Saturday, May 31, 2008

Debt Rattle, May 31 2008: I used to be Snow White, but I drifted

I used to be Snow White, but I drifted

Ilargi: Another great quote from the brilliant Mae West, perhaps more than anyone -well, there's W.C. Fields- a child of the Great Depression and Prohibition:

No gold-digging for me... I take diamonds! We may be off the gold standard someday.

Al-Assaf, Paulson Agree on Saudis Keeping Dollar Peg
U.S. Treasury Secretary Henry Paulson and Saudi Arabian Finance Minister Ibrahim Al-Assaf agreed that the Gulf kingdom benefits from keeping its currency pegged to the dollar. The riyal's peg "has served this country and the region well," Paulson said today at a joint press conference.

"I totally agree with Secretary Paulson," al-Assaf told journalists in Jeddah. "As we have said many times, we have no intention of de-pegging or of revaluation." Paulson is getting an update on the fixed exchange rates retained by most oil-rich nations in the Middle East on his four-day trip to the region.

Gulf officials in April agreed to strengthen efforts to establish a currency union by 2010, diminishing speculation of a quick change to the dollar pegs. Any change to currency regimes in the region "is a sovereign decision," Paulson said. Forward agreements to acquire Gulf currencies have fallen as investors bet the nations, including Saudi Arabia and the U.A.E., will keep their pegs for now.

The Treasury chief is touting the U.S. as an investment destination for Persian Gulf funds flush with $4 trillion thanks to oil prices that have doubled in the past year. He is aiming to persuade Middle East investors to continue putting money in the U.S. as American banks seek to raise capital, while encouraging Gulf countries to avoid political objectives in investing through government-run sovereign wealth funds.

"The major purpose of my visit is open investment," Paulson said. "The issue that I'm most concerned about, looking globally, is a protectionist sentiment around the world at a time when it makes no sense." The Treasury chief said investing in developing better oil production technology as well as alternative energy sources is necessary as oil prices continue to soar.

"There's no doubt that the current prices are a burden on the world," Paulson said. "This situation doesn't lend itself to quick, easy fixes." Saudi Arabia, the world's largest oil producer, said during a visit this month by President George W. Bush that it would boost output by 300,000 barrels a day. "As our oil minister has indicated many times, we are for stability in the oil market," al-Assaf said. "We don't like extreme volatility."

The U.S. and Europe have pushed for more disclosure from sovereign funds, calling on them to agree to guidelines being drafted by the International Monetary Fund and the Organization for Economic Cooperation and Development. Some countries have resisted. Bader al-Sadd, head of Kuwait's $250 billion fund, said in April that "imposing regulations on sovereign wealth funds will result in an adverse impact on global capital flows."

Paulson also reiterated his belief in a "strong dollar," and said the currency will benefit over time from the U.S. economy, which is in "a tough time" right now. "A strong currency, a strong dollar, is very much in our nation's interest," he said. "I believe the long-term economic fundamentals are going to be reflected in our currency."

Ilargi: The Gramms are a dangerous couple, unscrupulous foot soldiers for their masters. They are responsible for much of the deregulation that has made it possible to greatly accelerate the concentration of wealth in ever fewer hands. They leave debt-ridden US home-"owners" and starving African children behind in their wake. Phil Gramm is both a senator and a lobbyist for UBS. For some reason that’s no longer a conflict of interest: hence, corporate lobbyists now effectively run the country. With McCain in the White House, the Gramms will be the vanguard of the next batch of neocons.

Who is responsible for the global food crisis?
In the search for answers, pundits have attempted to pin the blame on the usual suspects: rising demand from China and India, bad crop conditions and booming ethanol production. Yet one major culprit behind these gyrating markets and unprecedented price spikes has been largely overlooked: the deep-pocketed pension and index funds upon which most Canadians and Americans depend for their retirements.

These funds have plowed hundreds of billions of dollars into agricultural commodities as a way to diversify their assets and improve returns for their investors. The amount of fund money invested in commodity indexes has climbed from just $13-billion (U.S.) in 2003 to a staggering $260-billion in March, 2008, according to calculations based on regulatory filings.

Michael Masters, a veteran U.S. hedge fund manager, warned a Senate hearing this month that this number could easily quadruple to $1-trillion, if pension funds allocate a greater portion of their portfolio to commodities, as some consultants suggest they are poised to do. Because agricultural markets are small – relative to stock markets – the amount of cash pouring in gives these funds substantial clout.

Mr. Masters estimated that that these big institutional investors control enough wheat futures to supply the needs of American consumers for the next two years, and blamed the “demand shock” from these recent entrants to the commodities markets as arguably the primary factor behind the sudden take-off in food prices.

“If immediate action is not taken, food and energy prices will rise higher still,” he told the hearing. “This could have catastrophic economic effects on millions of already stressed U.S. consumers. It literally could mean starvation for millions of the world's poor.”

The massive influx of cash has only occurred in the past few years. But its roots stretch back to the Reagan era, when a court battle over oil price manipulation set off a domino effect that would ultimately transform the arcane world of commodities trading.

Beginning with the energy market, regulators made a series of far-reaching decisions that gradually loosened oversight of complex commodity derivatives and created loopholes for large speculators, allowing them to trade virtually unlimited amounts of corn, wheat and other food futures. Only now, nearly two decades later, are the full consequences of those decisions being felt.!

For months, governments and international bodies have been struggling to avert catastrophe. The United Nations created a special task force on food security and called for emergency donations. Leaders of the world's wealthiest countries are expected to make the food crisis a priority when they gather for a G8 summit in July.

And the U.S. Congress has convened hearings into the matter, as have various other governmental and regulatory bodies around the world, all in an attempt to understand how markets and prices careened out of control. They would do well to ask Fowler West. At a pivotal moment almost 20 years ago, Mr. West warned that a series of rapid-fire moves to deregulate commodities trading could wreak unintended – and perhaps calamitous – effects on these markets. His alarms went unheeded.

In the early 1990s, Mr. West held a seat as a commissioner on the Commodity Futures Trading Commission, the U.S. regulator charged with overseeing trading in hundreds of staple items, from corn and wheat to oil and cotton. Mr. West was a lifelong Democrat; his boss, CFTC chair Wendy Gramm, was a devout Republican and a believer in the laissez-faire, free-market philosophy espoused by president Ronald Reagan, who once described her as his “favourite economist.”

In the fall of 1990, the two clashed over the CFTC's response to a New York court decision involving a little-known Bermuda energy company called Transnor Ltd. Long forgotten by most, Transnor paved the way for wide-ranging deregulation of commodities trading, an effort that helped to spur the rise of Enron Corp. and which has enabled the stampede of large fund speculators into food markets.

In the winter of 1986, Transnor filed suit against some of the world's largest oil companies, alleging that they manipulated prices on the Brent market, an informal oil trading system that at the time determined the daily price of oil.[..] Judge Conner ruled against the companies, effectively rendering all Brent trading in the U.S. illegal. Within days, international oil companies stopped trading with U.S. companies and the entire Brent market was verging on collapse.

Foreclosure Phil
Years before Phil Gramm was a McCain campaign adviser and a lobbyist for a Swiss bank at the center of the housing credit crisis, he pulled a sly maneuver in the Senate that helped create today's subprime meltdown. Who's to blame for the biggest financial catastrophe of our time? There are plenty of culprits, but one candidate for lead perp is former Sen. Phil Gramm.

Eight years ago, as part of a decades-long anti-regulatory crusade, Gramm pulled a sly legislative maneuver that greased the way to the multibillion-dollar subprime meltdown. Yet has Gramm been banished from the corridors of power? Reviled as the villain who bankrupted Middle America? Hardly. Now a well-paid executive at a Swiss bank, Gramm cochairs Sen. John McCain's presidential campaign and advises the Republican candidate on economic matters.

He's been mentioned as a possible Treasury secretary should McCain win. That's right: A guy who helped screw up the global financial system could end up in charge of US economic policy. Talk about a market failure. Gramm's long been a handmaiden to Big Finance.

In the 1990s, as chairman of the Senate banking committee, he routinely turned down Securities and Exchange Commission chairman Arthur Levitt's requests for more money to police Wall Street; during this period, the SEC's workload shot up 80 percent, but its staff grew only 20 percent.

Gramm also opposed an SEC rule that would have prohibited accounting firms from getting too close to the companies they audited—at one point, according to Levitt's memoir, he warned the sec chairman that if the commission adopted the rule, its funding would be cut. And in 1999, Gramm pushed through a historic banking deregulation bill that decimated Depression-era firewalls between commercial banks, investment banks, insurance companies, and securities firms—setting off a wave of merger mania.

But Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown.

It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead—even by Gramm.

Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. "Nobody in either chamber had any knowledge of what was going on or what was in it," says a congressional aide familiar with the bill's history. It's not exactly like Gramm hid his handiwork—far from it. The balding and bespectacled Texan strode onto the Senate floor to hail the act's inclusion into the must-pass budget package.

But only an expert, or a lobbyist, could have followed what Gramm was saying. The act, he declared, would ensure that neither the SEC nor the Commodity Futures Trading Commission (CFTC) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century."[..]

But the Enron loophole was small potatoes compared to the devastation that unregulated swaps would unleash. Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south.

It's like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm's bill—which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers—a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed.

In essence, Wall Street's biggest players (which, thanks to Gramm's earlier banking deregulation efforts, now incorporated everything from your checking account to your pension fund) ran a secret casino. "Tens of trillions of dollars of transactions were done in the dark," says University of San Diego law professor Frank Partnoy, an expert on financial markets and derivatives. "No one had a picture of where the risks were flowing."

Ilargi: To know what the Fed really thinks, forget Bernanke and listen to the various other voices.

Smaller banks at risk if home woes persist: Boston Fed chief
To date, the financial market turmoil has impacted mostly large international banks, but smaller financial institutions may yet get dragged into the tumult, said Eric Rosengren, the president of the Boston Fed on Friday.

A weak housing market has turned into one with "major declines" and have begun to impact some financial institutions that had taken outsized positions in construction loans or focused on other types of consumer debt, he said.

Research into the collapse of housing prices in New England in the 1990s shows that foreclosure issues can last much longer than most economists assume, Rosengren said.

Riskier loans in general have made delinquencies in this downturn about the same as the 1990s even though economic conditions are not as bad this year, he said. Should the economy worsen, the housing problem could become much more severe, he said.

June could be crazy month for stocks
"The whole month of June is kind of a magic month." Citi Investment Research equity strategist Lori Calvasina wasn't referring to weddings, graduations or wildflowers blooming. She was talking about the stock trading that will take place in the next few weeks in anticipation of the annual reconstitution of Russell Investment's indexes.

It may seem like a wonkish matter that few individuals would pay attention to, but the reshuffling of the stocks that make up Russell's indexes, including the widely followed Russell 2000 index of small companies, will have a big impact on stock and mutual fund holdings.

"Your benchmark index is going to change," Calvasina explained. Those changes will affect some $4.4 trillion in assets that Russell says is tied to one of its indexes, which were launched in 1984.

Citi estimates there were 120 funds passively linked to Russell's 26 U.S. indexes as of Dec. 31, holding nearly $535 billion in assets -- nearly five times as much as such funds held in 1999. Morningstar Inc. says there are 20 Russell 2000 index funds alone, among 246 that use the small-cap list as a gauge for their performance.

The managers of all those funds will have to adjust their holdings to follow the new lineup in the indexes. But before that happens, hedge funds and others will try to take advantage of the changes. "Hedge funds are going to try to game this," Calvasina said. "To a certain extent it's already been happening."

Wall Street analysts have been pumping out notes on a near-daily basis with their educated guesses for which stocks will be added, deleted or moved between indexes. They are able to come up with fairly accurate lists, because Russell makes its methods for picking the stocks in its index public, unlike, for instance, Standard & Poor's, which uses a committee system to develop its S&P 500 and other indexes.

Here's how it works: At the close of Friday's trading, Russell Investments will take the first step of the reconstitution by taking a "snapshot" of approximately 13,000 stocks traded on U.S. exchanges.

It ranks the companies from largest to smallest, and filters out those that don't meet its criteria, including companies not based in the U.S., stocks that trade below $1 or those that trade over the counter, or on what are called the Pink Sheets, which do not need to meet minimum requirements or file with the Securities and Exchange Commission.

After factoring in a few other matters, the largest 4,000 companies are picked to be part of the Russell 3000E Index, which represents approximately 99 percent of the U.S. equity market. All its other indexes are subsets of this master list; for instance, the biggest companies become part of the large-cap Russell 1000, while Nos. 1001 through 3000 make up the Russell 2000.

ECB's Draghi Says Oil Prices 'Limit' Monetary Policy
European Central Bank council member Mario Draghi said record oil prices are dictating the level of borrowing costs. "The main element of concern remains the continued rise in the price of energy and other commodities," Draghi said today at the Bank of Italy's annual assembly.

This is "fueling inflation and limiting the direction of monetary policy. Medium- term price stability was and remains the objective." The ECB defines price stability as keeping inflation just below 2 percent "over the medium term" and has struggled to meet that goal since taking charge of monetary policy in 1999.

The central bank left its key rate at 4 percent on May 10 to try to curb the surge in energy and food prices. Still, the inflation rate in the 15-nation euro economy rose to 3.6 percent, the ninth month it held above the ECB's target.

There are few signs of inflationary pressures abating. Crude oil prices have gained 33 percent this year, reaching a record $135.09 a barrel on May 22. Food commodities have also surged in the last year, boosting how much consumers are paying for staples such as bread and milk. Wheat, corn, rice and soybeans have risen to records this year as stockpiles shrink and demand climbs.

Inflation in the euro region is "worrying" and will stay at current levels for some months before slowing, if the oil price doesn't rise further, said Lorenzo Bini Smaghi, an ECB executive board member, in a speech today in Trento, northern Italy. "Based on the data that we have and based on oil-price data, which is very difficult to forecast, we predict inflation will stay at these levels for some months and then come down," Bini Smaghi said.

The global rise of oil and commodity prices makes inflation more difficult to manage for central bankers, Nout Wellink, an ECB council member, told Dutch newspaper De Telegraaf. "Inflation is not 'home made,' like it used to be, so it's harder to tackle by a central bank," Wellink told the newspaper.

Faster inflation is already eroding confidence among households. European consumer confidence unexpectedly dropped to the lowest in almost three years in May, the European Commission in Brussels said yesterday. In Germany, Europe's largest economy, consumers also grew more pessimistic, according to a survey released this week by GfK AG.

The Fading of the Mirage Economy
Suddenly, it seems, we're getting hit from all directions. Energy and food prices are soaring. The housing market continues to collapse. Government revenue is falling, and taxes are rising. Airlines are jacking up fares and fees while reducing service.

Banks are pulling credit lines. Auto companies are cutting production once again. Even investment bankers are losing their jobs. The tendency is to see these as separate developments, each with its own causes and dynamic.

Fundamentally, however, they are all part of the same story -- the story of the global economy purging itself of large and unsustainable imbalances that for a time allowed many Americans to think they were richer than they really were.

Most of us understand that an overabundance of cheap, easy credit created a housing bubble that artificially inflated the price of land and housing, produced too many homes and homeowners, and persuaded too many Americans to dip into their home equity to support a lifestyle their income could not sustain.

Now that the bubble has burst, we are coming to accept the reality of lower prices, reduced production, declining homeownership rates and the wisdom that a house is not an ATM or a substitute for a retirement fund.

Put another way, residential real estate is finding a new equilibrium, that magical place in the economist's imagination where supply and demand of houses and mortgages come back into some sort of rough balance at a lower price.

But the thing to remember is that it's not just residential real estate. The same factors that were behind the housing bubble were also at work, to varying degrees, in the auto bubble, the commercial real estate bubble, the travel bubble, the college tuition bubble, the retail bubble, the Web 2.0 bubble and most recently the commodities bubble.

Unlike housing, which began losing steam two years ago, these other sectors have just begun the painful process of repricing and finding a new balance between supply and demand.

Ilargi: When media and politicians make a overblown bundle of noise about an investigation that everyone knows will never lead anywhere, it’s time to peek behind the curtain.

Oil trading probe may uncover manipulation
Amid soaring oil prices that some say are caused by nothing more than rampant speculation, the government Thursday announced a wide ranging probe into oil price manipulation and said it would get more information on the effect investors are having on the market.

The measures, undertaken by the Commodity Futures Trading Commission after pressure from angry lawmakers, do two things. First, they'll attempt to gather more information from index funds and other non-commercial users of oil. They'll also seek information on oil trades made outside the U.S. on exchanges like the IntercontinentalExchange Europe (ICE) where the CFTC has no oversight and has been unable to get more detailed information.

The second thing on the CFTC's agenda is an actual investigation into possible price manipulation - most likely by a commercial user of oil like a production company, shipping company, or storage company. Recent investor interest in commodities is an issue of intense debate.

Some say investors, who have been funneling money into oil and other commodities over the last several months amid rising inflation and falling stock prices, are unjustifiably driving up the price of oil and gas simply because they have no other place to put their money.

Others say tight supply and strong demand are the real reasons behind this investor interest, and the market is functioning properly to limit demand and increase supply. CFTC has previously said that it has not found any evidence that speculators were artificially inflating prices.

"Data used by Commission staff show that price changes are largely unrelated to fund trading," according to written testimony before a Senate hearing earlier this month by CFTC Chief Economist Jeffrey Harris. "Broad-based manipulative forces are not driving the recent higher futures prices in commodities across-the-board."

Neither Harris nor any other economist at the CFTC could not be reached for comment. According to a chart presented in its congressional testimony, it appears the CFTC used data from 2007 to reach its conclusion.

Additional reporting by index funds and other non-commercial buyers of crude will help CFTC make better analysis, said Michael Haigh, head of U.S. commodities research at the investment bank Société Générale and a former economist at the CFTC. Even so, he doesn't expect the CFTC's overall conclusion - that investors aren't unjustifiably driving up oil prices - to change much.

But Haigh said oil traders see this request for additional information as perhaps a precursor to broader regulation, like decreasing the amount of contracts speculators are allowed to hold or raising the amount of money investors have to put down to buy those contracts.

First Housing, Now Oil
In Charlotte, N.C., gasoline at nearly $4 a gallon is cracking "the survivors," as credit counselor Bruce G. Hamlett calls them. They're the people who played by the rules and kept up their mortgage and utility payments even as neighbors gave up and moved away, leaving empty homes. Now, crazy prices at the pump are pushing even these survivors over the edge.

"They're asking, 'Do I put gas in my car or do I pay this utility bill or do I pay the mortgage?'" says Hamlett, director of economic independence for Charlotte's United Family Services. "It's getting to the point where it's an impossible choice." For the U.S. economy, the twin shocks from oil and housing have become mutually reinforcing, potentially turning what may be a mild recession into something more threatening.

Even those economists who think the U.S. might dodge a recession are concerned. Home prices are seemingly in free fall in much of the country. The Standard & Poor's/Case-Shiller National Home Price Index fell a record 14.1% in the first quarter from a year earlier, S&P reported on May 27. And now oil.

After surging nearly 30% in two months, to $131 a barrel on the New York Mercantile Exchange on May 28, oil is twice as expensive as a year ago. "Up until now, housing has been the bigger story. Now I would put energy at potentially the same size," says James D. Hamilton, an economist at the University of California at San Diego.

It's enough to make a lot of people downright depressed. According to the Conference Board Consumer Confidence Survey released on May 27, Americans' expectations for the economy over the next six months hit their lowest point since the dark days of December, 1973—during a long recession triggered by an Arab oil embargo.

Businesses aren't feeling exuberant, either. New orders for durable goods fell half a percent in April, the third decline in four months. Michael S. Hanson, senior U.S. economist at Lehman Brothers, expects the U.S. economy to grow at a slow 1.2% in 2008 and an even weaker 0.6% in 2009 as the headwinds from oil, housing, and the credit crunch continue.

Given enough time, history shows, Americans can adjust to almost anything, from the demise of the family farm to the decline in factory jobs. In the long run, they can adapt to high oil prices by buying fuel-efficient vehicles or finding jobs closer to home. Likewise, with enough time, if they can't afford their homes, they can eventually cut a deal with their lenders or quietly move to a cheaper house or rental.

Trouble is, this ain't the long run. The one-two punch of rising energy prices and falling home prices has landed so quickly that many American families and businesses are breaking rather than bending.

New Overdue Home Loans Swamp Effort to Fix Defaults
Newly delinquent mortgage borrowers outnumbered people who caught up on their overdue payments by two to one last month, a sign that nationwide efforts to help homeowners avoid default may be failing. In April, 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, a report today from the Washington-based Mortgage Insurance Companies of America said.

Mortgage insurers pay lenders when homeowners default and foreclosures fail to cover costs. Foreclosure filings surged 65 percent and bank seizures more than doubled in April compared with a year earlier as rates on adjustable mortgages increased, according to RealtyTrac Inc.

Lawmakers and Federal Reserve officials are trying to ease the worst U.S. housing slump since the Great Depression through tax rebates, expanded federal mortgage insurance and other programs. "It's going to take a while before you see the impact of the government's plans, if you can even see a discernable one," Steve Stelmach, an insurance analyst at Friedman, Billings, Ramsey Group Inc. in Arlington, Virginia, said in an interview.

In April, a record 183,000 homeowners were able to work out new borrowing terms with lenders and avoid foreclosure filings, according to the Hope Now Alliance, a mortgage industry coalition formed last year at the urging of U.S. Treasury Secretary Henry Paulson. The same month, foreclosure filings were reported on more than 243,000 properties, a 65 percent increase compared with April 2007, said Irvine, California-based data provider RealtyTrac.

One in every 519 U.S. households is in some stage of the foreclosure process, RealtyTrac said. The Hope Now program has so far proven insufficient, Sandra Braunstein, the head of consumer and community affairs at the Fed, told the Conference of State Bank Supervisors at a meeting in Florida last week. The mortgage crisis "is bad and it's getting worse," Braunstein said, repeating the central bank's plea for lenders to consider forgiving portions of mortgages.

Lenders typically require borrowers to buy insurance when their down payment is less than 20 percent. Last month's 54 percent "cure ratio" among defaulted mortgages compares with 80 percent a year earlier and 87 percent in March. Comparisons with previous months may not be valid because one lender changed the way it calculated defaults and cures reported to the insurers.

The lender switched to defining defaults as 60 days overdue rather than 90 days for its April data. Because loans are less likely to return to good standing after falling three months behind, the switch to a 60-day threshold probably boosted the number of cures disproportionately to the increase in defaults, Stelmach said.

As TNK-BP director Jean-Luc Vermeulen quits, spy allegations fly in Moscow
The dispute over ownership of BP’s joint venture with Russia erupted again yesterday as a senior director abruptly resigned after admitting he could no longer help to resolve the issue.

The departure of Jean-Luc Vermeulen, a former executive of Elf Aquitaine, the French oil group, from TNK-BP came at the end of a week of high drama for TNK-BP and the Russian billionaires who own 50 per cent of the venture. Mr Vermeulen was one of five directors appointed by the Russian side after TNK-BP’s formation in 2003. Five other directors were appointed by BP.

Compounding the company’s problems yesterday, the Tvoi Den newspaper claimed in a front-page story that the Russian Federal Security Service (FSB) had unmasked a senior BP manager as a spy. It did not name the man but published what it said was a photograph of him with his face blurred out. The paper, which has close ties to the FSB, alleged that the man was linked to Alexander and Ilya Zaslavsky, brothers who were arrested on espionage charges in March. Ilya Zaslavsky had been employed by TNK-BP.

The FSB accused the brothers, who are prominent members of the alumni club of the British Council in Moscow, of collecting classified information on behalf of foreign companies that “wished to have advantages over their Russian rivals”. The story claimed yesterday that the documents related to the negotiating strategy of Gazprom, the state-controlled gas group, before a Kremlin summit between Vladimir Putin, the Russian Prime Minister, and President Yushchenko of Ukraine.

It said that details of Gazprom’s development plans to 2020 had also been leaked. The link with Gazprom appeared to be the latest element in an intense Kremlin campaign to force TNK-BP, Russia’s third-largest oil producer, to turn over its assets to a state-controlled company. Last year it was forced to sell to Gazprom a controlling stake in the giant Kovykta gasfield in Siberia.

Gazprom, whose former chairman is President Medvedev, is seen as the most likely beneficiary of a sale. Neither BP nor the three Russian billionaires who own 50 per cent of the company have expressed willingness to sell.

Putin Says He Warned BP of TNK Joint Venture Fighting
Russian Prime Minister Vladimir Putin said he warned BP Plc and its billionaire partners against setting up a 50-50 venture, TNK-BP, which is now racked by disputes over strategy and control.

"I warned them several years ago that such problems will emerge," Putin said in an interview with French newspaper Le Monde yesterday that was transmitted live to journalists in Paris. " Choose one side to have a majority stake. And we don't mind if it's BP, or the Russian side of the joint venture," Putin said he told the shareholders when they consulted him as Russian president when TNK-BP was formed.

The shareholder dispute became public when TNK-BP Chief Executive Officer Robert Dudley described some disagreements in an interview with the Vedomosti newspaper published May 26. London-based BP, which produces more oil in Russia than any other foreign company, rejected a demand this week by the four billionaires to fire Dudley, amid reports state-run OAO Gazprom wants to buy the venture.

Mikhail Fridman, German Khan, Viktor Vekselberg and Len Blavatnik, who control half of TNK-BP, said Dudley ignored their interests, including plans to expand abroad. "Mr. Dudley is managing the company in the interest of only one shareholder, namely BP," they said in an e-mailed statement.

"For five years my role has been to balance the interests of the shareholders," Dudley said in comments to the press in Moscow today. "I'll try to continue to maintain this balance." Dudley said he was "committed" to remain TNK-BP's CEO and hopes to continue to "lead it to success."

"The problem is that they created a joint venture several years ago with a 50-50 shareholding," Putin said. The shareholders consulted Putin when TNK-BP was being formed in 2003. "I said: `Don't do this,"' Putin told reporters. "When there's no clear chain of command in such a structure, there'll be problems."

Ilargi: There’s much more still to come from the dark vaults at CIBC. I’d like to see them elaborate on their underwriting involvement in the US monolines, but nothing so far.

CIBC losses reach $6.7 billion
The first rumours of a crisis at Canadian Imperial Bank of Commerce a year ago were roundly dismissed by the bank, whose staff said reports of billions of dollars of exposure to the U. S. subprime market were inaccurate. Twelve months later the bank has now taken $6.7-billion in writedowns on structured products, about twice as much as the combined charges taken by the rest of the big Canadian banks put together.

CIBC's huge losses -- the bank added another $2.5-billion to the heap yesterday when it reported a $1.1-billion loss for the second quarter of 2008--dwarf the bank's 2005 Enron settlement of $2.4-billion, which cast a shadow over its reputation for two years.
The writedowns now stand at more than CIBC's combined earnings for the whole of 2006 and 2007, and there are fears more losses will be recorded in future quarters.

The bank's ongoing problems "suggest extended and systematic general risk-management breakdown" said Blackmont Capital analyst Brad Smith, who added there is still room to write down another $1.4-billion in exposure to some of the troubled areas of the capital markets in coming results.

On a conference call to discuss the results, CIBC's executives also warned of several billions of dollars of additional losses if market conditions worsen. Already only 15 other banks around the world have suffered bigger writedowns than CIBC since the financial crisis began. CIBC's stock price fell almost 2% yesterday, dropping $1.39 to $69.46 on the Toronto Stock Exchange.

The bank's shares have lost about one-third of their value during the past 12 months. Worse still for CIBC investors is that the bank's second-quarter performance was not good even after stripping out the impact of the writedowns on structured products. Bay Street analysts were braced for more charges and lower earnings, but CIBC failed to meet even these reduced earnings targets.

Ilargi: For those Canadians who still haven’t clued in, and it looks like that’s 99% of the population: the 40-year amortization mortgage is Canada’s version of the subprime loan. No more, no less. Today, 35-40% of all mortgages is 40-year. Disaster follows.

From boom to gloom?
Leave it to Garth Turner to throw cold water on the notion Canada can achieve a soft real estate landing, when history and the slump south of the border show that is a rare feat indeed. The personal-finance author-turned-Conservative-turned-Liberal MP for Halton, Ont., was one of the first to warn of the 1990s property flop - albeit several years too early.

Now he thinks Canada is facing precisely the same mix of elements that burst the U.S. real estate bubble. "We are in a monumental denial phase," says Mr. Turner, who's book Greater Fool - The Troubled Future of Real Estate was published in March. "My theses is now reality, we are starting to see substantial sales declines that were ruled out only six months ago as impossible," he says. "But now people are saying prices aren't moving down. They will."

The figures do show a noticeable retreat in the Canadian housing market this year. Nationally, resales fell 6.1% year-over-year in April, while price gains have slowed to 4% from around 10% in each of the prior five years. Calgary saw sales drop 31.2% over the year, Edmonton, 25.4% and Victoria 14.2%. Calgary and Edmonton also saw prices dips.

According to Urbanation, a condo tracking firm, the condo market has defied the trend and remained fairly steady through the first quarter, even as a several new buildings hit the market. Mr. Turner says housing markets blow themselves out when prices rise beyond the reach of average buyers. This is what happened in the United States.

"To keep the party going, the mortgage industry, the credit industry, backed by the banks, decided to lower the bar to ownership," he says. The subprime industry was born and home buyers with scant credit history and skimpy income were drawn into the market, enticed by no-money-down mortgages and interest rates that started out low, then ballooned to unsupportable levels.

Similarly, in Canada, prices have risen beyond the reach of the average buyer, Mr. Turner argues. "What has been the response?" he asks. "The 40-year mortgage." Economists estimate amortizations longer than 25 years now constitute about 70% of all insured mortgage applications and about half of that amount is for the 40-year product.

Mr. Turner reserves his starkest warnings for sprawling suburbs mushrooming around Canada's major cities. He says many new home developments have mortgage representatives onsite offering the same kind of no-money-down deals that dragged down the U.S. market. Buyers just have to come up with 1.5% of the house value to cover closing costs.

These will become the "particle board slums of the future," Mr. Turner says, as smaller families and surging energy costs cause the suburbs to fall out of favour. But the Toronto condo market is heading for trouble too, as overbuilding swamps demand, he says.
"We are classically at the end of a bull market," Mr. Turner says.

Toronto's Condo Kings: Is their boom sustainable?
From his penthouse in Toronto's hip fashion district, Peter Freed can track the development of his six next condo projects taking shape along King Street West. One of Mr. Freed's buildings will have interiors by Philippe Starck, the must-have French designer of the moment. Another will be inspired by the Neoplasticism art movement made famous by Mondrian, where design is pared down to the basics of lines and the primary colours red, yellow and blue.

Mr. Freed has eight projects on the board worth a total of half a billion dollars, a tiny fraction of the record 33,980 units under construction in the city. Canada's biggest city has become North America's biggest condo market, with more units now under development than Manhattan, Chicago and Los Angeles.

As Mr. Freed looks off his terrace, where the lap pool and giant padded loungers are looking a little forlorn on a wet spring day, he is confident Toronto will not also become North America's biggest condo meltdown. "Right now, there's very large demand," says Mr. Freed, dressed casually in jeans, shirt-tails hanging out, no laces in his shoes.

At 39, the laid-back developer is the fresh face of an eclectic group of condo kings who are transforming the very skyline of the city. Along with other design-focused builders like Cityzen Development Group, stalwarts like Tridel Corp. and Menkes Developments Ltd., and newcomers like Bazis International Inc., Mr. Freed is banking on the view Toronto is undergoing a seismic housing shift.

Figures show a marked slowing in the Canadian housing market this year, including a 7.3% year-over-year drop in existing homes sales in Toronto in April and a subsiding of the mania that drove the condo market into overdrive last year. But builders say demographics, immigration, government regulation and cultural change will continue to skew demand for housing toward the condominium.

Housing hotspots like Calgary may have already burned themselves out in a frenzy of building and soaring prices, but Toronto's rise as a global city will allow it to ride out any short-term weakness, they say. "We understand there's 75,000 people a year for the next 20 years projected to move into the city core," says Mr. Freed.

Ilargi: The Canadian media are well on their way to outdoing the US in emptiness. One moron squeaks, another writes it down. That’s modern journalism.

Economists sees no reason to worry
Derek Holt, vice-president of economics for Scotia Capital, is adamant Canada will not follow the United States into a real estate black hole. "On multiple angles we're night and day away from the U.S.," Mr. Holt says. He dismisses Mr. Turner's theory the suburbs will become real estate wastelands.

Every year since the 1960s, newly built homes have expanded in size, despite the fact family size keeps shrinking, he says. "Over the long term the demand for living space has always been driven by income and wealth," he says. "If those two factors hold up over long-term projections, then people will still be demanding bigger living spaces." He believes development in Ontario, for example, will continue to swell around satellite cities like Barrie, aided by improved rail networks.

"At the margin, there is higher density planning that will also be an influence in Toronto, but that doesn't mean the bottom will fall out of the standard two-storey by any stretch," he says. As far as comparisons with the United States, Mr. Holt says mortgage-qualifying standards are much more rigorous in Canada.

"That's where everything fell apart in the U.S," he says. To qualify for subprime loans, many homebuyers didn't even have to provide supporting documentation on work or income. Not much of that goes on here. "There's also more control over who's originating the products in Canada than in the U.S., where they were just dumb frankly in outsourcing their sales function to mortgage brokers that didn't have any skin in the game," Mr. Holt says.

In the short term, the trend to longer amortizations will help to sustain the Canadian housing market, he argues. "The equivalent of a one percentage point drop in your mortgage rate is to go from a 25- to a 34-year mortgage product," he says. "For the first time ever, you've got a generation that isn't constrained by 25-year conventional cookie-cutter mortgage products," Mr. Holt says, adding the result is reduced interest-rate sensitivities and more money in household budgets.

The U.S. real estate meltdown may have benefitted Canada in that it helped to take the froth out of the market and pushed the Bank of Canada to reverse its interest rate-hiking campaign and start easing rates. Mr. Holt says the real test for the Canadian real estate market will come in three or four years if homeowners, already stretched by payments, face a possible employment or interest rate shock. When they are already at a 40-year amo, there is not much room to lower payments further.

Mr. Holt believes longer amortizations are still too small a portion of outstanding mortgages to have much of an impact if such a scenario unfolds. If it does, then the Canadian market will be undone by the factors that bring a halt to real estate booms always and everywhere: rising interest rates, rising unemployment, rising costs, rising prices and overbuilding.

Ilargi: In Canada, as all over, experts and politicians can bleat and oink whatever they want, without ever being pressed by reporters to substantiate their words.

"I would be cautious about calling it a capital-R recession. At this stage it's more like a stall-out in growth"..

Is Canada recession-bound?
Canadian growth shrank 0.3% in the first quarter, as a wrenching restructuring in the manufacturing sector hobbled an economy half-way in recession. It was the first decline in annualized growth in nearly five years and the weakest in the Group of Seven, behind the United States, Britain, Europe and even Japan.

"This is a bitterly disappointing and surprising result," said Dale Orr, chief economist at Global Insight in a note. "Global Insight, as well as most economists, were expecting the first quarter to be weak, but slightly positive and certainly stronger than in the U.S." A recession is classically defined as two consecutive quarters of contracting activity.

With growth retreating 0.2% in March on top of a 0.3% monthly decline in February, it will take huge effort for the economy to pull into positive territory in the second quarter, analysts said. Jim Flaherty, the finance minister flatly rejected such fears.

"If some people are saying that (Canada is recession-bound) I disagree with them," Flaherty told reporters after a two-day meeting with provincial and territorial finance ministers in Montreal.

"The strengths in the economy across the country are quite remarkable." And economists said they were reluctant to contemplate the R-word. "We can definitely say we will have back-to-back negative growth," said Ted Carmichael, chief Canadian economist at JP Morgan Securities, who is forecasting another 0.3% decline in the second quarter. "However, I would be cautious about calling it a capital-R recession. At this stage it's more like a stall-out in growth."

The big drag on the economy in the first quarter was continued turmoil in the auto sector which was sideswiped by the retooling of model lines and a strike at a major U.S. parts supplier, in addition to an ongoing restructuring. Manufacturing overall declined at twice the pace of last year while inventory accumulation plummeted.

Canada has borne the brunt of the slump in U.S. auto sales because of its close geographical proximity but it is also lagging other G7 countries on the growth front because most other countries have already jettisoned much of their manufacturing sectors.

"We still have a substantial weight in industries that are on the way out," said Avery Shenfeld, senior economist at CIBC World Markets. "We're still unwinding the legacy of a cheap Canadian dollar that let some of our manufacturing industries hang on while those same sectors in the U.S. had been wiped out by imports from the developing world."

Ilargi: Long. Must. Read.

How the Pentagon shapes the world
5. The Pentagon as domestic disaster manager: When the deciders in Washington start seeing the Pentagon as the world's problem-solver, strange things happen. In fact, in the Bush years, the Pentagon has become the official first responder of last resort in case of just about any disaster - from tornadoes, hurricanes and floods to civil unrest, potential outbreaks of disease or possible biological or chemical attacks.

In 2002, in a telltale sign of Pentagon mission creep, Bush established the first domestic military command since the civil war, the US Northern Command (Northcom). Its mission: the "preparation for, prevention of, deterrence of, preemption of, defense against, and response to threats and aggression directed towards US territory, sovereignty, domestic population, and infrastructure; as well as crisis management, consequence management, and other domestic civil support."

If it sounds like a tall order, it is.

In the past six years, Northcom has been remarkably unsuccessful at anything but expanding its theoretical reach. The command was initially assigned 1,300 Defense Department personnel, but has since grown into a force of more than 15,000. Even criticism only seems to strengthen its domestic role.

For example, an April 2008, Government Accountability Office report found that Northcom had failed to communicate effectively with state and local leaders or National Guard units about its newly developed disaster and terror response plans. The result? Northcom says it will have its first brigade-sized unit of military personnel trained to help local authorities respond to chemical, biological or nuclear incidents by this autumn. Mark your calendars.

More than anything else, Northcom has provided the Pentagon with the opening it needed to move forcefully into domestic disaster areas previously handled by national, state and local civilian authorities.

For example, Northcom's deputy director, Brigadier General Robert Felderman, boasts that the command is now the United States's "global synchronizer - the global coordinator - for pandemic influenza across the combatant commands". Similarly, Northcom is now hosting annual hurricane preparation conferences and assuring anyone who will listen that it is "prepared to fully engage" in future Katrina-like situations "in order to save lives, reduce suffering and protect infrastructure".

Of course, at present, the Pentagon is the part of the government gobbling up the funds that might otherwise be spent shoring up America's Depression-era public works, ensuring that the Pentagon will have failure aplenty to respond to in the future.

The American Society for Civil Engineers, for example, estimates that $1.6 trillion is badly needed to bring the nation's infrastructure up to protectable snuff, or $320 billion a year for the next five years. Assessing present water systems, roads, bridges, and dams nationwide, the engineers gave the infrastructure a series of C and D grades.

In the meantime, the military is marching in. Katrina, for instance, made landfall on August 29, 2005. Bush ordered troops deployed to New Orleans on September 2 to coordinate the delivery of food and water and to serve as a deterrent against looting and violence. Less than a month later, Bush asked Congress to shift responsibility for major future disasters from state governments and the Department of Homeland Security to the Pentagon.

The next month, Bush again offered the military as his solution - this time to global fears about outbreaks of the avian flu virus. He suggested that, to enforce a quarantine, "One option is the use of the military that's able to plan and move."

Already sinking under the weight of its expansion and two draining wars, many in the military have been cool to such suggestions, as has a Congress concerned about maintaining states' rights and civilian control. Offering the military as the solution to domestic natural disasters and flu outbreaks means giving other first responders the budgetary short shrift. It is unlikely, however, that Northcom, now riding the money train, will go quietly into oblivion in the years to come.

Ilargi: Note: parts of Satyajit Das’ as always excellent work on the CDS market can be found below.

Warning: Credit Default Swaps May Not Work As Advertised
(And That's Even When They Do Work)

Two aspects of Das' article merit mention. First, he goes through what most may find a surprisingly long list of various ways CDS might not fully cover the risks they are supposed to guarantee even before getting to the big bugaboo of counterparty failure.

One case that Das has mentioned elsewhere is that in the one big test of the CDS market to date, Delphi. CDS protection buyers got 37 cents on the dollar when the recovery value on the senior bonds was set by Fitch at 1-10%, meaning the fall in the value of the credit was 90+ cents per dollar, yet the CDS holder got only about 40% of that. That's a considerable shortfall.

Second, he alludes to rather than spells out the coming-to-a-courtroom-near-you battles over defaulting LBO debt. In this world of covenant lite deals, creditors lack the big stick they had to force either bankruptcy or a restructuring of the debt, namely, if you breached the covenants, the lender could accelerate (demand payment of) the debt. Now if borrowers don't pay, creditors don't seem to have much (any?) leverage.

How does this affect CDS? Per Das, for many CDS, non-payment is NOT an event of default. So what good is insurance if it doesn't cover the most likely outcome for the debt in question? This will make for some interesting theater.

The Credit Default Swap (“CDS”) Market – Will It Unravel?
By : Satyajit Das

In May 2006, Alan Greenspan, the former Chairman of the Fed, noted: “The CDS is probably the most important instrument in finance. … What CDS (credit default swaps) did is lay-off all the risk of highly leveraged institutions – and that’s what banks are, highly leveraged – on stable American and international institutions.” It will be interesting to see whether reality proves to be different.

The CDS is economically similar to credit insurance. The buyer of protection (typically a bank) transfers the risk of default of a borrower (the reference entity) to a protection seller who for a fee indemnifies the protection buyer against credit losses.
The CDS contract and the entire Structured Credit Market originally was predicated on hedging of credit risk.

Over time the market changed focus – in Mae West’s words: “I used to be Snow White, but I drifted.” The ability to short credit, leverage positions and trade credit unrestricted by the size of the underlying debt market have become the dominant drivers of growth in the market for these instruments.

The CDS market has grown exponentially to current outstandings of around US$ 50 trillion. Even eliminating double counting in the volumes, the figures are impressive, especially when you considered that the market was less than US$1 trillion as at 2001. However, the size of the market (which has attracted much attention) is not the major issue.

Banks have used CDS contracts extensively to hedge credit risk on bonds and loans. The key issue is will the contracts protect the banks from the underlying credit risk being hedged. As Mae West noted: “An ounce of performance is worth pounds of promises.” Documentation and counterparty risk means that the market may not function as participants and regulators hope if actual defaults occur.

CDS documentation is highly standardised to facilitate trading. It generally does not exactly match the terms of the underlying risk being hedged. CDS contracts are technically complex in relation to the identity of the entity being hedged, the events that are covered and how the CDS contract is to be settled. This means that the hedge may not provide the protection sought. In fairness, all financial hedges display some degree of mismatch or “basis” risk.

The CDS contract is triggered by a “credit event”, broadly default by the reference entity. The buyer of protection is not protected against “all” defaults. They are only protected against defaults on a specified set of obligations in certain currencies. It is possible that there is a loan default but technical difficulties may make it difficult to trigger the CDS hedging that loan.

Some credit events like “restructuring” are complex. There are different versions – R (restructuring); NR (no restructuring); MR (modified restructuring); MMR (modified modified restructuring). Different contracts use different versions. “PAI” (publicly available information) must generally be used to trigger the CDS contract.

Recent credit events have been straightforward Chapter 11 filings and bankruptcy. For other credit events (failure to pay or restructuring), there may be problems in establishing that the credit event took place. This has a systemic dimension. A CDS protection buyer may have to put the reference entity into bankruptcy or Chapter 11 in order to be able to settle the contract.

A study by academics Henry Hu and Bernard Black (from the University of Texas) concludes that CDS contracts may create incentives for creditors to push troubled companies into bankruptcy. This may exacerbate losses in case of defaults.
In case of default, the protection buyer in CDS must deliver a defaulted bond or loan – the deliverable obligation – to the protection seller in return for receiving the face value of the delivered item (known as physical settlement).

When Delphi defaulted, the volume of CDS outstanding was estimated at US$28 billion against US$5.2 billion of bonds and loans (not all of qualified for delivery). On actively traded names CDS volumes are substantially greater than outstanding debt making it difficult to settle contracts.

Shortage of deliverable items and practical restrictions on settling CDS contracts has forced the use of “protocols” – where any two counterparties, by mutual consent, substitute cash settlement for physical delivery. In cash settlement, the seller of protection makes a payment to the buyer of protection. The payment is intended to cover the loss suffered by the protection buyer based on the market price of defaulted bonds established through a so-called “auction system”. The auction is designed to be robust and free of the risk of manipulation.

In Delphi, the protocol resulted in a settlement price of 63.38% (the market estimate of recovery by the lender). The protection buyer received 36.62% (100% - 63.38%) or US$3.662 million per US$10 million CDS contract. Fitch Ratings assigned a R6 recovery rating to Delphi’s senior unsecured obligation equating to a 0-10% recovery band - far below the price established through the protocol [see James Batterman and Eric Rosenthal Special Report: Delphi, Credit Derivatives, and Bond Trading Behavior After a Bankruptcy Filing (28 November 2005);].

The buyer of protection depending on what was being hedged may have potentially received a payment on its hedge well below its actual losses – effectively it would not have been fully hedged. The settlement mechanics may cause problems even where there is no default. One company refinanced its debt using commercial mortgage backed securities (“CMBS”). The company was downgraded by rating agencies.

A shortage of deliverable obligations (the company used the funds from the CMBS to repay its bond and loans) meant that the CDS fee for the company fell sharply (indicative of an improvement in credit quality). This resulted in mark-to-market losses for bemused hedgers. This is known in the trade as an “orphaned CDS”.

In the case of actual defaults the CDS market may provide significant employment to a whole galaxy of lawyers trying to figure out whether and how the contract should work. There is the risk that contract may not always provide buyers of protection with the hedge against loss that they assumed they would receive.

CDS contracts substitute the risk of the protection seller for the risk of the loan or bond being hedged. If the seller of protection is unable to perform then the buyer obtains no protection. Currently, a significant proportion of protection sellers is financial guarantors (monoline insurers) and hedge funds. Concerns about the credit standing of monolines are well documented.

Recently, a number of banks took charges against counterparty risk on hedges with financial guarantors including Merrill Lynch (US$ 3.1 billion) Canadian Imperial Bank of Commerce (“CIBC”) (US$2 billion) and Calyon (US$1.7 billion).
For hedge funds, the CDS is marked-to-market daily and any gain or loss is covered by collateral (cash or high quality securities) to minimise performance risk.

If there is a failure to meet a margin call then the position must be closed out and the collateral applied against the loss. In practice, banks may not be willing or able to close out positions where collateral isn’t posted. ACA Financial Guaranty sold protection totaling US$69 billion while having capital resources of around US$425 million. When ACA was downgraded below “A” credit rating, it was required to post collateral of around US$ 1.7 billion. ACA was unable to meet this requirement.

The banks have agreed to a “forbearance agreement” whereby the buyer of protection waived the right to collateral temporarily. ACA subsequently has been downgraded to “CCC” reducing the value of the CDS contract and the protection offered. The problems at ACA are not unique.


Farmerod said...

Could Canada being at the bottom of the G-7 and in a 'small R' recession be more a reflection of less biased statistics? Poor Flaherty who doesn't have gov't agencies lying for him.

scandia said...

The Pentagon article was chilling! The former democracy of the United States of America now under the power of a military junta.And with the integretion of the Cdn and US military I realize Cdns are caught up in the same net. No wonder they don't go after the junta in Burma. Birds of a feather!

Anonymous said...

If a $135.oo oil barrel results in a price of, dare I say, the slight sum of $1.32 per litre (here in Canada) I must be missing something when I find I don't understand the disbelief many have that demand can't be causing that $135.oo barrel. I think it will continue to rise until there are just two especially rich guys left bidding on the last litres and what price then?

Want a rich bid? Here is the 2006 price for Jackson pollack's OIL painting No. 5 1948 ...wait for it now ... 142.7 million dollars, and you can't even put it in your tank.

Gee, I think I will stick a bottle of high test vintage 2008 in my wine rack, might be a good investment, don't you know. (hope no one accuses me of building a reserve and speculating)

Anonymous said...

Oops should look these things over better, pliz read 'can' for 'can't' in above.