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STORIES:
U.S. Banks Sold More Swaps on European Debt as Risks Rose - (www.bloomberg.com)
U.S. banks increased sales of
protection against credit losses to holders of Greek, Portuguese, Irish,
Spanish and Italian debt in
the last quarter of 2011 as the European debt crisis escalated. Guarantees
provided by U.S. lenders on government, bank and corporate debt in those
countries rose 10 percent from the previous quarter to $567 billion, according
to the most recent data from the Bank for International Settlements. Those
guarantees refer to credit-default swaps written on bonds. JPMorgan Chase & Co. (JPM) and
Goldman Sachs Group Inc., two of the top CDS underwriters in the U.S., say they
have bought more protection than they sold, indicating they may benefit from
defaults in the region. That outcome is called into question by JPMorgan’s $2
billion loss on similar derivatives, which shows that risks don’t vanish when
offsetting bets are taken, said Craig Pirrong, a finance professor at the
University of Houston.
Spain Crisis Lender For Regions Can Tap ECB To Fill Coffers
- (www.bloomberg.com) The Spanish government’s bank
channeling aid to cash-strapped regions can keep a lid on its funding bill by
tapping the European Central Bank for loans that
cost it a fraction of the amount bond investors will charge. While Instituto de
Credito Oficial has sold 60 percent of the 20 billion euros ($25 billion) in
bonds it planned to issue in 2012, the lender is also able to use its banking
license to access the ECB’s facilities, said Antonio Cordero, its head of
funding and treasury. That allows the institution to access money at 1 percent,
compared with a cost of more than 5 percent from investors for its three-year
debt. “Like any other bank, the ICO can pledge loans as guarantees to obtain
Bank of Spain funding,” Cordero said in a May 11 interview at the lender’s
headquarters in Madrid. “Potentially most of our balance sheet is eligible.”
Peering Over J.P. Morgan's Hedges - (online.wsj.com) With big U.S. bank stocks
again sliding, investors are wondering how much is due to Europe's woes versus
blowback from J.P. Morgan Chase's JPM -0.59% trading debacle. One
answer: The issues are intertwined. When J.P. Morgan revealed $2 billion-plus
in trading losses, it said it had executed hedges poorly and failed to monitor
them properly. This raised questions about J.P. Morgan's overall hedging
abilities, including those meant to offset exposures to Europe. And, if J.P.
Morgan could mess up, what about Citigroup, Bank of America, Morgan Stanley or
Goldman Sachs? With investors in the dark on the degree to which the five banks
are mostly buying and selling protection from each other, investors also have
little way to assess contagion risks.
Apocalypse
Fairly Soon - (www.nytimes.com) Suddenly, it has become easy
to see how the euro — that grand, flawed experiment in monetary union without
political union — could come apart at the seams. We’re not talking about a
distant prospect, either. Things could fall apart with stunning speed, in a
matter of months, not years. And the costs — both economic and, arguably even
more important, political. This doesn’t have to happen; the euro (or at least
most of it) could still be saved. But this will require that European leaders,
especially in Germany and at the European Central Bank, start acting very
differently from the way they’ve acted these past few years. They need to stop
moralizing and deal with reality; they need to stop temporizing and, for once,
get ahead of the curve.
The
Decline of Inherited Money - (online.wsj.com)
My Krugman post brought
a lot of emails asking about my assertion that “the vast majority of today’s
rich didn’t inherit their money, but made it themselves.” For the sake of
brevity, I didn’t cite the research behind the statement. But since many of you
have asked, and we aim to please here at the Wealth Report, here are my three
main data points:
1.
According to a study of Federal Reserve data conducted by NYU professor Edward
Wolff, for the nation’s richest 1%, inherited wealth accounted for only 9% of
their net worth in 2001, down from 23% in 1989. (The 2001 number was the latest
available.)
2.
According to a study by Prince & Associates, less than 10% of today’s multi-millionaires
cited “inheritance” as their source of wealth.
3. A
study by Spectrem Group found that among today’s millionaires, inherited wealth
accounted for just 2% of their total sources of wealth.
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