30 August 2014

Henry Kissinger on the Assembly of a New World Order - WSJ

Henry Kissinger on the Assembly of a New World Order - WSJ:

Libya is in civil war, fundamentalist armies are building a self-declared caliphate across Syria and Iraq and Afghanistan's young democracy is on the verge of paralysis. To these troubles are added a resurgence of tensions with Russia and a relationship with China divided between pledges of cooperation and public recrimination. The concept of order that has underpinned the modern era is in crisis.
The search for world order has long been defined almost exclusively by the concepts of Western societies. In the decades following World War II, the U.S.—strengthened in its economy and national confidence—began to take up the torch of international leadership and added a new dimension. A nation founded explicitly on an idea of free and representative governance, the U.S. identified its own rise with the spread of liberty and democracy and credited these forces with an ability to achieve just and lasting peace. The traditional European approach to order had viewed peoples and states as inherently competitive; to constrain the effects of their clashing ambitions, it relied on a balance of power and a concert of enlightened statesmen. The prevalent American view considered people inherently reasonable and inclined toward peaceful compromise and common sense; the spread of democracy was therefore the overarching goal for international order. Free markets would uplift individuals, enrich societies and substitute economic interdependence for traditional international rivalries.
In the Middle East, religious militias violate borders at will. Getty Images
This effort to establish world order has in many ways come to fruition. A plethora of independent sovereign states govern most of the world's territory. The spread of democracy and participatory governance has become a shared aspiration if not a universal reality; global communications and financial networks operate in real time.
The years from perhaps 1948 to the turn of the century marked a brief moment in human history when one could speak of an incipient global world order composed of an amalgam of American idealism and traditional European concepts of statehood and balance of power. But vast regions of the world have never shared and only acquiesced in the Western concept of order. These reservations are now becoming explicit, for example, in the Ukraine crisis and the South China Sea. The order established and proclaimed by the West stands at a turning point.
The challenge in Asia is the opposite of Europe's: Balance-of-power principles prevail unrelated to an agreed concept of legitimacy, driving some disagreements to the edge of confrontation.First, the nature of the state itself—the basic formal unit of international life—has been subjected to a multitude of pressures. Europe has set out to transcend the state and craft a foreign policy based primarily on the principles of soft power. But it is doubtful that claims to legitimacy separated from a concept of strategy can sustain a world order. And Europe has not yet given itself attributes of statehood, tempting a vacuum of authority internally and an imbalance of power along its borders. At the same time, parts of the Middle East have dissolved into sectarian and ethnic components in conflict with each other; religious militias and the powers backing them violate borders and sovereignty at will, producing the phenomenon of failed states not controlling their own territory.
The clash between the international economy and the political institutions that ostensibly govern it also weakens the sense of common purpose necessary for world order. The economic system has become global, while the political structure of the world remains based on the nation-state. Economic globalization, in its essence, ignores national frontiers. Foreign policy affirms them, even as it seeks to reconcile conflicting national aims or ideals of world order.
This dynamic has produced decades of sustained economic growth punctuated by periodic financial crises of seemingly escalating intensity: in Latin America in the 1980s; in Asia in 1997; in Russia in 1998; in the U.S. in 2001 and again starting in 2007; in Europe after 2010. The winners have few reservations about the system. But the losers—such as those stuck in structural misdesigns, as has been the case with the European Union's southern tier—seek their remedies by solutions that negate, or at least obstruct, the functioning of the global economic system.
The international order thus faces a paradox: Its prosperity is dependent on the success of globalization, but the process produces a political reaction that often works counter to its aspirations.
The penalty for failing will be not so much a major war between states (though in some regions this remains possible) as an evolution into spheres of influence identified with particular domestic structures and forms of governance. At its edges, each sphere would be tempted to test its strength against other entities deemed illegitimate. A struggle between regions could be even more debilitating than the struggle between nations has been.A third failing of the current world order, such as it exists, is the absence of an effective mechanism for the great powers to consult and possibly cooperate on the most consequential issues. This may seem an odd criticism in light of the many multilateral forums that exist—more by far than at any other time in history. Yet the nature and frequency of these meetings work against the elaboration of long-range strategy. This process permits little beyond, at best, a discussion of pending tactical issues and, at worst, a new form of summitry as "social media" event. A contemporary structure of international rules and norms, if it is to prove relevant, cannot merely be affirmed by joint declarations; it must be fostered as a matter of common conviction.
The contemporary quest for world order will require a coherent strategy to establish a concept of order within the various regions and to relate these regional orders to one another. These goals are not necessarily self-reconciling: The triumph of a radical movement might bring order to one region while setting the stage for turmoil in and with all others. The domination of a region by one country militarily, even if it brings the appearance of order, could produce a crisis for the rest of the world.
A world order of states affirming individual dignity and participatory governance, and cooperating internationally in accordance with agreed-upon rules, can be our hope and should be our inspiration. But progress toward it will need to be sustained through a series of intermediary stages.
To play a responsible role in the evolution of a 21st-century world order, the U.S. must be prepared to answer a number of questions for itself: What do we seek to prevent, no matter how it happens, and if necessary alone? What do we seek to achieve, even if not supported by any multilateral effort? What do we seek to achieve, or prevent,only if supported by an alliance? What should we not engage in, even if urged on by a multilateral group or an alliance? What is the nature of the values that we seek to advance? And how much does the application of these values depend on circumstance?
For the U.S., this will require thinking on two seemingly contradictory levels. The celebration of universal principles needs to be paired with recognition of the reality of other regions' histories, cultures and views of their security. Even as the lessons of challenging decades are examined, the affirmation of America's exceptional nature must be sustained. History offers no respite to countries that set aside their sense of identity in favor of a seemingly less arduous course. But nor does it assure success for the most elevated convictions in the absence of a comprehensive geopolitical strategy.
— Dr. Kissinger served as national security adviser and secretary of state under Presidents Nixon and Ford. Adapted from his book "World Order," to be published Sept. 9 by the Penguin Press.

14 August 2014

Bonhams Auctions a Ferrari 250 GTO for $38 Million at Pebble Beach - NYTimes.com

Bonhams Auctions a Ferrari 250 GTO for $38 Million at Pebble Beach - NYTimes.com

CARMEL, Calif. — A Ferrari 250 GTO Berlinetta, one of 36 built in 1961-64, sold for $38.1 million at the Bonhams Quail Lodge Auction here on Thursday evening. The sale is one of many events taking place this week on the Monterey Peninsula of California in conjunction with Sunday’s Pebble Beach Concours d'Élégance.

At a time when prices of vintage cars have been rising to new heights, Ferrari GTOs have been considered strong candidates for resetting the record for the most expensive automobile sold at auction. In that sense, the hammer price of $34.65 million (before the buyer’s premium) was a success, though it fell short of expectations by some that exceeded $50 million.

This sale, for the 250 GTO with the serial number 3851 on its firewall, one of the earlier examples of the model, was the first public offering of one of these cars in many years. A webcast of the auction began at 8 p.m.

For most of its existence, the car belonged to Fabrizio Violati, a wealthy Italian amateur driver who died in 2010. The former French Olympic ski champion Henri Oreiller was killed while driving it in a race at Montlhéry, France, in 1962. The car was rebuilt by the Ferrari factory.

The 250 GTO was the last front-engine competition coupe to be built by Ferrari. It was succeeded by the midengine 250 LM model in 1965.

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12 August 2014

The American Banking System At The End Of July: What's Going On? | Seeking Alpha

The American Banking System At The End Of July: What's Going On?:

  • The assets of the banking system continues to grow, but most of the growth is still in cash assets.
  • Foreign-related banks seem to be taking on a major portion of these cash assets and we wonder where the funds are going.
  • Commercial real estate loans continue to increase the "smaller" banks and what happens here will be very important to the health of the banking system going forward.

Over the past 52 weeks, total assets in the banking system, as reported in the Federal Reserve's H.8 release, increased by $1.2 trillion or 8.9 percent, year-over-year.

Of this increase, cash assets in the banking system rose by more than $625 billion. That is, more than 50 percent of the increase in bank assets was associated with an increase in cash holdings.

Note that reserve balances held at Federal Reserve Banks, a proxy for excess reserves, rose by $665 billion over the same time period.

Over the full 52-week period, cash assets held by foreign-related institutions increased by almost $475 billion, or roughly 40 percent of the total increase. In the past 13-week period, cash assets as these banks accounted for almost 60 percent of the increase while in the past five-week period over 75 percent of the increase come at these foreign-related institutions.

Over the past 13 weeks, cash assets at the 25 largest domestically chartered commercial banks actually declined by $8 billion, with all of the decrease coming in the last five weeks where the decline amounted to $85 billion.

Given these figures, it appears that over the last quarter, a time period that the Fed's quantitative easing had reduced the amount of securities that were being purchased each month to smaller and smaller amounts, that the majority of the new reserves being created were actually going to foreign-related institutions.

Over the past year these foreign-related institutions did increase the amount of commercial and industrial (business) loans that they made by $43 billion, or by almost 17 percent. They also increased their activity in the money markets by $60 billion. The real increase in their balance sheet came on the liability side where Net Deposits Due to Related Foreign Offices rose by almost $190 billion. As has been the case over the past four years, this is one way foreign financial institutions tap into American money markets and then direct the money offshore.

Over the past 13 weeks, these foreign-related institutions saw their cash balances increase by a little more than $180 billion. Net deposits due to related foreign offices rose by $133 billion.

In other words, a lot of the liquidity that is being pumped into US financial market is going to work in other countries. While loans are increasing here, one wonders whether or not the Fed needed to pump as much into the banking system as it did, given that so much has seemingly gone offshore.

A second point that stands out in the data is that commercial real estate loans continue to grow in the rest of the domestically chartered banking system... those banks smaller than the largest 25 in the country.

Over the past year, commercial real estate loans have risen at the "smaller" domestically chartered banks by almost $100 billion.

Note that the largest twenty-five banks only saw commercial real estate loans increase by $13 billion.

Commercial real estate runs primarily through the larger regional and larger community commercial banks in the country. Almost two-thirds of the commercial real estate loans held by domestically chartered banks in this country reside on the balance sheets of the "smaller" commercial banks.

The crucial point with respect to these commercial real estate loans, I have been discussing over the past three years or so is that the majority of them were either approved and not started or were already started when the Great Recession hit. One of the big worries about the loans that had already been started is that they were "payable at maturity" loans and there was great concern about what would happen when these loans came due.

Well, I believe that we are seeing the other side of this problem. As the banking system became flush with liquidity and the pressure was taken off many of the banks, these loans were rolled over and interest due along with enough money to compete the projects were added to the loan amount in order to help the construction companies complete the projects.

Thus, the increases coming from these "rolled over" loans along with the construction projects already approved resulted in a really strong increase in the dollar value of commercial real estate loans on the books of the banks.

The concern now is whether or not these projects will be completed before another shock hits the banking system. The economy needs to achieve sufficient growth so that these projects can be finished and absorbed into the ongoing commerce of the country. Let me just add that I don't think we have completely closed the door on this issue and we need to keep our eyes open for further trouble.

A third issue relates to residential real estate loans…mortgages. Over the past year residential real estate loans at the largest 25 domestically chartered banks have declined by almost $44 billion. Between the legal settlements the large banks have made over issues of mortgage lending and the oversight of the regulators, it is hard to see why commercial banks, except for Wells Fargo (NYSE:WFC), would want to grant residential mortgages.

Residential mortgage balances have increased at the largest 25 domestically chartered banks over the past 13 weeks, but the rise has been miniscule.

Finally, let's talk about commercial and industrial loans…business loans. Over the past quarter, business loans have increased at the largest banks, but at a slower pace than that which occurred over the previous nine months. Business lending is increasing, as it has over the last year, but there is still a lot of evidence that a lot of the borrowing is going to pay dividends, buy back stock, acquire other companies, and help private equity funds, hedge funds, and other private groups acquire other assets to benefit from rising asset prices. Little or no evidence that the business lending is going into areas that would result in the physical investment that would help spur on economic growth and get workers back into the workforce and employed.

The state of the banking system continues to be relatively calm these days. Legal issues still make the news...like the Bank of America (NYSE:BAC) settlement last week. The size of the banking system continues to shrink as more and more banks get acquired. Outright failures do not happen in this environment, only approved acquisitions, and these seem to be resulting in a decline in the banking system of about 200 banks per year. It is my guess that this shrinkage will continue for several more years…being approved and encouraged by the bank regulators.

It does not seem, after five years, that the activity of the banking system is consistent with any strong, steady expansion of the economy. Banks, it appears to me, are still more interested in themselves and where they stand with the regulators than in stepping out and helping businesses grow and prosper.