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Editor’s Comment:
The article below by Lisa Pollack in the Financial Times shows an amazing understanding of securitization, derivatives and the actual path of money. It also introduces a new term–“credit support annex (CSA). CSAs were discussed in this blog back in 2007 and 2008 which merely made the already incomprehensible financial structure even less understandable. But they are important because that is where actual assets, actual money and actual financial transactions are taking place.
The article below deserves several readings. Those that master it will understand completely the untenable position of the United States’ financial condition. The governments of each country are constantly engaged in trading and creating derivatives, insurance, credit default swaps and other credit enhancements as they hedge all perceived risks. The problem is that the dealer keeps on dealing whereas the original transaction remains unchanged. In our case the US government used taxpayer dollars and private companies used shareholder dollars to pay off the original transaction—the loan from the investor lenders to the homeowner borrowers.
The reason for the stream of fake securitization documents was to enable the dealers to keep on dealing, which they did. In some cases they leveraged the same loan or group of loans as many as 42 times that has been documented. Since most of these deals are undocumented we can comfortably assume that the actual figure is a multiple of 42 times given the current state of credibility of the 18 banks that dominated the mortgage securitization market.
With each deal, the margins kept spreading in virtual dollars, while the real money remained unchanged. When the real money was repaid to the creditor or the creditors agents (the dealers) the trunk of the tree disappeared. The acceptance of payment by a creditor from any obligor or co-obligor extinguishes the debt. This is black letter law in all 50 states and all federal decisions as well. But the dealer keeps on dealing as though the trunk of the tree was still there. In a 2-dimensional sense the dealers are drawing out branches and sub-branches of various “trades” based upon a nonexistent base (the original loan).
The reason the banks are so scared of discovery in litigation and why they settle any case in which a judge enters an order for them to open their books is that it would be obvious to a first year accounting student that there is no substance to the subsequent trades of the dealers and no substance to their current trades since the base transaction was no longer present.
The moment all was paid by the creditor, directly or indirectly through the investors creditors agents trading should have stopped. Any future trades after that point were pure fraud since they pretended that the loan still existed. All prior trades should have been required to settle immediately. Thus eliminating the appearance of branches on a tree with an invisible trunk.
Had the bankers been operating honestly (perhaps an oxymoron) the ground would have been clear, the paperwork exchanged, and the accounting complete, leaving some dealers “in the money” and some dealers “out of the money”. If they were dealing honestly the amount of money “in the money” would have been equal to the amount of money “out of the money”. The result would have been no loss, no federal bailout, no mortgages, no liens, no foreclosures, no notes, and no obligations on the original transaction.
What arises is the possibility of a case in which a party has paid money to satisfy the creditor, directly or indirectly (through the investor creditors agents) against the homeowner for money that they actually lost. But unless they actually purchased the loan which they did not (according to any of the paperwork I have seen or heard reported), there could be no foreclosure on any part of the debt. In fact, while the debt or obligation might continue to exist under the law, the absence of an actual creditor seeking payment might result in the homeowner receiving a windfall. This windfall is but a small percentage of the windfall made by the dealers who kept on dealing and were bailed out in an amount far exceeding the total of all money loaned during this 10 year period. Thus the dealers used investor lender money to fund 13 trillion dollars in loans, experiencing no more than 2.5 trillion in defaults, while claiming and receiving no less than 16.6 trillion dollars from the federal government plus settlements on insurance, credit default swaps and credit enhancements.
Somehow the windfall of the bankers has been made to appear more politically acceptable than the windfall to homeowners whose tax dollars paid for the windfall received by the dealers. What a country!!
The reason for the opportunity of a windfall to homeowners is that the dealers created a false chain of documents to enable them to achieve windfalls. The only way they could prevent homeowners from sharing in that windfall of multiple payments on the same debt was through the process of foreclosure. In foreclosure, the debt was made to appear as properly documented and owned by the investor lenders. In fact, the debt was made to appear as though it still existed when in fact it did not exist at all. Most judges, attorneys, and homeowners, cannot conceive of a scenario in which the mere application of law would provide an opportunity to homeowners to share in the windfalls of dealers who continued to make deals with the full intent of depriving both the investor lenders and the homeowner borrowers of any right to participate in this windfall. The rubber stamped order of the usual foreclosure judge seals one more deal. It pitches the bad loan over the fence and forces an investor to accept the bad loan even though he was expressly assured of receiving good loans that were properly underwritten. These judges do not realize that they are underwriting a windfall to the dealers of virtual money while the participants in the real money transaction both got screwed.
The Bank of England gets economical with its derivatives
by Lisa Pollack
Isn’t it annoying when particular clients insist on being treated differently to everyone else? Like, just because your client is well, England, or Italy, or some other sovereign nation, doesn’t make them ‘special’. It’s also kind of annoying when they make regulations that make business tougher for banks and then still expect to be treated differently.
Interestingly though, the Bank of England just stopped asking for one such special exception when it comes to certain derivatives that it enters into on behalf of the nation in order to best manage its balance sheet and the Treasury’s foreign exchange reserves.
With any such derivatives contract, it’s a zero sum game. When marking the transactions to market, if one party is up £1m (“in-the-money”), that means the other party is down £1m (“out-of-the-money”).
In the normal course of things, the out-of-the-money counterparty would post collateral with the in-the-money-counterparty. This keeps everyone happy because it guarantees performance under the contract. The exact rules around posting collateralare determined by an agreement between them called a “credit support annex” (CSA). The majority of CSAs are “two-way”, meaning that both parties have to post collateral as and when they are out-of-the-money.
But, sovereigns never really went for that. Instead, they have “one-way” CSAs. They expect their counterparties to post collateral with them, but they don’t expect to have to post collateral themselves. Banks were, more-or-less, willing to put up with this when counterparty risk was less of a concern and things were going a lot better for them generally. Before, say, the latest wave of regulation that takes an especially dim view of uncollateralised exposures.
Regulations aside though, there has always been something of a funding problem with trades like these (with sovereigns) since banks tend to hedge their trades.
In the above, we show that the Bank of England has entered into a swap with a dealer, e.g. an interest rate swap to hedge rates exposure. The dealer does another trade, or series of trades, with the dealer on the far left of the diagram to hedge the swap with the Bank of England.
Some time later, the dealer is in-the-money on the trade with the Bank of England, and out-of-the-money on the trade with the other dealer. This puts the dealer in a really uncomfortable position — collateral has to be posted with the other dealer, but the Bank of England doesn’t post any collateral.
The news release from the Bank of England on Thursday indicates that it will start to post such collateral in the future.
Up until now, the only other examples of sovereign nations we know of that do something similar are Ireland and Portugal.
So why did the central bank decide on this change?
It seems they primarily did it to get better pricing on the derivatives contracts. It’s quite simple — the costs to the banks of putting the swaps together for sovereigns rose. It’s more expensive for banks to fund themselves, i.e. to get that collateral to post to their counterparties. It’s also more expensive to have uncollateralised exposure in terms of regulatory capital. The banks have been passing on these costs to their sovereign clients.
The Bank of England therefore concluded that it was cheaper to start posting collateral, as it should make the prices they are offered come down.
In Risk’s coverage of the announcement, they had this rough estimate of the price differential:
The UK bank’s swaps trader says the funding charge associated with one-way CSAs could add as much as 10 basis points to a longer-dated trade. The head of the sovereign, supranational and agency (SSA) desk at one large European bank says it could reach 20bp.
And well, seeing as the central bank has a lot of bonds sitting in its reserves anyway, hell, why not?
The best part of the Risk article, in FT Alphaville’s opinion, is that they asked Alan Sheppard, the Bank of England’s head of risk management, about what he thought of the likely interpretation that the move is a kind of “back-door state support”. In response:
The BoE’s Sheppard doesn’t see it that way. “That would be a very strange interpretation. There is some value in the funding option implicit in a one-way CSA, but the way the market has developed, the price has gone beyond the value it has for us. What we’re actually doing is stopping paying the banks for an option that we don’t value as highly as it costs them to provide, so we’re giving them less money rather than more,” he says.
In other words: this works for the Bank of England cause they’re thinking it’ll save them money.
Good for them, then… right?
The likely point of contention will be that there are central banks out there that are way more into their derivatives use than the Bank of England is, and they have made no such indication that they will post collateral in the future, despite a lot of lobbying by banks on the matter.
Italy, for example, has a huge swap portfolio. This is a big issue not just because of the funding issue we mentioned above, but also because banks usually hedge their uncollateralised exposure by buying credit default swaps on the sovereign, which causes the spreads to widen further (with all that protection buying pressure), and then can feedback to the price the sovereign pays to fund itself in the bond market.
Or, at least, that’s one of the rallying cries of banks… who may well have a point, unfortunately. Arguably, some not-so-well thought out regulation drives quite a lot of this.
In any case, the last time FT Alphaville took a thorough look at this, we produced this table using data from the European Banking Authority’s 2011 stress test (with end-2010 data, click to expand):
This shows the “direct sovereign exposures in derivatives” measured in fair values (millions). When the number is positive, the bank (listed on the left) is in-the-money and would like to get some collateral from the sovereign (in the columns). As can be seen, Italy is seriously out-of-the-money to the banks and yet the banks are in the painful position of not receiving collateral.
Now look at the UK exposures. There isn’t much, is there?
These figures aren’t current (end-2010) and they don’t include non-European banks. But the general point that we wish to make is this: the Bank of England doesn’t have too much riding on this, the reserves are just sitting there, and it is likely to bring down the cost of transactions. In other words, it might not be as big a deal as it may be made out to be.
Sorry if the lack of drama disappoints you…
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23 thoughts on “Virtual Finance: Turning Things Right Side Up”
And can someone tell me how the “investors” of the empty pools”benefit” from the sale or foreclosure? Impossible…just a debt collector shell game.
@davies910
Crazy—your docs show Deutsche trying to claim ownership, yet over and over publicly they say they have no ownership stake…
“Deutsche acts as a trustee and has an administrative role in such cases, but has “no beneficial ownership stake or interest in the underlying mortgage loans,” spokesman John Gallagher said.
The trust company holds legal title for the benefit of investors.”
Deutsche is ONLY a trustee for a trust that never had any loans in it to begin with…they are NOT owners of a loan—and the “investors” are NOT owners of a loan…yet they are the ones foreclosing and “owning”…
@Guest,
Actually, when you go back in history, the mafia was at the origin of the unions. And it was a good thing… until a few greedy mafiosi decided that they could cash in big. The union dues became of way of extorting from the manufacturing plant workers but it started out with the 1929 crisis. Remember the movie “On the docks”?
The point remains the same all along: people give their money in the form of dues, taxes or what not, to entities supposed to use it for the benefit of the many. That money gets misappropriated and ends up, after a while, in the pocket of a few. And it has to start all over again: major crisis, some organization unifying the mass and implementing measures collectively beneficial. That organization becomes rotten. Some greedy bastard puts his hands on the money. it gets laundered. People suffer collectively until they riot, another organization emerges, offers the redress the wrong, it works for a while and… it rots again. Eternal cycle.
MAFIA v. BANGSTERS: Matt Taibbi (aka: an intellectual jerk) repeatedly refers to the Italian Mafia and MOB, which must be what he argues in his book, which is his latest opportunistic crap to benefit from the Bangsters’s crimes. Notice, this and many other so called “investigative journalists” since 2008 have created an industry of writing crap to make money. Where were they when these crimes were mushrooming?? probably getting paid off by Bangsters not to write anything bad against them until their massive crimes were completed by end of 2008!!!!.
Remember around 100 years ago Italian Mafia emerged as a movement of the oppressed against gangster politicians and government (like today’s USA), but was later perverted into committing unsavory activities (watch Godfather) despite which even today the worst of Italian Mafia probably qualify as saints compared to today’s American Bangsters. In fact because the U.S. government is directly complicit with the U.S. Bansgters’ crimes, may be the Italian Mafia could help put the U.S. public out of their misery by cleansing out the Bangsters. Wouldn’t that would be a return of the Italian Mafia to its holy roots!!!
http://www.scribd.com/doc/97602530/DAVIES-V-DEUTSCHE-BANK-REPLY-BRIEF-OF-APPELLANT
9th circuit where there is absolute failure of Deutsche Bank to produce. See if the 9th will get it and force discovery.
The MERS audit trail shows irregularities. Originator not a member of MERS or listed on the MERS audit trail.
“To take away people’s homes under fraudulent circumstances is a crime deserving of jail time…”
So—I guess Schneiderman should be in jail for condoning all the fraudulent circumstances that continue unabated…
Pe-lease…!
Statement By A.G. Schneiderman On The Passage Of The Foreclosure Fraud Prevention Act In The State Assembly
ALBANY — Attorney General Eric T. Schneiderman released the following statement today on the overwhelming passage of The Foreclosure Fraud Prevention Act of 2012 in the state Assembly:
“I applaud the Assembly, Speaker Silver, and Assemblywoman Weinstein for overwhelmingly passing the Foreclosure Fraud Prevention Act. For many middle class New Yorkers, their life savings is in their home. To take away people’s homes under fraudulent circumstances is a crime deserving of jail time.
“By treating foreclosure fraud as the serious crime that it is, we can deter future abuse and spare untold numbers of families the trauma of wrongful foreclosure. This legislation will ensure that employees involved in these fraudulent and abusive practices, and their supervisors who allow the misconduct to continue, will be held accountable for their crimes.”
The Foreclosure Fraud Prevention Act of 2012
Attorney General Eric T. Schneiderman introduced legislation last week to protect New Yorkers from fraudulent business practices like “robosigning” in the foreclosure process. The Attorney General’s Foreclosure Fraud Prevention Act of 2012, will define “residential mortgage foreclosure fraud,” and impose tough new criminal penalties that include jail time for those who intentionally engage in such conduct, including managers of residential mortgage businesses who knowingly tolerate fraudulent foreclosure practices committed by their employees and agents.
Attorney General Schneiderman’s legislation, sponsored by Assemblymember Helene Weinstein (D-Brooklyn) and Senator Stephen Saland (R-Poughkeepsie), makes it a Class A misdemeanor, punishable by up to a year in jail and a $1,000 fine, for an employee or agent of a residential mortgage business to knowingly authorize, prepare, execute or offer for filing false documents in a pending or prospective residential foreclosure action. The bill makes it a class E felony, punishable by up to four years in state prison, for such employees to engage in multiple acts of foreclosure fraud (“robosigning”), and also makes it a class E felony for a “high managerial agent” of a residential mortgage business to have knowledge of such fraudulent conduct by his or her agents or employees and not take reasonable action to stop it.
This legislation is the latest effort by Attorney General Schneiderman to hold those responsible for the foreclosure crisis accountable. The current wave of foreclosures was precipitated by the bursting of the housing bubble, which cost American families over $7 trillion in household wealth; destroyed millions of jobs; and plunged the nation into the deepest and longest recession in 70 years. In 2011, a staggering 345,000 mortgages were either in default or delinquent in New York State.
In February, Attorney General Schneiderman announced a settlement of over $130 million for New York with the nation’s five largest mortgage servicers over foreclosure abuses, the fourth highest dollar amount nationwide as part of the federal-state settlement. The settlement, which imposes strong national standards for mortgage servicing, also fulfilled Attorney General Schneiderman’s demand that he retain the right to bring legal action over misconduct that had not yet been fully investigated, or where investigations were ongoing.
In March, the Attorney General announced that up to $15 million of the money he secured in the national mortgage servicing settlement will be used to extend funding for foreclosure prevention and other related services. Up to $9 million of the allocation will be used to support the state’s Foreclosure Prevention Services Program, which was set to expire on April 1 of this year. And up to $6 million will support housing and community renewal activities statewide through not-for-profit community-based housing organizations.
When is this all going to stop? The greed is so deep and so many people are involved. My heart aches for all those who’ve been impacted by these thieves and their greed. I pray God’s vengeance on every single player involved including their families.
@Guest,
Mafia is as old as the world. It’s not a group or an ethnicity: it’s a spirit. Mafia evolves with technology. Al Capone had firearms and our money. Banks have computers and our money. Less bloody (seemingly) but as deadly.
What is the common denominator? OUR money. We give it. It gets mismanaged. Our fault.
1500 trillion & counting: http://www.youtube.com/watch?v=rIruCBopmfo&feature=related
BANGSTERS are government MAFIA http://www.youtube.com/watch?v=5YrdNwLgnTk
“The Scam Wall Street Learned From the Mafia”?? NOP. its the other way around. Mafia is less than 100 years old while BANGSTERS (Bank Gangsters) are hundreds of years old, actually over a thousand. http://www.youtube.com/watch?v=_Zddw6kmb4g
Matt Taibbi and Yves Smith on Bill Moyers. Fasten your seatbelt and listen up. Then, ask yourself why we shouldn’t start rioting. ‘Cuz it ain’t gona fixed easily. And apparently, there is still plenty of room for it to get worse…
Still paying your taxes? Still banking at Chase and Wells? How far do you need to push masochism? Is your call in life to be a victim or a martyr?
http://takeitpersonally.blogspot.com/2012/06/increasingly-corrupt-banking-industry.html
@Carie,
What does Bahai have to do with Occupy…?
indeed, enraged…here’s a “peaceful movement”: bahai.org
The OB Media Rundown for 6/23/12Occupy MovementBy: toke18731 June 23 2012 7:11
The Scam Wall Street Learned From the Mafia
This just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.
The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America. The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from “virtually every state, district and territory in the United States,” according to one settlement. And they did it so cleverly that the victims never even knew they were being _cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.
http://tinyurl.com/7uptgpq
All this is true. It’s been going on for so long that most of us don’t even know any longer how to live without banks, without highway robbery, without lies and deceit. Most people actually go through life, stating such things as; “Can’t trust anybody!”, “Everyone is out for himself!” How sad! This is not the world I want for my offsprings. This is not the world that was before banks, guns, wars. Nowadays, everything is a “war” on something or someone else. “War” on terror, “war” on drugs, “war” on porn. War, war, war. Stop it!!!
Those peaceful movements are very important: they will determine how our future is shaped. Support them. Send them what you can and help them any way you can.
From experience, I can say that becoming a tad too cocky is often what leads to an attorney’s demise. Then again, when a guy fights as hard as Stopa does, he wants to gloat and bask in the success.
Let’s hope Mark Stopa’s pride will not get the best of him…
Essence of Foreclosure Defense
Posted on June 22nd, 2012 by Mark Stopa
What is foreclosure defense all about? Many have asked me that very question over the years, and I think I just found the perfect way to explain it … by showing what happened to me today.
I was at the Manatee County courthouse waiting for a trial to begin in a foreclosure case. My client was very reasonable – he had offered to consent to foreclosure if the bank waived deficiency. He was willing to walk away and move on with his life … he just didn’t want to owe additional money above and beyond losing the property. But the bank refused, offering my client nothing and leaving us with no alternative but to go to trial.
As I was waiting for trial to begin, the following exchange took place:
Plaintiff’s counsel: Do you want to consent to foreclosure judgment?
Me: Why would I do that? Are you giving a deficiency waiver?
Plaintiff’s counsel: No.
Me: Then no.
(A few minutes later…)
Me: Will you voluntarily dismiss? If you voluntarily dismiss then I won’t ask for fees.
Plaintiff’s counsel: We aren’t dismissing. Why should I be worried about your fees?
Me: You’ll see.
(about 90 minutes later, after the case was tried…)
Judge: I agree with Mr. Stopa. I think the Plaintiff’s evidence is insufficient. I will grant the motion for involuntary dismissal.
How does this show what foreclosure defense is all about? Simple. My client was very reasonable. He was willing to walk away from this property – let the bank take it – if the bank waived its claim to deficiency. He was willing to compromise, but the bank refused, so it left us with no alternative but to try the case.
Apparently, the bank and its lawyers arrogantly thought they didn’t need to compromise, as a foreclosure judgment was assured. They were so arrogant they asked me to consent to judgment, even as they offered nothing in return. But when the case got tried, they got kicked in the teeth – judgment for defendant, and now they’ll pay my fees, too. Again.
So what is foreclosure defense, exactly? Foreclosure defense is a bunch of lawyers, like myself, who fight for homeowners, trying to kick the banks in the teeth often enough that they finally get reasonable and offer fair settlements to homeowners facing foreclosure.
In other words, here’s how I summarize foreclosure defense …
How many times do I have to kick a bank in the face before it starts to make reasonable settlements with homeowners?
You want to offer my clients nothing and proceed to trial, banks? Go ahead. Just put your mouthpiece in first … or better yet, a helmet.
Mark Stopa
http://www.stayinmyhome.com
Round three: BRICS demands more control over IMF (and IMF will give it, whether Americans agree or not. BRICS will probably demand an audit of the gold the US hasn’t had for a long, long time. What a slap in the face of the country that, once upon a time, could choose the leaders of any country it dealt with. A thing of the past…)
http://www.bloomberg.com/news/2012-06-20/putin-out-to-stem-russia-oil-jitters-on-return-to-flagship-forum.html
Putin Blames Rich Nations While Seeking Bigger BRICS Crisis Role
By Henry Meyer and Paul Abelsky – Jun 21, 2012 11:30 AM .
Vladimir Putin championed a bigger role for leading emerging-market nations in navigating the global economy, saying richer countries failed to contain the debt crisis through “half-measures” and indecisiveness.
Putin, re-elected to his third term as Russian president in March, said a $75 billion commitment to aid the International Monetary Fund by the so-called BRICS group meant the world’s largest developing nations should play a bigger role in steering global finances.
Russian’s President Vladimir Putin stands and delivers the keynote speech on day one of the Saint Petersburg International Economic Forum 2012 in Saint Petersburg. Photographer: Andrey Rudakov/Bloomberg
Enlarge image
Putin Out to Stem Russia Oil Jitters on Return to Flagship Forum Simon Dawson/Bloomberg
Flags for the Saint Petersburg International Economic Forum 2012 in Russian and English are seen flying from flagpoles in Saint Petersburg.
Flags for the Saint Petersburg International Economic Forum 2012 in Russian and English are seen flying from flagpoles in Saint Petersburg. Photographer: Simon Dawson/Bloomberg
.“We have to move from declarations to real reform of the IMF and other financial institutions, proceed to reform that takes into account the real balance of power,” Putin said at the annual St. Petersburg Economic Forum in his hometown, Russia’s second-biggest city.
Twelve emerging-market nations formalized funding pledges this week to the IMF, which is co-funding bailouts to Greece, Ireland and Portugal, to help almost double the fund’s lending power to protect the world economy from Europe’s debt turmoil.
With the addition of new pledges, the Washington-based lender said it has received funding commitments of $456 billion, up from the roughly $430 billion it had secured in April. The temporary contributions will add to the $380 billion the IMF currently has available for lending.
Fair, Justified
“It’s fair and justified to raise a question about strengthening the role of so-called developing nations and so- called new economic powers in the context of formulating steps that will determine the character of global economic order” Putin said.
The Russian leader spoke in St. Petersburg after a slump in oil prices extinguished gains in Russian equities and the ruble. The three-day event, which his predecessor Dmitry Medvedev spearheaded from 2008 to 2011, features foreign executives including Citigroup Inc. (C)’s Vikram Pandit and Goldman Sachs Group Inc. (GS)’s Lloyd Blankfein.
Brent crude, the grade that underpins prices for Russia’s Urals export blend, has tumbled 16 percent this year as Europe’s debt crisis worsened and China’s economy slowed. Russia should cut the average oil price needed to balance the budget to $80 a barrel from $117 to lure investors and reduce risk, Citigroup Inc. strategist Kingsmill Bond said June 14. Energy exports generate about half of budget revenue.
Emerging-market stock funds ended five consecutive weeks of outflows in the week ended June 13, registering inflows of $919 million, according to EPFR Global. Total net investment into emerging-market funds has totaled $17.6 billion in 2012 compared with outflows of $13.84 billion for the same period of 2011.
BRICS Fund
Brazil, Russia, India, China and South Africa, which together make up the BRICS group, may set up an anti-crisis fund if their demand for a greater say in the Washington-based lender is rebuffed, said Russian Deputy Finance Minister Sergei Storchak.
The five nations pledged $75 billion at the Group of 20 summit in Mexico yesterday to bolster the IMF’s capacity to help limit contagion from the European sovereign-debt crisis. They said they expected IMF members to reciprocate their contribution by carrying out agreed changes that would bolster the voting power of emerging economies in the organization.
China and Russia, holders of the world’s biggest and fourth-largest currency reserves, and the other three BRICS countries have agreed on a system of currency swaps that could later be succeeded by an anti-crisis fund, Storchak told reporters on his way back from Los Cabos, Mexico.
To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Paul Abelsky in Moscow at pabelsky@bloomberg.net
To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net
@Pie,
I wouldn’t either: from what I heard, he always pees in the water… 🙂
Round two: Brazil and China bypass our mighty, rotten, fiat dollar. And Europe still hangs tight in its Euro.
http://www.asianews.it/news-en/Beijing-gets-Brasilia-to-accept-currency-swaps-25101.html
06/22/2012 18:06
CHINA – BRAZIL
Beijing gets Brasilia to accept currency swaps
The two countries agree to a swap deal worth up to US$ 30 billion in their respective currencies. China is thus imposing the yuan as a global currency on emerging countries.
Rio de Janeiro (AsiaNews) – Brazil and China have agreed to a currency swap deal that would allow their respective central banks to exchange local currencies worth up US$ 30 billion. Currency swaps allows countries to settle their accounts in local currencies at a fixed rate. “As international credit remains scarce, we will have enough credit for our transactions,” Brazil’s Finance Minister Guido Mantega said.
The deal is one of a handful of trade agreements between Brasilia and Beijing announced during the UN Rio+20 sustainable development summit, which ended today without any result.
The aim of these deals is to increase investment and trade flows for the coming decade. A currency swap agreement “will allow the countries to boost financial reserves, which is useful at a time of financial stress,” Mr. Mantega said.
The deal , whose details will be hammered out in the coming weeks, will be the first step in closer Sino-Brazilian cooperation, which could be extended to other emerging economies.
At the G-20 meeting earlier this week in Mexico, the so-called BRICS countries (Brazil, Russia, India, China and South Africa) also proposed a reciprocal swap fund, Mr. Mantega noted.
However, it is Beijing that is in the driver’s seat. Since March, it has reached a similar deal with Australia (worth A$ 31 billion).
This way, China can extend the global reach of its own currency (yuan renmimbi) as an international currency of exchange and investment, analysts and economist said.
“The motivation is to be less reliant on the US dollar,” Sean Callow, chief currency strategist at Westpac, said. Indeed, “We will see firms in the two countries settle their accounts in local currencies,” he added.
For Mr Callow, with an increasing number of countries signing such agreements with China, Beijing’s plans for a more global role for the yuan has received a major boost.
Can we please start the prosecutions. I’m notgoing in the pool until jamie Dimon is indicted.
@Jordana,
I came to the same conclusion a while back but this only serve to bring more water to my mill… It has to blow and it will. Anyone willing to keep his mouth shut in exchange for $125,000 fiat money is making a terrible mistake he will come to regret.
We have no choice but speak.
That’s nice, the government of england wants better spreads for doing what they are supposed to be doing. In other words, it is like sitting at the pool and threatening to not swim unless the water is your tempature.
I’ve been cynical each time I’ve read this explanation of these loans being paid many times, largely because I believe that for this to occur a conspiracy so large and unwieldy has to exist without any dissent. I am still skeptical, but, today I read several news articles stating that foreclosed upon homeowners could stand to receive up to $125 K for wrongful acts discovered in the IFR. I couldn’t believe this amount. At first I thought, only a few hundred people would get this much. It’s too large a settlement, too grand. No one should expect anywhere near that amount. Then I read this post and I realized maybe this all gels and the payoff to make homeowners go away happy and stop digging has to be substantial. It has to be real hush money. And maybe that is why they keep extending the IFR deadline and sending out press releases and posting news stories and you tube videos… They need people to participate and then go away, happy, and be done with it. Now, I feel like a conspiracy theorist.