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Archives: November 2011

Kicking the Can Down the Road 101

Published on: 11/30/2011

Categories: Current Events, Economics, Financial Markets

Tags: eurozone bailouts, federal reserve bails out the euro, hyperinflation, inflation, who is paying for the bailout of the euro

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Editor’s Note – Even the mainstream press is coming to the realization that there is no fixing the Eurozone’s debt problems; just postponing the inevitable.

BRUSSELS (AP) – Under pressure to deliver shock treatment to the ailing euro, European finance ministers failed to come up with a plan for European countries to spend within their means. Such a plan is needed before Europe’s central bank and the International Monetary Fund consider stepping in to stem an escalating threat to the global economy.

The ministers delayed action on major financial issues – such as the concept of a closer fiscal union that would guarantee more budgetary discipline – until their bosses meet next week in Brussels.

Stock markets fell Wednesday as a top EU official conceded that the future of the euro now rests heavily on the meeting of European heads of state on Dec. 9. Stock markets had risen this week on hopes that intense bond market pressure would finally force the eurozone into quicker and more robust action.

“We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union,” EU Monetary Affairs Commissioner Olli Rehn said, adding: “There is no one single silver bullet that will get us out of this crisis.”

At a meeting Tuesday night, finance ministers for the 17 countries that use the euro handed Greece a promised euro8 billion ($10.7 billion) rescue loan to fend off its immediate cash crisis and promised to increase the firepower of a fund to help bail out ailing eurozone countries.

But they failed to increase the firepower of a European bailout fund to euro1 trillion ($1.3 trillion), as they had hoped to do.

“It will be very difficult to reach something in the region of a trillion. Maybe half of that,” said Dutch Finance Minister Jan Kees de Jager.

Klaus Regling, head of the bailout fund, tried to be upbeat, saying the ministers had committed to increasing its size from its current euro440 billion ($587 billion) but refusing to give a specific size. He assured reporters it was more than big enough to deal with Europe’s immediate debt problems.

“To be clear, we do not expect investors to commit large amounts of money during the next few days or weeks,” Regling said. “Leverage is a process over time.”

The ministers did agree to use the bailout fund to offer financial protection of 20-30 percent to investors who buy new bonds from troubled eurozone nations.

“We made important progress on a number of fronts,” eurozone chief Jean-Claude Juncker insisted late Tuesday. “This shows our complete determination to do whatever it takes to safeguard the financial stability of the euro.”

Wednesday’s meeting in Brussels has brought in the 10 non-euro finance ministers from the 27-nation EU, who have been pressing hard for a swift solution for fear that their economies will suffer.

Sweden’s Anders Borg said there was no more time to waste and that the markets don’t provide “any honeymoons” for any countries that stray from fiscal austerity. He stressed that Spain and Italy need to “take out all the skeletons” from their financial closets and implement budgetary belt tightening measures.

Many economists say the 17 nations that use the euro have little choice but to back proposals for much closer coordination of their spending and budget policies.

Though such a change would reduce their ability to run budget deficits, it could potentially pave the way for much more aggressive support from the European Central Bank.

“If the eurozone is to survive, there needs to be more fiscal union,” said Eswar Prasad, an economics professor at Cornell University in the state of New York.

For struggling economies, this might be the necessary price of survival. With such discipline in place, the ECB could then agree to make major purchases of government bonds from Europe’s troubled countries. Doing so could help lower their borrowing costs and enable them to finance their debts.

For now, the ECB has been reluctant to take such a frontline role, arguing that it’s up to governments to sort out their fiscal mess. It’s voiced worries that a big bond-buying program could allow economically reckless countries off the hook for painful spending cuts and tax increases.

But a tighter fiscal union could reassure the ECB and lead it to act more forcefully, said Jacob Funk Kirkegaard, a fellow at the Peterson Institute for International Economics.

The alternative could be a default by Greece, or even Italy, and a break-up of the eurozone. That could spark chaos, forcing some or all the countries to return to their own individual currencies.

A default could also cause lending to seize up worldwide. Some European banks holding large amounts of government debt would likely collapse. As credit dried up, other banks around the world would probably hoard cash. The credit crunch could push European countries into a deep recession.

A European downturn would also slow the flow of exports to Europe from the United States and Asia and weaken their economies. U.S. stock markets would likely fall, reducing household wealth and consumer spending and further choking growth.

Many economists say the threat of default means the International Monetary Fund might end up contributing to a bailout fund. An IMF spokesman denied Tuesday that the international lending group is consulting with the Italian or Spanish governments.

But the IMF could work with institutions like the ECB, Cornell’s Prasad said. Funneling money through the IMF would be more politically palatable for the ECB than directly aiding individual countries.

Still, the IMF has only about $390 billion available to lend. That wouldn’t be anywhere near enough to rescue Italy, which has $1.2 trillion in debt.

“In the short term, there is only the ECB,” Kirkegaard said.

How Paulson Gave Hedge Funds Inside Information

by TwoCentsEditor

Published on: 11/29/2011

Categories: Current Events, Economics, Financial Markets

Tags: criminal activity, hank paulson, paulson gives inside information to fund managers, treasury secretary, what is insider trading

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Treasury Secretary Henry Paulson stepped off the elevator into the Third Avenue offices of hedge fund Eton Park Capital Management LP in Manhattan. It was July 21, 2008, and market fears were mounting. Four months earlier, Bear Stearns Cos. had sold itself for just $10 a share to JPMorgan Chase & Co. (JPM)

Now, amid tumbling home prices and near-record foreclosures, attention was focused on a new source of contagion: Fannie Mae (FNMA) and Freddie Mac, which together had more than $5 trillion in mortgage-backed securities and other debt outstanding, Bloomberg Markets reports in its January issue.

Paulson had been pushing a plan in Congress to open lines of credit to the two struggling firms and to grant authority for the Treasury Department to buy equity in them. Yet he had told reporters on July 13 that the firms must remain shareholder owned and had testified at a Senate hearing two days later that giving the government new power to intervene made actual intervention improbable.

“If you have a bazooka, and people know you have it, you’re not likely to take it out,” he said.

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

A Different Message

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives — at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.

After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.

Stock Wipeout

Paulson explained that under this scenario, the common stock of the two government-sponsored enterprises, or GSEs, would be effectively wiped out. So too would the various classes of preferred stock, he said.

The fund manager says he was shocked that Paulson would furnish such specific information — to his mind, leaving little doubt that the Treasury Department would carry out the plan. The managers attending the meeting were thus given a choice opportunity to trade on that information.

There’s no evidence that they did so after the meeting; tracking firm-specific short stock sales isn’t possible using public documents.

And law professors say that Paulson himself broke no law by disclosing what amounted to inside information.

Rampant Rumors

At the time, rumors about Fannie and Freddie were tearing through the markets. The government-chartered firms’ mandate, which continues today, is to buy mortgages from banks and repackage them into securities either for their own portfolios or to sell to others. The banks can then use the proceeds from those transactions to write new mortgages.

By mid-2008, delinquencies and foreclosures were soaring, and the GSEs set aside billions of dollars against future losses. In the first six months of 2008, they racked up net losses of $5.46 billion as they slashed dividends and marked down the values of their huge inventories of mortgage-backed securities.

On Wall Street, confusion reigned. UBS AG analyst Eric Wasserstrom on July 10 cut his share price target on Freddie to $10 from $28. The next day, Citigroup Inc. (C) analyst Bradley Ball reiterated a “buy” recommendation on the two GSEs. On July 12, the Times of London, without citing a source, reported that Paulson was contemplating a $15 billion capital injection into the firms.

Shares Rally

At the time Paulson privately addressed the fund managers at Eton Park, he had given the market some positive signals — and the GSEs’ shares were rallying, with Fannie Mae’s nearly doubling in four days.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.

“You just never ever do that as a government regulator — transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”

Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.

“What is this but crony capitalism?” she asks. “Most people have had their fill of it.”

A Lawyer’s Advice

The fund manager who described the meeting left after coffee and called his lawyer. The attorney’s quick conclusion: Paulson’s talk was material nonpublic information, and his client should immediately stop trading the shares of Washington- based Fannie and McLean, Virginia-based Freddie.

Seven weeks later, the boards of the two firms voted to go into conservatorship under the newly created Federal Housing Finance Agency. The takeover was effective Sept. 6, a Saturday, and the companies’ stock prices dropped below $1 the following Monday, from $14.13 for Fannie Mae and $8.75 for Freddie Mac (FMCC) on the day of the meeting. Various classes of preferred shares lost upwards of 85 percent of their value.

A complete list of those at the Eton Park meeting isn’t publicly available. A Treasury Department roster of those expected to attend, obtained by Bloomberg News under the Freedom of Information Act, includes Ripplewood Holdings LLC CEO Timothy Collins, who says, through a spokesman, that he didn’t participate.

Storied Investors

At least one fund manager who wasn’t listed in the FOIA document, Daniel Stern of Reservoir Capital Group, did attend, says the manager who described the meeting.

The gathering comprised some of Wall Street’s most storied investors. Mindich, a former chief strategy officer of New York- based Goldman Sachs, started Eton Park in 2004 with $3.5 billion, at the time one of the biggest hedge-fund launches ever. Singh, a former head of Goldman’s proprietary-trading desk, also began his fund in 2004, in partnership with private- equity firm Texas Pacific Group Ltd.

Lone Pine’s Mandel worked as a retail analyst at Goldman before joining Julian Robertson’s Tiger Management LLC, one of the most successful hedge funds of the 1980s and 1990s. He started his own firm in 1997. Och was co-head of U.S. equity trading at Goldman before founding Och-Ziff in 1994. The publicly listed firm managed $28.9 billion in November.

Goldman Alums

One other Goldman Sachs alumnus was at the meeting: Frank Brosens, founder and principal of Taconic Capital Advisors LP, who worked at Goldman as an arbitrageur and who was a protege of Robert Rubin, who went on to become Treasury secretary.

Non-Goldman Sachs alumni who attended included short seller James Chanos of Kynikos Associates Ltd., who helped uncover the Enron Corp. accounting fraud; GSO Capital Partners LP co-founder Bennett Goodman, who sold his firm to Blackstone Group LP (BX) in early 2008; Roger Altman, chairman and founder of New York investment bank Evercore Partners Inc. (EVR); and Steven Rattner, a co-founder of private-equity firm Quadrangle Group LLC, who went on to serve as head of the U.S. government’s Automotive Task Force.

Another person in attendance: Michele Davis, then-assistant secretary for public affairs at the Treasury Department, who now represents Paulson as a managing partner at public relations firm Brunswick Group Inc. In an e-mail response to Bloomberg Markets, she referred all questions to Paulson’s book on the financial crisis, “On the Brink” (Business Plus, 2010), which makes no mention of the Eton Park meeting.

Paulson Thinktank

Paulson is now a distinguished senior fellow at the University of Chicago, where he’s starting the Paulson Institute, a think tank focused on U.S.-Chinese relations.

Eton Park’s Mindich, Lone Pine’s Mandel, TPG-Axon’s Singh and Och-Ziff (OZM)’s Och all declined to comment through spokesmen. Reservoir’s Stern didn’t return phone calls. Altman, through a spokesman, confirmed his attendance and declined to comment further.

Brosens confirmed in an e-mail that he had attended and said he couldn’t recall details. A spokesman for Rattner acknowledged he attended and said he didn’t trade in Fannie Mae- or Freddie Mac-related instruments after the meeting. Chanos declined to comment.

A Blackstone spokesman confirmed in an e-mail that GSO’s Goodman attended the meeting. Blackstone doesn’t believe market- sensitive information was discussed, and in any event Blackstone didn’t take any positions in Fannie or Freddie between the luncheon and Sept. 6, he wrote.

Strong Short Interest

Records show that many investors were betting against Fannie Mae and Freddie Mac at the time. According to Data Explorers Ltd., a London-based research firm, short interest in Fannie Mae shares rose sharply in July, to 163 million shares on July 14 from 86.3 million shares on July 9.

Short Interest continued to rise, to 240 million shares, on the day of the Eton Park meeting; it hit 262 million on July 24, its high for the year. Freddie Mac’s short interest showed a similar trajectory.

Revelations about the meeting come at a sensitive time.

“The optics are awful; there’s no doubt about it,” says professor Larry Ribstein of the University of Illinois College of Law in Champaign. “Everyone knows that insider trading is a huge issue.”

Rajat Gupta, the former head of McKinsey & Co. who was a member of Goldman’s board, was indicted by a federal grand jury on Oct. 26 for disclosing nonpublic information on Goldman and other companies to Raj Rajaratnam, a hedge-fund manager who earlier in October was sentenced to 11 years in prison for profiting from inside information provided by a web of industry insiders, including Gupta.

Gupta has pleaded not guilty.

LightSquared Probe

Several U.S. agencies face increased scrutiny in Congress for possible improper disclosures or ties to hedge funds. Senators are looking into whether the U.S. Department of Education divulged nonpublic details about new rules being considered to regulate for-profit educational institutions to outsiders, including Steven Eisman, former managing director of FrontPoint Partners LLC, who held short positions in the sector.

Education Department spokesman Justin Hamilton denies any impropriety. Eisman hasn’t been accused of any wrongdoing.

In October, Republican Senator Charles Grassley of Iowa asked hedge-fund manager Philip Falcone for copies of all communications between his Harbinger Capital Partners and the Department of Commerce, the Federal Communications Commission and the White House. Grassley is looking into whether Falcone improperly sought to influence regulators and the White House while seeking approvals for LightSquared Inc., the company constructing a broadband wireless network his fund is bankrolling.

‘Government Information’

Robin Roger, general counsel for the fund’s management firm, says any assertion that the fund or LightSquared tried to improperly influence regulators is unfounded.

For government officials, the leaking of market-sensitive information, even if inadvertent, represents an ethical minefield.

“There’s a lot of government information out there, and the hedge funds are trying to get it,” says Richard Painter, a law professor at the University of Minnesota who advised the Bush administration on Paulson’s sale of his Goldman stock when he became Treasury secretary. “It’s a huge problem that has to be addressed.”

The rules for what can or cannot be disclosed by government officials are often either unclear or nonexistent.

Tipping Hands

“The bottom line is that senior-level people in Washington, in the name of keeping in touch with their stakeholders, are tipping their hands,” says Adam Zagorin, a senior fellow at the Project on Government Oversight, a Washington watchdog group. “You can’t prosecute them for insider trading if they didn’t trade the shares. You may not be able to even reprimand them. What the hell are the rules?”

An official such as Paulson has no legal obligation to keep material nonpublic information to himself, says Phillip Kaplan, partner for litigation at Manatt Phelps & Phillips LLP, where he specializes in securities and class-action cases.

“I don’t think a government person is liable,” he says. “He didn’t profit from the information or trade on it.”

In the rapidly evolving world of insider-trading prosecutions, that could change, says the University of Illinois’s Ribstein, adding that the U.S. Securities and Exchange Commission is taking a broader view of what constitutes insider trading. SEC Enforcement Director Robert Khuzami, who can bring only civil cases, and the Justice Department, which can mount criminal prosecutions, have cast their net wide, Ribstein says.

Small Players Sued

In addition to going after big names like Rajaratnam and Gupta, the authorities are suing and indicting smaller players who might not have been prosecuted in the past, like accountants and analysts at so-called expert networks, who sell their expertise to hedge funds.

The University of Missouri’s Black says there’s no question that the plan to take over Fannie and Freddie — however uncertain — was material nonpublic information that could not be lawfully traded on. “What Paulson said put those managers in an untenable position,” he says. “They were exposed to all kinds of liabilities.”

The situation also generates some sympathy for Paulson.

“It seems to me, you’ve got to cut the guy some slack, even if he tipped his hand,” says William Poole, a former president of the Federal Reserve Bank of St. Louis. “How do you prepare the market for the fact that policy has changed without triggering the very crisis that you’re trying to avoid? What is he supposed to say without misleading these people?”

Market Insights

Poole says government officials need to communicate with industry participants in order to gain insights into market conditions and gauge likely reaction to interventions.

Black says the Eton Park meeting was the wrong way to communicate to the markets.

“Wink, wink, nod, nod is no way to approach sensitive information,” he says.

Paulson often contacted Wall Street participants throughout his tenure, according to his calendar. On that July trip to New York alone, he talked to Lehman Brothers Holdings Inc. CEO Richard Fuld, Washington Mutual Inc. CEO Kerry Killinger and Citigroup senior adviser Rubin.

Morgan Stanley and BlackRock Inc. both helped the Federal Reserve and OCC prepare the reports on Fannie Mae and Freddie Mac that Paulson told the New York Times would instill confidence the morning of the Eton Park meeting.

‘Unsafe and Unsound’

Paulson learned by mid-August that the Federal Reserve had found the GSEs “unsafe and unsound,” he told the Financial Crisis Inquiry Commission, which was appointed by President Barack Obama and Congress to probe the causes of the financial collapse.

“We’d been prepared for bad news, but the extent of the problems was startling,” he wrote in “On the Brink.”

On Sept. 6, when the GSEs’ boards agreed to have their companies placed in conservatorship, full-year 2008 losses were projected to reach as much as $50 billion for Fannie Mae and $32 billion for Freddie Mac. In October 2011, the FHFA estimated the cost to taxpayers of rescuing the firms at $124 billion through 2014.

The manager who described the Eton Park meeting says he also discussed it with an investigator from the FCIC. The discussion was confirmed by a former FCIC employee.

That manager says he ended up profiting from his Fannie Mae and Freddie Mac positions because he was already short the stocks. On his lawyer’s advice, he stopped covering his short positions and rode Fannie and Freddie shares all the way to the bottom.

Businesses Prep for Death Spiral of Euro

by TwoCentsEditor

Published on: 11/29/2011

Categories: Economics, Financial Markets

Tags: bailouts, Euro, gold, IMF, money, the death of the Euro, the end of the eurozone, What will break up the EU, World Bank

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International companies are preparing contingency plans for a possible break-up of the eurozone, according to interviews with dozens of multinational executives.

Concerned that Europe’s political leaders are failing to control the spreading sovereign debt crisis, business executives say they feel compelled to protect their companies against a crash that can no longer be wished away. When German chancellor Angela Merkel and French president Nicolas Sarkozy raised the prospect of a Greek exit from the eurozone earlier this month, it marked the first time that senior European officials had dared to question the permanence of their 13-year-old experiment with monetary union.

“We’ve started thinking what [a break-up] might look like,” Andrew Morgan, president of Diageo Europe, said on Tuesday. “If you get some much bigger kind of … change around the euro, then we are into a different situation altogether. With countries coming out of the euro, you’ve got massive devaluation that makes imported brands very, very expensive.”

Executives’ concerns are emerging as eurozone finance ministers weigh ever more radical options to tackle the sovereign debt crisis, including the possibility of funnelling European Central Bank loans to struggling countries via the International Monetary Fund.

Car manufacturers, energy groups, consumer goods firms and other multinationals are taking care to minimise risks by placing cash reserves in safe investments and controlling non-essential expenditure. Siemens, the engineering group, has even established its own bank in order to deposit funds with the European Central Bank.

Traders prepare for endgame

Urgent action has long been the mantra of investors in the eurozone crisis. But for them, policymakers have seemed more interested in buying time, writes Richard Milne in London .

That some politicians now appear to be coming round to markets’ sense of timing coincides with heightened chatter on trading floors not just of foreign investors shunning eurozone assets but also of the prospect of a break-up of the euro.

This week is seen as a crucial one by many investors, because of bond auctions by Italy, Spain, Belgium and France.

Many market participants are convinced the ultimate play – “the one minute to midnight” scenario for some – is of the European Central Bank buying government bonds in huge quantities. “I don’t know how close we are to midnight, but it’s awfully dark outside,” one says.

Some are examining expert advice on the legal consequences of a eurozone split for cross-border commercial contracts and loan agreements. By contrast, most small and medium-sized firms have made few, if any financial and legal preparations.

“Market participants and, increasingly, real businesses are pricing in a break-up scenario,” said Jean Pisani-Ferry, director of the Brussels-based Bruegel think-tank. “It is still hard to think the unthinkable, let alone to work out the details of it, but any rational player has to consider the possibility of it.”

Some businesses with global reach say a euro break-up would be grim but manageable. “We have made a first rough analysis about the consequences of the discontinuation of the euro as the Portuguese currency,” said Jürgen Dieter Hoffmann, finance director at Volkswagen Autoeuropa, the German carmaker’s Portuguese arm. “The conclusion is that overall the impact would not be so negative to our company, as we are mainly an exporter and belong to a worldwide group.”

Some French, Italian and Spanish executives say they have plans in place for severe financial and economic turbulence, but not specifically for a euro break-up. The risk, in their eyes, is that the region’s stability might come under even greater threat if it became known that companies were contemplating the worst.

Additional reporting by Peter Wise in Lisbon, James Wilson in Frankfurt and Alex Barker in Brussels

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Fitch’s US Outlook Turns Negative – Rating Maintained

by TwoCentsEditor

Published on: 11/29/2011

Categories: Economics, Financial Markets

Tags: 2008 financial crisis, banking collapse, credit ratings, credit watch, debt ratings, financial crisis, fitch ratings, money

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Editor’s Note: The national debt has increased by 7% since the debt ceiling ‘deal’ was passed back in August. The ‘super congress h’as accomplished nothing. And we’re still maintaining the top rating? Yet at the same time these firms are busier than a one-armed paper hanger when it comes time to cut European sovereign ratings. Unreal..

Fitch Ratings kept its pristine AAA rating on the U.S. on Monday, but the credit-ratings company downgraded its outlook to “negative” in the wake of the Supercommittee’s failure to find $1.2 trillion in spending cuts.

The development, which had been hinted at last week, could have been worse for the U.S. as McGraw-Hill’s (MHP: 41.46, +0.26, +0.64%) Standard & Poor’s slashed its credit rating for the first time ever in August.

However, the negative outlook indicates a “slightly greater” than 50% chance that Fitch downgrades the U.S. over the next two years.

“Failure to reach agreement in 2013 on a credible deficit reduction plan and a worsening of the economic and fiscal outlook would likely result in a downgrade of the U.S. sovereign rating,” David Riley, a managing director at Fitch, said in the report.

Fitch warned that its revised fiscal projections call for federal debt held by the public to exceed 90% of gross domestic product and debt interest payments making up more than 20% of total tax revenues by the end of the decade.

“In Fitch’s opinion, such a level of government indebtedness would no longer be consistent with the U.S. retaining its ‘AAA’ status despite its underlying strengths,” Riley said.

Despite the U.S. national debt level surpassing the $15 trillion mark this month, the Supercommittee announced last week it failed to reach a bipartisan deal, triggering automatic cuts of $1 trillion split between defense and non-defense discretionary spending.

However, Fitch warned that further deficit reduction efforts “will not be credible” if they solely rely on cutting discretionary spending. Economists have said Congress needs to quickly move to slash entitlement spending on programs such as Social Security, Medicare and Medicaid.

The failure of the Supercommittee to reach a compromise “underlines the challenge of securing broad-based consensus on how to reduce the outsized federal budget deficit,” Riley said.

The Fitch news didn’t trigger an immediate reaction in the financial markets as S&P 500 futures were recently flat after soaring nearly 3% during Monday’s session.

To be sure, Fitch did recognize the positive characteristics that have allowed the U.S. to become the world’s largest economy, highlighted by the global benchmark role of the dollar and Treasuries that create deep markets and minimize risk.

“What we have to do is recognize that Washington is out of touch and out of control; that it’s been taken over by the extremes on the left and the right,” David Walker, former U.S. Comptroller General, told FOX Business.

Fitch also expressed concern about the U.S. economy, which it expects to “regain momentum” in the second half of 2012 and into 2013 but is subject to “considerable uncertainty.”

“The longer productive capacity remains idle and unemployment high, the greater the likelihood that the loss of output (and tax receipts) is greater than currently estimated, with negative implications for the medium to long-term fiscal outlook,” Riley said.

Socializing Losses – The Trilateral Takeover of Europe? – Adrian Salbuchi

by TwoCentsEditor

Published on: 11/15/2011

Categories: Current Events, Economics

Tags: adrian salbuchi, Economics, eueozone, geopolitics, gerald celente, how do the banks take over the world, who is destroying the global economy

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Editor’s Note: This article dovetails with my piece last week entitled ‘The Coup Continues’ regarding the banking coup going on in much of the first world right now.

The sovereign debt crisis tightening its grip on Europe has claimed the scalps of two prime ministers – those of Greece and Italy. Looking at the men poised to replace them, one cannot but ask – is this another turn of the screw for ordinary people?

Greece and Italy hold huge swathes of public debt they are unable to service unless they get massive European Central Bank and International Monetary Fund support, as a prelude to refinancing by international banks.

Greece has replaced its prime minister after he dared to say he would put a further round of harsh austerity measures to a referendum vote. The country’s new PM is Lucas Papademos, former vice president of the ECB and of Greece’s own Central Bank, and a member of David Rockefeller’s (JPMorgan Chase/Exxon) powerful Trilateral Commission.

As for Italy, instead of Silvio Berlusconi they got the former European Commissioner Mario Monti, who happens to be European chairman of the Trilateral Commission.

Whenever we hear of “sovereign debt crises” – whether in Mexico 1997, Brazil 1999, in my native Argentina in 2001/2, or today in Greece, Italy, Spain, Portugal, Ireland and (soon to come) the UK, France, or the US – what it really means is that governments cannot collect enough tax revenues from their people to pay interest and capital on debt that is mostly in the hands of private banking institutions.

Cutting through the Orwellian Newspeak* of the media, this means that the people of Greece, Italy, and Argentina must pay for the mistakes of bankers and corrupt governments, suffering higher taxes, unemployment, lower wages and pensions, and a deterioration in public healthcare, education, and infrastructure.

So, whenever there is a public debt crisis, “We the People” must pay for it.

Adrian Salbuchi is a political analyst, author, speaker and radio/TV commentator in Argentina

However, when in September 2008a private debt crisis exploded due to the derivatives swindle which buried Lehman Brothers, Merrill Lynch, AIG and many other private institutions, the US and other governments came to the rescue of the bankers, providing bailouts for banks “too big to fail” (Newspeak for too powerful to fail). They saved the likes of CitiCorp, Bank of America, JPMorgan Chase, Goldman Sachs with…. taxpayers money (TARP), and by having the FED (hyper)inflate the US dollar (know in Newspeak as “Quantitative Easing I, II and III”), which means passing a huge chunk of the cost of those bailouts on to the Rest of the World using the US dollar as global currency.

So again, irrespective of whether debt collapses are public or private, it is always “We the People” who pay because, under the current system, all profits are privatized and all losses are socialized.

But let us go back to Messrs Monti and Papademos. They sit on the Trilateral Commission together with hundreds of corporate chairmen and CEOs such as Ana Botin (Bank Banesto/Santander, Spain), Peter Sutherland (Goldman Sachs/BP, UK), Michel David-Weill (Lazard Bank, France), Jurgen Fitschen (Deutsche Bank, Germany), Stephen Green (HSBC, UK), Nigel Higgins (Rothschild Group, UK), Lord Guthrie (N M Rothschild, UK), Klaus-Peter Müller (Commerzbank, Germany), Dieter Rampl (UniCredito, Italy), Otto Ruding (CitiCorp Europe), Lord Simon of Highbury (Morgan Stanley, UK), Emilio Ybarra (BBVA, Spain), Robert Kelly (Bank of NY Mellon) Lord Brittan (UBS, UK), Robert Zoellick (World Bank), plus Timothy Geithner, Henry Kissinger and many, many others…

In fact, the Trilateral Commission articulates with the powerful Council on Foreign Relations (New York), Chatham House (London) and many other think-tanks forming an intricate web of private global power-brokers bringing together key players in finance, industry, media, government, academia, intelligence and the military, who run today’s global system focusing on their interests, and clearly not on those of “We the People.”

No doubt Messrs Papademos and Monti will do everything necessary to ensure Italy and Greece do not default on their debts – but rather that their peoples endure all the hardship, undergo all the pain, and make all the sacrifices so that major bankers sitting on the Trilateral can all get their money back. Those who should never have made loans to Greece and Italy (and Argentina and Portugal…) the way they did.

UK Banks Write Off Record Amount of Corporate Debt

by TwoCentsEditor

Published on: 11/15/2011

Categories: Current Events, Economics, Financial Markets

Tags: andy sutton & associates, debt, eurozone debt, uk bank debt, what does debt do to an economy, why is there so much debt

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In the three months to June, “write-offs of loans to non-financial corporations” almost tripled to £2.94bn, according to the Bank of England.

The only time the level of losses had ever come close was in the fourth quarter of 2009, as Britain was emerging from recession, when write-offs were £2.5bn.

The sudden increase in loan losses was at odds with what was then a period of relatively benign economic conditions.

However, it coincided with a regulatory crackdown on “forbearance” – whereby banks vary the terms of a loan to allow struggling borrowers to limp on and avoid booking losses.

The Bank, the Financial Services Authority and the International Monetary Fund all raised concerns about the misuse of forbearance at that time, with a particular focus on commercial property.

In June, the Bank’s Financial Policy Committee said: “If provisioning is inadequate, banks’ reported profits and levels of capital may provide a misleading picture of their financial health.”

The Bank has repeatedly warned about the scale of bad commercial property loans on the banks’ books.

The sharp rise in corporate write-offs in the second quarter, the most recent data available, lifted total UK loan losses – including credit cards and mortgages – to their second highest level on record.

For the three months to June, total sterling write-offs were £5.1bn, up from £3.2bn in the first quarter.

The largest quarterly hit came in the final three months of 2009, totalling £5.8bn. Write-downs on personal loans edged up to £2.1bn, but remained far off the peak in the same period the previous year of £3.5bn.

The write-offs are contributing to a decline in household debt. Total household debt has dropped by £8bn to £1.45 trillion in the past year, roughly in line with the amount of personal debt lenders have cancelled.

The rate of mortgage losses may be about to rise. Last week, Lloyds Banking Group revealed a four-fold increase in mortgage loan impairments for the nine months to September of £416m and that £38bn of loans are to borrowers who are in negative equity.

Taking write-offs cleanses bank balance sheets but reduces the amount of capital against which they can lend.

Once the capital is replaced, however, it can be used to support growing businesses rather than tied up in companies that can only service the debt.

China Threatens US with Another Downgrade

by TwoCentsEditor

Published on: 11/14/2011

Categories: Current Events, Economics

Tags: credit rating, credit watch, unfunded liabilities, us government credit rating, why is america broke, why is the US broke

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The head of China’s biggest ratings agency, Dagong Global Credit Rating, is warning that it may downgrade the US’s sovereign debt rating again because of Washington’s failure to tackle the federal budget deficit.

The remarks by Dagong’s chairman, Guan Jianzhong, to be broadcast in an interview with al-Jazeera on Saturday morning, come at the end of another week of deep turmoil for the world economy.

Dagong, which has maintained a pessimistic outlook on US fiscal policy, has been leading the charge to downgrade US debt over the last 12 months, lowering the US rating from AA to A+ a year ago.

In August it downgraded US debt again, to A. Days later, Standard & Poor’s followed in its wake, becoming the first western agency to downgrade US debt after the threat of a default was narrowly avoided following weeks of political squabbling in Washington over whether President Obama should be allowed to raise the US debt ceiling.

Guan’s intervention comes as another embarrassing political standoff over budget policy looms in Washington. The cross-party “supercommittee” given the job of finding ways to cut the budget deficit is reportedly deadlocked, with Republicans refusing to countenance the tax rises being suggested by Democrats. The committee is due to report by 23 November, but there are fears they could fail to reach agreement, prompting a new crisis.

Founded in 1994 by the Chinese government and the People’s Bank of China, Dagong is the only credit ratings agency in China that grades foreign sovereign debt and bonds.

In an interview with Talk to Al-Jazeera, Guan agrees that it is almost inevitable that his agency will cut America’s debt rating once again, arguing that the only solution open to the US economy is further quantitative easing.

“The measures available to them [the US] cannot be effective so they have another way out which is to depreciate the US dollar, to print more money,” he says. “And that will also make it a lot worse, this has affected their credit and it is negatively affecting their credit prospects – so that their overall ability to pay back their debt will continue to go down.

Asked directly if he believed another ratings cut was inevitable, Guan replies: “I think so.”

He goes on to say: “We are continuing to monitor this closely. First of all we need to look at this year’s economic growth and then predict next year’s trends. If in the year 2012 the overall projections are not very good, meaning that the sources of payment – and liabilities – are bad and cannot be changed, or change for the worse, then we will lower the rating once again.

Any further downgrading of the US credit rating, while making more US borrowing more expensive, would also be a matter of concern to Beijing.

China is the largest foreign buyer of US government debt – accounting for around third of all foreign-held US securities – despite the fact it has gradually reduced its holdings since the S&P downgrade and has also lost heavily on its large holdings of US currency.

Since the summer – and the debt-ceiling crisis – China has become ever more vocal about what it describes as the US “addiction” to debt, warning in August that more “devastating credit rating cuts” and global economic turmoil were around the corner unless Washington learned to live within its means.

The Xinhua news agency issued a commentary that cautioned: “The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone.”

The Coup Continues – Andy Sutton

by TwoCentsEditor

Published on: 11/11/2011

Categories: Current Events, Economics, My Two Cents

Tags: economic crash, eocnomics, gold, great depression, money, stock market, thomas jefferson, what caused the great depression, who are the banking elite, who is destroying the US, who runs the federal reserve

Comments: 1 Comment

Early last December, I wrote a piece entitled ‘Crisis or Coup?’ in which the anatomy of the 2008 financial crisis was analyzed in further detail and some conclusions drawn. These conclusions were drawn based on facts and actions, not opinions. It was obvious at the time that the USFed and our own government were acting not in the best interests of the people, but rather in the best interests of banks and large corporations. Crony capitalism, as it has often been called – where profits are kept and losses are written off or passed on to the ‘Plebeians’ of a particular society – ramped into high gear in the US. Remember the fact that the absurd financial structure that is in place was the ‘solution’ to a crisis, which had the fingerprints of the solution providers all over it.

Fast forward one year and the same mechanism is firmly in place again and working very well – this time in Europe. Again, the abuse of debt has been the main villain. Couple that to greed, avarice, and unlimited access to power and you’re going to have problems. EU2010 is no different than USA2008 on a fundamental level. The only difference is the consumer-driven side of the Eurozone didn’t cause problems first – the sovereign issues roared to the forefront.

And what is happening to those leaders in the countries that are balking what are essentially multiple coup d’ etats? They’re summarily dismissed. George Papandreou in Greece has been replaced by Lucas Papdemos, a rabid central banker (ECB). Silvio Berlusconi in Italy is out, replaced (likely) by Mario Monti, a guy who has all sorts of insidious connections to the Rockefeller/Rothschild global banking syndicate. Aka, the same syndicate that is gutting America through its creature from Jekyll Island, the federal reserve system itself.

So two countries’ leaders toppled, and what of Portugal? Interestingly enough, Portuguese President Anibal Cavaco Silva has evidently learned how he is supposed to behave from the demise of Berlusconi and Papandreou. He is now a card-carrying water carrier for the syndicate. Check out his quote made on 11/10/11:

“The European Central Bank has to go beyond a narrow interpretation of its mission and should be prepared for foreseeable intervention in the secondary market, not as the central bank has done up to now,” Cavaco Silva said yesterday in an interview at Bloomberg headquarters in New York. He said government leaders are unlikely to move fast enough to find solutions.

“It has to be able to be a lender of last resort,” said Cavaco Silva, 72, who as Portugal’s prime minister presided over the 1992 signing of the Maastricht Treaty, which cleared the way for the euro common currency. “It has to be a foreseeable, unlimited intervention.”

The coup in Portugal has been effectively completed. Some people may question why I use the term coup d’ etat. The term essentially means takeover of a formerly sovereign nation in the context we most often see it in. Oftentimes, coups are military in nature with a rebel force conducting a coup to remove an existing government. Well, a financial coup is along the same lines where the control of a country’s financial system and/or its economy is taken from the people of that nation by a banking cartel or syndicate. The very creation of the EU itself was a mini-coup since those countries that entered gave up a large portion of their sovereignty and put their destiny in the hands of a regional government and central bank. These countries could no longer issue their own debt and when things got bad, then couldn’t maneuver, and are now at the whimsy of international banksters.

Don’t forget what Silva is really saying above, either. By making the ECB the lender of last resort, what he is advocating is that the ECB becomes owner of the failing countries within the Eurozone. This is precisely what is happening in America now: that the federal reserve is openly monetizing USGovt debt. Few take the next step and make the admission that in doing this, the federal reserve is becoming an owner of this country – and it is getting a larger share with every bond it buys. And all this happens with the blessing of the US Congress and various Parliaments in Europe. The dominoes are falling one by one into the complete financial and economic control of international bankers. These are men without a country, but men who seek to dominate all countries.

One thing forgotten in all this is that the USA is indeed headed for the second stage of its continuing financial crisis, this time in the form of a sovereign debt nightmare that will make 2008 look like a game of Monopoly. No doubt there will be calls for the federal reserve to again be the lender of last resort and another chunk of America will fall to the syndicate. These nasty cycles will continue until it is all gone. Sounds pretty gloomy doesn’t it? Just look at what has happened so far and then ask yourself if we’ve turned in another direction or are just headed for more of the same.

At the end of the day, hopefully we will all come to realize that we can gripe all we want about what has taken place thus far and what is to come, but sooner or later we are going to have to own up to the fact that we allowed it. Bankers couldn’t have packaged hundreds of billions of dollars of junk mortgage bonds and leveraged it up 40:1 if people who had no business buying a house hadn’t done so. Sure the system enabled it all, but I have not heard a single case of an American citizen having a gun put to their head and being forced to buy a house or participate in some other sort of largesse.

We have allowed our elected officials to cede our national sovereignty to bankers while we argue about steroids in baseball, American Idol, and the fate of various Hollywood lawbreakers. We were so busy swiping our credit cards that nobody paid attention to the fact that our government was doing the exact same thing – on a grandiose scale, its ego writing checks that the people of this country can never pay.

We did it all voluntarily. So have the Europeans. Nobody was complaining when the welfare state was in full swing and sloth and laziness were incentivized on a regional scale. Nary a word was said when exceptions were made so that Greece could enter the EU in the first place. Nobody paid any attention when it became obvious several years ago that the numbers weren’t adding up. The whole EU was too busy partying.

I’d like to leave you with a quote from a wise man in American history – Thomas Jefferson:

“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks
discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.”

Startling isn’t it? Look around you; his worst nightmare is becoming our reality – on a global scale.

Italy: Too Big to Fail or Too Big to Save?

by TwoCentsEditor

Published on: 11/08/2011

Categories: Current Events, Economics

Tags: Bible prophecy, gold, Itality, money, piigs, When will the dollars stop being the world's reserve currency, who are the PIIGS, why don't the Euro bailouts work

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Italy’s economic problems took center stage Monday as its government, led by increasingly threatened Prime Minister Silvio Berlusconi, faced yet another key vote.

The health of the euro zone’s third-largest economy has come into focus despite Berlusconi accepting IMF monitoring and surviving several confidence votes in recent months.

Italy’s size makes the potential consequences if it were to fail more wide-ranging than the much smaller Greece.

“Italy has much more systemic implications,” Thanos Vamvakidis, Head of European G10 FX Strategy, BofA Merrill Lynch Global Research, told CNBC Monday.

“It’s too big to fail, too big to save.”

The problems facing Italy include the euro zone’s second-highest debt-to-GDP ratio, and the lack of a credible alternative to Berlusconi’s government.

Italian MPs will vote Tuesday on the country’s public finances, with a number of rebel MPs from Berlusconi’s party threatening to vote against the government in protest at the way it has managed the country’s finances.

Yields on Italian 10-year bonds surged last week, and are now dangerously close to the unsustainable 7 percent level. Other euro zone countries such as Portugal and Ireland had to seek bailouts after their yields rose to over 7 percent.

“The markets don’t believe Berlusconi,” said Vamvakadis.

“When other countries were faced with pressure, they introduced more reforms. In Italy, you don’t have a clear structural reform agenda.”

Yields on short-term 2-year Italian bonds have also been surging.

“When yields on short-term debt start increasing at a faster pace than long-term debt you have a problem on your hands because it signals that investors have no faith that you can pay back the money you owe,” Kathleen Brooks, research director UK EMEA at Forex.com, wrote in a research note. “It looks like Italy has gone for the bailout-lite option, but will it need to go the whole hog? The bond markets certainly think so, and it could happen sooner than we think.”

There were also signals that the European Central Bank (ECB) will not continue its bond-buying program, which has helped keep bond yields at sustainable levels since the summer. Yves Mersch, a member of the central bank’s Governing Council, warned in an interview with Italian newspaper La Stampa on Sunday that it could stop buying Italian bonds if Italy fails to take appropriate action over its debt.

“They are trying to put maximum pressure on the Italian government to deliver,” said Vamvakidis.

“It’s a risky move but I think it’s the right decision at this point.”

“It is probably only the ECB’s SMP (Securities Markets Program) program that has prevented Italian bond yields from climbing to even more punitive levels,” analysts at Deutsche Bank wrote in a research note. “So it will be a test of ECB firepower and will to keep Italian bond yields under control while the Greek story boils over.”

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), issued a strong warning to the Italian government over the weekend.

“We will go quarterly [to Italy],” she told reporters.

“We will check that what Italy has promised Italy is delivering. And if it is not delivering I will say so.”

Citigroup’s $285M Whitewash

by TwoCentsEditor

Published on: 11/07/2011

Categories: Current Events, Financial Markets

Tags: george soros, how much does citigroup have to pay for ruining the economy? What caused the housing bubble to burst, mary shapiro, SEC, Wall Street

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Editor’s Note: Investors lost millions (or more), Citigroup made tens of billions, and is required to pay a pittance as a ‘penalty’ for its role in destroying financial markets. This is like you and I having to pay a 50 cent fine for a DUI. Even the federal judge knows this is bogus, but what do you expect when there is a revolving door between the SEC and Wall Street?? Citigroup and the rest view these nuisance fines as nothing more than a cost of doing business.

(AP:WASHINGTON) The government is telling a federal judge that $285 million is a fair penalty for Citigroup Inc. to pay to settle charges that it misled buyers of a complex mortgage investment ahead of the housing bust.

U.S. District Judge Jed Rakoff has blocked the settlement that the Securities and Exchange Commission reached with Citigroup last month. He implied that the settlement was insufficient given the charges and asked the government to justify the amount.

The SEC says $285 million is close to what it would have won in a trial. The sum came after an extensive investigation and will go to investors harmed by Citigroup’s conduct, the SEC said.

The SEC said the bank bet against the investment in 2007 and made $160 million, while investors lost millions.

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