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Larry Summers: "It’s time to kill the $100 bill"

Lawrence H. Summers, the Charles W. Eliot university professor at Harvard, formerUSTreasury Secretary and former director of the National Economic Council, in a column at The Washington Post tiled, It’s time to kill the $100 bill, is calling for the banishment from circulation of the US $100 bill.

He writes:

Harvard's Mossavar Rahmani Center for Business and Government, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation.

The evil statist paints it as somehow a fight to protect ordinary citizens:

 [A] global agreement to stop issuing high denomination notes would also show that the global financial groupings can stand up against “big money” and for the interests of ordinary citizens.

Make no mistake about it, this is about making it difficult for individuals to conduct large size transactions in cash. It is part of the war on cash by governments so that all transaction can be tracked by governments.

-RW

Saudis and Russia agree oil output freeze, Iran still an obstacle

Saudi Arabian Oil Minister Ali al-Naimi talks to journalists before a meeting of OPEC oil ministers at OPEC's headquarters in Vienna in this file picture taken December 4, 2013. REUTERS/Heinz-Peter Bader/Files

 

By Rania El Gamal and Tom Finn

DOHA (Reuters) - Top oil exporters Russia and Saudi Arabia agreed on Tuesday to freeze output levels but said the deal was contingent on other producers joining in - a major sticking point with Iran absent from the talks and determined to raise production.

The Saudi, Russian, Qatari and Venezuelan oil ministers announced the proposal after a previously undisclosed meeting in Doha. It could become the first joint OPEC and non-OPEC deal in 15 years, aimed at tackling a growing oversupply of crude and helping prices recover from their lowest in over a decade.

Saudi Oil Minister Ali al-Naimi said freezing production at January levels - near record highs - was an adequate measure and he hoped other producers would adopt the plan. Venezuelan Oil Minister Eulogio Del Pino said more talks would take place with Iran and Iraq on Wednesday in Tehran.

"The reason we agreed to a potential freeze of production is simple: it is the beginning of a process which we will assess in the next few months and decide if we need other steps to stabilize and improve the market," Naimi told reporters.

"We don't want significant gyrations in prices, we don't want reduction in supply, we want to meet demand, we want a stable oil price. We have to take a step at a time," he said.

Oil prices jumped to $35.55 per barrel after the news about the secret meeting but later pared gains to trade near $33 on concerns that Iran may reject the deal and that even if Tehran agreed it would not help ease the growing global glut. [O/R]

OPEC member Iran, Saudi Arabia's regional arch rival, has pledged to steeply increase output in the coming months as it looks to regain market share lost after years of international sanctions, which were lifted in January following a deal with world powers over its nuclear program.

"Our situation is totally different to those countries that have been producing at high levels for the past few years," a senior source familiar with Iran's thinking told Reuters.

Iranian Oil Minister Bijan Zanganeh also indicated Tehran would not agree to freezing its output at January levels, saying the country would not give up its appropriate share of the global oil market.

SPECIAL TERMS

The fact that output from OPEC kingpin Saudi Arabia and non-OPEC Russia - the world's two top producers and exporters - is near record highs complicates any agreement since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels.

However, two non-Iranian sources close to OPEC discussions told Reuters that Iran may be offered special terms as part of the output freeze deal. "Iran is returning to the market and needs to be given a special chance but it also needs to make some calculations," said one source.

Russian Deputy Prime Minister Arkady Dvorkovich said freezing output was not a problem for his country as he anyway expected its production to be flat this year versus 2015.

An Iraqi oil ministry source said Baghdad was also happy to freeze production if all parties agreed.

"The agreement (if successful) should support oil prices but there are reasons to be cautious. Not all OPEC members have signed up to the deal - notably Iran and Iraq. History would also suggest that compliance may be an issue," said Capital Economics' analyst Jason Tuvey.

OPEC has been quarrelling for decades over output levels and Russia, which last agreed to cooperate with OPEC back in 2001, never followed through on its pledge and raised exports instead.

Also complicating any potential agreement is the geo-political rivalry in the Middle East between Sunni Muslim power Saudi Arabia and Shi'ite Iran. Saudi Arabia and its Gulf allies are fighting proxy conflicts with Russia and Iran in the region, including in Syria and Yemen.

In Syria's five-year-old civil war, Riyadh politically and financially backs some rebel groups battling President Bashar al-Assad's government, which has gained the upper hand with the help of Russian warplanes and Iranian-backed Shi'ite militias.

RUSSIAN BUDGET

The Doha meeting came after more than 18 months of declining oil prices, knocking crude below $30 a barrel for the first time in over a decade from as high as $115 a barrel in mid-2014.

Carrier Received $5.1 Million in Obama-Stimulus Cash Before Move To Mexico

Heating and air-conditioning company Carrier, which has announced it will move 1,400 Americans’ jobs to Mexico, received $5.1 million from the Obama administration.

Local media reported the “Department of Energy awarded Carrier $5.1 million in clean energy tax credits in December 2013” for its Indianapolis facility. They planned to use the money to “expand production at its Indianapolis facility to meet increasing demand for its eco-friendly condensing gas furnace product line.”
From WIBC:

“Energy Efficient Buildings: With the support of $5.1 million in 48C Program tax credits, Carrier Corporation will expand production at its Indianapolis facility to meet increasing demand for its eco-friendly condensing gas furnace product line. The new line includes the most energy efficient gas furnaces on the market – all with at least 95 percent annual fuel utilization efficiency”

At the time, John Gibbons, director of Carrier’s residential product and platform strategy, said the cash “has been instrumental in helping Carrier’s Indianapolis manufacturing facility accelerate production of our high-efficiency gas furnace line.”
Despite the money, the company announced last week they decided to move 1,400 jobs to Mexico. Local union representatives will discuss the move with Carrier. Fox 59 reported that some “employees will be entitled to severance benefits, including access to the company’s Employee Scholar Program, which pays for tuition, books and fees at accredited higher education institutions.”
An employee documented her co-worker’s outrage at the announcement.
 “Today’s surprise announcement was without warning and incredibly disappointing,” said Mayor Joe Hogsett. “While I am obviously concerned about the economic impact, my top priority is the well-being of the hardworking families affected by this decision. A job lost in any part of our community affects us all, and I believe these are the times we must come together as one city to lift up our neighbors.”

Why this is still the Winter of Disconnect, and the latest rally isn’t Spring as we know it, Jim

The oil price is where Texas needs it to be, not where it should be

While the stock and commodity markets were busy correcting five years of ludicrous over-valuation for most of the last six weeks, the 3% were busy telling us that the markets are insane and “none of this is supported by the data”. After another rally got under way for both stocks and oil yesterday – based on flimsy and forlorn hopes respectively – the data clearly didn’t support it….but by Monday evening Goldman Sachs was saying the worst is over, banks are just fine, and things ‘are returning to nomal’. Which probably explains why Miner Anglo-American lost $5.6bn last year, has stock rated as Division IV junk, and is in my estimation no more than four months away from needing a rights issue. And that’s OK too says Goldin Sacks, because ‘the risk for junk has returned now that investors see the fabulous value they represent’.
The futures say the markets will power ahead again today. But apart from one tentative oil-supply ‘deal’ between the Saudis and Russia this morning – and empty bromides from Mario Draghi yesterday – nothing has changed from last week, when the markets were melting down.
‘Qatar oil cuts disappoint’ says Bloomberg as I write. WhatTF else were they going to do? Did the markets expect Putin to fall on his market share for the good of Texas?
It all depends on whether you think yesterday was about ‘the markets’ alone.
The bank valuations have rebounded – why? Oil is back at $35 – why? The banking sector issues are unsolved, and if oil supply is cut, how will that make demand for it go up? While I said last week that there will be rallies long the way, I freely admit to having been surprised by both the size and suddenness of this one yesterday and overnight. On Sunday, I headlined ‘It’s hard to see anything more than more of the same’. Yesterday I wrote, about the latest rally:

‘On this sort of thinking sits the fate of the world economy. And that economy faces a dire future because of the glaring disconnect that continues between the financialised capitalism of monetarist drivel, and the real global slump out there which, without QE being counted as ‘gdp’, would be even more bleedin’ obvious.’

We are still in the Winter of Disconnect, and this is a false Spring. It is a Spring more false than the Arab Spring. So false, in fact, that I’ve been wondering since Monday mid-morning whether person or persons unknown may have been tampering with the weather. But lest this sound like sour grapes, allow me to restore reality with a few thoughts.

1. Just one week ago, the International Energy Agency (IEA) had this to say: ‘Having peaked, at a five-year high of 1.6 mb/d in 2015, global oil demand growth is forecast to ease back considerably in 2016, to 1.2 mb/d, pulled down by notable slowdowns in Europe, China and the US. Early elements of the projected slowdown surfaced in Q415.’ Blaming price on supply alone is a con-trick, nothing more: Between Q315 and the current moving daily averages, global demand has fallen from 95.4 to 94.8 to 94.5 million barrels per day.
2. At first, the claim used was that ‘refined product inventories are not growing’. But it simply is not true. On December 9th, Washington’s Energy Information Administration (EIA) released data showing that ‘distillate inventories’ jumped by five million barrels – double the expected forecast, and the sharpest rise since 1998. That’s diesel road and factory fuels to you and me: a core measure of how business delivery and output are faring. In a word, badly.  Other parts of the EIA report show demand ‘falling an average of 80,000 barrels a day throughout 2015‘.
3. The stocks/oil rebound narrative today makes frequent use of ‘stimulation bets’ as a key driver. QE has failed everywhere, Nirp is proving a disaster thus far in Japan, and Draghi’s speech yesterday promised that he “would act”…but not what that action might be. (See last night’s satirical post about that one). Well, eurozone economic growth slowed to a four-month low in January, and the French economy remained close to static. But Mario is not as yet starring in the role of Yul Brynner from The Magnificent Seven. The earliest action we can expect is over three weeks away…and his “promise” to act was heavily qualified:

“First, we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices.

“Second, in the light of the recent financial turmoil, we will analyze the state of transmission of our monetary impulses by the financial system and in particular by banks.

“If either of these two factors entail downward risks to price stability, we will not hesitate to act.”

In short, more tricks. All mouth, absent trousers. The faux-bull cow-milkers (if you follow) are directionalising for short-term profit. And the oil business needs the price where it is, because an oil business with oil at $25 a barrel can’t survive. Maybe they’re being given an unseen hand from the Fed on that one…it wouldn’t surprise me. Or anyone else for that matter.

But even Texas with a Ten Yellen hat on can’t outgun the world, and the stocks turnaround cannot last. Already this morning, European indexes suggest it’s running out of steam. Sooner rather than later, the ‘deal’ done by Russia and the Saudis in Qatar earlier today will only amplify the growing problem of waning demand.

This is Crash2, Correction3, rally6 signing off. Time to move on to the next stage.

More liars under The Sloglight: the fiery pants of Jeremy Punt

Chinese Exports Plunge 11.2 Percent As Economic Activity Continues To Collapse All Over The Planet

If the global economy is in fine shape, then why does all of the hard data tell us that global trade is absolutely collapsing?  The Baltic Dry Index has fallen below 300 for the first time ever, and export numbers are way down for almost every major exporting nation on the entire planet.  As you will see below, this includes China.  The Chinese account for more global trade than anyone else, and so the fact that their imports and their exports are both collapsing precipitously is a huge red flag.  When less stuff is being bought and sold and shipped around the world, that tells us that the “real economy” is contracting.  Tremendous efforts are being made to try to prop up financial markets all over the globe right now, but in the end those efforts are going to prove to be rather futile.  The global economy is clearly plunging into recession, and at this point it is becoming exceedingly difficult for even the most optimistic economic analysts to deny this reality.
When the trade numbers for China for the month of January were released, they were an extreme disappointment.  The following comes from CNBC…

China‘s exports fell 11.2 percent on-year in January, while imports declined 18.8 percent, clocking far bigger slides than expected by analysts.
Analysts polled by Reuters had expected a 1.9 percent drop in January exports, and a 0.8 percent drop in imports, after China’s exports fell 1.4 percent in December from a year earlier and imports slid 7.6 percent .

We never see numbers like this outside of a recession.
Never.
Chinese imports have now fallen for 15 months in a row, and the second largest economy on the entire planet appears to be in the process of imploding.  As I mentioned above, China has become the most important hub for global trade.  Nobody accounts for more total trade than they do, and so these new numbers can only be described as catastrophic.
Other numbers are telling the same story.  Global trade has fallen so dramatically that it is now cheaper to rent a 1,100 foot merchant vessel that than it is to rent a Ferrari…

Rates for Capesize-class ships plummeted 92 percent since August to $1,563 a day amid slowing growth in China. That’s less than a third of the daily rate of 3,950 pounds ($5,597) to rent a Ferrari F40, the price of which has also fallen slightly in the past few years, according to Nick Hardwick, founder of supercarexperiences.com. The Baltic Exchange’s rates reflect the cost of hiring the vessel but not fuel costs. Ships burn about 35 metric tons a day, implying a cost of about $4,000 at present prices, data compiled by Bloomberg show.

Can you believe that?
This is just another sign of how crazy things have become.
Another indication of the slowdown in China is what is happening to the Hong Kong housing market.  Just check out these numbers…

Two weeks ago, in our latest report on the Hong Kong housing market, we observed that according to the local Centaline Property Agency total Hong Kong property transactions in January were on track to register the worst month since 1991, when it started compiling monthly figures. In other words, the biggest drop in recorded history.
Centaline estimated that only 3,000 transactions will have registered with developers slowing down new launches, while only 394 units were sold in the first 27 days of January, 80.3 per cent lower than the 2,127 deals lodged in December. Meanwhile, sales of used homes fell by a fifth to 1,276 deals in January.

We could talk about many more examples like this all over the world.
Most people like to watch the ups and downs of the financial markets, but it is the hard economic numbers that tell us the real story.
We are in the midst of a stunning global economic downturn, and the global financial system is starting to take notice.  Global stocks have fallen into bear market territory, the price of oil has fallen by three-fourths over the past 18 months, junk bonds have been crashing hard just like they did in 2008, and at one point last week close to 17 trillion dollars of global stock market wealth had been wiped out since mid-2015.
In a desperate attempt to revive economic activity, many global central banks have started to implement negative interest rates.  Unfortunately, these negative interest rates are having some very nasty unintended consequences…

One of the unintended consequences of global central banks’ race to the bottom (which seemingly has no bottom) is that negative interest rates act as a tax on the banking system.
By penalising commercial lenders for parking their reserves at the central bank, it erodes the profit margin they make on charging already low interest rates while raising the cost of capital.
So far, “banks seem unable or unwilling to pass negative deposit rates to their retail customers, leaving them with few options to offset costs”, note analysts at JP Morgan.

The truth is that we have really reached the limit of what monetary policy can do.
Since March 2008, interest rates have been cut 637 times around the world and central banks have purchased 12.3 trillion dollars worth of assets.
Despite all of that unprecedented intervention, we are now plunging into a brand new global crisis.
The central bankers are just making things up as they go along, and they are flailing all over the place as they desperately try to find a way to fix things.  I like how Jim Rogers put it during a recent interview with CNN…

Famed investor Jim Rogers is warning that financial Armageddon is just around the corner, and it’s being fueled by moronic central bankers.
“We’re all going to pay a horrible price for the incompetence of these central bankers,” he said Monday in a TV interview with CNNMoney’s Nina dos Santos. “We got a bunch of academics and bureaucrats who don’t have a clue what they’re doing.”

We have reached the terminal phase of the greatest financial bubble in history, and now the endgame is upon us.
Yes, governments and central banks will keep trying to “fix things”, but it is becoming exceedingly clear that they are rapidly losing control.
And there are other factors, such as the potential start of World War 3 in the Middle East, that could turn this new crisis into a complete and utter nightmare in no time at all.
So let us pray for the best, but let us also get prepared for the worst…

Economists warn about Brexit

An overwhelming majority of economists warn that Britain’s economy would be worse off if voters decide the country should leave the European Union.

According to the economists polled by Reuters all but one of 28 economists in the poll taken this week said the Britain would take a hit if the vote – which could take place by June – meant exiting the EU.
Supporters of Britain leaving the EU say companies would be less bound by red tape, the country would be able to strike its own free trade deals and its existing EU partners would not want to hurt bilateral trade.
Analysts at some of the world’s biggest banks said an exit could shrink Britain’s economy by as much as 2 percent over the next couple of years and could take as much as 10 percentage points off GDP over the next decade.

Read more

Goldman Sachs banker embroiled in massive overseas money scandal

Source: NY Post

Goldman Sachs’ cozy relationship with the Malaysian government is coming back to haunt the firm and one of its regional chairmen.
The fallout from the widening scandal hitting the white-shoe investment bank involves Tim Leissner, the Singapore-based chairman of Goldman’s Southeast Asia operations, who has left that country and relocated to Los Angeles on a leave of absence from the firm.
A state fund — 1Malaysia Development Berhad (1MDB) — was set up with Leissner’s assistance, and Goldman was paid sky-high commissions for bond sales. Then $681 million tied to the fund mysteriously turned up in the bank account of Malaysian Prime Minister Najib Razak.
The FBI reportedly is investigating all the fund’s transactions in concert with wider probes of money-laundering allegations spanning five countries.
These probes could force Goldman to face the wrath of a congressional inquiry, according to one legal expert.

Read More...

Pilot Flying J’s former president indicted in fuel rebate withholding scheme

Former Pilot Flying J president Mark Hazelwood has been indicted on several counts of various fraud and conspiracy charges stemming from Pilot Flying J’s widespread fuel rebate fraud scheme that came to light in April 2013.
Hazelwood, who was indicted Tuesday, Feb. 9, on 10 counts of fraud and three counts of making false statements, joins about a dozen other former Pilot employees facing criminal charges in the scam. Also indicted Tuesday was the company’s former VP of Sales, John Freeman. Six other former Pilot employees were also indicted in the Feb. 9 proceedings.
Pilot said in a statement it is “disappointed and saddened” by the indictments, and that it could not comment further. “The company has cooperated with the investigation since its beginning and will continue to do so. The company repaid affected customers, accepted legal responsibility, and agreed to pay a monetary penalty. The trust and confidence of Pilot Flying J’s customers continues to be of paramount importance to the company and their continued support and loyalty is very much appreciated.”
Since the fuel rebate scheme was uncovered, Pilot has settled both the civil and criminal cases against the company, doling out $85 million to 5,500 trucking companies to resolve the civil suits and $92 million to the Department of Justice to resolve the criminal charges. The criminal settlement absolved the company of future punishment, but prosecutors can still pursue action against individuals allegedly involved in the case.
Hazelwood left Pilot in the wake of the 2013 FBI raid on the company’s Knoxville, Tenn., headquarters. Federal authorities sent him a “target letter” in September 2014, notifying him of a pending criminal investigation into his alleged involvement in the scam. Freeman was fired around the same time Hazelwood left the company.

Updated numbers in Pilot Flying J case: Truck stop chain to pay $85M in settlement

More recent court documents show Pilot Flying J will be paying $84.9 million in its settlement agreement, including $56.5 million for owed fuel rebates, nearly ...

Court records, including a 120-page affidavit released in April 2013, include transcripts of conversations — secretly recorded by an FBI informant working for Pilot — held between Hazelwood, Freeman and other Pilot employees allegedly discussing the scam and how to use it against trucking companies who signed diesel fuel purchasing contracts with the truck stop chain.
Authorities accused Pilot Flying J of covertly denying carriers tens of millions of dollars in owed fuel rebate checks by intentionally and systematically changing diesel price figures after carriers had purchased the fuel. The scheme, according to authorities, was said to have lasted nearly a decade.
In its July 2014 agreement with the U.S. Justice Department, Pilot agreed to submit regular reports to the DOJ on internal compliance reviews and steps it has taken to prevent such a scheme from reoccurring.
Pilot owner and CEO Jimmy Haslam, who has not been identified as a target in any criminal investigations, has maintained he knew nothing about the scheme and has denied any involvement in it.

Last lawsuit against Pilot Flying J in fuel rebate scheme refiled, carrier claims Pilot targeted ‘mom and pop’ carriers

Wright Transportation out of Mobile filed its suit Dec. 11, 2015, in Mobile County, Alabama, again restating its claims that Pilot intentionally and fraudulently scammed ...

$50 Silver: When Do We See It? Mike Maloney

Watch Mike’s full presentation and breakout session here: https://goldsilver.com/hsom/silversum… What everyone wants to know is when will gold & silver prices take off? But predicting the timing of any such move is nearly impossible. What I have tried to do is combine the fundamentals of supply and demand with technical analysis of prior market patterns. This has convinced me that the monetary authorities are in panic mode and when their experiments fail, gold & silver will be the best way to protect your wealth.
As the price of silver starts to move around – beware of anyone who purports to tell you exactly where it is headed, and be especially wary of anyone who claims to know where AND when it will happen. There are just too many moving pieces to this manipulated mess to be able to do this. All you can do is come to your own conclusions, using history and logic as your main guide – then throwing in the level of government insanity that you see fit. Look at the big picture. Learn all you can. Make your own decisions.

Austerity causes biggest rise in England’s death rate since WWII – health expert

Government cuts to social services could be killing large numbers of vulnerable people in England, a health journal has said, as new figures show 2015 saw the biggest increase in the national death rate for decades.

Preliminary figures from the Office for National Statistics (ONS) indicate mortality rates in 2015 rose by 5.4 percent on 2014 – an increase of nearly 27,000 deaths, bringing the total to 528,340.
Death rates in England and Wales had been falling since the 1970s, but this trend reversed in 2011 when mortality rates started rising.
Health advisers are now saying the rising death rate could be caused by cuts to vital social services. Oxford University Professor Danny Dorling, who is also an adviser to Public Health England, said the increase in deaths could be the biggest since World War II.
“When we look at 2015, we are not just looking at one bad year. We have seen excessive mortality – especially among women – since 2012. I suspect the largest factor here is cuts to social services – to Meals on Wheels, to visits to the elderly,” he said.
“We have seen these changes during a period when the health service is in crisis, while social care services have been cut back.
“The statistics clearly show that this is the biggest rise we have seen since the 1960s. But this may well turn out to be the greatest rise since the Second World War, taking into account the sustained nature of the rise, as well as other factors, such as the trend for immigration of older people in the 1960s.”
Research published last June by the Association of Directors of Adult Social Services (ADASS) showed that Britain’s most vulnerable people are at risk due to an additional £1.1 billion (US$1.6 billion) of cuts to adult social care.
ADASS President Ray James said at the time withholding government funds must be short-lived “if we are going to avoid further damage to the lives of older and vulnerable people who often will have no one else but social care to turn to.”
Cuts to other benefits, such as disability and unemployment, have also taken their toll on vulnerable sections of society.
Last week it was revealed a mentally ill man in Glasgow, Scotland killed himself after his benefits were stopped by the Department for Work and Pensions (DWP).
Paul Donnachie, 50, had his disability benefit payments stopped in June 2015 after he failed to turn up for four work capability assessments. His sister, Eleanor, told the Daily Record “the government murdered him.”
“The Conservative government aren’t living in the real world and have no idea how people live,” she said. “They don’t care about working-class people and the vulnerable.”
Age UK charity director Caroline Abrahams called on the government to investigate the rising death rate.
“These figures suggest something is going badly wrong…we owe it to older people to investigate why last year’s statistics are so unusually high and to take firm action to address the causes, whatever they may be,” she said.
A spokesperson for the Department of Health said it will continue to monitor the data closely.
“This is provisional data and our experts monitor deaths closely. Excess winter deaths can be due to a number of causes and deaths can fluctuate from year to year,” the spokesperson said.
“We will continue to monitor this data closely and be advised by experts on any action necessary.”

Via RT. This piece was reprinted by RINF Alternative News with permission or license.

The quiet rebellion of Conservative England

Among the early daffodils and neatly trimmed hedges of the Tory heartlands, grassroots party members are growing angry at David Cameron over Europe

Robert Webb and Robert Lister at the Conservative Club in Walton are disappointed with the EU negotiations  Photo: John Nguyen/The telegraph

 

A handful of regulars - mostly men in their fifties and sixties - sit alone at small tables, reading newspapers and sipping their pints of beer.

On a sunny Thursday afternoon, the Conservative Club at Walton-on-Thames seems an unlikely place to find the seeds of a growing revolt.

The town lies in one of the safest of Tory seats, Esher and Walton, in Surrey, held by the MP Dominic Raab with 63 per cent of the vote at last year’s election.

Yet in this Tory heartland, behind the neat hedges and trimmed lawns, disappointment at the new Conservative government is beginning to give way to a simmering sense of anger.

For all their quiet manners, the members of Walton's Conservative Club have had their fill of the European Union. Many also feel that David Cameron, the Prime Minister who promised voters a radical new deal for EU membership, has let them down.

Looking up from his copy of the Telegraph’s sport section, Clive Gee, 60, says simply: “We are paying too much into the EU and we are not getting enough back.”
Clive Gee feels we are giving more than we're getting from the EU  Photo: John Nguyen/The Telegraph
But the cause of the most personal sense of hurt among these “grassroots” Tories is a feeling that Mr Cameron and his party’s ruling elite no longer care about them.
Volunteers who walked miles each day, delivering leaflets and knocking on doors during last year’s general election, now feel overlooked by the party’s high command. The Prime Minister has even told his MPs to ignore the wishes of their local constituency associations when deciding whether to back his new deal and vote to remain in the EU or to leave at the forthcoming referendum.
Last week, more than 40 local party chiefs and activists expressed their outrage at Mr Cameron's attitude in a letter to this newspaper.
Robert Webb, 79, treasurer of the local branch of the Conservative Association, confirms that Mr Cameron’s remarks have “upset” many activists who have campaigned tirelessly for the party.
“They worked their guts out at the last election,” he says. “I know we did here. We are such a safe seat, we put a lot of people into Surbiton, and Twickenham, and we sent some down to Portsmouth – all of which were successful. And then to be told to ignore us - I think that was a mistake on his part.”
In the back bar of the club, which is reserved for members, two portraits hang on the wall. One is of Margaret Thatcher, still a heroine for the dwindling number of Tory social clubs across the land. The other is of a youthful-looking Mr Cameron.
Robert Webb finds the loss of British sovereignty upsetting  Photo: John Nguyen/The Telegraph
Mr Webb, a retired accountant, says he was “on the fence” about Europe and wanted to see what the Prime Minister could achieve through his much-vaunted renegotiation of Britain’s membership. But his is disappointed and displeased.
“As he seems to be coming back with very little, I am almost certainly going to be voting ‘out’,” he says. “I am just so angry that he has gone into these negotiations and he doesn’t seem to have asked for very much.”
Mr Cameron, he says, is like a man who wants to buy a car and tells the salesman that he is willing to pay the full price before starting to haggle.
For Mr Webb, it is the loss of British sovereignty that he finds most upsetting. Watching MPs in a parliamentary debate last week lament the erosion Britain’s ability to determine its own destiny moved him.

“We have stood alone before in this country and we can do so again,” he says. “I don’t think the British people ever intended to lose their sovereignty but it is gradually being taken away from us.”
Yet Mr Webb, and his friend, Robert Lister, 82, cannot be dismissed as dewy-eyed, sentimental old men. They are thoroughly well informed about all the latest developments in Mr Cameron’s renegotiations – and thoroughly unimpressed.
Mr Lister, who had a long career as a chartered engineer and who is still called upon as a consultant, believes his four grandsons will prosper in a “bright future” if Britain leaves the EU.
“Britain’s expertise in engineering is known world-wide,” he says. “We are in a very strong position and even out of Europe people will still want to do business with us. What else are they going to do?”
Undecided voters want to hear plain facts from both sides of the campaign
He is dismayed at how ready the Prime Minister seems to be to “plumb the depths” in order to persuade the public to stay in the EU. In particular, he criticises Mr Cameron’s so-called “Project Fear” warnings that migrants could come to Britain because border controls would move from Calais to Kent if the UK voted to leave.
“These scaremongering tactics – they really should be above that,” Mr Lister says. “They will frighten people to death, saying that they are going to have camps in Kent and Dover, coming in overnight.”
Debbie and Georgia Hamilton feel constituents are ignored   Photo: John Nguyen/The Telegraph
In the late afternoon outside the club, the sun dazzles. Daffodils, tricked into bloom by the mild winter, create an illusion of spring. A few minutes’ away beside the river, men walk their dogs, while young mothers push buggies along the towpath.
Debbie Hamilton, 55, and her 23-year-old daughter, Georgia, who is expecting to have a baby in a week’s time, regard it as “ridiculous” for Mr Cameron to tell his MPs to ignore their local party members in the referendum.
“MPs are supposed to listen to their constituents and take their constituent’s views to government,” Mrs Hamilton says. “I thought that was the whole point.”
Neil Luxton, who owns a small telecoms business and is walking his dog, Noodle, says he will be voting to leave the EU. “I believe we are an island nation and we should be standing up for ourselves,” he says.
Neil Luxton will vote for a Brexit  Photo: John Nguyen/The Telegraph
As a retired government scientist, John Sheldon likes to make up his mind based on the evidence.
“I am just astounded that intelligent, educated people fail to see what a drag it is,” Mr Sheldon says. The 84 year-old has been a Conservative councillor in the area for 21 years and he is also unhappy at Mr Cameron’s cavalier approach to offending the Tory grassroots.
“We work jolly hard,” Mr Sheldon says. “The money we put in, supporting social events, well on top of the subscriptions to the party, and the time we put in, is huge.
“I have done all of this in my retirement. It has taken a huge chunk of my life - and I am not untypical. Everybody around me works their socks off. Just today, we have walked miles stuffing letterboxes. We do that all the time. For us to be sidelined would be quite horrifying.”
Mr Cameron may not have intended to offend anybody, “but the casual way he suggested that MPs should follow their own conscience [rather than listening to their local Conservative associations], was quite offensive”.

Mr Sheldon regards the Prime Minister as a disappointment. He attended the Conservative conference in 2005 at which Mr Cameron delivered the speech of his life – from memory - to win over the party faithful during the last leadership election.
“He seemed like a breath of fresh air. But since then my faith in Mr Cameron has thinned.”
His list of common complaints among Conservative supporters – the “running down” of the Armed Forces, the indulgent spending of billions of pounds on overseas aid, the failure to limit the impact of migration – can be heard in any pub in the area.
“I am not a rebel,” Mr Sheldon says. “Mutiny is the greatest crime that can be committed by a sailor. When everybody can see the captain is steering towards the rocks, you have to ask yourself whether that’s preferable to everybody drowning.”
James Wathan supports Mr Cameron for 'attempting to achieve some sort of reform' in the EU  Photo: John Nguyen/The Telegraph
The Conservatives will be split by the referendum, he fears but Britain’s destiny is more important.
“The risk of damaging the Conservative Party is very great. But which is more valuable, the fate of the Conservative Party or the fate of the country? My admiration for Mr Cameron is limited and it has diminished. Nobody is indispensable and there are some good people coming along. I would not be at all sorry to see a new PM.”
As the sun sets and a wintry chill returns to the air, one passer-by is willing to speak up for the EU.
James Wathan, 58, agrees that MPs should not have to “fall in line”. But he supports Mr Cameron for “attempting to achieve some sort of reform” in the EU and says he fears that leaving would endanger the economy. “We want to continue to be a successful economy. I suspect we would be better off in Europe.”
Who is this lone voice, a pro-European, willing to give the PM the benefit of the doubt, in Walton-on-Thames? “You really want to know?” he asks. “I’m a managing director at Deutsche Bank.”

Fed's Kashkari Calls for Radical Approach to Megabanks

WASHINGTON — Neel Kashkari shocked much of the financial world Tuesday by saying the Dodd-Frank Act was insufficient and that breaking up the big banks and turning them into public utilities may be the only way to end "too big to fail."
In his first public speech as president of the Federal Reserve Bank of Minneapolis, he said Congress and regulators need to consider a more radical approach to preventing future bailouts. His message was unusual enough because it came from a sitting head of a Fed regional bank, but it was all the more powerful because Kashkari is a former Goldman Sachs executive and chief architect of the Treasury Department's 2008 bailout program.
"While significant progress has been made to strengthen our financial system, I believe the [Dodd-Frank] Act did not go far enough," Kashkari said. "I believe the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to our economy."
Kashkari credited Dodd-Frank with increasing capital requirements on banks and said that has reduced systemic risk. But he said some other key reforms, including resolution plans known as "living wills," are proceeding at a glacial pace and it is unclear if regulators would even use their new tools if they faced a future crisis.
"Given the massive externalities on Main Street of large bank failures in terms of lost jobs, lost income and lost wealth, no rational policymaker would risk restructuring large firms and forcing losses on creditors and counterparties using the new tools in a risky environment, let alone in a crisis environment like we experienced in 2008," Kashkari said. "They will be forced to bail out failing institutions—as we were."
Kashkari went on to suggest that regulators and Congress should consider breaking up the banks into "smaller, less connected, less important entities"; requiring banks to become public utilities by holding "so much capital that they virtually can't fail"; and "taxing leverage throughout the financial system."
In a panel presentation right after his remarks, he clarified that he was not necessarily advocating for banks' breakups, but said that "it's one of the solutions" that should be considered.
He also said that the Minneapolis Fed will be launching a far-ranging initiative "to consider transformational options and develop an actionable plan to end TBTF," including symposia, research efforts and cost-benefit examinations of different policy options.
Kashkari, who ran an unsuccessful campaign for governor of California as a Republican in 2014, has staked out a political position with his comments that are more in line with the views of Wall Street hawks like Democratic Presidential candidate Bernie Sanders, I-Vt., and Sen. Elizabeth Warren, D-Mass., who have repeatedly criticized regulators for not being fast or stringent enough in their oversight of the largest banks.
But Kashkari's comments met skepticism from fellow panelists and former Fed members on the Brookings program. Don Kohn, former vice chairman of the Fed during the financial crisis, he was not convinced that post-crisis reforms had failed to adequately address "too big to fail." Kohn said such a judgment was likely impossible to make with certainty, especially given the incomplete status of the living wills process.
"I certainly share Neel's objective of ending 'too big to fail' — that is, allowing any large financial institution to fail with minimal damage on the financial system and the economy," Kohn said. "I don't know why [Dodd-Frank reforms] won't work."
Former Minneapolis Fed President Gary Stern, meanwhile, similarly expressed skepticism of Kashkari's dour view of Dodd-Frank reforms, saying that calls for vastly expanded capital rules might be effective in some ways, but that other options available to regulators have hardly been considered. For example, requiring banks to have an independent chairman of the board, independent board members, or other measures to affect the makeup of banks' internal management structures could be more effective than inflexible external regulatory rules, Stern said.
"I don't think [Kashkari's plan] takes advantage of other improvements we could make," Stern said. "In my experience, senior bankers are willing to push back or ignore regulatory pressure. They are less likely to do so when they're getting pressure from their boards of directors, and that's an avenue that has been underutilized to date."
Kashkari said his decision to stake out such a hawkish position so early in his tenure was one of conscience. Since joining the Minneapolis Fed late last year and becoming president on Jan. 1, he has become increasingly convinced that systemic risk remains in place and that he should use his position as head of the regional Fed bank to advocate for more stringent reform.
"If I'm not willing to stand up and share my concerns, then I wouldn't be doing by job," Kashkari said.

Even if Russia and OPEC tango, oil prices won’t budge an inch

As Russian officials consider trying to forge an agreement with OPEC in order to help push up oil prices, they are missing an unfortunate truth – factors such as the discord within the oil producers’ body, the positions of Saudi Arabia and Iran and the strength of the dollar all mean that the price of oil is unlikely to bounce back any time soon.

With the Russian economy seriously battered by export oil plummeting in value to its lowest level in the last 12 years, top executives from the government and energy sector have fallen into an old trap and now intend to play the OPEC trump card: Decrease output and dissolve the present glut by creating a relative shortage of supply.
For the record: In 2015, producers were extracting and offering the global markets a surplus of over 1.84 million barrels per day of crude oil that the market did not want and could not absorb.
In late January, Russian Energy Minister Alexander Novak suggested he was ready and eager to attend an emergency OPEC meeting, called by Venezuela, to forge an agreement to wind down oil production by 5 percent, to be done simultaneously and in good faith.
The same recipe for saving the embattled global industry, which has lost and written off some $500 billion in the last few years, was articulated by Rosneft CEO Igor Sechin when addressing the International Petroleum Week in London last week.

Common wisdom claims it is sufficient to engineer rebalancing within market fundamentals by cutting production and then watch tight supply automatically drive prices up. This did happen before triggering accusations by primary energy consumer nations that OPEC was manipulating the market. Today it won’t work and the grand idea of a concord between Russia and OPEC is not feasible.
The reasons this is a doomed enterprise are manifold but not all of them are apparent. It is all too easy to point out to the inherent squabbling within OPEC. This is the first argument. Now the disarray within OPEC has been exacerbated by the hostilities in Syria and Iraq, unleashed with the tacit support and financial sponsorship of Saudi Arabia and the Gulf monarchies, which view it through the prism of the holy war against the apostates: the Shiites of Iran and Iraq as well as the Alawites in Syria.
Secondly, apart from the regional showdown between the two branches of Islam, a similar business strategy is being pursued by the two main stakeholders. The Saudis persistently protect their oil market share against outsiders, that is the U.S. shale frackers, Russia and other non-OPEC traditional purveyors.
The Iranians, who are banking on revitalizing their energy sector, damaged by Western sanctions, have made it absolutely clear that they would not even consider putting a cap on production until they surge the current daily exports of app. 1.1 million barrels to 1.5 million barrels. In sum, neither Riyadh nor Tehran would go for a 5 percent diminishment of their oil output.
Thirdly, even if a miraculous consensus of OPEC members takes place and they manage to accommodate Russia as a temporary ally under a “marriage of convenience” deal, it will not affect prices to the extent the producers envisage. It will not be a game-changer.
Why? It is worthwhile quoting World Bank analysts, who claimed: “The sharp oil price drop in early 2016 does not appear fully warranted by fundamental drivers of oil demand and supply.”
The logic of this observation resonates with the earlier statement made by Rosneft chief Sechin when he attributed the flight of investors from oil to financial regulators in the United States.
Commodity market players who use derivatives like futures contracts, forward contracts, options, swaps and warrants, the multitude of contractors and subcontractors, and notably a sophisticated system of hedging of shale oil extraction – all these factors are instrumental in determining the price of this product and, according to the Rosneft boss, will define the industry’s development.
A more comprehensible explanation was offered by Konstantin Simonov, director general of Russia's National Energy Security Fund, who fired a succession of questions: “Why are all energy and raw materials markets tumbling? Are we witnessing an oversupply across the board, say, from aluminium to coffee? Has anyone heard of the arrival of shale coffee?”

His suggested answer sounds a bit provocative yet intriguing: “The FRS (Federal Reserve System in the United States) is playing a stronger dollar. And all the money from all the primary energy markets are invested into the dollar.”
The oil prices, in other words, are now detached from the market fundamentals. They do not reflect the classical pendulum of supply and demand. Moscow-based experts have calculated that 95 percent of all the oil derivatives belong to U.S.-registered banks.
With the FRS luring investors into a formidable U.S. dollar, the chances of causing a rebalancing of the oil market through tightening supply, looking at it through the eyes of the producing nations, are pitifully slim.
Against this “new normality,” even if Russia and OPEC go out for a tango, the global oil prices won’t budge and go down.
The opinion of the writer may not necessarily reflect the position of RBTH or its staff.

Here’s Why (And How) The Government Will “Borrow” Your Retirement Savings

According to financial research firm ICI, total retirement assets in the Land of the Free now exceed $23 trillion.

$7.3 trillion of that is held in Individual Retirement Accounts (IRAs).

That’s an appetizing figure, especially for a government that just passed $19 trillion in debt and is in pressing need of new funding sources.

Even when you account for all federal assets (like national parks and aircraft carriers), the government’s “net financial position” according to its own accounting is negative $17.7 trillion.

And that number doesn’t include unfunded Social Security entitlements, which the government estimates is another $42 trillion.

The US national debt has increased by roughly $1 trillion annually over the past several years.

The Federal Reserve has conjured an astonishing amount of money out of thin air in order to buy a big chunk of that debt.

But even the Fed has limitations. According to its own weekly financial statement, the Fed’s solvency is at precariously low levels (with a capital base of just 0.8% of assets).

And on a mark-to-market basis, the Fed is already insolvent. So it’s foolish to think they can continue to print money forever and bail out the government without consequence.

The Chinese (and other foreigners) own a big slice of US debt as well.

But it’s just as foolish to expect them to continue bailing out America, especially when they have such large economic problems at home.

US taxpayers own the largest share of the debt, mostly through various trust funds of Social Security and Medicare.

But again, given the $42 trillion funding gap in these programs, it’s mathematically impossible for Social Security to continue funding the national debt.

This reality puts the US government in rough spot.

It’s not like government spending is going down anytime soon; it already takes nearly 100% of tax revenue just to pay mandatory entitlements like Social Security, and interest on the debt.

Plus the government itself estimates that the national debt will hit $30 trillion within ten years.

Bottom line, they need more money. Lots of it. And there is perhaps no easier pool of cash to ‘borrow’ than Americans’ retirement savings.

$7.3 trillion in US IRA accounts is too large for them to ignore.

And if you think it’s inconceivable for the government to borrow your retirement savings, just consider the following:

1) Borrowing retirement funds is becoming a popular tactic.

Forced loans have been a common tactic of bankrupt governments throughout history.

Plus there’s recent precedent all over the world; Hungary, France, Ireland, and Poland are among many governments that have resorted to ‘borrowing’ public and private pension funds.

2) The US government has already done this with federal pension funds.

During the multiple debt ceiling fiascos since 2011, the Treasury Department resorted to “extraordinary measures” at least twice in order to continue funding the government.

What exactly were these extraordinary measures?

They dipped into federal retirement funds and borrowed what they needed to tide them over.

In fact, the debt ceiling debacles were only resolved because the Treasury Department had fully depleted available retirement funds.

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3) They’ve been paving the way to borrow your retirement savings for a long time.

Two years ago the government launched a new initiative to ‘help Americans save for retirement.’

It’s called MyRA. And the idea is for people to invest retirement savings ‘in the safety and security of US government bonds’.

Since then they’ve gone on a marketing offensive involving the President, Treasury Secretary, and other prominent politicians.

(Most recently Nancy Pelosi published an Op-Ed in the San Francisco Chronicle a few days ago promoting the program.)

They’ve also proposed a number of legislative reforms to ‘encourage’ American businesses to sign their employees up for MyRA.

Just last week, Congress introduced the “Making Your Retirement Accessible”, or MyRA Act, which would charge a penalty to employers whose workers don’t have a retirement account.

The proposed penalty is $100. Per worker. Per day.

Imagine a small business with, say, 10 employees who don’t have retirement accounts. The penalty to Uncle Sam would be a whopping $30,000 PER MONTH.

There’s a word for this. It’s called extortion.

Obviously when facing a $30,000 monthly penalty, an employer will pick the easiest option.

Given the absurd amount of government regulation on the rest of the financial industry, MyRA is the fastest choice.

This isn’t about fear or paranoia. It’s about facts.

And the reality is that the government in the Land of the Free is moving in the direction of borrowing more and more of your retirement savings.

If you still remain skeptical, remember that last year the government stole more from its citizens through Civil Asset Forfeiture than thieves in the private sector.

Or that just 45-days ago a new law went into effect authorizing the government to strip you of your passport if they believe in their sole discretion that you owe them too much tax.

No judge. No jury. No trial. They just confiscate your passport.

This article was written by Simon Black and originally published at Sovereign Man

Schroeder: NATO Expansion Toward Russia Destroys Basis of German Ostpolitik

In an interview with Westdeutsche Allgemeine Zeitung, former German Chancellor Gerhard Schroeder said that the West should lift anti-Russian sanctions as they harm both Moscow and Europe.

© Sputnik/ Alexei Druzhinin

German Ex-Chancellor Schroeder Urges Overhaul in EU Immigration Policy

The ex-chancellor supported Bavarian Prime Minister Horst Seehofer on the issue of the withdrawal of anti-Russian sanctions. Earlier, Seehofer was accused by his colleagues of playing into Putin's hands after he stressed the negative impact of anti-Russian sanctions on the German economy.
Schroeder said that during his recent visit to Moscow, the Bavarian Prime Minister acted "solely in the interests of Germany" and did not attempt to pursue a course different from that of Berlin.

"Sanctions are hurting both sides," Schroeder told the newspaper. "They don't help to resolve the conflict, but only create obstacles. It is therefore necessary to gradually abandon them," the politician said.

The former chancellor also did not leave without drawing attention to the tensions between NATO and the Russian Federation. He mentioned that stationing NATO forces along the Russian border has had a negative impact on Berlin's foreign policy.

"We also need a new NATO policy towards Russia. I consider it too risky that the alliance is now building up its military presence on the Russian-European border, thereby destroying the basis of our Ostpolitik," the politician stated.

Gerhard Schroeder has repeatedly opposed the decision of the West to extend sanctions against Russia. The politician said that the restrictive measures are counterproductive, while a constructive dialogue with Moscow is essential for ensuring European security.

Read more: http://sputniknews.com/europe/20160215/1034802258/schroeder-nato-expansion.html#ixzz40OwGlbsJ

European Groups Expose 'Terrifying Extent of Corporate Grab' Within TTIP

Source: Common Dreams

Even with global inequality at historic highs and corporate tax evasion in the public spotlight, a new report out Monday shows how a so-called free trade deal between the U.S. and European Union could further threaten tax justice, hampering governments' ability to ensure that critical public services are well funded or to pursue progressive tax practices.
According to the London-based Global Justice Now and the Netherlands-headquartered Transnational Institute, the TransAtlantic Trade and Investment Partnership (TTIP) "would massively increase the ability of corporations to sue member states of the EU over measures such as windfall taxes on exceptional profits, or use of taxation as a policy instrument such as a possible 'sugar tax'."
"The evidence of the dangers of these investment deals continues to mount. Not only do they affect health and the environment and cost taxpayers millions in legal fees...they also affect the ability of governments to tax corporations effectively."
—Cecilia Olivet, Transnational Institute
"Despite the enormous public outcry over companies like Google and Amazon paying ridiculously small amounts of tax in the UK, the government is trying to sign us up to a trade deal that could effectively prevent us from bringing about laws that could address tax injustice," said Global Justice Now executive director Nick Dearden on Monday.
"The ability to enact effective and fair tax systems to finance vital public services is one of the defining features of sovereignty," he added. "The fact that multinational companies would be able to challenge and undermine that under TTIP is testament to the terrifying extent of the corporate grab embedded in this toxic trade deal."
The report (pdf) zeroes in, as others have done, on the Investor-State Dispute Settlement (ISDS) provisions that are an integral part not only of the TTIP but of other massive and controversial trade deals currently under negotiation. It shows that corporations have already used such provisions of existing trade deals to sue at least 24 countries, from India to Romania, over 40 tax-related disputes, in some cases successfully challenging and lowering their tax bills.
In Ecuador, it notes, fossil fuel companies have sued the government several times over the introduction of new taxes on sales and profits of oil and the withdrawal of tax breaks for foreign oil companies.
Meanwhile, food and drink corporate investors sued Romania successfully, winning a $250 million award, over early termination of tax breaks—such as exemptions from customs duties and a tax on corporate profits—which had been specifically demanded by the European Commission for Romania to join the EU. "In a new twist," the report points out, "in 2015 the European Commission said paying the ISDS award is in itself a violation of EU state aid rules."
Or consider the case of Vodafone, which launched an arbitration claim against India that is still ongoing, after it was ordered to pay tax on an $11 billion deal when it acquired a controlling interest in a major Indian phone company. Vodaphone had paid no capital gains tax on the deal because the transaction used a number of offshore companies.
And as bad as all this is, "it's about to get a lot worse" under deals like the TTIP, Dearden wrote in an op-ed on Monday.
"The evidence of the dangers of these investment deals continues to mount," said Cecilia Olivet of the Transnational Institute. "Not only do they affect health and the environment and cost taxpayers millions in legal fees, this report shows they also affect the ability of governments to tax corporations effectively.  This is yet more money lining the pockets of corporate executives stolen from the public taxpayer. New trade deals such as TTIP and CETA have to be stopped and the public interest defended."
The report underscores that supposed tax 'carve-outs', written into trade or investment treaties in an effort to limit the ability of investors to file tax-related ISDS cases, have not succeeded in stopping taxes being challenged and defeated.
"Though some of these carve-out clauses are stronger and clearer than others, they have not prevented lawyers from filing tax-related ISDS cases, and they have not prevented arbitrators from agreeing to consider them," the report reads. "The language in these treaties is often convoluted and sometimes contradictory, with exceptions within exceptions—giving lawyers a lot to argue about but making it difficult for policymakers to know what actions could risk a treaty claim."
What's more, the report points out, "The threat of an expensive ISDS case can be as powerful as actually filing one. With states unclear about what might trigger successful claims, the safest course of action is to never threaten a multinational corporation's profits—a dangerous prospect for tax justice and public interest laws."
The next round of TTIP negotiations is due to begin in Brussels next week.

Italy’s Banking Crisis Spirals Elegantly out of Control

Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter

How to dump toxic waste on the public through the backdoor.

Back during the euro debt crisis, while the ECB was buying government debt from Member States to keep Italian and Spanish government debt from imploding, German politicians fretted out loud about what exactly the ECB was buying. Among them was Frank Schäffler, at the time Member of the Federal Parliament, who in September 2011 said with uncanny accuracy:

“If the ECB continues like this, it will soon buy old bicycles and pay for them with new paper money.”

This is now coming to pass.
Italy, the Eurozone’s third largest economy, is in a full-blown banking crisis. Four small banks were rescued late last year. The big ones are teetering. Their stocks have crashed. They’re saddled with non-performing loans (defined as in default or approaching default). We’re not sure that the full extent of these NPLs is even known.
The number officially tossed around is €201 billion. But even the ECB seems to doubt that number. Its new bank regulator, the Single Supervisory Mechanism, is now seeking additional information about NPLs to get a handle on them.
Other numbers tossed around are over €300 billion, or 18% of total loans outstanding.
The IMF shed an even harsher light on this fiasco. It reported last year that over 80% of the NPLs are corporate loans. Of them, 30% were non-performing, with large regional differences, ranging from 17% in some of the northern regions to over 50% in some of the southern regions. The report:

High corporate NPLs reflect both weak profitability in a severe recession as well the heavy indebtedness of many Italian firms, especially SMEs, which are among the highest in the Euro Area. This picture is consistent with corporate survey data which shows nearly 30% of corporate debt is owed by firms whose earnings (before interest and taxes) are insufficient to cover their interest payments.

The reason these NPLs piled up over the years is because banks have been slow to, or have refused to, write them off or sell them to third parties at market rates. Recognizing the losses would have eaten up the banks’ scarce capital. Reality would have been too ugly to behold.
The study found that the average time for writing off bad loans has jumped to over six years by 2014. And this:

In 2013, on average less than 10% of bad debt, despite already being in a state of insolvency, was written off or sold. The bad debt write-off rate varies significantly across the major banks, with banks with the highest NPL ratios featuring the lowest write-off rates. The slow pace of write-offs is an important factor in the rapid buildup of NPLs.

Now, to keep the banks from toppling, the ECB has an ingenious plan: it’s going to buy these toxic assets or accept them as collateral in return for cash.
That’s what the Italian Treasury told reporters, according to Reuters. Oh, but the ECB is not going to buy them directly. That would violate the rules; it can only buy assets that sport a relatively high credit rating. And this stuff is toxic.
So these loans are going to get bundled into structured Asset Backed Securities (ABS) and sliced into different tranches. The top tranches will be the last ones to absorb losses. A high credit rating will then be stamped on these senior tranches to make them eligible for ECB purchases, though they’re still backed by the same toxic loans, most of which won’t ever be repaid.
The ECB then buys these senior tranches of the ABS as part of its €62.4-billion per-month QE program that already includes about €2.2 billion for ABS (though it has been buying less). Alternatively, the ECB can accept these highly rated, toxic-loan-backed securities as collateral for cash via so-called repurchase agreements.
But buying even these senior tranches would violate the ECB’s own rules, which specify:

At the time of inclusion in the securitisation, a loan should not be in dispute, default, or unlikely to pay. The borrower associated with the loan should not be deemed credit-impaired (as defined in IAS 36).

Hilariously, the NPLs, by definition, are either already in “default” or “unlikely to pay,” most of them have been so for years, and the borrower is already “deemed credit impaired” if the entity even still exists. But hey, this is the ECB, and no one is going to stop it. Reuters:

The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their €200 billion of soured credit and free up resources for new loans.

But the scheme would limit ECB purchases to only the top tranches, and thus only a portion of the toxic loans. So there too is a way around this artificial limit.
To sell lower-rated tranches to the ECB, the banks can dolly up the credit rating of these toxic-loan-backed securities by purchasing a guarantee from the Italian government, which, thanks to the ECB’s de-facto guarantee of Italian government debt, has a credit rating of BBB-, barely above junk, thus “investment grade.”
That’s good enough for the ECB. A guarantee by the Italian government would transfer Italy’s BBB- credit rating to even the lower tranches of these toxic-loan-backed securities.
Reuters got in touch with Standard & Poor’s, which wants to rate these securities because that’s how it makes its money. And then Reuters reported on this exchange about the “Italian scheme”:

“Standard & Poor’s evaluation of previous deals secured by NPL collateral have typically depended on numerous factors, as different collateral types may pose unique risks,” the rating agency wrote in about the Italian scheme.
“Generally, our credit analysis has focused on ascertaining the expected timing of cash flows and net proceeds from the liquidation of the assets.”

Reuters also cited an ECB source who’d said last November that buying re-bundled NPLs could be an extreme option if the Eurozone’s economic situation became “really bad.”
So now, the situation has gotten “really bad.”
As the Italian banking crisis is elegantly spiraling out of control, the ECB is trying to get a handle on it by buying “old bicycles,” namely structured toxic-loan-backed securities whose underlying loans defaulted, on average, six years ago. In the process, the financial middlemen will extract a ton of money. The public in other countries will get to eat the toxic loans plus the money extracted by the middlemen. And the cherished bondholders of Italian banks are a step closer to their own personal bailout.
Those Sinking Banks! Read…  Hounded by NIRP: Global Bear Market Progress Report

One Third Of Energy Companies Could Go Bankrupt Deloitte Warns As Credit Risk Hits Record High

At 1600bps, the extra yield investors are demanding to take on US energy credit risk has never been higher. However, if a new report from Deloitte proves true, this is far from enough as they forecast roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt.
Record high US Energy credit risk...


The report, as Reuters reports, based on a review of more than 500 publicly traded oil and natural gas exploration and production companies across the globe, highlights the deep unease permeating the energy sector as crude prices sit near their lowest levels in more than a decade, eroding margins, forcing budget cuts and thousands of layoffs.

The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in the report, released Tuesday.

"These companies have kicked the can down the road as long as they can and now they're in danger of kicking the bucket," said William Snyder, head of corporate restructuring at Deloitte, in an interview. "It's all about liquidity."

Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet.

"2016 is the year of hard decisions, where it will all come to a head," John England, vice chairman of Deloitte, said in an interview.

For now, however, there is a corner of the market that offers perhaps a smidge of saefty...

Of the 53 U.S. energy companies that filed for bankruptcy last quarter, only 14 were service providers, a trend that is expected to continue in the short term, Deloitte found.
"Service providers tend to be more of a people business with less capital deployed, so it's easier for them to financially flex," Snyder said.

However, Snyder concludes...

"Eventually, though, they've got to run out of gas, too."