US & UK to play financial 'war game'

Chris Giles  Financial Times

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Britain and the US will stage the first transatlantic simulation of a crisis in a large bank on Monday, in a sign of growing confidence that the authorities can now deal with the failure of large institutions.

All of the main players who would need to be involved in a failure of companies such as Bank of America, Goldman  Sachs, Barclays or HSBC will gather in Washington DC to make sure they would know what to do, who to call and how to inform the public.

The move reflects the authorities' view that they are getting close to solving the "too big to fail" problem, even for cross-border banks, outside a full-blown system-wide crisis.

George Osborne, UK chancellor, announced he would be taking part in the "war game" along with Jack Lew, US Treasury secretary, Janet Yellen, head of the Federal Reserve, Mark Carney, Bank of England governor and other senior officials from both countries.

The simulation will not mimic any particular banks but the authorities will run through the procedures they would follow if a large UK bank with US operations failed and those for a significant US bank with a British presence. Unlike domestic war games held before the financial crisis, Mr Osborne pledged to publicise the results.

Speaking to journalists on the fringes of the International Monetary Fund meetings in Washington, Mr Osborne said: "We are going to make sure we can handle an institution that was previously regarded as too big to fail ... and this demonstrates the distance we have come over the past few years to build resilience and learn the lessons of the financial crisis."

He added that the simulations should reassure taxpayers that it was unlikely the governments would have to bail out banks in future as they had to in the 2008-09 financial crisis.

Six years ago, the US and UK authorities fell out over Lehman Brothers, both before it crashed and afterwards in the chaotic bankruptcy that followed. When faced with a real crisis, previously good relations between the two governments and regulators broke down.

Asked whether the war game could come close simulating the stresses in a real crisis, the chancellor, admitted that the exercise was not trying to recreate a crisis in real time. "It is an opportunity to make sure our different, but similar, domestic arrangements work."

Mr Osborne said the purpose of the exercise was to make sure every player, including politicians knew their own responsibilities and who needed to act, which creditors would have to take a hit and how to communicate the authorities' actions to the public.

"No war game is like war itself," the chancellor said, "but it will mean that we are far better prepared and the principals will have asked themselves the difficult questions."

US & UK to play financial 'war game'

The war game comes at the start of a series of international events in banking regulation including new stress tests for British and European banks later this month and the G20 summit in November, which faces a deadline to come up with durable proposals to end the too big to fail problems.

IMF data published at the meetings showed that Britain had to spend 10.5 per cent of national income propping up its financial sector in 2008-09 and has subsequently recovered only about a quarter of that money. In contrast, the US support amounted to 4.5 per cent of its gross domestic product and it has already recovered the lot.

Some countries had a much greater burden, however, with Ireland having to increase debt by 41 per cent of GDP and Greece 34 per cent.

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North Korean Web goes dark days after Obama pledges response to Sony hack

A South Korean army soldier watches a TV news program showing North Korean leader Kim 
Jong Un at the Seoul Railway Station in Seoul, South Korea, Monday, Dec. 22. 
(Ahn Young-Joon/AP)

North Korea’s fledgling Internet access went dark Monday, days after 
President Obama promised a “proportional response” to the nation’s 
alleged hack of Sony Pictures Entertainment. The question of who 
pulled the plug immediately became the stuff of a global cyber-mystery.

Was it a shadowy crew of guerrilla hackers, under the flag of Anonymous?
A retaliatory strike from the United States? A betrayal from China,
North Korea’s top ally and its Web gatekeeper? Or just a technical
glitch or defensive maneuver from the Hermit Kingdom itself?

On Monday, a State Department official issued a somewhat coy
non-denial when asked about U.S. involvement in North Korea’s
blackout.
The official wouldn’t comment on how the government plans to
avenge North Korea’s alleged attack on Sony but added, “As we
implement our responses, some will be seen, some will not be seen.”

The mystery behind North Korea’s 9 1/2 -hour outage highlights
a paradox of modern cyberwarfare: As attacks become more
prominent, the combatants — and their motives — are becoming
 harder to identify.

“This is the standard for espionage: Things are murky. It’s not
like the movies, where in the last scene someone ties it all together
with one long soliloquy,” said James Lewis, a senior fellow at
the Strategic Technologies Program at the Center for Strategic
and International Studies.

North Korea continues to deny that it was responsible for the hack
that hobbled Sony, exposed intimate e-mails from top executives
and posted online copies of unreleased films — all efforts in an
apparent revenge scheme for “The Interview,” a comedy about two
goofballs told to assassinate North Korean leader Kim Jong Un.
After Obama accused the country last week and promised retaliation,
North Korean officials at first offered to hold a joint investigation
with the United States to find the source of the attack.

Then Pyongyang warned through its state-owned news agency that
it would fight any retaliation with “our toughest counteraction­ . . .
against the White House, the Pentagon and the whole U.S. mainland,
the cesspool of terrorism, by far surpassing the ‘symmetric counteraction’
declared by Obama.”

On Thursday, researchers began to notice an uptick in attacks against 
North Korea’s Internet infrastructure. Designed to overload servers and 
Web sites with a flood of fake traffic, such “denial-of-service” attacks 
can render entire networks inoperable.

The next day, a Twitter account affiliated with Anonymous — the
collective behind numerous high-profile hacks — announced that
a counterattack against North Korean hackers had begun.

“Operation RIP North Korea, engaged. #OpRIPNK,” tweeted the
account known as @theanonmessage. (That account was suspended
by Twitter on Monday over separate threats it had made to
release a sex tape belonging to rapper Iggy Azalea.)

On Monday, a separate group, also claiming links to Anonymous,
sought credit for the outages.

The timing of the two tweets was consistent with statistics tracked
by the security research firm Arbor Networks. On Thursday, the
company recorded two denial-of-service attacks. The next day it
saw four. The wave peaked Saturday and Sunday with 5.97
gigabits of data inundating North Korea’s pipes every second.

Late Monday, Dyn Research said North Korea’s Internet access was
restored after a nine-hour, 31-minute outage.

While it is unclear whether Anonymous played a role in North
Korea’s downtime, at least six of the observed ­denial-of-service
attacks originated from the United States, Arbor Networks said.

But other security experts said hostile code can be adapted from
other attacks and filtered covertly through foreign servers. Even
basic cyberattacks can use decoys or distractions, including hosts
of “zombie” computers or falsified location data, to shake pursuers
off the trail.

“The actual work of evidence-gathering and prosecution is so much 
more difficult in the digital world than in the biological world,” 
said Alec Ross, a senior fellow at Columbia University’s School 
of International and Public Affairs. “Unlike a bullet, something 
‘shot’ as a cyberweapon can be reused and repurposed. Obfuscation 
s much easier, and it’s much easier to distribute an attack.”

Some security analysts noted that North Korea’s rudimentary
Web pipeline flows directly through the routers of a company
called China Unicom, leading some experts to speculate that
Chinese hackers were responsible for the blackout. China may
have seen the Sony hack as an embarrassing, unauthorized mishap
from its small but loud ally, or thought the friction it sparked
with the economies of the United States and Japan could be too
destabilizing to ignore.

“It is quite possible that the Chinese are reminding the North Koreans
of who really controls those networks,” Ross said.

On Monday, the U.S. envoy to the United Nations called for global
partners to hold North Korea accountable for the hack on Sony as
well as longtime human rights abuses. “It is exactly the kind of
behavior we have come to expect from a regime that threatened
to take ‘merciless countermeasures’ against the U.S. over a Hollywood
comedy and has no qualms about holding tens of thousands of people
in harrowing gulags,” Ambassador Samantha Power said.

Doug Madory, director of Internet analysis at Dyn Research, doubted
that North Korea took down its own Internet, saying the event was
not consistent with a more common outage, like a cut wire or
technical error, because the connections struggled for hours to
come back online.

“This doesn’t look they’re taking themselves down. You’ve got hours
and hours of instability, and that comes from somewhere,”
Madory said. “It looks like their network is for hours just struggling
to stay online, trying to come back, and eventually it’s just over,
just down.”

But Madory said that attributing blame for something like a distributed
denial-of-service (DDOS) attack is “notoriously difficult,” and that
something as unsophisticated as a DDOS attack would be easy to replicate.

Some hackers agreed the job wasn’t necessarily a mission-impossible
situation. A group of hackers calling itself Lizard Squad, which
has claimed knocking Sony’s PlayStation Network and several
other gaming services offline over the past few months, tweeted a
Web address it called the “North Korea off button.” It also tweeted
a message suggesting the blackout would be easy: “Xbox Live &
other targets have way more capacity. North Korea is a piece of cake.”

Source: By Cecilia Kang,, Drew Harwell and Brian Fung  The Washington Post.

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Oil demand to 'rise tentatively' in 2015: IEA

Oil prices might have taken a tumble over the summer but demand is set to make a modest recovery in 2015 as the global economy improves, says the International Energy Agency (IEA).

Oil demand 

Getty Images

Oil prices have seen dramatic declines in the last few months, with the price for Brent crude hitting a two-year low of $88.55 a barrel this week, on the back of an abundant supply and slowing orders in the U.S., China and Europe. However, the IEA believes that demand growth "may have touched bottom" and should steadily improve.

"Projections of oil demand growth for 2014‐15 have been reduced, but growth is still expected to gain momentum. Recent data suggest that may already have started to happen," the IEA said in its monthly report on Tuesday. It added that record‐high refinery throughputs in August and improved margins worldwide suggest demand is perhaps not currently "as dismal as it might appear."

The agency revised its forecasts for global oil demand for 2014 to 92.4 million barrels a day -- down 200,000 b/d from its September report -- on "reduced expectations of economic growth and the weak recent trend."

Don't panic over oil: T. Boone Pickens

As such, demand growth was now projected at 700,000 b/d in 2014 although the agency predicted demand growth to rise "tentatively" to 1.1 million b/d in 2015, "as the macroeconomic backdrop improves."Demand growth is forecast to pick up momentum in the fourth quarter of 2014, the IEA remarked, "albeit modestly in line with the global economy."

Concerns over a slowdown in economic growth have been a major factor behind a sharp fall in oil prices over the last few months. Brent crude, the global oil benchmark, has fallen more than 20 percent since June when turmoil in Iraq had lifted prices to $116 a barrel.

Cheap oil is here to stay, at least for a few months

The drop in prices has led to expectations that the Organization of the Petroleum Exporting Countries could cut output in an attempt to shore up prices, but Saudi Arabia and Kuwait have played down such a move.

According to the IEA, weaker-than-expected demand for oil in the second quarter of 2014 has "come as a surprise" and it added that "further oil price drops would likely be needed for supply to take a hit – or for demand growth to get a lift."

Rather than be deterred by falling prices, OPEC crude oil output surged to a 13-month high in September, led by Libya's recovery and higher Iraqi flows, the IEA reported.

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How Ben Bernanke's refi rejection could help you

Matthew J. Belvedere :CNBC.com  

The recent revelation by former Federal Reserve Chairman Ben Bernanke about being turned down for a home refinancing loan should serve as a call-to-action to fix onerous lending standards, said Ronald Peltier, CEO of Home Services of America—an affiliate of Warren Buffett's Berkshire Hathaway and the nation's second-largest full-service residential brokerage firm.  

"We have to bring common sense back," Peltier said on CNBC's "Squawk Box" Tuesday. "The process is too mechanized. It doesn't allow for common sense to enter into the mortgage-qualifying process. The standards are just too high, along with the down payments." 

Earlier this month, Bernanke told a housing conference he had tried unsuccessfully to refinance his mortgage.

Getty Images

Former Chairman of the Federal Reserve Ben Bernanke.

"How can you understand the wisdom or the logic of a former Fed chairman not being able to qualify for a refinance on a relatively small number given he's in the one percent," said Peltier—urging a return to the lending standards of before the housing bubble, which burst in dramatic fashion between the 2006 home price peak and the 2012 bottom.

Eight years later, as Bernanke and many other Americans have found out, it's still really hard to get a mortgage—a double-whammy since historically low interest rates are creating a big opportunity for qualified buyers.

Many would-be first-time home buyers can't get approved—forcing them to become renters. But Peltier hopes that'll change. "When the mortgage markets loosen and the credit standards get more normalized, we see that [renters] will move into purchases of homes."

Another optimistic sign, according to the Home Services CEO, support for the housing recovery has moved from mainly investor-buying for rentals to people who actually intend to live in the homes they purchase.

"At the start of the recovery two years ago, we were seeing a large percentage of the home purchases being transacted by investors and by private equity. The good news is we are getting a more normalized mix of buyers," Peltier said.

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Russia and Ukraine reach tentative gas deal in Milan

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Russia and Ukraine made progress on Friday towards resolving a row over gas supplies, but European leaders said Moscow had to do much more to prop up a fragile ceasefire and end fighting in eastern Ukraine.

The mooted deal aimed at re-opening Russian gas supplies to Ukraine ahead of the cold winter months came as something of a surprise following an initial round of talks in Milan that the Kremlin said was "full of misunderstandings and disagreements".

Reuters

Russian President Vladimir Putin

However, Ukrainian President Petro Poroshenko said a subsequent meeting with Russian President Vladimir Putin and the leaders of France and German had made some headway in defusing a crisis that has revived memories of Cold War enmity.

"We have the first limited progress on the gas issue. We have agreed on the main parameters of the contract," he said, adding that all sides remain committed to a ceasefire deal struck last month to halt a pro-Russia revolt.

The Kremlin said Putin and Poroshenko would meet one-on-one later on Friday.

The West has clamped sanctions on Russia in response to its annexation of Crimea in March and its support for separatists battling government troops in the east of Ukraine.

Kiev and its Western backers accuse Moscow of aiding the separatist revolt by providing troops and arms. Russia denies the charges but says it has a right to defend the interests of the region's Russian-speaking majority.

EU officials said the gas talks would continue in Brussels next week, with Poroshenko telling reporters that the financing still needed to be resolved.

Moscow cut off gas supplies to Ukraine in June over unpaid debts and a pricing disagreement. This has sparked fears that the Russian gas that transits Ukraine en route to Europe could also be disrupted this winter.

Gloom

Clearly sympathetic with Kiev, European leaders attending an EU-Asia summit in Milan lined up to tell Russia to ensure full implementation of the ceasefire deal struck last month.

Germany, in particular, sounded gloomy.

"I cannot see a breakthrough here at all so far," Chancellor Angela Merkel said earlier on Friday.

"We will continue to talk. There was progress on some details, but the main issue is continued violations of the territorial integrity of Ukraine," she added.

Merkel's position as German leader in effect means that she sets the tone of EU relations with Russia, and she has taken the lead within Europe in trying to persuade Putin to change tack over Ukraine. She had a rocky time in Milan, however, with one German official saying the Russian leader had not displayed a "too constructive mood".

An initial meeting set for Thursday was delayed for hours because Putin flew into Italy well behind schedule. They then held more than 2-1/2 hours of talks that ran well past midnight, with both sides acknowledging discussions had been unproductive.

On Friday, Merkel reprimanded the former Soviet KGB spy in front of EU and Asian leaders, according to people present.

After a speech in which Putin raised doubts about the sovereignty of Ukraine, Merkel reminded him of the 1994 Budapest agreement, in which Russia recognised the sovereignty and territorial integrity of Ukraine, including Crimea.

The Kremlin also sounded unhappy about the initial round of meetings -- particularly a breakfast attended by Putin, Poroshenko and an array of EU leaders.

"The talks are indeed difficult, full of misunderstandings, disagreements, but they are nevertheless ongoing, the exchange of opinion is in progress," said Kremlin spokesman Dmitry Peskov, accusing some unnamed participants of taking an "absolutely biased, non-flexible, non-diplomatic" approach.

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