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It's Time to Keep America From Becoming Just Another Banana Republic

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

The great American tradition of individualism, entrepreneurship and revolution is being systematically undermined by a cadre of financial strongmen bent on turning us into just another "banana republic" - where a subdued and apathetic population is subjugated by a ruling class of wealthy oligarchs.

The gross irony is that the same capitalist system that molded America into the strongest, most productive and richest nation in history, has been transformed into a mostly private moneymaking enterprise whose beneficiaries are those who actually produce nothing but paper profits.

The story of America's transformation from great experiment to another banana republic is one in which economic crises were manipulated to create a political front for an elite banking class.

It's a story that's worth examining...



To find out why America is headed for banana-republic status, please read on...

Ignoring Sovereign Default Damages Credibility of EU's Bank Stress Tests

By , Associate Editor, Money Morning -

The European Union (EU) bank stress tests failed to account for a sovereign default, meaning results show a healthier banking sector than actually exists.

The tests results were released Friday with seven banks failing, but analysts say many more institutions could have failed if the tests simulated a sovereign default. Testing regulators from the Committee of European Banking Supervisors (CEBS) decided against testing securities held in lenders' banking books, where sovereign debt is held and only written down in the case of default.

"The long awaited stress tests do not seem to have been that stressful after all," said Gary Jenkins, an analyst at Evolution Securities Ltd. "The most controversial area surrounds the treatment of the banks' sovereign debt holdings."

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Money Morning Mailbag: Big Banks Under Fire for Metals-Market Manipulation

By , Associate Editor, Money Morning -

A New York Post article in May reported that the Department of Justice had launched an investigation into the supposed metals-market manipulation by JPMorgan Chase & Co. (NYSE: JPM).

The article alleged that JPMorgan, which holds a number of derivatives in precious metals, attempted to lower the price of silver for its own profit. JPMorgan was quick to issue a response, stating there was no criminal or civil investigation into the company's silver trading practices.

But as word spread around the Web, readers' comments poured in with concerns over the news:

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EU Widens Scope of Bank Stress Tests to Include More Banks, Government Debt

By , Contributing Writer, Money Morning -

Under pressure from investors to provide more transparency, European Union (EU) officials are widening the scope of banking stress tests to include more national and regional banks and to assess sovereign-debt risks when calculating how lenders would perform against shocks to the banking system.

The moves come as investors have been increasing pressure on the EU to provide complete transparency while conducting stress tests on the banks.

EU leaders have already agreed to publish stress test results for 26 banks next month - mainly big, cross-border institutions - to address concerns about the Eurozone's exposure to sovereign debt.

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Why Investors Must Keep an Eye on Spain

By , Contributing Writer, Money Morning -

Greece is not the big story of Europe anymore - just a smoke screen.

The big story is Spain and the United Kingdom, and the news is getting worse.

In the past week, Spanish officials acknowledged to reporters that the country's banks and companies were having difficulty obtaining credit. The credible website EuroIntelligence reported that Spain is now effectively cut off from international capital markets, which is a major new development.

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Stock Market Stuck as Investors Demand Risk Premium for Buying

By , Contributing Writer, Money Morning -

Stocks rose worldwide over the past week by 2% to 5%, swelling with sudden courage after positive economic reports from China and shaking off some worsening news in the United States about retail sales and jobs.

Yet results in the past month are still heavily negative, ranging from -5.5% for U.S. stocks and -8.5% for Europe. China has suddenly become the most buoyant region, up 1.5% in the past month.

The variation in one-week and one-month results illustrate perfectly how investors are showing that they are hopeful but unconvinced that recent strength in GDP growth and corporate income advances are sustainable, and therefore won't buy stocks heavily until prices are so cheap that they discount worst-case scenarios. They want a high risk premium, in other words, before buying -- sort of like demanding a 72-month warranty before buying an expensive car.



Click Here to Find Out How the Risk Premium is Holding Back Stocks...

How to Cure Western Bankers of "Bad-Banker" Behavior

By , Global Investing Specialist, Money Morning -

Masayuki Oku, the new head of the Japan Bankers Association, recently said that Western bankers did not understand self-control the way Asian bankers did, which was a major cause of the 2008 crash and the Great Recession.

I think he has a point.

Oku's main purpose in denouncing Western bankers for their lack of self-control was to object to the tougher proposed capital rules from the Basel Committee, the global body that sets banking regulations.

To understand how to fix the Western banking sector, please read on...

This Weekend's G-20 Meeting Won't Bring Any Answers on Financial Regulation

By , Associate Editor, Money Morning -

Finance ministers from the Group of 20  (G-20) nations this weekend will attempt to reach a compromise on the implementation of stricter banking regulations at a meeting in Busan, South Korea. However, significant changes to financial regulation will come slow, if at all.

The meeting will start late Friday and will involve discussions about how to reduce deficits and prepare financial institutions for a wider set of rules.

"Sustaining world economic growth is the most important item on the G-20 agenda this weekend," said U.K. Chancellor of the Exchequer George Osborne. "Countries with high budget deficits must show that they can deal with them. Equally, surplus countries, such as China, must show that they too can support economic growth going forward."

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Banks and Investors Both Rattled by European Debt Concerns

By , Managing Editor, Money Morning -

European debt concerns continued to weigh on investor sentiment today (Thursday) as rumors circulated that the European Central Bank (ECB) was planning an intervention into the continent's banking sector.

The ECB is buying government bonds and increased its lending to banks, but that has done little to alleviate concern that the nearly-$1 trillion (750 billion euros) Eurozone bailout package announced last month won't be enough to prevent a collapse in the banking industry.

The ECB said on Monday that European banks will have to write off more loans this year than they did in 2009. The region's banks are expected to write off some $237 billion (195 billion euros) in bad debt by 2011.

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Money Morning Mailbag: Wall Street Expects Money to Arbitrate Financial Reform

By , Associate Editor, Money Morning -

Financial regulation overhaul cleared another hurdle last week when the Senate approved its financial reform bill. However, the inclusion of a derivatives trading restriction left Wall Street wondering why its political contributions weren't doing the talking.

The financial industry was surprised when a provision created by Sen. Blanche Lincoln, D-AR, requiring banks to spin off their derivatives trading arms remained in the Senate's proposal. Wall Street lobbyists are now reaching out to the members of the Senate and House conference committee who will reconcile the two bills. The Senate named its committee appointees Tuesday, which included Lincoln.

The Financial Services Roundtable, a lobbying group representing financial companies, has already started meeting with House members who it believes will be involved in the final process and could help cut the provision.

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Investors See Caution Flags as Spain Bails Out Struggling Savings Banks

By , Associate Editor, Money Morning -

Spain's central bank has decided to bail out regional savings bank CajaSur with $621.75 million (500 million euros), causing investors to worry that Spain's savings banks are in more trouble than the country can handle.

Spain's savings banks drastically increased lending when the economy was booming, leaving them highly exposed to a precipitous decline in housing prices. The unlisted banks have granted about $341 billion (243 billion euros) in real estate/construction loans.

Now savings banks - often criticized for their lack of accountability - are refusing to price the mortgage-related assets on their books to accurately calculate their losses. Estimates put the banks' exposure as high as $408.4 billion (300 billion euros). The savings banks' ownership models make it difficult to raise money as they are controlled by local politicians and cannot easily sell shares.

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Surge in Strategic Defaults Threatens Housing Market Recovery

By , Contributing Writer, Money Morning -

A growing number of homeowners who owe more on their mortgages than their property is worth are opting for "strategic default," which means walking away from their homes, even though they can afford to make their monthly payment.

If the trend accelerates, it could put more empty houses on a market that's already overburdened with vacancies and snuff out any recovery in the moribund housing market.

Right now, more than 10% of borrowers are 25% or more underwater on 4.9 million mortgages. The total valuation could saddle banks with as much as $656 billion of bad loans, according to the latest report from Corelogic.

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Taipan Daily: Could Continent-Wide Bank Runs Collapse the Eurozone?

By , Money Morning -

The eurozone's woes are giving us a preview of what could eventually happen in the United States (but not before Europe is engulfed first). As fears of sovereign debt crisis mount, the debt "contagion" spreads. It is not just Greece that has investors afraid, but Portugal. And Spain... and Italy... and so on.

The problem is classic, and long ago highlighted by Austrian economics. Building up a lot of debt, to make a slightly crass analogy, is like putting on a bunch of weight. It's hard work getting the debt off - the same as it is taking weight off.

The way to lose weight is to eat right and exercise. The way to get out of debt is to cut back on spending and increase productivity.

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A Year After the Bear-Market Bottom, Investors Must Still Pursue Profits – Without Ignoring Risk

By , Money Morning -

With the Standard & Poor's 500 Index up nearly 70% from the post-financial-crash low it set on March 9, 2009, U.S. stocks on Tuesday recorded their second-strongest showing ever for the first 12 months of a bull market.

But that near-record-setting performance brings to light two key issues.

  • First, despite the numbers that stand as evidence of the market's stunning surge, many still-shell-shocked investors refuse to label this as a true "bull market."
  • And second, no matter how great a market's performance has been, the real question to answer is "where do we go from here ... and how do I position myself to maximize possible returns while mitigating risk as much as possible?"
Money Morning turned to several experts - including Money Morning Chief Investment Strategist Keith Fitz-Gerald, and respected market researcher Bespoke Investment Group LLC - for some perspective on both these topics.

Read More…