Ed Jewett Wrote:Federal Government's Financial Burden Grows By $10 Million A Minute

August 12th, 2012Via: U.S. News and World Report:
Former U.S. comptroller general David Walker is sounding the alarm on the federal government's "financial sinkhole," which he says is growing deeper by about $10 million every minute.
By "sinkhole," Walker is not just referring to debt, but the government's total liabilities, unfunded social insurance promises, and other federal commitments. Through his fiscal responsibility group, the Comeback America Initiative, Walker wants Americans to know that the financial challenge facing our country is much larger than most people think.
To reflect that challenge, the Comeback America Initiative has produced an enhanced and more comprehensive version of the National Debt Clockthe "Burden Barometer."
The Burden Barometer counts the government's financial obligations that go further than the national debt, such as retiree health obligations, Social Security and Medicare, and unfunded military pensions. As a result, the number is significantly higher than that displayed on the National Debt Clock.
At the time of this post, the National Debt Clock read $15.9 trillion, while the Burden Barometer read $69.9 trillion. (When the National Debt Clock was unveiled in 1989, it was at just $2.7 trillion.)

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Quote:ECB mulls negative rates as Europe's economic crisis deepens

The European Central Bank has slashed its eurozone growth forecasts and warned that recession will drag on into the middle of next year, sending the euro plunging below €1.30 to the dollar.

By Ambrose Evans-Pritchard

7:42PM GMT 06 Dec 2012

Mario Draghi, the ECB's president, said the governing council had discussed a cut in overnight deposit rate to below zero for the first time, and was "operationally ready" to do so if needed.

The comment sent the euro into a nosedive, dropping from $1.3075 to $1.2950 in just two hours. "A negative deposit rate is the mother of all sell signals for a currency," said Hans Redeker, currency chief at Morgan Stanley.

"You only do it if your purpose is to drive down the exchange rate to help exports. We know from Japan's experience that you lose control of monetary policy if you go that route. We don't think it will happen because the cost is too high, so we expect the euro to rebound."

Mr Draghi struggled to explain why the ECB held its main interest rate at 0.75pc, even though it expects economic contraction of 0.3pc next year, with inflation falling below its 2pc target. He said there had been a "wide discussion", a code term implying that several members pushed for a cut.

"It's a dereliction of duty. If the outlook is so bad, get ahead of the situation and cut now," said Stephen Pope from the consultants Spotlight.

The euro came under further pressure from the escalating crisis in Italy, where ex-premier Silvio Berlusconi withdrew support from the technocrat government of Mario Monti, vowing to fight further austerity. "The country is on the edge of the abyss: I can't allow my country to plunge into an endless recessionary spiral," he said.

Mr Berlusconi hinted at a run for office early next year, despite a four-year prison conviction for fraud - still under appeal.

"The situation today is far worse than a year ago when I left the government. We have an extra million unemployed, the debt is rising, firms are closing, property is collapsing, and the car market is destroyed. We can't keep going on like this," he said.

The rupture with Mr Monti is a stark reminder that Europe's political crisis continues to fester as the region slides deeper into slump.

The yield on German 10-year Bunds fell to a five-month low of 1.29pc on save-haven flows, while Italy's yields spiked to 4.55pc. The FTSE MIB index of Italian stock in Milan fell 1.4pc.

Mr Monti survived a senate vote on his fiscal package after Mr Berlusconi's Liberty Party abstained, but his position is becoming untenable.

Mr Berlusconi has come close to calling for a break-up of EMU, saying repeatedly that Germany should leave the euro, and break the vicious cycle by allowing the Latin bloc to regain competitiveness.

Unlike Spain, Italy has already been through the brunt of its austerity so there are hopes that Italians will start to see some light at the end of the tunnel in mid-2013.

Views are polarized, however. Citigroup expects Italy to contract by 2.1pc this year, a further 1.2pc in 2013, and again by 1.5pc in 2014, with near zero growth in each year up to 2017.

"Italy's primary budget surplus probably will be close to 3pc of GDP by end-2013, but the debt-to-GDP ratio is likely to go on rising due to the "snowball effect". Debt restructuring - probably through maturity extensions and coupon reductions - will probably be inevitable in 2015, once it becomes clear that austerity alone cannot restore fiscal sustainability," it said.

The International Monetary Fund expects Italy's public debt to reach 128pc of GDP next year, 4pc of GDP higher than forecast as recently as April.

The IMF's shifting forecast shows much damage the austerity policies are doing to Italy's underlying economy, with the "fiscal mulitplier" much higher that originally thought. It is an open debate whether Italy's is chasing its tail by tightening too hard.

Credit stress in the Club Med region is increasingly spreading to companies. The rating agency Moody's warned that default risk is rising for any European firm exposed to the EMU periphery - including the UK groups Dixons and Imperial Tobacco, with large sales in Spain. "The North South gap is widening. Crucially, contagion could affect the stable areas if macro conditions worsen."

There have been 129 downgrades in Europe so far this year, against 47 upgrades, with fears that companies will struggle to repay $363bn of junk bonds coming due over the next four years, known as the "refinancing wall".

A separate report by Standard & Poor's said "underlying economic realities" are catching up with Europe's companies. "Although the intervention by the ECB appears to have averted the crisis by reducing the risk of a disorderly break-up of the euro, the hard grind of adjustment and austerity remain."

It warned of a coming wave of defaults in steel, refining, shipping, cars, and smaller mining groups, with 200 companies "vulnerable" as debt comes due in 2013 and 2014. Some 49 are likely to default by late next year. "Companies highly exposed to the periphery of the eurozone, will remain under the intense scrutiny of trade counterparties. We see little reason to expect the growing divide between the core and periphery of Europe to close up any time soon," it said.

S&P said Spanish companies now have to pay almost twice as much as German rivals to borrow, with the premium on five-year at a post-EMU high of 250 basis points.

Some Spanish firms are trying to diversify out of their home country as fast as possible or even reinvent themselves as non-Spanish groups. Inaer Aviation has switched its headquarters to London in the hope of obtaining cheaper credit. The technology group Abengoa is pushing 99pc of its investment over the next three years into ventures outside Spain.

The risk is that this exodus will create a self-fulfillng process, leaving Spain starved of investment and even less able to claw its way out of the EMU crisis.

Jean-Michel Six, S&P's Europe economist, said EMU has degenerated into a "customs union", since the interbank market has been shut since 2011 in what amounts to a regime of "capital controls" within monetary union.

"There are two eurozones, a northern one and a southern one," he said.

Quote:HSBC pays record $1.9bn fine to settle US money-laundering accusations

Bank guilty of 'blatant failure' to implement money-laundering controls and wilfully flouted sanctions, US prosecutors say

Jill Treanor and Dominic Rushe

guardian.co.uk, Tuesday 11 December 2012 17.47 GMT


HSBC's penalty includes a five-year agreement under which the bank will install an independent monitor. Photograph: Stefan Wermuth/Reuters


HSBC was guilty of a "blatant failure" to implement anti-money laundering controls and wilfully flouted US sanctions, American prosecutors said, as the bank was forced to pay a record $1.9bn (£1.2bn) to settle allegations it allowed terrorists to move money around the financial system.

Hours after the bank's chief executive, Stuart Gulliver, said he was "profoundly sorry" for the failures, assistant attorney general Lanny Breuer told a press conference in New York that Mexican drug traffickers deposited hundreds of thousands of dollars each day in HSBC accounts. At least $881m in drug trafficking money was laundered throughout the bank's accounts.

"HSBC is being held accountable for stunning failures of oversight and worse," said Breuer, "that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries and to facilitate hundreds of millions more in transactions with sanctioned countries."

In Mexico the bank "severely understaffed" its compliance department and failed to implement an anti-money laundering programme despite evidence of serious risks. A complex scheme known as the black market peso exchange (BMPE) was used to launder the cash.

Manhattan district attorney Cyrus Vance said: "New York is the centre of international finance and those who use our banks as a vehicle for international crime will not be tolerated."

In the latest embarrassment for Britain's banks, Gulliver said: "We accept responsibility for our past mistakes. We have said we are profoundly sorry for them, and we do so again," he said, insisting Britain's biggest bank was "a fundamentally different organisation" now. It is the largest ever fine for such an offence and even greater than the £940m the bank had feared it faced after the allegations first surfaced in the summer in a report by the US Senate.

The fine for HSBC comes barely 24 hours after Standard Chartered paid £415m to US regulators, and as banks such as Royal Bank of Scotland and UBS brace for a wave of fines in coming days for attempting to rig Libor following the £290m penalty slapped on Barclays in June.

Gulliver was promoted to chief executive two years ago during a management reshuffle caused by the decision by Lord Green, the chairman, to quit to join the government as a trade minister.

The Department for Business, Innovation and Skills, which Green represents, said: "The report by the US Senate sub-committee sets out in detail the evidence submitted to it and the action taken by HSBC to ensure compliance with US regulations at the time that Lord Green was group chairman. At the time of the report's publication HSBC expressed its regret that there were failures of implementation and Lord Green has said that he shares that regret."

David Bagley, the bank's head of compliance, dramatically quit before the US Senate committee hearing into the case in July and, on Monday, HSBC named a former US official, Bob Werner, as head of group financial crime compliance, a newly created role, as the bank prepared for the fine related to drug allegations.

The penalty includes a five-year agreement with the US department of justice under which the bank will install an independent monitor to assess reformed internal controls. The bank's top executives will defer part of their bonuses for the whole of the five-year period, while bonuses have been clawed back from a number of former and current executives, including those in the US directly involved at the time.

HSBC has managed to avoid being criminally prosecuted a move that could have stopped the bank operating in the US.

HSBC's share price rose by 2.8p to 644p despite the size of the fine. Ian Gordon, banks analyst at Investec, said the fine was slightly lower than the $2bn he had been pencilling in to his forecasts. But he said: "HSBC's settlement with the US authorities will include a deferred prosecution agreement with the department of justice of five years' duration. Given HSBC's ongoing US business and other continuing conduct investigations, this sword of Damocles is not without teeth, albeit based on what we know, we are regarding the $1.921bn settlement as de facto 'final'."

Gulliver stressed that the bank had co-operated with the US authorities. "Over the last two years, under new senior leadership, we have been taking concrete steps to put right what went wrong and to participate actively with government authorities in bringing to light and addressing these matters," he said.

"We are committed to protecting the integrity of the global financial system. To this end we will continue to work closely with governments and regulators around the world," he added.

The US Senate said the bank had operated a "pervasively polluted" culture that lasted for years, allowing HSBC to move billions around the financial system for Mexican drug lords, terrorists and governments on sanctions lists. HSBC's Mexican operations moved $7bn into the US operations, for instance, which the Senate was told was tied to drug money.

HSBC said it also expected to finalise an "undertaking" with the UK regulator, the Financial Services Authority, "shortly".

The bank has spent $290m on improving its systems to try to avoid a re-run of the events.