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> My daughter is starting early, deficit bunny…
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> Olivia Camacho:
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Psychopaths On Wall Street
I’d guess closer to 100%.
;)
The Shocking Statistic About Psychopaths On Wall Street
By Sam Ro
February 28 — The March/April issue of the CFA Magazine has a fascinating article titled “The Financial Psychopath Next Door.”
A shocking statistic jumped out at us. From the article:Studies conducted by Canadian forensic psychologist Robert Hare indicate that about 1 percent of the general population can be categorized as psychopathic, but the prevalence rate in the financial services industry is 10 percent. And Christopher Bayer believes, based on his experience, that the rate is higher.
Bayer is a well-known psychologist who provides therapy to Wall Street traders.
The type of psychopath the author is writing about is characterized by compulsive gambling. And the Wall Street psychopath doesn’t necessarily show up to his or her first day of work in this condition. From the article:Taken to the extreme, some traders become compulsive gamblers. The behavior is often latent–neither they nor anyone else knows they have this propensity. They hide small losses and keep doubling their position to try to eliminate them. When those trades turn sour, they dig themselves into a deeper hole and deny ay wrongdoing or failure. They rationalize by telling themselves that poor investment decisions are an occupational hazard. They lie to family members or others to conceal the extent of their involvement with gambling and commit forgery, fraud, theft, and embezzlement to support their habit.
A little more color on these particular types of psychopaths:
These “financial psychopaths” generally lack empathy and interest in what other people feel or think. At the same time, they display an abundance of charm, charisma, intelligence, credentials, an unparalleled capacity for lying, fabrication, adn manipulation, and a drive for thrill seeking.
A financial psychopath can present as a perfect well-rounded job candidate, CEO, manager, co-worker, and team member because their destructive characteristics are practically invisible. They flourish in fast-paced industries and are experts in taking advantage of company systems and processes as well as exploiting communication weaknesses and promoting interpersonal conflicts.Unfortunately–writes the author–the best candidates for many Wall Street jobs exhibit the traits of a financial psychopath.
Clinton: the president’s policy is to prevent Iran from having nuclear weapons capability
The President had repeated demonstrated that he’s the ‘hunter/killer’ type when it comes to foreign policy, so best to be prepared for what this policy might lead to.
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> It’s absolutely clear that the president’s policy is to prevent Iran from having nuclear
> weapons capability.
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Hillary Clinton told the US House Committee on Foreign Affairs, when asked whether the US would allow Iran to become a nuclear threshold state.
Warren Mosler on Nicole Sandler Radio Or Not
EU headlines
Even as they work to fix the solvency issues, the austerity policies continue to work to weaken growth and increase the deficits they are trying to reduce, which sustains the solvency issues.
Euro-Region Manufacturing Output Contracts for Seventh Month
German Machine Orders Fell in January as Domestic Demand Waned
French Unemployment Rate Jumps as Economy Stalls on Euro Crisis
French Consumer Spending Drops as Job Losses, Budget Cuts Bite
Italy’s Jobless Rate Surged in January to Highest Since 2001
Monti Expects Firewall Deal This Month as Crisis Abates
Japan Not Immune To Debt Crisis, BOJ Kamezaki Says
Not to be outdone by the rest of the world’s central bankers:
Japan Not Immune To Debt Crisis, BOJ Kamezaki Says
By Tatsuo Ito
February 28 (DJ) — A Bank of Japan policy board member said Wednesday that Japan is not immune to a Europe-style debt crisis as confidence in the country’s government bonds could quickly weaken if concerns over its fiscal state mount.
The European crisis “is not a fire on the other side of the river,” Hidetoshi Kamezaki told business leaders in Fukuoka, western Japan, using an phrase frequently employed by Japanese policy makers over the last few months to warn that a Europe-style crisis could spread to Japanese shores.
“It’s not appropriate to assume there won’t be concerns about JGBs,” in the future just because the bonds continue to be smoothly bought in the market, Kamezaki said, adding that confidence in government debt can change unexpectedly.
Japan’s fiscal conditions are the worst among developed nations, with a gross public debt of around 200% of its annual economic output, but the country has so far avoided a Greece-style crisis as domestic investors hold almost all of its debt.
An ample and steady flow of funds from overseas in the form of a surplus in its current account — which includes trade — has financed the debt, but recent data suggest that could be changing.
Japan recorded a trade deficit for all of last year, meaning that if the trend were to continue, the country may need to rely on foreign capital to finance its debt, like many of the European countries being hit by the debt crisis.
Kamezaki played down the possibility of Japan’s current account moving into the red, saying flows of income stemming from the country’s external assets worth Y250 trillion could be maintained.
“The trend of Japan’s current account surplus will not change for a while unless the trade deficit grows rapidly,” Kamezaki said.
At around 0030 GMT, the benchmark 10-year government bond yield was at 0.965%.
Kamezaki also said the central bank should keep actively implementing policies to ensure the Japanese economy can overcome deflation and achieve sustainable growth with price stability.
“The BOJ should continue to pro-actively implement policies needed to achieve these purposes,” Kamezaki said.
The BOJ on Feb. 14 surprised the markets by boosting the size of its asset purchase program–the main tool for credit easing amid near zero interest rates–to Y65 trillion from Y55 trillion by increasing purchases of Japanese government bonds. It also clarified a near-term inflation goal for overcoming deflation.
The financial markets have reacted positively to the BOJ’s actions, with the dollar briefly hitting a nine-month high of Y81.66 on Monday and the stock market rallying.
Today’s Data/Bernanke
Karim writes:
Bernanke gives his latest Congressional testimony and takes Q&A at 10am tomorrow.
He’s unlikely to diverge much from the recent narrative and I expect him to focus more on the changes they made at the last FOMC meeting (easing via extending conditional commitment and new set of forecasts) than highlight more policy changes (QE3 or Twist 2). March/April a more likely time frame for next set of policy changes.
Today’s data backs up the view stated by the Fed in January and recent speeches:
- House prices continue to fall. Case-Shiller HPI -1.1% in December and -4% y/y.
- Core durable goods orders -4.5%. Even adjusted for new year effect (expiration of accelerated depreciation in December), still weak, with the 3m annual rate of change now -3.7% vs +1.7%.
- Conference Board survey rises from 61.5 to 70.8, a 12mth high, with notable improvement in Labor Differential (Jobs Plentiful Less Jobs Hard To Get). But, Plans to Buy a Home in next 6mths drops 0.2, to lowest level since August 2011.
Fits in with the following from their last Statement (where they eased):
While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed.
Are Japanese Banks Bailing Out Europe?- John Carney reposts my article
MMT conference in Italy with 2,000 attending
GE to 3M Pension Pain Mounts as Rates Boost Liabilities
Feel free to forward to your local Fed President, to remind them that rate cuts do remove income from savers and from the economy in general, as the economy is a net saver to the tune of the cumulative govt debt (to the penny). (And not to forget the $80 billion or so per year of lost income due to QE.)
Lower rates remove income from ‘savers,’ with everyone who works for a living and contributes to any kind of retirement plan a ‘saver.’
Yes, with most major corporations, the additional contributions come from earnings, which reduces shareholder incomes rather than employee earnings.
But in any case, contributions to retirement funds are ‘demand leakages’ that directly or indirectly reduce income and, to some degree, reduce spending.
The obvious fiscal response should be along the lines of a FICA suspension to sustain sales, output, and employment…
GE to 3M Pension Pain Mounts as Rates Boost Liabilities
By Thomas Black
February 28 (Bloomberg) — General Electric Co. (GE), Boeing Co. (BA) and 3M Co. (MMM) will join big U.S. employers in making a record $100 billion in 2012 pension contributions, 67 percent more than two years ago, as low interest rates boost companies’ liabilities.
Payments may total $400 billion from 2011 through 2015 to ease underfunding at the 100 largest defined-benefit programs, according to consultant Milliman Inc., which estimated that assets in January were enough to cover less than three-fourths of projected payouts.
“It’s been called the wall of contributions,” said Alan Glickstein, a senior retirement consultant at Towers Watson & Co. (TW) in New York. “All of a sudden this thing jumps up and stays there for a few years. That’s what it looks like — a wall.”
Companies from defense contractor Lockheed Martin Corp. (LMT) to aviation-electronics maker Honeywell International Inc. are caught in a vise: the Federal Reserve Board’s vow to keep rates at current levels until 2014 means pension plans’ fixed-income investments are stagnating just as new rules shorten the time available to shore up funding.
“They’re going to have to kick money in,” said John Ehrhardt, a consulting actuary at Seattle-based Milliman. “We’re basically seeing historically low interest rates driving historically high employer contribution requirements.”
That’s money that won’t go back to shareholders through dividends or buybacks, or toward expansion, said Kevin McLaughlin, a pension risk management specialist with consultant Mercer in New York.
Seven Years
Under the federal Pension Protection Act, which was passed in 2006 and mostly took effect in 2008, tighter accounting rules gave employers seven years to fully fund their retirement plans and required them to use a specified, market-based rate of return to compute liabilities instead of a company estimate.
Those liabilities are calculated by projecting future payments and discounting to the present based on interest rates pegged to a basket of corporate bonds. Liabilities rise when rates fall — and the Fed has held its discount rate at 0.75 percent since February 2010, down from as high as 6.25 percent in June 2007. The Fed said Jan. 25 it expected rates to stay at current levels until 2014.
3M’s pension plan in the U.S., which started 2011 with assets of $11.6 billion, shows the challenge for employers.
Assets rose to $12.1 billion by year’s end because of investments and contributions, even after payments of $680 million, according to a Feb. 16 filing. At the same time, the funding shortfall more than tripled, to $2.4 billion, because projected benefit obligations rose 18 percent to $14.5 billion.
‘Liabilities Did Increase’
“With the declining interest rates here in 2011, our liabilities did increase,” 3M Chief Financial Officer David Meline said Feb. 23 at a Barclays Plc industrial conference.
While 401(k) savings accounts are more common at younger companies, traditional manufacturers such are among the employers most affected by the pension pinch because they’re still making payments under defined-benefit plans. St. Paul, Minnesota-based 3M’s 2012 pension contribution will almost double to as much as $1 billion.
Pension expense is “a variable that we consider among many when we look at a company and what it could mean to their profitability,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. “If that were something that we said we wouldn’t want to own, we’d probably have a fairly limited universe of companies we could buy.”
S&P Industrials
The Standard & Poor’s 500 Industrials Index (S5INDU), whose 61 companies include manufacturers such as Boeing with defined- benefit programs, climbed 10 percent this year through yesterday, topping the S&P 500’s 8.7 percent gain.
Boeing’s pension cost will jump to $2.6 billion, 63 percent more than a year earlier, the company said in January. GE told investors in December it plans to add $1 billion, the first contribution since 1987, and expects to add about $2.1 billion in 2013. The Fairfield, Connecticut-based company closed its U.S. defined-benefits pension plan to all new hires this year.
Honeywell (HON) probably will make a contribution of as much as $1 billion, after low interest rates dashed a goal of full funding in four years, CFO Dave Anderson said. The plan was 83 percent funded at the end of 2011.
‘Little Bit Longer’
“I’d hoped to be there by 2015 to have more of a full resolution of that issue, but it’s going to take a little bit longer probably,” Anderson said in an interview. “Interest rates are at historic low levels and there’s no change in sight for that.”
Pension sponsors usually average rates over 24 months, so 2012 may be the peak year for companies’ pension contributions, said Glickstein of Towers Watson.
“We have a very unusual governmental intervention in the wake of a financial crisis,” he said. “Whatever other merits it may have, it’s clearly distorting the measures of pension obligations and putting a lot of extra pressure on plan sponsors.”
Lockheed Martin anticipated the rise in liabilities by pumping $6 billion into its plan over the last three years, curbing the projected 2012 contribution to $1.1 billion, according to a company filing.
Many pension plans, including GE’s, were overfunded before the December 2007 onset of the worst recession since World War II. Then pension assets began shriveling as stocks slumped, and lower interest rates increased liabilities.
Funding Levels
For the 100 largest defined-benefit plans, average funding levels sank to 74 percent in January from 105 percent in 2007, according to Milliman. Some companies may need to funnel cash to their pension plans for years.
Pension plan assets at Atlanta-based Delta Air Lines Inc. (DAL) covered only about 40 percent of obligations at the end of 2011, down from 47 percent the previous year, according to the carrier’s latest annual report. The funding shortfall widened to $11.5 billion from $9.3 billion in 2010, the filing showed.
Even after Delta ended pilots’ pensions before its 2007 bankruptcy exit and closed other plans to new hires, CFO Hank Halter said Jan. 25 that the airline still expects to contribute as much as $675 million in 2012. Defined-benefit programs taking new employees fell 26 percent in six years to 20,381 in 2009, according to the latest U.S. Pension Benefit Guaranty Corp. figures for plans with 25 or more workers.
The threat of future contributions is driving many sponsors of defined-benefit plans to seek ways to blunt risk, said Jeffrey Saef, chief of Bank of New York Mellon Corp. (BK)’s investment strategy and solutions group in Boston. That often means using more fixed-income investments to help match pension assets more closely to liabilities, he said in an interview.
Clients struggling with the cash drain from pensions have a universal query, Saef said: “‘When will it go away?’”
With Fed Chairman Ben S. Bernanke’s thumb on interest rates, that won’t be any time soon, said McLaughlin, the Mercer consultant.
“Right now, everybody is hoping for the best, which is equity markets performing and interest rates not falling any lower,” he said.