President Mugabe receives a US$1 million check from Murowa Diamonds managing director Mr Zebra Kasete while Youth Development, Indigenisation and Empowerment Minister Saviour Kasukuwere looks on in Masvingo on February 15, 2013., a photo by Pan-African News Wire File Photos on Flickr.
Ministers fingered in diamonds scam
March 8, 2014
Lloyd Gumbo and Farirai Machivenyika
Minister of State for Manicaland Province Christopher Mushowe allegedly ordered Diamond Mining Company to deposit money into an account he provided, effectively sidestepping the Marange-Zimunya Community Share Ownership Trust launched by President Mugabe in 2012.
Further, Environment Environment, Water and Climate Minister Saviour Kasukuwere is accused of presenting a US$50 million false cheque to President Mugabe at the launch of the trust.
It is also alleged that the five diamond mining companies operating in Chiadzwa never pledged the US$50 million kitty presented when President Mugabe launched toward the trust.
The firms were said to have pledged US$10 million each, but yesterday they refuted the claim with some of them saying they had only pledged US$1,5 million each while others professed complete ignorance of the existence of the trust.
Minister Kasukuwere and the Zimbabwe Mining Development Corporation are said to have instructed some of the mining companies to delay disbursement of the money.
The firms are Mbada Diamonds, Marange Resources, Anjin Investments, Jinan and Diamond Mining Company.
The mining firms told the Parliamentary Portfolio Committee on Youth, Indigenisation and Economic Empowerment that the establishment of the trust was mired in confusion and disorganisation.
Gokwe-Nembudziya MP, Cde Justice Wadyajena (Zanu-PF) chairs the committee. Anjin Investment board member Mr Munyaradzi Machacha said they had always worked with Minister Mushowe.
“The trust has not approached us. Minister Mushowe is the one we have been talking to. He was the contact person. He gave us the bank account. We have not had any meeting with Marange-Zimunya Community Trust.
“All the correspondence we have had is through the Minister of State for Manicaland because he claims he has a working relationship with the Marange-Zimunya Community Trust. We have not had any business meeting with the trust,” said Mr Machacha.
Mr Machacha also claimed that Minister Kasukuwere, who was then Youth Development, Indigenisation and Economic Empowerment Minister, advised them that fulfilling the pledges to the trust could be done over five years.
As such, he said they did not see the need to urgently fulfill the pledge considering that they had also hit a hard rock.
“When we made that pledge (US$1,5 million), we were made to believe that we could make payments over time. Minister Kasukuwere gave indications that we could do so over a period of five years.”
Quizzed by Cde Wadyajena if they had misled President Mugabe and presented a falsified cheque, Mr Machacha said: “He (Minister Kasukuwere) knew that there was no money at all. It was just a dummy cheque.”
DMC board chairperson, Brigadier-General (Retired) Ezekiel Zabanyana said ZMDC never gave them a go ahead to donate toward the trust.
“This is where we lacked the strategic plan or some means to ensure this was implemented. We did approach ZMDC and as our boss they said let’s leave that,” he said.
DMC general manager Mr Ramzi Malik also said they only pledged US$1,5 million.
“We never pledged US$10 million. We asked ZMDC to go and identify areas of major importance and give each company the programme which will take the contributions to. ZMDC went and did that exercise but never came back to us.
“We need engagement and a co-ordinated effort. Let’s not just throw figures out there. Let’s meet and discuss figures before we go to the press,” he said.
Mbada Diamonds board chairperson Dr Robert Mhlanga said they were never part of the trust but donated US$200 000 out of “courtesy”.
“I would like to initially highlight that Mbada Diamonds has contributed US$200 000.
However, Mbada Diamonds has never made a pledge to the share scheme. There was no formal communication soliciting for a pledge from Mbada Diamonds. Not even informal. We have not been contacted to make a pledge as a company,” said Dr Mhlanga.
“In fact, there is a lot of miscommunication which has taken place around this thing concerning the Marange-Zimunya Trust. To say there is anything organised no! Because if there was anything formal, we would have been advised by our parent ministry we then would have acted accordingly. We 100 percent have not made any pledge,” he emphasised.
Jinan marketing manager, Mr Enock Moyo said their company was not represented at the July 2012 meeting where pledges were made.
The parliamentary committee, however, booted out the team whom they felt were unqualified to comment on issues concerning the company after Mr Moyo said senior managers were busy elsewhere.
Marange Resources acting CEO Mr Mark Mabhudhu said his firm availed US$200 000 toward the trust but expressed willingness to contribute more if their financial position improved.
Trustees to the scheme last week alleged there was interference by politicians in Manicaland in the trust’s affairs. They said this resulted in the diamond mining companies not fulfilling their pledges.
Detroit Emergency Town Hall Meeting to oppose the bankers' plan of adjustment in the forced bankruptcy of the city. A program of action was adopted by the audience. (Photo: Abayomi Azikiwe), a photo by Pan-African News Wire File Photos on Flickr.
Court Hit With Sad Stories From Detroit Retirees Objecting To Bankruptcy Cuts
March 6, 2014 5:06 PM
DETROIT (WWJ/AP) — As courts, leaders in Lansing and Detroit struggle in the wake of the city’s bankruptcy filing with decisions about pensions promised to Detroit retirees, the pensioners themselves are speaking.
Emergency Manager Kevyn Orr has made it clear pensions have to be cut for the city to survive bankruptcy, with a proposal of a 26 percent slash for everyone except police and fire retirees, who would lose 6 percent.
Those potentially affected by the bankruptcy filing — about 34,000 pensioners — are able to object to it by filing complaints with the U.S. Bankruptcy Court. There are about 90 objections in the file right now, according to court records.
Some are sending heartbreaking stories.
In one letter to Judge Steven Rhodes, a retiree wrote she’s “heart broken” and says her husband is blind and on dialysis. She writes if any part of her money was cut she “might as well dig a hole in my back yard to lay us both to rest because I surely cannot or will not be able to pay for a funeral.”
The letter ends with the woman asking the judge to “please help me to keep all my retirement benefits.”
Another man explains that his two-income household is now a one-income household since his wife lost her job in 2012. “I am in the poor house, or you can say out in the streets,” he wrote.
One man said he “drove garbage trucks, cut grass and did a lot of jobs that needed done,” as a longtime city employee, and says “I’m not crying, but I will be if you let them take our money.”
A 29-year bus mechanic says he has lingering neck and back problems from continual bending and stooping on the job, needs his health insurance, and says the cut “will make me eligible for state assistance for the first time in my life.”
Gov. Rick Snyder pledged $350 million of state money in January to help fund pensioners and the Detroit Institute of Art; another $330 million is expected to come from private sources. It’s unclear if or how much that would offset cuts.
The Detroit Free Press is reporting Detroit reached a new deal Thursday with Barclays to borrow at least $120 million to “speed the city’s bankruptcy restructuring and invest in new services.”
This comes after a federal bankruptcy judge who vetoed two previous deals between Detroit and lenders to settle hundreds of millions of dollars in pension debt had a hearing Wednesday on a third tentative agreement.
Detroit emergency manager Kevyn Orr announced Tuesday night the banks agreed to accept $85 million from the city to settle the debt.
Judge Steven Rhodes vetoed two earlier tentative deals for Detroit to pay $230 million and $165 million to UBS and Bank of America Merrill Lynch to settle the debt incurred in 2009 when the city pledged casino taxes as collateral to avoid defaulting on pension debt payments. The city ended up locking itself into high interest rates on bonds, and the deal became too costly when interest rates plunged.
Bond insurer may oppose new deal to end Detroit swaps
Wed, Mar 5 2014
DETROIT, March 5 (Reuters) - Detroit's latest proposal to end costly interest-rate swaps is likely to be opposed by Syncora Guarantee, an attorney for the bond insurance company said in U.S. Bankruptcy Court on Wednesday.
"There is a likelihood there may be an objection," Stephen Hackney, Syncora's attorney at law firm Kirkland & Ellis, told Judge Steven Rhodes at a status hearing on the city's motion on the swaps deal.
The city on Monday had asked the court to approve a new deal to terminate the swaps, which were used to hedge interest rate risk on some pension debt, at a cost to the city of $85 million.
Syncora, which insured some of the city's pension debt associated with the swaps, as well as the swaps themselves, fought prior deals to end the hedges, claiming that such a move would cause it financial harm.
The bond insurer and other Detroit creditors have also claimed that the city was affording more favorable treatment to swap counterparties UBS AG and Merrill Lynch Capital Services.
Robert Hertzberg, an attorney at law firm Pepper Hamilton who is representing Detroit, asked the judge to hold a March 20 hearing on the swaps deal with the city's emergency manager Kevyn Orr testifying, but Rhodes did not immediately set a date.
He rejected two previous deals on the swaps that carried price tags of $165 million and around $230 million as being too expensive for the city.
The swaps soured when interest rates dropped along with Detroit's credit rating and big termination fees owed to swap counterparties helped push the city in July to file the biggest municipal bankruptcy in U.S. history.
In its motion, Detroit said court approval of the new swaps deal would give the city unfettered access to casino tax revenue used as collateral for the swaps as well as leverage in efforts to win Rhodes' approval of its debt adjustment plan. That plan calls for cuts to worker pensions and even bigger cuts for some bondholders.
Rhodes also heard arguments on the timetable he released last month that set a trial beginning June 16 on the plan's factual issues. Some creditors wanted a trial date in July or September. The judge said he will issue a revised schedule soon.
Judge considers slight delay to Detroit bankruptcy timeline
6:16 PM, March 5, 2014
By Nathan Bomey
Detroit Free Press Business Writer
Judge Steven Rhodes today signaled that he may slightly delay Detroit’s fast-track bankruptcy to give creditors and retirees more time to consider the city’s restructuring plans.
Rhodes told attorneys that he plans to file a new scheduling order outlining dates for the city’s restructuring hearings.
He previously proposed a confirmation hearing to start June 16 on whether to approve Detroit’s bankruptcy restructuring proposal, but it appears that will be pushed back.
The judge also signaled that he would give creditors more time to vote on the city’s plan of adjustment after a proposed April 14 hearing on whether the city has disclosed enough information about its restructuring plans. Votes from Detroit’s 170,000 creditors must be tabulated before the plan confirmation hearing can begin.
Separately, the city’s bankruptcy lawyers asked Rhodes to conduct a hearing on March 20 to consider approving a new proposed settlement with UBS and Bank of America Merrill Lynch over a disastrous pension debt interest-rate transaction called swaps.
The city on Monday night revealed a deal to pay the banks $85 million to eliminate the $288-million obligation, which secured a steady interest rate of 6% on a $1.4-billion pension borrowing transaction brokered in 2005 by former Mayor Kwame Kilpatrick’s administration.
Rhodes previously rejected settlements of $165 million and $230 million, saying it was “just too much money” to eliminate a deal that might have been illegal to begin with.
Detroit bankruptcy lawyer Robert Hertzberg said Detroit emergency manager Kevyn Orr would testify during the swaps hearing. He asked Rhodes to expedite the hearing and said it should only take a day.
The judge said he would consider the request and issue a written order on the issue.
Hertzberg said the city needs to proceed quickly with the swaps settlement to keep its broader restructuring plan on a fast track.
Stephen Hackney, an attorney for bond insurer Syncora, one of the city’s fiercest opponents in bankruptcy court, said the new deal shouldn’t be rushed.
“There is no emergency,” Hackney said.
Rhodes suggested Syncora’s opposition to the deal is inevitable.
“You’re not going to settle, so let’s just get to it,” Rhodes said. “Seriously, c’mon.”
Contact Nathan Bomey: 313-223-4743 or firstname.lastname@example.org. Follow him on Twitter @NathanBomey.
People took the streets in front of the federal courthouse in downtown Detroit during the first day of a bankruptcy trial. , a photo by Pan-African News Wire File Photos on Flickr.
Detroit retirees fight for health benefits
BY STEVEN CHURCH
MARCH 7, 2014
(Bloomberg) -- Retired Detroit public workers have sent dozens of handwritten letters to the federal judge overseeing the city’s record municipal bankruptcy.
In many, the retirees are pleading with the judge to protect their health benefits.
The U.S. Bankruptcy Court has posted more than 90 objections to Detroit’s proposed “plan of adjustment.” Each of the objections is one or two pages long. In each, a retiree asks Judge Steven Rhodes to reject Detroit’s proposal.
Detroit wants to cut the retirees’ benefits in an effort to reduce an $18 billion mountain of liabilities.
“How in the world can anyone be so ruthless and uncaring about other people and their future,” wrote Geraldine Chatman, who said she worked 39 years for the city. “Please if you would only think of the number of people who will be hurt by this effort.”
Under the proposal by Detroit’s emergency financial manager, Kevyn Orr, general workers would be forced to accept as little as 66 percent of their current pensions while police and firefighters would get at least 90 percent.
Retiree health-care benefits would be reduced in part by helping former workers who aren’t yet old enough to qualify for the federal Medicare program to get insurance through the exchanges set up under the Patient Protection and Affordable Care Act (PPACA).
A committee appointed to represent former workers in the bankruptcy estimated that about 32,000 current and retired city employees will be affected by the plan. The committee said in a court filing that the proposed cuts would force 20 percent of the more than 23,000 retirees into poverty.
Rhodes moved the start of a trial over the debt-cutting plan to July 16 from June 16 after creditors complained that they needed more time to prepare. While it prepares to seek approval of the plan in June or July, the city continues to negotiate with creditors, including bondholders, retirees and union officials.
The case is In re City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
--Editors: Andrew Dunn, Charles Carter.
Workers line up in Coney Island, New York looking for jobs. The unemployment rate rose again in March 2014., a photo by Pan-African News Wire File Photos on Flickr.
U.S. Adds 175,000 Jobs; Unemployment Ticks Up to 6.7%
Revisions Bolster Picture of Hiring in December and January
By BEN LEUBSDORF And JEFFREY SPARSHOTT CONNECT
Wall Street Journal
March 7, 2014 8:33 a.m. ET
WASHINGTON—The U.S. labor market in February picked up from recent months, though growth remained measured and the unemployment rate stubbornly high.
U.S. nonfarm payrolls increased by a seasonally adjusted 175,000 in February, the Labor Department said Friday. Revisions by the agency showed the economy added slightly more jobs in recent months than previously believed. Employers added 129,000 jobs in January, up from 113,000, and 84,000 jobs in December, up from 75,000.
The nation's unemployment rate ticked up to 6.7% in February from 6.6% in January. The labor force grew, but so did the number of unemployed.
Economists surveyed by Dow Jones Newswires had projected payrolls would rise 152,000 in February and the unemployment rate would fall to 6.5%.
U.S economic growth accelerated in the second half of 2013 but has shed momentum in recent months. Gross domestic product grew at a seasonally adjusted annual rate of 2.4% in the fourth quarter, down from its 4.1% pace in the third quarter, according to the Commerce Department. Many economists expect growth to slow further in the first quarter. The forecasting firm Macroeconomic Advisers projects GDP will grow at a 1.5% pace, and Barclays Capital predicts 2.2% growth in the first three months of the year.
The recent stretch of mixed economic data, including weak retail sales and a drop in factory output, has been blamed in part on harsh winter weather. The weather may have distorted Friday's reading on jobs, too. Last month's household survey, one component of the jobs report, coincided with a mid-February storm that brought ice and snow to much of the eastern U.S.
It's far from clear if weather is the primary culprit or if the U.S. economy is slowing down in earnest. "A number of data releases have pointed to softer spending than analysts had expected," Federal Reserve Chairwoman Janet Yellen told lawmakers last week. "That may reflect in part adverse weather conditions, but at this point it is difficult to discern exactly how much."
The Fed has been scaling back its bond-buying program, which aims to stimulate the economy by lowering borrowing costs. It now stands at $65 billion per month and policymakers have signaled they plan to pare it in $10 billion increments this year as long as the economy continues to improve.
The central bank's policy-making committee is scheduled to meet March 18-19. Federal Reserve Bank of New York President William Dudley said Thursday that "the threshold is pretty high" for changing course and "the outlook would have to change in a material way relative to my expectations."
Payrolls grew an average of 129,000 a month in December, January and February, slower than the average for the last year of 189,000 a month.
The construction sector, which can be sensitive to the weather, added 15,000 jobs in February after adding 50,000 in January. Manufacturing firms added 6,000 jobs last month, retailers cut 4,100 jobs and employment in the leisure and hospitality sector rose by 25,000 jobs.
Professional and business services employers added 79,000 jobs in February. Employment in the health-care industry rose by 9,500, the third straight month the Labor Department said the field remained nearly flat.
The labor force participation rate held steady at 63% in February. The metric remains at historically low levels.
The number of Americans who have been out of work for 27 weeks or longer rose in February by 203,000 to 3.8 million. Federal funding for extended unemployment benefits expired at the end of December, which could push many of the long-term unemployed either to take jobs or drop out of the workforce entirely.
The unemployment rate rose to 6.7% last month, but a broader measure that includes people working part-time who want a full-time job and others who are marginally attached to the workforce fell to 12.6% in February. It stood at 12.7% in January and 14.3% a year ago.
In flooding the internet with malware and attack code, and by increasing wariness of data sharing, the NSA’s actions have had a negative impact on the fight against cybercrime. By Tom Brewster
By Dan Fejes, who lives in northeast Ohio. Cross posted from Pruning Shears
It occurred to me that the author was getting an on-the-ground look at a similar phenomenon I’ve observed with the oil and gas industry in Ohio (and presumably elsewhere): both TFA and fracking rely on short term, out of state labor.
(I know TFA recruits have the opportunity to extend beyond their initial two year contract, but the very fact of a two year contract sends a strong message that the job is not intended to be permanent.)
The degree to which this is happening makes aggregate reporting on job gains inadequate. Necessary but not sufficient. With fracking, for instance, the numbers are terrible – and what were considered dire warnings from activists a few years ago about the dubious economic benefits of it are now blandly accepted as conventional wisdom.
Last summer the Plain Dealer reported that “employment levels increased by less than 1 percent in 15 eastern Ohio counties where the highest number of horizontal shale wells have been drilled.” Then it followed that up a few weeks ago with an article that painted a very rosy picture of a dismal reality: Jobs are going to migrant workers, and the main economic impact is bumping up business to the hotels and restaurants that serve them.
As a side note, moving the goalposts appears to be a feature of crappy job boosterism. In the August PD article, note that we are once again just a step further down the resource extraction path away from JOBS: “Future job growth will depend on whether Ohio’s shale wells produce ‘natural gas liquids,’ or NGLs, which are used by industry and whether the price of ‘dry gas’ used for heating, power production and manufacturing increases beyond the current prices.” Meanwhile, an industry flack mumbles that jobs were never the point anyway: “I think the real indicator is sales-tax receipts that have grown in the eastern counties where this activity is taking place.”
So the relevant question is, are meaningful jobs created? I’d say a meaningful job has three characteristics: It employs locally at a living wage for the long term. As I’ve written before the oil and gas industry would like the public believe fracking does all three, and will be an anchor for communities much like steel mills once were. The reality is far different.
Jobs created for migrants or in a boom town – where there isn’t sufficient housing for the influx of new workers, and those lucky enough to have a roof over their heads often have no toilet or running water – don’t seem like much to celebrate. (To be fair, it’s been positive for at least one ancillary industry.) Similarly, TFA’s transition from plugging individual vacancies to wholesale replacement of local workforces seems like a really raw deal for the communities targeted by it.
This process has been happening for a good long while now. A scrap of folk wisdom from the Clinton years shows how many people intuitively understood that. Deals like NAFTA (which ought to be called free capital agreements since trade is incidental to their purpose (via)) destroyed hundreds of thousands of good-paying manufacturing jobs, while new positions were created in the lower-paying service sector. The running joke went something like this: “I know they’ve created millions of new jobs. I have two of them.”1
That trend – which again, folks were very much aware of from the start and had no illusions to the contrary about – is our new reality. We should take that into account the next time we are assured that a good jobs report means that this time, for reals, pinky swear, the Great Recession is totally over. The jobs number by itself is not nearly enough.
We also need to know how much those jobs pay, who is filling them and for how long. It may not be possible to break it down to that level of detail, in which case fine. But such reports should be seen as of limited utility. People need steady work nearby at good wages, and a report that doesn’t address that isn’t (and shouldn’t be) of much interest.NOTES
1. Additional appearances:
- Here: “He said I created 11 million jobs. Well, I met a guy the other day that got three of them. “
- Here (PDF): “President Clinton has created millions of new jobs—I have three of them!”
- Here (PDF): “Oh sure, America is creating millions of new jobs. And I’ve got three of them.”
- And I remember seeing it in an editorial cartoon as well (that’s where I first read it) but don’t remember who or where.
I am still sick, behind the eight ball, and have tasks in addition to post-writing on my plate. I had wanted to give you another post after our 7:00 AM launch, but I am feeling worse and need to turn in. Apologies.
Girl Scouts asked to end partnership with Barbie Capital Gazette (furzy mouse). Wow, Mattel figured out how to monetize space on Girl Scout uniforms?
16th-century manual shows ‘rocket cat’ weaponry Journal-Gazette (1 SK)
How to Find Out If Your Doctor Has Been in Trouble Patient Safety Blog
AP EXCLUSIVE: MAN SAID TO CREATE BITCOIN DENIES IT Associated Press (Ed Harrison)
Yet another exchange hacked: Poloniex loses around $50,000 in bitcoin ars technica. Richard Smith: “Another day, another bitcoin….theft.”
Japan Says Bitcoin Not a Currency Wall Street Journal. Ouch. Means transactions are subject to sales AND capital gains taxes.
Thatcher’s Britain is the wrong economic model MacroBusiness
How the Indian Man Leads the World in Preening WSJ IndiaRealTime
Brussels plans fresh rules on executive pay Financial Times
Ten handy phrases for bluffing your way through the Ukraine crisis Spectator (Richard Smith)
Flashback: Why Ronald Reagan Invaded Grenada Kevin Drum
US and allies punish Russia over Ukraine Financial Times
Punishing Putin Will Hurt the U.S. and Europe, Too Bloomberg. Editorial. Even the Administration’s proposed wet-noodle lashing has Bloomberg nervous.
President Obama, Vladimir Putin speak on Ukraine crisis Politico. Wow, how can Obama and Putin talk past each other for a full hour?
The ‘We-Hate-Putin’ Group Think Consortium News
Ukraine Recruiting Its Oligarchs To Prevent Pro-Russia East From Seceding Agence France-Presse
Russians sink a boat off Ukraine coast — their own Stars and Stripes (1 SK)
Big Brother is Watching You Watch
Late Night: Opera Bouffe cocktailhag, Firedoglake
Declassify the torture report Washington Post. Editorial so significant.
Colleges Straining to Restore Diversity Wall Street Journal
The Intercept’s Interference: Notes on Media, Capitalism, and Imperialism Cats, Not War. Quite the shellacking.
Exclusive: Pimco’s Gross declares El-Erian is ‘trying to undermine me’ Reuters. Digging a hole deeper. See Felix for background.
Goldman discovers money buys respect Gillian Tett, Financial Times. Who’d have thunk it?
GOLDMAN SACHS ELEVATOR HAS LOST HIS BOOK DEAL Business Insider
Tapering is Sooo 2013 Tim Duy
On Latest Jobs Data, It’s Anybody’s Guess New York Times. But expectations are generally low.
Antidote du jour. This is Josie B’s Dougie:
A corporate bond default should hardly be a headline dominating-event unless the default in question is of a particularly large concern, or is tightly coupled (as in could, Lehman-style, trigger more distress) or is a precursor of things to come. The sudden spell of worry in China over the RMB 89.8 million ($14.6 million) interest payment default by the comparative small fry Shanghai Chaori Solar has managed to focus attention on the fact that something has to give when authorities tighten credit after companies go on a leverage splurge. And in the case of Shanghai Chaori Solar, it managed to go from AA at the time of its bond issue to CCC before its default, an impressively fast two year decline.
The belief among Chinese enthusiasts has been that the banking system is so tightly controlled by the authorities that nothing all that bad can happen. But the reaction in the domestic credit markets says that faith is being tested. The authorities are not rescuing Shanghai Chaori Solar (unlike the expected default of an investment trust in late December, which again put domestic markets in a bit of a tizzy). The new issue bond market is effectively shut down, with four borrowers who had hoped to come to market suspending offerings. Walter Kurtz also notes that liquidity in the secondary bond market is also down, another sign of investor and dealer concern, and that banks are cutting back lending rather than stepping into the breach. So this is at least a credit squeeze, and may be the start of a full bore credit contraction.
The China bears for years have pointed to China’s remarkable (or reckless) credit growth, with more and more companies looking like classic Minsky Ponzi units, dependent on new credit to meet existing obligations. A real determination by the authorities to tighten will put the entire Ponzi sector under pressure, and investors (and one expects the authorities too) don’t have a great handle on where the dead, or perhaps more accurately, zombie bodies lie. A new Bloomberg story, Zombies Spreading Shows Chaori Default Just Start, gives an overview. The troubling background is the degree to which credit has exploded since the crisis, with total debt of public non-financial companies rising from $607 billion at the close of 2007 to just shy of $2 trillion at the end of last year. And some are highly geared, with debt to equity ratios of over 200%. Key extracts from the article:
Publicly traded non-financial companies with debt-to-equity ratios exceeding 200 percent have jumped 57 percent to 256 from 163 in 2007, according to data compiled by Bloomberg on 4,111 corporates.
This is still only 6% of the total, so the sharp reaction in the market suggests that the risks by dollar value may be greater than these figures suggest (as in the zombies are larger on average than most public company borrowers). And it is quite probable that many of the public companies have issued equity only, so you’d need to look at the zombie debtor outstandings relative to total corporate bond market outstandings to have an apples to apples reading.
The change in official attitudes, and not the default per se, appears to be the driver of the newfound caution. Bloomberg again:
The government is signaling greater willingness to let borrowers be subjected to market discipline, according to Christopher Lee, head of corporate ratings for Greater China at Standard & Poor’s.
“We expect more discrimination in terms of credit risk and more selective lending,” Hong Kong-based Lee said by phone yesterday. The Chinese government will allow any further defaults “in a selective and controlled basis as opposed to the Big Bang approach, which is not their style,” he added…
While any Chaori default likely won’t prompt an immediate liquidity crunch in China, it may lead to a chain reaction, Hong Kong-based strategists David Cui, Tracy Tian and Katherine Tai at Bank of America wrote in a March 5 note. It took a year for the U.S. financial crisis to escalate, they said.
FYI, the Bank of America report compared the default to Bear Stearns, which is peculiar, in that: 1. Bear Stearns was rescued and the officials were convinced the market tsuris was over and 2. Bear was not the start of the credit crisis; the first acute phase was the implosion of the asset-backed commercial paper market in August-September 2007.
The general tone of expert commentary is decidedly negative, even when they agree that longer-term, allowing companies to default is salutary. A sampling from Bloomberg:
“We’ve had trust defaults, we’ve had corporate defaults and we’ve had the currency weakening so there’s a whole bunch of indicators that say it’s getting worse in China,” said Tim Jagger, a Singapore-based fixed-income manager at Aviva Investors Asia Pte., U.K. insurer Aviva Plc’s Asian asset management unit. “Until you get some bigger picture direction to the contrary, it’s very difficult to construct a buy case at these levels.”
More corporate bonds onshore may default this year, said Li Ning, an analyst in Shanghai at Haitong Securities Co.
And Walter Kurtz noted:
These developments are quite negative for China’s economy. Confidence in the nation’s credit markets – both bank lending and corporate bonds – has taken a hit. It remains unclear however just how pervasive these problems could become – some think this is just the tip of the iceberg.
The much more serious problem is that if China does have a lot of bad loans, it can’t readily repeat the playbook it used when it was last in this fix, in 2002-2003. We noted in a 2011 post:
One of the striking features of China’s continuing growth as an economic power is its extreme (as in unprecedented in the modern era) dependence on exports and investments as drivers of growth. Even more troubling is that as expansion continues, consumption keeps falling as a percentage of GDP.
As countries become more affluent, consumption tends to rise in relationship to GDP. And the ample evidence of colossally unproductive infrastructure projects in China (grossly underoccupied malls, office and residential buildings, even cities) raises further doubts about the sustainability of the Chinese economic model.
The post crisis loan growth in China, in tandem with visible signs that a meaningful proportion of it has little future economic value, has stoked worries that Chinese banks will soon be struggling with non-performing loans. China bulls scoff at this view, contending that China’s 2002-2004 episode of non-performing loans was cleaned up with little fuss (I never bought that story and recall how Ernst and Young was basically bullied by the Chinese government into withdrawing a 2006 report that NPLs at Chinese banks were a stunning 46% of total assets of its four largest banks. Note estimates of the NPLs as a percent of total loans from that crisis vary widely, even excluding Ernst, from 20% to 40%).
The latest post by Michael Pettis links the two phenomena, the fall in Chinese consumption and the cleanup of its last banking crisis. If his analysis is correct, this bodes ill for any correction in global imbalances. China needs to increase its consumption in relationship to GDP to rebalance its economy, but a banking system bailout along the lines of the last one will push them in exactly the opposite direction.
We suggest you read Pettis in full, but here are the critical part of his case:
Throughout modern history, and in nearly every economic system, whether we are talking about China, the US, France, Brazil or any other country, there has really only been one meaningful way to resolve banking crises…The household sector…always pays to clean up the banks.
There are many ways to make them pay… If the regulators are given a longer amount of time during which to clean up the banks, they can use other, less obvious and so less politically unpopular, ways to do the same thing, for example by managing interest rates. In the US and Europe it is fairly standard for the central bank to engineer a steep yield curve by forcing down short-term rates. Since banks borrow short from their depositors and lend long to their customers, the banks are effectively guaranteed a spread, at the expense of course of depositors. Over many years, the depositors end up recapitalizing the banks, usually without realizing it.
Yves here. Notice that QE was the opposite of that traditional steep yield curve formula, which Greenspan used very effectively in the wake of the S&L crisis. Oops. Back to Pettis:
There are two additional ways used in countries, like China, with highly controlled financial systems. One is to mandate a wide spread between the lending and deposit rates. In China that spread has been an extremely high 3.0-3.5 percentage points. The other, and more effective, way is to force down the lending and deposit rates sharply in order to minimize the loan burden and to spur investment. This is exactly what China did in the past decade…..
By most standards, even ignoring the borrower’s credit risk, the lending rate in China during the past decade is likely to have been anywhere from 4 to 6 percentage points too low. Over five or ten years, or more, this is an awful lot of debt forgiveness…
The combination of implicit debt forgiveness and the wide spread between the lending and deposit rate has been a very large transfer of wealth from household depositors to banks and borrowers. This transfer is, effectively, a large hidden tax on household income, and it is this transfer that cleaned up the last banking mess.
It is not at all surprising, then, that over the past decade growth in China’s gross domestic product, powered by very cheap lending rates, has substantially exceeded the growth in household income, which was held back by this large hidden tax. It is also not at all surprising that household consumption has declined over the decade as a share of gross national product from a very low 45 percent at the beginning of the decade to an astonishingly low 36 percent last year.
China’s consumption share continued to fall after this post was written. The perhaps inchoate concern is that China may have reached the limits of a once-successful economic paradigm. And as we’ve stressed, no major economy has made a smooth transition from being export and investment driven to being consumption driven. China has made that task even harder by doubling down on its current strategy. They’ve managed to hold off a day of reckoning far longer than the skeptics predicted, but the bears may be about to be proven right.
All this talk about the 99% versus the 1%? I say the easiest—and likely the most useful—thing to do is just forget the 1%. Write them off. Let them have their gated communities, their mega-yachts, their island retreats and off-shore bank accounts. What do we need them for?
For one thing, we DON’T need their money. Even if we could get it—which we can’t because they steadfastly refuse to use it for anything other than casino gambling in their private and secretive financial networks. We wonder why we have a “jobless recovery”? Does it have anything to do with the fact that such a large percentage of our “capital” has, for all practical purposes, been removed from the economy?
Even when the 1% decides to invest some of their dollars to manufacture or build something, they rarely decide to manufacture or build anything we really need—only things we really don’t need. Like strip-mines in the Bristol Bay salmon fishery, or pipe-lines across Nebraska’s freshwater aquifers, or rocket-planes for space-tourism. Thanks, but we really don’t need—or want—any of it. We’d much rather have fresh wild salmon (rather than the artificially colored hatchery-stuff) than more copper and gold, fresh water instead of tar-sands oil, and the good-old week-at-the-beach is just fine for a vacation.
President Obama adds to our confusion by claiming we need to tax a bunch of the 1%’s Dollars in order to pay for a minimal laundry list of hodge-podge programs to train unemployed people to do jobs that don’t exist—and which the 1%, whether you tax them or not, have no intention of creating—ever. Why doesn’t the President just forget the 1% and start investing Sovereign Dollars (not tax Dollars, mind you) in the lower and middle economic strata he claims to care so much about? The 99% can have its own life—and a very good one to boot—if we’d just ignore the 1% and get on with the job of paying ourselves to build the things we really need.
Here’s an example: It turns out the United States—which has the largest and most complex electric power network in the world, and which is completely and utterly dependent upon electricity for its daily survival—does not have the capability of manufacturing the single most crucial component of its electrical grid: the TRANSFORMER. To be exact, we can make little transformers, but the really big ones that are necessary to push electric current across long distances (which our electric grid is totally dependent on) are somehow beyond our ken. Or, to be more accurate, the 1% have no interest in building the plants and hiring and training the workers to manufacture the very large-size transformers.
They (the 1%) apparently reason that they don’t need to go to that trouble because in our globalized economy there’s somebody else who can build the really big transformers. It turns out that somebody is South Korea. So when, recently, Pennsylvania badly needed a new very-large transformer they placed an order with the Koreans, who promptly began building it. Two years later, the 400,000 pound item was put on a ship and transported for 26 days at sea to the port of Newark, New Jersey, where it was loaded by crane onto a railcar bound for Pennsylvania. (“Heart of U.S. Grid Difficult to Replace”, W.S.J. March 4, 2014.)
This little tale is made even more interesting by the fact that these very-large transformers—usually situated inside a compound protected by chain-link fencing—are easily destroyed with a few rounds of fire from a semi-automatic assault rifle. Thankfully, semi-automatic assault rifles are difficult to come by in the U.S., otherwise there might be cause for concern. The seventeen transformers recently shot to death in California (we can’t explain how this actually happened, since the NRA is only marginally active on the West Coast) are a cautionary tale: If this were repeated on just a little bit larger scale, the Department of Homeland Security has determined, our entire electric grid could be down for months—or even longer. (Come on South Korea, hurry it up…. We’re waiting!)
So my example is this: Why doesn’t President Obama propose that since the 1% have no interest in doing it, the U.S. sovereign government build a plant to manufacture very-large transformers, hire engineers to train unemployed people to do the labor, pay those unemployed trainees for making the effort to learn how to make a giant-sized transformer, then hire those newly trained workers to run the manufacturing process? We could build a backup supply of these critical electric grid components so that in the (increasingly likely) event some crazy, anti-government sociopath seizes the opportunity to turn out America’s lights, we could turn them back on in fairly short order.
That seems sensible. And it’s total nonsense to imagine that we have to depend on using ANY of the 1%’s gargantuan stash of Dollars to do it. Like I said, just totally forget them. Let them play their Monopoly game while we get on with the task of building the world we want to live in.
This clip may seem a bit far afield, but we at NC are fans of good examples of rhetoric, particularly since you see them so seldom in the US.
This video (hat tip 1 SK) is going viral in Australia, and with good reason. The contrast between the young Senator’s soft-spoken delivery versus the withering, but accurate content of his speech is extremely effective. And if you’ve ever seen Tony Abbot in action, he’s a bad caricature of a bag-carrier for monied bigots. He manages the difficult task of making the previous Liberal prime minister, John Howard, look good by comparison.
The South African Democratic Teachers Union (Sadtu). The labor organization is an affiliate of the Congress of South African Trade Unions (Cosatu)., a photo by Pan-African News Wire File Photos on Flickr.
Affiliates Press Statements
SADTU members ready to go on strike
6 March 2014
Members of the South African Democratic Teachers` Union (SADTU) in the Central Region of Gauteng are ready to go on strike over the 0,5% disparity on pay progression and all outstanding issues that have been ignored by the DBE.
This came out of a regional mass meeting addressed by SADTU General Secretary Mugwena Maluleke at Orlando Communal Hall in Soweto on Wednesday afternoon. The meeting was also attended and addressed by COSATU President S`dumo Dlamini and Deputy General Secretary Bheki Ntshalintshali.
Both Maluleke and Dlamini appealed for unity in SADTU and COSATU. They appealed to members to defend these organizations from inside and outside forces at all material times.
They warned against lies and half truths that were being spread about COSATU. "There is an open agenda to dislodge COSATU," Dlamini said.
"We are calling for the unity of SADTU. When SADTU is united, COSATU will be united," Maluleke said.
He said people were being fed with the lies that the ANC had not made changes to their lives since it took over.
"SADTU says don`t allow lies and demagoguery rhetoric to influence you," Maluleke said.
On the issue of 0,5% parity, Mugwena said even though the amount was small, the main issue was about narrowing the gap in salary notches. The matter has been dragging for five years and the Department has not shown a sense of urgency in resolving it. Teachers were the only ones receiving a 1% pay progression while other public servants receive 1,5%. The Education Labour Relations Council (ELRC) has called the parties to a facilitation process to try and resolve the 0,5% parity. Over and above the 0,5% parity there were outstanding issues such as the basic salary structure for teachers to be at R15 000; the conditions for Early Childhood Development and ABET practitioners.
Maluleke urged members to start preparing themselves for the 2015 salary negotiations which begin in July and encouraged them to continue discussing whether they wanted a single term or multi-term agreement in salary negotiations.
He announced that ballots for the strike over 0,5% parity would soon be sent out for the members to fill. However, before closing the meeting, the Deputy Regional Secretary Moses Maluleke indicated that the region was ready for a strike.
Sdumo Dlamini reminded members of the resolution by the Federation that come elections time, COSATU should campaign for the ANC.
On the issue of a call for a special congress by some of the affiliates of COSATU, Dlamini appealed to the meeting to first read the report of the Federation`s NOB`s before making their decision.
He asked the members to work out the purpose of holding such a congress and what they wanted out of it. "Must we go there and say members must see us; we are divided?" he asked.
The National Executive Committee of SADTU will on Thursday and Friday (6 & 7 March) visit the Free State`s Maluti region as part of celebrating International Women`s Day. The NEC will address branch mass meetings similar to the Orlando meeting. Members of the Alliance are expected to provide messages of support in these meetings.
ISSUED BY: SADTU Secretariat
General Secretary, Mugwena Maluleke 082 783 2968
Deputy General Secretary, Nkosana Dolopi 082 709 5651
Media Officer, Nomusa Cembi 082 719 5157
- See more at: http://www.cosatu.org.za/show.php?ID=8501#sthash.gFm4CE3i.dpuf
Frans Baleni, secretary general of the National Union of Mineworkers in South Africa. He believes independent worker actions cannot win in the longterm., a photo by Pan-African News Wire File Photos on Flickr.
Affiliates Press Statements
NUM condemns the savage attack on its member at Union Mine in Limpopo
6 March 2014
The National Union of Mineworkers (NUM) is once more distraught that another member of the union in Limpopo is in critical condition after being brutally savaged on his way to work this morning. NUM condemns the despicable attacks driven by vigilantes masquerading as unionists while carrying pangas and machetes to slaughter the weak and the poor workers.
The victim John Ntsime Mochanka is an NUM member working for Grinaker LTA at Union Mine. Mochanka was attacked at 5:20 am this morning when he was going to work with his colleague. His colleague managed to escape and alerted the local NUM branch leadership.
According to NUM Chairperson at Union Mine, Steve Modikwane “Mochanka suffered serious broken ribs, a broken hand and another hand with a very big open cut wound”. He has been admitted at Union Mine Hospital.
Modikwane accused the company of refusing to speak with NUM.
“The Company does not want to speak to us as leaders of the NUM at Union mine about the safety of our members. This company is exposing us to the striking workers to attack and kill us," he said.
Two weeks back NUM member Thapelo Morapedi was set alight while going to work at Union Mine. He sustained serious burned wounds on his left hand and some wounds were caused by the panga when they attacked him and fortunately he survived.
On Monday, 3 March 2014, NUM member William Nkoebele a Winch Operator at Union Mine suffered serious head injuries, broken ribs and broken arms when he was attacked while going to work.
As NUM we appeal to the mine security and the law enforcement agencies to be visible next to the squatter camps where the majority of workers live. We are extremely troubled that there is no visibility of the mine security and the police in the squatter camps.
The above-mentioned incidents demonstrate that there is no safety for NUM members. We call on Police to leave no stone unturned in finding the blood-suckers who have failed to defeat their class enemy and now resort to easy targets to appease a false sense of achievement.
Furthermore, we appeal to companies to enforce discipline at work to stop intimidation.
We call on all our members to remain on high alert and report any important information to their regional offices. Vigilantes are driven by lust for blood and have nothing to do with the wages and better working conditions for workers.
For more information, Please contact:
Livhuwani Mammburu: 083 809 3257 (Acting NUM National Spokesperson)
Steve Modikwane: 082 511 0193 (NUM Branch Chairperson at Union Mine)
National Union of Mineworkers
7 Rissik Street
Tel: 011 377 2111
Cell: 083 809 3257
NUM Facebook link: https://www.facebook.com/pages/NUM/100860023402167
- See more at: http://www.cosatu.org.za/show.php?ID=8505#sthash.Sf31pWj1.dpuf
South African march against e-tolling on November 30, 2012. The demonstration was supported by COSATU, the SACP and ANCYL., a photo by Pan-African News Wire File Photos on Flickr.
Mine strike not good for the workers
6 March 2014
The strike in the platinum mine which started on 23rd January 2014 is now about to complete its sixth week, yet there is no reasonable movement from either the employers or the union.
In the meantime workers are at home not because of their liking but because they fear for their lives if they go to work. Some companies have placed their employees on is reported to be special leave, while the reality is that this leave will be taken from their leave days in the coming year and this might force some workers to work up to forty-eight months without taking leave as they would have taken their leave in advance; this is against the Basic Conditions of Employment Act.
Every week there are reports of violence in the mines, meted against those who attempt to go to work, while some workers have indicated that they want to leave the striking union but they are unable to do so as they fear for their lives. This was illustrated when a car of one lady was burnt after she indicated so.
From the COSATU side we have cautioned in the past that the situation in the platinum mines, if left unattended, will lead to something which will be uncontrollable and this strike is a confirmation of what we said.
COSATU has several times called for the intervention from the provincial government, national government and the mine bosses to look at the situation in the mines seriously and take action.
COSATU has called for the respect of the rule of law and the enforcement of such rule by all the state law enforcement agencies.
COSATU has always raised a caution on the failure of the other union to sign the peace accord as this is an indication of their non-commitment to peace.
COSATU has again raised a caution on the violation of the labour laws and internal labour related policies by some companies in the platinum mines, and in this regard Impala is leading.
COSATU has made many attempts to get all stake-holders to give attention to what is taking place in the platinum mines but all the calls fell on deaf ears.
COSATU further notes that the effect of the strike is not only on the mine workers but it trickles down to the Rustenburg area and the North West province and eventually the whole country will be affected by this strike.
COSATU notes that the working conditions of most workers in our country are unbearable and their wages are still very low, but COSATU believes that these conditions cannot be addressed by worsening them.
COSATU also notes that most companies present very impressive social labour plans when they are requesting government to grant them mining licenses but these plans remain on paper and are not implemented by the companies, e.g. most mine workers do still not have ownership of houses.
COSATU believes that proper interaction through dialogue is the only solution to the challenges which are facing the workers in the country and no amount of violence will resolve this challenge. Forming one union or another is not going resolve the workers’ problems and this is an indication of workers being forced to join the union that they did not want.
We call all workers in the mining sector to revisit their decisions if they were forced to resign from NUM in 2012 and join the other union.
It is clear that NUM is the only union that can take up their issues and call workers to come back and build a strong COSATU-affiliated NUM union in the mines.
COSATU calls on the Department of Mineral Resources to do an inspection on the implementation of the social labour plans in all the mines in the country.
Those which will be found to be behind with these plans must come up with a catch-up plan on how they are going to implement them, failing which the mining licenses of these companies must be withdrawn and be given to companies which are willing to comply with their plans.
The department should also make sure that there is compliance with all the provisions of the Mining and Petroleum Resources Development Act.
COSATU calls on the government to convene a labour summit where there will be binding resolutions taken to improve the working conditions and the wages of the workers in all sectors of the economy.
COSATU has been calling for a legislated minimum wage as we believe that this will improve the income of most workers and will assist them to get out of poverty.
We are also calling all unions to assess all strikes in the mines and come up of way forward to resolve all disputes of violence.
Since the strike in the mining sector in 2011, we have lost many lives; many workers are disabled; many families are without parents due to the mining sector violence and only African black workers are affected in this situation.
Workers’ rights must be respected by all of us and all mining houses must take responsibilities for all crimes that took place in the mining sector in particular in Rustenburg.
As the federation unapologetic, Impala must respond to all those criminal activities that took since 2011 until today.
We are still calling for the president of our country to call for a state of emergency in the mining sector until all unions and employers in the mining sector respect the peace accord and all the legislation that we have in this country.
For more information contact Solly Phetoe COSATU North West Provincial Secretary at 082 304 4055