Libor New spotlight

Bank of Tokyo Mitsubishi has become the latest lender to face questions in the widening interbank lending rate-rigging scandal that has shaken the global banking industry.
Japan’s biggest bank by revenues yesterday said one of its employees in London was being questioned by UK regulators over attempted manipulation of the London interbank offered rate, which is the subject of an international probe.
The BTMU employee, who was in charge of the bank’s Libor submission, has been instructed to remain at home while the bank conducts its own investigation into the matter, a representative said in Tokyo.
BTMU is the only one of the four Japanese lenders that submit Libor rates to become embroiled in the scandal. Last month, BTMU said two employees had been instructed to stay at home after questions were raised about alleged involvement in the attempted rigging of Libor while the two worked at Rabobank.
The Libor scandal has already prompted the resignation of Bob Diamond as chief executive of Barclays, after the UK bank paid £290m last month to settle its case with UK and US regulators. The chief executive of Royal Bank of Scotland, Stephen Hester, indicated last month that the bank expected to be fined for its role in the scandal. Deutsche Bank and UBS, both of which are also caught up in the scandal involving Libor and related benchmark lending rates, raised their estimates for litigation risk by a combined €580m. UBS was also one of the first to be sanctioned over its involvement in rate manipulation when the Japanese financial regulator last year found that it and Citigroup had attempted to rig both Libor and the Tokyo interbank offered rate. Analysts were puzzled by the possibility that BTMU could have been involved in the Libor scandal because Japanese banks have little apparent incentive to manipulate the rate. Toyoki Sameshima, banking analyst at BNP Paribas, said there would have been little point in lowering the rate, since during the financial crisis Japan’s lenders did not face the same concerns about their strength as European banks. Mr Sameshima said it was difficult to imagine a BTMU trader deciding to manipulate the rate, but that he or she could have been approached by staff at other banks seeking co-operation.

Asediado Spain

The governments of many regions in the Eurozone are beleaguered with debt. They see no respite and the effects of the used tactics are proving to be futile. When Eurozone agreed for a bailout of €100 billion ($121 billion) for its institutions the borrowing cost was on its most high and the 10 yr bond hit 7,75 %. On the day bail out was granted Valencia demanded financial help. A mix of recession, sinking property prices, bank failures and public profligacy—made worse by cronyism and corruption—is at the roots of Valencia’s fall. But Comunitat Valenciana is by no means alone. It was soon followed by neighbouring Murcia, which will also apply for help from a special €18 billion liquidity fund set up by the government. More worryingly, Ramón Luis Valcárcel, Murcia’s president, admitted that this year it will probably once more miss its deficit target. Catalonia, the wealthy eastern region that accounts for one fifth of output, also suggested it needs the liquidity fund. Unable to roll over debt or finance deficit spending at sustainable levels on the markets, it is asking for help just when the central government is itself struggling to raise money at sustainable rates. More than a third of Spain’s regions, which jointly spend some 40% of public money, may ultimately follow.
The regions’ failure to control budgets defeated Spain’s attempt to meet a 6% deficit target last year, leaving it at 8.9%. Regions, told to cut their combined deficit to 1.3% of GDP, instead increased it to 3.4%. Valencia was among the worst offenders. Its deficit climbed from 3.87% of regional GDP to 4.5%. Its debt is estimated to be 20% of regional GDP.
The immediate outlook for Spain is deeply depressing. The government now sees recession stretching into 2013, with the economy shrinking by 0.5% next year. Unemployment, at 25% of the workforce, is unlikely to come down. A recent €65 billion austerity package, which triggered widespread public protest, has failed to convince markets that Spain is getting its finances under control. Falling revenues and soaring bond yields are a toxic mixture. Mr Rajoy’s reformist government is desperate, begging for more aid everywhere in Europe as it is applying painful austerity measures. Several ministers have been pleading for help from the European Central Bank (ECB). After the ECB declined to buy Spanish bonds, José Manuel García-Margallo, the foreign minister, branded the ECB a “clandestine” bank that is doing nothing to stop “the fire of public debt”. As so often in this crisis, Italy seems to be following in Spain’s footsteps. It, too, has problems with local as well as regional administrations. Two main dangers came into focus this week as mayors demonstrated outside parliament in Rome and the central government imposed radical measures on the government of indebted Sicily. The first worry is that provincial and municipal administrations might soon be knocking at the door of central government, demanding funds to meet their statutory obligations. A spokesman for Italy’s local councils said ten municipalities were now facing bankruptcy. And a representative of the provinces warned there were schools that might be unable to reopen in the autumn for lack of funds—a claim dismissed by the education minister in Mario Monti’s non-party government. The other, potentially greater, risk emanates from Sicily’s precarious finances. On July 24th, after a meeting with Raffaele Lombardo, the governor of Sicily, Mr Monti acted to curb it. It was confirmed Mr Lombardo would resign at the end of the month and that Rome would enforce a plan to clean up the Sicilian government’s accounts and sort out its administration. Sicily is one of five Italian regions (out of 20) with special statutes that give them ample autonomy. It has estimated debts of €5.3 billion (though Mr Lombardo says the island is owed money, including by Rome). And Sicily is notorious for its extravagant administration. A report by the audit court last month found it had almost 18,000 employee—five times as many as the regional government of Lombardy, which has twice the population. The governor had a bigger staff than the British prime minister. How much cash Rome will need to put into Sicily remains to be seen. Mr Lombardo said he expected soon to receive transfers running to hundreds of millions of euros. But it is not clear how much had already been earmarked for the island. Are there other Sicilies waiting to be bailed out? Matteo Caroli of the LUISS university in Rome notes the central government has introduced draconian sanctions to force the regional administrations to balance their books. But, he adds, “These are processes that require time”. And in southern Europe this week time appeared in alarmingly short supply.

How Long for Low Rates?

How long can today’s record-low, major-currency interest rates persist? Ten-year interest rates in the United States, the United Kingdom, and Germany have all been hovering around the once unthinkable 1.5% mark. In Japan, the ten-year rate has drifted to below 0.8%. Global investors are apparently willing to accept these extraordinarily low rates, even though they do not appear to compensate for expected inflation. Indeed, the rate on inflation-adjusted US Treasury bills (so-called “TIPS”) is now negative up to 15 years.

Is this extraordinary situation stable? In the very near term, certainly; indeed, interest rates could still fall further. Over the longer term, however, this situation is definitely not stable.

Three major factors underlie today’s low yields. First and foremost, there is the “global savings glut,” an idea popularized by current Federal Reserve Chairman Ben Bernanke in a 2005 speech. For various reasons, savers have become ascendant across many regions. In Germany and Japan, aging populations need to save for retirement. In China, the government holds safe bonds as a hedge against a future banking crisis and, of course, as a byproduct of efforts to stabilize the exchange rate.

Similar motives dictate reserve accumulation in other emerging markets. Finally, oil exporters such as Saudi Arabia and the United Arab Emirates seek to set aside wealth during the boom years.

Second, in their efforts to combat the financial crisis, the major central banks have all brought down very short-term policy interest rates to close to zero, with no clear exit in sight. In normal times, any effort by a central bank to take short-term interest rates too low for too long will boomerang. Short-term market interest rates will fall, but, as investors begin to recognize the ultimate inflationary consequences of very loose monetary policy, longer-term interest rates will rise.

This has not yet happened, as central banks have been careful to repeat their mantra of low long-term inflation. That has been sufficient to convince markets that any stimulus will be withdrawn before significant inflationary forces gather.

But a third factor has become manifest recently. Investors are increasingly wary of a global financial meltdown, most likely emanating from Europe, but with the US fiscal cliff, political instability in the Middle East, and a slowdown in China all coming into play. Meltdown fears, even if remote, directly raise the premium that savers are willing to pay for bonds that they perceive as the most reliable, much as the premium for gold rises. These same fears are also restraining business investment, which has remained muted, despite extremely low interest rates for many companies.

It is the combination of all three of these factors that has created a “perfect storm” for super low interest rates. But how long can the storm last? Although highly unpredictable, it is easy to imagine how the process could be reversed.

For starters, the same forces that led to an upward shift in the global savings curve will soon enough begin operating in the other direction. Japan, for example, is starting to experience a huge retirement bulge, implying a sharp reduction in savings as the elderly start to draw down lifetime reserves. Japan’s past predilection toward saving has long implied a large trade and current-account surplus, but now these surpluses are starting to swing the other way.

Germany will soon be in the same situation. Meanwhile, new energy-extraction technologies, combined with a softer trajectory for global growth, are having a marked impact on commodity prices, cutting deeply into the surpluses of commodity exporters from Argentina to Saudi Arabia.

Second, many (if not necessarily all) central banks will eventually figure out how to generate higher inflation expectations. They will be driven to tolerate higher inflation as a means of forcing investors into real assets, to accelerate deleveraging, and as a mechanism for facilitating downward adjustment in real wages and home prices.

It is nonsense to argue that central banks are impotent and completely unable to raise inflation expectations, no matter how hard they try. In the extreme, governments can appoint central bank leaders who have a long-standing record of stating a tolerance for moderate inflation – an exact parallel to the idea of appointing “conservative” central bankers as a means of combating high inflation.

Third, eventually the clouds over Europe will be resolved, though I admit that this does not seem likely to happen anytime soon. Indeed, things will likely get worse before they get better, and it is not at all difficult to imagine a profound restructuring of the eurozone. Nevertheless, whichever direction the euro crisis takes, its ultimate resolution will end the extreme existential uncertainty that clouds the outlook today.

Ultra-low interest rates may persist for some time. Certainly Japan’s rates have remained stable at an extraordinarily low level for a considerable period, at times falling further even as it seemed that they could only rise. But today’s low interest-rate dynamic is not an entirely stable one. It could unwind remarkably quickly.

ECB DO n DOnots Martin Feldstein article

Recent statements by European Central Bank
President Mario Draghi and Bank Governor
Ewald Nowotny have reopened the debate
about the desirable limits to ECB policy. The issue is
not just the ECB’s legal authority under the Maastricht
Treaty, but, more importantly, the appropriateness of
alternative measures.
Nowotny, the president of the National Bank of
Austria, suggested that the European Stability
Mechanism (ESM) might (if the German
Constitutional Court allows it to come into existence)
be given a banking licence, which would allow it to
borrow from the ECB and greatly expand its ability to
purchase euro-zone sovereign bonds. Draghi later
declared that the ECB can and will do whatever is
necessary to prevent high sovereign-risk premia from
“hampering the functioning of monetary policy.”
Draghi’s statement reprised the rationale used by
his predecessor, Jean-Claude Trichet, to justify ECB
purchases of euro-zone members’ sovereign debt.
Not surprisingly, financial markets interpreted his
declaration to mean that the ECB would buy Spanish
and Italian government bonds again under its
Securities Markets Programme, as it did earlier this
year. Although the previous purchase of more than
^200 billion ($246 billion) had no lasting effect on
these countries’ risk premia, the presumption is that
the effort this time could be much larger. But is that
what the ECB should be doing?
While any central bank must be able to conduct
open-market operations to manage liquidity in financial
markets, selective purchases of individual country
bonds that bear high interest rates because of current
and past fiscal profligacy is both unnecessary and
dangerous. A better rule for the ECB would be to conduct
open-market operations by buying and selling a
“neutral basket” of sovereign bonds, with each country’s
share in the basket determined by its share in the
ECB’s capital.
This “neutral basket” approach would permit the
ECB to purchase substantial volumes of Italian and
Spanish bonds, but only if it was also buying even
larger amounts of French and German bonds. The
ECB’s bond purchases would become as similar to the
open-market operations of the United States Federal
Reserve and the Bank of England as is possible in the
absence of a single euro zone sovereign government.
By contrast, focusing potential ECB purchases on
the sovereign debt of those countries with high interest
rates would have serious adverse effects. It would
reduce pressure on the governments of Italy, Spain,
and other high-interest countries to make the politically
difficult decisions that are needed to cut longterm
fiscal deficits. Spain needs to exercise greater
control over its regional governments’ budgets, while
Italy needs to shrink the size of its public sector. An
ECB policy that artificially reduces their sovereign
borrowing costs would make these steps even more
politically difficult.
Indeed, when the ECB controls interest rates on
long-term bonds, it is hard for political leaders, parliaments,
and voters to know whether they have
achieved significant fiscal improvement. The peripheral
euro-zone countries became over-indebted in
the last decade because the bond market failed to
provide a signal that debts were too high. That has
now ended, because bond investors no longer treat all
euro-zone sovereign debt as equal. But an ECB programme
to limit interest-rate differentials would eliminate
this important signal.
Moreover, because the ECB cannot simply buy
sovereign bonds without regard for individual governments’
fiscal policies, it risks finding itself in the
politically dangerous position of deciding whether a
country’s fiscal actions are tough enough to be
rewarded with lower interest rates. The ECB would
thus cross the threshold from monetary policy to fiscal
policy. Would it put a common ceiling on “wellperforming”
governments’ interest rates, as Italy’s
Prime Minister Mario Monti suggested not long ago?
Or would it set and revise sovereign interest rates
according to its current evaluation of each country’s
fiscal efforts?
Finally, Germany might not continue to accept
the default risks implied by large ECB purchases of
high-risk sovereign bonds. Germany already faces
large financial risks, owing to the ECB’s balance sheet
and the Target2 balances at the Bundesbank that are
generated by international flows of deposits to
German commercial banks.
While German political leaders now declare their
allegiance to the euro zone, opinion polls in Germany
show that public support for the euro is very weak. As
the risks accumulate, it is not inconceivable that
Germany might conclude that, despite the potential
impact on its exchange rate, it would be better off
returning to the Deutsche Mark.
For all of these reasons, the ECB’s direct purchase
of high-yield sovereign bonds to limit their interest
rates would be a mistake. It would also be a mistake
to do this indirectly by another trillion-euro longterm
refinancing operation aimed at encouraging
commercial banks to buy those bonds. And it would
be a mistake to allow the ESM to have a banking
licence so that it can borrow from the ECB, greatly
increasing its purchase of peripheral countries’ bonds.
Individual governments should take the tough
political steps needed to reduce the risk of a eurozone
breakup, which would have very substantial
financial costs for all — and not only its members.
Unfortunately, ECB officials’ recent statements may
have reduced the pressure on governments to do those
things, and, by reversing the decline of the euro’s value,
may have blocked the market response that is
needed to shrink current-account imbalances and
boost GDP in the euro zone. Sooner or later, the ECB
will have to clarify the limits of its policy.

Service sector slowing down

Service sectors in China and India lost some momentum and Australian service industries contracted further in July, data released Friday showed, the latest signal of stress in Asia-Pacific economies. The news followed data Wednesday showing a broad deterioration in Asia’s export-dependent manufacturing sector, which has faced heavy pressure from a faltering U.S. recovery and a downturn in the eurzone’s crisis-hit economy. Economists said service sectors in China and India are still robust, despite the slower pace of expansion. But the recent slowing helps build a case for easing steps by policy makers in Asia, especially when combined with the dismal manufacturing figures. China’s official non manufacturing Purchasing Managers’ Index fello 55.6 in July from 56.7 in June, as Chinese government measures toein in property prices took hold.he gauge covers the real estate sector, among others including re-ail, aviation and software. The reading came in lower than some private estimates, and two days after China’s manufacturing PMI fell to 50.1 from 50.2 in June. For both manufacturing and services PMIs, a reading above 50 indicates that the sector is expanding while below 50 shows contraction. “China’s economic situation haseached a stalemate. No significant improvements were seen in July,” said Citi economist Ding Shuang. A separate PMI measure of China’s services sector compiled by HSBC rose to 53.1 from 52.3 in June. HSBC co-head of Asian economic research Frederic Neumann said the Chinese services PMI data show China’s economy is stabilizing, and are much less worrying than the lackluster manufacturing data. The official 55.6 reading shows the economy is still expanding at a healthy pace, but underlines that Beijing should continue to support it, including with measures to spur construction, given the bleak external picture, he said. India’s service-sector PMI posted54.2 reading in July, down slightly from 54.3 in June, according to HSBC’s PMI survey. New orders at services and manufacturing companies in India continued to rise, but the pace of increase slowed and the new-orders index was the lowest since November 2011. India’s inflation rate remained strong on solid demand and risingages, HSBC said. “With inflation risks still lingering despite the slowdown and policy action out of Delhi so far insufficient, the RBI has littleoom to maneuver,” said Leif Eskesen, HSBC chief economist for India and Southeast Asia. In Australia, the Australian Industry Group-Commonwealth Bankerformance of Services Index fello 46.5 in July from 48.8 in June.he parts of the country’s economy not directly tied to its booming mining sector continue to struggle, as a strong Australian dollar continueso take its toll, Mr. Neumann said.

Usain Bolt sets Olympic record, wins men's 100 gold medal in 9.63

I wanted to see him in Delhi commonwealth games 2010, he was suppose to compete but i dont know the sure reason why did he backed out , I wanted to see him run and for me in my time he is the phenomenon greater than anybody (Federer and Nadal , Woods , Phelps holds their position).
Usain Bolt is the fastest man in the world again. Now he wants to be a legend.
After all the talk about Bolt falling off his elite pace and being outclassed by fellow Jamaican Yohan Blake, Bolt outraced the 22-year-old for gold, winning in an Olympic-record 9.63 seconds to Blake's 9.75. The United States grabbed bronze with 9.79 from Justin Gatlin.
"There was a lot of people saying that I wasn't going to win. There was a lot of talk," Bolt said. "For me, it was an even greater feeling to come out and show the world I'm still the No. 1. I'm still the best."
Now he's focused on defending his Beijing gold medals in the 200 meters and 4x100 relay. If he does that, he'll be the first runner in Olympic history to ever defend all three. Which would be, in a word that Bolt likes, legendary.
"That’s my ultimate goal," Bolt said of being a legend. "That's it for me."
And he played the part Sunday. Running from Lane 7, Bolt was in the pack for the first 50 meters of the race until his long strides began boosting him forward. But unlike Beijing, he never opened up a wide margin in what was an extremely fast final. And with Blake and Gatlin in his pockets going into the finish, Bolt admitted he never thought about setting a world record or looked at the clock until the final 25 meters.
At that point, Bolt said, "It was too late to do anything about it."
Still, his 9.63 was remarkably fast – the second fastest ever behind his world record of 9.58 at the Berlin World Championships in 2009. With it, he now has the three fastest 100 meters in history next to his name. And he's only the second Olympic champion in the 100 meters to defend his title, joining the United State's Carl Lewis. Now he can admit it: Staying on top of the podium in 2012 was far more difficult than getting there for the first time in the 2008 Beijing Games.
"Without a doubt, hands down, [being at] the top is harder than anything else," Bolt said. "When you get to the top, you know it's good. You're working and enjoying it. Sometimes you lose sight of what's going on around you. Yeah, you know what it takes to get there, but sometimes you lose sight because everybody is praising you, everybody thinks you're great and you're doing well."
Ultimately, Bolt said it was Blake who rang the bell for him, beating him the 100 and 200 in Jamaican Olympic qualifying late in July. That, Bolt said, was his turning point to retaining his 100-meter title.
"When Yohan Blake beat me twice, it woke me up," Bolt said. "It opened my eyes. Pretty much he came and knocked on my door and said, 'Usain, wake up. It's an Olympic year. I'm ready. Are you?' "
And Blake's role in pushing Bolt?
"I've trained really hard," Blake said. "That's why Usain nicknamed me 'The Beast.' "
And it might have been a good thing for both Bolt and Blake to have each other, as they faced a U.S. contingent that was clearly up for the gold medal challenge. The United States had a superb showing in the qualifying rounds with former 100-meter world record holder Tyson Gay, former Olympic gold medalist Gatlin and young star Ryan Bailey all putting up fast heats heading into the finals.
Despite coming off a four-year drug suspension, Gatlin appeared ready to crank up again for his big-stage reputation. And Gay looked like he was regaining his form despite hip surgery just over a year ago. The pair made Bolt and Blake dig every last step on Sunday, as Gatlin finished .16 off Bolt and .04 off Blake. Gay was one-hundredth of a second from tying Gatlin for bronze, a fact that drove him to tears as he left the track.
But Gatlin said he was "taking on a mountain," and that his bronze was a success in the face of returning from suspension against the two fastest runners in the world.
"It's been a lot of ups and downs," Gatlin said. "I've been at the top of the podium before. To come back and work this hard – to be honest with you, watching Bolt, watching Blake, what they've done, that has given me inspiration to work harder, run fast, train harder in practice … and just push myself to be a better runner."
Now Bolt moves on to his next challenge: the 200 meters, which begins on Tuesday. So he's off to sleep. But not before dropping one other little tease before the lights go out. How about Rio de Janeiro in 2016? Any chance of a 100-meter three-peat?
"I hope I'm there," Bolt said. "I'm going to be 30, but I think I'll still be in good shape. Blake will be 26, so it should be interesting."

BOLT is a class act and will be forever.

Blackout nation not a Breakout nation

Power cuts in India show that a lack of reform is beginning to hurt ordinary people FOR an aspiring economic superpower, there can be few more chastening events than electricity cuts as massive as those that struck northern and eastern India this week. An area (including the capital, Delhi) in which more than 600m people live faced blackouts over two days. Infrastructure, from traffic lights to trains,
At one end, not enough cheap coal is being dug up and gasfields are sputtering. At the other, the national transmission grid needs investment. Meanwhile the “last mile” distribution companies, largely state-owned, that buy power and deliver it to homes and firms, are financial zombies. Much of their power is pinched or given away free. Local politicians put pressure on them to keep tariffs low, which leads to huge losses. Squeezed between a shortage of fuel and end-customers who are nearly bust, those private generating firms are now cutting back on vital long-term investment in new plants. The state of the power industry causes problems for the country not just because electricity is in short supply. The distribution companies’ huge debts weigh on the banks’ balance-sheets, threatening the health of the financial sector as well. The solution is to cut graft, tackle vested interests and allow markets to work better. The coal monopoly needs to be broken up and local distribution firms privatised. Yet despite the looming crisis, for a decade the government has shirked doing what is clearly necessary, just as it has failed to implement key tax reforms, cut public borrowing or open the retail sector to competition. It has allowed corruption and red tape to damage other vital industries, such as telecoms. Politicians shirk these tasks because they fear offending powerful lobbies, such as the farmers who receive subsidised electricity, while voters seem to manifest little appetite for reform. No party has a clear majority in parliament, and none was elected on a platform of change. The present Congress-led coalition government has few people with a record of or an instinct for reform, save perhaps the prime minister, Manmohan Singh, who has now run out of zip. It relies on fickle regional parties to stay in power. The opposition is no better—and possibly worse. Compared with a blacked-out India, China’s economic star shines bright. But the present failures of the Indian system are not an argument for adopting China’s. There are autocracies without enough electricity, and democracies with plenty of it. Meanwhile, democratically elected governments are quite capable of winning public consent for brave reforms—as India’s did two decades ago. The government’s reaction to the power cuts has been depressingly in line with its more recent performance. During the blackouts it enacted a cabinet reshuffle, and the power minister was promoted to a more senior post. Yet there are some grounds for hoping that things may change. The very scale of the power cuts may remind voters that bad economic policies are not just abstract notions, but hurt people’s lives by making jobs scarcer, roads more congested, and food and phones more expensive. And that in turn may remind politicians of the dangers of ignoring the economy.
India’s great blackout is a consequence of rotten governance. Voters need to understand that, and deliver the country’s political class a different kind of electric shock.