By John Browne
(europac.net) - In recent weeks, the financial world has been dazzled by strikingly high earnings reported by our leading investment banks… or at least what we used to call investment banks. The numbers are reminiscent of another era – the one that came to a crashing end last September. Today’s euphoria was keyed to the record $3.44 billion 2nd quarter profit announced by that branch office of the Treasury Department also known as Goldman Sachs. Wells Fargo, JP Morgan Chase, and State Street also chipped in with strong numbers.
The seeming health of these institutions, which are often referred to as the “backbone” of the U.S. economy, is currently being cited as strong proof that economic recovery is at hand. This conclusion is based on selective memory and dubious logic.
The more immediate question hinges on whether this rise in bank and corporate earnings can be sustained in the face of increased commercial real estate mortgage defaults, rising unemployment, and increased savings? Would it then be likely that the broad stock market can continue to rally while the financial sector sputters? If not, a serious correction in U.S. equity prices is a foregone conclusion.
In the early years of this century, major money-center banks and shadow banks incurred irrational risks and paid themselves unimaginably large bonuses. They were termed “gambling casinos” and deservedly drew fire when their bets went south. But instead of forcing these irresponsible firms to pay for their bad behavior, the federal government forced the general public to rescue them.
The Treasury and Fed instituted four key measures intended to boost the banks’ earnings, which in turn, would boost their share prices, improve their capital ratios and force their share prices upward.
First, Congress was pressured into giving instant approval to the $750,000,000,000 Troubled Asset Relief Program (TARP). This massive sum of public money was designed to buy toxic assets from the banks. However, the government soon realized that buying some toxic assets would create a real price and thereby threaten the inflated value of other toxic assets held by financial institutions worldwide. The initial TARP plan was dropped in favor of injecting billions of dollars into certain banks, leaving the toxic assets on their books. Meanwhile, the true values of these toxic assets were officially camouflaged by the initiation of “exceptional” accounting changes.
The injection of free TARP funds enabled the recipient banks to enter a charred landscape that was, nevertheless, bristling with easy profits. For example, $10 billion of TARP funds enabled Goldman Sachs to make leveraged trades during the bear market rally of the last four months. Though this is the same activity that caused its downfall, Goldman now assumes a government guarantee on its risk-taking. With no limits on their appetite for risk, record profits are theirs for the taking.
Second, some of the shadow banks, such as Goldman Sachs and Morgan Stanley, were allowed to become bank holding companies. This change allowed them access to the Fed Window to borrow at zero percent interest. This greatly increased the profit margins of the banks day-to-day lending operations.
Third, the reduction of Fed rates to below one percent has steepened the yield curve, enabling banks to take six to eight percent plus spreads in lending to boost earnings.
Fourth, for the first time, the Fed is paying interest on bank reserves. This meant that all banks can borrow at zero and lend back to the Fed at an interest rate spread of some three percent, thus boosting earnings further. The downside is that banks are discouraged to lend to risky companies and individuals while they can lend at no risk to the Fed. Therefore, despite political pressure for banks to lend, credit remains tight.
With the great privileges listed above, and with the competitive landscape improved by the disappearance of Lehman Brothers and the absorption of Bear Stearns and Merrill, it is little wonder that the surviving banks earned more. A firm like Goldman Sachs, with its stellar earnings, is now effectively a hedge fund subsidized by taxpayers.
However, toxic assets remain on the books of the banks. In addition, problems in the commercial property and consumer lending field loom menacingly.
The Fed has also acknowledged that, eventually, it will need to sharply increase interest rates to “mop up” all the liquidity its pouring into the world economy. This action alone, if the Fed ever has the nerve to execute it, could bankrupt every financial firm that survived the initial crisis.
Should earnings falter and banks stumble for a second time in the face of a looming $3.4 trillion commercial mortgage problem, the entire U.S. stock market could follow suit.
That would be the crisis we’ve been predicting. Better be prepared.
Read Entire Article
Friday, July 31, 2009
Thursday, July 30, 2009
Gold Lures Inflation-Wary Hedge Fund Chiefs
LONDON (Reuters) - U.S. hedge fund managers are increasingly likely to buy gold to protect their personal wealth against inflation, an investment management firm said on Thursday.
London-based Moonraker said a survey it carried out in the United States found that 20 out of 22 fund managers interviewed bought physical gold for personal investment on concerns the U.S.' quantitative easing programme may lead to higher prices.
"Gold is the ultimate currency, performing best when economies are at extremes, whether that is inflationary or deflationary," Jeremy Charlesworth, chief investment officer at Moonraker, said in a statement.
"The managers I met in the U.S. know that if the politicians get the quantitative easing programme wrong, then the value of money relative to real assets will dwindle," he added.
Gold was seen as a safe haven asset during the financial crisis, as many investors considered it a less risky investment than stocks and shares.
As the economic outlook improves gold is also being bought as a hedge against inflation, which analysts say may soar as the economy recovers.
Read Entire Article
London-based Moonraker said a survey it carried out in the United States found that 20 out of 22 fund managers interviewed bought physical gold for personal investment on concerns the U.S.' quantitative easing programme may lead to higher prices.
"Gold is the ultimate currency, performing best when economies are at extremes, whether that is inflationary or deflationary," Jeremy Charlesworth, chief investment officer at Moonraker, said in a statement.
"The managers I met in the U.S. know that if the politicians get the quantitative easing programme wrong, then the value of money relative to real assets will dwindle," he added.
Gold was seen as a safe haven asset during the financial crisis, as many investors considered it a less risky investment than stocks and shares.
As the economic outlook improves gold is also being bought as a hedge against inflation, which analysts say may soar as the economy recovers.
Read Entire Article
Gold to Revisit $1,000 on Falling Supply, World Council Says
By Kim Kyoungwha
July 30 (Bloomberg) -- Gold will revisit $1,000 as investment demand and jewelry purchases rebound and supply decreases annually, a senior World Gold Council official said.
“On the supply side, gold mining production has been decreasing at a rate about 4 to 5 percent per year after reaching a peak production in 2001,” Jason Toussaint, managing director of exchange traded gold, said today. “Even if demand stays the same, prices must go up.” He declined to give a timeframe for the increase.
Gold, traditionally a popular hedge against financial turmoil due to its store of value, has risen 5.7 percent this year and briefly traded above $1,000 in February. It reached a record $1,032.70 on March 17, 2008.
“Investors are much more focused on wealth preservation than upside returns because they are much more focused on risk management within portfolios,” Toussaint said in an interview at a Singapore conference. “We will see that continue.”
Demand for gold will also rise as pension funds, sovereign funds and other asset managers seek to preserve their wealth against inflation, Toussaint said. Only 3 percent to 5 percent of assets at large institutions are allocated to gold, he said.
“Many pension funds around the globe do not have any exposure to gold currently,” he said. “The feedback that we’ve got so far is positive,” he said without elaborating.
Read Entire Article
July 30 (Bloomberg) -- Gold will revisit $1,000 as investment demand and jewelry purchases rebound and supply decreases annually, a senior World Gold Council official said.
“On the supply side, gold mining production has been decreasing at a rate about 4 to 5 percent per year after reaching a peak production in 2001,” Jason Toussaint, managing director of exchange traded gold, said today. “Even if demand stays the same, prices must go up.” He declined to give a timeframe for the increase.
Gold, traditionally a popular hedge against financial turmoil due to its store of value, has risen 5.7 percent this year and briefly traded above $1,000 in February. It reached a record $1,032.70 on March 17, 2008.
“Investors are much more focused on wealth preservation than upside returns because they are much more focused on risk management within portfolios,” Toussaint said in an interview at a Singapore conference. “We will see that continue.”
Demand for gold will also rise as pension funds, sovereign funds and other asset managers seek to preserve their wealth against inflation, Toussaint said. Only 3 percent to 5 percent of assets at large institutions are allocated to gold, he said.
“Many pension funds around the globe do not have any exposure to gold currently,” he said. “The feedback that we’ve got so far is positive,” he said without elaborating.
Read Entire Article
Wednesday, July 29, 2009
Cenbank Sales Under Gold Pact Well Below Limit: WGC
LONDON (Reuters) - Official sector gold sales under the Central Bank Gold Agreement (CBGA) have totalled only 140 tonnes so far in the pact's final year, well short of the maximum 500 tonnes allowed, the World Gold Council said.
France and Sweden are the two principal remaining sellers, the WGC said in an emailed statement on Wednesday, although the possibility exists for a further sale by the European Central Bank.
The 15 signatories of the pact, which also include the central banks of Spain, Germany and Italy, agreed in 2004 to limit gold sales to the market to 500 tonnes in any one year.
"With 140 tonnes of sales, according to our numbers, it looks like we have had over 100 tonnes less than was sold over the same period of last year," said Barclays Capital analyst Suki Cooper.
"Given the current pace, it is likely this is going to be the lowest annual sales-per-quota year since the start of the very first agreement."
The first CBGA was signed in 1999, and limited sales to 400 tonnes per year to avoid flooding the market with bullion and consequently destabilising the gold price.
However, with bullion an increasingly attractive portfolio diversifier for central banks after a period of instability in the currency markets, fewer are selling gold, while talk emerged earlier this year of Asian banks considering new purchases.
Given the low and declining level of sales this year, some analysts have suggested a third agreement will be unnecessary when the current pact expires on Sept 26.
By Jan Harvey
Read Entire Article
France and Sweden are the two principal remaining sellers, the WGC said in an emailed statement on Wednesday, although the possibility exists for a further sale by the European Central Bank.
The 15 signatories of the pact, which also include the central banks of Spain, Germany and Italy, agreed in 2004 to limit gold sales to the market to 500 tonnes in any one year.
"With 140 tonnes of sales, according to our numbers, it looks like we have had over 100 tonnes less than was sold over the same period of last year," said Barclays Capital analyst Suki Cooper.
"Given the current pace, it is likely this is going to be the lowest annual sales-per-quota year since the start of the very first agreement."
The first CBGA was signed in 1999, and limited sales to 400 tonnes per year to avoid flooding the market with bullion and consequently destabilising the gold price.
However, with bullion an increasingly attractive portfolio diversifier for central banks after a period of instability in the currency markets, fewer are selling gold, while talk emerged earlier this year of Asian banks considering new purchases.
Given the low and declining level of sales this year, some analysts have suggested a third agreement will be unnecessary when the current pact expires on Sept 26.
By Jan Harvey
Read Entire Article
Fed Job Approval Rating Lower Than IRS
(Reuters) - Americans think the Federal Reserve is doing a worse job than even the much-maligned Internal Revenue Service.
Only 30 percent of Americans think the Federal Reserve’s Board of Governors is doing a good job despite the central bank’s unprecedented efforts to battle a crippling recession, according to a Gallup Poll released on Monday.
That makes the Fed the worst reviewed of nine key agencies -- including the tax-collecting IRS -- the Gallup poll of more than 1,000 Americans between July 10 and 12 showed. Twenty-two percent of Americans said the central bank was doing a poor job.
The poll comes as Fed Chairman Ben Bernanke is increasingly going public with a defense of the Federal Reserve's handling of the crisis in an effort to ward off a congressional proposal by Republican Representative Ron Paul that would undercut the Fed's independence.
This week, Bernanke traveled to the U.S. heartland to tape a special airing on television network PBS over three days this week in which he answered questions from Americans.
"It is unclear how much of the Fed's image decline is due to the general decline in the country's economic climate, as opposed to specific perceptions about the agency's performance in carrying out its monetary responsibilities and possibly its role in the crisis surrounding U.S. financial markets," the pollsters wrote.
In 2003, the last time Gallup polled Americans on their view of the Fed, 53 percent said the Fed was doing a good job.
Read Entire Article
Only 30 percent of Americans think the Federal Reserve’s Board of Governors is doing a good job despite the central bank’s unprecedented efforts to battle a crippling recession, according to a Gallup Poll released on Monday.
That makes the Fed the worst reviewed of nine key agencies -- including the tax-collecting IRS -- the Gallup poll of more than 1,000 Americans between July 10 and 12 showed. Twenty-two percent of Americans said the central bank was doing a poor job.
The poll comes as Fed Chairman Ben Bernanke is increasingly going public with a defense of the Federal Reserve's handling of the crisis in an effort to ward off a congressional proposal by Republican Representative Ron Paul that would undercut the Fed's independence.
This week, Bernanke traveled to the U.S. heartland to tape a special airing on television network PBS over three days this week in which he answered questions from Americans.
"It is unclear how much of the Fed's image decline is due to the general decline in the country's economic climate, as opposed to specific perceptions about the agency's performance in carrying out its monetary responsibilities and possibly its role in the crisis surrounding U.S. financial markets," the pollsters wrote.
In 2003, the last time Gallup polled Americans on their view of the Fed, 53 percent said the Fed was doing a good job.
Read Entire Article
Tuesday, July 28, 2009
Don't Try This at Home
China tells U.S. to manage flood of dollars with care
David Lawder and Sue Pleming
Reuters
Tuesday, July 28, 2009
WASHINGTON (Reuters) – A top Chinese official said on Tuesday the United States should be careful about flooding global markets with dollars while the world struggles to restore economic stability and get growth back on track
Sitting beside U.S. Treasury Secretary Timothy Geithner, Chinese Vice Premier Wang Qishan made clear at the start of the concluding day of the “Strategic and Economic Dialogue” that China has concerns about its U.S. investments.
“As a major reserve currency-issuing country in the world, the United States should properly balance and properly handle the impact of the dollar supply on the domestic economy and the world economy as a whole,” Wang said.
China is the United States’ biggest creditor, holding $802 billion of U.S. Treasury securities on May 31, and Washington needs Beijing to keep buying its debt to finance a budget deficit estimated to hit $1.8 trillion this year.
Read Entire Article
David Lawder and Sue Pleming
Reuters
Tuesday, July 28, 2009
WASHINGTON (Reuters) – A top Chinese official said on Tuesday the United States should be careful about flooding global markets with dollars while the world struggles to restore economic stability and get growth back on track
Sitting beside U.S. Treasury Secretary Timothy Geithner, Chinese Vice Premier Wang Qishan made clear at the start of the concluding day of the “Strategic and Economic Dialogue” that China has concerns about its U.S. investments.
“As a major reserve currency-issuing country in the world, the United States should properly balance and properly handle the impact of the dollar supply on the domestic economy and the world economy as a whole,” Wang said.
China is the United States’ biggest creditor, holding $802 billion of U.S. Treasury securities on May 31, and Washington needs Beijing to keep buying its debt to finance a budget deficit estimated to hit $1.8 trillion this year.
Read Entire Article
Monday, July 27, 2009
No Exit for Ben
Peter Schiff
Europac.net
In a Wall Street Journal op-ed on Monday, and in congressional testimony later in the week, Fed Chairman Ben Bernanke reassured all that thanks to his accurate foresight and deft use of the Fed’s policy toolkit, he could maintain near zero percent interest rates for an extended period without creating inflation. With supernatural powers such as these, one wonders if Ben would be better employed by the Justice League rather than the Federal Reserve.
Ben’s game plan is apparently simple: once he determines that the economy is on solid ground, he will use the monetary equivalent of Superman’s laser vision to strategically evaporate all the excess liquidity that he has recently created without endangering the recovery. Don’t try this at home, kids.
In other words, as he did just a few years ago when the subprime fiasco began to emerge, Bernanke is assuring us that inflation is contained. He is just as wrong now as he was then.
The idea that the inflation genie can be painlessly rebottled has no historic precedent. Even mainstream economists, who’ve never met a fiscal stimulus they didn’t like, agree that central banks must act preemptively with regard to inflation. Bernanke is making the case that the new set of liquidity tools, hastily developed in the panic of late 2008, will act just as well in reverse. But liquidity is a lot like liquid, it’s a lot easier to spill than to un-spill. The Chairman believes that his new gadgetry will allow him to perform a feat of monetary magic no other central banker has managed to pull off. But given his history of getting it wrong, why should we assume that this time he will get it right?
The bottom line is that Bernanke has no exit strategy. He can talk about it all he likes, but when it comes time to actually pull the trigger, his nerves will buckle. The current communications campaign is simply an attempt to calm the markets. I doubt few citizens or members of Congress had any hope of understanding the exit strategy mechanisms that Bernanke described. Many likely place their faith in his seeming mastery of financial minutiae. Sadly, as with the mythical “strong dollar policy,” confident talk may be the sum total of the Chairman’s strategy.
He senses that the villagers, in the form of currency traders and bond market vigilantes, are becoming a bit restless. To sooth their concerns, he must pretend that he has the situation under control. Like Jack Nicholson in A Few Good Men, he knows full well that markets simply “can’t handle the truth.”
But make no mistake, in order to mop up all the excess liquidity, the Fed will need to raise interest rates substantially to attract buyers for all the bonds that the Treasury must sell. Fed officials know that our economy is completely dependent on cheap money and limitless government credit, and can’t tolerate the loss of either. Of course, the longer the monetary spigot remains open, the more addicted to low rates we get, and the harder it will be to kick the habit. If the Fed could not remove the punch bowl during the years before the bust, how will they do so while the economy is far weaker? Even if they do start the process, the minute the “recovery” seems in jeopardy, look for the Fed to turn the showers back on.
Also, paring down the Fed’s bloated balance sheet will require selling hundreds of billions of dollars of toxic assets, such as bonds backed by subprime mortgages, credit card debt, and auto and student loans, back into the market. Finding buyers for such sludge without crushing the market is a trick that Houdini himself would be reluctant to attempt. The Fed’s assumption that the assets will no longer be toxic by the time it sells them is farcical. The economy at large has not yet suffered the full weight of the recession because these assets have been largely quarantined at the Fed. Reintroduce these toxins back into the economy and the reaction could be lethal.
Bernanke also mistakenly expressed optimism that a strengthening global economy would aid our recovery. Unfortunately, a global resurgence will force Bernanke’s anti-inflation hand, and will thereby cause more pain to the U.S. economy.
Few appreciate how the global panic of 2008 actually benefited the U.S. by causing a flight into U.S. dollars and Treasury bonds. The resultant flows put a lid on consumer prices and kept interest rates low. As growth overseas resumes, and these flows reverse, both consumer prices and interest rates will rise.
Further, as current policy prevents the structural imbalances underlying our economy from being corrected, U.S. unemployment will continue to rise. Combined with higher interest rates and rising consumer prices and the Misery Index (inflation + interest rates + unemployment) will be a big issue in the 2010 mid-term elections, and an even bigger one in 2012.
Read Entire Article
Europac.net
In a Wall Street Journal op-ed on Monday, and in congressional testimony later in the week, Fed Chairman Ben Bernanke reassured all that thanks to his accurate foresight and deft use of the Fed’s policy toolkit, he could maintain near zero percent interest rates for an extended period without creating inflation. With supernatural powers such as these, one wonders if Ben would be better employed by the Justice League rather than the Federal Reserve.
Ben’s game plan is apparently simple: once he determines that the economy is on solid ground, he will use the monetary equivalent of Superman’s laser vision to strategically evaporate all the excess liquidity that he has recently created without endangering the recovery. Don’t try this at home, kids.
In other words, as he did just a few years ago when the subprime fiasco began to emerge, Bernanke is assuring us that inflation is contained. He is just as wrong now as he was then.
The idea that the inflation genie can be painlessly rebottled has no historic precedent. Even mainstream economists, who’ve never met a fiscal stimulus they didn’t like, agree that central banks must act preemptively with regard to inflation. Bernanke is making the case that the new set of liquidity tools, hastily developed in the panic of late 2008, will act just as well in reverse. But liquidity is a lot like liquid, it’s a lot easier to spill than to un-spill. The Chairman believes that his new gadgetry will allow him to perform a feat of monetary magic no other central banker has managed to pull off. But given his history of getting it wrong, why should we assume that this time he will get it right?
The bottom line is that Bernanke has no exit strategy. He can talk about it all he likes, but when it comes time to actually pull the trigger, his nerves will buckle. The current communications campaign is simply an attempt to calm the markets. I doubt few citizens or members of Congress had any hope of understanding the exit strategy mechanisms that Bernanke described. Many likely place their faith in his seeming mastery of financial minutiae. Sadly, as with the mythical “strong dollar policy,” confident talk may be the sum total of the Chairman’s strategy.
He senses that the villagers, in the form of currency traders and bond market vigilantes, are becoming a bit restless. To sooth their concerns, he must pretend that he has the situation under control. Like Jack Nicholson in A Few Good Men, he knows full well that markets simply “can’t handle the truth.”
But make no mistake, in order to mop up all the excess liquidity, the Fed will need to raise interest rates substantially to attract buyers for all the bonds that the Treasury must sell. Fed officials know that our economy is completely dependent on cheap money and limitless government credit, and can’t tolerate the loss of either. Of course, the longer the monetary spigot remains open, the more addicted to low rates we get, and the harder it will be to kick the habit. If the Fed could not remove the punch bowl during the years before the bust, how will they do so while the economy is far weaker? Even if they do start the process, the minute the “recovery” seems in jeopardy, look for the Fed to turn the showers back on.
Also, paring down the Fed’s bloated balance sheet will require selling hundreds of billions of dollars of toxic assets, such as bonds backed by subprime mortgages, credit card debt, and auto and student loans, back into the market. Finding buyers for such sludge without crushing the market is a trick that Houdini himself would be reluctant to attempt. The Fed’s assumption that the assets will no longer be toxic by the time it sells them is farcical. The economy at large has not yet suffered the full weight of the recession because these assets have been largely quarantined at the Fed. Reintroduce these toxins back into the economy and the reaction could be lethal.
Bernanke also mistakenly expressed optimism that a strengthening global economy would aid our recovery. Unfortunately, a global resurgence will force Bernanke’s anti-inflation hand, and will thereby cause more pain to the U.S. economy.
Few appreciate how the global panic of 2008 actually benefited the U.S. by causing a flight into U.S. dollars and Treasury bonds. The resultant flows put a lid on consumer prices and kept interest rates low. As growth overseas resumes, and these flows reverse, both consumer prices and interest rates will rise.
Further, as current policy prevents the structural imbalances underlying our economy from being corrected, U.S. unemployment will continue to rise. Combined with higher interest rates and rising consumer prices and the Misery Index (inflation + interest rates + unemployment) will be a big issue in the 2010 mid-term elections, and an even bigger one in 2012.
Read Entire Article
Spitzer: Federal Reserve is ‘a Ponzi Scheme, an Inside Job’
Daniel Tencer
Raw Story
Sunday, July 26, 2009
The Federal Reserve — the quasi-autonomous body that controls the US’s money supply —is a “Ponzi scheme” that created “bubble after bubble” in the US economy and needs to be held accountable for its actions, says Eliot Spitzer, the former governor and attorney-general of New York.
In a wide-ranging discussion of the bank bailouts on MSNBC’s Morning Meeting, host Dylan Ratigan described the process by which the Federal Reserve exchanged $13.9 trillion of bad bank debt for cash that it gave to the struggling banks.
Spitzer — who built a reputation as “the Sheriff of Wall Street” for his zealous prosecutions of corporate crime as New York’s attorney-general and then resigned as the state’s governor over revelations he had paid for prostitutes — seemed to agree with Ratigan that the bank bailout amounts to “America’s greatest theft and cover-up ever.”
Advocating in favor of a House bill to audit the Federal Reserve, Spitzer said: “The Federal Reserve has benefited for decades from the notion that it is quasi-autonomous, it’s supposed to be independent. Let me tell you a dirty secret: The Fed has done an absolutely disastrous job since [former Fed Chairman] Paul Volcker left.
“The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.
“The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through — conduit payments — to the investment banks that are now solvent. We [taxpayers] didn’t get stock in those banks, they didn’t ask what was going on — this begs and cries out for hard, tough examination.
“You look at the governing structure of the New York [Federal Reserve], it was run by the very banks that got the money. This is a Ponzi scheme, an inside job. It is outrageous, it is time for Congress to say enough of this. And to give them more power now is crazy.
“The Fed needs to be examined carefully.”
Spitzer resigned as governor of New York in March, 2008, after news reports stated Spitzer had paid for a $1,000-an-hour New York City call girl.
At the time, Spitzer had been raising the alarm about sub-prime mortgages. In the wake of the economic meltdown triggered last fall by sub-prime loans, some observers have suggested that Spitzer may have been targeted by law enforcement because of his high-profile opposition to Wall Street financial policies.
Read Entire Article
Raw Story
Sunday, July 26, 2009
The Federal Reserve — the quasi-autonomous body that controls the US’s money supply —is a “Ponzi scheme” that created “bubble after bubble” in the US economy and needs to be held accountable for its actions, says Eliot Spitzer, the former governor and attorney-general of New York.
In a wide-ranging discussion of the bank bailouts on MSNBC’s Morning Meeting, host Dylan Ratigan described the process by which the Federal Reserve exchanged $13.9 trillion of bad bank debt for cash that it gave to the struggling banks.
Spitzer — who built a reputation as “the Sheriff of Wall Street” for his zealous prosecutions of corporate crime as New York’s attorney-general and then resigned as the state’s governor over revelations he had paid for prostitutes — seemed to agree with Ratigan that the bank bailout amounts to “America’s greatest theft and cover-up ever.”
Advocating in favor of a House bill to audit the Federal Reserve, Spitzer said: “The Federal Reserve has benefited for decades from the notion that it is quasi-autonomous, it’s supposed to be independent. Let me tell you a dirty secret: The Fed has done an absolutely disastrous job since [former Fed Chairman] Paul Volcker left.
“The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.
“The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through — conduit payments — to the investment banks that are now solvent. We [taxpayers] didn’t get stock in those banks, they didn’t ask what was going on — this begs and cries out for hard, tough examination.
“You look at the governing structure of the New York [Federal Reserve], it was run by the very banks that got the money. This is a Ponzi scheme, an inside job. It is outrageous, it is time for Congress to say enough of this. And to give them more power now is crazy.
“The Fed needs to be examined carefully.”
Spitzer resigned as governor of New York in March, 2008, after news reports stated Spitzer had paid for a $1,000-an-hour New York City call girl.
At the time, Spitzer had been raising the alarm about sub-prime mortgages. In the wake of the economic meltdown triggered last fall by sub-prime loans, some observers have suggested that Spitzer may have been targeted by law enforcement because of his high-profile opposition to Wall Street financial policies.
Read Entire Article
Friday, July 24, 2009
US Banks Warn on Commercial Property
(Financial Times) - Two of America’s biggest banks, Morgan Stanley and Wells Fargo, on Wednesday threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loans.
The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.
The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.
Colm Kelleher, Morgan Stanley’s chief financial officer, said he did not see the light “at the end of the commercial real estate tunnel yet”, after the bank reported a $700m writedown on its $17bn commercial property portfolio in the second quarter. “Peak to trough, you have already had a pretty nasty correction in the market but it is still not looking very good at the moment,” he said after Morgan Stanley reported its third straight quarterly loss.
Wells Fargo saw non-performing loans in commercial real estate jump 69 per cent, from $4.5bn to $7.6bn in the second quarter as the economic downturn caused developers and office owners to fall behind in their mortgage payments.
Shares in the San Francisco-based bank were down more than 3 per cent at $24.55 in the early afternoon in New York as the increase in commercial non-performing loans undermined news of its best-ever quarterly profit. Morgan Stanley shares dipped before moving higher.
Ben Bernanke, chairman of the Federal Reserve, was repeatedly questioned by lawmakers on commercial real estate while testifying to Congress on Wednesday.
By Francesco Guerrera and Greg Farrell in New York
Read Entire Article
The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors’ fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market.
The failing health of the $6,700bn commercial property market, which accounts for more than 10 per cent of US gross domestic product, could be a significant hurdle on the road to recovery.
Colm Kelleher, Morgan Stanley’s chief financial officer, said he did not see the light “at the end of the commercial real estate tunnel yet”, after the bank reported a $700m writedown on its $17bn commercial property portfolio in the second quarter. “Peak to trough, you have already had a pretty nasty correction in the market but it is still not looking very good at the moment,” he said after Morgan Stanley reported its third straight quarterly loss.
Wells Fargo saw non-performing loans in commercial real estate jump 69 per cent, from $4.5bn to $7.6bn in the second quarter as the economic downturn caused developers and office owners to fall behind in their mortgage payments.
Shares in the San Francisco-based bank were down more than 3 per cent at $24.55 in the early afternoon in New York as the increase in commercial non-performing loans undermined news of its best-ever quarterly profit. Morgan Stanley shares dipped before moving higher.
Ben Bernanke, chairman of the Federal Reserve, was repeatedly questioned by lawmakers on commercial real estate while testifying to Congress on Wednesday.
By Francesco Guerrera and Greg Farrell in New York
Read Entire Article
Gold Rises to Five-Week High as Dollar Eases; Silver Climbs
By Halia Pavliva and Nicholas Larkin
July 23 (Bloomberg) -- Gold prices rose to the highest in five weeks as the dollar retreated, supporting demand for the precious metal as an alternative investment. Silver also gained.
Gold has climbed 1.8 percent this week as the dollar dropped 0.7 percent against the euro. Earlier, the metal reached $957.50 an ounce, the highest since June 12.
“There are good reasons to believe the dollar should weaken, and in that case, gold will be a beneficiary, but it’s not necessarily going to occur overnight,” Patrick Chidley, an analyst at Barnard Jacobs Mellet LLC, said in an e-mail.
Gold futures for August delivery rose $1.50, or 0.2 percent, to $954.80 on the Comex division of the New York Mercantile Exchange.
Silver for September delivery gained 7 cents, or 0.5 percent, to $13.77 an ounce.
Gold for immediate delivery climbed 45 cents to $951.85 at 2:52 p.m. New York time. Silver rose 0.8 percent to $13.80.
U.S. equities rose, sending the Dow Jones Industrial Average above 9,000 for the first time since January, after some companies reported earnings that topped analysts’ estimates and home resales increased more than forecast.
“Earlier this month, economic worries encouraged investors to buy the dollar and Treasuries,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a report. “Appetite for other assets, including gold and equities, seems to be returning.”
Gold is up 8 percent this year, and silver gained 22 percent.
Read Entire Article
July 23 (Bloomberg) -- Gold prices rose to the highest in five weeks as the dollar retreated, supporting demand for the precious metal as an alternative investment. Silver also gained.
Gold has climbed 1.8 percent this week as the dollar dropped 0.7 percent against the euro. Earlier, the metal reached $957.50 an ounce, the highest since June 12.
“There are good reasons to believe the dollar should weaken, and in that case, gold will be a beneficiary, but it’s not necessarily going to occur overnight,” Patrick Chidley, an analyst at Barnard Jacobs Mellet LLC, said in an e-mail.
Gold futures for August delivery rose $1.50, or 0.2 percent, to $954.80 on the Comex division of the New York Mercantile Exchange.
Silver for September delivery gained 7 cents, or 0.5 percent, to $13.77 an ounce.
Gold for immediate delivery climbed 45 cents to $951.85 at 2:52 p.m. New York time. Silver rose 0.8 percent to $13.80.
U.S. equities rose, sending the Dow Jones Industrial Average above 9,000 for the first time since January, after some companies reported earnings that topped analysts’ estimates and home resales increased more than forecast.
“Earlier this month, economic worries encouraged investors to buy the dollar and Treasuries,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a report. “Appetite for other assets, including gold and equities, seems to be returning.”
Gold is up 8 percent this year, and silver gained 22 percent.
Read Entire Article
Thursday, July 23, 2009
24 Trillion Reasons to Buy Gold
It is a worst case scenario, but Neil Barofsky, the inspector general for the Troubled Asset Relief Program, has said the bailouts, bank rescues and other economic lifelines could end up costing the federal government as much as $23.7 Trillion. To put this number into perspective, it is nearly double the nation’s entire economic output for a year, more than the cost of all the wars the United States has ever fought combined and the most the federal government has spent on any single effort in American history. It is about $80,000 for every U.S. citizen.
Printing and borrowing $800 billion to hand over to the banks with no strings attached never seemed like a good idea. We wrote about it back in October of 2008 in this article. And despite some 80% of Americans being against the bailouts, our elected officials decided to hand over taxpayer money to their banker buddies anyway.
A soon-to-be released report by special inspector general Neil Barofsky finds:
Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks. It is not clear whether the report will also disclose the banks’ use of the bailout money to pay executives fat bonuses which they used to buy gold toilets and prostitutes, and to lobby Congress to stop any meaningful reform.”
It is infuriating and does not bode well for the U.S. dollar or our economic future. There is a point on the horizon when foreign governments and banks are going to stop buying our debt and holding our dollars. First we had news that the 2009 deficit had already topped $1 Trillion for the first time in history. As if that wasn’t bad enough, the sticker shock from this latest estimate is really going to upset some of our Eastern trading partners.
Read Entire Article
Wednesday, July 22, 2009
China to Hasten Dollar Dump to Buy Resources, Energy
(Financial Times)BEIJING -- China will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country's premier, said in comments published on Tuesday.
"We should hasten the implementation of our 'going out' strategy and combine the utilisation of foreign exchange reserves with the 'going out' of our enterprises," he told Chinese diplomats late on Monday.
Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports.
The "going out" strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom, and Bank of China.
Qu Hongbin, chief China economist at HSBC, said: "This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets."
China's outbound non-financial direct investment rose to $40.7 billion last year from just $143 million in 2002.
Mr Wen did not elaborate on how much of the $2,132 billion of reserves would be channelled to Chinese enterprises but Mr Qu said this was part of a strategy to reduce its reliance on the US dollar as a reserve currency. "This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets."
State-owned groups, particularly in the oil and natural resources sectors, have stepped up their hunt for overseas companies and assets on sale because of the global crisis.
Read Entire Article
"We should hasten the implementation of our 'going out' strategy and combine the utilisation of foreign exchange reserves with the 'going out' of our enterprises," he told Chinese diplomats late on Monday.
Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports.
The "going out" strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom, and Bank of China.
Qu Hongbin, chief China economist at HSBC, said: "This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets."
China's outbound non-financial direct investment rose to $40.7 billion last year from just $143 million in 2002.
Mr Wen did not elaborate on how much of the $2,132 billion of reserves would be channelled to Chinese enterprises but Mr Qu said this was part of a strategy to reduce its reliance on the US dollar as a reserve currency. "This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets."
State-owned groups, particularly in the oil and natural resources sectors, have stepped up their hunt for overseas companies and assets on sale because of the global crisis.
Read Entire Article
Tuesday, July 21, 2009
What Did He Just Say?
Alan Grayson: "Which Foreigners Got the Fed's $500,000,000,000?" Bernanke: "I Don't Know."
Global Demand For Gold Soars 38 Per Cent
Brisbane Times
Tuesday, July 21, 2009
Global demand for gold soared 38 per cent in the March quarter compared with the same period in 2008, as investors banked on the metal’s safe-haven role amid tough economic conditions.
Strong investor appetite for gold countered a fall in demand for the precious metal in jewellery and industrial uses, World Gold Council investment research manager Rozanna Wozniak told a teleconference on Tuesday.
“Jewellery demand weakened, which isn’t surprising given the extreme economic conditions that consumers face: rising unemployment, falling house prices and low levels of consumer confidence,” Ms Wozniak said.
“Industrial demand also weakened. Once again, this is hardly surprising given the economic conditions.
Read Entire Article
Tuesday, July 21, 2009
Global demand for gold soared 38 per cent in the March quarter compared with the same period in 2008, as investors banked on the metal’s safe-haven role amid tough economic conditions.
Strong investor appetite for gold countered a fall in demand for the precious metal in jewellery and industrial uses, World Gold Council investment research manager Rozanna Wozniak told a teleconference on Tuesday.
“Jewellery demand weakened, which isn’t surprising given the extreme economic conditions that consumers face: rising unemployment, falling house prices and low levels of consumer confidence,” Ms Wozniak said.
“Industrial demand also weakened. Once again, this is hardly surprising given the economic conditions.
Read Entire Article
Monday, July 20, 2009
Morgan Stanley to Settle Class-Action Lawsuit
NEW YORK, June 12 (Reuters) - Morgan Stanley (MS.N: Quote, Profile, Research) will pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, according to a court filing.
The proposed settlement, which must be approved by the federal court in Manhattan, includes a cash component of $1.5 million and economic and remedial benefits valued at about $2.9 million, according to a court filing on Monday.
The suit, filed in August 2005, alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store.
But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security, according to the complaint.
"While we deny the allegations, we settled the case to avoid the cost and distraction of continued litigation," Morgan Stanley said in a statement.
According to the filing, Morgan Stanley argued there were no violations of law and no default or failure to perform or deliver precious metals.
Read Entire Article
The proposed settlement, which must be approved by the federal court in Manhattan, includes a cash component of $1.5 million and economic and remedial benefits valued at about $2.9 million, according to a court filing on Monday.
The suit, filed in August 2005, alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store.
But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security, according to the complaint.
"While we deny the allegations, we settled the case to avoid the cost and distraction of continued litigation," Morgan Stanley said in a statement.
According to the filing, Morgan Stanley argued there were no violations of law and no default or failure to perform or deliver precious metals.
Read Entire Article
Friday, July 17, 2009
Joe Biden: ‘We Have to Go Spend Money to Keep From Going Bankrupt’
(CNSNews.com) – Vice President Joe Biden told people attending an AARP town hall meeting that unless the Democrat-supported health care plan becomes law the nation will go bankrupt and that the only way to avoid that fate is for the government to spend more money.
“And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.”
“We’re going to go bankrupt as a nation,” Biden said.
“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that's what I’m telling you.”
The event, sponsored by the AARP – which supports the Obama administration’s plan – was attended by mostly AARP members who were bussed in for the meeting.
Biden took time from answering questions to chat with a member of the audience, who were mostly members of the AARP. (Photo by Penny Starr/CNSNews.com.) Biden told the group that the Obama health plan will not eliminate people’s ability to choose their health care insurance and that people who cannot afford insurance will be covered by the plan.
By Penny Starr, Senior Staff Writer
Read Entire Article
“And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.”
“We’re going to go bankrupt as a nation,” Biden said.
“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that's what I’m telling you.”
The event, sponsored by the AARP – which supports the Obama administration’s plan – was attended by mostly AARP members who were bussed in for the meeting.
Biden took time from answering questions to chat with a member of the audience, who were mostly members of the AARP. (Photo by Penny Starr/CNSNews.com.) Biden told the group that the Obama health plan will not eliminate people’s ability to choose their health care insurance and that people who cannot afford insurance will be covered by the plan.
By Penny Starr, Senior Staff Writer
Read Entire Article
Bair: Bank Failures Ahead 10 Times Worse
By: Greg Brown
FDIC Chairman Sheila Bair is predicting that the bank failure rate will increase tenfold, according to a U.S. Senator.
Bair said up to 500 more banks could fail, Sen. Jim Bunning, R-Ky, said in a meeting, reported Dow Jones Newswires.
That would put the current crisis close to the level achieved during the late-1980s savings and loan crisis, when 745 thrifts were shut.
"She told us that unless something dramatic happens, we could lose up to 500 more banks," Bunning said.
"That means that people who make mortgages in local places .... people that could really help in a foreclosure will not be there," Bunning said.
Regulators recently shut down the Bank of Wyoming on Friday, the 53rd failure this year.
Read Entire Article
FDIC Chairman Sheila Bair is predicting that the bank failure rate will increase tenfold, according to a U.S. Senator.
Bair said up to 500 more banks could fail, Sen. Jim Bunning, R-Ky, said in a meeting, reported Dow Jones Newswires.
That would put the current crisis close to the level achieved during the late-1980s savings and loan crisis, when 745 thrifts were shut.
"She told us that unless something dramatic happens, we could lose up to 500 more banks," Bunning said.
"That means that people who make mortgages in local places .... people that could really help in a foreclosure will not be there," Bunning said.
Regulators recently shut down the Bank of Wyoming on Friday, the 53rd failure this year.
Read Entire Article
Thursday, July 16, 2009
Are GLD and SLV Legitimate Investment Vehicles?
(Seeking Alpha) - First, let me preface this article by stating that it contains my opinions and speculation based upon no concrete evidence, but primarily upon information contained within the SLV and GLD prospectuses, and secondarily upon instincts cultivated over a decade of research into gold and silver markets. While there is no smoking gun regarding some of the issues I raise in this article, there is plenty of smoke.
Ever since the launch of the US gold ETF, GLD, in November, 2004 and the launch of the US silver ETF, SLV, April 2006, a debate has raged in analyst circles regarding the legitimacy of these two investment vehicles as a proxy for physical gold and physical silver. Though all evidence against investing in these two trusts has been entirely circumstantial, plenty of red flags exist in both the GLD and SLV prospectuses that should steer any logical, rational human being that wishes to own gold and silver away from these two investment vehicles.
Conflicts of Interest
Let’s begin with the obvious. Is it not a huge conflict of interest that JP Morgan (JPM), a bank that perpetually ranks among the largest short positions against silver on the COMEX, is the custodian for the iShares Silver Trust (SLV)? According to silver analyst Ted Butler, JP Morgan is consistently among the one or two U.S. banks that hold more than 80% to 90% of the entire commercial net short position in COMEX silver futures. If you have positioned yourself to make huge profits from drops in the price of silver, is it reasonable for you to simultaneously desire investors to buy more physical silver (if indeed the SLV holds the amount of physical silver it claims)?
Is it also not a conflict of interest that HSBC (HBC) bank, a bank that allegedly holds some of the largest short positions against gold on the COMEX, is the custodian for the SPDR Gold Trust (GLD)? If these banks profit when gold and silver drop, and they manage the largest ETFs in the US regarding these respective metals, is it unreasonable to state that these two banks should be barred from acting as custodians of the GLD and SLV? In fact, how is this situation any different than Goldman Sachs’s (GS) actions in the past when they originated CDOs and then made a fortune by shorting them, actions that back then, were apparently unknown even to the firm’s own traders? On the surface, it certainly appears to be another classic case of the fox guarding the hen house.
Alice in Wonderland Prospectuses
I have maintained for a long time now, ever since I carefully read the GLD and SLV prospectuses, that any investor that buys the GLD and the SLV and believes that these two investment vehicles are as risk-free and as sound as purchasing physical gold and physical silver is highly delusional. I call the prospectuses of the GLD and the SLV “Alice in Wonderland prospectuses” because it is literally impossible to ascertain what information contained within them is fact or fiction. Of course, investment advisers that sell their clients the SLV and GLD depend upon their customers not reading the prospectuses, or perhaps even reading them, but not understanding them. Some may say that the word delusional is a harsh term, but a mere glance at the GLD and SLV prospectuses explains my use of this term. Both the GLD and the SLV prospectus contain the following two statements:
“Neither the Securities and Exchange Commission [SEC] nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense” (emphasis mine); and
“The trust is not an investment company registered under the Investment Company Act of 1940. The trust is not a commodity pool for purposes of the Commodity Exchange Act, and its sponsor is not subject to regulation by the Commodity Futures Trading Commission as a commodity pool operator, or a commodity trading advisor.
Furthermore, the SLV prospectus additionally states, “As an owner of iShares, you will not have the protections normally associated with ownership of shares in an investment company (emphasis mine) registered under the Investment Company Act of 1940, or the protections afforded by the Commodity Exchange Act of 1936.”
Does anyone else besides me not find it ludicrous that both the SEC and the CFTC have not examined either the GLD or SLV prospectus to determine if it is truthful or complete, and that in fact, any claims that the prospectus is truthful and complete is a “criminal offense”? So with nothing in the marketing materials of how these trusts operate or what exactly they buy on behalf of shareholders vetted by an independent third party, how is it that both of these respective trusts are still allowed to cumulatively sell tens of billions of dollars worth of shares to shareholders based upon a prospectus that could possibly be a complete fabrication?
Would you buy a house if you were handed a report that stated the house was structurally sound, there were no harmful gases leaking from the ground, the water source was safe, and no murders were committed inside or on the house grounds within the past year, but were then subsequently handed a disclaimer that stated: “No one has determined whether the information contained in these reports is truthful or complete. Any representation to the contrary is a criminal offense”? If you answered no to this question, then there is absolutely no way that you should believe that buying the gold ETF and the silver ETF is the same as buying physical gold and silver, or even a proxy for buying physical gold or silver.
Multiple Claims on the Physical Gold and Physical Silver Held on Behalf of GLD and SLV Shareholders?
The appointed custodians of the SLV and the GLD, responsible for safekeeping the silver and gold bars owned by the trusts, respectively are JP Morgan and HSBC Bank USA. The GLD prospectus states, “Gold held in the Trust’s unallocated gold account and any Authorized Participant’s unallocated gold account will not be segregated from the Custodian’s assets.” Only Authorized Participants, and no shareholders, have the right to redeem shares for actual gold.
In my opinion, there are several potential huge problems with this arrangement. Physical gold held by the GLD should be held in allocated accounts specifically for the trust. The fact that physical gold held for the GLD may be held in unallocated gold accounts where gold is not segregated from the Custodian’s assets may mean that multiple entities have claims on the same gold bars. In theory, the gold held in the Custodian’s vaults may be used for delivery against shorts they hold in the futures markets if necessary even though GLD shareholders have a claim on this gold.
A mechanism to apply the fractional reserve banking system to physical gold, an action that many thought impossible to execute with physical gold, may actually be occurring through the gold ETFs. While the prospectus states that “Authorized Participants Unallocated Accounts may only be used for transactions within the trust”, it does not specify how the custodian may use this gold.
In analyzing the SLV prospectus, the following statement can be found: “The trust does not trade in silver futures contracts on COMEX or on any other futures exchange. The trust takes delivery of physical silver that complies with the LBMA silver delivery rules. Because the trust does not trade in silver futures contracts on any futures exchange, the trust is not regulated by the CFTC under the Commodity Exchange Act as a ‘commodity pool’, and is not operated by a CFTC-regulated commodity pool operator.”
Elsewhere in the SLV prospectus, the following claim is also made: “Accordingly, the bulk of the trust’s silver holdings (emphasis mine) is represented by physical silver.” If the bulk of the trust’s silver holdings is represented by physical silver, what constitutes the “remainder”? Clearly, the SLV prospectus states that there is a “remainder”. If you read this statement carefully, the statement clearly refers to the “trust’s silver holdings.” Thus, this statement implies that some of the SLV’s funds are allocated to something else other than physical silver. So what is the rest of the trust’s silver holdings? Paper silver future contracts, air, or something else?
But even were the bulk of the SLV’s holdings physical silver, remember that this claim could be false and still contained in the prospectus due to their qualifying statement at the beginning of the prospectus that:
“Neither the Securities and Exchange Commission [SEC] nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.”
Perhaps this is the reason why the prospectus warns: “Investors in the trust do not receive the regulatory protections afforded to investors in regulated commodity pools, nor may COMEX or any futures exchange enforce its rules with respect to the trust’s activities. In addition, investors in the trust do not benefit from the protections afforded to investors in silver futures contracts on regulated futures exchanges.”
The very structure of the GLD and SLV ETFs has always bothered me as the structures of these trusts are reminiscent of Vatican City, a completely sovereign entity subject only to its own laws and rules that operates in relative secrecy. I have always believed that the opacity of the operations of the GLD and the SLV would allow the custodians of these trusts, if they so desired, to execute manipulative schemes harmful to the trusts’ shareholders in much the manner that Goldman Sachs shorted subprime mortgages at the same time it was selling CDOs backed by subprime mortgages to its clients.
Where is the Gold?
Furthermore, more suspicion should be raised by the prospectus description of where the gold that is purchased on behalf of GLD shareholders is held. The prospectus states that “the Custodian has agreed that it will hold all of the Trust’s gold bars in its own London vault premises except when the gold bars have been allocated in a vault other than the Custodian’s London vault premises” (emphasis mine). This stuff is too good even for a skeptic like myself to make up. The prospectus then goes on to explain that other vaults allowed may reside at the Bank of England, Brinks Ltd., Via Mat International, and LBMA (London Bullion Market Association) market making members, and that in turn, these sub-custodians may appoint further sub-custodians to hold the trust’s gold if they so desire.
In regard to ensuring that the gold actually exists, the prospectus then states that “the Trustee may have no right to visit the premises of any sub-custodian for the purposes of examining the Trust’s gold bars or any records maintained by the sub-custodian, and no sub-custodian will be obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such sub-custodian.” In other words, the gold reputedly held by the GLD on behalf of shareholders may be held on the moon and no one would have a right to know this but the custodian.
In fact, given the entirely suspicious elements of these prospectuses, were every investor to liquidate their positions in the GLD and SLV and take their cash and buy physical gold and silver instead, I would speculate that the price of gold and silver would rise substantially, though according to the prospectuses, this is an event that should not happen under any circumstance. Now, according to a GATA report by Adrian Douglas, it appears that there may actually be grounds for my past speculations regarding the fact that the GLD and SLV funds may actually be used to help suppress the price of gold and silver on the futures markets.
Alchemy: Turning Physical Gold into Paper
According to a July 11, 2009 article titled “The Alchemists”, Douglas states: “delivery notices at the COMEX cannot be reconciled with movements of metals from and into the warehouse. Clearly these are not going to match on a daily basis, just as orders into a factory will not match shipments out on any given day, as there is a time lag. But when averaged over a month, the “flow” of metal inventory should be comparable to the delivery notices issued. This is just basic accounting. But I have observed that reconciliation is almost impossible with the COMEX data. The only explanation I could think of is that settlement of contracts must be bypassing the warehouse. But how could this be possible, as I thought all contracts had to be delivered via a COMEX registered warehouse?”
In an attempt to reconcile this discrepancy, Douglas asks the all important question of what qualifies as “physical gold” according to COMEX guidelines. Douglas believes he has found a loophole in Exchange Rule 104.36, which governs exchange of futures for physicals (’EFP’) transactions on the COMEX Division. Exchange Rule 104.36 “refers to a ‘physical commodity’ as one of the required components of an EFP transaction but also indicates that the physical commodity need only be substantially the economic equivalent of the futures contract being exchanged.”
Exchange Rule 104.36 further states, “The purpose of this Notice is to confirm that the Exchange would accept gold-backed exchange-traded funds (’ETF’) shares as the physical commodity component for an EFP transaction involving COMEX gold futures contracts, provided that all elements of a bona fide EFP pursuant to Exchange Rule 104.36 are satisfied.”
An EFP transaction is an Exchange of Futures for Physicals [EFP] whereby the buyer or seller may exchange a futures position for a physical position of equal quantity. EFPs may be used to either initiate or liquidate a futures position. Thus, quite incredulously, Douglas has discovered that COMEX allows for paper ETF gold shares to pass as “physical gold” in EFP transactions that are allowed to close out futures positions.
Again, if I understand Douglas’s assertion correctly, this could conceivably allow a firm like JP Morgan to open up massive shorts against gold in the COMEX markets and to close out their own short positions by delivering shares of a gold ETF in an EFP transaction. If this has indeed occurred in the past, then this loophole would easily explain why, in the past, gold ETF inventories have curiously risen or remained virtually steady during periods when the price of gold futures contracts on the COMEX was plummeting. As Douglas stated in his paper, this would indeed be the ultimate alchemy of regulating gold prices by turning physical gold into paper. Instead of purchasing a long futures contract to cancel out a short futures contract, gold ETF shares could be purchased to achieve the same effect.
The CFTC Should Investigate the GLD and the SLV, Audit their Holdings, and Report Their Findings to the Public
Thus, if the new CFTC Chairman Gary Gensler is truly sincere in his public comments about increasing transparency in the commodity markets, I suggest he begin with an investigation of the unregulated SLV and GLD ETFs to
(1) Determine the exact composition of the holdings within these trusts; and
(2) Determine if the custodians of these ETFs are engaging in activities outside of those stated in their prospectuses to unduly influence and / or manipulate the price of gold and silver markets.
It is entirely ludicrous to allow the custodians of these two ETFs to operate with zero outside regulatory oversight given the numerous troubling statements in both of their prospectuses, the tip of which I’ve explored within the realm of this article. If these trusts are operating according to the statements made within their respective prospectuses, then they should have nothing to hide and therefore should welcome an independent audit of their vaults to dispel all naysayers. Of course, since there is a complex web of custodians, sub-custodians, and sub-custodians of the sub-custodians, perhaps it would be impossible to conduct such an audit.
The latest data reported on July 8, 2009 by the SPDR Gold Trust, the GLD, states that 1,109.81 metric tons of gold are being held on behalf of GLD shareholders. In some manner, an independent auditor should be allowed to confirm that the custodian of the GLD holds 1,109.81 metric tons of gold that have no claims on it other than the GLD shareholders. If this happens, then all speculation regarding the GLD ETF will disappear into the sunset.
Until then recall this 2005 story about silver custodian Morgan Stanley:
NEW YORK, June 12 (Reuters) – Morgan Stanley plans to settle a class-action lawsuit, brought by clients over the purchase and storage of precious metals, in a deal worth $4.4 million, according to a court filing. The proposed settlement, which still needs to be approved by the federal court in Manhattan, includes a cash component of $1.5 million and economic and remedial benefits valued at about $2.9 million, according to the filing on Monday.
The lawsuit, filed in August 2005, alleged that Morgan Stanley had told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley was actually making either no investment specifically on behalf of those clients or making an entirely different investment of lesser value and security, according to the complaint (emphasis mine).
Morgan Stanley was not immediately available for comment. But it has argued that there were no violations of law and no default or failure to perform or deliver precious metals, according to the filing. The suit was filed by Selwyn Silberblatt, on behalf of himself and others, who bought precious metals — gold, silver, platinum and palladium in bullion bar or coins — from Morgan Stanley DW Inc. and its predecessors and paid fees for their storage, according to the filing.
The suit covers investors who did so between Feb. 19, 1986, through Jan. 10, 2007. Silberblatt, a resident of Maine at the time of the complaint, bought silver bars from Morgan Stanley during the period.
Owning the GLD and SLV is Not the Same as Owning Physical Gold and Physical Silver
In the end, as long as the GLD and SLV prospectuses are allowed to contain misinformation if it so desires according to the words contained within their own prospectuses, then GLD and SLV shareholders may find themselves holding nothing but a bag of hot air just like Selwyn Silverblatt. Furthermore, as long as the issues I broached in this article remain unresolved I imagine that the debate will continue onward about the legitimacy of the GLD and SLV ETFs. Undoubtedly, given the opinions I presented in this article, I would be highly curious to see the outcome and effect upon gold and silver prices were every shareholder of the GLD and SLV to exchange their shares for physical gold and physical silver instead.
There will always be vast amounts of paper gold and paper silver available to be sold, but only a limited amount of physical gold and physical silver. Perhaps this is why the real thing is becoming increasingly difficult to come by these days. On Tuesday, the US Mint once again reported that it has temporarily suspended minting of nearly all its gold uncirculated and proof coins and nearly all of its silver uncirculated coins due to very limited availability of blanks. As the saying goes, with gold and silver, “Get it while you can!” Just ensure that the gold and silver you buy clanks, not floats, when you drop it.
By J.S. Kim
Read Entire Article
Ever since the launch of the US gold ETF, GLD, in November, 2004 and the launch of the US silver ETF, SLV, April 2006, a debate has raged in analyst circles regarding the legitimacy of these two investment vehicles as a proxy for physical gold and physical silver. Though all evidence against investing in these two trusts has been entirely circumstantial, plenty of red flags exist in both the GLD and SLV prospectuses that should steer any logical, rational human being that wishes to own gold and silver away from these two investment vehicles.
Conflicts of Interest
Let’s begin with the obvious. Is it not a huge conflict of interest that JP Morgan (JPM), a bank that perpetually ranks among the largest short positions against silver on the COMEX, is the custodian for the iShares Silver Trust (SLV)? According to silver analyst Ted Butler, JP Morgan is consistently among the one or two U.S. banks that hold more than 80% to 90% of the entire commercial net short position in COMEX silver futures. If you have positioned yourself to make huge profits from drops in the price of silver, is it reasonable for you to simultaneously desire investors to buy more physical silver (if indeed the SLV holds the amount of physical silver it claims)?
Is it also not a conflict of interest that HSBC (HBC) bank, a bank that allegedly holds some of the largest short positions against gold on the COMEX, is the custodian for the SPDR Gold Trust (GLD)? If these banks profit when gold and silver drop, and they manage the largest ETFs in the US regarding these respective metals, is it unreasonable to state that these two banks should be barred from acting as custodians of the GLD and SLV? In fact, how is this situation any different than Goldman Sachs’s (GS) actions in the past when they originated CDOs and then made a fortune by shorting them, actions that back then, were apparently unknown even to the firm’s own traders? On the surface, it certainly appears to be another classic case of the fox guarding the hen house.
Alice in Wonderland Prospectuses
I have maintained for a long time now, ever since I carefully read the GLD and SLV prospectuses, that any investor that buys the GLD and the SLV and believes that these two investment vehicles are as risk-free and as sound as purchasing physical gold and physical silver is highly delusional. I call the prospectuses of the GLD and the SLV “Alice in Wonderland prospectuses” because it is literally impossible to ascertain what information contained within them is fact or fiction. Of course, investment advisers that sell their clients the SLV and GLD depend upon their customers not reading the prospectuses, or perhaps even reading them, but not understanding them. Some may say that the word delusional is a harsh term, but a mere glance at the GLD and SLV prospectuses explains my use of this term. Both the GLD and the SLV prospectus contain the following two statements:
“Neither the Securities and Exchange Commission [SEC] nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense” (emphasis mine); and
“The trust is not an investment company registered under the Investment Company Act of 1940. The trust is not a commodity pool for purposes of the Commodity Exchange Act, and its sponsor is not subject to regulation by the Commodity Futures Trading Commission as a commodity pool operator, or a commodity trading advisor.
Furthermore, the SLV prospectus additionally states, “As an owner of iShares, you will not have the protections normally associated with ownership of shares in an investment company (emphasis mine) registered under the Investment Company Act of 1940, or the protections afforded by the Commodity Exchange Act of 1936.”
Does anyone else besides me not find it ludicrous that both the SEC and the CFTC have not examined either the GLD or SLV prospectus to determine if it is truthful or complete, and that in fact, any claims that the prospectus is truthful and complete is a “criminal offense”? So with nothing in the marketing materials of how these trusts operate or what exactly they buy on behalf of shareholders vetted by an independent third party, how is it that both of these respective trusts are still allowed to cumulatively sell tens of billions of dollars worth of shares to shareholders based upon a prospectus that could possibly be a complete fabrication?
Would you buy a house if you were handed a report that stated the house was structurally sound, there were no harmful gases leaking from the ground, the water source was safe, and no murders were committed inside or on the house grounds within the past year, but were then subsequently handed a disclaimer that stated: “No one has determined whether the information contained in these reports is truthful or complete. Any representation to the contrary is a criminal offense”? If you answered no to this question, then there is absolutely no way that you should believe that buying the gold ETF and the silver ETF is the same as buying physical gold and silver, or even a proxy for buying physical gold or silver.
Multiple Claims on the Physical Gold and Physical Silver Held on Behalf of GLD and SLV Shareholders?
The appointed custodians of the SLV and the GLD, responsible for safekeeping the silver and gold bars owned by the trusts, respectively are JP Morgan and HSBC Bank USA. The GLD prospectus states, “Gold held in the Trust’s unallocated gold account and any Authorized Participant’s unallocated gold account will not be segregated from the Custodian’s assets.” Only Authorized Participants, and no shareholders, have the right to redeem shares for actual gold.
In my opinion, there are several potential huge problems with this arrangement. Physical gold held by the GLD should be held in allocated accounts specifically for the trust. The fact that physical gold held for the GLD may be held in unallocated gold accounts where gold is not segregated from the Custodian’s assets may mean that multiple entities have claims on the same gold bars. In theory, the gold held in the Custodian’s vaults may be used for delivery against shorts they hold in the futures markets if necessary even though GLD shareholders have a claim on this gold.
A mechanism to apply the fractional reserve banking system to physical gold, an action that many thought impossible to execute with physical gold, may actually be occurring through the gold ETFs. While the prospectus states that “Authorized Participants Unallocated Accounts may only be used for transactions within the trust”, it does not specify how the custodian may use this gold.
In analyzing the SLV prospectus, the following statement can be found: “The trust does not trade in silver futures contracts on COMEX or on any other futures exchange. The trust takes delivery of physical silver that complies with the LBMA silver delivery rules. Because the trust does not trade in silver futures contracts on any futures exchange, the trust is not regulated by the CFTC under the Commodity Exchange Act as a ‘commodity pool’, and is not operated by a CFTC-regulated commodity pool operator.”
Elsewhere in the SLV prospectus, the following claim is also made: “Accordingly, the bulk of the trust’s silver holdings (emphasis mine) is represented by physical silver.” If the bulk of the trust’s silver holdings is represented by physical silver, what constitutes the “remainder”? Clearly, the SLV prospectus states that there is a “remainder”. If you read this statement carefully, the statement clearly refers to the “trust’s silver holdings.” Thus, this statement implies that some of the SLV’s funds are allocated to something else other than physical silver. So what is the rest of the trust’s silver holdings? Paper silver future contracts, air, or something else?
But even were the bulk of the SLV’s holdings physical silver, remember that this claim could be false and still contained in the prospectus due to their qualifying statement at the beginning of the prospectus that:
“Neither the Securities and Exchange Commission [SEC] nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.”
Perhaps this is the reason why the prospectus warns: “Investors in the trust do not receive the regulatory protections afforded to investors in regulated commodity pools, nor may COMEX or any futures exchange enforce its rules with respect to the trust’s activities. In addition, investors in the trust do not benefit from the protections afforded to investors in silver futures contracts on regulated futures exchanges.”
The very structure of the GLD and SLV ETFs has always bothered me as the structures of these trusts are reminiscent of Vatican City, a completely sovereign entity subject only to its own laws and rules that operates in relative secrecy. I have always believed that the opacity of the operations of the GLD and the SLV would allow the custodians of these trusts, if they so desired, to execute manipulative schemes harmful to the trusts’ shareholders in much the manner that Goldman Sachs shorted subprime mortgages at the same time it was selling CDOs backed by subprime mortgages to its clients.
Where is the Gold?
Furthermore, more suspicion should be raised by the prospectus description of where the gold that is purchased on behalf of GLD shareholders is held. The prospectus states that “the Custodian has agreed that it will hold all of the Trust’s gold bars in its own London vault premises except when the gold bars have been allocated in a vault other than the Custodian’s London vault premises” (emphasis mine). This stuff is too good even for a skeptic like myself to make up. The prospectus then goes on to explain that other vaults allowed may reside at the Bank of England, Brinks Ltd., Via Mat International, and LBMA (London Bullion Market Association) market making members, and that in turn, these sub-custodians may appoint further sub-custodians to hold the trust’s gold if they so desire.
In regard to ensuring that the gold actually exists, the prospectus then states that “the Trustee may have no right to visit the premises of any sub-custodian for the purposes of examining the Trust’s gold bars or any records maintained by the sub-custodian, and no sub-custodian will be obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such sub-custodian.” In other words, the gold reputedly held by the GLD on behalf of shareholders may be held on the moon and no one would have a right to know this but the custodian.
In fact, given the entirely suspicious elements of these prospectuses, were every investor to liquidate their positions in the GLD and SLV and take their cash and buy physical gold and silver instead, I would speculate that the price of gold and silver would rise substantially, though according to the prospectuses, this is an event that should not happen under any circumstance. Now, according to a GATA report by Adrian Douglas, it appears that there may actually be grounds for my past speculations regarding the fact that the GLD and SLV funds may actually be used to help suppress the price of gold and silver on the futures markets.
Alchemy: Turning Physical Gold into Paper
According to a July 11, 2009 article titled “The Alchemists”, Douglas states: “delivery notices at the COMEX cannot be reconciled with movements of metals from and into the warehouse. Clearly these are not going to match on a daily basis, just as orders into a factory will not match shipments out on any given day, as there is a time lag. But when averaged over a month, the “flow” of metal inventory should be comparable to the delivery notices issued. This is just basic accounting. But I have observed that reconciliation is almost impossible with the COMEX data. The only explanation I could think of is that settlement of contracts must be bypassing the warehouse. But how could this be possible, as I thought all contracts had to be delivered via a COMEX registered warehouse?”
In an attempt to reconcile this discrepancy, Douglas asks the all important question of what qualifies as “physical gold” according to COMEX guidelines. Douglas believes he has found a loophole in Exchange Rule 104.36, which governs exchange of futures for physicals (’EFP’) transactions on the COMEX Division. Exchange Rule 104.36 “refers to a ‘physical commodity’ as one of the required components of an EFP transaction but also indicates that the physical commodity need only be substantially the economic equivalent of the futures contract being exchanged.”
Exchange Rule 104.36 further states, “The purpose of this Notice is to confirm that the Exchange would accept gold-backed exchange-traded funds (’ETF’) shares as the physical commodity component for an EFP transaction involving COMEX gold futures contracts, provided that all elements of a bona fide EFP pursuant to Exchange Rule 104.36 are satisfied.”
An EFP transaction is an Exchange of Futures for Physicals [EFP] whereby the buyer or seller may exchange a futures position for a physical position of equal quantity. EFPs may be used to either initiate or liquidate a futures position. Thus, quite incredulously, Douglas has discovered that COMEX allows for paper ETF gold shares to pass as “physical gold” in EFP transactions that are allowed to close out futures positions.
Again, if I understand Douglas’s assertion correctly, this could conceivably allow a firm like JP Morgan to open up massive shorts against gold in the COMEX markets and to close out their own short positions by delivering shares of a gold ETF in an EFP transaction. If this has indeed occurred in the past, then this loophole would easily explain why, in the past, gold ETF inventories have curiously risen or remained virtually steady during periods when the price of gold futures contracts on the COMEX was plummeting. As Douglas stated in his paper, this would indeed be the ultimate alchemy of regulating gold prices by turning physical gold into paper. Instead of purchasing a long futures contract to cancel out a short futures contract, gold ETF shares could be purchased to achieve the same effect.
The CFTC Should Investigate the GLD and the SLV, Audit their Holdings, and Report Their Findings to the Public
Thus, if the new CFTC Chairman Gary Gensler is truly sincere in his public comments about increasing transparency in the commodity markets, I suggest he begin with an investigation of the unregulated SLV and GLD ETFs to
(1) Determine the exact composition of the holdings within these trusts; and
(2) Determine if the custodians of these ETFs are engaging in activities outside of those stated in their prospectuses to unduly influence and / or manipulate the price of gold and silver markets.
It is entirely ludicrous to allow the custodians of these two ETFs to operate with zero outside regulatory oversight given the numerous troubling statements in both of their prospectuses, the tip of which I’ve explored within the realm of this article. If these trusts are operating according to the statements made within their respective prospectuses, then they should have nothing to hide and therefore should welcome an independent audit of their vaults to dispel all naysayers. Of course, since there is a complex web of custodians, sub-custodians, and sub-custodians of the sub-custodians, perhaps it would be impossible to conduct such an audit.
The latest data reported on July 8, 2009 by the SPDR Gold Trust, the GLD, states that 1,109.81 metric tons of gold are being held on behalf of GLD shareholders. In some manner, an independent auditor should be allowed to confirm that the custodian of the GLD holds 1,109.81 metric tons of gold that have no claims on it other than the GLD shareholders. If this happens, then all speculation regarding the GLD ETF will disappear into the sunset.
Until then recall this 2005 story about silver custodian Morgan Stanley:
NEW YORK, June 12 (Reuters) – Morgan Stanley plans to settle a class-action lawsuit, brought by clients over the purchase and storage of precious metals, in a deal worth $4.4 million, according to a court filing. The proposed settlement, which still needs to be approved by the federal court in Manhattan, includes a cash component of $1.5 million and economic and remedial benefits valued at about $2.9 million, according to the filing on Monday.
The lawsuit, filed in August 2005, alleged that Morgan Stanley had told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley was actually making either no investment specifically on behalf of those clients or making an entirely different investment of lesser value and security, according to the complaint (emphasis mine).
Morgan Stanley was not immediately available for comment. But it has argued that there were no violations of law and no default or failure to perform or deliver precious metals, according to the filing. The suit was filed by Selwyn Silberblatt, on behalf of himself and others, who bought precious metals — gold, silver, platinum and palladium in bullion bar or coins — from Morgan Stanley DW Inc. and its predecessors and paid fees for their storage, according to the filing.
The suit covers investors who did so between Feb. 19, 1986, through Jan. 10, 2007. Silberblatt, a resident of Maine at the time of the complaint, bought silver bars from Morgan Stanley during the period.
Owning the GLD and SLV is Not the Same as Owning Physical Gold and Physical Silver
In the end, as long as the GLD and SLV prospectuses are allowed to contain misinformation if it so desires according to the words contained within their own prospectuses, then GLD and SLV shareholders may find themselves holding nothing but a bag of hot air just like Selwyn Silverblatt. Furthermore, as long as the issues I broached in this article remain unresolved I imagine that the debate will continue onward about the legitimacy of the GLD and SLV ETFs. Undoubtedly, given the opinions I presented in this article, I would be highly curious to see the outcome and effect upon gold and silver prices were every shareholder of the GLD and SLV to exchange their shares for physical gold and physical silver instead.
There will always be vast amounts of paper gold and paper silver available to be sold, but only a limited amount of physical gold and physical silver. Perhaps this is why the real thing is becoming increasingly difficult to come by these days. On Tuesday, the US Mint once again reported that it has temporarily suspended minting of nearly all its gold uncirculated and proof coins and nearly all of its silver uncirculated coins due to very limited availability of blanks. As the saying goes, with gold and silver, “Get it while you can!” Just ensure that the gold and silver you buy clanks, not floats, when you drop it.
By J.S. Kim
Read Entire Article
Ron Paul: Obama will "destroy the dollar"
From Newsmax:
Congressman and two-time presidential candidate Ron Paul tells Newsmax the economic stimulus plan is a "total failure," and he's pushing a bill requiring the Federal Reserve to disclose its dealings so Americans can find out who the "culprits" are behind the financial meltdown.
The Texas Republican also said the U.S. is on course to "destroy the dollar," the healthcare reform plan is "dangerous" and could bankrupt the nation — and he is fighting against those who "would socialize the country."
Paul, a physician, sought the 2008 GOP presidential nomination. He attracted an enthusiastic following, using the Internet to establish a grassroots campaign and raise huge sums of campaign cash, all of it from individual contributors.
See Video: Ron Paul discusses Obama’s failed stimulus and his efforts to open up the Federal Reserve - Click Here Now
He also ran for president as the Libertarian Party's nominee in 1988.
Paul is a member of the Republican Liberty Caucus, which seeks to aid candidates favoring limited government, and sits on the House Committee on Financial Services.
Newsmax.TV's Kathleen Walter asked Paul about the Federal Reserve Transparency Act (House Resolution 12-07), a bill he re-introduced after it was first rejected more than 20 years ago.
"We want transparency of the Federal Reserve," Paul said. "The Federal Reserve operates in total secrecy and now with the financial crisis that we're in the middle of, people are demanding that we know more about how this came about and who is responsible and who got bailed out and who were the special interests behind this whole business.
"Therefore now it's a very popular position to hold. The people in this country are demanding it. We have a lot of co-sponsors — I believe this morning it was 268 — and it comes from the fact that the grassroots are getting to their congressmen and saying, get on board and sign on to 12-07.
"So to me it's very encouraging, because it's something I've been trying to get to the attention of the American people and the Congress for a long time, and because a lot of us anticipated what was about to happen.
"The bubble was forming and we should have prevented it. Now that the bubble has burst and they're trying to reflate it, it's very important that we know exactly how the Federal Reserve works . . .
"We want to get to the bottom of what the Federal Reserve's been doing, and what they're getting away with."
Walter asked why the bill is now garnering far more support than in the past.
"I think it's because of the conditions in the country," Paul responded.
"The people are waking up and demanding it, and to me this is very good. So I think before, when I introduced this over the past 20 years or so, there were few who would co-sponsor it because things seemed to be okay.
"When you're inflating and when your credit is good and you can borrow money and the economy is growing because of the financial bubble, people aren't too concerned about the condition of the banking system and the monetary system.
"Now a lot of people are very scared. Some try to talk their way out of what's going on and say the recession-slash-depression has ended. But from my viewpoint we're just at the beginning. The American people know that and they want to look into that whole problem, and that's why we're getting the support — just to search out and find out who the culprits are."
But despite widespread support for the transparency bill, Paul said he expects that "the administration, the Federal Reserve, the banking system, the powerful special interests, and I imagine top leadership in both parties, will eventually come down against this bill."
Walter asked what other issues related to the Federal Reserve Paul would like to see addressed.
"Ultimately I want policies changed," he said.
Read Entire Article
Congressman and two-time presidential candidate Ron Paul tells Newsmax the economic stimulus plan is a "total failure," and he's pushing a bill requiring the Federal Reserve to disclose its dealings so Americans can find out who the "culprits" are behind the financial meltdown.
The Texas Republican also said the U.S. is on course to "destroy the dollar," the healthcare reform plan is "dangerous" and could bankrupt the nation — and he is fighting against those who "would socialize the country."
Paul, a physician, sought the 2008 GOP presidential nomination. He attracted an enthusiastic following, using the Internet to establish a grassroots campaign and raise huge sums of campaign cash, all of it from individual contributors.
See Video: Ron Paul discusses Obama’s failed stimulus and his efforts to open up the Federal Reserve - Click Here Now
He also ran for president as the Libertarian Party's nominee in 1988.
Paul is a member of the Republican Liberty Caucus, which seeks to aid candidates favoring limited government, and sits on the House Committee on Financial Services.
Newsmax.TV's Kathleen Walter asked Paul about the Federal Reserve Transparency Act (House Resolution 12-07), a bill he re-introduced after it was first rejected more than 20 years ago.
"We want transparency of the Federal Reserve," Paul said. "The Federal Reserve operates in total secrecy and now with the financial crisis that we're in the middle of, people are demanding that we know more about how this came about and who is responsible and who got bailed out and who were the special interests behind this whole business.
"Therefore now it's a very popular position to hold. The people in this country are demanding it. We have a lot of co-sponsors — I believe this morning it was 268 — and it comes from the fact that the grassroots are getting to their congressmen and saying, get on board and sign on to 12-07.
"So to me it's very encouraging, because it's something I've been trying to get to the attention of the American people and the Congress for a long time, and because a lot of us anticipated what was about to happen.
"The bubble was forming and we should have prevented it. Now that the bubble has burst and they're trying to reflate it, it's very important that we know exactly how the Federal Reserve works . . .
"We want to get to the bottom of what the Federal Reserve's been doing, and what they're getting away with."
Walter asked why the bill is now garnering far more support than in the past.
"I think it's because of the conditions in the country," Paul responded.
"The people are waking up and demanding it, and to me this is very good. So I think before, when I introduced this over the past 20 years or so, there were few who would co-sponsor it because things seemed to be okay.
"When you're inflating and when your credit is good and you can borrow money and the economy is growing because of the financial bubble, people aren't too concerned about the condition of the banking system and the monetary system.
"Now a lot of people are very scared. Some try to talk their way out of what's going on and say the recession-slash-depression has ended. But from my viewpoint we're just at the beginning. The American people know that and they want to look into that whole problem, and that's why we're getting the support — just to search out and find out who the culprits are."
But despite widespread support for the transparency bill, Paul said he expects that "the administration, the Federal Reserve, the banking system, the powerful special interests, and I imagine top leadership in both parties, will eventually come down against this bill."
Walter asked what other issues related to the Federal Reserve Paul would like to see addressed.
"Ultimately I want policies changed," he said.
Read Entire Article
Wednesday, July 15, 2009
Why Wouldnt You?
$5 Billion Hedge-Fund Firm Switches Holdings To Physical Gold
Greenlight Capital Inc., the $5 billion hedge-fund firm run by David Einhorn, told investors it switched all of its holdings in a gold exchange-traded fund into bullion during the second quarter.
“At a minimum this will provide some savings as the costs of storing gold are less than the fees” for the SPDR Gold Trust, the New York-based firm said yesterday in a letter to investors.
Enter Remainder of Article Here
Read Entire Article
Greenlight Capital Inc., the $5 billion hedge-fund firm run by David Einhorn, told investors it switched all of its holdings in a gold exchange-traded fund into bullion during the second quarter.
“At a minimum this will provide some savings as the costs of storing gold are less than the fees” for the SPDR Gold Trust, the New York-based firm said yesterday in a letter to investors.
Enter Remainder of Article Here
Read Entire Article
Goldman Sachs Caves in to Critical Blogger
Goldman Sachs has caved in and allowed a critical blogger to continue airing his negative views about the investment bank on a controversially-named website.
(London Telegraph) In a surprising conclusion in what has been a real life David vs Goliath battle, Florida-based estate agent and investment adviser, Mike Morgan, will be allowed to keep his GoldmanSachs666.com site up and running.
Mike Morgan never backs down,” wrote Mr Morgan on the site, the name of which he has previously joked relates to the S&P500’s most recent bear-market low – 666 points – rather than the number of the beast.
“I kicked their butt,” he told The Daily Telegraph.
In an agreement reached in the US District Court in Florida, Goldman agreed to “refrain from any action that interferes with Morgan’s use” of the site as long as he continues to display a prominent disclaimer which states that the site has nothing to do with the bank.
Mr Morgan started the website after becoming incensed over the fall-out from Goldman Sachs’ involvement with American International Group, when the bailed-out insurer’s $12.9bn payment to the bank to cover counterparty exposures went barely unnoticed while the American public became incensed over $165m bonus payments to AIG staff.
Although the site’s original focus was to keep readers up-to-date on news surrounding the bank, one post, entitled “Does Goldman Sachs run the world?,” questions alleged links between former employees and various world governments.
Goldman first threatened Morgan in April, hiring Wall Street law firm Chadbourne & Parke to send a cease-and-desist letter, warning of legal action if the site was not taken down.
At the time, the bank stressed that it was simply protecting its trademark name, however Morgan quickly attempted to turn the legal tables, counter-sueing the bank under trademark law.
By James Quinn, Wall Street Correspondent
Read Entire Article
(London Telegraph) In a surprising conclusion in what has been a real life David vs Goliath battle, Florida-based estate agent and investment adviser, Mike Morgan, will be allowed to keep his GoldmanSachs666.com site up and running.
Mike Morgan never backs down,” wrote Mr Morgan on the site, the name of which he has previously joked relates to the S&P500’s most recent bear-market low – 666 points – rather than the number of the beast.
“I kicked their butt,” he told The Daily Telegraph.
In an agreement reached in the US District Court in Florida, Goldman agreed to “refrain from any action that interferes with Morgan’s use” of the site as long as he continues to display a prominent disclaimer which states that the site has nothing to do with the bank.
Mr Morgan started the website after becoming incensed over the fall-out from Goldman Sachs’ involvement with American International Group, when the bailed-out insurer’s $12.9bn payment to the bank to cover counterparty exposures went barely unnoticed while the American public became incensed over $165m bonus payments to AIG staff.
Although the site’s original focus was to keep readers up-to-date on news surrounding the bank, one post, entitled “Does Goldman Sachs run the world?,” questions alleged links between former employees and various world governments.
Goldman first threatened Morgan in April, hiring Wall Street law firm Chadbourne & Parke to send a cease-and-desist letter, warning of legal action if the site was not taken down.
At the time, the bank stressed that it was simply protecting its trademark name, however Morgan quickly attempted to turn the legal tables, counter-sueing the bank under trademark law.
By James Quinn, Wall Street Correspondent
Read Entire Article
2009 Buffalo Gold Bullion Coins to be Minted After All
(coinnews.net) 2009 American Buffalo Gold Bullion coins will be produced this year, despite earlier reports to the contrary, a United States Mint public notice reveals.
Coin World broke the news in June, reporting that the US Mint would (at some future time) produce only the collector one-ounce, 24 karat Buffalo gold proof coin in 2009and not the same-designed $50 bullion coin intended for investors.
However, an updated message appearing in the US Mint press room over the weekend reveals a new direction:
2009 American Buffalo Gold Bullion Coin Update — Annual production of the United States American Buffalo Gold Bullion Coins is required by law. As a result, the United States Mint is presently developing a production and launch schedule to determine the earliest possible release of these coins through the Authorized Purchaser network.
The Mint offers bullion coins only to authorized purchasers, who then sell to dealers, investors and/or directly to the public. These coins are minted at West Point, but lack the proof finish and the "W" mint mark as seen on collector versions.
The modern Buffalos, featuring the 1913 Buffalo nickel design, are the first .9999 fine 24-karat gold coins struck by the US Mint and delivered through its purchaser network. They were authorized through the Presidential $1 Coin Act of 2005 and first issued in June 2006 with exploding sales. Although demand has slipped since the inaugural launch, yearly sales numbers have been significant:
American Buffalo Gold Bullion Coin Sales
2006 2007 2008
323,000 167,500 172,000
Last year figures are not what they could have been. The Buffalo coins were suspended in September 2008 as a result of a depleted inventory, and have not been produced since
Read Entire Article
Coin World broke the news in June, reporting that the US Mint would (at some future time) produce only the collector one-ounce, 24 karat Buffalo gold proof coin in 2009and not the same-designed $50 bullion coin intended for investors.
However, an updated message appearing in the US Mint press room over the weekend reveals a new direction:
2009 American Buffalo Gold Bullion Coin Update — Annual production of the United States American Buffalo Gold Bullion Coins is required by law. As a result, the United States Mint is presently developing a production and launch schedule to determine the earliest possible release of these coins through the Authorized Purchaser network.
The Mint offers bullion coins only to authorized purchasers, who then sell to dealers, investors and/or directly to the public. These coins are minted at West Point, but lack the proof finish and the "W" mint mark as seen on collector versions.
The modern Buffalos, featuring the 1913 Buffalo nickel design, are the first .9999 fine 24-karat gold coins struck by the US Mint and delivered through its purchaser network. They were authorized through the Presidential $1 Coin Act of 2005 and first issued in June 2006 with exploding sales. Although demand has slipped since the inaugural launch, yearly sales numbers have been significant:
American Buffalo Gold Bullion Coin Sales
2006 2007 2008
323,000 167,500 172,000
Last year figures are not what they could have been. The Buffalo coins were suspended in September 2008 as a result of a depleted inventory, and have not been produced since
Read Entire Article
Tuesday, July 14, 2009
U.S. Mint Gold, Silver Coin Sales 'Temporarily Suspended' - AGAIN!
Unprecedented demand, a shortage of blanks, and restrictive policies and regulations continue to exacerbate what is almost becoming a chronic shortage of gold and silver coins authorized by the U.S. Mint.
The U.S. Mint has again "temporarily" suspended sales of almost all of its gold uncirculated and proof coins, along with nearly all of silver uncirculated coins because of the limited availability of blanks.
The mint no longer offers for sale the American Buffalo Gold Proof fractional coins and four coin sets are no longer available. Meanwhile the mint will no longer offer American Buffalo Gold Uncirculated Coins.
The 2009 American Buffalo One-ounce Gold Proof Coin is scheduled to go on sale in the second half of the 2009 calendar year after an acceptable inventory of 24-karat gold blanks can be acquired.
The U.S. Mint Online Product Catalog says production of the American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended due to the "unprecedented demand" for American Eagle Bullion Coins for which all available 22-K gold blanks are being allocated.
In the catalog, the government says it will resume the American Eagle Gold Proof and Uncirculated Coin Programs "once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products."
Congressionally authorized American Eagle Bullion coins are aimed at providing investors an effective way to invest in precious metals. Prices may change on a daily basis as the platinum, gold and silver markets may fluctuate. The mint does not sell the bullion coins directly to the public, but distributes them in bulk through a network of official distributors, who meet government financial and professional criteria, which must be attested to by an internationally accepted accounting firm.
So far this year, the mint has sold 700,000 ounces or 700,000 gold bullion coins, compared to last year's total sales of 860,500 ounces of gold or 1,172,000 bullion coins.
Federal laws and regulations say the gold must be newly mined in the United States. Only a handful of refineries meet the standards and regulations to produce the blanks for the coins.\
Author: Dorothy Kosich
Read Entire Article
The U.S. Mint has again "temporarily" suspended sales of almost all of its gold uncirculated and proof coins, along with nearly all of silver uncirculated coins because of the limited availability of blanks.
The mint no longer offers for sale the American Buffalo Gold Proof fractional coins and four coin sets are no longer available. Meanwhile the mint will no longer offer American Buffalo Gold Uncirculated Coins.
The 2009 American Buffalo One-ounce Gold Proof Coin is scheduled to go on sale in the second half of the 2009 calendar year after an acceptable inventory of 24-karat gold blanks can be acquired.
The U.S. Mint Online Product Catalog says production of the American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended due to the "unprecedented demand" for American Eagle Bullion Coins for which all available 22-K gold blanks are being allocated.
In the catalog, the government says it will resume the American Eagle Gold Proof and Uncirculated Coin Programs "once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products."
Congressionally authorized American Eagle Bullion coins are aimed at providing investors an effective way to invest in precious metals. Prices may change on a daily basis as the platinum, gold and silver markets may fluctuate. The mint does not sell the bullion coins directly to the public, but distributes them in bulk through a network of official distributors, who meet government financial and professional criteria, which must be attested to by an internationally accepted accounting firm.
So far this year, the mint has sold 700,000 ounces or 700,000 gold bullion coins, compared to last year's total sales of 860,500 ounces of gold or 1,172,000 bullion coins.
Federal laws and regulations say the gold must be newly mined in the United States. Only a handful of refineries meet the standards and regulations to produce the blanks for the coins.\
Author: Dorothy Kosich
Read Entire Article
Government Sachs Executives Sell $700 Million in Stock: Report
NEW YORK (Reuters) – Goldman Sachs Group Inc (GS.N) executives sold almost $700 million worth of stock since the collapse of rival Lehman Brothers last year, the Financial Times said on Monday.
The newspaper said that most of the stock sales took place while the biggest U.S. investment bank was bailed out by the government with $10 billion of taxpayer money, according to filings with the Securities and Exchange Commission.
A Goldman Sachs spokeswoman declined to comment.
Goldman executives sold stock worth $691 million between September 2008 and April 2009, more than the $438 million in stock sold between September 2007 and April 2008when the average share price was substantially higher, the Financial Times said.
Read Entire Article
The newspaper said that most of the stock sales took place while the biggest U.S. investment bank was bailed out by the government with $10 billion of taxpayer money, according to filings with the Securities and Exchange Commission.
A Goldman Sachs spokeswoman declined to comment.
Goldman executives sold stock worth $691 million between September 2008 and April 2009, more than the $438 million in stock sold between September 2007 and April 2008when the average share price was substantially higher, the Financial Times said.
Read Entire Article
Fed Independence or Fed Secrecy?
Rep. Ron Paul
Texas Straight Talk
Jul 14, 2009
Last week I was very pleased that hearings were held on the independence of the Federal Reserve system. My bill HR 1207, known as the Federal Reserve Transparency Act, was discussed at length, as well as the general question of whether or not the Federal Reserve should continue to operate independently.
The public is demanding transparency in government like never before. A majority of the House has cosponsored HR 1207. Yet, Senator Jim DeMint's heroic efforts to attach it to another piece of legislation elicited intense opposition by the Senate leadership.
The hearings on Capitol Hill provided us with a great deal of information about the types of arguments that will be levied against meaningful transparency and how the secretive central bankers will defend the status quo that is so beneficial to them.
Claims are made that auditing the Fed would compromise its independence. However, by independence, they really mean secrecy. The Fed clearly cherishes its vast power to create and spend trillions of dollars, diluting the value of every other dollar in circulation, making deals with other central banks, and bailing out cronies, all to the detriment of the taxpayer, and to the enrichment of themselves. I am happy to challenge this type of "independence".
They claim the Fed is endowed with special intellectual abilities with which to control the market and that central bankers magically know what the market needs. We should just trust them. This is patently ridiculous. The market is a complex and intricate thing. No one knows what the market needs other than the market itself. It sends signals, such as prices, that should be reacted to and respected, not thwarted and controlled. Bankers are not all-knowing and cannot ignore the rules of supply and demand. They might act as if they are, but their manipulation of the market just ends up throwing it wildly off balance, which gives us the boom and bust cycles.
They claim the Fed must remain apolitical. No organization is apolitical that relies on the President to appoint the Chairman. In fact, it is subject to the worst sort of politics power to create trillions of dollars and affect the value of every dollar in the country without the accountability of direct elections or meaningful oversight! The Fed typically enacts monetary policy that is favorable to particular administrations close to elections, to the detriment of long term considerations. They do this partly because of the political appointee process for the Chairmanship.
The only accountability the Federal Reserve has is ultimately to Congress, which granted its charter and can revoke it at any time. It is Congress's constitutional duty to protect the value of the money, and they have abdicated this responsibility for far too long. This was the issue that got me involved in politics 35 years ago. It is very encouraging to finally see the issue getting some needed exposure and traction. It is regrettable that it took a crisis of this magnitude to get a serious debate on this issue.
Jul 13, 2009
Rep. Ron Paul
Read Entire Article
Texas Straight Talk
Jul 14, 2009
Last week I was very pleased that hearings were held on the independence of the Federal Reserve system. My bill HR 1207, known as the Federal Reserve Transparency Act, was discussed at length, as well as the general question of whether or not the Federal Reserve should continue to operate independently.
The public is demanding transparency in government like never before. A majority of the House has cosponsored HR 1207. Yet, Senator Jim DeMint's heroic efforts to attach it to another piece of legislation elicited intense opposition by the Senate leadership.
The hearings on Capitol Hill provided us with a great deal of information about the types of arguments that will be levied against meaningful transparency and how the secretive central bankers will defend the status quo that is so beneficial to them.
Claims are made that auditing the Fed would compromise its independence. However, by independence, they really mean secrecy. The Fed clearly cherishes its vast power to create and spend trillions of dollars, diluting the value of every other dollar in circulation, making deals with other central banks, and bailing out cronies, all to the detriment of the taxpayer, and to the enrichment of themselves. I am happy to challenge this type of "independence".
They claim the Fed is endowed with special intellectual abilities with which to control the market and that central bankers magically know what the market needs. We should just trust them. This is patently ridiculous. The market is a complex and intricate thing. No one knows what the market needs other than the market itself. It sends signals, such as prices, that should be reacted to and respected, not thwarted and controlled. Bankers are not all-knowing and cannot ignore the rules of supply and demand. They might act as if they are, but their manipulation of the market just ends up throwing it wildly off balance, which gives us the boom and bust cycles.
They claim the Fed must remain apolitical. No organization is apolitical that relies on the President to appoint the Chairman. In fact, it is subject to the worst sort of politics power to create trillions of dollars and affect the value of every dollar in the country without the accountability of direct elections or meaningful oversight! The Fed typically enacts monetary policy that is favorable to particular administrations close to elections, to the detriment of long term considerations. They do this partly because of the political appointee process for the Chairmanship.
The only accountability the Federal Reserve has is ultimately to Congress, which granted its charter and can revoke it at any time. It is Congress's constitutional duty to protect the value of the money, and they have abdicated this responsibility for far too long. This was the issue that got me involved in politics 35 years ago. It is very encouraging to finally see the issue getting some needed exposure and traction. It is regrettable that it took a crisis of this magnitude to get a serious debate on this issue.
Jul 13, 2009
Rep. Ron Paul
Read Entire Article
Monday, July 13, 2009
Significant Silver Withdrawals from COMEX
(Seeking Alpha) Ending last week with nearly 119 million ounces of silver (Moz) in the four COMEX depositories, this week the word has been get your silver while you can.
Slightly less than 2 million ounces of silver has been withdrawn from COMEX stocks in three days (July 6-8), with eligible silver dropping from 55.4 Moz to 53.5 Moz. Significant withdraws were experienced by HSBC Bank (HBC) (down 1.26 Moz) and Sottia Mocatta (down 546,000 oz). Brinks also registered a withdraw of 30,000 oz of silver.
The reduction is only 2% of total stocks that COMEX claims, however it is nearly 5% of eligible stocks that can be used for futures redemption. The remainder is registered, but is already allocated (owned) by other investors who are storing it in the vaults.
For leverage fans, that is 10 oz of silver under contract for every ounce of silver available. If you count the fact that COMEX allows you to purchase a contract with 10%, then actual leverage vs physical metal held by COMEX is closer to 100 to 1.
That should answer the question as to why someone would refer to it as "paper" silver. It should also generate a question as to why so much silver is starting to flow out of the COMEX.
By Ed Zimmer
Read Entire Article
Slightly less than 2 million ounces of silver has been withdrawn from COMEX stocks in three days (July 6-8), with eligible silver dropping from 55.4 Moz to 53.5 Moz. Significant withdraws were experienced by HSBC Bank (HBC) (down 1.26 Moz) and Sottia Mocatta (down 546,000 oz). Brinks also registered a withdraw of 30,000 oz of silver.
The reduction is only 2% of total stocks that COMEX claims, however it is nearly 5% of eligible stocks that can be used for futures redemption. The remainder is registered, but is already allocated (owned) by other investors who are storing it in the vaults.
For leverage fans, that is 10 oz of silver under contract for every ounce of silver available. If you count the fact that COMEX allows you to purchase a contract with 10%, then actual leverage vs physical metal held by COMEX is closer to 100 to 1.
That should answer the question as to why someone would refer to it as "paper" silver. It should also generate a question as to why so much silver is starting to flow out of the COMEX.
By Ed Zimmer
Read Entire Article
CIT Group Scrambles to Survive, Avoid a Run
(Wall Street Journal) CIT Group Inc. officials spent the weekend trying to hash out a plan that would help calm markets and convince customers and investors that it can work its way out of a deepening liquidity crunch.
Over the weekend, CIT representatives held discussions with members of Congress, government officials and regulators as they became increasingly nervous hundreds of small and midsize business customers may rush to withdraw funds or try to draw down credit lines.
CIT executives were worried that customers would be rattled by reports over the weekend that it hired a prominent law firm to prepare for a possible bankruptcy filing after so far failing to get additional government assistance.
Company officials and its advisers scrambled to accelerate a plan to address the company's long-term funding needs. Part of that plan, which has been in the works for some time, involves transferring more assets to CIT's Salt Lake City bank and moving cash to the holding company.
In a statement late Sunday, CIT said it is in "active discussions with its principal regulators on a series of measures" to improve its "near-term liquidity position."
The options being discussed include solutions that don't involve access to the FDIC's Temporary Liquidity Guarantee Program, even though CIT's application to that program is still pending.
The company said it is trying to transfer more assets, such as its trade finance and vendor finance businesses, to its bank. If those near-term transfers are approved by regulators, they would help improve its liquidity position, CIT added.
CIT had hoped to get some sort of short-term emergency financing from the government. But it was unclear whether government officials would be willing to step up. They have long felt CIT is not a systemic risk to the financial system and other lenders could step in to provide loans and services to small and midsize businesses, a CIT specialty.
While not as well known as the big commercial banks, CIT is an important test case for the Obama administration. It gives indications of the government's willingness to get involved with financial institutions that aren't deemed as too big to fail, but that play a significant role in the economy.
CIT is a lender to nearly a million mostly small and midsize businesses and companies, and while its failure may not jolt financial markets in a large way, it could hurt the flow of credit to many businesses to whom banks traditionally won't lend.
The government gave the bank-holding company $2.3 billion under the Troubled Asset Relief Program last year but so far hasn't included CIT in a separate program that would allow it to issue debt at low interest rates.
While CIT has limped through the credit crisis, the lender is nearing crisis point, facing $2.7 billion in debt due from now till year end that investors worry it may not be able to make.
By JEFFREY MCCRACKEN and SERENA NG
Read Entire Article
Over the weekend, CIT representatives held discussions with members of Congress, government officials and regulators as they became increasingly nervous hundreds of small and midsize business customers may rush to withdraw funds or try to draw down credit lines.
CIT executives were worried that customers would be rattled by reports over the weekend that it hired a prominent law firm to prepare for a possible bankruptcy filing after so far failing to get additional government assistance.
Company officials and its advisers scrambled to accelerate a plan to address the company's long-term funding needs. Part of that plan, which has been in the works for some time, involves transferring more assets to CIT's Salt Lake City bank and moving cash to the holding company.
In a statement late Sunday, CIT said it is in "active discussions with its principal regulators on a series of measures" to improve its "near-term liquidity position."
The options being discussed include solutions that don't involve access to the FDIC's Temporary Liquidity Guarantee Program, even though CIT's application to that program is still pending.
The company said it is trying to transfer more assets, such as its trade finance and vendor finance businesses, to its bank. If those near-term transfers are approved by regulators, they would help improve its liquidity position, CIT added.
CIT had hoped to get some sort of short-term emergency financing from the government. But it was unclear whether government officials would be willing to step up. They have long felt CIT is not a systemic risk to the financial system and other lenders could step in to provide loans and services to small and midsize businesses, a CIT specialty.
While not as well known as the big commercial banks, CIT is an important test case for the Obama administration. It gives indications of the government's willingness to get involved with financial institutions that aren't deemed as too big to fail, but that play a significant role in the economy.
CIT is a lender to nearly a million mostly small and midsize businesses and companies, and while its failure may not jolt financial markets in a large way, it could hurt the flow of credit to many businesses to whom banks traditionally won't lend.
The government gave the bank-holding company $2.3 billion under the Troubled Asset Relief Program last year but so far hasn't included CIT in a separate program that would allow it to issue debt at low interest rates.
While CIT has limped through the credit crisis, the lender is nearing crisis point, facing $2.7 billion in debt due from now till year end that investors worry it may not be able to make.
By JEFFREY MCCRACKEN and SERENA NG
Read Entire Article
Friday, July 10, 2009
China Attacks Dollar’s Dominance
China has launched its highest-profile criticism of the dominant role of the US dollar as a global reserve currency at a meeting of the world’s biggest economies.
Dai Bingguo, Chinese state councillor, raised the issue on Thursday when he joined the leaders of four other emerging economies for talks with the leaders of the Group of Eight industrialised nations – including US President Barack Obama – in the earthquake-damaged Italian town of L’Aquila.
The remarks, in front of Mr Obama, caused concern among western leaders, some of whom fear that even discussion of long-term currency issues could unsettle markets and undercut economic recovery.
Gordon Brown, Britain’s prime minister, said he did not remember Mr Dai making the remarks. But he said the focus should be on moving the world out of recession.
“We don’t want to give the impression that big change is around the corner and the present arrangements will be destabilised,” said Mr Brown.
”We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system,” said Mr Dai, according to the Chinese foreign ministry.
While he did not name the dollar, Mr Dai was unequivocal in calling for the world to diversify the reserve currency system and aim at relatively stable exchange rates among leading currencies.
The dollar weakened in subsequent trading, although it was difficult to tell whether this was due to the Chinese remarks or cross-currents in risk appetite and economic data.
By George Parker and Guy Dinmore in L’Aquila, Krishna Guha in Washington and Justine Lau in Hong Kong
Read Entire Article
Dai Bingguo, Chinese state councillor, raised the issue on Thursday when he joined the leaders of four other emerging economies for talks with the leaders of the Group of Eight industrialised nations – including US President Barack Obama – in the earthquake-damaged Italian town of L’Aquila.
The remarks, in front of Mr Obama, caused concern among western leaders, some of whom fear that even discussion of long-term currency issues could unsettle markets and undercut economic recovery.
Gordon Brown, Britain’s prime minister, said he did not remember Mr Dai making the remarks. But he said the focus should be on moving the world out of recession.
“We don’t want to give the impression that big change is around the corner and the present arrangements will be destabilised,” said Mr Brown.
”We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system,” said Mr Dai, according to the Chinese foreign ministry.
While he did not name the dollar, Mr Dai was unequivocal in calling for the world to diversify the reserve currency system and aim at relatively stable exchange rates among leading currencies.
The dollar weakened in subsequent trading, although it was difficult to tell whether this was due to the Chinese remarks or cross-currents in risk appetite and economic data.
By George Parker and Guy Dinmore in L’Aquila, Krishna Guha in Washington and Justine Lau in Hong Kong
Read Entire Article
Thursday, July 9, 2009
Gold Price to Reach Record Highs This Year, Says GFMS
(Bullion Vault) - A leading precious metals consultancy claimed today that Gold Prices should comfortably break the $1,000 per ounce mark by the end of the year.
The yellow metal reached its all-time high of $1,030 per ounce last March and has since passed the four-figure again on two further occasions before quickly falling back.
However, GFMS chairman Philip Klapwijk has explained that ongoing concerns over the state of the global economy – plus subsequent inflationary worries – should see investors continue to buy gold in the remainder of 2009.
Speaking at GFMS’ annual Gold Survey in Beijing, he commented: “The price may have pulled back a fair bit from the February highs but that was largely just the market’s reaction to jewellery demand crumbling and scrap booming.
“We believe that it’s far from game over for investors. The gold price in the coming months could easily re-attain the $1,000 mark and is likely to push up towards a fresh record high before the end of the year.”
Read Entire Article
The yellow metal reached its all-time high of $1,030 per ounce last March and has since passed the four-figure again on two further occasions before quickly falling back.
However, GFMS chairman Philip Klapwijk has explained that ongoing concerns over the state of the global economy – plus subsequent inflationary worries – should see investors continue to buy gold in the remainder of 2009.
Speaking at GFMS’ annual Gold Survey in Beijing, he commented: “The price may have pulled back a fair bit from the February highs but that was largely just the market’s reaction to jewellery demand crumbling and scrap booming.
“We believe that it’s far from game over for investors. The gold price in the coming months could easily re-attain the $1,000 mark and is likely to push up towards a fresh record high before the end of the year.”
Read Entire Article
Wednesday, July 8, 2009
G-8 to Ponder Future of U.S. Dollar
Meeting in Italy this week, world leaders will seek accord on an agenda including trade, global warming, and steps to loosen the grip of the recession.
Less formally, but almost unavoidably, the meeting of the Group of Eight -- G-8 -- in the Italian mountain town of L'Aquila is likely to fuel ongoing debates over the continuing usefulness of two traditional economic institutions -- the pre-eminence of the U.S. dollar in world trade and the G-8 itself.
The G-8 dates to the 1970s. It started as a meeting of six leading industrialized democracies and member countries now are Canada, Russia, France, Germany, Japan, the United Kingdom and the United States. In recognition of the emergence of new economic realities, deliberations now include the Outreach 5, including China, India and Brazil, who consult with the older members of the group, but do not host its annual summits or share in its rotating presidency.
"On the economic side, I think they ought to get rid of it," said Barry Bosworth, an economist and senior fellow at Washington's Brookings Institution. "It has been supplanted by the G-20, [which is] not perfect, but a much more open Democratic forum for discussing these issues."
The G-20, organized during the Clinton administration, is the overlapping but broader group of economies that last met in London in April, and will reconvene in Pittsburgh in September.
"If you stick with the G-8 and its original members, it's too small to do much," said Marvin Goodfriend, a professor of economics at Carnegie Mellon University's Tepper School of Business. "That's because the center of gravity of the world economy has shifted to the east with China and India."
The consultations that begin this morning follow months of calls by officials from countries including China, Russia and Brazil for a reassessment of the dollar's role as the world's de facto reserve currency. The international recession combined with the continuing prospect of U.S. deficits have spurred concerns over how well the currency can be expected to hold its value in years to come. Those fears are most acute in China, the biggest U.S. creditor, whose massive store of dollar-denominated assets would be battered if inflation proved to be a sequel to the current downturn.
"The Chinese seem to be pressing on the currency issue," said Desmond Lachman, a fellow of the American Enterprise Institute and a former executive of the International Monetary Fund. "They've expressed some concern that the U.S. budget is out of control."
By James O'Toole, Pittsburgh Post-Gazette
Read more:
Read Entire Article
Less formally, but almost unavoidably, the meeting of the Group of Eight -- G-8 -- in the Italian mountain town of L'Aquila is likely to fuel ongoing debates over the continuing usefulness of two traditional economic institutions -- the pre-eminence of the U.S. dollar in world trade and the G-8 itself.
The G-8 dates to the 1970s. It started as a meeting of six leading industrialized democracies and member countries now are Canada, Russia, France, Germany, Japan, the United Kingdom and the United States. In recognition of the emergence of new economic realities, deliberations now include the Outreach 5, including China, India and Brazil, who consult with the older members of the group, but do not host its annual summits or share in its rotating presidency.
"On the economic side, I think they ought to get rid of it," said Barry Bosworth, an economist and senior fellow at Washington's Brookings Institution. "It has been supplanted by the G-20, [which is] not perfect, but a much more open Democratic forum for discussing these issues."
The G-20, organized during the Clinton administration, is the overlapping but broader group of economies that last met in London in April, and will reconvene in Pittsburgh in September.
"If you stick with the G-8 and its original members, it's too small to do much," said Marvin Goodfriend, a professor of economics at Carnegie Mellon University's Tepper School of Business. "That's because the center of gravity of the world economy has shifted to the east with China and India."
The consultations that begin this morning follow months of calls by officials from countries including China, Russia and Brazil for a reassessment of the dollar's role as the world's de facto reserve currency. The international recession combined with the continuing prospect of U.S. deficits have spurred concerns over how well the currency can be expected to hold its value in years to come. Those fears are most acute in China, the biggest U.S. creditor, whose massive store of dollar-denominated assets would be battered if inflation proved to be a sequel to the current downturn.
"The Chinese seem to be pressing on the currency issue," said Desmond Lachman, a fellow of the American Enterprise Institute and a former executive of the International Monetary Fund. "They've expressed some concern that the U.S. budget is out of control."
By James O'Toole, Pittsburgh Post-Gazette
Read more:
Read Entire Article
G-8 Leaders to Receive Books on Canova, Gold Coins
ROME (AP) — World leaders attending the Group of Eight summit opening Wednesday in Italy will each be presented with a gift from the past and one for the future.
Handmade books portraying works by Neoclassical sculptor Antonio Canova, as well as gold coins representing an imaginary future world currency will be given to the participants at the opening of the three-day summit.
ROME (AP) — World leaders attending the Group of Eight summit opening Wednesday in Italy will each be presented with a gift from the past and one for the future.
Handmade books portraying works by Neoclassical sculptor Antonio Canova, as well as gold coins representing an imaginary future world currency will be given to the participants at the opening of the three-day summit.
By MARTA FALCONI
Read Entire Article
Handmade books portraying works by Neoclassical sculptor Antonio Canova, as well as gold coins representing an imaginary future world currency will be given to the participants at the opening of the three-day summit.
ROME (AP) — World leaders attending the Group of Eight summit opening Wednesday in Italy will each be presented with a gift from the past and one for the future.
Handmade books portraying works by Neoclassical sculptor Antonio Canova, as well as gold coins representing an imaginary future world currency will be given to the participants at the opening of the three-day summit.
By MARTA FALCONI
Read Entire Article
Tuesday, July 7, 2009
US Must Be Open to 2nd Economic Stimulus: Hoyer
U.S. leaders should be open to the possibility of a second stimulus package to further boost the economy, which is still hemorrhaging jobs, House Majority Leader Steny Hoyer said Tuesday.
"It's certainly too early right now ... to say it's not working," Hoyer said of the initial stimulus package. "In fact we believe it is working. We believe there are a lot of people who otherwise would have been laid off, lost their jobs, who haven't done that." The rate of job losses was slowing, but "it's not where it ought to be," he added.
Some areas of the economy were still in trouble, he said, "housing being the leading sector." "I think we need to be open to whether we need additional action," he said.
Last month employers shed some 467,000 jobs, which sent the unemployment rate up to 9.5 percent, the highest in nearly 26 years.
However, the jobs outlook is expected to get worse in coming months, with President Barack Obama and many economists predicting it will surge past 10 percent.
So suggestions of a second stimulus have been bubbling up amid criticism by Republicans who have argued that the first package was misdirected and wasted money on programs that will not boost the economy or create jobs.
Debt prices also fell on Tuesday in part because of concerns about further federal borrowing and appetite by investors. The deficit is expected to hit an eye-popping $1.8 trillion in the 2009 fiscal year, which ends Sept. 30.
Obama, who led the charge for the $787 billion package when he took office in the
Read Entire Article
"It's certainly too early right now ... to say it's not working," Hoyer said of the initial stimulus package. "In fact we believe it is working. We believe there are a lot of people who otherwise would have been laid off, lost their jobs, who haven't done that." The rate of job losses was slowing, but "it's not where it ought to be," he added.
Some areas of the economy were still in trouble, he said, "housing being the leading sector." "I think we need to be open to whether we need additional action," he said.
Last month employers shed some 467,000 jobs, which sent the unemployment rate up to 9.5 percent, the highest in nearly 26 years.
However, the jobs outlook is expected to get worse in coming months, with President Barack Obama and many economists predicting it will surge past 10 percent.
So suggestions of a second stimulus have been bubbling up amid criticism by Republicans who have argued that the first package was misdirected and wasted money on programs that will not boost the economy or create jobs.
Debt prices also fell on Tuesday in part because of concerns about further federal borrowing and appetite by investors. The deficit is expected to hit an eye-popping $1.8 trillion in the 2009 fiscal year, which ends Sept. 30.
Obama, who led the charge for the $787 billion package when he took office in the
Read Entire Article
Would You Pledge Your Soul as Loan Collateral?
(Reuters) – Ready to give your soul for a loan in these difficult economic times? In Latvia, where the crisis has raged more than in the rest of the European Union, you can.
Such a deal is being offered by the Kontora loan company, whose public face is Viktor Mirosiichenko, 34.
Clients have to sign a contract, with the words "Agreement" in bold letters at the top. The client agrees to the collateral, "that is, my immortal soul."
Mirosiichenko said his company would not employ debt collectors to get its money back if people refused to repay, and promised no physical violence. Signatories only have to give their first name and do not show any documents.
"If they don't give it back, what can you do? They won't have a soul, that's all," he told Reuters in a basement office, with one desk, a computer and three chairs.
Wearing sunglasses, a black suit and a white shirt with the words "Kontora" (office) emblazoned on it, he reaches into his pocket and lays out a sheaf of notes on the table to show that the business is serious and not a joke.
Latvia has been the EU nation worst hit by economic crisis.
Read Entire Article
Such a deal is being offered by the Kontora loan company, whose public face is Viktor Mirosiichenko, 34.
Clients have to sign a contract, with the words "Agreement" in bold letters at the top. The client agrees to the collateral, "that is, my immortal soul."
Mirosiichenko said his company would not employ debt collectors to get its money back if people refused to repay, and promised no physical violence. Signatories only have to give their first name and do not show any documents.
"If they don't give it back, what can you do? They won't have a soul, that's all," he told Reuters in a basement office, with one desk, a computer and three chairs.
Wearing sunglasses, a black suit and a white shirt with the words "Kontora" (office) emblazoned on it, he reaches into his pocket and lays out a sheaf of notes on the table to show that the business is serious and not a joke.
Latvia has been the EU nation worst hit by economic crisis.
Read Entire Article
Monday, July 6, 2009
South Korea to Buy Gold, Expecting it to Replace Dollar
(East Asia Daily) - The Bank of Korea has not purchased gold for 11 years but is expected to go on a gold buying spree, as the world's central banks have bought the commodity since the global economic erupted in September last year.
A Bank of Korea official said yesterday, "The bank has begun to set up a plan to manage foreign exchange reserves for next year. It has also closely watched central banks in other nations and trends in the global gold market. Given the changing global financial environment, the bank's management plan is critical."
According to experts, the comment implies that the bank plans to buy gold soon. Korea has the world's sixth most foreign exchange reserves but ranks just 56th in gold holdings.
China, which has the world's largest foreign exchange reserves, has secretly bought 454 tons of gold over the past six years. This has intensified global competition to obtain more gold.
The amount of gold bought by China over the period is 32 times larger than the Bank of Korea's gold reserves. The world's central banks have rushed to buy gold, since they believe the metal will replace the greenback when the dollar's status as the world's leading currency weakens.
The bank has said nothing officially, simply saying, "We have made no decision on the purchase of gold and cannot say if we have considered it." It will finalize by November its plan to manage foreign exchange reserves for 2010, but experts forecast that the bank will have no choice but to buy gold soon.
Based on its explanation, the central bank is apparently fearful that its management plan could cause trouble in the global financial market and harm national interests.
Chang Min, the head of the Korea Institute of Finance's macroeconomic research division who worked at the central bank until late last year, said, "The central bank has long considered several alternatives such as buying gold to diversify its foreign exchange reserve portfolio, which is heavily focused on dollars. It needs to secure more gold to diversify its investment."
Kwon Sun-woo, the head of macroeconomic research at Samsung Economic Research Institute, said, "The Bank of Korea's gold reserves are far less than enough. It should have bought more gold. Given the instability of the greenback, it needs to buy more gold."
As of late May this year, the Bank of Korea had 14.3 tons of gold, far less than that held by its counterparts in the United States (8,134 tons); Germany (3,413); China (1,054); Japan (765); Russia (537); Taiwan (424); the Philippines (154); Singapore (127); Thailand (84); Indonesia (73); and Malaysia (36 tons).
Worse, Korea is one of the world's worst in the share of gold in its foreign exchange reserves -- 0.19 percent by market price and 0.03 percent by book value.
By Dong-A Ilbo (East Asia Daily)
Read Entire Article
A Bank of Korea official said yesterday, "The bank has begun to set up a plan to manage foreign exchange reserves for next year. It has also closely watched central banks in other nations and trends in the global gold market. Given the changing global financial environment, the bank's management plan is critical."
According to experts, the comment implies that the bank plans to buy gold soon. Korea has the world's sixth most foreign exchange reserves but ranks just 56th in gold holdings.
China, which has the world's largest foreign exchange reserves, has secretly bought 454 tons of gold over the past six years. This has intensified global competition to obtain more gold.
The amount of gold bought by China over the period is 32 times larger than the Bank of Korea's gold reserves. The world's central banks have rushed to buy gold, since they believe the metal will replace the greenback when the dollar's status as the world's leading currency weakens.
The bank has said nothing officially, simply saying, "We have made no decision on the purchase of gold and cannot say if we have considered it." It will finalize by November its plan to manage foreign exchange reserves for 2010, but experts forecast that the bank will have no choice but to buy gold soon.
Based on its explanation, the central bank is apparently fearful that its management plan could cause trouble in the global financial market and harm national interests.
Chang Min, the head of the Korea Institute of Finance's macroeconomic research division who worked at the central bank until late last year, said, "The central bank has long considered several alternatives such as buying gold to diversify its foreign exchange reserve portfolio, which is heavily focused on dollars. It needs to secure more gold to diversify its investment."
Kwon Sun-woo, the head of macroeconomic research at Samsung Economic Research Institute, said, "The Bank of Korea's gold reserves are far less than enough. It should have bought more gold. Given the instability of the greenback, it needs to buy more gold."
As of late May this year, the Bank of Korea had 14.3 tons of gold, far less than that held by its counterparts in the United States (8,134 tons); Germany (3,413); China (1,054); Japan (765); Russia (537); Taiwan (424); the Philippines (154); Singapore (127); Thailand (84); Indonesia (73); and Malaysia (36 tons).
Worse, Korea is one of the world's worst in the share of gold in its foreign exchange reserves -- 0.19 percent by market price and 0.03 percent by book value.
By Dong-A Ilbo (East Asia Daily)
Read Entire Article
US Lurching Towards ‘Debt Explosion’ With Long-term Interest Rates on Course to Double
(London Telegraph)The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank.
In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.
The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.
Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.
The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.
By Philip Aldrick
Read Entire Article
In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.
The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.
Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.
The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.
By Philip Aldrick
Read Entire Article
Friday, July 3, 2009
China Moves to Cut Reliance on Dollar
(Financial Times) - China has taken another step towards internationalising its currency and reducing reliance on the US dollar with the announcement of new rules to allow select companies to invoice and settle trade transactions in renminbi.
The regulations released by the People's Bank of China, the country's central bank, will allow approved companies to settle transactions through financial institutions in Shanghai and other cities in southern China.
Offshore, the trial scheme will allow transactions to be settled in renminbi in Hong Kong and Macao, the two self-governing territories on China's southern borders, and later in a limited fashion in south-east Asia as well.
Importers and exporters will be able to place orders with authorised Chinese companies, and settle payment for them, in renminbi.
Although it has no short-term implications for the full convertibility of the renminbi, the announcement adds to the volley of political signals Beijing has sent recently over its dissatisfaction with the US dollar.
"To many minds in China the US dollar's time is almost up, the eurozone suffers from political paralysis and a too-conservative central bank, while two decades of economic stagnation and a shrinking population do the yen no favours," said Stephen Green, of Standard Chartered, in Shanghai.
"For them, the renminbi is an obvious, and imminent, replacement."
By Richard McGregor in Beijing
Read Entire Article
The regulations released by the People's Bank of China, the country's central bank, will allow approved companies to settle transactions through financial institutions in Shanghai and other cities in southern China.
Offshore, the trial scheme will allow transactions to be settled in renminbi in Hong Kong and Macao, the two self-governing territories on China's southern borders, and later in a limited fashion in south-east Asia as well.
Importers and exporters will be able to place orders with authorised Chinese companies, and settle payment for them, in renminbi.
Although it has no short-term implications for the full convertibility of the renminbi, the announcement adds to the volley of political signals Beijing has sent recently over its dissatisfaction with the US dollar.
"To many minds in China the US dollar's time is almost up, the eurozone suffers from political paralysis and a too-conservative central bank, while two decades of economic stagnation and a shrinking population do the yen no favours," said Stephen Green, of Standard Chartered, in Shanghai.
"For them, the renminbi is an obvious, and imminent, replacement."
By Richard McGregor in Beijing
Read Entire Article
Thursday, July 2, 2009
Seven Banks Fail, Pushing 2009 Tally to 52
Regulators close six Illinois banks and one Texas bank setting the FDIC back a total of $314.3 million.
NEW YORK (CNNMoney.com) -- Seven banks were shut down by authorities Thursday, pushing the tally of failed banks for 2009 to 52, more than doubling the failures in 2008.
Six regional banks in Illinois and one in Texas closed their doors, according to the Federal Deposit Insurance Corporation.
Twelve banks in Illinois have failed this year. Thursday's failure in Texas was the first for the state in 2009.
Last year, 25 banks failed in the United States.
Local banks have been hard hit as plummeting home values devalued mortgage-backed assets and rising unemployment rates caused an increasing number of consumers to default on their loans.
By Catherine Clifford
Read Entire Article
NEW YORK (CNNMoney.com) -- Seven banks were shut down by authorities Thursday, pushing the tally of failed banks for 2009 to 52, more than doubling the failures in 2008.
Six regional banks in Illinois and one in Texas closed their doors, according to the Federal Deposit Insurance Corporation.
Twelve banks in Illinois have failed this year. Thursday's failure in Texas was the first for the state in 2009.
Last year, 25 banks failed in the United States.
Local banks have been hard hit as plummeting home values devalued mortgage-backed assets and rising unemployment rates caused an increasing number of consumers to default on their loans.
By Catherine Clifford
Read Entire Article
Banks Own the US Government
There are smart ways to raise money and regulate the market, but Wall Street is working to kill any meaningful financial reform
(London Guardian) - Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.
After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.
More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.
Under these circumstances, it would be reasonable to think that the bankers would be keeping a low profile for a while. That's not the way it works in Washington. The banks are aggressively pushing their case in Congress and Obama administration. Not only are we not going to see bankruptcy reform, but any financial reform package that gets through Congress will probably contain enough loopholes that it will be almost useless.
In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.
This is why it was so encouraging to see congressman Peter DeFazio's proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% on trades in oil futures and options as a way to make up a shortfall in the federal government's highway trust fund. This tax could raise billions of dollars each year in revenue and make speculation in the oil market a more dangerous affair.
The logic is very simple. For someone using these markets to hedge, the tax will be inconsequential. For example, a farmer that hedges a $400,000 wheat crop will pay $80 when selling a future. Similarly, airlines that hedge by buying oil futures will barely notice the higher cost. In fact, because trading costs have fallen so much in recent decades, a tax at this level would just be raising costs back to their levels of two decades ago, a point at which there was already a very vibrant futures and options market.
However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.
Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.
This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.
The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.
Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.
Dean Baker guardian.co.uk, Tuesday 30 June 2009 18.00 BST Article history
Read Entire Article
(London Guardian) - Last month, when the US Congress failed to pass a bankruptcy reform measure that would have allowed home mortgages to be modified in bankruptcy, senator Dick Durbin succinctly commented: "The banks own the place." That seems pretty clear.
After all, it was the banks' greed that fed the housing bubble with loony loans that were guaranteed to go bad. Of course the finance guys also made a fortune guaranteeing the loans that were guaranteed to go bad (ie AIG), and when everything went bust, the taxpayers got handed the bill. The cost of the bailout will certainly be in the hundreds of billions, if not more than $1tn when it is all over.
More importantly, we are looking at the most severe economic downturn since the Great Depression. The cumulative lost output over the years 2008-2012 will almost certainly exceed $5tn. That comes to more than $60,000 for an average family of four. This is the price that we are paying for the bankers' greed, coupled with incredible incompetence and/or corruption from our regulators.
Under these circumstances, it would be reasonable to think that the bankers would be keeping a low profile for a while. That's not the way it works in Washington. The banks are aggressively pushing their case in Congress and Obama administration. Not only are we not going to see bankruptcy reform, but any financial reform package that gets through Congress will probably contain enough loopholes that it will be almost useless.
In this political environment, the poor might get empathy, but Wall Street gets money, and lots of it. Even when the issue is global warming Wall Street has its hand out. The fees on trading carbon permits could run into the hundreds of billions of dollars in coming decades. A simple carbon tax would have been far more efficient, but efficiency is not the most important value when it comes to making Wall Street richer.
This is why it was so encouraging to see congressman Peter DeFazio's proposal to tax trades in oil options and futures. DeFazio proposed a tax of 0.02% on trades in oil futures and options as a way to make up a shortfall in the federal government's highway trust fund. This tax could raise billions of dollars each year in revenue and make speculation in the oil market a more dangerous affair.
The logic is very simple. For someone using these markets to hedge, the tax will be inconsequential. For example, a farmer that hedges a $400,000 wheat crop will pay $80 when selling a future. Similarly, airlines that hedge by buying oil futures will barely notice the higher cost. In fact, because trading costs have fallen so much in recent decades, a tax at this level would just be raising costs back to their levels of two decades ago, a point at which there was already a very vibrant futures and options market.
However, even a modest tax will make life much more difficult for speculators. Many of them expect to make quick short-term gains, often buying and selling the same day. For these traders, an increase in transactions costs of 0.02% would be a burden.
Of course, a modest tax will not drive the speculators out of the market altogether, it is just likely to reduce the volume of speculation. For this reason, even a modest tax can still raise an enormous amount of money in a market where tens of trillions of dollars of derivatives changes hands each year.
This tax can best be thought of as a tax on gambling. Gambling is heavily taxed in every state that allows it. DeFazio's bill is effectively a tax on gambling in the oil markets. It will not stop it, but it would discourage it, and in the process raise a huge amount of money that could go to productive purposes.
The bill faces an enormous uphill struggle in Congress. As Durbin said, the banks own the place, and they are not going to just step aside and let Congress impose a tax on such a lucrative business. But, it is important that people know about the DeFazio bill. First, DeFazio deserves a place on the honour roll for standing up to Wall Street.
Also, it is important for the public to know that there is a relatively low-cost way to make up the shortfall in the highway trust fund. When Congress raises some other tax and/or cuts a useful programme, people should know that there was a better alternative. It just didn't happen because, as we know, the banks own the place.
Dean Baker guardian.co.uk, Tuesday 30 June 2009 18.00 BST Article history
Read Entire Article