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Regulators Propose $GE, $AIG, & $PRU Undergo Heightened Regulatory Status

“U.S. regulators have proposed designatingAmerican International Group,Prudential Financial and GE Capital for heightened regulatory oversight, in a long-anticipated move aimed at cracking down on risks to markets.

A group of regulators known as the Financial Stability Oversight Council said Monday it had voted to propose dubbing certain nonbank financial companies “systemically important,” or so big their failure could destabilize financial markets.

Regulators did not name the companies involved. AIG, Prudential and GE Capital, the financial services arm of General Electric, all said Monday that they had been notified that the risk council had proposed designating them.

A final determination by the council that a firm is systemically important would trigger extra regulatory scrutiny by the Federal Reserve….”

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The U.K. Fires Up the BBQ on $GOOG, $AMZN, and Other Multinationals Avoiding Taxes

“LONDON (Reuters) – Internet retailer Amazon.com Inc. will be called back to the British parliament to clarify how its activities in the UK justify its low corporate income tax bill, two lawmakers told Reuters.

Amazon will follow search giant Google, which attended another grilling by parliament’s Public Affairs Committee (PAC) over its tax affairs on Thursday. A Reuters report earlier this month raised questions over Google’s earlier assertions that its UK-based staff don’t sell to customers.

Over the past six years, Amazon has paid around $9 million in income tax on over $23 billion of sales to British clients, because it says it operates a single European business out of Luxembourg, rather than a multinational structure of independent subsidiaries in different countries, and should therefore pay tax in Luxembourg.

However, Reuters has uncovered evidence from the company’s own statements, job advertisements, statements from three suppliers and five former employees, as well as the profiles of over 140 staff on networking website LinkedIn, which suggests the UK unit has a high degree of autonomy, with local managers deciding on many aspects of its business.

The information, collected during a three-month investigation, suggests that while Amazon depicts itself as a virtual business, its structure may not be so different from its bricks-and-mortar rivals.

“The basic business model wasn’t very different to a mail order company in the 1970s or 80s,” said Mark Riley, a Business Development Manager at Amazon.co.uk between 2005 and 2008.

Bryan Roberts, Retail Insights Director for consultants Kantar Retail, said apart from the fact buyers seal deals over the Internet, Amazon’s UK unit Amazon.co.uk Ltd, which is based in an office block in Slough, near London, was essentially a UK retailer.

“Amazon.co.uk is a British business in that 99 percent of the people who are responsible for merchandising, buying, the online activity, fulfillment, are based in Slough,” said Roberts, an expert who advises many Amazon suppliers.

Amazon declined to answer any questions about its UK business.

On Thursday, the Guardian newspaper reported that it had found “extensive UK activities” for Amazon that suggested the UK tax authority could be tougher on taxing its British operations.

Companies, especially those which sell over the Internet, increasingly designate their British subsidiary as a supplier of support services to an affiliate in a low-tax jurisdiction, through which sales are then booked….”

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Plosser Gives a Speech on the Troublesome Topic of Breaking Up Too Big To Fail

“Charles Plosser, President and Chief Executive Officer of Federal Reserve Bank of Philadelphia, gave a speech on Thursday afternoon discussing how to end the “Too Big To Fail” conundrum of the big banks at the fourth Annual Simon New York City Conference. We are not interested in regurgitating Plosser’s speech today. What we want to show you is how and why the “too big to fail” conundrum cannot easily be solved and why it is so difficult to just unbundle the concentration of risk here.

This is an interesting take because it has yet another call to increase the capitalization of the so-called too big to fail banks. It sound great and 24/7 Wall St. is all in favor of big banks being on solid ground. The ultimate problem is that the big banks are so big that increase their capitalization requirements effectively withdraws too much capital from the economy.  It is without any doubt that you have heard of the calls to break apart the big banks before. You will here those same calls tomorrow and beyond as well.

When you consider that a mere handful of banks have about half of the country’s personal and commercial bank deposits you have a right to be scared. Increasing the capital requirements above the 10% hurdles set by Basel banking standards. Imagine how strong and able these banks would be able to hold up in another recession if their bank capital requirements went from 10% to say 15%.   Now for the bad news if you look at the tally of assets as of the end of 2012. J.P. Morgan Chase & Co. (NYSE: JPM) was about $2.36 trillion in assets and Bank of America Corporation (NYSE: BAC) has $2.2 trillion in assets, with Citigroup Inc. (NYSE: C) behind it at $1.86 trillon and then followed by $1.42 trillion for Wells Fargo & Co. (NYSE: WFC).

These four banks alone have $7.84 trillion in assets. The CIA World Factbook tracks just about all global economies and its final estimate for 2012 GDP was put at $15.66 trillion for 2012. Different regulators have many different means of calculating what they think the capitalization are best and keeping up with the flavor of the day or week is for government accountants and regulators. Still, this asset base for just the four biggest banks is right at half (actually 50.06%) of 2012 GDP on the purchasing power parity calculation preferred by economists.

It is very easy to merely say in a vacuum that the too big to fail banks should just increase their capital to hedge against future bailouts. Various regulators have various means of evaluating capitalization metrics and requirements. The unfortunate outcome is that by forcing banks to hold even more capital will tighten credit even further than it has been. With much of the world back in recession, that puts the U.S. back in recession.

Here is what Mr. Plosser said….”

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Retail Investors are Slowly Coming Back to the Equity Table

“The latest AAII asset allocation survey showed that individual investors increased their equity holdings by 2.2%, increased fixed income exposure by 2% and reduced cash by 4.3%.  That’s a meaningful swing in cash levels and shows how desperate small investors are to put some money to work.  The current equity levels show that individual investors are still not completely sold on the rally as the historical average equity allocation is 60% while the latest reading brings us up to 61.7%.

Here’s more via AAII…”

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