Chinese investor to buy elite Newport Beach clubs

Chinese investor Winston Chung has agreed to buy the parent company of the Balboa Bay Club & Resort and the Newport Beach Country Club.

Chung’s Seven-One Capital-Business Inc. will purchase International Bay Clubs Inc. for an undisclosed sum and gain control of the elite Orange County clubs, both parties said Friday.

The Balboa Bay Club includes a 160-room public resort hotel, as well as a private club with a marina and 145 apartments set on 15 acres along Newport Beach Harbor.

The Newport Beach Country Club is a private golf country club near the Fashion Island shopping center in Newport Beach.

Chung said he would carry out existing plans to build a new clubhouse and make other improvements at the properties. The current management team will continue to operate both entities, he said.

Chung said he hopes to develop similar private waterfront membership clubs with marinas and apartments in China.

Chung said he is a battery scientist, inventor and entrepreneur with several businesses in Southern California. He made much of his fortune as the founder of Winston Battery in Shenzhen, China.

Among his investments in Southern California is MVP RV Inc., a Riverside company that builds trailers and recreational vehicles. Chung said in January that he plans to build and export $5 billion worth of them to China.

-- Roger Vincent

Photo: The Balboa Bay Club in Newport Beach.

Credit:  Los Angeles Times

Podcast: Double-Dip Fears and Grab-and-Go Food

August is off to a rocky start.

Despite an agreement to raise the debt ceiling just hours before the government’s borrowing authority was set to run out, investors quickly switched their focus to the European debt crisis and weak prospects for the United States economy and pummeled stocks.

In the Weekend Business podcast, Floyd Norris, chief financial correspondent for The Times, discusses the possibility of a double-dip recession for the United States and the troubles plaguing Europe. In addition, he suggests that the unemployment report for July, which showed a better-than-expected gain of 117,000 jobs, could be overstating seasonal adjustments.

One place where workers seem pretty happy is Pret A Manger, the British fast-food chain. Its annual work force turnover rate is about 60 percent — low for the fast-food industry, where the rate is normally 300 to 400 percent. As David Gillen discusses with Stephanie Clifford, the chain is slowly expanding in New York and other American cities with its own brand of grab-and-go food and, more significant, a fresh approach to service. At Pret, the goal is to serve customers within 60 seconds, and with maximum currency.

You can find specific segments of the podcast at these junctures: Floyd Norris (15:51); news headlines (10:52); Pret A Manger (8:28); the week ahead (0:58).

As articles discussed in the podcast are published during the weekend, links will be added to this post.

You can download the program by subscribing from The New York Times’s podcast page or directly from iTunes.

Young Americans waylaid by recession, study shows

The poor economy has hit the younger generation hard, as young'uns graduate from high school and college and find there aren't any jobs. A poll out Friday indicates that the pain may affect their future behavior, which in turn slows the economy even further, as young people postpone buying homes and starting families.

The Polling Company Inc./WomanTrend polled Millenials -- people aged 18 to 29 -- to ask them how the bad economy is changing their lives. Three-quarters of those polled said they have or will delay a major life change or purchase due to economic factors and 44% said they'd delay buying a home.

Nearly one-quarter said they'd delay starting a family, and 18% said they'd put off getting married (But maybe that's just an excuse -- perhaps "The economy's bad" is the new "It's not you, it's me"). Nearly 30% of those surveyed said they were delaying saving for retirement, paying off student loans and changing jobs or cities.

"The impact of the poor economy, in human terms, has been devastating," said Paul T. Conway, president of Generation Opportunity, a nonprofit. "This is especially true for young Americans, whose lives have been interrupted and dreams put on hold due to the lack of economic opportunity."

The unemployment rate for people 16 to 19 years old was 25% in July, according to the latest figures from the Bureau of Labor Statistics, although the overall unemployment rate for all workers was 9.1%. The unemployment rate for people 20 to 24 years old was 14.6%.

Household formation has already been affected, as the younger generation moves back in with their parents, rather than striking out on their own. The average size of a U.S. household has grown in recent years, after declining for decades. Slowing household formation is just one reason that demand for homes remains low.

RELATED:

Brighter job picture fails to overcome pessimism on the economy

California job market is rebounding, but unevenly

In Hemet, three generations crowd under one roof to survive

-- Alana Semuels

Photo: Families such as the Grissos have numerous generations under one roof to save on costs. Credit: Irfan Khan / Los Angeles Times

Honda to recall more than 2 million vehicles in U.S. and China

Honda Motor Co. will recall more than 2 million vehicles in the U.S. and China to update the automatic transmission software in several popular models.

The 1.5 million American cars affected include 4-cylinder Accords from model years 2005 through 2010. The Accord was by far Honda’s best-selling vehicle last month, followed by the Civic.

CR-Vs from 2007 through 2010 and Elements from 2005 through 2008 were also affected by the recall.

Shifting between the reverse, neutral and drive positions -– a common sequence when trying to dislodge a vehicle trapped in mud or snow –- can damage a bearing in the automatic transmission system, the automaker said.

The problem could cause the engine to stall or make the parking gear difficult to engage. Honda said it knows of no injuries or deaths related to the issue.

The automaker said it will begin notifying owners starting Aug. 31. Last month, nearly all of Honda’s U.S.-sold models saw a year-to-year sales slump.

Honda will also recall 760,515 Accords, Odysseys and Spirior cars in China, according to a statement on its Chinese website.

RELATED:

Honda tries to limit fallout from negative Civic review

Big auto repairs put drivers at financial risk

-- Tiffany Hsu

Photo: Honda's logo. Credit: Reuters

Happy Birthday to the Income Tax

CATHERINE RAMPELL

Dollars to doughnuts.

Happy birthday to the federal personal income tax, which turns 150 today.

Dollars to doughnuts.

In 1861, President Abraham Lincoln needed cash to help pay for the Civil War. So, on Aug. 5, 1861, he signed the newly-passed Revenue Act, which imposed the first federal income tax.

The law imposed a 3 percent tax on annual incomes over $800. In today’s dollars, that would refer to an annual income of $20,400.

Stock markets end the day mixed after wild swings

Stock markets went through wild swings on Friday only to end the day not far from where they began.

The Dow Jones industrial average ended Friday up 61 points, or 0.5%, at 11,444.68, only a day after the biggest drop since the financial crisis.

The broader Standard & Poor's 500 index finished the day down 0.1%, at 1,199.36.

The modest final results of the day belied the drama that came before.

Before the markets opened, the government announced that the economy had added a better-than-expected 117,000 jobs in July, enough to bring the unemployment rate down one tick to 9.1%. That gave brief encouragement to traders as the markets opened with the Dow rising nearly 150 points, but pessimism soon set in, dragging the index down more than 200 points.

Things turned around after President Obama gave an encouraging speech about the economy and a news report suggested that the European Central Bank may take steps to help shore up the debt crisis in Italy and Spain. Together it was enough to motivate a quick 400-point rise.

As the day went on, though, the optimism faded again, and the leading indexes settled back down.

"There’s just so much uncertainty, and every bit of news is causing incredible volatility," said Ryan Detrick, an analyst at Schaeffer's Investment Research.

Smaller stocks lost more ground than blue chips. The Russell 2,000 small-stock index slid 1.7%.

The markets reflect the wide disagreement among investors about the meaning of the decline in stock indexes over the last two weeks.

A growing number of economists have said the United States could be headed back into recession, pointing to the recent drop in consumer spending and the continuing drag of debt on the U.S. and European economies.

Yields on U.S. Treasury bonds jumped Friday, in part as fears returned that the Standard & Poor's rating agency may drop the U.S. rating from the current triple-A. The 10-year T-note yield rose to 2.56% after falling to 2.40% on Thursday, the lowest since last fall.

Another camp has said the economy's weakness is likely to be temporary, encouraging ordinary investors to hold onto stocks. The speculation about the European Central Bank's plans to help Italy and Spain gave hope that the markets there may recover.

RELATED:

Muni bond market a big winner as stocks dive

Obama says more to be done to boost economy

Stocks: How often does a 'correction' become a bear market?

-- Nathaniel Popper

Photo: Jin Lee / Associated Press

By One Survey, Fewer Jobs Than 2 Years Ago

The job numbers every month come from two different surveys, which sometimes point in different directions. The establishment survey questions employers, and produces one headline number. This month it concluded that, seasonally adjusted, the economy added 117,000 jobs in July. The household survey asks people if they are working, and is used to calculate the unemployment rate.

FLOYD NORRIS

Notions on high and low finance.

The two surveys do not cover the same thing: Self-employed people are not counted in the establishment survey. But someone with two jobs may be counted twice. Add in issues of sampling error, and they can diverge for long periods of time.

Notions on high and low finance.

But it is interesting to observe that the total number of people with jobs in the household survey in July was 139,296,000. That figure is half a percent less than the figure in June 2009, when the recession officially ended. The unemployment rate is lower only because there are fewer people in the work force.

The establishment survey looks a little better. It shows employment up half a percent since the end of the recession.

Both surveys indicate employment hit bottom in the winter of 2009-10, and is now higher. But while the establishment survey indicates the rise has been slow but steady since then, the household survey showed a sharp rise in early 2010 but has done little since then.

Stock markets jump wildly amid investor confusion

Stock markets bounced around dramatically on Friday morning as investors wavered over the meaning of the latest signals on the global economy.

The Dow Jones industrial average dropped as much as 200 points in early trading before jumping sharply into positive territory after a news report suggested that the European Central Bank may take steps to help shore up the debt crisis in Italy and Spain.

The Dow was recently trading up 122.65 points, or 1.1%, at 11,506.33, just a day after the blue-chip average lost a staggering 512 points.

Before the markets opened, the U.S. government announced that the economy had added a better than expected 117,000 jobs in July, enough to bring the unemployment rate down one tick to 9.1%. That gave brief encouragement to traders as the markets opened with the Dow rising nearly 150 points, but pessimism soon set in, dragging the markets down, before the more recent rebound.

Overnight, stock markets in Asia followed U.S. markets down close to 4%.

The markets reflect the wide disagreement among investors about the meaning of the decline in stock indexes over the last two weeks.

A growing number of economists have said the United States could be headed back into recession, pointing to the recent drop in consumer spending and the continuing drag of debt on the U.S. and European economies.

The yield on the U.S. Treasury bond was up slightly Friday morning as fears returned that the Standard & Poor's rating agency may drop the U.S. down from its triple-A rating.

Another camp has said the downturn is likely to be temporary, encouraging ordinary investors to hold onto stocks. The speculation about the European Central Bank's plans to help Italy and Spain gave hope that the markets there may recover.

RELATED:

Unemployment dips to 9.1% as employers add 117,000 new jobs

Muni bond market a big winner as stocks dive

Small investors rattled by latest stock sell-off

-- Nathaniel Popper

Photo: Justin Lane/ EPA

Number of borrowers winning foreclosure relief inches up in June

The number of troubled borrowers gaining permanent mortgage relief from the administration's main foreclosure assistance program inched up just 3.7% from May to June, the government said Friday.

The Home Affordable Modification Program was launched in early 2009 with the aim of helping 3 million to 4 million homeowners avoid foreclosure through 2012. But only 657,044 people had qualified for a permanent mortgage modification through June 30, according to government statistics.

The program provides cash incentives for lenders to reduce monthly payments through a variety of means. In June, the Obama administration punished three of the nation's largest banks -- Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. -- judging their performance in the program as in need of "substantial improvement" and unworthy of receiving financial incentives.

The move was the first time that the administration had taken any major punitive action against the banks, but advocates decried the move as too little too late. Another assessment of mortgage servicer performance in the program is due in September.

The Los Angeles metro area has had the most people receiving permanent modifications through the program, with 46,860 people having had their loans modified through June. The Riverside-San Bernardino metro area had the third largest number of people receiving modifications through the program, with 40,678 through June.

RELATED:

Bank of America agrees to write down California mortgage principal

California attorney general subpoenas CitiGroup over mortgage practices

Freddie Mac: Mortgage rates down in the basement again

-- Alejandro Lazo

Twitter: @AlejandroLazo

Photo: Thousands of homeowners gathered at the Shrine Auditorium in Los Angeles June 2 for help with loan modifications as part of the "Save the Dream" event put on by the Neighborhood Assistance Corp. of America

Credit: Nick Ut / Associated Press

Construction employment hits 15-month high in July

Another reason to not declare the end of the world as we know it, yet: Construction employment climbed last month, hitting a 15-month high, according to the Associated General Contractors of America. The construction sector has been one of the hardest hit in the economic downturn, especially in states such as California and Nevada, where employment remains stagnant.

The nation added 8,000 construction jobs in July, and the industry unemployment rate fell to 13.6%, from 17.3% a year earlier, the association said. The strength came from employment in nonresidential building and specialty trade, which added 10,200 jobs for the month, signaling that factories, power projects and hospitals are being built, the association said.

But the job gains in construction paled in comparison with gains in other sectors, including manufacturing, which added 24,000 jobs, and retail trade, which added 26,000. Construction employment in July, at 5.5 million, was 28% lower than it was at the peak level in April 2006.

Many construction workers have sought work in other fields, often through retraining. But much of the retraining money available through the stimulus bill have ended, and there still aren't enough jobs to support every construction worker who wants to transition to a new field, said Sandy Harmsen, executive director of the San Bernardino County Workforce Investment Board.

The government sector shed jobs in July, and additional cuts in government spending will likely halt construction projects such as highways and military bases, said Ken Simonson, chief economist of the Associated General Contractors of America.

Heavy and civil engineering construction, which includes many government projects, shrank for the third month in a row in July, losing 400 jobs. Residential building and specialty trade employment dropped 1,600 jobs in July.

"Overall job creation will remain sluggish at best unless single-family home building also revives," Simonson said.

RELATED:

Brighter job picture fails to overcome pessimism on the economy

California job market is rebounding, but unevenly

June home prices rise 0.7% from May but fall 6.8% from June 2010

-- Alana Semuels

Photo: Construction workers rest in a new home in Winchester. Credit: Alana Semuels / Los Angeles Times

College graduates earn 84% more than high school grads, study says

The cost of education these days would make anyone squirm, but researchers say it’s worth it.

People with a bachelor’s degree make 84% more over a lifetime than high school graduates. In 1999, the premium was 75%, according to a study released Friday.

Granted, the report comes from a university -- specifically, Georgetown’s Center on Education and the Workforce.

But the data is striking, especially amid the backdrop of increasing concerns about soaring school expenses.

-- On average, a doctoral degree-holder will earn $3.3 million over a lifetime, compared to $2.3 million for a college graduate and $1.3 million for those with a high school diploma.

-- People with less education in high-paying occupations can out-earn their counterparts with advanced degrees. But within the same industry, workers with more schooling usually land better paychecks.

-- The gender and racial gap persists. To earn as much as their male colleagues, women tend to need much higher degrees, even while working the same hours. Black and Latino master's degree-holders don’t out-earn white college graduates. But Asians with graduate degrees out-earn all other races and ethnicities at the same educational level.

-- The highest-paying occupations for each degree tier vary. High school graduates can make $2.2 million over their lifetimes as general and operations managers. College graduates who become chief executives or legislators can haul in $4.5 million. Physicians and surgeons rake in nearly $6 million.

The Georgetown researchers have also estimated that 63% of American jobs will require some sort of postsecondary education or training by 2018. Currently, the U.S. is 10th globally in college degree attainment, with 41% of adults earning a bachelor’s degree.

RELATED:

Recent college graduates earn less than those who graduated before the recession

The upward mobility gap: College-educated Americans live in a different country than high school dropouts

-- Tiffany Hsu

Photo:  Graduates at Caltech. Credit: Mark Boster / Los Angeles Times

Wells Fargo, KPMG reach $627-million settlement of lending suit

The legal fallout from high-risk, boom-era mortgage lending never stops, it seems -- the latest example being Wells Fargo & Co.'s $590-million proposed settlement of a class-action lawsuit centering on controversial "Pick-a-Pay" loans issued by Oakland's World Savings.

The San Francisco bank disclosed the deal Friday in its quarterly report to the Securities and Exchange Commission. It would settle claims brought against Wachovia Corp., the big bank Wells took over during the financial crisis, which, in turn, had acquired World Savings' parent, Golden West Financial, in 2006.

Wells said its financial reporting would not be affected because it already had set aside funds to cover the gigantic settlement.

Wells admitted no liability or wrongdoing by Wachovia in settling with the plaintiffs, mainly pension funds, who had bought bonds and preferred stock from Wachovia in 2007 and 2008.

In several lawsuits consolidated before a federal judge in New York, they alleged that Wachovia had been negligent in failing to disclose the risks embedded in the portfolio of Pick-a-Pay loans, which gave borrowers the option of paying so little that the amount they owed went up instead of down.

The accounting firm KPMG, which audited Wachovia's books, has agreed to provide an additional $37 million as part of the settlement, bringing the total to $627 million, said Darren Robbins, a San Diego attorney representing the plaintiffs.

That would be the largest total settlement so far of any securities class-action claims stemming from the credit crisis, Robbins said.  The runner-up: a $624-million settlement by Bank of America and KPMG in federal court in Los Angeles of a shareholder class action alleging that Countrywide Financial Corp. of Calabasas, now part of B of A, misled investors about its financial condition and lending practices.

On a related legal front, Bank of America recently agreed to pay a far greater amount -- $8.5 billion -- to settle demands by a group of big investors that it buy back soured Countrywide loans that had been bundled up to back mortgage securities. Many big banks, including Wells Fargo, are facing similar demands by investors in bonds backed by subprime and other high-risk mortgages.

A Wells Fargo spokeswoman, Mary Eshet, said the bank agreed to the settlement "to avoid the distraction, risk and expense of on-going litigation."

Wells Fargo’s shares were down 63 cents, or 2.4%, at $25.11 in midday trading. The stock has fallen more than 13% since its recent high of $29.01 on July 22, before the big sell-off in the stock market.

RELATED:

Wachovia to Buy Golden West S&L

Wells Fargo suffering from weight of Wachovia's mortgage losses

CEO says B of A is turning the corner on its Countrywide woes

-- E. Scott Reckard 

Photo: A branch of Wells Fargo, which said it already had set aside funds to cover its $590-million lawsuit settlement announced Friday. Credit: Paul Sakuma / Associated Press

Wall Street Roundup: Banker optimism, banker pessimism

Gold: Trading now at $1,661 per ounce, up 0.1% from Thursday. Dow Jones industrial average: Trading now at 11,301.87, down 0.8% from Thursday.

No relief. A halfway decent jobs report Friday  morning was not enough to prop up the markets after the biggest drop since 2008. Want to see the arguments for why not to panic? Look here. And Tom Petruno provides an interesting look at the history of drops like the current one. 

The real Dow Jones. Dow Jones, of Alma, Ark., said he was doing just fine Thursday.

Exchange deal questioned. European regulators are asking tough questions about the proposed deal that would see the New York Stock Exchange bought by Germany's largest exchange.

Banker optimism. Some of Morgan Stanley's executives have seen a buying opportunity in the recent market rout, snapping up stock in their own bank.

Banker pessimism. Analysts at Wells Fargo said that the sector in which they are employed -- the banking sector -- is not promising.

Slim's fat losses. Mexican billionaire may have lost as much as $8 billion on the markets in the last few days, according to some calculations, leaving the poor guy with only $63 billion.

Rajat Gupta's saga. The Securities and Exchange Commission dropped its unusual complaint against Rajat Gupta, the former head of McKinsey, but the regulators have said they may bring a more ordinary lawsuit against him. 

Bank of America's saga. The New York attorney general is intervening in the $8.5-billion settlement that Bank of America recently reached with investors, arguing that the settlement was not reached properly. 

-- Nathaniel Popper

Photo: Getty Images/Stan Honda.

 

Stocks continue slide despite employment data

A day after the worst day on the markets since the financial crisis, a better-than-expected report about unemployment was not enough to counter investor gloom about the economy.

Before the markets opened, the U.S. government announced that the economy had added 117,000 jobs in July, enough to bring the unemployment rate down one tick to 9.1%. That gave brief encouragement to traders as the markets opened, but prices quickly began to waver.

Within two hours of opening, the leading indexes had switched directions numerous times. At midmorning the Dow was down 158.37 points, or 1.4%, to 11225.31, just a day after the blue-chip average lost a staggering 512 points.

The broader Standard & Poor's 500 index was down 1.2%, or 14.64 points, to 1185.43 Friday morning.

Overnight, stock markets in Asia followed U.S. markets down close to 4%.

The markets reflected the wide disagreement among investors about the meaning of the decline in stock indexes over the last two weeks.

A growing number of economists have said the United States could be headed back into recession, pointing to the recent drop in consumer spending and the continuing drag of debt on the U.S. and European economies. The yield on the U.S. Treasury bond was up slightly Friday morning as fears returned that the Standard & Poor's rating agency may drop the U.S. down from its AAA rating.

Another camp has said the downturn is likely to be temporary, encouraging home investors to hold onto stocks. 

Gold, a traditional safe haven during times of crisis, continued its ascent Friday after unexpectedly falling in price Thursday.

RELATED:

Unemployment dips to 9.1% as employers add 117,000 new jobs

Muni bond market a big winner as stocks dive

Small investors rattled by latest stock sell-off

-- Nathaniel Popper

Length of Unemployment Continues to Break Records

CATHERINE RAMPELL

Dollars to doughnuts.

The average worker who is unemployed has been searching for a job for 40.4 weeks, or more than nine months, according to new Labor Department figures.

Dollars to doughnuts.

That is the longest average unemployment duration on record:

This pattern is especially worrisome because unemployment begets unemployment — that is, for a whole host of reasons, people who are already out of work for a long period of time have very slim chances of finding new work in the near future. Just consider the catch-22 some employers are creating by stating that they’ll only hire workers who already have jobs.

In other words, what started out as a cyclical problem could morph into a structural one — particularly if the country allows the nation’s 14 million jobless workers to become a sort of underclass like the one many European countries have struggled with.

Seasonal Joys in the Jobs Report?

The job numbers on Friday were better than expected, at least if you look at the seasonally adjusted figures. They still were not very good, but any good news is welcome.

FLOYD NORRIS

Notions on high and low finance.

But some of this could be the seasonal factors I wrote about last month in an Off-the-Charts column.

Notions on high and low finance.

Before seasonal adjustments, the Labor Department said the number of jobs fell by 1,231,000. But July is always a weak month, so the department applies seasonal adjustments. If a characteristic of this economy is less turnover, as I think it may be, then the seasonal adjustments may be overstated. Similarly, June may have erred in the other direction.

The July seasonal adjustment relates almost entirely to government jobs. Of course there are fewer of them in the summer. Implicitly, the Labor Department is assuming that all those teachers will be back in September. Let’s hope it is right.

Private Sector Up, Government Down

DAVID LEONHARDT

Thoughts on the economic scene.

As weak as the economy has been in recent months, the private sector has still been adding jobs at a faster rate than the adult population has been growing. Over the last 12 months, the private-sector employment has grown by 1.7 percent, while the adult population has grown about 1 percent, according to Haver, a research firm, and the Bureau of Labor Statistics:

Thoughts on the economic scene.

Yet the percentage of adults with jobs has been falling:

How could this be? Because the government — especially state and local government — is cutting jobs:

Why are oil and mining shares plunging?

Why are oil, gas and mining shares suffering so badly in the latest market rout? The oil sector is down 7pc and mining is off 8pc, compared with an overall market only down 2pc.

There are some who say it’s a sign that the commodity boom is ending, as even big companies like BP and Rio Tinto are seeing their share prices fall by a couple of per cent per day. The bears are warning that oil and industrial metals may soon follow equities in a downward spiral, over fears that a shrinking global economy will destroy demand.

Oil and mineral explorers are also on the risky side of the market, so there has been a flight to the safer haven of more defensive stocks.

However, drilling deeper into the depths of the small and mid cap markets, there is a technical trading story of pain for small retail shareholders and the high-risk, high-reward commodity companies they have bet their savings on.

Oil and gas explorers are beloved of the bedroom punter, especially on the AIM market dominated by speculative commodity plays. Gulf Keystone, Rockhopper, EnCore, Nautical have seen some of the biggest plunges by 10pc to 30pc over the last couple of days. Former AIM companies now on the FTSE 250, like Afren and Kenmare Resources, have retained a huge retail shareholder base and also fallen dramatically. Even companies like European Goldfields and Vatukoula Gold have dropped over the two days, despite the price of gold at record highs above $1,600 per ounce.

This is because many private traders relying on leverage have been caught out by margin calls or stop losses – where trades are automatically closed when a share price drops by a certain amount. When hundreds of these are triggered in close succession, it can create a downward spiral in the share price.

Few private investors have the guts to start re-stocking in this kind of environment, so what’s called a buyer’s strike starts to appear.

Undoubtedly private punters often get just as lucky with big wins as well as big losses. But at panicked times like this, when stocks fall out of proportion to all rationality, there are many small shareholders with the same kind of frayed nerves and vanishing savings you’ll find around a black jack table.

Please Europe, either put up or break up

So we wait to see whether the ECB is really willing to sit back and let the whole edifice collapse.

Are the Bundesbankers really so stubborn that they would rather bring down the European financial system, tank the world, and cause a deep global depression, rather than enter the bond market on sufficient scale to back-stop Italy and Spain?

Tough call. 50:50, I’d say.

The hardliners are seriously ideological people, and there seem to be some in the upper echelons of German policy-making (though obviously not the floundering bean-counter Schauble, or the battered Chancellor), who suspect that it might be better to lance the boil by forcing an immediate break-up of EMU.

I note that Belgium’s central bank Coene hinted that the ECB is withholding bond purchases to force Italy and Spain to push through – you guessed it – yet more growth-destroying austerity. Dangerous game. These 1930s deflationists really are a menace to society.

In a nutshell, unless the ECB is willing to step in – I mean really step in, not piss in the wind – until such a time as the revamped EFSF bail-out is ratified by all parliaments and is ready to take the baton (say November), and unless the EFSF itself is quadrupled in size and given to a €2 trillion mandate without all the German-imposed ifs and buts, then the game is up.

If the EU authorities refuse to do this, it is best for everybody that is recognized immediately and that arrangements are made for the orderly break-up of monetary union …  not next year, or next month, but next week.

There are two basic choices: 1) a spiralling crisis in the South, leading to a string of countries being blown out of EMU, causing a catastrophic financial collapse akin to 1931.

As Citi’s William Buiter told me yesterday, the issue is not how long Italy and Spain can ride out the storm in bond markets. There would be a banking and insurance crisis long before sovereign defaults came into play simply because the fall in bond prices on the secondary market is causing carnage to bank books (among other transmission mechanisms).

Or 2) Germany and its satellite economies withdraw immediately from EMU (let us say the Netherlands, Austria, Finland, Flanders, and Luxembourg). This allows the South to enjoy a much-needed devaluation to restore competitiveness without going through a disastrous Fisherite debt deflation. Their contracts would remain in euros, so they would not need to default.

Temporary capital controls and some form of financial repression would obviously been needed for a few weeks. The German bloc would have to stand ready to recapitalize its banking system with €100bn perhaps (peanuts in the bigger picture) to offset the shock effect on sudden exchange losses on Club Med debt.

This would require French leadership. (I have almost given up on Germany). Carried out with Napoleonic speed and determination, I think this could conceivably prove the game-changer that halted the downward global spiral.

Markets would very quickly see that the greatest impediments to recovery had been removed. We could rejoice, and breathe little easier again. My guess is that stock markets would surge in Milan, Madrid, and Paris, as occurred in London and Milan after the ERM crisis in 1992.

Yes, I know, EMU is not the ERM, blah, blah, sanctity of the Project, blah, blah, blah.

But just how different is it really?

Will this happen?  I don’t see much evidence that anybody is thinking along these lines. (The Buba men seem to want to expel Greece, Portugal, etc, which is not at all what I mean).

Just my instant thoughts on a story that is moving with lightning speed.

More later, after some Rioja, and a Vecchia Romagna to finish.

Debt crisis: What is to be done now?

I’ll sketch this in five parts. First, the banks. Then the euro. Then monetary policy. Then fiscal policy. Then growth.

But before we begin, accept this: the denial, delay-and-hope, no-creditor-shall-lose bailout strategy pursued since early 2008, as well as being immoral and destructive, has failed. Until policy-makers really embrace that point, at least to themselves, no progress can be made.

The banks

- Introduce Special Administration Regimes for banks. Now. Not tomorrow.

- Make depositors preferred creditors, overturning current bond contracts.

- If banks are insolvent but essentially going concerns, impose debt-equity swaps in special administration and provide unlimited liquidity to see off bank runs.

- If banks are insolvent, restructure or liquidate.

- Withdraw all government guarantees.

- Do not provide any further government recapitalisation funds. Especially resist the temptation to throw yet more good money after bad in the banks previously bailed out.

- Enact longer-term structural reforms – quickly.

The euro

- Accept that quick fix solutions have failed. Only a comprehensive solution can save the euro (and probably the EU) now. Understand that that comprehensive solution cannot be provided by the ECB printing money.

- Accept that this is fundamentally a political project, requiring political union to work.

- Accept that not all current members can be in the euro. Greece in particular.

- Decide who is not in. In particular, decide which of Portugal, Ireland, Finland and Slovakia is out.

- For those that remain, accept that there must be a dramatic change in the balance of expenditure and sovereign control of expenditure. Specifically, “national” Parliaments must become regional spenders, answerable for their spending and debt levels to a central Brussels authority.

- Understand that the transferunion concept, according to which Germans, for decade after decade, send tens of millions to the Italian/Spanish/whomever government to spend as it will is a complete non-starter.

- Instead, much more funds must be spent from Brussels. Members of the euro must accept that they will send currently unprecedented proportions of their budgets to Brussels, and Brussels will then decide whether it purchases the building of this railway or that hospital or funds those training programmes.

Monetary policy

- Try to retain some shred of credibility (and dignity) for your inflation targets and broader central banking policies.

- In particular, when pondering grand schemes for central banks to buy vast quantities of junk bonds, recognise that having your central bank go bust can ruin your entire day.

- Also, for goodness sake stop pretending. Set an inflation target you actually hope might be met.

- Seek to normalise interest rates. The right medium-term objective is not that they be a low as possible. The right objective is that they be at the natural rate of interest, at which investment decisions are socially efficient (not too much, not too little).

- Over the medium-term, understand that inflation targeting has intrinsic flaws that tend to generate credit cycles.  Consider alternatives such as price-level targeting.

Fiscal policy

- Look to your own ramparts. No nation should be so arrogant as to assume that it can afford to run whatever debts it likes.

- Focus deficit reduction programmes on spending cuts. Raise taxes only to the extent that that is required, politically, to deliver the spending cuts.

- In countries that have dramatically raised spending in recent years, such as the UK, cut spending as far and fast as is politically feasible. Once you have completed that, consider cut spending some more.

Growth

- The most powerful tool the government has for promoting growth is to cut spending. The worse the growth outlook gets, the stronger the argument becomes for cutting spending further and faster.

- The next most powerful tool the government has is to increase the productivity of its own spending, in particular by increasing public sector productivity growth. In the UK, if public sector productivity growth were to be only as fast as private sector productivity growth (a modest achievement, given that it fell one third behind from 1997-2007), economic growth would be 0.5 per cent higher each year.

- If the government wants more rapid public sector productivity growth, it needs to unashamedly promote markets, competition, and profit-seeking in health and education.  If it refuses to countenance competition or profit-seeking in health and education, we can confidently assert that though it may will the end of more rapid GDP growth, it does not will the means.

And once you’ve done all these things, do one more: pray.