The International Monetary Fund said Britain requires further monetary easing to boost the economy and Chancellor of the Exchequer George Osborne should consider budget stimulus including temporary tax cuts.
A online cash advance is a service provided by most credit card and charge card issuers.
How can a bank lose $2 billion in six weeks?
That’s just one of the mysteries surrounding the news that JPMorgan Chase, widely thought one of the safest U.S. banks, is gushing red ink from bad trading bets. As details slowly emerged Friday, the shares of the nation’s largest bank fell hard, as did those of several rivals.
The story behind the loss is complex, and rich in irony. How it’s viewed could influence regulators implement a major financial overhaul law called Dodd-Frank. How hard regulators crack down on bank could have a big impact on the stability of the financial system.
Here are answers to some questions about the loss:
Q: How exactly did the bank lose so much so fast?
A: First, start with the irony. JPMorgan says the losses came from a trading portfolio designed to offset losses in the bank’s lending business. Instead of offsetting losses, these so-called “hedges” added to them.
JPMorgan extends money to companies through loans and by buying bonds. The bank was worried that it might not get all its money back, so it bought protection. Though it didn’t detail how it did this, banks typically buy credit default swaps, essentially insurance contracts that pay out when companies stiff their lenders.
It gets more complex. In the often dizzying, Alice-in-Wonderland world of banking, these hedges are themselves sometimes hedged, and that’s exactly what JPMorgan did. The bank apparently thought it had bought too much protection, so it hedged its hedge.
It’s that second hedge, basically a bet that companies would pay back their loans, that led to the losses.
Q: How does the “London Whale” figure into the story?
A: News reports before the bank announced its loss said that a trader at the bank dubbed the “London Whale” had invested heavily in an index of credit-default swaps, and that the bets were producing losses. But in a conference call Thursday, Jamie Dimon, the CEO of JPMorgan, said the news reports about London trades were only “somewhat related” to the losses. He provided no other details.
Q: Why are other bank stocks falling on the news?
A: It’s not just the size of the bet that’s scaring investors, but its complexity. The fact is, not even experts know how precisely big banks make money, and occasionally lose it. Their wagers are largely hidden. The opaqueness, which investors normally shrug off, is spooking them now.
Investors are uneasy also because JPMorgan has a reputation of managing risks better than almost anyone in the business. Investors seem to be asking: If this bank can lose $2 billion in six weeks, maybe others can, too?
Finally, there’s the regulatory threat. The loss comes amid heated debate in Washington over just how tightly to regulate banks. “The timing of the JPMorgan announcement couldn’t be worse,” said Whitney Tilson, head of hedge fund T2 Partners, speaking at an industry gathering in Las Vegas.
Investors fear that bank profits could be pinched by the so-called Volcker Rule restricting trading that banks do with their own money, as opposed to clients’ funds. Dimon has been an outspoken critic of the rule, and an impactful one given his skill at navigating his bank in recent years. JPMorgan was the only bank to remain profitable during the 2008 financial crisis.
Now that Dimon has been pushed off his pedestal, investors are worried that regulators will be tougher in enforcing the new rule.
Q: Isn’t the trading that led to the loss banned already?
A: No. The rule doesn’t take effect until July, and even then regulators are suggesting banks will have another two years to comply.
In any case, it’s not clear that the trade in question were subject to the rule. In the conference call Thursday, Dimon said the trades that backfired were hedges, not bets for profit, so they wouldn’t have fallen under the rule.
But some experts have doubts.
Nancy Bush, a banking analyst at NAB Research, says it’s not always clear what is hedging and what is gambling. The size of JPMorgan’s loss makes her suspicious.
“So they made money on hedges and then they hedged some more,” she said. “At some point it goes from being a hedge to being a money maker. They crossed the line here somewhere and it’s going to cost them.”
Sen. Carl Levin from Michigan, the chair of a subcommittee that investigated the crisis, put it more bluntly. “This is not a hedge,” he said. He called the loss a “stark warning” about the danger of “risky bets” at banks.
Q: How much will the trading loss hurt JPMorgan?
A: Likely not much at all, putting aside the impact of tougher regulation. JPMorgan is a big money maker. The $2 billion loss, which is before accounting for taxes, compares with $19 billion in net income last year and $16 billion the year before that.
What’s more, Dimon said that $2 billion loss will be offset by $1 billion trading bets that have already paid off. Dimon said there are $7 billion more paper gains from trades that he can tap in case losses grow.
Q: Are more losses possible?
A: Dimon said he is trying to unwind the bad bets in a “responsible” manner to minimize losses, but prices can move against him. That would mean more losses. Dimon has said the $2 billion could become $3 billion depending on how markets react.
Payday loans no faxing fall on the less risky side simply because the money loaned to you is a percentage of your next paycheck.
South Korean producer-price inflation cooled to the slowest pace in 26 months on a decline in meat and fish costs, according to a report released two days before a monetary-policy meeting.
Prices climbed 2.4 percent in April from a year earlier, the smallest gain since February 2010, after a 2.8 percent increase in March, the Bank of Korea said in a statement in Seoul today. Prices fell 0.1 percent from March.
If you’re in your mid-40s, you should expect an unpleasant retirement surprise from Uncle Sam.
The Social Security trust fund is scheduled to run out of money in 2033, about when today’s 40-something workers hit retirement age. When that day arrives, all Social Security checks would have to be reduced by about 25 percent.
For most retirees, that’s a doomsday scenario. A 25 percent cut would leave them unable to pay their everyday bills.
Unfortunately, doomsday keeps drawing closer. As recently as 2005, the Social Security trustees thought insolvency was 47 years in the future. Their latest report, issued last week, moved it up 3 years, and it’s now just 22 years away.
The recession, which caused a drop in payroll tax revenue and forced some people to retire earlier than they had planned, played a major role in eroding the system’s finances. In the past year, the trustees said, workers’ hours – and thus the taxes they paid – didn’t grow as fast as had been projected.
If the job market remains weak for a couple more years – which wouldn’t surprise a lot of economists – we’ll keep moving closer to Social Security’s moment of crisis.
Congress, however, doesn’t seem to feel the urgency. As has been said often, some relatively small tweaks now could make it solvent for 75 years or more. Plenty of reasonable fixes have been proposed, but all of them can be labeled as a combination of tax increases and benefit cuts.
Republicans balk at tax increases, and Democrats refuse to accept benefit cuts, so nothing gets done.
It also would have made Social Security more progressive, making steeper cuts for wealthier retirees while protecting the poor. Simpson-Bowles was a sensible package, but it was pronounced dead on arrival. Congress would rather risk long-term calamity than make some politically unpopular choices.
The trustees’ report contains some good arguments for acting soon. For one thing, the disability portion of the trust fund is headed for exhaustion in 2016. Congress can address that insolvency by moving money from the old-age fund, but it may as well look for a comprehensive solution instead of a Band-Aid.
The report also makes clear that the necessary combination of benefit cuts and tax increases will be about 50 percent larger if we wait 20 years to address the problem.
How do we convince Congress to make those relatively small tweaks now? Josh Gordon, policy director at the bipartisan Concord Coalition, thinks the debate should focus on Social Security’s negative cash flow instead of on a faraway insolvency date.
Social Security added $45 billion to the deficit last year, and that amount will rise sharply by the end of this decade as Baby Boomers retire. “It really is a federal budget urgency,” Gordon said. “If we wait 20 or 30 years to make changes, there will be too much debt growth.”
Perhaps we need a law that would divert all congressional salaries and benefits into the Social Security trust fund when it becomes insolvent. It wouldn’t be enough to solve the problem, but might be enough to spur action.
For most of its 63 years, Cutco Cutlery has sold its knives and kitchen tools through a network of sales representatives doing in-home visits where they demonstrate, among other things, how the company’s shears can cut through a penny.
But earlier this month, the largest kitchen cutlery manufacturer in North America took a step toward a gradual paradigm shift for the company: It opened a retail store in a shopping strip in Creve Coeur. It is the New York-based company’s fourth physical store — and could be followed by dozens more nationwide.
“It could be 50 — it could be 150,” said Tim McCreadie, a Cutco executive spearheading the store expansion. “We just don’t know at this point. We’re still in the learning stage. We’re new to retail.”
Company officials say they chose the St. Louis region for one of the first stores because it’s the company’s fifth most productive sales unit and has an estimated 130,000 customers in the area who have bought Cutco knives over the years.
The local office, by the way, also has some of the company’s top salespeople, including one man who holds the all-time record of more than $3 million in sales.
So why after so many years doing business the same way has Cutco finally decided to branch out into retail stores?
Well, most of the company’s sales force is made up of college students who sell the products during their summer breaks, McCreadie said. When those students graduate, customers can lose touch with the company.
“We have over 15 million Cutco customers in the U.S.,” he said recently while giving a tour of the store at 11641 Olive Boulevard. “So we had all of these Cutco customers that wanted their products serviced and even wanted to buy more products, but didn’t have a gateway to be able to do that.”
Still, the company has been testing the retail waters slowly, careful to make sure the stores don’t cannibalize sales of its representatives. But so far, McCreadie said, so good.
Sales have been up. And about 95 percent of people who visit the stores are already Cutco customers, he said. They either come in to get their knives sharpened or replaced as part of the company’s “forever” guarantee or stop by to find out about new products.
An added benefit is that the stores are a good way to build more excitement about the brand among sales representatives, some of whom may not be familiar with the company when they first start, he said.
Next on the horizon for Cutco is online sales. Other companies with similar business models such as Avon and Pampered Chef have made the leap. There’s no timetable for Cutco to do so, but McCreadie said the company is gearing up for the transition while also trying to ensure that the company doesn’t lose its reputation for great service.
W. Scott Downey, a Purdue University professor who has incorporated Cutco’s model into his sales classes for years, said the company has stayed true to its mission of making a direct connection with its customers payday loans in one hour. So it has been slow to go online where that personal touch can be lost, he said.
But he added that online is a natural progression for Cutco. After all, customers have been able to buy products over the phone through Cutco for some time now.
“They’ve been very careful, which I think is a tribute to them,” Downey said. “They’re a pretty conservative company. That personal connection is really important to them.”
Amy Robinson, spokeswoman for the trade group Direct Selling Association, said a number of direct selling companies have some sort of online component. But online sales haven’t replaced those companies’ reliance on sales representatives, she said.
“When the Internet was first becoming popular, a lot of people said, ‘Gosh, who needs direct sellers now?’” she said. “But that’s a wholly different sales model. The sales force is the backbone of these companies.”
And a lot of these products do better by demonstration — such as the Tupperware’s famous burping technique — which doesn’t resonate the same way when someone just sees it on a shelf, she said.
Over the years, Cutco and its sales division, Vector Marketing, have occasionally come under fire from college students who have complained about everything from recruiting tactics on college campuses to the $150 deposit sales reps had to put down to get a starter kit to use for demonstrations. (Cutco sets sell for between $399 and $1,999 with individual knives starting at $50.)
But a couple years ago, Cutco did away with the deposit fee. McCreadie said the company did so to remove a possible barrier of entry for college students.
As a result, the company has also stepped up its screening process to make sure recruits are serious about selling the products since they’re now giving the kits on loan for free, said Justin Donald, a Cutco division manager.
With jobs hard to come by these days, Donald said he is getting more inquiries than ever. The local office has between 30 and 50 active sales reps throughout the year. But that sales force swells to more than 100 during the summer when college students join the ranks, Donald said.
Of course, selling is not everyone, which some students quickly find out. That’s one of the reasons Purdue’s Downey has students sell Cutco products as part of his class to show them what it’s really like to work in sales.
“In many ways, it’s an emotional business,” he said. “It’s difficult for customers to tell you no, so we want students to have that experience.”
There is no convincing evidence that cellphone use poses a threat to human health, according to an extensive review of scientific evidence released Thursday.
A team of scientists with the UK
Germany’s finance minister says he’s confident a German-backed pact enforcing more fiscal discipline among European governments will be ratified despite new political uncertainty.
Wolfgang Schaeuble said that the treaty “will be ratified in all countries, I have no doubt about that.”
French Socialist Francois Hollande, who led in the first round of president elections Sunday, has called for renegotiating the pact.
Meanwhile, the Netherlands faces early elections after its minority government collapsed over a failure to agree on austerity measures needed to bring the country’s deficit within EU-stipulated limits.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
BERLIN (AP) _ Germany mounted a spirited defense of its pro-austerity stance on Tuesday, with both Chancellor Angela Merkel and her foreign minister calling for a continued drive for fiscal discipline across Europe in spite of the latest bout of political uncertainty.
Investors took fright of the 17 countries that use the euro Monday on concerns that the so-called fiscal compact of strict austerity and deficit controls agreed by European leaders earlier this year was beginning to unravel.
French Socialist Francois Hollande edged ahead with a narrow lead in Sunday’s first round of presidential elections with a pledge to renegotiate the pact to give greater emphasis to growth over austerity. Meanwhile, the Netherlands faces early elections after its minority government collapsed over a failure to agree on austerity measures.
On top of this, Spain _ which is currently going through a harsh program of cuts and tax increases _ announced it was entering a recession and a survey of purchasing managers across Europe pointed to a contraction in the region’s economy.
Merkel didn’t specifically mention the fiscal pact in a speech in Berlin but noted that, in its early years, West Germany ran up barely any debt. She said that “today, we have to get back to that situation.”
“One can talk about how we do it … but to act as though it were an imposition to get by with what we are earning, (to say) we will carry on carting around the rucksack with debt _ no one will accept it from us, in any European country,” Merkel said.
“I want to say clearly, it is not the case that we say saving solves every problem but, if you at home talk about how you want to shape your life tolerably, then one of the first conditions is that you somehow get by with what you earn,” she said.
Germany’s budget deficit is well under the limit of 3 percent of gross domestic product that eurozone countries are supposed to observe, but its total debt amounts to 81.2 percent of GDP _ well above the official 60 percent limit.
Germany and France, under incumbent President Nicolas Sarkozy, have piloted rescue efforts for other eurozone countries as the region has been swept up in a succession of debt crises over the past two years. Berlin has insisted on an often-criticized emphasis on budget discipline and cuts.
Merkel pushed hard for other European countries to agree to the fiscal compact, designed to limit government overspending, and 25 national leaders signed it earlier this year.
Foreign Minister Guido Westerwelle said Tuesday that “we agreed on the pact after long negotiations. It is necessary.”
“What we have agreed on in Europe to overcome the debt crisis is agreed and it holds. It will not be made dependent on election results,” he said. “Governments act for their countries and not for themselves.”
It isn’t yet clear when the German Parliament will vote on the pact, which needs a two-thirds majority in Parliament.
That means it needs the support of the main center-left opposition Social Democratic Party, which wants the government to agree to introduce a financial transaction tax _ though leaders have stopped short of saying that is a condition.
Merkel’s government aims to get the fiscal pact passed before the summer. Social Democrat leader Sigmar Gabriel has argued that a vote could take place later.
China may first relax controls on borrowing costs and widen the
The United Nations hopes to have 30 cease-fire monitors in Syria next week and plans are already being made for the deployment of up to 300, a spokesman for international envoy Kofi Annan said Friday, as France called on the international community to prepare for the possible failure of the increasingly fragile peace deal.
Seven observers are on the ground and another two will arrive on Monday, said Annan’s spokesman.
“During the course of next week we hope that those that we are seconding from missions in the area who can move quickly will be there and we will make the numbers up to 30,” Ahmad Fawzi told reporters in Geneva.
The preliminary agreement between Syria and the United Nations on the deployment of U.N. observers says they will have freedom to go anywhere in the country by foot or by car, take pictures, and use technical equipment to monitor compliance with the cease-fire engineered by Annan.
But the issue of using helicopters and aircraft will likely dominate discussions in the coming days, Fawzi told The Associated Press.
The larger contingent of up to 300 also still needs to be approved by the U.N. Security Council.
“As soon as the Security Council adopts a resolution authorizing up to 300 monitors on the ground, we will be ready to deploy very, very rapidly,” Fawzi said.
“We are preparing for the deployment because we feel that it is going to happen sooner or later because it must happen,” he added
In France, Foreign Minister Alain Juppe called on the international community to live up to its responsibilities and warned that if Annan’s peace plan “doesn’t function, we have to envisage other methods.”
U.N. Secretary-General Ban Ki-moon accused Syrian President Bashar Assad on Thursday of failing to honor the peace plan that went into effect a week ago payday loan.
Juppe said on France’s BFM television that his country would support a U.S.-backed proposal for a U.N. arms embargo and other tough measures against Syria.
The peace plan is “the last chance before civil war. … We don’t have the right to wait,” he said.
Juppe hosted U.S. Secretary of State Hillary Rodham Clinton and other diplomats in Paris on Thursday to try to work out options for Syria.
Annan’s diplomacy succeeded in getting Russia to back the monitoring mission, but Syria’s ally continues to resist more forceful measures.
“The Russian position is in the process of evolving,” Juppe said without elaborating.
U.N. chief Ban told the Security Council on Thursday that the situation remains “highly precarious,” citing an escalation of violence including “shelling of civilian areas, grave abuses by government forces and attacks by armed groups.”
That view was echoed by Annan’s spokesman.
“The situation on the ground is not good, as we all know,” Fawzi said. “There are casualties every day. There are incidents every day. And we have to do everything we can to stop what’s going on. The killing, the violence in all its forms.”
The observers, who report to Annan daily, will have freedom to install temporary observation posts in cities and towns, to monitor military convoys approaching population centers, to investigate any potential violation, and to access detention centers and medical centers in coordination with the International Committee of the Red Cross and Syrian authorities, the agreement says.
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Angela Charlton in Paris contributed to this report.
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