Your new carbon footprint. Have you driven a Ford lately?In Siegner v. Interstate Production Credit Association of Spokane, PCA convinced the plaintiffs, two couples who operated a cattle ranch, to do business with it by making a series of promises about funding. The PCA loan officer assured the plaintiffs that PCA understood the cattle industry and knew it was cyclical and that plaintiffs could take 10 to 20 years to pay off a capital loan. PCA also induced the plaintiffs to purchase a second cattle ranch.Library Find Law.
When the time came to sign the loan papers, the plaintiffs noticed that the documents contained new provisions to which they had not agreed and that the document structured the real estate loan for only one year. The PCA loan officer assured them that these provisions were mere formalities and they had nothing to worry about. Based on the officer's assurances, the plaintiffs signed the documents.
When PCA failed to honor its oral promises and made unreasonable demands regarding the real estate loan, the plaintiffs sued. PCA defended itself based on the parol evidence rule. The plaintiffs prevailed at trial and PCA appealed. The appellate court applied the parol evidence rule and found that the oral agreements were not inconsistent with the written agreement and were the type of agreements that might have been made separately. The court found that it would have been highly unlikely for the plaintiffs to have agreed to repay the loan in a year as reflected in the loan documents; if so, the plaintiffs would have purchased the ranch knowing with virtual certainty that they would lose it, as well as other assets, at the end of one year. A one-year loan would also mean that PCA had made the loan knowing it would be required to foreclose on it in one year. As a result, there was nothing inconsistent with loan documents prepared on a yearly basis, with a separate oral agreement to renew over a long period.
GORDON BROWN’S carefully laid plans for a G20 deal on worldwide tax cuts have been scuppered by an eve-of-summit ambush by European leaders.
Angela Merkel, the German chancellor, last night led the assault on the prime minister’s “global new deal” for a $2 trillion-plus fiscal stimulus to end the recession.
“I will not let anyone tell me that we must spend more money,” she said.
The Spanish finance minister, Pedro Solbes, also dismissed new cash being pledged at Thursday’s London summit.
“In these conditions I and the rest of my colleagues from the eurozone believe there is no room for new fiscal stimulus plans,” he said.
Nicolas Sarkozy, the French president, has insisted that “radical reform” of capitalism is more important than tax cutting.
The attacks on Brown’s ambitions for the G20 to inject more money into the world economy come at the end of a week where the prime minister has travelled to three continents to build support for his proposals.
The likely deadlock at this week’s meeting will kill any remaining hope that Alistair Darling’s April 22 budget will offer significant tax cuts.
The assault by European Union leaders also represents a defeat for President Barack Obama, who is desperate for other big economies to copy his $800 billion stimulus plan.
“There will be a very long communiqué, but there won’t be much in it,” said a Washington economist.
Adding to the disarray, a draft of the agreement Brown hopes to secure was leaked to a German news magazine, prompting suggestions of “dirty tricks” by Berlin.
The draft stated that Britain wanted a “$2 trillion” global fiscal stimulus. However, the figure appeared only in brackets, indicating agreement on the package had yet to be reached.
The stimulus would boost world growth by 2% and employment by 19m, the draft said. The rest of the document was mainly general pledges.
“We believe that an open world economy, based on the principles of the market, effective regulation and strong global institutions, can ensure sustainable globalisation with rising well-being for all,” it said.
A No 10 source expressed “disappointment” at the leak and insisted the $2 trillion figure was not new money but an expression of the total tax and spending packages already pledged by G20 members.
Privately, government officials admit that no further fiscal stimulus will be announced this week, although there will be a $250 billion package for the International Monetary Fund to help rescue struggling poor nations.
Lord Mandelson, the business secretary, said he sympathised with the concerns of demonstrators planning to disrupt the London summit. “There is understandable frustration and some anger. The global economic systems has stalled and what we have got to do is get it started.”
George Osborne, the shadow chancellor, yesterday warned Brown against further tax cuts in the budget. “When it comes to your plans for a second fiscal stimulus, I say this Gordon Brown: enough is enough,” he said in a speech. “We will not let you play roulette with the public finances yet again.”
UK officials have not given up on the idea there could be agreement on a fresh boost for the world economy later in the year. “It is likely that there will be another heads of government meeting probably in Asia in the autumn,” said an official.
“This will be the forum where the next round of stimulus will be discussed.”
Brown still hopes to establish the IMF as an informal referee for international tax cuts. The plan is that the Washington-based body could advise on the timing of any future cuts.
Merkel’s criticism drew an angry response from Labour MPs. Denis MacShane, the former Europe minister, said: “Who does Mrs Merkel think is going to buy Mercedes and BMWs if she . . . says putting demand into the economy is a bad thing?” Another Labour MP said: “One has to ask who had something to gain from the leak of the communiqué. This feels like a dirty trick.”
There are growing fears that protests at the summit venue, the ExCeL centre in London’s Docklands could be marred by violence. Scotland Yard will be deploying specialist officers trained to use 50,000-volt Taser stun guns.
When art conservators joined hands to restore two rare portraits of Shakespeare they thought they were removing paint daubed on the canvases more than 100 years after the Bard's death to reveal "authentic" portraits beneath.
Now it has emerged they were, in fact, wiping away priceless insights into the changing appearance of Britain's greatest playwright.
The images which had been superimposed on both paintings had actually been painted in Shakespeare's own lifetime, the Art Newspaper will reveal next week, and showed how he looked as he aged. The so-called "restoration" could now go down in art history as one of the biggest blunders on record.
A newly discovered picture of Shakespeare called the Cobbe portrait (painted when he was still living) and another version called the Folger portrait were both irreversibly "cleaned up" in this way.
New research has revealed both portraits were probably altered during Shakespeare's lifetime, or within a decade or so of his death in 1616, while his friends and associates were still alive. In the Cobbe portrait, the sitter was given a bouffant hairstyle, whereas in the Folger portrait, his hair at the front was replaced by a bald forehead.
But why the changes? The Cobbe work is believed to have been painted for the Earl of Southampton. The Shakespeare expert Stanley Wells suggests the Bard had dedicated his erotic sonnets to him. It is possible the Earl may have wanted a more flattering image.
The Folger portrait, on the other hand, may have been altered to reflect Shakespeare's appearance at the time of his death, six years after the original painting. The original represented Shakespeare aged 46.
Rupert Featherstone, director of the Hamilton Kerr Institute in Cambridge, which undertook technical investigations into the Cobbe portrait, admitted that in hindsight, it was unfortunate conservators had removed the overpaint. "We can no longer peer down a microscope to look at the physical evidence of the overpaint," he said. When the overpaint was removed from the two portraits, in 1988 and 2002, it was not thought that either depicted Shakespeare. Some critics doubted that the Bard sat for either portrait.
The Cobbe portrait was restored in 2002 as part of ongoing conservation work of the Cobbe family's pictures. It was then thought that it depicted an unknown sitter by an anonymous artist. The conservation work was undertaken by Mr Cobbe, who is a professional restorer. Research now shows the Cobbe painting is an original portrait completed in Shakespeare's lifetime, and that the Folger picture is an early copy, painted in 1610 when the playwright was still alive.
Mr Cobbe now believes his portrait may have had the hair repainted as early as a few months after the original work had been completed in 1610.
The Folger painting, which was conserved in 1988, is in the Folger Shakespeare Library in Washington. It was acquired in 1932 as an image of Shakespeare, but later downgraded to an anonymous portrait.
A British minister warned leaders of the world's biggest economies yesterday that they must produce more than empty rhetoric at the crucial G20 summit in London next week.
Lord Malloch-Brown, the plain-speaking Foreign Office minister who is playing a key role in the negotiations ahead of the meeting, said: "We can't again engage in meaningless, empty commitments which don't survive the flight home." Leaders risked fuelling public dissent if they did not agree on action to tackle the recession, with dire consequences for the poorest nations.
But he said Thursday's summit may not have an immediate impact. "The global economy is going to go on descending on 3 April, the massive destruction of wealth that is going on is not going to be stopped by any leaders' communique. Stock markets may be arrested and turned around but we are in for a very tough 2009 under any circumstances – including a successful G20 summit."
In Brazil, Gordon Brown continued his pre-summit tour but there was embarrassment when his host, President Luiz Inacio Lula Da Silva, said the financial crisis was caused by "white people with blue eyes". He told a joint press conference with Mr Brown that he had never met a black banker.
"This is a crisis that was caused by people, white with blue eyes. And before the crisis they looked as if they knew everything about economics," he said. "Once again the great part of the poor in the world that were still not yet [getting] their share of development that was caused by globalisation, they were the first ones to suffer.President Luiz Inacio Lula Da Silva, said the financial crisis was caused by "white people with blue eyes".
"Since I am not acquainted with any black bankers, I can only say that this part of humanity that is the major victim of the world crisis, these people should pay for the crisis? I cannot accept that. If the G20 becomes a meeting just to set another meeting, we'll be discredited and the crisis can deepen."
Downing Street sources suggested the controversial remarks were meant for "domestic consumption".
STRASBOURG , AFP — The European Union's Czech presidency blasted US plans to spend hundreds of billions of dollars to revive its economy as a "way to hell", before downplaying the remark to avert a diplomatic crisis.
Outgoing Czech Prime Minister Mirek Topolanek told lawmakers at the European Parliament in Strasbourg that "the United States is not on the right path" with its costly plans to jump start the world's biggest economy.
"All of these steps, their combination and their permanency is a way to hell. We need to read the history books," he said.
Czech Vice Prime Minister Alexandr Vondra later sought to play down the comment, denying before journalists at a news conference at the parliament that Topolanek made the "hell" remark.
An AFP check of the original recording found that Topolanek did indeed make the comment.
Topolanek is seen at home as being deeply conservative on economic issues and has long opposed state intervention in the economy. He is due in any case to submit his resignation to President Vaclav Klaus later this week after his government was narrowly defeated in a no confidence vote on Tuesday.
The incident cast a shadow over transatlantic economic relations just days ahead of a key G20 summit in London on April 2 where leaders from the biggest economic powers are supposed to tackle the global crisis.
It also comes ahead of a summit between EU leaders and US President Barack Obama in Prague.
The opportunity to host the US president was supposed to be the crowning moment of the Czech Republic's EU presidency, which has been overshadowed by the collapse of the government and marked by Klaus's open hostility to the EU.
Concern has been expressed over the effect of a political vacuum at the head of the EU at a time of major crisis.
The White House shrugged off Topolanek's comments as being for domestic consumption.
"From what I can tell, the speaker has some domestic political problems that might speak more to what he was talking about," said White House spokesman Robert Gibbs in Washington.
Officials said that Obama would go ahead with the Prague visit on April 4 and 5, despite the government's fall
"The president considers his first meeting with the European Union to be an important opportunity to discuss transatlantic cooperation on a broad range of issues," said national security council spokesman Mike Hammer in Washington.
EU leaders have repeatedly resisted calls to spend more to revive their economies from not only top US and IMF officials but also their increasingly worried publics.
"Timothy Geithner, the American treasury secretary, has spoken of permanent action, which worried us" during the EU summit last week, said Topolanek.
"He spoke of a stimulus campaign in the United States but I don't think that (such) a 'permanent' solution is a real solution," he added.
The "biggest success" of the recent EU summit was "the refusal to go down that path," Topolanek said.
"The United States are going to need cash to finance the measures they plan on taking and they'll do it by selling bonds," he said. "Is that going to bring back stability to the markets?"
Washington is spending hundreds of billions of dollars to support its banking system and stimulate growth as it tries to drag the economy out of its deepest recession in decades.
Meanwhile, the 27-nation European Union has committed to economic stimulus measures in 2009 and 2010 worth 400 billion euros (540 billion dollars), equivalent to 3.3 percent of the bloc's gross domestic product.
The figure includes both national and EU level stimulus measures as well as automatic increases in social spending, such as unemployment benefits, which kick in when the economy weakens.
China calls for new reserve currency
By Jamil Anderlini in Beijing
Published: March 23 2009 12:16 | Last updated: March 24 2009 00:06
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.
Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.
“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.
A good man he is. Somber, gentleman, honest and careful he is. But he fell victim to the trap of American oligarchs. They selected him to continue brainwashing the common people of America. President Obama is a US President but real control and power lies with people that really controls America from behind the curtains.
Otherwise why he cannot sack Geitner? Otherwise why he has to maintain the Clinton-Bush status quo that led US to its worst ever depression and the world into deep recession?
Obama was selected as the preferred successor to George Bush in 2004 when as an unknown man in politics he delivered the keynote speech in Democratic conventions. No one knew this man. John Kerry just like Al Gore knew very well that he would lose through some voting manipulation in Ohio and barrack would be the next “Bill Clinton” taking the torch over from George Bush to guard the interests of the American oligarchs.
Today the change has run its course. The Bush is no longer there. But still Goldman Sachs gets most of the welfare bail out from US Taxpayers hard earned money. Welfare for the richest and hardship for the rest continues as Barack Obama continues his speeches brainwashing people and soothing down the anger of the middle class. He is no President. He is just the agent of the oligarchs that tell him what to do. His current job is to get the budget passed, and sooth down the American middleclass anger and frustration, and maintain the stays quo.
You cannot write about this too much. World’s most vigorous democracy has a new rule implanted by Bush-Cheney and never repealed by the “new Bush” Obama – the US Administration reserves the right to jail any one they do not like without any legal defense or intervention of the judicial system in the name of homeland security.
a The judicial system is also tilted. The Supreme Court really represents the American oligarchs that keep the politicians as servants.
Look at what happened in AIG. Do not look at the $200 million or so they distributed to some morons that were worth nothing but jail terms. Look at the tens of billions of dollars Goldman Sachs got as charity from the taxpayers money through AIG.
Goldman’s collaterals were protected by its former boss Henry Paulson – yes that guy who George Bush allowed to hand over the US treasury to the rich American oligarchs. Timothy Geitetner and Somers represent the interest of the American rich oligarchs. You can flip the coin from Democrats to Republican and back; you find same old junk – the representation of the rich, corrupt, greedy, blood sucking American oligarchs. If you have any doubt, listen to this: Senator's Todd, Kerry, Obama, and Clinton were the top receivers of Fannie Mae political contributions from 1989 to 2008. They also received top funds from AIG.
Do not focus on the bonuses. The real monster is in the secret money trail from US Treasury to AIG to Goldman Sachs. There are many AIGs and Goldmans. Obama, Bush, Paulson, Geitner, Bernanke, Somers, Clintons – all are involved. The foxes are guarding the hens since 1980.
Everybody makes mistakes, and I made a beaut the other day. I was wrong to call members of Congress blow-hards and buffoons and declare them worse than useless.
I was too kind.
I should have said our representatives are gangsters in pinstripes and pearls. They are petty tyrants and the more power they grab, the more at risk we are. Homeland Security should flash Code Red any time this Congress is in session.
It is twilight in America now. The House vote to use the tax code to retroactively punish bonus babies was an act of sheer madness. What started as phony outrage at AIG has crossed the line into insane policy. It is stunning that the vote was lopsided and bipartisan.
The Senate is itchy to go along, and President Obama says he's ready to tighten the thumbscrews on the banks. Is there no adult who will bring a straitjacket?
We should all be very afraid. Class warfare is mere predicate for a witch hunt that, once unleashed, will not stop with misbegotten wealth. It will punish success and stifle innovation. Dissent will invite dishonor.
That Congress is a gang of cheap connivers is not news. Chris Dodd, Charlie Rangel, Charles Grassley, Barney Frank - they have been national embarrassments for years.
But now they are dangerous, emboldened by public fear and anger. They know nothing, but have power and smell opportunity for more.
Missing in action is the Barack Obama who vowed to unite the country around common values. Lately he has been the very opposite of the man he promised. Instead of hope, many have a growing fear of the arrogant government he leads.
Obama is smart, quick and charming, and, as he showed on "The Tonight Show," owner of a thousand-watt smile he can deploy at will. He silkily manages to make the ridiculous sound reasonable. When he insults the Special Olympics, he is forgiven.
Yet even "Tonight" host Jay Leno broke from full flattery to reveal his qualms about the meaning of the bonus tax. "Here's something that kind of scared me," he said. "If the government decides they don't like a guy, all of a sudden, hey, we're going to tax you and then, boom, and it passes."
Obama brushed it off, part of an endless road show claim that he will bring back "common sense" to the financial system and restore "those values that built America."
If only. In truth, there is no history for what he is doing. He is the most radical President of our times, far outside the mainstream of our political philosophy.
He is not a reformer who fixes things. He fancies himself "transformative," a man who reshapes and reorders. It apparently begins with smashing the existing order under the pretext of managing the crisis he inherited.
During the campaign, a fellow journalist confided that "I know Obama is a Manchurian candidate, I just can't figure out what for."
I laughed then, but no more. Obama represents a secular religion that believes, no matter the malady, Washington is the antidote. More government is the chicken soup of his tribe.
It is an illusion of many Republicans and Democrats that Washington can successfully manage the economy and our lives. Our institutions and culture are too big, too diverse and too unruly to be run like a banana republic.
Yet the economic mess has robbed the nation of its confidence, and the vacuum is being filled by politicians bearing promises and borrowed dollars. The true cost of this "help" will come later, with back-breaking debt and a lack of growth and opportunity.
We can't say we haven't been warned. "Whom the gods would destroy, they first make mad" is more than folklore. It predicts our fate if we follow the government mob.
Cuba’s oil reserves in its portion of the Gulf of Mexico “continue increasing,” Agence France- Presse reported, citing Yadira Garcia, the island nation’s minister for basic industries.
The Caribbean country’s future oil reserves are most likely to be found in its area of the gulf, which measures 112,000 square kilometers (43,000 square miles) and is divided into 59 oil blocks, AFP reported, citing Garcia, who spoke at a geological sciences conference in Cuba.
Cuba may have 21 billion barrels of probable oil reserves, including onshore and offshore discoveries, AFP said, citing conference participants.
The startling new figures have enormous implications, political as well as fiscal. They are certain to bring new expressions of alarm and dismay from deficit hawks on Capitol Hill, where the president’s $3.6 trillion budget proposal for the next fiscal year, which begins in October, has already stirred debate.
President Obama’s budget director, Peter R. Orszag, conceded in a news briefing on Friday that annual deficits of 4 to 5 percent of gross domestic product, as envisioned in the office’s report, are “ultimately not sustainable.”
But Mr. Orszag insisted that administration officials “remain confident” in what he called “the four key principles” of the president’s budget outline: health care reform, improvements in education, energy efficiency, and reducing the annual deficit in half by the end of the president’s first term from the extraordinary levels it has suddenly reached because of the bailout and stimulus spending this year — spending that the budget office said would help to bring an end to the recession by the end of 2009.
Mr. Orszag said he was confident that those goals will all be accomplished in whatever budget resolution emerges after negotiations with Congress. Asked about recent statements by Senator Kent Conrad, the North Dakota Democrat who heads the Budget Committee, that the president’s spending plans might have to be adjusted downward, Mr. Orszag said it was always assumed that there would be negotiations. “It’s not like the process would have them just Xerox and vote on it,” he said.
As for the differences among various budget projections, Mr. Orszag attributed them in part to small percentages — such as divergent assumptions about the rate of economic growth — that, when applied to huge numbers, can produce eye-popping contrasts.
The new estimates will reignite the debate over whether the president’s spending plans are far too ambitious, given the state of the economy, or just what is needed to address systemic problems.
“If there was ever any doubt that the administration’s budget spends too much, taxes too much and borrows too much, it’s gone,” said Senator Mitch McConnell of Kentucky, the Republican minority leader.
Senator Charles E. Grassley, Republican of Iowa and ranking minority member on the Finance Committee, as well as a senior member on the Budget panel, said Congress and the White House need to get the message that the new figures embody.
“People can afford only so much government spending, even for the worthiest-sounding causes,” he said in a statement.
Representative John A. Boehner of Ohio, the House Republican minority leader, had a similar reaction. “We simply cannot continue to mortgage our children and grandchildren’s future to pay for bigger and more costly government,” he said.
But USAction, an organization pushing for passage of the president’s budget, said the new numbers teach an opposite lesson. “This revised report delivers a stark message that the economy is in even worse shape than previously thought,” said Alan Charney, the group’s program director. “It reinforces why it’s even more critical to pass the initiatives on healthcare, education and the economy laid out the President’s budget.”
The deficit is the year-by-year gap between what the government spends and the revenue it takes in. So even if annual deficits are cut, the overall national debt will continue to grow so long as there is no surplus. The debt now stands at around $11 trillion, with about $6.5 trillion owed to individuals, corporations and governments and other lenders, foreign or domestic, while about $4.3 trillion is owed to the funds for Social Security benefits, military and civil service pensions and other government programs.
"In an unusually swift reaction to Mr Obama's overture, Aliakbar Javanfekr, an aide to President Mahmoud Ahmadinejad, said Iran welcomed "the interest of the American government to settle differences".Telegraph
But he said that the US government "should realise its previous mistakes and make an effort to amend them".
In an almost simultaneous announcement, from Iran's energy minister, Parviz Fattah, said that the country would "finish and operate" its controversial Russian-built Bushehr nuclear plant by the end of the year.
"Iran has chosen a direction for achieving peaceful nuclear energy. We have mainly reached this aim," he said at the World Water Forum in Istanbul.
"Exactly 20 days from now we will have another celebration for celebrating the achievements we have gained for peaceful nuclear energy. You will hear about the news," he said.
"Iran will finish and operate the Bushehr nuclear plant by the end of this year."
If the AIG people are shamed or cajoled into returning the bonuses, that's one thing. But using tax laws to get the money back is unthinkable. Any kind of coercion by the Feds is unacceptable. This is America, dammit, not some banana republic where the tinhorn du jour can run roughshod over whoever he wishes to.
It is scary that so many people from opposite ends of the political spectrum agree on grabbing back the bonuses. The country is going to hell in a rocket ship.
Democrats will introduce a bill on the House floor tomorrow morning that would apply a 90 percent income tax to bonuses given to employees of companies that have received at least $5 billion in TARP money. This would apply to bonuses paid by AIG, as well as Fannie Mae and Freddie Mac.
"We passed a recovery act. We did not pass a license to steal," said Rep. Steve Israel (D-N.Y.), one of the architects of the bill. "If you won't give the bonuses back, we will tax them back."
House Majority Leader Steny Hoyer, who sets the House floor agenda, said at an afternoon press conference that the bill would be voted on tomorrow and that he expects it to pass "in an overwhelmingly bipartisan fashion."
Hoyer was particularly "outraged" that AIG employees would accept such large bonuses and that the House would be forced to act, especially on the same day the House passed the GIVE Act. That bill will, among other things, increase the number of AmeriCorps volunteers and promote volunteering through college incentives.
"Give it back," Hoyer said. "Give it back to the company and to the people that kept your company alive after your failure to act responsibly. Act responsibly now."
According to a release handed out at the press conference, the bill will apply only to bonus payments received since the beginning of the year and to individuals whose annual income exceeds $250,000.
"This money doesn't belong to AIG," Israel said. "It belongs to the American taxpayer, and we're going to take it back."
This whole AIG fiasco — where the entire political class is suddenly screaming over bonuses paid to derivative traders in AIG’s financial-products division — is just a complete farce. What it really shows is how the government has completely bungled the AIG takeover. Blame the Bush administration and the Obama administration. It also shows, once again, why the government shouldn’t run anything, because it cannot run anything.
AIG should have been placed in bankruptcy last fall under some sort of government sponsorship. While in bankruptcy, all the salary contracts (and every other AIG contract) would have been nullified and voided. At the same time, there would have been an orderly liquidation and sale of AIG’s assets and separate divisions.
But as things stand now, there still is no clear roadmap for the dissolution of AIG. There are ideas, but nothing is set in concrete.
And as for the $165 million or so in AIG bonus payments, the Obama administration — including the president, Treasury man Tim Geithner, and economic adviser Larry Summers — knew all about them many months ago. They were undoubtedly informed of this during the White House transition.
So there’s no big surprise. Nobody should be shocked. But President Obama is doing his best play-acting ever. He knows full well that the nationwide outcry against federal bailouts and takeovers is only going to get worse on his watch. His poll numbers are already falling, and this AIG episode is going to pull them down more.
Incidentally, has anybody asked Team Obama why it is more than willing to break mortgage contracts with a bankruptcy-judge cram-down, but won’t cram-down compensation agreements for AIG, despite the fact that the U.S. government owns the company? Kind of odd, don’t you think?
The Wall Street Journal editors get it right when they ask: Who’s in charge and what’s the game plan? The whole AIG story is an outrage.
What’s more, AIG is acting as a conduit for taxpayer money that is being sent to dozens of derivative counterparties, including foreign banks and American banks like Goldman Sachs. If we’re going to bail out all these other firms, why not bail them out in full taxpayer view? Why is the money being laundered furtively through AIG? And where exactly is the end game for AIG? How are the taxpayers going to be repaid?
And what is Treasury man Geithner’s role in all this? He appears to be the biggest bungler in what has become a massive bungling. My CNBC friend and colleague Charlie Gasparino thinks Geithner can’t survive this. I am inclined to agree.
Nevertheless, behind the furor over AIG, there is some good news to report on the banking front. This week’s decision by the Federal Accounting Standards Board (FASB) to allow cash-flow accounting rather than distressed last-trade mark-to-market accounting will go a long way toward solving the banking and toxic-asset problem.
Many experts believe mortgage-backed securities and other toxic assets are being serviced in a timely cash-flow manner for at least 70 cents on the dollar. This is so important. Under mark-to-market, many of these assets were written down to 20 cents on the dollar, destroying bank profits and capital. But now banks can value these assets in economic terms based on positive cash flows, rather than in distressed markets that have virtually no meaning.
Actually, when the FASB rules are adopted in the next few weeks, it will be interesting to see if a pro forma re-estimate of the last year reveals that banks have been far more profitable and have much more capital than this crazy mark-to-market accounting would have us believe.
Sharp-eyed banking analyst Dick Bove has argued that most bank losses have been non-cash — i.e., mark-to-market write-downs. Take those fictitious write-downs away and you are left with a much healthier banking picture. This is huge in terms of solving the credit crisis.
In a column last week I suggested that not one more dime of government money is necessary for the banks. Instead, the marriage of the cash-flow valuation of bank assets and the upward-sloping Treasury yield curve will do the trick. Net interest margins are rising as banks purchase money for near-zero interest and loan it out at profitable rates. And the new mark-to-market reform will allow banks to hold their toxic assets for several more years and work them out — just as they did back in the 1990s.
We don’t need more TARP. We don’t need to take over more big banks. And we don’t need to have the government run things it simply isn’t capable of running.
El Salvador has a new left-wing president. Former journalist Mauricio Funes defeated the ruling right-wing president Rodrigo Avila in Sunday's election, polling 51.2 percent of the votes. He defeated his right-wing opponent from the ARENA party by a mere 60,000 votes.
Mr Funes ) explained the cause of his victory to Radio Netherlands' José Zepeda:
"What matters is not the long time that ARENA was in power, but the way they were in power. (...) A small group got preferential treatment, at the disadvantage of the rest of society. In the end, everybody will rise up against that."
The victory seals an historic journey to power for Mr Funes' FMLN party of former Marxist rebels. It also means El Salvador joins the growing tide of socialist-led Latin American countries.
But regional expert Dirk Kruijt told RNW Newsline's Davion Ford that the president-elect is considered a moderate; so is his deputy:
"The newly elected president is a former journalist with sympathy for the original guerrilla Frente which transformed in 1992 into the Farabundo Martí political party, FMLN. A late member, and a person who could forge alliances with other parts and segments of the population.
President-elect Funes has always presented himself as a friend of the US. And Sánchez Cerén, the vice president, the representative of the orthodoxy line, stated in several interviews that 'Socialism cannot be decreed from above.'"
Security problems
The regime change will not make much difference for El Salvador's economy, which is not doing too badly. But, Mr Kruit says, the new president has another task on his hands:
"The real problem of Salvador is public safety and public security. It is one of the countries with the highest murder rate in the world, in terms of murders per 100,000 inhabitants; it has a stock of small arms that is sufficient to kill 40 percent of the world population, and it is in part terrorised by youth gangs. The country is also suffering from hard crime and organised crime, and that is not attacked by the police authorities."
Shift to the left
El Salvador had been a right-wing stronghold for decades. With the leftward shift in Central and South America, some of the people in El Salvador are saying that the country will become a Venezuelan satellite. But Mr Kruit points out that neither the new man, nor his deputy favour a sharp move to the left, and adds:
"The changes will be slow, there is not going to be a process of nationalisation of industry, it wouldn't be in the interest of the national economy, so the claim of a second Hugo Chávez of Venezuela is an enormous exaggeration."
The main challenge for the new president is to live up to the hopes of the impoverished one-third of El Salvador's population. The people who elected Mauricio Funes will judge him by his successes in fighting poverty and insecurity in his country.
China has lost tens of billions of dollars of its foreign exchange reserves through a poorly timed diversification into global equities just before world markets collapsed last year.
The State Administration of Foreign Exchange, the opaque manager of nearly $2,000bn (€1,547bn, £1,429bn) of reserves, started making huge bets on global stocks early in 2007 and continued this strategy at least until the collapse of the US mortgage finance providers Freddie Mac and Fannie Mae in July 2008, according to analysts and people familiar with Safe’s operations.
By that point Safe had moved well over 15 per cent of the country’s $1,800bn reserves into riskier assets, including equities and corporate bonds, according to people familiar with its strategy.
Safe never discloses its holdings except to the top Chinese leadership so it is impossible to know exactly how much it has lost from diversifying before markets crashed.
But judging from the subsequent fall in global stock prices and a conservative estimate that Safe held about $160bn worth of overseas equities, Chinese losses on those investments would exceed $80bn, or more than 50 per cent, according to Brad Setser, an economist at the Council on Foreign Relations in New York.
Total holdings of US equities by all Chinese entities reached $100bn by the end of June last year, more than triple the total of Chinese holdings in June 2007, according to an annual survey published by the US Treasury.
‘It appears Safe began diversifying into equities early in 2007 and, rather than being deterred by the subprime crisis, it continued to buy’ -Brad Setser, economist, Council on Foreign Relations
In mid-2006, Chinese holdings of US equities totalled just $4bn. Chinese investors are mostly barred from investing abroad and Safe is the only entity with the resources and the authority to make such large-scale offshore portfolio investments.
“Safe has built up one of the largest US equity portfolios of any foreign government entity investing abroad, including the major sovereign wealth funds,” Mr Setser said.
“It appears Safe began diversifying into equities early in 2007 and, rather than being deterred by the subprime crisis, it continued to buy.”
China’s leadership has not commented on the equity losses but Wen Jiabao, prime minister, expressed concern about the value of China’s large holdings of US assets on Friday and warned the US to take measures to guarantee its “good credit”.
Safe uses a Hong Kong subsidiary when investing in offshore equities in the US and other countries, including the UK, where this subsidiary took small stakes last year in dozens of UK companies including Rio Tinto, Royal Dutch Shell, BP, Barclays, Tesco and RBS.
As part of its diversification in early 2008, Safe also gave some money to private equity firms such as TPG and to hedge funds on a managed account basis.
This gave the Chinese government ultimate approval for how its money was invested, according to people who have worked with Safe.
The large shift into global equities appears to have started at around the time that Beijing approved the establishment of China Investment Corporation, the country’s official sovereign wealth fund, which has been widely criticised in China for incurring paper losses of around $4bn on high-profile investments in Morgan Stanley and Blackstone.
The bulk of Safe’s holdings remain in US Treasury bills and much of the loss on its riskier assets will be offset by gains on long-term bills, according to Mr Setser.
“They are a lot more cautious and risk-averse now and have basically returned to buying government bonds,” said someone who works with Safe.
