World Economic News
'Death Bonds': New Financial Scam, as World Financial System Expires
July 21 (LPAC)"Death Bonds" is the cover story the July 30 Business Week, reporting on a ghoulish new financial scam known as, "life settlement-backed securities." Big investment firms such as Bear Stearns and Lehman Brothers are beginning to eye the profit potential in the 90 million or so life insurance policies Americans own.
What began in the 1980s as the business of "viaticals" (from viaticum, the communion given to the dying), morphed into the life-settlement business, where brokers buy life insurance policies from those wishing to cash out their policies early. The brokers, betting on the early death of the insured, pay the policies until the death of the recipient, then take the proceeds. Now the vultures are swooping in to buy up these policies, bundle them, and sell them to big-time investors, including pension funds.
The attraction of the death bond "product" is two-fold: As Baby-Boomers age, the market expands; and death bond performance is uncorrelated with other developments in the financial markets, making a great hedge in an increasingly unstable financial world. People just keep dying, whether the commodities markets collapse or expand.
The multitude of sordid and illegal "insider trading" schemes is mounting as the stakes get higher. For example, in Los Angeles, unscrupulous brokers raised $69 million for a trust, Persistence Capital, and bought policies on over 2,000 members of an African American church. Death benefits of $275,000 would be divied up as follows: $15,000 in death benefits to each church member who died; $20,000 for the church; and $240,000 to the trust. Investors were wooed with statistics showing that African Americans were more likely to die than the average, so that a bundle of African American policies would have a yield of 25%.
The obvious next step to increasing profits is obviously hastening the journey of the recipient to the afterlife.
Singapore Now, a New, 'Safe' Source for Carry Trade
July 18 (EIRNS)With Japan and Taiwan tightening their currencies, speculators are moving to Singapore for the "cheap money" they need for the carry trade, reports Bloomberg's Andy Mukherjee on July 18. Taiwan is trying to limit or end the mass borrowing of its currency for investment in high interest-rate nations. Singapore, writes Mukherjee, now has 2.4% rates, almost 1 percentage point lower than at the beginning of the year, while Taiwan's effective rate is 2.6%. Japan's rate is still at 0.5%, but is likely to be raised soon.
Singapore, the British banking outpost in Asia, is unlikely to move against the speculators, according to Mukherjee, despite the fact that its property market and the stock exchange are "in a frenzy."
Another Big Hedge Fund Wiped Out by MBS
July 19 (EIRNS)Less than 48 hours after Bear Stearns declared its two big hedge funds worthless from investing in mortgage-based securities (MBS) and their derivatives, another large hedge fund appears wiped out, as reported in the Financial Times July 19. The Basis Capital Fund, recently managing assets worth $1 billion, and headquartered in Australia, had tried only last week to survive by stopping investor withdrawals. But now banks have seized its MBS assets as collateral and started to sell them off, further worsening the pressure for losses throughout the multi-trillion-dollar MBS markets. Basis Capital said it missed margin calls, and was in crisis negotiations with its bank creditors JP Morgan Chase, Citigroup, and Morgan Stanley.
Whoops! Hedge Fund Losses Suddenly Showing
July 20 (EIRNS)An entire hedge fund index which, on July 16, had reported hedge fund assets were up in June and for the year, had to correct its index on July 19 to show big losses!
The July 20 London Financial Times reported that the Credit Suisse/Tremont Hedge Index published a report on July 16 showing its index of hundreds of fixed-asset arbitrage hedge funds up 0.2% in June, and 3.7% up for the year to date. But three days later, its corrected index showed the same funds having lost 6% of their assets in June, and down 7.5% for the year! The index includes the two wiped-out Bear Stearns hedge funds, but also many other "late reporting" funds which suffered losses.
Russia Threatens to Pull Companies Out of the LSE
July 20 (EIRNS)Russian companies may just have to pull out of the London Stock Exchange if the current tensions between the two countries continue, Alexandre Shokhin, president of Russia's Union of Industrialists and Entrepreneurs, said in Moscow on July 19. "If events develop in this key, Britain's trading floors traditionally favored by Russian companies, including state-run companies, would start losing ground, and Continental exchanges will obtain an opportunity to attract Russian companies to their bourses," Novosti quoted Shokhin.
"Perhaps, under broadly equal conditions, some companies may fail to win tenders," Shokhin said. "There is nothing to stop the British from saying that managers of state-owned corporations are also state officials. In addition, many officials who sit on boards of directors will fail to enter the U.K. as their companies' business will require." Shokhin called on Moscow not to retaliate in kind against the U.K., or the tensions could end up in a "political ping-pong, which may mean a chill in Russia-U.K. relations, if not a return to the Cold War times."
Danish Housing Bubble Blowing Up
July 20 (EIRNS)The happy times are over in the Danish housing market. Figures released by the Danish Council for Issuing Mortgages July 20 show a dramatic fall in the sales of apartments, especially the Copenhagen areawhich has long been the center of the Danish housing bubbleand an accompanying drop in the sales prices.
In the second quarter, the sales of apartments in Copenhagen dropped by 29.1% compared to one year ago, in the Copenhagen suburbs 43.9%, and in Northern Zealand 43.8%. At the same time, the sales prices for apartments in Copenhagen dropped by 12.3%. For all of Denmark the total number of real estate deals dropped by 27.3% and sales of apartments by 26.5%.
German Industry Calls for Transport Infrastructure Projects
HAMBURG, July 18 (EIRNS)In a joint statement issued by all 14 chambers of industry and commerce in northern Germany yesterday, the neglect of the importance of almost a million industrial jobs in that region by the politicians was criticized. Presenting the statement, which focuses on delayed highway, railway, port, and canal projects, Hans Peter Kolzen of the State Chamber of Industry and Commerce said: "All too often, politicians nourish visions of a post-industrial service sector society.... In reality, the industry in northern Germany is one of the pillars of Germany's role as a base of production and exports. As before, industry is the engine of the economy. A large share of services has been outsourced from the industry, actually, and firms depend on industrial contracts. The industry is the backbone of the economy."
Iran Asks Japan To Pay in Yen for Its Oil
July 18 (EIRNS)Iran nicked the U.S. dollar and the carry traders on July 13 when it asked Japan to pay in yen for the oil it imports. Iran has sent a letter to Japanese refiners, signed by Ali A. Arshi, the general manager of crude marketing and exports for Iran's National Iranian Oil Company, according to a report by Bloomberg on July 18.
The announcement is not considered fatal for the dollar, because Japan only imports $10 billion worth of oil from Iran. On the other hand, the news drove down the dollar against the yen to 120 from 122.40, but it later recovered somewhat, remaining above 121. But observers point out that whether the action is symbolic or not, three big oil-producing nationsIran, Venezuela, and Russiahave been moving much of their foreign currency reserves from dollars to euros in recent months. The latest move by Iran can only add to the long-term pressure on the dollar, already hit by worries about the U.S. economy based on the crisis in the subprime mortgage market.
Also, the responses to Iran's request indicate that many nations are concerned about the imported inflation that the weakness of the dollar has brought to their own countries. Subsequently, Kuwait announced that it was going to allow the dinar to appreciate by 0.4% in order to lower inflationary pressures.