Fannie Subpoenas to Show $30B Bad Mortgages, Rosner Says
By Jody Shenn – Jul 21, 2010
Fannie Mae and Freddie Mac’s regulator may identify as much as $30 billion of debt included in mortgage bonds that the companies can force sellers to repurchase, according to Joshua Rosner, an analyst who in 2007 predicted the collapse in the market for the securities.
The Federal Housing Finance Agency this month said it issued 64 subpoenas seeking loan files and other documents related to so-called non-agency mortgage securities bought by the two government-supported companies. The U.S. is trying to determine whether misrepresentations might require issuers to repurchase debt, producing funds from firms that may include Wall Street’s largest banks to help repay taxpayer money.
Rosner’s estimate of the amount of bad loans the FHFA might find doesn’t equal how much Fannie Mae and Freddie Mac may recover because banks can argue some misstatements weren’t “material,” the New York-based analyst at independent research firm Graham Fisher & Co. said in a telephone interview. At the same time, the move bolsters other investors’ efforts, he said.
“The most important thing is probably that the subpoenaed documents will support other private actions and other government-agency actions,” said Rosner, co-author of a May 2007 paper that said the failure of mortgage bonds would roil housing and financial markets. “It will cause a lot of unhappiness on Wall Street.”
Corinne Russell, an FHFA spokeswoman, declined to comment.
Fannie Mae, based in Washington, and McLean, Virginia-based Freddie Mac have already been forcing repurchases of loans they insure or hold directly at a pace drawing industry complaints. In the first quarter, the companies required lenders to buy back $3.1 billion, up 63 percent from a year earlier.
Boosting Reserves
In 2006 and 2007, Fannie Mae and Freddie Mac bought $227 billion of bonds backed by subprime or Alt-A mortgages, according to a report to Congress by their regulator. Those years produced the worst-performing non-agency securities, which lack guarantees from the companies or federal agency Ginnie Mae.
JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. were among banks that reported adding to reserves for their representations on sold or insured mortgages as they announced quarterly results this month. JPMorgan Chief Financial Officer Michael J. Cavanagh said July 15 on a conference call that his New York-based bank had received an FHFA subpoena, probably along with “all the major broker-dealers.”
Alex Samuelson, a spokesman for New York-based Citigroup, and Rick Simon, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment.
Litigation Over Disclosures
The FHFA, which is tasked with limiting Fannie Mae and Freddie Mac’s losses after placing them into conservatorships in 2008, also oversees the Federal Home Loan Banks, the 12 government-charted cooperatives owned by U.S. financial firms.
At least three of the FHLBs have filed lawsuits against Wall Street firms for mortgage-bond disclosures, with the San Francisco FHLB in March suing nine dealers over $19.1 billion in securities. Similar lawsuits by other investors have been dismissed by judges before reaching discovery because bondholders failed to offer enough evidence of inaccurate information.
Mortgage servicers have hindered investors’ efforts to get debt repurchased by denying them access to loan files, citing a right to do so if they don’t own at least 25 percent of the deals, said Bill Frey, head of Greenwich, Connecticut-based securities firm Greenwich Financial Services LLC.
“The subpoenas will hopefully stop the silliness,” Frey, who sued Bank of America’s Countrywide unit in 2008 over its servicing practices, said in a telephone interview.
‘Fraud Involved’
Almost 38 percent of subprime mortgages contained in non- agency bonds are at least 60 days late, in foreclosure or already have been turned into seized property, according to Bloomberg data, which doesn’t cover liquidated debt. For loans deemed Alt-A because they fell between prime and subprime in terms of expected defaults, the figure totals almost 29 percent.
“With what’s happened in the mortgage sector, we realize there was a great deal of fraud involved,” William Sidford, a senior vice president at AllianceBernstein LP, which manages almost $200 billion in fixed-income assets, said July 15 at the Securities Industry and Financial Markets Association conference in New York. “That being said, investors aren’t in a position to enforce the claims on those reps and warranties, rather we’re relying on the trustees and servicers to take action for us.”
Those parties are often affiliates of the companies that would be forced to buy back bad loans, a conflict of interest that limits their actions, Laurie Goodman, an analyst at Amherst Securities Group, said at the conference.
“I’ve had situations where a flagrant fraud is flat-out ignored,” Frey said. “A couple of years from now, these subpoenas will be seen as the first concrete step toward the recreation of the U.S. mortgage market.”
To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net
http://www.bloomberg.com/news/2010-07-21/fannie-freddie-subpoenas-reveal-30-billion-of-bad-mortgages-rosner-says.html
Doomsday: How BP Gulf disaster may have triggered a ‘world-killing’ event
by Terrence Aym
Ominous reports are leaking past the BP Gulf salvage operation news blackout that the disaster unfolding in the Gulf of Mexico may be about to reach biblical proportions.
251 million years ago a mammoth undersea methane bubble caused massive explosions, poisoned the atmosphere and destroyed more than 96 percent of all life on Earth. [1] Experts agree that what is known as the Permian extinction event was the greatest mass extinction event in the history of the world. [2]
55 million years later another methane bubble ruptured causing more mass extinctions during the Late Paleocene Thermal Maximum (LPTM).
The LPTM lasted 100,000 years. [3]
Those subterranean seas of methane virtually reshaped the planet when they explosively blew from deep beneath the waters of what is today called the Gulf of Mexico.
Now, worried scientists are increasingly concerned the same series of catastrophic events that led to worldwide death back then may be happening again-and no known technology can stop it.
The bottom line: BP’s Deepwater Horizon drilling operation may have triggered an irreversible, cascading geological Apocalypse that will culminate with the first mass extinction of life on Earth in many millions of years.
The oil giant drilled down miles into a geologically unstable region and may have set the stage for the eventual premature release of a methane mega-bubble.
Ryskin’s methane extinction theory
Northwestern University’s Gregory Ryskin, a bio-chemical engineer, has a theory: The oceans periodically produce massive eruptions of explosive methane gas. He has documented the scientific evidence that such an event was directly responsible for the mass extinctions that occurred 55 million years ago. [4]
Many geologists concur: “The consequences of a methane-driven oceanic eruption for marine and terrestrial life are likely to be catastrophic. Figuratively speaking, the erupting region “boils over,” ejecting a large amount of methane and other gases (e.g., CO2, H2S) into the atmosphere, and flooding large areas of land. Whereas pure methane is lighter than air, methane loaded with water droplets is much heavier, and thus spreads over the land, mixing with air in the process (and losing water as rain). The air-methane mixture is explosive at methane concentrations between 5% and 15%; as such mixtures form in different locations near the ground and are ignited by lightning, explosions and conflagrations destroy most of the terrestrial life, and also produce great amounts of smoke and of carbon dioxide…” [5]
The warning signs of an impending planetary catastrophe—of such great magnitude that the human mind has difficulty grasping it-would be the appearance of large fissures or rifts splitting open the ocean floor, a rise in the elevation of the seabed, and the massive venting of methane and other gases into the surrounding water.
Such occurrences can lead to the rupture of the methane bubble containment—it can then permit the methane to breach the subterranean depths and undergo an explosive decompression as it catapults into the Gulf waters. [6]
All three warning signs are documented to be occurring in the Gulf.
Ground zero: The Gulf Coast
The people and property located on the greater expanse of the Gulf Coast are sitting at Ground Zero. They will be the first exposed to poisonous, cancer causing chemical gases. They will be the ones that initially experience the full fury of a methane bubble exploding from the ruptured seabed.
The media has been kept away from the emergency salvage measures being taken to forestall the biggest catastrophe in human history. The federal government has warned them away from the epicenter of operations with the threat of a $40,000 fine for each infraction and the possibility of felony arrests.
Why is the press being kept away? Word is that the disaster is escalating.
Cracks and bulges
Methane is now streaming through the porous, rocky seabed at an accelerated rate and gushing from the borehole of the first relief well. The EPA is on record that Rig #1 is releasing methane, benzene, hydrogen sulfide and other toxic gases. Workers there now wear advanced protection including state-of-the-art, military-issued gas masks.
Reports, filtering through from oceanologists and salvage workers in the region, state that the upper level strata of the ocean floor is succumbing to greater and greater pressure. That pressure is causing a huge expanse of the seabed-estimated by some as spreading over thousands of square miles surrounding the BP wellhead-to bulge. Some claim the seabed in the region has risen an astounding 30 feet.
The fractured BP wellhead, site of the former Deepwater Horizon, has become the epicenter of frenetic attempts to quell the monstrous flow of methane.
The subterranean methane is pressurized at 100,000 pounds psi. According to Matt Simmons, an oil industry expert, the methane pressure at the wellhead has now skyrocketed to a terrifying 40,000 pounds psi.
Another well-respected expert, Dr. John Kessler of Texas A&M University has calculated that the ruptured well is spewing 60 percent oil and 40 percent methane. The normal methane amount that escapes from a compromised well is about 5 percent.
More evidence? A huge gash on the ocean floor—like a ragged wound hundreds of feet long—has been reported by the NOAA research ship, Thomas Jefferson. Before the curtain of the government enforced news blackout again descended abruptly, scientists aboard the ship voiced their concerns that the widening rift may go down miles into the earth.
That gash too is hemorrhaging oil and methane. It’s 10 miles away from the BP epicenter. Other, new fissures, have been spotted as far as 30 miles distant.
Measurements of the multiple oil plumes now appearing miles from the wellhead indicate that as much as a total of 124,000 barrels of oil are erupting into the Gulf waters daily-that’s about 5,208,000 gallons of oil per day.
Most disturbing of all: Methane levels in the water are now calculated as being almost one million times higher than normal. [7]
Mass death on the water
If the methane bubble—a bubble that could be as big as 20 miles wide—erupts with titanic force from the seabed into the Gulf, every ship, drilling rig and structure within the region of the bubble will immediately sink. All the workers, engineers, Coast Guard personnel and marine biologists participating in the salvage operation will die instantly.
Next, the ocean bottom will collapse, instantaneously displacing up to a trillion cubic feet of water or more and creating a towering supersonic tsunami annihilating everything along the coast and well inland. Like a thermonuclear blast, a high pressure atmospheric wave could precede the tidal wave flattening everything in its path before the water arrives.
When the roaring tsunami does arrive it will scrub away all that is left.
A chemical cocktail of poisons
Some environmentalist experts are calling what’s pouring into the land, sea and air from the seabed breach ’a chemical cocktail of poisons.’
Areas of dead zones devoid of oxygen are driving species of fish into foreign waters, killing plankton and other tiny sea life that are the foundation for the entire food chain, and polluting the air with cancer-causing chemicals and poisonous rainfalls.
A report from one observer in South Carolina documents oily residue left behind after a recent thunderstorm. And before the news blackout fully descended the EPA released data that benzene levels in New Orleans had rocketed to 3,000 parts per billion.
Benzene is extremely toxic and even short term exposure can cause agonizing death from cancerous lesions years later.
The people of Louisiana have been exposed for more than two months—and the benzene levels may be much higher now. The EPA measurement was taken in early May. [8]
Doomsday
While some say it can’t happen because the bulk of the methane is frozen into crystalline form, others point out that the underground methane sea is gradually melting from the nearby surging oil that’s estimated to be as hot as 500 degrees Fahrenheit.
Most experts in the know, however, agree that if the world-changing event does occur it will happen suddenly and within the next 6 months.
So, if events go against Mankind and the bubble bursts in the coming months, Gregory Ryskin may become one of the most famous people in the world. Of course, he won’t have long to enjoy his new found fame because very shortly after the methane eruption civilization will collapse.
Perhaps if humanity is very, very lucky, some may find a way to avoid the mass extinction that follows and carry on the human race.
Perhaps.
…………
Sources
[1] The Permian extinction event, when 96% of all marine species became extinct 251 million years ago.
[2] “The Day The Earth Nearly Died,” BBC Horizon, 2002
[3] Report about the Late Paleocene Thermal Maximum (LPTM), which occurred around 55 million years ago and lasted about 100,000 years. Large undersea methane caused explosions and mass extinctions.
[4] Ryskin Theory
Huge combustible clouds produced by methane gas trapped under the seas and explosively released could have killed off the majority of marine life, land animals, and plants at the end of the Permian era—long before the dinosaurs arrived.
[5] James P. Kennett, Kevin G. Cannariato, Ingrid L. Hendy, Richard J. Behl (2000), “Carbon Isotopic Evidence for Methane Hydrate Instability During Quaternary Interstadials,” Science 288.
[6] “An awesome mix of fire and water may lie behind mass extinctions”
[7] “Methane in Gulf ‘astonishingly high’-US scientist”
[8] Report: “Air Quality – Oil Spill” TV 4WWL video
IMF and EU Suspend Talks With Hungary
Published: Sunday, 18 Jul 2010 | 10:18 AM ET Text Size
By: Reuters
The IMF and EU suspended on Saturday a review of Hungary’s funding program, set up in 2008 to save the country from financial meltdown, saying it must take tough action to meet targets for cutting its budget deficit.
Stuart Westmorland | Photodisc | Getty Images
Hungary will not have
Suspension of talks means Hungary will not have access to remaining funds in its $25.1 billion loan package, created by the International Monetary Fund and European Union and which it now uses as financial safety net, until the review is concluded.
Negotiations with the lenders had been expected to finish early next week. Analysts said the forint currency could fall sharply when financial markets reopen Monday due to uncertainty over the international safety net for Hungary, which has financed itself from the markets since last year.
“In an environment of heightened market scrutiny of government deficits and debt levels, the fiscal deficit targets previously announced—3.8 percent of GDP in 2010 and below 3 percent of GDP in 2011—remain an appropriate anchor for the necessary consolidation process and debt sustainability, and should be adhered to, but additional measures will need to be taken to achieve these objectives,” the IMF said.
“Sustainable consolidation will require durable, non-distortive measures, which the authorities need more time to develop,” it said in a statement.
Hitting Where It Hurts Most
Hungary’s new center-right government, which swept to power in April elections, has said it wanted to extend its current financing deal with lenders until the end of 2010 and seek a precautionary deal for 2011 and 2012.
Economy Minister Gyorgy Matolcsy made clear the government was keen to resume negotiations. “The government will of course continue talks with international organizations including the IMF and the EU,” he said in a statement published by the national news agency MTI Saturday.
Christoph Rosenberg, who led the IMF delegation to Hungary, signaled that the Fund wanted more on next year’s budget. “By definition when we come next time—unless we come next week—the government will have made more progress on the 2011 budget and that will be a very important budget,” he told Reuters.
In an interview, he also said the IMF had not discussed the possibility of a new financing deal for 2011 and 2012.
“We are aware of what has been said in public but in our meetings we didn’t really get to that point, because we obviously needed to first resolve the policy issues and those have not been resolved,” he said.
The EU issued a separate statement saying the conclusion of the review had to be postponed and further talks should be held at a later stage.
“Hungary has returned to a positive economic growth path and now has one of the lowest budget deficits in the EU. I welcome the authorities’ commitment to the 2010 deficit target,” said Olli Rehn, Commissioner for Economic and Monetary Affairs.
“However, the correction of the excessive deficit by next year will require tough decisions, notably on spending.”
Hungary needs the IMF/EU safety net to keep the trust of investors from whom it borrows. But the country remains vulnerable due to its high public debt, which is equal to 80 percent of GDP, and its strong reliance on foreign financing.
“If we do not have the safety net of international lenders, that hits us where it hurts most,” said MKB Bank analyst Zsolt Kondrat.
“One would definitely expect a weakening forint Monday. A 10-forint weakening (versus the euro) is quite plausible, and nobody knows how nervous the market’s reaction might be.”
The forint traded at around 282 to the euro Friday.
http://www.cnbc.com/id/38297636
Copyright 2010 Reuters. Click for restrictions.
The Russians sent a couple ground/balloon based capsules to Venus checking on Halley’s Comet along the way in the 80′s…very innovative and creative engineering behind this complex series of “adult science” projects.
BUSINESS JULY 13, 2010
Finance Overhaul Casts Long Shadow on the Plains
By MICHAEL M. PHILLIPS
Jim Kreutz, a Nebraska farmer, hedges 70% of his 345,000-bushel corn harvest every year.
GILTNER, Neb.—Farmer Jim Kreutz uses derivatives to soften the blow should the price of feed corn drop before harvest. His brother-in-law, feedlot owner Jon Reeson, turns to them to hedge the price of his steer. The local farmers’ co-op uses derivatives to finance fixed-price diesel for truckers who carry cattle to slaughter. And the packing plant employs derivatives to stabilize costs from natural gas to foreign currencies.
Far from Wall Street, President Barack Obama’s financial regulatory overhaul, which may pass Congress as early as Thursday, will leave tracks across the wide-open landscape of American industry.
Designed to fix problems that helped cause the financial crisis, the bill will touch storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus, attesting to the sweeping nature of the legislation, the broadest revamp of finance rules since the 1930s.
Here in Nebraska farm country, those in the business of bringing beef from hoof to mouth are anxious, specifically about the bill’s provisions that tighten rules governing derivatives. Some worry the coming curbs will make it riskier and pricier to do business. Others hope the changes bring competition that will redound to their benefit.
“Out here we like to cuss the large banking institutions because of the mortgage mess, but we also know that without them some of these markets don’t work,” says Mike Hoelscher, energy program manager for AgWest Commodities LLC, a Holdrege, Neb., brokerage that provides derivatives services to the farming industry.
How Farmers Use Derivatives
Derivatives are financial instruments whose value “derives” from something else, such as interest rates or heating-oil prices. The first derivatives were crop futures, which appeared in the U.S. at the end of the Civil War and became a standard facet of business for companies across America.
During the financial crisis, they became notorious as American International Group Inc. and others were gutted by bad bets on derivatives linked to bad mortgages.
President Obama and other proponents say the financial overhaul will prevent the kind of reckless lending and borrowing that sank the financial system and left taxpayers with the check. They say non-financial companies are worrying unduly about the derivatives portion of the legislation. The Senate is expected to approve the financial regulatory overhaul on Thursday, sending it to the president.
The full impact won’t be known for years, but in Nebraska nerves are already on edge.
Executives at Five Points Bank in Hastings think the new rules on mortgage lending will make the home-loan business less profitable. “When they create a new regulator, it really scares us,” says Nate Gengenbach, vice president of commercial and agricultural lending.
Advance America Cash Advance Centers Inc. thinks the new Bureau of Consumer Financial Protection will take aim at the payday-loan business, though it’s not clear what steps the agency will take. Advance America’s storefront at the Skagway Mall in Grand Island charges an effective 460.08% annualized interest rate on a two-week $425 loan.
But it’s the derivatives portion—the part of the bill aimed directly at Wall Street—that might end up touching most lives in rural America.
The new law requires most derivatives transactions be standardized, traded on exchanges, just like corporate stocks, and funneled through clearinghouses to protect against default.
What’s Made It Into the Bill?
For consumers, for investors, for banks and for the government.
Faced with intense lobbying, Congress partially exempted businesses that use derivatives for commercial purposes. So, farmers and co-ops probably won’t face new collateral requirements, for instance—although there remains a dispute over that section of the bill. Those that trade derivatives on regulated exchanges, such as the Chicago Board of Trade, are less likely to see immediate impacts than those conducting private over-the-counter deals, which will face federal regulation for the first time. The goal is to make such deals transparent.
The question for these farmers is whether such rules will make hedging more expensive. Some say new requirements on big players will create higher costs for small players, including the cash dealers will have to put aside to enter into private derivatives transactions. Some brokers think restrictions on big-money banks and investors will drain the amount of money available to the everyday deals farmers favor.
Others predict the opposite effect, pushing money from the private market to the exchanges and creating more competition that will benefit farmers.
Uncertainty reigns in Giltner, a town of 400 residents 80 miles west of Lincoln. At first glimpse, Giltner’s landscape seems featureless, a fading horizon of corn and soybeans. But its details are more subtle, including wildflowers and shaded creeks. Everywhere galvanized-steel sprinkler systems crawl across farm fields like giant stick insects.
Mr. Kreutz, an outgoing 36-year-old with a sandy crewcut and sunburned neck, gave up a career in finance and took over the 2,800-acre family farm after his father’s death. As he works his fields, he checks the crop futures prices on his smart phone.
Here’s how Mr. Kreutz does it: Say in early summer he sees that the price for a Chicago Board of Trade futures contract on corn for delivery later in the year is $3.56 a bushel. If he likes the price, and wants to lock it in, he calls AgWest and sells a futures contract for 5,000 bushels. The futures contract is a derivative in which the price for corn is set now for exchange in the future, though no kernels will change hands. Instead, when the contract nears expiration, Mr. Kreutz and the buyer of his contract will settle—in effect—by check.
Michael M. Phillips/The Wall Street Journal
Jon Reeson, a feedlot owner, uses derivatives to hedge the price he pays for feed and the price he gets for steer.
By fall, when Mr. Kreutz is ready to deliver his crop to the local co-op, the market price might have fallen by 50 cents. He’ll sell his actual corn for that lower amount. But he’ll make up the difference through his financial hedge. (Mr. Kreutz buys a new futures contract at the lower price to make good on his earlier promise, making up the 50 cents.) In all, he’ll have hit the price target he locked in earlier in the year, minus brokerage fees.
If the price rises during the summer, as it did during the food crisis two years ago, Mr. Kreutz has to pony up extra cash for his broker—a margin call—to maintain his positions. He recoups that by selling his actual corn at a higher price, but has to take a loss to meet the futures contract he signed earlier in the year, missing out on a windfall but ultimately meeting his target price.
Mr. Kreutz does this type of operation dozens of times a year, hedging about 70% of his 345,000-bushel corn harvest.
Such deals ripple through the local economy. When Mr. Kreutz gets a margin call from his broker, he turns to his banker, Mr. Gengenbach, for a loan to cover it. Mr. Gengenbach estimates that one quarter of his farm clients use derivatives.
“Somebody like Jim has a lot of money in his crop out here,” says the 37-year-old Mr. Gengenbach. “If he can’t protect that, it’s not good for us.”
Mr. Kreutz’s brokerage, AgWest, thinks the new finance law will hurt both firm and farm. If big investors and dealers have to keep more cash on hand, there will be less liquidity in the market and therefore the cost of derivatives will increase, Mr. Hoelscher, the broker said.
A few minutes from the Kreutz family farm are the corrals of Jon Reeson’s feedlot. Mr. Reeson, 43, is married to Mr. Kreutz’s sister Jane. His feedlot holds as many as 1,500 steer, mostly Black Angus, which grow from 600-lb. calves into 1,300 pounders ready for slaughter.
Mr. Reeson uses derivatives to hedge both the price he pays for feed and the price he gets for selling his steer.
The fattening takes about 7,000 pounds of food for each animal. Mr. Reeson can’t count on a favorable price from his brother-in-law’s farm, in which he has a stake, so when he sees a feed price he likes, he seals it with a futures contract.
In April, he called AgWest and locked in a price with a futures contract for $95 per hundredweight of cattle. Since then the market price has dropped to $90. If the price stays there until October, he’ll have made the right call, earning a higher price than if he’d relied on the market alone. If the price spikes higher, though, he’ll miss out on potential gains.
Mr. Reeson is willing to live with that possibility in exchange for locking in a profit or a narrowed loss. Derivatives hedging helped him survive the recession of 2008-2009, when cash-strapped diners avoided steak and the price of beef plunged.
He’s watching the new legislation warily and can’t yet tell if it will hurt or help.
When his cattle have reached full weight, Mr. Reeson puts them on Roger and Barb Wilson’s trucks for the trip to the slaughterhouse. The Wilsons have seven semi tractors and 16 trailers, and one of their biggest costs is diesel fuel to keep the fleet on the road.
In 2004, Cooperative Producers Inc., his local co-op, offered Mr. Wilson a price-protection plan for 10,000 gallons of diesel at about $2.50 a gallon, with 90 days to use it.
CPI had a choice. It could take its chances and hope the price of fuel would drop before Mr. Wilson took delivery on his full order, a windfall for the co-op. If diesel prices jumped, though, the coop would take a bath. “That falls under speculation,” says Gary Brandt, CPI’s vice president of energy. “But that’s not what cooperatives do. That’s what Goldman Sachs does.”
Instead, CPI hedged on the New York Mercantile Exchange, buying a futures contract on heating oil, a close market substitute for diesel fuel. The co-op goes a step further and hedges also the difference between the prices of fuel traded in New York and delivered in Nebraska.
For the 57-year-old Mr. Wilson, the pricing plan proved a mixed blessing. The first year, the pump price shot up by another 20 to 25 cents, meaning he was getting a good deal. The following year the pump price dropped about a quarter a gallon, but Mr. Wilson was obliged to pay the higher price. “It hurt to have to pay for that fuel,” he recalls sourly. He quit the program after that.
The finance law’s imminence has prompted CPI’s Mr. Brandt to warn his sales team and customers that the co-op may have to end its maximum-price fuel contracts. He’s worried too that CPI might have to cut its fuel supplies if it can’t hedge against price drops.
“We have to start making a game plan if they take away the ability for us to hedge that inventory,” Mr. Brandt says.
The Wilsons deliver Mr. Reeson’s steer to a low, cement-gray complex on the edge of Grand Island, Neb., where trucks arrive loaded with cattle, and others leave loaded with meat. Over the past year, Mr. Reeson has sold 1,125 steer to the packing plant, which is owned by JBS USA, a Greeley, Colo., unit of Brazilian-owned JBS SA.
JBS buys livestock two ways. Sometimes it pays cash for the following week’s kill. Sometimes it buys further forward, agreeing in July, for instance, to a fixed price for steer delivered in December. JBS hedges on the derivatives market to make sure live cattle prices don’t drop before it takes delivery.
Michael M. Phillips/The Wall Street Journal
Black Angus cattle at Jon Reeson’s feedlot in Giltner, Neb.
The company also sells beef cuts forward to restaurant chains, promising delivery at set prices months ahead of time. JBS expects to have enough meat to fulfill the agreements. But if it runs short, it doesn’t want to risk having to pay higher prices to buy meat to supply those restaurants.
So, it uses the derivatives market to play it safe. To do so, the company has to find a way to hedge different cuts of beef: Tenderloins might represent 1.5% of the total value of a steer. Strip loins might make up 3%. In a sense, JBS protects itself by reconstructing the steer through a derivatives trade on the Chicago Mercantile Exchange. “We try to put the carcass back together financially,” says company spokesman Chandler Keys.
The company hedges electricity for its refrigerators and natural gas for its boilers. It hedges currencies to stabilize its income from overseas. It hedges fuel for its fleet of thousands of trucks.
Even executives at a big firm such as JBS haven’t been able to nail down the precise impact of the legislation on their business, introducing an unaccustomed level of uncertainty into their operations. They aren’t changing the way they use derivatives, yet, hoping instead that exemptions for commercial users will insulate them.
“To get food, particularly highly perishable food like meat and poultry, through to the consumer, you have to manage your risk,” says Mr. Keys.
—Sarah N. Lynch contributed to this article.
Obama ‘Internet kill switch’ plan approved by US Senate panel
President could get power to turn off Internet
By Grant Gross | Published: 11:02 GMT, 25 June 10
A US Senate committee has approved a wide-ranging cybersecurity bill that some critics have suggested would give the US president the authority to shut down parts of the Internet during a cyberattack.
Senator Joe Lieberman and other bill sponsors have refuted the charges that the Protecting Cyberspace as a National Asset Act gives the president an Internet “kill switch.” Instead, the bill puts limits on the powers the president already has to cause “the closing of any facility or stations for wire communication” in a time of war, as described in the Communications Act of 1934, they said in a breakdown of the bill published on the Senate Homeland Security and Governmental Affairs Committee website.
The committee unanimously approved an amended version of the legislation by voice vote Thursday, a committee spokeswoman said. The bill next moves to the Senate floor for a vote, which has not yet been scheduled.
The bill, introduced earlier this month, would establish a White House Office for Cyberspace Policy and a National Center for Cybersecurity and Communications, which would work with private US companies to create cybersecurity requirements for the electrical grid, telecommunications networks and other critical infrastructure.
The bill also would allow the US president to take emergency actions to protect critical parts of the Internet, including ordering owners of critical infrastructure to implement emergency response plans, during a cyber-emergency. The president would need congressional approval to extend a national cyber-emergency beyond 120 days under an amendment to the legislation approved by the committee.
The legislation would give the US Department of Homeland Security authority that it does not now have to respond to cyber-attacks, Lieberman, a Connecticut independent, said earlier this month.
“Our responsibility for cyber defence goes well beyond the public sector because so much of cyberspace is owned and operated by the private sector,” he said. “The Department of Homeland Security has actually shown that vulnerabilities in key private sector networks like utilities and communications could bring our economy down for a period of time if attacked or commandeered by a foreign power or cyber terrorists.”
Other sponsors of the bill are Senators Susan Collins, a Maine Republican, and Tom Carper, a Delaware Democrat.
One critic said Thursday that the bill will hurt the nation’s security, not help it. Security products operate in a competitive market that works best without heavy government intervention, said Wayne Crews, vice president for policy and director of technology studies at the Competitive Enterprise Institute, an anti-regulation think tank.
“Policymakers should reject such proposals to centralize cyber security risk management,” Crews said in an e-mail. “The Internet that will evolve if government can resort to a ‘kill switch’ will be vastly different from, and inferior to, the safer one that will emerge otherwise.”
Cybersecurity technologies and services thrive on competition, he added. “The unmistakable tenor of the cybersecurity discussion today is that of government steering while the market rows,” he said. “To be sure, law enforcement has a crucial role in punishing intrusions on private networks and infrastructure. But government must coexist with, rather than crowd out, private sector security technologies.”
On Wednesday, 24 privacy and civil liberties groups sent a letter raising concerns about the legislation to the sponsors. The bill gives the new National Center for Cybersecurity and Communications “significant authority” over critical infrastructure, but doesn’t define what critical infrastructure is covered, the letter said.
Without a definition of critical infrastructure there are concerns that “it includes elements of the Internet that Americans rely on every day to engage in free speech and to access information,” said the letter, signed by the Center for Democracy and Technology, the American Civil Liberties Union, the Electronic Frontier Foundation and other groups.
“Changes are needed to ensure that cybersecurity measures do not unnecessarily infringe on free speech, privacy, and other civil liberties interests,” the letter added.
…and I have some swampland to sell in Florida. I remember my first 512k enhanced Mac for around $3500. Tiny screen and even smaller selection of software. Mach Unix with all the trimmings…believe my first Mac-based computer game was the Ancient Art of War. Scratching my head on this one, but it makes sense being a recovering ATT-networked iPhone user. Dropped calls anyone?
I love this quote…
“Upon investigation, we were stunned to find that the formula we use to calculate how many bars of signal strength to display is totally wrong,” the company wrote. Apple said the problem has been present since the original iPhone.”
Here is the closest thing I can find to a US Congressional floor debate on any issue of significance these days…
Ship your luggage in a cardboard box to avoid airline luggage fees? Yeah, right.
