Sached! Government Sached!

Baltic Dry Index. 3009 +08

LIR Gold Target by 2019: $3,000.

“Prime Minister Gordon Brown called yesterday for the Financial Services Authority to start an inquiry, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said.”

We open with the continuing havoc to international air travel in Europe, where the economic consequences are now starting to build. Below, the Journal covers the story, with the airlines now starting to take the line that the complete shutdown is a gross over reaction. Who knows? But will the public, by now conditioned to expect jet planes engines to cease working and planes to fall out of the sky the moment they hit volcano dust, really pay to fly in new a form of Russian roulette? I have my doubts that many families will take a chance just to help airlines lose less money. “Fly us, if it’s the last thing you do,” doesn’t sound very persuasive to me. The first time a plane really does fall out of the sky, all hell will break loose even if the pilots manage to get it back on the ground without loss of life. I’m not too sure either that insurance coverage will be viable for planes operating against the recommendation not to fly. I suspect that it would invalidate both the airlines insurance coverage itself, and all of the separate passenger insurance policies. Give an insurance company wiggle room, and they’ll wiggle right out of having to pay anything. My guess is that a government or EU bailout will soon be on the table.

APRIL 18, 2010
Extended Disruptions Will Hurt EU Recovery
Airlines Lobby Governments to Lift Flying Bans as Some Take Experimental Flights to Test Effects of Volcanic Ash on Jets

The extended closure of European airspace because of a cloud of volcanic ash threatens to snuff out the region's feeble economic recovery and has prompted airlines to take unusual measures in an effort to regain some control of the situation.

As aviation authorities prolonged the ban on flights into Monday, bringing the number of canceled flights to more than 63,000, hard-hit European airlines conducted test flights over the weekend to assess the safety of operating through ash and dust spewing out of an Icelandic volcano since Thursday. Many aviation officials say that authorities have overreacted by closing vast swathes of airspace without detailed analysis of atmospheric conditions and the dangers posed.

"It is completely safe to operate flights during hours of daylight," said Peter Hartman, chief executive of KLM Royal Dutch Airlines.

British Prime Minister Gordon Brown interrupted his campaigning for the U.K. national election to call an emergency cabinet meeting to figure out what to do about the thousands of Britons stranded outside the country, potentially by routing them through Spain or using the Royal Navy.

Late Sunday, aviation and meteorological authorities held out a slight hope that more flights could operate Monday as winds appeared to shift slightly, carrying the cloud away from eastern Germany, Poland and the Czech Republic, a spokeswoman for the European Union's transport commissioner said.

Meanwhile, airlines improvised solutions to move passengers where they could. The Air France unit of Air France-KLM SA said it would operate nine long-haul flights Monday to airports in southern France that reopened. Continental Airlines Inc., one of the largest trans-Atlantic operators, said it was changing its schedule to put more flights into the few open airports in Southern Europe. Delta Air Lines Inc. said it planned extra flights with larger aircraft when skies reopened. And Indian carrier Jet Airways, which flies to North America using a hub at Brussels Airport, started using Athens Airport to refuel planes.

Economists said that if the closure ends in coming days, its financial impact will remain limited to industries such as aviation, tourism and manufacturers that rely on just-in-time delivery by air. If the flight ban drags on, however, the pain will be far deeper, analysts predicted.

"Europe is the biggest exporter in the world and the second biggest importer. It is China's biggest customer," said Eric Chaney, chief economist at AXA Group. "Trade has been the biggest component in the global recovery and [an extended grounding] will have a significant impact on global trade and on the recovery that's still fragile."

Trade groups representing European airports and airlines on Sunday called for an "immediate reassessment of flight restrictions" in a joint statement, saying nearly seven million people had been affected.

"The eruption of the Icelandic volcano is not an unprecedented event, and the procedures applied in other parts of the world for volcanic eruptions do not appear to require the kind of restrictions that are presently being imposed in Europe," said the statement from the Association of European Airlines and Airports Council International Europe.

Aviation authorities and safety experts have said they are following United Nations guidelines and experience from past incidents.

-----Axel Raab, spokesman for the German national air-safety agency, DFS, said Europe lacked balloons able to measure the density or concentration of the ash in the air and equipment to do so wasn't in place because it had never been needed. Weather stations were being upgraded and a plane was being fitted with equipment to measure how much ash is really in the air, he said.
The growing airline push-back came as the ash cloud threatened to cause broad economic impact just as Europe and the world were pulling out of recession. In a forecast released Friday that doesn't account for the grounding, the accountancy firm Ernst & Young predicted a "feeble" recovery for the 16 nations of the euro zone, with growth of just 1% this year after a negative 4% in 2009.

Damage is spreading beyond air-travel and tourism to businesses that rely on air cargo—including overnight shipments and freight that moves more slowly in the bellies of passenger jets. For anyone trying to ship to or from Europe, the closure has a "tremendous impact because nothing is moving, whether it's a legal document, or seafood, or fresh flowers, or heavy freight," said Norman Black, spokesman for shipping giant United Parcel Service Inc.
http://online.wsj.com/article/SB10001424052748703594404575192160633439360.html?mod=WSJEUROPE_hps_LEFTTopStories

Up next, “the name’s Fab, Fabrice P. Tourre.” Below the NY Times astutely notices that the wretched man named at the centre of the SEC’s civil fraud suit leveled Friday against God’s workers toiling away for billion dollar bonuses at Goldman Sachs, is drumroll, French! Worse he’s described as “an effusive young Frenchman” who “masterminded” the mortgage deals that were deliberately designed to fail. Luckily “The Fab,” yes according to the WSJ he really did sign off on his emails that way, is now safely parked away in London which no one can reach thanks to a wayward volcano in Iceland. A third strike against him surely after strike one being a mastermind star at Government Sachs, with strike two being a “cheese eating surrender monkey,” from France!! But the NY Times thinks that more were involved in ambushing the duped Goldman client list of the formerly fabulously rich and sometimes famous. I suspect that this story is going to grow, and grow, and grow. Knives are being sharpened in Europe to claw back billions from the alleged American fraudsters. Is Goldie the American UBS? Stay long gold and silver, two decades of financial crime is about to come crashing down.

"I want us to do even more to encourage the risk takers"

Gordon Brown. 2004.

Top Goldman Leaders Said to Have Overseen Mortgage Unit
By LOUISE STORY Published: April 18, 2010

-----Among those who saw disaster looming were an effusive young Frenchman, Fabrice P. Tourre, and his quiet colleague, Jonathan M. Egol, the mastermind behind a series of mortgage deals known as the Abacus investments.

Their elite mortgage unit is now at the center of allegations that Goldman and Mr. Tourre, 31, defrauded investors with one of those complex deals.

The Securities and Exchange Commission filed a civil fraud suit on Friday that essentially says that Goldman built the financial equivalent of a time bomb and then sold it to unwitting investors. Mr. Egol, 40, was not named in the S.E.C.’s suit.

Goldman has vowed to fight the S.E.C. But the allegations have left many on Wall Street wondering how far the investigation might spread inside Goldman and perhaps beyond.
Pressure on Goldman mounted on Sunday as two members of Congress and Gordon Brown, Britain’s prime minister, called for investigations into the bank’s role in the mortgage market. Germany also said it was considering legal action against the bank.

Mr. Tourre was the only person named in the S.E.C. suit. But according to interviews with eight former Goldman employees, senior bank executives played a pivotal role in overseeing the mortgage unit just as the housing market began to go south. These people spoke on the condition that they not be named so as not to jeopardize business relationships or to anger executives at Goldman, viewed as the most powerful bank on Wall Street.

According to these people, executives up to and including Lloyd C. Blankfein, the chairman and chief executive, took an active role in overseeing the mortgage unit as the tremors in the housing market began to reverberate through the nation’s economy. It was Goldman’s top leadership, these people say, that finally ended the dispute on the mortgage desk by siding with those who, like Mr. Tourre and Mr. Egol, believed home prices would decline.

Lucas van Praag, a Goldman spokesman, said that senior executives were not involved in approving the Abacus deals. He said that the executives had sought to balance Goldman’s positive bets on the mortgage market, rather than take an overall negative view.

Mr. Tourre, who now works for Goldman in London, declined to comment, as did Mr. Egol, Mr. van Praag said.

-----By early 2007, Goldman’s mortgage unit had become a hive of intense activity. By then, the business had captured the attention of senior management. In addition to Mr. Blankfein, Gary D. Cohn, Goldman’s president, and David A. Viniar, the chief financial officer, visited the mortgage unit frequently, often for hours at a time.

Such high-level involvement was unusual elsewhere on Wall Street, where many executives spent little time learning the workings of their mortgage businesses or how those businesses might endanger their companies.

The decision to get rid of positive bets on mortgages turned out to be prescient. Unlike most other Wall Street banks, Goldman profited from its mortgage business as the housing bubble was inflating and then again when the bubble burst.
http://www.nytimes.com/2010/04/19/business/19goldman.html?hp

APRIL 19, 2010
SEC Probes Other Soured Deals
The Securities and Exchange Commission, after having hit Goldman Sachs Group Inc. with a civil fraud charge, is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors.

The SEC's case against Goldman Friday has exposed an open secret on Wall Street: As the housing market began to wobble a few years back, some big financial firms designed products aimed at allowing key clients, such as hedge funds, to bet on a sharp housing downturn.

Among the firms that created mortgage deals that soon went sour were Deutsche Bank AG, UBS AG and Merrill Lynch & Co., now owned by Bank of America Corp. It isn't known what deals the SEC is investigating.

Further cases could hinge on whether the SEC sees what it considers misrepresentation, and not just questions such as whether a deal favored one client over another. A critical part of the SEC's case against Goldman is that the firm allegedly misled investors by not notifying them of the role of hedge-fund investor John Paulson—who was dubious of the housing boom—in selecting what went into the mortgage deal Goldman sold. Goldman said it fully disclosed the investments and didn't need to reveal the Paulson connection.

The deals generated about $1 billion in total fees for the firms, traders say. Investors that bought them often lost heavily. Now private lawsuits, along with the SEC's case against Goldman, are shedding light on how some of these mortgage deals were put together.

Soured mortgage investments helped trigger the near-collapse of American International Group Inc., which had insured at least $1 billion of bond deals issued by Wall Street firms in 2005 that reflected hedge funds' input, according to documents reviewed by The Wall Street Journal and people familiar with the matter. Taxpayers had to foot the bill for AIG's rescue.
http://online.wsj.com/article/SB10001424052748704508904575192294041013802.html?mod=WSJEUROPE_hps_LEFTTopWhatNews

Looters in Loafers
By PAUL KRUGMAN Published: April 18, 2010
Last October, I saw a cartoon by Mike Peters in which a teacher asks a student to create a sentence that uses the verb “sacks,” as in looting and pillaging. The student replies, “Goldman Sachs.”

Sure enough, last week the Securities and Exchange Commission accused the Gucci-loafer guys at Goldman of engaging in what amounts to white-collar looting.

I’m using the term looting in the sense defined by the economists George Akerlof and Paul Romer in a 1993 paper titled “Looting: The Economic Underworld of Bankruptcy for Profit.” That paper, written in the aftermath of the savings-and-loan crisis of the Reagan years, argued that many of the losses in that crisis were the result of deliberate fraud.

-----We’ve known for some time that Goldman Sachs and other firms marketed mortgage-backed securities even as they sought to make profits by betting that such securities would plunge in value. This practice, however, while arguably reprehensible, wasn’t illegal. But now the S.E.C. is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure. That’s what I would call looting.

And Goldman isn’t the only financial firm accused of doing this. According to the Pulitzer-winning investigative journalism Web site ProPublica, several banks helped market designed-to-fail investments on behalf of the hedge fund Magnetar, which was betting on that failure.
So what role did fraud play in the financial crisis? Neither predatory lending nor the selling of mortgages on false pretenses caused the crisis. But they surely made it worse, both by helping to inflate the housing bubble and by creating a pool of assets guaranteed to turn into toxic waste once the bubble burst.

As for the alleged creation of investments designed to fail, these may have magnified losses at the banks that were on the losing side of these deals, deepening the banking crisis that turned the burst housing bubble into an economy-wide catastrophe.
http://www.nytimes.com/2010/04/19/opinion/19krugman.html?hp


Goldman May Face U.K., German Inquiries After Suit
By Michael Patterson and Tony Czuczka

April 19 (Bloomberg) -- Goldman Sachs Group Inc. faces a regulatory probe in Britain and scrutiny from the German government after the U.S. Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations.

Prime Minister Gordon Brown called yesterday for the Financial Services Authority to start an inquiry, saying he was “shocked” at the “moral bankruptcy” indicated in the suit. Germany’s financial regulator, Bafin, asked the SEC for details on the suit, a spokesman for Chancellor Angela Merkel said.

Politicians that were forced to bail out their banks during the financial crisis are turning on Goldman, which critics say helped caused the turmoil and profited from it. The European Union is also probing Goldman’s role in arranging swaps for Greece that may have masked the country’s budget deficit.

“We will see politicians throughout the world piling on Goldman Sachs,” said Scott Moeller, a former investment banker now teaching at Cass Business School in London. “Now they have vulnerability. Everyone and anyone, especially politicians, are going to be trying to make hay with this one.”

----- “It looks as if people were misled about what happened,” Brown, who faces a national election on May 6, said on the BBC’s Andrew Marr program yesterday. “The banks are still an issue. They are a risk to the economy.’

Royal Bank of Scotland Group Plc paid $841 million to Goldman Sachs to unwind its position in Abacus, which it inherited when it bought parts of ABN Amro in 2007, according to the SEC. The Edinburgh-based lender is now controlled by the British government after receiving a 45.5 billion-pound ($70 billion) taxpayer rescue, the world’s biggest banking bailout.

The SEC said Goldman Sachs misled investor IKB Deutsche Industriebank AG about Paulson’s role in the trade. Dusseldorf- based IKB lost about $150 million in the Abacus CDO, most of which went to Paulson, which reaped a $1 billion profit in total from betting against the vehicle, according to the SEC.

Legal Steps

IKB became Germany’s first casualty of the U.S. subprime- mortgage crisis in 2007 after its investments in asset-backed securities soured. KfW, Germany’s state-owned development bank, pumped almost 10 billion euros ($13.5 billion) into IKB in 2008 to shore up the country’s banking system.

The German government “will ask the SEC for information,” said Ulrich Wilhelm, a spokesman for Merkel. “Then we will look at the records and consider possible legal steps.”

Goldman Sachs said in a statement it had provided “extensive disclosure” to IKB about the risk of the underlying mortgage securities. Paulson, which hasn’t been charged with any wrongdoing, said in a statement that it didn’t “sponsor or initiate” Goldman’s Abacus program. The fund said that while it did purchase credit protection from Goldman on some Abacus securities, it wasn’t involved in the marketing.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNSmRVxms8jg&pos=2

"God, no, we don't club baby seals. We club babies."

Goldmanite, quoted in The Times of London. November 8 2009.

At the Comex silver depositories Friday, final figures were: Registered 48.85 Moz, Eligible 66.75 Moz, Total 115.60 Moz.


+++++

Crooks & Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Today, more on the British whitewash of the climategate scandal.

“Time will bring to light whatever is hidden; it will cover up and conceal what is now shining in splendor.”

Horace.

Climategate: a scandal that won’t go away
From Macbeth to Watergate, it’s not the act that leads to nemesis, but the attempts to 'trammel up the consequence’ , writes Christopher Booker
By Christopher Booker Published: 7:22PM BST 17 Apr 2010

-----Confronted with all those scandals surrounding the “Climategate” emails and the UN’s Intergovernmental Panel on Climate Change, the political and academic establishments have responded with a series of inquiries and statements designed to show that the methods used to construct the official scientific case are wholly sound. But as was illustrated last week by two very different reports, these efforts to hold the line are themselves so demonstrably flawed that they are in danger of backfiring, leaving the science more questionable than ever.

The first report centred directly on the IPCC itself. When several of the more alarmist claims in its most recent 2007 report were revealed to be wrong and without any scientific foundation, the official response, not least from the IPCC’s chairman, Dr Rajendra Pachauri, was to claim that everything in its report was “peer-reviewed”, having been confirmed by independent experts.
But a new study put this claim to the test. A team of 40 researchers from 12 countries, led by a Canadian analyst Donna Laframboise, checked out every one of the 18,531 scientific sources cited in the mammoth 2007 report. Astonishingly, they found that nearly a third of them – 5,587 – were not peer-reviewed at all, but came from newspaper articles, student theses, even propaganda leaflets and press releases put out by green activists and lobby groups.

In its own way even more damaging, however, was the report from a team led by Lord Oxburgh on the scientific integrity of the East Anglia Climatic Research Unit (CRU). Two sets of evidence have been used more than anything else to drive the worldwide scare over global warming. One is a series of graphs showing how temperatures have suddenly shot up in recent decades to levels historically unprecedented. The other is the official record of global surface temperatures. For both of these, the CRU and the key group of top British and American scientists involved in those Climategate emails have been crucially responsible.

Lord Oxburgh himself is linked to various commercial interests which make money from climate change, from wind farms to carbon trading. None of the panel he worked with on his report were climate “sceptics”; and one, Dr Kerry Emanuel, is an outspoken advocate of man-made global warming. Even so, it was surprising to see just how superficial their inquiry turned out to be, based on two brief visits to the CRU and on reading 11 scientific papers produced by the research unit in the past 24 years, chosen in consultation with the Royal Society (which is itself fanatical in promotion of warming orthodoxy).

The crown jewels of the IPCC’s case that the world faces catastrophic warming have been all those graphs based on tree rings which purport to show that temperatures have lately been soaring to levels never known before in history – thus eradicating all the evidence that the world was hotter than today during the Medieval Warm Period, long before any rise in CO2 levels. Best known of these graphs, of course, was Michael Mann’s “hockey stick”, comprehensively discredited by the expert Canadian statistician Stephen McIntyre and Professor Ross McKitrick. But the IPCC was able to defend its case with the aid of another set of “hockey sticks”, based on different tree rings, produced by Mann’s close allies at the CRU.

The most widely quoted of the Climategate emails was that from the CRU’s director, Philip Jones, saying that he had used “Mike’s Nature trick” to “hide the decline”. If there was anything in the CRU’s record which a proper inquiry should have addressed it was the story behind this email, because what it highlighted was the device used by the CRU to get round the fact that its tree-ring data hopelessly failed to show the result the warmist establishment wanted. When their Siberian tree rings showed temperatures in the late 20th century sharply dropping rather than rising, the “trick” used by Prof Jones and his colleague Dr Keith Briffa, copied from Mike Mann’s own “hockey stick”, was simply to delete the downward curve shown by the tree rings, replacing them with late 20th-century temperature data to show the dramatic warming
they wanted.

The significance of this sleight of hand can scarcely be exaggerated. Why, in using this misleading graph, did the IPCC not explain the trick that had been played by its leading scientists? If tree rings were so inadequate in reflecting 20th-century temperatures, why should they be relied on to reflect temperatures in earlier centuries? Why, when fresh Siberian tree ring data came to light, making a nonsense of the CRU’s earlier temperature reconstructions, did the CRU simply ignore the new data?

Anyone who has followed the meticulous analysis of this curious story by Steve McIntyre on his Climate Audit website might well conclude that we are looking here at a complete travesty of proper scientific procedure, matched only by the bizarre methods used by Mann himself to construct his original hockey stick. Yet these are the men, Mann, Jones and Briffa, who acted as the “lead authors” of the key chapters of the IPCC’s 2001 and 2007 reports.
They quite shamelessly promoted the rewriting of history produced by themselves and a small group of colleagues – the so-called Hockey Team – which the IPCC in turn used as its main evidence to convince the politicians that the world faces unprecedented warming.

Yet scarcely a hint of this hugely important story is contained in the Oxburgh report, which simply glosses it over, hoping to appease critics by throwing in a few vaguely critical comments about how Jones and his team were a trifle “disorganised” in archiving their data. It ignores the utterly damning critiques of the CRU’s methodology produced by McIntyre and McKitrick. It does not even begin to question the way the CRU has compiled its global temperature record, relied on by the IPCC as the most authoritative of all the official data sources for surface temperatures.

Yet this in turn has given rise to all sorts of controversies, not least when Prof Jones last year admitted that much of his data had been “lost” (following his repeated refusals of applications to see it by McIntyre and others). More damaging still was the charge by senior Russian scientists that, in compiling its global record, CRU had cherry-picked the data supplied from Russia, suppressing that from most of the country while retaining the data from the vicinity of cities which, thanks to the “urban heat island” effect, showed a warming trend. So even the accuracy of CRU’s temperature record has been called seriously in doubt, although one would never have guessed it from Oxburgh.
http://www.telegraph.co.uk/comment/columnists/christopherbooker/7601929/Climategate-a-scandal-that-wont-go-away.html

“The least productive people are usually the ones who are most in favor of holding meetings”

Thomas Sowell. American Economist.

The monthly Coppock Indicators finished March:

DJIA: +168 UP. NASDAQ: +370 UP. SP500: +196 UP. The great Bull market goes on with the all three continuing higher in positive numbers.

+++++

Help the LIR fight Banksterism, the EU, and for sound money.
If you can, help the LIR stay around and make a difference. Please make a donation at the PayPal link on the website or better still become a sponsor for what looks like an exciting 2010. Capitalism not banksterism. Many thanks to all who have helped.

+++++

Below, Mr "straight kind of guy" bets on the UK election.