Mish's Global Economic Trend Analysis

Five Writing Styles For Blogs
Chinese Banks Face Default Risk on 23% of $1.1 Trillion Loans; Chinese Rating Agency Criticizes Moody's, Fitch, S&P
Oregon's Public Employee Retirement System (PERS) in Deep Trouble, Taxpayers on the Hook

Posted: 24 Jul 2010 08:46 PM PDT

Here is something a bit different for lighthearted weekend reading that I just stumbled upon: Writing For Readers — 5 writing styles for maximum impact by Dave Doolin.

Millions of blogs now inhabit the internet. It seems like there are a million different writing styles as well, with the writing ranging from amazingly awesome to painfully poor. As it turns out, a small number of article styles predominate on the blogs with the best writing and most popular content:

Snackable: Seth Godin, Behavior Gap, Calculated Risk
List: Mashable, Smashing Magazine
Journalism: Global Economic Analysis
Polemic (also known as "rant"): Karl Denninger
Shaggy dog story: textism.com

In general, the author has Calculated Risk, Denninger, and my blog labeled correctly.

Doolin defines "Snackable" as short content material, blog posts which are 200-300 words in length. Big Picture typically falls in this category as well.

Doolin defines "Journalism" as "regular articles of 1500-2500 words in length that treat a narrow topic with much more depth than one usually finds in mainstream publications".

Of the three economic blogs discussed, Denninger comes closest to nearly always adhering to style. Calculated Risk occasionally has some long posts, typically on housing. I frequently have posts in at least four of the styles, but my typical style is certainly the long 1500-2500 word post.

This post is out of norm, perhaps a cross between a snack and a list.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Chinese Banks Face Default Risk on 23% of $1.1 Trillion Loans; Chinese Rating Agency Criticizes Moody's, Fitch, S&P

Posted: 24 Jul 2010 12:39 PM PDT

Here is an interesting pair of stories at odds with each other, the first article is about problem loans at Chinese banks, the second is about a rating agency mud fight.

Bloomberg reports Chinese Banks See Risks in 23% of $1.1 Trillion Loans

Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.1 trillion) they've lent to finance local government infrastructure projects, according to a person with knowledge of data collected by the nation's regulator.

About half of all loans need to be serviced by secondary sources including guarantors because the ventures can't generate sufficient revenue, the person said, declining to be identified because the information is confidential. The China Banking Regulatory Commission has told banks to write off non-performing project loans by the end of this year, the person said.

The nation's five-largest banks, including Agricultural Bank of China Ltd., plan to raise as much as $53.5 billion to replenish capital after the sector extended a record $1.4 trillion in credit last year.

"In China now, it is the same as the people getting loans in Phoenix here in the U.S. three years ago," said Vikas Pershad, chief executive officer of Chicago-based Veda Investments LLC. "People who want money get money, and then they all lose track of it."

Local governments set up the financing vehicles to fund projects such as highways and airports due to limits on their ability to directly borrow money. The central government this year restricted borrowing on concern money isn't being used for viable projects.

"The issue is symptomatic of the way the stimulus package was rolled out in 2008," said Nicholas Consonery, Asia specialist at the Eurasia Group. "It is difficult for local governments to finance these projects. It is written under the Chinese constitution that local governments cannot offer their own debt."

Chinese Rating Agency Criticizes Moody's, Fitch, S&P

The Financial Times reports China rating agency condemns rivals

The head of China's largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world's largest creditor nation China should have a bigger say in how governments and their debt are rated.

"The western rating agencies are politicised and highly ideological and they do not adhere to objective standards," Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview. "China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged."

On the corporate side, Mr Guan argues Moody's Investors Service, Standard & Poor's and Fitch Ratings – the three companies that dominate the global credit rating industry – have become too close to the clients they are supposed to be objectively assessing.

Last week, privately-owned Dagong published its own sovereign credit ranking in what it said was a first for a non-western credit rating agency.

The results were very different from those published by Moody's, Standard & Poor's and Fitch, with China ranking higher than the United States, Britain, Japan, France and most other major economies, reflecting Dagong's belief that China is more politically and economically stable than all of these countries.

"The US is insolvent and faces bankruptcy as a pure debtor nation but the rating agencies still give it high rankings ," Mr Guan said. "Actually, the huge military expenditure of the US is not created by themselves but comes from borrowed money, which is not sustainable."

A wildly enthusiastic editorial published by Xinhua , China's official state newswire, lauded Dagong's report as a significant step toward breaking the monopoly of western rating agencies of which it said China has long been a "victim".

But even if the company can overcome reluctance from US regulators it may have a hard time convincing international clients that it is more objective than its western peers, especially considering the overtly nationalistic tone it strikes at home.

Pot Calls Kettle Black

Is the US banking system insolvent? Of course, but so is the Chinese banking system, the UK banking system, and the European banking system.

Recent "stress tests" show European banks are generally in good shape, but no one with an ounce of common sense believes the report. Likewise, does anyone really think China's banking system is in good shape, anyone other than Chinese rating agencies?

The last paragraph in the above article tells the story of one corrupt rating agency citing corruption in other rating agencies. In other words this is nothing more than a "pot calling the kettle black" type of story.

The way to fix the rating agency problem is to end government sponsorship of them. If Moody's, Fitch and the S&P got paid on how accurate their ratings were instead of how much volume they did, the problem would quickly go away.

I have talked about this sorry state of affairs before. Please consider Time To Break Up The Credit Rating Cartel

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Oregon's Public Employee Retirement System (PERS) in Deep Trouble, Taxpayers on the Hook

Posted: 24 Jul 2010 02:08 AM PDT

OregonLive reports PERS rates for state agencies will more than double in 2011.

The actuary for Oregon's Public Employee Retirement System confirmed Friday what is already a common-knowledge piece of the state's looming budget shortfall: the cost of funding PERS will increase sharply in 2011.

Mercer Inc. told the PERS board Friday that systemwide, the payroll rates paid by cities, counties, school districts and state agencies to cover their employees' pension and health care benefits will more than double in 2011, from their current level 5.2 percent of payroll to 10.8 percent of payroll.

As of Dec 31, the retirement system had 76 cents in assets for every $1 in liabilities, excluding prepaid contributions. The system's investments declined about 1 percent year through May 31, Mercer said. If they finish the year at this level, the system's overall funded status, excluding prepaid contributions, will decline to about 70 percent, Mercer said.

Actual pension rates vary by individual employer. Employers will learn the exact rate they'll start paying in 2011 in September.

If we finish the year her the system will only be 70% funded. Pray tell what happens if the stock market finished the year down a modest 15% and is flat next year?

Notice the article says "Actual pension rates vary by individual employer". Although the rates will vary, it is not "employers" who pick up the tab. Rather it is taxpayers who have to pay taxes to pick up the tab.

If articles like the one quoted explained things properly, there would be much more needed outrage.

The system is broke and the only way to fix it is to get rid of it. Defined benefit plans at taxpayer expense have to go.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Saturday, July 24, 2010

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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