Marietta notes

Can central bankers play god to the markets? India’s central bank chief Duvvuri Subbarao does not believe so. In doing so, the Reserve Bank of India governor, a physics student, has taken refuge in quantum mechanics. Subbarao takes the example of Einstein, who could not reconcile to the probabilistic nature of quantum mechanics all through his life. Einstein famously said – “God does not play dice”. Less known perhaps is the retort of his friend and mentor Niels Bohr who said – “Albert, stop telling God what he can or cannot do”. Subbarao draws this parallel in arguing that a central bank cannot tell markets what to do. “We have to take market signals as given,” Subbarao said in New York at a recent IMF meeting. In fact, he went on to say that central bank decisions get more validity if the market endorses them. Central bankers have always enjoyed an elevated status in the financial world, possibly because of the wide-ranging powers they have enjoyed.  True, the sheen has come off at times. Liaquat Ahamed referred to this in Lords of Finance when he wrote about central bankers ruling the financial world in the late 1920s — Benjamin Strong Jr of the New York Federal Reserve, Montagu Norman of the Bank of England, Émile Moreau of the Banque de France, and Hjalmar Schacht of the Reichsbank. The Wall Street crash of 1929 and the depression that ensued crippled an entire generation and set the stage for the second World War. The orthodoxy of the central bankers of the day in trying to adhere to the gold standard was a prime cause. The media, of course, has played a big role in creating this mythical creature called the central banker. In 1999, Time magazine ran a cover story titled ‘The Committee To Save The World’ featuring then Federal Reserve Chairman Alan Greenspan along with Robert Rubin and Larry Summers (then secretary and deputy secretary of Treasury) for their role in averting a global meltdown after Asia’s tiger economies faced a debt repayment crisis. This stereotype was particularly so of Alan Greenspan, under whom interest rates were ultra low and the market was flooded with dollars. To many, Greenspan, whose career at the Federal Reserve spanned nearly two decades, was god.  All that came crashing down when the financial crisis broke in 2008 and the very same low interest rates were blamed for the subprime mess and housing bubble in the United States. Subsequently, it’s been mostly downhill for central bankers. The Economist, in a piece in Oct 2010, accused Bank of England Governor Mervyn King of playing god when in a speech he savaged the performance of Britain’s banks before the crisis and criticised the new Basel 3 proposals as too soft. Tongue in cheek, the Economist said trying to reinvent finance was a lot more fun than shifting interest rates by 25 basis points once in a while. But to be fair, most central bankers haven’t claimed a god status. It was something that was mostly thrust on them. But the one who takes the cake is Goldman Sachs boss Lloyd Blankfein who famously said that banks serve a social purpose and are doing “god’s work”. This was after reckless investment banks, in search of supernormal profits, plunged the advanced economies into recession. It was the central bankers who had to rush in with trillions of dollars to ward off armageddon.

Walmart U.S., by far the company’s largest business, has posted nine consecutive quarters of same-store sales declines. While such sales rose in July, the last month of the fiscal second quarter, same-store sales fell 0.9 percent in the quarter.Walmart U.S. same-store sales continued to rise in August and September, Simon said at Wal-Mart’s 18th annual meeting for the investment community in Rogers, Arkansas, which is also being broadcast over the Internet. Traffic in stores has increased, led by traffic in the food department, Simon said.He also said that Walmart U.S. is working on lowering prices for shoppers by a cumulative $2 billion over the next two years as it works on trying to get them to shop more often.The money for the price reduction plan will come from changes such as reducing new store and remodeling costs as well as improving productivity and efficiency in areas such as stores, distribution, transportation and marketing.

* Tsang also announces other relief measures to help the poor (Adds analyst comment, other details)By Charlie Zhu and Alison LeungHONG KONG, Oct 12 (Reuters) - Hong Kong Chief Executive Donald Tsang said on Wednesday the government would resume the construction of subsidised housing as part of measures to help low-income earners and soothe public discontent over sky-high property prices.Tsang, due to step down next year after two terms in office, also unveiled other relief measures amid criticism that he was not responsive enough to housing issues and had failed to narrow the wealth gap in the former British colony of seven million.In his final policy speech, Tsang proposed building 17,000 subsidised flats over four years from fiscal year 2016/17 under the Home Ownership Scheme (HOS) for low-income families. here”In response to the aspirations of low- and middle-income families to buy their own homes, the government has put forward a new policy for the resumption of the HOS,” Tsang told Hong Kong’s legislators.The HOS is a government subsidised programme enabling low-income residents to purchase flats at discounted prices.Analysts say an annual supply of fewer than 5,000 units under the renewed HOS would fail to meet demand and move the private residential property market. Tsang’s measures, they said, were aimed at bolstering his legacy.”I think in his last years of governance he wants to keep a good name,” said Kwok-yu Lau, associate professor at City University of Hong Kong. “He now realised that what he has neglected, especially in providing proper subsidised home ownership for the people, now he thinks he should do something.”WEALTH DISPARITY, HOUSING PRICESNicknamed “bow tie” for his colourful neckwear, Tsang’s support rating has plunged in recent years amid discontent about wealth disparity and housing prices. He has also drawn criticism for his close links to high-profile businessmen.An opinion poll released by the University of Hong Kong this month put Tsang’s support at 48.4 points out of 100, down from 72.3 percent when he took the city’s top political job in 2005.Tsang blamed Hong Kong’s wealth gap on globalisation.”The wealth gap has become a structural cause of social tension,” he said. “The wealth gap generated by globalisation is all the more acute in a city economy like Hong Kong. I believe that it is difficult to solve the problem completely.”Prices for Hong Kong’s apartments, the most expensive in the world, have risen more than 12 percent this year, surpassing records in 1997 amid a low interest-rate environment, strong economic growth and buying by mainland Chinese investors.Hong Kong suspended the construction and sale of HOS flats in November 2002, following a slide in the local property market amid a global economic downturn.Tsang said the scheme would target families and first-time buyers with monthly household income below HK$30,000 ($3,850). But he said it could be suspended if private housing prices dropped.The government has introduced measures to cool the housing market. Transactions have slowed since June, when the government lowered the loan-to-value (LTV) ratio for home mortgages - the percentage of a property’s value that is mortgaged.Mortgage rates have also been raised by Hong Kong banks.Tsang said the government would supply between 2,500 and 6,500 subsidised flats per year over four years, with 2,500 flats to be made available in 2014 or 2015. The apartments would each have a saleable floor area of 400 to 500 square feet and be priced at between HK$1.5 million and HK$2 million.In face of global uncertainties, Tsang announced other short-term measures to ease the burden on low-income households.The government plans to spend about HK$1.9 billion to pay two months of rent for around 700,000 public housing tenants, and provide another HK$1.9 billion to the poor and elderly.Tsang joined the government in 1967, was appointed financial chief in 1995 and steered Hong Kong through the 1997/98 Asian financial crisis. In 1998, he masterminded a government foray into the stock market to foil speculators attacking the Hong Kong dollar, which is pegged to the U.S. dollar. $=7.8 Hong Kong dollars

The country’s big broadcasters such as TF1 , M6 and pay-TV operator Canal+ are set to get new channels this year as they are asked to broadcast through digital and analogue signals, and hence face higher costs.The European Commission was opposing the bonus channels as discriminatory to competitors and in violation of rules limiting state aid, a document obtained by Reuters last month showed.