Wednesday, March 26, 2014

U.S. Banks Enjoy 'Too-Big-To-Fail' Advantage: Fed Study

Source: Doug Owen

In an ironic and awkward moment for unabashed Federal Reserve apologists and rivals alike,  Fed academics have come out with a new "landmark" study, which comes to some very obvious conclusions. The Fed has figured out after much thought, that the mega-banks they have continually engendered, have actually become "To Big To Fail."

Face-palms all around.

Reuters reports:

A landmark study by Federal Reserve economists found that large U.S. banks enjoy a "too-big-to-fail" advantage in financial markets, confirming the suspicions of many Wall Street critics more than five years after the financial crisis.
The series of research papers, published on Tuesday by the U.S. central bank's influential New York branch, suggests the biggest and most complex banks benefited even after the financial crisis from lower funding and operating costs compared to smaller firms. The researchers used data through 2009.
The biggest banks also, Fed economists found, can take bigger risks than their smaller peers.
While the study did not pinpoint the reason big banks borrow more cheaply, Wall Street critics say it is because investors believe the U.S. government would again rescue them in a panic, despite new rules adopted in the wake of the 2007-2009 crisis and aimed at avoiding future bailouts.

Millions of Taxpayer Dollars Wasted on Personal Travel

As the Attorney General of these United States, Eric Holder is the top legal advisor for the entire nation. As such, he has been in a position to help punish financial criminals and the mega-banks for the crimes they committed in the run-up to the financial crisis, and the egregious looting thereafter.
Despite his unique role, Eric Holder has spent the past five years taking absolutely zero action on any matter of national significance. In fact, his major claim to fame appears to be that he has solidified the creation of a group of untouchable criminals known as the “Too Big to Jail” class.
So what does Eric Holder do in his spare time, you know, when he isn’t coddling financial oligarchs and running firearms into Mexico? Apparently, according to a recent study from the non-partisan Government Accountability Office, he likes to hop on government planes for personal trips at taxpayer expense. Serfs up suckers!
From The Washington Post:
The agency that tracks federal travel did not report hundreds of personal and other “non mission” trips aboard government planes for senior Justice Department officials including Attorney General Eric Holder and former FBI Director Robert Mueller, according to a watchdog report.
Congress’s nonpartisan Government Accountability Office determined that the 395 flights cost taxpayers $7.8 million. But the General Services Administration, which oversees trips aboard federal jets, did not require documentation because of a GSA reporting exemption that covers intelligence agencies, even in cases of unclassified personal travel.
The findings, released Thursday, came out nearly 19 months after Republican lawmakers began questioning Holder’s use of an FBI jet for travel unrelated to Justice Department work. Sen. Charles Grassley (R-Iowa), the ranking member of the Senate Judiciary Committee, asked the GAO to look into the matter.
For security reasons, attorneys general are required to use non-commercial flights when they fly, and they have access to Defense Department jets. 
However, they must reimburse the government for personal trips.
Oh right, good luck with that. I’m more likely to have dinner with the Easter Bunny tonight.
Full article here.
In the spirit of this article, I suggest watching this classic Eric Holder video clip that I highlighted last year. Enjoy:

 Via Liberty Blitzkreig

ALERT! China can COLLAPSE the U.S. Dollar Right NOW!

China’s Treasury Holdings Make U.S. Woes Its Own
According to the Organization for Economic Cooperation and Development, foreign aid to China totals $2.6 billion a year.
films critical of China can face difficulty not only with regulators
Chinese To Spend Billions On American Real Estate

Mortgage Rates Are Skyrocketing And It Is Only Going To Get Worse! Banks Are Beginning To Realize Once The Fed Is Out, There Is No Secondary Market For Mortgage Backed Securities…

The 30yr/15yr mortgage rates just spiked, almost 5% for the 30yr now. Does anybody have any idea what is going on? Seems weird it would spike suddenly like this. Anybody watch the 10yr/30yr treasury yields?
This is tied to Taper and the fact the Federal Reserve isn’t going to be buying every trash piece of MBS the banks can throw together anymore…
Banks are beginning to realize once the Fed is out, there is no secondary market for Mortgage Backed Securities…
Especially when they are discounted in your risk based capital as a tier II or tier III asset.
Fed’s Plosser – Worried About Risks Of Exit
“I think our balance sheet is very large,” Philadelphia Federal Reserve Bank President Charles Plosser told CNBC on Tuesday. “I am worried about the exit & sort of what the unintended consequences may be.”
Case Shiller Home Price Index Declines For Third Month A Row: Longest Negative Stretch Since March 2012
Another month, another sequential drop in the Case Shiller NSA index – the one the index creators themselves say should be used, not the Seasonally Adjusted data used by most commentators eager to find the best data. At a sequential decline of -0.08% in January, this was the third drop in a row – the longest consecutive period of sequential declines since March 2012  – and post a year over year increase of 13.24%, down from 13.38% in December, and the lowest since September 2013. Clearly, the pricing gains across the country are slowing.
ALBERT EDWARDS: The Next Shock Will Be Enough To Send The Economy Into Recession
Out of Gas: Most Americans Can’t Afford New Cars
“Shipments and the volume of new orders declined,” reported the Richmond Fed. “Manufacturing employment remained flat, while the average workweek edged up and wages rose moderately.”
richmond fed index
Richmond Fed

Legendary Investor Warns Next Stock Market Bust ‘Will Be Unlike Any Other’ – Mr. Jeremy Grantham is one of the largest money managers in the world. As the co-founder and chief investment strategist of GMO (Grantham Mayo van Otterloo), he oversees $100+ billion in assets.
Through his years of quantitative research, Grantham has demonstrated that bubbles in all “commodity, stock and bond markets excluding timber” end with a reversion to the mean. This is a hallmark of the man’s work.
But one of the reasons that Grantham has been so successful is his ability to identify speculative market bubbles and move his clients’ assets out before the “crash”.
Some of the past “bubbles” Grantham has warned his clients about include: The Japanese stock and property bubble of the late 1980′s and the “dot-com” tech bubble of the late 1990′s.
In recent years, he has become one of the most vocal critics of the Federal Reserve within the stratosphere of the investing elites. For example, in an interview with the NY Times last month, Grantham accused new Fed Chairwoman, Janet Yellen, of being “ignorant.” In addition, he has blamed America’s failing economy upon the Fed’s quantitative easing program. Grantham believes that if the Fed would just get out of the way and stop its intervention, the U.S. economy could finally begin moving towards some level of sustainability. It seems that on this point, of the Fed and its inept policies, we find ourselves in wholehearted agreement with Mr. Grantham.
In a recent interview with Fortune magazine, the legendary investor explains in further detail why he believes that the Fed is killing America’s recovery:
“In the economic crisis after World War I, there was no attempt at intervention or bailouts, and the economy came roaring back. In the S&L crisis, we liquidated the bad banks and their bad real estate bets. Property prices fell, capitalist juices started to flow, and the economy came roaring back. This time around, we did not liquidate the guys who made the bad bets.
Grantham adds:
“There’s no proof on the other side, that the economy is any stronger from quantitative easing. There’s some indication that the crash would have been worse and the downturn would have been sharper had the Fed not stepped in, but by now the depths of that recession would have been forgotten, the system would have been healthier, and we would have regained our growth.
And as to America’s fake economic “recovery,” Grantham argues:
“Higher interest rates would have increased the wealth of savers. Instead, they became collateral damage of Bernanke’s policies. The theory is that lower interest rates are supposed to spur capital spending, right? Then why is capital spending so weak at this stage of the cycle. There is no evidence at all that quantitative easing has boosted capital spending. We have always come roaring back from recessions, even after the mismanaged Great Depression. This time we are not. It’s anecdotal evidence, but we have never had such a limited recovery.”
So what does Grantham think about the U.S. stock market?
“We do think the market is going to go higher because the Fed hasn’t ended its game, and it won’t stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market’s mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.”
Again, I agree with Grantham on this point. In my own estimation, it is unlikely that the Fed will stop its excessive intervention until the Dow Jones Industrial Average reaches at least 18,000. That is about 11% higher from here. I think that 11% is the minimum upside from here. But Grantham could certainly be correct in his optimistic belief that U.S. stocks climb another 25% from here.
Regardless, this final boom — before the inevitable bust — will not come all at once. It will be “two steps forward and one step back.” (After all, nothing goes up in a straight line.)
Finally, when asked about how he is managing his client’s money in this current environment, Grantham had this to say:
“We invest our clients’ money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before… It’s going to be very painful for investors.
If you have been following our work here at FTMDaily, you know that this is a near carbon copy of our opinion about what lies ahead for U.S. stocks. We believe that the Fed’s monetary policies have ruined the U.S. economy and have only served to inhibit America’s natural economic resilience.
The days of this current stock rally are numbered. Unfortunately, no crystal ball exists to tell us “when” the collapse will take place.
But rest assured… it’s coming.
Sadly, it seems the only thing we learn from history is that we never learn from history.
Until tomorrow,
Jerry Robinson
ACTION POINT: Read the entire, but brief, interview with Mr. Jeremy Grantham here. In addition, take 10 minutes to watch Fractional Reserve Banking and the Federal Reserve on This brief video will open your eyes to how the Federal Reserve really operates, and why its money creation methods are completely unsustainable.

PMorgan Loses Potential Successor to Dimon as Cavanagh Quits

JPMorgan Chase & Co.’s Mike Cavanagh, who served as a close deputy to Chief Executive Officer Jamie Dimon for more than two decades, will leave to become co-chief operating officer of Carlyle Group LP.
Cavanagh, 48, was seen internally as a potential successor to Dimon, 58, who has told people he wants to remain CEO for another five years, a person with direct knowledge of the matter said, asking not to be identified discussing personnel.
Top bankers and traders have left the biggest Wall Street firms for more lucrative jobs in private equity and at hedge funds, as regulation of lenders has intensified following the financial crisis and lower returns have pushed banks to cut the amount of revenue they set aside for compensation.
“The regulatory landscape definitely makes it less enticing for some of these great managers to stay at the big banks, and the talent drain will continue,” said Glenn Schorr, an analyst at New York-based International Strategy & Investment Group LLC. “It’s a significant loss for JPMorgan and a huge win for Carlyle, no two ways about it.”
Uncertainty about when the CEO job would become available also may have contributed to Cavanagh’s decision, Matt Burnell, a Wells Fargo & Co. analyst, wrote in a note to investors.
Photographer: Andrew Harrer/Bloomberg
Michael Cavanagh, co-chief executive officer of corporate and investment bank with... Read More
Cavanagh held roles including chief financial officer before being named co-head of JPMorgan’s corporate and investment bank with Daniel Pinto, 51, who becomes sole CEO of the unit effective immediately, the New York-based firm said today in a statement. Cavanagh was tapped by Dimon in 2012 to lead an internal review into the so-called London Whale trading loss in the chief investment office.

‘Regrettable Loss’

“This is a regrettable loss for our company as Mike has been a part of the fabric of our organization for the last 14 years,” Dimon said in a memo to employees. “I have personally worked with Mike since 1993, and he has been an exceptional partner with great instincts, integrity and strategic thinking.”
Cavanagh told Dimon about his decision over the telephone on Sunday, according to two people with direct knowledge of the conversation. Pinto is one of the remaining candidates to succeed Dimon, as are Matt Zames, 43, head of mortgage banking; Mary Erdoes, 46, CEO for asset management; Gordon Smith, 55, who runs the consumer bank; Doug Petno, CEO of the commercial bank; and CFO Marianne Lake, the person said.
Pinto will remain in London, the people said.
Photographer: Scott Eells/Bloomberg
The lobby of JPMorgan Chase & Co. offices in New York.

Carlyle Founders

Glenn A. Youngkin, 47, will be co-COO with Cavanagh at Carlyle, the Washington-based buyout firm said in a separate statement. Carlyle’s founders reaped $92.9 million each last year in pay and cash dividends, an increase of 61 percent from 2012, as the firm took advantage of rising equity markets to sell shares in companies.
Cavanagh received stock valued at $9.75 million for his work last year at JPMorgan, according to a January regulatory filing. Pinto received the same total pay as Cavanagh, a person briefed on the awards said at the time. Total compensation figures for top executives, including salary and cash bonuses, will be disclosed in coming weeks in an annual proxy filing.
“I have worked at JPMorgan Chase for almost my entire professional life, and it was not without a lot of soul searching that I decided it was time for me to take my career in a different direction,” Cavanagh said in the statement. “I wouldn’t have left for any company other than the Carlyle Group.”
In a memo he wrote to JPMorgan employees, Cavanagh said there “really isn’t anything more behind it.”

Top Lieutenants

A 2008 Fortune magazine story about JPMorgan’s leadership included photographs of Dimon’s 14 top lieutenants. Today, just three of them remain.
Zames, who wasn’t among those in the photos, climbed JPMorgan’s ranks as other long-time executives left. Frank Bisignano, who had been co-COO with Zames, departed in April 2013 to become CEO of First Data Corp. James E. Staley, 57, who also had been seen as a successor to Dimon, quit in January of last year to join BlueMountain Capital Management LLC, the hedge-fund firm that profited from the London Whale loss.
Dimon ousted Bill Winters, 52, and pushed Steven Black, 61, into a lesser role to install Staley atop the investment-banking unit in 2009.
Chief Investment Officer Ina Drew, 57, left in May 2012, within a week of the initial disclosure of the trading loss. Doug Braunstein, 53, was replaced as CFO by Lake that November, around the same time that Charlie Scharf, 48, the former head of retail banking, left to become CEO of Visa Inc. Heidi Miller, 60, the former head of JPMorgan’s international operations, announced her retirement in 2011.
The London Whale task force led by Cavanagh produced a 129-page report that cited poor risk controls and Dimon’s failure to question information he received from deputies as contributing to the more than $6.2 billion loss.

Russian Economy Is Getting Hit, So Are Foreign Investors

The Russian entanglements surrounding Ukraine, the annexation of the Crimea, the buildup of Russian troupes near the Ukrainian border, the dreaded implications for other former members of the Soviet Union with large ethnic Russian populations – the “Putin Doctrine” is what they’re worried about – have started to trigger reactions in Europe and the US, and these reactions have started to leave their marks.
The first barrage of sanctions in Europe and the US didn’t alter Russian behavior one bit, though it triggered Russia’s counter sanctions. There were warnings by various US government entities from the White House to the SEC, not to invest in Russia. Then the US officially attacked the price of oil with the release of 5 million barrels from the Strategic Petroleum Reserve. Oil, the main source of revenue for the Russian government and the daily bread of Russia’s largest companies, tanked. Certain Russian oligarchs, officials, and banks were hit with their own sanctions [read.... The “Sanction Spiral” Elegantly Spirals Out of Control].
These are among the pinpricks that economically important parts of the world are inflicting on Russia and the Russian economy. They might be brushed off by the Russian leadership. But it already has had one big consequence: the foreign money is pulling out.
And it shows in the financial markets. For the year so far, Russian stocks are down, bonds are down (and interest rates have shot up), and the ruble is down – all of which accelerated since the Crimea debacle erupted. Credit for business investment is getting more expensive, and consumers too will be hit by higher rates, putting a further crimp on the economy that has already been languishing.
These data points are as of Friday. Today, the currency recovered a smidgen to 36.08 rubles to the dollar. It has been stabilized, at a price! To stop the ruble rout a couple of weeks ago, the Central Bank had jacked up interest rates (which will slow down the economy further) and sold dollars. The MICEX Index lost more ground today and closed at 1,299. And this appears to be just the beginning as sanctions spiral higher in ever tighter turns, while many sanctions – as far as they’ve been decided – haven’t even been implemented yet.
These innumerable pinpricks all put together could end up being seriously painful for the Russian economy – and any foreign money invested in it, which would convert the warnings from the White House and the SEC into self-fulfilling prophecies.
But it doesn’t take long for Russian humor to tear into the pronouncements of American lawmakers. Read…. Putin Playing Chess (Hilarious Picture, Russian Point of View)

Reserve and Deep State Is Unavoidable

It’s not the managers who are incompetent, it’s the organization itself that is incompetent.
I received a number of interesting reader responses to my previous entries on the incompetence of the Federal Reserve and the Deep State:
Some readers thought I was underestimating the power of these institutions to pursue essentially unlimited money-printing and related global strategies.
While I understand the apparent power of unlimited money-printing and global Empire, my point (poorly articulated the first time around) was this:
The incompetence of these organizations is not a reflection of the competence or intelligence of their managers–it is the intrinsic consequence of their limited control of complex systems. If the system has reached the point of being ungovernable, even the most brilliant and experienced managers will fail because it’s not the managers who are incompetent, it’s the organization itself that is incompetent.
If we boil down the Fed’s vaunted god-like powers, they can be reduced to three levers: lower interest rates by purchasing interest-bearing assets, creating the money to buy the assets, and making free money (zero interest or near-zero interest) available to the global banking sector via lines of credit.
That’s it. Everything else is window-dressing.
Is it even plausible that any organization can control an immensely complex economy with three levers? The Fed’s three levers exert no control over how much money is borrowed from the Fed or what insanely risky speculations and malinvestments the borrowed money funds.
The Fed can’t even control if the free money stays in the U.S.; by one estimate, fully 60% of the Fed’s free money has left the U.S. for higher-interest carry trades and speculations in the emerging economies.
The levers of power wielded by the centralized Fed and Deep State are too clumsy and limited to control a complex system at any useful level. The Fed, the Federal government and the deep State are all the wrong unit size.
This excerpt from Preparing for the Twenty-First Century by Paul Kennedy (1993) explains why:
The key autonomous actor in political and international affairs for the past few centuries (the nation-state) appears not just to be losing its control and integrity, but to be the wrong sort of unit to handle the newer circumstances. For some problems, it is too large to operate effectively; for others, it is too small. In consequence there are pressures for the “relocation of authority” both upward and downward, creating structures that might respond better to today’s and tomorrow’s forces of change.
All these centralized concentrations of power have moved into the diminishing returns phase of the S-Curve. As the unintended consequences of their efforts to manage complex systems with their clumsy, limited tools pile up, their profound failure of imagination kicks in and they do more of what has already failed.
The structural incompetence of centralized, wrong-unit-size agencies and central banks is global: the centralized strategies of China, Japan, the European Union and yes, Russia, too, will all fail for the same reasons: organizations with a few limited controls are intrinsically incapable of managing complex systems.
Do you know what amazes me more than anything else? The impotence of force to organize anything.” (Napoleon Bonaparte)

Goldman Sachs’ Outrageous Scheme to Profit Off Jailed Young Offenders

In 2012, Mayor Michael Bloomberg announced that New York City would be the site of a new experiment very dear to his billionaire’s heart. He declared that Wall Street megabank Goldman Sachs would provide a loan of nearly $10 million to pay for a program intended to reduce the rate at which adolescent men incarcerated at Rikers Island reoffend after their release (currently almost half reoffended within a year). The city government was short of money, so Goldman Sachs would step in to do what anemic public investment could not accomplish on its own: keep young men out of jail.
If the program succeeded, the giant bank would profit. The more recidivism dropped, the more taxpayers would have to pay Goldman Sachs. On the other hand, if recidivism didn’t drop significantly, Goldman would lose its investment.
In 2012, Mayor Michael Bloomberg announced that New York City would be the site of a new experiment very dear to his billionaire’s heart. He declared that Wall Street megabank Goldman Sachs would provide a loan of nearly $10 million to pay for a program intended to reduce the rate at which adolescent men incarcerated at Rikers Island reoffend after their release (currently almost half reoffended within a year). The city government was short of money, so Goldman Sachs would step in to do what anemic public investment could not accomplish on its own: keep young men out of jail.
If the program succeeded, the giant bank would profit. The more recidivism dropped, the more taxpayers would have to pay Goldman Sachs. On the other hand, if recidivism didn’t drop significantly, Goldman would lose its investment.
3. But social impact bonds deal with things we want to change. What’s the problem?
Mark Rosenman, professor emeritus at the Union Institute & University, has argued that while the programs themselves may be helpful in some cases, the problem is that companies like Goldman Sachs are profiting from them at the expense of taxpayers. He cites the example of Head Start, which 57,000 children have lost as a result of tax cuts and the sequester.
Meanwhile, Goldman Sachs has leapt into the breach, launching a social impact investment to provide private money as an alternative to public investments in early childhood education. As Rosenman explains, Head Start saves the government at least $7 for every dollar spent, but if Goldman Sachs has its way, we will be paying them and their clients part of that savings for having replaced taxpayer funding for such programs. “Let’s call it what it is,” writes Rosenman, “private profit crowding out a public good.”
Read more

No Law Requires You to Pay Income Tax, Period.

Annihilation of U.S. Dollar Coming - Jim Sinclair

Spanish 'Anti-Austerity' Protesters "Sick Of This System They Call Democracy"

"I'm here to fight for my children's future," exclaims one father as Spaniards rallied in Madrid against poverty and EU-imposed austerity. As Reuters reports, the largely peaceful protest later marred by violent clashes in which police fired rubber bullets. The so-called "Dignity Marches" brought hundreds of thousands to the capital with banners making it clear what their feelings about record 26% unemployment were - "Bread, jobs and housing for everyone" and "Corruption and robbery, Spain's trademark." One protester summed up the people's views of the government, "I'm sick of this system they call democracy... I want things to change."

Via Reuters,
The so-called "Dignity Marches" brought hundreds of thousands to the capital, according to estimates of Reuters witnesses. Travelling from all over Spain, they were protesting in support of more than 160 different causes, including jobs, housing, health, education and an end to poverty.

...Spaniards rallied in Madrid on Saturday against poverty and EU-imposed austerity in a largely peaceful protest later marred by violent clashes in which police fired rubber bullets.

Some protesters started to throw stones and bottles at the large numbers of riot police present and attacked cashpoints and hoardings. The police fired rubber bullets to disperse them, according to video footage seen by Reuters.

Central government representative Cristina Cifuentes said 19 protesters had been arrested and 50 police officers had been injured, one of them very badly, in the clashes.
Once again the issue is government corruption combined with austerity (or at least slowing growth in spending to be perfectly clear) - a combination that we have discussed numerous times tends to end in social unrest...
A housing bubble burst more than five years ago, forcing a 41-billion euro ($56 billion) bailout of Spain's banks, squeezing homeowners and throwing millions out of work.

The government introduced public sector austerity to whittle down the deficit, provoking widespread anger amongst middle- and low-income families as dozens of cases of corruption in the ruling class are investigated by judges.
The people's feelings were clear as the OECD says the economic crisis has hit Spain's poor harder than in any other country in the euro region.
Banners urged the conservative government not to pay its international debts and to tackle Spain's chronically high unemployment of 26 percent.

"Bread, jobs and housing for everyone", read one banner, "Corruption and robbery, Spain's trademark," said another.

"I'm here to fight for my children's future," said Michael Nadeau, a 44-year-old entrepreneur.

"For those who are in power we're just numbers. They value money more than they value people," he said, shouting to be heard above the din of chanting, whistling and drumming.

"(I'm here because) I'm sick of this system they call democracy," said Jose Luis Arteaga, a 58-year-old teacher whose wage has been cut 20 percent. "I want things to change."
It seems that almost record low bond yields and high stock market levels did not appease the people of Spain either...Time for that IMG income inequality equalizing wealth redsitriburion it would seem...

EU Completes "Single Resolution Mechanism" for Suicidal Bail-out and Bail-in of Bankrupt Banking System

The EU reached a "final solution" to the Euro banking system bankruptcy yesterday after an all-night session. German Finance Minister Wolfgang Schaeuble was drawn into the talks around 5:30 a.m. to sign off on the deal. The Single Resolution Mechanism (SRM) will need formal approval by the European Parliament and by national governments, which they intend to accomplish by the end of the EP plenary session in Strasbourg in made-April, the last session before the European elections in May.
The Irish Times reports that the big breakthrough came when they agreed that bail-in will be applied equally — suicide in one nation will be the same as in any other nation. The SRM will have a Euro 55 billion bail-out fund, supposedly to be contributed by the banks over 8 years, but backed by governments in the meantime, to be used together with bail-in to carry out the EU's intention of shutting down a significant number of the 120 largest banks, bail out and/or bail-in the bad debt, and absorb these failed banks into the Too Big To Fail banks. This assumes that the coming bank crisis will be relatively small and one-by-one, rather than the reality of the pending systemic collapse.
The fund will be consolidated from national funds to a joint fund over the eight years. According to Dutch MEP Corienn Wortmann-Kool, this will create a resolution process that would treat banks equally, regardless of the size of the country they were based in. "We want bail-in of creditors and investors to be applied in the same way to all banks irrespective of the member states these banks are located in," she said, using the example of Ireland as compared to larger states such as Germany and France.
The Irish Times reports proudly: "While the plan agreed in December would have meant that a French or German bank, for example, with a large fund behind them would have been able to implement a moderate bail-in, an Irish bank with a smaller national fund would be forced into a deeper bail-in, leading to higher funding costs, she said."
Sovereignty is further intentionally undermined: "The agreement also envisages that the European commission will approve decisions made by the SRM board on resolving banks, rather than member states, though finance ministers will still have the right to intervene in certain cases. MEPs had been trying to limit the power of member states to interfere in the decision-making process, amid fears of political interference."
The fund will also have a borrowing capacity, in case anyone was worried that Euro 55 billion can not cover the $1.4 quadrillion bubble.
The process was described as "democracy at work" by Wortmann-Kool.

A Chinese Shadow Bank Bailout May Mean A Crash In U.S. Treasury Bonds

This article is adapted from a post which originally appeared at my Strategic Planning Group. Go to the preview page to see what it’s about.

China’s economy in 2014 is remarkably similar to America’s in 2008: Both were fueled by real estate speculation, both speculative bubbles a product of cheap-and-cheerful shadow-bank financing.

And just like the U.S. in 2008, China in 2014 is looking down the barrel of a Minsky Moment: The point at which servicing debt levels becomes unsustainable, and there are no reserve cushions large enough to absorb the losses.

Lots of people are pointing this out; Mish Shedlock had a piece about it this morning, and he and others are right to worry that a shadow banking collapse will be bad for China.

But it will be even worse for the U.S.: Because after all—unlike the United States in 2008—China in 2014 has the reserves to buy its way out of the hole it’s in.

In 2008, the U.S. shadow banking sector began its collapse when real-estate backed bonds turned out to be a lot dodgier than originally thought. This set off a systemic domino effect. We all know how the Global Financial Crisis of 2008 (GFC) played out.

Now, what did the U.S. Treasury and Federal Reserve do when the GFC hit? In other words, what did the American government do in the face of a collapsing financial sector?

Why simple: It threw money at the problem. But it was money that the U.S. government and Federal Reserve didn’t actually have . . .

The Treasury launched the Troubled Asset Relief Program (TARP), the $700 billion bailout of American banks.

The Federal Reserve launched QE (Quantitative Easing (QE), and its various subsequent iterations, eventually “expanding its balance sheet” (i.e., printing money) by some $3 trillion and counting; and implemented the Zero Interest-Rate Program (ZIRP), which meant that if you factor in inflation, the Fed has been paying banks to borrow money since 2008—and will continue to do so through at least 2015, as they have already announced.

So in other words, the U.S. Federal government went into massive debt to save the banking sector (TARP); and the American central bank essentially debased the currency (QE, QE II and III, as well as ZIRP).

All of this was to clean up the mess left by the U.S. shadow banking sector, and protect the wider economy from the knock-on effect.

TARP and especially the Fed’s machinations were considered “heroic measures” when they were implemented. Why “heroic”? Why so very novel and unorthodox (or so very orthodox if you’re from Zimbabwe or Argentina)?

Simple: Because neither the Treasury nor the Fed had ready cash to pay off the clean-up.

But China doesn’t have that problem. China has been a net creditor to the world. The Chinese government and the Chinese central bank have plenty of money on tap, in case needed.

Right now, China is sitting on some $1.3 trillion in U.S. Treasury bonds, not to mention a host of other liquid assets. China’s government and central bank have the ready cash to pay off the collapse of their shadow banking sector.

I’m not arguing that Chinese authorities were any wiser than their American counterparts, in allowing the explosive growth of the shadow banking sector and a surefeit of debt. What I am arguing is, unlike the U.S. in 2008, China has the tools to get out of this hole relatively easily.

But what effect will this have on U.S. Treasury bonds?

Well, it will depend on how the Chinese authorities decide to clean up their shadow banking mess.

(BTW, unlike in America, the Chinese will probably be ruthless with their shadow bankers—executions are definitely in the offing. Witness what happened a few years ago with the melanin-in-powdered-milk scandal: The responsible people were tried on a Monday, found guilty on Tuesday, and put in front of a firing squad I do believe that very afternoon. (Don’t you just wish American lawmakers had done the same to Dimon, Blankfein, et al.?) The Chinese, they don’t mess around.)

China’s shadow banking sector has exposure to both internal creditors and external (foreign) creditors. In the case of the former, if push comes to shove, the People’s Bank of China (PBC) can simply nationalize the shadow banking entity which has gone broke, then print enough renminbi to settle any counterparty claims, without this renminbi-printing noticeably affecting its exchange rate or the PBC’s balance sheet. The PBC certainly won’t hesitate to nationalize and unwind a teetering bank (as the U.S. should have done—but didn’t—in the case of Citibank), especially if such nationalization will restore internal confidence.

In the case of Chinese shadow banking entities with foreign exposure, the PBC can sell Treasuries to get dollars to pay off those foreign claims—and here we come to the nub of the issue.

If a major holder of Treasuries—such as China—all of a sudden decides to unload a big chunk of said holdings in order to get dollars so as to pay off a broken financial sector, what effect will that have on Treasury bond prices?

See why China’s current shadow banking problems matter in America? If China’s shadow banking sector is visited by a version of 2008’s GFC, Treasuries will take a hit, as the PBC sells them in order to get the hard currency to pay off foreign creditors.

An obvious objection to this is, Why would the Chinese honor foreign obligations of its shadow banking sector, especially if that entity is broke? After all, it allowed bond holders of Chaori Solar—the first Chinese shadow banking bonds to ever default—to eat the losses.

The obvious answer is, in the face of a single bond or entity’s failure, the Chinese government and central bank will proclaim caveat emptor—but in the face of a systemic collapse (such as what almost happened in the U.S. in 2008), the Chinese will shore up their shadow banking sector, no different from what the U.S. did, and for exactly the same reasons: A system-wide collapse would have devastating social and political consequences that would be far more costly than simply bailing out the shadow banks.

If and when the Chinese shadow banking sector collapses, the exact same potential outcome—generalized economic collapse—will be more than enough incentive for Chinese authorities to nationalize the sector and make their creditors whole.

(And this points to a corollary: It might be a shrewd investment to pick up some extra-cheap Chinese shadow-banking products once the sector looks on the verge of system-wide collapse. The warning, though, is that the buyer has to know when the Chinese shadow banking sector looks to be on the verge of systemic collapse—and pick products from entities that the Chinese government will not allow to fail, or at least not allow to default.)

How will the American Treasury and the Federal Reserve react to a Chinese sell-off of Treasury bonds to pay for a shadow banking bailout?

My thinking? Federal Reserve Chairwoman Janet Yellen will print and buy—in other words, more QE, which as I’ve said more than once is nothing but gasoline thrown on the unlit bonfire that is dollar hyperinflation.
I have two books out, which I hope you will enjoy: Hyperinflation In America is a look at how hyperinflation could take off, how to prepare for it, and how to invest so as to take advantage of it. The other is A Secret History of The American Crash, which explores the social and sociological effects of a prolonged, catastrophic failure of the American economy.

Click on the links to check out free samplers of both books. Thank you, and enjoy! GL

Tracking down MH370 black boxes a Herculean challenge

Recovering the black boxes from the Malaysia Airlines jet that crashed into the southern Indian Ocean is a Herculean task, even with the wealth of sophisticated equipment being deployed.
Any hope of finding survivors from the missing plane was extinguished on Monday when Malaysia's prime minister announced satellite data showed MH370's journey had "ended in the southern Indian Ocean" off the west coast of Australia.
Seventeen days after the Boeing 777 disappeared, distraught relatives were forced to accept what they had long feared -- that the 239 passengers and crew on board were never coming home.
The plane's two black boxes are key to solving the mystery of why the plane veered so far off course and its final fate, but experts say that the search for them will be long and difficult.
In theory, the black boxes containing flight data and cockpit voice recordings will continue emitting tracking signals for about another two weeks, with an average audible range of two to three kilometres (nearly two miles).
But with no debris in the remote search area confirmed as linked to the plane, it is still a case of looking for a needle in a haystack.
"Picking up a signal from the beacon seems an outside chance," said a member of the team that hunted the black boxes from Air France flight AF447 that crashed in the Atlantic in 2009.
- Vast search zone -
The investigator, who asked to remain anonymous, noted that in the Air France case the signals were not heard at all. One transmitter had failed and the other had fallen off on impact and was never found, he said.
"So I'm fairly pessimistic about this approach," he said, recommending that the immediate priority should be to catalogue every piece of debris that is discovered.
"Then, ideally, data buoys should be deployed," he said. These instruments, commonly used for meteorological data, are tracked by satellite and give an idea of ocean currents in the area to help confirm mathematical models.
But he warned that the 17 days that have elapsed since the crash and the "uncertainty associated with these models will combine to make the search zone quite vast".
Commercial airliners are obliged to carry two black boxes -- the Digital Flight Data Recorder which logs the speed, altitude and direction, while the Cockpit Voice Recorder keeps track of cockpit conversations and other sounds and announcements.
Even before the official announcement that the plane had crashed, the US navy said it was flying a black box locator to Perth. The Pinger Locator, weighing 35 kilogrammes (80 pounds), is attached to a cable and towed by a ship.
It is equipped with a listening device that can detect the signals of a black box at a depth of up to 6,000 metres (20,000 feet).
- Scouring the sea floor -
If a signal is not picked up, the next stage would be to deploy lateral scanning sonars after determining the variations of the sea floor to pick up any anomalies.
All the experts who spoke to AFP believed the search operation could last a very long time -- months or more.
In the Air France crash it took 23 months to locate the main wreckage and retrieve the black boxes at a depth of 3,900 metres.
"An underwater phase to try to locate the plane from flight MH370 can only be started if the activity under way allows us to define a search zone more limited than the current search zone," France's air accident investigation bureau (BEA) said Monday.
Once such a zone is set, if it is over a flat and sedimentary seabed, investigators can use "towed sonars and get a good coverage".
If, however, the zone is over a broken, irregular seabed, they could call in the Remus submarine drones used for the Air France search plane.
Remote operating vehicles (ROVs) could also be used in a later stage to check topographical anomalies with high-definition cameras.
"These remote-controlled robots, which have a cable linking them to the surface, move forward slowly and thus have a more reliable coverage," said the investigator, who was formerly with the BEA.
"But there as well, a very precise position is needed to use them at depth."
And even if the black boxes are found, there are no guarantees they will be in a state to give up their data.
The Malaysian authorities have said a deliberate act made MH370 disappear from civilian air control radars -- and the big question is whether the Cockpit Voice Recorder was immobilised.
"You only need to pull the breaker that is by the pilot's seat and it is taken off-line electrically," explained one aviation expert.
MH370's disappearance has prompted a major debate over inflight communications, including the benefits of live streaming black box data.

Why and how did MH370 end up in the Indian Ocean?

The Doppler effect helped investigators pinpoint flight MH370 to the southern Indian Ocean but they are still puzzled about the reasons that sent the lost Malaysia Airlines jet the opposite way from its intended destination – Beijing.
Why did the Boeing 777-200ER (9M-MRO) carrying 239 people end up in the Indian Ocean? How did the wide-body passenger jet turn from a routine red-eye flight into an "unprecedented aviation mystery"? And, who did it?
These are the questions uppermost on the minds of investigators and families of the 239 people on board flight MH370 that flew from Kuala Lumpur to Beijing in the early hours of March 8 but ended up lost within an hour of its six-hour flight.
After 17 days and a multinational hunt that began in the South China Sea, in-depth communication satellite data from British investigators and debris spotted by American, Chinese and French satellites finally zeroed in on MH370's last position – the southern part of the Indian Ocean.
The why and how about MH370 ended up in the remote rough seas will only be known once investigators get to fish the black box of the Malaysian jet that is registered as 9M-MRO.
Until then, the race to trace its route after vanishing off Malaysia's east coast city of Kota Baru to the Indian Ocean has become an amazing story by itself.
Reuters reported that British satellite provider Inmarsat used a wave phenomenon discovered in the 19th century to analyse the seven pings its satellite picked up from the Malaysia Airlines jet to determine its final destination.
The new findings led Prime Minister Datuk Seri Najib Razak to conclude last night that the 11-year-old jet crashed thousands of kilometres away in the southern Indian Ocean, killing all 239 people on board.
The pings, automatically transmitted every hour from the aircraft after the rest of its communications systems had stopped, indicated it continued flying for hours after it disappeared from its flight path from Kuala Lumpur to Beijing.
From the time the signals took to reach the satellite and the angle of elevation, Inmarsat was able to provide two arcs, one north and one south that the aircraft could have taken.
Inmarsat's scientists then interrogated the faint pings using a technique based on the Doppler effect, which describes how a wave changes frequency relative to the movement of an observer, in this case the satellite, a spokesman said.
Britain's Air Accidents Investigation Branch was also involved in the analysis.
The Doppler effect is why the sound of a police car siren changes as it approaches and then overtakes an observer.
"We then took the data we had from the aircraft and plotted it against the two tracks, and it came out as following the southern track," Jonathan Sinnatt, head of corporate communications at Inmarsat, was quoted as saying by Reuters.
The company then compared its theoretical flight path with data received from Boeing 777s it knew had flown the same route, he said, and it matched exactly.
The findings were passed to another satellite company to check, he said, before being released to investigators yesterday.
The paucity of data – only faint pings received by a single satellite every hour or so – meant techniques like triangulation using a number of satellites or GPS (Global Positioning System) could not be used to determine the aircraft's flight path.
Keeping track
Stephen Wood, CEO of All Source Analysis, a satellite analytic firm, said it seemed that the investigators had narrowed down the area substantially.
“But it's still a big area that they have to search," he said.
The incident is likely to spur a review of aviation rules, especially related to communications equipment and the ability to turn off a plane's transponder, he added.
But it is too early to say what that would entail because it remains unknown what caused the plane to divert from its original course.
"This type of incident will cause everyone who flies airplanes commercially with passengers to be really pressed for a whole new line of ways to keep track of their precious cargo," said Wood, a former American intelligence officer who headed the analysis unit of DigitalGlobe Inc, a satellite imagery firm, until July 2013.
Inmarsat said for a relatively low cost, its satellites could keep tabs on flights and provide the data exchanged between the air and the ground to help organise routes to save time and fuel.
Its systems, which are widely used in shipping, have been embedded into surveillance and communications technologies that allow air traffic controllers to build up a picture of where aircraft are, and to better manage routes.
"If you have that (...) capability you get a preferred routing at the right altitude that makes your aircraft more fuel efficient, but if you don't have it you have to fly lower and get less priority in air-traffic control," he said.
The system is used in planes in the North Atlantic, Inmarsat's vice-president for aeronautics, David Coiley, told Reuters earlier this month, but it is not commonly used in all parts of the world.
Sinnatt said yesterday that such a facility would cost about US$10 (RM33) per flight.
"It is something we have been pushing the industry to do because it significantly adds to safety," he said. Other satellite providers are also developing tracking systems. – March 25, 2014.

Missing Malaysia plane: The passengers on board MH370

Among the 239 people on board flight MH370, which disappeared on 8 March, was a party of Chinese calligraphers, a couple returning to their young sons after a beach getaway and a construction worker making his first trip home in a year.
There were 14 nationalities represented in the 227 passengers and 12 crew travelling from Kuala Lumpur to Beijing. The majority - 153 people - were Chinese.
Here are some of their stories.
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Seeking a new life in Europe Suspicions of a terror link to the disappearance of the aircraft were rejected by Malaysian authorities once the true identities of the men carrying the stolen passports of Italian Luigi Maraldi and Austrian Christian Kozel became known.
Malaysian police handout photographs of 19-year-old Iranian Pouria Nour Mohammad Mehrdad (L) and an unidentified man (R) who both boarded missing Malaysia Airlines MH370 flight using stolen passports. Police released pictures of Pouria Nour Mohammad Mehrdad, left, and Delavar Seyed Mohammadreza
They were both young Iranian men seeking a new life in Europe far from home.
Pouria Nour Mohammad Mehrdad, 18, was hoping to join his mother in Germany. He chose a long and circuitous route from Iran to Kuala Lumpur, to transit through Beijing and onwards to Amsterdam and then Frankfurt.
"His mother was waiting for him," officials said, confirming she had been in touch with the authorities.
Hundreds of comments have been left on his Facebook page. He had posted a status update of "feeling excited" upon his arrival at Kuala Lumpur from the city of Karaj in Iran two weeks before.
Group shot Pouria Nour Mohammad Mehrdad is second from the left. Delavar Seyed Mohammadreza, on the far right, travelled with him on the missing plane.
Interpol identified the other man as Delavar Seyed Mohammadreza, 29, but less is known about his origins.
A young Iranian in Kuala Lumpur, Mohammad, told the BBC that both men had stayed with him before taking the Malaysia Airlines flight, and that they had hoped to settle in Europe.
"They were nervous," Mohammad told the BBC's Jonathan Head. They checked in separately. But he insists they were not terrorists.
"They were young like me," he said. "Pouria was quiet, nice, he was never naughty. So was his friend. I heard them talking - they wanted to go to Europe to seek asylum."
He said that Pouria's mother had been calling from Hamburg ever since MH370 vanished, asking how her son was during his brief stay in Malaysia.
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Prominent engineer in a new job
Yuchen Li studied at Churchill College. His wife, who was not on the flight, is still studying there. Dr Yuchen Li, left, was on the flight, but his wife was not
Dr Yuchen Li recently finished his doctoral engineering degree from Cambridge University.
The university confirmed that he had recently begun working in a prominent "geotechnical position" in Beijing.
"Yuchen was a hugely talented and likeable person with a brilliant career ahead of him," a spokesman at Cambridge said.
Dr Li had only recently married, but his wife, Mingei Ma, was not on the flight with him, Cambridge News says.
A Facebook page from Churchill College congratulated the couple on their recent marriage in Hubei, China, adding: "We think they look fabulous!"
Dr Li previously studied civil engineering at Tsinghua University in Beijing, reports say.
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A generation of distinguished calligraphers

Manifest for Flight MH370

  • 153 Chinese
  • 38 Malaysians
  • 7 Indonesians
  • 6 Australians
  • 5 Indians
  • 4 French
  • 3 Americans
  • 2 each from New Zealand, Ukraine and Canada
  • One each from Russia, Taiwan, Netherlands
  • Two men - one confirmed as Iranian - travelling under stolen Italian and Austrian passports
Source: Malaysia Airlines
A feted group of 24 Chinese artists and five staff accompanying them were returning home after attending a cultural exhibition in Kuala Lumpur. They came from all over China: Jiangsu, Sichuan and also Xinjiang province.
Among them was the oldest person on board, 79-year-old Lou Baotang, whose calligraphy has been included in dictionaries by many cultural institutions in China, Britain and the US, state media say.
He was on the plane with Zhao Zhao Fang, a 73-year-old calligrapher and retired professor who had collected a litany of titles for her work.
The wife of Memetjan Abra, a Uighur painter on board, told Xinhua news agency that she was able to speak to him briefly before his flight.
"He is a good painter, husband and father," she said.
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Returning home to their sons Muktesh Mukherjee, 42, an Indian-born Canadian employed by US firm XCoal, met his wife, Bai Xiaomo, while on business trip in China in 2002, reports in Canada say.
They lived in Montreal before moving to Beijing.
The couple were heading home to Beijing after a beach getaway in Vietnam. Bai Xiaomo, 37, had posted pictures of their holiday shortly before boarding their flight.
The couple's two young sons were waiting for them at home.
Mr Mukherjee's grandfather, a former Indian government minister, died in a plane crash outside New Delhi in the 1970s.
His family were praying the couple had not suffered the same fate: "Miracles do happen. We pray it will happen this time and Muktesh will come back to us," his uncle, Manoj Mukherjee, in India told AFP news agency.
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On a delayed honeymoon
Arni Marlina, 36, a family member of a passenger onboard the missing Malaysia Airlines flight MH370, shows a family picture on her mobile phone, at a hotel in Putrajaya 9 March 2014. Marlina's stepbrother Muhammad Razahan Zamani (bottom, right), 24, and his wife Norli Akmar Hamid, 33, were on their honeymoon on the missing flight Razahan Zamani, bottom right, and his wife Norli Akmar Hamid, were on their delayed honeymoon
Norli Akmar Hamid, 33, and her husband Razahan Zamani, 24, from Malaysia met while working at a supermarket chain in Kuala Lumpur, local reports say.
They decided to get married in 2012 and were on a long-delayed honeymoon trip to Beijing.
A relative told Malaysian state news agency Bernama that the couple planned the holiday after Ms Norli suffered a miscarriage.
Before the trip, Ms Norli posted a picture on social media of one of her cats sitting on her suitcase.
The Wall Street Journal quoted friends as saying that this was the couple's first time on a plane.
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On the way to new jobs
This undated photo provided by the Wood family shows Philip Wood, an IBM executive who was aboard the Malaysia Airlines flight that went missing over the South China Sea on 8 March 2014 American Philip Wood, an IBM employee, was also on the Malaysia Airlines flight
IBM executive Philip Wood, 50, originally from Texas, was one of three Americans on the plane.
Mr Wood - an avid traveller - had just been transferred to Malaysia and was excited about the new beginning, his younger brother James told the Wall Street Journal.
It was his last planned trip to Beijing before settling in Kuala Lumpur. He has two sons from a previous marriage who are based in Texas, reports say.
"We are all sticking together," his father, Aubrey Wood, told the New York Times. "What can you do? What can you say?"
Another passenger on the way to a new job was mechanical engineer Paul Weeks from New Zealand.
The former soldier moved his family to Perth, Australia, after the devastating earthquakes in Christchurch, reports say.
Before he left home, he took off his wedding ring and watch and gave them to his wife for his two young sons.
Vigil in Kuala Lumpur (10 March 2014) A vigil for the missing passengers has been held in the Malaysian capital, Kuala Lumpur
"If something should happen to me then the wedding ring should go to the first son that gets married and the watch to the second," his wife Danica Weeks was quoted by media as saying.
Malaysian Mohd Sofuan Ibrahim was reportedly heading to Beijing to report for duty at Malaysia's Ministry of International Trade and Industry branch office there.
His father, Ibrahim Abdul Razak, told Malaysia's state news agency Bernama that the 33-year-old had never disappointed him. Mr Sofuan was to have held his post in Beijing for six months, Bernama adds.
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Friends on a journey A veteran martial arts expert and stunt double for actor Jet Li was also on board flight MH370.
According to reports, 35-year-old Ju Kun - who had worked on films such as The Forbidden Kingdom - was in Malaysia choreographing a production.
He was on the plane with Chinese national Ding Lijun, who had moved to Malaysia about a year ago to work on construction sites, and was making his first trip home to Beijing since then, a relative told US media.
Nine of those on the plane were old friends, pensioners who made a journey to Nepal, and were on their way back home.
Australian couple Mary and Rodney Burrows are also among the missing. Their son, Jayden, said his family was "heartbroken this stage of their life has been cut short".
Mary and Rodney Burrows Reports say passengers Mary and Rodney Burrows had been married for 30 years
Reports say they had been travelling with friends and fellow passengers Catherine and Robert Lawton.
Mr Lawton's brother, Robert, said: "Dad phoned this morning and said 'Bobby's plane's missing'. I couldn't believe it. I still can't believe it. We just want to know where it is, where the plane's come down, if there's anything left."
Rodney Burrows had planned his trip to China after being laid off last year, Australian Associated Press reports.
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The youngest At just 23 months old, Wang Moheng was one of the youngest passengers on board flight MH370. He was returning from a week's holiday in Malaysia with his mother Jiao Weiwei, 32, and father, Wang Rui, 35.
Two of his grandparents were also on board the plane.
The families of other children at Moheng's day care centre joined his family in Malaysia, but returned on separate flights, the New York Times reports.
His family reportedly said they were trying to get away "from the bad air in Beijing for a while".
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Lost generations The Wall Street Journal reports that many members of the same families were lost on flight MH370.
Six members of one Chinese family are missing, the paper says, including a four-year-old girl and a two-year-old boy, who were both US citizens.
French national Laurence Wattrelos, 52, was returning from a beach holiday in Malaysia with two of her three children, Hadrien, 17, and Ambre, 14.
Hadrien's girlfriend, Zhao Yan, 18, was also on board.
Reports say the French teenagers had been attending the French school in Beijing and that Laurence was active in the school's parent-teacher association.
According to the Wall Street Journal, Laurence's husband, Ghyslain Wattrelos, flew into Beijing from Paris the same day flight MH370 went missing, and was expecting to be reunited with his family.
He was instead met by two French diplomats, who broke the news of the missing flight.
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The co-workers Also on the plane were 20 staff members from a US technology company, Freescale Semiconductor, which makes powerful microchips for industries, including defence.
Twelve employees were from Malaysia and eight were from China. The company said it was "deeply saddened" by the news, in a statement on its website.
A sign for Freescale Semiconductor is seen in this photo from Austin, Texas on 9 March 2014. The Austin-based company said 20 of its employees were on the flight

Why did somebody doctor photo of men who took Flight MH370? Fears of a cover-up amid claims pictures show passengers with the same set of legs

  • Both men pictured boarded missing Flight 370 with stolen passports
  • Fears pictures were doctored as both of the men have the same legs
  • Trousers, shoes, and shadows all identical, but upper bodies are different
  • Chinese aircraft spots 'suspicious objects' in Indian Ocean
  • More images of debris adrift in the Indian Ocean were released
  • French satellite image taken 850km from current search zone
  • Australia-led operation 'clutching' at any new information
  • Search continues but so far no wreckage has been recovered

Fears of a cover-up over the fate of flight MH370 grew yesterday after claims that a photo of two passengers was tampered with.
Images of two men who boarded the Malaysian Airlines jet with stolen passports appear to show them having the same set of legs.
CCTV footage stills released by officials three days after the Boeing 777-200 vanished from the skies shows the pair with identical green trousers and brown shoes. 
Scroll down for video
A picture of a 19-year old Iranian, identified by Malaysian police as Pouria Nour Mohammad Mehrdad, appears to have been tampered with
Man named as Delavar Seyed Mohammadreza, 28, thought to be an Iranian asylum seeker
Spot the similarity: The legs of these two men, named as 19-year-old Pouria Nour Mohammad Mehrdad (left), and Delavar Seyed Mohammadreza, 29, (right), appear identical, leading to suspicions of tampering

Their feet and shadows are also in the same position, while their faces, T-shirts and bags are different.
The photo last night fuelled conspiracy theories over the fate of the aircraft, which disappeared with 239 passengers and crew more than a fortnight ago.
One Twitter user wrote: ‘They both have the same legs, edited or coincidence? And you guys believe our gov is not hiding anything.’
Malaysian police admitted the image of one man had been placed on top of the other when they were photocopied.
But a spokesman said it was not ‘done with malice or to mislead’.
The men – thought to be Iranian asylum-seekers – have been named as Pouria Nour Mohammad Mehrdad, 19, and 29-year-old Delavar Seyed Mohammadreza.
They travelled to Malaysia on Iranian passports before switching to stolen Austrian and Italian documents.
It comes as a Chinese military aircraft today spotted 'suspicious objects' in the search zone, reporting what appeared to 'white, square' material floating on the surface of the Indian Ocean.
The plane was guided by a satellite image released Saturday by China and reportedly sighted 'floating white objects' in the zone some 2,500 kilometres off the coast of Perth.
Last night France became the latest country to say it has spotted debris that could be part of the missing jet - but it was revealed that sighting was 530 miles (850km) from the primary search zone.
The objects were discovered on satellite images of the southern Indian Ocean, a direction the Boeing 777 may have taken after making a U-turn on its scheduled flight from Kuala Lumpur to Beijing.
A Royal New Zealand Air Force aircraft pictured this solid matter floating in the Indian Ocean, but it is not confirmed if the debris is from the missing plane
A Royal New Zealand Air Force aircraft pictured this solid matter floating in the Indian Ocean, but it is not confirmed if the debris is from the missing plane

Chinese satellites have also picked up images of debris floating in the Indian Ocean, which rescue workers hope could be from the aircraft which vanished more than two weeks ago
Chinese satellites have also picked up images of debris floating in the Indian Ocean, which rescue workers hope could be from the aircraft which vanished more than two weeks ago

It's the third time sightings of possible wreckage have been announced and Malaysia has received the latest news with caution.
The French satellite image was earlier thought to have been much closer to areas of the Indian Ocean where Australia and China provided satellite photographs of objects that could be debris from MH370.
Australian Deputy Prime Minister Warren Truss described the search operation as 'clutching' at information, as flight and sea crews embarked on their fifth day of sweeps.
Images ‘mistakenly’ released by China last week were later withdrawn.
And search planes have so far failed to locate two objects that Australia said it had identified in the Indian Ocean.

Families of those missing have become increasingly frustrated with a lack of information about the jet, and the latest claims of pictures being tampered with are likely to increase tensions
Families of those missing have become increasingly frustrated with a lack of information about the jet, and the latest claims of pictures being tampered with are likely to increase tensions

Day five of the search reveals numerous planned search areas for doomed flight MH370 in the southern search corridor off the coast of Perth. French authorities reported a satellite sighting of objects in the Indian Ocean
Day five of the search reveals numerous planned search areas for doomed flight MH370 in the southern search corridor off the coast of Perth. French authorities reported a satellite sighting of objects in the Indian Ocean

A US air-to-air refuelling tanker has been ordered to boost potential search times of aircraft in the Southern Indian Ocean, and Chinese airplanes will be flying out of Perth airport to maximise search capacity.
Aviation expert Geoffrey Thomas told the MailOnline a US military KC-10 extender tanker - an aerial refuelling aircraft - would be joining the search fleet, in particular to assist the US Navy P8 Poseidon aircraft, which is out on mission today.
'The United States is going to send a KC-10 tanker, which means the Poseidon will be able to stay out there virtually forever, instead of these two hour limits for actual search time,' he said.


 The Australian Maritime Safety Authority (AMSA) announced Monday the search would be made difficult by adverse weather stemming from Tropical Cyclone Gillian, near Christmas Island.
Search teams re-commenced targeted sweeps of the Indian Ocean bolstered by 10 aircraft, including three civil planes, two Ilyushin IL-76 aircraft from China and two P3 Orions from Japan.
'The weather forecast in the search area is expected to deteriorate with rain likely,' AMSA said.
'Today's search is split into two areas within the same proximity covering a cumulative 68,500 square kilometres.
The two Russian made Ilyuchin IL-76 aircraft deployed by the Chinese government flew from Pearce airbase to Perth airport and off to the target area early Monday.
Mr Thomas said the Ilyuchins, which were used by Australian forces in Afghanistan to deliver supplies and ordnance, needed the longer Perth international runway for take-off once they were fully loaded with fuel for maximum flight capacity.
'The IL-76s will use Perth airport as their take-off point for the length of this search,' he said.
The Ilyuchin planes are also designed as airborne refueling craft, and have been used by China as emergency response planes, evacuating Chinese citizens out of Libya in 2011.
Meanwhile a team of Malaysian government officials faced anger during a six-hour briefing session with relatives of the 153 Chinese passengers on the jet.
Earlier today, France provided Malaysia with satellite images of objects adrift in the Indian ocean that it believes could be from the wreckage of the plane, which has been missing for more than two weeks.
It is the latest of such images that officials are hoping will help solve one of the world's great aviation mysteries.
Meanwhile, it was claimed that police have seized the personal financial records of all 12 crew members of the flight MH370 - including bank statements, mortgage documents and credit card bills.
And an image of solid matter floating in the southern Indian Ocean was released, as seen from a Royal New Zealand Air Force P-3K2 Orion aircraft searching for the flight.
Families of the victims, who have been attending meetings on the search's progress, have become increasingly frustrated over the lack of information.
Air and sea searches since Thursday have not produced any results.
There have been no sightings of any wreckage since Flight 370 dropped off air traffic control screens on March 8 over the Gulf of Thailand with 239 people on board.
Planes and a ship are still looking for a pallet and other debris to determine whether the objects were from the missing jet.
The pallet was spotted by a search plane Saturday, but has not been closely examined. Wooden pallets are commonly used in shipping, but can also be used in cargo containers carried on planes.
Mike Barton, chief of the Australian Maritime Safety Authority's rescue coordination centre, told reporters in Canberra that the wooden pallet was spotted by a search aircraft yesterday.
He added that it was surrounded by several other objects, including what appeared to be strapping belts of different colours.
A New Zealand P3 Orion military plane was then sent to find it but failed, he said.