August 2009 Archives

The FDIC took over the following failed banks over the weekend of August 28, 2009, bringing the year's total to 84.

Affinity Bank, Ventura, CA
Mainstreet Bank, Forest Lake, MN
Bradford Bank, Baltimore, MD

Number of Failures broken down by month:

January - 6
February - 10
March - 5
April - 8
May - 7
June - 9
July - 24
August - 15

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Steve Kroft On Credit Default Swaps And Their Central Role In The Unfolding Economic Crisis

Anyone with more than a casual interest in why their 401(k) has tanked over the past year knows that it's because of the global credit crisis. It was triggered by the collapse of the housing market in the United States and magnified worldwide by the sale of complicated investments that Warren Buffett once labeled financial weapons of mass destruction.

They are called credit derivatives or credit default swaps.

As correspondent Steve Kroft first reported last fall, they are essentially side bets on the performance of the U.S. mortgage markets and some of the biggest financial institutions in the world - a form of legalized gambling that allows you to wager on financial outcomes without ever having to actually buy the stocks and bonds and mortgages.

It would have been illegal during most of the 20th century under the gaming laws, but in 2000, Congress gave Wall Street an exemption and it has turned out to be a very bad idea.

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While Congress and the rest of the country scratched their heads trying to figure out how we got into this mess, 60 Minutes decided to go to Frank Partnoy, a law professor at the University of San Diego, who has written a couple of books on the subject.

Ask to explain what a derivative is, Partnoy says, "A derivative is a financial instrument whose value is based on something else. It's basically a side bet."

Think of it for a moment as a football game. Every week, the New York Giants take the field with hopes of getting back to the Super Bowl. If they do, they will get more money and glory for the team and its owners. They have a direct investment in the game. But the people in the stands may also have a financial stake in the ouctome, in the form of a bet with a friend or a bookie.

"We could call that a derivative. It's a side bet. We don't own the teams. But we have a bet based on the outcome. And a lot of derivatives are bets based on the outcome of games of a sort. Not football games, but games in the markets," Partnoy explains.

Partnoy says the bet was whether interest rates were going to go up or down. "And the new bet that arose over the last several years is a bet based on whether people will default on their mortgages."

And that was the bet that blew up Wall Street. The TNT was the collapse of the housing market and the failure of complicated mortgage securities that the big investment houses created and sold around the world.

But the rocket fuel was the trillions of dollars in side bets on those mortgage securities, called "credit default swaps." They were essentially private insurance contracts that paid off if the investment went bad, but you didn't have to actually own the investment to collect on the insurance.

When 60 Minutes last spoke with Eric Dinallo, he was insurance superintendent for the state of New York. He says credit default swaps were totally unregulated and the big banks and investment houses that sold them didn't have to set aside any money to cover potential losses and pay off their bets.

"As the market began to seize up and as the market for the underlying obligations began to perform poorly, everybody wanted to get paid, had a right to get paid on those credit default swaps. And there was no 'there' there. There was no money behind the commitments. And people came up short. And so that's to a large extent what happened to Bear Sterns, Lehman Brothers, and the holding company of AIG," he explains.

In other words, three of the nation's largest financial institutions had made more bad bets than they could afford to pay off. Bear Stearns was sold to J.P. Morgan for pennies on the dollar, Lehman Brothers was allowed to go belly up, and AIG, considered too big to let fail, is on life support thanks to a $180 billion investment by U.S. taxpayers.

"It's legalized gambling. It was illegal gambling. And we made it legal gambling…with absolutely no regulatory controls. Zero, as far as I can tell," Dinallo says.

"I mean it sounds a little like a bookie operation," Kroft comments.

"Yes, and it used to be illegal. It was very illegal 100 years ago," Dinallo says In the early part of the 20th century, the streets of New York and other large cities were lined with gaming establishments called "bucket shops," where people could place wagers on whether the price of stocks would go up or down without actually buying them. This unfettered speculation contributed to the panic and stock market crash of 1907, and state laws all over the country were enacted to ban them.

"Big headlines, huge type. This is the front page of the New York Times," Dinallo explains, holding up a headline that reads "No bucket shops for new law to hit.”

"So they'd already closed up 'cause the law was coming. Here's a picture of one of them. And they were like parlors. See," Dinallo says. "Betting parlors. It was a felony. Well, it was a felony when a law came into effect because it had brought down the market in 1907. And they said, 'We're not gonna let this happen again.' And then 100 years later in 2000, we rolled them all back."

The vehicle for doing this was an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000. And the bill was a big favorite of the financial industry it would eventually help destroy.

It not only removed derivatives and credit default swaps from the purview of federal oversight, on page 262 of the legislation, Congress pre-empted the states from enforcing existing gambling and bucket shop laws against Wall Street.

"It makes it sound like they knew it was illegal," Kroft remarks.

"I would agree," Dinallo says. "They did know it was illegal. Or at least prosecutable."

In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously.

"There was an awful lot of, 'Trust us. Leave it alone. We can do it better than government,' without any realistic understanding of the dangers involved," says Harvey Goldschmid, a Columbia University law professor and a former commissioner and general counsel of the Securities and Exchange Commission.

He says the bill was passed at the height of Wall Street and Washington's love affair with deregulation, an infatuation that was endorsed by President Clinton at the White House and encouraged by Federal Reserve Chairman Alan Greenspan.

"That was the wildest and silliest period in many ways. Now, again, that's with hindsight because the argument at the time was these are grownups. They're institutions with a great deal of money. Government will only get in the way. Fears it will be taken overseas. Leave it alone. But it was a wrong-headed argument. And turned out to be, of course, extraordinarily unwise," Goldschmid says.Asked what role Greenspan played in all of this, Professor Goldschmid says, "Well, he made clear in his public speeches and book that a Libertarian drive was part of the way he looked at the world. He's a very talented man. But that didn't take us where we had to be."

"Alan was the most powerful man in Washington in a real sense. Certainly a rival to the president and had enormous influence on Capitol Hill," Goldschmid says.

"And he was at the height of his power," Kroft adds.

Within eight years, unregulated derivatives and swaps helped produce the largest financial services economy the United States has ever had. Estimates of the market for credit default swaps grew from $100 billion to more than $50 trillion, and you could bet on anything from the solvency of communities to the fate of General Motors.

It also produced a huge transfer of private wealth to Wall Street traders and investment bankers, who collected billions of dollars in bonuses. A lot of the money was made financing what seemed to be a never-ending housing boom, selling mortgage securities they thought were safe and credit default swaps that would never have to be paid off.

"The credit default swaps was the key of what went wrong and what's created these enormous losses," Goldschmid says.

"Is it your impression that people at the big Wall Street investment houses knew what was going on and knew the kind of risks that they were exposed to?" Kroft asks.

"No. My impression is to the contrary, that even at senior levels they only vaguely understood the risks. They only vaguely followed what was going on," Goldschmid says. "And when it tumbled, there was some genuine surprise not only at the board level where there wasn't enough oversight but at senior management level."

They didn't know what was going on in part because credit default swaps were totally unregulated. No one knew how many there were or who owned them. There was no central exchange or clearing house to keep track of all the bets and to hold the money to make sure they got paid off. Eventually, savvy investors figured out that the cheapest, most effective way to bet against the entire housing market was to buy credit defaults swaps, in effect taking out inexpensive insurance policies that would pay off big when other people's mortgage investments failed "I know people personally who have taken away more than $1 billion from having been on the right side of these transactions," says Jim Grant, publisher of Grant's Interest Rate Observer and one of the country’s foremost experts on credit markets.

"If you can and you could lay down cents on the dollar to place a bet on the solvency of Wall Street, for example, as some did, when Wall Street became evidently insolvent, that cents on the dollar bet went up 30, 40, and 50 fold. Not everyone who did that wants to get his name in the paper. But there are some spectacularly rich people who came out of this," Grant says.

"Who got richer," Kroft remarks.

"Who got richer, who became, you know, fantastically richer," Grant says.

A lot of them were hedge fund managers. John Paulson's Credit Opportunities Fund returned almost 600 percent last year, with Paulson pocketing a reported $3.7 billion.

Bill Ackman, of Pershing Square Capital Management, said he plans to make hundreds of millions. Both declined 60 Minutes' request for an interview.

Congress seemed shocked and outraged by the consequences of its decision eight years ago to effectively deregulate swaps and derivatives. Various members of the House and Senate have hauled in the usual suspects to accept or share the blame.

"Were you wrong?" Rep. Henry Waxman asked former Federal Reserve Chairman Greenspan.

"Credit default swaps, I think, have some serious problems with them," Greenspan replied.

It appears to be the first step in a long process of restoring at least some of the regulations and safeguards that might have prevented, or at least mitigated this disaster after the damage has already been done.

Where do we go from here?

"We need the most dramatic rethinking of the regulatory scheme for financial markets since the New Deal. If anything has demonstrated that imperative, it's the economy right now and the tragic circumstances we're in," Goldschmid says.

Asked how much danger he thinks is still out there, Goldschmid says, "We don't know. Part of the problem of the lack of transparency in these markets has been we don't really know."

To view the story, click on the following link:

http://www.cbsnews.com/video/watch/?id=5274961n

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By Damian Paletta and Michael R. Crittenden

WASHINGTON – The government insurance fund that protects more than $4.5 trillion in U.S. bank deposits fell to just $10.4 billion at the end of June, as the banking industry continues to struggle with souring loans.

The Federal Deposit Insurance Corp. fund is at its lowest level since mid-1993, during the savings-and-loan crisis. That makes it likely that the government will have to charge banks another special fee to recapitalize its reserves. Officials could also consider borrowing up to $100 billion from the Treasury Department, but they have avoided this option so far.

FDIC Chairman Sheila Bair said Thursday that the agency had "ample" resources to protect depositors and had no immediate plans to raise or borrow funds. She said the FDIC expects the number of banks failing or at risk of failing to remain "elevated," even after the broader economy turns around. "Cleaning up balance sheets is a painful process that takes time," Ms. Bair said.

The agency said it had 416 banks on its "problem" list at the end of June, up from 305 at the end of March. Banks on the problem list are considered at higher risk of failure and face tougher regulatory scrutiny. The FDIC said assets of banks on the problem list totaled $299.8 billion—a figure that suggests that Citigroup Inc. and some of the country's other largest banks aren't on the list.

The FDIC, in a quarterly report, said the industry posted an aggregate net loss of $3.7 billion in the second quarter, mostly because banks increased expenses for bad loans. This is a reversal from the first quarter, when the banking industry turned a slight profit, and shows banks still have a long way to go to work through their problems.

The FDIC also said borrowers are falling behind on loans at record levels and across most major loan categories. The number of loans at least 90 days past due climbed for a 13th consecutive quarter, while the percentage of loans at least three months overdue hit 4.35%, the highest level recorded since the FDIC began collecting this data 26 years ago.

"Deteriorating loan quality is having the greatest impact on industry earnings as insured institutions continue to set aside reserves to cover loan losses," Ms. Bair said.

The biggest problem areas continued to be property-related loans, suggesting the housing market is still under stress despite some recent good news. The FDIC said residential mortgage loans at least 90 days past due climbed 12.7% in the quarter. The number of construction and development loans at least three months behind increased 16.6%.

Banks responded to the credit problems by writing off assets at a record pace and continuing to add to their reserves. Banks added $16.8 billion to their loan-loss reserves during the second quarter, while writing off $48.9 billion.

Even so, loans are souring faster than banks can sock away funds to cover potential losses. The FDIC said U.S. banks had only 63.5 cents in reserve for every dollar of loans at least 90 days past due at the end of the second quarter, the lowest level since the third quarter of 1991.

The $10.4 billion in the deposit-insurance fund was down from an already-low $13.3 billion at the end of March. The deposit-insurance fund topped $45.2 billion a year ago. The fund fell to 0.22% of insured deposits on June 30, the lowest level since March 31, 1993.

The FDIC said it added $10.2 billion to the fund in the second quarter through assessments, including a $5.6 billion special fee that banks were charged at the end of June, and other interest and fees. At the same time, it transferred $11.6 billion from the fund to a separate loss-reserve fund, bringing that fund up to $32 billion and giving the agency $42 billion in reserves to cover insured deposits.

Eighty-one banks have already failed so far this year, up from 25 in 2008. Bank failures this year have already cost the FDIC roughly $19 billion. The FDIC said the U.S. had 8,195 banks at the end of June.

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By Joanna Chung in Washington and Francesco Guerrera in Pittsburgh

August 27 2009 20:38

The number of US banks at risk of failure is at a 15-year-high while the fund protecting depositors is at its lowest level since 1993, according to figures that highlight the spread of the crisis to the lower reaches of the financial system.

The Federal Deposit Insurance Corporation, a banking regulator, on Thursday said the number of “problem banks” had risen from 305 to 416 during the second quarter. The FDIC does not name the lenders on the “problem list” but said that total assets of that group had increased from $220bn to $299.8bn in the three months through June.

That relatively low figure suggests that after hitting large institutions which traded complex securities, the financial crisis and the recession are taking a toll on smaller banks that lend to businesses and consumers.

Sheila Bair, the FDIC chairman, said on Thursday that while earlier losses in the industry were related to troubled residential loans and complex mortgage-related assets, there were now problems with more conventional types of retail and commercial loans that have been hit hard by the recession. “These credit problems will outlast the recession by at least a couple of quarters,’’ she said.

The FDIC’s total asset figure indicates that Citigroup is not on the “problem list”, in spite of fears among executives and investors that its financial problems and regulators’ concerns over the management team could prompt an inclusion. Citi declined to comment.

Thursday’s news of a sharp fall in the FDIC’s deposit insurance fund, which insures up to $250,000 per depositor in each bank, underscored the problems faced by regulators when contemplating the rescue or wind-down of institutions with trillions of dollars on their balance sheets.

The agency said its fund had fallen to just $10.4bn from $13bn in the quarter, the lowest level since March 1993 when the US was in the middle of the savings and loans crisis. The fund has been depleted by bank failures: regulators have shut 81 banks this year.

“In many important respects, financial markets are returning to normal,’’ said Ms Bair. “Combined with the positive economic news in recent weeks, we’re hopeful that this will lead to a moderation in credit problems in coming quarters. But, as our report shows, cleaning up balance sheets is a painful process that takes time.’’

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The FDIC took over the following failed banks on August 21, 2009, bringing the year's total to 81.

Guaranty Bank, Austin, TX
Capital South Bank, Birmingham, AL
First Coweta Bank, Newnan, GA
ebank, Atlanta, GA


Number of Failures broken down by month:

January - 6
February - 10
March - 5
April - 8
May - 7
June - 9
July - 24
August - 12

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Fri Aug 21, 2009 7:34pm BST


  NEW YORK, Aug 21 (Reuters) - Gold futures rose toward $960
an ounce on Friday, gaining more than 1 percent as the dollar
slumped against the euro, boosting the metal's appeal as a
hedge against the falling U.S. currency.

 For the latest detailed report, click on [GOL/].

 GOLD

 * December gold GCZ9 settled up $13, or 1.4 percent, at
$954.70 an ounce on the COMEX division of the New York
Mercantile Exchange.

 * Ranged from $939.20 to $959.90 -- the highest price since
Aug. 14.

 * Gold accelerated gains after COMEX pit open as the dollar
slumped to a two-week low against the euro on the back of
optimistic services-sector data in the euro zone. [FRX/]

 * The inverse relationship between gold and the dollar has
been reasserting itself. Earlier this year, the traditional
link broke down because both assets benefited from a flight to
safety amid economic fears - analysts.

 * Investors sold U.S. dollar holdings to buy gold and crude
oil, and the December contract looked set to break out and test
the next significant resistance level at $975 an ounce - George
Gero, vice president of RBC Capital Markets Global Futures.

 * Gold jumped above $950 an ounce ahead of option expiry
next week - Jon Nadler, senior analyst at bullion dealer Kitco
Metals Inc.

 * Earlier in the session, oil rallied to just below $75 a
barrel. Gold is generally viewed as a hedge against oil-led
inflation.

 * Gold/oil ratio at 12.90, down slightly from the previous
session's 12.92.

 * COMEX estimated 1 p.m. gold volume at 82,044 lots.

 * Spot gold XAU= at $952.95 an ounce at 2:15 p.m. EDT
(1815 GMT), against $939.35 in late Thursday dealings in New
York.

 * London afternoon gold fix XAUFIX= at $952.50 an ounce.



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gold

By Shiyin Chen

Aug. 21 (Bloomberg) -- The dollar’s role as a good store of value is “questionable” and the currency has a high degree of risk, said Nobel Prize-winning economist Joseph Stiglitz.

“There is a need for a global reserve system,” Stiglitz, a Columbia University economics professor, said at a conference in Bangkok today. Support from countries like China should ensure orderly discussions on a new reserve system, he added.

The dollar has lost 12 percent since March 5 against an index comprising the euro, yen and four other major currencies. China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.

“The current reserve system is in the process of fraying,” Stiglitz said. “The dollar is not a good store of value. Right now, the dollar is yielding almost no return and yet anybody looking at the dollar has to say there’s a high degree of risk.”

The dollar will weaken as the U.S. pumps “massive” amounts of money into the economy, according to Curtis A. Mewbourne a portfolio manager at Pacific Investment Management Co., the world’s biggest manager of bond funds.

Still, pessimism over the dollar’s prospects may be excessive, with its status as the world’s reserve currency still intact, said David Woo, global head of foreign exchange strategy at Barclays Capital in London.

“The reserve currency issue was a big issue three months ago,” Woo said in a Bloomberg Television interview yesterday. “But guess what? The dollar hasn’t gone anywhere over the last three months for the most part and if anything, we’ve seen a slowdown in dollar-selling by central banks.”

Flood of Liquidity

Policy makers in the U.S. and Europe have flooded the global economy with liquidity, which could lead to speculative bubbles due to limited opportunities for investment, Stiglitz said. The Nobel Prize winner said he was not confident of the Fed’s claim that it would withdraw liquidity when needed.

Under Chairman Ben S. Bernanke's stewardship, the Fed cut the benchmark lending rate to as low as zero and expanded credit to the economy by $1.1 trillion over the past year. In the euro region, the European Central Bank has reduced interest rates to a record low of 1 percent.

“As the balance sheet of the Fed has blown up, as the deficit of the U.S. and the debt has increased, people have asked the obvious question: will there be inflation in the future?” Stiglitz told the conference. “Right now we’re facing deflation, but some time in the future, there will be consequences.”

Asset Bubbles

The liquidity pumped into the U.S. economy may also end up elsewhere, including in Asian property and stocks, Stiglitz said later in Bankgok.

“The liquidity is going to be spent, but not necessarily in America,” he said. Asian economies may have to “protect against an American-led asset bubbles.”

The global financial crisis also signals the failure of American-style capitalism, Stiglitz told the conference. The worldwide financial system only worked because of repeated government bailouts and markets have been saved from their failures to allocate risk, he said.

Stiglitz said more collective action was needed on a global level to address the crisis and that the Group of 20 has been slow in addressing fundamental problems such as weak aggregate demand. Finance ministers and central bankers from the G20 are due to meet in London on Sept. 4-5.

Early Stages

The global financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007, has led to almost $1.6 trillion of writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg.

Treasury Secretary Timothy Geithner said yesterday the U.S. recovery is still in its early stages, propelled by an improving job market and a housing industry that’s beginning to stabilize.

“We have a long way to go, but we are starting to see signs of stability, and these signs mark the first steps to recovery,” Geithner said in prepared remarks in Berea, Ohio.

Stiglitz has a more pessimistic view on the U.S. economy, saying that while the worst of the recession may have passed, the likelihood of unemployment in the next one to three years being higher than it had been was “very great.”

The economist shared the Nobel Prize in 2001 for work on problems that may arise in markets when parties don’t have equal access to information. He was formerly chairman of the White House Council of Economic Advisers under Bill Clinton.

Stiglitz was also the chief economist at the World Bank between 1997 and 2000, during which he clashed with the White House over economic policies it supported at the International Monetary Fund

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By Garfield Reynolds and Wes Goodman

Aug. 19 (Bloomberg) -- Pacific Investment Management Co., the world’s biggest manager of bond funds, said the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy.

The dollar will drop the most against emerging-market counterparts, Curtis A. Mewbourne, a Pimco portfolio manager, wrote in a report on the company’s Web site. The greenback is losing its status as the world’s reserve currency, he said.

“Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure,” Mewbourne wrote in his August Emerging Markets Watch report. “The massive amounts of U.S. dollar liquidity produced in response to the crisis” have helped reduce demand for the currency, he wrote.

The Dollar Index, which tracks the greenback against a basket of currencies, touched 78.823 today, the lowest this week. It has fallen 12 percent from this year’s high in March as U.S. authorities pledged $12.8 trillion to combat the recession. China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves.

“While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative,” Mewbourne wrote.

Percentage of Reserves

The dollar as a percentage of global central banks’ foreign reserves increased to 65 percent in the first three months of the year, from 64.1 percent in the previous quarter, according to the International Monetary Fund. Its share has remained around 65 percent the last five years, after falling from 72.7 percent in 2001.

The U.S. government boosted spending and the Federal Reserve bought bonds to revive credit markets that seized up after financial companies posted $1.6 trillion in writedowns and losses, raising concern there is an oversupply of greenbacks.

The currency rose 0.1 percent to $1.4118 per euro as of 9:06 a.m. in New York. The Dollar Index is down about 2.8 percent this year, after a 6 percent gain in 2008.

Asian currencies stand to benefit as the region’s economy grows and the dollar’s allure fades, said Rajeev de Mello, Singapore-based head of Asian investments at Western Asset Management Co., which oversees $473.4 billion.

Sample Coin

“We are positive on the Asian currencies against the dollar and think they will continue to rally,” de Mello said in an interview. “I do think the diversification of reserves is something that’s important and I think we’ll see some from China into other currencies and this will benefit as well Asian currencies and other emerging currencies.”

China’s central bank renewed its call for a new global currency in June and said the International Monetary Fund should manage more of members’ foreign-exchange reserves. Russian President Dmitry Medvedev last month illustrated his call for a supranational currency by producing a sample coin after a summit of the Group of Eight nations.

Mewbourne joins investor Jim Rogers, who said last year that he was shifting all his assets out of dollars and buying Chinese yuan because the Fed eroded the value of the U.S. currency. The dollar is losing its status as the world’s reserve currency, said Rogers, who is the author of books on investing including “Hot Commodities.”

Sovereign Funds

Bill Gross, who runs the $169 billion Pimco Total Return Fund, is also warning the U.S. currency will fall.

Holders of dollars should diversify before central banks and sovereign wealth funds do the same because of concern government budget deficits will deepen, Gross said in June.

Gross’ fund has returned 12 percent in the past year, outperforming 96 percent of its peers, according to data compiled by Bloomberg.

Billionaire Warren Buffett wrote in a New York Times commentary today that the dollar is under threat from the “monetary medicine” that has been pumped into the financial system.

“Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects,” Buffett, 78, wrote. The “greenback emissions” will swell the deficit to 13 percent of gross domestic product this fiscal year, while net debt will increase to 56 percent of GDP, he said.

Budget Deficit

The U.S. budget deficit reached a record $1.27 trillion for the first 10 months of the fiscal year and broke a monthly high for July, the government said Aug. 12.

There is no viable immediate alternative to the U.S. dollar for now as the euro region lacks a political union while Japan’s economic weakness makes it impossible to consider the yen for such a role, Pimco’s Mewbourne wrote. The currencies of emerging states such as China can’t play a reserve role as long as they are subject to capital controls, which restrict international traders to using non-deliverable forwards, he wrote.

Pimco, based in Newport Beach, California, is a unit of Munich-based insurer Allianz SE

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By Ryan J. Donmoyer

Aug. 19 (Bloomberg) -- IRS Commissioner Douglas Shulman said the U.S. scored a “huge victory” in persuading Switzerland to turn over the identities of 4,450 Americans with secret UBS AG bank accounts and said the agency’s probe is expanding.

Shulman said the Internal Revenue Service, as a result of the UBS case, is aware of other financial institutions, law firms and other entities that help Americans hide assets offshore.

“We’re going to have our targets set on all categories of folks,” Shulman said in an interview with Bloomberg Television.

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By Elena Logutenkova

Aug. 19 (Bloomberg) -- UBS AG, Switzerland’s largest bank, may give information on 4,450 accounts as part of an agreement between the Swiss and U.S. governments to settle a lawsuit that sought data on American clients suspected of evading taxes.

Switzerland pledged to process a new administrative assistance request from the U.S. seeking details of those accounts within a year, the Swiss government said in a statement today. UBS fell as much as 3.2 percent in Swiss trading.

The settlement resolves a six-month legal tussle that put unprecedented pressure on the bulwark of Swiss banking secrecy. Under the agreement, UBS agreed to give the necessary account data to the Swiss authorities dealing with the U.S. request.

UBS, the world’s second-biggest manager of money for the rich, admitted in February to participating “in a scheme to defraud the U.S.” and agreed to pay $780 million and disclose the names of more than 250 clients who allegedly hid assets from the Internal Revenue Service. A day later, the IRS sued the Zurich-based bank for information on as many as 52,000 clients.

Switzerland argued that any further disclosure would require the bank to violate the Swiss banking confidentiality law. The Swiss also threatened to seize the data sought by the IRS if U.S. District Judge Alan Gold ordered disclosures violating Swiss privacy law.

“We short-circuited a protracted summons and litigation process by culling the accounts to the 4,450 that were of the greatest interest to us,” IRS Commissioner Douglas Shulman said in a statement.

‘Tip of Iceberg’

Since February, four UBS clients have agreed to plead guilty to failing to report their offshore bank accounts. Thousands of clients avoided prosecution by voluntarily disclosing their accounts to the IRS under a program that ends Sept. 23, tax lawyers said.

“UBS is the tip of the iceberg,” Asher Rubinstein, a partner at law firm Rubinstein & Rubinstein, said in a Bloomberg TV interview before the final settlement was announced. “UBS was easy for the IRS to go after because the facts were just so egregiously against UBS. The writing is on the wall and you won’t be able to hide money from the IRS for much longer.”

UBS, the European bank with the biggest writedowns and losses from the global credit crisis, suffered client withdrawals of 156.3 billion francs from its wealth management units since March 2008. Chief Executive Officer Oswald Gruebel said on Aug. 4 that a reversal in outflows will probably lag behind a financial improvement at the bank.

Government Stake

Gruebel has cut 7,500 jobs, sold a Brazilian unit, replaced three executive board members and raised 3.8 billion francs in capital from investors since joining UBS in February to help restore the bank’s profitability and reputation. His predecessor Marcel Rohner, who once headed wealth management at UBS, reported a 21.3 billion-franc net loss for 2008, the biggest ever in Swiss corporate history, and relied on help from the Swiss government to keep the bank afloat.

The Swiss government, which invested 6 billion francs in UBS mandatory convertible notes to help the bank split off toxic assets, may dispose of its holding in the days following the settlement of the U.S. lawsuit, two people familiar with the matter said earlier this week.

UBS lost its ranking as the world’s biggest manager of money for the wealthy after Bank of America Corp. bought Merrill Lynch & Co., Scorpio Partnership said in July. At the end of June, UBS oversaw 961 billion francs at its wealth management and Swiss bank unit, and 695 billion francs at the Americas division, which includes the former Paine Webber Inc., the company reported.

Diamonds in Toothpaste

A former UBS banker, Bradley Birkenfeld, pleaded guilty to helping wealthy Americans evade taxes and has cooperated with prosecutors. He is scheduled to be sentenced on Aug. 21 in federal court in Fort Lauderdale, Florida.

Birkenfeld was a banker for California billionaire Igor Olenicoff, who pleaded guilty in December 2007 to filing a false tax return that failed to declare accounts at UBS, where he once had $200 million in assets. Olenicoff got two years probation and paid $52 million in back taxes, interest and penalties.

In April 2008, Birkenfeld was indicted with Liechtenstein investment adviser Mario Staggl for allegedly helping Olenicoff and others evade taxes. Staggl is a fugitive. At his guilty plea, Birkenfeld said UBS earned $200 million a year by managing $20 billion in assets and setting up sham entities for clients in tax havens like Panama and the British Virgin Islands.

Birkenfeld said as many as 60 UBS private bankers had trolled for clients at UBS-sponsored art shows, yachting regattas and golf and tennis tournaments. He said he toted customer checks to deposit in European banks and bought diamonds for one client, smuggling them to the U.S. in a toothpaste tube.

Another UBS banker, Raoul Weil, was indicted and declared a fugitive, and a third who ran the now-shuttered cross-border business, Martin Liechti, was held by the U.S. as a material witness for several months last year.

The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami)

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Source: GoldForecaster.com  08/10/2009

As part of a series we first look at this question: "If the U.S. decides to confiscate gold in the future, what impact might that have on Gold Shares and the COMEX Gold Futures prices?"

We assure you, this is not a fatuous question. Is it possible you may well ask under what circumstances did this happen in 1933? [We will answer that more fully in a later part of the series]. What we can confirm is that in 1933 the U.S. government banned the ownership of gold by U.S. citizens and purchased all but rare gold coins from the U.S. Public They did this, at $20 an ounce. Two years later they revalued gold to $35 an ounce, a 75% revaluation. So, there is a precedent! [In a later part of the series, we will examine the reasons behind this first confiscation and compare these with today to see if we can expect the same in the months to come.]

So we continue this part on the basis that a confiscation will take place. And we further assume that the rare gold coins [trading at a large premium to the gold price] are excluded. This means that high caratage gold bars and coins trading at close to the gold price will have to be handed over to the Fed and sent to a place like Fort Knox.

Gold Share Markets

It may sound strange to say this, but investors in gold Exchange Traded Funds will concur but gold shares have little to do with the gold price, except to define what a gold mining company will earn from its gold production. Buyers of gold shares don’t expect to influence the gold price when buying gold shares. They are buying equities only, with all the risks of any corporation. The way the gold price affects them is through the price received over the space of the half year and year when the results are published. This makes the average gold price of prime importance to these shares. Of course there are many who based on their forecasts of the average gold price will discount this average and reflect it in the price of the shares. Many believe that gold shares are six months ahead of that average.

Now imagine a regime where U.S. owned gold is confiscated. It may well be as last time that the gold is paid for at a fixed price. It may well be that gold mines in the U.S. are paid that gold price and no more. Then the average gold price achieved from that mine will be the new “fixed” price of gold. One will then be able to measure the earnings of a gold mine and allow some part of the price for the risks attendant on a corporation [management, balance sheet, etc]. Gold mines, where the gold price earned is entirely different from that inside the U.S., will trade at different levels commensurate with these different gold prices. [We will discuss different global prices in a later part of the series]. The price of gold mining company’s shares will therefore be very different than those in the U.S. It could be that foreigners will buy U.S. gold mines shares to get a higher price or U.S. investors will buy foreign gold mine shares to get their higher gold prices? There will be a separation of the two for sure.

We do expect that investors of any kind will continue to be allowed to invest in gold mines no matter where they are in the world. If foreign gold mine shares are trading at different price and higher ones at that, then the U.S. will benefit to the extent that dividends flow into the country. You can be sure that the U.S. will encourage this. After all the objective of a confiscation of gold will not, at this stage, be to restrain foreign investment, but to bring gold into the hands of government. It all depends on what Capital or Exchange Controls attend the confiscation of gold.

Futures and Option Markets

This is where life changes for an investor. If there is no free gold market inside the States [due to the continuous purchase of gold by the U.S. Fed] there will be no gold market on which to base the futures and option market inside the States. Perhaps the U.S. regulators will feel that that is an unavoidable cost justified by the reasons they confiscated the gold in the first place.

But the financial world is far too sophisticated to allow such a draconian result. We have absolutely no doubt that London or Paris or Shanghai or Moscow or TOCOM will step into the gap and widen their own Futures and Options market in gold or accept new business into their already established futures and options markets. After all, many, many foreigners buy futures and options on COMEX. Where will they go?

Will U.S. investors have access to these markets?

Again we have to understand why gold will be confiscated in the first place. It would seem likely that the acquisition of gold will be their purpose, no other, so why prevent U.S. citizens from going overseas to invest in a futures and options market when they can go to invest in any other markets there. It is possible that at some stage the U.S. would instruct that U.S. owned gold held abroad be repatriated, forcing delivery first. But this would be at a later stage only, we feel.

The only reason this would not be allowed would be because full scale exchange Controls would have been imposed on U.S. investment overseas. Usually these are not prevention measures but added cost measures. In the U.K. in 1971 two types of currencies were used, one for international trade and one for international investment [Dollar Premium] . At its worst the international investment currency stood at a 31% discount to the ‘commercial’ currency. This translated into the export of around 50% more Pounds for investment than for commerce. The U.S. could experience this in a dollar meltdown.

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By Ari Levy

Aug. 14 (Bloomberg) -- More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

The number of banks exceeding the threshold more than doubled in the year through June, according to data compiled by Bloomberg, as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re “well-capitalized” by regulatory standards, which means they’re considered financially sound.

“At a 3 percent level, I’d be concerned that there’s some underlying issue, and if they’re at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition,” said Walter Mix, former commissioner of the California Department of Financial Institutions, and now a managing director of consulting firm LECG in Los Angeles. He wasn’t commenting on any specific banks.

Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of “problem banks,” which stood at 305 in the first quarter.

Cash Drain

Nonperforming loans can eat into a company’s earnings and deplete cash, leaving banks below the minimum capital levels required by regulators. Three lenders with nonaccruing ratios of at least 6.2 percent as of March were closed last week. Chicago- based Corus Bankshares Inc., Austin-based Guaranty Financial Group Inc. and Colonial BancGroup Inc. in Montgomery, Alabama, each with ratios of at least 6.5 percent, said in the past month that they expect to be shut.

“This is a fairly widespread issue for the larger community banks and some regional banks across the country,” said Mix of LECG, where William Isaac, former head of the Federal Deposit Insurance Corp., is chairman of the global financial services unit.

Ratios above 5 percent don’t always lead to failures because banks keep capital cushions and set aside reserves to absorb bad loans. Banks with higher ratios of equity to total assets can better withstand such losses, said Jim Barth, a former chief economist at the Office of Thrift Supervision. Marshall & Ilsley and Synovus said they’ve been getting bad loans off their books by selling them.

Exclusions

Bloomberg’s list was compiled by screening U.S. banks for nonperforming loans of 5 percent or more, and then ranked by assets. The list excluded U.S. territories and lenders that have already failed. Also left out were the 19 lenders that underwent the Treasury’s stress tests in May; they were deemed “too big to fail” and told by regulators that government capital was available to keep them in business.

Excluding the stress-test list, banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That’s almost 15 times the size of the FDIC’s deposit insurance fund at the end of the first quarter.

About 2.6 percent of the $7.74 trillion in bank loans outstanding in the U.S. at the end of March were nonaccruing, the highest in 17 years, according to the most recent data from the FDIC, Nonaccrual loans peaked at 3.27 percent in the second quarter of 1991, during the savings and loan crisis, and averaged 1.54 percent over the past 25 years.

‘Off the Charts’

“These numbers are off the charts,” said Blake Howells, an analyst at Becker Capital Management in Portland, Oregon, referring to the nonperforming loan levels at companies he follows. Banks are losing the “ability to try and earn their way through the cycle,” said Howells, who previously spent 13 years at Minneapolis-based U.S. Bancorp.

Corus, with more than two-thirds of its loans nonperforming, has the highest rate among publicly traded banks. The company said last month that it’s “critically undercapitalized” after five consecutive quarterly losses tied to defaults on condominium construction loans. Randy Curtis, Corus’s interim chief executive officer, didn’t respond to calls for comment.

Marshall & Ilsley, Wisconsin’s biggest bank, reduced its nonperforming loans last month to 5.01 percent from 5.18 percent after selling $297 million in soured loans, mostly residential mortgages in Arizona, the Milwaukee-based company said Aug. 10.

Deadline for Nonperformers

The bank has “been very aggressive in identifying and tackling credit challenges,” Chief Financial Officer Greg Smith said in an Aug. 12 interview. Smith said 26 percent of loans classified as nonperforming are overdue by less than the industry’s typical standard of 90 days. With those excluded, the ratio would be around 3.7 percent, he said.

Synovus, plagued by defaulting construction loans in the Atlanta area, said nonperforming loans rose to 5.4 percent in the second quarter from 5.2 percent the previous period. Disposals of nonperforming assets reached $404 million in the quarter ended in June, the Columbus, Georgia-based company said.

Synovus is selling troubled loans and will continue its “aggressive stance on disposing of nonperforming assets” as long as the level is elevated, spokesman Greg Hudginson said in an e-mailed statement.

Michigan Home

Flagstar is based in Troy, Michigan, the state with the nation’s highest unemployment rate. Flagstar has $16.4 billion in assets and reported last month that 11.2 percent of its loans were nonperforming; about two-thirds were home mortgages. Flagstar CFO Paul Borja didn’t return repeated calls for comment.

The bank’s allowance for loan losses was 5.4 percent of total loans at the end of the second quarter, compared with 3.3 percent at Synovus and 2.8 percent at Marshall & Ilsley, according to company filings. All three reported at least three straight quarterly deficits.

The FDIC doesn’t comment on lenders that are open and operating and doesn’t disclose which banks are on its problem list. The agency will probably impose an emergency fee on the more than 8,200 banks it insures in the fourth quarter to replenish the insurance fund, the second special assessment this year, Chairman Sheila Bair said last week. The FDIC attempts to sell deposits and assets of seized banks to healthier firms to avoid eroding the fund, said agency spokesman David Barr.

Capital Levels

To determine which banks are most troubled, regulators compare the ratio of nonperforming loans to the percentage of equity a firm has relative to its assets, said Barth, the former OTS economist. A company with 5 percent nonperforming loans and equity of 8 percent is better positioned than one with the same amount of troubled loans and equity of 4 percent, he said.

Flagstar’s equity-to-assets ratio in the second quarter was 5.4 percent, Synovus’s was 8.9 percent and Marshall & Ilsley, which raised $552 million through a stock sale in June, was at 11 percent, according to the banks.

The three lenders that failed last week -- Florida’s First State Bank and Community National Bank and Oregon’s Community First Bank -- all had nonperforming loans above 6 percent and equity ratios below 4.5 percent.

“The nonperforming ratio, in and of itself, should be a great concern,” said Barth, a professor of finance at Auburn University in Alabama and senior finance fellow at the Milken Institute in Santa Monica, California. “It becomes even more troublesome when it goes above 3 percent and the equity-to-asset ratio is quite low.”

Toast Time

While 5 percent can be “fatal” for home lenders, commercial real estate lenders may be able to withstand higher rates, said William K. Black, former lawyer at the Federal Home Loan Bank of San Francisco and the OTS. Commercial loans carry higher interest rates because they’re riskier, he said.

“At the 5 percent range, you’re probably hurting,” said Black, an associate professor of economics and law at the University of Missouri-Kansas City. “Once it gets around 10 percent, you’re likely toast.”

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By Nicholas Larkin and Halia Pavliva

Aug. 13 (Bloomberg) -- Gold rose to the highest price this week as the dollar declined, increasing the metal’s appeal as an alternative investment. Silver climbed to a two-month high, and platinum and palladium rose.

The dollar fell for a third day against a basket of six major currencies after a report showed U.S. retail sales unexpectedly fell last month, adding to concern that consumers are unwilling to increase spending. The greenback slid as much as 0.9 percent against the euro after the German economy, Europe’s largest, unexpectedly expanded in the second quarter. Bullion tends to climb when the U.S. currency weakens.

“The dollar is under fire today,” GoldCore Ltd., a brokerage in Dublin, said in a note to clients. “Gold is taking up the slack.”

Gold futures for December delivery rose $4, or 0.4 percent, to $956.50 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the price reached $963.10, the highest since Aug. 7.

“Today’s session close over the 20-day moving average is a good sign from the bullish prospective,” Al Abaroa, a senior commodities strategist at OptionsPro Corp. in Plantation, Florida, said by e-mail.

In London, bullion for immediate delivery advanced $7.70, or 0.8 percent, to $954.80 an ounce at 7:50 p.m. local time. Spot prices slid for five days through Aug. 11, the longest decline in five months.

Gold Tracks Dollar

“Gold prices continue to track currency movements and bounce back above the $950-an-ounce level,” Suki Cooper, an analyst at Barclays Capital in London, said in a report.

The metal slipped to $953.50 in the London afternoon "fixing", the price used by some mining companies to sell their output, from $956 in the morning fixing.

U.S. retail sales fell 0.1 percent in July from June, the Commerce Department said today in Washington. The median forecast of 76 economists in a Bloomberg News survey was for an increase of 0.8 percent.

The Federal Reserve yesterday extended by a month the scheduled completion of a $300 billion program to purchase U.S. Treasuries, or so-called quantitative easing, aiming for a “smooth transition in markets,” according to a statement from the central bank. The Fed left the target rate for overnight bank lending between zero and 0.25 percent, near record lows.

Inflation Effect

Gold “should remain supported by the inflationary impact of the Fed’s rate decision, in addition to the boost to general risk sentiment,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

Expectations for a weaker dollar over the next six months increased, according to 2,345 respondents from New York to Tokyo in the Bloomberg Professional Global Confidence Index.

Gold will average $925 an ounce in next year, ING Groep NV said yesterday in a report, 16 percent higher than a previous forecast, because of “potentially inflationary implications of quantitative easing” and limited mine-output growth. The bank raised this year’s price estimate to $925 from $900.

Silver futures for September delivery gained 40.2 cents, or 2.8 percent, to $14.987 an ounce in New York, after touching $15.145, the highest for a most-active contract since June 12. The price will average $13.50 next year, 17 percent higher than its previous estimate, ING said.

Platinum for October delivery rose $28.30, or 2.3 percent, to $1,272.70 an ounce, and palladium for September delivery gained $4.80, or 1.8 percent, to $278.15 an ounce in New York.

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Commentary by William Pesek

Aug. 13 (Bloomberg) -- Forget all this chatter about finding a new reserve currency. We already have one, and it’s called the yen.

OK, stop laughing.

Before dismissing the idea, consider how the yen is strengthening because investors figure it’s a safe bet. It’s popping up more and more in market stories about how the yen is enjoying a haven status -- even if it’s at odds with events in Japan’s economy.

Japan is in a recession, deflation is afoot and debt is approaching 200 percent of gross domestic product. Investors returning from two decades in hibernation and looking at Japan’s fundamentals might run away. And yet, the yen has gained 14 percent against the U.S. dollar over the past year.

We can deduce three things from this surreal turn of affairs. One is the absurdity of our times. Two, this whole concept of a reserve currency needs an overhaul. Three, those figuring the yen can only rise in value may be disappointed.

The first point is the most intriguing. It’s true that the yen has been a pretty consistent winner for investors betting on a weaker dollar. Regardless of its structural problems, Japan has a stability to it that’s unique. Huge shocks play out over decades or years, not months or weeks.

That said, the idea that the yen is an oasis of prosperity in an otherwise crazy world shows the extent to which things have gone mad. Is Japan, the weak link among developed economies for the last 20 years, really a place investors can escape to?

Crazy 18 Months

The 18 months since Bear Stearns Cos. imploded have been as disorienting as they come for investors and policy makers. Talk of another Great Depression, Lehman Brothers Holdings Inc. collapsing, bankers flying economy class, the White House being in the car business, the British pound plunging, China saving America from bankruptcy, you name it.

And now currency strategists, such as Brian Kim of UBS AG in Stamford, Connecticut, say that “relative to the euro, if there’s a pullback of risk-seeking you could see the yen still benefit.” Kim is merely highlighting what is now conventional wisdom in currency circles. The yen is in.

The second point is more difficult to tackle. If those investors returning from hibernation looked at the U.S.’s balance sheet, they would label it a developing economy and perhaps steer clear. With zero interest rates, astounding debt and a national savings rate that is only now perking up, the U.S. hardly screams “reserve currency.”

Belief System

And yet here we are, for better or worse. Rumblings in China, Russia and the Gulf states about sidelining the dollar are just that -- talk. A herd mentality develops because it almost doesn’t matter what a nation’s fundamentals are once its currency is designated a reserve. It’s already a deeply ingrained and self-fulfilling belief system.

In a sense, the dollar isn’t crashing because it can’t. The fallout of such an event would reverberate through every asset class and exact a cost that the global economy can’t meet. And so, ratings companies avoid touching the U.S.’s AAA credit grading, and the dollar proves the naysayers wrong.

Switzerland’s central bank had to fight the belief that its franc was a haven. Norwegian officials haven’t been shy about opposing the same thing. The euro, meanwhile, hardly seems ready to replace the dollar -- not with so many economic weaknesses.

Funding in Yen

Hence the focus on the yen. Funding in Japan is cheap, as anyone who has engaged in the so-called yen-carry trade can attest. Borrowing in yen and putting those funds into higher- returning assets abroad sprouted an entire cottage industry.

The hardest part is getting past the idea that the world needs an anchor currency. Rather than just beginning to do the bulk of international billing in various currencies, government leaders are considering a new reserve unit. It’s worth asking, though, whether politicians will decide which currency is the reserve one. More likely, markets will decide if the reserve currency is printed in Washington or 6,700 miles away in Tokyo.

That gets us back to the yen. It’s hard for me to picture North Korea meeting the same demand for counterfeit 10,000-yen bills as it enjoys for $100 ones. Or a Nigerian traffic cop demanding a 2,000 yen bribe from me over a $20 bill. Or Colombian drug lords puzzling over a suitcase full of yen. Uhh, are we talking billions or trillions here?

There’s no political will in Tokyo to print the world’s reserve currency. Yet the real reason to be careful is the economy's precarious outlook. The Swiss franc, for example, has long benefited from political stability. The outcome of the Aug. 30 election in Japan doesn’t ensure that Asia’s biggest economy will get out of its multiyear funk.

No one has made much money betting against the yen recently. That’s no reason to assume Japan’s currency won’t have its share of setbacks in the next few years.

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By: Arnaud de Borchgrave Thursday, August 6, 2009 2:53 PM

Is the U.S. economy now in the eye of a hurricane about to be hit again with still fiercer winds? Another humongous credit crunch and major social dislocations are predicted as millions of jobs fail to come back.

Two major entrepreneurial tycoons, in the multibillion-dollar league, with worldwide interests, speaking anonymously, agree that the worst is yet to come.

America has to reinvent itself for the 21st century, but this won't happen before another big credit-rattling shock. Millions of jobs are not coming back, they said.

They were speaking about the current global financial and economic crisis. Another humongous credit crunch is on the way, they believe, and the current optimism is simply a pause before another major downward slide.

Unemployment, they forecast, will climb from the low to the high teens. A pledge to limit tax increases to those making more than $250,000 a year is a pipedream. Someone has to pay the health piper.

Major social dislocations are on the horizon in 2010. One of the interlocutors has shunned all manner of stocks in favor of gold and discounted corporate bonds that yield 7.5 percent. The other has already moved all his financial holdings into a cocktail of Asian currencies based at a new entity he created in Singapore.

"We are roughly where Britain was in 1968," said one. That was the year Prime Minister Harold Wilson took the decision to abandon all of Great Britain's obligations east of Suez. And that included the entire Persian Gulf, from Oman to Kuwait, the Strait of Hormuz, British special agents in all the emirates and sheikdoms, local constabularies with British officers, the fabled Trucial Oman Scouts — all for the bargain basement cost of $40 million a year.

As the British and other colonial empires faded into history, America's global empire grew topsy-turvy, and since the collapse of the Soviet empire in 1989, its power grew unchallenged.

The two tycoons agreed with a rapidly growing segment of the U.S. population that says America can no longer afford the astronomic costs of empire.

With more than 2.5 million U.S. military personnel serving across the planet and 737 military bases spread across each continent, and 3,800 installations in the United States, a reassessment of roles and missions is long overdue. The estimated $1 trillion in overdue infrastructure repairs and modernization strikes many as an outstanding priority.

The 2010 defense budget is a shade shy of $700 billion, more than two-thirds of a trillion dollars, which now tops the rest of the world — including major players Britain, France, Germany, Japan, Russia, China, India — put together.

Add all the defense expenditures neatly tucked in to the budgets for Energy, State, Treasury, Veterans Affairs and 16 intelligence agencies, and the numbers top $1 trillion.

With only 5 percent of the world's population, it is still remarkable that the United States can maintain global military superiority on less than 5 percent of gross domestic product. But from the world's biggest creditor, the United States has become the world's largest debtor, coupled with a rapid decline of a manufacturing sector once hailed as the arsenal of democracy and an annual per capita trade deficit of $2,000 per citizen.

The U.S. share of global output continues to decline from year to year. Like General Motors and Ford, the United States has yielded global market share from one-third at the turn of the new century to one-quarter today. Was the rise of the rest the decline of the West?

Have U.S. commitments and responsibilities outstripped resources? The two billionaire voices were among the many now saying so in public opinion polls.

They feel a paradigm shift is inevitable. We are yet to wean ourselves from the old paradigm: the $3 billion we borrow each and every day — principally from China — to maintain the world's highest standard of living, based on conspicuous consumption, at a time of growing world shortages. And when we are finally weaned, it will become glaringly obvious that we were living way beyond our means and that major belt-tightening is long overdue.

In his projections through 2025, Thomas Fingar, the former chief analyst for the 100,000-strong U.S. Intelligence Community, which includes 16 agencies with a budget of $50 billion, predicted the international system would be transformed over the next 15 years as dramatically as it was after World War II.

As China rises to global prominence, the United States would be declining. "In terms of size, speed, and directional flow," wrote Fingar, "the transfer of wealth and economic power now under way — from West to East — is without precedent in human history."

Following Fingar's analysis, former Deputy Treasury Secretary Robert Altman wrote in Foreign Affairs, the official organ of the Council on Foreign Relations, that the current financial crisis is "a major geopolitical setback for the U.S. and Europe" that could only accelerate trends that are moving the global center of gravity to China. And this is something that a staggering $1 trillion for defense (in a budget with a projected $2 trillion federal deficit) would be powerless to reverse.

The pessimistic outlook should, of course, be tempered by the fact that IBM spins off more technology patents in a typical year than all of China.

Three-quarters of the world's top universities are in America. So any loss of influence is at this stage attributable to reckless profligacy at every level of American society, beginning with the federal government and the mind-numbing bonuses that Wall Street's "Masters of the Universe," as Tom Wolfe called them in his 1987 bestseller "Bonfire of the Vanities," have lavished on themselves Roman Empire-style.

Both of these entrepreneurs believe Israel will resolve its existential crisis by bombing Iran's key nuclear facilities later this year.

One thought Gulf Arabs would be secretly delighted and that Iran's much vaunted asymmetrical retaliatory capabilities would fizzle as the theocracy imploded.

The other could see mayhem up and down the Gulf, the Strait of Hormuz closed, and oil at $300.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Tue Aug 4, 2009 11:11am EDT 

NEW YORK, Aug 4 (Reuters) - U.S. gold futures rose toward
$970 an ounce on Tuesday as the dollar trimmed gains versus the
euro, but strong technical resistance could put a damper on
bullion's rally.

 For the latest detailed report, click on [GOL/].

 GOLD

 * December gold GCZ9 up $7 to $965.80 an ounce at 10:50
a.m. EDT (1450 GMT) on the COMEX division of the New York
Mercantile Exchange.

 * Ranging from $953.10 to $967.30 an ounce, the highest
price since June 10.

 * The dollar pared initial rise against the euro, boosting
gold's allure as a hedge against the falling U.S. currency.

 * Recent positive economic data triggers an increase in
investor risk appetite as capital shifts out of the dollar, and
that boosts gold - James Steel, chief commodities analyst at
HSBC.

 * Oil's gains also buoyed demand for gold as an inflation
hedge. However, should oil prices ease, an element in gold's
rally could be removed - Steel.

 * New money from investment funds buoyed all asset classes
across the board, as evident in the equities rally - analysts.

 * There is strong resistance met by gold at the $955-$960
level - Dennis Gartman, independent investor and publisher of
the daily Gartman Letter.

 * COMEX estimated 10 a.m. gold volume at 40,252 lots.

 * Spot gold XAU= at $963.40 an ounce, compared with
$955.55 an ounce in late New York business in Monday.

 * London afternoon gold fix XAUFIX= at $960.50 an ounce.

 SILVER

 * September silver SIU9 up 36.80 cents, or 2.6 percent,
to $14.620 an ounce.

 * Ranging from $14.025 to $14.655 an ounce, the loftiest
level since June 15.

 * Silver surged with gold and other metals after the
dollar's recent weakness - traders.

 * COMEX estimated 10 a.m. silver volume at 14,591 lots.

 * Spot silver XAG= was at $14.61 an ounce, versus $14.21
an ounce in Monday's late quote.

 * London silver fix XAGFIX= at $14.08 an ounce.

 PLATINUM

 * October platinum PLV9 up $3.70 to $1,243.40 an ounce as
economic optimism boosted hoped that autocatalyst demand will
rebound.

 * Spot platinum XPT= at $1,235 versus $1,232.50.

 PALLADIUM

 * September palladium PAU9 up $1.55 at $276.15 an ounce,
tracking platinum's gains.

 * Spot palladium XPD= at $273, against its previous
finish of $269.50.

 

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gold

Bank Closing Information - August 7, 2009
These links contain useful information for the customers and vendors of these closed banks.

Community First Bank, Prineville, OR
Community National Bank of Sarasota County, Venice, FL
First State Bank, Sarasota, FL

Aug 3, 2009, 10:58 a.m. EST

NEW YORK (MarketWatch) -- Gold futures rose Monday for a third session, topping $960 an ounce for the first time in more than seven weeks as the U.S. dollar fell to the lowest level this year against a basket of its major rivals, boosting gold's investment appeal.

Also pushing gold higher, oil futures topped $71 a barrel for the first time since July 1, raising gold's appeal as a hedge against potential inflation. Gains in the metal, however, were limited by sluggish demand for gold exchange-traded funds.

On the Comex division of the New York Mercantile Exchange, August gold futures rose $7.20, or 0.8%, to $960.90 an ounce, topping $640 for the first time since June 11. It rose as high as $964 earlier.

"The marked drop in the U.S. dollar and the steep oil price increase lifted the gold price," said analysts led by Barbara Lambrecht at Commerzbank, in a note.

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