Sunday, 21 December 2008

21/12/08 - Other World News Latest



Rampant financial bankruptcy -- the double digit percentage growth in the
U.S. national debt late this year bode danger here. Entrenched corruption
- think government employees unused to financial deprivation not getting
paid except by graft. An inability to govern territory and a general loss of
legitimacy . . . A rapid increase in the number and power of criminal
guerilla groups that will challenge nation-states. These groups will flourish
within the ungoverned spaces that emerge, particularly in urban areas and
even within the U.S. The combination of access to global markets, rapidly
mproving technology, and new methods of warfare mean these groups will
be ascendant militarily until successful strategies emerge to counter them.


On December 16 2008, the Bernanke Fed took the most unusual step of
lowering the overnight inter-bank lending rate, the federal funds rate, to a
level never reached before, i.e. zero percent with an upside limit of 0.25
percent. It also announced that it will buy “large quantities of” mortgage
-backed securities and is considering doing the same thing with Treasury
bonds of longer maturities, in order to lower the entire yield curve. What it
did not say explicitly is that the Fed is ready to debase the U.S. dollar to
artificially low levels in order to reflate the U.S. economy. What the Fed
wants is to trigger monetary inflation and change deflation expectations at
all costs through large-scale debt monetisation and thus floating excess
debts in a sea of newly created money. Overall, what the Fed has done, in
effect, is to announce that it is suspending the normal functioning of
private credit and capital markets, according to supply and demand, and
has decided to micro-manage failing markets for the foreseeable future,
that is to say as long as deflationary pressures, in its own view, persist . .



Rickards calls it the "A to Z" problem: What are the threats that could
make the U.S. economy look less like America and more like Zimbabwe? He
sees them everywhere – in the Chinese ownership of vast amounts of
American debt, in Russia’s increased centralization of its economy, in Al
Qaeda’s long-established fascination with damaging the U.S. economy. In
many ways, Rickards is the ultimate bear. He’s not just thinking about
whether the stock market will decline, but whether or not the stock
market will survive. All that puts Rickards decidedly outside mainstream
economic and political thinking in America. But he does have an influential
audience: the United States intelligence & defense communities. Rickards is
a regular adviser on financial issues to the director of national intelligence's
office, and he gives financial advice to the national security community.



Walking away from a mortgage has always been a homeowner's last resort
— it flies in the face of the American dream. And experts say it should
remain a worst-case scenario. But with the deepening economic crisis fast
adding to the 12 million mortgages already "underwater" — the term for
when a home's debt exceeds its market value — it's an option more are
likely to consider as home prices continue to fall. Mortgage and financial
experts hesitate to recommend a voluntary action that not only threatens
to wreck your credit score for years but can result in authorities coming
after other assets. But depending on state laws, they now acknowledge it
makes sense to at least look at it in certain situations. "You have to make
the best decision for yourself, business-wise, which could be walking away
from the house," said Nicole Gelinas, a chartered financial analyst . . .


The great job bust of 2008 is being felt keenly in communities across the
U.S. Few may be suffering more than Greensboro, N.C., one of the South's
most scenic and livable cities and no stranger to disruptive economic
change. Greensboro's local economy has been stress-tested by global
outsourcing since the early 1990s, when jobs tethered to its two once
dominant industries, textiles and furniture, began to move to Asia. Until
recently the city had made up many of those job losses by repositioning
tself as a financial back-office center serving the banks of nearby Charlotte
and insurance companies from across the country. It also built itself up as
a transportation hub and a home of high-tech manufacturing. Now the
question is, can "this new three-legged stool weather titanic national
economic forces," says Keith G. Debbage, a professor at UNC Greensboro.


It's a problem that's only expected to get worse for legions of homeowners
across the USA. Nearly one in seven homeowners is underwater, owing
more on their mortgages than their homes are worth. That's about 12
million homeowners, nearly double the number underwater at the end of
2007, according to Moody's Economy.com. Most are homeowners who
bought between late 2003 and 2007. Home prices are projected to drop on
average another 10%, bringing to about 14.6 million the number of
homeowners who will be underwater on their mortgages by fall 2009, says
Mark Zandi, chief economist at Moody's Economy.com. By contrast, about
2.5 million homeowners had negative equity in their homes in 2006 . . .


A short-term emergency loan of $17.4 billion to help bail-out America's
biggest car companies has done nothing to reduce their risk of bankruptcy,
Wall Street's credit rating agencies claimed last night. Fitch, the credit
agency, today cut its rating on General Motors' bonds to C, the last notch
above default, after it warned investors that the rescue loan would not
avert the real threat of collapse for the car maker. With just over a month
left in the White House, President Bush today announced that the U.S.
Government would lend $17.4 billion to General Motors and Chrylser who
had warned politicians on Capitol Hill that without immediate federal aid
they might run out of money by the end of the year. General Motors and
Chrysler are expected to receive the funds by December 29, just two days
before Rick Wagoner, the head of General Motors and Robert Nardelli, the
chief executive of Chrysler said they could be broke. While Washington was
scared that the collapse of General Motors and Chrsyler would also cause
Ford to fail and trigger the loss of around three million jobs across the US,
auto experts warned that such concerns would prove to be unfounded . . .


General Motors is likely to file for bankruptcy protection with government
backing, giving bondholders a recovery of more than 25 cents on the
dollar, according to Moody's Investors Service. There is a 70% probability
the restructuring plan for U.S. automakers will consist of a prepackaged
bankruptcy financed by government loans to get GM and Chrysler through
to 2009, Moody's said in a report dated December 15. Under that scenario,
bondholders would be likely to lose less than 75% of their investment . . .


Attorney Bill Palmer represents her and countless other citizens in a class
action lawsuit against the state of California. "They figured the safety
-deposit box was safer than keeping it under the mattress," Palmer said.
"In the case of a lot of citizens, they were wrong, weren't they?" California
law used to say property was unclaimed if the rightful owner had had no
contact with the business for 15 years. But during various state budget
crises, the waiting period was reduced to seven years, and then five, and
then three. Legislators even tried for one year. Why? Because the state
wanted to use that free money."That's absolutely correct," said California
State Controller John Chiang, who inherited the situation when he came
into office. "What we've done over the last two decades has been wrong."


Eric Swanson received a startling call last Thursday from his wife, Shana D.
Madoff, who said that something was terribly wrong. Officials from the
Securities and Exchange Commission and the Justice Department had just
swooped down on the offices of Madoff Investment Securities, where Ms.
Madoff was the compliance lawyer, seizing records and asking pointed
questions as they began investigating one of the largest frauds in Wall
Street history. Mr. Swanson, who only a year earlier had married into the
Madoff family, had an intimate familiarity with the S.E.C. For 10 years he
had been a midlevel official at the commission’s Washington headquarters.


Disgraced money manager Bernard Madoff's suspected $50 billion fraud
scheme looks set to burn even those who pulled their investments out long
before the scandal rippled into the global financial system. Such investors
may have counted themselves fortunate, withdrawing their money years
ago to buy a house or to pay for a daughter's education, and may have
even sighed with relief because they ended ties with Madoff long before the
scandal erupted late last week. But they, too, could face trouble. Because
of a legal concept known as "fraudulent conveyance," they could be forced
to return their profits and even some of their initial investments to help
offset losses incurred by others involved in the long-running Ponzi scheme.


The call came at 6 p.m. on Thursday, Dec. 11. I had been waiting for it for
five years. When the call finally arrived, it was my wife who answered.
What the person said on the other end of the phone was both simple and
devastating: we were financially wiped out. Of course, I knew this instantly
from the look on my wife's face. Her words to the person handling our
financial matters, grew insistent: "You're joking? This is a joke, right?" We
didn't know it yet, but we had been playing in the Bernard Madoff Securities
LLC Fantasy Financial League. It began when we sold our home at the peak
of the market, collected what was left from an old divorce, found other
monies and then, with a combination of pleasure and trepidation, handed
over our life savings to someone named Stanley Chais, the Los Angeles
network organizer for a man named Bernard Madoff. Of course, we never
heard the name Madoff - which has a peculiarly Dickensian ring - and had
no idea how he achieved such fantastic returns over the past 40 years.


The New York Giants are 11-3 on the field. On Wall Street, they’re down
$300 million and counting. From a bond market collapse and skyrocketing
interest rates to the bankruptcy of its investment bank, the Super Bowl
champions have taken one hit after another financing what co- owner John
Mara calls the world’s most expensive sports venue: a $1.6 billion New
Jersey stadium to be shared with the New York Jets when it opens in 2010.
The team, which borrowed $650 million toward its share of the stadium,
can’t say exactly how much that’s now costing, according to court papers.
Mara sent a bill to Lehman Brothers Holdings Inc. in October claiming the
bank owes the National Football League club more than $300 million after
defaulting on interest-rate swaps. The team also is subject to rate swings,
refinancing charges and legal fees, the papers say. "We continue to work
expeditiously to determine the full extent of our loss,” the club has said.


Gazprom will cut off gas supplies to Ukraine in January if the former Soviet
republic fails to settle a $2.4 billion bill, the Russian utility said on Thursday.
The threat to Ukraine emerged as signs of economic distress multiplied in
Moscow and in Kiev, where Ukrainians protested the rampant inflation
caused by the collapse of their currency. In Moscow, the Russian federal
Government hinted that public investment programmes would be affected
by the worsening economic climate and a deputy minister admitted that
the Russian economy was shrinking, with recovery not forecast before the
second half of next year. Gazprom said that Ukraine had paid $800 million
of arrears, but a spokesman said: "If the debt is not paid and no other
decision is found, we will not be able to sign a new contract and will have
no legal grounds to supply Ukraine with gas starting from January 1, 2009."

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