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Prosecutors to resume their case in Hosni Mubarak’s trial

 Cairo (CNN) — Prosecutors are scheduled to continue their case Wednesday in the trial of former Egyptian President Hosni Mubarak, who is accused of ordering protesters killed during the country’s uprising last year.

The former president also faces corruption charges. He has pleaded not guilty.
Prosecutors started presenting their case Tuesday with their opening statements.
“Mubarak is a tyrant who aimed to hand the rule to his younger son Gamal, who promoted corruption in Egypt, allowing his friends and relatives to destroy the country without accountability,” Suleiman told the court, according to Khaled Abu Bakr, a civil rights lawyer involved in the trial.
As during his previous appearances, Mubarak was wheeled into the courtroom on a stretcher, with a green blanket draped over him.
After hearing Suleiman speak for an hour Tuesday, the judge adjourned the court until Wednesday.
Abu Bakr said he expected a verdict “before January 25, the anniversary of the revolution,” referring to the beginning of the uprising that ended Mubarak’s 30-year rule in February.
Many Egyptians are critical of the court proceedings and some worry that Mubarak may be acquitted of the murder charges. Five police officers accused of killing protesters were acquitted last week.
Mubarak’s health has been in question since his detention began in April after reports of his cancer and heart problems surfaced in the media.
Former Egyptian Interior Minister Habib El Adly, six of his aides and two of Mubarak’s sons are also on trial on a variety of charges.Sons Gamal and Alaa have also pleaded not guilty.

About 840 people died and more than 6,000 were wounded in the 18 days of uprising that toppled Mubarak, according to Amnesty International.

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Macroprudential policy Risky business

 THE new big hope of central banks is called macroprudential policy. During the boom, central banks used the fairly blunt instrument of interest rates as their main weapon. But since inflationary pressures were low, thanks to the deflationary shock stemming from China and eastern Europe, rates were kept low. This led to a splurge of asset-backed lending. Meanwhile, banks found easy ways to exploit the rules of the Basle accords – designed to ensure the system was well-capitalised. As a result, when mortgage-backed securities started to plunge in value in 2007, the banks were much less robust than was previously thought.

The Bank of England has set up a financial policy committee, which is just starting the arduous task of sorting out which principles it should follow and which policy buttons it can push. In a paper out today, it sets out its options. It starts by discussing the potential flaws in financial markets such as

incentive distortions which can, for example, arise from contracts that reward short-term performance excessively

informational distortions such as those linked to buyers doubting the quality of assets (adverse selection) or less than fully rational processing of information

co-ordination problems, where collective action, for example to step away from lending in a boom, may be in the interests of individual banks but there is no way to co-ordinate on this outcome

As the paper points out (and as Hyman Minsky famously noticed) there is a tendency for banks to get overexposed to risk in the upswing of a credit cycle. After all, it is the banks that are driving the cycle. As they become more confident about lending against assets, more funds are available to investors/speculators and asset prices rise, increasing the confidence of all involved. As a proportion of GDP, commercial lending to real estate doubled between 2002 and 2008. In the UK banking system, leverage (as measured by total assets to shareholders’ claims) increased from 20:1 to 50:1 within a decade. Both measures ought to have caused alarm but nothing was done.

There is little new in this, as the paper recognizes. Credit cycles have nearly always been marked by lending against property. But property is an illiquid market and prices fall very sharply when the balance of supply and demand shifts, often wiping out of all of a bank’s collateral. Meanwhile, the duration of bank funding was steadily falling, from an average maturity of 10 years in the early 1980s to four years by 2008 (the US followed a similar trajectory). This left the banks very vulnerable to a run on liquidity.

The FPC says the authorities have, in principle, three types of measure to deal with these risks.

those that affect the balance sheets of financial institutions

those that affect the terms and conditions of loans and other financial transactions

those that influence market structures

For example, balance sheet measures include maximum leverage ratios and liquidity buffers; the second group includes caps on loan-to-value ratios and minimum margins; the third includes requirements for disclosure to reduce uncertainty about the market exposure of individual banks, but also the use of central counterparties to clear trades.

The paper then conducts an excellent and clear-eyed assessment of the pros and cons of these measures, without coming to any definite conclusion (the paper is part of a consultation process). What is clear is that the authorities cannot rely on just one or two measures, esepcially given the proved willingness of banks to game the system. Of course, the authorities cannot prevent all future financial crises, but they can still be a lot more alert than they were in the early 2000s. The paper shows the FPC is making a good start.

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