Coronavirus: China’s risky plan to revive the economy

Beijing is targeting a second-quarter rebound but the crisis has exposed the limitations of the system under Xi Jinping

Tom Mitchell, Christian Shepherd and Sherry Fei Ju


© Kevin Frayer/Getty


Chinese leaders used to worry about when economic growth might slip below the level of 6 per cent to avoid job losses and social unrest. But now, as they face the prospect of the first quarter of zero or negative growth since the chaos of Mao Zedong’s cultural revolution, they are closely watching the numbers of trucks rumbling in and out of places such as Qian’an.

The district is home to some of the largest mills in Tangshan, an industrial hub east of Beijing in Hebei province that produces about 10 per cent of the country’s steel and is crucial to global markets for the metal. Trucks enter Qian’an carrying coking coal and iron ore, and exit loaded with steel.

If the district’s mills can raise production quickly — as extreme measures taken to contain China’s coronavirus epidemic are eased — it will suggest that the short, sharp shock to the world’s second-largest economy since January might well be followed by a second-quarter rebound — the much vaunted “V-shaped recovery”.

Alternatively, the government’s efforts to restart activity in places such as Qian’an could lead to a rise in new infections, which would then lead to new containment measures and an even greater economic aftershock. It is a huge gamble that on Tuesday President Xi Jinping doubled down on when he made his first visit to Wuhan in central Hubei province, where the epidemic originated in December.

TANGSHAN, CHINA - JANUARY 20: Workers walk out the main gate of Qian'an steelworks of Shougang Corporation on January 20, 2016 in Tangshan, China. Shougang Corporation is one of the most largest steel enterprise in China. Tangshan is the largest steel manufacturing city in China. Shougang Corporation had moved out all steelworks from Beijing before 2008 due to serious air pollution. (Photo by Xiaolu Chu/Getty Images)
Workers at Qian'an steelworks of Shougang Corporation in 2016 in Tangshan, China © Xiaolu Chu/Getty


These two starkly different outcomes explain why large trucks are about the only things entering and leaving Qian’an freely. Owing to its critical importance to the steel industry, the district has been placed under some of the strictest quarantine measures outside Hubei province.

Supermarkets in Qian’an are closed and all residents have been asked to regularly report body temperatures and flu-like symptoms. Steelworkers cannot leave their mills and family members cannot visit them.

With the exception of one mill that recently suffered a coronavirus outbreak, after one of its employees was infected at a village banquet, traders say all industrial firms in Qian’an are back up and running, albeit below normal levels of production. The question now is how much steel can they sell.

“There is no demand, especially in northern China,” said Zhang Ying, a trader who regularly deals with Tangshan’s mills. “The best we can do is sell a very small portion of the steel to southern regions or some priority construction sites that are up and running.”

A worker wearing a face mask works on a production line manufacturing bicycle steel rim at a factory, as the country is hit by the novel coronavirus outbreak, in Hangzhou, Zhejiang province, China March 2, 2020. China Daily via REUTERS ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.
A worker wearing a mask works on a production line manufacturing bicycle steel rim at a factory in Hangzhou, Zhejiang province, China, last week © China Daily/Reuters


The disease’s transformation into a global epidemic — with case numbers climbing rapidly in countries as far afield as South Korea, Iran, Italy and the US — means China’s economy might recover only to discover that many of its largest trading partners remain ill, damping demand for its exports.

From a political perspective, it will be impossible for Mr Xi, China’s most powerful leader in decades, to disown the economic consequences of the coronavirus calamity. Mr Xi said he was in charge of the epidemic response as early as January 7 — two weeks before its seriousness was first publicly recognised by the ruling Communist party and central government officials.

That, in turn, has raised questions about the vulnerability of China’s increasingly authoritarian party-state.

“The party propaganda machinery has unwittingly admitted that Xi was responsible for the fiasco,” says Steve Tsang, head of the China Institute at Soas in London. “The changes Xi has made to the operation of the party-state has not strengthened its capacity to act in order to pre-empt a crisis. [Instead]it has made it easier for a crisis to emerge as it all depends on Xi understanding the situation properly and making the right call at critical moments.”

An adviser to senior officials in Beijing agrees. “This virus crisis was really 70 per cent human error [attributable to] the leadership,” he says.

Some economic projections make sober reading for China’s leadership. Bert Hofman, director of the East Asian Institute at the National University of Singapore, predicts that “first-quarter growth year on year may well be negative, between -2.0 and -6.5 [per cent]”.

A restaurant worker wears a face mask as a preventive measure against the COVID-19 coronavirus as she serves customers through a window in Beijing on March 3, 2020. - The world has entered uncharted territory in its battle against the deadly coronavirus, the UN health agency warned, as new infections dropped dramatically in China on March 3 but surged abroad with the US death toll rising to six. (Photo by GREG BAKER / AFP) (Photo by GREG BAKER/AFP via Getty Images)
A restaurant worker wears a face mask in an effort to guard against coronavirus as she serves customers through a window in Beijing last week © Greg Baker/AFP/Getty


Such a sharp downturn, if it continues beyond the first quarter, could in turn imperil what the Chinese government has long seen as the raison d'être for strong GDP growth — urban job creation, targets for which are typically set at 10m or more new jobs each year.

“Services and consumption now contribute more than half of China’s GDP,” says Mr Hofman, a former China country director for the World Bank. “The economy is therefore more sensitive to a drop in domestic demand resulting from the epidemic and the government’s control measures. It is harder to make up lost grounds in services than it is in manufacturing.”

In a short-term downturn, capital expenditures are only delayed. But some spending, such as lost box office revenues over the Chinese new year period — $3.9m this year compared with $1.5bn in 2019 — will never be recouped.

Amid signs that Beijing’s public health measures are beginning to contain the outbreak, officials from Mr Xi down are accentuating the positive.

“The fundamentals of the economy will remain strong in the long run,” Mr Xi assured the presidents of Chile and Cuba during recent phone calls.

Line chart of Manufacturing purchasing managers' indices (below 50 = contraction) showing China's manufacturing PMIs sink to record lows


When the National Bureau of Statistics released a record low figure for its official purchasing managers’ index on February 29, it added — in an unusually political aside — that “under the party’s firm leadership with Xi Jinping at the core, the virus is coming under control . . . and market confidence is steadily recovering”.

In a widely circulated report on Chinese social media, Zhang Anyuan, chief economist at Citic Securities, criticised analysts who have projected that first-quarter growth might only fall to 4 or 5 per cent year on year.

“They look at the heavens to divine the future and assert that [the economy’s] medium and long-term outlook is still good,” Mr Zhang wrote. “If such head-slapping political declarations become the basis for strategic decision-making, they will cause as much harm as the early misjudgments [about the seriousness] of the epidemic.”

TOPSHOT - A worker wears protective clothing as a preventive measure against the COVID-19 coronavirus as she watches over customers in a supermarket in Beijing on March 3, 2020. The world has entered uncharted territory in its battle against the deadly coronavirus, the UN health agency warned, as new infections dropped dramatically in China on March 3 but surged abroad with the US death toll rising to six. - The world has entered uncharted territory in its battle against the deadly coronavirus, the UN health agency warned, as new infections dropped dramatically in China on March 3 but surged abroad with the US death toll rising to six. (Photo by GREG BAKER / AFP) (Photo by GREG BAKER/AFP via Getty Images)
A worker wears protective clothing as she watches over customers in a Beijing supermarket last week © Greg Baker/AFP/Getty


“How is it possible”, Mr Zhang added, “for the economy to achieve positive growth in the first quarter when more than 1bn people stayed at home for nearly a month?”

Aside from the NBS’s February PMI figure, and a 17 per cent annual fall in the value of January-February exports reported by China’s customs administration on Saturday, most official data for the period will not be released until later this month. Until they are, optimists and pessimists alike can pick and choose from a host of contradictory anecdotal information — as well as various ad hoc indicators of economic activity — to bolster their arguments.

Government officials typically cite data suggesting that the vast majority of companies have returned to work. But analysts caution that the figures reflect only the number of companies who have approval to operate, meaning that many businesses may still be operating at far below their normal rates.

According to a China Merchants Bank index that uses satellite imagery to track night-time activity, as of Monday just under 60 per cent of 143 major industry sites across the country had resumed operations.

G7 Networks, a start-up that collects GPS data from about 20 per cent of China’s cargo vehicles, has been releasing a daily tally that shows a rapid recovery in full-truck deliveries usually made by major companies, but only a gradual uptick for shared consignment shipments, which tend to be used by smaller businesses.

Compared with early February when this data looked “extremely bleak”, big deliveries to factories and construction sites have rebounded to about 60 per cent of peak November levels.

But smaller shipments are only running at about 26 per cent “not because there are no drivers, but because there are no orders”, says Sun Fangyuan, a G7 market director, adding that consumption had started to pick up in the past week.

In the face of languishing commercial activity, southern Guangdong province last week expanded its 2020 development plan to include Rmb100bn ($14bn) worth of new public health, rural development and shantytown reconstruction projects, while eastern Zhejiang province added 100 new railways, roads and disaster relief programmes. Seven other provinces have recently announced investments worth Rmb25tn, although analysts at brokerage Everbright Sun Hung Kai estimate that only about Rmb3.5tn will be allocated this year.




People wearingTOPSHOT - People wearing protective facemasks use their mobile phones on the subway in Shanghai on February 25, 2020. - The new coronavirus has peaked in China but could still grow into a pandemic, the World Health Organization warned, as infections mushroom in other countries. (Photo by NOEL CELIS / AFP) (Photo by NOEL CELIS/AFP via Getty Images) protective facemasks as they use their mobile phones on the subway in Shanghai last month © Noel Celis/AFP/Getty


Linda Liu, who runs a kitchenware manufacturer in Yiwu near Shanghai, sources stainless steel from domestic suppliers and says things are improving, in part because of local government subsidies to pay migrant workers’ transport costs for their journeys back to work.

“My factory restarted operations [in] February and Yiwu’s international trade market [a major wholesale centre] has also reopened,” she says. “So far half of our workers and salesmen are back at work. My suppliers haven’t returned to their previous production levels, but we have orders and inventory from late last year so we’ve still got something to do.”

Traditionally when Chinese demand slumps, steelmakers simply export more. But that might not be an option when markets such as South Korea are contending with their own virus outbreaks, says Sebastian Lewis, an analyst at S&P Global Platts.

“Margins at mills are going to take a hit,” he adds, but downstream industries like property are a bigger concern. “In the past, the government might have let some companies go to the wall to help industry restructuring, but it’s now got to the point where employment, stability and getting the economy going again comes first.”


President Xi Jinping, centre, wears a protective face mask as he speaks with a medical staff member during his visit to the Academy of Military Medical Sciences in Beijing last week
President Xi Jinping, centre, wears a protective face mask as he speaks with a medical staff member during his visit to the Academy of Military Medical Sciences in Beijing last week © Ju Peng/AP


Shen Jianguang, chief economist at JD.com’s financial services subsidiary, believes the initial hopes of a rebound after the first quarter are fading as the epidemic’s impact on supply chains and on consumption becomes clearer.

“Quarter on quarter, there will for sure be a [second quarter] rebound, but for [annual economic growth] to be above 6 [per cent] for the year, there will need to be a co-ordinated policy of fiscal and monetary support to induce and encourage people to spend,” he says.

In an analysis of listed companies’ financial statements, Mr Shen found that about half of the hotel food and leisure groups on specialist technology stock exchanges in China face short-term liquidity risks. Separately, he estimates that annual earnings for companies on the main stock exchanges will fall by about 30 per cent on average.

A graphic with no description


He predicts that many retail and consumer firms will find it almost impossible to recover: “It’s very hard to compensate for tourism. It’s hard to have another holiday like Chinese new year.”

On March 1, China’s central bank and banking regulator announced that small and medium-sized enterprises could apply to delay debt and interest rate payments due in the first half of the year. The SMEs’ lenders, in turn, will be able to postpone formal designations of the loans as non-performing. A day earlier HNA, a private-sector aviation and tourism group based in southern Hainan province, said it had failed to “resolve” financial risks exacerbated by the epidemic and effectively declared itself a ward of the state by appointing two provincial officials to key posts.

Wu Hai, a service-sector entrepreneur who runs a chain of 50 karaoke parlours in Beijing, says his company has about Rmb12m cash on his balance sheet. He believes he could keep the parlours closed until the end of August if necessary without going bankrupt, thanks in part to a five-month government exemption on social insurance payments granted to SMEs.

“The central bank and finance ministry are offering banks’ discounted government loans to lower financing costs for SMEs,” he says. “But banks cannot just lend to small businesses without assessing risks.”



TOPSHOT - A man walks on an empty street in Wuhan, in China's central Hubei province on February 29, 2020. - Wuhan's 11 million resident have been under effective quarantine since January 23 as Chinese authorities race to contain the COVID-19 coronavirus outbreak. (Photo by STR / AFP) / China OUT (Photo by STR/AFP via Getty Images)
A man walks on an empty street in Wuhan last month © STR/AFP/Getty


Qin Nan, whose Beijing-based company makes and installs air purifier systems, discovered in February that getting the financial help supposedly on offer to SMEs was not straightforward. When he asked his bank to delay loan repayments it refused, saying it has a limited quota for repayment delays. Mr Qin is now trying to renew the loan but can only do so if he can find a credit company willing to guarantee it.

More ominously for China’s cash-strapped local governments, which in 2018 raised almost 40 per cent of their total revenues from land sales, house sales across China’s 30 largest cities fell more than 80 per cent in the first three weeks of February compared with the same period last year, according to official data. This has hit developers, which have tried but largely failed to entice buyers with online deals and steep discounts. Land sales are now running at less than a quarter of average levels, according to China Merchants Bank.

All of these unprecedented pressures, and Beijing’s responses to them, are shaping up to be the ultimate stress test of the Chinese party-state that Mr Xi now dominates.

“How long will it take to restart the economy? It can’t just go from zero to full speed,” says Bilahari Kausikan, an outspoken former Singaporean diplomat who also points to the blowback risk from the epidemic’s global spread.

“As [new case numbers in] China plateau, things are getting bad in the US and Europe. A synchronised slowdown will affect China. it’s not a universe unto itself.”


Additional reporting by Xinning Liu and Xueqiao Wang

The humbling of Goldman Sachs

Fears that nothing would change after the financial crisis turned out to be unfounded

Jonathan Guthrie

web_Golman Sachs humiliation
© Ingram Pinn/Financial Times



Laughter. You could hear it above the noise of traffic in Manhattan last month. Goldman Sachs had sweated bullets to deliver its first ever investor day. Rival bankers were tickled, not terrified. “Is that all they’ve got?” chuckled one.

The pitch, led by chief executive David Solomon, was as slick as any Apple product launch. But the modesty of ambition — for group earnings to exceed capital costs by a few percentage points — signalled how badly the bank’s fortunes have waned.

In the noughties, Goldman Sachs figured as the world’s most powerful investment bank. Heads of state courted its bosses. Its share rating was stratospheric. During the financial crisis, hostility supplanted awe. The bank was “a great vampire squid, wrapped around the face of humanity”, raged Rolling Stone journalist Matt Taibbi.

The piece could have been written by Hunter S Thompson, if the gonzo journalist had been taking economics classes, not acid. But, like its subject, Mr Taibbi’s polemic has not aged well.

It implied that Goldman was special in its ardour for networking and skimming rents from asset bubbles, the common pursuits of bankers for centuries. Moreover, Mr Taibbi’s fear that nothing would change has been proved wrong.

Regulated lenders, which was what Goldman became in 2008, have since paid a penalty for any bailouts they received. Ever-rising balance sheet buffers are the reason Goldman’s securities trading business now drags on returns. Goldman has the smallest market worth of its peers.

But critics still equate it with global capital: omnipresent, calculating, amoral. The downside to that became clear in 2016 when British MPs publicly roasted Michael “Woody” Sherwood, Goldman’s most prominent British boss. His involvement in Philip Green’s controversial sale of failing retailer BHS had been peripheral, but he ended up stepping down all the same.

More damagingly, Tim Leissner, another former partner, pleaded guilty in 2018 to helping fixer Jho Low loot billions from 1MDB, a Malaysian wealth fund. While there is no suggestion of wrongdoing by Goldman, both cases reinforced suspicions its bankers depend on connections to make money.

In fact, all bankers seek to win franchises and befriend the powerful. A legacy of partnership gives Goldman executives a special advantage. The group became a quoted company in 1999, but it still appoints a privileged tier of “partners”. After a decade or so of elite toil, many take prestigious external jobs. They constitute an influence network as formidable as McKinsey’s.

Goldman has an enviable lead in corporate finance advice, where contacts are vital. The bank topped league tables for handling takeovers and US flotations compiled by Dealogic last year. It has a strong position in technology deals.

Last week, tech bros flocked to Goldman’s annual San Francisco conference at the swanky Palace Hotel. “It’s a super-exciting time for engineers at the firm,” said co-chief information officer George Lee.

An affinity with Silicon Valley, and a big fund management arm, are not enough to save Goldman from an ignominiously low share rating. JPMorgan Chase, which has hefty scale in retail, commercial and investment banking, is rated twice as highly. Goldman’s diversification strategy is “spray and pray”, carps one critic. It is pushing into areas such as personal banking, where it is a minnow to such leviathans as Bank of America and Chase.

Goldman’s influence engine is also losing traction. Alumni are either going or gone from the top jobs at the US’s National Economic Council, the European Central Bank and the Bank of England. The book that former Goldman CEO Henry Paulson wrote about his campaign to cosy up to China’s authoritarian leaders reads queasily these days.

But so does the “vampire squid” metaphor. For caricaturists, interfering octopi have personified communism, colonialism — and Jewish-founded businesses like Goldman, against which hate has proliferated this decade.

Such bigotry is wholly despicable. But there is less to deplore in Goldman’s loss of status on Wall Street, even for its executives. If the business had truly been able to manipulate capitalism’s casino rules, it would not be languishing. Instead, it has been prosaically handicapped by post-crisis curbs.

Pre-eminence breeds complacency, as the cases of GE and Boeing have shown. Better to be a challenger, as long as your business is financially robust. “For too long we were in denial about being a bank,” said one insider. No longer. Running savings accounts and lending to small online vendors could turn into a decent business. Meanwhile, big branch networks will handicap rivals if retail banking digitises heavily.

Mr Solomon’s task is to make a business that once reeked of entitlement feel like a scrappy outsider. That should be easier than it seems. Such quirks as calling support staff “the federation” suggest an institution as imbued with elite history as Eton College. Instead, Goldman only elbowed its way into Wall Street’s front rank in the 1970s.

Goldman executives now have reason to hustle hard again. The laughter of rivals will only matter if it persists. For the moment it is Mr Solomon’s greatest asset in motivating his staff.

V is for vicious

How to deal with a new sort of financial shock

The subprime crisis is not a good guide to markets today




WHEN FACED with a bewildering shock it is natural to turn to your own experience. As covid-19 rages, investors and officials are scrambling to make sense of the violent moves in financial markets over the past two weeks. For many the obvious reference is the crisis of 2007-09. There are indeed some similarities. Stockmarkets have plunged. The oil price has tumbled below $40 a barrel.

There has been a flurry of emergency interest-rate cuts by the Federal Reserve and other central banks. Traders are on a war footing—with a rising number working from their kitchen tables. Still, the comparison with the last big crisis is misplaced. It also obscures two real financial dangers that the pandemic has inflamed.

The severity of the shock so far does not compare with 2007-09. Stockmarkets have fallen by a fifth from their peak, compared with a 59% drop in the mortgage crisis. The amount of toxic debt is limited and easy to identify. Some 15% of non-financial corporate bonds were issued by oil firms or others hit hard by the virus, such as airlines and hotels.

The banking system, stuffed with capital, has yet to seize up; interbank lending rates are under control. When investors panic about the end of civilisation they rush into the dollar, the reserve currency. That has not yet happened.

The nature of the shock is different, too.

The 2007-09 crisis came from within the financial system, whereas the virus is primarily a health emergency. Markets are usually spooked when there is uncertainty about the outlook six or 12 months out, even when things seem calm at the time—think of asset prices dropping in early 2008, long before most subprime mortgage borrowers defaulted.

Today, the time horizon is inverted: it is unclear what will happen in the next few weeks, but fairly certain that within six months the threat will have abated.




Instead of tottering Wall Street banks or defaults on Florida condos, two other risks loom.

The first is a temporary cash crunch at a very broad range of companies around the world as quarantines force them to shut offices and factories.

A crude “stress test” based on listed companies suggests that 10-15% of firms might face liquidity problems. Corporate-bond markets, which demand precise contractual terms and regular payments, are not good at bridging this kind of short but precarious gap.

In 2007-09 the authorities funnelled cash to the financial system by injecting capital into banks, guaranteeing their liabilities and stimulating bond markets. This time the challenge is to get cash to companies. This is easy in China, where most banks are state-controlled and do as they are told. Credit there grew by 11% in February compared with the previous year.

In the West, where banks are privately run, it will take enlightened managers, rule tweaks and jawboning from regulators to encourage lenders to show clients forbearance. Governments need to be creative about using tax breaks and other giveaways to get cash to hamstrung firms.

While America dithered, Britain set a good example in this week’s Budget.

The second area to watch is the euro zone.

It is barely growing, if at all. Central-bank interest rates are already below zero. Its banks are healthier than they were in 2008 but still weak compared with their American cousins. Judged by the cost of insuring against default, there are already jitters in Italy, the one big economy where banks’ funding costs have jumped.

On March 12th the European Central Bank promised additional liquidity for the banking system, notably to support lending to small and medium-sized firms (but did not cut interest rates). The danger is that it, national governments and regulators fail to work together.

Every financial shock is different. In 1930 central banks let banks fail. In 2007 few people had heard of the subprime mortgages that were about to blow up.

This financial shock does not yet belong in that company. But the virus scare of 2020 does create financial risks that need to be treated—fast.

Coronavirus trade disruption could start a ‘dash for cash’

Federal Reserve urged to consider bringing back 2008-era dollar swap lines

Gillian Tett

epa07852097 A view of the Federal Reserve Bank of New York in New York, New York, USA, 18 September 2019. The Federal Reserve Bank of New York, which is one of the 12 Federal Reserve Banks of the United States, purchased 53 billion US dollars of Treasury bonds and securities on a night earlier in an unusual effort to ease the strain on financial markets from a spike in the overnight lending rate. EPA-EFE/JUSTIN LANE
The New York branch of the Fed has been offering loans in the repo market © Justin Lane/EPA/Shutterstock


How badly will the coronavirus pandemic hurt global trade flows?

That is a question many investors are nervously asking, as countries including the US and India impose travel bans and companies everywhere brace for supply-chain shocks.

But as fear spreads, there is a second issue that investors should also contemplate: what will happen to the financial flows that normally back these supply chains?

The answer may be alarming.

As Credit Suisse analysts point out, these issues could create big dislocations in demands for dollar funding. The US Federal Reserve can try to offset the impact by intervening dramatically in its domestic repurchase “repo” markets — as it did on Wednesday and undoubtedly will do again — that may not be enough to offset all the global stress.

“Our main concern is about missed payments for dollars globally,” the analysts wrote, adding that missed payments will force “firms to become deficit agents [consuming more money than they generate]; as this cascades, banks and regional banking systems will become deficit agents [too].

”Predicting how this might play out is fiendishly hard because these trade financing flows are almost as complex as manufacturing supply chains — and as lamentably opaque as the shadow banking world was before 2007.

Nevertheless, the Bank for International Settlements surveyed the landscape in 2014, in what shockingly seems to be the last serious study. It made four points that matter now.

First, the bank-intermediated trade finance sector is large, between $6.5tn and $8tn.

Second, more than a third of it, around $2.8tn, occurs via letters of credit from banks. These borrowing lines are typically not recorded on the banks’ books unless or until the client activates them.

That, unnervingly, means “for the most part, L/Cs represent off-balance sheet commitments”, the BIS wrote.

Third, since most global trade is invoiced in dollars, more than 80 per cent of L/Cs are settled in them as well. The BIS says, “a key condition for the ability of many banks to provide trade finance is their access to US dollar funding”.

Fourth, dollar access is uneven. US banks can tap the Fed’s financing tools and big players can cut deals in the repo markets. But only a quarter of trade finance comes from major international banks, so much of the funding goes through intermediaries.

Thus far, these financing chains do not seem to be too stressed. It has become markedly more expensive recently to raise dollars from yen-based markets. This matters because Japanese banks became the dominant non-US provider of dollars after European banks retreated.

Thankfully this swing is still modest compared to 2008. However, that may just reflect a time lag. Credit Suisse notes that when trade is disrupted, companies initially need less funding, not more, as they use the stocks they have on hand.

But after a few weeks, payments start getting missed and create a dash for funding. Regional banking systems may be ill-prepared, since they typically assume that letters of credit will only be tapped in an idiosyncratic, not systemic, way.

There are ways for the Fed to offset this. It can pour liquidity into the US repo market, and hope it trickles out. It can also make dollars available to other central banks, so they can support their own private sectors.

The Fed did exactly that back in 2008 by cutting swaps deals with its counterparts in Canada, UK, Switzerland, Japan and the EU. Pierre Ortlieb, economist at the Official Monetary and Financial Institutions Forum, argues that the pandemic means US policymakers “should bring back dollar swap lines”.

It is unclear how President Donald Trump would react if the Fed did so. “Is the White House going to demand a quid pro quo from places like Europe or Japan” for the swap lines, frets a former central banker who helped cut the 2008 deals. In addition, the central bankers involved in those talks have mostly left. Jay Powell, Fed chair, is forging commendably collaborative relations, but they are not battle tested — yet.

More worrying, the 2008 swaps deals did not include China or Taiwan. But today, Chinese companies and banks have big dollar needs. And Taiwanese life assurance companies have large foreign exchange exposures through the country’s role in the semiconductor industry, as Brad Setser of the Council on Foreign Relations notes.

The key point is this: what the Fed does next with interest rates matters; but what it does with repo markets and central bank swaps matters even more.

As in 2008, it pays to watch the financial plumbing, even if its twists and turns are once again fiendishly hard to track.

Bond ETFs Facing Toughest Liquidity Test Yet in Virus Turmoil

By Katherine Greifeld


Bond ETFs are highlighting signs of liquidity stress in broader markets, with cash prices trading at persistent and deep discounts to the value of the underlying assets.

The $31 billion iShares iBoxx $ Investment Grade Corporate Bond ETF closed at a discount of 3.3% to its net asset value on March 11, the largest such divergence since 2008, according to data compiled by Bloomberg.

Meanwhile, the $23 billion iShares 20+ Year Treasury Bond fund’s price has dropped 5% below its net-asset value, the most ever.

And even the U.S. municipal market is feeling the squeeze: The VanEck Vectors High Yield Municipal Index ETF traded at a record 8.3% discount on Wednesday. 
The historical volatility roiling American bond markets has created unprecedented dislocations in the ETFs that track them. But the market makers who normally step in to repair price inconsistencies, pocketing a virtually risk-free profit, are cautious. That’s because their standard process has become significantly more complicated with many of their usual price gauges are out of whack.
It’s not uncommon for an ETF to drop below its net-asset value -- but it is unusual to see a continuation of that. In normal market environments, such a decline presents an arbitrage opportunity for certain middlemen known as authorized participants.

Typically market markers will buy shares of the ETF as its price drops and redeem these shares with the issuer in return for the underlying bonds. The authorized participant will then sell those securities to capture a relatively risk-free profit. By reducing the supply of ETF shares, the fund’s price typically returns to tracking the fund’s net asset value.


But as the coronavirus outbreak unleashes historical turbulence in financial markets and liquidity dries up, ETFs spanning the bond spectrum are trading at steep discounts. That dynamic will likely persist until volatility subsides and market makers have a better sense of where they can sell the underlying debt, according to UBS Global Wealth Management’s David Perlman.

“The market price is going to drop down to where the authorized participant believes that they’ll be able to trade the bonds. They’re not doing this out of the goodness of their hearts,” said Perlman, an ETF strategist at the firm. “They don’t jump in until they think they can execute the redemption and make a profit from doing so.”

LQD's net asset value most below its price since 2008

The inherent rub is that fixed-income ETFs, which trade on exchanges and behave like stocks, are much more liquid than the securities they hold. That’s fueled fears that in the event of a sell-off, investors scrambling to redeem their holdings would overwhelm the managers, or the traders that channel bonds into and out of the funds. The likes of Mohamed El-Erian of Allianz SE and Scott Minerd at Guggenheim Partners have suggested they could act as a potential destabilizing force in illiquid credit markets where they have an outsized trading share.

Now, as credit spreads blow out and investors rush for the exit, fixed-income ETFs are being put to the test. That has Peter Tchir at Academy Securities concerned that authorized participants -- in the process of selling the underlying bonds to lock in the arbitrage -- will exacerbate the sell-off.

“That means, to me, that we are about to enter a cycle driven by arbitrage, where there is more pressure on short-dated corporate than the market can handle, causing a vicious cycle,” Tchir, head of macro strategy, wrote in a note Thursday.


So far, there’s little evidence to support the theory. But there have been a few early success stories: High-yield bond ETFs. The iShares iBoxx High Yield Corporate Bond ETF, ticker HYG, ended Monday with a modest discount of half a percentage point to its net-asset value even as its price dropped by the most since 2009. The ETF actually added $409 million of inflows that day, suggesting that despite the steep sell-off, there were buyers to be found.

And while shifting cash on a short-term basis may be more challenging this week, buy-and-hold investors likely haven’t been impacted by the turmoil -- beyond the price of their investments falling.

“If you’re a long-term investor who’s looking to add an ETF position to a portfolio of bonds, for example, the trading liquidity becomes less important,” said Patrick Luby, senior municipal strategist at CreditSights.

Still, it’s crucial to be cognizant of each market’s idiosyncrasies, according to UBS Wealth’s Perlman. While this episode likely isn’t the ETF liquidity reckoning that naysayers have called for, the ease of trading an ETF is ultimately dictated by its underlying market.

“We remind our clients that you do want to take into account the liquidity of the underlying market because ultimately that liquidity is going to be reflected in the price of the ETF during these challenging periods,” Perlman said. “The ETF wrapper makes it easier to trade, but it doesn’t make liquidity costs disappear.”

Compromising on Corona

By: George Friedman


Battling the coronavirus is essential. But the battle has costs, which are invariably measured against the gain. “No matter what the cost” – the approach many countries appear to be taking – is a principle that can be disastrous, particularly when the cost is so high that it cannot be borne socially.

With the coronavirus, like all new and lethal diseases, alarm shapes the responses. As the cost starts to emerge, there is an inevitable recalibration. We are approaching that point of recalibration.

First the risk. The coronavirus seems as difficult to contain as other coronaviruses like the common cold. Some people do not know they have been infected, and many who never fall ill carry the disease. Everyone is suspect.

The only safe course is complete social isolation. That is of course impossible. Jobs must be worked, children must go to school, food must be bought and consumed, and so on. Humans are inherently social animals, and the perpetual threat of infection undermines a fundamental human imperative: to be with other people.

Coronaviruses are persistent; they appear, disappear, reappear, mutate. There will be no clear moment at which the virus is eradicated, no moment at which the dread of a handshake or of a kiss on the cheek will go away. Obviously, there may eventually be a vaccine that can minimize if not eradicate the virus, but that is a ways away. In the meantime, fear will continue to haunt.

The virus is deadly, of course. In South Korea, which has maintained by far the most comprehensive statistics on the disease, the mortality rate for those infected is about 0.7 percent as compared to 0.1 percent for the flu. As with the flu, the death rate is higher among the elderly, especially those with other afflictions. As someone over 70, I can be permitted to say that this is a bearable risk compared to other risks.

In the United States, about 39,000 people died in automotive accidents in 2018. That is a bit over 3,000 people per month or 100 per day. It is a significant risk that most of us accept daily. We understand the risk, we take prudent precautions like not drinking while driving, and we live with it. We live with it because the price of not living with it is more than we are prepared to pay.

Life is a calculated risk, and the question is whether protection against the coronavirus is possible, and if possible, whether it is worth it. I raise the number of automobile deaths to drive home the fact that we do take calculated risks. There has not been an overwhelming demand to create automobiles that allow passengers to survive crashes beyond the point where we are – with airbags, seatbelts and better engineering. We demanded steps within the framework of the cost of increased protection, and the price of decreased mobility.

When the virus first appeared, the natural public response was to demand that the government stop it. Governments are useful things, but public expectations are sometimes extravagant. The next phase was to blame the government for failing to protect them. The third phase will be attacking the government for taking the steps it took to protect them. We are not there yet, but we are close.

The cost of the protections is not merely disruption of how we live, but also a significant economic cost.

The crisis has contributed to massive damage to the Chinese economy and, to some degree, to the decline in oil prices, since China is the leading oil importer. It has almost certainly contributed to the massive decline in equity prices. All of these will extract human costs as global economies move toward recession.

Recessions are common. Uncommon is the refusal to attend public gatherings, which has caused significant economic loss. Here in Austin, South by Southwest laid off a third of its staff on Tuesday after the festival’s cancellation. In New York, the governor has decreed that containment sites be set up to protect people from people who have the disease. In Italy, the solution has been to divide the country into different parts and forbid the movement of people between them.

The more sequestered the population is, the less efficient the economy becomes not merely for financial reasons but also because to produce things, even ideas, workers must be at their jobs, goods must be moved freely and so on. The coronavirus is frightening, but a recession that is more than just a cyclical event is also frightening, for it can extract a massive social cost as jobs are lost, banks fail and so on. The sequestration of larger and larger groups of the population cannot become a long-term feature of society without repercussions.

If the virus has a higher mortality rate than it does now, the risk-reward calculus changes. If the virus can be quickly eradicated by current measures, the calculus changes. But if the mortality rate remains the same, and if the virus persists in spite of best efforts, the risk-reward ratio remains in place. What will emerge is not a bloodthirsty indifference to life. All our lives are at risk. Rather, it will be the process of accepting a new risk and staying our social and economic courses.

The current imposition of increasingly intense measures, unless successful or unless the disease proves more dangerous, will lead to social adjustment and, of course, holding the government responsible for all prior fears.

UBS’s Retail Banker for Billionaires

Appointing a digital, retail banking expert as new CEO leaves the Swiss bank reliant on passed-over contenders

By Rochelle Toplensky


Ralph Hamers will leave ING to take over as UBS’s chief executive in late autumn.
Photo: walter bieri/Shutterstock .


UBS, the world’s largest wealth manager, has appointed a new chief executive who has no wealth management experience.

Late Wednesday night, the Swiss bank unexpectedly announcedRalph Hamerswould leave his post at ING—a Dutch retail and wholesale bank—to take over as chief executive in late autumn.

After a 15-month search, UBS Chairman Axel Weber concluded that Mr. Hamers was the man for the job. The Dutchman has run a large, systemically important bank and has strong digital skills.



Mr. Weber and Mr. Hamers worked for years together at the European Banking Group and the Institute of International Finance.

The UBS chairman assured investors that Mr. Hamers will earn his “UBS passport” during the handover and “this is not about changing strategy, this is about changing CEOs.”

But the new boss’s inexperience in wealth management is a glaring gap. Mr. Hamers has successfully reshaped ING, a bank with a $42 billion market capitalization. He delivered shareholders a total return of nearly 43% over his more than six year tenure as CEO—impressive when compared with the break-even return for the average European bank.

However, managing the money of the world’s millionaires and billionaires is central to UBS’s business and growth. Its $2.6 trillion of invested assets contributed over half the bank’s revenue and nearly two thirds of its profit last year.

The Dutch banker’s lack of expertise is concerning mostly because the co-heads of the wealth management business—Tom Naratil and Iqbal Khan—were two of the four internal contenders for the top job. Both men are “world leading,” according to Mr. Weber, so it isn’t certain they will stick around for long.

Mr. Hamers does have a range of relevant skills. He has captained ING through a recent money laundering scandal—a depressingly valuable experience for running any big bank these days.

His digital savvy can help slim down and optimize back and middle office functions. Front-line services are a bit less obvious—whiz bang apps are nice, but billionaires do expect high-touch personalized services from their Swiss bankers.

And UBS has already been investing in digitization—Chief Operating Officer Sabine Keller-Busse, another internal contender for the job, has been overseeing its multibillion-dollar annual investment in technology.

Mr. Hamers’s appointment will likely contribute some immediate cost savings—current UBS chief Sergio Ermotti was Europe’s highest paid bank CEO in 2018, earning more than five times the salary of his replacement was at ING, according to Citigroup. And UBS’s 78.9% cost-to-income ratio indicates that Mr. Hamers can apply his frugal ways more widely to cut costs and boost returns.

It is a tough job though. The outlook for European banks is harsh—persistent negative interest rates, anemic growth at home, continuing global trade tensions and economic uncertainty from the coronavirus. UBS is well placed in China, but that relatively high-growth market is being targeted by many rivals.

Shares in both banks jumped Thursday on the news, though ended the day nearly flat. ING’s initial bounce most likely reflected shareholder relief—the Dutch bank pulled a bond issue earlier in the week and investors had feared the explanation was new money laundering problems rather than the CEO’s departure.

Mr. Webers’s plans are important for UBS, but given his skills, so too are the plans of the unsuccessful internal candidates for the CEO post, particularly Mr. Khan and Mr. Naratil.

In Mexico, an Opportunity for States’ Power

By: Allison Fedirka


There’s more than meets the eye in the Feb. 21 gathering of Mexico’s National Conference of Governors in Baja California Sur. The conference, which has no official capacity, is where the governors of every Mexican state meet to discuss the problems facing their country.

Most people outside Mexico are unaware that the meeting takes place at all; even many in Mexico regard the group as unremarkable. However, it is the very group the national government needs to work with to address the country’s security crisis.

Maintaining control over the whole of Mexico is difficult for any government. Security threats have changed over the years, but now is the era of organized crime, the breadth and depth of which requires a multifaceted strategy from Mexico City.

The National Security and Peace Plan submitted by President Andres Manuel Lopez Obrador includes creating a National Guard, targeting the financial assets of criminals, judicial reform, anti-corruption campaigns and socioeconomic initiatives. For it to have a chance of working, it needs the support of Mexico’s constituent states.

Centralization versus Decentralization

Historical political administrative structures and Mexico’s natural geography tend to create voids of power throughout the country. Mexico has 11 distinct geographic regions that tend to keep it divided.

The eastern and western Sierra Madre mountain ranges dissect the country from north to south, while a third range cuts across horizontally in the south, making bicoastal infrastructure difficult and expensive to develop and, to an extent, impeding urban growth along the edges, especially on the west coast.

The deserts endemic to the western half of the border with the United States likewise boast sparse populations. East of them, there is the Rio Grande River Basin, which follows the U.S. border the rest of the way to the Gulf.

Two peninsulas jut out on opposite ends of the mainland, while the Mexican heartland is tucked in at the center of an expansive landmass that is difficult to traverse.

Elevation and a favorable climate of the Mexican plateau mean that only the southern half of the country can support large populations. As a result, the country is scattered with relatively isolated populations with strong regional roots.




In pre-Columbian and colonial periods, the geographic barriers forced political entities to embrace decentralization. The Aztec Empire owes its success in no small part to the alliance of three civilizations – the Tenochtitlan, Texcoco and Tlacopan, whereby Tenochtitlan would be the de facto leader – and the encouragement of municipal control.

The Aztec alliance conquered land through military expeditions. Acquired territories were generally left to their own devices provided that each paid tribute to the central power.

Spain took a similar approach when the Conquistadors arrived. It depended heavily on local officials, who had a high degree of administrative power such as setting ways and means, leading public works projects and overseeing market activity as well as security matters. In both cases, decentralization allowed the national power to establish itself throughout a large territory with limited resources and population.

But when Mexico became a state of its own – when national unity was a matter of necessity – this hands-off approach was more of a threat than a solution. Regional governments were wary of ceding too much power to a different central authority. Constitutional reforms and other political initiatives tried and failed to unify the country.

In some cases, state militias outnumbered national troops for defense, and poor economic prospects at the national level reinforced local ties. This left the Mexican government with a series of separatist movements in the mid-19th century, just as it was becoming its own nation.



From this rose Gen. Jose de la Cruz Porfirio Diaz Mori, who served as president from 1876 to 1880 and then from 1884 to 1911. He ushered in a period of strong central control that has since been dubbed the Porfiriato. He dissolved local authorities, removed federalist features from governance and appointed state governors who reported directly to him.

States lost a vast amount of their power to the central government. This played a large part in spurring the Mexican Revolution, after which came a new constitution and the formation of the Institutional Revolutionary Party, the PRI.

Chapter 5 of the constitution deals with states’ rights and clearly reflects the national government’s concern over giving too much power to the states. The document explicitly prohibits states from making formal alliances with one another or with foreign countries, restricts the use of armed forces at the state level and specifies that the national government will protect states in case of internal rebellion provided that they themselves are not the source of the uprising.

As for the PRI, it was the predominant political party for most of the 20th century, holding power from 1929 to 2000. Nobel laureate Mario Vargas Llosa would later describe the PRI as “the perfect dictatorship.”

In 2000, the PRI’s monopoly on power broke when the National Action Party won the presidency, beginning an era in which Mexican political power was diffused among various groups such that the notion of decentralization was brought back to the fore.

It’s no coincidence that just one year later the governors themselves established the National Conference of Governors, or Conago. Every governor, and the mayor of Mexico City, attended the second meeting.

Conago describes its mission as a permanent forum that seeks to strengthen federalism through democratic means and respect for Mexican institutions. It values decentralization in federal form over political party affiliation and aims to create a space for dialogue with states and national government. In years past, the sitting president and Cabinet members attended these meetings as well.

The group walks a somewhat fine line with the constitution but is not seen as in violation because participation is voluntary, decisions are nonbinding and any follow-through is optional. Even so, one of the group’s more immediate agenda items includes elevating Conago to constitutional status, an initiative that would formally give it the legal space for greater cooperation.

Governors and Security Now

Which brings us to today. Mexico’s organized crime and security problems are the modern-day expression of Mexico’s inability to control its full territory. Criminal groups thrive where government power is weak or absent. A lack of state presence enables criminal groups to use the economic power of their illicit activities to entrench themselves in local communities by providing sources of income and other state services.

Over the years, they have created their own parallel market economies and established so much control over certain areas that they are able to patrol roads and regulate port activity. Through financial incentive and electioneering, they even govern some communities.

Each criminal group has its own general territory of operations, but their territories rarely align with state borders, making it all the more difficult for any one group to be considered an endemic threat to any one state. But neither can the federal government take them on on its own.

And so, in December 2019, Lopez Obrador (commonly known by his initials, AMLO) said the national government sought to persuade and find agreement with governors for security projects. He emphasized the need for federal and state governments to keep working together and with full transparency, noting that the country cannot afford to have power vacuums.

These words were quickly followed by a meeting with the governors and AMLO’s security team.

At the most recent meeting with the coordinator of the Security and Justice Commission, in conjunction with the national-level Secretariat of Citizen Security and Protection and equivalent Ministry of the Interior, the governors pledged support for constitutional reforms of the justice system.

Conago also agreed to work together to articulate the mechanisms of operation and interaction between the federal entities and the National Guard. The most recent meeting of this roundtable – governors and AMLO’s security Cabinet – occurred in January. The conclusion from the meeting was that security was the main problem for all parties and that they need to close ranks to combat it.

It was also recognized that the National Guard alone is insufficient without the support of a local security branch and that bimonthly meetings were needed to enhance cooperation.





States have also taken initiatives to improve security cooperation among themselves at the regional level through a series of bilateral and multilateral security agreements. These have been arranged with the oversight of the national government.

Durango and Coahuila helped pave the way with early initiatives in June 2018 that have since expanded. Since 2018, at least five groupings of states have emerged with interstate security agreements. The general framework calls for greater collaboration, increased communications, more information exchange and intel sharing.

There are also some checkpoints and joint patrols. The specific objectives vary slightly from place to place, but they generally all agree to reduce kidnapping, large-scale theft, drug running and other illicit activities. Most recently, the governors of Oaxaca and Veracruz signed an agreement this month to form a shared strategy for reinforcing security at their border, which is considered a high crime zone.

It includes creating a limited area where there will be checkpoints and patrols, on land and at sea. They will share intelligence on suspects captured so that they can remain in one state and not risk transfer. This will be in coordination with the National Guard, the navy, the Defense Ministry, the attorney general’s office and the national intelligence center.

The prospect for security cooperation presents a political opportunity for the members of Conago to gain more power. Rather than fight the governors, the national government is embracing the role they can play in helping combat Mexico’s security problem.

While centralized control has been an option for some post-independence governments in the past, more historical examples suggest a decentralized approach may help the central government reach and influence places currently outside its grasp.

In this model, the role of Mexican states gain renewed importance in the complex and uphill battle of confronting Mexico’s security crisis.

China’s Great Leap into Epidemic

The COVID-19 outbreak in China is not the first public-health emergency enabled by the absence of freedom of speech in China, and it is far from the worst. Between 1958 and 1962, the inability to criticize bad policy led to a famine that killed an estimated 36 million Chinese.

Aryeh Neier

neier61_Photo by Anthony KwanGetty Images_coronaviruschinadoctorvigil


NEW YORK – Before the world had any knowledge of the new coronavirus that has sparked a global panic a Wuhan-based ophthalmologist, Li Wenliang, noticed something strange in a few patients. They seemed to have contracted an unfamiliar virus that resembled severe acute respiratory syndrome (SARS), which hobbled China nearly a generation ago.

A few days later, after Li had sent a warning message to several doctors in a group chat, the 34-year-old doctor was summoned by the police, who forced him to sign a letter confessing to “making false comments” that had “disrupted the social order.”

Li is now dead, a victim of the very virus – now called COVID-19 – about which he sounded the alarm.

Li’s death – together with further revelations of China’s efforts to silence COVID-19 whistleblowers – has sparked global outrage, and rightly so. Had the government been more concerned about protecting public health than suppressing unflattering information, it may have been able to prevent the virus from spreading. So far, COVID-19 has infected more than 74,000 in China alone, with over 2,000 dead.

And yet this is not the first time that the denial of freedom of speech has been linked to a deadly public health emergency in China. When the SARS epidemic began in 2002, the Chinese authorities also initially attempted to cover it up.

Fortunately, Hu Shuli – the founder and managing editor of Caijing, a business weekly – exposed officials’ machinations relatively quickly. After learning that patients in Beijing had mysterious fevers, she sent journalists to hospitals to interview physicians. Caijing’s reporting helped force China’s leaders to acknowledge SARS publicly – the first step toward bringing the virus under control.

Still, by the time SARS was contained, the virus had spread to more than 8,000 people worldwide and killed almost 800.

But repression of free speech in China has an even more disturbing public-health pedigree. It also played a significant role in enabling the devastation caused by Mao Zedong’s Great Leap Forward – the greatest calamity China has faced since the Communist Party took power in 1949.

In 1958, Mao decided that, in order to achieve rapid industrialization, villagers should be forcibly herded into communes, where they would perform industrial tasks that elsewhere would have relied on machines and factories. For example, millions were tasked with producing steel in small backyard furnaces, often by melting down farming implements.

By diverting labor into highly inefficient small-scale industry, the Great Leap Forward gutted agricultural production, resulting in severe food shortages, which persisted even after the initiative was ended in 1960. According to the Chinese journalist Yang Jisheng – whose authoritative account of the resulting famine, based on two decades of research, was published in Hong Kong in 2008 – no fewer than 36 million Chinese starved to death between 1958 and 1962.

As with COVID-19, vital information about the calamitous consequences of the Great Leap Forward was suppressed from the very beginning. At first, the central government authorities were largely unaware of the disaster unfolding in the countryside, owing to local officials’ reluctance to relay information that might be deemed critical of Mao.

But even when China’s top leaders learned of the famine, they kept the matter quiet, rather than appealing for outside assistance. Protecting Mao’s reputation was the top priority, and, given China’s extreme international isolation at the time, the outside world would not find out unless the Chinese told them.

Suppression of the truth about the Great Leap Forward persists to this day, with party officials preferring to downplay the tragedy by portraying it as the result of bad weather conditions. Yang’s book still cannot be published in mainland China.

The link between famine and freedom of speech is not limited to China. As the Indian philosopher and Nobel laureate economist Amartya Sen noted some two decades ago, “no famine has ever taken place in the history of the world in a functioning democracy.” Leaders who depend on the support of voters with the freedom to criticize public policies are generally unlikely to uphold policies that cause those voters to starve.

This has not been the case in, say, Zimbabwe, where about half the population – some 7.7 million people – currently face food insecurity, according to the World Food Program. Unprecedented levels of malnutrition beset eight of Zimbabwe’s 59 districts.

Zimbabwe has long been known as “the breadbasket of Africa,” thanks to its relatively mild climate. But climate change is taking its toll. Making matters worse, decades of economic mismanagement by Robert Mugabe – who dispensed with democratic accountability during his 37-year-long rule, which ended when the military forced him to resign in 2017 – have produced runaway inflation, high unemployment, fuel shortages, and prolonged power outages. All of this has worsened Zimbabweans’ plight significantly.

Freedom of expression is about far more than direct political dissent or tolerance of ideas, acts, or images that we find offensive. As Sen wrote in 1990, “one set of freedoms – to criticize, to publish, to vote – are causally linked with other types of freedoms,” such as “the freedom to escape starvation and famine mortality.” To that list we should add “the freedom to avoid death by COVID-19.”


Aryeh Neier, President Emeritus of the Open Society Foundations and a founder of Human Rights Watch, is author of The International Human Rights Movement: A History.