"Canadian Pacific transfer steamer Ontario in the ice"
Ilargi: I don’t really know what to say about the news that Joe Bageant passed away, other than: I would have so loved to have the time and chance to have a beer or two with that man, and shoot the shit for a few hours. And now I know I never will, and that feels profoundly sad. Never met him, still miss him.
While we are slowly clueing in to the realities of Fukushima (and no, Stoneleigh was not mistaken when she said this is no Chernobyl, there is no runaway process going on; no matter how bad it's getting, the disasters differ in essential ways), Ashvin brings up a major point today about the economy going forward: demand destruction. Big major point. As credit goes out the window, so does demand. We're witnessing credit meltdown. High commodity prices in the face of that, anyone?
Which makes me think of this major piece, from Nicole Bullock in the Financial Times (Meredith Whitney may yet be on to something):
US muni bond demand slips into big freeze
A feared meltdown has yet to materialise. Instead, the US municipal bond market, blighted by concern that struggling states and cities could default on their obligations, has gone into a deep freeze. Sales of new bonds have plunged as retail investors, traditionally the biggest buyers of municipal debt, have fled. The first quarter of the year will record the lowest amount of quarterly new issuance in more than a decade. At $44bn, the amount raised will be less than half the new bonds sold by this time last year.[..]
"If we don’t get smaller, then the solution is price," Hector Negroni, co-head of muni sales and trading at Goldman Sachs said at a conference held by Sifma, the securities industry association. "Price usually solves everything."
Yup. That's the world according to economists. Price solves everything (ask any Japanese). If you believe that, I still got that bridge for you. Just name the right number. Ballpark.
Your word of the day: meltdown.
While the assumption that supply and demand forces set market prices in the modern financial world is extremely flawed, it becomes a relevant consideration in a capitalist system with limited capacity for financial speculation. This is exactly the world we will be living in over the next ten years or so. Many so-called economists ignore the fundamental reality of limited resources (such as peak oil), and therefore overestimate the ability of producers to generate supply or find substitutes to these critical resources. Many peak oil theorists, on the other hand, believe that we will eventually be living in a supply-constrained world for energy, food and other material resources, and therefore many people will be priced out of the market for them.
They often cite official projections of increasing energy demand in "emerging markets" such as India or China as support, and there is no doubt that such has been the dominant trend in recent years. Even in the wake of the global financial crisis in 2007-08, many of these countries have continued to increase their levels of domestic energy consumption , as their industrial sectors have grown and governments around the world have backstopped financial markets. If there is one thing we should be very skeptical of in this discussion, however, it is official projections that extrapolate past trends into the future.
The past conditions that helped form those trends are never fixed, and the conditions generated by the trends will dynamically influence what happens next. Economic and financial realities determine social and political outcomes, and these outcomes coalesce to form a new reality of their own. As we are currently witnessing all across the Middle East, revolutions and military conflicts carry enormous consequences for human life. All wars, either directly or indirectly, are fought over resources (land, oil, minerals, water, etc.); religious and political ideologies are merely drugs ingested after the fact - an opium for the masses. Sometimes, we must entertain the most unpleasant thoughts, if for no other reason than their being realistic reflections of our potential future.
It stands to reason, then, that when resources become increasingly scarce due to ecosystem degradation, peak oil and climate change, violent conflict at the individual, community and nation-state level will become increasingly more likely to occur, which will also feed back into resource scarcity (i.e. oil supply disruptions in the Middle East). People will likely be exposed to this violence over the next few years, regardless of whether they live in Manhattan, London, Tehran, Beijing, Tokyo or many of the cities in between. In the frigid language of economics, systemic death (population collapse) is the ultimate form of demand destruction.
It is difficult, if not impossible, to predict whether a supply collapse will outrun demand destruction during this crucial time frame, or how the two will interact with each other. Another collapse in financial markets, by itself, is unlikely to overwhelm oil supply disruptions when peak oil awareness enters the mainstream dialogue, and it will most likely set up a sharper decline in supply than would have otherwise occurred. For that reason, there will certainly be at least a brief time period in which energy/food prices skyrocket, as well as the cost of finished goods, but it is not so certain how long that trend will last, and it could end much sooner than we would expect.
It is a distinct possibility that systemic demand destruction eventually wins out, especially in the age of nuclear, chemical and biological weapons of mass destruction. It is true that demand for energy and food becomes extremely inelastic to price changes at a certain threshold, but it is also true that central governments and markets simply do not care whether masses of people die from thirst, starvation or an inability to stay warm, and there is little they can do about it anyway. On top of that, we are already witnessing the devastating effects of climate change on human life, mostly in the form of floods and droughts, and billions more could die from accelerating atmospheric disturbance in the near future.
There is also the fact that our peaceful "solutions" to climate change and energy scarcity may be just as threatening to human life as the problem itself, as we are currently observing in Japan. Humans always tend to sacrifice long-term resilience for short-term profits, and our decisions in a complex society will always generate significant unintended consequences. India and China, the two most populous countries in the world, have vowed to continue their construction of nuclear power plants despite the ongoing disaster, albeit after they conduct a few "safety reviews". Eastern European countries, such as Russia, have decided to throw caution to the wind and will not delay their nuclear energy plans at all. .
Financially, these countries may find it nearly impossible to make good on these promises, since the up front and ongoing costs of construction and operation are staggering, especially when the cost of credit and oil is high (longer delays in construction mean more interest paid to bankers). Even if they do manage to build a few more plants in a hurry, however, any major flood, intentional sabotage and/or human errors (all likely events) could render them perpetual radioactive liabilities, rather than providers of cheap energy. A similar logic applies to the more forceful ways of securing energy, such as the "War on Terror", as they only create more incentives for dissident groups to formulate and launch large-scale attacks on the aggressor states.
Realistically, a range of predicaments from a lack of cheap oil, clean water, productive topsoil, stable weather patterns or critical bee populations (for pollination ) could absolutely decimate global food production in upcoming years. The scenario that would result from a combination of all of these things is nearly unimaginable, but, unfortunately, has a significant chance of occurring. Of course, what scares me the most are not the predicaments themselves, but the violent ways in which human populations, armed with advanced weaponry, will react to them. When push comes to shove, we are not a friendly species, and we will not voluntarily migrate to greener pastures like the lemmings do. In fact, we have nowhere left to migrate to.
Perhaps we will not suffer mass extinction at the mercy of a nuclear holocaust, but instead a worldwide pandemic. Humans tend to forget that they are not the only living species which adapts to and exploits the populations of other living beings. A virus, such as one of the influenza variety, would have a field day in our global, highly inter-connected society, especially in the midst of an economic depression (H1N1 killed 50 million people in the early 20th century , and new strains may currently be evolving in unpredictable ways). Lastly, NASA has recently confirmed that our solar system will directly align with the center of the Milky Way Galaxy in December of 2012, and a large energetic release will cause massive solar eruptions, which will in turn obliterate Earth's electromagnetic fields, along with every layer of its atmosphere.
Well, alright, that last one isn't so certain at this point, but, if it did happen, would you even be surprised?
US muni bond demand slips into big freeze
by Nicole Bullock - Financial Times
A feared meltdown has yet to materialise. Instead, the US municipal bond market, blighted by concern that struggling states and cities could default on their obligations, has gone into a deep freeze. Sales of new bonds have plunged as retail investors, traditionally the biggest buyers of municipal debt, have fled. The first quarter of the year will record the lowest amount of quarterly new issuance in more than a decade. At $44bn, the amount raised will be less than half the new bonds sold by this time last year.
California, the state that issues the most debt, may not sell bonds this year if it cannot balance its budget in time, potentially shuttering infrastructure projects. The muni issuance freeze has raised questions over whether local infrastructure plans, from roads in New Jersey to schools in Minnesota, will find the kind of cheap funding that the $3,000bn muni market has in the past provided.
A short-term borrowing hiatus does not create a muni crisis for now, mainly because most, but not all, states and local governments in the US are not exposed to the kind of refinancing risk that has plagued European sovereigns. In part, borrowing has plummeted because many issuers in this $3,000bn market rushed deals to market late last year to take advantage of federal subsidies. An air of austerity also is sweeping across the 50 states in the wake of what is being considered the worst economic recession since the Great Depression.
The muni issuance freeze has raised questions over whether local infrastructure projects, from a New Jersey main road to a school in Farmington, Minnesota, will find the kind of cheap funding that the $3,000bn muni market has in the past provided. Demand for muni bonds has dried up. Local individuals lured by tax breaks represent about 70 per cent of the market. Many have cashed out in recent months as fears about bond defaults, after the worst recession in decades hit local government revenues, unsettled investors.
"We have gone through weeks of concern about the creditworthiness of state and local governments and that has made investors, particularly individuals, skittish and they have taken their money out," says Richard Ciccarone, managing director at McDonnell Investment Management, which buys muni bonds. "To be buyers again, they will have to get more comfortable that the default risk is not that high."
Or the interest rates that states and local governments pay on "munis" has to rise to entice them and other buyers. The behaviour of these investors is important because of a shift in the make-up of demand for munis that has made the market more dependent on individual buyers.
"We have lost so many tools over the last few years," said Brian Mayhew, chief financial officer of the Metropolitan Transportation Commission, the transport planning and financing body for the San Francisco Bay Area, at a Bloomberg muni finance conference last week. One of these tools was bond insurance. Before the financial crisis, the so-called monolines, like MBIA and Ambac, insured more than half new muni sales.
That enabled financially unsophisticated investors to buy local debt without having to worry about losing money, even in a default. The bond insurance industry collapsed because these companies lost their triple A ratings on the risky mortgage debt they also insured. Its erosion has left retail investors more cautious on munis, particularly at a time when there are more budgetary concerns, and smaller issuers unable to borrow.
Another source of support that no longer exists for munis are structured investment vehicles that use leverage called tender option bond programmes. The commoditisation of the muni market enabled bankers to apply these complex structures that permeated the mortgage market. TOBs created higher yields that drew investors like hedge funds and generated large-scale funding for municipal governments over the past decade. At their height, they were estimated to be a market of between $250bn to $500bn. These arrangements blew up in the financial crisis and were unwound, exacerbating the selling and losses in the market. They have not resurfaced on a large scale since.
"It has been like an athlete coming off steroids," says Thomas Doe, founder of Municipal Market Advisors. "Everyone talks about munis being a retail market. What has really been the key to issuers having greater access [to financing] has been this kind of institutional demand." Finally, variable rate debt arrangements, including the $300bn auction-rate securities market that used derivatives, have dried up as a muni funding source.
They are out of favour after backfiring during the financial crisis, resulting in soaring borrowing costs for some local governments, hospitals and schools. The end of TOBs and variable rate deals left a void in the muni market, particularly in long-term demand. Municipal issuers want long-term obligations to match the long-term nature of most infrastructure projects but retail investors typically do not want to wait 30 years to be repaid.
To help fill that void, the federal government subsidised infrastructure debt, attracting deep-pocketed institutional investors. But that programme, called Build America Bonds, expired at the end of 2010 just at the time when local investors were beginning to retreat from the market.
Borrowing has also plummeted this year because many issuers rushed deals to market late last year to take advantage of these subsidies before they disappeared. "If we continue at this pace, it will be gut-wrenching for the industry," says Mr Doe. "Significant lay-offs would occur and a major bank might depart or significantly reduce capital investment to the industry."
Issuance may continue to shrink in line with tightened state and local budgets. "The appeal politically associated with ribbon cutting is virtually gone for now. No politician brags about how much he spends on a great new project in this climate," says George Friedlander, chief municipal strategist at Citigroup.
Interest rates on munis, despite a recent rise, remain historically low. Mr Friedlander and others say these costs will be tested if a more normal level of new issuance returns. Interest rates that states and local governments pay on muni bonds may have to rise to entice back institutional and retail buyers. "If we don’t get smaller, then the solution is price," Hector Negroni, co-head of muni sales and trading at Goldman Sachs said at a conference held by Sifma, the securities industry association. "Price usually solves everything."
How Dangerous Is Japan's Creeping Nuclear Disaster?
by Veronika Hackenbroch, Takako Maruga and Cordula Meyer - Spiegel
The destroyed reactors at Fukushima have been releasing radiation for weeks. According to model calculations, the stricken nuclear plant could already have released one-tenth of the amount of radiation unleashed in the Chernobyl disaster. How serious a risk does the disaster pose to humans?
The technicians had tried for days to restore electricity to the remains of the Fukushima nuclear power plant. But then it was ordinary rubber boots, of all things, that would come to symbolize their desperation, helplessness and defeat. On Thursday, the three men had made their way into the basement of the turbine building for reactor No. 3 to examine the situation there. When they returned later, they came fully equipped with tools and protective gear that included helmets, masks, rubber gloves and raincoats on top of their radiation suits.
The one thing the men were not prepared for was that suddenly they would be wading through more than a few inches of water. Two of the workers were only wearing ankle-high boots, which allowed the water to seep in. With wet feet, the men spent three-quarters of an hour working on the cables, despite the fact that their dosimeters were beeping for a long time.
The workers are now under observation at the National Institute of Radiological Sciences. The water at Fukushima was so contaminated that radioactive beta radiation burned their skin. In less than an hour, they were exposed to about 180 millisievert of radiation, or nine times as much as one nuclear power plant employee is exposed to in an entire year. "These kinds of burns will be causing problems for the men for a long time to come," says Peter Jacob, director of the Institute for Radiation Protection at the Helmholtz Center in Munich, Germany. Commenting on the exposure, a coworker of the three men said laconically: "We do pay attention. But now we have to be even more careful as we work."
The incident revealed, once again, how little experts know about the dangers that still lurk on the grounds of the ill-fated plant. No one had expected the radiation level in the water in the basement to be as high as it was. The levels of radiation in water in the basement of reactors No. 1, No. 2 and No. 3 reached record highs, with water at No. 2 measuring 1,000 millisieverts per hour. This was due to a partial core melt. Also, the containment vessel for the third reactor was apparently damaged, representatives of the Japanese nuclear regulatory agency concluded. Could this mean that there is a crack in the barrier between the highly radioactive core and the surrounding environment?
The beginning of last week offered grounds for cautious optimism. Power had been restored to the damaged reactor No. 1, a German concrete mixer was pumping water into the dangerously empty pool containing spent fuel rods in Unit 4, and there had been no explosions in the plant for an entire week. Two weeks after the disaster in Fukushima began, all of this sounded like good news.
'An Ongoing, Massive Release of Radioactivity'
Meanwhile, however, the engineers have been forced to realize that they have made almost no headway in restoring the cooling system. By Friday night, pumps were still not working in any of the damaged reactors. Up to 45 tons of sea salt have apparently accumulated in the containment vessels, complicating the cooling effort. The salt is crystallizing in warm spots and creating an unwanted layer of insulation. The engineers planned to start flushing fresh water into the reactors on Friday afternoon. But the reactors are only one problem. There's also the issue of the 3,450 spent fuel rods, which are red-hot, presumably severely damaged and exposed to the air in half-empty pools.
"We are experiencing an ongoing, massive release of radioactivity," says Wolfram König, head of Germany's Federal Office for Radiation Protection. "And everyone should know by now that this isn't over by a long shot." Nuclear expert Helmut Hirsch says: "All I hear is that people are wondering whether this will turn into a meltdown. But the thing is, it already is a partial meltdown." The difference, in this case, is that Fukushima is a creeping disaster.
To make matters worse, the wind changed on Friday. Radioactive particles over the Pacific were now drifting westward across Japan. High levels of radiation were detected in vegetables, water and soil near the Fukushima plant.
The Japanese authorities have so far only evacuated a zone within 20 kilometers (12.4 miles) of Fukushima. But the risks posed by radiation are also growing for people outside this zone. "It is high time Japanese authorities extend the 20- kilometer (12.4-mile) evacuation zone around the crippled nuclear-power plant at Fukushima ... Pregnant women and small children should immediately be evacuated from a progressively increasing area," writes nuclear critic Mycle Schneider, lead author of the World Nuclear Industry Status Reports. Embryos, fetuses and infants are at the highest risk, because radiation targets cells that divide quickly.
There are currently 77,000 people living in emergency shelters set up in places like gymnasiums. Another 62,000 people live within the 30-kilometer zone. The head of the United States Nuclear Regulatory Agency (NRC) recommends expanding the evacuation zone to 80 kilometers, in which case 2 million people would have to be relocated -- in addition to the hundreds of thousands of earthquake and tsunami victims. Japanese authorities are now asking people to leave the area voluntarily.
The beleaguered Japanese are also being peppered with concerned advice, demands and speculation from the United States, Russia, Finland and Germany. Even France's nuclear safety agency IRSN, not exactly known for its cautionary approach to nuclear risks, published a disturbing model calculation last week. According to the report, by last Tuesday the Fukushima plant had already released into the environment one-tenth of the amount of radioactive material that was released at Chernobyl in 1986.
The International Atomic Energy Agency (IAEA), however, believes that this estimate is highly exaggerated. According to its calculations, which are based on readings taken by measuring equipment at the site, the amount of radiation released to date is only a fraction of the French estimate.
Contaminated Food and Water
The French physicists and engineers based their assumptions on their knowledge of the amount of fissile material in the reactors, their own research on the condition of hot fuel rods and readings taken in the vicinity of Fukushima. German nuclear expert Helmut Hirsch, who has performed model calculations for Greenpeace, says: "This is not an exaggeration." There are more than 2,500 tons of uranium and plutonium in Fukushima, a "gigantic radioactive inventory, at least 20 times as much as there was at Chernobyl," says nuclear critic Schneider.
In fact, things could get even worse, much worse, than the French calculation suggests. The French scientists assume that most of the radioactive particles currently being measured come from reactor vessels 1, 2 and 3. The active fuel rods, which have hardly cooled at all, had caused temperatures in the containment vessels to rise so significantly than the plant engineers were forced to release radioactively contaminated air through valves in the interior of the reactors. In reactors in Germany and the United States, these emergency valves contain filters to capture radioactive particles. There were no such filters at the Fukushima plant.
Nevertheless, the best scenario, under the current circumstances, would have been to allow the radiation to reach the environment in this fashion. Indeed, the engineers at Fukushima have not had to release any more of this radioactive steam for more than a week now. If the French assumptions are correct, the worst emissions of radioactivity could already be over.
'We Don't Have the Slightest Idea of What Conditions Are Like'
Other experts support a different theory. Bill Borchardt of the NRC, for example, blames the high radiation values near Fukushima primarily on the spent fuel rods in the holding pools. This would be a much more difficult problem to contain. The spent fuel rods, normally kept underwater and protected by the roof of the reactor building, are now emitting radiation to the open air. Only cooling water prevents the rods from igniting, and yet the cooling water is constantly turning into radioactive steam. Even more worrisome is the question of how it will be possible to ever refill the holding pools, which may have been damaged in the earthquake.
How much radioactivity is released also depends on the condition of the fuel element. A fuel element consists of about 100 four-meter-long fuel rods, each about as thick as a human thumb. The rods themselves are made of a zirconium alloy, which is filled with rounded tablets of uranium oxide, not unlike pills in a tube. Experts fear, however, that the metal shells could have become oxidized and have partially melted. If that is the case, larger amounts of fissile products are escaping from the rods.
Instruments in a helicopter flying over the plant measured 80 millisievert of radiation at an altitude of 40 meters (131 feet) above the roof of the plant, with levels dropping to only 4 millisievert 200 meters higher up. This suggests that the radiation is coming directly from the holding pools. Could this assessment prove to be completely wrong? "I think we don't have the slightest idea of what conditions are like in the reactor buildings," says the NRC's Borchardt.
Radiation Detected in Vegetables
As an American, Borchardt is familiar with the problem. After the reactor accident at Three Mile Island near Harrisburg, Pennsylvania in 1979, it took six years before engineers could open the reactor core. Only then were they able to see how far the meltdown had progressed. A monitoring system for such accidents is now required in the United States. It measures how much radioactivity is released, as well as the condition of the fuel rods. Japan has no such systems.
Instead Tepco, the plant's operator, has published photos taken during the power outage. They show workers with flashlights and clipboards groping their way through the pitch-dark control room of reactor Units 1 and 2 to check measuring equipment. Otherwise, the only alternative has been to read the smoke signals. Experts believe that dark smoke comes from burning cables and debris, while white smoke signifies water evaporating over the hot fuel elements.
Meanwhile, Tepco measured 500 millisievert per hour near the No. 2 reactor. Anyone who remains within this zone for 12 hours will die of radiation sickness. The radiation levels in proximity to the three exposed electricians were almost as high. The eerie radiation has long since spread beyond the grounds of the nuclear plant. Food safety monitors measured 82,000 bequerel per kilogram in cabbage grown in a region 40 kilometers northwest of Fukushima. The maximum allowed value is 500. The highest readings measured in spinach were 54,000 bequerel per kilogram.
Experiences from Chernobyl show, once again, how long radioactivity can persist in the food chain. Some 25 years after the reactor accident, the meat from one in five wild boars hunters shoot in certain parts of Bavaria has to be thrown away, because it contains more than 1,000 bequerel per kilogram.
Japanese authorities have also found radioactive iodine in drinking water, although levels remain relatively low. Nevertheless, when the government recommended against using tap water to make infant formula, Tokyo supermarkets quickly sold out of bottled water. "There isn't a single bottle left on the shelf," reports Philip White of the Citizens Nuclear Information Center, the center of Japan's cautious anti-nuclear movement.
Panic buying in Tokyo is already making it more difficult to provide drinking water to people in the areas hit by the tsunami, where many water lines were destroyed. But what happens if radiation in the drinking water reaches truly worrisome levels?
Just How Reliable Are the Radiation Measurements?
The Japanese will have to learn to think in terms of millisievert. For example, the highest reported hourly dose at the edge of the evacuation zone was 0.16 millisievert. A person who spends 25 days constantly exposed to such levels would receive the maximum permissible annual dose for workers at nuclear power plants. There is also an underlying sense of uncertainty over just how reliable the radiation measurements actually are. And critics wonder why the highest radiation readings near Fukushima are usually taken by police personnel and not Tepco or the Japanese nuclear regulatory agency.
But even if suspicions are unfounded, the insidious aspect of radiation is that it is so unpredictable. "We will see a patchwork of areas of higher and lower radiation levels," says Peter Küppers of the Eco-Institute Darmstadt in southwestern Germany. The radiation level depends on wind direction, rain and where water collects. The differences were extreme after Chernobyl. "There were parts of northeast Bavaria and at Konigssee Lake in Germany that were more contaminated than some spots within the 30-kilometer exclusion zone directly surrounding Chernobyl," says Küppers.
Dispersal over such a large area can be practically ruled out in Japan. This only occurred at Chernobyl because the reactor burned for days, propelling radioactive material into extremely high air layers. But where the fallout descends also depends largely on the wind in Japan. "At first Japan was very lucky, as far as the weather was concerned," says König of Germany's Federal Office for Radiation Protection. The sinister plumes initially drifted out to sea. But the weather gods will not always remain as merciful.
A Sense of Foreboding and Uncertainty
There is already a sense of foreboding among the residents of Fukushima. Yoshihiro Amano owned a small grocery store six kilometers from the nuclear power plant. Now he is waiting in line for a bowl of noodle soup in an evacuation center, trying to make the best of the situation. "There's no point in getting angry," he says. "But we are afraid. We don't know if it will take days, months or decades before we can go home again."
The Japanese will have to live with this uncertainty from now on, because our knowledge of the health effects of radioactive radiation is so appallingly slim. Studies involving the survivors of Hiroshima and Nagasaki concluded that if 100 people received a dose of 100 millisievert, one of these people would eventually die of cancer as a result of the exposure.
This can certainly be seen as a comforting piece of news. On the one hand, it indicates that if about 40 of 100 Japanese would normally die of cancer at some point in their lives, that number would only rise to 41 among 100 people exposed to 100 millisievert of radiation. On the other hand, 100 millisievert is an enormous dose. To date, only a handful of workers in Japan have been exposed to such a bombardment of radioactivity.
But what about those who were exposed to lower levels of radiation? What if each of the 35 million residents of Tokyo is exposed to a few millisievert of radiation? There are few questions in science that are being discussed more heatedly, and yet there are no reliable answers.
'Any Amount Is Harmful'
One thing is clear: Even in the region surrounding Chernobyl, there has been no statistically significant evidence of elevated levels of leukemia and cancer following the accident. The one exception is thyroid cancer in children, for which there is clear evidence of a connection with the accident. On the other hand, there is no official lower limit at which radiation becomes harmless. "Any amount is harmful," says Edmund Lengfelder, director of the Otto Hug Radiation Institute in Munich. "And the younger the person, the more harmful it is."
Radiation poses the greatest danger to embryos in the womb during their earliest stages of development. Radiation can cause Down's syndrome, spina bifida, cleft palate and other birth defects. Genetic changes can also be passed on to the next generation, as DNA testing of healthy children of the workers involved in the Chernobyl cleanup has shown.
According to the results of a disturbing simulation just released by the Japanese nuclear safety commission, young children outside the 30-kilometer radius surrounding the damaged nuclear power plant may have already absorbed a dose of 100 millisievert in their thyroid glands, as a result of the radioactive iodine leaked from the plant. In two-year-olds, this increases the risk of developing thyroid cancer by the age of 15 by a factor of five.
In the long term, the radioactive isotope cesium 137 is even more dangerous than radioactive iodine. It has a 30-year half-life and accumulates in the soil and in animals. "Cesium 137 becomes distributed throughout the body and can therefore promote cancer development in various places," says Wolfgang-Ulrich Muller, a radiobiologist in the western German city of Essen.
It can take years or even decades until that happens. Nevertheless, Wolfram König, head of Germany's Federal Office for Radiation Protection, is convinced that the radiation from the Fukushima nuclear power plant has already claimed its first victims -- because of the fear of radiation and not the radiation itself. "It's possible that many of the people who died in the rubble lost their lives because no one dared to help them," says König.
Fukushima I Nuke Plant: Reactor Pressure Vessels with Holes at the Bottom, Underground Tunnel Flooded with Radioactive Water
by LaPrimaVera - Ex-SKF
So what? Says the world, by ignoring the news completely.
This is just unreal. The Reactor Pressure Vessels in the Reactors 1, 2 and 3 are likely to have holes at the bottom, as TEPCO urges us to "imagine a hole at the bottom", and it's not even in the headlines in Japanese news sources. Nothing on English news sources.
Am I hallucinating?
No. I go to the link from my yesterday's post, and the Asahi article is updated with additional information with underground tunnel from the Reactor No.2 all flooded with highly contaminated water which has possibly have been draining into the ocean.
From Asahi Shinbun update (in Japanese, new information only; 7:26PM JST 2/28/2011):東日本大震災で被害を受けた福島第一原発で、東電は２８日、２号機のタービン建屋から外へつながるトンネルとたて坑にたまった水から、毎時１千ミリシーベルトの放射線が測定されたことを明らかにした。
TEPCO announced that 1000 milli-sievert radiation was detected from the water from the underground tunnel from the turbine building of the Reactor 2 and the vertical duct [to the tunnel?].
TEPCO found out about the flooding of the duct and the underground tunnel in the afternoon of March 27. The vertical duct is 15.9-meter deep, and the tunnel is 76-meter long. The contaminated water was filling the duct up to 1 meter from the top, and the surface of the water measured 1000 milli-sievert.
From the duct, it is 55 meters to the ocean. TEPCO said it couldn't confirm whether the water flowed into the ocean. There are seams in the tunnel and the seams are not completely leak-proof. Highly contaminated water has also been found in the turbine building of the Reactor No.2. TEPCO said the contaminated water may be sloshing between the tunnel and the turbine building.
SO THEY WAITED 12 HOURS TILL THEY SAID ANYTHYING about RPVs and this underground tunnel filled with water. The press conference was held past midnight on March 28.
It has been leaked that TEPCO's president was incapacitated and bed-ridden for over a week because of stress before he was supposedly back at the helm. I'm sure he is wishing he hadn't won the race to the top.
Highly radioactive water leaks outside Japan's nuclear plant building
by Danielle Demetriou- Telegraph
Japan's stricken nuclear plant hit a further setback on Monday after highly radioactive water was found leaking outside a building. The water seeping into a trench outside the Number two reactor at Fukushima Daiichi nuclear plant in northeast Japan had a radiation level of more than 1,000 millisieverts per hour.
Such a high level can cause temporary radiation sickness including nausea and vomiting and far exceeds the 100 millisievert per hour which is generally regarded the lowest amount at which cancer risks are apparent. Officials at Tokyo Electric Power Co (TEPCO) are now attempting to locate the source of the leak, which is near the turbine building of the Number 2 reactor and around 180 feet from the sea.
"The trench is located outside the building and the water contains radioactive materials," Hiro Hasegawa, a spokesman for TEPCO, told The Daily Telegraph. "There is normally no water found in this area so it is difficult to compare this to normal levels. "But we do not believe it is leaking into the ocean. We are now working out where the cause of the leak is and finding ways to remove the water as soon as possible."
It is the latest in a series of setbacks at Fukushima Daiichi, where staff have been working around the clock to restore crucial cooling functions following the March 11 earthquake and tsunami. The discovery of the contaminated trench came one day after officials evacuated the turbine building of the Number 2 reactor when puddles of water inside were found to contain 1,000 millisieverts per hour of radioactivity – 100,000 times the normal level.
A temporary meltdown inside the core of the Number 2 reactor was possibly the cause of the building's contaminated water, according to Yukio Edano, the chief government spokesman. "The radiation seems to have come from the fuel rods that were partially melted down and came into contact with the water used to cool the reactor," he said. Confusion and unease have been growing in Japan surrounding the nuclear situation due to a string of conflicting reports, alleged safety blunders and miscalculated figures.
Two nuclear plant workers suffered burns last week after stepping in toxic water but were released on Monday from a specialist radiation medical unit. Speculation surrounding the extent to which the radiation may be leaking into the Pacific Ocean was also mounting after tests last weekend found nearby seawater contaminated 1,850 above legal limits. More recent tests showed that this figure has dropped, although Hidehiko Nishiyama, a spokesman for the Nuclear and Industrial Agency said that he suspects radioactive water from the plant is leaking into the ocean.
However, nuclear experts said that any radiation leaking into the ocean would most likely pose little threat as it would swiftly dissipate. "In terms of radiation leaking into the sea, this would be diluted very quickly and there would be no particular risk to fish for example, " Yoshiaki Oka, a professor at Tokyo's Waseda University, told The Telegraph.
Meanwhile, there were calls for an extension to the official evacuation zone on Monday following Greenpeace reports of wider radiation contamination. Greenpeace tests in Iitate village, located 25 miles from the nuclear plant and 12 miles outside the evacuation zone, showed radiation levels of up to ten microsieverts per hour.
Referring to the yearly recommended limit of 1,000 microsieverts, Jan van de Putte, a radiation safety expert at Greenpeace, said: "It is clearly not safe for people to remain in Iitate, especially children and pregnant women, when it could mean receiving the maximum allowed annual dose of radiation in only a few days." A moment of reprise emerged in Tokyo on Monday with the arrival in crisp spring sunshine of the capital's first cherry blossoms, a poignantly timed highlight of the Japanese calendar regarded as a symbol of the fleeting nature of life.
The first blooms, observed at Yasukuni Shrine, would normally be accompanied by an enthusiastic launch of the official cherry watching season, but an atmosphere of caution remained in the city. Supermarkets were continuing to sell out of bottled water, despite three consecutive daily tests showing that tap water in Tokyo was safe to consume. TEPCO also continued with rolling electricity blackouts to save energy output.
Radiation levels at Japan nuclear plant reach new highs
by Chico Harlan and Brian Vastag - Washington Post
As radiation levels at the Fukushima Daiichi nuclear plant reached a new high Sunday, workers contended with dark, steamy conditions in their efforts to repair the facility’s cooling system and stave off a full-blown nuclear meltdown. Wearing respirators, face masks and bulky suits, they fought to reconnect cables and restore power to motor pumps the size of automobiles.
Leaked water sampled from one unit Sunday had 100,000 times the radioactivity of normal background levels, although the Tokyo Electric Power Co., which operates the plant, first calculated an even higher, erroneous, figure it didn’t correct for hours. Tepco apologized Sunday night when it realized the mistake; it had initially reported radiation levels in the leaked water from the unit 2 reactor as being 10 million times the norm, which prompted an evacuation of the building.
After the levels were correctly measured, airborne radioactivity in the unit 2 turbine building still remained so high — 1,000 milli?sieverts per hour — that a worker there would reach his yearly occupational exposure limit in 15 minutes. A dose of 4,000 to 5,000 millisieverts absorbed fairly rapidly will eventually kill about half of those exposed.
The latest confusion in the operation to stave off a full-scale nuclear meltdown at the crippled facility underscores the immense challenges for the several hundred workers in a desperate battle to restart the critical cooling systems. Seventeen workers have been exposed to high levels of radiation, including three who were hospitalized last week, as technicians conducted highly nuanced electrical work in dark conditions that one nuclear industry expert termed "hellish."
Japanese authorities say efforts to control Fukushima’s overheated reactors will take months and during that time radiation will continue to leak into the environment, extending a nuclear emergency that already ranks as the world’s most serious in a quarter-century. Several hundred workers now shoulder the responsibility for limiting the crisis, amid potentially lethal radiation levels, and on Saturday the chief of Japan’s nuclear agency called on Tepco to improve its worker safety.
On Monday morning, Japan's Chief Cabinet Secretary Yukio Edano made a plea to residents from the 12-mile radius evacuation zone surrounding the crippled nuclear plant to please stay away "until safety is confirmed." Police stationed in the area have noticed more people returning to gather belongings and "there is a risk" of returning home now, Edamo said. Many families fled quickly after the earthquake and tsunami struck more than two weeks ago with only the clothes they were wearing.
Evidence of rising contamination in and around the plant has tempered optimism from a week ago, when engineers began work to restore power to the first of the damaged reactor buildings. Japan’s Nuclear and Industrial Safety Agency said Sunday that a new measurement of seawater taken about 1,000 feet from the facility showed an iodine level 1,850.5 times the legal limit, higher than a reading taken the previous day.
The dangers in unit 2 merely add to the growing challenges. Radioactive water is pooling in four of Fukushima’s six turbine rooms, and engineers have no quick way to clean it up, although they have begun to try in unit 1. While a Tepco spokesman said Sunday that he did not know how the radioactive water was leaking from the reactor cores, Yukio Edano, chief cabinet secretary, said in a televised interview Sunday morning that the reactor itself had not been breached. He said it was clear that water that could have been inside the unit 3 reactor had leaked but the reactor had not been breached. Still, he said, "Unfortunately, it seems there is no question that water, which could have been inside the reactor, is leaking.’’
Unlike in newer reactor designs, the older boiling-water reactors at Daiichi are pierced by dozens of holes in the bottoms of their reactor vessels. Each hole allows one control rod — made of a neutron-absorbing material that quickly stops nuclear fission inside the reactor — to slide into the reactor from below, as happened when the earthquake shook the plant March 11. During normal operations, a graphite stopper covers each hole, sealing in highly radioactive primary cooling water, said Arnie Gundersen, a consultant at Fairewinds Associates with 40 years of experience overseeing boiling-water reactors.
But at temperatures above 350 degrees Fahrenheit, the graphite stoppers begin to melt. "Since it is likely that rubble from the broken fuel rods is collecting at the bottom of the reactor, the seals are being damaged by high temperature or high radiation," Gundersen said. As the graphite seals fail, water in the reactor will leak into a network of pipes in the containment buildings surrounding each reactor — the very buildings that have been heavily damaged by explosions. Gundersen said that this piping is probably compromised, leaving highly radioactive water to seep from the reactor vessels into broken pipes — and from there into the turbine buildings and beyond.
To stabilize the facility, workers are trying to repair the elaborate cooling system, necessary to keep the reactor cores and spent fuel pools from overheating. For now, they are conducting this work in dark, steamy conditions. Nuclear safety experts say they must shift out of the most dangerous areas every 30 minutes to an hour, to prevent radiation overexposure.
Meanwhile, they are racing to repair motor pumps. Their environment resembles a cavern of cables. Some of the equipment was damaged during the March 11 earthquake and tsunami. Other equipment has been corroded by salt water, which was poured into the facility during earlier efforts to cool the reactors. "To a layman, you’d be scared to death," said Lake Barrett, a nuclear engineer who directed the cleanup of Three Mile Island. "You’re working with salt water around your feet. This is not the way electricians usually work."
The number of workers at the Daiichi plant fluctuates from day to day, ranging between 500 and 1,000. But Tepco employees account for only a part of the labor force. Last Tuesday, for instance, there were 700 people at the plant, a nuclear agency official said. The figure included 500 Tepco employees, 100 subcontracted workers, and 100 members of Japan’s Self-Defense Forces or the Tokyo Fire Department.
One subcontracted worker who laid cables for new electrical lines March 19 described chaotic conditions and lax supervision that made him nervous. Masataka Hishida said neither he nor any of the workers around him was given a dosimeter, a device used to measure one’s exposure to radiation. He was surprised that workers were not given special shoes; rather, they were told to put plastic bags over their street shoes. When he was trying on the gas mask for the first time, he said, the supervisor told him and other subcontractors, "Listen carefully, I’m only going to say this one time," while explaining how to use it.
When Hishida finished his work shift, an official scanned his whole body for radiation. He came up clean, except for the very tip of his beard. He was sent into a shower where he lathered up and scrubbed his beard. He was tested again and passed. A few days later, still worried about the extent of his radiation exposure, he trimmed his beard.
Powering Down for the Long Term
by Chester Dawson - Wall Street Journal
As Japan slowly comes to grips with the devastation created by its earthquake and tsunami and ensuing nuclear crisis, a debate is emerging in business and political circles about how to do more with less electricity—or just do less.
After years of debate, Japanese policy makers have finally begun seriously to consider for the first time in six decades instituting daylight-saving time this summer, which would reduce energy demand in the early mornings and evenings. Japanese companies also are weighing reducing hours worked—and wages paid—at offices and factories. As a result, Tokyo households could face higher utility bills and blackouts during the hottest summer months, when air conditioners usually are cranked up to maximum power.
The sudden push to save electricity comes as several power plants that served the Tokyo area were temporarily or permanently knocked out of service by the March 11 quake, including the damaged Fukushima Daiichi nuclear plant that has been leaking radiation. Prime Minister Naoto Kan's government has set up a special task force of cabinet-level officials charged with coming up with a set of policy prescriptions and recommendations. As part of that initiative, government ministries are reaching out to industry groups to coordinate their efforts.
"Everything is being examined from a zero basis, without any favor or prejudice," said Noriyuki Shikata, a spokesman for the cabinet. "As one of the world's most energy-efficient countries, our margin for additional conservation is rather limited, but we don't have any choice."
In response to calls for conserving electricity, many businesses in Tokyo already are operating with dimmed lights, prompting some to post "open for business" signs on front entrances. The Tokyo metropolitan government turned off about half the city's street lights and many elevators in public facilities in the aftermath of the quake. Train service has been suspended on several routes because of the power shortage. Even the wattage of ubiquitous vending machines on nearly every street corner has been turned down. But those efforts may not be nearly enough as the heat and humidity of summer approache, threatening to paralyze Japan's capitol city.
Tokyo Electric Power Co., or Tepco, hopes to end its rolling blackouts by late April as it races to bring mothballed or underutilized generators—mostly powered by fossil fuels—back on line. Even so, it estimates that the gap between supply and demand during the peak summer months will balloon to one million kilowatts, or about 20% of total usage. Despite relatively high prices for electricity by global standards, Japan has grown accustomed to ample supplies over the past two decades. Even as the population remained virtually unchanged between 1990 and 2009, electricity usage surged almost 35% over the period, according to data from the Federation of Electric Power Companies of Japan.
The sudden shortage of electricity in and around Tokyo could trigger a supply-side shock to Japan's economy the likes of which it hasn't experienced since oil prices spiked in the 1970s. BNP Paribas cites the electricity "bottleneck" and supply-chain disruptions in its forecast for negative growth for the next two quarters, which it expects to act as a drag on overall growth and to induce a 0.9% contraction in gross domestic product in fiscal 2011.
Businesses in areas covered by the two hardest-hit utilities, Tepco and Tohoku Electric Power Co., account for half Japan's total economic output and 45% of its manufacturing. Nomura Securities says the shortfall in electricity mid-summer and mid-winter could wipe out about 1.4 trillion yen ($17.19 billion) in pretax profits, or an average of about 5% at Japan's 400 biggest companies. In an editorial Sunday, the Nihon Keizai, Japan's largest business daily, called on Japan's two main industry associations to take the lead in organizing "rotating holidays" to reduce demand everywhere from gritty factory floors to fancy department stores.
Due to a 100-year-old historical quirk, the power shortages Tokyo faces can't be remedied by sending more voltage from western Japan, which was largely unaffected by the quake. While Tokyo uses 50-hertz electricity, its western rival Osaka uses 60-hertz power—a discrepancy stemming from Japan's crash industrialization program in the 1890s when Tokyo chose German-made generators and Osaka adopted U.S. generators. The shortfall in eastern Japan is 10 times what substations are capable of converting from east to west, according to BNP Paribas.
That has spurred Japanese leaders to consider taking drastic measures. Few executives have broached the topic of shorter working hours openly, but a top official at a major Japanese manufacturer who declined to be named said reduced work shifts are likely in order to cope with the lack of electricity. "Industry will have to change working patterns, and people will just have to get used to the heat," the official said.
Neither step would be completely without precedent: before World War II, government officials in Japan worked only until noon during the peak summer months, and under the U.S. occupation period after the World War II, Japan instituted daylight-savings time until 1952. But the issue of daylight savings has been surprisingly contentious in Japan, where some have viewed it as a way to extend the work day or rehash postwar memories
House prices fall by 11% in Ireland in 2010
House prices in Ireland are falling at a double-digit rate but property values in other countries favoured by British buyers are showing signs of stabilising, research has indicated. The average cost of a home in Ireland dropped by 10.8pc during 2010 as the market suffered from the fallout of the country's economic problems, according to estate agent Knight Frank.
The drop was the biggest recorded for the total of nearly 50 countries looked at by the group. The pace of the falls is also showing little sign of easing, with property losing 3.5pc of its value during the final quarter alone. Steep price falls were also seen in Dubai, with property values diving by 6.1pc during the third quarter of 2010, the latest quarter for which figures are available. But there was better news for those who have bought second homes in France, with house prices in the country actually rising by 9.5pc during 2010.
The more conservative French mortgage market means that house prices have been hit less hard by the credit crisis than in some other countries. House prices were also only 1.4pc lower in Italy at the end of 2010 than at the beginning of the year, with the pace of decline easing to just 0.3pc during the final quarter.
Property values in Spain, which has seen a severe house price correction, also showed signs of stabilising during the fourth quarter, edging down by 0.4pc to leave them 3.5pc down for the year, while the cost of a home in Portugal dropped by 4pc during 2010.
Hong Kong saw the strongest annual house price growth of 20pc, followed by Latvia at 16.9pc and Israel at 16.2pc. Britain came 31st out of 49 countries, with prices edging ahead by 0.7pc during the whole of 2010 but falling by 2.5pc during the final three months of the year.
Overall, Knight Frank said global house prices had risen by 2.8pc during 2010. Liam Bailey, head of residential research at Knight Frank, said: "This annual figure hides the fact that a growing number of countries are seeing negative quarterly price movements.
"In the second quarter of 2010 the proportion of countries in our index recording negative quarterly growth was less than a third at 31pc, in the third quarter the figure was 35pc, in our most recent fourth quarter figures the proportion is 41pc. "Across an increasing number of European countries and also in the US, markets were weaker in the second half of 2010, following a brief revival in the previous 12 months."
Irish banks to need another bailout (number five)
by Lisa O'Carroll - Guardian
Fresh bank stress tests in Ireland are expected to show another black hole of between €18bn and €23bn and lead to the fifth bailout in two and half years. The tests, by Blackrock Consulting, the world's largest asset manager, were commissioned by the Irish central bank into four Irish banks - Allied Irish Banks, Bank of Ireland, Irish Life & Permanent and the Educational Building Society. The tests are due to be published on Thursday.
The new Irish government, which has had a bruising time in Europe over its demands for a better bailout deal, hopes the tests will finally draw a line under Ireland's chronic banking debt crisis. The further losses are expected to reflect the worsening state of the banks' commercial and residential mortgage loan books with a worse-case scenario of a 60% fall in house prices from peak to trough.
Some €46bn (£40bn) has already been pumped into Irish banks including the bust Anglo-Irish. Another €10bn was due to be injected in February as part of the IMF deal but in a political "hospital pass", the outgoing finance minister Brian Lenihan decided not to do so. Another €25bn in the IMF-EU bailout fund was earmarked as contingency but this was not expected to be used when the deal was signed last November.
If the figures, which are due to be finalised midweek, are confirmed it will mean virtually all this contingency fund is now consumed, giving Ireland no further wriggle room for bank debt. Ireland's disastrous property bubble is not the only factor in the deterioration in the banks' capital base. They have not been able to borrow money on the commercial market on any terms since last autumn and have been relying on more than €130bn in ECB and Irish central bank funding to plug their capital holes.
A leading economist and government adviser said the flight of capital from Irish banks was partly down to the ECB's continual demands for the return of its emergency funding. "The run on the Irish banks was aided and abetted by the ECB, not to put too fine a point on it," said Colm McCarthy who is advising the government on the sale of semi-state bodies. "The short-term and discretionary nature of ECB funding leaves the Irish banks on a knife-edge and makes it more difficult to hold on to deposits," he added.
Ireland's new government has lobbied hard to persuade Europe that the bailout was "unsustainable" for a number of reasons including the flight of capital and the impact of this week's stress tests. It is now considered that the spat over Ireland's low corporate tax rate was a political sideshow and behind the scenes this more technical debate was the one that mattered.
Publicly both Germany's Angela Merkel and France's Nicolas Sarkozy have demanded Ireland increase its corporate tax rate in exchange for concessions on the IMF-EU bailout, but last week Ireland switched its focus to the EU finance ministers in the hope they would "see the light". The change in strategy appears to have paid off with two key concessions. The ECB is expected to change the terms of emergency funding for Irish banks, replacing short-term, high-interest finance with a more medium-term mechanism, the terms of which have to be decided.
The IMF, which is back in Dublin this week, is also expected to concede, along with the EU, that one of the original conditions of the bailout – that bank assets be sold to help pay off the ECB lending quickly – will not now happen.
Crisis-hit Portugal encouraged to accept eurozone’s bail-out package
The Portuguese government has come under renewed pressure to accept a European bail-out at the start of another crucial week for the eurozone.
Ewald Nowotny, a governing council member of the European Central Bank, said Portugal should seek help from Europe after the resignation of the prime minister over austerity measures.
He told reporters: "From a purely economic point of view one could probably recommend it. The domestic political situation in Portugal has clearly worsened ... the head of the government has stepped down."
Jose Socrates was re-elected leader of Portugal's Socialist party on Sunday, four days after resigning as prime minister, and vowed to run in a parliamentary election on a platform opposing a financial bail-out.
Mr Socrates, who won 93pc of the leadership votes despite the country's political crisis, spared no criticism of the opposition whose rejection of his minority government's austerity measures last week led to his resignation. "I am here to face the judgment of the Portuguese. I am not afraid and I will fight for victory," he told a party meeting after being re-elected as general secretary.
"It is the moment for the Portuguese to choose between those who want a foreign aid programme, those who want the IMF to come, and those who will give everything, their best for Portugal to not have to ask for foreign aid."
Meanwhile, Ireland is trying to secure an extra €60bn (£52bn) of medium-term funding from the ECB to replace emergency temporary help given to the banking sector by Ireland’s central bank. The Irish government is determined to secure the funding before the results of "stress tests" on its banks are known. Experts say the tests may show that Ireland’s biggest banks need as much as €15bn to €20bn of extra capital.
Spain’s banks are also being scrutinised by wary investors.
Portugal bailout pressures grow as borrowing costs hit another record
by Emma Rowley - Telegraph
Portugal felt the pressure to seek a bailout build as its borrowing costs once more hit a euro lifetime record, on the back of downgrades of its banks' credit ratings.
The debt-laden nation, which investors believe is merely delaying the inevitable rescue, saw investors' flight from its debt push the yield, or return, on its benchmark 10-year bond to 8.17pc, setting a new high after Friday's climb to 8pc. The rise came as credit rating agency Standard & Poor's downgraded its view of five of the country's banks, having last week slashed its rating of Portugal's sovereign debt after the government's collapsed.
Meanwhile Angela Merkel, the German chancellor, saw her party suffer a crushing defeat in local elections. The rebuff from voters makes it look less of a certainty that Berlin will pass bills approving measures to shore up the eurozone's funding safety net for members collapsing under their debt burdens, said analysts. "Last week we were concerned about politics in Portugal, but going forward politics in the currency bloc's largest economy has the potential to be the eurozone's spanner in the works," said Kathleen Brooks at Forex.com.
However, despite the developments, the euro stayed firm, trading over $1.40. Analysts said that investors seeking a refuge from the weak dollar were focusing on a potential rate rise in the eurozone, rather than the region's ongoing debt crisis. Jean-Claude Trichet, president of the European Central Bank, on Monday said inflation rates are "durably" above the region's target of just under 2pc, underling market expectations of an imminent rise in interest rates - which would make the euro more attractive.
But the relative calm around the shared currency may not last, analysts warned. "We still believe that the ever-deepening crisis in the euro-zone must eventually start to weaken the single currency," said Jonathan Loynes at Capital Economics. Thursday represents "doomsday" for Ireland's banks as they are all likely to fail the country's domestic stress tests, said Alastair Winter, chief economist at broker Daniel Stewart.
Enda Kenny, the Irish leader, wants to cut his taxpayers' bill for bailing out the banks by imposing losses on the sector's senior bondholders, which could have knock-on effects on how other vulnerable eurozone states are treated by investors.
No Mortage Lenders in Jail, but Borrowers Do Land There
by Joe Nocera - New York Times
A few weeks ago, when the Justice Department decided not to prosecute Angelo Mozilo, the former chief executive of Countrywide, I wrote a column lamenting the fact that none of the big fish were likely to go to prison for their roles in the financial crisis.
Soon after that column ran, I received an e-mail from a man named Richard Engle, who informed me that I was wrong. There was, in fact, someone behind bars for what he’d supposedly done during the subprime bubble. It was his 48-year-old son, Charlie.
On Valentine’s Day, the elder Mr. Engle said, his son had entered a minimum-security prison in Beaver, W.V., to begin serving a 21-month sentence for mortgage fraud. He then proceeded to tell me the tale of how federal agents nabbed his son — a tale he backed up with reams of documents and records that suggest, if nothing else, that when the federal government is truly motivated, there is no mountain it won’t move to prosecute someone it wants to nail. And it was definitely motivated to nail Charlie Engle.
Mr. Engle’s is a tale worth telling for a number of reasons, not the least of which is its punch line. Was Mr. Engle convicted of running a crooked subprime company? Was he a mortgage broker who trafficked in predatory loans? A Wall Street huckster who sold toxic assets?
No. Charlie Engle wasn’t a seller of bad mortgages. He was a borrower. And the "mortgage fraud" for which he was prosecuted was something that literally millions of Americans did during the subprime bubble. Supposedly, he lied on two liar loans. "The Department of Justice has made prosecuting financial crimes, including mortgage fraud, a high priority," said Neil H. MacBride, the United States attorney for the Eastern District of Virginia, in a statement. (Mr. MacBride, whose office prosecuted Mr. Engle, declined to be interviewed.)
Apparently, though, it’s only a high priority if the target is a borrower. Mr. Mozilo’s company made billions in profit, some of it on liar loans that he acknowledged at the time were likely to be fraudulent and which did untold damage to the economy. And he personally was paid hundreds of millions of dollars. Though he agreed last year to a $67.5 million fine to settle fraud charges brought by the Securities and Exchange Commission, it was a small fraction of what he earned. Otherwise, he walked. Thus does the Justice Department display its priorities in the aftermath of the crisis.
It’s not just that Mr. Engle is the smallest of small fry that is bothersome about his prosecution. It is also the way the government went about building its case. Although Mr. Engle took out the two stated-income loans, as liar loans are more formally called, in late 2005 and early 2006, it wasn’t until three years later that his troubles began.
As a young man, Mr. Engle had been a serious drug addict, but after he got clean, he became an ultra-marathoner, one of the best in the world. In the fall of 2006, he and two other ultra-marathoners took on an almost unimaginable challenge: they ran across the Sahara Desert, something that had never been done before. The run took 111 days, and was documented in a film financed by Matt Damon, who served as executive producer and narrator. Mr. Engle received $30,000 for his participation.
The film, "Running the Sahara," was released in the fall of 2008. Eventually, it caught the attention of Robert W. Nordlander, a special agent for the Internal Revenue Service. As Mr. Nordlander later told the grand jury, "Being the special agent that I am, I was wondering, how does a guy train for this because most people have to work from nine to five and it’s very difficult to train for this part-time." (He also told the grand jurors that sometimes, when he sees somebody driving a Ferrari, he’ll check to see if they make enough money to afford it. When I called Mr. Nordlander and others at the I.R.S. to ask whether this was an appropriate way to choose subjects for criminal tax investigations, my questions were met with a stone wall of silence.)
Mr. Engle’s tax records showed that while his actual income was substantial, his taxable income was quite small, in part because he had a large tax-loss carry forward, due to a business deal he’d been involved in several years earlier. (Mr. Nordlander would later inform the grand jury only of his much lower taxable income, which made it seem more suspicious.) Still convinced that Mr. Engle must be hiding income, Mr. Nordlander did undercover surveillance and took "Dumpster dives" into Mr. Engle’s garbage. He mainly discovered that Mr. Engle lived modestly.
In March 2009, still unsatisfied, Mr. Nordlander persuaded his superiors to send an attractive female undercover agent, Ellen Burrows, to meet Mr. Engle and see if she could get him to say something incriminating. In the course of several flirtatious encounters, she asked him about his investments.
After acknowledging that he had been speculating in real estate during the bubble to help support his running, he said, according to Mr. Nordlander’s grand jury testimony, "I had a couple of good liar loans out there, you know, which my mortgage broker didn’t mind writing down, you know, that I was making four hundred thousand grand a year when he knew I wasn’t."
Mr. Engle added, "Everybody was doing it because it was simply the way it was done. That doesn’t make me proud of the fact that I am at least a small part of the problem." Unbeknownst to Mr. Engle, Ms. Burrows was wearing a wire.
Lying on a stated-income loan is, without question, a crime, and one ought not to excuse it even though, as Mr. Engle says, "everybody was doing it" — usually with the eager encouragement of their brokers. But the Engle case raises questions not just about the government’s priorities, but about something even more basic: did he even commit the crimes he is accused of?
Partly, I concede, Mr. Engle is easy to root for. He is a personable, upbeat man who has conquered some serious demons. Part of his Sahara expedition was aimed at raising money for a charity to help bring clean water to Africa. "Every experience in life has the ability to teach lessons if I am open to them," he wrote on a blog as he prepared to enter prison. How can you not like someone like that?
But the more I looked into it, the more I came to believe that the case against him was seriously weak. No tax charges were ever brought, even though that was Mr. Nordlander’s original rationale. Money laundering, the suspicion of which was needed to justify the undercover sting, was a nonissue as well. As for that "confession" to Ms. Burrows, take a closer look. It really isn’t a confession at all. Mr. Engle is confessing to his mortgage broker’s sins, not his own.
Perhaps anticipating that problem, when Mr. Nordlander finally arrested Mr. Engle in May 2010, he claims to have elicited a stronger, better confession while Mr. Engle was handcuffed in the back seat of his car. Mr. Engle fervently denies this. This second supposed confession, however, was never captured on tape.
As for the loans themselves, on one of them Mr. Engle claimed an income of $15,000 a month. As it turns out, his total income in 2005, according to his accountant, was $180,000, which amounts to ... hmmm ...$15,000 a month, though of course Mr. Engle didn’t have the kind of job that generated monthly income. (In addition to real estate speculation, Mr. Engle gave motivational speeches and earned around $50,000 a year as a producer on the hit show "Extreme Makeover: Home Edition.")
The monthly income listed on the second loan was $32,500, an obviously absurd amount, especially since the loan itself was for only $300,000. It was a refinance of a property Mr. Engle already owned, allowing him to pull out $80,000 of the $215,000 in equity he had in the property.
Mr. Engle claims that he never saw that $32,500 claim and never signed the papers. Indeed, a handwriting analysis conducted by the government raised the distinct possibility that Mr. Engle’s signature and his initials in several places in the mortgage documents had been forged. As it happens, Mr. Engle’s broker for that loan, John J. Hellman, recently pleaded guilty to mortgage fraud for playing fast and loose with a number of mortgage applications.
Mr. Hellman testified in court that Mr. Engle had signed the mortgage application. Early this week, Mr. Hellman received a reduced sentence of 10 months, less than half of Mr. Engle’s sentence, in no small part because of his willingness to testify against Mr. Engle.
Even the jurors seemed confused about how to think about Mr. Engle’s supposed crime. When it came time to pronounce a verdict, the jury found him not guilty of providing false information to the bank, which would seem to be the only fraud he could possibly have committed. Yet it still found him guilty of mortgage fraud. "I think the prosecution convinced the jury that I was guilty of something but they weren’t sure what," Mr. Engle wrote in an e-mail.
Like many people, Mr. Engle’s biggest mistake was believing that housing prices could only go up. When the market collapsed, Mr. Engle defaulted on the two properties, which of course is not a crime. Although his accountant tried to persuade the banks to do a complicated refinancing, they refused and foreclosed on the properties. Like many Americans, Mr. Engle wound up being punished by the market for his mistake, losing all his remaining equity along with the properties themselves. Thanks to the government, though, his punishment was far more severe than most.
At his sentencing, Mr. Engle told the judge: "I can say with confidence that I can turn negatives into positives. I have no doubt I will make the best of it." With his inspiring prison blog, Running in Place: A Blog About Surviving Adversity, he has already begun to do that.
Even when he emerges from prison, though, his ordeal will not be over. As part of his sentence, Mr. Engle was ordered to pay $262,500 in restitution to the owner of his mortgages. And what institution might that be? You guessed it: Countrywide, now owned by Bank of America.
Angelo Mozilo ought to get a good chuckle out of that one.
Bank of Canada Governor Carney: This time it’s different
by Chris Kirby Macleans
In a recent magazine story and blog post, we highlighted the tremendous benefits Canada has enjoyed thanks to the commodity boom, but warned that if you think this will go on forever, you’re basically saying “this time it’s different.” That type of thinking has coincided with every bubble we’ve ever witnessed, and was invariably followed by a loud POP!!.
Well, Bank of Canada Governor Mark Carney disagrees.
In a speech in Calgary earlier today Carney said the rise of the middle class in India and China does mean this boom is different than all the others that have come before it. ”Even though history teaches that all booms are finite, this one could go on for some time,” he said. (Here’s the full text of his speech.)
If Carney is proven right, here again is a chart we put together that shows how unbelievably, astoundingly history-defying his prediction would be:
Yes, that’s 200 years of booms and busts. Whenever 10-year average rates of return climb above 10 per cent, you’re into the danger zone, and as of a few weeks ago, we’d hit 12 per cent, according to Hackett Financial Advisors.
But Carney says this is a Supercycle, so the old rules don’t apply. His analysis seems to stand in contrast to his colleague at the Bank, Deputy Governor John Murray. Last year Murray warned against expecting commodity prices to keep going up forever: “If history is any guide, continuous rapid upward movement in real prices – oil or otherwise – is unlikely, as is a large permanent increase in the real price level.”
So who’s right—Carney or Murray?
P.S. someone will undoubtedly complain again that the chart doesn’t state which currency commodities were priced in. The chart measures 10-year trailing rates of return, priced in US$ terms.
Handling the $ 8.4 Trillion Boomer Inheritance
by Ashlea Ebeling - Forbes
After his late father's 1,400-acre Texas cattle ranch was sold in 2005, George Farmer used his share, plus a later inheritance from his stepmother, to buy and restore an 83-acre private plot within the 3.3 million-acre Gila National Forest in New Mexico.
Farmer, a 70-year-old former personnel consultant, and his wife, Linda Zatopek, a 65-year-old retired lawyer, now live there year-round in a 1,000-square-foot, solar-heated home. With the help of both volunteers and hired hands, they've rebuilt a 1.5-mile perimeter fence to keep out cattle, hand-placed 35 tons of rock for erosion control and replanted native flora, such as false indigo, edible canyon grapes and four-wing saltbush. (They're nurturing another 450 native plants in a greenhouse for planting this spring.)
They plan to open what they've named "Axle Canyon Preserve & Retreat" to paying guests later this year. Visitors can stay in a vintage Airstream trailer for $200 a week or a new guesthouse for $395. Since Axle Canyon is off the power grid, with no artificial night light, they hope to attract stargazers, as well as mountain lion watchers and nature lovers. "I think of it as a legacy of my father," Farmer says. "He was very connected to the land and took very good care of it."
The Center for Retirement Research at Boston College estimates that 70% of baby boomer households will receive inheritances. These will total $8.4 trillion — an average of nearly $300,000 per inheriting household, with the wealthiest 10% receiving an average of $1.5 million. Some, like Farmer, will use the windfall to live out a dream. Others will give to charity or their kids, or simply live better. Here are pointers for handling an inheritance.
Keep It Separate
In most states an inheritance is the separate property of the spouse who received it — so long as the heir keeps it separate. So think carefully before you put the money in a joint account with your spouse or use it to make major improvements on a jointly owned home. "There can be a lot of conflict in that conversation as to how inherited assets should be used," observes Susan Hirshman, a former JPMorgan private banker who runs SHE, a consulting firm focused on finances and women. But an inheritance can also be an opportunity to resolve investment conflicts. One 50-something woman Hirshman advised found her husband's investing style too aggressive. So when she inherited $600,000, she kept it in a separate, more conservative portfolio. "It's her protection," Hirshman says.
Another advantage to keeping an inheritance separate: It allows you to protect the funds from your spouse's creditors. On the other hand, if the inheriting spouse is in a high-risk profession — say, an obstetrician — it can make sense to put the money in a joint account or shift it to the other spouse for protection, notes Denise McClain, a financial principal with Lowry Hill in Scottsdale, Ariz.
Stretch Out That IRA
If you inherit an individual retirement account from a parent, you can stretch out withdrawals — and hence tax benefits — over your own life expectancy, so long as you handle the IRA properly. (Withdrawals from a traditional IRA will be subject to income tax; those from a Roth are tax free.) Don't try to take the money out and redeposit it in your own IRA. That's not allowed. Instead, the IRA should be renamed, "John Smith, deceased, inherited IRA for the benefit of John Smith Jr." If several people are named as beneficiaries of the IRA, ask the custodian to split it into separate inherited IRAs.
If you want to move it from one custodian to another, do so in a "trustee-to-trustee" transfer. If you are named a beneficiary and your children are contingent beneficiaries, you may want to "disclaim" — that is, give up — the IRA to the kids if you don't need the money. That's because your children, with their longer life expectancy, can stretch out the tax benefits of the account even longer.
Review Your Own Estate Plan
If you should die tomorrow, what would happen to your inheritance? If you've kept it in a separate account, it's easier to make sure it goes to your own kids, not your second spouse, points out John O. McManus, an estate lawyer in New Providence, N.J. But consider if your own heirs can handle the money outright or if it would be better to have a trustee dole out money to them from a trust, according to parameters you outline.
Meanwhile, if you've inherited a substantial amount, check whether it has pushed you into estate tax territory. You can currently pass on up to $5 million to nonspousal heirs free of federal estate tax. But 22 states and the District of Columbia impose their own estate or inheritance taxes, often at much lower asset levels. To avoid these taxes you may want to make gifts to the kids while you're alive.
Feed Your Retirement Accounts
While you may want to keep an inheritance separate, remember that money is fungible. If you're working and not contributing the maximum allowed to retirement accounts, consider using some of your inheritance for living expenses and diverting more of your earnings into tax-favored retirement accounts.
Most private employees age 50 and older can contribute a maximum of $22,000 a year to a 401(k) and $6,000 to an IRA or Roth IRA. But small-business owners with custom retirement plans and state employees with multiple savings options can defer lots more. Janet Briaud, a financial planner in Bryan, Tex., advises a two-professor couple (state university employees) who are putting $71,000 a year each into retirement plans while using the wife's $1 million inheritance for living expenses.
Be Careful With Offshore Money
Briaud's own husband, Jean-Louis Briaud, a civil engineering professor at Texas A&M, inherited more than $250,000 in France when his father died in 2007. He has kept the money there and used some of it to take a family trip to visit his mom in France. If you keep money abroad, Briaud warns, you must report it on your 1040 and a special annual report to the Treasury or face severe sanctions.
Briaud's husband has left the account separate in part because he's considering donating it for the endowment of a chair in civil engineering to honor his father.
Plan With Your Parents
If possible, talk with your aging parents about their plans for passing on assets. This is crucial when a family business is involved, says Alan Kahn, a CPA and financial planner in Syosset, N.Y. At Kahn's suggestion one client's parents set up a life insurance trust that provided the cash for Kahn's client to buy his difficult brother out of the family business. "He was in control and better able to grow the business, and the brother was able to go on his merry way," says Kahn. Other families can benefit from planning, too. For example, the beneficiary form on file for an IRA is crucial — if it names an estate, instead of children or grandchildren, as beneficiary, the IRA and its tax benefits can't be stretched out, and a big income tax bill will soon be due.
Dutch bankers' bonuses axed by people power
by Richard Wachman - Observer,
An online campaign has overturned ING's executive pay policy, and the mood in Amsterdam is getting increasingly militant about bonuses at bailed-out banks
Britain has a rival when it comes to bashing bankers. After a furious row over pay packages at Amsterdam-based ING in which thousands of customers threatened to make mass withdrawals, the Netherlands is now vying for the title of Europe's most bonus-hating country. A growing Dutch political storm could end with a blanket ban on bonuses to financiers who work for institutions bailed out by the taxpayer.
ING customers mobilised on Twitter and other social networks to protest at bonuses paid to bosses at the bank, one of the biggest in the country. The threat of direct action raised the spectre of a partial run on ING, terrifying the Dutch establishment. Fred Polhout, union organiser at the bank, says: "People were outraged. We heard about the bloated sums being paid again in the City and in New York; but suddenly the issue exploded on our own front door."
Compared with the packages awarded to bankers in the US and UK, the Dutch bonuses were small potatoes. Jan Hommen, ING's chief executive, was due to receive a £1m bonus – a pittance when you consider that Stephen Hester, head of state-controlled RBS in the UK, is in line for up to £7.7m, Bob Diamond of Barclays is to collect as much as £6.5m, and some senior bankers at Goldman Sachs and JP Morgan are looking at windfalls of about £40m each. "Perhaps we are so upset because we are a small country that prefers to set an example, rather than follow others," suggests Polhout.
So severe was the public reaction to Hommen's bonus that within days he had agreed to waive the award and told other ING directors to do the same. Now the Netherlands is going through a painful period of introspection and soul-searching. Politicians have voted to implement a 100% retrospective tax on all bonuses paid to executives at institutions that received state aid as a result of the financial crisis. In other words, no banker should get a bonus until the debt is cleared, and they should return payments made since 2008.
ING was thrown a €10bn (£8.7bn) lifeline to stop it going under, while ABN Amro was nationalised. Numerous other Dutch financial firms received capital support, including Aegon, SNS Reaal and ASR Nederland. On the streets of Amsterdam, there is little sympathy for the bankers. Emma Rohl, who works at an English bookshop in the city centre, says: "They shouldn't get bonuses at all. Why should people be paid vast sums for going into work and doing their jobs? It's utterly ridiculous."
Erick Koenig at a nearby restaurant says: "We rescued the banks from their own follies, and now they expect to be paid extra. I think they should work for free for at least five years." At a dusty office in a northern suburb of Amsterdam, Henk van der Kolk, head of the country's biggest trade union, FNV Bondgenoten, does nothing to conceal his frustration: "Everybody is angry about what happened at ING. The board isn't in tune with public opinion. What were they thinking of? ING pensioners have seen their payouts frozen, while many employees were awarded a pay increase of just 1%."
Van der Kolk's union is pushing for a law that would ensure that executive pay should never amount to more than 20 times the wage paid to the lowest-salaried employee. As for bonuses, the union feels payouts should not exceed 50% of a director's salary. Hommen's bonus was worth 92% of his €1.35m package. "Remuneration for bankers was linked to financial machismo, which encouraged irresponsible lending. We want to get away from the bonus culture," says van der Kolk.
But given the payouts to ING directors were relatively small, some Dutch bankers are shocked they have received another public mauling. One ING insider suggests the country was in the grip of a "typically Dutch Lutheran and Calvinist backlash" which cultivates the view that excessive wealth is somehow morally reprehensible and in contravention of traditional Dutch, Christian values. The source says: "We went through this during the boom when ministers railed against stock options and bankers were accused of exhibitionism, and enriching themselves to the detriment of the nation."
The bankers' response that high remuneration is vital to retain talent and prevent Dutch financiers from defecting to overseas banks is given short shrift by Polhout. He says: "Let them go abroad if they don't like it her;, there are plenty of clever people who will take their place and work for less. Good riddance, as far as I am concerned." Moderate opinion in Holland seems united in its belief that banks which received state aid should not be shelling out bonuses. And Dutch parliamentarians are saying the same thing, demanding the government take immediate action. ING may have made a net profit last year of more than €3bn, but it still owes the taxpayer €5bn.
The uproar against Hommen's bonuses and those earmarked for the bank's senior executives have forced ING to rethink its position. Hommen promises no more bonuses till 2012/13 when the bank expects to have repaid all state aid. In a letter to Dutch newspaper De Volkskrant, he said: "We have underestimated the signal we sent to society. [We] have [risked] renewed damage to the recovering trust of our customers."
Few doubt a critical factor behind ING's volte face was the boycott threatened by consumers. A spokesman for the bank admitted the payment of bonuses "prompted a reaction from our customers via emails and telephone messages to our call centres". But he said only a few hundred people had actually closed their accounts.
Now the ball is in the court of finance minister Jan Kees de Jager, who must decide how to respond to a proposal by parliament calling for the return of bonuses by all executives at state-supported banks. On a recent television show, he said such a law would be difficult to implement and would hit bankers on average salaries who receive bonuses of just a few thousand euros. But in today's highly charged political atmosphere, de Jager knows that doing nothing is probably not an option.
Britain's leaders should come clean on the true depth of the fiscal crisis
by Liam Halligan - Telegraph
The UK's fiscal retrenchment, we are told, is being conducted at an "extraordinarily ambitious pace". Last week's annual Budget statement pledged to "eliminate the structural deficit by 2014/15".
George Osborne told the House of Commons that "Britain has a plan and is sticking to it". The Chancellor won't be cowed by claims his efforts to get the UK back on the fiscal straight and narrow will do more harm than good. He is right, of course – but only up to a point.
The Labour party's most senior figures, in defiance of their education and intelligence, keep claiming that Osborne's actions are "driven by ideology, rather than necessity". This is absurd. Anyone who argues that rapidly addressing the fiscal catastrophe Labour left behind is anything other than absolutely crucial either knows nothing about global bond markets, or is so blindly ambitious, so determined to close their eyes to the facts, as to be unfit for public office.
Having said that, Osborne is also ignoring the facts – if to a slightly lesser degree. Because the UK's fiscal retrenchment won't be over by 2015 – when the deficit, on last week's numbers, falls roughly to zero. That won't be the end of our budgetary problems. It won't even be the beginning of the end. It will merely be, if we're lucky, the end of the beginning.
Some readers may be offended that I've evoked Churchill – paraphrasing his immortal words associated with heroic war-time exploits – when describing tawdry financial issues. But such parallels, to my mind, are justified. The UK's fiscal crisis is of monumental historic importance. The future of the free world may not be at stake as it was in Churchill's day. What is in the balance, though, is the prosperity of the British people for at least the next few decades and our status as a top-ranking nation.
This fiscal predicament can't be compared to the horrors of the Second World War. But readers should be in no doubt that today's events, and our leaders' response to them, will affect Britain's future path more than any episode since then. At times like this, what's needed above all is a determination to face up to, and speak, the truth. The Tories are now being more honest – or less dishonest – than they were. But they still haven't "levelled with the British people".
It wasn't so long ago, remember, that Osborne and Co. were pledging to "match Gordon Brown's spending plans by sharing the proceeds of growth". Those were the very plans – as some of us warned at the time – which took the UK further down the road to fiscal perdition. Our youthful leaders have come a long way since then but the true depth of the fiscal hole we're in is still not widely understood – not only among the general public but, in my experience, even by very senior government members.
Unless they start articulating it soon, I'm going to start wondering if the Tory leadership itself has grasped the gravity of our fiscal situation. More importantly, so might the international investors upon whom this country is now perilously dependent to stave off bankruptcy by rolling over our sovereign debts. For while the rhetoric has been cranked up, and "austerity" is now on the political agenda, the reality is that actual retrenchment hasn't yet begun. Writing this brings me no pleasure. I am merely stating facts.
Just before the Budget, we learnt that government borrowing jumped to £11.8bn in February, up from £9.5bn during the same month the year before. This was the highest February borrowing total on record, double consensus estimates. As a result, official public sector debt now stands at £876bn, compared with £729bn at the same time in 2010. Over the last 12 months, then, this country's "on-balance-sheet" liabilities have risen by £147bn. That's roughly what we spent on the NHS and defence combined in 2010 – and that was merely, during this last year of "austerity", the incremental increase in what Britain has put "on tick".
That's my point – and I will keep making it until it fully enters the public discourse. It is the total debt numbers that Osborne, the Tories and our politicians in general should focus on, not the size of the annual deficit. The deficit is merely the yearly rise in the borrowing total that we need to service. By 2015, when the deficit is supposed to drop to zero, it doesn't mean that all outstanding debt will have gone away. It means, on the contrary, that total debt will have peaked.
What matters to the finances of any household is the size of the outstanding mortgage, the on-going costs of financing that mortgage, and the prospects of paying it off. Only an economically illiterate fool would claim the family finances will soon be "under-control" because sacrifices will be made and lifestyles reined-in to such an extent that, hopefully, if everything goes to plan, having re-mortgaged every year between now and 2015, that family will then enjoy a single year in which it won't need to re-mortgage.
That's the battle cry – "In five years' time, we may not need to re-mortgage!" These are the ludicrous terms under which the UK's fiscal debate is being conducted. What will our children and grandchildren think of us?
In 2009, the UK spent £31bn – around 6pc of total tax receipts – on debt interest payments. That's money down the drain. By 2015, we won't have reached, in Churchill's words, some "broad sunlit upland". After four more years of deficits, debt services costs, according to last week's Budget, will by then be £67bn a year – or almost 10pc of total tax receipts. These shocking numbers are also likely to be under-estimates, given the UK's massive "off-balance-sheet" liabilities and the Treasury's benign assumption of future gilt rates.
The lack of true fiscal retrenchment, together with rising inflation and its impact on welfare payments, means that the Office for Budget Responsibility now estimates debt service costs will be £4.7bn higher during the current fiscal year than Osborne forecast during his last budget. That's equal to more than a penny on income tax. Over the next five years, on last week's numbers, total debt service costs will now be some £18bn higher than before.
Why aren't Osborne and Co. explaining these catastrophic realities and their impact on our medium-term ability to maintain our public services, using them to rally support for austerity measures that are long overdue? Why aren't such stark facts thrown back into the face of those who claim that the Tories' retrenchment plans are "driven by ideology rather than necessity"? The answer is fear and a lack of respect. Fear that the British public would be critical of such candour. And a lack of respect for their intelligence.
"We may not need to re-mortgage by 2015". That's Osborne's plan he is "sticking to". That's what our "quality business press" describes as an "extraordinarily ambitious" deficit reduction plan, a "brutal reining-in of the public finances". The British establishment desperately needs to be honest with itself and the rest of the British people.
All of us – politicians, commentators and voters – should compare the quality of our current national debate, its utter detachment from reality, with the statesmanship and candour of Churchill's "blood, toil, tears and sweat". For such hard truths inspired a nation, while winning Churchill untold respect.
Europe needs debt relief, not decades of austerity
by Heather Stewart - Guardian
- Greece and Ireland may have to be allowed to default gracefully
- Demand grows for independent audit to separate public from private debt
From Donegal to the Algarve, to the streets of Athens, voters on Europe's "periphery", as economists dismissively call it, are slowly waking up to a sobering truth – they face years of austerity, yet wage cuts, job losses and crumbling public services will not extricate them from financial crisis. In fact, by driving their economies into an ever deeper slump, it may even make things worse. The pain could just bring more pain.
Paul Krugman, the US Nobel prize-winning economist, calls it "the austerity delusion". As Ed Miliband said of the coalition's austerity policies last week: "It's hurting, but it's not working." The Irish would certainly agree with that – Dublin has been widely praised for its draconian spending cuts, but the latest official figures, released on Thursday, showed that the economy has now been in recession for three years. Domestic demand is 27% lower than during Ireland's Celtic Tiger heyday. Investment is down by 60%, exports are falling, and, as any cash-strapped homeowner could tell you, when your income shrinks, it gets harder to service your debts.
This "debt trap" is familiar to campaigners who spent years fighting for the cancellation of Africa's multibillion-pound loans from the west. Millions of taxpayers in wealthy countries were moved to sign petitions and march on their capitals as part of the Jubilee 2000 movement.
The plight of Portuguese nurses or Irish homeowners can hardly be compared to the grinding poverty of Africa's indebted millions, but the stark logic of the situation is the same. Adopting the harsh deflationary policies imposed by international lenders, and meeting punitive interest payments, sucks the life out of already fragile economies, and that makes repayment even tougher.
Nick Dearden, director of Jubilee Debt Campaign, points to the case of Zambia. It was bailed out by the International Monetary Fund in the early 1980s, to prevent the government defaulting on the debts it owed to western banks, which had been on a reckless African lending spree. Zambia compliantly took the medicine the IMF prescribed, including severe spending cuts – but these simply drove the country into a deeper and deeper slump, making its debts ever more unsustainable. By 1995, Zambia's economic output had contracted by 30%, but its debt-to-GDP ratio had doubled, to 150%. It's hard to argue that it wouldn't have been better for the country simply to have defaulted on part of its debt.
What creditors were eventually forced to admit in the case of much developing country debt was that, in practice, there was absolutely no likelihood of getting their money back; and morally, it was wrong for the debts to be honoured when many of the loans should never have been made in the first place. It's time for more people to start making the same argument in Europe.
The backlash is already under way: in Ireland and Greece there are increasingly noisy public campaigns demanding an independent audit of these countries' debts, so that voters can see exactly who owes what to whom – and by implication, who precisely is being "bailed out".
Andy Storey, the University College Dublin economist involved in the Irish campaign, says: "The reason the bailout was instituted was because European banks wanted to get their money back." Much of the increase in Dublin's deficit results from huge bailouts of its clapped-out banking sector – and by implication, the bondholders who backed the banks. "In Ireland, an audit would be about separating the private from the public debt," Storey says. "How much of this is actually going to reimburse speculators, who shouldn't get their money back because they were stupid enough to invest in a bank with a very bad business model?"
Drawing a line between the money owed to the banks' bondholders, and the cash Ireland has borrowed to meet the costs of the recession – in increased welfare payments, for example – could pave the way for some of the private sector debt, at least, to be written down.
In Greece, Costas Lapavitsas, the London-based economist who is involved in the debt audit campaign, says part of its task would be to identify whether some of Athens' debt is actually illegitimate. He insists that, as in developing countries, there are moral as well as economic issues at stake.
"Is it morally or economically acceptable to destroy the welfare state, and to destroy schools and destroy hospitals to pay off these debts?" he asks. Like Storey, and a growing number of economists, he believes a default is only a matter of time – so it would be better to face it now. And he believes it won't be long before the Irish people follow their Greek cousins on to the streets: "My view is that Ireland is about six months behind Greece in terms of mood."
Although few dare to say it aloud, European leaders seem to agree that they need to open the door for countries to default gracefully, at least on their future borrowing. When they cobbled together the so-called Euro Plus Pact in Brussels last Thursday, including a commitment to plough money into a giant permanent bailout fund to be known as the European stability mechanism, they specified that all new bonds issued by eurozone governments will in future have to include "collective action clauses".
These clauses should make it easier to negotiate a dignified exit when the burden of debt has become unsustainable, because they force creditors to negotiate. If the defaulting government can win over a majority of its lenders to accept a "haircut" – a reduction in the value of what they are owed – the rest are bound by the deal. That prevents rapacious bondholders delaying a restructuring by holding out for a better agreement; but debt campaigners say that it won't be enough to prevent future crises.
Dearden, together with many other international campaigners, argues that there needs to be an international "debt court" – an independent, formal arbitrator which would oversee something like a bankruptcy process, but for sovereign states. The court would decide which debts should be honoured in full, and which creditors must take a haircut, or lose out altogether. Financiers loathe the idea, arguing that allowing default creates the problem of "moral hazard" – countries might have an incentive to borrow recklessly, in the knowledge that they can always turn to the debt court if times get hard.
But it would hardly be an easy way out for a government to publicly declare itself bankrupt to the rest of the world: it would be acutely embarrassing, and any country that did so would find it painfully hard (and expensive) to borrow in the future. And it's simply a fact that countries sometimes do default - Russia did in 1998 and Argentina in 2001, for example. The consequences would be much easier to assess, and almost certainly less painful, if investors knew what would happen next.
None of this helps Portugal, Ireland or Greece, however, which are still left wrestling with the legacy of the boom years. So far, their populations have largely accepted the harsh strictures of the EU and IMF, because governments – and the bond markets – insisted there was no alternative. But they could be signing up for many years, perhaps decades, of austerity. The social consequences will be severe, and even then, the medicine may not work, and the debts may still be unsustainable. An independent debt audit for each country would be a good first step towards making the right decision about which debts are worth enduring that kind of pain for.
The Irish prime minister, Enda Kenny, who came to power promising to abide by his predecessor's pledges of austerity, is beginning to turn his fire on the financiers who have been some of the main beneficiaries of the bailout. "It is grossly unfair to expect the taxpayer to have to pay 100% for the reckless lending practices of banks which caused this in the first instance," he has said.
Markets and voters across the eurozone have grown wearily accustomed to watching the cycle of a looming fiscal crisis as bond yields rocket, followed by just enough action from Brussels to jolt investors out of panic mode, followed by another bout of the jitters as they realise the rhetoric from euro leaders isn't matched by reality. As Steen Jakobsen, chief economist at Saxo Bank, put it in a note on Friday: "It's clear that the electorates are beginning to realise that all solutions offered by the policymakers are based on the promise to do something in the future, and never right here, right now."
But time is running out, and Europe has two choices. It can continue hammering the economies of Greece, Italy and soon Portugal deeper into crisis, while their already furious voters become increasingly resentful about the pain being imposed by their European "partners"; or it can accept that the scale of debts has simply become unsustainable, and open negotiations now about an orderly default.
Big Banks Save Billions As Homeowners Suffer, Internal Federal Report By CFPB Finds
by Shahien Nasiripour - Huffington Post
The nation's five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007 by taking shortcuts in processing troubled borrowers' home loans, according to a confidential presentation prepared for state attorneys general by the nascent consumer bureau inside the Treasury Department. That estimate suggests large banks have reaped tremendous benefits from under-serving distressed homeowners, a complaint frequent enough among borrowers that federal regulators have begun to acknowledge the industry's fundamental shortcomings.
The dollar figure also provides a basis for regulators' internal discussions regarding how best to penalize Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial in a settlement of wide-ranging allegations of wrongful and occasionally illegal foreclosures. People involved in the talks say some regulators want to levy a $5 billion penalty on the five firms, while others seek as much as $30 billion, with most of the money going toward reducing troubled homeowners' mortgage payments and lowering loan balances for underwater borrowers, those who owe more on their home than it's worth.
Even the highest of those figures, however, pales in comparison to the likely cost of reducing mortgage principal for the three million homeowners some federal agencies hope to reach. Lowering loan balances for that many underwater borrowers who owe less than $1.15 for every dollar their home is worth would cost as much as $135 billion, according to the internal presentation, dated Feb. 14, obtained by The Huffington Post.
But perhaps most important to some lawmakers in Washington, the mere existence of the report suggests a much deeper link between the Bureau of Consumer Financial Protection, led by Harvard professor Elizabeth Warren, and the 50 state attorneys general who are leading the nationwide probe into the five firms' improper foreclosure practices, a development sure to anger Republicans in Congress and a banking industry intent on diminishing the fledgling CFPB's legitimacy by questioning its authority to act before it's officially launched in July.
Earlier this month, Warren told the House Financial Services Committee, under intense questioning, that her agency has provided limited assistance to the various state and federal agencies involved in the industry probes. At one point, she was asked whether she made any recommendations regarding proposed penalties. She replied that her agency has only provided "advice." A representative of the consumer agency declined to comment on the presentation, citing the law enforcement nature of the federal investigation into the mortgage industry's leading firms.
The seven-page presentation begins by stating that a deal to settle claims of improper foreclosures "provides the potential for broad reform." In it, the consumer agency outlines possibilities offered by the settlement -- a minimum number of mortgage modifications, a boost to the housing market -- and how it could reform the industry going forward so that investors in home loans and the borrowers who owe them would be able to resolve situations in which borrowers fall behind on their payments without the complications of a large mortgage company acting in its own interest.
The presentation also details how much certain firms likely saved in lieu of making the necessary loan-processing adjustments as delinquencies and foreclosures rose. Bank of America, for example, has saved more than $6 billion since 2007 by not upgrading its procedures or hiring more workers, according to the report. Wells Fargo saved about as much, with JPMorgan close behind. Citigroup and Ally bring the total saved to nearly $25 billion.
The presentation adds that the under-investment far exceeds the proposed $5 billion penalty that has been on the table. People familiar with the matter say the Office of the Comptroller of the Currency wants to fine the industry less than $5 billion. The alleged shortchanging of homeowners has prolonged the housing market's woes, experts say, because distressed homeowners who are prime candidates to have their payments reduced aren't getting loan modifications and lenders are taking up to two years to seize borrowers' homes.
The average borrower in foreclosure has been delinquent for 537 days before actually being evicted, up from 319 days in January 2009, according to Lender Processing Services, a data provider.
The prolonged housing pain has manifested itself in various ways. Purchases of new U.S. homes dropped last month to the slowest pace on record, according to the Commerce Department. Prices declined to the lowest level since 2003, according to the National Association of Realtors. About 6.9 million homeowners were either delinquent or in foreclosure proceedings through February, according to LPS.
A penalty of about $25 billion -- based on mortgage servicing costs avoided -- would have "little effect" on the five firms' capital levels, according to the presentation, since the five banks collectively hold about $500 billion in tangible common equity, the highest form of capital. Those numbers notwithstanding, banks and Republicans in Congress have complained that such a large penalty would have a disproportionate impact on bank balance sheets, hurting their ability to lend or pay dividends to investors.
The presentation adds that given the extent of negative equity -- underwater homeowners owe $751 billion more than their homes are worth, according to data provider CoreLogic -- "we have gravitated towards settlement solutions that enable asset liquidity and cast a wide net." The solution is an emphasis on reducing mortgage debt and enabling short sales, thus allowing borrowers to refinance into more affordable loans or to sell their homes and move on.
Top Federal Reserve officials and other economists have pointed to the large numbers of underwater homeowners as being one of the reasons behind high unemployment, as underwater homeowners are unable to move to where the jobs are. More than 23 percent of homeowners with a mortgage are underwater, according to CoreLogic.
The proposed settlement, as envisioned by the consumer agency, could reduce loan balances for up to three million homeowners. If mortgage firms targeted their efforts at reducing mortgage debt for three million homeowners who owe as much as their homes are worth or have less than 5 percent equity, the total cost would be $41.8 billion, according to estimates cited in the presentation.
If firms lowered total mortgage debt for three million homeowners who are underwater by as much as 15 percent and brought them to 5 percent equity, that would cost more than $135 billion, according to the presentation. That would include reducing second mortgages and home equity lines of credit.
In its presentation, the consumer agency said the new program, titled "Principal Reduction Mandate," could be "meaningfully additive to HAMP" -- the Home Affordable Modification Program, the Obama administration's primary mortgage modification effort. The CFPB estimates that there are about 12 million U.S. homeowners underwater, most of whom are not delinquent, according to its presentation. Of those, nine million would be eligible for this new principal-reduction scheme born from the foreclosure deal. The new initiative would then "mandate" three million permanent modifications.
News of the level of the consumer agency's involvement in the state investigation would likely be welcomed by consumer and homeowner advocates, who have long complained of the lack of attention paid to distressed borrowers by federal bank regulators like the OCC and the Federal Reserve. But Republicans will pounce on the news, creating yet another distraction for a fledgling bureau that was the centerpiece of the Obama administration's efforts to reform the financial industry in the wake of the worst economic crisis since the Great Depression.
Meanwhile, the banking industry will likely celebrate government infighting as attention is diverted away from allegations of bank wrongdoing and towards the level of involvement of Elizabeth Warren, a fierce consumer advocate and the principal original proponent of an agency solely dedicated to protecting borrowers from abusive lenders.
Warren is standing up the agency on an interim basis. It formally launches in July, at which point it will need a Senate-confirmed director in order to carry out its full authority. One of those areas will be how mortgage firms process home loans for distressed borrowers.
Howard Davidowitz: Obama Doesn't Have A Clue -- Here's How I Would Fix The Country If I Were President
by Henry Blodget - Daily Ticker
When companies get into financial trouble, they usually fire current management, analyze and streamline their operations, and restructure their debts.
America is currently in financial trouble, but the only step in the turnaround process that we seem to be capable of taking is firing current management (see the recent midterm elections). After that, it's just finger-pointing and bloviating and business as usual.
Howard Davidowitz, chairman of Davidowitz & Associates and a long-time critic of our government, is positively appalled by the turnaround approach taken by the current administration, which is to spend more money. (See video below)
Davidowitz thinks President Obama is a "moron" and worries about a looming dollar crisis that will take the market down at least 6,000 points (50%).
I asked Davidowitz what he would do if he were president.
How would he fix our financial problems without crushing our economy? How would he create jobs? How would he avoid the current fate of the UK, which pursued an "austerity" plan only to see its economy plunge back into recession?
President Davidowitz says, he would immediately eliminate the Bush tax cuts. (He thinks Bush was an idiot, too, by the way). He would then address the real cause of our financial problems: Entitlement spending, specifically, Medicare and Medicaid. He would avert a dollar crisis. He would also cut military spending.
Would these moves hurt the economy? Yes, Davidowitz says, in the short-term, they might. But in the long-term, they'd be a huge step in the right direction. Our international trading partners and investors would see immediately that we had finally gotten serious about addressing our problems, and this would lead to a surge in the dollar and direct investment. And the investment, in turn, would produce the jobs that we so desperately need. And they would avert a dollar crisis that Davidowitz views as looming catastrophe.