Changes at the top

Attentive reader, you no doubt have spotted a small edit at the top of this blog in the space designated for, to use newspaper speak, the "sub-hed". A few years ago I thought the most apt description for this blog was the ancient Roman phrase "Hic sunt leones", which I had interpreted as "from here, be lions".

Over pizza and wine last night, I was informed that this is not 100 percent correct. The Italians translate it to "qui ci sono i leoni" or simply "here be lions". There is more than a subtle difference. My interpretation suggests that just beyond this point, it is not safe to tread. But from where I stand, it's probably OK. Probably. Whereas, the ancient Romans used the expression to say that this whole damn place is unsafe to tread. How unsafe? There's lions, amico. Nuff said.

A special thanks to the always attentive (some might say, "disagreeable") Luca for pointing this out.

Italy's dilemma: tax the church or find the cheats?

In a nation of tax cheats, who is Italy's biggest tax dodger? The Catholic Church, evidently. Pressured by the EU and the Prodi government, Vatican officials say they are willing to go back to the negotiating table with government bean counters to determine which of the estimated annual 1.3 billion euros in tax breaks is legit. The issue is over ICI, the local tax. The Church has long been exempt from paying ICI on the grounds, to put it simply, it is a non-profit. The only problem is the church runs a healthy commercial business in the form of health clinics, hostels and schools all over Rome, and beyond.

But a rewrite of the tax code last year, aimed at chiseling away at Italy's teetering national debt, means the Church's commercial businesses (in other words, any Church business that competes with local hotels, schools and clinics) are eligible for taxation.

Italy's public debt ratio is the second highest in the OECD, making any fresh tax revenues urgent. The problem is an obvious one: it doesn't collect enough in taxes to fund its ballooning expenses. A big problem is tax cheats. Italians dodge taxes to the tune of 100 billion euros (or 7 percent of GDP) annually, Reuters reports. It's not just famous motorcycle riders either; major corporations who hide their money in off-shore tax havens is a common accounting trick here, and everywhere. Thus, going after the church makes sense in a country that can ill afford to let anybody slide on their taxes. Ah, but if it were that easy.

In the coming days, Pope Benedict is expected to publish his latest encyclical. In it, he is expected to denounce tax cheats as robbing the well-being of society. His big target is expected to be the use of tax havens by big business to cut out the tax man.
On the eve of such an important encyclical for Italy's treasury, I would imagine the negotiations have already begun between church and state.

You won't read this in the guidebook...

The scene: brilliant blue sky. Siena's famed campanile glints in the sunshine, looming over Piazza del Campo.

Xtina (to me): You have to understand something, darling. This town is a bit fake. They restored much of it in the 1700s.

Miss Patata Rossa 2007

It's sagra season, that time of year when every paesino, frazione and localita' aims to best their neighbor with the most sumptuous menu. It has to be getting tough on these little communities, what with la sagra delle cozze (mussels) in Pedaso, polenta in the next town and lasagna elsewhere. How can a town on a tight budget compete? Take a lesson from Colfiorito, a little town (pop. poco) on the Umbria-Marche border, that has rolled out a daring publicity campaign this year for its annual patata rossa (red potatoes) festival. The town has one major asset in the publicity department, a two-lane superstrada blows right through the middle of it, perfect for catching the attention of motorists. How is Colfiorito selling the red potatoes this year? With S-E-X, evidently. It's the "XXX Sagra della patata rossa".



Xtina points out it's merely the 30th annual festival, but the queue to get in would suggest otherwise.

Today's word of the day: liquidity

As in this Markets 101 summary by Mr. Econ, Pres. George W. Bush:

Another factor one has got to look at is the amount of liquidity in the system. In other words, is there enough liquidity to enable markets to be able to correct? And I'm told there is enough liquidity in the system to enable markets to correct.

And, George, how does liquidity affect the market? George? Mr. Bush? Are you paying attention, George?

In market-speak, it's hard to imagine a more troublesome word than liquidity. It's positive. Most people know that much. But what does it actually mean? Definition 1: liquidity refers to the ease at which an asset can be converted into cash. In other words, how fast you sell your car/ballooning house mortgage/baseball card collection/equities portfolio in exchange for cash or a cash equivalent? Guess what? Equities are not all that liquid. While easier to unload than, say, baseball cards, you still need a third party to arrange the transaction, and this person needs to find a buyer. And secondly, do we really want to send the message to jittery investors that the best way out of this mess is to sell their shares? Of course not.

In terms of dud mortgages, they are even less liquid. Only the most daring investor would snatch up sub-prime loans. And, again, does the president want to be sending a message to strapped homeowners, regardless of their unworthiness, that they should just walk away from the new home, let somebody else pick up the loan?

Definition 2: our ability to cover our liabilities with cash. This is the bearish term (a less frequent usage during the current 25-year bull market), and certainly what the president's advisors were thinking when they whispered the term into Dubya's ear. It's certainly in our interest to know that the giant hole covered by negligent lending practices can be covered elsewhere by investors to produce that 'soft landing' effect we are now praying for. This remains to be seen, of course, though there are positive early signs thanks to that other market mechanism too dull for TV financial journalists to fuss about: monetary policy. Still, questions persist, including: You say there is enough liquidity now, but what if the crisis worsens? Will the central bank white knights continue to bail out the market?

Extricating ourselves from the sub-prime mess requires a thoughtful response, not dashing out hollow phrases and terminology to gloss over the troublesome parts. If not, we might start hearing a new word: panic. And everyone knows what that means.