Situational awareness: I'm coming to London! I arrive at the end of this week. The schedule is pretty tight, but it would be great to meet some Edge readers.
Illustration: Lazaro Gamio/Axios
The most likely cause of a future financial crisis isn't the banks, it's the non-banks. They're enormous, they're much less regulated than banks are, and they tend to have much greater leverage.
The weirdest part about the FSOC's decision is that they all but say explicitly that Prudential is systemically important. A couple of quotes:
The Council therefore determined that the negative effects of Prudential’s material financial distress could be transmitted to other financial firms and markets through the exposure channel, which could cause an impairment of financial intermediation or financial market functioning sufficiently severe to impose significant damage on the broader economy.
The Council concluded that such a forced liquidation of assets could cause significant disruptions to key markets, including corporate debt and asset-backed securities markets, particularly during a period of overall stress in the financial services industry and in a weak macroeconomic environment.
Why it matters: Expect further migration of risk from banks to non-banks now that the FSOC has made it clear that it has no interest in regulating the latter.
Insurance companies are regulated primarily at the state level — which, in Prudential's case, means New Jersey. They can also be inherently extremely dangerous.
If a large unexpected mortality event saddled Prudential with a lot of claims, its massive life-insurance claims would only be the beginning of its — and the country's — problems.
The bottom line: Prudential could be forced to start liquidating its assets at fire-sale prices, which could set off a chain reaction in the rest of the financial markets and even the economy as a whole.
Illustration: Aïda Amer/Axios
High-level CEO conferences are self-fulfilling. Important people attend them because important people attend them. It's a mechanism that works just as effectively in reverse.
CEOs are human too, and feel real revulsion at the idea of a Washington Post journalist being tortured and killed.
Thus did the 2018 Future Investment Initiative unravel. The exodus started with the media types: Andrew Ross Sorkin of the New York Times, Zanny Minton Beddoes of the Economist, Patrick Soon-Shiong of the Los Angeles Times.
How will the Saudis react to the international community ganging up on them so publicly? The fear is that they will weaponize the international oil market. But that's unlikely. Saudi Arabia itself would be the biggest victim of such a move.
Illustration: Sarah Grillo/Axios
It's big-IPO speculation season. Lyft wants to go public next year, with a sought-after valuation in the $15 billion range, which is flat to its last private round.
The bottom line: In Unicornland, everything is always sunny and optimal.
Consider the valuation of Palantir, which somehow is considering going public at a capitalization of $41 billion.
The world of public markets is crueler. Tencent has lost $250 billion of market value in the past nine months.
The most recent U.S. government fiscal year just ended. The budget deficit grew by 17% from the previous year, thanks to Trump's tax cuts.
By the numbers: If you look at the breakdown of Treasury receipts in fiscal 2018, almost every category went up, year-on-year. Individual income tax receipts, for instance, rose by 6%, or $96 billion.
Trump is acting true to history. Every Republican president since Reagan has left office with a budget deficit higher than the one he inherited. Clinton and Obama, by contrast, left office with smaller deficits.
Sears filed for bankruptcy this week, and its owner, Eddie Lampert, is warning employees that absent "material progress over the next few months," the fate of the company is going to be "a shutdown and liquidation."
The bottom line: There are good bankruptcies, which discharge legacy debts and allow the company to continue anew. And then there are bad bankruptcies, which cut off supply chains and result in outright liquidation. Bad bankruptcies inevitably result in thousands of job losses — and Sears is looking like it's going to be one of them.
Illustration: Rebecca Zisser/Axios
Nick Clegg has a herculean job ahead of him at Facebook as the incoming head of PR and global affairs. It's almost impossible to keep up with the sheer breadth of negative headlines about the company.
The bottom line: Among Facebook’s biggest problems is that it lost a huge amount of public trust and credibility thanks to having been nefariously used in the election of Trump. Clegg, who lost credibility after entering into a coalition with David Cameron that allowed the U.K. Conservative party to attain power, may or may not be the perfect person to help Zuckerberg navigate the consequences.
Free ain't what it used to be. Back in 2009, it was a radical idea, extolled in books by the likes of Wired editor Chris Anderson. Today, it's inherently suspect, on the grounds that if you're not paying, you're the product being sold.
Robinhood made its name by offering free stock trades; now, the backlash has arrived.
"Blockchain has been heralded as a potential panacea for everything from poverty and famine to cancer. In fact, it is the most overhyped – and least useful — technology in human history ... Far from ushering in a utopia, blockchain has given rise to a familiar form of economic hell."— Nouriel Roubini, The Big Blockchain Lie