By Peter Graff
KABUL (Reuters) - The 8-year-old war in Afghanistan can still be won, but only with a revised strategy, the commander of U.S. and NATO forces said on Monday, announcing the conclusion of a long-awaited review that could see him seek more troops.
Officials gave no indication in public as to whether U.S. Army General Stanley McChrystal, who commands a force of more than 100,000 troops, would ask for still more reinforcements to carry out his new strategy.
The review is expected to spell out a completely revised approach to conducting the war, which Barack Obama considers the main foreign policy priority of his young U.S. presidency.
"The situation in Afghanistan is serious, but success is achievable and demands a revised implementation strategy, commitment and resolve, and increased unity of effort," McChrystal said in a statement announcing the review was ready.
McChrystal has been working on the review since Obama put him in charge of the war in June. He sent the classified document to the U.S. military's Central Command (CentCom) responsible for the Iraq and Afghanistan wars, and to NATO headquarters in Brussels.
Military officials say it contains no firm targets for troop strength, but it could form the basis for a decision within weeks on future deployments -- a politically fraught calculation that could mark a turning point in Obama's presidency.
The report comes at a time when Afghanistan is stuck in political limbo, with the outcome as yet unclear from a presidential election on August 20. Authorities were due later on Monday to issue fresh results.
ELECTION RUN-OFF
Incomplete results so far show President Hamid Karzai leading, but not by enough to avoid a second-round run-off against his main challenger, former foreign minister Abdullah Abdullah, who accuses the authorities of widespread fraud.
Returns have yet to be tallied from many areas, including much of the south, where Karzai commands strong support among his fellow Pashtuns but turnout was hurt by Taliban threats of violence and accusations of fraud are most widespread.
An independent fraud watchdog, the Election Complaints Commission, is investigating nearly 2,500 allegations of abuse, including 567 it says are serious enough to affect the outcome.
Western officials initially hailed the election as a success because Taliban fighters failed to scupper it, but as fraud charges mount those assessments have become more cautious.
In a particularly moving account of election day violence, Lal Mohammad, a 40 year-old farmer, told reporters in a hospital in Kabul on Monday that he had been attacked while heading to vote by fighters who cut off his ears and parts of his nose.
The 103,000 troops under McChrystal's command in Afghanistan, include 63,000 Americans, more than half of whom arrived this year as part of an escalation strategy begun under outgoing President George W. Bush and ramped up under Obama. The force is set to rise to 110,000 including 68,000 Americans by year's end.
Monday, August 31, 2009
California's Senator Feinstein wants to stop the torture investigation.
Before you read her reasons, know this one important fact; She supports torturing prisoners, especially brown people. Dianne Feinstein is Israel's Senator in Congress.
One of the highest-ranking Democrats in the Senate expressed displeasure on Sunday with Attorney General Eric Holder's decision to investigate the use of torture under the Bush administration, arguing that a Senate probe into the matter should be completed first.
Senator Dianne Feinstein, who chairs the Senate Intelligence Committee, told CBS' Face the Nation that the timing of Holder's move was "not very good."
"The intelligence committee has underway now a total look at the interrogation and detention techniques used for all the high value detainees," she said. "We are well along in that study and I'm trying to push it along even more quickly at this time. We are not going to be deterred from completing this study. And candidly, I wish the attorney general had waited."
Feinstein did not specifically object to the notion of examining the use of torture by the Bush administration. She did, however, suggest that the appointment of a special prosecutor to conduct a preliminary investigation into the topic would lead to misinformation and confusion about what actually took place.
"Every day something kind of dribble out into the public arena, very often it has mistakes," she said. "Very often it is half a story. And I think we need to get the whole story together and tell it in an appropriate way."
For example, Feinstein highlighted the debate over the efficacy of using torture on terrorism suspects. "It did produce some information," she said. "But there is a great discrepancy and I think a good deal of error out there in what people are saying it did produce. And we need to straighten that out and the only thing that is going to straighten it out is a really comprehensive look at it."
One of the highest-ranking Democrats in the Senate expressed displeasure on Sunday with Attorney General Eric Holder's decision to investigate the use of torture under the Bush administration, arguing that a Senate probe into the matter should be completed first.
Senator Dianne Feinstein, who chairs the Senate Intelligence Committee, told CBS' Face the Nation that the timing of Holder's move was "not very good."
"The intelligence committee has underway now a total look at the interrogation and detention techniques used for all the high value detainees," she said. "We are well along in that study and I'm trying to push it along even more quickly at this time. We are not going to be deterred from completing this study. And candidly, I wish the attorney general had waited."
Feinstein did not specifically object to the notion of examining the use of torture by the Bush administration. She did, however, suggest that the appointment of a special prosecutor to conduct a preliminary investigation into the topic would lead to misinformation and confusion about what actually took place.
"Every day something kind of dribble out into the public arena, very often it has mistakes," she said. "Very often it is half a story. And I think we need to get the whole story together and tell it in an appropriate way."
For example, Feinstein highlighted the debate over the efficacy of using torture on terrorism suspects. "It did produce some information," she said. "But there is a great discrepancy and I think a good deal of error out there in what people are saying it did produce. And we need to straighten that out and the only thing that is going to straighten it out is a really comprehensive look at it."
Sunday, August 30, 2009
US troops ordered out of Kyrgyzstan
By Adrian Blomfield in Moscow
Published: 4:43PM GMT 04 Feb 2009
Kurmanbek Bakiyev, the president of Kyrgyzstan, announced he was ordering the eviction of troops from the Manas Air Base near the capital city Bishkek shortly after receiving a multi-billion dollar bailout from the Russian government.
Frantic Pentagon officials initially attempted to deny there were plans afoot to force the United States out of its last Central Asian outpost before issuing a plea to the Kyrgyz government to change its mind.
But Mr Bakiyev, speaking after talks with Russian President Dmitry Medvedev in Moscow, sounded categorical in his decision.
"Kyrgyzstan will close the US military base in Manas after Washington refused to negotiate better compensation," he said.
An eviction decree was presented to parliament, which will go through the formality of approving it in the next few days.
The collapse of a deal with the Kyrgyz government to continue using Manas, an ex-Soviet base that has been used by US forces since late 2001, is both an embarrassment and a blow to the new administration of President Barack Obama.
Gen David Petraeus, the US commander leading the military campaigns in both Afghanistan and Iraq, visited Bishkek last month with an offer to raise the annual rent the United States pays for Manas from £55 million to £104 million -- nearly 7 percent of the Kyrgyz government's annual budget.
According to diplomats, the United States also offered to pay senior Kyrgyz officials substantial "bonuses".
But shortly after Gen Petraeus announced he had received assurances from the Kyrgyz government that Russia had no intention of forcing the United States out of Manas, Mr Medvedev arrived in Bishkek on a gazumping mission.
Although Russia pays just £14 million a year for use of a base next door to Manas, Mr Medvedev offered a £1.4 billion loan to plug Kyrgyztsan's deficit-plagued budget, as well as £238 million in write offs and grants.. Substantial emoluments were offered to individual officials as well, a western diplomat said.
Russia also appeared to press its case home after Kyrgyzstan's internet infrastructure came under sustained attack in the weeks leading up to the deal.. Several ex-Soviet states have encountered similar problems when coming under pressure from Moscow.
The loss of Manas deals a blow to hopes for an improvement of relations between the Kremlin and the Obama administration. President Obama is reportedly seeking to convene talks to slash Russian and American nuclear stockpiles, a substantial policy shift that will be welcomed in Moscow, which believes that a deal would help restore strategic parity with the United States.
Notes: Kyrgyzstan is no longer allowing support from there to Afghanistan. The only remaining land supply route is through Pakistan. If Pakistan falls to unfriendly forces then The NATO forces in Afghanistan will be cut off from all land supply routes. Any withdrawal would then have to be air. From an American military planner's view, this is not a good situation. Two things could happen, NATO invades Pakistan or reduces it's forces to a sustainable level using Pakistan as the only support route. Increasing the NATO force levels would not be a good idea, at this time.
Published: 4:43PM GMT 04 Feb 2009
Kurmanbek Bakiyev, the president of Kyrgyzstan, announced he was ordering the eviction of troops from the Manas Air Base near the capital city Bishkek shortly after receiving a multi-billion dollar bailout from the Russian government.
Frantic Pentagon officials initially attempted to deny there were plans afoot to force the United States out of its last Central Asian outpost before issuing a plea to the Kyrgyz government to change its mind.
But Mr Bakiyev, speaking after talks with Russian President Dmitry Medvedev in Moscow, sounded categorical in his decision.
"Kyrgyzstan will close the US military base in Manas after Washington refused to negotiate better compensation," he said.
An eviction decree was presented to parliament, which will go through the formality of approving it in the next few days.
The collapse of a deal with the Kyrgyz government to continue using Manas, an ex-Soviet base that has been used by US forces since late 2001, is both an embarrassment and a blow to the new administration of President Barack Obama.
Gen David Petraeus, the US commander leading the military campaigns in both Afghanistan and Iraq, visited Bishkek last month with an offer to raise the annual rent the United States pays for Manas from £55 million to £104 million -- nearly 7 percent of the Kyrgyz government's annual budget.
According to diplomats, the United States also offered to pay senior Kyrgyz officials substantial "bonuses".
But shortly after Gen Petraeus announced he had received assurances from the Kyrgyz government that Russia had no intention of forcing the United States out of Manas, Mr Medvedev arrived in Bishkek on a gazumping mission.
Although Russia pays just £14 million a year for use of a base next door to Manas, Mr Medvedev offered a £1.4 billion loan to plug Kyrgyztsan's deficit-plagued budget, as well as £238 million in write offs and grants.. Substantial emoluments were offered to individual officials as well, a western diplomat said.
Russia also appeared to press its case home after Kyrgyzstan's internet infrastructure came under sustained attack in the weeks leading up to the deal.. Several ex-Soviet states have encountered similar problems when coming under pressure from Moscow.
The loss of Manas deals a blow to hopes for an improvement of relations between the Kremlin and the Obama administration. President Obama is reportedly seeking to convene talks to slash Russian and American nuclear stockpiles, a substantial policy shift that will be welcomed in Moscow, which believes that a deal would help restore strategic parity with the United States.
Notes: Kyrgyzstan is no longer allowing support from there to Afghanistan. The only remaining land supply route is through Pakistan. If Pakistan falls to unfriendly forces then The NATO forces in Afghanistan will be cut off from all land supply routes. Any withdrawal would then have to be air. From an American military planner's view, this is not a good situation. Two things could happen, NATO invades Pakistan or reduces it's forces to a sustainable level using Pakistan as the only support route. Increasing the NATO force levels would not be a good idea, at this time.
Friday, August 28, 2009
Fed warns "The truth will destroy the economy"
Fed urges secrecy on banks in bailout programs
Thu Aug 27, 2009 12:27pm EDT
* Fed urges judge not to enforce order pending appeal
* Banks say disclosure could cause loss of confidence
By Jonathan Stempel
NEW YORK, Aug 27 (Reuters) - The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy.
The central bank filed its request on Wednesday, two days after Chief Judge Loretta Preska of the U.S. District Court in Manhattan ruled in favor of Bloomberg News, which had sought information under the federal Freedom of Information Act.
Preska said the Fed failed to show that revealing the names would stigmatize the banks and result in "imminent competitive harm." The Fed asked the judge not to require disclosure while it readies an appeal.
"Immediate release of these documents will cause irreparable harm to these institutions and to the board's ability to effectively manage the current, and any future, financial crisis," the central bank argued.
It added that the public interest favors a delay, citing a potential for "significant harms that could befall not only private companies, but the economy as a whole" if the information were disclosed.
Underlying this case and a similar one involving News Corp's (NWSA.O) Fox News Network LLC is a question of how much the public has a right to know about how the government is bailing out a financial system in a crisis.
The Clearing House Association LLC, which represents banks, in a separate filing supported the Fed's call for a delay. It said speculation that banks' liquidity is drying up could cause runs on deposits, and trading partners to demand collateral.
"Survival can depend on the ephemeral nature of public confidence," Clearing House general counsel Norman Nelson wrote. "Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow."
The Clearing House said its members include ABN Amro Holding NV, Bank of America Corp (BAC.N), Bank of New York Mellon Corp (BK.N), Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE), HSBC Holdings Plc (HSBA.L), JPMorgan Chase & Co (JPM.N), UBS AG (UBSN.VX), U.S. Bancorp (USB.N) and Wells Fargo & Co (WFC.N).
The case arose when two Bloomberg reporters submitted FOIA requests about actions the Fed took to shore up the financial system in 2007 and early 2008, including an expansion of lending programs and the sale of Bear Stearns Cos to JPMorgan.
The case is: Bloomberg LP v. Board of Governors of the Federal Reserve System, U.S. District Court, Southern District of New York (Manhattan), No. 08-9595. (Additional reporting by Patrick Rucker, editing by Leslie Gevirtz)
Thu Aug 27, 2009 12:27pm EDT
* Fed urges judge not to enforce order pending appeal
* Banks say disclosure could cause loss of confidence
By Jonathan Stempel
NEW YORK, Aug 27 (Reuters) - The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy.
The central bank filed its request on Wednesday, two days after Chief Judge Loretta Preska of the U.S. District Court in Manhattan ruled in favor of Bloomberg News, which had sought information under the federal Freedom of Information Act.
Preska said the Fed failed to show that revealing the names would stigmatize the banks and result in "imminent competitive harm." The Fed asked the judge not to require disclosure while it readies an appeal.
"Immediate release of these documents will cause irreparable harm to these institutions and to the board's ability to effectively manage the current, and any future, financial crisis," the central bank argued.
It added that the public interest favors a delay, citing a potential for "significant harms that could befall not only private companies, but the economy as a whole" if the information were disclosed.
Underlying this case and a similar one involving News Corp's (NWSA.O) Fox News Network LLC is a question of how much the public has a right to know about how the government is bailing out a financial system in a crisis.
The Clearing House Association LLC, which represents banks, in a separate filing supported the Fed's call for a delay. It said speculation that banks' liquidity is drying up could cause runs on deposits, and trading partners to demand collateral.
"Survival can depend on the ephemeral nature of public confidence," Clearing House general counsel Norman Nelson wrote. "Experience in the banking industry has shown that when customers and market participants hear negative rumors about a bank, negative consequences inevitably flow."
The Clearing House said its members include ABN Amro Holding NV, Bank of America Corp (BAC.N), Bank of New York Mellon Corp (BK.N), Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE), HSBC Holdings Plc (HSBA.L), JPMorgan Chase & Co (JPM.N), UBS AG (UBSN.VX), U.S. Bancorp (USB.N) and Wells Fargo & Co (WFC.N).
The case arose when two Bloomberg reporters submitted FOIA requests about actions the Fed took to shore up the financial system in 2007 and early 2008, including an expansion of lending programs and the sale of Bear Stearns Cos to JPMorgan.
The case is: Bloomberg LP v. Board of Governors of the Federal Reserve System, U.S. District Court, Southern District of New York (Manhattan), No. 08-9595. (Additional reporting by Patrick Rucker, editing by Leslie Gevirtz)
Hummel: The US Will Default On Its Debt
John Carney|Aug. 27, 2009, 4:01 PM|20
PrintTags: Economy, Money, Debt, U.S. Government, Federal Reserve
The flood of debt that the US is taking on in its efforts rescue to economy will combine with huge social insurance obligations--Medicare, MedicaidSocial Security--to create an unsustainable level of public indebtedness, economist Jeffrey Rogers Hummel argues in at length here.
Faced with this mountain of debt, policy makers will have just two choices: repudiate the debt or engage in hyper inflation to monetize it, Hummel writes. And faced with that choice the Treasury will likely protect the currency and default on Treasuries.
Here's the scary conclusion:
It is not literally impossible that the Federal Reserve could unleash the Zimbabwe option and repudiate the national debt indirectly through hyperinflation, rather than have the Treasury repudiate it directly. But my guess is that, faced with the alternatives of seeing both the dollar and the debt become worthless or defaulting on the debt while saving the dollar, the U.S. government will choose the latter. Treasury securities are second-order claims to central-bank-issued dollars. Although both may be ultimately backed by the power of taxation, that in no way prevents government from discriminating between the priority of the claims. After the American Revolution, the United States repudiated its paper money and yet successfully honored its debt (in gold). It is true that fiat money, as opposed to a gold standard, makes it harder to separate the fate of a government's money from that of its debt. But Russia in 1998 is just one recent example of a government choosing partial debt repudiation over a complete collapse of its fiat currency.
A more likely outcome, it seems to us, is that the US will make good on Treasury debt but repudiate soft obligations like Social Security and Medicare. That way the US would continue to be able to borrow in the future. And all it would require would be a Congressional vote lowering the outlays for these programs.
But maybe all this is unnecessary doomsaying. AIG is up HUGE, so we're sure everything will be just fine.
PrintTags: Economy, Money, Debt, U.S. Government, Federal Reserve
The flood of debt that the US is taking on in its efforts rescue to economy will combine with huge social insurance obligations--Medicare, MedicaidSocial Security--to create an unsustainable level of public indebtedness, economist Jeffrey Rogers Hummel argues in at length here.
Faced with this mountain of debt, policy makers will have just two choices: repudiate the debt or engage in hyper inflation to monetize it, Hummel writes. And faced with that choice the Treasury will likely protect the currency and default on Treasuries.
Here's the scary conclusion:
It is not literally impossible that the Federal Reserve could unleash the Zimbabwe option and repudiate the national debt indirectly through hyperinflation, rather than have the Treasury repudiate it directly. But my guess is that, faced with the alternatives of seeing both the dollar and the debt become worthless or defaulting on the debt while saving the dollar, the U.S. government will choose the latter. Treasury securities are second-order claims to central-bank-issued dollars. Although both may be ultimately backed by the power of taxation, that in no way prevents government from discriminating between the priority of the claims. After the American Revolution, the United States repudiated its paper money and yet successfully honored its debt (in gold). It is true that fiat money, as opposed to a gold standard, makes it harder to separate the fate of a government's money from that of its debt. But Russia in 1998 is just one recent example of a government choosing partial debt repudiation over a complete collapse of its fiat currency.
A more likely outcome, it seems to us, is that the US will make good on Treasury debt but repudiate soft obligations like Social Security and Medicare. That way the US would continue to be able to borrow in the future. And all it would require would be a Congressional vote lowering the outlays for these programs.
But maybe all this is unnecessary doomsaying. AIG is up HUGE, so we're sure everything will be just fine.
Thursday, August 27, 2009
Would leave us more vulnerable to attack. Why?
GOP Senators: US Faces Terrorist Attack if Holder Probes Bush's Torture Program
Monday 24 August 2009
by: Jason Leopold, t r u t h o u t | Report
Nine Republican lawmakers sent a letter to Eric Holder saying the US could face a terrorist attack if the attorney general appoints a special prosecutor to investigate the CIA's use of torture against "war on terror" suspects.
Senate Republican Whip Jon Kyl of Arizona is one of nine senators who signed a letter sent to Attorney General Eric Holder on Wednesday urging him not to appoint a special counsel to investigate torture.
Nine Republican lawmakers sent a letter to Eric Holder on Wednesday saying the US could face a terrorist attack if the attorney general appoints a special prosecutor to investigate the CIA's use of torture against "war on terror" suspects.
Holder is under pressure to resist launching a criminal probe, even one limited to rogue CIA interrogators. At the same time, he is facing mounting pressure from some prominent Democrats and civil liberties and human rights groups to not only sign off on a criminal investigation, but to expand it to include top Bush administration officials.
The latest correspondence came on Wednesday in a letter to the attorney general that said an investigation into the CIA's interrogation practices, no matter how limited in scope, would jeopardize the "security for all Americans, chill future intelligence activities," and could "leave us more vulnerable to attack."
The senators resorted to fear-mongering, invoking the terrorist attacks on 9/11 to try and dissuade Holder "We are deeply concerned by recent news reports that you are 'poised to appoint a special prosecutor' to investigate CIA officials who interrogated al Qaeda terrorists. Such an investigation could have a number of serious consequences, not just for the honorable members of the intelligence community, but also for the security of all Americans," the letter said.
The letter was sent to Holder by Senate Republican Whip Jon Kyl of Arizona, Sen. Kit Bond (R-Missouri), vice chairman of the Senate Intelligence Committee, Sen. Jeff Sessions (R-Alabama), ranking member of the Senate Judiciary Committee, and was also signed by Sens. Richard Burr (R-North Carolina), Saxby Chambliss (R-Georgia), Tom Coburn (R-Oklahoma), John Cornyn (R-Texas), Chuck Grassley (R-Iowa) and Orrin Hatch (R-Utah).
"The 9/11 Commission emphasized that keeping our country safe from foreign attack requires that the Justice Department work cooperatively with the intelligence community, but the appointment of a special prosecutor would irresponsibly and unnecessarily drive a wedge between the two ...
"We will not know the lost opportunities to prevent attacks, the policies to protect the nation left on the table, due to fear of future policy disagreement being expressed through an indictment. It is hard to imagine how the Justice Department could take that risk after September 11, given that the foremost duty of the Department is to protect Americans."
The timing of the letter coincides with the expected public release next Monday of a 2004 CIA inspector general's report that called into question the legality of the Bush administration's interrogation program.
Heavily redacted portions of Helgerson's 200-page report were released to the ACLU in May 2008 in response to a Freedom of Information Act request, but the ACLU appealed the Bush administration's extensive deletions and the Obama administration responded to that appeal with a promise to review the materials at issue and declassify, at the very least, portions of it to the civil liberties group.
The Justice Department has delayed turning over the report three times since then. Last month, a federal court judge gave the CIA until August 24 to declassify the report.
Amrit Singh, an ACLU staff attorney, said on Wednesday she believes the CIA will turn over the report next week, but she did not know whether it would be redacted yet again when released.
The secret findings of CIA Inspector General John Helgerson led to eight criminal referrals to the Justice Department for homicide and other misconduct, but those cases languished as Vice President Dick Cheney is said to have intervened to constrain Helgerson's inquiries.
His report reportedly says the techniques used on the prisoners "appeared to constitute cruel, inhumane and degrading treatment, as defined by the International Convention Against Torture."
Holder started to consider the need to appoint a special counsel to conduct a criminal investigation after he read Helgerson's findings, according to published reports.
The Republican senators, in their letter to Holder on Wednesday, said the CIA IG report "has been available to the Justice Department for more than five years" and should not be used as a basis to "justify" the appointment of a special prosecutor.
The IG report has "been available to the Justice Department for more than five years," the senators wrote. "Three former Attorneys General and numerous career prosecutors have examined the findings of that report and other evidence and determined that that facts do not support criminal prosecutions.
"It is difficult to understand what rationale could drive the Justice Department to now reverse course, reopen a five-year-old matter, and tarnish the careers, reputations, and lives of intelligence community professionals ...
"The intelligence community will be left to wonder whether actions taken today in the interest of national security will be subject to legal recriminations when the political winds shift. Indeed, there is a substantial risk that the mere prospect of criminal liability for terrorist interrogations is already impending our intelligence efforts, as demonstrated from the fact that CIA officials increasingly feel compelled to obtain legal defense insurance."
The senators are wrong. Jane Mayer, in her book "The Dark Side," said there was a mountain of evidence to support prosecutions and a belief by some "insiders that [Helgerson's investigation] would end with criminal charges for abusive interrogations."
But top Justice Department officials, including former head of the criminal division Michael Chertoff, his deputy Alice Fisher and Deputy Attorney General Paul McNulty, allowed the cases to languish and may have even scuttled the probes to protect the Bush White House.
McNulty resigned in disgrace two years ago and is under scrutiny by a special prosecutor investigating the firings of nine US attorneys. McNulty faces obstruction of justice and perjury charges related to his February 2007 testimony to Congress about the ordeal.
In an interview with Harper's magazine last year, Mayer said Helgerson "investigated several alleged homicides involving CIA detainees, and that Helgerson's office forwarded several to the Justice Department for further consideration and potential prosecution.
"The only case so far that has been prosecuted in the criminal courts is that involving David Passaro - a low-level CIA contractor, not a full official in the Agency. Why have there been no charges filed? It's a question to which one would expect that Congress and the public would like some answers.
"Sources suggested to me that, as you imply, it is highly uncomfortable for top Bush Justice officials to prosecute these cases because, inevitably, it means shining a light on what those same officials sanctioned. Chertoff's role in particular seems ripe for investigation. Alice Fisher's role also seems of interest. Much remains to be uncovered."
Mayer also reported that another possible reason that the Justice Department investigations went nowhere was that Vice President Cheney intervened and demanded that Helgerson meet with him privately about his investigation. Mayer characterized Cheney's interaction with Helgerson as highly unusual.
Cheney's "reaction to this first, carefully documented in-house study concluding that the CIA's secret program was most likely criminal was to summon the Inspector General to his office for a private chat," Mayer wrote in her book "The Dark Side."
"The Inspector General is supposed to function as an independent overseer, free from political pressure, but Cheney summoned the CIA Inspector General more than once to his office."
"Cheney loomed over everything," one former CIA officer told Mayer. "The whole IG's office was completely politicized. They were working hand in glove with the White House."
In their letter, the senators also said "media reports also suggest that the interrogation of Khalid Sheikh Mohammed (KSM), the mastermind of the September 11 attacks, would be a primary focus of the investigation that you envision."
Mohammed was waterboarded 183 times in the span of a single month, far above the legal limit imposed by the August 2002 torture memos. Helgerson, Mayer wrote in her book, "had serious questions about the agency's mistreatment of dozens more, including Khalid Sheikh Mohammed."
The Republican lawmakers said, "the interrogation of KSM, and others like him, produced information that was absolutely vital to apprehending other al Qaeda terrorists and preventing additional attacks on the United States."
They then go on to blame the Obama administration for failing to provide justice for the victims of 9/11.
"It is ironic that the Obama Administration, which has delayed justice for the victims of September 11 by suspending the trial of KSM, may soon be charging ahead to prosecute the very CIA officials who obtained critical information from him," the Republican lawmakers wrote. "That KSM's treatment is receiving more prompt attention from the Justice Department than his depraved acts cannot be justified."
On the other end of the political spectrum, Rep. Jerrold Nadler, a New York Democrat and chairman of the House Judiciary Subcommittee on the Constitution, Civil Rights and Civil Liberties, said in a letter to Holder on August 4 that if he does appoint a special counsel to probe the Bush administration's program of torture, it must include the top officials who created and implemented the policy.
"There simply is no legal, moral or principled reason to insulate those who authorized the torture of detainees, either through legal reasoning or other policy directive, from investigation," Nadler wrote.
"First, such an investigation would fail to consider the possible violation of laws by high-ranking officials and lawyers who, through legal advice or otherwise, may have authorized torture," Nadler wrote.
"This country has been instrumental in establishing the principle that high-ranking officials and lawyers who use legal reasoning to justify or otherwise authorize war crimes can, and should, be held legally accountable. The ban on torture is absolute and we have a legal obligation to investigate torture and all of those who may have been party to its use."
Nadler, House Judiciary Committee Chairman John Conyers and about a dozen other Democrats on the committee sent a similar letter to Holder earlier this year.
President Obama has already stated numerous times that he does not support a truth commission or any effort that would result in looking "backwards" into the Bush administration's policies.
Considering the backlash the Obama administration and Democrats faced from their Republican colleagues this month over a proposal to reform the health care industry, and the extreme partisanship over Obama's domestic policies in general, it's entirely possible that the fear-mongering in the letter sent to Holder on Wednesday could have an impact on his decision.
At the Netroots Nation conference last week in Pittsburgh, Nadler said, "As difficult and traumatic" a criminal investigation "may be for the nation we must proceed."
Monday 24 August 2009
by: Jason Leopold, t r u t h o u t | Report
Nine Republican lawmakers sent a letter to Eric Holder saying the US could face a terrorist attack if the attorney general appoints a special prosecutor to investigate the CIA's use of torture against "war on terror" suspects.
Senate Republican Whip Jon Kyl of Arizona is one of nine senators who signed a letter sent to Attorney General Eric Holder on Wednesday urging him not to appoint a special counsel to investigate torture.
Nine Republican lawmakers sent a letter to Eric Holder on Wednesday saying the US could face a terrorist attack if the attorney general appoints a special prosecutor to investigate the CIA's use of torture against "war on terror" suspects.
Holder is under pressure to resist launching a criminal probe, even one limited to rogue CIA interrogators. At the same time, he is facing mounting pressure from some prominent Democrats and civil liberties and human rights groups to not only sign off on a criminal investigation, but to expand it to include top Bush administration officials.
The latest correspondence came on Wednesday in a letter to the attorney general that said an investigation into the CIA's interrogation practices, no matter how limited in scope, would jeopardize the "security for all Americans, chill future intelligence activities," and could "leave us more vulnerable to attack."
The senators resorted to fear-mongering, invoking the terrorist attacks on 9/11 to try and dissuade Holder "We are deeply concerned by recent news reports that you are 'poised to appoint a special prosecutor' to investigate CIA officials who interrogated al Qaeda terrorists. Such an investigation could have a number of serious consequences, not just for the honorable members of the intelligence community, but also for the security of all Americans," the letter said.
The letter was sent to Holder by Senate Republican Whip Jon Kyl of Arizona, Sen. Kit Bond (R-Missouri), vice chairman of the Senate Intelligence Committee, Sen. Jeff Sessions (R-Alabama), ranking member of the Senate Judiciary Committee, and was also signed by Sens. Richard Burr (R-North Carolina), Saxby Chambliss (R-Georgia), Tom Coburn (R-Oklahoma), John Cornyn (R-Texas), Chuck Grassley (R-Iowa) and Orrin Hatch (R-Utah).
"The 9/11 Commission emphasized that keeping our country safe from foreign attack requires that the Justice Department work cooperatively with the intelligence community, but the appointment of a special prosecutor would irresponsibly and unnecessarily drive a wedge between the two ...
"We will not know the lost opportunities to prevent attacks, the policies to protect the nation left on the table, due to fear of future policy disagreement being expressed through an indictment. It is hard to imagine how the Justice Department could take that risk after September 11, given that the foremost duty of the Department is to protect Americans."
The timing of the letter coincides with the expected public release next Monday of a 2004 CIA inspector general's report that called into question the legality of the Bush administration's interrogation program.
Heavily redacted portions of Helgerson's 200-page report were released to the ACLU in May 2008 in response to a Freedom of Information Act request, but the ACLU appealed the Bush administration's extensive deletions and the Obama administration responded to that appeal with a promise to review the materials at issue and declassify, at the very least, portions of it to the civil liberties group.
The Justice Department has delayed turning over the report three times since then. Last month, a federal court judge gave the CIA until August 24 to declassify the report.
Amrit Singh, an ACLU staff attorney, said on Wednesday she believes the CIA will turn over the report next week, but she did not know whether it would be redacted yet again when released.
The secret findings of CIA Inspector General John Helgerson led to eight criminal referrals to the Justice Department for homicide and other misconduct, but those cases languished as Vice President Dick Cheney is said to have intervened to constrain Helgerson's inquiries.
His report reportedly says the techniques used on the prisoners "appeared to constitute cruel, inhumane and degrading treatment, as defined by the International Convention Against Torture."
Holder started to consider the need to appoint a special counsel to conduct a criminal investigation after he read Helgerson's findings, according to published reports.
The Republican senators, in their letter to Holder on Wednesday, said the CIA IG report "has been available to the Justice Department for more than five years" and should not be used as a basis to "justify" the appointment of a special prosecutor.
The IG report has "been available to the Justice Department for more than five years," the senators wrote. "Three former Attorneys General and numerous career prosecutors have examined the findings of that report and other evidence and determined that that facts do not support criminal prosecutions.
"It is difficult to understand what rationale could drive the Justice Department to now reverse course, reopen a five-year-old matter, and tarnish the careers, reputations, and lives of intelligence community professionals ...
"The intelligence community will be left to wonder whether actions taken today in the interest of national security will be subject to legal recriminations when the political winds shift. Indeed, there is a substantial risk that the mere prospect of criminal liability for terrorist interrogations is already impending our intelligence efforts, as demonstrated from the fact that CIA officials increasingly feel compelled to obtain legal defense insurance."
The senators are wrong. Jane Mayer, in her book "The Dark Side," said there was a mountain of evidence to support prosecutions and a belief by some "insiders that [Helgerson's investigation] would end with criminal charges for abusive interrogations."
But top Justice Department officials, including former head of the criminal division Michael Chertoff, his deputy Alice Fisher and Deputy Attorney General Paul McNulty, allowed the cases to languish and may have even scuttled the probes to protect the Bush White House.
McNulty resigned in disgrace two years ago and is under scrutiny by a special prosecutor investigating the firings of nine US attorneys. McNulty faces obstruction of justice and perjury charges related to his February 2007 testimony to Congress about the ordeal.
In an interview with Harper's magazine last year, Mayer said Helgerson "investigated several alleged homicides involving CIA detainees, and that Helgerson's office forwarded several to the Justice Department for further consideration and potential prosecution.
"The only case so far that has been prosecuted in the criminal courts is that involving David Passaro - a low-level CIA contractor, not a full official in the Agency. Why have there been no charges filed? It's a question to which one would expect that Congress and the public would like some answers.
"Sources suggested to me that, as you imply, it is highly uncomfortable for top Bush Justice officials to prosecute these cases because, inevitably, it means shining a light on what those same officials sanctioned. Chertoff's role in particular seems ripe for investigation. Alice Fisher's role also seems of interest. Much remains to be uncovered."
Mayer also reported that another possible reason that the Justice Department investigations went nowhere was that Vice President Cheney intervened and demanded that Helgerson meet with him privately about his investigation. Mayer characterized Cheney's interaction with Helgerson as highly unusual.
Cheney's "reaction to this first, carefully documented in-house study concluding that the CIA's secret program was most likely criminal was to summon the Inspector General to his office for a private chat," Mayer wrote in her book "The Dark Side."
"The Inspector General is supposed to function as an independent overseer, free from political pressure, but Cheney summoned the CIA Inspector General more than once to his office."
"Cheney loomed over everything," one former CIA officer told Mayer. "The whole IG's office was completely politicized. They were working hand in glove with the White House."
In their letter, the senators also said "media reports also suggest that the interrogation of Khalid Sheikh Mohammed (KSM), the mastermind of the September 11 attacks, would be a primary focus of the investigation that you envision."
Mohammed was waterboarded 183 times in the span of a single month, far above the legal limit imposed by the August 2002 torture memos. Helgerson, Mayer wrote in her book, "had serious questions about the agency's mistreatment of dozens more, including Khalid Sheikh Mohammed."
The Republican lawmakers said, "the interrogation of KSM, and others like him, produced information that was absolutely vital to apprehending other al Qaeda terrorists and preventing additional attacks on the United States."
They then go on to blame the Obama administration for failing to provide justice for the victims of 9/11.
"It is ironic that the Obama Administration, which has delayed justice for the victims of September 11 by suspending the trial of KSM, may soon be charging ahead to prosecute the very CIA officials who obtained critical information from him," the Republican lawmakers wrote. "That KSM's treatment is receiving more prompt attention from the Justice Department than his depraved acts cannot be justified."
On the other end of the political spectrum, Rep. Jerrold Nadler, a New York Democrat and chairman of the House Judiciary Subcommittee on the Constitution, Civil Rights and Civil Liberties, said in a letter to Holder on August 4 that if he does appoint a special counsel to probe the Bush administration's program of torture, it must include the top officials who created and implemented the policy.
"There simply is no legal, moral or principled reason to insulate those who authorized the torture of detainees, either through legal reasoning or other policy directive, from investigation," Nadler wrote.
"First, such an investigation would fail to consider the possible violation of laws by high-ranking officials and lawyers who, through legal advice or otherwise, may have authorized torture," Nadler wrote.
"This country has been instrumental in establishing the principle that high-ranking officials and lawyers who use legal reasoning to justify or otherwise authorize war crimes can, and should, be held legally accountable. The ban on torture is absolute and we have a legal obligation to investigate torture and all of those who may have been party to its use."
Nadler, House Judiciary Committee Chairman John Conyers and about a dozen other Democrats on the committee sent a similar letter to Holder earlier this year.
President Obama has already stated numerous times that he does not support a truth commission or any effort that would result in looking "backwards" into the Bush administration's policies.
Considering the backlash the Obama administration and Democrats faced from their Republican colleagues this month over a proposal to reform the health care industry, and the extreme partisanship over Obama's domestic policies in general, it's entirely possible that the fear-mongering in the letter sent to Holder on Wednesday could have an impact on his decision.
At the Netroots Nation conference last week in Pittsburgh, Nadler said, "As difficult and traumatic" a criminal investigation "may be for the nation we must proceed."
Wednesday, August 26, 2009
Stimulus Checks Mistakenly Sent to 1,700 Inmates
The inspector general's office for the Social Security Administration is looking into the problem as part of its broader audit on stimulus spending. The Social Security Administration acknowledged the $425,000 glitch following a report that nearly two-dozen inmates in Massachusetts had wrongly received the $250 stimulus checks.
By Judson Berger
FOXNews.com
Does anyone think that the Government could do better??
By Judson Berger
FOXNews.com
Does anyone think that the Government could do better??
Tuesday, August 25, 2009
Monday, August 24, 2009
Sunday, August 23, 2009
S&P 500 PE ratio sits at 129
Since March when the S&P 500 touched the 666 mark, the rally has boosted the index by 54 percent. Was this caused by stunning second quarter earnings? Absolutely not. With nearly 97 percent of all companies now reporting earnings for the second quarter, the S&P 500 PE ratio sits at 129. This is by far the most over hyped rally in the world.
Signal from the Baltic Dry Index
Mark to Market | Manas Chakravarty and Mobis Philipose
Among all the optimism about a global recovery and higher liquidity, one negative indicator that has been highlighted by analysts recently is the Baltic Dry
Index (BDI), which tracks the international shipping rates of various dry bulk cargoes. BDI is often taken as a proxy for commodity demand and has a close relationship with the Reuters/Jefferies CRB Index, a commodity index. It is also usually correlated with stock market indicators such as the US Standard and Poor’s 500 Index.
The chart shows the recent trends in BDI, the RJ/CRB Index and the MSCI Asia ex-Japan Index, all of them rebased from 1 June 2008. Notice the close correlation between BDI and the MSCI Asia ex-Japan Index, although that has not always held true. For instance, there was a huge rally in BDI in the first half of 2008. On the other hand, it did forecast the slump in equities during the second half of last year.
Interestingly, BDI also started moving up in February this year, presaging the subsequent rally in the MSCI Asia ex-Japan Index. As the chart shows, BDI went up sharply between April and June, but has been falling steadily since then, although the MSCI Asia ex-Japan Index has rallied. It’s this divergence that analysts are worried about.
From its peak of 4,291 on 3 June, BDI fell to 2,752 on 14 August, a drop of 36%, while the MSCI Asia ex-Japan Index went up 10% over the same period. BDI went up sharply in the first half of 2009 primarily on demand from China, with some reports alleging that the country was taking the opportunity to import and stockpile cheap commodities. But with loan growth falling off sharply in July and with exports not picking up, there’s a limit to the amount of commodities China can stockpile.
The fear that the Chinese stimulus package may be tapering off has hit not just BDI, but also the Chinese stock market, with the Shanghai Composite Index falling 5.8% on Monday. That hit commodity prices, leading to a 6.15% drop in the Bombay Stock Exchange Metals Index.
At least for metal stocks, this could be the writing on the wall.
Among all the optimism about a global recovery and higher liquidity, one negative indicator that has been highlighted by analysts recently is the Baltic Dry
Index (BDI), which tracks the international shipping rates of various dry bulk cargoes. BDI is often taken as a proxy for commodity demand and has a close relationship with the Reuters/Jefferies CRB Index, a commodity index. It is also usually correlated with stock market indicators such as the US Standard and Poor’s 500 Index.
The chart shows the recent trends in BDI, the RJ/CRB Index and the MSCI Asia ex-Japan Index, all of them rebased from 1 June 2008. Notice the close correlation between BDI and the MSCI Asia ex-Japan Index, although that has not always held true. For instance, there was a huge rally in BDI in the first half of 2008. On the other hand, it did forecast the slump in equities during the second half of last year.
Interestingly, BDI also started moving up in February this year, presaging the subsequent rally in the MSCI Asia ex-Japan Index. As the chart shows, BDI went up sharply between April and June, but has been falling steadily since then, although the MSCI Asia ex-Japan Index has rallied. It’s this divergence that analysts are worried about.
From its peak of 4,291 on 3 June, BDI fell to 2,752 on 14 August, a drop of 36%, while the MSCI Asia ex-Japan Index went up 10% over the same period. BDI went up sharply in the first half of 2009 primarily on demand from China, with some reports alleging that the country was taking the opportunity to import and stockpile cheap commodities. But with loan growth falling off sharply in July and with exports not picking up, there’s a limit to the amount of commodities China can stockpile.
The fear that the Chinese stimulus package may be tapering off has hit not just BDI, but also the Chinese stock market, with the Shanghai Composite Index falling 5.8% on Monday. That hit commodity prices, leading to a 6.15% drop in the Bombay Stock Exchange Metals Index.
At least for metal stocks, this could be the writing on the wall.
China, Baltic Dry And The V-Shaped Recovery
By: Financial Ninja Wednesday, August 12, 2009 12:56 PM
“What was a V-shaped recovery now seems to be experiencing a little gravitational pull.” -Stephen Green, Standard Charted Bank in Shanghai
FN: The sneaking suspicion out there is that China has pretty much completed their commodity re-stocking. The Baltic Dry Index (BDI) has been down nine of the last ten trading days and has now breached the rising trendline from the December 2008 low of 663. The price is now also below the 20, 50 and 200 day EMAs (blue, red and green lines).
In the post Baltic Dry, Chinese Hoarding, Commodities and the Fake Recovery I highlighted:
"As the global economy continues to falter and Chinese exports plummet, there is growing concern that the stockpiling may soon come to a halt, leading to further, painful drops in commodity prices."
Asian Stocks Drop as Weaker Earnings Fuel Valuation Concerns: "Asian stocks fell for the first time in three days and Chinese shares entered a so-called correction, amid concern a rally in equities had outpaced earnings prospects.
China May Delay Tightening as Exports, New Loans Drop (Update1): "The People’s Bank of China may delay tightening monetary policy until the fourth quarter after exports dropped in July, lending declined and investment growth slowed, economists said.
Exports fell 23 percent from a year earlier, the government said yesterday. Urban fixed-asset investment rose a less-than- estimated 32.9 percent in the first seven months from a year earlier. New loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of advances in June.
China’s economy, which avoided following the U.S. and Europe into recession, is yet to cement a recovery as factories have too much capacity and shipments abroad are weakening, officials said this month. The nation’s $4 trillion yuan ($585 billion) stimulus package can’t completely offset slumping export demand, the commerce ministry said in Beijing today."
“What was a V-shaped recovery now seems to be experiencing a little gravitational pull.” -Stephen Green, Standard Charted Bank in Shanghai
FN: The sneaking suspicion out there is that China has pretty much completed their commodity re-stocking. The Baltic Dry Index (BDI) has been down nine of the last ten trading days and has now breached the rising trendline from the December 2008 low of 663. The price is now also below the 20, 50 and 200 day EMAs (blue, red and green lines).
In the post Baltic Dry, Chinese Hoarding, Commodities and the Fake Recovery I highlighted:
"As the global economy continues to falter and Chinese exports plummet, there is growing concern that the stockpiling may soon come to a halt, leading to further, painful drops in commodity prices."
Asian Stocks Drop as Weaker Earnings Fuel Valuation Concerns: "Asian stocks fell for the first time in three days and Chinese shares entered a so-called correction, amid concern a rally in equities had outpaced earnings prospects.
China May Delay Tightening as Exports, New Loans Drop (Update1): "The People’s Bank of China may delay tightening monetary policy until the fourth quarter after exports dropped in July, lending declined and investment growth slowed, economists said.
Exports fell 23 percent from a year earlier, the government said yesterday. Urban fixed-asset investment rose a less-than- estimated 32.9 percent in the first seven months from a year earlier. New loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of advances in June.
China’s economy, which avoided following the U.S. and Europe into recession, is yet to cement a recovery as factories have too much capacity and shipments abroad are weakening, officials said this month. The nation’s $4 trillion yuan ($585 billion) stimulus package can’t completely offset slumping export demand, the commerce ministry said in Beijing today."
Common Sense 2009
The American government -- which we once called our government -- has been taken over by Wall Street, the mega-corporations and the super-rich. They are the ones who decide our fate. It is this group of powerful elites, the people President Franklin D. Roosevelt called "economic royalists," who choose our elected officials -- indeed, our very form of government. Both Democrats and Republicans dance to the tune of their corporate masters. In America, corporations do not control the government. In America, corporations are the government.
This was never more obvious than with the Wall Street bailout, whereby the very corporations that caused the collapse of our economy were rewarded with taxpayer dollars. So arrogant, so smug were they that, without a moment's hesitation, they took our money -- yours and mine -- to pay their executives multimillion-dollar bonuses, something they continue doing to this very day. They have no shame. They don't care what you and I think about them. Henry Kissinger refers to us as "useless eaters."
But, you say, we have elected a candidate of change. To which I respond: Do these words of President Obama sound like change?
"A culture of irresponsibility took root, from Wall Street to Washington to Main Street."
There it is. Right there. We are Main Street. We must, according to our president, share the blame. He went on to say: "And a regulatory regime basically crafted in the wake of a 20th-century economic crisis -- the Great Depression -- was overwhelmed by the speed, scope and sophistication of a 21st-century global economy."
This is nonsense.
The reason Wall Street was able to game the system the way it did -- knowing that they would become rich at the expense of the American people (oh, yes, they most certainly knew that) -- was because the financial elite had bribed our legislators to roll back the protections enacted after the Stock Market Crash of 1929.
Congress gutted the Glass-Steagall Act, which separated commercial lending banks from investment banks, and passed the Commodity Futures Modernization Act, which allowed for self-regulation with no oversight. The Securities and Exchange Commission subsequently revised its rules to allow for even less oversight -- and we've all seen how well that worked out. To date, no serious legislation has been offered by the Obama administration to correct these problems.
Instead, Obama wants to increase the oversight power of the Federal Reserve. Never mind that it already had significant oversight power before our most recent economic meltdown, yet failed to take action. Never mind that the Fed is not a government agency but a cartel of private bankers that cannot be held accountable by Washington. Whatever the Fed does with these supposed new oversight powers will be behind closed doors.
Obama's failure to act sends one message loud and clear: He cannot stand up to the powerful Wall Street interests that supplied the bulk of his campaign money for the 2008 election. Nor, for that matter, can Congress, for much the same reason.
Consider what multibillionaire banker David Rockefeller wrote in his 2002 memoirs:
"Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure -- one world, if you will. If that's the charge, I stand guilty, and I am proud of it."
Read Rockefeller's words again. He actually admits to working against the "best interests of the United States."
Need more? Here's what Rockefeller said in 1994 at a U.N. dinner: "We are on the verge of a global transformation. All we need is the right major crisis, and the nations will accept the New World Order." They're gaming us. Our country has been stolen from us.
Journalist Matt Taibbi, writing in Rolling Stone, notes that esteemed economist John Kenneth Galbraith laid the 1929 crash at the feet of banking giant Goldman Sachs. Taibbi goes on to say that Goldman Sachs has been behind every other economic downturn as well, including the most recent one. As if that wasn't enough, Goldman Sachs even had a hand in pushing gas prices up to $4 a gallon.
The problem with bankers is longstanding. Here's what one of our Founding Fathers, Thomas Jefferson, had to say about them:
"If the American people ever allow private banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their father's conquered."
We all know that the first American Revolution officially began in 1776, with the Declaration of Independence. Less well known is that the single strongest motivating factor for revolution was the colonists' attempt to free themselves from the Bank of England. But how many of you know about the second revolution, referred to by historians as Shays' Rebellion? It took place in 1786-87, and once again the banks were the cause. This time they were putting the screws to America's farmers.
Daniel Shays was a farmer in western Massachusetts. Like many other farmers of the day, he was being driven into bankruptcy by the banks' predatory lending practices. (Sound familiar?) Rallying other farmers to his side, Shays led his rebels in an attack on the courts and the local armory. The rebellion itself failed, but a message had been sent: The bankers (and the politicians who supported them) ultimately backed off. As Thomas Jefferson famously quipped in regard to the insurrection: "A little rebellion now and then is a good thing. The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
Perhaps it's time to consider that option once again.
I'm calling for a national strike, one designed to close the country down for a day. The intent? Real campaign-finance reform and strong restrictions on lobbying. Because nothing will change until we take corporate money out of politics. Nothing will improve until our politicians are once again answerable to their constituents, not the rich and powerful.
Let's set a date. No one goes to work. No one buys anything. And if that isn't effective -- if the politicians ignore us -- we do it again. And again. And again.
The real war is not between the left and the right. It is between the average American and the ruling class. If we come together on this single issue, everything else will resolve itself. It's time we took back our government from those who would make us their slaves.
This was never more obvious than with the Wall Street bailout, whereby the very corporations that caused the collapse of our economy were rewarded with taxpayer dollars. So arrogant, so smug were they that, without a moment's hesitation, they took our money -- yours and mine -- to pay their executives multimillion-dollar bonuses, something they continue doing to this very day. They have no shame. They don't care what you and I think about them. Henry Kissinger refers to us as "useless eaters."
But, you say, we have elected a candidate of change. To which I respond: Do these words of President Obama sound like change?
"A culture of irresponsibility took root, from Wall Street to Washington to Main Street."
There it is. Right there. We are Main Street. We must, according to our president, share the blame. He went on to say: "And a regulatory regime basically crafted in the wake of a 20th-century economic crisis -- the Great Depression -- was overwhelmed by the speed, scope and sophistication of a 21st-century global economy."
This is nonsense.
The reason Wall Street was able to game the system the way it did -- knowing that they would become rich at the expense of the American people (oh, yes, they most certainly knew that) -- was because the financial elite had bribed our legislators to roll back the protections enacted after the Stock Market Crash of 1929.
Congress gutted the Glass-Steagall Act, which separated commercial lending banks from investment banks, and passed the Commodity Futures Modernization Act, which allowed for self-regulation with no oversight. The Securities and Exchange Commission subsequently revised its rules to allow for even less oversight -- and we've all seen how well that worked out. To date, no serious legislation has been offered by the Obama administration to correct these problems.
Instead, Obama wants to increase the oversight power of the Federal Reserve. Never mind that it already had significant oversight power before our most recent economic meltdown, yet failed to take action. Never mind that the Fed is not a government agency but a cartel of private bankers that cannot be held accountable by Washington. Whatever the Fed does with these supposed new oversight powers will be behind closed doors.
Obama's failure to act sends one message loud and clear: He cannot stand up to the powerful Wall Street interests that supplied the bulk of his campaign money for the 2008 election. Nor, for that matter, can Congress, for much the same reason.
Consider what multibillionaire banker David Rockefeller wrote in his 2002 memoirs:
"Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure -- one world, if you will. If that's the charge, I stand guilty, and I am proud of it."
Read Rockefeller's words again. He actually admits to working against the "best interests of the United States."
Need more? Here's what Rockefeller said in 1994 at a U.N. dinner: "We are on the verge of a global transformation. All we need is the right major crisis, and the nations will accept the New World Order." They're gaming us. Our country has been stolen from us.
Journalist Matt Taibbi, writing in Rolling Stone, notes that esteemed economist John Kenneth Galbraith laid the 1929 crash at the feet of banking giant Goldman Sachs. Taibbi goes on to say that Goldman Sachs has been behind every other economic downturn as well, including the most recent one. As if that wasn't enough, Goldman Sachs even had a hand in pushing gas prices up to $4 a gallon.
The problem with bankers is longstanding. Here's what one of our Founding Fathers, Thomas Jefferson, had to say about them:
"If the American people ever allow private banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their father's conquered."
We all know that the first American Revolution officially began in 1776, with the Declaration of Independence. Less well known is that the single strongest motivating factor for revolution was the colonists' attempt to free themselves from the Bank of England. But how many of you know about the second revolution, referred to by historians as Shays' Rebellion? It took place in 1786-87, and once again the banks were the cause. This time they were putting the screws to America's farmers.
Daniel Shays was a farmer in western Massachusetts. Like many other farmers of the day, he was being driven into bankruptcy by the banks' predatory lending practices. (Sound familiar?) Rallying other farmers to his side, Shays led his rebels in an attack on the courts and the local armory. The rebellion itself failed, but a message had been sent: The bankers (and the politicians who supported them) ultimately backed off. As Thomas Jefferson famously quipped in regard to the insurrection: "A little rebellion now and then is a good thing. The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
Perhaps it's time to consider that option once again.
I'm calling for a national strike, one designed to close the country down for a day. The intent? Real campaign-finance reform and strong restrictions on lobbying. Because nothing will change until we take corporate money out of politics. Nothing will improve until our politicians are once again answerable to their constituents, not the rich and powerful.
Let's set a date. No one goes to work. No one buys anything. And if that isn't effective -- if the politicians ignore us -- we do it again. And again. And again.
The real war is not between the left and the right. It is between the average American and the ruling class. If we come together on this single issue, everything else will resolve itself. It's time we took back our government from those who would make us their slaves.
Saturday, August 22, 2009
Days Away From Economic Chaos?
Days Away From Economic Chaos?
by Bill Sardi
America is just a few days away from a possible day of reckoning. I again call attention to this day, August 25, when the Federal Deposit Insurance Corporation issues its 2nd Quarter report for 2009 on the state of health of American banks.
It has not particularly alarmed Americans that its growth and prosperity have been built upon debt. The American public is a bit desensitized, particularly since the Y2K threat fizzled. We must wait and see how Americans respond to the upcoming FDIC report.
The following charts tell the story. There are roughly 8400 American banks that set aside a small portion of their profits to aggregately insure bank depositors should their local bank fail. A plethora of bank failures has depleted the FDIC reserve fund from $52.8 billion in 2008 to $13 billion in the 1st Quarter of 2009. (See chart below)
Alison Vekshin, writing for Bloomberg, indicates
"The failure of 77 banks this year is draining the fund, prompting the agency in May to set an emergency fee of 5 cents for every $100 of assets, excluding Tier 1 capital, to raise $5.6 billion in the second quarter. The agency has authority to set fees in the third and fourth quarters, if needed, to prevent a decline in the fund from undermining public confidence."
Vekshin goes on to report that 56 bank failures since March 31 have cost the FDIC an estimated $16 billion. (For comparison, in the 1st Quarter, bank failures only cost the FDIC $2.2 billion.) That $16 billion bank rescue would fully deplete the FDIC fund as it only had $13 billion at the close of the 1stQuarter. It’s possible the FDIC has already tapped into its line of credit at the Treasury Department without setting off alarm bells to the public.
The FDIC is required by law to maintain a reserve ratio, or balance divided by insured deposits, of 1.15 percent. It was at 0.27 percent as of March 31. It could be near zero at the current moment. (See 1st Quarter FDIC reserve ratio chart below)
Banks will be assessed extra fees
The FDIC's 8400 banks will likely be assessed special fees to shore up the FDIC's treasure chest.
Bloomberg’s Vekshin, quoting Robert Strand, a senior economist at the American Bankers Association, says the industry will pay $17 billion in premiums this year, including $11.6 billion from the annual fee.
The following chart shows the aggregate profits of all 8400 FDIC-insured banks, which is about $5–7 billion per quarter. This figure is AFTER the banks have set aside funds for anticipated losses in real estate loans.
Insured institutions set aside $60.9 billion in loan loss provisions in the 1stQ, an increase of $23.7 billion (63.6 percent) from the first quarter of 2008.
Hiding losses
Banks have been slow to foreclose, allowing mortgage holders a few months before their home is deemed in default and giving another 2 years before the property is foreclosed on its accounting books. This practice has been able to temporarily hide most of the banking collapse.
But banks must eventually write down their real estate home mortgage losses. First-quarter net charge-offs of $37.8 billion were slightly lower than the $38.5 billion the industry charged-off in the fourth quarter of 2008.
As banks write off bad home loans, this downsizes their asset values. Downsizing at a few large banks caused $302-billion decline in industry assets in the 1stQ. The FDIC report says:
Total assets declined by $301.7 billion (2.2 percent) during the quarter, as a few large banks reduced their loan portfolios and trading accounts. This is the largest percentage decline in industry assets in a single quarter in the 25 years for which quarterly data are available. Eight large institutions accounted for the entire decline in industry assets;
You can see by the following chart that US banks are directing a great deal of their profits towards write-offs (loss provision in the following chart) for non-paying home mortgages (foreclosures). So the banks only have about $5–7 billion of profit to direct to the FDIC to shore up its quickly vanishing reserve account. This aggregate profit equates to about $890,000 profit per bank in a quarter. That is a pretty thin margin.
Zombie banks
The FDIC, which claimed only about 300 problem banks in the 1st Quarter of 2009, but hid the fact there were about 2000 total lame banks among its 8400 members, This has given rise to the term "zombie banks," which are defined as "a financial institution with an economic net worth that is less than zero, but which continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support."
Examination of the following FDIC chart shows geographically that most banks are not making a profit.
FDIC's $13 billion against $220 billion liabilities
So just how much liability does the FDIC bear aggregately for its "problem banks?"
At the end of the 1st Quarter in 2009 the FDIC said that figure was $220 billion. Remember now, the FDIC had only about $13 billion to over these institutions at the time. (See chart below) This figure will likely grow beyond imagination with the issuance of the FDIC 2ndQ report.
How do American banks make profit today?
So how to American banks make any money today? You can see in the following chart that in the recent past American banks derived most of their profits (45%) from residential and commercial property loans. These income sources are obviously crashing.
So the FDIC 1st Quarter report tells all – our so-called conservative American bankers, entrusted with your hard-earned savings, with no place to turn to generate traditional profits, have entered the gambling parlor. Here is how the FDIC said it:
Sharply higher trading revenues at large banks helped FDIC-insured institutions post an aggregate net profit of $7.6 billion in the first quarter of 2009.
Trading revenues means profit generated from trading stocks and other risky investments. Recall, when your money was being financed commercial and residential property it had some collateral behind it. An asset (real estate) was held in balance against the risk of failure to pay the loan. Now bankers are "investing" your money in the stock market in what appears to be a replay of how the Japanese propped up their stock market in recent years – by simply having major companies purchase each other’s shares to prop up value.
The FDIC's 1stQ report says: "Total equity capital of insured institutions increased by $82.1 billion in the first quarter, the largest quarterly increase since the third quarter of 2004 (when more than half of the increase in equity consisted of goodwill)."
What the hoot is "goodwill" you want to know? It is how the banks are cooking their books. Arbitrary value is being given to bank holdings.
The FDIC 1stQ report goes on to say that:
Most of the aggregate increase in capital was concentrated among a relatively small number of institutions, including some institutions participating in the U.S. Treasury Department’s Troubled Asset Relief Program (TARP).
Banks valued by goodwill and bailout funds
So there, you can see that in addition to goodwill, the bank's capital was largely increased by bailout funds. So a dose of reality therapy will lead one to conclude that nearly all American banks are essentially insolvent.
If this leaves you feeling a bit queasy, well, you may need to reach for Dramamine when you realize the FDIC is not only broke, but it will probably announce it is tapping into its line of credit at the US Treasury Department, which is also insolvent (America is spending $1.58 trillion more than it collects in taxes this year).
Here is how Bloomberg’s Vekshin says it:
If the fund is drained, the FDIC also has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010.
Compared with savings and loan crisis
American banks weathered the savings and loan/real estate appraisal crisis in the 1980s and 1990s by loading from the US Treasury. In 1991–92, during the last part of the savings and loan crisis, the FDIC borrowed $15.1 billion from the Treasury and repaid it with interest about a year later.
But just exactly how will American banks ever pay back the treasury while facing years of write-offs from home mortgages? The banks do not have sufficient profits to offset their losses.
The entire cost of the savings and loan crisis of the 1980s and 90s was finally calculated at $153 billion, which was four times the reserves held by the FDIC (FSLIC at the time) in 1982. Of this, taxpayers paid out $124 billion while the thrift industry itself paid $29 billion. (FDIC Banking Review, volume 13, no.2, December 2000) So there is a false notion that the banks underwrite their own members’ losses. In fact, the public bears the brunt of the losses when bankers are reckless.
Bankers prodded to loan money
Sheila Bair, FDIC chief, is trying to get US bankers to begin loaning money again. But to do so bankers must begin to assess the worth of real estate at more realistic values. Then the real value of their asset package would be revealed and the banks would all collapse. Furthermore, if banks begin to loan money under their fractional banking scheme (banks loan out 10–50 fold more money than they have in reserve), then massive inflation will likely result. This would not only result in Americans bearing the brunt of higher cost of goods and services, but it could trigger Asian banks, seeing their savings devalued, to sell off their stash of US treasury bonds. America as a debtor nation depends upon billions of dollars every day, loaned from Asian banks, to stay afloat financially.
The FDIC's Bair is aghast at American bankers shift away from traditional sources of revenue backed by collateral to risky investments. Bair wants to charge banks additional fees tied to risks when their business expands beyond traditional lending, such as stock trading. This idea hasn’t advanced in Congressional committees yet. American bankers are walking a tight rope with their depositors’ money.
The mother of all bank runs?
Now if just a small portion of American bank depositors hear that the FDIC had to tap into the US Treasury for funds, and these depositors feel their banked money is at risk and want to withdraw some of it, the mother of all bank runs could ensue. This could create the day of reckoning that many have predicted. A short banking holiday would have to be declared and who knows what happens from there – troops in the streets, issuance of new currency, martial law? Don’t think those in the Federal government haven’t made plans for such an occurrence.
The unbanked
Of surprising interest, the FDIC reveals that millions of Americans don’t trust or don’t use banks. These Americans have been called the unbanked or underbanked, meaning that they "do not have access to banks or are not fully participating in the mainstream financial system," says the FDIC. The FDIC guesstimates that 10 percent of American families are "unbanked." That’s a lot of capital the banks don’t have access to. Those who hold currency outside of banks are anathema to the gods of banking.
Sources: Alison Vekshin, FDIC May Add to Special Fees as Mounting Failures Drain Reserve, Bloomberg News August 20, 2009; FDIC 2ndQuarter report 2009.
August 21, 2009
Bill Sardi [send him mail] is a frequent writer on health and political topics. His health writings can be found at www.naturalhealthlibrarian.com. He is the author of You Don’t Have To Be Afraid Of Cancer Anymore.
Copyright © 2009 Bill Sardi Word of Knowledge Agency, San Dimas, California. This article has been written exclusively for www.LewRockwell.com and other parties who wish to refer to it should link rather than post at other URLs.
The Best of Bill Sardi
by Bill Sardi
America is just a few days away from a possible day of reckoning. I again call attention to this day, August 25, when the Federal Deposit Insurance Corporation issues its 2nd Quarter report for 2009 on the state of health of American banks.
It has not particularly alarmed Americans that its growth and prosperity have been built upon debt. The American public is a bit desensitized, particularly since the Y2K threat fizzled. We must wait and see how Americans respond to the upcoming FDIC report.
The following charts tell the story. There are roughly 8400 American banks that set aside a small portion of their profits to aggregately insure bank depositors should their local bank fail. A plethora of bank failures has depleted the FDIC reserve fund from $52.8 billion in 2008 to $13 billion in the 1st Quarter of 2009. (See chart below)
Alison Vekshin, writing for Bloomberg, indicates
"The failure of 77 banks this year is draining the fund, prompting the agency in May to set an emergency fee of 5 cents for every $100 of assets, excluding Tier 1 capital, to raise $5.6 billion in the second quarter. The agency has authority to set fees in the third and fourth quarters, if needed, to prevent a decline in the fund from undermining public confidence."
Vekshin goes on to report that 56 bank failures since March 31 have cost the FDIC an estimated $16 billion. (For comparison, in the 1st Quarter, bank failures only cost the FDIC $2.2 billion.) That $16 billion bank rescue would fully deplete the FDIC fund as it only had $13 billion at the close of the 1stQuarter. It’s possible the FDIC has already tapped into its line of credit at the Treasury Department without setting off alarm bells to the public.
The FDIC is required by law to maintain a reserve ratio, or balance divided by insured deposits, of 1.15 percent. It was at 0.27 percent as of March 31. It could be near zero at the current moment. (See 1st Quarter FDIC reserve ratio chart below)
Banks will be assessed extra fees
The FDIC's 8400 banks will likely be assessed special fees to shore up the FDIC's treasure chest.
Bloomberg’s Vekshin, quoting Robert Strand, a senior economist at the American Bankers Association, says the industry will pay $17 billion in premiums this year, including $11.6 billion from the annual fee.
The following chart shows the aggregate profits of all 8400 FDIC-insured banks, which is about $5–7 billion per quarter. This figure is AFTER the banks have set aside funds for anticipated losses in real estate loans.
Insured institutions set aside $60.9 billion in loan loss provisions in the 1stQ, an increase of $23.7 billion (63.6 percent) from the first quarter of 2008.
Hiding losses
Banks have been slow to foreclose, allowing mortgage holders a few months before their home is deemed in default and giving another 2 years before the property is foreclosed on its accounting books. This practice has been able to temporarily hide most of the banking collapse.
But banks must eventually write down their real estate home mortgage losses. First-quarter net charge-offs of $37.8 billion were slightly lower than the $38.5 billion the industry charged-off in the fourth quarter of 2008.
As banks write off bad home loans, this downsizes their asset values. Downsizing at a few large banks caused $302-billion decline in industry assets in the 1stQ. The FDIC report says:
Total assets declined by $301.7 billion (2.2 percent) during the quarter, as a few large banks reduced their loan portfolios and trading accounts. This is the largest percentage decline in industry assets in a single quarter in the 25 years for which quarterly data are available. Eight large institutions accounted for the entire decline in industry assets;
You can see by the following chart that US banks are directing a great deal of their profits towards write-offs (loss provision in the following chart) for non-paying home mortgages (foreclosures). So the banks only have about $5–7 billion of profit to direct to the FDIC to shore up its quickly vanishing reserve account. This aggregate profit equates to about $890,000 profit per bank in a quarter. That is a pretty thin margin.
Zombie banks
The FDIC, which claimed only about 300 problem banks in the 1st Quarter of 2009, but hid the fact there were about 2000 total lame banks among its 8400 members, This has given rise to the term "zombie banks," which are defined as "a financial institution with an economic net worth that is less than zero, but which continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support."
Examination of the following FDIC chart shows geographically that most banks are not making a profit.
FDIC's $13 billion against $220 billion liabilities
So just how much liability does the FDIC bear aggregately for its "problem banks?"
At the end of the 1st Quarter in 2009 the FDIC said that figure was $220 billion. Remember now, the FDIC had only about $13 billion to over these institutions at the time. (See chart below) This figure will likely grow beyond imagination with the issuance of the FDIC 2ndQ report.
How do American banks make profit today?
So how to American banks make any money today? You can see in the following chart that in the recent past American banks derived most of their profits (45%) from residential and commercial property loans. These income sources are obviously crashing.
So the FDIC 1st Quarter report tells all – our so-called conservative American bankers, entrusted with your hard-earned savings, with no place to turn to generate traditional profits, have entered the gambling parlor. Here is how the FDIC said it:
Sharply higher trading revenues at large banks helped FDIC-insured institutions post an aggregate net profit of $7.6 billion in the first quarter of 2009.
Trading revenues means profit generated from trading stocks and other risky investments. Recall, when your money was being financed commercial and residential property it had some collateral behind it. An asset (real estate) was held in balance against the risk of failure to pay the loan. Now bankers are "investing" your money in the stock market in what appears to be a replay of how the Japanese propped up their stock market in recent years – by simply having major companies purchase each other’s shares to prop up value.
The FDIC's 1stQ report says: "Total equity capital of insured institutions increased by $82.1 billion in the first quarter, the largest quarterly increase since the third quarter of 2004 (when more than half of the increase in equity consisted of goodwill)."
What the hoot is "goodwill" you want to know? It is how the banks are cooking their books. Arbitrary value is being given to bank holdings.
The FDIC 1stQ report goes on to say that:
Most of the aggregate increase in capital was concentrated among a relatively small number of institutions, including some institutions participating in the U.S. Treasury Department’s Troubled Asset Relief Program (TARP).
Banks valued by goodwill and bailout funds
So there, you can see that in addition to goodwill, the bank's capital was largely increased by bailout funds. So a dose of reality therapy will lead one to conclude that nearly all American banks are essentially insolvent.
If this leaves you feeling a bit queasy, well, you may need to reach for Dramamine when you realize the FDIC is not only broke, but it will probably announce it is tapping into its line of credit at the US Treasury Department, which is also insolvent (America is spending $1.58 trillion more than it collects in taxes this year).
Here is how Bloomberg’s Vekshin says it:
If the fund is drained, the FDIC also has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010.
Compared with savings and loan crisis
American banks weathered the savings and loan/real estate appraisal crisis in the 1980s and 1990s by loading from the US Treasury. In 1991–92, during the last part of the savings and loan crisis, the FDIC borrowed $15.1 billion from the Treasury and repaid it with interest about a year later.
But just exactly how will American banks ever pay back the treasury while facing years of write-offs from home mortgages? The banks do not have sufficient profits to offset their losses.
The entire cost of the savings and loan crisis of the 1980s and 90s was finally calculated at $153 billion, which was four times the reserves held by the FDIC (FSLIC at the time) in 1982. Of this, taxpayers paid out $124 billion while the thrift industry itself paid $29 billion. (FDIC Banking Review, volume 13, no.2, December 2000) So there is a false notion that the banks underwrite their own members’ losses. In fact, the public bears the brunt of the losses when bankers are reckless.
Bankers prodded to loan money
Sheila Bair, FDIC chief, is trying to get US bankers to begin loaning money again. But to do so bankers must begin to assess the worth of real estate at more realistic values. Then the real value of their asset package would be revealed and the banks would all collapse. Furthermore, if banks begin to loan money under their fractional banking scheme (banks loan out 10–50 fold more money than they have in reserve), then massive inflation will likely result. This would not only result in Americans bearing the brunt of higher cost of goods and services, but it could trigger Asian banks, seeing their savings devalued, to sell off their stash of US treasury bonds. America as a debtor nation depends upon billions of dollars every day, loaned from Asian banks, to stay afloat financially.
The FDIC's Bair is aghast at American bankers shift away from traditional sources of revenue backed by collateral to risky investments. Bair wants to charge banks additional fees tied to risks when their business expands beyond traditional lending, such as stock trading. This idea hasn’t advanced in Congressional committees yet. American bankers are walking a tight rope with their depositors’ money.
The mother of all bank runs?
Now if just a small portion of American bank depositors hear that the FDIC had to tap into the US Treasury for funds, and these depositors feel their banked money is at risk and want to withdraw some of it, the mother of all bank runs could ensue. This could create the day of reckoning that many have predicted. A short banking holiday would have to be declared and who knows what happens from there – troops in the streets, issuance of new currency, martial law? Don’t think those in the Federal government haven’t made plans for such an occurrence.
The unbanked
Of surprising interest, the FDIC reveals that millions of Americans don’t trust or don’t use banks. These Americans have been called the unbanked or underbanked, meaning that they "do not have access to banks or are not fully participating in the mainstream financial system," says the FDIC. The FDIC guesstimates that 10 percent of American families are "unbanked." That’s a lot of capital the banks don’t have access to. Those who hold currency outside of banks are anathema to the gods of banking.
Sources: Alison Vekshin, FDIC May Add to Special Fees as Mounting Failures Drain Reserve, Bloomberg News August 20, 2009; FDIC 2ndQuarter report 2009.
August 21, 2009
Bill Sardi [send him mail] is a frequent writer on health and political topics. His health writings can be found at www.naturalhealthlibrarian.com. He is the author of You Don’t Have To Be Afraid Of Cancer Anymore.
Copyright © 2009 Bill Sardi Word of Knowledge Agency, San Dimas, California. This article has been written exclusively for www.LewRockwell.com and other parties who wish to refer to it should link rather than post at other URLs.
The Best of Bill Sardi
Even Warren Buffett Is Now Saying Bonds Could Crack!
by Mike Larson 08-21-09
I’ve made no secret about my view on U.S. bonds and the U.S. dollar …
I’ve minced no words, and cut no corners …
Instead, I have given you specific, consistent guidance on those fronts: Namely stay the heck away from long-term Treasuries and hedge yourself against the government’s unofficial policy of trashing the greenback.
It started last year in my December 5 Money and Markets column, when I issued the most strident warning I’ve EVER released on bond prices. I labeled long-term Treasuries “the biggest bubble of all” and warned you that …
“No government, or central bank, is bigger than the bond and currency markets. Foreign bondholders aren’t going to sit idly by while any government … even the government of the U.S. … openly decides to trash its currency by printing it with reckless abandon. And they aren’t going to sit by while the government manipulates prices higher.
“They’re going to say ‘Sold to you!’ and take their money elsewhere.”
Then on March 27, I compared the finances of the U.K. and the U.S., noting that we’re both in the same boat. I pointed out that policymakers were “transforming a Wall Street debt crisis into a potential debt crisis in Washington.” And I said that …
“Foreign investors have already started unloading ‘agency’ debt — bonds sold by Fannie Mae and Freddie Mac. In addition, China has warned that it’s getting nervous about its massive U.S. Treasury holdings.
“So is it too much to imagine that U.S. bonds will soon have their day of reckoning? I sure don’t think so.”
Now’s the time to hedge yourself against the government’s unofficial policy of trashing the greenback.
Finally, a few weeks ago, on August 7, I said that the never-ending wave of debt washing over the market would have dire long-term consequences. My warning:
“In the case of the U.S. government, our ever-increasing debt load means one of two things is going to have to happen. Either …
1. Economic growth is going to surge, sending tax revenue through the roof and allowing us to pay off all these bills, notes, and bonds.
OR …
2. Taxes are going to have to rise sharply to make good on our debts.”
Now, in a devastating broadside from the editorial page of The New York Times, the greatest American investor of all time is warning of the very same things. Warren Buffett, in a piece entitled “The Greenback Effect,” wrote on Wednesday [emphasis mine]:
“Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible … Still, their threat may be as ominous as that posed by the financial crisis itself.”
And …
“Our immediate problem is to get our country back on its feet and flourishing — ‘whatever it takes’ still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.
“Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt.”
Buffett’s warnings speak volumes about the seriousness of this problem.
That’s not all …
Buffett also noted that our government is spending $1.85 for every $1 it takes in from taxes … that ever-increasing purchases of Treasuries by foreign investors are “no sure thing” … and that our deficit is on track to hit 13 percent of GDP, more than double the previous non-wartime record of 6 percent.
Sound familiar?
It should. Because that’s exactly what we at Weiss Research have been warning you about for several months! But the fact that Buffett is weighing in speaks volumes about the seriousness of this problem.
Officials at PIMCO, the world’s largest bond fund manager, are also warning about the consequences of our government’s actions.
I’ve made no secret about my view on U.S. bonds and the U.S. dollar …
I’ve minced no words, and cut no corners …
Instead, I have given you specific, consistent guidance on those fronts: Namely stay the heck away from long-term Treasuries and hedge yourself against the government’s unofficial policy of trashing the greenback.
It started last year in my December 5 Money and Markets column, when I issued the most strident warning I’ve EVER released on bond prices. I labeled long-term Treasuries “the biggest bubble of all” and warned you that …
“No government, or central bank, is bigger than the bond and currency markets. Foreign bondholders aren’t going to sit idly by while any government … even the government of the U.S. … openly decides to trash its currency by printing it with reckless abandon. And they aren’t going to sit by while the government manipulates prices higher.
“They’re going to say ‘Sold to you!’ and take their money elsewhere.”
Then on March 27, I compared the finances of the U.K. and the U.S., noting that we’re both in the same boat. I pointed out that policymakers were “transforming a Wall Street debt crisis into a potential debt crisis in Washington.” And I said that …
“Foreign investors have already started unloading ‘agency’ debt — bonds sold by Fannie Mae and Freddie Mac. In addition, China has warned that it’s getting nervous about its massive U.S. Treasury holdings.
“So is it too much to imagine that U.S. bonds will soon have their day of reckoning? I sure don’t think so.”
Now’s the time to hedge yourself against the government’s unofficial policy of trashing the greenback.
Finally, a few weeks ago, on August 7, I said that the never-ending wave of debt washing over the market would have dire long-term consequences. My warning:
“In the case of the U.S. government, our ever-increasing debt load means one of two things is going to have to happen. Either …
1. Economic growth is going to surge, sending tax revenue through the roof and allowing us to pay off all these bills, notes, and bonds.
OR …
2. Taxes are going to have to rise sharply to make good on our debts.”
Now, in a devastating broadside from the editorial page of The New York Times, the greatest American investor of all time is warning of the very same things. Warren Buffett, in a piece entitled “The Greenback Effect,” wrote on Wednesday [emphasis mine]:
“Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible … Still, their threat may be as ominous as that posed by the financial crisis itself.”
And …
“Our immediate problem is to get our country back on its feet and flourishing — ‘whatever it takes’ still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.
“Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt.”
Buffett’s warnings speak volumes about the seriousness of this problem.
That’s not all …
Buffett also noted that our government is spending $1.85 for every $1 it takes in from taxes … that ever-increasing purchases of Treasuries by foreign investors are “no sure thing” … and that our deficit is on track to hit 13 percent of GDP, more than double the previous non-wartime record of 6 percent.
Sound familiar?
It should. Because that’s exactly what we at Weiss Research have been warning you about for several months! But the fact that Buffett is weighing in speaks volumes about the seriousness of this problem.
Officials at PIMCO, the world’s largest bond fund manager, are also warning about the consequences of our government’s actions.
“The Real War Is Between the Average American and the Ruling Class
Washington’s Blog
Friday, August 21, 2009
Sometimes the message is great, no matter what you think of the messenger.
Larry Flynt – yes, that Larry Flynt – wrote today on Huffington Post:
The American government — which we once called our government — has been taken over by Wall Street, the mega-corporations and the super-rich … Both Democrats and Republicans dance to the tune of their corporate masters. In America, corporations do not control the government. In America, corporations are the government.
This was never more obvious than with the Wall Street bailout, whereby the very corporations that caused the collapse of our economy were rewarded with taxpayer dollars. So arrogant, so smug were they that, without a moment’s hesitation, they took our money — yours and mine — to pay their executives multimillion-dollar bonuses, something they continue doing to this very day. They have no shame. They don’t care what you and I think about them. Henry Kissinger refers to us as “useless eaters”…
The reason Wall Street was able to game the system the way it did — knowing that they would become rich at the expense of the American people (oh, yes, they most certainly knew that) — was because the financial elite had bribed our legislators to roll back the protections enacted after the Stock Market Crash of 1929.
Congress gutted the Glass-Steagall Act, which separated commercial lending banks from investment banks, and passed the Commodity Futures Modernization Act, which allowed for self-regulation with no oversight. The Securities and Exchange Commission subsequently revised its rules to allow for even less oversight — and we’ve all seen how well that worked out. To date, no serious legislation has been offered by the Obama administration to correct these problems.
Instead, Obama wants to increase the oversight power of the Federal Reserve. Never mind that it already had significant oversight power before our most recent economic meltdown, yet failed to take action. Never mind that the Fed is not a government agency but a cartel of private bankers that cannot be held accountable by Washington. Whatever the Fed does with these supposed new oversight powers will be behind closed doors…
The real war is not between the left and the right. It is between the average American and the ruling class. If we come together on this single issue, everything else will resolve itself. It’s time we took back our government from those who would make us their slaves.
It is well worth your time in reading Flynt’s article in full. He gives some valuable history lessons (including the context of a quote by Thomas Jefferson being bandied about today) and proposes a concrete plan to effect change: a one-day national strike.
Friday, August 21, 2009
Sometimes the message is great, no matter what you think of the messenger.
Larry Flynt – yes, that Larry Flynt – wrote today on Huffington Post:
The American government — which we once called our government — has been taken over by Wall Street, the mega-corporations and the super-rich … Both Democrats and Republicans dance to the tune of their corporate masters. In America, corporations do not control the government. In America, corporations are the government.
This was never more obvious than with the Wall Street bailout, whereby the very corporations that caused the collapse of our economy were rewarded with taxpayer dollars. So arrogant, so smug were they that, without a moment’s hesitation, they took our money — yours and mine — to pay their executives multimillion-dollar bonuses, something they continue doing to this very day. They have no shame. They don’t care what you and I think about them. Henry Kissinger refers to us as “useless eaters”…
The reason Wall Street was able to game the system the way it did — knowing that they would become rich at the expense of the American people (oh, yes, they most certainly knew that) — was because the financial elite had bribed our legislators to roll back the protections enacted after the Stock Market Crash of 1929.
Congress gutted the Glass-Steagall Act, which separated commercial lending banks from investment banks, and passed the Commodity Futures Modernization Act, which allowed for self-regulation with no oversight. The Securities and Exchange Commission subsequently revised its rules to allow for even less oversight — and we’ve all seen how well that worked out. To date, no serious legislation has been offered by the Obama administration to correct these problems.
Instead, Obama wants to increase the oversight power of the Federal Reserve. Never mind that it already had significant oversight power before our most recent economic meltdown, yet failed to take action. Never mind that the Fed is not a government agency but a cartel of private bankers that cannot be held accountable by Washington. Whatever the Fed does with these supposed new oversight powers will be behind closed doors…
The real war is not between the left and the right. It is between the average American and the ruling class. If we come together on this single issue, everything else will resolve itself. It’s time we took back our government from those who would make us their slaves.
It is well worth your time in reading Flynt’s article in full. He gives some valuable history lessons (including the context of a quote by Thomas Jefferson being bandied about today) and proposes a concrete plan to effect change: a one-day national strike.
Friday, August 21, 2009
Insurer suing Bakersfield appraiser
An insurance underwriter is suing a Bakersfield appraiser who worked with Crisp, Cole & Associates, accusing Kirksey J. "Mark" Newton Jr. of failing to disclose key facts that would have disqualified him for a policy had they been known.
Lloyd's of London filed a lawsuit against Newton, owner of San Joaquin Appraisals Inc., on June 16 alleging he misled the company on his application for errors and omissions coverage. The lawsuit seeks permission to rescind the policy, which it said was granted under false pretenses.
Jerome N. Lerch, attorney for Lloyd's of London, did not return calls Tuesday seeking comment.
There's more than an insurance policy at stake. If Lloyd's loses, it could be on the hook for millions of dollars because a defunct subprime lender is suing Newton and others over several appraisals done for Crisp, Cole & Associates, a now closed real estate company the FBI is investigating for mortgage fraud.
The former Fremont Investment & Loan -- which went bankrupt and is now Fremont Reorganization Corp. -- said fake employment information and fudged appraisals were submitted with loan applications it funded in 2005 and 2006. The company is seeking $4.2 million, plus $40 million in punitive damages.
Newton could not be reached for comment Tuesday. His attorney, Mark A. Wasser, declined to comment.
On the insurance application, the lawsuit contends, Newton was asked directly if he had ever been notified of any investigation or review by a regulatory body, or if he knew of any incident related to his work that was or would be the subject of litigation.
In an application for a policy for 2008, Newton checked yes to the regulatory question, and in a separate letter disclosed that he'd been told the state Office of Real Estate Appraisers was reviewing one appraisal from May 2007, but he had not heard anything more about it, according to the lawsuit.
That policy lapsed Jan. 4, 2009, the insurer said. In March, Newton applied for another policy. He again checked yes to the regulatory question, but did not enclose a letter of explanation, according to the lawsuit.
When someone reviewing the application called on the matter, Newton said the disclosure was a reference to the earlier matter, and Newton was granted a new policy, the lawsuit said.
Newton did not disclose a pending accusation from state regulators seeking to revoke or suspend his license, the lawsuit states. Newton is fighting those charges.
The appraiser led the company to believe he was subject only to a "minor investigation involving only one appraisal," the lawsuit contends, when in fact the FBI raided the offices of Crisp & Cole and San Joaquin in September 2007, and Fremont had filed a civil complaint naming Newton in January 2009.
Fremont's attorney, James Petros, declined to comment on the insurance lawsuit.
Meanwhile, Fremont's lawsuit is pending. A hearing is scheduled for Oct. 5.
Lloyd's of London filed a lawsuit against Newton, owner of San Joaquin Appraisals Inc., on June 16 alleging he misled the company on his application for errors and omissions coverage. The lawsuit seeks permission to rescind the policy, which it said was granted under false pretenses.
Jerome N. Lerch, attorney for Lloyd's of London, did not return calls Tuesday seeking comment.
There's more than an insurance policy at stake. If Lloyd's loses, it could be on the hook for millions of dollars because a defunct subprime lender is suing Newton and others over several appraisals done for Crisp, Cole & Associates, a now closed real estate company the FBI is investigating for mortgage fraud.
The former Fremont Investment & Loan -- which went bankrupt and is now Fremont Reorganization Corp. -- said fake employment information and fudged appraisals were submitted with loan applications it funded in 2005 and 2006. The company is seeking $4.2 million, plus $40 million in punitive damages.
Newton could not be reached for comment Tuesday. His attorney, Mark A. Wasser, declined to comment.
On the insurance application, the lawsuit contends, Newton was asked directly if he had ever been notified of any investigation or review by a regulatory body, or if he knew of any incident related to his work that was or would be the subject of litigation.
In an application for a policy for 2008, Newton checked yes to the regulatory question, and in a separate letter disclosed that he'd been told the state Office of Real Estate Appraisers was reviewing one appraisal from May 2007, but he had not heard anything more about it, according to the lawsuit.
That policy lapsed Jan. 4, 2009, the insurer said. In March, Newton applied for another policy. He again checked yes to the regulatory question, but did not enclose a letter of explanation, according to the lawsuit.
When someone reviewing the application called on the matter, Newton said the disclosure was a reference to the earlier matter, and Newton was granted a new policy, the lawsuit said.
Newton did not disclose a pending accusation from state regulators seeking to revoke or suspend his license, the lawsuit states. Newton is fighting those charges.
The appraiser led the company to believe he was subject only to a "minor investigation involving only one appraisal," the lawsuit contends, when in fact the FBI raided the offices of Crisp & Cole and San Joaquin in September 2007, and Fremont had filed a civil complaint naming Newton in January 2009.
Fremont's attorney, James Petros, declined to comment on the insurance lawsuit.
Meanwhile, Fremont's lawsuit is pending. A hearing is scheduled for Oct. 5.
3.8 million home loans are delinquent, and prime loans are going into foreclosure faster than sub prime loans.
3.8 million home loans are delinquent
Mortgage lenders say the flood of foreclosures has not yet crested. Highwater mark should come this fall.
After losing their homes, these 4 families thought they'd never recover. They've found it difficult to rent and their credit is wrecked, but life is looking up.
Homeowners in trouble are having mixed results applying for President Obama's foreclosure prevention plan. CNNMoney.com readers tell us their tribulations and triumphs trying to get their loans modified or refinanced.
NEW YORK (CNNMoney.com) -- The number of Americans who have fallen at least 30 days behind on their home loan payments jumped 44% in the second quarter from a year ago, according to an industry report.
That puts delinquencies at a record 9.24% of mortgages, according to the National Delinquency Report from the Mortgage Bankers Association (MBA). That represents more than 4 million of the 45 million borrowers covered by the report.
What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago.
The combined percentage of loans past due and those already in foreclosure hit 13.16% during the quarter, the highest ever recorded by the MBA survey
"There was a major drop in foreclosures on subprime ARM loans," said Jay Brinkmann, chief economist for the MBA, in a prepared statement. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase."
Indeed, the MBA survey reported that prime, fixed-rate mortgages accounted for nearly one in every three foreclosure starts. That's way up from a year ago, when only one of every five foreclosure start involved a prime loan.
That bodes ill for the future health of the mortgage market. Prime loans make up two-thirds of the mortgage market, and if delinquencies among these mortgages continue to proliferate, the number of foreclosures will soar.
Brinkmann forecasts continued delinquency and foreclosure increases until the economy starts to recover. He predicts that job losses will peak by mid-2010, as will delinquencies, and foreclosures will start to fall about six months later.
Problem areas
The so-called "sand states" continue to contribute disproportionately to the mortgage meltdown. Four states -- California, Florida, Arizona and Nevada -- accounted for 44% of all foreclosure starts during the quarter.
"Issues related to the deteriorating economy and deteriorating home prices in those states have driven their delinquency problems]," said Brinkmann
In Florida, 12% of mortgages were somewhere in the process of foreclosure, the highest in the nation; another 5% were at least 90 days past due as of the end of June.
Adding in 30 days and 60 days past due and Florida's total delinquency rate comes to 22.8% -- almost twice the national percentage. The next highest states are Nevada at 21.3%, Arizona at 16.3% and Michigan at 15.3%. California stood at 15.2%, but because it is such a large state, that represents nearly 900,000 mortgage borrowers.
"It's hard to look at a national recovery," Brinkmann said. "We could have multiple bottoms with some markets recovering much faster than others."
First Published: August 20, 2009: 10:35 AM ET
Mortgage lenders say the flood of foreclosures has not yet crested. Highwater mark should come this fall.
After losing their homes, these 4 families thought they'd never recover. They've found it difficult to rent and their credit is wrecked, but life is looking up.
Homeowners in trouble are having mixed results applying for President Obama's foreclosure prevention plan. CNNMoney.com readers tell us their tribulations and triumphs trying to get their loans modified or refinanced.
NEW YORK (CNNMoney.com) -- The number of Americans who have fallen at least 30 days behind on their home loan payments jumped 44% in the second quarter from a year ago, according to an industry report.
That puts delinquencies at a record 9.24% of mortgages, according to the National Delinquency Report from the Mortgage Bankers Association (MBA). That represents more than 4 million of the 45 million borrowers covered by the report.
What the rate does not include, however, are loans already in foreclosure. Some 4.3% of all the mortgages are in that stage, up from 3.85% three months earlier and 1.55 percentage points from one year ago.
The combined percentage of loans past due and those already in foreclosure hit 13.16% during the quarter, the highest ever recorded by the MBA survey
"There was a major drop in foreclosures on subprime ARM loans," said Jay Brinkmann, chief economist for the MBA, in a prepared statement. "The drop, however, was offset by increases in the foreclosure rates on the other types of loans, with prime fixed-rate loans having the biggest increase."
Indeed, the MBA survey reported that prime, fixed-rate mortgages accounted for nearly one in every three foreclosure starts. That's way up from a year ago, when only one of every five foreclosure start involved a prime loan.
That bodes ill for the future health of the mortgage market. Prime loans make up two-thirds of the mortgage market, and if delinquencies among these mortgages continue to proliferate, the number of foreclosures will soar.
Brinkmann forecasts continued delinquency and foreclosure increases until the economy starts to recover. He predicts that job losses will peak by mid-2010, as will delinquencies, and foreclosures will start to fall about six months later.
Problem areas
The so-called "sand states" continue to contribute disproportionately to the mortgage meltdown. Four states -- California, Florida, Arizona and Nevada -- accounted for 44% of all foreclosure starts during the quarter.
"Issues related to the deteriorating economy and deteriorating home prices in those states have driven their delinquency problems]," said Brinkmann
In Florida, 12% of mortgages were somewhere in the process of foreclosure, the highest in the nation; another 5% were at least 90 days past due as of the end of June.
Adding in 30 days and 60 days past due and Florida's total delinquency rate comes to 22.8% -- almost twice the national percentage. The next highest states are Nevada at 21.3%, Arizona at 16.3% and Michigan at 15.3%. California stood at 15.2%, but because it is such a large state, that represents nearly 900,000 mortgage borrowers.
"It's hard to look at a national recovery," Brinkmann said. "We could have multiple bottoms with some markets recovering much faster than others."
First Published: August 20, 2009: 10:35 AM ET
A Bank with a 192 year old history and 37,000 employees. Will they let it crash?
Washington’s Blog
Thursday, August 20, 2009
Dan Amos – who called the crash of Lehman and other giants beforehand – says that a major bank is lying about its ability to pay shareholder dividends, has been gaming its books, and is about to crash.
Amos doesn’t say which bank he’s talking about, but gives the following hint:
[It has] a 192 year old history and 37,000 employees . . .
A quick Google search reveals that this can only be *** **** ** *******, also known as B** Financial Group.
Stock Gum Shoe – a website devoted to guessing at the companies hinted at in stock tips – confirms that Amos was talking about Bank of Montreal.
This is newsworthy because the Canadian banks have widely been seen as the world’s safest and most stable banks. Indeed, the Bank of Montreal was listed as the 33rd safest bank in the world by Global Finance (see page 2).
Amos says that the Bank of Montreal won’t be able to pay the promised $1.5 billion dividend scheduled later this year, which will precipitate a crash in BMO’s stock by December.
Note: I am not an investment advisor and this should not be taken as investment advice.
Thursday, August 20, 2009
Dan Amos – who called the crash of Lehman and other giants beforehand – says that a major bank is lying about its ability to pay shareholder dividends, has been gaming its books, and is about to crash.
Amos doesn’t say which bank he’s talking about, but gives the following hint:
[It has] a 192 year old history and 37,000 employees . . .
A quick Google search reveals that this can only be *** **** ** *******, also known as B** Financial Group.
Stock Gum Shoe – a website devoted to guessing at the companies hinted at in stock tips – confirms that Amos was talking about Bank of Montreal.
This is newsworthy because the Canadian banks have widely been seen as the world’s safest and most stable banks. Indeed, the Bank of Montreal was listed as the 33rd safest bank in the world by Global Finance (see page 2).
Amos says that the Bank of Montreal won’t be able to pay the promised $1.5 billion dividend scheduled later this year, which will precipitate a crash in BMO’s stock by December.
Note: I am not an investment advisor and this should not be taken as investment advice.
Dead Bank = "Kaput Thing"
By Rowena Mason
Published: 6:55PM BST 15 Aug 2009
what ugly secrets are waiting to be exposed in the meltdown?
The leak of Kaupthing's loan book revealed unusual lending practices
Eva Joly, a fraud expert, believes her investigation will be the biggest in history of a banking collapse
Bjorgolfur Gudmundsson (pictured centre) owned a 45pc stake in Landisbanki and at one point owned West Ham
Jon Asgeur Johannesson and related business associates had control of Glitnir
Demonstrators outside the Icelandic Parliament building. Ordinary citizens have been hit hard by the economy's collapse
The sharp drop in the Icelandic kronur has proved helpful to the economy
For months rumours of share-ramping, market manipulation, excessive loans to their owners and unusual transfers off-shore have been circling Kaupthing, Glitnir and Landsbanki, whose failure last October left 300,000 British customers unable to access their money.
It has now become clear that this was no ordinary crash. Iceland's special investigation into "suspicions of criminal activity" at the three banks is likely to stretch from Reykjavik to London, Luxembourg and the British Virgin Islands.
Many of the banks' secrets are likely to be inextricably bound up with corporate Britain and the success of these investigations in tracing and recovering assets is likely to affect every UK household.
Local authorities lost £1bn – or 5pc of all the money from council tax – in the over-leveraged institutions, leaving many facing the prospect of drastic cuts in services or steep hikes next year as they wait for the proceeds of the banks' administration to dribble through.
Although the Treasury can barely afford the UK's own bailout, it was forced to pay out £7.5bn to British savers who had internet accounts with Landsbanki's Icesave and Kaupthing's Edge with the uncertain prospect of getting the money back.
It now looks like Icelandic MPs will agree to pay £2.3bn to the Treasury to reimburse British savers up to the value of 20,887 euros (£18,054).
Not only did local authorities, charities and savers have billions tied up in its bank accounts, but a number of the City's wealthiest investors, from Robert Tchenguiz and the Candy Brothers to Kevin Stanford and Simon Halabi received hefty corporate loans from these insititutions.
But among the worst affected by the crisis are 10,000 savers with £840m tied up in Kaupthing in the Isle of Man and 2,000 savers with £117m in Landsbanki in Guernsey. All lost their entire savings with no compensation. Many are still waiting in line with a queue of commercial creditors.
When the banks were put into administration last October, experts believed that Iceland's banks had simply fallen prey to the global credit crisis.
But Dr Jon Danielsson, an Icelander who teaches economics at the London School of Economics, believes that while the timing of the crash was dictated by the global banking crisis, the scandal is unique among European financial institutions.
He believes the root of Iceland's problems that have now decimated its economy appear to have started when the government decided to privatise the banks in the early 1990s.
"Iceland got its regulations from the EU, which was basically sound," he says. "But the government had no understanding of the dangers of banks or how to supervise them. They got into the hands of people who took risks to the highest possible degree."
Kaupthing fell into the clutches of the Gudmundsson brothers, Ágúst and Lydur, who made their fortunes building up the Bakkavor food manufacturing empire, which supplies hundreds of supermarkets in the UK. Their investment vehicle, Exista, owned 23pc of the bank, counting Robert Tchenguiz, the London property entrepreneur as a board member.
Kaupthing's loan book, which was leaked on to the internet last week, shows that around one third, or €6bn (£5.1bn), of its €16bn corporate loan book was going to a small elite of men connected to the bank's owners and management.
Several investigations into Kaupthing centre on share ramping, where the bank would allegedly give loans with no interest or security in order to buy shares in that same bank – boosting the share price.
One particularly murky incident revolves around the acquisition of a 5pc stake in Kaupthing by a company called QFinance linked to Mohammed bin Khalifa Al-Thani, the Sheikh of Qatar. Several weeks before the banks collapsed, a press release stated that the transaction showed that "Kaupthing's position is strong and we believe in the bank's strategy and management."
Only after the bank collapsed several weeks later did it emerge that the Qatari investor "bought" the stake using a loan from Kaupthing itself and a holding company associated with one of its employees. The bank appears, in effect, to have been purchasing its own shares, which does not seem to be uncommon; investigators are also looking at a similar purchase of a 2.5pc stake in Kaupthing by London-based property entrepreneurs Moises and Mendi Gertner.
Officials have also questioned why loans to senior Kaupthing employees to buy shares in the bank were allegedly written off days before the collapse.
Companies connected to Exista, the Gudmundsson brothers' opaque investment vehicle that owned their stake in Kaupthing, received €1.86bn in loans. Their close business associate, Mr Tchenguiz, appears to have personally borrowed €1.74bn in loans to fund his private investments - from stakes in Sainsburys to Mitchells & Butlers. Mr Tchenguiz is now being sued by Kaupthing's administration committee for the return of £643m.
Kevin Stanford, co-founder of the Karen Millen retail chain and one of Britain's wealthiest retailers, also got €519m in loans and was Kaupthing's fourth biggest shareholder. His company's purchase of credit default swaps in the bank is also under scrutiny, though there is no suggestion of wrongdoing his or his companies' part.
According to the leaked document, many of these loans carried little or no security and were listed as belonging to Kaupthing's "exception list" – seemingly those who received banking services on favourable terms.
The loan books of Landsbanki and Glitnir remain in the hands of their administration committees – to the frustration of many Icelanders who fear they may yield equally unusual surprises.
Landsbanki was controlled by the Björgólfur clan, who made their money from the sale of a Russian brewery to Heineken.
Björgólfur Gudmundsson had left Iceland after minor convictions for false bookkeeping and the collapse of his shipping empire, but returned a billionaire to take a 45pc stake in the bank. His son, known as Thor, created a pharmaceuticals empire netting him riches of more than $3bn (£1.7bn).
These were the men who owned the bank responsible for Icesave accounts, the high-interest internet operations that took billions in deposits from 300,000 UK savers.
Information from Landsbanki's reports suggest that companies connected to the bank's board of directors received at least €300m in loans. It is also known that Landsbanki lent the chairman's son Björgólfur Thor Björgólfsson's company Novator significant amounts, but later claimed that it did not need to be disclosed since he was not a "related party".
Björgólfur Gudmundsson, who was also the owner of West Ham FC, has now been declared bankrupt.
Meanwhile Glitnir, the smallest bank, fell under the control of Jón Ásgeir Jóhannesson and related business associates. He was the conquering Viking of the Baugur private equity house that took over a huge number of British high street shops from Hamleys to House of Fraser. Barred from being a director in Iceland for minor false accounting charges, he moved his headquarters to Britain. Glitnir, though lower profile in Britain, has not escaped public scrutiny. It is known to have lent connected people at least €200m in loans.
FL Group, the investment company that owned Mr Jóhannesson's stake in Glitnir, is now the subject of a major investigation by Iceland's economic crime police. Once powerful enough to own a major stake in American Airlines and threaten to take over Easyjet, the company's collapse in October with debts exceeding £1bn was the first domino to fall in the Icelandic banking crisis.
A house belonging to FL Group's chief executive, Hannes Smarason, was raided by police looking into the sales and re-sales of Sterling Airlines, a Danish carrier that failed last year. Sources in the Icelandic authorities said the investigation centred on a period when Sterling was sold three times in just over a year among a number of people closely linked to the listed company.
Mr Jóhannesson himself, having been cleared of 40 charges of fraud and embezzlement in 2008, is now awaiting trial for tax offences.
So how did no one manage to spot that these banks were making precarious loans to benefit a very small number of people?
One London-based analyst at a large investment bank who followed Kaupthing, Glitnir and Landsbanki for many years is unsurprised at the some of the revelations. It is the ratings agencies and financial supervisors who must take the blame for failing to spot some tell-tale signs that some unusual activity was occurring, he claims.
"If you took one careful look at the annual reports you could see that loans to related parties was extremely high," he says. "Any normal bank might give his chief executive a mortgage but running into billions is certainly unusual. But getting money on the international markets was cheap and there was no penalty for not being a proper bank – as I don't believe these were."
One headache that may have caused the regulators to back away was the banks' complex ownership structures involving a constantly shifting mess of investment vehicles and holding companies. All the banks appear to have sold and re-sold stakes, shifted around top management staff and lent each other's owners large amounts.
By Christmas 2007, a handful of analysts were beginning to suspect that something was up. It looked like the Icelandic banks were finding it even more difficult than most to raise money on the international markets, turning instead more European depositors to fund their loan operations. This gave birth to Landsbanki's Icesave and Kaupthing Edge.
Per Lofgrem, an analyst for Morgan Stanley, wrote at the time: "New funding has not come from traditional sources. The acquisitions of Derbyshire Building Society and Robeco [a Dutch bank] were made in order to get hold of their deposit bases. We also believe that the bank would have used better-known markets than Mexico to issue debt if more conventional markets were open."
Others warned investors strongly to stay away from them. Andreas Hakansson, an analyst for UBS in Sweden, repeatedly wrote client notes stressing that the complexity and vulnerability of the banks.
Kaupthing Edge started marketing to British savers in February 2008 and was fast building up a deposit base. And all, including Glitnir, had been recommended by advisors to local authorities as a good high-interest place to put their savings.
As Kaupthing, Landsbanki and Glitnir appeared to be on the brink of collapse in the autumn of last year, an army of spin doctors tried to persuade the UK that the banks were the target of a media conspiracy to discredit them.
By October, the money and time to fix problems had run out. The banks fell into administration one by one over the course of one week and Iceland's currency plunged.
Since then, Iceland has had an overwhelming battle to get its economy back on track that included a bail-out package led by the International Monetary Fund. It has not been helped by a political row with the UK over who is responsible for compensating Icesave depositors . Having agreed to pay Britain £2.3bn plus 5.5pc interest in compensation up to €20,887 for each Icesave account, the population is in revolt over the bill they have to pick up for the excesses of a few wealthy men.
So how are these investigations likely to end? One major issue faced by the investigators is the tightly-knit nature of the financial community, where family and friendship ties are everywhere.
KPMG in Iceland, which was meant to be conducting a forensic investigation into the collapse of Glitnir, had to resign when it emerged that its chief executive, Sigurdur Jónsson, was the father of the bank's biggest shareholder.
The government, anxious to clear the old guard from the new banks, ordered former employees off the administration committees. Glitnir and Kaupthing immediately re-hired them as consultants.
However, Ólafur Ísleifsson, a professor of business at the University of Reykjavik and former advisor to the IMF, believes the banks are already in recovery mode
"Some of the information that has already been revealed is quite shocking," he says. "But an important step consists of recent decisions that place the new banks on a secure financial footing.
Dr Danielsson disagrees, arguing that the financial system is still cripple by bad banks and a lack of trust in the authorities. "Things have not been able to progress and are getting worse," he says. "The government needs to act to try to find anyone who is guilty and punish those people. That is important for the country to heal."
Published: 6:55PM BST 15 Aug 2009
what ugly secrets are waiting to be exposed in the meltdown?
The leak of Kaupthing's loan book revealed unusual lending practices
Eva Joly, a fraud expert, believes her investigation will be the biggest in history of a banking collapse
Bjorgolfur Gudmundsson (pictured centre) owned a 45pc stake in Landisbanki and at one point owned West Ham
Jon Asgeur Johannesson and related business associates had control of Glitnir
Demonstrators outside the Icelandic Parliament building. Ordinary citizens have been hit hard by the economy's collapse
The sharp drop in the Icelandic kronur has proved helpful to the economy
For months rumours of share-ramping, market manipulation, excessive loans to their owners and unusual transfers off-shore have been circling Kaupthing, Glitnir and Landsbanki, whose failure last October left 300,000 British customers unable to access their money.
It has now become clear that this was no ordinary crash. Iceland's special investigation into "suspicions of criminal activity" at the three banks is likely to stretch from Reykjavik to London, Luxembourg and the British Virgin Islands.
Many of the banks' secrets are likely to be inextricably bound up with corporate Britain and the success of these investigations in tracing and recovering assets is likely to affect every UK household.
Local authorities lost £1bn – or 5pc of all the money from council tax – in the over-leveraged institutions, leaving many facing the prospect of drastic cuts in services or steep hikes next year as they wait for the proceeds of the banks' administration to dribble through.
Although the Treasury can barely afford the UK's own bailout, it was forced to pay out £7.5bn to British savers who had internet accounts with Landsbanki's Icesave and Kaupthing's Edge with the uncertain prospect of getting the money back.
It now looks like Icelandic MPs will agree to pay £2.3bn to the Treasury to reimburse British savers up to the value of 20,887 euros (£18,054).
Not only did local authorities, charities and savers have billions tied up in its bank accounts, but a number of the City's wealthiest investors, from Robert Tchenguiz and the Candy Brothers to Kevin Stanford and Simon Halabi received hefty corporate loans from these insititutions.
But among the worst affected by the crisis are 10,000 savers with £840m tied up in Kaupthing in the Isle of Man and 2,000 savers with £117m in Landsbanki in Guernsey. All lost their entire savings with no compensation. Many are still waiting in line with a queue of commercial creditors.
When the banks were put into administration last October, experts believed that Iceland's banks had simply fallen prey to the global credit crisis.
But Dr Jon Danielsson, an Icelander who teaches economics at the London School of Economics, believes that while the timing of the crash was dictated by the global banking crisis, the scandal is unique among European financial institutions.
He believes the root of Iceland's problems that have now decimated its economy appear to have started when the government decided to privatise the banks in the early 1990s.
"Iceland got its regulations from the EU, which was basically sound," he says. "But the government had no understanding of the dangers of banks or how to supervise them. They got into the hands of people who took risks to the highest possible degree."
Kaupthing fell into the clutches of the Gudmundsson brothers, Ágúst and Lydur, who made their fortunes building up the Bakkavor food manufacturing empire, which supplies hundreds of supermarkets in the UK. Their investment vehicle, Exista, owned 23pc of the bank, counting Robert Tchenguiz, the London property entrepreneur as a board member.
Kaupthing's loan book, which was leaked on to the internet last week, shows that around one third, or €6bn (£5.1bn), of its €16bn corporate loan book was going to a small elite of men connected to the bank's owners and management.
Several investigations into Kaupthing centre on share ramping, where the bank would allegedly give loans with no interest or security in order to buy shares in that same bank – boosting the share price.
One particularly murky incident revolves around the acquisition of a 5pc stake in Kaupthing by a company called QFinance linked to Mohammed bin Khalifa Al-Thani, the Sheikh of Qatar. Several weeks before the banks collapsed, a press release stated that the transaction showed that "Kaupthing's position is strong and we believe in the bank's strategy and management."
Only after the bank collapsed several weeks later did it emerge that the Qatari investor "bought" the stake using a loan from Kaupthing itself and a holding company associated with one of its employees. The bank appears, in effect, to have been purchasing its own shares, which does not seem to be uncommon; investigators are also looking at a similar purchase of a 2.5pc stake in Kaupthing by London-based property entrepreneurs Moises and Mendi Gertner.
Officials have also questioned why loans to senior Kaupthing employees to buy shares in the bank were allegedly written off days before the collapse.
Companies connected to Exista, the Gudmundsson brothers' opaque investment vehicle that owned their stake in Kaupthing, received €1.86bn in loans. Their close business associate, Mr Tchenguiz, appears to have personally borrowed €1.74bn in loans to fund his private investments - from stakes in Sainsburys to Mitchells & Butlers. Mr Tchenguiz is now being sued by Kaupthing's administration committee for the return of £643m.
Kevin Stanford, co-founder of the Karen Millen retail chain and one of Britain's wealthiest retailers, also got €519m in loans and was Kaupthing's fourth biggest shareholder. His company's purchase of credit default swaps in the bank is also under scrutiny, though there is no suggestion of wrongdoing his or his companies' part.
According to the leaked document, many of these loans carried little or no security and were listed as belonging to Kaupthing's "exception list" – seemingly those who received banking services on favourable terms.
The loan books of Landsbanki and Glitnir remain in the hands of their administration committees – to the frustration of many Icelanders who fear they may yield equally unusual surprises.
Landsbanki was controlled by the Björgólfur clan, who made their money from the sale of a Russian brewery to Heineken.
Björgólfur Gudmundsson had left Iceland after minor convictions for false bookkeeping and the collapse of his shipping empire, but returned a billionaire to take a 45pc stake in the bank. His son, known as Thor, created a pharmaceuticals empire netting him riches of more than $3bn (£1.7bn).
These were the men who owned the bank responsible for Icesave accounts, the high-interest internet operations that took billions in deposits from 300,000 UK savers.
Information from Landsbanki's reports suggest that companies connected to the bank's board of directors received at least €300m in loans. It is also known that Landsbanki lent the chairman's son Björgólfur Thor Björgólfsson's company Novator significant amounts, but later claimed that it did not need to be disclosed since he was not a "related party".
Björgólfur Gudmundsson, who was also the owner of West Ham FC, has now been declared bankrupt.
Meanwhile Glitnir, the smallest bank, fell under the control of Jón Ásgeir Jóhannesson and related business associates. He was the conquering Viking of the Baugur private equity house that took over a huge number of British high street shops from Hamleys to House of Fraser. Barred from being a director in Iceland for minor false accounting charges, he moved his headquarters to Britain. Glitnir, though lower profile in Britain, has not escaped public scrutiny. It is known to have lent connected people at least €200m in loans.
FL Group, the investment company that owned Mr Jóhannesson's stake in Glitnir, is now the subject of a major investigation by Iceland's economic crime police. Once powerful enough to own a major stake in American Airlines and threaten to take over Easyjet, the company's collapse in October with debts exceeding £1bn was the first domino to fall in the Icelandic banking crisis.
A house belonging to FL Group's chief executive, Hannes Smarason, was raided by police looking into the sales and re-sales of Sterling Airlines, a Danish carrier that failed last year. Sources in the Icelandic authorities said the investigation centred on a period when Sterling was sold three times in just over a year among a number of people closely linked to the listed company.
Mr Jóhannesson himself, having been cleared of 40 charges of fraud and embezzlement in 2008, is now awaiting trial for tax offences.
So how did no one manage to spot that these banks were making precarious loans to benefit a very small number of people?
One London-based analyst at a large investment bank who followed Kaupthing, Glitnir and Landsbanki for many years is unsurprised at the some of the revelations. It is the ratings agencies and financial supervisors who must take the blame for failing to spot some tell-tale signs that some unusual activity was occurring, he claims.
"If you took one careful look at the annual reports you could see that loans to related parties was extremely high," he says. "Any normal bank might give his chief executive a mortgage but running into billions is certainly unusual. But getting money on the international markets was cheap and there was no penalty for not being a proper bank – as I don't believe these were."
One headache that may have caused the regulators to back away was the banks' complex ownership structures involving a constantly shifting mess of investment vehicles and holding companies. All the banks appear to have sold and re-sold stakes, shifted around top management staff and lent each other's owners large amounts.
By Christmas 2007, a handful of analysts were beginning to suspect that something was up. It looked like the Icelandic banks were finding it even more difficult than most to raise money on the international markets, turning instead more European depositors to fund their loan operations. This gave birth to Landsbanki's Icesave and Kaupthing Edge.
Per Lofgrem, an analyst for Morgan Stanley, wrote at the time: "New funding has not come from traditional sources. The acquisitions of Derbyshire Building Society and Robeco [a Dutch bank] were made in order to get hold of their deposit bases. We also believe that the bank would have used better-known markets than Mexico to issue debt if more conventional markets were open."
Others warned investors strongly to stay away from them. Andreas Hakansson, an analyst for UBS in Sweden, repeatedly wrote client notes stressing that the complexity and vulnerability of the banks.
Kaupthing Edge started marketing to British savers in February 2008 and was fast building up a deposit base. And all, including Glitnir, had been recommended by advisors to local authorities as a good high-interest place to put their savings.
As Kaupthing, Landsbanki and Glitnir appeared to be on the brink of collapse in the autumn of last year, an army of spin doctors tried to persuade the UK that the banks were the target of a media conspiracy to discredit them.
By October, the money and time to fix problems had run out. The banks fell into administration one by one over the course of one week and Iceland's currency plunged.
Since then, Iceland has had an overwhelming battle to get its economy back on track that included a bail-out package led by the International Monetary Fund. It has not been helped by a political row with the UK over who is responsible for compensating Icesave depositors . Having agreed to pay Britain £2.3bn plus 5.5pc interest in compensation up to €20,887 for each Icesave account, the population is in revolt over the bill they have to pick up for the excesses of a few wealthy men.
So how are these investigations likely to end? One major issue faced by the investigators is the tightly-knit nature of the financial community, where family and friendship ties are everywhere.
KPMG in Iceland, which was meant to be conducting a forensic investigation into the collapse of Glitnir, had to resign when it emerged that its chief executive, Sigurdur Jónsson, was the father of the bank's biggest shareholder.
The government, anxious to clear the old guard from the new banks, ordered former employees off the administration committees. Glitnir and Kaupthing immediately re-hired them as consultants.
However, Ólafur Ísleifsson, a professor of business at the University of Reykjavik and former advisor to the IMF, believes the banks are already in recovery mode
"Some of the information that has already been revealed is quite shocking," he says. "But an important step consists of recent decisions that place the new banks on a secure financial footing.
Dr Danielsson disagrees, arguing that the financial system is still cripple by bad banks and a lack of trust in the authorities. "Things have not been able to progress and are getting worse," he says. "The government needs to act to try to find anyone who is guilty and punish those people. That is important for the country to heal."
Thursday, August 20, 2009
Citigroup’s Asset Guarantees to Be Audited by TARP
By Bradley Keoun and Mark Pittman
Aug. 19 (Bloomberg) -- Citigroup Inc.’s $301 billion of federal asset guarantees, extended by the U.S. last year to help save the bank from collapse, will be audited to calculate losses and determine whether taxpayers got a fair deal.
Neil Barofsky, inspector general of the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program, agreed in an Aug. 3 letter to audit the program after a request by U.S. Representative Alan Grayson. Barofsky will examine why the guarantees were given, how they were structured and whether the bank’s risk controls are adequate to prevent government losses.
The Treasury, Federal Deposit Insurance Corp. and Federal Reserve provided the guarantees last November, when a plunge in Citigroup’s stock below $5 sparked concern that a run on the bank might rock global markets and impede an economic recovery. New York-based Citigroup paid the government $7.3 billion in preferred stock in return for the guarantees.
“What kind of toxic assets did the Federal Reserve guarantee, and what off-balance-sheet liabilities have been pinned on us?” Grayson, a Florida Democrat who sits on the House Financial Services Committee, wrote yesterday in an e- mailed response to questions on the audit. “How much money have the taxpayers already lost? We need to know.”
Citigroup’s guarantees are among $23.7 trillion of total potential government support stemming from programs set up since 2007 to ease the financial crisis, according to a report last month by Barofsky’s office. The “total downside risk” from Citigroup’s asset guarantees is about $230 billion to the Federal Reserve alone, Grayson said in a June 24 letter to Barofsky requesting the audit.
TARP Money
Citigroup’s guarantees came on top of $45 billion of bailout funds obtained last year through the TARP program. Bank of America Corp., which also got $45 billion of TARP funds, initially agreed to take guarantees on $118 billion and later decided not to sign the accord.
The pool of Citigroup assets included $154.1 billion of mortgages, $16.2 billion of auto loans, $21.3 billion of “other consumer loans,” $12.4 billion of commercial-real-estate loans and $13.4 billion of corporate loans, Citigroup Chief Executive Officer Vikram Pandit said in a Jan. 27 presentation. The assets also included $31.9 billion of distressed securities and $51.5 billion of off-balance-sheet lending commitments.
Under the terms of the guarantees, Citigroup must absorb the first $39.5 billion of losses on the assets, plus 10 percent of the remaining losses. Through June 30, losses on the pool totaled $5.3 billion, Citigroup said in its second-quarter earnings report.
Citigroup’s Cooperation
“We are working closely with the government on the implementation of the loss-sharing agreement, and of course, we will cooperate with the special inspector general for TARP in any review,” Citigroup spokesman Stephen Cohen said.
The bank’s share price fell 1 cent to $4.13 as of 4 p.m. in New York Stock Exchange composite trading. At that price, the shares are almost 10 percent above the $3.77 level they reached last November, when the guarantees were announced.
One question is whether Citigroup’s loans and securities were adequately written down before being put into the covered pool, Joseph Stiglitz, a Columbia University economist who won the Nobel Prize in 2001, said in an interview today.
“If they picked a high price, the losses could be a major exposure for the taxpayer,” Stiglitz said.
In his letter, Barofsky said he “will begin to assemble a team to audit the Citigroup guarantees.”
“We anticipate finalizing the audit plan and issuing a formal audit announcement shortly,” he wrote.
Selecting Loans
The audit will address “the basis on which the decision was made” as well as the “process for selecting loans to be guaranteed,” according to Barofsky’s letter. The inspector general also will assess “the risk-management and internal controls and related oversight processes and procedures to mitigate risks to the government.”
The audit will take several months and a deadline hasn’t been set, said Kris Belisle, a spokeswoman for Barofsky.
The Treasury, FDIC and Fed said in a joint statement on Nov. 23 that they agreed to the plan to support “financial market stability, which is a prerequisite to restoring vigorous economic growth.” They promised to “exercise prudent stewardship of taxpayer resources.”
The following month, the Federal Reserve Bank of New York hired New York-based money manager BlackRock Inc. under a $12 million contract to spend two months providing an independent valuation of Citigroup’s guaranteed assets. The New York Fed paid another $5 million to $10 million to PricewaterhouseCoopers LLP to assess Citigroup’s own methods of valuing the assets, according to a copy of the contract posted on the Federal Reserve Bank’s Web site.
To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Mark Pittman in New York at mpittman@bloomberg.net.
Aug. 19 (Bloomberg) -- Citigroup Inc.’s $301 billion of federal asset guarantees, extended by the U.S. last year to help save the bank from collapse, will be audited to calculate losses and determine whether taxpayers got a fair deal.
Neil Barofsky, inspector general of the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program, agreed in an Aug. 3 letter to audit the program after a request by U.S. Representative Alan Grayson. Barofsky will examine why the guarantees were given, how they were structured and whether the bank’s risk controls are adequate to prevent government losses.
The Treasury, Federal Deposit Insurance Corp. and Federal Reserve provided the guarantees last November, when a plunge in Citigroup’s stock below $5 sparked concern that a run on the bank might rock global markets and impede an economic recovery. New York-based Citigroup paid the government $7.3 billion in preferred stock in return for the guarantees.
“What kind of toxic assets did the Federal Reserve guarantee, and what off-balance-sheet liabilities have been pinned on us?” Grayson, a Florida Democrat who sits on the House Financial Services Committee, wrote yesterday in an e- mailed response to questions on the audit. “How much money have the taxpayers already lost? We need to know.”
Citigroup’s guarantees are among $23.7 trillion of total potential government support stemming from programs set up since 2007 to ease the financial crisis, according to a report last month by Barofsky’s office. The “total downside risk” from Citigroup’s asset guarantees is about $230 billion to the Federal Reserve alone, Grayson said in a June 24 letter to Barofsky requesting the audit.
TARP Money
Citigroup’s guarantees came on top of $45 billion of bailout funds obtained last year through the TARP program. Bank of America Corp., which also got $45 billion of TARP funds, initially agreed to take guarantees on $118 billion and later decided not to sign the accord.
The pool of Citigroup assets included $154.1 billion of mortgages, $16.2 billion of auto loans, $21.3 billion of “other consumer loans,” $12.4 billion of commercial-real-estate loans and $13.4 billion of corporate loans, Citigroup Chief Executive Officer Vikram Pandit said in a Jan. 27 presentation. The assets also included $31.9 billion of distressed securities and $51.5 billion of off-balance-sheet lending commitments.
Under the terms of the guarantees, Citigroup must absorb the first $39.5 billion of losses on the assets, plus 10 percent of the remaining losses. Through June 30, losses on the pool totaled $5.3 billion, Citigroup said in its second-quarter earnings report.
Citigroup’s Cooperation
“We are working closely with the government on the implementation of the loss-sharing agreement, and of course, we will cooperate with the special inspector general for TARP in any review,” Citigroup spokesman Stephen Cohen said.
The bank’s share price fell 1 cent to $4.13 as of 4 p.m. in New York Stock Exchange composite trading. At that price, the shares are almost 10 percent above the $3.77 level they reached last November, when the guarantees were announced.
One question is whether Citigroup’s loans and securities were adequately written down before being put into the covered pool, Joseph Stiglitz, a Columbia University economist who won the Nobel Prize in 2001, said in an interview today.
“If they picked a high price, the losses could be a major exposure for the taxpayer,” Stiglitz said.
In his letter, Barofsky said he “will begin to assemble a team to audit the Citigroup guarantees.”
“We anticipate finalizing the audit plan and issuing a formal audit announcement shortly,” he wrote.
Selecting Loans
The audit will address “the basis on which the decision was made” as well as the “process for selecting loans to be guaranteed,” according to Barofsky’s letter. The inspector general also will assess “the risk-management and internal controls and related oversight processes and procedures to mitigate risks to the government.”
The audit will take several months and a deadline hasn’t been set, said Kris Belisle, a spokeswoman for Barofsky.
The Treasury, FDIC and Fed said in a joint statement on Nov. 23 that they agreed to the plan to support “financial market stability, which is a prerequisite to restoring vigorous economic growth.” They promised to “exercise prudent stewardship of taxpayer resources.”
The following month, the Federal Reserve Bank of New York hired New York-based money manager BlackRock Inc. under a $12 million contract to spend two months providing an independent valuation of Citigroup’s guaranteed assets. The New York Fed paid another $5 million to $10 million to PricewaterhouseCoopers LLP to assess Citigroup’s own methods of valuing the assets, according to a copy of the contract posted on the Federal Reserve Bank’s Web site.
To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Mark Pittman in New York at mpittman@bloomberg.net.
Switzerland to Sell $5.6 Billion UBS Stake After U.S. Accord
By Josh Fineman and Elena Logutenkova
Aug. 20 (Bloomberg) -- The Swiss government said it plans to sell its 6 billion-franc investment in UBS AG, the country’s biggest bank, by today after signing an agreement with the U.S. yesterday over data on bank clients suspected of evading taxes.
The government gave a mandate to three Swiss and foreign banks to sell 332.2 million UBS shares, securing a certain minimum price, Peter Siegenthaler, director of the federal finance administration, said in a telephone interview. He declined to identify the banks or the minimum price, saying the state expects to make a “significant profit.”
The Swiss Confederation will waive its right to receive future coupons on the mandatory convertible notes for a cash amount of approximately 1.8 billion Swiss francs, representing the present value of the future coupon payments, UBS said.
The Swiss government last year invested 6 billion Swiss francs ($5.6 billion) in mandatory convertible notes to help Zurich-based UBS split off toxic assets amid the worst economic crisis since the Great Depression. Yesterday’s settlement of a U.S. lawsuit that sought data on as many as 52,000 UBS clients and the bank’s 3.8 billion-franc capital increase in June strengthened confidence in the bank, the government said.
Swiss and U.S. authorities said earlier yesterday that UBS will divulge information on 4,450 accounts to settle a U.S. lawsuit that sought names of American clients suspected of evading taxes. The bank, which won’t pay any fine under the agreement, will transfer the data to the Swiss government, which will then decide what information gets passed on.
Note Conversion
“At the moment, it wouldn’t be a bad deal” to sell the UBS investment, Swiss Finance Minister Hans-Rudolf Merz said at a press conference in Bern.
The government intends to convert the mandatory convertible notes on Aug. 25, when UBS will also make the cash payment in lieu of future coupons, the bank said in a separate statement.
The government intends to sell UBS shares to institutional investors.
UBS’s share capital will increase to 355.8 million from 322.6 million, UBS said in the statement. The transaction will have no material effect on the bank’s third-quarter earnings, though it will reduce its Tier 1 capital ratio by 60 basis points, it said. A basis point is 0.01 of a percentage point.
UBS, the world’s second-biggest manager of money for the rich, admitted in February to participating “in a scheme to defraud the U.S.” and agreed to pay $780 million and disclose the names of more than 250 clients who allegedly hid assets from the IRS. A day later, the IRS sued the bank for information on as many as 52,000 clients.
Shares Rise
UBS shares have risen 11 percent since the U.S. and Switzerland said they had reached an agreement in principle on the tax lawsuit on July 31. UBS fell 16 centimes, or 1 percent, to 16.74 francs in Swiss trading yesterday.
UBS Chief Executive Officer Oswald Gruebel and Chairman Kaspar Villiger have said they aim to wean the bank off government support as quickly as possible. Gruebel has cut 7,500 jobs, sold a Brazilian unit, replaced three executive board members and tapped investors for more capital since joining UBS in February to help restore the bank’s profitability and reputation.
The bank’s Tier 1 capital ratio, a gauge of its ability to absorb losses, rose to 13.2 percent at the end of the second quarter from 10.5 percent at the end of March after the bank cut assets on the balance sheet by 261 billion francs and sold new shares in June.
To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Elena Logutenkova in Zurich at elogutenkova@bloomberg.net
Aug. 20 (Bloomberg) -- The Swiss government said it plans to sell its 6 billion-franc investment in UBS AG, the country’s biggest bank, by today after signing an agreement with the U.S. yesterday over data on bank clients suspected of evading taxes.
The government gave a mandate to three Swiss and foreign banks to sell 332.2 million UBS shares, securing a certain minimum price, Peter Siegenthaler, director of the federal finance administration, said in a telephone interview. He declined to identify the banks or the minimum price, saying the state expects to make a “significant profit.”
The Swiss Confederation will waive its right to receive future coupons on the mandatory convertible notes for a cash amount of approximately 1.8 billion Swiss francs, representing the present value of the future coupon payments, UBS said.
The Swiss government last year invested 6 billion Swiss francs ($5.6 billion) in mandatory convertible notes to help Zurich-based UBS split off toxic assets amid the worst economic crisis since the Great Depression. Yesterday’s settlement of a U.S. lawsuit that sought data on as many as 52,000 UBS clients and the bank’s 3.8 billion-franc capital increase in June strengthened confidence in the bank, the government said.
Swiss and U.S. authorities said earlier yesterday that UBS will divulge information on 4,450 accounts to settle a U.S. lawsuit that sought names of American clients suspected of evading taxes. The bank, which won’t pay any fine under the agreement, will transfer the data to the Swiss government, which will then decide what information gets passed on.
Note Conversion
“At the moment, it wouldn’t be a bad deal” to sell the UBS investment, Swiss Finance Minister Hans-Rudolf Merz said at a press conference in Bern.
The government intends to convert the mandatory convertible notes on Aug. 25, when UBS will also make the cash payment in lieu of future coupons, the bank said in a separate statement.
The government intends to sell UBS shares to institutional investors.
UBS’s share capital will increase to 355.8 million from 322.6 million, UBS said in the statement. The transaction will have no material effect on the bank’s third-quarter earnings, though it will reduce its Tier 1 capital ratio by 60 basis points, it said. A basis point is 0.01 of a percentage point.
UBS, the world’s second-biggest manager of money for the rich, admitted in February to participating “in a scheme to defraud the U.S.” and agreed to pay $780 million and disclose the names of more than 250 clients who allegedly hid assets from the IRS. A day later, the IRS sued the bank for information on as many as 52,000 clients.
Shares Rise
UBS shares have risen 11 percent since the U.S. and Switzerland said they had reached an agreement in principle on the tax lawsuit on July 31. UBS fell 16 centimes, or 1 percent, to 16.74 francs in Swiss trading yesterday.
UBS Chief Executive Officer Oswald Gruebel and Chairman Kaspar Villiger have said they aim to wean the bank off government support as quickly as possible. Gruebel has cut 7,500 jobs, sold a Brazilian unit, replaced three executive board members and tapped investors for more capital since joining UBS in February to help restore the bank’s profitability and reputation.
The bank’s Tier 1 capital ratio, a gauge of its ability to absorb losses, rose to 13.2 percent at the end of the second quarter from 10.5 percent at the end of March after the bank cut assets on the balance sheet by 261 billion francs and sold new shares in June.
To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Elena Logutenkova in Zurich at elogutenkova@bloomberg.net
Our "BILL of RIGHTS", They limit the Government NOT the Citizens
Text of the Bill of Rights
Preamble
Congress of the United States begun and held at the City of New-York, on Wednesday the fourth of March, one thousand seven hundred and eighty nine
THE Conventions of a number of the States, having at the time of their adopting the Constitution, expressed a desire, in order to prevent misconstruction or abuse of its powers, that further declaratory and restrictive clauses should be added: And as extending the ground of public confidence in the Government, will best ensure the beneficent starts of its institution.
RESOLVED by the Senate and House of Representatives of the United States of America, in Congress assembled, two thirds of both Houses concurring, that the following Articles be proposed to the Legislatures of the several States, as amendments to the Constitution of the United States, all, or any of which Articles, when ratified by three fourths of the said Legislatures, to be valid to all intents and purposes, as part of the said Constitution; viz.
ARTICLES in addition to, and Amendment of the Constitution of the United States of America, proposed by Congress, and ratified by the Legislatures of the several States, pursuant to the fifth Article of the original Constitution.[4]
Amendments
First Amendment – Establishment Clause, Free Exercise Clause; freedom of speech, of the press, Freedom of Religion, and of assembly; right to petition,
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
Second Amendment – Militia (United States), Sovereign state, Right to keep and bear arms.
A well regulated Militia, being necessary to the security of a free State, the right of the People to keep and bear Arms, shall not be infringed. [5][6]
Third Amendment – Protection from quartering of troops.
No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.
Fourth Amendment – Protection from unreasonable search and seizure.
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
Fifth Amendment – due process, double jeopardy, self-incrimination, eminent domain.
No person shall be held to answer for any capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
Sixth Amendment – Trial by jury and rights of the accused; Confrontation Clause, speedy trial, public trial, right to counsel
In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district where in the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defense.
Seventh Amendment – Civil trial by jury.
In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any court of the United States, than according to the rules of the common law.
Eighth Amendment – Prohibition of excessive bail and cruel and unusual punishment.
Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.
Ninth Amendment – Protection of rights not specifically enumerated in the Bill of Rights.
The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.
Tenth Amendment – Powers of States and people.
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
Preamble
Congress of the United States begun and held at the City of New-York, on Wednesday the fourth of March, one thousand seven hundred and eighty nine
THE Conventions of a number of the States, having at the time of their adopting the Constitution, expressed a desire, in order to prevent misconstruction or abuse of its powers, that further declaratory and restrictive clauses should be added: And as extending the ground of public confidence in the Government, will best ensure the beneficent starts of its institution.
RESOLVED by the Senate and House of Representatives of the United States of America, in Congress assembled, two thirds of both Houses concurring, that the following Articles be proposed to the Legislatures of the several States, as amendments to the Constitution of the United States, all, or any of which Articles, when ratified by three fourths of the said Legislatures, to be valid to all intents and purposes, as part of the said Constitution; viz.
ARTICLES in addition to, and Amendment of the Constitution of the United States of America, proposed by Congress, and ratified by the Legislatures of the several States, pursuant to the fifth Article of the original Constitution.[4]
Amendments
First Amendment – Establishment Clause, Free Exercise Clause; freedom of speech, of the press, Freedom of Religion, and of assembly; right to petition,
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
Second Amendment – Militia (United States), Sovereign state, Right to keep and bear arms.
A well regulated Militia, being necessary to the security of a free State, the right of the People to keep and bear Arms, shall not be infringed. [5][6]
Third Amendment – Protection from quartering of troops.
No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.
Fourth Amendment – Protection from unreasonable search and seizure.
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
Fifth Amendment – due process, double jeopardy, self-incrimination, eminent domain.
No person shall be held to answer for any capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
Sixth Amendment – Trial by jury and rights of the accused; Confrontation Clause, speedy trial, public trial, right to counsel
In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district where in the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defense.
Seventh Amendment – Civil trial by jury.
In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any court of the United States, than according to the rules of the common law.
Eighth Amendment – Prohibition of excessive bail and cruel and unusual punishment.
Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.
Ninth Amendment – Protection of rights not specifically enumerated in the Bill of Rights.
The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.
Tenth Amendment – Powers of States and people.
The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
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