May 6th, 2010 15:56:17 GMT

Gold decides to be a safe-haven again

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Earlier in the week, it wasn’t so sure. Now, gold is playing its safe-haven role, rising to $1196 in the cash. $1225 is the all time high, less than 2.5% away…

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May 6th, 2010 15:55:16 GMT

ECB Trichet: Financial Activities Cannot Neglect Real Econ

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FRANKFURT (MNI) – Financial activities cannot neglect the interests
of the real economy, European Central Bank President Jean-Claude Trichet
said Thursday.

The financial industry and the real economy must share a common
goal, Trichet urged in remarks prepared for delivery at a university in
Lisbon hours after the monthly press conference.

The financial crisis shows that tighter regulation and supervision
is needed to overhaul the financial system, he said, but “excessive” or
“ill-designed” regulation “may counteract our intentions.”

“A fine line needs to be drawn between ensuring financial
efficiency — and financial innovation is an important ingredient of
efficiency — and financial stability,” he warned.

Indeed, “Reforms should be designed” to ensure “that those segments
of finance, which remain faithful to the mission of providing functional
services to the real economy, are not put at an economic disadvantage,”
he pleaded.

Just as employers have a social responsibility to their employees,
“banks bear a social responsibility for savers and for society as a
whole,” he explained. Reforms to the financial system “must be targeted
at internalizing this social responsibility in business strategies so
that what is collectively optimal is selected by profit-maximizing
business units.”

“A courageous overhaul of the financial system will also help to
bridge the rising gap that has emerged between the financial sector and
the real economy,” he said.

“We cannot afford financial activities that neglect the interest of
the real economy,” he stated. “Indeed, the financial industry and the
real economy must share a common goal.”

“Only united will they contribute to strong, sustainable and
balanced growth and to future economic prosperity,” he concluded.

Trichet made no mention of current monetary policy, the economic
outlook or the crisis in Greece in his prepared remarks.

–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com

[TOPICS: MT$$$$,M$$FX$,M$$EC$,M$X$$$,M$$CR$,MGX$$$]

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May 6th, 2010 15:55:14 GMT

Bernanke: Small Business Lending Tightest in Recent Memory

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By Steven K. Beckner

CHICAGO (MNI) – Federal Reserve Chairman Ben Bernanke stressed
Thursday the need to restore a proper “balance” between making loans to
creditworthy borrowers and lending prudence.

While the pendulum had swung too far in the direction of
excessively risky loans before the financial crisis, it has now swung
too far in the other direction, Bernanke told the Federal Reserve Bank
of Chicago’s 46th Annual Conference on Bank Structure and Competition.

As a result, he said credit conditions for small business are the
tightest they have been in recent memory.

Bernanke, answering questions following a speech in which he called
the restoration of normal credit flows a “central objective” of the Fed,
also said he is working to discourage what he called “excessive
conservatism” among bank examiners.

Bernanke said the big issue facing banks and their regulators is
the need to restore a “balance between lending to creditworthy borrowers
and appropriate prudence.”

Before the crisis, he said “the balance shifted to imprudent
lending.” Now, he said, “we need a more appropriate level” of lending
“that takes an appropriate balance between making good loans and being
appropriately prudent.”

He said bank credit should be “less easy than before the crisis,”
but said “surveys suggest conditions for small business borrowers have
tightened considerably because of bank caution.”

“Business conditions for borrowers have worsened as well,” he
added. “Right now small business conditions are much tighter than
anytime in recent memory,” he said. “We need to find a balance that
makes economic sense.”

Banks should be “making good loans that are expected to be repaid,”
but should “not be so conservative and restrictive that they turn away”
borrowers who can “be expected to be creditworthy.”

Similarly, Bernanke inveighed against “excessive conservatism” by
examiners that he said could mean banks will not lend to creditworthy
customers. “That is not appropriate,” he said.

Bernanke stressed is was “not talking about forbearance” but about
“an appropriate balance.” Bank examiners should “not overreact to the
point that good solid borrowers can’t get credit.”

Regarding commercial real estate loans and commercial
mortgage-backed securities, Bernanke said both “remain a problem.”

“It’s been a tough situation both because … banks are reluctant
to make loans” and because “the CMBS market has been pretty moribund.”
Commercial real estate “remains a significant concern as we look at the
health of medium and smaller sized banks,” he said.

Bernanke said there are “some slivers of light on the horizon,”
such as “some improvement in funding levels, stabilization of prices in
commercial real estate” and “some improvements in the economy.”

He cited increased occupancy rates and said “we are seeing some
improvements in the financing side as well.”

He said the Fed’s Term Asset-Backed Securities Loan Facility has
“helped” by supporting older “legacy” and new CMBS issuance.

But while there is “a little bit of a silver lining,” commercial
real estate “remains a very troubled category of loans … We’re going
to have to keep working with banks.”

In other comments, Bernanke said government-sponsored enterprises,
like Fannie Mae and Freddie Mac, need to be reformed.

“Clearly the (pre-crisis) model of Fannie Mae and Freddie Mac is
not a sustainable model,” he said, adding that those quasi-private firms
were “insufficiently capitalized” and had a “conflict between public and
private objectives.”

As he has before, Bernanke suggested two possibilities:

1. “to acknowledge that Fannie Mae and Freddie Mac are government
utilities and make them wholly public … Make them honest … doing
what their politically determined objectives are”

2. “to privatize Fannie Mae and Freddie Mac and break them up” and
“allow them to compete in the market for securitization along with other
firms”

Bernanke said the second option has an “attraction.”

If the GSEs are privatized, he said Congress should “consider
whether the government needs to be a deep backstop where mortgage
markets break down. … You might consider a case where the privatized
firms, the GSEs and other financial firms could pay a premium to the
government and get insurance.”

He said that would “allow these institutions to stand by their
mortgage backed securities similar to the way Fannie and Freddie did in
the past and allow the securitization market to continue to function
even in periods of great financial stress.”

“What we had before was a wink and a nod,” Bernanke said. “The GSEs
had implicit (government) support but not explicit support, and they
didn’t pay for that support, and their capital was not adequate.”

GSE reform needs to be “straightforward,” he said. “We need to
design those institutions in a way to achieve those (housing finance)
objectives” without having “conflicts of interest.”

Bernanke said he expects “securitization will come back but in a
more secure, better structured way.”

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$CR$]

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May 6th, 2010 15:45:21 GMT

US FDIC’s Bair:US Banks Exposure To EMU Crisis Not Significant

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–Very Positive Signs in Banking Sector Reflect Better Econ
–Would Support Broad Ban on Speculative Naked CDS

By Yali N’Diaye

WASHINGTON (MNI) – While developments in the euro zone must be
monitored carefully in the short term, the exposure of the U.S. banking
system is not significant, Federal Deposit Insurance Corp. Chair Sheila
Bair said Thursday, also noting continued signs of improvement in the
U.S. economy and banking sector.

“The direct exposure for the U.S. banking system is not
significant,” she said, referring to the euro zone sovereign risk.

But, “Longer term, we perhaps should be taking a lesson from this
to understand it’s important for us to get our own fiscal house in order
as well” before it reaches the point Greece is at right now, she said in
an interview on C-Span, where she also took questions from the public.

Eventually, she said she expects Europe to work out the issue that
started with Greece, which “is troubling” but “manageable.”

Ultimately Europe will “take all the steps that are needed to deal
with it,” Bair said, although, “In the short term, it’s something we
need to watch carefully.”

On this side of the Atlantic, she noted the U.S. economy and its
banking sector are showing positive signs of recovery.

“There are a lot of very positive signs, reflective of an overall
improving economy.”

She noted small banks are able to raise new capital, more bidders
appear when banks fails and the FDIC’s pricing is getting better.

Bair warned against a one size fits all approach for derivatives in
particular in the financial regulatory reform process.

While tighter legislation is needed for the derivatives market and
there is a case for a broad ban on speculative naked credit default
swaps, banks should still have the possibility to use derivatives to
hedge positions, she said.

In particular, they should be able to use customized
over-the-counter derivatives when needed, although standardized
derivatives should be traded on exchanges and be cleared through central
clearinghouses.

“Not all derivatives are bad,” she said, adding that interest rate
derivatives help banks manage their interest rate risks, which is what
regulators have been encouraging banks to do.

A lot of the anti-derivatives sentiment is “fully right,” she said,
adding she would support a broad ban on “speculative naked CDS trading,”
no matter who’s doing it.

However, banks “do need the capability to be able to hedge their
own exposures.”

So the overall derivatives legislation should be careful not to
harm legitimate trades.

Bair also said the issue Fannie Mae and Freddie Mac needs to be
tackled.

Commenting on an amendment that was voted Wednesday by the Senate,
she welcomed the authority it gives to the FDIC to break down large
institutions and sell them off the same way it happens for small insured
institutions.

The Senate Wednesday approved on a 93 to 5 vote on an amendment
drafted by Senate Banking Committee Chairman Chris Dodd and Sen. Richard
Shelby, the ranking Republican on the Banking panel.

The Dodd-Shelby amendment would strip the underlying bill of a
provision creating a $50 billion resolution fund that would have covered
the costs of a major financial collapse.

Under the amendment, the FDIC would have the ability to liquidate
large losses and could tap a credit line from the Treasury Department to
cover any costs. The FDIC could recover its losses by selling off the
assets of the failed firm.

The issue, she said, was whether the resolution facility would be
funded upfront from the industry — her preference — or through
borrowing from Treasury.

The key is that “I think it will end too big to fail,” she
continued, with some rating agencies already indicate it will result in
some downgrades of large institutions.

And should the legislation pass, which she expects, the FDIC “will
need to build up some expertise on non-bank financial entities,” Bair
said.

Bair was also asked to comment on whether the Government
Accountability Office should audit the Federal Reserve, which Fed
Chairman Ban Bernanke opposes.

While declining to take a direct position on the issue, Bair noted,
“Transparency is always a good thing and having an extra pair of eyes
looking over your shoulders who can make sure you’re doing everything
the best as you can is not a bad thing.”

The GAO “keep us on our toes,” she said. “This works well for us.”

Bair also repeated her view on the securitization market, which
should be revived on sounder principles, without the “perverse economic
incentives” that contributed to the crisis.

“The securitization market can be a good thing if it’s properly
structured,” she said, as the FDIC is currently working on a rulemaking
on the treatment of securitizations from failed banks under
conservatorship or receivership.

In particular, the FDIC is working on making sure that banks retain
risk when doing securitization, she said.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,M$$CR$,MGU$$$,MFU$$$,MK$$$$]

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May 6th, 2010 15:40:48 GMT

US shares deepen losses, fall over 1%

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US share prices are near their lows as risk aversion remain at a fever pitch. US 10-year note yields have fallen below the 3.50% level and oil is flirting with $79…

Tough environment for asset markets to rally appreciably…

We did have a lull in the selling after Europe went home yesterday. Perhaps we can expect similar price action today… Lulls look like the best that can be hoped for…

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May 6th, 2010 15:26:20 GMT

US investors buy Cable

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Traders report some solid buying of cable on weakness by US institutional investors. Cable dipped into the high 1.4920s before bouncing into the 1.4940s on the buying.

9 Comments

May 6th, 2010 15:25:07 GMT

IMF Offl:Greek Default Not on Table;Aid to Enable Debt Payment

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–Aid to Keep Greek Out of Mkts for 18 Months But Could Return Sooner

By Heather Scott

WASHINGTON (MNI) – The possibility of a Greek debt default is “not
on the table,” since the joint aid package of the International Monetary
Fund was designed to allow the country to pay its obligations while
it implements needed adjustment measures, an IMF official said Thursday.

Meanwhile, the IMF is calling on other countries facing fiscal
difficulties to swiftly implemented their own adjustment steps, the
kinds of “fundamental” changes the markets are watching for, IMF
spokeswoman Caroline Atkinson told reporters at the regular biweekly
briefing.

While she declined to comment specifically on the
less-than-confident market reactions to the announcement a financial aid
package was in place for Greece, Atkinson said, “As we’ve said many
times, default is not on the table, has not been on the table.

“The Greek authorities themselves have repeated that, and ECB
President (Jean-Claude) Trichet repeated that this morning,” she said.
“In that sense you could say that the fears are an overreaction.”

The IMF board Sunday is expected to approve the $40 billion aid
package for Greece — the second largest ever by the fund — which
Atkinson said is deliberately designed to allow Greece to stay out of
financial markets for more than 18 months, through 2012.

The “substantial and appropriately-sized” program includes front
loaded adjustment measures that represent the “unprecedented effort” by
the Greek authorities, backed by “unprecedented support” from the IMF
and European nations, she said.

“If implemented, the adjustments that address fiscal and
competitiveness issues, will put Greece in position to pay it debts,”
and down the road will allow renewed economic growth.

As the fears have spilled over to other countries, Atkinson said
that it is important to note that in addition to the support for Greece,
“a number of other countries that need to have some fiscal adjustment
are indeed considering or in some cases implementing already fiscal
adjustment measures. And I think that these fundamental steps are what
is most important to fight contagion.”

She said the IMF is calling for “swift implementation” of steps to
put public finances “back on stable path,” but she stressed that
countries like Spain, Portugal and Ireland “have rather different
starting conditions from Greece, lower debt, better public finances,
better track record, not the problems with data.”

While public reaction in Greece to the planned adjustment measures
is understandable, “violence is deplorable,” Atkinson said.

The program includes tax administration measures “aimed at
spreading the tax burden more fairly,” as well as fiscal measures “aimed
at protecting most vulnerable part of society,” she said.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,M$$CR$,MI$$$$,MT$$$$,M$$FX$,M$$EC$,M$X$$$,MGX$$$]

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