This is contrary to the recent World Bank forecast of increasing Chinese reserves.
If the trend exacerbates, and I think it will, this will feed the negative feedback loop: further deflationary pressures on commodities and further reduction in Chinese consumption/production (fund outflows increase asset devaluation increasing consumer pessimism/declining world growth and resultant tight credit slows production and investment). With less reserves, more pressure on Treasury yields ... if yields don't stay low harder to reflate the American economy. There may be a considerable yuan depreciation in 2009 that will cause competitive currency devaluations. - AM
GMT2008-12-23 13:06:09
BEIJING, (Xinhua) -- It is a good phenomenon for China's mammoth foreign exchange reserves to diminish for the time being, some experts believed.
China's forex reserves peaked at 1.9 trillion U.S. dollars at the end of September, now they were below that figure, Tuesday's Shanghai Securities Journal quoted Cai Qiusheng, head of the foreign debts section under the capital-account management department of the State Administration of Foreign Exchange, as saying.
This was the first decline in China's forex reserves since the end of 2003.
Cai made the remarks at the 7th annual meeting of China's import and export enterprises held over the weekend. But Cai did not reveal in which month, October or November, the country's foreign reserves fell below the 1.9-trillion-dollar level, nor did he disclose the exact size of the forex reserves at present.
Central Bank data show that at the end of September, China's forex reserves stood at 1.9056 trillion U.S. dollars, a growth of 32.92 percent over the same period of last year. The reserves increased 377.3 billion dollars in the first nine months of this year, 10 billion dollars more than the year-earlier increment. The total increase included 21.4 billion dollars recorded in September, 3.6 billion dollars less than the increment for the same month of last year.
Qu Hongbin, chief economist with HSBC China operations, analyzed that since growth of China's exports and imports had slowed down, China's trade surplus kept increasing and that foreign direct investment (FDI) had been rising though at a slower pace. Therefore he considered trade and FDI were not the factors behind the forex reserves decrease.
Yuan Yuedong, a senior researcher with the global financial market department of the Bank of China, believed the reduction for the time being would not affect the Chinese economy adversely.
He attributed the reduction to the recent slower appreciation and a short-term depreciation of the Chinese currency, renminbi, against the U.S. dollar. He reckoned that possible increasing offshore investment by Chinese companies also contribute to the downward trend of the forex reserves. But he said data were not yet available to support the estimate.
Qu Hongbin believed the renminbi's depreciation against the euro, which was also a major currency in China's forex reserves, was another important factor.
An investment-bank analyst who declined to be named, said the forex reserves decrease might be related to capital withdrawal from China by some foreign institutions whose liquidity was tight.
But Commerce Minister Chen Deming said earlier that there was no sign of large amounts of capital flowing out of China and that China remained a good target for FDI.
To combat the impact from huge capital outflows in the short-term, the foreign exchange administration has taken a string of measures, including a registration management system for offshore equities under the corporate cargo trade accounts.
Tuesday, December 23, 2008
The shylock business continues
(At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets under the TARP program.
`We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.'' ) - Bloomberg
'Consistent with Congress' intent, we are committed to transparency and oversight in all aspects of the program ..' - Neel Kashkari
`Transparency throughout this process will be important, and I look forward to providing regular updates as we move ahead to implement this strategy,` - Henry Paulson
By MATT APUZZO
Dec 22, 9:52 am ET
AP
WASHINGTON – It's something any bank would demand to know before handing out a loan: Where's the money going?
But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.
"We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."
The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?
None of the banks provided specific answers.
"We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.
Some banks said they simply didn't know where the money was going.
"We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.
The answers highlight the secrecy surrounding the Troubled Asset Relief Program, which earmarked $700 billion — about the size of the Netherlands' economy — to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money.
There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that's happening and there are no consequences for banks who don't comply.
"It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry," said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.
Nearly every bank AP questioned — including Citibank and Bank of America, two of the largest recipients of bailout money — responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis.
A few banks described company-specific programs, such as JPMorgan Chase's plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.
But no bank provided even the most basic accounting for the federal money.
"We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.
Others said the money couldn't be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money "doesn't have its own bucket." But he said taxpayer money wasn't used in the bank's recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn't being tracked, Denham said the bank would have made that deal regardless.
Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: "We are going to decline to comment on your story."
Most banks wouldn't say why they were keeping the details secret.
"We're not sharing any other details. We're just not at this time," said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government.
Heine, the New York Mellon Corp. spokesman who said he wouldn't share spending specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss those details."
The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent.
Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they've spent the money.
"It would take a lot of nerve not to give answers," she said.
But Warren said she's surprised she even has to ask.
"If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn't be in a position where you're trying to call every recipient and get the basic information that should already be in public documents," she said.
`We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.'' ) - Bloomberg
'Consistent with Congress' intent, we are committed to transparency and oversight in all aspects of the program ..' - Neel Kashkari
`Transparency throughout this process will be important, and I look forward to providing regular updates as we move ahead to implement this strategy,` - Henry Paulson
By MATT APUZZO
Dec 22, 9:52 am ET
AP
WASHINGTON – It's something any bank would demand to know before handing out a loan: Where's the money going?
But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.
"We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."
The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?
None of the banks provided specific answers.
"We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.
Some banks said they simply didn't know where the money was going.
"We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.
The answers highlight the secrecy surrounding the Troubled Asset Relief Program, which earmarked $700 billion — about the size of the Netherlands' economy — to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money.
There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that's happening and there are no consequences for banks who don't comply.
"It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry," said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.
Nearly every bank AP questioned — including Citibank and Bank of America, two of the largest recipients of bailout money — responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis.
A few banks described company-specific programs, such as JPMorgan Chase's plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.
But no bank provided even the most basic accounting for the federal money.
"We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.
Others said the money couldn't be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money "doesn't have its own bucket." But he said taxpayer money wasn't used in the bank's recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn't being tracked, Denham said the bank would have made that deal regardless.
Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: "We are going to decline to comment on your story."
Most banks wouldn't say why they were keeping the details secret.
"We're not sharing any other details. We're just not at this time," said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government.
Heine, the New York Mellon Corp. spokesman who said he wouldn't share spending specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss those details."
The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent.
Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they've spent the money.
"It would take a lot of nerve not to give answers," she said.
But Warren said she's surprised she even has to ask.
"If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn't be in a position where you're trying to call every recipient and get the basic information that should already be in public documents," she said.
Monday, December 22, 2008
Merry Christmas Banksters!
Tomorrow Wachovia holders meet to vote on the proposed Wells Fargo merger and PNC Financial Services holders vote on the takeover bid for National City. 'Vote', in this blogger's opinion, seems to be a rather maladroit appellation ; 'thanking the Good Lord Almighty', 'Jumping for Joy' or 'High-Five me dude' a more accurate description.
Undoubtedly there will be loud applause for the 'free-market' solutions to these troubled companies' plight - from the discriminating observer ... not so much.
Both of these transactions are yet another example of the Treasury exercising power it should not (and most probably does not) have. Although tomorrow's press releases will probably not reference it, both deals are being promulgated due to Treasury's notice 2008-83 that suspended the rule in Section 382 of the Internal Revenue Code of 1986 that disallows the use of a net unrealized built-in loss for financial institutions.
The translation goes like this : Wachovia and National City are insolvent due to their own foolish (and well compensated) decisions including 'top-of-the-market' purchases of insolvent companies. They are now being rewarded by the taxpayers' monetizing their losses through allowing taxable income of Wells Fargo and PNC to be transformed into tax free income.
The Treasury had no legal authority to allow this.
“We strongly believe that you have already overstepped your authority in issuing the original guidance and urge you not to compound this mistake by further widening this illegal loophole,” - Representative Lloyd Doggett
Washington Post: (11/10/2008) 'The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. Did the Treasury Department have the authority to do this? "I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks." '
A third bank recently lined up at the trough for this taxpayer bailout of bad speculative bets:
New York Times (12/4/2008)'Capital One announced it was paying $520 million in cash and stock to acquire Chevy Chase Bank, which operates in the Washington area. Capital One gains much-needed deposits in the deal, not to mention the potential to qualify for the $450 million in TARP funding granted to Chevy Chase by the government. That’s more than the $445 million in cash it is using in the deal.'
I suppose there is only so much time in the day to be outraged. After all, if this redistribution doesn't generate ire, you can always reflect on the fact that the Fed will now collateralize bad bets including credit cards, student loans, commerical real estate, CDOs, CLOs, rolex watches et al... and if that still doesn't roil you don't forget that they can then go out and issue debentures backed by the full faith and credit of well... you ... or more accurately your children.
On behalf of my fellow 'gifting' taxpayers:
Merry Christmas Banksters!
Undoubtedly there will be loud applause for the 'free-market' solutions to these troubled companies' plight - from the discriminating observer ... not so much.
Both of these transactions are yet another example of the Treasury exercising power it should not (and most probably does not) have. Although tomorrow's press releases will probably not reference it, both deals are being promulgated due to Treasury's notice 2008-83 that suspended the rule in Section 382 of the Internal Revenue Code of 1986 that disallows the use of a net unrealized built-in loss for financial institutions.
The translation goes like this : Wachovia and National City are insolvent due to their own foolish (and well compensated) decisions including 'top-of-the-market' purchases of insolvent companies. They are now being rewarded by the taxpayers' monetizing their losses through allowing taxable income of Wells Fargo and PNC to be transformed into tax free income.
The Treasury had no legal authority to allow this.
“We strongly believe that you have already overstepped your authority in issuing the original guidance and urge you not to compound this mistake by further widening this illegal loophole,” - Representative Lloyd Doggett
Washington Post: (11/10/2008) 'The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. Did the Treasury Department have the authority to do this? "I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks." '
A third bank recently lined up at the trough for this taxpayer bailout of bad speculative bets:
New York Times (12/4/2008)'Capital One announced it was paying $520 million in cash and stock to acquire Chevy Chase Bank, which operates in the Washington area. Capital One gains much-needed deposits in the deal, not to mention the potential to qualify for the $450 million in TARP funding granted to Chevy Chase by the government. That’s more than the $445 million in cash it is using in the deal.'
I suppose there is only so much time in the day to be outraged. After all, if this redistribution doesn't generate ire, you can always reflect on the fact that the Fed will now collateralize bad bets including credit cards, student loans, commerical real estate, CDOs, CLOs, rolex watches et al... and if that still doesn't roil you don't forget that they can then go out and issue debentures backed by the full faith and credit of well... you ... or more accurately your children.
On behalf of my fellow 'gifting' taxpayers:
Merry Christmas Banksters!
Yeh, I got yer benchmark right here
By Jason Zweig
Wall Street Journal
Sunday December 21, 2008
Painting the tape is a one-day wonder. Historically, 80% of all U.S. stock funds and 91% of small-company funds have beaten the market on the last trading day of the year - and roughly two-thirds have given most of that gain right back on the first day of the following year.
Wall Street Journal
Sunday December 21, 2008
Painting the tape is a one-day wonder. Historically, 80% of all U.S. stock funds and 91% of small-company funds have beaten the market on the last trading day of the year - and roughly two-thirds have given most of that gain right back on the first day of the following year.
Alice defining Wonderland
By Jennifer Hughes
Published: December 21 2008 23:19 | Last updated: December 21 2008 23:19
Financial Times
Banks will have to provide details of their profits and losses from financial instruments under two measurement systems, according to proposed accounting changes that could come into effect for year-end accounts.
The proposals, from both the International Accounting Standards Board and its US counterpart, would require companies to disclose the profits and losses that would have been reported if financial assets were valued at current market prices and as if they were reported at “amortised cost” – a measurement that ignores market volatility.
The changes are part of a package of credit crunch-related issues addressed by the accounting rulemakers. A number of bankers have complained that the requirement to report the great majority of financial assets at “fair” or market value has resulted in the industry writing down the value of its holdings by hundreds of billions, even though banks’ own expected losses on the instruments are nowhere near as severe as market prices imply.
In October, the IASB was forced by the European Commission to change its rules to allow banks to reclassify some holdings and account for more of them at amortised cost, which produces smoother results. Since then, the IASB has worked alongside the US Financial Accounting Standards Board to produce consistent results and prevent any interest group from being able to influence either board in its favour.
Both groups are publishing their proposals next week and are calling for comments by mid-January so changes can be finalised for year-end accounts. Investors were unhappy with the October rule change and have since resisted any more alterations that they fear risk making accounts less transparent.
As a result, the IASB and FASB have avoided making changes to what can be reclassified.
Published: December 21 2008 23:19 | Last updated: December 21 2008 23:19
Financial Times
Banks will have to provide details of their profits and losses from financial instruments under two measurement systems, according to proposed accounting changes that could come into effect for year-end accounts.
The proposals, from both the International Accounting Standards Board and its US counterpart, would require companies to disclose the profits and losses that would have been reported if financial assets were valued at current market prices and as if they were reported at “amortised cost” – a measurement that ignores market volatility.
The changes are part of a package of credit crunch-related issues addressed by the accounting rulemakers. A number of bankers have complained that the requirement to report the great majority of financial assets at “fair” or market value has resulted in the industry writing down the value of its holdings by hundreds of billions, even though banks’ own expected losses on the instruments are nowhere near as severe as market prices imply.
In October, the IASB was forced by the European Commission to change its rules to allow banks to reclassify some holdings and account for more of them at amortised cost, which produces smoother results. Since then, the IASB has worked alongside the US Financial Accounting Standards Board to produce consistent results and prevent any interest group from being able to influence either board in its favour.
Both groups are publishing their proposals next week and are calling for comments by mid-January so changes can be finalised for year-end accounts. Investors were unhappy with the October rule change and have since resisted any more alterations that they fear risk making accounts less transparent.
As a result, the IASB and FASB have avoided making changes to what can be reclassified.
Quotes from the Wise : Week ending December 21st
'Inflation is a kind of governmentally sanctioned white-collar crime. Every crime needs a dupe. Now that the Fed has announced its plan to deceive, where will it find its victims?' - James Grant
'I have spoken to the heads of various Wall Street equity derivative trading desks and every single one of the senior managers told me that Bernie Madoff was a fraud. Of course no one wants undue career risk by sticking their head up and saying that the emperor isn't wearing any clothes. As a result of this case several careers on Wall Street and in Europe will be ruined. Therefore, I have not signed nor put my name on this report. I am worried about the personal safety of myself and my family.'
-Harry Markopolos in 2005.
'To me the SEC is utterly irrelevant. It is the federal fig leaf over the securities market. Bring back Joe Kennedy ... bring back free markets ... get rid of these people.' - James Grant
'It was essentially the leveraged buyout of the U.S. Household, fueled by delusions that a national house recession wouldn't happen. Consumer spending won't come back. Not quickly, and not for many years.' -David Hendler
'Picking off Spain's wealthiest was like clubbing seals.' - Anonymous business consultant
'I have spoken to the heads of various Wall Street equity derivative trading desks and every single one of the senior managers told me that Bernie Madoff was a fraud. Of course no one wants undue career risk by sticking their head up and saying that the emperor isn't wearing any clothes. As a result of this case several careers on Wall Street and in Europe will be ruined. Therefore, I have not signed nor put my name on this report. I am worried about the personal safety of myself and my family.'
-Harry Markopolos in 2005.
'To me the SEC is utterly irrelevant. It is the federal fig leaf over the securities market. Bring back Joe Kennedy ... bring back free markets ... get rid of these people.' - James Grant
'It was essentially the leveraged buyout of the U.S. Household, fueled by delusions that a national house recession wouldn't happen. Consumer spending won't come back. Not quickly, and not for many years.' -David Hendler
'Picking off Spain's wealthiest was like clubbing seals.' - Anonymous business consultant
Saturday, December 20, 2008
Yuan Watch : Grey Lady blocked by Great Chinese FireWall
(James Fallows reports that access to the New York Times has been blocked by the great Chinese FireWall. Link to his blog to your right.)
Hypotheses:
* Is the site blocked because of this big story today by Jim Yardley, about the economic perils China faces after 30 years of growth? Maybe .... but I have heard far worse prospects routinely discussed here at conferences, on Chinese TV shows, and by Chinese government officials in recent weeks. So that doesn't seem to make sense.(http://www.nytimes.com/2008/12/19/world/asia/19china.html?_r=1)
* Is it blocked because of this story, by Edward Wong, reporting on the death sentences issued for two Uighurs convicted of killing 17 people in an attack on a police/military station in the far nothwestern town of Kashgar just before the Olympics? This could well be the problem. The threat of separatism in the mainly-Muslim northwestern Xinjiang region is an extremely sensitive topic in China. As Wong points out, his story carries several details of the action that differ from official Chinese government accounts.(http://www.nytimes.com/2008/12/18/world/asia/18kashgar.html)
* Or is it blocked because of this unbelievably fatuous passage in yesterday's column by David Brooks: "Chinese people work hard because they grew up in a culture built around rice farming. Tending a rice paddy required working up to 3,000 hours a year, and it left a cultural legacy that prizes industriousness." Yes, culture matters; and yes, the structure of Chinese education, family patterns, and still-dominant agricultural life makes a difference in how people behave (not to mention the legacy of the Cultural Revolution, the years under Mao, the one-child policy, and so on). But to write something like that with a straight face suggests that one has never seen actual Chinese people at work (or ostentatiously not working) or thought about how many factors account for the wild variations in work ethic, purposefulness, scholastic aptitude, basic honesty, devotion to duty, etc among people who all supposedly share the rice paddy legacy. I would give some credit to the Chinese firewall minders if exasperation with this sort of talk were the reason for the shutdown. In fairness to Brooks, in the column he might have just been paraphrasing an argument by Malcolm Gladwell.(http://www.nytimes.com/2008/12/16/opinion/16brooks.html)
I don't know. But this is a more heavy-handed step than I remember seeing in the past two and a half years.
UPDATE: From a friend who knows the nuances of high-level Communist Party maneuvering far better than I do, this hypothesis about what's going on:
I suspect that while the reason behind this blocking is not yet clear, the process--and thereby the motivation--might be a bit less obscure. That is, given that consensus drives policy decisions here, it is very likely that different parts of the bureaucracy weighed in and officials each had a gripe with the NYT coverage of some or another issue. Collectively, they were able to push through a directive to block it.
The people here overseeing foreign journalists also know that there will soon be a new contingent manning the desks of the NYT bureau here. Those officials want to send a clear signal that they expect more positive ("objective") coverage of China.
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