3,000 Pages of Financial Reform, but Still Not Enough

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By GRETCHEN MORGENSON

FOR decades, until Congress did away with it 11 years ago, a Depression-era law known as Glass-Steagall ably protected bank customers, individual investors and the financial system as a whole from the kind of outright destruction we’ve witnessed over the last few years.

Glass-Steagall was a 34-page document.

The two bills that the Senate and the House are currently chewing over as part of what may be a momentous financial reordering weigh in at a whopping 3,000 pages, combined.

Yet despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear. And even if the best of both bills becomes law, investors, taxpayers and the economy will remain vulnerable to banking crises.

Some will argue that these bills, at around 1,500 pages each, have to be weighty and complex if they are to curb the ill effects of convoluted and inscrutable financial instruments. That makes it doubly disappointing that the bills don’t go far enough in bringing greater transparency and better oversight of everyone’s favorite multisyllabic wonderment these days: derivatives.

Certainly the banks and the Wall Street trading shops that have so richly scored in the derivatives market are happy to keep the status quo — after all, profits flourish where opacity rules. But for most of the rest of us that’s an unsatisfactory, and possibly dangerous, outcome.

3,000 Pages of Financial Reform, but Still Not Enough

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• For Financial Reform, Reinstate Glass-Steagall Act (usnews.com)

The ECB Blasts Governmental Fear-Based Racketeering, Questions Keynesianism, Believes The Fed's Powers Are Overestimated

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Tyler Durden

In what could one day be seen by historians as a seminal speech presented before the Paul Volcker-chaired Group of Thirty's 63rd Plenary Session in Rabat, the ECB's Lorenzo Bini Smaghi had two messages: a prosaic, and very much expected one: of unity and cohesion, if at least in perception if not in deed, as well as an extremely unexpected one, in which the first notable discords at the very peak of the power echelons, are finally starting to leak into the public domain. It is in the latter part that Bini Smaghi takes on a very aggressive stance against not only the so-called "inflation tax", or the purported ability of central bankers to inflate their way out of any problem, but also slams the recently prevalent phenomenon of fear-mongering by the banking and political elite, which has become the goto strategy over the past two years whenever the banking class has needed to pass a policy over popular discontent. The ECB member takes a direct stab at the Fed's perceived monetary policy inflexibility and US fiscal imprudence, and implicitly observes that while the market is focusing on Europe due to its monetary policy quandary, it should be far more obsessed with the US. Bini Smaghi also fires a warning shot that ongoing divergence between the ECB and Germany will not be tolerated. Most notably, a member of a central bank makes it very clear that he is no longer a devout believer in that fundamental, and false, central banking religion - Keynesianism.

The ECB Blasts Governmental Fear-Based Racketeering, Questions Keynesianism, Believes The Fed's Powers Are Overestimated

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• ECB : There are no alternatives (sluggerotoole.com)

Top German Bankers See Plot To Funnel Bailout Money To French Banks

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Joe Weisenthal

From the beginning, it's been clear that the bailout of Greece would be a bailout in large part of French banks, owing in part to the fact that French banks had the biggest exposure.

Yet apparently some top German bankers are alarmed at how things are playing out.

A report in Der Spiegel (in German) suggests that top Bundesbank bankers see a "plot" underway at the ECB.

From Google Translate

Germany's top bankers are confused: € 25 billion, the ECB has so far spent on Greek government bonds. According to SPIEGEL information suggested the Bundesbank, that is served chiefly to Paris - so French Institute could get rid of their scrap paper.

Here's what they're upset about: The ECB is buying up Greek debt (largely from French banks), but the Germans don't understand why. After all, Greece has already received its bailout money already ; Greece should be able to pay back its debt in full.

Why, then, do French banks need to offload its junk paper?

Read more: http://www.businessinsider.com/top-german-bankers-see-plot-to-funnel-bailout-money-to-french-banks-2010-5#ixzz0pKwRv8cM

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• Euro 'Not in Danger' After Slide, Ex-Bundesbank President Says (businessweek.com)

Europe's Trillion-Dollar Bailout - Can It Work

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Gary D. Halbert

On April 12, the International Monetary Fund (IMF) increased the capacity of its emergency lending fund from $50 billion to $550 billion, a ten-fold increase, and may increase it to $750 billion if needed. The IMF's director stated in his press conference that the additional funding would "ensure that the Fund has access to adequate resources to help members that are vulnerable to financial crises."

In order to increase this emergency funding by half a trillion dollars (or more), the IMF moved to significantly increase the lending commitments of its member nations, of which the largest contributor is the United States. Oddly, there was very little talk about this in the mainstream press. I will discuss it in more detail as we go along. Upon learning of this huge increase in IMF funding in April, I thought to myself that the IMF must see somethingvery scary in the near future.

Scary indeed. On May 9, the European Union announced a near $1 trillion bailout package for euro-zone countries in an effort to address the "sovereign debt" crisis that began in Greece but now threatens the stability of financial markets across the region. Interestingly, of the near $1 trillion bailout, apprx. $640 billion will come from EU member countries, and apprx. $320 billion will come from the IMF. This obviously explained the need for the IMF to dramatically increase its emergency lending fund in April.

I find it more than coincidental that the near $1 trillion bailout of Europe came on the very weekend following Thursday, May 6 and Friday, May 7 when stock markets tumbled around the world, including the near 1,000-point intra-day plunge in the Dow Jones on May 6. Stock markets around the world rallied briefly after the massive European bailout was announced, but most equity markets came back under downward pressure soon thereafter.

The question is, will this massive bailout work? There are many reasons why it probably will not. Perhaps the simplest observation is, how can countries that are already running huge deficits borrow their way out of a financial crisis? But that is exactly what our own nation is doing, so we should not be surprised that Europe is following our lead. I believe this will come to a very ugly end in the next several years. Alas, here are the latest developments.

Europe's Trillion-Dollar Bailout - Can It Work

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• Rift Widens Between Germany, ECB (online.wsj.com)
• Restoring confidence in euro is top priority: Germany (financialpost.com)

World Gold Council – 2010 First Quarter Report

Gold Relative to S&P500 (1928-2010)

WJB’s John Roque looks at the past 4 cycles in Gold relative to the valuation of the S&P500:

 

Gold Relative to S&P500 (1928-2010)

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• The Wall Street Journal Hates Gold (lewrockwell.com)

No Progress in Weekly Unemployment Claims for Five Months

Mish

Weekly claims once again hover around 450,000 with the 4-week moving average rising a bit to 456,500 for months.

No Progress in Weekly Unemployment Claims for Five Months

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• Unemployment Claims Continue Plateau (washingtonindependent.com)

Wall Street's War

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By  Matt Taibbi

It's early May in Washington, and something very weird is in the air. As Chris Dodd, Harry Reid and the rest of the compulsive dealmakers in the Senate barrel toward the finish line of the Restoring American Financial Stability Act – the massive, year-in-the-making effort to clean up the Wall Street crime swamp – word starts to spread on Capitol Hill that somebody forgot to kill the important reforms in the bill. As of the first week in May, the legislation still contains aggressive measures that could cost once-
indomitable behemoths like Goldman Sachs and JP Morgan Chase tens of billions of dollars. Somehow, the bill has escaped the usual Senate-whorehouse orgy of mutual back-scratching, fine-print compromises and freeway-wide loopholes that screw any chance of meaningful change.

The real shocker is a thing known among Senate insiders as "716." This section of an amendment would force America's banking giants to either forgo their access to the public teat they receive through the Federal Reserve's discount window, or give up the insanely risky, casino-style bets they've been making on derivatives. That means no more pawning off predatory interest-rate swaps on suckers in Greece, no more gathering balls of subprime shit into incomprehensible debt deals, no more getting idiot bookies like AIG to wrap the crappy mortgages in phony insurance. In short, 716 would take a chain saw to one of Wall Street's most lucrative profit centers: Five of America's biggest banks (Goldman, JP Morgan, Bank of America, Morgan Stanley and Citigroup) raked in some $30 billion in over-the-counter derivatives last year. By some estimates, more than half of JP Morgan's trading revenue between 2006 and 2008 came from such derivatives. If 716 goes through, it would be a veritable Hiroshima to the era of greed.

Wall Street's War

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• Wall Street Reform Turns Out Great for Wall Street -- Why Aren't the Big Banks Being Punished? (alternet.org)

Negroponte: One Laptop Per Child is now a $75 Android Tablet

The former head of MIT's Media Lab said the next OLPC device, the XO-3, would be a 9-inch tablet made by Marvell and running Google's Android OS.

The first OLPC was an underpowered, 'designed-by-committee' laptop that cost at least double of what it was supposed to.  Most importantly, didn't adapt to the needs of the children who used it.  For instance, it didn't have a method for non-Latin characters to be input.  It was also made of plastic and had moving parts that would often break in rugged environments.

At CES in January this year, that will change, according to Nicolas Negroponte.

The new OLPC devices will take the lead from Apple's iPad but use Google's (GOOG) Android OS, at least initially.   The keyboard will be virtual and be able to adapt to different languages.

XO-3 will also have some specs that might appeal to a broader audience (myself included).  Quoting the WSJ (subscription req):

The new tablets will have at least one, and maybe two, video cameras. They'll sport Wi-Fi connections to the Internet, multi-touch screens and have enough power to play high-definition and 3-D video. Unlike Apple Inc.'s iPad tablet, the device will also work with plug-in peripherals such as mice and keyboards.

[I'm aware that iPhone's Touch OS doesn't need a mouse (and one's been hacked, anyway)  and Apple supplies both keyboard docks and Bluetooth Keyboards as well]

Negroponte said the new tablets will not use Microsoft's (MSFT) Windows 7 because the software requires too much memory and computing power.  That's been a common theme lately and might be a reason that HP (HP) picked up Palm.

Negroponte: One Laptop Per Child is now a $75 Android Tablet

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• Marvell backs ambitious $100 OLPC tablet (news.cnet.com)

“I would recommend you panic”

Panicky Greeks Paying Over $1,700 Per Ounce For Physical Gold

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By Patrick A. Heller

The fear running through the Greek populace is that the nation’s government may default on some of its debts.

Since 1965, the Greek government has imposed restrictions on trading British Sovereign gold coins (gold content .2354 oz).  Despite those restrictions, the Bank of Greece reports that it is selling an average of more than 700 coins per day to worried Greeks.

In the first four months of 2010, the Greek central bank sold more than 50,000 sovereigns at its main downtown Athens office.  Bank officials estimate that at least 100,000 other coins changed hands on the black market.  The Bank of Greece has received as much as $409 per coin, which works out to a price of more than $1,700 per ounce of gold!  Prices paid on the black market are reckoned to be even higher.  A popular spot for street vendors to sell their coins is near the Athens Stock Exchange.  There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds.

The US government and some state governments such as California are in financial straits as bad as or even worse than Greece.  How long will it take before American buyers will have to wait in lines to pay outrageous premiums for what are now bullion-priced gold and silver coins?  More than one analyst thinks those days will come within a few months or sooner.

Panicky Greeks Paying Over $1,700 Per Ounce For Physical Gold

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• Europe Crisis Spurs Gold-Coin Sales (online.wsj.com)

Double-dip fears over worldwide credit stress

By Ambrose Evans-Pritchard

The global credit system is flashing the most serious warning signals in almost a year on triple fears of a Spanish banking crisis, escalating political risk in Asia, and a second leg to the US housing slump.

Flight to safety drove yields on 10-year German Bunds to 2.56pc, below the levels touched in the depths of the Great Depression. The spreads over peripheral European debt rose sharply again, jumping to 137 basis points for Italy, 157 for Spain and 220 for Ireland.

The strains in Europe's sovereign debt markets are nearing levels that forced EU leaders to launch their "shock and awe" rescue package. "If a $1 trillion (£700bn) bail-out did not finally turn sentiment, I struggle to see what can," said Tim Ash, an economist at RBS.

Dollar Libor rates gauging stress within the interbank lending market have jumped to a 10-month high of 0.5363pc, with credit contagion spreading to every area. The iTraxx Senior financials index – banks' "fear gauge" – rose 20 basis points on Tuesday to 184. "It turns out we weren't seeing the light at the end of the tunnel after all, but a train with a big light on it coming towards us of double-dip," said Dr Suki Mann, at Societe Generale.

While the Libor rate is still far below peaks reached during the Lehman crisis, the pattern has ominous echoes of credit market strains before the two big "pulses" of the credit crisis in August 2007 and September 2008. In each case a breakdown of trust in the interbank market was a harbinger of violent moves in equities and the real economy weeks later.

RBS's credit team said Libor strains were worse than they looked since most banks in Europe were paying much higher spreads, especially in Spain. The "implied" forward spreads were nearer 1.1pc.

Double-dip fears over worldwide credit stress

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• Libor rises on fears over European debt (telegraph.co.uk)

Austerity is the new cool as Europe turns its back on Keynes

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By Jeremy Warner

Au revoir to haute couture, and adieu to Michelin starred dining. A new fashion is sweeping Europe – the hair shirt and daily diet of thinnest gruel. According to Britain's new Chancellor, George Osborne, it is a trend in which the UK plans to be "a leading force".

The game has changed. Just as Gordon Brown claimed to be framing the international response to the recession by attempting to spend his way out of it, Mr Osborne plans to set the pace in a new, fiscally responsible Europe.

Austerity is the new cool, so much so that if the idea were not quite so ridiculous, you might almost imagine that governments are engaged in some kind of competition for the prize of fiscal pin up boy of Europe. Who can do most to get those deficits down? Whose public debt trajectory looks least scary?

It was Britain's turn on the cat-walk yesterday, and for a first outing, the new Treasury team gave a pretty good show of themselves. Unlike the "pretend" efficiency and productivity savings of the last Government, the £6.25bn of cuts promised yesterday look both real and deliverable.

Salient detail is still missing. Precisely which programmes are being axed and how many jobs are involved? And of course, this is only the hors d'oeuvre. The main course is still to come. All the same, it is a start, as well as a serious statement of intent.

Fiscal responsibility is to replace the profligacy, dithering and prevarication of the last government. Let rip deficit spending was meant to be part of the cure to our economic ills. But it seems only to have succeeded in almost bankrupting both the UK and much of the rest of Europe. There now begins the long hard slog of putting public debt back on a sustainable footing.

Austerity is the new cool as Europe turns its back on Keynes

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• Ian Welsh: As the Euro and the Pound come under pressure bend over and kiss Europe's economy goodbye (huffingtonpost.com)

European equities struggle after Spain bank bailout

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European stock markets struggled on Monday, with investor sentiment hit by renewed eurozone debt concerns following the weekend bailout of Spanish bank CajaSur, dealers said.

In morning trade, London rose by just 0.05 percent, Paris shed 0.51 percent, Frankfurt fell by 0.52 percent and Madrid by 0.79 percent.

"Investors remained nervous in the opening trading session to the week, with eurozone sovereign debt concerns still weighing on sentiment and keeping a leash on small market gains," said analyst Giles Watts at City Index.

"Trading remains choppy with most indices switching between small gains and losses in the opening session as investors tussle between uncertainty and appetite for risk."

The rescue of Spanish regional savings bank CajaSur, which was taken over by the Bank of Spain over the weekend, could cost up to 2.7 billion euros (3.4 billion dollars), business daily Expansion reported on Monday.

A Bank of Spain spokesman would not confirm this figure but he said the unlisted bank, formerly controlled by the Roman Catholic Church and headed by a priest, would receive an injection of "at least" 523 million euros.

European equities struggle after Spain bank bailout

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• CajaSur Takeover Adds to Pressure on Spain's Savings Banks (online.wsj.com)

Obama’s Regulatory Brain

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Robert Reich

The most important thing to know about the 1,500 page financial reform bill passed by the Senate last week — now on he way to being reconciled with the House bill — is that it’s regulatory. It does nothing to change the structure of Wall Street.

The bill omits two critical ideas for changing the structure of Wall Street’s biggest banks so they won’t cause more trouble in the future, and leaves a third idea in limbo. The White House doesn’t support any of them.

First, although the Senate bill seeks to avoid the “too big to fail” problem by pushing failing banks into an “orderly” bankruptcy-type process, this regulatory approach isn’t enough. The Senate roundly rejected an amendment that would have broken up the biggest banks by imposing caps on the deposits they could hold and their capital assets.

You do not have to be an algorithm-wielding Wall Street whizz-kid to understand that the best way to prevent a bank from becoming too big to fail is preventing it from becoming too big in the first place. The size of Wall Street’s five giants already equals a large percentage of America’s gross domestic product.

Obama’s Regulatory Brain

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• Daniel Gross: Senate Reform Bill Is Too Kind To Wall Street (huffingtonpost.com)

Bonfire of the Loopholes

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By Michael Hirsh

President Obama and leading Democrats are calling the "Restoring American Financial Stability Act of 2010" the greatest overhaul of Wall Street since the Great Depression. And that may well be true. But judging from the many loopholes in the legislation—with more to come as the banks maneuver stealthily to tweak the final product in conference—the new bill might be better termed "the Accountants' and Lawyers' Welfare Act of 2010." The bottom line is that despite the blizzard of amendments and provisions added—including some very smart changes at the 11th hour, like imposing greater control of ratings agencies—what's likely to emerge on the other side of this in the years to come is a Wall Street that's largely unchanged if marginally more regulated.

Indeed, if any structural changes to Wall Street follow from this law, it is likely to be that the biggest banks get even more powerful than they already are, despite the size limits being placed on them.

The accountants and lawyers—read lobbyists—have already made some serious inroads. Sen. Maria Cantwell of Washington State had wanted to add a simple provision shedding light on the vast "dark" market in swaps, which until now has been almost entirely unregulated. The language stated clearly that it shall be "unlawful" if a swap that the Securities and Exchange Commission wanted to be "cleared" out in the open was not cleared. But that language was somehow deemed too strong or troublesome for the industry. Now there is no threat of a finding of illegality and no penalty promised if swaps deals don't go through a clearinghouse. Another provision, also introduced somewhat mysteriously, says that clearinghouses can't be forced by authorities to accept swaps for clearing—again, allowing at least some swaps to be traded privately by default. All this led Cantwell to vote against the bill because, she said, "it fails to close the very same loopholes in derivatives trading that led to the biggest economic implosion since the Great Depression."

Bonfire of the Loopholes

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Fiscal crises threaten Europe's generous benefits

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By MICHAEL WEISSENSTEIN

Six weeks of vacation a year. Retirement at 60. Thousands of euros for having a baby. A good university education for less than the cost of a laptop.

The system known as the European welfare state was built after World War II as the keystone of a shared prosperity meant to prevent future conflict. Generous lifelong benefits have since become a defining feature of modern Europe.

Now the welfare state - cherished by many Europeans as an alternative to what they see as dog-eat-dog American capitalism - is coming under its most serious threat in decades: Europe's sovereign debt crisis.

Deep budget cuts are under way across Europe. Although the first round is focused mostly on government payrolls - the least politically explosive target - welfare benefits are looking increasingly vulnerable.

"The current welfare state is unaffordable," said Uri Dadush, director of the Carnegie Endowment's International Economics Program. "The crisis has made the day of reckoning closer by several years in virtually all the industrial countries."

Germany will decide next month just how to cut at least 3 billion euros ($3.75 billion) from the budget. The government is suggesting for the first time that it could make fresh cuts to unemployment benefits that include giving Germans under 50 about 60 percent of their last salary before taxes for up to a year. That benefit itself emerged after cuts to an even more generous package about five years ago.

Fiscal crises threaten Europe's generous benefits

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• Democracy and the Welfare State are Incompatible (economicnoise.com)

The new feudal overlords of Europe will be the bankers of the ECB

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By Peter Boone and Simon Johnson

According to the economist Friedrich von Hayek, the development of welfare socialism after the Second World War undermined freedom and would lead Western democracies inexorably to some form of state-run serfdom.

Hayek had the sign and the destination right, but was wrong about the mechanism. Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests are what ended up undermining democracy both in North America and in Europe. All industrialised countries are at risk, but it's the eurozone – with its vulnerable structures – that points most clearly to our potentially unpleasant collective futures.

As a result of the continuing euro crisis, the European Central Bank (ECB) now finds itself buying up the debt of all the weaker eurozone governments, making it the – perhaps unwittingly – feudal boss of Europe. In the coming years, the ECB and the European Union will dictate policy. The policy elite who run these structures – along with their allies in the private sector – are your new overlords.

It is arguable who exactly are the peasants, the vassals and the lords under this model – and what services will end up being exchanged, but there is no question we are seeing a sea change in the post-war system of property, power and prosperity across Western Europe, just as Hayek feared. An overwhelming debt burden will bring down even the proudest people.

The ECB-EU approach will not return countries to reasonable levels of growth – the debt overhang is simply too large. The southern and western periphery of the eurozone cannot grow out of their debts under these arrangements and so will stumble from stabilisation programme to stabilisation programme – as did Latin America in the 1980s. This is bound to lead to hostile politics, social unrest and more economic crises.

The new feudal overlords of Europe will be the bankers of the ECB

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• Euro's existential dilemma strains European unity (guardian.co.uk)

Markets left reeling after week of global drama

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By Edmund Conway

No one – not Britain, the US nor Japan – is immune to a Greek-style debt crisis, one of Europe's chief policymakers has warned, as investors reeled from a week of market drama.

The sovereign debt crisis could claim new victims, including those outside the euro area, according to Lorenzo Bini Smaghi, a member of the European Central Bank's executive board. He was speaking as finance ministers met in Brussels to discuss their response to the crisis.

The new Chancellor, George Osborne, urged them to cut deficits faster and with more urgency, pointing towards the £6bn of in-year spending cuts he is set to unveil on Monday.

The warning came on another tense day for capital markets worldwide.

London's benchmark FTSE 100 dipped briefly beneath the 5,000 mark, recovering later in the day but nevertheless closing down 10.2 points at 5062.93. The FTSE has fallen by 3.8pc this week alone, and is 13pc down on its peak in April.

Although markets across Europe spent most of the day in negative territory, they recovered in late trading after German politicians backed their part in the $1 trillion safety net euro area members are constructing to prevent re-runs of the Greek economic catastrophe. On Wall Street, the Dow Jones closed up 1.3pc at 10,193.39 points.

Strategists said that the disruption was likely to continue for some time, as pessimism spreads throughout the marketplace. Some metrics put the level of risk appetite down at the lowest level since the peaks of the Lehman Brothers collapse in 2008.

Markets left reeling after week of global drama

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• FTSE 100 falls 10pc since start of tax year (telegraph.co.uk)

America Will Pass $13 Trillion In Total Debt Next Tuesday; $397 Billion In Debt Rolled Month To Date

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Tyler Durden

Total US debt just hit $12,987,823,000,000, $13 billion from lucky $13 trillion. As next week the US Treasury is auctioning off another gross $140+ billion in Bonds, we will pass this totally irrelevant resistance level on May 25, when Timmy issues another $42 billion of 2 Year Notes. The next important support level of $14 trillion will be surpassed around the time the Democrats get destroyed in the mid-term elections, while the statutory debt limit of $14.3 trillion will likely have to be raised in January 2011 by a new republican majority, an action which will promptly reduce popular republican support following their landslide election victory, thus starting the pointless D->R->D->R etc cycle all over again. Also, at approximately that time headlines that US debt is now 100% of GDP will bring the US bond vigilantes out of hibernation and will send US interest rates soaring, assisted by Ben Bernanke's most recent announcement that the Fed will is once again"forced" to purchase another $1.5 trillion in treasuries and mortgages. 

Stepping away from the Ouija board, we also notice that so far in April, the Treasury has rolled another unsustainable amount of Treasuries: $397 billion, of which $$359 billion is in Bills.

America Will Pass $13 Trillion In Total Debt Next Tuesday; $397 Billion In Debt Rolled Month To Date

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Dow 28,000,000: The Unbelievable Expectations of California's Pension System

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By DAVID CRANE

In 1999 then California Governor Gray Davis signed into law a bill that represented the largest issuance of non-voter-approved debt in the state's history. The bill SB 400 granted billions of dollars in retroactive pension boosts to state employees, allowing retirements as young as age 50 with lifetime pensions of up to 90% of final year salaries. The California Public Employees' Retirement System sold the pension boost to the state legislature by promising that "no increase over current employer contributions is needed for these benefit improvements" and that Calpers would "remain fully funded." They also claimed that enhanced pensions would not cost taxpayers "a dime" because investment bets would cover the expense.

What Calpers failed to disclose, however, was that (1) the state budget was on the hook for shortfalls should actual investment returns fall short of assumed investment returns, (2) those assumed investment returns implicitly projected the Dow Jones would reach roughly 25,000 by 2009 and 28,000,000 by 2099, unrealistic to say the least (3) shortfalls could turn out to be hundreds of billions of dollars, (4) Calpers's own employees would benefit from the pension increases and (5) members of Calpers's board had received contributions from the public employee unions who would benefit from the legislation. Had such a flagrant case of non-disclosure occurred in the private sector, even a sleepy SEC and US Attorney would have noticed.

Dow 28,000,000: The Unbelievable Expectations of California's Pension System

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Schäuble interview: Berlin’s strictures

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By Quentin Peel

T he man at the eye of the financial storm that has engulfed the euro has learnt to be patient after 20 years confined to a wheelchair. But Wolfgang Schäuble, Germany’s finance minister, is also a man in a hurry.

He wants urgently to rewrite the rulebook of the eurozone to prevent any such crisis happening again, and at the same time to revive the momentum of international negotiations on tougher regulation of financial markets. He has returned to the idea of an international financial transaction tax, to make financial institutions share in the costs of the crisis, even if it can be agreed only inside the European Union.

He admits that the greatest problem affecting the markets is one of trust in the ability of the EU, and especially the 16 members of the common currency area at its heart, to bring their debt and deficits under control as they have promised. “That is the task we must perform,” he tells the Financial Times aboard his Luftwaffe Challenger jet bound for Berlin. “But that doesn’t alter the fact that financial market regulation is also necessary.

“I’m convinced the markets are really out of control. That is why we need really effective regulation, in the sense of creating a properly functioning market mechanism.”

Schäuble interview: Berlin’s strictures

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Germany's 'desperate' short ban triggers capital flight to Switzerland

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By Ambrose Evans-Pritchard

A year ago, Germany's financial regulator BaFin warned that the toxic debts of the country's banks would blow up "like a grenade" once hidden losses from the credit crisis caught up with them.

An internal memo at the time showed that BaFin feared write-offs might top €800bn (£688bn), twice the reserves of Germany's financial institutions. Nobody paid much attention. But the regulator's shock move on Tuesday night to stop short trading on banks, insurers, eurozone bonds – as well as a ban credit default swaps (CDS) on sovereign debt – has left markets wondering whether the slow fuse on Germany's banking system has finally detonated.

BaFin spoke of "extraordinary volatility" and said CDS moves were jeopardising "the stability of the financial system as a whole". It is unsettling that the BaFin should opt for such drastic measures a week after EU leaders thought they had overawed markets with a €750bn rescue package and direct purchases of Greek, Portuguese and Spanish debt by the European Central Bank. BaFin's heavy-handed move seems to proclaim that the rescue has failed.

"The market is left asking what skeletons are lurking in the cupboard," said Marc Ostwald from Monument Securities. The short ban follows a report by RBC Capital Markets that circulated widely in the City accusing German banks of failing to come clean on 75pc of their €45bn exposure to Greek debt.

German lenders have the lowest risk-weighted capital ratios in the world after Japan. They were slow to rebuild safety cushions after the sub-prime crisis, and now face a second set of losses on Club Med holdings. Reporting rules have let Landesbanken delay write-downs, turning them into Europe's "zombie" banks.

Germany's 'desperate' short ban triggers capital flight to Switzerland

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Congress blocks indiscriminate IMF aid for Europe

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By Ambrose Evans-Pritchard

Europe may have to clean up its own mess after all. The US Senate has voted 94:0 to block use of taxpayers’ money for IMF rescues that make no economic sense or bail-outs for countries like Greece that far are beyond the point of no return.

“This amendment will help prevent American taxpayer dollars from underwriting dysfunctional governments abroad,” said Texas Senator John Cornyn, the chief sponsor. “American taxpayers have seen more bailouts than they can stomach, and the last thing they should have to worry about are their hard-earned tax dollars being used to rescue a foreign government. Greece is not by any stretch of the imagination too big to fail.”

Co-sponsor David Vitter from Louisiana said America had run out of money. “Our country already owes trillions of dollars in debt. We simply can’t afford to take on other countries’ debt in addition to our own.”

It is unclear where this leaves the EU’s $1 trillion “shock and uh” package. Urlich Leuchtmann from Commerzbank said the IMF share of $320bn was the only genuine money on the table, the rest being largely euro smoke and mirrors, or plain bluff.

Congress blocks indiscriminate IMF aid for Europe

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• Greece to receive bail-out money (news.bbc.co.uk)

Market chaos warning after German ban on shorting

By Harry Wilson

The unprecedented step saw the euro sink to a four-year low after Germany said that from midnight shorting of credit default swaps of any European government would be banned. The prohibition is an attempt to counter speculators that Berlin believes are trying to destabilise the region's sovereign bond market.

Traders greeted the move by BaFin, the German regulator, with a mixture of anger and astonishment. One bond trader said he expected Wednesday's trading session to be one of the most volatile in living memory: "It will be complete chaos, I really don't know what the Germans think they are doing."

One immediate effect was that the cost of insuring European government debt fell as markets were hit by a so-called "short squeeze" where investors with short positions are forced to offload their holdings and buy the bonds, causing the price to increase.

This is certain to please the German authorities, who have waged an increasingly hostile war of words with supposed speculators.

BaFin said the ban was being introduced due to "extraordinary volatility in debt securities issued by eurozone countries".

In a statement, it said short-selling had led to excessive price movements "which could have led to significant disadvantages for financial markets and have threatened the stability of the entire financial system". However, traders said that the measures, which will also prohibit the naked short-selling of shares in major German financial institutions, such as Allianz. Commerzbank, and Deutsche Bank, could lead to an immediate backlash from investors around the world.

They added that the ban was likely to be effectively unenforceable. It will not stop traders from shorting the bonds and shares using other European markets.

Market chaos warning after German ban on shorting

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• ISDA Sees 'Legitimate' Government Concern About Bond Volatility (businessweek.com)

The Government as Identity Thieves

Image via Wikipedia

by Ron Paul (R), Congressman

The spotlight remains on the Greek sovereign debt crisis as the riots continue. The terms of the Greek bailout from the IMF and Eurozone countries remain contentious with citizens on all sides. Europeans hate having their governments throw public money away as much as Americans do. The Greeks are not happy about having their taxes raised while their pensions and salaries are cut. Meanwhile, it is rumored by the Financial Times, AFP and others that Greece may spend more than it saves from austerity measures on arms deals with Germany, France and the US as a potential condition of receiving bailout funds. If true, it is certainly not unprecedented for the global military industrial complex to benefit from deals made by their friends in the central banking community. After all, war is the health of the state. The last thing big government proponents want is for peace to break out in the world.

This free flow of fiat money from around the globe to Greece will not really save Greece as much as it will grant a temporary reprieve to central bankers from the consequences of their mistakes. Sadly, this will come at the expense of the Greek people and taxpayers in Europe and America. Taxpayers are of no consequence to either European or American central bankers. Even the mere desire for complete information on what they are up to in our name is rebuffed, as we saw last week in the Senate with the failure of Senator Vitter’s amendment containing my language to fully audit the fed. The hubris of powerful and secretive central bankers seems to know no bounds.

If someone incurred debts against you as an individual, without your knowledge or consent, you would call it identity theft.  You would call your bank for a full accounting of the debts incurred in your name, and after some verification, those debts would be declared invalid and you would not be held responsible for them. Furthermore, if the culprit was found, they would be prosecuted and sent to jail.

The Government as Identity Thieves

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• Europe bristles at paying for Greek retirement (seattletimes.nwsource.com)

HTC Unveils ‘Wildfire’ for European and Asian Markets

HTC has just unveiled their next Android handset this morning. Called the Wildfire, it's a Sense UI smart phone that follows in the footsteps of HTC Tattoo with a bit of Desire form factor. Like other Sense-based devices, the Wildfire features Friend Stream, Peep and the other widgets that help add flavor to their custom build of Android.

One feature that makes its debut on the Wildfire is the new application sharing widget. Designed to help users share and discover new Android applications, it allows for anyone to recommend titles to friends via text, email, twitter, etc.  Friends will then receive a link taking them directly to the application within the Android Market.  In another first for the handset maker, the phone comes with HTC Caller ID which displays your contact's Facebook profile picture, latest update, and birthday reminders.

HTC Unveils ‘Wildfire’ for European and Asian Markets

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• HTC Wildfire Has New App-Sharing Widget For Sharing The Love [Android] (gizmodo.com)

Europe's fiscal Fascism brings British withdrawal ever closer

By Ambrose Evans-Pritchard

Just when you thought the EU could not go any further down the road towards authoritarian excess, it gets worse.

The European Commission is calling for EU powers to vet budgets of the 27 member states before the draft laws have been presented to the House of Commons, the Tweede Kamer, the Folketing, the Bundestag, the Assemblee Nationale, or other national parliaments. It applies to Britain even though we are not in EMU.

Fonctionnaires and EU finance ministers will pass judgement on the British (or Dutch, or Danish, or French) budgets before the elected bodies of these ancient and sovereign nations have seen the proposals. Did we not we not fight the English Civil War and kill a king over such a prerogative?

Yet again we are discovering the trick played on our democracies by Europe’s insiders when they charged ahead with EMU, brushing aside warnings by their own staff economists that monetary union was unworkable without fiscal union. Jacques Delors knew perfectly well that this would lead inevitably to a crisis, but it would be the “beneficial crisis” that would force sovereign parliaments to submit to demands that they would never otherwise accept.

This is now playing out before our eyes. Club Med governments have built up €7 trillion sovereign debt under the cover of monetary union, which shut down the warning signals for borrowers and creditors alike. We are now near – or beyond – the point of no return. Eurozone states must go along with this cynical entrapment, or risk economic catastrophe. The conspirators have succeeded. The €750bn shock and awe package agreed over the weekend clearly alters the character of the European Project, crossing the line towards an EU debt union and an EU Treasury. How long will it be now before the EU acquires direct tax-raising powers?

As French president Nicolas Sarkozy said: “We have a veritable economic government”. I hope the excellent and proud French people realise what this means before it is too late, as it is for the Greek, Irish, Portuguese, and Spanish peoples. They are being forced by the logic of the economic machine to squeeze fiscal policy at a time when they are either in recession or trapped in a deeper perma-slump without offsetting stimulus. A Deutsche Bank note to clients said these countries have given up all three instruments of economic control: fiscal, monetary, and exchange. They are powerless. We are under an “EU protectorate”, said Spain’s opposition leader Mariano Rajoy last week, though it was empty, useless rhetoric since he does not draw any of the necessary conclusions from this intolerable state of affairs.

Europe's fiscal Fascism brings British withdrawal ever closer

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• Whatever It Takes to Save the Euro (time.com)