Monday, February 25, 2008

Breathtaking Monasteries Around the World

More: Breathtaking Monasteries Around the World
Published on 2/19/2008

Tiger's Nest Monastery (Bhutan)

Taktshang is the most famous of monasteries in Bhutan. It hangs on a cliff at 3,120 metres (10,200 feet), some 700 meters (2,300 feet) above the bottom of Paro valley. Famous visitors include Ngawang Namgyal in the 17th century and Milarepa.

The name means "Tiger's nest", the legend being that Padmasambhava (Guru Rinpoche) flew there on the back of a tiger. The monastery includes seven temples which can all be visited. The monastery suffered several blazes and is a recent restoration. Climbing to the monastery is on foot or mule.

Photo: Leo Palmer

Confucius family tree 3m strong

JINAN: Confucius, or more precisely his descendants, are alive and kicking in China, as well as the rest of the world. And his updated family tree is set to triple the size of his descendants.

The work of registering new members to the family tree of the revered Chinese thinker and educator was finished last year, and now they number more than 2 million.

But the actual number of Confucius descendants living across the world is more than 3 million, 2.5 million of which are on the Chinese mainland.

The updated list will be published next year, to coincide with the 2,560th birth anniversary of Confucius (551-479 BC), the Confucius Genealogy Compilation Committee (CGCC) says.

The new list, for the first time, will include overseas and female descendants of the great philosopher.

"We have more than 1.3 million new entries and have stopped soliciting new ones," says Kong Dewei, a Confucius descendant who is directing the updating work.

The 1.3 million new members of the family of Confucius have paid the official registration fee of 5 yuan (70 cents). The deceased members will be included free if their descendants can prove a collateral family tree that conforms to the Confucius genealogy, he says.

The registration work began in 1998 by Kong Deyong, a 77th-generation descendant, and the founder and chairman of the CGCC. Today, the Hong Kong-based committee has more than 450 branches across the world to assist the work.

Confucius' family tree has been revised four times. The last revision was completed in the 1930s, when the tree had 600,000 members.

More than 40,000 overseas descendants will be added to the fifth edition of the Confucius genealogy, with 34,000 of them from the Republic of Korea. The descendants flourished on the Korean Peninsula after a 54th-generation descendant reached there at the end of the Yuan Dynasty (1279-1368).

The workers have succeeded in finding 900 Confucius descendants in Taiwan and two branches that had been lost for more than 1,000 years in Shanxi and Henan provinces, Kong says.

But the Confucius family tree doesn't include all of Confucius' offspring because links with some branches have been lost, he says.

Source: China Daily/Xinhua

Gold in the IMF

Gold in the IMF
Gold played a central role in the international monetary system until the collapse of the BrettonWoods system of fixed exchange rates in 1973. Since then, the role of gold has been gradually reduced. However, it is still an important asset in the reserve holdings of a number of countries, and the IMF remains one of the largest official holders of gold in the world.
The IMF's gold holdings
The IMF holds 103.4 million ounces (3,217 metric tons) of gold at designated depositories. The IMF's total gold holdings are valued on its balance sheet at SDR 5.9 billion (about $9.2 billion) on the basis of historical cost. As of February 20, 2008, the IMF's holdings amounted to $95.2 billion (at then current market prices). A portion of these holdings were acquired since the Second Amendment of the IMF's Articles of Agreement in April 1978, amounting to 12.97 million ounces (403.3 metric tons), with a market value of $11.9 billion as of February 20, 2008. As noted below, this part of the Fund’s gold holdings is not subject to restitution to members.
The IMF acquired the majority of its gold holdings prior to the Second Amendment through four main types of transactions. First, it was then prescribed that 25 percent of initial quota subscriptions and subsequent quota increases were to be paid in gold. This represented the largest source of the IMF's gold. Second, all payments of charges (i.e., interest on members' use of IMF credit) were normally made in gold. Third, a member wishing to purchase the currency of another member could acquire it by selling gold to the IMF. The major use of this provision was sales of gold to the IMF by South Africa in 1970–71. And finally, members could use gold to repay the IMF for credit previously extended.
The IMF's policy on gold today
The Second Amendment to the Articles of Agreement in April 1978 eliminated the use of gold as the common denominator of the post-World War II exchange rate system and as the basis of the value of the Special Drawing Right (SDR). It also abolished the official price of gold and brought to an end the obligatory use of gold in transactions between the IMF and its members. It furthermore required that the IMF, when dealing in gold, avoid managing its price or establishing a fixed price.
The Articles of Agreement now limit the use of gold in the IMF's operations and transactions. The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member's obligations at an agreed price, based on market prices at the time of acceptance. These transactions in gold require an 85 percent majority of total voting power. The IMF does not have the authority to engage in any other gold transactions—such as loans, leases, swaps, or use of gold as collateral—nor does it have the authority to buy gold.
The Articles also provide for the restitution of the gold the Fund held on the date of the Second Amendment to members of the Fund as of August 31, 1975. Restitution would involve the sale of gold to this group of members at the former official price of SDR 35 per ounce, with such sales made to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment. A decision to restitute gold requires support from an 85 percent majority of the total voting power. The Articles do not provide for the restitution of gold the Fund has acquired after the date of the Second Amendment.
The IMF's policy on gold is governed by the following principles:
As an undervalued asset held by the IMF, gold provides fundamental strength to its balance sheet. Any mobilization of IMF gold should avoid weakening its overall financial position.
The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies.
The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market.
Profits from any gold sales should be used whenever feasible to create an investment fund, of which only the income should be used.
How and when the IMF used gold
Outflows of gold from the IMF's holdings occurred under the original Articles of Agreement through sales of gold for currency, and via payments of remuneration and interest. Since the Second Amendment of the Articles of Agreement, outflows of gold can only occur through outright sales. Key gold transactions included:
Sales for replenishment (1957–70). The IMF sold gold on several occasions during this period to replenish its holdings of currencies.
South African gold (1970–71). The IMF sold gold to members in amounts roughly corresponding to those purchased in these years from South Africa.
Investment in U.S. government securities (1956–72). In order to generate income to offset operational deficits, some IMF gold was sold to the United States and the proceeds invested in U.S. government securities. Subsequently, a significant buildup of IMF reserves prompted the IMF to reacquire this gold from the U.S. government.
Auctions and " restitution" sales (1976–80). The IMF sold approximately one third (50 million ounces) of its then-existing gold holdings following an agreement by its members to reduce the role of gold in the international monetary system. Half of this amount was sold in restitution to members at the then-official price of SDR 35 per ounce; the other half was auctioned to the market to finance the Trust Fund, which supported concessional lending by the IMF to low-income countries.
Off-market transactions in gold (1999–2000).In December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance IMF participation in the Heavily Indebted Poor Countries (HIPC) Initiative. Between December 1999 and April 2000, separate but closely linked transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two members (Brazil and Mexico) that had financial obligations falling due to the IMF. In the first step, the IMF sold gold to the member at the prevailing market price and the profits were placed in a special account invested for the benefit of the HIPC Initiative. In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member's financial obligations. The net effect of these transactions was to leave the balance of the IMF's holdings of physical gold unchanged.

Iran opens oil bourse

TEHRAN, Iran (AP) - Iran established its first oil products bourse Sunday in a free trade zone on the Persian Gulf Island of Kish, the country's oil ministry said.
A statement posted on the ministry's Web site said 100 tons
of polyethylene consignment was traded at the market's opening on the island, which houses the offices of about 100 Iranian and foreign oil companies.
Oil and petrochemical products will be traded in Iranian Rials, as well as all other hard currencies, the statement quoted Iranian Oil Minister Gholam Hossein Nozari as saying. About 20 brokers are already active in the market, it said.
'The bourse provides an economic opportunity for Iranians, other countries and foreign customers,' Nozari was quoted as saying.
Iran produces more than 20 million tons of petrochemical products per year.
Iran has already registered for another oil bourse, in which it has said it hopes to trade oil in Euros instead of dollars, to reduce any American influence over the Islamic Republic's economy.
A bourse official, Mahdi Karbasian, told the IRNA official news agency that such an oil market would begin operating within the next year.
While most oil markets are traded in U.S. dollars, Iran first floated the idea of trading oil in Euros in the early 2000s during the tenure of reformist president Mohammad Khatami. It gained new life after the nationalist Mahmoud Ahmadinejad was elected in 2005.
As the fourth-largest oil producer in the world, Iran has a measure of influence over international oil markets. The country ranks second for output among OPEC Countries, and controls about 5 percent of the global oil supply.
Tehran also partially controls the Persian Gulf's Strait of Hormuz, through which much of the world's oil supply must pass.
Iran has sought to wield its oil resources as a bargaining tool in its ongoing standoff with the West over its nuclear program.
The U.N. Security Council is considering imposing a third set of sanctions on Iran for defying a request to halt uranium enrichment. But Tehran has expressed doubt that the world body would impose sanctions on the country's oil sector, because such a move would likely drive global oil prices higher.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Deep recession feared in U.S.

Falling business sentiment fuels gloomy outlooks
Jacqueline Thorpe, Financial Post Published: Monday, February 25, 2008
Jeff Haynes/AFP/Getty Images
Economists are no longer talking about a U.S. recession but a deep recession after figures yesterday showed business sentiment continued to plummet in early February.
Forecasts for a more severe retreat came as CIBC World Markets forecast U.S. house prices would end up sliding 20% before the dust has settled on the American housing meltdown. CIBC estimated 50% of U.S. homeowners who took out below-prime mortgages in 2006 will end up in a negative-equity position -- owing more than their house is worth.
"There seems to be a sense of a very deep-seated collapse in the economy," said Michael Englund, chief economist at Action Economics.
The Philadelphia Federal Reserve's index of manufacturing activity in the U.S. Northeast dropped to -24.0 in February from January's already terrible reading of -20.9. Analysts had been expecting a bounce to about -10 after that sharp drop in January.
"As far as this indicator is concerned, a recession, and a severe one at that, is already underway," said Paul Ash-worth, of Capital Economics.
"The headline index is now consistent with a deep recession, if sustained at this level," said Ian Shepherdson, chief economist at High Frequency Economics, in a note.
The index is based on a survey of manufacturing firms by the Federal Reserve Bank of Philadelphia and their plans for general activity, shipments, new orders, employment and hours worked. It is one of the earliest monthly readings on the U.S. economy and has had a solid track record at predicting national manufacturing and future trends in actual output.
The collapse in the outlook for activity six months out was particularly worrisome, Merrill Lynch said. It posted the steepest decline in the 40-year history of this report, suggesting the United States is facing a recession on par with the early 1990s' downturn rather than the milder 2001 contraction.
Mr. Englund said that although the index measures only sentiment -- gauging what businesses say they will do rather than actual output -- it prompted him to reduce his forecast for first-quarter growth to 0.5% from 0.8%.
He said both consumer and business confidence turned dramatically south as the U.S. Federal Reserve slashed interest rates by 75 basis points in an emergency rate cut in late January.
"The sheer panic tone to the Fed may have actually fed a sense of panic, which is the very thing they were trying to quell with interest-rate reductions, " he said.
While private-sector interest rates were dropping nicely at the turn of the year, rising inflation expectations amid soaring commodity prices have forced rates higher again.
Applications for U.S. mortgages plunged by 11.5% last week as borrowing costs on 30-year fixed-rate mortgages rose by 37 basis points to 6.09%, the highest since late December.
The rise in borrowing costs will be a further constraint on the U.S. housing industry, which is only half-way through its "worst … housing meltdown in the postwar era," said Benjamin Tal, senior economist at CIBC World Markets, in a report.
He estimates 30% of below-prime mortgages taken out in 2006, including subprime and other exotic mortgages, are already in a negative-equity position and that could climb to 50%, prompting the urge to walk away from homes.

Saturday, February 23, 2008

Gold most attractive investment in Vietnam

With local gold prices below global rates, they look set to keep rising.
Local gold prices have risen recently to hit VND17.95 million (US$1,125) a tael Friday.
The global price Friday reached $946 an ounce, or $1,135 a tael.
The global price now looks set to break $950 an ounce.
Analysts said oil prices, which currently exceed $101 a barrel, were one of the main causes of the gold price surge.
The surge also came after the US sub prime mortgage crisis dented the financial market, sent the economy towards a recession and weakened the US dollar.
Despite the US Federal Reserve’s four interest rate cuts and $150 billion in government spending to repay taxes to local businesses, the economy remains in turmoil.
Moreover, the US inflation rate climbed 5.1 percent in January.
In Vietnam, gold remains the most attractive and safest investment channel as the central bank has tightened its monetary policy to cool the hot property market and limit the amount of money flowing into the stock market.

Wall Street Bank Run

By David IgnatiusThursday, February 21, 2008; Page A15
It doesn't look like an old-fashioned bank run because it involves the biggest financial institutions trading paper assets so complicated that even top executives don't fully understand the transactions. But that's what it is -- a spreading fear among financial institutions that their brethren can't be trusted to honor their obligations.
Frightened financiers are pulling back from credit markets -- going on strike, if you will -- to escape the unraveling daisy chain of securitized assets and promissory notes that binds the global financial system. As each financier tries to protect against the next one's mistakes, the whole system begins to sag. That's what we're seeing now, as credit market troubles spread from bundles of subprime residential mortgages to bundles of other kinds of debt -- from student loans to retailers' receivables to municipal bonds.
Investors are nervous because they aren't sure how to value these bundles of securitized assets. So buyers stay away, prices fall further, and the damage spreads.
The public, fortunately, doesn't understand how bad the situation is. If it did, we might have a real panic on our hands. And there would be more pressure for bad policies -- ones that try to freeze the damage, rather than letting prices fall to levels where buyers will return and the markets will clear. Hillary Clinton's proposed moratorium on home foreclosures, in that respect, is one of the truly bad ideas of our time. It would make the situation worse by increasing even more the illiquidity and inflexibility of the housing market.
The answer to Wall Street's bank run may be a version of what saved Main Street banks during the Great Depression. President Franklin Roosevelt created the Federal Deposit Insurance Corporation in 1933 to reassure the public that there was an insurer of last resort for the banks -- and that people's money was safe even if they couldn't see it or touch it or put it under a mattress. Rep. Barney Frank and other congressional experts are weighing different approaches to this problem of how to backstop the markets without Clinton's misguided moratorium.
These markets are now so complicated that most of us can't begin to understand the details. So I asked the chief financial officer of a leading concern to walk me through what has been happening. The problem, he said, is that financial institutions are required to "mark to market" their tradable assets (which is a fancy term for setting a value) even when there isn't a functioning market. In many cases dealers can do little more than guess at the value -- and other investors down the line know it.
To explain how this happened, the CFO took a simple example of residential mortgages. As financial engineering improved in the 1990s, these individual loans were gathered into bundles -- 10,000 home loans of $100,000 each, let's say -- and turned into a $1 billion security that could be traded in ways the individual mortgages never could. But that wasn't enough. The financiers realized they could boost their profits by carving the $1 billion package into different slices, with different risk levels. In that way, a pool of B-rated mortgage assets could generate a slice that was rated AAA, because it was judged the slice most likely to be repaid.
But what happened when the real estate market confounded recent history and began to turn down? People holding the paper could no longer be sure if or when their particular slice would be repaid. The traditional accounting approach -- of estimating the projected cash flow and then discounting for the risk -- didn't work. With 10,000 disparate mortgages underlying the paper, both the rate of cash payments and the risk of default were impossible to predict. So the pyramid began to wobble.
The hubris in this system was Wall Street's confidence that it could value paper securities that had been sliced and diced so many times that they no longer had solid connections to their underlying assets. The nation's leading financier, Warren Buffett, had warned years before that "derivatives," whose value was balanced loosely on the real assets underneath, were the equivalent of "financial weapons of mass destruction." But in the rush for profits, nobody listened.
I've saved the worst for last. Do you want to know who is bailing out America's biggest banks and financial institutions from the consequences of their folly -- by acting as the lender of last resort and controller of the system? Why, it's the sovereign wealth funds, owned by such nations as China and the Persian Gulf oil producers. The new titans are coming to the rescue, if that's the right word for their mortgage on America's future.
The writer is co-host ofPostGlobal, an online discussion of international issues. His e-mail address

Canada and US agree to use each other's soldiers in civil emergencies

My comments: Why on earth would the world's most powerful nation on earth with 300 million citizens need to use soldiers from a neighbor with only 20 million? The answer might lie in what started as NAFT, became The North American Union and will eventually see the merger of these states with Mexico into an EU type 'New World Order'. It is all just a matter of time...

By David Pugliese Canwest News Service 22/02/08 "Canwest News" -- -- Canada and the U.S. have signed an agreement that paves the way for the militaries from either nation to send troops across each other's borders during an emergency, but some are questioning why the Harper government has kept silent on the deal.Neither the Canadian government nor the Canadian Forces announced the new agreement, which was signed Feb. 14 in Texas. The U.S. military's Northern Command, however, publicized the agreement with a statement outlining how its top officer, Gen. Gene Renuart, and Canadian Lt.-Gen. Marc Dumais, head of Canada Command, signed the plan, which allows the military from one nation to support the armed forces of the other nation during a civil emergency.The new agreement has been greeted with suspicion by the left wing in Canada and the right wing in the U.S. The left-leaning Council of Canadians, which is campaigning against what it calls the increasing integration of the U.S. and Canadian militaries, is raising concerns about the deal."It's kind of a trend when it comes to issues of Canada-U.S. relations and contentious issues like military integration. We see that this government is reluctant to disclose information to Canadians that is readily available on American and Mexican websites," said Stuart Trew, a researcher with the Council of Canadians.Trew said there is potential for the agreement to militarize civilian responses to emergency incidents. He noted that work is also underway for the two nations to put in place a joint plan to protect common infrastructure such as roadways and oil pipelines."Are we going to see (U.S.) troops on our soil for minor potential threats to a pipeline or a road?" he asked. Trew also noted the U.S. military does not allow its soldiers to operate under foreign command so there are questions about who controls American forces if they are requested for service in Canada. "We don't know the answers because the government doesn't want to even announce the plan," he said.But Canada Command spokesman Commander David Scanlon said it will be up to civilian authorities in both countries on whether military assistance is requested or even used.He said the agreement is "benign" and simply sets the stage for military-to-military co-operation if the governments approve. "But there's no agreement to allow troops to come in," he said. "It facilitates planning and co-ordination between the two militaries. The 'allow' piece is entirely up to the two governments."If U.S. forces were to come into Canada they would be under tactical control of the Canadian Forces but still under the command of the U.S. military, Scanlon added.News of the deal, and the allegation it was kept secret in Canada, is already making the rounds on left-wing blogs and Internet sites as an example of the dangers of the growing integration between the two militaries. On right-wing blogs in the U.S. it is being used as evidence of a plan for a "North American union" where foreign troops, not bound by U.S. laws, could be used by the American federal government to override local authorities."Co-operative militaries on Home Soil!" notes one website. "The next time your town has a 'national emergency,' don't be surprised if Canadian soldiers respond. And remember - Canadian military aren't bound by posse comitatus."Posse comitatus is a U.S. law that prohibits the use of federal troops from conducting law enforcement duties on domestic soil unless approved by Congress.Scanlon said there was no intent to keep the agreement secret on the Canadian side of the border. He noted it will be reported on in the Canadian Forces newspaper next week and that publication will be put on the Internet. Scanlon said the actual agreement hasn't been released to the public as that requires approval from both nations. That decision has not yet been taken, he added.

Thursday, February 21, 2008

Bomb ticking for off-balance Australian banks

A TICKING bomb for the banking sector is its off-balance sheet activities, which at last count stood at $12.9 trillion.

Australian banks have a big exposure to derivative markets. Their total shareholder value of $110 billion is dwarfed by the size of the banks' collective exposure to derivative markets of $12.9 trillion.

Put simply, the total derivative positions of the banks are 117 times as big as the banks' shareholder value. If even 1 per cent of these derivatives contracts default because third parties at the other end get into trouble, the whole shareholder wealth would be wiped out and our banks could be broke.

Given total bank assets are $2.1 trillion, it begs the question why Australia's banks have exposure to $12.9 trillion of derivatives positions. All banks hedge to reduce risk, but this is a big amount of hedging.

For example, Westpac has a face value of $1.4 trillion in derivatives at September 30, 2007, compared with an equity base of $16 billion, which is a multiple of almost 100 times.

The banks will argue they have outstanding risk management procedures and derivative arrangements have offsets so that only a net amount is at risk. Indeed, the Reserve Bank estimates that at September 30, 2007, the total credit risk and exposure of the banks to off-balance-sheet activity is $140 billion.

A more cynical observer would say the acquiescence of bank regulators to banks running off-balance-sheet liabilities greater than their capital just adds another layer of gearing.

But the reality is most are too big to be allowed to fail and wipe out their shareholders' funds. Banks worldwide are in a favoured position. While most are listed entities, they can always count on the shareholders being underwritten by the taxpayer in a crunch. The most recent examples of this were Northern Bank in Britain, which reportedly had about €25 billion ($54 billion) pumped in by the Bank of England, and Societie General attracted immediate support from the French Government. In the US, the Federal Reserve has been helping out its commercial and investment banks.

There is no denying that the banks have slick risk-management systems and, as long as there are no defaults, everything will keep on humming.

But the potential magnitude of the problem becomes even greater as the banks dominate the debt and equity of the country through their dominance of funds management.

As one investor said: "Do the bank balance sheets show a true picture? Well that's not what they are for. They are basically a disclaimer exercise."

But turning from the off-balance sheet world, to the on-balance sheet world, including the stock market, Australian banks have taken a walloping, none more than NAB, which is now trading at the same level it was nine years ago when the bank was concerned it was a sitting duck to foreign predators.

Apart from hedge funds targeting the banks, investors are becoming increasingly uneasy at the exposures the banks will have to corporate failures.

The reality is that as the sub-prime mortgage crisis continues to unwind, more corporate defaults will take place. While, on average, Australian corporations are in better shape, in terms of profitability and gearing, there is a group of financially engineered companies with low profitability that have piled up a mass of junk bond debt that will soon come to refinancing at much higher spreads. And as monoline insurers look wobbly, this will add to the difficulty in getting a refinancing package.

Already companies such as Centro, MFS and RAMS Home Loans have suffered the plight or tough credit markets. Others are sure to follow.

NAB has the largest market share in commercial lending and the second-highest transaction banking market share, which makes it a strong candidate for having the riskiest loan book with regard to Australian commercial lending.

However, an analysis by Wilson HTM of listed companies that have lost more than 20 per cent and more than 50 per cent of their market capitalisation in the past year, NAB may have the lowest exposure of all the banks to poorly performing companies when ranked by debt outstanding.

In the case of the Commonwealth Bank, its profit results epitomised some of the challenges facing the banking sector in Australia: rising expenses, rising cost of debt and murky bad and doubtful debt exposure.

Commonwealth Bank's latest results revealed bad and doubtful debt charges rose 40 per cent from the first half and a 71 per cent increase from the previous corresponding period.

Reported gross impaired assets were up 66 per cent from $338 million at December 31, 2006 to $562 million at December 31, 2007.

New and increased impaired assets were $566million at the end of December 31, 167 per cent of gross impaired assets at December 31, 2006.

Given the statements by the Reserve Bank suggesting at least two further rate rises in Australia, this will put a great deal of pressure on the many highly geared consumers and lead to an increase in loan defaults. As a consequence, many analysts are increasing their bad and doubtful debt charges in the retail banking sector both this year and next year.

UBS put together a watch-list of potential problem loans, including Centro, Countrywide Financial, MFS, Allco and Allco Principals Trust, to which they have lent a collective $5.7 billion. It suggests that Centro has a $500 million unsecured loan and $700 million secured loan with ANZ, a $160 million unsecured loan and $1 billion secured loan with the Commonwealth Bank and a $350 million unsecured loan and $750 million secured loan with NAB.

The other big risk is Countrywide, which has a $150million loan with ANZ, $300 million loan with Commonwealth Bank, $300 million loan with NAB and $100 million loan with Westpac.

There is little doubt banks have undertaken extended value-destroying lending, based on declining underwriting standards. But as the cost of debt increases and the shake-out in credit markets triggers concern about losses in syndicates or companies involving the banks, including ANZ's exposure to Lance Rosenberg's embattled broking house Tricom, it is premature to discuss systemic issues.

But for banks, with expanding funding cost pressures, and Commonwealth Bank's results showing a blowout in expenses, most banks will start initiating cost-saving programs. As Wilson HTM analyst Brett Le Mesurier says: "Expense growth is a problem with salaries increasing by 12 per cent over the year, which was the major factor in the high rate of expense growth during the period. This latter feature occurred notwithstanding the refund of $64 million from the Australian Government from over payments of GST."

For the next couple of years, there is little doubt that the banks will face some challenging times, particularly if some of their off-market activities start to look wobbly. Let's hope they have a good handle on it.

The Subprime "Primer"

Remember this is the real world and the slides use real language!

War of words between Iran and Israel heat up

Ahmadinejad’s unbridled attack on Israel causes foreboding. Ashkenazi sees "tough ordeal" possible soon

February 20, 2008, 8:29 PM (GMT+02:00)

Threatens Israel as "dirty microbe" and "savage animal"

Threatens Israel as "dirty microbe" and "savage animal"

DEBKAfile’s military sources report that the increasingly belligerent statements issuing from top Iranian leaders since the death of Imad Mughniyeh in Damascus earlier this month are seen as betokening serious intent. Israel's chief of staff Lt. Gen. Gaby Ashkenazi told graduating officers Wednesday, Feb. 20, that he could not rule out a possible "tough ordeal" in the near future. Israel must aim for quick victory.

President Ahmadinejad said earlier: “World powers have created a black and dirty microbe named the Zionist regime and unleashed it like a savage animal on the nations of the region.” He was addressing a rally in the southern city of Bandar Abbas, site of the Revolutionary Guards’ command center and main bases. His speech was broadcast in full by state television.

Also Wednesday, an exiled Iranian opposition leader Mohammad Mohaddessin claimed Tehran had accelerated its nuclear weapons program, including the production of nuclear warheads.

DEBKAfile: Sunday, Gen. Hassan Firouz-Abadi, commander-in-chief of all Iran’s armed forces, said at a ceremony in memory of Imad Mughniyeh: “Many millions across the world will soon receive the joyous news of the Zionist entity’s destruction.”’ He did not explain how Iran intended to perform this objective, but alluded indirectly to nuclear or radioactive measures.

The next day, Revolutionary Guards chief Mohammad Ali Jaafari referred to Israel, which denied involvement in the murder, as a “cancerous microbe.”

DEBKAfile’s sources report that in Washington and Jerusalem, these unbridled speeches are taken as an orchestrated campaign to raise Middle East temperatures up to the climax of an Iranian attack on Israel.

It is noted that Ahmadinejad’s speech was delivered on the last day of the Islamic month of Haram, during which Muslims are prohibited from embarking on attacks. The month of Safar when it is permitted to strike enemies of Islam begins Thursday, Feb. 21.

The president went on to accuse world powers of arming Israel with billions of dollars of weapons to create “a scarecrow" to frighten and dominate other nationals in the region”.

With regard to the death of Mughniyeh, Iran’s senior international terror tactician, Ahmedinejad said: "They assassinate pure and pious people [sic] and then they celebrate it, like what happened to the son of Lebanon who had stood against the savage onslaught of the Zionists and broke the Zionists' horns."

Mohaddessin, of the Paris-based National Council of Resistance of Iran, claimed that, for the first time, Tehran had established a command and control center to work on a nuclear bomb and that southeast of the capital it was also setting up a center to produce warheads.

He called the US NIE report “not accurate" and reported that Iran had closed down one center only to open another later with the same purpose.

Ashkenazi warns Israel may face conflict in near future

Prime minister, chief of staff speak at ceremony marking completion of officer's training course, discuss military's future 18 months after Second Lebanon War
Roni Sofer

"I cannot promise we will not find ourselves facing a difficult trial in the near future," IDF Chief of Staff Lt. Gen. Gabi Ashkenazi said on Wednesday at a ceremony for cadets graduating from the officers' training course.

"Our hands are outstretched in peace, but they are also ready for battle," said Ashkenazi.

Prime Minister Ehud Olmert, who spoke before Ashkenazi, said that "even when many of the young officers here today enlisted after the echoes of the war fell silent, I know without a shadow of a doubt that if we are once again called on to face another conflict in that region or any other, you will embody the noble and tangible essence of the spirit of the IDF and serve as Israel's defensive shield.

"We have learned much from the Second Lebanon War. For the past year-and-a-half now we have been moving forward with a process that at its core aims to change and improve the decision making process and security assessments made on the national and political levels."

Olmert said that even the officers' training course has been modified following the war. "We are investing unprecedented resources to allow the IDF to train more, to prepare itself and provide its soldiers with the best possible training on every command level to face any scenario," he said.

"In its 60th year the State of Israel is a strong nation with a powerful military and a level of deterrence known well to all those who need to know it," said Olmert, alluding to Israel's covert operations. "We are confident in ourselves and in our might, we march ahead down a road of peace and security."

The prime minister closed his speech with a prayer and said that on this day of celebration "we remember our deep obligation to the IDF's missing and captive soldiers and we pray for their quick return to the embrace of their families."

It's Time to Dump the Federal Reserve

By Mike Whitney

"Facts do not cease to exist because they are ignored". Aldous Huxley

21/02/08 "ICH" -- -- The credit storm which began in July when two Bear Stearns hedge funds were forced to liquidate, has continued to intensify and roil the markets. Last week the noose tightened around auction-rate securities,a little-known part of the market that requires short-term funding to set rates for long-term municipal bonds. The $330 billion ARS market has dried up overnight pushing up rates as high as 20% on some bonds---a new benchmark for short term debt. Auction-rate securities are now headed for extinction just like the other previously-vital parts of the structured finance paradigm. The $2 trillion market for collateralized debt obligations (CDOs), the multi-trillion dollar mortgage-backed securities market (MBSs) and the $1.3 asset-backed commercial paper (ABCP) market have all shut down draining a small ocean of capital from the financial system and pushing many of the banks and hedge funds closer to default.

The price of insuring corporate bonds has skyrocketed in the last few weeks making it more difficult for businesses to get the funding they need to expand or continue present operations. Much of this has to do with the growing uncertainty about the reliability of credit default swaps, a $45 trillion dollar market which remains virtually unregulated. Credit-default swaps are a type of financial instrument that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements. When the price of CDSs increases, it means that there is greater doubt about the quality of the bond. Prices are presently soaring because the entire structured finance market---and anything connected to it—is under withering attack from the meltdown in subprime mortgages. As foreclosures continue to rise, the securities that were fashioned from subprime loans will continue to unwind destroying trillions of dollars of virtual-capital in the secondary market.

It all sounds more complicated than it really is. Imagine a 200 ft. conveyor belt with two burly workers and a mountain-sized pile of money on one end, and a towering bonfire on the other. Every time a home goes into foreclosure; the two workers stack the money that was lost on the transaction—plus all of the cash that was leveraged on the home via “securitization” and derivatives----onto the conveyor-belt where it is fed into the fire. That is precisely what is happening right now and the amount of capital that is being consumed by the flames far exceeds the Fed's paltry increases to the money supply or Bush's projected $168 billion “surplus package”. Capital is being sucked out of the system faster than it can be replaced which is apparent by the sudden cramping in the financial system and a more generalized slowdown in consumer spending.

According to a recent Bloomberg article:

“A year ago $20 million would have gotten Luminent Mortgage Capital Inc. access to $640 million in loans to buy top-rated mortgage-backed securities. Now that much cash gets the firm no more than $80 million. ...(Only) 6 lenders are offering 5 times leverage, while a year ago, 20 banks extended 33 times.”

The banks are not providing anywhere near as much money for leveraged investments as they did just last year. And, when credit shrinks on a national scale--as it is---so does the economy. It' a simple formula; less money means less economic activity, less growth, fewer jobs, tighter budgets, more pain.

Bloomberg continues:

“Wall Street firms, reeling from $146 billion in losses on their debt holdings, are fueling a credit crisis by clamping down on lending to investors and hedge funds that use borrowed money to buy securities. By pulling back, (the banks) are contributing to reduced demand and lower prices throughout the fixed-income world.”

The banks are in no position to be extravagant because they're already saddled with $400 billion in MBSs and CDOs---as well as another $170 billion in private equity deals---for which there is currently no market. They've had to dramatically cut back on their lending because they either don't have the resources or are facing bankruptcy in the near future.

An article which appeared on the front page of the Financial Times last week, illustrates how hard-pressed the banks really are:

US banks have been quietly borrowing massive amounts of money from the Federal Reserve...$50 billion in one month”.

The Fed's new Term Auction Facility “allows the banks to borrow money against all sort of dodgy collateral,” says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [this] suggests a perilous condition for America’s banking system.”

The move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks’ growing reliance on indirect forms of government support.” (“US Banks borrow $50 billion via New Fed Facility”, Financial Times)

(The story appeared no where in the US media)

At the same time the banks are getting backdoor injections of liquidity from the Fed; banking giant Citigroup has been trying to off-load some of its branches so it can cover its structured investment losses. It all looks rather desperate, but scouring the planet for capital to shore up flagging balance sheets is turning out to be a full-time job for many of America's largest investment banks. It is the only way they can stay one step ahead of the hangman.

In the last few days, gold has spiked to $950, a new high, while oil futures passed the $100 per barrel mark. The battered greenback has already taken a beating, and yet, Fed chairman Bernanke is signaling that there are more rate cuts to come. The prospect of a global run on the dollar has never been greater. Still, Bernanke will do whatever he can to resuscitate the faltering banking system, even if he destroys the currency in the process. Unfortunately, interest rates alone won't cut it. The banks need capital; and fast. Meanwhile, the waning dollar has sent food and energy prices soaring which is leaving consumers without the discretionary income they need for anything beyond the basic necessities. As a result, retail sales are down and employers are forced to lay off workers to reduce their spending. This is all part of the self-reinforcing negative-feedback loop that begins with falling home prices and then rumbles through the broader economy. There is no chance that the economy will rebound until housing prices stabilize and the rate of foreclosures returns to normal. But that could be a long way off. With housing inventory at historic highs and mortgage applications at new lows, the economy could keep somersaulting down the stairwell for a full two years or more. Only then, will we hit rock-bottom.

The country is now headed into a deep and protracted recession. Low interest credit and financial innovation have paralyzed the credit markets while inflating a monstrous equity bubble that is wreaking havoc with the world's financial system. The new market architecture, “structured finance” has collapsed from the stress of falling asset-values and rising defaults. Many of the banks are technically insolvent already, hopelessly mired in their own red ink. Public confidence in the nations' financial institutions has never been lower. Monetary policy and deregulation have failed. The system is self-destructing.

Now that the credit crunch has rendered the markets dysfunctional, spokesmen for the investor class are speaking out and confirming what many have suspected from the very beginning; that the present troubles originated at the Federal Reserve and, ultimately, they are the ones who are responsible for the meltdown. In an article in the Wall Street Journal this week, Harvard economics professor and former Council of Economic Advisers under President Reagan, Martin Feldstein, made this revealing admission:

“There is plenty of blame to go around for the current situation. The Federal Reserve bears much of the responsibility, because of its failure to provide the appropriate supervisory oversight for the major money center banks. The Fed's banking examiners have complete access to all of the financial transactions of the banks that they supervise, and should have the technical expertise to evaluate the risks that those banks are taking. Because these banks provide credit to the nonbank financial institutions, the Fed can also indirectly examine what those other institutions are doing.

The Fed's bank examinations are supposed to assess the adequacy of each bank's capital and the quality of its assets. The Fed declared that the banks had adequate capital because it gave far too little weight to their massive off balance-sheet positions---the structured investment vehicles (SIVs), conduits and credit line obligations---that the banks have now been forced to bring onto their balance sheets. Examiners also overstated the quality of the banks' assets, failing to allow for the potential bursting of the house price bubble. The implication of this for Fed supervision policy is clear. The way out of the current crisis is not.”

How odd? So, when all else fails; tell the truth?

But Feldstein is right; the Fed refused to perform its oversight duties because its friends in the banking industry were raking in obscene profits selling sketchy, subprime junk to gullible investors around the world. They knew about the “massive off balance-sheet positions” which allowed the banks' to create mortgage-backed securities and CDOs without sufficient capital reserves. They knew it all; every last bit of it, which simply proves that the Federal Reserve is an organization which serves the exclusive interests of the banking establishment and their corporate brethren in the financial industry.


The upcoming global recession/depression will give us plenty of time to mull over the ruinous effects of Fed policy and to devise a plan for abolishing the Federal Reserve once and for all. That is, if they don't destroy us first.

Oil, gold prices strike historic highs

The price of oil touched an all-time peak of 101.32 dollars a barrel on Thursday, lifted by fears of supply disruptions according to traders.

Oil's surge meanwhile helped gold to a record high of 948.59 dollars an ounce, they added.

Gold was in demand from investors seeking a haven for their cash amid concerns about rising inflation amid surging oil prices.

The price of New York crude for delivery in March later settled back to 101 dollars in electronic trading while gold stood at 945.63 dollars on the London Bullion Market.

"Oil prices are being supported by lingering worries about oil supply," said Commonwealth Bank of Australia analyst David Moore.

He added that in the near-term the oil market will be "heavily influenced" by any decision of the Organisation of Petroleum Exporting Countries on output levels at its next meeting on March 5.

OPEC ministers kept the official daily output ceiling at 29.67 million barrels of oil at an emergency meeting on February 1, resisting calls from US President George W. Bush to increase supplies to help bring down prices.

But the market is rife with speculation that OPEC, which supplies about 40 percent of the world's oil, would keep steady or even decide to cut production.

As for gold, James Moore of said the precious metal "looks set to extend higher in the coming sessions as investors seek assets to offset rising inflation".

"The metal should now look to challenge 950 dollars, with 1,000 dollars an ounce still a realistic target this quarter," he added.

America's economy risks the mother of all meltdowns

By Martin WolfTue Feb 19, 1:25 PM ET

"I would tell audiences that we were facing not a bubble but a froth - lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy." Alan Greenspan, The Age of Turbulence.

That used to be Mr Greenspan's view of the US housing bubble. He was wrong, alas. So how bad might this downturn get? To answer this question we should ask a true bear. My favourite one is Nouriel Roubini of New York University's Stern School of Business, founder of RGE monitor.

Recently, Professor Roubini's scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006*. At that time, his view was extremely controversial. It is so no longer. Now he states that there is "a rising probability of a 'catastrophic' financial and economic outcome"**. The characteristics of this scenario are, he argues: "A vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe."

Prof Roubini is even fonder of lists than I am. Here are his 12 - yes, 12 - steps to financial disaster.

Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.

Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages. About 60 per cent of all mortgage origination between 2005 and 2007 had "reckless or toxic features", argues Prof Roubini. Goldman Sachs estimates mortgage losses at $400bn. But if home prices fell by more than 20 per cent, losses would be bigger. That would further impair the banks' ability to offer credit.

Step three would be big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth. The "credit crunch" would then spread from mortgages to a wide range of consumer credit.

Step four would be the downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends. A further $150bn writedown of asset-backed securities would then ensue.

Step five would be the meltdown of the commercial property market, while step six would be bankruptcy of a large regional or national bank.

Step seven would be big losses on reckless leveraged buy-outs. Hundreds of billions of dollars of such loans are now stuck on the balance sheets of financial institutions.

Step eight would be a wave of corporate defaults. On average, US companies are in decent shape, but a "fat tail" of companies has low profitability and heavy debt. Such defaults would spread losses in "credit default swaps", which insure such debt. The losses could be $250bn. Some insurers might go bankrupt.

Step nine would be a meltdown in the "shadow financial system". Dealing with the distress of hedge funds, special investment vehicles and so forth will be made more difficult by the fact that they have no direct access to lending from central banks.

Step 10 would be a further collapse in stock prices. Failures of hedge funds, margin calls and shorting could lead to cascading falls in prices.

Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Behind this would be a jump in concerns about solvency.

Step 12 would be "a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices".

These, then, are 12 steps to meltdown. In all, argues Prof Roubini: "Total losses in the financial system will add up to more than $1,000bn and the economic recession will become deeper more protracted and severe." This, he suggests, is the "nightmare scenario" keeping Ben Bernanke and colleagues at the US Federal Reserve awake. It explains why, having failed to appreciate the dangers for so long, the Fed has lowered rates by 200 basis points this year. This is insurance against a financial meltdown.

Is this kind of scenario at least plausible? It is. Furthermore, we can be confident that it would, if it came to pass, end all stories about "decoupling". If it lasts six quarters, as Prof Roubini warns, offsetting policy action in the rest of the world would be too little, too late.

Can the Fed head this danger off? In a subsequent piece, Prof Roubini gives eight reasons why it cannot***. (He really loves lists!) These are, in brief: US monetary easing is constrained by risks to the dollar and inflation; aggressive easing deals only with illiquidity, not insolvency; the monoline insurers will lose their credit ratings, with dire consequences; overall losses will be too large for sovereign wealth funds to deal with; public intervention is too small to stabilise housing losses; the Fed cannot address the problems of the shadow financial system; regulators cannot find a good middle way between transparency over losses and regulatory forbearance, both of which are needed; and, finally, the transactions-oriented financial system is itself in deep crisis.

The risks are indeed high and the ability of the authorities to deal with them more limited than most people hope. This is not to suggest that there are no ways out. Unfortunately, they are poisonous ones. In the last resort, governments resolve financial crises. This is an iron law. Rescues can occur via overt government assumption of bad debt, inflation, or both. Japan chose the first, much to the distaste of its ministry of finance. But Japan is a creditor country whose savers have complete confidence in the solvency of their government. The US, however, is a debtor. It must keep the trust of foreigners. Should it fail to do so, the inflationary solution becomes probable. This is quite enough to explain why gold costs $920 an ounce.

The connection between the bursting of the housing bubble and the fragility of the financial system has created huge dangers, for the US and the rest of the world. The US public sector is now coming to the rescue, led by the Fed. In the end, they will succeed. But the journey is likely to be wretchedly uncomfortable.

*A Coming Recession in the US Economy? July 17 2006,; **The Rising Risk of a Systemic Financial Meltdown, February 5 2008; ***Can the Fed and Policy Makers Avoid a Systemic Financial Meltdown? Most Likely Not, February 8 2008

Wall St. Banks Confront a String of Write-Downs :

Wall Street banks are bracing for another wave of multibillion-dollar losses as the crisis that began with subprime mortgages spreads through the credit markets.

Jim Sinclair: Any IMF sales will be great for gold

by Jim Sinclair
Saturday, February 9, 2008

China has a trillion dollars in reserves and wishes to offload dollars, and this is a perfect fit. The year of the rat is a year of opportunity for some.

Any sales of gold have nothing to do with the market for gold, as not one ounce will ever see the free market.

The buyers will be gold-poor central banks.

The history of IMF sales in the 1970s is that they allowed huge buyers to enter the market at one price. That attracts the major buyers.

The OTC derivative market is $516 trillion, dwarfing the $92 billion estimated value of the IMF's gold. In today's messed-up financial world $92 billion is chump change.

One large banking entity could easily lose $92 billion on failed derivatives. ...

I do not think the reports of an IMF gold sale mean anything to the gold price trend. The only important fact is that the IMF has just demonstrated its total lack of financial sense, as in exchange for its gold it might end up holding only depreciating paper promises to pay nothing at all backed by nothing whatsoever.

Selling of gold like this occurs only in bull markets and has historically been useless to stop the price increase. In fact in the 1970s these sales pushed gold higher by facilitating demand from huge interests, and will do so even more so now.

Large traders could try to make this look serious but it is not.

This has Chung Phat and Dr. No high-fiving, as it indicates that the price of gold is not even halfway to its upside resting point. This was true in the '70s.

Finally, those who control black gold also control gold gold. Those you feel have caused the problem and are anti-gold are not. To know this you need only the eyes to see and the ability to connect the dots.

This will be looked back on as great for the price of gold, as was the case in the '70s when the same entity, the IMF, proposed and did the same thing, only to stop before the buyers took all their gold. The same will happen if the IMF even starts.

Note that the proposed sales would come when the U.S. economic rescue plan is to occur. The reason is clear.

American Congressman wants 9/11 Inside Trading investigation

Kucinich to Investigate 9/11 Insider Trading
"I'm not afraid to ask questions about 9/11"

Aaron Dykes / | February 20, 2008

Congressman Dennis Kucinich revealed that he is initiating an investigation into the insider trading that took place leading up to 9/11, particularly in regards to put options placed on American Airlines and United Airlines stock.

Kucinich said that he had personal questions about the implications insider trading had.

"I've indicated a long-standing interest in gathering information and trying to get to the bottom of exactly what happened with respect to all the stock activity that took place preceding 9/11." Kucinich said.

Kucinich said it was the bizarre record-level put options that caught his attention initially. The odd trades heavily indicate prior knowledge of the September 11 attacks and have raised a number of questions that Kucinich hopes to probe.

"First of all, I'm not afraid to ask questions about 9/11," Kucinich told the Alex Jones Show.

"From my own personal standpoint, I've had long-standing questions about why this volume, why those airlines, why that time, who made the buys, why did they buy them, who told them to make the buys, who was involved? There are questions there that need to be answered as part of an effort to get to the truth," Kucinich said.

He made clear he was not yet pointing the finger. "I don't know what happened. I'm not alleging anything here. But I sure want to find out how it happened."

But Kucinich hopes that inquiries in a committee hearing would clarify the information and answer questions.

"I think we need to talk to the people who were involved in making those transactions in order to try to figure out why they were made, for example, American Airlines and United Airlines stock." Kucinich said.

At least two FBI agents have been previously charged for their smaller roles in the insider trading. The NY Times has reported on the cases, but larger coverage of the issue has been largely ignored by the mainstream media, and no larger probe has been underway until now.

Kucinich has also promised to hold hearings on the health of 9/11 first responders. He has already met with a number of rescue workers to hear their stories and is in the process of bringing forth information to committee.

The Congressman warned, however, that his seat has been hotly contested by 'Cleveland corporate interests' who have sunk millions into defeating Kucinich. He pleaded for help to win his local election, but remained steadfast.

"I can't be bought and I can't be bossed." Kucinich said. "I'm going to keep speaking the truth, I'm going to keep seeking the truth, and as long as people are there to support that, I'll be in Congress."

To find out more about Kucinich's Congressional race and/or help his campaign, visit


Suppressed Details of Criminal Insider Trading Lead Directly to the CIA's Highest Ranks

Prison Planet: 9/11 Prior Knowledge Archive

Friday, February 15, 2008

More on undersea Internet cable cuts

5th cable cut fuels allegations of isolating Iran

Leslie D`Monte & Rajesh S Kurup / Mumbai February 9, 2008

Conspiracy theories of deliberately cutting communication lines to West Asia, primarily Iran, gained ground in the media and blogs as reports of another undersea cable cut the fifth successive one in just a week's time started emerging in cyberspace.

While the extent of Iran's isolation was unclear, many blogs alleged that the cable cuts and outages in West Asia were a ploy by an intelligence agency to disrupt Iranian commerce, targeting an emerging petroleum exchange that the country was shortly hoping to roll out.

The fifth cable cut could, in fact, have been a second cut on a different segment of the FALCON cable, owned by Reliance Communications, suggested other blogs and reports.

Cables are normally laid in proximity to each other and an accident in one cable can result in severing many cables at a time.

A cable-laying company has to undertake an expensive marine survey which costs anywhere between Rs 40 crore and Rs 120 crore, depending on the terrain. To cut costs, some cable companies skip the marine survey, noted an analyst who did not wished to be quoted.

The successive damage of these cables, they add, is of major concern since almost 90 per cent of Internet traffic is routed through undersea cables, and only 10 per cent through satellites.

The reason for the damage to the cables remains moot as the companies have claimed that they were cut after ships weighed their anchors over them.

However, the Egyptian ministry (after monitoring the satellite surveillance pictures) had refuted these claims stating there were no ships in the vicinity 12 hours before and after the cable cut.

One February 7, Reliance Communications claimed that the severing of the FALCON submarine cable which disrupted voice and telecommunication traffic between Dubai and Oman was caused by a ships anchor. The company also put up a picture of an abandoned anchor on its website.

None of the analysts this paper spoke to wished to go on record, saying it is "a sensitive matter". However, they pointed out that the ocean bottom does pose great challenges to the telecommunication hardware, which must survive for 25 to 35 years in the harsh undersea environment.

Undersea cables undergo a battery of qualification tests that are now contained in the ITU-T international standard. They are very strong. A modern undersea or submarine communications cable is made up of a core of optical fibres, shielded with multiple layers of copper, aluminum, polycarbonate, stranded steel wires, mylar and polyethylene.

Meanwhile, FLAG Telecom, a wholly-owned company of Reliance Communications, said it has begun work on its three undersea cables which were cut.

The India-based company operates the Fiber-Optic Link Around the Globe (FLAG) a 17,500 mile fibre optic cable which turns from the eastern coast of North America to Japan. It has also announced that it will lay a new, much stronger cable between Egypt and France.

The new data link will be also laid on a different route. The new cable will be 1,900-mile-long and would allegedly take more than 18 months to complete.

FLAG Telecom also said that a ship loaded with spares, marine experts and optical engineers reached the site on Wednesday. The crew has recovered one end of the cable and cable-joining work is in progress. The repair work will be completed by Sunday.


There is no real-time monitoring of the cables. Satellites monitor the cable route and ships and trawlers passing over it. However, satellite pictures are called for only after a calamity strikes.

Globally, coast guards also monitor the cables up to 8 nautical miles (territorial borders) of the coast.

The cables have a lot of copper and steel protection, and there have been many instances of theft (mainly near Vietnam and Thailand) for the steel and copper

Using the Internet as a weapon:

Commentary: Internet interruption in the Middle East looks fishy


Chinese cut off from internet:

Damage to an undersea cable has cut millions of Chinese off from the internet, and the problem could take weeks to fix.

Connecting The Many Undersea Cut Cable Dots :

The last week has seen a spate of unexplained, cut, undersea communications cables that has severely disrupted communications in many countries in the Middle East, North Africa and South Asia. As I shall show, the total numbers of cut cables remain in question, but likely number as many as eight, and maybe nine or more.

Saturday, February 9, 2008

Internet interruptions in the Middle East looks fishy

Using the Internet as a weapon
Commentary: Internet interruption in the Middle East looks fishy
By John C. Dvorak
Last update: 12:01 a.m. EST Feb. 8, 2008
BERKELEY, Calif. (MarketWatch) -- Nobody knows what caused the cut cables in the Mediterranean that interrupted Internet service to parts of the Middle East last week, but there are now conspiracy theories galore written by bloggers and pundits.

Some say it will benefit terrorists and Iran somehow. In fact, the cut cables -- originally blamed on ships dragging anchors -- look more like a ploy by some intelligence agency to disrupt Iranian commerce, specifically an emerging oil bourse that the Iranians have been quietly establishing and hoped to roll out fully in the next 60 days.

There has always been talk about disrupting commerce by screwing up the Internet. We've just seen a proof of concept, whether done on purpose or by accident.

This concept seems a little farfetched until you look at the details which were provided to me by one of my readers, Martin Kuplens-Ewart who has been following the story from the outset. He notes: "there is a substantial event that has effectively been killed by the loss of connectivity: the launch of the Iranian Oil Bourse.

"A marketplace for oil, gas, and various petrochemicals, the Iranian Oil Bourse would trade exclusively in non-dollars and probably substantial negative impact to the U.S. economy and financial system. The bourse was scheduled for launch this week (between Feb. 1 and 11. With complete elimination of Internet connectivity to the country, this launch is now impossible and unlikely to be achievable before month's end (given the estimate 10-14 days for repairs to fiber-optic cables)."

He cites various articles expressing the mystery behind the cut cables and describing the bourse and its overall threat to the U.S. economy, as well as how the thing could backfire, ruining the Iranian economy. See Seattle Times article. See World Press article. See Energy Bulletin item.
The second bourse article, written in 2005, discusses the early planning for the bourse and suggests or wonders if someone might take some covert actions against it.

Communication breakdown

In most instances Internet connectivity can be rerouted, and much of the Middle East has already done this. But what makes this situation unique is that the bourse was being established on Kish Island, a free-trade zone set up by the Iranians in hopes of creating a cool tourist destination.

For an example of what they are up to check out the Web site for one of the new hotels here. See link to Dariush Grand Hotel.

There doesn't seem to be an alternate Internet connection to the island other than the cut cables. I attempted to email the three top hotels on the island and all the email bounced. I was also unable to make a telephone call there indicating a large telecommunications failure.
The Web sites for the hotels are likely to be hosted off the island and are still working.

This sort of telecom and Internet failure/collapse, no matter what the cause, is unlikely to give anyone confidence in an international oil trading system on Kish Island. Too much money is at risk. The island obviously needs satellite access or some form of connectivity back up that is foolproof.

There has always been talk about disrupting commerce by screwing up the Internet. We've just seen a proof of concept, whether done on purpose or by accident.

It doesn't make a lot of difference how it happened if we want to learn a lesson as to how delicate the Internet mechanism can be.

If the cut cable was done on purpose you can expect the U.S. to get blamed although it could have just as easily benefited Britain, China or even Saudi Arabia for that matter. I'm guessing we will never know how it happened or who suffered the most. All I can say for sure is that it does look fishy.

More importantly, investors should know more about this sort of risk and which companies in their portfolio could suffer a negative impact from this sort of event.

Broad rally in commodities keeps inflation at fore

By Moming Zhou, MarketWatch
Last update: 6:59 p.m. EST Feb. 8, 2008
SAN FRANCISCO (MarketWatch) -- A benchmark for a range of commodities hit a record high on Friday, a reminder to the Federal Reserve that inflation risks loom even as it concentrates on reviving U.S. economic growth by slashing interest rates.

Commodities including crude oil, gold and wheat rallied across the board, pushing the Reuters/Jefferies CRB Index, a benchmark barometer gauging the prices of major commodities, to an historic high. Crude oil made its biggest one-day gain in nearly four months, wheat futures hit a record and sugar futures spiked more than 6%.

The gains, which appeared largely driven by factors affecting supplies in the individual markets, illustrated the commodities sector still has its flair for besting other asset classes. The Dow Jones Industrial Average ($INDU
Dow Jones Industrial Average
News, chart, profile, more
$INDU) on Friday slid 64.9 points to 12,182.1 as concerns about a credit contraction kept a gloom over equities. See Market Snapshot.

The rally caught the attention of Fed watchers, who noted that persistent inflation in commodities will test the Fed's determination to keep cutting rates.

"The surge in commodities prices serves as a reminder of the persistence of inflation, which has not abated much despite the deep economic slowdown in the U.S., and the difficulties the Fed would have in cutting rates as low as it did in 2003 when the funds rate reached 1%," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co., in emailed comments.

The Fed has cut the fed funds rate by 2.25% since September, and investors are expecting more rate cuts in the following months.

Universal rally

After trading below $90 a barrel for three days, crude-oil futures surged more than 4% on Friday to approach $92 a barrel. Friday's rise of nearly $4 is the biggest daily gain the front-month crude contract has seen since October.

Crude had been under pressure on concerns that the economy of the United States, the largest oil consumer, is falling into recession. Friday's abrupt surge was triggered by a talk of a production cut from the Organization of Petroleum Exporting Countries and output disruptions in North Sea and Africa, two major producing areas after the Middle East.

Futures of other energy commodities, including natural gas, heating oil and coal, also soared. See Futures Movers.

On the metals side, gold and other precious metals reaped steep gains Friday, with April gold futures surging more than $10 to close at $922.30 an ounce. See Metals Stocks.

The day's bonanza also spread to food and grains.

Wheat futures, a benchmark grain, surged to a record on three U.S. futures exchanges on concerns that supplies of spring grain will not be able to meet demand.

Wheat futures for March delivery gained 20 cents, or nearly 2%, to close at a record high of $10.93 a bushel on the Chicago Board of Trade.

An explosion and fire at a sugar refinery in Georgia late Thursday pushed a benchmark sugar-futures contract to its highest level in more than three weeks Friday.

Sugar futures for March delivery gained 0.73 cent, or 6.1%, to 12.71 cents a pound on ICE Futures U.S., formerly the New York Board of Trade. The front-month futures contract hasn't seen such a high since Jan. 17. See full story.

Fed's dilemma

A common driving force behind commodities' universal rally is the falling value of the dollar against other major currencies, said Darin Newsom, senior analyst at DTN, a commodities information provider in Omaha.

"All these commodities seem to be trading in tandem more these days; one of the reasons is the dollar," said Newsom. Since most commodities are dollar-denominated, their prices tend to move up as the dollar edges lower. A weaker greenback makes dollar-denominated commodities cheaper to buyers holding other currencies. Those buyers are more willing to bid up prices.
The dollar index, which tracks the value of the greenback against a basket of other major currencies, has remained low as the Fed cut short-term rates in the last year. Rate cuts lower the value of dollar-denominated assets and weaken the dollar. The dollar slid against its major rivals Friday. See Currencies.

The sliding dollar and rallying commodities prices are keeping Fed policymakers in a tricky situation when they meet next month to consider another rate cut.

U.S consumer prices rose at a 5.6% annual rate in the final three months of 2007, a pace that spooks many economists, with energy prices jumping at a 37% annual rate, the Labor Department reported last month. Even the core rate, which excludes food and energy, increased at a 2.7% annual rate during the December quarter. See Economic Report.

Still, investors are expecting more rate cuts from the Fed, which has said that inflationary risks remain a concern, but that those worries pale in comparison with risks that the economy could sink into a recession.

The market is priced for 100% odds of a 50 basis-point cut occurring at the Fed's March 18 meeting and for 32% odds of a 75 basis-point cut, up from Thursday's 24%, according to Miller Tabak's Crescenzi.

For the April 30 meeting, the market is priced for 100% odds of a cumulative 50 basis points in cuts and 94% odds of 75 basis points in cuts, up from Thursday's 90%.
Moming Zhou is a MarketWatch reporter, based in San Francisco.


Pensea certificate
Traditions and folklore for today's marinerROBERT DAVIS
In Phuket, the yachting lifestyle is growing in popularity.They are called "yachties". People who choose to travel the world by boat, living and sometimes, even working for their passage aboard all types of sailing vessels. Some would even say that yachties are a different breed of people. You are very likely to find them in places like Teddy's Bar in Kupang, Timor Leste, or Suda's Bar and Jimmy's Lighthouse in Chalong Bay, Phuket, sharing information about the best anchorages, safest passages and cheapest marinas.

And when you listen to them talk about where they have been or where they might be going next, it often sounds something like this; Togians', Moorea, Solomon's, Port Moresby, and Balikpapan.

Some have been lifelong sailors, and others are just ordinary people who one day decided to sell the house, roam the world and live on a boat.

One couple who have certainly seen much of the world from the deck of a sailboat is American expats, Bob and Bianca Hein. They have sailed together from the Atlantic to the South China Sea. They have been shipwrecked, chased by pirates and narrowly escaped being tattooed by New Guinea natives. Today, they live just outside of Pattaya, where their sailboat, Jersey Lily is moored. How they met is the type of story typical to the yachties lifestyle.

Bob was the captain of a sailboat in Maui, Hawaii. Bianca needed a job and saw an advertisement that Bob had tacked up in the marina looking for crew. So, Bianca did what every out of work sailor would do - she swam out to his boat for an interview. That was more than 20 years ago, and they have been together ever since, "stuck together like barnacle to a boat," Bianca likes to joke.

Pattaya-based American expats Bob and Bianca Hein, aboard their boat Jersey Lily.

Today's yachties are well equipped with the latest and most modern navigational instruments and safety equipment, but even so, for many they remain superstitious and strict followers of marine tradition. Bianca is combining her enthusiasm for the yachting way of life and carrying on of traditions into a new project, the Pensea Mariner's Certificate. Three-hundred and fifty of these were issued at last year's Darwin to Bali Rally.

Bianca created the Pensea Mariner's Certificate, so I will let her tell the story here, of why and how it came to be.

"The open seas had been a subject of myths and legends since the beginning of seafaring. Mariners of the ancient times made animal sacrifices to Neptune - the Roman god of the sea - to please him, asking for protection from the monsters and storms.

"Fifteenth century explorers pondered what lay beyond, and at the same time, looking both for something to ease their fear of falling off the edge of the world as well as tokens to display their maritime achievements.

"Somewhere along the line, the line crossing ceremony was born. The most well known is when a sailor crosses the equator for the first time. 'Shellback' sailors who had previously crossed the equator test 'pollywogs' - first timers - for their capability to endure the long voyages, and at the end of the ceremony induct them into a fraternity of seasoned sailors. Now there is a new line to be crossed, The Pensea.

"The Pensea Mariner's Certificate follows in the wake of many traditional line crossing ceremonies to live on in the Southeast Asia realm, and for many mariners of the world making a first time crossing in the region, it constitutes a rite of passage for sailors.

Yachtsmen show off Pensea certificates for navigating across a Southeast Asian peninsula.
"Sailors who cross the waters around one of the many peninsulas, from The Cape York Peninsular, Australia to Sri Lanka - travelling east or west - have earned the right to receive a certificate to commemorate the event. As they round one of the many peninsulas in Southeast Asia, the pollywogs are then initiated into the ranks of the shellbacks, by way of various embarrassing tasks.

"The artwork decorating the certificate depicts the sea legends of local lore. The mermaid is from a sea cave in Indonesia and the strong armed sea dragon resides in the 'Dragon's Triangle' where three seas converge, and King Neptune, he is a man of his time.

"Having The Pensea Mariner's Certificate made and sanctioned was a group effort: Capt Ronny Malinan Fordatkosu, and Patti Seery, owner of Silolona, told the story of the Indonesian mermaid; Capt Jeroen Deknatel owner of Ocean Rover recommended the modern Neptune look and documented the first certificate signing. A nonfiction book with photos of unaccountable sightings and events in the Dragon's Triangle developed the sea dragon.

"There are other similar ceremonial line crossings in the world. For instance, the Dragon Ball took place on the return trip across the equator. When first-time sailors cross other major lines or landmarks, such as the Arctic Circle, International Date Line, or the Panama or Suez canals, similar ceremonies are held.

"For sailors of all nationalities, their recollections of their line crossing ceremony remains one of the most memorable experiences. Now with the new Pensea Mariner's Certificate - the maritime legend continues in Southeast Asia."

For details on the Pensea Mariner's Certificate, check out