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

[sandi66]

U.S. Rescue May Reach $23.7 Trillion

July 27, 2010 at 10:07 am

By Dawn Kopecki and Catherine Dodge

U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.
The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.

Continue reading the article . . .

solari.com/blog/?p=8343


ty joye

[sandi66]

Pigford v. Glickman: 86,000 claims from 39,697 total farmers?

July 27, 2010

I’m confused.

If there are only 39,697 African-American farmers grand total in the entire country, then how can over 86,000 of them claim discrimination at the hands of the USDA? Where did the other 46,303 come from?

Now, if you’re confused over what the heck I’m even talking about, let’s go back to the beginning of the story:

Pigford v. Glickman

In 1997, 400 African-American farmers sued the United States Department of Agriculture, alleging that they had been unfairly denied USDA loans due to racial discrimination during the period 1983 to 1997. The farmers won the case, known as Pigford v. Glickman, and in 1999 the government agreed to pay $50,000 each to any farmer who had been wrongly denied an agricultural loan. By then it had grown into a class action case, and any black farmer who had filed a complaint between 1983 and 1997 would be given at least $50,000 — not limited to the original 400 plaintiffs. It was estimated at that time that there might be as many as 2,000 beneficiaries granted $50,000 each.

According to the summary of the case linked above,

Originally, claimants were to have filed within 180 days of the consent decree. Late claims were accepted for an additional year afterwards, if they could show extraordinary circumstances that prevented them from filing on time.

Far beyond the anticipated 2,000 affected farmers, 22,505 “Track A” applications were heard and decided upon, of which 13,348 (59%) were approved. US$995 million had been disbursed or credited to the “Track A” applicants as of January 2009, including US$760 million disbursed as US$50,000 cash awards…. Beyond those applications that were heard and decided upon, about 70,000 petitions were filed late and were not allowed to proceed. Some have argued that the notice program was defective, and others blamed the farmers’ attorneys for “the inadequate notice and overall mismanagement of the settlement agreement”. A provision in the 2008 farm bill essentially allowed a re-hearing in civil court for any claimant whose claim had been denied without a decision that had been based on its merits.

Then on February 23 of this year, the USDA finally consented to pay $1.25 billion to those farmers whose claims had earlier been denied:

In the 1999 case Pigford v. Glickman, the USDA agreed to pay 16,000 black farmers $1 billion after a judge held the federal government responsible for the decline in black farmers. Critics argued that more than 70,000 farmers were shut out of the lawsuit. In 2008, then-Sen. Barack Obama and Republican Sen. Chuck Grassley got a law passed to reopen the case, and the settlement talks moved forward.

The $1.25 billion settlement, announced Thursday, comes on top of the money paid out a decade ago. The new agreement would provide cash payments and debt relief to farmers who applied too late to participate in the earlier settlement, The Washington Post reported. Authorities say they are not certain how many farmers might apply this time, but analysts say the number could be higher than 70,000.

Seventy-thousand+ applicants in addition to the 16,000 already compensated now means that over 86,000 people are slated to be paid.

The U.S. Senate and Shirley Sherrod

Which brings us up to today, when two current events suddenly thrust this otherwise little-known case into the spotlight. First, the Senate stripped funding for the settlement out of an unrelated war appropriations bill, as they had done several times in the past. Second, it was revealed today that “A farm collective founded by Shirley Sherrod and her husband that was forced out of business by the discriminatory practices received a $13 million settlement as part of Pigford last year, just before she was hired by the USDA.”

Suddenly, everyone in America is talking about a class-action suit that until a few hours ago very few had ever heard of.

But I want to go back to the beginning.

Forget about Shirley Sherrod’s connection. Forget about the Senate not funding the settlement. There will be plenty of pundits commenting on those aspects over the upcoming days.

What I want to know is: How can there be 86,000 legitimate claimants?

The Census pinpoints the precise number of African-American farmers

I ask this question because it didn’t take me very long to find the latest census statistics released by the Department of Agriculture, which can be found linked to from this official USDA page. There, you will find this direct link to a text version of the Census report, and this recommended pdf version.

In the pdf version of the government’s official 2007 Agricultural Census, Table 53 on page 646 shows that there are exactly 39,697 African-American farmers grand total in the entire nation:



(A scan through earlier census reports shows that this number has remained fairly constant over time, which is to be expected, as farming tends to be a long-term lifestyle rather than a “job” that one gets and then quickly abandons.)

Granted: the original case was valid. But has it spun out of control?

Let’s accept as a point of fact that some African-American farmers were unfairly denied loans by racists in the USDA during the Clinton and Reagan administrations. I’m not casting any aspersions on the validity of the original lawsuit, nor on the courts’ rulings in the case.

But ponder the numbers.

• There are approximately 40,000 African-American farmers in the country.

• Of that 40,000, not all of them have gotten into financial trouble. Some have successful farms.

• Of those who had financial trouble, not all of them sought out loans. Some tried to stay afloat on their own.

• Of those who sought out loans, not all of them sought out loans from the USDA. Some got loans from banks or friends.

• Of those who sought out loans from the USDA, not all of them were denied loans. Some got the loans as requested.

• Of those who were denied loans, not all of them were denied due to discriminatory racial practices.

In the end, a total much much smaller than 40,000 could legitimately claim to be victims of discrimination.

As shown above, it was originally estimated to be no more than 2,000 possible total plaintiffs.

Somehow, that number quickly swelled to 16,000 wronged claimants.

And now, as of February, the government has announced its plans to hand out at least $50,000 each to over 70,000 more claimants, over and above the original 16,000.

This means that the U.S. may be recompensing at least 86,000 African-American farmers for past racial discrimination. But how could that possibly be true if there are only 39,697 African-American farmers in existence nationwide? And if only some subset of them ever applied for loans in the first place and were then unfairly denied loans?

If someone can explain this to me, I’ll add it in an update to this post. Could it be that there is a constant turnover of African-Americans trying out farming for a few years, and then quickly giving it up, so that although there may be only 40,000 farmers at any one time, over the years, the total number of different people involved in farming is much larger? If so, is there any evidence for this? Or could there be another explanation?

I have a feeling that the Senate repeatedly fails to fund this settlement because there is a strong suspicion among the senators that something is amiss with the case — that a substantial percentage of the 70,000 claims that were originally rejected must necessarily have been fraudulent claims. And so there is reluctance to fork over the money. But there also seems to be a reluctance on the part of the Senate to admit why they won’t fund the settlement, because the issue is just too racially charged.

It is a tragedy that victims of institutional discrimination like the legitimately wronged African-American farmers could be denied their payout due to scammers trying to undeservedly grab a piece of the pie. Instead of getting angry at the Senate for hesitating with the funds, we should be angry at the swindlers (and their lawyers) who contaminated an otherwise valid case.

Unless, of course, there is a clear explanation of where those 86,000 farmers came from. Any ideas?

UPDATE I:

Another Department of Agriculture census report details the total number of African-American farmers in 1992, during the exact time covered by the Pigford v. Glickman lawsuit — and it reveals that there were far fewer back then than there were in 2007. According to the chart on page 20 of the USDA’s pdf 1998 “Status Report, Minority & Women Farmers In the U.S.”, there were only 18,816 black farmers in 1992:


(Thanks to reader “Dane” for noticing this.)

If this is true (and it seems to be), then the disparity between the available total number of black farmers in the U.S. and the number of claimants in Pigford v. Glickman is even far greater than I originally calculated.

UPDATE II:

This official USDA census report, in Appendix 3 on page 24 of the pdf, gives even more statistics for 1987, 1992, and 1997 — every single agricultural census year during the period covered by the lawsuit. Turns out that the number of black farmers in every year was consistently very small:

Total number of African-American farmers in the United States, by year:

1987: 22,954
1992: 18,816
1997: 18,451

Even if there was a 100% turnover, and every single farmer went out of business every five years and was replaced by a new farmer (extremely unlikely), there still wouldn’t be enough black farmers throughout the entire period combined to account for the number of claimants.

It seems, no matter how you look at it, that a substantial number of the 86,000 claims must necessarily be fraudulent.

pajamasmedia.com/zombie/2010/07/27/pigford-v-glickman-86000-claims-from-39697-total-farmers/2/

[sandi66]

Subject: Meet Mr. Soros


More food for thought! Every U.S. citizen should know about this man.

Meet Mr. Soros ......


This just might explain a whole lot of what is happening in today's world. If you want to be informed, take the time to read about one of the most corrupt men of our generation, or should we say "the godfather of evil".

Most of us have heard of him. Few really know who he is or what he's got planned for us (or the rest of the world). Apparently, Obama knows him well. Here is some information to sink your teeth into.

PS: this CBS writer, Steve Kroft, certainly likes to live on the edge...

Some time ago I wrote an article questioning who might be the power or puppet master behind Barack Hussein Obama. It has to be someone because of his meteoric rise to power, with experience at virtually nothing, with questionable wisdom, and with a mysterious past that has been carefully erased and hidden where no one can check it. This puppet master, whomever he is, apparently paid for Obama's education and his travels to Pakistan for some mysterious purpose, and promoted him into Illinois then national politics.

I once suggested it might be billionaire George Soros. I now believe that to be the case more than ever.

George Soros might be the most evil man in the world, with intent to destroy America and every value we have held dear. Obama seems to be in lockstep with Soros' philosophies and simply a tool in Soros' world-changing strategies. Both must be stopped.

Read the below article and judge for yourself. It is from www.resistne t.com/profiles/ blogs/George- soros-obamas- puppet .

"Who is behind Barak Obama? Who is pulling the strings?"

Here is what (CBS') Mr. (Steve) Kroft's research has turned up.........bit of a read, but it took 4 months to put it together...

GEORGE SOROS TEA PARTY ENEMY #1

"The main obstacle to a stable and just world order is the United States ." George Soros

"George Soros is an evil man. He's anti-God, anti-family, anti-American, and anti-good." Rev. Jesse Lee Peterson

Is it possible to lay the global financial meltdown, the radicalizing of the Democratic Party, and America 's moral decline, at the feet of one man?

YES, It is indeed possible.

If George Soros isn't the world's preeminent "malignant messianic narcissist," he'll do until Hitler, Stalin, Mao, and Pol Pot are reincarnated.

What we have in Soros, is a multi-billionaire atheist, with skewed moral values, and a sociopath's lack of conscience. He considers himself to be an elitist world class philosopher, despises the American Way and just loves to do social engineering (change cultures).

Soros is the power behind the throne of Obama. I accuse George Soros of being the PUPPET MASTER that is pulling Obama's strings.

Gyargy Schwartz, better known to the world as George Soros, was born August 12, 1930 in Hungary. Soros' father, Tivadar, was a fervent practitioner of Esperanto , a language invented in 1887, and designed to be the first global language, free of any national identity.

The Schwartz's, who were non-practicing Jews, changed the family name to Soros, in order to facilitate assimilation into the gentile population, as the Nazis spread into Hungary during the 1930s.

When Hitler's henchman Adolf Eichmann arrived in Hungary , to oversee the murder of that country's Jews, George Soros ended up with a man whose job was confiscating property from the Jewish population. Soros went with him on his rounds.

Soros has repeatedly called 1944 "the best year of his life."

"70% of Mr. Soros's fellow Jews in Hungary, nearly a half-million human beings, were annihilated in that year yet he gives no sign that this put any damper on his elation, either at the time or indeed in retrospect."

During an interview with "Sixty Minute's" Steve Kroft, Soros was asked about his "best year:"

KROFT: My understanding is that you went out with this protector of yours who swore that you were his adopted godson.

SOROS: Yes. Yes.

KROFT: Went out, in fact, and helped in the confiscation of property from your fellow Jews, friends and neighbors.

SOROS: Yes. That's right. Yes.

KROFT: I mean, that sounds like an experience that would send lots of people to the psychiatric couch for many, many years. Was it difficult?

SOROS: Not, not at all. Not at all, I rather enjoyed it….

KROFT: No No feeling of guilt?

SOROS: No., only feelings of absolute power.

In his article, Muravchik describes how Soros has admitted to having "carried some rather potent messianic fantasies with me from childhood, which I felt I had to control, otherwise they might get me in trouble."

Be that as it may. After WWII, Soros attended the London School of Economics, where he fell under the thrall of fellow atheist and Hungarian, Karl Popper, one of his professors. Popper was a mentor to Soros until Popper's death in 1994. Two of Popper's most influential teachings concerned "the open society," and Fallibilism.

Fallibilism is the philosophical doctrine that all claims of knowledge could, in principle, be mistaken. Then again, I could be wrong about that.

The "open society" basically refers to a "test and evaluate" approach to social engineering. Regarding "open society" Roy Childs writes, "Since the Second World War, most of the Western democracies have followed Popper's advice about piecemeal social engineering and democratic social reform, and it has gotten them into a grand mess.

In 1956 Soros moved to New York City ,where he worked on Wall Street, and started amassing his fortune. He specialized in hedge funds and currency speculation.

Soros is absolutely ruthless, amoral, and clever in his business dealings, and quickly made his fortune. By the 1980s he was well on his way to becoming the global powerhouse that he is today.

In an article Kyle-Anne Shiver wrote for "The American Thinker" she says, "Soros made his first billion in 1992 by shorting the British pound with leveraged billions in financial bets, and became known as the man who broke the Bank of England. He broke it on the backs of hard-working British citizens who immediately saw their homes severely devalued and their life savings cut drastically…almost overnight."

In 1994 Soros crowed in "The New Republic" that "the former Soviet Empire is now called the Soros Empire." The Russia-gate scandal in 1999, which almost collapsed the Russian economy, was labeled by Rep. Jim Leach, then head of the House Banking Committee, to be "one of the greatest social robberies in human history." The "Soros Empire" indeed.

In 1997 Soros almost destroyed the economies of Thailand and Malaysia . At the time, Malaysia 's Prime Minister, Mahathir Mohamad, called Soros "a villain, and a moron." Thai activist Weng Tojirakarn said, "We regard George Soros as a kind of Dracula. He sucks the blood from the people."

The website Greek national Pride reports, "[Soros] was part of the full court press that dismantled Yugoslavia and caused trouble in Georgia , Ukraine and Myanmar [ Burma ]. Calling himself a philanthropist, Soros' role is to tighten the ideological stranglehold of globalization and the New World Order while promoting his own financial gain. He is without conscience; a capitalist who functions with absolute amorality."

France has upheld an earlier conviction against Soros, for felony insider trading. Soros was fined 2.9 million dollars.

Recently, his native Hungary fined Soros 2.2 million dollars for "illegal market manipulation." Elizabeth Crum writes that "The Hungarian economy has been in a state of transition as the country seeks to become more financially stable and westernized. [Soros'] deliberately driving down the share price of its largest bank put Hungary 's economy into a wicked tailspin, one from which it is still trying to recover.

My point here is that Soros is a planetary parasite. His grasp, greed, and gluttony have a global reach.

But what about America ? Soros told Australia 's national newspaper "The Australian":

"America , as the centre of the globalised financial markets, was sucking up the savings of the world. This is now over. The game is out," he said, adding that the time has come for "a very serious adjustment" in American's consumption habits. He implied that he was the one with the power to bring this about….

Soros: "World financial crisis was" stimulating" and "in a way, the culmination of my life's work."

Obama has recently promised 10 billion of our tax dollars to Brazil , in order to give them a leg-up in expanding their offshore oil fields. Obama's largesse towards Brazil , came shortly after his financial backer George Soros invested heavily in Brazilian oil (Petrobras).

Tait Trussel writes, "The Petrobras loan may be a windfall for Soros and Brazil , but it is a bad deal for the U.S. The American Petroleum Institute estimates that oil exploration in the U.S. could create 160,000 new, well-paying jobs, as well as $1.7 trillion in revenues to federal, state, and local governments, all while fostering greater energy security and independance."

A blog you might want to keep an eye on is SorosWatch.com. Their mission: "This blog is dedicated to all…who have suffered due to the ruthless financial pursuits off…George Soros. Your stories are many and varied, but the theme is tthe same: the destructive power of greed without conscience. We pledge to tirelessly watch Soros wherever he goes and to print the truth in the hope that he will one day be made to stop preying upon the world's poor…that justice will be served."

Back to America . Soros has been actively working to destroy America from the inside out for some years now. People have been warning us. Two years ago Bill O'Reilly said on "The O'Reilly Factor" that "Soros [is] an extremist who wants open borders, a one-world foreign policy, legalized drugs, euthanasia, and on and on. This is off-the-chart dangerous…."

In 1997 Rachel Ehrrenfeld wrote, "Soros uses his philanthropy to change or more accurately deconstruct the moral values and attitudes of the Western world, and particularly of the American people. His "open society" is not about freedom; it is about license. His vision rejects the notion of ordered liberty, in favor of an PROGRESSIVE ideology of rights and entitlements."

Perhaps the most important of these "whistle blowers" are David Horowitz and Richard Poe. Their book "The Shadow Party" outlines in detail how Soros hijacked the Democratic Party, and now owns it lock, stock, and barrel.

Soros has been packing the Democratic Party with radicals, and ousting moderate Democrats for years.

The Shadow Party became the Shadow Government, which became the Obama Administration.

DiscoverTheNetworks.org (another good source) writes, "By his [Soros'] own admission, he helped engineer coups in Slovakia, Croatia, Georgia, and Yugoslavia . When Soros targets a country for "regime change," he begins by creating a shadow government a fully formed government-in-exile, ready to assume power when the opportunity arises. The Shadow Party he has built in America greatly resembles those he has created in other countries prior to instigating a coup."

November 2008 edition of the German magazine "Der Spiegel," in which Soros gives his opinion on what the next POTUS (President of the U.S. ) should do after taking office. "I think we need a large stimulus package….." Soros thought that around 600 billion would be about right.

Soros also said that "I think Obama presents us a great opportunity to finally deal with global warming and energy dependence. The U.S. needs a cap and trade system with auctioning of licenses for emissions rights."

Although Soros doesn't (yet) own the Republican Party, like he does the Democrats, make no mistake, his tentacles are spread throughout the Republican Party as well.

Soros is a partner in the Carlyle Group where he has invested more than 100 million dollars. According to an article by "The Baltimore Chronicle's" Alice Cherbonnier, the Carlye Group is run by "a veritable who's who of former Republican leaders," from CIA man Frank Carlucci, to CIA head [and ex-President] George Bush, Sr.

In late 2006, Soros bought about 2 million shares of Halliburton , Dick Cheney's old stomping grounds.

When the Democrats and Republicans held their conventions in 2000, Soros held Shadow Party conventions in the same cities, at the same time.

Soros has dirtied both sides of the aisle, trust me. And if that weren't bad enough, he has long held connections with the CIA.

And I mustn't forget to mention Soros' involvement with the MSM (Main Stream Media), the entertainment industry (e.g. he owns 2.6 million shares of Time Warner), and the various political advertising organizations he funnels millions to. In short, George Soros controls or influence most of the MSM. Little wonder they ignore the TEA PARTY, Soro's NEMESIS.

As Matthew Vadum writes, "The liberal billionaire- turned-philanthropist has been buying up media properties for years in order to drive home his message to the American public that they are too materialistic, too wasteful, too selfish, and too stupid to decide for themselves how to run their own lives."

Richard Poe writes, "Soros' private philanthropy, totaling nearly $5 billion, continues undermining America 's traditional Western values. His giving has provided funding of abortion rights, atheism, drug legalization, sex education, euthanasia, feminism, gun control, globalization, mass immigration, gay marriage and other radical experiments in social engineering."

Some of the many NGOs (None Government Organizations) that Soros funds with his billions are: MoveOn.org, the Apollo Alliance, Media Matters for America , the Tides Foundation, the ACLU, ACORN, PDIA (Project on Death In America), La Raza, and many more. For a more complete list, with brief descriptions of the NGOs, go to DiscoverTheNetworks .org.

Poe continues, "Through his global web of Open Society Institutes and Open Society Foundations, Soros has spent 25 years recruiting, training, indoctrinating and installing a network of loyal operatives in 50 countries, placing them in positions of influence and power in media, government, finance and academia."

Without Soro's money, would the Saul Alinsky's Chicago machine still be rolling? Would SEIU, ACORN, and La Raza still be pursuing their nefarious activities? Would Big Money and lobbyists still be corrupting government? Would our college campuses still be retirement homes for 1960s radicals? Yes, yes, yes, and yes

America stands at the brink of an abyss, and that fact is directly attributable to Soros. Soros has vigorously, cleverly, and insidiously planned the ruination of America and his puppet, Barak Obama is leading the way.

The words of Patrick Henry are apropos: "Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take, but as for me, give me liberty, or give me death!"

These days, Patrick Henry's sentiment is more than just some quaint hyperbole from long ago it's a slow burning, but intense, glow that fires our courage and heart.

TEA PARTY BEWARE……

End

Sometimes evil wilts and dies when exposed to direct sunlight. Let’s try to shine as much light as possible on this.

I have suspected O’bummer was a Manchurian Candidate. Maybe he is, maybe not.

Soros was the original funding behind the Global Warming Hoax. For every 10 million Gore makes, Soros makes a billion.

What a cleaver plan to trick us into destroying our economy with a CO2 hoax and get us to pay trillions to a select few who will control the planet.

I have spent the last couple of hours jumping about and following and reading the links embedded in the articles. It is enough to turn your stomach as the total (big picture) story unfolds.

www.discoverthenetworks.org/viewSubCategory.asp?id=589

ty Jen

[sandi66]

Last Updated: July 27. 2010 4:10PM .Vines: A sneak peak at Obama's Friday speech
By Jason Vines / The Michigan View.com
The last time he was in the state to promote his "Summer of Recovery" Tour, Prez Obama took the opportunity to diss Republican Congressman Pete Hoekstra who had joined the Demeanor-in-Chief at a ribbon cutting for a Holland battery plant. On July 30, Mr. Obama will return to the Great Lacks State to check on the automakers he took over in 2009. While Hoekstra won't be in attendance, Congresswoman Carolyn Cheeks Kilpatrick will when Obama's entourage tours the Jefferson North Plant - home to the fabulous new Jeep Grand Cherokee.

In order to avoid any embarrassment from a Hoekstra-like incident, the White House has decided to carefully script any references to Mrs. Kilpatrick. Thanks to the Wisecracker's incredibly shaky moles, we have obtained a copy of that script.

www.detnews.com/article/20100727/MIVIEW/100727002/1467/opinion01/Vines--A-sneak-peak-at-Obama-s-Friday-speech



Last Updated: July 26. 2010 1:02PM .Jason Vines
The Wisecracker: The Demeanor-in-chief pays Detroit a house call

The last time he was in the state to promote his "Summer of Recovery" Tour, Prez Obama took the opportunity to diss Republican Congressman Pete Hoekstra who had joined the Demeanor-in-Chief at a ribbon cutting for a Holland battery plant. On July 30, Mr. Obama will return to the Great Lacks State to check on the automakers he took over in 2009. While Hoekstra won't be in attendance, Congresswoman Carolyn Cheeks Kilpatrick will when Obama's entourage tours the Jefferson North Plant - home to the fabulous new Jeep Grand Cherokee.

In order to avoid any embarrassment from a Hoekstra-like incident, the White House has decided to carefully script any references to Mrs. Kilpatrick. Thanks to the Wisecracker's incredibly shaky moles, we have obtained a copy of that script.

President: Here at the home of a planet-killing SUV - the Jeep Grand Cherokee - we are fortunate to have your congresswoman, Carolyn Cheeks Kilpatrick. Carolyn was not only a tireless supporter of this company in getting a "transfer of wealth" last year, but she has been tireless supporter of my campaign. She continues to pledge her support today despite the fact that when deciding "whose ass to kick" next month, primary voters will likely pick hers. Sorry Carolyn.

Advertisement

In fact, it was just yesterday that Congresswoman Kilpatrick delivered more than 5,000 money orders, in amounts ranging from $25 to $500, to my campaign headquarters. In totally unrelated news, I have asked Attorney General Eric Holder to drop all federal charges against former Detroit Mayor Kwame Kilpatrick. He will be freed from prison later today. In addition, Mr. Holder has fired Judge David Groner for acting "stupidly" in the alleged text-message scandal.

I also have asked Mayor Dave Bing - who I beat in a game of HORSE earlier today - to reinstate Police Chief Warren Evans. Why? I love America and America loves reality TV. It's that simple.

Prior to my arrival here in the Motor City, I also had the honor to talk with one of your favorite sons and one of the longest serving members of Congress, John Conyers, about the plight of his wife Monica. After careful consideration of the facts in her case, I have decided to grant Rep. Conyers emotional appeal and have, through Presidential order, changed Mrs. Conyers 37-month prison sentence to life in prison.

If you members of the media here want further explanation of these actions, please see my new press secretary, Mike Paul, who has replaced Loose Lips Gibbs. Thank you and go Lions.

Jason Vines is the former head of communications at Ford, Nissan, Chrysler and Compuware. He is co-chair and chief writer for the annual Detroit Press Club Steakout parody show. When he still had a head full of hair, he was a standup comic and regular on The Dick Purtan Show as Andy Rooney, Dr. Dworkis, and PeeWee Herman. He currently runs his own communications consulting firm in the Detroit area.

detnews.com/article/20100726/MIVIEW/7260389/1469

[sandi66]

National Inflation Association Documentary Makes The Case For Hyperinflation
Published on: Wednesday, July 28, 2010 Written by: JasonHartman.com
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In a perfect storm of aging demographics, economic depression and hyperinflation , gold and silver are the safest investment - a message delivered in the documentary Meltup. The National Inflation Association is on a mission to help Americans safeguard their purchasing power in the face of government "default by devaluation." See the following article from JasonHartman.com for more on this.




Creators of the National Inflation Association as well as the documentary Meltup, Dan and Gerard Adams are on a mission to provide the straight scoop so investors can thrive and not merely survive in hyperinflationary times. They join host Jason Hartman for episode 174 of the Creating Wealth Podcast. Dwindling revenue combined with soaring public debt leave the nation facing simultaneous depression and inflation. The demographics of an aging populace are a formula for “forced inflationary policies” as the number of annual entrants into the Social Security system has more than tripled over the past two decades.

The Significance of “Perceived Value of Currency”

Comparisons to the Great Depression are invalid because in this worldwide economic collapse, unlike any other, no national currency is backed by gold. Don’t be misled by the dollar index; instead, look at the Dow’s performance compared to gold as a reliable indicator. Apparent gains are really a consequence of inflation, and experts suggest that no real appreciation has occurred since 1929. Gold and silver are the sole safe hedge against economic deterioration and skyrocketing inflation.

Evidence of Hyperinflation and Public Awareness

Spend and borrow government policies are accelerating debt at an unprecedented pace. While it took a couple centuries for the nation to accumulate its first trillion in debt, another trillion dollars debt have accrued in just the past 7 months. Hyperinflation is starting to register on the average American’s radar as consumers note increases in the cost of staples like gas and food (or the more subtle tactic of shrinking products without shrinking price tags). We could see a doubling or tripling of prices going forward.

Six Possible Government Responses to the Crisis - According to Jason Hartman

•Renege on public promises - politically suicidal, defaulting on entitlements isn’t likely on a large scale
•Increase taxes - certainly a possibility, yet insufficient to pay off the nation’s debt
•Federal “yard sale” of assets - including land and military apparatus
•Seizure of other nations’ assets by force
•Innovation in energy, technology, and so on - the best possible scenario
•Inflation to achieve solvency - “default by devaluation” is the most probable scenario, leaving Americans poorer and further eroding the standard of living (with the implication that debt owed to other nations would be repaid in devalued currency).
N. I. A.’s Investment Recommendations

Precious metals - gold, and especially silver - are “the best investment of the next decade.” Silver is a cheaper investment, currently trading at a ratio of around 68:1 compared to a historical average of 17:1 in relation to gold. Silver’s appeal also owes to its multiple industrial uses, its historical strength compared to gold, and demand that is outstripping supply. Bullion and mine stock, not the collectible market, are the smart bet. Buy yourself and take delivery of the actual asset rather than purchasing on paper. Agriculture and oil are also promising sectors for investment.

The National Inflation Association urges Americans to wake up now. Stay informed, do your own research, and don’t rely on mainstream media pundits. “Preserve purchasing power” by transitioning from the dollar to gold and silver. You can view the documentary Meltup at inflation.us/videos.html. inflation.us/videos.html

This article is based on Episode 174 of Jason Hartman 's Creating Wealth Show. You can listen to the full podcast at JasonHartman.com, an investment property and wealth creation site. Jason Hartman is the founder and CEO of Platinum Properties Investor Network.



www.nuwireinvestor.com/articles/national-inflation-association-documentary-makes-the-case-for-hyperinflation-55741.aspx

[sandi66]

SEC Publishes Public Request for Comment to Inform Study of Obligations of Broker-Dealers and Investment Advisers
FOR IMMEDIATE RELEASE
2010-134
Washington, D.C., July 27, 2010 — The Securities and Exchange Commission today published a request for public comment to inform its study of the obligations and standards of care of broker-dealers and investment advisers providing personalized investment advice about securities to retail investors.


--------------------------------------------------------------------------------

Additional Materials
SEC release requesting comment
www.sec.gov/rules/other/2010/34-62577.pdf

Submit comments
www.sec.gov/cgi-bin/ruling-comments?ruling=4-606&rule_path=/comments/4-606&file_num=4-606&action=Show_Form&title=Study%20Regarding%20Obligations%20of%20Brokers%2C%20Dealers%2C%20and%20Investment%20Advisers

--------------------------------------------------------------------------------

The study is required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which President Obama signed into law on July 21, 2010.

As required by the Dodd-Frank Act, the SEC is requesting public input, comments, and data on issues related to the effectiveness of existing standards of care for brokers-dealers and investment advisers, and whether there are gaps, shortcomings, or overlaps in the current legal or regulatory standards.

"Broker-dealers and investment advisers provide critical financial services to millions of American investors," said SEC Chairman Mary L. Schapiro. "A system that fairly and effectively regulates these market participants is essential to protecting investors. We look forward to receiving comments from the public on these important issues."

The public comment period will remain open for 30 days, following publication of the comment request in the Federal Register.

# # #



www.sec.gov/news/press/2010/2010-134.htm

--------------------------------------------------------------------------------
Home | Previous Page Modified: 07/27/2010

[sandi66]

President Obama official schedule and guidance, July 28, 2010. New York, New Jersey
By Lynn Sweeton July 28, 2010 4:47 AM | Permalink | Comments (0)
THE WHITE HOUSE

Office of the Press Secretary

_______________________________________________________________________________________

FOR IMMEDIATE RELEASE

July 27, 2010


DAILY GUIDANCE AND PRESS SCHEDULE FOR

WEDNESDAY, JULY 28, 2010


In the morning, the President will receive the Presidential Daily Briefing and meet with senior advisors in the Oval Office. The President will then meet with Senator John Kerry in the Oval Office. These meetings are closed press.

The President will then travel to Edison, New Jersey to meet with a group of small business owners at Tastee Sub Shop to discuss the economy and urge Congress to pass support for small businesses, the engines of private sector job growth. The President will discuss with the small business owners how the small business legislation that the Senate is expected to vote on this week will help businesses like theirs grow and hire more workers. There will be a pool spray at the top of the meeting. Following the meeting, the President will make a statement to the press at Tastee Sub Shop. The President's remarks are pooled press.


In the evening, the President will attend two DNC finance events in New York City, New York. These fundraisers are closed press.


The President will return to Washington, DC at night. The departure from Newark Liberty International Airport and the arrival on the South Lawn are open press.



In-Town Travel Pool

Wires: AP, Reuters, Bloomberg

Wire Photos: AP, Reuters, AFP

TV Corr & Crew: FOX

Print: McClatchy

Radio: VOA


Out-of-Town Travel Pool

Wires: AP, Reuters, Bloomberg

Wire Photos: AP, Reuters, AFP

TV Corr & Crew: FOX

Print: The Hill



EDT


9:30AM In-Town Travel Pool Call Time


9:30AM THE PRESIDENT receives the Presidential Daily Briefing

Oval Office

Closed Press


10:00AM THE PRESIDENT meets with senior advisors

Oval Office

Closed Press


10:40AM THE PRESIDENT meets with Senator John Kerry

Oval Office

Closed Press


11:45AM THE PRESIDENT departs the White House en route Andrews Air Force Base

South Lawn

Open Press (Pre-set 11:15AM - Final Call 11:30AM - North Doors of the Palm Room)


12:00PM THE PRESIDENT departs Andrews Air Force Base en route Newark, New Jersey

Andrews Air Force Base

Out-of-Town Travel Pool (Call Time 10:45AM - Virginia Gate, Andrews Air Force Base)


12:50PM THE PRESIDENT arrives in Newark, New Jersey

Newark Liberty International Airport

Open Press


1:30PM THE PRESIDENT meets with a group of small business owners to discuss the economy and urge Congress to pass support for small businesses

Tastee Sub Shop, Edison, New Jersey

Travel Pool Coverage


2:20PM THE PRESIDENT delivers a statement to the press

Tastee Sub Shop, Edison, New Jersey

Travel Pool Coverage


5:40PM THE PRESIDENT attends a DNC finance event

Four Seasons Hotel, New York City

Closed Press


7:20PM THE PRESIDENT attends a DNC finance event

Private Residence, New York City

Closed Press


8:50PM THE PRESIDENT departs Newark, New Jersey en route Andrews Air Force Base

Newark Liberty International Airport

Open Press


9:40PM THE PRESIDENT arrives at Andrews Air Force Base

Out-of-Town Travel Pool


9:55PM THE PRESIDENT arrives at the White House

South Lawn

Open Press (Pre-set 9:30PM - Final Gather 9:45PM - North Doors of the Palm Room)



Briefing Schedule


Deputy Press Secretary Bill Burton will gaggle aboard Air Force One

blogs.suntimes.com/sweet/2010/07/president_obama_official_sched_379.html

[sandi66]

Obama to Tout Small-Business Plan in New Jersey, Raise Funds in New York

By Roger Runningen -

Jul 28, 2010 10:49 AM EDT Wed Jul 28 14:49:16 UTC 2010

Business Exchange Twitter Delicious Digg Facebook LinkedIn Newsvine Propeller Yahoo! Buzz Print President Barack Obama is making a final push today for passage of his plan to aid small businesses on a trip that combines campaigning for his economic policies and raising money for the Democratic Party.

In a stop in Edison, New Jersey, Obama plans to meet with a group of small-business owners about his initiative to free up credit and provide tax incentives to spur hiring. The House has passed the legislation Senate may take action today.

Obama later tonight is scheduled to help the Democratic National Committee at an event in New York City where donors are paying as much as $30,400 to attend. With elections that will decide control of Congress less than four months away, the president is seeking to wrap up action on his agenda while also trying to help Democrats keep control of the House and Senate.

“We don’t have many days left before Congress is out for the year, and everyone understands that we’re less than 100 days from an election,” Obama said yesterday at the White House. “It’s during this time that the noise and the chatter about who’s up in the polls and which party is ahead threatens to drown out just about everything else.”

The sluggish economic recovery, lagging job growth and a federal deficit projected to hit a record $1.47 trillion this year will be top issues for voters in the mid-term elections. Consumer confidence fell in July to a five-month low on concern about jobs and wages, the Conference Board reported yesterday.

Promoting Policies

Today’s event in New Jersey is one of three Obama has scheduled over the next week to highlight his economic policies. The president also plans to headline two more fundraisers in Illinois and Texas in the next two weeks.

Obama’s focus when he meets with business owners today at the Tastee Sub Shop in Edison is his plan to provide $12 billion in tax breaks, ease terms for loans guaranteed by the Small Business Administration and create a $30 billion fund to help community banks offer loans to small businesses.

With about 8.4 million jobs lost during the recession, the measure aims to help small business, which accounts for about two-thirds of U.S. jobs.

“There’s nothing more important to our economic expansion now than getting small businesses and entrepreneurs in a position where that are investing an hiring,” Gene Sperling, counselor to Treasury Secretary Timothy Geithner, told reporters on a conference call yesterday.

Republican Critics

Critics call it a replay of the $700 billion bank bailout in 2008 and say it could also induce banks to make risky loans.

“The lack of credit for small businesses is a problem that needs to be addressed,” Alabama Republican Richard Shelby said during the Senate debate. “I do not, however, believe that we should try and solve this problem with another expensive and bureaucratic government program.”

In New York City, the president is scheduled to appear at two fundraisers. The first is at the home of Vogue editor Anna Wintour and the other is at the Four Seasons Hotel.

About 50 people were invited to each event for a donation of $30,400 per person, the highest amount permitted to a political party under federal election law, according to a Democratic Party official who spoke on condition of anonymity to discuss financial matters. Obama will meet with party backers and isn’t scheduled to make remarks.

Party Fundraising

The Democratic National Committee has raised $138 million during the 2009-2010 election cycle, with $11 million in the bank as of July 27. That compares with $145 million in campaign cash raised by the Republican National Committee, which also has $11 million in the bank.

Before the fundraisers, the president will tape an interview for ABC’s “The View.” It marks the first time a sitting president has appeared on a daylight television talk show, ABC said in a statement, adding that topics would range from jobs and the economy to life at the White House.

By combining the small-business event with the fundraisers, Obama is cutting the cost of the New York appearances to the Democratic Party.

Federal Election Commission rules allow for such sharing of presidential expenses, dividing up the part of the trip that is “official” against the remaining “political” portion. Presidents of both parties have used the advantage.

“It’s a real question: should taxpayers be subsidizing this,” said Bill Allison, editorial director of the Sunlight Foundation in Washington, a non-profit, nonpartisan group in Washington that advocates for greater government transparency.

Air Force One costs $56,518 per hour to operate, according to a 2006 study done by the General Accountability Office.

“It’s not like Obama’s going to fly coach somewhere; there’s the security concerns and everything else,” Allison said in an interview. “At the same time, a campaign’s getting a huge subsidy from the taxpayer to fly the president around to political events.”

www.bloomberg.com/news/2010-07-28/obama-to-tout-small-business-plan-in-new-jersey-raise-funds-in-new-york.html

[sandi66]

EUJUST LEX extends mission in Iraq
July 28, 2010 - 06:07:25

BAGHDAD / Aswat al-Iraq: The Head of the European Union Integrated Rule of Law Mission for Iraq (EUJUST LEX), Francisco Diaz Alcantud, announced on Wednesday extending their mission in the country for more two years.

gWe have extended our mission in Iraq for more two years due to Iraqisf needs to the training courses we provide,h Alcantud said at a press conference in Baghdad, attended by Aswat al-Iraq news agency.

This is the fourth time to extend the mission of EUJUST LEX in Iraq.

The European official said they will work to increase their presence in the country in the coming two years through increasing their staff, and through opening two offices; one in Basra, southern Iraq, and the other in Arbil in the north, pointing out that the number of the staff has increased from 53 to 71.

Responding to a question from Aswat al-Iraq news agency correspondent on the number of the training courses they will organize in the first year, the official said gI canft give an accurate number now as we organize these courses in coordination and consultation with Iraqi authorities.h

EUJUST LEX is a civilian crisis management operation under the auspices of the EU Common@security and Defence Policy.

Following an invitation to the EU by former prime minister of the elected Iraqi Interim Government, Ibrahim al-Jaafari, to commence training activities for Iraqi rule of law professionals, the operational phase of the EUJUST LEX mission started on 1 July 2005.

Established to strengthen the rule of law and promote a culture of respect for human rights in Iraq, EUJUST LEX provides professional development opportunities to senior Iraqi officials from the criminal justice system. Member States provide courses which offer learning opportunities and demonstrate best practice in rule of law. In addition, the courses facilitate an exchange of views between the EU trainers and the Iraqi participants. The core aim of the courses is to foster confidence, mutual respect and operational cooperation between the different branches of the Iraqi criminal justice system (police, judiciary and penitentiary). EUJUST LEX is the first EU Integrated Rule of Law mission.

SH (S)

en.aswataliraq.info/?p=135033


ty nalmann

[sandi66]

noir.bloomberg.com/apps/news?pid=20601087&sid=ayielbHdJ0kM&pos=6



Dodd, Frank Plan to Hold Hearings on Basel Capital Regulations


By Yalman Onaran and Alison Vekshin


July 29 (Bloomberg) -- Christopher Dodd and Barney Frank, authors of the U.S. financial overhaul, plan hearings on the status of global talks to revise bank-capital standards amid worries that proposed rules are being watered down.
“I am concerned the recent proposals out of Basel will result in weak and perhaps even nonbinding provisions that provide credit to banks for holding forms of capital that have little or no value in absorbing losses,” said Senator Ted Kaufman, Democrat of Delaware. “The financial reform bill includes only a promise of higher capital requirements for U.S. banks, which we were told were going to be negotiated on an international level.”
The Senate Banking Committee, chaired by Dodd, will hold the discussions on the Basel process in September, said Sean Oblack, a spokesman for the Connecticut Democrat. Frank, the Massachusetts Democrat who heads the House Financial Services Committee, also plans to hold a hearing on the subject, said spokesman Steven Adamske. Neither panel has set a date nor decided who will be asked to testify.
Congress is turning its attention to global rule-making after having completed its financial reform efforts earlier this month, capping almost two years of partisan and intra-party fighting. The Basel Committee on Banking Supervision this week relaxed some of its capital and liquidity proposals, winning praise from banks worldwide. The negotiations are scheduled to be concluded by November.
“The hearing is our idea and will be part of our examination of the implementation of Dodd-Frank, including international regulatory harmonization,” Oblack said in a statement.
Call for a Hearing
Last week, Texas Representative Randy Neugebauer, a Republican, called on Frank to set up a hearing on Basel, saying Congress must know more about the process and its potential impact on the U.S. financial system.
The new rules, informally known as Basel III, would force banks to double their capital levels, some analysts expect. Since the onset of the credit crisis in 2008, U.S. voters favor tougher bank regulations, opinion polls show.
Some European governments are bowing to pressure by their banks as the region’s economic recovery stalled. France and Germany have led efforts to weaken the regulations proposed by the Basel committee last year, according to bankers, regulators and lobbyists involved in the talks.
The Basel committee said this week it agreed to continue allowing some assets, including banks’ minority stakes in other financial firms, to count in part as capital, reversing a plan to ban their use. It also expanded the definition of what counts as liquid assets and gave banks until 2018 to comply with a new leverage ratio designed to rein in risk-taking.
Leadership
A long-term liquidity ratio that analysts estimated would have forced banks to sell more than $4 trillion of debt also won’t be imposed for eight years.
“The U.S. must provide strong leadership in the Basel negotiations or we will be left with international bank standards that once again are based on the lowest common denominator,” Kaufman, who has spoken out on the Basel process before, said in an e-mail message.
U.S. lawmakers held similar hearings in 2005 and 2006, after the committee of regulators and central bankers approved standards known as Basel II. Congress was seeking to gauge the impact of proposed rules on U.S. banks.
“Basel and capital requirements are not something that have been focused on on Capitol Hill for years and years,” Frank Kelly, head of government affairs in the Americas for Deutsche Bank AG, told analysts on a conference call. “I think most members of Congress don’t know what Basel is.”
The Basel II rules announced in 2004 are still being implemented by U.S. banks, a process that won’t be completed until the first quarter of next year.
-- With assistance from Christine Harper in New York. Editors: Dan Reichl, Andreea Papuc
To contact the reporters on this story: Yalman Onaran in New York at [e-mail]; Alison Vekshin in Washington at [e-mail].
Last Updated: July 28, 2010 20:09 EDT



ty joye

[sandi66]

JULY 29, 2010, 2:16 P.M. ET

SEC: Citigroup To Pay $75M Penalty Over Misleading Investors On Subprime Mortgages

WASHINGTON (Dow Jones)--Citigroup Inc. (C) will pay $75 million to settle regulatory charges that it failed to disclose some $40 billion in subprime exposure to investors in 2007, the U.S. Securities and Exchange Commission announced Thursday.

The SEC alleges that Citigroup repeatedly made misleading statements in earnings calls and public filings about the extent of its holdings of assets backed by subprime mortgages.

Between July and mid-October 2007, Citigroup represented that subprime exposure in its investment banking unit was $13 billion or less, when in fact it was more than $50 billion, according to the SEC.

The SEC says the $13 billion figure reported by Citigroup omitted two categories of subprime-backed assets: "super senior" tranches of collateralized debt obligations and "liquidity puts." Citigroup had more than $40 billion of additional subprime exposure in these categories, which it didn't disclose until November 2007 after a decline in their value.

Citi settled the charges without admitting to or denying the SEC's allegations.

Former chief financial officer Gary Crittenden agreed to pay $100,000, and former head of investor relations Arthur Tildesley, Jr., who currently the head of cross marketing at Citigroup, agreed to pay $80,000.

Citi's eventual disclosure of the subprime exposure and subsequent losses at the start of the credit-market meltdown cost former Chief Executive Charles Prince his job in November 2007. Citi eventually lost more than $30 billion on the assets.

Prince and other former Citi officials argued at a hearing in Washington earlier this year that they didn't realize the exposures represented any risk to the bank because they had carried top credit ratings.

"Citigroup's improper disclosures came at a critical time when investors were clamoring for details about Wall Street firms' exposure to subprime securities," SEC Associate Director of Enforcement Scott Friestad said. "Instead of providing clear and accurate information to the market, Citigroup dropped the ball and made a bad situation worse."

Lawyers for Citigroup weren't immediately available for comment.

online.wsj.com/article/BT-CO-20100729-718392.html

[sandi66]

Gold swaps mystery is unravelled
By Jack Farchy and Javier Blas in London

Published: July 29 2010 19:10 | Last updated: July 29 2010 19:10

Three big banks – HSBC, Société Générale and BNP Paribas – were among more than 10 based in Europe that swapped gold with the Bank for International Settlements in a series of unusual deals that caused confusion in the gold market and left traders scratching their heads.

The mystery of who was involved in deals with the BIS, the bank for central banks, and what they were doing, has become clearer.

The Financial Times has learnt that the swaps, which were initiated by the BIS, came as the so-called “central banks’ bank” sought to obtain a return on its huge US dollar-denominated holdings. The BIS asked the commercial banks to pledge a gold swap as guarantee for the dollar deposits they were taking from the Basel-based institution.

When news of the swaps, which were disclosed in a note to the BIS’s latest annual report, circulated among traders this month, it caused a sharp fall in the gold price, sending bullion to what was then six-week lows. Gold has since fallen further: it was trading at $1,164 an ounce on Thursday.

Some analysts speculated that the swap deals were a surreptitious bail-out of the European banking system ahead of last week’s publication of stress tests. But bankers and officials have described the transactions as “mutually beneficial”.

“The client approached us with the idea of buying some gold with the option to sell it back,” said one European banker, referring to the BIS.

Another banker said: “From time to time, central banks or the BIS want to optimise the return on their currency holdings.”

Nonetheless, two central bank officials said some of the commercial banks also needed the US dollar funding and were keen to act as a counterparty with the BIS. The gold swaps began in December and surged in January, when the Greek debt crisis erupted and European commercial banks were facing funding problems.

Jaime Caruana, head of the BIS, told the FT the swaps were “regular commercial activities” for the bank.

In a short note in its annual report, published at the end of June, the BIS said it had taken 346 tonnes of gold in exchange for foreign currency in “swap operations” in the financial year to March 31.

In the same fiscal year, the BIS took three times the amount of currency deposits it had taken the previous year as central banks around the world became concerned about using commercial banks for their deposits and turned to the Basel institution.

In a gold swap, one counterparty, in this case a bank, sells its gold to the other, in this case the BIS, with an agreement to buy it back at a later date.

The gold swaps were, in effect, a form of collateral against the US-dollar deposits placed by the BIS with commercial banks. Gold is widely regarded as one of the safest assets, but has not been widely used as collateral in the past. Mr Caruana described the transactions as “loans with a guarantee”.

Investors have bought physical gold in record amounts during the past two years and deposited it in commercial banks. European financial institutions are awash with bullion and some are trying to pledge gold as a guarantee.

George Milling-Stanley, managing director for government affairs at the industry-backed World Gold Council, said: “The gold swaps commercial banks carried out with the BIS demonstrate the effectiveness of gold as an asset class, because even in the depths of the worst liquidity crisis in living memory, institutions with access to gold were able to make use of it to generate dollar liquidity.

“The issue also feeds right into the current debate among Asian central banks about the lack of assets suitable for use as cross-border collateral.”

Last year, CME Group, the world’s largest derivatives exchange, allowed investors to use gold futures as collateral for some operations. Other institutions, such as central banks, had begun using and requesting gold as collateral in the past two years as perceptions of counterparty risk have risen, bankers and officials said.

The gold used in the swaps came mainly from investors’ deposit accounts at the European commercial banks. Some investors prefer to deposit their gold in so-called “allocated accounts”, which restrict the custodian banks’ ability to use the gold in their market operations by assigning them specific bullion bars. But other investors prefer cheaper “unallocated accounts”, which give banks access to their bullion for their day-to-day operations.

Officials said other commercial banks obtained the gold from the lending market, borrowing bullion from emerging countries’ central banks.

www.ft.com/cms/s/0/3e659ed0-9b39-11df-baaf-00144feab49a.html

[sandi66]

BIS gold swap was just a profit making trick

Published on: August 03, 2010 at 16:00

LONDON (Commodity Online): And it was not Portugal banks which had pawned its gold to tide over the economic crisis. A few weeks ago when Portugal and Greece were facing severe financial crisis, a mysterious gold swap by undisclosed central banks with Bank for International Settlements had sparked rumours that Portugal and Greece banks were on the verge of collapse and they had pawned their gold.

This week, the truth has come out through a report in Financial Times. The FT report said three big banks – HSBC, Société Générale and BNP Paribas – were among more than 10 based in Europe that swapped gold with the Bank for International Settlements in a series of unusual deals.

The mystery of who was involved in deals with the BIS, the bank for central banks, and what they were doing, has become clearer now. The swaps, which were initiated by the BIS, came as the so-called “central banks’ bank” sought to obtain a return on its huge US dollar-denominated holdings. The BIS asked the commercial banks to pledge a gold swap as guarantee for the dollar deposits they were taking from the Basel-based institution.

When news of the swaps, which were disclosed in a note to the BIS’s latest annual report, circulated among traders this month, it caused a sharp fall in the gold price, sending bullion to what was then six-week lows. Gold has since fallen further: it was trading at $1,164 an ounce last week.

The FT report said some analysts speculated that the swap deals were a surreptitious bail-out of the European banking system ahead of last week’s publication of stress tests. But bankers and officials have described the transactions as mutually beneficial.

In a short note in its annual report, published at the end of June, the BIS said it had taken 346 tonnes of gold in exchange for foreign currency in swap operations in the financial year to March 31.

In the same fiscal year, the BIS took three times the amount of currency deposits it had taken the previous year as central banks around the world became concerned about using commercial banks for their deposits and turned to the Basel institution.

In a gold swap, one counterparty, in this case a bank, sells its gold to the other, in this case the BIS, with an agreement to buy it back at a later date.

The gold swaps were, in effect, a form of collateral against the US-dollar deposits placed by the BIS with commercial banks. Gold is widely regarded as one of the safest assets, but has not been widely used as collateral in the past.

Investors have bought physical gold in record amounts during the past two years and deposited it in commercial banks. European financial institutions are awash with bullion and some are trying to pledge gold as a guarantee.

Last year, CME Group, the world’s largest derivatives exchange, allowed investors to use gold futures as collateral for some operations. Other institutions, such as central banks, had begun using and requesting gold as collateral in the past two years as perceptions of counterparty risk have risen, bankers and officials said.

The gold used in the swaps came mainly from investors’ deposit accounts at the European commercial banks. Some investors prefer to deposit their gold in so-called “allocated accounts”, which restrict the custodian banks’ ability to use the gold in their market operations by assigning them specific bullion bars. But other investors prefer cheaper “unallocated accounts”, which give banks access to their bullion for their day-to-day operations.

Officials said other commercial banks obtained the gold from the lending market, borrowing bullion from emerging countries’ central banks.

www.commodityonline.com/news/BIS-gold-swap-was-just-a-profit-making-trick-30626-3-1.html

[sandi66]

August 03, 2010

Royal Bank of Scotland fined £5.6m for anti-terrorism system failures

Bank failed to resolve screening software issues promptly
By Anh Nguyen ShareThis


--------------------------------------------------------------------------------

The Financial Services Authority (FSA) has fined the Royal Bank of Scotland Group (RBSG) £5.6 million for failing to have adequate systems and controls in place to screen transactions under Money Laundering Regulations.

Under Money Laundering Regulations, banks must have proper systems in place to screen customers and payments against the Treasury List. This is a list of individuals and entities that are subject to financial sanctions. The law requires firms to not provide funds or financial services to designated persons unless a licence is obtained from the Treasury.

However, during the period between 15 December 2007 and 31 December 2008, RBSG, which includes RBS, Natwest, Ulster Bank and Coutts & Company, was considered to be in breach of the regulations for a number of failings, including weaknesses in its screening software, which was implemented in 2006.

Although the group was unable to provide a breakdown of the volumes of payments and SWIFT messages that were not screened during this period, the FSA said that data for one day in July 2009 indicates that around 75 percent of all inbound and outbound messages would not have been screened in the relevant period.

In its decision notice, the FSA said it considered the banking group’s failings to be particularly serious because: “Unless they have in place robust systems and controls, UK financial institutions risk being used to facilitate transactions involving sanctions targets, including financing.

“Small amounts of funding could be sufficient to finance terrorist activities and hence the sanctions-related systems and controls implemented by firms need to be robust enough to capture such payments.”

The FSA found that after RBSG initially set up the screening systems, it failed to routinely review and monitor the ‘fuzzy matching ‘ capabilities in the screening software. This meant that the fuzzy matching parameters, which refers to the ability of screening software to identify names similar to those on the sanctions list, became out-of-date and therefore become significantly less effective at identifying potential matches.

Another weakness of the screening software, which was not discovered until external accountants hired by RBSG carried out a review in mid-2008, was its inability to screen or block payments where the beneficiary’s name was spread across more than one line in the SWIFT message. This meant that if a name was longer than the first line, it would not be effectively screened and in some instances the software would not pick up exact matches to the sanction list. The banking group did not implement a solution until June 2009.

According to the FSA decision notice, RBSG, through its RBS Group Security & Fraud division (GS&F), was aware of deficiencies of the screening systems during the relevant period, but did not act on these deficiencies “in a timely manner”. This contributed to systems failings remaining in existence for one year and not resolved earlier. Issues raised by the external accountants’ review were also not addressed for months afterwards.

These delays were not helped by the fact that the software provider, who was not named in the decision notice, would rate issues raised by GS&F at a lower priority level, and therefore did not always act in a timely manner to resolve any problems.

For example, at the end of 2008, a review by RBS Group Internal Audit found 13 outstanding issues, raised by GS&F with the screening software provider, with some issues not being addressed for more than six months. This was despite GS&F and the software provider meeting weekly to discuss issues and their priority for resolution.

Margaret Cole, FSA director of enforcement and financial crime, said: “By failing to screen relevant customers and payments against the HM Treasury sanctions list, RBSG left itself open to the risk that it was facilitating terrorist financing.

“The scale of the fine shows how seriously the FSA takes this issue and should act as a warning to other firms to ensure that they have adequate screening procedures.”

By agreeing to settle early in the FSA investigation, RBSG qualified for a 30 percent discount, and therefore avoided an original fine of £8 million. It has also made improvements to the screening software in order to comply with the regulations.

In April three major firms, including Credit Suisse, were fined a total of £4.2 million by the FSA for failing to provide “accurate and timely transaction reports” to the regulator.

Other banks have also been penalised by the FSA for systems and controls failures, including Nomura, UBS and Barclays.

www.computerworlduk.com/management/government-law/legislation/news/index.cfm?newsId=21432&pn=2

[sandi66]

August 3, 2010, 8:04 AM ET

Wealth Clients Cushioned From Bank Failures

With the Federal Deposit Insurance Corporation putting more troubled banks into the arms of stabler institutions, what becomes of a bank’s wealth-management operations when authorities decide it can’t stand on its own?

Not much, say sources; and wealth-management clients at such a bank aren’t likely to experience more than inconvenience.

The FDIC usually has a buyer lined up when it seizes a bank, and the acquirer is usually set to take over investment accounts — which are in any case probably housed with an unaffiliated clearing firm. The buyer is also typically set to accommodate trust accounts, whose cash components are federally insured up to $250,000 just like straightforward bank deposits. And where these lines of business can’t be absorbed by a primary buyer, sources say there’s no shortage of secondary acquirers the FDIC can turn to.

That said, most of the banks getting seized by regulators these days “don’t have much in the way of wealth management anyway,” according to Jim Kleinfelter of Young and Associates, an Ohio-based consultancy to community banks.

If a seized bank used a third-party investment provider, the outsourcer might lose the mandate, but it’s likelier to become another choice on the buyer’s investment menu, says Lee Argush, executive managing director of Concord Wealth Managment, a New Jersey-based investment and technology provider to banks and trust companies. He adds that this worst-case scenario isn’t one he’s seen played out at first hand.

Still, wealth advisers who want to keep clients away from trouble should conduct rigorous due diligence before recommending a particular bank to a client, says Jerry Cooper of Advisors Institutional Services, a Marshfield, Mass.-based firm that advisers investment adviser firms on trust issues.

As of late last week, U.S. regulators had closed 108 banks compared with 140 for all 2009, 25 in 2008 and just three in 2007, according to the FDIC.


blogs.wsj.com/financial-adviser/2010/08/03/wealth-clients-cushioned-from-bank-failures/

[sandi66]

Ming the Mechanic:

The unknown 20 trillion dollar company
The NewsLog of Flemming Funch
The unknown 20 trillion dollar company
2003-10-30 17:37

64 comments
by Flemming Funch
There is a busy little private company you probably never have heard about, but which you should. Its name is the Depository Trust & Clearing Corporation. See their website. Looks pretty boring. Some kind of financial service thing, with a positive slogan and out there to make a little business. You can even get a job there. Now, go and take a look at their annual report. Starts with a nice litte Flash presentation and has a nice message from the CEO. And take a look at the numbers. It turns out that this company holds 23 trillion dollars in assets, and had 917 trillion dollars worth of transactions in 2002. That's trillions, as in thousands of thousands of millions. 23,000,000,000,000 dollars in assets.


ming.tv/flemming2.php/_d10/_v10/__show_article/_a000010-000923.htm


ty joye

[sandi66]

emptywheel.firedoglake.com/2010/07/06/creative-wall-street-and-money-laundering/



"Creative” Wall Street and Money-Laundering

July 6, 2010




I have long maintained that we will eventually learn that Citibank took over where BCCI and then Riggs Bank left off: serving as a money laundering vehicle used by drug cartels and other organized crime, terrorists, and spooks. But this article (h/t scribe) on the role of big banks in laundering Mexican drug money reports that–while Citibank has been implicated in money laundering (but took the appropriate regulatory steps in response)–there are a number of other banks deeply implicated:

Wachovia (now owned by Wells Fargo)
Bank of America
American Express
HSBC
Banco Santander
Most of these banks were implicated in Mexican legal filings. But in March, Wachovia entered into a Deferred Prosecution Agreement with the government that reveals some of the details behind its money laundering.
The DPA lays out the means by which Wachovia enabled money laundering as follows:

Allowing Mexican Casas de Cambio (exchange houses) to wire through Wachovia. From May 2004 through May 2007, Wachovia had processed at least $373 billion in CDC wire activity.
Offering a “bulk cash” service, in which Wachovia would arrange physical transport of large amounts of US dollars collected by the CDCs into the US. From May 2004 through May 2007, Wachovia processed over $4 billion in bulk cash for the CDCs.
Providing a “pouch deposit” service, in which CDCs would accept checks and travelers checks drawn on US banks, aggregate them into a pouch, and then forward them to Wachovia for processing. By May 2005, Wachovia had set up a digital scan system for this service. From May 2004 through May 2007, Wachovia processed $47 billion in digital pouch deposits for all its correspondent banking customers, including what it did for the CDCs.
The DPA also describes how Wachovia helped telemarketers steal directly from victims’ accounts–the subject of an unrelated lawsuit going back some years.
So here are two key details of this.
First, it appears that Wachovia deliberately got deeper into money-laundering for CDCs in 2005 even as the government issued more alerts about the way drug cartels were using CDCs.

As early as 2004, Wachovia understood the risk that was associated with doing business with the Mexican CDCs. Wachovia was aware of the general industry warnings. As early as July 2005, Wachovia was aware that other large U.S. banks were exiting the CDC business based on [anti-money laundering] concerns.
Despite these warnings, Wachovia remained in the business. And in September 2005, Wachovia purchased the right to solicit the international correspondent banking customers of Union Bank of California (“UBOC”). Wachovia knew that UBOC was exiting the CDC market due to AML problems. Wachovia hired at least one person from UBOC who had a significant role in the CDC business at UBOC. After UBOC exited the CDC business, Wachovia’s business volume increased notably.

September 2005 was definitely before most people realized the giant shitpile–of which Wachovia held more than its fair share–was going to explode. But Wachovia was already deep into it.
So $373 billion in wire services (some of which were surely legal), $4 billion in bulk cash services, and some portion of $47 billion in digital pouch services (again, some of which is surely legal and may pertain to remittances). Compare those numbers to the $40 to $60 billion or so in Wachovia subprime losses Wells Fargo ate when it took over Wachovia. Was Wachovia laundering money for drug cartels because it was so badly exposed in mortgage-backed securities, or was it so heavily involved in products that could be used for money laundering just for fun?
Now, for all of this, DOJ made Wells Fargo pay $160 million: $50 million that is an outright fine, and $110 million for what DOJ said it had identified as clear drug proceeds laundered through Wachovia. Now, granted, DOJ is fining Wells Fargo (beneficiary of huge amounts of free money from the Fed in recent years and the recipient of huge tax deductions for taking over Wachovia), not Wachovia. And granted, this was the largest fine ever for money laundering. But as the Bloomberg story notes, that’s less than 2% of Wells Fargo’s profits last year. And isn’t even as much as Wachovia got in deposits–$418 million–from the fraudulent telemarketing scheme.
Then there’s the bigger question. Who else was using these vehicles? Banks that enable this kind of money laundering tend to be indiscriminate about their client base. And as I noted when I started this post, money laundering for drug cartels tends to go hand in hand with money laundering for other organized crime, terrorists, and spooks. Given the scale of what Wachovia was doing, where are the other busts?
And while we’re looking for those other busts, note that the investigation of Wachovia started in May 2007, 17 months before the government brokered the Wells Fargo takeover. Is there any chance that Treasury, which would have been involved in this, was unaware of the massive amounts of money laundering Wachovia had been engaged in when they brokered that deal? Recall, too, the weirdness over the competition between Citi and Wells Fargo for the privilege of taking on the Wachovia shitpile. The Federal government was at one point prepared to take on a portion of Wachovia’s shitpile to allow Citi to take over the bank for a dollar a share. And when Citi CEO Vikram Pandit lost out on the deal, Andrew Ross Sorkin reported in Too Big to Fail, he told Sheila Bair, that “This isn’t just about Citi … There are other issues we need to consider. I need to speak to you privately. … This is not right. It’s not right for the country. It’s just not right!”
I don’t want to get too tinfoil about this. But it strikes me that the efforts to keep Wall Street and all its celebrated creativity intact serves to make it easier for banks like Wachovia to engage in widespread money-laundering. That is, it’s not just shadow banking as it is politely understood, but banking for entire shadow networks, both our own and our enemies.
Update: Aaron v. Andrew fixed–thanks SaltinWound.

emptywheel.firedoglake.com/2010/07/06/creative-wall-street-and-money-laundering/

Update: Here’s the full Bloomberg story.



ty joye

[sandi66]

Everybody should be follow'n this/Call for Better Oversight of Retained-Asset Accounts

noir.bloomberg.com/apps/news?pid=newsarchive&sid=aRr_RuEc6OeI
Insurance Regulators ‘Ramping Up’ Retained-Asset Disclosure

noir.bloomberg.com/apps/news?pid=newsarchive&sid=a8SOwlais68o
Gates Says Pentagon to Help Death-Benefits Inquiry (Update3)

noir.bloomberg.com/apps/news?pid=newsarchive&sid=aF133j0QyP30
Fallen Soldiers’ Families Denied Cash Payout as Insurers Profit

noir.bloomberg.com/apps/news?pid=newsarchive&sid=af68fvdC2w8I
New York to Probe Legality of Benefit Retention by Insurers

... these ^ articles also copied below


noir.bloomberg.com/apps/news?pid=20601087&sid=aJYeYgYXBba4&pos=7



Regulators Call for Better Oversight of Retained-Asset Accounts


By Andrew Frye and David Evans



Aug. 3 (Bloomberg) -- U.S. insurance watchdogs need to improve oversight of life insurer accounts that allow companies to retain death benefits and profit on the funds, state regulators said today.
“Obviously this is not a topic we’ve been spending a lot of time on,” said Susan Voss, president-elect of the National Association of Insurance Commissioners, in an interview today at Bloomberg headquarters in New York. “That’s not to say that we can’t do a better job.”
The NAIC said last week it is reviewing so-called retained- asset accounts after Bloomberg Markets reported that the funds allow more than 100 carriers to earn income on $28 billion owed to life insurance beneficiaries. New York-based MetLife Inc., the biggest U.S. life insurer, retains about $10 billion and was among carriers subpoenaed by New York Attorney General Andrew Cuomo last week amid a fraud investigation.
MetLife and No. 2 Prudential Financial Inc. are among the firms that administer the accounts, which aren’t backed by the Federal Deposit Insurance Corp. The insurers are paying uncompetitive interest rates and giving clients misleading guarantees, Bloomberg Markets said.
“There need to be improved disclosure requirements,” said Jane Cline, NAIC president, in an interview on Bloomberg Television today. “We will be ramping up our consumer-education initiatives on this.”
‘Secret Profits’
Cuomo said the accounts generate “secret profits” for carriers at the expense of bereaved beneficiaries. Matt Gaul, deputy superintendent of the New York State Insurance Department, questioned whether rules permit carriers to maintain the accounts. The New York regulator, a member of the NAIC, plans to review the legality of the practice.
MetLife and Newark, New Jersey-based Prudential place death benefits in interest-bearing accounts and issue IOUs to survivors. Carriers profit by investing the funds in bonds and keeping the difference between returns and the interest they credit to the accounts.
Defense Secretary Robert Gates has pledged to help the U.S. Department of Veterans Affairs investigate the accounts on behalf of the families of deceased military personnel. Representative Patrick Murphy, a Pennsylvania Democrat and veteran, called on Prudential to hand over profits on the accounts to beneficiaries. U.S. legislation requiring profit disclosure was introduced on July 30 by Representative Debbie Halvorson, an Illinois Democrat.
Rejected Twice
Prudential paid survivors like Cindy Lohman, the mother of a slain Army sergeant, 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings. Lohman told Bloomberg Markets that her IOUs were rejected twice by salespeople when she tried to use them to make retail purchases.
Insurers market the accounts as a service to allow bereaved beneficiaries time to think about what they’ll do with the payout. Accountholders have full access to their funds and have told MetLife that they “love” the service, Robert Henrikson, the company’s chief executive officer, said on July 30 in a conference call with analysts.
Prudential was subpoenaed in Cuomo’s probe, the attorney general said in a statement. Genworth Financial Inc., Unum Group, New York Life Insurance Co., Northwestern Mutual Life Insurance Co., Guardian Life Insurance Co. of America and an insurer acquired by France’s Axa SA, were also subpoenaed, a person briefed on the demands said last week.


To contact the reporters on this story: Andrew Frye in New York at [e-mail]; David Evans in Los Angeles at [e-mail].

Last Updated: August 3, 2010 14:31 EDT



Related Videos

Watch NAIC's Cline Interview About Retained-Asset Accounts
Aug. 3 (Bloomberg) -- Jane Cline, president of the National Association of Insurance Commissioners, talks with Bloomberg's Julie Hyman about insurance companies' so-called retained-asset accounts. The NAIC said last week it is reviewing the accounts after Bloomberg Markets reported that the funds allow more than 100 carriers to earn income on $28 billion owed to life insurance beneficiaries.




Watch David Evans Interview July 28 on Retained Asset Accounts
July 28 (Bloomberg) -- David Evans talks with Bloomberg's Scarlet Fu about his investigation into retained-asset accounts by life insurers and how the insurers profit from these accounts at the expense of grieving families.

_____________________________________________________


noir.bloomberg.com/apps/news?pid=newsarchive&sid=aRr_RuEc6OeI



Insurance Regulators ‘Ramping Up’ Retained-Asset Disclosure




By Julie Hyman and Hugh Son


Aug. 3 (Bloomberg) -- Insurance watchdogs must make sure life insurance beneficiaries are better aware of their options for collecting proceeds from so-called retained-asset accounts, the leader of a group of regulators said today.

“There need to be improved disclosure requirements,” said Jane Cline, president of the National Association of Insurance Commissioners, in an interview on Bloomberg Television. “We will be ramping up our consumer-education initiatives on this.”

The NAIC said last week it is reviewing retained-asset accounts after Bloomberg Markets reported that the funds allow more than 100 carriers to earn income on $28 billion owed to life insurance beneficiaries. New York-based MetLife Inc., the biggest U.S. life insurer, retains about $10 billion and was among carriers subpoenaed by New York Attorney General Andrew Cuomo last week amid a fraud investigation.


To contact the reporters on this story: Hugh Son in New York at [e-mail];

Last Updated: August 3, 2010 14:05 EDT


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Watch David Evans Interview July 28 on Retained Asset Accounts
July 28 (Bloomberg) -- David Evans talks with Bloomberg's Scarlet Fu about his investigation into retained-asset accounts by life insurers and how the insurers profit from these accounts at the expense of grieving families.




Watch NAIC's Cline Interview About Retained-Asset Accounts
Aug. 3 (Bloomberg) -- Jane Cline, president of the National Association of Insurance Commissioners, talks with Bloomberg's Julie Hyman about insurance companies' so-called retained-asset accounts. The NAIC said last week it is reviewing the accounts after Bloomberg Markets reported that the funds allow more than 100 carriers to earn income on $28 billion owed to life insurance beneficiaries.
______________________________________________________________________


noir.bloomberg.com/apps/news?pid=newsarchive&sid=a8SOwlais68o


Gates Says Pentagon to Help Death-Benefits Inquiry (Update3)



By Andrew Frye and David Evans


July 29 (Bloomberg) -- Defense Secretary Robert Gates pledged to help the U.S. Department of Veterans Affairs probe how insurers reap profits from death benefits retained for the families of deceased military personnel.

“I will be very interested in the outcome of the VA investigation,” Gates told a Pentagon press briefing. “We will do everything we can to help.”

New York Attorney General Andrew Cuomo has begun a fraud probe into the life insurance industry and subpoenaed MetLife Inc. and Prudential Financial Inc. and, according to a person briefed on the action, six other companies for information about profits on the retained death benefits.

The investigations, along with a review by the New York State Insurance Department, were prompted by a Bloomberg Markets magazine report that more than 100 carriers earn investment income on $28 billion owed to life insurance beneficiaries. New York-based MetLife, the biggest U.S. life insurer, and No. 2 Prudential are among the firms that administer the so-called retained-asset accounts.

“Until today I actually believed that the families of our fallen heroes got a check for the full amount of their benefits,” Gates said. “This came as news to me.”

Advisory Council
He is among the members of an Advisory Council on Servicemembers’ and Veterans’ Group Life Insurance that oversees the program at the Department of Veterans Affairs. The panel includes the secretaries of defense, commerce, health and human services and homeland security, and the director of the White House budget office. It meets at the call of the secretary of veterans affairs.

Gates told reporters today he didn’t realize he was on the council.

Cuomo, in a statement today, called it “shocking and plain wrong for these multinational life insurance companies to pocket hundreds of millions in profits that really belong to those who have lost family members.” He accused the industry of “hoarding millions that belong to military families.”

As the state widened its probe, Cuomo has subpoenaed Genworth Financial Inc., Unum Group and an insurer acquired by France’s Axa SA, said a person briefed on the demands. New York Life Insurance Co., Northwestern Mutual Life Insurance Co. and Guardian Life Insurance Co. of America also were ordered to turn over information, said the person, who declined to be identified because the subpoenas hadn’t been publicly disclosed.

‘Troubling’
Matthew Gaul, deputy superintendent and head of the New York regulator’s life insurance division, said yesterday in an interview that “it’s troubling that people are not getting an immediate payment and that the insurance companies at least seem to be making some effort to make money off this.”

Cuomo’s subpoena demands information about the difference in interest income earned by the insurers and the rate paid to beneficiaries. His office is also seeking information about how survivors are told about the conditions of the accounts.

Insurance companies may be violating a federal bank law, Bloomberg Markets reported. A 1933 statute makes it a felony for any company to accept deposits without state or federal authorization. The insurer accounts aren’t guaranteed by the Federal Deposit Insurance Corp.

“We’re looking at the legality of this whole process,” Gaul said. “There’s a question of whether this is really a banking business.”

IOUs Issued
MetLife and Newark, New Jersey-based Prudential place death benefits in interest-bearing accounts and issue IOUs to survivors. Insurers market the accounts as a service to allow bereaved beneficiaries time to think about what they’ll do with the payout. Carriers make money by investing the funds in bonds and keeping the difference between returns and the interest they credit to the accounts.

“Beneficiaries have full access to the money in their retained asset accounts and can withdraw the full amount right away or at a later date,” the American Council of Life Insurers, the industry lobby headed by MetLife Chief Executive Officer Robert Henrikson, said in a statement. “Retained asset accounts provide a significant benefit to family members who are dealing with the emotional loss of a loved one.”

Representative Patrick Murphy, a Pennsylvania Democrat and veteran who served in Bosnia and Iraq, wrote Prudential Chairman and CEO John Strangfeld today asking that the company disclose the amount of profit earned on the retained benefits and “return that money to the beneficiaries.”

“Profiteering off the death of troops who sacrificed their lives in Iraq and Afghanistan cannot stand,” Murphy, a member of the House Armed Services Committee, said in the letter. “I will also pursue legislation to ensure this never happens again.”

1 Percent Interest
Prudential paid survivors like Cindy Lohman, the mother of a slain Army sergeant, 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings. Lohman told Bloomberg Markets that her IOUs were rejected twice by salespeople when she tried to use them to make retail purchases.

“The possibility that life insurance companies are profiting inappropriately from these service members’ sacrifice is completely unacceptable,” Mike Walcoff, acting undersecretary for the VA’s Veterans Benefit Administration, said yesterday in a statement that announced an investigation.

Thomas Considine, commissioner of the New Jersey Department of Banking & Insurance, said he instructed staff to question Prudential about Lohman’s rejected IOUs.

New York Regulator
The New York regulator plans to issue a letter to insurers urging greater disclosure of the accounts’ terms and the absence of an FDIC backstop, Gaul said. The watchdog will then consider whether any rules would prohibit insurers from providing the accounts, Gaul said.

Pennsylvania Insurance Commissioner Joel Ario is considering a plan to require insurers to obtain the consent of beneficiaries before creating an account on their behalf. He said in an interview that his staff is studying the issue.

The National Association of Insurance Commissioners, a group of state regulators, said it will reexamine rules about what life insurers must disclose to policyholders about retained-asset accounts.

“Regulators are also reviewing the transaction requirements and terms for the ‘checkbook’ usage associated with these types of policies,” Jane Cline, president of the group, said in an e-mailed statement today.

“Prudential and its Alliance Accounts are in compliance with all applicable laws and regulations,” Bob DeFillippo, a spokesman for Prudential, said yesterday. Christopher Breslin, a spokesman for MetLife, had no comment.

MetLife’s Joseph Madden told the magazine that customers were happy with the accounts.

Backstop for Insurers
Considine, of New Jersey, said his department has never received a complaint about retained accounts. State guarantee funds backstop insurers and provide account holders with protection against default by carriers, Considine said.

“They do bring a very, very real consumer benefit,” Considine, who was familiar with the accounts during his 17-year career at MetLife, said in an interview.

State regulators are supposed to back life policies by raising money from insurers that do business in their state. There are no public records showing how much companies are holding in the retained-asset accounts, Bloomberg Markets reported.

“It appears that the substantial interest earned on these accounts mostly benefit and enrich the insurers at the expense of the families to whom the money really belongs,” Cuomo said. “Beneficiaries are not adequately informed by the insurers of the details of these accounts including the fact that the insurers are making huge profits at the expense of the grieving family.”


To contact the reporters on this story: Andrew Frye in New York at [e-mail]; David Evans in Los Angeles at [e-mail].

Last Updated: July 29, 2010 22:46 EDT



Watch Bloomberg's Evans on Cuomo Probe on Life Insurers
July 29 (Bloomberg) -- Bloomberg's David Evans talks about New York Attorney General Andrew Cuomo's fraud probe into the life insurance industry. Cuomo's office subpoenaed Prudential Financial Inc. and MetLife Inc. for information about profits on death benefits retained from the families of deceased policyholders including military personnel. Cuomo’s investigation was prompted by a Bloomberg Markets magazine report and follows a review by the New York State Insurance Department. Evans speaks with Margaret Brennan and Scarlet Fu on Bloomberg Television's "InBusiness". _______________________________________________________

noir.bloomberg.com/apps/news?pid=newsarchive&sid=af68fvdC2w8I

New York to Probe Legality of Benefit Retention by Insurers


By Andrew Frye and David Evans

July 29 (Bloomberg) -- The New York State Insurance Department plans to review the legality of an industry practice that directs death benefits to accounts managed by carriers on behalf of beneficiaries.

“It’s troubling that people are not getting an immediate payment and that the insurance companies at least seem to be making some effort to make money off this,” Matthew Gaul, deputy superintendent and head of the New York regulator’s life insurance division, said yesterday in an interview.

Gaul’s comments followed a Bloomberg Markets magazine report profiling a practice that allowed more than 100 carriers to retain and earn investment income on $28 billion owed to life insurance beneficiaries. New York-based MetLife Inc., the biggest U.S. life insurer, and No. 2 Prudential Financial Inc. are among the firms that administer these so-called retained- asset accounts, which aren’t guaranteed by the Federal Deposit Insurance Corp.

Insurance companies may be violating a federal bank law, Bloomberg Markets reported. A 1933 statute makes it a felony for any company to accept deposits without state or federal authorization.

“We’re looking at the legality of this whole process,” Gaul said. “There’s a question of whether this is really a banking business.”

MetLife, Prudential
MetLife and Newark, New Jersey-based Prudential place death benefits in interest-bearing accounts and issue IOUs to survivors. Insurers market the accounts as a service to allow bereaved beneficiaries time to think about what they’ll do with the payout. Carriers make money by investing the funds in bonds and keeping the difference between returns and the interest they credit to the accounts.

Prudential paid survivors like Cindy Lohman, the mother of a slain Army sergeant, 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings. Lohman told Bloomberg Markets that her IOUs were rejected twice by salespeople when she tried to use them to make retail purchases.

“Beneficiaries have full access to the money in their retained asset accounts and can withdraw the full amount right away or at a later date,” the American Council of Life Insurers, the industry lobby headed by MetLife Chief Executive Officer Robert Henrikson, said in a statement. “Retained asset accounts provide a significant benefit to family members who are dealing with the emotional loss of a loved one.”

Questioning Prudential
Thomas Considine, commissioner of the New Jersey Department of Banking & Insurance, said he instructed staff to question Prudential about Lohman’s rejected IOUs.

The New York regulator plans to issue a letter to insurers urging greater disclosure of the accounts’ terms and the absence of an FDIC backstop, Gaul said. The watchdog will then consider whether any rules would prohibit insurers from providing the accounts, Gaul said.

Pennsylvania Insurance Commissioner Joel Ario is considering a plan to require insurers to obtain the consent of beneficiaries before creating an account on their behalf. He said in an interview that his staff is studying the issue.

“Prudential and its Alliance Accounts are in compliance with all applicable laws and regulations,” Bob DeFillippo, a spokesman for Prudential, said yesterday. Christopher Breslin, a spokesman for MetLife, had no immediate comment. MetLife’s Joseph Madden told the magazine that customers were happy with the accounts.

State Protection
Considine, of New Jersey, said his department has never received a complaint about retained accounts. State guarantee funds backstop insurers and provide account holders with protection against default by carriers, Considine said.

“They do bring a very, very real consumer benefit,” Considine, who was familiar with the accounts during his 17-year career at MetLife, said in an interview. Insurers shouldn’t be required to obtain consent to open accounts for beneficiaries because sometimes the bereaved aren’t ready to consider their options for the cash, Considine said.


To contact the reporters on this story: Andrew Frye in New York at [e-mail]; David Evans in Los Angeles at [e-mail].

Last Updated: July 29, 2010 00:00 EDT


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Watch `Shadow Banking System' of Retained Asset Accounts
July 28 (Bloomberg) -- David Evans talks with Bloomberg's Scarlet Fu about his investigation into retained-asset accounts by life insurers and how the insurers profit from these accounts at the expense of grieving families.




Watch Evans Says Government to Probe Soldiers' Death Benefits
July 28 (Bloomberg) -- Bloomberg's David Evans talks about the U.S. Department of Veterans Affairs plans to conduct an investigation into a report that life insurance companies are putting veterans' death benefits in corporate accounts and keeping most of the investment profits instead of paying the survivors. The agency responded today to a report in Bloomberg Markets magazine on what has become a standard practice for life insurance policies issue by companies including Prudential Financial Inc. and MetLife Inc. Evans speaks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart."

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noir.bloomberg.com/apps/news?pid=newsarchive&sid=aF133j0QyP30


Fallen Soldiers’ Families Denied Cash Payout as Insurers Profit


By David Evans


July 28 (Bloomberg) -- The package arrived at Cindy Lohman’s home in Great Mills, Maryland, just two weeks after she learned that her son, Ryan, a 24-year-old Army sergeant, had been killed by a bomb in Afghanistan. It was a thick, 9-inch-by- 12-inch envelope from Prudential Financial Inc., which handles life insurance for the Department of Veterans Affairs.

Inside was a letter from Prudential about Ryan’s $400,000 policy. And there was something else, which looked like a checkbook. The letter told Lohman that the full amount of her payout would be placed in a convenient interest-bearing account, allowing her time to decide how to use the benefit.

“You can hold the money in the account for safekeeping for as long as you like,” the letter said. In tiny print, in a disclaimer that Lohman says she didn’t notice, Prudential disclosed that what it called its Alliance Account was not guaranteed by the Federal Deposit Insurance Corp., Bloomberg Markets magazine reports in its September issue.

Lohman, 52, left the money untouched for six months after her son’s August 2008 death.

“It’s like you’re paying me off because my child was killed,” she says. “It was a consolation prize that I didn’t want.”

As time went on, she says, she tried to use one of the “checks” to buy a bed, and the salesman rejected it. That happened again this year, she says, when she went to a Target store to purchase a camera on Armed Forces Day, May 15.

‘I’m Shocked’
Lohman, a public health nurse who helps special-needs children, says she had always believed that her son’s life insurance funds were in a bank insured by the FDIC. That money -- like $28 billion in 1 million death-benefit accounts managed by insurers -- wasn’t actually sitting in a bank.

It was being held in Prudential’s general corporate account, earning investment income for the insurer. Prudential paid survivors like Lohman 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds, according to regulatory filings.

“I’m shocked,” says Lohman, breaking into tears as she learns how the Alliance Account works.

“It’s a betrayal. It saddens me as an American that a company would stoop so low as to make a profit on the death of a soldier. Is there anything lower than that?”

Millions of bereaved Americans have unwittingly been placed in the same position by their insurance companies. The practice of issuing what they call “checkbooks” to survivors, instead of paying them lump sums, extends well beyond the military.

Touching Americans
In the past decade, these so-called retained-asset accounts have become standard operating procedure in an industry that touches virtually every American: There are more than 300 million active life insurance policies in the U.S., and the industry holds $4.6 trillion in assets, according to the American Council of Life Insurers.

Insurance companies tell survivors that their money is put in a secure account. Neither
Prudential nor MetLife Inc., the largest life insurer in the U.S., segregates death benefits into a separate fund.

Newark, New Jersey-based Prudential, the second-largest life insurer, holds payouts in its own general account, according to regulatory filings.

New York-based MetLife has told survivors in a standard letter: “To help you through what can be a very difficult, emotional and confusing time, we created a settlement option, the Total Control Account Money Market Option. It is guaranteed by MetLife.”

No FDIC Insurance
The company’s letter omits that the money is in MetLife’s corporate investment account, isn’t in a bank and has no FDIC insurance.

“All guarantees are subject to the financial strength and claims-paying ability of MetLife,” it says.

Both MetLife, which handles insurance for nonmilitary federal employees, and Prudential paid 0.5 percent interest in July to survivors of government workers and soldiers. That’s less than half of the rate available at some banks with accounts insured by the FDIC up to $250,000.

Bank of New York Mellon Corp. handles the paperwork and monthly statements for customers with MetLife “checking accounts.” The insurance company, not the bank, most recently reported holding about $10 billion in death benefits, in 2008.

The “checkbook” system cheats the families of those who die, says Jeffrey Stempel, an insurance law professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas, who wrote ‘Stempel on Insurance Contracts’ (Aspen Publishers, 2009).

‘Bad Faith’
“It’s institutionalized bad faith,” he says. “In my view, this is a scheme to defraud by inducing the policyholder’s beneficiary to let the life insurance company retain assets they’re not entitled to. It’s turning death claims into a profit center.”

Prudential’s Alliance Account is helpful to families of soldiers, says company spokesman Bob DeFillippo.

“For some families, the account is the difference between earning interest on a large amount of
money and letting it sit idle,” he says. Prudential follows the law, he says.

“We fully and regularly disclose the nature and terms of the account to account holders,” DeFillippo says. “We make it clear that the money can be withdrawn at any time by simply writing a draft.”

Metlife spokesman Joseph Madden says his company’s customers are very happy with the Total Control Account.

‘Overwhelmingly Positive’
“The feedback from TCA customers has been overwhelmingly positive,” he says. “The TCA affords beneficiaries security, peace of mind and time to make an informed decision -- while earning interest in the interim.”

Madden says the company was paying some survivors 0.5 percent in July while some others got 1.5 percent or 3 percent, depending on the age and origin of insurance accounts. The accounts don’t violate any laws, Madden says, and are authorized by New York state insurance law.

Insurers are holding onto at least $28 billion owed to survivors, according to three firms that handle retained-asset accounts for about 130 life insurance companies. There are no public records showing how much companies are holding in these accounts.

The “checks” that Cindy Lohman wrote, the ones rejected by retailers, were actually drafts, or IOUs, issued by Prudential. Even though the “checks” had the name of JPMorgan Chase & Co. on them, Lohman’s funds weren’t in that bank; they were held by Prudential.

Federal Bank Law
Before a check could clear, Prudential would have to send money to JPMorgan, bank spokesman John Murray says.

Insurance companies -- in addition to holding onto the money of survivors, paying them uncompetitive interest rates and giving them misleading guarantees -- may be violating a federal bank law. A 1933 statute makes it a felony for any company to accept deposits without state or federal authorization.

That means only banks or credit unions can accept deposits, says Arthur Wilmarth, a professor at George Washington University Law School in Washington who has testified before Congress about banking regulations.

If a prosecutor pressed an insurance company, retained- asset accounts could be outlawed because insurers say they deposit money into these accounts and don’t have bank charters or banking regulation, Wilmarth says. MetLife also offers its own version of certificates of deposit.

“If it swims, quacks and flies like a duck, the court could decide that it is indeed a duck,” he says. “You then potentially could have a criminal violation.”

Potential Bank Run
This unregulated quasi-banking system operated by insurers has none of the protections of the actual banking system. Lawrence Baxter, a professor at Duke University School of Law in Durham, North Carolina, says the potential exists for a catastrophe.

If one insurer is unable to meet its obligations on retained-asset accounts, people could lose faith in other companies and demand immediate payment, triggering a panic, says Baxter, who has consulted with federal agencies on financial regulation.

The government established the FDIC in 1933 after frantic depositors tried to pull their money from banks. The federal government has no such program for death-benefit accounts.

“There’s more than $25 billion out there in these accounts,” Baxter says. “A run could be triggered immediately by one insurance company not being able to honor its payout. The whole point of creating the FDIC was to put an end to bank runs.”

No Federal Regulation
The sweeping financial regulatory legislation signed by President Barack Obama on July 21 doesn’t address retained-asset accounts. It creates a new federal insurance office, which won’t be a regulator. It will collect information, monitor the industry for systemic risk and consult with state insurance regulators.

An industry with $19.1 trillion in potential liabilities will remain unregulated by the federal government. In 2008, insurers approved claims totaling $60 billion in death benefits, according to the life insurance council.

The federal government doesn’t even regulate the life insurance it supplies, via MetLife, to its own employees in a program called Federal Employees’ Group Life Insurance. As the VA does for soldiers, the U.S. Office of Personnel Management sends handbook to nonmilitary government workers -- some 4 million active employees and retirees.

The handbook says their life insurance policies automatically pay out death benefits in the form
of a “money- market-account checkbook.” The 217-page handbook omits that the money isn’t
FDIC insured and will stay with MetLife until someone writes a “check.”

‘Unfair Advantage’
This lack of disclosure is unconscionable, says Harvey Goldschmid, a commissioner of the U.S. Securities and Exchange Commission from 2002 to 2005.

“I can’t imagine why bank regulators haven’t been requiring a prominent ‘no FDIC insurance’ disclosure,” says Goldschmid, who’s now a law professor at Columbia University in New York.

“This system works very badly for the bereaved. It takes unfair advantage of people at their time of weakness.”

The closest relative to retained-asset accounts may be money-market mutual funds, which are pools of cash invested in short-term debt securities.

Money Market Rules
The SEC requires fund companies to warn investors that money market funds don’t have FDIC insurance. It also mandates that fund managers provide a prospectus, that they invest in specific types of safe debt and that they post a detailed schedule of their investments monthly on their websites.

Insurers’ retained-asset accounts have none of those regulatory protections.

A June 2009 MetLife standard condolence letter to survivors leaves out that accounts aren’t in a bank and aren’t federally insured. In June 2010, 25 years after MetLife invented retained- asset accounts, the company released a customer agreement that does disclose that retained assets aren’t in a money market account nor in a bank and that they have no FDIC insurance.

“The assets backing the Total Control Accounts are maintained in MetLife’s general account and are subject to MetLife’s creditors,” the agreement says. That language contradicts the federal employee handbook, which says survivors get a money market account.

Gerry Goldsholle, the man who invented retained-asset accounts, says MetLife makes $100 million to $300 million a year from investment returns on the death benefits it holds. A former president of MetLife Marketing Corp., Goldsholle, 69, devised the accounts in 1984. He’s now a lawyer in private practice in Sausalito, California.

‘This Is Crazy’
Goldsholle says he pondered the billions of dollars of death-benefit proceeds the company paid out each year.

“I looked at this and said this is crazy,” says Goldsholle, who left the firm in 1991. “What are we doing to retain some of this money? It’s very expensive to bring money in the front door of an insurance company. You’re paying very large commissions and sales expenses.”
So he came up with a way for MetLife to hold onto death benefits.

“The company would win because we would make a nice spread on the money,” Goldsholle says, while customers would earn interest on their accounts. MetLife, he says, can earn 1 to 3 percentage points more from its investment income -- mostly from bonds -- than it pays out to survivors.

Misconceptions
The accounts Goldsholle invented have spread much faster than the ability of state regulators to track them -- or even to understand how they work. Ted Hamby, North Carolina’s deputy insurance commissioner for life and health, says he believes retained-asset accounts have FDIC protection.

“Whatever money is on deposit in that checking account will be insured, up to the limits of the FDIC,” he says. He’s wrong. No retained-asset accounts have FDIC coverage.

In Connecticut, where 106 insurance companies are based, state insurance department manager for market conduct Kurt Swan also says that retained-asset accounts are kept in banks, with FDIC coverage.

“I think they’re just trying to offer some flexibility to the beneficiary,” he says. Swan and his colleague, William Arfanis, the department’s principal financial examiner, both say the insurers don’t profit from the retained-asset accounts. That too is wrong. The companies do earn investment gains on death benefits.

Some Rules
Just six states had any rules for retained-asset accounts as of July 2009, according to the National Association of Insurance Commissioners. Arkansas, Colorado, Kansas, Nevada, North Carolina and North Dakota require insurers to disclose fees and interest rates and to tell survivors they may withdraw all of the money by writing a single check.

Maryland, which isn’t on the NAIC list, also has rules.

Pennsylvania Insurance Commissioner Joel Ario, whose state has no rules for retained-asset accounts, says he has asked his staff to prepare a regulation forbidding insurance companies from using such accounts as the default method of paying a death claim.

“I haven’t heard a plausible argument about why these accounts are better for the consumer,” Ario says.

If state insurance regulators have paid scant attention to retained-asset accounts, state bank regulators have taken an even more hands-off approach.

‘Not Drawn Attention’
“Quite honestly, we deal with issues that our members want us to deal with,” says Michael Stevens, senior vice president for regulatory policy at the Washington-based Conference of State Bank Supervisors. “This is not one that has drawn their attention.”

Three companies have not only noticed but have also profited by handling retained-asset accounts for insurers. Open Solutions Inc., based in Glastonbury, Connecticut, oversees 400,000 accounts for 67 insurance companies.

Open Solutions sends out “checkbooks,” prints periodic statements and computes accrued interest for accounts with total deposits of $10 billion, says Jay Woldar, director of sales and account management at Open Solutions.

One of its competitors, Bank of New York Mellon, administers more than 500,000 retained-asset accounts holding a total of $14 billion, including MetLife’s retained assets. Chicago-based Northern Trust Corp. handles about $4 billion in 125,000 accounts, spokesman John O’Connell says.

Survivors generally don’t touch these accounts immediately.

Accounts Stay Opened
“About 40 percent of the money stays in for more than a year,” Woldar says. Insurers can have use of survivors’ money for years, even decades, says Randi Lichtenstein, a product line manager at Bank of New York.

“They can stick around for quite a while,” she says. “There are accounts that all insurance companies have on these platforms that go back 10, 15, 20 years.”

MetLife’s Madden says most of its customers’ retained-asset accounts are closed within one year. About 28 percent of survivors of soldiers and veterans keep their retained-asset accounts open for more than two years, the VA says.

During a routine audit completed in 2004, the New York State Insurance Department found that 1,476 retained-asset accounts, worth a total of $33.5 million, at Hartford, Connecticut-based Phoenix Life Insurance Co., had been dormant for more than three years.

In New York, funds in an account that remains dormant for more than three years may be turned over to the state. Phoenix spokeswoman Alice Ericson says the company now has a policy of sending letters to people whose accounts have been inactive for two years.

Inactive Accounts
Almost one-third of the 6,890 retained-asset accounts run by Mony Life Insurance Co. were inactive for more than three years, New York auditors found in 2002. Mony is now owned by Axa SA, Europe’s second-largest insurer by market value.

A few people have sued insurers over the use of retained- asset accounts. Prudential won a lawsuit in 2009 in which a survivor complained about the Alliance Account. MetLife has a case pending in which a survivor says that she was cheated by the retained-asset account. In court-filed papers, MetLife denies any wrongdoing.

There has been only one ruling by a federal appellate court on the substance of such accounts -- and it went against an insurance company.

After a federal judge in Boston dismissed a policyholder suit claiming that Chattanooga, Tennessee-based insurer Unum Group was stealing account earnings from survivors, the U.S. Court of Appeals for the First Circuit overruled the lower court in 2008. It reinstated the case.

‘Euphemistically Named’
“The euphemistically named ‘Security Account,’ accompanied with a checkbook, was no more than an IOU which did not transfer the funds to which the beneficiaries were entitled out of the plan assets,” the three-judge panel wrote.

Unum spokeswoman Mary Clarke Guenther says retained-asset accounts are a commonly accepted practice in the industry. The case is pending.

Absent regulatory or legal intervention, bereaved family members like Cindy Lohman will continue to find death benefits going into retained-asset accounts. Her son, Ryan, posthumously received a Purple Heart and Bronze Star Medal for sacrificing his life to save fellow soldiers in Afghanistan in August 2008.

He had ordered a Humvee to swerve to avoid an explosive device, exposing himself to its deadly blast.

‘Accept The Reality’
Three days after learning of her son’s death, Lohman says, an Army casualty assistance officer came to her home, explaining that Ryan had a life insurance policy and that her signature was needed to release the money.

“By signing that, it forced me to accept the reality that he was dead and not coming back,” she says.

Since 1999, the VA has allowed Prudential to send survivors “checkbooks” tied to its Alliance Account. In 2009 alone, the families of U.S. soldiers and veterans were supposed to be paid death benefits totaling $1 billion immediately, according to their insurance policies. They weren’t.

Prudential’s VA policies promise either a lump sum payout or 36 monthly payments. About 90 percent of survivors, including Lohman, choose to receive the full amount upfront. When they do, they don’t get a check; they get a “checkbook.”

Under a 2008 law, survivors covered by Prudential’s VA policy are allowed one year to put death benefits into a Roth IRA, allowing them to earn investment gains for the rest of their lives tax-free. Prudential never informed Lohman, she says.

‘If They Had Told Me’
“I definitely would have done that if they had told me,” Lohman says.

Even Stephen Wurtz, deputy assistant director for insurance at the VA, who has overseen the insurance program for 25 years, has been kept in the dark by Prudential.

“Prudential runs the program on a cost-reimbursement basis only,” he initially said, referring to the $4.2 million in fees the VA paid Prudential in 2009. “They’re really good guys. They do it patriotically. They don’t make any money from the Alliance Account.”

Wurtz, 62, said he had believed that the Alliance Account money went into a bank. After he learned that the payouts actually stayed in Prudential’s general fund, Wurtz says, he asked Prudential how much money the insurance company made from these accounts and how many dollars it held in retained assets.

Prudential declined to answer, saying that information was proprietary, Wurtz says.

‘Maybe I Didn’t’
Prudential, which has had the insurance contract with the VA since 1965, pitched the checkbook payout to the VA in 1999 as an added benefit to survivors, Wurtz says. The government agency accepted Prudential’s offer, he says.

“Maybe I didn’t ask enough questions,” he says.

Printed on each “check,” next to “Prudential’s Alliance Account” is the name of JPMorgan, the second-biggest U.S. bank by assets. JPMorgan spokesman Murray declined to say how much the bank is paid for its role with Prudential.

The way Prudential has set up the “checks” implies that JPMorgan stands behind the accounts and that they are thus backed by the FDIC, Duke’s Baxter says.

“That’s misleading the beneficiaries,” he says.

“We disclose the roles of all companies involved in administering these accounts,” Prudential’s DeFillippo says. JPMorgan’s Murray declined to comment.

Prudential’s general account earned 4.4 percent in 2009, mostly from bond investments, according to SEC filings. The company has paid survivors 0.5 percent in 2010.

‘It’s Shameful’
“It’s shameful that an insurance company is stealing money from the families of our fallen servicemen,” says Paul Sullivan, who served in the 1991 Gulf War as an Army cavalry scout and is now executive director of Veterans for Common Sense, a nonprofit advocacy group based in Washington. “I’m outraged.”

Sullivan, a project manager at the VA’s benefits unit from 2000 to 2006, says he was never told Prudential kept money and earned investment gains from soldiers’ insurance payouts instead of sending it to survivors.

“There shouldn’t be secret profits,” he says. “This should be transparent. The lack of oversight is appalling.”

It’s not much different for the 4 million nonmilitary U.S. government employees and retirees -- including staff of the FDIC -- covered by MetLife policies. That program, begun in 1965, averages more than $2 billion in death benefits claimed every year, the government says.

Payouts are handled by the Office of Federal Employees’ Group Life Insurance. That makes it look like the government is taking care of its employees’ insurance coverage. It isn’t. That “office” is a unit of MetLife.

MetLife Holds the Money
Edmund Byrnes, a spokesman for the Office of Personnel Management, which oversees MetLife’s federal employee contract, says MetLife segregates death benefits into beneficiary accounts after it approves death claims.

“Once MetLife transfers the funds to the Total Control Account, the monies are no longer under MetLife’s control,” Byrnes says.

MetLife spokesman Madden says something different.

“The assets that back the liabilities on all the TCAs are placed in MetLife’s general account,” he says.

Back at the Veterans Affairs office, Deputy Assistant Director Wurtz, who’s a civilian employee, says he now understands for the first time that since he’s covered by the federal insurance program, his own wife could receive a MetLife “checkbook” someday.

‘Ripping Off Their Own’
“Uncle Sam is ripping off their own,” Wurtz says. “My wife would get the money, and they would blood-suck some of it out of her.”

It took Wurtz, who’s been working with insurers for most of his career, more than a decade to understand how retained-asset accounts work. Companies like MetLife and Prudential have never told millions of Americans with insurance policies that when they die, the insurer plans to hold their family’s money in its own account to make investment gains from the death benefit.

“It’s outrageous that somebody’s profiting off other people’s grief,” says Mark Umbrell of Doylestown, Pennsylvania. His 26-year-old son, Colby, an Army Airborne Ranger who earned a Bronze Star and a Purple Heart, was killed in Iraq in May 2007. Umbrell was among those who got a “checkbook” account.

“I think we’re being taken,” he says.

The question for Umbrell, Lohman and a million others with these accounts is whether anything will change. State bank regulators say if there are to be any reforms, they should be made by insurance departments. Officials at those state agencies often say they don’t even understand what a retained-asset account is.

“It’s flown under the radar,” professor Stempel says. “Regulators have not done their job.”
Until public officials wake up, the bereaved will remain a secret profit center for the life insurance industry.


To contact the reporter on this story: David Evans in Los Angeles at [e-mail].

Last Updated: July 28, 2010 10:00 EDT




ty joye

[sandi66]

[ ... “I think most members of Congress don’t know what Basel is.” The Basel II rules announced in 2004 are still being implemented by U.S. banks, a process that won’t be completed until the first quarter of next year.]


noir.bloomberg.com/apps/news?pid=newsarchive&sid=ayielbHdJ0kM


Dodd, Frank Plan to Hold Hearings on Basel Capital Regulations


By Yalman Onaran and Alison Vekshin


July 29 (Bloomberg) -- Christopher Dodd and Barney Frank, authors of the U.S. financial overhaul, plan hearings on the status of global talks to revise bank-capital standards amid worries that proposed rules are being watered down.

“I am concerned the recent proposals out of Basel will result in weak and perhaps even nonbinding provisions that provide credit to banks for holding forms of capital that have little or no value in absorbing losses,” said Senator Ted Kaufman, Democrat of Delaware. “The financial reform bill includes only a promise of higher capital requirements for U.S. banks, which we were told were going to be negotiated on an international level.”

The Senate Banking Committee, chaired by Dodd, will hold the discussions on the Basel process in September, said Sean Oblack, a spokesman for the Connecticut Democrat. Frank, the Massachusetts Democrat who heads the House Financial Services Committee, also plans to hold a hearing on the subject, said spokesman Steven Adamske. Neither panel has set a date nor decided who will be asked to testify.

Congress is turning its attention to global rule-making after having completed its financial reform efforts earlier this month, capping almost two years of partisan and intra-party fighting. The Basel Committee on Banking Supervision this week relaxed some of its capital and liquidity proposals, winning praise from banks worldwide. The negotiations are scheduled to be concluded by November.

“The hearing is our idea and will be part of our examination of the implementation of Dodd-Frank, including international regulatory harmonization,” Oblack said in a statement.

Call for a Hearing
Last week, Texas Representative Randy Neugebauer, a Republican, called on Frank to set up a hearing on Basel, saying Congress must know more about the process and its potential impact on the U.S. financial system.

The new rules, informally known as Basel III, would force banks to double their capital levels, some analysts expect. Since the onset of the credit crisis in 2008, U.S. voters favor tougher bank regulations, opinion polls show.

Some European governments are bowing to pressure by their banks as the region’s economic recovery stalled. France and Germany have led efforts to weaken the regulations proposed by the Basel committee last year, according to bankers, regulators and lobbyists involved in the talks.

The Basel committee said this week it agreed to continue allowing some assets, including banks’ minority stakes in other financial firms, to count in part as capital, reversing a plan to ban their use. It also expanded the definition of what counts as liquid assets and gave banks until 2018 to comply with a new leverage ratio designed to rein in risk-taking.

Leadership
A long-term liquidity ratio that analysts estimated would have forced banks to sell more than $4 trillion of debt also won’t be imposed for eight years.

“The U.S. must provide strong leadership in the Basel negotiations or we will be left with international bank standards that once again are based on the lowest common denominator,” Kaufman, who has spoken out on the Basel process before, said in an e-mail message.

U.S. lawmakers held similar hearings in 2005 and 2006, after the committee of regulators and central bankers approved standards known as Basel II. Congress was seeking to gauge the impact of proposed rules on U.S. banks.

“Basel and capital requirements are not something that have been focused on on Capitol Hill for years and years,” Frank Kelly, head of government affairs in the Americas for Deutsche Bank AG, told analysts on a conference call. “I think most members of Congress don’t know what Basel is.”

The Basel II rules announced in 2004 are still being implemented by U.S. banks, a process that won’t be completed until the first quarter of next year.


-- With assistance from Christine Harper in New York. Editors: Dan Reichl, Andreea Papuc
To contact the reporters on this story: Yalman Onaran in New York at [e-mail]; Alison Vekshin in Washington at [e-mail].

Last Updated: July 28, 2010 20:09 EDT

[sandi66]

China seeks to widen gold market


By Leslie Hook in Beijing
August 3 2010 19:27

China has moved to liberalise its gold market further, increasing the number of banks allowed to trade bullion internationally and announcing measures that will encourage development of gold-linked investment products.

The move by Beijing’s central bank comes as the country’s investors pour record amounts of money into gold, in a trend that is becoming a significant factor on global prices.

Last year, Chinese investors bought 73 tonnes of bullion, up from 18 tonnes in 2007. The new policies were likely to increase liquidity in the domestic gold market and spur the development of gold financial products, analysts said.

China is the world’s largest gold producer and the second-largest consumer, after India, but its domestic market remains constrained by limited investment products.

“This is a positive sign for the gold market,” said James Steel, precious metals strategist at HSBC in New York.

“The Chinese statement reaffirms the vigour of the emerging markets’ demand for retail physical bullion.”

Gold prices rose in London, partly on the back of China’s announcement, but also on signs of robust buying from India’s jewellery sector.

Spot bullion traded at $1,190 a troy ounce, up from a three-month low of less than $1,160 an ounce last week.

GFMS, the London-based precious metals consultancy, said recently that Chinese investors, who are building wealth at an unprecedented rate, were diversifying their assets into gold to “protect themselves against inflation”.

The People’s Bank of China said “the need to perfect foreign exchange policies in the gold market is clear.”

It called for better financing services for bullion, opening the door for Chinese banks to hedge their gold risk overseas.

The central bank also hinted at changes in taxes on bullion. But it failed to endorse gold as an investment and to suggest it planned to increase the size of its bullion reserves, one of the world’s largest.

The new gold guidelines are part of the gradual internationalisation of the Chinese banking system. Restrictions on some renminbi-denominated investment products in Hong Kong have been lifted recently, and renminbi cross-border settlement programmes have been expanded this year.

Additional reporting by Javier Blas in London

www.ft.com/cms/s/0/49c6bbac-9f2a-11df-8732-00144feabdc0.html

[sandi66]

The secured lending boom (through gold-tinted glasses)


Posted by Izabella Kaminska on Aug 03 15:11.


There have been some intriguing developments in the precious metal markets since August 2007, not least:

* 346 tonnes of BIS gold swaps.
* The fact that rather than traditional swaps, these BIS deals were actually collateralised repo loans, using gold.
* The 250bn SDR special allocation in September 2009.
* 403 tonnes of IMF gold sales.

We propose that the first place to look to try and figure out the driver for all of this activity might actually be the US Treasury repo market itself. Why? At the very least, to determine if there is a chance these transactions could be related to gold and silver having become the optimum benchmark in collateralised lending.

We come to this notion because an article in Risk Magazine’s July edition recently referred to a very interesting development in funding post-Lehman. Namely, the emergence of a two-tiered system (yes, again) in which those who have the means to pledge collateral to secure interest-rate swaps receive rates below Libor, while those who can’t receive rates (which can vary greatly according to the institution) much above Libor.

This is because, for collateralized deals, the pricing convention is increasingly turning to the overnight-indexed rate, as opposed to Libor.

The reason for this convention shift being, since collateralized swaps are marked to market and with variation margin posted daily, they are in a sense almost risk free. Of course, that’s only providing the collateral being pledged is good enough.

Risk explained it thus:

Trades between banks are subject to credit support annex (CSA) agreements and so are backed by collateral. It is now generally accepted the future cashflows on these trades should be discounted using an OIS curve – creating a mismatch in dealer books between collateralised and uncollateralised transactions.

——-
Clients might prefer to use high-quality banks when receiving fixed and poorer credit banks with higher costs of funding when paying fixed. “It may be to the advantage of clients to be able to say ‘for that kind of swap, I am going to use Bank X or Bank Y’. For dealers, it is not so good because there is a discrepancy in pricing methodology,” says Banks of BNP Paribas.

Meanwhile, as ISDA’s margin service report in March noted:

Collateralization rates are almost uniformly higher among the largest 15 OTC derivatives dealers than for the rest of the sample. Large dealers report that 78 percent of their overall trade volume is subject to collateral agreements, compared to 68 percent of Medium and Small firms, with percentages ranging between 97 percent of their credit derivatives trades on the high end and 62 percent of energy and other commodity derivatives on the low end.

The rise of collateralisation was also highlighted, less directly, in the following report in the Journal of Economic Finances:

Findings – Recent evidence indicates that the “safe harbor” provisions, in fact, destabilized the financial system by encouraging collateralized interbank lending, discouraging careful analysis of the credit risk of counterparties and increasing the risk that creditors will run on a financial firm.

So while the interbank has begun to function again, the lending has come at the cost of a preference for ‘interbank collateralised’ deals. Hence, conditions for those who can provide sound collateral are much better than for those who can’t.

The ECB looked into the development of this so-called collateralised lending regime back in November. Here’s a chart from the report reflecting the breakout between the two rates in the US:




The ECB also went on to suggest in its research paper that interbank lending troubles may have unwittingly spilled over into the secured market, with volatilities in the repo market running high due to general scarcity of good quality collateral.

As they concluded:

Despite the presence of collateral, the disruptions in the unsecured interbank market during the 2007-2009 financial crisis have also affected secured markets. This paper presents a model of secured and unsecured interbank lending in the presence of credit risk. Credit risk premia in the unsecured market will affect the price of riskless bonds when they are used to manage banks’ liquidity shocks.

_______________________

So how does this relate to gold?

Well, for one — you’ll see from the following charts that the gold lease rate (Libor minus gold forward) has traditionally echoed the secured/unsecured spread, because of the fact that gold is simply the ultimate collateral.

Here, for example, is the secured/unsecured US rate differential first (essentially an update of the chart above) compared with the 3 month-gold lease rate – click to enlarge:



So in that sense, the gold forward (GOFO) rate itself can be treated as the interest an institution pays for a loan denominated in dollars using gold as collateral.

GOFO thus becomes a good proxy for the overall price of collateralised borrowing, especially if you add to it the rate the cost of gold storage borne by the lender of funds.

Of course, since it is a collateralised loan, it also makes sense the rate should be below Libor — to reflect the risk-free collateralised nature of the loan.

So what does it mean if the gold forward rate is above the Libor rate? As far as we can see, simply the fact that some banks are willing to pay over the Libor rate to access funds collateralised with gold.

That’s either because Libor is not indicative of the real cost of borrowing, or because the number of institutions funding themselves via collateralised interbank lending is now much greater than those funding themselves with unsecured interbank lending.

And since, by definition, borrowing collateralised by gold should not be more expensive than the cost of storage over US Treasury collateralised borrowing – especially now that treasuries, like gold, are pretty much zero yielding– there’s an effective arbitrage for anyone who can store gold cheaply.

Given the above, it makes perfect commercial sense for the BIS to want to borrow funds at the higher gold secured rate (GOFO) rather than invest them unsecured at Libor.

But there is one other fact to bear in mind. If GOFO is essentially a proxy for collateralised interbank borrowing , what does it mean when the traditional relationship between the secured/unsecured rate and the gold lease rate begins to break down above and beyond the cost of gold storage?

We don’t know, but here’s a closer look at the more recent past in the two spreads:

[Suppressed Image]

And the 3-month gold lease rate:

Does the trend suggest that the rate for collateralised repo loans was threatening to go negative too?

[sandi66]

An August Surprise from Obama?
Aug 5, 2010 00:26 EDT

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

2) Wall Street banks are alerting their clients privately to this possibility. Here is what some are cautiously saying publicly. This from Goldman Sachs:

GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy in 2H 2001.

And this from Mizuho Securities:

As policy makers ponder their next move the data suggests that they face not only a stalling recovery but a growing risk of deflation taking root in the economy. As a result, the Administration has turned back to industrial policies by approving the purchase of a sub-prime auto lender by GM as a means for pumping up domestic sales, especially since the latest auto sales data indicates that consumers are still responsive to incentives. This precedent increases the risk that the government will use its control of Fannie and Freddie to increase consumer cash flow and juice the economy again.

Moreover, Morgan Stanley is pushing a mortgage relief plan directly to Congress. On August 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.

3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.

But that is not happening. What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.

4) And don’t think the White House is worried about financial market reaction. If they thought it would pass Congress, they would be submitting a $200 billion Stimulus 2.0 (3.0?, 4.0?) right now.

August is supposed to be a slow month for Washington politics. But maybe not this one.

blogs.reuters.com/james-pethokoukis/2010/08/05/an-august-surprise-from-obama/



ty nalmann

[sandi66]

August 6, 2010, 2:04 AM HKT

Wealth Report: Is Li Ka-shing on the Billionaires’ Charity Bandwagon?

By Yvonne Lee

Bill Gates and Warren Buffett corralled some big names when they released a list of 40 rich donors who pledged to give more than half of their fortunes to charity. But the list was underweight in one area: billionaires outside the U.S.

So the question was a natural one for Li Ka-shing, the Hong Kong billionaire who ranks as one of the richest men in Asia as well as the world. Mr. Li is already a pioneer in this area: In recent years he pledged a third of his wealth to his Li Ka Shing Foundation, which supports Chinese colleges and other causes and was among the first major charitable endeavors of Asia’s new ultrawealthy class.

Appearing at the earnings presentation for his Hong Kong conglomerate, Hutchison Whampoa, the 82-year-old Mr. Li dodged a question about the Gates-Buffett list by saying he is still healthy and well. He then repeated his oft-used phrase that his eponymous foundation is like his third child.

He added that the foundation has donated 5.3 billion Hong Kong dollars – roughly $678 million – since 2008. Since it was founded in 1980, the foundation has donated more than HK$10 billion, with either he or one of his directors taking an active role in managing around 80% to 90% of the foundation’s charitable projects.

“Over the last 30 years, my foundation has given out more than HK$10 billion,” he said. “In the next 10 years I believe my foundation will donate more than that amount.”

blogs.wsj.com/chinarealtime/2010/08/06/is-li-ka-shing-on-the-billionaires-charity-bandwagon/

[sandi66]

Friday, August 6, 2010 - 07:54

FinSys Update:China Stress Testing Commcl Banks On R-Est Risk

WASHINGTON (MNI) - The following are events and news reported Friday ET related to the financial crisis and other top news in the global financial system:

* Commercial banks and industries involved in the property sector are being stress-tested by regulators in a bid to assess the scale of risk from exposure to real estate, the Shanghai Securities Journal reported Thursday, citing sources. The report said that the China Banking and Regulatory Commission (CBRC) will carry out stress-tests on commercial banks, particularly those involved in cities where property prices have the potential to fall greatly. [Updated 22:17 ET]

* China's banking regulator has sought to reassure over stress tests designed to see how banks and industries would respond to a 60% fall in house prices, saying that the tests are not indicative of where the regulator sees the market going or any change to existing policy. "Stress tests and these sorts of scenarios depend on the capital of each individual bank (and) the ability to face and handle risk," the China Banking Regulatory Commission said in a statement issued late Thursday. [03:43 ET]

* The U.S. federal budget deficit was about $1.2 trillion for the first 10 months of fiscal year 2010, the Congressional Budget Office estimated in its monthly budget review released Thursday evening -- about $90 billion less than the roughly $1.3 trillion deficit incurred through July 2009. Outlays are about 2.5 percent lower than they were last year at this time, and revenues are about 1 percent higher. The deficit in July was $169 billion, CBO estimates, $11 billion less than the shortfall recorded a year ago. [Repeated 07:16 ET]

* Leading indicators in June "point to a possible peak in expansion," the Organization for Economic Cooperation and Development said Friday. Composite leading indicators (CLIs) for France, Italy, China and India "all point to below-trend growth in coming months," while the CLI for Britain "points to a peak in the pace of expansion," the OECD said. The CLI for the OECD area fell back 0.1 point in June, pulled down by declines in France (-0.6 pt), the UK (-0.4 pt), Canada (-0.3 pt) and the US (-0.1 pt). Further monthly gains were registered in Japan (+0.1 pt) and especially Germany (+0.6 pt), while Italy was stable. Declines were also seen in China and India (both -0.4 pt), while Brazil was unchanged and Russia advanced (+0.1 pt). [06:14 ET]

* Production in Germany's industrial sector unexpectedly fell back in June, as further gains in energy output were more than offset by a contraction in manufacturing and construction, the Economics Ministry reported on Friday. Since May, overall industry output fell 0.6% after three months of growth. However, production still managed a 10.9% gain on the year after adjusting for workdays. [06:00 ET]

* Japan's coincident composite index (CI), which reflects current business conditions, rose 0.1 point to 101.3 in June, after posting the first drop in 14 months in May (-0.1 point at 101.2), the Cabinet Office said on Friday. The rise in the index was led by increases in producers' investment goods shipments (excluding transport equipment), the ratio of job offers to job seekers and large industrial power consumption, all of which rebounded after slumping in the previous month. [01:00 ET]

* UK input prices fell on the month in July as the price of crude oil declined, figures released by National Statistics revealed Friday. Input prices were down 1% on the month in June and up 10.8% on the year. Analysts has expected to see a smaller fall of 0.5% on the month and a rise of 11.3% on the year. The drop was mainly due to a 2.3% monthly decline in crude oil prices in July, although they were still up 23.5% compared with July last year. [04:30 ET]

* Inflationary pressures in the Eurozone continued to creep up in June, lifting the Economic Cycle Research Institute's Future Inflation Gauge to its highest level in 20 months, the ECRI reported on Friday. Despite disinflationary pressure from both France and Spain, growing price pressures in Germany and Italy boosted the inflation gauge one full point to 97.8 in June from May's upwardly revised level. [03:30 ET]

* Canadian employment dropped slightly in July after six months of strong gains, losing 9,300 jobs, with a sharp drop in full-time work almost offset by part-time gains, Statistics Canada reported Friday. The unemployment rate edged up 0.1 percentage points to 8.0%. The result left Canada gaining back 394,000 jobs of the 417,000 lost before recessionary times started turning around in July last year. [07:00 ET]

* France's central government deficit narrowed to E61.7 billion in June from E67.9 billion May and was E20.7 billion below the previous-year level, the Budget Ministry said Friday. Outlays in the first half amounted to E189.0 billion, for a rise of E12.4 billion or 7.0% on the year. However, this probably underestimates spending by E4 billion due to delays in registering defense outlays, the ministry cautioned. [03:51 ET]

* France's merchandise trade deficit narrowed more than expected in June to a four-month low of E3.796 billion, as exports bounced back faster than imports, according to seasonally adjusted estimates released Friday by the Finance Ministry. Exports rebounded 10.2% on the month to E33.016 billion after a 5.7% downturn. [02:44 ET]

* The Reserve Bank of Australia has kept its central forecasts for output and inflation over 2010 to 2012 largely unchanged in its August quarterly monetary statement. It said the forecast was underpinned by the positive prospects for the country's booming resources sector, in which investment would replace public stimulus projects to drive consumer demand. It forecast for GDP growth was around 3.25% over 2010, 3.75% over 2011 and 4% over 2012. [23:35 ET Thursday]

* Dr. Christina Romer announced today her plans to step down as chair of the Council of Economic Advisers, effective September 3rd, to resume her position as professor of economics at the University of California, Berkeley. President Obama said that Dr. Romer had long stated her desire to return to California, where her son will be starting high school in the fall. [Repeated 07:16 ET]

* Personal insolvencies fell but corporate liquidations rose in England and Wales in the second quarter, a U.K. government agency said Friday. Corporate insolvencies rose 0.5% on the quarter, but were sharply down on a year ago. [05:02 ET]

** Market News International Washington Bureau: 202-371-2121 **

imarketnews.com/?q=node/17582

[sandi66]

The Goldsmiths—Part CLIII

-- Posted Friday, 6 August 2010 | Digg This Article | Share this article| Source: GoldSeek.com

By R. D. Bradshaw

US President Franklin Rosenfeldt/Roosevelt shared with us one of the most profound revelations of all from a US president when he said that if it happens in politics, it was planned that way. Few people have grasped how extraordinary and revealing FDR was in sharing his wisdom with us. And that revelation brings up in this Goldsmiths the backdrop on the present global monetary system and what might lie ahead. Exactly how right the deceitful, clever and cunning FDR was has been proven in history from the events associated with the Atlantic Charter, drafted in a meeting Rosenfeldt had with Winston Churchill on a ship in August 1941.



WWII was planned and laid on by the Rothschild banking Cabal as early as 1933, if not earlier. This fantastic revelation was established in the Goldsmiths Part LXXXVI with a report on a story in the Jul 5, 1999 US News & World Report on the Warrior Class which revealed the supposed FDR foresight of seeing the coming of WWII in 1933-1934 when he almost doubled the classes at West Point and Annapolis in obvious preparation for WWII by him and his cousins Adolf Jacob Schicklgruber, Winston Churchill and Joseph Stalin and the Rothschild and Warburg banking giants then in control of the US, Germany, France and Britain.



By 1941 and the Atlantic Charter meeting with Churchill, Rosenfeldt was ready to once more prove that events going on at the highest levels are planned in advance. Per Wikipedia, FDR’s meeting set forth his “ambitious goals for the postwar world” even before the US entered the war and the fate of the war was settled. Yet, Rosenfeldt knew in advance what would happen and met with Churchill to discuss the post war future. Anyway, per Wikipedia, the FDR and Churchill Atlantic Charter in Aug 1941 affirmed the right of all nations to have equal access to trade and raw materials (this was exactly opposite to what the Cabal and its US and British puppets allowed Germany in the 1930s); freedom of the seas; disarmament of aggressors; and the establishment of a wider and permanent system of general security.



Bretton Woods



By July 1944, the world powerful Rothschilds and their international banking cousins were ready to implement the Atlantic Charter agreed upon by FDR and Churchill in 1941. This came about when 730 leaders/representatives of 44 nations gathered in a small town in New Hampshire called Bretton Woods to plan the future of the world which would allow the Rothschild banking Cabal to emerge as the real winner of WWII which was then still in progress in Europe and in the Pacific.



As Wikipedia has it, Bretton Woods was the culmination of some two and a half years of planning (from 1941-42 to 1944) by the US and UK representatives on what had supposedly been lacking between WWI and WWII (which produced the Great Depression of the 1930s). As the Rothschild written history has recorded it, the thing needed was a system of international payments that would allow trade to be conducted without fear of sudden currency depreciation or wild fluctuations in exchange rates (things which had brought on the Great Depression and things which are still going on today).



In its article on the Bretton Woods system, Wikipedia says: “The Bretton Woods system is commonly understood to refer to the international monetary regime that prevailed from the end of World War II until the early 1970s.” It was supposedly history's first example of a “fully negotiated monetary order intended to govern currency relations among sovereign states. In principle, the regime was designed to combine binding legal obligations with multilateral decision-making conducted through an international organization, the IMF, endowed with limited supranational authority. In practice the initial scheme, as well as its subsequent development and ultimate demise, were directly dependent on the preferences and policies of its most powerful member, the United States.”



To set up the Bretton Woods system, the 44 nations agreed to establish the International Monetary Fund (IMF); the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group; and the International Trade Organization (ITO). Wikipedia defines the four major points defined in the system:



The pegged rate currency regime, a compromise between freely floating and irrevocably fixed exchange rates.
A system for ensuring an adequate supply of monetary reserves.
A ban on most discriminatory currency practices or exchange regulation, to avoid the kind of economic warfare that had characterized the 1930s.
A forum for international cooperation on monetary matters.

Although not discussed in the several Wikipedia articles addressing this conference, it was clear that the US bosses at Bretton Woods pushed a system on the assembling nations that was planned and designed by the Rothschild Cabal snakes then ruling the various nations fighting it out on the WWII battlefields. This system was designed to make the Cabal bankers the effective owners/controllers of the world’s monetary and economic activities.



Bretton Woods the Breakdown



In an Internet article on Bretton Woods: Birth and Breakdown, John Braithwaite and Peter Drahos, in their book on Global Business Regulation, said:



“During the 1930s states had experienced a series of connected problems: shortage of gold, exchange rate instabilities, the movement of ‘hot’ money in and out of their realms, and the lack of a mechanism to adjust balance of payments problems. The IMF was designed to deal with these difficulties by putting in place an international monetary system that contained a stable exchange rates regime with some scope for revaluation (‘pegged but adjustable’), provided for the convertibility of currency, provided a mechanism for overcoming short-term liquidity crises and an organizational actor for managing the system (J. Williamson, The Failure of World Monetary Reform, New York, 1977, pp. 2-28).



“The World Bank was designed to help the economic and industrial reconstruction of Europe and to help developing countries achieve industrialization. The purpose of the ITO was to propel states down the path of free trade, to stop them from defecting to protectionism as a way of responding to balance of payments problems (e.g. by imposing import quotas as an alternative to devaluing their currency). The ITO never emerged, because of US concerns. Instead, a weaker agreement known as the General Agreement on Tariffs and Trade took its place…”



Effectively, Bretton Woods offered a plan for a global regulatory system for trade and finance. Yet, almost all economists and historians are in agreement that by August 15, 1971, the Bretton Woods system had broken down—primarily because of Richard Nixon’s abandonment of exchanging US gold for US dollars which had been a provisional key component of Bretton Woods.



How the Dollar Became the World’s Reserve Currency



A Dec 19, 2008 article in Market Skeptics on How the Dollar Became the World’s Reserve Currency by Eric deCarbonnel, quoting Wikipedia, says: “The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value-plus or minus one percent-in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States' suspension of convertibility from dollars to gold. This created the unique situation whereby the United States dollar became the ‘reserve currency’ for the states which had signed the agreement.”



Despite what some would say are bad features of the present system, it is clear that the Rothschild Cabal of bankers and their main puppet country, the US, has benefited handsomely by the present situation. The dollar enjoys a reserve currency status which means many countries in the world conduct international trade in dollars and hold dollars in their monetary reserves. But with recent dollar weakness, the EURO has enjoyed some status as a desired reserve currency.



Eric deCarbonnel adds: “The experience of the Great Depression was fresh on the minds of public officials. The planners at Bretton Woods hoped to avoid a repeat of the debacle of the 1930s, when weakly regulated financial institutions led to a world-wide economic depression. The ‘beggar thy neighbor’ policies of 1930s governments-using currency devaluations to increase the competitiveness of a country's export products in order to reduce balance of payments deficits-worsened national deflationary spirals, which resulted in plummeting national incomes, shrinking demand, mass unemployment, and an overall decline in world trade. Trade in the 1930s became largely restricted to currency blocs (groups of nations that use an equivalent currency, such as the ‘Sterling Area’ of the British Empire). These blocs retarded the international flow of capital and foreign investment opportunities. Although this strategy tended to increase government revenues in the short run, it dramatically worsened the situation in the medium and longer run.”



Eric deCarbonnel also notes that “The pillar of the U.S. vision of the postwar world was free trade. Free trade involved lowering tariffs and among other things a balance of trade favorable to the capitalist system. Thus, the more developed market economies agreed with the U.S. vision of postwar international economic management, which was to be designed to create and maintain an effective international monetary system and foster the reduction of barriers to trade and capital flows. Throughout the war, the United States envisaged a postwar economic order in which the U.S. could penetrate markets that had been previously closed to other currency trading blocs, as well as to expand opportunities for foreign investments for U.S. corporations by removing restrictions on the international flow of capital.”



As Eric deCarbonnel describes Bretton Woods “What emerged was the ‘pegged rate’ currency regime. Members were required to establish a parity of their national currencies in terms of gold (a ‘peg’) and to maintain exchange rates within plus or minus 1% of parity (a ‘band’) by intervening in their foreign exchange markets (that is, buying or selling foreign money).



“In practice, however, since the principal ‘Reserve currency’ would be the U.S. dollar, this meant that other countries would peg their currencies to the U.S. dollar, and—once convertibility was restored—would buy and sell U.S. dollars to keep market exchange rates within plus or minus 1% of parity. Thus, the U.S. dollar took over the role that gold had played under the gold standard in the international financial system.



“Meanwhile, in order to bolster faith in the dollar, the U.S. agreed separately to link the dollar to gold at the rate of $35 per ounce of gold. At this rate, foreign governments and central banks were able to exchange dollars for gold. Bretton Woods established a system of payments based on the dollar, in which all currencies were defined in relation to the dollar, itself convertible into gold, and above all, ‘as good as gold’. The U.S. currency was now effectively the world currency, the standard to which every other currency was pegged. As the world's key currency, most international transactions were denominated in dollars.



“The U.S. dollar was the currency with the most purchasing power and it was the only currency that was backed by gold. Additionally, all European nations that had been involved in World War II were highly in debt and transferred large amounts of gold into the United States, a fact that contributed to the supremacy of the United States. Thus, the U.S. dollar was strongly appreciated in the rest of the world and therefore became the key currency of the Bretton Woods system. Member countries could only change their par value with IMF approval, which was contingent on IMF determination that its balance of payments was in a ‘fundamental disequilibrium.’”



The Nixon abandonment of gold convertibility with the dollar essentially ended the formal peg of foreign currencies to the dollar. But the aftermath did not end the dollar’s power. So, whereas in the 19th and early 20th centuries, gold was the world’s standard and valuation guide in international monetary transactions, Bretton Woods and its aftermath saw the US dollar emerge as the world’s standard of value. Since the Rothschild Cabal of bankers had completely taken over the US government and economic and monetary systems with WWII, the reserve status of the dollar fit perfectly into the hands of the Cabal gang of bankers; mainly in London, but also in Europe and North America.



Bretton Woods, the Aftermath



Over the next several years, after Bretton Woods I, a forum developed within the IMF by the 20 major nations that had control over executive positions at the IMF. This forum, the Committee of the Board of Governors of the International Monetary System or the C-20, formulated a position to deal with the situation facing the Bretton Woods agreement after 1971 which was “to learn to live with the non-system that had evolved out of a mixture of custom and crisis over the preceding years” (per writers John Braithwaite and Peter Drahos).



Though many observers accepted the fact that Bretton Woods was dead, some held to the belief that the succeeding years had effectively put together a Bretton Woods II whereby the major nations agreed to live with the non-system. Regardless, this writer would just add that the secret, behind-the-scenes maneuvering by the Rothschild Cabal owned/controlled central banks, plus the development of the European Union (EU) and the ECU and later the Euro, held the system together until our time. The European monetary system adopted the following to add some stability to the problem:



Prevent movements above 2.25 % around parity in bilateral exchange rates with other member countries.
The European Monetary Cooperation Fund allocates ECUs to members' central banks in exchange for gold and dollar deposits. 20% of the quota must be paid in gold. ECU was an artificial currency and used in all intrasystem balance of payments settlements. ECU was replaced by euro (at 1:1) on January 1, 1999.
Provision of credit facilities for compensatory financing.

Over the ensuring years, a mixed process developed in that some countries continued to peg their currencies to the dollar or some other strong currency or basket of currencies while others allowed their currencies to float. Per an Internet presentation by Joseph Daniels and David Van Hoose, there is now a mixed bag among nations on how they handle their currencies with some 111 countries adopting fixed exchange rates by 2007. Some 41 have no separate legal tender, seven have currency boards, 52 have fixed pegs, six horizontal bands, five crawling pegs and 76 with floating.



In an article on Bretton Woods II, writers Dooley, Folkerts-Landau and Garber have referred to the monetary system of today as Bretton Woods II. They argue that today, like 40 years ago, the international system is composed of a core issuing the dominant international currency, and a periphery. The periphery is committed to export-led growth based on the maintenance of an undervalued exchange rate. In the 1960s, the core was the United States and the periphery was Europe and Japan. This old periphery has since 'graduated', and the new periphery is Asia. The core remains the same, the United States. The argument is that a system of pegged currencies, in which the periphery export capital to the core that provides a financial intermediary role is both stable and desirable, although this notion is controversial (per Wikipedia).



But today, here in 2010, the idea of Bretton Woods II is losing steam and support—primarily because of the Rothschild Cabal imposed deflation and depression starting at least in 2007, if not earlier, and intensifying in Sep 2008 when the Cabal brought on a hard fall on commodities and foreign currencies to boost the dollar and US debt around the world. This need to boost the dollar and US debt was precipitated by the vast squandering of US Federal Reserve Notes around the world in wars, political intrigues, uprisings, etc in order to further the Rothschild Cabal plans for profits and world government (on this, see Understanding Money and War XIV at http://www.analysis-news.com).



Now, A New Bretton Woods is Being Called For



Consequently, the meaning of a supposed "Bretton Woods II" monetary system has been somewhat superseded and outdated by the events of 2007 to date and the imposition of a growing Rothschild imposed depression. Many government leaders, private bankers, policymakers and others are now joining a call for a new international monetary system that might be called Bretton Woods II or III depending on how one can define the system since 1971. Wikipedia describes this current move for a new international agreement on currencies by noting the following three calls:



On September 26, 2008, French president, Nicolas Sarkozy, said, "we must rethink the financial system from scratch, as at Bretton Woods.” Sarkozy is a former Mossad agent and close cousin of the ruling Rothschild Cabal of bankers. His call for a new agreement certainly echoes the feelings of his cousin bankers.



On September 24–25, 2009, US President Obama hosted the G20 in Pittsburgh at the David L. Lawrence Convention Center. A realignment of currency exchange rates was proposed. This meeting's policy outcome could be known as the Pittsburgh Agreement of 2009, where deficit nations may devalue their currencies and surplus nations may revalue theirs upward.



In March 2010, Prime Minister Papandreou of Greece wrote an op-ed in the International Herald Tribune, in which he said: "Democratic governments worldwide must establish a new global financial architecture, as bold in its own way as Bretton Woods, as bold as the creation of the European Community and European Monetary Union. And we need it fast." In interviews coinciding with his meeting with President Obama, he indicated that Obama would raise the issue of new regulations for the international financial markets at the next G20 meetings in June and November 2010.



Since as early as 2007, US Socialist leader Lyndon LaRouche and his wife have been pushing for a new Ad Hoc Committee for a new Bretton Woods meeting and agreement. In her 2007 call, Mrs LaRouche said: “The systemic crash of the world financial system is in full swing. Shaken loose but not caused by the collapse of the subprime mortgage market in the U.S. and the end of the inflationary yen carry trade in Japan, the house of cards of ‘creative financial instruments,’ as Alan Greenspan has dubbed various credit derivatives, has thereby caved in. Because the takeover craze on the part of the hedge funds and private equity funds has been rising higher and higher over the recent years and months with ever wilder predatory raids, the investment banks which have financed the majority of these takeovers, are now left sitting on these worthless credits. More U.S. mortgage financiers will declare insolvency, more banks will go under in the vortex of the credit crisis. In the U.S. there are currently almost $10 trillion in mortgage loans, over a third of which are bad credit risks. In Germany the examples of the IKB bank and the Westdeutsche LandesBank have shown that boards of directors are finding it hard to admit the quantity of their losses.



“The myth that the central banks have an endless number of possibilities to always bring a crash under control, is exploding: They now find themselves between the Scylla of the fight against inflation with higher interest rates—which is urgent in the face of the obvious inflation of food, raw materials, and oil, but would lead to bubbles like that of the U.S. mortgage market, and the like, bursting even more—and the Charybdis of the credit crisis, which has been unleashed by the reversed-leverage collapse. If the central banks try to stop a chain reaction by infusing liquidity in the range of hundreds of billions of dollars, as just occurred within 24 hours during the second week of August, this only means that there will be a hyperinflation like that in Weimar Germany 1923—only this time not in one country, but worldwide. It is a dilemma from which there is no way out: The system is finished.”



Both Mr and Mrs LaRouche are calling for an emergency conference for a New Bretton Woods which should address the following:



1. The current world financial system must be declared hopelessly bankrupt and be replaced by a new one.

2. A system of fixed exchange rates must be agreed upon immediately.

3. Derivatives speculation must be prohibited through an agreement among governments.

4. There must be put into effect a comprehensive reorganization, or, as the case may be, a cancellation of debts.

5. There must be put in place new credit lines, through state credit creation, in the tradition of Alexander Hamilton and the American System, which will make possible productive full employment, through investments in basic infrastructure and technological revival.

6. The completion of the Eurasian Land-Bridge, as the kernel of the reconstruction of the world economy, is thus the vision which will not only bring about an economic miracle, but also can become a system of peace for the 21st Century.

7. A new “Treaty of Westphalia” must guarantee the opening up and development of raw materials for all nations on this Earth, for at least the next 50 years.



The LaRouches say that the present system of “globalization,” with its brutal vulture capitalism, has economically, financially, and morally failed. In its place, man must again be put in the center, and the economy must serve the general welfare first and foremost.



A Call for Gold



Along with all the calls for a new Bretton Woods, usually in the vein of fiat, paper currencies, there have been some witnesses who have a different approach. Here, we can cite an article by Walker Todd in the Nov 15, 2008 Christian Science Monitor on Bretton Woods II – we need a gold standard--Without the integrity and restraint a gold standard provides, America may be headed on a path to hyperinflation.



As Todd perceives the present dilemma, he places the blame with too much credit and too much easy money. He perceives these two items as the biggest culprits behind this financial crisis. He then adds that “the government's rescue attempt is built on more credit and even easier money. That's like giving a procrastinator a deadline extension. By choosing this course, Washington has steered us on to the ‘road to Weimar’ – the road to runaway inflation.” Todd says that the needed remedy is to bring back the gold standard. He indicates that this solution would provide stability and safety for nations and individuals around the world.



He blames much of the present situation on the Federal Reserve Bank where he notes the doubling of Federal Reserve credit, the main component of the US monetary base, since Labor Day 2008 (it went up from $894 billion to $2.2 trillion). He says that the Fed has “nearly abandoned its traditional instrument for monetary policy, open-market operations, which involves the purchasing and selling of full-faith-and-credit US Treasury securities. With increasing frequency and amounts, it has relied primarily on ‘discount window operations’ – lending to specific institutions for specific purposes instead of general injections of funds into an open market – since August 2007. This shift may weaken its ability to ‘tighten’ monetary conditions should inflation reach dangerous levels.”



Todd’s conclusion is that the return to the gold standard is needed to impose the discipline which is not coming from the Fed. He adds that gold provides integrity to the entire global financial system. He notes that with gold it's harder for governments to inflate the money supply, which they're tempted to do in order to spend beyond their means or cheat on their debts. He correctly notes that after Nixon abandoned the convertibility of the dollar to gold in 1971, the value of the dollar and inflation has fluctuated wildly ever since.



My Take



Frankly, I wish it was possible for the views of Walker Todd to prevail in international monetary matters. But I am sorry to say that this is not going to happen. The Rothschild Cabal of master serpents are in total control in the US, Britain and the White British Commonwealth and with almost total control in Europe and indeed in numerous other countries around the world. They are accomplishing their objectives for profits and moving to world government under the present fiat, paper money system. I see no way that they will totally abandon this present system, per se.



For example, the US government and national leaders have had much Rothschild media hype about the recent law passed to provide for supposed reform/corrections of the many problems of the US monetary and financial systems—including the strong push by Congressman Ron Paul for an independent and extensive audit of the privately owned Federal Reserve. I wrote to subscribers at www.analysis-news.com long ago that nothing meaningful would result from all the hype that the nation’s leaders and the Rothschild media were feeding the dumb sheep. As I repeatedly said, there was no way that there would be an audit of substance on the secret operations of the Fed.



I have consistently predicted a lot of smoke and mirrors over nothing meaningful and/or nothing of an advantage to the nation. I correctly had it that more power would devolve to the Fed and Washington (meaning the Rothschild master snakes would come out the winners). This is precisely what the new law does. It ignores the big Rothschild Cabal banks and their trillions of dollars in derivatives all the while that there are more government regulations and controls on individuals in America. And this MO of doing nothing but putting out a lot of smoke and mirrors seems on the docket for any upcoming Bretton Woods II or III, whichever.



My take is that the deteriorating global situation and the calls by non-Rothschild Cabal controlled nations (like in South America, the Middle East, Asia and Russia) will force a new international meeting and agreement on currencies and international finance. To touch it off, I would suggest that the Cabal snakes may initiate another hard fall like they did in Sep 2008. This could come this fall or next year, depending on what happens with their planned attack on Iran or some natural disaster or alleged terrorist attack in the US.



Regardless of what the catalyst will be that kicks this thing off, there will be some worldwide calls for a new Bretton Woods conference-- primarily by non-Rothschild controlled nations and peoples; but also as well in Rothschild controlled puppet states, among Rothschild managed politicians, and by the Rothschild owned/controlled media. Of course, the Rothschild Cabal will lay this thing on and run it just like they did at Bretton Woods I. They were in charge and will be in charge in any future meeting and event.



I note that at Bretton Woods I the English pound came out smelling like a rose, though it stunk like a sewer. The pound was pegged to over four US dollars. Since 1944, the pound has been going down in the markets. Even now, it is a sick currency but receives some boosting because the US dollar is even sicker.



My take is that this coming conference will someway manipulate the dollar to come out of it in a strong position. There is a possibility that before such a conference takes place that we will have a new North American currency—along the lines of the predicted Amero. With the gold strength of Canada and the “alleged” huge gold holdings in the US, perhaps some possible limited gold backing can be attached to a new North American currency. Hence, there is a possibility that the dollar, thru the value of an Amero, can come out of a new Bretton Woods with some strength and respectability.



Thus, there are reasons to believe that a new Bretton Woods will take place. My position is that at such a conference there could be a new arrangement on a reserve currency. I can see a basket of currencies to be the new reserve currency. This could and will likely include the Euro, a new Amero or something similar, the Chinese Yuan, the Russian Ruble, the Middle East Gulfo and maybe even some others. If the Amero went into such a meeting with a limited partial gold backing, it would help make it very attractive.



We probably cannot rule out gold completely at the international level, but it seems doubtful. Instead, the IMF cornered Special Drawing Rights (SDR) have a very bright future and will be in any basket of reserve currencies. But such a conference will not settle the future of international money and finance. I think we are being set up by the Rothschild Cabal of bandits/thieves to have WWIII which will at last bring on world government.



news.goldseek.com/GoldSeek/1281074580.php

[sandi66]

First Published 2010-08-06


No end to the impasse in sight

Political deadlock frustrates Iraqis


Economy, security, services affected by five-month stalemate over Iraq government formation.


By Abeer Mohamed – BAGHDAD

Iraq's political class is drawing increasing criticism from both the public and its own ranks as a frustrated nation endures its fifth month without a working government.

The conspicuously slow pace of negotiations has led some observers to accuse politicians of putting personal agendas ahead of the public good. Experts say the political paralysis is holding up development across the board, and has left the country vulnerable to insurgent attacks.

“All public sectors are frozen – economic, cultural, health, social, agricultural. There is no government to handle these responsibilities,” said Jamal al-Batekh, a senior official in the Iraqiya bloc, led by the secularist Ayad Allawi.

The stalemate is widely blamed on deadlocked negotiations over the prime minister’s post, with Nuri al-Maliki, the current premier, and Allawi considered the two top contenders.

Iraqiya won the March parliamentary election by a two-vote margin over Maliki’s Shia-led State of Law bloc, but neither has enough seats to form a government, leaving both searching for allies.

The Shia Iraqi National Alliance announced on July 31 that it had called off negotiations to form a coalition with State of Law until the bloc nominates a new candidate, dealing a blow to Maliki’s re-election bid. The merger would have created a powerful Shia alliance that could have formed a government without Iraqiya, which includes many senior Sunni leaders.

Speaking on state-run television two days after the announcement, Maliki denied that his re-election had stalled the formation of the government and asked Iraqis “to show a bit more patience to prevent anyone from taking the country into sectarian war and destruction”.

The Iraqi government reported that 535 Iraqis were killed last month, making July the deadliest month for casualties since May 2008. The United States military has disputed the figure, placing the death toll at 222.

The United Nations Security Council this week urged Iraqi politicians to agree as soon as possible on a new government so as to prevent those who opposed Iraq’s transition to democracy exploiting the situation.

Analysts and politicians are also predicting that the political impasse will further destabilise Iraq as the US prepares to withdraw its troops.

“The current political deadlock creates a vacuum which can probably be exploited by al-Qaeda and terrorists to undermine security as the withdrawal approaches,” said Adil Barwari, a Maliki adviser.

Ibrahim al-Sumaidai, a Baghdad-based analyst, said the political deadlock “shows [insurgents] that the political and therefore the security situation is fragile, so this is their chance. The US withdrawal is another factor that encourages [them]”.

“The recent attacks are a message: ‘we are still here while you’re arguing about forming the government, and we can even beat you in your own house’,” he said, in reference to recent mortar fire on the capital’s heavily-fortified Green Zone.

Maliki is continuing to serve as prime minister and is presiding over a caretaker government until a new premier is chosen. But the political deadlock has frozen policy-making and left state institutions largely ineffective.

Security is not the only concern. Public anger over crumbling services – most notably the country’s dilapidated electricity system – has grown, with citizens taking to the streets to protest the lack of power amid the sweltering summer heat.

In July, Baghdad had an average of five hours of power a day – an issue that could be better addressed if the government was in place, observers say.

Abdul Hadi al-Hassani, a senior State of Law leader, said Iraqis “are the victims of the delay in the government formation. They deserve better services, but [development] is being put off because politicians are not willing to make sacrifices in the interest of Iraq”.

In addition, he said foreign companies, which are seen as critical to shoring up Iraq’s fragile economy, are unwilling to invest in the country until a government is in place.

Maliki has promised not to make any key decisions before a new government is formed. But some are especially troubled by the lack of checks and balances, and believe the deadlock will leave a stain on Iraq’s fledgling democracy.

“The most important consequence of the delay is not international embarrassment or poor security or anything else - it is the absence of oversight,” said Hamid Fadhil, a political sciences professor at Baghdad University. “We have a government with no parliament; we have an executive authority with no legislative authority, with no monitoring or oversight.”

With no end to the political impasse in sight, political leaders and analysts are predicting that the government will not be formed until mid-September, when the month of Ramadan ends. Parliament, which has so far not convened due to the deadlock, is also not expected to meet until then.

However, Batekh, whose Iraqiya bloc maintains that it has the right to form the government as the top vote-winner, believes the timetable is optimistic. He said the blocs “haven’t made even one step forward” since the election.

“If there was political maturity in Iraq, then we would have been able to form a government after the election results were announced, and we wouldn’t be in this deadlock,” he said. “But political ignorance exists. And we should be honest and admit that no politician is willing to sacrifice his demands.”

Abeer Mohammed is IWPR’s senior local editor in Baghdad. Editing by IWPR Iraq editorial manager Tiare Rath in Erbil.

www.middle-east-online.com/english/?id=40436

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Gold rises during inflation, deflation harder to define

Published on August 07, 2010 10:45:00 IST

Chicago -- (Kitco News) Precious metals and other commodities are seen as go-to investments during inflationary times as investors seek hard assets to store wealth when prices rise, with gold usually receiving the biggest boost.

Gold performed smartly in the late 1970s-early 1980s when inflation was raging and even though nominally current gold prices are far above those levels, adjusted for inflation today’s gold prices would have to trade around roughly $2,250 an ounce (figure based on Minneapolis Fed's CPI calculator) to match the January 1980 high of $845.

But how do gold and other precious metals perform in a deflationary environment? There’s not as much history to point to on that one, especially when looking at deflation on a global scale, rather than on a per-country basis.

Concerns about global deflation have peppered the financial markets for the past few months and how much of a worry it is often stems from the economic report of the day.

Indeed, sometimes the debate between global growth and retraction can happen with a span of a week, which gives investors pause and is keeping some markets in trading ranges.

In the U.S., at least, the main inflation gauge, the consumer price index, has roughly been flat in the past few months, showing disinflation. Disinflation is decrease in the rate of inflation, and if the inflation rate isn’t high to begin with, it can lead to deflation.

Deflation is defined as a sustained decline in prices and historically prices for assets fall in general. Leonard Kaplan, president of Prospector Asset Management, said gold prices fall, but generally not as much as other asset classes.

Deflation has been seen in other countries – Japan is the example most-often identified – but deflation on a global scale is rare. Nicholas Brooks, head of research and investment strategy at ETF Securities said one cannot compare country-specific deflation with global deflation since investors have options to go elsewhere in the case of the former.

The Great Depression of the 1930s was the last time there was global deflation. It’s difficult to use this period to analyze deflation’s impact on gold because most of the world’s major currencies – including the US dollar - were pegged to gold; price could not reflect underlying demand changes.

One way to get around this issue is to look at how gold priced in various currencies changed as countries de-pegged from gold during the 1931-34 period. Generally the gold price rose sharply, indicated large pent-up demand. The main reason gold demand rose during deflationary periods, Brooks said, is that deflation is usually accompanied by weak economic growth, real estate and bank problems.

To offset the slowdown and shore up the financial system, central banks are forced to inject liquidity and government fiscal deficits rise, leading to much higher government debt and solvency worries. These policies raise the risk of currency debasement – either through inflation or nominal currency depreciation. That leads investors to buy hard assets to hedge against these risks, with gold generally being viewed as the main alternative store of value.

In 1933, with gold-holding dropping to mandatory minimum levels due to strong domestic and external demand, then-President Franklin Roosevelt was forced to confiscate publically held gold at a predetermined price, halt gold exports and devalue the dollar against gold in order to be able to provide the dollar liquidity necessary to stem bank runs and stimulate the economy.

Brooks and other analysts stress there is no reason for this to happen again because there is no link between currencies and gold. Thus, there is nothing restricting their policy options. Other analysts have pointed out only about 20% of the U.S. gold was surrendered, with much of it sent overseas at the time.

Cash or high-yield debt is often seen as an alternative during deflation, but there are limits to how money can go there. Prospector Asset Management’s Kaplan said currently gold prices are high simply because investors are buying it. “If you have $5 million to invest, where is the money going to go? Are you going to buy a CD at 0.6%? No. A Treasury (note) at 0.2%? No. Gold is going up because people are buying it. There’s no other reason,” he said.

Spencer Patton, president of Steel Vine Investments, believes that the world could see deflation, but thinks gold will be outperformed by other commodities. He doesn’t see gold strengthening, nor does he see it weakening, and he forecast it will trade in a range of $1,100 to $1,300 by the end of the year.

Because of investment demand for gold, Kaplan said he expects that gold prices will continue to rise and could see $1,800, but said once the U.S. Federal Reserve starts to raise interest rates gold’s rally will end. “We know this will end very badly, the question is when,” he said.

James DiGeorgia, publisher of the website Gold and Energy Advisor, doesn’t believe the global economy is in deflation at all and the inflation is the worry, because of the world’s government debt levels. He said he wouldn’t advocate a portfolio of 100% gold, he would suggest 15% as a hedge against sovereign risk and up to 20% for those particularly concerned. He said gold prices could eventually reach an equilibrium level with the inflation-adjusted 1980s levels for gold. But that could take a while.

DiGeorgia recommends physical ownership of gold. For those not needing or wanting actual metal, Brooks pointed out a physically backed gold ETF could do the same, without the security risk and paying for storage. He also said investors gain the liquidity and convenience of a stock exchange and without having to pay a premium over the spot price.

www.commodityonline.com/futures-trading/technical/Gold-rises-during-inflation-deflation-harder-to-define-17990.html

[sandi66]

IMF - Transcript of a Press Briefing on the International Monetary Fund’s U.S. Financial Sector Assessment Program by Christopher Towe, Deputy Director, Monetary and Capital Markets Department
With:
Kal Wajid (Division Chief), Aditya Narain (Advisor), Christian Duran (Assistant Director), and Martin Cihak (Deputy Division Chief) in the Monetary and Capital Markets Department;
Charles Kramer (Divison Chief, North America Division), and Andrea Maechler (Senior Economist, North America Division) in the Western Hemisphere Department;
Ashok Bhatia (Senior Economist) in the Strategy, Policy and Review Department; and
William Murray (Chief of Media Relations Division) in the External Relations Department



MR. MURRAY: Thanks for joining us today. This is an on-the-record briefing on the first U.S. Financial Sector Assessment. Leading the briefing is Chris Towe, deputy director of our Monetary and Capital Markets Department. What I’d like to do is maybe the Fund staff can introduce themselves and also Charlie—Charles—Charlie Kramer, the mission chief for the United States is with us today from the Western Hemisphere Department. I’d like everybody to introduce themselves along with the press. Let me start with the IMF staff.

MR. BHATIA: I’m Ashok Bhatia, senior economist in the Strategy, Policy and Review Department and on the FSAP I focused on regulatory issues mostly.

MR. KRAMER: I’m Charlie Kramer in the Western Hemisphere Department.

MR. NARAIN: My name is Aditya Narain. I’m an Advisor in the Monetary and Capital Markets Department.

MR. WAJID: I’m Kal Wajid, also in the Monetary and Capital Markets Department. I was one of the coordinators of the exercise.

MR. TOWE: My name is Christopher Towe. I’m a deputy director of the Monetary and Capital Markets Department and I led the FSAP mission.

MS. MAECHLER: I’m Andrea Maechler. I work for the—on the U.S. team and I focus primarily on the stress test and macro prudential issues.

MR. CIHAK: Martin Cihak, Deputy Division Chief in Monetary and Capital Markets Department.

MR. DURAND: I’m Christian Durand. I am Assistant Director in the Monetary and Capital Markets Department and was one of the co-deputies of this FSAP mission.

MR. MURRAY: Great, thanks everybody. I’ll turn the table now to Chris, for his opening remarks.

MR. TOWE: Thank you, Bill. So, all right, again, my name is Christopher Towe and thank you all for coming today. What I thought I would do is very briefly give you a little bit of a sense of why we’re here and what the exercise was that we undertook over the last year or so before getting into the specific conclusions.

So, why are we here? What I’d like to try to do is give you an overview of our Financial Sector Assessment Program for the United States. What is the Financial Sector Assessment Program, or FSAP? It was a program that was established in the wake of the Asia crisis. It was part of the new international architecture that was designed as a result of that crisis. It specifically provides both the IMF and the World Bank an opportunity to undertake an objective assessment of the strengths and weaknesses of a financial system in three dimensions. First, it involves an assessment of the system’s stability typically involving stress testing. Secondly, it involves a benchmarking of the regulatory and supervisory system against international standards and codes. And third, it provides an assessment of the system’s crisis prevention and management frameworks: the deposit insurance system, the resolution system, and the like.

Why is this particular assessment important? For a number of reasons. One, it’s a milestone because the assessment of the United States means that we have now completed FSAP assessments for all the G-7 countries. The United States was the last of the G-7 to participate in this program. Secondly, it is a welcome confirmation of the United States as a member of the G-20, of the G-20’s recent commitment to the FSAP program. And thirdly, it is the first assessment of an advanced economy post-crisis. And as a result it is going to provide, I think, an important springboard of the lessons that we’ve learned from this, will provide an important springboard for the assessments that we’re planning this fall and beyond for a number of European and other major industrial countries.

So, that’s by way of background. Let me now just quickly walk you through what the core conclusions are of this exercise and actually let me step even further back and just say, the assessment began essentially last fall. We had a series of meetings over the October/November period and then again in March/April with a range of both public and private agencies. We met at the highest level, heads of agencies, President of the New York Fed, Chairman Bernanke, Secretary of the Treasury, we had excellent cooperation with the U.S. authorities, and I just want to give every credit to the U.S. authorities for that.

So, the core conclusions are fivefold. First, I think what we try to do is acknowledge the impressive progress that’s been made in restoring stability to the U.S. financial system and we also give all credit to the U.S. authorities for the bold and decisive actions that they took to address the near collapse of the system.

We also give considerable credit to the impressive reforms that have recently been enacted, the Dodd-Frank Act, and view them as being a significant step forward in addressing the weaknesses and fragilities of the system that had led to the crisis. So, that’s conclusion one.

Conclusion two, notwithstanding the credit that we give for restoring stability, we identify still important risks and pockets of weakness. The risks relate to the housing market, which we still see as vulnerable to further price declines. We also see a considerable share of households subject to underwater mortgages. We see the commercial real estate sector as being vulnerable with a very large proportion of Commercial Real Estate (CRE) loans coming due in the near term and roughly half of those seriously underwater or delinquent. We also identify the potential for crises of confidence related to the difficult fiscal position in the United States. And I think those concerns, I think, have been exacerbated by developments in Europe where we’ve seen what can happen when confidence in a public sector’s ability to respond to crisis is undermined by a fundamentally weak fiscal situation.

That said, our core conclusion is that the risks appear to be manageable and they do not rise to a level of systemic concern at this point. But, again, that said, we are particularly concerned about the situation among the small- and medium-sized banks which are most heavily exposed to the CRE sector and these institutions also have a much lesser access to capital markets. And even under our baseline macroeconomic scenario, banks generally—both U.S. banks and foreign banks located here in the U.S.—we estimate would need a further USD 41 billion in additional capital to meet a benchmark that we define as a 6 percent Tier 1 common capital ratio. And you can see that in—you’ve got a copy of the report.

Let me just, if I can, point you to Figure 5, which I think is on page 21, which illustrates the forecasts and projection that we’ve made for the capital positions of different segments of the banking sector. So, you may want to look at that at your leisure, but it illustrates the specific weaknesses that we’ve identified in the small and regional banking sector and among the foreign banks that are located here in the U.S. And under our adverse scenario, the capital needs we estimate could rise to a level close to USD 80 billion.

So, the third core conclusion that I’d like to point you to is that the crisis in our analysis, the benchmarking that we did against international standards and codes, has driven home the critical need to improve the regulation in both individual institutions and the system as a whole. And indeed our assessment of the system uncovered important shortcomings, which are enumerated in paragraphs 41 through 43. But, again, those relate to the complexity of the system and the multiplicity of regulators, weaknesses in consolidated supervision, poor oversight of risk management especially among the systemically important holding companies, and an underfunding of the regulatory agencies.

We, in the report, give considerable credit to the Dodd-Frank Act for addressing many of these weaknesses. And some of the things that we’ve tried to highlight in the report as being significant steps forward include the oversight of OTC, or over-the-counter derivatives; the tighter regulation of mortgage markets; the enhanced oversight of systemic risk through the FSOC, the Financial Stability Oversight Council; and I think we also have to recognize the potential importance of stricter rules and governance—of corporate governance and compensation.

That said, notwithstanding these important improvements in the regulatory framework and architecture, we do see important risks and challenges and, in some areas, we were a little bit disappointed by the act. And I think foremost of that area of disappointment and challenge is the fact that we see the system of regulatory agencies as still remaining exceptionally complex with a very large number of agencies involved, and we would have preferred to have seen a much more bold streamlining of the regulatory architecture, possibly including a merger of responsibility for the oversight of securities markets and a merger of responsibilities for bank regulation.

So, against that background, the FSOC, is going to face very difficult challenges in improving interagency cooperation and coordination, and ensuring effective information sharing, and ensuring a preemptive response to emergent systemic risk. And indeed, much of the effectiveness of this new legislation will really depend on how it’s implemented and will also depend on the important rules that have yet to be written.

So, fourth, the other issue that we tried to flag as being essential to tackle is the “too big to fail” problem. There we give, again, credit for the encouraging steps that the act has taken on this front. We think it’s very important that responsibility for consolidated supervision has been extended to systemically important nonbanks and clearing and settlement systems. We think that it’s very important that the FSOC is empowered to impose capital and other charges in proportion to the systemic risk of systemically important institutions. We think that there will be important dividends from the establishment in the requirement that systemically important firms prepare living wills and that the regulator now has the option to enforce changes in corporate structure in response to those. And we also think it’s very important that a new special resolution system has been put in place to address failures of systemically important nonbank and holding companies.

But I think it’s important that notwithstanding the credit that we give to these changes, they really cannot substitute and should not be seen to be substitutes for a strong and preemptive consolidated supervision, for the will to act in response to emerging risks, and for very careful diligence to ensure that risks, systemic or otherwise, don’t leak outside the regulatory perimeter and into a shadow banking sector.

So, finally, the last issue that I want to just flag is that we see the reforms of the U.S. housing finance policies as important, unfinished business. These policies that have been geared towards subsidizing U.S. mortgage lending, including through the major housing Government Sponsored Enterprises (GSEs), we see as being costly, inefficient, and having encouraged excessive risk-taking. They also led to a buildup of leverage, which left the system much more vulnerable to crisis. And while the U.S. authorities have opted to defer action on this front, it is very encouraging to see that steps are now being taken, including this month, to try to bring concrete proposals to the table, and we look forward to early and decisive action on this front.

And as for Fannie and Freddie, the report—and you’ll see in sort of the last section of the report, we have suggested one reform option that would involve privatizing and breaking up these two housing entities; privatizing their retained portfolio investments; and shifting their public policy responsibilities, including for affordable housing, to an explicitly funded public agency.

So, that, in a nutshell, is the core message of the FSAP assessment. And so I would just turn it back to you with any questions or comments that you might have.

QUESTION: So, on the stress test, it left me a little perplexed. As you say, there’s USD 40 billion or whatever, depending on the level of adversity, but that seems like nothing, basically, given what we’ve been through. And then there’s this other stress test called the “distress dependent loss,” which I don’t really understand what that is, where there seem to be potentially huge losses. So, maybe you could talk about that.

MR. TOWE: Sure. Well, your first point, are the numbers nothing? I mean, I think I tried to indicate that we see these as manageable, and yes, the numbers are not frightening. I think the size of the losses that we identify in our sort of baselines and adverse scenarios are, as I described, manageable. But it’s important to remember that the institutions that we have in mind are not unimportant and it does suggest that the supervisory agencies will need to be watchful and keep a close watch on the risks that are associated with some of these, specifically the smaller and regional banks.

In terms of the distress dependencies, these are estimates that essentially are tail risks, so they represent—as you see in the table, the so-called unexpected losses are essentially very much at the outer bound of risks and would represent, I believe, a 1 percent probability. So, again, they give you a sense of what the very worst-case scenario could be. But, again, we should treat those as very much out in the tail.

My colleague here is flagging a nice chart that illustrates that in a document that will be posted tonight, which I’m sure you won’t be up until midnight to read, but it does illustrate that these are very—relatively low probability events and should give you a benchmarking of how severe the vulnerabilities are relative to the recent past, but don’t give you an indication of what the likely outcome is going to be.

QUESTION: And can you just define simply what a distressed dependent loss means?

MR. TOWE: It is a measure of loss that takes into account the correlation between the system—between the individual institutions within the system, so we’re not looking at each individual institution in isolation, but we’re looking at each individual institution in isolation plus the feedback effects between them.

QUESTION: So, again, just so the system fails basically and this is the effect on the banking system?

MR. TOWE: What it does is it assesses at a 1 percent risk level what the risk is to the system as a whole.

QUESTION: Just to make sure I understand, the distressed dependent losses, that’s these nice numbers on page 22, or are we talking about some other numbers? Which numbers were you talking about that show this thing you’ve just defined for us?

MR. TOWE: That is 23.

QUESTION: Okay, it’s the chart on page 23, okay. That one. Sorry, for not knowing my way around your document that well. The questions I wanted to ask were about the foreign things. You really sort of single out the foreign subsidiaries operating in the U.S. as possibly needing a lot more capital. I’m wondering what sort of systemic issues are connected to that. And then I was wondering if you thought in your recommendation on page 7, you talk about how the Fed needs this authority over the infrastructure providers and clearing and settlement activities. Do you think that the legislation did enough or do you think that they need to go beyond the powers granted to the Fed just as a general systemic overseer?

MR. TOWE: Okay, so the first question was why we’re singling out the foreign banks. Well, the point there is that the system until recently provided U.S. regulators the authority to apply a lesser standard, capital standard, to the foreign banks, essentially deferring responsibility for their oversight to their home regulator. That, as a result, has meant that the foreign subsidiaries of—sorry, the domestic subsidiaries of foreign banks --have typically run lower capital ratios than domestic banks. Encouragingly, the Dodd-Frank Act takes steps to address that issue and address the potential asymmetries between the domestic subs to foreign banks and domestic banks.

QUESTION: But are the numbers—I mean, they’re much bigger numbers, so are they scary numbers? Are they okay numbers?

MR. TOWE: I would not call them scary. I would say that there’s an asymmetry there that needs to be addressed, because you are creating a scope for differential treatment of essentially institutions that are operating in the same, nearly the same, business lines as domestic institutions.

So the second question was oversight of clearing and settlement systems by the Fed. I think we feel comfortable that the Dodd-Frank Act gives the necessary authority to the Fed. Again, this is a parenthetical which is not really news, but, I mean, the system now does provide for the Securities and Exchange Commission (SEC) and the Commodity Futures and Trade Commission (CFTC) oversight of a number of clearing settlement system.

MR. TOWE: As I understand it, the Dodd-Frank Act, it does not supplant the authority that the SEC and the CFTC—the existing authority that the SEC and CFTC has over the clearing settlement systems, but only extends that oversight over other clearing settlement systems for which there is not presently appropriate oversight. It does, as I understand it—and I’m going to defer to my colleagues who have read the bill much more carefully than I have—I believe it does give a systemic oversight responsibility for even the SEC and CFTC overseeing settlement systems. But it does not supplant the SEC and CFTC’s responsibilities.

And, Ashok, does that sound right?

MR. BHATIA: Yeah. I think the only sort of big picture thing I’d add is that, most of you would be aware that Title 8 in the law, which addresses these issues, was missing from the version passed by the House in December. And it’s something that we were very strongly supportive of and are very pleased to see in the final law.

QUESTION: Will your annexes tonight have any institution-specific data?

MR. TOWE: I believe—oh, institution- specific. You mean named institutions?

QUESTION: Right.

MR. TOWE: No. The answer’s no. No, we were careful to do a peer group analysis to define the assessments according to, again, peer groups. We did build up from individual- and institution-specific data, though.

QUESTION: Thank you.

QUESTION The one issue I wanted to find out was, we’ve seen Geithner talking about the fact that credit conditions [are] also tough. Would you say a lot of this is coming from the fact that many banks feel restrained by the broader economic issues? Or do you think that a lot of them feel restrained by the capital that they have?

MR. TOWE: Okay, I’ll take a stab at that. But, Charlie Kramer, who led the Article IV consultation may want to step in because I think that falls closer into his realm than mine. I think it’s a two-edged sword. I remember during the 2000 recession, this was always that question: Is it a supply or demand issue on bank lending? And I think that that was a question that I think then ‘academic’ Ben Bernanke spent a lot of time trying to parse. And it took many years for us to come to reasonable conclusions on that front.

I think where I would guess we are now is that capital—bank capital, at least among the larger institutions, does not seem to be a significant impediment. We are seeing, at least on the basis of lending surveys, of loan officer surveys, that what had been a very restrictive environment is becoming less so.

That said, I think there is certainly an issue among that smaller and regional institutions, which are less well-capitalized, do face, as I’ve tried to indicate earlier, more significant and likely going to be more significant loan losses. And they tend to be the institutions that provide a lot of lending to small- and medium-size businesses as well. So I think that’s an issue.

I think there’s also an issue about regulatory uncertainty. I think we’ve seen this in some of our contact with market participants that institutions are still waiting to know and to find out what the implications are of domestic legislation and what’s going to come out of Basel. So I think that is leading to a certain hesitancy.

But I think we also can’t discount the fact that on the demand side we’re in a relatively weak economy, and the demand for borrowing is not that high. But, Charlie, any comments?

MR. KRAMER: I don’t have much to add except to say that one of our bellwethers for this is the Fed’s Senior Loan Officer Survey, and if you look in there, I guess you’d see some of the features that Chris describes. One is, across the board a pretty weak loan demand, which is consistent with what you see in the Fed, the flow of funds, sort of pretty widespread to leveraging the private sector.

But at the same time, the sort of success of tightening and bank lending standards has basically just come to an end. Standards are still on the tight side if you look at spreads, for example. So there’s probably elements of both, I’d say.

QUESTION: I was wondering, to draw your conclusions, what kind of access did the administration give you and the private sector to draw these conclusions? Not on the credit?

MR. TOWE: I think we have to give the U.S. authorities very high marks in terms of the access they provided to us, and we met with the heads of all the supervisory agencies. We met with the president of the New York Fed, we met with Secretary Geithner, we met with Chairman Bernanke. And that’s just at the top of the pyramid, and we went all the way down to the bottom of the pyramid. So I think that, relative to the similar assessments that we’ve done in other countries, the U.S. authorities score very, very highly on that front.

Data-wise we were limited to working with publicly available information, for confidentiality reasons. I think the regulatory bodies did not feel that they had the authority to provide us with bank-specific information. But that said, I think we also have to give incredibly high marks to the transparency of the U.S. system. It is very easy to get this information. It’s both of a high quality to the extent that published balance sheets are accurate, but it’s easily accessible. It’s of a high quality, and it’s available in a timely manner.

MR. TOWE: Oh, in the private sector, we met with most of the major investment and commercial banks, and, again, we got very good access.

QUESTION: Could you elaborate a little on your critique of the U.S. system and financial regulation and the lack of consolidation?– What are the risks that that poses and what would you like to see change?

MR. TOWE: Well, there are a couple of issues there. I think one is, historically, although the Fed, as a result of the Gramm-Leach-Bliley Act, was given the oversight of financial holding companies, the architecture of that legislation imposed impediments on the Fed’s ability to work at a granular level and look at, in a granular way, at the subsidiaries of holding companies. And a particular legislation required the Fed to defer to the functional supervisors in terms of its access to exams and other information. So that’s one issue.

The second is related to insurance companies where we did an assessment of the quality of insurance supervision and regulation, which scored well, notwithstanding the fact that the system is highly fragmented and based on a state-based system of oversight. But where it clearly fell short was in terms of consolidated supervision of insurance groups. And, you know, the obvious example is AIG.

So, essentially, the weaknesses are and have been that the competent authorities have tended to focus either too much at a sort of a top-tier level and not gotten into the granular level of the subsidiaries, or have been precluded from doing so by existing legislation.

I guess the third element is systemically important nonbanks, and there, again, the Dodd-Frank Act does an excellent job in extending the oversight of the Fed to cover systemically important nonbank holding companies.

QUESTION: In one vein, as we just had this stress test published in Europe, if you compare the macroeconomic scenario, you have taken a year to analyze the U.S. system. Can you please compare that to the scenario which was taken in Europe? If I look at the numbers between, it seems to me that the macroeconomic shock in Europe, which was assumed was just slightly bigger than the macroeconomic shock that was assumed in these numbers.

MR. TOWE: Well, first, I would not want you to assume that we undertook this exercise with reference to the same exercise in Europe. I mean, this was a completely separate and distinct exercise. So in response to the question, is the macro scenario—the adverse scenario that we adopted—is it not stringent enough? You know, what I would say is we simulated, in effect, a double-dip recession because we have growth below 1 percent in 2011, and growth below that level is typically associated with at least two quarters of negative growth. Again, we don’t see that as a likely outcome, but it was a stress scenario that we thought was appropriate. We also in that adverse scenario included a fairly significant shock to real estate prices relative to the baseline. We also are shocking a system that is already very weak. So I think in those three dimensions we felt it was sufficiently stringent.

QUESTION: I’m sorry if you went through this already, but could you explain on the first page when you write, “Bolder action could have been envisaged,” what you had in mind?

MR. TOWE: Yes. What we had in mind, specifically, was with regard to the consolidation of the supervisory agencies.

QUESTION: So two things. You describe the complexity of the regulatory and supervisory system as contributing to the meltdown, and then you go on to describe in the Act that was just published the administration has failed to take advantage of an opportunity to streamline the system and there remains considerably complexity. So are you intimating that that exposes the U.S. system and then the global system to another crisis because of that oversight?

MR. TOWE: I’m not supposed to joke in these things, but remember that line from “Yes, Minister”: “You could say that, but I couldn’t possibly comment.” But more seriously, I think it’s going to be a challenge, given the complexity to the system for the FSOC to address the weaknesses of a supervisory framework that is so complex and so fragmented. I think that the strengths of the FSOC are that it’s chaired by the Secretary of the Treasury, who will bring all the authority of the administration to the table. But it will be a challenge to ensure that the agencies work together; that the overlaps and duplications that still exist are addressed; that they share the information that’s needed to effectively exercise systemic oversight; and to ensure that there’s as prompt and effective response to risks when they are identified.

QUESTION: So let’s say FSOC does not perform up to your recommended standards. Does that impose a realistic probability of another crisis?

MR. TOWE: In some sense that’s a metaphysical question, which I would only answer by saying that, this was an important and almost all-consuming topic of conversation with the U.S. authorities throughout the process, because we asked many times why bolder action could not be undertaken. The answer was, typically, that this was a system that was pre-existent and not easy to change, given the history of the regulatory framework, and this was the best that could be done given those constraints.

At the same time, I think we all have to acknowledge that if you look internationally, there is no obvious model that fared better than others. There are very good examples of financial systems that had single regulators that failed, and there are good examples of those that had fragmented systems that failed. And, similarly, there are good examples of fragmented systems that survived and good examples of single regulators that also survived.

So, I think the lessons of the crisis are not necessarily how you organize your regulatory system, but what you do with it. And the will to act, which is a phrase you’ll see in our report, is an essential component of that.

QUESTION: Can we go back to the stress test? Usually, the IMF line is that, one, you have a stress test, you should immediately act afterwards to raise capital. So are you recommending that the banks, especially the regional ones, should be recapitalized? And, if yes, according to which scenario: the adverse one or the baseline one? And maybe more for Mr. Kramer, so the bad loans that are coming up, do you feel that they’re well taken into account and how would they possibly impact your growth scenario?

MR. TOWE: Okay, so let me try to answer the first question and maybe Charlie can pick up the second. You know, I think one of the core recommendations we make is that the experience of the staff was, I think, a sea change for the system. It illustrated the benefits and the power of a good and effective horizontal review of the system, and so our recommendation would be that that exercise be conducted on as regular a basis as possible. And when and if individual institutions are identified as being deficient in terms of their capital, there should be early remedial action taken.

QUESTION: Your study suggests the case, right?

MR. TOWE: We have to be humble in the sense that we don’t have access to the detailed data that would allow us to make that type of recommendation. But, again, in some sense I’m deferring the answer, but what I would say is if supervisors were to undertake such an exercise and on the basis of much more detailed access to information and data, if they came up with the same conclusion, then, yes, I would imagine that we would recommend that the authorities take action.

QUESTION: Have you told the regulators which of these four regional banks and seven smaller banks? I mean, did you tell them who they are in case they want to act on this?

MR. TOWE: I think we shared the information. Although we were not privy to confidential supervisory information, the various regulatory bodies that exercises this type of oversight participated in our analysis or provided us with comments on the analysis. I think their view was that one has to be very careful about drawing very strong conclusions of the type suggested because, you know, there’s an enormous confidence interval and uncertainty that surrounds these types of estimates. So in some sense that’s why we didn’t take as definitive a position on recapitalization because the level of uncertainty that surrounds the numbers is high. Let me turn it to Kal Wajid.

MR. WAJID: Yeah, I was just going to add to that, just to be clear, that the stress testing exercises in FSAPs don’t automatically lead to a recommendation to increase capital by that amount. They are definitely illustrative exercises and as Chris has said, there are confidence bands around them in almost every exercise. So they are indicative and the purpose of them is for the supervisors to then follow up and see what the appropriate action would be because these are arm’s length. We are not in the institutions so it’s in that spirit.

QUESTION: We’ve heard the IMF a lot for commending Europe to have something ready right after results so that’s why I was curious.

MR. TOWE: I shouldn’t be speaking about Europe, but I think the distinction is in those regions that undertake a supervisory assessment, if it’s done using the care and using the detailed information, it is important that you have a response ready once that information and once the analysis is done. Charlie perhaps would like to comment on the other question.

MR. KRAMER: The question was sort of where are we in the credit cycle basically?

QUESTION: You know, your warning about these bad loans coming up and I just want to have your feeling of how much this is taken into account by all the actors, financial actors. And also what you estimate will be the impact on the economy.

MR. KRAMER: I think where we are in the credit cycle is very much a focus of the discussion for all of the people we talked to. And I guess the sense—the bigger question that comes out of what we’ve asked is sort of, where are we now, where are we going from here? Well, I guess based on the sort of very preliminary numbers that we’re seeing rolling out for the second quarter, the sense is—and, again, this is very preliminary because obviously it’s pretty hard to gauge where you are in any kind of cycle at the turning point—but the sense is that maybe credit costs are peaking or even coming down a little bit at the margin and so from sort of a very preliminary point of view. But our sense is that, based on the historical experience with these sorts of episodes, we’ll probably have a prolonged period of elevated credit costs. So while the worst might be over, we’re sort of not necessarily in a sort of good territory anytime very soon.

I think the bigger question that comes out of this is sort of where are profits going, right? Because you basically have a couple of sources of capital. One is to raise capital and the market’s another that’s retained earnings. And a lot of the work in stress tests revolved around sort of where are earnings going and how much retained earnings we’ll be able to use for internal capital generation?

And so I think one point worth noting is another thing we saw in the second quarter earnings is that one of the major sources of revenue for the banks, which is trading revenue, has come down a lot. So during the crisis, a lot of volatility, steep yield, fat spreads. There’s a lot of trading revenue for the banks. Now we’re seeing the edge come off of that a little bit.

MR. TOWE: One final thought which is in terms of the stress testing and the estimates that were prepared, it’s important—you’ll see this written in the report—that we are relatively mechanistic in these exercises insofar as we assumed that dividends would continue to be paid, and we didn’t take into account that the individual institutions might access capital through capital markets. So these estimates do have built in them a certain buffer that could be accessed.

QUESTION: Could you tell us, go into a little more detail about this, the Fannie/Freddie model you all are proposing? And also can you tell us what you think the impact of the new Basel III agreement, the potential agreement, could have on all this?

MR. TOWE: I’ll start off on our view. Our view is that there is a significant hole in their balance sheets, that their position is not sustainable. And more importantly, we worry that the incredibly expensive and inefficient public policy responsibilities that they have been assigned over the last decade or so has made their situation untenable. We really do wonder whether or not there is a role, still a role needed for these bodies in terms of promoting securitization of mortgages. And the model we have in mind is actually—I think it’s not dissimilar from the ones that have been discussed by a number of senior administration officials. It’s one that would involve breaking them up, privatizing their retained portfolios, and then assigning their responsibilities for affordable housing to a government agency with explicit funding. Ashok, is that—anything you want to add?

MR. BHATIA: What we had in the past was a system where firstly their guarantees were implicit and tied up in a whole bunch of special privileges they enjoyed, and, secondly, that a lot of the benefit of those guarantees accrued to private shareholders. So in a sense, we emphasized that that was worst of all those. And it’s important going forward that whatever solution we end up with is one that is clear, to the extent its guarantees are still required. They are explicit and not—and hence, whatever public policy objectives need to remain should be under what we call a public utility as opposed to—and we see the retained portfolios as kind of peripheral to their bundling securitization role and something that could readily be transferred to the private sector.

QUESTION: What is your report’s view on the new rules coming out of Basel?

MR. TOWE: In many respects I think our report is silent on that. It’s in part because the focus was on U.S. national policies and also in part because the analysis was done before the resolution, and we’re still waiting for the full details of so-called Basel III. So, I don’t think there’s really—we don’t have a strong position on that. I think that the only thing that we would say—and I think it is emphasized in the report—is that in many respects what the U.S. authorities have introduced in the context of the Dodd-Frank Act is going to be a precursor for what other countries are doing and will have an impact on the way in which both the U.S. and other countries implement the new Basel Accords. And so what we have tried to do is stress the importance that the U.S. authorities coordinate closely with other countries and work effectively in the context of the Basel Committee and other fora to make sure the reforms that are taking place here act as a race to the top if you like and are not implemented in a way that creates, go for regulatory arbitrage.

QUESTION: Why did your report come out now after the debate’s over on the financial bill as opposed to during the middle of it where it might have more effect?

MR. TOWE: Well, that was unfortunate. This was an exercise that was a long time in gestating. The discussions on when and how to do this had been underway for a number of years. The President’s Working Group, I believe, had ultimately decided for the United States to participate in this program because I think the U.S. authorities wanted to demonstrate a commitment to this multilateral effort, and that commitment was undertaken or taken about two years ago. I think we have to give enormous credit to the U.S. authorities for not deferring it, given that the system was in the middle of a crisis, the authorities were incredibly engaged in crisis management. They still, I think, very generously made the time to meet with us extensively.

I think it is also fair to say that it would have been preferable to have done this, if not a year ago, several years ago because I think many of the recommendations that we’ve made, much of the analysis that was done, I think would have been helpful. That said, our discussions took place as the reform legislation was gestating. We did publish, I think, 11 documents some 4 or 5 months ago. I do hope that in the conversations that we had with the regulatory agencies and others that we’ve had, if not a chance to influence, an opportunity to enrich the public debate.

QUESTION: Can I go back one more time to the technical issues?

QUESTION: Just one point, did you have consultations with Congress.

MR. TOWE: We didn’t meet just simply with U.S. officials, but we met with staffers on the Hill who were involved in the formulation of the legislation. The other thing to recognize, too, is that we have conversations with U.S. authorities annually in the context of our Article IV consultations. So this is—although this exercise is somewhat discreet—our engagement with U.S. authorities is much more continuous than that and it includes discussions on regulatory and financial issues.

QUESTION: And one technical question back to the stress-dependent losses, so it’s a 1 percent chance, right? I understand that. And then in 2008, it has a loss of USD 427 billion. But we had—was that period considered to have occurred?

MR. TOWE: Yes. This is a tricky issue. That number is—if you backcast the estimates, that would have been what the model would say would have happened with a 1 percent probability. Unfortunately, that 1 percent, the roll of the dice came up that year. So in some sense, what that tells you is, going forward, it gives you useful benchmarking for what that 1 percent probability really means.

QUESTION: Right, so substantial afterwards, but not on the scale of 2009?

MR. TOWE: Correct.

QUESTION: Just a quick one—and sorry if this seems a little off topic—but have you guys weighed in either in any of these documents or anywhere else on the buildup of reserves and what effect that might have on the economy or in the banking system if the banks are building up a lot of reserves at the Fed because of the way monetary policy is right now?

MR. TOWE: Yeah, we had, in the context of this exercise, fairly significant discussions on monetary policy implementation post-crisis. We didn’t feature it in the report, but I think we were confident on the basis of the conversations that we had and the analysis that we did that the Fed has the instruments available to it to effectively manage monetary policy, even given the swollen nature of its balance sheet. A very significant proportion of those reserves are likely to run off simply through the maturation of the underlying instruments, and new instruments are being and have been developed including interest on reserves and term deposits auctions.

QUESTION: What about the quantity of the interest—or the reserves that interests are being paid on, specifically the part of the reserves that the banks have control of that they’re keeping with the Fed?

MR. TOWE: I think your question is, are we worried that the amount of excess reserves in some sense represents an overhang and a potential risk going forward? I think the answer is no, because the Fed has available instruments to, in effect, sterilize those by paying interest on them. Charlie, do you want to add anything to that?

MR. KRAMER: First of all, there’s a lot of slack in the economy. Core inflation is at pretty low levels. Inflation I don’t think is on anybody’s radar screen as like a major risk at this stage. The forward-looking questions—

QUESTION: Deflation?

MR. KRAMER: Inflation, sorry, inflation.

QUESTION: No, but, I mean, is deflation a risk?

MR. KRAMER: Is deflation a risk? Deflation at this point we would say is a tail risk. I think the sort of key thing to remember about this is even though there’s a lot of slack in the economy and core inflation is low, it’s pretty stable at low levels. If you look at inflation expectations, it’s clear they’re pretty well anchored. You look at Consumer Price Index, for example, it’s anchored at about 2.25 percent or so over the sort of medium to longer term. So the Fed’s got a lot of credibility there obviously. They’ve done a good job of explaining it, in preparing for the exit without actually making people think they’re going to jump the gun and do the exit in a kind of premature way. So, you know, at this point I think you’d need a pretty big shock to raise the specter of deflation in a more significant way than we have right now. Just a tiny add-on to your question. You could refer to paragraphs 36 through 39 in the report where some of this stuff is touched.

MR. MURRAY: I guess we can wrap this up soon, but it’d probably be helpful, Chris, if you gave a quick overview. I believe this is the first advanced economy FSAP we’ve done in the wake of the financial crisis. Maybe you could give just a quick overview for a few minutes and then we’ll wrap up.

MR. TOWE: Sure. As Bill said and as I tried to flag at the outset, we see this exercise as really providing an important springboard to our work in the financial sector going forward. But also, specifically, the assessments that we’re going to be doing in a number of countries in the next year, we are anticipating similar assessments in the U.K. and Germany. And we have a number in systemically important G-20 emerging market economies that are either underway or close to completion. And I think this exercise has provided us with an enormously rich analytical and experience basis for doing that work and hopefully will ensure and help ensure that we can both build on the experience that we’ve had here in the U.S., the lessons that have been learned by the various officials that we’ve worked with over the last year, and help promote a more effective FSAP program and more effective IMF oversight of financial stability going forward.

MR. MURRAY: Great. Thanks, Chris, Charlie, and everyone else on the FSAP team. Appreciate you guys attending. Again, embargo on all this is 12:01 a.m. Friday. If you have any questions—I’m sure things will pop in—just send me an e-mail, [e-mail], and I’ll follow up with these guys for you.

QUESTION: Any chance you could send around a list of everybody’s name and title?

MR. MURRAY: I’ll do that, too. I’ll send an e-mail with everybody’s names and titles.

www.isria.com/pages/8_August_2010_143.php

[sandi66]

Wall Street: Eyes on the Fed

August 8, 2010: 9:56 AM ET


NEW YORK (CNNMoney.com) -- As the euphoria of corporate earnings season fades, the stock market could drift in a narrow range this week as investors come to grips with the prospect of a sluggish economic recovery.

The main event will be Tuesday's policy statement from the Federal Reserve. While the central bank is widely expected to maintain its long-held policy of near zero interest rates, there is speculation the Fed may hint at additional plans to support the economy.

"Investors will be looking to see what the Fed is prepared to do," said Alec Young, equity strategist at Standard & Poor's, adding that a drop in Treasury yields last week suggests the bond market expects the Fed to resume its purchases of U.S. debt.

But the stock market will be range bound next week, Young said, as investors focus on the pace of the economic recovery, which is turning out to be less robust than many analysts had expected.

"There's so much sensitivity about how strong or weak the recovery is," he said. "It's going to be difficult for the rally to gain any traction as long as the macro economic indicators continue to be disappointing," he added.

The Fed's great something-flation debate
Stocks ended last week on a sour note after a report from the Labor Department showed Friday that the tepid pace of hiring in the private sector failed to offset the loss of thousands of public sector jobs in July. But stocks still managed to post weekly gains.

After stocks surged 7% in July on better-than-expected quarterly earnings from major U.S. companies, investors have been more cautious in August as the corporate reporting period winds down and economic concerns come to the fore.

Investors have been particularly nervous about the outlook for the job market, since consumer spending, the main driver of U.S. economic activity, is closely tied to unemployment.

"In this recovery it appears as if the consumer has been taken out of the equation," said Quincy Krosby, financial market strategist with Prudential Financial.

The great tax debate
Despite a growing consensus that the recovery will be underwhelming, most analysts do not expect the economy to slip back into recession.

"It will be a very modest recovery, nonetheless the trajectory is positive," said Krosby.

Meanwhile, automaker General Motors is expected to file documents with the Securities and Exchange Commission some time this week to officially register its initial public offering.

In the bond market, the U.S. is scheduled to auction $74 billion worth of 3-, 10- and 30-year debt this week.


0:00 /3:05Apple sets sights on Exxon value
On the docket

Monday: There are no economic reports on the agenda.

Tuesday: The Federal Reserve will issue a policy statement in the afternoon. The central bank is widely expected to leave its benchmark federal funds rate in a range of 0 to 0.25%, where it has been since December 2008.

A report on wholesale inventories is due shortly after the market opens.

After the closing bell, Walt Disney (DIS, Fortune 500) is among the companies slated to report quarterly results.

Wednesday: The government reports on the U.S. trade deficit before the opening bell.

Economists surveyed by Briefing.com expect the trade gap widened slightly to $42.5 billion in July from $42.3 billion the month before.

In the afternoon, the Treasury Department is slated to release its July budget numbers. Economists expect a deficit of $169 billion in the month after $180.7 billion shortfall in June.

Cisco Systems (CSCO, Fortune 500) reports quarterly results after the market closes.

Thursday: The Department of Labor releases weekly jobless claims figures in the morning. The number of Americans filing new claims for unemployment last week is expected to have dropped slightly to 465,000. Continuing claims, a measure of Americans who have been receiving benefits for a week or more, is expected to rise to 4.55 million.

Reports on July export and import prices also come out before the opening bell.

Friday: Investors will take in top-tier reports on inflation, retail sales and consumer sentiment in the morning.

The Consumer Price Index, the government's main inflation gauge, is expected to show an increase of 0.2% in July after prices fell 0.1% the month before. Core CPI, which excludes volatile food and energy prices, is forecast to be up 0.1% after a gain of 0.2% in June.

At the same time, a report from the Commerce Department is expected to show that retail sales rose 0.5% in July after falling the same amount the month before. Retail sales outside of the auto sector are forecast to be up 0.2%.

After the market opens, the University of Michigan Consumer Sentiment Index for early August is expected to edge up to 70 from 67.80.

In addition, a report on June business inventories is due later in the morning.

money.cnn.com/2010/08/05/markets/sunday_lookahaed/

[sandi66]

Greenspan urges repeal of Bush era tax cuts SEWELL CHAN, NEW YORK
August 9, 2010

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ALAN Greenspan, the former US Federal Reserve chairman and a self-described lifelong Republican libertarian, has called for the repeal of the 2001 and 2003 Bush tax cuts.

Mr Greenspan's position, adopted in large part because of his implicit backing of the tax cuts under president George W. Bush, puts him against Republican orthodoxy, and decidedly to the left of President Barack Obama.

Rather than keeping tax rates steady for all but the wealthiest Americans, as the White House wants, Mr Greenspan, 84, is calling for the complete repeal of the 2001 and 2003 tax cuts, brushing aside the arguments of Republicans and even a few Democrats that doing so could threaten the already shaky economic recovery.

''I'm in favour of tax cuts, but not with borrowed money,'' he said. ''Our choices right now are not between good and better; they're between bad and worse. The problem we now face is the most extraordinary financial crisis that I have ever seen or read about.''

Mr Greenspan, who led the Fed for 18 years until 2006, warns that without drastic action to increase federal revenue and reduce the long-term growth in healthcare costs, bond investors could make a run on Treasury securities, driving up the nation's borrowing costs and leading to another global economic crisis.

This is not the first time he has urged fiscal restraint; he warned in 2008 that the US could not afford the tax cuts proposed by John McCain, the Republican presidential candidate. But his sweeping call for rescinding the Bush tax cuts, which he has articulated in a recent appearance on US current affairs show Meet the Press and an interview with the Financial Times, has rankled former colleagues.

www.smh.com.au/business/greenspan-urges-repeal-of-bush-era-tax-cuts-20100808-11q8a.html