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Post by sandi66 on May 18, 2010 10:57:34 GMT -5
Greece receives EU funds but huge task ahead May 17, 2010 By Lefteris Papadimas and George Georgiopoulos Lefteris Papadimas And George Georgiopoulos – 51 mins ago ATHENS (Reuters) – Greece received a 14.5 billion euro ($18 billion) loan from the European Union on Tuesday and can now repay its immediate debt, but still faces a mammoth task to claw its way out of recession. Concerns that other EU countries such as Portugal and Spain could follow Greece and need aid from the bloc have hit the euro, while investors are still watching Athens to see whether its austerity plan will stave off the risk of default. The EU and IMF agreed at the beginning of the month to lend Greece 110 billion euros ($137 billion) over three years to help it pay billions in expiring debt after being shut out of financial markets by the high cost of borrowing. With 5.5 billion euros already delivered by the IMF, Greece has now received the first 20-billion euro tranche of the loans, the Greek Finance Ministry said in a statement. Athens now can and will repay an 8.5 billion 10-year euro bond which matures on Wednesday, a government official said. "Greece no longer has the liquidity anxiety, it will not need to go to markets to borrow to pay salaries and pensions," EFG Eurobank economist Gikas Hardouvelis told Reuters. Greece will be paying interest of around 5 percent, well below current market yields of well over 7 percent for Greece's 3-year bonds. Though it has gained a breathing space, Greece must now convince markets it can rein in its deficits so that it can eventually start borrowing again. "The programme has been designed so that Greece is able to stay away from the financial markets through the end of 2011 and the first quarter of 2012. We don't expect that to be the case, we want to come back to markets much sooner," Finance Minister George Papaconstantinou said in Brussels. "NO MAGIC WAND" Socialist Prime Minister George Papandreou's government has already implemented sizeable public sector wage cuts and raised taxes in return for the EU/IMF bailout. In response, large and sometimes violent protests have swept the Greek capital, and a general strike and another mass demonstration have been called for Thursday. But the government still has more painful measures in the pipeline such as pension reform, and cuts in spending and red tape to boost competitiveness. Investors are closely watching whether Greeks will swallow the bitter austerity pill, or whether the wave of public anger continues to rise, and if it does, how well Papandreou stands up to the pressure to transform the consumer-driven economy. Greece's main labor unions, representing some 2.5 million workers, or half the Greek workforce, said on Tuesday they will carry out more strikes in June if the government's pension bill raising retirement age is not changed. "The government hasn't realized yet the size of the explosion," said Ilias Iliopoulos, general-secretary of public sector union ADEDY. Greece aims to cut its deficit from nearly 14 percent of GDP to 3 percent by 2014, a task the like of which almost no government has achieved before. An economy deep in recession, with GDP projected to contract by 4 percent this year, makes the job even harder. "There is no magic wand, no other way out but for Greece to deliver on the spending and revenue front and not miss targets, while also making headway in improving the economy's competitiveness," said an economist who declined to be named. "The numbers are merciless." (Additional reporting by Renee Maltezou; writing by Jon Hemming; editing by Stephen Nisbet) ($1=.8054 Euro) news.yahoo.com/s/nm/20100518/bs_nm/us_greece_economy_5
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Post by sandi66 on May 18, 2010 11:14:18 GMT -5
How to make Europe’s big gamble pay off - Predictions of the euro’s disintegration were wrong, but now the political leaders have to bolster the monetary union Barry Eichengreen From Tuesday's Globe and Mail The past few weeks have been the most amazing – and important – period of the euro’s 11-year existence. First came the Greek crisis, followed by the Greek bailout. When the crisis spread to Portugal and Spain, there was the $1-trillion rescue. Finally, there were unprecedented purchases of Spanish, Portuguese, Greek and Irish bonds by the European Central Bank. All of this was unimaginable a month ago. Europe’s fortnight mirabilis was also marked by amazing – and erroneous – predictions: Greece would be booted out of the monetary union; the euro zone would be divided into a Northern European union and a Southern European union; or the euro – and even the European Union – would disintegrate as Germany turned its back on the project. But, rather than folding their cards, European leaders doubled down. They understand that their gamble will be immensely costly if it proves wrong. They understand that their political careers now ride on their massive bet. But they also understand that they already have too many chips in the pot to fold. Those forecasting the demise of the euro were wrong because they misunderstood the politics. The euro is the symbol of the European project. Jacques Delors, one of its architects, once called the single currency “the jewel in Europe’s crown.” Abandoning it would be tantamount to declaring the entire European integration project a failure. It is true that Germans are incensed about bailing out Greece. It is true that Angela Merkel is the first postwar German chancellor not to have lived through the Second World War. But her views and actions are shaped by the society in which she lives, which in turn is shaped by that history. And what is true of Ms. Merkel is still true of Europe. This is why the European leaders swallowed hard and took their unprecedented steps. But, having doubled their bet, the Europeans now must make their monetary union work. Europe has excellent bank notes. It has an excellent central bank. But it lacks the other elements of a proper monetary union. It needs to establish them – and fast – which requires finally addressing matters that have been off limits in the past. First, Europe needs a Stability Pact with teeth. This will now happen, because Germany will insist on it. As the European Commission has proposed, the strengthened pact will have tighter deficit limits for heavily indebted countries. Exceptions and exemptions will be removed. Governments will be required to let the commission vet their budgetary plans in advance. Second, Europe needs more flexible labour markets. Adjustment in the United States’ monetary union occurs partly through labour mobility. This will never apply to Europe to a similar degree, given cultural and linguistic barriers. Instead, Europe will have to rely on wage flexibility to enhance the competitiveness of its depressed regions. This is not something that it possesses in abundance. But recent cuts in public-sector pay in Spain and Greece are a reminder that Europe is, in fact, capable of wage flexibility. Where national wage-bargaining systems are the obstacle, the European Commission should say so, and countries should be required to change them. Third, the euro area needs fiscal co-insurance. It needs a mechanism for temporary transfers to countries that have put their public finances in order but are hit by adverse shocks. To be clear, this is not an argument for Germany’s dreaded “transfer union” – ongoing transfers to countries such as Greece. It is an argument for temporary transfers to countries, such as Spain, that balanced its budgets before the crisis but then was hit by the housing slump and recession. It is an argument for fiscal insurance running in both directions. Fourth, the euro zone needs a proper emergency-financing mechanism. Emergencies should not be dealt with on an ad hoc basis by 27 finance ministers frantic to reach a solution before the Asian markets open. And the European leaders, in their desperation, should not coerce the European Central Bank into helping. There should be clear rules governing disbursement, who is in charge and how much money is available. It should not be necessary to obtain the agreement of 27 national parliaments each time action is required. Finally, Europe needs coherent bank regulation. One reason the Greek crisis is so difficult is that the European banks are undercapitalized, overleveraged and stuffed full of Greek bonds, thereby ruling out the possibility of restructuring – and thus lightening – Greece’s debt load. That happened because European bank regulation is still characterized by a race to the bottom. “Colleges” of regulators, the supposed solution, are inadequate. If Europe has a single market and a single currency, it needs a single bank regulator. This is a formidable – some would say unrealistically ambitious – agenda. But it is the agenda Europe needs to complete to make its monetary union work. www.theglobeandmail.com/news/opinions/how-to-make-europes-big-gamble-pay-off/article1571748/?cmpid=rss1
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Post by sandi66 on May 18, 2010 11:37:49 GMT -5
Greek Bailout Halts Euro Decline By Chuck Butler|May 18, 2010, 11:06 AM|Author's Website The price action in the euro (EUR) yesterday, which has dominated the currency trading for a month now, was something out of the Twilight Zone… “Help, I’m slipping into the Twilight Zone; the place is a madhouse; feels like being cloned”… Yes… That Twilight Zone… While the other currencies from Norway and Australia, were getting hammered – for no apparent reason, I must add – the euro rallied in the early morning to near 1.24… Then turned on a dime, and by the time my turkey sandwich on wheat arrived at my desk, the single unit was back to trading below 1.23… But… Then, by the time I packed up to go home, the euro was back to 1.24… The strange thing about this swing, was that there was nothing, nada, zero, zilch, a big goose egg of news, data, or official slant to trade off of… So… As I turn on the screens today, the euro has remained above 1.24 in the overnight trading… A lot of the euro’s selling came last week based on fears that while Greece may have been promised funding, they might not ever see it… Well, those fears were thrown to the roadside this morning, as Greece received a 14.5 billion euro ($18 billion worth) payment this morning, which kept Greece from defaulting on debt/bonds… Greece is also set to receive 5.5 billion euros from the IMF… (I told you last week about who the major funding comes from for the IMF, so I won’t go into a tizzy again about the fact that you, me, and the guy down the street that cuts his grass with his shirt off, are the major financiers!) The euro started last week with the euphoria of an aid package, and a level of 1.30, only to see selling the rest of the week based on the fears of no payments being made… Well, now that this has been settled, one would think that the bounce for the single unit would be more than we’ve seen so far this morning… But… Just goes to show you that “bailouts” aren’t all they are made out to be. They should have asked us here in the US… No wait, they should have asked me, not the President or VP or Treasury Sec. or Fed Chairman, for they would have all told them to get the bailouts on the books, for they greatly helped the US. Now I, on the other hand, would have told them not to bother unless they wanted to begin a spending pattern close to what’s going on here in the US. Growth at what cost? Take away the government spending, and we have no economic growth, and are still saddled with near 17% unemployment (when real numbers are used) and the really sad part… Our national debt is out of control! OK… Enough of all that… The euro and the Eurozone are not out of the woods by any stretch of the imagination, folks… The global demand for US assets (Treasuries and other things) rose to a record level in March… So, you didn’t believe me that the flight to the so-called “safety of Treasuries” was going on? Think again… The yield of the 10-year Treasury has fallen to 3.47% after rising to above 3.80%… (Remember, bond pricing is an inverse relationship between price and yield… When yield goes up, the price goes down, and vice-versa) So… The nasty circle of buying so-called safe Treasuries is “on” again… Grab your Treasuries, it’s on! (Sorry Southwest!) Oooh… Where do I sign up for this trade? NOT! Chuck, Chuck, Chuck… Go on from here; don’t go down that road of explaining how everyone lost money in the last round of “flight to safety”… If they didn’t learn then, well, they will never learn! Today, we will see the color of the latest Housing Starts, and Building Permits data… The experts have forecast that both of these reports will show a strengthening housing market… But remember, folks… These are “new buildings”… Do we really need more new buildings when we already have a glut of inventory in this country? Oh well… Hey! I see the sun rising! YAHOO! OK… Gold got smacked with a two-by-four yesterday right across the chops! And the selling is still going on this morning… The payment to the Greeks probably caused this morning’s selling, as the “uncertainty” of the payment was wiped out. But, this certainly looks like a “dip” to me… Very much cheaper than last week! I noticed something last week, which Kristin confirmed, and that is, that silver has been performing better than gold in recent days. Gold… Silver… Either one provides a store of wealth… You pick the one that makes you happy! The Treasury Department said Monday it would lose $1.6 billion on a loan made to Chrysler in early 2009. Taxpayer losses from bailing out Chrysler and General Motors are expected to rise as high as $34 billion, congressional auditors have said. Hmmm… You don’t hear the government officials running around pounding their chests and spouting off about this news, now do you? They just sweep it under the rug… Earlier in the letter today, I told you that Aussie dollars got hammered yesterday for no apparent reason that I could find… Well… Last night I couldn’t deal with not knowing, so I researched and researched until I found the news I was looking for… Moody’s (there they are again taking shots at smaller fish, instead of dealing with US debt) made comments that the mining profits tax that has been proposed may cut earnings by 33%… Now, that may be true, but the tax hasn’t even been passed yet by parliament! On the brighter side, the Reserve Bank of Australia (RBA) minutes revealed that the RBA members believe that the impact of Greece on Australia was considered to be small… The RBA then went on to mention something interesting that I think the markets have missed altogether… The RBA said that “over the next couple of years it was likely that inflation would not be much below the top of the target range”… That’s Central Bank Parlance for “there could be more rate hikes in the future”. I personally think that the RBA will take a summer vacation on the rate hikes, and not come back to the rate hike table until early fall. Then there was this… Twelve months after federal regulators seized BankUnited FSB, the Federal Deposit Insurance Corp. says the Coral Gables bank’s failure will cost $815 million more than originally forecast. The bank failure will now cost the FDIC an estimated $5.72 billion, a 16.6% jump from last year’s estimate of $4.9 billion, according to new estimates released by the FDIC. It is the second-costliest bank failure in FDIC history. FDIC spokesman David Barr said the change in estimated cost is a natural development in the aftermath of a bank failure. Funny, I didn’t see this on any cable news stations, did you? To recap… The euro had a turn on Mr. Toad’s Wild Ride yesterday, but by day’s end was stronger. The first installment payment to Greece was made this morning. Aussie and Norway saw their currencies get hammered yesterday, along with gold… All providing “dips” in my opinion! And US Treasuries are popular once again; let’s see how it works out for the buyers this go-around… wallstreetpit.com/28414-greek-bailout-halts-euro-decline
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Post by sandi66 on May 18, 2010 11:51:14 GMT -5
INTERNATIONAL CURRENCY REVIEW VOL 35 PLUS: ARAB-ASIAN AFFAIRS VOL 33, NUMBERS 5 AND 6 Monday 17 May 2010 19:12 INTERNATIONAL CURRENCY REVIEW VOLUME 35, NUMBERS 1 & 2 The latest issue of International Currency Review is released globally this week [17th May 2010]. • In a change to our long-established administrative procedure, issues are being delivered only to fully paid-up subscribers, as we find that with the decay of residual integrity in the financial sector, lapses of settlement discipline have exceeded our toleration threshold. If your delivery of the latest International Currency Review is not forthcoming, it is because you may not be up to date with your routine subscription fee payments to us. Please rectify the situation so that we can resume fulfillment. The front cover of this issue displays two heavy jackboots adorned with the insignia of the Chinese authorities and of Her Majesty Queen Elizabeth II, which are hovering over, ready to stamp upon and crush THIRTEEN notorious and recalcitrant high-level organised financial criminals – Cheney, Biden, Gates, Summers, Leon Panetta , Clinton (male), Clinton (female), Geithner, George W. Bush, Henry M. Paulson, Barack Obama, George H. W. Bush Sr., and Dr Bernanke – who have deliberately and knowingly conspired to perpetuate the entirely illegal securitisation fake derivatives carousel thereby generating an open-ended avalanche of unnecessary official US debt, while rejecting, for jealousy and control reasons, the only sound solution on the table – the agreed Dollar Refunding operation using the $6.2 trillion sovereign loan made available via the Bank of England to the Bank of New York (Mellon) on 19th-20th June 2007, for this purpose. The issue is chock full of revelations, explained for subscribers and posterity in straightforward language. Here is a brief summary of contents: • Background to today’s crisis: recapitulation of how we got here. • Has The Queen’s loan been stolen? Possible embezzlement of $6.2 trillion. [As perceived in March 2010: In the event, the situation is not as dire as feared]. • The largest fraud lawsuit in world history: CMKM/CMKX sues the US Securities and Exchange Commission for $3.87 trillion: relevant documents. • The psychology of scams and fraud: A study of today’s scamming epidemic, exposing the theory behind criminal intelligence psychological and scamming (thievery) operations. • Northern Rock’s line in excuses: Holding paid-out title deeds for five years: A forensic analysis of how Northern Rock deceived a former mortgagor, with details of its conflicting excuses for non-performance. • Modern Money Mechanisms 1992: The dollar system that the criminals broke. • The derivatives ‘business as usual’ death-wish: A recipe for the grandfather of catastrophes. • Financial corruption exposures, with detailed sub-exposures, 1st July 2009 to 31st January 2010. • With extensive charts revealing macrodata normally hidden from view. ARAB-ASIAN AFFAIRS VOLUME 33, NUMBER 5 The mystery of David Kimche [Mossad]: How Israeli intelligence disguised the physical identity of the former top Israeli spymaster, drug controller and Director of the Israeli Foreign Office, even after his death, which took place on 8th March 2010. ARAB-ASIAN AFFAIRS VOLUME 33, NUMBER 6 US drug duplicity in Afghanistan elaborated: A deconstruction of continuing US official and clandestine duplicity over operations in Afghanistan, and how the nefarious US Intelligence Power fostered the elevation of Afghani drug lords into the mainstream, on the basis of deceitful weasel arguments, and how it seeks to disturb the regional balance of power and to pursue US ‘Black’ strategic interests beyond the immediate objectives of the United States’ so-called ‘war on terror’ (which Obama 'cancelled' anyway). www.worldreports.org/updates/31_international_currency_review_vol_35_ty gigi
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Post by sandi66 on May 18, 2010 14:34:51 GMT -5
Germany To Ban Short Selling At Midnight, Only Naked Shorts To Be Affected May 18, 2010 Update 4: Merkel to formally announce naked short-selling ban on Wednesday. Update 3: Hearing naked ban will also apply to credit derivatives, i.e. naked CDS. Update 2: Bloomberg chimes in quoting Deutsche Presse which reports that the ban will only apply to naked shorting. We are looking for official confirmation on what the final proposal will look like as there is a lot of confusion currently and no formal announcement. Regardless, investors are wondering what has changed today to institute this now. Update: short selling ban will apply to stocks and euro government bonds according to German N-TV station. This is an act of desperation and will force all those who are long German assets to sell asap (selling is still legal). Reuters headline for now, that the German Finance Minister will institute a short-selling ban at midnight. If true, this is huge, as it means the market will become massively dislocated once again. We can show charts of how Thailand, US and Greek markets reacted when this was introduced (short jump followed by significant slide lower), but you get the image. One wonders just how horrible the news flow over the next 24 hours will be for this drastic measure to be introduced. Full and most recent Reuters update below: BERLIN, May 18 (Reuters) - Germany plans to ban naked short-selling on stocks and euro government bonds, German all-news network N-TV reported on Tuesday. German coalition sources told Reuters earlier that Finance Minister Wolfgang Schaeuble plans to ban short-selling from midnight. Economy Minister Rainer Bruederele told Reuters that it was possible the short-selling ban would be quickly enacted. No other details were immediately available. www.zerohedge.com/article/germany-ban-short-selling-midnightus.mg2.mail.yahoo.com/dc/launch?.gx=1&.rand=cre2q1qki1lg0ty nalmann
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Post by sandi66 on May 19, 2010 5:20:53 GMT -5
Dodd suggests study of bank derivatives ban By JIM KUHNHENN (AP) – 10 hours ago WASHINGTON — Senate Banking Committee Chairman Christopher Dodd offered a compromise Tuesday to study and delay a contentious provision on how to police the complex securities known as derivatives. The measure could remove one of the major sticking points in a sweeping financial regulations bill before the Senate. The existing bill would require banks to spin off their derivatives business into subsidiaries. That requirement, inserted into the bill by Sen. Blanche Lincoln, D-Ark., has been criticized by Wall Street and several federal banking regulators, who say it would drive the derivatives trades into unregulated markets. Dodd, D-Conn., proposed that implementation of that measure be delayed for two years while an oversight council of regulators studies the requirement to determine whether it would have an adverse effect on the markets and the economy. Lincoln is in a tight primary contest and was fighting criticism she was too friendly to banks. Dodd offered the amendment Tuesday while Lincoln was in Arkansas for the primary election. "I remain fully committed to my provision and will fight efforts to weaken it," Lincoln said in a statement late Tuesday. "I'm proud of the support my provision has received both inside and outside the Senate and will defend it should there be a debate on the Senate floor." The compromise by Dodd could allow the overall regulatory bill to move through the Senate. It will then have to be reconciled with a House version of financial regulation. Derivatives are exotic investment instruments often used by corporations to hedge risks. But they have been used by banks as investment bets. Wall Street banks have a lucrative business writing derivatives contracts for their clients. Many advocates of new regulations have proposed that commercial banks be prohibited from conducting derivatives trades with their own accounts. But Lincoln would also require banks to separate their derivatives contracts operations. That has prompted a flurry of opposition. Among those calling for the provision to be dropped are Federal Reserve Chairman Ben Bernanke, Federal Deposit Insurance Corp. Chairwoman Sheila Bair and former Fed chairman Paul Volcker, an adviser to President Barack Obama. www.google.com/hostednews/ap/article/ALeqM5g7ffRdswXTlfgaQS0FCOZmrvbwcAD9FPI8I01
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Post by sandi66 on May 19, 2010 5:27:13 GMT -5
Euro Reaches Four-Year Low, Yen Jumps on German Speculation Ban May 19, 2010, 5:12 AM EDT By Matthew Brown and Candice Zachariahs May 19 (Bloomberg) -- The euro slid to a four-year low and the pound reached its lowest level in 13 months on concern the region’s debt crisis will worsen as Germany limited short sales and Chancellor Angela Merkel said Europe’s currency is at risk. The yen gained against 15 of its 16 major counterparts amid heightened demand for safety after Germany prohibited so-called naked short-selling on sovereign debt and some financial stocks, while the Bank of Italy allowed lenders to exclude losses on government bonds. New Zealand’s dollar dropped for a fourth day as central bank Governor Alan Bollard said gradual depreciation of the currency was desirable. “If you don’t have a chance to express a negative view through other assets, you do it through the euro,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. “The market may be wondering if Germany is trying to hide something, but this looks like a populist step that undermines faith in European policymaking.” The euro fell as low as $1.2144, the weakest since April 17, 2006. It recovered some of its drop to trade at $1.2169 at 9:30 a.m. in London, down from $1.2202 yesterday in New York. It declined 1.1 percent to 111.33 yen. The yen appreciated to 91.48 per dollar from 92.23 yesterday, after reaching 91.36, the strongest level since May 7. The dollar climbed as high as $1.4239 versus the pound, the strongest since March 30, 2009, and reached C$1.0448, the strongest level against Canada’s currency since May 7. Yen, Asian Currencies The yen rose and Asian currencies fell as European stocks extended a global rout, spurring investors to flee emerging- market assets. The Stoxx Europe 600 Index slumped 2.1 percent, bringing its decline from an April 15 peak to 9.8 percent. The Australian dollar was the biggest loser among major currencies, sliding 2.5 percent against the yen and 1.7 percent versus the greenback. The German ban on naked short sales, which lasts until March 31, 2011, also applies to the shares of 10 banks and insurers including Allianz SE and Deutsche Bank AG, financial regulator BaFin said late yesterday, citing “exceptional volatility” in euro-area bonds. When securities are sold naked, the trader fails to borrow the assets before sending an order to sell. Investors own naked credit-default swaps when they don’t hold the bonds the derivatives are linked to. The ban “plays into market doubts about European policy- making credibility,” Brown Brothers Harriman & Co. strategists led by Marc Chandler in New York wrote in a research report today. “The U.S. dollar and the yen are in demand in the current context.” Merkel, Italy Merkel said the European debt crisis could have global consequences. Speaking to parliament in Berlin today and opening a debate on the euro-region bailout, she said Europe needs a “new culture of stability” to protect the euro. The Bank of Italy said in a statement that Italian banks can opt for new rules aiming at “neutralizing” the effect of capital losses on European government bonds. The U.S. Securities and Exchange Commission filed proposed rules under which exchanges would halt trading in individual stocks that swing more than 10 percent. The 16-nation euro has dropped 8.9 percent this year against developed-world counterparts, according to Bloomberg Correlation Weighted Indexes. “The euro has become a key gauge for risk sentiment, and its bottomless declines now affect the direction of growth currencies,” said Masahiro Ito, senior manager of foreign- exchange sales and marketing at Central Tanshi FX Co., a unit of Japan’s largest money broker. “It will take considerable time before the single currency can regain investor confidence.” Relative Strength Europe’s leaders last week unveiled a loan package worth nearly $1 trillion and a program of bond purchases to forestall defaults in debt-ridden countries, including Greece, Spain and Portugal. The euro’s decline pushed it towards a support level at $1.2134, a 50 percent Fibonacci retracement of the rally from its all-time low of 82.3 U.S. cents on Oct. 26, 2000, to its lifetime high of $1.6038 on July 15, 2008. “We identify further support at $1.2135 and then the important $1.20,” Brown Brothers Harriman said. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A support level is where orders to buy a bond and its related securities may be grouped. The currency has fallen in six of the past seven days on anticipation that national spending cuts will curtail economic growth. The currency’s 14-day relative strength index against the dollar was at 21 today, the lowest since October 2008. Readings below 30 on the gauge indicate an asset’s value has fallen too fast and may be poised to rebound. Kiwi Depreciation New Zealand’s dollar fell for a fourth day versus its U.S. counterpart as central bank Governor Bollard called for reduced reliance on foreign borrowing and a narrowing of the deficit. “The central bank is trying to endorse a weaker currency and signal that they may not be as much in a rush to raise interest rates,” said Kathy Lien, director of currency research at online currency trader GFT Forex in New York. “Like everyone else in the world, they’re worried about the global financial markets and what growth could be like six months from now.” New Zealand’s currency fell to 68.31 U.S. cents, the weakest since Feb. 9, before trading at 68.44 cents. Australia’s dollar declined to 85.18 U.S. cents, after earlier dropping to 85.12 cents, the least since Sept. 7, 2009. Australian consumer confidence fell in May to the weakest since June 2009, according to a Westpac Banking Corp. and Melbourne Institute survey released today in Sydney. www.businessweek.com/news/2010-05-19/euro-reaches-four-year-low-yen-jumps-on-german-speculation-ban.html
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Post by sandi66 on May 19, 2010 6:16:42 GMT -5
MAY 19, 2010, 5:26 A.M. ET 2ndUPDATE: Germany Merkel:Short-Selling Ban To Stay Until EU Rules By Andrea Thomas Of DOW JONES NEWSWIRES BERLIN (Dow Jones)--Germany's ban on speculative short-selling will stay in place until corresponding European rules are implemented, Germany's Chancellor Angela Merkel said Wednesday, adding that the euro is currently undergoing an "existential test" and that if the currency fails, then the whole of Europe will fail. Speaking to the country's lower house of parliament in a speech on the euro rescue plan, Merkel said "the euro is at risk" and the current situation is Europe's "biggest test" in decades. "If we don't avert this danger then the consequences for Europe are inevitable," Merkel said. "Because if the euro is failing, than Europe is failing." Germany's lower house of parliament is expected to vote May 21 on the country's contribution of up to EUR147.6 billion to a massive EUR750 billion bailout by European Union countries and the International Monetary Fund for European countries on the verge of defaulting on their debt. Merkel also defended Germany's ban on so-called naked short-selling of shares in 10 leading German financial institutions and in euro government bonds, that was introduced Tuesday at midnight. "This will all remain in place until other rules [other than those in Germany] are established on a European level," Merkel said. The finance ministry has said that additional bans on naked short selling are planned, in addition to those that started midnight Tuesday. They will include a total ban on naked short selling of all German shares, stock derivatives, derivatives related to euro-zone government bonds, as well as euro-currency derivatives that "don't have a role in hedging against currency risks." Naked short selling is the shorting of financial instruments but differs from conventional short selling as the instruments sold aren't borrowed in advance. The practice came under fire as Greece's struggle to refinance its debt escalated into a crisis across southern euro-zone nations. Many euro-zone governments have said that transactions such as credit default swaps--a type of default insurance--artificially inflated Greece's funding costs. Merkel also said that Germany will campaign in Europe and globally for the financial sector to help pay for the costs caused by the recent crisis, saying "we need a taxation of financial markets." Germany will lobby for an international financial transaction tax or a financial activities tax. If there is no global deal on an international level, then a European approach should be considered, Merkel said. In her speech, Merkel also defended the European Central Bank's independence and said that despite recent action taken to rescue the euro, she has no doubt that the bank will stick to its top priority of securing price stability. "Securing price stability is and remains a top priority for the ECB," she said. She also said that a far-reaching reform of the European Union's Stability and Growth Pact is needed, which includes tougher controls of budget policies and setting up orderly insolvency procedures for euro-zone member states. She also said that countries violating budget rules would risk losing their voting rights temporarily and could be refused money from the EU's structural fund. online.wsj.com/article/BT-CO-20100519-704896.html?mod=WSJ_latestheadlines
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Post by sandi66 on May 19, 2010 6:21:48 GMT -5
Senators grapple with derivatives rules in financial overhaul - Provisions aim to limit the complex investments that were a major factor in spreading toxic mortgage-backed securities deep into the global economy. But lawmakers also tread a fine line By Jim Puzzanghera, Los Angeles Times May 19, 2010 Reporting from Washington Senators hoping to pass a sweeping overhaul of financial regulations this week are frantically trying to resolve tough — and controversial — provisions limiting, regulating and shedding light on the largely hidden world of complex investments known as derivatives. Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) introduced a last-minute compromise Tuesday that would approve, but hold in abeyance for two years, a proposed ban on banks' engaging in nearly all derivatives trading. » Don't miss a thing. Get breaking news alerts delivered to your inbox. In such forms as credit default swaps and collateralized debt obligations, derivatives were a major factor in spreading toxic mortgage-backed securities and other money-losing assets deep into the worldwide financial system. But as much as derivatives are derided, lawmakers tread a fine line in carving out protections for their legitimate use by nonfinancial companies and even banks. Dodd is asking for a two-year delay in implementing the ban proposed by Sen. Blanche Lincoln (D-Ark.) so that federal regulators can assess the effect on banks. Key regulators and officials, including Treasury Secretary Timothy F. Geithner, question the wisdom of such a ban. The effect of the delay would be to allow regulators to kill the provision later. As the name implies, derivatives derive their value from other assets — foreign exchange rates, soybean prices, even other securities. Although derivatives can be incredibly complex, the basic premise is simple: One party agrees to pay another party money if a certain prediction about the future is correct. A farmer, for instance, can try to partially offset, or hedge against, a future drop in corn prices by buying a derivative that pays off if the price falls. An airline can buy jet fuel at a set price in the future to offset a possible increase in oil prices. But investors also use derivatives to speculate. Investment banks and other financial companies can use derivatives to place bets on the price of oil, the credit rating on a corporate bond or the default of mortgages that back securities. They have helped to turn derivatives into high-stakes gambling. "The most important thing to understand about derivatives is that they are bets. That's not a figure of speech — they are literally bets," said Lynn Stout, a UCLA professor of corporate and securities law. "You can make a million-dollar bet on a $1,000 horse." Giant insurer American International Group Inc. used credit default swaps and collateralized debt obligations to place big bets on the rise of housing prices without buying any property or making any home loans. The ability to make such bets is a big reason that the value of all derivatives can be about 10 times the world's economic output. Aided by deregulation a decade ago, the use of derivatives soared during the housing boom, with their overall value jumping to nearly $600 trillion at the end of 2007 from about $95 trillion in 2000. The world's economic output was pegged at $55 trillion in 2007. So a pandemic was poised to break out three years ago when the real estate market began collapsing in Southern California and other over-inflated regions of the country. Like trillions of infected mosquitoes, derivatives carried that financial illness far and wide. Making matters worse, the largely unregulated world of derivatives left government officials with little sense that so many financial institutions would be exposed to the disease. The government's recent civil suit against Goldman Sachs Group Inc. highlights the complexity of derivatives and their potential abuse by financial firms. The suit accused the Wall Street firm of failing to tell investors that a derivative it was selling had been created with significant input from a client who was betting that the securities would fail. Goldman denied it did anything illegal. Federal prosecutors also reportedly are investigating whether another large derivatives dealer, Morgan Stanley, misled investors on some of its mortgage-based derivatives. President Obama said the proposed regulations strike the right balance to inoculate the economy from another derivative-fueled crisis. Although the administration has indicated it might be open to changes in the legislation, Obama has vowed to veto any bill that does not strongly crack down on derivatives. "We believe that there is a legitimate role for these financial products in our economy," Obama told a gathering of corporate executives recently. "But the position of my administration on derivatives from the beginning has been simple: We can't have a $600-trillion market operating in the dark." The financial regulatory reform legislation would dramatically change how derivatives are created and sold, adding oversight and transparency to prevent a repeat of the financial crisis. • Most derivatives would have to be traded through central clearinghouses, which will require collateral to cover deals that go bad. » Don't miss a thing. Get breaking news alerts delivered to your inbox. • Those derivatives would have to be traded on public exchanges, not privately, with prices and transactions reported to regulators and the public in real time. • Large Wall Street banks, such as Goldman Sachs, JPMorgan Chase & Co. and Bank of America Corp., would be forced to spin off their lucrative derivatives businesses into separate companies. One major point of contention centers on an exemption that farmers, airline companies and other non-financial companies would get from the proposed restrictions. A coalition of such companies and the U.S. Chamber of Commerce are pushing for broader exemptions so the firms don't get caught by new regulations meant to rein in Wall Street. "Because the end users represent a relatively small portion of the market, between 10% and 15%, they really can't pose a threat to the stability of the financial system," said Ryan McKee, senior director of the chamber's Center for Capital Markets Competitiveness. The financial overhaul that passed the House has a broader exemption for such companies. But the Obama administration and key Senate Democrats are worried that the House version could turn into a loophole that allows financial firms to evade tough oversight. There's widespread belief that speculators using derivatives helped drive the cost of oil to record highs before the financial crisis. "When oil was ramping up to $150 , our guys were there saying, 'There's a big problem, folks,' " said Jay McKeeman, vice president of government relations for the California Independent Oil Marketers Assn.
The group, which represents fuel wholesalers and distributors, is among about 50 state and national business groups supporting the Senate's derivatives provisions and a narrow exemption to avoid creating loopholes that could be used by speculators.
But the U.S. chamber is leading a larger coalition of businesses concerned that the exemption is too narrow. A study done for the Business Roundtable, an association of chief executives at 169 major companies, estimated that the new regulations could force its nonfinancial members to put a total of $33.1 billion in reserve for collateral on derivatives that go through clearinghouses.
"I'm just worried that the broad brush of regulatory reform designed to fix our financial system will have unintended consequences," said W. James McNerney, chief executive of Boeing Co., who wants a broader exemption.
www.latimes.com/business/la-fi-derivatives-20100519,0,6056861.story
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Post by sandi66 on May 19, 2010 6:49:06 GMT -5
Basel II—The work goes on despite the crisisPosted by Anthony Harrington, May 19, 2010 The crisis in the euro and the general anxiety in the markets over sovereign debt issues have caused many market watchers to take their eye off the Basel Committee on Banking Supervision’s work on revamping the Basel II standard. However, the market hysteria over government debt has not deflected the Committee from its efforts to raise the resilience of the banking sector. As the BCBS puts it: “The over-riding objective of the Committee’s reform agenda, as endorsed by the G20 and the FSB, is to deliver a banking and financial system that acts as a stabilising force on the real economy.” The Basel rules certainly didn’t have much impact in securing that objective once things started to come unglued, but the BSCS is optimistic that this go round it is moving in the right direction. In a recent speech, Stefan Walter, Secretary General of the Committee, set out the key elements of the reform the BSCS is proposing for a revised Basel II. They are: 1.to try to ensure that all material risks are adequately integrated into the capital adequacy requirements that banks must meet 2.that banks have sufficient high quality capital to absorb all losses arising from the totality of risks 3.a technical point about credible leverage ratios that would help to contain the build up of banking sector wide leverage 4.to get banks to think in terms of counter cyclical capital buffers and forward looking provisioning so that they are not knocked over by major shocks 5.the introduction of minimum global standards for measuring and controlling liquidity risk 6.strong regulation and supervision of systemically important banks, with a strong supervisory review process 7.improved market discipline with good disclosure of a bank’s risk profile and capital adequacy 8.a practical set of approaches to improving the management of cross border bank resolutions It is a very big agenda and you would be very hard pressed to find anyone who would want to throw out any of the BSCS’s key provisions. However, as a quick glance down the list shows, the BSCS’s interests are a bit bound up with yesterday’s battles. There is no mention here of the issue of “too big to fail,” or whether banks should be broken up so that their retail deposit taking side and their “casino” money market operations have solid walls between them. In fact anyone reading the US Financial Services Bill and then looking at the BSCS’s ruminations will feel that they are in two very different worlds. Much of the BSCS’s effort is bound up with improving the way banks model their own risks, the competence of regulators to assess those risks, and the processes that should be in place to see that it all ticks along. The politicians, by way of contrast, are focusing more on forcing some major external constraints on banks, not in asking them to sharpen up their modelling! Where the BSCS and the politicians are on common ground is that both want systemically important banks to be subject to much tougher standards. For the BSCS, this tends to come down to increased capital requirements for trading book activities, counterparty credit risk and complex securitisations and re-securitisations. One suspects that the BSCS’s final recommendations, when they are complete, will be salutary in promoting banking health, but the BSCS may just find that the market it has set out to regulate has a rather different shape to it when the politicians are done… Further reading on banking and regulation •Regulation after the Crash, by Viral Acharya and Julian Franks www.qfinance.com/regulation-viewpoints/regulation-after-the-crash?page=1•US Financial Regulation: A Hopeless Tangle, or Complexity for a Purpose? by Lawrence J. White www.qfinance.com/regulation-best-practice/us-financial-regulation-a-hopeless-tangle-or-complexity-for-a-purpose?page=1•Regulation, Corporate Governance, and Boardroom Performance Must Be Shaken Up If We Are to Avoid Another Financial Crisis, by Stewart Hamilton www.qfinance.com/corporate-governance-viewpoints/regulation-corporate-governance-and-boardroom-performance-must-be-shaken-up-if-we-are-to-avoid-another-financial-crisis?page=1•EU derivatives regulation—Papering over the cracks, by Anthony Harrington [blog post] www.qfinance.com/blogs/anthony-harrington/2009/11/19/eu-derivatives-regulationwww.qfinance.com/blogs/anthony-harrington/2010/05/19/basel-ii-the-work-goes-on-despite-the-crisis
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Post by sandi66 on May 19, 2010 7:15:27 GMT -5
State Finances Rigged in Conspiracy by Banks, Advisers By Martin Z. Braun and William Selway - May 18, 2010 Email Share A telephone call between a financial adviser in Beverly Hills and a trader in New York was all it took to fleece taxpayers on a water-and-sewer financing deal in West Virginia. The secret conversation was part of a conspiracy stretching across the U.S. by Wall Street banks in the $2.8 trillion municipal bond market. The call came less than two hours before bids were due for contracts to manage $90 million raised with the sale of West Virginia bonds. On one end of the line was Steven Goldberg, a trader with Financial Security Assurance Holdings Ltd. On the other was Zevi Wolmark, of advisory firm CDR Financial Products Inc. Goldberg arranged to pay a kickback to CDR to land the deal, according to government records filed in connection with a U.S. Justice Department indictment of CDR and Wolmark. West Virginia was just one stop in a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks. They rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in U.S. District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer money. California to Pennsylvania The workings of the conspiracy -- which stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and non- profits -- can be pieced together from the Justice Department’s indictment of CDR, civil lawsuits by governments around the country, e-mails obtained by Bloomberg News and interviews with current and former bankers and public officials. “The whole investment process was rigged across the board,” said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service’s tax-exempt bond division. “It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded.” Anderson said he referred scores of cases to the Justice Department when he was with the IRS. He estimates that bid rigging cost taxpayers billions of dollars. Anderson said prosecutors are lining up conspirators to plead guilty and name names. “This will go on for a long time and a lot of people will be indicted,” he said in a telephone interview. Bidding Encouraged The U.S. Treasury Department encourages public bidding for GIC contracts to ensure that localities are paid proper market rates. Banks that conspired in the bid rigging for GICs paid kickbacks to CDR ranging from $4,500 to $475,000 per deal in at least 10 different transactions, government court-filed documents say. A GIC is similar to a certificate of deposit, but its rates aren’t advertised publicly. Instead, towns rely on advisory firms such as CDR to solicit competing offers. In the bid-rigging deals, CDR gave false information to municipalities and fed information to bankers allowing them to win with lower interest rates than they were otherwise willing to pay, the indictment says. Banks took their illegal gains from the additional returns and paid CDR kickbacks, according to the indictment. Not Guilty Plea Wolmark, 54, who was indicted by a federal grand jury in Manhattan on antitrust, conspiracy and wire fraud charges, to which he pleaded not guilty, declined to comment when reached by telephone at CDR’s office. Goldberg, who hasn’t been charged, declined to comment, says his attorney, John Siffert. Court records in the broadest-ever criminal investigation of public finance shed new light on how Wall Street’s biggest banks were cheating cities and towns during the same decade in which they were setting the stage for a global economic collapse. As the banks were steering the world’s financial system to the brink of catastrophe by loading more than $1 trillion of subprime mortgage loans into opaque debt investments, they were also duping public officials across the U.S. Many of the same bankers and advisers who sold public officials interest-rate swap deals that backfired for taxpayers are now subjects of the criminal antitrust investigation involving GICs. The swaps are derivatives designed to keep monthly interest payments low as lending rates change. Municipal- derivative units of the largest U.S. banks also sold the contracts, public records across the nation show. Key Witness Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Options and futures are the most common types of derivatives. A key witness in the government’s case is a former banker whom the government hasn’t named, according to a civil lawsuit filed by Baltimore, Maryland, and six other municipal borrowers against Bank of America, JPMorgan and nine other banks. The banker is providing evidence against his peers. The witness, who was employed by Bank of America Corp. starting in 1999, has laid out the inner workings of the scheme in confidential meetings with investigators, according to the civil lawsuit. Bank of America, based in Charlotte, North Carolina, has also been providing prosecutors with evidence since at least 2007. The bank voluntarily reported its own illegal activity and agreed to cooperate with the Justice Department’s antitrust division, according to a press release from the company. Amnesty Agreement In exchange, the government promised in an amnesty agreement not to prosecute the bank. Bank of America spokeswoman Shirley Norton in San Francisco said in an e-mail the firm is continuing to cooperate. The banker who has been cooperating with the Justice Department said he overheard his colleagues change Bank of America’s bids after coaching from brokers or other banks bidding on the same deal, according to information that the firm provided to plaintiffs in the civil case filed by seven municipalities. At least five former bankers with New York-based JPMorgan, the second-biggest U.S. bank by assets, conspired with CDR to rig bidding on investment deals sold to local governments, according to the Justice Department list now under seal. At least three other former JPMorgan bankers are targets of the investigation, according to filings with the Financial Industry Regulatory Authority. Six bankers with Bank of America, the biggest U.S. lender, are also named in the sealed Justice Department list as participants. 16 Companies Eighteen employees at 16 other companies, including units of General Electric Co., UBS AG and FSA, then a unit of Brussels lender Dexia SA, are also cited as co-conspirators by the Justice Department, according to the list under seal. None have been charged in the case. Citigroup spokesman Alex Samuelson, Dexia spokesman Thierry Martiny, GE spokesman Ned Reynolds, JPMorgan spokesman Brian Marchiony, UBS spokesman Doug Morris, and Ferris Morrison, a spokeswoman for Wells Fargo & Co., which acquired Wachovia in 2008, declined to comment. Former CDR employees Douglas Goldberg, Daniel Naeh and Matthew Rothman, pleaded guilty in federal court in Manhattan in February and March to wire fraud and conspiracy to rig bids. In October, CDR was charged with criminal conspiracy and fraud, along with Chief Executive Officer David Rubin, 48, vice president Evan Zarefsky and Wolmark. They pleaded not guilty. Rubin, who was also charged with making fraudulent bank transactions, faces as much as $3 million in fines and more than 30 years in jail if convicted. No Law Broken Rubin declined to comment in a telephone call. “Mr. Rubin doesn’t think that CDR broke the law in any of these transactions,” said Laura Hoguet, his attorney in New York. Daniel Zelenko, a lawyer for Zarefsky in New York, said he was confident his client will prevail at trial. “The government continues to show that it simply doesn’t understand how this market operated,” Zelenko said in an e- mail. During more than three years of investigation, federal prosecutors amassed nearly 700,000 tape recordings and 125 million pages of documents and e-mails regarding public finance deals. $400 Billion Municipalities and states raise $400 billion a year by selling bonds. They invest much of those proceeds in GICs, sold by banks or insurance companies. Those accounts hold taxpayer money and earn interest before public agencies spend it. Banks and advising firms illegally siphoned money from taxpayers by paying artificially low interest rates in the GICs, the CDR indictment says. The money was intended to build schools, hospitals, roads and sewers and refinance higher-cost debt. The bid-rigging schemes were orchestrated by CDR and other advisory firms, according to the indictment and the civil suits. Advisers are unregulated private firms hired by local governments to consult on public finance deals -- and are almost always paid by the banks that arrange the transactions or manage the GICs. Wilshire Boulevard CDR, which was located on Wilshire Boulevard in Beverly Hills, California, during the transactions under investigation, has provided advice on more than $158 billion in public transactions since it was founded in 1986, according to its website. CDR helped arrange deals in which financial firms took millions of dollars in profits from GICs, Bloomberg News reported in October 2006. Almost all of the deals were shams: As much as $7 billion in bond-issue proceeds were invested in GICs but never spent for the intended purpose of providing services to taxpayers. CDR signed off on interest-rate swaps to municipalities, as banks took hidden fees sometimes 10 times as much as they charged on fixed-rate bond deals, according to data compiled by Bloomberg. For the public, the swaps were fraught with risks. In the past decade, banks have peddled swaps the world over, from Jefferson County, Alabama -- which was forced to the brink of bankruptcy -- to the hill towns of the Umbria region of Italy. Many of these swaps soured when the credit crisis began in 2007. Getting Out Dozens of municipalities have paid banks billions to get out of swap contracts. The agency that oversees the San Francisco-Oakland Bay Bridge said it spent $105 million to escape its deal in July 2009. “They were gouging the municipalities,” said retired IRS investigator Anderson, 59. “Beside the excessive fees, some of the swap deals just didn’t work. It was just awful. The same people were involved in the GIC end of the market.” Bid rigging not only cheated cities and towns, it also illegally denied the IRS required taxes from GIC income, Anderson said. The evidence is clear in telephone recordings made on GIC desks, he said. “We could hear people talking about how everyone knew who was going to win the bid. You could tell it was just everyday business.” The Securities and Exchange Commission is conducting a probe of bid rigging from its Philadelphia office that’s parallel to the Justice Department investigation. More Probes State attorneys general in California, Connecticut and Florida are also investigating. Bank of America, JPMorgan, Fairfield, Connecticut-based GE, and Zurich-based UBS have disclosed in regulatory filings that they may be sued by the SEC. The Federal Bureau of Investigation has raided at least two of CDR’s competitors, Pottstown, Pennsylvania-based Investment Management Advisory Group Inc., known as Image, and Eden Prairie, Minnesota-based Sound Capital Management. Neither has been charged. Robert Jones, a managing director of Image, declined to comment, after answering a call to the firm’s office. Johan Rosenberg of Sound Capital didn’t return calls seeking comment. Tape recordings cited in a letter by Justice Department prosecutor Rebecca Meiklejohn show how those deals worked. In two GIC bids for the Utah Housing Corp., CDR’s Zarefsky advised an unidentified trader that his firm could lower its offer by “a dime,” or 10 basis points (a basis point is 0.01 percentage point). ‘A Couple Bucks’ The West Valley City-based housing agency accepted contracts with GE’s FGIC Capital Market Services division for 5.15 percent and 3.41 percent in 2001, public records show. Zarefsky didn’t return calls seeking comment. “I can actually probably save you a couple bucks here,” Zarefsky told the trader, according to the letter citing the tape recording. The Utah agency, which finances mortgages for low-income residents, didn’t know that financial firms were cheating it out of money that could have been used to help home buyers, said Grant Whitaker, who runs the agency. “It sounds like somebody got a better deal than we did,” he said in a telephone interview. Such deals could produce large illegal profits by banks, said Bartley Hildreth, public finance professor at the Andrew Young School of Policy Studies at Georgia State University in Atlanta. A New Wrinkle “Just a basis point on many of these deals is tens to hundreds of thousands of dollars,” he said. This isn’t the first time Wall Street has faced accusations of reaping excessive fees on investment deals with public officials. Goldman Sachs Group Inc., Lehman Brothers, which filed for bankruptcy in 2008, Merrill Lynch & Co. and other securities firms agreed by 2000 to pay more than $170 million to settle SEC charges that they had sold overpriced Treasury bonds to municipalities. The so-called yield burning drove down the returns that local governments earned and trimmed required payments to the IRS. The firms neither admitted nor denied wrongdoing. Even as the banks were settling with regulators, they devised another way to burn yield, this time by skimming money from GICs, according to the indictment, which said the conspiracy went from 1998 to at least 2006. In the lawsuit against Bank of America and JPMorgan filed in New York in June 2009, the city of Baltimore, two Mississippi universities and four other municipal borrowers say that bankers from those two companies colluded in bidding for GIC contracts in Pennsylvania. Holiday Party At a holiday party sponsored by advising firm Image at Sparks Steak House in Manhattan early in the past decade, the Pennsylvania deals were discussed by the Bank of America trader who is cooperating with prosecutors and Sam Gruer of JPMorgan, the civil antitrust lawsuit says. The Bank of America trader told Gruer that he was happy that the two banks weren’t “kicking each other’s teeth out” on bidding for certificates of deposits for bond proceeds, the suit says. That information was provided by Bank of America to the plaintiffs. Gruer, who was informed by prosecutors in 2007 that he was a target of the investigation, declined to comment. Coaching a Bidder The trader who is now a federal witness joined Bank of America after being recommended by Image, according to information that the bank turned over to the Baltimore-led plaintiffs. He was assigned by Phil Murphy, who headed the municipal trading desk, to be Bank of America’s point person for investment contracts bid by Image, the lawsuit says. Image coached Bank of America in winning an investment contract in Pennsylvania, according to an internal e-mail exchange in May 2001 between Bank of America trader Dean Pinard and Image’s Peter Loughhead that was obtained by Bloomberg News. The e-mail was provided to Bloomberg by a person who got it from Bank of America and asked to remain unidentified. Loughead, who ran bids for Image, advised Pinard on how much to offer for managing the cash fund for a $10 million bond issued by the sewer authority of Springfield Township, York County, 100 miles (161 kilometers) west of Philadelphia. ‘Don’t Fall on Any Swords’ Pinard said in the e-mail to Loughead that Bank of America was willing to pay the town as much as $40,000 upfront to win the deal. Loughead wrote that the bank didn’t need to pay that much. “Don’t fall on any swords,” Loughead wrote to Pinard the day before bids were submitted. He suggested that the bank could win the contract with a bid of slightly more than $30,000. The next day, Bank of America offered $31,000. It won the bidding, authority records show. Loughead didn’t return calls seeking comment. Pinard didn’t respond to telephone requests for an interview and no one responded to a knock on the door at his Charlotte home. Image ensured that Bank of America would dominate GIC deals in Pennsylvania by soliciting sham bids from other banks to make the process look legitimate, according to testimony from the trader cooperating with the Justice Department. Bank of America would return the favor to Image by submitting so-called courtesy bids at the adviser’s request, allowing JPMorgan to win some of the deals, according to information that Bank of America gave plaintiffs’ attorneys. Switching Jobs Bank of America has cooperated with the municipalities that were suing the bank as part of its 2007 amnesty agreement with the Justice Department. Traders such as FSA’s Goldberg often had worked for several banks and insurance companies that had a role in GIC contracts, according to employment records with Finra, the self-regulator of U.S. securities firms. CDR employees went on to work in the derivative departments of Deutsche Bank AG and UBS, the records show. Before joining Bank of America, Pinard, 40, worked at Wheat, First Securities Inc. in Philadelphia with two bankers who would later join Image, according to broker registration records. “Few people understand this part of public finance,” Georgia State’s Hildreth said. “It is a very small band of brothers who know the market. So, of course, they are going to reap the benefits.” 34 States For nearly a decade, CDR founder Rubin, Wolmark, and Zarefsky helped fix prices on investment deals that cheated taxpayers in at least 34 states, according to their indictments and records filed in the case. FSA’s Goldberg, who received a bachelor’s degree in accounting from St. John’s University in Queens, New York, worked with CDR employees on GIC deals, according to the indictment and public records. Goldberg worked from 1999 to 2001 at GE, which gets 35 percent of its revenue from financial services. Goldberg was referred to only as “Marketer A” in the CDR indictment. “Marketer A” was then later identified as FSA’s Steven Goldberg in the Justice Department list of co- conspirators. At GE, Goldberg worked with Dominick Carollo, a senior investment officer for FGIC, and Peter Grimm, who worked there from 2000 until at least 2006, according to court documents and public records. GE sold FGIC in 2003 to a group led by mortgage insurer PMI Group Inc. Funneling Kickbacks Goldberg and Grimm worked with CDR to increase their gains on GIC deals, according to the CDR indictment and conspirator list. Carollo left GE in 2003, joining the derivatives unit of Royal Bank of Canada. Grimm and Carollo didn’t respond to telephone calls and e-mails seeking comment. Goldberg continued to participate in the conspiracy after he left for FSA in 2001 and used swap deals with Toronto-based Royal Bank of Canada and UBS to funnel kickbacks to CDR, according to the indictments and the Justice Department list of conspirators. Royal spokesman Kevin Foster said the company is cooperating the government. FSA, Royal Bank of Canada and UBS all worked on public finance deals in West Virginia that prosecutors say involved bid rigging. At least three times, Goldberg conspired with CDR to pick up deals with West Virginia agencies, according to a guilty plea by former CDR employee Rothman and other records filed in federal court in Manhattan. Among them was a $147 million investment contract with the West Virginia School Building Authority. ‘Raw Greed’ That state’s schools need every penny they can get, said Mark Manchin, executive director of the school authority. With 17 percent of West Virginians below the poverty line in 2008, the state was 45th among the 50 U.S. states, according to a 2009 Census Bureau report. Manchin said some students study in dilapidated, century-old buildings. “It’s just raw greed at the expense of the most vulnerable,” he said in a telephone interview. “With deteriorating facilities all over the state, that money is what we use to build schools.” Bank of America’s municipal derivatives division, which was formed in 1998, worked on the 14th floor of the Hearst Tower in Charlotte. The space was so tight that the banker who’s cooperating with the Justice Department said he could hear others in the office change their bids when they got word from financial advisers, according to information Bank of America gave Baltimore. Bank of America’s Murphy told the banker helping prosecutors that Image would use sham auctions to steer deals to Bank of America if the employee told Image that he “wanted to win” and “would work with” Image, according to the civil suit filed by Baltimore. Murphy declined to comment. Verbal Cues They would use verbal cues to communicate. The banker would ask whether the bid was a “good fit” to get information on competing bids from Image. Sometimes Image’s Martin Stallone said Bank of America’s bids were “aggressive,” or too high, and had to be reworked. At other times, Stallone would ask the banker to bid a specific number, according to the civil suit. Stallone didn’t respond to messages left for him at work or to a list of questions faxed and e-mailed to Image. Like Financial Security Assurance, Bank of America also paid kickbacks to brokers for their help in getting deals, according to the Baltimore lawsuit, which based its allegations on information provided by Bank of America. On June 28, 2002, Douglas Campbell, a former municipal derivatives salesman at Bank of America, wrote in an e-mail to his boss, then managing director Murphy, that he had paid $182,393 to banks and brokers not tied to any particular deals. ‘Better Relationship’ Three payments totaling $57,393 went to CDR, which played no role in any transaction connected to that amount. A copy of the e-mail was contained in a North Carolina lawsuit filed by Murphy against Bank of America in 2003. “The CDR fees have been part of the ongoing attempt to develop a better relationship with our major brokers,” Campbell wrote. The bid rigging in GIC contracts has reduced public funding for schools and housing across the U.S. “If this was going on in a small state like West Virginia, it must have been huge elsewhere,” the state’s Assistant Attorney General Doug Davis said. preview.bloomberg.com/news/2010-05-18/conspiracy-of-banks-rigging-state-finance-converged-with-mortgage-meltdown.htmlty diamonds4all
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Post by sandi66 on May 19, 2010 9:12:57 GMT -5
May 19, 2010 Categories:Barack Obama,Congress,White House.Foreign Policy Cheatsheet: Calderon Obama meets with Mexican President Felipe Calderon at the White House, joint press conference 11:50am, hosts dinner for Calderon and Mexican First Lady Margarita Zavala. POTUS meets with U.S. Ambassador to UK Lou Susman and has weekly Thursday afternoon meeting with Secretary of State Hillary Clinton Vice President and Jill Biden, Clinton co-host lunch for Calderon at State. Clinton departs Thursday for Asia: Tokyo (May 21), Shanghai (May 21-23), Beijing (May 23-26), and Seoul (May 26). Assistant Secretary Kurt Campbell briefs on trip today. Former Secretary of State Jim Baker testifies for START. John Brennan talks Hezbollah moderates, high value interrogation group and Faisal Shahzad. Jim Jones, Leon Panetta discuss Shahzad case in Pakistan. Two hour battle at Bagram after deadliest day of year for U.S. troops in Afghanistan: “You don’t attack Bagram with 20 guys. Either they’re crazy or brave or both.” Iran says UN sanctions threat discredited. Iran sanctions resolution draft. The mothers of three detained Americans arrive in Iran to visit their children. The Iranian lawyer for Sarah Shourd, Josh Fattal and Shane Bauer says he is hopeful UN sanctions resolution circulated yesterday will not hurt their case. Obama's meeting with Jewish Dems yesterday. www.politico.com/blogs/laurarozen/0510/Foreign_Policy_Cheatsheet_Calderon_.html
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Post by sandi66 on May 19, 2010 10:17:15 GMT -5
Euro falls to fresh 4-year low against dollar in Tokyo English.news.cn 2010-05-19 17:33:17 FeedbackPrintRSS TOKYO, May 19 (Xinhua) -- The euro fell to a fresh four-year low at the 1.21 dollars level on Wednesday in Tokyo. At 5 p.m., the euro traded at 1.2194-2196 dollars and 112.08- 12 yen versus 1.2197-2207 dollars and 112.50-60 yen in New York and 1.2384-2386 dollars and 114.85-89 yen at 5 p.m. Tuesday. The dollar fetched 91.91-93 yen compared with 92.19-29 yen in New York and 92.74-75 yen in Tokyo late Tuesday. It traded between 91.55 yen and 92.16, moving most frequently at 91.90 yen. news.xinhuanet.com/english2010/business/2010-05/19/c_13303978.htm
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Post by sandi66 on May 19, 2010 10:19:10 GMT -5
MAY 19, 2010, 5:41 A.M. ET Asian Shares End Lower; Germany's Move Batters Risk Appetite SINGAPORE (Dow Jones)--Asian markets ended broadly lower Wednesday as Germany's decision to ban naked short-selling in certain financial instruments damped investor confidence. Exporters with exposure to Europe and resource stocks ranked among the day's losers as the euro tumbled further against the U.S. dollar. "When there are restrictions such as these, risk appetite grows weaker...in the short-term, people cut down their positions, which causes market volatility," said Yoji Takeda, head of Asian equities at RBC Investment. Mr. Takeda also said Asian exporters may not see a significant earnings downgrade, as though they would be hurt by the weaker euro, there wasn't evidence that European demand itself has slowed. Japan's Nikkei Stock Average fell 0.5%, China's Shanghai Composite and Taiwan's Taiex dropped 0.3% each, Australia's S&P/ASX 200 fell 1.9%, South Korea's Kospi gave up 0.8% and Hong Kong's Hang Seng Index declined 1.8%. In afternoon trading, India's Sensex lost 2.8% and Singapore's Straits Times Index shed 2.5%, extending their losses as European stocks declined in early trading. The Dow Jones Industrial Average futures also fell sharply in late Asian trading, and were 81 points lower in screen trade. "[Germany's] action appears to have backfired, fuelling uncertainty over its impact, potential replication by other European countries, how and to whom it would apply as well as how it will be enforced," said Credit Agricole in a note. "Once again a single euro-zone country has enforced a unilateral measure in an uncoordinated fashion. It is unclear whether other euro zone countries will follow Germany's actions but it is clear that the measure has led to a further bailout from European asset markets," the report said. In Tokyo, the weaker euro weighed on exporters, most of which have based their current earnings forecasts on the assumption that the euro would trade around Y120 or higher against the yen. "The Nikkei is moving in tandem with euro moves," said Yutaka Miura, senior technical analyst at Mizuho Securities, adding that the index may find support at 10,000. Nikon and Canon declined 1.1% each. Among automakers, Toyota shed 0.6% and Honda fell 0.8%. Mitsubishi UFJ Financial Group finished 0.7% higher after the banking giant Tuesday announced a return to profit in the fiscal year ended March, after hefty losses in the previous year. South Korean and Taiwanese exporters were also lower, with technology plays hit particularly hard. "The market is concerned on potential forex losses for tech companies that export to Europe," said Mars Hsu, assistant vice president at Grand Cathay Investment Service in Taipei. Samsung Electronics lost 2.4% in Seoul, while Taiwan Semiconductor Manufacturing Co. lost 0.3% and AU Optronics declined 1.9% in Taipei. Shares of auto parts maker Mando Corp. rose on their debut in Seoul, to finish at KRW111,500 compared with its initial public offering price of KRW83,000. Shares in China ended lower after a roller-coaster ride, as concerns about policy tightening continued to prey on banks and property stocks. Bank of China shed 1.3% and Poly Real Estate Group sank 1.7%. Among Hong Kong-listed companies with exposure to Europe, fashion company Esprit tumbled 5.0% and HSBC Holdings dropped 1.7%. SJM Holdings jumped 6.2% after the Macau casino operator Tuesday announced strong first quarter earnings. In Sydney, banks bore the brunt of the selling, while cyclical plays underperformed amid persistent worries about Europe. Australia & New Zealand Banking Group fell 2.2% and Commonwealth Bank of Australia shed 2.4%. Macarthur Coal slid a further 2.4%, after Tuesday's 16% drop, after it rejected a lowered 3.8 billion Australian dollar ($3.3 billion) takeover offer from Peabody Energy. Thai shares reversed early declines to end 0.7% higher amid hopes of an end to the political standoff, and after the country's finance minister Korn Chatikavanij said in an interview with CNN that the country's economy was expected to post a double-digit growth in the first quarter. Trading took place in an undisclosed location and the exchange was closed early because of the protests. In foreign-exchange markets, the euro was down at $1.2169, compared with $1.2209 late Tuesday in New York. The single currency hit a fresh four-year low of $1.2143 in early Asian trade. The euro was also buying Y111.15, compared with Y112.75 in late New York. The dollar was at Y91.90, compared with Y92.34. Germany's move Tuesday "appears to be half-baked and not really thought out, and plays into market doubts about European policy-making credibility," Brown Brothers Harriman said in a note. "If the Europeans are in effect trying to take away legitimate investment vehicles, then investors that are negative on Greece and Portugal can only take recourse in limited ways, the biggest one being to simply short the euro." The euro's weakness also weighed on risk-sensitive Asian currencies. The U.S. dollar surged to KRW1,163.45 from KRW1,146.60, and to INR46.33 from INR45.57. The yield on 10-year cash Japanese government bonds fell one basis point to 1.285%, with the June JGB futures contract rising 0.19 to 140.04 points. Spot gold was at $1,213.20 per troy ounce, down $9.80 from the New York close. Nymex June crude-oil futures were down $1.04 at $68.37 per barrel on Globex. online.wsj.com/article/BT-CO-20100519-705086.html?mod=WSJ_latestheadlines
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Post by sandi66 on May 19, 2010 10:21:53 GMT -5
May 19, 2010, 10:59 a.m. EDT · Euro gains after plunging on German short ban - Yen gains versus dollar, euro as investors wary of riskier assets By Deborah Levine & William L. Watts, MarketWatch NEW YORK (MarketWatch) -- The euro rose against the dollar on Wednesday, recouping most of Tuesday's drop and after plunging to a 4-year low intraday. Analysts said traders pared some so-called short bets that the shared currency would decline further, causing the turnaround more than any fundamental improvement in the outlook for the region or market stability. Losses Tuesday stemmed from uncertainty following Germany's surprise decision to ban naked short sales of euro-zone government bonds and credit default swaps. "It appears the short-euro trade remains very crowded, and given the political and market uncertainty in place in the euro-zone right now, we may have seen the pairing put in a floor for now," said analysts at Action Economics. The euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.2330, +0.0147, +1.2066%) rose to $1.2330, up from $1.2204 in late North American trading Tuesday. The euro fell to a fresh four-year low of $1.2143 intraday. That level is significant because it its the 50% retracement of the rally from the all time low of about $0.82 in October 2000 to the all time high of about $1.60 in April 2008, according to Brown Brothers Harriman. The dollar index /quotes/comstock/11j!i:dxy0 (DXY 86.59, -0.57, -0.65%) , which tracks the U.S. unit against a trade-weighted basket of six major currencies, declined to 86.576 from 87.160 late Tuesday. "Profit-taking on short euro positions is currently reversing the direction of the dollar index, which is now slightly weaker on the session," said Andrew Wilkinson, senior market analyst at Interactive Brokers. "The dollar was also losing ground to the Japanese yen, which weighed on the index." The Japanese yen stayed higher versus the greenback, reclaiming its stake as the currency of choice when investors want to be as far away as possible from risky currencies and positions. Read about Japan's debt, currency. The yen also jumped as much as 3.5% against the Australian dollar, a pair often looked at as an indication of risk aversion. The euro pared an earlier loss against the yen, to buy /quotes/comstock/21o!x:seurjpy (CUR_EURYEN 114.7500, +0.7700, +0.6756%) ¥112.66 after falling to ¥110.83 earlier. That's compared to ¥112.71 Tuesday. The yen had been up against the euro earlier -- near the strongest since 2002 -- until similar profit-taking activity. Against the Japanese currency, the dollar /quotes/comstock/21o!x:susdjpy (CUR_USDYEN 91.2000, -0.8200, -0.8908%) slipped to ¥91.39 from ¥92.35 late Tuesday. The Aussie fell 3.4% versus the yen to change hands at ¥76.76. The Australia Unit: CUR_AUDUSD 0.8408, -0.0205, -2.3801%) fell 2.6% versus the U.S. dollar to 84.05 U.S. cents, after hitting its lowest level since September. Germany's ban on naked short selling of certain securities, which was reported Tuesday just hours before it was imposed at midnight, "triggered an immediate selloff of the euro based on the assumption that selling the euro was the only way to hedge European exposures," said Jane Foley, research director at Forex.com. Since the ban only applies to naked short sales, that assumption is overdone, she said. But it still implies that speculators may increasingly focus their attention on the foreign exchange market and result in increased euro volatility, she said. Strategists said Germany's decision to go solo surprised markets and raised worries about a lack of cohesion among euro-zone countries in the face of the ongoing sovereign debt worries. www.marketwatch.com/story/euro-hits-fresh-four-year-low-vs-dollar-in-asia-2010-05-18
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Post by sandi66 on May 19, 2010 10:22:46 GMT -5
Euro Rises on Speculation Europe May Act to Support Currency Share Business ExchangeTwitterFacebook| Email | Print | A A A By Ben Levisohn and Oliver Biggadike May 19 (Bloomberg) -- The euro rose from a four-year low against the greenback amid speculation European leaders may announce steps to support the common currency. Europe’s currency rose against all of its 16 most-traded counterparts as European Union Economic and Monetary Affairs Commissioner Olli Rehn cited “strong pressure to take action against speculative attacks” and Bundesbank President Axel Weber said the introduction of an orderly default mechanism for governments “would be an important contribution to safeguarding the monetary union.” Switzerland’s franc fell the most versus the euro in a week on speculation that the Swiss National Bank intervened to counteract the strength of its currency. “The market is hopeful that Europe can come up with a plan that will address the negative issues that have come to fore because of Greece,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “Europe needs thoughtful debate about what they can do and address how to kick someone out who is breaking the rules.” The euro rose 0.9 percent to $1.2313 at 10:28 a.m. in New York, from $1.2202 yesterday. The 16-nation common currency earlier touched $1.2144, the lowest level since April 17, 2006. The euro traded at 112.81 yen, from 112.56. The yen appreciated 0.9 percent to 91.36 per dollar, from 92.23 yesterday. The euro earlier fell to near an eight-year low versus the yen after Germany yesterday prohibited naked short-selling on sovereign debt and some financial stocks. European Commission President Jose Manuel Barroso said European securities regulators are examining whether Germany’s move on short-selling is relevant elsewhere in Europe. ‘Jittery and Waiting’ Germany’s action “appears reactive and it appears not to be coordinated with the other members of the European Union,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “There’s something of a sentiment that there’s more to come. Markets are on the edge, jittery and waiting for what’s next from policy makers.” Germany’s ban on naked short sales, which lasts until March 31, 2011, applies to the shares of 10 banks and insurers including Allianz SE and Deutsche Bank AG, the financial regulator, BaFin, said yesterday, citing “exceptional volatility” in euro-area bonds. The ban on naked short-selling reflects “strong pressure” on governments to curb market speculation and reinforces the need for coordinated European Union action, the EU’s Rehn said. ‘We Now Accelerate’ “I can see the reasons for this decision,” Rehn said in an interview today in Strasbourg, France. “It’s important that we now accelerate the regulatory reform of the financial markets.” German Chancellor Angela Merkel said the prohibition is part of her proposals to gain control over “destructive” financial markets. When securities are sold naked, the trader doesn’t borrow the assets before submitting an order to sell. Investors own naked credit-default swaps when they don’t hold the bonds to which the derivatives are linked. “Since the market is heavily short euros, for very good reason, on most of these announcements it squeezes euro-dollar higher,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. A short is a bet a currency will fall Hedge funds and other large speculators on May 11 increased bets for a decline in the euro to 113,890 contracts more than those anticipating a gain, the most ever, according to Commodity Futures Trading Commission data. ‘Excessive Pessimism’ The 16-nation euro has dropped 7.9 percent this year against developed-world counterparts, according to Bloomberg Correlation Weighted Indexes. The euro’s current level is close to an “equilibrium” value and its decline to the weakest in four years against the dollar may help Europe’s exports, the International Monetary Fund’s No. 2 official said. “The current level of the euro does not appear to pose problems,” IMF First Deputy Director John Lipsky said in an interview in Tokyo today. “The euro is rather close to what we would consider equilibrium value after an extended period at which it traded above that value.” Italian Prime Minister Silvio Berlusconi said the euro’s slide to a four-year low is good for Europe’s biggest exporters. Recent currency moves “allow us to look at the future with optimism, rather than excessive pessimism,” Berlusconi said at a news conference in Rome today. “The euro’s depreciation against the dollar can help exports.” ‘Word of the Day’ Switzerland’s franc declined as much as 1.4 percent to 1.4207 per euro before trading at 1.4147, prompting speculation the central bank sold the currency to prevent its gains from hindering the economic recovery. The Swiss National Bank started selling francs in March 2009 to ward off deflation and revive the economy. Central bank spokesman Nicolas Haymoz declined to comment. “There’s a little speculation that the Swiss National Bank was manipulating the markets some,” said John Doyle, a strategist at currency-trading firm Tempus Consulting Inc. in Washington. “Volatility is the word of the day today. Our strategy for the day is to try to stay pretty flat and figure out what’s going on.” The JPMorgan G7 Volatility Index, which measures the perception of risk in the currency market, rose for a fourth consecutive day and traded as high as 14.98 percent. It rose to 15.93 percent on May 6, the highest level since June 2009. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net. Last Updated: May 19, 2010 10:30 EDT www.bloomberg.com/apps/news?pid=20601101&sid=a7kaRKig6sUE
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Post by sandi66 on May 19, 2010 10:37:51 GMT -5
Regulate or Capitulate Will President Barack Obama opt for citizen votes or banker dollars? By Roger Bybee The battle over regulation of Wall Street will settle at least one question, says Sen. Bernie Sanders (I-Vt.): “whether the Congress has the ability to regulate Wall Street or Wall Street continues to regulate the Congress.” Related to the question of who-regulates-whom is a strategic choice for President Barack Obama and the Democrats. With polls showing little belief in the administration’s willingness to stand up for the powerless, the Democrats could recoup sagging enthusiasm by promoting tough regulation of Wall Street, forcing a breakup of mega-banks and subjecting all risky instruments (“derivatives”) to full disclosure. But signs suggest that Obama’s inner circle has rejected this approach. An April 26 ABC/Washington Post poll showed the public trusted Obama to do a better job than his Republican opponents on financial reform, with Obama’s approach preferred by a 52 percent to 35 percent margin. However, other polls suggest that only a minority of Americans believe that federal policies under Obama actually assist working people. Democracy Corps pollsters Michael Bocian and Andrew Baumann reported, “Just 3 percent agreed that government’s policies helped ‘the average working person’ or ‘you and your family’ ” and “a 46 percent plurality of voters think Obama and Democrats put bailing out Wall Street ahead of creating jobs for ordinary Americans.” But Bocian and Baumann add, “Our polling reveals that pro-reform messages generate intense responses among Democratic voters while also appealing to independents … Fully 90 percent of Democrats backed the measure , including 55 percent who did so strongly, while independents favored reform by a solid 55 to 45 percent margin. Even 39 percent of Republicans supported the bill.”
Yet Obama has been unwilling to take Wall Street head on. For example, he expressed reluctance to cap executive bonuses for fear of driving away top talent like Jamie Dimon, CEO of JP Morgan Chase & Co. ($17 million bonus for 2009) and Lloyd Blankfein, CEO of Goldman Sachs ($9 million bonus). “First of all, I know both those guys,” Obama told Business Week in February. “And I, like most of the American people, don’t begrudge people success or wealth. That’s part of the free market system.”
Still, there remains enormous momentum for placing constraints on Wall Street’s speculative excesses. Maximum-strength reforms would include protecting the public from bailouts of banks by the Federal Reserve or Federal Deposit Insurance Corporation; requiring full disclosure of all transactions; establishing a Consumer Financial Protection Agency that prevents families from being victimized with variable-rate mortgages and other scams; and breaking-up of the nation’s largest banks so that they would no longer have “too-big-to-fail” stature. Moving in this populist direction could potentially isolate Republican opponents, who could be easily depicted as waterboys for Wall Street in the November mid-terms.
Reformers vs. Obama President Obama and leading Democrats like Senate Banking Chair Christopher Dodd (a long-time bankers’ buddy) are leaning toward soft reforms that would purportedly gain “bi-partisan” support, i.e. reforms that would maintain the good will of Wall Street donors. According to the Center for Responsive Politics, during the past decade the financial sector spent more money than any other industry, more than $3.9 billion, to influence Washington policy.
A number of respected financial experts, however, also worry that the Democrats will pull their punches, calculating that modest reform is all that’s needed to deflate the public furor. University of Maryland law professor Michael Greenberger, a former federal regulator who battled the crucial deregulation measures advocated by Lawrence Summers and enacted during the Clinton era, has warned that the Obama administration does not support efforts to reform the shadow banking system of derivative dealing. “Reformers have to fight the Obama administration as much as they do Wall Street,” he said in an address to the Roosevelt Institute. “Franklin Delano Roosevelt must be rolling over in his grave.”
Simon Johnson, the former chief economist for the International Monetary Fund and a professor at the Massachusetts Institute of Technology, is among those who think that Obama and top Democrats are crafting reforms palatable to Wall Street. “The Democratic leadership is not seizing on this advantage [anti-banker sentiment] and on the opportunity presented by the SEC case against Goldman Sachs [filed in mid-April]—key figures in the Democratic establishments are too worried about upsetting financial sector donors,” he says. “As a result, come November, independents will view the Democrats with scorn, while the Democratic base will be far from energized; you do the math.”
Similarly, progressive economist Robert Kuttner, author of the new book A Presidency in Peril: The Inside Story of Obama’s Promise, Wall Street’s Power, and the Struggle to Control our Economic Future, worries, “Senator Chris Dodd could snatch defeat out of the jaws of victory,” he writes on the Huffington Post. “If Obama’s tactical advisers think that passing a weak bill will make the anti-Wall Street popular sentiment disappear, they are kidding themselves. Regular Americans will just see both parties as sellouts, and the tea parties will get new recruits.”
Obama and his chief staffers, who have stressed the need for a modernized regulatory framework for Wall Street rather than a fundamentally different economic strategy aimed at downsizing the financial sector’s mostly speculative role in the U.S. economy. Finance has accounted for up to 40 percent of the profits of domestic corporations in recent years, luring capital to speculation. Meanwhile the productive base increasingly weakens, with the U.S. losing 5.6 million industrial jobs—32 percent of its manufacturing— since 2000 alone. This critical dimension to the banking crisis has barely penetrated mainstream discourse.
Deregulation has produced five gargantuan mega-banks that are regarded as “too big to fail”—Goldman-Sachs, JP Morgan Chase, CitiBank, Wells Fargo, Bank of America—that collectively hold assets equal to 60 percent of the U.S. Gross National Product.
Critics charge that the Dodd approach creates loopholes for the continued unregulated trade of “derivatives.” New York Times financial writer Gretchen Morgenson dismissively writes off the Democrat’s proposals: “It is a shame that Congress is moving forward with financial regulations that do not eliminate the ‘heads-bankers-win, tails-taxpayers-lose’ mentality that has driven most of the bailouts during this sorry episode.”
Vultures: Too big to regulate? Johnson notes that the Obama administration has premised its opposition to full disclosure of derivatives on the argument that it would stifle “innovation.” The Dodd bill, he cautions, contains “some dangerous remaining loopholes still supported by the Obama administration,” including, “allowing the trading of economy-destroying derivatives by U.S. financial firms operating overseas, like the debt-hiding instruments that Goldman Sachs concocted for the cratering Greek government.”
The Dodd bill also fails to set limits on the size of financial institutions. To correct that lapse, Sens. Sherrod Brown (D-Ohio) and Ted Kauffmann (D-Del.) are promoting an amendment that would limit the size of banks to about $300 billion in assets and thus force the break-up of the mega-banks. This amendment seems to be gaining in popularity, but Dodd—acting as Obama’s point man—will likely view it as going too far. If Dodd moves ahead with a plan under consideration to strike a deal with Republicans, one likely price of the bargain will be that no amendments now being stockpiled by progressive Democrats will be allowed during the floor debate.
For his part, Sanders vows to continue trying to make the Dodd bill better. “I intend to do my best to make it stronger, he told the New York Times. “I think the bill will look different when that vote comes.”
Yet Democrats in Congress may wish to consider the possibility that Obama and Chief of Staff Rahm Emanuel are asking them to risk their electoral fates in November by supporting a symbolic but loophole-laden bill that the public may come to regard as far too weak, in order to maintain the long-term financial backing of Wall Street.
Wall Street and its allies are continuing to spend an estimated $1.4 million per day in lobbying to create other loopholes, like weakening the proposed rules that would now cover 90 percent of derivatives.
As the debate moves forward, the fate of seemingly obscure amendments will reveal whether Obama and the Democrats are truly committed to preventing another Wall Street meltdown and taxpayer bailout, or are content with superficial reforms that will not upset their friends and donors—the banks that are now too big to regulate.
inthesetimes.com/article/5996/regulate_or_capitulate
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Post by sandi66 on May 19, 2010 11:33:33 GMT -5
Germany Bans Naked Short-Selling, Swaps Speculation (Update2) May 19 (Bloomberg) -- Germany prohibited naked short- selling and speculation on European government bonds with credit-default swaps in an effort to calm the region’s financial markets, sparking investor anxiety about increasing regulation. The ban, which took effect at midnight and lasts until March 31, 2011, also applies to the shares of 10 banks and insurers, German financial regulator BaFin said yesterday in a statement. The step was needed because of “exceptional volatility” in euro-area bonds, BaFin said. Chancellor Angela Merkel’s coalition is seeking to build momentum on financial-market regulation, with lower-house lawmakers due to debate a bill today authorizing Germany’s contribution to a $1 trillion bailout to backstop the euro. Stocks fell, Treasuries soared and the euro extended its decline as the announcement, made after European markets closed, caught traders by surprise. “It represents an escalation of regulatory risk for the investing community,” said Keith Wirtz, who oversees $18 billion as chief investment officer at Fifth Third Asset Management Inc. in Cincinnati. “The German action suggests the drama in Europe continues to unfold and escalate.” Allianz, Deutsche Bank Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban, according to BaFin’s statement. Short sellers borrow assets and sell them, betting the price will fall and they’ll be able to buy them later, return them to the lender and pocket the difference. In naked short- selling, traders never borrow the assets so betting is unlimited. BaFin didn’t provide details on how it will enforce the ban or whether it would extend to trades outside Germany. Most credit-default swap trading takes place in New York and London. The Standard & Poor’s 500 Index tumbled 1.4 percent and the euro fell below $1.22 for the first time since April 17, 2006, trading at $1.2196 as of 11:52 a.m. in Tokyo today. The yield on the benchmark 30-year Treasury note dropped 2 basis points to 4.21 percent. The cost of insuring government and corporate debt with credit swaps soared in the U.S. and Asia-Pacific. The Markit CDX North America Investment Grade Index climbed 12.17 basis points to a mid-price of 120.67 basis points in New York, according to Markit Group Ltd. Swap Prices The Markit iTraxx Australia index jumped 17 basis points to 124 as of 11:50 a.m. in Sydney, on course for its biggest one- day gain since May 7, according to Nomura Holdings Inc. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 10 basis points to 131.5 as of 10:52 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. “Asian markets have been taken by surprise because this was not on the cards,” Sebastien Barbe, head of emerging-market research for Credit Agricole CIB, said in a phone interview from Hong Kong. “Investors are fearful other countries may follow suit and, because it’s only Germany doing this, there’s concern regarding the lack of coordination in Europe over how to fix the current crisis.” Investor Confidence BaFin’s announcement came the same day as a report that showed German investor confidence plunged in May as Europe’s deepening debt crisis stoked concern about the euro’s future. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations dropped to 45.8 from 53 in April, the biggest decline since the collapse of Lehman Brothers Holdings Inc. in September 2008. Concern nations led by Greece will struggle to meet the European Union’s austerity requirements to lower their budget deficits has driven the euro down from last year’s high of $1.5144 in November. The DAX Index fell as much as 9.7 percent after reaching a 19-month high in April. The Athens Stock Exchange General Index has fallen 26 percent, while Portugal’s PSI General Index has dropped 13 percent and Spain’s IBEX 35 slipped 19 percent. “Massive” short-selling was leading to excessive price movements that “could endanger the stability of the entire financial system,” BaFin said in the statement. Finance Minister Wolfgang Schaeuble said the government decided it was best to introduce the ban on naked short selling as soon as possible. “If you do something like this, you don’t let it drag out but you implement it right away,” he said in an interview on ZDF television. Merkel’s Battle Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit swaps. EU Financial Services Commissioner Michel Barnier called this week for stricter disclosure requirements on the transactions. The EU proposed last month that the Financial Stability Board, set up by the Group of 20 nations to monitor global financial trends, “closely examine the role” of swaps on sovereign bonds. “In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win,” Merkel said May 6. “The speculators are our adversaries.” Germany, along with the U.S. and other EU nations, banned short selling of banks and insurance company shares at the height of the global financial crisis in 2008. The nation still has rules requiring disclosure of net short positions of 0.2 percent or more of outstanding shares in 10 companies. U.S. Senate Banking Committee Chairman Christopher Dodd proposed yesterday shelving one of the most contentious provisions of the debate over Wall Street regulation, a rule that would force banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. to move swaps trading to subsidiaries. U.S. Amendment Dodd introduced a compromise amendment that would delay the measure pending a one-year study of its effects by a new council of regulators. He also led an effort to defeat an amendment that would ban naked credit-default swap trades. The way Germany announced its prohibition “is very irresponsible and it’s sent many market participants into panic mode,” said Darren Fox, a regulator lawyer who advises hedge funds at Simmons & Simmons in London. “We thought regulators had learned their lessons from September 2008. Where is the market emergency that necessitates the introduction of an overnight ban?” The move may also add to concern that EU nations aren’t working together, harming their credibility. ‘Fundamental’ Mistake “This is a mistake of a serious fundamental nature and of severe consequence and once again demonstrates to me how little the European politicians understand about the world’s financial markets,” Mark Grant, managing director of Fort Lauderdale, Florida-based Southwest Securities Inc. wrote in a note to clients. “They are making, in fact, an obvious attempt to control financial markets across the globe by this action just as they plead for investors to provide funding for the European governments and the banks in the European Union.” Credit-default swaps are derivatives that pay the buyer if a borrower fails to meet its debt obligations. Prices rise as perceptions of creditworthiness deteriorate. Prohibiting speculation in the contracts may cause trading in the market for swaps tied to Europe government bonds to freeze up, possibly increasing borrowing costs or limiting the flow of capital, said Tim Backshall, the chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. “This will close the CDS markets if it is anything like what it appears to be,” Backshall said. “The removal of the possibility to hedge government bond risk will necessarily cause risk premia to rise in bond markets, which could easily lead to a broad-based repricing of government bond risk.” ‘Legitimate Concerns’ Bets made with swaps on the bonds of 10 European nations including Greece, Spain, Italy and Portugal total less than $108 billion, according to the Depository Trust & Clearing Corp, which runs a central registry that captures most trading. That’s 0.97 percent of the $11 trillion in outstanding debt of those countries, International Monetary Fund data show. While governments have “legitimate concerns” about volatility in their debt markets, credit swaps are a useful hedging tool and market participants are increasing transparency in over-the-counter trading through the DTCC, the International Swaps & Derivatives Association said in an e-mailed statement. BaFin itself said two months ago it found “no evidence” credit swaps were being used excessively to speculate against Greek bonds. DTCC data “do not support the conclusion that speculation is taking place on a massive scale,” the regulator said in a March 8 statement on its website. To contact the reporter on this story: Alan Crawford in Berlin at acrawford6@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net Last Updated: May 19, 2010 00:08 EDT www.bloomberg.com/apps/news?pid=20601087&sid=anRnRGUN9XK0&pos=3
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Post by sandi66 on May 19, 2010 11:36:30 GMT -5
Italy Market Regulator Says Not To Pass Short-Selling Ban MAY 19, 2010, 9:15 A.M. ET MILAN (Dow Jones)--Italy's market watchdog Consob Wednesday said that it is closely monitoring financial transactions on the Italian market but that it's not planning to pass a ban on naked short selling as the existing securities law already limits this practise. In a statement posted on Consob website Wednesday, the regulator said that it is constantly monitoring, along with other European market regulators, the correctness of trading on domestic markets. Consob responded to investors and media requests on the possible introduction of short-selling bans on government bonds as well as on financial stocks after Germany unilaterally banned naked short selling late Tuesday -- a practise that involves selling financial instruments without first borrowing them or ensuring they can be borrowed. France and other countries said they aren't considering a ban. Italy Market Regulator Says Not To Pass Short-Selling Ban online.wsj.com/article/BT-CO-20100519-708138.html?mod=WSJ_latestheadlines
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Post by sandi66 on May 19, 2010 11:39:58 GMT -5
UPDATE:BaFin:German Short-Selling Ban No Protecting German Banks MAY 19, 2010, 8:03 A.M. ET By Andrea Thomas Of DOW JONES NEWSWIRES BERLIN (Dow Jones)--Germany's surprise ban of speculative naked short-selling is aimed at preventing malpractice at financial markets, Jochen Sanio, head of German financial regulator BaFin, said Wednesday, rejecting suggestions that they were meant as a protection measure for Germany's banks. In a surprise move, Germany banned so-called naked short-selling of shares in 10 leading German financial institutions and in euro government bonds Tuesday at midnight. "I want to make very clear here that the German banking system is solvent...and that these measures solely aim to prevent market malpractice," Sanio told German lawmakers. They "don't aim to protect insolvent German banks." Naked short selling is the shorting of financial instruments but differs from conventional short selling as the instruments sold aren't borrowed in advance. The practice came under fire as Greece's struggle to refinance its debt escalated into a crisis across southern euro-zone nations. Many euro-zone governments have said that transactions such as credit default swaps--a type of default insurance--artificially inflated Greece's funding costs. Speaking at a lower house of parliament hearing on the euro-zone debt rescue plan, he also said the rescue plan for euro-zone countries was justified because there has been speculation against the euro currency. "There is actually speculation against the euro from a non-real economic area," he said. He stressed that there would be an even greater danger if those investing money in the real economy were to refrain from investing in euros anymore. Earlier this month, European Union finance ministers decided to give EUR440 billion in state guarantees for emergency loans to be provided by a special vehicle to heavily indebted member countries, with the EU setting up a EUR60 billion emergency lending fund while the International Monetary Fund will contribute a further EUR250 billion. The euro has dropped sharply in recent weeks amid concern over sovereign debt levels in the 16-member strong currency bloc, hitting a fresh four-year low earlier Wednesday. It was trading at $1.2209 by 1158 GMT, compared with $1.22 late in New York Tuesday. Sanio said that he was surprised that markets hadn't been satisfied with the Greek bailout plan agreed to in April and the situation deteriorated rapidly. The consequences of not coming up with a wider euro rescue plan could have been worse than the bankruptcy of U.S. bank Lehman Brothers from autumn 2008, which triggered the global financial crisis, he said. "We would have been in a situation in which Lehman would have been an easy ride," said Sanio, adding that he wouldn't have wanted to wake up on the Monday morning if finance ministers hadn't finalized the plan early May, Sanio said. online.wsj.com/article/BT-CO-20100519-707284.html?mod=WSJ_latestheadlines
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Post by sandi66 on May 19, 2010 11:56:46 GMT -5
MARKET COMMENT: European Stocks Fall After German Short-sale Ban MAY 19, 2010, 11:54 A.M. ET By Sarah Turner LONDON (Dow Jones)--European shares fell Wednesday, as a solo effort from Germany to crack down on some types of short-selling highlighted disparity in policy-making though the region and ratcheted up fears for the future of the union. The Stoxx Europe 600 index fell 3% to 243.82, the third session of losses in four, with banks and miners down sharply. In the broadest terms, the ban on short-selling will curtail risk appetite for investors as hedging activities --on which some investors have relied on in the past--will no longer be possible, said Gerhard Schwarz, head of global equity strategy at UniCredit. "Higher risk premiums will be demanded which means lower prices," he added. The Stoxx Europe 600 index is now trading back at an intra-day level not seen since hours after a EUR750 billion aid package was introduced in order to help vulnerable European economies such as Greece stave off default. Shares in Europe had made some progress after the aid package but the move by Germany's Federal Financial Supervisory Authority, or BaFin, late Tuesday to prohibit several trading practices, including "naked" short-selling of some assets, sent investors reeling on Wednesday. Of the major benchmarks, the French CAC-40 index fell 2.9% to 3,511.67, the German DAX index lost 2.7% to 5,988.67 and the U.K. FTSE 100 index declined 2.8% to 5,158.08. Around the globe, Asian shares ended lower, while U.S. stocks declined in early trading. There are specific implications from the ban for Europe as Germany's effort to try and tackle speculators "isn't an integrated measure," said Schwarz at UniCredit. "There's a credibility risk to the euro-zone project and that won't be solved by putting money on the table or by trying to punish speculators," he said. "They have to show unity, they have to build trust and come up with comprehensive measures and clear messages," he added. That markets are skeptical about the future of the euro zone has notably shown up in the currency markets, and the euro fell to a fresh four-year low against the dollar in Asian trading. The common currency gained 1.1% to $1.2321 in the afternoon. The European Commission called for coordinating regulatory actions across the union. Still, Citigroup strategists said that Germany's short-selling ban represents further downside risks for the euro. "Disallowing market participants to express a bearish view on Europe through short positions in fixed income and equity markets will force such trades into euro sales, exacerbating the downside," they said. The timing and the suddenness of the move by Germany also led some strategists to question whether it is to cushion markets against a crisis. "We thought that things were O.K. but then we get these measures which we normally get in a crisis," said Daan Potjer, managing partner at Aethra Asset Management in the Netherlands. "You can't now outright trade against banks and against the quality of government and other paper [in Germany]." That didn't help financials as a sector on Wednesday. In France, Societe Generale shares fell 4.2% and Credit Agricole shares lost 3.6%. Spanish lender BBVA, down 3.7%, was also downgraded to neutral from overweight at J.P. Morgan, which said the shadow of Spain's economic troubles has become too large. Of the stocks where Germany has banned naked short sales, Deutsche Bank shares fell 2.9% and insurance group Allianz shares lost 3.3%. Those that had naked short sales on these companies would have to buy the stocks to close their trades. After the euro's early drop against the dollar, commodity futures were weak, with copper futures down 1.7% and platinum futures down 4.4%. That weighed on the mining sector, with coal and copper giant Xstrata down 7.5% and Antof*gasta shares down 6.2%. There were barely any advancers. PV Crystalox Solar shares climbed 11.2% as the company said an impending cut in the feed-in tariff in Germany has spurred demand, which helped both shipments and wafer prices. Though the cut is expected to impact shipments and prices in the second half, current indications are that demand and pricing in the third quarter remain firm. online.wsj.com/article/BT-CO-20100519-710773.html?mod=WSJ_latestheadlines
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Post by sandi66 on May 19, 2010 12:07:06 GMT -5
Practising Law Institute to Present "Enforcement 2010: Multi-Agency Enforcement Efforts in the New Decade" Practising Law Institute NEW YORK, May 19 -- /PRNewswire-USNewswire/ -- On June 1, 2010, Practising Law Institute (PLI), the nation's largest producer of continuing legal education, will launch a first-time, high-level program titled "Enforcement 2010: Multi-Agency Enforcement Efforts in the New Decade," to be held at PLI's Conference Center in New York City and simultaneously Webcast at www.pli.edu. The program will focus on the unprecedented economic, business, and regulatory changes that have occurred and will likely continue to occur in the wake of the financial crisis, in the form of new legislation, new regulations, new regulators, and increased enforcement efforts with new tools, new emphases and new budgets. The one-day event, which is co-chaired by Linda Chatman Thomsen, Davis Polk & Wardwell LLP and Richard D. Owens, Latham & Watkins LLP will offer the opportunity to learn from those charged with making and effectuating the many changes that are now taking place. Expert practitioners will lead five panels of high-level government regulators from the CFTC, DOJ, FINRA, SEC, SIGTARP, Treasury Department, U.S. Attorney's and State AG's Offices, and the U.S. Senate, to review regulatory and legal developments and enforcement priorities, as well as how to interact with the agencies and elements to be considered in today's compliance programs. The program's stellar faculty includes: Neil M. Barofsky, Special Inspector General, Office of the Inspector General, The Troubled Asset Relief Program (SIGTARP); David M. Becker, General Counsel and Senior Policy Director, Office of the General Counsel, U.S. Securities and Exchange Commission; Peter H. Bresnan, Simpson Thacher & Bartlett LLP; George S. Canellos, Regional Director, New York Regional Office, U.S. Securities and Exchange Commission; John J. Carney, Baker & Hostetler LLP; Robert L.D. Colby, Davis Polk & Wardwell LLP; Carlo V. di Florio, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission; Paul J. Fishman, United States Attorney, United States Attorney's Office, New Jersey; Bonnie Jonas, Senior Litigation Counsel, Securities and Commodities Fraud Task Force, United States Attorney's Office, Southern District of New York; Robert Khuzami, Director, Division of Enforcement, U.S. Securities and Exchange Commission; Stephen Luparello, Vice Chairman, FINRA; George W. Madison, General Counsel, United States Department of the Treasury; Colleen P. Mahoney, Skadden, Arps, Slate, Meagher & Flom LLP; David A. Markowitz, Special Deputy Attorney General for Investor Protection, Office of New York Attorney General; Denis J. McInerney, Chief, Fraud Section, Criminal Division, U.S. Department of Justice; Lisa O. Monaco, Associate Deputy Attorney General, Office of the Attorney General, U.S. Department of Justice; Stephen J. Obie, Acting Director, Commodity Futures Trading Commission (CFTC); Kevin R. Puvalowski, Deputy Special Inspector General, Office of the Special Inspector General, The Troubled Asset Relief Program (SIGTARP); Lorin L. Reisner, Deputy Director, Division of Enforcement, U.S. Securities and Exchange Commission; Lori Richards, Principal, PricewaterhouseCoopers LLP; and Dean V. Shahinian, Senior Counsel, U.S. Senate Committee on Banking, Housing and Urban Affairs. For more information on the program and its faculty, or to register for the live program or simultaneous Webcast, visit PLI's program website at www.pli.edu or call PLI's Customer Relations Department at (800) 260-4754. To arrange for a communal viewing of the Webcast in your conference room, please contact the Groupcasts Department via email at groupcasts@pli.edu. About Practising Law Institute: Practising Law Institute (PLI) is a non-profit continuing legal education organization chartered by the Regents of the University of the State of New York, founded in 1933. PLI is dedicated to providing the legal community and allied professionals with the most up-to-date, relevant information and techniques critical to the development of a professional, competitive edge. We achieve these goals through the highest quality seminars held annually in locations across the United States, regularly supplemented treatises, audio CDs and DVDs, MP3s, live Webcasts, Course Handbooks, CLE Now web programs and private label solutions, all with the guidance of practice specific Advisory Committees. PLI is headquartered in New York City and also maintains offices in California. SOURCE Practising Law Institute Read more: www.sunherald.com/2010/05/19/2193254/practising-law-institute-to-present.html#ixzz0oOcCa1uPwww.sunherald.com/2010/05/19/2193254/practising-law-institute-to-present.html
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Post by sandi66 on May 19, 2010 16:01:07 GMT -5
HK vindicated by naked shorting ban By Robert Cookson in Hong Kong Published: May 19 2010 20:07 | Last updated: May 19 2010 20:07 Germany’s decision to ban “naked” short selling of some banks’ stocks and bonds caused dismay on European trading floors, but in Hong Kong the move was greeted with a shrug. A decade ago, after the 1997-98 Asian financial crisis, Hong Kong outlawed naked shorting – or selling shares and bonds that are neither owned nor borrowed – and the ban has remained in force ever since. “We don’t see [Germany’s decision] as a huge event,” said David Gray, UBS’s head of prime services in Asia-Pacific. Hong Kong permits “covered” short selling, which requires the seller to have borrowed the stock or to have obtained a confirmation that the lender has the stock available at the time of sale. “In Asia it’s a natural thing: you have your borrow in place and then you can go out and short,” he said. But it is a criminal offence to conduct naked shorting, and from 2007-08 the HK Securities and Futures Commission, the city’s regulator, charged six people for breaching the rule. The territory’s ban on the practice was vindicated during the recent financial crisis, said Mr Gray. “To have to locate or have the borrow in place, that has an automatic damping effect on the market,” he said. “It can’t get out of control like it did in the US, where you could short a multiple of what was available for the borrow.”
During the financial crisis, as markets plunged, regulators across the world scrambled to impose emergency restrictions on shorting. Hong Kong stood out as one of the few countries not to amend its regulations.
In September 2008, when Lehman Brothers collapsed, Martin Wheatley, chief executive of the SFC, gave a speech in which he emphasised the importance of short selling in creating a healthy market.
“It plays an important role in the price discovery process and fosters development of market-neutral activities such as hedging, which are essential to a mature market,” he said.
“As regulators, it is abusive short selling that we want to prevent.”
Besides the ban on naked sales, Hong Kong permits only the short selling of liquid stocks, on the grounds that thinly traded stocks are vulnerable to manipulation.
Since the Asian financial crisis, Hong Kong has also had an “uptick rule”, which requires that a short sale cannot be made on the local stock exchange below the best current asking price.
Japan was one of the many countries to impose a raft of trading rules during the financial crisis, which included a ban on naked short selling. Japan’s measures have been extended several times and are in force until the end of July.
China, by contrast, last month launched a pilot programme for short selling on the mainland. But naked shorting was strictly forbidden.
www.ft.com/cms/s/0/4304a7f0-635e-11df-a844-00144feab49a.html
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Post by sandi66 on May 19, 2010 16:19:12 GMT -5
U.S. Federal Reserve Meeting Minutes for April 28 (Text) May 19 (Bloomberg) -- Following are the minutes of the Federal Reserve’s Open Market Committee meeting that concluded on April 28. Minutes of the Federal Open Market Committee April 27-28, 2010 A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors in Washington, D.C., on Tuesday, April 27, 2010, at 2:00 p.m. and continued on Wednesday, April 28, 2010, at 9:00 a.m. PRESENT: Ben Bernanke, Chairman William C. Dudley, Vice Chairman James Bullard Elizabeth Duke Thomas M. Hoenig Donald L. Kohn Sandra Pianalto Eric Rosengren Daniel K. Tarullo Kevin Warsh Christine Cumming, Charles L. Evans, Narayana Kocherlakota, and Charles I. Plosser, Alternate Members of the Federal Open Market Committee Jeffrey M. Lacker, Dennis P. Lockhart, and Janet L. Yellen, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively Helen E. Holcomb, First Vice President, Federal Reserve Bank of Dallas Brian F. Madigan, Secretary and Economist Matthew M. Luecke, Assistant Secretary David W. Skidmore, Assistant Secretary Michelle A. Smith, Assistant Secretary Scott G. Alvarez, General Counsel Thomas C. Baxter, Deputy General Counsel Nathan Sheets, Economist David J. Stockton, Economist Alan D. Barkema, Thomas A. Connors, William B. English, Jeff Fuhrer, Steven B. Kamin, Simon Potter, Lawrence Slifman, Mark S. Sniderman, Christopher J. Waller, and David W. Wilcox, Associate Economists Brian Sack, Manager, System Open Market Account Jennifer J. Johnson, Secretary of the Board, Office of the Secretary, Board of Governors Patrick M. Parkinson, Director, Division of Bank Supervision and Regulation, Board of Governors Robert deV. Frierson,¹ Deputy Secretary, Office of the Secretary, Board of Governors Charles S. Struckmeyer, Deputy Staff Director, Office of the Staff Director for Management, Board of Governors James A. Clouse, Deputy Director, Division of Monetary Affairs, Board of Governors Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors William Nelson, Senior Associate Director, Division of Monetary Affairs, Board of Governors; Nellie Liang, David Reifschneider, and William Wascher, Senior Associate Directors, Division of Research and Statistics, Board of Governors Seth B. Carpenter, Associate Director, Division of Monetary Affairs, Board of Governors Christopher J. Erceg, Deputy Associate Director, Division of International Finance, Board of Governors; Egon Zakrajšek, Deputy Associate Director, Division of Monetary Affairs, Board of Governors Brian J. Gross, Special Assistant to the Board, Office of Board Members, Board of Governors David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors Jennifer E. Roush, Senior Economist, Division of Monetary Affairs, Board of Governors ------------------------------- ¹ Attended Tuesday’s session only. ------------------------------- Kurt F. Lewis, Economist, Division of Monetary Affairs, Board of Governors Penelope A. Beattie, Assistant to the Secretary, Office of the Secretary, Board of Governors Kimberley E. Braun, Records Project Manager, Division of Monetary Affairs, Board of Governors Randall A. Williams, Records Management Analyst, Division of Monetary Affairs, Board of Governors Esther L. George, First Vice President, Federal Reserve Bank of Kansas City Loretta J. Mester, Harvey Rosenblum, and John C. Williams, Executive Vice Presidents, Federal Reserve Banks of Philadelphia, Dallas, and San Francisco, respectively David Altig, Richard P. Dzina, Daniel G. Sullivan, and John A. Weinberg, Senior Vice Presidents, Federal Reserve Banks of Atlanta, New York, Chicago, and Richmond, respectively Warren Weber, Senior Research Officer, Federal Reserve Bank of Minneapolis Developments in Financial Markets and the Federal Reserve’s Balance Sheet The Manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets during the period since the Committee met on March 16, 2010. The Manager also reported on System open market operations in Treasury securities and in agency debt and agency mortgage- backed securities (MBS) during the intermeeting period. By unanimous vote, the Committee ratified those transactions. There were no open market operations in foreign currencies for the System’s account over the intermeeting period. By unanimous vote, the Committee decided to extend the reciprocal currency (“swap”) arrangements with the Bank of Canada and the Banco de Mexico for an additional year, beginning in mid-December 2010; these arrangements are associated with the Federal Reserve’s participation in the North American Framework Agreement of 1994. The arrangement with the Bank of Canada is in the amount of $2 billion equivalent, and the arrangement with the Banco de Mexico is in the amount of $3 billion equivalent. The vote to renew the System’s participation in these swap arrangements was taken at this meeting because of a provision in the arrangements that requires each party to provide six months’ prior notice of an intention to terminate its participation. The staff also briefed the Committee on recent progress in the development of reserve draining tools. The Desk was preparing to conduct small-scale reverse repurchase operations to ensure its ability to use agency MBS collateral. It also continued to work toward expansion of the set of counterparties for reverse repurchase operations. The staff noted that the Board had recently approved changes to Regulation D that would be necessary for the establishment of a term deposit facility. The staff next gave a presentation on potential longerrun strategies for managing the SOMA. At previous meetings, Committee participants had expressed support for steps to reduce the size of the Federal Reserve’s balance sheet over time and return the composition of the SOMA to only Treasury securities. The staff discussed the potential portfolio paths and macroeconomic consequences of a number of different strategies for accomplishing these objectives. To date, the Desk had been reinvesting the proceeds of all maturing Treasury securities in newly issued Treasury securities, but it had not been reinvesting principal and interest payments on maturing agency debt and agency MBS, nor had it been selling securities. One strategy considered in the staff presentation was a continuation of the current practice, which would normalize the balance sheet very gradually. In addition, the staff presented information on a number of other strategies that included sales of SOMA holdings of agency debt and MBS and under which the proceeds of maturing Treasury securities would not be reinvested; these strategies differed by the date and circumstances under which sales would be initiated, by the average pace of sales, and by the degree to which the timing and pace of such sales would be adjusted in response to financial and economic developments. Meeting participants agreed broadly on key objectives of a longer-run strategy for asset sales and redemptions. The strategy should be consistent with the achievement of the Committee’s objectives of maximum employment and price stability. In addition, the strategy should normalize the size and composition of the balance sheet over time. Reducing the size of the balance sheet would decrease the associated reserve balances to amounts consistent with more normal operations of money markets and monetary policy. Returning the portfolio to its historical composition of essentially all Treasury securities would minimize the extent to which the Federal Reserve portfolio might be affecting the allocation of credit among private borrowers and sectors of the economy. Most participants expressed a preference for strategies that would eventually entail sales of agency debt and MBS in order to return the size and composition of the Federal Reserve’s balance sheet to a more normal configuration more quickly than would be accomplished by simply letting MBS and agency securities run off. They agreed that sales of agency debt and MBS should be implemented in accordance with a framework communicated in advance and be conducted at a gradual pace that potentially could be adjusted in response to changes in economic and financial conditions. Participants expressed a range of views on some of the details of a strategy for asset sales. Most participants favored deferring asset sales for some time. A majority preferred beginning asset sales some time after the first increase in the Federal Open Market Committee’s (FOMC) target for short-term interest rates. Such an approach would postpone any asset sales until the economic recovery was well established and would maintain short-term interest rates as the Committee’s key monetary policy tool. Other participants favored a strategy in which the Committee would soon announce a general schedule for future asset sales, with a date for the initiation of sales that would not necessarily be linked to the increase in the Committee’s interest rate target. A few preferred to begin sales relatively soon. Earlier sales would normalize the size and composition of the balance sheet sooner and would unwind at least part of the unconventional policy stimulus put in place during the crisis before conventional policy firming got under way. Some participants saw advantages to varying the FOMC’s holdings of longer-term assets systematically in response to economic and financial developments. However, others thought that a preannounced pace of sales that was unlikely to vary much would provide a high degree of certainty about sales, helping to limit disruptions in financial markets. The views of participants also differed to some extent regarding the appropriate pace of asset sales. Most preferred that the agency debt and MBS held in the portfolio be sold at a gradual pace that would complete the sales about five years after they began. One possibility would be for the pace to be relatively slow initially but to increase over time, allowing markets to adjust gradually. A couple of participants thought faster sales, conducted over about three years, would be appropriate and felt that such a pace would not put undue strain on financial markets. In their view, a relatively brisk pace of sales would reduce the chance that the elevated size of the Federal Reserve’s balance sheet and the associated high level of reserve balances could raise inflation expectations and inflation beyond levels consistent with price stability or could generate excessive growth of credit when the economy and banking system recover more fully. Participants saw both advantages and disadvantages to not rolling over Treasury securities as they mature. On the one hand, redeeming Treasury securities would contribute to a more expeditious normalization of the size of the balance sheet and the quantity of reserves. On the other hand, such redemptions could put upward pressure on interest rates and would tend to work against the objective of returning the SOMA to an all- Treasuries composition. No decisions about the Committee’s longer-run strategy for asset sales and redemptions were made at this meeting. For the time being, participants agreed that the Desk should continue the interim approach of allowing all maturing agency debt and all prepayments of agency MBS to be redeemed without replacement while rolling over all maturing Treasury securities. Participants agreed to give further consideration to their longer-run strategy at a later date. Staff Review of the Economic Situation The information reviewed at the April 27-28 meeting suggested that, on balance, the economic recovery was proceeding at a moderate pace and that the deterioration in the labor market was likely coming to an end. Consumer spending continued to post solid gains in the first three months of the year, and business investment in equipment and software appeared to have increased significantly further in the first quarter. In addition, growth of manufacturing output remained brisk, and gains became more broadly based across industries. However, residential construction, while having edged up, was still depressed, construction of nonresidential buildings remained on a steep downward trajectory, and state and local governments continued to retrench. Consumer price inflation remained low. The labor market showed signs of a nascent recovery in recent months. Private nonfarm payroll employment increased over the first quarter of 2010-the first quarterly increase since the onset of the recession. The average workweek also rose last quarter and data from the household survey pointed to a firming in labor market conditions. The unemployment rate held steady at 9.7 percent throughout the first quarter, and the labor force participation rate increased over the past few months following sharp declines over the second half of last year. The number of new job losers as a percentage of household employment continued to drop, and the fraction of workers on part-time schedules for economic reasons moved down since the end of last year. Nonetheless, finding a job remained very difficult, and the average duration of unemployment spells increased further. Industrial production continued to expand at a brisk pace during the first quarter. Recent production gains remained broadly based across industries, as both foreign demand and a mild restocking of inventories contributed positively to output growth. Capacity utilization stood significantly above the trough recorded last June but was still well below its long-run average. Light motor vehicle production stepped up in March, and assemblies in the first quarter were above their fourthquarter average as automakers cautiously began to rebuild dealers’ inventories. Production in high-tech industries increased solidly, and available indicators pointed toward further expansion in this sector in the near term. On balance, indicators of near-term manufacturing activity remained quite positive. Consumer spending continued to rise at a solid pace through March, with recent gains pronounced for most non-auto goods and food services. Despite signs of improvement recently, the determinants of spending remained subdued. While wages and salaries picked up early this year, real disposable income was flat in February after a slight decline in January; housing wealth was still well below its level prior to the crisis. Furthermore, although banks indicated a somewhat greater willingness to lend to consumers in recent months, terms and standards on consumer loans remained restrictive. Additionally, consumer sentiment dropped back in early April and was little changed, on net, since the beginning of the year. Starts of new single-family homes edged up, on net, over February and March, but much of this increase likely reflected delayed projects getting under way as weather conditions returned to normal. Home sales strengthened noticeably, as sales of new single-family homes jumped and sales of existing single- family homes rose as well. However, both new home sales and existing home sales were likely boosted, at least in part, by the anticipated expiration of the homebuyer tax credit. Interest rates for conforming 30-year fixed-rate mortgages changed little in recent months and remained at levels that were very low by historical standards. Real spending on equipment and software continued to rebound in the first quarter. Investment in high-tech equipment and transportation advanced further, and real spending for equipment other than high-tech and transportation appeared to turn up sharply after falling for more than a year, suggesting that the recovery in equipment and software investment became more broadly based. The recovery in equipment and software spending was consistent with the strengthening in many indicators of business activity. In contrast, the nonresidential construction sector continued to contract. Real outlays on structures outside drilling and mining fell steeply last year, and recent data on nominal expenditures through February suggested a further decline in the first quarter. The weakness was widespread across categories and likely reflected elevated vacancy rates, low levels of property prices, and difficulties in obtaining financing for new projects. Real spending on drilling and mining structures picked up strongly over the second half of last year in response to the rebound in oil and natural gas prices. Available data suggested that the pace of inventory liquidation moderated further in the first quarter after slowing sharply in the fourth quarter of last year. Inventories appeared to approach comfortable levels relative to sales in the aggregate, although inventory positions across industries varied. Months’ supply remained elevated for equipment, materials, and, to a lesser degree, construction supplies. By contrast, inventories of consumer goods, business supplies, and high-tech goods appeared low relative to demand. Consumer price inflation was low in recent months; both headline and core personal consumption expenditures (PCE) prices were estimated to have risen slightly in March after remaining unchanged in February. On a 12-month change basis, core PCE prices slowed over the year ending in March, with deceleration widespread across categories of expenditures. In contrast, the corresponding change in the headline index moved up noticeably, as energy prices rebounded. Survey measures of long-term inflation expectations were fairly sta-ble in recent months at levels slightly lower than those posted a year ago. Meanwhile, measures of inflation compensation based on Treasury inflation- protected securities (TIPS) edged up slightly. Cost pressures from rising commodity prices showed through to prices at early stages of processing, and the producer price index for core intermediate materials continued to rise rapidly through March. However, measures of labor costs decelerated sharply last year, as compensation per hour in the nonfarm business sector increased only slightly over the four quarters of 2009. The U.S. international trade deficit widened in February, as a rise in nominal imports outpaced a small increase in exports. Increased exports of industrial supplies, capital goods, and automotive products were partly offset by declines in agricultural goods and consumer goods. The February rise in imports reversed a similarly sized decrease in January. Imports of oil accounted for more than one-third of the January decline, reflecting lower volumes, but they accounted for only about one- tenth of the February increase, as volumes rebounded but prices fell. Imports of capital goods rose as strong computer imports more than offset falling aircraft purchases, and imports of industrial supplies and consumer goods also moved up. Recent indicators in the advanced foreign economies suggested a continued divergence in the pace of recovery, with a strong performance in Canada, a moderate expansion in Japan, and a more subdued rebound in Europe. Fiscal strains in Greece intensified during the intermeeting period, and in mid-April, euro-area member states announced a plan to provide financing aid to Greece in coordination with the International Monetary Fund. However, at the time of the April FOMC meeting, no official agreement had been reached concerning the scale, composition, and implementation of such an aid package. Economic activity in emerging markets continued to expand robustly in the first quarter. Despite the strength of exports, merchandise trade balances declined for some countries where strong domestic demand caused imports to outpace exports. In China, real gross domestic product (GDP) increased at a higher-than-expected annual rate in the first quarter as the economic recovery remained broad based, with industrial production, investment, and domestic demand continuing to grow briskly. In Latin America, indicators suggested that economic activity in Mexico and Brazil expanded further in the first quarter. Foreign inflation was boosted by increases in the prices of oil and other commodities, but core inflation generally remained subdued. Staff Review of the Financial Situation The decision by the FOMC at the March meeting to keep the target range for the federal funds rate unchanged and to retain the “extended period” language in the statement was largely anticipated by market participants. However, some market participants reportedly interpreted the retention of the “extended period” language as pointing to a longer period of low rates than previously expected, and Eurodollar futures rates temporarily declined a bit in response. On balance over the intermeeting period, the expected path of policy edged down slightly. Yields on 2-year and 10-year nominal Treasury securities posted small mixed changes amid some volatility that reportedly reflected evolving views about the U.S. fiscal outlook, prospects for U.S. economic growth, and the fiscal situation in peripheral European countries. Inflation compensation-the difference between nominal Treasury yields and yields on TIPS-rose some over the period, but survey measures of longer-term inflation expectations were about unchanged. Overall, conditions in short-term funding markets remained generally stable during the intermeeting period. Spreads between London interbank offered rates (Libor) and overnight index swap (OIS) rates were about unchanged at levels near those that prevailed in late 2007, although they began to edge up in the final days of the intermeeting period. Spreads in the commercial paper market were little changed. Equity indexes rose, on balance, over the intermeeting period, with bank shares outperforming the broader market. Stock prices were supported by somewhat better-than-expected macroeconomic data and a favorable response by investors to the initial batch of first-quarter earnings reports, especially those of banking institutions. Optionimplied volatility on the S&P 500 index generally declined over the period but jumped at end of April on renewed concerns regarding the fiscal situation in Greece. The gap between the staff’s estimate of the expected real equity return over the next 10 years for S&P 500 firms and the real 10-year Treasury yield-a rough measure of the equity risk premium-remained well above its average over the past decade. Yields on investment- grade corporate bonds edged down, leaving their spreads to comparable-maturity Treasury securities a bit lower, at levels around those that prevailed in late 2007. Consistent with more- favorable investor sentiment toward risky assets, yields and spreads on speculative-grade corporate bonds declined, and secondary market prices of syndicated leveraged loans rose further. Overall, net debt financing by nonfinancial firms was positive in March. Issuance of nonfinancial bonds surged, and net issuance of commercial paper rebounded appreciably. Net equity issuance by nonfinancial firms was negative again in the first quarter as the solid pace of gross public issuance was more than offset by equity retirements from both cash-financed mergers and share repurchases. Financial firms issued a significant volume of debt securities in the first quarter and also raised a moderate amount of gross funds in the equity market, a pattern that appeared to continue in the first half of April. Credit quality in the commercial real estate sector continued to deteriorate as the delinquency rate for securitized commercial mortgages increased again in March. The decline in outstanding commercial mortgage debt in the fourth quarter of last year was the largest on record. Nonetheless, indexes of prices for credit default swaps on commercial mortgage-backed securities ticked up noticeably over the period, in line with the overall reduction in financial market risk premiums. The conclusion of purchases under the Federal Reserve’s agency MBS program had only a modest market effect. Over the intermeeting period, spreads on agency MBS retraced much of the increase seen around the time of the program’s conclusion, ending the period roughly unchanged. The factors contributing to the recent narrowing of MBS and mortgage spreads included the low level of mortgage originations, which damped the supply of new MBS, and Fannie Mae’s and Freddie Mac’s increased purchases of mortgages through their buyouts of delinquent loans. Consumer credit continued to trend lower in recent months, pushed down by a steep decline in revolving credit. Spreads on high-quality credit card and auto loan assetbacked securities (ABS) edged down over the period, with little upward pressure evident from the end of the portion of the Term Asset-Backed Securities Loan Facility supporting ABS. Nonetheless, fewer ABS were issued in the first quarter than in the fourth quarter, reflecting continued weakness in loan originations. Delinquency rates on consumer loans edged down further in February but remained very elevated. Spreads of interest rates on credit cards over yields on two-year Treasury securities continued to drift upward, while interest rates on new auto loans at dealerships and their spreads over yields on five-year Treasury securities extended their previous decline. After adjusting to remove the effects of banks’ adoption of Financial Accounting Standards 166 and 167, bank credit contracted again in March, as both loans and securities holdings declined. (2) The contraction in commercial and industrial loans remained pronounced. The drop in commercial real estate loans persisted, reflecting weak fundamentals that limited originations as well as charge-offs of existing loans. Residential real estate loans also decreased further in March, as did credit card loans and other consumer loans. M2 fell in March, reflecting a slowing in the expansion of liquid deposits along with a further contraction in small time deposits and a steep runoff in retail money market mutual funds. Currency grew at a moderate pace, likely as a result of continued demand for U.S. banknotes from abroad coupled with solid domestic demand. The monetary base contracted as the effect on reserves of purchases under the Federal Reserve’s large-scale asset purchase programs was more than offset by a further contraction in credit outstanding under liquidity and credit facilities and an increase in the Treasury’s balances at the Federal Reserve. Until the intensification of the Greek crisis near the end of the intermeeting period, equity indexes were higher in nearly all countries, and emerging-market risk spreads had generally declined. These moves appeared to reflect growing confidence that the global recovery was gaining momentum, particularly in emerging market economies. However, sovereign debt spreads in Greece, Portugal, and other peripheral European countries widened in the days leading up to the April FOMC meeting, as investor anxiety about the fiscal situation in those countries increased. Downgrades to the credit ratings of Greece and Portugal weighed on investor sentiment, and global markets retraced some of their earlier gains. Over the intermeeting period, the Bank of Japan doubled the size of its three-month fixed-rate funds facility, the Bank of Canada dropped its conditional commitment to keeping rates steady through the first half of the year, and the Reserve Bank of Australia raised its policy rate. The trade-weighted value of the dollar changed little, on net; gains against the euro and yen were offset by declines against many emerging market currencies. ------------------------------------------------------- (2) The new accounting standards make it more difficult for U.S. banks to hold assets off balance sheet. Banks adopted the standards in the fourth quarter of 2009 and the first quarter of 2010. The cumulative effects of the resulting asset consolidation were incorporated in the bank credit data published on the Federal Reserve’s H.8 Statistical Release “Assets and Liabilities of Commercial Banks in the United States” as of March 31, 2010. While all major loan categories were affected to some degree by banks’ adoption of Financial Accounting Standards 166 and 167, the largest effect was on credit card loans on commercial bank balance sheets; banks also consolidated significant amounts of other consumer loans, commercial and industrial loans, and residential real estate loans. ------------------------------------------------------- Staff Economic Outlook The economic forecast prepared by the staff for the April FOMC meeting was similar to that developed for the March meeting. The staff continued to project that the accommodative stance of monetary policy, together with a further attenuation of financial stress, the waning of adverse effects of earlier declines in wealth, and improving household and business confidence, would support a moderate recovery in economic activity and a gradual decline in the unemployment rate over the next two years. The staff forecast for both real GDP growth and the unemployment rate through the end of 2011 was roughly in line with previous projections. Recent data on core consumer prices led the staff to mark down slightly its forecast for core PCE inflation. The staff continued to anticipate that downward pressure on inflation from the substantial amount of projected resource slack would be tempered by stable inflation expectations. With energy price increases expected to slow next year, total PCE inflation was seen as likely to fall back in line with core inflation by the end of 2011, as in previous projections. Participants’ Views on Current Conditions and the Economic Outlook In conjunction with this FOMC meeting, all meeting participants- the five members of the Board of Governors and the presidents of the 12 Federal Reserve Banks-provided projections of economic growth, the unemployment rate, and consumer price inflation for each year from 2010 through 2012 and over a longer horizon. Longer-run projections represent each participant’s assessment of the rate to which each variable would be expected to converge over time under appropriate monetary policy and in the absence of further shocks. Participants’ forecasts through 2012 and over the longer run are described in the Summary of Economic Projections, which is attached as an addendum to these minutes. In their discussion of the economic situation and outlook, meeting participants agreed that the incoming data and information received from business contacts indicated that economic activity continued to strengthen and the labor market was beginning to improve. Although some of the recent data on economic activity had been better than anticipated, most participants saw the incoming information as broadly in line with their earlier projections for moderate growth; accordingly, their views on the economic outlook had not changed appreciably. Participants expected the economic recovery to continue, but, consistent with experience following previous financial crises, most anticipated that the pickup in output would be rather slow relative to past recoveries from deep recessions. A moderate pace of expansion, in turn, would imply only a modest improvement in the labor market this year, with the unemployment rate declining gradually. Most participants again projected that the economy would grow somewhat faster in 2011 and 2012, generating a more pronounced decline in the unemployment rate. In light of stable longer-term inflation expectations and the likely continuation of substantial resource slack, policymakers anticipated that both overall and core inflation would remain subdued through 2012, with measured inflation somewhat below rates that policymakers considered to be consistent over the longer run with the Federal Reserve’s dual mandate. Participants expected that economic growth would continue: Recent data pointed to significant gains in retail sales, business spending on equipment and software had picked up substantially, and reports from business contacts and regional surveys indicated that production was increasing briskly in many sectors. Participants agreed that the growth in real GDP appeared to reflect a strengthening of private final demand and not just fiscal stimulus and a slower pace of inventory decumulation; this welcome development lessened policymakers’ concerns about the economy’s ability to maintain a self- sustaining recovery without government support. Businesses appeared to be gaining confidence in the economic recovery, and narrowing credit spreads in private debt markets were allowing low policy rates to be reflected more fully in the cost of capital. At the same time, rising stock prices and the apparent stabilization of house prices were helping to repair household balance sheets. As a result, consumers and firms were beginning to satisfy demands for durable goods and capital equipment that had been postponed during the economic downturn. Many participants noted that employment had increased in recent months, and that they expected a further firming of labor market conditions going forward. A stronger labor market could continue to boost consumer and business confidence and so contribute to further gains in spending. Although these developments were positive, participants noted several factors that likely would continue to restrain expansion in economic activity and posed some downside risks. The recent increase in consumer spending appeared to be supported importantly by pent-up demands and possibly by other temporary factors, such as unusually large income tax refunds. With the personal saving rate having dropped back to a relatively low level, it seemed unlikely that consumer spending would be the major factor driving growth as the recovery progressed. Moreover, the recovery in the housing market appeared to have stalled in recent months despite various forms of government support. Although residential real estate values seemed to be stabilizing and in some areas had reportedly moved higher, housing sales and starts had leveled off in recent months at depressed levels. Some participants saw the possibility of elevated foreclosures adding to the already very large inventory of vacant homes as posing a downside risk to home prices, thereby limiting the extent of the pickup in residential investment for a while. In the business sector, prospects for nonresidential construction outside the energy sector remained weak. Commercial real estate activity continued to fall in most parts of the country as a result of deteriorating fundamentals, including declining occupancy and rental rates and tight credit conditions. However, a number of participants noted that investment in equipment and software had been strengthening, and they relayed anecdotal information from their business contacts that suggested continued growth in orders for capital equipment. Business investment was expected to be supported by improved conditions in financial markets. Large firms with access to capital markets appeared to be having little difficulty in obtaining credit, and in many cases they also had ample retained earnings with which to fund their operations and investment. However, many participants noted that while financial markets had improved, bank lending was still contracting and credit remained tight for many borrowers. Smaller firms in particular reportedly continued to face substantial difficulty in obtaining bank loans. Because such firms tend to be more dependent on commercial banks for financing, participants saw limited credit availability as a potential constraint on future investment and hiring by small businesses, which normally are a significant source of employment growth in recoveries. Some participants noted that many small and regional banks were vulnerable to deteriorating performance of commercial real estate loans. Economic conditions abroad, especially in several emerging Asian economies, continued to strengthen in recent months, contributing to gains in U.S. exports. However, participants saw the escalation of fiscal strains in Greece and spreading concerns about other peripheral European countries as weighing on financial conditions and confidence in the euro area. If other European countries responded by intensifying their fiscal consolidation efforts, the result would likely be slower growth in Europe and potentially a weaker global economic recovery. Some participants expressed concern that a crisis in Greece or in some other peripheral European countries could have an adverse effect on U.S. financial markets, which could also slow the recovery in this country. Developments in labor markets were positive over the intermeeting period. Nonfarm payrolls posted a modest gain in March, and the upturn in private employment was widespread across industries. Nevertheless, participants remained concerned about elevated unemployment, including high levels of long-term unemployment and permanent separations, which were seen as potentially leading to the loss of worker skills and greater needs for labor reallocation that could slow employment growth going forward. Moreover, information from business contacts generally underscored the degree to which firms’ reluctance to add to payrolls or start large capital projects reflected uncertainty about the economic outlook and future government policies. A number of participants pointed out that the economic recovery could eventually lose traction without a substantial pickup in job creation. Participants cited a wide array of evidence as indications that underlying inflation remained subdued. The latest readings on core inflation-which exclude the relatively volatile prices of food and energy-were generally lower than they had anticipated. One participant noted that core inflation had been held down in recent quarters by unusually slow increases in the price index for shelter, and that the recent behavior of core inflation might be a misleading signal of the underlying inflation trend. However, a number of participants pointed out that the recent moderation in price changes was widespread across many categories of spending and was evident in measures that exclude the most extreme price movements in each period. In addition, survey measures of longer-term inflation expectations remained fairly stable, wage growth continued to be restrained, and unit labor costs were still falling; reports from business contacts also suggested that pricing power remained limited. Against this backdrop, most participants anticipated that substantial resource slack and stable longer-term inflation expectations would likely keep inflation subdued for some time. Participants’ assessments of the risks to the inflation outlook were mixed. Some participants saw the risks to inflation as tilted to the downside in the near term, reflecting the quite elevated level of economic slack and the possibility that inflation expectations could begin to decline in response to the low level of actual inflation. Others, however, saw the balance of risks as pointing to potentially higher inflation and cited pressures on commodity and energy prices associated with expanding global economic activity as an upside inflation risk; some also noted the possibility that inflation expectations could rise as a result of the public’s concerns about the extraordinary size of the Federal Reserve’s balance sheet in a period of very large federal budget deficits. While survey measures of longer-term inflation expectations had been fairly stable, some marketbased measures of inflation expectations and inflation risk suggested increased concern among market participants about higher inflation. To keep inflation expectations well anchored, all participants agreed that it was important for policy to be responsive to changes in the economic outlook and for the Federal Reserve to continue to communicate clearly its ability and intent to begin withdrawing monetary policy accommodation at the appropriate time and pace. Committee Policy Action In the members’ discussion of monetary policy for the period ahead, they agreed that no changes to the Committee’s federal funds rate target range were warranted at this meeting. On balance, the economic outlook had changed little since the March meeting. Even though the recovery appeared to be continuing and was expected to strengthen gradually over time, most members projected that economic slack would continue to be quite elevated for some time, with inflation remaining below rates that would be consistent in the longer run with the Federal Reserve’s dual objectives. Based on this outlook, members agreed that it would be appropriate to maintain the target range of 0 to ¼ percent for the federal funds rate. In addition, nearly all members judged that it was appropriate to reiterate the expectation that economic conditions-including low levels of resource utilization, subdued inflation trends, and stable inflation expectations-were likely to warrant exceptionally low levels of the federal funds rate for an extended period. As at previous meetings, a few members noted that at the current juncture, the risks of an early start to policy tightening exceeded those associated with a later start, because the scope for more accommodative policy was limited by the effective lower bound on the federal funds rate, while the Committee could be flexible in adjusting the magnitude and pace of tightening in response to evolving economic circumstances. In light of the improved functioning of financial markets, Committee members agreed that it would be appropriate for the statement to be released following the meeting to indicate that the previously announced schedule for closing the Term Asset-Backed Securities Loan Facility was being maintained. At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive: “The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to ¼ percent. The Committee directs the Desk to engage in dollar roll transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System’s balance sheet that could affect the attainment over time of the Committee’s objectives of maximum employment and price stability.” The vote encompassed approval of the statement below to be released at 2:15 p.m.: “Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time. The Committee will maintain the target range for the federal funds rate at 0 to ¼ percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability. In light of improved functioning of financial markets, the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgagebacked securities; it closed on March 31 for loans backed by all other types of collateral.” Voting for this action: Ben Bernanke, William C. Dudley, James Bullard, Elizabeth Duke, Donald L. Kohn, Sandra Pianalto, Eric Rosengren, Daniel K. Tarullo, and Kevin Warsh. Voting against this action: Thomas M. Hoenig. Mr. Hoenig dissented because he believed it was no longer advisable to indicate that economic and financial conditions were likely to warrant “exceptionally low levels of the federal funds rate for an extended period.” Mr. Hoenig was concerned that communicating such an expectation could lead to the buildup of future financial imbalances and increase the risks to longer- run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly in the near term. Mr. Hoenig believed that the target for the federal funds rate should be increased toward 1 percent this summer, and that the Committee could then pause to further assess the economic outlook. He believed this approach would leave considerable policy accommodation in place to foster an expected gradual decline in unemployment in the quarters ahead and would reduce the risk of an increase in financial imbalances and inflation pressures in coming years. It would also mitigate the need to push the policy rate to higher levels later in the expansionary phase of the economic cycle. It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, June 22-23, 2010. The meeting adjourned at 12:50 p.m. on April 28, 2010. Notation Vote By notation vote completed on April 5, 2010, the Committee unanimously approved the minutes of the FOMC meeting held on March 16, 2010. _____________________________ Brian F. Madigan Secretary SOURCE: Federal Reserve Board Last Updated: May 19, 2010 14:00 EDT www.bloomberg.com/apps/news?pid=20601087&sid=aFm7BAD04AvE&pos=2
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Post by sandi66 on May 19, 2010 16:33:00 GMT -5
Banks on trial in Milan derivatives fraud case May 19, 2010, 9:56AM ET An Italian judge on Wednesday opened the trial of four banks and 11 bankers charged with fraud involving the sale of derivatives to the city of Milan, a case that spotlights the potential risks of complex financial trades. Prosecutor Alfredo Robledo said the derivatives like the ones sold to Milan pose a danger to the financial health of Italy's local administrations and that the goverment should intervene. Prosecutors allege that the city of Milan lost euro105 million ($128 million) as part of the sale of bonds totaling euro1.685 billion between 2005 and 2007. On trial are four companies -- Deutsche Bank, UBS AG, JP Morgan and Depfa Bank -- as well as 11 bankers, a former Milan city manager and a consultant for the restructuring of Milan's debt. In Italy, institutions may be held responsible as well individuals. The banks deny wrongdoing. On Wednesday, two consumer groups asked to join the trial as civil plaintiffs, a procedure that permits affected parties to claim damages in the case of a guilty verdict. In this case, the damages would go to the city of Milan, said Marco Ponzelli, president of Codacons, one of the consumer groups. www.businessweek.com/ap/financialnews/D9FPUS700.htm
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Post by sandi66 on May 20, 2010 4:23:21 GMT -5
Look for EUR/AUD retracements towards 1.4350 to reset longs By Sean Lee || May 20, 2010 at 00:09 GMT The move overnight was somewhat overdone in my opinion and whilst I’m ceratinly not complaining, I’m happy to book profits above 1.4625 and look for retracements back towards 1.4350 to re-set longs. Asia so often disappoints by not going on with big overnight moves that I’m not going to look this particular gift horse in the mouth. The overnight spike stalled at a previous daily high around 1.4720 and this may yet turn out to be a relevant event. www.forexlive.com/107787/all/look-for-euraud-retracements-towards-1-4350-to-reset-longs
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Post by sandi66 on May 20, 2010 4:26:37 GMT -5
IMD World Competitiveness Yearbook 2010 Thursday, 20 May 2010, 10:33 am Press Release: IMD World Competitiveness Center Embargo 19 May 2010 18h00 Local Time 1. JUST RELEASED: IMD WORLD COMPETITIVENESS YEARBOOK 2010 (Pioneers in competitiveness since 1989) Singapore, Hong Kong and the USA come out on top For the first time in decades, Singapore (1) and Hong Kong (2) have topped the US (3) in IMD’s World Competitiveness Yearbook rankings. They are so close, however, that it would be better to define them as the leading “trio”. The US has weathered the risks of the financial and economic crisis thanks to the sheer size of its economy, a strong leadership in business and an unmatched supremacy in technology. Singapore and Hong Kong have displayed great resilience through the crisis – despite suffering high levels of volatility in their economic performance – and they are now taking full advantage of strong expansion in the surrounding Asian region. In Q1 in 2010, the Singaporean economy grew by more than 13%! In the first 10 places, Australia (5), Taiwan (8) and Malaysia (10) also benefit from strong demand in Asia, as well as the implementation of efficient policies, e.g. the three nations rank very well in government efficiency. Switzerland (4) maintains an excellent position characterized by strong economic fundamentals (very low deficit, debt, inflation and unemployment) and a well-defended position on export markets. Sweden (6) and Norway (9) shine for the Nordic model, although Denmark (13) surprisingly loses ground, in particular due to the pessimistic mood expressed in the survey. Special attention should be paid to the good performance of Canada (7), which relies on sound banking regulations and extensive commodity resources. Not surprisingly, Germany (16) leads the larger “traditional” economies such as the UK (22), France (24), Japan (27) and Italy (40). Despite a significant budget deficit and growing debt, Germany’s performance is driven by strong trade (second largest exporter of manufactured goods), excellent infrastructure and a sound financial reputation. Obviously the UK is undergoing the uncertainties of the post-election period but also faces the dual challenges of the crisis’ huge financial cost as well as the de-industrialization of its economy. France continues to suffer from the weight of its government sector although business efficiency is improving. Japan emerges with great difficulty from the crisis, also dealing with deflationary problems while Italy compensates the negative effects of the crisis with good investment performance. It was also to be expected that China (18) would lead the other BRIC nations, followed by India (31), Brazil (38) and Russia (51). Whereas China and India did not undergo a recession (like Indonesia and Poland), Brazil and Russia suffered from the drop in commodities prices. With the economic upturn, the future is much brighter for these nations due to a combination of high domestic demand, infrastructure projects and investments. The risk of inflation and real estate bubbles may force the central banks to cool down these economies. China was the fastest growing nation in 2009 (8.7%) and continues this trend with 11.9% in Q1 of 2010. The credit-worthiness storm that affects Southern Europe acts as a drag on the performance of Spain (36) and Portugal (37), although for Greece (46), the consequences of the recently approved austerity measures were not factored into the results. It is unfortunately to be expected that these three nations, which all have significant budget deficits, growing debt and weak trade performance, will suffer from further recession this year. Ireland (21) entered the real estate and the financial crisis earlier and has already implemented a recovery plan. Traditionally it has a strong export performance. However its “reasonable” debt level at 64% will quickly deteriorate with a 14.3% budget deficit. In the end, this crisis will test the credibility of the Euro, which represents 28% of the world currency holdings. The €750bn plan just adopted by European leaders gives means to a political resolve to back-up the Euro. The only good news is that a weak Euro can boost exports. Finally, the social consequences of the crisis will remain a long-lasting worry. Unemployment has risen to 24% in South Africa (44) and, in Spain, youth unemployment culminates at 38%; it will surpass 40% in 2010! The results of the IMD’s World Competitiveness rankings 2010 have been strongly affected by unusual volatility in economic growth (GDP data), exchange rates (especially the dollar versus the Euro), financial assets (the financial crisis), trade and investment flows (because of the recession) and, finally, as a consequence, in employment figures (which also impact productivity). In a “reset” mode, world competitiveness is not just about improving performance, but also about damage control. Competitiveness highlights the relative position of nations in the pursuit of prosperity - but in a free-fall environment, the winners may simply be the ones who are the most resilient to downward forces. 2. NEW: THE DEBT STRESS TEST (When will Nations revert to a "bearable" public debt level of 60% of their respective GDP) The sinners and the others… The largest “old” industrialized nations – from Japan to the UK – will all suffer a debt curse, in the worst case lasting until 2084. Nowadays, budget deficits are soaring and it is estimated that the average debt of the G20 nations, for example, will climb from 76% of their combined GDP in 2007 to 106% in 2010. Although the “great recession” is over, the consequences of the crisis will continue to be felt for quite some time. The Debt Stress Test estimates a time horizon in which nations will revert to a “bearable” public-debt level of 60% of its respective GDP. (See methodology on following page). However when it comes to debt, numbers do not always give the whole picture. Japan (2084) [The target years for a 60% debt level are shown in parentheses.], Italy (2060) and Belgium (2035) are heavily indebted, but their creditors are mainly domestic institutions (as some economists say “this is money we owe to ourselves…”). On the contrary, the Greek (2031) and the Portuguese (2037) governments face the demand of foreign institutions (foreign banks own €106 billion of Greece’s debt and €44 billion of Portugal’s). The currency risk is an additional factor of uncertainty for countries such as the UK (2028) with $1,482 billion of total government debt and Iceland (2032) with $14.9 billion of debt. On the contrary, Greece and Portugal enjoy about 75% of their debt in Euros – this is good news for them and bad news for the Euro zone. Most of the US (2033) debt is in dollars. The repayment capacity depends on the size of the economy. When the US economy recovers it will generate significant fiscal revenues on the potential GDP growth rate. Ireland (2021) had a “historical” growth rate of 3.8% over the past decade. On the current account surplus side there is The Netherlands (2020) +5.4%, Germany (2028) +4.9%, and Austria (2020) +2.3%. Unfortunately, Greece, Portugal, Spain (2019) [Spain’s debt is currently less than 60% of its GDP.], Italy (2060) and Ireland (2021) have significant current account deficits. Finally, the net balance between foreign liabilities and foreign assets should be taken into consideration, as a kind of collateral. For example, Germany is heavily indebted ($2,448 billion) but its net balance between foreign debt and assets is positive (approximately $800 billion). In addition, the US, Germany, the UK, Japan, France (2029), the Netherlands, Canada (2025) and Italy own significantly more industrial assets abroad (net position in direct investments stocks) than foreigners do in their country. The quality of debt depends both on the collateral and the capacity to repay. In short, countries such as Greece, Portugal and Spain have a credibility problem today not only because they have a debt crisis, but also because they lack the means to adequately repay (growth rate, current account balance, investments abroad, etc). Other “sinners” (mostly the large industrial nations) have less of a credibility problem: in their case debt is a cost that will limit their competitiveness and the purchasing power of their people. Finally, 40 out of the 58 countries in the World Competitiveness Yearbook 2010 do not have a debt problem (i.e. less than 60% of their GDP). Some could not go into debt because they had no collateral or credibility (Estonia, Latvia) and some are simply virtuous (Singapore, Switzerland). However many are emerging economies that are fast piling up foreign currency reserves (such as China with $2,400 billion) and increasing their competitiveness. In summary, the debt trail leads to the money trail, which in turn emphasizes the changing balance of power in a brand new world! “The Debt Stress Test provides an early simplified indicator of the magnitude of the public debt issue for each nation,” states IMD Professor Stéphane Garelli, Director of the World Competitiveness Center. “What matters is not only the absolute size of public debt but also the length of time required to absorb it. In the end, debt-stricken nations may suffer severe losses in competitiveness and standards of living.” Methodology for the Debt Stress Test. The IMD World Competitiveness Center has used the following “simplified” assumptions to avoid complicating its hypothesis: 1. Assumptions - Each nation gradually reduces its budget deficit to reach equilibrium by 2015. - As of 2015, each nation devotes 1% of its GDP to the repayment of its debt, if in excess of 60% of the GDP. - As of 2015, each nation resumes a GDP growth rate equivalent to its average rate from 2000 – 2009. 2. Limitations of the approach - 60% of the GDP is considered as an “acceptable” public-debt burden both by the IMF and the European Union. However some scholars argue that even higher levels (e.g. 90%) have little impact on growth. - Many nations will not be able to balance their budget deficits by 2015. - The average “historical” GDP growth of the 2000s is not guaranteed for the 2010s. - Complex simulations on the evolution of interest rates, payment delays or defaults have been avoided. - Other “social factors”, including the evolution of the pension system, social welfare, health costs and ageing populations have been omitted. *Note: All content in the release can be attributed to IMD Professor Stéphane Garelli, Director of the World Competitiveness Center. WHAT IS IMD? Based in Switzerland, IMD is consistently top-ranked among business schools worldwide. With more than 60 years’ experience, IMD takes a real world, real learning approach to executive education. IMD offers pioneering and collaborative solutions to address clients’ challenges. Our perspective is international – we understand the complexity of the global environment. Real-impact executive learning and leadership development at IMD enables participants to learn more, deliver more and be more. (www.imd.ch). WHAT IS THE WCC? The IMD World Competitiveness Center (WCC) has been a pioneer in the field of competitiveness of nations and enterprises since 1989. It is dedicated to the advancement of knowledge on world competitiveness by gathering the latest and most relevant data on the subject and by analyzing the policy consequences. The WCC conducts its mission in cooperation with a network of 54 partner institutes worldwide to provide the government, business and academic community with the following activities: • IMD World Competitiveness Yearbook • WCY Online • Special country/regional competitiveness reports • Workshops on Competitiveness WHAT IS THE WCY? The IMD World Competitiveness Yearbook (WCY) is reputed as being the worldwide reference point on the competitiveness of nations, ranking and analyzing how an economy manages the totality of its resources and competencies to increase the prosperity of its population. It has been published since 1989 and is the world’s most renowned study comparing the competitiveness of 58 economies on the basis of over 300 criteria. Providing more than 500 pages of key data and including in-depth profiles for each of the 58 economies, the WCY is considered an invaluable research tool for benchmarking competitiveness performance. Focusing primarily on hard facts taken from international and regional organizations and private institutes, the statistics are complemented with results from an annual Executive Opinion Survey. The collaboration with 54 Partner Institutes worldwide helps ensure that the data is as reliable and up-to-date as possible. Since 2003, an online interactive access to the WCY database is also available, including criteria 15-year time series. • Features 58 industrialized and emerging economies • Provides 327 criteria, grouped into four Competitiveness Factors: Economic Performance, Government Efficiency, Business Efficiency and Infrastructure • Hard data are taken from international or national organizations, private institutes and partners • Survey data are drawn from our annual Executive Opinion Survey (4,460 respondents) • Aggregates data over a 5-year period • Ensures accuracy through collaboration with 54 Partner Institutes worldwide • Published since 1989 • World Competitiveness Online: to access the WCY database including 15-year time series and to customize your own selection of countries and data [Full release with charts (PDF)] ENDS www.scoop.co.nz/stories/WO1005/S00359.htm
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Post by sandi66 on May 20, 2010 4:36:24 GMT -5
- May 20, 2010 - Global Supply Chain News: Will Chinese Currency Revaluation have Any Impact on US Imports? Despite Many Calls for Yuan Appreciation, Changes Unlikely to Really Impact Import Volumes or US Manufacturing Levels; New Bill Plans Chinese Tariffs Nonetheless SCDigest Editorial Staff For several years, politicians in Washington, labor leaders, and some US business interests have called on China to revalue its currency versus the US dollar, as the yuan has retained a fixed value to the dollar even as Chinese exports the US have surged along with the US trade deficit. Unlike most other major world currencies today, the yuan’s value does not openly trade in global currency markets, but rather stays pegged at a fixed exchange rate to the dollar based on decisions by the Chinese government. Pressure on the Chinese to increase the valuation of the yuan versus the dollar have come from both sides of the political aisle, but has become more pronounced during the Obama administration. Yuan valuation is one of several issues behind the increasingly rocky relationship between Washington and Beijing. Many believe a re-valuation would reduce US imports from Chinese and increase the competitiveness of US goods being sold into China, creating a boost to US manufacturing in the process. “To some in Washington these days, adjusting the yuan-dollar exchange rate is the fix for all America's ills,” Joseph Sternberg, editor if the Wall Street Journal Asia's Business Asia column recently wrote. “That single number supposedly determines which jobs stay in the United States and which go to China. It dictates which and how many goods move where. It's attributed the mystical power to raise or destroy mighty economies by its movements or lack thereof.” Certainly, substantial revaluation could change the cost dynamics of China sourcing, but it is almost unthinkable that the Chinese government would re-value the yuan in way that would make much of a dent in China’s export volumes to the US. Last year, a leading Chinese economist suggested the country should consider a revaluation of some 10%, which many thought may have been a Chinese government sponsored “trial balloon” indicating a potential one-time move of the yuan to pacify US critics without causing much damage to the country’s export machine. (See New Call in China to Let Yuan Rise 10% Against Dollar.) Most now though seem to think a rise of 10% is more than double what the Chinese government might eventually agree to. What is the Relationship between Yuan Value and Price? A critical question though is how much impact any sort of revaluation is likely to have in practice. Chinese manufacturers could react to a re-valuation by reducing prices to compensate for the effective rise in their sales prices that would result from a more richly value yuan - a move that could potentially be supported by the Chinese government increasing its current levels of export incentives. The other reality is that the total cost of imports from China are not as fully tethered to the value of the yuan as some in Washington and elsewhere may think. A 5% appreciation in the value of the yuan will not usually result, for example, in a direct rise in the pricing of Chinese exports by an equal amount. One of the most important factors is the cost of any raw materials or commodities used in the manufacture of goods. That includes everything from iron ore to steel to cotton to oil. Those commodities are based on global prices for goods regardless of where they are purchased, and are generally valued in US dollars. Thus, those costs would be unaffected by a yuan revaluation. The greater the percentage of an item’s total cost that is driven by raw materials and commodity pricing, the less a yuan revaluation would have on the price of finished goods coming out of China. Logically, a revaluation of the yuan would likely have the largest impact on goods that are the most labor intensive to produce, such as apparel items that rely on manual sewing operations. However, rising labor costs in China that have nothing to do with yuan revaluation have already pushed many US companies to look to Vietnam and even Africa as sourcing regions for those types of high labor content goods. In fact, rising labor costs generally are by far a larger concern for Chinese manufacturers than a yuan revaluation. “The rising costs of Chinese manufacturing in general are a much bigger headache for some apparel manufacturers than a yuan revaluation would be,” the Journal’s Sternberg observes. “Wage increases alone force factory owners along China's coast to boost productivity by 6% or more each year to stay competitive. Increasing productivity by another 2% or 3% to compensate for a revaluation would be tough, but perhaps not the most serious challenge” Where is the Margin Captured? Many may not realize the extent of mark-up on many branded and fashion goods coming into the US from Asia. A pair of jeans made inChina might cost some $8.00 a pair, which includes the cost for cotton that would not be affected by revaluation. Logistics and insurance costs to ship those jeans to the United States might add something like 50 cents to the cost to each pair. But at brand-name store in the US, those jeans may sell for $40.00 or more – an ultimate mark-up of likely more than $30.00 a pair. That mark-up in price captures the real value added by the intellectual property of the design, advertising, distribution and financing—all services often provided by U.S. companies, in dollars. In this example, a single digit rise in the valuation of the yuan in this process would have a very modest impact at best on the sourcing decision. Of course, the impact would be greater on more basic items, such as auto parts or electronic components, that don’t carry that brand premium, but even there the impact of a small yuan revaluation is unlikely to be significant. Some say the recent turmoil over the Euro stemming from the Greek debt crisis will cause the US and the Chinese to pull back from serious discussions around a yuan revaluation to avoid adding another dynamic to world currency markets. However, New York Senator Chuck Schumer recently said that “The Chinese always have a reason to delay. Europe shouldn’t change the need and fairness of obtaining the current appreciation.” Schumer has introduced legislation that would require that the US impose tariffs on the Chinese (and other countries) that have misaligned currencies with the US. www.scdigest.com/ASSETS/ON_TARGET/10-05-20-1.PHP?CID=3474
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Post by sandi66 on May 20, 2010 4:37:55 GMT -5
China stands firm on currency ahead of talks with US (AFP) – 5 hours ago BEIJING — China stood firm against outside pressure to revalue its currency on Thursday ahead of key talks with the United States, and reiterated its concerns about soaring American debt levels. Assistant Finance Minister Zhu Guangyao told reporters: "We will not succumb to external pressure. Pressure and noise from the outside can only obstruct our progress." Zhu's comments came during a briefing on the upcoming US-China Strategic and Economic Dialogue set for Monday and Tuesday in Beijing, which he said would touch on the issue of China's exchange rate policy. The US and Europe want China to move toward a more market-based exchange rate regime and let its yuan currency rise. Some American lawmakers say China manipulates the currency to make its exports cheaper and have called on President Barack Obama to take action against Beijing. US Secretary of State Hillary Clinton and Treasury Secretary Timothy Geithner will head the American delegation at the annual talks. But some observers have said China now seemed less likely to move on a revaluation given the global financial uncertainty stemming from the eurozone sovereign debt crisis. Zhu appeared to confirm that view, saying "exchange rate stability is an important factor" in the global response to the EU crisis. He added that the soaring debt taken on by the United States to dig itself out of recession "is also something China is concerned about". China is the top holder of US Treasuries and has in the past expressed worry that those investments were threatened by high American debt levels. While acknowledging the yuan would be on the agenda for next week's Sino-US talks, Zhu played down its significance, saying it was just one of many issues to be discussed. The China Daily quoted an advisor to China's central bank as also saying the yuan issue would not be central to talks, allowing Beijing to move on appreciating the currency without seeming to have done so under pressure. "Officials from both sides are expected to play down the currency issue during the meeting, leaving more leeway for China to decide the fate of its own currency," Li Daokui, a member of the central bank's monetary policy committee, was quoted as saying. www.google.com/hostednews/afp/article/ALeqM5jFxygap1jaEN6kjzNn4N2mFGL0iA
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Post by sandi66 on May 20, 2010 4:38:47 GMT -5
China Money: Risks mount in yuan NDFs as dollar jumps globally Published: 19 May 2010 19:47:49 PST * Global dollar strength limits scope for yuan appreciation * Dealers lower 12-month yuan rise forecast to 3 pct from 5 * China is still ready to depeg yuan from dollar * But yuan rise within 3 months may be less than 0.5 pct SHANGHAI, May 20 - A global dollar surge this month sparked by the Greek debt crisis is likely to push China to scale back how much it will let the yuan appreciate once it abandons its dollar peg, threatening speculators in offshore dollar/yuan forwards with losses on short dollar positions. China has long made it clear that its yuan reforms must not encourage bets on one-way yuan appreciation and must help to fend off speculators. A government institute repeated that doctrine in a report published on Wednesday. That campaign now appears to be getting some timely help from the dollar's recent strength. The dollar index against a basket of six global currencies, dominated by the euro, has jumped 6 percent this month -- its biggest monthly gain in 18 months. So many dealers lowered their forecasts for yuan appreciation over the next 12 months to just 3 percent from the 5 percent they were forecasting only several weeks ago. The euro zone's debt woes have also stirred doubts among many analysts about damage to China's economic recovery, especially after last week's announcement of lacklustre exports and industrial output in April. The outlook for the world's third-largest economy remains very strong but it may not have scope to accelerate over the next few months, likely making the government more cautious about the pace of yuan appreciation, market players and observers believe. "The government has apparently launched dynamic mechanisms to monitor the European debt crisis, which many think will have an impact on China's economic recovery, although I believe the impact will be very small," said Chen Lu, chief economist at Haitong Securities in Shanghai. "We still believe China will depeg the yuan from the dollar soon, but the scope for how much the yuan can appreciate will be more limited from now on -- up to 3 percent in a year." ONCE BURNT Since early April, when currency-related tensions eased between China and the United States and expectations re-emerged of yuan appreciation versus the dollar, speculators who shorted dollars in one-month dollar/yuan non-deliverable forwards, or NDFs, have already suffered losses. Speculators anticipating a one-off yuan revaluation were betting for most of April that the yuan would rise about 0.6 percent within 30 days, but the currency only moved a few pips. Now the prospect of a scaled-back yuan rise in the longer term is raising the risks for holders of short dollar positions in other tenors, especially three-month NDFs. Three-month NDFs implied yuan appreciation of 1.3 percent in late April but dealers believe market conditions suggest China may allow the yuan to rise only about 300 pips at most, or less than half a percent, by the end of July. While speculators often calculate gains and losses on their overall portfolios for NDFs, even the most actively traded one-year dollar/yuan NDFs are no longer a safe bet for short dollar positions due to global dollar strength. "No one can press China to buck the market trend and allow the yuan to rise significantly if the dollar is still jumping in global markets," said a senior trader at a U.S. bank in Shanghai. "A good strategy for NDF traders would be to take a more defensive stance right now, when yuan appreciation implied by long-term NDFs is still reasonable." Some market players appear to be beginning to take precautious, helping push one-year NDFs to be quoted at 6.7100 bid on Thursday, implying 12-month yuan appreciation of 1.75 percent, down sharply from a recent high of 6.5930 hit on April 22, which implied a yuan rise of 3.54 percent in a year. SYMBOLIC The People's Bank of China (PBOC) has tethered the spot yuan rate near 6.83 versus the dollar, rarely letting it stray from a 100 pip range since mid-2008 to protect exporters and the economy as it confronted a slowdown due to the financial crisis. Under pressure, particularly from the United States, to allow the yuan to appreciate as China's economy outperformed all its big global counterparts as it recovered, the PBOC signalled last week that it was ready to let the yuan move more freely. In a quarterly monetary policy report, the PBOC said it would manage the yuan with reference to a basket of currencies, aligning it with the currencies of all of China's important trading partners instead of just the U.S. dollar. A policy change would thus not be a surprise, whether in the form of an official announcement or a quiet move to raise the Chinese central bank's daily mid-point, a reference rate from which the yuan can rise or fall 0.5 percent against the dollar. So the question is not whether China will depeg the yuan from the dollar, as few in the market doubt China will do so in the foreseeable future. Rather, market watchers wonder if China would be willing to let the yuan rise enough any time soon to have a discernable impact on China's trade with partners such as the United States. Many dealers trading on the Chinese Foreign Exchange Trade System, the domestic market, believe movement will be very gradual in the initial three to six months after depegging. The longer-term prospects depend on the economy and the dollar's global performance. A very limited yuan rise would do less to provoke heavier flows of speculative money into China, which have shown signs of picking up since last September when the economic recovery began to gather steam. "Any yuan appreciation at the start of depegging will no doubt be symbolic, particularly under present global market conditions," said a trader at a Chinese state bank in Beijing. news.alibaba.com/article/detail/markets/100307348-1-china-money%253A-risks-mount-yuan.html
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