since.

The question now is whether bank investors, having seen first hand for the first time in nearly 30 years, that a Chinese bank can fail (and be taken over by the state), will jog at a leisurely pace, or not so leisurely, to their own local bank and pull out their deposits in a cool, calm and collected manner… or not so cool, calm and collected. If so, the trade with between the US and China will have a clear winner in the very near future.

via ZeroHedge News http://bit.ly/2WrkLd6 Tyler Durden

Who Owns Your Life Story? Free Speech Rules (Episode 4)

Do people need your permission to write about you? What if they want to make a movie about you, or a YouTube video, or a blog post, or whatever? Who owns your name, likeness, voice, and life story? Here’s the answer, in four rules.

Well, two rules, one who-knows, and one piece of advice.

Rule 1: People can write books about you, make movies about you, or write articles about you without violating your so-called “right of publicity.” That right is often defined as an exclusive right to commercial use of your name, likeness, voice, and other “attributes of identity”; but it does not apply to biography, fiction, news coverage, and so on.

The First Amendment protects people’s ability to write about others. That’s what newspapers do, both about famous people and about ordinary ones who happen to draw the newspaper’s attention. It’s also why we see unauthorized biographies, whether in print or on the screen, and fiction with real characters, like Midnight in Paris and Forrest Gump. And that’s true even though those items are distributed for money.

So you don’t really own your name or likeness or life story, in the sense of having exclusive rights over it. Neither does your biographer. No one owns it, because everyone is free to use it, at least when they’re commenting about you and your life.

Rule 2: People generally can’t use your name, likeness, or voice in commercial advertising. In some situations, such use can also violate trademark law, because consumers might be confused into thinking you’re endorsing the product.

Exception: If people are advertising books about you or newspapers that mention you, it’s OK for them to use your name or picture in doing so. Such ads are treated like the underlying book or newspaper, and are therefore allowed.

This right to prevent the use of a name or likeness in advertising applies not just to living people, but also to recently dead ones. How recent? Depends on the state where the people were living when they died. Some states cover people for 50 years after their death, some more, some less.

Rule 3: When it comes to merchandising, different state and federal courts have reached different results about this, often inconsistent results. The Missouri Supreme Court has held that people can sue over use of their name in comic books, though courts have consistently rejected this theory for other kinds of books. But this may be an outlier decision; other judges have criticized it, and the California Supreme Court has rejected such a lawsuit in a comic book case very similar to the Missouri one.

It’s also unsettled whether athletes’ names and statistics can be used in the big business of sports gaming, whether fantasy sports leagues or sports video games. The Supreme Court could resolve whether and when the First Amendment protects such less traditional communications media against right of publicity claims, but the Justices haven’t done that yet.

Finally, a practical note: Even though creators may have the right to freely use people’s names in, say, movies about them, it might still be a good idea to get their agreement, if possible.

There are several reasons for that. For one, while filmmakers and authors routinely win right of publicity lawsuits filed against them, there’s still some risk and a lot of expense. Safer for the creators to pay some money, if they have it and the person is willing to take it.

Second, biographers can be liable for defamation if they get some significant facts wrong about a living person.

Third, working with subjects (or their heirs) can give authors access to facts they otherwise wouldn’t know.

Fourth, getting the subject’s permission can prevent bad publicity, and can enlist the subject into helping promote the work.

All this might be impossible. If a biography would be critical of its subject, for instance, the subject might refuse to cooperate. In that case, the authors may want to stand on their First Amendment rights—see Rule 1. But if cooperation is possible, it’s a good idea.

Finally, all we say here has to do with American law. These days, much of the revenue for movies comes from other countries—and the rules in those countries might be different. Better safe than sorry, many producers and publishers say.

So to sum up:

The First Amendment protects authors’ rights to use others’ names, likenesses, and life stories in biographies, works of fiction, and the like, even though such works are commercially sold. The so-called “right of publicity” can’t stop that.

The First Amendment doesn’t protect such uses in most advertising; there, the advertiser generally has to get the permission of people referred to in the ads.

Courts are split on whether people’s names can be used on T-shirts, greeting cards, in video games, and the like.

And it’s often a good idea to get the subject’s agreement anyway, even for a movie that you might technically be legally free to make.

Written by Eugene Volokh, who is a First Amendment law professor at UCLA.
Produced and edited by Austin Bragg, who is not.

This is the fourth episode of Free Speech Rules, a video series on free speech and the law. Volokh is the co-founder of The Volokh Conspiracy, a blog hosted at Reason.com.

This is not legal advice.
If this were legal advice, it would be followed by a bill.
Please use responsibly.

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Music: “Lobby Time,” by Kevin MacLeod (Incompetech.com)
Licensed under Creative Commons: By Attribution 3.0 License
http://bit.ly/oKTIFM

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Bill Would Limit California Cops’ Use of Deadly Force

A compromise between California law enforcement and civil rights organizations will allow a bill to move forward that would restrict how police in the state may use deadly force against suspects.

AB 392, introduced by Assemblymember Shirley Weber (D–San Diego), was introduced in response to the 2018 fatal shooting of Stephon Clark. Following a foot chase, Sacramento police officers mistook Clark’s cell phone for a gun and opened fire.

The ensuing public outrage was compounded in March when the Sacramento District Attorney’s office decided not to file any charges against the two officers involved. California law permits cops to use deadly force if they have a “reasonable fear” that they are in danger. Officers thus can justify the use of deadly force by saying they saw what they thought was a threat, even if the threat wasn’t real.

Weber’s bill changes this threshold to require that the officer not just believe he or she was in danger, but believe “based on the totality of the circumstances, that deadly force is necessary to defend against an imminent threat of death or serious bodily injury to the officer or to another person, or to apprehend a fleeing person for a felony that threatened or resulted in death or serious bodily injury, if the officer reasonably believes that the person will cause death or serious bodily injury to another unless the person is immediately apprehended.”

That’s a bit of a mouthful, and that’s partly due to the aforementioned compromise. The original version of the bill was a bit stricter: That “necessary” use of deadly force referred more specifically to when a police officer objectively believes he or she had no alternatives to the use of deadly force given the totality of the circumstances.

In the Clark example, the police immediately started shooting because they mistakenly thought Clark had fired a gun at them. He did not. The police were not pinned in or out in the open and vulnerable. They had Clark trapped in a backyard and were around a corner from him. They could have backed off for a moment and remained completely safe, and then they might have realized that Clark was not, in fact, shooting at them. That’s the kind of decision that the bill was intended to propose.

But law enforcement groups resisted that version of the bill, and so the two sides have reached this compromise. As the Los Angeles Times notes, this doesn’t mean the police organizations are supporting AB 392. They remain unhappy about it. It just means they’re not going to oppose its passage any longer.

Nevertheless, the bill’s supporters are claiming a big win. It certainly seems much more likely to pass now. Peter Bibring, police practices director for the American Civil Liberties Union of California, sent out a prepared statement about the good news:

By requiring that officers use deadly force only when necessary, AB 392 will finally address this serious problem head on and establish one of the strongest state use of force laws in the country.

This groundbreaking bill draws directly from use of force policies that individual law enforcement agencies have successfully adopted throughout the country—and that we know work to reduce use of force incidents while also keeping officers safe.

The bill will now move forward to an Assembly vote. Democratic Gov. Gavin Newsom has already declared his support for the legislation. You can read the new compromise text here.

 

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