reboot the republic daily July 16, 2010

Crisis Awaits World’s Banks as Trillions Come Due

Posted: 16 Jul 2010 04:55 PM PDT

From The New York Times

FRANKFURT — The sovereign debt crisis would seem to create worry enough for European banks, but there is another gathering threat that has not garnered as much notice: the trillions of dollars in short-term borrowing that institutions around the world must repay or roll over in the next two years.

The European Central Bank, the Bank of England and the International Monetary Fund have all recently warned of a looming crunch, especially in Europe, where banks have enough trouble raising money as it is.

Their concern is that banks hungry for refinancing will compete with governments — which also must roll over huge sums — for the bond market’s favor. As a result, credit for business and consumers could become more costly and scarce, with unpleasant consequences for economic growth.

“There is a cliff we are racing toward — it’s huge,” said Richard Barwell, an economist at Royal Bank of Scotland and formerly a senior economist at the Bank of England, Britain’s central bank. “No one seems to be talking about it that much.” But, he added, “it’s of first-order importance for lending and output.”

Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.

U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.

How banks will come up with the money is an open question. With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe, many banks have been reluctant or unable to sell bonds, which they typically use to raise money that they lend on to businesses and households.

The financing crunch has its origins in a worldwide trend for banks to borrow money for shorter periods.

The practice of short-term borrowing and long-term lending contributed to the near-collapse of the world financial system in late 2008 when short-term financing dried up. Banks suddenly found themselves starved for cash, and some would have collapsed without central bank support.

Government bank guarantees extended in response to the crisis also inadvertently encouraged short-term lending. The guarantees were typically only for several years, and banks issued bonds to match.

Other banks took advantage of the gap between short-term and long-term rates, borrowing cheaply from money markets or central banks and lending to their customers at higher, long-term rates.

A study in November by Moody’s Investors Service found that new bond issues by banks during the past five years matured in an average of 4.7 years — the shortest average in 30 years.

Since then, worries about Greek and Spanish debt and whether Europe is headed for another recession have caused new problems. Investors are unsure which institutions are in good shape and which are sitting on piles of bad loans and potentially tainted government bonds.

Bond issuance by financial institutions in Europe plunged to $10.7 billion in May, compared with $106 billion in January and $95 billion in May 2009, according to Dealogic, a data provider. New issues have recovered somewhat since, to $42 billion in June and $19 billion so far in July.

Bank stress tests being conducted by European regulators could help if they succeed in convincing markets that most banks are healthy. Bank regulators plan to release results of the tests, covering 91 large banks, on July 23.

Sandeep Agarwal, head of financial institutions debt capital markets in Europe at Credit Suisse, predicted that the market could be separated into haves and have-nots, with the healthy banks raising money fairly easily but weaker banks required to pay a premium. “There is cash at the right price for many institutions, not all institutions,” Mr. Agarwal said.

That could add pressure on the weakest banks to merge, seek government help, or scale back their activities. Some might even fold. The Landesbanks in Germany, savings banks in Spain or other institutions that have struggled may be forced to confront difficult choices.

A shortage of bank finance also could create quandaries for the European Central Bank, which appears anxious to wean banks from the cheap cash that it began providing in the heat of the global financial crisis.

If institutions are unable to raise the money that they need on the open market, the European Central Bank would have to decide whether to continue to prop them up.


Related posts:

  1. Federal Reserve Opens Credit Line to Europe
  2. Fed Shouldn’t Reveal Crisis Loans, Banks Vow to Tell High Court
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Consumer Sentiment Sinks to Lowest in 11 Months

Posted: 16 Jul 2010 10:26 AM PDT

Yawnnnnnnnnnnnnnnnnnn. I Love the “Summer of Recovery!”

From Yahoo News

NEW YORK (Reuters) – Consumer sentiment weakened in early July to its lowest in 11 months on a resurgence in fears about the economy, a year since the recovery began, a private survey released on Friday showed.

The reversal in consumer sentiment was dramatic after it reached its strongest level in nearly 2-1/2 years last month on hopes of better job and credit conditions, according to Thomson Reuters/University of Michigan’s Surveys of Consumers.

The survey’s preliminary July reading on the overall index on consumer sentiment plummeted to 66.5 from 76.0 in June. The figure was below the median forecast of 74.5 among economists polled by Reuters.

“Income and job prospects were extraordinarily weak and those bleak prospects have made consumers much more cautious spenders,” Richard Curtin, director of the surveys, said in a statement.

This steep pullback in sentiment is ominous for the U.S. economy, which is already showing signs of slowing. Consumer spending accounts for some 70 percent of the U.S. economy.

The latest survey showed consumers’ intention to buy durable items such as cars fell to its lowest in nine months.

“Moreover, consumers reported renewed weakness in the economy and were more likely to anticipate additional problems in the year ahead,” Curtin said.

The survey’s barometer of current economic conditions tumbled to 75.5 in early July, the lowest since November 2009.

This compared with 85.6 in June, which was the highest since March 2008. Analysts had predicted a figure of 84.0 for early July.

The survey’s gauge of consumer expectations slid to 60.6, the lowest since March 2009. This compared with 69.8 in June, while analysts had predicted a reading of 68.4 in early July.

The measure on consumers’ 12-month economic outlook deteriorated to 65.0 in early July, which was the lowest since April 2009. It stood at 79.0 in June.

In addition to worries about jobs and household finances, consumers expected inflation to pick up in the coming months.

The survey’s one-year inflation expectations measure ticked up to 2.9 percent from 2.8 in June, while the five-to-10-year outlook index firmed to 2.9 percent from June’s 2.8.

(Reporting by Richard Leong; Editing by James Dalgleish)


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De-classified Vietnam-era Transcripts Show Senators Knew Gulf Of Tonkin Incident Was Likely BS and Proceeded to do Nothing

Posted: 16 Jul 2010 08:38 AM PDT

From The New York Times

WASHINGTON — In an echo of the debates over the discredited intelligence that helped make the case for the war in Iraq, the Senate Foreign Relations Committee on Wednesday released more than 1,100 pages of previously classified Vietnam-era transcripts that show senators of the time sharply questioning whether they had been deceived by the White House and the Pentagon over the 1964 Gulf of Tonkin incident.

“If this country has been misled, if this committee, this Congress, has been misled by pretext into a war in which thousands of young men have died, and many more thousands have been crippled for life, and out of which their country has lost prestige, moral position in the world, the consequences are very great,” Senator Albert Gore Sr. of Tennessee, the father of the future vice president, said in March 1968 in a closed session of the Foreign Relations Committee.

The documents are Volume 20 in a regular series of releases of historical transcripts from the committee, which conducted most of its business in executive session during the 1960s, before the Senate required committee meetings to be public. The documents were edited by Donald Ritchie, the Senate historian, and cover 1968, when members of the committee were anguished over Vietnam and in a deteriorating relationship with the Johnson White House over the war.

Historians said the transcripts, which are filled with venting by the senators about the Johnson administration and frustrations over their own ineffectiveness, added little new to the historical record. Even at the time, there was widespread skepticism about the Gulf of Tonkin incident, in which the North Vietnamese were said to have attacked American destroyers on Aug. 4, 1964, two days after an earlier clash.

President Lyndon B. Johnson cited the attacks to persuade Congress to authorize broad military action in Vietnam, but historians in recent years have concluded that the Aug. 4 attack never happened.

Still, the transcripts show the outrage the senators were expressing behind closed doors. “In a democracy you cannot expect the people, whose sons are being killed and who will be killed, to exercise their judgment if the truth is concealed from them,” Senator Frank Church, Democrat of Idaho, said in an executive session in February 1968.

But the senators also worried that releasing a committee staff investigation that raised doubts about the Tonkin incident would only inflame the country more. As Senator Mike Mansfield, Democrat of Montana, put it, “You will give people who are not interested in facts a chance to exploit them and to magnify them out of all proportion.”

At another point, the committee’s chairman, Senator William Fulbright, Democrat of Arkansas, raised concerns that if the senators did not take a stand on the war, “We are just a useless appendix on the governmental structure.”

The current chairman of the committee, Senator John Kerry, Democrat of Massachusetts, said Wednesday in an interview that the transcripts were especially revealing to him. In February 1968, when some of the most intense debates of the committee were occurring, Mr. Kerry was on a ship headed for Vietnam.

The release of documents, he said, “shows these guys wrestling with the complexity of it when our generation was living it out in a very personal way.”

He continued, “You couldn’t have imagined in that room of the Capitol that policy makers were agonizing over it in that way, and having that gut kind of conversation.”

In the end, however, the senators did not further pursue their doubts. As Mr. Church said in one session that was focused on the staff report into the episode, if the committee came up with proof that an attack never occurred, “we have a case that will discredit the military in the United States, and discredit and quite possibly destroy the president.”

He added that unless the committee had the evidence to substantiate the charges, “The big forces in this country that have most of the influence and run most of the newspapers and are oriented toward the presidency will lose no opportunity to thoroughly discredit this committee.”

Robert J. Hanyok, a retired National Security Agency historian, said Wednesday in an interview that “there were doubts, but nobody wanted to follow up on the doubts,” perhaps because “they felt they’d gone too far down the road.”

Mr. Hanyok concluded in 2001 that N.S.A. officers had deliberately falsified intercepted communications in the incident to make it look like the attack on Aug. 4, 1964, had occurred, although he said they acted not out of political motives but to cover up earlier errors.

Many historians say that President Johnson might have found reason to escalate military action against North Vietnam even without the Tonkin Gulf crisis, and that he apparently had his own doubts. Historians note that a few days after the supposed attack he told George W. Ball, the under secretary of state, “Hell, those dumb, stupid sailors were just shooting at flying fish!”

This article has been revised to reflect the following correction:

Correction: July 16, 2010

An article on Thursday about the release of previously classified Senate transcripts related to the Gulf of Tonkin episode misstated the employment status of Robert J. Hanyok, considered an expert on the incident. He is a retired National Security Agency historian; he does not currently hold that position.


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Video: Police State 4 (FULL VERSION HQ )

Posted: 16 Jul 2010 08:12 AM PDT

Geologist on BP Well: ‘We know the formation is destroyed’

Posted: 16 Jul 2010 07:22 AM PDT

From Bearish News

Controversial geologist Chris Landau weighs in with his latest thoughts on the Macondo well disaster. Snippets:

  • He has little confidence in new cap and relief wells
  • ‘We know the formation is destroyed, they destroyed it while drilling’
  • ‘You cannot seal a blownout formation from the top or bottom’
  • ‘Can’t seal a tire with 50 holes in it through the valve stem’
  • Recommends drilling 8 total relief wells to relieve pressure

I don’t pretend to possess the expertise necessary to judge Mr. Landau’s claims. For me, his commentary is food for thought, and provides some balance against the rose-tinted views presented by BP and Wall Street analysts.

We should welcome outside perspectives on the Macondo well blowout. After all, official oil flow-rate estimate were still 5,000 bpd when NPR investigations suggested 50-100k bpd. We know now that the BP/govt numbers were likely underestimating flow by 10x. Whether this lowballing was intentional is secondary to the fact that it may have hampered response efforts.

We need input from independent experts. When they’re wrong, it will be refuted. If they’re right, it may assist response and containment efforts.

Here’s the interview with Mr. Landau. It’s worth a watch, plus it has some of the better leak footage I’ve seen so far. My advice: Consume with salt, but consider.


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American Economy Collapses, Goldman Sachs Off the Hook For $550 Million

Posted: 16 Jul 2010 12:06 AM PDT

As predicted, no one will face any jail time. I guess it wouldn’t make much sense for one of the companies that controls our government to throw one of it’s own people in jail. Not even a fall guy. It’s damn impressive what these guys get away with.


Embattled US bank Goldman Sachs will pay a record 550 million dollars to settle government fraud charges, the Securities and Exchange Commission said.

Facing allegations of defrauding investors, the storied investment bank admitted it had made a “mistake” and given “incomplete” information to clients.

The SEC had accused Goldman of allowing a prominent hedge fund — Paulson & Co. Inc — to put together a package of subprime mortgages that were sold to clients, but which Paulson was also betting against.

“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said SEC prosecutor Robert Khuzami.

The firm had said it would “vigorously contest” the charges and “defend the firm and its reputation.”

But in a statement on Thursday it acknowledged marketing materials for the product “contained incomplete information.”

“It was a mistake for the Goldman marketing materials to state that the reference portfolio was ’selected by’ ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process.”

Goldman will pay 300 million dollars to the Treasury and 250 million to investors.

Among clients of Goldman’s controversial product were German commercial bank IKB and Britain’s RBS.

Goldman claimed that it lost 90 million dollars from its own investment in the security.

The type of mortgage-backed securities sold by Goldman in the deal were a key contributor to the financial crisis that peaked in 2008 because many contained risky mortgages.

The trade, which took place during a massive mortgage meltdown in 2007 and as the country was about to fall into a brutal recession, was said to have cost investors around one billion dollars.

Goldman reportedly made billions of dollars by betting against the housing market in the years before its collapse.

“Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC,” said Khuzami.

The fraud allegations had rattled markets around the world and sent the company’s stock plummeting.

Goldman was among the top gainers in US stocks on Thursday, its shares rising 4.43 percent to 145.22 dollars by the close of trade and a further five percent in after-hours trade.

After the settlement was announced Goldman said the deal was the “right outcome for our firm, our shareholders and our clients.”

The firm also said that watchdogs had reviewed similar trades and that SEC staff did “not anticipate recommending any claims against Goldman Sachs or any of its employees with respect to those transactions based on the materials it has reviewed.”


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CIA Chief: There May Be Fewer Than 50 Al Qaeda Fighters In Afghanistan

Posted: 15 Jul 2010 10:03 PM PDT

Yes, 50…. not 5,000, 50,000 or 500,000. FIFTY!

From The Huffington Post

WASHINGTON — CIA Director Leon Panetta said on Sunday there may be fewer than 50 al-Qaida fighters in Afghanistan, with “no question” that most of the terrorist network is operating from the western tribal region of Pakistan.

Panetta’s remarks came as President Barack Obama builds up U.S. forces in Afghanistan to prop up the government and, in his words, “disrupt, dismantle, and defeat al Qaeda.” About U.S. 98,000 troops will be in Afghanistan by fall.

Asked by ABC’s Jake Tapper to estimate the number of al Qaeda terrorists in Afghanistan, Panetta said, “I think the estimate on the number of Al Qaeda is actually relatively small. At most, we’re looking at 50 to 100, maybe less. It’s in that vicinity.”

Panetta told ABCs’ “This Week” that the CIA is heavily focused on killing the al Qaida leadership in Pakistan, and he defended CIA drone strikes against “dead wrong” claims that they violate international law. He said Osama bin Laden is hiding amid the region’s rough terrain with “tremendous security around him.”

Asked to describe what an American victory would look like in Afghanistan, Panetta said: “Our purpose, our whole mission there, is to make sure that Al Qaeda never finds another safehaven from which to attack this country. That’s the fundamental goal of why the United States is there. And the measure of success for us is: do you have an Afghanistan that is stable enough to make sure that never happens.”

ABC News notes:

The CIA director said the U.S. is making progress in Afghanistan. “It’s harder, it’s slower than I think anyone anticipated. But at the same time, we are seeing increasing violence,” he told host Jake Tapper.”Is the strategy the right strategy? We think so,” he said. “I think…the key to success or failure is whether the Afghans accept responsibility, are able to deploy an effective army and police force to maintain stability. If they can do that, then I think we’re going to be able achieve the kind of progress and the kind of stability that the President is after,” Panetta said.

A NATO spokesman also stressed Sunday that military operations to secure vast areas of Afghanistan would not be delayed by the ouster of the top commander in the war and mounting casualties.

NATO and U.S. forces are continuing their work as they await the arrival of new commander Gen. David Petraeus. He is taking over from Gen. Stanley McChrystal, who was ousted by President Barack Obama after he and his aides were quoted in Rolling Stone magazine making disparaging remarks about top Obama administration officials.

There has been concern that the leadership shake-up will further slow a push into the volatile south that has already been delayed by weeks in some areas and months in others. But NATO spokesman Brig. Josef Blotz told reporters in Kabul that the worries are unwarranted and the military is not pausing because of the changes.

“We will not miss a beat in our operations to expand security here in Afghanistan,” Blotz said, repeating the assurances of many diplomats in recent days that the change in leadership does not mean a re-evaluation of strategy.

The top American military officer, Adm. Mike Mullen, flew to Afghanistan on Saturday to assure President Hamid Karzai that Petraeus would pursue the policies of his predecessor, including efforts to reduce civilian casualties.

Blotz said Petraeus was expected in Kabul in the next seven to 10 days.

Operations appear to be continuing apace, according to NATO statements. Two recent air strikes in the north, east and south killed at least nine militants, including two local Taliban commanders, NATO and Afghan officials said. No civilians were injured, NATO said.

Eight other militants were killed in a NATO-Afghan military operation in eastern Ghazni province, according to Gen. Khail Buz Sherzai, the provincial police chief.

NATO deaths also are climbing daily. A U.S. service member was killed in a bomb attack in the south and two others in a firefight in the east on Sunday, said Col. Wayne Shanks, a U.S. forces spokesman.

June has become the deadliest month of the war for NATO troops with at least 93 killed, 56 of them American. For U.S. troops, the deadliest month was October 2009, with a toll of 59 dead.

Blotz said the deaths do show that the fight is getting harder in Afghanistan, but said that does not affect NATO’s resolve.

“We are in the arena. There is no way out now. We have to stay on. We have to fight this campaign,” he said.

Blotz said about 130 middle- to senior-level Taliban insurgents have been killed or captured in the past four months.

But Taliban attacks against those allied with the government or NATO forces have also surged. In the latest such violence, the headmaster of a high school in eastern Ghazni was beheaded by militants on Saturday, the Education Ministry said. A high school in the same district – Qarabagh – was set on fire the same day.

In southern Zabul province Sunday, a roadside bomb attack on a private security company vehicle killed two of those inside and injured three, according to the provincial spokesman, Mohammad Jan Rasoolyar.


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Sign of the Times

Posted: 15 Jul 2010 07:45 PM PDT

By Thomas Sowell

If you could spend vast amounts of other people’s money just by saying a few magic words, wouldn’t you be tempted to do it? Barack Obama has spent hundreds of billions of dollars of the taxpayers’ money just by using the magic words “stimulus” and “jobs.”

It doesn’t matter politically that the stimulus is not actually stimulating and that the unemployment rate remains up near double-digit levels, despite all the spending and all the rhetoric about jobs. And of course nothing negative will ever matter to those who are part of the Obama cult, including many in the media.

But, for the rest of us, there is a lot to think about in the economic disaster that we are in.

Not only has all the runaway spending and rapid escalation of the deficit to record levels failed to make any real headway in reducing unemployment, all this money pumped into the economy has also failed to produce inflation. The latter is a good thing in itself but its implications are sobering.

How can you pour trillions of dollars into the economy and not even see the price level go up significantly? Economists have long known that it is not just the amount of money, but also the speed with which it circulates, that affects the price level.

Last year the Wall Street Journal reported that the velocity of circulation of money in the American economy has plummeted to its lowest level in half a century. Money that people don’t spend does not cause inflation. It also does not stimulate the economy.

The current issue of Bloomberg Businessweek has a feature article about businesses that are just holding on to huge sums of money. They say, for example, that the pharmaceutical company Pfizer is holding on to $26 billion. If so, there should not be any great mystery as to why they don’t invest it.

With the Obama administration being on an anti-business kick, boasting of putting their foot on some business’ neck, and the president talking about putting his foot on another part of the anatomy, with Congress coming up with more and more red tape, more mandates and more heavy-handed interventions in businesses, would you risk $26 billion that you might not even be able to get back, much less make any money on the deal?

Every weekday publishes what many in the media and Washington consider “must-reading”. HUNDREDS of columnists and cartoonists regularly appear. Sign up for the daily update. It’s free. Just click here.

Pfizer is not unique. Banks have cut back on lending, despite all the billions of dollars that were dumped into them in the name of “stimulus.” Consumers have also cut back on spending. For the first time, more gold is being bought as an investment to be held as a hedge against a currently non-existent inflation than is being bought by the makers of jewelry. There may not be any inflation now, but eventually that money is going to start moving, and so will the price level.

Despite a big decline in the amount of gold used to make jewelry, the demand for gold as an investment has risen so steeply as to more than make up for the reduced demand for gold jewelry, and has in fact pushed the price of gold to record high levels.

What does all this say? That people don’t know what to expect next from this administration, which seldom lets a month go by without some new anti-business laws, policies or rhetoric.

When you hire somebody in this environment, you know what you have agreed to pay them and what additional costs there may be for their health insurance or other benefits. But you have no way of knowing what additional costs the politicians in Washington are going to impose, when they are constantly coming up with new bright ideas for imposing more mandates on business.

One of the little noticed signs of what is going on has been the increase in the employment of temporary workers. Businesses have been increasingly meeting their need for labor by hiring temporary workers and working their existing employees overtime, instead of hiring new people.

Why? Because temporary workers usually don’t get health insurance or other benefits, and working existing employees overtime doesn’t add to the cost of their benefits.

There is no free lunch– and the biggest price of all is paid by people who are unemployed because politicians cannot leave the economy alone to recover, as the American economy has repeatedly recovered faster when left alone than when politicians decided that they have to “do something.”


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