Friday, November 9, 2007

US Debt tops 9 trillion, stocks battered, banks overwhelmed with bad debt

Stocks battered by mortgage mess

Dow falls over 150 points on news Wachovia will take a $1 billion hit, forecasts for slower growth in Europe.

Bankruptcy Law Backfires On Banks

The Economic Consequences of Mr. Bush

Federal Liabilities Now Equal $175,000 for Every American

National Debt at Record $9 Trillion

California Gas Prices Reach $5 In Some Areas

Asian Stocks Slump as Dollar Tumbles, Subprime Losses Widen

Asian stocks fell the most in 12 weeks, extending a global rout after the dollar plunged yesterday, oil slumped and U.S. financial companies disclosed mounting credit-market losses.

US debt tops $9 trillion for first time-Treasury US debt tops $9 trillion for first time-Treasury

The U.S. Treasury Department said on Wednesday publicly held U.S. debt breached $9 trillion this week for the first time ever, just five weeks after Congress had raised the statutory borrowing limit.

At the end of September, U.S. President George W. Bush signed a measure to increase the debt limit ceiling to $9.815 trillion from $8.965 trillion, allowing the government to keep issuing debt.

The increase in the debt limit is the fifth since Bush took office in January 2001. The U.S. debt stood at about $5.6 trillion at the start of his presidency

UN warns of possible sharp rise in bird flu outbreaks ahead of Northern Hemisphere winter... http://hosted.ap.org/dynamic/stories/A/AS_GEN_ASIA_BIRD_FLU_ASOL-?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2007-11-09-06-04-23

http://www.nytimes.com/2007/11/09/business/09shop.html?ex=1352264400&en=76e3c7ce5cabfdc4&ei=5090&partner=rssuserland&emc=rss Consumers have rendered a verdict on the coming holiday season: grim


 

Wednesday, November 7, 2007

Wall St. Bets against it’s own survival

Nov. 7 (Bloomberg) -- Credit-default swaps on bonds of Citigroup Inc., Wachovia Corp. and Morgan Stanley are trading at the highest in at least five years on speculation the nation's biggest banks may be forced to write down more subprime assets.

Analysts began revising predictions for writedowns at the banks after Citigroup this week said losses from the assets may rise to $11 billion. Credit-default swaps tied to Citigroup more than tripled in the past three weeks, indicating the risk of default is rising. Contracts on Morgan Stanley and Wachovia Corp. and Merrill Lynch & Co. are at or near six-year highs.

http://www.bloomberg.com/apps/news?pid=20601087&sid=auTmbruMWHfw&refer=home

A credit default swap (CDS) is a bilateral contract under which two counterparties agree to isolate and separately trade the credit risk of at least one third-party reference entity. Under a credit default swap agreement, a protection buyer pays a periodic fee to a protection seller in exchange for a contingent payment by the seller upon a credit event (such as a default or failure to pay) happening in the reference entity. When a credit event is triggered, the protection seller either takes delivery of the defaulted bond for the par value (physical settlement) or pays the protection buyer the difference between the par value and recovery value of the bond (cash settlement).

Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge against credit events. However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can be used to speculate on changes in credit spread.

Credit default swaps are the most widely traded credit derivative product[1]. The typical term of a credit default swap contract is five years, although being an over-the-counter derivative, credit default swaps of almost any maturity can be traded.

http://en.wikipedia.org/wiki/Credit_default_swap

Buying Swaps

Credit-default swaps tied to Citigroup's bonds have climbed 17 basis points to 70 basis points since Oct. 31, according to broker Phoenix Partners Group in New York. The contracts are trading at the widest levels since at least September 2002, data from Credit Suisse Group show.

A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

At that level, Citigroup is trading as if it were rated Baa3, the lowest investment-grade rating, according to the credit strategy group at Moody's Investors Service.

Moody's this week lowered Citigroup's ratings to Aa2, its third-highest rating, from Aa1.

Tuesday, November 6, 2007

Level 3 and mainstream Dollar Refusal

BOSTON (MarketWatch) -- Citigroup Inc. (C:Citigroup, Inc C 36.18, -1.55, -4.1%) in a quarterly regulatory filing Monday said its so-called level 3 assets as of Sept. 30 were $134.84 billion. Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management's best guess. The investment bank said its total liabilities related to level 3 assets at quarter-end were $40.36 billion, according to the Form 10-Q.

http://www.marketwatch.com/news/story/citigroup-reports-1348-billion-level/story.aspx?guid=%7BC06333CB%2DC985%2D4B41%2DA7B2%2D1699184BBA4E%7D

http://news.yahoo.com/s/ap/20071103/ap_on_re_eu/climate_security Think tank: Climate affects security

http://www.bloomberg.com/apps/news?pid=20601087&sid=aCs.keWwNdiY&refer=home Supermodel Bundchen Joins Hedge Funds Dumping Dollars Supermodel Bundchen Joins Hedge Funds Dumping Dollars

``We've told all of our clients that if you only had one idea, one investment, it would be to buy an investment in a non- dollar currency,'' said Gross, the chief investment officer of Pacific Investment Management Co. in Newport Beach, California, and manager of the world's biggest bond fund. ``That should be on top of the list,'' said Gross, whose firm is a unit of Munich- based insurer Allianz SE.

Sunday, November 4, 2007

The Amero

http://www.amerocurrency.com/
From the mindsets documented above, and more data available through this site, emerges the concept of the "Amero," an international currency whereby the American monetary system and our treasury system become homogeneous with those of Mexico and Canada.

http://www.amerocurrency.com/amerophotos.html photos of the Amero

http://en.wikipedia.org/wiki/Amero The North American currency union is a proposal in which the three principal countries of North America, namely Canada, the United States and Mexico, would share a common currency. This idea is based on the common European Union currency, the euro. There are also related proposals for a single currency for all of the Americas. The hypothetical currency for both of these ideas is sometimes referred to as the Amero.

Support in other regions

There are many lower levels of currency cooperation that have occurred in the Americas. A number of nations – such as Argentina, Brazil and Canada – have at times tied their currency to the United States Dollar, and in 2000, Ecuador adopted the U.S. Dollar as its sole currency. In much of Central America and the Caribbean the U.S. Dollar is already a de facto secondary currency.

It serves as parallel legal tender in both Panama (since independence in 1903) and El Salvador (since 2001), and unofficially in Cuba where the Convertible Peso is currently pegged at 1 Peso equal to US$1.08 (previously, it was until 24 March
2005, 1 Peso = US$1).

Amero Video http://www.youtube.com/watch?v=6hiPrsc9g98

Private CIA: Rent-a-Spy

Blackwater's Owner Has Spies for Hire

http://www.washingtonpost.com/wp-dyn/content/article/2007/11/02/AR2007110202165.html?hpid=topnews

First it became a brand name in security for its work in Iraq and Afghanistan. Now it's taking on intelligence.

The Prince Group, the holding company that owns Blackwater Worldwide, has been building an operation that will sniff out intelligence about natural disasters, business-friendly governments, overseas regulations and global political developments for clients in industry and government.

http://www.totalintel.com/
Total Intelligence Solutions, Inc. (Total Intel), brings together the experience and collective knowledge of three well-established security organizations - The Black Group, Terrorism Research Center and Technical Defense - to provide Fortune 1000 companies with the only comprehensive and complete solution for private intelligence.

Total Intel is co-managed by Rob Richer, former Assistant Deputy Director of Operations (ADDO) at the Central Intelligence Agency (CIA) and Matthew Devost, Co-founder and President of Terrorism Research Center.

Saturday, November 3, 2007

Oil, Fed injection, and embezzlement articles

OPEC oil ministers say they are powerless in the face of many factors driving up the price of crude, with one member of the producers' cartel warning that the 'market is out of control'.

Fed Injects $41 Billion Into US Financial System to Help Ease Credit Problems  Charles Merrill Fears Market Crash  Whisperings Of Gold Conspiracy  No end in sight for housing slump  Oil hits new record over $90  Billionaires Up, America Down

Former Colorado Gov. Describes ''CRIME OF CENTURY'': The first rule of embezzlement is to find some naive patsy. We sensed forty years ago the younger generation was not paying enough attention to public policy, so we quietly found ways to maintain our lifestyle and charge it to the next generation – and their children.

Banking gets bloody

Top US analyst hits back after death threats over Citigroup downgrade

http://business.timesonline.co.uk/tol/business/markets/article2796774.ece

Meredith Whitney, the analyst who prompted a $369 billion (£177 billion) plunge in the value of US shares on Thursday by issuing a negative note on Citigroup, hit out at Wall Street's culture of intimidation yesterday after receiving several death threats from investors in the bank.

Ms Whitney, a CIBC analyst who is married to the former World Wrestling Entertainment champion Death Mask, prompted a near 7 per cent drop in Citigroup's shares on Thursday, after suggesting that the bank needed to raise more than $30 billion to restore its capital cushion.

BestBank's ex-owner plummets 27 stories hours before hearing

http://www.rockymountainnews.com/drmn/other_business/article/0,2777,DRMN_23916_5738328,00.html Facing jail, banker leaps to death

Banks hit again as credit fears spread

Fears of a fresh wave of losses arising from the credit squeeze spread around the globe on Friday, depressing stock markets in Europe and Asia and savaging bank shares for the second day in a row.

Despite a surge in US employment growth last month, investors remained worried that banks and other financial institutions still faced heavy losses arising from the troubled US mortgage market and related securities.

http://www.ft.com/cms/s/0/9ce8e2aa-897b-11dc-b52e-0000779fd2ac.html?nclick_check=1

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Friday, November 2, 2007

Level 3 Assets and SFAS 157

The Bear's Lair: Level 3 Decimation?

By Martin Hutchinson

October 29, 2007

Martin Hutchinson is the author of "Great Conservatives" (Academica Press, 2005) -- details can be found on the Web site www.greatconservatives.com

There's a mystery on Wall Street. Merrill Lynch last week wrote off $8.4 billion in its subprime mortgage business, a figure revised up from $4.9 billion, yet Goldman Sachs reported an excellent quarter and didn't feel the need for any write-offs. The real secret of the difference is likely to be in the details of their accounting, and in particular in the murky world, shortly to be revealed, of their "Level 3" asset portfolios.

Both Merrill and Goldman have Harvard chairmen – Merrill's Stan O'Neal from Harvard Business School and Goldman's Lloyd Blankfein from Harvard College and Harvard Law School. Thus it's pretty unlikely their approaches to business are significantly different – or is a Harvard MBA really worth minus $8.4 billion compared with a law degree? (The special case of George W. Bush may be disregarded in answering that question!)

We may be about to find out. From November 15, we will have a new tool for figuring out how much toxic waste is in investment banks' balance sheets. The new accounting rule SFAS157 requires banks to divide their tradable assets into three "levels" according to how easy it is to get a market price for them.  Level 1 assets have quoted prices in active markets. At the other extreme Level 3 assets have only unobservable inputs to measure value and are thus valued by reference to the banks' own models.

Goldman Sachs has disclosed its Level 3 assets, two quarters before it would be compelled to do so in the period ending February 29, 2008. Their total was $72 billion, which at first sight looks reasonable because it is only 8% of total assets. However the problem becomes more serious when you realize that $72 billion is twice Goldman's capital of $36 billion.   In an extreme situation therefore, Goldman's entire existence rests on the value of its Level 3 assets.

The same presumably applies to other major investment banks  – since they employ traders and risk managers with similar educations, operating in a similar culture, they probably have Level 3 assets of around twice capital. The former commercial banks Citigroup, J.P. Morgan Chase and Bank of America may have less since their culture is different; before 1999 those institutions were pure commercial banks and a substantial part of their business still lies in retail commercial banking, an area in which the investment banks are not represented and Level 3 assets are scarce.

There has been no rush to disclose Level 3 assets in advance of the first quarter in which it becomes compulsory, probably that ending in February or March 2008. Figures that have been disclosed show Lehman with $22 billion in Level 3 assets, 100% of capital, Bear Stearns with $20 billion, 155% of capital and J.P. Morgan Chase with about $60 billion, 50% of capital. However those figures are almost certainly low; the border between Level 2 and Level 3 is a fuzzy one and it is unquestionably in the interest of banks to classify as many of their assets as possible as Level 2, where analysts won't worry about them, rather than Level 3, where analyst concern is likely.

The reason analysts should worry is that not only are Level 3 assets subject to eccentric valuation by the institution holding them, but the ability to write up their value in good times and get paid bonuses based on their capital uplift brings a temptation that few on Wall Street appear capable of resisting. Both Goldman Sachs and Merrill Lynch are reported to have made profits of more than $1 billion on their holdings of Level 3 assets in the first half of 2007, for example, profits on which bonuses will no doubt be paid at the end of their fiscal years. Given that we have had five good years on Wall Street, years in which nobody has known the amount of Level 3 assets on banks' balance sheets, and no significant media waves have been made questioning their valuation methodologies, it would not be surprising if many banks' Level 3 assets had become seriously overstated, even without any downturn having occurred.

When Nomura Securities sold its mortgage portfolio and exited the US mortgage business in this quarter, it took a write-off of 28% of the portfolio's value, slightly above the 27% of the portfolio that was represented by subprime mortgage assets. Were Goldman Sachs's Level 3 assets similarly value-impaired, it would result in a $20 billion write-off, more than half Goldman's capital, leaving the bank severely damaged albeit probably still in existence. 

Defenders of Goldman Sachs and the rest of Wall Street will insist that less than 27% of their level 3 assets are represented by subprime mortgages yet that is hardly the point. Subprime mortgages, estimated to cause losses of $400-500 billion to the market as a whole, though only a fraction of that to Wall Street, have been only the first of the Level 3 asset disasters to surface. There is huge potential for further losses among assets whose value has never been solidly based. These would include the following:

  • Mortgages other than subprime mortgages. With the decline in house prices accelerating, the assumptions on which even prime mortgages were made are being exposed as fallacious. As house prices decline, debt to equity ratios increase, and for mortgages with an original loan-to-value ratio of 90% or more quickly pass the 100% at which a mortgage becomes uncovered. If the value of conventional mortgages decline many securities related to them, currently classed as Level 1 or 2 assets, will become un-marketable and descend into Level 3
  • Securitized credit card obligations. $915 billion of credit card debt is currently outstanding, the majority of it securitized, and its default rate is likely to soar as the full effects of the home mortgage market's crack-up spread to the credit card area. The risks in Level 3 portfolios derived from this asset class arise particularly in the areas of complex derivatives and manufactured assets based on credit card debt pools.
  • Leveraged buyout bridge loans. After a hiccup in August, the market in these has reopened recently, although around $250 billion of them still remains on banks' balance sheets. The value of a leveraged buyout bridge loan that has failed to find a pier to support the other end of the bridge is very dubious indeed, even though these loans are being carried in the books at or close to par. As the value of underlying assets declines and the cash flow fails to match debt payments, the deterioration in credit quality of these loans will accelerate.
  • Asset backed commercial paper. The amount of asset backed commercial paper outstanding has dropped from $1.2 trillion to $900 billion in the last three months. This financing structure was always unsound; it was basically a means of removing the assets backing the commercial paper from bank balance sheets, and always faced the problem of a severe mismatch between asset and liability duration. The $100 billion vehicle intended to rescue this market has found a mixed reception to say the least. It is likely that as credit conditions deteriorate, the assets underlying ABCP vehicles will increasingly find themselves on bank balance sheets, where they will prove to be almost completely unmarketable.
  • Complex derivatives contracts. Even simple interest rate swaps and currency swaps caused large losses in the last significant credit tightening in 1994, although most of those losses were suffered by Wall Street's customers rather than Wall Street itself. The more complex transactions that have been devised during the last twelve giddy years are much more likely to prove impossible either to sell or to hedge. Goldman Sachs reported that in the third quarter of 2007 its profits on derivatives used for hedging more or less matched its losses on subprime mortgages. It is likely in reality that the bulk of those profits were incurred through model-based write-ups of value on contracts that were within the Level 3 category – after all, Goldman's Level 3 assets increased by a third during the quarter. It's not much good shorting to match a long position you don't like if your hedging shorts prove to be impossible to close out.
  • Credit Default Swaps, the global outstanding value of which in June 2007 was $2.4 trillion, according to the Bank for International Settlements. These are a relatively new instrument, the efficacy of which has not been tested in a downturn. It appears likely that the value in banks' books of their Level 3 credit derivatives contracts bears no relation whatever to reality. As discussed above, the incentives have been all in favor of inflating it.

The capital underlying Wall Street, at the top, is not all that large – a matter of a few hundred billion. Given the piling of risk upon risk that has been engaged in over the last few years, and the size of the losses in the mortgage market alone that seem probable – my own estimate last spring of $980 billion looks increasingly likely to be somewhat below the final figure – it appears almost inevitable that in a bear market in which liquidity dries up and investors become skeptical, Wall Street's capital will be wiped out. Only the commercial banks like Wachovia and Bank of America whose investment banking ambitions have been largely thwarted and portfolios of Level 3 rubbish are correspondingly lower are less likely to disappear.

Given the size of the overall figures involved and the excessive earnings that Wall Street's participants have enjoyed over the last decade, a taxpayer-funded bailout of Wall Street's titans would seem politically impossible, however loud the lobbyists scream for it.

In the long run, that is probably a blessing for the US and world economies.

http://prudentbear.com/index.php?option=com_content&view=article&id=4809&Itemid=53

Please Welcome SFAS 157—The New Fair Value Measurement Standard and Hierarchy

By Maria Nizza

Historically, there has been no single consistent framework within the accounting literature for applying fair value measurements and developing a reliable estimate of fair value. With authoritative guidance scattered throughout various accounting pronouncements, companies often found fair value estimates difficult to determine. Without a consistent framework applied to identical instruments, situations could arise whereby identical instruments held by different companies could have different fair value estimates.

Furthermore, the development of these fair value estimates is becoming more complicated since markets are continually issuing more complex and less liquid financial instruments. After numerous deliberations, the FASB has attempted to address this challenge by publishing Statement of Financial Accounting Standards No. 157, Fair Value Measurements, in September 2006 (the "Statement" or "SFAS 157").

http://www.pwc.com/Extweb/pwcpublications.nsf/docid/A955DCBCFC4C74048525721A005CB347/$File/fairvalue.pdf

Debugging Wall Street's funky math

Big chunks of investment banks' earnings are from assets that few know how to value. Should investors and regulators be concerned? Fortune's Peter Eavis puts on the green eyeshade.

By Peter Eavis, Fortune writer

September 7 2007: 5:47 PM EDT

NEW YORK (Wall Street) -- In the first half of the year, most Wall Street firms awarded themselves large profits from assets that are rarely traded and difficult to price, according to numbers contained in the brokerages' recent financial statements.

But, with markets seizing up since the end of June, those assets could be even harder to value, potentially prompting investors and regulators to question Wall Street's earnings.

Morgan Stanley (Charts, Fortune 500) andGoldman Sachs (Charts, Fortune 500) are scheduled to report their third quarter earnings over the next two weeks. At each firm, gains from assets and liabilities that rely heavily on subjective, in-house valuations were equivalent to 20% or more of pretax earnings, according to figures from documents filed with the Securities and Exchange Commission.

In its first half, Bear Stearns (Charts), which also reports earnings next week, appears to show losses of nearly $1 billion on these assets and liabilities, which are given the classification "level three" in financial statements, under an accounting regulation introduced at the end of last year by the Financial Accounting Standards Board. Lehman's level three gains were around 12% of pretax earnings in the first half.

Merrill Lynch (Charts, Fortune 500), Citigroup (Charts, Fortune 500) and JP Morgan Chase, which are scheduled to report third quarter earnings in October, made substantial earnings from level three assets and liabilities in the year's first half.

Brokerage houses do not break out net level three gains as a single number, so the level three figures are calculated using data contained in the banks' financial statements filed with the Securities and Exchange Commission (SEC).

Level three assets - which often include some types of mortgage-backed securities, as well as private equity investments - are the least liquid, but level two assets, which make up by far the majority of brokerage's financial assets, are also valued using arbitrary inputs because they don't trade in highly liquid markets. Only level one assets trade with dependable market prices, and they make up no more than a fourth of financial assets at most Wall Street firms.

This reliance on illiquid assets will only stoke fears that, during the credit boom of the last five years, the brokerages became too exposed to complex securities and financial instruments that will be worth less, and trade even more infrequently, in a more sober market environment. Referring to financial firms, Warren Buffett told Fortune last month, "They are marking to model rather than marking to market. The recent meltdown in much of the debt market, moreover, has transformed this process into marking to myth."

Homes entering foreclosure at record

It is also likely that the Securities and Exchange Commission and banking regulators are paying close attention to valuation of level three and level two assets at Wall Street firms. Their efforts to bring liquidity back to markets relies on the resumption of sound pricing in the markets and that will take longer if banks persist in overvaluing assets using their own potentially erroneous assumptions.

Most brokerages mentioned in this story declined to comment. When asked if Goldman was overly reliant on hard-to-value assets, spokesman Lucas van Praag said: "We don't agree. Our economic exposure to level 3 assets was $24.6 billion at the end of the second quarter and that needs to be seen in the context of a balance sheet of around $1 trillion."

Morgan Stanley spokesman Mark Lake noted that a large proportion of the firm's level three gains were from real estate, an asset that has real value, even though it doesn't carry regularly quoted prices.

In addition, some on Wall Street argue that the models used to value level 2 and 3 assets are more likely to be accurate than not, because Wall Street has learned from past meltdowns that it is a big mistake to misprice illiquid assets. In addition, Wall Street's supporters say it's misleading to compare gains from level three assets and liabilities with pretax earnings. Instead, they argue that a better approach is to compare them with revenues, because the level three gains aren't reduced by accompanying expenses that do get included in the pretax earnings calculation. However, if brokerages had been tweaking internal models to produce gains, the expense associated with that would not be high and a large proportion of the resulting profits would go straight to the bottom line.

In their SEC-registered disclosures, the brokerages acknowledge that caution must be used when handling level 3 gains and losses -- and argue that the level 3 assets and liabilities may be hedged with instruments that are classed level 1 or 2. For example, Lehman Brothers' quarterly earnings statement says: "Actual net revenues associated with Level III, inclusive of hedging activities, could differ materially."

Subprime: Let the finger-pointing begin!

In the first half, Morgan Stanley and Goldman Sachs showed level three net gains that were the highest in their peer group, as a percentage of pretax earnings. Morgan Stanley's $2.16 billion of estimated net gains was 28% of pretax earnings, while Goldman's estimated $1.95 billion amounted to 24% of pretax earnings in the first half.

Bear's apparent $1 billion losses from level 3 assets and liabilities raise two questions. First, do the losses suggest Bear is a sort of canary in a coalmine and is just earlier than its peers in showing level 3 losses? Or was Bear uniquely over-exposed to illiquid assets that turned toxic? Third quarter results from its rivals should help answer those questions.

To be sure, these numbers do not make an open-and-shut case that a sizable chunk of Wall Street's profits are made up out of thin air. Some of the big level three gains could be on assets that are real and are actually increasing in value at the moment. For example, mortgage servicing rights, which represent future cash payments by mortgage holders to their servicers, will be worth more at a time when borrowers are doing much less mortgage prepayments -- like now.

However, few would deny that Wall Street held too many assets that are now extremely illiquid and are worth much less than they were even six months ago. Many of these assets never traded in active markets, so even honest models will be struggling to come up with dependable values. There remains a cloud over the brokerage industry so long as it continues to rely on opaque models rather than real money.  

Editor's note: An earlier version of this story used different figures for some banks' level three earnings that were derived using an incorrect methodology. CNNMoney regrets the error.

http://money.cnn.com/2007/09/06/magazines/fortune/eavis_level3.fortune/index.htm

http://www.beeland.com/ Jim Rogers Articles

http://www.rogersrawmaterials.com/
The Rogers International Commodity Index® (the "RICI") is a composite, U.S. dollar-based, total return index created by James Beeland Rogers, Jr. ("Rogers") on July 31, 1998. The RICI® was designed to meet the need for consistent investing in a broad based international vehicle; it represents the value of a basket of commodities consumed in the global economy, ranging from agricultural to energy to metal products. The value of this basket is tracked via futures contracts on 36 different exchange-traded physical commodities, quoted in four currencies, listed on eleven exchanges in five countries.

http://en.wikipedia.org/wiki/Credit_default_swap
A credit default swap (CDS) is a bilateral contract under which two counterparties agree to isolate and separately trade the credit risk of at least one third-party reference entity. Under a credit default swap agreement, a protection buyer pays a periodic fee to a protection seller in exchange for a contingent payment by the seller upon a credit event (such as a default or failure to pay) happening in the reference entity. When a credit event is triggered, the protection seller either takes delivery of the defaulted bond for the par value (physical settlement) or pays the protection buyer the difference between the par value and recovery value of the bond (cash settlement).

Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge against credit events. However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can be used to speculate on changes in credit spread.

Credit default swaps are the most widely traded credit derivative product[1]. The typical term of a credit default swap contract is five years, although being an over-the-counter derivative, credit default swaps of almost any maturity can be traded.

Fed pumps more money than any other day ex. 911 and snoops through data

OIL NEARS $100, RETREATS...

Stocks Plunge...

Fed Pumps $41B More...


Banks suffer big losses...


CITIGROUP Declines to Lowest in 4 Years...

A New York Fed spokesman said it was the largest single day of operations since $50.35 billion was pumped into the system on Sept. 19, 2001, following the terrorist attacks on New York and Washington. He declined further comment.

Related stories

http://www.theregister.co.uk/2006/09/27/swift_central_banks/ Europe's central banks caught in US spy scandal

[12:21:49 AM] Joe Gelet says: SWIFT eventually imposed some audits of its own on the US subpoenas, which are believed to have peaked at millions of private financial transactions. But there was a time when the US could look where it liked and no authority has been able to assess whether SWIFT's unofficial oversight of the investigation was adequate.

Thursday, November 1, 2007

FX Tools

http://www.atnabtu.com/

ATNABTU (All Their News Are Belong To yoU) aggregates leading financial news feeds to provide recent currency-related news stories. You can configure the main ATNABTU window to focus on the feeds that matter to you most.

http://traderstartpage.com/ Your homepage as an fx trader. News, fx tools, and more.

Wednesday, October 31, 2007

Atlanta Water Crisis

http://www.atlantawatershortage.com/ Like you, we're quite concerned about the water crisis in Atlanta.  This blog is intended to serve as a single point for you to get all of the latest news about this situation.

If you know of something we've missed, please e-mail us at info@atlantawatershortage.com and let us know.  Thanks!

http://www.bloomberg.com/apps/news?pid=20601109&sid=a0WAzQxwAbNg&refer=home

Dry is the goal as United Parcel Service Inc., Coca-Cola Co. and other companies in the Atlanta area rally to cut water use in response to the region's most extreme drought since at least the 1920s. Metropolitan Atlanta, which has added more new residents than any other U.S. city since 2000, may face limits on growth if the shortage persists, business officials said.

``We are very galvanized around this issue,'' said John Somerhalder II, chief executive officer of AGL Resources Inc., which provides natural gas in Atlanta, and vice chairman of the Metro Atlanta Chamber of Commerce's environmental committee. ``It is the No. 1 topic that businesses are concerned about.''

The Coming Water Crisis - US News and World Report

The tap water was so dark in Atlanta some days this summer that Meg Evans couldn't ...
water might someday make the energy crisis look like small potatoes


 

Sunday, October 28, 2007

Dollar Demise even in 3rd world

Dollar's Demise Can Be Seen Even in the Maldives: William Pesek Bargaining while buying some trinkets in the Maldivian capital, Male, recently, I heard most unexpected words: ``You can keep your dollars.''

Oct. 29 (Bloomberg) -- Bargaining while buying some trinkets in the Maldivian capital, Male, recently, I heard most unexpected words: ``You can keep your dollars.''

This tiny nation of 1,200 islands has long accepted U.S. currency out of convenience for visitors and financial sobriety. The dollar tended to do better in global markets than the local monetary unit, the rufiyaa. That may be changing and it's a bad omen for the world's reserve currency.

``My dollars aren't as popular here as they've been in the past,'' says Moyez Mahfouz, 51, who has visited the Maldives from Bahrain with his family once or twice a year for a decade. ``More and more on this trip, I'm being asked for rufiyaa.''

Why does it matter what happens in the Maldives? Its $1 billion economy is worth 1/59th of Microsoft Corp. co-founder Bill Gates's wealth and 1/27th of Sri Lanka's output. While it's an amazingly beautiful place, the Maldives is a rounding error on the global economic pie chart. Yet it may be a microcosm of a tectonic shift in finance: the demise of the dollar.

These things start out slowly, and in recent months I have had similar experiences from Mexico to Vietnam. In markets, restaurants, taxis and tourist shops that long accepted dollars, many are opting for local currency. The reason: concerns the dollar plunge that analysts have predicted for years is afoot and that the U.S. is uninterested in halting it.

Bernanke, `Reluctant' to Cut Rates, May Yield to Markets and Do So Anyway Federal Reserve Chairman Ben S. Bernanke and his colleagues sound as if they'd prefer to just say no to an interest-rate cut this week. The financial markets may not let them.

Friday, October 26, 2007

NFA gears up for forex consolidation

http://www.nfa.futures.org/member/newsLetter2.asp - Testimony
NFA President urges House Subcommittee to address forex regulatory issues in CFTC reauthorization bill

TESTIMONY OF DANIEL J. ROTH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NATIONAL FUTURES ASSOCIATION

BEFORE THE SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND RISK MANAGEMENT COMMITTEE ON AGRICULTURE
U.S. HOUSE OF REPRESENTATIVES

SEPTEMBER 26, 2007

http://www.nfa.futures.org/printerFriendly.asp?tag=entireArticle

In the CFMA Congress attempted to resolve the so-called Treasury Amendment issue once and for all by clarifying that the CFTC does, in fact, have jurisdiction to protect retail customers investing in foreign currency futures. The basic thrust of the CFMA in this area was that foreign currency futures with retail customers were covered by the Commodity Exchange Act ("Act") unless the counterparty was an "otherwise regulated entity," such as a bank, a broker-dealer or an FCM. When I testified here in 2003, I told you that NFA Member FCMs held $170 million in retail customer funds trading off-exchange forex. Four years later, that number is now over $1 billion. With this dramatic growth there have been some pretty dramatic problems.

Members acting as counterparties to retail forex transactions account for less that 1% of NFA's membership. Unfortunately, they also account for over 20% of the customer complaints filed with our arbitration program, over 50% of NFA's current enforcement docket and over 50% of the emergency enforcement actions NFA has taken over the last year.

There a number of problems in the current statute that have contributed to these problems. If you look at the firms that have caused virtually all of the customer protection problems in retail forex, they share a couple of traits. First of all, they are not really FCMs at all. Congress intended to allow FCMs, along with banks, broker-dealers and insurance companies, to act as counterparties to retail forex transactions because they are all "otherwise regulated entities." The wording of the statute, though, opened the door for firms that are not really FCMs to take advantage of the FCM exemption. Firms became registered as FCMs that are FCMs in name only-they do no exchange-traded futures. They are registered as FCMs solely to qualify to do retail forex business. To make matters worse, due to a further anomaly in the statute, the Act currently does not provide the CFTC with any rulemaking authority over these firms at all. Clearly, Congress did not intend to allow firms that are FCMs in name only to act as counterparties to retail forex futures. Congress should fix this problem by limiting the FCMs that can act as counterparties to those that are primarily and substantially engaged in the activities described in Section 1(a)(20) of the Act.

The second trait that marks the problem firms in retail forex is that most, though not all, have been thinly capitalized. Congress long ago recognized that acting as a dealer involves greater risk than acting as an agent in futures trading, the way a traditional FCM does. That is why Congress in 1978 imposed a $5 million net worth requirement for firms granting dealer options and why the CFTC created a $2.5 million capital requirement for leverage transaction merchants in 1984. Congress should amend Section 2(c) of the Act to require FCMs acting as counterparties to retail forex transactions to maintain minimum capital of at least $20 million. NFA has raised the capital requirements for forex dealers several times but this congressional action could ensure that firms can meet their obligations to their customers and have a significant financial stake in their business.

Tuesday, October 23, 2007

Jim Rogers Shifts Assets Out of Dollar to Buy Chinese Currency

Jim Rogers Shifts Assets Out of Dollar to Buy Chinese Currency

By Marcel van de Hoef and Danielle Rossingh


Oct. 24 (Bloomberg) -- Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan because the Federal Reserve has eroded the value of the U.S. currency.

``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

Rogers, delivering a presentation late yesterday at an investors' meeting organized by ABN Amro Markets in Amsterdam, said he expects the Chinese currency to quadruple in the next decade and that he is holding on to commodities such as platinum, gold, silver and palladium.

The dollar has dropped against all the 16 most actively traded currencies except the Mexican peso this year as slowing growth and the first interest-rate reduction since 2003 last month dimmed the allure of dollar-denominated assets.

Since the Fed lowered U.S. interest rates on Sept. 18, the first cut in four years, the dollar has fallen 2.8 percent against the euro and touched a record low yesterday. Gold rose to a 27-year high and platinum jumped to a record.

``It's the official policy of the central bank and the U.S. to debase the currency,'' said Rogers, a former partner of George Soros.

``The U.S. dollar is and has been the world's reserve currency, the world's medium of exchange,'' he said. ``That's in the process of changing. The pound sterling, which used to be the world's reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world's reserve currency.''

China

The Chinese currency, known as the renminbi, or yuan, is ``the best currency to buy right now,'' Rogers said. ``I don't see how one can really lose on the renminbi in the next decade or so. It's gotta go. It's gotta triple. It's gotta quadruple.''

China, growing faster than any other major economy, is ``going to be the most important country in the 21st century,'' he said. China's gross domestic product expanded 11.9 percent in the second quarter, and analysts surveyed by Bloomberg estimate the economy grew by 11.5 percent in the three months to Sept. 30.

Rogers also is buying Swiss francs and Japanese yen, which he said have been ``pounded down'' because of the so-called carry trades.

Unwinding Carry Trades

In the carry trade, investors borrow in countries with low interest rates, such as Japan, and invest the proceeds where rates are higher. Japan's benchmark overnight lending rate is 0.5 percent, compared with 6.5 percent in Australia and 8.25 percent in New Zealand.

The carry trades in yen and francs will ``unwind someday,'' which will send the currencies ``straight up,'' Rogers said. ``I'm buying the yen.''

The bull markets in bonds and stocks are ``over,'' he said. ``Bonds will be a terrible place to be for many years and will in fact be going down for many years.''

Rogers said he remains bullish on commodities because ``that's where the big fortunes are going to be made in the world in the next five, or 10 or 15 years. The current bull market is going to last until sometime between 2014 and 2022.''

Commodity prices have surged as demand for raw materials, especially from China, rose faster than producers were able to increase output. Agricultural prices have led recent gains, including a record high for wheat last month and a three-year high in soybeans.

``The number of hectares devoted to wheat farming has been declining for 30 years, the inventory levels of food are at the lowest level since 1972,'' Rogers said. ``Suppose we start having droughts again. God knows how high the price of agriculture is going to go, so that's where I'm putting more of my money now than in other things.''

He added, ``I think I'm going to make more money in agriculture than I make in precious metals.''

Platinum, gold, silver and palladium will ``be much, much higher during the course of the bull market,'' he said.

To contact the reporters on this story: Marcel van de Hoef in Amsterdam at mvandehoef@bloomberg.net ; Danielle Rossingh in London at drossingh@bloomberg.net .

Last Updated: October 23, 2007 20:23 EDT

http://www.bloomberg.com/apps/news?pid=20601087&sid=amQBwDBSDvBE&refer=home