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Mar 6, 2013

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New York ( - The trustee for failed hedge fund Petters Group, Douglas Kelley, has sued the Epsilon-Westford funds founded by Steve Stevanovic, according to Bloomberg.

The bankruptcy trustee is seeking to recoup over $3.2 billion to cover the company’s debt, Bloomberg said, ”Seventeen funds affiliated with the financier’s Westford Investment Management LLC and Epsilon Investment Management LLC were named as defendants in the complaint filed by Kelley.”

“We terminated our relationship with Petters a full 18 months before it became known that Petters was involved in fraudulent activity.” an attorney for the Epsilon-Westford funds said in a statement, “We did so because we elected to invest our capital in other enterprises, not because we believed or had cause to believe that the Petters enterprises were engaged in fraudulent activities.”

Petters and his hedge fund, Petters Group Worldwide LLC was convicted in December 2000, of all 20 criminal counts, adding up to a $3.5 billion fraud.

“The defendant’s fraud is staggering and unprecedented in size and impact on victims and the community,” prosecutors said of the case back in March of this year.

The complaint alleges the defendants knew or should have known the investments were fraudulent, according to Reuters. “Stevanovich received millions in false profits through his active and direct involvement in the Petters Ponzi scheme.”

Petters has stated that he plans to fight to be released from custody and maintains his innocence.

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Posted: Mar 6, 2013 10:36pm
Mar 4, 2013

Financial Secretary John Tsang Chun-wah yesterday hit back at critics who said his budget last week was too conservative, warning that the next generation would suffer if he "spent extravagantly for the sake of applause".

He emphasised the 16 per cent increase in government spending over the next financial year, saying it was rare for a government anywhere to be lifting expenditure.

Tsang told the RTHK programme Hong Kong Letter that maintaining financial prudence was the first responsibility of the financial secretary.

"I must make sure taxpayers' money is used in the right way," he said. "If I spend the surplus extravagantly for the sake of applause, not only will our generation suffer - the next generation will have to suffer."

Wednesday's budget received a mixed reception. A university poll found that its approval and disapproval rating were both about 30 per cent. Tsang insisted he was "not disappointed" by criticism that the financial plan lacked "new ideas".

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Posted: Mar 4, 2013 11:05pm
Feb 21, 2013


EXCLUSIVE / Non-binding energy efficiency goals are meant to be treated with reverence but are routinely ignored, ticked off, or met by using legislative scams, ex-government officials have told EurActiv.

As Brussels gears up to discuss binding energy efficiency targets for 2030 this week, two whistleblowers told EurActiv that the EU should learn from their experiences in implementing the 2006 energy services directive (ESD), which aimed to cut energy consumption.

‘Malcolm’, a former senior officer for a north European EU state's national energy agency, said that inconvenient energy savings measures were routinely skipped over when they were not legally enforceable.

“You just checked the directive article by article to see what the requirements were for member states,” he told EurActiv. “Is it a binding requirement? ‘Ok, we need to do something’. Is it non-binding? ‘Ok, perhaps the policy we already have fits with that part of the directive.’”

“That’s what we do,” he told EurActiv. “At least that’s what was done by my government. When the member states and Commission agreed on binding targets there was more budget available, a larger team, and more of an effort made.”

The EU has agreed three climate goals for 20% improvements in the continent’s CO2 emissions, renewables and energy efficiency by 2020. But energy efficiency is the only one that is not compulsory.  

‘Accounting tricks and abuse’

“If you don’t have clearly defined end use and primary energy targets you’re always opening yourself up to accounting tricks and abuse,” said ‘Sabine’, another former-officer responsible for the ESD in a national energy agency. 

The energy services directive, which was passed in 2006, obliges EU nations to set up national energy savings action plans, showing how they would reach an indicative but ultimately voluntary 9% energy savings target by 2016. 

The bloc is on track to meet this target, “according to the submitted National Efficiency Action Plans,” Marlene Holzner, spokeswoman for the energy commissioner Günther Oettinger told EurActiv.

Other measures in the directive covered energy efficient procurement, services promotion and information points, as well as removing barriers within Europe’s internal market.  

The law’s progress has been dogged by complaints about its enforcement, although the European Commission now says that it has been fully transposed and implemented.

But the agency that Sabine worked for chose to measure their energy savings in terms of primary energy – such as oil, coal and gas – rather than end-use energy, or actual energy consumption, as the legislation required. 

This meant that measures such as the promotion of zero emissions buildings were neglected in favour of a subsidised scheme to convert buildings away from direct to district-based heating.

Fake energy savings

“It looked like they were saving energy because they reduced primary energy,” Sabine said, “but it wasn’t a real saving - an energy efficiency improvement – it was just a little trick that they used.”

Energy and the environment are both considered shared competences under theTreaty of Lisbon, but Brussels is often hesitant to legislate on energy, a matter of national security for some. The energy savings targets in the ESD, a case in point, were originally proposed as binding statute.

“The European Parliament tried to get a binding target and they argued and argued but finally had to give up when the realised they couldn’t,” said Randall Bowie, one of the directive’s authors. “They fought for it like crazy.”

A consequence of that defeat was that member states ignored parts of the directive that couldn’t be easily included as part of already-existing programmes, Bowie said, or promoted them with weak legislation that had little impact. 

“When a target is there, they realise that they have to do a more ambitious implementation,” he told EurActiv. If the ESD had included binding targets, there would have been no need to repeat some of its measures, such as supplier obligations in the energy efficiency directive, he added.

Naming and shaming

“Non compliance by a member state with a non-binding target can lead to naming and shaming but not to any legislative action so there is no political risk of infringement procedures for a government minister,” said Malcolm.

“That is why there was much more progress on topics like renewables and CO2 emissions reductions.”

For Bowie, this is particularly troublesome as, he argues, energy efficiency has greater standalone CO2-reducing potential than renewable energies because of the sectoral flexibility it offers.

“There are a lot of strong arguments for having a binding target for energy efficiency,” he said. “Having a CO2 target is also important but a renewables target in the order of priorities could be third.”

This line of reasoning offers an olive branch to states such as Poland which balk at other climate targets.But it is likely to be resisted by environmental groups, already mindful of a risk that the EU’s current three low carbon goals could be played off against each other in the 2030 negotiations to come.

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Posted: Feb 21, 2013 6:11pm
Feb 18, 2013



Singapore: Seventy Asian oil and gas companies, including those from India and China, were ranked in the 2012 Platts Top 250 Global Energy Company Rankings based on their financial performance in 2011.

While ExxonMobil maintained its number one position in the list, Cairn India topped the list for fastest growing companies with a three-year CGR of 119.8 percent, Platts said at the award ceremony held here last night.

Of the 12 Indian companies in the global Top 250 rankings, half appeared on the 50 Fastest Growing list, which included Reliance Industries, Coal India, Indian Oil Corp and Gail, Platts said.s reflect fiscal 2011 financial perinvested capital . Reuters

China had 23 companies in the Top 250 list compiled by Platts, a global energy, petrochemical and metal information service provider.

Commenting on the Asian companies performance, Platts President Larry Neal said the Asian companies were outperforming themselves year after year, which reflected the enormous growth and energy demand potential in the region.

The list, however, was dominated by Western oil & gas majors, taking the top eight ranking of the list.

ExxonMobil, which has maintained its number one position on the list for the past eight years, was followed by Royal Dutch Shell, Chevron Corp, BP, OJSC Gazprom, Statoil, Total and ConocoPhillips.

Chinese major PetroChina came in on the ninth spot with Roseneft Oil on 10.

The Platts Top 250 Global Energy Company Rankings, now in their 11th year, are based on data compiled and maintained by S&P Capital IQ, which, like Platts, is a part of The McGraw-Hill Companies.

The 2012 rankings reflect fiscal 2011 financial performance in four key areas: asset value, revenues, profits and return on investedcapital (ROIC). Description:

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Posted: Feb 18, 2013 6:07pm
Feb 15, 2013

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A tribunal has heard police officers from Devon and Cornwall were forced out of their jobs after 30 years of service by a "financial tsunami" triggered by a Government review.

Shaun Sawyer, chief constable at Devon and Cornwall Police, said they had "agonised" over the decision.

Five police forces are contesting test cases after hundreds of officers were forced out of their jobs.

The A19 clause allows for officers with 30 years' service to be forced out.

Five police forces - Nottinghamshire, North Wales, South Wales, West Midlands, and Devon and Cornwall - contest the allegations made at the Central London Employment Tribunal.

“Start Quote

There was a financial tsunami facing public service and policing in particular”

At the Devon and Cornwall force it was decided that 700 police officers and 350 members of police staff would have to lose their jobs.

Mr Sawyer, who was deputy chief constable of the force at the time, admitted A19 was "indirectly discriminatory" on grounds of age and that legal advice was taken to make sure its use was "justified".

Mr Sawyer described the move as "the least worst decision to make to deliver an efficient force".

He said the decision to use A19 was "agonised over as was the decision to reduce the number of police staff".

"Reducing the number of police officers went against every fibre of what was, for me, 25 years of policing.

"There was a financial tsunami facing public service and policing in particular."

A19 suspended

Under cross examination by Paul Gilroy QC, representing claimants from the Police Superintendents' Association, he admitted cost was a "significant part" of the decision-making process.

By autumn 2010, the force - then led by Stephen Otter - realised it would have to save at least £44m over the course of the next four years, following on from the Government's Comprehensive Spending Review (CSR).

"I am aware that the claimants contend that the rationale for A19 was solely or overwhelmingly a matter of finance," Mr Sawyer said in his statement.

"It is obvious that without the imposition of the CSR Devon and Cornwall Police would not have chosen to dramatically reduce its police officer and police staff numbers and profile so dramatically or so quickly."

Asked by Mr Gilroy if the force would have considered A19 if it had not been for the CSR, Mr Sawyer replied: "Absolutely not.

"Were it not for a £44m, later £49m, hole in the budget, we wouldn't have been making police officers leave the force in any way."

Devon and Cornwall Police made the decision last September to suspend the use of A19.

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Posted: Feb 15, 2013 6:07pm
Feb 13, 2013


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Now we can add a new name to that distinguished list. In 2012, Juan Ramón Rallo has published a new Austrian critique of TGT in Spanish with the title Los Errores de la Vieja Economía (The Failure of the Old Economics) in honor of Hazlitt's work The Failure of the 'New Economics'.

In Hazlitt's time, Keynes's program was still revolutionary and described by Hazlitt as a kind of “New Economics” that broke with the insights of classical economics and especially with Say's Law. Now, Keynesianism is mainstream. Keynesianism, and especially its main idea that spending reduces unemployment, is still taught in universities, applied by grateful politicians, and prominently defended by the 2008 Nobel Prize winner Paul Krugman.

Indeed, the immediate political response to the current financial crisis in the Western World was inspired by TGT. A second Great Depression was to be prevented and Keynes's insights applied. Governments engaged in loose monetary policy combined with fiscal stimulus in response to what, through Keynesian eyes, appeared to be a bubble caused by reckless speculation, which was in turn inspired by animal spirits. Thus, even if Rallo's book were just a summary of the old arguments against TGT, the moment for publication would be more than appropriate, since the ideas of the past are still the praxis of the present.

Yet, Los Errores de la Vieja Economía is much more than a summary and synthesis of the old arguments by the aforementioned Austrian authors. Rallo builds upon, combines, and develops these arguments in a systematic way. Most importantly, he adds his own innovative ideas to develop a devastating case against TGT.

Rallo's critique of TGT employing Austrian theory is rigorous, systematic and exhaustive. Significantly, Keynes's ideas are not twisted or distorted. The absence of strawman arguments makes Rallo's attack against the core of Keynesian beliefs stronger than most. Rallo also does not search for terminological contradictions and inconsistencies. In this sense, Rallo's critique is more profound and devastating than for example the parts of Henry Hazlitt's brilliant critique that emphasize Keynes's inconsistencies, imprecision, and explanatory fuzziness. Rallo has a great and genuine interest in giving a clear and coherent picture of Keynes's reasoning and presents Keynes in the most favorable light.

Let's have a look of some of Rallo's arguments, beginning with Keynes's famous critique of Say's Law. Keynes's distorted version of Say's Law in TGT states that supply creates its own demand. Rallo vindicates Say's Law in its original version: In the long run, the supply of a good adjusts to its demand. Ultimately, goods are offered to buy other goods (money included). One produces in order to demand, which implies that a general overproduction is impossible.

Say's Laws leads us straight forward to the most innovative argument in Rallo's book that addresses the old argument against hoarding. Even harsh critics of Keynes, for example from the monetarist or neoclassical camp, admit that Keynes was at least right in that hoarding is a destabilizing and dangerous activity.

Rallo, however, proves and emphasizes the social function of hoarding. To demand money is not to demand nothing from the market. Hoarding is the natural response of savers and consumers to a structure of production that does not adjust to their needs. It is a signal of protest to entrepreneurs: “Please offer different consumer and capital goods! Change the structure of production, since the composition of offered goods is not appropriate.”

In a situation of great uncertainty, it is even prudent to hoard and not immobilize funds for the long run. Rallo provides us a visual example. Let's assume that uncertainty increases because people expect an earthquake. They start to hoard, i.e., they increase their cash balance, which gives them more flexibility. This is completely rational and beneficial from the point of view of market participants. The alternative is to immobilize funds through government spending. The public production of skyscrapers is not only against the will of the more prudent people; it will also prove disastrous if the earthquake is realized.

Hoarding is an insurance against future uncertainties. Rallo argues that, if the demand for money increases (liquidity preference increases) due to the precautionary motive, short-term market rates of interest tend to fall, while long-term rates increase. People invest more short term and less long term in order to stay liquid. This leads to an adjustment of the structure of production. More resources will be used for the production of the most liquid good (i.e., gold in a gold standard), and for the production of consumer goods. The structure of production shifts toward shorter and less risky processes reducing longer and riskier ones. Hoarding, therefore, does not cause factors of production to be idle that shouldn’t be. Factors are just shifted toward gold production and shorter-term projects. Rallo insists that it is not irrational to hoard. Indeed, when long-term projects are maintained and economic conditions change, projects might have to be liquidated suddenly. For example, the earthquake would destroy the skyscraper in progress.

It should be noted that most Austrians do not hold a hybrid liquidity preference / time preference theory of interest. For Rallo the interest rate, or the structure of interest rates, is determined both by time preference and liquidity preference. Most Austrians defend the pure time preference theory of interest. My own position on this question can be found in this article co-authored with David Howden. Due to uncertainty an actor prefers to be liquid rather than illiquid. Due to time preference an actor prefers to be liquid rather sooner than later. Therefore, the yield curve tends to be upward sloping. When uncertainty increases, the yield curve tends to get steeper. In a financial crisis, however, another effect tends to prevail over this tendency. When society is in general illiquid, the high demand for short-term loans, the scramble for liquidity, tends to cause a downward sloping yield curve.

Idle resources are another important topic in Rallo's book since Keynes recommends inflation in the case of idle resources. Rallo asks why factors are unemployed and comes to the result that their owners demand a price for their services that is higher than their discounted marginal value product. In these circumstances, inflation implies a redistribution in favor of the owners of those factors, or a frustration of attempts to restructure, i.e., the economy suffers from forced saving or capital consumption.

In contrast, when factors of production adjust their prices, i.e., wages fall back to their discounted marginal value product, aggregate demand does not fall as Keynes suggests. On the contrary aggregate demand increases, because total production increases.

Rallo goes relentlessly after other Keynesian concepts. The famous “investment multiplier” requires idle resources of all factors of production. More precisely, for Keynes to be right you need voluntary unemployment of all factors of production plus idle capacity in consumer goods' industries. If there is no voluntary unemployment of all factors, government stimulation of new projects will lead to bottlenecks as factors are bid away from profitable investment projects. If all types of factors are idle, but there is no capacity in consumer goods industries, then government stimulus will raise prices of consumer goods and lead to a shortening of the structure of production. If, however, there is a general idleness of factors and idle capacities in consumer goods industries, why is there no voluntary agreement between owners of factors of production and entrepreneurs?

Another important Keynesian idea that Rallo tackles is the famous liquidity trap. A liquidity trap exists when, in a depressed economy, interest rates are very low. In such a situation Keynes regards monetary policy as useless, because speculators will just hoard newly produced money. Speculators will not invest in bonds because they are at maximum prices and will fall when interest rates finally rise. At this point monetary policy becomes impotent. Public spending becomes necessary to stimulate aggregate demand.

Rallo shows that after an artificial boom, in a situation where there are many malinvestments and a general over-indebtedness in the economy, there is indeed almost no demand for loans even at very low interest rates. We are actually faced with an illiquidity trap, as agents struggle to improve their liquidity. They want to reduce their debts and not take on more loans. The monetary policy of low interest rates actually worsens the situation, because with low interest rates, there is no incentive to prepay and cancel debts (because their present value is raised). The solution to this situation of general uncertainty is hoarding, stable institutions, the liquidation of malinvestment and the reduction of debts.

High uncertainty does not imply high unemployment, since even under high uncertainty the reduction of prices for services of factors of production renders profitable new projects. Under high uncertainty, these projects will be gold production (in a gold standard) and the short-term production of consumer goods.

As Rallo points out in contrast to TGT, it is not aggregate supply or aggregate demand that is important, but their composition. If, in a depression with a distorted structure of production, in a liquidity trap situation, aggregate demand is boosted by government spending, the existing structure cannot produce the goods that consumers want most urgently. The solution is not more spending and more debts, but debt reduction and the liquidation of malinvestments to make new and sustainable investments feasible.

In contrast, for Keynes, the problem is always insufficient demand. So what can we do if consumers and investors do not buy the goods of that companies offer, but instead hoard? Well, Keynes recommends lowering taxes and interest rates, to devalue the currency, or that the government buys the products for consumers. But, why, asks Rallo, should consumers and investors buy goods they don't want?

Keynes’s answer is that otherwise unemployment will increase. Rallo responds astutely: But if a person is forced to buy with his salary something that he does not want, why shall this person work at all? The alternative to forced buying is to lower wages to their discounted marginal value product, which increases production and demand. As Rallo points out, society does not get richer if the government induces or forces people to buy goods they don't want. Thus, for Rallo the essence of TGT is the following: when people do not want to buy what is produced, the government should force them to act against their will.

The insights from Rallo's book presented here are only a small selection. Rallo also offers an analysis of Keynes's main definitions and the theoretical errors behind them, such as their pro-consumption bias. He provides an Austrian analysis of financial markets, discussing the interrelations between the yield curve, interest rates, the discount rate, the structure of investment, the liquidity trap and the stock market. He analyzes real and nominal wages, business cycles, political implications, and intellectual predecessors of Keynes's TGT using Austrian theory. Also very useful is Rallo's guide for readers of TGT that makes reading and spotting Keynes’s main mistakes, chapter by chapter, easy and efficient. As a plus, at the end of the book, Rallo also provides a critique of the IS-LM model developed by John Hicks and Franco Modigliani which formalized Keynes's theory and is still taught at universities around the world.

Rallo's book on Keynes's TGT is full of brilliant insights and provides the most powerful and complete case against Keynes currently available. The well-written Los Errores de la Vieja Economía will be the future reference for scholars and layman alike looking for errors in Keynes's thinking and today's policies. The main downside of the book is that it is written in Spanish. Hopefully, the work will be available in other languages soon.

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Posted: Feb 13, 2013 9:34pm


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