Debt Rattle, May 4 2008: Dead bats and party hats

Dorothea Lange: Lost the farm - Oklahoma 1938

Ilargi: Everyone’s attention seems to remain focused on speculators driving up food prices. The real perpetrators, acting out their own version of “the heads of the five families”, stay out of sight, counting their profits and blessings.

If you wish to send food aid to the millions who are on the brink of starvation this year and beyond, realize that there is one way only to do so. You have to pay the capo’s. They own America’s food, and most of the rest of the world’s too. Bush announced a $700 million aid package this week, which means half a billion in added gains for the cartel. Misery raises profits.

On the larger finance front, if Monday brings, as predicted by for instance Karl Denninger, a realization for the market players with their party hats and donkey ears on, that Bank of America has implicitly stated it will NOT take on Countrywide’s $30-$40 billion debt, we could see Countrywide plunge very close to zero starting tomorrow morning. And that in turn will raise poignant questions about JPMorgan’s intentions when it comes to Bear Stearns’ toxic assets.


Multinationals make billions in profit out of growing global food crisis

Giant agribusinesses are enjoying soaring earnings and profits out of the world food crisis which is driving millions of people towards starvation, The Independent on Sunday can reveal. And speculation is helping to drive the prices of basic foodstuffs out of the reach of the hungry. The prices of wheat, corn and rice have soared over the past year driving the world's poor – who already spend about 80 per cent of their income on food – into hunger and destitution.

The World Bank says that 100 million more people are facing severe hunger. Yet some of the world's richest food companies are making record profits. Monsanto last month reported that its net income for the three months up to the end of February this year had more than doubled over the same period in 2007, from $543m (£275m) to $1.12bn. Its profits increased from $1.44bn to $2.22bn.

Cargill's net earnings soared by 86 per cent from $553m to $1.030bn over the same three months. And Archer Daniels Midland, one of the world's largest agricultural processors of soy, corn and wheat, increased its net earnings by 42 per cent in the first three months of this year from $363m to $517m. The operating profit of its grains merchandising and handling operations jumped 16-fold from $21m to $341m.

Similarly, the Mosaic Company, one of the world's largest fertiliser companies, saw its income for the three months ending 29 February rise more than 12-fold, from $42.2m to $520.8m, on the back of a shortage of fertiliser. The prices of some kinds of fertiliser have more than tripled over the past year as demand has outstripped supply. As a result, plans to increase harvests in developing countries have been hit hard.

The Food and Agriculture Organisation reports that 37 developing countries are in urgent need of food. And food riots are breaking out across the globe from Bangladesh to Burkina Faso, from China to Cameroon, and from Uzbekistan to the United Arab Emirates. Benedict Southworth, director of the World Development Movement, called the escalating earnings and profits "immoral" late last week. He said that the benefits of the food price increases were being kept by the big companies, and were not finding their way down to farmers in the developing world.

The soaring prices of food and fertilisers mainly come from increased demand. This has partly been caused by the boom in biofuels, which require vast amounts of grain, but even more by increasing appetites for meat, especially in India and China; producing 1lb of beef in a feedlot, for example, takes 7lbs of grain. World food stocks at record lows, export bans and a drought in Australia have contributed to the crisis, but experts are also fingering food speculation.

Professor Bob Watson – chief scientist at the Department for Environment, Food and Rural Affairs, who led the giant International Assessment of Agricultural Science and Technology for Development – last week identified it as a factor. Index-fund investment in grain and meat has increased almost fivefold to over $47bn in the past year, concludes AgResource Co, a Chicago-based research firm. And the official US Commodity Futures Trading Commission held special hearings in Washington two weeks ago to examine how much speculators were helping to push up food prices.

Cargill says that its results "reflect the cumulative effect of having invested more than $18bn in fixed and working capital over the past seven years to expand our physical facilities, service capabilities, and knowledge around the world".

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Agriculture's new 'golden age'

It's becoming a cliché in the world's commodity trading pits: Food is the new oil. After decades when every year seemed to be a struggle for the agricultural sector, farmers have watched with amazement the past year's skyrocketing in global prices for wheat (up 287 per cent), corn (up 149 per cent), coffee, peas, lentils, soybeans, rice, canola, dairy products and other cropland commodities.

Canadian farmers are poised to reap a bountiful reward for their crops this year in what Robert Moskow, agricultural analyst at Credit Suisse SA, describes as a new "golden age" of agriculture. The hard red spring wheat in which Canadian Prairie farmers specialize is a premium variety, now commanding about $18 (U.S.) a bushel, up from a range of $3 to $6 until two years ago. Durum wheat, another Prairie mainstay, used in pasta, is also commanding record prices.

The U.N. Food and Agriculture Organization (FAO) global price index leapt 40 per cent in 2007. Ottawa now estimates that average Canadian farm income will jump 16 per cent this year, and gross crop receipts will eclipse the 2006 level by 40 per cent.

The main drivers of the spike in prices, similar to the sudden buoyancy in dot-com stocks in the late 1990s, are North American government policies encouraging biofuel and biodiesel production, and rising protein demand among increasingly affluent consumers in China, India and other dynamic developing world economies. At roughly 300 million people, India's middle class is equal in size to the entire U.S. population.

Compounding matters are lengthy droughts in major wheat-producing regions, notably Australia and Ukraine. As a result, average global wheat inventories have fallen to a 30-year low, and U.S. stockpiles have dropped to 1948 levels. The U.S. and Canada have kept their export gates open. But China, Kazakhstan and other nations have imposed export controls to protect domestic inventories, further constricting the global supply.

Apart from farmers in the North American heartland, though, there's a scarcity of folks who are pleased about the startling food-price run-up. Earlier this month, the FAO warned that soaring food prices are a "crisis" for three dozen nations, mainly in South Asia, Africa and Central America. Riots over food shortages and sharp price hikes already have hit Mexico and Senegal.

Last month, 45 U.S. food-processing groups, representing firms whose raw material costs have gone through the roof, demanded that the U.S. agriculture secretary release farmers from their contractual obligation to maintain a portion of their land for wildlife preservation. The U.S. baking industry's trade association, representing firms such as Kellogg Co., Sara Lee Corp. and Interstate Bakeries Corp., plans a march on Washington by the firms' employees later this month to press for a reduction in U.S. wheat exports.

U.S. President George W. Bush got the message. "If you look at what's happened in corn out there, you're beginning to see the food issue and the energy issue collide," Bush said at a press conference last Thursday. "The best way to deal with [renewable fuels] is to focus on research and development that will enable us to use other raw materials [than corn] to produce ethanol."

Peter Brabeck, CEO of Nestlé SA, the world's largest food company, foresees a struggle between the food and biofuel industries over arable land as fresh water supplies diminish. "We will not find sufficient water to produce all the crops," Brabeck said while reporting his firm's financial results last week. "There will be a fierce fight for arable land."

Arable-land acreage is indeed shrinking, even factoring out its conversion to production of fuel feedstock. Several million hectares of farmland disappear each year, as growing economies convert it into residential subdivisions and industrial parks. Declining fresh-water supplies further diminish the amount of land available for farming.

Farmers, for their part, have endured rising fuel, fertilizer and equipment costs. Some farmers, anxious to increase crop yields with more efficient equipment, are finding showrooms bare of certain high-demand tractors, harvesters and other equipment, for which waiting lists have lengthened. While still coming out further ahead than in previous years, farmers' own rising costs have cut into their bonanza. And livestock producers have been hit with the same price shock as food processors, enduring steep increases in corn and other animal feed.

The amount the price of various agricultural crops has risen since Jan. 1, 2006:
• Wheat, +287 per cent.
• Corn, +149 per cent.
• Coffee, +139 per cent.
• Soybeans, +129 per cent.
• Rice, +60 per cent.

The amount the share price of several key agricultural firms has risen in the past year:
• Mosaic Co., +319 per cent.
• Potash Corp. of Saskatchewan Inc., +140 per cent.
• Monsanto Co., +105 per cent.
• Deere & Co., +50 per cent.
• Agrium Inc., +28 per cent.

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In Fact: Keith Olbermann flattens a flock of Shrubs

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JPMorgan says no near end to financial crisis

JPMorgan Chase & Co does not expect the U.S. financial crisis to end soon and will remain very cautious, its top executive said in comments published by a German weekly on Saturday. "We can only speculate how deep and how long the recession in the United States will really be and how that in turn will impact banks," James Dimon told "Welt am Sonntag".

"But we are not done with the crisis for a long time," Dimon said, adding that it was not the company's job to make bets on the future. "Imagine we would need to walk up to our shareholders one day and say, sorry but the recession in the USA is so bad, we're broke. We need to be able to rule out at all times that it will not come to that," Dimon said.

JPMorgan said last month it was on the lookout for regional banks to take over but Dimon said in the report the bank was not interested in purchasing the German consumer lending business of Citigroup Inc. "From my point of view today a takeover like that would be a waste of time," he said.

JPMorgan announced in March it is buying investment bank Bear Stearns, once the fifth-largest investment bank, which collapsed after a run on the bank. Dimon hopes the transaction to be concluded by June 30, earlier than expected, the report quoted him as saying.

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City manager says Vallejo should file for bankruptcy

Vallejo's city manager is advising the City Council to declare bankruptcy next week to deal with a worsening budget crisis.

City Manager Joseph Tanner made the recommendation Friday after weeks of negotiations with the police and fire unions failed to produce a deal that would solve the city's chronic fiscal problems.

Vallejo faces a projected $16 million budget shortfall in its next fiscal year and will have no money in reserve. The City Council is expected to vote Tuesday on whether to file for Chapter 9 bankruptcy protection before its fiscal year ends June 30.

If the city of 120,000 declares bankruptcy, it would be the largest California city to do so.

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Is Now The Right Time To Buy A Home?

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U.S. Dollar Rally Not Based on Fundamentals

"Commodities fell the most in six weeks as a rally in the dollar eroded demand for energy, metals, crops and livestock as alternative investments," reports Bloomberg. We take issue not with the facts-commodity prices have fallen-but with the analysis. The price of energy, metals, crops, and livestock are rising because the supply of those things is rising less fast than the supply of dollars (and U.S. government debt). The Bloomberg analysis casually suggests that investors rotate their portfolios out of greenbacks and into herds of Black Angus...and then back again when confidence in the dollar returns.

Inflation, though, begins with the money supply. We reckon that as long as it remains the strategy of the U.S. government to inflate away its long-term debts, commodity prices will rise and the dollar will move lower toward its intrinsic worth. Nothing fundamental explains the U.S. dollar's recent show of strength. The difference in interest rates is surely not driving the dollar rally (unless you believe the Fed is done cutting rates and the ECB will soon begin). U.S. rates, adjusted for inflation, are negative. And it's certainly not U.S economic growth driving the buck.

While the Saudis ride the increase in the oil price to 5% annual growth, America is barely growing at 0.6% in the first quarter, if the official GDP figures are to be believed. So why did the dollar rally? The dollar's strength is only relative. Part of its rally could be short-covering by the many traders who've been short the currency. Part of it could be that investors believe the Fed will not be cutting rates and weakening the dollar any more (at least not until the next crisis hits).

But most of the move is just noise, we reckon. In the greater monetary scheme of things, the dollar is not getting any more attractive. Commodity investors should be prepared for these periods of doubt, uncertainty, and profit taking. Less resolute investors will be shaken out by these corrections. As we said in an interview about gold recently, there is still big money to be made in precious metals. The easy money has probably been made. But the bigger money will come when the credit rating of the U.S. government goes below investment grade and the government begins defaulting on its obligations.

For the first time ever, the fixed rate on U.S. inflation-indexed bonds (TIPS) is now, get this, zero. TIPS are indexed for inflation, giving investors the fixed rate plus inflation. But with the fixed rate now at zero, investors are getting nothing, and probably not liking it. About the only thing you'd get back for investing in TIPS is your capital. These days, perhaps the return OF capital is more important than the return ON capital.

Speaking of which, what about yesterday's question? Would you buy equity in Citigroup or bonds issued by Petrobras yielding about 5% with a six-year maturity? The reader response was both muted and divided. "i'm not that much of a gambler i'll stick with the bank......i can sleep and i can plan !!!!!!!!!!!!!" Okay!!!!!

"Six years could be just the start of a long relationship of great maturity and depth. But long for my time-line. Will the bonds be denominated in Reals or other commodity currency?" Good question. Brazil's currency is getting stronger. The dollar, not so much. Earlier this week, S&P raised the credit rating on Brazil's dollar-denominated bonds from BB+ to BBB-. You can take that for what it's worth (the value of S&P's rating). But Brazil's stock market is roaring. Brazil is the Australia of South America, you could say.

Our choice? We'd probably stay in cash, being quite conservative. But if forced to choose...we would note that Citigroup has raised some US$40 billion in capital in the last six months...and US$10.5 alone in the last two weeks. Every time the bank says it has enough capital, it ends up asking for more. Even assuming the bank can recapitalise and stabilise itself, where will the earnings come from? Will the share price rally because the banks assets will suddenly be worth more? Petrobras faces some big challenges in actually producing oil off-shore. But at least it knows the oil is there. We'd go with Petrobras.

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World economic system holding its breath

It's fair to say the world economic system is waiting to exhale. And waiting. And waiting ...

Central bankers have done their part, injecting billions of dollars into the system to prevent a global banking meltdown. The banks themselves, particularly in the U.S. – where contrition trumps shame, unlike the U.K. – have written down most of the global industry's $225 billion (U.S.) worth of soured loans from the U.S. subprime debacle to date. And Uncle Sam this month is sending out cheques to hundreds of millions of Americans in an emergency bid to stimulate a faltering consumer economy.

Yet, somehow it's not working. There are but a few signs of global economic recovery. Stocks bounced back after the bailout of brokerage Bear Stearns Cos. by the U.S. Federal Reserve Board, assuring Wall Street that Washington would not let major financial institutions fail. And Fortune 500 and European blue-chip companies with Triple-A ratings are finding the bond market receptive once again after a panic-induced freeze-up.

The banks hardest hit by losses on portfolios of U.S. subprime mortgages – the epicentre of the world credit crisis – have succeeded in repairing their balance sheets to the tune of about $160 billion so far, thanks in large part to the confidence of Middle East, Asian and other offshore investors – in some cases, the same folks a protectionist U.S. Congress sent packing in less dire times when they tried to acquire more prosaic U.S. assets.

Of course, those Red Cross injections have usually meant dilution for existing shareholders. And it's a head-scratching exercise to grasp just how so many the world's purportedly greatest lenders willingly risked their capital bases – that is, their existence – by gambling on investments that the more candid CEOs of the institutions in question have since acknowledged they either didn't understand (Citigroup Inc. vice-chairman and now interim chair Robert Rubin, a former U.S. treasury secretary), or didn't know that an over-caffeinated crew of thirtysomethings on the 15th floor had committed the bank to (just about everybody else's excuse).

The hall of shame where prudence basked in a prolonged siesta includes our own Canadian Imperial Bank of Commerce (CIBC); Britain's Barclays PLC, Switzerland's UBS AG, the largest bank in Europe; UBS rival Credit Suisse Group; Deutsche Bank AG, the biggest German bank; and, with nary an exception. the largest Wall Street banks, among them Citigroup Inc., Wachovia Corp. and J.P. Morgan Chase & Co. – whose additional penalty was having the Fed force it to absorb the crippled Bear Stearns.
Yet, we're continually reminded that the worst isn't over, as the more sanguine Wall Street brokerages insisted after the Bear Stearns rescue. Actually, there's a Prada outlet's inventory of shoes left to drop.

Most of the major banks are still carrying a ton of "collateralized debt obligations" (CDOs), an invention of the latest round of cupidity, which was the bundling of dubious subprime loans into packages slapped with Triple-A rating labels, to be passed along for a lucrative fee to the next Japanese or German bank – among the latest variations of the "greater fool theory," itself a case of musical chairs in which the last institution holding the bag of snakes gets stuck with the writeoff.

Except that when the credit markets froze beginning last summer, the originators of those toxic packages could no longer find any takers for them. By then, the subprimes had been exposed as junk mortgages. And so Citigroup, which has sacked its CEO, is stuck with $33 billion worth of CDOs and Merrill Lynch & Co., which also relieved its CEO of his services, has a $27 billion CDO headache.

The International Monetary Fund estimates that when the smoke clears, some $1 trillion worth of soured loans will have been written off – and we're only a quarter of the way there. Just as troubling is that the robust U.S. consumer economy that provided a soft landing during the last recession is in no shape to do so this time. U.S. household savings are depleted, Americans fear job loss (the U.S. lost 232,000 jobs in the latest quarter alone). Fuel and now food prices are spiralling, cutting into disposable income, which for working-class Americans effectively hasn't budged in the better part of a decade. And dwindling home equity – an issue for Americans who haven't had their home foreclosed upon altogether – is causing a reverse "wealth effect."

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What do you do when you're the most tasteless and tactless person in the world?

Why, you build yourself a $2 billion apartment of course


Charity? Nah!

Taste? Of course not!

Humility? No chance!

Puke. I hope to see the Indians torch this place one day, French-Revolution-style.




Inside The World's First Billion-Dollar Home


Forbes estimated Ambani's net worth at $43 billion in March. Reliance Industries was founded by Mukesh's father, Dhirubhai Ambani, in 1966, and is India's most valuable firm by market capitalization. The couple, who have three children, currently live in a 22-story Mumbai tower that the family has spent years remodeling to meet its needs.

Like many families with the means to do so, the Ambanis wanted to build a custom home. They consulted with architecture firms Perkins + Will and Hirsch Bedner Associates, the designers behind the Mandarin Oriental, based in Dallas and Los Angeles, respectively.

Plans were then drawn up for what will be the world's largest and most expensive home: a 27-story skyscraper in downtown Mumbai with a cost nearing $2 billion, says Thomas Johnson, director of marketing at Hirsch Bedner Associates. The architects and designers are creating as they go, altering floor plans, design elements and concepts as the building is constructed.

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Even the Insured Feel the Strain of Health Costs

The economic slowdown has swelled the ranks of people without health insurance. But now it is also threatening millions of people who have insurance but find that the coverage is too limited or that they cannot afford their own share of medical costs.

Many of the 158 million people covered by employer health insurance are struggling to meet medical expenses that are much higher than they used to be — often because of some combination of higher premiums, less extensive coverage, and bigger out-of-pocket deductibles and co-payments. With medical costs soaring, the coverage many people have may not adequately protect them from the financial shock of an emergency room visit or a major surgery. For some, even routine doctor visits might now take a back seat to basic expenses like food and gasoline.

“It just keeps eating into people’s income,” said James Corbin, a former union official who works for the local utility in Tucson. Mr. Corbin said that under their employer’s health plan, he and his co-workers are now obliged to pay up to $4,000 of their families’ annual medical bills, on top of about $1,600 a year in premiums. Five years ago, they paid no premiums and were responsible for only about $2,000 of their families’ medical bills. “That’s a big jump,” Mr. Corbin said. “You’ve just lost a month’s pay.”


Already, many doctors say, the soft economy is making some insured people hesitant to get care they need, reluctant to spend a $50 co-payment for an office visit. Parents “are waiting longer to bring in their children,” said Dr. Richard Lander, a pediatrician in Livingston, N.J. “They say, ‘The kid isn’t that sick; her temperature is only 102.’ ” The problem of affording health care is most acute for people with no insurance, a group expected to soon exceed 48 million, but those with insurance say they too are feeling the pain.

Since the recession of 2001, the employee’s average cost of an annual health care premium for family coverage has nearly doubled — to $3,300, up from $1,800 — while incomes have come nowhere close to keeping up. Factor in other out-of-pocket medical costs, and the portion of the average American household’s income that goes toward health care has risen about 12 percent, according to the consulting and accounting firm Deloitte, and is now approaching one-fifth of the average household’s spending.

In a recent survey by Deloitte’s health research center, only 7 percent of people said they felt financially prepared for their future health care needs.

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Buffett says he bought $4-billion of auction-rate debt

Warren Buffett Saturday said his Berkshire Hathaway holding company bought $4-billion (U.S.) of auction-rate securities during the market's recent distress. Speaking at Berkshire's annual shareholder meeting, Mr. Buffett also said his new municipal bond insurer, Berkshire Hathaway Assurance Corp., is becoming a major force, capturing higher premiums than rivals that have been strained by exposure to subprime mortgages.

The $330-billion market for auction-rate securities, which are long-term bonds whose rates are reset periodically, froze this winter. Investors flooded dealers with paper backed by bond insurers whom they feared would lose their “triple-A” credit ratings. As a result, many municipal bond issuers were for several weeks forced to pay uncommonly high interest rates. Mr. Buffett spoke of how debt issued by the Los Angeles County Museum of Art fetched a 3.15 per cent interest rate on Jan. 24, and 8 per cent just three weeks later.

He also said Berkshire has bought auction-rate debt with an 11.3 per cent rate from one broker, at the exact time another broker was offering a 6 per cent rate. “Those are huge dislocations in the market. That's crazy,” Mr. Buffett said. “Those are great times to make unusual amounts of money.” He said, nonetheless, that Berkshire, whose market value is more than $200-billion, is so large that such investments won't have a big impact on results.

Mr. Buffett also confirmed that the bond insurer he created in December was rapidly increasing market share, having won some $400-million of business in the first quarter. Berkshire Hathaway Assurance has won “triple-A” ratings from Standard & Poor's and Moody's Investors Service. While some rivals such as MBIA Inc. and Ambac Financial Group Inc. have also carried those ratings, Mr. Buffett said some market participants are willing to pay premiums above 2 per cent. That's well above the 1 per cent to 1.5 per cent that those other insurers typically charge.

He also said almost all of the secondary business came from issuers that already had insurance from rivals. “It tells you something about the meaning of ‘triple-A' in the bond insurance field in the first quarter,” Mr. Buffett said.

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Barclays bank in secret talks with Korean fund

Barclays has held secret talks with an investment fund backed by the Korean government as it explores potential options for raising billions of pounds in fresh capital. Britain's third-biggest lender by market value has held discussions with Korea Investment Corporation (KIC) about a possible investment in the bank. It is not clear if the talks are still live, and negotiations are also understood to have been held between Barclays and several other unnamed prospective investors.

People close to Barclays, which declined to comment, said last night that it had made no firm decision to undertake a capital-raising and that conversations with potential investors represented "fact-finding missions". Despite recent moves by Royal Bank of Scotland and HBOS to raise £16bn between them through rights issues - and in so doing raise their tier-one capital ratios, a key measure of their financial health - Barclays has said it is comfortable with its policy on capital.

That has not deterred analysts from forecasting that Barclays will announce a £3bn capital-raising as early as a trading update on May 15. Directors of Barclays are understood to prefer the concept of a share-placing with a sovereign investor to tapping existing shareholders for new capital.

An investment from KIC would represent the third by a sovereign fund in Barclays. Last summer, the British bank's board brought in billions of pounds from Temasek, a Singaporean government investor, and China Development Bank (CDB), a state-owned lender. Any investment by the KIC would be expected to take place at a material discount to the price paid by Barclays' Chinese and Singaporean shareholders.

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Barclays urged to explain its capital strategy

Barclays is under growing pressure to explain its capital-raising strategy as fears grow that the bank may have to make further writedowns of up to £3bn. Pressure on Barclays to give more details of its trading book and its overall capital ratios follows the decision last week by HBOS to raise £4bn in a rights issue to bolster its capital.

Analysts say Barclays will also have to strengthen its capital to take it to levels required by Basel 2, the international banking regulations. Dresdner Kleinwort analyst James Invine lowered Barclays to a "reduce" rating and said the bank may need to raise £3bn in a share sale. Paying its first-half dividend in shares to investors, rather than in cash, was also a likely option, he said.

Barclays has already written down £1.3bn of assets because of the turmoil in the credit markets. It has refused to rule out a rights issue and a spokesman reiterated it was under no pressure to raise new cash. But analysts disagree, arguing that it has to improve its capital ratios above the present 5.1 per cent. One option open to Barclays would be to ask its two sovereign wealth investors, the China Development Bank and Singapore's Temasek, to buy more shares.

Analysts say a share placing could be simpler than asking investors to dilute their holdings with another big cash call. Institutions have already been asked to stump up £16bn at Royal Bank of Scotland and HBOS. Barclays is expected to give more details next Tuesday with its interim statement. Shares in the bank rose 2.3 per cent to 476p.

Chief executive John Varley will also be asked to explain why chief operating officer Paul Idzik is leaving. Barclays denied reports that Mr Idzik had become frustrated by the tension between Mr Varley and Bob Diamond, the boss of Barclays Capital, who is in charge of nearly half of the group's profit. One banking source said: "They are at loggerheads. The two are very different and don't get on."

Lloyds TSB will deliver its interim statement this week but a cash call is not expected. Meanwhile, several banks have confirmed they have taken up the special liquidity scheme offered by the Bank of England to swap their mortgage security assets for new bonds. One said: "It looks as though the Bank's scheme is working. A lot of banks have been in and will be again this week. Our guess is the Bank will need to double this £50bn facility quite quickly.

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UK ministers think housing woes all America's fault. They should look to beam in own eye

Back in the days of the dotcom bubble, the fashionable thing to argue in the face of what virtually everyone agreed were unsustainably high share prices was that the stock market would plateau for a number of years until earnings growth returned valuations to more normal levels. As soon became brutally apparent, it didn't work out that way. Instead, the market corrected violently, as it always eventually does when prices get seriously out of kilter.

The optimists, among whom we have to include a string of Government ministers, argue much the same thing about today's housing market. The fundamentals underpinning UK housing remain strong, they contend, so once disruptive mortgage markets return to normal, the housing market will be just fine. In words I suspect she will come to regret, Yvette Cooper, Chief Secretary to the Treasury and former minister for housing, this week put the now-familiar Government line. The underlying circumstances of what's going on in the UK housing market are very different from the US, she said.

There, the falls in house prices are being driven by a long-term oversupply of housing and a very large overhang of unsold properties. Here, by contrast, demand for housing has outstripped the supply of new homes for many years, and the projections suggest it will continue to do so over the next 10 years as well. The position, Ms Cooper argued, is different from the US where problems in the housing market infected the financial sector. Here by contrast, problems in the financial sector have infected the housing market.

Echoing a theme now frequently adopted by the Prime Minister and the Chancellor, she appeared to blame all our woes on the profligate Americans. There are elements of truth in what she says, but, in the round, the argument is largely mistaken, as is the contention that a violent correction in the housing market can still be avoided. Even relatively illiquid markets such as housing will always return to trend precipitously once the process gets under way.

If there were any remaining doubts about it, we've now had three surveys in a week – Rightmove, Nationwide and now Halifax – which show that house prices are falling year on year for the first time since the mid-1990s. Admittedly, these falls are not yet pronounced and they come after a prolonged period of double-digit increases. Yet all historical evidence suggests that once the housing market turns negative, it will then fall significantly until the overvaluation in prices is removed. Hopes of a gentle correction are almost certainly misplaced.

The problem is that housing simply got too expensive. There are two standard measures by which this can be judged. One is value as a multiple of average earnings. On this yardstick, house prices have reached ridiculously high levels never before seen in Britain, and are by some distance now higher than the previous peak before the housing crash of the early 1990s. This is sometimes justified by the fact that interest rates are lower, so that the costs of servicing a mortgage take up a smaller proportion of disposable income than was once the case. Unfortunately, the affordability argument is largely illusion.

Interest rates are relatively low because inflation too is low by historic standards. In the past, inflation could be relied upon to reduce the value of the loan relative to earnings over time. Low inflation means that this no longer happens to the same degree. In the past, the cost of buying a house tended to be front-end loaded. Low interest rates make it back-end loaded, but the ultimate cost to the buyer over time may be much the same.

To many people, these may seem somewhat academic waters. Back in the real world, however, things don't look any better. The scale of the loan needed to keep pace with house price inflation means that, as a percentage of disposable income, mortgage-servicing costs are on average back to where they were at the time of the last housing market peak in the late 1980s. What's more, the mortgage famine is set to make the costs higher still regardless of what the Bank of England does to interest rates. The number of mortgage products on the market has more than halved over the past year. Those left in the market are able to charge accordingly.

Everything points to a very nasty, if entirely necessary, correction. Nor is it one that can be blamed on the Americans. Yes, prices became too expensive because demand exceeded supply. But the reason this occurred was not primarily because of demographics, or planning constraints, but rather because there was too much cheap and easy credit.

In this regard, Britain certainly mirrored the US, but it is disingenuous to blame the US. Britain's own particular credit boom was very much the result of made-in-Britain public policy. With luck, the return to reality in house prices will occur without the accompanying wider recession that so marred the early 1990s. But it is touch and go, and, for some, it will feel exceptionally painful whatever happens to the economy.

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New Beowulf takes a swipe at the City's over-paid dragons

Mervyn King, the Governor of the Bank of England, is in danger of becoming a hero, a Beowulf for our times. King hasn't slain the dragon yet but there are clear signs that his Special Liquidity Scheme is beginning to work as banks have now started to swap their illiquid mortgage securities and corporate loans for new bonds. While the Bank won't say how the rescue operation is going, bankers confirmed last week they are taking up the offer.

While more than the £50bn tranche will be needed, there is growing recognition that King has pulled off a blinder. But it was King's comments to the Treasury Select Committee last week which make him the real hero. He was absolutely right to lambaste the way the City rewards itself, and point out how the compensation system encourages bankers to take risks because of the structure of their bonuses. Angela Knight, who runs the British Bankers Association, was wrong to leap to the City's defence so quickly and misguided to suggest the issues shouldn't be aired publicly.

Quite the reverse; this is a debate too important to be kept behind closed doors. King's thoughts on how pay is structured have all the more resonance because they were made by someone of his stature; they are neither the politics of envy nor the view of a dirigiste. What King is saying is that the way the City structures its pay is pernicious for its long-term health. He's right.

To recap, King made two points. First, he argued that the promise of huge bonuses distorts how bankers go about their business; they take risks at shareholders expense with no liability to their personal bottom-line. The second was that too many of the UK's talented youth are enticed into the City because they are paid so much more. Who can blame them?

King is right about the distortion and many bankers are now agreeing with him. UBS accepts that the way it paid traders led them to take risks they would otherwise not have taken while some of the industry's top bankers, such as Deutsche's Josef Ackermann, are looking at how to change the structure. But this is like watching Groundhog Day, again. It's what bankers say at every downturn. They get very introspective, admit their greed and slink out of view. Incentives get redesigned, bonuses go down and jobs are lost. But in a few years time the carousel will start all over again.

It's not rocket science to find a fairer system: you pay smaller bonuses, get rid of most performance related schemes and encourage staff to buy shares at the market price rather than through options. But non-executives have a big role to play – on all boards as well as the banks. It's not just the traders who take risks with shareholders money – without any liability to themselves – but the corporate financiers too.

Take the position of Merrill Lynch which advised Royal Bank of Scotland on the ABN Amro bid, a move which has destroyed billions in shareholder value and forced it to launch a rights issue of £12bn. Merrill not only picks up millions for the corporate advice but also gets the fees for underwriting the cash-call; but there is no loss to its bankers for lousy advice. Merrill is not the only guilty party; all the big US banks work like this.

King's second point about graduates is more complex. If graduates are offered salaries of £35,000 at an investment bank or £20,000 with an engineering company they will be tempted by the former. If a trader makes £10m, he gets 10 per cent or £1m. But, if you are a young engineer who helps design the next aerospace engines, you get about £40,000 a year. Even though that engine may revolutionise air transport – and in the process make the company millions – the worker won't share in the proceeds.

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Commodities enter bubble territory

House prices may be bombing, but commodities are still booming. For the London stock market, this is just as well, for oils and mining are about the only shares mitigating against the full-blown bear market going on just about everywhere else.

The law of gravity alone would tell you that eventually these prices too must return to earth, yet, despite the slowing world economy, which historically has spelt death for commodity and oil prices, there is as yet little sign of it. The other day, I happened to overhear a couple of investment bankers chatting away opposite me on the Tube as it sped away from Canary Wharf, the Docklands home for a large number of City banks.

"There'll be no money in fixed income for years," said one to the other. "All that mortgage stuff is dead. Commodities is where it's at for the foreseeeable future. The boom has got years to go yet." The mining finance houses think so too, with Asian industrialisation driving a "super-cycle" capable of defying the normal characteristics of the wider economy.

We'll see about that, but it is certainly the case that, on a 10- to 20-year view, demand for metals and energy ought to continue rising on a steep trajectory as developing nations catch up with Western levels of per capita consumption. This in turn is prompting high levels of speculative activity in commodity trading, giving rise to bubble-like characteristics in prices.

Like housing, metal and oil prices will eventually become "too expensive" regardless of the excess of demand on limited supply. The world economy will reach the limits of its capacity to pay, and the whole edifice will come tumbling down. Herb Stein, Richard Nixon's economic adviser, famously said that economists are very good at saying things cannot go on forever, but not so good at saying when it will end. Quite so.

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Carnival time for Brazil's economy

It was an incongruous sight. King Carl XVI Gustaf, bespectacled monarch of Sweden, and President Luiz Inácio Lula da Silva, the bush-bearded populist who has governed Brazil since 2003, riding a downtown bus in Stockholm last autumn. The reason the two men were there? A fleet of buses in the Swedish capital has been kitted out to run on ethanol, the biofuel that is fast becoming one of Brazil's most important exports, and the latest chapter in the country's remarkable economic "coming of age" story.

The Brazilian stock market, already buoyed by the boom in prices for the country's commodities and other exports, has surged to a record level this week on news that Standard & Poor's, the credit rating agency, has declared the country to be "investment grade". Specifically, that is a stamp of approval on Brazilian government debt, but it is also the culmination of Brazil's long slog away from financial crisis, hyper-inflation and democratic sclerosis. The country might finally be about to deliver on its promise as an economic power.

"Brazil is a success story and foreign investors believe in Brazil," said Rafael Amiel, an analyst at the research firm Global Insight. "There is economic stability, there is price stability, the public finances have shown a huge improvement and the economy is growing at a much more rapid pace than before."

The explosive growth of Brazil's ethanol production is typical of a country rich in natural resources and whose agricultural sector is regarded as one of the most efficient in the developing world. Brazil is the world's biggest producer of sugar and coffee, whose prices have been rising on global exchanges. It is also the world's biggest producer of iron ore, which is being greedily consumed by China and other developing nations.

And then there is oil. Two massive finds off Brazil's Atlantic coast have the potential to catapult the country into the world's top 10 producers over the next 10 years. Although the offshore fields will take time and money to develop, Petrobras, the state oil company, has already completed a series of promising test drills. Estimates of the exact size of the Tupi and Carioca fields vary, but the reserves have been acclaimed as the biggest oil finds for 30 years.

But Brazil's economic recovery from its financial crises of 1999 and 2002 – when it had to be bailed out by the International Monetary Fund – is based on more than just the boom in commodities prices. Manufactured goods account for 55 per cent of the country's exports. Companies such as Embraer, the aircraft maker, have emerged on to the world stage, showcasing an improving technological base in the country. Lula's sales and marketing tour of Sweden is in keeping with his business-friendly leadership which, contrary to initial fears, maintained the gently reformist and fiscally responsible policies of his predecessor, Fernando Cardoso, and won praise from Standard & Poor's this week.

"Generally pragmatic and predictable policy and fairly transparent institutions have underpinned macroeconomic stability in Brazil," S&P analyst Lisa Schineller wrote. "This has facilitated a sounder foundation for economic growth and fiscal improvement over the past five years that should continue over the next several years." Chief among the achievements of recent years is the taming of inflation. In 1993, it was 2,500 per cent.

A new currency and an operationally independent central bank have kept it below 10 per cent for almost all of the past decade, and the central bank governor, Henrique Meirelles, has earned his credentials as an inflation-buster. His decision to hike interest rates last year in the face of rising food and fuel prices gave S&P confidence to upgrade Brazil's sovereign debt this week, much earlier than anyone had anticipated.

Global Insight's Mr Amiel praised the track record of Mr Meirelles. "In 2005, when the economy was slowing and inflation going up, the central bank was very aggressive in increasing interest rates – against all odds. It sent a clear signal that it would not allow high inflation any more. It said if the country goes into a recession, it goes into a recession. That meant that... little by little, prices stabilised."

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Australia: HSBC boss predicts more home loan rises

HSBC Australia boss Stuart Davis expects the big banks to continue raising their home loan rates independently of the Reserve Bank of Australia to cover the cost of their own borrowings. "There's no doubt,'' Mr Davis told a business lunch in Melbourne today. "We saw a couple of banks move their standard variable rates last week. "There's going to be a least another one, if not another two of those over the next few months.''

By contrast, the HSBC chief executive said it unlikely the Reserve Bank of Australia would raise the official cash rate again when it meets next week, despite high inflation. "Part of the reason why I don't think they'll move is simply because the banks are doing their work for them,'' Mr Davis told the American Chamber of Commerce lunch in Melbourne. Mr Davis later explained that credit spreads in offshore capital markets had  "come in a little bit'' in the past two months but not significantly.

"As the banks either renew current funding or fulfil their funding programs for the 12 months, there's no doubt there's an increase in the cost of funds,'' he told reporters afterwards. Rising rates for retail deposits locally showed they were in high demand, he said. "Right across the board - both the capital markets and as well as the retail end - you've got an increase in the cost of funds. "If there's an increase of the cost of funds, then there has to be an increase in the cost of lending.''

The number of increases in home loan rates over the next few months would depend on the amount each bank moved by each time. "They need to balance off customer and community concerns against their own ones,'' Mr Davis said. Banks were moving typically in 10-basis point increments, he said. "In that respect the banks are trying to be as responsible as they can, rather than doing a huge jump in one hit which would be an enormous stress for households.''

Mr Davis said it would be interesting to see which of the big banks was the first to perceive the cost of funds was falling, although he shied away from predicting when that might happen. "That's when the competition will be interesting. That's when competition for market shares will become intense.

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Asian Finance Ministers Mull Creation Of Currency Swap Fund

Asian nations are in talks over the creation of a multinational $80 billion foreign exchange pool to be used in case of another regional financial crisis, Japanese Finance Minister Fukushiro Nukaga said Sunday in Spain.

"We are negotiating in that direction," he told reporters at the annual meeting of the Asian Development Bank in Madrid when asked about the amount of funds which are reportedly going to be set aside for the currency swap scheme. Nukaga met earlier Sunday with his Chinese counterpart Xie Xuran and South Korean Finance Minister Kang Man-soo on the sidelines of the gathering, which is held outside of Asia every two years.

An agreement is expected to be announced after the finance ministers from the ASEAN+3 group - the 10 members of the Association of Southeast Asian Nations plus Japan, China and South Korea - meet later Sunday at the gathering. The 13 nations agreed after the 1997-98 Asian financial crisis set up a bilateral currency swap scheme known as the Chiang Mai initiative to prevent a repeat of the turmoil.

At the ADB's last annual meeting in Japan in May 2007, they agreed to work towards a multination scheme of currency swaps to make it easier to borrow emergency funds. The ministers didn't decide at the time on how much of their foreign reserves they would set aside for emergencies in the fund. Asean comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

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Asia fears lost decade from food price shock

Soaring food prices may throw millions of people back into poverty in Asia and undo a decade of gains, regional leaders said on Sunday while calling for increased agricultural production to meet rising demand. Asia -- home to two thirds of the world's poor -- risks rising social unrest as a doubling of wheat and rice prices in the last year has slammed people spending more than half their income on food, Japanese Finance Minister Fukushiro Nukaga said during the Asian Development Bank's annual meeting.

If food prices rise 20 percent, 100 million poor people across Asia could be forced back into extreme poverty, warned Indian Finance Secretary D. Subba Rao. "In many countries that will mean the undoing of gains in poverty reduction achieved in the past decade of growth," Rao told the ADB's meeting in Madrid. A 43 percent rise in global food prices in the year to March sparked violent protests in Cameroon and Burkina Faso as well as rallies in Indonesia following reports of starvation deaths.

Many governments have introduced food subsidies or export restrictions to counter rising costs, but they have only exacerbated price rises on global markets, Nukaga said. "Those hardest hit are the poorest segments of the population, especially the urban poor," Nukaga told delegates. "It will have a negative impact on their living standards and their nutrition, a situation that may lead to social unrest and distrust," he added. The ADB estimates the very poorest people in the Asia Pacific region spend 60 percent of their income on food and a further 15 percent on fuel -- the key basic commodities of life which have seen their prices rise relentlessly in the last year.

Japan is one of 67 ADB member economies gathered in Spain to discuss measures to counter severe weather and rising demand that have ended decades of cheap food in developing nations. The Asia-Pacific has three times the population of Europe -- around 1.5 billion people -- living on less than $2 a day.Rice is a staple food in most Asian nations and any shortage threatens instability, making governments extremely sensitive to its price.

Decade high inflation, driven by food and raw materials costs, has topped the agenda of the ADB's annual meeting. The Manila-based multilateral lender has had to defend itself from U.S. criticism it is focused on middle income countries and has neglected Asia's rural and urban poor. Smaller countries such as Cambodia urged the ADB to focus its lending on the poorest Asian states. The Bank on Saturday called for immediate action from global governments to combat soaring food prices and twinned it with a pledge of fresh financial aid to help feed the Asia Pacific region's poorest nations.

Leading members Japan, China and India backed long-term ADB strategy to provide low-cost credit and technical assistance to raise agricultural productivity. The United Nations said the rural poor represented a political time-bomb for Asia that could only be defused by higher agricultural investment and better technology.

"Unless you can look at the plight of the poorest farmers in the region and how they are going to add to the numbers of very poor, very deprived people, we are unnecessarily going to create a problem that will erupt into a political crisis," said Rajendra Pachauri, head of the U.N. panel on climate change.

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Ilargi: For those of you who are new to this: The Asian Development Bank. like its larger siblings the IMF and World Bank, are true wolves in party costumes. Their aim is to force poor countries to their knees. In exchange for loans from these sharks, the poor have to accept “economic reform” policies that rob them of their resources.

Asian Development Bank rejects charges its lending practices neglect poorest countries

The Asian Development Bank fended off criticism Sunday that it is neglecting the region's poorest countries by lending heavily to cash-rich emerging powerhouses like China and India. Supachai Panitchpakdi, chairman of a blue-ribbon panel that devised the bank's new long-term strategy, called those comments by The Wall Street Journal «disturbing» and «misinformed» and insisted the bank remains committed to those most in need.

He spoke as the bank met in Madrid for it annual meeting, which has been dominated by soaring food prices around the world and the danger this poses for Asia, home to two-thirds of the world's poor. On Saturday the bank announced emergency funding to help poor countries struggling with rice prices that have nearly tripled in four months. But it warned these could keep rising and stifle economic growth in the region.

In an editorial published May 1, the Journal noted that the Manila-based bank last year lent heavily to Vietnam (US$1.5 billion), India (US$1.4 billion) and China (US$1.3 billion). These countries have colossal foreign currency reserves because of their booming economies. Meanwhile, war-ravaged Afghanistan received US$193 million in ADB grants last year, and East Timor, for instance, got US$21 million. «By lending to countries that also boast huge savings pools, those governments don't have to take responsibility for infrastructure projects they could easily afford,» the editorial said.

The ADB was created in 1966 to fight poverty through promoting economic growth. The ADB has said updating its mission is critical because 90 percent of the rapidly growing region's people are projected to be «middle income» by 2020. A development bank like the ADB should try to wean poor countries off aid altogether rather than increase its lending, the Journal editorial said. In fact, at this meeting in Madrid the bank announced a 60 percent increase in donations _ to US$11.3 billion _ to a development fund that provides zero-interest loans.

«Asian policy-makers aren't dumb: Who would turn down cheap, subsidized AAA-rated financing backed by the U.S. and Japan?» the newspaper said, referring to the 67-member bank's two main shareholders. Panitchpakdi defended the ADB's recently approved strategy for 2008-2020, which the United States voted against, due in large part to the bank's lending to China and India.

He said the strategy _ focusing on economic expansion that does not leave out the poor, environmentally sustainable growth and more Asian regional integration _ is a multi-prong plan that emphasizes, among other things, agricultural development to guarantee food supplies. The journal piece, Panitchpakdi said, is narrowly focused and «does not do any justice to the whole report. He added: «I think there needs to be some explanation to that misinformed statement.

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'What are these bats telling us about the environment we live in?'

The little brown bat careened out of Aeolus Cave into the bright March afternoon. Crashing into a snow bank, it clawed up the icy mound, wings flailing wildly. Spent and starving, it fell still. Dozens of furry bats, many shivering uncontrollably, littered the snow around the cave's mossy entrance. Others in various stages of dying were tucked into rock crevices nearby - deeply bizarre behavior for animals that avoid light and so despise winter they can hibernate until early May.

A wildlife biologist breathing through a respirator gingerly picked up the still creature - one more critical clue to a mysterious illness that is killing the bats of the Northeast. For more than four months, perplexed scientists have struggled to understand why upwards of a half-million bats may be at risk of dying in the dark caves and mines of Massachusetts, Vermont, Connecticut, and New York. Last year, thousands of dead bats were found in four caves within 7 miles of one another.

This year, at least 25 caves and mines spread across 135 miles were found to have sick or dying bats. Homeowners from Hanover, N.H., to East Canaan in northwest Connecticut have reported dead bats on lawns, decks, and roofs, a sign the animals might be affected in an even wider area. But so far, no one has found an infectious agent or any other cause. It is a race against time.

Bats are now migrating as far as 250 miles to their summer roosts, where they will mix with bats from other far-off caves and mines. By fall, they will travel back to their hibernation site to mingle and mate with still other bats. If the sickness is contagious, millions more of the animals around the country could be at risk next year. Finding an answer is critical for a population that eats thousands of tons of crop-infesting and human-biting insects. But scientists also worry that the sick bats are a potent sign of changing conditions in the natural world.

"What are these bats telling us about the environment we live in?" asked Beth Buckles, assistant professor of biomedical sciences at Cornell University's College of Veterinary Medicine and one of the researchers leading the hunt for the causes of the problem. While humans do not appear susceptible to the illness, scientists worry that a large bat die-off could disrupt nature's balance in unpredictable ways. "We are in the middle of something historic here," she said.

Some are comparing the bat sickness to the massive population decline among honeybees in North America, which also involves animals that cluster together. Scientists have not found any link, other than the realization that neither event appears to have an identifiable cause. Now, dozens of pathologists, immunologists, toxicologists, wildlife biologists, and other researchers in more than 15 government, university, and private labs are methodically working to unravel the bat mystery.

Government grants are being written to fund more in-depth work. Scientists are using cutting-edge technology, from heat-detecting cameras in muddy bat caves to DNA analysis in sterile labs. Even a Columbia University molecular epidemiologist who discovered a possible contributor to the bee colony collapse has joined the sleuthing. "We've got to find an answer," said Susi von Oettingen, an endangered species biologist with the US Fish and Wildlife Service. "And in so many ways, we really don't know where to start."

An illness spreads

Joe Armstrong's heart sank. The 43-year-old caver was in Haunted Castle, a remote spur in upstate New York's Howe's Cave in January. Just as he was about to leave, his headlamp trained on a single bat with what looked like frost on its nose. Weeks earlier, Armstrong, the conservation chairman for the Northeastern Cave Conservancy, had heard about a strange and what authorities hoped was an isolated 2007 bat die-off that involved animals with white faces at four nearby caves west of Albany.

Armstrong immediately called New York state bat biologist Al Hicks at home. The next morning, a Sunday, Hicks was in Haunted Castle. He and another scientist peered at the bat. The white frost was the same fuzzy white fungus he had seen on bats the year before. "We knew then the genie was out of the bottle," Hicks recalled recently. "It seemed to be spreading."

Wildlife biologists, dressed in protective white suits and wearing respirators to keep from spreading the sickness unwittingly, began exploring icy, dark mines and caves across the Northeast, sometimes aided by experienced cavers who knew the damp, maze-like passages. They traded their findings on a bat conservation discussion group on the Internet.

Six species of bats appeared to be affected, though little brown bats seemed hardest hit. Not all the dead bats had white noses, but enough did for scientists to dub the sickness "white nose syndrome." Most had virtually no fat on their body, indicating they had starved. But even some live bats that were a healthy weight and lacked white fungus were acting strangely by flying out in the middle of the day. Mortality in some caves was nearing 100 percent. No one had seen anything like it.

"We hope that our concern is overblown and that in a short time people are laughing at us for saying, 'The sky is falling, the sky is falling,' " Virgil Brack Jr., a bat consultant and assistant director of the Center for North American Bat Research and Conservation at Indiana State University, wrote in an e-mail to the group in January. "But until that proves to be the case, this . . . scares the hell out of us."

An elusive killer

At first, researchers hoped it would be easy to pinpoint the bats' killer. In a lab filled with stainless steel at Cornell's College of Veterinary Medicine, Buckles and her students began receiving dozens of bat corpses. They painstakingly examined each animal before placing its lungs, heart, and other organs in preserving fluid.

Then, they examined tiny slices of the organs, stained bright pink or blue, under a microscope. If the cells looked abnormal - fragmented or oddly shaped, for example - it could mean that the animals were fighting a virus, bacterium, fungus, parasite, or toxin. But they saw no pattern indicating an immune response in the bats, even the ones with white nose fungus. Other Cornell scientists searched for toxins or pathogens hidden in the tissue. Still no pattern. That meant, as far as they could tell, that an infection did not seem to be killing the bats.

Meanwhile, the count of sick bats was rising. White nose was confirmed in Vermont's Aeolus Cave on Valentine's Day. Bats in more than a dozen New York caves had the illness by the end of February. Sick bats were found in Connecticut in March. Reports of white nose, still unconfirmed, are now trickling in from Pennsylvania.

In Chester, Mass., biologists didn't have a chance to investigate the honeycomb of old emery mines before residents began calling: Dead bats had to be kicked off porches. Carcasses were sticking to houses. "We used to go outside in the spring, have a beer, and watch the bats come out at dusk from the mines," said Mary Ann Pease, the town tax collector as she walked her dog through the speck of a downtown. "But we know that isn't going to happen anymore."

Unable to identify an obvious infectious agent - the white fungus appears to strike bats already weakened by something else - scientists around the country began looking down other paths. Could pesticides have killed so many moths, beetles, or midges that bats didn't have enough to eat the previous fall? Were they going into hibernation without enough fat to make it through the winter? Did the fungus make the bats so itchy that they woke up and expended precious energy scratching?

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