[Texgreen] Re: texgreen digest, Vol 1 #1613 - 2 msgs

[Lesly and William Van Dame]

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When I receive these e-mails, some of the messages are very hard to read because  "=20" or some other text is put on every line.  Is there anyway I can get these messages without the annoying text?
   
  Thanks you for any help you can provide.
   
  Lesly Van Dame

texgreen-request@lists.gp-us.org wrote:
  Send texgreen mailing list submissions to
texgreen@lists.gp-us.org

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When replying, please edit your Subject line so it is more specific
than "Re: Contents of texgreen digest..."


Today's Topics:

1. City of Austin considers Coal Plant building (Craig MIller)
2. The not-so-golden miracle of financial leverage (Roger Baker)

--__--__--

Message: 1
Date: Mon, 29 Jan 2007 16:25:09 -0500
To: " Green Party" 
From: Craig MIller 
Reply-to: 
Subject: [Texgreen] City of Austin considers Coal Plant building

From: Paul Robbins 


This Thursday, February 1, 2007, there will be an item on the City Council
agenda to approve negotiations for the purchase land to build a coal plant in
Matagorda County. The wording is below.

The implications are profound. This project will probably cost about half a
billion dollars. Owning, fueling, and operating it over a 30-year time span
will cost billions more. This money will take away from investments in energy
efficiency, cogeneration, and alternative energy. While Austin's utility states
this coal plant may be a "clean coal" plant that sequesters carbon, there is no
assurance what kind of plant it will be. Moreover, carbon sequestration is not
a proven technique.



The thing that alarms me the most though is the lack of public process. We are
launching into a very expensive project with environmental implications without
even a public hearing. 



I have formally requested that City Council delay this action for 30 days so a
worksession and public hearing can be held. I hope you can add your voice. 



Contacts for Austin City Councilmembers are also below.



Thanks,



Paul Robbins, 447-8712



COUNCIL CONTACTS



Mayor Will Wynn
974-2250
will.wynn@ci.austin.tx.us

Mayor Pro Tem Betty Dunkerley
974-2258
betty.dunkerley@ci.austin.tx.us

Council Member Mike Martinez
974-2264
mike.martinez@ci.austin.tx.us

Council Member Jennifer Kim
974-2255
jennifer .kim@ci.austin.tx.us

Council Member Lee Leffingwell
974-2255
lee.leffingwell@ci.austin.tx.us

Council Member Brewster McCracken
974-2256
brewster.mcCracken @ci.austin.tx.us

Council Member Sheryl Cole
974-2266

sheryl.cole@ci.austin.tx.us


FROM FEBRUARY 1, 2007 CITY COUNCIL AGENDA

5. Approve a resolution authorizing (1) the negotiation and execution of an
agreement with the City Public Service Board of San Antonio ("CPSE") to jointly
acquire land, options for land, and related water rights at a site in Matagorda
County, Texas, (2) the purchase, whether jointly with CPSE or otherwise, of such
land, interests in land, and related water rights, and (3) such other agreements
as may be necessary to accomplish these transactions. Request for funding
confidential pursuant to Texas Government Code Sections 551.086 and 552.133, and
Council Resolution 20051201-002. The Electric Utility Commission was briefed, no
vote was taken or recommendation made. (Related to item #42)

SPEECH BY PAUL ROBBINS TO CITY COUNCIL ON JANUARY 25, 2007

Citizens of Austin; City Council:

I am Paul Robbins, an environmental activist and consumer advocate.

It has been reported in the press that Austin's electric utility, Austin Energy,
is considering purchase of land to build a coal plant. It is my information
that this will be posted on the City Council's agenda next Thursday. I am
asking for a 30-day delay so that this Council has proper time to consider the
ramifications of such action. As importantly, it will allow the public some
amount of time for analysis and input. I am also asking you to set up a
discrete worksession and public hearing dedicated to this proposal.


Good public policy is not done on an emergency basis. And this decision is too
important to the environment and economy of this city to rush it through without
proper oversight and public discussion.

Issues this Council must decide on include scrutinizing alternative that might
be employed instead of a new coal plant. But even if Council decides that a
coal plant might be necessary, there are other considerations that need to be
discussed. Foremost of these is the issue of partnership with the City of San
Antonio. If Austin must build this plant, it might be better for us to own it
ourselves. San Antonio does not share this City's values. It has proved too
often that it is more interested in the bottom line than environment, to wit,
the City utility's recent decision to build a pulverized coal plant.

Other important things include the cost of the land, the cost of the plant, how
this cost will be funded, and the citizen's right guaranteed in the City Charter
to approve financial debt. I also wonder if location of the land should be
restricted only to Matagorda County. Austin might find similar sights for less
cost elsewhere on the Gulf Coast.


Again, for all these reasons and more, I am asking Council to delay the vote on
land for a coal plant 30 days from February 1 so you may have time to properly
understand this issue and receive public comment.



Thank you.



STORY FROM AUSTIN CHRONICLE



Austin Energy's Coal Considerations Smoked Out?



http://www.austinchronicle.com/gyrobase/Issue/story?oid=oid%3A439255


________________________________________________
Get your own "800" number
Voicemail, fax, email, and a lot more
http://www.ureach.com/reg/tag

--__--__--

Message: 2
To: TXGP Listserve 
From: Roger Baker 
Date: Mon, 29 Jan 2007 19:01:57 -0600
Subject: [Texgreen] The not-so-golden miracle of financial leverage

[Uh oh! The warnings about the lack of transparency, how highly =20
leveraged the whole world financial system is, and how the risk has =20
been increasingly diffused everywhere throughout the system, are =20
coming in fast these days. This associated series starts with a =20
warning just given at Davos by the ECB. If there is a world =20
industrial collapse, oil could get really cheap, BTW. -- Roger]




ECB warns on =E2=80=98unstable=E2=80=99 financial markets

By Gillian Tett in Davos

Published: January 28 2007 21:35 | Last updated: January 28 2007 22:55

Conditions in global financial markets look potentially =20
=E2=80=9Cunstable=E2=80=9D, suggesting investors need to prepare for a =20=

=E2=80=9Crepricing=E2=80=9D of some assets, Jean-Claude Trichet, =
president of the =20
European Central Bank, said over the weekend in Davos.

The recent explosion of structured financial products and derivatives =20=

had made it more difficult for regulators and investors to judge =20
current risks in the financial system, Mr Trichet said. =E2=80=9CWe are =20=

currently seeing elements in global financial markets which are not =20
necessarily stable,=E2=80=9D Mr Trichet said, pointing to the =E2=80=9Clow=
level =20
of rates, spreads and risk premiums=E2=80=9D as factors that could =
trigger a =20
repricing.

=E2=80=9CThere is now such creativity of new and very sophisticated =20
financial instruments ...=E2=80=89that we don=E2=80=99t know fully where =
the risks =20
are located.=E2=80=9D He added: =E2=80=9CWe are trying to understand =
what is going =20
on but it is a big, big challenge.=E2=80=9D

Mr Trichet=E2=80=99s comments reflect a debate in policymaking circles =
about =20
the implications of the growth in derivatives.

Many investment bankers and some regulators and economists argued at =20
last week=E2=80=99s World Economic Forum in Davos that the growth of the =
=20
$450,000bn (=E2=82=AC350,000bn, =C2=A3230,000bn) derivatives sector had =
helped =20
reduce market volatility and made the system more resilient to shocks =20=

by spreading credit risk. But other officials fear these instruments =20
may be raising leverage and risk-taking to dangerous levels and =20
keeping the cost of borrowing artificially low, potentially =20
increasing the chance of financial crises.

Senior policymakers admitted it had become hard to track the risks =20
because the sector is opaque, much activity occurs in unregulated =20
hedge funds, and products shift rapidly across markets and between =20
the boundaries of national central banks.

Andrew Crockett, president of JP Morgan international, said: =E2=80=9CThes=
e =20
new instruments ought to make markets more complete. But there is a =20
lack of transparency ... we don=E2=80=99t know how much leverage there =
is in =20
hedge funds, for example.=E2=80=9D

Copyright The Financial Times Limited 2007

=20
**********************************************************************

braving_the_remote_regions_of.html>

Tottering on the brink

The inherent instability of the giant Ponzi schemes underwriting the =20
world economy means financial meltdown is a huge threat.

Ann Pettifor

All last week doughty reporters from the UK broadcaster ITV braved =20
the icy remoteness of the South Pole to bring home to us the truth =20
about the role of fossil fuel emissions in melting that continent. =20
Few journalists have shown similar bravery by venturing into the =20
equally remote and secretive world of High Finance. But Gillian Tett, =20=

a Financial Times journalist systematically tracking the activities =20
of hedge funds and the credit derivatives industry, last week related =20=

a scary story.

It's the story of everyday life in the world of Haute Finance. Giant =20
Ponzi schemes are being built on a narrow base of real money, and =20
huge sums of borrowed money. The inherent instability of these =20
schemes means that the threat of financial meltdown is comparable to =20
the threat posed by the melting Arctic.

In the case related by Ms Tett, =E2=82=AC20,000 worth of real money was =20=

invested in a "fund of funds". This money was used to leverage three =20
times the amount in borrowed money. This new sum was then invested in =20=

a hedge fund, which invested the capital and the borrowed money into =20
another highly leveraged financial instrument with a leverage ratio =20
of nine. So the final investment of =E2=82=AC1m has behind it =E2=82=AC20,=
000 of =20
real money, and =E2=82=AC980,000 of debt. As the distinguished New York =20=

economist, Nouriel Roubini has noted, "this is a credit house of =20
cards where $1 dollar of capital is turned into $49 of additional =20
debt to finance an investment of $50."

Most commentators, regulators and politicians are sanguine about this =20=

state of affairs. Cassandras and doom-mongers like myself are =20
challenged to offer real-time predictions for the fall of this house =20
of cards; and to predict key "tipping points". This we cannot do. And =20=

yes, we were wrong in believing that the financial bubble had "maxed =20
out" in 2003 and should have burst if not then, at least since then. =20
But then this is a truly extraordinary financial bubble. Total debt =20
in the US now stands at nearly 3.6 times GDP. In 1929 it was 2.8 times.

John Succo, who runs a $1.5bn hedge fund, recently asserted that it =20
is the "guardians of the nation's finances" - central bankers - that =20
have fuelled this debt, and explained how its done.

"If the Fed wants to inject liquidity (credit) into the system they =20
simply call up large broker dealers and buy some of their bonds with =20
credit they create out of thin air ... The dealer then passes this =20
credit on to 'the market' by making loans to mortgage companies ... =20
or whatever ... Because each layer of lender is only required to keep =20=

marginal capital on hand, a $1bn repo done by the Fed eventually =20
creates as much as $100bn in new credit to the consumer ... This =20
situation is very unstable in the long run. The Federal Reserve's =20
balance sheet this year alone has expanded by $30bn in this way, and =20
created $3.5trillion of new credit" (for which read debt) "in the US."

How much more credit/debt will central banks pump into the system =20
before the strain of repaying 980,000 euros of debt from a tiny pot =20
of =E2=82=AC20,000 becomes too great? And how will this year's $3.5 =
trillion =20
of US debt be repaid? By extracting more assets and depleting the =20
earth's resources further? By exploiting even more intensively the =20
millions of people creating real wealth? Or will it simply not be =20
repaid? Will there be a grand jubilee? Will both the innocent =20
investors that provide small pots of 20,000 euros and the financial =20
system that sustains this house of cards just be bankrupted?

On 11 January, the Bank of England began to exhibit some nervousness =20
about the growth of debt - and bemoaned its own creation - "credit =20
and broad money growth". Then as guardians of the nation's finances =20
they decided to rein in lending, by once again raising interest rates.

In other words, having encouraged the spread of easy, but costly =20
credit the Bank, supported directly or indirectly by the Treasury, =20
has now decided hurt those hedge funds maxing out on borrowing; and =20
to punish the victims - millions of consumers that have propelled the =20=

economy forward and enriched financial institutions by borrowing. It =20
is doing so by gradually turning the handle of the interest rate rack =20=

on which these borrowers find themselves stretched.

Where were these stern guardians of the nation's finances when hedge =20
funds were created? Are these reckless borrowers regulated by the =20
government and the Bank? Is the Bank aware of the extent of their =20
liabilities? Are they speculating with our pension funds?

Where were our guardians when, as Creditaction reveals, banks and =20
other financial institutions made mortgages available at five times =20
income; or 125% of the value of the house; or with a repayment term =20
of over 50 years? What did the government or the Bank of England do =20
when, between September and November last year, banks and other =20
lenders sent out at least 100m unsolicited, but pre-approved credit =20
card application forms? Where were the wise men and women of the Bank =20=

of England, when according to uSwitch, almost eight out of 10 =20
borrowers were issued loans without the lender carrying out any =20
checks to verify that they could afford to repay the debt? Over the =20
last 12 months, 763,000 loans were issued, according to Creditaction =20
- a church-based advice centre - for debt consolidation purposes. Yet =20=

91% of these borrowers were not asked to prove that other forms of =20
credit had been closed with the proceeds of the consolidation loan. =20
Where were the guardians of the nation's finances then?

The answer of course is that both the Bank and the government decline =20=

to intervene in such unseemly affairs. The reason? The conduct of =20
hedge funds, banks and mortgage companies is regulated by an =20
"invisible hand". And so effective is this invisible hand at =20
promoting competition amongst banks, for example, that the average =20
interest rate on the virtually costless business of credit card =20
lending is about 12% above base rate - 17.02%. According to the =20
British Bankers Association, fully 75% of credit card balances were =20
bearing this average rate of 17% interest in October, 2006.

Debts of =E2=82=AC980,000 leveraged on =E2=82=AC20,000; and usurious =
interest =20
rates of 17%. It hardly bears thinking about. Which is why most do =20
not. All hail the few who do.

=20
*****************************************************

http://www.ft.com/cms/s/92f7ee6a-a765-11db-83e4-0000779e2340.html

The unease bubbling in today's brave new financial world

By Gillian Tett

Published: January 19 2007 02:00 | Last updated: January 19 2007 02:00

Last week I received an e-mail that made chilling reading. The author =20=

claimed to be a senior banker with strong feelings about a column I =20
wrote last week, suggesting that the explosion in structured finance =20
could be exacerbating the current exuberance of the credit markets, =20
by creating additional leverage.

"Hi Gillian," the message went. "I have been working in the leveraged =20=

credit and distressed debt sector for 20 years . . . and I have never =20=

seen anything quite like what is currently going on. Market =20
participants have lost all memory of what risk is and are behaving as =20=

if the so-called wall of liquidity will last indefinitely and that =20
volatility is a thing of the past.

"I don't think there has ever been a time in history when such a =20
large proportion of the riskiest credit assets have been owned by =20
such financially weak institutions . . . with very limited capacity =20
to withstand adverse credit events and market downturns.

"I am not sure what is worse, talking to market players who generally =20=

believe that 'this time it's different', or to more seasoned players =20
who . . . privately acknowledge that there is a bubble waiting to =20
burst but . . . hope problems will not arise until after the next =20
bonus round."

He then relates the case of a typical hedge fund, two times levered. =20
That looks modest until you realise it is partly backed by fund of =20
funds' money (which is three times levered) and investing in deeply =20
subordinated tranches of collateralised debt obligations, which are =20
nine times levered. "Thus every =E2=82=AC1m of CDO bonds [acquired] is =20=

effectively supported by less than =E2=82=AC20,000 of end investors' =
capital =20
- a 2% price decline in the CDO paper wipes out the capital =20
supporting it.

"The degree of leverage at work . . . is quite frankly frightening," =20
he concludes. "Very few hedge funds I talk to have got a prayer in =20
the next downturn. Even more worryingly, most of them don't even =20
expect one."

Since this message arrived via an anonymous e-mail account, it might =20
be a prank. But I doubt it. For, while I would not normally write an =20
article about responses to an article (it is the journalist's =20
equivalent of creating derivatives of derivatives) I am breaking this =20=

rule, since I have recently had numerous e-mails echoing the above =20
points. And most of these come from named individuals, albeit ones =20
who need to stay anonymous, since they work for institutions reaping =20
profits from modern finance.

There is, for example, a credit analyst at a bulge-bracket bank who =20
worries that rating agencies are stoking up the structured credit =20
boom, with dangerously little oversight. "[If you] take away the =20
three anointed interpreters of 'investment grade', that market folds =20
up shop. I wonder if your readers understand that . . . and the non-=20
trivial conflict of interest that these agencies sit on top of as =20
publicly listed, for-profit companies?"

Then there is the (senior) asset manager who thinks leverage is =20
proliferating because investors believe risk has been dispersed so =20
well there will never be a crisis, though this proposition remains =20
far from proven. "I have been involved in [these] markets since the =20
early days," he writes. "[But] I wonder if those who are newer to the =20=

game truly understand the impact of a down cycle?"

Another Wall Street banker fears that leverage is proliferating so =20
fast, via new instruments, that it leaves policy officials powerless. =20=

"I hope that rational investors and asset prices cool off instead of =20
collapse, like they did in Japan in the 1990s," he writes. "But if =20
they do, monetary policy will be useless."

To be fair, amid this wave of anxiety I also received a couple of =20
"soothing" comments. An analyst at JPMorgan, for example, kindly =20
explained at length the benefits of the CDO boom: namely that these =20
instruments help investors diversify portfolios; provide long-term =20
financing for asset managers and reallocate risk.

"Longer term, there may well be a re-pricing of assets as the economy =20=


=== message truncated ===

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<div>When I receive these e-mails, some of the messages are very hard to read because&nbsp;&nbsp;"=20" or some other text is put on every line.&nbsp; Is there anyway I can get these messages without the annoying text?</div>  <div>&nbsp;</div>  <div>Thanks you for any help you can provide.</div>  <div>&nbsp;</div>  <div>Lesly Van Dame<BR><BR><B><I>texgreen-request@lists.gp-us.org</I></B> wrote:</div>  <BLOCKQUOTE class=replbq style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #1010ff 2px solid">Send texgreen mailing list submissions to<BR>texgreen@lists.gp-us.org<BR><BR>To subscribe or unsubscribe via the World Wide Web, visit<BR>http://lists.gp-us.org/mailman/listinfo/texgreen<BR>or, via email, send a message with subject or body 'help' to<BR>texgreen-request@lists.gp-us.org<BR><BR>You can reach the person managing the list at<BR>texgreen-admin@lists.gp-us.org<BR><BR>When replying, please edit your Subject line so it is more specific<BR>than "Re: Contents of texgreen
 digest..."<BR><BR><BR>Today's Topics:<BR><BR>1. City of Austin considers Coal Plant building (Craig MIller)<BR>2. The not-so-golden miracle of financial leverage (Roger Baker)<BR><BR>--__--__--<BR><BR>Message: 1<BR>Date: Mon, 29 Jan 2007 16:25:09 -0500<BR>To: " Green Party" <TEXGREEN@GP-US.ORG><BR>From: Craig MIller <LOVEANDRAGE@UREACH.COM><BR>Reply-to: <LOVEANDRAGE@UREACH.COM><BR>Subject: [Texgreen] City of Austin considers Coal Plant building<BR><BR>From: Paul Robbins <BR><BR><BR>This Thursday, February 1, 2007, there will be an item on the City Council<BR>agenda to approve negotiations for the purchase land to build a coal plant in<BR>Matagorda County. The wording is below.<BR><BR>The implications are profound. This project will probably cost about half a<BR>billion dollars. Owning, fueling, and operating it over a 30-year time span<BR>will cost billions more. This money will take away from investments in energy<BR>efficiency, cogeneration, and alternative energy. While
 Austin's utility states<BR>this coal plant may be a "clean coal" plant that sequesters carbon, there is no<BR>assurance what kind of plant it will be. Moreover, carbon sequestration is not<BR>a proven technique.<BR><BR><BR><BR>The thing that alarms me the most though is the lack of public process. We are<BR>launching into a very expensive project with environmental implications without<BR>even a public hearing. <BR><BR><BR><BR>I have formally requested that City Council delay this action for 30 days so a<BR>worksession and public hearing can be held. I hope you can add your voice. <BR><BR><BR><BR>Contacts for Austin City Councilmembers are also below.<BR><BR><BR><BR>Thanks,<BR><BR><BR><BR>Paul Robbins, 447-8712<BR><BR><BR><BR>COUNCIL CONTACTS<BR><BR><BR><BR>Mayor Will Wynn<BR>974-2250<BR>will.wynn@ci.austin.tx.us<BR><BR>Mayor Pro Tem Betty Dunkerley<BR>974-2258<BR>betty.dunkerley@ci.austin.tx.us<BR><BR>Council Member Mike
 Martinez<BR>974-2264<BR>mike.martinez@ci.austin.tx.us<BR><BR>Council Member Jennifer Kim<BR>974-2255<BR>jennifer .kim@ci.austin.tx.us<BR><BR>Council Member Lee Leffingwell<BR>974-2255<BR>lee.leffingwell@ci.austin.tx.us<BR><BR>Council Member Brewster McCracken<BR>974-2256<BR>brewster.mcCracken @ci.austin.tx.us<BR><BR>Council Member Sheryl Cole<BR>974-2266<BR><BR>sheryl.cole@ci.austin.tx.us<BR><BR><BR>FROM FEBRUARY 1, 2007 CITY COUNCIL AGENDA<BR><BR>5. Approve a resolution authorizing (1) the negotiation and execution of an<BR>agreement with the City Public Service Board of San Antonio ("CPSE") to jointly<BR>acquire land, options for land, and related water rights at a site in Matagorda<BR>County, Texas, (2) the purchase, whether jointly with CPSE or otherwise, of such<BR>land, interests in land, and related water rights, and (3) such other agreements<BR>as may be necessary to accomplish these transactions. Request for funding<BR>confidential pursuant to Texas Government
 Code Sections 551.086 and 552.133, and<BR>Council Resolution 20051201-002. The Electric Utility Commission was briefed, no<BR>vote was taken or recommendation made. (Related to item #42)<BR><BR>SPEECH BY PAUL ROBBINS TO CITY COUNCIL ON JANUARY 25, 2007<BR><BR>Citizens of Austin; City Council:<BR><BR>I am Paul Robbins, an environmental activist and consumer advocate.<BR><BR>It has been reported in the press that Austin's electric utility, Austin Energy,<BR>is considering purchase of land to build a coal plant. It is my information<BR>that this will be posted on the City Council's agenda next Thursday. I am<BR>asking for a 30-day delay so that this Council has proper time to consider the<BR>ramifications of such action. As importantly, it will allow the public some<BR>amount of time for analysis and input. I am also asking you to set up a<BR>discrete worksession and public hearing dedicated to this proposal.<BR><BR><BR>Good public policy is not done on an emergency basis.
 And this decision is too<BR>important to the environment and economy of this city to rush it through without<BR>proper oversight and public discussion.<BR><BR>Issues this Council must decide on include scrutinizing alternative that might<BR>be employed instead of a new coal plant. But even if Council decides that a<BR>coal plant might be necessary, there are other considerations that need to be<BR>discussed. Foremost of these is the issue of partnership with the City of San<BR>Antonio. If Austin must build this plant, it might be better for us to own it<BR>ourselves. San Antonio does not share this City's values. It has proved too<BR>often that it is more interested in the bottom line than environment, to wit,<BR>the City utility's recent decision to build a pulverized coal plant.<BR><BR>Other important things include the cost of the land, the cost of the plant, how<BR>this cost will be funded, and the citizen's right guaranteed in the City Charter<BR>to approve financial
 debt. I also wonder if location of the land should be<BR>restricted only to Matagorda County. Austin might find similar sights for less<BR>cost elsewhere on the Gulf Coast.<BR><BR><BR>Again, for all these reasons and more, I am asking Council to delay the vote on<BR>land for a coal plant 30 days from February 1 so you may have time to properly<BR>understand this issue and receive public comment.<BR><BR><BR><BR>Thank you.<BR><BR><BR><BR>STORY FROM AUSTIN CHRONICLE<BR><BR><BR><BR>Austin Energy's Coal Considerations Smoked Out?<BR><BR><BR><BR>http://www.austinchronicle.com/gyrobase/Issue/story?oid=oid%3A439255<BR><BR><BR>________________________________________________<BR>Get your own "800" number<BR>Voicemail, fax, email, and a lot more<BR>http://www.ureach.com/reg/tag<BR><BR>--__--__--<BR><BR>Message: 2<BR>To: TXGP Listserve <TEXGREEN@GP-US.ORG><BR>From: Roger Baker <RCBAKER@EDEN.INFOHWY.COM><BR>Date: Mon, 29 Jan 2007 19:01:57 -0600<BR>Subject: [Texgreen] The not-so-golden
 miracle of financial leverage<BR><BR>[Uh oh! The warnings about the lack of transparency, how highly =20<BR>leveraged the whole world financial system is, and how the risk has =20<BR>been increasingly diffused everywhere throughout the system, are =20<BR>coming in fast these days. This associated series starts with a =20<BR>warning just given at Davos by the ECB. If there is a world =20<BR>industrial collapse, oil could get really cheap, BTW. -- Roger]<BR><BR><HTTP: s 1a94c8be-af15-11db-a446-0000779e2340.html cms www.ft.com><BR><BR><BR>ECB warns on =E2=80=98unstable=E2=80=99 financial markets<BR><BR>By Gillian Tett in Davos<BR><BR>Published: January 28 2007 21:35 | Last updated: January 28 2007 22:55<BR><BR>Conditions in global financial markets look potentially =20<BR>=E2=80=9Cunstable=E2=80=9D, suggesting investors need to prepare for a =20=<BR><BR>=E2=80=9Crepricing=E2=80=9D of some assets, Jean-Claude Trichet, =<BR>president of the =20<BR>European Central Bank, said
 over the weekend in Davos.<BR><BR>The recent explosion of structured financial products and derivatives =20=<BR><BR>had made it more difficult for regulators and investors to judge =20<BR>current risks in the financial system, Mr Trichet said. =E2=80=9CWe are =20=<BR><BR>currently seeing elements in global financial markets which are not =20<BR>necessarily stable,=E2=80=9D Mr Trichet said, pointing to the =E2=80=9Clow=<BR>level =20<BR>of rates, spreads and risk premiums=E2=80=9D as factors that could =<BR>trigger a =20<BR>repricing.<BR><BR>=E2=80=9CThere is now such creativity of new and very sophisticated =20<BR>financial instruments ...=E2=80=89that we don=E2=80=99t know fully where =<BR>the risks =20<BR>are located.=E2=80=9D He added: =E2=80=9CWe are trying to understand =<BR>what is going =20<BR>on but it is a big, big challenge.=E2=80=9D<BR><BR>Mr Trichet=E2=80=99s comments reflect a debate in policymaking circles =<BR>about =20<BR>the implications of the growth in
 derivatives.<BR><BR>Many investment bankers and some regulators and economists argued at =20<BR>last week=E2=80=99s World Economic Forum in Davos that the growth of the =<BR>=20<BR>$450,000bn (=E2=82=AC350,000bn, =C2=A3230,000bn) derivatives sector had =<BR>helped =20<BR>reduce market volatility and made the system more resilient to shocks =20=<BR><BR>by spreading credit risk. But other officials fear these instruments =20<BR>may be raising leverage and risk-taking to dangerous levels and =20<BR>keeping the cost of borrowing artificially low, potentially =20<BR>increasing the chance of financial crises.<BR><BR>Senior policymakers admitted it had become hard to track the risks =20<BR>because the sector is opaque, much activity occurs in unregulated =20<BR>hedge funds, and products shift rapidly across markets and between =20<BR>the boundaries of national central banks.<BR><BR>Andrew Crockett, president of JP Morgan international, said: =E2=80=9CThes=<BR>e =20<BR>new
 instruments ought to make markets more complete. But there is a =20<BR>lack of transparency ... we don=E2=80=99t know how much leverage there =<BR>is in =20<BR>hedge funds, for example.=E2=80=9D<BR><BR>Copyright The Financial Times Limited 2007<BR><BR>=20<BR>**********************************************************************<BR><BR><HTTP: ="20<br" 01 2007 ann_pettifor commentisfree.guardian.co.uk>braving_the_remote_regions_of.html&gt;<BR><BR>Tottering on the brink<BR><BR>The inherent instability of the giant Ponzi schemes underwriting the =20<BR>world economy means financial meltdown is a huge threat.<BR><BR>Ann Pettifor<BR><BR>All last week doughty reporters from the UK broadcaster ITV braved =20<BR>the icy remoteness of the South Pole to bring home to us the truth =20<BR>about the role of fossil fuel emissions in melting that continent. =20<BR>Few journalists have shown similar bravery by venturing into the =20<BR>equally remote and secretive world of High Finance.
 But Gillian Tett, =20=<BR><BR>a Financial Times journalist systematically tracking the activities =20<BR>of hedge funds and the credit derivatives industry, last week related =20=<BR><BR>a scary story.<BR><BR>It's the story of everyday life in the world of Haute Finance. Giant =20<BR>Ponzi schemes are being built on a narrow base of real money, and =20<BR>huge sums of borrowed money. The inherent instability of these =20<BR>schemes means that the threat of financial meltdown is comparable to =20<BR>the threat posed by the melting Arctic.<BR><BR>In the case related by Ms Tett, =E2=82=AC20,000 worth of real money was =20=<BR><BR>invested in a "fund of funds". This money was used to leverage three =20<BR>times the amount in borrowed money. This new sum was then invested in =20=<BR><BR>a hedge fund, which invested the capital and the borrowed money into =20<BR>another highly leveraged financial instrument with a leverage ratio =20<BR>of nine. So the final investment of
 =E2=82=AC1m has behind it =E2=82=AC20,=<BR>000 of =20<BR>real money, and =E2=82=AC980,000 of debt. As the distinguished New York =20=<BR><BR>economist, Nouriel Roubini has noted, "this is a credit house of =20<BR>cards where $1 dollar of capital is turned into $49 of additional =20<BR>debt to finance an investment of $50."<BR><BR>Most commentators, regulators and politicians are sanguine about this =20=<BR><BR>state of affairs. Cassandras and doom-mongers like myself are =20<BR>challenged to offer real-time predictions for the fall of this house =20<BR>of cards; and to predict key "tipping points". This we cannot do. And =20=<BR><BR>yes, we were wrong in believing that the financial bubble had "maxed =20<BR>out" in 2003 and should have burst if not then, at least since then. =20<BR>But then this is a truly extraordinary financial bubble. Total debt =20<BR>in the US now stands at nearly 3.6 times GDP. In 1929 it was 2.8 times.<BR><BR>John Succo, who runs a $1.5bn hedge
 fund, recently asserted that it =20<BR>is the "guardians of the nation's finances" - central bankers - that =20<BR>have fuelled this debt, and explained how its done.<BR><BR>"If the Fed wants to inject liquidity (credit) into the system they =20<BR>simply call up large broker dealers and buy some of their bonds with =20<BR>credit they create out of thin air ... The dealer then passes this =20<BR>credit on to 'the market' by making loans to mortgage companies ... =20<BR>or whatever ... Because each layer of lender is only required to keep =20=<BR><BR>marginal capital on hand, a $1bn repo done by the Fed eventually =20<BR>creates as much as $100bn in new credit to the consumer ... This =20<BR>situation is very unstable in the long run. The Federal Reserve's =20<BR>balance sheet this year alone has expanded by $30bn in this way, and =20<BR>created $3.5trillion of new credit" (for which read debt) "in the US."<BR><BR>How much more credit/debt will central banks pump into the
 system =20<BR>before the strain of repaying 980,000 euros of debt from a tiny pot =20<BR>of =E2=82=AC20,000 becomes too great? And how will this year's $3.5 =<BR>trillion =20<BR>of US debt be repaid? By extracting more assets and depleting the =20<BR>earth's resources further? By exploiting even more intensively the =20<BR>millions of people creating real wealth? Or will it simply not be =20<BR>repaid? Will there be a grand jubilee? Will both the innocent =20<BR>investors that provide small pots of 20,000 euros and the financial =20<BR>system that sustains this house of cards just be bankrupted?<BR><BR>On 11 January, the Bank of England began to exhibit some nervousness =20<BR>about the growth of debt - and bemoaned its own creation - "credit =20<BR>and broad money growth". Then as guardians of the nation's finances =20<BR>they decided to rein in lending, by once again raising interest rates.<BR><BR>In other words, having encouraged the spread of easy, but costly
 =20<BR>credit the Bank, supported directly or indirectly by the Treasury, =20<BR>has now decided hurt those hedge funds maxing out on borrowing; and =20<BR>to punish the victims - millions of consumers that have propelled the =20=<BR><BR>economy forward and enriched financial institutions by borrowing. It =20<BR>is doing so by gradually turning the handle of the interest rate rack =20=<BR><BR>on which these borrowers find themselves stretched.<BR><BR>Where were these stern guardians of the nation's finances when hedge =20<BR>funds were created? Are these reckless borrowers regulated by the =20<BR>government and the Bank? Is the Bank aware of the extent of their =20<BR>liabilities? Are they speculating with our pension funds?<BR><BR>Where were our guardians when, as Creditaction reveals, banks and =20<BR>other financial institutions made mortgages available at five times =20<BR>income; or 125% of the value of the house; or with a repayment term =20<BR>of over 50 years? What
 did the government or the Bank of England do =20<BR>when, between September and November last year, banks and other =20<BR>lenders sent out at least 100m unsolicited, but pre-approved credit =20<BR>card application forms? Where were the wise men and women of the Bank =20=<BR><BR>of England, when according to uSwitch, almost eight out of 10 =20<BR>borrowers were issued loans without the lender carrying out any =20<BR>checks to verify that they could afford to repay the debt? Over the =20<BR>last 12 months, 763,000 loans were issued, according to Creditaction =20<BR>- a church-based advice centre - for debt consolidation purposes. Yet =20=<BR><BR>91% of these borrowers were not asked to prove that other forms of =20<BR>credit had been closed with the proceeds of the consolidation loan. =20<BR>Where were the guardians of the nation's finances then?<BR><BR>The answer of course is that both the Bank and the government decline =20=<BR><BR>to intervene in such unseemly affairs.
 The reason? The conduct of =20<BR>hedge funds, banks and mortgage companies is regulated by an =20<BR>"invisible hand". And so effective is this invisible hand at =20<BR>promoting competition amongst banks, for example, that the average =20<BR>interest rate on the virtually costless business of credit card =20<BR>lending is about 12% above base rate - 17.02%. According to the =20<BR>British Bankers Association, fully 75% of credit card balances were =20<BR>bearing this average rate of 17% interest in October, 2006.<BR><BR>Debts of =E2=82=AC980,000 leveraged on =E2=82=AC20,000; and usurious =<BR>interest =20<BR>rates of 17%. It hardly bears thinking about. Which is why most do =20<BR>not. All hail the few who do.<BR><BR>=20<BR>*****************************************************<BR><BR>http://www.ft.com/cms/s/92f7ee6a-a765-11db-83e4-0000779e2340.html<BR><BR>The unease bubbling in today's brave new financial world<BR><BR>By Gillian Tett<BR><BR>Published: January 19 2007
 02:00 | Last updated: January 19 2007 02:00<BR><BR>Last week I received an e-mail that made chilling reading. The author =20=<BR><BR>claimed to be a senior banker with strong feelings about a column I =20<BR>wrote last week, suggesting that the explosion in structured finance =20<BR>could be exacerbating the current exuberance of the credit markets, =20<BR>by creating additional leverage.<BR><BR>"Hi Gillian," the message went. "I have been working in the leveraged =20=<BR><BR>credit and distressed debt sector for 20 years . . . and I have never =20=<BR><BR>seen anything quite like what is currently going on. Market =20<BR>participants have lost all memory of what risk is and are behaving as =20=<BR><BR>if the so-called wall of liquidity will last indefinitely and that =20<BR>volatility is a thing of the past.<BR><BR>"I don't think there has ever been a time in history when such a =20<BR>large proportion of the riskiest credit assets have been owned by =20<BR>such
 financially weak institutions . . . with very limited capacity =20<BR>to withstand adverse credit events and market downturns.<BR><BR>"I am not sure what is worse, talking to market players who generally =20=<BR><BR>believe that 'this time it's different', or to more seasoned players =20<BR>who . . . privately acknowledge that there is a bubble waiting to =20<BR>burst but . . . hope problems will not arise until after the next =20<BR>bonus round."<BR><BR>He then relates the case of a typical hedge fund, two times levered. =20<BR>That looks modest until you realise it is partly backed by fund of =20<BR>funds' money (which is three times levered) and investing in deeply =20<BR>subordinated tranches of collateralised debt obligations, which are =20<BR>nine times levered. "Thus every =E2=82=AC1m of CDO bonds [acquired] is =20=<BR><BR>effectively supported by less than =E2=82=AC20,000 of end investors' =<BR>capital =20<BR>- a 2% price decline in the CDO paper wipes out the
 capital =20<BR>supporting it.<BR><BR>"The degree of leverage at work . . . is quite frankly frightening," =20<BR>he concludes. "Very few hedge funds I talk to have got a prayer in =20<BR>the next downturn. Even more worryingly, most of them don't even =20<BR>expect one."<BR><BR>Since this message arrived via an anonymous e-mail account, it might =20<BR>be a prank. But I doubt it. For, while I would not normally write an =20<BR>article about responses to an article (it is the journalist's =20<BR>equivalent of creating derivatives of derivatives) I am breaking this =20=<BR><BR>rule, since I have recently had numerous e-mails echoing the above =20<BR>points. And most of these come from named individuals, albeit ones =20<BR>who need to stay anonymous, since they work for institutions reaping =20<BR>profits from modern finance.<BR><BR>There is, for example, a credit analyst at a bulge-bracket bank who =20<BR>worries that rating agencies are stoking up the structured credit
 =20<BR>boom, with dangerously little oversight. "[If you] take away the =20<BR>three anointed interpreters of 'investment grade', that market folds =20<BR>up shop. I wonder if your readers understand that . . . and the non-=20<BR>trivial conflict of interest that these agencies sit on top of as =20<BR>publicly listed, for-profit companies?"<BR><BR>Then there is the (senior) asset manager who thinks leverage is =20<BR>proliferating because investors believe risk has been dispersed so =20<BR>well there will never be a crisis, though this proposition remains =20<BR>far from proven. "I have been involved in [these] markets since the =20<BR>early days," he writes. "[But] I wonder if those who are newer to the =20=<BR><BR>game truly understand the impact of a down cycle?"<BR><BR>Another Wall Street banker fears that leverage is proliferating so =20<BR>fast, via new instruments, that it leaves policy officials powerless. =20=<BR><BR>"I hope that rational investors and asset
 prices cool off instead of =20<BR>collapse, like they did in Japan in the 1990s," he writes. "But if =20<BR>they do, monetary policy will be useless."<BR><BR>To be fair, amid this wave of anxiety I also received a couple of =20<BR>"soothing" comments. An analyst at JPMorgan, for example, kindly =20<BR>explained at length the benefits of the CDO boom: namely that these =20<BR>instruments help investors diversify portfolios; provide long-term =20<BR>financing for asset managers and reallocate risk.<BR><BR>"Longer term, there may well be a re-pricing of assets as the economy =20=<BR><BR><BR>=== message truncated ===</BLOCKQUOTE><BR>
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