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The terms of the debt restructuring deal with the bond swap in Greece become clear on March 9, 2012. In the deal with private bondholders -using collective action clauses to force remaining bondholders into the deal- about 96% of the 206 billion euros of Greece's bonds will be exchanged. Private bondholders held out throughout most of 2011, delaying the inevitable as Greece's economic situation became increasingly hopeless. This created a logjam with the German government, which insisted on serious private sector participation and bondholder haircut as the cost of poor lending decisions of the French, German and other European banks that made loans to Greece out of proportion of the ability of Greece to payback loans. Charles Dallara of the Institute of International Finance, negotiating for European banks, offered a 10% average loss on the bonds in July 2009. It was not until German Chancellor Merkel told Dallara at a late night meeting on October 27, 2011: "this is my last offer," for a 50% loss on the face value of the bonds, was agreement reached. The Greek debt swap that now takes place will give private bondholders a loss of 53.5% from the face value of 200 billion euros of bonds that they hold. The new Greek bonds issued in place of the old bonds include short-term bonds issued by the eurozone rescue fund at 15% of the face value of the old bonds, and a series of Greek bonds with maturity ranging from 11-30 years valued at 31.5% of the face value of old bonds. That even this 53.5% bondholder loss will not be adequate, as Greece's economy looks irretrievably damaged as it spirals downwards, is shown by the value of these bonds already trading in a hypothetical "gray market." The new 30 year bond is quoted at 17 cents and the 11 year bond at 22 cents. The questions remain about the stalling by the banks in taking the losses earlier- was this the wisest move considering the losses beyond Greece as the eurozone economy as a whole has suffered from the prolonged negotiations stretching through 2011, lurching from one crisis to the next? Even if the stalling was designed to give time for banks to repair their balance sheets, was this the best strategy, considering the damage inflicted on European economic growth. John Taylor of Stanford points out that the European banks delayed the unavoidable serious debt restructuring for too long, when insolvency was the real issue not illiquidity, and exaggerated the effect of contagion from the beginning- in John Taylor, WSJ, 2/22/2012, A Better Grecian Bailout. And John Cochrane of the University of Chicago, points out that French and German governments if they bailout French and German banks should do so openly and frankly rather than cover this up as bailouts of countries, because this would lead to serious questions about the poor lending decisions of the European banks and government supervision of the banks- in Cochrane, WSJ, 12/2/2010, 'Contagion' and other Euro Myths. As early as Feb. 2010, Cochrane was suggesting the forced exchange of new bonds with long debt maturities for exisiting bonds with short debt maturities, as short term debt was the major issue here. ...

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Former Fed Governor Kevin Warsh's views on the need for greater transparency and disclosure from the large U.S. banks and the risks to the financial system from "too-big-to-fail" banks in 2012-2013. He says the U.S. should not be dependent on the Basel standards for capital requirements and use its own system of stricter requirements similiar to the UK and Switzerland. His views are that the Dodd-Frank law puts too much dependence on regulators doing the right thing, information transparency is lacking for markets to impose discipline, and delegates too much to Basel standards which are not rigorous enough for protecting the U.S. economy.

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Warren Stephens, head of Stephens Inc, in Little Rock, Arkansas, says repeal of the Glass-Steagall Act was a mistake. U.S. banks should have a 5% cap on holdings of total deposits in the U.S., and no "grandfathering" of banks over the 5% limit. Five institutions controlling 50% of the deposits in the U.S. creates too much systemic risk in another financial crisis. Banks should be expected to be one or the other, commercial banks or investment banks, not both. These recommendations are not new. Bank of England Governor, Mervyn King, called for breaking up the largest banks or shrinking the size of the largest banks during the global financial crisis in 2008. This position for banks that are smaller in size is supported by veteran bankers Paul Volcker, Thomas Hoenig and other experts.

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Anat Admati, is a professor of finance and economics at Stanford University School of Business. He says banks should depend on generating 30% of their assets from equity, something the banking industry of today in the U.S. and Europe considers heretical. More of the bank's assets should come from equity and much less from borrowed funds. Outside of banking healthy corporations in the U.S. carry debt at about 70% of assets and there is no reason banks should not do the same. In 2013 says Admati, the situation is not much different from that after the 2008 global financial crisis- large banks carry liabilities and debt at over 90% of their assets. The $2.2 trillion in debt at JP Morgan Chase bank is about 91% of assets of $2.4 trillion. Basel III regulations allow banks to borrow upto 95% of assets, and proposed banking regulations in the U.S. put this at 95%, with the way this is measured still being debated. At such high levels of debt the margin of error is small, and systemic risk which is high in a globally interconnected banking system means the whole banking system can freeze from one large bank going into failure such as Lehman Brothers. This happened in 2008 and the margin of error is still small, which is why global banking is such a high wire act with the U.S. Federal Reserve, the ECB and other central banks issuing regular warnings and regulators faced with the task of keeping the banking system in check through vigilance and investigations of banks violating laws. How much difference has Dodd-Frank legislation in the U.S. made after 2008? Jason from Atlanta says in response to Admati's article, that the Glass-Steagall Act of 1933 was 37 pages and the banking system did not freeze up in the way it did in 2008 for the rest of the twentieth century until its repeal. The 879 page Dodd-Frank legislation of 2011 is overly voluminous and still leaves 243 rules to be written by regulators in consultation with the financial industry. Banks are larger now than they were in 2008 and have an outsized influence in shaping the rules, leaving the U.S. Federal Reserve's supervisory committee and Fed Governor Daniel Tarullo with the job of somehow keeping banks out of trouble. JP Morgan Chase, Admati reminds readers, has $2.4 trillion in assets as of June 30, 2013, and debts of $2.2 trillion, with $1.2 trillon in deposits and $ 1 trillion in other debt owed to money market funds, other banks, bondholders and the like. ...

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On Monday August 8, 2010, the Dow Jones Industrial Averages went down by 634 points and closed below 11,000 points. This is not far from the 10,165 level of the DJIA on August 27, 2010. It was on August 27, 2010 that Fed chairman Ben Bernanke made the speech at the Kansas City Fed's Jackson Hole conference about the strategy for a QE II. Its about the time for this years Jackson Hole conference and the gains in the stock market are melting away. The DJIA closed at 12810 by April 29, 2011, then went below 11,000 by August 8, 2011. With higher inflation the Fed's options are limited.

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Gillespie lists the myths and describes the reality about Ron Paul. Ron Paul is not a "top tier" candidate- with many Republican candidates assuming top tier status and fizzling out this has become a term that has lost meaning. Paul is a doctrinaire libertarian- he has positions similiar to libertarians but also has his own views on immigration and abortion. His views on the U.S. central bank, the Federal Reserve, such as "ending the Fed" are crazy- actually Ron Paul's legislation on auditing the Fed is gaining credibility, and Fed policy is viewed skeptically by both the Tea party and Occupy movement, as well as some in the Federal Reserve such as Kansas City Fed chairman, Thomas Hoenig, and respected economists such as Alan Meltzer of Carnegie-Mellon University.Ron Paul is anti-military- Paul has support from servicemen in the military and raised more money from them than any other candidate including Obama. Ron Paul has youth support because he is against the war on drugs- the war on drugs has not worked that well and new approaches are needed. His support among youth comes from a believing that individuals are better at making the right decisions, his idealism, and his faith in making the U.S. a better place. ...

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Two thirds of Americans are becoming pessimistic about the economy. This is one of the results of a Wall Street Journal/NBC poll. This is up from 53% in January. Voters are losing confidence in the idea that the Democrats can come up with better solutions than the Republicans. Only 24% of those polled have positive feelings for the Republican party, with Democrats doing only slightly better. Democratic pollster, Peter Hart- who along with Republican pollster Bill McInturff conducted the survey- calls it the JetBlue election. This description is from the JetBlue flight attendent who ran from the plane after exiting through an emergency chute. There is a sense of severe discomfort and looking for the exit, he says. With 6 in 10 of those polled expressing a loss of confidence in the policies of the Obama administration to improve the economy, including 83% of independents, and a quarter of Democrats. The situation has deteriorated on the confidence level with the war in Afghanistan as well. 68% of those polled say they are less confident now that the war in Afghanistan can be brought to a successful conclusion....

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Guerrera describes the vital role that FDIC chairman Gruenberg's plan for unwinding failing financial institutions will play in tackling the "too-big-to-fail" problem facing the U.S. He points to the increasing importance of this after the failure of risk management systems at JP Morgan Chase bank.

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After over two decades of focus on GDP growth targets, China under prime minister Li Keqiang is giving more emphasis to job growth and problems of air pollution, education, and quality of life indicators. Premier Keqiang tells a news conference in Beijing in March 2014 that China needs to create 10 million new jobs each year. More bond defaults can be expected as the financial system is being changed with new rules. Li says China will no longer be "preoccupied" with GDP growth targets. Li made the new priorities clear-"The GDP growth we want is one that brings real benefits to our people, helps raise the quality and efficiency of economic development and contributes to energy conservation and environmental protection."

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EU leaders meeting in Brussels agreed on Dec. 12 for a single banking supervisor for large banks in the eurozone. The European Central Bank will act as the supervisor with powers to force banks to raise capital buffers and close banks it considers unsafe. The Federal Reserve, U.S.'s central bank, has similiar powers in the U.S. Germany's finance minister Schauble says the national parliaments would be able to ratify the new supervisor by Feb. 2013, and the new supervisor should be in place by March 2013. Differences between Germany and France on which banks should come under the supervision of the ECB were resolved by giving the ECB resposibility for banks that have over 30 billion euros in assets, are over 20% of a country's GDP, or operate in at least two countries. At least 3 banks in each country in the eurozone would come under ECB supervision. The remaining smaller banks would remain under national supervision as Germany had insisted earlier. The focus now is on coming up with a common resolution authority for winding down failing banks, a function performed by the FDIC in the U.S. These are two of the three major parts of the new European financial architecture to support the euro currency. The third is deposit insurance, which is provided by the FDIC in the U.S. system. It is a major step forward and clears the way for direct recapitalization of banks in Spain and Ireland, two countries affected by having to take on responsibility for failing banks. By breaking the link between sovereign debt and failing banks the new agreements makes it possible for these countries to return to economic growth....

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Estimates show the 50 million Americans enrolled in Medicare today will increase to 80 million by 2030, according to the program's actuaries. Simple demographics as the baby boom generation ages is making controlling the deficit without controlling increase in health care costs as both sides in the fiscal cliff negotiations are attempting to do can only lead to defunding critical areas such as education, R&D and infrastructure, and breaching the safety net for lower income Americans. Health care spending took up 7% of GDP in 1960, increasing to 17.9% of GDP in 2010. Federal spending on healthcare has grown to about 25% in 2012 from 10% in 1960, and is projected to increase to about 33% in ten years by the Congressional Budget Office.

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U.S. President Obama's 2013 State of the Union address focussed on the problems facing the U.S. middle class, calling it "our generation's task" to tackle this problem. Economic changes have changed the patterns of economic growth and jobs, growth, income growth, that prevailed from the end of the Second World War to about 1989. But he offered few solutions beyond increasing the minimum wage to $9.00 from $7.25 to reduce poverty.

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Several experts point to a dangerous change in the nature of unemployment in this downturn. Heidi Shierholz of the Economic Policy Institute, says people are more likely to get stuck with unemployment now than at any time in the post war period. Andrew Stettner, deputy Director of the National Employment Law Project, says a larger share of the unemployed are not going to be able to go to the same line of work. They will need new skills, just like an auto worker in a permanently downsized industry would have to find new skills to make a product in the renewable energy field or health care. And the law as it currently stands does not help either. Because if an unmeployed worker looks for training or goes back to school he loses his unemployment benefits, something the Obama administration proposes to change. What this means is that many of the unemployed will end up as permanent job losers. Rob Valetta, an economist at the San Francisco Federal Reserve Bank says that throughout the the last 3 decades including good times, the unemployment pool is shifting towards permanent job losers. Lawrence Katz, a Harvard University economist, points out that once workers exhaust their unemployment benefits and don't get new training, they become disconnected to the labor market, and bascially end up on disability or become permanently unemployed. The statistics bear this out. In April 2009, 47.1% of the people collecting state unemployment insurance exhausted the usual 26 weeks of benefits without finding work, according to the Bureau of Laor Statistics, that is the highest rate on record. In December 2007, there were about 2 unemployed workers for every job opening, according to Labor Department data. In March 2009 there were five unemployed workers for every opening. Mark Beaupre, 49, of Providence, R.I. lost his $8 an hour manufacturing job an year ago, one of many manufacturing jobs he has held since the 1980's. His wife Cathy lost her customer service job a year ago. This couple who together made $50,000 a year, are now behind on their mortgage payments and have applied for food assistance. At a recent job fair in Providence he says three thousand people turned up and he could not even get into the parking lot. ...

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The IMF's managing director, Christine Lagarde, pointed to the urgent need to recapitalize European banks in September 2011. European banks face potential losses of 120 billion euros for Belgium, Spain and Italy, 60 billion euros for Greece, 20 billion euros for Ireland and Portugal, and 100 billion euros for other banking exposure, for a total of 300 billion euros, according to the International Monetary Fund. In the absence of recapitalization there could be further damage to EU economies from restricted lending by banks. IMF estimates show that deteriorating credit conditions could damage growth in the eurozone countries by 3.5 percentage points, and in the U.S. by 2.2 percentage points, creating another recession.

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Failure by EU leaders to take early and decisive action to reduce Greece's debt to sustainable levels in 2009. This was when the IMF report by Dutchman Bob Traa blew the cover off the Greek coverup of deteriorated finances. Policy missteps included ECB president Trichet and other EU leaders pushing austerity measures and not taking needed tough action on reducing the debt. By November 2011 a 50% reduction in debt with bondholders taking the losses is not enough to correct the situation. Greece's debt is discounted by 70% by Nov 2011. Analysts estimate an 85% reduction in Greek debt being necessary for Greece to pull through without a default.

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Prof. Cochrane of the University of Chicago goes over the Federal Reserve's new "Enhanced Prudential Standards and Early Remediation Requirements" for big banks. He finds serious shortcomings in the Fed's proposals to regulate the largest banks. He points to the proposal that puts less than one dollar at risk for every 10 borrowed dollars as ridiculously low, and says the Fed is admitting it really does not know how to correctly measure and regulate credit exposure in today's banking system. The Fed's remediation requirements are basically ways to get regulators to take action early with "triggers," because regulators were slow to act in the last crisis. This is down to regulating the Fed, not the banks. As stated in recent editorials in the Journal, and supported by Daniel Tarullo at the Fed, the best way to protect the financial system is in having capital reserve requirements that are high enough and reliable enough for a crisis.

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David Brooks on the candidacy for U.S. President of Senator Rick Santorum. He says Santorum genuinely represents the working class- a grandson of a coal miner and the son of Italian immigrants who has represented workers of the steel manufacturing region of western Pennsylvania. Santorum has pushed hard in this campaign largely ignored by the media. He has visited 370 towns riding in a pickup truck trying to cover as much ground as possible and talking with great conviction about his positions distant from the corporate and financial wings of the Republican party, about family, and communities. Bring someone like Sherrod Brown of Ohio together with someone like Rick Santorum and you have good representation of the working class across the political spectrum to win this election for the working class of America, says Brooks, who sees this as a lot better alternative today than Harvard Law.

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The Japan Automobile Dealer's Association says Toyota's Prius hybrid was No. 1 in sales in Japan in 2009 with 209,000 sales, three times the sales in 2008. This shows the high popularity of green cars in Japan and a sign of future trends. Hybrid sales made up 10% of new vehicle sales in Japan in 2009. By comparison hybrid sales in the U.S. were 2.8%. Second in car sales in Japan was the Honda Fit, third the Toyota Vitz, both small fuel efficient cars. About 1.6 million Prius cars were sold worldwide from 1997 to 2009, according to Toyota. Toyota has kept the price of the Prius affordable by pricing it at around $22,000.

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Nouriel Roubini has proven correct on global financial issues. He said in an interview on the sidelines of a symposium in Malaysia, that China needs to revalue its currency for its own sake. China will see a growth collapse in the next 2-3 years if it fails to do so. His point is that China can still maintain growth by shifting to domestic consumption and less infrastructure spending and exports. In his view growth should not be affected if China exports less and consumes more. He points to the decrease in consumption as a share of GDP from 45% to 36% in the last ten years- this ratio is 70% in the USA. A cheap yuan keeps foreign goods unaffordable and protects state owned companies which also get cheap credit, as keeping the yuan low requires China to keep interest rates artificially low. What this does is make a massive transfer of income from the household sector to the state owned companies, just at the time when China needs to do the very opposite of this. And compounding the problem is that the 25% of China's GDP that is made up of retained earnings of mostly state owned companies, goes into real estate and production facilities. See the link to David Barboza in the New York Times who points to the wasteful spending and real estate speculation by state owned companies. Roubini cites the automobile sector where capacity has doubled in the last year to 20 million, when the domestic market increased by 50% to 10 million vehicles. The stimulus only increased the effect of surplus capacity and misallocation of investment, with highways to nowhere and brand new airports that are three quarters empty. The Chinese leadership is beginning to grasp this, but the state owned companies and other interests who benefit fromm the old model, may make it difficult to reverse the trends. A lot is at stake in this, as it affects the U.S., as well as countries dependent on China's imports such as Australia, Canada, Brazil and Germany. ...

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The political risk in China as the change of leadership takes place in 2012, and with the removal of Chongqing party chief Bo Xilai. The slowing of manufacturing activity and slowdown in growth expected in 2012-2014. Export growth declines to 6.8% from 14.2% in the fourth quarter of 2011. Quarterly surveys by the central bank shows demand for loans is dropping. And the HSBC purchasing managers index shows a reading of 48.1 in March, declining from 49.6% in February, showing shrinking manufacturing activity in China- anything less than 50 means contraction is taking place.

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The New York Times reports from the comments of current and former members of the Chase Chief Investment Office (CIO), that risk officers at Chase were ignored when they raised issues about the complex trades made by trader Iksil. Iksil's trades had the support of his manager Mr. Macris, and Ms. Drew who was in charge of CIO. The comments also indicate that at one point Mr. Macris brought in a Risk Officer with whom he had worked closely for many years. Risk Officers are supposed to be independent and their concerns seriously heard, with the authority to halt trades that pose excessive risks. Which made this kind of cozy behaviour in the CIO trading offices in London cause for alarm. These reports also say Mr. Braunstein, the new CFO at JP Morgan Chase, did not strengthen controls after he assumed office in 2010. Bank officials disputed this. The New York offices did not fully grasp the complex trades being made in the CIO London offices, and upper management let the CIO operate pretty much on its own, especially with CEO Jamie Dimon's confidence in Ms. Drew's management of the CIO. This led to another gap in the process of risk management. Dimon had other priorities and distractions, from problem mortgages coming with the acquisition of Washington Mutual, pushing back aginst financial regulation after the 2008 crisis, stress tests and others. At the same time the U.S. Federal Reserve, regulators, and Treasury's coordinated effort to merge failing banks with other larger banks- because of the lack of the process of unwinding failed banks provided later under Dodd-Frank legislation- created mega financial banks. Unlike what the U.S. under Treasury Secretary Rubin pushed for in the case of S. Korea during a banking crisis in 1997, Treasury under Geithner and Fed officials did not push for unwinding of failed financial institutions such as Countrywide and Washington Mutual in 2008-2009 Chase's own portfolio of assets under the CIO, increased by an astounding amount from $76 billion in 2007 to $356 billion in 2011. Even if Ms Drew had managed CIO well before, managing a portfolio of this size is most likely to have presented a whole set of new challenges and problems for which the CIO office was not prepared. Similiar concerns were raised by other Fed officials such as Fed governors, Hoenig and Fisher, who raised the issue that such mega-banks posed unacceptable risks and were too big to manage. Pressures to increase investing profits, growing complacency, relaxing risk management controls, led to the situation where a single trader Mr. Iksil, who had only joined the bank in 2007 according to other reports, could create large losses. This follows a situation at UBSin 2011, where a novice trader made bets that resulted in large losses....