In a stunning revalation, Reuters reports that according to South Korean intelligence, the Cheonan ship sinking in late March is due to a torpedo fired by a North Korean submarine. The Kospi is down just 1% right now: we have a feeling it won't stay that way for long once this news is digested. After many had thought that South Korea was clearly covering for what was an overt North Korean act of aggression, this news is sure to take the Pacific Rim market to the edge. If Seoul is overtly accusing North Korea, it can only mean that South Korea will demand direct or indirect retaliation against the North as its government has already come out looking like both incompetent and cowardly. What kind of retaliation by the North this would in turn generate is completely unknown and could potentially escalate into full out conflict. According to South Korean intelligence and the US military, North Kora is now stepping up "drills to infiltrate a submarine south of the naval border, and wage a surprise attack against the South." Next stop - war? It may even cause the S&P to end on a downtick in tomorrow's session. On the other hand, global thermonuclear warfare surely is a victory for the gamma radiation scraper bulls.
The Yonhap news agency report appears to be the clearest sign yet that Seoul blames Pyongyang for the sinking, thought to have killed 46 sailors in what would be one of the deadliest incidents between the rivals since the end of the 1950-53 Korean War.
The military's intelligence arm sent the report of "certain" North Korean involvement to the presidential Blue House soon after the incident, Yonhap quoted a high-ranking military source as saying.
The report could be an embarrassment to South Korean President Lee Myung-bak, whose government has come under criticism for its handling of the incident.
"North Korean submarines are all armed with heavy torpedoes with 200 kg (441 lb) warheads," the military source was quoted as saying by Yonhap. "It is the military intelligence's assessment that the North attacked with a heavy torpedo.
"The military intelligence has made the report to the Blue House and to the Defence Ministry immediately after the sinking of the Cheonan that it is clearly the work of North Korea's military," the source was quoted as saying.
South Korea plans to soon raise the front half of the 1,200-tonne Cheonan, which went down near a disputed sea border with North Korea, and will issue its verdict on the cause of the explosion that sank the warship after that.
Analysts said there is little South Korea can do even if Pyongyang is found to be the culprit, because a military response was likely to hurt its own quickly recovering economy and bolster North Korean leader Kim Jong-il's standing at home.
The reclusive North has denied it had anything to do with the sinking near the disputed sea border off the west coast that has already been the scene of two deadly naval battles in the past decade.
It accused Lee of using the incident for political gains ahead of crucial local elections in June.
Yonhap said the South Korean and U.S. military suspected the North was stepping up drills to infiltrate a submarine south of the naval border, hidden among Chinese fishing boats, and wage a surprise attack against the South.
2. Banks with assistance of government are committing fraud on a much bigger scale than nany time before - that makes the Obama approach very phony to say the least as it is selling Citi stocks without any value and attacks Wallstreet at the same time. Obama plays a mass media hardball game with Wallstreet but b the center of the current show down, behind closed doors it might be a different game- now we understand why Citi placement was not given to Goldman or JP Morgan as they are rather in center of the attack and DC needed to put a camouflage line between Goldmans deep penetration of DC and the formal position.. The new regulation approach for derivatives makes those 2 more vulnerable as well as they dominate that market segment. Important though remains the fact that DC helps banks to cover up their status that most are bankrupt and if the FED would not deliver a flow of cash flow (profit) to them via the yield curve the would have collapsed already.
Richard Koo Says If Banks Marked Commercial Real Estate To Market,It Would "Trigger A Chain Of Bankruptcies"
Richard Koo's latest observations on the US economy are as always, a must read. The critical observation from the Nomura economist explains why the realists and the naive idealists are at greater odds than ever before: the government continues to perpetuate, endorse and legalize accounting fraud in the hope that covering everything up under the rug will rekindle animal spirits. The truth, as Koo points out, is that were the FASB to show the real sad state of affairs, the two core industries in the US - finance and real estate, would be bankrupt. "If US authorities were to require banks to mark their commercial real estate loans to market today, lending to this sector would be extinguished, triggering a chain of bankruptcies as borrowers became unable to roll over their debt." In other news Citi, Bank of America, and Wells just reported fantastic earnings beats on the heels of reduced credit loss provisions. Nothing on the conference call mentioned the fact that all would be bankrupt if there was an ounce of integrity left in financial reporting, and that every firm is committing FASB-complicit 10(b)-5 fraud. One day, just like Goldman's mortgage follies, all this will be the subject of epic lawsuits. But not yet. There is some more money to be stolen from the middle class first, by these very firms.
Some other observations on the greatest game of extend and pretend from the well-respected economist:
Fed understands risks of too-rapid bad loan disposals
Mr. Bernanke also emphasized that the Fed is making serious efforts to address credit supply problems—ie, the credit crunch.
The Fed chairman understands that an exclusive focus by bank examiners on uncovering bad loans could leave banks reluctant to lend, thereby sparking a “bank inspector recession” and delaying the recovery. To prevent this scenario, Mr. Bernanke says he has instructed Fed bank inspectors to ensure that banks are lending to creditworthy borrowers. In ordinary times, the Fed would seek to have banks write off their non-performing loans as quickly as possible. This is the correct approach when there are only a handful of distressed lenders. But during a systemic crisis, when many banks face the same problems, forcing lenders to rush ahead with bad loan disposals (ie, sales) can trigger a further decline in asset prices, creating more bad loans and sending the economy into a tailspin.
I think the Fed’s shift in focus from conventional nonperforming loan disposals to credit crunch prevention is an attempt to avoid this scenario.
Fed retraining bank examiners in bad loan management
Perhaps based on an awareness of Japan’s failures in this area, the US has not only made public a list of items bank examiners are to focus on, but is also retraining its examiners in a bid to keep them on the right track. Roughly 1,000 inspectors have already completed the retraining.
Among other things, the retraining program teaches examiners how to modify loans to troubled borrowers and how to manage distressed commercial real estate loans. In that sense, it is a far cry from traditional training, which emphasized the quick discovery and disposal of nonperforming loans.