Friday, December 3, 2010

The Hackett Group: Acceleration of Offshoring Trend Driving Loss of Millions of Finance and IT Jobs in U.S. and Europe


There's no end in sight for the jobless recovery in business functions such as corporate finance and IT, in large part due to the accelerated movement of work to India and other offshore locations, according to new research from The Hackett Group, Inc. (NASDAQ: HCKT). The dramatic job losses seen by U.S. and European companies in 2008 and 2009 are expected to continue through 2014, according to The Hackett Group.

The Hackett Group's latest research found that close to 1.1 million jobs in corporate finance, IT, and other business functions were lost at large U.S. and European companies in 2008 and 2009 due to a combination of offshoring, productivity improvements, and lack of economic growth. Over 1.3 million additional jobs will disappear by 2014, The Hackett Group found, with offshoring becoming a larger and larger factor each year. These figures represent annual job loss rates of close to twice those seen from 2000 to 2007.

Corporate finance in particular is now seeing an acceleration of this offshoring trend. While IT dominated the mix of business function jobs lost to offshoring since 2000, growth in IT offshoring is now leveling off. By contrast, the total number of jobs lost to offshoring in corporate finance is expected to grow by a compound annual rate of about 20 percent between 2010 and 2014. In 2014, the annual number of finance jobs lost to offshore will be higher than the IT figure for the first time.

The Hackett Group's latest Book of Numbers research, “Global Business Services (GBS): Redefining the Enterprise Engine,” finds that companies are looking at their overall Service Delivery Models and recognizing that the challenging economic times have presented them with a compelling environment to make change that will enable their business to compete globally for the long term. According to The Hackett Group's analysis, one of the most important of these changes is the offshoring trend, which is being accelerated by the fact that many companies are now creating their own GBS organizations in India and other low-cost labor markets.

GBS organizations embrace both outsourcing and their own internal offshore operations, which remain owned and operated by the companies, to enable a broad array of functions to be moved to low-cost labor markets and managed in an integrated fashion. Over the past few years, many companies have become more mature in their use of GBS organizations, expanding them beyond a basic shared services approach to manage operations in multiple functional areas such as IT, finance, procurement, and human resources. By offering economies of scale, scope, and skill, this approach enables companies to drive cost reductions and lower headcounts. Companies are also looking to enable global enterprise operating standards that will streamline their businesses and drive better overall results.

“With the modest resumption of economic growth this year, policymakers throughout the industrialized world have been struggling to create jobs. But our research shows that across key business functions, their efforts are simply being overwhelmed by offshoring and other factors,” said Michel Janssen, chief research officer for The Hackett Group. “This is what's driving the ‘jobless recovery' we're seeing in key white collar job categories, and it's likely to continue for the foreseeable future. The trend spiked in 2009, when nearly 700,000 jobs in finance, IT, and other areas were lost to a combination of offshoring, productivity improvements, and lack of economic growth. We see the number leveling out at around 250,000 jobs lost each year through 2014, and possibly beyond. That's a reality that's nearly impossible to avoid.”

According to Honorio Padron, global business services practice leader for The Hackett Group, “A number of factors have helped create this situation. Certainly, the savings that can be generated by moving jobs to low-cost labor markets is too great for most companies to ignore. In addition, many companies have become much more mature in their use of offshore resources. They began with shared service centers nearly a decade ago, taking basic transactional areas offshore on a one-off basis. But today we're seeing the rapid ascendance of comprehensive cross-functional Global Business Services operations that are moving far beyond transactional work, to handle the lion's share of the support function for many companies. The result is a globalization trend from which there's simply no turning back.”

A Research Insight offering key findings from The Hackett Group's GBS Book of Numbers is available free, with registration, at this link (

About The Hackett Group, Inc.

The Hackett Group (NASDAQ: HCKT), a global strategic business advisory and operations improvement consulting firm, is a leader in best practice advisory, business benchmarking, and transformation consulting services including strategy and operations, working capital management, and globalization advice. Utilizing best practices and implementation insights from more than 5,000 benchmarking engagements, executives use The Hackett Group's empirically-based approach to quickly define and implement initiatives to enable world-class performance.

Through its REL group, The Hackett Group offers working capital solutions focused on delivering significant cash flow improvements. Through its Archstone Consulting group, The Hackett Group offers Strategy & Operations consulting services in the Consumer and Industrial Products, Pharmaceutical, Manufacturing and Financial Services industry sectors. Through its Hackett Technology Solutions group, The Hackett Group offers business application consulting services that help maximize returns on IT investments.

The Hackett Group has completed benchmark studies with 2,700 major corporations and government agencies, including 97% of the Dow Jones Industrials, 73% of the Fortune 100, 73% of the DAX 30 and 50% of the FTSE 100.

More information on The Hackett Group is available: by phone at (770) 225-7300 begin_of_the_skype_highlighting (770) 225-7300 end_of_the_skype_highlighting; by e-mail at, or online at

The Hackett Group

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FLASHBACK - OFFSHORING AMERICAN JOBS - Corporations, Campaign Cash, & Bush Administration Policies.

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WikiLeaks forced to relocate website

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The dream machine: invention of credit derivatives

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The first time I ran into the “Morgan mafia” - or, more accurately, the ex-JPMorgan mafia - was at a banking conference in Nice last year. It was, I later learned, the type of ritual typical of high finance: around a plush, darkened lecture theatre and well-stocked bar, a gaggle of suited men (and the occasional woman) earnestly muttered about “delta hedging”, “correlation risk” or “CDO squared”.

For all I could tell, they might have been discussing nuclear physics or ancient Chinese. What distinguished this meeting from those topics, however, was the whiff of money: these people might have looked like nerds, but they sported very expensive watches, and their chat was peppered with casual references to billions of dollars.

Uneasily, I tried to work out what was going on. A few weeks earlier I had started reporting on the capital markets and heard that something called “credit derivatives” was revolutionising global finance. Just five years ago the sector was a tiny niche business. Now the volume of all the outstanding credit-derivatives deals in the world is estimated at $12 trillion. However, like most people, I had little idea what a number that big actually meant (for reference, it is about the size of the American economy, or almost four times the total value of all the shares on the London Stock Exchange). So I had flown to Nice hoping to get some bearings in this strange land.

“Who’s that?” I whispered to a banker next to me, pointing to a platform where two men and two women were discussing whether investors “really understand the full ramifications of CDO risk”. (Their conclusion seemed to be: “not always”, which didn’t surprise me, given how little of the jargon anyone might have understood.) My neighbour furtively whispered that he worked for one of the biggest US banks and was therefore forbidden to talk to journalists, “since you guys keep writing that crap about derivatives blowing up the world”. But then he relented: the speakers, he said, were apparently consultants or partners in hedge (big private investment) funds; but almost all used to work for JPMorgan, the big US bank.

Why JPMorgan? I asked. Why not Goldman Sachs or Morgan Stanley? Or a British, French - or Chinese - bank, come to that?

“It’s the Morgan mafia - they sort of created the whole credit derivatives thing,” he chuckled, and then clammed up as if he had revealed a sensitive commercial secret.

As I sat watching slick PowerPoint presentations, I wondered how this had come about. Every year, the anonymous eggheads who work on Wall Street and in the City of London produce a stream of bright ideas that push money around the world in an ever more efficient way (and make the banks they work for, and themselves, richer in the process). Most of these ideas simply vanish; but every so often a few - such as credit derivatives - mushroom with extraordinary speed.

To anyone outside finance, these concepts generally seem so complex that such innovation might exist in a parallel universe. But that is only half true. For if the oil of high finance does not keep lubricating the wheels of the global economy, the world as we know it would quickly slow down. Moreover, we live in such an inter-connected economic system that every time you convert money at a foreign exchange till, pay your mortgage to a bank or use your ATM card, you are plugging into a giant web of capital flows that is being continually rewoven by these innovations.

But where, I wondered as I sat in the lecture theatre, do these ideas come from? And why do some fail and others blossom into a $12 trillion business? And what does that tell us about the way that financial innovation really works and shapes all our lives?

In the months that followed the conference in Nice, I started to track down some of this “Morgan mafia” in an effort to understand the credit derivatives tale. It was not an easy task: traders live in a world in which information costs money, numbers speak louder than words and journalists are - at best - viewed with extreme distrust. But, as it turns out, one place to start this story is not on the dealing floors of London or New York, but on the humid coast of Florida. For it was there, at the plush holiday resort of Boca Raton, that about 80 JPMorgan bankers working in their derivatives department assembled about a decade ago, to hold a so-called “weekend offsite”.

By now you might be feeling like I did when I showed up at that banking conference in Nice, wondering what everyone was talking about. First you need to understand what a derivative is. And to do that, you might as well start with the literal meaning: a derivative is something whose nature is derived, or comes, from something else. In the financial world, where we are interested in the value of something, the value of a derivative depends on the value of something else. So far so simple.

There are many things in the financial world that have value: shares, bonds, currencies, commodities, cash, loans. The secret of the derivative is that it makes it possible for you to have some of the value of one of those assets, even if you don’t actually own it. Why would anyone want to do that? Part of the answer is that it acts a bit like an insurance policy. If you think you might have an accident in your car, you don’t have to set aside the entire value of a new car. You can pay a premium that will cover the cost only if you crash. If you think your shares are going to fall, you don’t have to sell them. You can take out a contract to sell them at a certain price if indeed they do fall. If they don’t fall, you won’t have sold. That’s how you build stability and predictability into your finances. It’s the same in business. Let’s say you make tyres: you can contract to buy rubber at a certain price without actually buying it and having to stash it in a warehouse before you need it. That way you build stability into your tyre business. Perhaps you know you will need to borrow money in six months. You don’t have to do so now at today’s interest rate and sit on the money for half a year. You can take out a contract to borrow in six months at a rate that you can then build into your budget. And so on. Useful things, derivatives.

However, there is a second aspect to derivatives that also makes them occasionally dangerous. Some investors use them to make “speculative” bets on how the markets will move. Imagine, for example, that you were absolutely sure rubber prices were going to surge: you might borrow money to buy a derivative that lets you benefit from a rubber price increase, even if you never owned any rubber at all (or never needed to own it). However, if such bets go wrong (say rubber prices actually fall), or you misunderstand the complex mathematics behind the contract, you can lose an awful lot of money, particularly if you have borrowed heavily to make your bet. It is this second, “speculative” feature that makes derivatives Manichean in nature, capable of producing both negative and positive outcomes.

Now, back to Boca Raton. The “offsite weekend” was part of a well-worn ritual in the banking world, designed to let the bankers celebrate and let off steam. On this occasion, the young JPMorgan bankers (and they were mostly young) were determined to have fun. Boca Raton has golden sands, a swanky tennis club and a sparkling marina, and in the early 1990s the bank had plenty of money to splash around: some of the bankers flew in by Concorde, stayed in smart, pink Spanish-style villas and drank heavily at the bank’s expense. Indeed, by the end of the weekend, the party spirit was running so high that the bankers started throwing each other into the swimming pool fully clothed.

“There was a great group spirit - we worked hard, but we also had a lot of fun,” recalls Bill Winters, an American banker with a straight-talking manner and debonair features, who was one of those who ended up dripping wet. These days Winters, 45, is a man who exudes gravitas: his current job is co-chief executive of JPMorgan’s entire investment bank, which makes him one of the most powerful people in investment banking today. But back at Boca Raton he was just an up-and-coming derivatives expert who, like the rest of his ilk, was hungry for opportunity - and fun.

But partying aside, Boca Raton also had a very serious agenda. For it came as JPMorgan was confronting an odd paradox that haunts the banking world. While laws exist to protect people from stealing brilliant inventions from each other in areas such as industry or design, in the apparently frighteningly powerful world of modern finance, there is nothing to prevent someone from pinching a rival’s ingenious inventions and replicating them (if they can get the resources in place). Or as Peter Hancock, then a JPMorgan banker who was in charge of the Boca Raton meeting, explains: “All ideas in the financial world can be copied pretty quickly - financial innovation does not enjoy patent protection like other fields of engineering.”

Hancock knew the problems this posed perhaps better than anyone else. At that time he was running JPMorgan’s derivatives team. It was not a job anyone might have associated with Hancock if they were meeting him for the first time: a highly intellectual man, with an amiable face, he exudes the courteous manner of an English country doctor rather than a Wall Street financier. Initially he had had little ambition to become a banker. His dream was to be an inventor, and with this in mind he studied science at Oxford. But he drifted into derivatives because he sensed that it was one thing in the banking world that came close to offering the thrill of scientific research. More specifically, at that time - in the late 1980s - the concept of derivatives was so new that it was largely untested, and thus offered plenty of scope to be creative.

At first, this was a rarefied business that few people understood. However, Hancock was one of those who spotted the potential, and when he took over the derivatives department (then known as the “swaps” team) at JPMorgan, at the age of 29, he quickly built it up into a global operation. However, by the time the team came to meet in Boca Raton, Hancock had sensed that this triumph was starting to carry the seeds of potential decline. In the early days of the “swaps” business, it had seemed so exotic that relatively few clients wanted to buy the services - but those who did would pay high fees. Then, as demand mushroomed, profits boomed and a new wave of competitors was attracted into the markets. They were able freely to copy this technology - and undercut the bank on price. What had started as the banking equivalent of the couture dress design trade was becoming a mass market clothing fashion game.

That meant JPMorgan needed a new idea - one that its rivals could not copy too fast. As the bankers assembled in a hotel conference room, close to the Boca Raton marina, Hancock tried to prod them through their hangovers and jetlag into some brainstorming. “The idea was that we should think about how to take forward this large swaps business we had built... and apply it to other areas,” Hancock says.

(One of his colleagues remembers: “Hancock is like an ideas machine - throws a thousand thoughts on to the wall. Most never fly at all, but every so often one does.”)

The idea that attracted most excitement was the concept of mixing derivatives with credit. One of the pernicious problems that have always dogged business is so-called “credit risk” - or the danger that a loan (or bond) might turn sour. And as they sat in their conference room in Boca Raton, some of the bankers started to wonder if there was a way to create derivatives that could bet on whether bonds or loans would default.

After the meeting ended, the bankers flew back from Florida and started hunting for ways to put these ideas into practice. One was Robert Reoch, a young British banker who had recently joined JPMorgan’s London derivatives desk, which was tucked in a former boys’ school on Victoria Embankment. At that time, this derivatives team was very busy in Europe doing its “usual” business of trading currency and interest rate “swaps”. But at the time, JPMorgan also had another booming business in London - trading government bonds. And in the months after Boca Raton, Reoch and his colleagues started to work on the idea of a credit derivative.

No one on the team knew how to price this type of contract, let alone create the paperwork needed to keep the lawyers happy. But Reoch found an investor willing to buy such a deal, and one day he quietly sold a contract that placed bets on whether three European bonds would default. “It was the first time we had done a transaction like that,” Reoch proudly recalls.

What was it they did? The trade was what is known as a “first to default” swap. At that time JPMorgan was heavily involved in trading European government bonds and bond derivatives that left it exposed to losses if any bonds suddenly went into default (not an irrational fear in the pre-euro mid-1990s). However, the bank created a contract which effectively insured itself against such a default for a basket of bonds (say, that of Sweden, Italy and Belgium). It stipulated that if any of these bonds went into default, an investor would pay JPMorgan compensation. If that default never occurred, the investor would make money because they were receiving a fee to take this risk; but if any bonds defaulted, JPMorgan was covered. Thus as long as a price could be found that kept everyone happy, it was a win-win deal: JPMorgan reduced its risk, and the investors could earn nice returns. It took another three months for the team to sort out the paperwork for this experiment. And it didn’t at first make waves in the financial markets. At that time, other banks were also experimenting in this way - and groups such as Bankers Trust and Credit Suisse were considered more innovative and aggressive in this area than JPMorgan. Yet, as 1994 turned into 1995, JPMorgan moved out in front.

Quite why remains a matter of debate. JPMorgan’s rivals say it was a simple matter of business expediency - and, above all, accounting pressure. International banking laws place strict limits on how much risk a bank can take before it has to stop doing new business, and the bank was hitting those limits. This meant JPMorgan had a strong incentive to look at credit in an innovative manner, because it had a bigger loan book than rivals.

This does not explain the whole story - or at least not as the JPMorgan’s bankers now tell it. They say it was corporate culture: the bank’s background as a blue-chip lender meant that it prided itself on having a more gentlemanly ethos than some of its Wall Street competitors. Hancock placed a heavy emphasis on recruiting individuals willing to work within a strong team ethos.

He started by recruiting a loyal deputy, Bill Demchak, a practical young American who was skilled at turning Hancock’s abstract musings into concrete plans. (”Without Demchak, half of Hancock’s idea would have probably just stayed on another planet,” laughs one colleague.) Then they pulled a group of young, highly ambitious - and all exceedingly numerate - wannabe bankers into their orbit, sometimes from unlikely quarters.

In London, the team included an American, Bill Winters, and Tim (”Frosty”) Frost, who hailed from Nottingham and sported an economics degree from the London School of Economics. (”A lot of people in this [credit derivatives business] came from the LSE,” he says today, speaking with the flattened vowels from his Midlands childhood.) Over in New York, Demchak and Hancock pulled in Andrew Feldstein, an ambitious and articulate young trader. Another recruit was Terri Duhon, a vivacious, dark-haired woman, who had grown up in humble circumstance in rural Louisiana, but then won a scholarship to study maths at Massachusetts Institute of Technology, where - like many of her generation - she succumbed to the intellectual and pecuniary lure of finance. “I had read Liar’s Poker and thought that trading derivatives sounded sexy and fun,” she recalls.

Another - more unlikely - young wannabe was a well-spoken, horse-mad British woman called Blythe Masters. She had grown up in the south-east of England, where she attended the exclusive King’s public school in Canterbury on a scholarship before completing an economics degree at Cambridge university. From an early age, Masters decided that she wanted a career in derivatives. It was an unusual choice for a middle-class Englishwoman at the time. And even today she does not look like the usual stereotype of a Wall Street hotshot. When I met her recently in JPMorgan’s London offices she was sporting a well-cut blonde bob and an elegant candy pink suit, with matching shoes and bag. As if explaining this to me, she said: “I have a quantitative background, but really derivatives appealed to me because they require so much creativity.”

At first she joined JPMorgan’s commodities desk. But after she attended the Boca Raton meeting she - like “Frosty” and the others - sensed an opportunity. So she moved across to New York and started hunting for ways to use the credit derivatives idea. Around this point, in her mid-twenties, she also had a baby (in an early marriage that did not last). This apparently did not put her off her stride: when she went into labour, she kept monitoring her financial trades from the hospital. She also kept brainstorming with colleagues about how to turn the credit derivatives idea into tangible profit. “We had a culture created by people such as Peter Hancock and Bill Demchak which emphasised teamwork and where no single individual could own a product,” says Masters. “That is quite different from the turf-driven environment of many investment banks. You cannot produce this type of innovation if you are too narrowly focused on... personal profits and losses.”

By 1997, Demchak and Masters came up with their Big Idea: a product known as Bistro, short for Broad Index Secured Trust Offering. (Bankers who work in the world of derivatives love creating odd names out of complex acronyms - it appeals to their problem-solving skills, no doubt.) What Bistro did was to use credit derivatives to “clean up” a bank’s balance sheet. The scheme started by taking a basket of bank loans and separating out - in accounting terms - the theoretical risk that these loans would turn sour from the loans themselves. This default risk was usually then sold to a “paper” company, known as a special purpose vehicle, which then issued bonds that investors could buy. If lots of loans went into default, the value of these bonds would fall, of course; but if the loans were honoured, the bonds would be a safe bet for the investors. Either way, the point was this: anyone buying such bonds was essentially betting on the risk of loan default. And as long as the deal was structured in a way that made the bonds look cheap, relative to the risk of default, then investors would think they had got a good deal. The pricing itself was based on what had happened to banks’ loan books in recent years (together with some complex number crunching).

The deal looked even better for the original bank. For the act of selling the default risk on to new investors had crucial regulatory implications. International banking rules say that banks have to hold a certain level of spare funds (or reserves) to protect themselves from the danger that their loans might turn bad. However, since the banks had sold the risk of default on to somebody else, they could now argue that they did not need to hold these funds.

To anybody outside the world of finance, this might look odd (after all, the banks were still making loans); but the regulators accepted this argument, since the risk had moved, in accounting terms. And that let the banks free up funds to make even more loans. It was the financial equivalent of calorie-free chocolate: almost too good to be true.

Hancock’s group started using Bistro to clean up JPMorgan’s own portfolio of loans. Then they started offering it to other banks. And within the space of a few months, they were handling not just billions of dollars of loans, but tens of billions, and then hundreds of billions. It was an intoxicating time for the young bankers. Many had been impoverished graduates just a few years earlier; now they were earning bonuses bigger than most had ever dared to imagine. Not that they had any time to spend the cash: as demand swelled, JPMorgan’s tiny team - which still numbered just a few dozen - found themselves almost every waking hour in each others’ company. “The business we were doing grew exponentially,” recalls Duhon. “We went out and ‘Bistro-ed’ everything we could.”

By the end of the decade, Hancock had been promoted to chief financial officer of the bank - and the success of Bistro had left Masters running the credit derivatives group. But soon, in 2000, JPMorgan merged with one of its giant rivals, Chase Manhattan. Such mergers are common on Wall Street, but they rarely occur without internal fights or defections. And this was no exception: Hancock resigned, later followed by Demchak. And with these men gone, a team that had held together with unusual loyalty for almost a decade (or a lifetime in investment banking) started to crumble.

These days, some of this original JPMorgan “dream team” - as they were dubbed by specialist financial magazines - remain at the bank. There is Winters, of course, and Masters recently became chief financial officer of the investment bank at the age of just 35 - which makes her one of the most powerful women on Wall Street and almost certainly the most senior British female there. (She remains horse-mad to this day: in what little spare time she has from her career and daughter, and a new fiance, she also owns an equestrian business.)

But most of the JPMorgan team have scattered to the winds. Some are running credit derivatives businesses at other investment banks. Others have moved to the fast-expanding world of hedge funds. The British banker “Frosty”, for example, recently co-founded Cairn Capital, a hedge fund based in Mayfair; Feldstein co-founded BlueMountain Capital Management, a New York-based hedge fund; the would-be inventor Hancock co-runs Integrated Finance Ltd, an advisory group; Demchak is vice-chairman of PNC Financial Services Group; Reoch, the British banker who did JPMorgan’s first credit derivatives trade, is a consultant based in the pleasant climes of Dorset; and Duhon - the banker from rural Louisiana - has created a consultancy in Mayfair.

These days banks such as Deutsche Bank, Citigroup, Morgan Stanley and Goldman Sachs are also big in credit derivatives. Thus the dispersion of the JPMorgan innovators has helped to transform a niche product into a vast industry with extraordinary speed. Indeed, JPMorgan itself, having at first tried to keep its products to itself, decided in this decade to collaborate with its rivals to build the type of industry-wide infrastructure that could make the overall market as big as possible.

But that success has come at a cost. As credit derivatives have spread, they have also become another, lower margin, mass market game - just like the swaps business when the JPMorgan bankers met at Boca Raton. Indeed, everyone agrees that the innovation cycle is now speeding up dramatically, as technology integrates markets more closely. A decade or two ago, a new idea could stay “secret” for a year or two; now it can leak from New York to Tokyo - and back - in the press of a button or two. That makes it harder than ever to protect profitable inventions - and creates even more pressure for innovation.

Most bankers insist that these new instruments make the financial world a safer place. After all, for the first time, institutions making loans now have an effective way to insure against defaults; so does anyone investing in bonds (including, perhaps, your pension fund). Moreover, the fact that loan risks are now being traded means they are now spread among a much wider pool of people. That should make the financial system more resilient to shocks. If a cataclysmic event ever hits (say, 10 large companies suddenly collapse) the blow will be spread around in millions of tiny pieces, not concentrated on just one spot.

There is also a downside: spreading risk around makes it much harder for bankers, central bankers - or anybody else - to predict what might happen if a cataclysm did hit. For the whole credit derivatives world has exploded at such a dizzy pace that nobody is exactly sure where the loan risk has gone. Have all the investors who have bought credit derivatives contracts checked the fine print to see what losses they could sustain? Does anybody understand the chain reaction that might be triggered by such losses? Could the world’s trading systems cope? And what would happen to all those hedge funds that have been jumping into the credit derivatives world?

And what of the future? Some of the leading figures, such as Masters, think there is room for more innovation in the credit derivatives world. For while the basic ideas are now so widely dispersed that they are almost “mass-market” for traders, she believes that “the point about that process is that when something becomes commoditised it lets you create second- or third-generation products”. That should make it easier for bankers to reassemble these derivatives in new and more complex ways - in much the same way that it becomes possible to create more complex computers when there is mass-market production of circuit boards. The next round of innovation, in other words, will be derivatives of credit derivatives, or even “derivatives cubed”.

None of the ideas that are around at the moment is entirely new: on the contrary, most were on the list of concepts that Hancock tried to “throw on the wall” - as his colleagues say - back in Boca Raton in the early 1990s. Yet somehow those concepts never found such fertile business soil as the credit idea. But maybe that is just a matter of time. “Ideas can float around for ages and then suddenly get picked up,” says Hancock.

So perhaps, somewhere out on Wall Street or in the City - or Mayfair - the seeds for fresh innovation are already germinating. Ambitious young bankers are eagerly sniffing for them, just as Masters, Winters and Frosty were a decade ago. But wherever the next brilliant innovation appears, one thing is certain: inside every moment of stunning success on Wall Street and in the City are the seeds of future decline. And by the time humble journalists such as me ever get to know what the next really Big Idea is, the most profitable moment in that cycle will already have occurred.

Gillian Tett is the FT’s capital markets editor.

« Alan Grayson: Which Foreign Banks Got The Fed's $500 Billion? - Bernanke: I Have No Idea »

Video - Grayson and Bernanke


In light of today's news, we are reposting this exchange from last Summer.

Former prosecutor, Alan Grayson wants details on the $553 billion in foreign central bank liquidity swaps that were issued last Fall in response to the global financial crisis. These swaps grew from $24 billion at end of 2007 to $553 billion at the end of 2008.

Specifically, Grayson wants to know who got it, how much they got, whether it is constitutional, why Congress was not consulted, and whether these swaps contributed to the near 30% concomitant rise in the U.S. Dollar? From Bernanke's testimony this morning before the House Financial Services Committee, I have transcribed the following exchange:

Grayson: "What's that (the $553 billion)?"

B-52: "Those are swaps that were done with foreign central banks..."

Grayson: "So who got the money?"

B-52: "Financial institutions in Europe and other countries..."

Grayson: "Which ones?"

B-52: "I don't know."

Grayson: "Half a trillion dollars and you don't know who got the money?"

B-52: "Um, um, the loans go to the central banks and they then put them out to their institutions..."

Grayson: "Let's start with which central banks?"

B-52: "Well there's 14 of them...I'm sure they're listed in here somewhere."

Grayson: "Who actually made that decision to hand out half a trillion dollars?"

B-52: "The FOMC."

Grayson: "Under what legal authority?"

B-52: "Section 14 of the Federal Reserve Act..."

There's much more (I only transcribed a portion of the first 90 seconds).


U.S. Citizens Bailing Out Banks Around the World - Did Fed Do this

Due to them KNOWING The Fraud of MERS and Selling of MBS many times over? Could it all Lead back to the MERS and Foreclosure Fraud and to Ultimately Try to Cover it Up?

We all know the Fed released the information of their 3.3 Trillion of loans given out yesterday.

In releasing the information it has been found, the Federal Reserve (it is NOT a Govt. agency - but a Private Bank) has bailed out (printed the U.S. dollar) foreign banks.

There is all kinds of information about this on the internet, from Bloomberg, - their headline this morning: Fed May Be `Central Bank of the World' After UBS, Barclays Aid.

To Zerohedge and their story about it: Meet The 35 Foreign Banks That Got Bailed Out By The Fed (And This Is Just The CPFF Banks)

Market Ticker and his story: First Blatantly Unlawful Fed Act: AIG Foreign Sub Stock

Drudge has this as a Top Link - European banks took big slice of Fed aid

From CNN - a short Video about the FED and their Loans.

Now that I have given you a sample of the Information out there about the Fed bailing out Foreign entities with the Citizen's of the United States money, so there is no need to me to go into the finite details here.... I do have a question about it.

Does this stem from the MERS FRAUD? Is it possible the Fed has done this due to all the FRAUD of the Wall Street banks, were they in reality covering up the Fraud? I ask this due to the fact, the Wall Street banks have been proven to have sold MBS (mortgage backed securities) over and over to different bonds. Those MBS securities are purchased by foreign investors and countries. Knowing Wall Street would sell one mortgage multiple times over in different bonds and has made huge amounts of money on them, including selling them in AAA Moody ratings bonds. Though those AAA bonds were fraud, which the Wall Street banks sold, then turned around and shorted, so they have made literally millions off each $100,000 mortgage. Since the Fed Reserve and Treasury Dept are all previous Goldman Sachs executives, were they covering up for what boils down to the Fraudulent created MERS?

I find it very interesting that Goldman Sachs - The "We are doing awesome and no problems, Wall Street bank" took out Billions last year, the same year they had their BEST profit year ever! Then of course they gave Billions to those who work there as bonuses. The same firm who has given bad advice to countries, investors and those losing money due to Goldman Sach's advice, but Goldman making money every day so far this year. They give advice and then Short the advice in another area of the firm, which has been proven by the SEC earlier this year.

In fact Zerohedge had an article about Goldman apologizing yesterday to their clients for their "bad advice in the FX realm". What would be highly interesting, would be to find out if in another section of Goldman, if they were turning around the shorting the FX advice given to investors? But, do we really have to dig around to find out if they did or not? I would bet there is another division where the people heading it, have gotten bonuses on shorts of the FX that directly conflicts with their advice to others.

But, my whole question comes back full circle, to..... has these trillions of bailouts given to foreign banks been strictly for the "cover up" of MERS fraud? Did they know the FRAUD and try to cover it up this whole time by throwing money at all the banks and investors of the world?

Now, the world may suffer from the dollar inflating inflating inflating, due to all the money the Fed has printed to bailout the world with the U.S. dollar, this does not include the coming bail out of the European countries. How much will be printed for that bailout? How many more U.S. dollars will be on the market?

Oh, but of course we will be bailing out the banks of Europe, BUT the people of the U.S. have been told "there is not enough money to keep your unemployment benefits going, anymore"! So millions have lost their unemployment benefits this week, of course when you are going to hit someone in the stomach, do it 3 weeks before Christmas too! So those who have lost their little bit of money, they were desperately trying to survive on.... Now get to tell their children "Santa, may not come this year"! Besides that, we may not have a house to live in next year either!!

Also, lets not forget MSM actually acknowledging inflation of food now..... BUT will Social Security come back and say "they were wrong" in not increasing those on Social Security for 2011 - per them saying there has been "no inflation"? Did MSM conveniently wait to start reporting on all the food inflation, energy inflation, etc., until after Social Security announced "no increase, for the 2nd year in a row"?

Yes, I have multiple "rants" in this one post, but do they all actually fit together and a finger point at MERS?

If you want to say I have a "Conspiracy Mind" for asking these questions and trying to put 2 + 2 together in the whole financial mess... then go right ahead. All I do, is put this little piece with that piece and see if the puzzle fits. In my opinion, the puzzle is fitting nicely - in that ultimately the whole financial mess has been a Cover Up of MERS FRAUD by the Fed and Treasury Dept. - which is in fact Wall Street Banking and Investment firms FRAUD perpetrated on the World!

UPDATE 12/2/10 11:23am est - OMG - If this doesn't Prove The Fed has been working to cover Up the Wall Street Fraud and Protect the Bankers at ALL COST! I don't know what does! The Fed wants to Control the Truth in Lending Law!! It would make it much harder for people to fight the Foreclosure Fraud and Predatory Lending! This is the most blatant and obvious F.U. to the "regular" people, I have seen from the Federal Reserve Yet!

Portion from article:

WASHINGTON — As Americans continue to lose their homes in record numbers, the Federal Reserve is considering making it much harder for homeowners to stop foreclosures and escape predatory home loans with onerous terms.

The Fed's proposal to amend a 42-year-old provision of the federal Truth in Lending Act has angered labor, civil rights and consumer advocacy groups along with a slew of foreclosure defense attorneys.

Critics say the proposed change by the Fed would render the rescission clause useless. The Fed proposal would require homeowners who seek a loan rescission through the courts, to pay off the entire loan balance before the lender cancels the lien.

Students Occupy Colosseum, Mole Antonelliana and Leaning Tower of Pisa

Protesters swoop in Rome, Turin and Pisa as students march all over Italy. Scuffles involving police officers and demonstrators in Florence

MILAN – Police clashed with demonstrators in Florence as protesting students stormed the Colosseum, the Mole Antonelliana and the Leaning Tower of Pisa. Up and down Italy, another day of protests against university reform came to an end after a government defeat in the Chamber of Deputies over a Future and Liberty (FLI) amendment. The final vote has been postponed until Tuesday 30.

GELMINI – Should the reform be fundamentally altered, “I will be forced to withdraw it”, warned Mariastella Gelmini after this latest setback in the lower house. Speaking on the Mattino Cinque breakfast TV programme, the education minister assured listeners that resources for universities had been found and were entirely sufficient. “Without the reform, universities are heading for bankruptcy and will be ‘put into receivership’ by the banks”, said Ms Gelmini. “The stability budget allocated a billion euros, which is enough to pay for the right to study as well as university running expenses”. Regarding the protest, Ms Gelmini said that “the most anomalous element is the alliance between the professors who pull the strings and some of the students”.

PROTESTS – After Wednesday’s sit-in and the raid on the Senate, student protests at the Gelmini reform continued yesterday. In Rome protesters managed to get into the Colosseum and climb to the second tier of columns, where they hung out a banner with the message “No cut, no profit”. The students then staged a march inside the capital’s most iconic monument. Many chanted “We are the real lions” and lit red smoke flares as puzzled tourists looked on. The Colosseum demonstration lasted for only a few minutes and concluded without incident. Police presence in Rome has been beefed up and Piazza Montecitorio, where the Chamber of Deputies is located, has been cordoned off.

Yesterday morning, a banner appeared outside the Sapienza university in Rome, where the rector has postponed the inauguration of the academic year, scheduled for today. The banner said: “Freedom for the [two – Ed.] arrested students”. In Milan about 400 secondary students marched through the city centre. There were tense moments at the Polytechnic as students and police clashed and in Piazzale Loreto, where two students suffered bruising. In Pisa students scaled the Leaning Tower and unfurled a banner. In Naples, the Orientale university was occupied, as was the rector’s office at the Federico II university. In Palermo about a thousand students in six marches homed in on the provincial schools administration and then blocked the station for an hour, and the entrance to the harbour. In Bari about twenty students occupied the engineering faculty at the Polytechnic. In Turin, university researchers defied the cold to spend a second night on the roof of the arts faculty. Polytechnic buildings were occupied and pickets stood guard outside the physics and chemistry faculties. Eggs and smoke flares were thrown at the Piedmont regional authority offices and Porta Susa station was blocked for half an hour. As in Rome and Pisa, protesters in Turin targeted the city’s most iconic building, the Mole Antonelliana, which was occupied without incident for about an hour. In Ancona a group of students occupied the roof of the engineering faculty at the Polytechnic. In Bologna several hundred marching students created problems for city centre buses. In Florence police officers charged to break up students outside the social sciences building, where about 500 demonstrators from leftwing collectives had gathered to protest at junior minister Daniela Santanchè’s participation in a debate on immigration. Earlier, protesters had thrown smoke flares. In Cagliari students occupying the roof of the science building were joined by researchers.

English translation by Giles Watson

Less Money Brings More Problems

How can the U.S. economy hope to “recover” if Americans have less money to spend? Tens of millions of Americans are going into 2011 scared to death about losing their jobs. Most of them know if they do lose their job that they have a very slim chance of finding another one.

Unemployment compensation is only a short-term solution to their problems. Because this compensation is only a fraction of what they were earning and given the current state of Congress the most any new filers can’t count on is 26 weeks. After that job seekers are forced into a highly competitive job market which gets more difficult by the day.

2011 will see long-term unemployment benefits cut off for millions of American workers. On top of this federal workers are now having their wages frozen and Social Security recipients will not be getting a cost of living increase next year. To make matters worse taxes are going up for nearly all U.S. families and the businesses which are still in business are forcing their employees to take pay cuts.

And as all this goes on food prices keep increasing right along with the cost of fuel and other commodities. So how are tens of millions of cash-strapped Americans going to live when they have less money in 2011?

Click here for original article

Goldman Sachs Regularly Borrowed From 2 Different FED Emergency Loan Programs, Topping $35B, Yet It Was NEVER Disclosed In Quarterly SEC Filings


Source - Bloomberg

Goldman Sachs Group Inc., which rebounded from the financial crisis to post record profit last year, was a regular borrower from two emergency Federal Reserve programs in 2008 and early 2009, new data show.

The firm borrowed from the Fed’s Term Securities Lending Facility most weeks from March 2008 through April 2009, data released by the Fed today show. Two units of the New York-based firm borrowed as much as $24.2 billion from the Fed’s Primary Dealer Credit Facility in the weeks after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008.

Chief Executive Officer Lloyd Blankfein, 56, was quoted by Vanity Fair last year as saying the company might have survived the credit crisis without government help. The firm’s president, Gary Cohn, was more definitive, according to the magazine: “I think we would not have failed,” he was quoted as saying. “We had cash.”

Treasury Secretary Timothy Geithner, who was president of the Federal Reserve Bank of New York during 2008 and 2009, has disputed such an assessment.

“None of them would have survived,” without government help, Geithner said in an interview last December.

Goldman Sachs took a $100 million overnight loan from the Primary Dealer Credit Facility on March 18, 2008, the day after the facility was created in the wake of JPMorgan Chase & Co.’s rescue of Bear Stearns Cos. At the time, spokesman Michael DuVally said his firm was “testing” the facility and would use it “if doing so makes sense from an economic and funding diversification point of view.”

The firm didn’t borrow any more from the PDCF until Sept. 15, the day that Lehman Brothers filed the largest bankruptcy in U.S. history. On that day Goldman Sachs borrowed $2.5 billion at a 2.25 percent interest rate and furnished the Fed with $2.68 billion of collateral. The firm doubled the amount it borrowed to $5 billion on Sept. 19 and doubled it again to $10 billion on Sept. 22, when Goldman Sachs’s London subsidiary also took its first PDCF loan of $250 million.

At the peak, Goldman Sachs borrowed $24.2 billion on Oct. 15, which included $18 billion for the firm’s U.S. broker-dealer and $6.2 billion for the firm’s London division, the data show. The peak borrowing came two days after the U.S. Treasury Department assembled executives from nine of the country’s biggest financial firms and told them they’d be provided with capital injections from the government, with Goldman Sachs receiving $10 billion from the Troubled Asset Relief Program.

In its quarterly filings with the U.S. Securities and Exchange Commission, Goldman Sachs didn’t disclose that it borrowed from the PDCF.

The firm also borrowed from the Term Securities Lending Facility, which offered longer-term funding than the PDCF’s overnight loans. On March 28, 2008, Goldman Sachs borrowed $7 billion from the Fed’s TSLF in exchange for $8.42 billion of collateral that included $3.5 billion in agency-backed mortgage debt and $4.9 billion of non-agency backed mortgage debt. Before the loan was scheduled to mature on April 25, Goldman Sachs borrowed an additional $4 billion on April 11 and $223 million on April 18.

The two largest TSLF loans to Goldman Sachs were $7.5 billion on Dec. 4, 2008, and the same amount on Dec. 31, 2008, the data show. The firm also didn’t disclose its TSLF borrowing in its quarterly SEC filings, although it provided data on its borrowing to the U.S. Treasury.

When the loans from the PDCF and the TLSF are combined, the firm’s total borrowing from the Fed peaked at $35.39 billion on Oct. 21 and Oct. 22, 2008, the data show.

“In late 2008, many of the U.S. funding markets were clearly broken,” he said. “The Federal Reserve took essential steps to fix these markets and its actions were very successful.”

Goldman Sachs didn’t borrow as much as some of its rivals, while it borrowed more than others. Morgan Stanley, which was the second-biggest U.S. securities firm after Goldman Sachs before the two firms converted into banks in September 2008, borrowed as much as $100.5 billion at its peak on Sept. 29, 2008, the data show. That includes $61.3 billion of loans from the PDCF and $39.2 billion from the TSLF, the data show.

JPMorgan Chase & Co., the second-biggest U.S. bank by assets, borrowed $3 billion from the Primary Dealer Credit Facility on Sept. 15 and as much as $5 billion from the TSLF on Oct. 17, the data show.

“We did not need the liquidity or funding” on the day of Lehman’s bankruptcy, said Jennifer Zuccarelli, a JPMorgan spokeswoman. As Lehman’s collapse triggered broader financial turmoil, “we had been encouraged by our regulators to use their facilities when it was helpful to the marketplace and to remove any stigma,” she said.

Even as JPMorgan borrowed less from those two programs than Goldman Sachs or Morgan Stanley, it was borrowing from a different Fed program that neither Goldman Sachs nor Morgan Stanley tapped. JPMorgan Chase and its Chase Bank USA subsidiary borrowed from the Term Asset Facility, which was established in December 2007 to provide term loans to depositary institutions.

Continue reading at Bloomberg...


Home>>Columnists >> Li Hongmei's column

The past months have witnessed a succession of intensive military exercises in the Pacific Ocean and Northeast and Southeast Asia between US and its Asian allies near and off China's coasts; some scheduled, and some just hastily arranged, mostly conducted under the lead of the U.S.

And this weekend's presence of a U.S. aircraft carrier in the strategic Yellow Sea again poses a test for Beijing: Should China shrilly warned against it as what happened four months ago and further aggravate the already tattered ties with Washington, or quietly accept the key symbol of American military preeminence off Chinese shores? After all, it is a time when the public concerns can no longer afford to be neglected. Any affront to China's interests or intrusion into Chinese territorial waters would probably inflame the public and require a government response.

Even if Beijing may hold its reticence this time, partially for the sake of the heightened tensions between two Koreas following the artillery shelling last Tuesday, the U.S. gunboat diplomacy can hardly gain ground in the region where China's influence is growing to challenge the traditional American prestigious position.

Besides, Pentagon's toughness can never rein in the "defiant" North Korea as expected. North Korea, by contrast, warned Friday that the U.S.-South Korean military drills were pushing the peninsula to the "brink of war." The deployment of USS Washington just adds fuel to the flames, breeding brinkmanship.

Perhaps, it is true that the US is good at playing games. And US politicians are sweet-mouthed but then stab you in the back when you are not looking, much the way they are doing now---to pressure China to pick sides. The US has been, for the duration of the year, testing China's resolve over issues ranging from China's offshore ocean sovereignty, to China's core interests, to the Chinese yuan, to trade. Each time it ends up with mutual ties damaged.

This time, it is North Korea, which the West tends to describe as China's "close ally", that the U.S. would like to take as a good chance to pounce on to "hit three birds with one stone"----driving a wedge between Beijing and Pyongyang, or at best, Beijing will abandon its wayward "close ally", otherwise China's international image could be tarnished; cornering North Korea, and out of despair, it will play a destructive role to be visible, say, conducting nuclear tests. Thus, US will readily catch the handle to clampdown its "belligerence". And meanwhile, its jittery Ally-- South Korea will never have the courage to break away from its protective embrace.

On the one hand, the U.S. will never give up its saber-rattling behavior when it comes to handling North Korea issues, while on the other, it lays down the terms for talks forcing N Korea to stop any nuclear activities, which may be seen as the only bargaining chip by the reclusive country in return for what it needs---recognition as well as food. China is therefore caught in between as an active mediator for "six-party" talks.

The U.S. have actually sowed discord between two Koreas, as the U.S. is reluctant to see a unified Korea, which, viewed from geopolitical prism, can not necessarily serve as a puppet to the super power.

In a similar vein, sovereign unity and national resurgence are two missions China must accomplish. But the biggest obstacle to fulfilling those missions also comes from the US, especially from the Pentagon.

The U.S. is also ready to topple the fledgling interactive mechanism among China, North Korea and South Korea. As a matter of fact, the three parties are already on the sound track toward interactions. China and South Korea have upgraded their relations to strategic and cooperative partnership; and North and South Korea also launched "Presidential Dialogue". Besides, both China and South Korea have respectively set up "economic zones" in North Korea. Without the U.S. meddling in, the Northeast Asia would hopefully achieve stability, if not harmony.

But it comes again, also in "good time" to mess up the situation. Under the plausible pretext of South Korea's outrage over the shelling, the warship is coming.

As the world's superpower with an unchallenged navy, no single nation in the world can stop the US from conducting such activity, but Washington will inevitably pay a costly price for its stinking decision.

The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.

« 'Bernanke Was Liquefying The World' - Faber & Liesman »

Fed transparency is a beautiful thing. The Ben Ber-Nank opened the floodgates.

Video - Bernanke's worldwide money drop exposed - Part 1 - Aired Dec. 1

The Federal Reserve on Wednesday revealed the details of $3.3 trillion in emergency loans it made to financial institutions from 2007-2009.


Have you seen these...


« Fed's Emergency-Loan Borrowers Included Foreign Banks, Goldman Sachs, GE, McDonalds, PIMCO & Michael Dell »

As you will read below, Bernie Sanders is on the war path.


Source - Bloomberg

The Federal Reserve’s emergency lending during the financial crisis spanned the global economy, from the largest U.S. financial firms to community banks, hedge funds and a fast-food company.

The Fed, in compliance with orders from Congress, today named recipients of $3.3 trillion in emergency aid. Among them were U.S. branches of overseas banks, including Switzerland’s UBS AG; corporations such as General Electric Co. and McDonald’s Corp.; and investors like Pacific Investment Management Co. and computer executive Michael Dell.

Lawmakers demanded disclosure, over the Fed’s initial objections, as U.S. central bankers pushed beyond their traditional role of backstopping banks to stem the worst financial panic since the Great Depression. The Fed posted the data on its website to comply with a provision in July’s Dodd- Frank law overhauling financial regulation.

“Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations,” Senator Bernard Sanders, the Vermont Independent who wrote the provision on Fed disclosure, said in a statement today. “As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions.”

Political Scrutiny

The release will heighten political scrutiny of the central bank already at its most intense in three decades. The Fed’s Nov. 3 decision to add $600 billion of monetary stimulus has sparked a backlash from top Republicans in Congress, who said in a Nov. 17 letter to Chairman Ben S. Bernanke that the action risks inflation and asset-price bubbles.

The information, which also includes the amounts of transactions and interest rates charged, spans six loan programs as well as currency swaps with other central banks, purchases of mortgage-backed securities and the rescues of Bear Stearns Cos. and American International Group Inc.

The U.S. subsidiaries of European financial institutions, led by Zurich-based UBS and Brussels-based Dexia SA, were some of the largest users of a Fed program providing emergency short- term funding to companies. The biggest U.S.-based user was bailed-out insurer American International Group Inc., at $60.2 billion.

The presence of foreign banks in the program underscores the squeeze in dollar liquidity after the collapse of Lehman Brothers Holdings Inc. on Sept. 15, 2008. UBS, Switzerland’s largest bank, was the biggest borrower from the Commercial Paper Funding Facility, tapping the program 11 times for borrowings that peaked at $37.2 billion.

The Fed determined that McDonald’s, while not listed as a borrower under the CPFF, benefited from the program as a “parent/sponsor” of Golden Funding Corp., which sold a total of $203.5 million in commercial paper.

Emergency Programs

The emergency programs included the Term Asset-Backed Securities Loan Facility, which has supported billions of dollars in credit to small businesses, credit card borrowers, and students, and the Term Auction Facility, which helped banks get cheaper funding.

Pimco, the world’s largest bond fund, tapped the TALF 96 times between April 2009 and March 2010 for a total of $7.25 billion, making the Newport Beach, California-based firm one of the largest borrowers under the program, which was different from most of the others in that the Fed had to entice firms to participate. Dell’s MSD Capital LP was among investors that included hedge funds and pension plans, according to the data.

In the TAF, Bank of America had loans for $45 billion outstanding from the facility as of Jan. 15, 2009, while Wells Fargo had loans for $45 billion on Feb. 26, putting them at the top of the borrowers’ list.

Congress excluded one Fed lending program from disclosure, the discount window, which is the subject of a 2008 lawsuit filed by Bloomberg LP, parent of Bloomberg News, against the central bank. A group of banks is appealing to the Supreme Court over lower-court decisions ordering the Fed to identify loan recipients. The program peaked at $110.7 billion in October 2008.

At Goldman Sachs Group Inc., Wall Street’s most profitable securities firm, borrowing from the Primary Dealer Credit Facility peaked at $24 billion in October 2008. “Without question, direct government support was critical in stabilizing the financial system, and we benefitted from it,” Chief Executive Officer Lloyd Blankfein said in January 2010.

Michael DuVally, a Goldman Sachs spokesman in New York, said today that the Fed’s actions “were very successful.”

Continue reading at Bloomberg...


Tighter food supplies, high prices to persist

World food prices are set to remain high in 2011/12 with supplies tightening and demand running strong, the United Nations' food agency economist told Reuters on Wednesday after a new jump in prices.

"The chances of prices to remain high and extremely volatile well into 2011/12 are stronger than ever," FAO's economist Abdolreza Abbassian told Reuters in a telephone interview.

Food prices rose in November on the back of surging sugar and strong gains in cereals and oils.

That was despite the lack of fundamentals which could have justified the rises and also a stronger dollar, which usually sends agricultural commodities prices lower, Abbassian said.

"That shows that there is tremendous market sentiment in favor of high and perhaps still rising prices," he said.

Agricultural commodities demand remained strong, triggering an increased use of reserves and fuelling concerns about tighter supplies next season, especially because the level of new plantings situation in producing countries remained unclear, he said.

Read Full Article

US sails with Japan to flashpoint channel

TOKYO - This month, Japan's Self Defense Forces will hold their first-ever island defense exercise in concert with the United States military in Japan. The exercise, which will take place at a base in Kyushu, will simulate the retaking of one of Japan's small East China Sea islands from "hostile" forces that seized the island and installed anti-aircraft missiles. Ships from the US Seventh Fleet, including the aircraft carrier USS George Washington will take part.

Examination of an atlas helps explain the importance of simulation exercises on the retaking of any of these islands. Stretching more than 1,600 kilometers from the southern tip of Kyushu through Okinawa and almost as far as Taiwan, is a string of islands that are all Japanese, although one small group off to

the side, called the Senkaku by the Japanese, is also claimed by China.

There is a crucial gap in this island chain between Okinawa and the Japanese island of Miyako, wide enough to provide an avenue of international waters through the island chain - and the principal gateway through which the Chinese navy can pass on its way to open sea.

Known as the Miyako Channel, this stretch of water is fast becoming one of the world's most sensitive maritime flashpoints, along with the Strait of Malacca, the Strait of Hormuz or the Taiwan Strait. It may be even more sensitive than the Taiwan Strait, since the US and other navies avoid passing through it unless they are trying to be deliberately provocative.

On the other hand, the Miyako Channel and nearby waters are where the US, Chinese and Japanese navies grind against one another, sometimes almost literally. In April, a Chinese flotilla passed through the channel on the way to open sea. It was shadowed by Japanese destroyers, which in turn were buzzed by Chinese helicopters, prompting Tokyo to make a formal protest about the harassment of its ships.

Tokyo is awakening to the fact that the country's southern flank is basically undefended and open to invasion. Aside from Fortress Okinawa, bristling with American forces, hardly any Japanese military (or American for that matter) are currently deployed on any of the islands. At present, there are only about 2,000 Ground Self Defense Force troops on Okinawa and a small air force radar station on Miyako.

This might be changing. For years, most of Japan's air and ground forces were deployed on the big northern island of Hokkaido to guard against a Russian invasion and to support American operations against the Soviet far east. As that threat has receded with the end of the Cold War, Tokyo has gradually been redeploying its troops to the west and south.

This may accelerate as Beijing is becoming more aggressive in asserting its hegemony over nearby waters. All summer and into autumn, hardly a week has gone by without an announcement of some pending shift in Japan's military resources.

Japan extended its ADIZ (Air Defense Identification Zone), where by aircraft entering must identify itself, further south almost to Taiwan. Japan is considering deploying E2-C early warning aircraft from Misawa in the north to Naha air base on Okinawa to beef up surveillance of the southern islands. The navy announced recently it would expand the submarine force to 22 (currently 16, not counting training vessels).

Tokyo is planning to form a special maritime surveillance station composed of between 100-200 men and place it on Yonaguni island, the farthest west point in Japan, so close to Taiwan that one can see the distant coastline on a clear day. The Defense Ministry is thinking of doubling the number of troops on Okinawa when it updates its basic defense plan at the end of the year. "Defending strong points in the Sakishima chain [southern-most islands in the Ryukyu chain] is very important," said Defense Minister Toshima Kitazawa.

The US hasn't ignored the threat in the East China Sea or China's assertiveness in the South China Sea. In July, three Ohio-class ballistic missile submarines (SSGNs) surfaced more or less simultaneously at Busan, South Korea, Subic Bay in the Philippines and Diego Garcia in the Indian Ocean. The three are converted Trident missile submarines, having been stripped of their intercontinental ballistic missiles and stuffed with Tomahawk cruise missiles - 140 per sub - armed with conventional warheads. Of the four converted SSGNs three are in the Pacific.

The USS Hawaii, a nuclear-powered attack submarine, arrived in September at Yokosuka near Tokyo, home port of the US Seventh Fleet, one more asset in America's naval buildup in Northeast Asia. The Hawaii is part of new class of attack submarines that are configured to operate in shallow, near-shore waters.

As the submarine's captain was happy to tell the Pacific Stars and Stripes newspaper on arrival, the sub has the ability to maintain a "persistent presence off shallow waters". Ideal, it would seem, for the confined spaces of Japan's southern island chain.

Is the threat of China seizing any of these islands by force realistic? One could equally say how realistic was it to expect the Russians to invade Hokkaido? Militaries plan for contingencies, and who is to say that in the future some Chinese leaders might decide that "historical documents" dating back to the Ming Dynasty "prove" that these islands are really Chinese territory?

The Chinese claim only the Sentaku, a small group of uninhabited and essentially useless islands they call the Daioyu. It was the scene of a diplomatic crisis between Tokyo and Beijing in September involving the brief detention of a Chinese fishing boat captain accused of ramming his ship against the coast guard patrol vessels, which is only now beginning to cool. The islands are not inhabited but access is controlled by Japan whose Coast Guard regularly patrols the waters.

Both sides have their own narrative to boost their claims to possession. Japan annexed them in the late 19th century, claiming that nobody else in the neighborhood seemed to want them. During the Sino-Japanese War of 1894-95 the cabinet decided to erect a marker on one of the islets and formally incorporate them into the empire.

For a few years, some Japanese actually lived on the islands, which are privately owned; today they are uninhabited. China says its claims go back further. Among other things, they note that fishermen from Taiwan and Fujian province and other Chinese provinces regularly fished the waters and collected herbs from these islands going back to ancient times. This is undoubtedly true, but it is also probable that these same fishermen touched on Iriomoto Island or maybe Yonakuni island or the Ishigaki islands to use the Japanese names for other East China Sea islets that Beijing does recognize at Japanese territory.

It would be beneficial to China if it could occupy and fortify many of the islands in the southern Sakishima chain. They would be useful in the unlikely event of any war with Taiwan, by allowing the Chinese navy to operate more readily along Taiwan's east coast, which is honeycombed with military installations, many dating back to Japanese occupation and fear of invasion - from the east.

While the current island crisis has cooled considerably, it has the potential to cause more trouble. The issue is vulnerable to exploitation by rogue elements on both sides. These are nationalists from either Japan or China who sneak past the Japanese Coast Guard patrols and plant themselves on the islands defying any attempts to evict them and rapidly turning their mere presence on the islands into a major international crisis.

Deng Xiaoping, architect of modern China, cautioned against letting things "left over from history" interfere with China's economic development and modernization. But he has been dead now for 13 years, and Chinese leaders are increasingly less patient about leaving alone things "left over from history" than they used to be.

Any new confrontation, whether by Chinese or even Japanese sneaking onto the island and raising flags, would likely mobilize China's armies of ultra-nationalist Internet warriors and bloggers accusing their government of selling out to the Japanese if it didn't take strong measures. Beijing takes these messages seriously.

The potential for various "incidents" to escalate into major confrontations over these islands is enormous. On any given day, literally hundreds of Chinese fishing vessels work the waters near the Senkaku. What if all of them suddenly converged into the territorial waters at once, overwhelming the two or three Japanese Coast Guard cutters usually on patrol?

Or, what if 200 or so "activists" (actually intelligence operatives in civilian clothes), occupied one of the smaller islands in the southern chain and proclaimed it Chinese territory based on historical documents? It is pertinent that in next month's exercise, the Japanese are training to retake an island not repel invaders.

Any conflict with China over Japanese possessions in the East China Sea would inevitably draw in the United States. Article 5 of the mutual security treaty obliges the US to defend "territories under the administration of Japan". That applies to the chain of islands (though it is less clear about the disputed Senkaku.)

Foreign Minister Seiji Maehara claims that US Secretary of State Hillary Clinton told him that Washington considered the Senkaku as being covered by the defense treaty.

For 50 years, since the signing of the Treaty of Mutual Security in 1960, Japan has fulfilled its part of the bargain by providing Americans with useful forward bases in Japan. Never has the US had to fulfill its obligation by coming to Japan's defense. If China did make an aggressive move in the island chain, Tokyo would have every right to call in the chips.

Todd Crowell is a Tokyo-based correspondent.

(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved.

« THE FRAUDULENT RESERVE: Ron Paul Says Fed Policy 'Is Out of Control' - Bloomberg Interview (Dec. 1) »

This is pretty brilliant. Try to set aside a few minutes.

Video - Ron Paul discusses the Bernanke bailout disclosures - Dec. 1, 2010


And this is absolute nonsense. Does Lacker think we're not paying attention. The Fed has fought transparency in the courts and in Congress every step of the way, as detailed below.

Fed’s Lacker Says Data Release Is ‘Good Step’ to Transparency

Dec. 1 (Bloomberg) -- Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank’s release of documents today is a “good step” for transparency and shows how policy makers are accountable to U.S. taxpayers.

Jeffrey doesn't mention that the Fed had to be sued into submission.


Bloomberg Sues Fed to Force Disclosure of Collateral

Background on lawsuit that forced the disclosure...


Back during the crisis, Paul screamed 'No Bailout'...

Video - Paul takes his case against Paulson and Ben Ber-Nank to the House floor


Tragedy and Hope by Carroll Quigley

Volumes 1-8

New York: The Macmillan Company


Table of Contents



Part One—Introduction: Western Civilization In Its World Setting

Chapter 1—Cultural Evolution in Civilizations

Chapter 2—Cultural Diffusion in Western Civilization 2

Chapter 3—Europe's Shift to the Twentieth Century

Part Two—Western Civilization to 1914

Chapter 4—The Pattern of Change

Chapter 5—European Economic Developments

Chapter 6—The United States to 1917

Part Three—The Russian Empire to 1917

Chapter 7—Creation of the Russian Civilization

Part Four—The Buffer Fringe

Chapter 8—The Near East to 1914

Chapter 9—The British Imperial Crisis: Africa, Ireland, and India to 1926

Chapter 10—The Far East to World War I

Part Five—The First World War: 1914: 1918

Chapter 11—The Growth of International Tensions, 1871-1914

Chapter 12—Military History, 1914-1918

Chapter 13—Diplomatic History, 1914-1 918

Chapter 14—The Home Front, 1914-1918

Part Six—The Versailles System and the Return to Normalcy: 1919-1929

Chapter 15—The Peace Settlements, 1919-1923

Chapter 16—Security, 1919-1935

Chapter 17—Disarmament, 1919-1935

Chapter 18—Reparations, 1919-1932

Part Seven—Finance, Commercial and Business Activity: 1897-1947

Chapter 19—Reflation and Inflation, 1897-1925

Chapter 20—The Period of Stabilization, 1922-1930

Chapter 21—The Period of Deflation, 1927- 1936

Chapter 22—Reflation and Inflation, 1933-1947

Part Eight—International Socialism and the Soviet Challenge

Chapter 23—The International Socialist Movement

Chapter 24—The Bolshevik Revolution to 1924

Chapter 25—Stalinism, 1924-1939

Part Nine—Germany from Kaiser to Hitler: 1913-1945

Chapter 26—Introduction

Chapter 27—The Weimar Republic, 1918-1933

Chapter 28—The Nazi Regime

Part Ten—Britain: the Background to Appeasement: 1900-1939

Chapter 29—The Social and Constitutional Background

Chapter 30—Political History to 1939

Part Eleven—Changing Economic Patterns

Chapter 31—Introduction

Chapter 32—Great Britain

Chapter 33—Germany

Chapter 34—France

Chapter 35—The United States of America

Chapter 36—The Economic Factors

Chapter 37—The Results of Economic Depression

Chapter 38—The Pluralist Economy and World Blocs

Part Twelve—The Policy of Appeasement, 1931-1936

Chapter 39—Introduction

Chapter 40—The Japanese Assault, 1931-1941

Chapter 41—The Italian Assault, 1934-1936

Chapter 42—Circles and Counter-circles, 1935-1939

Chapter 43—The Spanish Tragedy, 1931–1939

Part Thirteen—The Disruption of Europe: 1937-1939

Chapter 44—Austria Infelix, 1933-1938

Chapter 45—The Czechoslovak Crisis, 1937-1938

Chapter 46—The Year of Dupes, 1939

Part Fourteen—World War II: the Tide of Aggression: 1939-1941

Chapter 47—Introduction

Chapter 48—The Battle of Poland, September 1939

Chapter 49—The Sitzkrieg, September 1, 1939-May 1940

Chapter 50—The Fall of France, (May-June 1940) and the Vichy Regime

Chapter 51—The Battle of Britain, July-October 1940

Chapter 52—The Mediterranean and Eastern Europe, 1940) June 1940-June 1941

Chapter 53—American Neutrality and Aid to Britain

Chapter 54—The Nazi Attack on Soviet Russia, 1941-1942

Part Fifteen—World War II: the Ebb of Aggression: 1941-1945

Chapter 55—The Rising in the Pacific, to 1942

Chapter 56—The Turning Tide, 1942-1943: Midway, E1 Alamein, French Africa, and Stalingrad

Chapter 57—Closing in on Germany, 1943-1945

Chapter 58—Closing in on Japan, 1943-1945

Part Sixteen—The New Age

Chapter 59—Introduction

Chapter 60—Rationalization and Science

Chapter 61—The Twentieth-Century Pattern

Part Seventeen—Nuclear Rivalry and the Cold War: American Atomic Supremacy: 1945-1950

Chapter 62—The Factors

Chapter 63—The Origins of the Cold War, 1945-1949

Chapter 64—The Crisis in China, 1945-1950

Chapter 65—American Confusions, 1945-1950

Part Eighteen—Nuclear Rivalry and the Cold War: the Race for H-Bomb: 1950-1957

Chapter 66—"Joe I" and the American Nuclear Debate, 1949-1954

Chapter 67—The Korean War and Its Aftermath, 1950-1954

Chapter 68—The Eisenhower Team, 1952-1956

Chapter 69—The Rise of Khrushchev, 1953-1958

Chapter 70—The Cold War in Eastern and Southern Asia, 1950-1957

Part Nineteen—The New Era: 1957-1964

Chapter 71—The Growth of Nuclear Stalemate

Chapter 72—The Disintegrating Super-blocs

Chapter 73—The Eclipse of Colonialism

Part Twenty—Tragedy and Hope: the Future in Perspective

Chapter 74—The Unfolding of Time

Chapter 75—The United States and the Middle-Class Crisis

Chapter 76—European Ambiguities

Chapter 77—Conclusion