Ed’s Daily Notes for June 26th   2 comments

Bloomberg: Biggest Banks’ Wind-Down Plans Seen Failing to Cut Risks

An increasingly vocal chorus of current and former U.S. regulators says the biggest banks still have not provided adequate plans to safely wind down in bankruptcy and may need to be restructured to reduce the risk they pose to the financial system.

Jim Wigand, a Federal Deposit Insurance Corp. official responsible for planning for the failures of big banks such as JPMorgan Chase & Co (JPM)., Goldman Sachs Group Inc (GS). and Citigroup Inc (C)., said none have yet been able to draw up bankruptcy plans that wouldn’t threaten to detonate the financial system. The plans, known as “living wills,” were a core demand of the 2010 Dodd-Frank Act overhaul of financial oversight, and it gave regulators the authority require systemically risky banks to restructure if their plans aren’t “credible.”

Whether a global financial giant is able to go through an orderly bankruptcy using a living will is still “an open question,” Wigand said in an interview.

The 11 largest banks filed the first draft of their living wills last year. Wigand, who has announced he will be leaving the agency later this year, said the plans had “varying levels of quality, although they all had a ways to go.”

The banks, which included Bank of America Corp., Barclays Plc (BCS) and Deutsche Bank AG (DB), are required to file new versions of their living wills on Oct. 1. Another tier of banks with less in U.S. nonbank assets, including Wells Fargo & Co (WFC). and HSBC Holdings Plc (HBC), must file their first plans by July 1.

This is worrisome because the longer the TBTF banks drag their feet on this, the greater the risk to the entire financial system. Consider this: If a TBTF bank failed tomorrow, and their “living will” was insufficient to see them through a bankruptcy, there would be absolutely no political will for another bailout. Any politician who would even suggest such a thing would get tarred and feathered for it, even if it meant allowing the entire financial system to collapse.

The TBTF banks are playing Russian roulette with our financial system right now.

Bloomberg: Rudd Beats Gillard in Ballot for Australia Labor Leadership

Kevin Rudd defeated Julia Gillard in their third face-off to head Australia’s governing Labor party in three years, ushering the political demise of the nation’s first female prime minister.

Rudd won by 57 votes to 45 for Gillard in the Labor caucus, party official Chris Hayes said. In an interview with Sky News today in which she called the party-room ballot, Gillard pledged to leave parliament at the election if she lost.

Rudd, 55, ousted by Gillard in a backroom coup three years ago, faces the task of turning around a 14 percentage point advantage in opinion polls for Tony Abbott’s opposition. While popular among voters, Rudd has been criticized by colleagues including Treasurer Wayne Swan for an autocratic style, raising questions over whether Labor can unite behind him ahead of a poll currently scheduled for Sept. 14.

“A win for Rudd means Labor has a chance to save some seats at the election and avoid a wipeout,” said John Warhurst, a political analyst at the Australian National University in Canberra. “While he’s more popular with voters, the deficit Labor faces in the polls means a win for the party still seems highly unlikely.”

This is important to know because:

Rudd, a Mandarin-speaking former diplomat, remained on the backbench since resigning as foreign minister last year when he challenged Gillard. He enjoyed record-high popularity ratings after defeating John Howard’s long-running coalition government in 2007, boosted in part by his apology to the indigenous Aboriginal population for systematic abuses by the state.

His ratings fell when major mining companies helped finance an advertising campaign against his plan for a 40-percent tax on resource profits.

Gillard enacted a 30-percent mining levy after ousting Rudd, and has since struggled to convince Australians that the resource tax will benefit them. The tax will reap A$1.8 billion less in revenue for the year to June 30 than previously forecast, budget documents showed May 14.

Even as the economy expanded in 2012 at its fastest pace in five years, unemployment has been rising in areas where Labor has been traditionally strong. While Chinese demand for iron ore and coal has driven a mining boom in the country’s north and west, manufacturing areas in the east have struggled, with the Aussie dollar in the past three years averaging 30 cents above the level of the prior two decades.

Since they have enacted this minerals tax, Australian manufacturing has suffered. I don’t see that as a coincidence, since the miners would have passed along the tax to anyone buying ore, which would include their manufacturers.

The Liberal Party’s Tony Abbott is an interesting politician. In his favor, he has opposed the minerals tax. On the other hand, he has talked out of both sides of his mouth about climate change policies, so it is hard to say exactly where he stands there.

Regardless, if Abbott ends up as the next Australian PM, that would be a positive for Aussie investments.

Fox News: Obama orders new rules on coal-fired plants, sets condition for Keystone pipeline

In case you missed this yesterday:

President Obama pressed ahead Tuesday with his climate change agenda, calling for new regulations on coal-fired power plants and setting a new condition for the approval of the controversial Keystone pipeline.

“We need to act,” Obama said, in an address at Georgetown University.

Even before he spoke, the president’s proposal drew condemnation from the coal industry and lawmakers whose states rely on that industry for jobs.

Rep. Shelley Moore Capito, a Republican from West Virginia, said the proposal “could deliver an unrecoverable blow to coal-rich states” like hers.

But Obama claimed climate change is having “profound impacts” on the planet and must be addressed. He called for the U.S. to lead the world in a “coordinated assault” on the issue.

Going around Congress and unveiling what was likely to be his most controversial plank, Obama said he was ordering the Environmental Protection Agency to create the first-ever carbon emissions limits for existing power plants.

…An adviser’s comment ahead of the speech caused additional turbulence for the administration, as critics seized on it to claim the administration was unfairly targeting the coal industry. Ahead of the speech, White House climate adviser Daniel P. Schrag reportedly told The New York Times that a “war on coal” is needed.

“The one thing the president really needs to do now is to begin the process of shutting down the conventional coal plants. Politically, the White House is hesitant to say they’re having a war on coal. On the other hand, a war on coal is exactly what’s needed,” he said. Schrag is a geochemist and the head of Harvard University’s Center for the Environment. He also sits on a White House advisory panel.

Do you ever get the feeling Obama would rather be a dictator than president?

Regardless, avoid the coal industry and power producers for now. Obama’s “war on coal” may actually be more successful than Lyndon Johnson’s “war on poverty” and Bush’s “war on terror”…

Twitchy.com: Mick Jagger zings President Obama at DC concert

You have to love Mick Jagger for this quote from his concert in DC:

“I don’t think President Obama is here tonight… But I’m sure he’s listening in.”

Fox News: Astronomers discover new planets, 3 are habitable

This is one of those stories I just find interesting. Enjoy.

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Posted June 26, 2013 by edmcgon in Economy, Humor, Market Analysis, News, Politics

2 responses to “Ed’s Daily Notes for June 26th

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  1. Oh My- look at silver this AM- broke 19.50 Hell it dropped like a stone for almost 5% I hope most of you got out of this trade a while ago. I do not think it is done yet but right now it is held up by nothin but air. The exits will be very crowde this AM

  2. I got out about a month ago after holding a long time – ended up flat for me and was not happy – until now.
    BTW Ed, I haven’t changed browsers but I can see everything clearly now in the comment box details.

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