Welcome to week 276! The articles below caught my attention this week. Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********). The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.
(28 July 2016): “Why Do Sports Make Sane People Lost Their (Economic) Minds?” (http://www.bloomberg.com/news/articles/2016-07-28/why-do-sports-make-sane-people-lose-their-economic-minds)
********This link provides access to a 24-minute podcast by Bloomberg Benchmark. The occasion for the podcast is the incipient Summer Olympics at Rio de Janeiro. In light of the recent history of the Summer Olympics, one has to question the sanity of cities who actively seek to host the Olympics. Yet they do. Most likely, they will continue to do so. The podcast is built around an interview with “Neil de Mause, an expert in the world of publicly financed sports facilities.” De Mause and Joanna Cagan are the authors of Field of Schemes: How the Great Stadium Swindle turns Public Money into Private Profit, revised and expanded edition (https://www.amazon.com/dp/0803260164/). De Mause argues that the likelihood of a publicly-financed stadium for a sports franchise “paying off” is effectively nil. Furthermore, the oft-stated concern that the loss of a sports team due to not building a stadium will lead to the loss of political position, e.g., mayor of a city, has no evidence to support it. It is more likely that politicians will lose their positions from approving a stadium. No doubt, the book develops the argument at some length. There seems to be a more general question lurking behind the narrower question of whether or not to approve a sports stadium.
(28 July 2016): “An Auction House Learns the Art of Shadow Banking” (http://www.bloomberg.com/news/articles/2016-07-28/art-of-shadow-banking-how-an-auction-house-got-into-the-picture)
——–“Malaysian financier and art buyer Low Taek Jho . . . was looking to borrow more than $100 million without having to answer all the nosy questions big U.S. banks are required to ask.” Instead he “sent an e-mail in March 2014 to an employee of an art dealership saying he wanted a lender with a ‘fairly quick and relaxed kyc process’—a reference to the know-your-customer rules designed to curb money laundering. Low got his money a month later, not from a bank but from Sotheby’s, an auction house that isn’t subject to the same money-laundering scrutiny by regulators.” In an era of skyrocketing are prices, “Sotheby’s and other boutique lenders have become a new kind of shadow bank, a term for companies that offer financing without being regulated like banks. This has raised concerns that such financing could facilitate money laundering.” According to David Hall, who spent ten years as a special prosecutor of the Art Crime Team of the FBI, “One way to launder [money] is to use art as security for a loan. . . . The level of scrutiny you’ll receive from a bank is much higher that you will receive from an auction house.”
********According Jane Levine, a spokeswoman for Sotheby’s, the auction house does have a compliance program that “looks into a client’s source of wealth and evaluates risk in a manner in a manner analogous to financial institutions.” Nevertheless, the company is “not covered by the strict reporting requirements of the Bank Secrecy Act or supervised as deposit-taking institutions by federal banking regulators.” You can learn more about the use of art to launder money in Money Laundering Through Art: A Criminal Justice Perspective (https://www.amazon.com/Money-Laundering-Through-Art-Perspective-ebook/dp/B00DA0OXOQ/), by Fausto Martin De Sanctis. Money laundering is of particular interest to U.S. Immigration and Customs Enforcement (https://www.ice.gov/money-laundering), although it appears that the FBI is reasserting itself in that area (https://www.fbi.gov/audio-repository/news-podcasts-thisweek-fbi-revamps-money-laundering-investigations.mp3/view).
********The U.S. Department of the Treasury has a significant involvement in the area of money laundering enforcement (https://www.treasury.gov/resource-center/terrorist-illicit-finance/Pages/Money-Laundering.aspx). It was interesting to see its pdf “Money Laundering through the Football Sector” (https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/ML-football-sector_072009.pdf). In this instance “football” is what an American would call “soccer.”
(30 July 2016): “Financial stability: Minsky’s moment” (http://www.economist.com/news/economics-brief/21702740-second-article-our-series-seminal-economic-ideas-looks-hyman-minskys)
——–[The second of six briefs on economics.] “From the start of his academic career academic career in the 1950s until 1996, when he died, Hyman Minsky laboured in relative obscurity. His research about financial crises and their causes attracted a few devoted admirers but little mainstream attention . . . So it remained until 2007, when the subprime-mortgage crisis erupted in America. Suddenly, it seemed that everyone was turning to his writings as they tried to make sense of the mayhem. Brokers wrote notes to clients about the ‘Minsky moment’ engulfing financial markets. Central bankers referred to his theories in their speeches. And he became a posthumous media start, with just about every major outlet giving column space and airtime to his ideas.” At the root of Minsky’s ideas is a firm’s investment funds “can come from one of two sources: the firm’s own cash or that of others . . . The balance between the two is the key question for the financial system.” He then went on to distinguish between three kinds of financing: “hedge financing,” which is the safest, “speculative financing,” which is a bit riskier, and “Ponzi financing,” the riskiest of all. The ability of each type of financing to cover (or not) the principal and interest of a loan plays a central role in the stability (instability) of the financial system.
********I’m not knowledgeable about Minsky’s work but The Economist makes a good case for learning more. You can learn more about the life and work of Hyman Minsky at: https://en.wikipedia.org/wiki/Hyman_Minsky.
(1 August 2016): “Russia’s Acres, if Not Its Locals, Beckon Chinese Farmers” (http://www.nytimes.com/2016/08/01/world/asia/russia-china-farmers.html)
********This articles take a look at land use in far-eastern Russia and neighboring China. It lifts up issues of motivation to work as well as the continuing impact of agricultural collectivization in Russia. It is a place where “local officials and many residents, while grumbling that they cannot keep up with Chinese work habits, tend to see China and its vast pool of industrious labor as the best hope of developing impoverished regions that often feel neglected by Moscow.” As Lyudmilla Voron notes, “Our own people have been spoiled . . . The (Russian) men drink too much and don’t want to work.” I was interested to see the presence of the “Jewish Autonomous Region” on the map provided. There is a link provided to obtain more information about it.
May you have a good week!