This Week in Bank Failures

The post-Brexit decline in London banking threatens to burst the London real estate bubble, but investors cannot all cash out of their real estate at once. Standard Life Investments UK Real Estate Fund suspended redemptions on Monday, and within two days a dozen other property funds followed. Real estate is not a liquid investment on any business day, so it could be three years before investors can take all their money out. Meanwhile, foreign investors who have a high risk tolerance are snapping up London real estate that is suddenly cheaper because of the decline in the British pound.

German state-owned shipping lender Bremer Landesbank has €400 million in nonperforming loans and desperately needs capital, but the two states that own 96 percent of the bank have not been able to find a workable rescue formula.

Brazilian police say they have questioned employees and an executive of Panama-based FPB Bank in connection with money taken from state-owned oil company Petrobras. Investigators followed leads obtained from the Panama Papers leak. Prosecutors say the bank was carrying on a clandestine operation in Brazil to make it more difficult to trace large money transfers. FPB Bank in a statement says this is all a big mistake. It has no operations or workers in Brazil and no employees have been questioned, it says.

Regulators replaced executives and directors of Skye Bank, the eighth largest bank in Nigeria. The bank had failed to meet liquidity requirements over an extended period of time.

A former UBS employee has pleaded guilty in a tax fraud scheme in France. The bank, which also faces a possible criminal trial later this year, says it was not involved in the scheme.

Brazil Speaker Resigns

Brazil is one step closer to sanity tonight as the lower house speaker resigned his post. Publicly seen as the country’s most corrupt political figure, Eduardo Cunha now may be just months away from going to jail, though a series of administrative steps have to occur before he can stand trial. Aside from his role as a ringleader of government corruption, Cunha was a fount of negativity and religious extremism in his brief stint as speaker. One of the nightmare scenarios in Brazil’s corruption scandal was the possibility that Cunha might become president. Though the corruption problems are far from solved, the country can breathe a sigh of relief tonight.

Fort McMurray Fire Under Control

The Fort McMurray fire is now listed as “under control,” and large areas of the fire are actually out after a series of rain events. The most remote parts of the fire zone got less rain, and there, areas of forest continue to burn, though the current fire perimeter is expected to contain the hot spots. The fire eventually expanded to nearly 600,000 hectares in Alberta and Saskatchewan, making it the largest fire in North America this year. Sooner or later, more rain or the cold weather of fall will put the fire out.

Toffler’s Future

Last week we lost Alvin Toffler. A sociologist and economist, Toffler is best remembered as the author of the bestseller Future Shock, which was simultaneously a celebration of change and a warning about what can happen to people if change proceeds unchecked. Toffler was a futurist who considered the consequences of current actions in terms of their impact on a future that, before anyone sets about intentionally changing it, is already destined to be different from the present and the past. This focus on the future is still a radical departure in a world where official plans are still based on a view of the world that may be ten or twenty years or a lifetime out of date, like generals aiming bombs where the enemy positions were in the last war.

Reading Future Shock as a pre-teen forever changed the way I thought about my own life and the events of the world. Aiming my work toward the future became second nature. This was a necessity when I began writing computer books. Writing an up-to-date computer book is harder than it looks because of the book industry’s insistence that everything be planned two years in advance. The two-year planning horizon is long enough for the computer industry to be turned on its head. How do you stay relevant in a tech world where your product may be obsolete before the public gets to see it? My future orientation and assessment of trends were capable enough to allow three of my many tech book releases to look like the next big thing a full two years after I had originally written them.

Toffler coined hundreds of words, but prosumer comes to mind as his billion-dollar word. Toffler originally coined the word to highlight the blurring economic lines between the producer and consumer of a product. The word soon came to identify an product level that might be used by one of Toffler’s prosumers. The prosumer audio equipment that I work with every day produces professional-quality results but may lack the sturdiness, ease of use, or other qualities that would be assumed in pro equipment costing twice as much.

Toffler warned against linear thinking. The future, he said, will not unfold smoothly in the direction we have come to expect. Trends can get out of sync leading to reversals that last for decades. Prediction is difficult, and Toffler specifically warned (ten years ago) against the overconfidence of oil-funded governments and others whose planning depended too heavily on any single trend. It is not enough, he said, to look for the single most obvious recent trend and take it into account:

It is useful to reserve at least a speck of mind space for thinking the unthinkable, for history is little more than a sequence of high-impact events that began as utterly improbable and exploded into actuality.

That is a point well taken on Independence Day. It is because the Declaration of Independence was so improbable that it is remembered centuries later. The future will take us by surprise again no matter how well we prepare for it.

This Week in Bank Failures

The European Union is still all anyone can talk about, Brexit, lunch, and dinner, but it has become clear that the early assessments of the impact of the departure of the United Kingdom were greatly exaggerated. A scary global stock selloff reversed as quickly as it occurred. Financial stocks did not come all the way back, though, and it is Italian banks, RBS, and Asian banks with operational centers in London that carry the lingering impact of the British referendum result.

Insider predictions of rapid bank layoffs did not come to pass, though there are worldwide hiring freezes and similar defensive measures in the investment arms of 20 global banks. The course of the British exit from the European Union will probably be known by the end of this year, but it could be a process gradual enough that the 20 to 30 percent staffing cuts required in London banking could be met mainly through pay freezes and attrition.

Banks in Italy were living on the edge before the Brexit vote and now look desperate for capital with no clear path to obtaining it. The EU has reportedly approved a temporary measure by Italy to backstop bank liquidity in the event of a market meltdown. It is not nearly enough, but it was the best Italy could do. A plan to recapitalize the banks with government backing did not meet EU rules. Italian bank stocks declined so much this week that it is now hard to imagine setting the banks right using private capital.

There is speculation about Italy exploring an EU exit of its own if needed to save its banks, and there are rumblings from four other countries that would seem to cast doubt over the EU’s future. The U.K. will need to select a new prime minister and get its strategy together before it can negotiate directly with the EU, and even then, U.K. leaders might be driven to drag out the process because of some EU officials’ insistence on punishing the U.K. for its decision to leave. Complicating this, a trade wall against the U.K. would damage every EU country in one way or another, so the debate about the U.K.’s exit terms could itself be a wedge splitting the EU. Even if an agreement can eventually be reached, the negativity of the Britain question may cast a shadow over the EU through 2017. In the middle of this crisis, Germany has taken a particularly inflexible stance, saying that no rules can be bent and no problems can be solved. Yet as it stands, Germany is the only country that has much to lose economically if the EU were to dissolve. Politically, to survive, the EU must be seen as “a force for good” not just by every member country, but by the majority of people in each country. That failed in the U.K. partly because of domestic politics and government policies to redistribute wealth from workers to billionaire-investors, but there was more to it than that. Nearly 40 percent of the net new jobs in the U.K. during the last three years were awarded to foreigners. That is, in retrospect, a politically unworkable formula in a country that faced a chronically weak labor market. Political support for the EU is a particular problem in France, where the EU never enjoyed majority voter support, but it is potentially a problem in any member country.

Adding to the fragility of the situation, Finnish finance minister Alexander Stubb has returned to private life and can no longer be called upon to persuade European ministers to think rationally and systematically when faced with what looks like an insoluble problem. It will be a new era if the European Union turns into the European Argument, but tonight it seems there is a real risk of that happening.