Category Archives: economic disaster

Cancer cost 'crisis' warning from oncologists

BBC News – Cancer cost ‘crisis’ warning from oncologists.

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The cost of treating cancer in the developed world is spiralling and is “heading towards a crisis”, an international team of researchers says.

Their Lancet Oncology report says there is a “culture of excess” with insufficient evidence about the “value” of new treatments and technologies.

It says the number of cancer patients and the cost of treating each one is increasing.

It argues for reducing the use and analysing the cost of cancer services.

About 12 million people worldwide are diagnosed with cancer each year. That figure is expected to reach 27 million by 2030.

The cost of new cancer cases is already estimated to be about £185bn ($286bn) a year.

Rising costs

A group of 37 leading experts from around the world say the burden of cancer is growing and becoming a major financial issue.

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We’re on an unaffordable trajectory”

Prof Richard Sullivan Lead author

Their report says most developed countries dedicate between 4% and 7% of their healthcare budgets to dealing with cancer.

“The issue that concerns economists and policymakers is not just the amount of money spent on healthcare, but also the rate of increase in healthcare spending or what has become known as the cost curve.”

It says the UK’s total spend on breast cancer has increased by about 10% in each of the past four years.

“In general, increases in the cost of healthcare are driven by innovation. We spend more because we can do more to help patients.”

For example, the number of cancer drugs available in the UK has risen from 35 in the 1970s to nearly 100, but the report warns they can be “exceedingly expensive”.

It adds: “Few treatments or tests are clear clinical winners, with many falling into the category of substantial cost for limited benefit.”

The cost of drugs is not the only target for criticism.

Lead author Prof Richard Sullivan told the BBC: “It’s not just pharmaceuticals. Biomarkers, imaging and surgery are all getting through with very low levels of evidence – the hurdles are set too low.”

The report calls for a proper evaluation of the relative merits of conventional surgery and less invasive robotic surgery.

Too much

Another criticism is “overusing” treatments and technologies.

Personalised Medicine

All cancers are not the same, even all breast or lung cancers are not the same.

It is hoped that better testing will bring about an era of “personalised medicine”, meaning drugs can be tailored to specific cancers.

In Japan, testing for the KRAS gene in colorectal cancer patients before deciding whether to use a cancer drug saves £32m per year.

However, the report says that on the whole “the science has not lived up to the promise”.

“It is often easier to order a scan than to reassure the patient or physician on the basis of a careful history and a physical examination,” the report claims.

There is also criticism of “futile care” – providing expensive chemotherapy which gives no medical benefit in the last few weeks of a patient’s life.

Prof Sullivan said: “We’re on an unaffordable trajectory. We either need to manage and reduce the costs or the cost will increase and then inequality rises between rich and poor.”

He said failure to manage costs could result in a “train crash”.

The report says solutions fall into two categories: reducing the cost of services or reducing the number of people using them.

Italy Hits the Iceberg

Italy Hits the Iceberg – By Maurizio Molinari | Foreign Policy.

Perhaps it was already too late for Italy to avoid the financial downgrade that credit-rating agency Moody’s threatened at the beginning of this summer. It’s not as if people didn’t see it coming. Italy’s economy has been battered by rising debt and worsening credit spreads. A default or bailout is every European central banker’s nightmare scenario — it’s the economy “too big to save.” Indeed, as Finance Minister Giulio Tremonti ominously warned in July, “If we don’t act now, then we will be like the Titanic, and even the first-class passengers suffered.” Not to push the analogy, but Italy may have just hit the iceberg. It’s not necessarily sinking, though. The government in Rome can still try to exploit the pressure generated by the current financial crisis to jolt the economy out of its semi-stagnation, launching a bold and comprehensive program of structural reforms to increase productivity and growth, while driving down debt. But does anyone believe that embattled Prime Minister Silvio Berlusconi still has the will — or enough political juice — to do it?

Moody’s Oct. 4 decision to downgrade Italy’s sovereign debt to A2 follows a similar decision by Standard & Poor’s on Sept. 19 that knocked the country down to a single A rating; but Moody’s slash of three notches was in some ways more shocking. Both agencies also give Italy a negative outlook, which means that future downgrades are likely. Italy’s high and mighty have reason to worry.

The downgrades are based on three concerns. First is the sharp deterioration of the international economic outlook, particularly in Europe. This is obviously something over which Italy has no control, but which it’s more impacted by than other advanced countries because of its endemic low growth rates. Italy does not have the fiscal space or the flexibility to change monetary or foreign exchange policies to boost growth. Second, and compounding the problem, sluggish growth risks undermining the otherwise good fiscal results achieved by Italy in the past few years, particularly the primary budget surplus. Third is the political component: Growing frictions within the ruling coalition and its slim parliamentary majority have undermined the government’s ability to enact necessary but unpopular measures to front-load fiscal consolidation and break the numerous logjams that hamper growth. And political uncertainty is not going to disappear anytime soon; even if Berlusconi steps down, it is unclear who will be his successor or whether new elections will lead to a more effective government coalition.

Even if Berlusconi and Tremonti did see the Moody’s iceberg coming, it is unlikely that they could have turned the ship of the Italian economy in time to avoid it. This, however, doesn’t mean that they’re above fault. Italy should have taken immediate action to strengthen its economy and to try to distance itself from the contagion of the debt crisis in Greece and the other European peripheral countries. Specifically, Rome should have embraced the stern recommendations issued in early August by European Central Bank (ECB) President Jean-Claude Trichet and his incoming Italian successor, Mario Draghi, who requested that Italy act with urgency on several fronts, including liberalizing public services and professions, making the labor market more flexible, increasing the retirement age in line with international standards, and streamlining the public administration. These measures, as the ECB urged, should be part of a “comprehensive, bold, and credible strategy of reforms.” Rome gravely nodded and promised to get to work, but the result was more of the same: lots of talking and only marginal improvement.

After some procrastination, the Italian government did push through Parliament a set of measures aimed at having a balanced budget by 2013, a plan that would allow the debt-to-GDP ratio to start to decline from its very high level. But the plan’s effectiveness and credibility have been questioned: Most measures don’t actually cut government spending but rather increase tax revenue, including a much-vaunted program to strengthen tax collection. (We’ll see what comes of that.) In any case, many of the structural reforms and growth-enhancing measures suggested by the ECB are missing.

The predicament that the Italian government now faces is like trying to fix the flaws in the Titanic’s construction as it’s hitting the iceberg: Sound the alarm, save the women and children, plug the holes — and while you’re at it, build more lifeboats, double-plate the hull, and make sure that those rivets aren’t subpar.

Markets are asking Italy to resolve long-standing problems that will take years to redress, even assuming its full commitment to the task. This commitment, however, is severely lacking now and in the foreseeable future. Berlusconi is under fire for nonstop sordid revelations about his private life; the current coalition government lacks any clear candidate to replace him; and the opposition is too fragmented and weak to offer a credible alternative. Even civil society seems unable to offer credible leaders. The only exception to this lack of leadership is the president, Giorgio Napolitano, whose moral authority has grown considerably in recent months but whose powers are strictly limited by the Italian Constitution. Napolitano, however, has never said that he’s eager to assume the premiership.

Under these circumstances, it is unclear who will be able to take those bold, comprehensive actions recommended by the ECB; Tremonti is preparing plans, but the political will to push them forward is lacking. This is due largely to Berlusconi — whose weakened stature makes it nearly impossible for him to take command of a fractious government. Meanwhile, Italy remains exposed to the spillover effects of the debt crisis, though its budgetary situation appears much stronger than those of most European countries. But the Moody’s downgrade doesn’t help. It’s now going to be more difficult — and it cost Italy a lot more — to enter credit markets and reassure bondholders.

To make matters worse, like with the Titanic’s sinking, the Carpathia is too far away to come to Italy’s aid. European leaders have been unable to decide on an effective strategy to cope with the debt crisis and contain its effects. The European Financial Stability Facility (ESFS) that is designed to assist countries dealing with the economic crisis is not yet operational, pending the ratification of the last of the 17 eurozone countries, Slovakia. Even assuming the ESFS does come online in the near future, most serious analysts doubt whether it has adequate resources; only $300 billion would be available to it, and most estimates hold that it will take more than $1 trillion to calm the restive markets.

Still, there’s a glimmer of hope on the horizon. There is no doubt that Italy — as well as a number of other eurozone countries — is navigating through very dangerous seas. But it’s not yet a foregone conclusion that it will go down like the Titanic. That said, if Italy’s politicians think that anyone but themselves will come and save them, then they might want to start taking swimming lessons now.

A second Great Depression: Eight drastic policy measures necessary to prevent global economic collapse?

A second Great Depression: Eight drastic policy measures necessary to prevent global economic collapse. – By Nouriel Roubini – Slate Magazine.

The latest economic data suggest that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Bros. in 2008. The risks of an economic and financial crisis even worse than the previous one—now involving not just the private sector, but also near-insolvent governments—are significant. So, what can be done to minimize the fallout of another economic contraction and prevent a deeper depression and financial meltdown?

First, we must accept that austerity measures, necessary to avoid a fiscal train wreck, have recessionary effects on output. So, if countries in the Eurozone’s periphery such as Greece or Portugal are forced to undertake fiscal austerity, countries able to provide short-term stimulus should do so and postpone their own austerity efforts. These countries include the United States, the United Kingdom, Germany, the core of the Eurozone, and Japan. Infrastructure banks that finance needed public infrastructure should be created as well.

Second, while monetary policy has limited impact when the problems are excessive debt and insolvency rather than illiquidity, credit easing, rather than just quantitative easing, can be helpful. The European Central Bank should reverse its mistaken decision to hike interest rates. More monetary and credit easing is also required for the U.S. Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labor, real estate, and commodity markets feeds disinflationary pressures.

Third, to restore credit growth, Eurozone banks and banking systems that are undercapitalized should be strengthened with public financing in a European Union-wide program. To avoid an additional credit crunch as banks deleverage, banks should be given some short-term forbearance on capital and liquidity requirements. Also, since the U.S. and EU financial systems remain unlikely to provide credit to small and medium-size enterprises, direct government provision of credit to solvent but illiquid SMEs is essential.

Fourth, large-scale liquidity provision for solvent governments is necessary to avoid a spike in spreads and loss of market access that would turn illiquidity into insolvency. Even with policy changes, it takes time for governments to restore their credibility. Until then, markets will keep pressure on sovereign spreads, making a self-fulfilling crisis likely.

Today, Spain and Italy are at risk of losing market access. Official resources need to be tripled— through a larger European Financial Stability Facility, Eurobonds, or massive ECB action—to avoid a disastrous run on these sovereigns.

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Fifth, debt burdens that cannot be eased by growth, savings, or inflation must be rendered sustainable through orderly debt restructuring, debt reduction, and conversion of debt into equity. This needs to be carried out for insolvent governments, households, and financial institutions alike.

Sixth, even if Greece and other peripheral Eurozone countries are given significant debt relief, economic growth will not resume until competitiveness is restored. And, without a rapid return to growth, more defaults—and social turmoil—cannot be avoided.

There are three options for restoring competitiveness within the Eurozone, all requiring a real depreciation—and none of which is viable:

  • A sharp weakening of the euro toward parity with the U.S. dollar, which is unlikely, as the United States is weak, too.
  • A rapid reduction in unit labor costs, via acceleration of structural reform and productivity growth relative to wage growth, is also unlikely, as that process took 15 years to restore competitiveness to Germany.
  • A five-year cumulative 30 percent deflation in prices and wages—in Greece, for example—which would mean five years of deepening and socially unacceptable depression. Even if feasible, this amount of deflation would exacerbate insolvency, given a 30 percent increase in the real value of debt.

Because these options cannot work, the sole alternative is an exit from the Eurozone by Greece and some other current members. Only a return to a national currency—and a sharp depreciation of that currency—can restore competitiveness and growth.

Leaving the common currency would, of course, threaten collateral damage for the exiting country and raise the risk of contagion for other weak Eurozone members. The balance-sheet effects on euro debts caused by the depreciation of the new national currency would thus have to be handled through an orderly and negotiated conversion of euro liabilities into the new national currencies. Appropriate use of official resources, including for recapitalization of Eurozone banks, would be needed to limit collateral damage and contagion.

Seventh, the reasons for advanced economies’ high unemployment and anemic growth are structural, including the rise of competitive emerging markets. The appropriate response to such massive changes is not protectionism. Instead, the advanced economies need a medium-term plan to restore competitiveness and jobs via massive new investments in high-quality education, job training and human-capital improvements, infrastructure, and alternative/renewable energy. Only such a program can provide workers in advanced economies with the tools needed to compete globally.

Eighth, emerging-market economies have more policy tools left than advanced economies do, and they should ease monetary and fiscal policy. The International Monetary Fund and the World Bank can serve as lender of last resort to emerging markets at risk of losing market access, conditional on appropriate policy reforms. And countries like China that rely excessively on net exports for growth should accelerate reforms, including more rapid currency appreciation, in order to boost domestic demand and consumption.

The risks ahead are not just of a mild double-dip recession, but of a severe contraction that could turn into the Great Depression II, especially if the Eurozone crisis becomes disorderly and leads to a global financial meltdown. Wrong-headed policies during the first Great Depression led to trade and currency wars, disorderly debt defaults, deflation, rising income and wealth inequality, poverty, desperation, and social and political instability that eventually led to the rise of authoritarian regimes and World War II. The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.

Read this story at Project Syndicate.

IMF says US and Europe risk double-dip recession

US and Europe risk double-dip recession, warns IMF | Business | guardian.co.uk.

International Monetary Fund’s World Economic Outlook says slow, bumpy recovery could be jeopardised by Europe’s debt crisis or over-hasty attempts to cut America’s budget deficit

IMF cuts growth forecast for UK

Wall Street protest

A protest on Wall Street. Confidence has fallen and the risks are on the downside, the IMF said in its half-yearly report. Photograph: Keystone/Rex Features

The International Monetary Fund warned on Tuesday that the United States and the eurozone risk being plunged back into recession unless policymakers tackle the problems facing the world’s two biggest economic forces.

In its half-yearly health check, the Washington-based fund said the global economy was “in a dangerous place” and that its forecast of a slow, bumpy recovery would be jeopardised by a deepening of Europe’s sovereign debt crisis or over-hasty attempts to rein in America’s budget deficit.

“Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing,” the IMF said as it cut its global growth forecast for both 2011 and 2012.

The IMF also cut its growth forecasts for the UK economy and advised George Osborne to ease the pace of deficit reduction in the event of any further downturn in activity.

The IMF’s World Economic Outlook cited the Japanese tsunami and the rise in oil prices prompted by the unrest in north Africa and the Middle East as two of a “barrage” of shocks to hit the international economy in 2011. It said it now expected the global economy to expand by 4% in both 2011 and 2012, cuts of 0.3 points and 0.5 points since it last published forecasts three months ago.

“The structural problems facing the crisis-hit advanced economies have proven even more intractable than expected, and the process of devising and implementing reforms even more complicated. The outlook for these economies is thus for a continuing, but weak and bumpy, expansion,” the IMF said.

Speaking at a press conference in Washington, Olivier Blanchard, the IMF’s economic counsellor, said there was “a widespread perception” that policymakers in the euro area had lost control of the crisis.

“Europe must get its act together,” Blanchard said, adding that it was “absolutely essential” that measures agreed by policymakers in July, including a bigger role for the European Financial Stability Fund (EFSF), should be made operational soon.

“The eurozone is a major source of worry. This is a call to arms,” he said.

Blanchard said the fund was cutting its growth forecasts because the two balancing acts needed to ensure recovery from the recession of 2008-09 have stalled. Governments were cutting budget deficits but the private sector was failing to make up for the lost demand. Meanwhile, the global imbalances between deficit countries such as the US and surplus countries such as China looked like getting worse rather than better.

“Markets have become more sceptical about the ability of governments to stabilise their public debt. Worries have spread from countries on the periphery of Europe to countries in the core, and to others, including Japan and the US, Blanchard said.

He added that there was a risk of low growth, fiscal, and financial weaknesses could easily feed on each other.

“Lower growth makes fiscal consolidation harder. And fiscal consolidation may lead to even lower growth. Lower growth weakens banks. And weaker banks lead to tighter bank lending and lower growth.” As a result, there were “clear downside risks” to the fund’s new forecasts.

Developing nations lead the way

In its report, the IMF said it expected the strong performance of the leading emerging nations to be the main driving force behind growth in the world economy. China’s growth rate is forecast to ease back slightly, from 9.5% in 2011 to 9% in 2012, while India is predicted to expand by 7.5% in 2012 after 7.8% growth in 2011.

Sub-Saharan Africa is expected to continue to post robust growth, up from 5.2% in 2011 to 5.8% in 2012.

The rich developed countries, by contrast, are forecast to grow by just under 2%, slightly faster than the 1.6% pencilled in by the IMF for 2011.

“However, this assumes that European policymakers contain the crisis in the euro periphery area, that US policymakers strike a judicious balance between support for the economy and medium-term fiscal consolidation, and that volatility in global financial markets does not escalate.”

“The risks are clearly to the downside,” the IMF added, pointing to two particular concerns – that policymakers in the eurozone lose control of the sovereign debt crisis, and that the US economy could weaken as a result of political impasse in Washington, a deteriorating housing market or a slide in shares on Wall Street. It said the European Central Bank should consider cutting interest rates and that the Federal Reserve should stand ready to provide more “unconventional support”.

It said: “Either of these two eventualities would have severe implications for global growth. The renewed stress could undermine financial markets and institutions in advanced economies, which remain unusually vulnerable. Commodity prices and global trade and capital flows would likely decline abruptly, dragging down growth in developing countries.”

The IMF said that in its downside scenario, the eurozone and the US could fall back into recession, with activity some three percentage points lower in 2012 than envisaged. Currently, the fund is expecting the US to grow by 1.8% in 2012 and the eurozone by 1.1%.

“In the euro area, the adverse feedback loop between weak sovereign and financial institutions needs to be broken. Fragile financial institutions must be asked to raise more capital, preferably through private solutions. If these are not available, they will have to accept injections of public capital or support from the EFSF, or be restructured or closed.”

The IMF urged Republicans and Democrats in Washington to settle their differences: “Deep political differences leave the course of US policy highly uncertain. There is a serious risk that hasty fiscal cutbacks will further weaken the outlook without providing the long-term reforms required to reduce debt to more sustainable levels.”

UBS $2 billion rogue trade suspect held in London

UBS $2 billion rogue trade suspect held in London | Reuters.

LONDON/ZURICH | Thu Sep 15, 2011 9:23am EDT

(Reuters) – Swiss bank UBS said a trader had lost it around $2 billion in unauthorized deals, and police in London arrested 31-year-old Kweku Adoboli in connection with the case.

Adoboli — a director of exchange traded funds and “Delta 1” working in the bank’s London office, according to his profile on networking site LinkedIn — was arrested on suspicion of fraud, sources told Reuters.

“I can confirm that an employee of the bank was arrested in London in connection with the statement,” a UBS spokesman said.

UBS said it might post a third-quarter loss after the rogue trades, a huge blow as it struggles to rebuild its credibility after years of crises.

The loss effectively cancels out the 2 billion-franc saving that the bank had hoped to make in a cost-cutting program announced last month in which it will axe 3,500 jobs.

It also threatens the future of UBS’s investment bank, which is being reviewed by chief executive Oswald Gruebel as part of a wide-ranging restructuring following heavy losses in the credit crisis and a damaging scandal over bankers helping rich U.S. clients dodge taxes.

UBS, which said no client positions were affected, is scheduled to hold an investor day on November 17 at which it was expected to announce major restructuring of the investment bank.

“The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of $2 billion,” the bank said in a statement.

UBS employed almost 18,000 people in its investment bank at the end of June, most of them outside Switzerland, particularly in London and the United States.

UBS shares were down 9.1 percent at 9.935 Swiss francs at 1320 GMT, while the European banking sector was up 4.78 percent.

“(This) is a staggering demonstration that all the clever systems that the banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them if they want to,” said Chris Roebuck, Visiting Professor at Cass Business School in London.

“It will yet again confirm to the majority of shareholders who are Swiss that investment banking is not ‘proper’ banking, as private banking is.”

UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank. The bank has had a history of major risk management glitches followed by repeated pledges to fix risk systems.

KERVIEL

Any losses in its investment bank risk scaring UBS’s rich clients and prompting a further flight from its huge private bank, the core of its business that used to be the world’s biggest wealth manager but has slipped to third place.

“This loss has the scope to have a material impact on the perception of UBS’s private bank, impacting its future operating trends,” Goldman Sachs analysts Jernei Omahen and Peter Skoog said in a note.

“Today’s announcement therefore adds to the long list of arguments (and pressure) for a substantially smaller investment bank.”

UBS’s news caused disbelief among market operators.

The last similar case was when Jerome Kerviel, then a trader at Societe Generale, racked up a $6.7 billion loss in unauthorized deals revealed in 2008. Kerviel was sentenced to three years in prison in October 2010. [ID:nL5E7KF0M4]

Both Kerviel and Adoboli were the same age when the scandal broke and both worked with so-called Delta 1 products, derivatives which closely track the underlying securities and give the holder an easy way to gain exposure to several asset classes. Examples include equity swaps, forwards, futures and exchange-traded funds.

“It is amazing that this is still possible,” said ZKB trading analyst Claude Zehnder. “They obviously have a problem with risk management. Even when the amount isn’t so high, it is once more a loss of confidence that casts UBS in a poor light.”

“With this they are losing a lot of credit that they had regained with effort,” he added.

Switzerland’s financial markets regulator FINMA said it had been informed of the case and was in close contact with UBS.

HEADS TO ROLL?

The bank has in the past two years tried to rebuild the investment bank that nearly felled it during the financial crisis. It needed a state bailout after heavy losses on U.S. subprime mortgage-related securities.

Under Gruebel and investment bank boss Carsten Kengeter — themselves both once traders — it hired hundreds of traders in a bid to boost its bond business.

Several analysts said the incident made it more likely Kengeter would be in the firing line, while Gruebel could step down sooner rather than later.

“Gruebel saved the bank from destruction, so his main job is done. It is only a matter of time before he steps down. If it means he leaves a little sooner, it does not change a lot. But the investment bank is a bit of a disaster, and the knives will be out for Kengeter,” said Peter Thorne, analyst at Helvea.

Another analyst who declined to be named said: “Some important heads are going to have to roll, and some are saying that after a series of missteps with the IB, Kengeter himself will have to go.”

Former Bundesbank head Axel Weber is due to join the UBS board in May and take over as chairman in 2013.

The weak performance of the investment bank and tough capital rules in Switzerland had already attracted intense scrutiny over how UBS will cope, with analysts calling for a retrenchment of the investment bank.

The rogue trader scandal came as Swiss politicians were debating tough new capital rules designed to make sure big banks can weather future crises without having to be bailed out by the state.

“It shows that investment banking is a risky business and that it is important that systemically relevant functions are clearly separated from the rest of the banking business,” Caspar Baader, parliamentary leader of the right-wing Swiss People’s Party, told Swiss television.

($1 = 0.880 Swiss franc)

(Additional reporting by Andrew Thompson in Zurich, Sarah White, Steve Slater, Keith Weir, Stefano Ambrogi and Douwe Miedema in London; Writing by Sophie Walker; Editing by Will Waterman, Dan Lalor and Alexander Smith)