Original post by The Economist: Business

Why the banks could not win

IT WAS billed as a landmark deal that exacted retribution on banks which wrongly turned millions of Americans out of their homes. Yet the announcement on February 9th of a huge mortgage-foreclosure settlement between five American lenders, the federal government and 49 state attorneys-general is most notable for the questions it leaves unanswered.The deal, which may have been sealed but is apparently not yet signed, calls for $25 billion to come from five of the largest American financial institutions: JPMorgan Chase, Wells Fargo, Bank of America, Citigroup and Ally Financial. No justification has been given for this overall number nor for the amount each bank is to pay (which seems to reflect market share rather than any measure of culpability). It is not clear if the money will come in the form of cash or as write-downs on loans.Where the money will go is also unclear. The federal government and the 49 states will get $5 billion, with $3.5 billion headed for a nebulous pot “to repay public funds lost as a result of servicer misconduct and…

Original post by The Economist: Business

Original post by The Economist: Business

Original post by The Economist: Business

It clearly helps the local economy that Texas is abundant in both oil and shale gas, even if the price of the latter is rather lower than producers would like. But is betting on energy a good idea? After all, the state went though a nasty bust in the mid-1980s when the oil price collapsed.Economists have long talked of the “resource curse” that can affect economies with lots of energy and minerals. The curse comes in two main forms. First, high revenues from resource development allow governing politicians to be “rent-seekers”, seizing control of the assets and using the income to buy off opposition to their rule. Mobutu Sese Seko, a former dictator of what was then Zaire, is the most glaring example of this tendency. The result is that more stable forms of government fail to develop.The second form of the…

Original post by The Economist: Business

IN DECEMBER Barack Obama trumpeted a new standard for mercury emissions from power plants. The rule, he boasted, would prevent thousands of premature deaths, heart attacks and asthma cases. The Environmental Protection Agency (EPA) reckoned these benefits were worth up to $90 billion a year, far above their $10 billion-a-year cost. Mr Obama took a swipe at past administrations for not implementing this “common-sense, cost-effective standard”.A casual listener would have assumed that all these benefits came from reduced mercury. In fact, reduced mercury explained none of the purported future reduction in deaths, heart attacks and asthma, and less than 0.01% of the monetary benefits. Instead, almost all the benefits came from concomitant reductions in a pollutant that was not the principal target of the rule: namely, fine particles.The minutiae of how regulators calculate benefits may seem arcane, but matters a lot. When businesses complain that Mr Obama has burdened them with costly new rules, his advisers respond that those costs are more than justified by even higher benefits. His Office of Information and…

Original post by The Economist: Business

EUROPE’S handling of its sovereign-debt crisis has been disastrous. Euro-zone leaders succeeded in turning a manageable economic problem in Greece into a political conundrum that jeopardises the single currency. A premature insistence that private-sector creditors take a hit on Greece has fostered contagion. Massive write-offs are necessary but nobody yet knows what constitutes sustainable debt or what Greece’s “real” GDP is. In Latin America in the 1990s debt relief was granted only when fiscal adjustment and structural reforms were very advanced. This is certainly not the case in Greece. Although the European Central Bank’s three-year liquidity operations and the probable provision of more bail-out money for Athens provide a breathing space for a more comprehensive solution, Greece will remain a source of uncertainty. The country is in a deep recession: its GDP has fallen and unemployment has risen for three consecutive years. More austerity will only increase economic and social pressures within the country.Given this grim outlook many analysts suggest that it would be better for Greece to exit the euro zone….

Original post by The Economist: Business

GERMAN autobahns are unlike motorways elsewhere—on some you can drive as fast as you like. Germany’s car industry is also in a class of its own. Its three big premium brands, BMW, Mercedes-Benz and Audi (part of Volkswagen), are working flat-out to meet demand for their beautifully engineered, stylish motors. The emerging world’s new rich love them. Germany’s domestic car market is doing nicely, too: sales grew by 9% last year.

The contrast with the rest of Europe is stark. Car sales fell by 2% in France, 11% in Italy and 18% in Spain last year. And status-conscious consumers in China are not interested in cars that are merely pretty good. So Europe’s volume—ie, non-premium—carmakers are in trouble. France’s Peugeot-Citroën, Italy’s Fiat and Opel-Vauxhall (the European arm of GM, America’s biggest carmaker) have all seen their European sales fall…

Original post by The Economist: Business

A wise thief tries not to draw attention to himself

IN THE film “Superman 3”, a lowly computer programmer (played by Richard Pryor, pictured) embezzles a fat wad of money from his employer. The boss laments that it will be hard to catch the thief, because “he won’t do a thing to call attention to himself. Unless, of course, he is a complete and utter moron.” Just then the thief screeches into the car park in a brand new red sports car, radio blaring.In the real world, embezzlers are seldom so obvious. The traditional way to snare them is to hire an accountant to scrutinise accounts for anomalies. But this is like looking for a contact lens in a snowdrift. So firms are turning to linguistic software to narrow the search.Rip-offs tend to occur in what gumshoes call the “fraud triangle”: where incentive, rationalisation and opportunity meet. To spot staff with the incentive to steal (over and above the obvious fact that money is quite useful), anti-fraud software scans e-mails for evidence of money troubles. Phrases like “under the gun” and “make sales quota” can indicate that an employee…

Original post by The Economist: Business

IN TOKYO’S posh Ginza shopping district the Apple Store is packed, but the nearby Sony showroom is as lifeless as a mausoleum. In recent days the largest Japanese gadget-makers said they expect to lose a combined $17 billion in the financial year 2011. Panasonic alone expects to lose $10 billion. Meanwhile South Korea’s Samsung enjoyed profits of $15 billion and America’s Apple hauled in $22 billion.Since 2000 the big five Japanese electronics firms have lost two-thirds of their value (see chart). What ails them? High costs and a strong yen don’t help. Nor does a recent legal change that bars them from claiming certain tax credits they had counted on. But the sickness runs deeper.Too many Japanese firms make similar things. No fewer than eight crank out mobile phones; more than ten make rice-cookers and six make televisions. The overlap is inefficient: it duplicates research and development, reduces economies of scale and destroys pricing power.Companies often stay in markets where they cannot compete. This wastes huge amounts of capital. Rather than sticking to what they do best, they bleed their strong…

Original post by The Economist: Business