Some money may have been used to fund Iran’s nuclear, missile programmes
New York Times 12 January 2009
(NEW YORK) Iranian banks illegally shifted billions of dollars through American financial institutions in recent years, and authorities suspect some of the money may have been used to finance Iran’s nuclear and missile programmes.
Details of the illicit transfers came to light on Friday when federal and New York state authorities announced that a large British bank had agreed to pay US$350 million to settle accusations that it had helped the Iranian banks hide the transactions.
The British bank, the Lloyds TSB Group, ‘stripped’ information that would have identified the transfers in order to deceive American financial institutions, which are barred from doing business with Iranian banks, Robert M Morgenthau, the Manhattan district attorney, said. Lloyds acknowledged its conduct and agreed to turn over detailed records of the transactions.
‘They went to great lengths to obliterate any identification,’ Mr. Morgenthau said.
The district attorney’s office was still investigating nine major banks that might be engaging in similar conduct, but prosecutors declined to name them. Mr. Morgenthau said, however, that money in one transaction was used to buy a large amount of tungsten, an ingredient for making long-range missiles. He said he suspected that other funds may have been used to finance Iran’s nuclear programme.
In the current case, investigators were unsure what the money was used for, said Daniel J Castleman, the chief assistant district attorney. The stripping made it impossible to determine where the money was going, he said. ‘We don’t know of any money that has gone to any terrorist organisations, individuals or anything like that,’ he said.
Lloyds has agreed to examine all of the transactions it stripped to try to determine where the money was headed. In all, Lloyds hid the source of billions of dollars that passed through the United States, prosecutors said. Lloyds also hid transfers from banks in Sudan, which are also banned from doing business with American institutions.
Half of the US$350 million Lloyds has agreed to pay will go to the federal government and the rest to Mr. Morgenthau’s office, which will divide the money between the city and the state. Mr. Morgenthau said he hoped the money, the largest financial penalty his office has ever collected, would provide a boost to tight city and state budgets.
Although prosecutors did not identify specific individuals at Lloyds responsible for the fraud, Mr. Castleman said, ‘It was a systemic, wide-ranging scheme.’
The training manual given to employees of Lloyds even included a section on how to strip transactions, prosecutors said.
Banks in several nations are banned from doing business with American institutions, but the US is particularly concerned about Iran, which it says finances terrorists and runs an illicit nuclear weapons programme. Iran denies those accusations.
The investigation into Lloyds goes back to 2006. It was conducted jointly by Mr. Morgenthau’s office and the Justice Department, with the assistance of the Treasury and banking regulators.
According to a deferred prosecution agreement, Lloyds handled US$300 million of Iranian transfers and US$20 million of Sudanese transfers that ended at American banks. Mr. Morgenthau said billions of dollars of transactions went through US banks but ended outside the country.
Several employees in Lloyds’ international payment processing unit in London removed from the bank’s central system orders from certain foreign banks, according to the agreement released on Friday by Mr. Morgenthau’s office. Employees struck out identifying information about the originating banks on printed copies of the payment instructions, which someone then re-entered into the payments system.
When American banks received the transfers, they seemed to have originated at Lloyds.
Worried that they might be violating American law, senior officials at Lloyds stopped the stripping operation for Iranian banks in 2004, but transfers from Sudan were stripped as recently as 2007.
Under the agreement between Lloyds and Mr. Morgenthau, no employees, officers or the bank will be charged with a crime unless evidence emerges that the bank or its employees and officers knew that specific transfers were sent to or by terrorist groups or ‘proliferators of weapons of mass destruction.’ The agreement lasts for two years.
In recent years, officials at the Treasury have stepped up a campaign to have foreign banks sever links with Iranian banks, which they accuse of providing support for groups like Hezbollah and Hamas, in addition to financing Iran’s own nuclear ambitions。
Last week President-elect Barack Obama was asked to respond to critics who say that his stimulus plan won’t do enough to help the economy. Mr. Obama answered that he wants to hear ideas about “how to spend money efficiently and effectively to jump-start the economy.”
O.K., I’ll bite — although as I’ll explain shortly, the “jump-start” metaphor is part of the problem.
First, Mr. Obama should scrap his proposal for $150 billion in business tax cuts, which would do little to help the economy. Ideally he’d scrap the proposed $150 billion payroll tax cut as well, though I’m aware that it was a campaign promise.
Money not squandered on ineffective tax cuts could be used to provide further relief to Americans in distress — enhanced unemployment benefits, expanded Medicaid and more. And why not get an early start on the insurance subsidies — probably running at $100 billion or more per year — that will be essential if we’re going to achieve universal health care?
Mainly, though, Mr. Obama needs to make his plan bigger. To see why, consider a new report from his own economic team.
On Saturday, Christina Romer, the future head of the Council of Economic Advisers, and Jared Bernstein, who will be the vice president’s chief economist, released estimates of what the Obama economic plan would accomplish. Their report is reasonable and intellectually honest, which is a welcome change from the fuzzy math of the last eight years.
But the report also makes it clear that the plan falls well short of what the economy needs.
According to Ms. Romer and Mr. Bernstein, the Obama plan would have its maximum impact in the fourth quarter of 2010. Without the plan, they project, the unemployment rate in that quarter would be a disastrous 8.8 percent. Yet even with the plan, unemployment would be 7 percent — roughly as high as it is now.
After 2010, the report says, the effects of the economic plan would rapidly fade away. The job of promoting full recovery would, however, remain undone: the unemployment rate would still be a painful 6.3 percent in the last quarter of 2011.
Now, economic forecasting is an inexact science, to say the least, and things could turn out better than the report predicts. But they could also turn out worse. The report itself acknowledges that “some private forecasters anticipate unemployment rates as high as 11 percent in the absence of action.” And I’m with Lawrence Summers, another member of the Obama economic team, who recently declared, “In this crisis, doing too little poses a greater threat than doing too much.” Unfortunately, that principle isn’t reflected in the current plan.
So how can Mr. Obama do more? By including a lot more public investment in his plan — which will be possible if he takes a longer view.
The Romer-Bernstein report acknowledges that “a dollar of infrastructure spending is more effective in creating jobs than a dollar of tax cuts.” It argues, however, that “there is a limit on how much government investment can be carried out efficiently in a short time frame.” But why does the time frame have to be short?
As far as I can tell, Mr. Obama’s planners have focused on investment projects that will deliver their main jobs boost over the next two years. But since unemployment is likely to remain high well beyond that two-year window, the plan should also include longer-term investment projects.
And bear in mind that even a project that delivers its main punch in, say, 2011 can provide significant economic support in earlier years. If Mr. Obama drops the “jump-start” metaphor, if he accepts the reality that we need a multi-year program rather than a short burst of activity, he can create a lot more jobs through government investment, even in the near term.
Still, shouldn’t Mr. Obama wait for proof that a bigger, longer-term plan is needed? No. Right now the investment portion of the Obama plan is limited by a shortage of “shovel ready” projects, projects ready to go on short notice. A lot more investment can be under way by late 2010 or 2011 if Mr. Obama gives the go-ahead now — but if he waits too long before deciding, that window of opportunity will be gone.
One more thing: even with the Obama plan, the Romer-Bernstein report predicts an average unemployment rate of 7.3 percent over the next three years. That’s a scary number, big enough to pose a real risk that the U.S. economy will get stuck in a Japan-type deflationary trap.
So my advice to the Obama team is to scrap the business tax cuts, and, more important, to deal with the threat of doing too little by doing more. And the way to do more is to stop talking about jump-starts and look more broadly at the possibilities for government investment.
GENERVA - SWITZERLAND'S biggest bank is to announce the biggest loss in the country's history, running into billions of dollars, a newspaper reported on Sunday.
It said that UBS would record an overall loss in 2008 of 20 billion Swiss francs (S$26 billion), in spite of showing a profit of 296 million francs in the third quarter, when it reports results on February 10.
The German language Sonntag, which is generally well-informed, said that the bank had racked up eight billion francs in losses in the final quarter of 2008, bringing the total for the year to 20 billion.
UBS admitted in the autumn when it announced third quarter results that the global financial crisis had hit it hard and warned it could lose up to five billion francs in the final quarter.
UBS was heavily exposed to risky US subprime mortgage business and had to write down almost US$47 billion (S$69.57 billion) in share values. In recent months clients have taken fright and withdrawn a total of 83.6 billion francs.
The Swiss government intervened in October with a rescue plan of Us$60 billion.
Since then the bank has been hit by the fraudulent Ponzi scheme of US fraudster Bernard Madoff and the failure of the US subsidiary of the Dutch group LyondellBasell and its share value has lost two thirds over the year. -- AFP
Speculation Affected Oil Price Swings More Than Supply And Demand
CBS News Jan. 11, 2009
(CBS) About the only economic break most Americans have gotten in the last six months has been the drastic drop in the price of oil, which has fallen even more precipitously than it rose. In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market.
So what happened? It's a complicated question, and there are lots of theories. But as correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia.
To understand what happened to the price of oil, you first have to understand the way it's traded. For years it has been bought and sold on something called the commodities futures market. At the New York Mercantile Exchange, it's traded alongside cotton and coffee, copper and steel by brokers who buy and sell contracts to deliver those goods at a certain price at some date in the future.
It was created so that farmers could gauge what their unharvested crops would be worth months in advance, so that factories could lock in the best price for raw materials, and airlines could manage their fuel costs. But more than a year ago those markets started to behave erratically. And when oil doubled to more than $147 a barrel, no one was more suspicious than Dan Gilligan.
As the president of the Petroleum Marketers Association, he represents more than 8,000 retail and wholesale suppliers, everyone from home heating oil companies to gas station owners.
When 60 Minutes talked to him last summer, his members were getting blamed for gouging the public, even though their costs had also gone through the roof. He told Kroft the problem was in the commodities markets, which had been invaded by a new breed of investor.
"Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," Gilligan explained.
Gilligan said these investors don't actually take delivery of the oil. "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery."
"They're trying to make money on the market for oil?" Kroft asked.
"Absolutely," Gilligan replied. "On the volatility that exists in the market. They make it going up and down."
He says his members in the home heating oil business, like Sean Cota of Bellows Falls, Vt., were the first to notice the effects a few years ago when prices seemed to disconnect from the basic fundamentals of supply and demand. Cota says there was plenty of product at the supply terminals, but the prices kept going up and up.
"We've had three price changes during the day where we pick up products, actually don't know what we paid for it and we'll go out and we'll sell that to the retail customer guessing at what the price was," Cota remembered. "The volatility is being driven by the huge amounts of money and the huge amounts of leverage that is going in to these markets."
About the same time, hedge fund manager Michael Masters reached the same conclusion. Masters' expertise is in tracking the flow of investments into and out of financial markets and he noticed huge amounts of money leaving stocks for commodities and oil futures, most of it going into index funds, betting the price of oil was going to go up.
Asked who was buying this "paper oil," Masters told Kroft, "The California pension fund. Harvard Endowment. Lots of large institutional investors. And, by the way, other investors, hedge funds, Wall Street trading desks were following right behind them, putting money - sovereign wealth funds were putting money in the futures markets as well. So you had all these investors putting money in the futures markets. And that was driving the price up."
In a five year period, Masters said the amount of money institutional investors, hedge funds, and the big Wall Street banks had placed in the commodities markets went from $13 billion to $300 billion. Last year, 27 barrels of crude were being traded every day on the New York Mercantile Exchange for every one barrel of oil that was actually being consumed in the United States.
"We talked to the largest physical trader of crude oil. And they told us that compared to the size of the investment inflows - and remember, this is the largest physical crude oil trader in the United States - they said that we are basically a flea on an elephant, that that's how big these flows were," Masters remembered.
Yet when Congress began holding hearings last summer and asked Wall Street banker Lawrence Eagles of J.P. Morgan what role excessive speculation played in rising oil prices, the answer was little to none. "We believe that high energy prices are fundamentally a result of supply and demand," he said in his testimony.
As it turns out, not even J.P. Morgan's chief global investment officer agreed with him. The same that day Eagles testified, an e-mail went out to clients saying "an enormous amount of speculation" ran up the price" and "140 dollars in July was ridiculous."
If anyone had any doubts, they were dispelled a few days after that hearing when the price of oil jumped $25 in a single day. That day was Sept. 22.
Michael Greenberger, a former director of trading for the U.S. Commodity Futures Trading Commission, the federal agency that oversees oil futures, says there were no supply disruptions that could have justified such a big increase.
"Did China and India suddenly have gigantic needs for new oil products in a single day? No. Everybody agrees supply-demand could not drive the price up $25, which was a record increase in the price of oil. The price of oil went from somewhere in the 60s to $147 in less than a year. And we were being told, on that run-up, 'It's supply-demand, supply-demand, supply-demand,'" Greenberger said.
A recent report out of MIT, analyzing world oil production and consumption, also concluded that the basic fundamentals of supply and demand could not have been responsible for last year's run-up in oil prices. And Michael Masters says the U.S. Department of Energy's own statistics show that if the markets had been working properly, the price of oil should have been going down, not up.
"From quarter four of '07 until the second quarter of '08 the EIA, the Energy Information Administration, said that supply went up, worldwide supply went up. And worldwide demand went down. So you have supply going up and demand going down, which generally means the price is going down," Masters told Kroft.
"And this was the period of the spike," Kroft noted.
"This was the period of the spike," Masters agreed. "So you had the largest price increase in history during a time when actual demand was going down and actual supply was going up during the same period. However, the only thing that makes sense that lifted the price was investor demand."
Masters believes the investor demand for commodities, and oil futures in particular, was created on Wall Street by hedge funds and the big Wall Street investment banks like Morgan Stanley, Goldman Sachs, Barclays, and J.P. Morgan, who made billions investing hundreds of billions of dollars of their clients’ money.
"The investment banks facilitated it," Masters said. "You know, they found folks to write papers espousing the benefits of investing in commodities. And then they promoted commodities as a, quote/unquote, 'asset class.' Like, you could invest in commodities just like you could in stocks or bonds or anything else, like they were suitable for long-term investment."
Dan Gilligan of the Petroleum Marketers Association agreed.
"Are you saying that companies like Goldman Sachs and Morgan Stanley and Barclays have as much to do with the price of oil going up as Exxon? Or…Shell?" Kroft asked.
"Yes," Gilligan said. "I tease people sometimes that, you know, people say, 'Well, who's the largest oil company in America?' And they'll always say, 'Well, Exxon Mobil or Chevron, or BP.' But I'll say, 'No. Morgan Stanley.'"
Morgan Stanley isn't an oil company in the traditional sense of the word - it doesn't own or control oil wells or refineries, or gas stations. But according to documents filed with the Securities and Exchange Commission, Morgan Stanley is a significant player in the wholesale market through various entities controlled by the corporation.
It not only buys and sells the physical product through subsidiaries and companies that it controls, Morgan Stanley has the capacity to store and hold 20 million barrels. For example, some storage tanks in New Haven, Conn. hold Morgan Stanley heating oil bound for homes in New England, where it controls nearly 15 percent of the market.
The Wall Street bank Goldman Sachs also has huge stakes in companies that own a refinery in Coffeyville, Kan., and control 43,000 miles of pipeline and more than 150 storage terminals.
And analysts at both investment banks contributed to the oil frenzy that drove prices to record highs: Goldman's top oil analyst predicted last March that the price of a barrel was going to $200; Morgan Stanley predicted $150 a barrel.
Both companies declined 60 Minutes' requests for an interview, but maintain that their oil businesses are completely separate from their trading activities, and that neither influence the independent opinions of their analysts. There is no evidence that either company has done anything illegal.
Asked if there is price manipulation going on, Dan Gilligan told Kroft, "I can't say. And the reason I can't say it, is because nobody knows. Our federal regulators don't have access to the data. They don't know who holds what positions."
"Why don't they know?" Kroft asked.
"Because federal law doesn't give them the jurisdiction to find out," Gilligan said.
It's impossible to tell exactly who was buying and selling all those oil contracts because most of the trading is now conducted in secret, with no public scrutiny or government oversight. Over time, the big Wall Street banks were allowed to buy and sell as many oil contracts as they wanted for their clients, circumventing regulations intended to limit speculation. And in 2000, Congress effectively deregulated the futures market, granting exemptions for complicated derivative investments called oil swaps, as well as electronic trading on private exchanges.
"Who was responsible for deregulating the oil future market?" Kroft asked Michael Greenberger.
"You'd have to say Enron," he replied. "This was something they desperately wanted, and they got."
Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States. "This was when Enron was riding high. And what Enron wanted, Enron got."
Asked why they wanted a deregulated market in oil futures, Greenberger said, "Because they wanted to establish their own little energy futures exchange through computerized trading. They knew that if they could get this trading engine established without the controls that had been placed on speculators, they would have the ability to drive the price of energy products in any way they wanted to take it."
"When Enron failed, we learned that Enron, and its conspirators who used their trading engine, were able to drive the price of electricity up, some say, by as much as 300 percent on the West Coast," he added.
"Is the same thing going on right now in the oil business?" Kroft asked.
"Every Enron trader, who knew how to do these manipulations, became the most valuable employee on Wall Street," Greenberger said.
But some of them may now be looking for work. The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits.
"From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds," Masters explained. "In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent."
Asked how he explains that, Masters said, "By looking at investors, that's the only way you can explain it."
_____________________________________
The regulatory lapses in the commodities market that many believe fomented the rampant speculation in oil have still not been addressed, although the incoming Obama administration has promised to do so.
5 comments:
Iran Laundered Billions via US Banks
Some money may have been used to fund Iran’s nuclear, missile programmes
New York Times
12 January 2009
(NEW YORK) Iranian banks illegally shifted billions of dollars through American financial institutions in recent years, and authorities suspect some of the money may have been used to finance Iran’s nuclear and missile programmes.
Details of the illicit transfers came to light on Friday when federal and New York state authorities announced that a large British bank had agreed to pay US$350 million to settle accusations that it had helped the Iranian banks hide the transactions.
The British bank, the Lloyds TSB Group, ‘stripped’ information that would have identified the transfers in order to deceive American financial institutions, which are barred from doing business with Iranian banks, Robert M Morgenthau, the Manhattan district attorney, said. Lloyds acknowledged its conduct and agreed to turn over detailed records of the transactions.
‘They went to great lengths to obliterate any identification,’ Mr. Morgenthau said.
The district attorney’s office was still investigating nine major banks that might be engaging in similar conduct, but prosecutors declined to name them. Mr. Morgenthau said, however, that money in one transaction was used to buy a large amount of tungsten, an ingredient for making long-range missiles. He said he suspected that other funds may have been used to finance Iran’s nuclear programme.
In the current case, investigators were unsure what the money was used for, said Daniel J Castleman, the chief assistant district attorney. The stripping made it impossible to determine where the money was going, he said. ‘We don’t know of any money that has gone to any terrorist organisations, individuals or anything like that,’ he said.
Lloyds has agreed to examine all of the transactions it stripped to try to determine where the money was headed. In all, Lloyds hid the source of billions of dollars that passed through the United States, prosecutors said. Lloyds also hid transfers from banks in Sudan, which are also banned from doing business with American institutions.
Half of the US$350 million Lloyds has agreed to pay will go to the federal government and the rest to Mr. Morgenthau’s office, which will divide the money between the city and the state. Mr. Morgenthau said he hoped the money, the largest financial penalty his office has ever collected, would provide a boost to tight city and state budgets.
Although prosecutors did not identify specific individuals at Lloyds responsible for the fraud, Mr. Castleman said, ‘It was a systemic, wide-ranging scheme.’
The training manual given to employees of Lloyds even included a section on how to strip transactions, prosecutors said.
Banks in several nations are banned from doing business with American institutions, but the US is particularly concerned about Iran, which it says finances terrorists and runs an illicit nuclear weapons programme. Iran denies those accusations.
The investigation into Lloyds goes back to 2006. It was conducted jointly by Mr. Morgenthau’s office and the Justice Department, with the assistance of the Treasury and banking regulators.
According to a deferred prosecution agreement, Lloyds handled US$300 million of Iranian transfers and US$20 million of Sudanese transfers that ended at American banks. Mr. Morgenthau said billions of dollars of transactions went through US banks but ended outside the country.
Several employees in Lloyds’ international payment processing unit in London removed from the bank’s central system orders from certain foreign banks, according to the agreement released on Friday by Mr. Morgenthau’s office. Employees struck out identifying information about the originating banks on printed copies of the payment instructions, which someone then re-entered into the payments system.
When American banks received the transfers, they seemed to have originated at Lloyds.
Worried that they might be violating American law, senior officials at Lloyds stopped the stripping operation for Iranian banks in 2004, but transfers from Sudan were stripped as recently as 2007.
Under the agreement between Lloyds and Mr. Morgenthau, no employees, officers or the bank will be charged with a crime unless evidence emerges that the bank or its employees and officers knew that specific transfers were sent to or by terrorist groups or ‘proliferators of weapons of mass destruction.’ The agreement lasts for two years.
In recent years, officials at the Treasury have stepped up a campaign to have foreign banks sever links with Iranian banks, which they accuse of providing support for groups like Hezbollah and Hamas, in addition to financing Iran’s own nuclear ambitions。
Ideas for Obama
By PAUL KRUGMAN
January 11, 2009
Last week President-elect Barack Obama was asked to respond to critics who say that his stimulus plan won’t do enough to help the economy. Mr. Obama answered that he wants to hear ideas about “how to spend money efficiently and effectively to jump-start the economy.”
O.K., I’ll bite — although as I’ll explain shortly, the “jump-start” metaphor is part of the problem.
First, Mr. Obama should scrap his proposal for $150 billion in business tax cuts, which would do little to help the economy. Ideally he’d scrap the proposed $150 billion payroll tax cut as well, though I’m aware that it was a campaign promise.
Money not squandered on ineffective tax cuts could be used to provide further relief to Americans in distress — enhanced unemployment benefits, expanded Medicaid and more. And why not get an early start on the insurance subsidies — probably running at $100 billion or more per year — that will be essential if we’re going to achieve universal health care?
Mainly, though, Mr. Obama needs to make his plan bigger. To see why, consider a new report from his own economic team.
On Saturday, Christina Romer, the future head of the Council of Economic Advisers, and Jared Bernstein, who will be the vice president’s chief economist, released estimates of what the Obama economic plan would accomplish. Their report is reasonable and intellectually honest, which is a welcome change from the fuzzy math of the last eight years.
But the report also makes it clear that the plan falls well short of what the economy needs.
According to Ms. Romer and Mr. Bernstein, the Obama plan would have its maximum impact in the fourth quarter of 2010. Without the plan, they project, the unemployment rate in that quarter would be a disastrous 8.8 percent. Yet even with the plan, unemployment would be 7 percent — roughly as high as it is now.
After 2010, the report says, the effects of the economic plan would rapidly fade away. The job of promoting full recovery would, however, remain undone: the unemployment rate would still be a painful 6.3 percent in the last quarter of 2011.
Now, economic forecasting is an inexact science, to say the least, and things could turn out better than the report predicts. But they could also turn out worse. The report itself acknowledges that “some private forecasters anticipate unemployment rates as high as 11 percent in the absence of action.” And I’m with Lawrence Summers, another member of the Obama economic team, who recently declared, “In this crisis, doing too little poses a greater threat than doing too much.” Unfortunately, that principle isn’t reflected in the current plan.
So how can Mr. Obama do more? By including a lot more public investment in his plan — which will be possible if he takes a longer view.
The Romer-Bernstein report acknowledges that “a dollar of infrastructure spending is more effective in creating jobs than a dollar of tax cuts.” It argues, however, that “there is a limit on how much government investment can be carried out efficiently in a short time frame.” But why does the time frame have to be short?
As far as I can tell, Mr. Obama’s planners have focused on investment projects that will deliver their main jobs boost over the next two years. But since unemployment is likely to remain high well beyond that two-year window, the plan should also include longer-term investment projects.
And bear in mind that even a project that delivers its main punch in, say, 2011 can provide significant economic support in earlier years. If Mr. Obama drops the “jump-start” metaphor, if he accepts the reality that we need a multi-year program rather than a short burst of activity, he can create a lot more jobs through government investment, even in the near term.
Still, shouldn’t Mr. Obama wait for proof that a bigger, longer-term plan is needed? No. Right now the investment portion of the Obama plan is limited by a shortage of “shovel ready” projects, projects ready to go on short notice. A lot more investment can be under way by late 2010 or 2011 if Mr. Obama gives the go-ahead now — but if he waits too long before deciding, that window of opportunity will be gone.
One more thing: even with the Obama plan, the Romer-Bernstein report predicts an average unemployment rate of 7.3 percent over the next three years. That’s a scary number, big enough to pose a real risk that the U.S. economy will get stuck in a Japan-type deflationary trap.
So my advice to the Obama team is to scrap the business tax cuts, and, more important, to deal with the threat of doing too little by doing more. And the way to do more is to stop talking about jump-starts and look more broadly at the possibilities for government investment.
UBS to announce record loss
Jan 12, 2009
GENERVA - SWITZERLAND'S biggest bank is to announce the biggest loss in the country's history, running into billions of dollars, a newspaper reported on Sunday.
It said that UBS would record an overall loss in 2008 of 20 billion Swiss francs (S$26 billion), in spite of showing a profit of 296 million francs in the third quarter, when it reports results on February 10.
The German language Sonntag, which is generally well-informed, said that the bank had racked up eight billion francs in losses in the final quarter of 2008, bringing the total for the year to 20 billion.
UBS admitted in the autumn when it announced third quarter results that the global financial crisis had hit it hard and warned it could lose up to five billion francs in the final quarter.
UBS was heavily exposed to risky US subprime mortgage business and had to write down almost US$47 billion (S$69.57 billion) in share values. In recent months clients have taken fright and withdrawn a total of 83.6 billion francs.
The Swiss government intervened in October with a rescue plan of Us$60 billion.
Since then the bank has been hit by the fraudulent Ponzi scheme of US fraudster Bernard Madoff and the failure of the US subsidiary of the Dutch group LyondellBasell and its share value has lost two thirds over the year. -- AFP
Did Speculation Fuel Oil Price Swings?
Speculation Affected Oil Price Swings More Than Supply And Demand
CBS News
Jan. 11, 2009
(CBS) About the only economic break most Americans have gotten in the last six months has been the drastic drop in the price of oil, which has fallen even more precipitously than it rose. In a year's time, a commodity that was theoretically priced according to supply and demand doubled from $69 a barrel to nearly $150, and then, in a period of just three months, crashed along with the stock market.
So what happened? It's a complicated question, and there are lots of theories. But as correspondent Steve Kroft reports, many people believe it was a speculative bubble, not unlike the one that caused the housing crisis, and that it had more to do with traders and speculators on Wall Street than with oil company executives or sheiks in Saudi Arabia.
To understand what happened to the price of oil, you first have to understand the way it's traded. For years it has been bought and sold on something called the commodities futures market. At the New York Mercantile Exchange, it's traded alongside cotton and coffee, copper and steel by brokers who buy and sell contracts to deliver those goods at a certain price at some date in the future.
It was created so that farmers could gauge what their unharvested crops would be worth months in advance, so that factories could lock in the best price for raw materials, and airlines could manage their fuel costs. But more than a year ago those markets started to behave erratically. And when oil doubled to more than $147 a barrel, no one was more suspicious than Dan Gilligan.
As the president of the Petroleum Marketers Association, he represents more than 8,000 retail and wholesale suppliers, everyone from home heating oil companies to gas station owners.
When 60 Minutes talked to him last summer, his members were getting blamed for gouging the public, even though their costs had also gone through the roof. He told Kroft the problem was in the commodities markets, which had been invaded by a new breed of investor.
"Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors that are looking to make money from their speculative positions," Gilligan explained.
Gilligan said these investors don't actually take delivery of the oil. "All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery."
"They're trying to make money on the market for oil?" Kroft asked.
"Absolutely," Gilligan replied. "On the volatility that exists in the market. They make it going up and down."
He says his members in the home heating oil business, like Sean Cota of Bellows Falls, Vt., were the first to notice the effects a few years ago when prices seemed to disconnect from the basic fundamentals of supply and demand. Cota says there was plenty of product at the supply terminals, but the prices kept going up and up.
"We've had three price changes during the day where we pick up products, actually don't know what we paid for it and we'll go out and we'll sell that to the retail customer guessing at what the price was," Cota remembered. "The volatility is being driven by the huge amounts of money and the huge amounts of leverage that is going in to these markets."
About the same time, hedge fund manager Michael Masters reached the same conclusion. Masters' expertise is in tracking the flow of investments into and out of financial markets and he noticed huge amounts of money leaving stocks for commodities and oil futures, most of it going into index funds, betting the price of oil was going to go up.
Asked who was buying this "paper oil," Masters told Kroft, "The California pension fund. Harvard Endowment. Lots of large institutional investors. And, by the way, other investors, hedge funds, Wall Street trading desks were following right behind them, putting money - sovereign wealth funds were putting money in the futures markets as well. So you had all these investors putting money in the futures markets. And that was driving the price up."
In a five year period, Masters said the amount of money institutional investors, hedge funds, and the big Wall Street banks had placed in the commodities markets went from $13 billion to $300 billion. Last year, 27 barrels of crude were being traded every day on the New York Mercantile Exchange for every one barrel of oil that was actually being consumed in the United States.
"We talked to the largest physical trader of crude oil. And they told us that compared to the size of the investment inflows - and remember, this is the largest physical crude oil trader in the United States - they said that we are basically a flea on an elephant, that that's how big these flows were," Masters remembered.
Yet when Congress began holding hearings last summer and asked Wall Street banker Lawrence Eagles of J.P. Morgan what role excessive speculation played in rising oil prices, the answer was little to none. "We believe that high energy prices are fundamentally a result of supply and demand," he said in his testimony.
As it turns out, not even J.P. Morgan's chief global investment officer agreed with him. The same that day Eagles testified, an e-mail went out to clients saying "an enormous amount of speculation" ran up the price" and "140 dollars in July was ridiculous."
If anyone had any doubts, they were dispelled a few days after that hearing when the price of oil jumped $25 in a single day. That day was Sept. 22.
Michael Greenberger, a former director of trading for the U.S. Commodity Futures Trading Commission, the federal agency that oversees oil futures, says there were no supply disruptions that could have justified such a big increase.
"Did China and India suddenly have gigantic needs for new oil products in a single day? No. Everybody agrees supply-demand could not drive the price up $25, which was a record increase in the price of oil. The price of oil went from somewhere in the 60s to $147 in less than a year. And we were being told, on that run-up, 'It's supply-demand, supply-demand, supply-demand,'" Greenberger said.
A recent report out of MIT, analyzing world oil production and consumption, also concluded that the basic fundamentals of supply and demand could not have been responsible for last year's run-up in oil prices. And Michael Masters says the U.S. Department of Energy's own statistics show that if the markets had been working properly, the price of oil should have been going down, not up.
"From quarter four of '07 until the second quarter of '08 the EIA, the Energy Information Administration, said that supply went up, worldwide supply went up. And worldwide demand went down. So you have supply going up and demand going down, which generally means the price is going down," Masters told Kroft.
"And this was the period of the spike," Kroft noted.
"This was the period of the spike," Masters agreed. "So you had the largest price increase in history during a time when actual demand was going down and actual supply was going up during the same period. However, the only thing that makes sense that lifted the price was investor demand."
Masters believes the investor demand for commodities, and oil futures in particular, was created on Wall Street by hedge funds and the big Wall Street investment banks like Morgan Stanley, Goldman Sachs, Barclays, and J.P. Morgan, who made billions investing hundreds of billions of dollars of their clients’ money.
"The investment banks facilitated it," Masters said. "You know, they found folks to write papers espousing the benefits of investing in commodities. And then they promoted commodities as a, quote/unquote, 'asset class.' Like, you could invest in commodities just like you could in stocks or bonds or anything else, like they were suitable for long-term investment."
Dan Gilligan of the Petroleum Marketers Association agreed.
"Are you saying that companies like Goldman Sachs and Morgan Stanley and Barclays have as much to do with the price of oil going up as Exxon? Or…Shell?" Kroft asked.
"Yes," Gilligan said. "I tease people sometimes that, you know, people say, 'Well, who's the largest oil company in America?' And they'll always say, 'Well, Exxon Mobil or Chevron, or BP.' But I'll say, 'No. Morgan Stanley.'"
Morgan Stanley isn't an oil company in the traditional sense of the word - it doesn't own or control oil wells or refineries, or gas stations. But according to documents filed with the Securities and Exchange Commission, Morgan Stanley is a significant player in the wholesale market through various entities controlled by the corporation.
It not only buys and sells the physical product through subsidiaries and companies that it controls, Morgan Stanley has the capacity to store and hold 20 million barrels. For example, some storage tanks in New Haven, Conn. hold Morgan Stanley heating oil bound for homes in New England, where it controls nearly 15 percent of the market.
The Wall Street bank Goldman Sachs also has huge stakes in companies that own a refinery in Coffeyville, Kan., and control 43,000 miles of pipeline and more than 150 storage terminals.
And analysts at both investment banks contributed to the oil frenzy that drove prices to record highs: Goldman's top oil analyst predicted last March that the price of a barrel was going to $200; Morgan Stanley predicted $150 a barrel.
Both companies declined 60 Minutes' requests for an interview, but maintain that their oil businesses are completely separate from their trading activities, and that neither influence the independent opinions of their analysts. There is no evidence that either company has done anything illegal.
Asked if there is price manipulation going on, Dan Gilligan told Kroft, "I can't say. And the reason I can't say it, is because nobody knows. Our federal regulators don't have access to the data. They don't know who holds what positions."
"Why don't they know?" Kroft asked.
"Because federal law doesn't give them the jurisdiction to find out," Gilligan said.
It's impossible to tell exactly who was buying and selling all those oil contracts because most of the trading is now conducted in secret, with no public scrutiny or government oversight. Over time, the big Wall Street banks were allowed to buy and sell as many oil contracts as they wanted for their clients, circumventing regulations intended to limit speculation. And in 2000, Congress effectively deregulated the futures market, granting exemptions for complicated derivative investments called oil swaps, as well as electronic trading on private exchanges.
"Who was responsible for deregulating the oil future market?" Kroft asked Michael Greenberger.
"You'd have to say Enron," he replied. "This was something they desperately wanted, and they got."
Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States. "This was when Enron was riding high. And what Enron wanted, Enron got."
Asked why they wanted a deregulated market in oil futures, Greenberger said, "Because they wanted to establish their own little energy futures exchange through computerized trading. They knew that if they could get this trading engine established without the controls that had been placed on speculators, they would have the ability to drive the price of energy products in any way they wanted to take it."
"When Enron failed, we learned that Enron, and its conspirators who used their trading engine, were able to drive the price of electricity up, some say, by as much as 300 percent on the West Coast," he added.
"Is the same thing going on right now in the oil business?" Kroft asked.
"Every Enron trader, who knew how to do these manipulations, became the most valuable employee on Wall Street," Greenberger said.
But some of them may now be looking for work. The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits.
"From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds," Masters explained. "In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent."
Asked how he explains that, Masters said, "By looking at investors, that's the only way you can explain it."
_____________________________________
The regulatory lapses in the commodities market that many believe fomented the rampant speculation in oil have still not been addressed, although the incoming Obama administration has promised to do so.
怀念 - 王菲
作词：黄伟文
作曲：Robin Guthrie/Elizabeth Fraser/SimonRaymonde
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