Tuesday, May 29, 2012

Today's links

1--European Union Survey --Poll Finds Huge Gap between Greeks and Germans, Der Speigel

Excerpt:  Of the five euro-zone member states surveyed (France, Germany, Spain, Italy and Greece), a median of only 37 percent sees the common currency as a good thing, while those countries outside the euro zone are happy they didn't join, including nearly three-quarters of the British (73 percent). Similarly most -- including the Germans -- do not have a favorable view of the European Central Bank, with only 39 percent having a positive view of the ECB.

Except for Germany, support for a free market is declining, down 20 percent between 2007 and 2012 in Spain and 23 percent in Italy, though relatively unchanged in the United States with a 3 percent decline. Support for free markets rose in Germany by 4 percent.
Despite all this, the report showed that Europeans are reluctant to relinquish symbols of a united Europe. More than half of those surveyed in the five euro-zone member states -- including 71 percent of the Greeks, 69 percent of the French and 66 percent of the Germans -- would like to keep the euro as their currency.

Europeans are divided over who to blame for the crisis. The Greeks, Italians, Poles and Czechs blame their own governments. The French and Spanish blame banks and other major financial institutions. The British and Germans blame both.

2--JP Morgan dips into cookie jar to offset "London Whale" losses, IFR

Excerpt:  JP Morgan Chase & Co has sold an estimated US$25bn of profitable securities in an effort to prop up earnings after suffering trading losses tied to the bank’s now-infamous “London Whale”, compounding the cost of those trades.

CEO Jamie Dimon earlier this month said the bank sold corporate bonds and other securities, pocketing US$1bn in gains that will help offset more than US$2bn in losses. As a result, the bank will not have to report as big an earnings hit for the second quarter.

The sales of profitable securities from elsewhere in the bank’s investment portfolio will increase its costs by triggering taxes on the gains and by eliminating future earnings from the securities.

Gains from the sales could provide about 16 cents a share of earnings, about one-fifth of the bank’s second-quarter profit, analysts said. But rather than creating new value for investors, the transactions merely shift gains in securities from one part of the company’s financial statements to another.

“They really made two stupid decisions,” said Lynn Turner, a consultant and former chief accountant of the Securities and Exchange Commission. The first was taking risks with derivatives that they did not understand, Turner said.

“The second is selling assets with high income that they can’t replace,” Turner added. In a low interest-rate environment, the bank will struggle to generate as much income with the cash it received from selling the securities, he said.

3--ECB moves from liquidity to solvency role, IFR

Excerpt:  We have moved from a situation last year where the EBA stress tests showed “No Spanish bank is required to increase its capital as a result of the EBA stress test” to beefing up the capital base of Bankia
The worry remains that we are running through a script similar to that for Ireland where we also went from a position of no help being needed and ended up with a complete overhaul of the banking system that saw the sovereign fall into the hands of the EU/IMF bailout.

With funding options for the sovereign and financials difficult the end result is to rely on government guarantees and the ECB.

Like it or not the ECB’s liquidity is increasingly being used to shore up solvency of sovereigns and financials in the eurozone. This is something that the ECB will find difficult to stop as we can see by the way in which the ELA has increasingly been used in recent weeks and also LTRO usage by Spain and Italy to help fund sovereigns.

Getting help from the ESM/EFSF is one option but this still faces the difficult task of reducing the firewall for other countries. In the end the ECB will likely be forced to play a more pivotal role by opening up its balance sheet and more formally supporting solvency. Without this the eurozone sovereign/financial crisis will be difficult to put to bed.

4--Stop subsidizing the banks, London Banker

Excerpt:  At some point policy makers will need to turn their efforts from reinforcing and bailing out the bankers who use any and every opportunity to take public support as private bonuses and instead evaluate much simpler, lower cost models of financial intermediation likely to yield domestic investment in domestic businesses and assets....
It is a conservative principle that the state should intervene when markets fail. If the banking system has failed (and it has) and requires a taxpayer subsidy to continue to operate (which it does), then conservative principles dictate that the state must intervene to secure a resolution in the public interest. More of the same is not a conservative policy, but social welfare for bankers.

We currently have a system of excess regulatory complexity, hidden market distortions and public subsidies. Moving away from the status quo requires state action to identify and reduce subsidy through promotion of business models that are simpler, more transparent and more directly aimed at securing public benefit
5--- U.S. Winds Down Longer Benefits for the Unemployed, NY Times

Excerpt:  Hundreds of thousands of out-of-work Americans are receiving their final unemployment checks sooner than they expected, even though Congress renewed extended benefits until the end of the year. ... In February, when the program was set to expire, Congress renewed it, but also phased in a reduction of the number of weeks of extended aid and effectively made it more difficult for states to qualify for the maximum aid. Since then, the jobless in 23 states have lost up to five months’ worth of benefits.

Next month, an additional 70,000 people will lose benefits earlier than they presumed, bringing the number of people cut off prematurely this year to close to half a million, according to the National Employment Law Project. That estimate does not include people who simply exhausted the weeks of benefits they were entitled to.

...Most states offer 26 weeks of unemployment benefits, plus the federal extensions that kicked in after the financial crash.

The number of extra weeks available by state is determined by several factors, including the state’s unemployment rate and whether it is higher than three years earlier. So states like California have had benefits cut even though the unemployment rate there is still almost 11 percent.

“Benefits have ended not because economic conditions have improved, but because they have not significantly deteriorated in the past three years,” Hannah Shaw, a researcher at the Center on Budget and Policy Priorities, wrote in a blog post. In May, an estimated 95,000 people lost benefits in California.

..by the end of September, the extended benefits will end in the last three states providing 99 weeks of assistance — Nevada, New Jersey and Rhode Island.

6--Greek Leftist Leader Alexis Tsipras --'It's in Europe's Interest to Lift the Austerity Diktat', Der Speigel

Excerpt:  Tsipras: If we are once again pushed and blackmailed into an austerity program that has so obviously failed, then it won't be long before Greece is in fact no longer capable of paying its creditors. The result will be a halt in payments, one into which we were practically forced. This would not only be dangerous for Greece, but for the entire European economy. These days, the financial systems of all countries are so closely intertwined with each other that one can't limit the crisis geographically. It's a problem of all countries and of all national economies.

SPIEGEL: If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?

Tsipras: I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit. The fact that there is financial assistance is the principle of European solidarity and a mark of being part of a community. That's good. But we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts.

SPIEGEL: For you, other people are always the scapegoat. It's other people's fault that the economy is languishing, so other people also have to rescue it …

Tsipras: That's not correct; we naturally also take a critical look at ourselves. We bear significant responsibility for our situation. We've accepted politicians who have destroyed our country's manufacturing base and created a corrupt state. We have elected the very people who have stashed their money away abroad and not only allowed tax evasion to occur, but also fostered it. Of course we are responsible for that; we allowed it all to happen. But we also have the responsibility to change exactly that right now.

SPIEGEL: Given your dependence on financial support and your rejection of vital structural reforms -- such as that of the public administration -- already agreed on, how do you propose doing so?

Tsipras: We're not opposed to reforms. We're only saying what so many economists, what many German newspapers and what even former German Chancellor Helmut Schmidt are saying -- and what the OECD has now reconfirmed in a study: The austerity policies we've been implementing for two years -- the policy of solely relying on drastic belt-tightening -- have failed. We now find ourselves in the fifth year of the recession. This year too, our economy will once again contract by at least 6 percent.

The political reality is simple: The austerity programs, as constructed thus far, have failed, partly because they've been based on a false model, namely, that of domestic devaluation. But we're not an exporting country. It is much more the case that most of what we produce, we consume. Our ability to compete doesn't only depend on labor costs, as so many people say; they also depend on other parameters, such as the infrastructure and the mind-set of people and politicians. We really do long for a bit more meritocracy
7--The Eurepo curve spells trouble, FT Alphaville
Excerpt:  Sandy Chen at Cenkos has drawn our attention to an interesting development in the repo market: the Eurepo curve has inverted.

Why is this important?

Because it’s a clear signal of stress in the repo market. The Eurepo curve shows the repo rate for Euro borrowing amongst European banks at maturities from 1-day to 1-year; we interpret this inverted curve as a sign that banks are unwilling to commit the collateral (required for the repo) beyond a 1-month contract. Indeed, it appears that 1-day repos are strongly preferred. The Eurepo curve has shifted a lot in a month.

In other words, banks want to be able to get collateral back and prefer short maturities. It’s also a quite negative view on Europe’s ability to handle the crisis:

Judging from the shift in the Eurepo curve, the banks themselves don’t believe that any boosts will last longer than a month.

As Sober Look noted on Friday, inverted repo curves mean stress in the market, and looking at the shift in the Eurepo curve in the last month, the level of stress has gone up considerably…

8--College loans are next debt crisis, Miami Herald

Excerpt:  Some 62 percent of the grads from U.S. public universities emerge with both a diploma and debt, according to figures compiled by the federal Department of Education’s Project on Student Debt. About 72 percent of grads from private nonprofit universities owe money. An astounding 96 percent of the kids who attend for-profit schools venture out into the real world as debtors.

The study was conducted in 2008. It’s only gotten worse amid a recession and slow, slow recovery, as state legislatures hack away at higher education allocations.

If grads from Cypress Bay High attend one of Florida’s universities this fall, their freshman year will coincide with a $300 million cut in state funding. Along with a 15 percent pop in tuition and diminished help from Bright Futures scholarships.

They’ll be attending schools with fewer courses and larger classes, taught by professors disheartened by stagnant wages and benefit cuts, on campuses suffering from drastic cutbacks in maintenance budgets.

Florida college students, after paying ever more for ever less education, graduated in 2010 owing an average of $21,184 in student loans. The dismal trend lines indicate that the debt load will be much heftier when the Cypress Bay High School Class of 2012 finally get their degrees.

As the state’s contribution to higher education was cut by 24 percent over the last five years, Florida universities responded by jacking up tuition (five state universities have increased tuition by 60 percent over the last four years, six others by 45 percent.) Incoming freshmen are looking at annual 15 percent increases — the maximum the state allows — throughout their academic careers.

At the bottom of the education food chain, the students respond by borrowing more money.

Their debt will add to the $1 trillion in unpaid student debt already looming over the U.S. economy. This isn’t limited to recent college grads. A third of American student debtors are 40 years old or older.

9--US threatens military intervention in Syria following Houla massacre, WSWS
Excerpt:  The massacre of over 100 people in Houla is being utilized by the United States, other Western powers and the Gulf States to step up their drive for regime-change in Syria. Thirty-two children and 34 women were among Friday’s dead, the United Nations has said.

Speaking yesterday to Fox News, Chairman of the US Joint Chiefs of Staff Gen. Martin Dempsey said, “Of course, there is always a military option… it may come to a point with Syria because of the atrocities.”

His comments follow a series of bellicose statements by Washington. US Secretary of State Hillary Clinton said, “The US will work with the international community to intensify our pressure on [Syrian President Bashar] Assad and his cronies, whose rule by murder and fear must come to an end.” The White House called the Houla attack “a vile testament to an illegitimate regime.”

The Gulf Cooperation Council, led by Saudi Arabia and Qatar, is also once again urging direct military intervention. Kuwait, which currently heads the Arab League, announced it is calling for a ministerial meeting to “take steps to put an end to the oppressive practices against the Syrian people.”

The Free Syrian Army (FSA), based in Turkey and funded and organized by Washington and its allies, declared it was no longer committed to the truce brokered by former United Nations Secretary-General Kofi Annan. It issued a statement saying that “unless the UN Security Council takes urgent steps for the protection of civilians, Annan’s plan is going to go to hell.”

The Western-backed Syrian National Council (SNC) has called on the UN Security Council to convene an emergency meeting and take binding decisions to “protect the Syrian people” by invoking Chapter VII, which sanctions the use of force.

The Obama administration has to date confined its efforts to destabilize the Assad regime to covert support for proxy Sunni-based forces such as the FSA and SNC. But it is seeking to capitalise on the tragic events in Houla to secure the necessary political backing for direct intervention. This means either enlisting Russia’s support or neutralizing Moscow’s opposition to any move to depose Assad...

Moscow fears that regime-change would deprive it of its main base in the Middle East and secure undisputed US hegemony over the region’s oil riches by surrounding Shia Iran with a ring of pro-Washington Sunni regimes.

Russian Foreign Minister Sergei Lavrov, speaking yesterday at a news conference with UK Foreign Secretary William Hague, said he wanted Damascus to resolve its problems “without foreign interference..

Houla is being lined up to serve the same political function as atrocities in the former Yugoslavia and elsewhere in providing a justification for imperialist intervention....Ultimate responsibility for Houla rests with Washington and its allies, who have fostered and armed a sectarian Sunni insurgency dedicated to the overthrow of the Assad regime and its replacement by a government entirely subordinated to a strategic Middle East alliance dominated by the US.

10--Double suicide underscores Greece’s deepening health crisis, WSWS

Excerpt:  The appalling suicide of a mother and son in Athens again underscores the social nightmare being visited on Greece by the troika—the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF).

The tragedy occurred May 24. The mother, aged 90, and her son, aged 60, leapt hand in hand from the roof of their apartment building in the capital shortly after 8 a.m.

The son was identified as Antonis Perris, an unemployed musician. Since Antonis had been unable to find work, the pair had been forced to survive on the mother’s pension of just €340 (US$427) a month.

The joint suicide occurred only days before IMF head Christine Lagarde dismissed reports that people were dying in the country due to the savage austerity measures being imposed, callously claiming that it was “payback” time for Greek workers.

The night before their deaths, Perris described their deteriorating economic situation and suffering on a well-known blog site.

He wrote, “I have been taking care of my 90-year-old mother for 20 years. In the last 3-4 years she has developed Alzheimer’s, recently she also has been having Schizophrenic fits amongst her other grave health problems, so nursing homes won’t accept her.

“The problem is that I hadn’t foreseen the crisis so I don’t have enough cash in my account, although I have real estate assets I sell from time to time, I’m left without cash and we can no longer eat. I borrow money from my credit card with 22% interest even though the banks themselves borrow with 1%. I have other running costs.

“Unfortunately, I have also developed serious health problems lately. I have no solution in front of me. I can no longer live this drama. There’s no solution. Does anyone have a solution?”

In his blog posting, Perris cited the lack of vitally needed medical services available to his mother as well as his inability to get the necessary remedies for his own developing medical problems. This is a direct result of the austerity measures imposed by PASOK and New Democracy, which are following the dictates of the EU and the IMF.

Bailout funds, destined for Greek banks, have been tied to the gutting of health care provision. Under the terms of the first bailout, health care spending was gutted by more than 10 percent. Under the second €174 billion agreed in March, another €1 billion cut in health care spending was made. This is equal to 0.5 percentage points of GDP. Its impact has been devastating under conditions in which many Greek workers have seen their wages reduced by up to 50 percent while unemployment has skyrocketed. Millions of people are now being forced to pay the full price for essential, life-saving medicines.

In April, the government suspended payments into the National Organisation for Health Care Provision (EOPPY), on which pharmacists rely for funding to prescribe drugs. According to officials last week, the state health system in Greece no longer has any funds to pay pharmacies for supplying their prescriptions.

People who used to pay prescription charges of between 10 and 25 percent for drugs, including those for treating heart conditions and cancer, now have to pay the full price. They can apply for a refund from social insurance funds that are members of EOPPY, but the likelihood of them ever getting the money back is slim. EOPPY was created last year on the direction of the troika and is now in a state of collapse. Pharmacies are owed a total of €520 million by EOPPY and other social insurance funds for prescriptions already supplied.

Patients in state hospitals are also being forced to go without basic medicines. One hospital administrator told the Financial Times, “We used to provide drugs for all patients receiving treatment, but we’re so squeezed now that we ask them to bring their own supplies of prescription drugs.”

There are warnings that Greece could rapidly run out of medicine. Dimitris Karageorgiou, secretary general of the Panhellenic Pharmaceutical Association, warned, “Already we have cancer sufferers going from hospital to hospital to try and find drugs because no one can afford to stock them.

“If the shortages get worse, God knows what we will see.”

11--.US student loan debt: Where did it come from and who benefits?, Nancy Hanover,  WSWS

The impoverishment of American students and their families by student loan debt has become a well-known fact.

A generation of young people are facing financial desperation in order to make huge monthly payments on their loans. The scale of this collective debt affects all aspects of their lives:

* 39 percent of 18-to-29-year-olds have no health insurance.
* 23 percent say they cannot buy basic necessities.
* 20 percent have credit card debt of more than $10,000.
* 49 percent have taken a job they didn’t want in order to pay bills.
* 24 percent have moved back home with parents to save money.
* 20 percent have postponed marriage.
* 22 percent of 18-to-34-year-olds have postponed having children.

Today, 15.4 percent of Americans have student loans, and 14.4 percent of these loan holders are delinquent, the highest delinquency rate of any form of debt.

But why this is this tsunami of debt devastating a generation, and who benefits?
To avoid the mention of profit, the banking industry or the role of the government, the media typically blames either the students themselves, the purportedly overpaid faculty, or the mindset of an “entitled generation.”

Yet the actual cost of the loans themselves is more than covered by the 3.4 percent rate, since the bankers’ interest rate, the Federal Reserve discount window, has fluctuated between 0 percent and 1 percent. The fact is that the Obama administration is not arguing with the Republicans over assisting students, but over how much to squeeze them....

Even without doing all the math, clearly it is the banks that profit most handsomely from student loan payments—while being uniquely protected by the federal government.

Loans originated in the Federal Family Education Loan Program (FFEL) have a 97 percent guarantee against default by the federal government (with accrued interest in addition). Additionally, since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, student loans are the only type of consumer debt that may not be discharged in bankruptcy.....

With more than two thirds of students (up from 45 percent in 1993) forced to borrow to earn a bachelor’s degree, the indebtedness of a generation is clearly social policy. On average, for every dollar borrowed, a student will pay $2....

No longer just protecting the profits of the banks, the government is now well on its way to becoming the largest holder of student debt. This process was dramatically accelerated with Obama’s Health Care and Education Reconciliation Act, which made the government the sole funder of new student loans.

According to the Federal Reserve Bank of New York, non-revolving personal bank debt—the vast bulk of which is student loan debt—has jumped a massive 368 percent since 2007. The amount of student loans held by banks is now about $500 billion, or half of existing student debt, with the federal government just slightly behind. Federal-held student loans have quadrupled over the past four years.

This process has transformed the government’s role. The DOE report shows that there is not just a declining higher education subsidy, but that there is actually no overall subsidy from the federal government for student loans. On the contrary, student loans are an income source, to the tune of nearly $30 billion for 2012. Below is a chart from the president’s 2013 budget request showing the net inflow of cash from student debtors into federal coffers since 2009. The negative figures are inflows, the positive ones represent federal costs....

Government “subsidies” for student loans go from a cost to the federal government in 2008 of $2 billion to an estimated cash inflow of $39 billion for 2012. (Source: US DOE)

In 2011, more than 11 million new Direct Loans have been issued to students, for a total of $109 billion. The administration is realizing a steady increase in student loan market share. The DOE budget proposal states, with dry but unmistakable language, “For FY 2013, based on proposed policies, the Direct Loan program weighted average subsidy rate is estimated to be -20.08 percent. The reflects the projection that on average, the Federal Government will earn 20.08 percent on each dollar of loans originated in FY 2013.”

This is a far cry from the official line—”students who rely on loans to finance postsecondary education should not be burdened with additional college debt.” It is the government that will collect the debt, interest, origination fees and late penalties from student debt, rather than the servicers, guarantors and banks that dominated the business in the past.

New attacks from Obama

The report then details Obama’s proposed student loan “reforms” for the FY 2013 budget. These changes will actually increase the cost of college borrowing, place more loans under the DOE’s aegis and allow debt collectors to apply more pressure on students....

Legalize auto-dialing collection calls to students’ cell phones.

In the “President’s Plan for Economic Growth and Deficit Reduction,” he calls for an amendment of the 1934 Communications Act to allow prerecorded voice messages and robo-dialing to wireless phones for the purposes of debt collection.

* Require guaranty agencies to forward their portfolio of rehabilitated loans (student loans which were temporarily in default, but are now in repayment) to the DOE.

While the Obama administration insists on being the new collector, the rules stipulate that the former guaranty agencies may still collect a whopping 16 percent fee.

Obama has also pointed the way toward creating a national rating system on college affordability and value, and hinted that low-rated schools could be punished via withholding of loan or grant eligibility. There has been similar action threatened against the for-profit schools with skyrocketing default rates. Neither of these public relations maneuvers encroaches in the slightest on the banking industry’s ability to profit from student loans or lessens the income accruing to the federal government from their loans.

Already, state and federal governments are withdrawing professional licenses from those who default on their student loans, and garnisheeing Social Security and other government checks. Under the Higher Education Act, the DOE can subject student loan defaulters to Administrative Wage Garnishment or Federal Salary Offset, and require employers to forward 15 percent of “disposable pay” toward repayment of loans. The Debt Collection Improvement Act of 1996 permits the DOE to garnish up to 15 percent of disposable pay until the entire balance of the outstanding loan is paid.

The government is also pressing schools to withhold transcripts for those students delinquent in payments, which prevents them from transferring, applying for certain types of work, or seeking further degrees....

Student loan debt collection, a new parasitic industry

Student loans have become so lucrative that their debt collection has become its own spin-off industry—all overseen by the federal government. MyDebt.com explains ballooning fees that defaulters face: “The largest of these costs is usually the cost of contingent fees that may be incurred to collect the loan…. The contractors earn a commission, or contingent fee, for any payments then made on those loans. The Department [of Education] charges each borrower the cost of the commission earned by the contractor…the amount needed to satisfy a student loan debt collected by the Department’s contractors will be up to 25 percent more than the principal and interest repaid by the borrower.”....

Last week, the San Francisco Chronicle’s “Number of the Day” was $454,000, the one-year income of Joshua Mandelman, a student-loan debt collector. It reports on the nearly half-million dollars earned by Mandelman and six others at Educational Credit Management, a Minnesota nonprofit group, which subcontracts with the U.S. government to collect on defaulted student debt.

Education is a basic right

Only the Socialist Equality Party considers education a basic right. It should not be a means to prey on the young and create a new form of lifelong peonage.

We call for the immediate forgiveness of all student loan debt. Neither the banks nor the government have the right to profit from the determination of the population to become educated and productive.

We call for the right to free education for all, from pre-school through college and adult education.

12--Fukushima radiation seen in tuna off California, Reuters

Excerpt:  Low levels of nuclear radiation from the tsunami-damaged Fukushima power plant have turned up in bluefin tuna off the California coast, suggesting that these fish carried radioactive compounds across the Pacific Ocean faster than wind or water can.

Small amounts of cesium-137 and cesium-134 were detected in 15 tuna caught near San Diego in August 2011, about four months after these chemicals were released into the water off Japan's east coast, scientists reported on Monday.

That is months earlier than wind and water currents brought debris from the plant to waters off Alaska and the U.S. Pacific Northwest.

The amount of radioactive cesium in the fish is not thought to be damaging to people if consumed, the researchers said in a study published in the journal Proceedings of the National Academy of Sciences....

scientists found elevated levels of two radioactive isotopes of the element cesium: cesium 137, which was present in the eastern Pacific before the Fukushima Daiichi disaster in the spring of 2011; and cesium 134, which is produced only by human activities and was not present before the earthquake and tsunami hit the Japanese plant....There was about five times the background amount of cesium 137 in the bluefin tuna they tested...

Most of the radiation was released over a few days in April 2011, and unlike some other compounds, radioactive cesium does not quickly sink to the sea bottom but remains dispersed in the water column, from the surface to the ocean floor.

Fish can swim right through it, ingesting it through their gills, by taking in seawater or by eating organisms that have already taken it in, Madigan said


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