Tag: finance

The Obamacare enrollment portal is the gift that keeps on giving endless examples of government incompetence. The latest comes from Bloomberg which informs us that “there’s no way to tell how many people who think they’ve signed up for health insurance through the U.S. exchange actually have, after about 1 in 4 enrollments sent to insurers from the federal website had garbled included incomplete information.” Still that particular glitch was not enough to prevent Obama from taking full credit for a “fixed” website after somehow the White House managed to calculate that sign ups soared to 100,000 people, and have taken off since the “fix.”

More:

[T]he acknowledgment suggests consumers need to be vigilant about their health plan purchases. Letters from insurers confirming coverage can take a week or more, and the Obama administration now says people should call their companies if they aren’t contacted within that time.

 

With repairs to the front end of healthcare.gov leading to a spurt of 29,000 new enrollments in the first two days of December, U.S. officials are now focusing on what happens after customers select a plan on the website. Enrollment isn’t complete until consumers make their first payment, which is due Dec. 31 for insurance coverage that will begin on Jan. 1.

 

“It’s time for people to move toward locking in coverage and paying for it,” said Joel Ario, a consultant with Manatt Health Solutions, in a telephone interview. Insurers will face “a tall challenge” trying to resolve enrollment errors as the time shortens before coverage begins Jan. 1, he said.

 

The Centers For Medicaid & Medicare Services, which runs the federal health website, doesn’t have “precise numbers” on how many of the enrollment forms called 834s have been sent to insurers or how many have errors, Julie Bataille, an agency spokeswoman, said during a Dec. 6 conference call.

One aspect where Obamacare is working, is where the government decided to bypass the healthcare.gov 500 million lines of code monstrocity entirely and allow consumers to enroll directly with state insurance companies.

A project the government began two weeks ago with 16
insurance companies in three states — Texas, Florida and Ohio –
– to allow them to enroll people directly into health plans,
bypassing healthcare.gov, has improved the working relationship
among the government’s technicians and those at the companies,
said a person familiar with the work who asked not to be
identified because the information is private. The new
cooperation has helped to resolve issues with the data
transfers, the person said.

Alas, the bulk of the enrollment problems remain when using the central portal:

“In general our 834 files have been pretty good,” said Kathleen Oestreich, CEO of Meritus, a Tempe, Arizona, startup insurer funded by government loans. The company has seen only one “orphan” member, she said — a person who called and said they hadn’t received an enrollment notice even though they had picked Meritus as their insurer.

 

More troubling are “ghosts” — people whose files never reach their insurers, Robert Laszewski, an insurance industry consultant, said. It’s unclear how many people may fall into that category or how companies will identify or reach them.

 

“If they enroll 500,000 people and 25,000 of them walk into the doctor’s office and nobody knows who they are, that’s a problem,” he said in a phone interview.

It is indeed. And it is just the start, because while the enrollment process of Obamacare will (one hopes) eventually be fixed, that will merely unleash all new, and far more disturbing problemsn. Such as the deductible sticker shock that is about to be unleashed upon Americans in need of medical aid, especially those who choose the cheaper “bronze” plan. The WSJ reports:

As enrollment picks up on the HealthCare.gov website, many people with modest incomes are encountering a troubling element of the federal health law: deductibles so steep they may not be able to afford the portion of medical expenses that insurance doesn’t cover. The average individual deductible for what is called a bronze plan on the exchange—the lowest-priced coverage—is $5,081 a year, according to a new report on insurance offerings in 34 of the 36 states that rely on the federally run online marketplace.

 

That is 42% higher than the average deductible of $3,589 for an individually purchased plan in 2013 before much of the federal law took effect, according to HealthPocket Inc., a company that compares health-insurance plans for consumers. A deductible is the annual amount people must spend on health care before their insurer starts making payments.

 

The health law makes tax credits available to help cover insurance premiums for people with annual income up to four times the poverty level, or $45,960 for an individual. In addition, “cost-sharing” subsidies to help pay deductibles are available to people who earn up to 2.5 times the poverty level, or about $28,725 for an individual, in the exchange’s silver policies. As enrollment picks up on HealthCare.gov, many people with modest incomes are encountering a troubling element: deductibles so steep they may not be able to afford the portion of medical expenses that insurance doesn’t cover. 

 

But those limits will leave hundreds of thousands or more people with a difficult trade-off: They can pay significantly higher premiums for the exchange’s silver, gold and platinum policies, which have lower deductibles, or gamble they won’t need much health care and choose a cheaper bronze plan. Moreover, the cost-sharing subsidies for deductibles don’t apply to the bronze policies.

 

That means some sick or injured people may avoid treatment so they don’t rack up high bills their insurance won’t cover, according to consumer activists, insurance brokers and public-policy analysts—subverting one of the health law’s goals, which is to ensure more people receive needed health care. Hospitals, meantime, are bracing for a rise in unpaid bills from bronze-plan policyholders, said industry officials and public-policy analysts.

Ah: central planning, also known in the now-defunct USSR as the where “whatever can go wrong, will.” As Obama (and soon the Fed) are learning first hand…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/F0qPqBbv3MM/story01.htm Tyler Durden

The Obamacare enrollment portal is the gift that keeps on giving endless examples of government incompetence. The latest comes from Bloomberg which informs us that “there’s no way to tell how many people who think they’ve signed up for health insurance through the U.S. exchange actually have, after about 1 in 4 enrollments sent to insurers from the federal website had garbled included incomplete information.” Still that particular glitch was not enough to prevent Obama from taking full credit for a “fixed” website after somehow the White House managed to calculate that sign ups soared to 100,000 people, and have taken off since the “fix.”

More:

[T]he acknowledgment suggests consumers need to be vigilant about their health plan purchases. Letters from insurers confirming coverage can take a week or more, and the Obama administration now says people should call their companies if they aren’t contacted within that time.

 

With repairs to the front end of healthcare.gov leading to a spurt of 29,000 new enrollments in the first two days of December, U.S. officials are now focusing on what happens after customers select a plan on the website. Enrollment isn’t complete until consumers make their first payment, which is due Dec. 31 for insurance coverage that will begin on Jan. 1.

 

“It’s time for people to move toward locking in coverage and paying for it,” said Joel Ario, a consultant with Manatt Health Solutions, in a telephone interview. Insurers will face “a tall challenge” trying to resolve enrollment errors as the time shortens before coverage begins Jan. 1, he said.

 

The Centers For Medicaid & Medicare Services, which runs the federal health website, doesn’t have “precise numbers” on how many of the enrollment forms called 834s have been sent to insurers or how many have errors, Julie Bataille, an agency spokeswoman, said during a Dec. 6 conference call.

One aspect where Obamacare is working, is where the government decided to bypass the healthcare.gov 500 million lines of code monstrocity entirely and allow consumers to enroll directly with state insurance companies.

A project the government began two weeks ago with 16
insurance companies in three states — Texas, Florida and Ohio –
– to allow them to enroll people directly into health plans,
bypassing healthcare.gov, has improved the working relationship
among the government’s technicians and those at the companies,
said a person familiar with the work who asked not to be
identified because the information is private. The new
cooperation has helped to resolve issues with the data
transfers, the person said.

Alas, the bulk of the enrollment problems remain when using the central portal:

“In general our 834 files have been pretty good,” said Kathleen Oestreich, CEO of Meritus, a Tempe, Arizona, startup insurer funded by government loans. The company has seen only one “orphan” member, she said — a person who called and said they hadn’t received an enrollment notice even though they had picked Meritus as their insurer.

 

More troubling are “ghosts” — people whose files never reach their insurers, Robert Laszewski, an insurance industry consultant, said. It’s unclear how many people may fall into that category or how companies will identify or reach them.

 

“If they enroll 500,000 people and 25,000 of them walk into the doctor’s office and nobody knows who they are, that’s a problem,” he said in a phone interview.

It is indeed. And it is just the start, because while the enrollment process of Obamacare will (one hopes) eventually be fixed, that will merely unleash all new, and far more disturbing problemsn. Such as the deductible sticker shock that is about to be unleashed upon Americans in need of medical aid, especially those who choose the cheaper “bronze” plan. The WSJ reports:

As enrollment picks up on the HealthCare.gov website, many people with modest incomes are encountering a troubling element of the federal health law: deductibles so steep they may not be able to afford the portion of medical expenses that insurance doesn’t cover. The average individual deductible for what is called a bronze plan on the exchange—the lowest-priced coverage—is $5,081 a year, according to a new report on insurance offerings in 34 of the 36 states that rely on the federally run online marketplace.

 

That is 42% higher than the average deductible of $3,589 for an individually purchased plan in 2013 before much of the federal law took effect, according to HealthPocket Inc., a company that compares health-insurance plans for consumers. A deductible is the annual amount people must spend on health care before their insurer starts making payments.

 

The health law makes tax credits available to help cover insurance premiums for people with annual income up to four times the poverty level, or $45,960 for an individual. In addition, “cost-sharing” subsidies to help pay deductibles are available to people who earn up to 2.5 times the poverty level, or about $28,725 for an individual, in the exchange’s silver policies. As enrollment picks up on HealthCare.gov, many people with modest incomes are encountering a troubling element: deductibles so steep they may not be able to afford the portion of medical expenses that insurance doesn’t cover. 

 

But those limits will leave hundreds of thousands or more people with a difficult trade-off: They can pay significantly higher premiums for the exchange’s silver, gold and platinum policies, which have lower deductibles, or gamble they won’t need much health care and choose a cheaper bronze plan. Moreover, the cost-sharing subsidies for deductibles don’t apply to the bronze policies.

 

That means some sick or injured people may avoid treatment so they don’t rack up high bills their insurance won’t cover, according to consumer activists, insurance brokers and public-policy analysts—subverting one of the health law’s goals, which is to ensure more people receive needed health care. Hospitals, meantime, are bracing for a rise in unpaid bills from bronze-plan policyholders, said industry officials and public-policy analysts.

Ah: central planning, also known in the now-defunct USSR as the where “whatever can go wrong, will.” As Obama (and soon the Fed) are learning first hand…

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/F0qPqBbv3MM/story01.htm Tyler Durden

As the country’s leaders search the world for funding, and in spite of the seemingly acquiescent removal of barriers from the government buildings by the police, the situation in Ukraine appears to growing more out of control:

• *UKRAINE’S TOP PROSECUTOR SAYS PROTESTS VIOLATE LAW
• *PROTESTS ENTAIL ‘SEVERE CRIMINAL RESPONSIBILITY:’ PROSECUTOR
• ARMED MASKED MEN SEIZE KIEV PARTY HEADQUARTERS OF JAILED OPPOSITION LEADER YULIA TYMOSHENKO-EYEWITNESS
• TYMOSHENKO PARTY SPOKESWOMAN SAYS RAIDERS TOOK COMPUTER SERVER, BLAMES POLICE; POLICE DENY INVOLVEMENT

As we warned previously, the nation’s funding situation remains “precarious” and headlines will crow of consiliatory discussions, this action appears to be anything but – as perhaps the Ukrainian elite fear the same kind of “success” that the people’s coup in Thailand appears to be having. Ukraine’s CDS has reached its highest in 4 years.

 

 

 

Live streaming video by Ustream

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/22kRiuc4kBE/story01.htm Tyler Durden

No tsunami or earthquake but Entergy's Arkansas nuclear facility is offline…

• *ENTERGY: ARKANSAS NUCLEAR ONE OFFLINE AFTER TRANSFORMER FIRE
• *ENTERGY SAYS UNIT 2 OFFLINE, UNIT 1 REMAINS ONLINE

Reassuringly, Entergy explains there was "no damage to the actual nuclear reactor," for now.

 

Via ArkansasOnline,

Authorities are responding to a fire that was reported Monday morning at an Entergy auxiliary transformer at Arkansas Nuclear One Unit Two in Russellville, company spokesman Mike Bowling said.

 

The blaze started about 7:50 a.m. after there was a "fault in the transformer that resulted in the fire," Bowling said.

 

The facility's Unit Two is offline, but Unit One is still online, Bowling said. No injuries have been reported, and the fire has been contained.

 

The auxiliary transformer is an electrical device that transfers energy and is not a nuclear portion of the plant, Bowling said.

 

The London Fire Department and Entergy's onsite responders are working the scene.

 

Arkansas Department of Emergency Management spokesman Tommy Jackson said that the fire was not extinguished within the 15 minutes of detection.

 

"The auxiliary transformer exploded in Unit Two, and there was fire within the protected area," he said.

 

Gov. Mike Beebe said after a speech Monday at the Arkansas Electric Cooperatives Directors' Winter Conference in Little Rock that he had been briefed on the fire and that there was "no damage to the actual nuclear reactor."

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qXN1SzXMHvY/story01.htm Tyler Durden

First, delayed Bill auctions due to “technical glitches”… Now the first POMO of the day delayed by 15 minutes. Is Central Planning proving to be a touch problematic, or is this merely a slight disturbance in the farce?

The good news is that if the Fed screws it up with POMO #1, there is always POMO #2 at 1 pm.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sh-CFkjqWYE/story01.htm Tyler Durden

Today’s AM fix was USD 1,228.50, EUR 895.60 and GBP 749.95 per ounce.
Friday’s AM fix was USD 1,230.75, EUR 900.59 and GBP 752.38 per ounce.

Gold rose $4.56 or 0.4% Friday, closing at $1,229.06/oz. Silver climbed $0.11 or 0.6% closing at $19.44/oz. Platinum fell $3.25, or 0.2%, to $1,354.74/oz and palladium dropped $0.64 or 0.1%, to $731.50/oz. Gold and silver were down 1.7% and 2.6% for the week respectively.

Gold in U.S. Dollars, 5 Day – (Bloomberg)

Gold was flat on Monday after volatile trading last week led to slight losses. Very tentative signs of improving U.S. economic growth kept prices in the red as technical and momentum traders remain negative on gold.

On Friday, gold closed with a decline of nearly 2% for the week, as traders had to wade through a week of mostly upbeat economic numbers, including a stronger-than-expected U.S. jobs report for November on Friday. Short-covering by traders and physical demand offered some support.

More speculative market participants and traders continue to fret over whether the United States will begin tapering its $20 billion a week debt monetisation programme.  Also, stronger equities is attracting hot money flows from those seeking to make quick capital gains. This tends to end on tears as late comers to the party buy at record highs.

Chinese gold bullion  demand remains voracious and will likely pick up after the recent price falls and ahead of Chinese New Year. October saw China’s second highest month for gold imports ever, according to Hong Kong customs data.

China imported 148 tons in October, the second highest recorded level. The record was in March 2013 when China imported 224 tons. October marked China’s 26th consecutive month of being a substantial net gold importer.

These numbers are solely demand that is going through Hong Kong. There are also sizeable shipments directly to China from Australia, the UK, the U.S. and South Africa. There may also be exports from elsewhere in Africa that is not showing up in the data.

 

Meanwhile, the SPDR Gold Trust, the world’s largest gold exchange-traded fund, said its holdings fell 3 tonnes to 835.71 tonnes on Friday as gold continues to flow from west to east.

Another bullish contrarian indicator is the fact that hedge funds raised their bearish bets in U.S. gold futures and options close to a 7 and a 1/2 year high in the week to December 3, data from the Commodity Futures Trading Commission (CFTC) showed Friday. Speculators turned silver into a net short position for the first time since late June. 

Managed Money Long Golf Bets At Lowest Since July 2012 – Bloomberg Industries

What Are Bail-Ins?
A bail-in is when regulators or governments have statutory powers to restructure the liabilities of a distressed financial institution and impose losses on both bondholders & depositors.

Simply stated, a bank bail-in is an attempt to resolve and restructure a bank as a going concern, by creating additional bank capital (recapitalisation) via forced conversion of the bank’s creditors’ claims (potentially bonds and deposits) into newly created share capital (common shares of the bank).

The bail-in is undertaken by a regulatory authority that is vested with powers to execute a previously agreed bailin  plan in a very short space of time, possibly over a weekend, so as to keep the bank functioning, and to preserve financial stability as far as possible.

To understand what the bail-in concept of a troubled bank is, it is important to understand what a bank balance sheet is, and what the balance sheet consists of. Simply put, a bank’s balance sheet consists of sources of financing and uses of this financing. At a high level, the sources are shareholders’ equity (shares) and the bank’s liabilities, which consist of lending to the bank by bondholders (bonds) and lending to the bank by depositors (deposits).

The shareholders are the bank’s owners, while the bondholders and depositors are the bank’s creditors. These components constitute the bank’s capital, and in total are known as its capital structure. The bank then lends out and invests its liabilities and refers to them as assets.

Previously, during bank bail-outs, when a bank was failing and the government stepped in, the losses were absorbed by the sovereign states and the risk was transferred to the taxpayer. In a bail-in, during the resolution of the problematic bank, the risk is pushed back to the bank’s shareholders and creditors.

In a bank’s capital structure, the various sources of financing exist in a hierarchy of claims. This is both a hierarchy for repayment when the bank is a going concern, and also in liquidation. Debt resides at the top of the hierarchy for repayment, since bondholders get repaid ahead of equity holders. In a liquidation, the company’s assets are sold and proceeds are paid to senior creditors, subordinated creditors, and then shareholders, in that specific order. If senior creditors take a hit, subordinated creditors get nothing, nor do shareholders, who get wiped out. If subordinated creditors take a hit, shareholders are wiped out.

There is normally a stratum of seniority within debt holders, for example, from top to bottom, running from super senior debt, to senior debt, to subordinated debt, then to junior debt. Senior debt can include secured and unsecured bonds, depositors, and in some cases wholesale money market borrowing. Secured bonds are ‘backed’ by specific assets or collateral and rank higher in the repayment hierarchy than unsecured bonds. Below debt in the hierarchy sits equity, such as preferred equity, and at the bottom, common equity (shares).

In a direct bail-in regime, as proposed by the Financial Stability Board and associated monetary authorities, there is also a hierarchy of first to be bailed-in (converted to bank shares), but it differs from the liquidation creditor hierarchy since in a bail-in, shareholders do not get wiped out, they get diluted. The more the bank’s assets are impaired, the more categories of bank liabilities get converted to shares.

This impacts the shareholders since their shareholdings become diluted as entities who were previously creditors become shareholders. So a bail-in differs from a liquidation in that although creditors take a loss, existing shareholders survive but own less of the overall share capital.

In Cyprus, bondholders (including senior bond holders) and depositors over €100,000 were bailed-in. Their money was seized, and in return they were given shares in the problematic banks, thereby becoming shareholders of these struggling banks.

Usually, only bonds with a conversion option, called convertible bonds, ever have the potential for getting converted into equity. However, there is another class of convertible bonds called contingent convertible bonds that can be converted into equity depending on particular outcomes or scenarios.

Given that the bail-in regime can force bondholders and depositors to be converted into shareholders, a new thinking is evolvi
ng in which unsecured bonds and bank deposits should now be viewed as contingent capital.

This is really the crux of the Cyprus template as proposed by international monetary authorities , i.e. that depositors internationally now have to think of their uninsured deposits as liable to potentially being confiscated and transformed into bank shares.

Bank depositors have traditionally viewed their bank deposits as 100% secure, with an inalienable right to have their deposits returned in full. However, this has never been the case in legal terms. A bank depositor is just an unsecured creditor of the bank.

In other words, the depositor is a lender who has loaned their deposit to the bank. If the bank became insolvent, depositors would have to line up with the other creditors in the hierarchy of claims and wait to see if their money was returned.

In light of the above hierarchy and the essential unsecured creditor nature of bank deposits, it’s useful to look at some formal definitions of bail-ins as applied to Systematically Important Financial Institutions (SIFIs).

A 2012 IMF Staff Paper defined a bail-in as:

A statutory power to restructure the liabilities of a distressed SIFI by converting and/or writing down unsecured debt on a “going concern basis.” In bail-in, the concerned SIFI remains open and its existence as an on-going legal entity is maintained. The idea is to eliminate insolvency risk by restoring a distressed financial institution to viability through the restructuring of its liabilities and without having to inject public funds….The aim is to have a private-sector solution as an alternative to government-funded rescues of SIFIs.

The Systematically Important Financial Institution concept is similar to the Too Big To Fail (TBTF) doctrine which was used to bail-out a number of large international banks during the financial crisis in 2008. The ‘TBTF’ concept maintains that when a financial institution is so big and interconnected into an economy that if it failed it would be disastrous to that economy, then it has to be supported by the relevant government or authority.

In October 2012, in a speech to the International Association of Depositor Insurers (IADI) annual conference, Paul Tucker, a deputy governor of the Bank of England, explained the central bank view on bail-ins:

“The central principle running through this whole endeavour is that after equity is exhausted, losses should fall next on uninsured debt holders, in the order they would take losses in a standard bankruptcy or liquidation process. Although all resolution strategies have that effect, it is the particular focus of what has come to be called ‘bail-in’. I should perhaps say that bail-in isn’t about identifying a special type of bond that can be written down or converted. ‘Bail-in’ is a verb not a noun. It’s about giving the authorities the tools, the powers, to affect a restructuring of the capital and liabilities of a bank that isn’t toxic all the way through.”

For large institutions, there are two main approaches to a bail-in, the first being ‘single point of entry resolution’ where the bail-in occurs in the holding company at the top of the group, and the second being ‘multiple point of entry resolution’ where, given that a banking group may be operating across lots of regions

Who Is Driving The Bail-In Regime?
It is revealing to examine the genesis and evolution of the centrally planned bail-in regime as discussed by central banks and international policymakers, since it highlights that the planning and preparation for a global bank “Bail-In Regime” has been on-going internationally at a high level for a number of years now, primarily under the auspices of the Financial Stability Board (FSB).

The Financial Stability Board emerged from the Financial Stability Forum (FSF), which was a group of finance ministries, central bankers and international financial bodies, founded in 1999 after discussions among Finance Ministers and Central Bank Governors of the G7 countries. The FSF facilitated discussion and co-operation on supervision and surveillance of financial institutions, transactions and events. The FSF was managed by a small secretariat housed at the Bank for International Settlements in Basel, Switzerland.

The FSB was officially founded at a Group of Twenty Finance Ministers and Central Bankers (G20) meeting in London in April 2009. The FSB coordinates national and supra-national regulatory and supervisory bodies on financial sector stability.

The FSB’s first chairman was Mario Draghi, current President of the European Central Bank, while its current chairman is Mark Carney, Governor of the Bank of England.

FSB members now include monetary authorities and security market regulators from the US, the UK, Canada, Australia, France, Italy, the Netherlands, Germany, Switzerland, Japan, Hong Kong, Singapore, Brazil, Russia, India, China and South Africa, as well as the European Commission, IMF, OECD, World Bank, and the Bank for International Settlements (BIS).

The Key Attributes Of A Bail-In Regime
In October 2011, the Financial Stability Board (FSB) published a seminal report on the bail-in regime titled “Key Attributes of Effective Resolution Regimes for Financial Institutions”. 8

This report set out a high-level framework for responding to and resolving failures at banks and other financial institutions, and was officially endorsed by the G20 at a summit in Cannes in November 2011 “as the international standard for resolution regime”.

The intent is to “allow authorities to resolve financial institutions in an orderly manner without taxpayer exposure to loss from solvency support, while maintaining continuity of their vital economic functions”. Essentially this means addressing the funding of firms in resolution, as well as recovery and resolution planning.

The Key Attributes include a number of noteworthy pronouncements on an effective resolution regime such as:
• Allocating losses to firm owners (shareholders) and unsecured and uninsured creditors in a manner that respects the hierarchy of claims.
• Not relying on public solvency support and not creating an expectation that such support will be available.
• Where covered by schemes and arrangements, protecting depositors that are covered by such schemes and arrangements, and ensuring the rapid return of segregated client assets.

The inclusion of Financial Market Infrastructures means that large parts of the global financial system is susceptible to bail-in and could potentially be bailed-in.

The scope of this planned bail-in regime for participating countries is not just limited to large domestic banks. In addition to these “systemically significant or critical” financial institutions, the scope also applies to two further categories of institutions, a) Global SIFIs, in other words, cross-border banks which happen to be incorporated domestically in a country that is implementing the bail-in regime, and b) ”Financial Market Infrastructures (FMIs)”, such as clearing houses.

The inclusion of Financial Market Infrastructures in potential bail-ins is in itself a major departure.

The FSB defines these market infrastructures to include multilateral securities and derivatives clearing and settlement systems, and a whole host of exchange and transaction systems, such as payment systems, central securities depositories, and trade depositories. This would mean that an unsecured creditor claim to, for example, a clearing house institution, or to a stock exchange, could in theory be affected if such an institution needed to be bailed-in.

As Paul Tucker phrased it at the IADI conference: “resolution isn’t just about banks, and so we are planning to elaborate on how the Key Attrib
utes should be applied to, for example, central counterparties, insurers, and the client assets held by prime brokers, custodians and others.”

The inclusion of Financial Market Infrastructures means that large parts of the global financial system is susceptible to bail-in and could potentially be bailed-in

According to the FSB report, the implementation of the bail-ins should be undertaken by a resolution authority in each country with statutory resolution powers to enforce bail-ins.

These powers would include powers to:

• Override rights of shareholders of the firm in resolution.
• Transfer or sell assets and liabilities, legal rights and obligations, including deposit liabilities and ownership in shares to a solvent third party.
• Carry out bail-in within resolution.
• Impose a moratorium with a suspension of payments to unsecured creditors.
• Effect the closure and orderly wind down (liquidation) of the whole or part of a failing firm with timely payout or transfer of insured deposits.

Following on from the release of the FSB Key Attributes report in 2011, it became apparent that national monetary authorities and regulators had been actively working for some time on national bail-in preparedness and their own versions of the Key Attributes.

Download our Bail-In Guide: Protecting your Savings In The Coming Bail-In Era(11 pages)

Download our Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications –
Including 60 Safest Banks In The World List  (51 pages) 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/RfGhrbLIJ5g/story01.htm GoldCore

Back in February, Fed governor Jeremy Stein warned of overheating (read: bubble conditions) in credit markets. Nobody cared. A few months later, while observing among other things the ongoing credit bubble, none other than the central banks’ central bank said the “central banks must head for the exit and stop trying to spur a global economic recovery” and that the “monetary kool-aid party is over.” It wasn’t, and naturally nobody cared either – as we would find out a few months later the party would go on as it turned out banks have no other choice but to keep the kool-aid flowing. Then over the weekend, just in case, the BIS tried once again, this time “sounding the alarm over record sales of PIK Junk Bonds” combining what it said previously together with Jeremy Stein’s warnings (of course, nobody would care this time either).

Bloomberg summarized the BIS report (linked) as follows:

Record sales of high-yield payment-in-kind bonds are triggering uneasiness among international regulators concerned that investors may suffer losses when central banks tighten monetary policy.

 

Issuance of the notes, which give borrowers the option to repay interest with more debt, more than doubled this year to $16.5 billion from $6.5 billion in 2012, according to data compiled by Bloomberg. About 30 percent of issuers before the 2008 financial crisis have since defaulted, the Bank for International Settlements said in its quarterly review.

 

Companies are taking advantage of investor demand for riskier debt as central bank stimulus measures suppress interest rates and defaults approach historic lows. The average yield on junk-rated corporate bonds fell to a record 5.94 percent worldwide in May, Bank of America Merrill Lynch index data show, while global default rates dropped to 2.8 percent in October from 3.2 percent a year earlier, according to a Moody’s Investors Service report.

 

“Low interest rates on benchmark bonds have driven investors to search for yield by extending credit on progressively looser terms to firms in the riskier part of the spectrum,” according to the report from the Basel-based BIS. “This can facilitate refinancing and keep troubled borrowers afloat. Its sustainability will no doubt be tested by the eventual normalisation of the monetary policy stance.”

Warning, shmarning: the truth is that as long as the Fed continues pushing everyone into the riskiest assets (so essentially forever), the demand for High Yield, aka Junk Bonds will rise. Although technically, “High Yield” is no longer the appropriate name for the riskiest credit issuance since the average coupon has declined to where Investment Grade used to trade in the years before the New Normal. It is therefore only appropriate that as part and parcel of this record high yield bond issuance surge levering the riskiest companies to the gills with low interest debt, that there is also a scramble between underwriters to become as competitive as possible. And, sure enough, as Bloomberg Brief reports, “the underwriting fees disclosed to Bloomberg on U.S. junk bond deals average 1.276 percent for the year to date, the lowest since our records began. The prior low was set in 2008, when fees averaged 1.4 percent.” 2008… that was when the last credit bubble burst on unprecedented demand for junk bonds: we are confident the bubble apologists will find some other metric with which to convince everyone that reality, and the Fed’s Stein, have it all wrong.

In the meantime, this is what a real bubble, if not so much in underwriting fees, looks like.

And by underwriter:

Source: BloombergBriefs.com

Finally, as a courtesy reminder what happened the last time the credit bubble hit such epic proportions, here again is the BIS:

The trend towards riskier credit was fairly general. It spurred, for example, the market for payment-in-kind notes. …This rise occurred despite evidence of the riskiness of payment-inkind notes: Roughly one third of their pre-crisis issuers defaulted between 2008 and mid-2013.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/MZVu4vuYV60/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Inflating serial asset bubbles is no substitute for rising real incomes.

Why are we stuck with an economy that only generates serial credit/asset bubbles that crash with catastrophic consequences? The answer is actually fairly straightforward. Let's start with the ideal conditions for an economy that depends on consumer spending.

1. Rising real income, i.e. after adjusting for inflation/currency depreciation, wages/salaries have more purchasing power every year.

2. An expanding pool of new households, i.e. young people who move away from home or graduate from college, get a job and start their own household. New households buy homes, vehicles, furniture, appliances, kitchenware, tools, etc., driving consumption far more than established households.

Neither of these conditions apply to today's economy. Income for the bottom 90% has been stagnant for forty years, and has declined 7% in real terms since 2000.

This stagnation is not the "new normal": the new normal is much worse, as labor's share of the national income has fallen off a cliff:

Household formation has also stagnated. That spike circa 2004-07 was caused by the housing bubble, which created new jobs and collateral that could be leveraged into new home purchases.

Since 2008, the Federal Reserve has bought $3.2 trillion in mortgages and Treasury bonds, and the Federal government has borrowed and blown $7 trillion in deficit spending. That $10 trillion in stimulus (not counting $16 trillion in Fed loans to banks and trillions more in other loans/subsidies), household formation has only recovered to the sub-1 million a year level.

In an economy of 316 million people, that isn't enough to generate "growth" in a $16 trillion economy.

With these organic sources of growth moribund or declining, the Fed and Federal government have resorted to other ways of stimulating more borrowing and spending, the sources of leveraged, high-risk "growth":
1. Lower interest rates so stagnant income can leverage more debt (and thus more spending)

2. Generate asset bubbles in stocks and housing that boost "the wealth effect," i.e. the emotional sense of being wealthier as a result of one's assets rising sharply in value, and the collateral available to support more debt.

If a house rises by $100,000 in value in a few short years, the owner has $100,000 more collateral to support new debt. The gargantuan expansion of home equity lines of credit (HELOCs) as the housing bubble expanded was the goal of the status quo, as asset bubbles create collateral that supports new borrowing and spending.

Now that interest rates are near-zero and mortgage rates are rising from historic lows, there is no more juice to be squeezed from low rates.
As for asset bubbles, they always burst, destroying collateral and rendering borrowers and lenders alike insolvent.

Without organic demand from rising real income and new households with good-paying jobs and low levels of debt, the consumer-debt based economy stagnates.This has left the economy dependent on serial asset bubbles that create phantom collateral that can support new debt, albeit temporarily.

Inflating serial asset bubbles is no substitute for rising real incomes and new households that aren't burdened with high levels of debt from student loans.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uZfWAIqNIrw/story01.htm Tyler Durden

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Inflating serial asset bubbles is no substitute for rising real incomes.

Why are we stuck with an economy that only generates serial credit/asset bubbles that crash with catastrophic consequences? The answer is actually fairly straightforward. Let's start with the ideal conditions for an economy that depends on consumer spending.

1. Rising real income, i.e. after adjusting for inflation/currency depreciation, wages/salaries have more purchasing power every year.

2. An expanding pool of new households, i.e. young people who move away from home or graduate from college, get a job and start their own household. New households buy homes, vehicles, furniture, appliances, kitchenware, tools, etc., driving consumption far more than established households.

Neither of these conditions apply to today's economy. Income for the bottom 90% has been stagnant for forty years, and has declined 7% in real terms since 2000.

This stagnation is not the "new normal": the new normal is much worse, as labor's share of the national income has fallen off a cliff:

Household formation has also stagnated. That spike circa 2004-07 was caused by the housing bubble, which created new jobs and collateral that could be leveraged into new home purchases.

Since 2008, the Federal Reserve has bought $3.2 trillion in mortgages and Treasury bonds, and the Federal government has borrowed and blown $7 trillion in deficit spending. That $10 trillion in stimulus (not counting $16 trillion in Fed loans to banks and trillions more in other loans/subsidies), household formation has only recovered to the sub-1 million a year level.

In an economy of 316 million people, that isn't enough to generate "growth" in a $16 trillion economy.

With these organic sources of growth moribund or declining, the Fed and Federal government have resorted to other ways of stimulating more borrowing and spending, the sources of leveraged, high-risk "growth":
1. Lower interest rates so stagnant income can leverage more debt (and thus more spending)

2. Generate asset bubbles in stocks and housing that boost "the wealth effect," i.e. the emotional sense of being wealthier as a result of one's assets rising sharply in value, and the collateral available to support more debt.

If a house rises by $100,000 in value in a few short years, the owner has $100,000 more collateral to support new debt. The gargantuan expansion of home equity lines of credit (HELOCs) as the housing bubble expanded was the goal of the status quo, as asset bubbles create collateral that supports new borrowing and spending.

Now that interest rates are near-zero and mortgage rates are rising from historic lows, there is no more juice to be squeezed from low rates.
As for asset bubbles, they always burst, destroying collateral and rendering borrowers and lenders alike insolvent.

Without organic demand from rising real income and new households with good-paying jobs and low levels of debt, the consumer-debt based economy stagnates.This has left the economy dependent on serial asset bubbles that create phantom collateral that can support new debt, albeit temporarily.

Inflating serial asset bubbles is no substitute for rising real incomes and new households that aren't burdened with high levels of debt from student loans.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/uZfWAIqNIrw/story01.htm Tyler Durden