The futures were in a bad mood
overnight on Europe news. One of the European banks, that continues to remain
nameless, borrowed overnight at a higher rate than would have been expected.
This set off red flags with traders and smacked of desperation. Professional
traders do not wait and see, or try to rationalize events, they simply sell
first and ask questions later. In this case, the Euro banks sold off in force
setting a bad tone for the upcoming New York session.
As the Claims and Consumer
Price Index (CPI) economic data hit at 8:30 AM, markets only drifted lower.
Inflation was hotter than expected. After the opening bell, the Dow Industrials
collapsed from 11400 to 11100, 300 points, 2.6%, in only three seconds. Ditto
the SPX which lost 30 points, from 1190 to 1160, 2.5%, in seconds. This action
allows losing traders to curse and blame the machines once
again.
The
next barage of data hit at 10 AM. Things only got worse from there. Existing
Home Sales fell for the third time in four months, the housing recovery is on a
milk carton. Philly Fed data accelerated the negativity drastically. The long
string of negative manufacturing news seals the fate of the millions of
unemployed Americans. There was nothing positive to hang your hat on so the
sellers entered in force.
During the morning, the
10-year yield fell under 2%, a print of 1.97% occurring before the yield
recovered to finish the day slightly above 2%. The 30-year rate hit 4.15%
matching levels from the 1950's. Gold soared above 1820 as traders use it as a
safety play, but everyone is aware that the CME may raise gold margin
requirements at any time.
The CPC put/call ratio tagged
a lofty 1.49 indicating a wash out for the indexes and a snap back rally would
be anticipated moving forward. Ditto the NYAD that posted a basement -2700
reading. The TRIN jumped near 4 during the session and settled at 2.18, again
consistent with a washout selling day that begs to see a bounce
back.
After the smoke cleared, the
Dow finished the day down 420 points, or 3.7%. The SPX lost 53 points,
or 4.5%. The Nasdaq fell 131 points, or 5.2%. Congress continues to
enjoy a summer vacation, basking in the sun. President Obama arrives at Martha's
Vineyard to party with the very 'rich' folks he berated on his bus tour earlier
this week. Americans are not stupid, they hear the talk that 'jobs' are the
priority, but instead, they see self-serving politico's living the good life
while providing lip service to the unwashed masses.
2012 Sheltered Technologies Is Very Much Aware Of The Global Economic Crisis. We Will Bring You Up-To-Date Articles On The Continuing Crisis. We Think That Everyone Will Need A Shelter For Safety Leading Up To 2012. Do You? Shelters For Your Family Will Be Your Ultimate Insurance Policy For the Future. 2009 - 2012 Will Be A Wild Ride For Everyone On The Planet. 2012 Sheltered Technologies Will Be Here To Assist You.
* * *
Global Depression – A Directed Phenomenon …
The Daily Bell
December 27, 2011
Is Latin America’s Boom Over? A Pall, Personal and Economic, Falls Over a Regional Summit … A pall was cast over the summit of Mercosur nations in Uruguay this week when Iván Heyn, Argentina’s Undersecretary for Foreign Trade, was found dead, hanged with a belt in his Montevideo hotel room. Heyn, only 34, was a rising star and close friend of the family of Argentine President Cristina Fernández de Kirchner, who was just sworn in Dec. 10 after her landslide re-election victory. Visibly upset, Fernández, who is taking over as chair of the South American trade alliance, could have been speaking in a personal as well as macroeconomic context when she told her fellow heads of state at the end of the summit on Dec. 21, “We have to protect each other.” Uruguayan investigators say they’re trying to determine whether Heyn’s death was a suicide or possibly accidental asphyxiation. – UK Telegraph
Dominant Social Theme: Now South America! What’s going on, fellows? This ain’t fair.
Free-Market Analysis: Oh, boy, who couldn’t see this coming? We’ve written about the BRIC inflationary instability – especially Brazil and India – and now this economic insight has been blessed by that maven of behind-the-times analysis, TIME Magazine.
Yes, TIME Magazine, which only a little while ago, from what we can tell, discovered that China was on the way down, has now figured out that South America is bound to slow down too as its engine, Brazil, sputters and fails. Argentina, of course, has long ceded its economic dominance.
But one needs to ask why should this be? Why should a “boom” yield to a TIME Magazine-analyzed bust? Is it merely the tenor of the times? Is it simply the way the world works? Or is there some other unstated manifestation?
Well … of course there is, in our view. It cannot be stated too many times (since there is an entire, global,mainstream press that will never state it) that the world’s economy is an artificial environment. If it were a “free market” system, it would not be nearly so artificial.
It is an artificial market because the powers-that-be that want to create one-world government need a platform from which to continue their manipulations. It suits their purposes (see other article, this issue) to continue to promote the world’s evident economic decay. Without creating chaos, order (world government) cannot be introduced. First we have a global depression.
A free-market system would be infinitely preferable to this insane, fiat-money global system in which entire continents plunge into recessions and depressions at the same time. But we do not have free markets. It does not suit the elites to allow them to operate.
No, they have moved us in the opposite direction – with honeyed words purveyed by a vast promotional apparatus (including TIME Magazine itself). The world is “interconnected,” we learn over and over. That’s only because the powers-that-be have imposed central banking on virtually every country and coordinate monetary stimulation via theBIS, G20, etc.
What kind of insanity promotes the creation of this kind of centralization, fragility and brittleness? Every regulation that supposedly makes markets “safer” actually further concentrates financial and economic activity and makes economies more prone to booms and busts. It’s like funneling a stampede through the eye of a needle.
Then there are exchanges themselves. Somehow the consolidation continues. It makes no sense, of course, to have just one major exchange trading everything. In reality, fragmentation should be occurring as people use the Internet to set up flexible trading system. But the opposite is happening. The very largest and most destructive trading environments continue to merge – and to ask us to believe it is a natural and “competitive” occurrence.
Meanwhile, central banks continue to do what they do best – print money from nothing in endlessly distortive waves of depreciating currency. First, people feel wealthy and later on – as economic realities sink in – stock markets plunge. Recessions and depressions begin.
That’s where the world is today. It’s no surprise. Everything the ruling classes do (at the behest of the topAnglosphere elites) makes things worse. The centralization that is portrayed as inevitable is an endless feedback loop of ruin.
And still the centralizing tendencies continue! And we are made to believe that the solutions to the problems caused by regulation, global trading and central banking is … more of the same! It makes no sense on any level. Not even at the top. Here’s some more from the TIME Magazine article:
But even before the Undersecretary’s demise, the Mercosur nations were feeling an end-of-the-year malaise – and an urgent need to protect each other’s economies. In short, the continent’s decade-long boom may be ending. According to the U.N.‘s Economic Commission for Latin America and the Caribbean (ECLAC), Latin American growth, which topped 6% last year, will slow to 4.3% this year and 3.7% in 2012.
Brazil’s economy, the region’s largest, actually flat-lined in the third quarter; Argentina’s scorching growth of 9% this year will be halved to 4.8% next year, and capital flight is expected to be robust. Mexico’s growth, meanwhile, will drop from 4% to 3.3%. That’s hardly doomsday news, but it’s one reason the Montevideo summit’s main action was to raise protective import tariffs
A big reason the severe global recession hadn’t caught up with most of Latin America until now is that el boom was fueled mostly by exports of commodities, from soy to iron ore, to insatiable China. But even China’s stratospheric growth is expected to fall in 2012. That, coupled with still drooping demand in the U.S. and Europe, is bad news for Latin America – but not only because the global market for its raw materials will be weaker …
You see, dear reader, it is COINCIDENTAL. It is simply the way systems work. It never seems to occur to the mavens at TIME to ask WHY the systems work the way they do. And who put them in place to begin with?
The article informs us that the reason South America is in a fragile state is because the region slipped “once more into its addiction to raw materials exports.” Well, of course, this only makes sense as the Chinese economy – where the raw materials are going – is similarly juiced by central banking money-from-nothing. The whole system is on “financial crack.” Addiction is the right word, but not for reasons TIME is proposing.
And then there is bromide as an aside in the middle of the article: (See: “A New Iron Lady: Why Dilma Is Brazil’s Best Bet to Revive Its Economy”). Here we go again! What Brazil needs is a “leader,” according to TIME.
As if a “leader” can make a change in this horrible economic system that the Anglosphere elites have foisted on the world. Leaders in the current age are bought-and-paid-for agents of the elites that promote their placements.
The article concludes by telling us that four major Latin American economies on the region’s Pacific rim – Mexico, Chile, Peru and Colombia (with Panama as an observer) – “agreed this month to start a new trade bloc, the Alliance of the Pacific, to put them in closer contact with the Asian ‘tiger’ markets.”
A new trading block … More centralization … It never occurs to the TIME writers and editors that business arrangements should be the province of businesspeople. No, in this modern and efficient age, elected officials create “trading blocks” and horribly complex trade agreements – that do the opposite of what they are supposedly intended to do.
It is just a farce. It really is. You don’t believe this idea of “directed history”? Don’t believe the Anglosphere power eliteuses Money Power to organize and generate what is written in the history books? How about the famous anonymous (2004) statement by an actor in the Bush administration, as quoted in the New York Times: “We create reality. And while you are studying that reality – judiciously, as you will – we’ll act again creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors … and you, all of you, will be left to just study what we do.”
Explain central banking, then. Explain why Afghanistan ended up with a central bank as soon as the Taliban were thrown out. Where NATO goes, central banking follows. At the beginning of the 20th century there were very few central banks and almost none of the fiat variety. Now the entire world is connected by this accursed fiat blight. The good, gray men of central banking are supposed to be the new priesthood, the new and divine technocracy.
In our humble view, it is simply no coincidence that the world’s major commercial regions are all foundering and failing as the new decade turns the corner. Every part of this global, artificial economy rises and falls together, like one horrible heart.
Sure, the Americas are beginning to deflate now. Sure, the bubble is bursting in South America. Just as it has burst in the US and Europe. Just as it has burst in China (and soon enough, Asia). If there were no central banks to organize and promote this chaos, we would be less suspicious of what is going on. TIME, of course, is not suspicious at all.
Conclusion: No, the writers and editors of TIME seem to be convinced that the ongoing, continual descent into world depression is merely part of some larger natural force beyond control. It simply is not. And those who perceive the essentially artificial and malicious nature of what is taking place are in our view in a better position to defend themselves and their families than those who close their eyes.
‘Greece & EU: Either saved or collapsed together’
Protestors chant slogans as
riot Police stand guard at the data center of the state-controlled
Public Power Company
Greek MP Simos Kedikoglou predicts his country's economic collapse within weeks, even days, if it doesn’t receive another tranche that finance ministers of eurozone countries have agreed to release.
But the fall of Athens will have a domino effect – tugging away the rest of Europe.
The
Greek politician has sharply criticized the recent country’s government
and the newly appointed prime minister for bowing entirely the
Brussels’ will and passing laws which are required solely by the
European leaders.
“Greece does not feel to be rightfully
represented by this parliament because they feel they were tricked in
the last elections,” Kedikoglou told RT. “The socialists were
saying ‘we have money, we will give you money’ and they ended up by
taking the money of the people. Greeks need to feel rightfully
represented by their parliament and we need a government that is
supported by the Greek society. And that comes only with elections”.
Simon Kedikoglou acknowledges there is a fear for tomorrow in Athens.
“We don’t know what’s coming next,” he said. “Now
everyone is realizing that it is not just a Greek problem, it is the
European problem. The whole system that we have made up in the European
Union is not working.”
“We had only monetary union
without economic union, without political union. We need to move to a
faster and bigger integration,” he added.
The MP says the government in Greece used to lie to its people about how the country’s development was progressing.
“It was the way of borrowing money and giving it away. It was done in the wrong way,” he claims. “We
don’t produce as much as we did before and we don’t have the exports
that we could have and we haven’t attracted the investments that we must
attract. So we must change the whole structure of our economy very
quickly and completely.”
“We didn’t speak the truth
to the people over the past years. We know the problem is we didn’t do
what had to be done quickly and radically. We tried to do the changes
slowly and without shocking the society. It proved to be too slowly and
too late,” he stated.
“Now we have to speak the
truth that in the last 20 years, Greece has been importing more than
it’s been exporting. We don’t produce. Greece doesn’t produce the wheat,
the meat that Greeks need. It is the first time since World War II
Greece can’t feed its own people. In a country like Greece, where
everything can grow, I think it’s a crime.”
But at the same time Simos Kedikoglou argues austerity cannot save his country.
“If
you raise the taxes in an economy which is in recession then the
results are catastrophic. We need a policy which encourages development.
If we go where we are going, I think the collapse is certain".
“And that’s going to be Greek tragedy. And not just Greek tragedy,” he predicts. “It will have a domino effect and the whole Europe will be affected. You can’t sacrifice Greece just to save eurozone. Eurozone will either be saved all together or collapsed all together.”
Roubini warns of catastrophe for Goldman Sachs
Former White House economist Nouriel Roubini
Last week economic expert Nouriel Roubini reportedly said that the collapse of the eurozone was imminent and the crumbling of the international economy would follow in due time. Now, days later, Roubini is warning of a disaster on Wall Street.
Through a series of Twitter messages posted to the Web on Monday, the manager of the Roubini Global Economics firm told his followers that Goldman Sachs and other major financial institutions could soon experience a fate similar to MF Global Holdings Ltd, the Wall Street powerhouse that filed for bankruptcy last week following a ratings downgrade.
"What happened to MF Global could happen to Jefferies, Barclays, Goldman Sachs & Morgan Stanley.Leverage & maturity mismatch can lead to runs," Roubini tweeted to his audience of over 100,000 followers on November 7.
Added Roubini, shadow banking systems, brokers and dealers with high leverage and maturity mismatch and a lack of LOLR safety nets among banks has allowed the institutions to be as exposed to collapse just as much now as ever before. Following last week’s news for MF Global, Roubini predicts that the other Wall Street banks could go bankrupt as well.
In the past, Roubini successfully predicted both the housing boom and recession that devastated the American economy for years and continues to have an effect on the country’s poor financial standings.
In the case of MF Global, the bank depended far too much on short-term financing in order to back up its long-term asset leverage and maintain capital to support operations. Following a recent revelation that MF Global held onto more than $6 billion worth of European debt, a credit downgrade ensued and investors were quick to halt their support. The company saw its shares drop by 66 percent over the course of four days and, almost literally overnight, the institution went under. Now around 3,000 employees — and billions of dollars in investments from shareholders and creditors — are no more.
As RT reported last week, Roubini is rumored to have told visitors to a private party he held recently that there is a “significant risk of a Eurozone breakup” in the near future. Recently he had offered a 50-50 chance of a collapse.
Mobius: ‘Next financial crisis is imminent’
Economist Mark Mobius says a crisis is coming
Mark Mobius doesn’t have a reason to exaggerate when it comes to money. He’s the man behind a $50 billion operation and has been involved in economics for nearly half a century. That’s all the more reason, actually, that you should listen to him.
According to Mobius, things are going to get a lot worse before they get better. Speaking to Forbes this week, Mobius, chief of the emerging markets department at Templeton Asset Management, said that “there is definitely going to be another financial crisis around the corner.”
The reason? “We haven’t solved any of the things that caused the previous crisis.”
Mobius says that unregulated derivatives growing exponentially are going to bankrupt the globe. It’s what caused the last major recession, and with $600 trillion in derivatives around now without anyone really overseeing them, Mobius says that a crisis is imminent.
As a crisis is
already apparent in the Eurozone, the crumbling economy across the sea
is only a few cracks away from causing a global disaster — and Mobius
says that mismanagement and the lack of oversight regarding the
derivatives is only expediting that fall out.
He’s not the only one either.
Only two weeks ago, noted American economist Nouriel Roubini warned that the probability of a complete breakdown in Europe was almost certain, and a domino effect would collapse the American markets immediately as a response. “If the Eurozone blows up, it all gets worse,” party guests say Roubini lectured from a private event earlier this month. Days later, Roubini warned of a collapse coming towards Goldman Sachs and Morgan Stanley from his Twitter account.
U.S. Postal Service Faces Bankruptcy, Plans Cuts To Slow Delivery Of First Class Mail
WASHINGTON — Facing bankruptcy, the U.S. Postal Service is pushing ahead with unprecedented cuts to first-class mail next spring that will slow delivery and, for the first time in 40 years, eliminate the chance for stamped letters to arrive the next day.
The estimated $3 billion in reductions, to be announced in broader detail on Monday, are part of a wide-ranging effort by the cash-strapped Postal Service to quickly trim costs, seeing no immediate help from Congress.
The changes would provide short-term relief, but ultimately could prove counterproductive, pushing more of America's business onto the Internet. They could slow everything from check payments to Netflix's DVDs-by-mail, add costs to mail-order prescription drugs, and threaten the existence of newspapers and time-sensitive magazines delivered by postal carrier to far-flung suburban and rural communities.
That birthday card mailed first-class to Mom also could arrive a day or two late, if people don't plan ahead.
"It's a potentially major change, but I don't think consumers are focused on it and it won't register until the service goes away," said Jim Corridore, analyst with S&P Capital IQ, who tracks the shipping industry. "Over time, to the extent the customer service experience gets worse, it will only increase the shift away from mail to alternatives. There's almost nothing you can't do online that you can do by mail."
The cuts, now being finalized, would close roughly 250 of the nearly 500 mail processing centers across the country as early as next March. Because the consolidations typically would lengthen the distance mail travels from post office to processing center, the agency also would lower delivery standards for first-class mail that have been in place since 1971.
Currently, first-class mail is supposed to be delivered to homes and businesses within the continental U.S. in one day to three days. That will lengthen to two days to three days, meaning mailers no longer could expect next-day delivery in surrounding communities. Periodicals could take between two days and nine days.
About 42 percent of first-class mail is now delivered the following day. An additional 27 percent arrives in two days, about 31 percent in three days and less than 1 percent in four days to five days. Following the change next spring, about 51 percent of all first-class mail is expected to arrive in two days, with most of the remainder delivered in three days.
The consolidation of mail processing centers is in addition to the planned closing of about 3,700 local post offices. In all, roughly 100,000 postal employees could be cut as a result of the various closures, resulting in savings of up to $6.5 billion a year.
Expressing urgency to reduce costs, Postmaster General Patrick Donahoe said in an interview that the agency has to act while waiting for Congress to grant it authority to reduce delivery to five days a week, raise stamp prices and reduce health care and other labor costs.
The Postal Service, an independent agency of government, does not receive tax money, but is subject to congressional control on large aspects of its operations. The changes in first-class mail delivery can go into place without permission from Congress.
After five years in the red, the post office faces imminent default this month on a $5.5 billion annual payment to the Treasury for retiree health benefits. It is projected to have a record loss of $14.1 billion next year amid steady declines in first-class mail volume. Donahoe has said the agency must make cuts of $20 billion by 2015 to be profitable.
It already has announced a 1-cent increase in first-class mail to 45 cents beginning Jan. 22.
"We have a business model that is failing. You can't continue to run red ink and not make changes," Donahoe said. "We know our business, and we listen to our customers. Customers are looking for affordable and consistent mail service, and they do not want us to take tax money."
Separate bills that have passed House and Senate committees would give the Postal Service more authority and liquidity to stave off immediate bankruptcy. But prospects are somewhat dim for final congressional action on those bills anytime soon, especially if the measures are seen in an election year as promoting layoffs and cuts to neighborhood post offices.
Technically, the Postal Service must await an advisory opinion from the independent Postal Regulatory Commission before it can begin closing local post offices and processing centers. But such opinions are nonbinding, and Donahoe is making clear the agency will proceed with reductions once the opinion is released next March.
"The things I have control over here at the Postal Service, we have to do," he said, describing the cuts as a necessary business decision. "If we do nothing, we will have a death spiral."
The Postal Service initially announced in September it was studying the possibility of closing the processing centers and published a notice in the Federal Register seeking comments. Within 30 days, the plan elicited nearly 4,400 public comments, mostly in opposition.
Among them:
_Small-town mayors and legislators in states including Illinois, Missouri, Ohio and Pennsylvania cited the economic harm if postal offices were to close, eliminating jobs and reducing service. Small-business owners in many other states also were worried.
"It's kind of a lifeline," said William C. Snodgrass, who owns a USave Pharmacy in North Platte, Neb., referring to next-day first-class delivery. His store mails hundreds of prescriptions a week to residents in mostly rural areas of the state that lack local pharmacies. If first-class delivery were lengthened to three days and Saturday mail service also were suspended, a resident might not get a shipment mailed on Wednesday until the following week.
"A lot of people in these communities are 65 or 70 years old, and transportation is an issue for them," said Snodgrass, who hasn't decided whether he will have to switch to a private carrier such as UPS for one-day delivery. That would mean passing along higher shipping costs to customers. "It's impossible for many of my customers to drive 100 miles, especially in the winter, to get the medications they need."
_ESPN The Magazine and Crain Communications, which prints some 27 trade and consumer publications, said delays to first-class delivery could ruin the value of their news. Their magazines are typically printed at week's end with mail arrival timed for weekend sports events or the Monday start of the work week. Newspapers, already struggling in the Internet age, also could suffer.
"No one wants to receive Tuesday's issue, containing news of Monday's events, on Wednesday," said Paul Boyle, a senior vice president of the Newspaper Association of America, which represents nearly 2,000 newspapers in the U.S. and Canada. "Especially in rural areas where there might not be broadband access for Internet news, it will hurt the ability of newspapers to reach customers who pretty much rely on the printed newspaper to stay connected to their communities."
_AT&T, which mails approximately 55 million customer billing statements each month, wants assurances that the Postal Service will widely publicize and educate the public about changes to avoid confusion over delivery that might lead to delinquent payments. The company is also concerned that after extensive cuts the Postal Service might realize it cannot meet a relaxed standard of two-to-three day delivery.
Other companies standing to lose include Netflix, which offers monthly pricing plans for unlimited DVDs by mail, sent one disc or two at a time. Longer delivery times would mean fewer opportunities to receive discs each month, effectively a price increase. Netflix in recent months has been vigorously promoting its video streaming service as an alternative.
"DVD by mail may not last forever, but we want it to last as long as possible," Netflix CEO Reed Hastings said this year.
Maine Sen. Susan Collins, the top Republican on the Senate committee that oversees the post office, believes the agency is taking the wrong approach. She says service cuts will only push more consumers to online bill payment or private carriers such as UPS or FedEx, leading to lower revenue in the future.
"Time and time again in the face of more red ink, the Postal Service puts forward ideas that could well accelerate its death spiral," she said, urging passage of a bill that would refund nearly $7 billion the Postal Service overpaid into a federal retirement fund, encourage a restructuring of health benefits and reduce the agency's annual payments into a retiree health account.
That measure would postpone a move to five-day-a-week mail delivery for at least two years and require additional layers of review before the agency closed postal branches and mail processing centers.
"The solution to the Postal Service's financial crisis is not easy but must involve tackling more significant expenses that do not drive customers," Collins said.
In the event of a shutdown due to bankruptcy, private companies such as FedEx and UPS could handle a small portion of the material the post office moves, but they do not go everywhere. No business has shown interest in delivering letters everywhere in the country for a set rate of 44 cents or 45 cents for a first-class letter.
Ruth Goldway, chair of the Postal Regulatory Commission, said the planned cuts could test the limits of the Postal Service's legal obligation to serve all Americans, regardless of geography, at uniform price and quality. "It will have substantial cost savings, but it really does have the potential to change what the postal service is and its role in providing fast and efficient delivery of mail," she said.
RED ALERT...NOVEMBER 29, 2011 - December 7, 2011
MARKET CRASH ?
Revisiting Dubai And Thanksgiving 2009…
By Red, on November 20th, 2011
Will we get another Dubai like surprise this coming Thanksgiving on Friday November 25th, 2011?
Back in 2009 the Friday after Thanksgiving the stock market was only open for half a day, and that was when the gangsters released the Dubai news which caused a nice sell off on day… but would have caused a crash on any other full day during non-holiday season. Was it planned that way so they could calm investors down over the weekend with news stories touting that the Dubai news wasn’t really that bad? Of course it was! They always release news when it benefits them the most and allows them to control the direction of the stock market.
So what do the gangsters have planned for this coming Thanksgiving Friday in 2011? Looking at the monthly and weekly charts right now and they are totally different then they were in 2009. Back then the market was turning bullish and today the market is turning bearish on the larger timeframe charts. Let’s also look at the next “11″ ritual date… 11-29-11, which I believe will be another stock market crash day. It’s on a Tuesday the week after Thanksgiving, and could be the perfect day for a large sell off from some news released over the Thanksgiving weekend or the Friday after Thanksgiving day… only this time they won’t spin the news positive to calm the market, but instead pour more gasoline on the fire to cause the “planned” crash.
Remember, the gangsters love to surprise (and trap) the traders when they least expect it.
This coming week should have light volume in it and they can easily drop the market a few hundred points (on the Dow) each day without causing too much panic. The bulls will likely buy the dips and slowly be forced to sell out at a lost when the expected bounces don’t materialize. This is exactly how they did it with the August sell off… slowly to gather steam to not to panic the bulls or to let the bears on board. That’s what I’m expecting this week to happen, followed by a crash the following week into early December.
This is perfect when you think about it, as the news media won’t pay too much attention to it as they will all be focused on Thanksgiving and then Christmas. They will be talking about the biggest sale day of the year “Black Friday” when retailer make the most of their profits for the year. All attention toward the market will be diverted, as even most traders will take the week off or most it, causing light volume to happen. This is normally bullish, but it can also be bearish… which I think it will this week. The light volume only means that it’s easier for the gangsters to control the market, but if they want it to go down this time instead of up that’s exactly what they will do.
That is one of over 3 hours of video’s Lindsey did and is for sale on his Prophecy website in its’ entirety or free here on youtube. I listened to all 3 hours last week and most of it is material he has already covered on various radio interviews. But this last part in the video above was very interesting and worth listening to. Someone uploaded the whole series but it’s broken down in 15 minute parts. The part listed above is part 5 of 5 of DVD 3, or basically the last 15 minutes of the entire 3+ hours set. If you want to watch the entire 3 video’s on one link I found it uploaded here (http://www.youtube.com/watch?v=ZA4Pu7af58c).
As for the “Crash of the Stock Market” that Lindsey speaks of happening in 2012, I’d say that he would consider the August sell off a “Crash”… but I do! That means what is coming in 2012 will dwarf that August 2011 crash in size and magnitude, shocking everyone but a few smart traders I’d say. It’s all in the charts of course, at least the big moves are. The smaller term moves are manipulated a lot more I believe and that’s why it’s tougher to catch a trend move down (or up). But, without the ability to have access to “fraudulent free money” by entering in a few keys and passwords into the super computer running the market, the gangsters are running out of options to keep this pig from collapsing.
Remember, Ben Fulford stated that the secret trading platform has been shutdown and that the gangsters don’t have access to create money out of thin air anymore like they did previously. This tells me that they aren’t going to be able to stop this market from crashing as the monthly and weekly charts support and say it should do. I will say that the timing of this loss of control of printing money just lines up perfectly with the larger term charts… something that tells me this was all planned years ago. Maybe I’m wrong on that, and maybe we should have crashed back in 2010, but the gangsters ability to create another “Quantitative Easing” program allowed them more time to hold the market up?
Here’s Ben Fulford’s latest…
Despite seeming bad news on several fronts last week, insiders assure us that plans for a new financial system are going ahead on all fronts. Instead of perpetual war and genocide on behalf of an inbred elite, the people of the planet are choosing to end poverty, stop environmental destruction and push for a new life-centered scientific and technical revolution. Major assistance emerged as a 59-nation group claiming to represent the Red Dragon Society or Maiona, offered its support to the new system. The Red Dragon is headed by Admiral Heemi Hau, Paramount Chief of the NGAPUHI in New Zealand and links 59 countries plus 2700 tribes mostly in the South Pacific Region. They back their words with treaties with the British Empire going back to the 1700’s as well as older treaties going back to 804 CE [CE = "Common Era"].
This is yet another step in the unstoppable global awakening that will forever take control of the planet out of the hands of the gangsters who have been terrifying us for so long.
Here is a part of what the Maiona group proposes:
Our objective is to overcome scarcity and provide for the needs of all the world’s people through the creation of a sustainable, living, vibrant civilization that will eliminate all wars, fears, poverty and hunger.
Resources will be assessed globally that we may cover the needs of the total populations requirement for housing, food, water, health, transport, education and recreation, and will also be co-ordinated in with the needs of other species that make up the web of life on the planet.
Sources of energy will be explored and developed, but not be limited to, wind, ocean tides, currents, temperature differentials, falling water, geothermal, electrostatic, hydrogen, algae, biomass, gravity, bacteria, phase transformation, thermionics, magnification and fusion energy.
Cities can be constructed circular, linear, underground, floating or underwater, but will all be built utilizing better resource and construction techniques. These cities would all have the ability to supply their own nutritional requirements, giving independence and sustainability.
Geometrically elegant arrangements, parks, gardens, reefs all designed to operate with efficient uses of energy and resource that co-exist with their natural surroundings. Design and development must work in with the environment providing clean air, water, food, health, nutrition, entertainment, accessibility, care and education.
That is the sort of thinking that the gangsters who took over the global financial system have proven themselves to be incapable of. They talk instead of never ending “wars on terror,” and “homeland security,” and “threat levels,” while pouring all of the planets free resources either into a massive military-industrial murder machine or a decadent lifestyle for a tiny elite.
These gangsters, for their part, made a big push last week in an effort to make it seem they were still in charge. In Europe they placed cabal flunkies in power in Greece and Italy after threatening the previous democratically elected leaders into resigning. This show of force, however, is still not backed by any show of money. The Rotschild/Rockefeller cabalists remain bankrupt and any attempts at asserting control in Europe will fail. In fact, the Greeks have contacted the White Dragon Society to inform them they will pretend to go along with the cabalists in order to get a new hit of paper money but that when the time comes to pay back, they will, as the Irish did, demand proof the bankers had a legal right to lend that “money,” in the first place.
In Japan as well, there were signs that all was not well. J. Rockefeller, one of the masterminds of the Tsunami, earthquake and nuclear attacks against Japan was spotted making a tour of the disaster zone and promising “assistance.” At the same time, the monster-toad Henry Kissinger was paraded on Japanese TV on November 11th, talking to Japanese Prime Minister Yoshihiko Noda. However, Noda lived up to his name, which means “does not give,” in Spanish and Kissinger and Rockefeller left Japan empty handed.
IMF Director Christine Lagarde also returned empty-handed from her week long begging tour of Russia, China and Japan. No doubt had it explained to her that the 1.1 billion people who did not have enough food to eat were a greater priority than underfunded pensions for prematurely retired Europeans.
While here, Kissinger also tried to hire gangsters to kill this writer but found no takers, according to Japanese underground sources. Now that his fraudulent mirror account trading platforms have been shut down it would seem his funny money is no longer accepted by the underworld here.
In other news, an informant approached this writer last week with new details about the 1995 incident in which the Aum Shinrikyo sect released poison gas in the Tokyo subway system. The informant claims she was kidnapped, drugged, raped and tortured into becoming a MK-ultra type agent for North Korean gangsters. She said the North Koreans were taking orders from Jewish Al-Qaeda type agents. The entire subway incident was engineered to “terrorize the Japanese,” she claims. The informant provided this writer with specific names and contact information for the gangsters involved. According to her and other sources, these same gangsters had foreknowledge of the March 11, 2011 tsunami, earthquake and nuclear attacks on Japan. The White Dragon Society is contacting these gangsters to try to see if they will be willing to testify about 311 and the Aum incident in exchange for immunity.
Needless to say the Japanese security police have also been informed.
However, according to sources among both the yakuza and Japanese military intelligence, senior members of the Japanese police forces have also been working for the cabal and have been bribed and blackmailed in the past so it is unlikely we will see any official police action on 311 just yet. Nonetheless, the Japanese police/military/gangster nexus is now refusing to accept new assignments from the cabalists. Most are sitting on the fence and waiting to see how the battle for control of the global financial system turns out.
On that front, the only thing that is certain is that the old system is mathematically doomed. The criminal cabal in Wall Street, the Vatican, Washington D.C. and the London “City” financial district know their time is up but they remain arrogant, stubborn and dangerous.
Nonetheless, over 107 countries have agreed to the new financial system discussed in Monaco in August. In addition, the 59-nation Red Dragon group is also working with the White Dragon. That means at least 166 nations now support the new system. The global human awakening will not be stopped.
This could mean that “IF” the white dragon society didn’t shutdown the secret trading platforms and block access to the gangsters to print more money, then we would be having “QE3″ right now and rallying to new highs… but we’ll never know the answer to that one will we? We only know that the time for a stock market crash is upon us again and that as long as the gangsters don’t pull another rabbit out of a hat, the charts will work and the market will crash. I think this will be the least expected by most traders as everyone is usually bullish into the light volume Thanksgiving to Christmas period. By the time they get bearish the bottom will likely be in… just like they planned it.
Of course the rally up won’t be to new highs like the one’s driven by numbers put into the super computer “HAL 2000″, or “SkyNet”, but simply from normal oversold conditions, fueled by bargain hunters and the likes. This means that “real” money from traders will be fueling the rally… not another “QE” program of fake money that doesn’t exist. So what does that mean? It means that the charts will likely start working pretty accurately on the longer term scale. This would mean that the rally up following the coming crash will only be a “wave 2″ corrective rally with “wave 3″ down to follow in 2012. I think that’s the “Crash” that Lindsey Williams is speaking of!
Moving on to the technical analysis picture for next week…
The doji on Friday is a bear flag on the shorter time frames, which will likely play out on a Monday morning gap down. However, the short term charts on the SPX and SPY are oversold and will likely turn back up after this early morning selloff. This would also be a 5th wave down in Elliottwave terms and end the first larger wave of this sell off from the breaking down out of the triangle pattern. Since the volume will likely be light the rest of the week, (as traders will be leaving early for Thanksgiving) and an expected wave 2 up should happen anyway, I would then conclude that we should see Tuesday and Wednesday up.
Then Friday after Thanksgiving could be another “Dubai” type event, only this time it could be another company like “MF Global” or even “Italy” or some other country to announce some news to shock the market? I’m not sure if they will announce this news during the market hours or after they are closed over the weekend, but I’d suspect that they’d do it afterhours to trap the bulls and not let the bears in. Why? Think about how they did the news release about Dubai on Friday, November 26th 2009… they released it in the morning if I recall, which was during market hours of course and it allowed them to control the selling because it was a half day with extremely light volume as all the traders were gone early for the holiday weekend.
This time should be different as they want the market to tank the following Monday and Tuesday (again, another 11 day), so they won’t likely announce the news during market hours this Friday. They don’t want traders alerted to the news, as they want them trapped in their positions over the weekend. Then they can gap it down on Monday and crash on Tuesday from news released afterhours this coming Friday.
This all lines up with the start of a wave 3 down inside a larger wave 3, inside another larger wave 3, etc… too many wave 3′s to count!
I’ll go over them in the video but simply put I’m expecting the bear flag to play out Monday morning with a gap down, followed by a rally up on Tuesday, Wednesday, and possibly Friday (could be a flat day?). That should conclude the wave 2 up and allow for the gap down on Monday to start the multiple wave 3′s down, allowing a crash on the ritual day of 11-29-11 Tuesday. Now, “IF” we do finally crash on that date, how many bears will be short? And after it’s over and a rally up for wave 4 starts how many bears think we will either bottom on 12-7-11 (1+2+7=9 and 11 equals 911) or start the 5th wave down… another “Crash” wave! Don’t forget the countdown on Illuminati.org ends on December 7th, 2011… 70 years after the false flag event called “Pearl Harbor”!
Good luck as always gang…
Red
P.S. Notice the 777 in the “Unstoppable Train” movie matches up with the one day crash on the Dow of 777 points (September 29th, 2008… or 9 and [2+9=11]= 911). Also notice that this was the biggest one day point loss since 9-11-2001. The train that is sent to stop the 777 is 1206, or 12-6-11… which could me that something “Unstoppable” happens on December 6th and the stock market crashes on the 7th when the Illuminati.org countdown ends. Remember, 12-7-11 = 911 again (1+2+7=9 and 11 = 911). So, it look’s like this coming 29th of November will be a crash date, and possibly something more on December 7th…
“The Entire System Has Been Utterly Destroyed By The MF Global Collapse
Zero Hedge
November 18, 2011
Presented without comment, merely to confirm that the market as we know it, no longer exists.
BCM Has Ceased Operations (source)
Posted by Ann Barnhardt – November 17, AD 2011 10:27 AM MST
Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,
It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.
The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.
Audit of the Federal Reserve Reveals $16 Trillion in Secret Bailouts
The first ever GAO(Government Accountability Office) audit of the Federal Reserve was carried out in the past few months due to the Ron Paul, Alan Grayson Amendment to the Dodd-Frank bill, which passed last year. Jim DeMint, a Republican Senator, and Bernie Sanders, an independent Senator, led the charge for a Federal Reserve audit in the Senate, but watered down the original language of the house bill(HR1207), so that a complete audit would not be carried out. Ben Bernanke(pictured to the right), Alan Greenspan, and various other bankers vehemently opposed the audit and lied to Congress about the effects an audit would have on markets. Nevertheless, the results of the first audit in the Federal Reserve’s nearly 100 year history were posted on Senator Sander’s webpage earlier this morning.
What was revealed in the audit was startling:
$16,000,000,000,000.00 had been secretly given out to US banks and corporations and foreign banks everywhere from France to Scotland. From the period between December 2007 and June 2010, the Federal Reserve had secretly bailed out many of the world’s banks, corporations, and governments. The Federal Reserve likes to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest. Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious - the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.
To place $16 trillion into perspective, remember that GDP of the United States is only $14.12 trillion. The entire national debt of the United States government spanning its 200+ year history is "only" $14.5 trillion. The budget that is being debated so heavily in Congress and the Senate is "only" $3.5 trillion. Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world.
In late 2008, the TARP Bailout bill was passed and loans of $800 billion were given to failing banks and companies. That was a blatant lie considering the fact that Goldman Sachs alone received 814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion.
"This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else." - Bernie Sanders (I-VT)
When you have conservative Republican stalwarts like Jim DeMint(R-SC) and Ron Paul(R-TX) as well as self identified Democratic socialists like Bernie Sanders all fighting against the Federal Reserve, you know that it is no longer an issue of Right versus Left. When you have every single member of the Republican Party in Congress and progressive Congressmen like Dennis Kucinich sponsoring a bill to audit the Federal Reserve, you realize that the Federal Reserve is an entity onto itself, which has no oversight and no accountability.
Americans should be swelled with anger and outrage at the abysmal state of affairs when an unelected group of bankers can create money out of thin air and give it out to megabanks and supercorporations like Halloween candy. If the Federal Reserve and the bankers who control it believe that they can continue to devalue the savings of Americans and continue to destroy the US economy, they will have to face the realization that their trillion dollar printing presses will eventually plunder the world economy.
The list of institutions that received the most money from the Federal Reserve can be found on page 131 of the GAO Audit and are as follows..
Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places
View the 266-page GAO audit of the Federal Reserve(July 21st, 2011): http://www.scribd.com/doc/60553686/GAO-Fed-Investigation
Source: http://www.gao.gov/products/GAO-11-696
FULL PDF on GAO server: http://www.gao.gov/new.items/d11696.pdf
Senator Sander’s Article: http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3
www.unelected.org
Here is a fairly accurate description of the events which will surround the collapse of the US dollar
Step Aside BBC "Trader": Head Of UniCredit Securities Predicts Imminent End Of The Eurozone And A Global Financial Apocalypse
Either the YesMen have infiltrated Italy's biggest, and most undercapitalied,
bank, or the stress of constant, repeated lying and prevarication has finally
gotten to the very people who know their livelihoods hang by a thread, and the
second the great ponzi is unwound their jobs, careers, and entire way of life
will be gone. Such as the head of UniCredit global securities Attila
Szalay-Berzeviczy, and former Chairman of the Hungarian stock exchange, who
has written an unbelievable oped in the Hungarian portal Index.hu which,
frankly, make Alessio "BBC Trader" Rastani's provocative speech
seem like a bedtime story. Only this time one can't scapegoat
Szalay-Berzeviczy "naivete" on inexperience or the desire to gain public
prominence. If someone knows the truth, it is the guy at the top of UniCredit,
which we expect to promptly trade limit down once we hit print. Among the
stunning allegations (stunning in that an actual banker dares to tell the truth)
are the following: "the euro is “practically dead” and Europe faces a
financial earthquake from a Greek default"... “The euro is
beyond rescue”... “The only remaining question is how many days
the hopeless rearguard action of European governments and the European Central
Bank can keep up Greece’s spirits.”...."A Greek default will trigger an
immediate “magnitude 10” earthquake across
Europe."..."Holders of Greek government bonds will have
to write off their entire investment, the southern European nation will stop paying
salaries and pensions and automated teller machines in the country will empty
“within minutes.” In other words: welcome to the
Apocalypse...
But wait, there's more. From Bloomberg:
The impact of a Greek default may “rapidly” spread across the continent, possibly prompting a run on the “weaker” banks of “weaker” countries, he said.
“The panic escalating this way may sweep across Europe in a self-fulfilling fashion, leading to the breakup of the euro area,” Szalay-Berzeviczy added.
Szalay-Berzeviczy has just arrived in Hungary from a trip abroad and can’t be reached until later today, a UniCredit official, who asked not to be identified because she isn’t authorized to speak to the press, said when Bloomberg called Szalay-Berzeviczy’s Budapest office to seek further comment.
And now, for our European readers (first) and everyone else (next), it is really time to panic.
Full op-ed from Index.hu, google translated from Hungarian. Some of the nuances may be lost, but the message is bolded. If any one our Hungarian-speaking readers have a better translation, please forward it to us asap.
Europe's common currency is virtually dead. The euro's doomed situation. The only open question now is, that European governments and the European Central Bank's desperate rearguard action even number of days to keep the spirit in Greece. For the moment, when Athens is declared bankrupt, a "10 magnitude" earthquake will shake Europe, which will be the overture to a whole new era in the life of the old continent.
Indeed, Greece is not only bankruptcy will mean that the Greek government securities holders did not get back their money invested, but also to the interior of the state will not be able to meet its debts.
From the moment only Greek teachers, doctors, police, army, ministry and local government employees will not receive a salary, just as the seniors did not expect nyugdíjukra good time. The ATM is emptied in minutes. The local banks are stuck holding government securities, an immediate liquidity crisis, devaluation of the Greek banking system in total collapse. Thus the savings of depositors is totally wasted because the Greek government deposit insurance or guarantee was now living. Bankkártyájukról since then, not only at home will not be able to withdraw some money, but the world's only automatájából not. The benzinkutakból run out of fuel, as well as food from the grocery store. Greece is practically a full stop at least a decade of life and dramatic drop in poverty in the country as a whole.
The problem is that in this case, the disaster can not stop at the Greek border, but great speed and momentum tovagy?r?z?dik then the entire euro zone, Europe, and finally shake the world. Channel for the spread of infection, of course, such a scenario would also back the banking system. Indeed, the international banks in Greece suffered hundreds of billions of euros t?kevesztésükön too soon be forced to lock hitelkereteit other banks, which will have to do with a country where - according to investors' expectations - the Greek thunderbolt strike again.
And when the banks no longer trust each other, not to lend to each other, the international financial markets stop. This in turn means that all financial institutions left alone with clients.
Poor countries with weak banks start to panic withdrawals of retail funds. But since the retail and corporate deposits and loans are allocated in the form of inter-bank market, these banks can not borrow bridging purposes, may be an immediate liquidity crisis. This is, to all financial institutions can be put into bankruptcy, which is stable and there is no capital behind strong, creditworthy countries. European countries are now, of course, guarantee the safety of their deposits, but the collapse of the banking system would be in financial straits due to the governments of the countries whose banking systems should extend under his arm. Thus, the escalating self-fulfilling panic söpörhet way through Europe, the euro zone which then leads to disintegration.
Of course, Angela Merkel, Nicolas Sarkozy and Jose Manuel Barroso repeated daily unos-untalan to disintegration of the euro zone there is no question of the euro remains in any case, as an alternative to this would be a huge cost to all Member States. But the currency union dissolution is probably one of the main features will be managed from Brussels, it is not a process but an uninvited guest arriving as a result of financial apocalypse. The euro area break-up, timing, strength of the human factors as well as money and capital market forces and trends will define the politicians was only with us panic watching the developments as three years ago was when Lehman Brothers collapsed.
The now four-year, and is constantly raging crisis in the greedy, selfish human nature too is certainly not the banks, not brokers, not the weather and no natural disasters, but above all, and especially at any price with economic growth, power libertine policy responsible for the global elite. Namely, those legislators, the majority of whom have never been able to see through the international financial developments, therefore, the corresponding pre-crisis legislation will only have been available, when in 2008 the world has collapsed.
However, the banks should be regulated, not criminalized or stigmatized.
The American politicians, at least it has always been understood that the money and capital markets are efficient economic policy allies of the investor for the company are responsible for. In contrast, their counterparts in Europe, unfortunately, still do not understand the nature of markets, most of them think that the financial system, the ancient enemy, because it does not work the way it is dictated by their own political interests.
Was a huge mistake and irresponsibility on the part of the political elite of the international crisis in 2009, the easing of its own negligence and error concealment of public passion in order to make a scapegoat of feltüzelésével from financial institutions. When everyone knows exactly that the taxpayers 'money to government banks are not rescued, but the corporate, retail and municipal depositors' money. This was not a political decision - like, say, airlines or car manufacturers for - but a serious system troubleshooting.
The two reasons people moved their money to the bank: I want to know it is safe and hope the interest on their savings. The bank has to create the security, interests, it must produce. It will only be able to do so, it assigns to the deposits in the form of credit to where money is needed for the operation, growth and job creation. It is sufficient interest to be collected by then to be able to pay interest to depositors.
Banks are so important to the economy, fuel carriers, which in times of crisis in the economies most vulnerable points, which therefore must be protected and safeguarded at all costs. Eventually, this belátva "after the rain the rain jacket," the way Europe was born in the EU capital adequacy directive, the United Kingdom, Vickers Commission's recommendation, the United States, the Dodd-Frank Act, while at the global level, the Basel Committee (Basel Committee on Banking Services) III. package. These are all one and all of the banking capital and liquidity position on increasing. The regulations, restrictions - which is no small effect on the Hungarian banking capital and liquidity position as well - but the price that banks in lending rates to curb forced a diminishing impact on economic growth and increase unemployment.
There is a country ...
However, there is still a country in Europe where the political elite in recent years not learning from the crisis of economic policy impasse will continue its adventures. A place where politicians continue to irresponsibly mantrázzák that banks are the source of every problem and an imaginary part of the economic Patriotic War must convince them, instead of strengthening their capital rohannának the upcoming Euro final before the onset of disaster. And is still seriously they think the country will benefit if long-term processes in the international market against marching.
This, unfortunately, no other country like Hungary, where governments, businesses and a significant proportion of the population indebted up to the neck, near the Swiss franc will spend his days. By now almost everyone's favorite topic of "what the devizahiteleseinkkel start" in the story, which is again due to the political elite of our society began to polarize. Despite the disagreement is not really suffering, and lack of solidarity between runs, but the solution and a further deterioration of the situation. Finally, the Government of a sudden, shocking everyone with lightning speed by dragging points in the debate. For many, the record speed in the parliament adopted legislation relevant music for the ears. I, however, the minority that the government of the country for the wrong, dangerous and immensely unjust solution.
Who is responsible for the credibility of the currency situation that has evolved?
To determine if this is not necessary to set up committees of inquiry. The situation that has evolved over the past decade, the whole Hungarian political elite is responsible for short-sighted and self-serving politizálásával the following four steps as a result of our country to benefit vulnerable position.
1) The spectacular public debt in 2000, started by the then Urban's government overspending as part of a drastic cut in home loan into a generous budget kamattámogatásába. This was the hope that in the 2002 elections will help the start-up in domestic demand growth path to make the country an international crisis in the middle. Eventually won the elections, Socialist Party of Free Democrats coalition that he is "hundred-day program," observed head (which was then in opposition Fidesz is automatically voted on) that some further policy steps complete with an amazing total indebtedness of the country. Both political side hoped that the expansion of domestic demand BOOST artificial, accelerated through the distributing political economy, that will then automatically produces a cover to hide the resulting deficits. However, this hypothesis was wrong, the more so because the supercharged domestic demand stimulated imports only, and this is only exploited by the country's trade balance. The resulting fiscal imbalance is a false illusion of wealth, causing catalyzed by the growing demand for consumer credit.
2) The Hungarian population is not the currency of their own band, not to loans after the country's deteriorating economic condition of the forint faced having to pay the interest rate premium. In the nine years of failed economic policy (unsustainable pension, health and housing subsidy system, beyond the minimum 50 percent increase for public servants carried out under 50 percent wage increase, a 19 thousand forints single pension supplement, the 13th month pension, the introduction of the minimum wage, tax exemptions make the reckless áfaváltoztatások, the state and the private sector, real or imagined, a partnership of PPP investments proliferation, unrealistically expensive highway construction), an abnormally low taxpayer morale, coupled with a growing hole in the state household, and this is the country's indebtedness resulted. A short well-being of our economy and substance of political change in direction instead of the current Hungarian Government to finance its foreign investors, who do all this, of course, the increased risks due to a high interest rate premium they would do next.
3) The current Hungarian government's fault that 21 years after the regime change in the financial and economic fundamentals are still not subject to the compulsory part of secondary school education and the maturity of. The reason people can not just lending a little, but have no idea what's the difference between the interest rate and the APR, there is no sufficient information about themselves on the bank, a financial trader. For this reason, then vulnerable, defenseless, non-savers are active, spend more strength above. What megtakarítanak yet, I want to keep it under his pillow, and averse from the Stock Exchange do not understand the fundamental economic relationships are not. So, of course, are highly susceptible to demagogic politicians banking and capital market, anti-rhetoric, when the situation rather than solutions themselves instead of trying to find those responsible.
4) The adóforintjainkból reserved for government and the financial market supervisory bodies to be surprised at the deepest crisis in his sleep in 2008. They were not able to perform a task, and therefore unprepared for the crisis in Hungary, it was more severe effect. The current government, parliament, central bank supervision and the responsibility to monitor, if necessary, regulate the market trends and anomalies if large or dangerous trends are seen, it is time to take action early - applying for the relevant law must drive everyone back on track. (For example, if a bank responsible wanted to act and therefore does not give franc loan to the customer, the customer response passed from another bank, which serve them.) Therefore, the Socialist-Free Democrats government enormous mistake when unleashed in Hungary in foreign currency lending, instead of restrictive legislation would have created that all banks are equally strong against the standards of the franc would have corroborated related lending. This of course does not dealt with the then opposition in parliament.
The government in the role of Don Quixote
The Hungarian government, the fiscal position to deal with a simple but populist solution. The problem with all of its declared banks began systematically stamping: the crisis in the banking system, taxes were imposed, a moratorium on the enforcement of mortgages, a three-year rate lock maximizing debtors' monthly repayments. These measures, of course, painful lives of all financial institutions, but also understandable and tolerable in view of the crisis. The government's latest idea, a stream of foreign exchange price fixed mortgage repayments, however, is beyond all the existing boundary of sanity.
The banks seem to be borne by the strokes well, because they are the eyes of external sources of unrestricted funds (but not their own money to the banks, the depositors and shareholders should have). But the reality is that domestic banks in these lépéssekkel lose their profit and a significant part of their capital, which puts a dangerous situation in the Hungarian banking system just when the world, the banks' capital and liquidity, strengthening the position of working with governments. The current situation at home, in response to the banks to curb lending further forced the mostly foreign-owned banks are a part of our opt for the departure. Of course, this last step we can say that this is who cares: just because it will improve under the leadership of the Hungarian financial institutions, market-making opportunity.
But the situation is far more complex. Firstly, the total size of Hungarian banks are not enough large to be financed only from domestic sources themselves the entire Hungarian economy. Second, any taxpayer suicide in terms of budget, job-creating companies elüldözni, especially when it leads to the purchase of Hungarian government securities. And last but not least, a shrinking national economy and increasingly risky financial institution operating in a responsible one is not increasing market shares. If it is the country where the bank is also home country, this means increase in the risk of increasingly sidelined in international financial markets and is also much more expensive than the current one, or none at all will not be able to involve funds from abroad.
Therefore, higher interest rates and forint dramatically in need of corporate and household lending in Hungary can be expected that we all have bad news. Especially when considering the lawfulness that each percentage point of economic growth should grow in the order of four percent each year, the bank's loan portfolio. Failing this, the road remains a continuing recession and rising unemployment direction. Same point in the past three years has shown that the unlimited and unregulated credit expansion is what can lead to trouble. But that is a credit to the economy in which the living body of water: an essential and irreplaceable. It is not to mention that the lack of competition in supply and rising bank costs, and declining service quality leads.
Long live the social implications
A favorable exchange rate for foreign currency loans, repayment options and money market of the real economic problems are a very important set of issues it raises: the action is extremely unfair to socially as well.
1) Take yourself, who adósodott not it?
We turn to a bank loan, because we decided against that and not because of this gun to force bank. A man with a credit consumer, who is living beyond its capabilities with real, or better living conditions than that you can afford. But this is not a problem per se, but only in private. Especially if the forint borrowing rather than foreign currency. The foreign debt is nothing more than speculation in the currency weakening. The borrower to receive foreign currency, the forint strengthened or will increase, so the repayments are lower, or even weaken, the depreciation rate will never exceed the forint and Swiss franc relative kamatkülönbözetb?l from profits. The customer decides the bank to credit the HUF will be required over 10 per cent interest or more on selected franc loan 6 percent. One man's debt burden is higher, but there is no exchange rate risk, while the other smaller interest burden, coupled with exchange rate risk. So the possibility of the borrower, risk tolerance in relation to the choice. Responsibility for the judgments of others do not sew the neck, once it did not work for what we expected. However, the government decided that the losses for the banks to take over. This means that if a crisis of financial institutions to the edge of collapse because of their capital szétporladó are, the Hungarian government, the taxpayers will have to set their feet so as not to lose there money to depositors, since they guarantee. That is simplistic: while the forint was strong, the currency authentic nyer?ben were, and when the partially self-constructed position weakened forint due to losses incurred when the government that tries them be required to pay, who did not want a loan, but instead saved a and deposit bankjuknál form affixed. Those who are indebted in HUF, are now beyond their own pain authentic solidarity even in the foreign exchange burden themselves may assume, therefore, double-pay. This is extremely unfair to those who lives without borrowing to the extent possible is held responsible, thinking the more expensive or forint loans was recorded, compared to a profit for many years a relatively foreign credit insurance.
The exchange of authentic reference that no one told them to such an extent, the forint weakened and discredited simply unacceptable. In addition, point in a country with a population over many decades, they were socialized to be the best foreign currency savings, as the forint has already been countless times leértékelve. Not to mention that the man, after long and careful consideration in choosing real estate. It is difficult to imagine that a funding condition can not inquire about the system thoroughly.
2) Support those who took the rose hill francs their apartment?
The saving on foreign exchange authentic parliamentary decision that the existing foreign currency loan will only be able to repay, whose savings are adequate or sufficiently stable income and good relations among the living, that this new fund is now forint-based loans. The decisions of the government due to the weakening forint started to plunge even more difficult situation is really in need credible currency, even though at the expense of others throws lifeline to those who hitelükb?l luxury apartments and holiday homes at Lake Balaton meeting.
3) Trash the sanctity of property rights
The government has just sent a message to voters: the sense of responsibility to the community and handle finances, because if it goes wrong, you will help the paternalistic state. The parliament's decision on Monday, however, has virtually legislated that Hungary should rob banks.
The banks do not stuff themselves with money bags, where they can and can extract any number of free money. They are companies whose owners are its shareholders. Who had invested money in this industry because earnings are expected. The income is derived from those customers who have placed their savings to the bank as security in exchange and interest rate are expected. The bank will need to generate the operation, the cost of the depositors and the interest rate on dividends to shareholders. If this process the government all sorts of sober reflection, without prior consultation and say, you have the savings of depositors and the shareholders' investment risk. This would not only lead to bankcs?dhöz worse, but the extent undermines the confidence towards Hungary to deter those who have money want to invest Hungary economy.
A reliable and well-functioning market economy, democratic country built on two main criteria: the sanctity of private property, and the megkérd?jelezhetetlensége FAKTUM to repaying the debt is still all right. And these two factors can not only political power and does not want megpiszkálni. Because everyone knows that the country where the prime minister during breakfast work out the same day regardless of which operator will be something to take away, which was then a parliamentary lunch already constitution also to the President on the same day before dinner underneath write and publish the investors to avoid the sight of a banana republic.
What is medicine?
The people, companies, municipalities and the state foreign debt of the current level of real macroeconomic risks, which need to be addressed. The pékt?l doctors and bankers to bus drivers is the same for all of us an equal interest in the more tolerable rate of repayment. But it does not matter what method is achieved. The parliament adopted the Law on foreign credit repayments in the short term as to help affluent debtors, but it is extremely unfair and harmful to the greater part of the country. This is a money market and real activity leads to start had to sooner rather than later to 300 forint euro exchange rate over the direction of take. There are some steps that might sound good now, but in fact points to a fast-track court sent the country after the Greeks. While other ideas are not sound popular, but in the medium term, stable and reasonable solution to the problem of genuine currency.
The latter are the authentic economic policy decisions that the government reduce the size of the pension and health and public administration reform will help improve competitiveness. Measures to attract investors and investment, increase tax revenues are put into place to increase - making it finally fall in unemployment - may be less public debt and, last but not least, appreciation can start the forint to finally fall to start a foreign currency mortgage payments.
The International Monetary Fund (IMF) has called on the US and Europe to abandon fiscal austerity and switch to stimulus measures, warning that the global economy faces a "threatening downward spiral", reports The Telegraph. Christine Lagarde, the IMF's managing-director, said the outlook had darkened suddenly over the summer. "There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken," she said. Greece defends progress on reform package Greece’s finance minister has staunchly defended his handling of the country's relations with international lenders, accusing his critics of promoting "a mood of uncertainty and scaremongering", reports the Financial Times. US money market blow for eurozone US money market funds say they cut their exposure to eurozone banks for a second consecutive month in August, reducing the availability of credit as the stress in the region’s banking system increasingly affects stronger countries such as France, reports the Financial Times. European banks face unsecured bond test Europe’s banks are bracing for a fresh test this month: whether they can successfully sell unsecured bonds. The region’s banks have sold less debt in total so far this quarter than in any comparable period going back to 1996 – when their financing needs were a fraction of their current levels, reports the Financial Times. King failed to grasp unfolding financial crisis, says Darling Alistair Darling has launched a stinging attack on Sir Mervyn King, claiming the Bank of England governor did not understand the unfolding financial crisis in 2007, took the wrong policy action and ended up undermining the Bank’s independence by endorsing Conservative banking reforms, reports the Financial Times. Ring-fencing will dent growth, says forecaster The Independent Commission on Banking’s proposed ring-fencing of retail and investment banking will increase business borrowing costs and dent economic growth, a leading economic forecaster predicts today, reports The Independent. Boardroom rewards soar – with little relation to performance Bosses at the helm of Britain's top 100 companies saw their pay packages jump by an average of £1.3m to almost £4.5m last year, the biggest leap in nine years, according to a study commissioned by the High Pay Commission. The average pay deal for a FTSE 100 chief executive soared from £3.09m to £4.45m last year as business leaders were able to enjoy record windfalls from share-based incentive schemes, thanks to a sharp bounce in the stock market, reports the Guardian.Morning papers: IMF warns of 'threatening downward spiral'
The morning headlines brought to you by Investment Adviser: Monday, September 5 2011
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NEW YORK (AP) -- The U.S. stock market joined a sell-off around the world Monday in the first trading since Standard & Poor's downgraded American debt and gave investors another reason to be anxious. The Dow Jones industrial average fell more than 250 points minutes after the opening bell on Wall Street. It recovered some of those losses, then fell again and was down as many as 375 points in mid-morning trading. Stock markets in Asia began the global rout. The main stock index fell almost 4 percent in South Korea and more than 2 percent in Japan. European markets opened later and fell, too, with Germany down 3 percent and France 2.5 percent. It was the first chance for global investors to respond to S&P's announcement late Friday that it was reducing its credit rating for long-term U.S. government debt by one notch, from AAA, the highest rating, to AA+. The move wasn't a total surprise but came when investors were already feeling nervous about a weak U.S. economy, European debt problems and Japan's recovery from its March earthquake. In other early trading on Wall Street, the S&P 500 index fell 41 points, or 3.4 percent, to 1,159. The Nasdaq composite index fell 75 points, or 3.8 percent, to 2,435. The Dow was at 11,101, down 3 percent. Fresh memories of the financial crisis three years ago are also driving investors away from risky investments and into what's considered safer. "Fear of a repeat of 2008 is what's really driving investments," said Gary Schlossberg, senior economist with Wells Capital Management. Gold, which investors traditionally buy when they want a safe investment, rose above $1,700 per ounce for the first time Monday. Its price remains below its 1980 record after adjusting for inflation. Gold began the year at $1,421.40. It has climbed steadily as worries rose about high debt levels in both Europe and the United States. It went above $1,500 per ounce in late May. Prices for U.S. government debt rose -- even after S&P essentially said they were a riskier investment than the debt of some other major world economies -- because Treasurys are still seen as one of the world's few safe havens. Prices rise as demand increases. The yield on the 10-year Treasury note fell much of the morning, to 2.40 percent from 2.57 percent late Friday. A bond's yield drops when its price rises. Where Treasury prices finish the day will be more important than where they are at the start, Bill O'Donnell, head of U.S. Treasury strategy at RBS Securities, wrote in a report. "We will learn more about the future path of Treasury prices at today's close than we will by the open," he said. "I want to see how the market clears and how it synthesizes the cacophony of news of late." Stocks in industries whose profits are most closely tied to the strength of the economy fell the most. Energy stocks in the S&P 500 fell 4.9 percent, and financial stocks fell 4.5 percent, for example. The smallest losses came from stocks in safer industries whose profits tend to be steadier, regardless of the economy. Consumer staples stocks fell just 1.5 percent. Even in a bad economy people will still buy things like toothpaste and bread. Utilities, also considered a necessity for consumers, fell 2 percent. The Vix index, a measure of fear among investors, shot up 23 percent to its highest level since May 2010. The index shows how worried investors are that the S&P 500 will drop over the next 30 days. It does this by measuring prices for stock options that investors can buy to help protect their portfolios. Investors are worried that Spain or Italy could become the next European country to be unable to pay its debt. The European Central Bank said it will buy Italian and Spanish bonds in hopes of helping the countries avert a possible default. Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support financial stability and growth. "We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets," they said. Crude oil, natural gas and other commodities fell on worries that a weaker global economy will mean less demand. Oil fell $2.84 to $84.04 per barrel. Last week, the Dow Jones industrial average fell almost 700 points. That was its biggest point loss since October 2008, during the financial crisis. The Dow has dropped in nine of the last 11 trading days. Worries about the U.S. economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected. The economy grew at a 1.3 percent annual rate from April through June, below economists' expectations. It expanded at just a 0.4 percent rate in the first quarter. The first half of 2011 was the slowest since the end of the recession. Then reports showed that the manufacturing and services industries barely grew in July. Job growth was better than economists expected last month. But the 117,000 jobs created in July were still well below the 215,000 that employers added between February and April, on average. The Federal Reserve will meet on Tuesday, but economists don't expect much to come out of the meeting. The central bank's key interest rate is already at a record of nearly zero, where it has been since 2008. The Fed has also already said that it plans to keep rates low for "an extended period." The central bank finished a $600 billion program in June to buy Treasurys in hopes of supporting the economy. Chairman Ben Bernanke said last month that the Fed would step in to help the economy if it further weakened. But some Fed policymakers oppose more bond purchases, saying it could lead to higher inflation. Fears about a weaker U.S. economy have overshadowed profit growth businesses have reported. Earnings rose 12 percent in the second quarter from a year earlier for the 441 companies in the S&P 500 that have already reported. Revenue growth has also topped 10 percent for the first time in a year. Tyson Foods rose 0.8 percent after it reported stronger profit than analysts expected. The largest U.S. meat company said its net income fell 21 percent because of higher grain costs, but analysts expected a steeper drop.US markets fall sharply after S&P downgrade
Stocks fall on Wall Street as American investors join global sell-off after S&P downgrade
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Symbol Price Change TSN 16.44 +0.13 , On Monday August 8, 2011, 10:44 am
Senate Minority Leader Mitch McConnell, R-Ky., and Senate Majority Leader Harry Reid, D-Nev. The Senate voted on Tuesday to approve a deal to raise the nation's borrowing limit, voting 74-26 for a bill that would cut government spending by trillions and effectively raise the debt ceiling through the end of 2012. The bill will now be sent to President Obama, who is expected to sign it immediately. Nineteen Republican senators and six Democratic senators voted against the bill, as did one Independent senator who caucuses with Democrats. The bill was brokered Sunday night in last-minute negotiations between the White House and congressional leaders. Senate Minority Leader Mitch McConnell, R-Ky., a key player in the negotiations, and Majority Leader Harry Reid,D-Nev., both backed the bill - paving the way for its easy passage in the Senate. The six Democrats who voted against the measure on Tuesday were sens. Kirsten Gillibrand (N.Y.), Tom Harkin (Ia.), Frank Lautenberg (N.J.), Bob Menendez (N.J.), Jeff Merkley (Ore.) and Ben Nelson (Neb.). Sen. Bernie Sanders, I-Vt., also voted against the measure. In remarks following the vote, President Obama reiterated his hope for a "balanced approach" in future negotiations. "This compromise requires that both parties work together on a larger plan to cut the deficit, which is important for the long-term health of our economy," he said. "And since you can't close the deficit with just spending cuts, we will need a balanced approach, where everything is on the table." "Everyone will have to chip in," Mr. Obama added. "That's only fair. That's the principal I will be fighting for during the next phase of this process." The legislation was brought to a vote in the House Monday night after weeks of contentious negotiations and closed-door deal-making that fell apart on multiple occasions. Despite serious reservations among both Republicans and Democrats, the bill passed 269-191 with bipartisan support in the House. CBSNews.com special report: America's debt battle In debate preceding the Senate vote, McConnell noted that while the back and forth may not have been pleasant, "it was a debate that Washington very much needed to have." "The legislation that the Senate is about to vote on is just a first step - but it is a crucial step toward fiscal sanity," he added. Reid noted in remarks on the Senate floor that that the "American people are not impressed with the no new revenue" in the bill, but that, nevertheless, "the product we have here is one of compromise." The plan will cut nearly $1 trillion in government spending over the next 10 years and raise the amount of money the U.S. is legally allowed to borrow by enough to avoid another showdown on the matter before next year's presidential election. It will also create a special congressional committee of a dozen members -- three from each party from the House and the Senate - that would be tasked with coming up with recommendations for $1.5 trillion in further deficit reductions by Thanksgiving. Those reductions could include cuts from defense and social safety net programs, as well as changes to the tax code. If the recommendations are not created or approved by Congress by the end of the year, there will be more than $1 trillion automatic spending cuts unless a balanced budget amendment to the Constitution is sent to the states.Updated: 1:29 p.m. ET
1 August 2011 Last updated at 20:12 ET
US House of Representatives passes debt-limit bill
Gabrielle Giffords (centre)
surprised lawmakers when she appeared in the House to vote The US House of Representatives has passed by 269 votes to 161 a last-ditch deal to avoid a federal debt default.
There were cheers as Congresswoman Gabrielle Giffords made her first appearance on Capitol Hill since she was shot in Tucson in January.
The legislation must now be passed by the US Congress's upper chamber, the Senate, and approved by President Barack Obama to become law.
The bill would raise the debt ceiling by $2.4tn (£1.5tn) - from $14.3tn.
It would also make budget savings of $2.3tn over 10 years.
After months of bitterly partisan deadlock, the House's Republican and Democratic leaders swung behind the bill on Monday, ratifying a deal sealed the night before with a phone call from House Speaker John Boehner to President Obama.
Ms Giffords - who has undergone a number of operations since she was shot in the head seven months ago - caught lawmakers by surprise when she appeared on the floor of the House.
There was a standing ovation and embraces for the Democratic representative, who voted in favour of raising the debt ceiling.
Ms Giffords, who moved through the chamber with minimal assistance from an aide, blew kisses and said: "Thank you, thank you."
Senate Democratic Leader Harry Reid said the Senate would vote on the deal at 12:00 local time (16:00 GMT) on Tuesday. The measure needs 60 votes to pass the 100-seat body.
A deadline expires on Tuesday on the federal government's ability to borrow money to pay its bills.
The package allows the federal government enough funds to keep running past the 2012 presidential election.
Though the bill is expected to pass the Democratic-controlled Senate, some Democrats have rallied against the deal, saying they strongly oppose the prospect of cut to social programmes, benefits and healthcare for the elderly or lower-paid.
Shortly before voting began, Ms Pelosi said she would back the bill, after earlier saying she was undecided.
Mr Boehner told a news conference before the vote: "The legislation will solve this debt crisis and help get the American people back to work."
The proposed deal calls for:
- A debt ceiling increase of up to $2.4tn - enough to last past the 2012 presidential election
- Government spending cuts of $900bn, split between defence and non-defence spending
- Bipartisan congressional "super-committee" to recommend $1.5tn of further spending cuts, spread out over 10 years, reporting by November
- Cuts to key spending areas, including defence, to be enacted automatically if the committee fails to reach a deal
- Committee findings would also be put to a vote in Congress
WASHINGTON (AP) — Decrying a "partisan three-ring circus" in the nation's capital, President Barack Obama criticized a newly minted Republican plan to avert an unprecedented government default Monday night and said congressional leaders must produce a compromise that can reach his desk before the Aug. 2 deadline. "The American people may have voted for divided government, but they didn't vote for a dysfunctional government," the president said in a hastily arranged prime-time speech. He appealed to the public to contact lawmakers and demand "a balanced approach" to reducing federal deficits. Obama stepped to the microphones a few hours after first Republicans, then Democrats drafted rival fallback legislation Monday to avert a potentially devastating government default in little more than a week. Obama said the approach unveiled earlier in the day by House Speaker John Boehner would raise the nation's debt limit only long enough to push off the threat of default for six months. "In other words, it doesn't solve the problem," he said. The president had scarcely completed his remarks when Boehner made an extraordinary rebuttal carried live on the nation's networks. "The president has often said we need a 'balanced' approach, which in Washington means we spend more, you pay more," the Ohio Republican said, speaking from a room just off the House floor. "The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today. That is just not going to happen." Directly challenging the president, Boehner said there "is no stalemate in Congress." He said the Republicans' newest legislation would clear the House, could clear the Senate and then would be sent to Obama for his signature. The back-to-back televised speeches did little to suggest that a compromise was in the offing, and the next steps appeared to be votes in the House and Senate on the rival plans by mid-week. Despite warnings to the contrary, U.S. financial markets have appeared to take the political maneuvering in stride — so far. Wall Street posted losses Monday but with no indication of panic among investors. Without signed legislation by day's end on Aug. 2, the Treasury will be unable to pay all its bills, possibly triggering an unprecedented default that officials warn could badly harm a national economy struggling to recover from the worst recession in decades. Obama wants legislation that will raise the nation's debt limit by at least $2.4 trillion in one vote, enough to avoid a recurrence of the acrimonious current struggle until after the 2012 elections. Republicans want a two-step process that would require a second vote in the midst of a campaign for control of the White House and both houses of Congress. There were concessions from both sides embedded in the competing legislation, but they were largely obscured by the partisan rhetoric of the day. A Senate Republican leader Mitch McConnell of Kentucky urged Obama to shift his position rather than "veto the country into default." And Reid jabbed at tea party-backed Republicans who make up a significant portion of the House GOP rank and file. The Nevada Democrat warned against allowing "these extremists" to dictate the country's course." The measure Boehner and the GOP leadership drafted in the House called for spending cuts and an increase in the debt limit to tide the Treasury over until sometime next year. A second increase in borrowing authority would hinge on approval of additional spending cuts sometime during the election year. Across the Capitol, Reid wrote legislation that drew the president's backing, praise from House Democratic leader Nancy Pelosi — and criticism from Republicans. By design or not, the two sides' harsh remarks obscured concessions that narrowed the differences among the nation's political leaders as they groped for a way to resolve the economic crisis. With their revised plan, House Republicans backed off an earlier insistence on $6 trillion in spending cuts to raise the debt limit. And Obama jettisoned his longstanding call for increased government revenues as part of any deficit reduction plan. Pending the president's televised speech, the White House also declined repeatedly to say whether Obama would veto the revised House measure. White House communications director Dan Pfeiffer called the proposal "not a serious attempt to avert default because it has no chance of passing the Senate." Not all Republicans were happy with their leadership's decision to scale back legislation that had cleared the House last week, only to die in the Senate. Among House conservatives who have provided the political muscle for the Republican drive to cut spending, the revised legislation was a disappointment. "I cannot support the plan," said Rep. Jim Jordan of Ohio, one of the leading advocates of legislation that cleared the House last week and died in the Senate. But two rank-and-file Republicans said their constituents were voicing concerns other than the rising federal debt. Rep. Tom Rooney, R-Fla., said his office is getting calls from constituents saying, "If I don't get my Social Security check, it's your fault." Rep. Tom Reed, a New York freshman, said many of his constituents are telling him to stand firm in his drive to cut spending. "But I will admit there's some anxiety in the district" about Social Security and other programs, he added. As Boehner readied his legislation, Senate Democratic leaders called a news conference to announce their own next steps. The Democrats' measure would cut $2.7 trillion in federal spending and raise the debt limit by $2.4 trillion in one step — enough borrowing authority to meet Obama's bottom-line demand. The cuts include $1.2 trillion from across a range of hundreds of government programs and $1 trillion in savings assumed to derive from the end of the wars in Afghanistan and Iraq. Boehner ridiculed the $1 trillion in war savings as gimmicky, but in fact, they were contained in the budget the House passed earlier in the year. The legislation also assumes creation of a special joint congressional committee to recommend additional savings with a guaranteed vote by Congress by the end of 2011. Yet in the maneuvering it appeared another of the president's long-held conditions appeared to be in danger of rejection. Neither Boehner's measure nor the one Reid was drafting included additional revenue, according to officials in both parties. In addition to a two-step approach to raising the debt limit, the House measure would require lawmakers in both houses to vote later this year on a constitutional amendment requiring a balanced federal budget. An earlier bill, passed in the House last week but then scuttled in the Senate, would have required Congress to approve an amendment and send it to the states for ratification. That same bill would have made $6 trillion in spending cuts in exchange for raising the debt limit. Obama promised to veto that bill even before the House voted on it. Each side offered accounts of secret maneuvering designed to put the other side in a poor light. Democratic officials said Obama called Boehner on Saturday night, one day after the collapse of compromise talks, and offered to reduce his demand for new tax revenue by $400 billion. In return, Obama said that he wanted Republicans to abandon their demand to cancel parts of the year-old health care law if future deficit cuts did not materialize. This official said Boehner rejected the proposal on Sunday. Republicans disputed that account — and offered one of their own. In their version of events, Reid agreed on Sunday night to a two-step approach to raising the debt limit that Obama has rejected. Democrats denied it. None of the officials involved would agree to be quoted by name. ___ Associated Press writers Andrew Taylor, Donna Cassata, Alan Fram, Ben Feller and Jim Kuhnhenn contributed to this story.Obama: Halt '3-ring-circus' of debt-limit debate
By DAVID ESPO - AP Special Corresponden
Deficit cuts sought as debt-limit deadline approaches
WASHINGTON — President Obama and Senate backers of a $3.7 trillion deficit-reduction plan that includes tax increases pressed their case Wednesday, even as time dwindled for raising the government's $14.3 trillion borrowing limit. By Carolyn Kaster, AP The combination of a popular new plan offered by a bipartisan group of senators, the "Gang of Six," and the lack of time to enact it into law by Aug. 2 pointed toward a two-step process: raise the debt limit first, deal with red ink later. The White House even softened its stand on a possible short-term increase in the debt ceiling if additional time is needed to get a deficit-reduction plan of any size through Congress. "We need to meet, talk, consult, narrow down what our options are and figure out in fairly short order which train we're riding into the station," White House press secretary Jay Carney said. Two steps tied together "If they don't come up with a significant and credible long-term deficit reduction program now, the chances of them doing so between now and the next presidential and congressional elections are not very high," said Steven Hess, senior credit officer at Moody's Investors Service. Still, Obama and congressional leaders kept their sights set on raising the debt limit before borrowed money runs out in less than two weeks. Even that will be a multistep process: •The Democratic-led Senate will likely defeat by Saturday a House-passed measure that includes a balanced budget amendment to the Constitution. •The fallback plan is one in which Obama and Democrats would raise the debt limit three times between now and 2013, with Republicans able to vote against it without blocking it. •Still in play are what gets attached to that plan, such as a new congressional panel with unique power to propose deficit reduction measures. The House might attach about $1.5 trillion in specific deficit cuts. And the latest Senate "Gang of Six" plan could be elevated in the process. "I don't want to do anything that would slow down or mess up raising the debt limit," said Sen. Mark Warner, D-Va., a Gang of Six leader. But "the ratings agencies have said that just getting past the debt limit doesn't get us over the problem." With time dwindling, Obama invited congressional leaders to the White House for the first time in nearly a week. He met with Democrats, and then with House Republican leaders, in hopes of salvaging at least some deficit reduction in the first package. Cutting deficits has been at the top of the nation's agenda since December, when a bipartisan commission recommended nearly $4 trillion in cuts over 10 years. House Republicans passed a plan and Obama proposed one in April, but their differences have stalled progress. The government's Aug. 2 date with a possible default offered hope for a deal that would ease the political pain of raising the debt limit, even though that vote is necessary just to pay for spending that was previously promised. But months of negotiations have led to an impasse. Plan aims to break impasse The Gang of Six plan unveiled Tuesday sought to break that impasse. It called for major but unspecified spending cuts, including in Medicare, Medicaid and Social Security, as well as at least $1 trillion in higher taxes by eliminating or reducing tax breaks and lowering tax rates. The plan quickly picked up support from more than 30 senators and budget watchdog groups. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, hailed it as a bold plan that feeds a "pent-up appetite" for deficit reduction among moderates in both parties. Former U.S. comptroller general David Walker praised it while unveiling his own, more detailed plan. Groups on the left and right criticized the plan. The nation's biggest labor unions opposed its cuts in benefit programs. The conservative House Republican Study Committee opposed its tax increases.
Their hope resided in the financial markets and credit ratings agencies that increasingly have tied the two steps together. They want the United States to avoid defaulting on its obligations — the immediate crisis — but they also want action on a credible plan to slash annual $1.5 trillion deficits.The approaching deadline concerned budget watchdog groups and centrist lawmakers pushing for a "grand bargain" to cut spending and raise taxes. Once the debt ceiling is raised, they reasoned, pressure for deficit reduction might subside.
19 July
2011 Last updated at 21:20
ET
Barack Obama hails 'progress' as debt deadline nears
President Obama said there was
no more time for posture US President Barack Obama has cited "some progress" in debt talks, with the US at the "11th hour" before a deadline to raise the nation's debt ceiling.
At the White House, Mr Obama hailed a plan by a group of senators to cut the budget deficit and raise the limit.
Meanwhile, the House passed legislation calling for drastic spending cuts in return for raising the debt ceiling.
The US risks default on its debt if Congress does not raise the borrowing limit before 2 August.
Mr Obama said a proposal had been put forward on Tuesday by a bipartisan "gang of six" senators.
'Talking turkey'The group has been meeting on and off in recent months in an effort to craft a plan to reduce the US government's $1.5tn (£930bn) annual budget deficit.
Mr Obama said the proposal was "consistent" with a plan the White House had been urging, and called on leaders in the House and Senate from both parties to start "talking turkey".
Who owns the $14.3tn debt?
- US government owes itself $4.6tn
- Remaining $9.7tn owed to investors
- They include banks, pension funds, individual investors, and state/local/foreign governments
- China: $1.16tn, Japan: $0.91tn, UK: $0.35tn
- Deficit is annual difference between spending and revenue, $1.29tn in 2010
- Congress has voted to raise the US debt limit 10 times since 2001
Source: US Treasury, May 2011, Congressional Research Service, Congressional Budget Office
"We don't have any more time to engage in symbolic gestures. We don't have any more time to posture," Mr Obama said. "It's time to get down to the business of actually solving this problem."
The plan was reported to include a mix of new revenues and cuts to military and social spending that in total would cut the budget deficit by about $3.7tn over the next 10 years.
Mr Obama said in particular that the plan would broadly share the "sacrifice" across the political spectrum, with both Democrats and Republicans ceding on some of their policy priorities.
House Republican Leader Eric Cantor also said on Tuesday that the plan contained some good ideas but did not do enough.
"The plan fails to significantly address the largest drivers of America's debt, and it is unclear how the goals of tax and entitlement reforms would be enforced," he said in a statement.
'Cut, cap, balance'There have been sticking points on both sides of the political divide in recent months.
What happens if US defaults?
Uncharted territory but two scenarios emerge
Worst case:
- Higher interest rates on mortgages, credit cards and loans
- Government unable to pay wages to staff, including military
- Social security cheques stopped
- Turmoil on international markets
Better case:
- Default could be avoided by paying creditors, at expense of slashing spending
Sources: Associated Press, CBS, ABC
Republicans have been unwilling to consider raising new tax revenues to counter the growing budget deficits, while the Democrats have been opposed to cutting popular healthcare and welfare programmes for pensioners and the poor.
On Tuesday evening, the Republican-controlled House of Representatives passed a so-called "cut, cap and balance" plan - which conservative Tea Party members backed - by a vote of 234-190.
It would impose severe and immediate spending cuts, cap future government spending at a certain percentage of the national economy, and call for an amendment to the US constitution to require Congress to pass a balanced budget.
But analysts say the bill has no chance of passing the Senate, which the Democrats narrowly control.
President Obama has said he would veto the legislation if it were eventually passed.
Republican House Speaker John Boehner said he was working on a second plan to stave off a financial collapse.
"I'm not going to give up hope on cut, cap and balance, but I do think it's responsible for us to look at what Plan B would look like," Mr Boehner said.
Mr Obama also touted a "fail-safe" plan being put together by Republican Senate Minority Leader Mitch McConnell and Democratic Senate Majority Leader Harry Reid, one which would allow the president to raise the debt ceiling with just Democratic votes.
TOKYO | (Reuters) - Bank of Japan Governor Masaaki Shirakawa said on Saturday that the country's economic outlook was very severe and that the central bank would take appropriate action to support the economy. But he offered few clues on whether and when the BOJ would expand its asset-buying scheme, only saying that its next policy step would depend on economic conditions at the time. "The BOJ sees the outlook for Japan's economy as very severe," Shirakawa told a financial committee meeting in the lower house of parliament. "We'd like to take appropriate policy steps as needed while monitoring the economy and prices, taking into account that uncertainty over the outlook is high," he said. Asked by a lawmaker whether the BOJ would consider buying more government bonds to support the economy, Shirakawa said only: "We'd like to consider in earnest what would be the desirable step to take." The BOJ kept monetary policy unchanged on Thursday even as it lowered its growth forecast for the current fiscal year, which began in April, and warned of uncertainties over the extent of damage that last month's devastating earthquake would inflict on the economy. Shirakawa reiterated that having just expanded its asset purchasing scheme days after the March 11 quake, the BOJ preferred to spend more time examining the impact the step would have on the economy. But he also left open the possibility of easing monetary policy further if damage from the quake proved bigger than expected, stressing that the central bank was focussing on downside risks to growth for the time being. In a sign some in the BOJ were more cautious about the economic outlook than Shirakawa, Deputy Governor Kiyohiko Nishimura proposed on Thursday expanding the central bank's asset buying scheme by 5 trillion yen (37 billion pounds). While the proposal was outvoted by the board, some market players said it may be a sign the BOJ may loosen policy as early as next month. Japan is facing its worst crisis since World War Two after the 9.0 magnitude earthquake and subsequent tsunami devastated its northeast coast last month. Reflecting the economic impact, factory output fell at a record monthly pace in March, household spending declined at a record annual rate and another private survey showed manufacturing activity languishing at a two-year low. The BOJ eased policy days after the quake by doubling to 10 trillion yen the funds it sets aside for purchases of a range of financial assets, such as government bonds and corporate debt. If the central bank were to next ease policy, the most likely step would be to expand the scheme again, sources familiar with the BOJ's thinking say. Aside from the government bonds it purchases under the asset buying scheme, the central bank buys 21.6 trillion yen worth of long-term government bonds from the market each year. Some lawmakers have called on the BOJ to buy more government bonds from the market, or even underwrite them directly, to help the government fund the huge costs for reconstruction. (Editing by Hugh Lawson)BOJ Shirakawa warns Japan economic outlook "very severe"
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Mr Bloom said that any switch towards use of SDRs has direct implications for the currency markets. At the moment, 65pc of the world's $6.8 trillion stash of foreign reserves is held in dollars. But the dollar makes up just 42pc of the basket weighting of SDRs. So any SDR purchase under current rules must favour the euro, yen and sterling.
Beijing has the backing of Russia and a clutch of emerging powers in Asia and Latin America. Economists have toyed with such schemes before but the issue has vaulted to the top of the political agenda as creditor states around the world takes fright at the extreme measures now being adopted by the Federal Reserve, especially the decision to buy US government debt directly with printed money.
Mr Bloom said the US is discovering that the sensitivities of creditors cannot be ignored. "China holds almost 30pc of the world's entire reserves. What they say matters," he said.
Mr Geithner's friendly comments about the SDR plan seem intended to soothe Chinese feelings after a spat in January over alleged currency manipulation by Beijing, but he will now have to explain his own categorical assurance to Congress on Tuesday that he would not countenance any moves towards a world currency.
How To Fake An Economic Recovery
By Giordano Bruno
Neithercorp Press – 2/16/2011
This may be a highly distasteful proposition, but just for a moment, I want you to sit back, and imagine that you are a member of the corporate banking elite. You are a walking talking disease ridden power mad pustule who naively believes himself intellectually superior to the vast majority of humanity and above the inherent laws of conscience, honor, and general good taste. You are a villain in the purest sense, in that you not only do great harm to the world, you actually SEEK to do great harm to the world, if only to benefit yourself and your exclusive circle of “friends”; a clan of degenerate blood thirsty sociopaths with delusions of omnipotence that stalk the night like Armani wearing Chupacabra exsanguinating the joy from poor unsuspecting cultures. You are capable of anything, and sadly, you take “pride” in this fact…
You aren’t “rich” in the traditional sense. You aren’t a “Bill Gates” or a “Donald Trump” (I’m beginning to wonder if Donald Trump is even solvent, or if his entire fortune is a special-effect courtesy of NBC). No, you don’t “make” money, you MAKE the money. You are a global financier. You are a central banker. You create the fiat that the rest of the country uses to sustain its fantasy economy. You dominate trade through monopoly and corporate fraud. You control the flow of currency through an economic system using fractional reserve banking, artificially pegged interest rates, and your ever trusty printing press. You put your substantial monetary clout behind BOTH major political parties, and groom presidential candidates to your globalist standards. Any politician who desires to climb the ladder of power turns to you for assistance, not the voting public. You have a tremendous financial stake in every corporate news provider in the country, if not own them outright. You invite their top reporters to posh banquets, give them unlimited access to prominent social figures and high rollers, and fly them to private alcohol addled orgies in the middle of the California Redwoods (I wish this was all made up). Forget responsible journalism, they love hanging out with you, and would probably write whatever you tell them to.
Now that you have placed yourself in the tight fitting shoes of the “enlightened few”, I want you to imagine that you have engineered an implosion in national credit sectors using ultra-low interest rates to fuel mortgage and derivatives bubbles that would contract at an unprecedented pace once it is revealed to the wider investment world that those equities which they prized only days before are now “toxic”, essentially worthless, due to mass debt defaults on loans which never should have been made in the first place. Yeah, you’re a real dirtbag.
Of course, you aren’t finished yet! Your ultimate goal is centralization, and the key to centralization is to remove all options available to the masses but one; the option which garners you the greatest amount of dominance. A global economic system based on a single world currency and a single unaccountable governing body would be ideal. What would you call this world currency? I don’t know, how about something innocuous sounding like….Special Drawing Rights (SDR’s), which you can then label as a mere “basket of currencies” when it is really a parasitic financial instrument meant to absorb currencies until it replaces them completely:
http://money.cnn.com/2011/02/10/markets/dollar/index.htm
http://www.rte.ie/news/2011/0214/g20-business.html
In order to begin instituting this world currency, you would first need to remove the standing world reserve currency from its exalted position, that currency being the U.S. dollar. This seems rather impossible to many mainstream analysts who cannot fathom the possibility of a breakdown in the mighty Greenback, but you have already set the stage. You have created a progressive debt singularity so immense that no amount of fiat, no amount of taxation, no amount of austerity could ever satiate its hunger. You now have the perfect excuse to print the dollar with wild abandon until its withered, corpsified remains are six feet underground, leaving the door wide open for the tap dancing fast-talking SDR to take its place.
The issue is, how do you convince the general public that all is well until you are ready to unleash hyperinflation and fiscal Armageddon? How do you make them believe with all their hearts that they are not in the midst of a debt meltdown and the end of their financial sovereignty, but basking in a full-on economic recovery?!
You can’t stop wealth destruction now that the avalanche has been set in motion. You can’t stop inflation and dollar devaluation (nor would you want to. Hey, you’re evil incarnate, remember?). The effects on mainstreet are beyond your ability to hide, but, what you CAN manipulate, are the statistics and indices that Americans rely on for psychological comfort. You give everyone a blindfold and a cigarette and you do what you do best; lie!
Here is a step by step guide to fabricating an economic recovery out of thin air….
Don’t Count The Unemployed, Discount Them: Jobless people are a real downer and a pesky nuisance because they represent living breathing proof that a recovery is not taking place. By most standards, a recovery in jobs markets can be claimed if meaningful evidence shows a return to unemployment standards (normal unemployment) set before the recession / depression was triggered. If you are a global banker today, however, this will not do. Instead, you simply change the definition of “normal unemployment”. Thus, the debilitating jobless rate which was originally thought of as “bad”, is now thought of as “natural”. You must then publish long-winded white papers using more subjective statistics devoid of common sense while feigning a logical pretense:
http://www.frbsf.org/publications/economics/letter/2011/el2011-05.html
This only satisfies a small portion of the populace, though. Next, you must rig the manner in which unemployment is calculated to always overlook certain subsections of jobless. Never count those people who have been unemployed so long that they no longer receive benefits. Always count people who are underemployed as fully employed, even if they are only able to scrape together ten hours a week through part time McSlavery. After this, change the manner in which raw data on unemployment is actually collected.
First, the Labor Department derives most of its raw data on unemployment not through any traditional mathematical means, but through two separate surveys which are open to wide interpretation; an establishment survey, and a household survey. The establishment survey is what we hear about at the beginning of every month, while the household survey tends to float under the mainstream radar. In 2009 and 2010, the Labor Department deemed the household survey data (a phone driven survey of 60,000 households) “more reliable” for indicating job growth, because it was supposedly accurate in counting small business hiring and self-employment. So, you have two separate surveys (unscientific indicators of employment) combined together to produce a job growth rate number, and an unemployment percentage, both of which represent, at the most, a GUESS on the current state of jobs in this country.
While the establishment survey showed only 36,000 jobs created, the household survey somehow showed around 600,000 new jobs created!?:
http://www.bls.gov/news.release/pdf/empsit.pdf
Basically, the BLS is asking you to believe that over 600,000 people either started their own businesses, or were hired by home based businesses in the month of January alone. I’m curious as to where all the capital inflows are coming from to launch such a revolution in home entrepreneurship in the middle of the greatest credit crisis in history. Oh well, if the Labor Department says it’s true, it must be…
The juxtaposition of odd data collection methods is the reason why the government was able to claim a drop from 9.4% to 9% in the jobless rate while announcing only 36,000 jobs created! The household survey has become an incredibly useful tool for generating arbitrary employment data which can be molded to say whatever government officials and central bankers want it to say. Anyone who controls the source data for a calculation controls the outcome of that calculation. It’s that simple.
What I wouldn’t want, if I was the Labor Department, is for some outside independent citizens group to monitor my survey methods while in progress. That would make life for a statistical huckster very difficult indeed.
As Long As Stocks Are Green, The World Is Golden: Near zero interest rates can be very useful if a central bank wishes to throw a tidal wave of fiat into a particular index in order to make it appear healthy. Certainly, the Fed has avoided admitting to any manipulation of the stock market. QE measures are all “above the board”, and all is well in Bernanke’s Mayberry. A question arises here though that desperately begs to be answered; if the stock market’s meteoric rise from near destruction to the 12,000 point mark is “real”, and completely in tune with a legitimate recovery, then why is the Fed still keeping interest rates at near zero after almost three years, and why are they continuing quantitative easing measures? Could it be that without constant liquidity injections from the Fed, the stock market would once again collapse like a wet paper sack? We know that in 2009, it was revealed that bailout funds which were supposed to go towards muting the effects of toxic bank assets were actually being pumped into the equities of healthy banks instead, meaning,the money has not been allocated to the areas promised:
http://www.associatedcontent.com/article/1436061/more_shocking_news_on_2009_bailout.html
We also know that top hedge fund managers have openly stated that stocks will remain bullish because QE funds are propping up the market:
http://www.marketwatch.com/story/tepper-tells-cnbc-fed-will-prop-up-market-2010-09-24
And, frankly, if you are a global banking cartel intent on keeping the American people in the dark, it makes perfect sense to prop up stocks. A Dow in the green is like a mass dose of fiscal lithium; it calms investors into a stupor. Even people who are otherwise unconcerned about economics will keep track of the Dow as if it is a solid indicator of their personal financial safety. A great test would be to observe market reactions to a Federal Reserve interest rate hike and a freezing of QE in order to counter inflation. Will the Dow stand on its own two feet then? I seriously doubt it, but then again, I don’t know that the Fed will ever raise interest rates again…
Inflation? What Inflation?: Unmitigated inflation spells doom for any society. It’s like some monetary based animal instinct deep down in our collective unconscious. The moment we hear the word “inflation” or see prices rise dramatically, we revert to survival mode and begin honing our mammoth bone battle mallets. Governments and central banks throughout history have made it their top priority to hide the effects of inflation from the citizenry at all costs.
To mask inflation is nearly impossible, especially where commodities and base goods are concerned. That’s why our government and private central bank calculate the Consumer Price Index (CPI) without counting food or energy. Most grains and crude oil have doubled in price over the past year alone, and this does not reflect well on the safety of the dollar, or the effectiveness of liquidity measures by the Fed. China, whose inflation is but a prequel to our own, is also distancing food and energy price surges from its CPI numbers, giving the false impression of leveling markets:
http://www.zerohedge.com/article/china-lowers-weighting-surging-food-prices-cpi
Corporate retail chains have a tendency to absorb rising prices of base goods to avoid alienating their customer foundation, hoping that the increases are temporary. When retailers realize that prices are not going to drop back down, they eventually relent, and shelf costs skyrocket. The bottom line is clear; overall worldwide food averages were up over 28% in 2010:
http://www.fao.org/worldfoodsituation/FoodPricesIndex/en/
Crude oil prices continue to hover near the $90 mark even though inventories are at a 20 year high:
http://www.zerohedge.com/article/gasoline-inventories-jump-20-year-high-gas-price-surges
The World Bank is now warning of possible disasters (which they helped create) in the wake of “dangerous price levels”:
http://www.reuters.com/article/2011/02/15/us-worldbank-food-idUSTRE71E5H720110215
Our government’s response? Complete denial that there is any significant threat of inflation. Denial that overprinting of the dollar and its subsequent devaluation has anything to do with rising prices. Scapegoating everything from weather, to speculators, to the fake “recovery” itself for price spikes. The longer they keep the terminology of inflation out of the mainstream, the less Americans are likely to prepare for an onslaught of the dollar.
Create Debt To Pay Off Debt: This is pretty self explanatory. If foreign investors want nothing to do with you, your explosive national debt, or your depreciating currency, where is your government going to get the money to continue spending like a drunken trophy wife at Macy’s? If you default, the jig is up, and no one will buy your recovery yarns. Instead, print even more fiat and use it to purchase your own Treasury bonds! This serves two purposes; first, it props up the federal bureaucracy which gives the impression of stability (at least for a time), and, it furthers your goal of squeezing the dollar like a grape.
Remove All Checks And Balances: If you plan on decimating an economy, you can’t very well have people pointing fingers at you while you do it. That would be inconvenient. It’s funny, but for years, ratings agencies like Moodys helped global banks facilitate the mortgage and derivatives crisis by categorizing worthless assets as AAA securities. Without them, no one would have invested in such garbage in the first place, and the banking fraud would have been immediately exposed. Now that ratings agencies are finally doing their job and downgrading the creditworthiness of banks and countries that possess extreme liabilities, the SEC is moving to marginalize them:
http://www.reuters.com/article/2011/02/09/us-financial-regulation-creditraters-idUSTRE7180OD20110209
Interesting that as the U.S. nears a possible credit downgrade, we suddenly no longer care what ratings agencies have to say.
The SEC in itself is one enormous joke, and in no way a practical overseer of banking activity. The organization has shown itself to be either fantastically incompetent, or deliberately indifferent to ongoing financial fraud. I never thought I would find myself agreeing with a cretin like Bernie Madoff, but according to the middle-weight Ponzi artist, global banks he dealt with, like JP Morgan and HSBC, had to be perfectly aware of the scam he was undertaking, otherwise, it could not have been possible:
http://www.reuters.com/article/2011/02/16/us-madoff-interview-idUSTRE71F0QD20110216
Likewise, the SEC’s complete lack of proper investigation into such activities turned Wall Street into a globalist playground where much bigger conmen than Madoff have nested and bred like fleas. It’s not that the system needs more regulation, or more legal wrangling; this would accomplish nothing, because the system is regulated by the criminals! Therefore, new laws can be enacted in concert, and the government can deem the system reformed and recovered, all while the underlying corruption remains untouched. If the poison that instigated the fall of the markets is not uprooted, treachery will continue to reign supreme, and healthy markets a childish illusion.
The Creeping Terror
Two years ago I was in my local Borders bookstore and noticed that they had downsized their stock selection by what looked to be nearly a third. I made a point to ask if this was a chain wide phenomenon. Most employees I talked with said yes. I then asked if they had begun cutting employee hours by significant margins and specifically laying off longtime workers that had built up substantial pay increases. Again, the consensus was yes. Finally, and most importantly, did Borders discuss these changes with their staff in a manner that was informative and open, or, was there a lot of confusion amongst employees as to what exactly was going on? The response was that they were overwhelmingly bewildered by Borders’ lack of clear communication as to the direction of the corporation.
My suggestion to them was to start looking for another job, because their company was about to declare bankruptcy. They, of course, denied this was remotely likely:
http://online.wsj.com/article/SB10001424052748704329104576138353865644420.html
It may sound like a stretch, but the reason I bring up Borders’ impending chapter 11 is because, to me, it represents a microcosm of the creeping nature of economic collapse, especially when that collapse is being wielded and delegated.
Borders has been on the verge of default for quite a while. Did they refuse to relay this information openly to their employees because they selfishly wanted to maintain profit margins just a little longer until they were ready to pull the plug? Of course! Do global bankers with aspirations of a centralized currency keep the true destabilization of the market spectrum and the coming international dollar dump to themselves because in the end they will benefit from our shock and awe? Of course!
Whether a person loses everything all at once, or a piece at a time, the end result is the same, however, there is something especially cruel in the idea of fiscal theater; the act of inspiring false hope that a financial environment is sound when it has, in truth, already suffocated. Why would our modern day robber barons put so much energy into constructing a fake recovery? There are many reasons, but first and foremost, to create apathy. To lure us towards inaction. To swindle us into assuming the storm will blow over, and all will return as it was. Unfortunately, recovery without intense restructuring of our economic system is impossible. The fundamentals do not support the suggestion in the slightest. The question is, who will be at the helm when the dust settles and this restructuring does eventually occur? Will the American people take the lead, as they should, and commit to a concrete free market rejuvenation of our financial environment? Or, will we sit back yet again, and let the banksters set us up for the next grand disaster?
You can contact Giordano Bruno at: giordano@neithercorp.us
People psychologically are programmed to believe in financial realities that benefit their own cause even if they have no merit in empirical data. Many also forget that banks, especially the investment kind have a notorious track record of running amok when allowed to. The FDIC and US banking is a perfect example of a system built on nothing more than faith. Currently the FDIC insures individual deposit accounts up to $250,000. Given that most average Americans only have $2,000 saved up this is rarely an issue. However, FDIC insured banks have $5.4 trillion through insured deposits yet have a deposit insurance fund (DIF) that is in the negative to the tune of $8 billion. Is this a Ponzi scheme you ask? Not exactly but it shows that the entire financial edifice that we call US banking is built on largely a foundation of sand being held together by pure psychological confidence. Just look at this chart below; as insured deposits grow the insurance fund actually dwindles: Source: FDIC How is this even possible you may ask? Well at a very basic level we have fractional reserve banking. In the US banks have a 12 to 1 leverage ratio. This number is derived by assets divided by net worth. Yet banks have the benefit of calling over priced Only two of the five now stand (Goldman Sachs and Morgan Stanley) as standalone investment banks. Merrill Lynch is now part of Bank of America while Bear Stearns and Lehman Brothers are both gone. Yet we are not better off because what has occurred is the too big to fail have become even bigger. Take for example the number of FDIC banks: In 1992 over 12,000 banks and savings institutions were backed by the FDIC. Today that number is slightly above 7,700 yet total assets are even larger on a percentage basis. More and more banks fail but where tiny regional banks go down another too big to fail bank takes over and sets up shop. You’ve probably seen this in your own neighborhood. These are the same banks that created most of the toxic debt that infected the financial system to begin with. Now we are allowing them to setup shop all around the country. The FDIC is backing over $5 trillion in deposits purely on faith. Let us assume there is a bank run. Who will be there to bailout the FDIC? The US Treasury and Federal Reserve but since the nation is in the hole to the tune of $14 trillion in national debt this would only dilute the currency even further. In the end you would get paid back but with deflated dollars. This is why inflation is never really a solid option out of economic malaise. Otherwise we should just print and send $1 million to each American household. Debt problems continue to plague the economy: Source: Federal Reserve This is stunning data. Nearly 14 percent of all credit card accounts are 90 days or more delinquent. Given that there is $850 billion in this market alone, this is cause for concern. The next biggest delinquent category by percent of all loans isn’t mortgages but student loan debt. We’ve discussed the higher education bubble and here you are seeing the end results. Ultimately what the above shows is a country that fueled its last decade largely on massive amounts of debt. That debt is now due and many people are unable to pay. Keep in mind what this signifies. We aren’t talking about paying off the entire balance. You have people unable to make the $200 payment on their $7,000 credit card debt. Or you have people unable to pay the $1,500 mortgage on their $175,000 home. This debt is actually an asset to the banking system. Does the above chart make you feel confident that the value of banking assets is increasing overall? Look at the total debt outstanding: Source: Federal Reserve Currently US households have $11.4 trillion in debt outstanding. This is off from the $12.5 trillion peak in Q3 of 2008. The big difference is also the amount of equity Americans have in their home. That $11.4 trillion in debt seems more painful when overall US housing has fallen by over 30 percent and has chopped into the biggest asset of average Americans. Home prices are down by 30 percent while overall debt levels are down by 8.8 percent. That is simply unsustainable and that is why banks keep failing on a weekly basis. But the banks that have the most fantasy in their balance sheets, the too big to fail continue to eat away at taxpayer money through the hidden cost of quantitative easing and the destruction of the US dollar. These aren’t speculative notions but just look at where your financial life is today versus where it was over a decade ago. As people struggle with extremely high unemployment many are jumping into the higher education bubble and getting into massive debt: Many of these graduates will have no savings with FDIC insured banks but will owe the government and banks money they don’t have. How will they pay this off? The high delinquency rate is telling us they can’t. In the end you need a sustainable economy but right now the FDIC is merely the Wizard of Oz. We are pretending that over $5 trillion in deposits is actually backed by some “lock box” fund somewhere. It isn’t. It is simply faith in a system that has largely failed the middle class. As we see protests around the world when will Americans protest against this banking system that has led them down this path of debt servitude? Is robbing your financial future or your kid’s financial future not enough to call for serious reforms in the system? Let us just keep pretending that the $13 trillion in “assets” at FDIC insured institutions is really worth that and keep going on with our business. Just like everyone believed real estate was actually worth what it was at the peak just because it inflated balance sheets all around the country.Collective financial insanity – FDIC backing $5.4 trillion in total deposits on pure faith – US banking operating with negative deposit insurance fund and massive debt leverage. The greatest Ponzi scheme known in the financial world.
real estate loans“assets” even though all of us fully understand that much of what they have on the books is cooked at bubble level prices. Banks are hoping the public is naïve enough to allow this game to go on for long enough where time and the Federal Reserve can inflate away the debt at the expense of the middle class. Inflation is not the answer and we have many ruined economies throughout the old chapters of history to serve as testimony. The FDIC backs more bread and butter banks but the top investment banks that were the largest beneficiaries of taxpayer bailouts have some of the most outrageous leverage:
NEW YORK (CNNMoney) -- The U.S. Postal Service warned Wednesday that it may default on some of its financial obligations later this year after reporting yet another quarterly loss. Excluding costs related to retiree benefits and adjustments to workers' compensation liability, the Postal Service said it had net income was $226 million in the first quarter, which ended Dec. 31. Despite ongoing cost-cutting efforts, the USPS said it expects to have a cash shortfall this year and to hit its federally mandated borrowing limit by September, when the government's fiscal year ends. The agency said it will be forced to default on some of its financial obligations this year unless Congress changes a 2006 law requiring it to pay between $5.4 and $5.8 billion into its prepaid retiree health benefits each year. "The Postal Service continues to seek changes in the law to enable a more flexible and sustainable business model," Patrick Donahoe, the Postmaster General, said in a statement. "We are eager to work with Congress and the administration to resolve these issues prior to the end of the fiscal year." The USPS has also cut back on hours to save money. The agency expects to eliminate 40 million work hours this fiscal year as part of a plan to save $2 billion. However, the service is currently negotiating new contracts with the American Postal Workers Union and the National Rural Letter Carriers Association, which will probably object to cutting hours. On the bright side, the Postal Service said improving economic conditions suggest the "worst of the precipitous volume decline during the recession is over." But mail volume continues to be anemic, rising only 1.5% in the first quarter as economic growth remains sluggish. Postal Service warns of default as losses mount
NEW YORK (CNNMoney) -- The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world's reserve currency. While they are not a tangible currency, some economists argue that SDRs could be used as a less volatile alternative to the U.S. dollar. Dominique Strauss-Kahn, managing director of the IMF, acknowledged there are some "technical hurdles" involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system. "Over time, there may also be a role for the SDR to contribute to a more stable international monetary system," he said. The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy. In addition to serving as a reserve currency, the IMF also proposed creating SDR-denominated bonds, which could reduce central banks' dependence on U.S. Treasuries. The Fund also suggested that certain assets, such as oil and gold, which are traded in U.S. dollars, could be priced using SDRs. Oil prices usually go up when the dollar depreciates. Supporters say using SDRs to price oil on the global market could help prevent spikes in energy prices that often occur when the dollar weakens significantly. Fred Bergsten, director of the Peterson Institute for International Economics, said at a conference in Washington that IMF member nations should agree to create $2 trillion worth of SDRs over the next few years. SDRs, he said, "will further diversify the system." Dollar firms after starting 2011 weak The dollar has been drifting lower so far this year as the global economy improves and investors regain their appetite for more risky assets such as stocks and commodities. After rising above 81 in early January, the dollar index, which measures the U.S. currency against a basket of other international currencies, eased below 77 earlier this week. However, the dollar was higher Thursday against the euro, pound and yen as disappointing corporate results weighed on stock prices following several days of gains on Wall Street. The rally in the commodities market also cooled, with the price of oil and metals backing off recent highs. In addition, renewed concerns about the debt problems facing troubled European economies put pressure on the euro and supported the dollar. The yield on Portugal's benchmark bond rose to a record high Wednesday, and borrowing costs for Ireland, Spain and Greece remain elevated. "The market is shedding risk, with equities and commodities weakening and the U.S. dollar broadly stronger" said Camilla Sutton, currency strategist at Scotia Capital. Traders were also digesting comments from Federal Reserve chairman Ben Bernanke, who told Congress Wednesday that despite a strengthening economic recovery, the unemployment rate remains high while inflation is "still quite low." Those remarks reaffirmed the view that "the Fed would be very slow to tighten policy given its dual mandate of price stability and employment," analysts at Sucden Financial wrote in a research report. Bernanke also urged lawmakers to come up with a "credible plan" to bring down "unsustainable" federal budget deficits. "We expect that the outlook for the U.S. fiscal position will weigh heavily on the U.S. dollar in the quarters ahead," said Sutton. In the near-term, however, she said "a strengthening growth profile" could help provide "a temporary period of dollar strength." IMF calls for dollar alternative
Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers. Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign. But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid. Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides. Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors. “All of a sudden, there’s a whole new risk factor,” said Paul S. Maco, a partner at the firm Vinson & Elkins who was head of the Securities and Exchange Commission’s Office of Municipal Securities during the Clinton administration. For now, the fear of destabilizing the municipal bond market with the words “state bankruptcy” has proponents in Congress going about their work on tiptoe. No draft bill yet House Republicans, and Senators from both parties, have taken an interest in the issue, with nudging from bankruptcy lawyers and a former House speaker, Newt Gingrich, who could be a Republican presidential candidate. It would be difficult to get a bill through Congress, not only because of the constitutional questions and the complexities of bankruptcy law, but also because of fears that even talk of such a law could make the states’ problems worse. Lawmakers might decide to stop short of a full-blown bankruptcy proposal and establish instead some sort of oversight panel for distressed states, akin to the Municipal Assistance Corporation, which helped New York City during its fiscal crisis of 1975. Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers. “They are readying a massive assault on us,” said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.” Mr. Loveless said he was meeting with potential allies on Capitol Hill, making the point that certain states might indeed have financial problems, but public employees and their benefits were not the cause. The Center on Budget and Policy Priorities released a report on Thursday warning against a tendency to confuse the states’ immediate budget gaps with their long-term structural deficits. “States have adequate tools and means to meet their obligations,” the report stated. No state is known to want to declare bankruptcy, and some question the wisdom of offering them the ability to do so now, given the jitters in the normally staid municipal bond market. Slightly more than $25 billion has flowed out of mutual funds that invest in muni bonds in the last two months, according to the Investment Company Institute. Many analysts say they consider a bond default by any state extremely unlikely, but they also say that when politicians take an interest in the bond market, surprises are apt to follow. Mr. Maco said the mere introduction of a state bankruptcy bill could lead to “some kind of market penalty,” even if it never passed. That “penalty” might be higher borrowing costs for a state and downward pressure on the value of its bonds. Individual bondholders would not realize any losses unless they sold. Last-minute plea for cash? “The precipitating event at G.M. was they were out of cash and had no ability to raise the capital they needed,” said Harry J. Wilson, the lone Republican on President Obama’s special auto task force, which led G.M. and Chrysler through an unusual restructuring in bankruptcy, financed by the federal government. Mr. Wilson, who ran an unsuccessful campaign for New York State comptroller last year, has said he believes that New York and some other states need some type of a financial restructuring. He noted that G.M. was salvaged only through an administration-led effort that Congress initially resisted, with legislators voting against financial assistance to G.M. in late 2008. “Now Congress is much more conservative,” he said. “A state shows up and wants cash, Congress says no, and it will probably be at the last minute and it’s a real problem. That’s what I’m concerned about.” Discussion of a new bankruptcy option for the states appears to have taken off in November, after Mr. Gingrich gave a speech about the country’s big challenges, including government debt and an uncompetitive labor market. “We just have to be honest and clear about this, and I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy,” he said. A few weeks later, David A. Skeel, a law professor at the University of Pennsylvania, published an article, “Give States a Way to Go Bankrupt,” in The Weekly Standard. It said thorny constitutional questions were “easily addressed” by making sure states could not be forced into bankruptcy or that federal judges could usurp states’ lawmaking powers. “I have never had anything I’ve written get as much attention as that piece,” said Mr. Skeel, who said he had since been contacted by Republicans and Democrats whom he declined to name. Fear of bankruptcy 'panic' Unfunded pensions become unsecured debts in municipal bankruptcy and may be reduced. And the law makes it easier for a bankrupt city to tear up its labor contracts than for a bankrupt company, said James E. Spiotto, head of the bankruptcy practice at Chapman & Cutler in Chicago. The biggest surprise may await the holders of a state’s general obligation bonds. Though widely considered the strongest credit of any government, they can be treated as unsecured credits, subject to reduction, under Chapter 9. Mr. Spiotto said he thought bankruptcy court was not a good avenue for troubled states, and he has designed an alternative called the Public Pension Funding Authority. It would have mandatory jurisdiction over states that failed to provide sufficient funding to their workers’ pensions or that were diverting money from essential public services. “I’ve talked to some people from Congress, and I’m going to talk to some more,” he said. “This effort to talk about Chapter 9, I’m worried about it. I don’t want the states to have to pay higher borrowing costs because of a panic that they might go bankrupt. I don’t think it’s the right thing at all. But it’s the beginning of a dialog.”Plans being drawn up to let states declare bankruptcy
Pensioners and investors in state bonds could lose out
By MARY WILLIAMS WALSH
No draft bill is in circulation yet, and no member of Congress has come forward as a sponsor, although Senator John Cornyn, a Texas Republican, asked the Federal Reserve chairman, Ben S. Bernanke, about the possibility in a hearing this month.
But institutional investors in municipal bonds, like insurance companies, are required to keep certain levels of capital. And they might retreat from additional investments. A deeply troubled state could eventually be priced out of the capital markets.
Mr. Skeel said it was possible to envision how bankruptcy for states might work by looking at the existing law for local governments. Called Chapter 9, it gives distressed municipalities a period of debt-collection relief, which they can use to restructure their obligations with the help of a bankruptcy judge.
By: Forex Analytics We are officially in an inflation trade melt-up. Everything that is an inflation hedge has exploded since late August. Gold is up 15%. Silver is up 48% (courtesy of the manipulators finally getting taken to court). Agricultural commodities are up 25%. Oil is up 20%. Against this backdrop, stocks’ 17% rally becomes slightly less insane. That’s right, stocks are up 17% since late August. What happened in late August? The Fed announced QE lite and promised QE 2 was coming. Almost to the day of this announcement, the US Dollar rolled over and dropped some 8% (it’s down nearly 15% since June). In plain terms, we are entering an environment in which a US Dollar collapse has fueled inflation trade mania. By launching additional QE measures at a time other central banks have renounced additional easing measures (the ECB and Bank of England) or are actively raising interest rates (China and Australia), Fed Chairman Ben Bernanke has made it clear he is willing to trash the US currency. Consequently, money is pulling out of Dollars and flowing into hard assets and other inflation hedges. The below chart plots the US Dollar (green) against Gold (yellow), stocks (black), and commodities in general (blue). This picture, details in stark terms the overall trend for markets today. The most concerning thing is that there doesn’t appear to be any sign of this stopping. Emerging markets, which have lead the S&P 500 ever since the Financial Crisis began (during this recent rally, they bottomed in May while the S&P 500 didn’t bottom until July) are not only back to pre-Crisis levels but are a mere 8% off from their 2007 highs. It’s almost as though 2008 never happened. Part of this is better fundamentals, but a lot of it is money flowing out of US equities and piling abroad. This is causing many emerging markets like China and Brazil to impose capital controls and other efforts meant to slow the inflows of funds. Will this infaltion trade trend continue? It’s very hard to tell. I cannot believe China is going to let Bernanke get away with QE2. However, until China issues a response in the form of policy, we’ll have to go by the US Dollar for signs of what’s to come. The below chart shows the greenback’s multi-year uptrend line (black) and support lines (green). As you can see, the US Dollar is literally sitting on its multi-year trend-line. If we break below this, then we have support at 74. If we break below that, we have FINAL support at 72. Below that… well, we’ve NEVER been below that before. So PRAY we don’t go there now. Indeed, if QE 2 succeeds in devaluing the Dollar below 72, then this triggers a MASSIVE Head and Shoulders pattern that forecasts a 50% devaluation in the greenback over the coming years. If this neckline is violated, we’re in uncharted waters for the greenback and the US is in for a very, VERY rough time (think Argentina or even Weimar Germany). As I wrote this, the US Dollar was at 76. Going from 76 to 71 won’t take much, so keep your eyes here for signs of what’s to come. In the meantime, the inflation trades dominate everything. So the best place for money is in commodities, especially precious metals (make sure it’s bullion, NOT ETFs) and agricultural commodities, as well as emerging markets. On that note, if you have not already taken steps to prepare yourself for the inflationary storm that is coming, PLEASE DO SO NOW. It doesn't take much to turn a potential disaster into serious profits. And believe me, we are going to see an absolute DISASTER in the coming months. Those who do not prepare themselves in advance will lost a LOT... possibly EVERYTHING. Don't be one of them. About the author: Graham Summers U.S. Dollar Collapse Has Fueled Inflation Trade Mania
FDIC Called On To Put Bank Of America Into Receivership
First Posted: 10-22-10 02:42 PM | Updated:
10-22-10 03:40 PM
Charging that the ongoing foreclosure fraud epidemic is the work of precisely the same unrepentant bank officers whose fraudulent mortgage schemes crashed the financial system in the first place, two leading critics of the financial industry are calling on the FDIC to put some of the nation's biggest banks into receivership -- starting with the Bank of America -- and make them clean house.
William K. Black, a former regulator and white-collar crime expert who cracked down on massive fraud during the savings and loan scandal of the 1980s, and his fellow economics professor at the University of Missouri-Kansas City, L. Randall Wray, write in the Huffington Post that it's time to "foreclose on the foreclosure fraudsters". They write:
The lenders, officers, and professional that directed, participated in, and profited from the fraudulent loans and securities should be prevented from causing further damage to the victims of their frauds, through fraudulent foreclosures.
They argue that, far from being a coincidence, massive foreclosure fraud "is the necessary outcome of the epidemic of mortgage fraud that began early this decade." The reason for that:
The banks that are foreclosing on fraudulently originated mortgages frequently cannot produce legitimate documents... Now, only fraud will let them take the homes. Many of the required documents do not exist, and those that do exist would provide proof of the fraud that was involved in loan origination, securitization, and marketing. This in turn would allow investors to force the banks to buy-back the fraudulent securities. In other words, to keep the investors at bay the foreclosing banks must manufacture fake documents.... Foreclosure fraud is the only thing standing between the banks and Armageddon."
So the only solution, then, is new management. "We should remove the senior leadership of the banks and replace them with experienced bankers with a reputation for integrity and competence, i.e., the honest officers that quit or were fired because they refused to engage in fraud," Black and Wray write.
They suggest starting with Bank of America, which they call "a 'vector' spreading the mortgage fraud epidemic throughout much of the Western world."
Looming large among Bank of America's sins is its purchase of mortgage giant Countrywide Financial long after it became clear that the company had engaged in massive fraud.
Even the extremely slow-to-anger New York Fed, which bought billions of securitized mortgages that Bank of America improperly represented as fully documented and conforming to underwriting standards, is now demanding that it buy some of them back.
But far from expressing remorse, Bank of America is going on the offensive, announcing it will end its three-week-old freeze on foreclosures in 23 states on Monday, much earlier than expected.
Bank of America officials are claiming they didn't find evidence of unwarranted foreclosures and are vowing to "defend the interests of Bank of America shareholders," and hire more lawyers, the New York Times reported. "It's loan by loan, and we have the resources to deploy in that kind of review," said the bank's chief executive.
Black and Wray write that Bank of America "is sufficiently large and powerful that its receivership will send the credible signal that America is restoring the rule of law and that even the most elite frauds will be held accountable. "
They note that about a thousand receivers were appointed during the S&L and banking crises of the 1980s and early 1990s under Presidents Reagan and Bush. "Contrary to the scare mongering about 'nationalizing' banks, receivers are used to returning failed banks to private ownership," they write.
The new managers would "direct the business operations, find the true facts about the bank's operations, senior managers, and financial condition, recognize the real losses, and make the appropriate referrals to the FBI and the SEC so that the frauds can be investigated and prosecuted," they write. "The receiver is also a well-proven device for splitting up banks that are too large and incoherent by selling units of the business to different bidders who most value the operations."
On Wednesday, administration spokesmen declined to endorse any dramatic federal action. They declared that they had found no "systemic" threat to the financial system from the foreclosure problems, spoke of "mistakes" and "errors" rather than pervasive fraud and said the banks and servicers now need to "fix" their "processes."
They "cannot even bring themselves to use the 'f' word -- fraud," Black and Wray write. "They substitute euphemisms designed to trivialize elite criminality."
The central problem appears to be that Obama Administration continues to see the mortgage and foreclosure crises primarily through the eyes of the banks -- not through the eyes of the regular people who became their victims, or even the taxpayers who bailed out the very fat-cat bankers who are now back to their tricks.
Black and Wray write:
This nation's most elite bankers originated and packaged fraudulent nonprime loans that destroyed wealth -- and working class families' savings -- at a prodigious rate never seen before in the history of white-collar crime. They created the worst bubble in financial history, echo epidemics of fraud among elite professionals, loan brokers, and loan servicers, and would (if left to their own devices) have caused the Second Great Depression.
The two professors call for "[n]othing short of removing all senior officers who directed, committed, or acquiesced in fraud."
Story continues below
From a Maine House, a National Foreclosure Freeze
by David
Streitfeld
Friday, October 15, 2010
Friday, October 15, 2010
provided by
|
| Nicolle Bradbury bought her home for $75,000 and stopped paying the mortgage two years ago. (NYT) |
DENMARK, Me. — The house that set off the national furor over faulty foreclosures is blue-gray and weathered. The porch is piled with furniture and knickknacks awaiting the next yard sale. In the driveway is a busted pickup truck. No one who lives there is going anywhere anytime soon.
| More
from NYTimes.com:
• Mortgage Mess May Cost Big Banks Billions • Wal-Mart to Buy More Local Produce • Bankers Ignored Signs of Trouble on Foreclosures |
Nicolle Bradbury bought this house seven years ago for $75,000, a major step up from the trailer she had been living in with her family. But she lost her job and the $474 monthly mortgage payment became difficult, then impossible.
It should have been a routine foreclosure, with Mrs. Bradbury joining the anonymous millions quietly dispossessed since the recession began. But she was savvy enough to contact a nonprofit group, Pine Tree Legal Assistance, where for once in her 38 years, she caught a break.
Her file was pulled, more or less at random, by Thomas A. Cox, a retired lawyer who volunteers at Pine Tree. He happened to know something about foreclosures because when he worked for a bank he did them all the time. Twenty years later, he had switched sides and, he says, was trying to make amends.
Suddenly, there is a frenzy over foreclosures. Every attorney general in the
country is participating in an investigation into the flawed paperwork and
questionable methods behind many of them. A Senate hearing is scheduled, and
federal inquiries have begun. The housing market, which runs on foreclosure
sales, is in turmoil. Bank stocks fell on Thursday as analysts tried to gauge
the impact on lenders' bottom lines.
All of this is largely because Mr. Cox realized almost immediately that Mrs. Bradbury's foreclosure file did not look right. The documents from the lender, GMAC Mortgage, were approved by an employee whose title was "limited signing officer," an indication to the lawyer that his knowledge of the case was effectively nonexistent.
Mr. Cox eventually won the right to depose the employee, who casually acknowledged that he had prepared 400 foreclosures a day for GMAC and that contrary to his sworn statements, they had not been reviewed by him or anyone else.
GMAC, the country's fourth-largest mortgage lender, called this omission a technicality but was forced last month to halt foreclosures in the 23 states, including Maine, where they must be approved by a court. Bank of America, JPMorgan Chase and other lenders that used robo-signers — the term caught on instantly — have enacted their own freezes.
The tragedy of foreclosure is that some homeowners may be able to stay where they are if their lenders are more interested in modification than eviction. Without a job, Mrs. Bradbury is not one of them. Her family, including her 14-year-old daughter and 16-year-old son, lives on welfare and food stamps.
"A lot of people say we just want a free ride," Mrs. Bradbury said. "That's not it. I've worked since I was 14. I'm not lazy. I'm just trying to keep us together. If we lost the house, my family would have to break up."
It has been two years since she last paid the mortgage, which surprises even her lawyers.
"Had GMAC followed the legal requirements, she would have lost her home a long time ago," acknowledged Geoffrey S. Lewis, another lawyer handling her case.
GMAC, which began as the financing arm of General Motors, has received $17
billion from taxpayers in an effort to keep it from failing and is now
majority-owned by the federal government. A spokeswoman for the lender declined
to comment on Mrs. Bradbury's case because it was still being litigated.
John J. Aromando of the firm of Pierce Atwood in Portland, Me., the lawyer for GMAC and Fannie Mae, the mortgage holding company that owns Mrs. Bradbury's loan, did not return calls for comment on Thursday.
Fannie Mae and GMAC, which serviced the loan for Fannie, have now most likely spent more to dislodge Mrs. Bradbury than her house is worth. Yet for all their efforts, they are not only losing this case, but also potentially laying the groundwork for foreclosure challenges nationwide.
"This ammunition will be front and center in thousands of foreclosure cases," said Don Saunders of the National Legal Aid and Defender Association.
Just a few miles from the New Hampshire border, this slice of Maine does not have much in the way of industry or, for that matter, people. Mrs. Bradbury grew up around here, married and had her children here, and married for a second time here. Her parents still live nearby.
In 2003, her brother-in-law at the time offered to sell her a house on property adjacent to his. It was across from a noisy construction supply site. But it was ringed by maple, evergreen and willow trees, and who does not want to be a homeowner, especially when GMAC Mortgage will give you a loan for the entire purchase price and then another loan to improve the property?
"I was very happy," she remembered. "It was a new beginning."
But Mrs. Bradbury lost her job as an employment counselor in 2006 and did part-time work after that. Her husband, Scott, was in poor health and had other problems. He could not work as a roofer. She fell behind and got a modification from GMAC. It increased her monthly payments and provided no relief.
Finally, in late 2008, she stopped paying altogether, and GMAC asked a court to approve her eviction without a trial. By the summer of 2009, this removal was well under way when Mr. Cox picked up her file.
Mr. Cox, 66, worked in the late 1980s and early 1990s for Maine National Bank, a subsidiary of the Bank of New England, which went under. His job was to call in small-business loans. The borrowers had often pledged their houses as collateral, which meant foreclosure.
"It was extraordinarily unpleasant, but it paid well," he said. "I had a family to support."
The work exacted its cost: his marriage ended and a serious depression began. He gave up law and found solace in building houses. By April 2008, he said, he was sufficiently recovered and started volunteering at Pine Tree Legal.
By the time Mr. Cox saw Mrs. Bradbury's case, it was just about over. Last January, Judge Keith A. Powers of the Ninth District Court of Maine approved the foreclosure, leaving the case alive only to establish exactly how much Mrs. Bradbury owed.
Mr. Cox vowed to a colleague that he would expose GMAC's process and its limited signing officer, Jeffrey Stephan. A lawyer in another foreclosure case had already deposed Mr. Stephan, but Mr. Cox wanted to take the questioning much further. In June, he got his chance. A few weeks later, he spelled out in a court filing what he had learned from the robo-signer:
"When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn't. When he says that he has custody and control of the loan documents, he doesn't. When he says that he is attaching 'a true and accurate' copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn't."
GMAC's reaction to the deposition was to hire two new law firms, including Mr. Aromando's firm, among the most prominent in the state. They argued that what Mrs. Bradbury and her lawyers were doing was simply a "dodge": she had not paid her mortgage and should be evicted.
They also said that Mr. Cox, despite working pro bono, had taken the deposition "to prejudice and influence the public" against GMAC for his own commercial benefit. They asked that the transcript be deleted from any blog that had posted it and that it be put under court seal.
In a ruling late last month, Judge Powers said that GMAC, despite its expensive legal talent and the fact that it got "a second bite of the apple" by filing amended foreclosure papers, still could not get this eviction right.
Even the amended documents did not bother to include the actual street address of the property it was trying to seize, reason enough, the judge wrote, to reject the request for immediate foreclosure without a trial.
But Judge Powers went further than that, saying that GMAC had been admonished in a Florida court for using robo-signers four years ago but had persisted. "It is well past the time for such practices to end," he wrote, adding that GMAC had acted "in bad faith" by submitting Mr. Stephan's material:
"Filing such a document without significant regard for its accuracy, which the court in ordinary circumstances may never be able to investigate or otherwise verify, is a serious and troubling matter."
It was not a complete loss for GMAC — Judge Powers declined to find the lender in contempt — but nearly so. GMAC was ordered, as a penalty, to pay Mr. Cox personally what he would have been paid for his work on the deposition and related matters had he been charging Mrs. Bradbury. That, he says, is $27,000.
The court's ruling on GMAC's "bad faith" is already being taken up by foreclosure defense lawyers around the country. Mr. Cox "did a remarkable job of proving the lenders not only rubber-stamped these loans on the front end, but they rubber-stamped them on the back end," said Mr. Saunders of the legal aid group.
GMAC, which this week expanded its foreclosure freeze to the entire country, is not giving up on Mrs. Bradbury. It will try for the third time to evict her when the case goes to trial this winter.
If Mrs. Bradbury is not quite victorious, she is still in her house, and for her that is the only thing that counts. If she can get her pickup fixed, she will go back to looking for a job.
"I am not leaving," she said this week, standing out on her front lawn, the autumn splendor spread all around her. "We have nowhere to go."
Economists peddling dire warnings that the world’s number one economy is on the brink of collapse, amid high rates of unemployment and a spiraling public deficit, are flourishing here. The guru of this doomsday line of thinking may be economist Nouriel Roubini, thrust into the forefront after predicting the chaos wrought by the subprime mortgage crisis and the collapse of the housing bubble. “The US has run out of bullets,” Roubini told an economic forum in Italy earlier this month. “Any shock at this point can tip you back into recession.” But other economists, who have so far stayed out of the media limelight, are also proselytizing nightmarish visions of the future. Boston University professor Laurence Kotlikoff, who warned as far back as the 1980s of the dangers of a public deficit, lent credence to such dark predictions in an International Monetary Fund publication last week. He unveiled a doomsday scenario — which many dismiss as pure fantasy — of an economic clash between superpowers the United States and China, which holds more than 843 billion dollars of US Treasury bonds. “A minor trade dispute between the United States and China could make some people think that other people are going to sell US treasury bonds,” he wrote in the IMF’s Finance & Development review. “That belief, coupled with major concern about inflation, could lead to a sell-off of government bonds that causes the public to withdraw their bank deposits and buy durable goods.” Kotlikoff warned such a move would spark a run on banks and money market funds as well as insurance companies as policy holders cash in their surrender values. “In a short period of time, the Federal Reserve would have to print trillions of dollars to cover its explicit and implicit guarantees. All that new money could produce strong inflation, perhaps hyperinflation,” he said. “There are other less apocalyptic, perhaps more plausible, but still quite unpleasant, scenarios that could result from multiple equilibria.” According to a poll by the StrategyOne Institute published Friday, some 65 percent of Americans believe there will be a new recession. And the view that America is on a decline seems rather well ingrained in many people’s minds supported by 65 percent of people questioned in a Wall Street Journal/NBC poll published last week. “It is true: Today’s economic problems are structural, not cyclical,” argued New York Times editorial writer David Brooks. He said the United Sates is losing its world dominance much in the same way the British Empire began to crumble more than a century ago. “We are in the middle of yet another jobless recovery. Wages have been lagging for decades. Our labor market woes are deep and intractable,” Brooks said. Nobel Economics Prize winner Paul Krugman also voiced concern about the fate of the fragile economic recovery if voters return the Republicans to political power. “It’s hard to overstate how destructive the economic ideas offered earlier this week by John Boehner, the House minority leader, would be if put into practice,” he wrote in a recent editorial. “Fewer jobs and bigger deficits — the perfect combination.” The Wall Street Journal, usually more favorable to Boehner’s call for tax cuts, ran a commentary from another Nobel Prize-winning economist — Vernon Smith — that failed to provide much comfort for readers. “This fact needs to be confronted: We are almost surely in for a long slog,” Smith wrote. And it seems such pessimism has even filtered into the IMF, which warned on Friday that high levels of national debt and a still shaky financial sector threaten to derail the global economic recovery. “The foreclosure backlog in US property markets is large and growing, in part due to the recent expiration of the home buyer’s tax credit. When realized, this could further depress real estate prices.” This could lead to “disproportionate losses” for small and medium-sized banks, which could in turn “precipitate a loss of market confidence in the recovery,” the IMF warned.Doomsday warnings of US apocalypse gain ground
Posted on Pakalert on September 14, 2010
Bloomberg.com
– AUGUST 16, 2010
China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the U.S.
The nation has been buying “quite a lot” of European bonds, saidYu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2. Japan’s Ministry of Finance said Aug. 9 that China bought 1.73 trillion yen ($20.1 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years.
“Diversification should be a basic principle,” Yu said in an interview, adding a “top-level Chinese central banker” told him to convey to European policy makers China’s confidence in the region’s economy and currency. “We didn’t sell any European bonds or assets, instead we bought quite a lot.”
China’s position may make it harder for the greenback to rebound after falling as much as 10 percent from this year’s peak in June as measured by the trade-weighted Dollar Index. The nation cut its holdings of U.S. government debt by $72.2 billion, or 7.7 percent, through May from last year’s record of $939.9 billion in July 2009, according to the Treasury Department, which releases new data today.
You can’t blame them. Finding out that your largest investment is completely bankrupt must be a sobering thought. It’s be nice to say that there is a way to avoid a dollar collapse, but I think we are dangerously close to crossing the Rubicon on that one.
For the better part of a century our government has used the power of the printing press to debase the value of our money in the name of supporting a warfare state while simultaneously creating a welfare state in the process. That has put a lot of stress on the dollar. In fact sine the creation of the federal reserve, the dollar has lost just over 97% of its value.
It can, and it will, loose much more than that, there really isn’t a lot that can be done about that now.
It is my thesis that the inflation, deflation debate is flawed because we no longer have reliable price signals. The overwhelming domination of program trading on various exchanges has fundamentally changed the way prices are created and represented in the economy. All ‘efficient market’ theories are dead. In place of reliable price signals (based on the supply and demand of buying and selling) we have price signals that are generated by computer algorithms; i.e., computers executing program trading, high frequency trading and algorithmic trading — that account for up to 70% of the trading activity on the NYSE (or 100%, if you consider any shares traded — not involved in program trading — can’t buck the pricing monopoly of the computers). Program traders have a virtually infinite line of credit, pay virtually zero commissions, and are backed by banks on Wall St. with strong political connections who are ready to bail out any losing bets these computers make. Plus, the computers are able to do something normal buyers and sellers can’t do. They can pick a price they want a security to trade at and then fill in all the necessary trading volume needed to get the price of the security to that point. In other words, you can program computers to rig markets. In this new rigged market capitalist model, the corrupt bank picks the price it wants a security to trade at and the computers buy and sell with each other until that price is reached; thus providing an audit trail of trades that looks on the surface like actual price discovery.Max Keiser – The Market is a Hologram Masking Deflation
July 27th, 2010 by
The Biggest Game InTown" about the Government CAFR wealth shell game 2:16:13 - 1 year ago 12/25/08 - PLEASE POST - PUBLISH "The Biggest Game in Town" video was produced and then on January 8th 2000 was distributed only on VHS tapes. It was put up for internet access on December 25th 2008. The documentary gets the valid information out there and was annotated on the lower script line with 2009 information. This was the first CAFR1 video that got the ball rolling for international disclosure of the CAFR of which was the biggest shell game played in government finance. Government promotes annual "Budget Reports" and at the same time virtually not a peep as to their Comprehensive Annual Financial Report (CAFR) Do a Google search on CAFR A complete AUDIT of international holdings and trading activity is URGENTLY needed to see the "NET" results of the market manipulations that took place since September 2001 to present...... Will this happen? Not as long as the foxes maintain regulation over the hen house! SEE: http://TaxRetirement.com Learn quickly... have no doubts about it,...all » | Here is an eye opener that raises a big question....Where are the SURPLUS FUNDS GOING???? This video explains it all. So, is our country tumbeling out of control or is this a created illusion so the elitist cash in on the profits to create their Globalist Government financed by the tax payers dollars? Did you know there is a built in Government Fund, on all levels, county, city, state, and federal.This is totaly against our Constitution! Watch the video and come to your own conclusions. |
Goldman Sachs: The Pirates of Poison in the Gulf Michael Edwards Illinois-based Nalco Corporation is responsible for the Corexit 9500 chemical dispersant highlighted by experts as being 4 times more toxic than the oil that is flowing into the Gulf. Scientists in congressional hearings added that the dispersant is more toxic than other similar dispersant on the market. Naturally, whenever a major disaster takes place — especially when major, society-altering solutions are being offered — one needs to follow the trail of money and power to see who benefits. Sure enough, a casual search of Nalco’s Web site reveals their company history; it leads right to the doorstep of Goldman Sachs. Nalco seems to have started in 1928 Chicago and became immediately involved in both the oil industry and water treatment facilities. 1982 seems to have been a massive turning point for the company as their Web site states, “ORS-419 is used in the tires of the Space Shuttle Columbia. The Nalco product is the only non-silicone product of its type on the market approved by the space shuttle tire’s manufacturer.” Thereafter, things really seem to have taken off as shown here: 1983: Nalco breaks ground for a new 300,000-square-foot trio of headquarters buildings in Naperville, representing an investment totaling $90 million. 1984: Nalco introduces the PORTA-FEED® reusable container system, the most advanced liquid chemical handling system yet introduced. 1985: Nalco leads the chemical industry in the development of CAER (Community Awareness and Emergency Response), a forerunner of the Emergency Planning and Community Right-to-Know Act of 1986 and the CMA Responsible Care® initiative. 1989: Sales top $1 billion. Then, in 1994 Nalco joined forces with Exxon Chemical to announce the formation of a new alliance “Nalco/Exxon Energy Chemicals, L.P. to provide products and services to all facets of the petroleum and natural gas industries.” Another name change occurred in 2001 when the company became Ondeo Nalco. Finally, in 2003, we learn who has taken the reins to lead us into the present. As their site states: “The Blackstone Group, Apollo Management L. P. and Goldman Sachs Capital Partners buyOndeo Nalco.” Global sales now exceed $4 billion and the Gulf cleanup is in the hands of a group of corporate pals who have brought us such fine moments of humanity such as Blackstone’s “locust capitalism” hostile takeover binge which triggered a major political backlash in Germany and elsewhere, and the newly proposed austerity measures coming to America. Apollo Management is in the Wall Street Journal’s Who’s Who in Private Equity with the very human investment strategies of leveraged and distressed buyouts and debt investments — investments now top $37 billion. And, by now, Goldman Sachs’s reputation precedes itself as having engineered the housing crash and exacerbating a financial meltdown in Greece and across Europe. Yet, Goldman Sachs is far too gluttonous a creature to be happy with administering the profits from the physical fallout of the Gulf disaster. The kings of the carbon market — yes, that market that trades nothing but air — have not been having an easy time of it pushing man-made global warming. In the Gulf, however, they have their cohort, Barack Obama, well positioned to steer the pirate ship back on course. It was Obama who helped fund the carbon program from its inception after all. Right on cue, Obama’s e-mail campaign is launched to exploit suffering at the behest of his corporate controllers. We are living in a full-blown international corporate command and control system where even the most basic rescue efforts are in the hands of proven pirates. It also has become clear that the pirate flotilla is owned by Goldman Sachs . . . and the president of the United States is the captain.
Activist Post
JUly 1, 2010
Dollar Plunges After UN Call To Ditch Greenback Paul Joseph Watson Prison Planet.com July 2, 2010 The dollar plunged today following a United Nations report which called for the greenback to be replaced as the global reserve currency by the International Monetary Fund’s special drawing rights (SDRs). The dollar’s trend of moving inversely to the stock market has seemingly been snapped, with the Dow Jones falling over 100 points at one stage today. However, as soon as markets began to claw back losses, the greenback failed to follow suit, indicating that whichever way markets move, the dollar is in big trouble. The UN report called for “abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value,” according to Reuters. “A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency,” stated the report, adding that this new system should not be based on a basket of currencies, but on IMF-controlled SDR’s. Following globalist moves to restore confidence in the single currency euroin the aftermath of the Bilderberg and G20 meetings, the concern has shifted from sovereign debt issues of countries like Greece and Spain, to the worsening state of the U.S. economy and the risk of a double-dip recession. In the immediate aftermath of the 2010 Bilderberg meeting in Spain, at which globalists resolved to save the euro from collapse in an effort to restore confidence in their ultimate goal of a global single currency, the euro began to make a recovery and today rose against the dollar by over 1.5 per cent. A cascade of negative U.S. economic data was released today, with job figures turning sour once again. “Jobless claims were a disaster, coming in at 472k, on expectations of 455k,” reports Zero Hedge. “The economy has now entered the “total freefall” area”. The dollar is being targeted for destruction because the financial terrorists who caused the economic collapse in the first place want to exploit the crisis in order to institute a new global currency issued by a global central bank. In May, IMF chief Dominique Strauss-Kahn told elitists in Zurich Switzerland that the introduction of a global currency backed by a global central bank would act as the “lender of last resort” in the event of a severe economic crisis, another lurch towards fascist centralization of power in pursuit of a system of global governance. As Gerald Celente explains in the clip below, all major currencies are doomed in the long term, which is why many European countries are beginning moves to revert back to their pre-euro denominations.
Obama: Reform will hold Wall St. ‘accountable’
Bill represents biggest rewrite of Wall Street rules since Great Depression
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Senators talk during a recess from a committee
conference on Wall Street reform to hammer out sweeping changes in financial
regulation legislation on Capitol Hill.
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Jonathan Ernst / Reuters |
WASHINGTON - President Barack Obama declared victory Friday after congressional negotiators reached a dawn agreement on a sweeping overhaul of rules overseeing Wall Street.
Lawmakers shook hands on the compromise legislation at 5:39 a.m. after Obama administration officials helped broker a deal that cracked the last impediment to the bill -- a proposal to force banks to spin off their lucrative derivatives trading business. The legislation touches on an exhaustive range of financial transactions, from a debit card swipe at a supermarket to the most complex securities deals cut in downtown Manhattan.
Speaking to reporters as he left the White House to attend an economic summit of world leaders in Toronto, the president said he was "gratified" for Congress' work and said the deal included 90 percent of what he had proposed. He said the bill, forged in the aftermath of the 2008 financial meltdown, represents the toughest financial overhaul since
"We've all seen what happens when there is inadequate oversight and insufficient transparency on Wall Street," he said. "The reforms working their way through Congress will hold Wall Street accountable so we can help prevent another financial crisis like the one that we're still recovering from."
Asked by reporters whether he can get the financial measure through the Senate, Obama said, "You bet." He said he will discuss the regulations with other leaders at the Toronto meeting because the recent economic crisis proves that the world's economies are linked.
Lawmakers hope the House and 
The bill would set up a warning system for financial risks, created a powerful consumer financial protection bureau to police lending, forced large failing firms to liquidate and set new rules for financial instruments that have been largely unregulated.
"It took a crisis to bring us to the point where we could actually get this job done," Senate Banking Committee Chairman Christopher Dodd said.
In its breadth, the legislation would affect working class homebuyers negotiating their first mortgage as well as international finance ministers negotiating international regulatory regimes.
The bill came together in during a time of high unemployment for American workers, huge bonuses for bankers and rising antipathy toward bank bailouts.
"It is reassuring to know that when public opinion gets engaged it will win," said Rep. Barney Frank, the chairman of the House-Senate panel that merged House and Senate bills into one piece of legislation.
House negotiators voted a party line 20-11 in favor of the final agreement; senators voted 7-5, also along party lines.
Frank and Dodd set a furious pace for lawmakers in their last day of talks, pushing them into the late hours to resolve the most nettlesome differences between the House and Senate.
Their goal, in part, was to equip Obama with a legislative agreement as he meets with leaders of the nations this weekend in Toronto.
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Do you know if your bank will be there next month? For a growing number of Americans, that is becoming a very real question. The Wall Street Journal is reporting that 775 banks (approximately ten percent of all U.S. banks) are now on the Federal Deposit Insurance Corporation’s list of “problem” banks. This year we have already seen more than six dozen banks fail, and the frightening thing is that we are seeing a rapid acceleration in bank failures even though we are supposedly in a “recovery” right now. So what happens if the economy takes a bad turn and hundreds of these banks that are barely surviving start failing?
Right now an increasing number of Americans are not paying their loans, and this is shredding the balance sheets of small and medium size banks all over the United States. In fact, during the first quarter of 2010, the total number of loans that are at least three months past due increased for the 16th consecutive quarter.
16 consecutive quarters?
Once is a coincidence.
Twice is a trend.
Sixteen times in a row is a total nightmare.
Is there anyone out there that is still convinced that the economy is getting better?
If so, perhaps this will convince you otherwise….
There were 252 banks on the FDIC’s “problem list” at the end of 2008.
There were 702 banks on the FDIC’s “problem list” at the end of 2009.
Now there are 775 banks of the FDIC’s “problem list”.
Are you starting to see a trend?
Federal regulators have already closed 73 banks in 2010, more than double the number shut down at this time last year.
The truth is that the U.S. banking system is coming apart like a 20 dollar suit.
So is the FDIC worried?
No, they insist that they have plenty of money to cover all of the banks that are going to fail.
After all, the FDIC’s deposit insurance fund now has negative 20.7 billion dollars in it, which represents a slight improvement from the end of 2009.
Yes, you read that correctly.
Negative 20.7 billion dollars.
That should be enough to cover the hundreds of banks that are in the process of failing, right?
Well, if not, the FDIC can just run out and ask the U.S. government for a big, juicy bailout.
After all, can’t the U.S. government borrow an endless amount of money with absolutely no consequences?
Well, no.
Debt always catches up with you sooner or later.
In fact, the IMF is warning that that the gross public debt of the United States will hit 97 percent of GDP in 2011 and 110 percent of GDP in 2015.
Meanwhile, the U.S. financial system continues to shrink even after the unprecedented amount of “stimulus money” that the U.S. government has been shoveling into the economy.
The M3 money supply is now contracting at a frightening pace.
In fact, the current rate of monetary contraction now matches the average rate of monetary contraction the U.S. experienced between 1929 and 1933.
But don’t worry.
We aren’t going into a Depression.
Everything is going to be just fine.
Just look deep into Obama’s eyes and keep repeating the word “change” to yourself over and over.
According to a report in The Telegraph, the M3 money supply declined from $14.2 trillion to $13.9 trillion in the first quarter of 2010.
That represents an annual rate of contraction of 9.6 percent.
In case you were wondering, that is a lot.
Not only that, but the assets of institutional money market funds declined at a 37 percent annual rate.
That was the sharpest drop ever.
Yes, it is time for the alarm bells to start going off.
The Telegraph recently quoted Professor Tim Congdon from International Monetary Research as saying the following about the deep problems that the U.S. is facing….
“The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly.”
If banks continue to cut their lending, the M3 is going to continue to shrink.
But as noted above, Americans are increasingly getting behind on their loans, so why should banks loan money to a bunch of deadbeats?
Right now U.S. banks are increasingly tightening their lending standards, and this is making it much tougher to get a loan.
In fact, in 2009 the biggest U.S. banks posted their sharpest decline in lending since 1942.
But there is only one problem.
The U.S. economy is completely and totally dependent on credit.
Without easy credit, the entire U.S. economic machine is going to slowly grind to a halt.
So what do you do?
The reality is that we have one gigantic financial mess on our hands, and in many ways it is starting to look like the 1930s all over again.
ALEA IACTA EST
May 18th, 2010 by Egon von GreyerzALEA IACTA EST
by Egon von Greyerz – Matterhorn Asset Management
Yes this is it! We have crossed the Rubicon and events in the world economy are now likely to unfold in a totally uncontrollable fashion. Clueless governments still don’t understand that it is their ruinous actions that have created a credit infested and bankrupt world. They will continue to prescribe the same remedy that caused the problem in the first place, namely more credit and more printed money. The consequences are clear; we will have hyperinflation, economic and human misery as well as social unrest.
When will the world finally begin to understand that we have reached the point of no return and that “the voyage of their life is bound in shallows and in miseries” (Shakespeare, Julius Caesar). Sadly, we are probably not very far from that point. It is already starting to happen in many countries.
The latest EU and IMF package of $ 1 TRILLION (Euro 750 billion) is yet another futile attempt by governments to abolish poverty by printing paper. Let’s be absolutely clear, this money does not exist and the EU governments are hoping by declaring such a large amount that they can con the Wolfpack speculators. At this point the EU has just picked a large round figure out of the air. But when their bluff is called by the Wolfpack and the next attack happens, EU governments will after initial huffing and puffing start printing unlimited amounts of paper.
So the world is now on its road to ruin and there is no action, no leader and no new amount of printed money that can save the world or prevent a hyperinflationary depression.
Never in history has the world been in a situation when virtually all industrialised countries are bankrupt. Therefore there is no precedent for what will happen in the next few years. What we can be quite certain about is that events will happen in a seemingly random pattern and that it will be impossible to forecast where the next crises will start.
But although we will not be able to predict in what order events will take place, we can expect much of what is outlined below to happen.
Wolfpack attacks
Already back in 2007 we warned about the very high risk of the CDS (credit default swap) market. This is now one of the primary instruments used by the Wolfpack (expression coined by the Swedish Finance Minister Borg). The Wolfpack, speculators with enormous fire power such as hedge funds and investment banks, use the CDS market to attack any weak financial sector, be it a country, a bank or a company. The combination of the leverage of the CDSs and the massive capital available to the Wolfpack makes it possible for them to bring down or badly maul whatever they attack. It was not the Wolfpack that caused the problem in for example Greece but they can bring down a weak victim quickly and profit immensely and immorally from it.
There are so many weak potential victims that the Wolfpack can attack and they will start with the most vulnerable ones like, Portugal, Spain and Ireland etc. But when the time is right they will also attack the US and the UK.
So in the coming year we will see country after country coming under attack from the Wolfback which will lead to acceleration in money printing and higher interest rates.
Iceland – Ireland – Greece – Who is next?
The EU support package of $ 1 trillion is supposed to be sufficient to protect the rest of Europe from another Greek tragedy. The dilemma with such a massive EU commitment is that no government expects to have to pay the money out. If they did the voters in the respective EU countries would throw out their government. Why should the German people, who are also having hard times, pay for the Greeks, Portuguese or the Spaniards, especially since these loans will never be paid back.
Greece is bankrupt but is still taking on additional EU loans of € 140 billion. In addition, their austerity measures are supposed to bring the deficit down from 12% of GDP today to 3% in a few years time. But who can be so stupid as to lend to a bankrupt nation which will sink into the Ionian and Aegean Seas in the next few years. With massive cuts in government expenditure, with major falls in output, with unemployment rising fast, with tax revenues collapsing how can Greece possibly be expected to improve the economy and pay a high interest rate on their exploding debt? In addition, as long as they have the Euro they will be totally uncompetitive. So if they couldn’t manage their economy in the so called good times, it is absolutely guaranteed that they have no chance of surviving in bad times. So Greece will default and so will Portugal, Spain, Italy, France, the UK, the US and many more. But before that there will be the most colossal worldwide money printing exercise which would have used up most of the trees in the world but for electronic fiat money.
So, if virtually bankrupt nations don’t cut their deficits, they will definitively go under and if they try to cut, they will also go under due to collapsing output and tax revenues and colossal debts. Thus whatever actions governments take or don’t take, they are damned.
The table below shows debt as a percentage of GDP for various OECD countries. The official debts (in red) are massive and unlikely to ever be repaid in real money. Total debts (grey bars) include unfunded liabilities such as pensions and health care. Spain has the lowest total debt to GDP of 250%. Germany and the UK have around 400%, the US over 500% and Greece over 800% debt to GDP. These figures are absolutely astronomical and prove that most governments in the world will be totally incapable of repaying their debts or funding the pensions or medical care which they have committed to. It doesn’t matter however much governments cut expenditure or raise taxes, all these countries are insolvent and nothing can save them.
The world must permanently readjust
Most governments still believe that deficit spending and money printing is the solution to all their problems. Because the world economy’s expansion in the last 100 years and particularly in the last 40 years has been primarily based on credit and not real growth, governments live under the false impression that money printing will work this time too. But we have reached the point when investors will no longer buy worthless government debt that will never be repaid with real money. We will first go through a period when governments issue and buy their own debt thus monetising the debt or print money. This will be the hyperinflationary phase. Thereafter the world will realise that none of the government debt and very little of the bank debt will ever be repaid. Credit will then implode and so will also the assets financed by credit. Eventually there will be a new monetary and financial system and the world will start afresh. The adjustment period will be very long and will involve economic and human misery, leading to social unrest and major political change. It will be a horrible experience for the world during this extended period of adjustment. But it will be like a forest fire that clears out the deadwood and creates the conditions for strong new growth. Once the new era starts it will therefore be from a very much lower level and individuals will be rewarded for hard work with little or no social security safety net. Credit will only be granted for sound capital investment projects, not for consumption or speculation. Ethical and moral values will return and the golden calf will not be worshipped. But before that, the period of readjustment will be very long and extremely difficult for the whole world.
Hyperinflation
For several years we have predicted that hyperinflation is the most likely outcome of the economic predicament that the world is in. But it is unlikely to be a straightforward hyperinflationary period. Precious metals will be the primary beneficiaries of hyperinflation. Certain commodities, especially food and energy, will also go up in price. But most assets that have been financed by the credit boom will go down in real terms. This includes property, stocks and bonds. In hyperinflationary money these assets could still go up in price. If someone who earned $ 50,000 per annum in real money now earns $ 5 million in newly printed money, his house will probably also go up in nominal terms. But in real terms property prices will decline massively. There will be no credit available and interest rates will be very high, probably at least 15-20% so very few people will be able to buy a house.
Hyperinflation will destroy many currencies so paper money will definitely reach its intrinsic value which is zero. Gold and silver will virtually be the only assets that will protect investors fully against the destruction of money.
The next leg of the debt crisis is here
In our February newsletter “Sovereign Alchemy will Fail” we discussed the Sovereign Time Bomb and we are now experiencing the initial small explosions with Greece as the first victim. The $1 trillion EU/IMF rescue package was never intended to be more than a headline figure. EU governments were hoping that this would frighten the Wolfpack away. But so far this has failed. The Euro went up 4 cents when the package was announced but is now down to new lows again. How can anyone take a massive rescue package seriously when most of the countries making the commitments are bankrupt themselves? Spain and Italy have committed tens of billions each. And they are the ones that will be attacked by the Wolfpack next. This is the bankrupt saving the bankrupt. The IMF has no money but is dependent on its members of which the US is the biggest contributor. And they are bankrupt too. The UK, which is not in the Euro Zone and which has a worse budget deficit than Greece, contributed £15 billion. The new UK government is planning to cut a massive £ 6 billion of costs out of its next year’s budget which will bring major hardship. But as a last act, the outgoing labour government committed £15 billion which if paid out will never be repaid. The whole thing is a total farce. Governments commit trillions to rescue banks and sovereign states but cannot even make budget cuts of a few billion in their own countries. This shows that the world economy and the world financial system is being run by morons who only have their own self interest in mind and do not understand the consequences of their ruinous actions.
When the $1 trillion EU rescue package was announced, the US simultaneously offered European banks dollar Swap facilities (dollar loans) of a minimum $500 billion but probably much more. In addition the US Fed also injected at least $500 billion into the US banking system. These actions make it clear the banking system is under tremendous strain similar to 2008. But this is just the beginning. Things will get a lot worse.
Gold
In 2002 we advised investors to put up to 50% of their liquid assets into gold when the price was $300. To us it was crystal clear that the mountain of debts and derivatives would never be repaid with normal money but would be inflated away by money printing and this is what is now happening. The media are now talking about a bubble in gold and comparing to the 1980 top at $850. Let us be very clear, although gold has gone up 5 times since the 1999 bottom at $250, it is nowhere near its peak. Adjusted for real inflation (as per shadowstats.com) the 1980 gold peak in today’s prices corresponds to around $7,200 today. So gold could easily go up 6 times from the current price of $1,220 and still be within normal parameters.
There are many factors that will contribute to gold’s rise from here (in addition to money printing):
- Gold production is going down.
- Neither Comex (the futures exchange), nor the bullion banks would be able to deliver more than a fraction of the physical gold for which they have outstanding commitments.
- Central banks and the IMF probably don’t hold even half of the 30,000 tons that they claim they have. Most likely, at least 15,000 tons (6 years gold production) have been sold to suppress the gold price.
- The precarious financial system will lead to a total distrust of paper gold including most of the ETFs which have no physical gold.
The four factors above will lead to the most massive surge in the gold price. There will be nowhere near sufficient gold to satisfy demand at current prices. We had been expecting gold to start its acceleration in March 2010 and this is exactly what is happening. We expect the move to be relentless during most of this year with very few major corrections but with high volatility. Moves of $100 in one day could easily happen.
So gold is likely to make a top in the next few years between $5,000 and $10,000. But if we get hyperinflation the price could go exponentially higher like in the Weimar Republic when gold reached DM 100 trillion per ounce in 1923. Will gold experience the same type of correction when is has peaked as happened after the 1980 peak? Probably not, because gold is likely to be a part of a new monetary system that will be created when the current one has collapsed.
The table below illustrates the total destruction of paper money against gold in the last 100 years and shows how many ounces of gold that $1,000 bought at various times. In 1910, $1,000 bought 40 oz of gold at $25 per oz. Today in 2010, $1,000 buys 0.80 oz of gold at $1,230 per oz. This is a massive decline of 98% in the value of the dollar measured in real terms in the last 100 years. The next significant year is 1971 when Nixon abolished the convertibility of dollars to gold. It was this disastrous decision that opened the floodgates for the credit and money creation that we are experiencing currently. The dollar is down 97% since then. But even if we take more recent years, the purchasing power of the dollar measured in gold has declined catastrophically. Since the 1999 gold low, the dollar has declined by 80% against gold and since 2002 (when Matterhorn Asset Management recommended major gold investments) by 76%.
Virtually all currencies show similar declines in value against gold in the last 100 years. This is the clearest evidence of governments and central banks defrauding their people of their hard earned money. Where will it end? It will end when the dollar and many other currencies reach their intrinsic value of ZERO. That time is not far away.
18th MayEgon von Greyerz
matterhornassetmanagement.com
goldswitzerland.com
Obama Signs Law Raising Public Debt Limit from $12.4 Trillion to $14.3 Trillion
Jack Tapper
ABC News
February 13, 2010
Behind closed doors and with no cameras present, President Obama signed into law Friday afternoon the bill raising the public debt limit from $12.394 trillion to $14.294 trillion.
The current national debt is $12.3 trillion. Check out the National Debt Clock, which tells you your share of that — roughly $40,000 per citizen, $113,000 per taxpayer.
The bill also establishes a statutory Pay-As-You-Go procedure requiring that new non-emergency legislation affecting tax revenue or mandatory spending not increase the Federal deficit – in other words, that any new spending or tax cuts be paid for with new taxes or spending cuts.
The Great Highway Robbery Continues: How The FDIC Is Legally Transferring Billions In Taxpayer Money To Hedge Funds
Submitted by Tyler Durden on 02/10/2010 13:57 -050
It is not a secret to anyone who has been closely following the FDIC's quasi criminal bank takeover practices over the past year, that acquirors of failed banks end up receiving a massive and risk-free gift in the form of taxpayer benefits via the FDIC when it comes to funding losses on a given bank acquisition. Should there be a short sale resulting in a loss to the full principal (not the cost basis mind you)? Not to worry, Sheila Bair is there to hand out taxpayer money to the hedge funds/banks owning the newly transferred assets. A recent example of this was the glaring insider trading which preceded the acquisition of failed AmTrust Bank by New York Community Bancorp, in which both NYB and those who bought calls in advance of information being made public, made massive illegal profits. And as the SEC continues to pretend like this episode never happened, we remind the intellectually subprime Mary Schapiro to finally pursue those involved, and will continue doing so for as long as it takes. But back to the FDIC: the folks at Think Big Work Small have compiled a terrific video detailing exactly how several hedge funds, currently owners of recently created shell holding company OneWest Bank, are picking apart the carcass of failed IndyMac, all the while encouraging short sales (instead of loan mods) as only that way do they get to benefit fully from the taxpayer funded FDIC loss-share arrangements which makes the IndyMac transaction an immediate slam dunk for everyone involved...except America's taxpayers, and the FDIC's ever depleting DIF reserve.
As the authors appropriately title the video, this is indeed a slap in our face. And this goes on every single bailout Friday when the FDIC continues handing out billions of dollars under the guise of "loss sharing" arrangements, which is simply a guaranteed profit from the acquirors' cost basis to 90% of the original loan value: an instantaneous 30% risk free IRR.
Central bankers to meet in Australia to discuss looming new crisis
Sydney - Central bankers are to meet in Australia's biggest city for two days of talks as plunging stock markets renew fears of a slow and patchy recovery from the global financial crisis, Sydney's Herald Sun reported Saturday. The paper said representatives from 24 central banks, including the US Federal Reserve and the European Central Bank, are to assemble Sunday and Monday in an undisclosed location. The organizer of the meeting is the Bank for International Settlements rather than the Australian government, which would help explain why secrecy prevails. The governors of the People's Bank of China, the Bank of Japan and the Reserve Bank of India are said to be on the guest list. The gathering, arranged last year, takes place against a background of world share markets reeling from fears that governments, not just companies, may have difficulty with their balance sheets.
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Economic Policy Journal
January 4, 2009
The United States faces projected 10-year federal budget deficits that seriously threaten its bond market, exchange rate, economy, and the economic future of every American worker and family. Those risks are exacerbated by the context of those deficits: a low household-savings rate, even after recent increases; large funding requirements for federal debt maturities every year; heavy overweighting of dollar-denominated assets in foreign portfolios; worsened fiscal prospects in the decades after the current 10-year budget period; and competing claims for capital to fund deficits in other countries.
The conventional concern here is that private investment will be crowded out, which would result in a reduction of productivity, competitiveness, and growth. In addition, the very early 1990s showed that unsound fiscal conditions can have a symbolic effect that broadly undermines business and consumer confidence. But finally, and far more dangerously, our bond and currency markets could react with severe distress to fears about imbalances in the supply and demand for capital in the years ahead or about the possibilities of inflation. Those effects have been averted so far by a number of factors: large inflows of capital from abroad into Treasury securities; concerns about other major currencies; the low level of private demand for capital; and the psychological state of the market. But this cannot continue indefinitely, and change can occur with great force—and unpredictable timing.
Of course, he is correct. However, this isn’t the first time an insider has warned about the debt. Obama, himself, has done so.
What I am waiting for is the other foot to drop, i.e., what solutions will be proposed to resolve the debt situation. I doubt it will be any serious attempt at cutting back government spending. It will more than likely, in a panic state, be a dramatic hike in taxes, including possibly a national sales tax or VAT.
Is $14 Trillion And Counting
From Gene Messick
1-1-10
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By Gerald Celente 12-16-09
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2010 Food Crisis Means Financial Armageddon
Eric deCarbonnel
Market Skeptics
Friday, December 18, 2009
If you read any economic, financial, or political analysis for 2010 that doesn’t mention the food shortage looming next year, throw it in the trash, as it is worthless. There is overwhelming, undeniable evidence that the world will run out of food next year. When this happens, the resulting triple digit food inflation will lead panicking central banks around the world to dump their foreign reserves to appreciate their currencies and lower the cost of food imports, causing the collapse of the dollar, the treasury market, derivative markets, and the global financial system. The US will experience economic disintegration.
The 2010 Food Crisis Means Financial Armageddon
Over the last two years, the world has experience faced a series of unprecedented financial crisis: the collapse of the housing market, the freezing of the credit markets, the failure of Wall Street brokerage firms (Bear Stearns/Lehman Brothers), the failure of Freddie Mac and Fannie Mae, the failure of AIG,
Iceland’s economic collapse, the bankruptcy of the major auto manufacturers (General Motors, Ford, and Chrysler), etc… In the face of all these challenges, the demise of the dollar, derivative markets, and the modern international system of credit has been repeatedly anticipated and feared. However, all these doomsday scenarios have so far been proved false, and, despite tremendous chaos and losses, the global financial system has held together.
The 2010 Food Crisis is different. It is THE CRISIS. The one that makes all doomsday scenarios come true. The government bailouts and central bank interventions which have held the financial world during the last two years will be powerless to prevent the 2010 Food Crisis from bringing the global financial system to its knees.
Financial crisis will kick into high gear
So far the crisis has been driven by the slow and steady increase in defaults on mortgages and other loans. This is about to change. What will drive the financial crisis in 2010 will be panic about food supplies and the dollar’s plunging value. Things will start moving fast.
Dynamics Behind 2010 Food Crisis
Early in 2009, the supply and demand in agricultural markets went badly out of balance. The world was experiencing a catastrophic fall in food production as a result of the financial crisis (low commodity prices and lack of credit) and adverse weather on a global scale. Meanwhile, China and other Asian exporters, in effort to preserve their economic growth, were unleashing domestic consumption long constrained by inflation fears, and demand for raw materials, especially food staples, was exploding as Chinese consumers worked their way towards American-style overconsumption, prodded on by a flood of cheap credit and easy loans from the government.
Normally, food prices should have already shot higher months ago, leading to lower food consumption and bringing the global food supply/demand situation back into balance. This never happened, because the U.S. Department of Agriculture (USDA), instead of adjusting production estimates down to reflect decreased production, has been adjusting estimates upwards to match increasing demand from china. In this way, the USDA has brought supply and demand back into balance (on paper) and temporarily delayed a rise in food prices by ensuring a catastrophe in 2010.
Overconsumption is leading to disaster
It is absolutely key to understand that the production of agricultural goods is a fixed, once a year cycle (or twice a year in the case of double crops). The wheat, corn, soybeans and other food staples are harvested in the fall/spring and then that is it for production. It doesn’t matter how high prices go or how desperate people get, no new supply can be brought online until the next harvest at the earliest. The supply must last until the next harvest, which is why it is critical that food is correctly priced to avoid overconsumption, otherwise food shortages will occur.
The USDA, by manufacturing the data needed to keep supply and demand in balance, has ensured that agricultural commodities are incorrectly priced, which has lead to overconsumption and has guaranteed disaster next year when supplies run out.
An astounding lack of awareness
The world is blissful unaware that the greatest economic/financial/political crisis ever seen is a few months away. While it is understandable that general public has no knowledge of what is headed their way, that same ignorance on the part of professional analysts, economists, and other highly paid financial “experts” is mind boggling, as it takes only the tiniest bit of research to realize something is going critically wrong in agricultural market.
USDA estimates for 2009/10 make no sense
All someone needs to do to know the world is headed is for food crisis is to stop reading USDA’s crop reports predicting a record soybean and corn harvests and listen to what else the USDA saying.
Specifically, the USDA has declared half the counties in the Midwest to be primary disaster areas, including 274 counties in the last 30 days alone. These designated are based on the criteria of a minimum of 30 percent loss in the value of at least one crop in a county. The chart below shows counties declared primary disaster areas by the secretary of Agriculture and the president of the United States.
For a list of Secretarial disaster declarations, see here.
For a list of Presidential disaster declarations, see here.
The same USDA that is predicting record harvests is also declaring disaster areas across half because of catastrophic crop losses! To eliminate any doubt that this might be an innocent mistake, the USDA is even predicting record soybean harvests in the same states (Oklahoma, Louisiana, Arkansas, and Alabama) where it has declared virtually all counties to have experienced 30 percent production losses. It isn’t rocket scientist to realize something is horribly wrong.
USDA motivated by fear of higher food prices
The USDA is terrorized by the implications of higher food prices for the US economy, most likely because it knows the immediate consequence of sharply higher food will be the collapse of the US Treasury market and the dollar, as desperate governments and central banks dump their foreign reserves to appreciate their currencies and lower the cost of food imports. Fictitious USDA estimates should be seen as proof of the dire threat posed by higher food prices, as the USDA would not have turned its production estimates into a grotesque mockery of reality if it didn’t believe the alternative to be apocalyptic.
While the USDA may be the worst offender, the US isn’t the only government trying to downplay the food situation out of fear. As one Indian reporter writes, governments are lying about the looming food crisis.
… some experts and governments, in full cognizance of the facts, want us not to create panic and paint a picture of parched crops and a looming food crisis. This, they say, would push up food prices unnaturally, lead to hoarding and ultimately result in a situation where many more millions across the world would go hungry. And whether it is the developing world or the developed, it is those at the bottom of the pyramid who are the most affected in such scenarios.
This leads to a confusing divide between reality and government pronouncements, or even between the perspectives of government departments
Confusing divide between reality and government pronouncements
For months now, the media has been reporting two distinctly, contradicting realities. One of these realities is filled with record crops and plentiful supply, and the other is filled agricultural devastation and ruin. It has been a mad, frustrating experience to read about agricultural disasters and horrendous crop losses in virtually every state combined with predictions of a US record harvest, sometimes in the same article.
A Reality of record crops and plentiful supply
The accepted, “official” reality is found in USDA crop and WASDE reports. In this reality, the U.S. Department of Agriculture is projecting the largest US soy crop on record, at 3.3 billion bushels, and the second-largest corn crop at 12.9 billion bushels.
Below are the government’s numbers for US soybean production by state. The USDA is expecting record high soybean yields across the Midwest in 2009, leading to production numbers significantly higher than the 5 year average. The large increase between the August and November estimates also indicates that the USDA doesn’t believe crops suffered much damage during the fall harvest.
Bank Collapse in Austria Brings Eastern European Debt Center Stage
Posted by sakerfa on December 16, 2009
(SeekingAlpha) – In the links Monday, I pointed to an FT article detailing the Austrian government’s nationalization of the insolvent bank Hypo Group Alpe Adria (HGAA). The financial institution, which has 58 billion in assets, is the country’s sixth largest bank. But, in relative terms, this is a very large bankruptcy – using GDP at purchasing power parity, an American HGAA would have assets of $2.5 trillion, larger than any of the American banks. So, this is a very big deal and it points to renewed risks in banking and the possibility of contagion.
HGAA is considered a subsidiary of the troubled German state-controlled bank of Bavaria BayernLB. Just last month BayernLB pointed to trouble when it reported a huge loss over 1 billion Euros for the second quarter running. The trouble: HGAA.
The FT reported at the time that:
HGAA would report a significant loss for the year and a capital injection for its subsidiary would be unavoidable, BayernLB said. The bank warned it would take a goodwill impairment charge at the end of the year on the value of its HGAA investment.
“Increased risk provisions and the expected impairment at HGAA will weigh significantly on… earnings in the fourth quarter. It is not yet possible to quantify it exactly, but it can be expected that as a result of these effects, the group will report a loss of well over €1bn,” BayernLB said in a statement.
The problems are the latest sign of how Germany’s Landesbanken – regionally owned public banks – have been thrown off course by risky attempts to boost profits by diversifying away from their core regional lending activities. BayernLB lost more than €5bn last year after writedowns on its huge stock of toxic assets, forcing it to seek a bail-out from the Bavarian regional government.
The bank’s purchase of HGAA in 2007 is already the subject of an inquiry by Germany state prosecutors, who are considering whether the former chief executive of the German bank committed a breach of trust by paying too high a price for HGAA.
This is what is commonly known as reckless lending and it happened in spades during the boom in Eastern Europe. Most of the actors are banks in Scandinavian and German-speaking countries. HGAA was most exposed to the former nations of Hapsburg empire, with the Balkans in first place on that list. The purchase of HGAA by BayernLB even after a global housing bubble had popped needs investigation and reminds me of the flyer taken by Hypo Real Estate in Ireland via its purchase of Depfa. And the fact that two large German institutions increased international exposure into Austria, the Balkans, and Ireland at the top of the market demonstrates the laxity in banking regulation globally.
The fact that the HGAA bankruptcy is happening now should remind you of the Dubai situation again. When the crisis there first struck I talked about exogenous shocks and contagion, saying:
But now that Dubai is back in the news, I have looked back in my archives to see what (if any) links I have had on the situation in the country. The last two were in April about developers defaulting and in May about an S&P debt downgrade. Since then – as the global equity markets have turned up – nothing.
What does this tell me? First and foremost, it hints at the fragility of this recovery and the real risk exogenous shocks pose. We are barely recovering now and a lot of debt and unemployment put us at stall speed, making the risk posed by events of this nature that much greater.
More importantly, however, the Dubai World events underline the unpredictability of exogenous shocks. All of these potential crisis situations — dollar carry trade unwind, debt crisis in the Baltics, oil price spike, an unexpected surge in interest rates, war in the Middle East — are still there lurking in the background. We don’t see coverage in the press on them everyday, but they are still there.
I have been optimistic about the near-term prospects for the global economy in large part due to the myriad pro-cyclical effects of recovery. Longer-term, however, there are some serious obstacles to a sustainable recovery. This is not a garden-variety recession and recovery. It is a recession within a longer-term depression. And while we are in a technical recovery, I believe much of the fundamental problems which triggered this downturn are still there, lurking. The debt troubles at Dubai World bring this point home.
[emphasis added]
The first signs of Dubai contagion popped up in Greece and Ireland because of similarities to Dubai regarding mountainous sovereign debt problems. Now that we have this rather large bankruptcy in Austria, we can talk about further contagion. Looking back in my archives at Austria this time, it has been a long time since I have discussed the banking situation in Austria. It was most critical in the December 2008 to March 2009 time frame when we were in serious crisis mode. Below are the posts I wrote relating to that topic.
- Is this Austrian real estate company a canary in the coalmine? – Dec 2008
- Austrian banks have emerging-market financial exposure that is 70% of GDP – Jan 2009
- The Eurozone and the spectre of banking collapse – Jan 2009
- Peer Steinbrueck says Germany might bail out the Austrians – Feb 2009
- The European problem – Feb 2009
- While Rome Burns – Feb 2009
- EU planning 200 billion euro package for Eastern Europe – Feb 2009
- The EU promises to bail out eurozone members – Mar 2009
That’s it. As with the situation in Dubai, it was radio silence until the Dubai World panic. The most telling statement in these posts is this one which comes via the Vancouver Sun about comments by International Economy magazine’s David Smick:
Internationally, Smick said export-dependent developing countries, and the western banks that financed their growth, are particularly vulnerable.
“If too many of these emerging markets go down, the IMF (International Monetary Fund) lacks the necessary resources to mount rescue operations,” writes Smick, author of the 2008 book The World Is Curved: Hidden Dangers to the Global Economy.
“To put things in perspective, Austrian banks have emerging-market financial exposure exceeding $290 billion. Austria’s GDP is only $370 billion.”
As in the U.S., the critical thing in Eastern Europe is maintenance of asset prices underpinning this financial exposure. There is zero chance Austria will survive a further collapse in asset values in Eastern Europe without EU or IMF support. This is the major reason central banks are flooding the system with liquidity.
Now, if the Dubai contagion does result in renewed weakness in asset prices, then I may have to eat my words about how unlikely it is that Ireland or Greece leave the Eurozone. My comments from last January on Ambrose Evan-Pritchard’s Euroscepticism are still my thinking today:
My take on events is that a number of countries within the Eurozone will face banking crises, starting with Ireland. At that point, leaving the Eurozone will make no sense because the damage has already been done.
Evans-Pritchard’s calculus is more to the point: Ireland must threaten to leave now if it wants to maximize any EU help it expects to receive, before the scope of other EU banking crises become apparent. Weakness in the financial sector has infected all of the Eurozone members. I have mentioned that Austria has a weak banking system (see posts here and here). But, there is even growing evidence that Germany too has a fragile banking system. To be clear: this is an ‘every nation for itself’ strategy pitting Eurozone members against each other, where those nations savvy enough to request help sooner are likely to benefit at the expense of others. The question is whether the Germans would go along with this. If they do not, tensions will rise and that will change the calculus for Portugal, Italy, Ireland, Greece, and Spain. I don’t have a view on this as yet because the situation is still evolving. However, I lean toward believing the Eurozone will remain intact even while individual nations or banking systems collapse.
Dec. 15 (Bloomberg) -- Confidence among U.S. homebuilders unexpectedly fell in December on concern the lack of jobs and tight credit will limit a recovery.
The National Association of Home Builders/Wells Fargo index of builder confidence decreased to 16, the lowest level since June, from 17 in a November, the Washington-based group said today. Readings below 50 mean most respondents view conditions as poor.
Mounting foreclosures and an unemployment rate forecast to average 10 percent next year indicate housing will take time to rebound from the worst slump in the post-World War II era. Cheaper homes, lower borrowing costs and an extension of a buyer tax credit are laying the groundwork for companies including Toll Brothers Inc. to revive construction projects.
“This is shaping up to be a bumpy recovery period for the housing market,” David Crowe, the NAHB’s chief economist, said in a statement. “Tight lending conditions for both consumers and home builders continue to pose considerable obstacles on the road to a sustained housing and economic recovery.”
The builder confidence index was forecast to increase to 18 this month, according to the median forecast of 47 economists surveyed by Bloomberg News. Projections ranged from 17 to 20. The index, first published in January 1985, averaged 16 last year.
The confidence survey asks builders to characterize current sales as “good,” “fair” or “poor” and to gauge prospective buyers’ traffic. It also asks participants to gauge the outlook for the next six months.
The builders group’s index of current single-family home sales fell to 16 in December from 17 the prior month.
The gauge of buyer traffic was unchanged at 13 for a third straight month. A measure of sales expectations for the next six months dropped to 26 from 28.
Drop in Midwest
The drop in confidence was concentrated in the Midwest, where the index fell to 12 in December from 14. Two of the four regions showed increases, led by the Northeast, which rose to 23 from 20. In the West, the gauge climbed to 19 from 18. Confidence was unchanged in the South at 17.
President Barack Obama in November extended until April 30 a tax credit of as much as $8,000 for first-time homebuyers and expanded it to include a smaller incentive for some current owners.
Housing has bottomed, distressed property sales and foreclosures have abated, and inventories are trimmer, Robert Toll, chief executive officer of Horsham, Pennsylvania-based Toll, the largest U.S. luxury homebuilder, said last week.
“We don’t know how fast we’re coming back, but we do know we’re coming back,” Toll said in a Bloomberg Television interview on Dec. 11. “There’s a pretty good reservoir of pent-up demand.”
The labor market remains weak. The jobless rate may stay above 10 percent through the first half of 2010, according to a Bloomberg survey this month. Foreclosure filings will reach a record for the second straight year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc. said last week.
To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net
Last Updated: December 15, 2009 13:00 EST
Bond price crash is the surest bet in town
Past performance, all financial advisers are obliged to tell you when seeking to stuff your hard-earned nest egg into the latest investment fashion, is no guide to the future.
If there is one thing we can be sure of as we approach the end of the noughties, it is that government bonds, having hugely outperformed equities over the past 10 years, most definitely won't be doing the same again over the next 10.
The reason we can be so confident is that though capricious and volatile on a short-term basis, asset classes tend to conform to fairly predictable cyclical patterns over much longer time frames.
An extended period of out-performance for one asset class over another will eventually and inevitably be wholly reversed. The difficult bit is spotting the turn. It is easy with the benefit of the rear-view mirror to see why things change, but much harder to see them on the road ahead. Even so, you don't need an expert on the history of asset markets to realise that the current, 15-year bull run in government bonds is nearing its conclusion. Indeed, for many countries it has already ended.
Since the low point last March, when the world economy looked as if it might be heading into a repeat of the Great Depression, UK government bond yields have risen appreciably (a rising yield is the inverse reflection of a falling price). The same is true of US Treasuries, and we all know what's happened to bonds in the peripheral euro economies, where markets are already pricing in the risk of default.
Not everyone believes bonds are overvalued – if they did, prices would already have crashed a good deal further. Yet to think they will again challenge the high points they got to last March is to take the view that a decade-long deflation looms, with much of Europe condemned to falling output and prices.
This should not be discounted as altogether impossible, but it doesn't look the way to bet. Explosive growth in government debt around the advanced world is leading investors to fear for the safety of their capital.
With downgrades of Greek and Spanish debt last week, sovereign risk is assuming centre stage. This is something quite new, at least for advanced economies, forcing many of them to pay more for their borrowing regardless of the outlook for inflation. Tim Bond, head of global asset allocation at Barclays Capital, categorises government bonds alongside gold as by far the most risky asset class right now. It's hard to disagree.
Despite the adjustment of the past nine months, real yields (taking account of inflation) are still close to historic lows. Never mind sovereign risk, many government bond prices give virtually no protection against a pick-up in price inflation either, the risks of which would seem to be quite a bit higher than at any stage in the past 10 years.
For many governments, the temptation to inflate away burgeoning fiscal deficits will be hard to resist. What is more, the disinflationary effect that Asia has had on the West over the past decade is fast being reversed with the rapid growth in domestic demand.
If all this is true, how come bond yields haven't already gone through the roof? The explanation has lamentably little to do with the fundamentals. Instead, it is almost wholly down to the way government debt markets are being artificially supported by exceptionally loose monetary conditions.
If short-term money is priced at virtually zero, it will inevitably force the price of long-term money lower too, however irrational this might seem. A giant carry trade has developed, in which investors borrow the cheap money short and then chase the higher returns available further up the yield curve.
Massive portfolio losses are threatened for those left holding the baby when the interest rate cycle changes, as it inevitably will towards the end of next year.
In Britain and the US, the effect of cheap money on long bond yields has been doubly powerful because of Quantitative Easing. When this comes to an end, markets will be hit by a tsunami of net issuance as governments seek to fund record fiscal deficits without the prop of monetarisation by central bankers. Perhaps the markets have already discounted the withdrawal of this huge, artificial source of demand. I'm not so sure.
Whatever the answer, they would be unwise to count on the big commercial banks to step in to the breach. True enough, banks are being forced by regulators to hold much bigger liquidity pools to act as a cushion against the funding difficulties experienced during the credit crunch. But it is a misunderstanding to think that all this money is going to be piled into long-dated gilts. Conscious of the risks, banks are focusing their purchases on much shorter dated instruments. They've learnt a thing or two about the dangers of maturity mismatch. Banks are not about to open themselves up to the sovereign debt equivalent of sub-prime.
As if all this wasn't bearish enough for government bond markets, there are also the unfunded liabilities of ageing populations to deal with. This threatened structural deterioration in the public finances comes on top of the calamitous damage already inflicted by the banking crisis and economic recession.
Unfortunately, it is much harder to be confident of the bull case for equities than it is to be certain of the bear case for government debt. Using the yardstick of cyclically adjusted earnings, equities again look somewhat over-valued after the record-breaking rally of the past nine months.
Warren Buffett likes to use the analogy of the locust cycle, under which a biblical plague returns once every 17 years, to define the movements of stock markets. In fact, there is quite a lot of evidence to support this characteristically eccentric analogy.
Tracking the movements of stock and bond markets over several centuries, the Barclays gilt/equity study finds that after 15-18 years of very strong returns you nearly always get an equal and opposite period of very low returns.
So for bonds, it is already a done deal. They've had their 15 years of feast, and much as they did in the late 1960s, are about to enter a more subdued and fallow period. If you had bought gilts back in the 1960s, when inflation looked as tame as it does today, you would have lost your shirt in the subsequent decade and half of turbulence.
Equities didn't do much better, but at least this time around, shares have already had 10 years of poor or negative returns, unlike bonds. Only seven years to go, then, before we unambiguously break back through the turn of the century peak, but plenty of opportunities for buying on the dips before then.
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FDIC Shuts Down AmTrust Bank, 5 Others: 130 Failed Banks So Far In 2009
MARCY GORDON | 12/ 5/09 12:19 AM |
WASHINGTON — Regulators have shut down six more banks, bringing to 130 the number of U.S. banks to be brought down so far in 2009 by recession and mountains of bad debt.
The Federal Deposit Insurance Corp. on Friday took over Ohio's AmTrust Bank, the fourth-largest bank to fail this year, with about $12 billion in assets and $8 billion in deposits. The Cleveland-based bank's failure is expected to cost the federal deposit insurance fund an estimated $2 billion.
About a year ago, the federal Office of Thrift Supervision put restrictions on AmTrust because of concern that its reserves against losses were dangerously low. The regulators told the bank to limit new loans for land acquisition, development or speculative residential construction.
In addition to its branches in Ohio, AmTrust – formerly Ohio Savings – had branches in Florida and the Phoenix area.
New York Community Bank, based in Westbury, N.Y., agreed to assume the deposits of AmTrust Bank and about $9 billion of its assets. The FDIC will retain the rest for eventual sale. AmTrust's 66 branches will reopen starting Saturday as offices of New York Community Bank, the FDIC said.
In addition, the FDIC and New York Community Bank agreed to share losses on about $6 billion of the failed bank's loans and other assets.
Also seized by the FDIC on Friday were three Georgia banks: Buckhead Community Bank, based in Atlanta, with $874 million in assets and $838 million in deposits; First Security National Bank, based in Norcross, Ga., with $128 million in assets and $123 million in deposits; and Tattnall Bank, of Reidsville, Ga., with assets of $49.6 million and deposits of $47.3 million.
Benchmark Bank, based in Aurora, Ill., with $170 million in assets and $181 million in deposits, also was closed, as was Greater Atlantic Bank, of Reston, Va., with $203 million in assets and $179 million in deposits.
The failure of Buckhead Community Bank is expected to cost the federal deposit insurance fund an estimated $241.4 million; that of First Security National Bank, around $30.1 million; Tattnall Bank, $13.9 million; Benchmark Bank, about $64 million; and Greater Atlantic Bank, $35 million.
The three shutdowns in Georgia brought to 24 the number of bank failures in that state so far this year. Benchmark Bank was the 20th to fail in Illinois. Failures also have been concentrated in California and Florida.
As the economy has soured, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have accelerated and sapped billions out of the federal deposit insurance fund. It has fallen into the red.
The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years.
Depositors' money – insured up to $250,000 per account – is not at risk, with the FDIC backed by the government. The FDIC still has about $21 billion cash in loss reserves apart from the insurance fund. It can also tap a Treasury Department credit line of up to $500 billion.
Banks have been especially hurt by failed real estate loans. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.
If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks hold large concentrations of these loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.
The 130 bank failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the federal deposit insurance fund more than $28 billion so far this year. They compare with 25 last year and three in 2007.
The dollar's fall is felt overseas
EUROPE, JAPAN FEAR FALLOUT
Declining value aids U.S. economic recovery
The dollar has plunged, down 18 percent against the euro in the past 12 months, as officials have diluted its value to jump-start the economy. (Andrew Harrer/bloomberg News)
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Thursday, October 29, 2009 LONDON -- The dramatic decline of the U.S. dollar is aiding the American economic recovery but setting off alarm bells overseas, with corporate executives, politicians and pundits calling it among the biggest threats to the rebounds underway in Europe and Japan. Mounting concern abroad over the shrinking dollar underscores how exchange rates have emerged as a growing source of friction, with many countries jockeying for the weakest currency to boost exports and protect their markets from foreign competition.
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more than 40 percent against the South African rand and Australian dollar -- as U.S. officials have effectively diluted its value, printing money and adopting near-zero interest rates, to jump-start the economy.
The moves have sharply improved the U.S. trade deficit, as everything from American-made cellular phones to furniture suddenly become more competitive both at home and overseas while giving foreign manufacturers more incentives to create jobs in the United States. Analysts say the severity of the downturn in the United States as well as the unemployment rate would be markedly worse without the weak dollar.
Yet it has had just the opposite effect on German washing machines and Japanese cars, making them less price competitive in the world's largest market -- the United States. Moreover, those same Japanese cars and German washing machines are also less competitive in the world's fastest growing market -- China. That's because the Chinese yuan, still closely pegged to the value of the U.S. currency, has fallen just as much as the dollar on world markets, serving up a double whammy to countries with fast-appreciating currencies like the euro. It also means that China, the country that enjoys the single biggest trade surplus with the United States, has actually seen that surplus grow during the recession.
Developing countries
Other developing countries whose currencies are not pegged to the dollar, such as Brazil, have grown so concerned about the soaring values that they have recently enacted new investment controls to stem the U.S. dollar's fall. European companies including Nestle, based in Switzerland where the franc has appreciated 13 percent against the dollar in the past 12 months, cite exchange rates as a bigger factor in recent revenue declines than weak global demand.
"We're losing competitiveness globally because of this," complained Jose Manuel Rodriguez Bordillo, director general of Spain's Agrosevilla, one of the world's largest olive exporters. "There's no way this can continue; we're losing 15 percent [in revenue] this year just because of the exchange rate."
The weak dollar is becoming a source of international tension, particularly in U.S.-European relations. Officials in the 16 countries that use the euro warn a continued slide of the dollar may pose long-term structural problems for Europe, forcing down wages and hurting employment in the months and years ahead. This week, a top aide to French President Nicolas Sarkozy called the value of the dollar "a disaster" for Europe, warning of dire consequences to the global economy if it remains at its current levels. In some circles, the dollar's decline is seen as a protectionist move by the United States -- something U.S. officials have strongly denied.
"If the dollar is going down this way, it is because that is what the Americans want," economic commentator Yves de Kerdrel wrote in the French newspaper Le Figaro this week. "In a globalized economy where national egoisms persist but where customs barriers have almost disappeared, the best protection consists in playing on exchange rates."
Yet analysts say the fall of the dollar reflects a basic economic truth: the U.S. financial situation is no longer as solid as it once was. Rather than being undervalued, many argue that the dollar has room to fall further.
"The dollar is weaker not so much because people are buying yen because they think Japan is suddenly going to be the next hot thing again," said Stephen King, chief economist at HSBC in London. "Instead, there is a sense that in some very defined and critical way, the dollar and the U.S. have lost their way. The U.S. has borrowed so much from foreigners. They've got a rising budget deficit and few ways to bring it under control that investors see as viable. Those are things that affect the value of a currency."
Investor confidence
The dollar has also fallen because investors are feeling more confident about the global economy. During the height of the crisis, the greenback was viewed as the safest port in the storm. As the storm subsides, investors are charting a course again for emerging markets which, given the poor fiscal position and fragile recovery in the United States, no longer seem quite as risky as they once did.
It has generated a mild snowball effect. As the dollar weakens, it becomes less attractive to hold, so investors increasingly are dumping the currency and moving into oil, gold and stocks. That, in turn, has helped fuel a strong recovery in commodity prices and recent stock market surges.
The risk remains of a full-blown run on the dollar that could force the Federal Reserve to suddenly raise interest rates, dealing a potentially severe blow to the U.S. recovery. That could happen if major holders of dollars, such as China and Japan, begin to sell off their holdings. China in particular has made statements on the need to move away from the dollar as a reserve currency, though analysts say they have so far backed up those calls with only minor moves to divest their holdings. There are also rising concerns that the U.S. policy of flooding the economy with cheap money could drive up inflation, as it has already begun to do in Britain, a country where the once-mighty pound has been humbled, tumbling against the euro as well as the dollar.
But for now, the weak dollar is one problem the United States loves to have.
"Right now, you're getting an economic bump from it," said C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington. "Our conclusion is that the dollar's value is just about right where it should be."
Correspondent Edward Cody in Paris contributed to this report.
Help (still) wanted: Bank of America CEO
The search for a successor to Ken Lewis continues, stymied by a limited pool of candidates and the heavy hand of the U.S. government.
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| Bank of America CEO Ken Lewis will retire at the end of this year, following a 40-year career with the company. |
NEW YORK (CNNMoney.com) -- Of all the headaches Bank of America faces these days, none is more painful than its ongoing quest to find a new CEO.
More than a month-and-a-half has passed since Ken Lewis announced his plans to retire from the Charlotte, N.C.-based bank at the end of the year. Still, a successor has yet to emerge.
Some have blamed disorganization among company board members, who were arguably caught flat footed when Lewis first made his stunning announcement at the end of September.
Lewis had previously said he planned to serve until after the bank paid back the money received last fall under TARP, or the Troubled Asset Relief Program.
But the government aid might be part of the problem. Over the past year, regulators pumped more than $45 billion into the nation's largest bank, nearly half of which came after Bank of America (BAC, Fortune 500) realized that the scope of losses at investment bank Merrill Lynch were much more severe than first thought. BofA agreed to buy Merrill last year just as Lehman Brothers was about to go under.
As one of seven companies to get "exceptional" assistance, BofA has had to succumb to a handful of government demands, including having the pay packages of its top executives reviewed by Kenneth Feinberg, the Obama administration's so-called "pay czar".
That has apparently scared away some potential successors.
William Demchak, for example, a leading executive at Pittsburgh-based PNC (PNC, Fortune 500), reportedly brushed aside inquiries by the firm amid fears about what kind of scrutiny might be imposed by Feinberg, according to the a recent report by the Wall Street Journal.
Robert Kelly, the chairman and CEO of Bank of New York Mellon (BK, Fortune 500), was also believed to be in the running for BofA's top post earlier this month before announcing to staff he was not interested.
"No one wants to work for an institution where the government is calling the shots," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.
Looking inside and out
That reluctance could give some internal candidates, who have already come to grips with life under the government's thumb, a leg up on the competition.
At least two BofA insiders are believed to be in the running for Lewis' job - Brian Moynihan, the recently appointed head of BofA's key retail banking business and Greg Curl, the bank's chief risk officer.
Neither candidate, however, has won a ringing endorsement from Wall Street.
"We believe the board will find it cannot justify either candidate based on their professional merits," wrote Jonathan Finger, a partner at the Houston-based investment manager Finger Interests, in a regulatory filing earlier this month. The firm owns shares of BofA.
Finger and other big institutional investors who helped lead a successful campaign to strip Lewis of his title of chairman earlier this year, have instead lobbied for making a clean break with the Lewis era.
They have demanded that the company hire an outsider, or at least someone who has been away from BofA for some time.
A Bank of America spokesperson said that the company was interviewing both internal and external candidates, but would not comment on recent speculation on who those candidates might be.
Two names outside the company that were widely cited in the wake of Lewis' resignation were James Hance and Alvaro de Molina, two long-time BofA veterans. Both had previously been chief financial officer for the bank. Hance is now the chairman of telecom firm Sprint Nextel (S, Fortune 500).
Molina has suddenly become available after stepping down as CEO of auto financing firm GMAC on Monday. Some experts have downplayed his chances though since he may have generated some ill will by hiring away dozens of BofA employees following his departure in late 2006.
"Even burned down bridges can be repaired, but I don't know if BofA can forgive his recruiting efforts when he left," said Raymond James analyst Anthony Polini.
The speculation hasn't stopped there. Even New Jersey governor Jon Corzine, who lost a bid for re-election this month, was briefly mentioned as a successor, before the former Goldman Sachs (GS, Fortune 500) executive quashed such rumors last week.
Many challenges for a new leader
As rabid as the speculation is about who will replace Lewis, no decision is expected to be made until next week at the earliest. A company spokesperson said the board was looking make a decision "around Thanksgiving."
Whoever does secure the position, however, will certainly have their hands full.
The new CEO will have to establish an exit strategy to pay back TARP funds and get out from under the government's thumb.
Lewis' successor will also have to navigate a minefield of new industry regulations that could hurt BofA more than other banks.
A sweeping set of changes are set to go into effect for the credit card industry in February. BofA is currently the second largest issuer of credit cards in the country, according to the industry trade publication Nilson Report. Even more changes are likely ahead as Congress pushes forward with additional financial regulatory reforms.
There has even been increased talk on Capitol Hill of giving regulators the power to break up some of the nation's largest financial institutions, a group that would most certainly include BofA.
On top of all that, there are many internal challenges facing the company, namely the integration of Merrill Lynch, said William Atwood, executive director of the Illinois State Board of Investment, which owns nearly 2 million shares of BofA.
The company also faces what could be an ugly legal fight with the Securities and Exchange Commission over BofA's alleged failure to notify shareholders of its decision to pay Merrill executives outsized bonuses last year.
BofA had originally worked out a $33 million settlement with the SEC over the matter, but a judge threw out the agreement, setting the stage for a trial early next year.
"The board has a singular opportunity to get it right," said Atwood. "In one fell swoop they can really strengthen the whole organization."
CIT files for Chapter 11 bankruptcy protection
The Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT's bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.
A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.
"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," said Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.
CIT's move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.
Treasury Department spokesman Andrew Williams said the government will be closely monitoring the bankruptcy proceedings, but acknowledged that "recovery to preferred and common equityholders will be minimal."
Common stockholders set to lose their investment include FMR LLC of Boston with a 9.9 percent stake in CIT and San Diego-based Brandes Investment Partners LP with a 9.7 percent equity position, according to CIT's filing.
CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.
The company received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.
Analysts warned that the bankruptcy could add to the uncertainty around loans for the nation's small businesses, especially retailers, which make up a significant portion of CIT's clients and are already struggling with tight credit markets.
CIT is the financier for about 2,000 vendors that supply merchandise to more than 300,000 stores, many of which are gearing up for the critical holiday shopping season. They rely on the lender to cover costs ranging from paying for orders to making payroll. Any disruption caused by bankruptcy could wreak havoc on their operations, Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.
"CIT is the 600-pound gorilla in the industry," Alouf said.
But CIT has already pulled back sharply on its lending to businesses as it tried to preserve cash. According to its most recent quarterly earnings report, the company originated just $4.4 billion worth of new business during the first six months of 2009 compared to $11.3 billion in the first half of 2008.
CIT said Sunday the bankruptcy filing is only for the holding company, and won't affect its operating subsidiaries, such as Utah-based CIT Bank. CIT has filed a number of first-day motions to allow it to continue operations, including requests to keep paying wages and other employee benefits and to pay its vendors and certain other creditors in full.
The company has retained Evercore Partners and FTI Consulting as its financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel in connection with the restructuring plan and Chapter 11 cases.
Houlihan Lokey Howard & Zukin Capital Inc. serves as financial adviser, and Paul, Weiss, Rifkind, Wharton & Garrison LLP serves as legal counsel to the bondholders' committee.
AP Retail Writer Anne D'Innocenzio in New York contributed to this report.
The Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT's bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.
A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.
"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," said Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.
CIT's move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.
Treasury Department spokesman Andrew Williams said the government will be closely monitoring the bankruptcy proceedings, but acknowledged that "recovery to preferred and common equityholders will be minimal."
Common stockholders set to lose their investment include FMR LLC of Boston with a 9.9 percent stake in CIT and San Diego-based Brandes Investment Partners LP with a 9.7 percent equity position, according to CIT's filing.
CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.
The company received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.
Analysts warned that the bankruptcy could add to the uncertainty around loans for the nation's small businesses, especially retailers, which make up a significant portion of CIT's clients and are already struggling with tight credit markets.
CIT is the financier for about 2,000 vendors that supply merchandise to more than 300,000 stores, many of which are gearing up for the critical holiday shopping season. They rely on the lender to cover costs ranging from paying for orders to making payroll. Any disruption caused by bankruptcy could wreak havoc on their operations, Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.
"CIT is the 600-pound gorilla in the industry," Alouf said.
But CIT has already pulled back sharply on its lending to businesses as it tried to preserve cash. According to its most recent quarterly earnings report, the company originated just $4.4 billion worth of new business during the first six months of 2009 compared to $11.3 billion in the first half of 2008.
CIT said Sunday the bankruptcy filing is only for the holding company, and won't affect its operating subsidiaries, such as Utah-based CIT Bank. CIT has filed a number of first-day motions to allow it to continue operations, including requests to keep paying wages and other employee benefits and to pay its vendors and certain other creditors in full.
The company has retained Evercore Partners and FTI Consulting as its financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel in connection with the restructuring plan and Chapter 11 cases.
Houlihan Lokey Howard & Zukin Capital Inc. serves as financial adviser, and Paul, Weiss, Rifkind, Wharton & Garrison LLP serves as legal counsel to the bondholders' committee.
AP Retail Writer Anne D'Innocenzio in New York contributed to this report.
EU takes ING back to its banking roots
AMSTERDAM (Reuters) - Dutch bancassurer ING will split in two, transforming itself into a smaller European lender in the most striking example yet of the deep changes that EU policymakers want to force on banks that received state aid.
The company also said it would pay back early 50 percent of the bailout funds granted by the Dutch state and launch a 7.5 billion euro ($11.25 billion) rights issue, as it unwinds much of an 18-year expansion drive and returns to its retail savings bank roots.
The move by Chief Executive Jan Hommen - who has espoused an intense work ethic and an austere view on pay since taking the reins at ING earlier this year - strips the firm of much of its global profile.
It also potentially sets up a blockbuster insurance sale in a sector already ripe for consolidation, with companies such as Aviva and Clive Cowdery's Resolution having previously declared themselves on the lookout for acquisitions.
Most European governments stepped in to subsidize their banking sectors during the credit crunch and the EU executive wants to force lenders that took state aid to restructure. It is trying to push through as many rulings as possible before Competition Commissioner Neelie Kroes bows out at the end of this year.
ING shares fell 12.7 percent to 10.185 euros at 1434 GMT as investors factored in the impact of a rights issue for nearly 30 percent of the firm's market value.
SNS Reaal, one of the last major bancassurers along with ING, was down almost 4 percent.
"This is still a difficult environment and ING may be running ahead of themselves with the rights issue but capital markets have shown they can be quite forgiving to ING," said Fred Huibers, a fund manager at Het Haags Effektenkantoor.
The split will leave ING's balance sheet 30 percent smaller than before its bailout. The downsized entity would focus on Benelux, eastern Europe and Turkey, the firm said, with "options" in India and Thailand and the fate of its stake in the Bank of Beijing still uncertain.
RESTRUCTURING PRESSURE
Commissioner Kroes gave the go-ahead for a rescue plan for Germany's second-largest bank, Commerzbank, in May on the understanding that it divest about 45 percent of its balance sheet.
Belgium's KBC and Franco-Belgian Dexia are awaiting European Commission rulings, and Royal Bank of Scotland and Lloyds Bank Group -- 70 percent and 43 percent respectively owned by Britain -- are expected to be ordered into disposals too.
British opposition finance spokesman George Osborne told a Reuters News maker event on Monday that British retail banks should stop paying big cash bonuses and use the money to support new lending and contribute to economic recovery.
Since taking over from Michel Tilmant in April, ING CEO Hommen has led a regime of austerity in compensation, drawing no salary himself thus far.
ING said the divestment of the insurance operations would be completed by 2013, through IPOs and or sales. Hommen said it would be "quite interesting" to launch one IPO for the entire global insurance business as a whole.
ING will also split off some Dutch mortgage operations into a new company that would have about a 6 percent market share.
Pursuant to the restructuring agreement with the EU, ING will also have to sell ING Direct USA, its American online banking business.
British insurer Standard Life Plc said on Monday it sold its banking arm to Barclays Plc for 226 million pounds ($369 million), in a move that will build up the bank's UK mortgage and savings business.
TIER 1 BUYBACK
ING, which received 10 billion euros from the state in October 2008 to bolster its balance sheet amid a crisis in the Dutch banking sector, said it would repurchase 5 billion euros in core Tier 1 securities in December.
It would also pay an additional 1.3 billion euros under an asset guarantee scheme from January. The EU had extended a review on that deal, saying it appeared the state paid too much for the assets.
In a separate statement, ING said it expected to report an underlying net profit of 750 million euros for the third quarter, adding that a "moderate stabilization" of operating conditions that started in the second quarter continued into the third quarter.
In France, Credit Agricole denied considering a merger that would see it combine banking and insurance businesses, saying it had no plans for talks with Societe Generale and Groupama. Daily Le Monde had reported Credit Agricole was studying such a deal.
For a graphic showing ING performance and key events, click here: here
(Additional reporting by Greg Roumeliotis and Gilbert Kreijger in Amsterdam and Philip Blenkinsop in Brussels; Editing by Jon Loades-Carter, John Stonestreet)
($1=.6664 Euro)
Capmark Financial files for bankruptcy
NEW YORK (Reuters) - Commercial real estate company Capmark Financial filed for bankruptcy protection on Sunday, wiping out the investment of several private equity firms including Kohlberg Kravis Roberts & Co [KKR.UL.
Capmark, which was created in March of 2006 through a leveraged buyout of the commercial real estate assets of General Motors' finance arm GMAC, had said earlier this year that it might file for bankruptcy.
The company said in a statement the move was due to conditions in the financial and commercial real estate markets and a lack of available capital.
Capmark said that it has been negotiating the terms of the bankruptcy with its creditors, which include banks Citigroup and JPMorgan Chase among others. It has also been in talks with the Federal Deposit Insurance Corp. because of the Utah-based bank it owns.
Capmark Bank is not part of the filing, the company said. Capmark Investments, Capmark Securities and its Asian, Indian and European units are also not in the bankruptcy, it said.
A company spokeswoman was not immediately available for comment.
Capmark listed $20.1 billion in assets and $21 billion in liabilities as of June 30, 2009 in the bankruptcy filing, which was made in U.S. Bankruptcy Court in Wilmington, Delaware.
Capmark, which posted a $1.62 billion second-quarter loss, has been trying to raise cash through targeted sales and plans to sell its mortgage and loan servicing business. In September it signed a deal to sell that business to Berkshire Hathaway and Leucadia National for $490 million.
Under the terms of that deal, a sale will still take place in bankruptcy court with the Berkshire and Leucadia offer setting a floor price in an auction.
But only certain businesses are for sale, a source with direct knowledge of the bankruptcy said. There are no immediate plans to sell any assets like loans because they would have to be sold at a steep discount, he said.
The company said it is working with creditors on the next steps for its Asian business.
The company said it had $500 million of cash and cash equivalents available to fund its operations as of October 23. The source said it would not need any immediate additional financing for bankruptcy such as a debtor-in-possession loan.
PRIVATE EQUITY OWNERS LOSE
The bankruptcy is a red mark for private equity firms KKR, Goldman Sachs Group's Goldman Sachs Capital Partners and Five Mile Capital, which bought Capmark for $1.5 billion in cash and more than $7 billion in debt.
According to the bankruptcy filing, the group owned 75.4 percent of the company while GMAC, or the General Motors Acceptance Corp, owned 21.3 percent. Employees and directors owned most of the remaining stock. Equity investors are typically left with nothing afterKKR, which wrote down its investment in Capmark to zero earlier this year, has had other failed equity investments this year, including its 2005 purchase of doormaker Masonite. It filed for bankruptcy in March and has since emerged from court.
The Horsham, Pennsylvania-based company has three main commercial real estate businesses; lending and mortgage banking, investments and funds management and servicing. It had more than $288 billion in commercial real estate loans as of June 30.
The company is being advised by law firms Dewey & LeBoeuf and Richards, Layton & Finger and Reed Smith; advisory firms Lazard Freres, Loughlin Meghji and Beekman Advisors; and accounting firm KPMG.
The case is in re: Capmark Financial Group, U.S. Bankruptcy Court, District of Delaware, No. 09-13684.
(Additional reporting by Megan Davies and Thomas Hals)
(Reporting by Caroline Humer; Editing by Richard Chang and Diane Craft)
At foreclosure auctions, broken dreams on sale
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By James B. Kelleher
CHICAGO (Reuters) - The seven-bedroom, three-bath house in this city's West Garfield Park neighborhood had once been someone's American Dream.
But at a recent auction of about 100 foreclosed houses and condos, it was just Property No. 20 -- and drawing no bids from a roomful of buyers despite its bargain-basement price.
"Any interest in this home at $7,000?" fast-talking auctioneer Renee Jones asked the crowd. "If not, we'll move on."
Saddled with swollen portfolios of foreclosed and unsold properties in the housing crisis, U.S. lenders and builders are turning to professional auctioneers to help them unload the unwanted real estate in a hurry.
It is an open question whether the auctions indicate that the U.S. real-estate market is recuperating or is still in intensive care.
But the rapid-fire, under-the-hammer sales -- usually resorted to only after every other effort to market a property has failed -- are on the rise across the United States, providing a colorful burst of activity in a corner of the weak economy that needs all the life it can get.
"Over the last two years, we've progressively seen more and more of these," said Chris Longly, the deputy executive director of the National Auctioneers Association trade group. "It's a sign of the times."
Hard data on the number of foreclosed properties being sold at auction are hard to come by. "The foreclosure market is a moving target right now," said Dave Webb of Hudson & Marshall, one of the biggest auctioneers in the market.
But Hudson & Marshall and its rivals say they are gearing up for more in the coming months, convinced that a moratorium on foreclosures earlier this year only postponed what they believe is an inevitable avalanche of new repossessions.
"The foreclosures are going to explode again," said Webb.
DREAMS ON THE CHOPPING BLOCK
The cadence and rhythm of the auctions, and the great deals that many buyers walk away with, make the events exciting to watch -- and make it easy to forget the heartache that lies behind almost every forced property sale in a country where home ownership is often equated with "The American Dream."
At the weekend Chicago event, Jones managed to race through the 100 properties up for bid in less than two hours.
When a home did not immediately attract interest or the minimum price, Jones, wielding her gavel in front of a giant tote board, wasted no time moving on.
Kendi Kiogora, a 28-year-old first-time home buyer, said she felt
like she "won the lottery" when she bought a one-bedroom, one-bath
apartment in Chicago's trendy South Loop neighborhood, with skyline
views and heated parking, for just $105,000 -- $62,000 less than its
last listed price.
Real-estate professionals in attendance were less euphoric.
Antonette Taylor, an agent at a brokerage that plans to start holding auctions this fall, said the low prices -- most sold for 30 to 50 percent below their last deeply-discounted list price -- made her "a little nervous for my sellers."
Other troubling signs: buyers passed on almost half the properties offered in Chicago and fewer than 100 bidders showed up for the event, which also attracted some online buyers.
"We're having a difficult day," said Tom Atkins of Zetabid, the company holding the auction. "There was a $1,000 property that no one bid on. You'd think a slum lord at the very least would buy it and put a (federal housing assistance voucher) renter in there for $600 a month."
Atkins said bidders at auctions are generally evenly split between first-time homebuyers and veteran investors. Zetabid has a special VIP area near the auctioneer's dais so bidders can raise their paddles with one hand even as they sign contracts with the other.
Among the investors was Thomas Smith, 48, who paid $16,000 for a five-bedroom, three-bath home in Englewood, a notoriously violent neighborhood on Chicago's South Side he called "the murder capital of the world."
Smith figured another $15,000 in repairs would render the place rentable and said his ideal tenants would be "people...who fell off the ladder a little bit. I'm not trying to make a million dollars or anything."
BETTER THAN NOTHING
Later, when the nine-bedroom, four-bath property that David Kosak's boss had been trying to sell for a year went under the hammer, it fetched just $15,000 -- less than one-third its last list price but a figure the 23-year-old broker's assistant called "better than anything we've gotten."
Asked if he thought the auction activity might be a sign the property market was improving, Kosak was less upbeat.
"If it's getting better, we're not seeing it," he said. "We only do foreclosures, and we're only getting busier."
Whitney Tilson, a managing partner of T2 Partners and Tilson Mutual Funds and the author of "More Mortgage Meltdown: 6 Ways to Profit in These Bad Times," said there is a reason Kosak's office is getting busier.
After Barack Obama's election as U.S. president last year, Fannie Mae and Freddie Mac, the two government-sponsored mortgage giants, imposed a foreclosure moratorium that lasted about four months. Many private banks followed suit.
As a result, there was a gap in the pipeline of foreclosed homes that pushed into late spring. That helped auction prices stabilize for a few months and permitted some analysts to claim the market had found its bottom.
But the moratoriums have now expired. With the mortgage modification and foreclosure prevention efforts championed by the Obama administration unable to keep pace with defaults, as many as 7 million homes and condos may eventually enter foreclosure before the dust finally settles, according to a report by Amherst Securities Group issued in September.
"There are a lot of things that have temporarily stabilized the market," Tilson said. "But those things are going away ... Delinquencies are spiking. This is going to be a mess."
(Editing by Peter Bohan and Vicki Allen)
By Paul Craig Roberts
Creators.com
10-17-9
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Whodunit? Sneak attack on U.S. dollar
It’s the biggest mystery in global finance right now: Who conducted a sneak attack on the U.S. dollar this week?
It began with a thinly sourced but highly explosive report Monday in a British newspaper: Arab oil sheiks are conspiring with the Russians and Chinese to quit using the dollar to set the value of oil trades — a direct threat to the global supremacy of the greenback.
Is it true? Everyone from the head of the Saudi central bank to U.S. officials scrambled to undercut the story, but no matter.
With the U.S. economy on the ropes and America by far the world’s biggest debtor, investors aren’t feeling as secure about the dollar as they used to. And the notion of second-tier economies ganging up on Uncle Sam didn’t sound so far-fetched.
For American officials, the possibility of the dollar losing its long-term dominance in global commerce is a nightmare scenario because it would likely mean sharply higher interest rates at home and a declining ability to finance the U.S. debt. No one believes it could really happen right now, but stories like the British report this week make it seem incrementally more likely.
So the piece by Robert Fisk of the Independent shocked currency traders around the world and almost instantly sent the value of the U.S. dollar spiraling downward and the price of gold skyrocketing to an all-time high, as a hedge against a weakened dollar.
The website drudgereport.com quickly amplified the impact of the story with a headline atop the site: ARAB STATES LAUNCH SECRET MOVES WITH CHINA, RUSSIA, FRANCE TO STOP USING DOLLAR FOR OIL TRADING ...
“You read that story, and you do two things: You sell the hell out of dollars and you buy gold,” said Les Alperstein, president of the financial research firm Washington Analysis. “The story has a lot of credibility, with some caveats.”
So who wanted dollars diving and gold rising? In other words, who is Fisk’s source, and why did he or she want to tank the dollar? It’s the global currency version of the old Washington parlor game of speculating on the real identity of Deep Throat.
No one knows.
But one thing is for certain: With the price of gold jumping to $1,048.20 per ounce, traders who moved early enough stood to make millions.
So in government circles in Washington, speculation immediately centered on gold traders: With the skyrocketing price of gold, they’d be the biggest beneficiaries of the article.
Fisk’s story itself isn’t much help in solving the mystery — it is sourced vaguely to “Gulf Arab and Chinese banking sources in Hong Kong,” and it included one blind quote, attributed to “a prominent Hong Kong broker.” That doesn’t narrow down the pool very much.
The story doesn’t name any officials who had allegedly participated in the secret meetings involving the Arab states. It didn’t say where the meetings occurred or when. Other than saying the plan is to stop using the dollar by 2018, there was precious little detail to the account.
Around the world, traders turned to Wikipedia to find out more about Fisk himself. There, they learned that Fisk is a legendary British foreign correspondent who has been based in Beirut for more than 30 years and has won a slew of journalism awards. They also learned that he is one of only a few journalists to have interviewed Osama bin Laden (three times) and that he has expressed doubts that the United States has told the full story about the Sept. 11 attacks.
An analyst’s report from the Royal Bank of Scotland concluded, “Fisk is a veteran of the Middle East. ... he is also increasingly associated with more radical theories thus weakening the credibility of the story.”
Beyond the specifics of the story, the geopolitical implications of the report sent shudders from Riyadh to London to Washington: Has the long-dominant American economy been so humbled by the economic crisis that these nations would mount a frontal attack on the dollar, the underpinning of the world’s biggest economy?
That question is on the minds of global investors, who are keeping a skittish eye on the weakening dollar. And over the past several months there has been a steady drumbeat of Chinese, Russian and other officials who have talked openly about finding a replacement for the dollar as the global economy’s default currency. Any effort to do that would be fraught with difficulty. But however unlikely, the possibility represents a threat to the American economy, which has come to depend on the significant advantages it reaps from minting the currency most used around the world.
In another era, the dollar could shrug off such a vaguely sourced, thinly detailed story.
But not anymore.
The dollar is weak and vulnerable to rumor-mongering because many traders believe it will only get weaker. “The fundamental reason why this occurred is that after 9.8 percent unemployment on Friday, nobody can say with certainty that the recovery is sustainable,” said one analyst familiar with the situation.
“In years past, when the U.S. economic dominance was more pronounced and emerging markets were marginal players in the global economy,” noted an analyst’s report from HSBC, “the debate on pricing commodities in currencies other than the [U.S. dollar] typically came down to the lack of practicality. ... Today, emerging markets are clearly wielding much more influence in the global economy, and they want more, as will be borne out in this week’s IMF meetings.”
And that means U.S. officials whose job it is to defend the dollar may have their work cut out for them in the months to come.
Banks With 20% Unpaid Loans at 18-Year High Amid Recovery Doubt
Oct. 2 (Bloomberg) -- The number of U.S. lenders that can’t collect on at least 20 percent of their loans hit an 18-year high, signaling that more bank failures and losses could slow an economic recovery.
Units of Frontier Financial Corp.,Towne Bancorp Inc. and Steel Partners Holdings LP are among 26 firms with more than one-fifth of their loans 90 days overdue or not accruing interest as of June 30 -- a level of distress almost five times the national average -- according to Federal Deposit Insurance Corp. data compiled for Bloomberg News by SNL Financial, a bank research firm. Three reported almost half of their loans weren’t being paid.
While regulators may not force firms on the list to close, requiring them to raise capital and curb loans may impede recovery in Florida, Illinois and seven other states. The banks are among the most vulnerable of a larger group of lenders whose failures the FDIC said could cost $100 billion by 2013.
“There are some zombie banks out there,” said Bert Ely, chief executive officer at Ely & Co., a bank consulting firm in Alexandria, Virginia. “Neither the banking industry nor the economy benefits from keeping weak banks in business.”
Ninety-five banks have failed this year at the fastest pace in almost two decades, depleting the FDIC’s insurance fund. The agency proposed on Sept. 29 that financial firms prepay three years of premiums, which would add $45 billion of reserves. The fund sank to $10.4 billion as of June 30, the lowest since 1993. It will run at a deficit starting this quarter, the agency said.
Non-Current Loans
The cost of this year’s failures to the FDIC equals 25 percent of the banks’ assets, according to agency data. Applying the same ratio to the $14.1 billion of assets held by the 26 lenders on SNL’s list means the FDIC could face additional losses of $3.5 billion.
Non-current loans averaged 4.35 percent of the total at U.S. banks as of June 30, the most in 26 years of FDIC data. Regulators typically take notice at 5 percent, according to Walter Mix, a former commissioner of the California Department of Financial Institutions. Corus Bankshares Inc.’s bank unit in Chicago was shut Sept. 11 after 71 percent of its loans soured.
The last time so many banks had 20 percent of their loans more than 90 days overdue was in 1991, near the end of the savings-and-loan crisis, when there were 60, according to an SNL analysis of FDIC data. That year the number of bank failures was less than half those at the peak of the crisis in 1988; this year closings are almost four times what they were in 2008.
For banks with 20 percent of loans overdue, “either they’ve got a massive amount of capital, or the FDIC just hasn’t gotten around to them,” said Jeff Davis, an analyst with FTN Equity Capital Markets in Nashville. Lack of staff and money are slowing shutdowns, he said.
Enforcement Orders
At least 17 of the 26 banks have been hit with civil penalties or enforcement orders that demand improved management and more capital, according to data compiled by Bloomberg. Failure to comply can lead to seizure.
The number of distressed banks is larger, with the FDIC counting 416 companies on its confidential list of “problem” lenders at mid-year.
The data were compiled by Charlottesville, Virginia-based SNL from FDIC records. Institutions that had loans less than 50 percent of assets were excluded, as were those closed since the end of June. The calculation didn’t include restructured loans modified after borrowers couldn’t keep up with the original terms, which have default rates of 40 percent to 60 percent within two months, according to SNL senior analyst Sebastian Hindman. Had such loans been included, the list would have swelled to 49 lenders holding $48.4 billion in assets.
Local Impact
Firms range in size from Frontier Bank in Everett, Washington, with $3.98 billion in assets, to Gordon Bank in Gordon, Georgia, with $35 million in assets. Six of the banks are in Florida and five in Illinois.
“While these aren’t your giant banks, they are the guys your local strip mall and commercial real estate investors get their funds from,” said Joseph Mason, a Louisiana State University banking professor and visiting scholar at the FDIC.
The bank with the highest level of non-current loans, 49 percent, is Community Bank of Lemont in Lemont, Illinois, a town of about 13,000 people 30 miles southwest of Chicago. Bad loans at the bank, about a third of them in construction and development, increased fivefold from a year earlier, according to FDIC data.
In February, the FDIC ordered Lemont, a unit of Oak Park, Illinois-based FBOP Corp., to stop “operating with management whose policies and practices are detrimental to the bank and jeopardize the safety of its deposits.” Calls to the bank seeking comment weren’t returned.
’A Surprise’
Another Illinois lender, Benchmark Bank, also had an increase in non-current loans, to 25 percent as of June 30 from about 1 percent a year earlier.
“Everything was so positive for so long in this area, it came as a surprise when it stopped,” said John Medernach, Benchmark’s CEO, who added that a building boom and bust in his region may have wrecked more than just his balance sheet.
“I stop and think of all the rich farmland that has been developed into subdivisions during the boom years,” Medernach said. “It makes you wonder what we’ve been doing.”
Frontier Bank, owned by Frontier Financial, reported a sixfold rise in overdue loans to $764.6 million in the quarter ended June 30 from a year earlier, or 22 percent, according to FDIC data. More than 43 percent of the bank’s delinquent loans were in construction and development, FDIC data show. The bank has 51 branches in northwestern Oregon and western Washington.
Steel Partners
In July, Frontier Financial agreed to be acquired by SP Acquisition Holdings Inc., controlled by CEO Warren Lichtenstein, who heads the New York-based investment firm Steel Partners LLC, according to a presentation on the bank’s Web site. The deal would give Frontier access to about $456 million and create ’’an over-capitalized bank’’ that may consider acquisitions, the presentation said. The stock-swap transaction is scheduled to be completed in the fourth quarter.
Frontier “was a well-run organization for the majority of its history,” said Jeffrey Rulis, a banking analyst at D.A. Davidson & Co. in Lake Oswego, Oregon. The offer by SP Acquisition is “probably not what current shareholders envisioned a couple of years ago.” The company’s stock has dropped 92 percent in the last 12 months, and the bank posted an $84 million loss in the first half.
Patrick Fahey, Frontier’s CEO, said the transaction will resolve the bank’s credit issues. He declined to elaborate while a shareholder vote is pending.
Regulatory Art
Lichtenstein’s Steel Partners Holdings LP controls WebBank, a Salt Lake City lender with $35.5 million in assets and 31 percent of its loans overdue, according to SNL. More than 90 percent of construction and development loans weren’t current as of June 30, according to the FDIC. John McNamara, WebBank’s chairman and a managing director at Steel, declined to comment.
Determining which banks to close is “more of an art than a science,” said William Ruberry, spokesman at the Office of Thrift Supervision, which regulates four of the 26 lenders. “Examiners and the supervisory people have a lot of information that’s not public, and they know the circumstances of an institution and everything that goes into it.”
FDIC spokesman Greg Hernandez said in an e-mail that the agency doesn’t comment on individual institutions. Capital levels, profitability and financial strength of the owners are considered in addition to soured loans when deciding a bank’s fate, Hernandez said.
Sources of Capital
“There may be personal guarantees, there may be other collateral that will more than make up for the impairment on the 20 percent,” said Tom Giallanza, assistant superintendent for the State of Arizona Department of Financial Institutions, in a Sept. 15 interview. One bank on the list, Mesa, Arizona-based Towne Bank of Arizona, is in Giallanza’s state, with 28 percent of its loans non-current. Towne Bancorp CEO Patrick Patrick declined to comment.
H&R Block Bank, with 29 percent of its loans overdue, is dwarfed by the Kansas City, Missouri-based tax preparer that owns it. The bank’s deposits totaled $720.1 million as of June 30; assets at the parent company, H&R Block Inc., included more than $1 billion in cash and cash equivalents on July 31. The lender’s balance sheet is strong enough to be considered “well- capitalized” by regulators, according to FDIC reports.
The bank is a legacy of H&R Block’s subprime home lending that ended with more than $1 billion of losses for the parent company. The unit was kept open because it’s an inexpensive way to fund the company’s financial products, President Russell Smyth said a year ago. Spokeswoman Elizabeth McKinley didn’t respond to requests for comment.
Pace of Closures
Regulators may be pacing themselves on closings because the FDIC fund “is only so big,” there isn’t enough staff to close all the struggling banks at once and customers aren’t staging mass withdrawals that would force action, said Kevin Fitzsimmons, a managing director at Sandler O’Neill & Partners LP, a New York brokerage firm specializing in banks.
While a high level of non-performing assets doesn’t mean a bank can’t survive, “in some cases it creates a hole that’s too deep to climb out of,” Fitzsimmons said.
To contact the reporters on this story: James Sterngold in New York at jsterngold2@bloomberg.net; Linda Shen in New York at lshen21@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.
Last Updated: October 2, 2009 00:
StiglitzGRAPHICSTORYDeflation Threat Pushes Fed to Stay at Zero (Update1)
By Michael McKee
October 2, 2009
Oct. 2 (Bloomberg) --
Executives at Kroger Co., the largest U.S. supermarket chain, blamed deflation for a 7 percent drop in earnings in the second quarter, while falling prices for food, gasoline, and electronics left August sales unchanged at Costco Wholesale Corp. A sustained price drop might set off a chain reaction in which lower profits force employers to pare wages and payrolls. That would erode consumer demand, exacerbating wage cuts and firings.
Such a spiral led to Japan’s “lost decade” of slow economic growth in the 1990s. A more vicious version in the U.S. helped create the Great Depression six decades earlier. Bond investors are forecasting retreating consumer prices, as shown by the yield they demand to hold a one-year bond versus a similar inflation-protected bond.
“Deflation is definitely a threat right now,” Nobel laureate Joseph Stiglitz, 66, a professor at Columbia University in New York, said in a Sept. 22 interview. “The combination of the deflation threat and the sluggish recovery should keep the Fed on hold for quite a while.”
Consumer prices are experiencing deflation, with the consumer price index sliding for six straight months from year- earlier levels, the longest stretch of declines since a 12-month drop from September 1954 to August 1955, according to the Labor Department.
So far, the core consumer-price index, which excludes food and energy, is facing disinflation, a slowing in the pace of increase. The core index rose 1.4 percent in August from a year earlier, down from 2.5 percent in September 2008.
Fed Trio
Regional Federal Reserve Bank Presidents Janet Yellen, of San Francisco, James Bullard, of St. Louis, Richard Fisher, of Dallas, and Charles Evans, of Chicago, have expressed concern in past weeks about the possibility of declining prices.
“Disinflationary winds are blowing with gale-force effect,” Evans, 51, said in a Sept. 9 speech in New York.
While the economy contracted 2.7 percent during the 1953 recession, it shrank 3.8 percent in the current recession, the most since the 1930s. Economists at New York-based JPMorgan Chase & Co. and Goldman Sachs Group Inc., the second- and fifth- biggest U.S. banks by assets, say there’s so much deflationary excess labor and plant capacity in the economy that the Fed won’t raise interest rates until at least 2011.
Gross Pessimism
“The potential for a deflationary downdraft continues for several years” if economic growth doesn’t accelerate, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in a Sept. 29 interview with Bloomberg Radio.
At their most recent meeting on Sept. 23, Fed policy makers agreed to leave the benchmark interest rate in a range of zero to 0.25 percent, where it’s been since December 2008.
Only 69.6 percent of the country’s factories, utilities and mines were in use during August, close to the record low of 68.3 percent reached in June.
Former Fed Chairman Alan Greenspan said the economic rebound won’t prevent a further slowing of the pace of price increases. “We are still, by any measure, in a disinflationary environment,” Greenspan, 83, said in a Sept. 30 Bloomberg Television interview in Washington.
At the same time, recent reports on manufacturing, housing, and consumer spending suggest that any investor concerns about the danger of deflation are overblown, said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York.
Growth Outlook
The median projection of economists surveyed by Bloomberg News is for first quarter growth of just 2.4 percent, compared with a decline of 6.4 percent in the first quarter of 2009. Maki sees a 5 percent expansion in the first quarter of 2010.
That would translate into higher prices.
“Inflation is driven more by the level of demand and pace of growth than by the size of the output gap,” said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut. “As the economy returns to solid growth in 2010, we are quite confident that, in sharp contrast to the consensus Fed view, core inflation will be creeping higher.”
Fed officials are already planning for that, and publicly discussing an exit strategy once the economy does pick up. At that point, the Fed may have to move with “greater force” than some anticipate to keep inflation from accelerating too rapidly, Fed Governor Kevin Warsh, 39, said in a Sept. 25 speech in Chicago.
Fed Purchases
That day is far off for bond investors. Inflation fears, raised by the more than $1 trillion the Fed has pumped into the economy by lowering rates and buying Treasuries and mortgage- backed securities, are fading.
“There’s been a significant flattening on the long end of the curve,” reflecting concern about deflation, said Pacific Investment’s Gross, 65, who is buying longer-maturity Treasuries in response. The yield on the 10-year note, which was 3.95 percent on June 10, was 3.18 percent at the close of New York trading yesterday. The difference in yield between nominal and inflation-protected Treasury securities maturing in one year is negative 0.4 percent, suggesting investors expect deflation during the next 12 months. Over five years, that inflation premium is now 1.21 percent, down from 1.86 percent on June 10.
The Fed needs to “keep inflation expectations from slipping to undesirably low levels in order to prevent unwanted disinflation,” Vice Chairman Donald Kohn, 66, said Sept. 10 in Washington during a speech at the Brookings Institution.
Oil Role
Falling consumer prices are partly a reflection of a 52 percent decline in oil prices to about $70 a barrel yesterday from $145.45 a barrel on July 3, 2008.
The slowing in core prices is more of a concern, said Michael Feroli, an economist at JPMorgan. The core rate fell following three prior recessions in which unemployment rose above 7 percent. That “suggests that core inflation could well be below zero within two years,” Feroli said in an interview.
Core CPI fell 5.3 percent following the recession of 1973- 1975, 10.7 percent following the recession of 1981-1982 and 3 percent following the recession of 1990-1991.
Unemployment rose to 9.8 percent in September, a Labor Department report showed today, and it will likely climb to 10 percent in the fourth quarter, according to the Bloomberg survey of economists. The jobless rate was estimated to average 8.8 percent in 2011.
With unemployment elevated, companies may not need to raise pay to attract workers, even when the economy picks up.
‘Enormous Slack’
“My personal belief is that the more significant threat to price stability over the next several years stems from the disinflationary forces unleashed by the enormous slack in the economy,” Yellen, 63, said Sept. 14 in San Francisco.
Wages for U.S. workers fell for eight months in a row, dropping 5.6 percent from October 2008 to June 2009, according to Commerce Department figures. In contrast, wages continued to grow in the 1954-1955 deflation period.
Stagnating wages and fading job prospects are sapping demand. Consumer spending may increase in the fourth quarter by just 1 percent and in 2010 by an average of only 1.6 percent, according to the median estimate in the Bloomberg survey of economists.
Consumption rose by an average 5.7 percent a quarter in the five years before the recession began in December 2007.
“A weak labor market in a competitive environment puts downward pressure on wages,” said Stiglitz, who won the Nobel prize for economics in 2001. “So, the possibility of another actual decline in wages cannot be ruled out.”
Declining Incomes
The deflation danger is compounded by household debt, said Paul Ashworth, senior U.S. economist at the consulting firm Capital Economics in Toronto. U.S. homeowners owed $13.9 trillion in the third quarter of 2008, compared with an average of $8.5 trillion in the 57 years the Fed has kept records.
“As incomes start to fall, that debt gets bigger in real terms: You have a smaller income to pay off that debt,” Ashworth said. “Deflation combined with high indebtedness can be very problematic.”
Inflation happens when too much money chases too few goods. Gary Shilling, president of the investment research firm A. Gary Shilling & Co. of Springfield, New Jersey, said that even as the Fed continues to pump money into the economy, the money supply, as measured by the central bank’s M2 index, has dropped 1 percent since mid-June.
“Look what is happening to money supply, it is actually contracting now when supposedly the economy is picking up,” Shilling said in an interview on Bloomberg Television Sept. 21. The economy is facing deflation “because you’ve got basically an excess-supply world,” he said.
Profits Dwindling
Profits have evaporated as companies lose pricing power. The 419 non-financial firms in the S&P 500 reported earnings down 28 percent in the quarter ending June 30. Analysts surveyed by Bloomberg anticipate a 30 percent decline for the third quarter, which ended this week.
“Businesses trying to sell products and services feel they are pushing on a string and are adjusting their behavior accordingly,” Fisher, 60, the Dallas Fed president, said in a Sept. 3 speech at the University of California in Santa Barbara. “They are cutting prices.”
Rodney McMullen, president of Cincinnati-based Kroger, blamed price reductions for second-quarter earnings that fell 10.5 percent short of analysts’ estimates.
“We certainly sold more units. But lower retail prices and profit per unit pressured” results, McMullen told analysts in a Sept. 15 conference call. “We began to see deflation.”
The average amount spent per transaction in August at Issaquah, Washington-based Costco was about 7 percent below last year, Bob Nelson, vice president for financial planning, said on a Sept. 3 conference call with investors.
At Wal-Mart Stores Inc., the world’s largest retailer, “headwinds” from deflation were in part responsible for a 1.4 percent drop in second-quarter revenue to $100.9 billion, chief financial officer Thomas Schoewe told analysts Aug. 13.
To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net.
US unemployment expected to hit 26-year high
The latest US unemployment figures are expected to show that that the pace of jobs cuts in the world's biggest economy are slowing.
Economists are forecasting US companies axed 175,000 jobs last month, which would be the smallest decline in 13 months. However, figures from the Labour Department in Washington are also expected to show that the unemployment rate still rose to a 26-year high of 9.8pc from 9.7pc in August.
The figures will be released at 1:30pm London time.
The state of the labour market in the US is followed by investors around the world because spending by the American consumer has been the key driver of world growth during the last decade. However, the Obama administration has cautioned that consumers from other countries, including China, will have to increase their spending in coming years.
While many analysts now believe the US economy is growing again, Ben Bernanke, the chairman of the Federal Reserve, cautioned on Thursday that the growth may not be robust enough to “substantially” bring down unemployment.
“The magnitudes of the job losses are going to continue to get smaller, but unfortunately we don’t see very much hiring going on,” David Resler, chief economist at Nomura Securities, told Bloomberg. “Until that changes, doubts about the sustainability of this rebound in economic activity are going to linger.”
Economists' prediction for Sepember's number vary between 100,000 and 260,000, according to those surveyed by Bloomberg. An increase of 175,000 would bring to 7.2 million the number of jobs lost since the recession in the US began in December 2007.
Zoellick Says U.S. Dollar’s Primacy Not a Certainty (Correct)
By Daniel Whitten
Last Updated: September 28, 2009 09:47 EDT
(Corrects to say “easing” in quote in last paragraph.)
Sept. 27 (Bloomberg) -- World Bank President Robert Zoellick said the U.S. shouldn’t take for granted the dollar’s status as the world’s main reserve currency.
In remarks set for delivery tomorrow, Zoellick said the “next upheaval” in the international economic order is under way as emerging nations gain greater influence.
“The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency,” according to excerpts released by the World Bank.
Policy makers from China to Russia repeatedly have called for an alternative to the world’s main currency in foreign- exchange reserves.
Zoellick’s speech to the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University in Washington echoes his previous comments about the dollar’s standing.
The trade-weighted Dollar Index has fallen 11 percent since President Barack Obama’s inauguration in January, in part because of a budget deficit projected to rise to $1.6 trillion this year as the government increases spending to boost the economy. The index measures the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona.
Defense of Dollar
U.S. Treasury Secretary Timothy Geithner last week defended the dollar’s role as the world’s reserve currency. The U.S. has a “special responsibility” to preserve confidence in its financial system, and “sustain the dollar’s role as the principal reserve currency in the international financial system,” he said at a press conference Sept. 24 in Pittsburgh, where leaders of the Group of 20 nations met.
Zoellick also will urge intensified coordination among all countries to be sure that economic growth continues while they recognize that there are still 1.6 billion people in the world without electricity.
The G-20 should become “the premier forum for economic cooperation,” Zoellick will say.
At last week’s summit, officials agreed to establish a “framework for strong sustainable and balanced growth.” Countries with significant deficits in their trade accounts promised to save more, while those with surpluses pledged to strengthen domestic demand.
Peer Review
The G-20 also established a peer-review process to monitor efforts to rebalance economies and to hand emerging nations a greater say in managing world growth.
“The G-20 summit is a good start, but it will require a new level of international cooperation and coordination,” Zoellick will say. “Peer review will need to be peer pressure.”
In the U.S., he called for a bigger role for the Treasury Department in pulling together the authority of federal agencies to regulate financial markets. Leading up to the financial crisis, “regulators and supervisors of financial institutions were no longer grounded in reality,” he said.
He also criticized central banks, saying they failed to address growing risks in the economy in the last several years.
Central banks “argued that damage to the real economy of jobs production, savings and consumption could be contained, once bubbles burst, through aggressive easing of interest rates,” Zoellick said. “They turned out to be wrong.”
To contact the reporter on this story: Daniel in Washington at dwhitten2@bloomberg.net.
Ten Big Companies That Are Veering Toward Bankruptcy
Posted Sep 18, 2009 12:21pm EDT by Vincent Fernando and Joe Weisenthal
From The Business Insider, Sept. 18, 2009:
Despite a few green shoots in the economy and a rocketing stock market, many large companies are still struggling to avoid bankruptcy.
A new report by Audit Integrity identifies some high-profile names "that have the highest probability of declaring bankruptcy among publicly traded firms."
Which companies appear the worst off? We took the list and removed any company with a market cap under $3 billion. We then ranked the remaining names by a simple measure of the market's perceived bankruptcy risk - Market Cap (MC) divided by Enterprise Value (EV). The less MC vs. EV, the less residual shareholders' value (above what debt holders can claim) the market is pricing-in for the company. Thus a lower MC/EV means the market thinks the company is more likely to go bankrupt.
1. Hertz
When you have tons of debt financing your fleet of cars, falling rental demand really hurts.
While the company raised new capital in May for some breathing room, Fitch and Moody’s actually cut their ratings for the company in July.
Ignoring the downgrade, shares kept rallying and are now at over five times the March $2 low. Best of luck.
Market Cap (MC)/Enterprise Value (EV) = 32%
2. Textron
What a tough time to be selling business jets.
Textron wrote down $2.3 billion its backlog this year after it canceled a new jet design, and demand for its other aircraft-related offerings has plummeted.
Shareholders may be heartened by the company’s ability to push back some debt maturities lately, but deteriorating credit quality at the company’s leasing arm makes the outlook uncertain at best.
MC/EV=39%
3. Sprint Nextel
Sprint Nextel is bleeding customers, and could lose as many as 4.4 million net post-paid subscribers this year.
This is a huge problem when you have large amounts of maturing debt over the next few years.
A recent Deutsche Telekom acquisition rumor offered some hope, but that appears to have faded. Facing a difficult road ahead on its own, the company better keep its lawyers on speed-dial.
MC/EV=41%
4. Macy's
Does anyone even shop at department stores anymore?
Same store sales will likely keep falling at Macy’s right through 2009. With $2.4 billion of maturing debt over the next five years, the company is trying to cut costs, and has already reduced its dividend.
Hopefully the US consumer will bounce back soon, and actually want to shop at Macy's.
MC/EV=47%
5. Mylan
In a classic case of management empire building, Mylan overpaid big time when it bought Merck’s generic business back in 2007 and is now stuck with $5 billion of long-term debt as a result.
From 2007 – 2008, the company lost over $1.3 billion very much due to goodwill write-downs.
While the company could earn $300 million this year, they’ll have to earn far more than that in the future to make their debt manageable.
MC/EV=51%
6. Goodyear
Demand for Goodyear tires has sunk, and the company is saddled with massive debt and pension obligations.
It doesn’t help that The United Steelworkers union prevents the company from proper cost control by forcing factories to stay open.
Shareholders have to wonder how much value will be left of the company after bondholders and the union members have their way.
MC/EV=53%
7. CBS
Weak advertising and falling license fees have sent CBS's earnings off a cliff in 2009.
If they remain depressed for too long, the company could have trouble refinancing $3.2 billion of debt coming due over the next five years.
It will really come down to whether or not CBS’s earnings collapse is merely cyclical, or the result of structural trend whereby traditional TV is dying.
As a business blog, we can't help but feel partly guilty here.
MC/EV=55%
8. Advanced Micro Devices
When will AMD actually make money again? The question is becoming more important by the day since it carries over $5 billion in long-term debt.
After losing almost $3 billion from 2007 – 2008, analysts expect the company to lose more money in 2009 and 2010.
While the shares rallied from their February $2 low, they still appear stuck in a long-term down trend from $40 highs way back in 2006.
MC/EV=55%
9. Las Vegas Sands
Las Vegas Sands over-expanded and over-levered in the last few years and now has over $10 billion in debt to deal with.
Despite jumping 13 times from their March low, Las Vegas Sands shares still face an uphill battle.
Conditions in Las Vegas are horrible, Asian expansion isn’t enough, and if this lasts too long then LVS will end up in bankruptcy court looking like it bit off more than it can chew.
MC/EV=60%
10. Interpublic Group
As one of the largest advertising and marketing companies in the world, IPG was slammed by the global recession.
As the company’s CEO said during recent second quarter results, the downturn “is proving steeper and more lasting than expected”.
Revenues have fallen double digits and the company’s exposure to General Motors as its largest client hasn’t helped.
UN Calls For Bank Of The World, New Global Currency
Proposals for a new centralized economic world order outlined in globalist report
Steve Watson
Infowars.net
Monday, Sept 7, 2009
The United Nations has called for the establishment of a new global reserve currency to be overseen by a bank of the world in an effort to reduce the role of the Dollar in international trade.
Details of the proposal were outlined in a report from the UN Conference on Trade and Development. The report also calls for the new global reserve bank to monitor and manage the national exchange rates of member states.
“There’s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,” Heiner Flassbeck, co-author of the report and a UNCTAD director, told Bloomberg News.
“An initiative equivalent to Bretton Woods or the European Monetary System is needed.” said Flassbeck.
He also added that while the UN also backed strengthening Special Drawing Rights (SDRs), a synthetic paper currency issued by the International Monetary Fund that was dormant for half a century until earlier this year, that would not be enough to “protect emerging markets”.
This latest call for a new reserve currency from the UN echoes previous efforts by the global body to initiate talks on replacing the Dollar.
(Article continues below)
Meanwhile, an influential Chinese policy maker has slammed the US Federal Reserve’s policy of printing money to buy Treasury debt, declaring that it threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy.
Earlier in the year, China expressed a Russian proposal for the creation of a new supra-national global currency as an alternative to the Dollar as the world reserve currency.
Other heavyweight elites such as French President Nicolas Sarkozy, German Chancellor Angela Merkel, British Prime Minister Gordon Brown, UK Business Secretary and top Bilderberg member Peter Mandelson and EU heads such as Joaquin Almunia, to name but a few, have called for a new economic world order consisting of vastly increased overarching centralization.
The creation of a de facto world currency to supplant the Dollar would likely lead to a complete collapse of the greenback, of which trillions are held in in foreign exchange reserves by many foreign countries.
As we have repeatedly warned, the introduction of a new global currency system is a key cornerstone in the move towards global government, centralized control and more power being concentrated into fewer hands.
Furthermore, a global central bank will establish a de facto financial dictatorship which will wield power over the economies of every country on the planet with no accountability whatsoever
Predicting Worse Ahead From
The US Economic Crisis
By Stephen Lendman
9-3-09- Austrian economist Ludwig von Mises (1881-1973) said:
- "There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
- Under Alan Greenspan, Ben Bernanke and successive US Treasury Secretaries, America chose the latter path and now faces the consequences of their reckless, criminal behavior.
- In early 2009, economist Michael Hudson said:
- The (US) economy has reached its debt limit and is entering its insolvency phase. We are not in a cycle but (at) the end of an era. The old world of debt pyramiding to a fraudulent degree cannot be restored," only delayed to postpone a painful day of reckoning.
- Economist Hyman Minsky (1919 - 1996) described a "Ponzi finance" system during prolonged expansions and economic booms. Speculative excesses create bubbles, triggering structural instability, then asset valuation collapse that turns euphoria to revulsion and market crashes.
- On December 29, 2008, the Wall Street Journal online headlined: "As if Things Weren't Bad Enough, Russian Professor Predicts End of US," then continued:
- "For a decade, Russian academic (and former KGB analyst) Igor Panarin has been predicting the US will fall apart in 2010" to include an "economic and moral collapse, a civil war, and the eventual breakup of the country." For years, no one took him seriously, but no longer. He's invited to Kremlin receptions, gets interviewed twice a day, publishes books, is a frequent lecturer, and appears regularly in the media as an expert on US - Russia relations as well as the great interest in his predictions and new book titled, "The Crash of America."
- On March 25, 2009, RussiaToday.com headlined: "Is there anything Obama can do about the US Collapse?" No, according to Panarin, for these reasons:
- -- "the moral and psychological factor and the stress of the American population;"
- -- America's deepening financial and economic crisis; and
- -- "the increase of anti-Americanism in the world," the result of continued US belligerency.
- Panarin sees America collapsing into six areas of foreign influence and perhaps disintegrating as a nation:
- -- depressed northern states close to Canada "in their mentality and economic development;"
- -- the Southwest "fuel and energy complex, the oil sector" close to Mexico;
- -- California and the Pacific Northwest falling under Chinese influence;
- -- the Northeast and Middle Atlantic regions under the EU;
- -- Alaska may be returned to Russia; and
- -- Hawaii may become a Japanese or Chinese protectorate.
- Panarin sees 2010 as America's tipping point and says no miracle rescues can save it. In addition, he cites French political scientist Emmanuel Todd's 1976 prediction of the Soviet Union's dissolution that got him laughed at and scorned at the time but proved right.
- Todd now predicts a similar fate for the US in his 2002 book, "After the Empire: The Breakdown of the American Order." He cites:
- -- unilateral militarism shows weakness, not strength;
- -- America is parasitic, relying on voluntary or extracted "tributes" from vassal states;
- -- global terrorism is a myth;
- -- many nations, including EU states, China and Russia, are beginning to resist US adventurism;
- -- terminal corruption and decay;
- -- economic weakness and decline;
- -- producing little, America's "specialty is consumption (so) relies on foreign imports" to satisfy it;
- -- a declining middle class and growing poverty will curtail spending sharply;
- -- if capital inflows cease, the dollar will crash:
- -- a coming collapse of the stock market, financial institutions and the dollar;
- -- a ballooning trade deficit and shrinking manufacturing base;
- -- a predatory ruling class plundering the world with impunity, yet out of touch with its own people growing poorer, more desperate and angrier;
- -- America's abandonment of universalism and egalitarianism;
- -- excess consumption trapping people in an ocean of debt and lowering their living standards;
- -- "the rest of the world....is on the verge of discovering that it can get along without America; America is realizing that it cannot get along without the rest of the world;"
- -- an emerging Eurasia will end US supremacy, then isolate and curtail its dominance; and
- -- "If America continues to endeavor to show its power, it will simply reveal (to) the world its impotence."
- For his part, Panarin compares America to the Titanic after hitting an iceberg when it was unclear whether the crew would try to save the ship or more importantly its passengers. Unfortunately, under Bush and Obama, they're trying to save themselves at the expense of the ship and passengers.
- After disintegration, Panarin sees three dominant influence areas emerging - the EU, Russia and China. After 11 years of monitoring US policies, he believes his prediction is largely confirmed and states the following:
- America's FY 2009 "budget deficit is 4.5 times the 2008 deficit, while firearms sales are up 40%. On October 1, the coupons that were given state workers are to be cashed out. When (they) realize that they are getting nothing for (them), they will take out their firearms and chaos will unfold."
- Further, on September 30, 2009, results will be published that are "destined to shock investors worldwide. After that, and (Japan and China's) snubbing of the dollar....which will transfer 50% of (their) international operations to Yuan starting in 2010, the currency will then flow like a landslide out of style." Already nations like China, Russia, Brazil, Argentina and others are trading in their own currencies or will do so shortly.
- In Panarin's view, "the probability of the US ceasing to exist (in its present form) by June 2010 exceeds 50%. At this point, the mission of all major international powers is to prevent chaos" because what hurts America also harms them.
- A Multiple-Dip Depression
- Economist John Williams publishes the shadowstats.com electronic newsletter with updated sample data on his site. He calls government figures corrupted and unreliable because manipulative changes rigged them for political and market purposes. To correct them, he reverse-engineers GDP, employment, inflation, and other key data for greater reliability to subscribers.
- On August 1, Williams called the "Current Economic Downturn (the) Worst Since (the) Great Depression." It began a year earlier than reported, triggered a systemic solvency crisis, and the effects of "a multiple-dip depression (are) far from over."
- The July 31, 2009 national income accounts "confirmed that the US economy is in its worst economic contraction since the first downleg of the Great Depression, which was a double-dip" one like today's.
- Intermittent upturns are common, like from spiked auto sales from the cash-for-clunkers program that borrowed future purchases for today's. "Yet, this downturn will continue to deteriorate, proving to be extremely protracted, extremely deep and particularly nonresponsive to traditional stimuli."
- The economy suffers from deep structural problems related to household income. Consumers are over-indebted, can't borrow, and Washington's policies aren't helping them. Continued economic decline will follow. "The current depression is the second dip in a multiple-dip downturn that started in 1999 (and triggered) the systemic solvency crisis" that was visible by August 2007 but started in late 2006.
- The worst lies ahead, the result of the "government's long-range insolvency and (dollar debasing that risks) hyperinflation during the next five years," and perhaps sooner in 2010. It will cause "a great depression of a magnitude never before seen in" America, disrupting all business and commerce and reverberating globally.
- Williams defines deflation as a decrease in goods and services prices, generally from a money supply contraction. Inflation is the reverse. Hyperinflation debases the currency to near worthlessness. Officially, two or more consecutive declining quarters means recession, but better measures are protracted weakened production, employment, retail sales, construction, capital investment, and demand for durable goods among other factors.
- A depression occurs when inflation-adjusted peak-to-trough contraction exceeds 10%, and a great depression when it's 25% or worse.
- Today's economic downturn preceded the systemic solvency crisis after key data "hit cycle highs and began to weaken in late-2005 for housing and durable goods orders....early-2006 for nonfarm payrolls, (and) late-2006 for retail sales and industrial production, patterns more consistent with a late-2006" real recession onset. Gross Domestic Income (GDI) data confirms this analysis.
- Its real growth peaked in Q 1 2006, and revised GDI data contracted in seven of the last nine quarters. "Revised GDP shows the sharpest annual decline in the history of the quarterly GDP series," suggesting a much deeper and protracted downturn than previously reported.
- July 2009 marked the 19th consecutive month of contraction, "the longest downturn since the first downleg of the Great Depression." More recent GDP declines of 3.3% and 3.9% in Q 1 and Q 2 2009, "are the worst showings in the history of the quarterly GDP series" dating back to 1947-48. In 1946, a greater contraction occurred because of post-war production cutbacks, but it was short-term.
- Today's most reliable economic indicators show the downturn is deepening, not abating as deceptive media accounts report. "The SGS (Shadow Government Statistics) alternative measure of GDP suggests (a) 5.9% contraction....versus the official year-to-year" 3.9% figure.
- The official estimated annualized Q 2 2009 decline was 1% compared to SGS's figure "in excess of five-percent." Its alternative data show "deeper and more protracted recessions" than officially reported, suggesting a deepening crisis ahead.
- The CBO's Grim Forecast
- Even the conservative Congressional Budget Office sees a weaker economy ahead, contrary to most consensus views of a sustainable upturn. Its latest projections are as follows:
- -- 2010 U-3 unemployment at 10.2%, edging down to 8% by 2011 and 4.8% by 2014;
- -- in 2010, 12 million will be underemployed;
- -- for the next five years, economic weakness and lower demand will pressure workers with unemployment or underemployment;
- -- part-time work only will be available for millions wanting full-time jobs;
- -- low consumption will persist through 2014;
- -- unemployment benefits will be exhausted;
- -- households will be pressured to make mortgage payments, pay for health care, meet other obligations, and provide for their families at a time state and city budget crises force deep cuts in vital social services, not made up for by the federal government;
- -- tax revenues are down 17%, the sharpest decline since 1932;
- -- $600 billion in investment losses will result plus another $5.9 trillion in lost output through 2014; and
- -- the federal deficit will nearly double over the next 10 years to about $20 trillion.
- In sum, CBO projects a more severe protracted downturn than it earlier forecast in January.
- Troubled Times Ahead
- On July 14, Egon von Greyerz, Founder and Managing Partner of Zurich-based Matterhorn Asset Management AG, specializing in precious metals and other investments, said "The Dark Years Are Here" and explained why.
- Because of "the devastating effects of credit bubbles, government money printing (and) disastrous actions that governments are taking, (upcoming) tumultuous events will be life changing for most people in the world." They'll begin by year end, last for two to three years, then be followed by extended economic, political, and social upheaval, perhaps continuing for two decades.
- Greyerz cites three main concerns:
- -- exploding unemployment and government deficits;
- -- trillions of unreported bank losses and worthless derivatives; and
- -- rising inflation, high interest rates, collapsed Treasury bond (and UK gilt) valuations resulting in more money creation, worthless paper, and a "perfect vicious circle (leading to) a hyperinflationary depression followed by the collapse of the dollar and British pound.
- America is hemorrhaging financially and economically. Other countries now realize they hold "worthless" US dollars. Reckless money creation achieved short-term hope, benefitted Wall Street alone short-term, elevated world stock markets, and led some to believe the crisis was over when, in fact, it's worsening.
- Aside from expected short-lived upturns, "every single sector of the real economy is deteriorating whether it is production, unemployment, corporate profits, real estate, credit defaults, construction, federal deficits, local government and state deficits etc."
- In response, the Fed keeps printing money and destroying its value. "This is total lunacy! How can any intelligent person believe that printed pieces of paper can solve an economic catastrophe?"
- We're in "the first phase of this tragic saga." Likely by year end, a second more serious one will start. Real unemployment now tops 20%. It hit 25% in the Great Depression with 35% of the nonfarm population out of work and desperate.
- "It is our firm opinion that (US) non-farm unemployment levels will reach 35% at least....in the next few years" with all uncounted categories included.
- Growing millions with no jobs, incomes, savings, or safety net protections will create "a disaster of unimaginable consequences that will affect the whole fabric of American society" to a degree far greater than in the Great Depression.
- Growing unemployment now plagues Western and Eastern Europe as well, and by 2010 will more greatly affect most parts of the world, "including China, Asia and Africa. Never before has there been a global unemployment crisis affecting the world simultaneously." Ahead expect sharp drops in consumption and global trade leading to depression, poverty, "famine and social unrest."
- Already, conditions are worse than in the 1930s, but the worst is yet to come. Expect:
- -- an extremely severe global depression in most countries with grave economic, political, and social consequences;
- -- social safety net protections will end;
- -- private and state pensions will likely collapse; and
- -- unemployment, poverty, homelessness, hunger, and famine will cause a protracted period of economic, political, social, and institutional upheaval.
- If von Greyerz, Panarin, Todd, and others with similar views are right, a deepening, protracted, unprecedented global catastrophe approaches that "will be life changing for most people in the world."
- Stephen Lendman is a research associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.
- Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Monday - Friday at 10AM US Central time for cutting-edge discussions with distinguished guests on world and national issues. All programs are archived for easy listening.
- http://www.globalresearch.ca/index.php?context=va&aid=14962
- f box, and his feature box, and DP
- Predicting Worse Ahead From The US Economic Crisis
- By Stephen Lendman
- 9-4-09
THE INTERNATIONAL FORECASTER
SATURDAY, MAY 30, 2009
053009(9)_IF
P. O. Box 510518, Punta Gorda, FL 33951-0518
An international financial, economic, political and social commentary.
W A R N I N G
What we are about to tell you may be the most important information that we
have imparted in almost 50 years. Something very bad is looming – we don’t know the exact configuration yet, but we think the key is the collapse of the dollar, which will send gold and silver to considerably higher prices. These events could unfold over the next 2 to 4 months.
There could be devaluation and default of the US dollar and American debt. You must have at least a 6-month supply of freeze dried and dehydrated foods, a water filer for brackish water, and assault weapons with plenty of ammo and clips.
You should put as much of your wealth as you can in gold and silver coins and shares. You should not own any stocks in the stock market except gold and silver shares, you should not own bonds the exception being Canadian government securities, and you should not own CDs, and cash value life insurance policies and annuities. And, needless to say, except for your home you should be totally out of real estate, residential and commercial because it will remain liquid for many years to come. Continue to pay your normal debts down because we do not know how they will be treated when we arrive at devaluation and default.
We certainly don’t want to have to tell you this, but the way things are shaping up it doesn’t look good. As we write the dollar is breaking 80 on the USDX. Interest rates are climbing, and have broken out to the upside. Gold and silver are poised to break into new high territory and the stock market is preparing to retest 6,600 on the Dow.
YOU HAVE BEEN WARNED; ACT NOW!!!!
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SEE BABS CORNER FOR MORE I.O.U.S.A.
2009 ECONOMIC OUTLOOK
US Economy Shrinks Fastest In 26 Years
NY Legal Officer Demands Bonus List From BofA
Moody's - Defaults Will Exceed Depression Peaks
Howls Of Protest Greet Obama's $4T Budget
GM Crisis Talks After $31B Loss
Call To Split Off General Motors Europe
Sallie Mae Down 31% On Loan Move
FBI First Arrest In $8B Stanford Fraud
Lloyds Confirms £10.8B HBOS Loss
Lloyds To Put £250B In Protection Scheme
60,000 Workers Face Axe At RBS And Lloyds
Future 'Bleak' - Ex German Vice-Chancellor
East Europe Banks Set For ¤24.5B Loan
Antigua To Seize Stanford Assets
Indonesia Sells $3B Debt At Discount
Malaysia's Economic Growth Slumps To 0.1%
India's GDP Growth Slows To 5.3%
Swedish GDP Plunges 4.9% In 4Q
Dostoevsky And The Jewish Bankers
Watch Now As Pension Funds Get Vaporized
RBS Posts Record £40B Pre-Tax Loss
Taxpayers Insure £300B RBS Bad Debt
'Impossible' To Know How Much Needed To Save Banks
Depression In East Points Way For World
Japan To Intervene - Nikkei Hits 20 Yr Low
The Bankers Manifesto - A Real Document
Worried Investors Want Gold On Hand
Wall St Falls Again On Grim Data
Who Wrecked Your World Economy
Roberts - How The Economy Was Lost
Bernanke Calms Nationalization Fears (?)
BoA Fights To Hide Bonus Payouts
Savers Pull Record Amount From Banks
Best Hope Is Recovery In 2010 - Bernanke
US House Prices Fall To 2003 Levels
Debtor-In-Possession Loans Vultures' New Tool
Recession Deepens - UK Economy Down More
Pensions aristocracy: How baby boomer generation will be last to retire with lucrative deals
By Olinka Koster
Last updated at 1:16 AM on 05th June 2009
The baby boomers are 'retirement aristocracy', with lucrative pensions paid for by - but unavailable to - younger workers, it was claimed yesterday.
The warning came as supermarket group Morrisons became the latest company to close its final-salary scheme to existing members.
It follows similar decisions by Barclays and BP.
Pensions expert Ros Altmann said this was a 'watershed week' for pensions - and was especially bad news for younger workers who will miss out completely on the most generous schemes.
The over-50s can look forward to retiring in style with the most valuable pensions compared to younger workers
In contrast, many over-50s have benefited from gold-plated pension plans while their firms could still afford them.
But now these people, who are typically in white collar management roles, have 'pulled up the ladder' by barring younger workers from the pension funds, in order to protect their huge pots.
However, the youngsters will still have to pay the cost of maintaining the final-salary schemes - while themselves having to accept far less attractive pension schemes which will barely support them during their retirement.
Dr Altmann said: 'The demise of these top-quality, traditional pension schemes is a serious issue for the future.
'The days of relying on an employer to support you in old age are almost over.
'More and more younger workers face a bleak retirement on inadequate state pensions and disappearing private provision.
'They will have to keep working far long than expected, or face an impoverished old age.'
Despite Morrisons reporting a rise in sales, the 10,000 employees in its two schemes will now have pensions based on their 'career average' earnings, rather than their final pay when they retire.
The schemes had already been closed to new recruits, who have been offered a defined contribution pension scheme instead. On Wednesday, Barclays was also accused of betraying its most loyal staff after closing its final-salary scheme.
It is planning to freeze the gold-plated pension pots of its 18,000 members and switch them to a far less secure fund. BP will also close its long- standing pension scheme to new employees, sounding the death knell for one of the most generous retirement packages in Britain.
Yesterday, analysts said that the issue of pensions had 'leapt up' the agenda of every major company as they seek to cut costs during the recession.
Marcus Hurd, of Aon Consulting, said: 'Every company will at some time this year consider closing their schemes altogether.
'The cost of providing final-salary pensions has soared at a time when companies need to cut costs, and when pension schemes are doing badly it is seen as the best time to tell staff that cuts are necessary.'
Board directors are often cagey about the reasons for the drastic cuts, but privately they admit that younger employees are paying to maintain final-salary pensions for the dwindling band of older workers still benefiting from them.
A final-salary pension typically pays two-thirds of a worker's last pay cheque after 40 years of service.
The kind of scheme open to younger employees, meanwhile, is likely to pay between 20 to 30 per cent of their salary for 30 to 40 years' service.
But despite the cutbacks in the private sector, public sector workers have remained well-protected.
The Government guarantees state employees a fixed amount of pension for each year's service, meaning just a few years' work brings good benefits.
Steve Bee, head of pensions research at insurer Royal London, said that this meant just five years as a teacher or government worker was 'worth its weight in gold'.
What A State-Run GM Could Do
By Dave Lindorff
6-5-09
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The Direction Of The Economy Is Not Going To Change
Posted: May 2 2009
Suckers rally in the markets, Dow will be driven down again, market gyrations motivated by insider greed, bank acquisitions point to a greater agenda, despite what economists and institutions are attempting, the economy will remain in a spiral
In the first three weeks of April this year, insiders for NYSE listed companies sold 8.32 times more stock, by dollar value, than they purchased. What does that tell you? We won't insult your intelligence by answering. If ever there was an indicator to identify a sucker's rally, this would be it. This is the ongoing Big Sting Two as strength is created by the PPT for insiders to sell into as our economy collapses under a dollar-busting juggernaut of fiat paper, aka Federal Reserve notes, being monetized at light speed as our President and Congress go on a spending spree that makes the spending habits of a Saudi sheik's entourage look like those of a group of Welsh penny-pinchers. So much for "beloved" Emperor Obama's promise to put an end to legislative pork and fiscal profligacy.
The insider sales being made in public view pursuant to insider trading rules are just the tip of the iceberg when it comes to Big Sting Two trades, most of which are done behind our backs in dark pools of liquidity such as Project Turquoise, Baikal and the OTC derivative markets, which are totally opaque and unregulated. As a result, the SEC has no public record of insider trades to scrutinize, not that it matters, because they only prosecute the scapegoats set up by elitist flimflam artists while the real criminals profit handsomely from their crimes. Then, of course, once the rally has reached its manipulated end as disclosed in advance by the PPT to insiders, all the elitist insiders go short while strength on the sell side is created for them to short into as investors are terrorized by Cramer and/or Buffet. If you are not an insider, you need to get out of the stock markets and bond markets - NOW!!! – with the exception of gold and silver shares or short postions. It is suicide to try to beat them at their own game. Do not empower them by giving them your money so they can steal it from you.
Remember, the elitist scum running the PPT do not have to drive the Dow back to 14,000 again. They just have to gyrate the stock markets up and down, alternately producing opportunities to go long and then to go short, creating mega-profits for Illuminist financial companies which are attained with money borrowed at zero interest and leveraged at psychopathic levels, while trillions in derivative losses continue to be hidden via government-approved mark-to-model rules. Then the zombies say: See, we are healthy, profitable and have plenty of capital. Therefore, we no longer need your TARP money, which is stopping us from paying out handsome salaries and bonuses to our henchmen criminals who continue to milk the system, and their shareholders, right down to the very last drop. It's sort of like a Maxwell House commercial about the goodness of its coffee. Da-da da-da, da da, da da-da, da da.
These market gyrations will continue until the markets can no longer be floated on a cloud of hot air created by the combined forked-tongued exhalations of elitist bootlickers, Obama, Bernanke and Geithner, as they pathologically lie about so-called signs of recovery to draw sheople-sucker-dupe herds back into the meat (stock) markets for a fresh new slaughter. Roast mutton anyone? Even the media morons sound as if they are both stunned and stupefied as the markets continue to hold against the worst economic news in our history, with a potential pandemic thrown in for good measure.
They are calling this new phenomenon the "see no evil, hear no evil, speak no evil" stock markets, which is really just the next iteration of what we have called the Goldilocks Matrix in many past issues of the IF.
As we continue to privatize profits and socialize losses with the latest stimulus package, to be followed soon by many more packages totaling multiple trillions, the Fed continues to monetize treasuries to create what would be, at current rates of return, an otherwise non-existent market in US treasuries, while using a portion of these monetizations to also buy agency paper from foreign holders in support of what would be, at current rates of return, an otherwise non-existent market in agency paper.
Decreases in real interest rates that are charged to the public and to non-Illuminist companies have been paltry because no matter how much paper the Fed buys from the Treasury, the truth about the zombie state of our economy does not change, and, of course, the Illuminist bankers want to maximize spreads so they can generate profits, and the outrageous salaries and bonuses that come with those profits.
Remember, the Fed already gives Illuminist bankers an above-market rate of return just for parking their money with the Fed, so if they are going to loan any of that money out, they are going to command high premiums. But why loan it out at all, when you can starve the smaller banks to death, send them into bankruptcy and buy them up for pennies on the dollar, even though you are totally insolvent but for the fairytale financial statements made possible by continued government tolerance for mark-to-model valuations.
Incidentally, failures to deliver treasuries in the repo markets are at record levels because traders seeking to borrow treasuries worry that they might end up in a situation where they pay money to borrow treasuries that are not delivered on time, while the money they paid for those treasuries might never be returned because the counterparty might go under. Those lending treasuries are afraid to deliver because they might not ever get their treasuries back again if their counterparty goes under. All the insiders know that their financial institutions are insolvent, so is it any wonder that the treasury market would be virtually frozen but for the Fed's intervention? Failures to deliver US treasuries now exceed well over a trillion dollars in value.
High risk of default and rapid monetizations that will lead to hyperinflation in the not-too-distant future, along with current real (as opposed to official) inflation rates that are around 9%, are a synergistic formula for much higher interest rates in the future. These rates will eventually move into double digits, and this is when the Much, Much Greater Depression will reach its nadir (lowest point) as the real estate markets collapse, real estate values plunge, interest rate swaps generate tens of trillions in losses for large Illuminist "legacy banks," corporate profits turn into red ink on a global basis and world markets collapse.
The "legacy banks" and the Fed are slated for failure after the system is milked and they have acquired or bankrupted thousands of banks by starving them of credit or by acquiring them with taxpayer funds. They will then be bailed out and amalgamated into a super-entity that will itself be a cog in a new world system, which will combine the privileges, power and support of the BIS (Bank of International Settlements), IMF (International Monetary Fund) and the World Bank. They in turn will be supervised by the UN, which will be funded with a carbon tax as well as direct taxes levied on member nations. Along the way, a new world currency will be forged, and the dollar will be tossed. The new currency will purportedly be backed by gold, but this will be a farce just like our Fort Knox gold and the gold held by central banks, including the ECB. They have no intention of using their gold to back the new world currency, and it will be squirreled away as a failsafe while bank books continue to show it as an asset of the system.
All the central banks in the world probably have about 5,000 tons left out of the more than 30,000 tons they claim. By that time, China's central bank will own as much gold as these other central banks have combined, or may simply end up owning what is left of the gold that remains with the other central banks. They will use this gold to set themselves up as having a large say in the world financial system and currency that is planned. But remember, the public in India has about 30,000 tons, and the Illuminists themselves, who rule the developed nations of Western Civilization, have tens of thousands of tons in their own private stashes which they have looted from their own central banks at fire-sale prices, or which they have outright stolen through war or theft.
So China really needs at least 10,000 tons just to stay in the game, as does Russia.
China will likely acquire the entire quantity of gold offered by the IMF for sale outside of the markets in the ongoing quest to diversify and become a dominant world power, so this IMF gold bologna is a non-issue and will have little impact on the price of gold, assuming that such sales are even approved by the US Congress, which is highly unlikely. As you can see, the quest to become a dominant player in the new world currency and financial system requires the acquisitions of tens of thousands of tons of gold, and that means gold is going on a moon-shot. Wait until the Illuminists themselves become gold bugs to keep as much out of the hands of China and Russia as possible. After all, the sales proceeds from the dollar-denominated paper assets that are sold behind everyone's back in the Big Sting Two have to go somewhere, and a lot of that is going into gold, silver and their related shares.
April 18, 2009
Largest declines since WWII, Lowest quarterly reading since it has been measured,elitist formula ineffective, no end to the reckless speculation, fortunes made in bubbles for the rich, watch for Ron Pauls bank transparency bill, Railroad worker fund now derailed, real estate glut.
International Forcaster
American’s ruling class, which controls Wall Street, banking and government, continues to suppress the less fortunate. Over the years we have seen these elitists rescue themselves at the expense of the American public. Any professional observer knows the core of this power structure lies within the Federal Reserve, which has created booms and busts for almost 100 years.
Our current President says a new foundation must be found for future economic growth. Under this form of economy and government speculation will continue to flourish as long as the Fed is in place. We find it not surprising that over the last 22 months of crisis the mainline media has never accused the Fed of creating this depression. It is they who created and funded the illusion of prosperity that has led us into this irreversible quagmire. Government has played its role as well. The CFTC stood and stands idly by as the “Working Group on Financial Markets” manipulates commodity and precious metals markets, as the SEC does the same in other markets.
Thus, our President says he will bring an end to reckless speculation, excessive use of credit and over-leveraged lenders. He might consider privatizing the CFTC and the SEC or at the least have those agencies run by professionals who are not members of the Wall Street – Washington cabal.
Mr. Obama, and, of course, his CFR henchmen, again discontinued mark-to-market to continue the theory of no need to know. They terrorized the FASB and they relented allowing American business to mark-to-model, better known as mark-to-myth. This allows corporate America to cook the books. This gives them time to say their assets are sound, while slowly selling off their toxic waste. First Bush and now Obama are covering for Wall Street and the bankers. The garbage will be sold to hedge funds and private-equity firms at high prices. These buyers will be guaranteed against loss by US taxpayers via the Fed and the treasury. The buyers will probably make handsome profits. Thrown in for good measure was the death of a bill that would have taxed 90% of the bonuses of bailed-out companies under public assistance. Again, beholden to Wall Street, the President told the irate public to take a flying leap.
The new modus operandi is for the Illuminists to create bubbles in which they make fortunes. The bubble is pierced; they cut interest rates, increase money and credit and flood the system with liquidity. This is called quantitative easing, which causes monetization and eventually hyperinflation. The bog losers are savers and those sucked into the market.
MBA mortgage purchase applications index fell 11.3% versus plus 11.1% and plus 4.7% in prior weeks. The refi index was off 10.9% versus up 3.2% the prior week. The 30-year fixed rate mortgage rose 3 bps to 4.78%; the 15’s rose 3 bps to 4.46%.
The net long term February TIC flows were $22 billion. January fell $146.8 billion.
Net capital outflows from the US totaled $97 billion in February versus a net outflow of $146.8 billion in January. Excluding swaps, long-term net capital flows showed an inflow of $22 billion versus outflows of $36.8 billion in January.
The NAHB housing index rose to 14 from 9 in March.
Capital One reports that credit card defaults rose to an annualized 9.33% in March.
In the face of lower mortgage rates, applications fell a large 11%. Most of the $955 billion of credit card debt has been securitized and put into SIVs, CBOs, VIEs, etc. these toxic assets are probably worth less than $0.10 on the dollar. That presents a potential total dollar liability of $10 trillion.
Total consumer debt, including auto loans, mobile home loans and student loans, etc. is close to $2 trillion.
JP Morgan Chase, Wells Fargo, Fannie Mae and Freddie Mac say they have increased foreclosure activity in recent weeks after lifting moratoriums that temporarily halted foreclosures. This will put further pressure on bank earnings as loans are written off and on house prices.
Banks are benefiting incalculably from no-strings-attached indirect debt subsidy of FDIC-guarantee AAA ratings. Adopted last fall, the program has allowed banks to issue more than $300 billion in debt cheaply with FDIC backing so far. The program runs to mid-2012. This is an infinite subsidy. The players are Goldman Sachs $28 billion, Morgan Stanley $23 billion and over $40 billion for BofA and JP Morgan Chase.
As you know the administration had decided that keeping stress test results secret could lead to flight by investors, who were outraged that the results would be hidden. The Obamaites are following the pattern of the Bushes. There is no need to know.
First quarter drug prices rose 10% to 15% and Credit Suisse said they rose 20%.
State and local sales taxes fell sharply in the fourth quarter of 2008, the most in 50 years.
In the Bloomberg Professional Global Confidence Index participants were bearish on the dollar and bullish on the Mexican peso and Brazil’s real.
The banks and Wall Street own the Obama administration just as they owned the Bush crowd.
What has to be recognized in our current dilemma is someone has to lose, everyone cannot be made whole at the expense of the taxpayer. Commercial and residential builders are still building in an environment that is overwhelmed with inventory. The auto industry has been a failure for years, but they are still overbuilding. Without tariffs they are doomed. All mature economies are in the same position.
We predicted what you now see in 1964. This didn’t just happen overnight. Credit contraction is upon us and if the banks do not start lending inflation will be reversed and deflation will take over. Worse yet, this is a worldwide problem and if lending is not soon increased deflation will rear its ugly head. Anyone with assets had best have them in gold or they’ll lose them.
Ron Paul has introduced HR1207, the Federal Reserve Transparency Act. The Senate version is, S604; the Federal Reserve Sunshine Act. The House Bill has more than 50 sponsors and the Bill can pass if enough people contact all congressional representatives demanding support. It amends the US code so that the GAO would be required to audit the Fed by the end of 2010. It would include discount window operations, funding facilities, open market operations and agreements with foreign banks. Let’s wake up the American people as to what is being done to them.
The CFO and CEO at Goldman Sachs are upset that officers of the company should not be paid for failure and as a consequence want to pay back TARP funds. Goldman wants to pay out 50% of revenues against payments it plans to make to employees. That is the same amount they paid out during the boom years. They want to take taxpayer funds and pay the likes of Jon Winkelried, one of the wealthiest and most senior executives after he lost billions in his own hedge fund. Goldman is in business because taxpayer funds bailed them out. This is a firm with $850 billion in liabilities. It wants to separate itself from the pack and use its $164 billion of resources to buy distressed debts with additional taxpayer funds. It now wants to be treated as a broker dealer, not as a bank, which it just became, so it could get TARP funds. Such a move gives Goldman a get-out-of jail free card and have it both ways. Glass-Steagall where are you now that we need you?
The Obama administration, as an award for failure, on Wednesday named the first six companies participating in a $75 billion program designed to help millions of struggling homeowners avoid foreclosure.
The administration said the companies - including some of the mortgage industry's biggest players - will receive a maximum of $9.9 billion in incentive payments, which are designed to encourage mortgage companies to lower borrowers' monthly bills. The government expects to finish arrangements with other companies in the coming months.
Chase Home Finance, part of JPMorgan Chase & Co., will receive up to $3.6 billion, the largest amount among the six companies.
The other recipients are: Wells Fargo & Co., GMAC Mortgage Inc., Citigroup Inc.'s CitiMortgage unit, Select Portfolio Servicing and Saxon Mortgage Services Inc.
The program, unveiled on March 4, will offer struggling homeowners the chance to obtained modified loans with lower monthly payments. It's being funded by $50 billion out of the government's $700 billion financial rescue program. The remaining $25 billion will come from other government sources.
General Growth Properties Inc. (as we predicted) filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt as it became the second-largest U.S. shopping mall owner.
The mall owner will continue operating its more than 200 properties, including South Street Seaport in Manhattan and Boston’s Faneuil Hall, after it sought Chapter 11 protection in U.S. Bankruptcy Court in New York. The company listed $29.5 billion in total assets and debts of about $27.3 billion.
“While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11,” Chief Executive Officer Adam Metz said in a statement today.
The filing lists Eurohypo AG, a unit of Commerzbank AG, as General Growth’s largest unsecured creditor with claims totaling $2.59 billion under two loans. Noteholders are owed about $4 billion in total. Much of the company’s debt can be traced to its $11.3 billion purchase of commercial-property developer Rouse Co. in 2004.
A special pension fund for railroad workers that was given permission during the Bush administration to invest its assets in the stock market lost more than a third of its value during a recent 18-month period, a loss that could influence an ongoing debate about how to keep government-affiliated retirement programs solvent.
After the National Railroad Retirement Investment Trust initially made healthy gains by investing in the stock market, it was hailed by some lawmakers as a model for how to save Social Security - either by investing part of the Social Security trust fund in stocks or by creating private accounts and giving individuals a chance to do the same.
Senator Chuck Grassley of Iowa, at that time the Republican chairman of the Senate Finance Committee, was quoted in 2005 as saying that Congress should consider putting part of the Social Security trust fund into stocks "based upon the success of the railroad retirement fund." Many other members of Congress made similar comments, and then-President Bush launched an un successful campaign to give people the power to invest portions of their own Social Security funds in the stock market.
But since the end of 2007, the railroad fund's returns have crashed. The fund, which had previously been restricted by the government to investing in Treasury securities, put its assets into everything from foreign stocks to real estate to "opportunistic" investments. As a result of the losses, taxes may be raised on the railroad companies and their workers, as provided for in the law under which the trust was established.
Housing starts fell 10.8 percent to an annual rate of 510,000, the Commerce Department said today in Washington. Building permits, a sign of future construction, fell 9 percent to 513,000.
A glut of unsold properties is pulling home prices down across the U.S., prompting builders to scale back projects. President Barack Obama’s administration has pledged measures to reduce foreclosures and the Federal Reserve is buying mortgage securities to drive down home-loan rates and spur demand.
Manufacturing in the Philadelphia region contracted in April at a slower pace than forecast as orders improved. The Federal Reserve Bank of Philadelphia’s general economic index increased to minus 24.4 this month from minus 35 in March, the bank said today. Negative numbers signal contraction.
Initial jobless claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January, the Labor Department said today in Washington. Still, the total number of people collecting benefits jumped to a record 6.02 million a week earlier.
Fewer than half the seniors knew that the line “We hold these truths to be self-evident, that all men are created equal” can be found in the Declaration of Independence. Only 60 percent managed to place the Civil War in the right time period. Fifty-three percent didn’t understand the concept of federalism; 40 percent couldn’t define the law of supply and demand; 78 percent didn’t know what a “public good” is. Forty-seven percent couldn’t explain how wealth is generated in a free market system. When questioned about basic American history, such as when the first colony was established at Jamestown, about half the students got it wrong.
US industrial production for March declined 1.5% m/m and 12.8% y/y. This is the biggest y/y decline since the end of WWII. Q1industrial production collapsed 20% annualized. Since the recession ‘officially’ commenced in December 2007, industrial production is down 13.3% and factory production has declined 15.7%, which is also the largest decline since the end of WWII.
Q4 industrial production declined at a 12.7% annualized rate. So the past two quarters are showing a depression-like contraction in industrial production. Capacity Utilization fell to 69.3% in March. This is the lowest reading in the history of the series, which began in 1967.
| Posted by philprism on 04/18/09 3:51 PM |
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Introduction
I have been tracking the Basel Accords and the mischief they have allowed to happen in the worlds financial systems for a few years now. Basicaly it is the epitomy of governent by elites allied to special interests and a harbinger of the undemocratic regime(s) gradualy being forced onto democratic systems. This system is constructed and moderated by our nation states central banks who periodicaly send representatives to Basel to create or modify 'accords'. In an April 7 article in The London Telegraph titled "The G20 Moves the World a Step Closer to a Global Currency," Ambrose Evans-Pritchard wrote:
"A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order. "We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,' it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century. "In effect, the G20 leaders have activated the IMF's power to create money and begin global ‘quantitative easing'. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it." Indeed they will. The article is subtitled, "The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity." Which naturally raises the question, who or what will serve as this global central bank, cloaked with the power to issue the global currency and police monetary policy for all humanity? When the world's central bankers met in Washington last September, they discussed what body might be in a position to serve in that awesome and fearful role. A former governor of the Bank of England stated: "[T]he answer might already be staring us in the face, in the form of the Bank for International Settlements (BIS).... The IMF tends to couch its warnings about economic problems in very diplomatic language, but the BIS is more independent and much better placed to deal with this if it is given the power to do so."1 And if that vision doesn't alarm conspiracy theorists, it should. The BIS has been called "the most exclusive, secretive, and powerful supranational club in the world." Founded in Basel, Switzerland, in 1930, it has been scandal-ridden from its beginnings. According to Charles Higham in his book Trading with the Enemy, by the late 1930s the BIS had assumed an openly pro-Nazi bias. This was corroborated years later in a BBC Timewatch film titled "Banking with Hitler," broadcast in 1998.2 In 1944, the American government backed a resolution at the Bretton-Woods Conference calling for the liquidation of the BIS, following Czech accusations that it was laundering gold stolen by the Nazis from occupied Europe; but the central bankers succeeded in quietly snuffing out the American resolution.3 Modest beginnings, BIS Office, Hotel Savoy-Univers, Basel  First Annual General Meeting, 1931 In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley revealed the key role played in global finance by the BIS behind the scenes. Dr. Quigley was Professor of History at Georgetown University, where he was President Bill Clinton's mentor. He was also an insider, groomed by the powerful clique he called "the international bankers." His credibility is heightened by the fact that he actually espoused their goals. He wrote: "I know of the operations of this network because I have studied it for twenty years and was permitted for two years, in the early 1960's, to examine its papers and secret records. I have no aversion to it or to most of its aims and have, for much of my life, been close to it and to many of its instruments. ... [I]n general my chief difference of opinion is that it wishes to remain unknown, and I believe its role in history is significant enough to be known." Quigley wrote of this international banking network: "[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations." The key to their success, said Quigley, was that the international bankers would control and manipulate the money system of a nation while letting it appear to be controlled by the government. The statement echoed an often-quoted one made by the German patriarch of what would become the most powerful banking dynasty in the world. Mayer Amschel Bauer Rothschild famously said in 1791: "Allow me to issue and control a nation's currency, and I care not who makes its laws." Mayer's five sons were sent to the major capitals of Europe - London, Paris, Vienna, Berlin and Naples - with the mission of establishing a banking system that would be outside government control. The economic and political systems of nations would be controlled not by citizens but by bankers, for the benefit of bankers. Eventually, a privately-owned "central bank" was established in nearly every country; and this central banking system has now gained control over the economies of the world. Central banks have the authority to print money in their respective countries, and it is from these banks that governments must borrow money to pay their debts and fund their operations. The result is a global economy in which not only industry but government itself runs on "credit" (or debt) created by a banking monopoly headed by a network of private central banks; and at the top of this network is the BIS, the "central bank of central banks" in Basel. Behind the Curtain The BIS is now composed of 55 member nations, but the club that meets regularly in Basel is a much smaller group; and even within it, there is a hierarchy. In a 1983 article in Harper's Magazine called "Ruling the World of Money," Edward Jay Epstein wrote that where the real business gets done is in "a sort of inner club made up of the half dozen or so powerful central bankers who find themselves more or less in the same monetary boat" - those from Germany, the United States, Switzerland, Italy, Japan and England. Epstein said:"The prime value, which also seems to demarcate the inner club from the rest of the BIS members, is the firm belief that central banks should act independently of their home governments... . A second and closely related belief of the inner club is that politicians should not be trusted to decide the fate of the international monetary system." In 1974, the Basel Committee on Banking Supervision was created by the central bank Governors of the Group of Ten nations (now expanded to twenty). The BIS provides the twelve-member Secretariat for the Committee. The Committee, in turn, sets the rules for banking globally, including capital requirements and reserve controls. In a 2003 article titled "The Bank for International Settlements Calls for Global Currency," Joan Veon wrote: "The BIS is where all of the world's central banks meet to analyze the global economy and determine what course of action they will take next to put more money in their pockets, since they control the amount of money in circulation and how much interest they are going to charge governments and banks for borrowing from them... . "When you understand that the BIS pulls the strings of the world's monetary system, you then understand that they have the ability to create a financial boom or bust in a country. If that country is not doing what the money lenders want, then all they have to do is sell its currency."5 The Controversial Basel Accords The power of the BIS to make or break economies was demonstrated in 1988, when it issued a Basel Accord raising bank capital requirements from 6% to 8%. By then, Japan had emerged as the world's largest creditor; but Japan's banks were less well capitalized than other major international banks. Raising the capital requirement forced them to cut back on lending, creating a recession in Japan like that suffered in the U.S. today. Property prices fell and loans went into default as the security for them shriveled up. A downward spiral followed, ending with the total bankruptcy of the banks, which had to be nationalized - although that word was not used, in order to avoid criticism.6 Among other collateral damage produced by the Basel Accords was a spate of suicides among Indian farmers unable to get loans. The BIS capital adequacy standards required loans to private borrowers to be "risk-weighted," with the degree of risk determined by private rating agencies; and farmers and small business owners could not afford the agencies' fees. Banks therefore assigned 100 percent risk to the loans, and then resisted extending credit to these "high-risk" borrowers because more capital was required to cover the loans. When the conscience of the nation was aroused by the Indian suicides, the government, lamenting the neglect of farmers by commercial banks, established a policy of ending the "financial exclusion" of the weak; but this step had little real effect on lending practices, due largely to the strictures imposed by the BIS from abroad.7 Similar complaints have come from Korea. An article in the December 12, 2008 Korea Times titled "BIS Calls Trigger Vicious Cycle" described how Korean entrepreneurs with good collateral cannot get operational loans from Korean banks, at a time when the economic downturn requires increased investment and easier credit: "‘The Bank of Korea has provided more than 35 trillion won to banks since September when the global financial crisis went full throttle,' said a Seoul analyst, who declined to be named. ‘But the effect is not seen at all with the banks keeping the liquidity in their safes. They simply don't lend and one of the biggest reasons is to keep the BIS ratio high enough to survive,' he said... . "Chang Ha-joon, an economics professor at Cambridge University, concurs with the analyst. ‘What banks do for their own interests, or to improve the BIS ratio, is against the interests of the whole society. This is a bad idea,' Chang said in a recent telephone interview with Korea Times." In a May 2002 article in The Asia Times titled "Global Economy: The BIS vs. National Banks," economist Henry C K Liu observed that the Basel Accords have forced national banking systems "to march to the same tune, designed to serve the needs of highly sophisticated global financial markets, regardless of the developmental needs of their national economies." He wrote: "[N]ational banking systems are suddenly thrown into the rigid arms of the Basel Capital Accord sponsored by the Bank of International Settlement (BIS), or to face the penalty of usurious risk premium in securing international interbank loans... . National policies suddenly are subjected to profit incentives of private financial institutions, all members of a hierarchical system controlled and directed from the money center banks in New York. The result is to force national banking systems to privatize ... . "BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies... . The IMF and the international banks regulated by the BIS are a team: the international banks lend recklessly to borrowers in emerging economies to create a foreign currency debt crisis, the IMF arrives as a carrier of monetary virus in the name of sound monetary policy, then the international banks come as vulture investors in the name of financial rescue to acquire national banks deemed capital inadequate and insolvent by the BIS." Ironically, noted Liu, developing countries with their own natural resources did not actually need the foreign investment that had trapped them in debt to outsiders: "Applying the State Theory of Money [which assumes that a sovereign nation has the power to issue its own money], any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation." When governments fell into the trap of accepting loans in foreign currencies, however, they became "debtor nations" subject to IMF and BIS regulation. They were forced to divert their production to exports, just to earn the foreign currency necessary to pay the interest on their loans. National banks deemed "capital inadequate" had to deal with strictures comparable to the "conditionalities" imposed by the IMF on debtor nations: "escalating capital requirement, loan writeoffs and liquidation, and restructuring through selloffs, layoffs, downsizing, cost-cutting and freeze on capital spending." Liu wrote: "Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking system." The Last Domino to Fall While banks in developing nations were being penalized for falling short of the BIS capital requirements, large international banks managed to escape the rules, although they actually carried enormous risk because of their derivative exposure. The mega-banks succeeded in avoiding the Basel rules by separating the "risk" of default out from the loans and selling it off to investors, using a form of derivative known as "credit default swaps." BIS Tower Building, Basel  Botta 1 Building, Basel However, it was not in the game plan that U.S. banks should escape the BIS net. When they managed to sidestep the first Basel Accord, a second set of rules was imposed known as Basel II. The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14,000 to reach its all-time high. The economy was all downhill from there. Basel II had the same effect on U.S. banks that Basel I had on Japanese banks: they have been struggling ever since to survive.8 Basel II requires banks to adjust the value of their marketable securities to the "market price" of the security, a rule called "mark to market."9 The rule has theoretical merit, but the problem is timing: it was imposed ex post facto, after the banks already had the hard-to-market assets on their books. Lenders that had been considered sufficiently well capitalized to make new loans suddenly found they were insolvent. At least, they would have been insolvent if they had tried to sell their assets, an assumption required by the new rule. Financial analyst John Berlau complained:
"The crisis is often called a ‘market failure,' and the term ‘mark-to-market' seems to reinforce that. But the mark-to-market rules are profoundly anti-market and hinder the free-market function of price discovery... . In this case, the accounting rules fail to allow the market players to hold on to an asset if they don't like what the market is currently fetching, an important market action that affects price discovery in areas from agriculture to antiques."10 Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which proceeded to take down the economies not only of the U.S. but of countries worldwide. In early April 2009, the mark-to-market rule was finally softened by the U.S. Financial Accounting Standards Board (FASB); but critics said the modification did not go far enough, and it was done in response to pressure from politicians and bankers, not out of any fundamental change of heart or policies by the BIS. And that is where the conspiracy theorists come in. Why did the BIS not retract or at least modify Basel II after seeing the devastation it had caused? Why did it sit idly by as the global economy came crashing down? Was the goal to create so much economic havoc that the world would rush with relief into the waiting arms of the BIS with its privately-created global currency? The plot thickens ... . Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her earlier books focused on the pharmaceutical cartel that gets its power from "the money trust." Her eleven books include Forbidden Medicine, Nature's Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). |
Congress Delays Credit Card Reform
Democrats Who Decried Fed's Timeline in December Now Offer Nearly Identical Plan
By Mike Lillis 4/23/09 1:30 PM
iStockphoto
It’s one of the central components of the Democrats’ plans for reforming the finance industry this year, and among the most vital, supporters say, for protecting consumers from abusive lending practices in a tumbledown economy. Yet as Congress advances legislation reining in the most abusive credit card traps, both the House and Senate proposals have been watered down in recent weeks so that the protections likely won’t help card users for more than a year.
The delay — a concession to the banks, who oppose the changes — means that Congress’ reforms likely won’t arrive anytime sooner than the Federal Reserve’s new credit card rules, scheduled to take hold in July 2010. It also leaves consumers hung out to dry at an unwelcome time, as the recession deepens, unemployment rises and card issuers raise fees and interest rates on even their most reliable customers. Many observers wonder why, if some credit card practices are indeed unfair and deceptive — some say criminal — Congress isn’t acting more quickly to eliminate them. Some consumer advocates say the delay is yet another example of lawmakers prioritizing the banks above working families amid the downturn.
Illustration by: Matt Mahurin
“While we expect the Fed to be weak and buckle under bank pressure, there is no excuse for Congress pandering to the banks and delaying implementation of legislation to stop practices that hurt working families,” Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, wrote in an email. “Every day of delay is millions of dollars in unfair fee income. Every day of delay means more families cannot buy things to stimulate the economy (or save to buy things later), as they are forced to pay usurious credit card interest rates.”
The debate arrives as Democratic leaders are pushing legislation to restrict some of the finance industry practices that have been largely blamed for the current economic turmoil. Credit card reform is just one item on a list that also includes proposals to tighten regulations on mortgage lending and grant homeowners the option of bankruptcy to prevent foreclosure. But the power of the finance industry to sway Congress is never to be underestimated. Indeed, the mortgage bankruptcy bill has been stalled in the Senate for weeks, and reportedly faces an uncertain future despite robust support from Democratic leaders, including President Obama. The delay in the credit card reforms is just the latest example of what happens when leadership goals smack headfirst into political reality — and a lobbying juggernaut.
That spells bad news for credit card users, as banks in recent weeks have installed a series of fee and rate hikes to churn profits in a struggling economy. In many cases the increases come without any warning to consumers, and they often apply to balances accrued even before the hikes arrive.
“Unfortunately the way the market place is working, [card users] could use more protection, not less,” said Graham Steele, an attorney at Public Citizen’s Congress Watch. “Consumers need relief now, and yet these bills are being weakened.”
It wasn’t supposed to be this way. When the Fed announced its new consumer protections late last year, Democrats applauded the changes but decried the drawn-out timeline for putting them in place. Some cited the need for legislation precisely because the delay meant that the reforms wouldn’t arrive in time to help consumers weather the recession.
“This is a good first step, but consumers can’t wait,” Rep. Carolyn Maloney (D-N.Y.), sponsor of the House proposal, said in a December statement reacting to the Fed’s reforms. “Congress should act sooner to protect American consumers by giving credit card protections the permanence and force of law.”
Maloney’s bill — which would essentially codify the Fed’s new rules by eliminating hidden fees, giving card users longer notice to pay bills and prohibiting card companies from applying interest rate hikes to existing balances — was originally written to take effect 90 days after the bill passes. But a bipartisan group of lawmakers amended the bill earlier this month, pushing the effective date to either 12 months after passage or July 1, 2010, whichever comes first. The House Financial Services Committee passed the bill easily on Wednesday, and it’s expected to hit the House floor next week.
Similarly, a Senate proposal was passed out of the Senate Banking Committee late last month. Sponsored by Banking Chairman Chris Dodd (D-Conn.), the proposal would have taken hold immediately after passage — until it was altered in committee to push the effective date nine months later.
Given the usually snail’s pace of Congress — and the difficulty of passing controversial proposals through the Senate — Democrats and consumer advocates are pointing to the Fed’s implementation timeline as the earliest the reforms will likely take hold.
“We’re not optimistic,” Steele said of the congressional efforts. “At this point, July 2010 is looking good, which is sad to say.”
Industry representatives maintain that the Fed’s timeline, now 14 months away, is onerous enough without Congress stepping in to expedite it. Peter Garuccio, spokesman for the American Bankers Association, said the changes will require card issuers to reprogram computers, retrain call-center employees, verify the legality of the new policies and rework marketing strategies.
“It’s not as if they’re saying you just have to put smiley faces on the credit card statements,” Garuccio said. “Anything that requires [issuers] to move more quickly is not going to be easy.”
Scott Talbott, senior vice president for the Financial Services Roundtable, an industry group, echoed that message, arguing that the looming reforms represent the most sweeping reforms to the credit card industry in nearly 30 years. “These are massive changes requiring countless man-hours,” Talbott said.
Many Republicans are backing the industry, arguing that consumer trial-and-error remains the best way to weed out the bad players in the credit card market. Rep. Jeb Hensarling (R-Tex.) said Wednesday that there’s “a dizzying array” of card options, and a consumer who doesn’t like one should try another.
“The consumers’ best friend is a competitive marketplace,” Hensarling said.
On Wednesday, House lawmakers did succeed in expediting one element of the Maloney bill when the Financial Services Committee approved a provision requiring card companies, beginning 90 days after the bill’s passage, to warn customers 45 days in advance of rate hikes. Debating the measure, supporters rejected the argument that the banks need more time to implement the change. “They can change the interest rate like that,” said Rep. Luis Gutierrez (D-Ill.), snapping his fingers, “and their computers like that. [They] can go from 18 to 25 to 30 [percent], and they compute the bill so easily. What’s so difficult about 90 days?”
Yet it was Gutierrez who, as chair of the Financial Services consumer credit sub-panel, sponsored the measure to delay the effective date of the Maloney bill from three months to 12. Asked about the discrepancy Wednesday, Gutierrez said he was considering the concerns of the banks and the consumers, as well as the advice of Fed officials, who have recommended that July 2010 is an appropriate deadline for the new rules to be in place. He also predicted that Congress likely won’t get a bill to the president until much later in the year, meaning that there would be little difference between a 90-day implementation period and the July 2010 timeline he sponsored.
“It’s a little messy,” Gutierrez said.
But with many banks taking advantage of the current rules by hiking rates, some powerful lawmakers are threatening to squeeze the timeline if those trends persist at the expense of consumers.
“If we get a lot of reports from our constituents that there is this effort to get in under the wire, please remember that the effective date is not going to be set until we finally send a bill to the president,” Financial Services Chairman Barney Frank (D-Mass.) said Wednesday. “If it turns out there is a flood of efforts to sort of evade this before it happens, then I think you may see a shorter [implementation] time period.”
The Wall Street bailout is also playing a factor in the debate. On Tuesday, Elizabeth Warren, the Harvard law professor who chairs the congressional panel overseeing the Troubled Asset Relief Program, grilled Treasury Secretary Tim Geithner about whether it’s appropriate for bailout beneficiaries to turn around and hike fees and interest rates on their customers. “People are angry that, even if they have consistently paid their bills on time and never missed a payment,” Warren said, “their TARP-assisted banks are unilaterally raising their interest rates or slashing their credit lines.”
Geithner evaded the question, but the issue is very much on the administration’s radar. Indeed, President Obama on Thursday will meet with executives from the country’s largest credit card issuers — including Citigroup, Bank of America and JP Morgan Chase — to clarify his intent to back Congress’ credit card proposals. It’s also widely expected that the administration will offer amendments on the House floor to strengthen the Maloney bill, including a provision forcing card companies to clarify how long it will take customers to eliminate balances if they pay only the monthly minimum due.
Even if the congressional changes don’t arrive before the Fed’s new rules, the law isn’t without advantages, advocates say. Codifying the consumer protections make the reforms tougher to reverse if, for example, a Fed chairman somewhere down the line was opposed to them.
“It’s much easier to change a federal rule than a law,” said Pamela Banks, policy counsel at Consumers Union.
Some lawmakers echoed the importance of passing legislation for the sake of permanence. Frank quipped that, if the Fed were to alter its rules without the law in place, the banks would undo the changes much more quickly than they claim they can put them in place.
“The speed with which people are able to act … is proportional to their desire to act,” Frank said. “The more you don’t want to do something, the harder it is to get done.”
Freeze The $1.5 Qaudrillion
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By Webster Tarpley
3-25-09
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OECD forecasts surge in global unemployment
The organisation has called on governments to take 'quick and decisive action' to head off a full-blown social crisis
- guardian.co.uk, Monday 30 March 2009 16.17 BST
and low-
OECD secretary general Angel Gurria. Photograph: Koji Sasahara/AP
The world's 30 richest countries are facing a combined jump in unemployment of 25 million people in the current economic crisis, by far the biggest and swiftest rise in the post-war period, the Organisation for Economic Cooperation and Development warned today.
Tomorrow, the Paris-based body will release its economic forecasts for the bloc, predicting a contraction of 4.3% in total gross domestic product, which it said will push up the jobless rate to over 10% from a 2007 low of 5.6%.
OECD secretary general, Angel Gurría, said the jobs crisis was spreading rapidly around the world, pushing millions of workers and their families into poverty. He urged countries to get a grip on the issue. He said: "Governments need to take quick and decisive action to avoid the financial crisis becoming a full-blown social crisis with scarring effects on vulnerable workers and low income households.
"Restoring global growth is an economic and political priority, but also an ethical, moral, social and human imperative. And employment and social policies are an essential component of a successful strategy to bring the OECD and non-OECD countries back on a growth track," he added.
He said most of the fiscal packages to support the economy that G8 and other countries have introduced, or are planning to introduce, include extra funds for labour-market and social-policy measures.
"The bad news is that these additional funds are rather limited, accounting for about 8%-10% of total expenditures in the United States and France and less in most of the other countries. This may turn into a missed opportunity," he said.
Britain suffered the biggest ever rise in the claimant count measure of joblessness last month which shot up by 138,000 from January. Experts expect further big rises in the months to come.
The Bank of England's labour market expert, David Blanchflower, has urged another fiscal stimulus aimed at preventing a surge in joblessness among the young but the chancellor, Alistair Darling, is thought to be unlikely to announce such a move in the budget on April 22.
The Federal Reserve
Is Bankrupt
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are the Ugly Consequences?
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HOPE YEN 12/ 4/11 11:49 PM ET