Category Archives: economic disaster

How the U.S. Could Pressure North Korea Tomorrow: Quit the $100 Bill; North Korea is minting superdollars

How the U.S. Could Pressure North Korea Tomorrow: Quit the $100 Bill; North Korea is minting superdollars | Business | TIME.com.

 

 

 

Photo-Illustration by TIME

Photo-Illustration by TIME

U.S. negotiators are heading into a second day of what have been dubbed “serious and substantial” talks with North Korean officials. Yet amidst all the discussion of how the U.S. will attempt to work with Kim Jong Un, there has been little (open) speculation as to whether Dear Leader Junior might crank up production of $100 and $50 bills. No, not North Korean 100- or 50-won banknotes, worth about as much as old tissues. I’m talking about fake greenbacks — or, as the U.S. Secret Service has dubbed them, “superdollars.”

 

These ultra-counterfeits are light years beyond the weak facsimiles produced by most forgers, who use desktop printers. As an anti-counterfeiting investigator with Europol once put it: “Superdollars are just U.S. dollars not made by the U.S. government.” With few exceptions, only Federal Reserve banks equipped with the fanciest detection gear can identify these fakes.

Yet as unpatriotic as this may sound, perhaps America would be better off if Kim Jong Un were to try and enrich himself with D-I-Y Benjamins. Let me explain, by way of a little background about superdollars.

(MORE: Can a Second Bailout Save Greece?)

The “super” moniker does not stem from any particular talent on the part of the North Koreans. It’s a matter of equipment. The regime apparently possesses the same kind of intaglio printing press (or presses) used by the U.S. Bureau of Engraving and Printing. A leading theory is that in 1989, just before the collapse of the Berlin Wall, the machines made their way to North Korea from a clandestine facility in East Germany, where they were used to make fake passports and other secret documents. The high-tech paper is just about the same as what’s used to make authentic dollars, and the North Koreans buy their ink from the same Swiss firm that supplies the US government with ink for greenbacks.

Forging $100 bills obviously gels with the regime’s febrile anti-Americanism and its aim to undercut U.S. global power, in this case by sowing doubts about our currency. State level counterfeiting is a kind of slow-motion violence committed against an enemy, and it has been tried many times before. During the Revolutionary War, the British printed fake “Continentals” to undermine the fragile colonial currency. Napoleon counterfeited Russian notes during the Napoleonic Wars, and during World War II the Germans forced a handful of artists and printing experts in Block 19 of the Sachsenhausen concentration camp to produce fake U.S. dollars and British pounds sterling. (Their story is the basis for the 2007 film “The Counterfeiters,” winner of the 2007 Oscar for Best Foreign Language Film.)

Superdollars can be viewed as an act of economic warfare, but Pyongyang’s motive is probably more mundane: The regime is broke. The 2009 attempt to raise funds by devaluing its already pathetic currency revealed not only the country’s fiscal desperation, but also the abuse Dear Leader was willing to inflict on his people. The won was devalued 100-fold, which meant 1,000 won suddenly had the purchasing power of 10 won. (Imagine waking up to a learn that a slice of pizza costs $250.) Officials set a tight limit on how much old money could be exchanged for new, so whatever value existed within people’s paltry savings evaporated overnight. Compared to devaluation, generating quick cash by counterfeiting some other country’s more stable currency looks downright humanitarian.

(MORE: TIME’s Interview With Warren Buffett)

The superdollar affair has a certain comic-book quality: copying the currency of the evil capitalists so you can buy cognac and missiles. But Washington isn’t laughing. At the end of December, Ireland’s high court rejected a U.S. request to extradite former Workers Party president and IRA veteran, Sean Garland, for his alleged involvement with the superdollar plot. There is also the question of what exactly the North Koreans hope to procure with all of this “money.” According to the House Task Force on Terrorism and Unconventional Warfare, superdollars may be part of the regime’s effort to acquire materials for nuclear weapons.

Since the superdollars were first detected about a decade ago, the regime has been pocketing an estimated $15 to $25 million a year from them. (Other estimates are much higher—up to several hundred million dollars’ worth.) That sounds like a lot of money, but compared to the $1 trillion in cash circulating in the great ocean of commerce, a few hundred million is chump change. Although certainly costly for small business owners who unknowingly accept a bunch of forgeries, counterfeits probably won’t bring about a crisis of faith in our paper money anytime soon.

Yet taking the long view, maybe a rash of new superdollars from the hermetic regime of Kim Jong Un would be beneficial. How so? Because counterfeits have a way of reminding people of what material money is and how it functions, and that could lead to a discussion of its pros and cons. Cash is, and always has been, such an uncontested part of everyday life that we rarely stop to consider its toll on society as the currency of crime, to say nothing of the heaping expense of printing, transporting, securing, inspecting, shredding, redesigning, reprinting, re-inspecting, and redistributing it ad nauseum, plus the broader costs of prosecuting and incarcerating the thousands, if not millions, of people who commit cash-related crimes. That’s not to suggest we could get rid of paper money tomorrow; we still don’t have a substitute that’s equally convenient, universally accepted, and adequately secure. But that day may be closer than you think. (Coins, however, we could—and should—do away with. As in, right now.)

(MORE: Google Takes Another Experimental Step Toward Delivering TV)

Superdollars, and the untold billions of (electronic) dollars spent combating them could be the wake-up call that finally forces us to think more clearly about the costs of physical money. If killing all cash strikes you as a little too radical, consider for a moment what it would mean to get rid of high-denomination banknotes. Who would be most inconvenienced if Washington were to outlaw $100 and $50 bills tomorrow? Cartel bosses in Juarez, Mexico jump to mind. So do human traffickers in China and Africa, aspiring terrorists in Afghanistan, wildlife poachers, arms dealers, tax evaders, and everyday crooks who hold up mom and pop groceries. And, or course, North Korean government officials.

So then. At the risk of infuriating cash-hoarding militia members, anonymity-obsessed ACLU’ers, the U.S. Treasury, Russian mob, Laundromat owners, and just about every person who has ever hid a purchase from a spouse or income from the government, I would say this to Kim Jong Un and his posse of counterfeiters: Bring it.

David Wolman is a contributing editor at Wired and the author of The End of Money: Counterfeiters, Preachers, Techies, Dreamers—and the Coming Cashless Society, out this month from Da Capo Press. Follow him on Twitter: @davidwolman

Read more: http://business.time.com/2012/02/24/how-the-u-s-could-pressure-north-korea-tomorrow-quit-the-100-bill/?iid=biz-article-mostpop1#ixzz1nVl122r1

World economy on verge of new jobs recession

BBC News – ILO: World economy on verge of new jobs recession.

The global economy is on the verge of a new and deeper jobs recession that may ignite social unrest, the International Labour Organization (ILO) has warned.

It will take at least five years for employment in advanced economies to return to pre-crisis levels, it said.

The ILO also noted that in 45 of the 118 countries it examined, the risk of social unrest was rising.Watch movie online Rings (2017)

Separately, the OECD research body said G20 leaders meeting in Cannes this week need to take “bold decisions”.

The Organisation for Economic Co-operation and Development said the rescue plan announced by EU leaders on 26 October had been an important first step, but the measures must be implemented “promptly and forcefully”.

The OECD’s message to world leaders came as it predicted a sharp slowdown in growth in the eurozone and warned that some countries in the 17-nation bloc were likely to face negative growth.

‘Moment of truth’

In its World of Work Report 2011, the ILO said a stalled global economic recovery had begun to “dramatically affect” labour markets.

It said approximately 80 million net new jobs would be needed over the next two years to get back to pre-crisis employment levels.

But it said the recent slowdown in growth suggested that only half the jobs needed would be created.

“We have reached the moment of truth. We have a brief window of opportunity to avoid a major double-dip in employment,” said Raymond Torres from the ILO.

The group also measured levels of discontent over the lack of jobs and anger over perceptions that the burden of the crisis was not being fairly shared.

It said scores of countries faced the possibility of social unrest, particularly those in the EU and the Arab region.

Loss of confidence

Meanwhile, in its latest projections for G20 economies, the OECD forecast growth in the eurozone of 1.6% this year, slowing to 0.3% next year.

OECD’s forecasts on GDP growth

Country 2011 2012
US 1.7% 1.8%
Euro area 1.6% 0.3%
Japan -0.5% 2.1%
China 9.3% 8.6%

In May, it had forecast growth of 2% per year in both 2011 and 2012.

It also cut its growth forecasts for the US to 1.7% in 2011 and 1.8% in 2012. It had previously expected growth of 2.6% and 3.1% respectively.

The organisation called for G20 leaders, who meet on Thursday and Friday, to act quickly.

“Much of the current weakness is due to a generalised loss of confidence in the ability of policymakers to put in place appropriate responses,” the OECD said.

“It is therefore imperative to act decisively to restore confidence and to implement appropriate policies to restore longer-term fiscal sustainability.”

It also called for the eurozone to cut interest rates.

Markets dive on Greek referendum

BBC News – Eurozone debt crisis: Markets dive on Greek referendum.

US and European markets have fallen following Monday’s announcement of a Greek referendum on the latest aid package to solve its debt crisis.

Eurozone leaders agreed a 50% debt write-off for Greece last week as well as strengthening Europe’s bailout fund.

But the Greek move has cast doubt on whether the deal can go ahead.

New York’s Dow Jones ended the day 2.5% lower, after a mid-afternoon rally on hope that Greek MPs may block the referendum proved short-lived.

One of Mr Papandreou’s MPs, Milena Apostolaki, resigned from the ruling Pasok parliamentary group on Tuesday, leaving the government with a two-seat majority in parliament.

Six other party members have called for Mr Papandreou to resign, according to the state news agency.

There are doubts whether the government will last long enough to hold the referendum, pencilled in for January.

A confidence vote is due to take place in the Greek parliament on Friday.

Banks down

Earlier in the day, London’s FTSE 100 had ended trading down 2.2%, while the Frankfurt Dax fell 5% and the Paris Cac 40 some 5.4%.

Analysis

January seems to be the best bet for when a referendum will take place.

If a week is a long time in politics, two months is an eternity in financial markets in their current state of mind.

A “no” would blow away one leg of the euro rescue package agreed in Brussels last week, and it was a precarious, unfinished structure in the first place.

Some even see the vote as a referendum on Greek membership of the eurozone.

Perhaps Mr Papandreou is gambling that voters will see it that way and reluctantly say “yes”.

The markets may have good and bad days, but they won’t quietly bide their time while they wait to see if the bet pays off.

Shares in French banks saw the biggest falls, with Societe Generale down 16.2%, BNP Paribas 13.1% and Credit Agricole 12.5%.

Other European banks also fared badly for the second day, with Germany’s Commerzbank and Deutsche Bank and the UK’s Barclays and Royal Bank of Scotland all 8% to 10% lower.

German Chancellor Angela Merkel and French President Nicolas Sarkozy issued a joint statement following a telephone conversation between the two leaders saying: “France and Germany are determined to ensure with their European partners the full implementation, as quickly as possible, of decisions taken by the summit, which today are more necessary than ever.”

The two also said that eurozone leaders and the IMF would meet on Wednesday to hold talks over Greece.

Confidence vote

Greek opposition parties have accused Prime Minister George Papandreou of acting dangerously, and called for an early election.

“Elections are a national necessity,” conservative leader Antonis Samaras said, adding that Mr Papandreou was putting Greece’s EU membership at risk.

Opinion polls in Greece suggest that most people do not support the deal and there have been demonstrations against the austerity measures across the country, some of them violent.

Start Quote

Last week’s eurozone rescue package could unravel long before political events in Greece take their course”

Mr Papandreou told a meeting of his governing Socialist party on Monday that Greek people would have the final say on the austerity package, which is designed to reduce Greek debt by about 100bn euros through a series of measures including public sector pay cuts, tax rises and falling pensions.

The austerity measures are a condition of the bailout packages from the European Union and International Monetary Fund.

Some analysts are saying that the referendum would in effect be on whether Greece should abandon the euro.

Nobel Prize winning economist Christopher Pissarides said, “If there is a ‘no’ vote, Greece would immediately declare bankruptcy. I do not see how Greece could remain in the euro.”

There is also concern that the referendum would be unlikely to take place before January, which would create months of uncertainty for the markets.

In Athens, some Greeks greeted the referendum plan with scepticism

“We cannot wait until 15 January,” said Konstantinos Michalos, president of the Athens Chamber of Commerce.

“Personally, I do not think we will ever get there.”

A senior member of Chancellor Angela Merkel’s coalition in Germany said he had been irritated by the referendum announcement.

“The prime minister had [agreed] to a rescue package that benefited his country,” Rainer Bruederle told Deutschlandfunk radio.

Latest Planned Austerity Measures

  • New pay and promotion system covering all 700,000 civil servants
  • Further cuts in public sector wages and many bonuses scrapped
  • Some 30,000 public sector workers suspended, wages cut to 60% and face lay off after a year
  • Wage bargaining suspended
  • Monthly pensions above 1,000 euros to be cut 20% above that threshold
  • Other cuts in pensions and lump-sum retirement pay
  • Tax-free threshold lowered to 5,000 euros a year from 8,000

“Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece.”

He added that the only thing to do now would be to prepare for the Greek state to be insolvent and try to limit the damage to Europe’s banking system.

On the currency markets, the euro continued to slide, falling a further 1.3% against the US dollar.

The yield on German bonds fell to near-record lows, while the difference between the yield of German bonds and those of Italian and Belgian bonds rose to the highest since the introduction of the euro.

Earlier, the Nikkei in Tokyo closed down 1.7% and the Hang Seng in Hong Kong closed down 2.5%.

Europe’s main share markets had all fallen before the referendum announcement as well, with the FTSE, Dax and Cac 40 all dropping by about 3% on Monday.

World will miss economic benefit of 1.8 billion youth

UN: World will miss economic benefit of 1.8 billion young people | Environment | guardian.co.uk.

Population report says lack of education, infrastructure and jobs will mean a generation’s potential will be wasted

Write a letter to the 7 billionth person

Shoeshine boys wait for customers in New Delhi, India

Shoeshine boys awaiting customers in New Delhi, India. Photograph: Kevin Frayer/AP

The world is in danger of missing a golden opportunity for development and economic growth, a “demographic dividend”, as the largest cohort of young people ever known see their most economically productive years wasted, a major UN population report warned on Wednesday.

The potential economic benefits of having such a large global population of young people will go unfulfilled, as a generation suffers from a lack of education, and investment in infrastructure and job creation, the authors said.

“When young people can claim their rights to health, education and decent working conditions, they become a powerful force for economic development and positive change. “This opportunity [for] a demographic dividend is a fleeting moment that must be claimed quickly or lost,” said the UN Population Fund (UNFPA), in its Global Population Report, published just days before the UN forecasted the world population will pass 7 billion. Of this 7 billion, 1.8 billion are aged between 10 and 24, and 90% of those live in the developing world.

The report also reveals average life expectancy across the globe has risen by 20 years since the 1950s, from 48 to 68, as healthcare and nutrition have improved, while infant mortality has fallen fast, from 133 deaths per 1,000 births in the 1950s to 46 per 1,000 today.

These successes area a cause to celebrate, the United Nations said. Fertility has also halved, from 6 births per woman to 2.5 over the same period, though there are stark regional differences – fertility is 1.6 births per woman in east Asia but 5 per woman in some parts of Africa.

The report found a “vicious cycle” of extreme poverty, food insecurity and inequality leading to high death rates, that in turn encourages high birth rates. Only by investing in health and education for women and girls can countries break the cycle, as improving living conditions will allow parents to be more confident that their children will survive, and therefore have smaller families.

Crucial to this will be allowing women and girls greater freedom and equality, in order to make their own choices about fertility. Hundreds of millions of women would prefer to have smaller families, but are unable to exercise this preference owing to a culture of repression.

“Governments that are serious about eradicating poverty should also be serious about providing the services, supplies and information that women need to exercise their reproductive rights,” said Babatunde Osotimehin, executive director of the UNFPA. On the empowerment of woman, he said at a press conference in London: “we have come a long way, but we are not there yet. There is no group that gives up power voluntarily. Men will not give up power to women voluntarily. Women have to fight. Women need to work together.”

One way of doing so highlighted in the report is to provide a good level of sex education to adolescents, and access to modern methods of contraception.

The report said: “When women have equal rights and opportunities in their societies and when girls are educated and healthy, fertility rates fall … the empowerment of women is not simply an end in itself, but also a step towards eradicating poverty.”

The difference between a future of high fertility rates and one where people are better able to choose is stark: if fertility rates in areas of high population growth come down towards the global average, the world will reach a global population of about 9.3bn in 2050, and about 10bn in 2100. But if fertility rates remain high in the most populous countries, the 2100 population will be more than 15bn.

Osotimehin said countries must do more to help themselves: “It is unacceptable for countries to rely on donor money for reproductive health. The welfare of their people is their mandate.” He said it would cost only $2bn to give access to family planning to the 250 million women who would like it but lack access. “The budget of the average developing country does not give enough money to issues of women and reproductive health. That has to change. If it does not change, it becomes unsustainable.”

But he also said donors were failing to make sufficient commitments. “Family planning has not been funded as it should have been. Donors need to provide resources … there has been a reduction [in money made available].”

Osotimehin also said at the press conference that the opportunity had been missed to educate people on reproductive health and family planning, during a drive to prevent HIV infection, echoing comments he made to the Guardian earlier in the month.

With high population growth, many scientists predict thatthe pressure on food and agricultural productivity and other natural resources may become intolerable, and conditions for the poorest people will deteriorate further, rather than improving.

John Cleland, of the London School of Hygiene and Tropical Medicine, said: “The escape from poverty and hunger is made more difficult by rapid population growth.”

Rapid growth will also exacerbate the impact of other global problems, such as climate change and other environmental impacts. Steven Sinding, a population expert at Columbia University, said: “The pace of growth poses enormous challenges for many of the poorest countries, which lack the resources not only to keep up with demand for infrastructure, basic health and education services and job opportunities for the rising number of young people, but also to adapt to climate change.”

Separately on Wednesday, the Official for National Statistics forecast that the UK population would grow to 70 million by 2020, up from 62.3 million in 2010.

World economy on verge of new jobs recession

BBC News – ILO: World economy on verge of new jobs recession.

The global economy is on the verge of a new and deeper jobs recession that may ignite social unrest, the International Labour Organization (ILO) has warned.

It will take at least five years for employment in advanced economies to return to pre-crisis levels, it said.

The ILO also noted that in 45 of the 118 countries it examined, the risk of social unrest was rising.

Separately, the OECD research body said G20 leaders meeting in Cannes this week need to take “bold decisions”.

The Organisation for Economic Co-operation and Development said the rescue plan announced by EU leaders on 26 October had been an important first step, but the measures must be implemented “promptly and forcefully”.

The OECD’s message to world leaders came as it predicted a sharp slowdown in growth in the eurozone and warned that some countries in the 17-nation bloc were likely to face negative growth.

‘Moment of truth’

In its World of Work Report 2011, the ILO said a stalled global economic recovery had begun to “dramatically affect” labour markets.

It said approximately 80 million net new jobs would be needed over the next two years to get back to pre-crisis employment levels.

But it said the recent slowdown in growth suggested that only half the jobs needed would be created.

“We have reached the moment of truth. We have a brief window of opportunity to avoid a major double-dip in employment,” said Raymond Torres from the ILO.

The group also measured levels of discontent over the lack of jobs and anger over perceptions that the burden of the crisis was not being fairly shared.

It said scores of countries faced the possibility of social unrest, particularly those in the EU and the Arab region.

Loss of confidence

Meanwhile, in its latest projections for G20 economies, the OECD forecast growth in the eurozone of 1.6% this year, slowing to 0.3% next year.

OECD’s forecasts on GDP growth

Country 2011 2012
US 1.7% 1.8%
Euro area 1.6% 0.3%
Japan -0.5% 2.1%
China 9.3% 8.6%

In May, it had forecast growth of 2% per year in both 2011 and 2012.

It also cut its growth forecasts for the US to 1.7% in 2011 and 1.8% in 2012. It had previously expected growth of 2.6% and 3.1% respectively.

The organisation called for G20 leaders, who meet on Thursday and Friday, to act quickly.

“Much of the current weakness is due to a generalised loss of confidence in the ability of policymakers to put in place appropriate responses,” the OECD said.

“It is therefore imperative to act decisively to restore confidence and to implement appropriate policies to restore longer-term fiscal sustainability.”

It also called for the eurozone to cut interest rates.

Slovakia blocks euro rescue fund

Slovakia blocks euro rescue fund | Reuters.

BRATISLAVA/ATHENS | Tue Oct 11, 2011 7:39pm EDT

(Reuters) – The parliament of tiny Slovakia stalled the expansion of a bailout fund to rescue the euro zone from its debt crisis on Tuesday, but international lenders said they were likely to grant a loan to Greece next month, buying time for a broader response.

European Central Bank chief Jean-Claude Trichet said the debt crisis had become systemic and must be tackled decisively.

Slovakia is the only country in the 17-member currency zone that has yet to approve giving new powers to the European Financial Stability Fund. The expansion was agreed by euro zone leaders in July but must be ratified by each country.

The EFSF is Europe’s main weapon to respond to a debt crisis that threatens the European common currency, the region’s banks and potentially the global financial system.

The government of Slovak Prime Minister Iveta Radicova fell on Tuesday after a small party in her ruling coalition refused to back the plans. The outgoing government still expects to be able to enact the measure as a caretaker administration by the end of this week with support from an opposition party.

“There is an assumption that the EFSF, one way or the other, will be approved by the end of the week,” Finance Minister Ivan Miklos told parliament ahead of the vote.

The failure in the Slovak parliament underlines the difficulty of forging a united response to the worsening debt crisis in a currency zone where all 17 member states must act in concert, and voters are increasingly angry at the growing costs.

Leaders are struggling to find a response that would protect euro zone banks if Greece defaults on its debts.

For now, Athens needs an immediate infusion of cash within weeks just to meet state payrolls. A loan programme has been held up while the European Union and IMF assess whether Greece is doing enough to get its finances in order.

After a weeks-long review of Greece’s finances, inspectors from the European Union, IMF and European Central Bank, known as the troika, said an 8 billion euro loan tranche should be paid in early November. It still requires approval by euro zone finance ministers and the IMF.

MORE REFORMS NEEDED

The troika warned that Greece had made only patchy progress in meeting the terms of a bailout agreed in May last year.

“It is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly,” the troika said in a statement.

It said additional measures were likely to be needed to meet debt targets in 2013 and 2014, and a privatization drive and structural reforms were falling short.

Germany, the euro zone’s biggest economy, said a decision on whether to make the aid payment was still open.

A German Finance Ministry spokesman said the troika’s verdict showed “both light and shadows”:

“We’ll wait and look at the report, analyze it and then decide what will happen with the sixth tranche.”

That money would anyway only buy Greece and its euro zone partners a small amount of time.

Germany and France, the leading powers in the 17-nation euro zone, have promised to propose a comprehensive strategy to fight the debt crisis at an EU summit delayed until October 23.

After Athens admitted it would not meet its deficit target this year, there is a growing acceptance that a second Greek bailout agreed in July with private bondholders’ participation may need to be renegotiated. A rush is now on to beef up the currency bloc’s rescue fund and bolster its banks.

Europe’s top financial watchdog warned that the euro zone’s sovereign debt crisis threatened global economic stability.

Trichet issued the dramatic warning as chairman of the European Systemic Risk Board, created to avoid a repeat of the 2008 financial crisis, amid growing fears that Greece will default on its massive debt.

“The crisis is systemic and must be tackled decisively,” Trichet told a European Parliament committee in his final appearance before retiring at the end of the month.

“The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.”

NEW BANK DATA SOUGHT

European banking regulators meanwhile asked banks across the continent to provide updated data on their capital position and sovereign debt exposures to help reassess their need for recapitalization.

European Commission President Jose Manuel Barroso said the EU executive would present proposals for bank recapitalization and other aspects of the crisis response on Wednesday.

Industry sources said the EU banking regulator had demanded lenders achieve a core capital ratio of at least 7 percent in a new round of internal stress tests, and banks that failed to reach that mark would be asked to bolster their capital.

That would mean some 48 banks would be required to raise a total of 99 billion euros in capital, according to a Reuters Breakingviews calculator using data from previous stress tests. Greek banks would need nearly a third of the total.

For a comprehensive deal to come together, the bloc’s leaders must resolve differences over how to recapitalize banks, whether to force a Greek debt restructuring or stick to the existing voluntary deal with private bondholders, and how to use the euro zone’s rescue fund.

Europe’s inability to draw a line under the crisis has caused growing international alarm, with Japan weighing in on Tuesday after the United States and Britain pressed EU leaders to take decisive action.

Tokyo said it would consult with Washington before it considers buying more euro zone bonds. Finance Minister Jun Azumi urged Europe to restore market confidence in the run-up to a Group of 20 finance leaders’ meeting in Paris this week.

Interbank lending rates in Europe continued to rise amid growing concern over European banks’ ability to operate, despite the prospect of massive ECB liquidity support.

Some European banks voiced concern at the prospect of being forced by governments to raise additional capital that some say they do not need, possibly by taking public money. One senior banker said that could lead to legal challenges in Germany.

Germany’s BDB banking association said Europe should look at recapitalization on a case-by-case basis rather than taking a blanket approach apparently envisaged by Berlin and Paris.

The director of the association, Michael Kemmer, also told ARD television that politicians should stick to a July agreement on private bondholder involvement in a rescue plan for Greece, which called for a 21 percent writedown.

German Finance Minister Wolfgang Schaeuble and the chairman of euro group finance ministers, Jean-Claude Juncker, have said that figure may no longer be sufficient and the talks may have to be reopened.

Speaking on Austrian television late on Monday, Juncker refused to rule out a mandatory debt restructuring for Greece, which many market analysts and economists say is bound to happen in the coming months. Many analysts see the rush to recapitalize European banks as a prelude to an enforced write-down of 50 percent or more on their Greek debt holdings.

(Additional reporting by Michael Winfrey and Martin Santa in Bratislava, Paul Carrel, Jonathan Gould, Philipp Halstrick, Edward Taylor and Sakari Suoninen in Frankfurt, and Huw Jones in London; Writing by Paul Taylor, Mike Peacock and Peter Graff)

New bankruptcy ripples may emerge

Insight: New bankruptcy ripples may emerge | Reuters.

<span class="articleLocation”>Three years after the collapse of Lehman Brothers touched off a tidal wave of bankruptcy filings, corporate failures may be about to pick up again, with some big-name companies among those struggling for survival.

Companies in a range of businesses, including hair salons, restaurants, renewable energy, and the paper industry, have tumbled into Chapter 11 in the past few months.

The weak economy, lackluster consumer spending, a shaky junk-bond market and increasingly tight lending practices are also threatening struggling companies in industries as diverse as shipping, tourism, media, energy and real estate.

AMR Corp’s American Airlines may need to go to court to restructure its labor contracts, though a spokesman for the airline reiterated on Monday that bankruptcy is not the company’s goal or preference.

Kodak confirmed that a law firm known for taking companies through bankruptcy has been advising on strategy as attempts to overcome the loss of its traditional photography business falter. It has denied any intention of filing for bankruptcy.

Some bankruptcy and restructuring experts warn a fresh U.S. recession could trigger a string of failures to rival the one that followed Lehman Brothers, which in 2008 filed the biggest bankruptcy in U.S. history.

“It’s getting busier for everyone I know,” said Jay Goffman, global head of the Corporate Restructuring Group at law firm Skadden Arps, Slate, Meagher & Flom. “I think 2012 will be a busy year and 2013 and 2014 will be extraordinarily busy years in restructuring.”

No one is currently predicting a second Lehman-type collapse. Its $639 billion bankruptcy came after a loss of confidence in the investment bank as asset values plummeted, leading to the drying up of credit lines.

In fact, predicting a bankruptcy wave at all is a tricky task, experts say. It could depend on several unknowns: how much money banks and other institutions are willing to lend troubled companies, whether the economy lands in a double-dip recession and what happens in the European debt crisis.

The sovereign debt crisis in Europe could be the most important X factor. Even the experts who say that a bankruptcy crisis is not coming because current low interest rates make it easy for companies to get cash to finance their way out of trouble, say that the euro zone’s problems could trigger defaults here.

“It is possible that one or two sovereign debt defaults would increase the pressure we’d feel in the U.S. credit market. Then we might see an environment like we had in 2008,” said Peter Fitzsimmons, president for North America for turnaround advisory firm AlixPartners LLP.

MORE FILINGS

Chapter 11 filings are picking up, bankruptcy data show. Ten companies with at least $100 million in assets filed for bankruptcy in September, the most since 17 filed in April, which was the busiest month since 2009, according to Bankruptcydata.com.

For a graphic click here link.reuters.com/nuw34sp:

Recent failures included renewable energy companies Evergreen Solar and Solyndra. The latter collapsed in a politically-charged bankruptcy after taking a $535 million loan from the federal government.

Other recent bankruptcies include glossy magazine paper manufacturer NewPage Corp, which was the largest bankruptcy of the year and the largest non-financial company filing since 2009; Graceway Pharmaceuticals, which makes skin creams; Hussey Copper Corp., which makes the copper bars used in switchboards, and the Dallas Stars of the National Hockey League.

So far this month, five companies with more than $100 million in assets have filed, including the Friendly’s ice cream chain – and wireless broadband company Open Range Communications Inc.

It is difficult to predict trends in filings. For example, experts who focused on macroeconomic credit indicators and default projections in 2006 or 2007 wouldn’t in many cases have been prepared for the severity of failures that followed.

In 2009, General Motors, Chrysler Group, LyondellBasell Industries and General Growth Properties all filed for bankruptcy, contributing to a record number of filings and topped the list of largest bankruptcies ever.

At the same time, some experts were predicting an even deeper and longer list of corporate collapses. But within a year of bankruptcy filings breaking records, banks and other financial institutions were buying debt and lending, making it easy for companies to finance their way out of trouble.

Two months after Lehman failed, the U.S. Federal Reserve slashed rates to near zero. Once confidence began to return to the debt markets, investors flocked to high-yield bonds sold by ailing companies, allowing them to refinance.

Other failing companies were able to “amend and extend” – or to critics, “amend and pretend” – by striking new borrowing terms with lenders that delayed debt maturities in the hopes the economy would rebound smartly and business would pick up.

Those measures often avoided operational overhauls, creating what some experts called “zombie companies” that cut staff and prices to survive, but were too sick to invest in new projects.

Bankruptcy court allows troubled companies to shed debt and also become more operationally efficient as they renegotiate labor contracts, as airlines have done, or reject pricey store leases, which retailers often do.

But these changes do not always work, especially when companies find little support among suppliers or creditors for their turnaround plans. Bankrupt book chain Borders, for instance, recently closed its doors after failing to find a buyer.

In addition, confidence in the economy and easy access to debt allowed companies to complete restructurings in 2009 and 2010 with business plans and debt loads that were based on an economic pickup that has now faltered. That could create the potential for trouble at companies that have already restructured once.

SIGNS OF TROUBLE

Restructuring advisers agree that a dimming economic outlook will force lenders to make some tough calls about troubled companies. Those who see a broader wave of bankruptcies expect the economy to dip back into recession as the U.S. government cuts spending and Europe’s debt problems worsen.

They also look beyond the equity market for less visible signs of trouble. They see a junk-bond market that has suffered its worst sell-off since the Fed cut rates to near zero in 2008 and falling loan market prices as lenders reduce their exposure to weak borrowers.

There are even troubling signs coming from otherwise sanguine rating agencies that assess corporate debt. Moody’s noted that the number of downgraded liquidity ratings for troubled companies rose for a third straight month in September, an ominous sign that was similar to the third quarter of 2007 when the economy last slid into recession.

Indeed, one analyst said the Evergreen Solar bankruptcy as well as the recent filing of restaurant operator Real Mex Restaurants Inc show that weak companies are finding it hard to borrow. Both failed to reach the kind of refinancing deal with creditors that until recently was saving many troubled companies from Chapter 11.

“The idea that a couple of companies can’t even go to existing lenders for a real lifeline is quite telling right now,” said Kevin Starke, an analyst with CRT Capital Group, a brokerage that specializes in distressed securities.

LACK OF HOME RUNS

Still, not everyone is convinced more bankruptcies are on the way. Jim Hogan, the head of GE Capital’s restructuring finance unit who works with a lot of medium-sized companies, said he expects only a gradual increase in business, limited to the weakest industries.

“I’m not telling anyone internally I’m expecting some big home runs for us,” Hogan said.

Some said the current rise in bankruptcy filings is routine as fatigued lenders pull the plug on deadbeat companies. While debt and equity markets may have recently been in a swoon, many credit indicators generally show Corporate America to be in decent health.

For example, corporate balance sheets are stuffed with cash, and the rate of corporate loan defaults is expected to end the year at 0.23 percent, well below the historical average of 3.57 percent, according to Standard & Poors.

One of the biggest concerns of recent years, a looming “wall of maturities” of bonds that come due in the next few years, has largely been refinanced, according to Moody’s.

Despite this, the level of debt held by consumers, the federal government and the corporate sector weighs heavily on the economy and will likely spell trouble for some major companies.

“You have this huge overhang of debt. You don’t see a significant amount of improvement in the economy. How long can that continue?,” said Jay Indyke, chair of the bankruptcy and restructuring practice at law firm Cooley LLP.

(This story corrects Jay Goffman’s title in paragraph 7 to head of restructuring, from co-head)

(Reporting by Tom Hals in Wilmington, Delaware, Susan Zeidler in Los Angeles, Caroline Humer in New York; Additional reporting by Nick Brown in New York; Editing by Martha Graybow and Martin Howell)

The real Greek tragedy may be the climate

The real Greek tragedy may be the climate – opinion – 14 October 2011 – New Scientist.

Greece’s debt crisis threatens more than the collapse of the euro and the European Union – it would also be a climate disaster

GREECE is going to default, one way or another, that much is clear. The bigger question is whether it will also leave the euro and what that would mean. What is so far underappreciated is that a Greek exit would have appalling consequences for the climate.

Just three months after a second bailout, Greece is failing to deliver its end of the bargain and bond markets are signalling that it will not repay all its debt. The International Monetary Fund, the European Union and the European Central Bank are struggling to deliver a third rescue package.

Even if that succeeds, the wild card remains Greek politics. The country is wracked with strikes, riots and protests. Deep cuts to jobs, wages and pensions were passed by a slender majority, and it would not take much of a political shift for Greece to abandon its debts – and the euro.

Departure would be economic suicide, though. Paul Donovan, a London-based economist at UBS investment bank, calculates the Greek economy would shrink by half in the first year. Moreover, a Greek exit would likely trigger a domino effect. Ireland, Portugal, Spain and even Italy could go too. It would be a short step to the break-up of the euro and a continent-wide credit crunch.

The climate always takes a back seat when economies turn sour, but the impact of a euro break-up would be profound. Any country leaving the euro would also breach the treaties of Maastricht, Lisbon and Rome, and therefore be forced to leave the EU. A euro break-up is likely to shatter the EU, and with it the hard won architecture of climate policy.

For a start, the Emissions Trading System would be unlikely to survive. True, the ETS has been widely criticised as ineffectual, but the system at least imposes an international framework which could be strengthened and expanded. That would all be swept away, along with any obligation for countries to deliver their 2020 targets on emissions, renewables and energy efficiency.

On one level that matters little. Given the scale of the likely economic collapse, emissions would fall far below the targets and could stay low for years. The collapse of the EU, so long in the vanguard of climate policy, could ironically be seen as a desirable outcome. In fact, nothing could be further from the truth. Emissions might fall dramatically, but so would our ability to do anything about the remainder.

The Intergovernmental Panel on Climate Change says holding global temperature increase to 2 °C means cutting emissions by up to 85 per cent by 2050. That would require an investment of $18 trillion by 2035, according to the International Energy Agency. It is hard to imagine governments in the midst of a depression mobilising anything like enough money or political will.

There is much more riding on the outcome of the Greek crisis than the future of Europe or even the world economy. The danger is that a euro collapse could destroy the capital and institutions needed to combat climate change.

It is bitterly ironic that the meltdown of a minor economy that has little to sell but sunshine could condemn the planet to uncontrollable global warming.

David Strahan is a former BBC business correspondent and author of The Last Oil Shock (John Murray, 2008)

UBS: Our risk systems did detect £1.3bn rogue trader – We just didn't do anything about it

UBS: Our risk systems did detect £1.3bn rogue trader – ComputerworldUK.com.

But the warnings were ignored, bank claims

UBS has insisted its IT systems did detect unusual and unauthorised trading activity, before rogue trader Kweku Adoboli ran up a $2 billion (£1.3 billion) loss on the bank’s derivatives desk.

Interim chief executive Sergio Ermotti, who is running the company following Oswald Grubel’s resignation last month, sent a memo to employees saying the bank is aware that its systems did detect the rogue activity.


In the memo, seen by the Wall Street Journal, Ermotti wrote: “Our internal investigation indicates that risk and operational systems did detect unauthorised or unexplained activity but this was not sufficiently investigated nor was appropriate action taken to ensure existing controls were enforced.”

He added: “We have to be straight with ourselves. In no circumstances should something like this ever occur. The fact that it did is evidence of a failure to exercise appropriate controls.”

The news comes as the heads of UBS’ global equities business, Francois Gouws and Yassine Bouhara, also resigned.

Meanwhile, regulatory and internal investigations continue into the problem.

“Criminal law prevents us from disclosing detailed information at the moment,” Ermotti wrote. He added that the company was taking “immediate and decisive action based on the findings of our own review of what happened”.

The bank insisted it was working to improve its risk and control framework, adding that it was clarifying rules and processes.

Rogue trader: How UBS systems and controls failed to stop a £1.3bn loss

'Massive jobs shortfall' predicted for global economy

‘Massive jobs shortfall’ predicted for global economy | Business | guardian.co.uk.

‘Massive jobs shortfall’ predicted for global economy

International Labour Organisation said the group of developing and developed nations had seen 20m jobs disappear since the financial crisis in 2008

International Labour Organisation (ILO) director general, Juan Somavia

‘We must act now to reverse the slow-down in employment growth,’ International Labour Organisation (ILO) director general, Juan Somavia, Photograph: Martial Trezzini/EPA

The world’s major economies are heading for a “massive jobs shortfall” by the end of next year if governments do not change their tack on policy, the International Labour Organisation (ILO) said in a study published on Monday.

In the report, prepared with the OECD for G20 labour ministers meeting in Paris on Monday, the ILO said the group of developing and developed nations had seen 20m jobs disappear since the financial crisis in 2008.

At current rates it would be impossible to recover them in the near term and there was a risk of the number doubling by the end of next year, it said.

“We must act now to reverse the slowdown in employment growth and make up for the jobs lost,” ILO director general Juan Somavia said in a statement.

“Employment creation has to become a top macroeconomic priority.”

The number of people in work in the G20 has risen by 1% since 2010, but 1.3% annual growth is needed to return to pre-crisis employment levels by 2015, the ILO said.

“However, employment growth of less than 1% cannot be excluded given the slowdown of the world economy and the anaemic growth foreseen in several G20 countries,” the report said. “Should employment grow at a rate of 0.8% until end 2012, now a distinct possibility, then the shortfall in employment would increase by some 20m to a total of 40m in G20 countries.”

India and China, the world’s most populous countries, were both laggards with less than 1% annual growth in total employment, the report said, so an extra push for jobs could have a major impact on the G20.

However, the report was based on figures for both countries that were not up to date. China’s jobs growth of 0.7% was for 2009, while India’s 0.4% was the average annual change between 2004-2005 and 2009-2010.

After stripping out India, China and Saudi Arabia, which also used 2009 data, employment growth in the other 17 countries was 1.5%, according to a Reuters calculation based on data in the ILO report.

The latest figures for other G20 countries show four with growth rates below 1%, namely Italy, France, South Africa and the United States, while two others – Japan and Spain – have seen a fall in total employment in the past year.

Since the beginning of 2008, Spain, South Africa and the United States had experienced the biggest falls in employment among the G20 countries. Spain and the United States also saw the biggest rises in unemployment rates, followed by Britain.