Daily Archives: December 7, 2014

#SecretSanta: Congress’ defense bill is littered with nonsense

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WASHINGTON — Just in time for Christmas, a massive $577 billion defense-authorization bill headed for a vote in the Senate next week is packed with goodies that have nothing to do with national security.

One provision pushes forward a National Women’s History Museum in Washington, DC — long advocated by Rep. Carolyn Maloney (D-Manhattan).

Also tucked in the bill are pet projects that would establish a Harriet Tubman national historic park in Auburn, NY, and study the creation of federal historic sites in Queens, Brooklyn and Manhattan.

In all, more than a quarter of the 1,648-page defense bill is dedicated to federal land-use projects, angering some conservatives upset that a critical defense bill is slathered with pork projects.

Sen. Tom Coburn ­(R-Okla.) tweeted that Congress was sneaking through “hundreds of millions worth of pork into unrelated Defense bill via backroom deals.”

He used the hashtag #SecretSanta to drive home the point.

The House passed the bill Thursday with a 300-119 vote.

Armed Services Committee leaders in Congress hatched a deal to include a federal-lands package that was being developed by separate natural- ­resources committees.

Read on.

Citi Faces $270 Million Loss; “In Panic” Over Chinese Port Commodity Fraud

Zerohedge:

Suspected metals fraud in China sparked claims of betrayal by both U.S. bank Citigroup and trade house Mercuria over who would absorb about $270 million in exposure to financing deals, a London court heard this week.

The dispute:

Mercuria held copper and aluminium in Chinese warehouses and agreed a series of deals that were effective loans from Citi using the metal as collateral.

Under the repurchasing agreements, or repos, Citi agreed to purchase metal from Mercuria before selling it back at a slightly higher price to include interest on the effective loans.

The two groups were in the midst of several repo deals when the potential fraud in China was uncovered in warehouses in both Qingdao and Penglai. Citi demanded early repayment of the repos and Mercuria refused.

As Bloomberg reports,

Citigroup was in a “state of panic” when alleged fraud was uncovered in two Chinese ports, Mercuria Energy Group Ltd.’s lawyer said as a London trial over disputed metal finance deals got under way.

“The discovery of the fraud was a massive problem for Citi as it was their metal and it was at their risk,” Mercuria lawyer Graham Dunning told a London judge. “There was a state of panic.”

The disputed copper and aluminum is under lockdown in the ports of Qingdao and Penglai, where Chinese authorities are investigating an alleged fraud. Neither side can get access and they don’t know how much of the metal is there, Dunning said at a pre-trial hearing in August.

Citigroup argues that it effectively delivered the metal to Mercuria under the terms of a sale-and-repurchase agreement by handing over warehouse receipts. The bank says it is owed about $270 million. Mercuria, a Cyprus-based firm with major trading operations in Geneva, argues the products were never properly delivered.

“It appears that substantial quantities may be missing from the warehouses or may be the subject of multiple pledges,” Dunning said today.

The probe at Qingdao, China’s third-largest port, is examining companies owned by a Chinese-Singaporean metals trader, Chen Jihong, who is alleged to have pledged the same metal inventories multiple times for collateral on loans. Chinese authorities have uncovered almost $10 billion in fraudulent trade, including irregularities at Qingdao, according to the country’s currency regulator.

But as Reuters adds,

Citi was worried about reporting a potential “hole” in its balance sheet to regulatorswhile Mercuria was in the process of arranging a huge acquisition of the physical commodities business of bank JP Morgan Chase, lawyers said.

But the Chinese authorities imposed a lockdown on parts of the two ports where the metal is held, preventing anyone, including Citi, Mercuria and the warehouse operators, from accessing the material, court documents said.

“We expect them (Mercuria) to keep us out of a potential messy situation,” according to an email from John Young, Citi’s managing director of commodities business development, cited in court documents.

Mercuria’s Chief Financial Officer Guillaume Vermersch promised Citi that “Mercuria would make Citi whole if there were issues concerning the underlying metal”

So Citi went for Blackmail…

Young suggested that Mercuria be reminded that it had extensive financial arrangements with Citi, including $4 billion in credit and borrowing facilities and over $14 billion of bilateral trade facilities, plus potential help in financing the purchase from JP Morgan.

But Mercuria resisted what it regarded as unfair pressure…

Citi hoped that…it could force Mercuria to agree on its quick exit from a difficult position and hence enable Citi to fill the potential hole in its balance sheet… which was concerning the regulators in London and New York,”

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When Goldman Sachs Writes The New York Fed’s Press Releases, Then All Is Lost

Wow, the plot thickens with the Goldman-NY Fed relationship..

From the FT:

As the financial crisis raged in September 2008, Goldman Sachs and Morgan Stanley sought sanctuary from the Federal Reserve.

The last two big independent broker-dealers were allowed to become bank holding companies, giving them access to government liquidity that could keep them afloat.

Goldman drafted its own statement, quoting Lloyd Blankfein, chief executive, as saying: “We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution.

According to people familiar with the matter, Goldman then drafted another release and sent it to the New York Fed. This one was to be used as the central bank’s own statement.

Bankruptcy commission would reduce barriers to Chapter 11 exit

(Reuters) – Bankrupt U.S. companies would have more leeway to impose restructuring plans over creditors’ objections under new recommendations by a commission to overhaul Chapter 11 bankruptcy rules.

As part of a report to be issued on Monday, the American Bankruptcy Institute’s Commission to Study the Reform of Chapter 11 recommended eliminating a rule that at least one impaired creditor class must vote to accept a company’s bankruptcy exit plan for the plan to be eligible for court approval.

The rule allows savvy investors to block restructuring efforts by acquiring the lion’s share of a bankrupt company’s debt, attorney Robert Keach, the commission’s co-chairman, said at the ABI’s annual conference in Palm Springs, California.

Read on.