I've posted video clips of rally racing crashes on several occasions. Here's another one.
It seemed appropriate, in the light of my series of posts about the looming economic 'crash', to provide a visual reminder . . .
Today’s troops often confiscate the remnants of destroyed documents in war zones, but reconstructing them is a daunting task. DARPA’s Shredder Challenge calls upon computer scientists, puzzle enthusiasts and anyone else who likes solving complex problems to compete for up to $50,000 by piecing together a series of shredded documents.
The goal is to identify and assess potential capabilities that could be used by our warfighters operating in war zones, but might also create vulnerabilities to sensitive information that is protected through our own shredding practices throughout the U.S. national security community.
. . .
The Shredder Challenge is comprised of five separate puzzles in which the number of documents, the document subject matter and the method of shredding will be varied to present challenges of increasing difficulty. To complete each problem, participants must provide the answer to a puzzle embedded in the content of the reconstructed document.
Radiologist Steven Sirr first had the idea of using a CAT scanner to take images of violins in 1988.
He was an assistant professor at the University of Minnesota at the time and often brought his violin to his office to practise when it was quiet.
One weekend he was called to supervise the scan of a gunshot wound victim.
"I put the violin of the side on a table near the scanner and then after the patient went to surgery I turned round and saw my violin and thought - well it would be interesting to scan that," Dr Sirr told the BBC.
He had expected to see a wooden shell surrounded by air, but was proved wrong.
"There is a lot of anatomy - I'm used to evaluating anatomy in people and I saw a lot of detail that I had no understanding of, so I took the CT scan to my friend John Waddle, who is a violin maker, and I gave him the images," he said.
Over the following years the two men scanned many hundreds of instruments, including guitars, mandolins and other violins.
Scans of the older instruments revealed worm holes, small cracks and other damage that helped create their distinctive sounds.A CT scan showing density variation in the ‘Wilmotte’ Stradivari
Eventually the two men borrowed a Stradivarius known as "Betts" from the US Library of Congress which still had an original label placed by its Italian creator, Antonio Stradivari, inside its body.
Teaming up with another violin maker, Steve Rossow, they proceeded to create three replicas.
To do this they took more than 1,000 CAT scan images from the original instrument and converted them into a file format used to resemble three-dimensional object in computer-aided design (CAD) software.
"We used the scans to determine the density of the woods that made up the violin - that could only otherwise be done if the violin was dissected and measured - and of course that would never happen," Dr Sirr said.
The files were then fed into a CNC (computer numerical control) machine. It used the data to carve the violins' back and front plates, neck and the "scroll" carving at the neck's end using various woods picked to match the originals as closely as possible.
These were then assembled and varnished by hand.
"The copies are amazingly similar to originals in their sound quality," said Dr Sirr.
"When we make the violin we copy the changes that have occurred over more than 300 years including the shifts in the wood - the small deformations in the front and back plates that occur over time because of the forces of the strings and the other parts of the violin."
Dr Sirr said he hoped to repeat the process with other antique instruments and hoped that his work would one day pave the way for students to have access to "nearly exact copies" of the originals.
The dean of the world-famous Juilliard school in New York, welcomed the possibility.
"Every string player graduating from any great conservatory faces an immense crisis of how do you obtain a violin that is at the level that you need to have a really first rate career," said Ara Guzelimian.
The Android developer who raised the ire of a mobile-phone monitoring company last week is on the attack again, producing a video of how the Carrier IQ software secretly installed on millions of mobile phones reports most everything a user does on a phone.
Though the software is installed on most modern Android, BlackBerry and Nokia phones, Carrier IQ was virtually unknown until 25-year-old Trevor Eckhart of Connecticut analyzed its workings, revealing that the software secretly chronicles a user’s phone experience — ostensibly so carriers and phone manufacturers can do quality control.
But now he’s released a video actually showing the logging of text messages, encrypted web searches and, well, you name it.
Eckhart labeled the software a “rootkit,” and the Mountain View, California-based software maker threatened him with legal action and huge money damages. The Electronic Frontier Foundation came to his side last week, and the company backed off on its threats. The company told Wired.com last week that Carrier IQ’s wares are for “gathering information off the handset to understand the mobile-user experience, where phone calls are dropped, where signal quality is poor, why applications crash and battery life.”
The company denies its software logs keystrokes. Eckhart’s 17-minute video clearly undercuts that claim.
. . .
By the way, it cannot be turned off without rooting the phone and replacing the operating system. And even if you stop paying for wireless service from your carrier and decide to just use Wi-Fi, your device still reports to Carrier IQ.
And even more obvious, Eckhart wonders why aren’t mobile-phone customers informed of this rootkit and given a way to opt out?
It's a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.
On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.
The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.
The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.
The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the taverna.
The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit.
The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.
No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with a lot more optimism.
And that, Ladies and Gentlemen, is how the bailout package works.
The Fed -- along with central banks of the eurozone, England, Japan, Switzerland and Canada -- announced a coordinated plan to lower prices on dollar liquidity swaps beginning on December 5, and extending these swap arrangements to February 1, 2013.
A swap takes place when the Fed provides U.S. dollars to a foreign central bank, in exchange for the equivalent amount of foreign currency from that central bank.
"These swap lines are being implemented as a contingency measure, so that central banks can offer liquidity in foreign currencies if market conditions warrant such actions," the Federal Reserve said in a Q&A about the plan.
Together, the six central banks also created a temporary mechanism, making it easier for them to exchange their foreign currencies -- not just U.S. dollars. That tool gives any of these central banks easier access to euros, Japanese yen, British pounds, Swiss francs and Canadian dollars, should they need those currencies to assist their region's banks in the event of a crisis.
The USA will be dragged into this whether we like it or not. Consider the behavior of the Federal Reserve in the recent past - lending trillions (yes, trillions) of dollars to US and European banks and financial institutions to help keep them afloat. You want to bet the same thing isn't on the cards right now? If you do, there's a bridge in Brooklyn, NYC I'd like to sell you. Cash only, please, and in small bills. The Fed daren't let European banks go down the tubes, because that would impact the entire global economy, including those who buy US bonds and thereby fund the operations of the US government (which borrows close to half of every single dollar it spends). Therefore, it'll print dollars like there's no tomorrow, and hand them out by the trillions to prop up a failing Europe, because it can't afford to let it fail. For you and I, the men and women in the streets, that means more inflation on the way, coupled with negative real interest rates and the collapse of our retirement savings.
A former Groton Water Department worker has resigned after he was allegedly caught making moonshine on town property.
Groton Town Manager Mark Haddad confirmed that distilling equipment and some mason jars containing alcohol were found at the Baddacook water treatment plant last month.
. . .
The police became involved shortly after a plant supervisor discovered the makeshift distillery.
“That was stuff that really shouldn’t have been in the water treatment plant. It wasn’t known to the water superintendent who discovered it. We decided to have the police come down and test some of the liquid samples,” said Haddad.
This is not a monetary Crisis; it is a Crisis of values and morals. It is a Crisis caused by the notion that you can lie about virtually everything pertaining to a business deal (the quality of the assets, who owns them, whether they’re even legitimate, etc) and get away with it.
To review how we go into this mess, Wall Street and other industries lobbied Congress to loosen regulations. However, the secondary nature of those lobbying efforts was it trained Congress to see Wall Street as the hand that feeds, thereby making it unlikely for Congress to prosecute or pursue any criminal activity on the part of the bankers.
Take away consequence and rules and you have anarchy. And that’s virtually what we had in the Financial System leading up to the Crisis. Looking back on some of the more glaring situations (AIG, Goldman Sachs, etc) it’s simply amazing the whole mess didn’t blow up sooner.
The Federal Reserve and regulators then blew a one in 100 years opportunity to reform the system. We’re now finding out that instead of doing anything positive, Bernanke literally gave away TRILLIONS of Dollars to the banks.
In simple terms, the Fed engaged in the exact same business practices that blew up the mortgage lenders: giving money away without inquiring as to the borrowers real financial position or needs.
By doing this, the Fed spread the lies (and toxic debts) onto the public’s balance sheet, thereby compromising the Republic’s creditworthiness.
. . .
The whole system is now built on lies. The lie that banks are solvent. The lie that the Federal Reserve actually cares about regulating the financial system. The lie that crimes will be punished. The lie that Congress will reform Wall Street. The lie that we’ll get “change” at the ballot box.
. . .
You cannot build a financial system on lies. It simply doesn’t work. All it does is breed distrust and resentment. And as any businessperson can tell you, without trust business cannot work.
I was recently challenged by a contributor to write something positive, and so I decided to write about the single most positive outcome of the current financial crisis in Europe: the complete collapse of the corrupt, predatory, pathological global banking sector and its dealers, the central banks. Exploring why this is so reveals the insurmountable internal conflicts in our current financial system, and also illuminates the systemic political propaganda which is deployed daily to prop up a parasitic, corrupting, pathologically destructive financial system.
Our first stop is modern finance itself. Modern financial "products" and "instruments" are often highly complex and abstract, but the entire edifice can be distilled down to this: the system is based on the assumption that all risk can be hedged, and the difference between the initial position's yield/gain (i..e. placement of capital at risk for a gain) and the cost of hedging the risk of the wager to zero can be skimmed from the system risk-free.
That is the entire system in a nutshell, and we can immediately see the advantages of this system over traditional Capitalism, where risk can be hedged but never to zero, and the return is correlated to the risk taken on.
In modern finance, high-risk "investments" (wagers) with high returns can be taken on without worry because any and all risk can be hedged to zero, even in super high-risk wagers.
And since even high-risk positions can be seamlessly hedged to zero, then there is no reason not to borrow money to increase the size of your wagers: since you can't lose, then why not? Wagering in risk-free skimming with borrowed or leveraged money is simply rational.
Put these together and we see how a system based on risk-free skimming eventually leverages itself to the point that the slightest disruption can bring down the entire over-leveraged, over-extended system.
Why is this so? Every hedge has a counterparty who is supposed to pay off if the initial wager blows up. A system based on risk-free hedging is ultimately a self-organizing system which maximizes return by increasing bet sizes, leveraging/borrowing to near infinity and hedging every hedge as well as every wager.
This creates long chains of hedges and counterparties. Here's an example based on an asset we all understand, a house. Let's say someone buys a house for $1,000 down, something that was common in the housing bubble. That $1,000 is leveraged up to buy a $200,000 house via a $200,000 mortgage.
The "owner" of the house then buys a hedge to protect himself from the house losing value, so the risk is reduced to zero: if the value rises, the owner reaps the gain and if it declines, then he collects the payoff of the hedge from the counterparty, for example, a Wall Street investment firm.
The counterparty calculated the risk of real estate declining and then priced the hedge accordingly. There is some small risk that the loss will exceed the cost of the hedge, so the issuer of that hedge bundles similar bets and then buys a hedge or "insurance" from another player, who makes the same calculations of risk and return.
Meanwhile, the mortgage has been tranched (sliced into principal and interest and into various pools of risk) and bundled with other "low-risk" mortgages and sold to investors, who also buy a hedge against any loss in the tranch, for example, a credit default swap (CDS) which pays out if a borrower defaults. Those hedges are sold or "insured" with another hedges.
All of this debt and all of these hedges are based on a mere $1,000 of actual capital. The players who originated each hedge are similarly leveraged, because since risk can be lowered to zero, who needs capital?
So what happens when one counterparty (issuer of a hedge) somewhere in the chain runs into trouble? The entire chain collapses. With razor-thin capital to cover any losses, then each link in the chain dissolves into insolvency if their counterparty fails to pay off.
This is how we get hundreds of trillions of dollars in "notational" derivatives: every hedged is hedged with another "instrument," "products" are bundled and insured, and so on. The system is based on the principle that risk can be reduced to zero, and so there is no need for capital.
Unfortunately, that premise is demonstrably false. Benoit Mandelbrot dismantled the notion that risk can be reduced to zero in his prescient masterpiece, The (Mis)behavior of Markets. The founder of fractal geometry showed that markets are fractal in nature, and are thus intrinsically prone to unpredictable disruptions. Simply put, risk cannot be massaged away.
Thus the fundamental premise of all modern finance is flat-out wrong, and this explains why systemic risk, rather than being eliminated, actually rises with every ratchet up in debt, leverage and counterparty hedging.
The entire global financial system is thus based on the equivalent of a perpetual motion machine: money can be borrowed or leveraged into existence in essentially unlimited quantities, and then deployed in risk-free skimming operations to harvest unlimited wealth.
William Black, associate professor of economics and law at the University of Missouri-Kansas City, can’t understand why Paulson felt impelled to share the Treasury Department’s plan with the fund managers.
“You just never ever do that as a government regulator -- transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”
Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.
“What is this but crony capitalism?” she asks. “Most people have had their fill of it.”
SIXTY YEARS AGO, THE FASTEST airplanes on the planet were powered by enormous, complex V-12 piston engines made by Rolls-Royce, Allison, and Daimler-Benz. Sixty years later, some of the very same engines are still running, powering weekend warbirds, museum artifacts, and Reno racers. Only a few mechanics in the United States have the knowledge, skills, equipment, and temperament to keep them flying. These are some of them.
The Junkyard Cats
Follow a two-lane road running from Nowhere to Nevermind until you’re just east of Gilroy, California, and there, down an unmarked dirt road, is Dwight Thorn’s company: Mystery Aire Ltd. From this collection of ramshackle industrial sheds emerge the most powerful, reliable, and admired Merlin V-12 air-racing engines in the world. Engine blocks and parts are everywhere. Scarred junkyard cats sun themselves atop pallets of superchargers. Cylinder heads are stacked like cordwood. Every sump and valve cover is filled with eucalyptus leaves and spider nests. Crankcases are slowly sinking into the sandy soil—ashes to ashes, aluminum to aluminum.Rolls-Royce Merlin engine (image courtesy of Wikipedia)
How he works miracles in such a setting may be a mystery, but make no mistake: Dwight Thorn builds awesome engines that routinely win races. Looking a bit like Wilfred Brimley in bib overalls, the white-haired, 64-year-old Thorn is putting the finishing touches on a bright red Merlin with mirror-polished aluminum valve covers that will soon fill the snout of the two-seat TF-51 Crazy Horse, a Mustang that flies riders for a fee in Florida. Seventy-five percent of his work is overhauls of stock engines like this one. “But the two or three racing engines we do every year take just as long as all the others put together,” he says. Thorn charges $60,000 to $80,000 for an overhaul, depending on the condition of the run-out engine, and $160,000 to $180,000—and up—for a labor-intensive, 3,500-horsepower racing motor.
Exactly what do you do to hop up a Merlin? “Simple,” Thorn says with a grin. “Disconnect the boost [limiting] control. We’ve seen 150 inches of boost, which is where the gauge stops. And which is probably just as well.”
A quarter-ton of roofing shingles, 5 tons of construction debris, some gasoline and diesel fuel, a dead deer and an armadillo.
All of this — and literally tons of additional items, including almost 1,500 pounds of household garbage with everything from aluminum cans to soiled diapers — is part of a composting experiment in Williamson County that promises to turn this mess into usable soil in just 10 weeks.
. . .
Microbes with voracious appetites have quickly turned the massive piles of shredded garbage, tires, sludge and construction debris into an earthy-smelling mass. The two windrows initially stood more than 7 feet tall and measured 12 feet across at the base. They’ve shrunk by at least one-third.
Darpa is making a long-shot request for an all-out replacement to antibiotics, the decades-old standard for killing or injuring bacteria to demolish a disease. In its place: the emerging field of nanomedicine would be used to fight bacterial threats. The agency’s “Rapidly Adaptable Nanotherapeutics” is after a versatile “platform capable of rapidly synthesizing therapeutic nanoparticles” to target unknown, evolving and even genetically engineered bioweapons.
. . .
Darpa wants researchers to use nanoparticles — tiny, autonomous drug delivery systems that can carry molecules of medication anywhere in the body, and get them right into a targeted cell. Darpa would like to see nanoparticles loaded with “small interfering RNA (siRNA)” — a class of molecules that can target and shut down specific genes. If siRNA could be reprogrammed “on-the-fly” and applied to different pathogens, then the nanoparticles could be loaded up with the right siRNA molecules and sent directly to cells responsible for the infection.
Replacing a billion dollar industry that’s been a medical mainstay since 1940? Far fetched, sure, but researchers already know how to engineer siRNA and shove it into nanoparticles. They did it last year, during a trial that saw four primates survive infection with a deadly strain of Ebola Virus after injections of Ebola-targeted siRNA nanoparticles. Doing it quickly, and with unprecedented versatility, is another question. It can take decades for a new antibiotic to be studied and approved. Darpa seems to be after a system that can do the same job, in around a week.
Branded as the world's largest chicken fried steak, this 64oz, gravy-slathered slab of tenderized top round runs $70, or $.00 if you actually take it down solo (see below paragraph for terrifying caveat). Ordering a day in advance is required, as the beast takes 45 minutes to prepare, starting with whole milk-bound breading that requires the chef to roll the meat up like a carpet to flip; then it's off to a flat grill for a hot-oil splash bath, a searing session aided by a steel pizza shovel, and a 10-min convection-oven bake to ensure even cooking, because inconsistency at bite #78 would totally derail your mojo. Including the XL pizza pan it's served on, the finished protein planet weighs 9lbs and measures 14in in diameter; to up the ceremony, the chef and a procession of servers actually carry it like the Ark of the Covenant to your table, good practice for when they later carry you out in a casket.
(Herewith, the terrifying caveat) Because no steak's complete without sides, the Bull isn’t considered finished until you also stuff in 6lbs of mashed potatoes and 10 slices of Texas toast. On the plus side, unlike the 90 minutes allotted some grudge-match eating deals, there's no time limit: you've literally got from 7am opening 'til 2am closing, and if you fail, they offer the consolation prize of doggy bags -- because you know what's a great idea? Eating chicken fried steak every day for a month.
As I observe the zombie like reactions of Americans to our catastrophic economic highway to collapse, the continued plundering and pillaging of the national treasury by criminal Wall Street bankers, non-enforcement of existing laws against those who committed the largest crime in history, and reaction to young people across the country getting beaten, bludgeoned, shot with tear gas and pepper sprayed by police, I can’t help but wonder whether there is anyone home. Why are most Americans so passively accepting of these calamitous conditions? How did we become so comfortably numb? I’ve concluded Americans have chosen willful ignorance over thoughtful critical thinking due to their own intellectual laziness and overpowering mind manipulation by the elite through their propaganda emitting media machines. Some people are awaking from their trance, but the vast majority is still slumbering or fuming at erroneous perpetrators.
Both the Tea Party movement and the Occupy Wall Street movement are a reflection of the mood change in the country, which is a result of government overreach, political corruption, dysfunctional economic policies, and a financial system designed to enrich the few while defrauding the many. The common theme is anger, frustration and disillusionment with a system so badly broken it appears unfixable through the existing supposedly democratic methods. The system has been captured by an oligarchy of moneyed interests from the financial industry, mega-corporations, and military industrial complex, protected by their captured puppets in Washington DC and sustained by the propaganda peddling corporate media. The differences in political parties are meaningless as they each advocate big government solutions to all social, economic, foreign relations, and monetary issues.
. . .
The reason middle class Americans are being methodically exterminated and driven into poverty is the monetary policies of the Federal Reserve. Since 1971, when Nixon extinguished the last vestiges of the gold standard and unleashed politicians to spend borrowed money without immediate consequence, the U.S. dollar has lost 82% of its purchasing power using the government manipulated CPI. In reality, it has lost over 90% of its purchasing power. The average American, after decades of being dumbed down by government sanctioned education, is incapable of understanding the impact of inflation on their lives. As their wages rise 2% to 3% per year and inflation rises 5% to 10% per year, they get poorer day by day. The Wall Street banks, who own the Federal Reserve, step in and convince the average American to substitute debt for real wealth in order to keep living the modern techno-lifestyle sold to them by mainstream corporate media.
The oligarchy of moneyed interests have done a spectacular job convincing the working middle class they should be angry at 20 year old OWS protestors, illegal immigrants and the inner city welfare class, rather than the true culprits – the Federal Reserve, Wall Street banks and mega-corporations. This is a testament to the power of propaganda and the intellectual slothfulness of the average American. U.S. based mega-corporations fired 864,000 higher wage American workers between 2000 and 2010, while hiring almost 3 million workers in low wage foreign countries, using their billions in cash to buy back their own stocks, and paying corporate executives shamefully excessive compensation. The corporate mainstream media treats corporate CEO’s like rock stars as if they deserve to be compensated at a level 185 times the average worker. The S&P 500 consists of the 500 biggest companies in America and while the executives of these companies have reaped millions in compensation, the stock index for these companies is at the exact level it was on July 9, 1998. Over the last thirteen years workers were fired by the thousands, shareholders earned 0% (negative 39% on an inflation adjusted basis), and executives got fabulously rich.
. . .
Our entire system is designed to control the thoughts and actions of the masses. In many ways it is done subtly, while recently it has become more bold and blatant. It is essential for the ruling elite to keep control of our minds through media messages and the educational system. It is not a surprise that our public education system has methodically deteriorated over the last four decades. The government gained control over education and purposely teaches our children selected historical myths, social engineering gibberish and only the bare essentials of math and science. The government creates the standardized tests and approves the textbooks. We are left with millions of functionally illiterate children that grow into non-critical thinking adults. This is the exact result desired by the 1%. If too many of the 99% were able to ignore the media propaganda and think for themselves, revolution would result.
. . .
There were 400 pages of Federal Tax rules when the 1% personal income tax was implemented in 1913. Did the 18,000% increase in tax rules since 1913 benefit the average American or did they benefit the 1% who hires the lobbyists to write the rules which are passed into law by the politicians who receive their campaign contributions from the 1%?
Do you ever wonder why you pay more taxes than a billionaire Wall Street hedge fund manager? Do you think our tax system is designed to benefit billionaires and mega-corporations when corporations with billions of income pay little or no taxes? Complexity and confusion benefits those who can create and take advantage of the complexity and confusion. Corporations and special interests have used their wealth to bribe politicians to design loopholes, credits, and exemptions that benefit their interests. The corruption of the system is terminal.
... the monstrous mass of meat and cheese measures approximately 1 foot in diameter, and includes two 100 percent Angus beef patties, one of which has a hole in the middle where a grilled cheese sandwich is placed. Each patty is topped with four different cheeses — cheddar, American, pepper jack and Swiss — as well as a woven bacon patty. Finally, the burger is topped with crispy shoestring fries and doused in barbeque sauce, with an appropriately sized bun. The challenge also includes one-quarter pound each of fries and onion rings on the side.
In more than 40 attempts, nobody has been able to finish the challenge in the allotted time of one hour.
According to the police report, the 49-year-old victim, identified only by the initials A. M. A. M., and her husband were having sex against the banister in the communal stairwell of the apartment block, when in a moment of frenzied abandon the woman slipped and fell into the void.
Her fall was stopped somewhat abruptly when her right ankle got caught between two bars of a banister several metres below where the amorous encounter had begun. As a result of the sudden break in her fall, the woman was left hanging upside down, stark naked, just inches from the ground whilst her husband tried to get help.
Local police, national police and a crew of firefighters responded to his emergency call, with the latter getting the task of cutting through the bars of the banister to release her right leg. The woman suffered a fracture to her right ankle and was taken to the local hospital.
If it was just Europe and if the crisis could be contained there, then maybe we could focus on something else for a change. But Europe as a whole is critical to the world’s economy. A huge percentage of global lending is from euro-area banks, and they are all contracting their balance sheets. In a banking balance-sheet crisis, you reduce the debt you can, not the debt that is the most needed or reliable. And some of the debt will be to foreign entities. As an example, Austria is now requiring its banks to cover their Eastern European loans with local deposits. Which is of course problematical, as the size of those loans relative to the bank balance sheets and the Austrian economy is huge. According to BIS statistics, Austrian banks’ total exposure to the region equates to around 67% of the country’s GDP, not including the Vienna-based Bank Austria, which is technically Italian.
We could find similar results for other European (mostly Spanish), as well as Latin American banks. And as I note below, this will reach into China and throughout Asia.
And the US? I am constantly asked what my biggest worry is. What is the largest monster I think I hear in my closet of nightmares? And the answer has been the same for a long time: it is European banks.
Those who think this is all a non-event note (correctly) that US net exposure to European banks is not all that large, and that while it may not be a non-event, it’s not system-threatening. The problem is that little three-letter word net.
Gross exposure is huge, and we are starting to read that regulators and other authorities are becoming concerned. As well they should. The problem is that as a bank sells risk insurance, it can buy protection from another bank in Europe to hedge it. But who is the counterparty? How solvent are they? It was only a month before Dexia collapsed that authorities and markets assured us that the bank was fine, and then bang! it was nationalized.
That is the part we do not know enough about. If European banks are as bad as they appear to be, then that counterparty risk is large. Will sovereign nations step up and bail out US banks on the credit default swaps their banks sold? Care to wager your national economy on that concept selling in today’s political climate?
As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.
Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.
The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.
A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph.
Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.
Greece has seen several outbreaks of civil disorder as its government struggles with its huge debts. British officials think similar scenes cannot be ruled out in other nations if the euro collapses.
Diplomats have also been told to prepare to help tens of thousands of British citizens in eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash.
Fuelling the fears of financial markets for the euro, reports in Madrid yesterday suggested that the new Popular Party government could seek a bail-out from either the European Union rescue fund or the International Monetary Fund.
There are also growing fears for Italy, whose new government was forced to pay record interest rates on new bonds issued yesterday.
The yield on new six-month loans was 6.5 per cent, nearly double last month’s rate. And the yield on outstanding two-year loans was 7.8 per cent, well above the level considered unsustainable.
Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default.
The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”
The EU treaties that created the euro and set its membership rules contain no provision for members to leave, meaning any break-up would be disorderly and potentially chaotic.
If eurozone governments defaulted on their debts, the European banks that hold many of their bonds would risk collapse.
Some analysts say the shock waves of such an event would risk the collapse of the entire financial system, leaving banks unable to return money to retail depositors and destroying companies dependent on bank credit.
It's time to think what hitherto markets have regarded as unthinkable – that the euro really is on its last legs.
The defining moment was the fiasco over Wednesday's bund auction, reinforced on Thursday by the spectacle of German sovereign bond yields rising above those of the UK.
. . .
Up until the past few days, it has remained just about possible to go along with the idea that ultimately Germany would bow to pressure and do whatever might be required to save the single currency.
The prevailing view was that the German Chancellor didn't really mean what she was saying, or was only saying it to placate German voters. When finally she came to peer over the precipice, she would retreat from her hard line position and compromise. Self interest alone would force Germany to act.
But there comes a point in every crisis where the consensus suddenly shatters. That's what has just occurred, and with good reason. In recent days, it has become plain as a pike staff that the lady's not for turning.
This has caused remaining international confidence in the euro to evaporate, and even German bunds to lose their "risk free" status. The crisis is no longer confined to the sinners of the south. Suddenly, no-one wants to hold euro denominated assets of any variety, and that includes what had previously been thought the eurozone safe haven of German bunds.
Investors have gone on strike. The Americans are getting their money out as fast as they decently can. British banks have stopped lending to all but their safest eurozone counterparts, and even those have been denied access to dollar funding. The UK hardly has anything to boast of; it's got its own legion of problems, many of them not so dissimilar to those of the eurozone periphery.
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What we are witnessing is awesome stuff – the death throes of a currency. And not just any old currency either, but what when it was launched was confidently expected to take its place alongside the dollar as one of the world's major reserve currencies. That promise today looks to be in ruins.
Contingency planning is in progress throughout Europe. From the UK Treasury on Whitehall to the architectural monstrosity of the Bundesbank in Frankfurt, everyone is desperately trying to figure out precisely how bad the consequences might be.
What they are preparing for is the biggest mass default in history. There's no orderly way of doing this. European finance and trade is too far integrated to allow for an easy unwinding of contracts. It's going to be anarchy.
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Europe's political elite, as ever several steps behind the reality, still regards the prospect as unimaginable.
They need to wake up fast; it's happening before their very eyes.
Global container ship operators, hammered by high costs, oversupply and flagging demand, are cutting shipping capacity to shore up freight rates depressed by a sluggish global economy.
Many container carriers have been losing money since the third quarter as freight rates fell sharply, mainly due to a supply glut, industry experts said at a regional logistics and maritime conference here on Friday.
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The shipping industry is a barometer for the global economy as it accounts for more than 80 percent of international trade volume.
Maersk Line, a unit of Danish shipping and oil group AP Moller-Maersk AS and the world's largest container ship operator by volume, is considering idling some of its ships, especially those on Asia-Europe routes.
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Tung Chee Chen, chairman of Orient Overseas (International) Ltd, said on Friday that his company had cut Asia-Europe route capacity by 20 percent.
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"The outlook will eventually depend on Europe's situation, and whether the debt crisis can be resolved," Tung said. "But in light of today's situation, next year will not be promising."
There are signs of problems developing, and they demand study. Here is just one note (of a dozen) that came across my desk in the last two days. This is from Andy Lees of UBS:
“We saw today that 80% of Chinese construction firms say developers are now behind on payments (late cash flow), and that consequently land purchases are already 42% down y/y (slowing local authority cash flow). We also heard that pricing controls means that utility companies no longer have the cash flow to afford vital imports. Q3 corporate cash flow was down 27%.
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“I am being told that European banks are now starting to shrink their foreign loan books to meet domestic needs, with Mexico, Brazil and China all big losers. With China now saying they may run a full-year trade deficit next year, and with them unable to afford to import vital coal and other resources without either suffering domestic inflation or without selling its FX reserves, it may now well be time to consider some sort of puts on the yuan. In fact the only reason perhaps not to is that India may collapse first, reducing the competition for coal and giving China a little more breathing room.
China is not a problem in the short term. But there have to be adjustments to keep that status of “not a problem.” The situation bears watching and becoming familiar with, as I am on the record that Japan is the next in line to suffer a real world-shaking crisis. And China, which does not adjust in advance, can suffer contagion effects from Japan. The world is so connected.
Sam Meek, 27, who was laid off in September when his Connecticut hedge fund decided to downsize, used to spend $500 on charity dinners and lavish golf outings. Now, it’s home-cooked meals and beer on the sofa. Recently, Mr. Meek and his roommate, another unemployed banker who spoke on the condition of anonymity because he did not want to jeopardize his job search, sat together in the kitchen filing for unemployment and drinking a bottle of Champagne.
“I’m scraping by right now,” he said.
Reader responses about the new challenges facing these low-level employees ranged from mild schadenfreude to fiery wrath. (Put it this way: The comment-moderation queue would make Andrew Dice Clay blush.)
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Sam Meek, a 27-year-old hedge fund castoff who drank Champagne while filing for unemployment benefits, seemed to inspire particularly potent crocodile tears:
The pizza is the brainchild of John Bogdan, the now-retired founder of J&J’s, who created the 16-inch round deep-dish XL pizza. It includes sausage, pepperoni, mushrooms, green peppers, onions, green olives, black olives, ham, Canadian bacon, bacon bits, and mozzarella cheese and weighs about 6 pounds. The entire thing must be completed within one hour to win the challenge.Small (10") version of The Kitchen Sink pizza
Kim S., the manager at the Lake Station restaurant, says the Kitchen Sink is an extremely popular dish for J&J’s, because most orders are for groups and corporate events. In fact, The Kitchen Sink is the restaurant’s best-selling specialty pizza.
The pizza, which is intended to feed four to six people, has an estimated two to three challengers per year, and at least 100 people have attempted the challenge in the history of J&J’s. Surprisingly, the closest anyone has come in recent history to finishing the pizza was a 12-year-old girl, who ate 16 of the 20 pieces before she had to give in.
A lightweight automatic ground collision avoidance system (Auto GCAS) which depends on a terrain database of the entire world housed in a smart phone is being flight tested by NASA.
The flights follow initial development of the Auto GCAS for U.S. Air Force F-16, F-22 and F-35 fighters, and are aimed at extending use of the safety system to a much broader range of applications from unmanned air vehicles to general aviation aircraft. The system uses precise navigation, performance and digital terrain data to constantly monitor the aircraft’s position relative to known obstacles. Auto-GCAS is designed to intervene as a last resort, automatically recovering an aircraft when it senses that a ground collision is imminent and the pilot is not taking action.
Unlike the original Automatic Collision Avoidance Technology (ACAT) Auto GCAS project which was flight tested on an F-16D in 2010, this new test phase is using a 9 ft 8 inch wing span radio-controlled hobby Super Flyin’ King model aircraft [shown below - image courtesy of NASA].
Tests of the Droid (Dryden Remotely Operated Integrated Drone), are being undertaken by NASA Dryden Flight Research Center with support from the Office of the Undersecretary of Defense and the Air Force Flight Test Center.
“We’ve talked about the modular architecture which means you can put it on other aircraft, but we’d only flown it on an F-16. So we asked why not try it out on a very different aircraft,” says Auto-GCAS project manager Mark Skoog. Aside from demonstrating the transition and portability of Auto-GCAS to another platform, the project is also designed to develop and explore performance enhancements such as new escape maneuvers beyond the vertical fly-up used by the F-16 system.New lateral escape maneuvers (marked in blue) are being tested
in the latest flight test phase (image courtesy of NASA)
Primary objectives include integrating the safety device without increasing the weight of the UAV, demonstrating a system that functions autonomously during a lost link with a ground station and showing the GCAS algorithm can be run using a smart phone – in this case a Motorola Droid X. The phone uses the open Android operating system architecture which can be modified to run the Dryden-developed Auto-GCAS software.
“We’re flying with the entire globe modeled on the phone. We can take it anywhere on the planet and it will have collision avoidance capability,” says Skoog. “This shows you can break the paradigm on accessibility to other platforms. You don’t have to go through a full-scale Defense Department development cycle, and it opens up many opportunities in the future,” he adds.