The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went

Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks, among which Belgium's Dexia was the most troubled, and thus most lent to, bank. Having been thus exposed, many speculated that going forward the US central bank would primarily focus its "rescue" efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that's what the ECB is for, while the Fed's role is to stimulate US employment and to keep US inflation modest. And furthermore, should the ECB need to bail out its banks, it could simply do what the Fed does, and monetize debt, thus boosting its assets, while concurrently expanding its excess reserves thus generating fungible capital which would go to European banks. Wrong. Below we present that not only has the Fed's bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!
For those who can't wait for the punchline, here it is. Below we chart the total cash holdings of Foreign-related banks in the US using weekly H.8 data.

Note the $630 billion increase in foreign bank cash balances since November 3, which just so happens is the date when the Fed commenced QE2 operations in the form of adding excess reserves to the liability side of its balance sheet. Here is the change in Fed reserves during QE2 (from the Fed's H.4.1 statement, ending with the week of June 1).

Above, note that Fed reserves increased by $610 billion for the duration of QE2 through the week ending June 1 (and by another $70 billion in the week ending June 8, although since we only have bank cash data through June 1, we use the former number, although we are certain that the bulk of this incremental cash once again went to foreign financial institutions).
So how did cash held by US banks fare during QE2? Well, not good. The chart below demonstrates cash balances at small and large US domestic banks, as well as the cash at foreign banks, all of which is compared to total Fed reserves plotted on the same axis. It pretty much explains it all.

The chart above has tremendous implications for everything from US and European monetary policy, to exhange rate and trade policy, to the current account on both sides of the Atlantic, to US fiscal policy, to borrowing and lending activity in the US, and, lastly, to QE 3.
What is the first notable thing about the above chart is that while cash levels in US and US-based foreign-banks correlate almost perfectly with the Fed's reserve balances, as they should, there is a notable divergence beginning around May of 2010, or the first Greek bailout, when Europe was in a state of turmoil, and when cash assets of foreign banks jumped by $200 billion, independent of the Fed and of cash holdings by US banks. About 6 months later, this jump in foreign bank cash balances had plunged to the lowest in years, due to repatriated fungible cash being used to plug undercapitalized local operations, with total cash just $265 billion as of November 17, just as QE2 was commencing. Incidentally, the last time foreign banks had this little cash was April 2009... Just as QE1 was beginning. As to what happens next, the first chart above says it all: cash held by foreign banks jumps from $308 billion on November 3, or the official start of QE2, to $940 billion as of June 1: an almost dollar for dollar increase with the increase in Fed reserve balances. In other words, while the Fed did nothing to rescue foreign banks in the aftermath of the first Greek crisis, aside from opening up FX swap lines, one can argue that the whole point of QE2 was not so much to spike equity markets, or the proverbial "third mandate" of Ben Bernanke, but solely to rescue European banks!
What this observation also means, is that the bulk of risk asset purchasing by dealer desks (if any), has not been performed by US-based primary dealers, as has been widely speculated, but by foreign dealers, which have the designatin of "Primary" with the Federal Reserve. Below is the list of 20 Primary Dealers currently recognized by the New York Fed. The foreign ones, with US-based operations, are bolded:

• BNP Paribas Securities Corp.
• Barclays Capital Inc.
• Cantor Fitzgerald & Co.
• Citigroup Global Markets Inc.
• Credit Suisse Securities (USA) LLC
• Daiwa Capital Markets America Inc.
• Deutsche Bank Securities Inc.
• Goldman, Sachs & Co.
• HSBC Securities (USA) Inc.
• Jefferies & Company, Inc.
• J.P. Morgan Securities LLC
• MF Global Inc.
• Merrill Lynch, Pierce, Fenner & Smith Incorporated
• Mizuho Securities USA Inc.
• Morgan Stanley & Co. LLC
• Nomura Securities International, Inc.
• RBC Capital Markets, LLC
• RBS Securities Inc.
• SG Americas Securities, LLC
• UBS Securities LLC.

That's right, out of 20 Primary Dealers, 12 are.... foreign. And incidentally, the reason why we added the (if any) above, is that since this cash is fungible between on and off-shore operations, what happened is that the $600 billion in cash was promptly repatriated and used by domestic branches of foreign banks to fill undercapitalization voids left by exposure to insolvent European PIIGS and for all other bankruptcy-related capital needs. And one wonders why suddenly German banks are so willing to take haircuts on Greek bonds: it is simply because courtesy of their US based branches which have been getting the bulk of the Fed's dollars in 1 and 0 format, they suddenly find themselves willing and ready to face the mark to market on Greek debt from par to 50 cents on the dollar. And not only Greek, but all other PIIGS, which will inevitably happen once Greece goes bankrupt, either volutnarily or otherwise. In fact, the $600 billion in cash that was repatriated to Europe will mean that European banks likely are fully covered to face the capitalization shortfall that will occur once Portugal, Ireland, Greece, Spain and possibly Italy are forced to face the inevitable Event of Default that will see their bonds marked down anywhere between 20% and 60%. Of course, this will also expose the ECB as an insolvent central bank, but that largely explains why Germany has been so willing to allow Mario Draghi to take the helm at an institution that will soon be left insolvent, and also explains the recent shocking animosity between Angela Merkel and Jean Claude Trichet: the German are preparing for the end of the ECB, and thanks to Ben Bernanke they are certainly capitalized well enough to handle the end of Europe's lender of first and last resort. But don't take our word for this: here is Stone McCarthy's explanation of what massive reserve sequestering by foreign banks means: "Foreign banks operating in the US often lend reserves to home offices or other banks operating outside the US. These loans do not change the volume of excess reserves in the system, but do support the funding of dollar denominated assets outside the US....Foreign banks operating in the US do not present a large source of C&I, Consumer, or Real Estate Loans. These banks represent about 16% of commercial bank assets, but only about 9% of bank credit. Thus, the concern that excess reserves will quickly fuel lending activities and money growth is probably diminished by the skewing of excess reserve balances towards foreign banks."
Which brings us to point #2: prepare for the Bernanke hearings and possible impeachment. For if it becomes popular knowledge that the Chairman of the Fed, despite explicit instructions to enforce the trickle down of "printed" dollars to US banks, was only concerned about rescuing foreign banks with the $600 billion in excess cash created out of QE2, then all political hell is about to break loose, and not even Democrats will be able to defend Bernanke's actions to a public furious with the complete inability to procure a loan. Any loan. Furthermore the data above proves beyond a reasonable doubt why there has been no excess lending by US banks to US borrowers: none of the cash ever even made it to US banks! This also resolves the mystery of the broken money multiplier and why the velocity of money has imploded.
Implication #3 explains why the US dollar has been as week as it has since the start of QE 2. Instead of repricing the EUR to a fair value, somewhere around parity with the USD, this stealthy fund flow from the US to Europe to the tune of $600 billion has likely resulted in an artificial boost in the european currency to the tune of 2000-3000 pips, keeping it far from its fair value of about 1.1 EURUSD. If this data does not send European (read German) exporters into a blind rage, after the realization that the Fed (most certainly with the complicity of the G7) was willing to sacrifice European economic output in order to plug European bank undercapitalization, then nothing will.
But implication #4 is by far the most important. Recall that Bill Gross has long been asking where the cash to purchase bonds come the end of QE 2 would come from. Well, the punditry, in its parroting groupthink stupidity (validated by precisely zero actual research), immediately set forth the thesis that there is no problem: after all banks would simply reverse the process of reserve expansion and use the $750 billion in Cash that will be accumulated by the end of QE 2 on June 30 to purchase US Treasurys.
Wrong.
The above data destroys this thesis completely: since the bulk of the reserve induced bank cash has long since departed US shores and is now being used to ratably fill European bank balance sheet voids, and since US banks have benefited precisely not at all from any of the reserves generated by QE 2, there is exactly zero dry powder for the US Primary Dealers to purchase Treasurys starting July 1.
This observation may well be the missing link that justifies the Gross argument, as it puts to rest any speculation that there is any buyer remaining for Treasurys. Alas: the digital cash generated by the Fed's computers has long since been spent... a few thousand miles east of the US.
Which leads us to implication #5. QE 3 is a certainty. The one thing people focus on during every episode of monetary easing is the change in Fed assets, which courtesy of LSAP means a jump in Treasurys, MBS, Agency paper, or (for the tin foil brigade) ES: the truth is all these are a distraction. The one thing people always forget is the change in Fed liabilities, all of them: currency in circulation, which has barely budged in the past 3 years, and far more importantly- excess reserves, which as this article demonstrates, is the electronic "cash" that goes to needy banks the world over in order to fund this need or that. In fact, it is the need to expand the Fed's liabilities that is and has always been a driver of monetary stimulus, not the need to boost Fed assets. The latter is, counterintuitively, merely a mathematical aftereffect of matching an asset-for-liability expansion. This means that as banks are about to face yet another risk flaring episode in the next several months, the Fed will need to release another $500-$1000 billion in excess reserves. As to what asset will be used to match this balance sheet expansion, why take your picK; the Fed could buy MBS, Muni bonds, Treasurys, or go Japanese, and purchase ETFs, REITs, or just go ahead and outright buy up every underwater mortgage in the US. This side of the ledger is largely irrelevant, and will serve only two functions: to send the S&P surging, and to send the precious metal complex surging² as it becomes clear that the dollar is now entirely worthless.
That said, of all of the above, the one we are most looking forward to is the impeachment of Ben Bernanke: because if there is one definitive proof of the Fed abdicating any and all of its mandates, and merely playing the role of globofunder explicitly at the expense of US consumers and borrowers, not to mention lackey for the banking syndicate, this is it.

IMF and World Bank: Global Loan Sharks and the Media

IMF and World Bank: Global Loan Sharks and the Media
We rarely hear about them in the major news media -- and when we do, we get mostly fluff and flackery.
According to the media image, they function tirelessly to encourage "reforms" so that backward countries can get their economic houses in order.
Who are they? The International Monetary Fund and the World Bank -- the two most powerful financial institutions on earth.
From Russia and Thailand to Bolivia and Chile, the IMF and the World Bank provide loans -- and constant advice. Well-heeled economists from affluent countries routinely offer billions of dollars, if the needy nations prove willing to make certain changes in policies.
Serving as a conduit for money from Western governments and banks and bondholders (with the United States as the biggest single source of funds), the IMF and World Bank require that recipient nations adhere to strict "structural adjustment" programs. They include easing limits on foreign investment, increasing exports, suppressing wages, cutting social services such as health care and education, and keeping the state out of potentially profitable endeavors.
"The World Bank and the IMF don't just have direct control over tens of billions of dollars per year," points out researcher Kevin Danaher of the Global Exchange organization based in San Francisco. "They also indirectly control much more from the commercial banks by functioning as a good housekeeping seal of approval. Offending governments who won't follow IMF/World Bank prescriptions get cut off from international lending -- no matter how well those governments may be serving their own people."
In Africa, Asia and Latin America, the pattern has been grim: To get grants and loans, governments agree to devalue currencies and cut subsidies -- thus raising the prices of necessities like food -- while freezing wages and reducing public employment. Scores of countries are struggling to pay the interest on old loans and qualify for new ones.
The spiral has brought deepening poverty and debt. "From the onset of the debt crisis in 1982, until 1990, debtor countries paid creditors in the North $6,500 million [$6.5 billion] per month in interest alone," reports the British magazine New Scientist. "Yet in 1991 those countries were 61 percent more indebted than they were in 1982."
While the U.S. press is apt to portray the IMF and World Bank as selfless Good Samaritans, the reality is that these 50 year-old institutions function more like global loan sharks. One way countries are encouraged to repay their debts is by shifting from domestic agriculture to export crops.
Davison Budhoo, an economist who resigned from the IMF in protest, contends that the agency's approach has "led to the devastation of traditional agriculture, and to the emergence of hordes of landless farmers in virtually every country where the World Bank and IMF operate." And, he adds, "Food security has declined dramatically in all Third World regions, but in Africa in particular."
In Zimbabwe -- formerly known as the breadbasket of Southern Africa -- the IMF pressured the nation's Grain Marketing Board to make a profit by selling much of its stockpiled grain. And the U.S. Agency for International Development encouraged Zimbabwe to grow high-grade tobacco. As a result, acreage for corn dropped sharply -- and the specter of famine was not far behind.
A disaster for all concerned? Not quite. Such disasters in the Southern Hemisphere have a way of serving as bonanzas for bankers in the North. Interest payments keep flowing northward as debt burdens increase.
Since 1980, "structural adjustment" has been visited upon more than 70 countries. "There are losers and there are winners in structural adjustment," says Leonor Briones, president of the Freedom from Debt Coalition in The Philippines. "The losers are those who are already losing. The winners: the banks, the businessmen, the politicians."
The international affairs director of the D.C.-based Environmental Defense Fund, Bruce Rich, cites the World Bank's "sad record of supporting military regimes and governments openly violating human rights." And he points to environmentally destructive actions such as last summer's approval of a $400 million World Bank loan to India for coalburning power plants -- anathema to those concerned about global warming and C0-2 emissions.
A revealing memo by the World Bank's chief economist, Lawrence Summers, was leaked in January 1992: "The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that.... I've always thought that underpopulated countries in Africa are vastly under-polluted." (Summers went on to become the Clinton administration's undersecretary of the treasury for international affairs.)
In his new book "Utopia Unarmed," the Mexican scholar Jorge Castaneda calls the World Bank and the IMF "the institutions that play the most important role in managing international economic relations today." Yet the U.S. mass media tell us little about these agencies casting enormous fiscal shadows across the globe.
Raising questions about the International Monetary Fund and the World Bank could provoke far-reaching responses. As political analyst Noam Chomsky has put it: "To challenge the right of investors to determine who lives, who dies, and how they live and die -- that would be a significant move toward Enlightenment ideals.... That would be revolutionary."

Missouri River - Flood of Biblical Proportions 6/11/11

Power play over the 'energy crunch'

The energy market is responding to shifting cost and political pressures

It's get-tough time. John Swinney, Scotland's economy secretary, is out to kick some bahookey when he next meets Scottish Power executives.
Following their sharp increases in energy prices, he says they need to explain themselves.
Chris Huhne, the UK's energy secretary, is telling that company's customers to shop around for better value. He doesn't seem to have noticed that industry experts, and inexperts besides, all expect other energy suppliers to follow Scottish Power's unpopular lead.
But could it be this has a lot to do with choices the politicians have been making, or failing to make?
Energy bills include several elements. Just under two-thirds of bills are explained by wholesale prices. One pound in six goes on the cost of distribution, for both gas and electricity.
Transmission charges through the major grid networks account for 2% of gas costs and 4% for electricity.
Then there's VAT, which has stuck at 5% while the main rate has gone up.
Renewable upgrades But what about the 'environmental' cost? For the average gas bill, that costs 4% of bills sliced off to promote renewable energy, cut emissions and generally tackle climate change. For electricity, it's 10% of your bill.
And of course, the decision to charge that is not down to the power companies, but to government and regulator - fulfilling international commitments on carbon emissions, and in some cases going further and faster.

“Start Quote

How much more will these choices cost consumers in future?”

The SNP government, for instance, is committed to sourcing 100% of Scotland's electricity needs from renewable sources by the end of the decade. However laudable in environmental and industrial strategy terms, that's going to cost money. And it's not government that's paying the price, but consumers.
It's reckoned about £200bn is needed to upgrade Britain's energy infrastructure, to meet the aspirations of renewables and to catch up with low investment in the industry over recent decades.
That catch-up is required because politicians of other political colours were slow to respond to the looming energy crunch point, preferring to pretend that energy bills could be kept low.
The investment programme includes wind farms, and the pylons and cables to get power into the grid. Then there's the re-orientation of the grid itself to bring energy from renewable sources to population centres.
It also includes new pipelines and terminals to bring gas from outside the UK, and it goes some way to the high costs of creating a North Sea supergrid for electricity. And a large chunk of the bill is from replacing ageing power stations, with cleaner burn and emissions technologies.
Pricing clarity So while Scottish Power this week announced it will load 19% onto gas bills and an average 10% on to electricity, how much more will these choices cost consumers in future?
An analysis by Ofgem, the industry regulator, concluded the best case scenario for energy prices is a rise of only 14%. This was written in 2009, when it was not clear that world energy prices would recover from recession. Since then, they have.

Ofgem has looked at the cost of moving towards new sources of energy

Its scenarios ranged more realistically above 20% to a high of a 60% increase by 2016, and then falling back. That would see a sharp spike in global gas prices.
That level of pessimism might be overdoing it. Although there are several reasons for upward pressure, the gas price has not seen oil's rapid increase, largely through new sources of gas being cracked open with the fracking boom, and there is improving capacity for importing liquid natural gas by tanker.
Last December, Ofgem took another look at the cost of changing generation and distribution networks to reflect new renewable sources of energy, and the impact that could have on bills.
That report suggests more modest increases for consumer bills this decade. But within the next 40 years, it assumes electricity bills will have more than doubled to pay for the new investment, from just over £400 last year to between £800 and £900, in real terms.
Clearly, there is pressure to be put on the energy utilities; to ensure they don't abuse their market power, to add clarity to pricing, and to ensure they respond as fast to downwards wholesale prices as they do to the upward pressures.
But there's also some clarity required about the political decisions that contribute to those increasing bills, and about the era of cheap energy that's now behind us.

Alabama tornado recovery: FEMA rejections vex April storm victims

View full sizeJonathan and Lisa Stewart and their children, Haley and Noah, lost their house in the April 27 tornado that devastated Pleasant Grove. After a FEMA inspection, they received a letter from the agency saying the damage was insufficient to qualify for a grant. (The Birmingham News/Joe Songer)

BIRMINGHAM, Alabama -- The tornado turned Jonathan Stewart's house into a pile of rubble on April 27, nothing but bricks and debris scattered ovei a concrete slab.
Days later, an inspector from the Federal Emergency Management Agency came to Stewart's address in Pleasant Grove, and took some notes and pictures. Three days later, Stewart received a letter stating he didn't qualify for a FEMA grant. One of the reasons: Insufficient damage.
'Based on your FEMA inspection, we have determined that the disaster has not caused your home to be unsafe to live in,' the letter read.
The reaction of Stewart and his wife: 'Lisa and I looked at the letter and laughed,' he said. Similarly, Lashunta Tabb's house in North Smithfield Manor has three damaged outer walls, it's stripped of its siding, and more than half of the roof is gone.
There's no way to live there, she said. But after a FEMA inspection, she received a letter that was word for word what the Stewarts received: Insufficient damage.
"Although the disaster may have caused some minor damage," both letters stated, "it is reasonable to expect you or your landlord to make these repairs. At this time you are not eligible for FEMA housing assistance."
These head-scratching assessments -- where the words don't seem to reflect reality -- have been delivered to an unknown number of Alabama tornado victims. But FEMA says "insufficient damage" is the top reason in Alabama that people are initially determined ineligible for FEMA grants.
FEMA officials urge applicants who believe they were incorrectly declared ineligible -- for whatever reason -- to appeal.
Many of the findings of insufficient damage are correct, according to Lynda Lowe, a FEMA deputy branch director for individual assistance.
"A lot of those people registered but didn't have damage," she said.
Keith Arthur, FEMA's inspection service coordinator for Alabama, said he couldn't be sure what happened in individual cases such as with homes belonging to Tabb and the Stewarts. The truth of a finding can be easily determined on appeal, he said.
But FEMA reported that as of Wednesday, less than 1 percent of the 25,081 applicants initially declared ineligible for any reason had appealed. FEMA couldn't provide a number for how many of those declarations were due to insufficient damage.
Stewart said he now knows his insurance coverage will replace his house, so he would be ineligible for a FEMA grant anyway. But he wonders how many others who would be eligible for housing assistance -- because they're uninsured or under-insured -- got turned off by the finding of insufficient damage and have given up.
FEMA spokeswoman Renee Bafalis said getting people to appeal has been the agency's biggest hurdle. "If you have a question why you received a determination of ineligibility, go in there (to a disaster recovery center) and let them look it up and help you file an appeal," she said.
An applicant has 60 days from the date of the determination letter to appeal.
Lawsuits against FEMA
Stories about insufficient damage findings by FEMA, similar to the Stewarts' and Tabb's, abound in news accounts and blogs after nearly every recent disaster.
A 2011 tornado victim in North Carolina whose ravaged home was condemned by the city received an "insufficient damage" determination from FEMA. A Mississippi couple who received such a finding after Hurricane Katrina in 2005 posted before-and-after pictures of their two-story home, showing nothing left but foundation posts. A Slidell, La., Katrina victim posted an appeal to her "insufficient damage" finding, asking what kind of damage would be "sufficient," given that the house was gutted by an 8-foot-high storm surge and all possessions were lost.
In Texas, a lawsuit alleges FEMA improperly denied thousands of poor farm workers money to repair their homes after Hurricane Dolly in 2008 based on the insufficient damage finding. In the Texas cases, 38,000 families applied for assistance and 22,000 applications were denied. The lawsuit, still pending in a federal court in Brownsville, Texas, said "FEMA's only written explanation was a form stating that each ineligibility determination was due to 'insufficient damage.' " Seeking further explanation, the group of Rio Grande Valley homeowners represented in the suit learned that the reason behind more than 10,000 "insufficient damage" denials was a concept used by FEMA called "deferred maintenance," the suit states.
Deferred maintenance is not referenced in any regulation nor is it a publicly available standard, according to Jerry Wesevich, an attorney with Texas Rio Grande Legal Aid who represents the plaintiffs. Deferred maintenance is a "shorthand term that FEMA uses when it determines somehow that a condition of a home prior to the disaster caused the damage after the storm," Wesevich said. "I'm not sure how that works, and we have a right to find out.
"They never write down 'deferred maintenance.' But their excuse is, it's in the inspector's judgment that if the house was a piece of (junk) beforehand, they'll deny it. But they won't tell the public what it is based on."
Calls to the U.S. Department of Justice lawyer representing FEMA were not returned.
In Alabama, Arthur, the inspectors' coordinator, said inspectors no longer use deferred maintenance in assessing damage. There is a place for inspectors to note "preexisting" conditions, he said, but they have no impact on the bottom-line dollar assessment.
"It's simple, really. Your house was either damaged by the storm or it wasn't," Arthur said.
Pricing by computer
After a victim applies for a FEMA grant, an inspector is dispatched to the applicant's property. At its peak after April 27, FEMA deployed 523 inspectors in Alabama conducting 5,000 inspections per day -- an average of nearly 10 per inspector, Arthur said.
The inspectors use laptop-sized computers that are tied to a computer database called NEMIS (National Emergency Management Information System).
One of the first steps inspectors undertake, guided by a program, is to "build the house," measuring rooms and entering the data. The inspectors then assess damage, again guided by the program. For example, they choose from a drop-down menu under a category for "kitchen appliances" and label particular appliances as "unaffected," "repair" or "replace."
Based on the inspector's choices, the computer interacts with NEMIS, which can price each item based on the going price for that item in the particular geographic region.
Shingles, for example, are more expensive in the North, Arthur said, and the computer accounts for that as it builds its report. A full inspection takes 45 to 80 minutes depending on damage, he said.
The information from the report then is turned into letters telling an applicant whether he qualifies for FEMA assistance, based on what is known at the time.
Inspectors are private subcontractors. Many of them come from the construction industry or the house inspection business, Arthur said, but these are not necessarily requirements. FEMA is near the end of a 4 1/2- year, $750 million contract with Partnership for Response & Recovery of Fairfax, Va., which pays inspectors $57.50 per house inspection, according to its website. Those wanting to be an inspector fill out an online application, submit to a background check, and take a "mock inspection class for hands-on training."
Critics claim that the volume and speed of the inspections and the possibility of an inspector with little or no experience leave room for mistakes -- mistakes that might lead to giving aid to people who don't deserve it and none to victims who do.
But FEMA officials point to the millions of dollars quickly dispatched to victims who are often in desperate situations.
In some ways, FEMA officials are in a no-win situation, said Claire B. Rubin, a disaster researcher and consultant in the Washington, D.C., area. The agency gets criticized when applicants receive rejections due to insufficient damage or other reasons. On the other hand, FEMA was blistered by the General Accounting Office and the media for wasting millions after the 2004 Florida hurricanes and Hurricane Katrina for overpaying on contracts and awarding grants to unqualified individuals.
"In Katrina they lost so much money because they were not careful about payout," Rubin said. "The GAO hit them hard."
Join the conversation, add a comment or email: moliver@bhamnews.com

Check Out The 11 U.S. States Most Likely To Default And Need A Taxpayer Bailout In The Next 5 Years

A list of the worst state risks, ranked by cumulative probability of default (CPD). Default risk is measured by fluctuations in the state's CDS rating, and the max level of that rating.  The spread of each 10-year CDS is listed, as well as the implied credit rating of each state on the list of fiscal losers.
Slideshow with photos...

• The 11 States Most Likely to Default in the Next 5 Years

Greece pays a heavy price as eurozone strives to protect its reckless banks

Further austerity by the Athens government will only serve to hide the catastrophic consequences of irresponsible lending

Click to see Dave Simonds's full cartoon.

While Germany was locked in an embarrassing public spat with the European Central Bank last week over who should pay the price for a new Greek bailout, fresh evidence was emerging of the impact of the savage cuts Athens has already imposed on its increasingly restive citizens.
The number of people unemployed has shot up by 40% over the past 12 months; the jobless rate now stands above 16%. Among young people it's a devastating 42%, representing extraordinary human and social cost. Yet the government's latest plans envisage another four years of slash and burn, taking the deficit from 7.5% of GDP this year to 1% by 2015. It's extreme fiscal masochism, and it isn't going to work.
Growth is suffering: the economy expanded by a miserable 0.2% in the first quarter of 2011, official figures revealed. Over the past year, it has contracted by a total of 5.5%, and forecasters – including Greece's creditors, the IMF and the ECB – are expecting a further catastrophic decline of more than 3% over the coming 12 months.
Yet while Greece is swallowing its medicine, it's become increasingly clear – as many economists and investors have argued for months – that it's not just caught in a short-term cash crunch, but a solvency crisis. With its economy shrinking, Greece simply cannot afford to pay its debts.
The past year of pain has had very little to do with putting Greece's finances on a sustainable footing, and everything to do with papering over the catastrophic losses of the eurozone banks that indulged in an irresponsible lending spree in the run-up to the credit crunch.
As the venerable Leigh Skene of Lombard Street Research put it last week: "Writing assets down to fair value and then recapitalising banks should be the first priority in restoring economic growth after a banking crisis. Sadly, Europe went in the opposite direction and tried to ensure that no bank, regardless of how insolvent [it was], defaulted on its liabilities."
We've been here before. In the first of Adam Curtis's brilliant series of documentaries, All Watched Over by Machines of Loving Grace, broadcast on BBC2 over the past month, he described how the IMF – with the backing of Washington – wrought havoc on the Asian economies in the late 1990s. After a credit boom, driven by a frenzy of lending from the rich world's banks, turned into a crash, the IMF oversaw a series of bailouts, often insisting on savage budget cuts and "structural reforms" as a quid pro quo, emboldened by the idea that unleashing market forces would, in the end, lead to stability.
In many cases, including Indonesia, the Philippines and Thailand, the result instead was political and social chaos, but the west's banks, which had recklessly poured cash into the "Asian Tigers", didn't lose out. Even the IMF itself has since acknowledged that its prescriptions at the time made the problems worse. "While tough measures are needed to address deep economic problems, the conditions accompanying its programmes need to be more focused on the problems at hand, and it needs to be more conscious of the social impact of those programmes," it now says.
Yet the "rescue" of Greece, Portugal and Ireland – this time administered under the guise of European solidarity – followed precisely the same logic: private sector creditors must be protected; deficits must be tackled at a breakneck pace; no gain without pain.
Last week's intervention by Wolfgang Schäuble, the Germany finance minister, suggested that, in Berlin at least, reality is starting to dawn. Under pressure from domestic politicians, Germany is pressing for Greece's private-sector creditors, including Germany's own banks, to shoulder some of the burden of a fresh bailout through a "voluntary" debt swap, which would extend the lifetime of existing bonds by seven years. At the same time, Greece would step up its privatisation programme to raise short-term cash, and the "troika" of the IMF, the European commission and the ECB would find another €60bn (£53bn) or so.
Details are hazy, but such a "reprofiling" is just a default by another name, and the ratings agencies would be likely to see it as such. That would force banks holding Greek bonds, including the German banks, to write down their face value.
The ECB is vehemently opposed to the idea, partly because it is sitting on a pile of Greek bonds itself, and partly because it fears that a default, even one as widely anticipated as this, would create panic on a scale not seen since the Lehman Brothers bankruptcy in September 2008 – and we all know how that story ended.
The number-crunchers at consultancy Fathom reckon that a debt swap along the lines proposed by the Germans would mean a writedown of anything up to 36% on the value of Greek bonds.
That would probably require eurozone governments, including the French and Germans, to recapitalise their banks, at huge political and economic cost, but Fathom's Erik Britton reckons that even a default on this scale will not be enough to put Greek public finances back on a sustainable footing. "It needs to be twice that," he says. "If they're going to do it, they might as well do it properly."
He suggests a 70% default will eventually become necessary and that Greece will inevitably be followed by Portugal and Ireland. The all-out market panic that could result might well drag in Spain, too.
In other words, by shifting the pain on to the hapless taxpayers of Greece in order to cushion the eurozone's banks from the consequences of their own actions, all that Europe's leaders have succeeded in doing is exposing a political schism at the heart of the eurozone project – and sowing the seeds of an almighty market panic.
Even if Germany and the ECB can somehow patch up their differences and cobble together a short-term rescue deal for Greece, they will rapidly have to turn their attention to Portugal, Ireland, and – perhaps some time next year – back to Greece. And if the economics look grim, the politics of the euro project look even worse. Skene is exactly right to say that Greece is "the canary in the coalmine".

Marc Faber Spells it ALL OUT in 6 minutes - "We Are All Doomed"

http://tinyurl.com/3txg3fs

Ron Paul Libyan War Is "About Commercial Business!"

Watch this video ..... http://revolutionarypolitics.tv/video/viewVideo.php?video_id=15289

Ron Paul tells Manchester crowd inflation will hit 50 percent

Dees Illustration

Mark Hayward
New Hampshire Union Leader

MANCHESTER — Texas congressman Ron Paul on Friday predicted that inflation will hit 50 percent in the next couple of years, thanks to the massive debt the country has accumulated.

Paul, who spoke to admirers and Republican activists at a Manchester house party, said the inflation will act like default.

Social Security checks will still be cut and interest payments will still be made, but the inflated dollars will allow the government to repay borrowed dollars with devalued money, Paul said.

“They cannot pay the debt,” he said. “I don't think that means you shouldn't try and work things out, but with the size of this debt it never gets paid.”

The national debt is about $14.3 trillion.

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Russia, China snub U.N. council talks on Syria: envoys

(Reuters) - Russia and China snubbed U.N. Security Council talks on Saturday convened to discuss a draft resolution that would condemn Syria's bloody crackdown on pro-democracy protesters, U.N. diplomats said.
"Russia and China didn't think it necessary to show up," a council diplomat told Reuters on condition of anonymity. "It's a pretty clear message," another diplomat said.
The European drafters of the resolution convened Saturday's talks in the hope they could break their deadlock on a draft resolution that would not impose sanctions on Syria but would condemn it for the crackdown and suggest Syrian security forces might be guilty of crimes against humanity.
Diplomats said the latest meeting produced no changes among the 13 Security Council members that attended. Currently, nine members, including the draft's sponsors, Britain, France, Germany and Portugal, plan to vote for it.
The United States is not sponsoring the resolution but has made clear it supports the text and condemns the violence against the demonstrators. It accused the Syrian government on Saturday of creating a "humanitarian crisis" and called on it to halt its offensive.
Russia and China dislike the idea of any council discussion of Syria and have suggested they might use their veto power to kill the resolution. Lebanon, India, Brazil and South Africa have also said they have problems with the text.
"The Syrians are firing into the crowds and they (Russia and China) don't care," a Western diplomat told Reuters, requesting anonymity.
Diplomats said they were especially concerned about reports that Syrian security forces had been using helicopter gunships and firing live ammunition at demonstrators. U.N. Secretary-General Ban Ki-moon said the use of military force against civilians was unacceptable.
Syrian Foreign Minister Walid al-Moualem told Ban and the Security Council in a letter obtained by Reuters on Friday that if the council approved the European draft resolution, it would only embolden "extremists and terrorists.
Envoys said the latest draft, submitted to the council on Wednesday by Britain, France, Germany and Portugal, could be put to a vote next week.
Western envoys said they were especially frustrated with the positions of Brazil, India and South Africa, which are considering abstaining from the vote.
"We're trying to explain to them that abstaining on this issue means siding with Russia and China -- and Syria," one diplomat said.
The diplomat added that if Brazil, India and South Africa voted for the resolution, the Russians and Chinese might consider abstaining instead of vetoing the resolution.
Given Lebanon's complicated ties to its neighbor Syria, diplomats said they expected it to vote against the draft.
Resolutions need nine votes in favor and no vetoes from the five permanent council members -- Britain, China, France, Russia and the United States -- in order to pass.
(Editing by Peter Cooney)

Online Cash Bitcoin Could Challenge Governments, Banks

The Bitcoin digital currency also works a lot like cash in that it's anonymous. When you go to a flea market and pay cash for an old Commodore 64, there's no record of the transaction. You don't have to know the seller's name, and the seller doesn't need to know yours. Digital currencies by contrast rely on accounts, and have to collect at least some information about you. Because Bitcoin employs no such accounts and instead relies on public key cryptography, there's no way to know, just looking at the database of transfers, who sent money to whom.
A Revolutionary Concept
Bitcoin is potentially revolutionary for several reasons. For one thing, artificial currency inflation is impossible. In most countries, a central bank controls the money supply, and sometimes (such as during the recent economic crisis) it may decide to inject more money into an economy. A central bank does this essentially by printing more money. More cash in the system, however, means that the cash you already hold will be worth less. By contrast, because Bitcoin has no central authority, no one can decide to increase the money supply. The rate of new bitcoins introduced to the system is based on a public algorithm and therefore perfectly predictable.
More revolutionary perhaps is that because no intermediaries are needed for Bitcoin transactions, governments will have no intermediaries to regulate. And Bitcoin's anonymity makes it difficult for governments to go after end users directly.
In his new book, Kingpin, Kevin Poulsen describes how hackers and fraudsters relied on e-gold for their transactions. While centrally run, the e-gold company didn't require identification to open an account, making the currency somewhat anonymous. That was, until the FBI and Secret Service raided e-gold's Florida offices and the company began to cooperate with investigators. Transaction information handed over by e-gold led to several arrests, and eventually the e-gold currency was itself shut down after executives were charged with money laundering.
Consider the same scenario with Bitcoin. Because Bitcoin is an open-source project, and because the database exists only in the distributed peer-to-peer network created by its users, there is no Bitcoin company to raid, subpoena or shut down. Even if the Bitcoin.org site were taken offline and the Sourceforge project removed, the currency would be unaffected. Like BitTorrent, taking down any of the individual computers that make up the peer-to-peer system would have little effect on the rest of the network. And because the currency is truly anonymous, there are no identities to trace.
The Implications of Bitcoin
Like any new technology, an anonymous and distributed virtual currency has good uses and bad.
The bad, of course, is that bitcoin could facilitate illegal activities, including the sale of pirated or counterfeit goods, stolen credit card numbers and passwords--even child pornography. And in perhaps a grayer area, bitcoin might allow consenting adults in the U.S. who want to place bets at legal UK gambling sites to do so without worrying about restrictions on payment processors.
The good, though, turns out to be really good. Law-abiding citizens can carry on their affairs without anyone snooping on them or telling them what they can and can't do. Want to contribute to WikiLeaks or some other politically unpopular organization? No problem. Live under a repressive regime and want to buy a repressed book or movie? Here's how. No wonder the Electronic Frontier Foundation calls Bitcoin “a censorship-resistant digital currency.”
Still in its infancy, the value of the Bitcoin economy is currently estimated to be only $5 million, but it's growing. Exchanges where you can swap dollars for bitcoins and vice versa are up and running, and the number of vendors that accept bitcoins for payment continues to expand. If it catches on, Bitcoin might pose a threat not just to governments, but to payment processors as well.
And it's a story that's just getting started.
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Read more: http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/#ixzz1P5t1IkTJ

US MARKETS

The lifeblood is being sucked out of America by free trade, globalization, offshoring and outsourcing. Over the past 11 years manufacturing jobs have fallen by 11.7 million and 440,000 businesses have been lost. Those figures should make Americans very disturbed, when it is obvious that American business, and the House and Senate are aiding and abetting in this job destruction, which has not only ended the American dream, but the destruction of the American economy. In essence quantitative easing, the creation of money and credit, are a cover for wealth and job destruction, as are food stamps, Medicaid and extended unemployment. These are short-term solutions.

The dismantling of the American economy came into focus in the late 1970s as major manufacturers began to move production out of the US. As of the past 11 years we have seen an effort first to create a bubble in real estate, which was accompanied by unusually low interest rates and a major increase in money and credit. Once the real estate bubble had broken the deflationary aspects appeared and the Fed had to create ever more money and credit taking the increase up some 18%. Then 3-1/2 years ago the credit crisis began and that prompted the Fed to directly pour trillions of dollars into the financial sector in both the US and Europe. A good part of which was done secretly. Thus, we have seen the creation of money and credit initially to create the real estate bubble and then to offset the credit crisis that it caused. During these periods banks, hedge funds, and other financial institutions engaged in aggressive speculation. Banks leveraged up to 70 to 1, when 9 to 1 was normal and hedge funds over 100 to 1. Banks are still leveraged at 40 to 1 and hedge funds up to 70 to 1.

If you stop and think of it, the very idea that the Fed can create money out of thin air and buy Treasury debt is ludicrous. What kind of a system is that? And, in the process lend trillions of dollars to foreign banks and corporations. Then lie about it and force legal action into the appeal process to cause a two-year delay in exposure of what they have done. We have never been told whether these actions are legally within their venue. We wonder what happens when the remainder of toxic debt has to be bought from the banks, or in addition will the Fed bail out the derivative markets as well? The Fed is already bailing out the commercial real estate market; will they bail out the residential sector as well?

We ask you how can any sane person believe that the Fed will curtail quantitative easing? Over the past two years the Fed has created about $2.7 trillion that we know of. What is the real number and what is the new number going to be? Unfortunately, we may never find out. One thing we do know for sure is that the proverbial printing presses are running 24/7. We do not have to guess, because we already know what will happen when the music stops – collapse.

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It's a Depression