Friday, January 18, 2013

Today's links

1---With Cash and Commandos, U.S. Escalates Its Battle Against the Mexican Cartels, wired

The U.S. military is getting ready to send its elite troops to help in the fight against Mexico’s drug lords. American special operations forces will expand their training of Mexican commando teams, teaching them to hunt cartel chieftains like they were al-Qaida extremists. It’s a sign the U.S. is preparing for a long shadow war against the cartels.
The training, detailed in documents obtained by the Associated Press, will be reportedly conducted under an expanded special operations program based at the U.S. Army Northern Command’s headquarters — which oversees the Pentagon’s military operations on the continent. The program has previously tutored “Mexican military, intelligence, and law enforcement officials to study U.S. counterterrorist operations,” according to the AP. But in a memo reportedly obtained by the news agency, outgoing Defense Secretary Leon Panetta authorized an expansion of the program that could “eventually triple from 30 [people] to 150,” placing a general instead of a lieutenant colonel in charge, and creating a new headquarters...

The Treasury Department on Thursday slapped sanctions on an obscure but deadly drug cartel that’s been gaining strength of late. The Treasury Department calls them the Meza Flores Drug Trafficking Organization, named after its leader, Isidro Meza Flores or “Chapito Isidro.” And on Thursday, the department announced it has added the group to its list of designated foreign narcotics traffickers. Under a U.S. law called the Kingpin Act, that freezes the group’s assets within U.S. borders and allows the government to slap hefty penalties on U.S. citizens caught doing business with them.
But in Mexico, the group has gone by other names, such Los Mazatlecos and La Oficina, or “The Office.” They are “one of the primary rivals to the Sinaloa Cartel in the Mexican state of Sinaloa,” the Treasury Department noted in a statement. Because of this, the cartel has fought an “extremely violent turf war … which has resulted in the quadrupling of drug-war killings in the last four years and an increase in kidnappings and arson within the state of Sinaloa.”...

But Chapito Isidro and his gang have also been a thorn in the side of the Sinaloa Cartel for several years.

2---BOJ eyes open-ended asset buying, agrees new inflation goal, Reuters

They also warn the push to reflate the economy long-trapped in sub-par growth could backfire if the new government's medium-term fiscal plan due in mid-2013 fails to convince markets that it can get Japan's ballooning debt back under control.
The yen's recent declines, driven by expectations of aggressive monetary easing, have drawn complaints from countries like Russia and Germany, worried about a destabilizing currency devaluation. (Japan continues to move away from Keynesian remedies)

3---A Low Bar for Earnings, Barrons

4---Leeway on Repo Rules Is Cut Back, WSJ
Proposal Would Change Rules That Figured in Lehman, MF Global Collapses

Repo accounting first drew attention after the 2008 collapse of Lehman Brothers, when Lehman used transactions dubbed "Repo 105s" to help make it appear healthier than it really was, according to a later report by Anton Valukas, the firm's bankruptcy examiner. Lehman treated its Repo 105s as sales, which allowed it to take as much as $50 billion in assets off its balance sheet at the end of certain quarters, making it look less leveraged.

MF Global had billions of dollars in repo-to-maturity trades, which extend the duration of the repo financing so that it matures at the same time as the securities used as collateral.
The firm's classification of those trades as sales enabled it to book immediate profits on the transactions, but the trades later created margin demands that placed stress on the firm's cash, according to bankruptcy examiner James Giddens's report. (In fact, Mr. Giddens found, the firm's repo-to-maturity trades actually ended two days short of the pledged securities' maturity.)
MF Global's repo-to-maturity trades, backed by risky European sovereign debt, helped prompt regulatory concerns, ratings downgrades and margin calls that helped lead to the firm's 2011 collapse after it ran short of funds.

MF Global's accounting was "basically just trying to cover up risk," said Janet Tavakoli, president of Tavakoli Structured Finance, a Chicago consulting firm. The firm "should not have been able to characterize it as a sale."

5---Bank capital requirements: Are they costly?, VOX 

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