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Monday, November 9, 2015

Next financial crash is coming – and before we've fixed flaws from last one

The next financial crisis is coming, it’s a just a matter of time – and we haven’t finished fixing the flaws in the global system that were so brutally exposed by the last one.

That is the message from the International Monetary Fund’s latest Global Financial Stability report, which will make sobering reading for the finance ministers and central bankers gathered in Lima, Peru, for its annual meeting.

Massive monetary policy stimulus has rekindled growth in developed economies since the deep recession that followed the collapse of Lehman Brothers in 2008; but what the IMF calls the “handover” to a more sustainable recovery – without the extra prop of ultra-low borrowing costs – has so far failed to materialise.

Meanwhile, the cheap money created to rescue the developed economies has flooded out into emerging markets, inflating asset bubbles, and encouraging companies and governments to take advantage of unusually low borrowing costs and load up on debt.

“Balance sheets have become stretched thinner in many emerging market companies and banks. These firms have become more susceptible to financial stress,” the IMF says.

Meanwhile, the failure to patch up the international financial system after the last crash, by ensuring that banks in emerging markets hold enough capital, and constraining risky borrowing, for example, means that a new Lehman Brothers-type shock could spark another global panic.

“Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes,” the IMF says, warning that some markets appear to be “brittle”.

So as the US Federal Reserve lays the groundwork for a return to peacetime interest rates, from the emergency levels of the past seven years, financial markets face what the IMF calls an “unprecedented adjustment”; and the world looks woefully underprepared.

The IMF’s warning echoes a chorus of others. The Bank of England’s chief economist, Andy Haldane, has argued that the world is entering the latest episode of a “three-part crisis trilogy”. Unctad, the UN’s trade and development arm, would like to see advanced economies boost public spending to offset the downturn in emerging economies. The Bank for International Settlements believes interest rates have been too low for too long, encouraging too much risk-taking in financial markets. All of them fear that the global financial system is primed for a crisis.

The IMF has not given up hope of what it calls a “successful normalisation” – it lays out a series of conditions that would need to be met, from a successful rebalancing of growth in China, to “safeguarding against market illiquidity” in financial markets.

Yet the failure of the world’s policymakers to get to grips with the shortcomings of the international financial system over the past seven years, despite the long shadow cast by Lehman and its aftermath, suggests that any measures enacted now are likely to be too little, too late. The message many may take home from Lima is, “batten down the hatches”.

Source; http://www.theguardian.com/business/2015/oct/07/next-financial-crash-is-coming-imf-global-stability-report

http://www.theguardian.com/business/2015/oct/07/risk-global-financial-crash-increased-imf-emerging-economies-eurozone-stability-report

Sunday, November 8, 2015

2015 Financial Secrecy Index

Here’s a table of the top 50 jurisdictions in this year’s rankings with Switzerland (once again) topping the list.

Like clockwork, the Swiss come in first thanks to its tough bank secrecy laws and push to build “market share in some of the world’s more vulnerable and badly governed developing countries, which will therefore continue to suffer Swiss-sanctioned √©lite looting.”

Problems with the USA and the United Kingdom

Surprisingly enough, the USA moved up three spots in this year’s rankings, making it to the podium and receiving a bronze medal for its secretive financial system and lack of reciprocity.

According to the Tax Justice Network, despite the US confronting American tax evaders head-on via the implementation of FATCA and likeminded regulations, it fails when it comes to providing other jurisdictions with information on their citizens’ accounts in the US.

About the US the organization says, “It is more of a cause for concern than any other individual country – because of both the size of its offshore sector, and also its rather recalcitrant attitude to international co-operation and reform.”

John Christensen, Tax Justice Network’s Executive Director, adds, “The United States dealt global financial secrecy a devastating blow by forcing strongholds such as Switzerland to open up. But after this blistering start in efforts to protect itself, it is backsliding by failing to provide information in the other direction: refusing to participate directly in global transparency initiatives such as the multilateral automatic information exchange and, inexcusably, lobbying to block public country by country corporate reporting. The USA must finally overcome its historically rooted opposition to reasonable tax data sharing with its trade and investment partners.”

The United Kingdom does not fare much better.

In fact, if the Financial Secrecy Index combined the UK with its Overseas Territories or Crown Dependencies such as the Cayman Islands, British Virgin Islands and Bermuda, it would go home with a shiny gold medal. Even though the British government has pushed automatic exchange of information onto its territories, it “has failed to force them to create public registries of beneficial ownership, despite having the power to do so.”

Singapore and Hong Kong — No Interest in Common Reporting Standard

Both Hong Kong and Singapore earn high rankings as a result of their dislike for CRS and any sort of exchange of information.

Hong Kong, for instance, “hasn’t signed the multilateral agreement to initiate automatic information exchange via the CRS; it has a problematic record on corporate transparency; and unlike European countries it appears to have little appetite for country-by-country reporting or for creating registers of beneficial ownership.”

Luxembourg: Light at the End of the Tunnel?

Luxembourg, referred to as “Death Star of financial secrecy inside Europe” by the organization, improved its ranking in 2015, dropping four spots to number six.

What explains this improvement?

Tax Justice Network says it’s a combination of “the evolving international climate on transparency… with high-profile global scandals that have cast the tax haven in a highly negative light. These changes also coincide with the departure of Prime Minister Jean-Claude Juncker, arguably the most important architect of the secretive modern tax haven. “

Source  Tax Justice Network - TaxLinked - by