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Archive for the ‘National Economic Politics’ Category

Bank of America Sets Up War Room, Hires Army of Lawyers

In Financial Markets, High Frequency Trading, International Econnomic Politics, Law & Regulations, National Economic Politics, Technology on 22.01.11 at 01:18

Wikileaks, and its founder Julian Assange, has certainly stirred up some murky waters releasing confidential documents and emails on government activities. Recently Assange stated that he has a large batch of confidential documents that could lead to problems for a major bank, and in at least one interview he has identified that bank to be Bank of America. And the bank are taking the possible threat serious – deadly serious! So does the US Securities and Exchange Commission.

“The nation’s largest bank has set up a war room and assembled a S.W.A.T.  team of lawyers.”

FOX Business Network


According to FOX Business, the largest US bank has set up a war room and assembled a S.W.A.T.  team of lawyers and company officials to deal with the matter if anything should arise. And now the US Securities and Exchange Commission (SEC) is focusing in on the case too.

The Securities and Exchange Commission is keeping a close eye on Bank of America’s (BAC) Wikileaks dilemma to determine whether anything that the info-leaking website might release should have already been turned over to regulators who have conducted numerous investigations into the bank’s activities, FOX Business Network has learned.

The same goes for WikiLeaks.

It is, in fact, illegal to withhold information about criminal activities.

See also: Wikileaks Obstruction of Justice?

If and when the document dump occurs, the SEC – Wall Street’s top cop –  will be examining the material to determine if Bank of America has failed to include the emails and other documents in demands for information the commission has made as part of its many investigations into BofA activities.

Bank of America has been the subject of several high-profile probes by the commission, including issues surrounding its Countrywide Financial subsidiary, and its ill-fated purchase of Merrill Lynch during the dark days of the financial crisis in 2008.

Countrywide, which was the largest issuer of so-called subprime mortgages, has been accused of issuing mortgages to people with little if any documentation of work history or  means to repay the loans.

Neither SEC’s spokesman or BofA’s spokesman had no immediate comment, FOX reports.

If Bank of America purposely failed to turn over documents involving an investigation, the bank could face possible criminal charges of obstructing justice.

But so far, BofA has said that despite all the talk about it being a target, it has no evidence that Assange’s organization has documents involving the bank.

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Fitch: Euro Governments Borrowing To Drop by 9% in 2011

In Financial Markets, Health and Environment, International Econnomic Politics, National Economic Politics, Quantitative Finance, Views, commentaries and opinions on 19.01.11 at 13:36

Fitch Ratings says in a statement that gross government borrowing for the EU15 countries will fall by 9.2% this year, to EUR 1.866 billion versus EUR 2.050 billion in 2010. Fitch expects that the run-off of government-guaranteed bank debt will start to eliminate a source of competition for sovereign debt, potentially easing sovereign financing conditions.

“Fitch expects net borrowing by central governments across Europe to fall sharply in 2011 as governments implement budget cuts.”

Douglas Renwick


In 2010 European governments had the largest borrowing requirement for decades. In a new report, Fitch notes that 2011 euro area gross borrowing is down 13% year-on-year to EUR 1.607 billion, or 16.5% of GDP.

In absolute terms, it is largest in France (EUR 386 bn), Italy (EUR 381 bn) and Germany (EUR 292 bn).

As a share of GDP, it is largest in Greece (25%), Italy (23%), Portugal (23%) Belgium (21%), France (18%) and Ireland (17%).

Overall, gross borrowing has fallen y-o-y for most European governments.

Denmark, Greece, and Portugal are the exceptions.

“Fitch expects net borrowing by central governments across Europe to fall sharply in 2011 as governments implement budget cuts,” Douglas Renwick, Director of Fitch’s Sovereign team, says in a statement.

“The dramatic rise in short-term debt issuance by EU15 countries seen in 2009 has also started to unwind, with short-term debt falling 11.2% year-on-year as of December 2010. As a result, medium and long-term debt maturities are up 13% year-on-year in 2011, partly reflecting higher public debt stocks,” Robert Shearman adds.  Shearman is co-author of the report and member of Fitch’s Sovereign team.

Although the marginal cost of funding increased for ‘peripheral’ euro area governments (Greece, Ireland, Italy, Portugal and Spain), yields declined for the EU15 as a whole, on an annual average y-o-y basis, to 3.5% in 2010 from 3.7% in 2009.

The report notes that by maintaining the average duration of their debt, peripheral countries are slowing the feed-through of higher yields to their effective rate of interest.

Fitch expects that the run-off of government-guaranteed bank debt (EUR 242 billion in 2011) will start to eliminate a source of competition for sovereign debt, potentially easing sovereign financing conditions.

(Note: Fitch defines gross borrowing as net borrowing plus redemptions on medium and long-term debt plus the stock of short-term debt at the end of the previous year, which will need to be rolled over at least once during the current year).

Here’s a copy of the report, entitled “European Government Borrowing: Steps in the Right Direction”

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Cyber Security Is Waste of Money, OECD Advisers Says

In Financial Markets, Health and Environment, High Frequency Trading, International Econnomic Politics, National Economic Politics, Technology, Views, commentaries and opinions on 18.01.11 at 16:26

Under the pseudonym “Hugo Cornwall”,Peter Sommer published the infamous “Hacker’s Handbook” in 1985. Since then he has become a noted security researcher and expert witness. Now he has co-authored a report for the Organisation for Economic Co-operation and Development (OECD) which warns governments against swallowing wholesale stories about “cyber-war” and “cyber-weapons”.

“Governments should take a calm, disciplined approach and evaluate the risks of each type of attack very carefully rather than be swayed by scare stories.”

Peter Sommer


According to the report “Reducing Systemic Cybersecurity Risk,” published today, a true cyber-war would have the same destructive effects as a conventional war, only that it will be fought exclusively in cyberspace. However, such a war is “highly unlikely” to occur, the OECD report says.

“Governments should take a calm, disciplined approach and evaluate the risks of each type of attack very carefully rather than be swayed by scare stories,” says Peter Sommer of the London

Peter Sommer

School of Economics, one of the two authors of the just released report on cyber security.

Co-authored with computer scientist Ian Brown of the Oxford Internet Institute, UK, the report says online attacks are unlikely ever to have global significance on the scale of, say, a disease pandemic or a run on the banks.

But they say “localized misery and loss” could be caused by a successful attack on the Internets routing structure, which governments must ensure are defended with investment in cyber-security training.

Jay Abbott, security manager at the consultancy PricewaterhouseCoopers, agrees that the routing structure is indeed vulnerable, new scientist.com writes.

“Short of physically cutting the wires, it’s the best way to take down a country from the internet,” he says.

Analysis of cyber-security issues has been weakened by the lack of agreement on terminology and the use of exaggerated language, the report points out.

“Cyber-espionage is not a few keystrokes away from cyber-war, it is a method of spying,” the authors write.

Controversially, the OECD advises nations against adopting the Pentagon’s idea of setting up a military division – as it has under the auspices of the US air force‘s Space Command – to fight cyber-security threats.

“While vested interests may want to see taxpayers’ money spent on such ventures,” says Sommer, “the military can only defend its own networks, not the private-sector critical networks we all depend on for gas, water, electricity and banking.”

Here’s a copy of the report: “Reducing Systemic Cyber Security Risk”

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I just have one question: Who will decide which hardware, computers and software that is “systemically important,” or not?
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Internet Nuke Bomb Ready To Blow (Update)

In Financial Engeneering, Financial Markets, Health and Environment, High Frequency Trading, International Econnomic Politics, Law & Regulations, Learning, National Economic Politics, Quantitative Finance, Technology, Trading software, Uncategorized, Views, commentaries and opinions on 16.01.11 at 20:29

The Swapper have been warning about this since last summer when the mysterious Stuxnet worm was discovered at several critical energy and water supply facilities around the world. However, research by Symantec have later reveled that 60% of the infections are found inside Iranian borders. The threat from cyber space has risen to the top of the list over potential global risks in 2011, alongside pandemic diseases and terrorism. The internet, once seen as the solution to all of mans problems, have instead become one of the most severe threats to all of us.

“The primary involvement of states in cyber security, as both protagonists and principal targets, fundamentally changes the nature of the risk.”

Eurasia Group


By the end of 2010 McAfee Security counted 60.000 new pieces of malicious software being released on the internet every day, the hacker attacks on Java platforms (used in practically every security system, including online banks and the Pentagon) rose by 1.200% last year, and for the first time ever the value of theft of digital assets exceeded the theft of physical assets. And for Stuxnet; that’s only the beginning.

More than 100 foreign intelligence organizations are trying to break into US networks, Deputy Defense Secretary William Lynn wrote in the September/October issue of the journal Foreign Affairs. Some already have the capacity to disrupt U.S. information infrastructure, he says.

The US government’s main code-making and code-cracking agency now works on the assumption that foes may have pierced even the most sensitive national security computer networks under its guard, Reuters reports.

“There’s no such thing as ‘secure’ any more,” Debora Plunkett of the National Security Agency said last month, amid US anger and embarrassment over disclosure of sensitive diplomatic cables by the web site WikiLeaks.

“The most sophisticated adversaries are going to go unnoticed on our networks,” she said.

Plunkett heads the NSA’s Information Assurance Directorate, which is responsible for protecting national security information and networks from the foxhole to the White House.

“We have to build our systems on the assumption that adversaries will get in,” she told a cyber security forum sponsored by the Atlantic and Government Executive media organizations.

The United States can’t put its trust “in different components of the system that might have already been violated,” Plunkett added in a rare public airing of NSA’s view on the issue.

“We have to, again, assume that all the components of our system are not safe, and make sure we’re adjusting accordingly.”

The NSA must constantly fine tune its approach, she said, adding that there was no such thing as a “static state of security.”


And the US is not the only nation struggling to keep its sensitive data safe.

According to Iain Lobban, head of GCHQ, the UK’s core infrastructure is under constant attack. He says thousands of targeted emails are hitting the systems every month, planting worms that cause “significant disruptions.”

Mr. Lobban’s claims are supported in a national security report, naming cyber attacks as a top threat to the UK, alongside pandemic diseases and terrorism, according to the PC Pro Magazine.

A Global Threat

“Cyberspace is contested every day, every hour, every minute and every second,” the British security expert says.

The international risk analysis company Eurasia Group put cyber security at number 3 amongst the top 10 risks of 2011.

“For the past decade, increasingly technologically capable hackers and organized crime organizations have elevated cyber security as a business risk, but not as a political risk. The centralization of data networks, both in energy distribution (the move to the smart grid) and information technology more broadly (the shift to cloud computing) are now metastasizing the cyber risk, and governments are becoming more directly and actively involved in playing both offense and defense in cyberspace. The primary involvement of states in cyber security, as both protagonists and principal targets, fundamentally changes the nature of the risk. The new roles of governments and their antagonists bring geopolitics and cyber security together in three different ways,” Eurasia writes.

(Link to full report below).

Java Systems Under Heavy Fire

One of the main components in practically every security system today is the Java platform, produced by Oracle.

So it’s no wonder that attacks on the Java system increased by more than thousand percent in 2010.

“The number of attacks against flaws in Java has jumped by 1.000% – even outstripping attacks against vulnerabilities in Adobe PDF’s,” Microsoft says.

The attacks against Java code – not the Java script – rose from 500.000 at the beginning of last year to about 6 million in the last quarter of 2010.

Even if Oracle have manged to patch the vulnerabilities in Java, the have the same problem as Adobe – people forget to update their software.

And on top of that; Java is a piece of software that’s used in almost everything, it runs in the background, making more visible components work, PC Pro Magazine points out.

“How do you know if you have Java installed, or if it is running?” researcher at Microsoft Malware Protection, Holly Stewart rightfully asks.

(If you want to know more about Java, click the link below.)

1 in 3 Companies Exposed To Data Theft

According to the latest issue of Kroll Annual Global Fraud Report, suggest that the theft of digital assets has overtaken that of physical stock for the first time ever in 2010.

A Survey, conducted in cooperation with the Economist Intelligence Unit, indicates that the numbers of companies reporting theft of information has risen sharply – from 18% to 27,3% – in 2010.

“There’s a growing awareness among thieves of the intrinsic value of intellectual property,” Kroll vice president, Robert Brenner explains.

The survey also suggest that 88% of the  participating companies had been victim of some kind of fraud over the past year, nearly half of them are now fearful of expanding globally because of the cyber threat.

The experts emphasize that the numbers probably not are 100% accurate.

However, the message is pretty clear.

(Download the report below)

The Most Scary Thing

I guess most of you have heard about the Stuxnet worm/virus/malware in the news by now, and are familiar with the speculations that the extremely sophisticated malware might be some kind of cyber weapon, developed by government related scientists somewhere.

I sounds like a plot in James Bond movie – but the truth might be even more vicious.

Davey Winder

According to experts is not unlikely to be a prototype of the first ever cyber-weapon-of-mass-destruction.

Davey Winder, award-winning journalist, business consultant and security expert, explains:

“So what do we know about Stuxnet and the SCADA (Supervisory Control and Data Acquisition) systems?  Well, we know that Stuxnet is designed to be disseminated via USB sticks, and that it was developed to exploit specific zero-day vulnerabilities in the Windows operating system. To expand on that a little, Stuxnet actually exploits no fewer than four zero-day Windows vulnerabilities, a statement that alone should set the hair on the back of any security analyst’s neck prickling. Zero-day vulnerabilities are extremely valuable to the shady world of both hackers – where a zero-day is a kudos-generating device – and to criminals where zero-day equals pay-day. It’s relatively rare to see a single exploit being used in a piece of malware, and totally unheard of to see four expended in such a way.”

“Ask yourself, why would anyone waste three highly valuable zero-day exploits in a single piece of code when one would most likely do the job? Security experts recognize that this isn’t the modus operandi of the average hacker, nor the average criminal,” Winder writes in a recent article.

Personally, I believe that Stuxnet 2.0 is already out there – it just hasn’t been discovered yet.

The Internet Nuke Bomb

According to trend analyst, Gerald Celente, CEO and founder of Trends Research Institute, will cyber wars cause stir and come to fore in 2011.

And. as Eurasia, he is concerned about the government’s involvement.

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Here are some of the other highlights in Mr. Celente’s predictions for the year to come:

  • Every citizen in 2011 will realize that we are in the “greatest depression”
  • In 2011, the game’s gonna run out
  • Digital money, not worth the paper it’s not printed on
  • The youth of the world has mountains of debt to climb, and no way to get to the top
  • The greatest fear that governments have is freedom of speech
  • Your growth industries are the gangs
  • Crackdown on crime will lead to crackdown on liberties
  • Drones flying over your city looking in windows
  • The more government loses control, the harder they crack down

You may not take all of Gerald Celente’s forecasts equally serious, but many of the situations he describes is. in fact, common human behavior, observed in times of crisis since the collapse of the Roman empire thousands of years ago and up to our time.

At the latest count by McAfee Security Lab, about 60.000 pieces of malicious software is released on the internet every day.

And here’s how the last six months of 2010 looked like from the security software producer Kaspersky‘s point of view:

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Perhaps it’s time to upgrade?

 

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Bank Of America’s Website Crashes – Another Attack?

In Financial Markets, Health and Environment, International Econnomic Politics, Law & Regulations, National Economic Politics, Technology, Views, commentaries and opinions on 15.01.11 at 16:57

Bank of America says all customers are now able to use their online banking system. However, the BoA website have been down much of the day for an unknown number of customers. There’s no word on when the site will be fully restored. On Twitter the speculations are buzzing that the site has been taken down by hackers who support WikiLeaks.

“We are aware of the issue and are working to resolve it as fast as possible. Please accept our apologies.”

Bank of America (via Twitter)


The bank is responding to users about the problem on Twitter via @BofA_Help. For some users, the website hasn’t been responding for many hours . A BofA spokeswoman said the problems began for the bank’s website at 4 a.m. PST Friday.

BofA says there is no timetable yet for when the website would be back to normal, but says the online banking outage affects “a small population of its customers.” The BofA spokesperson could not provide the number of customers currently affected, Halah Touryalai at Forbes.com writes.

The message also notes that the problems were not because of malware and customer information was not compromised.

On Twitter there’s a lot of buzz about the BofA website failure right now.

At least one Twitter-user speculates about the possibility of the website being hacked by WikiLeaks’ advocates anonymous:


Last year eBay’s, PayPal and Mastercard were faced with down websites after being targeted by groups supporting WikiLeaks.

However – a Bank of America spokesperson says its outage today is not the result of anything WikiLeaks related.

Last night @BofA_Help began addressing the load of complaints.

The responses from  have been pretty standard so far. Most are along the lines of: “We are aware of the issue and are working to resolve it as fast as possible. Please accept our apologies” and Online Banking Outage: Bank of America is working to restore capability as quickly as possible. We apologize for any inconvenience.”

But that’s obviously not stopping the stream of complaints from Twitter users.

Friday is payday for a lot of people, (at least for those lucky enough to be employed these days), and many are probably trying to pay their bills online and check balances.

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It now looks like BoA’s Online Banking Service is up and running again.

But still no information from the bank about what caused their site to crash.

Looks Like A Classical Pump&Dump Setup

In Financial Engeneering, Financial Markets, High Frequency Trading, International Econnomic Politics, Law & Regulations, National Economic Politics, Quantitative Finance, Technology, Views, commentaries and opinions on 14.01.11 at 22:04

The global stocks markets are reaching for new highs, sending the benchmarks to the highest level since August 2008. Once again it’s the financials that’s leading the race after Wells Fargo raised its rating for large banks on prospects for higher dividends, JPMorgan Chase says it will use some of its reserves to boost earnings and Morgan Stanley says banks and insurance companies will be winners in the stock market this year. Well, it sounds like the same old song and dance routine to me, just like we’ve seen it over and over again for the last two years – a classical pump & dump scheme.

“Companies are sitting on tons of cash. Corporate earnings are coming in very strong. I see a gain of 10 percent to 15 percent for stocks in 2011.”

Philip Dow


Personally, I don’t think there’s many investors who actually believe a word of what the bankers and their stock pushers are saying. But that’s not the point. The point is, however, that the big financials are setting up another stock market rally so they can cash in a couple of billion dollar more before the new regulations takes effect and prohibit them from trading with their own money, shutting down their most lucrative area of business.

This may very well be the biggest opportunity investors will get in 2011. The financial shares have, more or less, controlled the stock market over the last two years – pushing the average prices up, then pulling them down again.

But this is no game for amateurs. You never know when the big players turn around, stop buying and dump the load right in your face. The so-called “swing trade,” where the goal is to figure out exactly when the market turns, is one of the most difficult investment strategies there is. It can also be the most rewarding.

But remember; there is nothing – I emphasize; nothing – that indicates that the problems are over for financial firms. On the contrary; several signs points to more trouble ahead.

The greatest factor of uncertain right now is the European debt crisis. Even if it’s the national governments that is about to go bankrupt, it is the financial industry who’ll get the punch when countries starts to default.

Something the credit market investors have figured out a long time ago.

(Read also: Smart Money Is Not Stupid (Or Is It?))

The second bomb about to detonate is the dodgy foreclosure case.

At the moment, the banks are allowed to accrue interest on non-performing mortgages  until the actual foreclosure takes place, which on average takes about 16 months.

This “phantom interest” is not actually collected, but still it’s booked as income until the actual act of foreclosure.

As a resullt, many bank financial statements actually look much better than they actually are.

This means that Bank of America, Citigroup, JP Morgan and Wells Fargo, and hundreds of other smaller institutions, can report interest due to them, but not paid, on an estimated $1.4 trillion of face value mortgages on the 7 million homes that are in the process of being foreclosed, according to Forbes.

“Ultimately, these banks face a potential loss of $1 trillion on nonperforming loans,” says Madeleine Schnapp, director of macro-economic research at Trim-Tabs, an economic consulting firm 24.5% owned by Goldman Sachs.

However, the central banks, and the governments will be pumping money into the financial markets as long as they can in order to keep the financial system running. And they might be able to do that for a year or two more (maybe even longer).

“The markets can stay irrational longer than you can stay solvent.”

(John Maynard Keynes)

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Anyway – who gives a shit?

The KBW Bank Index, which tracks 24 US financial companies, was up 13% in the four weeks through Jan. 5, three times the gains of the Standard & Poor’s 500.

And there’s also a third landmine in store for US banks.

According to Forbes, investors are now betting that the GOP-controlled Congress will water down the financial-services overhaul, and the great Wall Street reform will be just a joke, as many have feared.

On paper, the Dodd-Frank financial-services overhaul bill looks like a bank-stock killer.

It restricts how banks can trade for their own accounts, it raises capital requirements and it tightens supervision. By some estimates it will cut big bank profits by $22 billion annually—what the industry makes in a decent quarter.

Yet, bank stocks is rallying like it’s 2009.

Investors are banking that House Republicans will modify the new law, says Terry Haines, a senior analyst Potomac Research Group: “Back in July 2010, when Dodd-Frank became law, investors expected the quick imposition of rules with an immediate impact on the financial sector. But a lot of the key components of Dodd-Frank have not yet been implemented. And now there is a more favorable and moderate political environment as well.”

Note that any statement of just how much of the Dodd-Frank law will be changed by House Republicans is only speculation.

Investors may be overestimating the GOP‘s nimbleness.  The regulatory agencies could, in fact, begin to implement rules before the House Financial Services Committee holds any hearings on the matter, and the republicans may be distracted by efforts to reform the congressionally chartered mortgage giants Fannie Mae and Freddie Mac.

And some of the new regulations will simply not go away by themselves.

Banks will have to adhere to higher capital of some kind – the same goes for liquidity requirements – and the banks’ cost of deposit insurance and regulatory compliance are sure to increase significantly, regardless of what the GOP may accomplish.

“Every page of the law has something that impacts the bottom line,” banking lawyer Thomas Vartanian points out.

(The law is 848 pages long!)

Terry Haines points out that  the  regulators charged with writing regulations under the act will be scrutinized by the House Appropriations Committee as well as the Financial Services Committee.

“The Appropriations committee could limit the funding of controversial regulatory initiatives under Dodd-Frank, or even defund them entirely,” Haines says .

Perhaps. But the republicans could also easily be “Stewartized” into submission (mocked by the Daily Show’s John Stewart). And the general public is still quite upset over the fact that the hot-shots responsible for wrecking the economy still have their jobs and their bonuses, while about 8.5 million American workers lost theirs.

Something is going to hit the banking industry – whatever it will be…

“The people who took a political gamble on the sector in December most likely are traders who will take their money and run at the first sign of wavering by the House GOP,” Forbes writes.

If that’s the truth – the sector is set up for a classic pump and dump scheme.

Bank and life insurer stocks should see the biggest gains in 2011, according to a team of Morgan Stanley analysts. The team says its call is based on low valuations in the sectors, as well as increasing clarity about regulation that has weighed on the shares. An improving economy and the company’s increased capital deployment should drive return on equity.

Property and casualty insurers should also get a boost late in the underwriting cycle.

Morgan Stanley says its favorite names are Bank of America, Comerica and TD, for large cap, mid cap, and Canadian  banks, respectively.

In insurance, Prudential is the team’s pick for life insurers, with Axis Capital as a standout in P&C.

“Bank dividends and M&A activity signal the economy is transitioning from recovery to expansion,” says Philip Dow, director of equity strategy at RBC Wealth Management in a market comment at Bloomberg.com.

“Companies are sitting on tons of cash. Corporate earnings are coming in very strong. I see a gain of 10 percent to 15 percent for stocks in 2011.”

That’s right! Pump, baby. Pump!

 

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Insider Trading Probe Looking at 100s of Potential Targets

In Financial Markets, Law & Regulations, National Economic Politics, Technology on 13.01.11 at 16:21

According to FOXBusiness, we have barely seen the tip of a massive iceberg when it comes to the on-going insider trading investigation by the U.S. attorney in Manhattan and at the SEC. Some people on Wall Street are quite nervous right now.

“There is a possibility of 300 potential targets. What we are talking about is possibly the largest white collar criminal case ever.”

FOX Business News


Sources close to the investigation are talking about hundreds of potential targets involved in this probe, FOX reports. One of its sources says “There is a possibility of 300 potential targets. What we are talking about is possibly the largest white collar criminal case ever.”


This has a lot of people on Wall Street nervous, no doubt. And some are already lawyering up.

One big question is who the ultimate targets are.

The employees who were suborned into providing nonpublic information are not the prosecutorial prizes in all of this.

“They (prosecutors) have not gone after the hedge funds yet. That is clearly the next shoe to drop,” FOX Business News notes.

Many would perhaps agree.

It seems, however, that SAC Capital, led by Steven Cohen, is one potential big fish, but there are most likely others.

It’s unclear how arrests and charges against hedge fund execs will unfold. Could it be that prosecutors are waiting to see how the trial of Raj Rajaratnam plays out? He is scheduled to stand trial Feb. 28.

A lot is riding on it.

FOX Business News reports:

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EU To Increase Bailout Fund, Brussels Demands More Austerity

In Financial Markets, Health and Environment, International Econnomic Politics, Law & Regulations, National Economic Politics, Quantitative Finance, Views, commentaries and opinions on 13.01.11 at 02:13

EU economics and monetary affairs commissioner Olli Rehn calls for a substantial increase of the European bailout fund ahead of the meeting between European finance ministers next week. Mr. Rehn also issue a stark warning about all the deficit-slashing austerity measures that European states have so far imposed – it is not enough.

“There is insufficient ambition and a lack of urgency in implementation. That needs to change.”

Olli Rehn


Well, there is one thing the EU leaders absolutely not is lacking, and that is ambitions.  The economics and monetary  commissioner is asking for Europe to embrace structural reforms to bring an end to the debt crisis – by the end of this year.

“We need to review all options for the size and scope of our financial backstops – not only for the current ones but also for the permanent European stability mechanism too,” EU economics and monetary affairs commissioner Olli Rehn writes in an article in the Financial Times Wednesday.

“There is insufficient ambition and a lack of urgency in implementation. That needs to change,” he writes.

The commissioner, who calls for Europe to embrace structural reforms to bring an end to the debt crisis this year, wants to see changes to tax and benefit systems, reform of labor markets and pension provision, a loosening of business regulation and more investment in innovation.

“This calls for a comprehensive response by the whole EU and for bold fiscal and structural measures in all member states.”

He issued the call ahead of the unveiling of the European Commission‘s first annual growth survey, essentially a template with spending recommendations for EU member states, published as part of an effort to bring European-level coherence to national budgetary plans.

The EU member states are already considering an increase in the effective lending capacity of European Financial Stability Facility (EFSF).

While the EFSF kitty amounts to €440 billion, as more countries become borrowers from rather than guarantors of the fund, the actual capacity of the fund currently sits at roughly €250 billion.

Some governments favor a hike in the effective lending capacity to the full €440 billion, while others are looking to a doubling of the fund.

Member states are considering expanding the role of the EFSF to permit the common purchase of government bonds, an exercise which is currently the competence of the European Central Bank.

According to EU sources, any decision on the matter hinges on the result of government bond auctions this week, particularly Portugal’s trip to the market, EUobserver.com reports.

Mr Rehn told reporters Wednesday that “rigorous” cuts and “structural reforms” were necessary for Europe to emerge from its ongoing debt crisis and return to growth.

“Without major changes in the way the European economy functions, Europe will stagnate and be condemned to a viscous circle of high unemployment, high debt and low growth,” he said.

Adding the following warning: “Without intensified fiscal consolidation across member states, we are at mercy of market forces.”

(Now, that’s also an interesting perspective!)

The commission says that “bold” and “resolute policies” are needed to turn around weak projected growth of around 1.5 percent for the EU over the next ten years and 1.25 percent for the euro zone.

Brussels wants to see further cuts to budgets in 2012 on welfare reform – including more conditionality attached to benefits, and a raising of the “premature” retirement ages.

Labor markets should also be made more flexible and “strict and sustained wage moderation” should be maintained.

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