Six Impossible Things

In this issue: 

Six Impossible Things

Delta Force

Reduce your Deficits!

Pity the Greeks

Should the US Bail Out European Banks?

Alice laughed. "There's no use trying," she said" One can't believe impossible things."

"I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast."

- From Through the Looking Glass by Lewis Carroll

Economists and policy makers seem to want to believe impossible things in regards to the current debt crisis percolating throughout the world. And believing in them, they are adopting policies that will result in, well, tragedy. Today we address what passes for wisdom among the political crowd and see where we are headed, especially in Europe.

I am reminded of the great line from the movie, The Princess Bride. Vizzini is the short bad guy who is trying to get away from Westley and every thing he attempts does not work. Westley just keeps on coming. At each failed attempt, Vizzini mutters, "Inconceivable." Finally, Vizzini has just cut the rope and The Dread Pirate Roberts (Westley) is still climbing up the cliff.

Vizzini: HE DIDN'T FALL? INCONCEIVABLE.

Inigo Montoya: You keep using that word. I do not think it means what you think it means.

European leaders keep telling us that the break-up of the eurozone is inconceivable. I do not think they know what that word really means. Let's see if I can explain the problem so that even a politician can understand.

But first, and quickly. We have transcribed the speeches from my recent 7th Annual Strategic Investment Conference I put on with my US partners Altegris Investments. To say they were awesome is somewhat of an understatement. If you have registered for my free accredited investment letter, you should already have gotten a link or will get one soon to the speeches. David Rosenberg, Dr. Lacy Hunt, Paul McCulley, Niall Ferguson, Jon Sundt, Jason Cummins, Gary Shilling and your humble analyst. That is a world class line-up.

Six Impossible Things

I have written several letters over the years about the basic economic equation

GDP = C + I + G + (Net Exports)

Which is to say, that Gross Domestic Product in a country is equal to total Consumption (personal and business) plus Investments plus Government Spending plus next exports. This equation is known as an identity equation. It is true for all countries and times.

Now, gentle reader, I am going to spare you a few pages of algebra and cut to the chase. Let's divide a country's economy into three sections, private, government and exports. If you play with the variables a little bit you find that you get the following equation.

Domestic Private Sector Financial Balance + Governmental Fiscal Balance – the Current Account Balance (or Trade Deficit/Surplus) = 0

This equation was introduced to you a few months ago in an Outside the Box written by Rob Parenteau. We are going to review this briefly, as it is VERY important. Paragraphs in quotes will be from that letter. As Rob noted, "...keep in mind this is an accounting identity, not a theory. If it is wrong, then five centuries of double entry book keeping must also be wrong."

By Domestic Private Sector Financial Balance we mean the net balance of business and consumers. Are they borrowing money or paying down debt? Government Fiscal Balance is the same: is the government borrowing or paying down debt? And the Current Account Balance is the trade deficit or surplus.

The implications are simple. The three items have to add up to zero. That means you cannot have both surpluses in the private and government sectors and run a trade deficit. You have to have a trade surplus.

Let's make this simple. Let's say that the private sector runs a $100 surplus (they pay down debt) as does the government. Now, we subtract the trade balance. To make the equation come to zero it means that there must be a $200 trade surplus.

$100 (private debt reduction) + $100 (government debt reduction) - $200 (trade surplus) = 0.

But what if the country wanted to run a $100 trade deficit? Then that means that either private or public debt would have to increase by $100. The numbers have to add up to zero. One way for that to happen would be:

$50 (private debt reduction) + (-$150) (government deficit) - (-$100) (trade deficit) = 0. Remember that we are adding a negative number and subtracting a negative number.

Bottom line. You can run a trade deficit, reduce government debt and reduce private debt but not all three at the same time. Choose two. Choose carefully. And before we get into the implications, let's look at yet another equation, although this is somewhat simpler.

Delta Force

There are two and only two, ways that you can grow your economy. You can either increase your population or increase your productivity. That's it.

The Greek letter "Delta" is the symbol for change. So if you want to change your GDP you write that as:

Δ GDP = Δ Population + Δ Productivity

If you are a country facing a population decline (like Japan) that means to keep your GDP growing you have to increase your productivity even more. That is why I have written so much about demographics over the years. Population growth (or the lack thereof) is very important. Russia is facing a very serious problem over the next 20 years that will require either a significant increase in productivity or large immigration to stave off a collapsing economy. Russia's population has declined by almost 7 million in the last 19 years to 142 million. UN estimates are that it may shrink by about a third in the next 40 years. But that's another story for another letter.

One last economic insight. You cannot grow your debt faster than nominal GDP forever. At some point, the market begins to think you will not be able to pay your debts back. This is no different than the fact that a family cannot grow its debt faster than its income ability to pay the debt back. At some point, you run out of the ability to borrow more money as lenders "just say no."

As a family's or country's debts grow, the carrying cost or interest expenses rise. At some point, the interest expense consumes an ever larger portion of the budget. Increasing the debt increases the interest expense eventually to the breaking point. There are limits.

Reduce your Deficits!

Now, let's look at the implication of all this. Let's start with Great Britain. They are running very large deficits on the order of 11% of GDP. Clearly, that is unsustainable and the new government knows it. They are looking to cut £6 billion in their first effort, which sounds like a lot, but is less than 4% of the £156 billion deficit. There is a lot more cutting that needs to be done.

But spending cuts and tax hikes have consequences. The UK retail industry is warning that a feared hike in value-added tax to 20% from the Conservative-Liberal Democrat government would cost 163,000 jobs and cut consumer spending by £3.6bn over four years. And that tax hike is just for openers.

The classic hope for any country in such a dire strait is to be able to grow your way out of the problem. Martin Wolfe wrote in the Financial Times a few weeks ago that Britain needed to let the pound drift lower so that British exports would be more competitive. A cheap pound will drive up tourism. Their trade deficit can become a trade surplus.

Here is their dilemma. In order to reduce the government's fiscal deficit, either private business must increase their deficits or the trade balance has to shift, or some combination. Lucky for them, they can in fact allow the pound to drift lower by monetizing some of their debt. Lucky, in they can at least find a path out or their morass. Of course, that means that pound denominated assets drop by another third against the dollar. It means that the buying power of British citizens for foreign goods is crushed. British citizens on pensions in foreign countries could see their locally denominated incomes drop by half from their peak (well, not against the euro which is also in free fall).

What's the alternative? Keep running those massive deficits until ever increasing borrowing costs blow a hole in your economy reducing your currency valuation anyway.
And remember, if you reduce government spending, in the short run that is a drag on the economy, so you are guaranteeing slower growth in the short run. As I have been pointing out for a long time, countries around the world are down to no good choices.

Britain's is a much slower economy (maybe another recession), much lower buying power for the pound, lower real incomes for its workers, yet they have a path that they can get back on track in a few years. Because they have control of their currency and their debt which is mostly in their own currency, they can devalue their way to a solution.

Pity the Greeks

Some of my fondest memories were made in Greece. I like the country and the people. But they have made some bad choices and now must deal with the consequences.

We all know that Greek government deficits are somewhere around 14%. But their trade deficit is running north of 10%. (By comparison, the US trade deficit is now about 4%.)

Going back to the equation, if Greece wants to reduce its fiscal deficit by 11% over the next three years, then either private debt must increase or the trade deficit must drop sharply. That's the accounting rules.

But here's the problem. Greece cannot devalue its currency. It is (for now) stuck with the euro. So, how can they make their products more competitive? How do they grow their way out of their problems? How do they become more productive relative to the rest of Europe and the world?

Barring some new productivity boost in olive oil and produce production, there is no easy way. Since the beginning of the euro, Germany has become some 30% more productive than Greece. Very roughly, that means it cost 30% more to produce the same amount of goods. That is why Greece imports $64 billion and exports $21 billion.

What needs to happen for Greece to become more competitive? Labor costs must fall by a lot. And not by just 10 or 15%. But if labor costs drop (deflation) then that means that taxes also drop. The government takes in less and GDP drops. The perverse situation is that the debt to GDP ratio gets worse even as they enact their austerity measures.

In short, Greek life styles are on the line. They are going to fall. They have no choice. They are going to willingly have to put themselves into a severe recession or more realistically a depression.

Just as British incomes relative to their competitors will fall, Greek labor costs must fall as well. But the problem for Greeks is that the costs they bear are still in euros.

It becomes a most vicious spiral. The more cuts they make, the less income there is to tax, which means less government revenue which means more cuts which mean, etc.

And the solution is to borrow more money they cannot at the end of the day hope to pay. All that is happening is that the day of reckoning is delayed in the hope for some miracle.

What are their choices? They can simply default on the debt. Stop making any payments. That means they cannot borrow any money, but it would go along way toward balancing the government budget. Government employees would need to take large pay cuts and there would be other large cuts in services. It would be a depression, but you work your way out of it. You are still in the euro and need to figure out how to become more competitive.

Or, you could take the austerity, downsize your labor costs and borrow more money which means even larger debt service in a few years. Private citizens can go into more debt. (Remember, we have to have our balance!) This is also a depression.

Finally, you could leave the euro and devalue like Britain is going to do. Very ugly scenario, as contracts are in euros. The legal bills would go forever.

There are no good choices for the Greeks. No easy way. And then you wonder why people worry about contagion to Portugal and Spain?

I see that hand asking a question. Since the euro is falling won't that make Greece more competitive? The answer is yes and no. Yes, relative to the dollar and a lot of emerging market currencies. No to the rest of Europe, which are their main trade partners. A falling euro just makes economic export power Germany and the other northern countries even more competitive.

Europe as a whole has a small trade surplus. But the bulk of it comes from a few countries. For Greece to reduce their trade deficit is a very large life style change.

Germany is basically saying you should be like us. And everyone wants to be. Just not everyone can.

Every country cannot run a trade surplus. Someone has to buy. But the prescription that politicians want is for fiscal austerity and trade surpluses, at least for European countries. But if the PIIGS reduce their trade deficits, that will not be good for Germany.

Yet politicians want to believe that somehow we all can run surpluses, at least in their country. We can balance the budgets. We can reduce our debts. We all want to believe in that mythical Lake Woebegone, where all the kids are above average. Sadly, it just isn't possible for everyone to have a happy ending.

And this brings us to a last quick point, which some day will be its own letter. Every country wants it currency to be valued "fairly" which means lower than its competitors. With both Europe and Britain on their way to parity with the US dollar, what will be the reaction of Asia and especially China?

As Ollie said to Stan (Laurel and Hardy), "Here's another nice mess you've gotten me into!" A nice mess indeed.

Should the US Bail Out European Banks?

The obvious answer to the above question, at least on this side of the Atlantic, is no. But that is the plan being foisted on US tax-payers by the International Monetary Fund. The IMF wants to create a $250 billion dollar bailout fund for Greece, Portugal, et al that the US will contribute roughly 20% to. This fund will loan money and that IMG debt will be subordinate (junior!) to regular Greek debt, so when Greece does default, and they will, the IMF is the last in line to get paid.

Where will the money go? It will buy mostly Greek rollover debt from European banks getting out of their Greek debt. It is a back door bailout for German and French banks.
The US Senate voted 94-0 that the US should not fund any such debt if the Treasury cannot certify the probability of getting repayment. If the Obama administration allows this funding to go through, the hue and cry will be large. It is bad enough that we have to pay for Freddie and Fannie (already $400 billion and counting!). Not meaning to be churlish, but the French and Germans can bail out their own banks.

This article taken by fxstreet.com

After the Crisis: Planning a New Financial Structure

This week we visit an essay from an old friend of Outside the Box, Paul McCulley, the Managing Directpr of PIMCO. This is a speech he did at the Minsky Conference sponsored (I believe) by the Levy Institute. It was also the same speech he gave at my conference mid-April that was quite well received.

Essentially Paul argues that the cause of the recent crisis was the creation of the Shadow Banking System outside the purview of regulation. And while he did not use the line in this speech, he did at my conference, which is one of the truly great lines I have heard this year.

"The rating agencies were like the man who went to an under-age drinking party and handed out fake IDs (identification cards). They were the necessary enablers as Paul shows. This is a think piece and one you should take some time to read as when you "get it," you will have some understanding of what must be done all over the world to prevent the next crisis. Let me offer two paragraphs as teaser copy"

"And I think the first principle is that if what you're doing is banking, de jure or de facto, then you are in a joint venture with the public sector. Period. If you're issuing liabilities that are intended to be just as good as a bank deposit, then you will be considered functionally a bank, regardless of the name on your door. That's the first principle.

"Number two, if you engage in these types of activities – call it banking, without making a big distinction here between conventional banking and shadow banking, as Paul Krugman intoned this morning – in such size that you pose systemic risk, you will have higher mandated capital requirements and you will be supervised by the Federal Reserve. Yes, I just told you who I think the top-dog supervisor should be. You will have tighter leverage and liquidity restrictions: You will have to live by civilized norms. In fact, a great deal of what is on the regulatory reform table right now proceeds precisely along those lines. If you're going to act like a bank, you're going to be regulated like a bank. That simple. And maybe you just might find the time to go back to working on your golf game at 3. That is the core principle.

(Note: Paul uses the following Latin terms a lot. For those not familiar with them, Ex-post is Latin for "after the fact." Ex-ante is Latin for "before the event or beforehand".)

After the Crisis: Planning a New Financial Structure

Learning from the Bank of Dad

Thank you very much. It is an absolute pleasure and honor to be here. I gave the keynote a couple years ago and it was my first time to be at the Minsky Conference. I feel that I'm part of a church, and it's a good church in that we're on the right side of history. And it's absolutely wonderful to be attending services with you again.

I want to open up with a little story that should make everybody in the room feel particularly good, and then we'll get into discussing economics. Harry Markowitz has been a friend of mine for about a decade. I became friends with Harry through two channels. Number one, Rob Arnott of Research Affiliates has an Advisory Panel of famous academics, such as Harry and Jack Treynor, that he gets together every year. I'm frequently invited to speak. We spend two or three days over a weekend together. I've also gotten to know Harry because he and the late great Peter Bernstein were very close friends. Peter and I were also very close friends.

I've been preaching the Minsky Framework at Rob's event for a number of years. And Harry's always been very, very polite. I spoke again just this past Sunday morning. After I finished, we had a nice Q&A. And Harry said, "Paul, if I had to read one book by Minsky, which one would it be?" And I said, "Harry, please, tell me that you've read at least one book by Minsky." And he says, "No, I haven't, but I think I would like to, and I think I'm probably old enough now."

I promised Harry that I would send him one personally. And I'm quite sure that if I don't follow up on that, somebody at the Levy Institute would gladly follow up. So, the bottom line is that one of the fathers of the Efficient Market Hypothesis has finally decided to attend services at the Church of Minsky. I think that is a glorious, glorious moment. Don't you? Harry is an absolutely delightful man.

From the standpoint of what I want to talk about tonight, a great deal of it has already been discussed today. I feel a little bit like St. Louis Federal Reserve President Jim Bullard did at lunch when he said that Paul Krugman, who spoke just before Jim, had already given 90% of his speech. That's basically true for me as well. Paul's speech was superb, laying out six possible culprits in the financial crisis.1

I want to focus on Paul's Number 3, the Shadow Banking System. Paul was drawing a lot of his comments today from the work of Professor Gary Gorton of Yale, which is absolutely fantastic material. Have a lot of you read Gary's essay, "Slapped in the Face by the Invisible Hand"?2 I see a lot of nods here. That's where the phrase that Paul used, "Quiet Period," came from. Gary coined it. He'd be a great person to have here next year at the Minsky Conference.

And one of the fascinating things that he details is the nature of banking. That's where I want to start tonight. Let's start with first principles. If we do, then I think we can understand why we shouldn't look at the conventional banking system and the Shadow Banking System as separate beasts, but intertwined beasts.

The essence, or the genius of banking, not just now, the last century or the century before that, but since time immemorial, is that the public's ex-ante demand for assets that trade on demand at par is greater than the public's ex-post demand for these types of assets. Let me repeat this, because this is a first principle: The public's ex-ante demand for liquidity at par is greater than the public's ex-post demand. Therefore, we can have banking systems because they can meet the ex-ante demand, but never have to pony up ex-post. In turn, the essence or the genius of banking is maturity, liquidity and quality transformation: holding assets that are longer, less liquid and of lower quality than the funding liabilities.

A second principle: A banking system is solvent only if it is believed by the public to be a going concern. By definition, if the public's ex-post demand for liquidity at par proves to be equal to its ex-ante demand, a banking system is insolvent because a banking system ends up, at its core, promising something it cannot deliver. Everyone following me here?

Professor Gorton, in his paper, goes through how that promise was dealt with during the 19th century, before the New Deal Era. There were panics all the time, otherwise known as runs, because we didn't have a lender of last resort and we didn't have deposit insurance. During the 19th century, the system dealt with its reoccurring panics in lots of novel ways, including clearing houses which would de facto be a central bank, and suspension of convertibility of deposits into cash. So the problems we've been dealing with in the last couple of years are not new. They go back to the origin of banking.

The Quiet Period, from the New Deal Era until the Panic of 2007, was actually unique in history. And the Quiet Period came about, I think, for a lot of the reasons that were articulated earlier today in that banks, conventional banks, after the Great Depression, were considered to be special. And, in fact, banks are special. If you think that the banking system can be guided to stability as if by an invisible hand, then you are deluding yourself. But, that is, in fact, what happened with the explosive growth of the Shadow Banking System.

Banking is a really profitable business. In its most simple form, think in terms of a bank issuing demand deposits, which are guaranteed to trade at par because they've got FDIC insurance around them and also because the issuing bank can rediscount its assets at the Fed in order to redeem deposits in old-fashioned money, also known as currency.

In fact, let's take a look at the $1 bill I am holding in my hand. It says right at the very top, "Federal Reserve Note." It also says right down here, "This note is legal tender for all debts, public and private." This is what the public ex-ante wants: the knowledge that they can turn their deposits into these Federal Reserve Notes. And if the public knows they can turn them into these notes, they don't. With me here? If I know I can, I don't.

Now, this is a unique note. This is a Federal Reserve liability. And, actually, it's really cool. It's missing two things. It doesn't have a maturity date on it. So, it's perpetual. And it doesn't have an interest rate on it. I would love to be able to issue these things. It would make me very, very happy to issue these things. But it would be against the law! But, in fact, that's what banks did in the 19th century. They issued currency. After the creation of the Federal Reserve, it was given monopoly power to create currency, which I think was a pretty bright idea. But demand deposits issued by banks are just one step away from a Federal Reserve Note.

Conceptually, demand deposits have a one-day maturity. I can write a check on it, and it goes out at par tomorrow, if not today. Demand deposits, conceptually, have a one-day maturity. But in aggregate, they have a perpetual maturity. So, therefore, banking can engage in maturity, liquidity and quality transformation: a very profitable business. Banks can issue, essentially, perpetual liabilities – call them demand deposits – and invest them in longer dated, illiquid loans and securities, earning a net interest margin. It's a really, really sweet business.

In the early years of the Quiet Period, we regulated that really sweet business. I think that was a really bright idea. In order for that business not to be prone to panics and, therefore, financial crises, you needed to have deposit insurance. Deposit insurance, by definition, cannot come about as if by the invisible hand. Deposit insurance cannot be, cannot be a private sector activity. It is a public good. The deposit insurer must be a subsidiary of the fiscal authority. And in extremis, the monetary authority can monetize the liabilities of the fiscal authority. I'm not saying that pejoratively. I'm not being pejorative at all. Just descriptive. Bottom line: Deposit insurance is inherently a public good.

Access to the Fed's balance sheet is also inherently a public good, because the Federal Reserve is the only entity that can print currency. So essentially, banking has two public goods associated with it. Therefore, naturally, it should be regulated.

That was the Quiet Period Model. And regulation took the form of what you could do, how you could do it and how much leverage you could use in doing it. And, as was mentioned by Paul Volcker a number of times earlier this afternoon, the regulatory burden that has historically come with being a conventional bank has been actually quite high. During the early years of the Quiet Period, however, banking was nonetheless a very profitable endeavor.

There was a quid pro quo, which actually led to the old joke – which was actually said about the savings and loan industry – that banking was a great job: Take in deposits at 3, lend them out at 6, and be on the golf course at 3. 3-6-3 banking was a pretty nice franchise. So, therefore, bankers had a pretty strong incentive not to mess it up. Essentially, there were oligopoly profits in the business. I think Gary Gorton is actually right on that proposition.

The invisible hand, however, naturally wanted to get the oligopoly profits associated with banking while reducing the impact of some regulation. Thus, the Shadow Banking System came into existence, where the net interest margin associated with maturity, liquidity and quality transformation could be earned on a much smaller capital base.

And, in fact, that's what happened starting essentially in the mid-1970s, accelerating through the 1980s and 1990s, and then exploding in the first decade of this century.

The birth of the Shadow Banking System required that capitalists be able to come up with an asset – which actually for shadow bankers is a liability – that was perceived by the public as just as good as a bank deposit. Remember, the public has an ex-ante demand for something that trades on demand at par.
Therefore, shadow bankers had to be able to persuade the public that its asset – which is actually the shadow banker's liability – was just as good as the real thing. If they could do that, then they could have one whale of a good time.

That asset – which, again, is the bank's liability – needed, in Gary Gorton's terms, to be characterized by "informational insensitivity," meaning that the holder didn't need to do any due diligence, just taking it on faith that this asset could be converted at par on demand. And, in fact, money market mutual fund shares achieved that status. With one small exception prior to the Reserve Primary Fund breaking the buck, they always traded at par. And if there was any danger they wouldn't trade at par, the sponsor would step in and buy out any dodgy asset at par. So, essentially, the money market mutual fund industry was at the very core of the growth of the Shadow Banking System.

It created a liability perceived as just as good as a demand deposit wrapped with deposit insurance, issued by a bank with access to the Fed. It was a great game. But in and of itself, that didn't lead to the explosive growth in the Shadow Banking System. There needed to be another link in the chain. Yes, money market mutual funds needed an asset that the public perceived as just as good as a bank deposit. But they also had to put something on the other side of the balance sheet.

What went on the other side of the balance sheet? Money market instruments such as repo and commercial paper (CP). And under Rule 2a-7, they were allowed to use accrual accounting for their assets. The assets didn't have to be marked to market. So, therefore, 2a-7 funds could actually maintain the $1 share price, unless they did something really dumb.

At their peak, money market mutual funds were about $4 trillion. They are about $3 trillion now. They interacted with the larger Shadow Banking System. And the largest shadow banks were the vehicles of investment banks, funded heavily with repo and CP. So, explosive growth of the Shadow Banking System was logically the result of the invisible hand of the marketplace wanting to get the profitability of the regulated banking system, but without the regulation. Shadow banks created information-insensitive assets for the public that were perceived as just as good as a demand deposit, and then levered the daylights out of them into longer, less liquid, lower-quality assets. And it all worked swimmingly well, for a while. But then they embarked on the Forward Minsky Journey.3

Shadow banks were the predominant place where securitizations of subprime mortgages were placed, as well as securitizations of other types of assets. So the Shadow Banking System was, essentially, mirroring the banking model, which had deposits and loans.

Turn the deposit into asset-backed commercial paper. Turn the loan into a security. What you end up with is the same vehicle as a bank from a functional standpoint, but you have it outside the conventional bank regulatory structure. Actually, let me correct myself. There was a de facto regulator in the Shadow Banking System. They are called the rating agencies.

In order to do the trick of creating a shadow bank, you had to have the rating agencies declare that your senior short-dated liabilities were just as good as bank deposits. In fact, most money market mutual funds get themselves rated, and S&P, Moody's, and Fitch do have particular rules for giving a AAA rating to a 2a-7 money market fund, mirroring SEC Rules. But, for the rest of the Shadow Banking System, the rating agency rules evolved on the fly, often under the guidance of shadow bankers themselves. It didn't work out very well, as the Shadow Banking System became the lead owner of what was created in the originate-to-distribute model of mortgage creation.

On August 9, 2007, game over. If you have to pick a day for the Minsky Moment, it was August 9. And, actually, it didn't happen here in the United States. It happened in France, when Paribas Bank (BNP) said that it could not value the toxic mortgage assets in three of its off-balance sheet vehicles, and that, therefore, the liability holders, who thought they could get out at any time, were frozen. I remember the day like my son's birthday. And that happens every year. Because the unraveling started on that day. In fact, it was later that month that I actually coined the term "Shadow Banking System" at the Fed's annual symposium in Jackson Hole.

It was only my second year there. And I was in awe, and mainly listened for most of the three days. At the end, Marty Feldstein always does the wrap-up. Everybody wanted to talk. And since I was a newbie, I didn't say anything until almost the very end. I stood up and (paraphrasing) said, "What's going on is really simple. We're having a run on the Shadow Banking System and the only question is how intensely it will self-feed as its assets and liabilities are put back onto the balance sheet of the conventional banking system."

Now, I certainly didn't anticipate that it was going to lead to the debacle that eventually unfolded. In fact, while the run commenced on August 9th of 2007, it was pretty much an orderly run up until September 15, 2008.
And it was orderly primarily because the Fed – and here I give the Fed credit, not criticism – evoked Section 13-3 of the Federal Reserve Act in March of 2008 in order to facilitate the merger of under-a-run Bear Stearns into JPMorgan. Concurrently, the Fed opened its balance sheet to the biggest shadow banks of all, the investment banks that were primary dealers, including most important, the big five. It was called the Primary Dealer Credit Facility.

I'm sure that was an incredibly difficult decision for the Federal Reserve Board to make – to open its balance sheet to borrowers it didn't regulate. But it was necessary, because runs are self-feeding; you can't stop them without the aid of somebody with the ability to print legal tender. That's the only way you can stop it, because only the Fed can create an asset that will definitionally trade at par in real time. During a run, that's what the public wants. A run turns upside down the genius of banking. A run is when the public's ex-post demand for liquidity at par equals its ex-ante demand.

Post-Bear Stearns, financial life regained some sense of normalcy. But then came the run on Lehman Brothers, and the Fed didn't have the legal power to implement a Bear-like rescue. And then the Reserve Fund broke the buck. That week will be one that we remember for the rest of our lives. It will also be one that we will remember where the Fed was at its finest hour. The Fed created a whole host of facilities to stop the run. In fact, they expanded the Primary Dealer Credit Facility to what are known as Schedule 2 assets, which meant that dealers could rediscount anything at the Fed that they could borrow against in the tri-party repo market.

Concurrently, the FDIC stepped up to the plate, doing two incredibly important things. Number one, they totally uncapped deposit insurance on transaction accounts, which meant that the notion of uninsured depositors in transaction accounts became an oxymoron. If you were in a transaction account, there was no reason to run. And then the FDIC effectively became a monoline insurer to nonbank financials with its Temporary Liquidity Guarantee Program (TGLP) allowing both banks and shadow banks to issue unsecured debt with the full faith and credit of Uncle Sam for a 75 basis points fee. No surprise some $300 billion was issued.

So, bottom line, you had the Fed step up and provide its public good to the Shadow Banking System. You had the FDIC step up and do the same thing with its public good. And as Paul Volcker was noting this afternoon, you had the Treasury step up and provide a similar public good for the money market mutual funds, using the Foreign Exchange Stabilization Fund. It was a triple-thick milk shake of socialism. And it was good. Again, I'm not being pejorative. I'm being descriptive.

Banking is inherently a joint venture between the private sector and the public sector. Banking inherently cannot be a solely capitalistic affair. I put that on the table as an article of fact. And, in fact, speaking at a Minsky Conference, I know I'm preaching to the converted. Big bank and big government are part of our catechism. And, in fact, that's exactly what came to the fore to save us from Depression 2.0.

Let me draw to a few conclusions. How should we re-regulate the financial landscape – as President Bullard was calling it today – to make sure this doesn't happen again? We must, because the collateral damage to the global economy has been truly a tragedy.

And I think the first principle is that if what you're doing is banking, de jure or de facto, then you are in a joint venture with the public sector. Period. If you're issuing liabilities that are intended to be just as good as a bank deposit, then you will be considered functionally a bank, regardless of the name on your door. That's the first principle.

Number two, if you engage in these types of activities – call it banking, without making a big distinction here between conventional banking and shadow banking, as Paul Krugman intoned this morning – in such size that you pose systemic risk, you will have higher mandated capital requirements and you will be supervised by the Federal Reserve. Yes, I just told you who I think the top-dog supervisor should be. You will have tighter leverage and liquidity restrictions: You will have to live by civilized norms. In fact, a great deal of what is on the regulatory reform table right now proceeds precisely along those lines. If you're going to act like a bank, you're going to be regulated like a bank. That simple. And maybe you just might find the time to go back to working on your golf game at 3. That is the core principle.

There truly is a devil in the details, because it's quite natural that non-bank levered-up financial intermediaries don't want to be treated like banks. I wouldn't either. But the truth of the matter is if you're going to have access to the public goods associated with banking, then you're going to be treated like a bank.

In fact, here is an example of this concept in my own life, which I'm sure most of you have experienced who have older children. When my son turned 18, he said, "Dad, I'm now the age of majority and I can do whatever I want." I said, "Son, that's absolutely true. However, I still control the Bank of Dad. And if you want to have access to the Bank of Dad, there are going to be rules. If you don't want access to the Bank of Dad, that's fine. But if you want access to the Bank of Dad, there are going to be rules."

The Federal Reserve and the FDIC and the Treasury, together, are the Bank of Dad. And Mom. I expect regulation to be similar to that which I have imposed on my son. It doesn't mean I want to stifle his innovation. That doesn't mean I want to stifle his creativity. I want him to be all he can be. But as long as he's banking at Bank of Dad, there are going to be rules.

So there's my regulatory framework for you. Yes, think in terms of the Federal Reserve and the FDIC and the Treasury as all providing public goods to banking. But the Federal Reserve has got to be at the top of the totem pole, because the Fed truly is the Bank of Dad. The entity that can print money has got to be the lead supervisor. To me, it's unambiguously clear. And the fact that it's being debated actually befuddles me. I operate on the notion that self-evident truths should be self-evident. But apparently Washington doesn't operate on that thesis.

I've talked too long. I promised you I wouldn't do this. I was going to talk short and then have a long Q&A, but I'm a Baptist minister's son, and we can't help ourselves. Regardless of how simple the sermon may be, it always goes on too long because the minister always enjoys giving it more than the audience enjoys receiving it.

Written by

Niels Jensen 

This article taken by fxstreet.com

Top 5 Places to Invest Your Money

You work hard for your money and you do not want to lose it due to a recession. Here are the top 5 places to invest your money in a recession.

- Now is the time to invest in buying homes since home prices are down and it is a buyer's market. This is an excellent opportunity to invest your money in the housing market. The time line always changes where gold is high or low, houses are high or low or interest rates are high or low. Things will change again where houses are more expensive and it will be a seller's market. If you invest your money now in houses, apartments, condo's, etc., you will be sure to make a fantastic profit in your money.

- Another one of the top 5 places to invest your money in a recession is to safely put your money into a CD or a certificate of deposit. With a CD you will put your money in the bank for a certain amount of time at a set interest rate. This means that for the amount of time you agree to put your money in the CD, your interest rate will not go lower or higher. This is a good thing so the interest rate cannot go lower on your hard earned money. Before putting your money into a CD for a certain amount of time, make sure the bank has FDIC insurance. If the bank has FDIC insurance your money is safe if the bank were to close in the recession.

With FDIC insurance, money and interest up to $250,000 is insured by the government. To find out if your bank is FDIC insured, check the FDIC website for peace of mind. Before putting your money into a CD make sure you are going to keep your deposit in the CD for the amount of time you agree to. If you end up needing the money early, you will be penalized. A good way to invest money into CD's is to invest so that every three months the CD is due. When investing every three months you will have money at your fingertips and in your pockets.

- These days you can safely make money by putting your money into a checking account. You can find a checking account that may pay up to 6 percent on your money. You can check online at Bankrate.com for excellent banks to open a checking account with the high percentage rates. If you use an ATM card, read the small print and check the ATM fee so you are not wasting all of your interest money you make by paying fees. Also, make sure you check how much of a balance you need to have in the checking account and how often you need to use your debit card to be able to participate according to the bank's rules.

- A savings account is one of the top 5 places to invest your money in a recession. You can earn a safe low percentage rate while keeping your money in a savings account. Make sure you read the small print on the rules of the bank you are thinking of putting your money in so you get the best deal.

- The last of the top 5 places to invest your money in a recession is to invest your money into stocks, but it is wise to invest over a long- term versus a short-term. Investing in stocks is riskier; therefore you will make more money than if you had invested your money in bonds. If you can leave your money invested in stocks for a long period, you can make and lose money but in the end you should come out well ahead.

Kwame Kuadey runs a gift card exchange website and a popular gift card blog. He has written many articles on topics like Gift Card Ideas, Bankruptcy and Gift Cards, and how to check gift card balance Article Source: http://EzineArticles.com/?expert=Kwame_Kuadey

2011 BMW 740 brings six-cylinder power

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When the latest generation of BMW’s big 7 Series went on sale in the U.S. early this year, buyers had a choice of either the marvelous twin-turbocharged and direct-injected 400-hp 4.4-liter V8 or the supremely impressive twin-turbo, 535-hp V12. A hybrid version of the 7 also goes on sale here in a few months, still mated to the V8. Since day one, European drivers have also had a pair of six-cylinder options fueled by either gasoline or diesel. BMW still hasn’t committed to a 7 Series diesel for the U.S., but today has confirmed will be getting the sweet gas-powered I-6.

The 740i and 740LI both come to the U.S. market in spring 2010 powered by a twin-turbocharged 3.0-liter six. In 740 trim, the six cranks out 315 hp and 330 pound-feet, up a bit from the 300/300 ratings in the smaller 335i. The 740 engine does retain the direct injection and variable valve timing on both intake and exhaust. This new model also marks the U.S. debut of brake energy regeneration on a non-hybrid BMW. Interestingly, BMW has opted to retain the 7’s 6-speed automatic transmission rather than upgrading to the new 8-speed found in the hybrid and the new 5 Series.

2010 Chevrolet Camaro

2010 Chevrolet Camaro is top speed car in the list of top 10 cars of the world 2009. 2010 Chevrolet Camaro is V6 powered Camaro. 2010 Chevrolet Camaro is 6 Speed top speed car. 2010 Chevrolet Camaro speed is 160mph. 2010 Chevrolet Camaro is having manual and automatic 6 speed transmission. 2010 Chevrolet Camaro price is $22,245-$33,430.

Cushion Cut Smoky Topaz and Diamond Ring

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At Apples of Gold, we’re absolute suckers for a beautiful piece of jewelry. But when you pair something beautiful with a unique design and gemstone, and it becomes simply irresistible. It is with these high standards that we introduce our lovely new cushion-cut smoky topaz and diamond ring.

Home Diamond

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Choosing your diamond is always an exciting occasion but one that, without some knowledge of diamonds, can be a little bewildering.

You probably already know that diamonds are the world's most precious gemstone, the hardest natural substance and the ultimate token of love and affection.

However, you may not know that their rare beauty has captivated us for over 3000 years, or that each diamond is totally unique, with its own characteristics and personality. These individual properties determine a diamond's allure and its value.

To evaluate a diamond's value, jewellers use what has become known as the 4C's - Cut, Colour, Clarity and Carat Weight.

By using the 4C's it is possible to define your diamond's characteristics, and since these do not alter, you are assured your diamond will stay as special as the day you chose it.

The excitement experienced in choosing diamond jewellery will never fade, quite simply because - "a Diamond is Forever".

2010 Ferrari F500

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U.S Auto magazine Car and Driver has published a  rendering of the 2010 Ferrari F500. The Ferrari F500 will be an updated F430 with a larger and more powerful engine. A V8 5000cc engine brings out 550hp gets filtered through a 7-Speed dual clutch gearbox for continuous power supply.
The 2010 Ferrari F500 will fight for the crown of the best supercar against the likes of the Mclaren P11, Lamborghini LP560-4 and the Porsche 911 GT2.
Scuderia and convertible variants will don a higher price tag when they are introduced subsequently, but the base Ferrari F500 that will be shown of at this year’s Frankfurt Motor Show will start at $200,000.

2010 Ferrari 599XX

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Ferrari has created a new 'technological laboratory' for a select group of 599 enthusiasts, called the 599XX.

The 599XX incorporates the most advanced technologies resulting from Ferrari's road-going and F1 research. Many of the technological solutions it carries are being used for the first time and have been developed exclusively for this special car.

A limited number of places and cars will be available, with the vehicles only used at private track sessions, worldwide.

2010 Nissan 370Z Roadster

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Nissan announced its new sports car design and performance, the 2010 Nissan 370Z Roadster. The 370Z Roadster offers everything the hardtop 370Z Coupe does and more. 370Z Roadster comes with more classic open-air sports car driving excitement and more refinement than any Z convertible that has ever come before, including a standard automatic latching power top and Nissan Intelligent KeyTM. Also offered... 

2010 Nissan Skyline Crossover

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Nissan announced its all-new Skyline Crossover will be showcased at Nissan Galleries nationwide starting April 18, 2009. The all-new Nissan Skyline Crossover powered by a VQ37VHR engine with VVEL technology, the powertrain delivers high response and high torque for an exhilirating driving experience. The powertain also offers cleaner emissions and good fuel-efficiency. Powerful, seamless and continuous...  ( Written By Latest-BMW )

2010 Honda Insight

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The 2010 Insight defines a new stage in the evolution of hybrid technology, providing hybrid customers with a new level of affordability, fun-to-drive performance, and a U.S. EPA city/highway fuel-economy rating of 40/43 miles per gallon. Evoking the advanced and aerodynamic five-door sedan design first deployed on the revolutionary FCX Clarity fuel cell car, the new Insight has a low center of gravity and a spacious five-passenger cabin, offering... 

2010 Honda Insight Hybrid

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Honda Insight Hybrid, the new five-passenger, five-door Insight is powered by a lighter, more compact version of Honda’s IMA hybrid system and will go on sale in the spring.The centerpiece of the all-new Honda Insight Hybrid is the latest Integrated Motor Assist IMA® system. This next-generation hybrid system benefits from everything we have learned as the first automaker to bring a hybrid to the market in the U.S., the original Insight. Compared... ( Written By Latest-BMW )

2011 Honda Civic

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To celebrate the launch of Honda’s BTCC team for 2010, Honda (UK) have unleashed an enhanced limited edition Civic Type R featuring exclusive MUGEN equipment, the 2011 Honda Civic Type R MUGEN 200 Limited Edition. This limited edition Type R continues the association between Honda (UK) and the Northampton-based subsidiary of Honda’s tuning partner MUGEN. The standard features of the Swindon-built Type R (which include Honda’s 201PS, screaming... 

2010 Suzuki Kizashi

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In Japanese, “kizashi” means “something good is coming.” For Suzuki’s sake, its all-new 2010 Suzuki Kizashi – which took a long time to finally get here — had better be good if the Japanese automaker thinks it is going to make a dent in the cutthroat midsize sedan segment. Latest-BMW is Also Telling you When It Release  .
Despite being the 11th-largest automaker in the world and one of the few companies that has remained profitable worldwide during these hard times, Suzuki remains a fringe player in the U.S., with American consumers more readily associating the name with its popular motorcycles. The niche status doesn’t have Suzuki discouraged, though. The automaker sees it as a challenge, and to that end have upped the ante in recent years with the compact, sporty SX4 and the good-looking and capable (albeit Nissan-based) Equator pickup. Now,Suzuki is making its boldest move yet with the new Kizashi.


A ground-up design from Suzuki, the Kizashi is an impressive player on paper. Suzuki is promising a car with standard AWD, the most powerful four-cylinder engine in its class, and a premium interior. Suzuki bills the car as a premium vehicle without the premium price tag, a world-class sports sedan that anyone can afford. In planning the car, the sights were set not on entry-level midsize cars, but premium midsizers including the Alfa Romeo 159, Acura TSX, and Volkswagen Passat, and, at first glance at least, it shows.
In order to stand out in the crowded midsize market, Suzuki is boasting that it’s upped the content for the Kizashi without upping the price. Under the hood is an all-new 2.4L four-cylinder engine with variable valve timing that Suzuki promises will out-gun any other four-banger in its class, though it’s not ready to reveal actual numbers yet. To live up to that claim, the engine will have to make more than 200 hp, which is impressive for a naturally aspirated four-cylinder. Suzuki likewise does not have official fuel economy numbers yet, but expects the car to easily crest 30 mpg with help from underbody trays that smooth out airflow under the car. For those who want more, the company is already developing a hybrid model and may add a more powerful engine in the future if there’s a demand for one.
The potent four-pot will be mated to either a six-speed manual or a CVT gearbox with steering-wheel paddles that will let the driver manually select six simulated gear ratios. More impressive, though, is that the Kizashi will come standard with the latest generation of Suzuki’s i-AWD system. What’s more, power delivery to the pavement is selectable. Normally, the car will send power to only the front wheels, but push the AWD button next to the steering wheel and the Kizashi will send up to 50% of the power to the rear for enhanced traction in inclement weather, or when you’re in the mood for some enthusiastic driving.
Enthusiastic driving in this case is not an afterthought, but a primary goal, Suzuki claims. Knowing full well just how cutthroat the U.S. midsize market is, Suzuki decided that performance and quality are the areas were the Kizashi needs to stand out from the crowd. To that end, the car was developed on the best and worst roads of Europe, Japan, and the U.S. to fine-tune the suspension for both every day comfort and sporting prowess. Suzuki engineers settled on an extremely rigid frame hung on a MacPherson Strut setup in front and a multi-link suspension in the rear with KYB shocks all around. All four wheels are clamped by Akebono brakes, and Suzuki assures us that its engineers set the threshold for stability control intervention quite high to allow for as much spirited driving as possible without deactivating the safety net. Rumor has it that the Kizashi prototypes were able to lap Germany’s famed Nurburgring in as little as 8.5 minutes, in the same territory as the 260-hp turbocharged Chevrolet Cobalt SS.
As much as the Kizashi is about performance, it’s also very big on safety. In addition to standard traction and stability control, the Kizashi also features a tire pressure monitoring system, LATCH points for child car seats, and electronic brake force distribution, and is programmed to transfer torque to the opposite end of the car that is losing traction to regain control. The Kizashi also comes standard with a class-leading eight airbags including front airbags, front and rear passenger side airbags, and front and rear passenger curtain airbags. In fact, the Kizashi is actually designed to meet just-announced 2014 crash test standards, which for the first time include a test that simulates crashing into a telephone pole.
As much attention as Suzuki paid to the Kizashi’s performance, a great deal of effort was also put toward crafting a premium interior for customers as interested in being comfortable as they are in driving fast. The interior is filled with soft-touch cloth and plastic materials that have been sculpted into a conservative but elegant design. The driver is treated to a keyless push-button starter and a nicely shaped, three-spoke steering wheel that, like the gear select and parking brake, has been wrapped in leather and features built-in audio and cruise controls and both tilts and telescopes for perfect positioning. Behind the wheel, the gauge cluster looks almost as though it could’ve been borrowed from a low-end Mercedes-Benz and features a multi-function display tucked between the primary gauges with fuel economy, range, and other information.
Over on the center console, Suzuki kept it simple with matte black controls and a very easy-to-use layout for the standard dual-zone climate control and Rockford Fosgate stereo. Other standard features include sport seats, rear A/C vents, automatic HID projector headlights, rain-sensing wipers, folding rear headrests for increased visibility and a USB port for MP3 player integration. Those willing to spend a little more will be offered an in-dash navigation system from Garmin, a back-up camera that displays on the nav screen, rear parking assist sensors for those that don’t need nav, an upgraded 425-watt Rockford Fosgate stereo with subwoofer suspended behind the rear head rests so as not to intrude on the cavernous trunk, Bluetooth connectivity for both your phone and music player, and heated leather sport seats.
While Suzuki did well trimming the interior, it isn’t completely devoid of foibles. Though easy to use, the center stack is a bit plain and boring, and the steering wheel could be a bit meatier. Rear seat leg and headroom are excellent, though there’s an odd bulge in the roof just ahead of the rear passengers’ heads needed to make room for the sunroof. The overhead lighting, meanwhile, looks very dated. For a first try, though, the Kizashi looks like an impressive offering.
Outside, we’re pleased to see that the slick styling from the Kizashi III Concept translated fairly well to the production car. While it isn’t the wide, low street fighter that the concept was, it retains sharp, modern looks and an aggressive stance. Larger headlights and air ducts around the fog lamps take away from the widebody look of the concept and make the car look taller and narrower, but the overall look of the car remains. The rear end has likewise been toned down, but it evokes the spirit of the concept. What really sets the Kizashi off, though, are the big wheels lurking below the bulging fender flares. Though 16-in. rollers will come standard, Suzuki will offer wheels up to 18-in. with low-profile tires. The models we saw wore sticky Dunlop SP Sport 7000 tires stretched to fit around the 18-in. alloys.
At the initial reveal, Suzuki showed two different Kizashi models. The silver car, with its less aggressive fascia and painted wheels, is the actual production car. The gold car, meanwhile, is a project Suzuki has been working on and may someday see production as a special edition car or higher trim-level. It featured sharper lines on the fascias as well as chrome trim below the fog lights, big chrome wheels, and some carbon-fiber trim bits inside. Suzuki plans to keep the number of trim levels relatively small by offering a large amount of features standard. The other trim levels offered, though, won’t just be groups of big-ticket items. Staying true to its performance promise, Suzuki says that buyers won’t, for example, have to order all kinds of extra equipment to match up options like premium 18-in. wheels with the manual transmission.

2011 Toyota Celica.

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Although the Scion tC is widely regarded as the modern-day Toyota Celica, it’s generally agreed that Toyota hasn’t produced a performance car since the death of the Toyota Supra. Toyota’s FT-HS concept car and the fledgling Subieyota [Subaru-Toyota] partnership have people talking though, and there are rumors that Toyota [with the help of Subaru] is planning a sports-tuner comeback with the 2011 Toyota Celica.

2011 BMW 550I

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2011 BMW 550i Exterior Photos

Information and photos on the new 2011 BMW 550i … One of them is the high-end and most expensive model in the line-up, 2011 BMW 550; M5 excluded of course. …

2011 BMW 535i & 550i Pricing Announced – autoevolution

2011 BMW 535i & 550i Pricing Announced – Your auto encyclopedia

2011 BMW 550i GT

More leisure Slideshows. 2011 BMW 550i GT. 7 images. January 26, 2010. 2011 Kia Sorento. 5 … February 22, 2010. 2011 Ford Transit Co… 4 images. February 15, 2010 …

2011 BMW 550i: An AW Flash Drive

What is it? The 2011 model-year BMW 5-series marks the start of the sixth generation of the midsize sedan. The 550i is powered by a 4.4-liter

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2010 Nissan Leaf

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Nissan Motor has unveiled Nissan Leaf Electric Vehicle. Designed specifically for a lithium-ion battery-powered chassis, Nissan LEAF is a medium-size hatchback that comfortably seats five adults and has a range of more than 160km (100 miles). Slated for launch in late 2010 in Japan, the United States, and Europe, Nissan LEAF is powered by a 80 kW and 280 Nm of torque electric motor. The top speed of the Nissan LEAF over 140km/h (over 90mph). Nissan... 

2010 Vorsteiner BMW E92/E93 V-MS Aerodynamic Package

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Vorsteiner has released an all-new V-MS (Vorsteiner M-Tech Series) Aerodynamic Package for the BMW E92 Coupe and BMW E93 Cabriolet models. The Vorsteiner V-MS Aero package is designed to be simple and easily installed onto the factory bumpers to enhance the performance and sportiness of the existing factory M-Tech package. Up front, the V-MS coupe shows off a functionally designed 2-piece front add-on splitters constructed of pre-preg autoclave carbon... 

2010 Road Race Motorsport Platinum Edition Kizashi

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As one of the first custom builders to recognize the potential of Suzuki’s vehicles, the presence of Road Race at SEMA comes as no surprise. Given the Kizashi platform’s promise – and the fluid, almost organic sheet metal clothing it – Road Race supplies its own very unique take on Kizashi. SEMA visitors can enjoy Road Race’s Sport Body kit exterior which employs Carbontrix custom bumpers, rear spats and diffuser. Road... 

Audi 2 Bayern Munich 2011

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Audi 2 Bayern Munich 2011

Audi 1 Bayern Munich 2010

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Audi 1 Bayern Munich 2010

Specification Suzuki Rill concept 2010

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Specification Suzuki Rill concept 2010

Subaru Legacy the safest Family 2010 car .

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Subaru Legacy the safest Family 2010 car .

2011 Jaguar XKR

2011 Jaguar XKR Speed Pack and Black Pack - Front Side

Jaguar will unveil the latest dramatic evolution of its supercharged XKR coupe at the Geneva Motor Show in March. This XKR delivers a significantly raised maximum speed – up to 174mph from 155mph – and bold styling changes that create an evocative and unique supercharged Jaguar.

Jaguar XKR Speed Pack and Black Pack 2011 - Side Top

2011 Jaguar XKR - Front Angle Top

The XKR Coupe unveiled at Geneva showcases two new optional performance and styling packs – Speed Pack and Black Pack – that are introduced to the XK range at 2011 Model Year. Jaguar customers have the option to personalise their vehicle to create a car that offers even greater performance without compromising the refinement and luxury for which every Jaguar is renowned.

By raising the XKR’s maximum speed the new car has extended its sporting credentials taking it even further into supercar performance territory.

Russ Varney, Chief Programme Engineer, XK Series, explains the philosophy behind the uprated XKR: “With 510PS and 625Nm of torque, the XKR has immense reserves of power and acceleration which impress everyone who experience it. The car has always had the potential to reach speeds far beyond its original electronically limited maximum and many of our customers have expressed an interest in a car that can safely be driven faster where conditions permit. The new Speed Pack allows them to release some of that potential and give them control of the fastest Jaguar XK we’ve made to date.”

The XKR Coupe featured at the Geneva Show on 4th March 2010 pairs both the optional Speed and Black Packs to create the bold new model, which also sports optional Piano Black veneers on the dashboard and red brake callipers.

The XKR Speed Pack

The XKR Coupe with new optional Speed Pack allows customers to further strengthen their XKR’s already impressive breadth of capability, by extending the car’s top speed from 155mph (250km/h) to an electronically limited 174mph (280km/h) thanks to a unique engine and transmission recalibration.