Secret Bank Bailout

i have been pondering why the usd is so weak against euro and gbp given she said her economic data are almost unbeatable, then usd should be strong.

the reason - too much pumping of credit or usd.

read below

Is a Secret Bank Bailout Coming?

By Geoffrey Pike | Friday, February 21st, 2014

I've heard a few stories about people worried about the condition of the banks.

I've heard other stories alluding to a future bank bailout.

Some people fear what happened in Cyprus is coming to the U.S. They fear their money is not safe in the banks.

And they're right to worry about the money they have in the bank... but not because of a coming confiscation in the style of Cyprus.

Truth is, there is little need to worry about the government coming in and directly confiscating funds from your U.S. bank account. You do have to worry, however, about the government and the Fed working to destroy the value of the money that is in your bank account.

You also likely don't need to worry about your bank going bankrupt as long as you are within the FDIC limit (currently $250,000). It is not that the FDIC has the money to bail out the major banks; it's that the Federal Reserve can do it by creating money out of thin air.

I also don't think you have to worry about another bank bailout in the fashion of 2008. There is rarely an economic issue where there is so much agreement amongst the American people, but in 2008, 90% or more of the American voting population was adamantly opposed to the bank bailouts. The government and Fed almost had a revolution on their hands.

They are not going to let that happen again. Instead, the Fed has been quietly bailing out the banks for almost a year and a half now with few cries of opposition. Why risk causing a revolt when they can do it this way?

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The Hidden Agenda of QE3

In September 2012, the Fed announced a new buying program. It was the third round of quantitative easing, or QE3 for short. The Fed had already gone through two previous rounds of quantitative easing starting in late 2008.

Quantitative easing is just another term for money creation. The Fed simply buys assets with new money created out of thin air. We use the term "money printing," but most of the new money is actually in the form of digits.

Prior to 2008, the Fed would buy government debt. It would typically buy shorter-term U.S. Treasuries, but it could also buy longer-term debt. It wasn't until the fall of 2008 that the Fed started a policy of buying other assets aside from government bonds.

QE3 actually came about in two steps.

The first one, in September 2012, announced that the Fed would buy $40 billion per month in mortgage-backed securities, or MBS. It wasn't until December 2012, three months later, that the Fed upped the ante and announced it would buy $45 billion in new U.S. government debt each month. This was in addition to the $40 billion per month in MBS.

So the Fed was buying $85 billion in assets through most of 2013, essentially creating $85 billion per month out of thin air. It was just back in December of 2013 that the Fed finally announced the beginning of its taper. It is still buying assets (inflating the money supply), but at a slower pace.

When the buying program was first announced for the MBS, the Fed and the media touted it as a plan to help housing. They reasoned it would lower interest rates and help boost a struggling housing market that had recently come off of a major bust.

While housing across the country has certainly recovered a bit (although not to the all-time highs in most areas), we can't be sure how much QE3 has affected mortgage rates. The rates were already very low when the Fed began buying MBS.

But I believe the main purpose of QE3 was not as stated. Instead, I believe the main purpose — at least for the portion of buying MBS — was to bail out the banks and make them more solvent.

Interestingly, I have seen very little commentary pointing this out, even among many websites devoted to criticizing the Fed. In this sense, the Fed's plan has worked brilliantly (though not for us). It has been able to bail out the banks without having any backlash like it experienced back in 2008.

Buying Toxic Assets

For almost a year and a half, we have been hearing about the Fed buying mortgage-backed securities (MBS). But we are never really told exactly what they are buying and how much they are actually worth.

So what is this $40 billion "worth" of MBS per month really worth? Our best guess is that these are so-called toxic assets. They are non-performing or under-performing loans.

When the housing bubble burst around 2007, most new (and even not so new) homeowners who had mortgages were underwater. Their mortgages were bigger than the values of their houses. In many cases, people simply could not afford the payments. They had miscalculated their ability to pay.

Ironically, most of the distortion took place because of the Fed and its policy of loose money and artificially low interest rates.

As a result, many mortgages held by the banks and government agencies quickly lost value because so many people stopped paying their mortgages.

If the Fed buys $40 billion of MBS in a month, is it really paying the current market value, or is it paying what they were originally worth? My guess is the latter.

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This is a pure bailout of the banks, plain and simple. They are buying $40 billion each month in assets that aren't really worth $40 billion because many of the mortgages are in default. Pooled together, they are worth something, as some people will continue to pay or try to resume paying.

Imagine a company buys a stock for $100 per share, and then the value falls to $40 per share. Then the Fed comes along and says, "We are going to buy your shares from you at the original price of $100 per share."

In this scenario, the company would be getting bailed out to the tune of $60 for every share bought up by the Fed.

It doesn't matter what the asset was originally worth. It matters what it is worth today. In the case of MBS, the Fed is buying assets that are worth far less than what it is paying for them. It's buying these assets with money created out of thin air.

If you were a bank that had a bunch of mortgages worth a total of $5 billion that originally cost you $20 billion, then you would probably be more than happy for the Fed to come along and buy them up at the original value of $20 billion.

You can push your losses off to the Fed, which is really pushing your losses off on anyone who uses U.S. dollars.

Crazy?

This may sound crazy, but in some ways I prefer the Fed secretly bailing out the banks to it buying U.S. government debt.

At least the money going to the banks is helping to make them solvent, so it isn't a complete waste.

It is bad that we see big bonuses for banking executives that would otherwise be out of business if it weren't for the bailouts. It is bad that the bailouts create moral hazard and encourage more risk-taking in the future. And it is bad that the whole thing is inflationary.

But at least the bank bailouts are going to where you keep your money. The only bigger revolt by the American people than an open bailout would be bank failures without a bailout where the FDIC does not make good on its promises.

Meanwhile, the other part of QE3 — the Fed's buying of government debt — is terrible. It allows the government to run massive deficits at lower interest rates, preventing spending cuts and making things far more painful in the future. The government's spending severely misallocates resources and will only lead to a major correction at some point in time.

Regardless of your thoughts on the subject, you probably don't have to worry about major bank failures right now. Small banks will be absorbed by the bigger banks if they fail, and bigger banks are being taken care of right now. Even with the so-called tapering, the Fed is still currently buying $30 billion per month in MBS.

If you keep your money in an FDIC-insured bank account, it will probably be safe — at least in terms of any direct confiscation. But if you really want to keep it safe, you will probably need to put some of it in hard assets to protect yourself against continued inflation.

Until next time,

Geoffrey Pike for Wealth Daily

HSI MAJOR FALLOUT

during this festive season, we are supposed to celebrate, but not for long.

just early jan, i already alerted readers that market isnt looking good.


this is a 5 months chart of HSI futures of 1 hour, it shows that a true head shoulder has formed, it has already broken to the down side and the pull back has also occurred.

the market looks like to fall to at least 24100 - 22400 = 1700 points from the neckline of 22400 which makes 20700.

the break out happens on 24 Jan, thus the market will hit the above target likely not later than end april.

do go back and make your own chart for 941, 5 and others, you will see a similar pattern if not exactly the same.

when you are aware of a fallout, you should protect yourself and/or try to profit from it.

finally, hope you all have a happy horse year and getting healthier by the day.

HSI 941 HSBC

CLICK FOR BETTER VIEW - 941, HSI, 5

not long ago in this blog, i have re iterated that stock markets esp hsi and a few stocks are under stress, but i dont have time to include the charts, here they are.

941 is esp bad, it formed a platform of two heads over six months and another multiple heads over two years, so dont expect much from this stock, it will also pull down hsi.

HSI is under severe manipulation because of derivatives in the market, but if you look at the chart above, there are a total of 7 long spikes up/down in the last month, but six of them are down. this tells you that the pros are not likely to push it up further.

5 has the best chart of three, but it also formed a base of multiple heads over 7 months and recent highs are already at high rsi, so the chance of it breaking the earlier high [top pink line] is not likely.

JAPAN RADIATION

WND EXCLUSIVE

Japan radiation poisoning America?

New concerns hitting U.S. Pacific coast

Published: 6 days ago

by Steve Elwart Email | Archive

Steve Elwart, P.E., Ph.D., is the executive research analyst with the Koinonia Institute and a subject matter expert for the Department of Homeland Security. He can be contacted at steve.elwart@studycenter.com.

Some tuna caught off California is showing evidence of radiation poisoning. (RT photo)

Like a slow-motion train wreck, the Fukushima nuclear plant disaster is still causing damage long after the world’s media has left the news story behind.
On March 11, 2011, the most powerful earthquake ever to hit Japan triggered a tsunami with waves that reached as high as 144 feet. These waves swamped the Fukushima nuclear power-plant complex, causing a resulting shutdown leading to the world’s worst nuclear incident since the 1986 Chernobyl disaster.
The accident has been rated a level 7, on a scale of 1 to 7, on the International Nuclear Event Scale.
As a result of this disaster, the complex’s coolant pumps failed to operate and the power plant reactors overheated, leading to a release of radionuclides directly into the ocean exceeding that from any previous accident.
Water is currently being pumped into the reactors in an attempt to keep them cool and prevent further explosions, but handling the water is becoming a problem.
The contaminated cooling water is being released directly into the ocean and is making its way into the ecosphere. Water from the storage tanks has also seeped into the groundwater and from there, into the ocean. Efforts to use a various barriers to prevent contamination have not completely stopped the leakage.
In another effort to stem the radioactive water from reaching the sea, Japan has pledged to spend $470 million to construct an “ice wall” around the reactors to contain the water. Under the Japanese plan, a wall of frozen earth will be constructed around the reactors to prevent the water being used to cool the fuel rods from comingling with the sea.
“The world is closely watching whether we can dismantle the (Fukushima) plant, including the issue of contaminated water,” said Japanese Prime Minister Shinzo Abe. “The government is determined to work hard to resolve the issue.”
This is quite a change from previous statements the prime minister has made. In a speech Sept. 7 in front of the International Olympic Committee in Buenos Aires, Abe stated categorically, “Let me assure you the situation (the contaminated groundwater problem) is under control.”
Six days later, Tokyo Electric Power Co., the operator of the plant, disputed the prime minister’s claim at a meeting in Koriyama, Fukushima Prefecture.
“We regard the current situation as not being under control,” said Kazuhiko Yamashita, a senior official at Tepco.
Tokyo was awarded the 2020 Olympic Games following Abe’s speech.
“The quantities of water they are dealing with are absolutely gigantic,” said Mycle Schneider, an independent consultant who has previously advised the French and German governments and has consulted widely for a variety of organizations and countries on nuclear issues. “What is worse is the water leakage everywhere else – not just from the tanks. It is leaking out from the basements, it is leaking out from the cracks all over the place. Nobody can measure that.”
It is clear that the repercussions from this disaster are far from over.
There has been a debate over the size of the Pacific Ocean and the quantity of the contamination. Some say that even though the U.S. is directly across the ocean from the accident, the volume of the water will easily disperse the contaminants.
Others say the particular isotopes from the reactor do not disperse easily and don’t sink to the bottom. They remain in the water column, from top to bottom.
In this last scenario, sea life has a much greater chance of contacting and carrying the suspended radiation. They either breathe it or eat it in others. Scientists are watching carefully for any signs of contamination in the ocean’s biosphere.
According to Maxim Shingarkin, deputy chairman of Russia’s State Duma Committee for Natural Resources, “Currents in the world ocean are so structured that the areas of seafood capture near the U.S. northwest coast are more likely to contain radioactive nuclides than even the Sea of Okhotsk, which is much closer to Japan. These products are the main danger for mankind because they can find their way to people’s tables on a massive scale.”
This is an issue of significant importance to the United States since, according to the National Marine Fisheries Service, the U.S. imported almost 45 million pounds of fish from Japan in 2012.
There is evidence the radioactive water emanating from the plants starting two years ago has made its way into the ocean currents and will soon start to affect the ecosystems in North America as early as the spring of 2014.
Some say it is already here.
Reports are coming in that the North American food supply is already being affected by Fukushima.
Bluefin tuna caught off the San Diego coast is showing evidence of radioactive contamination. This is the first time that a migrating fish has been shown to carry radioactivity 3,000 miles from Fukushima to the U.S. Pacific coast. It is a nutrition source that accounts for approximately 20,000 tons of the world’s food supply each year.
According to the report published by the National Academy of Sciences, “We report unequivocal evidence that Pacific Bluefin tuna, Thunnus orientalis, transported Fukushima-derived radionuclides across the entire North Pacific Ocean.”
“We were frankly kind of startled,” said Nicholas Fisher, one of the researchers reporting the findings online Monday in the Proceedings of the National Academy of Sciences.
“That’s a big ocean. To swim across it and still retain these radionuclides is pretty amazing,” Fisher said.
To rule out the possibility the radiation found in the tuna was carried by ocean currents or dropped into the ocean through rainfall from the atmosphere, the team also analyzed Yellowfin tuna, found in the eastern Pacific, and Bluefin that migrated to Southern California before the nuclear crisis. They found no trace of cesium-134 and only background levels of cesium-137 left over from nuclear weapons testing in the 1960s.
The report went on to say: “The levels of radioactive cesium were 10 times higher than the amount measured in tuna off the California coast in previous years. But even so, that’s still far below safe-to-eat limits set by the U.S. and Japanese governments.”
The results were surprising enough to conduct further tests this coming summer with a larger sampling of migratory fish. The tuna that were the subject of the previous study were exposed to radiation from Fukushima for approximately one month. The upcoming study will be looking at fish that have been swimming in radioactive waters for a longer period.
They will also be expanding their study to cover other migratory species including sea turtles, sharks and seabirds.
There have been many other reports of fish and sea-creature populations dying in the Pacific. Also, there have been many discoveries of cesium–137 in high concentrations in seafood caught in the Pacific and sold in North America. There have also been many reports of unexplained deaths among wildlife:

• Vast amounts of sea stars are “melting” off the west coast of North America

• Killer whales are dying off the coast of British Columbia

• There is an epidemic of sea lion deaths due to starvation along the California coastline. The question is: why are they starving? Has the food chain been disrupted?

• Polar bears, seals and walruses along the Alaska coastline are suffering from fur loss and open sores

• Along the Pacific coast of Canada and the Alaska coastline, the population of sockeye salmon is at a historic low

• Something is causing fish all along the west coast of Canada to bleed from their gills, bellies and eyeballs

• Experts have found very high levels of cesium–137 in plankton living in the waters of the Pacific Ocean between Hawaii and the west coast, affecting the food chain in a process called “biomagnification”

As of now, there has been no direct correlation between these events and Fukushima, but the timing of the events and some contributing factors are giving scientists pause and are giving substance for calls for more studies.
While the evidence may circumstantial at this point, it is enough for countries to take action.
Due to radiation fears, Fukushima Prefecture fishermen have had to dump most of their catch. Two years into the nuclear disaster, South Korea still bans Japanese fish and seafood imports from eight Japanese prefectures. The ban covers an area of Japan that exported 5,000 metric tons of fishery products, or about 13 percent of the 40,000 total tons imported last year to South Korea.
In eastern Japanese ports outside of the prefecture, hundreds of pounds of fresh fish are sent to Onjuku, a small town a few hours away from Tokyo.
Once they arrive, samples of the fish are checked for radiation in a move to restore the world’s confidence in Japan’s food supply in the wake of Fukushima.
Japan’s Marine Ecology Research Institute, or MERI, operates out of Onjuku and is charged with the testing. MERI was established in the mid 1970s to certify that fish supplies remain safe despite wastewater discharge from the nuclear plants. It is now working overtime to assure the world that Japan’s fish are safe to eat.
Even with these assurances, many buyers are not sure just how much to trust the quasi-government laboratories. The U.S. has recently banned agricultural and fishery imports from 14 prefectures in Japan, up from the eight that South Korea banned.
Leung Ka-sing, an associate professor at Hong Kong’s Polytechnic University’s department of applied biology and chemical technology, has stated his country should expand its ban on fish products from the current conditional ban on eight prefectures to all of Japan. This is in response to public fears of contamination from ongoing leaks at the Fukushima nuclear plant. He said the ban would act as a preventive measure and address fears over radiation.
The events in the Pacific Rim do not seem to be isolated incidents. They may not be provocative. The oceans are large, and they contain a massive population of species that get sick from time to time. But they are in numbers that warrant an in-depth discovery and full disclosure.
Radiation is found everywhere in the world, so some radiation in food can be expected. How much is a safe level seems to vary over time. Immediately following the World War II atomic bombings of Nagasaki and Hiroshima, American military construction crews were sent into the cities to clear irradiated rubble, telling the crews that the work was safe.
Only years later did they find out it wasn’t safe, and that serious, permanent injury resulted from working in the area.
Gordon McDonald, Ph.D, executive director of Research for the Koinonia Institute, contributed to this report.

QE, Tapering and the Stock Markets

Towards year end, I have done less reading and have also been on a trip to Europe, so you do not see much update here

Most readers are waiting for an update and I have personally advised a friend or two by whatsapp that the market is riped for a correction esp HSI since the charts of a couple of blue chips [5, 941, 2628, 1199] look pretty ugly.

Tapering, how much and when it will stop

If you look back in this blog, you will find an article about how much of the T bonds in 2011 have been bought by Fed – 60%. At that time the deficit is close to 1 trillion ie 1000 billion which means only 40% or 400 billion was bought by the public [individuals and institutions],

Now the two wars once raised by Bush is close to an end, by end of 2014, most if not all troops should have withdrawn from IRAQ and Afghanistan according to the timetable of Obama, this will cut deficits caused partly by the war.

According to estimates the cut back in deficits can be as much as 500 billion, which is why Big Ben has the courage to say so and now do so. If you then look at deficits of 500 billion and a purchasing power of 400 billion by the public to finance deficits then the Fed sure has a lot of room to cut on the bond buying.

Hold it, is it that simple?

Effects on the stock market

How will this react on the economy, again this blog has an article on the effects of QE on GDP, the GDP is inflated by prices alone and not much by quantity, recent oil prices have been kept artificially high to make the economy looks better but earlier reports from Wal-Mart [also read an earlier blog on Wal-mart] already tells you that the lower rung of the economy is not doing so well.

So if you withdraw QE, GDP will grind to a halt. As the states have shale oil and gas discoveries pushing their economy plus figures massaging the stats, once they started tapering, they will withdraw to the point of hurting foreign economies that boomerangs back to their own before they will stop doing so. Wall street and Fed have always been good partners if you are talking about US interests though you see a lot of fighting between them in the states.

Many state and city governments are already on the verge of bankruptcy. Chicago if you are not aware is one of them but you dont read much in the media, why? Because they want you to believe that the economy is doing well and tapering is ongoing. Detroit has gone bankrupt and many more will due to good pensions, tapering will squeeze these cities hard as they cannot borrow as easily.

There will be a lot of disappointments in the results announcement by listed companies first in the overseas markets, then back to the states.

Thus brace yourself for a very rough ride in stock markets in the first two quarters.

INSIDERS, How they do it.

i have advised some green readers of this blog that stocks are for insiders, here below you find a related article from wsj.

a really good article about insider trading that SEC helps expose and how they do it.

Executives Hit Sweet Spot on Stock Sales

Corporate Executives Give Favorable Stock Guidance, Sell Shares, Then Disclose Bad News

By

Susan Pulliam and

Rob Barry

Nov. 13, 2013 11:00 p.m. ET

When George Weinert, then chief executive of Novatel Wireless Inc., found out one of the company's largest customers planned to cancel scheduled orders, he warned managers in an email that losing the sales "would have a major impact on our business."

His email, written in January 2007, has surfaced in a lawsuit because of what happened next. Novatel didn't inform shareholders about the bad news. In a news release that May, the San Diego-based maker of telecommunications equipment said its quarterly earnings would exceed expectations, citing "strong sales" across the board. That June and July, Mr. Weinert sold $3.3 million of company stock.

When an analyst later disclosed the problem with the big customer, Sprint Corp. , the stock slumped. Months after that, Novatel disclosed that waning customer demand would hurt sales.

Ordinary investors often are dismayed when senior executives sell their own stock before hitting the market with bad news. The situation can be even stickier when corporate insiders declare their company's outlook bright, sell shares, then disclose bad news. Such one-two punches sometimes give rise to accusations that executives boosted the stock price—and withheld unfavorable news—to increase personal profits.

A Wall Street Journal examination of earnings-guidance data compiled by research firm Earnings Whispers identified 1,468 cases since 2005 in which public companies issued so-called upward guidance—saying results looked better than expected—then followed with downward guidance within 120 days. Securities and Exchange Commission filings show that in 755 of those cases, corporate insiders sold in the window between the up and down, an advantageous time to sell.

There is no way to tell from the data whether sellers knew about impending bad news before selling, and it is perfectly permissible for insiders to sell stock after upward guidance. In the 1,468 guidance-change cases, about 9% more insiders sold in the favorable window than in the year-earlier period. Executives often buy and sell stock around the same time each year.

Among the 2,389 corporate officers who sold between swings in guidance, about 74% would have collected less money had they waited to sell until after guidance was lowered, according to the Journal analysis. The stocks declined in value by an average of 10.8% between the sales and the day after the guidance was lowered.

Earlier: Dark Markets

The Journal is investigating a new age of murkiness in the financial markets and the challenges that creates for investors.

• Directors Take Shelter in Trading Plans
• Big Lots Chief Probed by SEC
• Executives' Good Luck in Trading Own Stock
• For Superfast Stock Traders, a Way to Jump Ahead in Line
• Investor Hazard: Zombie Funds
• Traders Navigate a Murky New World
• Source's Cover Blown By SEC

Novatel shareholders claim the executive selling there was fraudulent. Their lawsuit, slated for trial early next year in federal court in San Diego, alleges that Mr. Weinert and other top executives withheld bad news from shareholders, allowing them to sell their shares at higher prices. Novatel has responded in court documents that any lost Sprint business was immaterial and didn't trigger the stock sales. A Novatel spokeswoman says Mr. Weinert and the other executives had preset trading plans that "met all legal requirements."

Some market experts say any trading by senior executives around the time of good or bad news is potentially problematic. "There is the timing and the content of disclosures by companies, and those two can be played with because you know you have a sale coming," says Stanley Veliotis, a professor of accounting at Fordham University, who has studied trading by insiders after positive earnings developments.

On Jan. 14, Ixia, a Calabasas, Calif., company that makes Internet testing equipment, said revenue for last year's fourth quarter would exceed earlier guidance. It cited better-than-expected performance at two recently purchased companies.

As the stock rose, insiders began selling. Over the next two months, eight senior executives, including then CEO Victor Alston and the chairman and general counsel, sold a total of more than $18.4 million of stock at an average price of $20.96 a share. The sales exceeded what the firm's executives had sold during the previous seven years.

Then came a surprise. On April 11, Ixia lowered guidance for the first quarter, citing revenue-recognition problems. Revenues for 2010, 2011 and the first three quarters of 2012 were restated. On April 30, the firm said earnings for the second quarter would likely miss analyst expectations. By May 1, its stock had fallen to $14.51. If the insiders had sold at that point rather than when they did earlier in the year, they would have collected $5.7 million less, a Journal analysis determined.

It isn't clear when senior executives learned about the problems. An Ixia spokesperson and the insiders declined to comment on the trading.

On Oct. 24, Ixia said in a news release that Mr. Alston had resigned after the company determined he had misstated his age, academic credentials and employment history. Its chairman and founder, Errol Ginsberg, has taken over that position.

Federal regulators last year accused the top executive of another company of hiding bad news from shareholders while he unloaded stock. In a civil suit filed in a California federal court in July 2012, the Securities and Exchange Commission accused the founder and former chairman of STEC Inc., a Santa Ana, Calif., maker of computer storage devices, of providing false or misleading information to shareholders.

STEC shares shot up about 800% between January and August of 2009 after the company disclosed good news: a new agreement to supply equipment to EMC Corp. The lawsuit alleges that founder, chairman and CEO Manouchehr Moshayedi learned that July that EMC was planning to order less the following quarter than STEC had hoped.

According to the SEC, he complained to fellow executives in a July 26 email that STEC was "now going to miss the top line and EPS [earnings per share] estimate numbers for Q-3." The following day, an EMC manager wrote to his boss that Mr. Moshayedi "wants us to make a deal in advance of their earnings call next week so he can guide appropriately," the lawsuit said.

The SEC alleges that Mr. Moshayedi persuaded EMC to place an order it didn't need, in exchange for a deep discount. The suit said that in a July 28 email, Mr. Moshayedi wrote to an EMC official: "Just tell me what you need, I knew asking you guys for a favor would go nowhere so I am now back at paying for favors. What is your price for keeping inventory for a week or two?"

The next day, Mr. Moshayedi and an EMC official "agreed to a secret deal to have EMC commit to purchase $55 million of STEC product in the third quarter, even though it only projected needing about $33-34 million," according to the complaint.

Days later, on Aug. 3, STEC kept its third-quarter earnings guidance unchanged. Mr. Moshayedi sold a chunk of his STEC shares through a secondary stock offering that same day, for $88 million, according to his lawyer.

Three months later, in a Nov. 3 conference call with analysts, Mr. Moshayedi disclosed that the EMC contract had been a "one-off" deal. STEC's stock dropped 38.9% by the end of the next day.

The lawsuit accuses Mr. Moshayedi, who stepped down as chairman and CEO in September 2012, of insider trading and fraud.

A lawyer for Mr. Moshayedi called the SEC's claims baseless and said the secondary offering was planned "long before" the SEC says Mr. Moshayedi learned the bad news. The lawyer said Mr. Moshayedi, based on past experience with EMC, had expected the company to boost its order.

The SEC declined to comment, as did EMC, which wasn't accused of wrongdoing. STEC has been acquired by Western Digital Corp.

At Aruba Networks Inc., a Sunnyvale, Calif., wireless-networking company, executives early this year tried to calm investors concerned about a competitive threat. Aruba-made equipment was for sale at an auction in 2011. Bloomberg News

At Aruba Networks Inc., a Sunnyvale, Calif., wireless-networking company, executives early this year tried to calm investors concerned about a competitive threat. In a Feb. 21 conference call, investors pressed management on whether competition from rival Cisco Systems Inc. would hurt Aruba's results. Chief Executive Officer Dominic Orr responded: "It seems like they seem to have lost the interest to compete with us head on."

Less than three months later, on May 7, Aruba lowered its revenue guidance, saying competition from Cisco was partly responsible for a deteriorating outlook for the quarter that would end in June. The stock dropped 23% that day.

Top executives at Aruba sold $8 million of stock during the three months before lowering guidance. On May 1, six days before the guidance adjustment, Mr. Orr, the CEO, sold $168,000 of stock. If he had waited until right after the announcement, he would have collected $39,000 less, the Journal calculated.

To avoid accusations of insider trading, executives can create preset trading plans that call for automatic sales of stock, as long as the plans don't use inside information as a basis for the trades. An Aruba spokesman said Mr. Orr's sales were made under preset plans, and that the sale in May was consistent with his historical pattern of sales. He declined to elaborate.

Securities filings show that Mr. Orr sold more shares during the first four months of this year than he did all of last year. The spokesman said Mr. Orr continued to sell even after the stock fell in May, and that the other executive also sold under present plans.

Wall Street analysts were skeptical about the timing of Aruba's guidance shift. In a May 16 conference call, Ehud Gelblum, then a Morgan Stanley analyst, asked whether the heightened competition "really happened in the last four, five weeks?" according to a transcript.

Mr. Orr responded that the "uniformity and ubiquity" of the competition from Cisco was "rather dramatic." Mr. Orr didn't respond to requests for comment, and Mr. Gelblum declined to comment.

In May, shareholders filed suit in a California federal court, alleging that Aruba "purposefully downplayed the intense competition it was experiencing from Cisco." Aruba denies wrongdoing.

In the case of Novatel, the telecom-equipment maker that lost business from Sprint, the first sign of trouble came in January 2007 when Sprint notified the company it would cancel some planned orders for Novatel's big-selling product, a computer modem, according to court documents. Novatel had told investors that product was "a primary growth driver," according to the documents.

That May, when Sprint followed through on its warning, Mr. Weinert, then the acting CEO, sent an email to senior managers who now are defendants in the lawsuit, including current CEO Peter Leparulo. "We cannot loose [sic] all of our SPRINT business," his email said. "I made this clear in January didn't I??????"

The following month, on June 8, Mr. Weinert said in a news release: "We are currently seeing strong demand across our major product lines."

Between that May 14 and June 13, Messrs. Weinert and four other executives put in place new or amended preset trading plans calling for automatic sales. Under his plan, Mr. Weinert sold $3 million of his stock.

In court documents, Novatel and the other defendants have argued that the information about any lost Sprint business wasn't material, that insiders didn't believe it would affect the company's financial performance, and that sales by insiders weren't spurred by the Sprint development.

A Novatel spokeswoman says Sprint never canceled any current orders and that its customer "transitioned" from one product to another in the fall of 2007. Mr. Weinert didn't return calls for comment.

That July 20, analyst Anthony J. Stoss of Minneapolis's Craig-Hallum Capital Group published a note to clients saying he believed Novatel "may lose market share at Sprint," which he said accounted for 38% of Novatel's business at the time. Novatel stock closed down 5% that day. Mr. Stoss declined to comment.

Novatel raised its earnings guidance two more times in 2007 and said its outlook was bright. No mention was made of the change in Sprint orders. On an earnings call that Aug. 6, Mr. Weinert said: "We had an exceptionally strong first half of the year with Sprint."

That Nov. 5, Mr. Weinert said on an earnings conference call: "We don't see any shortage of demand…we are very optimistic."

Bad news arrived for investors about three months later, on Feb. 20, 2008, when the company announced disappointing fourth-quarter results and said first-quarter results in 2008 would be lower than expected, citing a shift in the market.

The next trading day, Novatel's stock declined by 22.9%.

Less than two months after that, on April 14, Novatel reported results that were $19 million lower than forecast, attributing the downturn to even weaker demand. The stock was hit hard, leaving it more than $6 below the $14-a-share level in early February.

That May 13, the company disclosed to investors that an "enhanced review of the accounting for a specific customer contract" would cause a delay in filing first-quarter results.

That August, the company said an internal accounting review would result in the lowering of first-quarter 2008 results by $3.4 million. It later said it had failed to provide "adequate training" regarding its "revenue recognition cutoff policies and procedures to ensure that revenues…were recognized in the proper period."

Jury selection in the case, which the judge has certified as a class action, is expected in January, according to lawyers who are involved.

Novatel's shares dropped to around $3.50 by November 2008 and haven't risen above $11 since 2011. Novatel stock closed at $2.14 in Nasdaq trading Wednesday.

Write to Susan Pulliam at susan.pulliam@wsj.com and Rob Barry at rob.barry@wsj.com

Quantitative Easer

if you want to hear from an insider about QE, here is it.

article from wsj

Andrew Huszar: Confessions of a Quantitative Easer

We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.

By

Andrew Huszar

Nov. 11, 2013 7:00 p.m. ET

I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system's free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs.

The Fed said it wanted to help—through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed's central motivation was to "affect credit conditions for households and businesses": to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative "credit easing."

My part of the story began a few months later. Having been at the Fed for seven years, until early 2008, I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed's trading floor? The job: managing what was at the heart of QE's bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.

Phil Foster

This was a dream job, but I hesitated. And it wasn't just nervousness about taking on such responsibility. I had left the Fed out of frustration, having witnessed the institution deferring more and more to Wall Street. Independence is at the heart of any central bank's credibility, and I had come to believe that the Fed's independence was eroding. Senior Fed officials, though, were publicly acknowledging mistakes and several of those officials emphasized to me how committed they were to a major Wall Street revamp. I could also see that they desperately needed reinforcements. I took a leap of faith.

In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.

It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.

From the trenches, several other Fed managers also began voicing the concern that QE wasn't working as planned. Our warnings fell on deaf ears. In the past, Fed leaders—even if they ultimately erred—would have worried obsessively about the costs versus the benefits of any major initiative. Now the only obsession seemed to be with the newest survey of financial-market expectations or the latest in-person feedback from Wall Street's leading bankers and hedge-fund managers. Sorry, U.S. taxpayer.

Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank's bond purchases had been an absolute coup for Wall Street. The banks hadn't just benefited from the lower cost of making loans. They'd also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed's QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.

You'd think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany's finance minister, Wolfgang Schäuble, immediately called the decision "clueless."

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector.

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

And the impact? Even by the Fed's sunniest calculations, aggressive QE over five years has generated only a few percentage points of U.S. growth. By contrast, experts outside the Fed, such as Mohammed El Erian at the Pimco investment firm, suggest that the Fed may have created and spent over $4 trillion for a total return of as little as 0.25% of GDP (i.e., a mere $40 billion bump in U.S. economic output). Both of those estimates indicate that QE isn't really working.

Unless you're Wall Street. Having racked up hundreds of billions of dollars in opaque Fed subsidies, U.S. banks have seen their collective stock price triple since March 2009. The biggest ones have only become more of a cartel: 0.2% of them now control more than 70% of the U.S. bank assets.

As for the rest of America, good luck. Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again "bubble-like." Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.

Even when acknowledging QE's shortcomings, Chairman Bernanke argues that some action by the Fed is better than none (a position that his likely successor, Fed Vice Chairwoman Janet Yellen, also embraces). The implication is that the Fed is dutifully compensating for the rest of Washington's dysfunction. But the Fed is at the center of that dysfunction. Case in point: It has allowed QE to become Wall Street's new "too big to fail" policy.

Mr. Huszar, a senior fellow at Rutgers Business School, is a former Morgan Stanley managing director. In 2009-10, he managed the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program.

ROTE LEARNING

this article is for parents with young kids and teachers who have been through new style teaching should be aware of the goods of rote learning.

an article from wsj

What's 12 x 11? Um, Let Me Google That

Contrary to today's educational theories, memorization is critical in the classroom and life.

By

David G. Bonagura Jr.

Oct. 30, 2013 6:59 p.m. ET

I'm a bad teacher. Or so I would be labeled by today's leading education professionals. My crime? Not my classroom performance and not my students' test scores. The problem is that I require students to memorize.

My students learn proper grammar by drilling. They memorize vocabulary by writing given words and their definitions multiple times for homework, and then sitting the following day for an oral quiz. They memorize famous quotations by reciting them at the start of class each day.

For centuries, these pedagogical techniques were the hallmark of primary and secondary education. But once John Dewey's educational theories were adopted in public schools beginning in the 1940s, they fell out of vogue, ridiculed and rejected by education professionals across the country as detrimental to learning. In schools of education such techniques are derisively labeled "drill and kill" and "chalk and talk." Instead, these experts preach "child-centered" learning activities that make the teacher the "facilitator" in education, which is understood as a natural process of self-discovery.

This educational philosophy has driven every national educational initiative of the last several decades: New Math, Whole Language, Outcome-based Education and now the Common Core Standards that are being rolled out across the country.

Getty Images

All of the previous initiatives have at least three things in common. First, they didn't work. The U.S. still lags behind the world in education, even though each program, in its day, was touted as the means to bring our children to the top. Second, they all espoused the same child-centered educational philosophy, which has coincided with American students' mediocre performance in the classroom. Third, they rejected memorization out of hand.

Of course, all good teachers want their students to acquire not just basic knowledge, but a deeper, conceptual understanding that is manifested through critical thinking and analysis—skills that educational fads and initiatives rightly extol. But such thinking is impossible without first acquiring rock-solid knowledge of the foundational elements upon which the pyramid of cognition rests.

Memorization is the most effective means to build that foundation. Yet drilling multiplication tables, learning to spell, and reciting formulas and rules are almost nowhere to be found in today's classrooms, tarred as antithetical to true learning and even harmful for students.

My classroom experience proves otherwise. Once students have memorized a given set of vocabulary and grammar rules, they are able to apply their knowledge to more difficult concepts and activities. Having the fundamentals at the ready gives them both skill and confidence, two attributes that make learning effective and enjoyable. If they skipped the memory work on the grounds that the information can easily be found online, they would drown in a sea of URLs as they struggled to find the basic information necessary to answer the deeper questions.

Memorization doesn't need to be as odious as schools of education make it sound. In fact, memorization exercises in the classroom can be made exciting with a little ingenuity and humor on the part of the teacher. Elementary school students, whose minds are particularly fit for memorizing, but not yet ready for critical thinking, especially excel in these activities.

Even so, students are not likely to love doing homework or studying for tests. It's a safe bet they also don't like eating vegetables or going to bed early. But these are all necessary habits for good health.

In our technologically sophisticated culture, some people have concluded that memorization is no longer necessary since all the information we need is available at the push of a button or tap of a screen. But I shudder at what might have happened to the Apollo 13 flight crew if its NASA team had to spend precious minutes looking up multiplication tables, or what will happen if our government's national-security advisers needed to consult Wikipedia to shape their foreign policy decisions. If teachers compel their students to memorize basic facts about math, science, grammar, literature and history, then these students will be far more adept at responding to challenges when they become leaders.

Before we implement the same faulty educational philosophy disguised in the new dressings of the Common Core, memorization deserves to be reinstated to its foundational role in learning. Only then will American students have a core of knowledge that they can think critically about.

Mr. Bonagura is a teacher and writer in New York.

S&P500 update

click for better view

a reader has written to ask that dow has an opposite rsi trend while sp500 looks still a rising rsi.

i have not tracked sp500 usually since dow is quite a good estimate although sp500 is more indicative of the economy since it is composed of 500 largest companies in the states.

now look at this chart, a futures spot month chart of sp500 since i do not have a sp500 chart, it should be a good enough proxy.

sp500 has a good base looking towards 2260 [now only 1700], but it wont be happening right away, the slightly downward neckline confirms this trend. this trend forms over a five year span [2007-2012] so it should be quite accurate.

there are some reasons to the slightly bearish short term view vs a bull medium term view as:

• the rsi is sloping downwards while the sp500 is sloping upwards, in line with the dow trend [read earlier blogs on dow]. if you look back in history on this chart, an uptrend not supported by a rising rsi is followed by sharp corrections.
• the low reach in 2012 nov is about 1350 [1346 to be exact] and we are not in 2013 nov yet but we are now at 1700, a rise of 26%, do not forget the low reached is not a medium term low, it is only a correction, so the high reached is even more phenomenal. the earlier low is reached in 2012 may [just a few months earlier], that low is 1264. if you use the may low, the rise is 34%.

shd you have read this blog on earlier updates of hsi, it also is forming a strong base that can point to much higher levels provided it does not fall off the w [or 2v] trend as described earlier in this blog.

compare this update with earlier updates on dow and hsi.

the conclusion is - buy on corrections in steps not one off, do not chase up on highs as it is not cheap by any measure.

LEFT OUT IN THE COLD

an article from wsj, it shows how untrustworthy spy agencies are and govts as well.

Caught up in a terrorist rendition debacle, Robert Lady is wanted in Italy, lost his house and marriage, and says he has been abandoned by the CIA. Miami When the anniversary of 9/11 came around this year, Robert Seldon Lady was moving between lowend hotels around Miami. An international arrest warrant keeps him from returning to his home in Panama. He says he's flirting with bankruptcy, fears for his life, and is “getting pretty desperate.“ His marriage is broken. He blames this hard luck on his former employer, the Central Intelligence Agency. A decade ago, Mr. Lady served on the front lines of America's antiterror efforts after 9/11, heading up the agency's base in Milan. In the 2003 State of the Union address, President Bush credited him and his colleagues, albeit not by name, for dismantling several al Qaeda cells in that Italian city. “We've got the terrorists on the run,“ Mr. Bush said. “We're keeping them on the run.“ Mr. Lady's Italian stint capped a near quarter-century covert CIA career in Latin America, Asia and Europe. Three weeks later and a year before his planned retirement, Mr. Lady helped CIA contractors and agents snatch an Egyptian Islamist off the streets of Milan and deliver him to an interrogation cell in Cairo. This so-called extraordinary rendition--one of 130 or so carried out by the Bush administration--set in train events that soured America's relations with Italy and upended the life and career of Mr. Lady and other CIA agents. Saying “I'm fed up with all this,“ Mr. Lady has some extraordinary steps in mind to change his fate. His actions and outspokenness are going to add to the discomfiture of his former bosses at Langley over this messy episode from the early days after 9/11. On Feb. 17, 2003, Osama Mustafa Hassan Nasr, a heavyset and bearded man in his early 40s, went missing en route to midday prayers at his mosque in Milan. The CIA and Italian police considered the man, better known as Abu Omar, to be a recruiter for al Qaeda. His family and the Italian police had no inkling where he'd gone. Fourteen months later, Abu Omar emerged from jail, called his wife from Egypt and described his abduction and mistreatment in captivity. Italian authorities listened via a telephone tap on his home phone in Milan and started to look into a kidnapping. Their investigation led to the CIA and its man in Milan. The political mood in Italy, initially sympathetic to the U.S. in the wake of 9/11, turned to outrage when the alleged breach of sovereignty was revealed in 2005. An aggressive magistrate named Armando Spataro got indictments for 26 Americans and five Italians, the first known time that employees of the CIA had ever been prosecuted by a friendly government for doing their jobs. A judge brought separate terrorism charges against Abu Omar, but only the CIA case went to trial. The Americans were convicted in absentia. The debacle came to be known inside the agency as the “Italian job.“ Mr. Lady, who had planned to retire and become a security consultant from a farm house he bought with his life savings in Italy's Piedmont region, received the stiffest sentence--eight years in prison, increased to nine on appeal. Before the case went to trial, Magistrate Spataro sued to seize the house and use the proceeds to pay damages to Abu Omar. Mr. Lady fled Italy in 2005 and lost the property. His 30year marriage, he says, was another casualty. Of all the convicted agents, Mr. Lady is the only one who still faces prison time, which was reduced by the justice ministry to six years in 2012. He's also the only one whom the Italians are actively trying to catch. He was told by the U.S. government that an arrest warrant was issued by Italy last year, though he has not seen it. Two months ago Panama detained him for 24 hours but ignored calls from Italy's justice minister to hold him longer. The U.S. told him to leave his home and business in Panama at his own expense, he says, and lie low in the U.S. for a couple of years. Mr. Lady, who is 59, says he needs to travel internationally to make a living. Over dinner in Coral Gables with me and his lawyer, Tom Spencer, Mr. Lady calls himself “a piñata.“ After retiring from the CIA in 2004, he says he was on his own and an easy target: abandoned by the U.S. and scapegoated by the Italians. The intelligence agency “rallied around the [CIA] leadership to protect them,“ he adds. His cover in Milan was deputy consul working for the State Department, but the U.S. government didn't fight the Italians to honor his diplomatic immunity. The U.S. did assert diplomatic immunity for Jeffrey Castelli, the CIA's station chief in Italy and his boss, but it was eventually revoked by an Italian judge. Mr. Castelli was convicted on kidnapping charges in February and sentenced to seven years in prison, pending an appeal. Washington has never admitted that the agency was behind the rendition. “I'm a victim of American waffling,“ Mr. Lady says. “Italy is a very close ally“ and the U.S. government “should have come up with a solution.“ He says he received some compensation from the government but will only say it wasn't enough to cover his losses. The agency isn't paying his legal or any other costs now, he says. The politics of antiterrorism has changed in the U.S., and rendition is out of official favor even if it is still practiced. Mr. Lady says he has called phone numbers at CIA headquarters that he was once given, but with no luck: “I know they have instructions, `Don't answer him.' It feels bad that I gave them 24 years of my life, and I get treated like that. . . . As far as they're concerned, if I put a gun to my head and blew my head off, they'd be happy. The problem would be over. They would bring out the champagne.“ Telling his story, Mr. Lady layers his bitterness, which inevitably sounds self-serving at times, with an easy Latin manner. (He was born to an American father and Honduran mother and raised in Honduras.) While his travails have gotten a little attention in the U.S., Mr. Lady is a poster child for Bush-era antiterror policy in Italy. He's taking his appeals now to the Italian government. On Sept. 11 this year, he sent a letter to Italian President Giorgio Napolitano to ask for “personal forgiveness and legal pardon.“ Mr. Lady says he saved Italian and American lives by foiling multiple terror attacks. “I can assure you that at all times, I was informed that my activities were in accordance with United States, Italian and International law and vetted by very high officials,“ he wrote in the pardon appeal. Those officials who ordered and approved the Abu Omar rendition were never charged with a crime, he pointed out. Mr. Lady says he won't wait forever for Italy to answer. He's ready to take responsibility--as he says his bosses never have--and turn himself in “on my own terms,“ serve his prison sentence, and get his life back. He may be calling a bluff. Italy has never asked the U.S. to extradite the convicted agents. “If Italy believes they have the political will to arrest a former CIA officer and keep him in jail for six years, my hat goes off to them,“ he says. As the drama has played out, Mr. Lady has been depicted as either the central actor or a marginal CIA dissident. He offers the latter characterization, insisting that he fought the decision to abduct Abu Omar. Sabrina de Sousa, a CIA operative in Rome and Milan who was also convicted in absentia by the Italians, told MSNBC this summer: “Bob absolutely did not want to have this rendition take place.“ Ms. de Sousa still sued Mr. Lady and their boss in Rome, Jeff Castelli, for ruining her career. The case was dismissed. Mr. Lady says he opposed the Abu Omar snatch, but not rendition itself: “I think rendition is the second oldest profession, it has been happening forever.“ He helped organize the capture of drug kingpin Ramón Matta-Ballesteros from Honduras and transfer to the U.S. in 1988, he says. In 1998, Rome asked the U.S. to help extract an Italian mafia boss from his Latin American exile, says Mr. Lady. “He was in a country where he could pay judges and everybody,“ he says, declining to name the country or the don. “We lured this guy to Panama, grabbed him and turned him over to the Italians. No extradition, nothing.“ The abducted man was convicted in Italy, Mr. Lady says. More recently, Italy worked with the CIA to grab an al Qaeda member--a “high-level guy“--and put him into an Egyptian prison “forever,“ he says, but “I can't tell you the details.“ Thinking of his predicament, Mr. Lady says he's struck by “the hypocrisy of this whole thing.“ Bill Clinton approved extraordinary rendition, as has every president since. “In every rendition I have ever been involved in, the local government was a partner,“ Mr. Lady says, and Abu Omar was no exception. Who in Italy knew what about the Omar rendition remains unclear and controversial. The government of Silvio Berlusconi, then in power, denied direct knowledge. The brass at the CIA's Italian counterpart, the SISMI, was aware of the operation. An Italian policeman, who testified that he was tapped by Mr. Lady to take part, stopped Abu Omar on the street to check his documents seconds before American agents threw the cleric into a white van. Mr. Lady denies he recruited the policeman for the rendition, saying “I'm convinced that he was forced to say that so he could get immunity.“ He has no doubts the Italian government was on board. “Everything we did in Italy was joint. Everything,“ he says. “Italy is one of our closest allies. Our only interest in Italy was working on common targets.“ Mr. Lady, who arrived in Milan in 2000, developed close personal relationships with Italian counterterrorism police. He says he brought Abu Omar to the Italians' attention a month before 9/11, identifying him as rising militant. After the attacks on the World Trade Center and the Pentagon, field operatives were under pressure to produce “legitimate, actionable intelligence against terrorists,“ says Mr. Lady. “They were desperate times. We were working endless hours.“ He says his superior, Mr. Castelli, wanted to pull off a no table rendition just to help his own career. He calls Mr. Castelli “human exhaust“ and suggests the feeling was mutual. “Castelli hated me so much,“ Mr. Lady says, “that he wouldn't let me near an operation like that.“ (Mr. Castelli, who has since left the CIA, didn't respond to requests for comment submitted through his office.) The CIA station chief in Rome insisted on grabbing Abu Omar over objections from Mr. Lady and skep ticism in Washington, according to Mr. Lady and Ms. de Sousa. Mr. Lady says Abu Omar was “a bad guy“ but “not a major al Qaeda fig ure.“ His capture, the CIA agent worried, would irritate the Italian police, who had put in time and re sources to monitor him. Once Washington approved the rendition, Mr. Lady says he was told “either do it or get out of Dodge.“ Why not resign? “I was,“ he says with a long pause, “one year away from retirement. Would you throw away 23 years of your career and resign without a pension?“ As Italian investigators showed with excruciating detail, the “Italian job“ was sloppy tradecraft. The sev eral dozen agents brought in for the rendition--many more, says Mr. Lady, than the 20 identified by the Italians--used cellphones and paid hotel bills with credit cards that were easily traced back to them. Italian police raided Mr. Lady's house in 2005. They found a picture of Abu Omar on his computer and a flight reservation to Cairo from Zurich a few days after the IslaZina Saunders mist's rendition. He says he took part in some of the interrogation sessions in Egypt, but never saw Abu Omar tortured. Mr. Lady says the photo came from the Italian po lice and wasn't classified, as press accounts suggested. Still, he made a cardinal mistake of bringing a spy's work home. The Abu Omar case poisoned relations with the Italians and em barrassed the CIA. The fallout has also hurt antiterror efforts, Mr. Lady says: “Politics in Italy has made it so difficult to go after these characters. Throughout Europe you almost have to catch them with a bomb in their hands, and then if it doesn't blow up, they say it's a toy.“ The CIA's bloated bureaucracy has demoralized field agents like him, he adds. After spending several years in the custody of Egypt's Mukharabat without charge, Abu Omar lives to day in Alexandria, Egypt. He's a wanted man in Italy. Stuck in his own legal limbo, Mr. Lady says, “I'm a prisoner, serving time.“ He adds that the agency once told him it had picked up threats against him on al Qaeda Internet message boards. Sometimes, he says, “I wake up in the morning and say I want to shout to everyone, finally tell the truth about everything.“ The classi fied full story would cause a “scan dal,“ in his words. “But I can't. I made a vow and frankly I think I'm going to die with that vow.“ A vow to the CIA, the institution that you say betrayed you? “I made a vow to the flag. The institution, I clean my [expletive] with. My flag, I will never betray. I think the institu tion is betraying my country.“ Mr. Kaminski is a member of the Journal's editorial board.