Danielle DiMartino Booth, who worked at the Dallas Fed, accuses the central bank of ‘hubris and myopia’ in her new book
The Federal Reserve
building in Washington. Former Dallas Fed staffer Danielle DiMartino
Booth in a new book says that “global systemic risk has been
exponentially amplified by the Fed’s actions.”
Photo:
brendan smialowski/Agence France-Presse/Getty Images
By Michael S. Derby
The Federal Reserve is dominated by academics who don’t know how
finance and the economy really work, according to a former Federal
Reserve Bank of Dallas staffer in her new book.
Danielle DiMartino Booth, an adviser to Richard Fisher
when he was Dallas Fed president, says the economists who control most
of the central bank’s seats of power filter their decision-making
through theoretical models. That led the institution to miss the forces
that created the financial crisis, and then adopt the wrong policies to
put the economy back on track, she says.
Ms. Booth makes her case
in a book called “Fed Up: An Insider’s Take on Why the Federal Reserve
Is Bad for America,” set to be published Tuesday.
Her book comes
as other Fed critics are pushing for more diversity at the central bank.
They often focus on the dearth of women and minorities among the top
officials, but some have said a broader range of educational and
professional backgrounds also would widen the central bank’s
perspective. Of the 17 Fed governors and regional bank presidents, 16 are white, 13 are men, and 10 have a Ph.D. in economics.
Ms.
Booth’s arguments echo those of her former boss, who led the Dallas Fed
from 2005 to 2015, and frequently voted against the central bank’s
aggressive stimulus efforts during and after the financial crisis. “If
you rely entirely on theory, you are not going to conduct the right
policy, because policies have consequences” that in many cases people
with real-world experience are particularly well-suited to spot, Mr.
Fisher said in an interview late last year.
Mr. Fisher hired Ms.
Booth, a former Wall Street trader turned financial journalist, to work
at the Dallas Fed in 2006 on the strength of columns she had written
warning about the state of the housing market and financial markets. She
eventually rose to be his appointed eyes and ears on financial markets.
In
her book, Ms. Booth describes a tribe of slow-moving Fed economists who
dismiss those without high-level academic credentials. She counts Fed
Chairwoman Janet Yellen and former Fed leader Ben Bernanke among them. The Fed, Mr. Bernanke and the Dallas Fed declined to comment.
The
Fed’s “modus operandi” is defined by “hubris and myopia,” Ms. Booth
writes in an advance copy of the book. “Central bankers have invited
politicians to abdicate leadership authority to an inbred society of PhD
academics who are infected to their core with groupthink, or as I
prefer to think of it: ‘groupstink.’”
“Global systemic risk has
been exponentially amplified by the Fed’s actions,” Ms. Booth writes,
referring to the central bank’s policies holding interest rates very low
since late 2008. “Who will pay when this credit bubble bursts? The poor
and middle class, not the elites.”
Fed officials have defended
their crisis-era stimulus policies, saying they lowered unemployment and
helped the housing market recover. Opponents feared near-zero interest
rates would cause excessive inflation and dangerous market bubbles,
neither of which has happened.
Ms. Booth also is among the Fed
critics who see a worrisome revolving door between the central bank and
the financial firms it regulates. She points to New York Fed President William Dudley, a former Goldman Sachs
chief economist, as an illustration of a “codependent” relationship
between the central bank and markets. The New York Fed declined to
comment.
He and three other regional Fed bank presidents have
worked for or had associations with Goldman Sachs. With this in mind,
she writes, “Goldman has positioned players on the Fed’s chessboard.”
A
Goldman Sachs spokesman said the bank encourages its employees to “give
back” to the community, adding “many have left the firm to serve their
country in a variety of roles, and they have done so with distinction.”
Mr. Fisher praised Ms. Booth’s book in an interview last month, highlighting the insider perspective it offers.
“All
the books that have been written so far” about the financial crisis
“have been written by the principals themselves,” and it’s natural for
those authors “to make themselves look as good as possible,” he said.
He
said the book’s greatest value is in describing “the hubris of Ph.D.
economists who’ve never worked on the Street or in the City,” as well as
flagging “the protected culture” of Fed officials in Washington.
Many central bankers are “not going to like” the book, he said. Write to Michael S. Derby at michael.derby@wsj.com
When Elvira Nabiullina
needed backing for a new phase in her crackdown—one that could hit some
of Russia’s biggest lenders—she went straight to the top. ‘I agree,’
said the president.
In Russia, Peresvet Bank had an
edge no other big private financial institution could match. Its largest
shareholder was the powerful Russian Orthodox Church. In a 2015 pitch
to investors, Peresvet said the backing of the church and the bank’s
other big owner, Russia’s Chamber of Commerce and Industry, gave it a
“quasi-sovereign” status. For more than two decades, big state
companies stashed their cash with the bank, whose ponderous full
name—Joint Stock Commercial Bank for Charity and Spiritual Development
of Fatherland—suggested its grand standing.
Even so, it took less
than a month last fall for the bank, one of Russia’s 50 largest, to
come undone and be taken over by the central bank. Peresvet was just the
latest casualty in a financial purge presided over by Central Bank
chief Elvira Nabiullina, a bookish economist who’s a favorite of
Vladimir Putin. The regulator closed almost 100 banks in 2016, and in a
cleanup with few precedents, Nabiullina has shut almost 300 over the
past three years. This may be only the beginning. There are about
600 banks left across the world’s largest country, but Fitch Ratings
analyst Alexander Danilov, adjusting for population, calculates that as
an emerging market Russia would be fine with about 1 in 10 of those.
Photographer: Arthur Bondar for Bloomberg Markets
A
warning from Fitch signaled Peresvet’s fall: Almost a tenth of its
loans were to companies seemingly without real businesses. Then Russian
media reported that the chief executive officer, Alexander Shvets, had
disappeared. The bank issued denials and publicized positive comments
from other analysts. But within days, as depositors clamored for their
cash, the bank said it was “temporarily” limiting withdrawals. The
regulator took control of the lender four days later. As of late January
the central bank was still trying to determine the scale of Peresvet’s
financial woes.
Nabiullina, 53, has emerged as one of Putin’s most
influential economic advisers following a low-key government career
that began in the 1990s, before the Russian leader’s rise to power.
Soft-spoken and unassuming, she runs what in Russia is called a
“megaregulator.” When it comes to the economics behind Putin’s
overarching goal of restoring Russia’s place in the world, there’s no
one more influential.
As central bank governor, she’s in charge of
a banking system whose weak links are an economic burden, driving up
the cost of financing so badly needed in the face of stagnant growth.
She’s also the chief guardian of Russia’s foreign currency reserves.
Those holdings are more than just a tool of monetary policy; according
to several senior officials, Putin views them as a vital safeguard of the country’s sovereignty.
For
now, the banks are at the top of her agenda. Nabiullina has said she
doesn’t have a target for how many she expects to survive. (She declined
to be interviewed for this story, which is based on interviews with a
dozen top officials and bankers, all of whom spoke on condition of
anonymity.) There’s clearly plenty of cleaning left to do. “About half
of all banks have holes in their capital,” says Mikhail Mamonov, an
analyst at the Center for Macroeconomic Analysis and Short-term
Forecasting in Moscow. Mamonov, brought in by the central bank to help
figure out how big the mess is, estimates the shortfall could be as much
as 3 trillion rubles ($50 billion), or about 3.5 percent of gross
domestic product. That’s almost twice what the central bank has spent on
the cleanup over the past three years.
In
regulatory and banking circles, there’s growing concern that the bank
rot could reach some of the largest privately owned banks, many of which
continue to be hobbled by bad loans and inadequate capital. Publicly,
Nabiullina and other officials say they don’t see risks of widening
problems. The central bank has created a special category for the
biggest state and private-sector banks, designating them “systemically
significant” and subjecting them to tighter regulation because any
shocks could affect the entire financial system. But what’s especially
worrisome for Nabiullina and the central bank is how many struggling
banks have been able to hide the scale
of their financial woes. The full picture only becomes clear when
they’re shut down and regulators have to track the assets. In those
cases, only about 40 percent of what the banks claimed was on their
books actually existed, according to the central bank. There’s no way
for regulators to know for sure how much of what’s on the balance sheets
of solvent banks is, in fact, real.
“In Russia, practically all the privately owned banks have time
bombs inside them, and it’s not clear how to save them,” says Alexander
Lebedev, a banker, former legislator, and sometime Putin critic,
referring to what he said are widespread hidden weaknesses with such
things as real estate loans. As entrenched as the problems are, the
government and the central bank in the past focused mainly on shoring up
Sberbank, VTB, and other big state banks that together control more
than half of all assets.
Now the hundreds of smaller, privately
owned ones are increasingly becoming a burden. Bailing out the failing
banks has cost billions and done little to revive the lenders. Anastasia
Turdyeva, an analyst at S&P Global, says she’s skeptical of the
central bank’s handling of sick banks. “We have a lot of questions about
how these decisions are made,” she says.
The
struggling banks aren’t of the too-big-to-fail variety requiring the
emergency measures taken in the U.S. and U.K. during the financial
crisis. But many do have well-placed clients among the country’s
business, political, and security elite—guardians and backers who’ve
fought regulators’ efforts to move on them.
The last senior
central bank official to mount a purge was killed by a hit man in
central Moscow in 2006. Andrei Kozlov, central bank deputy chairman in
charge of regulation, was shot to death on a September evening outside a
Moscow sports stadium. He’d received death threats but brushed off
extra security. Alexei Frenkel, who controlled four lenders whose
licenses had been revoked by the central bank, was later convicted
of paying $310,000 to have Kozlov murdered. After the killing, the
cleanup slowed, with no more than a few dozen banks shuttered each year.
But within months of taking over at the central bank in June 2013,
Nabiullina stepped up the crackdown. And she had a peerless ally in the
drive: the president.
Putin has taken to referring to Nabiullina
by her first name, even in public, an unusual sign of familiarity. So
last year, when she needed support for a new phase of the crackdown—one
that could touch some of the country’s largest banks—she went straight
to the top. In June she quietly appealed to him to back the new push,
including changes in the law needed to make it possible. Shortly
afterward she went public with her cleanup plan in a speech at a banking conference.
Going directly to Putin was an unusual move. So much so that at a later
meeting she apologized to her government colleagues for going over
their heads, according to two people familiar with the encounter. The
important thing was she had the magic words, scrawled in Putin’s
sweeping script on the proposal she had presented to him: “I agree.”
Unlike
many other insiders, Nabiullina isn’t a longtime ally from St.
Petersburg, where Putin started his political career in the early 1990s.
An ethnic Tatar, Elvira Sakhipzadovna Nabiullina is the daughter of a
truck driver and a factory administrator from Ufa, a gritty industrial
city in Central Russia. She was a star student who learned French and
lived through books, memorizing the works of poets such as Paul Verlaine
and Anna Akhmatova. In the 1980s, she won a slot at Moscow State
University’s economics department.
At a time when learning
economics in the Soviet Union meant reading lots of Marx and Lenin,
Nabiullina’s prized position gave her the opportunity to study Western
economists whose works were banned from broader publication in the
country. She joined the Communist Party in 1985, the year Mikhail
Gorbachev came to power. But six years later, as the Soviet Union
collapsed, she quit the party, slipping her membership card under the
door of the department party committee. She abandoned her unfinished
dissertation and soon joined the young reformers who sought to build
capitalism. They were led by one of Nabiullina’s former professors,
Yevgeny Yasin, a prominent economist who was economy minister from 1994
to 1997. During those years, Nabiullina was a senior government
staffer. Then along came the ruble crisis of 1998, which rocked the
economy and derailed, at least temporarily, market-oriented reforms.
While
other veterans of that era were sidelined as the Putin government took
power, Nabiullina found a place, helping reform czar Herman Gref write
the new leader’s first economic program in 2000. In 2006, Nabiullina
made a good impression on the president when she led preparations for
Russia’s debut chairmanship of the Group of 8 summit, a milestone in
Putin’s effort to restore his country’s international influence.
Although
Putin expanded market reforms in his early years, he increasingly
turned to state control. Yasin, Nabiullina’s former professor, publicly
criticized Putin’s shift. But Nabiullina, ever the survivor, stayed on.
In 2007, Putin promoted her to economy minister, a job once held by
Yasin and then Gref. In 2012 she was one of just six senior government figures
to return to the Kremlin with him when he was elected president for a
third term. Despite her professorial manner, the bespectacled Nabiullina
was known as a tough bureaucrat with a pragmatic, nonideological bent.
Ahead
of Sergey Ignatiev’s retirement as central bank chief in 2013, Putin
tapped her to help vet candidates for the position. Putin then surprised
not only Nabiullina but also most of the Russian elite: He handed her the job.
Nabiullina’s first real test as central
bank governor came in late 2014. Since her appointment she’d been
focusing on arresting inflation, a task that kept her in the familiar
territory of academic economics. Even as the Kremlin was growing
suspicious about foreign influence in sensitive policy matters, she
turned to the International Monetary Fund for advice, going so far as to
arrange training seminars in global economics for central bank staff.
That
autumn oil prices were falling off a cliff. Round after round of
sanctions had been hitting Russia throughout 2014, following the
country’s military intervention in Ukraine. The ruble was in free fall.
Initially, Nabiullina tried to steady things with half-measures that
fell short of allowing the currency to float freely. The tactics
didn’t work. The central bank also came up with an emergency mechanism
to allow big state banks and companies hit by Western sanctions
to borrow billions from its reserves so they wouldn’t default on
foreign debts. The debts got paid, but the regulator’s efforts weren’t
enough to help the ruble. By December there was a run on the country’s
largest financial institution, state-owned Sberbank, which was then
being run by her old boss Gref.
Nabiullina had no choice. The
central bank freed the exchange rate and leaned on big state-run
exporters to sell dollars to help stabilize the ruble. Then it imposed
an emergency rate hike—a
decision taken during a late-night meeting on Dec. 15, just days after
senior bank officials had dismissed such a move as unnecessary.
Initially, the ruble kept tumbling.
Putin wasn’t impressed. At his annual press conference, two days after
the rate hike announcement, Putin said, “There are questions about the
timeliness and the quality of the measures taken.” It was a rare public
slap-down of Nabiullina. Under pressure, she cut the responsibilities of
a key ally, Kseniya Yudaeva, first deputy chairwoman of the central
bank.
Then, early in 2015, the ruble steadied. Putin’s confidence in his central banker grew.
Despite the stumbles, Nabiullina’s move to free the currency stanched
the hemorrhaging of reserves that had cost the central bank $81 billion
over 12 months. For Putin, driven by a nostalgia-infused nationalism,
that was crucial. He showed his appreciation. In a private meeting in
early 2016, according to two people familiar with what happened there,
Putin lavished praise on Nabiullina, citing disastrous cases of other
big oil producers, like Venezuela, that had squandered their foreign
currency reserves in futile attempts to shore up exchange rates.
It
might seem obvious, given the pace of the purge, that Nabiullina has
Putin’s explicit blessing. “Nabiullina is a person of character, but
there’s no way she could have taken such a tough line without the
support of the head of state,” says Lebedev, the banker and former
legislator. “The president gave her carte blanche.” But absolute
certainty is a rare commodity in Russia. People familiar with the
situation say that while Putin hasn’t publicly questioned her bank
crackdown, he also hasn’t explicitly given her the kind of sweeping
authority to close banks at will. That, these people say, leaves
Nabiullina in a less than rock-solid position—one of confidence tinged
with uncertainty about whether the next one she hits could prove too
politically hot.
Russia’s banking mess dates to the 1990s,
when the country lurched toward capitalism. Banks proliferated by the
hundreds, profiting from speculation in currency and other markets
rather than the more solid foundation of lending. By the middle of the
decade, the number of banks had peaked at more than 2,500. Many became
conduits for illicit activity, funneling money offshore or into cash for
off-the-books operations—including payoffs, clandestine political
funding, and organized crime. The first major efforts to crack down on
crime came in the early 2000s as Russia transitioned into the Putin era
from the free-for-all for wealth under Boris Yeltsin. But progress was
slow and resistance high.
Pavel Medvedev, a former legislator
who’s now an adviser to the central bank, recalled that shortly before
Kozlov’s murder in 2006, the regulation chief complained that whenever
he tried to move on a bank suspected of illicit activity, he’d get
threatening calls from powerful people imploring him to back off. “I
remember sitting in his office, and he pointed to the old vertushka,”
Medvedev says, referring to the special phone installed on the desks
of government officials. Medvedev remembers Kozlov saying, “As soon as
you take away a license, you get a call.” Kozlov “didn’t live long after
that,” he says.
For a while, the heat was all but off the banks.
“We understood that the withdrawal of a license meant big losses,” says
Gennady Melikyan, who took over Kozlov’s job. But the rot inside the
banking system was an open secret. Shortly before Nabiullina took over
as central banker in the spring of 2013, her predecessor, Ignatiev, gave
a valedictory interview to a local newspaper. He said a massive
$49 billion in illicit flows sapped the economy of capital and
much-needed tax payments and that more than half that amount was
attributable to interconnected companies. “You get the impression that
they are all controlled by a single, well-organized group,” he said,
without identifying anyone.
This story appears in the February / March 2017 issue of Bloomberg Markets.
Cover artwork: Oriol Angrill Jordà
When
Nabiullina took over, she was told about 150 banks were suspected of
involvement in criminal activity. Capital was flooding out of the
country at a rate of $60 billion a year. Almost half of that was
pronounced “dubious” by the central bank. Nabiullina stepped up the pace
of bank closures. In her first six months she shut down or took over
more than 50. Most of the those closed were suspected of involvement in
money laundering, she said later.
Some were previously thought to
be untouchable. One was Masterbank, a top-100 lender suspected by
officials of being a prime player in the “black cash” trade, in which
banks provide huge sums of money for illicit payments, often under the
protection of the country’s security services. A person close to the
central bank but not authorized to discuss internal matters says
Nabiullina didn’t expect to set a precedent with the closure and didn’t
fully realize its significance until this illicit market contracted
sharply and costs shot up.
Perhaps fittingly, given Russia’s
reputation for corrupt business practices, the “black cash” trade
carried on, according to several senior bankers. The banks just charged
more for it.
With oil collapsing
and sanctions limiting international financing, 2014 was a make-or-break
year for Putin’s economy—and Nabiullina’s banks. The ruble lost almost
half its value against the dollar, and the economy plunged into
recession as inflation spiked. With bigger banks being swept into the
maelstrom, the central bank had to find ways to keep struggling
institutions afloat. That meant enticing other banks to take them over
with cheap financing.
Month after month the drumbeat of mergers
and failures and closures continued. In January of last year, Nabiullina
shut down Vneshprombank. It ranked among the top 40 in terms of assets
and had just celebrated its 20th anniversary, with VIP clients including
big state companies, Russia’s Olympic Committee, and family members of
top cabinet officials.
Even veteran regulators were shocked at the
hole they found in the bank’s books. Among other assets, the bank had
claimed it had an account at Citibank that held $50 million.
Investigators said the actual balance was $10,000. Vneshprombank had
simply forged records using a copy machine, according to testimony at a
parliamentary hearing the following month.
Photographer: Arthur Bondar for Bloomberg Markets
By
late January, the bank’s former president, Larisa Markus, was in jail
and facing trial on fraud charges. (Markus’s lawyer couldn’t be reached
for comment.) In the wake of the Vneshprombank failure, Valentina
Matvienko, the speaker of the upper house of parliament, departed from
the usual deferential treatment of senior officials and publicly blasted
Nabiullina for not acting sooner. “This bank was continually deceiving
the central bank, and it didn’t notice?” an incredulous Matvienko asked
one of Nabiullina’s deputies at a February 2016 hearing. “The auditor
must have been blindfolded.” The top central bank official at the
hearing said an internal investigation was under way. The criticism
stung. Nabiullina complained to colleagues that the banking-system
cleanup seemed never-ending, according to two people familiar with the
conversation; drastic measures were needed. The Vneshprombank experience
galvanized her into more decisive action, according to a person
familiar with Nabiullina’s thinking.
But that required Putin’s
support. Once she got it, she laid down the law to bankers at the
conference in June, even before she’d gone to the government with the
plan. “The problems banks accumulated turned out to be greater than we
expected,” she said. The entire supervision system needed a “radical
overhaul.” The central bank needed to act quicker to prevent problems
before they arose, not afterward. The old system for rescuing failing
banks—recruiting healthier ones to come in as investors—wasn’t working,
she acknowledged. “As a rule,” she continued, “the investors don’t put
money into the capital of the rescued bank, don’t always develop its
business, and sometimes use its balance sheet for bad debts, putting a
significant share of the funds received for rescue into their own
projects.”
Nabiullina began to make changes. The central bank
tightened supervision of big players, digging into their often-complex
links to companies controlled by the banks’ wealthy shareholders. Last
fall she ousted the two top officials
who’d handled bank supervision for decades. Sitting on a panel with
Nabiullina shortly afterward, Putin criticized the regulator for not
moving faster with the cleanup in past years. “Better late than never,”
he said. To clear out the rot of bad loans, the regulator now requires
banks to make provisions for losses when it deems risks could be high.
Under the new plan, when a bank is struggling, the central bank will
take it over, turning the regulator into owner and manager as well.
She’s even asked Putin to consider amending Russian law to prevent
suspect bankers from fleeing the country. (He told her he would think it over, according to a Kremlin transcript of the conversation.)
All
of this leaves Nabiullina with a big, virtual “The Buck Stops Here”
sign on her desk. Nabiullina contends there’s no way the regulator could
have caught a lot of the fraud at banks that ultimately failed unless
the banks themselves fessed up. She isn’t encouraged by the history of
Russian banking. “Unlike our colleagues in other countries, we have to
determine when we are being lied to,” she told a Russian magazine late
last year. Pointing to Russian bankers, she said, “They fake the
numbers, strip the assets, flee the country, and stay there with the
money of creditors and the state and don’t face any punishment.” In
January her newly installed bank-supervision chief told a local news
agency that the banking cleanup could take another three to five
years.Nabiullina can’t turn things around without help from her boss. So
far, she seems to have it. In December, at Putin’s annual marathon
press conference, a reporter from a region where a troubled major bank
had recently been taken over by regulators quizzed him about the impact
on customers. The president left no doubt about where he stood. “There’s
nobody who thinks that the central bank, in cleaning up the financial
system, is making a mistake,” he said. “Just nobody.”
Pismennaya
covers economic policy for Bloomberg News in Moscow. White is an editor
also based in Moscow. With Ilya Arkhipov and Andrey Biryukov
The recent financial and economic crisis has hit Italy much harder than other European countries. Poverty and unemployment have risen accordingly in the last decade.
Before 1.8 million Italians were still under the poverty line before
the start of the crisis in 2007, the figure was almost 4.6 million, or
around 8 percent of the population. The unemployment rate has now risen from 6.7 percent (2008) to 10.9 percent (2016). Above all, school and university graduates hardly find any more jobs. Youth unemployment is 40 percent. In 2008 it was half as high.
Live with the parents
As early as the beginning of the nineties Italy had experienced a serious crisis. At that time, according to a report by the Central Bank, the lower classes suffered most; Social inequalities increased strongly.
However, the recent crisis that began in 2008 and continues today has
led to a slump in the standard of living on a much broader scale. Not only the poorest have to fight today. The broad middle class - according to the Central Bank - accounts for about three quarters of the population - is now much worse than ten years ago.
Declining wages, rising life costs and the steadily increasing tax
burden have led to impoverishment of the once well-offed bourgeoisie,
especially in the large cities. The young generation is by far the most affected. Although young Italians are better educated on average, they earn significantly less than their parents. Even many who have a fixed working place are hardly able to make ends meet.
By 1989 the annual per capita income earned by work had constantly increased. During the following two crises, however, it collapsed. In 2015 it was just at the level of the seventies. The net income of employees in 1989 amounted to 20,000 euros. In 2015 it was still 17,000 euros. Average pensions have almost doubled in the same period, from 7,000 to 13,000 euros. The income from home ownership also rose sharply. This means that the families have become more dependent on real estate and pensions of the older generation.
Two-thirds of the under-34s live with the parents today; In the eighties it was a quarter. In the rest of Europe, the Italians are eager to be mothers.
The young people, however, remain at home for so long, because even a
room in a residential community is too expensive for them.
Even if the children have moved out and have founded their own family, many continue to depend on the parents. According to a study by the Pew Research Center, 60 percent of Italians support their adult children financially. Even in other western countries, the young generation is involved, but usually only in exceptional situations. In Italy, on the other hand, the support provided by the study is a fixed constant in family life.
No money on the side
Until the 1980s Italians could still save and buy real estate. The middle layer still feeds on this. The boys live in apartments, which the ancestors had bought in better times. But in the next generation, the system will collapse. Not even one in four Italians today can still put money for their old age, according to the Pew Research Center. Since fewer and fewer people have a permanent job, much less than today, a pension will get.
The future fears
Paola Castelli, 61 years old, psychoanalyst
With her money Paola Castelli also supports some of her children. (Image: Nadia Shira Cohen for NZZ)
Spl ⋅ "Italy stands still, and one is living worse and worse here," says Paola Castelli Gattinara di Zubiena. She worries about her future, and even more about her children and grandchildren. The 61-year-old is a psychoanalyst and has her own practice in the Roman city district of San Lorenzo. Compared to many others it is still quite good, she says at the beginning of our conversation almost apologetic. She still has enough work. At the moment this is anything but self-evident.
The work environment has also become harder for Paola because of the crisis. Many patients are close to cash. They are less likely to enter the therapy or can not pay the full price. The experienced psychologist has not increased the hour approach for years. Actually, she wants 80 euros. But some of them only take 30 euros, and some treat them free of charge. For thirty years, Paola has been working part-time for an association that supports families with disabled children. This fixed position gives her a certain security, she says. But the working conditions were also getting worse.
"Meanwhile We are much worse off than our parents. "
All in all, Paola works very much more than 40 hours a week. Their income is irregular. On average, it earns 4,000 euros a month. Nearly half of this comes to the tax authorities. Her husband is also a psychologist and earns a little less than she does. With their income, the two of them could actually be lucky for local conditions. However, their financial situation has deteriorated steadily over the last decade. That worries, of course.
Paola's family is a vivid example of the social decline of the upper middle class of Italy. Their ancestors were nobles from Northern Italy. They were never rich, but they could be called well-disposed. Paola grew up with five siblings in Rome in the fifties and sixties. Her father was an agricultural scientist, her mother's doctor. The family lacked nothing. It was the time of the economic miracle. "We could all study and found work," Paola says. "Meanwhile, however, we are much worse off than our parents."
"In comparison to the generation of our children, however, I am still
very good with myself and my siblings," adds the slender Roman woman. Of a total of seventeen sons and daughters, a single one had found a permanent place in Italy. Two had emigrated abroad. The others were either unemployed or were struggling with badly paid temporary work.
Paola's daughter Cecilia is married and is expecting her second child. The 33-year-old has studied art history. When she first got pregnant, she lost her job at a private university. Since then, she has been working as a tourist guide. Her husband is an architect and works without a fixed contract for a hunger wage. Without the parents' support, the young family would not have the rounds.
The son Matteo, on the other hand, has studied finance and is currently without a job. The 28-year-old still lives at home. For a short time he lived with friends in a residential community, but even the money was no longer enough. Matteo is now looking for a position abroad, like many young Italians. "With each year, more go away. Not because they want, but because they have no choice, "Paola complains.
The lack of perspective makes her not only a mother, but also a psychologist. Many young people were suffering from the psychological difficulty of not having a job, she says. At 61 she would like to work a little less. But she can not afford that. As a freelance she will not have a pension, she explains. The precarious situation of the children makes her really afraid. "They have no safe place, no boarding and nothing. How are they going to make their own rounds? As long as I can, I will support them. "
Paola and her husband live in a condominium in the chic Parioli neighborhood, which once belonged to the grandfather. She considered selling her home and moving to a more modest place.
The broken children's room
Marco D'Andrea, 42 years old, lawyer
For the one-room apartment, Marco D'Andrea pays a third of his wages. (Image: Nadia Shira Cohen for NZZ)
Spl ⋅ He can be lucky, says Marco D'Andrea.
"I have not only a firm job, but also one that I enjoy." The
42-year-old Neapolitan has studied law and has been working for seven
years in the legal department of a large company active in the gambling
business. After completing his studies, Marco had first trained as a judge, but then only found temporary jobs. At the age of 33 he moved to Milan to try his luck there.
Until then Marco had lived with the parents for financial reasons.
He enjoyed the new freedom in the financial metropolis and after a few
months he found a position at the headquarters of the company for which
he still works today. As soon as he felt comfortable in the new surroundings, he was transferred to the office in Rome. He would rather have stayed, the lawyer says. Nevertheless, he did not hesitate for a long time and moved to Rome. Whoever has a job must be grateful and flexible, is his motto.
In the meantime, he has also become friends with the capital and has been slowly working on the career ladder. This is a great success. Nevertheless, the 42-year-old is quite sobered.
"When I was a child, my relatives always said, 'If you learn well, you
will bring it to life.'" But the reality now looks different, the lawyer
emphasizes. He had worked hard at school and at the university. This helped him to find a great job. Yet he could hardly afford anything in life.
Marco grossed 2900 euros a month.
More than one-third of this is spent on tax, another third on rent, and
the rest on electricity, gas, telephone, Internet and daily
subsistence. "I have to make a budget at the beginning of each month to see what I can afford in addition to fixed costs," he says. "Most of the time it's getting pretty tight."
Marco is very interested in culture. But he thinks twice about the exhibition or the film he is watching. At most once a month, he goes out with friends. He does not have a car, he goes to work with the scooter. He does not spend much money on clothes. Now and then Marco manages to put a few euros on his side for holidays or other extraordinary expenses. Properly saving, however, is impossible.
"At the beginning of the month, I make a budget to see what I can afford."
Marco lives in a studio with separate kitchen. He would like more space to be able to invite friends to dinner. But a larger apartment is not available. His partner lives in Berlin and earns much more than he does. Again, Marco is a bit ashamed of his modest abode. His greatest dream would be to buy a condominium or at least to rent a larger apartment and arrange it according to his taste.
According to economists, the gap between the rich and the poor is growing, says Marco. In Italy, obviously, the mass in the center suffers. "The standard of living here is much lower than anywhere else in Europe," he notes. "Italians simply can not afford things that are self-evident to Germans or French."
Marcos Bruttolohn has increased considerably in recent years thanks to promotions. But the taxes also rose; On the whole, he has little more to offer than before. That makes him angry. "If I pay so much tax, I want at least good government services," he says. But the roads in Rome were lousy, public transport bad, the health system overloaded. "We pay taxes like the French and get a service like the Moroccans!"
He expected more from life, says Marco. No luxury. But at least a certain security and the possibility to go on holiday without worries. His parents had that. Marcos' father was an official at the town and could easily raise four children. "My mother drove with us in the summer for two months to the sea, as they were all from the middle class. Today something like this is unimaginable. I wonder how anyone with my salary can feed a family at all. "
The survival art
Francesca Colesanti, 53 years old, journalist and Italian teacher
Spl ⋅ It is a natural and positive person. But the last few years have eaten at Francesca Colesanti. In a few moments, the bubbling old self still flashes through. But it is usually covered by exhaustion and worry. The 53-year-old journalist struggles every day to keep her four-headed family above water. Her husband, Maurizio, a free-lance TV director, had suddenly not received any orders during the crisis.
Shortly thereafter, Francesca's Pensum was cut to 80% at a news agency. Francesca tried to work for other media as well. But the industry is in a serious crisis. Everywhere jobs are deleted. Francesca barely got any orders, and when they were paid miserably.
As the political scientist speaks fluent German and French, she decided to try her luck as an Italian teacher for foreigners. In the meantime, she teaches a number of adult private pupils and also teaches Italian at a school. It is not easy to juggle all the different commitments.
Francesca works from morning till night. She is most depressed that she does not have much time for her children, 18-year-old son Pietro and 15-year-old daughter Elena. But it is also frustrating that she is still not earning enough to cover the life costs of the family. "We used to never have financial problems," Francesca says. "I've always worked and could even provide home help and childcare. In recent years, however, we have had to cut down all the expenses that are not absolutely necessary. "
"No one in ours Environment is still going on As well as ten years ago. "
For three years the family has not gone on holiday. The two teenagers, who are currently attending the middle school, had to cancel sporting activities and summer camps. Francesca is no longer riding a motorbike, but cycling to work. They only go to the restaurant every two months, and their friends are rarely invited.
Francesca comes from a relatively wealthy family. Her father was a judge and left an apartment or a house to each of his five children. Francesca lives with her family in the spacious old apartment in the district Nomentano, where she once grew up. When she took over the apartment after the death of her parents, however, she had to be renovated urgently.
The couple took out a loan that it still paid off. "Of course, it is an advantage if you do not have to pay a rent," she says. «On real estate you have to pay in Italy but unfortunately very high taxes. In addition, there are high maintenance costs for co-ownership and a whole range of additional costs. »
With reduced pensum Francesca earned 1800 euros a month. Through the Italian lessons come a few hundred euros. The repayments for the loan amount to 700 euros per month, the fixed additional costs for the apartment to a further 600 euros. There is not much left for food and other things of everyday needs.
"We simply do not have any money," says Francesca resigned. "All we've saved in the meantime has been spent in the meantime," Francesca resigned resignedly. "It is disturbing that we are not an individual case," says the 53-year-old. "There are difficulties in our circle of acquaintances. Nobody in our environment is still as good as ten years ago. In every family, there is someone who has lost his job or is unable to find work and support. "
Francesca could scarcely have the energy to carry on if she did not see light at the end of the tunnel. At the end of this year, her husband reached the pension age at 64.
Maurizio has been a freelance contributor all his life and will
therefore receive a pension that is not too bad for Italian conditions. In 2018 the credit for the apartment will finally be repaid. "Then we'll have a little more air. It will still not be easy, but at least somehow feasible. "
Matteo Renzis constitutional reference
Italy's entrepreneurs are worried
ByAndrea Spalinger, Milan
Top managers in Italy support the constitutional reform of Prime Minister Renzi. They fear economic turmoil, should the people reject the reform next Sunday.
State money for banks
Never again - except in Italy
CommentbyThomas Fuster
The rules of the European banking union are likely to be badly strained during the rehabilitation of Italy's banks. This makes the sector more vulnerable to crises.
“As I look back, it now seems that, with all the
thought and work and good intentions, which we provided, we achieved
absolutely nothing… nothing that I did, and very little that old Ben
[Strong of the Federal Reserve] did, internationally produced any good
effect – or indeed any effect at all except that we collected money from
a lot of poor devils and gave it over to the four winds.” -Montagu
Norman, Governor of the Bank of England 1920-1944
Since the financial crisis nearly a decade ago, the Federal Reserve
has printed trillions of dollars in an effort to create a “wealth
effect” in the economy. Their theory goes that quantitative easing would
make for rising prices of financial assets which should, in turn, make
the wealthy feel more confident and thus spend more. By this process, a
trickle-down effect would boost the economy.
Last year, however, I started to note
that, even if this theory were true, a number of developments could
possibly derail this “wealth effect” and even put it into reverse. Those
developments have continued into 2017. High-end home prices continue to
slump.
And luxury retailers are suffering at least as much as the major
department stores. In fact, sales here have not been so poor since the
“Great Recession.”
At the same time that these luxury markets are rapidly declining, the
stock market is soaring to all time highs. This is probably all the
evidence we need to understand that the wealth effect is a myth.
Still, the BIS recently quantified the failure of quantitative easing to
boost the economy even while noting its efficacy in boosting asset
prices.
So the Fed has accomplished its goal of making the wealthy wealthier
it just hasn’t trickled down to the rest of the economy as they had
hoped. The end result is the Fed has only exacerbated the greatest
wealth inequality in this country since the Great Depression.
The fact is rapidly growing wealth inequality, rather than boosting
the confidence of the wealthy, has had the opposite effect, making them
increasingly concerned about its societal ramifications.
And rightly so. While the rich have become richer in recent years,
the average American has only become increasingly squeezed by inflation
in things like rent and healthcare while their wages have remained
relatively stagnant.
This dramatic disparity in economic fortunes between the wealthy and
the rest of the country in recent years is surely one of the major
drivers behind the rising global trends toward populism and
anti-elitism.
And I can’t help but think of those famous words quoted above and
uttered by the former Governor of the Bank of England near the end of
his life. Trillions of dollars printed and ultimately pumped into the
asset markets over the better part of the last decade and to accomplish
what? To enable corporations to borrow cheap money to buyback stock
(give it over to the four winds)? To create the sort of societal
division that foments unrest? To allow the wealthy to be able to afford
the “survival condos” to ride it out? In years to come, with the benefit
of hindsight, will Ben Bernanke and Janet Yellen feel any different
than their famous forebears?
Today, the U.S. Court of Appeals for the District of Columbia Circuit heard arguments in Budha Ismail Jam v. International Finance Corporation,
a case against the International Finance Corporation (IFC), the World
Bank Group’s private lending arm, for its role in funding a
controversial power plant that has harmed fishing communities in India.
The question before the Court was whether the IFC is entitled to
“absolute immunity” from suit in the United States.
“The IFC argues it is above the law in all circumstances, regardless
of how much harm it causes,” said Richard Herz, senior litigation
attorney at EarthRights International (ERI) who argued the case for the
plaintiffs today. “But its sweeping claims of immunity are inconsistent
with Supreme Court precedent and contrary to the goals of the IFC’s
mission.”
Fishing communities and farmers represented by ERI filed suit against
the IFC in April 2015 over the destruction of their livelihoods and
property and threats to their health caused by the IFC-funded Tata
Mundra coal-fired power plant in Gujarat, India. In March 2016, a
district court judge dismissed the case, concluding it was required to
find the IFC “absolutely immune” from suit, based on previous decisions
of the D.C. Circuit. In their appeal, the Plaintiffs argue that those
decisions have been overturned by Supreme Court cases addressing
immunity.
From the start, the IFC recognized that the Tata Mundra plant was a
high-risk project that could have “significant” and “irreversible”
adverse impacts on local communities and their environment. Despite
knowing the risks, the IFC provided a critical $450 million loan,
enabling the project’s construction and giving the IFC immense influence
over project design, implementation and operation. Yet it failed to
take reasonable steps to prevent harm to the communities and to ensure
that the project abided by the required environmental and social
conditions for IFC involvement, according to the complaint.
Construction of the plant resulted in displacement of local
communities and destroyed vital sources of water used for drinking and
irrigation. Coal ash contaminates crops and fish laid out to dry and
has led to an increase in respiratory problems. The plant has also
destroyed the local marine environment and the fish populations that
fishermen like Budha Ismail Jam, a plaintiff in the case, rely on to
support their families. "After nearly 10 years of IFC approving finances
for the project, promising jobs, development and ending poverty, the
power plant has taken what little we had and left us with less than
before,” Mr. Jam said.
The IFC’s own compliance mechanism, the Compliance Advisor Ombudsman
(CAO), issued a scathing report confirming that the IFC had failed to
ensure the Tata Mundra project complied with the environmental and
social conditions of the IFC’s loan. Rather than take remedial action,
the IFC responded by rejecting most of its findings, and ignoring
others.
At the hearing, attorneys for the IFC sought to downplay the
importance of the environmental and social commitments it makes to
communities and told the Court that its willingness to make loans would
be deterred if it could actually be held accountable for failing to
follow through on those commitments.
The IFC is required to obtain broad community support for projects
like the Tata Mundra Plant before it can provide financing. But Dr.
Bharat Patel of Machimar Adhikar Sangharsh Sangatha (Association for the
Struggle for Fisherworkers’ Rights), which is a plaintiff in the case,
says their experience shows the IFC’s word alone provides insufficient
guarantees. “Even when the CAO finds the IFC did not abide by its
commitments to communities, the IFC just ignores their suffering,” he
said. “Communities cannot trust the IFC to live up to its commitments if
it ignores the CAO's findings and if communities are not able to access
the courts. The people are left high and dry.”
“The IFC thinks it is entitled to act with impunity, contrary to its
own mission, and accountable to no one,” said Herz. “Our clients
disagree, and the law is on their side.”
The Court is not expected to rule for months, but the plaintiffs are
optimistic. “This is a fight for our lives and livelihood,” said
Gajendrasinh Jadeja, the head of Navinal Panchayat, a local village
involved in the case. “We will continue our struggle for justice and we
believe we will prevail.”
###
EarthRights International (ERI) is a nongovernmental, nonprofit
organization that combines the power of law and the power of people in
defense of human rights and the environment, which we define as "earth
rights." We specialize in fact-finding, legal actions against
perpetrators of earth rights abuses, training grassroots and community
leaders, and advocacy campaigns, and have offices in Southeast Asia, the
United States and Peru. More information on ERI is available at http://www.earthrights.org.
Presidential Executive Order on Core Principles for Regulating the United States Financial System
EXECUTIVE ORDER
- - - - - - -
CORE PRINCIPLES FOR REGULATING
THE UNITED STATES FINANCIAL SYSTEM
By the power vested in me as President by the Constitution and the laws
of the United States of America, it is hereby ordered as follows:
Section 1. Policy. It shall be the policy of my Administration to
regulate the United States financial system in a manner consistent with
the following principles of regulation, which shall be known as the Core
Principles:
(a) empower Americans to make independent financial decisions and
informed choices in the marketplace, save for retirement, and build
individual wealth;
(b) prevent taxpayer-funded bailouts;
(c) foster economic growth and vibrant financial markets through more
rigorous regulatory impact analysis that addresses systemic risk and
market failures, such as moral hazard and information asymmetry;
(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;
(e) advance American interests in international financial regulatory negotiations and meetings;
(g) restore public accountability within Federal financial regulatory
agencies and rationalize the Federal financial regulatory framework.
Sec. 2. Directive to the Secretary of the Treasury. The Secretary of
the Treasury shall consult with the heads of the member agencies of the
Financial Stability Oversight Council and shall report to the President
within 120 days of the date of this order (and periodically thereafter)
on the extent to which existing laws, treaties, regulations, guidance,
reporting and recordkeeping requirements, and other Government policies
promote the Core Principles and what actions have been taken, and are
currently being taken, to promote and support the Core Principles. That
report, and all subsequent reports, shall identify any laws, treaties,
regulations, guidance, reporting and recordkeeping requirements, and
other Government policies that inhibit Federal regulation of the United
States financial system in a manner consistent with the Core Principles.
Sec. 3. General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect:
(i) the authority granted by law to an executive department or agency, or the head thereof; or
(ii) the functions of the Director of the Office of Management and
Budget relating to budgetary, administrative, or legislative proposals.
(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.
(c) This order is not intended to, and does not, create any right or
benefit, substantive or procedural, enforceable at law or in equity by
any party against the United States, its departments, agencies, or
entities, its officers, employees, or agents, or any other person.
Scientists Baffled by Draghi and Juncker’s Ability to Stand Upright Without Spines
(Adapted from: The Borowitz Report)
2011 file photo of European Central Bank president
Mario Draghi with then Luxembourg Prime Minister and Eurogroup
president Jean-Claude Juncker Photo: AFP/GEORGES GOBET
BRUSSELS —Calling
it a “medical mystery of the first order,” scientists are baffled by
the ability of European Central Bank President Mario Draghi and EU Commission's president, Jean-Claude Juncker, to stand upright without the benefit of spines.
Doctors
at the University of Utrecht Medical School, who have been studying
the skeletal structures of both men for months, believe that
their ability to stand, walk, and even break into a brisk trot when
confronted by reporters’ questions is “virtually inexplicable.”
“The
fact that they can do these things without the aid of spines makes
Draghi and Juncker anomalies in the animal kingdom,” said Dr. Davis
Logsdon. “According to everything medical science teaches us, their
bodies should be collapsing to the ground in two heaps.”
As
the Utrecht scientists have struggled to solve the medical conundrum
presented by the two invertebrate leaders, one theory that has gained
traction is what Logsdon calls “the startled-deer hypothesis.”
“Just
as a deer freezes in the headlights of a car and briefly appears
statue-like, we believe that Draghi and Juncker’s bodies may retain
their rigid structure out of terror alone,” he said. “In other words,
fear is performing the function that a spine performs in other people.”
Calling
it “just a theory,” Logsdon said that the anatomies of Draghi and
Juncker require further study, and that there was growing public support
for both men to be dissected.
