Global Articles on what is going on...posted daily

[sandi66]

June 21, 2010 | 12:57 PM ET
WH, Kyl Clash on Securing US-Mexico BorderThe White House, through Communications Director Dan Pfeiffer, has flatly denied an accusation from Arizona Republican Sen. Jon Kyl that President Obama won't secure the border because it would cost him GOP support for immigration reform.

Kyl leveled the charge at a Tea Party-sponsored event in Tempe, Ariz. The YouTube clip can be seen weighed in.

In reaction, Pfeiffer sent this to Fox News:

“The President didn’t say that and Senator Kyl knows it. There are more resources dedicated toward border security today than ever before, but, as the President has made clear, truly securing the border will require a comprehensive solution to our broken immigration system.”

Kyl's sticking by his account of the one-on-one meeting with Obama. Ryan Patmintra, Kyl's spokesman, said this:

"There were two people in that meeting, and Dan Pfeiffer was not one of them. Senator Kyl stands by his remarks, and the White House spokesman’s push-back that you must have comprehensive immigration reform to secure the border only confirms Senator Kyl’s account."

In addition to its categorical denial of Kyl's accusation, the White House produced these data points to back up its contention border security has improved under Obama's watch.

Over the past year since the Southwest Border Initiative was launched:

• Doubled the personnel assigned to Border Enforcement Security Task Forces by deploying 110 additional special agents.

• Tripled the number of ICE (Immigration and Customs Enforcement) intelligence analysts along the Southwest border in April 2009 by deploying 28 additional personnel.

• For the first time, the Department of Homeland Security began screening 100% of southbound rail shipments for illegal weapons, drugs, and cash.

• Deployed 13 additional cross-trained canine teams, which identify firearms and currency, to the Southwest Border to augment the five teams already in place.

• Deployed 116 additional Border Patrol Agents to augment CBP (Customs and Border Protection) officers during inspections operations—particularly outbound inspections.

• Deployed five additional Z-Backscatter Units, which help CBP identify anomalies in passenger vehicles, to the Southwest border to augment the six already there.

• CBP and ICE combined have seized $85 million in illicit cash along the Southwest border—a 22 percent increase over the same period during the previous year.

• CBP and ICE together have seized 1,404 firearms and 1.62 million kilograms of drugs along the Southwest border—increases of 22 and 14 percent respectively over the same period during the previous year.

• CBP seized $29.5 million in illicit southbound cash along the Southwest border—a 39 percent increase over the same period during the previous year.

Additionally, the San Diego DHS Maritime Unified Command, comprised of U.S. Coast Guard, CBP, ICE and other law enforcement partners, saw a more than six-fold increase in maritime drug interdictions in the Pacific waters extending from the Southwest border—seizing 57,437 lbs. of drugs in fiscal year 2009 compared to 8,884 lbs. seized in fiscal year 2008. Already in fiscal year 2010, the Coast Guard has seized 11,500 lbs. of drugs across the San Diego sector.

Since 2004:

• the Border Patrol has doubled in size to approx 20,000 Border Patrol agents on board.

CBP statistics show that illegal immigration into the United States is down with apprehensions between points of entry having dropped 23 percent in FY09. During FY09 the Border Patrol apprehended 556,041 compared with 723,825 during FY08. El Paso Sector saw a 51 percent reduction in apprehensions, the Tucson Sector saw a 24 percent reduction in apprehensions, and the Rio Grande Valley Sector saw a 19 percent reduction in apprehensions. Those statistics reflect a reduction in the number of people attempting to illegally cross our borders.

• And as part of his comprehensive plan to secure the Southwest border, President Obama will request $500 million in supplemental funds for enhanced border protection and law enforcement activities. The President will also deploy up to an additional, requirements-based 1,200 National Guard troops to the border to provide intelligence; surveillance and reconnaissance support; intelligence analysis; immediate support to counternarcotics enforcement; and training capacity until Customs and Border Patrol can recruit and train additional officers and agents to serve on the border. Funds will be utilized to enhance technology at the border, share information and support with State, Local, and Tribal law enforcement, and increase DoJ and DHS presence and law enforcement activities at the border, to include increased agents, investigators, and prosecutors, as part of a multi-layered effort to target illicit networks trafficking in people, drugs, illegal weapons, and money.

whitehouse.blogs.foxnews.com/2010/06/21/wh-kyl-clash-on-securing-us-mexico-border/

[sandi66]

June 22, 2010, 1:13 AM HKT

Yuan Impact: Energy

China’s decision to end the yuan’s de facto peg against the dollar could have a significant impact over time on the fortunes of corporations big and small, Chinese and foreign—even though any movement of the Chinese currency in the near term is likely to be too gradual to matter immediately for the bottom line. Below is a look at how it might affect energy companies:

China, the world’s second biggest oil consumer, imports about half of what is uses—and that ratio is growing. The country is also a growing importer of natural gas and coal. So, broadly speaking, a stronger yuan should make energy cheaper for China, and help its energy companies.

China Petroleum & Chemical Corp., or Sinopec, would benefit most, because it imports some 70% of the oil that it refines into fuel. Sinopec is the largest distributor of refined oil products in China but has few of its own oil or gas fields. PetroChina Corp., China’s largest oil-and-gas producer by volume, would also benefit, though it is less exposed to currency fluctuations because it pumps about 70% of its crude oil from its own fields.

But in energy, like in many other sectors, the picture is complicated.

Appreciation of the yuan could trigger a rise in global oil prices, at least in the short term, based on the belief that China would buy more crude with its stronger currency, Gordon Kwan, energy analyst with Mirae Asset Securities, said in April. He estimated then that a yuan move could help drive oil up to $100 or more a barrel next year. Oil rose more than 2% on June 21, the first trading day after the yuan announcement, to around $79 a barrel.

That could erase energy-related gains for China from a revaluation.

Also limiting the benefit for Chinese oil buyers: some Middle Eastern exporters have already started in recent years pricing oil they sell to China using a basket of currencies—instead of in dollars—as a hedge against a strong yuan, analysts say.

The impact on natural-gas imports may be clearer because some contracts are priced in dollars, BNP Paribas energy analyst Bradley Way said. Chinese buyers have signed 20-year contracts with countries like Australia with gas prices set in dollars. So in the long term the Chinese would get a bargain as the yuan gains against the dollar.

blogs.wsj.com/chinarealtime/2010/06/22/yuan-impact-energy/

[sandi66]

Dragon's Scriven Gets Bullish on Vietnam

June 21, 2010

By TARA LOADER WILKINSON

Dominic Scriven is managing director of Dragon Capital. He tells The Wall Street Journal why Vietnam offers a brighter investment case than the rest of Asia.

The Vietnamese market is looking stronger than elsewhere in Asia. Real gross-domestic-product growth is expected at 6.7%, firmly based on exports and a thriving domestic sector but with an extra fillip from a special Vietnamese factor: the expansion of private-sector banks and their accelerating mobilization of the country's prodigious hidden wealth. Vietnam is a cash-based economy and approximately $50 billion—equating to around 50% of GDP— is held outside the financial system in dollars and gold—much of which is literally hidden under mattresses. There is about $10 billion of the former and $40 billion of the latter. Modernizing the system and bringing this capital into it will greatly add to asset appreciation and macro growth.

Currency losses obscure the fact that Vietnam has huge net foreign assets via the gold and dollar hoard, which are further reinforced by minimal sovereign debt. Households and the economy at large are effectively hedged against inflation.

The Vietnamese market is developing rapidly as a serious financial platform. It now has 620 quoted companies, dozens of new listings in the pipeline and active capital raisings. Valuations are attractive: 12 times earnings for 2010 and 10 times earnings for 2011, with about 20% net profit growth in both years.

http://online.wsj.co...=googlenews_wsj

Read more: dinarvets.com/forums/index.php?/topic/22130-dragons-scriven-gets-bullish-on-vietnam/page__pid__135063__st__0&#entry135063#ixzz0rVuDaKDF

[sandi66]

Yuan Rises to New High on Dollar

The Chinese Currency's Move—the Strongest Since Regular Trading—Backs Central Bank's Promise of More Flexibility

JUNE 21, 2010, 2:54 P.M. ET

BEIJING—The Chinese yuan rose to a new high against the U.S. dollar on Monday, taking a first step toward the greater flexibility the Chinese central bank promised when it eased the currency's peg over the weekend.

The yuan closed at 6.7976 to the U.S. dollar in over-the-counter trading Monday, up 0.4% from Friday's close of 6.8262. It was the yuan's strongest level against the U.S. dollar since the currency has been regularly traded. The previous closing high came in July 2008, just before the central bank guided the currency to around 6.83 to the dollar and kept it there for the next two years to help stabilize its economy amid the global financial crisis.

The central bank had surprised markets Monday morning by keeping the yuan's central parity rate, an official reference for daily trading, unchanged from Friday's level of 6.8275 to the dollar. That jolted traders who had interpreted the central bank's weekend announcement as indicating the Chinese currency would resume gradual appreciation against the dollar.
Analysts and Chinese state media also warned against expectations of a rapid or predictable rise for the yuan. But the currency ended up, reflecting strong demand for the currency that underlies near-universal expectations it needs to rise. The result could help bolster the credibility of China's pledge to allow market forces a greater role in setting the yuan's value.

"This is a great way to show a more market-determined exchange rate," said Richard Yetsenga, a currency strategist for HSBC in Hong Kong.

The yuan's gains—though extremely small by the standards of almost any other market - helped boost other Asian currencies against the dollar, and sent stock prices up around the world. Benchmark stock indexes in Hong Kong, Tokyo, Seoul and Mumbai rose by between 1.6% and 3.1%. Share prices in Europe also rose.

China's benchmark Shanghai Composite Index closed up 2.9% as investors bid up stocks of Chinese airlines and metals firms, whose costs for imported fuel and iron ore would be lower with a stronger currency. Yields on Chinese government bonds also fell as investors bet that a stronger yuan will reduce the need for an interest rate hike.

Trading in the Chinese currency was closely watched Monday as investors and policy makers worldwide tried to gauge the significance of the shift in China's currency policy. How much China lets the currency move will help determine to what extent it can defuse tensions with its trading partners and help shift the balance of its own economy toward consumer spending.

In the past, the central bank has generally used the central parity rate to manage daily trading in the yuan. Officially, the rate is based on market forces, but in reality is up to the central bank's discretion, and is taken as a signal of policy intentions. But with its move on Monday the central bank sent an ambiguous message, and then let the market take its own direction. Market participants said it was significant that the central bank allowed the yuan to strengthen in spot trading, where it often intervenes heavily.

We think the central bank could be signaling that it's willing to see more fluctuation in the market," a Shanghai-based trader at a local bank said.

Investors also sharply bid up their estimate of future gains in the yuan. On Monday, currency derivative markets were pricing in a 2.7% appreciation in the yuan against the dollar over the next 12 months, compared to just 1.8% Friday.

Still, one day's modest gains in the yuan, also called the renminbi, are unlikely to be the start of a rapid upward climb against the dollar. China's central bank, in its weekend statement, stressed that the return to what it calls a managed floating exchange rate will mean only gradual moves, and it ruled out a large appreciation.

The government has also carefully controlled public discussion about the policy change, and appears to be trying to keep the Chinese public from assuming that the yuan is inevitably going to rise.

The state-run Xinhua news agency published a commentary Monday attacking what it called Western misunderstandings of Chinese currency policy. "Increased exchange-rate flexibility does not mean appreciation of the renminbi, and even less a large appreciation," the article said. Chinese economists have been quoted suggesting the yuan could even depreciate against the dollar, to offset its recent sharp rise against the euro.

The central bank emphasized that the currency will "fluctuate in both directions." Daily trading in the dollar-yuan exchange rate is confined to a band of 0.5% above and below the central parity level, a range that hasn't changed. But analysts say the central bank is likely to try to create more volatility within that bandto deter investors from speculating on gains in the yuan.

Monday, the yuan was at one point up as much as 0.4% from the central parity rate, one of the biggest swings since the system was established in 2005. Monday's trading was the most volatile in a year and a half,with the spread between the day's highest and lowest levels the widest since Dec. 3, 2008.

Tim Condon, an economist for ING, predicts China will proceed much as it didafter the July 2005 overhaul of its exchange-rate regime. "We expect the People's Bank of China will start with a slow pace of appreciation, monitor developments and secure the commerce ministry's buy-in to accelerate the pace," he said.
The yuan nominally had a higher exchange rate against the dollar in the 1980s—the first decade of its market-oriented economic revamp—but it Chinese wasn't actually tradable for foreign currency then. Instead, China had a second currency, called Foreign Exchange Certificates, that foreigners were supposed to use.

Beijing unified the exchange-rate system in 1994, fixing the yuan's value near 8.6 per dollar initially, before pegging it again in 2001 in a very narrow range around 8.28 yuan per dollar. Under enormous political pressure from major trading partners, China's central bank revalued the yuan again in July 2005 and let it appreciate steadily against the dollar until mid 2008, when it halted the yuan's rise amid the global crisis.

online.wsj.com/article/SB10001424052748704050804575319634152447518.html?mod=WSJ_article_MoreIn

[sandi66]

Chinese Yuan ETFs Move After China’s Currency Decision

June 21st at 12:00pm by Tom Lydon

Exchange traded funds (ETFs) tracking the movements of the Chinese yuan are on the move today after China finally bowed to international pressure and allowed the currency to appreciate.Today, the yuan advanced to its highest level since 1993 in Monday afternoon trade in Asia, advancing 0.4% to 6.7941 to the dollar in China’s over-the-counter market, reports Deborah Levine for MarketWatch. It has been reiterated that an uptick in China’s yuan wouldn’t alone boost world growth. Therefore, the Chinese government is urging other countries to follow through with more reform. [China ETFs, Rising Wages and the Trade Deficit.]

Elaine Kurtainbach for Associated Press reports that the central bank delivered on its weekend promise to give up the dollar peg imposed two years ago to help Chinese exporters cope with the global downturn. Analysts said the move was mainly aimed at countering criticism of Beijing’s currency policies ahead of this weekend’s summit of the Group of 20 leading economies. [China's Yuan Decision Moves ETFs.]

There are no major changes to exchange rates, and volatility can still be expected, as the yuan is subject to a 0.5% daily trading range. Few expect the yuan to appreciate hugely, since this move was largely to silence critics. Removing any more dependence on outside exports is a major point that the country will act upon soon.

For more stories about currency ETFs, visit our currency ETFs category. You can gain exposure to the yuan through either the exchange traded note (ETN) Market Vectors Chinese Renminbi ETN (NYSEArca: CNY) or the following ETFs:

www.etftrends.com/2010/06/chinese-yuan-etfs-move-after-chinas-currency-decision/

[sandi66]

WRAPUP 8-China unshackles currency ahead of G20 meeting

Mon Jun 21, 2010 11:36am EDT

* Biggest daily rise, highest close since 2005 revaluation

Currencies | Bonds | Global Markets

* Rises up to 0.47 percent from mid-point, testing band

* Stocks and commodities up on new yuan flexibility

* Many economists expect small incremental rises over time

* Future mid-points key to whether appreciation tolerated (Updates with U.S. stocks, U.S. ambassador)

By Jason Subler and Lu Jianxin

SHANGHAI, June 21 (Reuters) - China's yuan surged to a five-year peak on Monday, sending stocks higher across the globe as Beijing signaled ahead of this weekend's G20 summit that it would deliver on pledges of greater currency flexibility.

China's central bank has maintained a de facto peg since the middle of 2008, a controversial policy aimed at steadying the world's fastest-growing major economy during the global economic downturn.

But the People's Bank of China (PBOC) stepped aside on Monday to back up its surprise weekend announcement that it would allow more flexibility for the yuan, buying some time against critics who argue the currency is undervalued and gives China an unfair advantage in trade.

U.S. stocks climbed on Monday, mirroring gains on overseas markets, as investors bet that China's currency move would invigorate global economic recovery and raise long-term prospects for U.S. multinationals. [ID:nN21125435]

www.reuters.com/article/idUSN2020897520100621

[sandi66]

JUNE 21, 2010, 3:10 P.M. ET

UPDATE: ECB's Mersch Backs Publication Of Bank Stress Tests

DOW JONES NEWSWIRES BRUSSELS (Dow Jones)--Europe should publish the results of stress tests it is conducting on the region's leading banks, European Central Bank Governing Council member Yves Mersch said in an interview with Luxembourg daily Wort to be published Tuesday.

The tests should be extended beyond the 25 to 30 banks now included, so as to provide a clear picture on the state of European banks for the financial markets, he added.

Mersch, who is governor of Luxembourg's central bank, said European Union rules on keeping balanced budgets should be strictly enforced.

"Sanctions should be automatic. There can be no more excuses," he said.

Both France and Germany must take some responsibility for the euro-zone crisis as they set the "worst possible example" to smaller countries by breaking budget rules themselves in earlier years, he said.

Asked about concerns over the recent weakness in the euro, Mersch told the newspaper that the present exchange rate with the dollar "doesn't correspond to fundamentals," which are better "than in most other international trading areas."

The euro has provided purchasing power and price stability over many years and that is key for investors, he said.

The governor called on leaders from the Group of 20 industrialized and developing nations meeting in Toronto, Canada, at the end of this week to press ahead with financial reforms, including strengthening banks' capital base, reducing financial risk and extending supervision.

Rating agencies are another area requiring substantial reform, he added.

online.wsj.com/article/BT-CO-20100621-710286.html?mod=WSJ_latestheadlines

[sandi66]

AGs power through DoJ's motion to dismiss reform lawsuit

June 21, 2010

The federal government's lawsuit over the new healthcare reform bill evolved into a war of words last week when the U.S. Department of Justice (DoJ) filed its motion to dismiss the constitutional challenges against the Patient Protection and Affordable Care Act brought by 20 states, the National Federation of Independent Business and individuals affected by the mandate to adopt healthcare insurance.

The DoJ’s motion to dismiss the lawsuit demonstrates that the federal government views the lawsuit as a serious threat and challenge, according to Attorneys General (AG) Bill McCollum of Florida and Rob McKenna of Washington, responding to the motion.

The lawsuit, originally filed on March 23 by 13 states and amended on May 14 to add seven additional states, alleges that the new legislation infringes upon the constitutional rights of individuals by mandating all citizens and legal residents have qualifying healthcare coverage or pay a tax penalty.

In the motion to dismiss, filed June 16, the DoJ stated that under any plausible interpretation, the penalty is not a direct tax.

“[There] is no sensible basis to claim that the minimum coverage provision imposes taxes on property, real or personal,” stated the DoJ. “It is not tied to the value of the individual’s property. It instead imposes a tax on the choice of a method to finance the future costs of one’s healthcare. … A tax predicated on a decision, as opposed to a tax on property, has always been understood to be indirect.”

"Nothing in the Justice Department's motion filed changes the states' view that we will prevail,” stated McCollum. “Instead, [DoJ's] defenses clash directly with comments made by President Obama during the debate on the healthcare reform bill, including the President's insistence on national television that the purchase mandate was absolutely not a tax. Yet in its motion to dismiss, the Obama Administration defends the individual mandate under Congress' ‘taxing and spending' power.’”

“While we all agree that people should have access to affordable, quality healthcare, healthcare reform is too important to build on an unconstitutional foundation and the states plan to pursue this litigation as far as necessary to obtain relief for our citizens and our states," stated McKenna.

www.cmio.net/index.php?option=com_articles&view=article&id=22824&division=cmio

[sandi66]

WH: Obama never told Kyl he wouldn’t secure the border; Kyl: Yes he did!

6:18 pm on June 21, 2010 by Allahpundit

printer-friendly Would the White House lie? Sure, they might lie about offering Sestak and Romanoff jobs in order to get them to quit the primaries. And they might lie about certain core planks of ObamaCare. And they might lie about the acceptability of nuclear weapons in the hands of Islamist rogue states. But surely they wouldn’t lie about a hugely damaging admission on a hot-button issue made during what they thought was a confidential conversation, would they?

This morning, a White House spokesman told ABC News that Kyl is lying. “The President didn’t say that and Senator Kyl knows it,” communications director Dan Pfeiffer told ABC. “There are more resources dedicated toward border security today than ever before, but, as the President has made clear, truly securing the border will require a comprehensive solution to our broken immigration system.”

Now, in an interview with KVOI radio in Arizona, Kyl says his account of the Oval Office conversation is accurate. “What I said occurred did occur,” Kyl said.

“One way you can verify the validity of what I said is that that’s exactly their position,” Kyl continued. “Some spokesman down at the White House said no, that isn’t what happened at all, and then proceeded to say we need comprehensive immigration reform to secure the border. That is their position, and all I was doing was explaining why, from a conversation with the president, why it appears that that’s their position.”

Mediaite has the transcript of the exchange about Kyl during today’s press briefing; Burton does indeed segue into ye olde talking points about the need for comprehensive reform after a short detour into cosmetic measures taken recently by the White House to secure the border.

There’s no record of Kyl’s conversation with Obama so there’s no way to tell which is lying. In fairness, given the strong support for border enforcement in Arizona and the fact that he’s up for re-election in two years, Kyl has plenty of incentive to draw flattering comparisons between himself and The One on immigration — especially since JK was a champion of the comprehensive approach himself as recently as 2007. If he wants to avoid a primary challenge, he needs to bank all the cred he can right now. But as I said last night, his account of the convo jibes with the way immigration policy is practiced, not only under Obama but under Bush. Democrats won’t give up their advantage with Latinos by committing to border security unless they get something in return. And Bush, Rove, and the GOP establishment wouldn’t cede any further advantage among Latinos to the left by clamping down on the border without amnesty to sweeten the pot. We’re stuck, unless and until the demand for fixing the border grows so intense and widespread among the public that it becomes a make-or-break issue in an election. But given the near-singleminded focus of most voters on the economy, what are the odds of that?

For your viewing pleasure, Megyn Kelly sets up Lou Dobbs for the slam dunk and he delivers. Exit question: Kyl’s probably not going to be invited for any more off-the-record chats with The One, is he?

hotair.com/archives/2010/06/21/wh-obama-never-told-kyl-he-wouldnt-secure-the-border-kyl-yes-he-did/

[sandi66]

Monday, June 21, 2010


Who's Who of Banking 2010
Ten Las Vegas bankers open up about Nevada's economy, banking's image problem
By TIM O'REILEY

If local bankers decided to march together under a single banner, it might well read, "We're not Wall Street."

Whenever they can, they try to drive home the point that local bankers largely stuck to the traditional business of taking in deposits and making loans, never gorging on exotic derivatives or shorting their own customers. Yet, they concede they have made little headway in separating themselves from the likes of Goldman Sachs or the failed Lehman Bros. as argument over the causes of the recession focuses just on "banks."

"Does the country at large understand the difference between an investment bank and a commercial bank? No," said Kirk Clausen, Nevada regional president of Wells Fargo Bank. "We can't do anything about that."

Numbers back up the anecdotal evidence. The annual Gallup poll on the Honest and Ethics of Profession published in December showed that 33 percent of respondents rated bankers as low or very low, more than double the 15 percent of just two years earlier.

The outlooks shared by the 10 bankers included in this year's Who's Who of Banking don't hold much promise for near-term improvement. The most optimistic view puts the start of a sustained rebound in the Las Vegas economy at a year from now, and even then only at a tepid pace. Recovery in real estate, long among local mainstays with tourism and conventions, could take years to recover.

"I don't think anybody thought that Las Vegas would be as badly hit as it was," said Arvind Menon, president and CEO of Meadows Bank.

As long as conditions look difficult, the main friction point could well continue. Business owners and speakers at seminars consistently knock the banks for effectively slamming the vault door shut when they need it the most.

But the bankers respond that many businesses, with depleted balance sheets and slim or no profits, simply cannot qualify for loans. The regulator's heightened scrutiny of bank finances amid the record wave of failures, with five valley banks having been seized in the past two years, has further limited what they can do.

KATHY PHILLIPS

President and CEO, Nevada Commerce Bank

Age: 50

Time in position: 6 years

Hometown: Las Vegas

How she ended up in Las Vegas: "I am a native. I love it here."

High point in banking: "It is always when we can accommodate a customer faster and better than the competition and then watch our client become very successful."

Low point: "Losing Claudine Williams last year. Claudine was a founding director of NCB and our chairman. She was a great leader, mentor and generous with the community. She taught us all about courage, perseverance and integrity."

Alternative career: "I would have probably become a teacher or a librarian. Kids are incredibly inspiring and make life complete. I would really like to have been a basketball player, but I have no talent."

Question: At what point is Las Vegas in the economic cycle?

Answer: Some of our clients are starting to see small signs of stabilization in our market. We hope that Las Vegas real estate values will start to improve. Our concern is still unemployment and how that affects so many.

Question: When will we see a sustained rebound in business lending?

Answer: I wish I could answer that with certainty. We would love to start that trend now. However, it appears that business owners will not be seeking loans until they are confident that the economy is on the mend.

Question: At what point are bankers in the image cycle?

Answer: My belief is that the public perceives that there is a difference between Wall Street and Main Street. Having said that, the whole financial industry has work to do to regain the public trust.

Question: How might regulatory and legislative changes affect business banking?

Answer: The changes are going to be very expensive to all of us. If there is a product that requires more due diligence or compliance by the bank, maybe the costs will be passed on or the product dropped. However, it is imperative that the public regain confidence in the banks, the regulatory agencies and the economy.

Question: What has been the major lesson of this recession?

Answer: I believe business, including banks, will be more conservative. Many of us have never seen economic pressure of this magnitude and it will be remembered for generations.

PETE ATKINSON

President, Vice Chairman, Bank of Las Vegas

Age: 67

Time in position: 10 years at Black Rock Community Bank. Bank of Las Vegas was formed in February and included Black Rock.

Hometown: Huntington Beach, Calif.

How he ended up in Las Vegas: Came to take a bank position after living in Salt Lake City. "I never planned to come here, but it was a strong opportunity and it has been a great ride."

High point in banking: "The day we opened the doors at Black Rock. I had long wanted to be a bank president, but at the age of 57, I didn't think I would ever get the chance."

Low point: "Probably last year when we finally realized how bad this recession was and how long it would take to get out of it. It has been a lot of hard work."

Alternative career: "I was a premed student at one time but found I didn't really enjoy college. I couldn't face going through four years of med school. I probably would have ended up being a teacher."

Question: At what point is Las Vegas in the economic cycle?

Answer: We are near the bottom, but I don't see much recovery this year or before the end of 2011. I believe we are going to follow not only the national economy but the global economy. When the rest of the world believes it's safe again, we will get back the tourists and the gamblers.

Question: When will we see a sustained rebound in business lending?

Answer: There are some healthy businesses in town, but I don't see them expanding until they are comfortable that we are over the worst. They are just not willing to stick their necks out yet.

Question: At what point are bankers in the image cycle?

Answer: When we hear a respected leader throw community bankers in the pot with everybody else, it makes it very difficult. We need to educate the public that we weren't part of the problem on Wall Street.

Question: How might regulatory and legislative changes affect business banking?

Answer: I'm not sure how it will all look, but there's no question there will be more reporting and more restrictions on banks. I'm not sure how small banks can afford the cost of the changes. The larger banks can absorb the costs.

Question: What has been the major lesson of this recession?

Answer: I was raised by my parents and grandparents saying never put all your eggs in one basket. We have to be careful in balancing the need to grow the bank versus too much concentration in one area. We might have to look at slower growth to maintain the right balance.

LARRY CHARLTON

Nevada Regional Executive, City National Bank

Age: 63

Time in position: 6 months

Hometown: Fairfax, Ala., which has since been absorbed into Valley, Ala.

How he ended up in Las Vegas: Followed his father-in-law, who retired here after a military career. "I moved here without a job because we liked it. I came in a Ryder truck in 1974."

High point in banking: "I left Bank of America in 2000 to take over Business Bank of Nevada at a time it was in trouble. It took our team working solid, sometimes six or seven days a week, and we were successful in getting it turned around and selling it to City National."

Low points: Getting shot at while repossessing cars, his first banking job. "I began to wonder what I was doing in this business." Also, finding out that a plan uncovered for a bank robbery, which was not carried out, included placing a bomb under his car and taking him hostage.

Alternative career: "Probably in education somewhere. I've toyed with the idea of getting a teaching credential after I retire and teaching high school."

Question: At what point is Las Vegas in the economic cycle?

Answer: If I ranked it on a scale of one to 10, with one the worst, I would say it's about a three. But it is climbing slowly. We've seen the worst, but we will see up and down fluctuations as the overall trend is upward. I think we will return to normalcy at the end of 2011, but we are never going to get back to where we were. To get back on employment takes us past 2015. A lot of the construction jobs will never come back.

Question: When will we see a sustained rebound in business lending?

Answer: We have money to lend but we don't see loan demand increasing.

Question: At what point are bankers in the image cycle?

Answer: I have a brother who is a lawyer. He now laughs at me for making him look good. The image of banks has suffered and commercial banks have suffered at the hand of people who aimed at investment banks. People are starting to understand the differences among banks.

Question: How might regulatory and legislative changes affect business banking?

Answer: I think disclosure changes will start with consumers and move to business. With a consumer protection bureau, we're just adding another agency to protect ourselves from ourselves.

Question: What has been the major lesson of this recession?

Answer: Diversify your risk and lending portfolio and really mean it. Also, you continuously need to perform stress tests to ensure that you have capital commensurate with the risk.

KIRK CLAUSEN

Nevada Regional President, Wells Fargo Bank

Age: 54

Time in position: 7 years

Hometown: Sioux City, Iowa

How he ended up in Las Vegas: After moving about 10 times with Norwest Bank, he turned down a chance to move here after an acquisition in 1996. "At dinner that night, I told my wife I had turned down a job offer, thinking she would be glad not to move again. She asked me where the job was and I said Nevada. She asked me, 'Why did you turn it down?' The next day, I went in on my knees and begged for another chance and I got it."

High point in banking: Seeing a recent protege landing a regional president job elsewhere. "I can't tell you how cool it is to see somebody who worked for you succeed in ways that surprise even you."

Low point: Repossessing a car from "a very uncooperative borrower. I can't tell you how scared I was. I could feel my heart pounding and the blood in my ears."

Alternative career: Dentistry. "I had been accepted to dental school. But I am so happy and feel truly blessed that I ended up here."

Question: At what point is Las Vegas in the economic cycle?

Answer: My managers say I am an eternal optimist. What I am reading and seeing anecdotally from customers is that the economy has stabilized and started to show some improvement. There are a lot of positives. The only negative, and it is a big one, is unemployment. I am optimistic going into 2011.

Question: When will we see a sustained rebound in business lending?

Answer: Would I like to see lending more in line with deposit growth? Absolutely. I think a lot of businesses are not feeling especially strong about the economy and will sit on the sidelines for a little bit.

Question: At what point are bankers in the image cycle?

Answer: The economy has certainly impacted the reputation of banking and business as well. We need to stick to our kitting and help our customers.

Question: How might regulatory and legislative changes affect business banking?

Answer: I would be concerned about regulations when they start to feel punitive. But I have great faith in our system and folks will sort out with it import to prevent more situations like this.

Question: What has been the major lesson of this recession?

Answer: A couple of years ago, we were losing customers and market shares and team members because we maintained our standards when others loosened theirs. In the short run, it was tough, but we made the decision that was best for customers and we are strong today.

WILLIAM MARTIN

Vice Chairman and CEO, Service 1st Bank

Age: 68

Time in position: 3 years

Hometown: Denison, Texas

How he ended up in Las Vegas: "I was in Washington and a bureaucrat. My best friend came out here to be president of a bank and brought me with him in 1983."

High point in banking: "It's going to be tomorrow when we pull out of this mess. That will be the greatest accomplishment. I hope that doesn't sound too artsy or flowery, but it's true."

Low point: "We're in it."

Alternative career: "I went into banking right out of college. I've never thought about it."

Question: At what point is Las Vegas in the economic cycle?

Answer: If we believe the (cycle) is "U" shaped, sadly we're still on the downside of the U and we can just pray we are approaching the curve back up. There's little sprouts of good news we can grab at, but this job thing is just hanging over everything.

Question: When will we see a sustained rebound in business lending?

Answer: I have $65 million in cash that I would love to lend out. By and large, real estate isn't much of an option. Because a lot of businesses are struggling financially, not enough of them qualify for loans. If I made loans to businesses that were losing money or breaking even, the bank examiners would look at me and say, "Are you crazy?" I think everybody is in the same boat.

Question: At what point are bankers in the image cycle?

Answer: We're probably still ahead of used-car salesmen and lawyers. There's a lot of confusion about bankers thanks to Congress. We all get lumped together with Wall Street, even though we are a lot different. All we can do is run our banks to the best of our abilities to satisfy all our stakeholders. There is no magic bullet to pull us out.

Question: How might regulatory and legislative changes affect business banking?

Answer: Costs could go up and they have to be paid by somebody. Banks typically pass them on to the customers.

Question: What has been the major lesson of this recession?

Answer: This is a very major event for a lot of people, maybe up to their early 40s, who have never really seen bad times. It will affect a lot of people going forward. The economy itself is teaching a big lesson and wagging a big finger at people about not overdoing it.

REED RADOSEVICH

Nevada President, Northern Trust Bank

Age: 45

Time in position: 5 years

Hometown: Albuquerque, N.M.

How he ended up in Las Vegas: "I came for the quality of life. I enjoy the desert climate and I'm active in sports."

High point in banking: "Being a trust bank, it comes when you find a flaw in an estate that saves a lot of money in estate planning for your clients."

Low point: "Luckily, there have only been a few. Even if you try to set expectations clearly, it can still hit clients hard when you have to turn them down."

Alternative career: "I enjoy community service work. I would probably work in a nonprofit or foundation in some capacity."

Question: At what point is Las Vegas in the economic cycle?

Answer: My sense is that we are slowly recovering. But it's going to be a few years before we see a sustained recovery. We've hit bottom in the residential market but commercial is not fully played out. We are in for at least another year of pain before we hit bottom in commercial. In order for the local economy to prosper, we need to see the national economy heal first.

Question: When will we see a sustained rebound in business lending?

Answer: I think there are four factors at work. Underwriting has probably tightened a bit at the instruction of regulators. The pool of creditworthy businesses has shrunk. Businesses have scaled back on their lending requests. Some banks have had to boost their reserve capital to deal with future problem loans.

Question: At what point are bankers in the image cycle?

Answer: Everybody can share in the blame for the financial crisis. We need to put clients first but make prudent lending decisions that won't overextend borrowers. We need to figure out flexible solutions for them.

Question: How might regulatory and legislative changes affect business banking?

Answer: I believe underwriting standards will be impacted.

Question: What has been the major lesson of this recession?

Answer: Banks need to adhere to sound underwriting standards in good times and bad. We cannot get caught up in exuberance or take shortcuts.

ARVIND MENON

President and CEO, Meadows Bank

Age: 59

Time in position: 2 years

Hometown: Trichur, India

How he ended up in Las Vegas: Formerly worked with Bank of America in Hawaii, then transferred in 1994 when it needed a chief financial officer in Nevada.

High point in banking: "Every time you take care of a customer, it make you feel good because that's the business we're in. There are a lot of small victories, not big victories."

Low point: "Telling someone they are not going to get a loan approved is tough. Sometimes, people put a lot of hope in that application."

Alternative career: "I am an engineer by training and a CPA. More than likely I would have been an accountant."

Question: At what point is Las Vegas in the economic cycle?

Answer: I think we are probably near the bottom but not quite at the bottom. I think the worst is behind us, but how the local economy performs depends on how the national economy performs. It will be a gradual climb. I don't think we will see anything major until 2012.

Question: When will we see a sustained rebound in business lending?

Answer: Some people are making a big deal about banks not lending, but they are missing the boat. Businesses are not looking to expand and there is not a lot of demand for credit.

Question: At what point are bankers in the image cycle?

Answer: It's horrible how much misinformation there is in the media and the general population. Handing money to Chrysler and General Motors and Bank of America and Goldman Sachs didn't help. We (community bankers) have to tell our story every way we can. But we cannot afford to take out full-page ads.

Question: How might regulatory and legislative changes affect business banking?

Answer: It will be harder and more expensive. I think there has been a knee jerk reaction in Congress, piling more regulation on an already overburdened system.

Question: What has been the major lesson of this recession?

Answer: Certainly, when housing prices head up in to the stratosphere, it is likely not going to last long. I don't think we will ever see that happen again.

DALLAS HAUN

President, CEO and Chairman, Nevada State Bank

Age: 56

Time in position: Almost three years

Hometown: West Bloomfield, Mich.

How he ended up in Las Vegas: After nearly three decades in southern California, came here in September 2007. "I liked the opportunity (at Nevada State), it was the right time in my career and I was ready for a change. I haven't regretted it for a moment."

High point in banking: "Working with colleagues when you are able to promote them and reward them. Also, seeing them come in with a big smile after they have done a good job for a client."

Low point: Nevada State, as a unit of Zions Bancorporation, has taken over three failed banks in the past two years. "Going in at 6:15 on a Friday afternoon to tell the employees (that their employer has failed) is always difficult. There is a lot of fear, anxiety, anger, even tears. Great Basin Bank in Elko was probably the most difficult because about 60 percent of the shareholders were local residents. There was a lot of anger at the former management."

Alternative career: "For the longest time, I wanted to be a high school basketball and baseball coach."

Question: At what point is Las Vegas in the economic cycle?

Answer: The whole Las Vegas economy is in the reset mode: resetting prices, resetting values, resetting debt loads, resetting expectations. But I do see light at the end of the tunnel. I want to be optimistic and say we will be seeing a sustained rebound about this time next year, the second or third quarter. Clearly, we need to see job creation in the national economy. Until that happens, it will be a very slow, creeping along, one-step-at-a-time recovery.

Question: When will we see a sustained rebound in business lending?

Answer: Probably the same time frame, maybe a quarter or two earlier. We're definitely spending more time, more effort and more money to get new clients.

Question: At what point are bankers in the image cycle?

Answer: To have community, state-chartered banks bundled up in the media with investment banks like Goldman Sachs is very unfair. To help improve that, I think we need better disclosure and better advertising.

Question: How might regulatory and legislative changes affect business banking?

Answer: It is too early to tell at this point. Anything that provides for more understandable disclosure and financial literacy is a good thing. But providing more services does have a cost associated with it.

Question: What has been the major lesson of this recession?

Answer: Debt, if abused, can be very harmful. I don't think we will see a repeat of that.

LORI SOREN

Market President, US Bank

Age: 54

Time in position: Three years

Hometown: Redlands, Calif.

How she ended up in Las Vegas: "I was a student at the University of Arizona at Tucson. My father transferred to Las Vegas my senior year. I said I would come here for six months and get my feet wet. I stayed for 32 years."

High point in banking: The bank hiring officer gave her a choice of positions in Arizona or Nevada and a month to decide to avoid her having second thoughts after starting. She quickly decided on Nevada. The hiring officer "was a model for flexibility and working with people."

Low point: "The last couple of years, with clients having experienced the best of times and now major challenges. It has been a very humbling experience for those of us in the banking profession."

Alternative career: "I probably would have gone the medical route. To this day, I am an Internet junkie for things related to medical diagnosis and research."

Question: At what point is Las Vegas in the economic cycle?

Answer: From our perspective., the economy is slowly inching upward. We believe we need to see visitor volumes go up to create jobs on the Strip and have a trickle down effect on the community. But we have seen spending habits change and we are probably about 18 months from where we will see stability in market.

Question: When will we see a sustained rebound in business lending?

Answer: I would disagree that banks have turned off the tap. Banks are looking for quality clients and quality partners. We are open for business and have capital to lend.

Question: At what point are bankers in the image cycle?

Answer: I don't care to respond.

Question: How might regulatory and legislative changes affect business banking?

Answer: I can't speculate on how it might change.

Question: What has been the major lesson of this recession?

Answer: You can't overcommunicate with your clients. You need relationships and you need to nurture them. When you've had the number of bank failures in this cycle, it's the big difference why people won't forget the lessons.

BRUCE HENDRICKS

CEO, Bank of Nevada

Age: 59

Time in position: Three years

Hometown: Phoenix

How he ended up in Las Vegas: "My family moved here in 1963 when I was 13, so I've seen tremendous changes. We came from New Mexico and I was born in Arizona, so I have always lived in the desert Southwest."

High point in banking: There have been two: Building American Bank of Commerce in the 1980s (which was later sold), and continuing growth at the Bank of Nevada despite the current recession.

Low point: Having to lay people off and convince others to stay after the American Bank sale. "It was challenging to hold the team together and ensure the success of the transaction. Ultimately, it worked out well."

Alternative career: "My degree at UNLV is in secondary education, but Clark County wasn't hiring teachers when I graduated in 1972. The (former) Bank of Nevada, where I was working part time, offered me a position in its management trainee program, so I stayed in banking. Otherwise, I would have been a teacher."

Question: At what point is Las Vegas in the economic cycle?

Answer: We're probably at, or near, the bottom in certain areas, residential real estate being one of them. I think we have a ways to go with commercial real estate. It's going to take a while to turn around some key indicators such as gaming revenues, air traffic and sales tax revenues. I think we will see a turnaround in the third quarter next year. I know some people pick '12 or '13, but I'm an optimist.

Question: When will we see a sustained rebound in business lending?

Answer: When we see more businesses that qualify for loans. We've seen some improvement in our small and midsized business lending. But really, until the economy improves overall, its is hard to see demand improving because of so many challenges for borrowers to qualify.

Question: At what point are bankers in the image cycle?

Answer: I think people are making the differentiation (between Main Street and Wall Street). People are realizing the situation we're in was not caused by community bankers. It was caused by Wall Street. The best way to improve the image is to stay close to our customers and keep them informed about what's going on in the financial industry.

Question: How might regulatory and legislative changes affect business banking?

Answer: There could be increased disclosure and increased costs to the banks. In some instances, you have to look at whether to continue to provide some products. Usually, when there are added costs, they are passed along.

Question: What has been the major lesson of this recession?

Answer: It would really help if we move aggressively to diversify the Southern Nevada economy. And, if it looks too good to be true, it probably is.

Many answers have been edited for space.

Contact reporter Tim O'Reiley at [e-mail] or 702-387-5290.

www.lvbusinesspress.com/articles/2010/06/21/news/iq_36370694.txt

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SEC charges U.S. investment firm with fraud

Wall Street Regulator alleges $1-billion of securities were traded at inflated prices

Published on Monday, Jun. 21, 2010 3:09PM EDT

Last updated on Monday, Jun. 21, 2010 7:12PM EDT

U.S. regulators have charged a prominent New York-based investment manager with civil fraud in a case that delves into the murky world of collateralized debt obligations and the actions that financial players took as the subprime mortgage crisis brewed.

The case against ICP Asset Management LLC and its owner, Thomas Priore, 41, alleges that they directed more than $1-billion (U.S.) worth of trades for four collateralized debt obligations, or CDOs, at what they knew to be inflated prices. The Securities and Exchange Commission alleges that they obtained tens of millions of dollars in advisory fees and undisclosed profits, at the expense of their clients and investors.

“Instead of acting as fiduciaries, they took advantage of a distressed market to line their own pockets,” Robert Khuzami, director of the SEC’s enforcement division, said in a press release.

A CDO is a highly complicated financial instrument made up of various slices of debt. ICP was the collateral manager to four such investments, known as the Triaxx CDOs, that were launched in 2006 and 2007 and that invested in residential mortgage-backed bonds.

The allegations outlined in the SEC’s lawsuit also say that ICP committed the Triaxx CDOs to buying a $1.3-billion portfolio of bonds without obtaining permission from Triaxx’s bond insurers – which it was not permitted to do. One of its key insurers was a subsidiary of American International Group, the giant U.S. insurer that collapsed in 2008 because of massive losses on credit derivatives, and the company was bailed out by the U.S. government.

Institutional Credit Partners LLC, one of the ICP affiliates named in the SEC lawsuit, is also named in a suit that Toronto-based Fairfax Financial Holdings Ltd. launched in 2006. That suit alleges that a group of powerful U.S. hedge funds shorted Fairfax shares and then schemed to drive down its stock price using a series of tactics, including intimidating executives and influencing analysts.

www.theglobeandmail.com/report-on-business/sec-charges-us-investment-manager-with-civil-fraud/article1612112/

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Financial reform deal to cut debit card fees
By Tom Braithwaite in Washington and Suzanne Kapner in New York

Published: June 22 2010 01:02 | Last updated: June 22 2010 01:02

Debit card fees charged to retailers could be cut under a deal on financial reform hatched by congressional negotiators that hits banks but protects Visa and MasterCard.

A conference committee of lawmakers will on Tuesday resume its public negotiations over the final shape of the landmark legislation, which is due to be delivered to Barack Obama, US president, as soon as the end of the week to be signed into law.

The “interchange” fees paid by merchants to card issuers would be capped by the Federal Reserve at a “reasonable” level under a provision put forward by Dick Durbin, the Democratic senator from Illinois.

Mr Durbin said on Monday that conferees from the House of Representatives had agreed to accept his measure, which has already been approved by the Senate, with “minor, clarifying changes”.

But, in an important change to the provision, the Fed would be prevented from regulating network fees, which are charged by Visa and MasterCard; they totalled $19.7bn in 2009, or about a third of all interchange fees, according to the Nilson Report.

Shares in Visa rose 5 per cent to $80.90 and MasterCard rose 4.2 per cent to $223.34. Both companies saw their shares fall sharply when the earlier version of legislation – that covered the network fees – was passed by the Senate.

However, banks faced an almost complete defeat. Although they would be able to charge interchange fees to cover fraud-prevention costs, most other such surcharges would be capped. In deciding what fees would be reasonable, Congress instructed the Fed to consider cheques, which are cleared without any transaction fees.

The smallest banks, with assets of less than $10bn, would be exempt from the new rules, as would local, state and federal government programmes that allow people to access benefits with debit cards.

Bank of America, Wells Fargo and JPMorgan Chase, which, according to Nilson issued a combined $550bn in debit cards last year, stand to suffer most from the new rules.

Banks, with the support of a large number of members of Congress, lobbied hard against the legislation, arguing that a similar law passed in Australia in 2003 resulted in higher card fees and fewer benefits, rather than lower costs, to consumers.

In spite of the deal being agreed in principle it will still need to be agreed at a public session of conferees. The final legislative package also faces votes in the House and Senate.

Interchange is one of the last live battles over financial reform and one of several issues that emerged late in the process and are set to be included in the final legislation in spite of objections from banks.

This week the conferees are set to toughen the “Volcker Rule”, which bans banks from proprietary trading and places restrictions on their ownership of hedge funds, and include a provision to force banks into an expensive restructuring of their swaps desks.

www.ft.com/cms/s/0/248b0908-7d90-11df-a0f5-00144feabdc0.html

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JUNE 22, 2010

Yuan Outlook: Up 5% Against Dollar in a Year

TORONTO—Large banks expect the yuan to increase 5% against the dollar over the next year, underscoring that China's move toward more flexibility in its currency is likely to unfold in baby steps.

China reintroduced its currency peg in mid-2008 during the financial crisis to protect its export economy, and analysts had expected it to tweak it this year as the domestic and global economic recovery gathered pace. When the People's Bank of China over the weekend said it was abandoning the peg, it stressed the gradual nature of any move, leaving most strategists making at most minor adjustments to their yuan forecasts.

Seven of nine banks polled by Dow Jones Newswires left their forecasts for the next 12 months unchanged. Wells Fargo and Bank of New York Mellon revised their forecasts. On average, the nine banks see the yuan trading 5% higher against the U.S. dollar by June 2011.

On Monday, the PBOC set the central parity rate for the yuan at 6.8275 against the dollar, unchanged from Friday, but it let the currency rise by 0.46% to 6.7958 during spot trading toward the upper end of its new trading band. The dollar-yuan exchange rate is still allowed to fluctuate by only 0.5% intraday on either side of the central parity rate.

The yuan closed at 6.7970 to the dollar in New York on Monday, strengthening from 6.8272 Friday.

"The policy change is not necessarily going to result in sizable [yuan] appreciation," said Robert Lynch, currency strategist at HSBC in New York, which is calling for the U.S. dollar to trade at 6.8 yuan by year's end. Mr. Lynch said he expects "more volatility and more market-based movements in the currency … but that doesn't by definition imply sizable appreciation."

China's decision rippled through currency markets, with those currencies exposed to global growth, including the Australian and New Zealand dollar, getting a large boost early in the global day. But the euphoria began to fade toward the end of New York trading, with those currencies giving up ground as U.S. stocks turned negative.

China has "unlocked the door but has not opened it yet," said John McCarthy, manager of currency trading at ING Capital Markets in New York.

Late Monday in New York, the euro was trading at $1.2318, down from $1.2374 late Friday. The dollar was at 91.00 yen, up from 90.74 yen, and at 1.1128 Swiss francs, up from 1.1090 francs. The euro was at 112.09 yen from 112.29 yen. The pound was at $1.4754 from $1.4823.

Year-to-date, the dollar is up 16.22% versus the euro. The dollar is down 2.24% on the yen.

Gabriel de Kock, global currency strategist at J.P. Morgan Chase in New York, said the stage for China's decision was set in early April, when the U.S. delayed a closely watched report on currency manipulation. "The U.S. Treasury created a window of opportunity before the G-20" meeting, he said, referring to this weekend's meeting of finance officials from the leading developed and developing nations in Canada.

J.P. Morgan expects a larger yuan increase over the next 12 months, calling for a rise of 6% to 10%. The bank sees the dollar at 6.40 yuan a year from now.

Morgan Stanley's China economist, Qing Wang, had forecast a modest revaluation in June or July, with the dollar at 6.60 by year end and 6.20 by the end of 2011. The firm said authorities could well allow a 2%-3% decline in "a matter of weeks."


Markets Hub: China Move Ripples Broadly
While China's move on its currency will certainly help defuse tensions with the U.S. and other partners in the G-20, it is just a first step in addressing the global imbalances between those countries that run large current-account surpluses and those with large deficits. That could limit the moves in major currencies somewhat.

"We have a reasonably flat forecast for [the dollar against the yen], and so we have no real incentive to change that at the moment," said Thomas Stolper, chief currency strategist at Goldman Sachs in London.

online.wsj.com/article/SB10001424052748704895204575320220260260284.html?mod=WSJ_hpp_MIDDLTopStories

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Germany and France examine 'two-tier' euro - Germany and France are examining ways of creating a "two-tier" euro system to separate stronger northern European countries from weaker southern states.

By Alex Spillius in Washington and Bruno Waterfield in Brussels

Published: 7:00AM BST 19 Jun 2010

The creation of a "super-euro" zone would initially include France, Germany, Holland, Austria, Denmark and Finland
A European official has told The Daily Telegraph the dramatic option was being examined at cabinet level.

Senior politicians believe their economies need to be better protected as they could not cope with another crisis on a par the one in Greece.

The creation of a "super-euro" zone would initially include France, Germany, Holland, Austria, Denmark and Finland.

The likes of Greece, Spain, Italy, Portugal and even Ireland would be left in a larger rump mostly Mediterranean grouping.
The official said French and German officials had first spent months examining how to exclude poor-performing states from the euro but decided it was not feasible.

A two-tier monetary system in the 16-member euro zone is being examined as a "plan B".

"The philosophy is the stronger countries might need to move away from countries they can't afford to bail-out," said the official. "As a way of containing the damage, they may have to do something dramatic, though obviously in the short term implementation is difficult.

"It's an act of desperation. They are not talking about ideal solutions but the lesser of evils. Helping Greece could be done relatively cheaply but Spain they can't afford to let fail or bail-out.
"And putting more pressure on the people of France and Germany to save other countries is politically unfeasible."

One option, to protect the wealthier northern European countries and to help indebted southern Europeans, would be for Germany to lead a group of countries out of the existing euro into a new single currency alongside the old.

The old euro would decline sharply against the new German and French dominated currency but both north and southern Europeans would be protected.

Northern economies would be protected from debt contagion and southern countries would be spared the horrors of being thrown out and forced to go it alone.

Angela Merkel, the German Chancellor, has already paid a political price for forcing the rescue plan on a reluctant public, losing her majority in the upper house of parliament in a recent election.

The official pointed out that France held lent £500 billion to Spain and the Germans had lent £335 billion.

Nicolas Sarkozy, the French president, is understood to have been initially cool on the idea but has grown so frustrated with Greece and now Spain that he has allowed officials to explore proposals.

"He would prefer to keep the euro in place but if Spain, Italy and Greece are dragging him down he accepts he may have to cut them loose," said the official. "They are trying to contain the contagious effect but they don't have a solution yet."

The crunch time will come in September, when Spain has to refinance £67 billion of its foreign debt.

"If the markets don't buy that will trigger a response by Germany and France," said the official.

Expelling a country from the euro could push the whole region into a slump because European banks are so exposed to debt in southern Europe. The consequences for the exiting country would be even more catastrophic.

"The euro zone debt crisis has a long way to run," said one senior EU negotiator. "No one knows where it is going to end up. Only one thing is sure, the euro zone will change."

www.telegraph.co.uk/news/worldnews/europe/7837874/Germany-and-France-examine-two-tier-euro.html


ty joye

[sandi66]

PRESS DIGEST - Canada - June 22

Tue Jun 22, 2010 6:35am EDT

(Reuters) - The following are top stories from selected Canadian newspapers. Reuters has not verified these stories and does not vouch for their accuracy.

THE GLOBE AND MAIL:

- Prime Minister Stephen Harper will apologize to families who lost loved ones during the 1985 Air India bombing as part of a "very significant announcement" on Wednesday.

An apology would lay the foundation for other amends -- including compensating families and, eventually, revamping Canada's national-security apparatus.

- In a decision that sets back Quebec's efforts to strip religion from the province's institutions, a judge has ruled that the government showed Inquisition-like intolerance in the way it imposed a secular ethics course on a private Roman Catholic school.

BUSINESS SECTION:

- Magna International Inc (MGa.TO) is heading to an Ontario Securities Commission hearing with the support of a majority of shareholders who have cast early votes on its controversial payout to founder Frank Stronach.

- Finance Minister Jim Flaherty is edging away from his alternative to a global bank tax, acknowledging in an interview that it's "debatable" whether enough countries can be won over to make Canada's contingent capital plan work on a global scale.

NATIONAL POST:

- Governor General Michaelle Jean will be appointed special envoy for the United Nations Educational, Scientific and Cultural Organization (UNESCO), according to a CTV report filed late Monday night.

- Canada slipped to third place after the United Kingdom and Japan in a ranking of how well G8 countries and the European Union complied with their 2009 summit pledges.

The report by the G8 Research Group at the University of Toronto says Canada fulfilled 17 of 24 commitments made at the last summit in L'Aquila, Italy, a year ago. But its compliance ranking dropped and Canada lost its traditional second place.

FINANCIAL POST:

- Canada's top political leaders put China on the spot Monday, saying more specifics about the country's plans to move toward a flexible currency are needed.

Stephen Harper, the prime minister, and Jim Flaherty, the minister of finance, said world leaders are expected to press Chinese leader Hu Jintao at this weekend's G20 summit in Toronto on more detailed plans to end the renminbi's fixed-rate peg to the U.S. dollar and allow the currency to appreciate.

- Stephen Harper, the Prime Minister, is set to raise the issue of a Canadian copper mining company whose assets have been expropriated by the government of the Democratic Republic of Congo when the G8 and G20 nations convene in Canada this week.

An official in the Prime Minister's Office said Mr. Harper will raise the case of Vancouver-based First Quantum Minerals Ltd (FM.TO) with representatives from the World Bank, the International Monetary Fund and other governments that do business in the DRC.

www.reuters.com/article/idUSSGE65L0E120100622

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China's move gives U.S. symbolic victory

A watermelon vendor looks at yuan banknotes at a market in Changzhi, Shanxi province on Monday. China's yuan rose modestly on the first trading day after the central bank ditched the currency's two-year peg to the U.S. dollar. Reuters
But Beijing's decision will not fix the stubborn problem at the heart of a global trade imbalance

Published on Monday, Jun. 21, 2010 9:45PM EDT

Last updated on Tuesday, Jun. 22, 2010 6:40AM EDT


Beijing's surprise decision to unshackle its currency has handed the United States a symbolic victory and an edge in trade, but will not fix the stubborn problem at the heart of a global imbalance: Americans spend too much and the Chinese not enough.

Coming just days before the Group of 20 summit in Toronto this week, China’s announcement appeared timed to take the thorny currency issue off the table and defuse simmering trade tensions between Beijing and recession-weary United States. It may also help cool inflation in China.

And, initially Monday, investors believed the decision to allow the yuan to appreciate would quickly make a difference, as they bid up stocks, commodities and some currencies. The yuan rose to a record high of 6.7971 from 6.8272 yuan on Friday. That’s a move of 0.4 per cent and an abrupt break from the range of 6.83 yuan to U.S. dollar that had held since mid-2008.

But the enthusiasm fizzled in less than one trading session. The Dow Jones Industrial Average fell 8.23 points to 10,442, erasing an earlier 100-point gain.

The sober reality is that massive financial imbalances are likely to continue dominating the global economy.

“The bottom line is that Americans don’t save enough,” said Drummond Brodeur, a vice-president and portfolio manager at Signature Global Advisors in Toronto. “China is the largest provider of savings to the world. Unless Americans save more, the United States is going to have to run a current account deficit.”

The yuan’s modest appreciation may be easily swamped by other, more entrenched economic forces.

The broader problem is the enormous gaps between China and the United States in wage rates, standards of living, savings and consumption. Those stark differences in two of the world’s most important economies figured prominently in the financial crisis, as many U.S. homeowners and consumers were exposed as too reliant on debt to finance their purchases. Many financial institutions were similarly overleveraged.

Though many U.S. consumers have tightened up spending and the housing industry now employs far more rigorous lending standards, imbalances persist as the United States runs a major trade deficit with China, and grapples with massive budgetary deficits that promise to weigh on the economy for years. Gaps also exist between the United States and the other major emerging economies – Brazil, India and Russia. For those reasons, issues of global imbalance are likely to be at the top of the agenda for G20 officials this week, since long-term solutions will be needed to get the global economy on a sustainable upturn.

“The economic impact is really quite marginal,” Mr. Brodeur said of the Chinese announcement. “It’s not going to get the jobs back in the U.S.”

Analysts see China’s currency move as the promised quid pro quo following U.S. President Barack Obama’s decision in April to defer branding China a currency manipulator – a designation that almost certainly would have led to a trade war, with duties on imports from China and retaliation from the Chinese.

Chinese officials are playing down the significance of the currency announcement. A commentary in the government-run China Daily suggested the yuan has become a scapegoat for other global financial problems. If leaders don’t make progress at the G20 summit to overhaul the financial system, “the international community will soon find to its disappointment that its leaders look only for red herrings, rather than real solutions, at a time when true leadership is badly needed,” the newspaper said.

It’s unclear how much more the Chinese are prepared to go or when. Most economists expect something less than a 3-per-cent gain this year. It would take appreciation of 15 or 20 per cent to have any meaningful impact on jobs or exports in the United States and other developed countries, said Daniel Alpert, managing partner of Westwood Capital LLC.

China has a lot of reasons to push up the yuan, including putting a lid on rising wage inflation at home.

But it will have to demonstrate that it’s serious about a more flexible exchange-rate regime, or it could be facing renewed pressure from the U.S. Congress to do more. New York Senator Charles Schumer has already said he intends to push ahead with legislation to penalize China with a 25-per-cent duty on its imports – an apparent warning that many Americans want to see more concrete action from the Chinese.

Most market watchers have concluded that China’s move had more to do with politics than economics.

“Nothing we have read, and nothing in China’s recent history, suggests that a major appreciation … is in the offing,” Hong Kong-based research firm DSG Asia said in a report to clients. “The timing of this move should be principally seen as a belated political concession in advance of a G20 meeting that was promising to get pretty hairy for the Chinese delegation.”

Any thought that China is about to substantially reduce its vast holdings of U.S. Treasuries as part of its strenuous efforts to diversify its foreign exchange reserves was also dismissed as improbable and contrary to Beijing’s political and economic interests.

China could stop accumulating U.S. dollars, but as long as its policy is to maintain a large current account surplus, it must keep buying them, said currency specialist David DeRosa, president of DeRosa Research of New Canaan, Conn. “If they want to export to the United States the way they have been, then either China or someone else has to buy dollars. They can’t export more than they import without buying someone else’s currency or bonds.”

Most observers believe the yuan will be allowed to rise gradually.

“It won’t be a large move,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets. “We’re looking for a 5-per-cent appreciation through the end of the year.”

That would put the yuan at 6.50 to the U.S. dollar, which analysts say would have no effect on trade flows and little impact on prices.

Treasury Secretary Timothy Geithner is “clearly betting” that the Chinese will let the yuan move enough by November, when he’s due to issue his next twice-yearly report on currency practices, said Tim Duy, a former U.S. Treasury department official and now an economics professor at the University of Oregon.

“If not, Congress will start sharpening the knives,” he added. “The tolerance for Chinese resistance will be almost negligible if this announcement is revealed to be nothing more than smoke and mirrors.”

The trade deficit between U.S. and China

Americans send their income abroad to buy what China makes in its factories; the Chinese save the money. That has been one of the dominant themes in global trade and finance for the past 25 years.

In 1985, the United States sent nearly as much to China as it brought in. By 1990, the U.S. was running a $10.4-billion (U.S.) trade deficit in goods with China (that is, it was importing $10.4-billion more in products from China than it was exporting to it).

By 2008, the figure was $268-billion. In the first four months of this year, the goods deficit with China was $71-billion.

All the while, the Chinese government has been accumulating a vast amount of foreign-exchange reserves. At the end of 1990, Chinese foreign-exchange holdings equalled $11.1-billion. By April of this year, China’s foreign-exchange reserves had grown to nearly $2.5-trillion. (Much, but not all, is held in U.S. greenbacks.)

These figures reflect dramatically different consumer behaviour. The personal savings rate in the U.S. has dropped from 12 per cent of disposable income in the early 1980s to less than 4 per cent today. Chinese households currently have a personal savings rate of nearly 38 per cent.

www.theglobeandmail.com/news/world/chinas-move-gives-us-symbolic-victory/article1612549/

[sandi66]

Yuan Gain May Alter Shape of Global Growth More Than Velocity

By Simon Kennedy, Rich Miller and Alex Tanzi - Jun 21, 2010

China’s shift toward a stronger exchange rate may alter the shape of the world economy’s expansion more than its speed, economists said.

Chinese consumers might buy more as the rising yuan boosts their purchasing power, while their counterparts in the U.S. cut back on their spending as the cost of goods imported into America rises. The shift will add 0.1 percentage point to global growth this year and next, leaving the rate at about 4 percent, according to the median of 17 forecasts in a Bloomberg News survey of economists.

“This currency move is likely to affect the composition of global gross domestic product rather than the growth rate,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts, who hasn’t changed his forecasts for an expansion of 3.8 percent this year and 3.6 percent in 2011.

A stronger yuan may make the recovery more durable by reducing its reliance on debt-laden American consumers. That would be welcome news for leaders of the Group of 20, who are meeting in Toronto on June 26-27 to take stock of the outlook for the world economy.

The yuan today surrendered some of its increase from yesterday, when it climbed the most since a July 2005 revaluation. It traded at 6.81 per dollar as of 11:34 a.m. in Shanghai. The drop indicated that officials will encourage two- way fluctuations in the exchange rate, even as they anticipate the currency will appreciate over time.

Export Reliance

China’s central bank said June 19 it will increase flexibility in the yuan, marking an end to the crisis policy of pegging to the dollar. A day later, the People’s Bank of China said the shift would reduce the economy’s “overreliance on exports,” indicating an expectation for the yuan to rise.

Stocks in Asia retreated today after a surge yesterday stoked by optimism that the PBOC move was a vote of confidence in the sustainability of the global recovery. The MSCI Asia Pacific Index dropped 0.5 percent to 118.61 at 11:43 a.m. in Hong Kong after a 2.6 percent advance yesterday.

In the U.S., equities surrendered early gains yesterday on concern a stronger yuan would increase costs at retailers. The Standard & Poor’s 500 Index slipped 0.4 percent to 1,113.20 after rising as much as 1.2 percent in the first hour of trading. All 30 stocks in the S&P 500 Retailing Index retreated, with Macy’s Inc. and J.C. Penney Co. leading with declines of more than 3 percent.

Net Plus

While U.S. consumers will pay more as a result of the rise of the yuan, the move is a net plus for the world economy because it lessens the risk of a hard landing in China and a protectionist backlash in the U.S., said Mark Zandi, chief economist at Moody’s Analytics Inc. China has been trying to prevent overheating of its economy after first-quarter economic growth of 11.9 percent.

“It’s a very positive development,” said Zandi, who is based in West Chester, Pennsylvania. “It will make it easier for the Chinese to control their economy. It will keep global protectionist barriers down.”

The longer-term benefit to the world economy may be to make it less susceptible to a cycle of boom and bust by shifting away from its reliance on U.S. spending, which in turn is financed by Asian savings, said Torsten Slok, an economist at Deutsche Bank AG. A U.S. savings rate of 3.6 percent in April is about a 10th of China’s, the highest among major economies.

Cause of Crisis

It was that mixture that helped spark the recent financial crisis and global recession as China recycled the dollars it accumulated from exports into U.S. debt, depressing global yields and fanning housing and credit booms.

“We need rebalancing and this means the U.S. has more exports and China has more domestic consumption,” Slok said.

G-20 leaders agreed in September to seek a “pattern of growth across countries that is more sustainable and balanced.” President Barack Obama last week said “the signals that flexible exchange rates send are necessary to support a strong and balanced global economy.”

Some economists cautioned that China’s decision might do more harm than good for the global economy.

“It’s wrong for the U.S. to force China to destabilize the renminbi,” said Robert Mundell, a professor at Columbia University in New York and a Nobel Prize-winning economist, using another term for the yuan.

‘Source of Stability’

Mundell told reporters in Hong Kong yesterday that China’s currency peg has been “a great source of stability” for the world economy and called the move to abandon it “political.”

A rise in the yuan could also fan global inflation as other currencies weaken, said Bernard Baumohl, chief economist at the Economic Outlook Group LLC in Princeton Junction, New Jersey.

“A more expensive yuan can heat up inflation pressures in the U.S. and elsewhere and that is the last thing the Federal Reserve wants to worry about right now,” he said.

Allen Sinai, chief global economist at Decision Economics in New York, said the Fed is more worried about disinflation than inflation. Excluding food and energy costs, U.S. consumer prices rose 0.9 percent in May from a year earlier, the smallest increase since 1961.

“A fixed exchange rate is often one of the ingredients of a boom-bust economy,” Sinai said. “By letting their exchange rate slip upward -- I expect it to rise 5 to 10 percent a year - - the Chinese are protecting their own economy from a bust.”

Jim O’Neill, chief economist at Goldman Sachs Group Inc., said China’s embrace of greater currency flexibility leaves him “bullish” by reinforcing his view that the world economy will expand 4.9 percent this year and 4.5 percent in 2011.

“It’s a sign that the Chinese policy makers are more confident about their ability to adjust from a low value-added export economy to one that’s got domestic factors at the core,” O’Neill said. “That’s the most important takeaway.”

www.bloomberg.com/news/2010-06-22/yuan-s-advance-may-alter-shape-of-global-expansion-rather-than-velocity.html

[sandi66]

Lagarde Saving Europe Proves Being First Isn't What's Electable

By Lisa Kassenaar and Mark Deen - Jun 21, 2010

Christine Lagarde, France’s finance minister, was at her Normandy weekend home on Saturday, May 8, juggling calls from President Nicolas Sarkozy, German finance chief Wolfgang Schaeuble and Dominique Strauss-Kahn, the Frenchman atop the International Monetary Fund, Bloomberg Markets reports in its August issue.

The euro was plunging, the Euro Stoxx 50 index had dropped 11 percent since May 1 and concern was rising that Greece and other southern European nations would default on their debt. U.S. Treasury Secretary Timothy F. Geithner, in a Friday conference call with Group of Seven officials, had been clear: Investors wanted action.

On Sunday, the finance ministers of the 27 European Union nations gathered at the EU’s Brussels headquarters, where it was Lagarde, according to a person who was there, who shepherded a broad agreement to reinforce the finances of the EU, with its half-billion people and combined gross domestic product of $15 trillion.

At 3 a.m. Brussels time on Monday, as Asian markets began trading, the EU announced a rescue package valued at 750 billion euros or, at the exchange rate that day, almost $1 trillion.

“The only thing the markets understand is money,” Lagarde, 54, said in an interview 10 days later. “We had to get real, which meant get big. If you don’t have a big number on the board, they’ll think you are really just a bunch of amateurs.”

The $1 trillion weekend was the next step in the struggle to revamp Europe’s economy -- and perhaps save the single currency -- by shoring up debt markets, slashing budget deficits and overhauling a banking system reeling both from the current crisis and the 2008 credit squeeze.

Self Control

The challenge now is for Germany and France, the pillars of the 16-nation euro zone, to show they have control of their own budgets by following through on tens of billions of euros in promised spending cuts and tax increases.

Chancellor Angela Merkel plans to chop 81.6 billion euros from Germany’s budget deficit in the next four years. Sarkozy has yet to detail a complete savings plan for France.

The May 10 agreement created a fund that can make direct loans to any member of the euro club in need. Commitments include 259 billion euros in guarantees from France and Germany and another 250 billion euros in possible loans from the IMF.

The European Central Bank for the first time said it would begin purchasing euro-zone government bonds. As of June 21, it had bought debt worth 51 billion euros.

Investors Not Convinced

The rescue package didn’t convince investors that the risk of sovereign-debt default had ended. Stocks worldwide continued to fall. As of yesterday, markets had lost $2 trillion for the year, according to data compiled by Bloomberg. The euro remained near its four-year low.

“The crisis is far from over,” George Soros, the billionaire investor, told a finance conference in Vienna on June 10. “Indeed, we have just entered Act II of the drama.”

Lagarde, after dozens of meetings on Europe’s panic, has emerged as a calm presence amid the uproar.

“She’s a woman who is respected by everybody, including in the Anglo-Saxon world and in Germany,” says Stephane Richard, chief executive officer of France Telecom SA, who worked as chief of staff in Lagarde’s finance department for two years until June 2009. “And the French like her because she represents them well.”

Lagarde says if she and her colleagues had failed to demonstrate that Europe, united, would support its weakest members, the situation would have put the euro under severe stress.

Eye of the Storm

The 12-hour talks in Brussels, including backroom discussions Lagarde held with leaders of Spain and Germany and a midnight conference call of G-7 finance ministers and central bankers, felt like being in the eye of a tornado, Lagarde recalls.

“You don’t feel the strength of the winds,” she says. “You just have to resolve it.”

She is speaking in her office in an 18th-century mansion located steps from France’s National Assembly. She’s silver- haired, 6 feet (183 centimeters) tall and -- unlike most French officials -- as comfortable speaking in English as in French. The room has 15-foot ceilings and gold-painted moldings around windows that look past a formal garden to the River Seine.

Lagarde has a second office at Bercy, a massive modern block built for the Finance Ministry in 1986. She sometimes travels between the two in a small, gray powerboat, past Notre Dame Cathedral and the Musee du Louvre.

First Woman

Appointed by Sarkozy in 2007, Lagarde is the first and only woman finance chief in the G-7 -- the U.S., Canada, Japan and the biggest European nations. It’s a position she’s accustomed to: From 1999 to 2005, Lagarde was the first female chairman of Chicago-based Baker & McKenzie LLP, the world’s fifth biggest law firm by revenue last year.

“She’s truly open to the rest of the world in a way that’s exceptional,” Richard says.

Lagarde’s ability to bridge disparate power blocs is crucial for Europe as the global financial crisis stretches into a fourth year, says Louis Giscard d’Estaing, a lawmaker for the ruling Union for a Popular Movement and son of former French president Valery Giscard d’Estaing.

“In Europe, among her peers, and in global forums such as the G-20, she’s the right person at the right time,” he says.

With the value of the euro dropping precipitously -- it fell 14 percent to $1.23 per euro this year through yesterday -- the priority for members of the euro zone is to cast aside past differences and coordinate their response.

Merkel’s Cure

Merkel insists that Europe’s financial woes can’t be cured until the entire region curtails its spending and raises taxes to move budgets closer to the EU target: deficits that are no more than 3 percent of gross domestic product. She set the example, announcing in early June that Germany would adopt an austerity package that includes up to 15,000 public-sector job cuts and a financial transactions tax.

The French around the same time imposed a three-year spending freeze and pledged to reduce France’s deficit to 3 percent of gross domestic product by 2013. France’s debt load of 77.6 percent of GDP last year was the fourth largest in the currency union, after Italy, Greece and Belgium, according to European Commission data. As of mid-June, it was still less than that of the U.S., which was 85 percent for 2009.

The commission predicts that France will have a deficit of 8 percent of GDP this year, the fifth largest among the euro countries.

G-2 of Europe

“People talk about the U.S. and China being the G-2,” says Jean-Francois Cope, head of the parliamentary group of Sarkozy’s UMP. “Well, France and Germany are the G-2 of Europe. Germany has made great strides in terms of its budget in recent years. France hasn’t. Now is the time to show we understand rigor as we set out the spending plans for 2011 to 2013 in a very explicit way.”

It was in this spirit that Sarkozy’s government on June 16 said it would raise the minimum retirement age to 62 from 60 and the top income tax rate to 41 percent. Even before the plan was announced, the Force Ouvriere union held protests, saying any change would be unfair and would fail to make allowances for the hardships faced by manual laborers.

Investors are demanding that Sarkozy’s economic team live up to its promises. The premium on France’s 10-year government bonds over similar German bonds doubled in the first eight days of June to 55.6 basis points. It dropped back to 34 points yesterday, though it remains higher than its average for the past year.

“They really need to deliver,” says Gilles Moec, an economist at Deutsche Bank AG in London. “They need to be much bolder than they have been so far. If it stays rhetoric, it won’t do.”

Stable, Crippled

Lagarde says she’s in favor of both cutting deficits and driving growth.

“We can be stable forever and crippled forever as well,” she says. “We need to work on all engines -- which means exports, investment and consumption.”

France Telecom’s Richard says Lagarde herself hasn’t been assertive enough.

“She doesn’t use all of the assets--and the image she has-- to weigh in a bit more on political debates in France on certain subjects, taxation, for example,” he says.

Sacrifice is proving a hard sell all over Europe. In Greece, where the public debt stands at 115 percent of GDP -- it’s 78.7 percent EU-wide -- workers have filled the streets protesting an austerity plan that would, among other things, boost the retirement age to 65 starting in 2013.

Spain’s Struggle

In Spain, where unemployment is about 20 percent, the Socialist government led by Prime Minister Jose Luis Rodriguez Zapatero passed spending cuts on May 27 by just one vote. Spain lost its top grade from Fitch Ratings the following day. In mid- June, Spain’s public-sector unions were planning a general strike to protest the measures.

As she wrestles with Europe’s sovereign-debt emergency, Lagarde is also a leader in the effort to deal with the region’s financial institutions, which are newly threatened as Greece and other countries teeter on the edge of default. Banks in Germany and France alone have a combined exposure of $124 billion to Greece and $777 billion more to Ireland, Portugal and Spain, according to an estimate by the Basel, Switzerland-based Bank for International Settlements.

Lagarde wants to clamp down on bankers’ bonuses, limit conflicts of interest at rating companies, and move derivatives trading from the over-the-counter market to exchanges.

Derivatives are securities whose value is derived from stocks, bonds, currencies or commodities.

G-20 in 2011

As France prepares to take the helm of the G-20 in January, Lagarde is pressing the U.S.’s Geithner to tweak plans to raise capital requirements for banks under the aegis of the Basel Committee on Banking Supervision, which is deliberating on new, more stringent bank regulations. Lagarde has told Geithner that France wants any new capital requirements timed so that they don’t choke off growth in Europe, where companies rely more on bank financing than do their U.S. counterparts.

Sarkozy, meanwhile, is also pressing for the EU to impose new rules on hedge funds. Those based in Europe would need a seal of approval from a regional regulator. Others would require individual registration in each European country they wish to operate in. Geithner wrote to Lagarde in April opposing the plan, saying it risks deterring U.S. funds from entering the European market.

At home, even opponents of Sarkozy’s business-friendly UMP government acknowledge Lagarde’s effectiveness.

Luck for France

“It’s been great luck for France -- and for Europe -- to have her in that job right now,” says Jean-Pierre Balligand, a Socialist lawmaker who sits on the Finance Committee of the National Assembly. “In a crisis, Europe is isolated, and she has proved able to overcome that. It’s because she doesn’t have that immodest side that the French sometimes have, the idea that we know better.”

Lagarde was born Christine Lallouette on Jan. 1, 1956, in Paris and later moved to Le Havre, a city of about 180,000 on France’s Atlantic coast. Her father, an English professor, died when she was a teenager. Her mother, who taught Latin and Greek, and her grandmother took care of the household, including Lagarde’s three younger brothers.

An avid swimmer, young Christine was selected for the French national synchronized-swim team when she was 15 and competed internationally for two years. She still swims several times a week and goes scuba diving in the Mediterranean with her partner, a Corsican businessman named Xavier Giocanti, who lives in Marseille.

Bethesda High School

She has two sons from a previous marriage, now ages 22 and 24.

At 17, Lagarde attended a year of high school as an exchange student at Holton Arms, a private girls school in Bethesda, Maryland. She was already interested in politics, she says, and, in 1974, landed an internship in nearby Washington with the staff of William Cohen, a Republican congressman from Maine. He needed her to answer letters from his French-speaking constituents.

Cohen later became a senator and served as President Bill Clinton’s secretary of defense from 1997 to 2001.

Lagarde returned to France to study law at the University of Paris, Nanterre, and later earned master’s degrees in English and labor law. In 1981, at age 25, she joined Baker & McKenzie’s Paris office, launching a legal career focused on employment law and mergers and acquisitions.

Baker & McKenzie was the highest-grossing law firm in the U.S. in 2009, with $2.1 billion in revenue, according to American Lawyer magazine.

Madame Chairman

In 1987, Lagarde became partner and, eight years later, was selected as one of two European representatives on the firm’s seven-member executive committee. In 1999, at 43, she was elected by the law firm’s partners as chairman.

“The big surprise was that Baker & McKenzie chose not just a woman, but a French one,” says Denise Broussal, the Paris office’s managing director from 2004 to 2008, who worked with Lagarde for more than a decade.

“Christine gave tremendous visibility to Baker & McKenzie, which we didn’t have before,” Broussal says. “It was good for business. To a certain extent, it’s what she’s doing for France now.”

As a lawyer, Lagarde was known for her stamina; she never seemed to need much food or sleep, Broussal says. She was also a master negotiator in complicated cases.

Destabilizes Opposite Party

“She destabilizes the opposite party,” Broussal says. “If someone is being very aggressive, she just stays very calm, very polite, and then she’ll get her way in the end.”

Lagarde moved to Chicago when she took over the law firm. She traveled extensively among Baker & McKenzie’s global offices, staying whenever she could in hotels with swimming pools to get her morning exercise.

In 2005, Lagarde got a call from then-Prime Minister Dominique de Villepin asking her to join the French government. He gave her one hour to make up her mind. She accepted, and boarded a plane for Paris that day, she recalls.

As trade minister from 2005 to April 2007, she pressed France’s case that the strengthening euro was suffocating the region’s exporters. After one month as agriculture minister in May that year, she was named to the finance post in a cabinet shuffle that moved her predecessor, Jean-Louis Borloo, to the environment ministry.

Lagarde is one of 13 women, including the ministers of higher education, justice and health, in Sarkozy’s 40-member cabinet.

‘Marie Antoinette’

Lagarde isn’t elected, and her transition to the political spotlight was somewhat rocky. Early on, she was pilloried in the press for saying she’d found the French less interested in work when she returned from living in the U.S.

“They were more interested in chatting about their holidays, about their long weekends,” she told the Sunday Times of London in September 2007. “Doing nothing was very much the mantra, and work was disregarded.”

Lagarde attributed the attitude to the effects of the 35- hour-workweek rules that took hold in 2000. Since then, Sarkozy and Lagarde have eased limits on overtime work in France.

In 2007, as oil prices surged, Lagarde suggested that people get around on bicycles. Critics led by Socialist lawmaker Francois Hollande labeled her “Marie Antoinette,” the queen famous for saying the starving masses should eat brioche if they didn’t have bread.

2012 Election

With investor scrutiny of public debt rising and with Germany demanding balanced budgets, it’s up to Lagarde to press her boss to go further faster, even if it hurts politically. She and Sarkozy, who faces an election in 2012, have promised to pare France’s budget shortfall to 6 percent of GDP next year from 8 percent in 2010.

The retirement age and income tax increases announced in June would only make up a fraction of the deficit.

When Lagarde visits the U.S., she’s more visible than a typical French minister, helped by her fluency in English and her understanding of U.S. business and culture. And her U.S. sojourns haven’t been all about economic gloom.

In April 2009, she showed up on the Comedy Central TV channel’s Daily Show, a satirical send-up of the news hosted by Jon Stewart. In a dark suit and white shirt, she walked onto the set carrying a large red handbag and cheerfully responded while Stewart asked questions about her role in solving the globe’s financial woes, including whether she had jurisdiction to fire U.S. bankers.

She translated the phrase “catastrophic economic downturn” into French for him: recession economique catastrophique.

‘That’s Beautiful’

“That’s beautiful,” Stewart said. “If this depression were happening in French, I don’t think we’d be nearly as panicked about it.”

As their chat wound down, Lagarde opened her bag and pulled out black berets, which the two donned while Stewart jumped around shouting, “Vive La France!”

Lagarde and her G-7 peers formally meet several times a year. In February, Canada hosted the group in Iqaluit, a town near the Arctic Circle where the average winter temperature is minus 30 degrees Celsius (minus 22 degrees Fahrenheit). Six ministers wore their new Canada Goose-brand down parkas; Lagarde wore a long mink coat.

She stayed after the meeting to go dog sledding with her Inuit hosts.

The finance minister finds that, as a woman in the worlds of law and finance, she can move the discussion along.

Women and Men

“In negotiations, I think women tend to intimidate men because, you know, we are not exactly the same,” she says. “But I am not a threat, and I don’t have a huge ego. I think I can help broker deals and reach consensus.”

That job has become more important as economic differences among the euro-zone countries threaten to drive the members of the currency union apart. For Lagarde, it’s a question of political will.

“It’s a turning point now,” she says. “The most difficult component is to decide how our economic policies are going to converge -- not coordinate, but converge.”

The basic issue is one that European leaders have struggled with ever since French Foreign Minister Robert Schuman proposed that European states form a “supranational” organization in 1950: At what point does cooperation between countries go so far that elected national governments lose control of their destinies? As Lagarde and her counterparts struggle to resolve the crisis, those national divisions are more stark than ever.

www.bloomberg.com/news/2010-06-21/lagarde-saving-europe-proves-being-first-isn-t-what-gets-elected-in-france.html

[sandi66]

Central Banks Show Euro Losing Reserve Status as Loonie Gains

By Oliver Biggadike - Jun 22, 2010

The Australian and Canadian dollars are becoming reserve currencies for central bankers seeking alternatives to deteriorating government credit quality in Europe, the U.S. and Japan.

“They’ll gain an increasing place in reserves because of diversification,” European Central Bank governing council member Christian Noyer said in a June 16 interview with Bloomberg News in Paris.

Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. currency and euro, Alexei Ulyukayev, the first deputy chairman of the nation’s central bank, said in an interview in Moscow on June 15. The International Monetary Fund may add the Aussie and loonie to a basket of currencies it uses in transactions, strategists at UBS AG, the world’s second-largest foreign-exchange trader, predict.

Reserve managers are joining private-sector investors including Pacific Investment Management Co., which runs the world’s biggest bond fund, in boosting allocations to nations with improving economies and the ability to reduce budget deficits after the European Union was forced to commit almost $1 trillion to prevent a sovereign default by Greece.

The failure to coordinate fiscal policy among the 16 nations making up the euro increases the risk a country may leave the currency union, according to Andrew Balls, head of European portfolio management at Pimco, and Jim Rogers, chairman of Rogers Holdings.

‘Possible Exit’

“The range of possible outcomes includes the preservation of the current euro-zone, albeit as a weaker entity unless urgent progress is made on a deeper fiscal union, or one or more euro-zone members restructuring their debt and also the possible exit of a current member country,” Balls wrote in a research report dated June 14.

Japan’s debt is approaching 205 percent of gross domestic product, the highest among the 31 members of the Organization for Economic Cooperation and Development, the OECD said on May 26. The U.S. budget deficit is forecast to reach a record $1.6 trillion this fiscal year, according to the White House, and the Congressional Budget Office said in January that total debt will reach 60 percent of GDP by the end of the year, the highest level since 1952.

‘All Impaired’

“If you just laid the numbers out without identifying them, it’s hard to make the case that Europe, the United States or Japan should be part of reserve portfolios,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “They are all impaired over the longer term perspective.”

Greece’s borrowing costs have doubled to 9.4 percent for 10-year notes since October, while yields on Portuguese debt rose as high as 6.3 percent last month, the most since the euro began trading in 1999. On June 18, the interest rate investors demand to hold Spanish debt rose as high as 5 percent, the most since July 2008. Last month the EU announced a 750 billion-euro ($921 billion) rescue mechanism to stabilize the market.

For reserve managers, the euro-area sovereign debt market has essentially shrunk to 20 percent of its previous size, with primarily German debt meeting central bank standards, said Alan Ruskin, head of currency strategy at Royal Bank of Scotland Group Plc in Stamford Connecticut.

Euro Assets Shrinking

“The shrinkage in high-quality euro assets that reserve managers can buy does significant damage to euro pretensions to be the largest reserve currency,” Ruskin said. “It puts a ceiling on how large a share the euro can gain as a reserve currency.”

Australia’s net debt will peak at 6.1 percent, less than a 10th of the average expected for major advanced economies, Treasurer Wayne Swan said May 11 while announcing the nation’s budget. Canada’s budget gap will decline from 4.8 percent in 2009 to 1.6 percent in 2011 according to the median forecast of eight economists in a Bloomberg survey.

On April 6, Canada’s dollar was worth more than the U.S. currency for the first time since July 2008. On April 12, Australia’s dollar traded as high as 93.69 U.S. cents, the closest it had been to parity with the U.S. dollar since reaching 94.06 U.S. cents in November. Canada’s currency was at C$1.0244 as of 10:54 a.m. in London today from C$1.0243 in New York yesterday. Australia’s dollar bought 87.53 U.S. cents from 87.65 cents.

Introduced in 1999 to replace the currencies of France, Germany, Italy and eight other nations, the euro’s share of global reserves climbed to 27.4 percent at the end of 2009 from 18 percent a decade earlier. The dollar accounted for 62.1 percent of the $4.6 trillion in reserves for which the IMF has data.

‘Manifestly Inadequate’

The euro’s appeal began to falter in December after EU officials said Greek economic statistics are “manifestly inadequate” in a draft document prepared for the region’s finance ministers. By the end of May, the currency had fallen for six-straight months, the longest slump since its creation.

It traded at a four-year low of $1.1877 on June 7, and 10 days later BNP Paribas SA said it may weaken to 97 U.S. cents by the third quarter of 2011.

“Debasing what has been a strong currency and making it weaker and weaker is in the end going to destroy the euro,” Rogers said in a June 16 interview. It will take 10 to 15 years for the euro to disappear, Rogers said, adding that in the interim he’s bought the currency because pessimism towards Europe has beaten it down too much.

‘Picture of Stability’

Reserve Bank of Australia Governor Glenn Stevens raised the benchmark interest rate six times in the seven meetings through May 4, the most-aggressive series of increases among Group of 20 policy makers. The loonie is appreciating at the fastest rate in two months after the Bank of Canada began raising rates on June 1 with a 0.25 percentage point increase.

“The growth outlook is stronger in these places, the fiscal outlook is stronger in these places and they should be safe havens from a diversification standpoint,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “They’re a clear picture of stability once that risk aversion move is out of the way.”

EU gross domestic product is forecast to grow 1.4 percent in 2011, according to the median forecast of 18 economists in a Bloomberg survey, Australia’s central bank raised its growth forecast for 2011 in May to 3.75 percent from 3.5 percent three months earlier. The Canadian economy will grow 3 percent in 2011, according to the median prediction of 14 economists in a separate Bloomberg survey.

Smaller Markets

The downside for central banks is that the Australian and Canadian bond markets aren’t as big or liquid as those in Europe or the U.S.

“I don’t think they’ll become major currencies used for global trade or that they can be part of the core of the international monetary system because they are too small,” the ECB’s Noyer said in the interview.

The C$380 billion ($371 billion) Canadian government debt market is less than one-tenth the size of the U.S.’s $5.7 trillion in notes and bonds, while Australia’s A$137 billion ($120 billion) outstanding is about one-third the size of Canada’s.

“There’s not enough liquidity and not enough bonds out there so they could never become a core part of a central bank’s holding,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York.

Sweden’s Riksbank

That hasn’t stopped some central banks from adding the currencies. Sweden’s Riksbank currently invests 5 percent of its 328 billion kronor ($42 billion) reserves in the Aussie and the loonie each, to supplement its 50 percent allocation to the euro and 20 percent in the greenback, said Ann Falken, head of the central bank’s investment division. The central bank is not allowed to speculate on the exchange rates themselves, Falken said in a June 16 interview from Stockholm.

Russia’s central bank has added the Canadian dollar to its reserve portfolio and may add the Australian currency, according to Ulyukayev.

“Adding the Australian dollar is being discussed,” he said. “There are pros and cons. We have added the Canadian dollar but haven’t yet begun operations” in the currency, Ulyukayev said.

U.S. dollars account for 47 percent of Russia’s reserves, while euros make up 41 percent, British pounds 10 percent and Japanese yen 2 percent, Ulyukyaev said in November. The central bank has reduced dollars from 50 percent in 2006, when euros accounted for 40 percent and the remaining 10 percent was in yen and pounds. Russia’s international reserves, the world’s third biggest, reached $458.2 billion on June 4.

‘Liquid Enough’

If central bankers were to determine that the commodity currencies were “liquid enough” to add to reserves, that could lead to “a substantial rise in underlying demand for the Aussie dollar and Canadian,” said Sean Callow, a currency strategist at Westpac Banking, during a June 16 interview from Sydney on Bloomberg Television’s “Global Connection.”

The Washington-based IMF will review the current basket of currencies of Special Drawing Rights, or SDRs, at the end of the year, a process that occurs every five years. There’s at least a 50 percent chance that the Australian and Canadian dollars will be added, said Mansoor Mohi-uddin, global head of currency strategy at UBS in Singapore.

“Because they will become more prominent over time, the IMF may decide the composition of SDRs has become too narrow and these two would be the best new currencies to add to the basket,” Mohi-uddin said. “It doesn’t matter what the proportion is or even if it was a small proportion. It will increase their status further.”

www.bloomberg.com/news/2010-06-21/central-banks-show-euro-losing-reserve-currency-status-with-loonie-gaining.html

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Wall Street Gets Close to Stiffing Overhaul: Roger Lowenstein

By Roger Lowenstein - Jun 21, 2010

Backroom trading in Congress has put meaningful financial overhaul in jeopardy at the 11th hour.

In two key aspects of the legislation, the Senate has refused to go along with the House version, undermining leverage limits on big, risky financial firms in the first instance and driving a knife through shareholder democracy in the second.

One clause in the House bill would be singularly effective in preventing a repeat of the 2008 banking collapse. The other would close a 75-year-old loophole in American corporate governance, forcing boardrooms to, finally, become accountable to shareholders.

Now, both are at risk. Take leverage limits first. Leverage acts like a giant accelerator in the financial system. It heightens the risk of financial crashes, and it magnifies losses when crashes do occur. No wonder that in 2008, as in almost every previous meltdown, excessive financial leverage played a big part.

The House bill sets a hard limit of 15-to-1 for systemically important firms. That is, big banks and other large financial entities could never borrow more than 15 times their equity. Regulators, including the Federal Reserve, could enforce even tighter limits, if they chose to, but they could never allow firms to borrow more than that.

Bankers don’t like the idea of a hard and fast limit, and neither do regulators at the Fed and Treasury, including Tim Geithner, the Treasury Secretary. Not surprisingly, officials would rather have the flexibility to set limits on a case-by- case basis than be handcuffed by a hard cap.

Sounds Nice

Flexibility sounds nice in theory but in practice it hasn’t worked. When the economy is roaring (as one day, it will be again) banks are flush with profits and eager to make loans. Bankers then insist there is little to fear, after all, they know how to manage their risks.

Memories of past crises grow dim. Moreover, the bankers will say, their clients are hungry for mortgages, leveraged corporate loans and other forms of credit. Why put a brake on the American economy? And regulators will go along. They did last time.

David Moss, the Harvard Business School professor who conceived of the cap, has argued that merely empowering regulators isn’t enough. Barney Frank, the House Financial Services Committee chairman, gets this. Frank is determined to fight for a 15-to-1 cap.

The Senate bill is in flux, but it is leaning toward a more lenient 25-to-1 standard. That wide-open sieve wouldn’t have stopped Citigroup Inc. on its path to overleveraging and self- destruction in 2008. Indeed, during the previous economic cycle, regulators at the New York Fed (then run by Geithner) were aware of Citi’s mounting risks, but didn’t move fast enough.

Hang Tough

Frank should hang tough. We need tough rules for regulators as well as for bankers.

Now shareholder democracy. This issue predates the financial crisis; in fact it harkens to the scandals of the 1920s. The problem is that shareholders have no effective way to hold directors accountable. Proxy contests are all but rigged, because incumbent directors use corporate funds to solicit votes; dissidents must spend their own dough.

Typically, incumbents capture 99 percent of the votes. Not even Hugo Chavez polls that high, and it is no wonder that boards are so apt to ignore shareholder concerns. Since the 1990s, reformers have realized that the key to genuine democracy is to grant legitimate non-management candidates access to the company ballot (the proxy card that the board distributes and that all shareholders pay for).

Too Much Democracy

The question is how to define “legitimate.” The Securities and Exchange Commission has proposed a rule that would allow nominations from minority shareholders that owned a reasonable minimum of shares. Of course, nominees would still have to win elections to join the board.

Even that dollop of democracy is too much for the Business Roundtable, the lobbying group for chief executives. The Roundtable has been lobbying against proxy access since the idea surfaced. Also, foes of shareholder access have threatened to take the SEC to court if the agency dared to let the owners of a business actually nominate directors.

In the pending financial reform, both chambers of Congress clarified that the SEC is entitled to write such rules. However, Senator Christopher Dodd, with the apparent backing of the White House, pulled the rug out, rewriting the provision so that only a single shareholder with 5 percent of the stock could gain proxy access.

Big Boys

Why is the White House siding with the big boys and against open, democratic corporate elections? Shareholder access is a crucial reform. The real impact wouldn’t be the handful of dissident candidates who actually won. It would be the realization by every director, that, potentially, he or she could be replaced by majority vote. Sounds pretty American to me.

Proxy access is the best weapon to curtail excessive executive pay. Compensation committee chairs who ladled out huge contracts would be especially vulnerable. Perhaps that’s why the Roundtable is so afraid of a fair election.

Similarly, limits on financial leverage are the surest route to curtailing credit bubbles. Opportunities for financial reform don’t arise very often. The 2008 meltdown presented Congress with a golden opportunity. It would be a shame if they got this close and knuckled under.

(Roger Lowenstein, author of the just-published “The End of Wall Street,” is a Bloomberg News columnist. The opinions expressed are his own.)

www.bloomberg.com/news/2010-06-22/wall-street-gets-close-to-stiffing-overhaul-roger-lowenstein.html

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Kerviel Could Have Forced Societe Generale Into Bankruptcy, Trader Says

By Heather Smith and Carol Matlack - Jun 22, 2010

Societe Generale SA, France’s second-largest bank by market value, could have been forced into bankruptcy by Jerome Kerviel’s unauthorized positions had they not been unwound immediately, a trader told a Paris court today.

The bank lost 4.9 billion euros ($6 billion) in the process of liquidating Kerviel’s accounts over three days in January 2008 as markets worldwide fell. The timing was “bad luck,” said Maxime Kahn, who liquidated the positions.

“It was impossible to wait,” said Kahn, now head of European trading at Paris-based Societe Generale. “There was a potential for the bank to go bankrupt.”

Kerviel, 33, is accused of abuse of trust, faking documents and hacking the bank’s computers to hide positions that exceeded his mandate with faked hedges. Societe Generale announced the loss January 24, 2008, with former Chief Executive Officer Daniel Bouton calling the former trader a “terrorist.” Kerviel has argued his superiors were aware of and condoned his bets.

Kerviel’s decision to make bets on the direction of the market rather than stick with his team’s mandate is something Kahn said traders rarely did. Directional trading is a “decision made by management,” Kahn said.

“Our job is not to bet on the movement of the markets,” Kahn told the court. Kerviel’s “course of action was inadmissible.”

Societe Generale said after disclosing the loss it had asked Kahn to unwind Kerviel’s portfolio without telling him he was risking the bank’s own money.

“I could tell that the client was Societe Generale, from the expressions on the faces I saw around me,” Kahn said today.

www.bloomberg.com/news/2010-06-22/kerviel-trades-may-have-forced-socgen-into-bankruptcy-trader-tells-court.html

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Ace Greenberg's Great Tips Drowned Out by Bear Collapse: Norman Pearlstine

By Norman Pearlstine - Jun 22, 2010

“You can read about it in my book.”

That was Ace Greenberg’s tart reply to the New York Times when asked, in May 2008, what advice Bear Stearns chief executive officer Jimmy Cayne ignored prior to the firm’s collapse two months earlier.

Alan C. “Ace” Greenberg, the trader who, over a career spanning more than six decades, built Bear into a powerhouse, has now written that book, “The Rise and Fall of Bear Stearns,” with Mark Singer, a writer for the New Yorker magazine. The book is long on diatribe and gossip. Its analysis of Bear’s demise -- covered in very few pages -- is more cursory than one would have hoped.

During the years Greenberg ran Bear Stearns, he mentored James E. “Jimmy” Cayne. Their relationship grew strained as early as 1988, when Cayne became Bear’s president. It deteriorated further as Cayne gained power from Greenberg. In addition to blaming Cayne for creating the environment that led to Bear’s collapse, Greenberg’s book seeks to rebut William D. Cohan’s “House of Cards,” which portrays Ace as sometimes ruthless and small-minded. He asserts that Cohan accepts Cayne’s “fanciful history of (Cayne’s) career” at Greenberg’s expense. Greenberg is more successful in attacking Cayne than Cohan, whose well-balanced, exhaustive analysis remains the definitive study of Bear’s epic fall.

Laying the Blame

Greenberg says the firm’s profits grew sharply under Cayne’s leadership. He also says Cayne was a dope-smoking megalomaniac more interested in his bridge game than in supervision of the firm. He downplays Cayne’s assertion that Bear Stearns was the victim of a “bear raid” by short-sellers who had spread false rumors of its imminent bankruptcy. Instead he blames Bear -- especially the fixed-income department -- for using too much leverage to build its mortgage-backed securities portfolio.

Despite his reputation as a highly adept risk manager, Greenberg says his warnings to Cayne that the firm was overleveraged were ignored. Greenberg admits, however, that he failed to raise the alarm with Warren Spector, who headed Bear’s fixed-income department. His explanation -- that Spector “insisted upon being 100 percent in control of his department” -- is unconvincing, given Greenberg’s well-known enthusiasm for his own opinions.

In an interview with Cohan, Cayne dismissed his former mentor: “There isn’t anybody that would tell you they choose him as their best man, or best friend, or one who they would have lunch with, or go on a trip with, or socialize with, or whatever. They don’t exist. He had one friend -- me.”

Viagra Donation

Cayne also told Cohan that Greenberg’s “narcissism” was behind his more eccentric charitable donations, including his 1998 gift of $1 million to provide poor men with Viagra prescriptions. Greenberg says that most people reacted favorably to his gift, and chronicles several of Cayne’s grandiose moments. “Why was it that a single elevator in the lobby had to be reserved for one person?” he asks. When Cayne agreed to limit his reservation of the elevator to an hour a day, Greenberg notes that the hour was from 8 to 9 a.m., “just when everybody needs to use it.”

Greenberg also recalls Cayne’s absence from executive- committee deliberations over a proposed $10.7 billion commitment, because, he writes, it conflicted with a regular summer golf date that he reached every Thursday afternoon by helicopter. “This particular example of Jimmy’s egotism, tone deafness, and clueless contempt for the rest of us still provokes my outrage,” he says.

Bear Stock

Greenberg and Cayne differed over whether Bear’s executives should have held on to the stock they received as part of their compensation. Greenberg had sold millions of shares over the years, enabling him to withstand the firm’s collapse, while Cayne, who considered such sales inconsistent with leadership, held on to his and suffered paper losses of almost $1 billion when Bear was sold to JPMorgan Chase in March 2008.

The Cayne-Greenberg dogfight that ensued overwhelms the book’s back story: Bear Stearns’s rise to prominence and power and Greenberg’s remarkable role in building it. That story is also worth remembering.

Ace grew up in Oklahoma City, where he was a high-school track and football star. After graduating from the University of Missouri, he came to New York. He joined Bear Stearns, then an investment firm with 125 employees, in March 1949. By the time he turned 40 he was effectively running it, his power confirmed in 1978, shortly after the death of Salim L. “Cy” Lewis.

Arguing With Lewis

During Lewis’s last years in control at Bear, he and Greenberg argued about many things -- including Lewis’s son, Sandy, whom Cy wanted to hire despite a firm rule that prohibited nepotism. Greenberg prevailed. Sandy Lewis told Cohan that his father “hated” Greenberg, a man “so cold my father used to say he pissed ice water.”

Under Greenberg’s control, Bear’s profits grew quickly. At its peak it employed almost 15,000 people. While most Wall Street firms preferred to hire Ivy Leaguers, Greenberg looked for people with “PSD” degrees, by which he meant “poor, smart and a deep desire to become rich.” Along the way, he developed a disciplined style of investing -- “unload losers, ride winners” -- that served him and hundreds of loyal individual clients well over the years.

I became one of those clients 11 years ago as an executive and editor at Time Warner Inc. I had accumulated vested stock options that, if exercised, would represent the majority of my net worth. The options gave me nightmares. Should I hold? Should I sell?

Meeting Greenberg

My tax accountant -- the now-notorious Kenneth I. Starr, who was recently indicted for allegedly bilking his customers -- arranged for me to call Greenberg. Ace, who answered his own phone, told me to meet him in his office, a desk on the Bear trading floor, the next day at 7 a.m. Over coffee he asked why Time Warner used Ebitda (earnings before interest, taxes, depreciation, and amortization) when reporting results instead of “Ebitdare.” “What’s ‘Ebitdare?’” I asked. I had never heard the term during a long career in business journalism. “What do ‘R’ and ‘E’ stand for?”

“Rent and electricity,” he replied. “If they are going to mask their lack of earnings with all that other stuff, why don’t they throw in rent and electricity as well? Exercise every option and get out of the stock.”

I followed his succinct advice. A couple years later, Time Warner merged with AOL, destroying Time Warner’s share value and the value of its options. Ace’s counsel, dispensed over a few seconds, was typical of the wisdom that made him a hero to satisfied customers like me.

If Ace’s story ended then, his autobiography would have justly celebrated one of Wall Street’s greatest stock pickers and executives. That, alas, was not to be. Instead, his and our bitter memories of Bear Stearns’s collapse define his coda.

“The Rise and Fall of Bear Stearns” is published by Simon & Schuster (224 pages, $17.95). To buy this book in North America, click here. This review originally ran in Bloomberg Businessweek’s June 21-27 issue.

(Norman Pearlstine is chief content officer of Bloomberg News. The opinions expressed are his own.)

www.bloomberg.com/news/2010-06-22/ace-greenberg-s-great-tips-drowned-out-by-bear-collapse-norman-pearlstine.html

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NY Fed discourages use of bespoke derivatives

22 Jun 2010

Post-trade reporting and collateral seen as way to push OTC derivatives towards central clearing

The Federal Reserve Bank of New York is looking at ways to discourage the use of customised or bespoke derivatives in order to push more over-the-counter trades towards central clearing, including greater reporting requirements and increased rigour around collateral.

The move is a reflection of growing concern among regulators that banks might try to disguise standardised derivatives as bespoke to evade requirements to centrally clear trades. The Group of 20 has called for all standardised derivatives to be centrally cleared and reported to trade repositories by the end of 2012. Meanwhile, the Basel Committee on Banking Supervision is already looking to impose higher capital charges on banks for OTC trades that are not centrally cleared.

In addition to this, the New York Fed is looking at other ways to push the market towards standardised derivatives, says Theo Lubke, the head of the New York Fed's financial infrastructure department. “We want to explore what incentives the banks have to use more standardised or bespoke transactions so we can give them incentives to use the standardised transaction types. That doesn’t mean we think the bespoke trades shouldn’t exist, but we want them to exist only where the complexity serves a real economic purpose for the end-user, as opposed to an economic purpose benefitting the dealer,” he says, in an exclusive interview with Risk.

As well as higher capital requirements, regulators could also use reporting requirements to usher more trades towards central clearing – with greater transparency requirements for bespoke transactions. “If we can add more transparency outside that pipe of open trading and clearing to some of the transactions that are bespoke, it takes away one of the incentives to stay in the bespoke arena,” Lubke explains.

Financial regulatory reforms being discussed by US lawmakers might well ensure that even non-cleared transactions are reported to regulators or trade repositories. Some regulators and market observers go even further, arguing for real-time reporting of all OTC trades. This has been criticised by dealers, who argue that such a level of transparency would hamper their ability to hedge – ultimately, making them reluctant to enter the market and reducing liquidity.

Many banks have pointed to the example of the Trade Reporting and Compliance Engine (Trace), introduced by the National Association of Securities Dealers in 2002 to distribute secondary market data in the OTC bond market, to back up their argument. Dealers have accused the system of impairing liquidity, but Lubke thinks Trace benefited market participants. “Trace didn’t solve all the problems but it certainly helped reduce bid-ask spreads,” he says.

Nonetheless, he acknowledges there is some basis for the concerns expressed by dealers over greater post-trade price transparency in the OTC market. “There are risks in expanding post-trade price transparency, so there is some legitimacy to dealers being concerned about it. But our perspective isn’t just how more transparency would affect large dealers but how it would benefit the market as a whole.”

Supervisors must ensure new transparency initiatives are implemented in ways that don’t harm the market, he adds. For instance, reporting price and volume data with a 15-minute delay (as with Trace) might not be appropriate for OTC derivatives, as it could discourage the risk-taking by dealers necessary for the market to function. Yet Lubke believes the market can move a lot further towards transparency before its vital ecology is threatened.

Another area where regulators might try to level the playing field between cleared and non-cleared trades is collateral, suggests Lubke. While trades sent to clearing houses are subject to initial and daily variation margin, collateral agreements associated with OTC trades are often not as rigorous. Drawing on the example of ill-fated insurer American International Group, Lubke says the New York Fed would like to see more timely trade reconciliation and collateral exchanges in the OTC market.

A profile of Theo Lubke and the New York Fed will appear in the July issue of Risk.

www.risk.net/risk-magazine/news/1686943/ny-fed-discourages-bespoke-derivatives

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British Pound in the Spotlight after Budget and Maverick Callý


Jun 23 10 12:20 GMT

British Pound in the Spotlight after Budget and Maverick Call
Having been spooked by fears ahead of an austere budget that growth might be crimped by spending cuts, the British pound is heading for $1.5000 where it hasn't traded for five weeks. The consensus appears to be that Chancellor Osbourne's budget was tough enough to maintain the nation's top credit rating without bruising the economy enough to tip it into a second recession. Icing the cake for sterling bulls today was the revelation that MPC member and known hawk Andrew Sentance put a rate rise on the agenda at the June 10 monetary policy meeting.

British pound - The pound further divorced itself from the plight of a European banking crisis on Wednesday as dealers digested the budget and considered the prospect for an interest rate increase later in the year. The new coalition government's effort to get fiscal policy back on track is seen to be sufficiently draconian to keep the wolves from the door without harming growth enough to create recessionary fears. Fitch ratings agency yesterday said that Britain's "ambitious" plans were enough to maintain its credit rating. The pound was sunk several months ago as budget deficits were cast into the spotlight and several analysts pointed to Britain's position coupled with political uncertainty stemming from what proved to be a very tightly contested general election. But the resultant Liberal-Conservative coalition has put the issue front and center and has delivered sufficiently tough measures on paper at least, to boost confidence that the situation can be rectified during the current Parliament.

MPC member Sentance was recently quoted by a leading weekend news paper outlining a scenario under which interest rates should be increased. In the minutes of the recent meeting released today he called for an interest rate increase explaining that inflation was proving to be resilient. At an ensuing address to bankers in the City of London Bank Governor King appeared to downplay those comments by claiming that excess capacity would remain sufficient to bear down on inflation.

And so while the cat is out of the bag on an interest rate increase, we know who won the day at the recent meeting. But Mr. Sentance's sentiment at least might bolster the pound for some time to come. The pound rallied to $1.4943 taking out Monday's exuberant high in response to China's revaluation. Unlike other currencies, the pound appears to be heading higher still.

U.S. Dollar - In an letter carried by Wednesday's Wall Street Journal Treasury officials Geithner and Summers warned G20 leaders to go easy on tightening their budgetary positions as they attempt to defuse sovereign debt worries in the aftermath of the Greek debacle. "Without growth now, deficits will rise further," they warned. The letter also welcomes the weekend move by China in removing its dollar peg and said that it should continue to enforce the move with vigor.

The dollar index has turned lower midweek not necessarily because risk appetite has resumed, rather because the lack of such appetite is sparing demand for the safety of the Japanese yen. The FOMC will make its policy announcements this afternoon and some investors expect a more downbeat assessment of the outlook for the U.S. economy. On Tuesday investors were disappointed by a 2.2% decline in existing home sales taking it as a sign of weakness for the economy. Later this morning we'll see whether the amount of new home sales fell by the expected 19% in light of the end of a government tax incentive scheme.

Euro - The euro is flitting between gains and losses against the dollar after a report indicated that the pace of expansion in the Eurozone was increasing albeit at a lesser pace. PMI data for services and manufacturing sectors came in lower than last month but continued to indicate expansion. It seems like splitting hairs if you want to say that the Eurozone recovery is starting to come undone based on today's report. The euro is trading at $1.2263 and is a little easier against a powerful yen at ¥110.65. Investors remain wary of the euro on account of recent reports raising concerns over the banking system. Today S&P warned that Spanish banks face a tough time this year and next as pressure on revenue generation is likely to follow mounting credit losses. French bank Credit Agricole wrote down more losses on exposure to a Greek holding while earlier in the week BNP Paribas faced a ratings downgrade by Fitch.

Aussie dollar - Fear that those European banks will hamper global growth and make riskier assets less appealing weighed on the Aussie dollar midweek. Having celebrated the removal of the dollar peg by the Chinese by trading as high as 88.59 U.S. cents, it has lost its impetus today and has receded to as low as 86.72 cents.

Canadian dollar - The Canadian dollar was also adversely impacted on Tuesday as limp U.S. housing data was interpreted as a weakening of the economy. Demand from the U.S. is a key catalyst for Canada's economy. The Canadian dollar sank to 96.62 U.S. cents early on Wednesday having traded as high as 98.57 cents at the start of the week.

Japanese yen -The yen continues to garner favor with investors as uncertainty over the outlook for the global economy hovers overhead. Against the dollar the yen rose to ¥90.27 in early U.S. trading while it fell against the pound to ¥134.64.

www.actionforex.com/analysis/daily-forex-fundamentals/british-pound-in-the-spotlight-after-budget-and-maverick-call-20100623116252/

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Rupee eases on euro weakness, local shares

Submitted by Sunil Kashyap on Wed, 06/23/2010 - 12:14

There was a fall noticed in Rupee in the tune of 1% on Tuesday as the Euro’s retreat against the dollar prompted the importers to by in the US currency as a result a lower in share prices occurred resulting in the fall.

The partially convertible rupee ended at 46.2350/2450per USD a fall of 1.1 than its Monday close of 45.745/755 per USD when it had seen a high of 45.58 during trade which can consider being its strongest since last May18. The trading of rupee in tomorrow’s market depends on the standings of Euro and Pound against dollar as per as the saying of a dealer with a foreign bank. He said it is likely that rupee would be traded at 46.20 -46.60

The euro had fallen down after one month high against dollar following a pullback in the yuan a day after the Chinese govt pledged for the yuan to be allowed to trade more freely.

Yuan traded at 6.7980 per dollar on Tuesday the highest since its revaluation on July 2005 but the Chinese could not take the profit as big state owned bank bought hefty dollars.

The dollar index showed up about 0.2% against six major currencies. Traders said that the up was due to the fall in prices in local shares. The benchmark 30-share BSE index fell 0.7%, in line with global markets, as investors locked gains.

The One-month offshore non deliverable forward contracts were quoted at the rate 46.29 slightly weaker than the off shore spot rate.

As far as currency features market is concerned the most traded near-month dollar-rupee contract on the National Stock Exchange and NCX-SX ended at 46.27 and 46.328 respectively. The total traded volume on the two exchanges amounted in the sum around $8.5 billion.

www.stockwatch.in/rupee-eases-euro-weakness-local-shares-27349

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June 23, 2010
TG-757

Obama Administration Approves State Plans for Use of $1.5 Billion in ‘Hardest Hit Fund’ Foreclosure-Prevention Funding

WASHINGTON – State Housing Finance Agencies (HFAs) in Arizona, California, Florida, Michigan, and Nevada can begin to use $1.5 billion in "Hardest Hit Fund" foreclosure-prevention funding under plans approved today by the Obama Administration. This aid will support innovative local initiatives to assist struggling homeowners in those states, as part of the first round of funding available under this new program.

"These states have identified a number of innovative programs that will make a real difference in the lives of many homeowners facing foreclosure," said Treasury Assistant Secretary for Financial Stability Herbert M. Allison, Jr. "While we've made important progress stabilizing the housing market and keeping responsible families in their homes, the Obama Administration will continue to do everything it can to help those who are struggling the most during this difficult time. Today marks an important milestone for delivering relief to homeowners through the Hardest Hit Fund program."

President Obama established the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets ("Hardest Hit Fund") in February 2010 to provide targeted aid to families in the states hit hardest by the housing downturn. The states approved to receive aid today as part of the first round of funding provided through this program each experienced a 20 percent or greater decline in average housing prices.

Each state Housing Finance Agency (HFA) gathered public input and created Hardest Hit Fund programs designed to meet the unique challenges facing struggling homeowners in their respective housing markets. The five HFAs submitted their Hardest Hit Fund proposals to Treasury on April 16. Treasury then reviewed each state's proposals to ensure compliance with the Emergency Economic Stabilization Act (EESA) and offered technical assistance to develop performance and reporting metrics. Approved states will now begin to set up and roll out their specific Hardest Hit Fund programs in order to provide relief to struggling homeowners as soon as possible, with specific implementation timing depending on the types of programs offered, specific state-level procurement procedures, and other factors.

The proposals approved today include programs to assist struggling homeowners with negative equity through principal reduction; assist the unemployed or under-employed make their mortgage payments; facilitate the settlement of second liens; facilitate short sales and/or deeds-in-lieu of foreclosure; and assist in the payment of arrearages.

In March 2010, the Obama Administration announced a second round of Hardest Hit Fund aid totaling $600 million for five additional states with high areas of concentrated unemployment: North Carolina, Ohio, Oregon, Rhode Island, and South Carolina. The proposals that these states submitted are currently being reviewed.


A state-by-state summary of the Hardest Hit Fund proposals approved today is available below. For copies of the approved proposals, visit: www.financialstability.gov/roadtostability/hardesthitfund.html

Arizona ($125.1 million)

· Arizona will provide assistance in the form of principal reduction, interest rate reduction, and/or term extension programs with the goal of allowing borrowers to enter into a permanent modification program.

· In circumstances where a second lien is prohibiting modification of a first lien, the state will provide assistance toward elimination of the second lien.

· The state will also offer assistance to the under-employed while they seek new employment. This assistance may be used to pay monthly mortgage payments or remove second mortgages where that second lien is prohibiting the modification of a first lien.

California ($699.6 million)

· California will provide assistance to reduce principal with earned principal forgiveness.

· The state will also target funds to address delinquent loan arrearages.

· California will offer a mortgage payment subsidy to unemployed families.

· Provide funds to assist families that have executed a short sale or deed-in-lieu of foreclosure transition to a stable housing situation.

Florida ($418 million)

· Florida will offer mortgage payment assistance to the unemployed and under-employed while they seek re-employment.



· Florida will offer up mortgage payment assistance to the unemployed and under-employed while they seek re-employment. The state will also offer principal reduction or second lien extinguishment if necessary to achieve a mortgage modification.

Michigan ($154.5 million)

· Michigan will subsidize an unemployed borrower's mortgage payments while they search for employment.

· The state will assist with loan arrearages for those who can sustain homeownership and have undergone a financial hardship.

· The state will assist homeowners with negative equity through earned principal forgiveness.

Nevada ($102.8 million)

· Nevada will create a mortgage modification program using a combination of forgiveness and forbearance with a goal of reducing principal to less than 115 percent of LTV (loan-to-value) and lowering payments to 31 percent of DTI (debt-to-income).

· The state will also offer assistance to reduce/eliminate second liens with earned forgiveness over a three-year term.

· Additionally, the state will provide allowances for appraisal and transaction fees, moving fees, a legal allowance for up to three months, and a combination of incentives for borrowers and servicers to facilitate short sales.

For more information on the Hardest Hit Fund, visit:


Round I: www.whitehouse.gov/the-press-office/help-hardest-hit-housing-markets

Round II: www.ustreas.gov/press/releases/tg618.htm

###

LINKS

White House
Treasury

www.ustreas.gov/press/releases/tg757.htm

[sandi66]

Judge approves $712.5M settlement with Ground Zero workers
By BRUCE GOLDING

Last Updated: 7:05 PM, June 23, 2010

Posted: 7:05 PM, June 23, 2010

A judge has approved a $712.5 million settlement between the city and more than 10,000 injured Ground Zero workers despite the impassioned objections of several victims who said the deal shortchanged their specific ailments.

Manhattan federal Judge Alvin Hellerstein -- who rejected an earlier, $657 million proposal as too stingy to the plaintiffs and too lucrative for their lawyers -- today called the new agreement "fair, adequate and reasonable."

But he also conceded that the complex, 110-plus-page pact was "not perfect," telling one cancer survivor: "It doesn't work for you perhaps as well as it should have, and I'm sorry for that."


Brigitte stelzer
Recovery workers comb the site at Ground Zero in Manhattan.
"I wish there was enough money so that anybody that had any kind of injury got compensated just because he was a hero on 9/11," the judge lamented.

Retired firefighter Kenny Specht, who was diagnosed with thyroid cancer in 2007, said the $10,000 he expects to be offered left him with second thoughts about having searched for human remains among the debris scattered by a giant grappling machine in the World Trade Center pit.

"To be told now that what I did nine years ago didn't contribute to my cancer is a tough situation to swallow," said Specht, 41.

City lawyer James Tyrrell angered some speakers at the daylong public hearing by outlining legal strategies that could have defeated the suits filed over illnesses blamed on toxic dust from the 2001 terror attacks.

The deal only takes effect if at least 95 percent of the plaintiffs sign on by Sept. 30.

www.nypost.com/p/news/local/judge_approves_settlement_with_ground_OsYJuCsrynI1u84D768gIO

[sandi66]

June 23, 20101 COMMENT The Bank Lobby Gets Desperate on Derivatives
Astonishingly, as Wall Street reform enters its final hours a tired, generic corporate refrain against regulation is gaining traction. As bigwig bankers and their lobbyist brethren fight to defeat tough new rules on derivatives—the crazy casino that brought down AIG—all their sloganeers can come up with is the trite wail that serious rules will send this risky business overseas. It’d be funny if members of Congress weren’t taking it seriously.

“Oh no—the business will go overseas!” is the last-ditch, we’re-about-to-lose-this-one cry of despair for corporate executives in every industry. Crack down on a profitable abuse in the United States, and the entire business will move to London or Mumbai, sending jobs and tax revenue abroad with it– or so the argument goes. You only hear this line when CEOs know they have no case, and have to divert attention away from the real substance of the policy debate. In the case of Wall Street abuses, this nonsense is especially ridiculous. The bank lobby really just doesn’t have any good arguments to launch in its favor, so it’s falling back on generic corporate jargon.

In reality, the U.S. has extremely broad authority to crack down on derivatives activity abroad, we just don’t have a whole lot of good rules on derivatives for regulators to enforce. It’s extremely difficult for financial institutions to simply offshore their risky derivatives business to avoid oversight. Under current law, the Commodity Futures Trading Commission has the authority to regulate any trading done by foreign firms on behalf of U.S. clients, any trading of U.S. assets conducted by foreign institutions and any trading that causes a “substantial disruption” in U.S. markets. Just about anything the CFTC wants to get its hands on, it can, and the current CFTC Chairman, Gary Gensler, is a committed reformer. We just need to write good rules for his agency to enforce.

Moreover, finance tricksters will have no incentive to move their destructive derivatives trading abroad, because the rules in other countries are, in fact, much tougher than those the U.S. is currently considering.

There are a lot of ways to crack down on Wall Street, but none of them will work without reining in the insane, secretive market for derivatives—speculative instruments that allow financiers to gamble on anything from subprime mortgages to the price of corn. Right now Wall Street is making a big push to roll-out new derivatives on movie box-office receipts, allowing the financial world to place raw bets on how much money a movie is going to make. It sounds crazy and destructive, and it is.

Germany is leading the way on derivatives reform by simply banning this kind of naked gambling outright. The U.S. effort is critically important, but much more modest. Instead of banning the casino, reformers in Congress are hoping to shrink it by ending the taxpayer subsidies that fuel it. This is at the heart of the proposal from Sen. Blanche Lincoln, D-Ark., that has earned so much ire from the bank lobby. Bankers love their taxpayer subsidies, and love converting them into bonuses—who wouldn’t? The trouble is that this business is inherently risky, and can jeopardize the entire economy, as the collapse of AIG attests.

But ending subsidies is still not as strong as banning gambling, which Germany is doing. The entire European Union is currently making a move to follow Germany’s lead. Businesses can’t exit U.S. markets to skirt regulations if their Wild West trading schemes are outlawed everywhere else.

In the U.K., officials are poised to impose a hefty tax on all financial assets, preventing banks from ballooning their balance sheets with derivatives trades. That means, U.S. banks can’t send their derivatives operations to the U.K. without paying a big price.

Outside of Europe, few nations have the financial infrastructure to support derivatives trading on the scale of what we currently have in the U.S., where $300 trillion in trades are housed at just five banks. Some Asian nations do have this kind of infrastructure, big financial firms in Asia all realize that they will have to comply with U.S. rules if they want to keep doing business in the U.S. And indeed, policymakers in Hong Kong and other financial centers are looking to the U.S. for leadership on derivatives, and are likely to mimic whatever reforms are adopted here.

But more broadly, we have to ask why the U.S. should be worried about this activity being offshored at all. Raw gambling by financial institutions brought on one of the greatest economic catastrophes in American history. It forced the government to pony up over $4 trillion in bailout funds, expanded the national debt by 40 percent, and killed over 8 million jobs. If this business goes overseas, so be it! Let other nations bailout their megabanks and wreck their own economies if they want to. Today’s derivatives casino is a job-killing nightmare that produces nothing other than megabonuses for bankers. Taxpayers have no business subsidizing such economic destruction.

Compared to international efforts, Blanche Lincoln’s derivatives bill is overpoweringly mild, but it remains the only serious attempt to rein in the speculative casino that crashed our economy. The fact that the bank lobby’s only tactic left is the wail “offshore!” shows how desperate our bank executives have become. Congress has no business caving to such nonsense at this stage of the reform process.

blogs.alternet.org/speakeasy/2010/06/23/the-bank-lobby-gets-desperate-on-derivatives/



ty joye

[sandi66]

Don’t Underestimate Canadian Economic Growth
Why the US’s “neighbors to the north” are optimistic about the future of their economy


Eric Fry
Reporting from Laguna Beach, California...

The Dow Jones Industrial Average tumbled 149 points yesterday. CNBC blamed the selloff on a poor home sales report. Seems as good an explanation as any to explain the inexplicable.

Most financial journalists assume that a certain logic and rationality operates minute-by-minute in the financial markets. Stocks go up when they should...and fall when they should - continuously responding to the macro-economic data of the moment.

Maybe that's true...or maybe the stock markets behave as logically and rationally as a teenager. Maybe stocks go up just because they feel like it, even if it makes no sense whatsoever. And maybe stocks sometimes fall, even when they possess every imaginable reason to go up.

Your California editor has no idea what causes the minute-by-minute price action in the stock market, but he's pretty sure it isn't logic or reason. Over the short-term, the stock market is not a laboratory. It is one part casino; one part cage fighting arena. Greed and fear dictate behavior. Not logic and reason.

Fortunately for us investors, logic and reason are the primary influences over long-term price trends. So let's consider yesterday's housing number in the context of the stock market's long-term prospects.

"Sales of previously occupied homes dipped in May," the Associate Press reported, "even though buyers could receive government tax credits. And nearly a third of sales in May were from foreclosures or other distressed properties...

"Last month's sales fell 2.2 percent from the previous month to a seasonally adjusted annual rate of 5.66 million," the AP continued. "Analysts who had expected sales to rise expressed concern that the real estate market could tumble once the benefit of the federal tax incentives is gone entirely, starting next month."

That's not good news. This statistic suggests that the US recovery is less robust than many optimistic investors had believed. Furthermore, the sluggish home sales report is not an outlier. It is, instead, an "inlier" that corroborates the recent wave of disappointing economic reports. The US recovery is beginning to look like an impostor.

Up north, meanwhile, our Canadian neighbors are producing some impressive economic results. Perhaps that's why so many Canadian readers of The Daily Reckoning are crowing about their good fortune.

A few days ago, when we, the editors of The Daily Reckoning, solicited first-hand accounts from our dear readers about the quality of their lives in America, we also solicited accounts - good or bad - from other nations around the globe. Even though this second part of our request seemed like a throwaway line, many readers took it to heart...many Canadian readers, that is.

We received a very large number of pro-Canada emails, and not a single one that contained an unkind word about the friendly nation up north.

"Hey, it ain't so bad," one reader writes. "Life is still pretty darn good...here in Canada. Totally self-sufficient!"

Another proud Canadian writes:

"I can only hope that the hard-working American citizen would consider moving to Canada. We could use about 5-10 million hard working Americans.

"Here are few very good reasons:

"1) Top personal tax bracket 46% (combined federal and provincial). For that we get free schools, free health care, and a social safety net that works.

"2) Top corporate tax rate of 38% and a small business tax rate of 16.5%. The top corporate rate is scheduled to drop to 26% in five years.

"3) Live in one of the safest places on earth. The crime rate is very low.

"4) Freedom to travel abroad where all countries welcome you and like you.

"5) A banking system that works. Sorry, no easy way to buy a home without 10% down at least.

"6) Most populated cities do not have the risk of forest fires, floods, tornadoes, hurricanes, mudslides or earthquakes.

"7) A rich resource base in oil, gas, gold, copper, iron ore, lumber, potash, wheat and uranium.

"8) A small 35 million population.

"9) Real estate prices are very affordable.

"10) A government system that works (most of the time). We are the Saudi Arabia of water resources.

"11) We produce the best comedians in Hollywood, (Jim Carey, Mike Myers, Martin Short, Howie Mandel, Dan Aykroyd), some great actors (Michael J. Fox, William Shatner, Pamela Anderson, Donald and Kiefer Sutherland, Keanu Reeves, Matthew Perry), some great musicians (Celine Dion, Brian Adams, Bare Naked Ladies, Neil Young, Alanis Morissette, Gordon Lightfoot, Paul Anka, Rush.)

"12) If you believe global warming is coming, then Canada will have the best climate over the next 100 years!!!"

Canadians were not the only Daily Reckoning readers to sing Canada's praises. Several American readers also chimed in. "I just want to take this opportunity to say how glad I am to own a house in Canada at this time," one Canada-loving American writes. "The house not only places a large portion of our net worth in Canadian dollars - a resource-based currency that seems to be in increasing demand - but it also represents a nearby refuge should the times and circumstances warrant...

"The Canadians having successfully fended off US attempts at conquest/annexation on at least two previous occasions (pre-Revolution and War of 1812). The question in my mind is, 'Can they "threepeat"?' Or, in Canadian parlance, 'Can they pull off a hat trick?' Time will tell. I hope the occasion for that attempt doesn't arise, but it's comforting to know the Canucks have done it before, since they're otherwise so precariously near to what I'm more and more feeling may be ground zero.

"Forgive my tone," the American reader concludes, "but I'm getting a rather ominous feeling when I observe the day's events. I hope this isn't classified as America-bashing, because I really would like to see us succeed."

Another American reader, who also refrained from America-bashing, did not hesitate to do a little Washington-bashing. "Belgium has been in the news of late, as they move to a weaker central government," he writes. "The path is being cleared for them to easily split the country and give the Dutch speakers freedom from their French speakers. It's a possible path for the USA also. Move powers from the federal government back to the states.

"As a resident of Montana," the reader continues, "we often consider that we could get a much better deal from Canada than the group in Washington DC. Like the Dakotas, we've avoided many of the federal government's disastrous and expensive social experiments. We just need to build some bigger walls to keep out Potomac toxic wastes.

"Don't flee Dodge," the reader concludes. "Come to the northern Great Plains and help build a wall to keep out the left and right coastal elites' ideas."

The self-satisfied accounts from and about Canada should be no surprise, given the pleasing economic data issuing from Ottawa.

"Canada thinks it can teach the world a thing or two about dodging financial meltdowns," the Associate Press reports. "When the G-20 world leaders [arrive] in Toronto next weekend [for an economic summit, they] will find themselves in a country that has avoided a banking crisis where others have floundered, and whose economy grew at a 6.1 percent annual rate in the first three months of this year. The housing market is hot and three-quarters of the 400,000 jobs lost during the recession have been recovered...

"The banks are stable," the AP continues, "because they're more regulated. As the US and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so. The banks also aren't as leveraged as their US or European peers. There was no mortgage meltdown or subprime crisis in Canada. Banks don't package mortgages and sell them to the private market, so they need to be sure their borrowers can pay back the loans.

"'Our banks were just better managed and we had better regulation,' says former Prime Minister Paul Martin, the man credited with killing off a massive government deficit in the 1990s when he was finance minister, leading to 12 straight years of budget surpluses."

Although Canada is back to running deficits, the International Monetary Fund expects the country to be the only one out of seven major industrialized democracies to return to surplus by 2015.

Canada's economic successes stand in stark contrast to the travails of her large neighbor to the south. The American economy is struggling. But that's not all. The American way of life is also struggling. At least that's what many Daily Reckoning readers assert.

tinyurl.com/29h5z5s


ty joye

[sandi66]

First Recognize this ROBBERY and BANKRUPTCY:

“Off-Balance-Sheet” Toxic Derivatives according to 0ffice of Comptroller of Currency, 0CC, quarterly Report:

1 JPM0RGAN $81TRILLION in Toxic Derivatives
2 BofA $78TRILLION
3 G0LDMAN $48TRILLION
4 M0RGAN $39TRILLION
5 C1T1GROUP $32TRILLION

http://www .occ.gov/f tp/release /2009-72a. pdf
Page23!

See Page 7 of this Report for the source of the $23.7 Trillion:

https://do cs.google. com/viewer ?url=http: //www.sigt arp.gov/re ports/test imony/2009 /Testimony _Before_th e_House_Co mmittee_on _Financial _Services_ Subcommitt ee_on_Over sight_and_ Investigat ions2.pdf& pli=1

WELFARE TO WALL STREET

$6.8 Trillion from FED RESERVE
$2.3 Trillion from FDIC
$3.0 Trillion TARP = TREASURY + FED + FDIC
$4.4 Trillion Non-TARP
$7.2 Trillion FHFA + NCUA+ GNMA + FHA + VA

$23.7 Trillion = TOTAL

See page 7 of following document:

https://do cs.google. com/viewer ?url=http: //www.sigt arp.gov/re ports/test imony/2009 /Testimony _Before_th e_House_Co mmittee_on _Financial _Services_ Subcommitt ee_on_Over sight_and_ Investigat ions2.pdf& pli=1

www.huffingtonpost.com/2010/06/23/final-derivatives-showdown_n_623573.html



ty joye