Saturday, May 31, 2008

The Great Oil Swindle

How much did the Fed really know?

By Mike Whitney

30/05/08 "ICH" -- - The Commodity Futures and Trading Commission (CFTC) is investigating trading in oil futures to determine whether the surge in prices to record levels is the result of manipulation or fraud. They might want to take a look at wheat, rice and corn futures while they're at it. The whole thing is a hoax cooked up by the investment banks and hedge funds who are trying to dig their way out of the trillion dollar mortgage-backed securities (MBS) mess that they created by turning garbage loans into securities. That scam blew up in their face last August and left them scrounging for handouts from the Federal Reserve. Now the billions of dollars they're getting from the Fed is being diverted into commodities which is destabilizing the world economy; driving gas prices to the moon and triggering food riots across the planet.

For months we've been told that the soaring price of oil has been the result of Peak Oil, fighting in Iraq, attacks on oil facilities in Nigeria, labor problems in Norway, and (the all-time favorite)growth in China. It's all baloney. Just like Goldman Sachs prediction of $200 per barrel oil is baloney. If oil is about to skyrocket then why has G-Sax kept a neutral rating on some of its oil holdings like Exxon Mobile? Could it be that they know that oil is just another mega-inflated equity bubble---like housing, corporate bonds and dot.com stocks—that is about to crash to earth as soon as the big players grab a parachute?

There are three things that are driving up the price of oil: the falling dollar, speculation and buying on margin.

The dollar is tanking because of the Federal Reserve's low interest monetary policies have kept interest rates below the rate of inflation for most of the last decade. Add that to the $700 billion current account deficit and a National Debt that has increased from $5.8 trillion when Bush first took office to over $9 trillion today and it's a wonder the dollar hasn't gone “Poof” already.

According to a January 4 editorial in the Wall Street Journal: “If the dollar had remained 'as good as gold' since 2001, oil today would be selling at about $30 per barrel, not $99. (today $126 per barrel) The decline of the dollar against gold and oil suggests a US monetary that is supplying too many dollars.” Wall Street Journal 1-4-08

The price of oil has more than quadrupled since 2001, from roughly $30 per barrel to $126, WITHOUT ANY DISRUPTIONS TO SUPPLY. There's no shortage; it's just gibberish.


As far as “buying on margin” consider this summary from author William Engdahl:

“A conservative calculation is that at least 60% of today’s $128 per barrel price of crude oil comes from unregulated futures speculation by hedge funds, banks and financial groups using the London ICE Futures and New York NYMEX futures exchanges and uncontrolled inter-bank or Over-The-Counter trading to avoid scrutiny. US margin rules of the government’s Commodity Futures Trading Commission allow speculators to buy a crude oil futures contract on the Nymex, by having to pay only 6% of the value of the contract. At today's price of $128 per barrel, that means a futures trader only has to put up about $8 for every barrel. He borrows the other $120. This extreme “leverage” of 16 to 1 helps drive prices to wildly unrealistic levels and offset bank losses in sub-prime and other disasters at the expense of the overall population.”

So the investment banks and their trading partners at the hedge funds can game the system for a mere 8 bucks per barrel or 16 to 1 leverage. Not bad, eh?

Is it possible that gambling on oil futures might be a temptation for banks that are already underwater from a trillion dollars worth of mortgage-related deals that have “gone south” leaving the banking system essentially bankrupt?

And if the banks and hedgies are not playing this game, then where is the money coming from? I have compiled charts and graphs that show that nearly two-thirds of the big investment banks' revenue came from the securitization of commercial and residential real estate loans. That market is frozen. Besides, this is not just a matter of “loan delinquencies” or MBS that have to be written off. The banks are "revenue starved". How are they filling the coffers? They're either neck-deep in interest rate swaps, derivatives trading, or gaming the futures market. Which is it?

Of course, there is one other possibility, but if that possibility turned out to be right than it would cast doubt on the legitimacy of the entire financial system. In fact, it would prove that the system is being rigged from the top-down by our friends at the Banking Politburo, the Federal Reserve. Here goes:

What if the investment banks are trading their worthless MBS and CDOs at the Fed's auction facilities and using the money ($400 billion) to drive up the price of raw materials like rice, corn, wheat, and oil?

Could it be? Could the Fed really be looking the other way so it can bail out its banking buddies while they drive prices skyward?

If it is true; (and I suspect it is) it hasn't done much good. As the Associated Press reported yesterday:

“The Federal Reserve announced Thursday that it will make a fresh batch of short-term cash loans available to squeezed banks as part of an ongoing effort to ease stressed credit markets. The Fed said it will conduct three auctions in June, with each one making $75 billion available in short-term cash loans. Banks can bid for a slice of the available funds. It would mark the latest round in a program that the Fed launched in December to help banks overcome credit problems so they will keep lending to customers.”

Another $225 billion for the bankers and not a dime for the struggling homeowner! The Fed is bankrupting the country with their permanent rotating loans to keep reckless speculators from going under. So much for moral hazard.

As far as speculation, there is ample evidence that the system is being manipulated. According to MarketWatch:

“Speculative activity in commodity markets has grown "enormously" over the past several years, the Homeland Security and Governmental Affairs Committee said in a news release. It pointed out that in five years, from 2003 to 2008, investment in the index funds tied to commodities has grown by 20-fold -- to $260 billion from $13 billion.”

And here's a revealing clip from the testimony of Michael W. Masters of Masters Capital Management, LLC, who addressed the issue of “Commodities Speculation” before the Committee on Homeland Security and Governmental Affairs this week:

“Today, Index Speculators are pouring billions of dollars into the commodities futures
markets, speculating that commodity prices will increase. ...In the popular press the explanation given most often for rising oil prices is the increased demand for oil from China. According to the DOE, annual Chinese demand for petroleum has increased over the last five years from 1.88 billion barrels to 2.8 billion barrels, an increase of 920 million barrels.8 Over the same five-year period, Index Speculators╩╝ demand for petroleum futures has increased by 848 million barrels. THE INCREASE IN DEMAND FROM INDEX SPECULATORS IS ALMOST EQUAL TO THE INCREASE IN DEMAND FROM CHINA.

Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.

Today, in many commodities futures markets, they are the single largest force.15 The huge growth in their demand has gone virtually undetected by classically-trained economists who almost never analyze demand in futures markets.

As money pours into the markets, two things happen concurrently: the markets expand and prices rise. One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing. The CFTC has taken deliberate steps to allow CERTAIN SPECULATORS VIRTUALLY UNLIMITED ACCESS TO THE COMMODITIES FUTURES MARKETS. The CFTC has granted Wall Street banks an exemption from speculative position limits when these banks hedge over-the-counter swaps transactions. This has effectively opened a loophole for unlimited speculation. When Index Speculators enter into commodity index swaps, which 85-90% of them do, they face no speculative position limits.... The result is a gross distortion in data that effectively hides the full impact of Index Speculation.” (Thanks to Mish's Global Economic Trend Analysis; the one “indispensable” financial blog on the Internet)

Masters adds that the CFTC is pressing to make “Index Speculators exempt from all position limits” so they can make “unlimited” bets on the futures which are wreaking havoc on the global economy and pushing millions towards starvation. Of course, these things pale in comparison to the higher priority of fatting the bottom line of the parasitic investor class.

Brimming oil tankers are presently sitting off the coasts of Iran and Louisiana. The Strategic Petroleum Reserve has been filled. Demand is flat. The world's biggest consumer of energy (guess who?) is cutting back . As CNN reports:

“At a time when gas prices are at an all-time high, Americans have curtailed their driving at a historic rate. The Department of Transportation said figures from March show the steepest decrease in driving ever recorded. Compared with March a year earlier, Americans drove an estimated 4.3 percent less -- that's 11 billion fewer miles, the DOT's Federal Highway Administration said Monday, calling it "the sharpest yearly drop for any month in FHWA history." (CNN)

The great oil crunch is another fabricated crisis; another "smoke and mirrors" fiasco; another Enron-type shell-game engineered by banksters and hedge fund managers. Once again, the bloody footprints can be traced right back to the front door of the Federal Reserve. Don't expect help from the regulators either; they've all been replaced with business reps like Harvey Pitt or Hank Paulson. The only time anyone in the Bush administration finds their conscience is when they're offered a multi-million dollar “tell all” book deal.

Can you hear me, Scotty?

Gold's past and present

Dear Jim,

A review of the 1970’s shows a period much like the current time. The background of the period was when inflation was rising along with oil and gold. The dollar was generally declining and politicians were all over the media talking about how inflation would be cured in no time. When this didn’t work they started with statements saying they would make gold sales from government inventories (and they did). They went to the media and said gold was a barbarous relic, speculators are destroying the economy and should be punished, congress and the executive branch are blameless, we have not hurt the economy with our monetary and fiscal policy and many more such witticisms.

  1. Gold went from an average price of $35.94 in 1970 to $120.17 in July 1973; an increase of 233%.
  2. Then it fell from $120.17 to below $95 by Nov 1973 for a decline of over 20% in 4 months.
  3. In March 1975, COMEX gold peaked at $187.50 for a rise of over 90% in 17 months.
  4. In August 1976, COMEX gold bottomed at $101 for a 46% decline in 17 months, during this time gold had moved little for the previous 2 years and nine months. Then it began to move rapidly as US inflation began to be a problem in 1977, 1978 and 1979.
  5. In October 1978, COMEX gold peaked at $249.40 for a rise of 147% in 26 months. By this time inflation in the developed world was high and rising much like inflation in the developing world is today.
  6. In November 1978, COMEX gold bottomed at $191.20 for a decline of 24% in one month. Inflation continues to be a problem.
  7. In January 1980 COMEX gold peaked at $873, an increase of over 350% in 14 months. After gold peaks, inflation begins to moderate. Paul Volcker has taken over at the Federal Reserve and administers some strong anti-inflationary interest rate increases which lead to a recession. He is a strong and steady force for moderation in money supply growth and reduces the public’s inflationary expectations.

In my opinion, we are at the beginning of a period of inflation in the emerging world that may be the equivalent of early 1978 in the developed world. The developing nations are making the same mistakes with price controls which incentivize consumption, export restrictions which incentivize global hoarding, tariffs and many other artificial boundaries which create market dislocations and lead to higher prices.

We can be sure that we will see the old stand bys: government threats of sales from their inventories and restrictions on trading commodities in many parts of the world. None of this will work until they implement higher interest rates and other tight monetary and fiscal policies which will slow economic activity and moderate inflationary expectations. The result will be an end to inflation.

Between now and the time that they implement these policies (I don’t know how long it will take them to get wise) we will see more inflation and much higher gold prices. The primary purchasers of gold will be the newly wealthy citizens of the emerging world.

Respectfully yours,
Monty Guild
www.GuildInvestment.com

US banks likely to fail as bad loans soar


By Joanna Chung and Saskia Scholtes in New York
Published: May 29 2008 20:43 | Last updated: May 29 2008 20:43

US banks set aside a record $37.1bn to cover losses on real estate loans and other credits during the first quarter in a sign of the growing economic pain being caused by the global credit crisis, regulators said on Thursday.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, said it was likely loan-loss provisions and bank failures would rise in coming quarters as the fallout from market turmoil hits the real economy.

“While we may be past the worst of the turmoil in financial markets, we’re still in the early stages of the traditional credit crisis you typically see during an economic downturn,” she said, adding: “What we really need to focus on is the uncertainty surrounding the economy . . . and again it is all about housing.”

Ms Bair spoke as the FDIC released its quarterly banking profile, which showed loan-loss provisions in the first quarter were more than four times higher than last year’s level. That was the main reason bank earnings fell 46 per cent to $19.3bn from the first quarter in 2007 for the commercial banks and savings institutions where the FDIC insures customer deposits.

More…

Moody's Implied Ratings Show MBIA, Ambac Turn to Junk

By David Evans

May 30 (Bloomberg) -- Moody's Investors Service has created a new unit that surprises even its own director.

The team from Moody's Analytics, which operates separately from Moody's ratings division, uses credit-default swap prices as an alternative system of grading debt. These so-called implied ratings often differ significantly from Moody's official grades.

The implied ratings frequently show that swap traders think debt is in more danger of defaulting than Moody's credit ratings signify. And here's the kicker: The swaps traders are usually right.

``When I first saw this product, my reaction was, `Goodness gracious, Moody's has got a product that is basically publicizing where the market disagrees with Moody's,''' says David Munves, managing director for credit strategy research at Moody's Analytics. The implied-ratings unit works in a corner of Moody's new world headquarters in lower Manhattan, across the street from Ground Zero.

``But these differences are out there,'' Munves says. ``We might as well capture and learn from it what we can.''

The credit quality of bond insurers, which have been at the center of the subprime storm, differs dramatically. The official ratings of these companies say the insurers are in great shape; the alternative ratings say they're in dire danger of defaulting on their debts.

MBIA Inc. and Ambac Assurance Insurance Inc., the two largest bond insurers, got themselves into trouble by veering away from the plain-vanilla business of insuring debt issued by municipalities and corporations. The insurers began selling credit-default swaps, which are a type of insurance, to banks eager to hedge their own risks from collateralized debt obligations.

Subprime Debt

Because many of those CDOs were bundles of debt laced with securitized subprime home loans and other asset-backed securities, the insurers might now shoulder tens of billions of dollars in losses.

Ambac and MBIA have raised billions of dollars of new capital so that Moody's and Standard & Poor's would keep top ratings for the bond insurers -- and the rating firms have done just that.

Moody's implied-ratings group paints a completely different picture. Using CDS market prices, Munves's unit assigns implied ratings of Caa1 to both MBIA and Ambac. That's seven notches below junk and 15 below the official Moody's rating.

Swap traders see there's a huge risk that Ambac and MBIA will default, hedge fund adviser Tim Backshall says. He says swap traders don't trust S&P's and Moody's investment-grade ratings for the companies.

`Into Default'

``The only thing holding them at AAA is simply the model that the rating agencies claim they use to judge that capital and the fact they know that if they downgrade the companies, it'll push them into default,'' says Backshall, of Walnut Creek, California- based Credit Derivatives Research LLC.

MBIA spokesman Kevin Brown says the official investment grade ratings are justified. ``Credit default swap spreads, in our opinion, are an indicator of investors' sentiment, as opposed to an objective measure of risk,'' he says.

Brown disagrees with Backshall's conclusion. ``There is nothing about a downgrade that would in and of itself trigger a default. We don't think that's going to happen.''

Ambac Chief Financial Officer Sean Leonard says the credit default swap market may not accurately portray a company's debt quality.

``It's not an efficient market,'' he says. ``There are technical factors, like supply and demand imbalances, in the credit default swap price that don't reflect our fundamental ability to make payments on claims.''

`Will Not Refrain'

The rating companies say their grades are correct.

``Moody's will not refrain from taking a credit rating action based on the potential effect of the action,'' says company spokesman Anthony Mirenda.

S&P spokesman Chris Atkins says, ``We make rating changes when we believe events warrant such action.''

Munves says that over one year, the implied ratings have been a more accurate predictor of defaults than Moody's ratings. The Moody's unit reports that implied ratings for one year have a 91 percent accuracy ratio compared with an 82 percent ratio for Moody's official ratings.

``The Moody's accuracy ratio is consistently lower,'' he says.

He says Moody's company debt ratings are designed to remain stable so they aren't influenced by short-term ripples, unlike the more volatile swap-implied ratings.

``The CDS market often ends up coming back towards Moody's rating,'' he says.

By the time the two ratings converge, though, a company's debt may already be in default -- and the investors who bought it may be out of luck.

Editor: Jonathan Neumann

To contact the reporter on this story: David Evans in Los Angeles at davidevans@bloomberg.net.

Investigators raid German telecom giant in spy probe

BERLIN (AFP) — Prosecutors raided Deutsche Telekom's headquarters on Thursday as a scandal that has seen Europe's biggest phone company confess to spying on journalists and senior executives escalated.

Board members meanwhile vowed to sue the company for tracking their calls, a financial newspaper accused it of spying on its staff and the current chief executive looked in danger of becoming implicated in the affair.

Deutsche Telekom at the weekend conceded that it had hired detectives to track hundreds of thousands of phone calls by senior executives and journalists to identify the sources of press leaks.

On Thursday, staff representatives on the company's supervisory board said they assumed they were "the first victims" in the affair and have decided to sue the company for violating their privacy rights.

"We have decided to take legal action," said the deputy president of the board, Lothar Schroeder, who represents the Verdi trade union.

Deutsche Telekom admitted on Saturday that it had made "ill-advised use of communications data" in 2005 and probably 2006.

It has so far admitted only to targeting the magazine Capital but on Thursday the Financial Times Deutschland alleged that it was also a victim of espionage by Deutsche Telekom and as early as 2000.

The daily said in a front-page report that Deutsche Telekom had hired private detectives to spy on its reporters eight years ago and had even secretly filmed the newsroom.

"Their main target was the FTD's chief reporter at the time, Tasso Enzweiler, who often broke stories about the telecommunication sector.

"The private detectives even used a hidden camera to try and get information about Enzweiler's source from the newsroom in Cologne," the newspaper said.

Both the FTD and Capital belong to the publishing house Gruner und Jahr, which is turn is owned by German media giant Bertelsmann.

The publisher has warned that it is considering both criminal and civil charges against Deutsche Telekom.

The telecoms giant insists that the Berlin consultancy firm it hired had not listened to journalists' conversations but only logged details on who phoned whom as well as the time and duration of the calls.

The scandal is proving deeply damaging in a country already nervous about "Big Brother" style privacy invasion and chief executive Rene Obermann has embarked on a damage control campaign.

Obermann announced that state prosecutors and a law firm in Cologne were investigating the affair and promised Deutsche Telekom users that they were not being wiretapped.

The "personal data of our millions of fixed-line and mobile clients was secure," he told Germany's top-selling newspaper Bild.

Though Obermann only took over the reins at Deutsche Telekom in November 2006, pressure is growing on the chief executive to explain his role in the affair.

A company statement issued Thursday hinted that he learnt last year that a Capital reporter had been under surveillance in 2005, when predecessor Kai-Uwe Ricke had been in charge.

The board was informed of the case, the statement said, but decided to keep quiet because "in the end Mr Obermann must act in the interest of the company."

Deutsche Telelom is the latest in a string of major German companies to be hit by revelations that it spied on its own staff.

In the highest profile case, it emerged in March that discount food retailer Lidl had hired detectives to install micro cameras that filmed employees while at work and on their breaks.

Lidl recorded employees when they used the toilet, their conversations while on breaks and even kept track of who their friends outside work were, reports said.

IRAN: Former German official says war imminent

« IRAN: Chris de Burgh plans to play Tehran | Main | IRAQ: General to take hot seat in court »

IRAN: Former German official says war imminent

An opinion piece by the former German foreign minister published today in a leading Middle East paper says that Israel is planning to attack Iran over its nuclear program.

Joschka_fischer_2Joschka Fischer, German's top diplomat from 1998 to 2005, is a visiting scholar at the Woodrow Wilson International Center for Scholars.

He wrote a piece that appeared in today's Daily Star, an English-language Lebanese newspaper, arguing that President Bush's recent visit to the Middle East was a precursor to a war on Iran's nuclear program:

The Middle East is drifting toward a new great confrontation in 2008. Iran must understand that without a diplomatic solution in the coming months, a dangerous military conflict is very likely to erupt. It is high time for serious negotiations to begin.

Fischer said Bush's speech during his address to the Israeli Knesset, or parliament, this month indicated a coming Israeli-U.S. attack on Iran's nuclear program:

He seemed to be planning, together with Israel, to end the Iranian nuclear program -- and to do so by military, rather than by diplomatic, means.... Although it is acknowledged in Israel that an attack on Iran's nuclear facilities would involve grave and hard-to-assess risks, the choice between acceptance of an Iranian bomb and an attempt at its military destruction, with all the attendant consequences, is clear. Israel won't stand by and wait for matters to take their course.

Fischer, former leader of Germany's Green Party, was one of the key diplomats involved in assessing Iran's nuclear facilities and pressuring Tehran for a temporary halt of its uranium enrichment program from 2003 to 2005, when he left office.

His piece was the talk of the town in Beirut. It stunned some abroad, as well. Conservative blogger Don Surber writes:

I had hoped that reasonable minds would by now have resolved this situation amicably and without violence. When a lefty like Fischer doubts that can happen, I worry.

Borzou Daragahi in Beirut

Photo: Joschka Fischer. Credit: Andrzej Barabasz / Wikimedia Commons

P.S. The Los Angeles Times issues a free daily newsletter with the latest headlines from the Middle East. You can subscribe by registering at the website here, logging in here and clicking on the World: Mideast newsletter box here.

Tuesday, May 27, 2008

Germany shocked by new privacy invasion scandal


..."shocked"!!! .......

BERLIN (AFP) — Germany has been hit by another privacy scandal, with telecoms giant Deutsche Telekom joining discount food chain Lidl and the state among those accused of secretly tracking individuals.

On Monday, Deutsche Telekom, the biggest European telecoms operator by revenue, was in full damage control mode, with chief executive Rene Obermann telling the mass circulation daily Bild that all cases of surveillance "must be clarified and result in severe consequences."

The company acknowledged Saturday it had hired an outside firm to track hundreds of thousands of phone calls by senior executives and journalists to identify the sources of press leaks.

Deutsche Telekom was responding to a report in the news weekly Der Spiegel, which said Obermann was not in charge when the spying took place.

He has since announced that state prosecutors and a law firm in western Cologne were investigating the affair.

A Deutsche Telekom statement promised an "independent and thorough investigation," and quoted Obermann as saying: "I am deeply shocked by the incidents."

Deutsche Telekom said it made "ill-advised use of communications data" in 2005 and probably 2006.

But the telecoms operator also stressed it had no knowledge of wiretapping by the company involved, which was not identified.

The "personal data of our millions of fixed-line and mobile clients was secure," Obermann told Bild.

A finance ministry spokesman nonetheless termed the action a "serious breach of trust," while union leader Lothar Schroeder, who is vice president of the Deutsche Telekom supervisory board, called the affair "an enormous scandal."

The state is Deutsche Telekom's dominant shareholder with 32 percent stake.

An editorial in the newspaper Die Welt summed up the sentiments of many, saying: "Citizens now have a right to demand whether their data is in good hands at Deutsche Telekom."

Peter Schaar, a government official charged with the protection of computer data, said: "Unlimited data storage represents a serious threat to security."

He vowed "strong intervention to reinforce legal instruments for data protection."

Since January 1, information on mobile telephone communications, including the identity of correspondents, plus the time, place and length of calls must be stored by telecoms operators for a period of six months.

The measure, aimed at helping authorities fight terrorism, puts Deutsche Telekom on the front line because it is the biggest German mobile operator.

The law, drawn up to satisfy a European Union directive, raised howls of protest in a country which because of its history is especially worried by the spectre of a police state.

Measures such as installing secret cameras in terror suspects' homes and including biometric data on passports have riled civil liberties groups. The country's constitutional court revised the law in March following formal complaints by more than 30,000 people.

A few weeks later, it emerged that discount food retailer Lidl had hired detectives to install micro cameras that tracked employees, with graphic details and images shocking the population.

Lidl recorded employees when they used the toilet, their conversations while on break and kept track of who their friends outside work were, reports said.

Similar reports then surfaced concerning other distributors, further fueling fears of invasion of privacy.

Lidl's image took an immediate hit from the revelations while Deutsche Telekom looked set for a similar reaction by clients, millions of whom have already dumped the group's fixed-line services.

Housing Bailout Bill Creates National Fingerprint Registry


By Declan McCullagh

26/05/08 "CNET" -- - The Senate housing bill approved by a committee this week was already drawing fire from fiscal conservatives and financially responsible homeowners opposed to bailing out housing speculators.

Now it may be time to add privacy advocates to the chorus of voices urging President Bush to veto the bill, which could put taxpayers on the hook for billions of bailout dollars in new taxes or deficit spending.

Buried in the text of the revised legislation, approved by the Senate Banking Committee by a 19-2 vote this week, is a plan to create a new national fingerprint registry. It covers just about everyone involved in the mortgage business, including lenders, "loan originators," and some real estate agents.

"We know that today the rules governing mortgage brokers and lenders are inadequate," Sen. Dianne Feinstein (D-Calif.) said in a statement. "There is just a thin patchwork of regulation that varies from state to state. This legislation will create basic minimum standards for states to utilize to protect consumers." Feinstein and Mel Martinez (R-Fla.) wrote a separate bill introduced in February that has been glued onto the revised Senate housing legislation.

What's a little odd is the lack of public discussion about this new fingerprint database. No mention of it appears in the official summary of the revised Senate bill. No fingerprint database requirement is in the House version of the legislation approved earlier this month. No copy of the revised Senate legislation is posted on the Library of Congress' Thomas Web site, which would be the usual procedure.

The feds' new fingerprint database would function like this: Any "loan originator" must furnish "fingerprints for submission to the Federal Bureau of Investigation" and a wealth of other unnamed government agencies. Loan originator is defined as someone who accepts a residential mortgage application, negotiates terms on a mortgage, advises on loan terms, prepares loan packages, or collects information on behalf of the consumer. Real estate agents are covered if they get "compensation" of any sort (including kickbacks) from loan originators.

It's true that some states already have fingerprinting requirements. Colorado requires "mortgage brokers" (a narrower category) to get fingerprinted. So do Kansas, Mississippi, and Montana, for instance.

In the proposed federal system, what remains unclear is what happens to the fingerprints once submitted. The legislation talks about a "background check"--which would imply a one-time use--but also creates a Nationwide Mortgage Licensing System and Registry that "provides increased accountability and tracking of loan originators." Neither Feinstein's nor Martinez's offices returned our phone calls and e-mail messages asking for clarification on Friday morning.

The bill does specify that the registry will be run by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. Those two groups are currently developing a "central repository" of information with document collecting and fingerprinting that "will be accessed through a secure Web site over the Internet."

"I imagine that, yes, a fingerprint registry might stop an ex-con from handling loans, but I doubt it will make even a dent in the lending problems the bill aims to stop," says John Berlau, director of the Center for Entrepreneurship at the free-market Competitive Enterprise Institute. "And I would venture to guess that the vast majority of the problem mortgages were handled by employees with no criminal record. Rather, this seem like another thoughtless idea that lets politicians brag that they are 'getting tough' about a particular problem."

Berlau makes a good point. Creating a database of fingerprints of "loan originators" and a subset of real estate agents might make sense. It might not. But it surely would have been reasonable to have an informed debate on the topic before politicians rushed to enact federal legislation before the Senate's Memorial Day recess, and it would surely be wise to insist on security and privacy protections when the bill goes to the full Senate. Unfortunately, there's little reason to believe either will actually happen.

News.com's Anne Broache contributed to this report.

Big Brother Is Watching You...

...but luckily he's overstretched and has underestimated the job of keeping track of us all

By Phil Hendren

27/05/08 "
The Times" -- 22/05/08 - -The Government is planning to introduce a giant database that will hold the details of every phone call we have made, every e-mail we have sent and every webpage we have visited in the past 12 months. This is needed to fight crime and terrorism, the Government claims.

The Orwellian nature of this proposal cannot be overstated. However, there is one saving grace for people who fear for their civil liberties. The probability of the project ever seeing the light of day is close to zero. This proposal - like so many grandiose government IT schemes before it - is technologically unfeasible.

The current levels of traffic on the internet alone (including e-mail) would require storage volumes of astronomical proportions - and internet use by the public is still growing rapidly. Meanwhile, the necessary processing capabilities to handle such a relentless torrent of information do not bear thinking about. Modern computer processors are fast, but writing data to disks will always be a serious bottleneck.

Take a quick sample from the London Internet Exchange, the UK's hub and one of world's largest points at which each ISP exchanges traffic. Yearly LINX carries at the very least 365 petabytes of data - that is the equivalent of the contents of about 26 million iPod Nanos that have the capacity to hold nearly 2,000 songs each. There is no commercial technology that is capable of writing at those kinds of speeds.

It's not just writing that would be problematic, but the reading of the data too. It would be immensely difficult to pinpoint in such a massive database an e-mail sent by a particular person at a particular time.

It's all too familiar in large-scale government projects that the technological expectations of civil servants gallop far ahead of reality. The Ministry of Defence's requirements for the Nimrod radar project was a classic example of overspecification. The result was a system that was unable to process data because the technology Whitehall assumed would exist in the future, when the planes would finally take to the skies, simply never materialised. The planes, after hundreds of millions were spent, had to revert to the traditional Awacs system instead. The men who gave us the new NHS database, likewise, severely underestimated operational realities.

The good news is that we will not be robbed of our privacy by this latest database because it will remain just a pipedream. We taxpayers will, however, be robbed of billions of pounds as the IT consultancies draw up their bids to design and deliver the undeliverable.

Phil Hendren is a Unix systems administrator. He blogs at www.dizzythinks.net

Super NAFTA

Monday, May 26, 2008

UBS Says More Losses on U.S., Global Mortgage Markets Possible


By Elena Logutenkova

May 24 (Bloomberg) -- UBS AG, the Swiss bank seeking $15.6 billion from shareholders to replenish capital after subprime- related writedowns, said it may face more losses from holdings in both U.S. and global mortgage markets.

UBS had losses on non-U.S. residential and commercial real- estate securities in 2007 and the first quarter of this year which ``could increase in the future,'' the Zurich-based bank said in a prospectus for the rights offer published on its Web site late yesterday. It didn't give any more details.

The bank is also evaluating whether to limit or discontinue one or more of its so-called U.S. reference-linked note programs, which ``could result in a charge to income,'' it said.

UBS had created 10 such programs, which sold bonds referenced to a pool of asset-backed securities held by the bank, with a face value of $16.9 billion. At the end of March, the bank's net exposure to reference-linked notes was $8.9 billion.

UBS, which sold $15 billion in subprime and Alt-A bonds to a fund managed by BlackRock Inc. to reduce risk, still has more than $45 billion in U.S. mortgage-related assets, $8.6 billion in leveraged finance commitments and $10.4 billion in student loans on its books. The bank aims to replenish capital after about $38 billion in writedowns related to the U.S. subprime crisis.

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Saturday, May 24, 2008

Jamie Dimon: The Worst is Ahead for Banks

May 20, 2008 2:03 PM
JPMorgan Chase CEO James Dimon says banks will suffer more from the recession than from the subprime debacle itself.
Investment banks have written down tens of billions of dollar so far, but the worst is not behind us yet, Dimon says. Banks will be hit harder as the recession unfolds.
"The recession is just starting,” Dimon told an audience at the UBS AG financial services conference in New York.
"We don't know whether it's going to be mild or severe. It could be deep, it could be worse than the capital markets crisis."
Dimon also believes that there is "a third of a chance” that the recession is "going to be pretty bad.”
The recession could "come closer to a 1982 recession than the very mild recession we had in 2001 and 1990,” Dimon said.
Credit quality is also declining much faster than experts had previously estimated, and it is going beyond the portfolios of consumers, Dimon said.
Another negative sign is that the volume of credit card charges is dipping, he said.
The recession thus is causing the "round two financial effect" of banking industry turbulence, Dimon said.
"Commercial bank losses are growing — you see it in home equity, you see it in other mortgage products, you see it in small business, you see it in wholesale business,” he said.
"They are not getting terrible, but they are getting worse."
The effect of the recession could last for quite awhile, farther into the future than experts have forecast, he said.
With credit standards getting tighter and reserves for loan losses increasing, companies will be forced to deleverage their balance sheets, resulting in "weaker” capital, Dimon said.
"This could take into '09 and '10," Dimon said.
Dimon’s sentiment echo those of billionaire investor George Soros.
Wall Street is emerging from the credit wreckage, but Main Street — the economy that ordinary people have to live with — is headed downhill fast, Soros told listeners at a recent Council on Foreign Relations event.
"I think we have the acute phase of the financial crisis largely behind us,” Soros says.
"But the damage that has been done to the system has to affect the real economy. The effect of that is only beginning to be felt.”
© 2008 Newsmax. All rights reserved.

Derivatives Market Grows to $596 Trillion on Hedging (Update1

Derivatives Market Grows to $596 Trillion on Hedging (Update1)
By Abigail Moses
May 22 (Bloomberg) -- The market for derivatives expanded at the fastest pace in at least a decade last year as the global credit crisis spurred trading in contracts used to hedge against losses, according to the Bank for International Settlements.
Derivatives, including those based on debt, currencies, commodities, stocks and interest rates, expanded 44 percent from the previous year to $596 trillion, the Basel, Switzerland-based bank said in a report today. The amount of credit-default swaps protecting investors against losses on bonds and loans more than doubled to cover a notional $58 trillion of debt.
``The credit crisis supported growth'' of the market, Naohiko Baba, an analyst at BIS who co-wrote the report, said in an interview. ``Fixed-income markets experienced big turmoil so had more hedging needs.''
Investors turned to derivatives to bet that the $383 billion of credit losses and writedowns at banks and securities firms since the start of 2007 would push the world economy into recession. The cost of protecting corporate debt against default jumped as much as 670 percent last year, according to the Markit ITraxx Europe Crossover index.
The increase in the cost of credit-default swaps quadrupled the amount of money investors have at stake in the contracts to $2 trillion from $470 billion, the BIS said. The amount at risk in the entire derivatives market is $15 trillion, according to the BIS, which was formed in 1930 to monitor financial markets and regulate banks.
Price Increase
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates or the weather.
The data on the BIS report are based on contracts traded outside of exchanges in the over-the-counter market.
Interest-rate derivatives remained the largest part of the market, expanding 35 percent to $393 trillion outstanding last year, the report said.
Foreign exchange derivatives grew by 40 percent to $49 trillion as the credit crisis triggered the highest volatility in the seven most-traded currencies in almost eight years, based JPMorgan Chase & Co. data.
The amount of equity derivatives outstanding expanded 14 percent in 2007 to $8.5 trillion.
Commodity derivatives expanded by 26.5 percent as the price of gold and oil reached records. Contracts based on gold rose the most in the second half, by 40 percent to $595 billion. Crude oil rose to a record above $135 a barrel in New York yesterday after U.S. stockpiles unexpectedly dropped.
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net

Wednesday, May 21, 2008

America’s economy risks mother of all meltdowns

by Martin Wolf

Published: February 19 2008 18:21 | Last updated: February 19 2008 18:21

Ingram Pinn illustration

“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.

Forecasts for GDP growth in 2008/US real house prices

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.

US household debt and debt service/US commercial paper

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, www.rgemonitor.com; **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

martin.wolf@ft.com

Moody’s error gave top ratings to debt products

By Sam Jones, Gillian Tett and Paul J Davies in London

Published: May 20 2008 23:36 | Last updated: May 20 2008 23:36

Moody’s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models, a Financial Times investigation has discovered.

Internal Moody’s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.

News of the coding error comes as ratings agencies are under pressure from regulators and governments, who see failings in the rating of complex structured debt as an integral part of the financial crisis. While coding errors do occur there is no record of one being so significant.

Moody’s said it was “conducting a thorough review” of the rating of the constant proportion debt obligations – derivative instruments conceived at the height of the credit bubble that appeared to promise investors very high returns with little risk. Moody’s is also reviewing what disclosure of the error was made.

The products were designed for institutional investors. In the recent credit market turmoil, those who still hold the products will have suffered some paper losses while others who have bailed out have lost up to 60 per cent of their investment.

On discovering the error early in 2007, Moody’s corrected the coding glitch and instituted methodology changes. One document seen by the FT says “the impact of our code issue after those improvements in the model is then reduced”. The products remained triple A until January this year when, amid general market declines, they were downgraded several notches.

In a statement to the FT, Moody’s said: “Moody’s regularly changes its analytical models and enhances its methodologies for a variety of reasons, including to reflect changing credit conditions and outlooks. In addition, Moody’s has adjusted its analytical models on the infrequent occasions that errors have been detected.

“However, it would be inconsistent with Moody’s analytical standards and company policies to change methodologies in an effort to mask errors. The integrity of our ratings and rating methodologies is extremely important to us, and we take seriously the questions raised about European CPDOs. We are therefore conducting a thorough review of this matter.”

Credit ratings are hugely important within the financial system because many investors – such as pension funds, insurance companies and banks – use them as a yardstick either to restrict the kinds of products they buy, or to decide how much capital they need to hold against them.

The world’s other major credit agency, Standard and Poor’s, was the first to award triple A status to CPDOs but many investors require ratings from two agencies before they invest so the Moody’s involvement supplied that crucial second rating.

S&P stood by its ratings, saying: “Our model for rating CPDOs was developed independently and, like our other ratings models, was made widely available to the market. We continue to closely monitor the performance of these securities in light of the extreme volatility in CDS prices and may make further adjustments to our assumptions and rating opinions if we think that is appropriate.”

Copyright The Financial Times Limited 2008

Tuesday, May 20, 2008

UK Phone calls database considered

Ministers are to consider plans for a database of electronic information holding details of every phone call and e-mail sent in the UK, it has emerged.

The plans, reported in the Times, are at an early stage and may be included in the draft Communications Bill later this year, the Home Office confirmed.

A Home Office spokesman said the data was a "crucial tool" for protecting national security and preventing crime.

Ministers have not seen the plans which were drawn up by Home Office officials.

A Home Office spokesman said: "The Communications Data Bill will help ensure that crucial capabilities in the use of communications data for counter-terrorism and investigation of crime continue to be available.

"These powers will continue to be subject to strict safeguards to ensure the right balance between privacy and protecting the public."


Given the appalling track record of data loss, this state is simply not to be trusted with such private information
Chris Huhne
Lib Dems

The spokesman said changes need to be made to the Regulation of Investigatory Powers Act 2000 "to ensure that public authorities can continue to obtain and have access to communications data essential for counter-terrorism and investigation of crime purposes".

But the Information Commission, an independent authority set up to protect personal information, said the database "may well be a step too far" and highlighted the risk of data being lost, traded or stolen.

Assistant information commissioner Jonathan Bamford said: "We are not aware of any justification for the state to hold every UK citizen's phone and internet records. We have real doubts that such a measure can be justified, or is proportionate or desirable.

"Defeating crime and terrorism is of the utmost importance, but we are not aware of any pressing need to justify the government itself holding this sort of data."

'Appalling record'

A number of data protection failures in recent months, including the loss of a CD carrying the personal details of every child benefit claimant, have embarrassed the government.

The plans also prompted concern from political groups.

The shadow home secretary, David Davis, said: "Given [ministers'] appalling record at maintaining the integrity of databases holding people's sensitive data, this could well be more of a threat to our security than a support."

Liberal Democrat home affairs spokesman Chris Huhne called the proposals "an Orwellian step too far".

He said ministers had "taken leave of their senses if they think that this proposal is compatible with a free country and a free people".

"Given the appalling track record of data loss, this state is simply not to be trusted with such private information," said Mr Huhne.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/uk_news/7409593.stm

I Spy Your PC: Researchers Find New Ways to Steal Data

Robert McMillan, IDG News ServiceMon May 19, 5:10 AM ET

Researchers have developed two new techniques for stealing data from a computer that use some unlikely hacking tools: cameras and telescopes.

In two separate pieces of research, teams at the University of California, Santa Barbara, and at Saarland University in Saarbrucken, Germany, describe attacks that seem ripped from the pages of spy novels. In Saarbrucken, the researchers have read computer screens from their tiny reflections on everyday objects such as glasses, teapots, and even the human eye. The UC team has worked out a way to analyze a video of hands typing on a keyboard in order to guess what was being written.

Computer security research tends to focus on the software and hardware inside the PC, but this kind of "side-channel" research, which dates back at least 45 years, looks at the physical environment. Side-channel work in the U.S. was kicked off in 1962 when the U.S. National Security Agency discovered strange surveillance equipment in the concrete ceiling of a U.S. Department of State communications room in Japan and began studying how radiation emitted by communication components could be intercepted.

Much of this work has been top secret, such as the NSA's Tempest program. But side-channel hacking has been in the public eye too.

In fact, if you've seen the movie "Sneakers," then the University of California's work will have a familiar ring. That's because a minor plot point in this 1992 Robert Redford film about a group of security geeks was the inspiration for their work.

In the movie, Redford's character, Marty Bishop, tries to steal a password by watching video of his victim, mathematician Gunter Janek, as he enters his password into a computer. "Oh, this is good," Redford says, "He's going to type in his password and we're going to get a clear shot"

Redford's character never does get his password, but the UC researchers' Clear Shot tool may give others a fighting chance, according to Marco Cova, a graduate student at the school.

Clear Shot can analyze video of hand movements on a computer keyboard and transcribe them into text. It's far from perfect-- Cova says the software is accurate about 40 percent of the time-- but it's good enough for someone to get the gist of what was being typed.

The software also suggests alternative words that may have been typed and more often then not the real word is in the top five suggestions provided by Clear Shot, Cova said.

Clear Shot works with an everyday Web cam, but the Saarland University team has taken thing up a notch, training telescopes on a variety of targets that just might happen to catch a computer monitor's reflection: teapots, glasses, bottles, spoons, and even the human eye.

The researchers came up with this idea during a lunchtime walk about nine months ago, said Michael Backes, a professor at Saarland's computer science department. Noticing that there were a lot of computers to be seen in campus windows, the researchers got to thinking. "It started as a fun project," he said. "We thought it would be kind of cute if we could look at what these people are working on."

It turned out that they could get some amazingly clear pictures. All it took was a US$500 telescope trained on a reflective object in front of the monitor. For example, a teapot yielded readable images of 12 point Word documents from a distance of 5 meters (16 feet). From 10 meters, they were able to read 18 point fonts. With a $27,500 Dobson telescope, they could get the same quality of images at 30 meters.

Backes said he's already demoed his work for a government agency, one that he declined to name. "It was convincing to these people," he said.

That's because even though the reflections are tiny, the images are much clearer than people expect. Often, first time viewers think they're looking at the computer screen itself rather than a reflection, Backes said.

One of his favorite targets is a round teapot. Looking at a spoon or a pair of glasses, you might not get a good view of the monitor, but a spherical teapot makes a perfect target. "If you place a sphere close by, you will always see the monitor," he said. "This helps; you don't have to be lucky."

The Saarland researchers are now working out new image analysis algorithms and training astronomical cameras on their subjects in hopes of getting better images from even more difficult surfaces such as the human eye. They've even aimed their telescopes and cameras at a white wall and have picked up readable reflections from a monitor 2 meters from the wall.

Does Backes think that we should really be concerned about this kind of high tech snooping? Maybe, just because it's so cheap and easy to do. He said he could see some people shelling out the $500 for a telescope just to try it out on their neighbors.

So how to protect yourself from the telescopic snooper? Easy. "Closing your curtains is maybe the best thing you can do," he said.

‘Big Brother’ database for phones and e-mails

From
May 20, 2008

A massive government database holding details of every phone call, e-mail and time spent on the internet by the public is being planned as part of the fight against crime and terrorism. Internet service providers (ISPs) and telecoms companies would hand over the records to the Home Office under plans put forward by officials.

The information would be held for at least 12 months and the police and security services would be able to access it if given permission from the courts.

The proposal will raise further alarm about a “Big Brother” society, as it follows plans for vast databases for the ID cards scheme and NHS patients. There will also be concern about the ability of the Government to manage a system holding billions of records. About 57 billion text messages were sent in Britain last year, while an estimated 3 billion e-mails are sent every day.

Home Office officials have discussed the option of the national database with telecommunications companies and ISPs as part of preparations for a data communications Bill to be in November’s Queen’s Speech. But the plan has not been sent to ministers yet.

Industry sources gave warning that a single database would be at greater risk of attack and abuse.

Jonathan Bamford, the assistant Information Commissioner, said: “This would give us serious concerns and may well be a step too far. We are not aware of any justification for the State to hold every UK citizen’s phone and internet records. We have real doubts that such a measure can be justified, or is proportionate or desirable. We have warned before that we are sleepwalking into a surveillance society. Holding large collections of data is always risky - the more data that is collected and stored, the bigger the problem when the data is lost, traded or stolen.”

David Davis, the Shadow Home Secretary, said: “Given [ministers’] appalling record at maintaining the integrity of databases holding people’s sensitive data, this could well be more of a threat to our security, than a support.”

The proposal has emerged as part of plans to implement an EU directive developed after the July 7 bombings to bring uniformity of record-keeping. Since last October telecoms companies have been required to keep records of phone calls and text messages for 12 months. That requirement is to be extended to internet, e-mail and voice-over-internet use and included in a Communications Data Bill.

Police and the security services can access the records with a warrant issued by the courts. Rather than individual companies holding the information, Home Office officials are suggesting the records be handed over to the Government and stored on a huge database.

One of the arguments being put forward in favour of the plan is that it would make it simpler and swifter for law enforcement agencies to retrieve the information instead of having to approach hundreds of service providers. Opponents say that the scope for abuse will be greater if the records are held on one database.

A Home Office spokesman said the Bill was needed to reflect changes in communication that would “increasingly undermine our current capabilities to obtain communications data and use it to protect the public”.

with comments...

You have 7 years to learn Mandarin


Forget cheap imports. China's rise will soon be a force on Wall Street and Main Street and in Silicon Valley.

(Fortune Magazine) -- Back in 2001 when the International Olympic Committee chose Beijing as the site of this summer's games, the event was meant to mark China's debut as a player on the global economic stage. But a recent study by the economist Angus Maddison projects that China will become the world's dominant economic superpower much sooner than expected - not in 2050, but in 2015.

While short-term investors are already cashing in on China's growth by playing the global commodities boom, smart long-term thinkers are contemplating what happens when China matures from an exporter of cheap goods to a competitor in sectors where the U.S. is dominant - technology, brand building, finance. China has almost wiped U.S. makers of low-value items like toys and socks, but by 2015 it may threaten Apple (AAPL, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), and Procter & Gamble (PG, Fortune 500). It will increasingly influence the S&P 500 and the mutual funds in our 401(k)s. So it's worth looking at how that will happen, what it means, and what anyone can do in the seven years before the baton is passed.

Just using the exchange rate to convert China's GDP into dollars isn't helpful in comparing the two economies, because China controls its exchange rate; by that method, China's economy might not pass America's for decades. Exchange rates apply only to tradable products and services; they aren't very useful in valuing nontradable goods in a country like China that is much poorer than the United States. So we need some way to compare the real value of China's economic output with America's, and economists have developed one. It is called purchasing power parity.

For example, Chinese construction workers earn a whole lot less than Americans do, yet they can still build top-quality buildings. If we used the exchange rate, the value of a new skyscraper in Shanghai would count much less toward China's GDP than an identical building in Chicago would count toward America's, which makes no sense. Purchasing power parity corrects the problem.

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UK banks have rough waters ahead

Mortgage debt fears hit banks' shares
By Katherine Griffiths, Financial Services Editor
Last Updated: 1:33am BST 20/05/2008

Bradford & Bingley's (B&B) shares slumped to a record low amid fresh fears about the mortgage market.

Jitters about a potential increase in bad debts also hit other UK banks, including HBOS, owner of Halifax and Bank of Scotland, and Royal Bank of Scotland.

The further slide in banking shares came as investors focused on problems that could lie ahead for the UK's banks.

Sandy Chen, an analyst at Panmure Gordon, warned that the macroeconomic outlook for the UK has deteriorated.

He said that while investors have been worried about British banks' exposure to the US sub-prime market through their investments in credit derivatives, the real fear now will be over the bad debts that UK banks could face.

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