Crisis

The Asset Quality Review (Stress Test) results confirm system wide solvency. Yet, regulators announce the rewriting of bank risk models and the ECB plans large scale asset purchases.

Although Scotland voted in September to remain in the United Kingdom, both sides hailed the high voter turnout as recognition of democratic engagement and growing European dissatisfaction with over-centralised, bureaucratic, seemingly unaccountable government. The effect has been to raise morale in Catalonia and a handful of other potential breakaway regions. This is bad news for Europe’s leaders.

Low interest rates contribute to weak labour markets
A new measure of Unemployment and Labour Market Conditions gains support at the Annual Jackson Hole Conference. Doubts continue about European QE as near-zero interest rates may actually be preventing employment from picking up.

Concerns about Repo Market Disruptions
The Repo market is becoming less attractive due to new Leverage Ratio rules. Doubts remain as to whether this can prevent reoccurrence of credit seizing up should insolvency worries reappear in the financial sector.

BIS has doubts about monetary policy in the Euro area
Latest BIS Report says that present monetary policies risk permanently destabilizing the global economy. It calls for A New Policy Compass, focussing on the ‘Financial Cycle’, not the Business Cycle.

Banks remain fragile and imbalances persist
The BIS notes that banks have been recapitalising, but in some countries problems with asset quality and earnings persist. The recent issue of a convertible bond for TESLA is a prime example of the behaviour of the financial markets, perhaps akin to the boom in subprime mortgages only a few years ago.

Central Banking
Confidence in the ECB wobbles as commentators on all sides question the effectiveness of supposedly growth stimulating new policies.

Markets and Investment
At least two big takeover deals are being negotiated in Europe now, both with heavy government involvement. The strategies adopted by the French and UK governments may appear to differ but at heart they are very similar.

Cypriot government has unilaterally “redefined” one of the conditions of its 10bn bailout package and lifted a ban on government officials traveling business class. Is this an exercise in customary opulent luxury or is it actually a hidden subsidy? And aren’t all governments guilty?

The latest Scorsese blockbuster is still making the headlines for its novel artistic work with timelines. Does the Wolf, however, have anything whatsoever to say about Wall Street? Very little, and it may actually work to strengthen and entrench any bad practices that remain in the financial world!

Recovery has started, according to some data. Is it sustainable? Or is it based on asset prices inflated by easy monetary policies? Inside this newsletter:
* Bond markets and the real economy * Central Banking – The Illusion of Tapering * The Return of Bubbles?

European nations’ fiscal authorities must be doing an excellent job if people are willing to pay hundreds of thousands of euros for the privilege to pay taxes to them… Or is there something else behind the new market for EU citizenship?

Government’s mortgage interest subsidy, besides creating a lot of social costs, benefits almost solely the rich, yet it’s precisely the rich who boldly claim to want to scrap the programme. What’s going on?