Following the sale of 212 tons of gold to central banks, the IMF is moving ahead with sales on the gold market, phasing the sales so as to avoid market disruption.
In September 2009, the IMF’s Executive Board approved gold sales totaling 403.3 metric tons (12,965,649 troy ounces). Having already sold over half that amount to several central banks, the IMF is now looking to sell the remaining 191.3 tons of gold.
The IMF will continue to hold a substantial portion of its assets in gold. The sale of the full 403.3 metric tons would reduce the IMF’s gold holdings by about one-eighth.
“The top priority in conducting the gold sales is to avoid disruption to the gold market,” said Andrew Tweedie, Director of the IMF’s Finance Department. “Prior to any sales on the gold market, sales were first made exclusively to interested central banks, thus shifting gold within the official sector. Now the IMF will begin sales of the remaining gold on the market. This will be done in a phased way.”
Sales to date
Official interest in the IMF’s gold sales has proven substantial—at 212 tons thus far. The proceeds from these sales amount to almost $7.2 billion, or just over SDR 4.5 billion. The sales were conducted at market prices, and were allocated on a first-come, first-served basis to three central banks that expressed interest.
While the period set aside exclusively for official sales is now over, the IMF remains ready to respond to interest in gold from official holders.
Largest gold sale in decades
The 200-ton sale to the Reserve Bank of India is considered by some market commentators to be the single largest gold transaction in recent decades, generating proceeds equivalent to $6.7 billion or SDR 4.2 billion.
In light of the volume involved, daily sales for the transaction took place over a two-week period from October 19–30, 2009, to protect both parties against short-term fluctuations in gold prices. Each daily sale was conducted on the basis of market prices prevailing that day.
Sales of gold to the Bank of Mauritius and the Central Bank of Sri Lanka were each conducted on a single day, November 11 and 23 respectively.
Purposes of IMF gold sales
Gold sales, strictly limited to 403.3 tons, were approved by the IMF’s Executive Board on September 18, 2009, and will serve two purposes.
Key to new income model: The IMF’s new income model is based on the recommendations of the Committee of Eminent Persons chaired by Andrew Crockett to reduce the Fund’s reliance on lending income to cover its administrative expenses. The new income model aims to diversify the IMF’s income sources and better align them with the variety of functions performed by the Fund. A key element is the creation of an endowment with the profits from gold sales, which would be invested in a manner consistent with the public nature of these funds.
Low-income countries to benefit: In 2009, the IMF agreed to mobilize $17 billion through 2014 for lending to low-income countries, mostly in Africa, that have been hard hit by the global crisis. A financing package, which includes resources linked to these gold sales, has been agreed upon and will generate the additional new subsidy resources of SDR 1.5 billion needed to help cover the cost of further low-interest lending by the Fund.
The sales generated proceeds equivalent to $72 million (SDR 45 million) in the case of the Bank of Mauritius, while the sale to the Central Bank of Sri Lanka generated $375 million (SDR 234 million).
Transparent approach
The IMF publicly announced each official sale shortly after the transaction was concluded. A high degree of transparency will continue during the sales of gold on the market, in order to assure markets that the sales are being conducted in a responsible manner.
As in the case of central banks selling gold, the volume of IMF gold holdings will be reported on a monthly basis through the International Financial Statistics, and the IMF’s quarterly financial statements will provide additional disclosures.
The strategy for the IMF’s sales of gold on the market continues to give priority to avoiding market disruption. As such, the sales will be phased over time following the approach used successfully by the central banks participating in the Central Bank Gold Agreement.
The Board decision on April 7 marks the culmination of a two-year effort to reform the IMF’s income model that began in May 2006 with the appointment of a committee of eminent persons to review the IMF’s income base for financing its running costs. That committee, headed by Andrew Crockett, President of JP Morgan Chase International and former General Manager of the Bank for International Settlements, concluded in early 2007 that continuing to rely on income from lending was not a sustainable model.
The committee recommended that the IMF adopt a package of income-generating measures, including creating an endowment with profits generated from selling a limited portion of the institution’s gold holdings.
• The administrative budget proposal includes expenditure cuts of $100 million in FY2009-11. Including savings of $27 million already allotted in the budget plan for FY2008-10, real net administrative expenditures will decrease about 14 percent to $796 million in FY2011 from $922 million in FY2008.
• Even with sharp expenditure cuts, the budget allows for an increase in the level of resources allocated to multilateral and regional surveillance by shifting resources from non-core to core business of the institution.
(Excerpted from this group of information on the page – somebody has sold them a piece of goods haven’t they noticed the market disruptions yet – 2006 plan using the same old hedge fund / Wall Street model, my note)
“The Fund’s membership again proved its commitment to enhancing the institution’s credibility and strengthening its efficiency,” he added. “We agreed to replace an obsolete and unviable income model with a modern and more predictable model in line with other international financial institutions. We also agreed on a medium-term budget proposal with sharp spending cuts of $100 million over the next three years.”
Key elements of the income proposal—in particular a proposed amendment of the IMF’s Articles of Agreement to expand the Fund’s investment authority—will require legislative action in most member countries. In addition, approval by the U.S. Congress is needed before the U.S. Executive Director can vote in favor of gold sales. Strauss-Kahn commended “Executive Directors for their commitment to seek expeditious approval by their legislatures to enable these important components of the new income model to come into effect.”
Key elements of new income model
• The IMF’s unsustainable income model will be replaced with a model that is based on more robust and diverse sources of revenue in line with the Fund’s multiple functions. If approved, the new model could generate an additional $300 million in income within a few years.
• An endowment would be created with the profits from the limited sale of 403.3 metric tons of the IMF’s gold holdings. If approved, gold sales would be conducted in a transparent manner with strong safeguards to ensure that they do not add to official sales and avoid any risk of market disruption.
• The IMF’s investment authority would be broadened to enhance the average expected return on the Fund’s investments and enable the IMF to adapt its investment strategy over time. The investment policies would reflect the public nature of the funds to be invested and include safeguards to ensure that the broadened investment authority does not give rise even to perceived conflicts of interest.
• The long-standing practice of reimbursing the IMF’s budget for the cost of administering the trust fund for concessional lending to low-income countries—the PRGF-ESF Trust, will be resumed in the financial year in which the IMF adopts a decision authorizing the gold sales. This cost recovery will not affect the Fund’s ability to provide concessional lending to low-income countries.
Key elements of IMF medium-term budget
• The strategic plan that forms the backbone of the budget is focused on five goals: strengthening multilateral surveillance, sharpening bilateral surveillance, refocusing work on low-income countries, streamlining capacity building, and modernizing the Fund. The budgetary strategy is centered on reshaping the institution so it delivers more focused and cost-effective outputs.
• The administrative budget proposal includes expenditure cuts of $100 million in FY2009-11. Including savings of $27 million already allotted in the budget plan for FY2008-10, real net administrative expenditures will decrease about 14 percent to $796 million in FY2011 from $922 million in FY2008.
• Even with sharp expenditure cuts, the budget allows for an increase in the level of resources allocated to multilateral and regional surveillance by shifting resources from non-core to core business of the institution.
Ongoing and Recent Work Relevant to Sound Financial Systems
12 March 2009
A series of status reports, collated by the FSF Secretariat, on recent and ongoing work relevant to strengthening financial systems by various international financial institutions, groupings and committees. This document is published twice yearly in March/April and September/October. The document is accompanied by a cover note which highlights and summarises those initiatives started during the previous six months, out of the initiatives in the document.
The document also includes an overview table of major ongoing international regulatory initiatives, including information on their schedules for public consultation and target dates for finalisation.
This overview table is intended to provide a snapshot of key regulatory initiatives in the implementation, public consultation and development phases, along with an indication of their timing where applicable.
It is intended to assist national authorities, firms and other stakeholders in keeping abreast of and better preparing for major regulatory initiatives as they are taken forward. Initiatives are included in this table, drawing on the advice of the principal international institutions, groupings and committees. The table captures only summary information on major initiatives, and is concerned largely with the timing of implementation.
Thus readers are encouraged to refer to the document on Ongoing and Recent Work relevant to Sound Financial Systems for further insight on the background and objectives of these and other initiatives of the principal international institutions, groupings and committees. Readers should also be aware that decisions regarding implementation are in most cases left to national discretion, and thus the timing of implementation may vary across jurisdictions.
Lastly, the authoritative sources on dates are the committees and bodies responsible for the initiatives. The timing of initiatives indicated in the table is based on information as of 6 March 2009, and the relevant bodies should be consulted directly for more recent developments.
Financial conditions have improved, as unprecedented policy intervention has reduced the risk of systemic collapse and expectations of economic recovery have risen. Nonetheless, vulnerabilities remain and complacency must be avoided. The financial sector continues to be dependent on significant public support, resulting in an unparalleled transfer of risk from the private to the public sector. At the same time, however, work will need to begin on exit strategies from the various financial, monetary, and fiscal support policies in order to address market uncertainty. Medium-term policies need to ensure that steps taken to normalize policies and markets are consistent with establishing a lasting framework of sound financial regulation, sustainable fiscal balances, and the maintenance of price stability.
Overview of Developments
The risks to the global financial system have moderated from the extreme levels identified in the April 2009 Global Financial Stability Report (GFSR). Unprecedented policy actions undertaken by central banks and governments worldwide have succeeded in stabilizing the financial condition of banks, reducing funding pressures and counterparty risk concerns, and supporting aggregate demand.
These interventions have reduced the tail risk of another systemic failure similar to the collapse of Lehman Brothers. Bank debt and interbank markets have resumed functioning, albeit with massive public sector support. Concerns regarding liquidity and counterparty risks in the banking sector have declined, as evidenced by the narrowing of LIBOR-overnight index and credit default swap spreads (Figure 1).
However, overall financial conditions remain tight. Growth in bank credit to the private sector continues to slow in mature economies, securitization markets outside those supported by the public sector remain impaired, and lower-quality borrowers have little access to capital market funding. Furthermore, the public sector interventions that have underpinned the reduction in private sector risks have resulted in a concomitant increase in public sector risks and a mounting burden on fiscal sustainability.
Severe recession risks have eased in response to concerted fiscal and monetary policy stimulus measures (as discussed in the July 2009 World Economic Outlook Update). This has helped spur some return of risk appetite and a decline in volatilities, with investors moving into risk assets from safe havens. Although perceived credit risk has diminished, as evidenced by narrower spreads and lower projected default rates, it remains high.
Risks in emerging markets have also lessened, reflecting the recovery of commodity prices and the resumption of portfolio inflows and rising asset prices (Figure 2). TThese improvements have not been evenly distributed, and cross-border banking flows to emerging markets remain weak. Risks in emerging Europe have also been reduced, but strains remain and vulnerabilities flagged in the April 2009 GFSR persist.
The April 2009 GFSR highlighted three main areas of risk: (i) that weaknesses in advanced-economy banking sectors could act as a greater drag on credit growth and economic recovery; (ii) that emerging markets remain vulnerable to a slowing or cessation of capital inflows; and (iii) that yields on sovereign debt may rise significantly and private borrowers may be crowded out if the burden on public sector balance sheets is not managed in a credible way. While progress has been made in these areas, concerns remain./p>
Bank balance sheets need to be restored to health
The risk of a widespread banking crisis has eased and prospective writedowns on securities are likely to be somewhat lower, as a result of the recovery in mark-to-market valuations, but bank capitalization still remains a concern as further writedowns on loans are expected. Confidence in the U.S. banking system has been bolstered by better-than-expected earnings results, a successful stress-testing exercise, the commitment by the U.S. government to stand behind the 19 largest banks, and a series of bank capital-raisings. However, loss ratios are expected to continue to rise for loans.
In Europe, universal banks have also benefited from better earnings and capital increases, but loss rates are expected to rise. The Committee of European Banking Supervisors is conducting a coordinated stress test exercise on a system-wide basis which should help to reestablish market confidence in the banking system.
But, on both sides of the Atlantic, it is proving difficult to effectively implement measures that fully address the problem of impaired assets on banks’ balance sheets, leaving banks vulnerable to a further deterioration in the quality of these assets if the global downturn is deeper, and more prolonged, than projected.
Corporate bond markets have reopened, but bank credit growth is still slowing
Corporate bond markets are functioning more normally, a critical development for countries, notably the United States, that rely more heavily on nonbank market financing. Corporate credit and asset-backed spreads have tightened significantly and issuance has risen, as firms seek alternatives to scarce bank credit.
High-yield issuance has also increased recently, but is still restricted to higher quality credit, and spreads remain historically wide.
However, bank lending remains restricted, despite unconventional policies aimed at reviving credit to end users. Overall bank credit growth continues to diminish, as deleveraging pressures persist (Figure 3). Securitization markets continue to be impaired, except for those directly supported by government programs or central bank facilities (Figure 4).
Emerging market sentiment has strengthened, but markets remain vulnerable to capital outflows
Emerging market assets have benefited from the recovery of commodity prices and improved growth prospects, especially in Asia. The return of risk appetite has also led to a resumption of portfolio inflows from investors. Emerging market equities have rebounded 30 to 60 percent since end-February, matching or outpacing mature market equities. EMBI Global sovereign spreads have more than halved since their peak in October. Despite these positive developments, the overall outlook for emerging markets remains vulnerable to lower than expected global growth and to constrained international bank lending.
As highlighted in the April 2009 GFSR, banks are contracting their cross-border positions at a faster rate than their domestic balance sheets, although there is evidence that parent banks have maintained funding levels to their emerging market subsidiaries (Figure 5).
Consequently, cross-border deleveraging is leading to an unwinding of the rapid financial globalization that occurred over the past 10 years. This trend will likely continue, placing additional pressure on those banking systems that are heavily reliant on cross-border funding. Emerging Europe and the Commonwealth of Independent States are particularly vulnerable to contractions in cross-border funding and have not benefited as much from the market rebound seen elsewhere.
Concerns mounting regarding sovereign debt markets
Globally, sovereign yield curves have steepened considerably, as conventional monetary policy easing has anchored short-term rates, while the longer end of the curve has risen sharply, reflecting in part improved recovery prospects and reduced risks of deflation. Nevertheless, concerns about the ability of markets to absorb the supply of new government bonds may also be contributing to the rise in yields (Figure 6). With public debt levels expected to rise significantly in many mature market economies, increased focus on fiscal sustainability may have been reflected in sovereign credit default swap spreads remaining well above their pre-crisis levels.
The risks ahead
The April 2009 GFSR raised immediate policy challenges regarding the intensifying threats to systemic stability and a worsening credit crunch, emphasizing the need for a range of financial policies to mitigate downside risks. Since then, ongoing unprecedented policy actions have reduced the likelihood of major failures, an important step toward restoring confidence.
Complacency must be avoided.. There is a risk that the recent improvements in the financial sphere could lead to complacency. Continued policy efforts are needed to stave off the chance that some of the recent gains could yet be reversed. Although the financial system has stepped back from a period of extreme uncertainty, there remains a high level of uncertainty consistent with significant dysfunction in some financial markets. Confidence is still fragile, and tail risks could reemerge. The improvement in financial markets is in large part due to far-reaching public sector support. Thus, the lasting regeneration of the wide range of markets necessary for efficient financial intermediation is far from assured.
More work is needed to fix banks and markets. Concerning banks, this implies in some cases implementing measures already taken, and, in others, adopting new measures.
In spite of recent capital raisings by banks, there is a need to ensure adequate capital levels going forward as default rates increase, and to promote restructuring where needed. Moreover, actions continue to be needed to help banks deal effectively with troubled assets. Only then will they be in a position to support the real economy going forward. Parallel to this, finding ways to reopen the securitization market by placing it on a sounder footing will be of particular importance, as it serves as a significant conduit of credit provision.
Deleveraging and tail risks. If the remaining problems with mature economy banks are not effectively addressed, then the deleveraging process required to restore their health will be more severe than otherwise necessary, acting as a greater drag on the economic recovery.
Indeed, fixing the banks remains a prerequisite for a sustained recovery. Because much of the improvement in financial conditions is due to the robust rally in risk assets since March, there is a risk of a significant market setback if financial markets get too much ahead of the pace of economic recovery. Indeed, tail risks could reemerge if a major correction in asset prices were again to undermine confidence in financial institutions.
Further measures are still needed to restore confidence in the banking sector and to facilitate lending. Many countries have taken an active role in assessing their banking systems by performing stress tests, which, if accompanied by credible measures to address any shortfalls in capital, can be an effective tool in rebuilding bank balance sheet strength.
The U.S. experience and recent European initiatives to organize coordinated stress tests are a welcome step forward. More generally, viable banks with capital shortfalls should be required to submit action plans to raise their capital ratios. If carrying out such plans over the near-term is not feasible, banks viewed as viable should receive temporary capital injections from the government with appropriate conditions.
In some cases, such capital injections may need to be followed by restructuring, including the possible sale or liquidation of parts of the bank. Banks deemed to be nonviable should be resolved as promptly as practicable. Determined and suitably transparent implementation of such policies would be helpful in restoring confidence in the banking sector.
Sovereign debt markets may be at risk of destabilization if the burden of public debt financing is viewed as unsustainable. Emerging markets remain vulnerable to spillovers from mature economies that may result in a more general slowing or cessation of capital inflows. Corporate borrowers in emerging markets are particularly susceptible because of their high rollover requirements and limited access to alternative sources of finance. As well, localized problems in some individual emerging markets could have wider repercussions if not addressed effectively.
Globally consistent exit strategies.. Even though the time has not yet come to start withdrawing all the various forms of official support that have been extended in response to the crisis, it is important that carefully considered and coordinated exit strategies are put in place.
Communication of such strategies can be of great value in reducing market uncertainty. The broad objectives that should guide the formulation of exit policies are price stability, a sound financial system based on market principles, and fiscal sustainability. Within countries, exits should be coordinated across monetary, financial, and fiscal policies.
Central banks should have a range of effective instruments at their disposal for withdrawing liquidity in a timely fashion in order to avoid market disruption. Cleansing central bank balance sheets of quasi-fiscal interventions through transfers to fiscal authorities may also be needed to ensure central bank financial independence.
As confidence resumes, policy options for the withdrawal of extraordinary public support include natural run-off as the market rebounds and the orderly withdrawal of liquidity and funding measures.
A crucial consideration throughout the exit is maintaining consistency of policies across countries to minimize the opportunities for regulatory arbitrage and adverse financial flows. There will likely be political pressures both to delay and accelerate the exit from various crisis policies, which will have to be resisted for the above reasons.
At this critical stage in emerging from the crisis, policymakers need to safeguard the gains made thus far. The unprecedented scope of the crisis itself and the measures taken to contain it, will require a comparable policy response. Throughout this process, timing and modality will be crucial. Reliance on market mechanisms wherever possible will best ensure an outcome consistent with the exit objectives of price stability, a sound financial system, and fiscal sustainability.
East Asian economies, Singapore and Hong Kong SAR, rank in the top two positions in the Enabling Trade Index, followed by Switzerland, Denmark and Sweden, according to The Global Enabling Trade Report 2009 released today by the World Economic Forum. Canada, Norway, Finland, Austria and the Netherlands complete the top ten list. The report measures and analyses institutions, policies and services that enable trade in national economies around the world, highlighting for policy-makers a country’s strengths and the challenges to be addressed.
from Davos Summit – World Economic Forum and summer sessions 2009
Network of Global Agenda Councils
The World Economic Forum is forming Global Agenda Councils on the foremost topics in the global arena. For each of these topics, the Forum will convene the most innovative and relevant leaders to capture the best knowledge on each key issue and integrate it into global collaboration and decision-making processes.
Global Agenda Councils represent transformational innovation in global governance, creating multistakeholder groups composed of the most innovative and influential minds for the purpose of advancing knowledge as well as collaboratively developing solutions for the most crucial issues on the global agenda.
Global Agenda Councils will challenge prevailing assumptions, monitor trends, map interrelationships and address knowledge gaps. Equally important, Global Agenda Councils will also propose solutions, devise strategies and evaluate the effectiveness of actions using measurable benchmarks.
In a global environment marked by short-term orientation and silo-thinking, Global Agenda Councils will foster interdisciplinary and long-range thinking to address the prevailing challenges on the global agenda.
The formation of Global Agenda Councils marks a major milestone in the Forum’s evolution towards becoming the “integrator, manager and disseminator of the best knowledge available in the world.” These Councils build upon a unique strength of the Forum: its extraordinary ability to convene the very best of the world’s thought leaders. The Global Agenda Councils will also leverage the world’s greatest minds to develop a better understanding of the leading issues of the day and how they will shape the future.
“We’ve made it pretty clear to our members that we are supporting this bill,” Boehner told reporters after the meeting. “We also have made it clear to our members we expected as many of them who could vote for this to vote for it.”
After bashing the bailout plan for more than a week, rank-and-file Republicans are starting to accept what Boehner and others stated early on: The current economic meltdown is a bad situation – and a massive government intervention in the financial markets is regrettable response – but it’s their only option at this late stage in the crisis.
Never once did these sorry ass-scratching sons of bitches like Boehner say – this bailout of the banks is socialism – is wrong and we won’t do it – will create a bigger deficit we can’t afford.
I watched CSPA N during the appropriations committee hearings on amendments to the current stimulus bill. I noted the Republicans stonewalling, undermining any support, following party lines at the expense of common sense and voting to strip the stimulus package of any and all support for regular people in America. They don’t care about the American people, they don’t serve the American people and never once considered their actions when forcing us to pay for their bailout of Wall Street friends and banking interests – most of which they are indebted to and profit from. It is disgusting.
Now, after oppressive tyranny that has run America and her people into the ground over the last thirty years, the overspending that cost us a ten trillion dollar deficit under their control, and no real rights or freedoms left to American citizens, businesses that are in utter ruin, huge unemployment and our country sold to the highest bidder around the world – even our enemies are laughing at our Congressional “leaders” and Republican party.
What a pathetic joke on all of us – and they still talk about us like we are donkeys or asses to be manipulated by stick and carrot. They are screwing us all still today because they refuse to consider being part of the solution or of creating solutions and insist on continuing the same old propaganda and the same old game to profit at our expense.
I refuse to be a citizen supporting the Republican party or the Democratic party, the banks, the big business billionaires, the credit derivatives gamblers, the hedge funds, the stock traders, the brokers, the real estate moguls, and the crap they have forced down all of our throats. There is no change so long as they all stay the same.
Somebody in America ought to sue the shorts off every one of the legislators that voted for the bailouts to banks misappropriating our money to do it. And, a class action suit should be made against the Republican party for misrepresenting their principles to those that have supported them. They didn’t use those principles in action and they should be held accountable.
“Banks weren’t intended to be some grand confidence scheme and that’s the only thing they are now. That is the basic problem – their con game has been discovered.”
- cricketdiane, 01-23-09
Why would anyone still believe that banks are now what they used to be? There are safer profitable ways to use money, places to put money and methods for moving money than banks.
The credit rates they offer are unreliable, they change the rules in the middle of the game, they gamble the assets they hold and are so wrapped up in their own con that they believe they can value assets as they want them to be rather than what they are.
They’ve misused the profits from their activities in order to line their own pockets and risked the moneys put with them for safe-keeping. They’ve leveraged every $1 of assets many times over such that they would never actually break even if they started today using sound fiscal management.
Their willingness to trade in exotic extreme risk products and to gamble in financial markets, hedge funds and credit default swaps has decimated the real value of their businesses and destroyed any sound legal standing for their business model. They are a con game.
During the five-day Meeting, over 2,500 participants from 96 countries will gather in Davos. Around 56% are business leaders, drawn principally from the Forum’s Members – the 1,000 foremost companies from around the world and across economic sectors.
More than 1,400 chief executives and chairpersons from the world’s leading companies are participating this year, the highest ever since the World Economic Forum was founded in 1971.
Other participants from around the world include:
• 250 public figures, including 41 heads of state or government, 60 ministers, 30 heads or senior officials of international organizations and 10 ambassadors
• More than 510 participants from civil society, including 50 heads or representatives of non-governmental organizations, 225 media leaders, 215 leaders from academic institutions and think tanks, 10 religious leaders of different faiths and 10 trade union leaders.
Business leaders from all sectors and from all regions will be well represented among the participants in this year’s Annual Meeting. Other participants include heads of NGOs and labour leaders, Social Entrepreneurs and Young Global Leaders.
The World Economic Forum Annual Meeting 2009 promises to be one of the most important events in the Forum’s history. The significance of the Meeting is such that more than 40 heads of state and government have already confirmed their participation in Davos-Klosters where they will join business leaders as well as NGOs, Trade Unions and experts from a wide range of fields. The Meeting will be focused on managing the current crisis and shaping the entire post-crisis agenda, from economic reform to climate change.
http://upcoming.yahoo.com/event/728493
Davos 2009 – World Economic Forum Annual Meeting
Wednesday January 28, 2009 – Sunday February 1, 2009 from 9:00am – 6:00pm
Davos Congress Center
Davos main street
Davos, Geneva
** My Note **
Credit derivatives and complex financial derivative products have made structural systemic fault lines throughout the economies of the world. It is possible to make all such products null and void, but my best guess is that there will be a continuing drive to feed the superstitious belief that if business and government leaders can make everyone believe it will all be okay – then it will all be okay and straighten itself out.
It looks as though business leaders will be there (at Davos) pressuring the change in mark to market accounting back to their own fantasy based accounting practices and exerting their influence to continue feeding themselves at the expense of every government and peoples in the world. That is their use of Washington and I would guess they will do it at Davos as well. Isn’t it at all possible for them to be part of the solution rather than a significant part of the problem?
This shindig promises to be fired up this time since there is an obvious call for true honest accounting and transparency across the board so that real decisions can be made based on reality. If the macro-economics teams can get a word in at all, and be heard over the politics of position and ideologies, party loyalties and big business lobbying – maybe, just maybe an honest dialogue about the truth of the world economic crisis can ensue.
There is no easy point at which solutions can be generated but as long as blind persuasion and biased representations of the facts are allowed to run the day, nothing to solve the problems can occur. Inasmuch as we have all benefited from business and monetary policy, if our business, banking, finance and government leaders would join with macro-economists rather than trying to persuade and push a singular point of view, then solutions could be generated that would be worth trying. Unlikely – but it could happen.
And, that goes for macro-economic experts and economists, too. If these intelligent people would stop their strangle hold on views of economics that no longer apply and weren’t created to deal with this situation – then apply their knowledge and overall understanding to the new economic reality, they could help to generate solutions that would work. We need workable solutions immediately – not three years out, but now – yesterday.
All of the members attending Davos need to understand they have each helped to create the situation and its disastrous results that are unfolding across the entire spectrum of markets and businesses, throughout the entire world. It is possible for solutions that are workable to be put into play and done so quickly. But, it is only through reality-based analysis that the true facts can be used for real workable solutions to be effective. We need solutions that work for today, the way the world is now – not solutions from a world long before today with differences in every elemental fact.
1.2 million dollars = 24 individual jobs at $50,000 each
10 million dollars in executive bonuses = 200 individual jobs at $50,000 per year
10 million dollars in bonuses times 25 executives = 5000 individual employees at $50,000 a year
When company executives spend 1.2 million dollars on their office furnishings – that means they spent the incomes for 24 individual families which could have received $50,000 a year to work in that company to continue making it profitable and to make their own lives financially viable.
Each $53,000,000 bonus paid out to any executive in an American company has cost more than the loss of those funds to one individual who has in many cases driven their company into the ground. It is also the loss of the jobs and employment for 20 individuals for each $1,000,000 spent on those bonuses. Or, in this case – the loss of 1060 employees’ jobs at $50,000 a year for each bonus of 53 million dollars paid.
When bonuses of this scale were, and are being paid out of company profits, these moneys did not belong to the executives – they belonged to the company and its continuing profitability and sustenance.
***
First of all, the banks have made money by using the deposits of our money, charging fees and interest on our money that was placed with them for safe-keeping.
Then, due to their negligence, mismanagement, greed and short-sightedness in the use of “their” assets and ours placed with them, these bankers and their lobbyists pressured our leaders to buy out every bad decision they’ve made and cover their losses.
Second of all, which American citizen agreed to give 7 – 8 thousand dollars of their hard-earned income each year from here on out in order to give the big banks the spending and gambling money as they were already given in TARP, Treasury and Federal Reserve funds last fall and are about to be given again?
And, who was it that decided these bankers were in the right when not once were they using their own money to resolve their bad financial decisions and mismanagement of assets?
Third of all, whether they have their own FICO score or not, big banks and financial institutions have mismanaged assets, why would we give them more funds to gamble away – wouldn’t their credit score be somewhere near zero?
And, tell me how is it that it would have been worse if TARP and other program funds had not been given to the banks? They were insolvent and mismanaged then and still are, credit was and is frozen anyway, the”players” in the banking industry are still gambling their and our assets and they wouldn’t loan to themselves or each other if they had to.
These banks are virtually bankrupt but feeding on every dime any of the rest of us will ever make in our lifetimes. It wouldn’t have been any worse. They lied. Their lobbyists lied. Their political buddies lied. Their paid “experts” lied. And their executives had to have known over many years that there were systemic misrepresentations in the values of the assets they were presenting, both to the public, to shareholders and to the government regulators.
And, without any significant paradigm shift in the financial, banking and investment industries, they will continue feeding off Washington and the rest of us including diverting our tax dollars for their own use while lying to legislators, regulators, shareholders and the public. These financial businesses will continue engaging in poor asset management, using faulty fantasy-based accounting practices, perpetrating shoddy and criminal business practices, gambling with our money and excessively leveraging everything that comes near them.
On CNN’s Lou Dobbs show tonight there was an “expert” saying that we have lost x number of jobs (over 2 million) and because each month another 1.5 million jobs are needed in order to absorb the greater number of employable, therefore we need to add 4 million jobs in America. So, I wrote this to their email because that was about too stupid to not send something to correct it.
I’m appalled at the degree of willingness of paid “experts” to subject us to their perception management tactics, “framing” and interpreting the issues for us, expressing misguided and disingenuous “facts” loosely based on reality, and pretending or projecting that reality is different than it is. Those are the tactics that got us in this mess and kept it going until we’ve damn near lost America because of it. (anyway, I didn’t write this part to tell them at the Lou Dobbs, CNN show – I wrote this below and sent it -
When there are 11.1 million people unemployed and 8.6 million people forced to work part-time when they neither need or want to work part-time (by US government’s low-ball estimates), that is conservatively 19.7 million good-paying jobs America is missing. So, how many jobs need to be put in place right now isn’t even in the neighborhood of 4 million as described by the expert on your show.
America needs 20 million jobs to replace those that have been lost as evidenced by the numbers of unemployed and underemployed currently plus an additional growth of +/- 2 million jobs per month to accommodate our growing population of employable individuals.
The grossly underestimated numbers given by your expert on tonight’s show was a continuing failure by academics, experts, government agencies and news organizations which has been and is still aggravating the problem. There can be no solutions where our larger community believes our economic difficulties are only a fifth of what they actually are. Your audience living in its own small communities around the globe, but especially in the US, already know that the problem is much greater than you are saying because it is being experienced first hand. Why don’t you and your producers know that?
E. Stanley O’Neal, the former chief executive of Merrill Lynch, was paid $46 million in 2006, $18.5 million of it in cash.
But Merrill’s record earnings in 2006 — $7.5 billion — turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.
Unlike the earnings, however, the bonuses have not been reversed.
As regulators and shareholders sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle.
For Wall Street, much of this decade represented a new Gilded Age. Salaries were merely play money — a pittance compared to bonuses. Bonus season became an annual celebration of the riches to be had in the markets. That was especially so in the New York area, where nearly $1 out of every $4 that companies paid employees last year went to someone in the financial industry. Bankers celebrated with five-figure dinners, vied to outspend each other at charity auctions and spent their newfound fortunes on new homes, cars and art.
More than 100 people in Merrill’s bond unit alone broke the million-dollar mark in 2006. Goldman Sachs paid more than $20 million apiece to more than 50 people that year, according to a person familiar with the matter.
Jan. 15 (Bloomberg) — Freddie Mac continues to foreclose on homeowners and make plans to evict them, drawing fire from legal aid groups who say the moves violate the spirit of a moratorium the company agreed to in November.
the mortgage- finance company continues to initiate court cases against homeowners and pursue existing cases, company spokesman Brad German said. Freddie and Fannie Mae, the government-sponsored enterprises seized by regulators Sept. 6, agreed to suspend “foreclosure sales” and evictions through this month after regulators urged them to help struggling homeowners modify mortgages to reduce payments.
Fannie had an inventory of almost 70,000 foreclosed properties at the end of the third quarter, while Freddie held about 30,000.
Fannie and Freddie, which own or guarantee almost half of the $12 trillion U.S. home-loan market, were taken over when regulators found the two were at risk of failing after posting record losses in the worst housing decline since the Great Depression.
An anchor on cable news, I think it may have been foxbusiness just mentioned that there are currently 2.3 million homes currently in foreclosure. So, if we add that number to those which have already been foreclosed since January 2007 – what kind of number is that? Where are those families now?
Personally, I would love to know why can’t homeowners simply go buy those mortgages for 20 cents on the dollar like companies holding them have been selling them? People could put it on their credit card or take out a small bank loan and just buy the durn thing . . .
- cricketdiane
We are paying for businesses like Bank of America who now owns Countrywide, don’t they and every other banking, investment and mortgage holding institution, plus Freddie Mac and Fannie Mae – covering all their losses on mortgages and mortgage-backed securities and their compensation packages are preserved. Citibank’s sponsorship of a bowl game for $45 billion is secured.
Advertising and promotion budgets continue, private planes and spas, bonuses, retention bonuses, dental and stock shares are all protected. The list of benefits to these companies and their executives are extensive, and we are paying to make sure these are secure for them while they make every mortgage holder homeless, penniless, desperate and without any real option but to default.
So, the only purpose to the housing bailout moneys already spent was to keep the Senators’ Washington friends in their jobs and protect pensions and benefits for them – not to stem foreclosures.
What a lie we’ve paid everything to fix which isn’t fixing anything.
And, every day more money is spent by the Congress to “help the homeowners” – what is in the water up there in Washington that has caused contempt for the citizens of America that they “serve”?
