Krebs Daily Briefing 25 August 2015

International

Global Stock Markets Rebound Despite Continued Sell-Off in China

HONG KONG — After a three-day rout that erased nearly $3 trillion in value from stocks globally, markets other than China’s on Tuesday showed signs that selling pressures were easing. Shanghai stocks closed down 7.6 percent on Tuesday, after Monday’s 8.5 percent plunge, and Beijing officials sought to stabilize financial markets by cutting interest rates and reducing the amount of money banks are required to keep on hand to guard against risk. Stocks in Europe opened higher and kept climbing, while trading in Standard & Poor’s 500 index futures suggested New York would also open the day with a strong surge of buying, following Monday’s down day. It is too soon to know whether the rebound will last, but there were signs on Tuesday that many analysts might have been right in saying that the recent global sell-off of stocks and commodities was an overreaction to China’s specific economic and financial market problems.

http://www.nytimes.com/2015/08/26/business/dealbook/daily-stock-market-activity.html?emc=edit_na_20150825&nlid=53476364&ref=headline&_r=0

ISIS Speeds Up Destruction of Antiquities in Syria

BEIRUT, Lebanon — Islamic State militants have razed a fifth-century Roman Catholic monastery and blown up one of the best-preserved first-century temples in Palmyra, the ancient Syrian city that is one of the world’s most important archaeological sites, according to government officials and local activists. And that was just this past week — in one Syrian province. Much like the grinding slaughter of human beings, the ravaging of irreplaceable antiquities in Syria and Iraq has become something of a grim wartime routine. Yet the cumulative destruction of antiquities has reached staggering levels that represent an irreversible loss to world heritage and future scholarship, archaeological experts and antiquities officials say. It has accelerated in recent months as the self-declared Islamic State has stepped up its deliberate demolition and looting, piling onto battle damage wreaked by government forces and other insurgents in Syria’s four-year civil war. That has brought antiquities lovers on all sides to a new level of despair.

http://www.nytimes.com/2015/08/25/world/isis-accelerates-destruction-of-antiquities-in-syria.html?emc=edit_th_20150825&nl=todaysheadlines&nlid=53476364

Can the Supreme Court Force Congress to Own the War on ISIS?

The biggest casualty in the struggle against the Islamic State so far has been the American Constitution. One year into the battle, the president and Congress threaten to destroy all serious restraints against open-ended war-making by the commander-in-chief. President Obama waited for half a year before even submitting a draft resolution authorizing his initiative. But it is now obvious that the Republican-controlled Congress finds it politically convenient to stand on the sidelines and let Obama take the blame for the escalating instability. That leaves only the Supreme Court to halt this transformation of the president into a latter-day King George III. As The Atlantic’s Garrett Epps rightly emphasizes,  allowing the president to go unchallenged will produce a terrible precedent. As the rise and rise of Donald Trump suggests, future presidents may make aggressive use of their powers as commander in chief—and they will predictably point to Obama’s unilateral war on ISIS to justify their own military adventures. Enter the Supreme Court. Since the justices would deny standing to the bipartisan group of legislators on Capitol Hill who have failed to convince their colleagues to take their constitutional responsibilities seriously, everybody has assumed that the Court will remain on the sidelines as Obama’s war continues. This is a mistake. Existing case-law establishes that individual soldiers can go to court if they are ordered into a combat zone to fight a war that they believe is unconstitutional. During the closing years of the Vietnam War, two federal courts of appeal carefully considered, and unanimously affirmed, the standing of soldiers to bring such complaints. Neither court backed those challenges on the merits, but the facts surrounding Richard Nixon’s escalation in Vietnam raised very different issues from those raised by the ISIS campaign.

http://www.theatlantic.com/politics/archive/2015/08/supreme-court-and-isis/402155/

National

A New Way to Charge Insider Trading

An acquittal in an insider trading case is no longer much of a “man bites dog” story, even when the United States attorney hailed the indictment, proclaiming that “sooner or later, you will be brought to justice.” But the jury verdict last week in Atlanta in favor Steven E. Slawson, co-founder of the hedge fund Titan Capital Management, may be much more important for signaling a new way of charging those who receive tips that may avoid requirements thought necessary to prove insider trading. Cases that involve the tipping of confidential information have been the focus of the government’s recent push against insider trading by hedge funds, with prominent defendants like Raj Rajaratnam convicted of exploiting corporate sources to trade profitably. The Supreme Court said in Dirks v. S.E.C. that “the need for a ban on some tippee trading is clear.” Most insider trading cases are charged as a violation of Section 10(b) of the Securities Exchange Act of 1934. That provision prohibits use of any “manipulative or deceptive device or contrivance” in connection with the purchase or sale of a security. Although the provision does not expressly prohibit insider trading, the Supreme Court has found that buying or selling securities based on confidential information in breach of a duty of trust and confidence to the source is a type of deception that violates this provision. The Dirks case extended the law to tipping if there is proof that a benefit flowed from the recipient to the tipper. Called a quid pro quo, the benefit can be something with pecuniary value or even “a gift of confidential information to a trading relative or friend.” It is the benefit requirement that caused the Justice Department so much trouble in the insider trading prosecution of two hedge fund managers, Todd Newman and Anthony Chiasson. In United States v. Newman, the United States Court of Appeals for the Second Circuit overturned the convictions because the defendants never had any contact with the sources of the information, and the government failed to introduce sufficient evidence that Mr. Newman and Mr. Chiasson knew about any benefit provided.

http://www.nytimes.com/2015/08/25/business/dealbook/a-new-way-to-charge-insider-trading.html?ref=dealbook

John Kasich Balances His Blue-Collar Roots and Ties to Wall Street

COLUMBUS, Ohio — As the people of Ohio already know — and Republican voters elsewhere are just beginning to find out — Gov. John R. Kasich grew up in working-class McKees Rocks, Pa., the son of a postal worker and the grandson of a coal miner. His grandfather was so poor, Mr. Kasich recently told voters in New Hampshire, that he would bring home scraps of his lunch to share with his children. “They would even be able to taste the coal mine in that lunch,” Mr. Kasich said. “Some of you can relate to that.” As a congressman and as governor, Mr. Kasich has made hardscrabble stories of life in McKees Rocks a cornerstone of his political biography. And now the story of his blue-collar roots is an important part of how he is trying to distinguish himself in a crowded presidential primary field and draw a contrast with two of his leading competitors, Donald J. Trump and Jeb Bush, who grew up in wealthy families. But there is a chapter in Mr. Kasich’s life story that conflicts with this narrative: the nearly eight years he spent as an investment banker withLehman Brothers, the Wall Street firm. Mr. Kasich’s career at Lehman, neatly tucked between his time as a congressman and his election as governor, coincided with the bank’s messy collapse in September 2008, a downfall that helped throw the American economy into free fall.

http://www.nytimes.com/2015/08/25/us/politics/john-kasich-balances-his-blue-collar-roots-and-ties-to-wall-street.html?emc=edit_th_20150825&nl=todaysheadlines&nlid=53476364

Ashley Madison offers $500K reward for help catching hackers

The parent company of the infidelity website Ashley Madison is offering a cash reward for information leading to the arrest of the hackers who stole and dumped private client data last week. Toronto Police Department staff superintendent Bryce Evans confirmed in a Monday press conference that Avid Life Media has offered to pay $500,000 Canadian — around $380,000 U.S. — for the information. Evans directly addressed both the hackers, known as Impact Team, and potential recipients of the reward money during the conference. “Your actions are illegal and will not be tolerated,” Evans said to Impact Team. “This is your wake-up call.” “To the hacking community who engage in discussions on the dark web and who no doubt have information that could assist this investigation, we’re also appealing to you to do the right thing,” Evans said. “You know the Impact Team has crossed the line. Do the right thing and reach out to us.” The Toronto Police Department is spearheading the investigation into the hack, which revealed personal data for up to 37 million clients. The released data included email addresses, credit card information and internal company emails. Adding a fly to the ointment, some of the internal emails released in the dump indicate that a former Ashley Madison official hacked a competitor’s site. “[Online magazine nerve.com] did a very lousy job building their platform. I got their entire user base,” founding chief technology officer Raja Bhatia told CEO Noel Biderman in an email. “Also, I can turn any non-paying user into a paying user, vice versa, compose messages between users, check unread stats, etc.” Cybersecurity experts are divided on whether law enforcement is likely to apprehend the Impact Team hackers.

http://thehill.com/policy/cybersecurity/251848-ashley-madison-offers-500k-reward-for-help-catching-hackers

Southern Co becomes No. 2 U.S. utility with $8 billion AGL deal

U.S. power producer Southern Co (SO.N) said it would buy AGL Resources Inc (GAS.N) for about $8 billion in cash to build out its natural gas infrastructure and lower its dependence on power generation. The combined company will operate about 200,000 miles of electric lines and 80,000 miles of gas pipelines serving about 9 million customers, making Southern Co the No. 2 U.S. utility by customer count after Exelon Corp (EXC.N). AGL Resources’ stock rose as much as 32.4 percent to a record of $63.37 in midday trading on Monday, making it one of the few to trade higher amid a sell-off in the U.S. market. Still, AGL Resources’ shares were trading well below Southern Co’s offer of $66 per share. Southern Co’s shares were down 2.6 percent at $44.59. While, demand for power weakens with increased energy efficiency, demand for gas distribution is growing as prices remain subdued due to a production glut. That has prompted many U.S. power producers to boost their natural gas infrastructure. Through the deal, Southern Co will get access to AGL Resources’ 5 percent stake in the 550-mile (885-km) Atlantic Coast pipeline, which moves gas from the Marcellus shale field in Pennsylvania. “(The deal) gives Southern the opportunity to deepen its roots across the entire energy platform,” said KeyBanc Capital Markets analyst Paul Ridzon. Dominion Resources Inc (D.N) and Duke Energy Corp (DUK.N), which also have stakes in the Atlantic Coast pipeline, as well as NextEra Energy Inc (NEE.N) and DTE Energy Co (DTE.N) have also formed joint ventures to build pipelines for natural gas. AGL Resources distributes gas in Georgia, Illinois, Virginia, New Jersey, Florida, Tennessee and Maryland. Southern Co owns utilities in Georgia, Alabama, Florida and Mississippi. The AGL Resources deal will also support Southern Co’s shift away from coal, prompted by U.S. environmental regulations.

http://www.reuters.com/article/2015/08/24/us-agl-resources-m-a-southern-co-idUSKCN0QT17120150824

A court just made it easier for the government to sue companies for getting hacked

Yes, federal regulators can go after firms whose lax security policies result in big hacks and a loss of personal data, a federal appeals court ruled Monday. That the government should be able to punish businesses that don’t protect your private information (despite telling you they do) seems like a no-brainer. But in Washington, there’s been a big debate over just how far the Federal Trade Commission can go in protecting consumers from hackers. Monday’s decision from the Third Circuit Court of Appeals clarifies the FTC’s powers, giving it more ammunition against businesses that fail to invest in their own security. And that could be good news for consumers in light of the growing pace of online attacks against firms such as Ashley Madison, the extramarital dating site that last week got breached and exposed at least 30 million customer records. The court’s decision finds that the FTC acted appropriately when it sued Wyndham Worldwide Corporation, a massive international hotel chain and hospitality conglomerate, after Wyndham was hacked three times in two years, exposing the credit card data of more than 600,000 customers. “While we are disappointed by today’s opinion, we continue to contend the FTC lacks the authority to pursue this type of case against American businesses,” Wyndham said in a statement. “Safeguarding personal information remains a top priority for our company.” The FTC alleged that, despite telling customers the contrary, Wyndham did virtually nothing to secure its systems. It did not use encryption, firewalls or other basic security measures such as requiring employees to use strong passwords. Wyndham’s actions were “unfair” and “deceptive” toward consumers who were led to believe they were getting an adequate level of security, according to the FTC. Wyndham responded by arguing that the FTC had stepped beyond its congressionally given authority in trying to prosecute the company after a data breach. But the court disagreed. “A company does not act equitably when it publishes a privacy policy to attract customers who are concerned about data privacy, fails to make good on that promise by investing inadequate resources in cybersecurity, exposes its unsuspecting customers to substantial financial injury, and retains the profits of their business,” the court wrote in its ruling.

https://www.washingtonpost.com/news/the-switch/wp/2015/08/24/a-court-just-made-it-easier-for-the-government-to-sue-companies-for-getting-hacked/?hpid=z13

State/Local

More of the Same Reform?

MONTGOMERY— During the 2015 Legislative Session, the State Legislature created the Joint Committee on Alabama Public Pensions with the expressed purpose of reforming the State Pension plan.  Republicans have repeatedly expressed a desire to overhaul the Retirement Systems of Alabama (RSA), in an effort to control cost. Ideas like reform, transparency, efficiency, and ending corruption in Montgomery, have been among the most often intoned catch-phases of the Republican supermajority. This has led to unfunded prison reform, costly education reform, and creating an enormous policing bureaucracy in ALEA. It has also led to the Speaker of the House being indicted on 23 felony counts of public corruption, and the State’s Legislative website being resigned in such a manner, that it seldom works. The latest iteration of reform, known as the Joint Committee on Alabama Public Pensions, which just completed its second formal meeting, is comprised of 16 legislators tasked with meeting once a month until next legislative session. Then, submitting a list of suggestions on how to best reform the system.Among the reforms volleyed about during the second gathering was lowering the interest rate assumption, and making it easier for millennials, the generation which came into adulthood around 2000, to fully vest into the RSA. These ideas would not lower the cost of operating the RSA, but would vastly increase it liability, according to Dr. David Bronner, the system’s long-time Chief Executive. “At the beginning of the discussion where the legislators were talking amongst themselves about what is wrong with the Retirement System… the suggestion was made to lower interest rate assumption,” said Bronner. “They read in the newspaper that a few states were lowering their interest rate assumption. Alabama has an 8 percent assumption which is normal…They saw California is going to 7 1/2 percent. So, they start talking about lowering the rate. What they don’t understand is that if you lower our rate, (and remember, we were at 11 percent, the last 5 years)…the costs go up, not the reverse,” said Bronner. During the session, group members discussed how the current plan was unfair to millennials.  Under the current structure there is a 10 year vesting period, “So we should knock that down, so the millennials see something that they want?” said Bronner.  “Of course, if you go lower to 5 year vesting, or 1 year, or immediate vesting, what happens to your cost? It costs more,” he said. Bronner is quick to point out that historically, these so-called reform efforts have led to more folly than financial stability. Bronner recalls a time when the legislature was tasked with reforming the system during the Gov. Fob James administration, only to find that it needed to do more for retirees, not less. “By the time we finished combing the dog so many times, the only thing that jumped out was, as a State, we were so far behind in providing death benefits, that we had to raise them,” said Bronner. Another issue raised at the committee meeting was a concern over the System’s funding ratio, which Bronner says is typically around 70 percent. Committee co-chair, State Sen. Arthur Orr (R-Decatur) said he would like to see it at 90 or 100 percent. “I’ve always said 80 percent funding is plenty. When you get close to 100 then you have people crying for more benefits,” said Bronner. Bronner says, it is feasible to achieve 100 percent funding “but the legislature has to stop giving unfunded cost of living increases.” Orr, has admitted that legislatively imposed, unfunded cost of living increases have caused some of the problems, but says it is only a small percent. Brenner, takes exception to that characterization. “That’s the main thing that got us in trouble…that just shows the naiveté of the politicians.” Bronner points out that the system was 103 percent funded in 2000. He noted, that with a private company, 100 percent funding can work because they can out-of-business and declare bankruptcy…The State cannot go out of business or file bankruptcy.”  Bronner also said, “The only way you get unfunded recurring liability is when you give a benefit to people and you didn’t fund it, and that’s usually called the Cost of Living.”

http://alreporter.com/archives/2015/146-state/8154-more-of-the-same-reform.html

Uber officials to address Birmingham city council this week

Uber officials will speak with Birmingham City Council members this week about the potential for ridesharing companies to operate in the city. A council committee will discuss the city’s transportation code during a meeting 4 p.m. Wednesday at City Hall. Council President Johnathan Austin said Uber representatives will give their take on the city’s existing ordinances. He said that, while city officials have expressed a willingness to see other transportation options for Birmingham, the proper ordinances must be in place. “We have to have the rules and regulations in place to ensure that not only are our citizens being transported safely, but that they are also operating within the confines of our laws,” Austin said. Austin said that, after Wednesday’s presentation, he hopes the council can adequately address the issue of ridesharing in Birmingham within a month. “Last week, we had very productive conversations with City Council President Austin and City Councilor [Marcus] Lundy where we shared our concerns with the existing ordinance and how ridesharing has a new and different business model,” an Uber spokesperson said via email. “We look forward to attending Wednesday’s Committee of the Whole meeting, and to hopefully bringing safe rides and job opportunities to Birmingham in the future.” Councilwoman Kim Rafferty, who heads the council’s Transportation Committee, said the presentation likely will be followed by deferral to the law department and the transportation committee. “My understanding is that Uber will be coming before the city council to give a five-minute presentation about the integrity of their business and why they want to do business in Birmingham,” she said. “This issue is in the transportation committee’s due process. We have been working with the law department and waiting for Uber to come back and work with us.” The city has to modify the existing code to allow transportation network companies (TNCs) to operate here, and officials have been working for more than a year trying to understand how the industry operates, she said. Those regulations govern not only ridesharing companies but also limousines, non-emergency medical vehicles, buses and any transportation options that operate on demand or pre-arranged in Birmingham.

http://www.al.com/news/birmingham/index.ssf/2015/08/uber_officials_to_address_birm.html

Alabama child care centers: Just because they’re open doesn’t mean they’ve been inspected

Restaurants are required to undergo regular inspections by the state to make sure they meet certain health and safety requirements. So are hair salons. So are tattoo parlors. But child care in Alabama operates on a dual system. There are child care centers that are licensed and inspected, that have to maintain certain standards like staff background checks, teacher-child ratios and basic fire safety. And then there are centers that, well, don’t. Alabama is one of only seven states that allow child care centers to operate with no inspections at all. It’s one of 14 states that allow child care center license exemptions. In Alabama, if your day care center or preschool program is part of a church ministry, you don’t have to be licensed (and therefore regulated) by Alabama DHR in order to operate. (Code of Alabama, Section 38-7-3) Centers that are licensed by DHR have to meet a set of minimum standards and are inspected by DHR and the Alabama Department of Public Health. Standards cover things as basic as having a working telephone at the center, having a fenced outdoor play area, posted emergency procedures and having a clean environment.  (See all requirements here.) Exempt centers are still supposed to maintain certain basic standards, but there’s not a government entity with the legal authority to make sure they’ve done so. It’s a relatively uncomplicated process to become an exempt center. “The standards are very low as far as somebody wanting to become exempt,” said Barry Spear, public information manager for the Alabama Department of Human Resources (DHR). Basically, DHR just needs to receive a notice of intent on church letterhead that notifies DHR that the child care center will be operating, and that they’ve alerted fire and health departments so their facilities can be inspected to make sure they’re up to code. Exempt centers are also supposed to send an annual notice to DHR saying these records are being maintained: fire and health inspection reports, immunization verifications for all children, and medical history forms for staff and children. “But we don’t have any legal authority to confirm you’ve done those things,” said Spear.

http://www.al.com/news/index.ssf/2015/08/alabama_child_care_centers_jus.html

 

Alabama among most vulnerable states if China’s economy slumps

If China’s economy slumps, Alabama is among the U.S. states with the most to lose. That’s because the most direct effect of a Chinese economic slump would most directly affect exports – and 1.98 percent of Alabama’s GDP is exports to China, the fifth-most in the nation, according to a report from Moody’s Analytics. Of U.S. exports to China, 42.4 percent of them are machinery and transport equipment – a category that includes car manufacturing. That’s more than any other commodity. After China’s main index sank 8.5 percent amid fears over the health of the world’s second-largest economy, the U.S. stock market freaked out Monday. Underlying the gloom in China is the growing conviction that policymakers and regulators may lack the means to staunch the losses in that nation. The country is facing a slowdown in economic growth, the banking system is short of cash and investors are pulling money out of the country, experts note. Alabama exports to China totaled about $3 billion in 2014, according to a report by the The U.S.-China Business Council. That makes it the 12th largest exporter to China by dollar amount. It’s hopped two spots since 2011. Since 2005, Alabama’s exports to China by dollar amount have grown 579 percent, according to the Council’s report. China is Alabama’s second-largest export market, after Canada. Transportation equipment makes up almost two-thirds of those exports.

http://www.al.com/business/index.ssf/2015/08/alabama_among_most_vulnerable.html#incart_river

 

Jeb Bush receives endorsement of former Alabama Gov. Bob Riley for GOP nomination

Former Alabama Gov. Bob Riley this afternoon endorsed Jeb Bush for the Republican Party nomination for president. The Bush campaign announced Riley’s endorsement of the former Florida governor and the son and brother of two former presidents in a press release. The statement contained this short three-sentence statement by Riley explaining his decision to endorse Bush. “After having served with Jeb, I can tell you that no one is better prepared to lead this nation during these challenging times than he is,” said Riley. “Jeb Bush has a solid conservative record governing one of the most populated and diverse states in America, cutting taxes, reforming education, reducing excessive spending and creating over one million jobs during his two terms in office. More importantly, Jeb Bush has the character, intellect and rock solid conviction that this country desperately needs, now more than ever.”

http://www.al.com/news/index.ssf/2015/08/jeb_bush_receives_endorsement.html#incart_river

Letter reveals names of some Lee County grand jury witnesses

A letter filed in court by prosecutors in House Speaker Mike Hubbard’s ethics case lists some of the witnesses who testified before the Lee County special grand jury that indicted Hubbard. Lee County Circuit Judge Jacob Walker ordered today that any reference to grand jury testimony or mention of witness names must be filed under seal. The letter with the witness names was attached to a motion filed by prosecutors on Aug. 6. The list of grand jury witnesses includes Hubbard himself. Others grand jury witnesses include former Gov. Bob Riley, who is now a lobbyist, Riley’s daughter and lobbyist Minda Riley Campbell, former state Rep. Greg Wren and Great Southern Wood President Jimmy Rane. The list also includes Business Council of Alabama President Billy Canary, Harbert Management Corporation Executive Vice President Will Brooke, Hoar Construction President Robert Burton and businessman Robert Abrams. Riley, Campbell, Rane, Canary, Brooke, Burton and Abrams are named in Hubbard’s indictment as people Hubbard sought or received help or investments from for his businesses. Wren pleaded guilty to a misdemeanor ethics charge in connection with the Lee County investigation. Hubbard has pleaded not guilty to 23 felony ethics charges handed down by the grand jury in October. Last week, Walker granted Hubbard’s request to postpone the trial from October to March. Walker issued the ruling that grand jury references and witness names be filed under seal after a Friday conference call with lawyers on both sides of the case, his one-page order said.

http://www.al.com/news/index.ssf/2015/08/letter_reveals_names_of_some_l.html#incart_river

 

Blogs/Opinions

The ‘SEC primary’ won’t force a more conservative GOP nominee 

On March 1, 2016, a number of conservative states such Alabama, Arkansas, Georgia, Tennessee, Texas, and Oklahoma will cast their votes for presidential nominees. Will this so-called “SEC primary” force the GOP to nominate a more conservative candidate? No. First, the good news. The Republican National Committee doesn’t award nominee-selecting delegates to the states based solely on population. Party rules provide bonus delegates for Republican-held legislative bodies, securing the governor’s office, and even for the state voting Republican in the last presidential election. Obviously Texas is a critical state for any prospective GOP nominee, but the rest of the aforementioned states have disproportionately large numbers of delegates for their populations. For example, Alabama ranks 23rd in terms of population, but the state has the 16th most GOP delegates with 50. Now the bad news. Alabama and the other “SEC primary” states fall victim to a rule called the “proportionality window,” most recently updated by the GOP in 2014. While it doesn’t sound particularly intimidating, it’s a backbreaker for conservative candidates who might otherwise find the “SEC primary” to be a launch pad. Buried in the RNC’s rules, all state primaries or caucuses held between March 1 and March 14 must allocate their statewide delegates proportionally. After that point states are allowed to hold winner-take-all primaries without a corresponding delegate penalty. For example, Ohio Governor John Kasich signed legislation this year to make his home state a winner-take-all Republican primary in 2016. With an Ohio win, Kasich would pick up 66 nominating delegates. Or look at Florida with 99 winner-take-all nominating votes. There’s ample reason for both Bush and Rubio to spend lots of time at home over the next few months. The potential upside to the “SEC primary” is that is can give more conservative candidates a little longer to make their case to the nation. A strong showing in deep red states could provide a platform if a single candidate is able to dominate.

http://www.al.com/opinion/index.ssf/2015/08/the_sec_primary_wont_force_a_m.html#incart_river

 

Morning Money

BY THE NUMBERS — Monday’s 530.94 drop in the Dow clocked in at number 8 on the all-time points list, according to S&P Dow Jones Indices. But it’s not even on the list as a percentage decline at 3.12 percent. In recent history the biggest percentage point drops were 7.87 percent on Oct. 15, 2008 (733.08 points) and 8.04 percent (156.83 points) on Oct. 26, 1987.

So before you start talking about how this is “like 2008” remember that it isn’t. At all. It’s an equity price decline following a big run-up in valuations. There is no huge underlying debt bubble ready to pop with horrific consequences. The U.S. economy still looks pretty decent though a rising dollar, an ill-timed Fed rate hike and hits to consumer confidence from scary stock market headlines could still tilt things the wrong way.

SELL-OFF TAKES A BREAK — Reuters/Tokyo: “Volatile global markets showed tentative signs of a respite from the recent blood-letting on Tuesday as bargain hunters helped Asian stocks off three-year lows, though share markets in China, epicenter of the rout, suffered another big sell-off.

“The MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1 percent after an initial dip to three-year lows, paring about a quarter of Monday’s losses. … U.S. stock futures gained 2.0 percent, aiding performance in some markets as signaling that New York markets which plunged on Monday will open stronger later in the day.” http://reut.rs/1EfvlWH

BUT NOT IN CHINA — Bloomberg/Beijing: “Chinese shares plummeted to extend the steepest four-day rout since 1996 on concern the government is abandoning market support measures. The Shanghai Composite Index tumbled 7.6 percent to 2,964.97 at the close, sinking below the 3,000 level for the first time in eight months. The gauge has dropped 22 percent in four days since Aug. 19. More than 700 stocks fell by the 10 percent daily limit in Shanghai on Tuesday, including PetroChina Co., the nation’s biggest company by value.

“Speculation around the government’s intentions has escalated since Aug. 14, after China’s securities regulator signaled authorities will pare back the campaign to prop up share prices as volatility falls. The China Securities Regulatory Commission made no attempt to reassure investors after Monday’s plunge, unlike a month ago when officials issued two statements shortly after an 8.5 percent drop.” http://bloom.bg/1JTkG6B

EUROPE BOUNCES BACK — “The Stoxx Europe 600 Index advanced 1.5 percent, clawing back some of the losses from a 5.3 percent retreat on Monday that was the biggest since 2008. BHP Billiton Plc advanced 3.2 percent in London after a 9.2 percent drop on Monday saw it close at it lowest level since 2009. The world’s biggest mining company reported a 52 percent drop in earnings amid weakness in China, its biggest market. … Germany’s DAX Index increased 1.4 percent after the benchmark gauge for Europe’s largest economy entered a bear market Monday.” http://bloom.bg/1hDKMOw

TRUMP JUMPS BUT GETS ITS WRONG — POLITICO’s Ben White: “Donald Trump wasted no time grabbing onto the market chaos, which began last week with huge falls in the Chinese stock market and kept rolling on Monday with steep falls on Wall Street. ‘As I have long stated, we are so tied in with China and Asia that their markets are now taking the U.S. market down. Get smart U.S.A.,’ the real estate billionaire tweeted. ‘Markets are crashing — all caused by poor planning and allowing China and Asia to dictate the agenda. This could get very messy! Vote Trump.’

“It was classic Trump. The facts are that the U.S. economy is not actually highly tied to China. And many market strategists believe the U.S. market was ripe for a significant correction with valuations at historic highs and fears rising over coming interest rate hikes from the Federal Reserve. The Chinese decline was simply a convenient trigger.  … But Trump’s candidacy is not based on logical precision but rather intense emotion. The same is true for [Bernie] Sanders, who also seized on the market moment in a tweet from the populist left

MAY NOT LAST — “[M]arket analysts and economists say there are many reasons to believe the U.S. stock market correction will be short-lived and that underlying strengths will lead to faster growth, higher wages and better consumer sentiment by the end of this year, making the messages of Trump, Sanders and other outsiders less appealing. Figures from the government out on Thursday are expected to show that the U.S. economy — which is still largely based on domestic consumer spending — grew more than 3 percent in the second quarter, a strong bounce back from the terrible winter.

“The slowdown in China also has caused commodity prices, including oil, to plunge. This will likely drive gas prices in the U.S. to less than $2 per gallon, a massive economic stimulus for consumers heading into the fall season when retailers make most of their money. ‘The U.S. economy is gradually improving, inflation is low, energy prices are low and we are still a mostly closed economy oriented toward services,’ said David Kotok, chief investment officer at Cumberland Advisors. ‘Right now, there is an opportunity for some candidates to make bold statements that will have wide appeal but the reaction to China was clearly overdone and the U.S. still has a very positive outlook.’”

STAY COOL — “In other words, the summer of discontent fueling the rise of Trump and Sanders could give way to a stronger fall that could allow a return of the establishment. ‘The smart political candidates would be wise to follow the smart economic experts,” said Alcivar. “And they’ve said the thing to do is just take a deep breath and don’t panic.’ http://politi.co/1haGlKv

SHOULD WE CHILL ABOUT CHINA? — Per Political Alpha: “How much of the current turmoil in global markets is justified? At least some of the China element is not. The latest iteration of China panic is over the government’s decision to not support stocks at the 3500 level. Everyone calling for a greater role for market forces in China should be pleased by this; obviously some people aren’t. For both those calling for reform and those calling for stimulus, the question is, why is the equities drop a case for macro-economic concern?

“As data from the China Beige Book have shown all year, the stock market has *not* been tied to the performance of the real economy. Last quarter, CBB showed clearly its Q2 uptick was not due to stocks. In Q1, the markets saw a huge rally while the economy slowed. Previous boom-bust cycles in Chinese stocks have also showed little or no connection to (apparent) economic performance.”

YELLEN’S NIGHTMARE — POLITICO’s Zachary Warmbrodt and Jon Prior: “Janet Yellen’s job just got a lot harder. The Federal Reserve chair has been suggesting for months that this is the year she and the rest of the team at the central bank will finally begin bringing interest rates up …

“But the wild market swings Monday amid fears of an economic slowdown in China may have shattered the Fed’s carefully laid plans for an increase in the main borrowing rate as soon as September … ‘It would be hard for the Fed to hike in September,’ Allianz chief economic adviser Mohamed El-Erian said. ‘The short-term risks would be too high, especially given the ongoing slowing of the global economy.’” http://politi.co/1haGw8s

DC STAYS RELAXED — Guggenheim Securities’ Jaret Seiberg: “We detect no concern among the bank regulators about what the stock market chaos will mean for the banks. There doesn’t appear to be any worry about the trading desks at the biggest banks or any of their derivative holdings. In short, the view appears to be that the biggest banks can weather this storm without much damage. …

“The chaos means all eyes will be on Federal Reserve Vice Chairman Stanley Fischer when he speaks Saturday at 12:25 pm ET at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference”

GOOD TUESDAY MORNING — How’s that slow August going for everyone?

DRIVING THE DAY — Markets. I mean there’s probably other stuff but really there isn’t.

HOT CLICK: ROBOTIC APARTMENTS — City Home, an architectural system for a 200-square-foot micro-apartment equipped with a robotic wall that transforms from bedroom to dining room or workspace with the wave of a hand. WATCH how MIT’s Kent Larson reimagines cities of the future in POLITICO Magazine’s ‘Morph City,’ the newest original video in the “What Works” series. http://politi.co/1WOZ7aV

CUOMO ENLISTS JOHN MACK — POLITICO’s Jimmy Vielkind in Albany: “The Cuomo administration is engaging John Mack, an informal adviser to the governor, to help persuade General Electric officials to move their headquarters to the Empire State, POLITICO New York has learned. … According to two people familiar with the lobbying efforts, Mack has contacted GE CEO Jeff Immelt several times over the course of the summer. The two have been social friends since Mack’s time as CEO of Morgan Stanley …

“New York is among several states pitching the industrial conglomerate since its executives said in June they were thinking about moving their headquarters from Fairfield, Conn., in response to changes in Connecticut’s tax structure” http://politi.co/1JwzSV7

BEIJING GIVES IN — FT’s Jamil Anderlini in Beijing: “After spending about $200bn buying shares to prop up falling equity prices over the past seven weeks, Beijing capitulated to market forces on Monday by choosing not to intervene as the benchmark Shanghai Composite Index fell 8.5 per cent. … The fall was the worst since February 2007. But unlike on most other days since the government launched an unprecedented effort to reverse plunging equities last month, the “national team” of state-owned stock buyers did not jump in to support the market. … Beijing’s leaders appear to have belatedly decided it is too expensive and ultimately futile to fight gravity in the equity market, especially as the government is now intervening separately on a massive scale to stop its currency from devaluing further. Since the People’s Bank of China devalued its currency and introduced a new “market-oriented” foreign exchange price-setting mechanism on August 11, it has had to spend as much as $200bn of the country’s foreign exchange reserves to prevent the renminbi from falling more than it wants, according to people familiar with the central bank and its market interventions.” http://on.ft.com/1Pw1TMG

MARKET ROUT SPARES NO ONE — WSJ’s Corrie Driebusch: “The Dow Jones Industrial Average began Monday with a drop of 1,089 points, a bigger decline than the “flash crash” five years ago, and closed down 588.40 points, extending a slide that has left the index off 11 percent this year. … Few markets were spared. European and Asian stocks suffered even deeper declines, with the Shanghai Composite Index tumbling 8.5 percent, entering negative territory for 2015, having risen as much as 60 percent at its peak in June. Oil slid below $39 a barrel in New York, and emerging-market currencies like Turkey’s lira and Russia’s ruble fell against the dollar.

“The euro and U.S. Treasurys were notable exceptions, gaining in value as investors sought out safer havens for their money. The severity of the selloff in stocks — shares of J.P. Morgan Chase & Co. were down more than 20 percent at one point early Monday — confounded some observers, because the U.S. economy is showing few of the red flags that preceded major market downturns in the past. The economy continues to expand, corporate earnings outside the energy sector are staying aloft, and credit remains widely available at historically low interest rates even for some junk-rated companies.” http://on.wsj.com/1KglYY1

ROGOFF WARNED US! — NYT’s Andrew Ross Sorkin: “Kenneth Rogoff has long warned of a potential financial crisis in China. … Mr. Rogoff, a professor of economics at Harvard University, accurately predicted the eurozone debt crisis and for years has been telling anyone who would listen that China posed the next big threat to the global economy. He is starting to look right, again. ‘In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could,’ Mr. Rogoff said on Monday from Cambridge, Mass., repeating a favorite line from Rudi Dornbusch, the German economist. …

“Mr. Rogoff, who is a chess grandmaster, has made a career of studying financial crises. After the 2008 financial crisis, Mr. Rogoff co-wrote ‘This Time Is Different,’ a seminal book that examined eight centuries of financial crises. Every financial crisis, he and his co-author, Carmen M. Reinhart, concluded, stems from the same simple problem: too much debt. To understand the wild machinations of the stock market in recent days in the United States and abroad, you need to look no further than China’s astounding debt load and sputtering economy — and its ability to infect the rest of the world.” http://nyti.ms/1JwpJYr

ICYMI: WALL STREETS MOVES TRADES BEYOND DC’S REACH — Reuter’s Charles went long Friday on the CFTC and cross border — “US banks move billions of dollars in trades beyond Washington’s reach.” http://reut.rs/1NGa5vz … Part one in the series “How Wall Street captured Washington’s efforts to rein in banks” is here: http://reut.rs/1WPo6e6

FISCAL CONFIDENCE REMAINS LOW — Per the The Peter G. Peterson Foundation’s August Fiscal Confidence Index going out today: “The Fiscal Confidence Index, modeled after the Consumer Confidence Index, is 44 (100 is neutral), indicating voters’ consistent call for addressing our long-term fiscal challenges and putting the nation on a sustainable fiscal path. With Presidential candidates engaging Americans on the top issues impacting the country, an overwhelming majority of voters (85 percent) are now calling for the President and Congress to spend more time addressing our nation’s long-term fiscal future”

POTUS Events

10:10 am PT || Departs Las Veagas
5:30 pm || Arrives White House

All times Eastern except as noted

Floor Action

Congress is in recess.