EPA ignores the REAL inventor of the best Hybrid car

The EPA is quite happy with itself for its recent report but seems to ignore the inventor and patent holder of their "great " idea -- Hydraulic Energy Storage transmission patent # US3903696, yr. 1975, by Mr. Vincent Carman(that is really his name no joke LOL) . Now I for one will be happy if this invention can come to market and achieve the possible 45% -50% increase in gas efficiency.(Kids-That's about a 100 miles to the gallon!) No toxic chemical heavy batteries to carry around, it is light weight and off the shelf technology. The problem is they ignored, stone walled and manipulated the inventor for 30 years, then stole his idea. Was it so his patent will run out and now EPA can be the "heroes" and manufacture it? Or maybe the laws of physics have changed in 30 years?

Read the old Boston Herald American article from 1977:

Boston Herald American, Monday, April 25, 1977

Energy Saving Invention being Suppressed by Snafu
by

Scott Burns

While the Carter administration promotes its plan to turn a mountain of new taxes into a molehill of energy savings, the real solution to the energy crisis - new technology - may be languishing at our beloved Energy Research and Development Administration.

Testifying before the Senate Sub-Committee on Energy Research and Development on April 4, Vincent Carman, inventor of the Inertial Storage Transmission, recounted a mind-boggling tale of resistance and delay at ERDA, the agency charged with solving the energy crisis.

Here, in brief, is what he said :

"Over six months ago, the National Bureau of Standards completed an extensive evaluation of a revolutionary automobile transmission that they reported could reduce our nation's oil imports by 50 percent. This system can reduce vehicular air pollution in our cities by 75 percent.

This OPERATIONAL SYSTEM was publicly demonstrated 18 months ago. The system is simple, uses OFF-THE-SHELF, commercially available components.

In the two years that ERDA has been aware of the system they have given the concept no serious attention."

It now appears they are attempting to suppress it.

Unlike Dr. Ilok's solution to the energy crisis (reported here April 17-20), Carman's invention EXISTS, has been publicly demonstrated, and requires NO research and development investment from ERDA.

Carman merely wants ERDA to get OUT OF THE WAY and make it possible for him to install his invention on some U.S. Post Office trucks so that he might further demonstrate its utility and potential for energy savings.

But ERDA won't get out of the way. Instead, Carman says they have suppressed the National Bureau of Standards evaluation of his invention, refusing to release it to other agencies.

They've done this because the NBS report recommends Carman's invention for funding, a singular achievement since only 22 of some 4300 submissions have enjoyed positive recommendation from NBS.

ERDA's own, one-and-a-half page report, issued later, rejects the invention, saying that it is too expensive, won't achieve the savings the inventor had DEMONSTRATED AND DOCUMENTED, and won't be accepted by the automobile industry.

ERDA is circulating its own report and has not, to date, released the NBS report, damaging both Carman's credibility and his ability to attract the interest of other government agencies or private industry.

What is the IST System?

Carman's Inertial Storage Transmission works by storing oil under high pressure.





This means that all the power output from an engine can be used so that in city driving where car engines idle much of the time, a car could run USING the STORED POWER of its engine and the engine's power WOULD NEVER BE LOST IN WASTEFUL IDLING. (stored in the form of compressed oil)

As a consequence, the engine could be OFF 80 PERCENT OF THE TIME, REDUCING POLLUTION by 75 PERCENT and FUEL CONSUMPTION by 50 PERCENT!

Estimates indicate the IST could save some 35 BILLION GALLONS A YEAR, cutting our imported oil IN HALF.

Carman didn't hear from ERDA for six months after NBS's positive report was issued and then only after ERDA was pressured by Mark Hatfield and Congressman Robert Duncan. Clearly, ERDA would like the matter to quietly disappear.

Now let's consider the quality of the two reports :

ERDA's negative report was produced in 42 days BY ONE INDIVIDUAL WITHOUT BENEFIT OF ANY PHYSICAL TESTING.

The uncirculated NBS report was based on 10 months of work and contributions from a variety of sources, many of them here in Massachusetts.

The Department of Transportation Systems Center in Cambridge, contributed to the evaluation as did the Mechanical Engineering Department at the University of Massachusetts, the Boston Police Department, the MBTA and Yellow Cab Corporation.

Nonetheless, ERDA continues to circulate its own report rather than the NBS report.

One possible reason is that ERDA is committed to another technology, the flywheel energy storage system. To date, they have spent some $200,000 on a feasibility study of such systems. The study determined it would take three years and 4.5 million to get a prototype on the road, something Carman ACHIEVED IN LESS THAN A YEAR WITH $4000.

The Department of Transportation also has an interest in flywheel systems and has spent five years and $300,000 trying to convert a Ford Pinto into a flywheel storage car. Together, the two agencies have a contract to supply flywheel vehicles to the city of New York. (Birds of a feather?)

Meanwhile, the Postal Service also reports it has contracts for flywheel vehicles and therefore can't put up funds for demonstration of the IST system.

ERDA, in other words, has neatly closed out a competing technology because the agency is in a position to exercise MONOPOLISTIC CONTROL over the flow of both money and ideas in new energy technologies.

In an eloquent close to his testimony before the Senate sub-committee, Carman said ;

"The energy problem has a solution and it is quite probable that a large part of that solution can come from the little guy.

Two men in an upstairs room gave us the telephone, and a couple of bicycle mechanics brought aviation to the world. It is sometimes said that the day of the individual inventor is over.

In the last few years, while the greatest scientific organizations in both the United States and Russia struggled with the problem of generating electric power from fusion, a young man in California in his own lab produced the first major breakthrough."

Now that we've seen Carter's energy plan, we know that Carter has chosen taxation, not technology, as the means of "solving" the energy crisis.

The money we all start paying in federal gasoline taxes will soon help ERDA expand its research efforts, - WHILE IT IGNORES SOLUTIONS.

VIDEO Profile: HR 1207 - Federal Reserve Transparency Act

Young Americans for Liberty profiles Congressman Ron Paul's bill to audit the Federal Reserve, HR 1207. Campaign for Liberty's Matt Hawes and Ron Paul's Legislative Assistant, Paul-Martin Foss offer their insight on this historically significant push for legislation.

The Federal Reserve Transparency Act of 2009

This is the bill the Federal Reserve wants to block:
Congress > Legislation BILL: H.R. 1207:111th Congress

The Federal Reserve Transparency Act of 2009

http://www.govtrack.us/congress/bill.xpd?bill=h111-1207

Congressman Paul stated to the Congress, "The Federal Reserve can enter into agreements with foreign central banks and foreign governments, and the GAO is prohibited from auditing or even seeing these agreements. Why should a government-established agency, whose police force has federal law enforcement powers, and whose notes have legal tender status in this country, be allowed to enter into agreements with foreign powers and foreign banking institutions with no oversight?"
The Texas Republican said. "Since 1913 the dollar has lost over 95 percent of its purchasing power, aided and abetted by the Federal Reserve's loose monetary policy...How long will we as a Congress stand idly by while hard-working Americans see their savings eaten away by inflation? Only big-spending politicians and politically favored bankers benefit from inflation,"

Federal Reserve hiring veteran lobbyist: source

http://www.reuters.com/article/politicsNews/idUSTRE55460K20090605

Federal Reserve hiring veteran lobbyist: source

Fri Jun 5, 2009 2:42pm EDT

By Mark Felsenthal

WASHINGTON (Reuters) - The U.S. Federal Reserve is on track to hire a veteran lobbyist to help manage its relations with Congress at a time of heightened attention to its role in national affairs, a source familiar with the situation said on Friday.

The Fed plans to hire Linda Robertson, who previously worked for now-defunct energy company Enron, as well as the Clinton administration.

She is currently head of government, community and public relations at The Johns Hopkins University in Baltimore, said the source, who spoke on condition of anonymity because the hiring process was not complete.

The Fed believes it will be useful to add to its resources at a time when there is great public and congressional interest in the institution, the source said.

The U.S. central bank has been at the forefront of government actions to limit damage from the financial crisis that began in August 2007 and the impact of the deep recession that began in December of that year.

Members of Congress have chafed at the Fed's bold use of its emergency powers and in particular its multibillion-dollar bailouts of investment bank Bear Stearns and insurer American International Group.

Critics also bristle at the Fed's practice of maintaining the confidentiality of the companies that borrow directly from the central bank on the grounds that divulging their names would risk runs on those institutions.

Many lawmakers and private analysts also fault the Fed for failing to stop risky lending and flawed market practices that laid the groundwork for the crisis.

A non-binding budget bill approved by Congress in April opened the door for lawmakers to seek disclosure of the names of firms that receive emergency Fed loans and paves the way for a possible study of the Federal Reserve System's structure of 12 regional banks and a Washington-based board.

Some officials believe lawmakers would like to go so far as to demand that the presidents of these regional banks -- or at least the head of the powerful New York Fed -- be subject to congressional approval. Currently, directors at these regional banks pick their presidents, subject to the approval of the Fed's Washington board.

Robertson was vice president for government affairs at now-defunct energy company Enron Corp from November 2000 until she closed its Washington office in early 2002. Enron collapsed in scandal in 2001 and her work there may raise some eyebrows.

Before that, she was an assistant Treasury secretary for legislative and public affairs under then-President Bill Clinton.

Dennis O'Shea, a spokesman for Johns Hopkins, said Robertson was not available to comment.

(Editing by Dan Grebler)

Banks lobby secretly to keep away scrutiny

Banks lobby secretly to keep away scrutiny

With demand for accountability soaring, the GAO has been given audit power over Fed’s TARP lending, even as Geithner opens "giant loophole" for banker secrecy in derivatives clearinghouse plan

"The banks run the place," Rep. Collin Peterson cried out this week. The New York Times reports that he has a bill that would specifically ban derivatives from trading in a clearinghouse regulated by the New York Federal Reserve, which Peterson blasted as "a tool of the big banks."

A "tool" because the nine biggest banks in the derivatives market– including JP Morgan Chase, Goldman Sachs, Citigroup and Bank of America– all met secretly to discuss how to use the lax regulation and institutional secrecy of the NY Fed to shield their credit-default swaps business from prying eyes and attempts at regulation, as the Times reports:

As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks began holding daily telephone sessions. Murmurs were already emanating from Washington about the need for a wide-ranging regulatory overhaul, and Wall Street executives girded for a fight.

Atop the agenda during their calls: how to counter an expected attempt to rein in credit-default swaps and other derivatives — the sophisticated and profitable financial instruments that were intended to limit risk but instead had helped take the economy to the brink of disaster.

What’s more, the banks formed a lobby– the CDS Dealers Consortium– only weeks after accepting TARP funds in October 2008 to protect its interests. Heading this effort is Edward Rosen, who previously helped fend off derivatives regulation. Rosen wrote and circulated a "confidential memo" to the ‘Treasury Department and leaders on Capital Hill’ making their agenda clear, the Times reported.

Rosen and his backers propose that derivatives be "traded in privately managed clearinghouses, with less disclosure," according to the Times. The clearinghouse of choice for the big banks in Rosen’s CDS Consortium is ICE U.S. Trust, which is in turned regulated only by the Federal Reserve system.

Mr. Rosen’s confidential memo, dated Feb. 10 and obtained by The New York Times, recommended that the biggest participants in the derivatives market should continue to be overseen by the Federal Reserve Board. Critics say the Fed has been an overly friendly regulator, which is why big banks favor it.

Ironically, the Times notes, Treasury Secretary Tim Geithner, former president of the New York Federal Reserve, submitted a plan similar to Rosen’s, although Treasury officials stated the proposal was "independent." Although Geithner vowed to make derivatives "more accountable", critics say the emphasis on clearinghouses in the plan is a "major loophole" because ‘little disclosure would be required’ for any ‘customized’ swap.

It is clear that banks, who wanted their credit swaps to remain private, counted on the lack of transparency over Federal Reserve affairs to keep derivative affairs in the dark, thus enhancing their profit potential. It is further clear that Treasury Secretary Geithner intended to help them in that aim.

Senator Tom Harkin said the loophole "could be worth trillions and trillions of swaps," blasting it as "a loophole big enough to drive a truck through."

Derivatives are the bulk of the "toxic assets" TARP was set up to fight– and total an astounding $1.5 quadrillion in estimate.

REGULATING THE FEDERAL RESERVE

Bloomberg reported Friday that the "Fed’s Role in AIG May Be First Target of GAO Audit." President Obama signed into law on May 20 a "Fed clause" giving the Government Accounting Office (GAO) the "power to examine the Federal Reserve’s emergency aid to specific companies, such as AIG, Bank of America Corp. and Citigroup Inc."

The new law is designed to give the GAO access to records and people at the Fed’s Board of Governors in Washington as well as the 12 district banks, such as the New York Fed, which has been the government’s lead day-to-day supervisor of AIG.

Under what Bloomberg has called "war powers", the Fed has issued "an unprecedented expansion of credit to nonbank financial firms… invoking emergency powers and doubling its assets the past year."

The authority is notably only a half-measure. Bloomberg notes that it "doesn’t remove limits from a 1978 law that prohibits the GAO from peering into Fed activities involving monetary policy or discount-window loans to banks."

Fed chairman Ben Bernanke stated he would have no objections to audits, so long as there was no examination of monetary policy. He stated clearly, "I certainly would resist any attempt to dictate to the Federal Reserve how to make monetary policy."

Bloomberg makes a distinction from the "more intrusive" legislation introduced in the House by Ron Paul and in the Senate by Bernie Sanders. Those bills now have well over a hundred sponsors. Sanders was rebuffed by Ben Bernanke previously during TARP hearings after he demanded to know who the Fed lent money to and was told frankly, "No."

Those bills, which haven’t made it past the initial stage of being introduced in Congress, would remove limits on GAO audits of the Fed and direct the agency to issue a report on the central bank by the end of next year.

Nevertheless, information about the meeting of the big banks shows that there is a desire to keep the Federal Reserve and its dealings quiet at a time when interest in the Fed’s actions is at an all-time high. Any move to bring accountability to that institution is positive, even if insufficient.

Rising U.S. bond yields may spark Credit Crisis II

Fri May 29, 2009
http://www.reuters.com/article/newsOne/idUSTRE54S53620090529?sp=true

By John Parry - Analysis

NEW YORK (Reuters) - The global financial crisis may morph into a second, equally virulent phase where borrowing costs rise again, hobbling an embryonic economic recovery, debilitating cash-strapped banks, and punishing investors all over again.

Early warnings signs of this scenario include surging government bond yields, a slumping U.S. dollar, and the fading of the bear market rally in U.S. stocks.

Optimists hope that a fragile two-month rally in world stock markets, a rise in U.S. Treasury yields from record lows during the depths of the crisis in late 2008, and some less scary economic data all signal that a recovery is around the corner.

But gloomy analysts insist that thinking is delusional.

Once Credit Crisis Version 2.0 ramps up, foreign investors may punish the U.S. government for borrowing trillions of dollars too much by refusing to buy its debt until bond prices plunge to much cheaper levels.

The telling harbinger is benchmark Treasury note yields' surge to six-month highs around 3.75 percent this week, as investors began to balk at the record U.S. government borrowing requirement this year.

The U.S. Treasury plans to sell about $2 trillion in new debt this year to fund a $1.8 trillion fiscal deficit.

Heavy selling of U.S. dollar-denominated assets could trigger a full-blown currency crisis and usher in surging inflation, forcing mortgage rates and corporate bond yields up, undermining any rebound in economic activity.

"The financial crisis is a downward spiral with two twists," said George Feiger, chief executive of Contango Capital Advisors in Berkeley, California.

First came the banking crisis and a huge contraction of credit, starting in mid-2007 which resulted in the stock market panic of 2008 which triggered the deepest U.S. recession in at least two decades.

"Once you have got a recession you have good old-fashioned credit losses," Feiger said. "The second leg is now the consequences of the massive recession and it is just now working its way out," he said.

Investors, many of them foreigners who own a large chunk of the U.S. Treasury market, are steadily demanding higher yields.

The price of the historic rescues of banks, insurers, manufacturers, and securities markets, to prevent a complete collapse during the worst financial crisis since the Great Depression, has meant a record U.S. government borrowing requirement.

But by issuing so much debt, the United States risks repulsing a critical buyer: foreign central banks, who own more than a quarter of marketable U.S. Treasuries. China recently overtook Japan as the biggest such buyer.

"We are getting into that stage which I call 'the markets revenge'", said Martin Weiss, president of Weiss Research Inc. in Jupiter, Florida.

Weiss, known for his especially pessimistic views on the banking system and economy, recently published a book entitled: "The Ultimate Depression Survival Guide".

"The market attacked anyone who had the toxic assets," he said.

Now, foreign investors' primary target is the U.S. government because it has bought many of the tarnished securities from banks and some of the failing institutions itself, but the selloff will soon spread to all U.S. dollar-denominated assets, Weiss expects.

Selling could push up the 10-year Treasury note's yield to about 6.0 percent Weiss warns. For now, he urges investors to stash much of their savings in short term Treasury bills, which carry minimal interest rate risk.

Foreign investors are running out of patience with the U.S. government's debt issuance, he argued.

"What happened at the end of this month is the beginning of the end of that goodwill period," Weiss said. "There could be a major near-term selloff in the dollar."

This month, the euro has gained nearly 7.0 percent against the U.S. dollar. Meanwhile, the benchmark ten-year U.S. Treasury note's yield has surged to six-month highs around 3.75 percent, nearly doubling from its lowest level in 50 years of 2.04 percent seen last December.

Ultimately, corporate bond yields, although still at very wide yield spreads of more than four percentage points above Treasuries according to Merrill Lynch data, will also spike again, Weiss warned. The S&P 500 stock index may fall to 500 points in this next phase of the crisis he added, down from 911 points early on Friday, he said.

On the other hand, many economists reckon the U.S. government and Federal Reserve have averted a rerun of the Great Depression by swiftly orchestrating financial rescues and monetary and fiscal stimulus to offset sagging consumer spending.

Yet even as the U.S. economy and banking system struggle to recover from two years of turmoil, Europe's banks are even more debilitated, raising the threat of a second global systemic crisis spreading back across the Atlantic to the United States, some analysts fear.

"I think the most likely origins for a major crisis would be beyond our borders," said David Levy, chairman of the Jerome Levy Forecasting Center in Mount Kisco, New York.

(Reporting by John Parry)

Employer pays employees in gold coins-- LOL--

Employer's gold, silver payroll standard may bring hard time

May. 26, 2009
Copyright © Las Vegas Review-Journal

Employer's gold, silver payroll standard may bring hard time

'This is a case about money, greed and fraud'

By JOAN WHITELY
LAS VEGAS REVIEW-JOURNAL

Robert Kahre, who owns numerous construction businesses in Las Vegas, is standing trial on 57 counts of income tax evasion, tax fraud and criminal conspiracy. If convicted on most counts, he could live out his life in prison.

But attorney William Cohan paints Kahre as an American "hero" who believes his payroll system helped keep the U.S. monetary system sound, and was also a form of legal tax avoidance.

A self-made entrepreneur, Kahre, 48, paid his workers in gold and silver coin, and said they could go by the coins' face value -- rather than the much higher market value of their precious metal content -- for federal tax purposes. He did not withhold taxes from their wages, and he provided the same payroll system to 35 outside clients, which were other local businesses.

Judge David Ezra is presiding over the criminal trial, which began May 19 in U.S. District Court. Joining Kahre as defendants are his longtime girlfriend, a sister who works in his businesses, and a former business assistant.

Three of the four present defendants were among the nine people tried on similar charges two years ago, but no convictions resulted. In the 2007 trial, four others of the nine defendants, including Kahre's mother, were entirely acquitted. Two individuals were only partially acquitted, but dropped from the indictment that forms the basis for the trial before Ezra.

This time around, the only new defendant is Danille Cline, Kahre's girlfriend of 19 years, and the stay-at-home mother of his four children. The government claims she obstructed the Internal Revenue Service by allowing Kahre to place several homes in her name, thus attempting to conceal his assets.

Cline's former brother-in-law, Thomas Browne, also was indicted this time, for his role as broker in some of the real estate transactions, but has since reached a plea bargain. He is expected to testify against the defendants.

"This is a case about money, greed and fraud." The line appeared on screen in court during the government's opening statement by Christopher Maietta, a trial lawyer from the Washington, D.C., office of the Department of Justice.

According to the government, Kahre and others concocted a fraudulent cash payroll "scheme" and then peddled it to other Las Vegas contractors. Defendants did not report to the IRS any payments made to workers, "either at the true amount or at the bogus amount, ... being the face value of the coin or coins," according to the indictment.

The now-suspended payroll service handled about $114 million over six years, according to court records. Between 17 and 25 percent of that went to Kahre or his workers; the rest went to the 35 client businesses to pay their workers, court records show.

The government did not indict most of the outside businesses or their personnel as co-conspirators with Kahre; although on May 6, Daniel McCartan of Action Concrete, which was one of Kahre's payroll clients, was finally sentenced in connection with a plea agreement reached in December 2006. McCartan received five months in prison and five months of home detention for one count of tax evasion.

Kahre contends his workers had agreed to be independent contractors, so he did not have to withhold taxes for them. His six businesses are in the trades of painting, drywall, tiling, plumbing, heating-cooling and electrical work.

Further, the $50 gold coins and the silver dollars Kahre used for payroll are designated by Congress as legal tender, so people are entitled to value them at their stamped denominations, he also contends. Taken at face value, each defendant's annual coin income placed him below the threshold for filing a federal tax return.

Earlier cases on the question of how to value gold or silver coins have focused on collectible coins that had been pulled from circulation but still have value as property, according to the defense. Kahre used coins minted after 1985, which are allowed to circulate.

"It's not whether what Mr. Kahre did was legal under the law," defense attorney Michael Kennedy told the jury in his opening statement. "It's whether he believed what he did was legal," in the absence of explicit instructions by the IRS -- on its Web site, in its publications or in response to written correspondence from Kahre -- on how to value post-1985 gold or silver coins.

"We're not here to determine if moneys are owed," said Kennedy on behalf of his client, Lori Kahre, who had relied on her brother's tax theory. A tax mistake is different from a tax crime, so the IRS can still use administrative channels to force the defendants to pay back taxes, Kennedy has noted in the past.

A sincere, but mistaken understanding of the tax-filing process is different from adopting a "pretextual" belief system in order to dodge taxes, Ezra acknowledged in court Wednesday.

Cohan described Kahre's payroll system as a "boycott of the Federal Reserve." But when the lawyer attempted to elaborate on Kahre's view that the nation has debased its paper currency by abandoning its former gold standard, Ezra added, "We're not here to convince the jury that the ... (U.S.) monetary system belongs to an international cabal."

Contact reporter Joan Whitely at jwhitely@reviewjournal.com or 702-383-0268.

http://finance.yahoo.com/news/FDIC-Fund-Running-zacks-15360529.html?sec=topStories&pos=4&asset=&ccode=

FDIC Fund Running Dry

• Dirk van Dijk, CFA
• On Wednesday May 27, 2009, 2:22 pm EDT

We highlight JP Morgan Chase & Co., Inc. (NYSE: JPM - News), BankUnited Financial Corp. (NasdaqGS: BKUNA - News), Wells Fargo & Co. (NYSE: WFC - News) and Bank of America Corp. (NYSE: BAC - News).

As the FDIC has had to step in to take over more and more insolvent banks, the fund has dwindled to dangerously low levels. At the same time, the number of problem banks continues to grow at a rapid pace.

At the end of the first quarter there were 305 'problem institutions' with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone.

The first graph (from http://www.calculatedriskblog.com/) shows the steep drop in the coverage ratio. Just a year ago, the fund was equal to 1.01% of covered deposits. The current level is its lowest since the first quarter of 1993, when we were digging out from the S&L fiasco.

However, don't worry about losing the money in your checking account if your bank goes under. Congress has already approved a $500 billion line of credit to the FDIC. Without a doubt, that line of credit is going to have to be tapped. This does emphasize the insanity of having the FDIC provide the guarantees for the PPIP [Public-Private Investment Program]. The fund simply does not have the resources available to do it. The money for the inevitable large losses that the fund will take on the program will come from that line of credit.

The prospect of the FDIC paying back that loan anytime soon from increased assessments on the banks is extremely remote. This is simply a back-door bailout of the FDIC, structured as a line of credit so it does not increase the reported budget deficit.

Using the FDIC to backstop the PPIP program is simply a way to bypass Congress. There is no way that Congress could not have approved the line of credit and let the FDIC become insolvent. By all rights, the assessments on the banks should be raised to make up for the shortfall in the FDIC, but now is not exactly the time to do it, since it would simply deplete their capital at a time when they desperately need to improve their capital base.

To bring the fund up to a more normal 1.2% of insured assets would require $44.8 billion, not counting the losses that the fund has incurred so far in the second quarter, or any subsequent losses. That would be a pretty hefty tax for the banks to pay. Still, fairness demands that it be paid by the banks, not by the general taxpayer.

During the quarter, 21 banks with $9.5 billion of assets failed, at an estimated cost to the fund of $2.2 billion. In the 12 months to 3/31/09 there have been 44 failures with $381.4 billion in assets at a total cost to the fund of $20.1 billion. The 5.3% of failed assets cost to the fund over the last year is somewhat misleading since by far the largest failure was Washington Mutual, which was bought by J.P. Morgan (NYSE: JPM - News) at no cost to the FDIC (but very generously backstopped by the Fed).

It is noteworthy that Wamu never showed up on the 'problem bank' list. This is a good reminder than not all problem banks fail, and not all failures are identified as problem banks before they go under. The 23.2% cost of failed assets in the first quarter is much more representative of a typical bank failure.

Since the end of the first quarter, 15 more banks have failed, and one, BankUnited (NasdaqGS: BKUNA - News) had more assets ($12.8 billion) and cost the fund more ($4.9 billion) than all the failures of the first quarter combined. It is thus very likely that the fund is already approaching a single-digit basis-point coverage ratio of insured deposits.

If we simply subtract out the $4.9 billion from the $13.0 billion at the end of the quarter (very generously assuming that assessments coming in equal the cost of the other 14 smaller failures) the fund is down to just $8.1 billion, or 3.7% of identified problem assets. As commercial real estate tanks, hundreds of smaller banks with massive exposure to it will be in danger of failing.

It is very likely that the list of problem banks and their assets will continue to grow. When looking at the second graph (from the FDIC, by way of http://www.calculatedriskblog.com/) note that the difference between the last bar and the second to last bar is only a quarter, while the other bars are annual differences. Thus the increase in the assets of problem banks is actually accelerating by increasing $60.6 billion in the first quarter, almost twice the $34.3 billion average increase per quarter during 2008.

Similarly, the quarterly increase in the number of problem institutions, 53, is significantly higher than the average quarterly increase during 2008, which was 44. In short, we still have many significant problems in the banking system, and the rate of increase shows no sign of slowing down.

While the big boys like Wells Fargo (NYSE: WFC - News) and Bank of America (NYSE: BAC - News) may be in the process of raising enough capital to repay the TARP, there are many smaller banks which are in deep trouble. While individually they do not pose a systemic risk, collectively they will prove to be a significant drag on any economic recovery.

Read the full analyst report on WFC

Zacks Investment Research

© 2008 Zacks.com. All rights reserved.

U.S. Inflation to Approach Zimbabwe Level, Faber Says (Update2)

U.S. Inflation to Approach Zimbabwe Level, Faber Says (Update2)

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NEWS

By Chen Shiyin and Bernard Lo

original source: http://www.bloomberg.com/apps/news?pid=20601103&sid=avgZDYM6mTFA&refer=us#

May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.

“There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.”

Action Economics is predicting inflation of minus 0.4 percent in the U.S. this year, with prices increasing by 1.8 percent and 2 percent in 2010 and 2011, respectively, Cohen said.

Near Zero

The U.S.’s main interest rate may need to stay near zero for several years given the recession’s depth and forecasts that unemployment will reach 9 percent or higher, Glenn Rudebusch, associate director of research at the Federal Reserve Bank of San Francisco, said yesterday.

Members of the rate-setting Federal Open Market Committee have held the federal funds rate, the overnight lending rate between banks, in a range of zero to 0.25 percent since December to revive lending and end the worst recession in 50 years.

The global economy won’t return to the “prosperity” of 2006 and 2007 even as it rebounds from a recession, Faber said.

Equities in the U.S. won’t fall to new lows, helped by increased money supply, he said. Still, global stocks are “rather overbought” and are “not cheap,” Faber added.

Faber still favors Asian stocks relative to U.S. government bonds and said Japanese equities may outperform many other markets over a five-year period. “Of all the regions in the world, Asia is still the most attractive by far,” he said.

Gloom, Doom

Faber, the publisher of the Gloom, Boom & Doom report, said on April 7 stocks could fall as much as 10 percent before resuming gains. The Standard & Poor’s 500 Index has since climbed 9 percent.

Faber, who said he’s adding to his gold investments, advised buying the precious metal at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal topped $1,000 last year and traded at $949.85 an ounce at 12:50 p.m. Hong Kong time. He also told investors to bail out of U.S. stocks a week before the so-called Black Monday crash in 1987, according to his Web site.

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloombeg.net

Last Updated: May 27, 2009 00:54 EDT

The Atlantic Monthly
February 1982
http://www.theatlantic.com/doc/198202/diamond

An unruly market may undo the work of a giant cartel and of an inspired, decades-long ad campaign

by Edward Jay Epstein

Have You Ever Tried to Sell a Diamond?

The diamond invention—the creation of the idea that diamonds are rare and valuable, and are essential signs of esteem—is a relatively recent development in the history of the diamond trade. Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value—and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious gems.

The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds. The instrument they created, in 1888, was called De Beers Consolidated Mines, Ltd., incorporated in South Africa. As De Beers took control of all aspects of the world diamond trade, it assumed many forms. In London, it operated under the innocuous name of the Diamond Trading Company. In Israel, it was known as "The Syndicate." In Europe, it was called the "C.S.O." -- initials referring to the Central Selling Organization, which was an arm of the Diamond Trading Company. And in black Africa, it disguised its South African origins under subsidiaries with names like Diamond Development Corporation and Mining Services, Inc. At its height -- for most of this century -- it not only either directly owned or controlled all the diamond mines in southern Africa but also owned diamond trading companies in England, Portugal, Israel, Belgium, Holland, and Switzerland.

De Beers proved to be the most successful cartel arrangement in the annals of modern commerce. While other commodities, such as gold, silver, copper, rubber, and grains, fluctuated wildly in response to economic conditions, diamonds have continued, with few exceptions, to advance upward in price every year since the Depression. Indeed, the cartel seemed so superbly in control of prices -- and unassailable -- that, in the late 1970s, even speculators began buying diamonds as a guard against the vagaries of inflation and recession.

The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever -- "forever" in the sense that they should never be resold.

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