Friday, February 27, 2009

Terrorists still spreading terror

Guambat was GOPsmacked to read this story:

Napolitano Not Talking 'Terror'
At her first appearance on Capitol Hill as the nation's new Homeland Security chief, Secretary Janet Napolitano was chided for not talking "terror" to a congressional committee.

Before the former Arizona Governor began her testimony before the House Homeland Security Committee, Rep. Peter King, the panel's ranking Republican, noted to Napolitano that "the word 'terrorism' isn't used" in her preapared remarks. "I think it's important for people like us in positions of leadership to constantly remind people" about the threat of terrorism, the New York Republican said.

If you care to know of Guambat's objection to King's type of fear-mongering, read the Opus D'Guambat post on the right, As I see it, John Howard is a terrorist.

Wednesday, February 25, 2009

Laid an AIG?

Has the US government laid an egg or been laid by an AIG?

AIG Seeks to Ease Its Bailout Terms
American International Group Inc. is seeking an overhaul of its $150 billion government bailout package that would substantially reduce the insurer's financial burden, while further exposing U.S. taxpayers to its fortunes, people familiar with the matter say.

Government approval would signal a complete turnabout in its approach to the insurer since it first intervened to rescue it: from that of a creditor to one of a potential owner.

At the time of the original bailout in September, the government imposed what many considered onerous interest rates and deadlines for AIG to repay its loans by selling off assets. It quickly became clear, however, that the erosion of the value of AIG's assets and worsening financial crisis would make it difficult to meet the goals without jettisoning assets at fire-sale prices.

Under the new structure, AIG's interest burden on the government money would be reduced. AIG would continue to try to sell some assets to repay its obligations but other assets would be transferred to the government in lieu of cash repayment. One major sticking point is how to value the assets, especially because prices are in rapid decline.

The government's stake in the parent company already stands at nearly 80% and is unlikely to be substantially changed in the near term, according to a person close to AIG.

The new plan is being structured in close consultation with major credit-rating agencies.

That's right, the folks who got us here in the first place.

From The Archives:
And how would you like your AIGs cooked this morning, sir

Tuesday, February 24, 2009

While we're at it,

One of the fatal flaws of the credit and derivatives markets that led us all into a big hole was the secrecy in which most of the financial instruments were created, held and traded. While attention is being put on cleaning up "the mess", why don't we open up off-shore tax, fraud, criminal and other secrecy related "havens". What's there to hide worth keeping secret?

Trichet says regulation must be extended
Addressing a conference in Paris, the central banker urged a “holistic” reform of the current system of financial regulation and oversight.

“The current crisis is a loud and clear call to extend regulation and oversight to all systemically important markets – notably hedge funds and credit rating agencies – as well as all systemically important markets, in particular the over-the-counter derivatives (or swaps) market,” he said.
Swiss warn on US move over UBS clients
Switzerland’s finance minister has accused US authorities of “shock” tactics to compel holders of undeclared UBS accounts to come forward, but warned that court action to discover the names of thousands of clients would not succeed.

Hans-Rudolf Merz, finance minister and Switzerland’s head of state this year under its rotating presidency, defended the Swiss government’s role in prompting the world’s biggest wealth manager to breach hallowed bank secrecy and last week reveal some 250-300 client names to the US.

But Mr Merz said the disclosure last week of a limited number of account holders suspected of tax fraud did not mean UBS, or the Swiss government, would bow to a separate US drive to identify all the bank’s American clients with offshore accounts in Switzerland.

Switzerland [is] home to an estimated one-third of the world’s offshore assets, [where] bank secrecy is seen as a cornerstone of the country’s success as a financial centre.
Lex writes, on Swiss Banking,
Just as some men buy Playboy for the interviews, so others bank in Switzerland for the chocolates.

[I]nvestors in fact put a high value on Switzerland’s fortress-like bank-client confidentiality.

How its bankers could be so stupid as to travel to the US to market bank secrecy to US tax evaders is beyond belief, even for an industry losing its capacity to shock.

Guambat reckons the finance mavens figured they had so totally gamed the systems that they were beyond question. And, as long as they can hide away in the dark holes of Swiss cheeze bank accounts, Caribbean file cabinets, Channel Island charities and other rackets, the game will forever stay "on".

Feb 25 Addendum:

Antigua Is Hurt
The Antiguan government has long relied on Mr. [R. Allen] Stanford's largesse [, the Texas financier whom the Securities and Exchange Commission accused in civil charges of an $8 billion fraud]. In 2002, the government of then-Prime Minister Lester Bird turned to Mr. Stanford for millions of dollars in loans to help meet loan obligations and even payroll, according to letters exchanged between government and Stanford banking officials and reviewed by The Wall Street Journal. In exchange, government officials approved a tax holiday for his banks. More recently, Mr. Stanford's loans bankrolled construction of a modern hospital.

That is all in question after the Securities and Exchange Commission accused Mr. Stanford of an $8 billion fraud centered at his Antigua-based Stanford International Bank.

The Texan is only the latest wealthy foreigner to take advantage of Antigua's seclusion. After the Revolutionary War, it was a center of smuggling to the newly independent U.S. In the late 1940s, banker Paul Mellon and other wealthy Easterners built a private enclave called Mill Reef that still maintains a by-invitation-only policy. Italian leader Silvio Berlusconi comes to enjoy relative anonymity overlooking an emerald bay.

Some U.S. officials have long looked askance at Antigua's offshore sector, raising concerns about possible corruption, money laundering and fraud. In the late 1990s, U.S. regulators blacklisted Antigua and several other offshore jurisdictions for lax regulation. They lifted the sanctions on Antigua in 2001.

"The idea that our politicians are any more corrupt than politicians anywhere else is just not true," said Jason Belizaire

Stanford Link Shocks Buyers at U.S. Resort
the alleged fraud by Mr. Stanford may have implications for people beyond the financier's individual banking customers.

Kevin Burke, a U.K. lawyer who also is qualified to practice law in the U.S., is representing the Lipas and two other British citizens who paid deposits on Tierra Del Sol properties [in Florida]. He says he has been approached by at least a half-dozen others in a similar situation. In recent years, with the pound strong against the dollar, many British citizens looked to invest money in Florida property.

The developer behind Tierra Del Sol, American Leisure Group, is incorporated in the British Virgin Islands and has faced financial struggles.

Last year, one of Mr. Stanford's companies provided a $17.5 million loan to the developer of the resort, American Leisure Group, to fund the project.The company was formed by a merger between American Leisure Holdings -- in which Stanford International Bank Ltd. was a significant shareholder and creditor, according to filings by American Leisure Group -- and another property company. Stanford Financial Group, also controlled by Mr. Stanford, served as an investment banker to American Leisure Group.

And this from The Archives:
Oh, thank haven

Dow Rhyming ?

Sure it doesn't repeat, but is the Dow rhyming?

Tuesday, February 03, 2009

20 million idle Hans challenge Red Party

John Garnaut reporting for the SMH: China warns of upheaval, calls for discipline
Chinese officials yesterday warned of social instability as they raised their estimate of newly unemployed migrant workers to 20 million - triple the number they gave a month ago.

the number of newly unemployed rural migrant workers was likely to rise to about 25 million

Chen Xiwen, a top rural planning official, told reporters yesterday: "Due to the economic downturn, about 20 million rural migrant workers have either lost their jobs or have not yet found employment and have gone home to the countryside.

"After returning to their village what do they do about revenue? About their lives? This is a new factor impacting this year's social stability."

"We must make sure the army will follow the instruction of the [Central Military Commission] and the Communist Party at any time, under any circumstances," the commission said after a meeting chaired by Mr Hu. "We must always be sure of the army's stability and its unity," the commission said, in a statement read out on China Central Television's prime time news on Sunday night.

A senior military leader separately warned yesterday that China would "accelerate the building of our nuclear and conventional combat strength". This marks a sharp break from a three decades-old policy of maintaining a stable and relatively small nuclear arsenal while rapidly building its conventional forces.

Experts say Mr Hu's comments reveal the party's acute anxiety about potential uprisings rather than any immediate call to arms.

But Sunday's military commission statement was unusual in its strident language and its prominent broadcast.

Sunday, February 01, 2009

Having a bonus to pick over your compensation

The Washington Post's Frank Ahrens seems somewhat sympathetic to those who toil under the back straining demands of Wall Street. He calls them "heroes" and "idols":
In times of prosperity, Wall Street executives are highly paid heroes to be emulated.

In bad times, like now, the Wall Street Gotbucks find themselves fallen idols....

Unlike working stiffs who toil for a regular paycheck -- and that's it -- top-ranking executives at big companies get the bulk of their compensation from a complex suite of bonuses. For instance, in 2007, Exxon Mobil chief executive Rex W. Tillerson received $16.7 million in total compensation. But Tillerson's salary was only $1.8 million; most of the rest came from bonuses and awards.
ONLY??!! The guy was guaranteed a salary of $150,000.00 a MONTH. On top of that he gets rewards and bonuses (and expense accounts and perks), most of which is simply the effect of ebbing and flowing market forces only some of which he can directly affect but can amplify or modulate with fancy accounting. Suite deal, indeed.

Eric Dash and Louise Story seem less idol worshiping in the NYT:
There was none of the old swagger at Citigroup headquarters on Friday. The bonus checks had landed — and some of the bankers were grumbling.

The giant bank, the recipient of two multibillion-dollar rescues from Washington, had paid out only about $4 billion in bonuses.


If you’ve never worked on Wall Street, it is hard to wrap your head around the idea that a company that lost nearly $19 billion in a single year, as Citigroup did in 2008, could still pay its employees billions in bonuses. It is probably even harder to believe that some of those employees grumble about it.

“I feel like I got a doorman’s tip, compared to what I got in previous years,” said a 30-something investment banking associate at Citigroup’s offices in Lower Manhattan.

Wall Streeters who make a lot of money for their employers expect to reap the rewards. In the parlance of the industry, they expect to eat what they kill.

Wall Street compensation in general — and bonuses in particular — are coming under intense scrutiny from lawmakers. Possible reforms include caps on pay, greater use of stock compensation and mandates to return more money to shareholders, rather than workers.
Sounds to Guambat like they need to form a union if they expect to get a helping hand from the new administration. But he digresses. Back to the story:
Traditionally, banks set aside about half of their annual revenue for employees’ compensation. But since the 1970s, and particularly over the past decade or so, the financial industry boomed, and so did pay. In recent years, the explosive growth of lucrative areas like hedge funds and private equity unleashed a war for talent, inflating pay and employees’ expectations even more.

But for many banks and their employees, the old calculus of risk and reward also changed.

For most of their histories, traditional Wall Street banks like Goldman Sachs and Lehman Brothers were private partnerships. Partners staked their own money in the markets. When firms went public, Wall Street used shareholders’ money. Banks also were able to reward employees with both cash and stock, and bonuses assumed a larger role in total compensation.

By 2007, just before the financial crisis hit, the average worker in the financial industry was earning 70 percent more than counterparts in other fields.

The bonus culture runs deep. Executives and rank-and-file workers argue that lawmakers and others who complain about bonuses do not understand how this industry works. Bonuses, Wall Streeters say, are a crucial part of total compensation, and are often treated as deferred salaries. And generally bosses weigh individual performance more heavily than the company’s overall results.

In other words, people who made the company a fortune in, say, foreign exchange trading, deserve bonuses even if their colleagues in mortgage bonds ran up losses that crippled the bank.
Guambat just loves the team spirit of those guys. Perhaps the only way to solve their problems is to break up the banks into separate businesses where, e.g., the ForEx guys can sink or swim on their own, as is their apparent desire.

But there he goes digressing again. Back to the chase ...
Of course, many Wall Street employees never expected the good times to end. They lived large, believing bonuses would always arrive, so they are ill prepared, both emotionally and financially, to cope with a sudden drop in income.

“Without a doubt, $18 billion is a lot of money, but it’s a drop in the bucket on Wall Street,” said Gustavo Dolfino, president of the WhiteRock Group, a headhunter for the banks. “These bonuses are down, and the salaries are not enough for these people. They can’t live on $150 to $180,000, so they haven’t saved any money. They put it on credit lines and at bonus time, they thought they’d pay it off.”

This divide will ever be with us, in one form or other. It is the dimension of the gap that is most provoking, not the structure.

Protection racket

Most observers tend to put some significant part of the blame for making the 1930's Depression Great on the spiraling rounds in the war of protectionism in nations around the globe. As each country fought to protect industry inside its own borders, international trade wilted and, along with it, intra-national economies.

VP Jumpin' Joe is not biding any time jumping into the same fray, notwithstanding history's lessons. This from an article in the Canadian Globe and Mail:
support remained strong, even within the administration, for a bill passed this week by the U.S. House of Representatives that bans the use of foreign iron and steel in projects funded by the package.

“I don't view that as some of the pure free traders view it, as a harbinger of protectionism. I don't buy that at all,” Vice-President Joe Biden told CNBC on Thursday. “So I think it's legitimate to have some portions of Buy American in it.”

A Senate version of the bill, which has yet to be voted on, goes even further, mandating that only U.S.-made goods and equipment be used in all federally funded stimulus projects – everything from computer software to hard hats.

Ottawa argues both the House and Senate bills are violations of World Trade Organization and North American free trade rules. Canadian diplomats, working alongside groups such as the U.S. Chamber of Commerce, have been lobbying Congress to remove or water down the measure.

The AP reports,
Some Democratic lawmakers and interest groups allied to the president support the measures, but international allies and trading partners are warning that favoring U.S. companies would breach U.S. trade commitments and could set off tit-for-tat countermeasures around the world.

In November, world leaders, who gathered in Washington for the G-20 summit to consider how to right the global economy, pledged to avoid protectionism.

"The jury is out on how this administration is going on trade policy," said Steven Schrage, an international business analyst at the Center for Strategic and International Studies. "This will be a key test."

And the Washington Post adds,
Nations including China and many in Europe are preparing to spend billions of dollars of taxpayer money on stimulus projects. American companies are angling for a piece of those pies, and retaliatory measures against U.S. companies, executives argue, could significantly complicate those efforts. This week, a European Commission spokesman threatened countermeasures if the Buy American provisions are approved.

"There is no company that is going to benefit more from the stimulus package than Caterpillar, but I am telling you that by embracing Buy American you are undermining our ability to export U.S. produced products overseas," said Bill Lane, government affairs director for Caterpillar in Washington. More than half of Caterpillar's sales -- including big-ticket items like construction cranes and land movers -- are sold overseas.

"Any student of history will tell you that one of the most significant mistakes of the 1930s is when the U.S. embraced protectionism," Lane said. "It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression."

PS: There's a carefully structured anecdotal story of the "ripple out" rather than "trickle down" theory of how one family's economic pinch becomes a community's in the WSJ, but not sure if you need a ticket to read. Try this link and see what happens. Point being, whenever an actor is removed from the economic scene, the whole plot changes. You can't just cut off a nation's economy from the rest of the world and expect ceteris paribus.

Not running hot and cold

Power, that is:

In Kentucky and thereabouts, Nearly 1M still without power in ice storm's wake. The storm that began in the Midwest has been blamed or suspected in at least 42 deaths: Eleven in Kentucky, nine in Arkansas, six each in Texas and Missouri, three in Virginia, two each in Oklahoma, Indiana and West Virginia and one in Ohio.

Whilst Down Under, Huge power outage hits Victoria amid record heatwave leaving hundreds of thousands in the dark and plunging trains into chaos. 31 dead in heatwave.