8 August 2011 - S&P Down 6.66%

So this is what having your sovereign debt rating downgraded from AAA status looks like:

S&P Downgrades US Credit Rating - aka GoodBye AAA

Full Report from S&P, available from S&P website as of 2011-08-06.

My emphasis added.

Research Update:

United States of America Long-Term Rating Lowered To 'AA+' On Political Risks And Rising Debt Burden; Outlook Negative

Overview

• We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.
• We have also removed both the short- and long-term ratings from CreditWatch negative.
• The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.
• More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
• Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.
• The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Rating Action

On Aug. 5, 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA'. The outlook on the long-term rating is negative. At the same time, Standard & Poor's affirmed its 'A-1+' short-term rating on the U.S. In addition, Standard & Poor's removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications.

The transfer and convertibility (T&C) assessment of the U.S.--our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service--remains 'AAA'.

Rationale

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see "Sovereign Government Rating Methodology and Assumptions," June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government's other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.

We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government's debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers (see Sovereign Government Rating Methodology and assumptions," June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government's ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population's demographics and other age-related spending drivers closer at hand (see "Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even
More Green, Now," June 21, 2011).

Standard & Poor's takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.'s finances on a sustainable footing.

The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

The act further provides that if Congress does not enact the committee's recommendations, cuts of $1.2 trillion will be implemented over the same time period. The reductions would mainly affect outlays for civilian discretionary spending, defense, and Medicare. We understand that this fall-back mechanism is designed to encourage Congress to embrace a more balanced mix of expenditure savings, as the committee might recommend.

We note that in a letter to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated total budgetary savings under the act to be at least $2.1 trillion over the next 10 years relative to its baseline assumptions. In updating our own fiscal projections, with certain
modifications outlined below, we have relied on the CBO's latest "Alternate Fiscal Scenario" of June 2011, updated to include the CBO assumptions contained in its Aug. 1 letter to Congress. In general, the CBO's "Alternate Fiscal Scenario" assumes a continuation of recent Congressional action overriding existing law.

We view the act's measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario--which we consider to be consistent with a 'AA+' long-term rating and a negative outlook--we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act's revised policy settings.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.

Our revised upside scenario--which, other things being equal, we view as consistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.

Our revised downside scenario--which, other things being equal, we view as being consistent with a possible further downgrade to a 'AA' long-term rating--features less-favorable macroeconomic assumptions, as outlined below and also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. This scenario also assumes somewhat higher nominal interest rates for U.S. Treasuries. We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.

Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward.

When comparing the U.S. to sovereigns with 'AAA' long-term ratings that we view as relevant peers--Canada, France, Germany, and the U.K.--we also observe, based on our base case scenarios for each, that the trajectory of the U.S.'s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP
ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

Standard & Poor's transfer T&C assessment of the U.S. remains 'AAA'. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers' access to foreign exchange needed to meet debt service. Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. consequently, we continue to view this risk as being highly remote.

Outlook

The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high
earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'.

On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.

Related Criteria And Research

• United States of America 'AAA/A-1+' Ratings Placed On CreditWatch Negative On Rising Risk Of Policy Stalemate, July 14, 2011
• U.S. Weekly Financial Notes: Soft Patch Or Quicksand?, Aug. 5, 2011
• Sovereign Government Rating Methodology And Assumptions, June 30, 2011
• 2011 Midyear Credit Outlook: Unresolved Economic And Regulatory Issues Loom Large, June 22, 2011
• Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now, June 21, 2011
• United States of America 'AAA/A-1+' Rating Affirmed; Outlook Revised To Negative, April 18, 2011
• Fiscal Challenges Weighing On The 'AAA' Sovereign Credit Rating On The Government Of The United States, April 18, 2011
• A Closer Look At The Revision Of The Outlook On The U.S. Government Rating, April 18, 2011
• Banking Industry Country Risk Assessments, March 8, 2011
• Behind The Political Brinkmanship Of Raising The U.S. Debt Ceiling, Jan. 18, 2011
• U.S. Government Cost To Resolve And Relaunch Fannie Mae And Freddie Mac Could Approach $700 Billion, Nov. 4, 2010
• Global Aging 2010: In The U.S., Going Gray Will Cost A Lot More Green, Oct. 25, 2010,
• Après Le Déluge, The U.S. Dollar Remains The Key International Currency," March 10, 2010
• Banking Industry Country Risk Assessment: United States of America, Feb.

Ratings List

Rating Lowered - Sovereign Credit Rating
To - AA+/Negative/A-1+
From - AAA/Watch Neg/A-1+

United States of America (Unsolicited Ratings)
Federal Reserve System (Unsolicited Ratings)
Federal Reserve Bank of New York (Unsolicited Ratings)

This unsolicited rating(s) was initiated by Standard & Poor's. It may be based solely on publicly available information and may or may not involve the participation of the issuer. Standard & Poor's has used information from sources believed to be reliable based on standards established in our Credit Ratings Information and Data Policy but does not guarantee the accuracy, adequacy, or completeness of any information used.

Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

Life After QE2 - August 4 2011

So this is what the S&P500 looks like in the month immediately subsequent to the end of QE2 (the second round of quantitative easing by the US Monetary Authorities), which was scheduled to complete on June 30 2011:



At the time of writing, the S&P500 has dropped from ~ 1338 on the close of July 1st 2011, to ~ 1221 on August 4th (1502 EDT), a swoon of just over 9% in a month.

Which definitely supports the idea that there is no real recovery, and that equity price increases (and inflation) are purely a monetary phenomenon, an idea that is again supported by the lack of associated improvement in employment.

The good news (especially if your are of the view that the Fed requires further commodity price decreases/deflation in order to justify further inflationary money printing) is that crude oil is also down, from ~ $100 per barrel to ~ $87 per barrel, a well overdue 13% down.



And, if anyone needs a further indicator of the seriousness of the situation, the Bank of New York Mellon has stated today that it is going to charge a negative interest rate on any large deposit where the account balance is 10% or greater than its June average balance.

Reuters:

If customers' balances are more than 10 percent above their averages in June, BNY Mellon said it will pass along some of its costs by charging the fee.
...
The charge amounts to an annual rate of 0.13 percentage point, with adjustments if one-month T-bill rates fall below zero. It will affect accounts whose average deposit is greater than $50 million.

The bank offered the following rationale:

The bank said this week it is unable to invest the "sudden significant" deposit increases because of their "transient nature," but it is concerned the deposits will weaken its capital ratios and raise its deposit insurance premiums.

Smells like something is fishy in Denmark. However, a 0.13% annual loss may be a much softer blow than the 4.1% per day loss the S&P500 is experiencing as of 1533 EDT:

Confessions of an Economic Hitman - John Perkins

Wikipedia: Confessions of an Economic Hit Man is a book written by John Perkins and published in 2004. It provides Perkins' account of his career with consulting firm Chas. T. Main in Boston.

John Perkins official site
Amazon Book Page

Selected Excerpts:

[Preface]

Economic hitmen are highly paid professionals who cheat countries around the globe out of trillions of dollars. The funnel money from the World Bank, the U.S Agency for International Development (USAID), and other foreign 'aid' organisations into the coffers of huge corportions and the pockets of a few wealthy families who control the planet's natural resources. Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization.

...

Some would blame our current problems on an organised conspiracy. I wish it were so simple. Members of a conspiracy can be rooted out an brought to justice. This system, however, is fuelled by something far more dangerous than conspiracy. It is driven not by a small band of men but by a concept that has become accepted as gospel: the idea that all econmic growth benefits humankind and that the greater the growth, the more widespread the benefits. This belief also has a corollary: that those people who succeed in stoking the fires of economic growth should be exalted and rewarded, while those born at the fringes are available for exploitation.

This concept is, of course, erroneous. We know that in many countries economic growth benefits only a small portion of the population and may in fact result in increasingly depserate circumstances for the majority. This effect is reinforced by the corollary belief that the captains of industry who drive this system should enjoy a special status, a belief that is the root of many of our current problems and is perhaps also the reason why the conspiracy theories abound. When men and women are rewarded for greed, greed becomes a corrupting motivator. When we equate the gluttonous consumption of the earth's resources with a status approaching sainthood, when we teach our children to emulate people who live unbalanced lives, and when we define huge sections of the population as subservient to an elite minority, we ask for trouble. And we get it.

In their drive to advance the global empire, corporations, banks, and governments (collectively the corporatocracy) use their financial and political muscle to ensure that our schools, businesses and media support both the fallacious concept and its corollary. They have brought us to a point where our global culture is a monstrous machine that requires exponentially incresing amounts of fuel and maintenance, so much so that in the end it will have consumed everything in sight, and will be left with no choice but to devour itself.

[Chapter 34]

... I remembered what the Shaurs had told me... "The world is as you dream it", they had said, and then pointed out that we in the North had dreamed of huge industries, lots of cars, and gigantic skyscrapers. Now we had discovered that our vision had in fact been a nightmare that would destroy us all.

"Change that dream", the Shuars had advised me.

...

The Prophecy of the Condor and the Eagle... states that back in the mists of history, human societies divided and took two different paths: that of the condor (representing the heart, intuitive and mystical) and that of the eagle (representing the brain, rational and material). In the 1490's, the the prophecy said, the two paths would converge, and the eagle would drive the condor to the verge of extinction. Then, five hundred years later, in the 1990's, a new epoch would begin, one in wich the condor and the eagle will have the opportunity to reunite and fly together in thes same sky, along the same path. If the condor and eagle accept this opportunity, they will create a most remarkable offspring, unlike any ever seen before.

[Epilogue]

Things are not as they appear. NBC is owned by General Electric, ABC by Disney, CBS by Viacom, and CNN is part of the huge AOL Time Warner conglomerate. Most of our newspapers, magazines and publishing houses are owned - and manipulated - by gigantic international corporations. Our media is part of the corporatocracy. The officers and directors who control nearly all of our communications outlets know their places; they are taught throughout life that one of their most important jobs is to perpetuate, strengthen and expand the system they have inherited. They are very efficient at doing so, and when opposed, they can be ruthless. So the burden falls on you to see the truth beneath the veneer and to expose it. Speak to your family and friends, spread the word.

I could give you a list of practical things to do. For instance, cut back on your oil comsumption. ... The next time your are tempted to go shopping, read a book instead, exercise, or meditate. Downsize your home, wardrobe, car, office, and most everything in your life. Protest against "free" trade agreements, and against companies that exploit people in sweatshops or that pillage the environment.

...

I could encourage you to take specific actions that will impact the institutions in your life...

A Simple Explanation of the Current US Debt Ponzi Scheme

US Congressman John Campbell explains the US Debt Ponzi scheme:

Treasury Bonds: I learned something last week. I learned that fully 40% of the over $9 trillion in Treasury debt currently outstanding to the public has a maturity of 3 years or less. Put another way, it means that we are rapidly approaching $4 trillion in U.S. debt that matures by 2014 or sooner. As I write this, the yield (interest rate paid) on a 2-year Treasury note is 0.645% or about 2/3 of one percent. The yield, at the same time, on a 10 year Treasury note is 3.4%, and on a 30 year is 4.55%. In bond parlance, this is called a "steep yield curve" where interest rates get much higher as you go farther out in time.

It's pretty clear why the Treasury is doing this. By issuing mostly short-term notes, the Treasury is paying less interest, thereby keeping interest costs and, consequently, the deficit down. In addition, the Federal Reserve is in the middle of its "quantitative easing #2" (QE2) under which it is buying $600 billion of our own Treasury debt over about a 6 month period. The Fed is not buying the short-term notes, but is buying 10 year maturities and longer in order to hold those rates down. And, since the Fed is earning the interest thereon (paid by the U.S. Treasury), it is improving its yield. We are currently running a deficit of about $130 billion per month, so the Fed is basically buying all of the new bond issuance from the deficit for almost 5 months.

What does this all mean? I understand that the Fed and the Treasury are trying to keep interest rates low and improve the economy and the deficit. But, when coupled with the huge deficits, these moves look a bit like a Ponzi scheme that will soon unravel.

We are printing money ($600 billion) to buy our own debt so that the full effects of the deficit are not felt. We are buying long-term bonds to artificially hold down the rates on those bonds since home mortgages and many other things are based on those rates. We are selling the short-term bonds at cheaper rates to hold down costs now, but are leaving ourselves open to huge cost increases when interest rates go up. And, we are at historic lows on these short-term bond rates. If they were to rise by 3 points (which would put them where they were at as recently as 2008), our deficit would increase by another $150 billion per year, even if the long-term rates stay the same. And, once the Fed ends QE2, even if it doesn't reverse it, the markets will then have to absorb a new influx of long-term bonds at a time when our ability to pay them is in question. The Fed can cure a bunch of this simply by printing a lot more money. That, however, will result in an inflationary period with major wealth destruction and economic malaise.

In the period between 2005-2007, we were sowing the seeds of the 2008 financial crisis through too much leverage in the private sector. But, very few people could see it coming. Today, we are sowing the seeds of another crisis with too much leverage in the public sector. This time, though, it's easy to see it coming.

Jeff Gundlach

BusinessInsider

Gundlach: "An investor is a trader who is underwater."

Bloomberg, 2010/10/05

BusinessInsider Interview 2011/02

Barrons Interview

PIMCO under Bill Gross Holds No US Treasuries

Bill Gross, who manages the world's largest mutual fund, the Total Return fund, at fixed income giant PIMCO, currently holds no US treasuries. It might be said that this is quite a statement.

2011/03/09
ZeroHedge:

Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its bond holdings to zero (and -14% on a Duration Weighted Exposure basis). The offset, not surprisingly, is cash. After sporting $28.6 billion in "government related" securities, TRF dropped to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total TRF holdings of $236.9 billion as of February 28). This is the most cash the flagship fund has ever held, and the lowest amount in Treasury holdings since January 2009 before it was made clear that the Fed was going to adjust QE1 to include Treasurys in addition to Mortgage Backed Securities. PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since.

Russian Ex-Goldman Algo Developer Imprisoned for IP Theft

NYTimes, 2011/03/02
Judge Unexpectedly Imprisons Ex-Goldman Programmer:

A federal judge has unexpectedly locked up the former Goldman Sachs programmer found guilty of stealing the investment bank’s computer code.

The Goldman executive, Sergey Aleynikov, had been on house arrest pending sentencing in a few weeks. But after the government warned he was a flight risk, Judge Denise L. Cote imprisoned Mr. Aleynikov, ruling that there was not “clear and convincing evidence” that he was not likely to flee the United States

He is set to be sentenced on March 18. The government is pushing for Mr. Aleynikov to serve between 8 and 10 years.

...


In December, a jury found Mr. Aleynikov guilty of stealing Goldman’s computer code for high-frequency trading when he left the bank to join a start-up in 2009. Prosecutors depicted Mr. Aleynikov, a Russian-born immigrant, as a brazen thief who uploaded thousands of lines of source code from the firm.

Mr. Marino, the lawyer for Mr. Aleynikov, called the government’s case “a silly prosecution” during the trial. He acknowledged that his client made a mistake in violating Goldman’s confidentiality policies, but insisted that he did not commit a federal crime.

-------------

NYTimes, 2009/07/07
The Man Accused of Stealing Goldman’s Code :

But over five days in early June, the authorities say, he stole proprietary, “black box” computer programs that Goldman uses to make lucrative, rapid-fire trades in the financial markets. Their value, experts say, could be incalculable.

Mr. Aleynikov, however, will not get a chance to use those secrets. He was arrested by federal agents on Friday evening, as he got off a plane at Newark Liberty International Airport. He has pleaded not guilty to charges of theft of trade secrets and transporting them abroad.

..

However, at a court appearance in Manhattan on July 4, Joseph Facciponti, the assistant United States attorney, told a federal judge that Mr. Aleynikov’s supposed theft posed a risk to United States financial markets and that other people may have had access to it, according to Bloomberg News.

“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Mr. Facciponti said in the court, according to Bloomberg. “The copy in Germany is still out there, and we at this time do not know who else has access to it.”

Court Transcript

--------------

2011-03-18
NJ.com

Aleynikov has been sentenced to 8 years for the theft. ZeroHedge relevantly notes that, apart from Bernie Madoff, this is the longest sentence to be handed down to any financial professional involved in the crisis.

In the words of Joe Saluzzi from Themis Trading:

"Don't cross the the Vampire Squid."

Wikipedia:  Vampyroteuthis infernalis, lit. "vampire squid from 'Hell'"

China Unambiguously Signals Intent to Abandon the Dollar

Reuters 2011/03/03
China aims to settle nationwide trade in yuan by 2011:

China hopes to allow all exporters and importers to settle their cross-border trades in the yuan by this year, the central bank said on Wednesday, as part of plans to grow the currency's international role.
In a statement on its website www.pbc.gov.cn, the central bank said it would respond to overseas demand for the yuan to be used as a reserve currency. It added it would also allow the yuan to flow back into China more easily.

IBTimes 2011/03/03
China to allow all trades to settle in yuan, encourages use as reserve currency:

Other moves on the part of China to internationalize its currency include allowing foreign companies to issue yuan-denominated bonds and relaxing rules for foreign financial institutions to access the yuan.

Is China Buying US-Treasuries via the UK ?

- Is China Secretly Buying US Treasuries via UK Accounts?
- United Kingdom Suddenly Owns Over $500 Billion of US Treasury Securities

NYTimes - Jan 2011\
Data Shows Less Buying of U.S. Debt by China:

It is not easy to see how the Chinese government managed to keep its currency from rising more rapidly against the dollar if it did not continue buying Treasuries in 2010, and there has been speculation that it shifted purchases to accounts managed by British money managers.

If so, such purchases would show up as British purchases. As it turns out, Britain is estimated to have been the largest purchaser of Treasuries over the 12-month period, adding $356 billion to its holdings. That made it by far the largest buyer, followed by Japan. The only other major seller during the period was Russia, according to the government estimates.

If China has been buying through money managers, it may be easier at some point for it to begin selling Treasuries through the British channel without others understanding where the selling pressure is coming from.

Fitch Indicates that US Debt Should Be Downgraded

iMarketNews.com
Wednesday, January 19, 2011 - 13:41
Fitch: US Fiscal Metrics To Be Worst Among 'AAA' Sovereigns
By Yali N'Diaye

WASHINGTON (MNI) - Fitch Ratings Wednesday said it believes "the U.S. fiscal metrics will be the worst of any 'AAA'-rated sovereign," due to the higher-than-expected deficits and debt levels expected following the extension of the Bush era tax cuts.

This despite the expected boost to U.S. GDP this year and in 2012.

And just like their peers at Standard & Poor's and Moody's, analysts at Fitch Ratings warned in their latest Credit Outlook that "the absence of a credible medium-term fiscal consolidation strategy is eroding confidence in the sustainability of public finances and commitment to low inflation, with potentially adverse implications for the U.S. sovereign credit standing."

Still, they note the "higher debt tolerance than for other 'AAA' and highly rated sovereigns" due to the "extraordinary fundamental credit strengths" of the U.S., the flexibility and dynamism of its economy and the status of the greenback as a global reserve currency.
...
This echoed Moody's analysis last week, saying that the U.S., the UK, France and Germany "still possess debt metrics, including debt affectability, that are compatible with their Aaa ratings."


Germany 1. USA -1.

--------------------

2011-02-03
S&P says no plans to cut U.S. rating in medium term:
Ratings agency Standard & Poor's does not have any plans to downgrade the U.S. sovereign debt rating, but it believes credit risk may increase in the long term, a senior official at the agency said on Thursday.

POMO - Permanent Open Market Operation

a POMO, is not a queer p, but a Permanent Open Market Operation, a P-OMO - a direct intervention in the market by the US monetary authority.

NY Fed: Permanent OMOs

The purchase or sale of Treasury securities on an outright basis adds or drains reserves available in the banking system. Such transactions are arranged on a routine basis to offset other changes in the Federal Reserve’s balance sheet in conjunction with efforts to maintain conditions in the market for reserves consistent with the federal funds target rate set by the Federal Open Market Committee (FOMC).

On March 18, 2009, the FOMC announced a longer-dated Treasury purchase program with a different operating goal, to help improve conditions in private credit markets.

On August 10, 2010, the FOMC directed the Open Market Trading Desk at the Federal Reserve Bank of New York to keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.

On November 3, 2010, the FOMC decided to expand the Federal Reserve's holdings of securities in the SOMA to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

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SecondMarket Site

WikiPedia:

SecondMarket (formerly Restricted Stock Partners) is an online marketplace for buying and selling illiquid assets, including auction‐rate securities, bankruptcy claims, limited partnership interests, private company stock, restricted securities in public companies, structured products, and whole loans.

SecondMarket's participants include global financial institutions, hedge funds, private equity firms, mutual funds, corporations and other institutional and accredited investors.

The website was created in 2004

Mono-Line Municipal Bond Insurer AMBAC to Declare Bankruptcy

Ambac Financial Group, a holding company for Ambac Assurance Co, itself an insurer of American municipal debt in the form of bonds, has petitioned for chapter 11 bankruptcy relief. This has occurred as a result of Ambac being unable to service its debt obligations, reported as $ 1.6 billion.

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NOV 8, 2010 6:37pm ET
Patrick McGee @ The Bond Buyer
Ambac Financial Group Files Chapter 11 Petition


Ambac Financial Group announced late Monday it filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.

The company, which held $1.6 billion of debt as of June 30, said it will “continue to operate in the ordinary course of business as 'debtor-in-possession’ under the jurisdiction of the Bankruptcy Court.”

...

Shares of the insurance holding company sunk by more than one-third in after-hours trading to $0.34. In normal hours, the company’s stock rose 3.75% to $0.52. The company’s stock, which peaked at $96.08 on May 18, 2007, fell below $1 for the first time in February 2009.

Ambac announced on Nov. 1 that it would skip paying a $5.9 million interest payment owed on its debt that day. The company said it was unable to raise fresh capital and would be forced to file for bankruptcy under Chapter 11 unless an agreement could be reached with its creditors on a prepackaged bankruptcy.

Those talks failed, according to a press release Monday.

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November 1, 2010, 3:47 PM EST
Colin Barr @ fortune.com
Ambac sees bankruptcy ahead

 Bond insurer Ambac failed to make a scheduled $2.8 million interest payment on some debt and warned that it expects to be in bankruptcy by year-end, one way or another.

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New York-based Ambac said it decided not to make a scheduled payment on $75 million of 7.5% debentures due 2023. If the firm doesn’t make the payment within 30 days, it could be in default on the notes and could face acceleration of that debt’s maturity.

Bankruptcy talk is nothing new for Ambac, which warned around this time last year that it could run out of funds in 2011. The firm’s fate was further solidified in August, when Ambac said for the first time it was working on a prepackaged bankruptcy with creditors.

Ambac has $1.6 billion in outstanding debt and has been trying to restructure those obligations to reduce the drain on its cash position. The firm made a mint writing insurance for Wall Street on bonds and related derivatives, such as collateralized debt obligations, during the past decade.

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The company said one complicating factor is that while creditors will be expected to convert their debt claims to stock ownership in a reorganization, the timing of their debt purchases could knock the struts out from under the tax shelter the company has erected out of its massive postbubble losses.

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September 29, 2010 — 10:46 PM SAST
Karen Freifeld & David Mildenberg @ Bloomberg Business
Ambac Sues Bank of America Over Countrywide Bonds

Ambac Assurance Corp. sued Bank of America Corp. over $16.7 billion of mortgage-backed securities, saying the bank’s Countrywide Financial Corp. unit fraudulently induced Ambac to insure bonds backed by improperly made loans.

Ambac found that 97 percent of 6,533 loans it reviewed across 12 securitizations sponsored by Countrywide didn’t conform to the lender’s underwriting guidelines, according to the complaint filed yesterday in New York state Supreme Court. Many of the loans were made to borrowers with limited or no ability to meet their payment obligations, Ambac said.

The lawsuit follows negotiations between Bank of America, which acquired Countrywide in 2008, and Ambac over mounting losses caused by loans made during the early 2000s as U.S. housing prices soared. Ambac has paid $466 million in claims from more than 35,000 Countrywide home-equity loans that have defaulted or been charged off, according to the lawsuit.

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Nov. 10, 2009 10:24 PM ET
Edward Harrison @ http://seekingalpha.com/
Ambac: Now It Warns of Bankruptcy?

Bond insurer Ambac Financial (ABK) has warned bankruptcy is a distinct possibility, sending its shares plummeting more than 30% Tuesday.

What is intriguing about this pending bankruptcy is how this company escaped bankruptcy in 2008, was downgraded continually in 2009, yet just reported billions in profit 5 days ago. Now it warns of bankruptcy?

This story also is related to municipal bonds...

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Mon Nov 8, 2010 8:08pm EST
Tom Hals @ Reuters
UPDATE 5-Bond insurer Ambac files for bankruptcy

* Files for bankruptcy with $1.68 billion in liabilities

* Company had been in talks with bondholders

* Shares down 63 percent at 19.5 cents after hours (Adds bankruptcy details, background; updates share price)

BoC-HongKong Swap Makes Yuan Available for IPO's

The Bank of China has arranged currency swap facilities with the Hong Kong Monetary Authority, resulting in Yuan being available outside the PRC for the first time without the previously associated premium. The Yuan deposits have been made available in order to allow Yuan-denominated IPO's to take place, decreasing reliance on foreign money.

2010-12-23
Yuan Offshore Premium Drops as HKMA Starts 20 Billion Yuan Fund

US FED Dollar-Swap Facilities

What is a Currency Swap ?

Wikipedia:

These swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve.

When the foreign central bank lends the dollars it obtained by drawing on its swap line to institutions in its jurisdiction, the dollars are transferred from the foreign central bank's account at the Federal Reserve to the account of the bank that the borrowing institution uses to clear its dollar transactions. The foreign central bank remains obligated to return the dollars to the Federal Reserve under the terms of the agreement, and the Federal Reserve is not a counterparty to the loan extended by the foreign central bank. The foreign central bank bears the credit risk associated with the loans it makes to institutions in its jurisdiction.

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2008 Establishment of US Dollar Swap Facilities
- http://wallstreetpit.com/658-fed-to-provide-unlimited-dollar-funding-under-swap-facilities

Official FED Announcement on MAY 2010 Facilities

Release Date: May 9, 2010
For release at 9:15 p.m. EDT

In response to the reemergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the reestablishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.

Federal Reserve Actions
The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously.

These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly.

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Dec 2010

Fed Extends Swap Lines With ECB, Other Central Banks:

"The Federal Reserve authorized the extension through Aug. 1 of its temporary dollar liquidity swap arrangements with the European Central Bank and the central banks of Japan, Canada, Switzerland and the United Kingdom.

The arrangements had been authorized through January, the Fed said today in a statement. Fed officials voted in May to restart the emergency currency-swap tool to keep Europe’s sovereign-debt crisis from spreading to U.S. markets."

- federal-reserve-re-establishes-dollar-liquidity-swap-facilities
- boe-to-extend-dollar-swap-line-with-fed-until-aug-1-2011
- here
- fed-oks-dollar-swap-facility-with-bank-of-japan

Wall Street Journal:
"Under swap lines, the Fed makes loans to foreign central banks, which in turn use the funds to make U.S. dollar loans to financial institutions in their home markets"

StuxNet

StuxNet is a soft(ware) weapon

Reports indicate that StuxNet was used to saboutage the Iranian nuclear programme.

- StuxNet as a game-changer on the order of the F15 jet fighter
- stuxnet-is-game-changing-weaponized
- the-big-picture
- stuxnet-the-first-weaponized-computer-virus
- on the F15 comparison
- bits-before-bombs-how-stuxnet-crippled-irans-nuclear-dreams
- anandtech forum thread
- evolving-understanding-of-stuxnet
- strategypage

Nuclear scientist killed in Tehran was Iran's top Stuxnet expert

Reddit Articles

Wired.com articles:

Blockbuster Worm Aimed for Infrastructure, But No Proof Iran Nukes Were Target
All posts tagged ‘Stuxnet’

New Clues Point to Israel as Author of Blockbuster Worm, Or Not

Desmond Lachman

Bio @ the American Enterprise Institute for Public Policy Research"

2009 Piece on Emerging Markets

2010 Piece on the Global Macro Situation

The US's 15 Largest Trading Partners

http://www.census.gov/foreign-trade/statistics/highlights/toppartners.html

Oct 20 NYSE SPY "Mispricing"

Bloomberg:
NYSE Software Glitch Spurs $7.9 Billion Misprice in S&P 500 ETF

A system upgrade at Arca triggered what appeared to be a 9.6 percent plunge yesterday in an exchange-traded fund that tracks the Standard & Poor’s 500 Index, a drop that would have erased $7.9 billion from one of the most popular securities in the U.S. Data published by the electronic venue at 4:15 p.m. New York time showed the SPDR S&P 500 ETF Trust at $106.46, compared with its opening level of $117.74.

The prices were later voided and the closing price updated to $118.54, up 0.7 percent, exchange officials said.