Audit Notes: Bloomberg’s big impact; WSJ good on EU inflation, bad on crediting NYT

Trading behaviors changed in the wake of the wire's foreign-exchange investigation

Bloomberg News continues its excellent reporting on the foreign-exchange scandal it uncovered last June, reporting that odd fluctuations in exchange rates before the close of trading have plunged since then:

Bloomberg News first reported in August that trading patterns in the 30 minutes before the fix on the last working day of the month, when funds that track indexes typically transact most, exhibited one-way price surges. Spikes of at least 0.2 percent for 14 currency pairs were found 31 percent of the time over a two-year period from July 2011 through June 2013, data compiled by Bloomberg show. To qualify, the moves had to be one of the three largest of the day for that pair and have reversed by at least 50 percent within four hours.

Since June, the surges have been less frequent. From July through the end of December, qualifying jumps on the last working day of the month occurred only 10 percent of the time. For several currency pairs, including U.S. dollar to Japanese yen and U.S. dollar to Canadian dollar, spikes have disappeared altogether. In dollar-euro, the most widely traded pair, the frequency has fallen to 17 percent from 50 percent on the same six days in 2012.

By the way, this is a multitrillion-dollar-a-day market that’s suddenly cleaned itself up dramatically after Bloomberg’s report put regulators on the trail.

Now that’s impact (but give us a chart next time, Bloomberg).

The Wall Street Journal takes an excellent look at the huge problems still weighing on Europe, and shows why the EU needs more inflation rather than the austerity and tight money the Germans (and the WSJ editorial page) have demanded.

This is about as clear an explanation of the mechanics of this critical problem as you’ll find:

Until the crisis, the euro zone’s “periphery” countries, mostly in Southern Europe, had higher inflation than the region’s “core” economies around Germany. The periphery countries’ products became too expensive, often leading to unsustainably large trade deficits paid for by borrowing from abroad.

Without national currencies to devalue, periphery countries need to push down prices and wages relative to core Europe to regain competitiveness. For years to come, inflation will have to be lower than the European average.

But cutting debt burdens is easier for households, companies and nations if their nominal incomes, which rise with inflation and growth, are expanding. Solvency—and resilience in future financial crises—depends on reducing debts as a proportion of gross domestic product. That means the lower that inflation in Europe falls, the greater the tension between repairing solvency and raising competitiveness.

The New York Times broke the news last week that JPMorgan Chase’s board voted to give CEO Jamie Dimon a $9 million raise despite the $20 billion the fraud-ridden bank paid out in settlements last year.

Nice scoop.

The Journal took several hours to match it, but then attributed it to “sources say,” as if it had broken the news. No mention of the Times’s story.


But this is interesting reporting:

Over the past year, Mr. Dimon and the board came to view their battles with the U.S. government as unfair treatment, said people close to the company.

In one exchange with Manhattan U.S. Attorney Preet Bharara and his staff, Mr. Dimon was asked why certain people within J.P. Morgan were still working at the bank despite failures to adequately investigate suspicions about convicted fraud figure Bernard Madoff.

Mr. Dimon, according to these people, said the bank removes people for incompetence but noted that wasn’t the case here. “If you want me to fire them,” he added, “give me their names and I will fire them.”

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , , ,