Sunday, March 13, 2011

March 13 2011: How Black is the Japanese Nuclear Swan?

Pillsbury Picture Co. "The Burning of the Call" 1906
The San Francisco Call newspaper building in flames after the April 18, 1906 earthquake

Ilargi: You may not be have been aware of it until now, but The Automatic Earth has an in-house full-blown nuclear safety expert.

The subject of Stoneleigh's master thesis at the law faculty of Warwick University in Coventry, England, where she studied International Law in Development, was nuclear safety research.

After graduating in 1997, she became a Research Fellow at the Oxford Institute for Energy Studies, where her research field was power systems, with a specific focus on nuclear safety in Eastern Europe.

The monograph she wrote sets the nuclear safety debate in the political and economic context of the collapse of the Soviet Union. It looks at the technical aspects of nuclear safety, safety upgrade programs, safety culture and the human factor, regulation at all levels and bargaining over reactor closures.

It was published in 1999 under the title Nuclear Safety and International Governance: Russia and Eastern Europe, and it remains available online here at Oxford Institute for Energy Studies. Here's her analysis of the situation in Japan:


How Black is the Japanese Nuclear Swan?

The Japanese earthquake is a tragedy of epic proportions in so many ways. The situation continues to evolve, and the full scope of the disaster will not be understood for a long time. 

One critical aspect is the effect on Japan's nuclear industry, which provides over 30% of the country's electricity from 54 reactors. Some of the largest nuclear plants in the world (Fukushima Dai-ichi and Fukushima Dai-ni, 4696 MW and 4400 MW, respectively) are located close to the epicentre, and on the coast, directly in the path of the resulting tsunami:

A state of emergency has been declared for five reactors, with the worst affected reactors being the forty year old Boiling Water Reactors (BWRs) at Fukushima Dai-ichi, 240 km north of Tokyo. These reactors shut down, as the control rods were automatically inserted to dampen the nuclear reaction (SCRAM). At least two reactors experienced a station blackout, which prevented the cooling system from functioning (a loss of coolant, or LOCA accident).

Without the ability to cool the core, the risk is a meltdown, with the potential for explosions resulting from steam or hydrogen. Even after the cessation of a nuclear chain reaction, heat from radioactive decay continues to be produced, and this heat needs to be dispersed in order to avoid a meltdown of the components of the core. Workers have been desperately trying to cool the reactor cores at units 1 and 3, but there has already been an explosion at Fukushima 1. Footage of the plant shows only the skeleton of the building remains. An evacuation zone has been expanded from 10km to 20km, and close to 200.000 people have been evacuated from the area.

Reactors are equipped with multiple cooling systems as part of the defence in depth design principle. The idea is that there should be redundant systems with no components in common, and therefore (theoretically) no possibility for common mode failures. Each system should be capable of independently preventing a design-basis accident.

Japan is a sophisticated country with a long history of nuclear power, and also a long history of seismic activity. One could argue that this is Japan's Hurricane Katrina moment, in that a predictable scenario was not adequately prepared for in advance despite the potential for very severe consequences.

The design-basis accident for Fukushima did not include earthquakes of the magnitude of this event (recently upgraded to 9.0 on the Richter scale).
Company documents show that Tokyo Electric tested the Fukushima plant to withstand a maximum seismic jolt lower than Friday's 8.9 earthquake. Tepco's last safety test of nuclear power plant Number 1—one that is currently in danger of meltdown—was done at a seismic magnitude the company considered the highest possible, but in fact turned out to be lower than Friday's quake. The information comes from the company's "Fukushima No. 1 and No. 2 Updated Safety Measures" documents written in Japanese in 2010 and 2009.

The documents were reviewed by Dow Jones. The company said in the documents that 7.9 was the highest magnitude for which they tested the safety for their No. 1 and No. 2 nuclear power plants in Fukushima. Simultaneous seismic activity along the three tectonic plates in the sea east of the plants—the epicenter of Friday's quake—wouldn't surpass 7.9, according to the company's presentation. The company based its models partly on previous seismic activity in the area, including a 7.0 earthquake in May 1938 and two simultaneous earthquakes of 7.3 and 7.5 on November 5 of the same year.

Fukushima 1 before the tsunami

Fukushima 1 after the tsunami


  • Core uncovery. In the event of a transient, upset, emergency, or limiting fault, LWRs are designed to automatically SCRAM (a SCRAM being the immediate and full insertion of all control rods) and spin up the ECCS. This greatly reduces reactor thermal power (but does not remove it completely); this delays core "uncovery", which is defined as the point when the fuel rods are no longer covered by coolant and can begin to heat up.


  • Pre-damage heat up. "In the absence of a two-phase mixture going through the core or of water addition to the core to compensate water boiloff, the fuel rods in a steam environment will heatup at a rate between 0.3 K/s and 1 K/s (3)."

  • Fuel ballooning and bursting. "In less than half an hour, the peak core temperature would reach 1100 K. At this temperature, the zircaloy cladding of the fuel rods may balloon and burst. This is the first stage of core damage. Cladding ballooning may block a substantial portion of the flow area of the core and restrict the flow of coolant. However complete blockage of the core is unlikely because not all fuel rods balloon at the same axial location. In this case, sufficient water addition can cool the core and stop core damage progression."

  • Rapid oxidation. "The next stage of core damage, beginning at approximately 1500 K, is the rapid oxidation of the Zircaloy by steam. In the oxidation process, hydrogen is produced and a large amount of heat is released. Above 1500 K, the power from oxidation exceeds that from decay heat (4,5) unless the oxidation rate is limited by the supply of either zircaloy or steam."

  • Debris bed formation. "When the temperature in the core reaches about 1700 K, molten control materials [1,6] will flow to and solidify in the space between the lower parts of the fuel rods where the temperature is comparatively low. Above 1700 K, the core temperature may escalate in a few minutes to the melting point of zircaloy (2150 K) due to increased oxidation rate. When the oxidized cladding breaks, the molten zircaloy, along with dissolved UO2 [1,7] would flow downward and freeze in the cooler, lower region of the core. Together with solidified control materials from earlier down-flows, the relocated zircaloy and UO2 would form the lower crust of a developing cohesive debris bed."


Other aspects of defence in depth failed as well: 
1st layer of defense is the inert, ceramic quality of the uranium oxide itself. 2nd layer is the air tight zirkonium alloy of the fuel rod. 3rd layer is the reactor pressure vessel made of steel more than a dozen centimeters thick. 4th layer is the pressure resistant, air tight containment building. 5th layer is the exclusion zone around the reactor.

The incident is being described as a hydrogen explosion. The official line is that the outer containment building was destroyed, but that the reactor vessel itself remains intact:
Top government officials assured the nation that an explosion that took place Saturday at one of the reactors at the Fukushima Daiichi plant merely knocked down the walls of its external concrete building, and that the reactor and the containment structure surrounding it remained intact.

US Nuclear Regulatory Commission analysts explain the hydrogen production process under accident conditions:

Former U.S. Nuclear Regulatory Commission (NRC) member Peter Bradford added, "The other thing that happens is that the cladding, which is just the outside of the tube, at a high enough temperature interacts with the water. It's essentially a high-speed rusting, where the zirconium becomes zirconium oxide and the hydrogen is set free. And hydrogen at the right concentration in an atmosphere is either flammable or explosive."

"Hydrogen combustion would not occur necessarily in the containment building," Bergeron pointed out, "which is inert—it doesn't have any oxygen—but they have had to vent the containment, because this pressure is building up from all this steam. And so the hydrogen is being vented with the steam and it's entering some area, some building, where there is oxygen, and that's where the explosion took place."

A hydrogen release is very much part of a meltdown scenario, and difficult to imagine hydrogen explosion scenarios on the scale of what was seen at Fukushima 1 that would not involve compromising the reactor pressure vessel:
If hydrogen were allowed to build up within the containment, it could lead to a deflagration event. The numerous catalytic hydrogen recombiners located within the reactor core and containment will prevent this from occurring; however, prior to the installation of these recombiners in the 1980s, the Three Mile Island containment (in 1979) suffered a massive hydrogen explosion event in the accident there.

The containment withstood this event and no radioactivity was released by the hydrogen explosion, clearly demonstrating the level of punishment that containments can take, and validating the industry's approach of defence in depth against all contingencies. Some, however, do not accept the Three Mile Island incident as sufficient proof that a hydrogen deflagration event will not result in containment breach.

click to open interactive graphic in new window

One speculative scenario may be alpha-mode failure. This would involve an explosion sufficient to blow the head off the reactor pressure vessel, launching it at the outer containment system, which could then be breached as a result. The odds of this are considered low, but many supposedly very low probability events have in fact occurred at nuclear installations.

Given the detection of radioactive caesium, which could only have come from inside exposed fuel rods beginning to burn, and the subsequent violent explosion, it is difficult to imagine scenarios not involving substantial destruction of the reactor. Indeed it has been admitted that a major accident has occurred in one unit and another is at risk:
Meltdowns may have occurred in two reactors: Japan government
Japan's top government spokesman Yukio Edano said Sunday that radioactive meltdowns may have occurred in two reactors of the quake-hit Fukushima nuclear plant. Asked in a press conference whether meltdowns had occurred, Edano said "we are acting on the assumption that there is a high possibility that one has occurred" in the plant's number-one reactor. "As for the number-three reactor, we are acting on the assumption that it is possible," he said.

Tokyo Electric said Saturday another nuclear-power plant nearby, Fukushima Dai-ni, was experiencing rises of pressure inside its four reactors. A state of emergency was called and precautionary evacuations ordered. The government has ordered the utility to release "potentially radioactive vapor" from the reactors, but hasn't confirmed any elevated radiation around the plant.

Loss of cooling ability appears to be the common problem:
Tokyo Electric Power Co. (TEPCO), operator and owner of Fukushima nuclear plants, said early on Sunday that a sixth reactor at the nuclear power plants has lost its ability to cool the reactor core since Friday's quake. The No. 3 reactor at Fukushima No. 1 nuclear power plant lost the cooling function after No. 1 and No. 2 reactors at the No. 1 plant and No. 1, No. 2 and No. 4 at the No. 2 plant had suffered the same trouble.

Kodama said the cooling system had failed at three of the four such units of the Daini plant [Fukushima 2]. Temperatures of the coolant water in that plant's reactors soared to above 100 degrees Celsius (212 degrees Fahrenheit), Japan's Kyodo News Agency reported, an indication that the cooling system wasn't working.

Containment structures are being flooded with seawater and boric acid as a desperation move to lower the temperature and poison any capacity for further nuclear reactivity. The latter is important to absorb neutrons in order to avoid incidences of potential criticality during a meltdown. Such an event would have the potential to cause much more widespread releases of radiation.

"If this accident stops right now it will already be one of the three worst accidents we have ever had at a nuclear power plant in the history of nuclear power," said Joseph Cirincione, an expert on nuclear materials and president of the U.S.-based Ploughshares Fund, a firm involved in security and peace funding.


RBMK (Reaktor bolshoy moshchnosty kanalny [high-power channel reactor]), Chernobyl-type reactors have a very large positive void coefficient, meaning that reactivity increases as a positive feedback loop. The presence of steam from overheating increases reactivity, which increases steam production. The graphite moderator in an RBMK is flammable, and RBMKs also have no containment system. If two or three of the 1700 channels in an RBMK are breached, the steam pressure will lift the lid, introducing air, while shearing the remaining tubes. Essentially, the reactor will explode on a sharp spike of reactivity. The moderator will catch fire, and a nuclear volcano will be the result. At Chernobyl, some 50 million Curies of radiation was released over several days. 

Like the Fukushima incident, Chernobyl began with a loss of power, undertaken in that case as a test of safety systems commissioned long after the reactor became operational (the Chernobyl reactor had been in a state of critical vulnerability to blackout for two years at the time of the accident.) It could have been worse, however. Attempts to extinguish the fire at Chernobyl 4 came very close to causing a loss of power to the other three reactors at the site, which could easily have sent four reactors into into a critical state rather than one.

Non-technical comparisons between Fukushima and Chernobyl are more apt, specifically in terms of governance in the nuclear industry and complacency as to risk. Nuclear insiders in many jurisdictions are notorious for being an unaccountable power unto themselves, and failing to release critical information publicly.

The Soviet nuclear bureaucracy ignored obvious risks and concealed accidents wherever possible. While nothing remotely like so serious has occurred previously in Japan, Fukushima 1 has been at the centre of transparency problems in the Japanese nuclear industry before. In 2002, the president and four executives of Tokyo Electric Power Corporation (TEPCO) were forced to resign over the falsification of repair records.
Japan's nuclear power operator has chequered past
The company was suspected of 29 cases involving falsified repair records at nuclear reactors. It had to stop operations at five reactors, including the two damaged in the latest tremor, for safety inspections. A few years later it ran into trouble again over accusations of falsifying data.

In late 2006, the government ordered TEPCO to check past data after it reported that it had found falsification of coolant water temperatures at its Fukushima Daiichi plant in 1985 and 1988, and that the tweaked data was used in mandatory inspections at the plant, which were completed in October 2005.

In addition, the Japanese government had been repeatedly warned about seismic risks:
[..] the real embarrassment for the Japanese government is not so much the nature of the accident but the fact it was warned long ago about the risks it faced in building nuclear plants in areas of intense seismic activity. Several years ago, the seismologist Ishibashi Katsuhiko stated, specifically, that such an accident was highly likely to occur. Nuclear power plants in Japan have a "fundamental vulnerability" to major earthquakes, Katsuhiko said in 2007. The government, the power industry and the academic community had seriously underestimated the potential risks posed by major quakes.

Katsuhiko, who is professor of urban safety at Kobe University, has highlighted three incidents at reactors between 2005 and 2007. Atomic plants at Onagawa, Shika and Kashiwazaki-Kariwa were all struck by earthquakes that triggered tremors stronger than those to which the reactor had been designed to survive.

In the case of the incident at the Kushiwazaki reactor in northwestern Japan, a 6.8-scale earthquake on 16 July 2007 set off a fire that blazed for two hours and allowed radioactive water to leak from the plant. However, no action was taken in the wake of any of these incidents despite Katsuhiko's warning at the time that the nation's reactors had "fatal flaws" in their design[..] The trouble is, says Katsuhiko, that Japan began building up its atomic energy system 40 years ago, when seismic activity in the country was comparatively low. This affected the designs of plants which were not built to robust enough standards, the seismologist argues.

Many countries are currently looking to nuclear power to carry the load as energy production from conventional fossil fuels declines. Japan has previously unveiled very ambitious plans to expand nuclear capacity:
The Japan Atomic Energy Agency has modelled a 54 percent reduction in CO2 emissions from 2000 levels by 2050, leading on to a 90 percent reduction by 2100. This would lead to nuclear energy contributing about 60 percent of primary energy in 2100 (compared with 10 percent now), 10 percent from renewables (now 5 percent) and 30 percent fossil fuels (now 85 percent).

Proponents argue that the energy returned on energy invested (EROEI) for nuclear power is sufficient to power our societies, that nuclear power can be scaled up quickly enough as fossil fuel supplies decline, that there will be sufficient uranium reserves for a massive expansion of capacity, that nuclear is the only option for reducing carbon dioxide emissions, and that nuclear power can be operated with no safety concerns through probabilistic safety assessment (PSA). 

I disagree with all these assertions. Looking at the full life-cycle energy inputs for nuclear power, it seems to be barely above the minimum EROEI for maintaining society, and the costs (in both money and energy terms) are front-loaded.

Scaling up nuclear capacity takes extrordinary amounts of both money and time. While construction can be speeded up, where this has been done (as it was in Russia), the deleterious effect on construction standards was significant. Uranium reserves, especially the high-grade ores, are depleting rapidly. The reduction in carbon dioxide emissions over the full life-cycle do not impress me. In addition, nuclear authorities make risk decisions without informing the public. They have consistently made risk calculations that have grossly underestimated the potential for accidents of the kind that can have generational impacts. 

In my view, nuclear power represents an unjustified faith in the power of human societies to control extremely complex technologies over the very long term. Any activity requiring a great deal of complex and cooperative control will do badly in difficult economic times.

Also, no human society has ever lasted for as long as nuclear waste must be looked after. It needs to be held in pools on site for perhaps a hundred years in order to cool down enough for permanent disposal, assuming a form of permanent disposal could be conceived of, approved and developed. During this period, the knowledge as to how this must be done will need to be maintained, and this may be more difficult than is currently supposed.

We need to evaluate the potential for a nuclear future in light of the disaster in Japan. This was not unpredictable, and should have been accounted for in any realistic assessment of nuclear potential. It cannot realistically be described as a black swan event. 

Japan has few energy alternatives, as it lacks indigenous energy reserves and must import 80% of its energy requirements. It was therefore prepared to make Faustian bargains despite what should have been obvious risks. The impact of the loss of so much capacity, much of it probably permanently, on available electric power following the accident is very likely to impede Japan's ability to recover from this disaster, potentially strengthening the parallels with America's Hurricane Katrina.

We need to assess the risks inherent in using nuclear power in other locations, whether or not the risk they face is seismic (see Metsamor in Armenia, for instance, or Diablo Canyon in California). There are risks in many areas, most of which are grounded in human behaviour, either at the design stage or the operational phase. Human behaviour can easily turn what should be a one in one hundred thousand reactor-year event in to something all too likely within a human lifespan. Nuclear power may allow us to cushion the coming decline in fossil fuel availability, but only at a potentially very high price.

Japan shuts down as economic fears grow
by James Quinn and Jamie Dunkley - Telegraph


The three largest motor manufacturers – Toyota, Honda and Nissan – said they would stop production at almost all of their domestic assembly plants. The safety of the workforce and deaths were cited as reasons behind the decision. The electronics giant Sony also said it would be shutting down production. Gerard Lyons, chief economist at Standard Chartered, warned of possible temporary price stagflation and an initial downward move for the country’s economy. "The timing of the disaster could not have been much worse," admitted analysts at Capital Economics, pointing to Japan’s economic contraction in the last three months of 2010.

The disaster forced the Bank of Japan (BoJ) to issue a statement, as it draws up plans for an emergency "quake budget". The BoJ said: "The bank will continue to do its utmost, including the provision of liquidity, to ensure stability in financial markets and to secure the smooth settlement of funds, in the coming week." Naoto Kan, the Japanese prime minister, asked BoJ to "save the country" after politicians from both sides of the political spectrum agreed on the need for the budget to introduce emergency spending to fund rescue and clean-up efforts and to resuscitate the economy.

Economists warned that the closures staged by the motor and electronics companies could be the tip of the iceberg, with other parts of industry likely to feel knock-on effects in the coming days. "Temporary closures of factories and oil refineries and the shutting down of power stations are likely to affect output throughout the country," said Wolfgang Leim of Commerzbank. "Economic output may therefore shrink again slightly in the first quarter."

Between them the three car companies closed 22 assembly plants, while Sony halted production at six of its domestic plants, including a Blu-ray factory where more than 1,000 workers were stranded yesterday. The closures are likely to damage Japan’s exports in the coming months, driving down economic growth yet further. "It is tough to know the extent of the damage and, therefore, also the cost," said Jim O’Neill, chairman of Goldman Sachs Asset Management. "Most of Japan’s recovery is driven by exports so the key is to make sure the yen doesn’t strengthen ."

Mr Lyons pointed out that after the Kobe earthquake in 1995 – which was in an economically more important region – the economy followed a V-shape performance curve, with an initial surge downward but with a strong rebound as policy stimulus and private spending returned.

Meanwhile, insurance analysts estimated that the earthquake could cost the global industry up to $10bn (£6.2bn). Although the Japanese insurance market is large, the amount of businesses and households that take out insurance cover is smaller than in Western markets, according to Risk Management Solutions. Most of the insured losses will be absorbed by global reinsurers such as Munich Re and Swiss Re, although companies operating in the Lloyd’s of London market will also suffer.

Japan Will Need to Boost Energy Imports
by Simon Hall and Mari Iwata - Wall Street Journal

Friday's closures of nuclear reactors will raise Japan's need to import oil and natural gas, but it remains unclear how much industrial output has been affected by the earthquake and tsunami and how long nuclear- and thermal-power plants will stay shut. Rising energy imports would underpin prices in an already highly volatile energy market. Japan is the world's third-largest oil user, and all of that oil is imported.

In July 2007, Tokyo Electric Power Co.'s Kashiwazaki-Kariwa's seven reactors in northwest Japan was closed due to an earthquake, and kept shut until 2009. Japan's largest electricity supplier had to pay much more to provide power. The struggle to contain a fire and radiation leaks at Tepco's Fukushima complex Saturday is likely to be followed by extended closures of those plants and other reactors while safety checks and inquiries are completed.

Energy-demand comparisons between the 2007 and 2011 earthquakes are further complicated by the impact of the global economic crisis, which hit oil, gas and coal use in Japan, as it did elsewhere. Oil traders have had to factor in sharp price rises and oil-market volatility in recent weeks caused by political turmoil in the Middle East. Ten nuclear reactors with a combined capacity of 8.6 gigawatts have been taken off line in Japan. Seven are operated by Tokyo Electric, two by Tohoku Electric Power Co. and one by Japan Atomic Energy Power Co. Tepco said it has suspended operations at five thermal power plants as well.

Japan isn't a big fuel-oil buyer, but it may need to ramp up imports of the refined product, which is used in thermal power stations, and also buy more crude oil to process into fuel oil in domestic refiners or for direct burning in its power stations. Late Friday, the Asian fuel-oil market reflected an anticipated demand increase, which could further tighten availability. Regional fuel-oil fundamentals are already tight as the heavy refinery maintenance season in Asia and the Middle East has cut supplies.

At least five refineries in Japan, with a combined oil-processing capacity of 1.2 million barrels a day, shut down automatically when they sensed the earthquake. This is roughly a quarter of Japan's total refining capacity. Two of them, JX Holdings Inc.'s refinery in quake-hit Sendai and Cosmo Oil Co. Ltd.'s Chiba facility, have been damaged, but how badly still isn't clear. Large numbers of tankers call at Japan's ports every day. Given the scale of damage to northwestern coastal areas and some ports, and disruption of the country's energy infrastructure, vessels may need to be diverted elsewhere.

Japan imported an average 3.7 million barrels a day of crude oil in 2010, up 0.8% on year. Imports of liquefied natural gas imports totaled 6.32 million metric tons last year, down 3%. If all the nuclear power capacity now off-line was replaced by natural gas, this would require between one billion and 1.2 billion cubic feet of gas a day, which could affect spot LNG prices in Asia and Europe, said Barclays Capital in a report issued Saturday. "Previous large-scale disasters in Japan and across Asia have tended not to produce discernible negative effects on demand...reconstruction tends to be highly a resource- and energy-intensive activity," it said.

Macquarie Bank said the tight coking-coal market may see pressure eased as a consequence of the earthquake while steel mills assessed damage, but that demand for thermal coal used in power plants could rise. The increased fuel costs and repair work from the 2007 earthquake were chiefly responsible for Tepco posting a 150 billion yen ($1.82 billion) loss for the year ended March 2008. Tepco's oil use jumped around 50% on year to 9.99 million kiloliters in 2007-08.

Bond Guru Gundlach: Deflation Will be Back

State of Denial: Munis
An Investor's a Trader Who's Underwater

by Shahien Nasiripour - Huffington Post

A months-long internal investigation into abusive mortgage practices by the Federal Reserve found no wrongful foreclosures, members of the Fed's Consumer Advisory Council said Thursday.
During a public meeting attended by Fed chairman Ben Bernanke, consumer advocates on the panel criticized the central bank's examiners for narrowly defining what constitutes a "wrongful foreclosure."

At least one member of the panel, comprised of consumer finance experts not employed by the Fed, voiced concerns that the public would not take the Fed's findings of improper practices seriously, since the wide-ranging review did not find a single homeowner who was wrongfully foreclosed upon. Members of the panel were briefed on the report's findings on Wednesday by Fed staff during a closed-door meeting. It appears the results were not supposed to have been disclosed Thursday.

The Fed's findings seem to support claims from the banking industry, which has admitted to sloppy practices but has maintained that the homeowners whose homes have been repossessed were substantially behind on their payments. But all 50 state attorneys general joined together last fall to probe banks' foreclosure practices after several companies halted home repossessions when improper paperwork practices -- like the so-called "robo-signing" scandal -- came to light. The law enforcement officers have said they've found banks violated numerous state laws. State and federal officials are considering a large-scale settlement with banks and mortgage servicers that could include penalties totaling up to $30 billion and requirements to modify more distressed mortgages.

The Fed's report will only further the disagreements between bank regulators, whose top priority is ensuring the safety and soundness of the banking system, and law enforcement officials, who are concerned with reportedly widespread violations of state and federal bankruptcy and consumer protection laws during foreclosures. The Fed's report on the internal probe, carried out by the Fed's bank examiners, has not been released to the public. The Fed declined to specify when it will be released. The central bank also declined to comment on the report's findings or on the statements made by members of its advisory panel.

When consumer advocates on the panel slammed the results of the Fed's investigation, Fed Governor Daniel Tarullo and Sandra F. Braunstein, the Fed's director of consumer and community affairs, questioned the advocates' characterizations of what they were told during their Wednesday briefing. But multiple members of the panel pushed back, reciting exact phrases they heard on Wednesday. One panel member later showed The Huffington Post his notes from the meeting.

Kirsten Keefe, a member of the Fed consumer panel and an attorney at the Empire Justice Center in Albany, New York, said the Fed's report defined "wrongful foreclosures" as repossessions of borrowers' homes who were not significantly behind on their payments. Based on that definition -- the homeowners were already in default -- the Fed found the foreclosures to be justified, members said.

But Keefe, who represents troubled borrowers, argued that the definition should be expanded to include foreclosures in which the wrong party brought the foreclosure action or cases that involve significant errors in foreclosure documents, like an inflated past-due amount, for example. Other consumer advocates at Thursday's public meeting appeared to agree.

"It is so dangerous to make the conclusion that we heard yesterday that there were no wrongful foreclosures," said Mark Wiseman, a former principal assistant attorney general in Ohio who oversaw consumer protection matters. "That homeowners were not delinquent has never been our contention," said Rashmi Rangan, a member of the panel and the executive director of the Delaware Community Reinvestment Action Council. "Our contention is that many of these foreclosures were avoidable."

Mary Tingerthal, the Fed council's vice chair and the commissioner of the Minnesota Housing Finance Agency, worried that the public would only pay attention to the report's "headline" finding, she said, which is that bank examiners did not find improper foreclosures. The Fed did find significant problems in banks' mortgage operations, she said.

The Fed reviewed just 500 loan files, said Rangan, citing Wednesday's briefing. The small sample size is similar to a separate investigation of national banks' mortgage operations by examiners at the Office of the Comptroller of the Currency, another bank regulator. The OCC's acting chief, John Walsh, last month told a Senate committee that the agency had found a "small number" of wrongful foreclosures during its review of just 2,800 mortgages that experienced foreclosure last year.

By comparison, nearly 2.9 million homes received a foreclosure filing in 2010, according to RealtyTrac, a California-based data provider. More than one million homes were repossesed, a record. Citing Wednesday's briefing, Rangan said the Fed review found numerous flaws in banks' procedures and internal mortgage operations, and that the Fed's bank examiners directed the firms to fix those problems. One firm was found to be using Microsoft DOS, an outdated computer operating system, to handle home mortgages, Rangan said.

Lehman Probe Stalls; No Charges a Possibility
by Jean Eaglesham and Liz Rappaport - Wall Street Journal

The U.S. government's investigation into the collapse of Lehman Brothers Holdings Inc. has hit daunting hurdles that could result in no civil or criminal charges ever being filed against the company's former executives, people familiar with the situation said. In recent months, Securities and Exchange Commission officials have grown increasingly doubtful they can prove that Lehman violated U.S. laws by using an accounting maneuver to move as much as $50 billion in assets off its balance sheet, which made it appear that the securities firm had reduced its debt levels.

SEC officials also aren't confident they could win any lawsuit accusing former Lehman employees, including former Lehman Chief Executive Richard Fuld Jr., of failing to adequately mark down the value of the large real-estate portfolio acquired in Lehman's takeover of apartment developer Archstone-Smith Trust or to disclose the resulting losses to investors, according to people familiar with the matter.

People close to the investigation cautioned that no decision has been reached on whether to bring civil charges, adding that new evidence still could emerge. Investigators are reviewing thousands of documents turned over to the SEC since it began its probe shortly after Lehman tumbled into bankruptcy in September 2008 and was sold off in pieces. Officials also have questioned a number of former Lehman executives, some of them multiple times, the people said.

But after zeroing in last summer on the battered real-estate portfolio and an accounting move known as Repo 105, SEC officials have grown more worried they could lose a court battle if they bring civil charges that allege Lehman investors were duped by company executives. The key stumbling block: The accounting move, while controversial, isn't necessarily illegal.

In a possible sign that the probe has slowed, the SEC hasn't issued a Wells notice to Lehman's longtime auditor, Ernst & Young, according to people familiar with the situation. The firm had concluded that the accounting in the Repo 105 transactions was acceptable. Wells notices are a formal signal that the SEC's enforcement staff has decided it might file civil charges against the recipient. In a statement, Ernst & Young said the firm stands "behind our work on the Lehman audit and our opinion that Lehman's financial statements were fairly stated in accordance with the U.S. accounting standards that existed at the time."

The snags are the latest sign of trouble for the SEC and other U.S. regulators trying to punish companies and executives at the center of the financial crisis. So far, no high-profile executives have been successfully prosecuted. Last month, a federal criminal investigation of former Countrywide Financial Corp. Chief Executive Angelo Mozilo was closed without charges. The U.S. government lost the only crisis-related case to go to trial when former Bear Stearns Cos. hedge-fund managers Ralph Cioffi and Matthew Tannin were acquitted in November 2009 of criminal charges related to the $1.6 billion collapse of their hedge funds.

If SEC officials decide not to take enforcement action against former Lehman executives, they likely would escape criminal prosecution, too. The Justice Department "tends to follow the SEC's lead in these complex financial cases, so reluctance to pursue civil charges generally means the federal agencies won't take a criminal case," said Elizabeth Nowicki, a former SEC lawyer who is an associate professor at Tulane University School of Law in New Orleans.

A spokeswoman for the Justice Department declined to comment on Lehman. In a statement, she said the agency "will continue to root out financial fraud wherever it exists. When we find credible evidence of criminal conduct—by Wall Street financiers, lawyers, accountants or others—we will aggressively pursue justice. However, we can and will only bring charges when the facts and the law convince us that we can prove a crime beyond a reasonable doubt."

A year ago, it looked as if the SEC and federal prosecutors had a road map to use against Lehman's former top executives. Last March, the Repo 105 transactions were condemned by court-appointed examiner Anton R. Valukas, who said in a report that they enabled Lehman to "paint a misleading picture of its financial condition." In the transactions, Lehman swapped fixed-income assets for cash shortly before the securities firm reported quarterly results, promising to buy back the securities later. The cash was used to pay down the company's debts. Emails sent by executives at the company referred to Repo 105 as a "drug" and "basically window dressing."

Mr. Valukas concluded there were "colorable," or credible, legal claims against Ernst & Young, Mr. Fuld and former finance chiefs Ian Lowitt, Erin Callan and Christopher O'Meara. All four former Lehman executives have been scrutinized by the SEC, according to people familiar with the matter. Their lawyers didn't respond to calls seeking comment. They previously have denied any wrongdoing related to Repo 105.

A December lawsuit against Ernst & Young by soon-to-depart New York Attorney General Andrew Cuomo drew heavily on Mr. Valukas's findings. Mr. Cuomo, who became New York's governor in January, criticized the Repo 105 transactions as a "house-of-cards business model, designed to hide billions in liabilities in the years before Lehman collapsed." Mr. Cuomo's successor, Eric Schneiderman, is "fully committed" to pursuing the case, a spokesman said. Ernst & Young has vowed to vigorously defend itself against accusations that the maneuver violated generally accepted accounting procedures.
In contrast, SEC officials generally have concluded that the transactions were consistent with accounting standards, according to people familiar with the situation.

And agency officials aren't convinced that Lehman shareholders suffered material harm, since executives were trading one type of highly liquid asset for another, these people said. They said the SEC would face a far lower bar if Lehman had converted illiquid or damaged assets, such as Archstone's real-estate holdings, into cash using Repo 105. Mr. Fuld and other former executives could face charges of making misleading statements about the company's health before it sank. That likely would be an uphill battle for the government, according to people familiar with the matter, partly because the executives relied on legal and accounting opinions.

British law firm Linklaters LLP signed off on the Repo 105 transactions, all done through the securities firm's European arm. Linklaters declined to comment. SEC investigators also have looked for evidence that Lehman overvalued positions held by Archstone, which it acquired in 2007. SEC officials aren't convinced, though, that they can build a strong enforcement action around such claims. In his report, Mr. Valukas wrote that he didn't find "sufficient evidence to support a colorable claim for breach of fiduciary duty in connection with any of Lehman's valuations."

It isn't clear what the Lehman executives have said to SEC officials during the probe. Last year, Mr. Fuld told lawmakers he had "absolutely no recollection whatsoever of hearing anything" about Repo 105 at the time of the transactions. Lehman's demise was caused by "uncontrollable market forces" and the U.S. government's unwillingness to rescue the firm, he said.

This was a truly sobering week for the markets
by John Authers - Financial Times

If ever investors needed a reminder to stay humble, this week provided it. It saw the second anniversary of one of history’s great relief rallies, which has seen stocks double in two years. But it brought alarm about the Middle East and about the eurozone, fears that the market rally might carry the seeds of its own destruction – and then on Friday the appalling news from Japan.

Even before the earthquake, one legendary investor, Bill Gross of Pimco, was scaring markets by announcing that he had sold all his US Treasury bonds, while another great investor, Carl Icahn, was giving his investors’ money back. "While we are not forecasting another market dislocation," he said, "this possibility cannot be dismissed. Given the rapid market run-up over the past two years and our ongoing concerns about the economic outlook, and recent political tensions in the Middle East, I do not wish to be responsible to limited partners through another possible market crisis."

How great is that risk? The earthquake need not increase the risk of a true market crash. Such events have more to do with the previous behaviour of the market than they do with events in the real world surrounding them. The Wall Street Crash of 1929, the Black Monday Crash of 1987, and the collapses of the Tokyo stock market in 1990 and of the US Nasdaq in 2000, all started with little or no trigger from the real world. The common theme was that markets had grown wildly overvalued.

There are exceptions. For example, the market convulsions following the Kobe earthquake did for Barings Bank, and a bear market followed the Opec oil embargo of 1973. But a lot must still go wrong in the Middle East for the disruption to get close to the severity of 1973. As oil is a smaller share of expenditures now, Veronique Riches-Flores of Société Générale suggests it would need to reach $200 a barrel to have as deadening effect on the west’s economy as in 1973. It is now just over $100.

So when assessing this week’s fallout for our financial prospects, the question remains: is there excess in the market?

Pessimism was so extreme two years ago that a big rally – even a doubling in two years – is not surprising. There was an even bigger rally after the low point of 1932. Corporate earnings have rebounded faster than anyone thought possible. Many symptoms of a bubble about to burst are lacking. Ian Harnett of Absolute Strategy points out that bubbles are normally fuelled by retail investors pouring borrowed money into the market. Nothing like this is going on. Big market tops are usually marked by mergers and acquisitions. While picking up, they are still at a quarter of the levels of 1999.

Most critical is valuation. Long-term metrics, comparing stock prices with their earnings across the business cycle, suggest US stocks are as expensive as in 1901 and 1966, on the eve of major downturns. They are not cheap. But there is a difference between an expensive market and one primed to explode. US stocks now sell for 24 times their cyclical earnings. They were selling for almost double that in 1999.

So why might Mr Icahn be worried? The prices of money, and of resources are moving. The rally of the 1980s started with base rates above 15 per cent. Rate cuts gave the stock market ever more fuel. That cannot happen this time, with rates effectively zero. Once rates start to rise, bubbles can burst.

Beyond rates, there are commodity prices. Over history, big upswings in resource prices have overlapped with poor performance by stocks. They are a tax on economic growth. In the past two years, even apart from the recent rise in oil prices, agricultural prices have almost doubled, and industrial metals have more than doubled.

Finally, long-term rates are set by the bond market. Mr Gross is betting there will be no fresh buyers once the Federal Reserve stops buying Treasury bonds, as is to happen this summer. Therefore a rise in bond yields – which would raise the cost of finance and hurt stock markets – seems a real possibility. Mr Icahn’s letter may not be all it seemed. He is not selling the stocks in his fund, but borrowing money so that he can pay cash to investors. Other hedge fund managers point out that the effect was for Mr Icahn to gear up his personal stock holdings.

But the Japanese disaster unquestionably increases the risk of new financial tremors. Perversely, the initial effect is to send money home to Japan, pushing the yen up. That could damage the exporters of the world’s third largest economy, and might also wrong-foot systemically important investors. Japan’s fiscal situation was already dire. Despite initial hopes the economic damage will be relatively muted, Friday’s tragedy has raised further the risk of a market dislocation.

Investors should learn from 1994’s rate spikes
by Gillian Tett - Financial Times

In recent months, staff at the Federal Deposit Insurance Corporation have been quietly trying to assess what damage a sudden jump in US interest rates might inflict on the financial system. But the body that insures deposits in banks faces a challenge: although it is clear that US banks and investment groups are loaded with bonds, it is very unclear how far these entities are hedged against any rate rise.

"It is frustrating for economists – we just don’t have the granular data. Nobody does," says Rich Brown, FDIC chief economist, who laments that "interest rate risk has been a bit of a blind spot [recently] for some institutions, partly because there has been such a fixation on credit risk".

This is potentially worrying, given the wider macro-economic climate. In recent days, the bond market has been shaken by news that Pimco has quietly sold all of its holdings of US Treasury bonds due to fears that yields will jump when the Federal Reserve ends quantitative easing. Such gloom is not shared widely; on the contrary, plenty of other investors expect yields to remain low because they think inflation pressures are relatively contained, the economic outlook uncertain and geopolitical worries remain rife.

But even if Bill Gross of Pimco turns out to be wrong, his call suggests risk of an upward swing in US rates is a possibility that needs to be reckoned with. That raises a crucial question: are investors and institutions sufficiently braced for this possibility – or, as Mr Brown fears, still too distracted by credit risk that any such rise could potentially cause damage?

In theory, history ought to have left US financiers well prepared. After all, in 1994 the US bond markets suffered one major shock, when Alan Greenspan, the US Federal Reserve chairman, unexpectedly doubled short-term interest rates to 6 per cent in a year. That caused long-term rates to leap from 6 to 8 per cent, partly because the structure of the US mortgage market created a so-called "convexity" problem (essentially when rates rise, the duration of fixed-rate mortgages typically lengthens, and in 1994 portfolio managers tried to hedge that by selling long-term Treasuries, fuelling panic).

The swing also caused big losses for many investors and banks, because these had previously been so confident that Greenspan would keep rates low that they had not hedged their exposures. Worse still, many investors were exposed to highly leveraged bets on interest rate derivatives; Orange County alone lost some $1.5bn from this. But though this panic occurred just 17 years ago – or within the career of many financiers – it is far from clear that the right lessons have all been learnt. In Europe, the Bank of England recently devoted a special section in its latest Financial Stability Review to asking whether there could be a repeat of the 1994 shock. And some continental European regulators are now quietly discussing the issue, partly because European institutions were hurt back in 1994.

However, in the US, public analysis has been minimal. In January 2010, Donald Kohn, then Fed vice-chairman, gave a speech warning that "many banks, thrifts and credit unions may be exposed to an eventual increase in short-term interest rates".

Late last year, Sheila Bair, head of the FDIC, declared that "bankers and regulators should place heightened scrutiny on the interest-rate exposures on the balance sheets of financial institutions, and ensure that these institutions can withstand interest rate increases of as much as 500 basis points over a two- to three-year period". But Ms Bair’s forceful comments were striking because they are so rare; the Fed has largely been silent. Fed officials say this is because any replay of 1994 now looks exceedingly unlikely.

After all, the argument goes, since 1994 the US central bank has learnt that it is unwise to shock the markets; hence Ben Bernanke’s current determination to keep signalling his policy stance. Moreover, investors are now wiser about interest-rate derivatives, and the US mortgage market is less vulnerable to convexity risk; or so, the argument goes. But none of these points is bulletproof. After all, the proportion of fixed-rate mortgages has recently risen, which may have increased convexity, and the use of interest-rate derivatives is rife. Meanwhile, the Fed will soon face challenges as it tries to exit quantitative easing – the risk of policy surprises cannot be ruled out.

And then, of course, there is all that interest-rate exposure, which is of an unknown size. Maybe this time, banks and investors will be savvier at hedging; but there again, the Fed’s recent actions might have bred complacency. Either way, the one thing that is clear is that it is time for regulators and investors alike to think hard about that interest rate risk, not just credit risk. If not, the risk managers and regulators may end up, once again, fighting yesterday’s war.

Fannie Mae Ex-CEO May Face SEC Claims in Subprime Probe
by Joshua Gallu and Dawn Kopecki - Bloomberg

Daniel Mudd, the former head of Fannie Mae, became the latest target in a probe by U.S. regulators of whether financial institutions were honest with investors about their exposure to subprime loans. Mudd, now chief executive officer of Fortress Investment Group LLC, confirmed in a statement to Bloomberg News that the Securities and Exchange Commission notified him yesterday the agency intends to pursue civil claims against him.

Mudd, who was ousted when Fannie Mae and Freddie Mac were seized by regulators in September 2008, said he plans to submit a written rebuttal to the allegations. The SEC’s investigation involves several people who were executives at Fannie Mae as the housing crisis deepened in 2007, according to two people with direct knowledge of the investigation who spoke on condition of anonymity because the matter isn’t public. It focuses on the firm’s disclosures to investors as the financial crisis gathered steam in 2007 and 2008, the people said.

The SEC previously notified one current and one former executive of Freddie Mac, Fannie Mae’s smaller competitor, that the agency may file similar allegations against them. Donald Bisenius, Freddie Mac’s executive vice-president for single- family credit guarantee, will leave the company April 1, according to a regulatory filing. Anthony "Buddy" Piszel, who served as CFO from November 2006 to September 2008, resigned as CFO of CoreLogic Inc. last month.

"I have the highest respect for the commission. Nevertheless, I could not disagree more with this turn of events," Mudd said in the statement. "The disclosures and procedures that are the subject of the staff’s investigation were accurate and complete. These disclosures were previewed by federal regulators, and have been issued in the same form since the company went into government conservatorship."

Soured Loans
Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac were seized and placed under U.S. control in 2008 as losses on soured loans pushed them to the brink of insolvency. The two government-sponsored enterprises have been sustained by more than $150 billion in U.S. aid. Congress and the Obama administration are examining plans for winding down the firms and building a new system for financing housing debt.

Mudd, 52, took over from Franklin Raines as CEO of Fannie Mae in 2004, four years after he had joined the company as chief operating officer and as the company tried to recover from an $11 billion accounting restatement and securities fraud charges. He was appointed CEO of Fortress in August 2009, almost a year after he was ousted from Fannie Mae. He will remain CEO of the New York-based buyout and hedge-fund firm, according to a person with direct knowledge of the matter who spoke on condition of anonymity because the discussions were private.

The SEC’s probe echoes the agency’s July case against Citigroup Inc. The bank agreed to pay $75 million after the SEC accused the bank and two executives of failing to disclose $40 billion in subprime assets before losses surged. U.S. District Judge Ellen Huvelle faulted the agency for only sanctioning two executives for their roles in the matter.

In 2008, Freddie Mac was informed that the U.S. Attorney’s Office for the Eastern District of Virginia was investigating "accounting, disclosure, and corporate governance matters," according to a regulatory filing. The SEC informed the company that it was under investigation for possible securities violations, and employees were interviewed. Fannie Mae and Freddie Mac were created by Congress to encourage homeownership by making it easier for people to get loans. The firms now own or guarantee more than half of all U.S. mortgage debt, most of which they pool and sell on the secondary market.

Mortgage data reveals a sharp drop in UK house sales
by Jill Insley - Guardian

A 29% fall in house sales in January compared to December is being blamed on inclement weather, rising inflation and government spending cuts. The Council of Mortgage Lenders, which has collated the data, said an "unusual combination of factors" have led to the extreme drop, which is "greater than seasonal factors alone would explain".

"With spending cuts beginning to bite, and rising inflation and tax measures putting pressure on household budgets, potential house-buyers are likely to have been discouraged. This, coupled with December's extreme winter weather, and uncertainty over future interest rate rises, has led to a lack of movement in the mortgage market," it said.

The value of house purchases fell by 26% from December to January, and by 13% compared to January 2010. However the CML said that the rush to purchase at the end of 2009 because of the stamp duty concession ending led to an artificially low level of lending in early 2010. This means the 13% year on year fall is much more substantial than it appears.

The fall in house purchase lending was split equally between first-time buyers and home movers. First-time buyers took out 10,500 loans worth £1.2bn in January, down 28% by number and 29% by value from December. Home movers saw a fall of 29% by number from 25,400 to 18,000 and 28% by value from £4bn to £2.9bn from December to January.

The number of remortgage loans also fell from December to January, but by a much less severe 6%, while the value fell by 7%.

Michael Coogan, CML director general, said it would be premature to draw any conclusions about activity levels over the next few months from the January figures. He added: "The market remains stable at low levels of transactions."

His comments are supported by Brain Murphy, head of independent mortgage broker Mortgage Advice Bureau, who reports an upturn in mortgage queries in February. "Activity overall witnessed a marked increase in February over January both among house buyers and those looking to refinance existing arrangements," he said.

"In a normally functioning market borrower activity tends to rise month on month during the first half of the calendar, generally plateauing during the mid-summer holiday season followed by an autumn uptick, before hibernating as the Christmas period approaches. "As a result we are mildly encouraged that the market appears to be following its more historic pattern, albeit at significantly lower volumes than at the height of the property boom.

However Howard Archer, chief UK economist for Global Insight, is more bearish. "The very weak CML mortgage advances data for January indicates that the housing market started 2011 on the back foot and supports our belief that house prices are headed down further over the coming months. Specifically, we expect house prices to fall by around 5% in 2011 and ultimately decline by around 10% from their peak 2010 levels."

Why UK mortgage lending slumped by a quarter and house prices may fall by a fifth
by Ian Cowie - Telegraph

Mortgage lending fell by more than a quarter in January, signalling as surely as a falling barometer that the housing market is nearing the end of the calm before the storm. Three years after the credit crisis began, the big surprise is that house prices have not fallen by more already.

Now figures from the Council of Mortgage Lenders (CML) show that prospective homebuyers fear the ‘phoney recession’ will soon turn into a real one – with rising unemployment and interest rates. Government talk about reducing public deficits is turning into real job cuts and even the majority who remain employed are seeing their spending power eroded by rising inflation and taxation. Bank of England base rates frozen at historic lows for two years have helped to insulate borrowers from harsh economic reality so far but that cannot last forever.

No wonder prospective homebuyers are increasingly reluctant to mortgage their future now. Even after recent marginal reductions in house prices, the average homebuyer today still needs to borrow more than five times national average earnings to buy a typical home, according to Britain’s biggest building society; Nationwide. True, that is lower than the 6.4 the ratio reached in October, 2007, but it is nearly double the price/earnings multiple of 2.8 seen during the housing slump of the mid-1990s.

Housing remains very expensive relative to people’s post-tax earnings. Existing owners enjoy gains accumulated over the years and a vested interest in hoping the house price rope trick can continue going up forever. But would-be newcomers have no such illusions and are struggling to get a foot on the housing ladder. CML figures show lenders typically demand 20pc deposits and Scottish Widows recently forecast the average age of first time buyers will soon reach 44. Their parents, who bought their homes a quarter of a century ago, were more likely to have done so at the age of 27.

Even Michael Coogan, director general of the CML, struggled to put a brave face on the dismal figures. He said: "Pressures on household budgets have been increasing both in terms of take home pay, and indirect tax measures such as the VAT increase and recent inflationary pressures, so we were expecting a fall in transactions early in the year, and a flat mortgage market underpins our forecasts for 2011.

"The bad winter weather and uncertainty over interest rate rises will have exacerbated the fall in lending in January, so it would be premature to draw any firm conclusions about activity levels over the next few months. The market remains stable at low levels of transactions." Brian Murphy, of the independent broker Mortgage Advice Bureau, was another who stopped just short of blaming the snow: "The low level of loans advanced in January is a reflection of the usual pre-Christmas slowdown, low consumer confidence generally and the extreme weather in late November and December.

"With the economy still in intensive care, a rising inflationary environment causing concerns for the policy setters and the real impact of the coalition spending review still to take effect, both activity in the housing market and levels of mortgage borrowing are likely to remain constrained throughout 2011."

Mr Murphy said last month showed some signs of a Spring pick up but there were few green buds of recovery for Peter Rollings, at estate agent Marsh & Parsons: "These numbers keep getting worse despite two years of record low interest rates.  Nobody is calling for a return to the irresponsible lending of a few years ago, but the choke on mortgage finance is stifling buyers who want to take advantage of the value there is in much of the UK property market."

He pointed out that prices remain robust and may still be rising in prime areas of London where foreign buyers taking advantage of sterling’s weakness continue to provide strong demand. But the capital is an exception to the national rule where average prices have fallen by 12pc since their peak in October, 2007.

Even so, the Nationwide’s long-term average measure of affordability is for house prices to average just four times average earnings – or a fifth lower than house prices’ current level. Chief economist Robert Gardner denied that this means prices must fall: "Housing still looks expensive relative to income but we expect that over a prolonged period house price growth will lag behind earnings growth and so, as the economy recovers, earnings growth will increase and that will improve affordability over time." Homeowners must hope he is right about a soft landing but history suggests markets are rarely so benign.

Oil Prices Raise Cost Of Homeownership, Threatening Housing Recovery
by William Alden - Huffington Post


And the pain could get worse as rising energy costs begin to threaten a sector that's already taken a historic beating in recent years: the housing market. The prospect of a much more expensive commute is beginning to make suburbia look less appealing. As demand for such homes weakens, economists worry that growth in the real estate market -- and the broader economic recovery -- could be stopped in its tracks. "It really blunts the hope of rebound in a lot of those outlying areas," said Joe Cortright, president and principal economist of the consulting group Impresa, in Portland, Ore. "Those housing units come with the added penalty of a higher commuting price."

Rising energy prices hike several key components of the total cost of living for many Americans. Not only does driving become more costly, heating and cooling also become less affordable. In the winter, high heating bills can encourage consumers to go without, causing pipes to freeze. As summer nears, the prospect of air-conditioning a spacious suburban home increasingly seems untenable.

Homeownership, predicated to a significant degree on affordable energy prices, is becoming more expensive. "Once you start to see gas prices get into the $4 range, that's going to have a downward effect on sales," said Bernard Baumohl, chief global economist at the Economic Outlook Group, who until recently was known for his relatively optimistic predictions. "Home sales deteriorate probably exponentially after that."

The oil price spike could hardly come at a worse time for the ailing housing market, which, along with high unemployment, continues to weigh heavily on the U.S. economy. While financial and manufacturing sectors have recently shown strong signs of recovery, housing seems to get worse. Since peaking in 2006, home prices have fallen 31 percent, according to the Case-Shiller 20-city index. Last year, nearly 2.9 million homes received foreclosure notices, an increase of 2 percent from 2009, according to data collected by RealtyTrac, an online foreclosure market. More than a quarter of all U.S. home sales last year were of foreclosed properties.

This situation isn't helped by a lack of demand. For homeowners, the price fall can be a vicious cycle: Falling home values erode homeowners' wealth, making them more vulnerable to default and foreclosure, which in turn tends to drive nearby home values even lower. As potential buyers see prices fall, they become less interested in making a long-term investment in a home. Until prices hit bottom and a home turns from a sinkhole into a bargain, buyers are expected to show the kind of tentativeness that aggravates a slump.

Oil could make things even worse. Gas prices have lately been climbing toward $4, making consumers less and less able to spend money on other things as their dollars head from the U.S. economy to oil companies overseas. "The big increase in oil prices serves as an effective tax on consumers, which means they'll have less capital to spend on housing expenditures," said Michelle Meyer, an economist at Bank of America Merrill Lynch. "People are going to be looking for an even lower price."

To some extent, of course, the decision to purchase a home is insulated from rising gas prices. Because a house is a long-term investment, homebuyers consider what their income will be over the next several decades, not just over the next few months, and may dismiss the gas hike as a temporary inconvenience. "People would have to perceive that energy prices would be stuck at this high of a level for the foreseeable future," Meyer said. "At this point I don't think people are convinced of that, nor should they."

But as long as unrest in the Middle East has dragged on, the price of oil has continued an uneven but persistent rise, with investors afraid the world's supply could be significantly disrupted. Professional investors and average commuters who are closely watching energy prices have seen unexpected events unfold daily. The key takeaway, experts say, is that events that seem improbable can nevertheless happen.

As protests began in Tunisia and spread to Egypt, then to Bahrain, Libya and elsewhere, the market has evidently priced in the possibility that the oil-producing heart of the region, Saudi Arabia, could see its output compromised. "Unfortunately it's sort of a known unknown," said Michael Darda, chief economist of MKM Partners, an institutional equity research, sales and trading firm. "We know this is going on. No one knows really where it stops."

While investors' fears have been driving oil prices higher, consumers' fears could effectively keep home prices pinned down. Every few days, headlines announce that the price of oil has reached a new record, achieving highs not seen since 2008, when months of astronomical energy prices were dragging the economy into recession. The price of a barrel of Brent crude, an industry benchmark, cleared $118 on Monday, after starting the year at around $95. Each $10 rise in the price of a barrel of oil translates into a 25-cent increase in gas prices, which tears more than $25 billion from the economy yearly, economists say.

"Chronically-high energy prices obviously are not a friendly development for housing," Baumohl of the Economic Outlook Group said. "If households are squeezed, you can expect the demand for homes will likely weaken. With that, of course, we could expect to see perhaps even more foreclosures."

Already, Americans have cut back. Although surveys in recent months have shown an improvement in so-called consumer confidence, high prices at the pump seem to be hurting that newfound enthusiasm. One in three U.S. consumers has already significantly reduced discretionary spending, according to a new survey from RBC Capital Markets. Small business owners say that higher transportation costs will force them to charge customers extra fees and put hiring plans on hold.

With transportation more expensive, prospective homebuyers become less willing to buy in a community miles from a city. When demand for far-flung houses weakens, prices stay depressed and the broader housing recovery can be threatened. "It's really more of a reminder that there's a lot of volatility in [energy] prices," Cortright, the consulting firm president, said. "People think, 'Do I really want to expose myself to the risk? I may have to pay even higher prices in the future.'"

In the suburban community of Homestead, Fla., where the mortgage delinquency rate is statistically the worst in the nation, homeowners are now suffering from the added strain of expensive gas, the Wall Street Journal reported last week. Some potential homebuyers might choose to refrain from house-hunting altogether, as even the long hours of driving involved in searching for a new place to live could seem like an undue cost. Already, consumers have begun to cut back on driving.

But some experts were skeptical that expensive gas would have much impact on what's already a persistently weak market. Diane Thompson, a lawyer at the National Consumer Law Center, who has spent nearly two decades representing homeowners, said the problems in the housing market run deep. "The scale of the housing crisis swamps all of things you might expect to contribute to it," Thompson said. "We had this explosion of predatory non-affordable loans for a decade leading up to this, and those loans are still working their way through the system."

Europe Boosts Bailout Fund With 'Firewall' Bond Purchases, Eases Greek Aid
by Alan Crawford and Simon Kennedy - Bloomberg

European leaders widened the scope of the euro’s rescue fund, authorized it to buy government bonds and eased the terms of Greek bailout loans as they unexpectedly pushed through fresh measures to end the bloc’s debt crisis.

Under a pact struck at 1:30 a.m. in Brussels after eight hours of talks, the bailout facility will now be able to spend its full 440 billion-euro capacity ($611 billion) and to buy bonds directly from governments. In a blow to European Central Bank President Jean-Claude Trichet, it won’t be allowed to purchase debt in the open market or to finance debt buybacks.

The agreement is part of a push by governments to draw a line under the crisis, which has raged for more than a year despite a series of remedies by European governments. Investors had expected a deal to be delayed until a March 24-25 summit, with the yields on Greek and Portuguese bonds this week rising to euro-era records on concern officials would again fall short.

"I’m positively surprised, for a change," said Andrew Bosomworth, a money manager at Pacific Investment Management Co. in Munich and former ECB economist. "The agreement contains important elements of a firewall" that could stop the crisis worsening. Allowing the fund to buy bonds in the primary market would help other indebted nations by acting as a backstop should a Greek restructuring spook markets and threaten to derail government bond auctions, he said.

While Greece was told it would have the cost of its loans pared and the repayment period extended, officials rejected Ireland’s bid for relief as recently elected Prime Minister Enda Kenny refused to yield to calls to raise its 12.5 percent company tax rate. The accord came at the end of a session that began after 5 p.m. following daylong talks among the 27 European Union heads on the Libyan crisis. German and French officials this week said they didn’t expect a comprehensive pact until the end of month even as the debt ratings of Greece and Spain were cut and the euro posted its biggest weekly drop since the start of 2011.

"This is an important message on the political pledge of the euro members to fight for the euro’s stability," German Chancellor Angela Merkel told reporters. "Everyone had to make a contribution. I hope that this will also be a good message to the world in terms of the euro as a major currency." An initial deal last night on a plan to tighten economic cooperation and boost competitiveness committed nations to enact budget rules into law, a core German demand, and paved the way for the final agreement by the end of the month.

Merkel Politics
By reaching an agreement now, Merkel avoided having to deal with it in the run up to a March 27 regional election in Baden Wurttemberg as her voters complain about having to bailout other countries. In return for acceptance of her conditions on controlling debt, Merkel swung Europe’s biggest economy behind plans to allow greater flexibility and firepower in the EU rescue fund, the European Financial Stability Facility.

"This should go down well with the markets for now and lead to an easing of the euro-zone’s sovereign debt crisis in the near term at least," said Howard Archer, chief European economist at IHS Global Insight in London. "The leaders will hope this is taken as evidence of their determination to do whatever is necessary to hold the eurozone together." The EFSF had been limited to spending about 250 billion euros due to reserves it had to hold for its AAA rating. The commitment wasn’t matched with detail as Merkel indicated states will increase their guarantees.

The provision to allow primary-market bond purchases will offer a lifeline to aid recipients in return for austerity commitments. A basic accord was also reached on the permanent safety net from 2013, the European Stability Mechanism, with a mix of guarantees and capital, she said. Trichet resisted giving the deal a full-blown endorsement, saying it "goes in the right direction." That signals disappointment in the refusal of governments to let the rescue facility buy bonds in the open market and take pressure off the ECB, which has bought 77 billion euros of assets in the past year.

Adding urgency to the talks, the leaders met amid speculation that Greece would be forced to restructure its debt and Portugal would soon be the third euro nation to need help. Greek 10-year yields rose 6 basis points yesterday to 12.81 percent and similar-maturity Irish yields jumped 14 basis points to 9.65 percent. Greek securities plunged this week after Moody’s Investors Service cut the nation’s rating, already at junk, by another three levels, saying the probability of default had increased. Credit-default swaps on Greek government debt rose 8 basis points to a record 1,048 basis points.

Lower Greek Rates
Leaders made a provisional agreement to lower Greece’s interest rates of about 5 percent for aid by 100 basis points, and extend the repayment period of the loans to 7 1/2 years from three years. Greek Prime Minister George Papandreou said the moves would save about 6 billion euros over the life of the loans. "Greece has made major efforts, just look at the size of their privatization program," French President Nicolas Sarkozy said. "We’re not asking Ireland to put up their corporate taxes to the European average, but to make some effort."

With two weeks to the summit endgame, Merkel and Sarkozy clashed with Kenny over corporate taxes. They had insisted on a common corporate tax base as the condition for agreeing to ease the terms of Ireland’s 85 billion-euro bailout. Kenny rejected that position, calling it "harmonization of taxes through the back door." Ireland’s main corporate tax rate is 12.5 percent, compared with an EU average of about 23 percent and even higher rates in Germany and France, which it has used to lure companies such as Hewlett-Packard Co.

The European Commission, the EU’s executive body, will present a proposal on a common corporate tax base in the coming weeks, the agency said. Ireland will think it over and come back to the rest of the EU within two weeks, Merkel said. Talks on a deal for Ireland "will be difficult and detailed but I am convinced and remain convinced that there will be that we can find a way forward," Kenny said.

With the debt crisis lapping at Portugal’s shores, Prime Minister Jose Socrates’s government yesterday announced new commitments on deficit reduction amounting to 0.8 percent of gross domestic product for this year. The yield on Portugal’s five-year debt surged to a euro-era record of 8 percent on speculation that would soon be forced to seek a bailout. Portugal’s 10-year bond yields reached 7.70 percent on March 9, the highest since at least 1997.

Questions have also been raised about Spain, which was cut to Aa2 by Moody’s Investors Service on March 10 on concern about the cost of shoring up its banking system. Spain’s 10-year government bond yield was at 5.4 percent yesterday. Trichet said the "credibility" of the Portuguese government "seems to me considerably re-enforced by these measures, which are of substance. When you go through all the measures, you see they are very substantial."

Europe Has New Deal to Fight Debt Crisis
by Stephen Castle and Matthew Saltmarsh - New York Times

European leaders agreed early Saturday to new measures intended to end the euro zone debt crisis, offering the debt-laden Greece a cut in its interest rate and injecting more flexibility into the way a bolstered bailout fund for the euro can be used.

The deal, which went further than had been expected at Friday’s meeting of 17 euro zone leaders, came after a fierce dispute over corporate tax — pitting France and Germany on one side against Ireland on the other. Because of the standoff, Ireland, which like Greece has accepted a bailout from the European Union and the International Monetary Fund, has not been offered a reduction in its interest rate, now about 6 percent.

The early morning agreement came alongside a deal on a pact called for by Germany and France to tighten discipline in the euro zone. As expected, the current, temporary fund will be extended to allow it to lend its full 440 billion euros ($608 billion). The permanent fund that will replace it in 2013 will grow to 500 billion euros.

However, it was unclear whether the emerging package of measures would be enough to calm markets, which increased pressure on Portugal on Friday despite its announcement of new austerity measures. Portugal’s five-year debt reached a euro area record on speculation that a request for financial aid was becoming inevitable, a suggestion that was rejected by the country’s prime minister, José Sócrates.

Under the latest agreement, the European Union’s bailout fund will be able to buy bonds on the primary market but not on the secondary one. In effect, that means that a nation could negotiate a program with the European Union under "strict conditionality," making it possible for the bailout fund to buy bonds issued by that government. A country would have to agree an austerity program for that to happen.

However, those seeking a more comprehensive solution had pressed for more far-reaching changes, such as allowing the bailout fund to extend lines of credit to countries or letting it be able to buy bonds on the secondary market. Those ideas were not accepted.

Speaking at an early morning press conference, Chancellor Angela Merkel of Germany said the deal showed "the political commitment of the euro zone countries to work for the stability of the euro as a whole." Referring to a new round of stress tests on European banks, Mrs. Merkel said, "All member states have said they are committed to recapitalize their banks if the stress tests say that is necessary."

She added that the new Irish Prime Minister, Enda Kenny, would consider before the next European Union summit on March 24 whether he could make any further movement on aligning corporate tax, and therefore be eligible to receive an interest rate reduction. "It is simply fair to say we can only give our commitment when we get something in return," Mrs. Merkel said.

Asked about raising corporate taxes, Mr. Kenny said he had "made it perfectly clear on many occasions that this is not something that I could or would contemplate and didn’t this evening." Ireland’s main corporate tax rate is 12.5 percent, well below the European Union average, and it has a symbolic importance in Irish politics. That made it particularly difficult for Mr. Kenny to compromise, having just come to power.

"We’re not asking Ireland to put up their corporate taxes to the European average but to make some effort," said the French President, Nicolas Sarkozy, whose discussions with Mr. Kenny were heated, according to diplomats who spoke anonymously because they were not authorized to speak publicly.

By contrast Greece was given a concession on the length of its loan repayments to 7.5 years and agreed to a package with the European Union under which it would raise around 50 billion euros through privatization to cut its debt. Germany, supported by France, proposed the new pact for the euro to force closer coordination on a range of issues, like raising retirement ages, aligning corporate tax systems and adopting debt brakes. Once the deal is endorsed formally by the 17 countries later this month, the 10 union members outside the euro zone will be invited to join.

Berlin sees the pact as a precondition for bolstering the union’s backstop fund for euro zone countries, making it permanent, and possibly more flexible. But, after objections from a host of smaller countries, the proposals were loosened to allow countries to set their own targets. Sanctions are not envisaged, and the commitments nations enter into will be subject to peer pressure instead.

Just before the leaders met, Portugal announced additional steps to cut spending and to increase revenue to reduce its deficit and stave off intense pressure to seek a bailout. At the same time, the new round of stress tests on banks was being promised as more rigorous than its predecessors. But investors might not be satisfied by the measures European leaders are taking because the two issues — the bailout fund and the state of the banking industry — are deeply intertwined. Many banks hold substantial amounts of government bonds that would be at risk if indebted countries like Ireland and Greece were unable to manage their debts.

A failure by European leaders to agree on a mechanism acceptable to markets could mean borrowing costs would rise again, heaping new financing problems onto both sovereign debtors and their lenders. Since the last round of bank tests, published in July, further balance sheet problems have emerged, notably at Spanish and Irish lenders. Results of the new tests are to be released in June.

Sixten Korkman, managing director of the Economic Research Institute of the Finnish Economy, said it was "absolutely crucial" that the tests were "tough and transparent" and formed part of a longer-term process of bank rehabilitation involving recapitalization, closing or merging weak institutions and then restructuring the debts of some countries and banks by requiring senior bondholders to accept losses on their investments.

During a speech Friday, Lorenzo Bini Smaghi, a member of the European Central Bank’s executive board, said, "If the results of the next stress tests do not convince the markets that they have been done rigorously, national authorities will not be able to hide behind each other; all would lose credibility."

For many analysts, Europe has been far more clunky in its response to the banking crisis than was the case of the United States in the savings and loan crisis of 1989-90, and the case of Sweden in 1992-93. "E.U. governments have judged that they cannot entertain policies that would pose risks of a systemic bank run inside the euro area, in the manner of that which followed the collapse of Lehman Brothers," wrote John Llewellyn and Peter Westaway in a recent report for Nomura.

The pattern of the tests is starting to take shape. The European Banking Authority has said that it will be run against two hypothetical economic possibilities: a "baseline" case and an "adverse" macroeconomic climate to assess the solvency of the banks involved. The regulator plans to publish the detailed assumptions, alongside the sample of banks involved, on Friday. It then expects to provide more information on the principles of the methodology in April.

"It is a fact that the scenario of the 2011 E.U.-wide stress test is tough, and more severe than last year," Andrea Enria, the banking authority chairman, said in a statement this week after draft documents containing the planned economic assumptions of the tests were leaked. "You need to look at the whole package of what is in the new stress tests, not just pick on a few points out of context."

History's lesson is that investment and retail banking must be separate
by Liam Halligan- Telegraph

The economic newsflow was thick and fast last week. Ongoing commodity price jitters combined with renewed fears of another eurozone default – this time in Spain, the currency union's fourth biggest economy.

The mighty PIMCO slashed its holdings of US Treasuries to zero – causing an awful lot of soul-searching among global investors that still insist American sovereign IOUs are a "safe haven". A massive and tragic Japanese earthquake then sent financial shockwaves, as well as actual tsunamis, across the eastern hemisphere. This coincided with Saudi Arabia's "day of rage", which saw the desert kingdom's rattled authorities unleash percussion bombs and rubber bullets.

Amidst momentous events, though, I'm determined to focus on an issue that to some may seem arcane and even staid – UK bank reform. Despite appearances, this is also a hugely important subject, with implications that go way beyond the UK and which could do a great deal to determine the future shape of the global economy.

Just over a week ago, the Bank of England Governor, Mervyn King, was interviewed by The Daily Telegraph on the banking sector. Anything King says on banks is important – given that the institution he runs will, later this year, take charge of UK bank regulation once the Financial Services Authority, after less than a decade and a half in existence, is disbanded. What was interesting about King's interview, though, wasn't so much what he said, but the reaction it provoked. After months of shadow boxing, the crucial battle over the future of the UK banking industry is now finally on.

King argued that unscrupulous bankers are keen "to make money out of gullible or unsuspecting customers". To anyone who has a British bank account, and has been hit with extortionate charges for minor transgressions while waiting days for an incoming cheque to clear, this is a statement of the obvious. But senior bankers were still seriously miffed by this comment. What really got the banking lobby's goat, though, was King's insistence on fundamental bank restructuring. Banks have acted like "casinos" in recent years, the Governor argued, "making bets with other people's money" while "not understanding the nature of the risks they were taking".

King expressed "surprise" there wasn't more public anger at the banks, given the disastrous impact of their excesses on the broader economy. Pointing to a previous lack of regulatory oversight, he also stated that "we allowed a banking system to build up which contained the seeds of its own destruction", while raising the prospect of yet another deeply-damaging bank collapse. "We've not yet solved the 'too big to fail' problem," he observed. "Or, as I prefer to call it, the 'too important to fail' problem".

The City shouldn't be surprised at these words. King has aimed strong language in the banks' direction before. He has also previously made clear he favours breaking up the big "universal" banks. During the summer of 2009, the Governor said it "isn't sensible to allow large banks to combine High Street retail banking and risky investment banking strategies, and then provide an implicit state guarantee".

The reason is that bonus-fuelled bankers then "lever up" the deposits of firms and businesses and make "heads I win, tails the taxpayer loses" bets – precisely because the deposits of ordinary firms and households are involved. King left no doubt this was his view when, in the autumn of 2009, he said that the "breath-taking" scale of the bank bail-outs due to sub prime had created "the biggest moral hazard in history". And just a few months ago, he added that "of all the ways of organising banking, the worst is the one we have today".

In the aftermath of King's previous "radical outbursts", the big banks have remained tight-lipped. In recent days, though, the Governor has been the subject of some nasty press briefings. Anonymous City sources have dubbed King "bitter", "deeply scarred" and "out of touch". The banks' spin doctors have been working overtime to undermine his authority.

King's views are irrelevant, we're told, as he didn't see the sub-prime crisis coming. In fact, he did. Of the many occasions I heard King speak about the dangers of mortgage-backed derivatives and too much borrowing, the one that sticks in my mind is the Lord Mayor's Banquet in Central London in June 2007.

"It may say champagne – AAA – on the label of an increasing number of structured credit instruments," King boomed almost four years ago. "But by the time investors get to what's left in the bottle, it could taste rather flat. Excessive leverage is the common theme of many previous financial crises. Are we really so much cleverer than the financiers of the past?"

King gave repeated, public warnings about the dangers brewing in the UK and international banking sector – going as far as a Bank of England governor could, without risking accusations of spreading panic. He didn't have the detailed knowledge he should have had about the specifics of each bank's balance sheet. But that's because the bank supervisory role was with the (Treasury-controlled) FSA – which knew Gordon Brown wanted the lending boom to continue, in the misguided hope that the resulting "feel good" factor would make him the UK's most popular politician.

Getting down to the fundamentals, the big banks say King's preferred "Glass-Steagall" banking split - named after the legislation introduced in the US after the 1929 Wall Street crash - is a "red herring" seeing as Lehman wasn't a universal bank. But the Lehman collapse was only as devastating as it was because the UK's core commercial banking system was so riddled with bad bets and leverage foisted on it by its investing banking masters. Had that not been the case, the failure of Lehman, while a shock, would not have posed a systemic threat.

The bankers than argue it's impossible to draw a line between investment and commercial banking. As King has previously argued, "it's hard to see why". The reality is that existing regulations already distinguish between different bank functions when determining capital requirements. The real reason the banks are attacking King now is that the Government's Independent Banking Commission will soon be issuing its interim findings – and the City is worried it could be too heavily influenced by King.

I would argue, conversely, that the signs are the IBC, and ultimately the UK Government, won't be nearly influenced enough by the Governor's compelling logic. The recent "Project Merlin" peace treaty between the banks and the Treasury was a huge tactical blunder in my view. And the IBC, while dubbed "fiercely independent" by apparently knowledgeable commentators has, as far as I can see, already shot its bolt.

Having already ruled-out total separation, the IBC is most likely to recommend "ring-fencing commercial and investment banking", allowing them to remain within the same institution. While this may be an appealing political compromise, it is absolutely the wrong thing to do.

"Chinese walls" break under pressure. They cannot exist at all levels, as senior executives need to know what's going on across the entire group. The "ring-fence" option relies too much on sophisticated regulation – ignoring the reality that regulators will be out-smarted by smarter and better-paid practitioners. There will also be huge shareholder pressure for a broad bank to boost profits at the expense of a sound commercial banking core.

That's why nothing less than total separation will do. That is the lesson of history. King knows this, as do the bankers – which is why their respective language has become so stark.

New fears for Spain as banks fail stress tests and debt is downgraded
by Phillip Inman - Guardian

Ratings agency's concern over cost of rescuing financial sector grows as Spain's banks are told to find €17bn extra capital

Spain's banks have been told to find an extra €17bn (£14.5bn) to shore up their finances and prevent a collapse in confidence after ratings agency Moody's shocked the markets with a downgrade of the country's debt. The Spanish units of Deutsche Bank and Barclays were among several banks to fail tests set by the Banco de España, Spain's central bank, with Barclays the worst hit by a demand to inject €552m to reach a core capital ratio of 8%.

The central bank said that both banks were committed to taking measures to cover their capital needs, but the markets took fright, concerned that Spain had underestimated the extent of bank debts, especially among the country's beleaguered cajas or regional savings banks.

The FTSE 100 index fell more than 90 points to end the day at 5845.29 while the spreads on Spanish and Portuguese debts, which determine the cost of financing the government's budget deficit, widened to all-time highs. The Portuguese parliament tonight rejected a vote of no confidence in the minority socialist government. The motion had been put forward in protest at the government's painful austerity drive, designed to ease the country's debt.

Moody's, which downgraded Spain to its third highest rating of Aa2, highlighted the cost of rescuing its banking sector as a particular concern. The ratings agency said the cost would be more than double the Banco de España estimate and would rise to more than €100bn under a rigorous stress test. It said the government's recently announced acceleration of efforts to restructure the cajas was likely to strengthen the country's banking industry, but there remained "a meaningful risk" that the eventual cost of recapitalisation would be higher. Moody's now believes the rescue package will cost between €40bn and €50bn – more than twice its own earlier estimate of €17bn.

"The heat has been turned up on the bubbling tensions in the eurozone," said Jane Foley, Rabobank currency strategist. Investors have repeatedly voiced concerns about the opaque reporting of bank debts in Spain and Portugal. Both countries are regarded as being next in line for rescue by the European Union and IMF if they appear unable to limit government spending and pay down their debts.

While the government of José Luis Rodríguez Zapatero has struck a deal with unions to limit public spending, and has agreed to sell several trophy assets in the public sector such as airports, it still faces strikes and unrest. Spain's economy is in recession and has little prospect of growth in the near future, according to many analysts, leaving it to pay higher interest rates with less money in the exchequer.

Moody's had threatened three months ago that it might downgrade Spain, prompting finance minister Elena Salgado to issue a swift rebuttal. Salgado has now repeated her view that Spain's bank debts are manageable and that with a timetable for spending cuts, the deficit can be brought under control. Spain is expected to part-nationalise the cajas, force them to become conventional banks and then float them on the stock market.

The director of Spain's national treasury, Soledad Núñez, also accused Moody's of overlooking efforts to cut the deficit and reform public sector pensions. Rabobank's Foley warned that Europe's current bailout fund would be almost wiped out if Spain and Portugal required a rescue. "It remains essential that the European Financial Stability Facility is bolstered to reassure markets that there is enough ammunition to protect [the eurozone] against all eventualities," she said.

The cost of insuring government debt issues by Spain, Greece and Portugal all widened following Moody's move, according to Markit. "The rating agencies have often been on the sidelines during the sovereign debt crisis. But this week they have shown that they can still move markets," said Gavan Nolan, Markit's director of credit research. Greece received a multi-notch downgrade from Moody's on Monday; today the Greek finance minister fired off an angry letter to Jean-Claude Trichet, head of the European Central Bank, calling for greater control over the ratings agencies.

Spain downgrade sparks storm over rating agencies
by Ambrose Evans-Pritchard - Telegraph

Moody's has reignited the storm of controversy over the power of rating agencies after it downgraded Spain, and warned that the bank clean-up will cost vastly more that claimed.

The move comes a day before a crucial summit of EMU leaders to thrash out a "grand deal" intended to create workable machinery for the euro and end the debt crisis once and for all.
Moody's cut Spain's credit by one notch to Aa2 and said Madrid's estimates of €20bn (£17.2bn) of fresh capital needed to rebuild the banks and cajas is too low. "The overall cost is likely to be nearer €40bn to €50bn," rising to as much as €120bn in a "stressed scenario".

Moody's report raises fresh doubts over Spain's ability to fend off contagion as the bond spreads on Greek, Irish, and Portuguese debt reach post-EMU highs. The country has clawed its way out of the awkward squad over recent months by slashing its twin deficits, and shaking up the labour market, but it remains vulnerable to shocks.

Spanish premier Jose Luis Zapatero dismissed Moody's downgrade as an insult, insisting that the Banco de España alone had the "information, credibility, and truthfulness" to judge the needs of Spanish lenders. The central bank said on Thursday that 12 cajas (savings banks) and other banks must raise €15.2bn between them by September, led by Bankia (€5.8bn), Novacaixagalicia (€2.6bn), and Catalunyacaixa (€1.7bn).

Moody's praised Spain for its market reforms and said "debt sustainability is not under threat." But it also warned of fresh "episodes of funding stress". The government, regional juntas, and banks must together must raise or roll over €300bn of debt this year. Fitch Ratings also issued a report concluding that the bail-out costs might spiral, putting the figure at €97bn in an Irish-style "stress scenario" where property losses reach 58pc. The Irish parallel has infuriated Madrid since delinquency rates on Spanish homes are low. Loan-to-value ratios on mortgages average just 62pc.

Spanish officials said it was astonishing that Moody's should drop its bombshell hours before the central bank was due to publish its own far more detailed analysis. "Moody's don't explain how they come up with these numbers," said one source.

European anger over the power of "Anglo-Saxon" rating agencies has been welling for months but has now reached fever pitch. Greece's finance minister George Papaconstantinou wrote on Thursday to the EU authorities calling for restraining action after Moody's cut Greek debt three notches three-notch. "Such unjustified and imbalanced decisions could become self-fulfilling prophecies. Rating agencies must be regulated effectively at a European and world level," he said.

Brussels is drawing up tougher rules, perhaps making Moody's, Fitch, and S&P liable for the damage of "incorrect ratings". An EU source said it was scandalous that one agency had rated Greece by sending a single person to the country twice a year for a half a day. "When the IMF goes in, they send a whole team for a week. We want to know how much serious time and effort goes into these ratings."

Spanish officials feel aggrieved that they are being punished after taking the lead in eurozone bank reform, going beyond Basel III rules with earlier compliance and requirements for core Tier I capital of 10pc for some banks with a reliance on wholesale funding. Indeed, the ECB even warned in its monthly bulletin that Spain is perhaps too "ambitious", creating the risk of a credit squeeze .

For all the fury over Moody's, Spain undoubtedly faces an ordeal by fire as the ECB prepares to raise rate rises as soon April. One-year Euribor rates used to set the cost of most Spanish mortgages and corporate loans have surged to 1.95pc since the ECB shift, part of an instant tightening effect rippling through Spain's economy. This is potentially threatening. Private debt is near 240pc of GDP.

Julian Callow from Barclays Capital said Spanish house prices are falling steeply after a lull late last year, with the Fotocasa index falling at 5.2pc rate. "Spain has suffered a series of negative shocks, with energy costs going up and no magic package yet in sight from the EU. The ECB should not be rushing into monetary tightening at this moment, The more property prices fall, the more strain this puts on banks," he said.

EU officials are playing down hopes of an EU deal on Friday. A draft "Pact for the Euro" – an enhanced Stability Pact – has been watered down to meet the furious objections of several states and may not be enough to satisfy German demands for Teutonic rigour.

However, it still includes plans for a "debt-break" along German lines that is constitutionally "binding" on all states, as well as intrusive rules on pensions, collective-bargaining, labour costs, and wage indexation. It empowers the European Commission to vet rules "before" they have been approved by national parliaments. This treads on sensitive toes. The power to tax, borrow, and spend is the essence of national sovereignty. While the document states that the "prerogatives of national parliaments" should be respected, it is far from clear how these can be reconciled.

EU diplomats say the implicit quid pro quo is that Club Med must accept this straight-jacket to secure German backing for a more muscular bail-out fund (EFSF). Yet it is unclear whether Chancellor Angela Merkel can offer meaningful concessions, given a broad-based revolt by Germany's Bundestag, Lander, and academia.

Mrs Merkel is likely to block plans to let the bail-out fund buy eurozone bonds, since this would usher in fiscal union by the back door. Nor does she seem willing to cut the penal rate of interest on the Irish and Greek rescue by enough to make any difference. Capital flight from the eurozone is likely to gather pace if none of these changes are agreed this month. This risks raising the stakes for Spain, and perhaps Italy.

The yield on Italian 10-year bonds pushed above 5pc on Thursday, a level that could start to endanger debt sustainability given the catatonic state of the economy and the sheer size of Italy's public debt at 120pc of GDP. Italy's industrial output fell 1.5pc in January, and has barely recovered from the Great Recession. Bundesbank chief Axel Weber said that Germany's rebound should not be exaggerated. The growth speed on the economy is just 1pc over time. "Europe will become more and more insignificant in the global economy," he said.

Spain and Portugal 'in debt denial'
by Phillip Inman - Guardian

Traders consider Portugal a bailout certainty, while Spain's banking and property sectors face a similar problem to Ireland's – but this was the situation a week ago, so what has changed?

Spain is in deep trouble. Ahead of a planned refinancing of its banking sector, the ratings agency Moody's has downgraded the country's debt. As far as the markets are concerned, the entire Iberian peninsula is overburdened with debt. Portugal is already considered a sure-fire future candidate for a European bailout. Spain, which has considered itself too big to fail, could be closer than it thinks to a rescue.

Spain's problem, like Ireland's, is a banking and property sector burdened with hundreds of thousands of unsold properties, many of them still listed on balance sheets as high-grade assets when they are in fact worth a fraction of their former value – and in effect junk. As the markets see it, Ireland owned up to its massive debts and sought a rescue, while Greece was an obvious candidate for EU support. Traders consider Spain and Portugal to be countries in denial.

Yet this was also the situation a week ago, which has left analysts asking themselves why Moody's has made the downgrade now. The problem lies in Brussels, Paris and Berlin, where political leaders are fighting over plans to introduce a bigger and better bailout facility for troubled sovereign states coupled with more stringent measures that would force them to reduce their debts at a faster pace.

Germany's chancellor, Angela Merkel, has insisted on pursuing a hard line. She has the backing of her party, the central bank governor and a declining number of allies in the eurozone. Merkel faces seven regional elections this year and has already lost the first. She fears the German people will never forgive her for offering profligate nations such as Spain, who enjoyed the boom much more than the Germans, cheap money to get back on their feet. The "mañana" culture, so the argument goes, will always persuade the Spanish to put off what should be done today, so tough rules on deficit reduction must accompany fresh bailout cash.

Italy and France accept the need for deficit reduction, but argue behind the scenes that peripheral eurozone nations are in no position to pay a higher price for rescue funds. It will only make a bad situation worse.

Jaw jaw?
It seems that the meeting of eurozone leaders starting on Friday, is likely be a talking shop with little agreement on a new rulebook. European Commission officials have sent out the same message as they did last year before the Greek crisis: they say the market exaggerates the size of the problem. In an attempt to make a virtue out of the stalemate, they say only minor changes to the bailout mechanism need to be agreed at a final meeting on 25 March.

Investors argue the EU's warring factions have failed to settle their differences and it is time to sell. As Jim Reid and Colin Tan at Deutsche Bank point out in a note: "Huge cracks are resurfacing in the peripheral bond and credit default swap market with Greece, Ireland and Portuguese yields at or around their record highs. "Greece and Ireland three-year yields are now at their crisis highs of 17.67% and 9.10% respectively while Portugal's three-year yield is now at 6.25% and 15 basis points away from a record high seen two days ago."

Spain is lurking behind them with a yield of 3.60% on its own three-year bonds, or 66 basis points away from its recent highs. David Owen of investment bank Jefferies International said he was a seller of Spanish debt. He warned ratings agencies were increasingly taking into account bank debts when assessing country debts and the likely impact of a rate rise by the European Central Bank.

"By its actions, the ECB could further [inflame] the situation if it were to follow through by raising rates, pushing the heavily indebted Spanish economy back into recession – the law of unintended consequences," Owen said. "Spain remains key, in terms of anything announced after the 24-25 March meeting. Moody's put Greece, Spain and Portugal all on negative watch in December. Greece and Spain have now been downgraded (with Spain still on negative watch), while we have yet to hear on Portugal. Moreover, as we continue to highlight, the IMF is set to report on Ireland on 15 March, one country where banking sector problems have deteriorated significantly in recent months – so watch this space."

Portugal announces fresh cuts and reforms to reduce deficit
by Julia Kollewe - Guardian

Portugal has announced a fresh round of spending cuts and public sector reforms in an attempt to reduce its deficit and avoid being forced into taking a bailout. The new austerity measures include slashing spending on health services and social welfare payments, and delaying infrastructure projects. Portugal will also impose a new levy on those with larger pensions, and cut the compensation payments to workers who are laid off.

The finance ministry said the cutbacks will trim Portugal's 2011 deficit by another 0.8% of GDP. It is targeting a deficit of 4.8% of GDP this year, down from around 7% in 2010. The measures were announced as eurozone leaders gathered in Brussels to discuss the ongoing debt crisis in the region, with Portugal under heavy pressure to request an international aid package. Olli Rehn, the EU economic and monetary affairs commissioner, backed Lisbon's new plan, calling it a "clear and important" message that Europe was tackling its problems.

Earlier, Austria's finance minister had urged Portugal to decide soon whether to seek assistance from the eurozone's crisis-fighting fund. In an interview with the Financial Times, Josef Pröll, who heads up the conservative Austrian People's party, said: "The European reality is that we cannot force a country to go to the EFSF [European Financial Stability Facility] – to take direct support."

He noted that the Portuguese government refinanced €1.5bn (£1.3bn) of debt without any major problems in January, albeit with high borrowing costs. "There's obviously no immediate pressure for them. But my signal to Portugal is to look at Greece and Ireland: don't be too late. Make your decision soon: yes or no. But we cannot force them." He added: "If the concrete numbers in Portugal say that they cannot refinance the country in the next years without help, then they should very soon take advantage of the [EFSF] umbrella. But, as I said, we cannot force them, that's the reality."

Like Ireland last year, Portugal has insisted that it does not need international assistance and can continue to fund itself in the market. Portugal succeeded in selling €1bn of government bonds this week, but the yield on its debt is trading at record levels. Leaders of the 17 members of the eurozone will discuss proposals for a new stabilisation package to address the ongoing debt crisis. Issues on the table include tougher rules on public debt levels and higher pension ages. However, they are not expected to agree any firm proposals.

Moody’s May Lower Rating on Spanish Banks Too
by Sharon Smyth - Bloomberg

Moody’s Investors Service may lower its ratings on Spanish lenders and savings banks in coming days after it downgraded Spain’s sovereign rating earlier this week, Expansion reported, citing Moody’s analyst Kathrin Muehlbronner. "Now that Spain’s sovereign rating has been resolved we will publish our conclusion about the banking industry," Expansion cited Muehlbronner as saying. Moody’s put 30 banks under watch on Dec. 20 and set a three-month time limit to make a decision on their ratings, the newspaper added. Moody’s downgraded Spain’s sovereign rating one level on March 10 to Aa2.

Germany, France Said to Fight Basel Bank-Leverage Disclosure
by Jim Brunsden and Meera Louis - Bloomberg

Germany and France are fighting global rules that would force lenders such as Deutsche Bank AG and BNP Paribas SA to reveal their reliance on debt, according to an internal note prepared by the European Commission.

The euro region’s two biggest economies are "fiercely against" proposals drawn up by the Basel Committee on Banking Supervision for lenders to reveal as soon as 2015 whether they would meet a cap on borrowing, known as a leverage ratio, that may only become binding three years later. Austria and Greece are also opposed, according to the document obtained by Bloomberg News.

The "total transparency" may put pressure on lenders to meet the leverage rules three years early, the countries argue, according to the commission document. The nations may accept publication of methods regulators use to measure "leverage risk" that don’t identify specific banks, the document says. The Basel rule is part of an overhaul of bank capital and liquidity standards designed to prevent a repeat of the financial crisis. Investment banks’ extensive use of borrowed funds was blamed by Federal Reserve Chairman Ben S. Bernanke for contributing to the financial crisis.

Tier 1 Capital
The Basel ratio would force a lender to hold reserves of tier 1 capital equivalent to three percent of its assets, limiting excessive levels of debt in the banking system, the Basel group said in December. Tier 1 capital is a gauge of a banks’ financial strength and includes retained earnings, common equity and some other types of securities. The European Commission is responsible for proposing laws to apply the rules in the 27-nation EU. Michel Barnier, the EU’s financial services chief, has promised draft legislation "by the end of the summer."

"Basel has made its views clear on this issue," Chantal Hughes, a spokeswoman for Barnier, said in an e-mailed statement. "It’s now up to the commission to see how we put into European legislation the Basel framework. This is in discussion and no final decisions have been taken." While the Basel committee doesn’t expect banks to adhere to the leverage rule until 2018, lenders are supposed to disclose data on how close they are to meeting it from 2015. The Basel committee has said it may revise the leverage plan, depending on the outcome of an observation period until the end of 2016.

"There is a clear danger that disclosure before the rules are finalized could well undermine the ability to make any modifications to the calculations which are found to be necessary in the trial period," Peter Beales, a managing director at the Association for Financial Markets in Europe, said in an e-mail. "Any disclosure, if required, should be made solely to the regulator," Beales said. AFME represents international lenders including investors Deutsche Bank, BNP Paribas and UBS AG.

A majority of EU countries and the European Central Bank "are in favor of this transparency," the EU note says. Credit rating companies will, in any case, make their own leverage- ratio calculations for banks, it says. Regulators will "closely monitor disclosure of the ratio" by lenders, the Basel committee said in December. Sheila Bair, chairwoman of the U.S. Federal Deposit Insurance Corp. has advocated international application of a leverage ratio -- something the U.S. has had on its books since the 1980s.

by Rick Ungar - Forbes


That is all about to change.



That party would be the GOP.




Certainly, Wisconsin has made clear that the attack on the union treasuries is now underway in earnest.

While many have focused on Governor Scott Walker’s successful effort to strip collective bargaining power from the state employee unions, it is important to note the additional provision in the law that prohibits the state from automatically deducting dues from the paychecks of state employees to be paid over to the unions.

This is likely to put a significant dent in the coffers of the unions – dramatically lessening the sums of money they have to spend in furthering the candidacies of those they choose to support. Without the money the unions provide to Democratic candidates, there will be nobody left with the kind of cash required to balance out the funds provided by organizations such as Karl Rove’s Crossroads GPS in support of GOP candidates.

And it is not only happening in Wisconsin.

The dues stripping provisions are a part of the laws making their way through the state legislatures in Michigan, Indiana, Ohio and Florida with other states controlled by GOP governors with legislative majorities likely to follow.

As we have all come to know, Ohio and Florida are pivotal in any presidential election. When the public employee unions in these states see their coffers dry up as a result of these new laws, the Obama campaign can be expected to face a far more difficult challenge in these essential states.

I guess one has to admire when so clever a plan comes together-even if it is at the cost of our democracy.

While the first part of the strategy is impressive to be sure, it is part two that really piques the imagination. This is part where the GOP controlled state houses legislate using the funds of the middle-class and the poor to give effect to the policy changes that will benefit business and the wealthy.

Apparently, the wealthy are tired of having to reach into their own pockets to feed the influence machine that creates the policies that benefit them. Thus, they’ve hit upon a state based strategy that not only saves them a few bucks, but also succeeds in weakening the opposition (the middle-class and the poor) as their own bank accounts take a pounding through state legislative action.

We are seeing the drive around the nation to force teachers and other public employees to pay a larger share of the cost of providing tax breaks and incentives to business. And while most acknowledge that everyone should share the pain of our times, there are now examples emerging that reveal that the plan goes well beyond a fair sharing of that pain.

Take, for example, the great State of Michigan where GOP Governor Rick Snyder has introduced a bill that will increase individual taxes, placing the largest burden on retirees and the poor.

Note that the $1.8 billion to be raised in this manner will not be utilized to close the state’s budget deficit – the money is specifically earmarked to provide tax breaks to business.

ITEP (Institute on Taxation and Economic Policy) crunched the numbers on the tax fairness impact of Snyder’s proposed income tax hikes earlier this week, and unfortunately, the results weren’t very surprising.The ITEP analysis was first published by the Michigan League for Human Services (MILHS), and was later picked up by the Associated Press, among others.  That analysis shows that the personal income tax increases contained in Snyder’s plan would require low-income families to pay 1.1 percent more of their income in tax, while requiring the state’s wealthiest taxpayers to pay less than one-tenth that amount, relative to their income.  The most notable components of Snyder’s plan include eliminating the state Earned Income Tax Credit (EITC) and fully taxing pensions and other retirement income.

Snyder’s plan is particularly objectionable because none of the additional revenue raised via the personal income tax would be used to save vital state services from the budget axe.  Rather, all of the money would be channeled into massive tax cuts for Michigan businesses.  It seems odd, to say the least, that Snyder would prioritize large business tax cuts so highly despite Michigan’s sizeable budget gap.  But even if Snyder refuses to give up on his quest to slash business taxes, the ITEP analysis at least makes clear that he needs to find a better way of paying for those cuts.

Via Citizens For Tax Justice

I recognize that providing tax incentives to business improves the entire business climate, can attract new businesses to a state and, as a result, may create more jobs.

But how exactly do the state’s retirees benefit from this? They are retired. And yet, they are to be expected to shoulder a large part of the burden.

There will be more proposals like what we are seeing in Michigan – and they will be completely the result of a coordinated effort by those who stand to benefit enormously.

As many of our wealthiest citizens might tell you after a couple of drinks or in their more candid moments, running a nation based on a concern for -and payouts to- the less fortunate, or the desire to encourage fair-play in the relationship between employer and employee, is just not working out. After all, our efforts to see to it that our elderly are not left to end their days in poverty and illness or allow the nation’s poor to get basic health care and assistance for the purchase of food at the taxpayers’ expense, has left the nation awash in red ink.

The wealthy would further suggest that we now face a significant loss of prestige in the world as we can no longer afford to enter every war that comes our way as a reminder of America’s overwhelming power or throw around huge checks to buy off those upon whom we are dependent to insure our money continues making money.

They would tell you that it is time for the grown-ups to take over because our collective bleeding hearts have been bad for business – and the business of America is business.

Maybe they are right. Maybe our bleeding hearts have cost us more money than we could afford. Or maybe fighting too many wars in too many places is to blame along with our unwillingness to pay a reasonable level of taxes, based on ability, to fight these wars.

Maybe it is all of the above.

Whatever the truth, there is one thing that the most basic understanding of societies throughout the history of the world reveals- concentrating all of the power and the money in the hands of the aristocracy leads to a very unhappy ending.

And while many a society has bought into the notion that they were the one to make it work – they never do.

Why would we be any different?

China says environment still suffering growth pains
by David Stanway - Reuters

China's fight against chronic pollution is faltering in the face of urbanisation and rapid growth, though the last five years have seen some progress, the country's environment ministry said on Saturday.

China was still producing more "traditional pollutants" than it could bear, but new industries were also creating torrents of dangerous chemicals and mountains of electronic waste, said Zhang Lijun, vice-minister of environmental protection. "We're still a developing country -- the standard of living is still not high, employment trends are serious and each level of government is paying attention to economic growth," he said.

China's consumption of coal -- the dirtiest of fossil fuels and a major source of acid rain, water pollution and climate change -- rose around 1 billion tonnes in the five years from 2006, and could rise another billion in the next five, he said. "In this kind of territory, if we add emissions from another 1 billion tonnes of coal, how big will the impact be on our environment? " Zhang told reporters.

Tackling Carbon
China plans to cut its levels of carbon intensity -- the amount of carbon dioxide produced per unit of GDP -- by 17 percent by the end of 2015. Zhang said individual regions had already been set targets. China's climate change measures have normally been the responsibility of the growth-focused National Development and Reform Commission, with the environment ministry taking on more immediate threats such as acid rain-inducing sulphur dioxide and nitrogen oxides, as well as water and soil contamination.

But environment minister Zhou Shengxian said last month the ministry would include CO2 emissions in the environmental impact assessments of major projects. Zhang said the ministry would only approve individual projects that fit in with regional greenhouse gas targets, and the NDRC would still play the leading role in China's climate change efforts.

Growth vs Pollution
The ministry was upgraded from a lower-level "bureau" just three years ago, and fears remain that China will continue to give priority to economic growth, especially in poorer regions. The ministry has not been involved in climate change discussions, and environmental activists say it has been frozen out of policy debates about the development of hydropower -- seen as a key part of China's "low-carbon" strategy over the next decade.

Zhang said it would be "very easy" to sacrifice the economy for the environment, but the crucial issue for local governments was greener growth, and China already had systems to ensure regions meet their duty to both create jobs and protect health. China aims to keep annual growth at around 7 percent in the next five years, but Zhao Hualin, head of the ministry's pollution control office, told reporters the GDP target was only for "guidance" and would not supersede environmental goals.

China will publish its detailed "five-year plan" for the environment after it has been approved by the State Council, the country's cabinet. It has already announced that sulphur dioxide and chemical oxygen demand will be cut by a further 8 percent in the next five years, and nitrogen oxide and ammonium nitrate will also be cut by 8 to 10 percent.

Zhang said nitrogen oxide represented the biggest challenge, and China should consider imposing car ownership curbs in its largest cities and also cap coal consumption in built-up regions such as the Pearl and Yangtze river deltas.

Responding to the closure of three nuclear power plants in Japan following the country's biggest ever earthquake on Friday, Zhang said Beijing would keep a close eye on the situation. "We have already begun monitoring coastal cities to test whether Japan's nuclear leaks will affect China but up to now everything is normal." He said radioactive emissions standards around China's 13 existing reactors were actually higher than international norms.

Soil Pollution Poisons More Than Farmland

The following information was released by the Chinese Academy of Sciences:

Soil pollution is spreading, and how to tackle it has been given priority status at the ongoing annual sessions of the National People's Congress and the Chinese People's Political Consultative Conference (CPPCC). Environmental campaigns during the past five years primarily targeted air and water pollution, but now more attention is being given to the risks posed by contaminated soil.

Jia Kang, a CPPCC National Committee member, called for the legislators to start the drafting process for a soil protection law immediately. Jia, who also heads the institute of fiscal science at the Ministry of Finance, said this week that land pollution already threatens the sustainability of economic growth and social stability. Health Minister Chen Zhu said comprehensive evaluations of health risks from soil pollution are already under way.

Environmental Minister Zhou Shengxian has vowed repeatedly in recent months to strengthen efforts on curbing soil pollution during the 12th Five-Year Plan period (2011-2015). China is already suffering direct economic losses caused by farmland pollution, which leads to reduced grain production and public questions over food safety, Jia said. In the long run, he said, land pollution will also take a toll on China's grain exports and threaten the country's ecological security. But few people have noticed that soil pollution is not just an issue on farms, but also occurs in urban areas.

Affordable, But Risky
Last November, an affordable-housing project in Wuhan, the capital of Hubei province, was found to have been built on the site of a previous chemical plant, according to news reports. The compound, with 2,400 apartments, was constructed to meet the demand of middle- and low-income earners. Those who were qualified to purchase the property were considered lucky. However, few of them knew their homes were constructed right where Wuhan Yangtze Chemical Plant once operated, the Beijing News reported. The project's developer didn't evaluate the site's health risks, the newspaper said.

It was not until construction was almost finished that an environmental review by China University of Geoscience discovered that the site was contaminated with antimony, a metallic element that can cause heart and lung problems, as well as with organic pollutants. As a remedy, plastic sheeting was spread over 21,000 square meters to insulate the contaminated soil, and new soil was spread on top of the plastic. The measures cost the developer 6.8 million yuan ($1.03 million), according to the newspaper. Local government officials said the compound is now safe to live in, but some residents aren't so sure. There's still 3,200 tons of contaminated soil buried beneath them.

'A growing concern'
Contaminated sites such as this, known as brownfields, are becoming increasingly common in major Chinese cities as urban sprawl has overrun many polluting factories, pushing them to new locations and leaving health risks behind. In an extreme case, three construction workers were poisoned by toxic gas released from an old pesticide plant site as they drilled for Songjiazhuang metro station in Beijing in 2004.

"Pollution incidents associated with land contamination are becoming a growing concern in China," said Jian Xie, a senior environmental specialist at the World Bank. "Many brownfield sites, if not managed well, will pose an environmental and health hazard in China's most densely populated areas, as well as an obstacle to urban and economic development." A recent study conducted by the World Bank shows that China's rapid urbanization has resulted in the need to redevelop industrial land once occupied - and contaminated - by old industries that sat on the cities' perimeters decades ago.

For instance, in Beijing, more than 100 polluting factories inside the Fourth Ring Road were relocated, leaving as much as 8 million square meters of industrial land to be redeveloped. Shanghai, Chongqing, Guangzhou and other big cities are in a similar situation. Such sites are often heavily contaminated because pollutants leaked into the soil during previous production processes and because hazardous wastes weren't handled properly. In some cases, the concentration of pollutants in the soil can be hundreds of times higher than regulations permitted, according to the World Bank report.

Soil contamination usually involves toxic heavy metals from steel, iron and smelting plants; persistent organic pollutants (POPs) from pesticide residues; organic chemical compounds from petrochemical industries; and electronic wastes. Heavy metals and POPs seldom break down over time and can accumulate in the environment. They can be absorbed into the body through drinking water and the food chain, causing harm to organs or even cancer.

Luo Yongming, a researcher from the Institute of Soil Science affiliated with the Chinese Academy of Sciences, said soil pollution is usually more difficult to identify than pollution in water and air. However, once the soil is contaminated, it can release toxic substances for decades. "Redevelopment without proper remediation can be a hidden danger for people working or living on the polluted site," Luo said. For instance, volatile substances such as benzene and formaldehyde can enter the human body through breathing. And sometimes, children accidentally ingest dirt when they play on the ground.

A land pollution census conducted by the Ministry of Environmental Protection from 2007 to 2010 found that the soil quality is degrading in the country's economically well-off regions, such as the Pearl River Delta, Yangtze River Delta and Pan-Bohai Bay area, according to Jia, the CPPCC National Committee member. Soil is already heavily polluted in some industrial zones and mining areas with heavy metals including cadmium, mercury, lead, chromium and arsenic, and with organic chemical compounds, such as oil hydrocarbons. The environmental risks are high. Wang Yuqing, the deputy director of the CPPCC's Committee for Population, Resources and Environment, said the full results of the census will be published this year.

Starting from near zero
The country lacks sound regulations and laws as well as technical frameworks to manage and remedy brownfields, the World Bank report says. The existing laws and regulations, such as the Environmental Protection Law and the Water Pollution Prevention and Control Law, could not effectively tackle land pollution, Jia said.

Moreover, different government departments - the ministries of environmental protection, land and resources, agriculture and others - are involved with the tasks of managing land pollution. Jia said their respective roles and responsibilities are rather vague, which is an obstacle for smooth communication and coordination on the issue. Environmental officials admitted to China Daily that monitoring of contaminated sites is inadequate. Only a few big cities such as Beijing and Chongqing have thoroughly investigated the scope of the pollution and its environmental risks.

Experts estimate that contaminated industrial sites in the country number 300,000 to 600,000. Remediation for such sites has become an urgent need as the country's rapid urbanization creates a huge demand for usable land, which in turn requires both funding and technical guidelines from the government. The country's 12th Five Year Plan aims to raise the urbanization rate from 47.5 percent in 2010 to 51.5 percent by the end of 2015, with an average annual increase of 4 percent. With more people moving from rural areas into the cities, clean and safe land is essential.

Paying the bill
In China, the most commonly used remediation practice is to remove the polluted soil, which is then deposited into a landfill or burned, and replace it with clean soil. Developers sometimes shy away from remediation because of the costs. Vanke, China's biggest listed property developer, once spent 100 million yuan to treat 30,000 square meters on the previous site of a pesticide plant and a coating business. Some developers argue that they should not pay all the costs of remediation because they didn't cause the pollution.

Wang Shuyi, director of the Research Institute of Environmental Law at Wuhan University, said the polluters should pay for the remediation. In cases where it's impossible to identify who's liable - some early factories have long since gone bankrupt, for example - the money might come from public funding. The World Bank report recommended using economic measures such as loans, dedicated subsidies and environment taxes to support clean-ups of toxic sites. Another possibility, used in many Western countries, is setting up a superfund; stakeholders put in money every year to support remediation. "We cannot simply leave the contaminated sites unheeded," Wang said.


lautturi said...

Ilargi, you can embed NHK program, too. I embedded the code from here into my site.

NHK is following the tsunami/nuke issue nonstop here. Others, the program is translated into English on the fly.

el gallinazo said...

Great article Stoneleigh. Thanks.

It's to early to tell for certain, but most of the deadly damage from the quake was caused by the tsunami and not the earth tremor itself. This may well be true of the wounded nuclear plants. Assessing the photos, these plants are right on the shore with no significant protection against a tsunami. Of course the Pacific ocean as a heat sink is convenient, but wasn't this lack of protection inane? What were the design engineers thinking. Wouldn't a large reinforced concrete dike, so six meters high along the shore been in order? I would suspect that the damage to the diesel back-up generators was caused by water and not quake vibration.

lautturi said...

My post got lost methinks, nevermind - here comes again...

You can follow NHK in English from here. If you want, you can embed the video from here, too.

Glennjeff said...

el gal

I'll second all of that.

Anonymous said...


Thank you for the great piece. The best I've read on the topic so far.

Unknown said...

"We must accept these risks if we are to enjoy our modern way of life. Despite the ongoing challenges in Japan today, I would fully support a nuclear power plant being constructed 10 miles upwind of my home, just as I fully supported offshore drilling out my back window even after the BP well disaster. We have no right in this country to demand consumption of resources we are unwilling to develop ourselves, and for which we are unwilling to accept the risks."

Karl Denninger


Cassandra said...

During our nuclear chemistry module I remember being told that a couple of days after Chernobyl a detector on the roof (in Manchester) was checked and registered so high it was thought to have been spiked as a practical joke...

It's like the kid who's shat his pants at school - everyone can smell something, but until the skid marks are revealed it's denial all the way.

Came across this document which was produced after 9/11 as a 'what if' re terrorist attacks on BWRs, I found it very informative.

Seems (p38,39) to concur with TAE.

Re Fukushima - did anyone hear a 'squeaky pop'? That would have been the dead giveaway re prescence of hydrogen...


Joseph j7uy5 said...

My concern is that proponents of nuclear energy will point to the effectiveness of the containment facilities at these plants, and use that to argue that the plants are safe. But the problems with Japan's nuclear plants keep mounting. Now there is a preliminary report that the cooling system, at the Tokai #2 nuclear power plant, has failed. (It's a one-line news flash at Kyodo News, no way to link; not all of those have been accurate). We can be hopeful that these problems lead to quicker decommissioning of older plants worldwide, and more careful geographical placement for new plants.

jal said...

@ Stoneleigh
Thanks for putting all of this information together.

I’m sure that all of the concerns that you raised were raised before the construction of ALL the nuclear plants world wide.




Also, no human society has ever lasted for as long as nuclear waste must be looked after. ... During this period, the knowledge as to how this must be done will need to be maintained, and this may be more difficult than is currently supposed....”

Yet, the decisions were made to build those power plants.
Japan will be facing “rolling power black out” and disruptions as a daily event in their future. I expect global impact in the disruption of financial and economic supply systems.
It is non-productive to think of Japan without having developed nuclear energy. They did and they “... were prepared to make Faustian bargains ...” to develop and support their energy needs for their economy and social lifestyle.
On a parallel line, the same can be said of our banking system.
On a long enough timeline, BOTH system were doom to fail. It would have taken a harsh dictator to have implemented a different evolutionary path. It would have required choosing an unknown dark path towards the future.

As you said, “... Any activity requiring a great deal of complex and cooperative control will do badly in difficult economic times.”
That statement is ALSO applicable to ANY PROPOSED SOLUTIONS.

Jim R said...


Thanks for the technical info. Very useful for anyone in a position to make decisions about this industry.

Question: how long, typically, does it take after a shutdown until the mishmash of fission products in the core 'cools' enough that it is no longer necessary to circulate cooling water?

Greenpa said...

Spectacular work, Stoneleigh; I am SO unsurprised. :-)

The NYT has an excellent feature here, which can bring home the extent of wealth destruction in Japan very solidly. The slider lets you see before and after, multiple cities.

anyone living in LA - you should really, really, pay attention just now.

Unknown said...

The future viability of nuclear power will likely depend on whether the cores in Japan, be they melted or not, remain within the reactor vessels and we avoid a large release of radioactive material. If we can have an 8.9 earthquake, a total power failure, and a 30 foot tsunami - and as a result we just loose the plant, nukes will be an option for the future.

Unknown said...

This may argue for a surface ship, maybe an old aircraft carrier, set up to service oceanfront nukes. A dock capable of withstanding large waves(it would simply submerge) would provide pipes and electrical cables. One could energize the reserve bus and pump feedwater into the reactor vessel from this offshore station. It also argues for a submarine like, sealing compartment for each of the plants diesel generators. You should be able to submerge the whole plant and keep the generators, switchgear, and the feedpump of last resort - dry.

John Hemingway said...

Very interesting article Stoneleigh! I was wondering what your take on this might be. I've also been wondering what the effect on the Japanese economy and the world economy in general will be.

Paul Chefurka said...


I think that ship has already sailed. With this accident I suspect that any further development of nuclear power has become politically unacceptable in any democracy in the world.

On the one hand I'm sorry about that, because I still see climate change as being a much bigger global threat than nuclear anything - even nuclear war. On the other hand I agree completely with Stoneleigh's take on the lack of long-term sustainability of technology and cooperative behaviour in a failing civilization.

Given that, I am withdrawing my support for any further nuclear power development, anywhere, by anyone. IMO we have enough troubles already, we don't need to buy ourselves any more.

Phlogiston Água de Beber said...

@ DIYer

According to the wiki article I linked to last night, in a normal shutdown the time to drain off Decay Heat is a function of how long the reactor was operating at full power prior to the shutdown.

Shadowfax said...

Stoneleigh,is there any info as to how many spent fuel rods Japan is storing in water pools that require a working electrical grid to keep cool? What do you bet its the 40 years worth since the first reactor went on-line?
This is the scary thought for the USA...countless water pools full of used fuel rods boiling away once the grid goes down.Yikes!

Greenpa said...

Vernon- I am strongly reminded of a discussion I had related to me, decades ago.

I was naked, changing clothes in the locker room, and chatting with my friend who happened to be the Head of the Religion Department of the small Lutheran College I was doing a little teaching at.

He was deeply depressed.

Reason 1) he had discovered, after many decades of scholarly research, that he had slowly but surely slipped into apostasy. He was unable to believe all he'd been taught as a child.

Head of the Religion Department, right? He did not give up the battle easily, and he was involved in deep discussions with the other members of his Department, as he moved forward with his life.

The immediate cause of his depression, however, was the discussion he'd just had with one of his colleagues.

In an effort to make clear his position, the Head had likened "religion" to the Scandinavian World Tree, Yggdrasil.

And in the scholarly study of Yggdrasil, bit by bit; limbs had to be lopped off. This bit, or that; did not stand scrutiny, and were revealed as mere myth or delusion.

He then said; "after all these years, and all our study- all that is left is a stump."

And, his colleague responded, vehemently; "YES - But it's a REAL stump!"


My friend and I marveled. He resigned his position as Head.

You are, I fear, clinging to the "real stump" of nuclear power - and you are refusing to recognize what others are seeing - the tree- is gone.

Greenpa said...

Not to be too cheerful, or anything, but there is a very real potential for more seismic activity. The number of after-shocks is extraordinary. And spread well out; a great deal of slipping is still going on; which may well mean that forces along the faults will change to the point of instigating another major slip. No, this doesn't happen very often. Neither do magnitude 9 quakes.

If you're not familiar with this tool, I recommend it highly.

This is a very powerful "weather" map; but easy to use; and the critical thing is that it can be made to show earthquake activity. There's a menu bar at the top of the map; and a scale slider on the left side. It will show the entire world if one view , or merely the Pacific Basin- up to you.

If you select the quake view (all the way on the right) and zoom in on Japan- you can see the location and intensity of quakes for the last 2 days.

That's a lot of movement going on.

Wyote said...


Any storm systems moving across "the Pacific would add kinks in the westerly flow that would make the path of a particle crossing the Pacific longer.

"In other words, it would be a very intricate and difficult calculation," said Andrews.


Cities Approx. Distance (miles) Approx. Time to Cross Pacific (days)
Anchorage 3,457 (7)
Honolulu 3,847 (8)
Seattle 4,792 (10)
Los Angeles 5,477 (11)


Got KI?

Jim R said...

I have a comment about the before/after pictures. I have been carefully inspecting them, and have concluded that both are 'before'. In the upper picture, the camera was almost directly above the buildings, and you can see just a bit of their lower right corners. In the lower picture, the overall brightness level is lower, there are some clouds over the left side, and the perspective is different (you can see the upper and left sides of the rectangular buildings). They were taken in different seasons, one in winter and one in summer.

If you compare these images with the video, and if they are indeed images of the same location, the rightmost rectangular building should have its top blown off in the 'after' image. It looks to be intact in both of these aerial views.

What function? Obviously if you've only gone critical for a few seconds and shut it down, there won't be much residual heat. How long do you have to cool it if you're in the mid-life or late in a fuel cycle?

Phlogiston Água de Beber said...

@ Greenpa

I have been operating under the assumption that Vernon is a borate personae injected into the TAE reactor to poison our fuel rods with the goal of denting the anti-nuke rhetoric.

FWIW, my singular contribution to nuclear power plant safety took place at a plant northwest of you in St. Cloud. That was back in the early 70's when it was new. I wonder if it is still operating? I was sent to investigate why a custom-built quadruple redundant computer system my employer had sold them to monitor hydrogen off gas in the cooling system would all fault if any one of them lost power.

My conclusion was that the system as built was incompatible with operating in an ungrounded environment. Imagine my surprise when I asked my minder about it and was informed that nothing in a power station is grounded. If a line were to drop near a grounded plant, every electrical device in it would go up in flames. Not to mention steam explosions all the way back to the plant. Complexity abounds.

We really had no choice but to take the system back. I wonder what they did to replace it?

Jim R said...

Zerohedge poster Cognitive Dissonance has posted the best 'after' image I have seen. It can be viewed here:

The comment also has a link to some other pictures he posted earlier.

VK said...

If one 'believes' in climate change or the reality of peak oil then frankly the nuclear power plants will have to be built. To decarbonize over the next 20 years we need about 6,000 - 6,500 1GW plants. This achieves zero economic growth btw, so our pesky monetary system will have to be adjusted. :O

I also reckon that being given the choice between saving the environment & being cold. Humans will choose to screw the environment. This means more dependence on poor quality coal & oil with rapid nuclear plant constructions. Risk be damned.

Some money I suppose will be put into thorium reactors. That will provide us cheap, limitless energy won't it?

As George Carlin put it (I think), "the planet's fine, it's the people that are f**ked." But we will do our best to mess with the planet as well.

Phlogiston Água de Beber said...

@ DIYer

I have not seen any figure for how long coolant would have to flow, but if you read this wiki it gives an equation to calculate how rapidly decay heat declines. There is also a graph showing two different calculations of decay for a reactor operating for two years.

Unknown said...

Any form of power has risk. Burn coal, you create pollution - and a statistically predictable number of people die. It is the same with natural gas, pipelines explode, and, while less virulent than coal - the emissions kill. Build solar panels, put them in a truck, and the risk of that truck hitting a school bus and killing a couple of dozen kids is not zero. It takes fossil fuel to haul the solar panels and the raw materials. The risk of death from an accident at a nuclear plant are probably similar to the risk from a collision with a truck hauling aluminum for solar panel construction. If these plants survive without creating a large uninhabitable area or significant casualties - I think people will come to believe that nukes are acceptable. If the risk of death from falling buildings is greater than the mortal risk associated with nuclear power - and falling buildings don't generate electricity ... you can see where that goes.

Unknown said...

As far as decay heat - as a rule of thumb a reactor produces decay heat equal to about 5% of its thermal power 10 minutes after shut down. A 3000 MWT (typical utility size) reactor will then produce 150MWT from decay heat and this is a good number for the required heat removal. Based on this 150KWH per hour and 3413 BTU per KWH we need to remove 512 million BTU per hour or 142208 BTU per second. Estimating 970 BTU per pound to boil water (I am not going to Google steam tables) 146 pounds of water per second will absorb the decay heat. Given a typical head pressure of 2500 feet this gives 666 horsepower. Multiply that by three to accomdate pump efficiency and so forth and you need a 2000 horsepower pump motor. You could power that with a 2 megawatt gas turbine generator that would be light enough to fly in with a heavy lift helicopter. It would then be delivered to a dedicated landing pad and connected to a dedicated pump. An air cooled emergency condenser would return the water supply. We should build something like this and equip the nukes.

scrofulous said...

"March 13 2011: How Black is the Japanese Nuclear Swan?"

Considering the magnitude of the quake, and the intensity of the use of Nuclear in Japan, if in the end there is minimal radioactive release and low human injury this could work out to be a PR bonanza for the nuclear industry.

rcg1950 said...


Every one should read those two sentences of Stoneleigh -- repeatedly. It is the essence of the predicament we are in. If anything, it is an understatement of the risks and challenges the future holds for us. It is not just nuclear power and difficult economic times that are problematical, but the stability of any human society and its capacity to sustain and control any complex system over historical, much less geological time frames.

Given even minor erosions of financial and political resources, along with the disappearance of personal and civic virtues once taken for granted, even low tech activities like keeping roads repaired and trash picked up will be increasingly beyond the means of these ever more stressed out and impoverished ‘societies’ (local, regional and global).

200 years ago a dam was built in what is now my neighborhood. It was built out of stone and mortar with only human and animal power. It powered a saw mill for quite a long time while creating a very lovely 6 acre x 2 foot deep pond. It also moderated the flow of the stream that drains the area so that even in fairly large storms deep erosion and flooding were minimized. The pond was home to a wonderfully diverse wild life.

Sixty years ago the whole area was suburbanized and the dam fell into disrepair. A few years ago it became obvious it would crumble if nothing was done. But a dam that was affordable to build and maintain in a pre-industrial age was too expensive to fix in suburbanized culture. There were too many regulations, liabilities, etc. and the simple and inexpensive (and quite effective given the longevity of the dam) techniques from 2 centuries past are mostly lost or simply not acceptable in the world of high design engineering that is the only accepted way of doing things now. Neither state nor local agencies nor neighbors could get anything together that was affordable. People were either apathetic, antagonistic or dissembling and efforts to do anything ended with a lot of bad feelings. A week ago in a big storm -- a once in 5 year event that in the ‘new climate change normal’ of extreme weather is now a once or twice a year event here -- the dam went down.

It’s more than hard for me to imagine building and maintaining a new and enlarged system of nuclear power generators when repairing an old stone dam is beyond the capacity of a supposedly affluent and educated community.

scrofulous said...


If it were a choice between using coal or nuclear, I would choose nuclear as the least damaging but there will be no choice they/us will use every power source available. When they/us are finished using it all up, and even before then, they (not us) will harness you and me and rebuild that dam. Well maybe I exaggerate there ... there likely won't be any wood left for that sawmill you say was run off of that dam. Instead they will probably just cook us on the last blades of grass and eat you, me they will spit out.

NZSanctuary said...

Re: after shocks

Major earthquakes are accompanied by many after shocks (many thousands are common) – sometimes for a year or more. Typically the largest aftershock is about 1 magnitude lower than the main event. That means a magnitude 8 quake is highly likely in Japan within the next few months.

Just to put it in perspective, the Christchurch earthquake (7.1 last year) did substantial damage to buildings, but the aftershock last month (it may be a new quake in a different fault near by, that was triggered by the first - either way, the technicals don't matter too much at this stage) was 6.3, and that devastated the city (it was close to the surface).

A magnitude 8 aftershock close to the surface on land or in the right spot off-shore could easily prove worse than the 9 we've just seen. Japan is in an extremely fragile position.

I hope the population is/will be told what to expect and prepare for.

Wyote said...

This just in: anonymous plans Monday release of BOA e-mails

Could be a VERY wild day ahead.

soundOfSilence said...

Excellent post. Reading some of the news today I think “Katrina Moment” may have been rendered obsolete.


The top 3 earthquakes; Valdivia Chile (9.5), Prince William Sound (9.2), Sumatra Indonesia (9.1) are all along the “Pacific Ring of Fire.” Japan sits on the Pacific Ring of Fire. I’m certainly no expert but Tokyo Electric's assuming that 7.9 was a ceiling seems piss-poor thinking (pardon the French).

All of which leads me to wonder; is there really any such thing as a “black swan event,” or is that just a convent linguistic crutch to lean on after the fact?

thethirdcoast said...

@ Greenpa, others:

The USGS provides a similar earthquake mapping tool. Here is a link to a view focused on the Sendai region:

Recent Sendai Quake Map

At the time I wrote this, they were reporting 396 notable seismic events in the past week.

Based on recent events, and given the global energy + resource depletion situation, I think Japan is probably done as a top five economic power.

I also believe that the global just-in-time supply chain is going to take a huge hit from this quake. The quake has interrupted more than just auto, beer, and electronics production.

Production of basic industrial inputs such as petroleum, steel, copper, naptha, and ethylene production have been indefinitely suspended at multiple facilities.

We are going to see those interruptions show up in elevated prices and a lack of availability across a range of industries. At this point it is too early to tell where those inputs were headed, but I think we are in for even more surprises down the road.

Phlogiston Água de Beber said...

Breaking News

NHK is reporting Fukushima #3 has experienced an explosion and #1 is smoking.

justaguy said...

@ Wyote

Get Involved

Phlogiston Água de Beber said...

There has been no further mention of smoke from reactor #1. I suspect the on-air talent may have misunderstood what her prompter was telling her earlier.

Reactor #3 has definitely lost its upper walls just like #1 due to a hydrogen explosion.

Stoneleigh said...

Hydrogen explosion video at Fukushima 3.

Mike Hogan said...

The Middle East seems caught in revolutionary turmoil, impacting oil supply.

Gulf of Mexico disaster, impacting oil exploration.

Japan cuts off future nuclear energy at the knees, impacting energy supply.

Without energy, the world economy will contract significantly. How will the governments respond? Let it happen or print like mad? I think they will print like mad. But at the same time, the banks won't lend. Can the government print enough to counterbalance lack of lending and collapsing money supply?

I see a very bleak future when all of this filters through the system. My heart goes out to the people of Japan and the Middle East now, but soon, I fear, it will go out to all people.

Phlogiston Água de Beber said...

Mike Hogan,

I think David Malone (blogging as Golem XIV) has addressed the meat of your concerns in two most impressive posts.

The Ugly Sisters - Inflation and Deflation. Part 1

The Ugly Sisters - PART 2 - The Misery-go-round

All the governments who bailed out their insolvent banks have found that the costs have spiralled up and up far beyond the bankers confident initial estimates and show no sign of stopping. This has been brutally clear in the case of Ireland, Greece and Hungary and is becoming evidently true for Spain and Portugal. It will in time also be seen to be true for the UK and the US. As these costs have gone up it has meant ever greater growth would be required to pay back the ever greater amounts of money spent.

The whole policy we have followed had two parts. Save the banks from imminent death and then re-coup the cost by returning the banks to profit. But the greater the costs the greater the profits will have to be AND the faster they will have to be made. And this time factor is where we are now and is the bit of the plan that has failed utterly and is now killing us.

Latest NHK report has the Nikkei down over 6%. Automakers were down over 10%.

Nassim said...

150KWH per hour


The above translates to 150KW - equivalent to 50 Breville electric kettles like the one I used just now to my my cup of tea. :)

I stopped following your maths after that to give you a chance to correct it.

Unknown said...

It was just a typo about a K vs an M. It should be 150MWH or 150,000 KWH. We type KWH more often so my finger slipped. It still comes to 512 million BTU per hour and ect - and the horsepower is right. Go ahead and check it however.

Unknown said...

BTW - that is a hell of a kettle at 3KW. With kettles like that we will need more nukes !

Nassim said...


As a graduate civil engineer, in 1971, I worked briefly on the construction of the Dungeness B nuclear power station. It was a new type of station - the first AGR power station to be constructed. Construction took 20 years rather than 5. It cost a multiple of its estimate and never produced at the design output. The big problem was a cultural one - civil engineers are quite incapable of matching the tolerances that mechanical engineers take for granted. You cannot put piece of concrete as big as the houses of congress on a lathe and machine it. You cannot lay reinforcement to a tolerance of 5mm.

Anyway, everyone knew that this plant was to be put as remotely as possible from London - the fact that France and the Netherlands were downwind was preceived as an advantage. The location is on a gravel beach which is constantly being eroded by the tide and the currents. A constant effort has to be made to replenish this beach with material or the stations would be undermined. Here is an aerial view of the location. Here is a view from the infamous pebble beach.

The stations are built on the largest area of open shingle in Europe, measuring 12 km by 6 km, which has been deposited by the sea and built up over thousands of years. The entire area is moving slowly north and east as the sea moves the shingle from one side of the ness to the other.

Starcade said...

The more I begin to look at this, the more I think Japan is a goner, as far as what it was before Friday's quake.

I mean, literally entire towns of thousands wiped clear off the map -- and some cocksucker on the Net wants to invoke Pearl Harbor?

Biologique Earl said...

A very neat animation of the tsunami as it crosses the ocean. Note the reflected waves that form when objects are encountered:

Robert said...

Has Stoneleigh ever discussed Beir VII and the linear no-threshold model?
Robert W SO CA

Punxsutawney said...

Two comments with regard to the situation in Japan:

First, thank the deities we voted shut down the Trojan Nuclear Plant here in Oregon. It sits on the Columbia River about 50’ above sea level. Given that we are due in the NW for a subduction type earthquake that would be similar to the one in Japan it really is frightening to think what could happen. I know this is speculation, but it wouldn’t surprise me that even though the elevation is ~50’ above sea level at Trojan that a large earthquake off the coast couldn’t send a significant surge of water up the Columbia. How it would act would be hard to predict as the river isn’t a straight line. For perspective, the New Madrid earthquake M7.7 reversed the Mississippi at one point and caused numerous land slides into the river. I have always felt a tsunami surge could have flooded the grounds of the reactor. I know most of the opposition was in regards to the strength of the cooling tower and buildings with regards to the actual earthquake. To my knowledge there is still nuclear waste stored there.

Regarding Japan specifically, I look at all the coastline agricultural land there that was flooded by seawater, not to mention the detritus of modern life, even in the relatively clean Japanese culture and wonder how much land will be un-farmable either because of the salt water deposited over it, or toxic chemicals from the destroyed urban areas around it. (Not counting the potential of nuclear fallout!). More pressure on food supplies?

Finally, one has to wonder about the ability of Japan’s insurance industry to pay for the immense property damage of all types that’s clearly apparent. I have no idea of the rates of insured or actual practices in Japan.

ghpacific said...

Holy crisis! PG&E is deploying all of it's feel-good spokespeople to reassure us here in San Luis Obispo (home of the Diablo Nuclear Powerplant and recent recipient of one of the 'happiest places on earth' awards) they are in control of all contingencies of earthquakes and tsunamis after building on the biggest known faultline known in California! Let's recount this year...Chile, New Zealand, Japan...only one area left in the Ring of Fire.

p01 said...

With all the eyes on Japan, this piece of news went largely ignored:
India, Pakistan test nuke-tipped missiles on same day.
Fast, Furious, Merciless the end comes. Nothing can stop the human folly at this point.
For all I care I can only hope being vaporized in the blast zone, rather than re-enacting "The Road"


Greenpa said...

ghp - "only one area left in the Ring of Fire."

well; a couple more, really- Alaska, Vanuatu-

but-if you look at the earthquake monitor site I posted up above, there are significant quakes every day now in the Baja part of the fault; and have been constantly since the 7.2 one there a year ago - every day, without fail.

So- that part of the fault is sliding/slipping, daily. Will that change forces up and down the fault?

How many ways can you say "duh"? If I lived in LA - I would find a way to move.

Greenpa said...

The MSM tracking of the nuclear problems in Japan are getting quite confusing - "new problems" can mean stuff from yesterday; or 10 minutes ago.

As far as I can tell; there are now 3 reactors that they are pumping sea water into; all 3 of which have already partially melted down; one of which (Daiichi #2, the most recent) had the fuel rods entirely exposed at some point; and the may still be partially exposed, sea water or not.

Really really bad stuff; from any perspective.

soundOfSilence said...

Some animated graphics over on the NY Times describing how the reactors work and a meltdown occurs.

Weaseldog said...

I think I know the answer, but I thought I would ask...

As they pump seawater into the cores to keep them cool, where is the radioactive waste water going?

Or do I misunderstand what they mean by using seawater to cool the cores?

Chas said...

I'm waiting for Al Gorleone to come out of the wood work and claim that this disaster was the result of global warming.

Greenpa said...

Weas- Stoneleigh can be much more authoritative; but; I asked exactly that question earlier here, and have been looking for the answers-

#1 answer; MOST of it instantly turns into radioactive steam - and has to be vented-

#2 some of it combines with overheated Zircalloy fuel cladding to form a lot of the hydrogen that is causing the explosions

#3 they're not saying- but I'd bet some of it is leaking out of cracks down underneath everything...

Weaseldog said...

Greenpa, if the seawater is leaving the core as steam, and not being flushed through, then mineral salts are building up in the core and reducing the cooling effect.

The core will reach a point where the highly corrosive salts will begin melting and eating through the containment material.

Greenpa said...

Dear Chas - you're a complete moron is you think the quakes are NOT caused by global warming. I take the license of pointing that out, since your comments on Gore license the use of such language.

Try to follow the geology. It's Geology 1.

Is Antarctica covered by ice? why yes, it is. Lots of it.

How much has disappeared in the past decades.

Why- thousands of CUBIC MILES of it. Does a cubic mile of water weigh much? why yes!

Now - follow along. What happens when Antarctica, which, like all continents is lighter rock (usually granitics, and sedimentary, etc) FLOATING on top of heavier mantle stuff (basalts) suddenly weighs billions of tons less?

What happens to an ice cube you've pushed down in your martini when you take your finger off? (hint- it will bob up to the top).

Does that make ripples in your martini? Do the other ice cubes bob a bit?

Note to non trolls; when the quake-tsunami hit in the Indian ocean an eon ago, several brave geologists went public and said just what I have here. They were immediately ridiculed into silence by trolls, and the merely delusional who want to hope all this will go away.

Yes, the quakes are caused by global warming. Yes, they will continue; and get worse, in fact, because major realignments of continental plates are going to be necessary. Of greatest importance is Antarctica; but Greenland also will be stirring things up. Remember that little volcanic kerfuffle that shut Europe way back there around Christmas?


Now- not one academic geologist is going to state that as flatly as I can, since I have no geology rep to lose. But- I assure you - half of them would say that, if they dared. The other half will continue to hope it is somehow not true.

Greenpa said...

Weasy - "salts will begin melting and eating through the containment material"

I'm pretty sure we can change "will" to "are".


One major reason - the corrosive power of everything is insanely higher/faster at those kinds of temperatures. That's a major reason why deep geothermal energy is difficult; they have trouble making pipes that don't eat themselves.

Greenpa said...

Ah; finally a number on water use, via NYT:

"“You’re looking at several thousands of gallons a day potentially out as long as a year,” said Arnold Gundersen, a former nuclear engineer who worked on reactors of the same design as those in Japan."

At the moment; a huge amount of that is just flashing into live steam - and being vented directly to our atmosphere- and at those temperatures and pressures, it's going to be dissolving and carrying a lot of radioactive crud with it, including the radio-iodine and cesium they're already finding - miles away.

For a year? man.

el gallinazo said...

I see the S&P500 500 actually went down on all the bad news. Amazing. But it looks like Brian Sack of the NY Fed and his trusty group of Klingon keyboard musclemen of the PPT are working hard on the erectile pumps.

Frank said...


the corrosion point was seconds after the seawater went in. Seawater flooding was an admission that the reactor was toast.

Nassim said...



I don't like nitpicking but there is a difference between power and energy/work. The first is a rate and the second is a quantity.

My kettle's electricity consumption depends on the number of cups of tea I have per day - whether it took 60 seconds or 180 seconds to boil a cup of water is of secondary importance.

We have lots of gadgets here that can use serious amounts of power - a/c, heaters, washing machines, bread-maker, oven, kettle, 3 computers and so on. However, with an average of 4.5 people over the past year we have used under 6KW-h of electricity per day on average - heating and cooking is mostly gas-fired. This is well below Australian averages. I would guess that in a place like Canada, it would be very difficult to equal it. A mild climate helps. :)

Greenpa said...

Now here's fun, from the Christian Science Monitor:

"Another little-reported concern is a small but potentially dangerous amount of plutonium-based "MOX" – mixed-oxide fuel – inside the No. 3 reactor, says Dr. Lyman, who notes that plutonium particles are more dangerous to the human body than other particles that might be emitted.

Tokyo Electric said some three yards of a MOX fuel rod was above the water line, suggesting that plutonium and other elements could be in the gases vented to the atmosphere, reported the Kyodo News Agency.

"If the core of that No. 3 reactor melts and venting occurs, some of that plutonium and other nasty elements present in that fuel could end up on the winds," Lyman says."

Folks, there is no "if" about #3; that was the second explosion; from hydrogen vented from the reactor core, into which they are pumping seawater- after fuel rods were exposed. There is a partial meltdown there, for certain; and it is venting radioactivity to the atmosphere, now, for certain.

According to Wikipedia- tests show that plutonium is not a simply toxic as once thought, and that inhaled particles of plutonium tend to move around more than thought, so they don't sit in one place and cause multiple mutations. I hope they're right.

Greenpa said...

And just a little Polka Dot Gallows. There's a reason writers use "comic relief" in their dramas.

Our current Gov of Minnesota is asking the feds to declare St. Paul a Federal Disaster area.

Because our business airport may get wet.

Unknown said...

You are actually right about the kettle - it takes the same BTU to raise a pound of water to a certain temperature so the energy is the same. You just heat it faster. 3KW just seemed like a killer kettle.

Bigelow said...

The Feds have released Martin Armstrong.

Frank said...

@Greenpa and troll

New England is still rebounding from the round of global warming that melted off 3000 ft (roughly a kilometer) of ice 12,000 years ago. We get a 4.x quake somewhere in the region about every three years.

Greenpa said...

Wow the MSM in the US is slow and tangled.

Ok; there's been a 3rd explosion; Reactor #2 (other explosions were #1 and #3). And, the ticker on the NHK says "fuel rods at #2 remain exposed" - which is different from everyone else who says "may be exposed"...

Greenpa said...

Oh, yeah; and:

"Japanese authorities said there have been no large-scale radiation releases, but have detected temporary elevations in levels"

Translation: remember Bill Clinton saying "I did not have sex with that young woman!"

Same thing. Temporary elevations in common.

I'm Not POTUS said...

Can you comment on Thorium, is it a viable media for energy production or not.

Nassim said...

"I would like take the time to thank everyone who has stood by me these many years ..." (one-page pdf)

I guess Martin Armstrong displeased the pathocracy.

Anonymous said...

As I looked at the video of The No. 3 reactor at Tepco’s Fukushima No. 1 plant blow up last night, my first initial impression was, holyshitthatsalotbigger than the first one. A lot bigger, and yet the Authorities imply it was similiar to the one two days earlier.

Something was very amiss and sure, the Authorities lie thru their teeth in Japan, just like BP whores, it's to be expected so I didn't think the whole story was beung layed out to a very neverous Japanese public. They have enough to be depressed about without this.

Here's an article about the fuel rods in That particular plant from last August.

The one that blew up last night had MOX fuel loaded into it last summer. Mox fuel has a Catchy term, it's 'pluthermal'.

Also from Wiki so as to shed light on why this Frankenstein fuel came into existence in the first place:

"One attraction of MOX fuel is that it is a way of disposing of surplus weapons-grade plutonium, which otherwise would have to be disposed as nuclear waste ( and would remain a nuclear proliferation risk....)"


Pass the responsibility for the toxic substance along to others after you sold it to them for a profit and make them 'safely' dispose of the spent fuel at their cost.

It's like the re-packaging of toxic loans as MBSs, same concept but, well, really actually toxic 'assets'.

This was also enlightening.

"..MOX fuel tends to run hotter because of lower thermal conductivity, which may be an issue in some reactor designs.…"

This is why they don't recommend using more than a third to a half MOX fuel rods because the cooling system was not designed to carry away the addition heat because it don't transfer to the coolant as fast as the regular fuel rods. If you were designing the reactor to burn Mox exclusively, you would place the fuel rods a little farther apart to either allow more coolant to cirulate around them or run the coolant pumps at a higher velocity.

Mickey Mousing, excuse me, modifying a nuclear reactor design to burn a fuel it was never designed for sounds kinda insane in light of possibly having a compromised coolant pump loop. It means there was probably zero spare cooling capacity reserve, the MOX ate up the cushion (time delay) that might have been there to cool the rods before the tipping point arrived. MOX rods might also run hotter more quickly than the name brand stuff.

Reminds me of as a teenager we would get some aviation gas a the local small airport to put in our hotrods. It was 140 octane in those days. A couple gallons would boost regular gas past the Hi-test rating at the pump and turn a mediocare engine into a monster for a night of cruising.

Well, the Monster is at the door in Japan.

Trick or Trick, and it's not even All Saints Day.


ogardener said...

Blogger el gallinazo said...


Articulate and visual comment. I don't think you're losing your mind at all :-)

Greenpa said...

Holy shit, it just doesn't end. Now NHK is reporting a fire - at #4. That's a new one.

Greenpa said...

And TEPCO is now admitting that radiation levels outside the plant have been measured at more than 3 years worth of natural background radiation in 1 hour...

Punxsutawney said...

A Walk in the Woods:

Great! What you're telling me is that because they are using Mox fuel that Plutonium could be, or may have been released from reactor 2, and only yards from the Pacific ocean. Plutonium may be the most toxic substance known to man.

Well that just makes my day.

Nassim said...

Vincent Tchenguiz gives up control of property group

was later seized by the bank's liquidators. But they soon found a problem with the forfeited shares in the British Virgin Islands-based vehicles. The vast majority of assets within an underlying complex web of companies were already pledged to other banks through long-term senior loan agreements.

Moreover, these agreements contain so-called "change of control" clauses, which give these banks the right to call in loans if Vincent Tchenguiz fails to keep control of the corporate structure. Receivers appointed by Kaupthing are in possession of shares but have not formally taken control of the underlying businesses. To do so could trigger a chain of defaults, leaving the shares Kaupthing took as security from Vincent Tchenguiz two and a half years ago valueless.

This article is a must-read for anyone who had difficulty following Stoneleigh's explanation of how apparent wealth/credit is created and how it can be destroyed at an even faster pace.

Clearly, many of the banks doing this serious lending never bothered to do a proper background check on my ex-colleague, Vincent. Alternatively, they were bamboozled or blackmailed into doing this lending - doubtless with the help of lots of dancing girls and invitations to Stringfellows Wimbledon, Ascot etc. I don't go along with the Mossad conspiracy theory. It is much simpler than that.

Anonymous said...

Meltdown at Fukushima

Apparently the spent fuel rods in the storage pools outside the reactor building have the potential to be far more dangerous than the reactor core fuel rods themselves.

A sample:

"...The boiling-water reactors at Fukushima, 40 years old .... have spent fuel pools several stories above ground adjacent to the top of the reactor. The hydrogen explosion may have blown off the roof covering the pool, as it's not under containment. The pool requires water circulation to remove decay heat. If this doesn't happen, the water will evaporate and possibly boil off. If a pool wall or support is compromised, then drainage is a concern. Once the water drops to around 5-6 feet above the assemblies, dose rates could be life-threatening near the reactor building. If significant drainage occurs, after several hours the zirconium cladding around the irradiated uranium could ignite..."


"On average, spent fuel ponds hold five-to-ten times more long-lived radioactivity than a reactor core. Particularly worrisome is the large amount of cesium-137 in fuel ponds, which contain anywhere from 20 to 50 million curies....cesium-137 gives off highly penetrating radiation and is absorbed in the food chain as if it were potassium."

"In comparison, the 1986 Chernobyl accident released about 40 percent of the reactor core's 6 million curies..."

Anonymous said...



"the fire has been extinguished at the No.4 reactor at the quake-hit nuclear power plant..."



The spent fuel rod pool seems to be draining.

Brunswickian said...

It is now confirmed by the Japanese cabinet secretary Edano that all 6 reactors at Fukushima are out of control and a complete meltdown is now underway. Fearing a full scale explosion of reactor 5 and 6 is being feared as residents have been asked to keep indoors.

Weaseldog said...

Frank said... "the corrosion point was seconds after the seawater went in. Seawater flooding was an admission that the reactor was toast."


There is a difference though in circulating water through and just boiling it off.

If it's just being boiled off, it's going fill with material until they can no longer cool it all. Much like a hot water heater that's reached the end of it's useful life.

If they were flushing through, there would be more time to evacuate the islands.

I'm guessing though, that due to the famous Japanese pride, there won't be an evacuation until after it's too late.

Even now with four reactors blown and people being told to tape their doors and windows, there is no talk in the media of an evacuation of the islands.

Weaseldog said...

Ok, just a fire at #4 then...

Supergravity said...

Sarcophagus now.

p01 said...

Supergravity said...
Sarcophagus now.

Or, when all else fails:
Blow a Nuke (TM).


p01 said...



p01 said...

Greenpa said...

There's always one more way of saying "duh". The guy was really right about the last big ones. Found him via Nathan's Economic Edge some time ago.


Ilargi said...

New post up.

The Fukushima Fallout Files


Supergravity said...

I had sincerely advocated the use of a nuclear detonation to seal the macondo abyss as a desperate last resort if nothing else could possibly seal it. To be fair, I did elaborate on the unreasonable risk and disasterous effects of a backfire, yet at the time, it seemed like a reasonable use of double-or-nothing suicidal nihilism to solve that specific problem. Fortunately, the fissure was otherwise sealed and macondocaust averted, mostly, without such drastic measures.

A nuclear sarcophagus could now be required to contain the extreme amounts of radiation that may possibly, or unpreventably, be released by the vast quantity of spent fuel on site, stored close to the reactor for convenience. If these spent fuel pools also become uncoolable and acutely hazardous, so that the spillage cannot be contained and the material cannot be moved, robotically sarcophagizing the whole complex might be the only remaining way of containing the contamination.

p01 said...

It was a comment about the folly of the human race, not aimed at you :)
The way things are going, it's almost guaranteed we'll see a nuke go off this year.
Truth be told, (as I already mentioned) I'd rather go out mostly painless in Montreal at minus 30 Celsius than in Tokyo.
Many japanese will chose the same path (they are culturally inclined to do so). Depending on how many decide this and how they decide to do it, we may even see some big fireworks...


Hank Roberts said...

Two weeks goes by like nothing.

Current info from Japan here:

As an aside, one thing well worth looking at is the current EPA proposal to for the first time regulate some of the pollution (mercury, notably) from coal-burning.

_All_ the radioactive and other heavy metal from coal is released into the environment, and is exempt from regulation.

Example, from Ohio code:

3701-39-02.1 Standards for handling radioactive material.
... this rule does not apply to ... naturally occurring radioactive material (NORM) means any nuclide that is radioactive in its natural physical state ...
(B) The following activities are exempt from licensure ....
"(b) Fossil fuel or byproducts from fossil fuel combustion, including bottom ash, fly ash, and flue-gas emission control byproducts ...."