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    United States Avalon Member GlassSteagallfan's Avatar
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    Default Wall Street multibillion-dollar scandal no one is talking about

    The Wall Street multibillion-dollar scandal no one is talking about

    By Stephen Gandel, senior editor March 23, 2012: 5:00 PM ET

    The LIBOR trading scandal could turn out to be far worse for Wall Street than its mortgage troubles.

    FORTUNE -- Much of the talk about bad behavior on Wall Street since the financial crisis has been about mortgages with a little bit of insider trading sprinkled in. And that makes sense. Everyone immediately understands what a mortgage is. And the housing bust that resulted from all those bad home loans affected us all. And Hollywood has taught us to ooh and ah over insider trading.

    But there is another scandal that has come out of the financial crisis that at least to me makes the mortgage underwriting scandal look like small peanuts, and it has been heating up lately. Two weeks ago, the government disclosed that it is looking into bringing criminal cases against traders and banks that manipulated a key bank lending rate, called LIBOR. A source close to the case says the government's "may" will be dropped soon. Both Barclays and Deutsche Bank have disclosed that they have been the focus of investigations. Banks have suspended dozens of traders. Today, Credit Suisse announced that it was cooperating with regulators on the case. Traders at UBS reportedly are already working with the government on its investigation. Looking for instances in which Wall Streeters go to jail, unlike mortgages, this may be the one.

    And yet because it is over a technical sounding bank lending rate, and has been developing for years, the scandal has mostly passed over the public without a real knowledge on what it's about. But to understand the real rot on Wall Street, and how widespread it is, you should.

    Consider what went on here. Banks took a rate that they artificially set themselves, and then went out and convinced municipalities and pension funds and others to bet against them on the rate. LIBOR rates were supposed to be set by bank treasurers reflecting what it cost them to borrow from other banks. But reportedly a number of bank treasurers consulted traders when deciding what rate to report to the organization in London that collected and posted the rates. (LIBOR stands for the London InterBank Offered Rate) What's more, traders at a number of banks were given access to the systems that bank officials used to enter the rate so they could overwrite the rates with ones that would better suit them. When the rate went the way Wall Street traders programed it to do, the banks cashed in millions.

    The LIBOR rate also affects what many of us pay on our adjustable mortgage, home equity loans, car loans and others. But that is a little bit of an aside. The real, clear damage is in the contracts that banks set up with municipalities and others to bet on their own manipulated rates. Baltimore was sold as much as $300 million in LIBOR contracts. The city is the lead plaintiff in the class action against the banks. The suits say the LIBOR market is as large as $90 trillion. Though some have put the market of things the rates affects as much as $350 trillion in loans and derivatives. The suit says on average over the period it was manipulated the banks artificially held the LIBOR rate down by 0.87%. Go with the smaller figure and by back of the envelope math, you get that the banks could have made as much as $750 billion on their scheme, but it probably wasn't that much since banks were probably asked to long and short on the rate.

    The case also says something about the limits of morality on Wall Street. As the manipulation of LIBOR got worse, a number of Wall Street strategists pointed out that something was off here. One strategist Tim Bond at Barclays even went on Bloomberg television and stated quite clearly that he believed the rates were made up. What was he or his firm going to do about it? Nada. He said his bank's treasurer, who he identified as someone who took his role in reporting LIBOR seriously, at one point put his foot down and said he was going to report the bank's real LIBOR rate, which is to say higher than they had been reporting, indicating, you would assume accurately, that the bank was having some problems borrowing. Bond says all the bank got in return was bad press. So Barclay's wasn't going to do that again. Bond didn't return my phone calls for comment.

    Another interesting note about the LIBOR case, especially in light of the Greg Smith public resignation from Goldman Sachs and all the scrutiny of that bank, is that this is one scandal Goldman appears not to be a part of. The firm is not named in the suits. There is more than one firm on Wall Street that treats its clients like Muppets.

    Source: http://finance.fortune.cnn.com/2012/...talking-about/

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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    GSF, i wonder how far this is actually going to go....... seems to me that it should definitely be investigated further. thanks, great info., and one more stab at the pathetic banking institution.
    regards, corson

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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Hi Glass thank you for this post and most of your other ones regarding financial shinanigans perpetrated by bankers around the world. I personally have great difficulty reading the posts you make and any articles in the press because after reading a few paragraphs I become mesmerised in the financial lingo which is used. My best subject at school was Maths and at primary school arithmetic. I also can calculate percentages and other arithmetical tasks mentally without using a pencil and paper. However the FJ (Financial Jargon) confuses the issue because a word is used that has completely no meaning as far as I am concerned. For example, this LIBOR thing I have never ever heard of before. I ran a building business for 35 yrs and 13 years before that I worked in my dad's business. Did LIBOR affect me in business all these years? If it did, I wasn't aware that it did because I hadn't heard of it. Words like derivitives are not used in everyday language. The people who get up early every morning and go to work in building sites, factories, engineering projects like building bridges and all manner of good useful things to do for an honest living have not any clue what these friggin terms mean. This is why these good for nothing financiars and bankers can openly talk in their secret language can talk on TV without the ordinary people getting angry at them. I feel they invent all these innocent sounding names like derivatives and such as a secret language to protect themselves. The thieves in London centuries ago did the same thing by inventing the Cockney slang so that policemen didn't understand what they were saying.
    Can you explain to ordinary people like me what the hell you are talking about regarding LIBOR. Or are you on their side and you have lots of money invested in these shenanigans.

    Stan
    If you don't follow your spirit without hesitation, you end up following your hesitation without spirit.

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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by aranuk (here)
    Can you explain to ordinary people like me what the hell you are talking about regarding LIBOR. Or are you on their side and you have lots of money invested in these shenanigans.
    From http://en.wikipedia.org/wiki/Libor:
    Quote The Libor is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR, play /ˈlaɪbɔr/). Banks borrow money for one day, one month, two months, six months, one year, etc., and they pay interest to their lenders based on certain rates. The Libor figure is an average of these rates.
    Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the Libor rate. As such, it is a benchmark for finance all around the world
    LIBOR ends up being written into quite a few mortgages and other variable interest rate contracts ... you might have been paying LIBOR plus 5% (or plus 10%) on a credit card at some point. It provides a "well known" set of basic interest rates for short term loans that is updated every business day.

    For your personal variable rate mortgage or credit card, you probably didn't much notice.

    But municipalities and pension funds handling large amounts of money, at variable rates tied to LIBOR, would notice. They would buy "insurance" to cover them if LIBOR went against them. For example if they borrowed money at relatively low rates, but rates tied to LIBOR, and if they were (reasonably enough) worried that LIBOR and hence their loan rate, would increase, they'd also purchase a derivative that would gain in value if the LIBOR increased. The bank would take the other side, betting that LIBOR would stay low.

    Apparently, the bank would then cheat (it "owns the house", so to speak) and keep LIBOR artificially low, winning that bet.
    Last edited by ThePythonicCow; 27th March 2012 at 01:43.
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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Still no idea what your trying to explain. Are these people being fair to anyone? If they are so fair where is the billions of money being taken from?
    The banks are surely not stealing of each other?
    Who is being cheated when the banks all come out on top with a bottom line in excess of what they started with?

    Stan
    Last edited by aranuk; 27th March 2012 at 02:19.
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    United States Avalon Member Dennis Leahy's Avatar
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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by aranuk (here)
    The banks are surely not stealing of each other?
    Who is being cheated when the banks all come out on top with a bottom line in excess of what they started with?

    Stan
    Hi Stan,

    High finance is deliberately filled with jargon, and the information is always delivered in the most mesmerizingly boring, hypnotic way possible. Like a stage magician blabbering away to distract you - so you don't see what he does with his hands.

    The Big Finance sector not only creates confusing jargon on purpose, they create variations on money! They call them "financial instruments" and "financial products" as if they are selling shovels and toasters. Gone are the simple days of cash, debit, credit, and loan. That was all too simple, too easy for the average person to be able to fully evaluate, so, too easy for the bankers to get caught when there are misdeeds.

    One of the outrageous "financial instruments" is called a "derivative." It took me a while to visualize what the hell that really is, but (my concept) is sort of like the banks ripping lots of loans and mortgage loans and other speculative pieces of paper up into confetti-sized pieces, shuffling the confetti pieces, and then assembling new individual sheets of paper from mosaic pieces - and selling the new sheets as 'derivatives.' Little tiny pieces of many other "financial instruments", which makes everything impossible to trace back to the sources.

    Every time a bank moves (sells) a "financial instrument", they make money. Banks are allowed by law (in the US at least) to loan out 10 times more money than they actually have, and when they loan it, no physical cash changes hands - the loan money is simply a notation in a ledger (physical or computer.) The loan thus creates "money", or to say it better, each new loan allows banks to create money out of thin air - and then there is more money. As there is more and more money, the money is worth less and less. So, even though you and I are sitting at our computers, minding our own business, somewhere there is a bank creating money out of thin air, and the total amount of money in the world grows, making the dollar bills in your pocket and my pocket have less purchasing power. That's the answer to your question about where it is taken from ("thin air") and who is hurt by it ("everyone", because the more money created, the less our dollars are worth.) And yes, the bankers are also hurt by the same thing - they devalue their own money by doing this, ... BUT, they make more money (lots more) than they lose in the devaluation. To a poor person, having money devalued a little bit can be devastating; to the uber-rich, it is a tiny leak in a bucket that is being filled faster than the leak drips out.

    Although the movie, The Secret of Oz is Americentric, it explains and exposes the way banks create money - "debt money" - by writing (at least) ten times the amount of dollars as they actually have in their possession. Fractional reserve lending, it's called, because the banks only have to have a fraction (one-tenth) of the money in reserve (in their possession.)

    Dennis


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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by Dennis Leahy (here)
    Fractional reserve lending, it's called, because the banks only have to have a fraction (one-tenth) of the money in reserve (in their possession.)

    Dennis
    Your post in regards to the "bubble" is functionally correct, but it's slightly off, so I got out my crayon's a drew a picture. The reserve used to be 10 percent until Glass Steagall was repealed, so can you tell me by looking at this chart when that happened?



    Then, not only were banks allowed to create 100 times the underlying reserve, they also created a derivatives bubble (side bets) of 700 TRILLION to ONE QUADRILLION as additional leverage to the 100 times leverage of the fractional money supply.

    So, as the MF Global situation pointed out so eloquently for us, if you get on the wrong side of the trade and the market moves 2%, you are wiped out.

    So, that is why 15 trillion can "go missing" and no one says anything because it puts a band-aid on the derivatives bubble and keeps it from de-leveraging and unwinding. One day, they will let this happen to bring the whole ball of bees wax down at once, but not till all the world is heavily in debt to their eyeballs.

    Then beans and rice will be more valuable than a Mercedes Benz, and we will need to get Fulford's ninja's on the line right away.
    Last edited by gripreaper; 27th March 2012 at 04:08.

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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by Dennis Leahy (here)
    Quote Posted by aranuk (here)
    The banks are surely not stealing of each other?
    Who is being cheated when the banks all come out on top with a bottom line in excess of what they started with?

    Stan
    Hi Stan,

    High finance is deliberately filled with jargon, and the information is always delivered in the most mesmerizingly boring, hypnotic way possible. Like a stage magician blabbering away to distract you - so you don't see what he does with his hands.

    The Big Finance sector not only creates confusing jargon on purpose, they create variations on money! They call them "financial instruments" and "financial products" as if they are selling shovels and toasters. Gone are the simple days of cash, debit, credit, and loan. That was all too simple, too easy for the average person to be able to fully evaluate, so, too easy for the bankers to get caught when there are misdeeds.

    One of the outrageous "financial instruments" is called a "derivative." It took me a while to visualize what the hell that really is, but (my concept) is sort of like the banks ripping lots of loans and mortgage loans and other speculative pieces of paper up into confetti-sized pieces, shuffling the confetti pieces, and then assembling new individual sheets of paper from mosaic pieces - and selling the new sheets as 'derivatives.' Little tiny pieces of many other "financial instruments", which makes everything impossible to trace back to the sources.

    Every time a bank moves (sells) a "financial instrument", they make money. Banks are allowed by law (in the US at least) to loan out 10 times more money than they actually have, and when they loan it, no physical cash changes hands - the loan money is simply a notation in a ledger (physical or computer.) The loan thus creates "money", or to say it better, each new loan allows banks to create money out of thin air - and then there is more money. As there is more and more money, the money is worth less and less. So, even though you and I are sitting at our computers, minding our own business, somewhere there is a bank creating money out of thin air, and the total amount of money in the world grows, making the dollar bills in your pocket and my pocket have less purchasing power. That's the answer to your question about where it is taken from ("thin air") and who is hurt by it ("everyone", because the more money created, the less our dollars are worth.) And yes, the bankers are also hurt by the same thing - they devalue their own money by doing this, ... BUT, they make more money (lots more) than they lose in the devaluation. To a poor person, having money devalued a little bit can be devastating; to the uber-rich, it is a tiny leak in a bucket that is being filled faster than the leak drips out.

    Although the movie, The Secret of Oz is Americentric, it explains and exposes the way banks create money - "debt money" - by writing (at least) ten times the amount of dollars as they actually have in their possession. Fractional reserve lending, it's called, because the banks only have to have a fraction (one-tenth) of the money in reserve (in their possession.)

    Dennis
    Thank you Dennis! That is clear the way you explain it. I do understand Fractional reserve lending, however the other terms as you say are quite deliberate on their part. The politicians in UK are masters of double speak too. They can be caught redhanded doing something wrong and one of their allies, usually a higher ranking minister will face the cameras and speak about this situation, mentioning a tribunal with appointees to investigate this "So called" misdemeanor and by the time his interview has finished the ordinary person in te street is mesmorised by the double speak they get bored and watch football instead and they then forget te whole fiasco.
    It is really sickening. Out of our hard work and tax money they are paid.

    Stan
    If you don't follow your spirit without hesitation, you end up following your hesitation without spirit.

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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by gripreaper (here)
    Quote Posted by Dennis Leahy (here)
    Fractional reserve lending, it's called, because the banks only have to have a fraction (one-tenth) of the money in reserve (in their possession.)

    Dennis
    Your post in regards to the "bubble" is functionally correct, but it's slightly off, so I got out my crayon's a drew a picture. The reserve used to be 10 percent until Glass Steagall was repealed, so can you tell me by looking at this chart when that happened?



    Then, not only were banks allowed to create 100 times the underlying reserve, they also created a derivatives bubble (side bets) of 700 TRILLION to ONE QUADRILLION as additional leverage to the 100 times leverage of the fractional money supply.

    So, as the MF Global situation pointed out so eloquently for us, if you get on the wrong side of the trade and the market moves 2%, you are wiped out.

    So, that is why 15 trillion can "go missing" and no one says anything because it puts a band-aid on the derivatives bubble and keeps it from de-leveraging and unwinding. One day, they will let this happen to bring the whole ball of bees wax down at once, but not till all the world is heavily in debt to their eyeballs.

    Then beans and rice will be more valuable than a Mercedes Benz, and we will need to get Fulford's ninja's on the line right away.
    Hi gripreaper, thanks for your post above. Can you manage to explain the following terms please: a derivatives bubble, side bets, quadrillion, leverage, de-leveraging.
    In UK a trillion = a thousand million
    I know what leverage means in the technical way as lifting something up
    de-leveraging would be letting something down
    but these are everyday meanings and most probably being used to hide a meaning. No?
    Thanks

    Stan

    PS I am an astrologer and I can speak to another astrologer about something important and if you don't know much about this subject you wouldn't understand a word we were talking about. However if we are explaing this something to a beginner we would choose diferent words and have to say it in a longer winded way for it to be understood.
    Last edited by aranuk; 27th March 2012 at 17:55.
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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by corson (here)
    GSF, i wonder how far this is actually going to go....... seems to me that it should definitely be investigated further. thanks, great info., and one more stab at the pathetic banking institution.
    regards, corson
    Sorry, Corson. I have to take issue with your choice of words here. Pathetic would imply that some form of sympathy was due to the culprits here. These bankers are low-life sleazebag criminals who belong in prison and chains. We have seen your fierce face now, so I know you are capable of telling it like it is.

    Regards, MW

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    United States Avalon Member Ba-ba-Ra's Avatar
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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    My simple layman's example of a derivative = betting on what will happen in the future.

    What the banks executives quickly realized was if you made a "BAD" loan, you could then "bet that it would be foreclosed on" - so they turned it into a derivative.

    Soon they had more investors wanting to buy these types of derivatives (because they were paying off so well) that the banks had to keep making more and more bad loans. Easy to do. They kept reducing the ratio (amount of income to loan payment) a buyer needed in order to qualify for a loan. Also creating more and more loans were the interest rate could be increased within 6 months (adjustable rate loans), which meant the loan payments would go up and the homeowner could no longer meet the payment. Creative financing!!!!!!!!!!!!!!
    Blessed are the cracked, for they are the ones who let in the light!

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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by aranuk (here)
    Hi Glass thank you for this post and most of your other ones regarding financial shinanigans perpetrated by bankers around the world. I personally have great difficulty reading the posts you make and any articles in the press because after reading a few paragraphs I become mesmerised in the financial lingo which is used. My best subject at school was Maths and at primary school arithmetic. I also can calculate percentages and other arithmetical tasks mentally without using a pencil and paper. However the FJ (Financial Jargon) confuses the issue because a word is used that has completely no meaning as far as I am concerned. For example, this LIBOR thing I have never ever heard of before. I ran a building business for 35 yrs and 13 years before that I worked in my dad's business. Did LIBOR affect me in business all these years? If it did, I wasn't aware that it did because I hadn't heard of it. Words like derivitives are not used in everyday language. The people who get up early every morning and go to work in building sites, factories, engineering projects like building bridges and all manner of good useful things to do for an honest living have not any clue what these friggin terms mean. This is why these good for nothing financiars and bankers can openly talk in their secret language can talk on TV without the ordinary people getting angry at them. I feel they invent all these innocent sounding names like derivatives and such as a secret language to protect themselves. The thieves in London centuries ago did the same thing by inventing the Cockney slang so that policemen didn't understand what they were saying.
    Can you explain to ordinary people like me what the hell you are talking about regarding LIBOR. Or are you on their side and you have lots of money invested in these shenanigans.

    Stan
    hehe Stan. This is exactly how I feel when I try to read a legal document.
    The common man is not meant to understand such things, not even with a dictionary.
    I think I'll start calling the confusion that one feels when reading purposely confusing terms the LIBOR effect.

    Definition: Never to be understood; High probability of foul play


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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Babara you said "What the banks executives quickly realized was if you made a "BAD" loan, you could then "bet that it would be foreclosed on" - so they turned it into a derivative."

    Can you explain what you mean by "BAD" loan?
    Who do they give money to in order to bet that it would be "foreclosed"?
    What do you mean foreclosed?

    Stan

    PS I am going to google financial glossary of meanings.
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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by aranuk (here)
    Babara you said "What the banks executives quickly realized was if you made a "BAD" loan, you could then "bet that it would be foreclosed on" - so they turned it into a derivative."

    Can you explain what you mean by "BAD" loan?
    Who do they give money to in order to bet that it would be "foreclosed"?
    What do you mean foreclosed?

    Stan
    Bad = they already knew by the buyer's income that they would not have the capacity to pay for long.

    Most of the bad loans where made to minority's and first-time home buyers, as they were not experienced in the process. **

    Foreclosed= the bank takes over the property when the homeowner can no longer make the payments.

    **That was the first wave of foreclosures. The next waves came as homeowners who made good incomes where laid off from their high paying jobs, so they no longer had the $$$ to make their house payments.
    Last edited by Ba-ba-Ra; 27th March 2012 at 19:34.
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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Quote Posted by Ba-ba-Ra (here)
    Quote Posted by aranuk (here)
    Babara you said "What the banks executives quickly realized was if you made a "BAD" loan, you could then "bet that it would be foreclosed on" - so they turned it into a derivative."

    Can you explain what you mean by "BAD" loan?
    Who do they give money to in order to bet that it would be "foreclosed"?
    What do you mean foreclosed?

    Stan
    Bad = they already knew by the buyer's income that they would not have the capacity to pay for long.

    Most of the bad loans where made to minority's and first-time home buyers, as they were not experienced in the process. **

    Foreclosed= the bank takes over the property when the homeowner can no longer make the payments.

    **That was the first wave of foreclosures. The next waves came as homeowners who made good incomes where laid off from their high paying jobs, so they no longer had the $$$ to make their house payments.
    Thank you so much ba-ba-ra ! I found a financial glossary. I discovered you would have to be taught what it all means by someone who could make it easy to understand. University yes I think or better still a private coach/teacher.

    Stan
    If you don't follow your spirit without hesitation, you end up following your hesitation without spirit.

  27. Link to Post #16
    Scotland Avalon Member aranuk's Avatar
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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    Ba-ba-ra who do they pay the money to in order to bet against or for? Another way put, who collects all the bets? Is there a bookmaker or bookmakers? If I want to place a bet I have to go to a bookmaker to do this.

    Stan
    If you don't follow your spirit without hesitation, you end up following your hesitation without spirit.

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    United States Avalon Member Ba-ba-Ra's Avatar
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    Default Re: Wall Street multibillion-dollar scandal no one is talking about

    The stockbrokers collect the bets - only they don't call them bets, they cleverly call them investments in derivatives. Most investors don't know what a derivative is - and in truth, probably most don't care. They only care if they're making money or not.
    Blessed are the cracked, for they are the ones who let in the light!

  29. The Following User Says Thank You to Ba-ba-Ra For This Post:

    Dennis Leahy (28th March 2012)

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