Friday, August 10, 2012
Fears of a potential repeat of the 2008 food crisis mounted, after a US government report showed that US crops were being savaged by an intense drought.
Corn prices hit a new record high today on confirmation that the US crop would probably slump by 13pc to a 6-year low.
The last time prices spiked 4 years ago food riots occured in Egypt, India, Indonesia, Mexico and many other countries.
The US Department of Agriculture (USDA) said that the severe drought occurring in the US meant that this year’s harvest would be 10.779bn bushels, compared with 12.358bn bushels last year.
December corn futures traded on the Chicago Board of Trade rose as high as $8.3075 a bushel, a new record, before easing back. Corn prices have surged more than 60pc since June.
The USDA said that crop conditions on August 5 were the worst since 1988, with 69pc of the Midwest seeing moderate to exceptional drought.
There is also concern that wheat prices could surge, as hot weather conditions in Eastern Europe persist.
“A Reuters’ survey shows…that a 30pc lower wheat production is anticipated in the grain belt of Ukraine, Russia and Kazakhstan, despite all the declarations of Russia’s deputy prime minister that there is currently no reason to impose restrictions on wheat exports,” Carsten Fritsch, a commodities analyst at Commerzbank, said.
Below average monsoon rains in India is also adding to concern that global grain crops could plunge.
U.S. regulators directed five of the country's biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.
The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.
Officials like Lehman Brothers former Chief Executive Dick Fuld have been criticized for having been too hesitant to take bold steps to solve their banks' problems during the financial crisis.
According to documents obtained by Reuters, the Federal Reserve and the U.S. Office of the Comptroller of the Currency first directed five banks - which also include Citigroup Inc,, Morgan Stanley and JPMorgan Chase & Co - to come up with these "recovery plans" in May 2010.
They told banks to consider drastic efforts to prevent failure in times of distress, including selling off businesses, finding other funding sources if regular borrowing markets shut them out, and reducing risk. The plans must be feasible to execute within three to six months, and banks were to "make no assumption of extraordinary support from the public sector," according to the documents.
Spokespeople for the five banks declined to comment. The Federal Reserve also declined to comment.
Recovery plans differ from living wills, also known as "resolution plans," which are required under the 2010 Dodd-Frank financial reform law. Living wills aim to end bailouts of too-big-to-fail banks by showing how they would liquidate themselves without imperiling the financial system.
"Recovery plans are about protecting the crown jewels," said Paul Cantwell, a managing director at consulting firm Alvarez & Marsal. "It's about, 'How do I sell off non-core assets?' The priority is to the shareholders. A resolution plan is about protecting the system, taxpayers and creditors."
The recovery plans are being used as part of regulators' ongoing supervisory process. In Britain, recovery and resolution plans have both been part of the living will requirements for large banks.
Mike Brosnan, senior deputy comptroller for large banks at the OCC, said the regulator continuously evaluates contingency planning at the banks and savings associations it supervises.
"Recovery plans required of the largest banks are helpful in ensuring banks and regulators are prepared to manage periods of severe financial distress or instability affecting the banking sector," he said.
This summer, nine global banks submitted living wills to the Fed and Federal Deposit Insurance Corp, and regulators released the public portion of the documents.
The recovery plans requested in 2010, meanwhile, have received little publicity. The names of the banks required to submit them have not been previously disclosed, and Reuters obtained them only through a Freedom of Information Act request.
The Fed supplied Reuters with the letters requesting plans from banks, but not the banks' actual plans because they were deemed confidential supervisory information. The regulator said it was withholding 5,100 pages of information.
MOVING FURTHER FROM DISASTER
Five years after the financial crisis, concerns remain about whether blow-ups at big banks could lead to another round of taxpayer bailouts. Trading losses have cost JPMorgan nearly $6 billion so far, and scandals such as the alleged rigging of an international interest rate benchmark have only highlighted the risks lurking inside big banks.
These disasters have damaged banks' reputations, but not their balance sheets. Most are still profitable, and in recent years the five banks have improved their capital bases and liquidity. They also have been subjected to annual Federal Reserve stress tests that measure whether the banks have sufficient capital to weather severe economic scenarios.
Bank of America and Citigroup, in a sense, have already been executing the kind of moves called for in the recovery plans. Both have been selling off non-core operations and assets to streamline their sprawling businesses, after receiving multiple bailouts during the financial crisis.
Bank of America in June 2011 told Fed officials that it could shed branches in some parts of the country if it needed to raise capital in an emergency, a person familiar with the matter said in January. The proposal was part of a series of options provided to the Fed, including issuing a tracking stock for Bank of America's Merrill Lynch operations.
But just because the bank proposed selling branches does not mean it's a desirable move or highly probable, the person said. In the past year, Bank of America has shown progress in building capital without such actions. Its Tier 1 common capital ratio increased to 11.24 percent of risk-weighted assets as of June 30 from 8.23 percent a year earlier.
Tier 1 refers to a bank's core capital and has been the main focus of regulators in assessing a bank's capital adequacy.
MENTIONED IN PASSING
The banks' chief risk officers, and in the case of Citigroup, Chief Executive Vikram Pandit, received letters in May 2010 instructing them on what to include in the recovery plans. The requests stemmed from January 2010 crisis management meetings held by regulators. The letters sent to the five banks were nearly identical.
Each plan was to address severe financial stress at the firm, as well as "general financial instability." The plans should be capable of being executed ideally within three months, but no longer than six months, the documents said.
The plans should "make appropriate assumptions as to the valuations of assets and off-balance sheet positions," the documents said.
Recovery plans have been mentioned in public before, but only in passing. In testimony to Congress in July 2010, Fed Governor Daniel Tarullo said the "largest internationally active U.S. banking organizations" were working on recovery plans. The initiative stemmed from work led by the Financial Stability Board, a body that coordinates the work of international financial regulators, he said.
surprise can you believe that!!
The U.S. Justice Department said Thursday it won’t prosecute Wall Street firm Goldman Sachs or its employees in a financial fraud probe.
In a written statement, the department said it conducted an exhaustive investigation of allegations brought to light by a Senate panel investigating the 2008-2009 financial crisis.
“The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time,” the department said.
But the department added that if additional or new evidence were to emerge, it could reach a different conclusion about prosecuting Goldman if warranted.
A Senate subcommittee chaired by Sen. Carl Levin, in April, 2011, found that Goldman marketed four sets of complex mortgage securities to banks and other investors but that the firm failed to tell clients that the securities were very risky. The Senate panel said Goldman secretly bet against the investors’ positions and deceived the investors about its own positions to shift risk from its balance sheet to theirs.
The Justice Department’s decision capped a good day for Goldman as the Securities and Exchange Commission decided not to file charges against the firm over a $1.3-billion (U.S.) subprime mortgage portfolio. At the same time, the Justice Department’s decision ensured that the Obama administration will continue to feel political heat, particularly from the liberal wing of the president’s own party, for not having brought more prosecutions in the financial crisis.
The Senate panel probe turned up company e-mails showing Goldman employees deriding complex mortgage securities sold to banks and other investors as “junk” and “crap.”
Mr. Levin said during his subcommittee’s investigation that he believed that Goldman executives “misled the Congress” and that Goldman “gained at the expense of their clients and they used abusive practices to do it.”
Mr. Levin questioned the accuracy of testimony Goldman Sachs executives gave to Congress about whether the firm steered investors toward mortgage securities it knew likely would fail.
Goldman CEO Lloyd Blankfein told the Senate panel that the company didn’t bet against its clients and couldn’t survive without their trust. The company lost $1.2-billion in the mortgage meltdown in 2007 and 2008 that touched off the financial crisis and the worst recession since the 1930s, Mr. Blankfein testified. He also insisted that Goldman wasn’t making an aggressive negative bet – or short sale – on the mortgage market’s slide.
The Globe and Mail
The IDF plans to build underground supply depots that will be protected in the event of a major missile bombardment on military bases throughout the country.
Led by OC IDF Technology and Logistics Directorate Maj.-Gen. Kobi Barak, the program – which the General Staff has budgeted – will lead to the construction of three integrated, centralized and advanced supply depots in northern, southern and central Israel.
Under the current format, the IDF maintains a fuel depot, a separate food supply center, a base for spare parts and additional bases that supply ammunition.
“These new bases will have all of the supplies under a single roof,” a senior officer from the Technology and Logistics Directorate said. “It will make the process of supplying units more effective and will be done with advanced technology and automated systems.”
Since the bases will become prime targets for Syria, Hezbollah, Iran and Hamas, the IDF is planning to fortify them with significant defenses and to eventually protect them with Iron Dome counter- rocket batteries. Part of the supply depots will be buried underground to prevent it from being damaged in any future missile onslaught.
In addition to supplying units, the Technology and Logistics Directorate is also responsible for opening supply lines to units operating behind enemy lines and ensuring the flow of supplies – fuel, food, ammunition and spare parts – for the duration of what could be an extended conflict.
Last year, The Jerusalem Post revealed that the IDF was dispersing spare parts and ammunition throughout central and southern Israel to protect them against missile fire in a future war, expected to primarily affect the ability to receive supplies in the North.
In addition, the IDF has also dispersed kits in undisclosed locations throughout the Golan Heights and the Galilee so that they will be close to the northern front in the event of a war and at the same time provide protection from potential missile fire, expected to be directed at IDF bases.
The IDF is now also planning to lease civilian warehouses where it can store nonsensitive equipment – such as dry foods and uniforms – and protect them from future missile attacks.
“The enemy knows where IDF bases are located but will not know which civilian warehouses we are storing supplies in,” the officer explained.
Under the Ground Forces Command’s operational doctrine, infantry, armored and artillery units are expected to take with them enough supplies to support operations inside enemy territory for a limited number of days. Afterward, they are expected to open supply lines, which will be used to resupply them throughout a war.
New York Mayor Michael Bloomberg unveiled Wednesday a new surveillance system, developed in partnership with Microsoft, that incorporates information from license plate readers, street cameras, and other sensors distributed around the city.
The new Domain Awareness System will pull in data from some 3,000 closed-circuit television cameras in lower and midtown Manhattan, 2,600 radiation detectors distributed to New York Police Department (NYPD) officers on patrol, and 100 license plate readers on bridges, tunnels, streets, and city police cars.
The system, which will support crime prevention and counterterrorism, will relay information "so it can be analyzed and acted upon" by the NYPD, Bloomberg said. The technology has a role "in fighting everyday crime," he said.
According to a joint statement by city officials and Microsoft, the system was developed "by police officers for police officers." Its capabilities include real-time alerts and the ability to display data on maps of the city. Cameras can be programmed to sound an alarm if they spot suspicious activity, such as an unattended package or vehicle parked in front of a building.
New York police commissioner Ray Kelly said the system "allows us to connect the dots" by providing access to crime records, 911 calls, license-plate registration, video, and other data sources.
[ Learn about proposed legislation to bring privacy laws up to speed with law enforcement requests in the age of mobile and cloud. Cloud Privacy Update Tackled By Lawmakers. ]
Microsoft worked with the NYPD's Intelligence Division and Counter-Terrorism Bureau over several years to develop the Domain Awareness System. Depending on how it performs, the system may be offered to other municipalities.
In a unique business relationship, Microsoft will pay New York 30% of revenue on sales of the system to other cities. That could potentially let New York recoup its expenses and "maybe even make a few bucks," Bloomberg said.
NOTED international contrarian Marc Faber has turned his gaze of doom on Australia, warning of tough times ahead for the nation as China slows faster than expected and the domestic "housing bubble" bursts.
In an exclusive interview with The Australian, Dr Faber -- the editor and publisher of the The Gloom, Boom & Doom Report -- warned that a downturn in commodity prices as China slowed would have damaging consequences for the mining industry and economy of Australia.
The proposed mining developments in Australia that were not postponed could struggle to be profitable as metals prices eased, Dr Faber warned.
"The problem with Australia is not only exports to China and the weakening prices for industrial commodities, it is also a lot of household debt and a housing market that is essentially very expensive," Dr Faber said.
Weakness creeping into the resources industry could affect demand for property, deflating real estate prices.
"Frequently a bubble pops without a catalyst, it just pops because the demand weakens, and the demand weakens when assets are overpriced because of affordability reasons," he said. "I think in some regions of Australia there is plenty of supply and diminished demand. I think that this alone will lead to lower (housing) prices."
The resilience shown to date by the economy during the past few years of global economic turmoil also meant Australia was further from the end of the crisis than countries already swept up in the situation. "If you have a global economy that is weakening and you have an island of strength like Australia, I would be very cautious about that island of strength," Dr Faber said.
"The Australians, like the Canadian economy, are doing relatively well but eventually they will also be affected."
He also said Australian stocks were suffering in the eyes of international investors because of the ongoing strength of the Australian dollar, a situation that could raise the "dangerous" temptation to deliberately deflate the currency by printing money.
He also weighed into the debate over the role of China's state-owned companies in acquiring assets in Australia, saying the nationality of the companies owning assets "really doesn't matter".
"Looking at it from an outside point of view, I don't think it matters whether an asset in Australia is owned by a Chinese company or by an American or European company, because these companies still have to operate under Australian laws and Australia is still the sovereign country," he said.
"I am not sure as an economist who is more evil -- large American multinationals or the Chinese state-owned companies.
"That we would have to analyse very carefully, particularly the history of the involvement of some of the multinationals in the politics of developing nations, and in politics in the US with all the lobbyists."
Dr Faber, a Swiss-born investor who currently lives in the northern Thailand city of Chiang Mai, jumped to fame when he advised his clients to exit the stockmarket ahead of the 1987 crash.
In addition to his publishing duties, he serves as a fund manager to private clients and was formerly a director of Ivanhoe Mines, a copper-gold developer in Mongolia.
While China's official growth figures suggest the growth of the country's economy is slowing within a targeted range, Dr Faber said other sets of data suggested China's economy was slowing much more dramatically than the official numbers suggested.
For example, he said, electricity production growth was currently up about 1.2 per cent compared with last year, when it had increased by 13 per cent from 2010.
Israel must prepare for the possibility of a conflict on multiple fronts, IDF Chief of General Staff Lt. Gen. Benny Gantz said Thursday evening.
Gantz referenced Sunday’s attack on southern Israel from the Sinai Peninsula as an additional concern to the already alarming Syrian civil war and Iranian nuclear threat.
The chief of staff, who was speaking at an event celebrating reserve soldiers, also hinted at possible cuts in the defense budget that would potentially limit funds for reservists’ training and war fighting equipment, vowing to oppose such steps.
He also alluded to the public debate over conscripting ultra-Orthodox and Israeli Arab citizens for military service, saying that it was the duty “of all us, all of the IDF and all of society,” to recognize the sacrifices of “the minority that carries the burden out of a deep sense of service to the state.”
Times of Israel
Details about a secretive government program to bail out money-market mutual funds are finally coming to light. (Top mutual funds: Latest data at a glance)
Acting without any explicit Congressional authority, the U.S. Treasury guaranteed in excess of $2.4 trillion of money market funds after the giant Reserve Primary Fund "broke the buck" following the bankruptcy of Lehman Brothers. The program, which ended on Sept. 18, 2009, seems to have successfully prevented a panicked run by money-market fund investors.
But until now, the Treasury has kept the identities of the funds that received government backing and the amounts guaranteed secret. It was not clear how many funds obtained backing or for how much taxpayers were on the hook during the program's duration. (Read about more questionable programs:'Stable Funding’ Might Make Banks Unstable)
Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette, recently obtained data about the program from the Treasury, through a Freedom of Information Act request.
The data from the Treasury show that taxpayers were backing in excess of $2.4 trillion through the mutual fund program. Hundreds of funds participated in the program, amounting to almost 99 percent of the total money-market mutual fund assets.
Mutual fund companies such as BlackRock, BNY Mellon, T. Rowe Price, Dreyfus and Legg Mason took advantage of federal assistance. Banks that provide money market funds to customers — including JPMorgan Chase , Goldman Sachs ,Morgan Stanley and Wells Fargo — also participated.
Despite the enormous size of the guarantees, the Treasury collected only $1.2 billion in fees from the participating funds. By Wilson’s calculation, most participating funds paid just 0.04 percent, or 4 basis points, for a year’s worth of insurance.
Treasury used $50 billion from an account set aside for exchange rate stabilization to fund the program. Those funds can be spent at the Treasury Secretary’s discretion—even when it takes a pretty creative logical leap to connect the expenditures to exchange rates.
“Clearly, the tie between exchange rates and money-market mutual funds is very weak,” Wilson points out. “Moreover, it is not clear that $50 billion was enough to guarantee over $2 trillion in assets.”
Guaranteeing the money-market funds was not without risk. Although money-market funds have rarely seen their values drop below a dollar, guaranteeing the funds, it could be argued, encouraged moral hazard as investors lost the incentive to police the quality of fund management.