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“But Putin doesn’t like having his clients removed one after another by the United States, and he considers Assad his client.”

J.M. Hamilton Blog — Mon, 28 May 2012 01:00:00 GMT

May 26, 2012/NYTIMES

U.S. Hopes Assad Can Be Eased Out With Russia’s Aid

By HELENE COOPER and MARK LANDLER

WASHINGTON — In a new effort to halt more than a year of bloodshed in Syria, President Obama will push for the departure of President Bashar al-Assad under a proposal modeled on the transition in another strife-torn Arab country, Yemen.

The plan calls for a negotiated political settlement that would satisfy Syrian opposition groups but that could leave remnants of Mr. Assad’s government in place. Its goal is the kind of transition under way in Yemen, where after months of violent unrest, President Ali Abdullah Saleh agreed to step down and hand control to his vice president, Abdu Rabbu Mansour Hadi, in a deal arranged by Yemen’s Arab neighbors. Mr. Hadi, though later elected in an uncontested vote, is viewed as a transitional leader.

The success of the plan hinges on Russia, one of Mr. Assad’s staunchest allies, which has strongly opposed his removal.

In the past year, Russia has blocked any tough United Nations Security Council action against Mr. Assad, arguing that it could lead to his forced ouster and the kind of fates suffered by Col. Muammar el-Qaddafi of Libya, who was killed, or Hosni Mubarak of Egypt, who was imprisoned and put on trial. But Russia is facing intense international pressure to use its influence to bring about the removal of Mr. Assad as the killings in Syria continue unabated, including the massacre of more than 90 people in a village near Homs that was reported by United Nations officials on Saturday.

The Yemen example has been widely discussed in Moscow, so much so that the option has become known by its Russian term, “the Yemenskii Variant,” even in the United States. In part, that reflects Russia’s desperation for a solution to the crisis in Syria, where, the United Nations says, thousands of civilians have been killed since protests began there in March of last year.

Mr. Obama, administration officials said, will press the proposal with President Vladimir V. Putin of Russia next month at their first meeting since Mr. Putin returned to his old post on May 7. Thomas E. Donilon, Mr. Obama’s national security adviser, raised the plan with Mr. Putin in Moscow three weeks ago.

When Mr. Obama brought it up with Prime Minister Dmitri A. Medvedev of Russia at the Group of 8 meeting at Camp David last weekend, Mr. Medvedev appeared receptive, American officials said, signaling that Russia would prefer that option to other transitions in the Arab upheaval. During the meeting, “Medvedev raised the example of Mubarak in a cage,” a senior official said, referring to Mr. Mubarak’s confinement at his trial. The official, who requested anonymity because of the delicacy of the discussions, said Mr. Obama had then “countered with Yemen, and the indication was, yes, this was something we could talk about.”

In a region convulsed by political uprisings, Russian leaders are fearful that Syria is their last bastion of influence. Syria is Moscow’s main Middle East ally, home to a Russian naval base and extensive Russian oil and gas investments. It is also a major trading partner and buyer of Russian arms.

“The Russians now consider President Assad a liability,” said Dimitri K. Simes, a Russia expert and president of the Center for the National Interest in Washington. “But Putin doesn’t like having his clients removed one after another by the United States, and he considers Assad his client.”

American officials say they are ready to reassure their Russian counterparts that Moscow would be able to maintain its close ties in a post-Assad Syria. “Look, we recognize that Russia wants to have a continued influence in Syria,” one official said, speaking on condition of anonymity. “Our interest is in stabilizing the situation, not eliminating Russian influence.”

While Mr. Medvedev did not knock down Mr. Obama’s recent suggestion to seek a political transition based on the Yemen model, he did not exactly sign on, either. In any case, Mr. Putin will almost certainly make the decision, particularly given the flak that Mr. Medvedev has received in Moscow. Critics there contend that when Mr. Medvedev was president, he should never have given in to pressure from Western countries last year to refrain from blocking the United Nations resolution that established a no-fly zone in Libya, which the critics assert led to the NATO airstrikes that helped topple Colonel Qaddafi.

Mr. Putin has already gotten off to a bumpy start with Mr. Obama, who waited several days to call and congratulate him on his election after a campaign in which Mr. Putin accused the United States of helping to orchestrate protests in other countries, including Russia. And even if Mr. Putin does agree to the Yemen model, it is unclear if he and Mr. Obama have the same definition of what that model is — or how to put it into effect.

“For Washington, the most important aspect of the Yemen model is its assumption, from the outset, that the leader — in this case, Bashar Assad — will exit,” said Robert Malley, head of the Middle East and North Africa for the International Crisis Group. “For Moscow, its most important feature is the endorsement of a very gradual process that preserves the basic structures of the regime and in which the leader is not unceremoniously kicked out.”

While that is not an unbridgeable gap, said Mr. Malley, who was recently in Moscow for talks on Syria, “it’s one that hasn’t been bridged so far.”

Russia’s openness to the Yemen model, skeptics said, is motivated less by a desire to remove Mr. Assad than to forestall American-led military action. Some experts warned that the biggest risk to the proposal is that it becomes too closely identified with the Obama administration.

“There’s a deep strain of anti-Americanism at the heart of Putin’s Kremlin,” said Carroll Bogert, a deputy executive director of Human Rights Watch, who has also discussed the Yemen option with Russian officials. “When a proposal is perceived as something the Americans want, it can automatically become less desirable to the Russians.”

Still, she and other human rights activists said the plan was worth trying, even if the odds are against winning wholehearted Russian backing, much less the acquiescence of Mr. Assad.

An agreement could also help Mr. Obama and Mr. Putin present at least the appearance that their relationship is not in a downward spiral after Mr. Putin skipped the Group of 8 summit, which Mr. Obama hosted. The move was widely viewed as a slap at the Obama administration.

The biggest problem with the Yemen model, several experts said, is that Yemen and Syria are starkly different countries. In Yemen, Mr. Saleh kept his grip on power for three decades by reconciling competing interests through a complex system of patronage. When his authority collapsed, there was a vice president, Mr. Hadi, who was able to assert enough control over Yemen’s splintered security forces to make him a credible transitional leader.

In Syria, by contrast, Mr. Assad oversees a security state in which his minority Alawite sect fears that if his family is ousted, it will face annihilation at the hands of the Sunni majority. That has kept the government remarkably cohesive, cut down on military defections and left Mr. Assad in a less vulnerable position than Mr. Saleh. Even if he leaves, American officials conceded, there is no obvious candidate to replace him.

“The Assad regime is galvanized against these kinds of splits,” said Andrew J. Tabler, an expert on Syria at the Washington Institute for Near East Policy. “That’s one reason it has been so hard to crack this regime.”

That flight started at least two years ago, as the debt crisis grew more serious.

J.M. Hamilton Blog — Mon, 28 May 2012 00:31:00 GMT

Analysis: Greeks not alone in bank savings exodus

Thu, May 17 2012

By Steve Slater and George Georgiopoulos

LONDON/ATHENS (Reuters) - Greek savers may be gripped by a "great fear that could develop into panic" in the words of President Karolos Papoulias, but many Greeks shifted their money to safer havens in Britain, Switzerland, Germany and Nordic countries long ago.

Worries about a run on Greek banks has rattled Athens this week, after savers withdrew at least 700 million euros on Monday alone, according to minutes of Papoulias's comments to political leaders posted on the presidency's website.

It is not only Greeks who are worried about their savings. Data shows depositors have also taken flight from banks in Belgium, France and Italy. And on Thursday, Spain's Bankia (BKIA.MC: Quote, Profile, Research, Stock Buzz) was reported to have seen more than 1 billion euros drained by its customers in the past week.

Greeks are afraid they could be hit by rapid devaluation if the country leaves the European single currency, while customers at Bankia have been rattled by the government's takeover of the recently floated bank on May 9 and growing uncertainty about the final cost of Spain's banking reforms.

In Greece, sources at two banks told Reuters that withdrawals on Tuesday had taken place at about the same rate as on Monday.

"The entire Greek banking system is in danger: the banks are now facing the worst of all outcomes, deposit flight," said Arnaud Poutier, deputy CEO of IG Markets France.

That flight started at least two years ago, as the debt crisis grew more serious.

Greece's banks have lost 72 billion euros in deposits since the start of 2010, or about 30 percent, according to data compiled by Thomson Reuters. Five of Greece's top banks saw 37 billion euros taken out last year, including 12 billion from EFG Eurobank (EFGr.AT: Quote, Profile, Research, Stock Buzz) and 8-9 billion apiece at National Bank of Greece (NBGr.AT: Quote, Profile, Research, Stock Buzz), Piraeus (BOPr.AT: Quote, Profile, Research, Stock Buzz) and Alpha Bank (ACBr.AT: Quote, Profile, Research, Stock Buzz).

In February, Evangelos Venizelos, finance minister at the time, said only 16 billion euros had gone abroad, with a third of that going to Britain.

Savers have shifted to property, gold and other banks, or stashed it privately.

In Greece, this slow-speed run on deposits has not caused panic. But that could quickly change if there is a sudden loss of confidence in the banks.

Savers lost faith in Britain's Northern Rock overnight in September 2008, queuing for hours in the days that followed to take out their cash, despite a guarantee safeguarding most deposits. The British government ended up nationalizing the bank.

"It (Greek withdrawals) is not a huge number in percentage terms, but it is still a very worrying story. But deposit flight has been going on for two years. What we are seeing in the euro zone is a slow-motion bank run," said Michael Riddell, fund manager at M&G International Sovereign Bond Fund.

SHIFTING DEPOSITS

Deposits shifted around Europe dramatically last year, analysis of data from more than 120 listed European banks show.

More than 120 billion euros was taken from two banks in Belgium alone, including an exodus of customer deposits from Dexia (DEXI.BR: Quote, Profile, Research, Stock Buzz) which had to be bailed out and restructured. KBC (KBC.BR: Quote, Profile, Research, Stock Buzz) also saw a big outflow.

Some 90 billion euros was taken from France's banks, including around 30 billion each from Credit Agricole (CAGR.PA: Quote, Profile, Research, Stock Buzz) and BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz). French banks were hit last year by their heavy exposure to Greece and concerns about their liquidity that forced them to accelerate plans to shrink.

Worries the euro zone crisis would spread also saw about 30 billion euros in deposits leave Italian banks, although inflows to BBVA (BBVA.MC: Quote, Profile, Research, Stock Buzz) helped limit the net outflow from Spain.

Cash flooded into Britain; more than 140 billion euros was deposited in four big banks alone. The UK benefits from its position outside the euro zone and its Asia-focused banks HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) and Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) are seen as particular safe-havens.

Other banks to see big inflows included Barclays (BARC.L: Quote, Profile, Research, Stock Buzz), Germany's Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz), Switzerland's Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) and UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) and Russia's Sberbank (SBER.MM: Quote, Profile, Research, Stock Buzz) and VTB (VTBR.MM: Quote, Profile, Research, Stock Buzz).

(Graphic by Scott Barber; Additional reporting by Alexandre Boksenbaum-Granier in Paris, Stephen Grey in Athens and Sinead Cruise in London; Editing by Simon Robinson and Alexander Smith)

The employment report for May will take center stage. Also of note: Pension funds take on the board of Wal-Mart, and China posts its PMI.

J.M. Hamilton Blog — Mon, 28 May 2012 00:00:00 GMT

Preview/Barron's

| SATURDAY, MAY 26, 2012

Bond Volatility Rises: Surprises Still Unloved

By ROBIN GOLDWYN BLUMENTHAL

Fed transparency hasn't stopped bond volatility linked to the payroll report.

So much for transparency. Ever since the Federal Reserve started giving explicit interest-rate guidance last August, the bond market has become more sensitive to any surprises in the closely watched monthly employment report, whose May numbers are due out Friday.

That's according to Priya Misra, head of rates research at Bank of America Merrill Lynch. Contrary to her assumption that yield volatility after payroll surprises would have declined since the new regime began, she found a marked rise in one-day moves in five- and 10-year yields, for both negative and positive surprises.

Enlarge Image

William Waitzman for Barron's

Actionable: Bond-yield volatility in the age of Fed transparency has actually increased after payroll surprises.

Misra found the average one-day response to positive payroll surprises on the 10-year Treasury in the year before transparency was 2.9 basis points, or hundredths of a percentage point, while post-transparency it was 4.2 basis points. Similarly, the pre-transparency response to negative surprises was 1.6 basis points, versus 8.4 basis points after last August.

Economists expect May nonfarm payrolls to rise about 150,000. At the margins, "you can get a pretty big market reaction" in the 10-year, which yields about 1.7%. Indeed, if payrolls rise by just 50,000, chances for QE III rise to 80 or 90%, from current even odds.

Next Week: Preview

Monday 28

U.S. markets are closed in observance of Memorial Day. Among other closings: Switzerland and South Korea.

Italy begins the first of several bond auctions this week.

IPO lockup curbs expire on Zynga .

Tuesday 29

S&P/Case-Shiller home prices for March are reported.

Consumer confidence for May, and the Chicago Fed manufacturing report for April, are on tap.

The International Securities Exchange lists options on Facebook (see Striking Price, "Set for Another Facebook Debut?").

Wednesday 30

Dallas Fed President and contrarian Richard Fisher gives a speech.

Finish Line and BGC Partners hold meetings with analysts.

The Realtors' association reports pending sales for April.

Thursday 31

Challenger, Gray & Christmas issues its job-cut announcement report.

Retail chains report May sales.

Although little change is expected on the revision to the initial 2.2% read of first-quarter GDP growth, the report will contain the first report on first-quarter profits, says AllianceBernstein's chief economist, Joseph Carson.

Ireland holds a referendum on the European Union fiscal pact.

Clorox, Flextronics , meet analysts.

The CFTC holds a forum on the Volcker rule to limit big-bank trading.

Friday 1

"A somewhat stronger" job gain for May is likely, says Carson. He predicts payrolls to have risen by 175,000 to 200,000. The start of a pickup in the labor force could be evident.

China posts its purchasing managers' index for April.

Medtronic meets with analysts.

U.S. vehicle sales should register a strong annual rate in the mid-14 million area, Carson says.

The ISM manufacturing index for May is reported, with personal income.

Oneok splits its shares, 2-for-1.

A showdown is brewing at Wal-Mart Stores' annual meeting. The California State Teachers' and the New York City Pension Funds vote against the board after Mexico bribery allegations.

IPO lockup restrictions expire for online coupon purveyor Groupon .

Week's Highlight

Friday 1: The employment report for May will take center stage. Also of note: Pension funds take on the board of Wal-Mart, and China posts its PMI.

E-mail: editors@barrons.com

Last month, Director of National Intelligence James Clapper and Secretary of Defense Leon Panetta announced the creation of a new U.S. espionage agency: the Defense Clandestine Service, or DCS.

J.M. Hamilton Blog — Sun, 27 May 2012 23:30:00 GMT

May 18, 2012

SNAPSHOT

More Military Spies

Why the CIA Is Applauding the Pentagon's Intelligence Grab

Jennifer Sims
JENNIFER SIMS is Senior Fellow for National Security at the Chicago Council on Global Affairs and a Visiting Professor in the Security Studies Program at Georgetown University.

Last month, Director of National Intelligence James Clapper and Secretary of Defense Leon Panetta announced the creation of a new U.S. espionage agency: the Defense Clandestine Service, or DCS. DCS is expected to expand the Pentagon's espionage personnel by several hundred over the next few years, while reportedly leaving budgets largely unchanged. The news nonetheless surprised some observers in Washington because the move appeared, at least initially, to be a direct challenge to the Central Intelligence Agency, whose National Clandestine Service leads the country's spy work overseas. Then came a second surprise: former CIA officers and other intelligence experts started applauding. The question is why.

Four reasons stand out. First, DCS can be regarded as a rebranding and upgrading of the Defense Intelligence Agency's espionage unit, the Defense HUMINT Service (HUMINT stands for "human intelligence"), which was created in 1992 to improve the coordination and accountability of military espionage. The CIA has long supported the efforts to improve the military's HUMINT tradecraft, but despaired because the military's case officers never stayed long in their jobs. The new DCS will have ranking general officers and field grade officers who stay put for the long term.

Second, the CIA likes the idea behind DCS because it has been gaining advantages from improved military espionage over the past few years -- the raid in Abbottabad, Pakistan, that killed Osama bin Laden is just one example of the kind of success that close collaboration can achieve. The CIA would like to have that capability against national targets outside the current war zones. The CIA, the Defense Intelligence Agency, the military services, diplomats, and law enforcement officers all need discriminating and persistent engagement with an increasingly dispersed and mercurial adversary. Thanks to the growth of broadband communications and social networking, terrorists, drug syndicates, and arms traffickers operate as overlapping networks. This is a new kind of engagement that requires innovative operations within the legal bounds of civil societies. To respond to such threats, the CIA and the Pentagon see advantages in working as a networked team too. So, the better human intelligence that comes from the military, the better the National Clandestine Service.

For the CIA, the less agreeable issue with the creation of DCS is the notion that the military might be producing the best case officers against some targets. The CIA holds that good case officers can recruit anyone. But recruiting agents is only one part of espionage; other parts involve assessing knowledge, judging risk and reliability, and then knowing what to ask for next. Against military targets, the military may be most successful. Think of it this way: if you want to collect intelligence on the nuclear weapons capabilities of a foreign state, would you prefer to have scientists or non-scientists recruiting foreign physicists and weapons designers?

Third is the matter of integration. Good national and strategic intelligence is critical for operations against transnational targets, but while the military's tactical awareness is improving rapidly, strategic context has often been lacking. Case in point: in January 2010, Lieutenant General Michael Flynn, now head of the Defense Intelligence Agency, wrote "Fixing Intelligence in Afghanistan," a stinging report on intelligence deficiencies on the battlefield. The CIA has had a hard time improving the situation without being granted direct access to the problems that the military wants solved. DCS can help bridge the divide.

Fourth, chasing today's amorphous, mobile targets, such as insurgents or terrorists, is logistically difficult. Since the Pentagon has an unparalleled global reach and specializes in logistics, and the CIA has deep ties with target countries, it makes sense to gain economies of scale through combined and complementary operations. That will require overcoming the trust gap that has sometimes weakened military-civilian intelligence cooperation. Rather than representing an escalation of turf tensions, DCS is a boost to the cooperation that has been developing for some years through institutionalized joint training and collaboration in the field. Former CIA officials I have spoken with expressed optimism about the Pentagon's new initiative, using the raid that killed Osama bin Laden to illustrate the point.

The creation of DCS, however, also poses several risks. Chief among them is the prospect that the CIA will lose control over choosing targets and creating priorities for collection as the requirements for defense HUMINT gain further attention and federal budget cutting forces intelligence dollars to decline overall. The State Department, with no clandestine capability of its own, relies on the CIA to remember its needs too. As the CIA works ever closer with DCS, State's priorities may get less attention than they should.

More, if the creation of DCS simply increases the Defense Department's presence inside U.S. embassies, it may complicate the role of CIA station chiefs and U.S. ambassadors, who are legally responsible for operations in the countries in which they are stationed. A stronger Pentagon role might throw off the delicate balance required for effective in-country intelligence operations. The priorities of regional combatant commanders, ambassadors, and civilian intelligence agencies do not always align. If collection priorities or covert actions become skewed toward what the Pentagon wants, civilian policymaking might be compromised, and the risks of poorly coordinated field operations will increase.

To ensure that improved military espionage does not degrade intelligence support for diplomacy and other national security operations, CIA chiefs of station need to retain their status as national managers of human intelligence. Working with ambassadors and combatant commands, the CIA can keep the system infused with the balance of purpose that the National Security Council and the president expect.

Opium poppy, much like the coca grown in Colombia and Peru, poses a number of problems because there is so much money to be made that powerful political players, from police chiefs to governors, inevitably want a cut.

J.M. Hamilton Blog — Sun, 27 May 2012 23:00:00 GMT

Baz Ratner/Reuters

An Army officer walking through a poppy field while on patrol in Afghanistan last month.

May 26, 2012/NYTIMES

U.S. Efforts Fail to Curtail Trade in Afghan Opium

By ALISSA J. RUBIN and MATTHEW ROSENBERG

KABUL, Afghanistan — For years, American officials have struggled to curb Afghanistan’s opium industry, rewriting strategy every few seasons and pouring in more than $6 billion over the past decade to combat the poppies that help finance the insurgency and fuel corruption.

It is a measure of the problem’s complexity that officials can find little comfort even in the news this month that blight and bad weather are slashing this year’s poppy harvest in the south. They know from past seasons that blight years lead to skyrocketing opium prices and even greater planting efforts to come.

“Now I am desperate, what can I do?” said Mohammed Amin, a poppy farmer in Tirin Kot in Oruzgan Province, who harvested only one kilogram of opium poppy this year compared with 15 last year. “I don’t have any cash now to start another business, and if I grow any other crops, I cannot make a profit.”

The seemingly unbreakable allure of poppy profits — for producers and traffickers, government officials and Taliban commanders alike — has kept fighting opium at the heart of efforts to improve security. It drove Richard C. Holbrooke, later the special envoy to Afghanistan, to write in 2008: “Breaking the narco-state in Afghanistan is essential, or all else will fail.”

That concern is no less serious today, on the eve of the departure of thousands of American troops. But even as American leaders continue to emphasize the importance of the anti-opium effort, some officials are privately conceding that there is little chance for its large-scale success before the end of the NATO military mission in 2014.

The withdrawal is one worry. As the money from the Western military and civilian aid programs dwindles, the relative importance of opium to the economy is likely only to increase, said Jean-Luc Lemahieu, the director of the United Nations Office on Drugs and Crime in Afghanistan.

“Some money is available through the licit economy, but less than in the past as the Western contracts dry up, and so the importance of the illicit, informal economy will increase: human trafficking, gems, timber and weapons smuggling, and of course narcotics is a huge chunk of it,” he said, adding: “The prognosis post-2014 is not a positive one.”

Opium poppy, much like the coca grown in Colombia and Peru, poses a number of problems because there is so much money to be made that powerful political players, from police chiefs to governors, inevitably want a cut. The Taliban also support the drug trade, directly by protecting opium farmers, and indirectly by shielding traffickers, who pay off everybody in order to move their products quickly to the borders, according to narcotics experts at the United Nations and the Afghan government.

“Drugs are not the only priority issue for Afghanistan,” said William R. Brownfield, the State Department’s assistant secretary for international narcotics and law enforcement, in an interview this month. “But by the same token, if you do not address the drug issue you will not succeed in the other security, stability, democracy, prosperity objectives you are aiming for.”

Despite all the effort, there are many troubling indicators. Nationwide, the number of poppy-free provinces, which reached a high of 20 in 2010, has now dropped to at least 17 and could be found to be still lower once researchers finish surveying remote provinces. Overall acres under poppy cultivation began rising again in 2009 after a significant drop the year before, and the total has grown slowly but steadily since.

Interdiction, while somewhat improved under new Afghan counternarcotics leadership, nets only about 3.5 percent of the 375 tons of heroin that leaves the country every year, according to the United Nations.

Even the success stories are unlikely to be sustainable, officials say. The prime example is the combined American and British counternarcotics campaign in the Helmand River Valley, in the heart of the province that produces nearly half of Afghanistan’s opium. Since its start in 2009, the military mission has coincided with a 33 percent decrease in opium poppy cultivation in the area, and concurrent programs to create alternative jobs and crops have had a significant effect there.

But the troops are leaving — as many as 14,000 American Marines could depart Helmand by the end of the year — and many of the incentive programs are closing down unless Afghanistan’s counternarcotics minister can persuade the West to renew them.

“We have to watch the answer develop over the next 6 to 12 months,” Mr. Brownfield said, speaking of the effects of the military withdrawal. “That’s what transition is all about — we’re changing from a known to an unknown.”

This year’s low opium harvest has thrown another element of unpredictability into the picture. It has already driven a few farmers to commit suicide and others to flee because they feared retribution from creditors, according to the governor’s office in Helmand. But rather than serving as a disincentive, the poor crop is more likely to prompt many to plant even more poppy next year to make up for this year’s losses. That was the pattern in previous blight seasons, like 2010.

Mr. Amin, the poppy farmer in Tirin Kot, says that despite the risks, there is nothing to replace opium: “The poppy is always good, you can sell it at any time. It is like gold, you can sell it whenever and get cash.”

In the meantime, the price for opium at the farm gate has soared — up more than 50 percent from a month ago and now selling for more than $320 per kilogram — another factor likely to spur more planting, Mr. Lemahieu said. Traffickers, who stockpile opium from year to year, are making a killing, he said.

On the Afghan side, the minister for counternarcotics, Zarar Ahmad Muqbel Osmani, has increased poppy eradication efforts in areas where farmers can grow other crops and is lobbying to expand the alternative crop program. But he remains deeply frustrated with the overall lack of law enforcement. Asked what it would take to affect the country’s drug problem, he answered tersely, “Political will.”

Among the continuing problems with corruption: information leaks that scuttle potential drug raids; political pressure that results in the release of major traffickers; and local politicians and police officers who participate in the poppy trade and use eradication programs to attack their rivals.

The deputy interior minister for counternarcotics, Lt. Gen. Baaz Mohammed Ahmadi, said his specialized force must still answer to local police officials.

“Because they are dependent on the regular force for everything, for gas for their vehicles and for the vehicles, even a very junior fuel dispatcher will know about the details of our operations,” he said. “And when we plan an operation, we have to have approval of the local police chief or his deputy or the zone police chief, and if one of those people is corrupt or linked to a big trafficker, it leaks.”

The Americans have taken at least three different tacks to fighting opium poppy cultivation.

In the early days after the 2001 invasion, a little more than half the current acreage was under cultivation, a legacy in part from the Taliban’s ban on opium, which they ignored selectively. The Western emphasis was on driving the remaining Taliban fighters from the country, and with that in mind the Americans made allies of many of the old warlords who were also involved in the drug trade, entrenching a culture of impunity.

In 2005, British forces found nearly 20,000 pounds of opium in the office of the Helmand governor, Sher Mohammed Akhundzada, an ally of President Hamid Karzai. He was forced out at the behest of the British, but was later named to the Senate.

In 2006, as Americans began promoting eradication by specially trained Afghan forces, heroin was found in a car belonging Hajji Zaher Qadir, whom Mr. Karzai had been considering to lead the border police force. That appointment was scrapped, but Mr. Qadir is now one of the leaders in the lower house of Parliament. Many of the northern power brokers are also believed to be involved in the drug trade.

In 2007, as poppy growth reached a record-high 477,000 acres, the new American ambassador, William B. Wood, began to lobby for aerial eradication of the kind that had been undertaken in Colombia.

Mr. Wood became such a vocal proponent that he was known in the British press as “Chemical Bill.” He once even tried to overcome President Karzai’s skepticism about spraying by offering to publicly sit in a vat of pesticide clad only in a Speedo bathing suit to prove the chemicals were safe, said a Western official familiar with the discussions at the time.

Strenuous opposition from Mr. Karzai, European diplomats and some American policy makers stopped the program from getting off the ground. They feared it would backfire by reminding impoverished Afghans of Soviet-era spraying and would push them further into poverty, and into the arms of the Taliban.

In 2009, with the arrival of President Obama’s team, including Mr. Holbrooke, Gen. Stanley A. McChrystal and later Gen. David H. Petraeus, the focus turned toward a counterinsurgency strategy that hinged on gaining acceptance from local Afghans.

Aware of how eradication deeply alienated rural Afghans who depended on opium for their families’ subsistence, the American military distanced itself as much as possible from destroying poppy crops, instead supporting alternative crops and livelihoods. The State Department paid provincial governors to use Afghan forces to eradicate.

At the same time, officers from the Drug Enforcement Administration and the Justice Department mentored the Afghan police in interdiction and Afghan lawyers and judges in prosecuting narcotics cases.

The efforts have led to two perceived success stories: new drug courts, and the alternative crops and jobs effort in Helmand Province. Both initiatives have taken several years to mature. The drug courts, in particular, are widely viewed as largely insulated from corruption and are efficient, handling 635 cases in 2011. A few of them involved government employees, including police officers who were smuggling heroin. In the vast majority, the prosecutors obtained convictions.

Still, for many Afghans in the poppy belt, the idea of placing a bet on the government’s future by cultivating anything other than poppy seems like one of the longest of shots.

“It is not an easy choice to grow poppies,” said Tahir Khan, a local village leader in Khogyani district in the Nangarhar Province in eastern Afghanistan. “We know the danger and threat from the government and it is difficult, it needs hard work to recoup our investment. But the people are poor, they have no choice.”

Taimoor Shah contributed reporting from Kandahar, Afghanistan.

The Spanish crisis may well force them to create a banking union. And the threat of a Greek exit from the euro may force them to decide how far-reaching a fiscal union they are prepared to embrace.

J.M. Hamilton Blog — Sun, 27 May 2012 22:30:00 GMT

Jean Pisani-Ferry

Jean Pisani-Ferry is Director of Bruegel, the Brussels-based economic-policy think tank, and Professor of Economics at Université Paris-Dauphine. He was an adviser to the European Commission’s Directorate-General for Economic and Financial Affairs, and was Director of CEPII, France’s leading international economics research institute. He has also served as Senior Economic Adviser to the French finance minister, Executive President of the French prime minister’s Council of Economic Analysis, and Senior Adviser to the director of the French Treasury.

Is the Euro Ending or Beginning?

24 May 2012

BRUSSELS – When the architects of the euro started drawing up plans for its creation in the late 1980’s, economists warned them that a viable monetary union required more than an independent central bank and a framework for budgetary discipline. Study after study emphasized asymmetries within the future common-currency area, the possible inadequacy of a one-size-fits-all monetary policy, the weakness of adjustment channels in the absence of cross-border labor mobility, and the need for some sort of fiscal union involving insurance-type mechanisms to assist countries in trouble.

Beyond economics, many observers noted that European Union citizens would accept tight monetary bonds only if they were participating in a shared political community. The former president of the Bundesbank, Hans Tietmeyer, liked to quote a medieval French philosopher, Nicolas Oresme, who wrote that money does not belong to the prince, but to the community. The question was, which political community would support the euro?

Some of these warnings were inspired by deep-seated doubts about European monetary unification. But others merely wanted to emphasize that Europeans needed a better-equipped and stronger vessel for the journey that they were contemplating. Their message was simple: national governments must make their economies fit for the strictures of monetary union; the euro must be supported by deeper economic integration; and a common currency needs political legitimacy – that is, a polity.

In the end, the leaders at that time – especially German Chancellor Helmut Kohl and French President François Mitterrand and his successor, Jacques Chirac – set forth to sea in a light vessel. On the economic front, they agreed on only a bare-bones Economic and Monetary Union built around monetary rectitude and an unenforceable promise of fiscal discipline. On the political front, they did not agree at all, so the creation of a European polity remained stillborn.

Some at the time, like then-European Commission President Jacques Delors, openly deplored this narrow approach. Though political constraints prevailed, the euro’s architects were however not naive. They knew that their brainchild was incomplete. But they assumed that, over time, monetary unification would create momentum for national reforms, further economic integration, and some form of political unification. After all, that piecemeal approach is what had helped to build the EU ever since its origins in the coal and steel community of the 1950’s. Few among the euro’s proponents expected that there would be no significant change after its launch.

But this assumption was mistaken. From the signing of the Maastricht Treaty in 1992 to the tenth anniversary of the euro in 2009, the expected momentum for creating a common European polity was nowhere in sight.

Indeed, very few countries have bothered to spell out, let alone implement, a euro-inspired economic-reform agenda. Having agreed to delegate responsibility for monetary policy to the European Central Bank, most governments put up fierce resistance to any further transfer of sovereignty. In 2005, a timid attempt to foster political integration by adopting a constitutional treaty was defeated in popular referenda in France and the Netherlands.

So, contrary to expectations, things stayed put. Soon after the introduction of the euro in 1999, it became clear that the scenario favored by the common currency’s architects would not be realized. Everybody accepted – if grudgingly – that the bare-bones EMU was the only game in town.

Now, however, what did not happen through smooth evolution has started to happen through crisis. Since 2009, the Europeans have already put in place the crisis-management and resolution apparatus that they initially refused even to discuss. Simultaneously, governments, under merciless pressure from the bond markets, are introducing labor- and product-market reforms that they deemed politically inconceivable only a few quarters ago.

But the bond markets want more. The questions that they are asking more loudly with each passing day demand answers. Will Europeans agree to mutualize part of the cost of the crisis? Greece’s creditors (mostly eurozone residents) have already accepted some of the burden by accepting a “haircut” on their assets. But, if another country finds itself unable to bear the fiscal cost of the crisis, will it also shift the burden to its external creditors in some form or another?

And, beyond transfers, will Europeans, or some of them, agree to create a banking union (that is, Europeanization of banking supervision, deposit insurance, and crisis resolution)? Will they agree to pool tax revenues so that EU-level institutions can credibly take charge of financial stability?

These questions are vital for the future of the common European currency. In spite of their desire not to raise them, European leaders face the uncomfortable prospect of having to answer them – and without much delay.

The historical irony is that an environment of crisis is forcing Europeans to make choices that they did not want to envisage, much less confront, in quieter times. The Greek debt crisis forced them to create an assistance mechanism. The Spanish crisis may well force them to create a banking union. And the threat of a Greek exit from the euro may force them to decide how far-reaching a fiscal union they are prepared to embrace.

For many, recent developments mark the beginning of the end for the euro architects’ bold creation. But, depending on how Europeans answer these questions, today’s crises might one day be remembered as the end of the beginning.

The highly personal interviews revealed that Germans can't even let go during sex.

J.M. Hamilton Blog — Sun, 27 May 2012 22:00:00 GMT

05/24/2012 02:29 PM

Defective Joy Gene

Study Finds Germans Incapable of Enjoying Life

By Maria Marquart

With low unemployment and solid economic growth, things are going better than ever for Germans. But a new study shows they're practically incapable of enjoying it. Not only do they find it difficult to cut loose and experience pleasure, but their "joy gene" is broken, researchers say.

At a certain point, Sven just lost it. Other members of the discussion group had gone into great detail about how they spent their after-work hours with their companions and enjoyed the end of the day. "That's great for you!" Sven fired back to one speaker. "But first one needs the chance! My boss often plops something on my desk right before it's time to clock out, and when I arrive home late, my wife is pissed off because she was forced to take care of our kid and the housekeeping by herself." By that point, he adds, all thoughts of a relaxing evening have vanished.

If anything can comfort Sven, it's the fact that he isn't alone with this problem. The 36-year-old took part in a study released this week by Rheingold, a market-research and consultancy institute based in Cologne, which found that 46 percent of Germans say they are increasingly unable to enjoy anything due to the stress of everyday life and the feeling of being constantly reachable. The difficulty was even more pronounced among the study's younger participants, 55 percent of whom claimed to feel they have lost their ability to feel good.

Whether it's with food, alcohol, vacation or relaxing -- Germans apparently don't have the leisure to enjoy things. In fact, they can't even let go when they're having sex. According to the researchers, the bottom line is: "Our joy gene is increasingly defective -- we've forgotten how to enjoy ourselves."

Work Before Play

The results conform to the image that many Europeans have of Germans in this era of economic crisis as self-denying overachievers who can't even turn off the fun-brakes when vacationing at the beach. The positive image that they enjoyed during the 2006 soccer World Cup in Germany seems gone.

"At that time, Germans really radiated a zest for life," says Rheingold psychologist Ines Imdahl. "But this mood shifted beginning in 2008." The problem, she believes, is that Germans feel weighed down by the ongoing European debt and currency crisis. "It's more than simple complaining," she adds. "People have the feeling that we have to shoulder the entire crisis here."

But the Germans aren't just burdened with the crisis. The main thing standing in their way is their own perfectionism. During hours of individual and group interviews, the researchers analyzed how 60 subjects felt pleasure. They also scrutinized the results of a representative survey of 1,000 men and women commissioned by the liquor companies Diageo and Pernod Ricard.

Among survey respondents, 81 percent said that they experience pleasure best when they have managed to achieve something first. "As the saying goes, business before pleasure," said 61-year-old female participant Wiltrud.

Pleasure Pressure

But this maxim doesn't seem to serve the Germans well -- they even feel burdened by the pressure to enjoy things. "People often told us that they would come home after a stressful day, but were unable to even say what they'd accomplished," Imdahl reported. "And then the people around them say, 'Hey, just relax.' Enjoyment then turns into an obligation."

Meanwhile, chances to create a sense of well-being lurk everywhere -- a glass of wine, a relaxing bubble bath, or a nice restaurant with delicious food. These, of all things, also rankle the Germans. "This glut of offerings pressures people into thinking, 'I must enjoy everything'," Imdahl says.

During the course of the study, the researchers managed to unlock a typically German sequence of steps to enjoyment, which they named "pleasure DNA." The first step involves the feeling of having earned something. This is followed by preparation for the longed-for pleasure, such as booking a day of wellness treatments. But then comes the biggest hurdle: letting go and clearing the mind. Only when a surprising positive moment supervenes can a fully integrated sense of enjoyment follow.

However, many Germans apparently lack crucial components to this "pleasure DNA." Though some 91 percent of the study participants said that pleasure makes life worthwhile, only 15 percent could recall moments in which they were able to forget their worries and feel truly happy.

Two-thirds of the respondents imagined that they might arrive at such a feeling by doing something provocative. One example? A motorcyclist reported experiencing delight when he blew exhaust fumes in the direction of a convertible driver as he accelerated at a green light.

The Jealousy Factor

Yet another phenomenon also comes into play in the German culture of pleasure -- jealousy of others' well-being. "Many think, 'man, how does he do it,'" psychologist Imdahl said. It's a Teutonic mentality one can also see in the euro crisis. "When we get agitated about the Greeks' high pensions and ample vacation days, naturally pleasure-jealousy plays a role," she says. But would Germans rather be Greek? "That doesn't suit us," she says.

Perhaps the Germans could never achieve a Southern European kind of ease, but one might think they could at least relax during their most intimate moments. Not true, the study found. The highly personal interviews revealed that Germans can't even let go during sex. Many reported constantly having film and advertising images run through their minds. "This results in the requirement to cut a good figure even during sex," Imdahl says. That is, to hold in their bellies instead of enjoying the moment.

Uranium enriched over 20 percent is considered highly enriched, though most nuclear bombs use the heavy metal purified to 90 percent levels.

J.M. Hamilton Blog — Sun, 27 May 2012 21:29:00 GMT

Iran Doubles Enriched-Uranium Stockpile, Goes Beyond 20%

By Jonathan Tirone and Indira A.R. Lakshmanan - May 25, 2012

Iran increased its output of enriched uranium that world powers are concerned may eventually be used for a nuclear weapon, according to International Atomic Energy Agency inspectors.

While the United Nations agency verified that Iran hasn’t diverted its declared nuclear material for weapons use, the inspectors reiterated past statements that they can’t give assurances that Iran isn’t concealing nuclear activities.

Iran almost doubled its stockpile of 20 percent medium- enriched uranium, to 145 kilograms (320 pounds), from 73.7 kilograms in February, the IAEA said yesterday in an 11-page report. Iran had tripled its production of the material in the three months ending Feb. 24.

IAEA inspectors reported they found the presence of particles of 27 percent-enriched uranium at Iran’s Fordo facility. The particles were a result of “technical reasons beyond the operator’s control,” Iran told the Vienna-based agency, which is looking into the matter. Uranium enriched over 20 percent is considered highly enriched, though most nuclear bombs use the heavy metal purified to 90 percent levels.

The report is the first since IAEA Director General Yukiya Amano returned from Iran on May 21 with a commitment from the Islamic republic’s government to improve cooperation with inspectors. While the Persian Gulf nation insists that its atomic work is peaceful, it has been under IAEA scrutiny since 2003 over evidence that it seeks nuclear-weapon capabilities.

‘A Glitch’

The uranium particles enriched to 27 percent could be the result of a transient condition that can occur when the material is fed into centrifuges, according to two senior international officials familiar with the investigation. The officials spoke on condition of anonymity because of the issue’s sensitivity.

David Albright, a physicist and former weapons inspector, said the presence of the 27 percent particles is probably a glitch that resulted from Iran using a more efficient enrichment process.

The IAEA has previously found uranium particles enriched to even higher levels at Iran’s Natanz facility. Those samples were the result of outside contamination, according to the agency.

Still, Iran’s use of better processes to amass larger quantities of both low- and medium-enriched uranium is troubling, according to Albright, who is founder of the Institute for Science and International Security in Washington. Iran now has 146 kilograms of 20 percent uranium, sufficient to produce many years of fuel for its medical-research reactor, he said.

Breakout Capability

“Ultimately, that will give them a greater capability to break out quickly and produce weapons-grade uranium if they decided to do so,” Albright said in an interview yesterday. He estimates that by early next year, Iran may have enough 20 percent uranium to convert into weapons-grade uranium for one bomb.

Albright said the differences that remain to be resolved before implementing an agreement between Iran and the IAEA’s Amano over greater access to sites in Iran are “not small,” and he’s not optimistic that expanded inspections will start soon.

Even if the IAEA is granted wider inspections under the agreement it intends to sign with Iran, clearing the country’s program will take years, according to the officials. The top priority continues to be winning access to Iran’s Parchin military complex, where satellite photos have shown images of possible attempts to sanitize a suspected facility, they said.

“Actions speak louder than the words, and you have to worry that this country is intent on getting nuclear weapons despite what the Supreme Leader may say,” Albright said, referring to Ayatollah Ali Khamenei’s religious edict that nuclear weapons are against Islam.

‘Credible Assurance’

In its report, the IAEA said while the agency continued to verify over the last three months that Iran hadn’t diverted its declared nuclear material for use in weapons, it was “unable to provide credible assurance about the absence of undeclared nuclear material and activities in Iran.”

The agency said it couldn’t therefore definitively “conclude that all nuclear material in Iran is in peaceful activities.”

The report will be released formally on June 4 when the IAEA’s 35-member board of governors convenes in Vienna.

The IAEA found Iran’s stockpile of uranium enriched to less than 5 percent grew to 6,232 kilograms from 5,451 kilograms reported in February.

Expanding Centrifuges

The number of centrifuges, fast-spinning machines that purify the heavy metal, installed at Iran’s fuel-fabrication plant in Natanz, about 300 kilometers (186 miles) south of Tehran, rose to 9,330 compared with 9,156 in February.

Machines at the Fordo facility, which was built clandestinely into the side of a mountain, rose to more than 500 from 300 in the previous report. That enrichment facility has drawn particular attention from Israel because it would be difficult to destroy with an airstrike.

Iran has already used one third of its 20 percent stockpile to make fuel plates for its Tehran research reactor, which is used to produce medical isotopes for cancer treatment. Turning the uranium into metal renders it more difficult to enrich it into weapons material, according to the officials.

About 630 kilograms of low-enriched uranium, if further purified, could yield the 15 to 22 kilograms of weapons-grade uranium an expert needs to produce a bomb, according to the London-based Verification Research, Training and Information Center, a non-governmental observer to the IAEA that’s funded by European governments.

Iran and six world powers agreed on May 24 to hold a new round of talks about the Persian Gulf nation’s nuclear program next month in Moscow, after failing to bridge differences during two days of negotiations in Baghdad. It will mark the third attempt in three months to answer international worries that Iran’s atomic energy program may be a cover for secret weapons work, and to address Iran’s concerns about sanctions and diplomatic isolation.

To contact the reporters on this story: Jonathan Tirone in Vienna at jtirone@bloomberg.net; Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; John Walcott at jwalcott9@bloomberg.net

But for three days this week, the system in transition will be shaken and stirred, with all but 35 of the state’s 331 liquor stores, which serve a population of 6.8 million, going dark.

J.M. Hamilton Blog — Sun, 27 May 2012 21:00:00 GMT

May 26, 2012/NYTIMES

A Taste of Prohibition as Liquor Stores Go Private

By KIRK JOHNSON

CASHMERE, Wash. — What is a Memorial Day weekend start-of-summer party without a trip to the liquor store for that special gin Aunt Martha insists upon? Or an extra bottle of whatever-has-a-kick in case the get-together goes into extra innings?

This rural corner of central Washington might find out.

A change in the state’s 78-year-old sales system for liquor, from state-controlled stores to private retailers — approved by voters last fall and now in the home stretch of a chaotic, deadline-driven start on Friday, the first day of June — is pushing some places toward a palate-parching glimpse of Prohibition.

Consider this eye-opener: Of the six liquor outlets in Chelan County, about 150 miles east of Seattle, one closed earlier last week for inventory checks in anticipation of the state handoff and three others, including the only one here in Cashmere, population 3,063, will close on Monday.

For the three days after that, the closest bottle for many people in a county of 72,000 could be half an hour or more away, assuming anything is left. Retailers were anticipating a run.

“We’re going dry,” said Stacey Hoefner, the owner of the Cashmere store, formally known on state rosters as store No. CLS540.

Ms. Hoefner said she had been unable to place any new liquor orders since mid-May. And with people driving in for miles around in recent days to buy by the case — as insurance against shortages or price increases — and the summer camping and festival season in the towns of the Cascade Range beginning in earnest this weekend, some shelves were already bare.

Popular midpriced vodkas and tequilas? Entirely gone. “I’m doubling up on the Baileys Irish Cream shelf to make it look full,” Ms. Hoefner said.

The shortage is temporary. At midnight on June 1, the alcohol spigot will be turned back on with a jolt as retailers that were long barred from the liquor trade, including large grocery stores, will be allowed to stock their shelves with higher-proof beverages, and state-owned stores that were sold at auction turn their lights back on under new ownership. Wine and beer sales were unaffected by the change, called Initiative 1183, and are already allowed to be sold in most shops.

But for three days this week, the system in transition will be shaken and stirred, with all but 35 of the state’s 331 liquor stores, which serve a population of 6.8 million, going dark.

“I imagine there will be places where people will have a drive,” said Mikhail Carpenter, a spokesman for the Washington State Liquor Control Board. “There was an aggressive schedule for us to be out of the liquor business,” he added. “It comes down to a question of manpower and scheduling.”

Washington is one of eight states left, at least for the moment, with a state-run monopoly on retail liquor sales, according to federal figures. In the aftermath of Prohibition — the 18th Amendment to the Constitution, repealed in 1933 after 13 years of bathtub gin and gangland lawlessness — most states immediately or gradually transitioned to the private market, or a state-private mix, and never looked back.

But here in Washington, historians say, a utopian if not quite bluenosed spirit — prominent in the early wave of pioneer settlement and still present today — kept a hint of the temperance spirit alive.

State stores were clean but never very plentiful, and almost entirely free of charm: a sign out front declared in unadorned block type what was available within. The system made Washington State second only to Utah, where the Mormon faith frowns on drinking, in having the fewest liquor outlets per capita, according to Washington State figures.

State control, in turn, made generations of civil servants tastemaking critics — their decisions on what to stock dictating what people could order in bars or buy in the stores.

In 2010, for example, a tiny distiller here in Cashmere, called It’s Five O’Clock Somewhere, made a grape brandy that the owner, Colin Levi, was quite proud of. Liquor Control Board officials came by for a tasting and did not much care for it, Mr. Levi said, and that was that — it never went into distribution.

Mr. Levi said he was expecting greater exposure in the private market, especially in light of the so-called locavore movement — eating and drinking products produced close to home — which is very popular in the Pacific Northwest.

The end of state liquor distribution will also mean that Mr. Levi’s brandy can travel the four blocks or so across Cashmere, directly to Ms. Hoefner’s place. Under the state system, every bottle was shipped to a warehouse in Seattle before going back out to stores or bars, even if the final destination was just down the street.

There will be pain. Mr. Carpenter, the Liquor Control Board spokesman, said he would be among the more than 1,000 state employees, in a department of about 1,300, who will lose their jobs when the privatization is completed. Some could get jobs with the new privately owned stores, he said, but no figures were available yet.

Many Washingtonians call 1183 the “Costco Initiative” for the big national retail chain — whose headquarters are near Seattle — that aggressively pushed for its passage. Costco and allies argued that the plan would generate $400 million or more in state and local revenues over the next six years through lower costs and new licensing fees on retail sales — sorely welcome cash in a state that, like most others, is still struggling financially.

And while some shoppers said they thought competition would be good for choice and price, others said they feared that big business could swamp the little stores that had flourished under a state monopoly, whatever its flaws.

“I love Costco, but I won’t buy alcohol there,” said Judy Martin, who drove 20 miles to Cashmere on Thursday to buy a bottle of Crown Royal.

Either way, liquor stores in Washington are going to be different. Ms. Hoefner said that CLS540 will become Old Mission Spirits this summer, with a big new sign out front.

Franc Tumbles

J.M. Hamilton Blog — Sun, 27 May 2012 20:30:00 GMT

Euro Declines Most in 2012 on Deepening Turmoil in Spain

By Allison Bennett - May 26, 2012

The euro had its biggest weekly loss since December against the dollar as Greece’s anti-bailout party gained in the polls and amid a deepening crisis in Spain.

The shared currency fell for a fifth week versus the yen, the longest stretch since October, as German manufacturing shrank and the Bank of Japan (8301) refrained from adding stimulus to the economy. Brazil’s real was the only winner against the dollar as the central bank sold currency-swap contracts. The dollars of Australia and New Zealand declined as reports showed the Chinese economy is stalling. A report June 1 is forecast to show U.S. employers added more jobs in May than the prior month.

“Uncertainty is high, growth is poor and a Greek exit is a wild card,” said Aroop Chatterjee, a currency strategist at Barclays Plc’s Barclays Capital unit in New York. “It’s unlikely that the euro finds a bottom for a while even in a good state of the world.”

The euro declined 2.1 percent on the week to $1.2517, touching $1.2496, the weakest since July 2010. The 17-nation currency declined 1.2 percent to 99.75, falling below 100 for the first time since February. The Japanese currency fell 0.8 percent to 79.68 per dollar.

Hedge funds and other large speculators increased wagers the euro will decline versus the dollar to a record high for a second consecutive week. So-called net shorts increased for a third week, totaling 195,361 in the period ended May 22 compares to 173,869 for the week before, according to the Commodity Futures Trading Commission.

Euro Crisis

“Risk appetite itself has traced its undulation to the movements in the euro,” Ravi Bharadwaj, a market analyst in Washington at Western Union Co. (WU)’s Western Union Business Solutions unit, said May 23.

European leaders announced no new measures to stem the bloc’s crisis at a summit in Brussels this week. The gathering took place as Greece prepares to hold new elections on June 17 after an anti-bailout party surged to second place in balloting on May 6. A poll on May 24 had the Syriza party with 27.2 percent support, boosting speculation that the country may exit the currency bloc.

The euro weakened 1.2 percent against nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the worst performance along with the Swiss franc. The dollar gained 1.1 percent and the yen rose 0.2 percent.

The shared currency fell below $1.25 for the first time in 22 months after the president of Catalonia, one of 17 semi- autonomous regions in Spain, repeated his call for Spanish central government to help regions access funding, Standard & Poor’s cut the credit ratings of five Spanish banks and the Bankia group said it needed 19 billion euros ($23.8 billion) of government money.

‘Unwelcome Development’

A German index based on a survey of purchasing managers in the manufacturing industry declined to 45 this month from 46.2 in April, Markit Economics said May 24.

“It’s unwelcome development with German manufacturing, because typically that’s where you go looking for a silver lining in the euro,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said May 24. “The second quarter had delivered a shock to growth expectations globally.”

China may have a loan shortfall which would be the first in seven years, according an exclusive Bloomberg News report. Loan demand is drying up as Europe’s debt crisis curbs exports and demand for new homes wanes.

Aussie, Kiwi

Australia’s dollar fell 0.9 percent to 97.58 U.S. cents. The Aussie fell to 96.90 U.S. cents on May 23, a six-month low.

New Zealand’s dollar declined 0.3 percent to 75.40 U.S. cents and touched 74.57 U.S. cents, the weakest since November. The so-called kiwi’s losses were limited as Moody’s cited the government’s deficit and debt trajectories in affirming its AAA rating.

China is Australia’s largest trading partner and is the second-biggest destination for New Zealand exports.

American employers added 150,000 jobs in May, according to the median estimate of economists surveyed by Bloomberg News, after a 115,000 gain in April that missed forecasts. The jobless rate held steady at 8.1 percent, according to another survey.

The Dollar Index (DXY) rose 1.3 percent to 82.393, after touching 82.461, the strongest since September 2010. The gauge’s fourth consecutive weekly gain comes as cumulative net inflows in to U.S. Treasuries yesterday were more than double the daily average over the past year.

Franc Tumbles

The Swiss franc was the biggest loser against the dollar this week, falling 2.1 percent to 95.95 centimes per dollar. It was the biggest weekly loss since Nov. 4. Switzerland’s currency touched the weakest level in two months versus the euro on May 24 amid speculation the central bank may take action to discourage investment in the nation through taxing deposits.

SNB spokeswoman Silvia Oppliger declined to comment on the Swiss franc exchange rate. Finance Ministry spokesman Roland Meier wouldn’t comment on the tax speculation.

Brazil’s real rose 1.8 percent against the dollar to 1.9874 after the central bank sold currency swaps through auction for four consecutive days to stem the largest year-to-date decline against the greenback. The real is the worst performing major currency this year and has declined 6.1 percent against the dollar. It touched a three-year low on May 18.

The nation also completely removed a tax on currency derivatives for exporters on May 23, said Alexandre Andrade, an official at the tax agency.

The yen had its biggest weekly decline against the dollar since March 16 as Fitch Ratings cut the nation’s credit ranking, saying it isn’t acting quickly enough to tackle its public-debt burden.

Losses were limited as the BOJ kept its asset-purchase fund at 40 trillion yen ($502 billion) at a meeting May 23, after expanding it by 10 trillion yen last month. The central bank also left a credit-lending program at 30 trillion yen, it said in a statement in Tokyo. The policy board kept the key overnight lending rate between zero and 0.1 percent.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

The United States attorney for the Southern District of Florida, Wifredo A. Ferrer, called identity-theft tax fraud an “epidemic.”

J.M. Hamilton Blog — Sun, 27 May 2012 20:00:00 GMT

May 26, 2012/NYTIMES

With Personal Data in Hand, Thieves File Early and Often

By LIZETTE ALVAREZ

MIAMI — Besieged by identity theft, Florida now faces a fast-spreading form of fraud so simple and lucrative that some violent criminals have traded their guns for laptops. And the target is the United States Treasury.

With nothing more than ledgers of stolen identity information — Social Security numbers and their corresponding names and birth dates — criminals have electronically filed thousands of false tax returns with made-up incomes and withholding information and have received hundreds of millions of dollars in wrongful refunds, law enforcement officials say.

The criminals, some of them former drug dealers, outwit the Internal Revenue Service by filing a return before the legitimate taxpayer files. Then the criminals receive the refund, sometimes by check but more often though a convenient but hard-to-trace prepaid debit card.

The government-approved cards, intended to help people who have no bank accounts, are widely available in many places, including tax preparation companies. Some of them are mailed, and the swindlers often provide addresses for vacant houses, even buying mailboxes for them, and then collect the refunds there.

Postal workers have been harassed, robbed and, in one case, murdered as they have made their rounds with mail trucks full of debit cards and master keys to mailboxes.

The fraud, which has spread around the country, is costing taxpayers hundreds of millions of dollars annually, federal and state officials say. The I.R.S. sometimes, in effect, pays two refunds instead of one: first to the criminal who gets a claim approved, and then a second to the legitimate taxpayer, who might have to wait as long as a year while the agency verifies the second claim.

J. Russell George, the Treasury inspector general for tax administration, testified before Congress this month that the I.R.S. detected 940,000 fake returns for 2010 in which identity thieves would have received $6.5 billion in refunds. But Mr. George said the agency missed an additional 1.5 million returns with possibly fraudulent refunds worth more than $5.2 billion.

Florida, with its large population of elderly residents and health care facilities, provides a wealth of opportunities for swindlers. South Florida, which had the highest rate of identity theft in the nation, and Tampa have been hit hardest.

The United States attorney for the Southern District of Florida, Wifredo A. Ferrer, called identity-theft tax fraud an “epidemic.” He formed a task force of 18 federal and state agencies, including the I.R.S., to combat the problem. Despite those efforts, it is worsening, Mr. Ferrer said.

“The I.R.S. is doing what they can to prevent this, but this is like a tsunami of fraud,” Mr. Ferrer said. “Everywhere I go, every dinner, every function I attend, someone will come up to me and tell me they are a victim — people in this office, police officers, firefighters.”

In the past two years, the I.R.S. has recognized the severity and rise of this type of fraud, and its vulnerability to it. The ease of electronic filing and the boom in identity theft have outpaced the agency’s technological ability to detect this sort of fraudulent claim, senior agency officials say. The I.R.S. receives 100 million tax returns a year, most filed within a short period of time and a vast majority legitimate.

From 2008 to 2011, the number of returns filed by identity thieves and stopped by the I.R.S. increased significantly, officials said. Last year, it was at least 1.3 million, said Steven T. Miller, deputy commissioner for services and enforcement at the agency.

This year, with only 30 percent of the filings reviewed so far, the number is already at 2.6 million. The bulk are related to identity theft, Mr. Miller said.

The agency, prodded by lawmakers and the public, is moving more aggressively to stop the avalanche. It has increased the number of investigators, put in place better technology that flags more returns, distributed personal identification numbers to victims for the next filing season and hired more workers to help taxpayers get their refunds. The agency, which had $300 million cut from its budget this year, has invested the same amount in combating the problem.

The agency is also working with local law enforcement officials in Florida, allowing them to obtain information on tax returns with the permission of the rightful taxpayer, an important tool for investigators.

“We have gotten much better at it,” Mr. Miller said, “and still have a ways to go.”

At the same time, members of Florida’s Congressional delegation have introduced legislation to increase penalties on tax-fraud identity theft. A wide-reaching bill sponsored by Senator Bill Nelson, a Democrat, would also bolster protections for victims, help secure some Social Security numbers and make it easier for law enforcement agencies to work together.

“There is almost no disincentive, because the penalty is so low for a thief to do this repeatedly,” said Representative Debbie Wasserman Schultz, another Democrat who has introduced a bill. She said her South Florida office had been inundated with complaints about tax-fraud theft in the past year.

Flora Goldberg, an 80-year-old Broward County resident, provided one of them. Last year, she did what she has done for decades: she filed, or tried to file, her tax return, this time electronically. But she quickly received a message saying her claim had already been processed. One month later, she got a letter informing her that she had been a victim of identity theft.

Impatient with the bureaucracy and the delays in getting answers, she called her congresswoman. She received her $4,000 refund in December.

“After I got the letter, then I was a little hysterical,” Ms. Goldberg said, adding that the I.R.S. eventually assigned her a personal identification number for future use.

In South Florida and Tampa, the problem has gotten so bad that police officers conducting unrelated searches or simple traffic stops routinely stumble across ledgers with names and Social Security numbers, boxes of stolen medical records and envelopes with debit cards.

The Tampa Police Department set up a special unit last year related to this kind of fraud after officers continued to find an “ungodly amount” of identity-theft material, said Detective Sal Augeri, a veteran on the unit. Last year, the department handled nearly 1,000 incidents; this year, the number is “way, way above that,” he said.

Fraudulent filers first used names and Social Security numbers of the deceased to file claims. The numbers become public by law and, until recently, were easily available on popular genealogy Web sites. Swindlers also used the Social Security numbers of prisoners.

When officials cracked down on those two avenues, the theft migrated to anywhere Social Security numbers are collected. Most vulnerable are records from health care facilities, assisted-living centers, schools, insurance companies, pension funds and large stores that issue credit cards. The police say employees steal the information and sell it, an increasingly common practice here.

Everyone is susceptible. Two dozen Tampa police officers, including one whose job it is to investigate identity-theft fraud, had their identities stolen and their tax refunds diverted this year.

Career criminals know easy money when they see it. The police say they run across street corner drug dealers and robbers who have been in and out of prison for years now making lots of money by filing fraudulent returns. Some have been spotted driving Bentleys and Lamborghinis.

“A gentleman, a former armed robber, said: ‘I’m not doing robberies anymore. This is much cleaner. I don’t even have to use a gun,’ ” said Sgt. Jay J. Leiner of the economic crimes unit in the Broward Sheriff’s Office, which has formed a multiagency task force.

Mr. Ferrer, the United States attorney, said he had seen tax fraud overtake violent crime in Overtown, a poor, high-crime section of Miami. He said criminals there were holding filing parties, at which they would haul out laptops and, for a fee, teach others how to run the swindle.

“There is no real competition,” Mr. Ferrer said. “They are not fighting each other. Altogether, they are stealing from the I.R.S.”

"Power lies where oil lies," wrote columnist Dmitry Butrin in the daily Kommersant.

J.M. Hamilton Blog — Sun, 27 May 2012 19:30:00 GMT

Putin’s Dark Lord Keeps Power in Oil Patch

By Leonid Bershidsky - May 23, 2012

Russia's leaders have unveiled a new government that is notable in the absence of one prominent figure: Igor Sechin, the dark lord responsible for dismantling the oil empire of oligarch-turned-prisoner Mikhail Khodorkovsky.

Sadly, Sechin's departure does not augur a fresh start. Rather, it demonstrates where the true power in Russia lies. Hint: It’s not in the government.

When newly inaugurated President Vladimir Putin and his predecessor, now Prime Minister Dmitri Medvedev, announced the new cabinet, Medvedev proudly noted that he had changed three quarters of its members. The fresh appointments are supposed to signal Medvedev's desire to promote younger, more modern professionals without Soviet experience.

Newer, though, doesn’t always mean better. Consider Culture Minister Vladimir Medinsky, who earned his position as an activist for the ruling United Russia party: The self-styled historian received a doctorate last year despite well-documented plagiarism in his thesis.

The appointment attracted much ridicule in the blogosphere. “I am ecstatic at Mr. Medinsky's appointment because it confirms my hypothesis: The closer the system is to collapse, the crazier its decisions,” opposition journalist Yulia Latynina wrote.

Two other newcomers stand out in a more positive light: Interior Minister Vladimir Kolokoltsev and Arkady Dvorkovich, deputy prime minister in charge of trade, energy, industry, transport and agriculture.

Kolokoltsev is reputed to be that rare animal in Russian law enforcement: an "honest cop," according to Kirill Kabanov, head of a nongovernmental organization called the National Anti-Corruption Committee. He replaces a minister who had done little to combat corruption in Russia's vast police force (9.7 officers per 1000 residents, compared with 2.7 in the United States). As Moscow's police chief during the recent anti-government protests, he demonstrated his loyalty to Putin. Although his record has been marred by the street fighting that broke out on May 6 and the subsequent chaotic arrests of opposition activists, he has generally kept the use of force to a minimum. The protests have not resulted in a single casualty apart from the death of a photographer who fell off a fire escape trying to line up a good shot.

The choice of Dvorkovich, Medvedev's erstwhile economics adviser, cheered investors who saw the 40-year-old intellectual as a good trade for Sechin, whose post he will occupy. Analysts at Citibank called the switch the “most important piece of positive news” in the cabinet announcement. Dvorkovich is decidedly a Medvedev man. He was the former president's sherpa in Group of Eight negotiations, and the two are said to be close.

The cabinet retains quite a few familiar faces. First Deputy Prime Minister Igor Shuvalov was back in charge of economics and finance, despite recent revelations concerning his joint business dealings with some of the nation's wealthiest businessmen. Vladislav Surkov, the man who helped Putin build United Russia, remained deputy prime minister in charge of science, culture and innovations. Nationalist Dmitri Rogozin kept his job as deputy prime minister in charge of the defense industry. Millionaire Alexander Khloponin stayed on as the top official in charge of the rebellious Caucasus region.

The relevance of the cabinet appointments, though, is limited. Putin looks set to govern from the Kremlin, using Medvedev's government as a foil. Many of the new ministers look disposable, and most of the former cabinet's top brass have joined the presidential staff. They include Tatyana Golikova, who was responsible for health and social issues in the old cabinet, ex-economics minister Elvira Nabiullina, former education minister Andrei Fursenko and Yury Trutnev, until recently in charge of natural resources. “The heavyweights of the old cabinet are moving to the Kremlin, and they are not going to let go of the levers” of power, wrote commentator Mikhail Fishman.

What, however, of Sechin, the gray cardinal who has been Putin's right-hand man since their time together in the St. Petersburg city government in the 1990s? He became head of Rosneft, the state-owned oil company that swallowed up the assets of Khodorkovsky's oil company, Yukos. “I think you have the right to enjoy the results of your work,” Medvedev told Sechin. Just days before Sechin's appointment, Putin quietly made the government's controlling stake in Rosneft immune from privatization.

Sechin's move offers a glimpse of the true nature of power in today's Russia. Being a minister does not count for much in a country run by a close-knit group of Putin's friends and business associates. It is the resources one commands, and the phone numbers one can call, that determine one's true influence.

"Power lies where oil lies," wrote columnist Dmitry Butrin in the daily Kommersant. "Where is the oil? We won't tell you, but all the right people know.”

(Leonid Bershidsky, an editor and novelist, is Moscow and Kiev correspondent for World View. Opinions expressed are his own.)

To contact the writer of this column: bershidsky@gmail.com.

To contact the editor responsible for this column: Mark Whitehouse at mwhitehouse1@bloomberg.net.

Finally, as Mr. Iksil, the London Whale, kept selling, Mr. Weinstein began buying.

J.M. Hamilton Blog — Sun, 27 May 2012 19:00:00 GMT

Mario Tama/Getty Images

JPMorgan lost billions on a trade that was called a “terrible, egregious mistake” by Jamie Dimon, the C.E.O.

May 26, 2012/NYTIMES

The Hunch, the Pounce and the Kill

By AZAM AHMED

BOAZ WEINSTEIN didn’t know it, but he had just hooked the London Whale.

It was last November, and Mr. Weinstein, a wunderkind of the New York hedge fund world, had spied something strange across the Atlantic. In an obscure corner of the financial markets, prices seemed out of whack. It didn’t make sense.

Mr. Weinstein pounced.

As the financial world now knows, what was out of whack was JPMorgan Chase & Company. One its traders, Bruno Iksil, the man later nicknamed the London Whale for his outsize trades, was about to blow a multibillion-dollar hole in the mighty House of Morgan.

But the resulting uproar, in Washington and on Wall Street, has largely obscured a simple truth of the marketplace. Yes, Morgan lost big — but, as Mitt Romney has pointed out, someone else won. And that someone or, rather, those someones, turn out to be Boaz Weinstein and a wolf pack of like-minded hedge fund managers.

In the London Whale, these traders saw a rich opportunity, and they seized it with both hands. That, after all, is the way hedge funds roll. His cool calculus has made Mr. Weinstein a very rich man: he is in talks to buy the Fifth Avenue co-op of a reclusive heiress, Huguette Clark, for $24 million.

It might seem remarkable that someone like Mr. Weinstein, a man virtually unknown outside of financial circles, could deal such a stinging blow to one of the world’s largest, most respected banks. Jamie Dimon, the chairman and chief executive of JPMorgan and a face of the banking establishment, is struggling to contain the damage from what he has called a “terrible, egregious mistake.” The loss — JPMorgan put it at $2 billion, but it may turn out to be $3 billion or more — has renewed calls for stronger financial regulation.

Given the secretive nature of the business, few on Wall Street, including Mr. Weinstein, were willing to speak publicly about how the hedge funds harpooned the London Whale. But interviews with more than a dozen hedge fund managers, investors and traders pull back the curtain on the ways of this band of traders, and on what really happened.

One thing is sure: Mr. Weinstein, 38, played a central role in this, one of the biggest trading blowups since the financial crisis of 2008. Mr. Iksil and his colleagues in the chief investment office at JPMorgan may have lighted the fire, but Mr. Weinstein and his cohorts fanned the flames. In the hedge fund game, a business in which ruthlessness is prized and money is the ultimate measure, Mr. Weinstein is what is known as a “monster” — an aggressive trader with a preternatural appetite for risk and a take-no-prisoners style. He is a chess master, as well as a high-roller on the velvet-topped tables of Las Vegas. He has been banned from the Bellagio for counting cards.

From offices on the 58th floor of the Chrysler Building in Midtown Manhattan, Mr. Weinstein runs a $5.5 billion hedge fund firm called Saba Capital Management. (“Saba” is Hebrew for “grandfatherly wisdom,” a nod to his Israeli roots.) It was there, last autumn, that he noticed an aberration in the market for credit derivatives. He knew from experience what it was like to lose a lot of money at a big bank. Before starting Saba, he was responsible for a team that lost nearly $2 billion, in the depths of the financial crisis, at Deutsche Bank. Others lost even more. Last November, however, he saw that a certain index seemed to be trading out of line with the market it was supposed to track. He and his team pored through reams of data, trying to make sense of it.

Finally, as Mr. Iksil, the London Whale, kept selling, Mr. Weinstein began buying.

At the time, traders in London had no real idea that JPMorgan was behind the trades that were skewing the market in credit derivatives. In fact, they weren’t even sure that it was a single bank or trader. But soon the City of London, Europe’s financial hub, was buzzing. Whoever the mysterious trader was, he or she kept selling derivatives intended to rise in value in the event that certain corporate bonds became riskier. The volume of trades was off the charts. Who could possibly sell so much? And, what if the trade reversed, as it inevitably would?

And so the battle lines were drawn. On one side was JPMorgan, the American banking giant that had weathered the financial crisis far better than so many of its peers. On the other were hedge fund managers, including Mr. Weinstein at Saba.

Such standoffs are not uncommon on Wall Street. An aggressive trader makes a wrongheaded bet, then doubles down to scare off competitors on the other side of the trade. Market rivals often get slapped down, unwilling to keep buying as the other side is selling, or vice versa. For traders with the backing of a major bank, like JPMorgan, the task is much easier.

But not always. Sometimes, the other side sits tight, then hits back in force. And it does so in numbers.

By January of this year, the trade against the London Whale was not going well for the hedge funds. The price of the index, as well as others, was still falling, and the losses were mounting for Mr. Weinstein and the others. But by February, it was clear that a single, big player was behind the selling. On trading desks in London and New York, everyone was talking.

It had to be JPMorgan.

BOAZ WEINSTEIN has always played the wild card in the markets. He grew up on the Upper West Side of Manhattan, in relatively modest surroundings, the son of an automobile insurance salesman and a translator, both regular watchers of “Wall Street Week.” As a student at Stuyvesant High School in Manhattan, he entered a contest to see who could pick the best stocks. He won — by selecting an assortment of the fastest-growing stocks he could find from newspaper charts. He studied philosophy at the University of Michigan — he was partial to Hume and Camus — but today favors behavioral finance, particularly the work of his friend Dan Ariely, a professor at Duke. Mr. Weinstein is married to Tali Farhadian Weinstein, a rising lawyer in the Justice Department.

Last February, at a conference organized by another hedge fund manager, his friend William A. Ackman, Mr. Weinstein was hailed as one of the savviest credit traders in the business.

The February conference was held, ironically, in JPMorgan’s offices on Madison Avenue. Workers at the bank milled about as Mr. Weinstein and others offered investment tips.

Dressed in a sharp blue suit, Mr. Weinstein stepped up to the microphone and opened with a joke that only a financial wonk would appreciate. He showed a slide comparing the cost of credit default swaps on various government debt to the percentage of young men in those countries who live with their parents. The slide titled “Mamma Mia!” suggested that, by that measure, Greece, Portugal and Italy were in trouble.

But what really got people’s attention was his second-to-last slide. It was his pick for the “best” investment idea of the moment. Mr. Weinstein recommended buying the Investment Grade Series 9 10-year Index CDS — the same index that Mr. Iksil was shorting.

The crowd, 300 or so investment professionals, began buzzing.

“Once he came out in that meeting and was so specific, others jumped in,” one hedge fund manager said.

But the London Whale was so big that, for months, the hedge funds betting against him simply got steamrolled. One of Mr. Weinstein’s funds at Saba was down 20 percent heading into May.

Then the tables began to turn, as news reports about Mr. Iksil, fed by the hedge funds, began to surface on both sides of the Atlantic. Suddenly, everyone was checking out the obscure index that Mr. Weinstein and others had seized upon.

By May, when fears over Europe’s debt crisis again came to the fore, the trade reversed. The London Whale was losing. And Mr. Weinstein began to make back all of his losses — and then some — in a matter of weeks.

Other hedge funds were also big winners. Blue Mountain Capital and BlueCrest Capital, both created by former JPMorgan traders, were among those winners. Lucidus Capital Partners, CQS and a fund called III came out ahead, too.

INSIDE the hedge fund world, some joked that Mr. Weinstein had been able to spot the London Whale because he himself had been a whale once, too.

Mr. Weinstein was a pioneer in complex credit derivatives, latching onto them early in his tenure at Deutsche Bank, before they became the financial weapons of mass destruction that worsened the financial crisis. He was a profit machine at the bank, notching earnings in 10 of his 11 years trading there. At 27, he became one of the youngest managing directors in the bank’s history. Before his book blew up, Mr. Weinstein was reportedly pulling down about $40 million a year. He exploited price discrepancies and piled leverage into his trades.

Then his team at Deutsche Bank lost $1.8 billion during the 2008 financial crisis. The trading losses ruined bonuses throughout the bank, and ruffled more than a few feathers.

He would later leave the bank and, along with 12 of his colleagues, set up Saba. Mr. Weinstein started it with $140 million — a pittance by hedge fund standards. In the intervening years, he has outperformed his peers and managed to vacuum up assets at a time when most growing hedge funds have been struggling to hold on to what they’ve got. He now controls more than $5.5 billion.

The similarities between Mr. Weinstein and Mr. Iksil still resonate in the market.

“It was one whale versus another whale,” one hedge fund manager said.

Those who have traded against Mr. Weinstein describe him as an aggressive trader who bets big and moves fast. He values a deal more than old-fashioned etiquette. Traders tell tales of losing money to him because of split-second price differences he picked up faster than they did. While that kind of behavior doesn’t win a lot of friends on Wall Street, these traders concede that Mr. Weinstein is too big and powerful to ignore.

At a lot of large hedge funds, the top dogs bark orders to underlings, but Mr. Weinstein is almost always the one doing the trading at Saba. He calls around to the banks daily. His confidence and willingness to take on risk, however, leave some worried that he’s never too far away from another Deutsche Bank trade — from, in essence, becoming the whale.

“If you hand me a list of the top-performing guys in the space, I’d expect to see his name on it,” said one bank executive who works closely with hedge funds. “If you hand me another list of hedge funds that might blow up, I’d expect his name to be on that, too.”

Others disagree, saying that Mr. Weinstein has a long record as a steady performer.

LIKE many hedge fund traders, Mr. Weinstein is comfortable with risky pursuits, particularly those that require spot calculations and a cool head. A gambling enthusiast, he has an affinity for blackjack and poker. In 2005, Mr. Weinstein won a Maserati by competing in poker in a tournament sponsored by a unit of Warren E. Buffett’s Berkshire Hathaway. Mr. Weinstein still drives the car. He plays with celebrities like Matt Damon, too.

Not everyone is enthusiastic about Mr. Weinstein’s playing style. A few years back, on a trip to Vegas, he was banned from the opulent Bellagio casino for counting cards while playing blackjack.

Much has also been made of his prowess as a chess player. He earned the chess master designation at the age of 16, and has remained a lifelong fan, though he plays less these days. At a charity auction in 2010, he paid $10,500 to play alongside the chess legend Garry Kasparov and the young chess sensation Magnus Carlsen.

Mostly, he sneaks in quick games online, sometimes with Peter Thiel, a hedge fund manager and Silicon Valley star who was an early investor in Facebook.

Both chess and playing the markets require a mind that can see several steps ahead of the next man — a fact that has not been lost on Wall Street. Privately, Mr. Weinstein tells friends that while skill at chess is great to have, it’s hardly a requisite for being a good trader.

Whatever the case, chess helped him gain his first real shot on Wall Street. At 18, after failing to land a summer job at Goldman Sachs, Mr. Weinstein ran into a senior partner in the bathroom on his way out. The partner, David F. DeLucia, a chess expert, had played Mr. Weinstein numerous times, and quickly arranged more meetings for him.

Now Mr. Weinstein is practically a featured attraction on Wall Street. He attends galas and charity events, and is sought out to speak at big events. Pictures of him clasping a drink at last night’s party appear with regularity on business Web sites.

And, financially, the payoff has been enormous. Last year, he earned more than $90 million and, by some estimates, landed on the rich lists of the hedge fund industry. Such figures aside, he is described as someone who doesn’t flash his wealth. Before he won his Maserati, he didn’t own a car.

At another recent investor conference, Mr. Weinstein strolled among the crowd in Avery Fisher Hall at Lincoln Center. Accompanying him was his mother, Giselle, with whom he watched “Wall Street Week” as a child.

While hedge fund managers, investors and analysts mingled over cocktails, Mr. Weinstein appeared buoyant. His trade against the London Whale was finally paying off, a vindication — and a profitable one — of his hunch months earlier. That same day, news reports said Mr. Iksil, the London Whale, would soon be leaving JPMorgan.