Three links August 8, 2012 at 9:21 am
I’m a little busy trying to finish something, so here are three terse items from my ‘read, and want to blog about’ list for the week so far:
- A truly shocking article on The Big Picture about the effective tax rates of the most profitable US companies. I really don’t think this state of affairs can continue: people will not tolerate it.
- An insightful letter by John Hutton in the FT about the EU proposal to extend Solvency II type regulation to pensions schemes. The key point:
The immediate impact … would be a significant but arbitrary increase in pension scheme liabilities. If these proposals go ahead, funded pension schemes will undoubtedly have to adopt higher funding levels and shorter periods over which they have to make up any deficits… If schemes are forced to adopt ultra-cautious funding models, they will need to disinvest from equities, which would be highly damaging for European financial markets… None of this will offer meaningful protection to fund members – on the contrary, it will undermine the very existence of the remaining defined benefit schemes.
- A typically over-stated Felix Salmon column that nevertheless makes one good point. He discusses the rise of collateralized funding arrangements such as repo and the decline of the interbank market. This is a bad thing:
If we’re talking about the banking system, here, we’re talking about a world in which banks simply cease to trust each other at all, and the answer to all interbank credit [extension] questions is “no”. The only way for banks to lend to each other is to either go through some central counterparty, hub-and-spoke style, or else to retreat to the world of repo, where banking prowess counts for nothing and all that matters is collateral quality.
Clearly a fundamental job of banks is to lend, including to each other: to make credit judgements and to put money on the line based on those. We need to find a way to restore bank confidence in each other (not least because smaller amounts of unsecured debt in a bank’s capital structure gives less of a cushion protecting depositors in resolution).