Crisis Dominoes Start Falling With Lehman Auditor

$2tn debt crisis threatens to bring down 100 US cities – More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned. Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery. "Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy," Whitney told the CBS 60 Minutes programme on Sunday night. "There’s not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizeable defaults – more. This will amount to hundreds of billions of dollars’ worth of defaults."

Crisis Dominoes Start Falling With Lehman Auditor – It took more than two years, but there might finally be some capital sentences handed out for crimes committed during the financial crisis. That’s metaphorically speaking, of course. Like the accounting firm Arthur Anderson, whose head was sacrificed during the Enron debacle, the once-proud financial auditing firm Ernst and Young now looks poised to take a spin down the toilet of history thanks to its role in the Lehman Brothers debacle. New York State Attorney General Andrew Cuomo is about to file civil fraud charges against E&Y for the work it did helping Lehman cook its books during 2007 and 2008. The short version of what happened goes something like this. Lehman Brothers, like all the other big banks on Wall Street in those years, was nearing insolvency and desperate for cash. In advance of its quarterly reports in 2007, the firm executed a series of something called Repo 105 transactions in an attempt to make their balance sheet look healthier than it was. These Repo 105 transactions are just loans that Ernst and Young and Lehman Brothers conspired to book as revenue from sales…

  A Warning to Portugal as Spain Sells Bonds — Yields at Spain’s final debt auction of the year were higher than the rates at an equivalent sale a month ago, and analysts warned of tough times ahead in 2011 even as the country slashed its state deficit.  Tuesday’s auctions came shortly after Moody’s, the ratings agency, put Portugal on review for a possible downgrade, almost a week after doing the same to Spain, and having cut Ireland by five notches last week.  At the debt issues, Spain’s Treasury sold 3.9 billion euros ($5.1 billion) of its three- and six-month bills, at the top end of its three to four billion euros range.  The yield on the three-month issue was 1.804 percent, up from the 1.743 percent at the last auction on Nov. 23, while the six-month rose to 2.597 percent from 2.111. The higher yield, analysts said, reflected market concerns that Spain will end up needing a rescue package like Ireland and Greece.

Another nasty surprise from Ireland’s AIB, via the EC Tucked away in the EC’s press release on aid for Irish banks, we find this little gem: Anglo Irish Bank will furthermore receive a guarantee covering certain off-balance sheet liabilities (derivatives, clearing transactions and transactional arrangements) that will ensure that Anglo Irish Bank can continue its daily activities as a going concern. There’s nothing here that tells us how big these newly-disclosed liabilities might be, though. AIB’s EUR70Bn on-balance sheet liabilities might provide some sort of calibration point, though. Half as much again, for the off-balance sheet stuff, if you were feeling gloomy? One hopes it will be much less than that, but it’s possible, and perhaps the EU will quell speculation by releasing the figure. Secondly, note that the EC hasn’t quite made its mind up whether Allied Irish Bank (not Anglo, the other one) will turn out to have been worth helping:

In case you missed it in the news, the world’s eighth largest army successfully deployed and conducted widespread and sustained operations involving the live fire of ordnance against a native population, in which they inflicted significant loss of life while incurring no casualties themselves.

Eurozone crises left to fester – When the European Council met on 16 and 17 December 2010, they faced a menu of new ideas on how to better manage the Eurozone crisis. The ideas were suggested by economists and political leaders alike: Eurobonds, allowing the European Financial Stability Facility/Fund to buy debt on the secondary market, increasing the role of the ECB, to name just a few examples. The EU heads of state chose to ignore all of them. Here is the sum total of what they contributed to the resolution of the Eurozone crisis – a 46-word amendment to EU Treaty Article 136: “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality." Nothing new was said on how this mechanism will look.
The long and the short of energy efficiency – Originally on Market Forces: David Owen asks a provocative question in the current New Yorker: If our machines use less energy, will we just use them more? He more or less says yes. The real answer comes in two parts. For now—over days, weeks, months, and even years—energy efficiency will decrease energy use and emissions. Screw a compact fluorescent light (CFL) bulb into a socket that used to hold an incandescent and your energy use will go down. Chances are you won’t leave the lights on four times as long just because light now costs a quarter. Over time—years, decades, centuries, and millennia—more energy efficient lights and appliances will indeed mean that more people use more of them. CFLs make light more affordable. That doesn’t matter to the typical U.S. household, where few light sockets remain unused because of energy costs. But globally—and over time—it does make a difference.

Net Neutrality Rules Are Imminent From the F.C.C. –The Federal Communications Commission appears poised to pass a controversial set of rules that broadly create two classes of Internet access, one for fixed-line providers and the other for the wireless Net.  The proposed rules of the online road would prevent fixed-line broadband providers like Comcast and Qwest from blocking access to sites and applications. The rules, however, would allow wireless companies more latitude in putting limits on access to services and applications.  Before a vote set for Tuesday, two Democratic commissioners said Monday that they would back the rules proposed by the F.C.C. chairman, Julius Genachowski, which try to satisfy both sides in the protracted debate over so-called network neutrality. Net neutrality, broadly speaking, is an effort to ensure equal access to Web sites and cutting-edge online services.

Thanks for the Tax Cut! – THERE is a God! It passed! The Bush tax cuts have been extended two years for the upper bracketeers, of which I am a proud member, thank you very much. I’m the last person in the world I’d want to be beside, but I am beside myself! This is a life changer, I tell you. A life changer!  To begin with, I was planning a trip to Cabo with my kids for Christmas vacation. We were going to fly coach, but now with the money I’m saving in taxes, I’m going to splurge and bump myself up to first class. First class! Somebody told me they serve warm nuts up there, and call you “mister.” I might not get off the plane!

Housing-Finance Head Faces Unlikely Confirmation – The White House’s pick to head the agency that oversees Fannie Mae and Freddie Mac appears unlikely to win Senate confirmation before Congress adjourns due to a sharp policy disagreement between the White House and Senate Republicans over how to regulate the mortgage-finance giants. Senate Republicans are pressing to delay the confirmation of Joseph A. Smith, the North Carolina banking commissioner, to head the Federal Housing Finance Agency. They are concerned he might allow Fannie and Freddie to participate in an Obama administration initiative to write down loan balances, say people familiar with the matter.

The European Sovereign Debt Crisis – The euro zone is not an optimal currency area given the pre-Euro differences in fiscal and monetary policy as well as the language barriers and differing socioeconomic levels in the zone. Nevertheless, to ensure political cohesion after German reunification, Europeans felt the Euro was a must.  After the Berlin Wall fell in 1989 and the talk of a reunified Germany began, there was widespread angst about what the new Germany would look like and whether to even permit its coming into being. The Germans were forced to make a number of political concessions for re-unification to proceed. Germany was to  accept the Oder-Neisse Line as the unequivocal legal eastern frontier with Poland; any discussion of Germany’s 1937 borders had to be stopped. Germany was to pay the Russians 55 billion deutsche marks in order to remove Russian troops from German soil. And the Germans had to anchor themselves into the western European monetary-political system via a common currency.

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