Category Archives: markets

Right, But for a Different Reason

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The Wall Street Journal‘s editors’ headline and subheadline is on a reasonable track:

Punishing Banks for Regulatory Failure
Regulators want to saddle midsize banks with new capital rules.

The editors the proceed to disparage the regulators’ move, and they’re correct about that. They’re mistaken in their lede, though, and that leads them to the erroneous aspect of their disparagement:

Silicon Valley Bank failed owing to rising interest rates and lapses by regulators, not a shortage of capital.

It’s true that a shortage of capital did not cause SVB’s failure, except as the proximate outcome of the real cause of the failure, an outcome that made the failure inevitable.

SVB did run short of capital value, and that meant it couldn’t survive the rapid outflow of cash through depositor withdrawals. But rising interest rates were only the means of that capital shortfall and bank failure, not the cause. Nor were lapses by regulators—and there were some serious ones, including their lack of oversight diligence, which should have led to better enforcement of existing rules—involved in the bank’s failure.

The bank’s managers failed in their own fiscal duties, overbalancing as they did the nature of their capital holdings in the face of those rising interest rates: those managers chose not to balance the interest rate risk related to their deposits and the rates they were paying against the interest rate risk related to their capital holdings and the way rising rates were devaluing their holdings.

Those managers could see as well as any of us, and as well as their depositors, what rising rates were doing to their bank’s capital, and those managers could see as well as any of us, and as well as their depositors, the increasing risk to the bank of the decreasing interest rate spread between what the bank paid depositors and what it earned on its loans, loans the bank was increasingly unable to make in the face of those rising interest rates. And that exacerbated the impact of the bank’s decreasing capital holdings, which those managers could see as well as any of us, and as well as their depositors.

Nor did lack of overt regulator intervention have much of anything to do with SVB’s failure. Bank managers, any enterprise managers, are paid to act on their own initiative, not to wait until they’re told what to do and then, subsequently, told to go ahead and do it.

SVB’s managers were no exception to that.

This was an SVB management failure, and Regulators have no place for writing new capital rules. It’s sufficient for the market place to apply the appropriate sanctions, even if that deprives government bureaucrats of an opportunity to feel good about themselves by Doing Something.

A Thought on Russia-PRC Relations

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The subheadline on a Wall Street Journal article that was centered on falling exports from the People’s Republic of China says it all regarding the growing relationship of the PRC with Russia.

Slide in outbound shipments reflects fraying trade ties with the Western world, even as exports to Russia boom

But at what cost to Russia are those exports? Russia hasn’t much with which to pay for them. The nation is short of hard currency, and its own goods are famous for their shoddiness. Russia, though, does have things of particular importance to the PRC: vast Siberian resources of oil, natural gas, coal, timber, and a variety of rare earths and ores whose extracted metals are critical for making batteries. To that end, Russia and the PRC concluded, a few short years ago, a trade treaty that has the PRC developing those fields and mines, extracting that output for PRC use alongside Russian use and in some cases for primary PRC use, and with PRC workers and their families moving into Siberia to do the work of development and extraction.

That last reveals one more item that Russia has to exchange for the PRC’s exports to it, an item of critical importance to the PRC: all that Siberian land.

And this, which subtext emphasizes the PRC’s dependency on Russia’s imports:

For China, weakening exports signal more trouble for its domestic economy….
…
July’s 14.5% drop in Chinese outbound goods shipments was sharper than the 12.4% year-over-year decline in June and outpaced the 12% decline expected by economists polled by The Wall Street Journal.
Chinese goods shipments to the US fell 23% in July compared with a year earlier. Shipments to the European Union and to the Association of Southeast Asian Nations, a group of 10 countries that includes Singapore and Indonesia, each dropped by about 21%.
Chinese shipments to Russia, a country under Western sanctions over its invasion of Ukraine, rose 52% in July from a year earlier, helped by sales of high-value goods including automobiles. For the first seven months of this year, Chinese exports to Russia soared 73% from a year earlier, even as China’s total exports have fallen 5%, data from Chinese customs show.

Thus, the dependency goes both ways, even as the PRC increasingly dominates the codependent relationship. As the West pulls back from buying goods and services from the PRC, the PRC becomes ever more dependent on Russian goods and services, especially those basic commodity goods of oil, natural gas, coal, timber, and Russian rare earths and battery-centric ores.

That growing PRC dependency makes the PRC’s land acquisitiveness even more dangerous for Russia.

Inadequate Electricity Infrastructure

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There is a move afoot, spearheaded by a number of car companies, to expand the number of battery car charging stations in the US. iSeeCars.com says that planned expansion is inadequate. The company’s Executive Analyst Karl Brauer:

[E]ach of these fast chargers can cost $50,000 or more to install, and this joint effort claims it will utilize 100 percent renewable energy to power the new chargers, which can only mean higher costs for each unit[.]

And that’s just for a few midwestern States.

Bauer is right about the infrastructure’s inadequacy, but the shortfall is much deeper than just battery cars’ electricity demands.

Our electrical infrastructure is inadequate because it’s built on antiquated wiring/cabling, too few and too restricted fossil fuel-powered generating stations; too few generating stations of any sort; lack of spares, particularly transformers and transformer parts and fluids; poor-to-nonexistent (still!) cybersecurity; and on and on.

Those shortfalls need to be filled regardless of the number of battery cars and trucks are on the road.

A Rich Property Transfer Tax

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Chicago, already a heavily taxed city, is looking at increasing the tax it claims on the sale of properties valued at more than $1 million. It’s no tweak, either: the increase would be from the current 0.75% to 2.65%. Even so, it’s projected (more like hoped IMNSHO) to raise $163 million per year. The money ostensibly is to be explicitly earmarked for construction of (and, presumably, conversion of existing structures for) permanent supportive housing units for the homeless.

I have questions.

Chicago—Cook County—is losing population at a high rate.

Cook County lost more population than almost any other county in the nation, with the exception of Los Angeles County, from July 2021 to July 2022, according to U.S. Census Bureau estimates released March 30.
The leading cause of the drop was 94,344 residents who moved out of Cook County during the year, completely driving the county’s population to shrink by 68,314 residents.

With the city undergoing such high net outmigration for greener [sic] regions, who’s going to be buying those rich properties? Not folks in the surrounding counties; those regions are losing population, also, and not into Chicago. No one in his right mind is moving into Cook and surrounding counties. Sales are going to fall off year by year, and the sales that do occur are going to be at increasingly lower prices, reducing the number of million-dollar properties that exist, much less that are up for resale.

I have a downstream question, too. What properties does the city plan to seize for the construction/conversion? What does the city plan to do with the residents who will be displaced by this construction/conversion?

A Bogus Beef

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Some academics object to Texas’ Republican Governor Greg Abbott moving to ban TikTok from Texas government devices and from personal devices used to conduct Texas official business. Texas’ legislature passed the bill creating the ban, and Abbott signed it into law last December. Now a New York State-headquartered organization, ironically named The Knight First Amendment Institute, which is a facility of New York City’s Columbia University, is suing Abbott among other governors, over the ban, claiming free speech violations.

The lawsuit said the state’s decision…is comprising teaching and research. And more specifically, it said it was “seriously impeding” faculty pursuing research into the app—including research that could illuminate or counter concerns about TikTok.

This is, to use the legalese technical term, a crock. It’s also, to use a legal technical term, a frivolous suit.

Banning TikTok in no way inhibits what these academics say or collaborate over, nor does it in any way impede those academics’ speech or collaboration; it only bans one tool, a national security risk, from being used for the speech/collaboration. There are, after all, a plethora of communication and collaboration devices available other than TikTok. To name just a few (located after 10 grueling seconds on Bing search):

  • Slack
  • Zoom
  • Miro
  • MindMeister
  • Loom
  • Asana
  • Notion
  • Microsoft Teams

There are, also, freeware tools like Hugo and Scribe.

It’s hard to believe these So Smart persons aren’t aware of these tools. Maybe they should listen more to the students in their freshman orientation courses.

It’s even harder to understand why these Precious Ones insist on leaving their personal information; their research ideas, techniques, and progresses; their speech and thought available for People’s Republic of China government personnel to freely exploit; they should be called to explain that.

Their free speech interference claim is especially pernicious, given that these august personages are of the same guild that so zealously blocks, even with violence and firings, the speech of those with whom they disagree.