25 Worst Internet Passwords - if you are using any password on this list change them immediately -

25 Worst Internet Passwords - if you are using any password on this list change them immediately - 




If  “password” is your password, chances are you’ve been the victim of a hack attack.
“Password” is the least successful, according to SplashData’s annual list of worst Internet passwords.
The list, notes Mashable.com, is somewhat predictable. Sequences of adjacent numbers or letters on the keyboard, such as “qwerty” and “123456,” and popular names, such as “ashley” and “michael,” all are common choices. Other common choices, such as “monkey” and “shadow,” are harder to explain.
As some websites have begun to require passwords to include both numbers and letters, it makes sense varied choices, such as “abc123″ and “trustno1,” have become popular choices.
SplashData created the rankings based on millions of stolen passwords posted online by hackers. Here is the complete list:
1. password
2. 123456
3.12345678
4. qwerty
5. abc123
6. monkey
7. 1234567
8. letmein
9. trustno1
10. dragon
11. baseball
12. 111111
13. iloveyou
14. master
15. sunshine
16. ashley
17. bailey
18. passw0rd
19. shadow
20. 123123
21. 654321
22. superman
23. qazwsx
24. michael
25. football
SplashData CEO Morgan Slain urges businesses and consumers using any password on the list to change them immediately.
“Hackers can easily break into many accounts just by repeatedly trying common passwords,” Slain says. “Even though people are encouraged to select secure, strong passwords, many people continue to choose weak, easy-to-guess ones, placing themselves at risk from fraud and identity theft.”




Read more: http://www.foxnews.com/scitech/2011/11/20/25-worst-internet-passwords/

Revealed: How US mercenaries offered Gaddafi $10m deal to flee Libya - and Lobby FOR him in Washington! -

Revealed: How US mercenaries offered Gaddafi $10m deal to flee Libya - and Lobby FOR him in Washington! - 

With the violence and chaos in Libya escalating as the country descended into civil war earlier this year, many were struck by the image of a country in turmoil.

But one group of mercenary individuals saw just one thing- a lucrative business opportunity.

Four Americans: a former CIA agent, a DC terrorism expert, a Kansas city lawyer and a onetime Republican National Committee member, offered themselves to Gaddafi as consultants for hire, new documents found in a Tripoli government building and published on Facebook show.

Venture: With Libya in turmoil one group of mercenary individuals saw a lucrative business opportunity

The upfront fee to begin negotiations? A cool $10 million.

According to the New York Times, 'The fees and payments set forth in this contract are MINIMUM NON-REFUNDABLE FEES,” the proposed contract stated. 'The fees are an inducement for the ATTORNEYS AND ADVISORS to take the case and nothing else.'

The three-page letter, dated April 17 and addressed to Colonel Gaddafi, offered the Libyan leader the lobbying services of the so called 'American Action Group', who would attempt to gain political ground from the rebels and win United States government support.

The consultants promised to help free up billions of dollars in frozen Libyan assets by moving the government into line with United Nations resolutions.

The letter, written by another partner in the proposal, a Belgian named Dirk Borgers, noted that the rebels had their own lobbyists in Washington. and that to keep up, Gaddafi needed to get representatives on the ground.

Deal: a former CIA agent, a DC terrorism expert, a Kansas city lawyer and a onetime Republican National Committee member offered themselves to Gaddafi as consultants

Civil strife: As the violence and chaos in Libya escalated as the country descended into civil war, many saw a country in turmoil

Borgers' letter offered the services of Neil C Livingstone, 65, a terrorism specialist, television commentator and author who moved back to his home state of Montana this year to run for governor, as well as Marty Martin, a former CIA department head, the Times reported.

Also on board were Neil S. Alpert, who had worked for the Republican National Committee and the American Israel Public Affairs Committee, and Randell K. Wood, a Kansas City lawyer who has represented Libyan organisations for decades.

The embarrassingly gratifying letter said: 'Our group of Libyan sympathisers is extremely worried about this and we would like to help to block the actions of your international enemies and to support a normal working relationship with the United States Government.'

'Therefore it is absolutely required to speak officially and with one strong voice with the American Government.'

Mr Livingstone told the Times that he had never seen Borgers' letter before this week and that it misrepresented his aims.

'That doesn’t reflect our view at all,' he said. 'Our whole goal was to get the Gaddafis out of there as fast as possible.'

CIA Chief: Marty Martin, a former CIA department head, was one of the consultants named in the letter

Mr Livingstone said that he was a longtime critic of Colonel Gaddafi's and had even been imprisoned by him in the 1970s.
He added: 'The idea was to find them an Arabic-speaking sanctuary and let them keep some money, in return for getting out'.
Marty Martin, who left the CIA in 2007, said he was surprised by the letter.
'We were not there to be lobbyists for Gaddafi,' said Mr Martin, 'I was not told anything about that letter.'
The aim of the deal was not to prop up the regime or save Gaddafi's life, but to prevent more loss of life in Libya by providing an exit path for the ruling family, he said.

Your excellency: The embarrassing letter, found in Libya and posted on Facebook
Ultimately the deal never came to fruition. Libyan officials rejected the approach, though it is unclear whether Gaddafi ever saw the letter, and the US Treasury might not have allowed the $10m to be paid to the group.
But Mr Borgers, who was in Tripoli at the time of the letter, claims that his motives were noble.
He too wanted to 'stop the butchering', he said.
Mr Borgers told the Times he was in favour of Gaddafi remaining in power until elections could be held.

In writing: The three-page letter, dated April 17 and addressed to Colonel Qaddafi, offered the Libyan leader the lobbying services of the so called 'American Action Group'

'I don't think he was that brutal a dictator,' he said.'He created a country out of nothing over 42 years. He created a very good lifestyle for the people.'

He admitted he 'might not' have shared the text of the letter with his business partners but the sole aim was not simply to make money, he said.

Read more -

http://www.dailymail.co.uk/news/article-2063465/Revealed-How-US-mercenaries-offered-Gaddafi-10m-deal-flee-Libya.html

Jaktogo: Wearable luggage aims to beat airline fees - a jacket that is your luggage - LOL!! -

Jaktogo: Wearable luggage aims to beat airline fees - a jacket that is your luggage - LOL!! - 






These days, the spirits of many a high-flier are grounded by baggage fees.


"I'm shocked by them," says Jean Bailey, traveling from Tampa to Maryland.


Too many bags or too heavy and it's your wallet that gets lighter.


"It's definitely a constant worry when you pack," says Billy Rogan, a musician hoping to get his guitar on board. "You have to worry about what you want to bring."


So is there a way around this big, bag drag?


John Power thinks so. Power flies for business about once a week and the hassles and fees he encountered prompted this structural engineer from Ireland to construct some wearable luggage.  


"I seen so many people getting upset, too much pounds, too heavy, couldn't afford to pay it," says Power during an interview at Tampa International. "And hence, Jaktogo came to life."


In one form, Jaktogo is a tote-bag, but with a few quick rips of Velcro, it transforms into a jacket.


It's a jacket with not much style, "not a fashion plate", Power says while putting the jacket on. However, it's a jacket with plenty of pockets--14 of them.


"My underwear, trousers, shirts," says Power opening up a few of the pockets.


So the Jaktogo stuffed with clothes does look silly, but Power recommends you wear it only a few minutes, when you're boarding the plane.  At other times, especially when you're going through security, it should be in bag form and of course any prohibited item can't be packed inside.


So what do travelers think of this invention? Could this product take off?


"Wow, I've never seen that before," said Rogan while Power transformed Jaktogo.


And Bailey liked it so much, that she's considering spending some jack on Jaktogo.


"Oh my God, my husband would love that," she exclaimed after seeing it in action.


Read more - 
http://www.wtsp.com/news/reporter/article/220763/79/Wearable-luggage-aims-to-beat-fees

Eat Your Veggies: Congress Wants To Classify Pizza As Vegetable - like Reagan tried to credit ketchup as vegetable -

Eat Your Veggies: Congress Wants To Classify Pizza As Vegetable - like  Reagan tried to credit ketchup as vegetable - 




Next time your mom tells you to eat your vegetables, tell her you want a pizza.


Revisions to a spending bill Tuesday would classify pizza as a vegetable and pits school lunch reformers against conservatives who say government should keep its fork to itself.


The Center for Science in the Public Interest blasted Congress in a release saying it’s more interested in protecting prepackaged and frozen food industries than protecting children’s health.


“Pizza should be served with a vegetable, not count as one,” nutrition director Margo Wootan said. She called it a bigger blunder than when President Ronald Reagan tried and failed to credit ketchup as a vegetable.


Congress is pushing back against the Obama administration and its Agriculture Department bill that limits the use of starches like potatoes, cuts sodium and boosting whole grain in school lunches.


A final version of the bill released late Monday cuts out the reforms based on the 2009 recommendations of the Institute of Medicine at the National Academy of Sciences.


Read more - 
http://washington.cbslocal.com/2011/11/16/eat-your-veggies-congress-wants-to-classify-pizza-as-vegetable/

'Snatch Squads’ Caught On Camera At London Student Rally - shows plainclothes police acting as agents provocateurs -

'Snatch Squads’ Caught On Camera At London Student Rally - shows plainclothes police acting as agents provocateurs - 




A YouTube video shot during the November 9 student rally in London allegedly shows plainclothes police acting as agents provocateurs among the protesting crowds.

The video uploaded by the user “noshockdoc” shows two people who first engage in rough handling of one of the rally protesters. Then, reportedly, the same people are shown along with six others detaining someone behind a police cordon.

The media dubbed the November 9 march against tuition fees and education cuts one of the most intensively-policed events to take place in London. The force had 4,000 officers on duty on the day, and they were authorized to use rubber bullets if necessary. This was never needed, however. The Met reported that 24 arrests were made on the day.

Some of the protesters reported incidents of violence which they said had been caused by the security forces. “The police tried to provoke people to react violently, and some people had to act in self-defense against police attacks, but we all supported one another and prevented the police from causing a riot,” one of the activists, identified only as ‘Dan’, told the Oxford University student newspaper Cherwell.

Reclusive North Korea opens its door for tourists - Just don’t bring your cellphone, try to send an e-mail, or ... -

Reclusive North Korea opens its door for tourists - Just don’t bring your cellphone, try to send an e-mail, or ... - 




This reclusive and secretive country is now officially open for business — the tourism business, that is.


It has mountains, rivers, waterfalls and pine forests. Pyongyang, the capital, boasts 70 parks, water so clean you can drink from the tap, wide boulevards uncluttered by traffic or neon signs, beautiful traffic policewomen at nearly empty intersections, and a plethora of soaring monuments and memorials.


Just don’t bring your cellphone or BlackBerry, don’t try to send an e-mail, don’t plan to stroll down a street, and never try to talk to strangers or take pictures of ordinary people. None of that is allowed.


This is North Korea’s unusual experiment in opening its door a tiny crack — allowing foreign tour groups, their cash and investors into the country, but under strict admonition to restrict movement and to avoid even the most casual contact with daily life.


The vast majority of North Koreans are cut off from e-mail, the Internet, cellphones and almost every other form of contact with the outside world. Most days, there are just two government-run television channels — not on all day — with a third on weekends showing old Chinese movies. Opening this isolated country to tourists means risking the government’s near-total control over every aspect of what average citizens here can see, read, watch or hear.


But a limited opening is now part of the government’s plan. North Korea has been hit by U.N. and U.S. sanctions imposed because of its pursuit of nuclear weapons. Its economy is shrinking by some estimates, and the United Nations is projecting severe food shortages. So the country is looking to tourism — particularly from neighboring China — as a potential source of new revenue.


Read more - 
http://www.washingtonpost.com/world/reclusive-north-korea-opens-door-a-crack/2011/11/10/gIQAXj7ePN_story.html

Secret farm bill’ primed for passage in debt supercommittee process - it will prop up U.S. farm payments through 2017 -

Secret farm bill primed for passage in debt supercommittee process - it will prop up U.S. farm payments through 2017 - 


Lawmakers on the House and Senate Agriculture committees are trying to write a new five-year farm bill through the supercommittee process. 


The legislators are using the supercommittee to avoid what would be a more public, election-year debate in 2012, when the current farm bill expires and new legislation would be scheduled for writing, according to critics of the effort.


“We call it the secret farm bill,” said one environmental activist, who worries that if the lawmakers succeed, it will prop up U.S. farm payments through 2017. 


Environmental groups and poverty advocates say the supercommittee should dismiss the recommendations from the farm-state lawmakers, which are expected to be delivered later this week. The recommendations are expected to propose the replacement of some existing farm payments with a new crop insurance program and new payments that would be linked to commodity prices. 
While some of the changes lawmakers are expected to propose would save billions on paper, critics say the new farm payments could balloon in cost if commodity prices fall. 


Opponents also worry the lawmakers are trying to get around longtime critics of the farm bill who for years have said the legislation is a symbol of waste that costs taxpayers money while hurting farmers in poor countries who do not receive similar levels of support. 


“They are completely trying to write a whole new farm subsidy program,” a second activist said. “They are making an end-run around people who question these programs.”


An advantage of locking in the changes through the supercommittee is that the panel’s recommendations must get an up-or-down vote in Congress. That would give less leverage to opponents of farm subsidies. 


Ben Becker, a spokesman for the Senate Agriculture Committee, defended the effort to propose farm bill changes to the supercommittee.


“Either the supercommittee would in essence write the Farm Bill, with no hearings or public input, or the Agriculture Committees and the communities we represent would have a voice. Democrats and Republicans are working hard within the process that’s been imposed on us to develop a sound bipartisan and bicameral recommendation that members of both parties can support,” he said.


But the secrecy of the process has even some farm lobbyists raising questions. 


Read more - 
http://thehill.com/homenews/house/193581-secret-farm-bill-primed-for-passage-in-debt-deal

London Cabs to TAPE ALL Conversations - drivers told to install the £460 devices by 2015 or have their licenses revoked -

London Cabs to TAPE ALL Conversations - drivers told to install the £460 devices by 2015 or have their licenses revoked - 

Plans to fit all taxis operating in the city of Oxford with audio recording devices have been branded a “staggering invasion of privacy” prompting calls for the Information Commissioner’s Office (ICO) to investigate how widespread the use of microphones on public transport has become.

Taxi drivers in the university town have been told that they need to install the £460 devices by 2015 or face having their licenses revoked. The microphones, accompanied by CCTV cameras, will activate once the ignition in the car is turned on and will remain recording for 30 minutes after the engine is turned off.

The council says the recording equipment is necessary to protect drivers and passengers as well as deal with any disputes over fares. Recorded information would only be accessible to the police or council officials.

But privacy campaigners say the plans represent a significant “ramping up” of surveillance culture in Britain and may well be in breach of Government guidelines.

“This is a staggering invasion of privacy being done with no evidence, no consultation and a total disregard for civil liberties,” said Nick Pickles, director of Big Brother Watch. “To my knowledge this is the first time a council has brought in audio recording equipment like this in taxis.”

James Welch, legal director for Liberty added: "Local Authorities have fallen foul of public anger and the law in relation to CCTV before - we urge anybody concerned about the legal position to get in touch with Liberty"

Big Brother Watch has since complained to the ICO which confirmed last night that it was investigating the proposals.

Two Oxford bus companies, however, already use audio recording on some of their routes. The Oxford Bus Company confirmed that some of its newer CCTV cameras have their microphones turned one in the driver’s compartment whilst Stagecoach said it was trialling microphones on its “Oxford Tube” service to London.

Philip Kirk, the Managing Director of Oxford Bus Company said: “All our buses are fitted with CCTV and many of them also record sound at the entrance. In general we have found that CCTV works well to protect our passengers and our drivers.”

The exact extent of microphone use on public transport is not known. But one official involved in the sale of CCTV told the Independent: “It’s not unusual. Many of the newer devices have audio record options. Most of the time it is used to record conversations between, say, a bus driver and the passenger at the point of entry. It’s unusual for private conversations to be recorded.”

Other audio equipment that has been given the go-ahead in the past include panic buttons and noise sensors which only turn the microphones on in certain circumstances such as when someone is shouting or if a driver fears they are in danger.

London Transport, which operates a fleet of more than eight thousand buses in a city with considerably higher crime rates than Oxford, said it had no audio devices on its buses and no plans to bring them in.

The government’s guidelines on CCTV make it clear that audio recording can only be used in very limited circumstances.

Read more - 

http://www.independent.co.uk/news/uk/home-news/cctv-taxi-plan-a-staggering-invasion-of-privacy-6262221.html

North Carolina, Michigan State Set to Face Off Aboard Navy Warship - flight deck in now a gleaming basketball court -

North Carolina, Michigan State Set to Face Off Aboard Navy Warship - flight deck in now a gleaming basketball court - 




The fighter jets are gone from the flight deck, and in their place is a gleaming basketball court surrounded by bright green bleachers -- a stark contrast to the gray, 95,000-ton Navy warship that buried Usama bin Laden at sea.
Friday's historic North Carolina-Michigan State basketball game aboard the USS Carl Vinson couldn't have come at a more opportune time for a Navy facing deep defense cuts.
Officials plan to seize the spotlight to showcase the Navy and its awe-inspiring, multi-billion-dollar aircraft carriers to the more than 3 million viewers expected to watch the Veterans Day game on ESPN.
The country's basketball-fan-in-chief, President Barack Obama, will be onboard for the game.
With the war in Iraq officially over and the one in Afghanistan winding down, the military is almost certain to shrink. All branches of service are feeling pressure to tout the importance of their missions and their equipment.
Navy officials say they know a basketball game will not change the budget debate, but it can't hurt efforts to get the American public excited about their branch of service as its chiefs lobby Congress to avoid cuts that could jeopardize its future military strategies.
The role of the Nimitz-class supercarriers in modern warfare has been part of that discussion with critics questioning whether anti-ship weapons have turned them into white elephants that are too expensive to risk losing in a war. In 2015, the Navy plans to add to its fleet the Gerald R. Ford, the lead ship of a new three-ship class of supercarriers. Each is expected to cost about $9 billion.
Capt. Bruce H. Lindsey, the Vinson's commanding officer, said viewers Friday will get a firsthand look at just how important carriers are to military operations, from sending aircraft into Iraq and Afghanistan, to supporting relief efforts during disasters such as the earthquakes in Haiti and Japan. The program will feature snippets about Naval life aboard the 1,092-foot floating airport.
"It's an awesome opportunity to showcase Naval aviation and your Navy," he said.
The Navy wants to show Americans how their tax dollars are being spent, said Rear Admiral Dennis Moynihan, the Navy's chief spokesman.




Read more: http://www.foxnews.com/sports/2011/11/09/north-carolina-michigan-state-set-to-face-off-aboard-navy-warship/?intcmp=trending#content

A Beginner’s Guide to the European Debt Crisis -

A Beginner’s Guide to the European Debt Crisis - 




For ordinary, non-specialist people just tuning in to the horror-show which is the European crisis, the whole mess can seem daunting and almost hermetic—almost like a secret language, or a really complicated code. 




Euro-this and euro-that and euro-the-other—that’s all everyone seems to be talking about. That, and words like troika, haircuts, bailouts, yields, not to mention an alphabet-soup’s worth of acronyms like EC, ECB (they’re different), EFSF, PIIGS, IMF, EMU—


—OMFG!


For us dweebs neck deep in this stuff, it’s all mother’s milk. At my Strategic Planning Group, we’ve been game-playing what do when the eurozone breaks up since May—but for people who’ve just realized, “Hey! Something’s going on over there in Europe!”, it can be a bit much, like tuning in to a soap opera five minutes before the end of the episode: Everything seems terribly portentous and important and shocking . . . but basically incomprehensible. 


Which wouldn’t matter if this was a soap-opera—but this is real life. This European crisis will affect your financial future, no matter if it’s happening on another continent. This is major—


—which is why so many ordinary people are confused and frightened: Because it seems terribly complicated. 


But like all things which seem complicated at first glance, when you break it down, it’s simple. 


This is what happened: 


In 1999, the Europeans implemented a common currency, the euro. They did it in order to improve trade between the eurozone nations, and thus bind the European countries closer together. 


This new currency was centrally managed—that is, there was a single issuer of this new currency. Which of course makes sense: In the United States, you don’t have 50 states issuing currency—you just have the Federal Reserve, issuing dollars for the entire country. 


Same with Europe: Thus the eurozone—the zone of countries that had the euro as their currency. This new currency was managed by the European Central Bank—the ECB—out in Frankfurt, Germany. The ECB’s primary concern—like all central banks—was making sure that the currency it was supervising did not lose value. That is, it made sure that inflation stayed below 2% per year. 


However, just like in the U.S., though there was a central bank—in this case the ECB—each of the member states of this European Money Union (from where we get the acronym “EMU”)—could issue its own debt. 


So far, so good: The euro was printed and managed by the ECB in Frankfurt. The individual countries—Spain, France, Germany, Holland—could each issue their own debt, and of course manage their own government budgets. 


Now, the strongest economy in Europe is Germany’s. For our purposes, the reasons why of this don’t matter. What matters is, Germany’s cost of borrowing was the lowest of the eurozone. 


This makes sense: If I make a million bucks a year, and borrow $10,000 for expenses and stuff, I’m going to get a pretty good interest rate from my credit card company or my bank. You know how lenders are: They lend you an umbrella when it’s sunny, then take it away when it rains. Since I don’t need to borrow the ten grand, all the lenders will trip over themselves to lend me money at extremely low rates, because they know I’m good for it. I won’t default on the debt. 


Same with nations—and same with Germany: German debt was always cheap, in the 1%–3% range, because Germany was good for it. After all, it’s the fifth largest economy in the world, and the biggest within the eurozone, racking trade- and fiscal budget surpluses year after year. So who wouldn’t feel comfortable lending money to the Germans? Nobody—‘cause see the Germans? They pay up—always. 


But here comes the problem: Banks felt very comfortable lending money cheaply to Germany. Germany was a member of the eurozone. Therefore, lenders assumed that the other countries in the eurozone were going to be as good a credit risk as Germany. 


So the banks lent money to the other, weaker countries in the eurozone at the same rates of interest as they lent to Germany. 


Yeah, I know: !!!


Imagine you have a great credit rating—so the bank gives your kid a $100,000 consumer line of credit, just because he happens to live in the same house as you do. The bank lends your kid the money because it says there’s a “tacit promise” that if your kid doesn’t pay back the money, you will. 


Crazy, right? Right—but that is the core problem: Countries like Portugal, Italy, Ireland, Greece and Spain—countries whose initials spell out the acronym “PIIGS”—could go into debt at the same rates of interest as Germany, just because they shared the euro as a currency. 


The economies of the PIIGS were not as sound as Germany’s—but the lenders treated them as if they were. Not only that, the lenders assumed that, if any country got into trouble—i.e., if any one of the PIIGS couldn’t pay back their loans—the eurozone as a whole would be good for the debt. 


This was great for the PIIGS. Because it meant cheap and plentiful loans, with which they could go out and buy stuff. 


So they did: The PIIGS went into debt—too much debt—while the banks gave them all the slack they needed. Which makes complete sense: If before 1999, these countries were borrowing at (say) 6% or more, and all of a sudden their cost of borrowing drops in half, what will they do? Go into debt! 


Which is what they did—massively. 


And what did these countries do with the debt? Create a false sense of prosperity!


This in a nutshell is what happened between 1999 and 2010, when the Greek crisis first erupted: During those “boom” years (which were really no more than junior going crazy with the credit card), the various countries of the eurozone went into massive debt, in order to both fund a social safety net, and cut taxes on their citizens. 


In other words, something for nothing, bought and paid for with cheap debt. Kind of like America . . . —but that’s for another time.


Though they now don’t want to admit it, the Germans encouraged this over-indebtedness, by the way—as did the French. Why? Because with this false sense of prosperity, the over-indebted nations bought German and French goods and services. German and French banks were at the forefront of lending money to the PIIGS—which essentially made the whole scheme nothing more than vendor financing on a massive scale: I lend you money so that you can buy my products. 


Just like a junkie setting up an addict, or a predatory credit card company giving you teaser rates, the Germans and the French—via their banks and government institutions—gave the weaker economies all the incentive in the world to go into massive debt, and then go out and buy German and French products. 


It was bound to end in tears. As is happening now. It all goes to the issue that all these countries are over-indebted. And that overindebtedness is being reflected in the sovereign bond markets. 


Let’s take a slight detour, to explain what this means. 


What Are Bonds? What Are Yields? And Why Do They Matter?


A bond is a bit of paper that is traded, just like stocks. But unlike a stock, which is a piece of ownership in a company, a bond is essentially a promissory note: You lend me money, and I give you this piece of paper where I promise to pay you back. The bond has a face value, and an interest rate. The person who buys the bond at the market price collects the interest, and receives the principal of the bond on maturation. A person can own a bond, or sell it to someone else, just like a stock. 


Corporations issue bonds, in order to finance factories, expansion, whathaveyou. And governments issue bonds, in order to finance various infrastructure projects, as well as their deficit spending. 


With all bonds, there are three pieces you have to understand: There is the face-value of the bond, there is the interest that the bond pays, and then there’s the effective return-on-investment of the bond—which is known as the yield. 


The yield of a bond is what everyone pays attention to. The yield on a bond is a percentage value: It is the interest rate of the bond, times the face value of the bond, divided by the current price of the bond. The yield is inversely affected by the price of the bond: The higher the price of the bond, the lower the yield, and vice versa. 


So you see, it’s a seesaw: When the yield of the bond is going up, then the price of the bond is going down. When the yield is going down, then the price of the bond is going up. 


Let’s see an example: Say I sell you a bond for €1,000, paying 5% interest per year. The bond is trading in the open markets at €900. So 5% times €1,000, divided by €900, equals 5.55%—the yield has widened, as they say in the biz. That is, the yield has gone up, since the price of the bond has gone down. 


But say instead that the bond has risen in value, which of course can happen: Say the price is up to €1,100 per bond. So 5% (the original interest) time €1,000 (the face value), divided by €1,100 (the current price, gives us a yield of 4.54%. The bond’s yield is said to be narrowing. 


Since bonds all have different conditions insofar as maturation, interest rate, etc., it is simpler and quicker to speak of changes in yield only: “The yield is rising” means that the price of the bond is going down. 


Why is the price of a bond going down? Because investors think that the person who owes the debt—the bond issuer—is not necessarily good for the debt. That is, they think the debtor might default. So the owners of the bond sell it at a lower price, because they don’t want to have the risk of a default. 


Why does a bond go up in price? Because the debtor might show signs that it won’t default—so the high yield makes it attractive for a buyer to pay more for the bond, thereby driving up the price, thus paradoxically lowering the yield of the bond. 


So what does this mean for countries?


Well, when the yield of a government bond rises, it means that people are selling that country’s bonds. Take the above example of €1,000 bonds paying 5%. If the bonds are now at €900, the yield is at 5.55%, as per the above example. 


Now, if the yield on that bond rises to 7%, what does that mean? It means that the bond is trading at distressed levels. Because for a €1,000 bond paying 5% interest to be yielding 7%, then the bond is trading in the €715 range. (The face-value price of €1,000 times 5% divided by a current price of €715 yields 7%.) 


(By the way, this is a simplified version of calculating yields. In markets, often as not, the “yield” being referenced is the “yield-to-maturity” (YTM), which is a more complicated calculation. If you’re interested, check out this discussion, which explains it in relatively straightforward detail.)


So say you’re a government, and you have to fund €1 billion for a bridge. You will issue bonds to finance the bridge, bonds that will pay an interest of 5% a year. In order to raise those billion euros, you have to sell not a million €1,000 bonds—you have to sell 1,400,000 bonds with a face value of €1,000. 


And therefore, you have to pay interest on 1,400,000 bonds, instead of 1,000,000 bonds. And when these bonds mature—that is, when they have to be paid off in full—the government won’t be paying out €1 billion in principal: They’ll be paying out €1.4 billion in principal, on what was supposed to be a €1 billion bridge. Because bonds are paid full face value on maturation. 


Thus a government’s cost of borrowing has risen. And it’s all expressed in the yield. 


That’s why yields matter. And unfortunately, rising yields is what’s been going on with European debt: They have risen massively—because investors think there is a less likelihood that the bonds will be paid back in full. 


Why does this matter? Because these nations are all relying on deficit spending: They spend more money than they bring in. So they need to issue more debt, in order to pay off their obligations, such as salaries, pensions, medical care, not to mention pay off the interest on the previous bonds they’ve already issued. 


So in this situation, a country can get to the point where its bonds are selling at such a discounted value that it cannot issue enough bonds to simultaneously pay off their obligations and allow them to continue to function at their current level.


That is, countries can get to the point of bankruptcy—depending on how high the yields on their bonds rise. 


Now, About Greece


This is what happened to Greece: Its cost of borrowing rose so much that they no longer had the ability to raise the cash to pay off all their obligations. 


So starting in April of 2010, the so-called Troika—the International Monetary Fund (IMF), the European Central Bank (ECB), and the European Commission (EC, the executive arm of the European Union)—structured a bailout package, which was eventually passed through in June. 


The bailout package of course had some conditions, which the Greeks agreed to in order to get the money—and which they then promptly failed to live up to. (How am I not surprised . . .)


The details aren’t that important for the purposes of this discussion. What matters about the Greek Drama is two-fold: 


• One, Greece is a small economy within the EMU—about 2% of the eurozone’s GDP—so therefore its debts, while massive, were all-in-all manageable. 


• Two, the bailout of Greece was supposed to be swift and decisive, and act as a signal to the markets that the Troika would defend the eurozone, and not allow any of its members to go bankrupt. In other words, Greece was a firewall, to protect the other economies. 


But the problem was, the Troika dithered. 


Why did they dither? Because it became immediately clear that the only way to fix the Greek situation was by debt haircuts—and haircuts were impossible, because they would bankrupt the European banks. And the American ones too. 


Let me explain. 


Fear of a Credit Event


Part of any debt restructuring—be it a poor man’s bankruptcy, or the bankruptcy of a large corporation—is debt haircuts: That is, lenders get less than the 100% of the debt that they are owed. 


Say I owe $10,000 to a car dealership for a new car I bought last year, and I go bankrupt. The dealer will get a percentage of the money I have left after everything (including the car) is liquidated. But they won’t get the full $10,000 that I owe them, obviously, because I’m bankrupt: I owe more than I have. 


Same with nations: Greece owed more than they had—so Greece’s lenders were going to have to take a haircut. That is, they would have to take less money than they were owed. 


This is what’s known as a “credit event”. 


This was a problem. 


If there was a haircut on Greek debt—a credit event—then the banks and insurance companies which held the debt (predominantly German and French banks) would have to write a loss on those loans. Huge losses. Losses bigger than their capital. 


Thus these banks would go bankrupt, if there was a credit event in Greek debt. 


Even if they didn’t go bankrupt, these financial institutions would have to sell off other bonds, in order to raise the cash to stave off bankruptcy. 


This massive sell-off of sovereign bonds would have a contagion effect: In order to cover their Greek bond losses, banks would have to sell their Italian, Spanish and French bonds—at a loss—so as to raise the cash to stay solvent, which would in turn make Italian, Spanish and French debt toxic. 


In other words, a domino effect. 


Furthermore, American banks—which don’t own much in the way of PIIGS debt directly—have written a lot of insurance on those sovereign bonds: The famed credit default swaps (CDS). Bank of America especially has made a lot of money selling CDS’s on those debts in 2008, 2009 and 2010, as has JPMorgan. 


If those sovereign bonds defaulted, those American banks would have to pay off these CDS’s—


—and thus they would go bankrupt too!


Everything is connected: A credit event in Greek bonds would trigger credit events in Italian, Spanish and eventually French bonds, which would bankrupt European banks as well as American banks—


—basically, a repeat of the 2008 Global Financial Crisis, only bigger, and without the happy ending. 


This is why the Troika dithered. They talked tough, and they even put the gun to Greece’s head: Pass these austerity measures, or else no bailout money. But they never pulled the trigger and let Greece fail—because if they did, the European and American banking sector would collapse. 


Since the Greek financial hole grew bigger between 2010 and 2011—because the Greek’s didn’t live up to most of their promises—a second bailout package had to be created. 


Again—more dithering. This time, the dithering was because the Germans in particular feel that they are propping up spendthrift countries—and nobody likes to feel like the chump who’s paying for other people’s good times. 


There is enormous political pressure on Merkel to not save Greece. The people pressuring Merkel don’t realize what will happen if Greece collapses. 


So then last October 28, the Troika plus German Chancellor Angela Merkel and French President Nicolas Sarkozy finally came up with a “solution” to the Greek Drama. 


I say “solution” in the loosest possible sense of the word: In the weeks previous to the Oct. 28 announcement, the Europeans had been going around the world, hat in hand, asking emerging markets—especially China—to fund their bailout facility. They had been politely refused—because they’re not stupid: They saw that the bailout facility—the famed European Financial Stability Facility (EFSF)—was just a lot of smoke and mirrors, essentially throwing good money after bad. 


Through some clever accounting tricks and some not-so-clever baldfaced lies involving accounting standards, the Europeans managed to cobble together a workable EFSF which could give Greece and potentially one of the other PIIGS a lifeline. 


But in order to show that they were “serious”, the Troika and Merkel and Sarkozy insisted that the Greeks agree to a serious of painful austerity measures. 


The big news, however, was that this second bailout of Greece included haircuts on Greek debt. The advertised number on the Greek haircuts was fifty percent! (Though when you looked more closely at the details, it was more like 20%.) The Oct. 28 deal stipulated that the haircuts on the Greek debt would be voluntary—“voluntary” as opposed to “forced”, which would have triggered a credit event)—


—but then on the following Monday, Georgios Papandreou, the Prime Minister of Greece, threw a monkey wrench into the Rube Goldberg contraption that is the Second Greek Bailout Package: 


G-Pap called for a popular referendum of the bailout!


All hell broke loose. 


The eurocrats famously do not like going to the public to ask for their support—they like to dictate instead. Why? Because they consistently lose the popular vote, to the point where they no longer bother putting things up for a vote. 


For Papandreou to put the austerity package to a popular referendum meant that it would likely not pass—because no citizenry likes to be asked if they want their government to give them less services and entitlements (duh!). 


Therefore, the Troika suspended the €8 billion tranche of the first bailout package that the Greeks were supposed to get in November. 


Without that tranche, Greece goes bankrupt on December 15. 


So Papandreou backtracked on Thursday, November 3, and said that there would be no referendum. 


But the damage was done: The bond markets got so freaked out that they started looking at the next weak link in the European chain. 


So Now, We Have Italy


In mid October, Italian debt was yielding about 3.5%—very respectable. Italy, furthermore, has a very large debt, but it is far from insolvent: In fact its government regularly meets its budget with a bit of a surplus. Balance of trade is okay, growth is low but in line with the rest of Europe. And aside from periodice sex scandals, the Berlusconi government is fairly competent and efficient. 


Overall, Italy is in pretty good shape. 


But it needs more debt to pay off previous debts, and to shore up its economy, which is in a recession much like the rest of the world’s. It’s debt load is growing, but strictly because its government is spending to prop up the sagging Italian economy. 


Nevertheless, after the Greek fiasco, the bond markets turned on Italy. 


On the Monday after the Greek Week (Nov. 7), Italian yields rose from their 5% level—then spiked on Wednesday to above 7.6%, which is potentially catastrophic. Why catastrophic? Because at those levels, no advanced economy can finance itself—not to mention the fact that certain derivatives require that yields stay below certain thresholds. If they remain above certain yield numbers for a set period of time, they are considered credit events—which triggers CDS’s, which lead to bank bankruptcies. 


So those yields have to go down now—fast. 


This crisis in Italy has led Silvio Berlusconi to announce he will resign, once austerity measures are passed. His resignation will likely calm the markets—for a bit. At my Strategic Planning Group, I’ve been live-blogging the nightmare, and discussing what to do about it. 


What strikes me is the inanity of the eurocrats’ response. They come up with vague and flimsy packages, and a lot of flowery rhetoric—you should have just heard Sarkozy, after the Oct. 28 deal, going all French Literature on the thing. 


But the Europeans don’t seem to understand that they have a nuclear weapon at their disposal—which they refuse to use. 


And that nuclear weapon in the European Central Bank. 


Fear of Monetization


The easiest way to fix this entire debt situation would be for the European Central Bank to simply print up money, and go out and buy enough Greek and Italian debt to bring down their yields. 


It wouldn’t even have to be very much—a mere €50 billion would do the trick. The fear that the markets would have of being caught on the wrong side of a trade against the ECB would be enough to keep the markets docile and quiet. 


I’m not saying this is a best solution to the current situation—or even a solution at all. However, you cannot make sound economic policy on the fly, as you react to a crisis. You have to stabilize the patient, before you give him the treatment—not operate him for liver cancer while he’s still bleeding from a gunshot wound to the leg. 


Having the ECB come in and decisely calm the markets—like the Swiss National Bank did a month ago—would be the best way to get the European house in order, and then implement the structural reforms and austerity measures that everyone agrees need to be implemented. 


But the ECB isn’t stabilizing the patient. Why? Because the Germans are greedy. 


See, if the ECB does a European version of Quantitative Easing, the Germans are afraid that their currency will weaken—which they do not want, because they are a creditor nation. If the euro’s value erodes, then Germany will have lost some purchasing power. 


They are so afraid of the euro weakening—and thus the Germans losing a bit of their surplus—that they are making the other economies in the eurozone crash. 


The Germans do not seem to understand that, if the nations of Europe go down, there will be no buyers for their goods and services—so they will suffer too. 


Thus the ECB sits there, while this Greek problem becomes now an Italian problem—


—and soon a French problem: The yields of French bonds are rising precipitously, and already one French bank, Credit Agricole, is in trouble over the Greek Drama. It’s only a matter of time before the big French banks start tumbling—and then France itself—unless the bond markets are calmed. 


So What’s Going To Happen?


What’s going to happen is—best case—the Germans come to their senses, and the ECB starts buying up European sovereign debt, calming the markets. Greece and a couple of other small and/or weak eurozone countries exit the European Monetary Union, go back to local currencies, devalue, and then rebuild their economies; say Greece, Portugal, Spain and maybe Italy. And finally, austerity measures are imposed, fiscal budgets are put on a sounder footing, and things right themselves in a few years. 


Worst case? Italy gets really sick, and then France falls as well, leading to the eventual break-up of the whole eurozone, with Germany, Austria, Holland, Finland and Belgium maintaining the euro as their currency. 


This would not be a good thing for those countries, by the way: If the union between France and Germany breaks, the non-eurozone countries would be poor—so they would not be able to buy the goods and services of the rump-eurozone countries. 


So all the countries would lose, if there is a break up of the monetary union. 


Unfortunately, at this time, the worst case seems the likely case.
If you are interested in an analysis of what to do and how to react if there is a break-up of the European monetary union, please check out my Strategic Planning Group Scenario, “When The Euro Breaks”.
Read more - 
http://gonzalolira.blogspot.com/2011/11/beginners-guide-to-european-debt-crisis.html