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by barracuda » Sun Jan 09, 2011 12:14 am
JackRiddler wrote:Collapse of dollar due to loss of faith on international markets, a.k.a. hyperinflation: Impossible to tell how this plays out. I'd expect there'd be very little property selling in such a period, except such as is forced (and therefore at relatively low price).
by JackRiddler » Sun Jan 09, 2011 12:17 am
barracuda wrote:JackRiddler wrote:Collapse of dollar due to loss of faith on international markets, a.k.a. hyperinflation: Impossible to tell how this plays out. I'd expect there'd be very little property selling in such a period, except such as is forced (and therefore at relatively low price).
Yep, I've always thought this was the hyperinflation end-game: you sell anything you have, including your house, to pay the trillion-dollar price of a loaf of bread.
by vanlose kid » Sun Jan 09, 2011 1:10 am
by vanlose kid » Sun Jan 09, 2011 1:20 am
by stefano » Mon Jan 10, 2011 2:55 pm
by vanlose kid » Tue Jan 11, 2011 11:55 pm
by Nordic » Wed Jan 12, 2011 3:13 am
Deep inside the Federal Reserve Bank of New York, the $600 billion man is fast at work.
Fred R. Conrad/The New York Times
In a spare, government-issue office in Lower Manhattan, behind a bank of cubicles and a scruffy copy machine, Josh Frost and a band of market specialists are making the Fed’s ultimate Wall Street trade. They are buying hundreds of billions of dollars of United States Treasury securities on the open market in a controversial attempt to keep interest rates low and, in the process, revive the economy.
To critics, it is a Hail Mary play — an admission that the economy’s persistent weakness has all but exhausted the central bank’s powers and tested the limits of its policy making. Around the world, some warn the unusual strategy will weaken the dollar and lead to crippling inflation.
But inside the Operations Room, on the ninth floor of the New York Fed’s fortresslike headquarters, there is no time for second-guessing. Here the second round of what is known as quantitative easing — QE2, as it is called on Wall Street — is being put into practice almost daily by the central bank’s powerful New York arm.
Each morning Mr. Frost and his team face a formidable task: they must try to buy Treasuries at the best possible price from the savviest bond traders in the business.
The smallest miscalculation, a few one-hundredths of a percentage point here or there, could unsettle the markets and cost taxpayers dearly. It could also embolden critics at home and abroad who say QE2 represents a dangerous expansion of the Fed’s role in the markets.
“We are looking to get the best price we can for the taxpayer,” said Mr. Frost, a buttoned-down 34-year-old in a striped suit and rimless glasses.
Whether Mr. Frost will reach that goal is uncertain. What is sure is that market interest rates have risen, rather than fallen, since the Fed embarked on the program in November. That is the opposite of what was supposed to happen, although rates might have been even higher without the Fed program.
Mr. Frost’s task is to avoid paying top dollar for bonds that could be worth less when the Fed tries to sell them one day.
Louis V. Crandall, the chief economist at the research firm Wrightson ICAP, said Wall Street bond traders were driving hard bargains. The Fed has tipped its hand by laying out which Treasuries it intends to buy and when, giving the bond houses an edge.
“A buyer of $100 billion a month is always going to be paying top prices,” Mr. Crandall said of the Fed. “You can’t be a known buyer of $100 billion a month and get a good price.”
Nevertheless, Mr. Frost and his team have been praised on Wall Street for creating a simple, transparent program. Neither the Fed nor Wall Street wants any surprises. The central bank is even disclosing the prices at which it buys.
Mr. Frost and his team work out of a small, beige corner office with arched windows that used to be a library. There, at about 10:15 most workday mornings, one of them pushes a button on a computer. Across Wall Street, three musical notes — an F, an E and a D — sound on trading terminals, alerting traders that the Fed is in the market.
On one recent Tuesday morning, what Mr. Frost and his five young colleagues did over a 45-minute period might have unsettled even a seasoned Wall Street hand: they bought $7.8 billion of Treasuries.
by vanlose kid » Wed Jan 12, 2011 11:39 pm
The world has moved a step closer to a food price shock after the US government surprised traders by cutting stock forecasts for key crops, sending corn and soyabean prices to their highest level in 30 months.
The price jump comes after the UN’s Food and Agriculture Organisation warned last week that the world could see repetition of the 2008 food crisis if prices rose further. The trend is becoming a major concern in developing countries.
While officials are drawing comfort from stable rice prices, key for feeding Asia, they warn that a sustained period of high prices, especially in grains such as wheat, would hit poorer countries. Food price hikes have already led to riots in Algeria and Mozambique.
“Stocks of corn and soyabean are at incredibly tight levels ... and the markets are surging to incredibly strong prices,” Chad Hart, agricultural economist at Iowa State University, said.
Dan Basse, president of AgResource, a Chicago-based forecaster, added: “There’s just no room for error any more. With any kind of weather problem in the upcoming growing season we will make new all-time highs in corn and soy, and to a lesser degree wheat futures.”
Agricultural traders and analysts warn that the latest revision to US and global stocks means there is no further room for weather problems. The crops in Argentina and Brazil, to be harvested soon, look fragile due to dryness.
Traders are particularly concerned about the cost of vegetable oil, key for developing countries such as China where an emerging middle class is buying more frying oil. The US Department of Agriculture said the ratio of global stocks-to-demand would fall later this year to “levels unseen since the mid-1970s, reflecting an accelerated pace of vegetable oil” consumption for food and fuel.
The shares of Deere & Co, the world’s largest manufacturer of tractors and combines, surged 2.3 per cent, approaching an all-time high. But food companies such as Nestlé fell as analysts said they would struggle to pass rising wholesale costs to consumers.
by freemason9 » Thu Jan 13, 2011 12:21 am
by vanlose kid » Thu Jan 13, 2011 2:17 pm
freemason9 wrote:Importantly, the United States could easily fix the debt "problem" by assigning appropriately progressive income tax rates beginning at family-of-four income levels of $65,000. The fix is a function of time desired for debt paydown, presumption of immediate end of deficits, and redistribution of wealth. It's not magic; the fix isn't much tougher than that of the social security system, which is only facing a shortage of commitment. This could actually be done in conjunction with lowering corporate income taxes and raising taxes on capital gains and investment income.
Politically, of course, these solutions seem impossible. Nevertheless, solutions are easily described.
[Despite the bursting of a massive credit bubble,] everything just keeps perking along. What gives?
The answer, I believe, requires us to ask a Zen-like question along the lines of, "What is the sound of one hand clapping?" That question is, "If nobody recognizes a defaulted debt on their balance sheet, does it exist?"
Suppose, for the sake of argument, that there is a world in which banks are allowed by their regulators to pretend their default losses simply do not exist. And, even more outlandishly, some of these banks are allowed to sell heavily damaged loans to their central bank at nearly their full original price.
What does "deflation" mean in such a world? Not much, as it turns out. At least from a monetary perspective, because money is not being destroyed at nearly the rate that would be expected or predicted by the size and rate of the defaults.
This is the world in which we currently live. Trillions in probable and provable losses quietly exist, out of sight, on the balance sheets of the Federal Reserve and other financial institutions. If they ever come out of hiding and onto the books, I think the deflationists will be proven correct beyond all doubt.
But let me ask this: What prevents the authorities from simply storing them out of sight forever? Or at least long enough to allow the wave of liquidity to work its inevitable magic? So far, much to my great surprise, they've managed to do exactly that, with hardly a squeak from the mainstream press (although the blogosphere is on the job, as usual). I am now wondering if they cannot keep this up indefinitely.
Fed Documents Breadth of Emergency Measures
WASHINGTON — As financial markets shuddered and then nearly imploded in 2008, the Federal Reserve opened its vault to the world on a scope much wider and deeper than previously disclosed.
Under orders from Congress, the Fed on Wednesday released details of more than 21,000 transactions under the array of emergency lending programs and other arrangements it conjured up in response to the crisis.
At its peak at the end of 2008, the Fed had about $1.5 trillion in outstanding credit on its books. The central bank, in essence, pumped liquidity, the lifeblood of credit markets, into the circulatory system of an economy that was experiencing a potentially fatal heart attack.
Wall Street banks see record revenue in recovery
Wall Street's biggest banks, rebounding after a government bailout, are set to complete their best two years in investment banking and trading, buoyed by 2010 results likely to be the second-highest ever. Even if this quarter only matches the third, the banks' revenue will top that of any year except 2009.
The surge has come after the five banks took a combined $135 billion from the Treasury Department's Troubled Asset Relief Program and borrowed billions more from the Federal Reserve's emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Bros. Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed's purchases of fixed-income securities.
"This is a once-in-a-lifetime opportunity for most of these banks, and I think they've recognized it as that," said Charles Geisst, a finance professor at Manhattan College in Riverdale, N.Y., who has written about Wall Street's history. "The profits they're making now will allow them to replenish their capital and take care of the other things they need to do."
by vanlose kid » Thu Jan 13, 2011 2:36 pm
freemason9 wrote:Importantly, the United States could easily fix the debt "problem" by assigning appropriately progressive income tax rates beginning at family-of-four income levels of $65,000. The fix is a function of time desired for debt paydown, presumption of immediate end of deficits, and redistribution of wealth. It's not magic; the fix isn't much tougher than that of the social security system, which is only facing a shortage of commitment. This could actually be done in conjunction with lowering corporate income taxes and raising taxes on capital gains and investment income.
Politically, of course, these solutions seem impossible. Nevertheless, solutions are easily described.
by JackRiddler » Thu Jan 13, 2011 5:24 pm
There are no right or wrong views here. All sides are on equally firm intellectual standing.
Weekend Edition
January 7 - 9, 2011
Basis Reporting on Capital Gains
Fairer Tax Reporting, Finally
By GERALD E. SCORSE
Income from wages has been reported to the Internal Revenue Service ever since World War II. Starting in 2011, income from stock market capital gains will effectively begin to get the same treatment.
This closes a loophole that cost the Treasury billions every year. It takes a big burden off taxpayers. And it never would have happened without a man the Left loved to hate.
He's Evan Bayh (D-IN), newly retired from the Senate. His Blue Dog politics rankled liberals, and he was trashed for giving up a seat that would flip to the GOP. All the same, Bayh made tax reporting fairer than it's ever been in America.
He did it by passing a bill that requires brokers to report basis prices to the IRS. Basis prices are what investments cost going in, and brokers didn't have to turn over these numbers. They had to report proceeds, but not basis prices.
The only way to figure capital gains is to have both numbers, and do the arithmetic. For nearly a century, since the beginning of income taxes in 1916, capital gains income has been reported on the honor system. Now the IRS will get basis prices along with proceeds. Brokers won a gradual phasing in: new stock purchases this year, mutual funds in 2012, bonds and options in 2013.
National Taxpayer Advocate Nina Olson recommended basis reporting to Congress, and it was her proposal that prompted Bayh to draft his bill. The Treasury was losing up to $25 billion a year through capital gains misreporting, and states were being stiffed additional billions. The reasons were no mystery. As Ms. Olson told the Wall Street Journal, "It seemed that people who wanted to comply with the law were finding it too hard, while those who wanted to skirt the law were finding it too easy."
It was easy faking numbers on tax returns. It was hard keeping basis records year after year, adjusting them for distributions and stock splits, even remembering where they were. Computers erased the problems; brokers are now required to keep the records and forward the final results.
Tax compliance for income that's reported to the IRS far exceeds compliance for self-reported income. Wage earners essentially report all their wages, and the reason is written on the W-2 forms they get every year: "THIS INFORMATION IS BEING FURNISHED TO THE INTERNAL REVENUE SERVICE." Compliance figures slump for every kind of self-reported income, including stock market capital gains.
When Bayh re-introduced his bill in 2007, he cited a study that found misreporting by more than a third of taxpayers with capital gains or losses. The Congressional Record for that day shows one other senator speaking out for basis reporting. Let's listen in:
"It is estimated that $345 billion of federal taxes goes uncollected each year. This bill doesn't solve that full problem, but it is a step in the right direction. It reduces the federal deficit without raising taxes or cutting spending. It simplifies the tax filing process and reduces the chance of error or fraud. It applies what we know about the clear benefits of automatic reporting to the IRS—which is required now for wage income—to capital gains income as well.
"This bill makes sense. It's good policy. And I urge my colleagues to join me in supporting it and in helping to improve our tax code."
So said the junior senator from Illinois, Barack Obama, on February 14, 2007.
Gerald E. Scorse helped pass a bill that tightens the rules for reporting capital gains.
http://counterpunch.org/scorse01072011.html
January 8, 2011
Facing Scrutiny, Banks Slow Pace of Foreclosures
By DAVID STREITFELD
PHOENIX — An array of federal and state investigations into the way banks foreclose on delinquent homeowners has contributed to a sharp slowdown in foreclosures across the country, especially in hard-hit cities like this one.
Over the last several months, some banks have been reluctant to seize homes from distressed borrowers, economists and government officials say, as they face scrutiny from regulators and the prospect of sanctions when investigations wrap up in the coming weeks and months.
The Obama administration, in its most recent housing report, said foreclosure activity fell 21 percent in November from October, the biggest monthly decline in five years. Here in Phoenix, foreclosures fell by more than a third in the same period, reflected in the severe drop in foreclosed homes being auctioned on the courthouse plaza.
“There’s no product, just nothing to buy,” complained Sean Waak, an agent for investors, during a recent auction.
The pace of foreclosures could be curtailed further by courts. In a closely watched case, the highest court in Massachusetts invalidated two foreclosures in that state on Friday. The court ruled that two banks, U.S. Bancorp and Wells Fargo, failed to prove they owned the mortgages when they foreclosed on the homes.
If the slowdown continued through this month and into the spring, it could be a boost for the economy. Reducing foreclosures in a meaningful way would act to stabilize the housing market, real estate experts say, letting the administration patch up one of the economy’s most persistently troubled sectors. Fewer foreclosures means that buyers pay more for the ones that do come to market, which strengthens overall home prices and builds consumer confidence in housing.
“Anything that buys time, that reduces the supply of houses coming onto the market, is helpful,” said Karl Guntermann, a professor of real estate finance at Arizona State University.
It is not that borrowers have stopped defaulting on their mortgages. They are missing payments as frequently as ever, data shows. But the lenders are not beginning formal foreclosure proceedings or, when they are, do not complete them with an auction sale. And in the most favorable outcome for distressed borrowers, some lenders are modifying loans so foreclosure becomes unnecessary.
The drop in foreclosures began in late September when some lenders were revealed to have been using so-called robo-signers to process thousands of foreclosures without verifying the accuracy of the data. As the investigations into the problems proceeded, the uncertainty caused many lenders to become more cautious.
Their foreclosure procedures, the banks have repeatedly said, are sound. But preliminary results of several of the investigations have indicated substantial problems. Coordinating many of the inquiries is the Financial Fraud Enforcement Task Force, established by President Obama.
“The administration is committed to taking appropriate action on these issues where wrongdoing has occurred,” said Melanie Roussell, an administration spokeswoman.
The diminished supply of foreclosed homes has already had an effect on prices at the auctions on the courthouse plaza here, bidders said.
Houses change hands on the plaza with a minimum of ceremony. Three sets of trustees hired by the banks sit a few feet apart, their backs to a statue of a naked family looking for all the world as if its members had just been cast out of their home. The trustees call off properties in a monotone to bidders clustered around them. Winners must immediately hand over a $10,000 deposit in the form of a cashier’s check.
On a recent afternoon, one bidder, Pam Mullavey of Infoclosure, found herself in a bidding war with Chris Romuzga of Posted Properties for a 2001 house that had fetched $644,000 at the very peak of the boom.
This time around, the bank set the floor at $271,000. Ms. Mullavey and Mr. Romuzga rapidly pushed up the price in varying increments of $100 and $500. Mr. Romuzga’s client had planned to pull out at $307,000 but asked him to keep bidding as Ms. Mullavey sailed on. Her winning bid was $310,100, well above what a similar house might have fetched just a few months ago.
“Sometimes I wonder why people are bidding so much,” Ms. Mullavey said.
For Mr. Romuzga, it was the fourth time that afternoon he had been outbid. Only once had he secured a property.
The investors’ frustration could be a good thing for Phoenix homeowners, who have seen values fall 54.5 percent since 2006. In the last few months, home prices have started to drop again. A decline in foreclosures, economists say, could break the fall.
Cameron Findlay, chief economist with the mortgage company LendingTree, said that the shifting behavior of lenders had helped change perceptions about the foreclosed.
“Initially, society’s view was to run them out of the house,” he said.
That resulted in vacant and dilapidated homes, which blighted neighborhoods and drove potential buyers away.
“People should be hopeful the modification programs work — for their own benefit,” said Mr. Findlay.
More than four million households are in serious default and vulnerable to losing their homes. Lenders maintain that cases of borrowers improperly foreclosed are extremely rare.
But the Federal Reserve, which is investigating lenders’ policies in conjunction with other banking regulators, has found significant weaknesses in risk management, quality control, auditing and compliance.
Another investigation is being conducted by the Federal Housing Administration, which is examining whether loan servicers are exhausting all legally required options before foreclosing on government-insured mortgages. An agency spokeswoman said that initial reviews indicated “significant differences” in efforts by servicers to keep borrowers in their homes.
A third investigation is being conducted by the Executive Office for U.S. Trustees, part of the Justice Department. It is looking into documentation errors by lenders and their law firms in homeowners’ bankruptcy filings.
At the state level, there is a joint effort by all 50 state attorneys general, with the specific goal of changing the face of foreclosure in America by making it more difficult for lenders to act against homeowners. The effort, led by Iowa’s attorney general, Tom Miller, is in flux as several prominent attorneys general left office and their replacements decide whether to make foreclosure reform a priority.
There have been many attempts during the housing crash to stem the flow of foreclosures, only fitfully successful. Some experts think neither federal reforms nor any agreements brokered by the attorneys general will make much of a difference.
“Whether it is really true that there are millions of foreclosures that could be avoided if servicers were just more willing to do more modifications that make sense — meaning overall losses would be less than would otherwise be the case — is far from clear, and in fact highly unlikely,” said Tom Lawler, an economist.
Loan servicers are not set up to identify the true financial picture of each borrower having trouble, Mr. Lawler said, and cannot easily figure out who is likely to stop paying without a modification and who will keep sending a check every month.
The courthouse plaza bidders in Phoenix do not believe their livelihood is threatened. By the end of January, several bidders predicted, lenders would gear up and foreclosures would once again be abundant.
In the meantime, Tom Peltier watched unhappily as a house started at $68,000 and quickly spiraled up. He finally locked it in at $98,500. “That was about 20 grand more than I wanted to pay,” said Mr. Peltier, who planned to rent it to his sister as soon as he moved out the former owner.
http://www.nytimes.com/2011/01/09/busin ... nted=print
January 11, 2011, 8:49 am
Goldman Releases Report on Its Practices
By SUSANNE CRAIG
Daniel Acker/Bloomberg News
8:49 a.m. | Updated
Goldman Sachs on Tuesday morning released a 63-page report (below) on its business practices and disclosure policies.
It will also be giving investors a deeper look into its financials, starting with a restatement of its third-quarter results, to include more detail.
The financials, filed with the Securities and Exchange Commission, will have a fourth business line and include more detail on business lines like prime brokerage services.
Currently Goldman reports three business lines: investment banking, trading and principal investments, and asset management and securities services. Going forward investors will see four reporting lines: Investment banking, institutional client services, investing and lending, and asset management and security services, which include more detail on activities like prime brokerage.
“The firm’s balance sheet disclosure provides another opportunity to describe more clearly the nature of the firm’s business activities and the importance of the client franchise and client facilitation,” the report said.
The report also breaks down what Goldman sees as its responsibilities based on the role it is performing for a client, be it market maker, adviser or market participant. If it is a market participant, a role where it might be buying or selling something, the report says Goldman needs to “communicate clearly” its role as principal.
The greater detail is part of a push by Goldman to be more transparent after criticism that it has put its own interests ahead of those of clients. The report, which follows a nine-month internal study of its operations, is aimed at bolstering internal controls, improving transparency and burnishing its reputation.
But whether the report will result in any meaningful change or give investors a deep look inside Goldman’s opaque trading operations remains an open question, according to one analyst.
“We have all worked at companies where you get these memos. A memo only goes so far,” said a Crédit Agricole Securities analyst, Michael Mayo. “But it may help define some of the gray areas, and it could incrementally help perception and show clients they are trying to gain more control of the situation.”
In the document, Goldman outlines several modifications to its operations, including enhancing its quarterly financial reports and clearly detailing its specific role in transactions. The firm also said it would strengthen standards in so-called structured products, the complicated investments that got a bad name during the financial crisis.
But Goldman is not transforming its business, it is just making adjustments, which many expected when the chief executive, Lloyd C. Blankfein, announced the review at the company’s annual meeting in May. In fact, parts of the report reiterate longstanding principles of the firm, including the top one: “Our clients’ interests always come first.”
Report of the Goldman Sachs Business Standards Committee
http://www.scribd.com/doc/46652502/Repo ... -Committee
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http://dealbook.nytimes.com/2011/01/11/ ... mode=print
Japan to buy euro debt, Portugal resists bailout
By Tetsushi Kajimoto and Axel Bugge
Tue Jan 11, 11:11 am ET
TOKYO/LISBON (Reuters) – Japan promised on Tuesday to buy euro zone bonds this month in a show of support for Europe's struggle with a seething debt crisis.
Portugal, the latest euro zone member in the market's firing line, continued to fend off pressure to seek an EU-IMF bailout. Prime Minister Jose Socrates said his country had beaten its goal for reducing the 2010 budget deficit and did not need outside help.
Lisbon faces a crucial test on Wednesday of its ability to fund itself on the market at affordable rates after Greece, which sought a financial rescue last May, cleared its first funding hurdle of 2011, selling six-month money on Tuesday at just under the rate of its bailout loans.
"The Portuguese government and Portugal will not ask for any aid or financial assistance for the simple reason that it is not necessary," Socrates told a hastily convened news conference.
But a Portuguese central bank board member, Teodora Cardoso, earlier broke ranks with political leaders, saying Lisbon would do better to seek international financing.
"It would be easier if we had foreign help because this would mean that the adjustment would not be so abrupt, but if we do it alone, for the markets to believe in it, it has to be brutal," Cardoso said according to news agency Lusa.
The Bank of Portugal forecast the economy would shrink by 1.3 percent this year, contradicting government forecasts, and said Portuguese banks would continue to rely on European Central Bank for liquidity this year and next due to problems accessing the interbank market.
Yields on Portuguese 10-year bonds edged down slightly but remained above 7 percent, a level widely seen as unsustainable, after traders said the European Central Bank stepped in to buy government bonds for a second straight day.
Wednesday's bond sale in Lisbon will feature both five and 10-year paper.
ASIAN DEBATE
Japanese Finance Minister Yoshihiko Noda said Tokyo was considering using its euro reserves to buy about 20 percent of the AAA-rated bonds to be jointly issued by the euro zone to raise funds to support the region's second bailout recipient Ireland.
"I think it's appropriate for Japan to purchase a certain amount of bonds to boost confidence in the EFSF (European Financial Stability Facility) and make a contribution as a major country," Noda said.
Japan's offer comes days after China renewed its commitment to buy Spanish debt and analysts said it reflected both Tokyo's concern about the impact of the crisis on its export-reliant economy and an effort to reassert itself on the global stage.
A senior adviser to China's central bank said in a Reuters interview that Beijing too should be buying safe, jointly guaranteed euro zone debt rather than riskier bonds issued by troubled member states such as Spain and Portugal.
"In principle we support the euro, but we also need to ensure that our investment is safe and generates returns," said Yu Yongding, an influential economist in the Chinese Academy of Social Sciences, a government think-tank.
"I think it's much safer if we buy the fund as it has a triple-A rating," he added.
Unofficial estimates described by a senior EU official as credible suggest China holds more than seven percent of the 8.8 trillion euros in outstanding euro zone public debt, mostly through its State Administration of Foreign Exchange (SAFE) and sovereign wealth funds.
FINN WARNS
The European Union set up the 440 billion euro EFSF as a safety net for heavily indebted euro zone nations, but it failed to deter investors from betting on more bailouts.
In contrast with a chorus of European officials who have insisted that further rescues are by no means inevitable, Finnish Finance Minister Jyrki Katainen said on Tuesday that Ireland may not be the last country to seek financial aid.
Speaking to a local broadcaster, he also said Lisbon needed to act decisively to calm markets, though he declined to say whether there were any talks about loans to Portugal.
In Belgium, which has also come into the market focus because of its high debts and inability to form a government since last June, caretaker Prime Minister Yves Leterme was preparing further budget cuts designed to calm investors at the request of King Albert.
Japan's bond-buying announcement briefly lifted the euro as far as $1.2992 from around $1.2925 and the single currency traded later at around $1.2950 in Europe, up from Monday's four-month low against the dollar.
"The market sees it as a reallocation of existing euros, rather than fresh net buying," said Chris Turner, currency strategist at ING.
Analysts said that besides concern that an escalating debt rout in Europe could thwart Japan's own recovery, Tokyo might also be acting to preserve its standing in global economic diplomacy after Beijing seized the initiative.
($1=82.95 Yen, $1=.7722 Euro)
(Additional reporting by Kevin Yao in Beijing, Terhi Kinnunen in Helsinki, William James in London, Rie Ishiguro in Tokyo and Masayuki Kitano in Singapore; writing by Tetsushi Kajimoto and Paul Taylor; editing by Mike Peacock, John Stonestreet)
http://news.yahoo.com/s/nm/20110111/bs_nm/us_eurozone
January 10, 2011
The Fed’s QE2 Traders, Buying Bonds by the Billions
By GRAHAM BOWLEY
Deep inside the Federal Reserve Bank of New York, the $600 billion man is fast at work.
In a spare, government-issue office in Lower Manhattan, behind a bank of cubicles and a scruffy copy machine, Josh Frost and a band of market specialists are making the Fed’s ultimate Wall Street trade. They are buying hundreds of billions of dollars of United States Treasury securities on the open market in a controversial attempt to keep interest rates low and, in the process, revive the economy.
To critics, it is a Hail Mary play — an admission that the economy’s persistent weakness has all but exhausted the central bank’s powers and tested the limits of its policy making. Around the world, some warn the unusual strategy will weaken the dollar and lead to crippling inflation.
But inside the Operations Room, on the ninth floor of the New York Fed’s fortresslike headquarters, there is no time for second-guessing. Here the second round of what is known as quantitative easing — QE2, as it is called on Wall Street — is being put into practice almost daily by the central bank’s powerful New York arm.
Each morning Mr. Frost and his team face a formidable task: they must try to buy Treasuries at the best possible price from the savviest bond traders in the business.
The smallest miscalculation, a few one-hundredths of a percentage point here or there, could unsettle the markets and cost taxpayers dearly. It could also embolden critics at home and abroad who say QE2 represents a dangerous expansion of the Fed’s role in the markets.
“We are looking to get the best price we can for the taxpayer,” said Mr. Frost, a buttoned-down 34-year-old in a striped suit and rimless glasses.
Whether Mr. Frost will reach that goal is uncertain. What is sure is that market interest rates have risen, rather than fallen, since the Fed embarked on the program in November. That is the opposite of what was supposed to happen, although rates might have been even higher without the Fed program.
Mr. Frost’s task is to avoid paying top dollar for bonds that could be worth less when the Fed tries to sell them one day.
Louis V. Crandall, the chief economist at the research firm Wrightson ICAP, said Wall Street bond traders were driving hard bargains. The Fed has tipped its hand by laying out which Treasuries it intends to buy and when, giving the bond houses an edge.
“A buyer of $100 billion a month is always going to be paying top prices,” Mr. Crandall said of the Fed. “You can’t be a known buyer of $100 billion a month and get a good price.”
Nevertheless, Mr. Frost and his team have been praised on Wall Street for creating a simple, transparent program. Neither the Fed nor Wall Street wants any surprises. The central bank is even disclosing the prices at which it buys.
Mr. Frost and his team work out of a small, beige corner office with arched windows that used to be a library. There, at about 10:15 most workday mornings, one of them pushes a button on a computer. Across Wall Street, three musical notes — an F, an E and a D — sound on trading terminals, alerting traders that the Fed is in the market.
On one recent Tuesday morning, what Mr. Frost and his five young colleagues did over a 45-minute period might have unsettled even a seasoned Wall Street hand: they bought $7.8 billion of Treasuries.
Mr. Frost and his team drew up the daily schedule for what the Fed calls its Large-Scale Asset Purchase program. And that program is, by any measure, large scale: through next June, these traders will buy roughly $75 billion of Treasuries a month — on top of another $30 billion it is reinvesting in Treasuries from its mortgage-related holdings.
But depending on daily market conditions, Mr. Frost can decide not to buy certain bonds if they are already in short supply.
As offers to sell Treasuries flash on a bank of trading screens, a computer algorithm works out which ones to accept. The computer compares the offers from Wall Street against market prices and the Fed’s own calculation of what constitutes a “fair value” price.
The real work is done by three traders who are referred to during the operation as trader one, trader two and trader three. They sit at a long table against the wall, tapping at seven screens.
On one recent morning, trader one was Tiffany Wilding, 26. While she reviewed the stream of offers and then the prices finally accepted by the algorithm, trader two, Blake Gwinn, 29, double-checked her decisions and trader three, James White, 29, made a duplicate of everything in case the computers crashed.
All the while, Mr. Frost stood behind his colleagues, ready to intervene — and even cancel the Fed’s purchases — at any sign of trouble.
They have their work cut out, trying to outwit the 18 investment firms that deal directly with the Fed. These so-called primary dealers — the Goldmans and Morgans of the world — employ some of the sharpest minds on Wall Street.
Mr. Frost — a Rutgers math grad who has worked at the Fed for 12 years, lives in the Borough Hall area of Brooklyn and takes the subway each day to work — is fairly well known within the dealer community. He and his team talk to the big banks most days.
The job carries great responsibility and is prominent within the Fed. But outside the Fed he and his colleagues are still seen more as staid central bankers doing a job, bankers say, not necessarily Wall Street hotshots likely to be snapped up by the likes of Goldman Sachs.
When devising the program, Mr. Frost and his team decided to focus most on buying Treasury notes with an average maturity of five to six years. That is because the yields on these notes have the biggest impact on interest rates for mortgage holders, consumers and companies issuing debt, and on banks’ decisions to lend to businesses. Over the weeks and months of the program, his purchases should drive up the prices of these securities — because they will be in greater demand — and consequently push down their yields.
The trouble is, though yields fell sharply between August and November as the markets anticipated the new program, they have risen since it was formally announced in November, leaving many in the markets puzzled about the value of the Fed’s bond-buying program.
Mr. Frost, and his boss, Brian P. Sack, insist the program has succeeded. Mr. Sack, 40, joined the Fed 18 months ago to run the entire markets group. He has a Ph.D. from M.I.T. and worked most recently for a Washington consulting firm. In 2004, he wrote a paper with Ben S. Bernanke, the future chairman of the Federal Reserve, and another economist about unconventional measures for stimulating the economy in extraordinary times — just like large-scale purchases of Treasuries.
“We didn’t know then that the Fed would be putting it to the test,” he said.
He said the Obama administration’s $858 billion tax compromise with Congressional Republicans in December complicated the macroeconomic picture.
But the biggest reason for the rise in interest rates was probably that the economy was, at last, growing faster. And that’s good news.
“Rates have risen for the reasons we were hoping for: investors are more optimistic about the recovery,” said Mr. Sack. “It is a good sign.”
http://www.nytimes.com/2011/01/11/busin ... nted=print
Judges Berate Bank Lawyers in Foreclosures
January 10, 2011
By JOHN SCHWARTZ
With judges looking ever more critically at home foreclosures, they are reaching beyond the bankers to heap some of their most scorching criticism on the lawyers.
In numerous opinions, judges have accused lawyers of processing shoddy or even fabricated paperwork in foreclosure actions when representing the banks.
Judge Arthur M. Schack of New York State Supreme Court in Brooklyn has taken aim at an upstate lawyer, Steven J. Baum, referring to one filing as “incredible, outrageous, ludicrous and disingenuous.”
But New York judges are also trying to take the lead in fixing the mortgage mess by leaning on the lawyers. In November, a judge ordered Mr. Baum’s firm to pay nearly $20,000 in fines and costs related to papers that he said contained numerous “falsities.” The judge, Scott Fairgrieve of Nassau County District Court, wrote that “swearing to false statements reflects poorly on the profession as a whole.”
More broadly, the courts in New York State, along with Florida, have begun requiring that lawyers in foreclosure cases vouch for the accuracy of the documents they present, which prompted a protest from the New York bar. The requirement, which is being considered by courts in other states, could open lawyers to disciplinary actions that could harm or even end careers.
Stephen Gillers, an expert in legal ethics at New York University, agreed with Judge Fairgrieve that the involvement of lawyers in questionable transactions could damage the overall reputation of the legal profession, “which does not fare well in public opinion” throughout history.
“When the consequence of a lawyer plying his trade is the loss of someone’s home, and it turns out there are documents being given to the courts that have no basis in reality, the profession gets a very big black eye,” Professor Gillers said.
The issue of vouching for documents will undoubtedly meet resistance by lawyers elsewhere as it has in New York.
Anne Reynolds Copps, the chairwoman of the real property law section of the New York State bar, said, “We had a lot of concerns, because it seemed to paint attorneys as being the problem.” Lawyers feared they would be responsible for a bank’s mistakes. “They are relying on a client, or the client’s employees, to provide the information on which they are basing the documents,” she said.
The role of lawyers is under scrutiny in the 23 states where foreclosures must be reviewed by a court. The situation has become especially heated for high-volume firms whose practices mirror the so-called robo-signing of some financial institutions; in these cases, documents were signed without sufficient examination or proper notarization.
In the most publicized example, David J. Stern, a lawyer whose Florida firm has been part of an estimated 20 percent of the foreclosure actions in the state, has been accused of filing sloppy and even fraudulent mortgage paperwork. Major institutions have dropped the firm, which has been the subject of several lawsuits, and 1,200 of the 1,400 people once at the firm are out of work.
The Florida attorney general’s office is conducting a civil investigation of Mr. Stern’s firm and two others.
“There’s been no determination” in a court that Mr. Stern or his employees “did wrong things, said Jeffrey Tew, Mr. Stern’s lawyer, adding that the impact was nevertheless devastating.
“There are groups in society that everybody likes to hate,” Mr. Tew added. “Now foreclosure lawyers are on the list.”
Such concerns have, in recent months, brought a sharp focus on activities in New York State, and in particular on the practice of Mr. Baum, a lawyer in Amherst, outside Buffalo. Judges have cited his firm for what they call slipshod work that, in some cases, was followed by the dismissal of foreclosure actions.
One case involved Sunny D. Eng, a former manager of computer systems on Wall Street. He and his wife, who has cancer, stopped paying the mortgage on their Holtsville, N.Y., home after Mr. Eng’s Internet services business foundered. The mortgage was originally held by the HTFC Corporation, but the foreclosure notice came from Wells Fargo, a bank that the Engs had no relationship with. They hired an experienced foreclosure defense lawyer on Long Island, Craig Robins. The court ultimately ruled in favor of Mr. Eng.
“You want to call it God, you can call it God,” Mr. Eng said. “You want to call it luck, you can call it luck. We just followed the system, and thank God the system worked.”
Through a spokesman, Mr. Baum said, “The foreclosure process in New York State is extremely complex and subject to extensive judicial review. We believe this review respects the due process of anyone who challenges a foreclosure. Consumer activists and attorneys representing homeowners have their own agenda in this process, including degrading the legal work we conduct on behalf of our clients by using terms like ’foreclosure mill,’ which I find personally and professionally insulting.”
He added, “What is important now is that all parties attempt to work together to resolve issues amicably. The barrage of accusations and litigation does little to help the underlying problems.”
Cases across the nation like Mr. Eng’s have led New York’s judicial system to take a hard look at the 80,000 pending foreclosures in the state and demand that the paperwork be sound, said the state’s chief judge, Jonathan Lippman. “Knowing what we know, our only option — at least from my perspective — is to turn to the lawyers who are officers of the court and say, ’You’d better go to your clients and find out if these cases are real,’ ” he said.
The court devised a two-page affirmation to be signed by lawyers in foreclosure actions saying they had reviewed the documents and had “confirmed the factual accuracy” of any allegations with the clients.
Ann Pfau, deputy chief administrative judge for New York State, who has worked directly with the state bar to carry out the plan, said, “We need to know that this is a court process that has some integrity.”
Judge Pfau said, “If you can’t get good information, you shouldn’t be filing the cases in the first place.”
To address some lawyer concerns, the judiciary issued a modified version of the affirmation in November but said that the alterations were minor. In the end, the lawyers are vouching for their filing, Judge Pfau said. “They are absolutely still on the hook.”
While lawyers are being implicated as part of the problem, they should also be part of the solution, said Stephen P. Younger, the president of the New York State Bar Association, which has not taken an overall position on the foreclosure matter. Foreclosure defense lawyers, he noted, have led court proceedings to throw out flawed cases.
“The real problem is that there are thousands and thousands of people who are unrepresented by lawyers,” Mr. Younger said.
http://www.nytimes.com/2011/01/11/busin ... nted=print
The truth about tax havens
What do we really know about tax havens? In an extract from his new book, Nicholas Shaxson explains how they work and why they are so rife with secrecy, corruption and intimidation
Nicholas Shaxson The Guardian, Saturday 8 January 2011
In 2009 I met a former private banker, Beth Krall, to explore a question that had been nagging me: how do bankers who shelter the wealth of gangsters and corrupt politicians justify what they do? We met one Sunday in Washington DC. She had left private banking and joined the non-governmental sector. Dressed in a striking black-and-white coat, she still looked very much the stylish international financier. Aged 47, and with nearly 24 years in the banking business, Krall (not her real name) was still coming to terms with her past life.
Krall's last offshore posting was in the Bahamas, an island archipelago with over 300,000 residents that has been an important offshore centre since the golden age of American organised crime. A few months earlier, a practitioner in the Caymans had warned me to watch out for my personal safety if I went "asking all these questions" in the Bahamas. Krall said she was unsure what might happen to her if she went back, as she was partly breaking the private bankers' code of silence. "I don't want to have concrete shoes put on me," she said without smiling. One reason for her fear was something that had angered her in the first place: so many of the people she dealt with were powerful members of society in their home countries.
Krall took her banking exams straight after school, and then worked for a number of banks before moving to Cititrust in the Bahamas, where she ran evaluations and accounting for their mutual funds business.
From this point, Krall declined to name her employer. She became a client relationship manager with the private banking arm of a well-known international bank in the Bahamas. They worked with what are euphemistically known as managed banks or shell banks, an offshore speciality. These have no real presence where they are incorporated, so they can escape supervision by regulators.
The terrorist attacks on 11 September 2001 prompted the US to legislate against shell banks. A bank in the Bahamas must now employ two senior bankers and keep its books and records there to be judged real enough to do business. "That means a bank maybe with a room or suite in a building, with two people in it – that's a bank now," Krall said. She directed me to the website of a Bahamas-based trust company that will provide you with exactly that: the appearance of being a real bank – including two staff members as directors and a place to keep the books. Such a setup can allow business almost as usual, yet still tick the regulators' boxes.
Krall moved to a big European bank, again as a client relationship manager – in effect, someone who finds wealthy clients and keeps them happy. Trawling for business, she was routinely pointed towards Latin America, where she travelled frequently. "On the immigration form you would write that you were going for pleasure, though your suitcase would be full of business suits and portfolio evaluations, or marketing materials and presentations explaining the advantages of a trust in the Bahamas." The client's name didn't appear on their portfolio evaluation: in fact, the bank would not even record it as the account name. It was nerve-racking, sometimes, going through airports, but she always got through unchallenged.
Despite her growing qualms, Krall ended up working for a boutique Swiss private bank in the Bahamas. This was no ordinary bank, and was the only one where she actually saw a suitcase full of cash. "My bank never once had a client walk through the door," she said. "The bankers and their clients go on big-game hunting trips, or to the ballet in Budapest. That is where it happens."
Her colleagues hailed from old European aristocratic circles. While Krall was perfectly good at her job and had close working relationships with top lawyers, asset managers and so on, a gap remained. "They went to parties with royalty, with ambassadors," she said. "I wasn't in their circle."
At the time, laws in the Bahamas were being tightened a little, following a feeble global crackdown, and she moved sideways in the bank to work as a compliance officer. These days, offshore bankers make a big show of their know-your-customer rules to keep out the bad money. Depositors may have to supply a certified copy of a passport, for example, and divulge where their money came from. Jurisdictions such as the Bahamas and the Cayman Islands put these requirements into their statutes, and banks employ compliance officers such as Krall to enforce this. That, at least, is the theory. But there are many ways around the restrictions.
Krall was supposed to check for suspicious movements through the accounts – of which there were plenty. She raised many red flags. "They [her managers] would say, 'This was a commission'." Were these bribes? Commissions on what? "I went back, and never got an answer." One Swiss-based trust company that had a relationship with her bank displayed almost nothing on its website, bar some photos of a nice fountain in Geneva. "The crap they brought to us was unbelievable. There is no way a responsible trustee should take this on. You would have no idea who the trust settlors were, what the assets were or where they came from. I objected strongly, but the bank took them on."
There is something about island life that stifles dissent. In the island goldfish bowl, you cannot hide. The ability to sustain an establishment consensus and suppress troublemakers makes islands especially hospitable to offshore finance, reassuring international financiers that local establishments can be trusted not to allow democratic politics to interfere in the business of making money.
John Christensen, Jersey's former economic adviser-turned-dissident, describes encountering extremist right-wing offshore attitudes when he returned to his native island in 1986 after working overseas as a development economist. It was the year of the City of London's Big Bang of financial deregulation, and he found the tax haven amid a spectacular boom. Old houses, tourist gift shops and merchant stores in Jersey's beautiful capital St Helier were being knocked down and replaced by banks, office blocks, car parks and wine bars. He went to an employment agency and they told him he could have any job he wanted. The following day he had three offers. In his work he soon became aware of practices such as reinvoicing, in which trading partners agree on a price for a deal, then record it officially at a different price in order to shift money secretly across borders.
As the river of money flowing into Jersey became a tide, he expressed unease about the origins of some of it, much of it from Africa, but he was brushed aside.
The concentration of extremist attitudes in Jersey was self-reinforcing, as Christensen explains. "Most liberal people like myself left," he said. "My socially liberal friends from school, almost all of them left Jersey to go to university, and almost all of them didn't go back. I can't tell you how dark it felt." He almost left, but was persuaded to stay by academic researcher Mark Hampton, who was putting together a framework for understanding tax havens and convinced him how important it was to understand the system from the inside. "I went undercover," Christensen said, "not to dish the dirt on individuals and companies, but because I couldn't understand it – and none of the academics I spoke to could either. There was no useful literature."
Jersey is riddled with elite, secretive insider networks, typically linked to the financial sector. After being appointed economic adviser in 1987, Christensen found that many people who came to see him wanted him to join their Masonic lodge, and gave him the secret signal. "Their thinking is very much of the old-boy network – you are either one of us or you are against us," he continued. "It means they can trust you to do the right thing without having to be told – an insidious meaning of the word 'trust'."
Unaccountable elites are always irresponsible, and I got my own flavour of Jersey's mouldy governance on the first day of a visit in March 2009, when the Jersey Evening Post carried a front-page story headlined "States in shambles", referring to the States Assembly, Jersey's parliament. "The States resembled a school playground yesterday as foul language and personal insults flew across the chamber," it said. Senator Stuart Syvret, a popular but controversial politician, had complained in the assembly that the health minister was whispering in his ear.
Syvret, the newspaper reported, stood up and said: "On a point of order, I am sorry to interrupt the minister. But the minister to my right, Senator Perchard, is saying in my ear: 'You are full of fucking shit, why don't you go and top yourself, you bastard.'" Senator Perchard responded by saying: "I absolutely refute that. I am just fed up with this man making allegations." The BBC, which was broadcasting the sitting live, had to apologise for the language.
Syvret has been a regular victim of efforts to suppress dissent. "Any anti-establishment figure here is bugged," said Syvret. "There is a climate of fear. Anyone who dares disagree is anti-Jersey, an enemy of Jersey. You are a traitor, disloyal. There is all this Stalinist propaganda." A few weeks after my visit eight police officers arrested Syvret and held him for seven hours while they ransacked his home and personal files, including his computer.
In October 2009, having been accused of leaking a police report about the conduct of a nurse, Syvret fled to London and claimed asylum at the House of Commons, saying he could not get a fair trial in Jersey. British Liberal Democrat MP John Hemming put Syvret up in his flat, declaring that "we should not allow him to be extradited, to be prosecuted in a kangaroo court". When Syvret returned in May 2010 to fight an election he was arrested at the airport. "This is a society with no checks and balances, run by an oligarchy," Syvret said. "It is a one-party state, and it has been for centuries."
At the Smugglers' Inn on Jersey's beautiful coast, I sat with John Heys, a tour guide at the world-famous Durrell zoo, and his friend Maurice Merhet, a retired printer and pig farmer. The two had spoken out – in letters to the Jersey Evening Post and in other forums – and have been decried, publicly and regularly, as traitors. Both described the same climate of fear that Syvret had: the dread of being squeezed out of a job, of never getting anywhere, of being blacklisted.
Heys showed me an email from a government minister to a dissident friend who had, in a cheeky Christmas message to the minister, pointed out the large sums stashed away in Jersey amid global poverty. The minister responded – mistakes included: "Hi Traitor, Please refrain from sending me your unsolicited garbage … I am surprised you still decide to live in this 'tax haven' island … ifs its so bad why do you not leave to live somewhere else … good riddance I would say … but perhaps NOT because you get a damm good living here, no doubt perhaps funded by banks and your morgage lender … in fact my family have lived in Jersey for several generations and I am so very proud of it but to listen to traiterous idiots like you makes me furious. I would not have the nerve to wish you a happy christmas in fact I hope you continue to live a miserable existence in your traiterous world."
One night in 1996, towards the end of his time in Jersey, Christensen opened the books for a reporter from the Wall Street Journal, who was investigating an alleged fraud ring involving American investors and a Swiss bank operating out of Jersey. The story, headlined "Offshore hazard: Isle of Jersey proves less than a haven to currency investors", ran on the front page several months later. Jersey's finance industry and politicians went into spasm. This was one of the first times Jersey's supposedly clean and well-regulated finance sector had been challenged in a serious global newspaper. The end of the article quoted a senior civil servant. Everyone in Jersey was sure it was Christensen. He knew that, in talking to the reporter, he had effectively resigned.
Finance can take advantage of insularity, timidity and moral shortsightedness, but the ethos of the Jersey establishment derives ultimately from the offshore industries and their onshore controllers, not from innate island character. Offshore repression can happen in larger jurisdictions, too. Rudolf Elmer, a Swiss banker who had worked for banks in several offshore centres before becoming a whistle-blower on some of the corruption he had seen, felt the pressure in Switzerland, a country of eight million people.
In 2004 Elmer noticed two men following him to work. Later, he saw them outside his daughter's kindergarten, then from his kitchen window. His wife was followed in her car. The men offered his daughter chocolates in the street and late at night drove a car at high speed into the cul-de-sac where he lived. The stalking continued, on and off, for more than two years. The police said there was nothing they could do. In 2005, they searched his house using a prosecutor's warrant, and he was imprisoned for 30 days, accused of violating Swiss bank secrecy, which is, as he put it, "an official violation, like murder".
"I was thinking of suicide at this stage," he said. "I would be looking out of the window at 2am. They intimidated my wife, children and neighbours. I was an outlaw. I was godfather to a child whose father is in finance. He said I have to stop – 'you are a threat to the family'." A relative was pressured at work to avoid contact with Elmer; after one warning he left the office in tears. "I was bloody naive to think that Swiss justice was different," Elmer said. "I can see how they might control a population of 80,000 people in the Isle of Man, but eight million? How can a minority in the banking world manipulate the opinion of an entire country? What is this? The mafia? This is how it works. Jersey, the Cayman Islands, Switzerland: this whole bloody system is corrupt."
This is an edited extract from Treasure Islands: Tax Havens and the Men Who Stole the World by Nicholas Shaxson, published by The Bodley Head this week, price £14.99. To order a copy for £11.99 with free UK p&p go to guardian.co.uk/bookshop or call 0330 333 6846.
For more information see treasureislands.org
http://www.guardian.co.uk/theguardian/2 ... NTCMP=SRCH
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The truth about tax havens: part 2
A second extract from Nicholas Shaxson's book explains how a mafia scheme became a pillar of the financial system – and how the government let it happen
Nicholas Shaxson guardian.co.uk, Sunday 9 January 2011 22.09 GMT
The offshore world is all around us. More than half of world trade passes, at least on paper, through tax havens. More than half of all banking assets and a third of foreign direct investment by multinational corporations are routed offshore. An impression has been created in sections of the world's media, since a series of stirring denunciations of tax havens by world leaders in 2008 and 2009, that the offshore system has been dismantled, or at least tamed. In fact quite the opposite has happened. The offshore system is in very rude health — and growing fast.
It is no coincidence that London, once the capital of the greatest empire the world has known, is the centre of the most important part of the global offshore system. The City's offshore network has three main parts. Two inner rings – Britain's crown dependencies of Jersey, Guernsey and the Isle of Man; and its overseas territories, such as the Cayman Islands – are substantially controlled by Britain, and combine futuristic offshore finance with medieval politics. The outer ring comprises a more diverse array of havens, such as Hong Kong, which are outside Britain's direct control but have strong links.
This network of offshore satellites does several things. First, it gives the City a truly global reach. The British havens scattered all around the world's time zones attract and catch mobile international capital flowing to and from nearby jurisdictions, just as a spider's web catches passing insects. Much of the money attracted to these places, and the business of handling that money, is then funnelled through to London.
Second, this British spider's web lets the City get involved in business that might be forbidden in Britain, providing sufficient distance to allow financiers in London plausible deniability of wrongdoing. Much (but not all) of the financial activity hosted in these places breaks laws and avoids regulation elsewhere.
The three crown dependencies in the inner ring are substantially controlled and supported by Britain but have enough independence to allow Britain to say "there is nothing we can do" when other countries complain of abuses run out of these havens. They channel very large amounts of finance up to the City of London: in the second quarter of 2009 the UK received net financing of $332.5bn (£215bn) just from its three crown dependencies. Jersey Finance promotional literature makes the point plainly. "Jersey," it says, "represents an extension of the City of London."
The 14 overseas territories, the next ring in the spider's web, are the last surviving outposts of Britain's formal empire. With just a quarter of a million inhabitants between them they include some of the world's top secrecy jurisdictions: the Cayman Islands, Bermuda, the British Virgin Islands, the Turks and Caicos islands and Gibraltar.
Just like the crown dependencies, the overseas territories have close but ambiguous political relationships with Britain. In the Caymans the most powerful person is the governor, appointed by the Queen. The governor handles defence, internal security and foreign relations; he appoints the police commissioner, the complaints commissioner, the auditor general, the attorney general, the judiciary and other top officials. The final appeal court is the privy council in London.
It is the world's fifth largest financial centre, hosting 80,000 registered companies, more than three-quarters of the world's hedge funds, and $1.9tn (£1.2tn) on deposit – four times as much as in New York City banks.
The third, outer ring of the British spider's web includes Hong Kong, Singapore, the Bahamas, Dubai and Ireland, which are fully independent though deeply connected to the City of London.
In the Caribbean, the modern offshore system traces its origins back to the time when organised crime took an interest in the US tax code.
When Al Capone was convicted of tax evasion in 1931, his associate Meyer Lansky became fascinated with developing schemes to get mob money out of the US in order to bring it back, drycleaned. A slick mafia operator, Lansky would beat every criminal charge against him until the day he died in 1983. Lansky began with Swiss banking in 1932, where he perfected the loan-back technique.
First he moved money out of the US in suitcases, diamonds, airline tickets, cashiers' cheques, untraceable bearer shares or whatever. He would put the money in secret Swiss accounts, perhaps via a Liechtenstein Anstalt (an anonymous company with a single secret shareholder) for extra secrecy. The Swiss bank would then loan the money back to a mobster in the United States and the money would return home, clean.
By 1937 Lansky had started casino operations in Cuba, outside the reach of the US tax authorities, and he and his friends built up gambling, racetrack and drugs businesses there. It was, effectively, an offshore money-laundering centre for the mob.
Lansky then moved to Miami and plotted to find his next Cuba, small enough and corrupt enough to be able to buy the political leadership, and close enough to the United States for the gamblers to come and go at will.
The Bahamas, the old staging post for British gun-running to the southern US slave states of the Confederacy, was perfect. Lansky set about making this British colony, now dominated by an oligarchy of corrupt white merchants known as the Bay Street Boys, the top secrecy jurisdiction for north and south American dirty money.
A quaint memo from a Mr WG Hulland of the Colonial Office to a Bank of England official in 1961, just as Lansky began major operations there, illustrates the uneasy nature of this encounter between the British upper classes and American organised crime: "We feel that this [lack of provision of an effective regulatory system] might be a grave omission, since it is notorious that this particular territory, in common with Bermuda, attracts all sorts of financial wizards, some of whose activities we can well believe should be controlled in the public interest."
London did nothing, and Lansky built his empire. Yet many locals were unhappy. In 1965 Lynden Pindling, a populist Bahamas politician, threw the ceremonial speaker's mace out of a parliament window in a dramatic power-to-the-people gesture. He was elected prime minister in 1967 on a platform that included hostility to gambling, corruption and the Bay Street Boys' mob connections.
Yet as it happened there was a reassuringly British place just next door, where the locals were far more friendly: the Cayman Islands.
Milton Grundy, an influential Caribbean offshore lawyer and author of several books on offshore finance, remembers first arriving in the Caymans. Cows wandered through the town centre, there was one bank, one paved road and no telephone system. In 1967 the Caymans published its first trust law, which Grundy drafted, and which a British Inland Revenue official subsequently said "blatantly seeks to frustrate our own law for dealing with our own taxpayers". Within just a few months Grand Cayman was connected to the international phone network and the airport was expanded to take jet aircraft.
Some have argued that Britain set up the offshore networks simply out of a short-sighted desire to find a way for its overseas territories to pay their way in the world. After the second world war, an exhausted Britain found that its empire, once a source of great profits, was becoming more expensive and difficult to run, as locals began to agitate for independence. But the evidence points to a different, more troubling explanation for Britain's decision to turn its semi-colonies into secrecy jurisdictions.
The archives tell a consistent story about how the tax havens grew: private sector operators working in a zone of extreme freedom began to call the shots, with little opposition from Britain and its inexperienced emissaries.
In the archives, two schools of opinion emerge within the British civil service. On one side sits the Treasury, and especially its tax collectors in the Inland Revenue, who virulently opposed tax havenry and found the Cayman Islands especially obnoxious. The US authorities were clearly highly vexed too, and the British Foreign Office broadly opposed havenry, though its position was more nuanced.
On the other side sits the Bank of England, the most vociferous cheerleader for the new arrangements, and its far less influential supporter, the British overseas development ministry, which seems unperturbed by the possibility that local tax haven activities might foster massive capital flight from developing countries elsewhere. Battle lines were drawn; the exchanges become vigorous and even acrimonious.
The Inland Revenue was especially alarmed, while their mandarin bosses in the Treasury showed some, but rather less, concern. They put together a working party, whose report in 1971 said Britain should, in effect, stop encouraging tax havenry in its overseas territories, which in the case of the Caymans had become, as one internal memo in London put it, "quite uncivilised".
A letter marked secret from the Bank of England dated 11 April 1969 gives a better sense of the forces driving the changes in the Caribbean.
"We need to be quite sure that the possible proliferation of trust companies, banks, etc, which in most cases would be no more than brass plates manipulating assets outside the islands, does not get out of hand. There is of course no objection to their providing bolt holes for non-residents but we need to be sure that in so doing opportunities are not created for the transfer of UK capital to the non-sterling area outside UK rules."
The Bank of England's main concern at this time was that the new Caribbean centres were weak points: sources of financial leakage outside the sterling area. So in 1972 Britain shrank the area to Britain, Ireland and the crown dependencies, excluding the new havens.
The year the sterling area shrank, the British officials working against tax havens disappeared from the archive files. Their replacements seemed unaware of the 1971 report and only discovered it in 1977, sitting on the shelf, unimplemented. Again they expressed concerns – and again nothing was done. History repeated itself within and between the departments, all in less than 10 years. And, each time, the Bank of England fought the tax haven corner.
"This is no tropical paradise," said Kenneth Crook, the newly arrived British governor of the Cayman Islands in 1972. "I could enlarge, in terms of a magnificent but mosquito-ridden beach; of a fairly new but rather ill-designed and sadly neglected house; of a pleasant but very untidy little town; of swamp clearance schemes which generate smells strong enough to kill a horse; of an office which will one day ere long collapse in a shower of termite-ridden dust."
But on politics, and the strange relationship between Britain and its little quasi-colony, his tone hardens. "Caymanians don't want independence," Crook wrote. "They don't want internal self-government either – they are very unwilling to trust each other with effective power … they quite well understand that the British connection gives them a status which they would otherwise not command."
Nothing of substance seems to have changed, as a senior Caymanian politician, who asked not to be named, explained to me in 2009. "The UK wants to have a significant degree of control," he said, "but at the same time it does not want to be seen to have that control. Like any boss, it wants influence without responsibility; they can turn around when things go wrong and say 'it's all your fault' – but in the meantime they are pulling all the strings."
This attitude of the locals towards Britain reassures investors, but the political bedrock underpinning the world's fifth biggest financial centre is Britain's role. If Caymanians gained full control, most of the money would flee.
While these changes were happening in the Caribbean, something similar was under way far closer to the City of London, in the crown dependencies. A constituent's letter forwarded and endorsed by Tony Benn, then an MP, to the then chancellor, Denis Healey, about a tax conference in Jersey, gives a flavour: "I am somewhat surprised to see a Mr Gent from the Bank of England giving advice on how to avoid paying tax. I wonder if this is really part of the Bank of England's duties? Mr Gent suggests that the Bank of England will not be prepared to pass on information required by the Inland Revenue! Does the UK Treasury have no control over the Bank of England? Surely Bank employees should not be working against government policy? And just what sort of arrangements and deals are made at these events 'behind the scenes'?
"It really is just a bit too sordid to be true."
As in the Caribbean, offshore banking blossomed here from the 1960s, when merchant banks such as Hambros and Hill Samuel opened for deposits.
Foreign travel was getting easier and more British expatriates opened accounts in Jersey, where the banks were reliable and comfortingly British, but where bank interest was untaxed and secret. Many did not declare their income to their countries of residence, often poverty-racked African nations, knowing they would not be caught.
Martyn Scriven, secretary to the Jersey Bankers' Association, described how Jersey's network grew. "The biggest business developer is client recommendation," he said. "The client will say, 'I'm happy, and I'd like to introduce you to my friend' – and you build it up like that. You get some seriously interesting people … someone who goes abroad as a rigger 20 years ago for Shell may now be in charge of the company's west Africa operations … We gather deposits from wealthy folk all around the world, and the bulk of those deposits are sent to London. Great dollops of money go into London from here."
As in the Caymans, Jersey has carefully protected the ambiguous relationship with Britain. Jersey's most senior public sector officials are appointed in London; its laws are all approved by the privy council in London, and Britain handles Jersey's foreign relations and defence, and the lieutenant governor represents the Queen.
As in the Caymans, Britain goes to great lengths to hide its control. And, as with the Cayman Islands, the relationship with the mother country reassures the wealthy and the financial services industry that Britain will step in if needs be, to protect the tax haven from external attacks. Their money is safe in Jersey.
This is an edited extract from Treasure Islands: Tax Havens and the Men Who Stole the World by Nicholas Shaxson, published by The Bodley Head this week, price £14.99. To order a copy for £11.99 visit http://www.guardianbookshop.co.uk.
For more info see treasureislands.org
http://www.guardian.co.uk/business/2011 ... NTCMP=SRCH
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by vanlose kid » Fri Jan 14, 2011 11:03 pm
Mr. McCrudden worked on Wall Street for over 20 years. He started his career on the floors of the New York Commodity Exchange executing orders for some of the largest institutions in the world including hedge funds and Commercial & Investment Banks. He then ran Global Desks in such areas as Foreign Exchange, Credit Derivatives & Equity Derivatives. He taught derivatives courses at the New York Institute of Finance.
Mr. McCrudden is a former soccer player at the University of Rhode Island, and then played professionally for the Tampa Bay Rowdies and Minnesota Strikers of the NASL. He also was an amateur boxer and has raised money over the years for the NYPD for slained and disabled officers. He has two beautiful children.
Mr. McCrudden has spent the past 13 years and counting combating a colluded Government attempt to discredit and harrass Mr. McCrudden through repeated bogus procedures. Mr. McCrudden has sought relief by suing multiple agencies and officials for $1 Billion. But this has not stopped certain higher ranking officials because they know that Judges are Government employees too. In order to stop the libel, slander and harrassment at the hands of these entities, and with no available forum in the US justice system, Mr. McCrudden has started a process to enact payback for years of Government abuse. As a twice survivor of the WTC bombings, Mr. McCrudden knows all too well what the Government can do in the "name of public interest". Mr. McCrudden believes the 23 friends he lost on 9-11-2001 would have had their full support. Wake up my fellow citizens and middle class and go look into the mirror, because you my friends are the face of the new Al Qaeda! Civil disobedience can be a start for justice. Its us (middle class) against them (Government officials and the Bourgeosie). Start acting now before its too late!
Government employees should be individually accountable and not be able to hide behind the veils of their entities. If they are sued for bad behaviour, they should have to use their own resources and money like any other citizen.
Alnbri Management, LLC was formed in 2008. Its Principal, Vincent McCrudden, has been involved in the capital markets since 1985 and has either executed or traded hundreds of billions of dollars of financial transactions over the course of his career. Alnbri was General Partner of the Hybrid Fund II, LP which had returns of 99.6% in 2008 and 37.67% in 2009 before being sold to another firm. The fund was ranked in the top 5 of most databases as one of the best performing multi-strategy funds in the world in 2008. Alnbri Management now trades proprietarily for its own account, owns various real estate projects and has developed finance relationships with a number of firms and individuals.
Hey fucking morons...
1.Make sure you all show up with [T.M.] and that fucking corrupt fucking midget [G.G.] when you serve me papers. I have something ready for you all.
2.Make sure you introduce yourselves to me when we meet in court...I will have something there as well for you just in case you fucking cunts are too coward [sic] to not show up and serve me papers in person.
I can see two of you are either terrorist or Al Qaeda or something. We have soldiers looking all over the world, and there you are working right there at the good ole boys club of the CFTC. As twice survivor of WTC attacks, I find it pretty funny. Bring your helmets... you all put your name to the wrong fucking person. Fucking cunts!
by vanlose kid » Sat Jan 15, 2011 4:14 am
LilyPatToo wrote:Just before Xmas, I was walking toward Union Square in San Francisco, looking for a particular clothing store that my niece likes to get her a modest gift card. To my dismay, the storefront was empty and since this is a huge chain that also has mall stores everywhere, I was really surprised. So I looked more closely at the stores around it and was amazed to see the fabulously expensive designer emporiums crowded with well-heeled shoppers. But the other retailers who cater to the middle and upper-middle class had near-empty stores
It was one of those moments when I felt my understanding of what's happening, economically speaking, here in the US shift in a visceral way. We really do appear to have been well and truly screwed. And now when I find myself in any upscale shopping district I can't help but note the "life as normal" free spending of my betters. It's like we're living in parallel worlds, isn't it?
LilyPat
viewtopic.php?p=376773#p376773
by nathan28 » Sat Jan 15, 2011 4:52 pm
2 ex-Landsbanki executives arrested in Iceland
(AP) – 1 day ago
REYKJAVIK, Iceland (AP) — Two former senior executives with Iceland's failed Landsbanki bank have been arrested over allegations of market manipulation, the special prosecutor's office said Friday.
Prosecutor Olafur Hauksson said he had asked that ex-Landsbanki chief executive Sigurjon Arnson and former head of corporate finance Ivar Gudjonsson be detained in connection with investigation into the collapse of the institution. It's one of several Icelandic banks that failed in 2008 under the weight of enormous debts racked up during the tiny North Atlantic nation's boom.
The two were brought in for questioning Thursday and remained in custody Friday. A judge at Reykjavik's district court was due to rule on their continued detention later. Five other Landsbanki executives also were questioned by investigators Thursday, although it was not immediately clear why they were released while the other two were held.
Halldor Kristjansson, who was Arnson's co-chief executive, also is wanted for questioning and was expected back in Iceland from Canada in the coming days.
Icelanders are still struggling to emerge from the banking collapse that wrecked their economy, sent their currency into a tailspin, and forced out the country's then-leaders.
Hauksson was appointed by the Iceland's post-crisis government to investigate whether there was any criminal activity in the lead up to the crash.
Last year, the former chief executive of collapsed bank Kaupthing became the first high-profile banker to be detained in connection with his investigation.
(This version CORRECTS Corrects that Kristjansson is wanted in addition to the five executives questioned, instead of among them. Adds byline. Court's decision due at 1400 GMT. This story is part of AP's general news and financial services.)
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