Germany is pinning its economic hopes on future-oriented industries such as solar panel manufacturing. But high-tech companies are facing shortages of essential metals as China, which dominates the world market in so-called rare earths, begins stockpiling the highly sought-after resources.

A massive gray mountain rises from the vast plains of Inner Mongolia. The artificial hill is the pride of the Chinese and the envy of the world -- at least the world of commodities traders.

Workers at the Bayan Obo mine refer to the mound as "Treasure Mountain." Up to 6,000 people work at Bayan Obo, China's largest mine, which is completely inaccessible to the outside world. The Chinese authorities are intent on ensuring that no outsiders should gain access to the craterlike landscape, and for those who do somehow manage the feat, it is akin to arriving on another planet.

The EU and India will focus on pushing their free trade pact during their 10th annual summit in New Delhi on Friday. But other significant issues are also on the agenda, though the two sides don't always see eye-to-eye. 

A major sticking point at the EU-India summit is the planned free trade agreement (FTA) between the two sides. Daniele Smadja, head of the European Commission's delegation to India, said on Wednesday that the talks needed a boost.

"The FTA negotiations are very complex," Smadja said. "We have to jump into the cold water of give and take." The time had come to exchange concessions, she said.

But Clemens Spiess, a lecturer at the South Asia Institute at the University of Heidelberg, said he did not expect a final agreement to be reached.

"There are still a lot of hurdles," Spiess told Deutsche Welle. These include intellectual property rights disputes and tariff disagreements. He said he did not expect FTA talks to conclude successfully until 2010 or 2011.

The Bank of England will expand its programme of money creation by £25bn over the next three months to boost Britain's recession-hit economy, Threadneedle Street announced today as it left interest rates unchanged again.

Warning that UK banks are still failing to provide enough credit to businesses and households, the Bank said it would increase the size of quantitative easing (QE) to £200bn.

The Bank's nine-strong monetary policy committee also pegged bank rate at its record low level of 0.5%, where it has been since March. It said cheap borrowing and QE were needed to prevent inflation falling below its 2% target.

Outlook: So the horse trading begins again. Just a day after the Government pumped a truly obscene amount of taxpayer's cash into two zombie banks, the motor manufacturers are at it with General Motors wanting some financial candy of its own as the price for protecting thousands of British jobs. To be fair, there's good news to report here. The volte face made by GM on the sale of its European operations is infinitely preferable for Vauxhaull car workers in this country when compared to the alternative arrangement.

A Russian bankrolled deal to sell to Canadian car-parts maker Magna would have cost many more jobs in this country. So it's no wonder the unions are crowing and Mandy's got a big smile on his face and a cheque book in his back pocket. They're rather less happy in Germany, where other unions are threatening strike action thanks to the demise of a deal that they believed would be far more favourable to them.

That may be narrow-sighted. A GM Europe cut loose from its parent would have been a smallish player in a landscape dominated by giants. No MG Rover, for sure, and with much better management, but there were big question marks hanging over it.

EUOBSERVER / BRUSSELS - The vast majority of experts advising the European Commission on greater financial regulation are drawn from the same institutions that helped cause the crisis, claims a new report published on Thursday (5 November).

The document, A captive Commission - the role of the financial industry in shaping EU regulation, accuses the EU executive of listening almost exclusively to the finance industry both before and after the onset of the financial crisis over a year ago.

Its authors, the Alliance for Lobbying Transparency and Ethics Regulation (Alter-EU), a coalition of some 160 civil society groups, say the commission continues to draw insufficiently from the considerable expertise to be found in academia and civil society groups.

"The commission only seems to be interested in listening to the advice of the finance industry, rather than acting in the interests of society," said Paul de Clerck, a member of ALTER-EU's steering committee.

NEW YORK (Reuters) - Nine more people have been arrested in the Galleon Group insider-trading scandal, bringing to 15 the number charged in the biggest hedge fund-related case in history.

The new arrests include Wall Street traders, lawyers and hedge fund managers, according to complaints filed in federal court in New York on Thursday,

The new charges come nearly three weeks after Raj Rajaratnam, the billionaire founder of hedge fund firm Galleon Group, and five others were arrested in the case. Rajaratnam is accused of masterminding the scheme.

One of the more useful information items in Goldman's periodic filings is granular disclosure on the firm's CDS holdings, and specifically segregated data by maturity bucket and by spread as pertains to "maximum payout and notional amount of written credit derivatives." In essence, due to the firm's monopoly in CDS inventory and, therefore, trading, this is the squid's beating heart: between buying and selling (hopefully offsetting positions) CDS in billions of dollars worth of notional daily, and being able to capitalize on wide spreads, courtesy of the extinction of such traditional competitors as Bear and Lehman, the firm will continue to make hundreds of millions in profits every day, month and quarter, due to its newly found monopolist exposure when it comes to trading CDS, both as principal and as agent.

....

A Goldman CDS flow trader will traditionally make markets, for example in company XYZ, where he will give the (5 year) market as 500/530 bps, meaning buyers will put on new CDS at a spread of 530, while sellers will offload and/or short positions at 500 bps. By running traditionally balanced books, Goldman's flow trader is able to extract a 30 bps spread on any block of matched buys and sells. On $1 billion of notional traded CDS (which is much less than the firm does daily), with a DV01 of about $400k, if Goldman can unwind its CDS book daily to natural buyers and sellers, it can make $12 million simply by taking advantage of the spread ($400k (DV01) x 30 bps). At an average CDS block trade size of $25 million, Goldman's hundreds of salespeople need to just call up 40 accounts to trade in size and make the firm a risk-free $12 million. In days of volatility, Goldman can easily trade over $10 billion in notional equivalent. Again assuming a 30 bps spread, which the 85 Broad firm has basically guaranteed itself for life, courtesy of monopolizing the CDS market with just itself, and JPMorgan providing any relevant CDS inventory, Goldman can easily make $120 million daily, merely from trading CDS on a risk free agency basis.

....

Sometimes there will be quirks: like when the firm has net notional exposure to a firm like AIG, which may or may not be able to fund tens of billions worth of margin calls, thereby skewering Goldman, which is forced to eat the loss. Of course, in those instances people like Tim Geithner step in and bail out the counterparty so that things at Goldman can continue running as smoothly as always, and the firm can go back to making hundreds of millions in virtually risk free trades daily (and that even excludes the perpetually Fed backstopped balance sheet: this aspect of its risk free business is merely a function of its near-monopolistic dominance of the CDS market: nothing more fancy).

Another time when things get problematic is when Goldman is running an unmatched book: in other words when it has sold more CDS than it has bought, a disbalance from a purely P&L point of view, or when it has sold less than it has bought, a risk from a counterparty perspective. The last is precisely what happened to Goldman as it transitioned from last year and headed into 2009. As the charts below demonstrate the company materially tightened its overall sold CDS exposure, in other words the gross maximum payout it may have been on the hook for at any given moment.

....

Yet on a notional basis, things are not quite as bleak, and it appears that Goldman has learned its lesson: while at Q4 2008 the firm had a net liability arising from the carrying value of its written CDS of almost half a trillion, or $460 billion to be precise(that would mean its net exposure if all counterparties failed, would leave the company scrambling to get first row seats before Bernanke's printing press and praying it could print $460 billion worth of worthless dollars in one day), that number has since collapsed to a liability of merely $82 billion. Yet even that number is staggering, and begs the questions of what will happen to Goldman if we have another Lehman event at some point when the Fed's printing presses finally blow a fuse, and, more importantly, just what is the exposure of the other major CDS trading power houses which have likely not been as prudent in managing their credit derivative exposure. Zero Hedge will next analyze disclosed CDS exposures at JPM, DB and some of the other left over CDS trading desks. Luckily, with Lehman and Bear no longer out there (providing a happy Goldman with limitless Fixed Income monopoly powers), our task will be much easier.

   Time to start loading up on those sovereign CDS. Today Michael Milken provided some insight into what the five key reasons for our current predicament are, which, courtesy of absolutely no real reform, double as even greater future risks for the global financial system. These include: i) that corporate credit is not the same as leverage,... ii) mortgages in real estate are never an investment-grade asset, iii) interest rates are volatile and unpredictable, iv) The US AAA rating is misleading and, and most important, v) sovereign debt is a big, if not the biggest, risk.

At some point Milken must have done some serious study of the history of actual credit risks and defaults.  Imagine that!  His comments on the US AAA ratings give a sample of his analysis. It reads as though it was based on spoken delivery and simply transcribed:

   Rating is misleading

    I guess none of the financial crisis would have happened without rating. There are now only four AAA-rated companies left in the America now: Microsoft, ADP, ExxonMobil and Johnson & Johnson.

    Yet, S&P alone, in the first eight years of this century, has rated 17,000 securities AAA. How do you lose a 100% on a triple A investment? Well, first, those weren't AAA companies. Second, you can borrow against it and create a security that is against the mortgage portfolio that is still rated as triple A. That is nothing new. If you read the rating history you will see that a double-A railroad has a 200% higher default rate than a B-rated industrials.

    Sometimes, companies were not getting downgraded after they actually defaulted. Even for GM, there was an uptick in its ratings in last May from B- to B.

    So if you are relying on rating, then I am not sure why, as a money manager, you should be paid a fee because there isn't too much value-added you are providing. Besides, people who provide ratings are just human beings. Maybe if they are the most talented in the world, you would have already hired them.

Good comment from one who should know.  Reminds me of a penetrating critique of Wall Street circa 1929:
"Those guys on Wall Street were running a RACKET!"--- Al Capone

Milken's comments are worth a read.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

The efforts to try to burnish the image of bankers have gone from being unconvincing to ridiculous. I am certain we will see Jon Stewart comment on the latest twist, of trying to claim that God wants banks (and therefore bankers) to make a lot of money.

Since Calvinism is the de facto religion of America, equating wealth with virtue would normally make perfect sense. But one of my colleagues, who is thinking about writing a book on Christianity and capitalism, points out that God as depicted in the Bible is not a very good steward of the planet. He regularly uses brimstone, floods, earthquakes, plagues, and whatnot. And there aren't offsetting scenes of acts of nature conservancy. So if man was created in God's image, and God seems to have a bit of an appetite for destruction, perhaps the God-invokers are barking up the wrong tree. They might instead consider passing themselves off as mere vessels of Divine will in helping make bad things happen, that the people are who are suffering, in good Calvinist logic, clearly must be sinners somehow, even if it is not obvious what they did wrong.

But the defenses we get instead are more than a bit twisted, at least as reported in Bloomberg:

   Barclays Plc Chief Executive Officer John Varley stood at the wooden lectern in St. Martin-in-the- Fields on London's Trafalgar Square last night and told the packed pews of the church that "profit is not satanic."

    The 53-year-old head of Britain's second-biggest bank said banks are the "backbone" of the economy. Rewarding high- performing bankers with more pay doesn't conflict with Christian values, he said. Varley was paid 1.08 million pounds ($1.77 million) and no bonus in 2008....

    "Is Christianity and banking compatible? Yes," he said in an interview after the speech in the 283-year-old church. "And is Christianity and fair reward compatible? Yes."

Yves here. Whoa! I will agree that banking is probably not Satanic, but not being on a first name basis with him, I could be wrong here. "Satanic" leads to images of ritual sacrifice of babies, and I don't think the banking industry is into that,. However, many readers were put off by the idea of securitizing life settlements. That occurs when the holder of a life insurance policy is bought out by a third party who continues paying the premiums, speculating that they will die on some sort of actuarially-determined timetable. Of course, if the investor is proven wrong, and the people whose lives he is now insuring live longer than expected, he makes less money and has reason to want them to die, and could resort to trying to speed up the inevitable.

....

Of course, you could also turn this argument on its head. If God really did want banks to make money, they have been really really bad at it! How many years of earnings were torched in the crisis? Certainly everything since 2003. And then the banks should properly be charged for all the losses their messes created in the real economy. So the people who ran those banks should not expect to be well treated on Judgement Day, no matter how you look at their divine mission.

Citigroup has been supplied with 1,200 units and Goldman with 200, says Jessica Scaperotti, press secretary for the Department of Health & Mental Hygiene. The agency has so far approved orders by 29 employers--including 16 that have yet to receive any vaccine--after they were cleared by the U.S. Centers for Disease Control & Prevention (CDC). Big employers that have received or are scheduled to receive vaccine so far include Time Warner (TWX), JPMorgan Chase (JPM), Memorial Sloan-Kettering, New York Presbyterian Healthcare System, and New York University....

"We decided early on that we would look to health-care providers in the state as the best way to get the vaccine out as quickly as possible to those groups in high priority by the CDC," says Claire Pospisil, spokesperson for the New York State Health Dept. "Eventually there will be enough vaccine for everyone that wants one, but initially--because H1N1 is affecting [the aforementioned groups] at much higher risk than the general population--it makes sense to get them the vaccine first."

Health-care workers at those employers are bound by the CDC to distribute the vaccine only to populations deemed to be at high risk of developing serious complications from swine flu: pregnant women, children and young people aged 6 months to 24 years, people who live with or provide care for infants under 6 months (who cannot be vaccinated), people aged 24 to 64 with medical conditions that put them at higher risk for flu-related complications, and health-care workers and emergency medical personnel.

The founders of Skype have regained a significant stake in the internet company after settling a contentious legal dispute that had threatened to derail its $2bn sale.

The deal, which was announced today, will give Niklas Zennstrom and Janus Friis a 14% stake in the internet telephony service they originally sold to auction website eBay in 2005 for $2.6bn.

Confirmation that the duo had settled their court action - which focused on the ownership of a core technology used by Skype to deliver millions of voice and video calls over the internet - means the duo have now regained around $400m of shares in the company.