cryptogon.com

Geithner’s departure would mean the loss of the Fed executive Bernanke has relied on most to keep the financial system from collapsing in this year’s credit crisis. His successor may be another official involved in the government’s response, such as Fed Governor Kevin Warsh or New York Fed markets chief William Dudley, economists said.

Bernanke turned to Geithner, 47, president of the New York Fed, to carry out the rescues of Bear Stearns Cos. and American International Group Inc., and to help stem market turmoil after the decision to allow Lehman Brothers Holdings Inc. to fail. Geithner was involved in the weekend’s government rescue of Citigroup Inc. and oversees most of the Fed’s special lending programs set up this year to channel more than $1 trillion to banks and other financial institutions.

Leadership of the New York Fed is “always an important post but vastly more important at the moment,” said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington. “It would be very important to fill it as rapidly as possible.”

Obama’s Announcement

President-elect Barack Obama announced today that he will nominate Geithner as Treasury secretary, and will appoint Lawrence Summers, Treasury secretary under President Bill Clinton, to head the National Economic Council.

The president of the New York Fed serves as the vice chairman of the Federal Open Market Committee and is the only district bank president with a permanent vote on interest rates. The other 11 presidents rotate votes every two or three years.

The New York Fed is the largest of the 12 district banks and plays a unique role, serving as the central bank’s chief liaison to securities firms and trading with bond dealers to keep the Fed’s main interest rate close to the target set by policy makers. The bank, which employs about 2,800 people, supervises some of the biggest U.S. commercial banks, with examiners reviewing their books on a regular basis.

Should Geithner become Treasury secretary, Dudley, the New York Fed’s executive vice president for markets, may serve as interim president, Gramley said.

Joe and Chris Miller’s fields were picked so clean Saturday that a second day of gleaning — the ancient practice of picking up leftover food in farm fields — was canceled Sunday. ” ‘Overwhelmed’ is putting it mildly,” Chris Miller said. “People obviously need food.”

She said she expected 5,000 to 10,000 people to show up Saturday to collect free potatoes, carrots and leeks. Instead, an estimated 11,000 vehicles snaked around cornfields and backed up more than two miles. About 30 acres of the 600-acre farm 37 miles north of Denver became a parking lot.
ad_icon

The US government needs to borrow at least US$1 trillion in the coming year, excluding the US Treasury’s $700 billion plan to bail out the financial and other industries, said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan’s largest publicly traded lender by assets. That amount is likely to grow as the US government continues to rescue failed parts of the economy and has to raise more debt – that is, issue government bonds, or Treasuries – to fund such rescues.

Since 2004, when the amount of the government bond issuance reached an annual average of $400 billion, 94% of new buyers of US government bonds have been foreigners, Mizuno told Asia Times Online.

One measure of the increased concern at the ability of the United States to finance its enormous deficits in the future is the rising cost of credit default swaps bought as protection of Treasury debt. These traded near a record high on Tuesday, with benchmark 10-year contracts on Treasuries increased to 42 basis points, or 0.42 percentage points, from around 20 in early September. The contracts have also risen from below two basis points at the start of the credit crisis in July 2007.

While it remains unlikely that the US government will default on its debt, a weaker dollar would ease the burden of payment on existing debt.

In the past few months, the US dollar has strengthened against other major currencies, with the notable exception of the yen, even as the country has been at the epicenter of the deepening financial crisis. That dollar strength is not expected to last.

“There is no wonder the dollar will weaken,” said Eisuke Sakakibara, Japan’s former top currency official and now a professor at Waseda University. “The dollar now looks strong for a technical reason. The money the US financial firms had invested in the world is being repatriated into the homeland, causing dollar-buying. But once this conversion into the dollars is done, the currency will head south,” Sakakibara said at a forum in Tokyo on Sunday.

Faced with the unprecedented growth of the US budget deficit and the prospect of an increasingly weaker dollar compared with the yen reducing the value of Treasury debt held by Japan, economists in Tokyo are calling for the administration of president-elect Barack Obama to issue US Treasuries denominated in yen and other currencies. The issuance of foreign currency-denominated US Treasures would reduce the perceived risk of holding the debt.

The idea of issuing foreign currency-denominated US Treasures is not new. The Jimmy Carter administration, buffeted by the two oil crises of the 1970s, sold “Carter bonds”, denominated in German marks and Swiss francs, in 1978 to attract foreign investors into Treasuries.

“The US will be forced to issue foreign currency-denominated US Treasures in its hour of need,” said Mizuno. “The US cannot finance its deficit by itself. The US financial system cannot survive without foreign investors. We will see ‘Obama Bonds’ in the future.”

With the US owing increasing amounts to foreign nations, the confidence in US Treasuries continues to be shaken, said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co in Tokyo, said. “This will push up long-term yields, and the dollar will be sold,” said Kanno, speaking at the forum in Tokyo on Sunday.

So far, the Japanese yen has been the biggest winner out of the current financial turmoil as investors increasingly unwind the so-called yen carry trade, in which yen borrowed at low interest is changed into other currencies and invested for higher yields than the interest charged on the yen loan.

The yen has advanced 15% versus the dollar this year, 33% against the euro and 53% against the pound sterling. The yen may rise to 85 per dollar this year, predicted Masaki Fukui, senior market economist in Tokyo at Mizuho Corporate Bank Ltd, a unit of Japan’s second-largest financial group by market value. The Japanese currency at present is trading at about 96.28 to the US dollar.

“Japan’s financial authorities may intervene in the foreign exchange markets only when the yen breaks 90 per dollar,” Sakakibara said.

As the yen strengthens, the effective value of debt held in dollars will decline, a fate that yen-denominated Treasuries would escape.

“Yen-denominated US Treasuries would reduce currency risks for Japanese and Chinese buyers of US Treasuries,” said Fukui. “If concerns over US Treasuries continue to grow, no one will want to buy them. Yen-denominated US Treasuries would make it easy for foreign investors to buy them.”

Looking ahead to 2009, foreign buyers such as Japan, China and other emerging market central banks are likely to reduce their holdings of US Treasuries rather than increase them, as their own countries face massive funding needs to buoy their economies at home and as America will continue to face financial instability and deteriorating economic fundamentals.

Japan holds the world’s second-largest foreign reserves, totaling about $1 trillion, following China, which has about $2 trillion in forex reserves, including some $600 billion worth of US Treasuries. Japan plans to provide up to $100 billion to the International Monetary Fund, which would reduce the nation’s holding of short-term US Treasury bills.

Autocatalyst precious metals platinum and palladium, tracking gold, rose 5 percent and industrial metal silver gained about 4.5 percent.

Spot gold rose nearly three percent to $822.15 an ounce, its highest since October 16 and was up at $818.95/819.95 at 1230 GMT from $799.45 an ounce on Friday when the precious metal posted its biggest daily percentage gain in two months.

The U.S. government has agreed to inject $20 billion of new capital into Citigroup, one of the world’s biggest banks, to avoid a collapse that would have wreaked further damage to the world’s financial system.

“The Citigroup news can be read in two ways. One is relief because the bank was teetering on the brink, and that will be reflected in higher equity valuations,” said Robin Bhar, analyst at Calyon.

“The other is that $20 billion is a lot larger than expected, which is quite negative. The question is if Citigroup needs all this money, how much do the others need. The bottom line is good news for gold.”

Analysts say action taken by governments to pump money into the banking system has helped, but that investors are not sure it is enough. Until they are sure about financial stability investors will choose gold as a store of value.

“Investors have been in pure panic, they think the world is ending,” said Nicholas Brooks, head of strategy at ETF Securities. “When people get into that sort of mentality, one of the first places they go to is gold.”

SENSE OF FOREBODING

Gold hit a record high of $1,030.80 an ounce in March and has since fallen on falling oil prices and a stronger dollar.

A higher U.S. currency makes metals priced in dollars more expensive for holders of other currencies, while gold is used as a hedge against inflation, often triggered by rising oil prices.

But oil has fallen to around $50 a barrel from a record above $147 in July.

Other commodity prices too have tumbled and the fear fast taking hold across the globe is of deflation.

To combat this central banks have slashed interest rates and many are expecting to see them fall further, possibly to zero, in the United States and many other parts of the world.

Police detained the guard for questioning but said that a surveillance tape at the facility backed his claim that he fired his semiautomatic handgun to protect himself and two colleagues.

“The evidence is very clear the security officers were defending their safety,” said Deputy Chief Terry S. Hara of the Los Angeles Police Department.

Police did not release the name of the guard or the man killed in the 1:30 p.m. shooting. An investigator said the man had a history with the church but was not a member now. The tape showed the man arriving at the Celebrity Centre’s Bronson Avenue parking lot in a red convertible, getting out of the vehicle and approaching a trio of security guards and waving a sword in each hand, Hara said.

He said the man, who was described as being in his 40s, was “close enough to hurt them” when the guard fired. The man was taken to County-USC Medical Center, where he was pronounced dead.

The bank is also said to have contacted certain shareholders to assess their interest in increasing their stakes as as it faces an uncertain future.

Citigroup stock ended 20% lower on Friday as its board members met.

Last week the company announced 52,000 job losses worldwide on top of 23,000 job cuts previously announced.

No one from Citigroup was immediately available for comment.

There are fears that without further funding the bank might not be able to survive. Any money would be in addition to the $25bn injection it received in October from the US Treasury.

Options being discussed included a government cash injection as well as Citigroup selling some of its business, reported The Sunday Times.

Chief executive Vikram Pandit told employees on Friday that the firm did not want to change its business model, Reuters reported, citing two employees.

He also reiterated that the firm had a robust capital position.

But Sean Egan, analyst at ratings agency Egan-Jones Ratings, said, “Citigroup needs a deep-pocketed investor that is ready, willing, and able to step up in the next few days.”

“The only one who comes to mind is the government,” he said, adding that $50bn might ne needed.

In a bid to reassure investors, Citigroup is running advertisements in US and international newspapers on Sunday underlining its stability.

The agreement, which was still under discussion and could fall apart, would mark a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to absorb bad assets, on a targeted basis, from specific institutions.

The talks Sunday centered on the creation of what is sometimes called a “bad bank” — an outside entity designed to hold some of a financial firm’s worst assets. That structure would help Citigroup cleanse itself of billions of dollars in potentially toxic assets, these people said.

Under the terms being discussed with top Treasury Department and Federal Reserve officials, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold, people familiar with the matter said. The U.S. government would then absorb any additional losses, these people said. One person said the new entity is expected to hold about $50 billion of assets.

That would mean taxpayers could be on the hook if Citigroup’s massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.

It was unclear Sunday night whether the government would take an equity stake in Citigroup in return for the support. Also uncertain was whether Citigroup would get a government loan to finance the facility. The government took that approach with insurer American International Group Inc. in late September.

The amount of financial support provided for a bad bank is crucial to its success. If there is too little, investors might conclude that the bad assets will wipe it out, leaving the bank right where it was before. Such a structure was used successfully in the 1990s, with funding from private investors, to rescue Mellon Bank, now called Bank of New York Mellon, from a pile of bad debts.

Behind the push is a broad effort to shore up faith in Citigroup, which saw its stock price fall 60% last week to a 16-year low. Citigroup has been pounded by mortgage-related losses.

In addition to $2 trillion in assets it has on its balance sheet, it has another $1.23 trillion in entities that aren’t reflected there. Some of those assets are tied to mortgages, and investors have worried they could cause heavy losses if they are brought back on the company’s books.

Even as they assured employees and investors last week that the company was on sound financial footing, Citigroup executives and directors knew they needed to do something fast to stabilize their reeling company. Top government officials, including the heads of the Treasury Department and Federal Reserve, also have been scrambling to draw up contingency plans in case Citigroup’s troubles intensified.

Sunday afternoon, government officials were locked in meetings to hammer out the final terms of an arrangement that will leave the government deeply enmeshed in the inner workings of one of the world’s largest financial institutions. A Citigroup spokeswoman declined to comment on the discussions.

It wasn’t known Sunday afternoon if Citigroup will have to make changes to its executive ranks, board or elsewhere inside the company in return for government assistance. After weekend discussions, the parties were hoping to unveil an agreement Sunday evening, the people said.

As Citigroup shares fell last week, Chief Executive Vikram Pandit and other top executives insisted that the decline wasn’t a threat because the company has plenty of capital. By Friday, bank officials were hoping for a public expression of confidence from the government, believing that would help reassure clients and customers.

One rescue structure under consideration would resemble part of the $150 billion bailout plan the government struck with AIG in November, a restructuring of the previous bailout. Two vehicles, funded largely by as much as $52.5 billion in government money, were created to take on risks from some of AIG’s souring assets, including exposure to credit derivatives. That deal also reduced interest costs on AIG’s previously arranged $60 billion loan from the government.

In Citigroup’s case, the planned bad bank likely will be able to accommodate only a sliver of the company’s more than $3 trillion in assets, including its holdings in off-balance-sheet entities. Jitters about such “hidden” assets helped trigger the nose-dive in Citigroup’s stock last week.

Among the off-balance-sheet assets are $667 billion in mortgage-related securities. In a presentation to employees last week, Mr. Pandit said Citigroup doesn’t bear the credit risk for those mortgage securities and it’s “unlikely” that the “majority” of those assets will come onto its balance sheet.

Citigroup has tried repeatedly to rid itself of its exposure to those assets. In late September, the company reached an agreement for a government-financed acquisition of Wachovia Corp. Under that planned deal, Citigroup and the government were going to divvy up the losses on $312 billion of assets, with Citigroup absorbing the first $30 billion in losses and the government shouldering the remainder.

Citigroup described that arrangement as intended to insulate it from Wachovia’s risky mortgage assets. But Citigroup also would have been able to unload some of its own assets, according to people familiar with the matter.

That deal unraveled in less than a week, after Wells Fargo & Co. emerged with a higher bid that didn’t require direct government backing.

Shortly afterwards, Citigroup pitched the idea of a “bad bank” to the government, arguing that the government should help the company after Wachovia slipped away, according to a person familiar with the matter. But federal officials balked at the idea.

As recently as one month ago, Citigroup had hoped to be able to unload some of those assets to the U.S. government through its Troubled Asset Relief Program. But when Treasury Secretary Henry Paulson earlier this month shelved plans to use TARP to purchase banks’ bad assets, that option vanished.

Last Monday, Mr. Pandit mentioned in the employee meeting that Citigroup was scrapping plans to try to sell about $80 billion in risky assets. Investors and analysts interpreted the move as a sign that Citigroup either was unable to sell the assets, or would have had to incur hefty losses in the process.

Two days later, Citigroup announced it was buying $17.4 billion in assets from its structured-investment vehicles — complex entities whose holdings included risky mortgage-linked securities — and faced a $1.1 billion loss due to their diminished values.

Infrared units mounted to the front of Callister’s vehicle scan the license plates of a Casa Grande firefighter, an Ohio State football fan and everyone else who drives past as he hunts for stolen vehicles.

Every plate is photographed, time-stamped, labeled on a GPS map and automatically logged into an Arizona Department of Public Safety database. An electronic voice alerts Callister to stolen vehicles within seconds after they pass, giving him the ability to make quick arrests.

Callister is among the growing number of Arizona officers who use cameras to scan thousands of plates on a daily basis, sweeping parking lots and highways to recover stolen vehicles faster than ever before.

In the past two years, the technology has been lauded as more than a tool to thwart car thieves. DPS claims its program has the potential to intercept violent criminals and Amber Alert suspects, though lawmakers and activists raise questions about invasion of privacy for average citizens whose plates are scanned.

In a state that routinely ranks among the top five in the U.S. in auto theft, DPS scanned more than 1.6 million plates since introducing its first cameras in 2006 – leading directly to 122 felony arrests.

Callister, a DPS Border Crimes Unit officer, uses a set of the agency’s 25 plate-reader cameras to track stolen vehicles south of Phoenix. He said the system supplements everyday police work, freeing him from the routine checks that used to consume his time.