If you’re like most people, you’ve probably been hearing a bit about “Bitcoin” recently.

And, if you’re like most people, you’ll probably not know what it is or what to think about it–or what the fuss is all about.

Here’s a snapshot.

Bitcoin is an electronic currency–a new form of money.

Bitcoins take the form of strings of numbers that can be electronically owned by and transferred among individuals and organizations. For now, the currency is primarily used for payments by fringe retailers or illegal transactions, but it is being accepted at more and more places. And organizations that exchange Bitcoins for standard currency are now being approved to operate as banks.

The premise and promise of Bitcoin–the part that appeals to folks who don’t happen to be gold bugs or cryptography geeks–is that the current plan is for only a finite number of Bitcoins to be created. This is in direct contrast to standard government-issued currencies, which governments can always print more of. If the supply of Bitcoins remains finite, this should theoretically eliminate inflation, which is one of the biggest drawbacks of paper money.

(Although inflation has remained low in recent years, it ravages the value of paper money over time. A dollar in 1900 is only worth about $0.04 in today’s currency.)

So Bitcoin is conceptually very interesting, especially since it is not issued by a government agency.

What has suddenly grabbed the public’s attention about Bitcoin, however, is the recent explosion in the value of the currency.

Because the number of Bitcoins is limited, their value increases rapidly when more people want them. And when the value of something increases rapidly, more people want it because they see it as a means of making money. So the initial price increases fuel future price increases which fuel more future price increases…at least for a while.

This dynamic has fueled the inflation of every asset bubble in history. And they have all ended badly. So it behooves people to analyze the sustainability of such price increases carefully.

When Bitcoin was launched in 2010, the currency initially had very little value. Quickly, however, the price of each “coin” soared above $25, making the initial Bitcoin believers rich. Then prices collapsed, with coins trading down to $5 again, making Bitcoin adherents into fools. Then Bitcoin prices began a slow and steady rise that has suddenly gone parabolic.

At the beginning of last month Bitcoins could be exchanged for about $35.

Now they’re changing hands at above $90.

This explosive price increase has many intelligent people crying “bubble!”

And these intelligent people may well be right.

But if there’s one lesson that gets repeated again and again in bubbles, it’s that prices can rise much higher and bubbles can last much longer than most observers think.

Internet stocks, for example, were first described as a “bubble” in 1995, a full five years before the peak. And the amount of money made in those next five years made everyone who was skeptical early on look and feel like a fool. House prices, meanwhile, were described as a “bubble” as early as 2002 and 2003. And it wasn’t until 2007, many years later, that house prices finally peaked.

Driving prices in all bubbles, of course, is the possibility that the price action might not actually be a bubble.

That applies to Bitcoin, too.

If Bitcoins become an accepted currency everywhere in the world, if governments don’t make Bitcoin transactions illegal, and if the supply of Bitcoins remains finite (if the systems aren’t hacked or the anonymous creators don’t get greedy and decide to create many more), then Bitcoin prices could go much, much higher.

After all, how much would you pay for a currency that could be used everywhere in the world and would never demolish your savings by losing value to inflation?

You might pay a lot.

And, as with any asset, it would be hard if not impossible to determine how much was “too much”–because determining the value of any asset or means of exchange is always a subjective exercise.

At the same time, though, there are many big risks that could bring the Bitcoin frenzy to a quick and brutal end.

Governments, for example, might decide that Bitcoin undermines the value of their own legal currencies–and ban it. In the U.S., for example, only Congress has the power to print money, and Congress might well decide that Bitcoin is money (which, it is).

Or, Bitcoin’s technology could be hacked, allowing Bitcoins to be stolen from their owners.

Or someone could make counterfeit Bitcoins.

Or the anonymous creators of Bitcoin, who reportedly still own lots of Bitcoins, could decide to create a lot more Bitcoins, thus debasing the value of each unit of the currency.

Or Bitcoin could never really gain mass-market acceptance.

In short, there are lots of reasons why Bitcoin might not be the wonderful “store of value” that Bitcoin fanatics and investors say it is–and, instead, might just become the next tulip bulb or dotcom stock bubble.

On the other hand…

Bitcoin might fulfill its promise.

And/or Bitcoin might make some speculators fantastic amounts of money in the hours, days, months, or years before its value crashes.

So you can understand why not just monetary theorists and technology folks and speculators are excited about Bitcoin.
source : yahoo

The 2008 financial crisis touched every sector of the U.S. economy and millions of Americans lost their jobs as a result. But for employees in the financial services industry, business is back to normal.

According to a new report by compensation data firm Equilar, pay for board directors at the six biggest banks averaged $328,655 in 2011. Goldman Sachs (GS) directors got a 50% increase in their 2011 annual compensation compared to 2008. The average pay for a Goldman director totaled $488,709 in 2011, but some directors earned more than $500,000. Goldman defends its policies, arguing that directors are paid mostly in restricted stock which cannot be touched until a director leaves the board. Goldman’s directors met just 15 times in 2011, reports The New York Times. In 2009 all of Goldman’s 13 directors declined compensation.

Related: Main Street Incomes Stay Flat, Big CEO Packages Return

The Daily Ticker’s Henry Blodget and Aaron Task both agree that the average American – who is either unemployed or making less money now than before the financial crisis – would be outraged to know that bank board directors are paid so much for a “cushy, part-time job.” But reforming executive compensation at Fortune 500 companies has been met with reluctance – even apathy.

“We have decided in our society that it’s perfectly fine for the top echelon at our biggest corporations to make hundreds of times as much in salary,” Blodget says in the accompanying clip.

Morgan Stanley (MS) paid its board directors an average of $351,080 in 2011, the second-highest sum after Goldman, but nearly the same amount from 2008. JPMorgan (JPM) gave its directors annual compensation of $278,195 in 2011 and Bank of America (BAC) directors made $275,000 on average.
source : yahoo

WASHINGTON (Reuters) – Revamped terms of Fannie Mae and Freddie Mac’s taxpayer-funded bailout that went into effect this year will allow the mortgage finance firms to repay the Treasury sooner than would have otherwise been the case, a federal watchdog said on Wednesday.

Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) were seized by the government at the height of the financial crisis in 2008 as mortgage losses threatened their solvency. Since then, they have drawn about $188 billion in taxpayer funds to stay afloat, while paying about $58 billion to the Treasury in dividends.

The two companies have now returned to profitability, and under the new terms, their earnings are swept into the Treasury as a dividend payment for the government’s stake in the firms. If they are not profitable, no sweep is made.

Previously, the companies, which buy mortgages from lenders and repackage them as securities for investors, were required to make a 10 percent dividend payment even if they had a loss. At times, they had to borrow from the Treasury just to make the payment. Now, they simply will not be able to retain any profits.

“Ending the circularity of draws from Treasury to pay dividends will prevent the erosion of Treasury’s commitment level,” the Federal Housing Finance Agency’s Inspector General said in a report.

“The change in the dividend structure also will affect quarterly payments to Treasury, potentially resulting in the enterprises returning more money to federal taxpayers sooner.”

The two so-called government-sponsored enterprises, or GSEs, will also see changes in quarterly payments to Treasury under an accounting method where they start recording potential tax credits, known as deferred tax assets, as part of their net worth, the report concluded.

The new bailout terms, which were announced in August, were intended to move up plans to shut the companies down, but they do little to address how that might be achieved or how the government’s footprint in the mortgage finance market might shrink. Fannie Mae, Freddie Mac and the Federal Housing Administration finance nine out of every ten new home loans.

Fannie Mae has already raised the possibility that it could soon be required to send about $61.5 billion to the U.S. Treasury if it begins to account for deferred tax assets. The company has delayed filing its earnings report for the fourth quarter to further study the accounting issue, but said it expects to post a significant profit.

“Indeed, because of accounting treatment, sustained profitability of the (GSEs) could result in a one-time large dividend payments to Treasury from each,” the report stated.

Freddie Mac has said that in future periods it will assess the need for a reduction of its deferred tax asset valuation allowances, which could have a material effect on its financial position. The company, in its annual report, said that current conditions didn’t require it to reverse any of its $31.7 billion in deferred tax assets as of the end of 2012.

source : yahoo

By Michele Kambas and Karolina Tagaris

NICOSIA (Reuters) – Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray.

The vote in the tiny legislature was a stunning setback for the 17-nation currency bloc, angering European partners and raising fears the crisis could spread; lawmakers in Greece, Portugal, Ireland, Spain and Italy have all accepted austerity measures over the last three years to secure European aid.

With hundreds of demonstrators outside the parliament chanting “They’re drinking our blood”, the ruling party abstained and 36 other lawmakers voted unanimously to reject the bill, bringing the Mediterranean island, one of the smallest European states, to the brink of financial meltdown.

Finance Minister Michael Sarris had already headed to Moscow, amid speculation Russia could offer assistance given the high level of Russian deposits in Cypriot banks. President Nicos Anastasiades, barely a month in office, spoke by phone with Russian President Vladimir Putin after the vote.

Anastasiades was due to meet party leaders at 9 a.m. (0700 GMT) on Wednesday to explore a way forward.

“The voice of the people was heard,” 65-year-old pensioner Andreas Miltiadou said among a crowd of demonstrators jubilant after the vote.

EU countries had warned they would withhold 10 billion euros ($13 billion) in bailout loans unless depositors in Cyprus, including small savers, shared the cost of the rescue, an unprecedented step in the stubborn debt crisis.

The European Central Bank had threatened to end emergency lending assistance for teetering Cypriot banks, which were hard hit by the financial crisis in neighboring Greece.

The island’s partners barely disguised their anger.

Euro zone paymaster Germany, facing an election this year and increasingly frustrated with the mounting cost of bailing out its southern partners, said Cyprus had no one to blame but itself for the gravity of the situation.

DEBTS TOO HIGH

“Cyprus requested an aid program,” German Finance Minister Wolfgang Schaeuble told ZDF television. “For an aid program we need a calculable way for Cyprus to be able to return to the financial markets. For that, Cyprus’s debts are too high.”

Dutch Finance Minister Jeroen Dijsselbloem, who chairs the Eurogroup of finance ministers, said the bailout offer still stood providing the conditions were met. European Central Bank Governing Council member Ewald Nowotny called on Cyprus to show “discipline and the readiness to act rationally.”

But it was Europe’s demand at the weekend that Cyprus break with previous EU practice and impose a levy on bank accounts that led outraged Cypriots to empty bank cash machines and unsettled financial markets.

An important issue in negotiations has been the high level of deposits held in the island’s banks by non-EU citizens and companies, notably from Russia, where Cyprus has established itself as a major provider of offshore financial services.

BACKLASH

The EU and International Monetary Fund are demanding Cyprus raise 5.8 billion euros from bank depositors to secure the bailout it needs to rescue its financial sector. They say a bailout of more than 10 billion euros would tip Cyprus’s debt level into unmanageable territory for its 1.1 million people.

But lawmakers said the levy on deposits crossed a red line.

“You can’t take a 10,000-metre jump without a parachute. And that’s what they’re asking of us,” said George Perdikis of the Greens Party.

International market reaction has been muted so far but that might change.

While Brussels has emphasized that the measure was a one-off for a country that accounts for just 0.2 percent of European output, fears have grown that savers in other, larger European countries might be spurred to withdraw funds.

Dijsselbloem, the Eurogroup chair, said there would be no need to impose a levy in any of the 16 other euro countries.

Some Cypriots hope they can get aid from Russia, which has bailed out Cyprus in the past. Many Russians keep their money in Cyprus and operate businesses from there.

Russian authorities have denied that the Kremlin might offer more money, possibly in return for a future stake in Cyprus’s large but as yet undeveloped offshore gas reserves, which have raised the island’s strategic importance.

An influx of Russian money and influence since the collapse of the Soviet Union has led some Brussels officials to complain privately that Cyprus acts at times as a “Trojan donkey” for Moscow inside the European Union since it joined in 2004.

Banks in Cyprus are to remain shut on Wednesday to avoid a bank run. The island’s stock exchange will also be closed on Wednesday. ($1 = 0.7760 euros)

(Additional reporting by Lionel Laurent, Noah Barkin, Gilbert Kreijger, Adrian Croft, Steven C. Johnson and Robin Emmott and Michael Shields; Writing by Paul Taylor/Mike Peacock/Matt Robinson; Editing by Giles Elgood)

By Pedro Nicolaci da Costa

WASHINGTON (Reuters) – The Federal Reserve looks set to sustain its $85 billion monthly bond-buying stimulus despite improving U.S. economic data as a new flare-up in the euro zone crisis reminds officials of a risky global environment.

As it wraps up a two-day meeting on Wednesday, the U.S. central bank’s policy-setting Federal Open Market Committee will continue debating the potential costs of quantitative easing, including the possibility its easy money policies will inflate asset market bubbles.

But Fed Chairman Ben Bernanke has made clear he still firmly believes the benefits are palpable, and the risks worth taking.

“The only change in the Fed statement we expect is a nod to the economy being better than what the FOMC saw six weeks ago,” said Steve Blitz, chief economist at ITG.

“This nod should only sharpen divisions within the FOMC about whether it’s time to give a hint of the potential of a promise for the Fed to begin tailing off asset purchases sometime sooner rather than later,” he said.

The Fed will release its policy statement, along with a new set of economic projections, at 2 p.m. (1800 GMT) and Bernanke will get a chance to answer reporters’ questions at a quarterly news briefing a half hour later.

One key indicator that bolstered confidence in the U.S. recovery was a February employment report showing a lower jobless rate, down 0.2 percentage point at 7.7 percent, and the creation of 236,000 net new jobs.

If that pace of job growth can be sustained for a few months, the Fed might be able to claim substantial progress has been made toward an improved employment outlook – its own stated prerequisite for the cessation of bond buys.

If anything, developments in Cyprus, where the announcement of a tax on bank deposits to help fund the country’s bailout sent jitters through the global financial system, are likely to reinforce the resolve of Fed officials to bolster the U.S. economy.

“What this event assures is that the Fed underscores the importance of protecting against downside risk,” said Quincy Krosby, market strategist at Prudential Financial. “It assures investors Mr. Bernanke is going to keep his accommodative stance.”

The latest Reuters poll of economists showed they are looking for the Fed’s current bond purchase plan eventually to total $1 trillion, though many see the central bank easing off on the pace of buying toward the end of the year. Analysts also see a large gap, potentially one or two years, between the time the Fed stops buying bonds and when it begins raising rates.

Global concerns aside, the Fed has plenty of reasons not to begin pulling back on stimulus yet. Its preferred measure of inflation continues to run below the Fed’s 2 percent target and unemployment remains far above its pre-recession levels.

“I don’t see any sign or reason for the policy to change,” said Josh Shapiro, co-founder and chairman of Sonecon, a Washington-based economic advisory firm. “If anything, one might think an expansion of the current policy might be warranted.”

The Fed cut benchmark overnight rates effectively to zero in 2008 as it battled the financial crisis. It has also bought more than $2.5 trillion in Treasury and mortgage bonds to keep long-term borrowing costs low to spur consumption and investment.

Since December, the central bank has said it will keep rates near zero until the jobless rate falls to 6.5 percent as long as inflation did not threaten to pierce 2.5 percent over a one- to two-year horizon – a commitment economists expect it to reiterate on Wednesday. The Fed has also vowed to keep policy loose even as the recovery picks up.

HAWKISH RUMBLINGS

Some of the Fed’s more hawkish members have opposed the latest round of bond buys, citing various concerns ranging from worries about future inflation to the prospect of financial instability. In a recent speech, Fed Board Governor Jeremy Stein highlighted the possibility that a bubble might already be forming in certain parts of the corporate bond market.

That emphasis means policymakers will likely touch on potential changes to the Fed’s strategy for eventually unwinding its stimulus during their discussion – and Bernanke may be asked about it at his news conference.

Officials had originally planned to sell some of the assets on the central bank’s $3.15 trillion balance sheet sometime after they begin raising interest rates.

But recent comments from top Fed officials, including Bernanke, suggest they are strongly considering holding onto those assets, in part to minimize the potential for losses that would force them to halt regular remittances to the U.S. Treasury.

(Additional reporting by Rodrigo Campos; Editing by Tim Ahmann and Dan Grebler)

source : yahoo.com

SYDNEY (Reuters) – Asian shares and the euro struggled on Wednesday after a bailout plan for Cyprus fell into disarray, but losses were limited on investors’ hopes that a last minute deal was still within reach.

Cyprus’s parliament overwhelmingly rejected a proposed tax on bank deposits as a condition for bailout aid, pushing the Mediterranean island a step closer to the brink of financial meltdown.

But the European Central Bank (ECB) offered some comfort by saying it was committed to providing liquidity within certain limits, even after having threatened to end emergency lending assistance for teetering Cypriot banks.

“It is relatively calm for now, but headline risks remain acute,” said Sue Trinh, strategist at RBC in Hong Kong.

“Clearly the ‘no’ vote was not an ideal situation. The government now has to scramble for last minute options and it remains uncertain how exactly it will unfold.”

The finance minister of Cyprus is in Moscow to scout for support amid speculation Russia could step up, while newly elected President Nicos Anastasiades is due to meet party leaders on Wednesday to explore a way forward.

The MSCI’s broadest index of Asia-Pacific shares outside Japan was flat, having earlier carved out a fresh 2013 trough. The index is now down around 3 percent from this year’s peak set a month ago.

South Korean shares (.KS11) lost 0.4 percent, while their Australian counterparts (.AXJO) shed 0.1 percent. Hong Kong stocks (.HSI) edged up 0.8 percent, while Chinese shares (.SSEC) climbed 1.7 percent, continuing to recover from Tuesday’s fall to a 2-1/2 month low.

Japanese financial markets were shut for a holiday.

The mixed performance in Asia mirrored Wall Street, which saw the S&P 500 index (.SPX) close lower for a third day, while the Dow Jones industrial average (.DJI) ended flat after recouping early losses.

Commodity markets were also calmer with U.S. crude little changed at $92.35 a barrel. Copper was off a seven-month trough and spot gold held near a three-week high set on Tuesday.

EURO UNDER PRESSURE

Uncertainty surrounding Cyprus kept the euro pinned near four-month lows against the U.S. dollar. The euro fetched $1.2876, having fallen as far as $1.2844 overnight.

The common currency lost ground against the yen, shedding 0.2 percent to 122.35, near a two-week low of 121.45 plumbed Monday.

Yen bulls will be wary of any comments from Haruhiko Kuroda, who becomes governor of the Bank of Japan on Wednesday. Expectations that Kuroda will quickly embark on a much more aggressive monetary policy to fight deflation have recently pushed the yen to multi-year lows versus the euro and dollar.

The dollar index (.DXY), which tracks the greenback’s performance against a basket of currencies, was flat at 82.971 but not far from a seven-month peak of 83.166 set a few days ago.

Investors will also keep an eye on the outcome of the Federal Reserve’s two-day policy meeting due to end later on Wednesday.

Analysts expect the Fed to keep buying $85 billion a month in mortgage and Treasury bonds to encourage investment and bolster a weak economic recovery.

“Overall, we expect the Fed to maintain its stance on asset purchases and forward guidance. At the press conference, we expect the chairman to continue to downplay the costs of asset purchases while highlighting the benefits,” analysts at Barclays Capital wrote in a client note.

“With the Fed having shifted to unemployment rate-based guidance, the chairman’s views on the overall labor market conditions, which take into account a broader set of indicators, would be parsed.”

(Editing by Eric Meijer and Sanjeev Miglani)

source : yahoo