Where Are The Prosecutions? SEC Lets Citi Execs Go Free After $40 Billion Subprime Lie

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Zach Carter

What is the penalty for bankers who tell $40 billion lies? Somewhere between nothing and a rounding-error on your bonus.

The SEC just hit two Citigroup executives with fines for concealing $40 billion in subprime mortgage debt from investors back in 2007. The biggest fine is going to Citi CFO Gary Crittenden, who will pay $100,000 to settle allegations that he screwed over his own investors. The year of the alleged wrongdoing, Crittenden took home $19.4 million. That’s right. Crittenden will lose one-half of one percent of his income from the year he hid a quagmire of bailout-inducing insanity from his own investors. That’s it. No indictment. No prison time. Crittenden doesn’t even have to formally acknowledge any wrongdoing.

In 2007, as financial markets were freaking out about the subprime situation, Citi repeatedly told its investors that it owned just $13 billion in subprime mortgage debt. It was true—if you didn’t count an additional $40 billion in subprime debt that the company was also holding onto.

Citi’s CEO at the time, Chuck Prince, has not been charged with anything. As Yves Smith emphasizes, all of the top financial officers of every major corporation are responsible for the accuracy of their quarterly financial statements. Lying on those statements is a federal crime. This is the sort of thing that securities fraud cases are built around.

Where Are The Prosecutions? SEC Lets Citi Execs Go Free After $40 Billion Subprime Lie

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President Obama’s $20 Billion Tactical Error

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By Randall Holcombe

When President Obama demanded that BP turn over $20 billion to the federal government to compensate those harmed by the oil spill, some people called the president’s demand extortion, but BP quickly agreed, and it should have.  Everything about that arrangement is beneficial to BP, and ultimately a liability for President Obama.

BP knew their liability for damages would be at least $20 billion, so it will cost BP nothing to turn that money over to Obama’s team to administer the payouts, rather than being responsible for doing it itself.  The $20 billion will go into an escrow account that will be overseen by Kenneth Feinberg, who will decide who will be compensated, and how much.  Any disputes about compensation will now be disputes between the claimants and the Obama administration, rather than between the claimants and BP, as would have been the case without the escrow account.

Compensation for damages is a no-win situation, from a public relations and political perspective.  In my local paper there was an article today about a man who buys seafood in Apalachicola, drives it to Jacksonville, and sells it on the street, making about $2500 a week.  No oil has come near Apalachicola, but he says his business fell off because people don’t want to buy seafood from the gulf, so he’s quit that business.  Is he entitled to compensation?

President Obama’s $20 Billion Tactical Error

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• UPDATE 1-BP escrow account will pay claims fast - Feinberg (reuters.com)

Google Piling Up Social Network Arsenal to Challenge Facebook

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Clint Boulton

This Google gaming and social network story is really boiling over. In the last month, Digg's Kevin Rose tweeted that Google has a social network in the works, an assertion backed up Quora's Adam D'Angelo and possibly by this document.

In mid-July, TechCrunch said Google had invested $100 million in social gaming platform Zyngaand was striking a deal with that sensational startup.

Now the Wall Street Journal reports (paywall warning) that Google is in "talks with several makers of popular online games as it seeks to develop a broader social networking service that could compete with Facebook."

But isn't this the worst-kept secret in high tech? I could resort to snarky commentary about traditional media outlets merely building off of blogs like TechCrunch, but they do a much better job of trashing mainstream media.

Oh, wait, TechCrunch is the new mainstream media. They just don't know it yet.

Anyway, the WSJ says Google is also talking with Playdom, which Disney just purchased for as much as $763 million.

The article rehashes the notion TechCrunch established that something called Google Games will be the centerpiece for what I'm just going to call Google Social but what others are saying is Google Me. Not to be confused with "Despicable Me."

However, the WSJ did score this gem: While Google CEO Eric Schmidt declined to confirm the development of a social networking service that would incorporate social games, he did confirm the Zynga deal by saying "you can expect a partnership with Zynga" in the future.

Google Piling Up Social Network Arsenal to Challenge Facebook

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New Home Sales and Bear Market Math

Mish

One can't help but laugh at headlines touting a huge 23.% jump in new home sales given that the "jump" was to the second worst month in history, dating back to 1963.
Dave Rosenberg puts the headline jump into perspective in Housing Data Are Not Supportive.

Market sentiment is positive and as a result of the market going straight up, people believe that the economic data are somehow getting better. Not the case at all.
April new home sales were revised DOWN to a 422k annual rate from 504k when the data for the month were first released. You know what that means? It means that the homebuyer tax credit was even a bigger dud than we thought it was previously. No bang for the buck from these spending gimmicks.
May new home sales were revised DOWN to 267k units from 300k. That sure puts a 23.6% "jump" to 330k into perspective, doesn't it? It's called bear market math.
At 330k in June, this goes down as the second worst month on record (data back to January 1963). And in per capita terms it is far worse than that considering the population has expanded 63% since then.

New Home Sales and Bear Market Math

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Are the American people obsolete?

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BY MICHAEL LIND

Have the American people outlived their usefulness to the rich minority in the United States? A number of trends suggest that the answer may be yes.

In every industrial democracy since the end of World War II, there has been a social contract between the few and the many. In return for receiving a disproportionate amount of the gains from economic growth in a capitalist economy, the rich paid a disproportionate percentage of the taxes needed for public goods and a safety net for the majority.

In North America and Europe, the economic elite agreed to this bargain because they needed ordinary people as consumers and soldiers. Without mass consumption, the factories in which the rich invested would grind to a halt. Without universal conscription in the world wars, and selective conscription during the Cold War, the U.S. and its allies might have failed to defeat totalitarian empires that would have created a world order hostile to a market economy.

Globalization has eliminated the first reason for the rich to continue supporting this bargain at the nation-state level, while the privatization of the military threatens the other rationale.

The offshoring of industrial production means that many American investors and corporate managers no longer need an American workforce in order to prosper. They can enjoy their stream of profits from factories in China while shutting down factories in the U.S. And if Chinese workers have the impertinence to demand higher wages, American corporations can find low-wage labor in other countries.

Are the American people obsolete?

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Gold Bears Are Wrong, Smart Money Isn't Selling

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By Toby Connor

Last week I was told that we were going to see more gold weakness in the days ahead because big money had to sell their positions. Folks, smart big-money traders don’t sell into weakness. These kinds of investors don’t think like the typical retail investor who's forever trying to avoid drawdowns. Big-money investors take positions based on fundamentals and then continually buy dips until the fundamentals reverse. The fundamentals haven’t reversed for gold so I’m confident in saying that smart money isn’t selling its gold, it's using this dip to accumulate.
With that being said, there are times when big money will sell into the market and it's why technical analysis, as used by retail traders, often doesn’t work. They sell into the market to accumulate positions. Let me explain.
When a large fund wants to buy, it can’t just simply start buying stock like you or I would. Doing so would run the market up, causing it to fill at higher and higher prices. Unlike the average retail trader, smart money attempts to buy into weakness and sell into strength (buy low, sell high). In order to buy the kind of size it needs without moving the market against itself, a large trader needs very liquid conditions. Ask yourself, when do those kind of conditions exist? They happen when markets break technical levels.

Gold Bears Are Wrong, Smart Money Isn't Selling

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Federal Debt and the Risk of a Fiscal Crisis

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CBO: Economic and Budget Issue Brief

Over the past few years, U.S. government debt held by the public has grown rapidly—to the point that, compared with the total output of the economy, it is now higher than it has ever been except during the period around World War II. The recent increase in debt has been the result of three sets of factors: an imbalance between federal revenues and spending that predates the recession and the recent turmoil in financial markets, sharply lower revenues and elevated spending that derive directly from those economic conditions, and the costs of various federal policies implemented in response to the conditions.

Further increases in federal debt relative to the nation’s output (gross domestic product, or GDP) almost certainly lie ahead if current policies remain in place. The aging of the population and rising costs for health care will push federal spending, measured as a percentage of GDP, well above the levels experienced in recent decades. Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels.

Federal Debt and the Risk of a Fiscal Crisis

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Nevada's Economic Misery May Be America's Future

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Ryan Grim

So many homes in Las Vegas have been foreclosed upon that banks rarely bother to hang a "For Sale" sign on the front lawn anymore. Instead, visitors identify bank-owned properties by the brown grass and the 8.5 x 11-inch sheet of paper taped to the front door or the garage.

On a cul-de-sac in the once-pleasant neighbourhood of Silverado Ranch, Larry Wood is the last remaining resident. Two of the four homes are in foreclosure and a third is a "party rental" only occupied by rowdy tourists on weekends. One of his neighbours made a few bucks before abandoning the home, he says. "They sold all the palm trees and just walked away from it," says Wood, sporting a "Freedom Isn't Free" T-shirt. "It's a great neighbourhood. I guess that people weren't financially set up to get through the crash."

Wood takes little comfort in being the last resident. "Sometimes it's scary. There's a possibility someone would try to rob me and I wouldn't have any neighbours to help me," he says, recounting a previous attempted intrusion when his then-neighbour called to warn him not to answer the door because there was a group of thugs knocking. Armed and ready, he huddled near the door but the gang gave up and left.

Walking away is becoming a habit among law-abiding residents too. It's hard to find a home bought before 2009 that isn't underwater and very few landlords, when running credit checks, look for foreclosures or short-sales on a tenant's record. Otherwise, a manager couldn't fill a building.

Nevada's Economic Misery May Be America's Future

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Local Governments Cutting Jobs and Services

Muni Losses

The Death of Paper Money

By Ambrose Evans-Pritchard

Ebay is offering a well-thumbed volume of "Dying of Money: Lessons of the Great German and American Inflations" at a starting bid of $699 (shipping free.. thanks a lot).

The crucial passage comes in Chapter 17 entitled "Velocity". Each big inflation -- whether the early 1920s in Germany, or the Korean and Vietnam wars in the US -- starts with a passive expansion of the quantity money. This sits inert for a surprisingly long time. Asset prices may go up, but latent price inflation is disguised. The effect is much like lighter fuel on a camp fire before the match is struck.

People’s willingness to hold money can change suddenly for a "psychological and spontaneous reason" , causing a spike in the velocity of money. It can occur at lightning speed, over a few weeks. The shift invariably catches economists by surprise. They wait too long to drain the excess money.

"Velocity took an almost right-angle turn upward in the summer of 1922," said Mr O Parsson. Reichsbank officials were baffled. They could not fathom why the German people had started to behave differently almost two years after the bank had already boosted the money supply. He contends that public patience snapped abruptly once people lost trust and began to "smell a government rat".

Some might smile at the Bank of England "surprise" at the recent the jump in Brtiish inflation. Across the Atlantic, Fed critics say the rise in the US monetary base from $871bn to $2,024bn in just two years is an incendiary pyre that will ignite as soon as US money velocity returns to normal.

Morgan Stanley expects bond carnage as this catches up with the Fed, predicting that yields on US Treasuries will rocket to 5.5pc. This has not happened so far. 10-year yields have fallen below 3pc, and M2 velocity has remained at historic lows of 1.72.

The Death of Paper Money

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The Breakup of the United States

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By: Michael_S_Rozeff

As the dissatisfactions of Americans with their national government grow, so does the likelihood of the breakup of the United States. I believe that most Americans can improve their well-being by ending the national government, that is, ending the Union. I believe that this goal should shape politics if politics is to do much good.

I don’t think Americans are going to be the first people in the modern era to initiate a large-scale anarchy. But Americans might conceivably move back to a federal form of government something like that under the Articles of Confederation. If so, the problem is how to proceed. Many Americans feel (and are) trapped and thwarted by government power.

I see two paths. Americans can do this either acting as individuals formed into a body politic of 300 million Americans or as 50 body politics organized by state. I think action by state has a better chance of success.

To act as one body, Americans would have to alter their Constitution. The divisions among Americans make this highly unlikely. Even if it were pursued, the results would be highly uncertain.

I like to think of federal programs being made optional at either the state or the personal level, but that means ending the Constitution or radically amending it. This takes me back to the other path of change: the States. This path looks more viable.

We the People created the Constitution through state legislatures. That is a quasi-legal path to undoing the Constitution and thus breaking up the United States. This begins a process by which Americans take back their own government. I say "begins" because most states are also candidates for restructuring. Many local governments are also out of control.

I don’t think Americans can improve their lot by participating in national politics under the current rules of the national game. I think they have to change the rules. They have to end the Union and get out from under the existing Constitution, which is now entirely controlled and interpreted by the national government.

The Breakup of the United States

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A test cynically calibrated to fix the result

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By Wolfgang Münchau

If you tried to test the safety of cars or children’s toys using the same method the European Union applied in its stress tests on banks, you would end up in jail. How so? Simply because the testing mechanism was calibrated to fix the result. The purpose of the exercise was to ensure that the only banks that failed it were those that would have to be restructured anyway.

At the same time, the supposedly clever idea was to demonstrate to the outside world that the rest of the banking system remained sound. The purpose of this cynical exercise was to pretend that the EU was solving a problem, when in fact it was not.

It is too early to judge whether the ploy worked. But from the informed reaction on Friday night, I suspect not. Expectations were not very high. But the EU undershot the lowest of them.

There were three fundamental problems with those tests – and each one would have invalidated them. The first, and least serious of the three, is that the tests left out some important institutions, whose financial health is not entirely clear. One of those is KfW, the German state-owned institution that is legally not a bank but carries out bank-like functions – such as accumulating lots of toxic assets.

The second problem is the definition of the pass rate – a tier-one ratio of 6 per cent, which refers to various categories of capital, as a percentage of a bank’s total assets. The problem with this definition is that it does not tell us what we need to know. The reason we are interested in capital ratios is not because we are afraid that a bank may fall short of some legal requirement but that it could be insufficiently insured against an exogenous shock.

A test cynically calibrated to fix the result

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Germany accused of reneging on bank tests

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By Patrick Jenkins in London and James Wilson in Frankfurt

European regulators have accused Germany and its banks of reneging on a deal to publish full details of sovereign debt holdings, as part of the four-month-long stress test exercise of the country’s banking sector.

In an interview with the Financial Times, Arnoud Vossen, secretary-general of the Committee of European Banking Supervisors, the pan-European banks regulator, said: “We agreed with all supervisory authorities and with the banks in the exercise that there would be a bank-by-bank disclosure of sovereign risks.”

On Friday, CEBS published the results of its stress test exercise, showing seven of the 91 banks tested across the 27 countries of the European Union failed to achieve a tier one capital ratio of 6 per cent once their balance sheets were exposed to a series of macroeconomic scenarios for 2010 and 2011.

The tests – designed to restore nervous markets’ faith in European banks, shaken by the near-default of Greece this year – were supposed to be accompanied by full disclosure of each bank’s sovereign debt holdings.

But six of the 14 German banks tested – Deutsche Bank, Postbank, Hypo Real Estate, mutual groups DZ and WGZ, and Landesbank Berlin – did not publish the expected detailed breakdown of sovereign debt holdings, although Postbank disclosed some information on Sunday. Every other European bank, bar Greece’s ATEbank, which failed the test, complied with the disclosure requirement.

Analysts said the German banks’ non-compliance would fuel suspicion they had something to hide, and risked further undermining faith in the whole stress test exercise, already criticised for its benign scenarios.

Germany accused of reneging on bank tests

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The LBMA joins the gold squeeze cover-up

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By Adrian Douglas

The London Bullion Market Association has just taken the highly unusual step of blocking access to statistics relating to the trading activities of its member bullion banks. This information has been available to the public since 1997 but as of this week it is available only to LBMA members. (See http://www.lbma.org.uk.)

I have recently written a series of exposes of the LBMA (see References 1-4 below) using the association's own data to show that the LBMA's bullion banks are operating on a "fractional reserve" basis. My analysis indicates that the bullion banks are holding only 1 real ounce for about every 45 ounces of gold that they have sold, a reserve ratio of just 2.3 percent

At the March 25 public hearing of the U.S. Commodity Futures Trading Commission on precious metals futures markets I cited the LBMA's own statistics to label the "unallocated gold" accounts of the bullion banks as a Ponzi scheme. (See Reference 3 below.) There were bullion bank representatives at the hearing but no one expressed an objection. That hearing was videotaped and posted at the CFTC's Internet site but the bullion banks have not made any public statement rebutting what I said. In fact at that hearing Jeffrey Christian, CEO of the CPM Group, acknowledged that what is widely called the "physical market" is in reality a largely "paper market" trading gold and silver as if they are financial assets and not physical metals. Christian stated that 100 ounces of paper gold are traded for every 1 ounce of physical gold.

The LBMA joins the gold squeeze cover-up

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Obama signs a bill that lets banks have US over a barrel once more

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By Liam Halligan

"Because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes," Obama boomed at the schmaltzy signing ceremony, amid bursts of applause.

"These reforms will put a stop to a lot of the bad loans that fuelled this debt-based bubble," the President gushed to America and the rest of the world. "This bill also empowers the strongest consumer financial protections in history."

It would be reassuring if we could agree with Obama, concluding that Dodd-Frank will help to prevent the next systemic crisis and associated bail-out of "too-big-to-fail" banks. Reassuring, but wrong.

For despite some marginal regulatory improvements, this is no Rooseveltian legislative milestone. Amid the hype and back-slapping of last week's launch, the sad reality is that Dodd-Frank fails to address the fundamental problems that resulted in the sub-prime fiasco and the related damage to not just America, but the entire global economy.

The inherent feebleness of this door-stopping bundle of statute and its lack of desperately needed substance, was brilliantly captured by Laurence Kotlikoff, a highly-respected professor of economics at Boston University. "This law is like being invited to dinner and served pictures of food," Kotlikoff remarked.

It would be tempting to smile at such a wry observation if the situation it described wasn't so depressing. For what the US political establishment's non-response to the credit crunch illustrates is this: such is the lobbying power of the big Wall Street institutions that they not only caused a global economic crisis and then forced the US government to pay for a massive bail-out, but then used a slice of that bail-out cash to bribe politicians with campaign donations in order to block rule changes that might prevent a repeat performance.

Obama signs a bill that lets banks have US over a barrel once more

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China rating agency condemns rivals

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By Jamil Anderlini

The head of China’s largest credit rating agency has slammed his western counterparts for causing the global financial crisis and said that as the world’s largest creditor nation China should have a bigger say in how governments and their debt are rated.

“The western rating agencies are politicised and highly ideological and they do not adhere to objective standards,” Guan Jianzhong, chairman of Dagong Global Credit Rating, told the Financial Times in an interview. “China is the biggest creditor nation in the world and with the rise and national rejuvenation of China we should have our say in how the credit risks of states are judged.”

On the corporate side, Mr Guan argues Moody’s Investors Service, Standard & Poor’s and Fitch Ratings – the three companies that dominate the global credit rating industry – havebecome too close to the clients they are supposed to be objectively assessing.

He specifically criticised the practice of “rating shopping” by companies who offer their business to the agency that provides the most favourable rating.

In the aftermath of the financial crisis “rating shopping” has been one of the key complaints from western regulators , who have heavily criticised the big three agencies for handing top ratings to mortgage-linked securities that turned toxic when the US housing market collapsed in 2007

China rating agency condemns rivals

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SULTANS OF SWAP: Gold Swaps Signal the Roadmap Ahead

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Gordon T Long

The news rocked the global gold market when an almost obscure line item in the back of a 216 page document released by an equally obscure organization was recently unearthed. Thrust into the unwanted glare of the spotlight, the little publicized Bank of International Settlements (BIS) is discovered to have accepted 349 metric tons of gold in a $14B swap. Why? With whom? For what duration? How long has this been going on? This raises many questions and as usual with all $617T of murky unregulated swaps, we are given zero answers. It is none of our business!

Considering the US taxpayer is bearing the burden of $13T in lending, spending and guarantees for the financial crisis, and an additional $600B of swaps from the US Federal Reserve to stem the European Sovereign Debt crisis, some feel that more transparency is merited. It is particularly disconcerting, since the crisis was a direct result of unsound banking practices and possibly even felonious behavior. The arrogance and lack of public accountability of the entire banking industry blatantly demonstrates why gold manipulation, which came to the fore in recent CFTC hearings, has been able to operate so effectively for so long. It operates above the law or more specifically above sovereign law in the un-policed off-shore, off-balance sheet zone of international waters.

Since President Richard Nixon took the US off the Gold standard in 1971, transparency regarding anything to do with gold sales, leasing, storage or swaps is as tightly guarded by governments as the unaudited gold holdings of Fort Knox. Before we delve into answering what this swap may be all about and what it possibly means to gold investors, we need to start with the most obvious question and one that few seem to ask. Who is this Bank of International Settlements and who controls it?

SULTANS OF SWAP: Gold Swaps Signal the Roadmap Ahead

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General Motors is back on the road to failure

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From Bloomberg

General Motors Co., the automaker 61 percent owned by the U.S., is buying subprime lender AmeriCredit Corp. for $3.5 billion to help it reach more customers with leases and loans to borrowers with faulty credit records.
The price of $24.50 a share is 24 percent more than Fort Worth, Texas-based AmeriCredit’s closing price yesterday of $19.70 a share in New York Stock Exchange composite trading. AmeriCredit rose to $24.04 at 9:56 a.m.
“This helps GM finance less-than-perfect-credit buyers and God knows there’s plenty of them today with economic conditions as they are,” said Joe Phillippi, principal of AutoTrends, a consulting firm in Short Hills, New Jersey. “A lot of people in the vast heartland of this country don’t have particularly great credit histories and that region has been the core of GM’s strength.”
GM had considered buying back its former lending arm, GMAC LLC, starting a bank or working with outside lenders to offer customers more financing options, three people with knowledge of the discussions said this month. Buying GMAC, now called Ally Financial Inc., or starting an in-house banking unit proved too difficult at that point, they said.
Chief Executive Officer Ed Whitacre had wanted to buy or start a lending arm before a fourth-quarter initial public offering, people familiar with the matter said in May. The automaker had decided a deal couldn’t be reached in that time frame, people with direct knowledge said earlier this month.

General Motors is back on the road to failure

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Proof of Gold Price Suppression

Proof of Gold Price Suppression

Today’s Keynesians have learnt nothing

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By Niall Ferguson

To those of us who first encountered the dismal science of economics in the late 1970s and early 1980s, the current debate on fiscal policy in the western world has been – no other word will do – depressing.

It was said of the Bourbons that they forgot nothing and learned nothing. The same could easily be said of some of today’s latter-day Keynesians. They cannot and never will forget the policy errors made in the US in the 1930s. But they appear to have learned nothing from all that has happened in economic theory since the publication of their bible, John Maynard Keynes’s The General Theory of Employment, Interest and Money, in 1936.

In its caricature form, the debate goes like this: The Keynesians, haunted by the spectre of Herbert Hoover, warn that the US in still teetering on the brink of another Depression. Nothing is more likely to bring this about, they argue, than a premature tightening of fiscal policy. This was the mistake Franklin Roosevelt made after the 1936 election. Instead, we need further fiscal stimulus.

The anti-Keynesians retort that US fiscal policy is already on an unsustainable path. With the deficit already running at above 10 per cent of gross domestic product, the Congressional Budget Office has warned that, under its Alternative Fiscal Scenario – the more likely of the two scenarios it publishes – the federal debt in public hands is set to rise from 62 per cent of GDP this year to above 90 per cent by 2021. In an influential paper published earlier this year, Carmen Reinhart and Kenneth Rogoff warned that debt burdens of more than 90 per cent of GDP tend to result in lower growth and higher inflation.

Today’s Keynesians have learnt nothing

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The Case for Emerging Markets

One of the best selling points for investing in emerging markets is growth potential, but like any other sector, this growth must come at a reasonable price.

Emerging market stocks are cheap these days. The MSCI Emerging Markets Index has a 12-month forward price-to-earnings ratio of 10.8x, which is 15 percent below the P/E for the MSCI World Index. As you can see on the chart below, this valuation has rarely been more attractive – it is 15 percent below the long-term average.

On top of that, significant sales growth is expected in global emerging markets – 15 percent and 10 percent, respectively, for 2010 and 2011. The EMEA (Europe, Middle East and Africa) region is expected to lead the way – within EMEA, Turkey is seen as the star with nearly 30 percent sales growth this year and 17 percent in 2011.

Other emerging market standouts in expected sales growth: Taiwan (28 percent), Russia (15.8 percent) and India (15 percent). At 5.5 percent growth, the Philippines is expected to be the laggard.

Sales growth and margin expansion drive earnings growth – UBS predicts a 34 percent jump in earnings for emerging-market equities this year and another 12 percent in 2011.

The Case for Emerging Markets

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UK debt is 'twice as much as we thought'

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The true scale of the national debt is £2 trillion - more than twice the official figure, an alarming study shows.

The black hole in the public accounts equates to £78,000 for every household in the country.

The 'real' state of the national finances is exposed in a study published today by the Centre for Economics and Business Research, which warns of a series of mammoth debts that aren't revealed by the official figures.

The national debt - forecast to reach £932m by next spring - does not include a number of expensive liabilities, such as the cost of civil service and town hall pensions and projects funded under the Public Finance Initiative.

Putting these liabilities into the official figure would add £1.13 trillion to Britain's whopping overdraft, according to CEBR.

Under the worrying scenario, the debt would jump from 62% to 138% of Britain's income.

In its study, CEBR warned that the Government cannot formulate a plan to revive the economy while the liabilities remain hidden.

Read more: http://www.thisismoney.co.uk/news/article.html?in_article_id=508582&in_page_id=2&expand=true#StartComments#ixzz0uChdQxiJ

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• Public sector debt 'around £2 trillion' (telegraph.co.uk)

Gold: The Currency of First Resort

Hinde Capital June 2010

JP Morgan UK future at risk

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By Harry Wilson and Graham Ruddick

JP Morgan has raised serious concerns about its commitment to its new £1.5bn European headquarters at Canary Wharf because of anger within the bank at the lack of support for the financial sector in the UK.

Jamie Dimon, chief executive of the American bank, is understood to have doubts about investing so heavily in London when there is uncertainty about future costs that could be imposed on banks. Some sources said the bank was
"on the verge" of quitting the development.

Any move by JP Morgan to scrap the twin skyscraper project in the Docklands would be a major blow for the UK and George Osborne's claims that Britain is "open for business".

High-level talks are understood to have taken place between JP Morgan, officials from the Mayor of London's office and Canary Wharf Group (CWG) over the future of the headquarters, although no decision has been reached.

Boris Johnson, the London Mayor, has met representatives of JP Morgan and has been told of their concerns about the future of London as a financial centre.

The bank has made it clear that it now sees expansion being in Asia rather than in London.

JP Morgan UK future at risk

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The stress tests of Europe’s banks have been chaotic. But it is too soon to write them off

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WHEN America did public stress tests on its banks in 2009 they helped end the panic on Wall Street. The Federal Reserve opened banks’ books, imposed a consistent view about how bad losses might be and forced banks that lacked capital to raise more, with the taxpayer acting as a backstop investor.

Europe will soon follow suit, with the results due on July 23rd. Yet whereas America’s tests were run in military style, Europe’s efforts have been chaotic—more akin to a rowdy negotiation about cod quotas than the recapitalisation of the world’s biggest banking system. With just days to go regulators must redouble their efforts to make the tests work.

Stress tests are certainly needed. Banks and transparency are not always a good combination. When a carmaker admits it has a hole in its balance-sheet, its factories are still there a week later; when a bank does so it usually suffers a devastating run. This is why regulators sometimes like to deal with dud banks in secret. But when there is already a widespread loss of confidence, sunlight is the only treatment left. That happened in Japan in 2002-03, when zombie banks were at last prodded to own up to their bad debts, and in America last year.

Europe has reached a similar point. Some banks have been locked out of international borrowing markets, reflecting worries that they could be brought down by the woes of southern Europe and the suspicion that they are sitting on sour loans from the boom years. The fear of contagion has raised debt costs for other banks. Unless faith is restored, the continent’s banking system, heavily reliant on wholesale borrowing, faces a funding crunch. That would force banks to lean even more heavily on central banks and governments to roll over their debts. It could also bring on a double-dip recession.

The stress tests of Europe’s banks have been chaotic. But it is too soon to write them off

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Second half of 2010: The global system’s four single points of failure

Public announcement GEAB N°46 (June 16, 2010)

In terms of global economic governance, let’s remember that only a year ago the G20 aspired to establish a new world governance and the United States believed it would be able to organise this new system around its own priorities (3). Well, on 3rd and 4th June this year, not only Finance Ministers of the G20 countries, meeting at Busan in South Korea, couldn’t agree to the putting in place of a worldwide bank tax (an idea supported by Washington, London and Euroland), but they refused the US proposal (on its own this time) to support new plans of economic stimulation (4), passing the buck by « deciding » to let each country to do what it could, or would, taking into account the means at its disposal. We are far from the official statements of a year ago on a G20 as the new central instrument of world governance and we are, on the contrary, fully in a state of « every man for himself » that our team had anticipated in case the world leaders failed to question the US Dollar as the world’s reserve currency. In fact, no one wants to play the global game under US rules (5) anymore. Lacking a new « common game », international solidarity disintegrates before our very eyes. This situation is only going to get worse in the coming months, leading to more than an uncoupling, a real political, social and budgetary desynchronization of the major economic powers of the planet leading to, in particular, tragic consequences for the players and the markets which depend on the « proper functioning » of the international system. If there really is a new phase of the synchronized economic recession (as the chart below shows), the context for each major power is now so different that there can no longer be a common response, even less so since the United States is no longer capable of imposing its leadership.

Second half of 2010: The global system’s four single points of failure

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Tim Geithner Opposes Nominating Elizabeth Warren To Lead New Consumer Agency

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Shahien Nasiripour

Treasury Secretary Timothy Geithner has expressed opposition to the possible nomination of Elizabeth Warren to head the Consumer Financial Protection Bureau, according to a source with knowledge of Geithner's views.

The financial reform bill passed by the Senate on Thursday mandates the creation of a new federal entity charged with protecting consumers from predatory lenders.

But if Geithner has his way, the most prominent advocate for creating the agency may not be picked to lead it.

Warren, a professor at Harvard Law School whose 2007 journal article advocating the creation of such an agency inspired policymakers to enact it into law, has rocketed to prominence since the onset of the financial crisis as one of the leading reform advocates fighting on behalf of American taxpayers.

Warren has been an aggressive proponent for the bureau in public and behind the scenes, working regularly with President Barack Obama's top advisers and the Democratic leadership in Congress. Since 2008, she has overseen the Congressional Oversight Panel, a bailout watchdog created to keep tabs on how two administrations spent hundreds of billions of taxpayer dollars to bail out Wall Street while struggling to keep distressed homeowners out of foreclosure and small businesses from collapsing.

Yet while her work on behalf of a federal unit designed solely to protect borrowers from abusive lenders has been embraced by the administration, Warren's role as a bailout watchdog led to strained relations with the agency her panel has taken to task with brutal reports every month since Obama took office: Geithner's Treasury Department.

It's no secret the watchdog and the Treasury Secretary have had a tenuous relationship. Geithner's critics have enjoyed watching Warren question him during his four appearances before her panel. Her tough, probing questions on the Wall Street bailout and his role in it -- often delivered with a smile -- are featured on YouTube. One video is headlined "Elizabeth Warren Makes Timmy Geithner Squirm."

Tim Geithner Opposes Nominating Elizabeth Warren To Lead New Consumer Agency

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No end in sight to Fannie, Freddie bailout

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by John W. Schoen

They're big, they're bad, they're sucking up billions of taxpayer dollars and they're not even addressed in the most sweeping overhaul of the financial system since the Great Depression.

Two years after a wave of rogue mortgage lending sent the global financial system to the brink of collapse, Congress has put the finishing touches on a hotly-debated set of regulations to try to prevent it from happening again. The Senate passed the regulatory reform bill Thursday, paving the way for President Barack Obama to sign into law his administration’s third piece of major legislation.

Unfortunately, the new law has a gigantic hole in it — there's nothing in it dealing with struggling mortgage giants Fannie Mae and Freddie Mac.

“The essence of the problem was a real estate meltdown,” said Sen. Judd Gregg (R, N.H.). “The primary thing that we as a government should have addressed is Fannie Mae and Freddie Mac. The bill doesn't address that.”

Call them the twin elephants in the room of financial regulatory reform.

Between them, the two so-called government sponsored entities own or guarantee more than 30 million home loans worth $5.5 trillion — or about half all mortgages outstanding. Already more than $145 billion in the hole, the government’s two giant mortgage companies are expected to need continued government life-support for the foreseeable future.

In the meantime, Fannie and Freddie continue to lose boatloads of taxpayer dollars; in the first quarter alone, Fannie Mae lost $8.4 billion and Freddie Mac burned through another $10.5 billion. They’re both carrying hundreds of billions of dollars worth of mortgages written during the boom years of 2005-2007, loans that continue to go bad. And as of the end of the first quarter, they had accumulated 164,000 foreclosed homes that will have to be sold at a loss.

No end in sight to Fannie, Freddie bailout

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Dumping the dollar: Why it's time to diversify

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by Nin-Hai Tseng

Imagine a world without the almighty greenback as the main reserve currency.

It's not an easy thought. The U.S. dollar has long been the global currency of choice. As much as 64% of the world's currency reserves are held in greenbacks, according to the International Monetary Fund.

But given the manic ups and downs of the dollar in recent years, it may finally be time to diversify the world's reserves. And that's exactly what some central bankers around the globe are now doing.

This comes as a growing number of economists and policymakers are calling to move away from the greenback as the world's dominant currency. A recent United Nations report says the dollar's movements have been too erratic to hold value and the U.N. urges central banks to replace it with anything but a single currency or even multiple-national currencies.

One potential replacement is special drawing rights (SDRs), the international reserve created by the IMF in 1969. SDRs aren't something you can carry in your pocket like cash. They represent potential claims on currencies of IMF members. Because the value of SDRs is based on a basket of the world's major currencies (U.S. dollars, yen, euros and pounds), its value typically isn't as volatile as a single currency. Central bankers in Russia and China have supported the idea of SDRs.

"I think there is a general sense that these recommendations are at least worth debating," says José Antonio Ocampo, a Columbia University professor who served on a U.N. expert commission that considered ways of overhauling the global financial system. Ocampo says lessons learned following the financial crisis have renewed interest in the development of a global multi-currency system including SDRs.

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More QE, more printing of USD