By: pelicanbrief114 01 Apr 2008, 10:07 AM EDT Msg. 695769 of 695848 (This msg. is a reply to 695703 by rosencrantz2010.) Jump to msg. # Rosie
Remember, when a Screenplay is Written/Drafted well in Advance, the ending is merely a foregone Conclusion that is already Known, albeit, such Direction/Production may find the Editing room for Public/Movie Goers perception.
Step back and Breath,,,,,,,Relax,,,,,,,Exhale,,,,,,,Repeat.
By: pelicanbrief114 04 Apr 2008, 06:55 AM EDT Msg. 696838 of 696878 Jump to msg. # When All Is Said
And done, many will merely resemble a skeleton (those that survive) of what "They" once were!!
Slice and Dice!!
One by One out to the Woodshed for a "Hair-Cut".
Former UBS President Arnold Proposes Overhaul of Bank (Update4)
By Warren Giles
April 4 (Bloomberg) -- Former UBS AG President Luqman Arnold called for a breakup of the biggest Swiss bank after about $38 billion of writedowns on debt securities erased more than half its market value in the past year.
Arnold, whose Olivant Advisers Ltd. holds 0.7 percent of Zurich-based UBS, made his proposals in a letter to board member Sergio Marchionne released today, and asked to meet before the annual meeting on April 23. UBS reported a 12 billion-franc ($11.9 billion) first-quarter loss on April 1 and said Chairman Marcel Ospel will leave.
UBS rose as much as 4.6 percent in Swiss trading after Arnold said the bank should consider selling its asset management unit to raise capital because a planned 15 billion-Swiss franc rights offer ``may not be sufficient.'' Wealth management and business banking should be separated from the investment bank, he said. He also urged UBS not to name Peter Kurer, the bank's top lawyer, as chairman, and asked Marchionne to head the board while the company looks for a banking expert to succeed Ospel.
``We believe that a substantial recapture of shareholder value will be achievable,'' Arnold said in the letter. ``There is an urgent requirement for effective and relevant leadership of UBS's supervisory board'' as well as ``a clearer and more focused corporate strategy.''
UBS rose 76 centimes to 33.16 francs by 10:25 a.m. in Zurich, bringing the bank's market value to 68.8 billion francs. UBS is the second-worst performer this year on the 60-member Bloomberg Europe Banks and Financial Services Index.
``Given his former insider status we believe the letter will have an impact,'' Derek De Vries, an analyst at Merrill Lynch & Co., said in a note today. He rates the bank ``neutral.'' ``We think the breakup value will once again come into focus.''
The bank will review the letter and respond ``in due course and in an appropriate form,'' said Rebeca Garcia, a UBS spokeswoman.
UBS, the world's largest money manager, said on April 1 that it will replenish capital with the rights offer, after already raising 13 billion francs from investors in Singapore and the Middle East. The bank will write down $19 billion on debt securities in the first quarter, bringing the total to almost $38 billion since the third quarter of 2007. The bank has piled up net losses of more than 25 billion francs during the period.
UBS needs ``a fundamental overhaul of risk discipline and more open and transparent communication'' both internally and with the market, Arnold said.
Rising U.S. mortgage defaults have caused about $232 billion in credit losses and writedowns at financial companies worldwide.
Bear Stearns, Lehman
The near collapse of New York-based Bear Stearns Cos., the fifth-largest U.S. securities firm, and its takeover by JPMorgan Chase & Co. heightened concern that some of the largest financial institutions are at risk. Lehman Brothers Holdings Inc., the No. 4 U.S. securities firm, raised $4 billion from a stock sale this week to quell speculation it's short of capital.
UBS's $19 billion writedown in the first quarter compares with shareholders' equity of 42.5 billion francs at the end of 2007. The year-end figure doesn't include the funds raised from Government of Singapore Investment Corp. and an unidentified Middle Eastern investor last month.
Standard & Poor's cut UBS's long-term counterparty credit rating by one level to AA- this week and said it may lower the rating further after ``risk management lapses.''
Most `Valuable' Unit
UBS, with about 2.3 trillion francs in private-banking assets, said clients in Switzerland withdrew funds in the first quarter. The Swiss redemptions were offset elsewhere and net investments were ``slightly positive,'' Chief Executive Officer Marcel Rohner said on a conference call on April 1.
The wealth management unit is ``the most important and valuable,'' Arnold said in his letter. Separating it from the investment bank, which could be put in a U.K. or U.S. holding company, would still allow UBS to generate revenue from cooperation between units. The operations would all still remain, ``at least for the time being, under one roof,'' he said.
``We are not convinced that the `one bank' integrated business model that has served UBS well in the past will survive the damage inflicted by the proprietary trading losses and the writedowns,'' he said in the letter.
Arnold also proposed that UBS should ``seriously evaluate'' a sale of its Pactual Brazilian unit and the Australasian businesses to raise more capital. Some businesses within the investment bank will also command ``an attractive valuation once markets have stabilized,'' he added.
Losses cost the jobs of former CEO Peter Wuffli, finance chief Clive Standish and investment banking head Huw Jenkins. Ospel was supposed to stand for re-election at the shareholders meeting on April 23 for a shortened, one-year term.
Kurer, 58, who joined UBS in 2001, has been a member of the executive board since 2002. He previously worked at law firms Homburger AG and Baker & McKenzie in Zurich. Ospel told journalists on an April 1 conference call that Kurer was chosen because he ``has a profound knowledge of global financial markets and of course of our bank.''
Kurer headed Homburger's corporate transaction group and worked as counsel on mergers including Ciba-Geigy AG and Sandoz AG and the 1998 sale of British American Tobacco Plc's financial- services unit to Zurich Financial Services.
Arnold wrote that Kurer ``lacks precisely those skills most relevant'' to the board and called for an ```outstanding Swiss banker with proven strategic, risk management and communications skills be brought in as soon as possible.''
UBS expanded its fixed-income operations at the peak of the U.S. housing market, only to join the list of investors burned by bets on U.S. mortgages in 2007.
UBS was among the first stung by the subprime contagion when its Dillon Read Capital Management LP hedge fund, run by former investment banking chief John Costas, lost 150 million francs in the first quarter of last year. By May, following an internal review of the losses, UBS decided to close Dillon Read.
The company posted a 12.5 billion-franc loss in the fourth quarter, the biggest ever by a bank.
When the Walls come Crumblin' Tumblin',,,,,,,,
The "Fab Five" C; LEH; UBS; FNM; FRE and the $90+ Trillion Derivative "Sleeping Giant" JPM!!
By: pelicanbrief114 04 Apr 2008, 03:14 PM EDT Msg. 697046 of 697408 Jump to msg. # Robbing Main St.
To Pay Off Wall St.
Subsidies for those whom have Raped and Pillaged.
The "Financial Bermuda Triangle" remains active, lining their pockets on the backs of the Hard Working Citizenry!!
Friday afternoon Chocolate Martini Lunches on the Beltway, brown bags stuffed/overflow!!
The Assault on Free Markets by Peter Schiff
Those blindsided by the recent financial meltdown are now loudly blaming the free market for its failure to police its own excesses, and are calling for greater regulation to prevent future disasters. But for those who clearly observed the problems developing (in high definition slow motion) the blame can be directed squarely at the policies of the Greenspan/Bernanke Federal Reserve. As has been the case countless times in history, the free market will now pay the price for government incompetence.
In Senate hearings this week, all parties involved completely ignored the Fed’s own culpability in igniting the speculative fever. It’s as if a senior prom had turned into a wild bacchanalia, and angry parents now question why the chaperones failed to notice the disrobing or why the DJ played provocative music, all the while ignoring the bearded gentleman pouring grain alcohol into the punch bowl.
A perfect illustration of the Fed’s failure to take responsibility can be found in Bernanke’s explanations regarding inflation, which he solely attributes to the effects of the rapid increase in global commodity prices. He failed to mention that commodity prices are rising as a direct consequence of his monetary policy, which is debasing not just the U.S. dollar, but currencies around the world. Rather than accepting the blame for creating inflation, Bernanke is shifting the blame to the free market. The Senators are happy to let him get away with it as it provides more evidence to support the “need “ for more government to save the economy from the disastrous effects of unbridled capitalism.
When asked how we got into this mess, Bernanke replied that our problems resulted from an excessive credit bubble characterized by aggressive leverage, reckless lending, and extreme risk taking. Absent from his explanation was the Fed’s role in irresponsibly setting interest rates below market levels, which mispriced risk, got the party started and kept it raging into the wee hours of the morning. The expressed goal of the Fed for much of this decade was, and is, to encourage and facilitate borrowing and lending.
During his testimony, Bernanke continued to claim that Bear Steams was not bailed out as shareholders only received about $10 per share. Of course, $10 is better than zero, which is what they surely would have received if the Fed hadn’t thrown taxpayer money around. What about Bear’s creditors though? Although the collapse of Bear Stearns would have cost bond holders dearly, the bailout essentially makes them whole. Here again, the Fed creates even greater moral hazards by encouraging excessive risk taking. By bailing out lenders who extend excessive credit, the Fed simply invites more of that behavior. The free market must be allowed to properly price risk. Lenders need to know that when they lend money, whether to highly leveraged investment banks and hedge funds, or to over-stretched homebuyers or credit card users, they risk not getting paid back. By interfering with this process the Fed simply guarantees more losses and even bigger bailouts in the future.
Also, leveraged speculators need to know that it is not “heads they win, tails the taxpayers lose”. Wall Street executives amassed fortunes by making extremely risky bets. Now that those bets have soured, why is it taxpayers that have to swallow the losses? Wall Street billionaires earn their bucks on the backs of the middle class, who made little on the way up, but foot the entire bill on the way down.
While Bernanke talked about the underlying strength of our economy, he claimed necessity in saving Bear Stearns from bankruptcy as it would have brought down our entire financial system. How sound can our economy be if the failure of one investment bank could topple it? Does this now mean that no more major banks or brokerage firms will be allowed to fail? Since we routinely accused Japan of practicing “crony capitalism” what do you suppose we should call our version?
Not to be outdone in rewarding reckless behavior, earlier in the week Congress passed $15 billion in tax breaks for homebuilders, who had made their fortunes overbuilding during the bubble and unloading their shares to a gullible public. By threatening to hold back on their political contributions, these same homebuilders are awarded still more billions. The last ones we should be subsidizing are homebuilders. After all, the last thing we need right now is more homes.
The legislation also contained a provision that offers generous tax credits to individuals who buy homes out of foreclosure. While this is billed as a benefit to homebuyers, it is just another hand out to lenders, as those qualifying for the tax breaks will simply pay more at auctions as the tax breaks subsidize higher bids. The real winners are the creditors who get more in foreclosure than would have been the case had buyers not had their bids subsidized by the government.
Of course, for all the talk about taxpayer bailouts, none of the senators bothered to mention that, for the moment, no tax increases are actually on the table. Instead, the bailouts are being financed by savers, pensioners, wage earners, investors and the elderly on fixed incomes, who all suffer staggering increases in their costs of living, as the Fed uses inflation to rob Main Street to pay off Wall Street.
By: pelicanbrief114 10 Apr 2008, 04:46 PM EDT Msg. 702067 of 702079 Jump to msg. # The Bates Motel
The "Master of Disaster" (MOD) lives on.
World-wide Fiat currency debasement persists.
Global Hyperinflationary pressures.
Tremors;Brushfires;After Shocks; CONtagion.
Mr. Magoo and "The Beard" one in the SAME!!
Bernanke and Greenspan Live in the Bates Motel Max Keiser
Bernanke can't deny Greenspan's murder of the U.S. dollar because Bernanke is Greenspan.
Put aside for a moment the Federal Reserve Banking system's impairment of free-market capitalism with its supply/demand override of the price discovery mechanism when it artificially, (and for the most part arbitrarily) sets interest rates at levels that only a command-and-control soviet era member of the politburo could love.
If you want to understand why the US dollar is doomed, what drives current Fed policy, Alan Greenspan's recent veiled mea culpa in the Financial Times on April 7 ("The Fed is Blameless on the Property Bubble"), and the current global market meltdown, keep in mind Alfred Hitchcock's Psycho, but with financial derivatives instead of carving knifes.
Greenspan is Mrs. Bates, the mummified corpse sitting in the attic of the Bates Motel; her transgressions (Greenspan's embrace of the so-called "New Economy" in the late '90s) have incensed protege Ben Bernanke (Norman Bates) who feels betrayed and erupts in homicidal interest rate slashing tirades. Caught in the middle is the living embodiment of the U.S. dollar, Marion Crane (Janet Leigh).
Greenspan is supposed to be effectively dead and hanging out at Davos with Bono and Geldof ogling Sharon Stone and supporting third world dictators embracing American style Caligula Capitalism, but he's undead. He's a walking Fed mummy whose ghostly voice can still be heard. In his April 7th, Financial Times letter he writes; "I do have an ideology. So does each member of the forum. I trust our views are subject to the same standards of evidence that apply to all rational discourse. My view of the the efficiency of global capitalism has evolved over the decades as new evidence has appeared contradicts some earlier judgments and confirms others. I have been surprised by the fierceness of investors in retrenching from risk since August."
Translation: Everyone is entitled to their own wrong opinions, but I'm still not taking responsibility for my screw ups when I drank dot-com "New Economy" Kool-Aid and forced interest rates "irrationally" low (compounding the error by also inflating the real estate bubble). But hey, I was eying Washington D.C. hottie Andrea Mitchell so I needed some NASDAQ street cred. When it turned out I was completely wrong, I got nervous about my own monetary situation so I started promoting Bush's smash-and-grab tax cuts and my banking buddies' predatory Adjustable Rate Mortgages. Maybe I did turn the entire global economy upside down and shifted economic power from America to the Mid and Far East. Maybe I did force global inflation higher, and global wages too, to the point of imploding the U.S. banking Ponzi scheme (and the U.S. dollar) faster than Building 7 on 9/11. But don't blame me for the credit seizure, blame those bankers at BearSteans who aren't peddling fake bonds anymore and blame the Americans on bread lines who aren't buying fake mortgages anymore. I'm blameless. Ask Queen Elizabeth II, she knighted me.
Contrast this with Bernanke's recent testimony before Congress: "A recession is possible."
Translation: A recession is here.
Enter Marion Crane. She works as a secretary in a bank. She dreams of flipping her mobile home for several million dollars. As far as she's concerned, there's nothing to worry about as she pulls into the driveway of the Bates motel.
She's carrying a $40,000 wad of cash (an inflation adjusted $300,000) that she extracted (stole) from her banker boss and his rich client, a clownish real estate developer (think Jimmy Cayne and Donald Trump). Her idea is to use the $40,000 as collateral to buy 40 billion dollars worth of Dow stocks and maybe the Bates Motel itself in a leveraged buyout.
In the famous shower scene, Marion is hacked to death by Norman "Bernanke" Bates, the cross dressing psychotic twin of Alan Greenspan who can't control long term interest rates from raging. Marion's liquid net worth (blood) is washed down the drain; mixed in with a massive credit expansion raining down from the open Fed spigot (the Fed's various multi-hundred billion economic stimulus packages -- also going down the drain).
How does this horror show end?
Marion sister's husband Sam Loomis (John Gavin) investigating Marion's disappearance saves Marion's sister Lila Crane (Vera Miles) from lethal, unregulated derivatives wielded by Bernanke as he tries to debase the currency with more credit expansion and bloodletting. In the remake Sam is played by Paul Volcker.
Forensic psychiatrist and accountant Dr. Fred Richmond (played in the remake by Peter Schiff), explains to the Chinese authorities, who now own most of America, that Greenspan, though effectively dead, lives on in Bernanke's psyche so he fights inflation by psychotically easing credit and printing more worthless U.S. dollars. The result is rising commodity prices and global starvation. Rising commodity prices are not the cause of inflation, but merely a symptom of the true cause of inflation; loose Fed policy, the very thing Greenspan-Bernanke were supposed to avoid, Schiff explains. By trying to save the U.S. economy, they killed it.
In the meantime; this just in...
NEW YORK (MarketWatch) -- The Federal Reserve is exploring backup options to extend its lending power in case the recent plans it has implemented to loosen the credit markets are unsuccessful, The Wall Street Journal reported on Wednesday.
These backup plans include having the Treasury borrow more money than necessary to fund the government and keep the excess proceeds on deposit at the Fed; issuing debt under the Fed's name instead of the Treasury's; and asking Congress for authority for the Fed to pay interest on commercial-bank reserves instead of waiting until a previously enacted law permits it in 2011, the report said.
By: pelicanbrief114 14 Apr 2008, 08:51 AM EDT Msg. 705040 of 705248 Jump to msg. # The Ballgame continues to
Play itself out.
Despite numerous Storm Clouds, flash Lightening Bolts, and periods of Downpours where tha "Tarp" has been rolled out on several occasions, tha "Game" moves on from inning-to-inning in this continuous $ 600+ Trillion Global Derivative "Unwind".
While mainstream media, both print and Bubblevision remain committed in portraying an "End is near; All is Fine and Dandy" atmosphere/mood (7th-8th inning)in order to placate the masses/public and prevent widespread dislocation/emptying of the stands, we continue to witness further derioration throughout the Financial landscape, not to mention growing concerns with respect to Hyperinflationary pressures (Global Food shortages prompting Global Civil unrest etc....).
Based on the forthcoming Mortgage "Resets" in the offing, numerous landmines that continue to grace the landscape, as well as Systemic Global Failure/Seizure/Gridlock/Insolvency throughout the financial structure, the "Game" remains in the very early innings.
So much so, that we continue to ponder whether the "Manager" has enough healthy arms in the bullpen in order to witness the seventh (7th) inning stretch without depleting its arsenal of Pitchers? Stay tuned!!
Thus, while one picture (Game) is presented for perception purposes, an entirely different picture (Game) evolves.
So, where are we in this "sloppy" field filled with errors and past balls?
From our perch, it "appears" that we are merely entering the Top/Bottom of the third (3rd) inning and yet once again, the "Manager" is making his way to the mound signaling for the "Lefty".
By: pelicanbrief114 15 Apr 2008, 02:14 PM EDT Msg. 706003 of 706026 Jump to msg. # It Appears as though
The Fed has opened the "Window" in today's action, whereby the following has transpired on the Desk:
$ 62.85 BN in Mortgage Backed Paper (Toxic?) Submitted with $ 20 BN Accepted on a 28-Day Repo operation.
Additionally, the Desk has entered today's trade with $ 18.5 BN in 1-Day Temporary Repo's for a grand Total of:
$ 38.5 BN
What we find interesting is, that the Auctions (TSLF's) have been defined as occurring every 2 weeks, yet we can clearly derive that with today's activity, the Boyz are active, as well as taking action for the second consecutive week.
The following is a glimpse of last week's ( Tuesday 4/8/08) maneuvers:
$ 62.65 BN in Mortgage Backed Paper (Toxic?) Submitted with $ 20 BN Accepted on a 28-Day Repo operation.
Additionally, the Desk entered trade with $ 14.75 BN on a 2-Day Temporary Repo for a grand Total of:
$ 34.75 BN
Therefore, while we have witnessed the "Thursday Trend", in which heavy doses (Trillion$$$$) of Temp Repo's were fueled for the past several months (7) in order to "Liquify" the system heading into the weekends, it now appears that "Tuesday's" are the "Bearded One" and his Henchmen's day of preference.
Further interestingly, we have witnessed two (2) 400+ point DOW sessions over the course of the past several weeks occurring on Tuesday's as well.
The "Floodgates; Spigots" are wide open and flowing!!
Global Debasement/Destruction of Fiat currency's persist (Highly Inflationary) with very viable/potential consequences of Global Hyperinflationary pressures.
Remember, escalating/surging prices in Food; Energy; Utility; Health Care; Tuition etc.... are merely the "By-Product" of the excessive creation (Inflation) of "Junk" paper representing nothing short of an I.O.U.!!
By: pelicanbrief114 16 Apr 2008, 11:32 AM EDT Msg. 706927 of 706975 Jump to msg. # This just about
Covers it all.
Liars, Wall Street & Your Gold Jim Willie CB
Few seem to remember that Wall Street is not a non-profit community driven by altruism or any sense of service. They would gladly cheat you out of your entire life savings if their actions were legal, or at least not prosecuted. In the last two to three years, the lies, deception, misdirection, false reporting, corruption, and grand fraud will be the topic of historical accounts for decades. When returning on my flights from another successful Cambridge House gold conference, this in Calgary Alberta, many thoughts came to mind, jotted down while gazing at the natural beauty made up from cloud blankets with a sun guarding its lot. The sun and clouds care not at all about economic landscapes underneath, even if in turmoil. Whenever travels take me across national borders, nationalism, idealism, culture, and dreams come to mind. It seems pursuit of truth, clarity, and integrity has become negotiable, one and all in the United States. Its people are being stripped of so much. Perhaps this layout will be helpful. Routinely such matters are covered in the Hat Trick Letter reports. Gold & silver continue to do well to protect individuals and their wealth. Banks are no longer safe, an astonishing conclusion. Bonds are not safe, and neither are money market funds!!!
USGOVT ECONOMIC STATISTICS It all starts with outright doctoring on a chronic basis by the USGovt, to the point that the vast majority understands and accepts the practice. Therein lies the foundation for the system extending the institutionalized dishonesty of the nation, carried further by Wall Street as it endorses the doctored statistics routinely. The fish rots from the head down, Wall Street being the blood system, the economy the torso. Put your full faith in accurate economic statistical gathering with the Shadow Govt Statistics crew led by John Williams. No, not the man of Boston Pops musical fame, the other guy. The Gross Domestic Product has been running negative in growth except for a couple quarters five or six years ago, now about minus 2.3% or so. The Consumer Price Index has been accelerating lately, now at 11.8% and still climbing. People do eat food, and people do require energy, so please no need to remove them from calculations. The unemployment rate has been also rising lately, now at 9.8% or so. If out of work, then unemployed, that simple, so no need to talk about participation or discouraged workers by the goofy methods in the Bureau of Labor Statistics. The Birth-Death Model is another colossal fraud. Good thing few know what it is. The lies can choke a horse. Motive is clear, to present a picture of strength to sell stocks and government bonds. If the real CPI was widely known to be over 10%, both USTreasurys would suffer declines and gold would be pushed to the heavens.
USDOLLAR REBOUNDING... NOT !!! The USDollar has been trying to rebound for a month. Past USDollar charts offered in my analysis have entirely focused upon weekly charts. The daily chart over just the past six months is highly revealing. In the last two months, the 20-day moving average has served as stiff upside resistance. The stochastix show difficulty in staying above the 50 midline, a sign of weakness in the rebound attempt. With growing federal deficits, widening trade deficits, an underwater banking capital core, and rising homeowner negative equity, the US financial fundamentals resemble a banana republic on four primary pillars, unworthy of any currency rebound. The pair of 20-day and 50-day moving averages are still declining. Look for a breakdown to 70 and below in the next several weeks. The downtrend is stronger than any newly formed basis for a bottom bounce. The impact on gold will be to send it over the 1000 level again, this time as floor support for the summer advances. The next USFed rate cut could be the impetus. A game of chicken is being played by the Euro Central Bank, which refused to cut rates since last summer.
OIL PRICE WILL FALL AS USECONOMY SLOWS Nice thought, but the US is not the engine of global growth anymore. Asia and the Middle East are the wealth centers, where trade surpluses accumulate. Whatever slack in US demand, Asian demand will grab it. Besides, incremental growth in Brazil, Russia, India, and China (the BRIC nations) is associated on a decreasing level with their exports to the US. The crude oil price is surely determined by equilibrium in supply & demand, however, the entire curves are altered by the falling USDollar. Wall Street cannot seem to admit in its mouthpieces that the USDollar will keep the crude oil price high, and demand from growing emerging economies will prevent much of any price drop from a weaker USEconomy. The entire claim smacks of US arrogance. With the crude oil price hitting $114 per barrel, will Wall Street firms drop their 2008 call for relaxation back to the 80-90 level? Doubtful. Sponsored (ordered?) attacks of hedge funds with cutbacks in credit and margin calls did nothing to bring down the crude oil price.
US BANKS HAVE SEEN THE WORST NEWS This is not even close to being true, addressed in a previous recent article. Housing prices are accelerating down, driven by some degree of capitulation on price. The high level of inventory continues to be aggravated by more home foreclosures. Anecdotal evidence supports this, as February prices were a quantum level lower. Hired home processors working on the behalf of bankers and lenders simply gave up. They want to move inventory, period. Again, the point must be repeated until it happens. The Exploding ARMs, the prime adjustable rate mortgages with negative amortization option features, they will begin failing this summer as they reset. When the rising loan limit is hit, the monthly payment doubles or triples! The phenomenon of walking away from mortgages has worsened lately. US banks will suffer wave after wave of losses. The new US Federal Reserve lending facilities are a certain help, but not a cure. The banks are suffering from colossal strain in negative capital core, a situation growing worse by the month. Their capital has melted down completely. Their status will eventually become worse than Japan's from 1990.
CONTAINMENT OF SUBPRIME This was the wrong deceitful refrain last autumn. My analysis refuted it steadily, calling the problem one of absolute bond contagion. The totality of spread risk to the entire global banking system is now finally recognized. The subprime infection has spread to asset backed commercial paper, to prime mortgages, to commercial mortgages, to municipal bonds, to car loans, and to credit card loans. European, English, and Asian banks are all affected. Perhaps the so-called experts were simply wrong in their claim of containment, but doubtful. Most likely they were a combination of liars and incompetents.
NO SPILLOVER TO OVERALL ECONOMY This is an ongoing refrain, another cartload of bull cookies. Since the claimed economic expansion began in 2002, the boast was that the financial sector lifted the entire USEconomy. But now, with strain, pain, and no gain on the financial side, we are told to believe no spillover. When is there EVER no spillover from financial to economic? Never! The connection is obvious, as companies, households, and individuals are increasingly frustrated with blocked loans. Approval of loans is a major challenge. Reduced economic activity is the immediate result. The fact that negative GDP statistics have not been registered yet, only means not yet. Besides, there is an integrated 4% to 5% lie in the GDP anyway. A negative official GDP means a 5% recession, which is horrific.
TURNAROUND IN SECOND HALF Once more, we hear this desperate refrain. When it hits my ears, it hurts them. This is the most desperate of claims, used recently by USFed Chairman Bernanke. It is also used by Wall Street firms. The USEconomy is at the tipping point, almost negative on even the official GDP. The US corporate profitability is also at the tipping point, almost negative after losing its growth. The second half of the year is far enough away, that it is not within quick reach. The second half of the year is far enough away, that if the turnaround fails, most people will forget. This is a standard con, woven in desperation. The words 'Second Half' should evoke laughter, nay, guffaws.
LIMITS ON MORTGAGE RELATED LOSSES Last late summer, Bernanke spoke publicly about an estimated $200 billion in total mortgage portfolio and bond losses. My estimate was $2000 billion, as in $2 trillion. Any such similar estimate of this magnitude by a person in a prominent position would have evoked fear and trembling. So the ratcheted estimate technique has been deployed. The estimates now have finally reached $1000 billion, from more than two or three corners. With the next prime Option ARM wave of failures, the estimates will move toward $2 trillion. Again, the purpose of Wall Street and USFed pronouncements is not accuracy, but control of the people so as to avert panic. Boil the frogs slowly.
USFED ROLE: STABLE EMPLOYMENT, MINIMAL INFLATION This is a tragedy. The USFed in my view operates as the Dept of Inflation, accountable to nobody, certainly not their employer, the US Congress, which uses them as contactor. The USFed attempts the unattainable, to control inflation when they unleash it, or permit it. Their task is akin to herding cats. They in no way regulate credit growth, since they encourage it actively. The inflation directive is an absolute heresy, since inflation is the USFed's raison d'être, their reason for being. Maybe minimized perceived price inflation, or officially stated price inflation, those are their purposes. They manage the inflation machinery, an unmanageable task. They unleash the monster, and apologize periodically for failure to control that monster. They mop up their own messes, but are regarded as saviors. They are looked upon to save the system, after they contributed principally to the destruction of the system. As for employment, the tragic outcome of inflation is lost jobs on a massive scale. Chronic inflation lifted US wages to an uncompetitive level. Failed banking systems and lending apparatus is killing jobs by the millions. The entire US Federal Reserve is a failed institution. It seeks greater powers after ruining the national financial structure!!!
GLOBALIZATION KEEPS THE US STRONG After four decades of chronic inflation, the US was extraordinarily vulnerable to competition from Asia. In the 1980 decade, immediately after the near death experience of mighty Intel Corp, the dispatch and abandonment of US manufacturing began. Japan and the Pacific Rim began a long expansion that continues to today. In the 2000 decade, the refrain was to pursue low cost solutions. How is that working out? A disaster for the US, as China has morphed from a partner to an adversary, precisely as my analysis forecasted in 2004 and 2005 articles. Trade friction is still an issue. Globalization was critically important to maintain profitability of US multi-national corporations. In that respect, globalization keeps the US strong. As it applies to US workers, globalization is a wrecking ball, destroying jobs, destroying livelihood, undermining families, ruining dreams, gutting the US middle class, producing poverty in its wake. The entire Globalization movement has been described by some as a rather global socialist concept, in pursuit of a global level field.
BANKS RESUPPLYING WITH FRESH CAPITAL Insolvent US banks are not bringing in new capital. They are selling bank capital in return for desperately needed cash. They sell stock and bonds. Their core assets have eroded so badly from failed mortgage related losses, that they must sell equity capital and securitized debt so as to resupply their core with cash. The challenge for US banks is to dilute themselves with additional equity, as they bring in new cash, which brings down their stock prices. Some recent actions by smaller lending institutions was to double their stock share count, a 50% immediate dilution. Without this radical dilution, their insolvent state will lead to difficulties, like running out of cash liquidity. At that time, they must declare bankruptcy.
BEAR STEARNS WAS BAILED OUT, HUH? If so, they why are they dead? Why are half of their employees losing jobs? Why are their employees losing life savings? Why was its office building set for a fire sale? No, Bear Stearns was raided, its assets taken by its main creditor, JPMorgan. This was a clear case of JPMorgan being bailed out by the USFed, in order for its credit derivatives not to blow up. JPM cut off Bear Stearns on credit, and killed them with the blessing of the USFed and credit extended by the USFed. They averted a blowup of JPM that would have been an order of magnitude more disastrous than the LongTerm Capital Mgmt fiasco of 1998. In fact, the story is worse. By endorsing the raid, the USFed has given a green light for any bank or investment bank to raid any competitor or client that does NOT have access to USFed lending facilities. Some call it Fed Lending Arbitrage. We are therefore witnessing an ugly extension to the Mussolini Fascist Business Model toward a consolidation phase of mega bankers. If a competitor or client threatens a big banking institution, conspire with the USFed, deny it credit, raid its assets, and kill them. This is street fighting in three pieced suits.
CONSUMPTION IS BACKBONE OF US STRENGTH This lie is being laid bare nowadays. The USEconomy does not save, but rather spends. Now with difficulty spending, since credit is tight, the system is grinding in a horrible slowdown. What happens to spenders when their inflated assets start to deflate? They declare bankruptcy. They suffer the indignity of home foreclosure. They lose their jobs. They move into homes of their parents. They might even move into tent cities. Try a Google Search of 'Tent Cities in the US' for a shock. Ontario California is the biggest one in the United States. They will spring up in most major US cities before long. No, consumption breeds poverty, not prosperity. The process went so far as to encourage conversions of home equity into spendable cash. People burned their furniture, to fund their lifestyles. Now almost 10% of US households have negative equity, with more owed on loans than their homes are worth. Consumption fails the system on the macro economic level, and on the micro household level.
WALL STREET AS ENGINE OF CAPITALISM The last few years should teach any open-minded person that Wall Street exploits the system, rather than invigorates the system. Wall Street firms do not simply act as agents to bring capital to expanding young enterprising firms. Wall Street firms also act as agents to defraud large institutions where huge pools of savings used to accumulate. Wall Street firms actively targeted those firms, for the sale of subprime mortgage bonds. The more accurate description is that Wall Street has been an active agent in the inflation game, enabling debt to be sold in the financial markets, whether corporate or government in origin. Wall Street has controlled a monopoly in gathering magnificent fees as it enabled growing companies to pursue additional necessary capital. But also, Wall Street used its position to conduct the largest fraud ever perpetrated by US financial institutions in modern history. In doing so, Wall Street proved not only they are parasites to the system, but protected criminals. They essentially killed the US banking system, by infecting it with toxic assets that to this day continue to choke many processes. Time will tell if they also killed the USEconomy. My forecast is for the longest recession in US modern history, as the housing market endures another two years of decline.
TREASURY INVESTMENT PROTECTION SECURITIES These so-called TIPS don't protect against much of anything, most of all price inflation. If they counter the corrupted CPI index that supposedly measures price inflation, then they too are corrupted. Could the TIPS actually sport a negative yield these days? Ooops, exposed!
THE TRAP OF EXCHANGE TRADED FUNDS The Exchange Traded Fund concept is simple. The application is not, especially when criminal motive is executed, protected by USGovt regulators and Wall Street bankers. Any ETFund managed by a US firm or London firm should be regarded as fraudulent unless proven otherwise. To me, it is beyond disbelief, moving toward shock, that the gold community has not attacked the StreetTracks GLD fund for its fraudulent operations. They fail to comply with their own prospectus. They fail to comply with disclosure. They have successfully diverted plentiful physical demand into a fund managed by JPMorgan. Gold believers have been duped. Every day, one can read of some respected analysts who endorse this ETFund vehicle, despite its fraud. Where is the thought process? If the mafia opens up a neighborhood savings & loan after city-wide thefts, then one should harbor suspicion. The Barclays ETFund for silver, named SLV, is another fraud. Jim Turk of GoldMoney has revealed its highly questionable behavior. Both GLD and SLV have probably been using their gold and silver bullion to short gold and silver for a few years. These vehicles keep down the price of gold & silver, or at least neutralize money invested in them in terms of the metal prices. The precious metals community has been hoodwinked, still happening sadly. The gold community does a great job in researching and scrutinizing the track record, competence, and integrity of management when examining a stock for a mining firm, but not for ETFunds like GLD and SLV. Very strange and inconsistent usage of gray matter in my opinion. The Hat Trick Letter provides a special report on this controversial topic in February, with past coverage in the April 2007 report last year.
GOLDMAN SACHS & THEIR 2008 GOLD CALL In November 2007, when gold was between 710 and 730, Goldman Sachs released a research paper that gold would endure the 2008 year marked by the gold price being flat or down. The report brought laughter to my desk. My immediate thought was that GSax had put a big long position on gold, expecting a big price upward move. In fact, in the previous few months, GSax had covered their entire short gold position on the Tokyo Commodity Exchange (TOCOM). That is about as bullish a change as possible. Yet the US press announced the GSax negative gold opinion without much minimal research. Gold promptly shot over 800 in early January, and then jetted over 1000. It is consolidating in the lower 900 levels lately. How was that GSax call after all? Not only lousy, but motivated to deceive in my opinion. GSux has a long history of such intentionally deceptive but useful calls. They are not a non-profit firm. They are never held liable for lies. They are agents for the Dept of Treasury. They are accused of front running many USGovt sanctioned market rescues ordered by the Working Group for Financial Markets (aka the Plunge Protection Team). They are above the law.
IMF & SWISS GOLD SALES In summer 2007, the Swiss National Bank announced they would sell 250 tonnes of gold bullion. The gold community shrieked. That much supply hitting the market would surely send the gold price into a plummet. Not so! The Swiss did not sell that much. In fact, it is unclear they have that much gold to sell at all. The mere announcement was actually bullish for gold, a sign of central bank desperation. Why talk about selling if they could actually sell? In the last couple months, a similar situation has arisen. The Intl Monetary Fund has announced another huge gold bullion sale. They are under budget strain, in need to raise cash to maintain operations. The gold community shrieked! That much supply hitting the market would surely send the gold price into a plummet. Not so! The IMF was doing the European Central Bank's bidding. Since member ECB banks have run low on available gold bullion to dump on the market, the IMF ran the story. Again, this is desperation. Since the Swiss made their announcement on gold sales, the gold price has risen over 30%. These groups see a $1500 gold price coming, and a global gold bull market gaining momentum, acceptance, and publicity. They are running scared.
WARREN BUFFETT & HIS SILVER FUMBLE This title could also be "GOLD EARNS NO YIELD" instead. But my choice is to highlight the deception of popular Warren Buffett, who with 90% likelihood lied through his teeth two years ago. A common deception theme circulated by the lapdog press is that gold metal investment earns no yield, no income, a virtual dead asset. How are debt securities doing these days, the ones that offer 5% to 8% in yields? The lesson with mortgage related assets is that yield matters little when principal suffers big losses in value. Exactly. That is why gold is a good investment, up in value considerably in the last few years. The Buffett story on his silver fumble involved an important story within the story. No deep inclusion of his relationship with Hank Greenberg of AIG will be provided. Greenberg found himself in trouble, but has influential connections. Hank and Warren are close friends. What follows is my conjecture, knowing the potential and knowing the extremely likely learning curve extended from Hank to Warren. AIG is part of the gold cartel, which keeps the gold price down by usage of the illicit gold futures contract game. Buffett owned in Berkshire Hathaway 129 million ounces of silver, bought under $4 per ounce a long time ago. He boasted of the smart buy. It did not just sit idly. He earned a yield off the metal position by selling forward contract options. This is no different from selling option calls on forward contracts for Cisco Systems or General Electric. The practice earns a yield, an income stream, sometimes hefty. The risk is that the price moves up too fast, and the holder of the options (other guy) exercises the right of taking your stock, or in Buffett's case the silver bullion, at the option contract price.
My guess is Buffett sold option calls at a $7 price when silver was selling at a $5 price. The silver price moved up rapidly, to his surprise. That left him with two choices. He could buy back the contracts, his sold options calls, at a big loss. Or he could permit the option contract holder to call away his position, selling to that party for the contracted $7 price. The first choice would mean announcement of a loss to Berkshire Hathaway holders, who would naively expect a profit from silver going from $4 to $9. An open admission like that would have exposed Buffett to criticism for mismanaging a silver position, but more importantly, for bringing attention to how silver metal DOES earns a yield. He made the cowardly second choice. He said to his shareholders, a bold lie in my view, that he sold his silver position too early. He did not sell it willingly. He sold it from exercise of a failed option call, written calls, used widely to earn income, like a dividend yield, a standard practice. Buffett did not understand the silver market. More could lurk behind the scenes to this story. Buffett might have been forced to sell his position, to satisfy Greenberg and his cartel buddies, who were desperate to find sufficient physical silver during broad shortages. Greenberg was under investigation for fraud. Buffett might have been involved. Buffett might have wiggled out of trouble by giving in to the regulatory authorities, letting his silver position be sold to help supply. We may never know the truth. My version is much more credible than Warren's, that he just sold too early. Nonsense!
BERNANKE HELICOPTER DROPS OF MONEY So far, the fleet of helicopters is more like a fleet of UPS vans making money drops to Wall Street bankers, not the public, in corporate banking socialism. The USGovt measly stimulus plan is a total joke, sending $600 to $700 to each taxpayer. Bernanke seems to have changed his playbook. He seems to have a deep motive to strangle the overall USEconomy, while filling banks with lent money or refunding AAA-rated bonds with USTreasurys. The helicopters are absent. A giant funnel has been opened to pour money into the elite banks. Loans to ordinary folks are hard to obtain. Refinanced loans are next to impossible, especially when either negative equity is involved, or a second mortgage is tied to the property. A grand disparity exists, as the M1 cash money supply struggles to avoid negative growth, while the broad M3 money supply threatens to grow at an annual 20% rate. The fat cat bankers are receiving the attention, not the homeowners whose equity is burning fast. The Fascist Firemen have the wrong priorities. The collection of US homeowners is too big to fail, not corrupt Wall Street firms whose demonstrated fraud to this day goes without prosecution. Civil and other lawsuits might be the only justice that comes. Plow under the failed bankers. The practicality of allowing banks to dissolve when they hold credit derivatives will not be permitted. Too bad homeowners don't all hold massive credit derivatives.
GEOPOLITICS HOT BUTTONS This is not the proper forum, but a brief comment is warranted. Weapons of Mass Destruction were obviously a ploy to justify the Iraq War. Talk of crude oil in Afghanistan, or oil pipelines, was also nonsense to justify another war front. The history of Afghanistan is replete with heroin, not oil. Nothing has changed. The terrorism charges seem to offer cover for both cushy private military contracts and security equipment contracts. The terrorism card also clouds the entire seizure raids of an entire nation's oil treasure, in Iraq. Never mind that Iraq has a horrendous history. Now the United States has a marred history. The USGovt in the last few years has openly defied NATO treaties. Placement of missiles in Eastern Europe receives almost no criticism in the US press, even though in violation with another Russian treaty in the aftermath of the Soviet Union demise. The recent summit meeting between chess player Russian former president Putin and the US president, who lacks broad expertise, was replete with deception. On the resort off the Black Sea, the two met a week ago. The press reported only on missile deployment discussion. The entire meeting was arranged to defuse the threatened attacks by the US Military upon Iranian nuclear facilities. For the whole month of March, Russian dignitaries had been dispatched to the White House on the matter. US presidential elections come within months. The time for action is nigh in the view of the current lame ducks. The Black Sea meeting was about Iran and US plans for action. They undoubtedly discussed Iran's recent request for inclusion in the Shanghai Coop Org (SCO) designed for security and cultural sharing. SCO is led by China and Russia, who would clearly offer military backup to Iran. The press deceived on the entire meeting. No mention of SCO was given in the US press, which in my view is nothing but a national apparatus for public address, crowd control, and shaping of public opinion.
By: pelicanbrief114 17 Apr 2008, 10:28 PM EDT Msg. 707968 of 708202 Jump to msg. # The Anatomy of the "Shakedown" of
OPM (Other Peoples Money) courtesy of the Pimpss/Parasites draped/masquerading in Pin Striped Suits.
Heads we win; Tails You lose!!
Quants and Wants!!
"The Bearded Bosom"!!
The Gulag Wealth Fund and Toll Booths in Outer Space Max Keiser
Hedge fund managers who pay themselves billions are not 'making money' as most people understand that phrase. The cash they take is actually being carved out of the system; and this is no stray cash -- this is support cash. This is cash that should be employed to prop up America's financial infrastructure -- and one reason the U.S. dollar and U.S. economy is imploding is that vital cash meant to buttress banks' reserve requirements and to support bail-out agencies like the FDIC and other stop gap measures is being drained away by parasites in suits who read "Alpha" magazine. If given a chance these guys would have happily, with little or no margin requirements, securitized concentration camps in Germany and traded "Death Collateralized Gulag Bonds."
'Making money' in the hedge fund business is easy if you are willing to take the consequence of disenfranchising an entire country in stride and watch your fellow countrymen die in the mud as we're seeing now with tent cities and bread lines popping up faster than Fed hand outs to robo-crook investment banks who cry like babies whenever they have a losing bet -- until Ben Bernanke disrobes (reduces reserve requirements) and lactates a fresh dose of virtual Fed milk. But who'll bail out the Fed as the Fed has now become, thanks to Hank Paulson and B.Benanke, a giant hedge fund (who ultimately will rely on Saudi tit to recapitalize America in Asia's image).
Technically speaking; how do hedge'ees 'make' their money? For the most part; these funds don't take directional positions in the sense that Warren Buffett takes a position in a stock and holds it for 5, 10, 20 years and hope it goes up.
These funds take simultaneous two-direction positions; arbitrage positions with the help of computers that pinpoint gaps in the market -- securities that are mis-priced. Then they exploit these mis-priced gaps for gains using scads of borrowed money (from U.S. tax payers ultimately). Example: two bonds that should have the same yield don't because the system is out of sync; a fund may buy one 'leg' of the two-way bet and sell the other 'leg' locking in the 'spread.'
Presumably, if these guys found a gap in the insulation on the Space Shuttle they would hold off on reporting it and would instead make huge, leveraged bets on whether or not the Shuttle would blow up. If they are right, they keep the money and pay themselves billions. If they are wrong, they get bailed out of the losing position by Bernanke's ample bosom -- and still pay themselves huge bonuses. America is collapsing because fund managers like it that way. It's the easiest way to 'make' money. And their tyranny is financed by a corrupt Fed and U.S. Treasury.
On the subject of America's gulagwealthfund.com economy.
Those spy satellites the Pentagon is putting up are nothing but toll booths in outer space. The whole initiative to wire up America for 'security' reasons will do nothing for security, but it will make it easier for the military-nickel-and-diming-complex to pick Americans' pocket 24/7. Credit card tracking, RFID tags, mobile phones, pat downs on the street without probable cause, bank record examination, Facebook and MySpace hacking; it's all aimed toward one goal. Shake down. The government-banking axis of oil and credit addicts have hundreds of trillions of dollars worth of bogus derivatives in play; hundreds of billions in bad debt to work out, billions in bonus money to pay themselves, millions of NGO workers to surveil, thousands of lobbyists to pay and hundreds of corrupt government officials in various countries to keep stocked with weapons and the complete works of Milton Friedman.
How to pay for all this, now that America's savings are all gone (gone negative for two years now -- not since the Depression has America's saving rate been negative for two years). Say hello to the 24 hour surveillance state revitalizing thousands of pesky laws that are on the books but seldom enforced, due to the cost inefficiency of enforcing these laws. They will reemerge like Night of the living Warrants. Suddenly the satellite will catch you parking 5 inches too far from the curb, j-walking, using copyrighted words and phrases in emails unlawfully -- and the fines will be garnished from you bank accounts with zero recourse for you except to speak out, but then you'll get put on a no-fly list and become an American untouchable. Better to just grin and make believe someday America will get its democracy back.
By: pelicanbrief114 18 Apr 2008, 10:41 AM EDT Msg. 708278 of 708319 Jump to msg. # A Throwback to
A bit of History.
Where were YOU Mr. Magoo and the "Bearded One"?
Orchestrated/Implemented by the Cartel with a little help from The Boyz!!
Whatever happened to Glass Steagall??
The "Shattering" of the Glass Wall!!
LTCM IS/WAS a spec relative to today's Conundrum!!; Possibly the understatement of the Year?
First step: Fire the Fed Fred Sheehan
Treasury Secretary Hank Paulson has proposed the Federal Reserve be given broad powers to regulate the financial industry. He could not have nominated a more incompetent body. The Coast Guard would do a better job.
Financial upheaval owes homage to derivatives that shrouded the massive growth in debt and leverage. This murky world inflated the incentives of those who ran the machinery over the cliff — bankers, mortgage brokers, law firms, appraisers, rating agencies, politicians, and on it goes. This is well known. Despite protestations, the parties knew they were behaving either recklessly or criminally at the time. The Federal Reserve encouraged them.
With a straight face, Hank Paulson proposes that the Fed quash future imbroglios. Yet the terracotta soldiers of Xian would bring more initiative to the assignment.
In September 1998, the Federal Reserve didn’t have the slightest idea of how the banking system functioned; it hadn’t the slightest idea of the banks’ exposure to hedge funds; nor had it the slightest idea of the leverage within the financial system. Maybe these deficiencies are excusable, although the Federal Reserve was responsible for regulating bank holding companies (the holding companies being where much of the risk was housed). It is unpardonable in the aftermath, having learned of its own deficiencies, that the Federal Reserve made no effort to improve its oversight or to warn of the dangers it had recently discovered. Instead, the Fed encouraged devious practices.
In the first three weeks of September 1998, Long-Term Capital Management (LTCM), a Greenwich, Conn., hedge fund, lost half a billion dollars per week and everyone knew it. Except, possibly, Alan Greenspan. In mid-September, the Federal Reserve chairman told the House Banking Committee that “Hedge funds [are] strongly regulated by those who lend the money.” On Sept. 21, LTCM lost $550 million. In a virtuoso rejection of every financial institution’s model, all security prices went down. This is normal. In a panic, everyone sells.
The Fed’s lackluster oversight was partly to blame. On May 2, 1998, Alan Greenspan gave a speech in which he emphasized the advantages of “private market regulation.” Greenspan explained, “Rapidly changing technology has begun to render obsolete much of the bank examination regime established in earlier decades. Bank regulators are perforce now being pressed to depend increasingly on ever more complex and sophisticated private market regulation… One of the key lessons from U.S. banking history [is] that counterparty supervision is still the first line of regulatory defense.” He also noted the Federal Reserve’s decision to supervise “risk management procedures, rather than actual portfolios.” The Fed now evaluated how banks monitored their own risks (e.g., their modeling techniques, the process used to monitor counterparties) in lieu of examining specific securities.
The Federal Open Market Committee (FOMC) held a conference call on Sept. 29, 1998. The staff and Federal Reserve governors briefed Greenspan on Long-Term Capital Management’s counterparties — the banks that lent to LTCM. He was told that none of the banks, with the exception of Bankers Trust, had an up-to-date balance sheet for LTCM. Even this was “only a small piece of [Bankers’] whole action because so much of the latter is off balance sheet.” When assets are off balance sheet, the bank’s motivation to “strongly regulate” is diminished.
The Federal Reserve chairman was at a loss: “The question is why it happened in the first place. Is it just that the lenders were dazzled by the people at LTCM and did not take a close look?” Vice Chairman William McDonough replied there “was in place a credit system that made a great deal of sense.” In the next sentence — which simply cannot have been an explanation of this sensible system — McDonough told the FOMC: “For at least some of the lenders, there was no initial margin requirement.” McDonough went on to suggest the Federal Reserve might have taken more initiative: “We do not regulate the firm. But given the number of institutions they dealt with around the world, was there a way that should have enabled us to be more aware of their overall position? One is inclined to say, ‘You bet.’ But exactly how we could have done that I am not so sure.”
This was not the time for the FOMC to design a regulatory apparatus, but the Greenspan Fed never did attempt to fill this gap. In retirement, Greenspan reminds his audiences that the Fed does not regulate hedge funds. True, but the Fed could have worked backward from the foundation that McDonough had suggested. (The SEC is responsible for monitoring broker-dealers. It, too, has failed miserably.) The need for adult supervision of banks was obvious when a staffer commented on the conference call, “It is something of a signature for [LTCM] to insist that if a counterparty wanted to deal with them, there would be no initial margin. Not many other firms have gotten away with that.” For this reason alone, the Fed should have geared up its watchdogs to better monitor the suicidal banking system it regulated.
Another staff member enlightened the FOMC with a frightful prospect: “The counterparties…get comfortable with zero percent margin. But from the [financial] system’s point of view, zero initial margin permits an essentially unlimited amount of leverage. There is no constraint other than the exhaustion on the part of the counterparties.” Greenspan and Bernanke fiddled with their slide rules as financial derivatives grew to 10 times the world’s GDP. In 2007, Bernanke should have known that banks, in a desperate attempt keep dancing, were borrowing at five percent to lend at four percent.
Greenspan was vexed: “It is one thing for one bank to have failed to appreciate what was happening to [LTCM], but this list of [banks without knowledge of LTCM’s positions] is just mind-boggling.” So boggled was the man that the Greenspan (and Bernanke) Fed allowed the banks to lever as never before and write $400 trillion worth of derivatives between then and 2008 — without so much as a dollar bill of reserves: Nor a peep that maybe these off-balance-sheet liabilities might bear closer attention.
A staff member described what he had learned on his field trip to LTCM. On Aug. 31, the hedge fund had a $125 billion balance sheet. It also had $1.4 trillion of off-balance-sheet assets. On Sept. 21, when it appears (from the transcript) the Fed first saw LTCM’s balance sheet, its leverage was 55-to-1 and the “off-balance-sheet leverage was 100-to-1 or 200-to-1 — I don’t know how to calculate it.” He wasn’t alone. Greenspan’s “first line of regulatory defense” didn’t know if LTCM was trading interest rate swaps or stolen cars. The models of LTCM’s “counterparty supervision” were so “complex and sophisticated” that the hedge fund’s portfolio had been translated into a Greek salad — gammas, thetas, and epsilons.
For practical purposes, LTCM had no capital by Sept. 29. It was not able to meet margin calls. The hedge fund had not been required to post margin, but was required to post collateral worth 100 percent of the assets it borrowed. Even this looked amateurish. Greenspan, a former director of J.P. Morgan, shared his view: “If I am a bank lender and I lend $200 million to a hedge find, ordinarily, I would be overcollateralized. I would hold more than $200 billion in, say, U.S. Treasury bills.” Greenspan asked if the collateral was U.S. Treasuries. A staffer replied: “U.S. Treasuries, Danish government bonds, BBB credits — you name it.” Beanie Babies were next on the list. The value of LTCM’s collateral was falling. The balance sheets of the banks LTCM traded with were sinking.
A staffer explained the risk: “I’m going to say this in plain English. If markets keep moving away from [LTCM] in the wrong direction, their future exposure could be large and they might not have the collateral at that point in time to cover the exposure.” McDonough had described the house of cards earlier: “The firm’s position in a variety of instruments was very large. What my contacts were talking about was the effect that the failure of the firm would have on world markets if all these positions had to be dumped on the markets. People who thought they had an offsetting position with [LTCM] would suddenly find that they did not have one. They would suddenly find themselves with big open positions…” Globalization might end in a financial meltdown.
A Fed staffer thought the banks “were saying the right things in terms of the kinds of risk management processes they had in place” but “the question is how effectively the banks were actually implementing them…” The Fed staff had not taken the initiative to check. Greenspan was told the Federal Reserve had not examined the banks since December 1997. In Greenspan’s remaining decade at the helm, his bureaucrats produced masterful studies on counterparty risk, but permitted the banks’ risk models to optimize executive bonus compensation.
This is interesting, but not of great utility in 2008. The 1998 Fed weaknesses are important because the molehill grew into a mountain. Greenspan and Bernanke chaired the most egregious administrative failure in financial history. Paulson’s proposal is on a par with Caligula’s decision to name his horse consul.
In March 1999, Greenspan gave a speech on derivatives. He might have wandered onto the podium from Mars. Derivatives “are an increasingly important vehicle for unbundling risk.” He doused the post-LTCM movement toward a better form of regulation: “Some may now argue that the periodic emergence of financial panics implies a need to abandon models-based approaches to regulatory capital and to return to traditional approaches based on regulatory risk schemes. In my view, this would be a major mistake.” The regulators’ risk models “are much less accurate than banks’ risk measurement models.” The Federal Reserve is not the institution to lead the much-needed bank regulation.
The nominal value of derivative contracts held by U.S. commercial banks (those over which the Fed has direct regulatory authority) leapt from $33 trillion at the end of 1998 to $101 trillion at the end of 2005, about the time Greenspan left office. We mustn’t ignore Greenspan’s successor: By the second quarter of 2007, 18 months later, these banks held $153 trillion in derivatives. The collapsing financial system is in the early stage of unwinding. Ben Bernanke has had time as Fed chairman to do something — anything — to slow the production of bad debt. Instead, the rate of financial claims in the economy accelerated.
The virtues of derivatives (their ability to diversify risk away from the banking system) received full approval from Greenspan and, more to the point, from his audiences. Bernanke is considered a monetary genius. Will we ever learn? Someday, we might ridicule, rather than praise, the Fed. On that day, it should be disbanded.
"History never repeats itself But, sometimes it Rhymes".
"Most people only want to hear what they want to hear, while few will act on what they see".
By: pelicanbrief114 24 Apr 2008, 12:44 PM EDT Msg. 711211 of 711261 Jump to msg. # The Road to
Now you see "It"; Now you "Don't"!!
Cheap Money, Rapid Inflation Jim Willie
The two primary engines pushing the USDollar down are extraordinarily low borrowing costs and extraordinarily high monetary growth. Money is very cheap to borrow, which encourages speculation for basic reason that many investments are rising in price. That covers the demand side for money. The money supply is growing out of control. It is hard to describe any modern day monetary event as like Weimar German times, but this is becoming close. The supply of new money is growing so fast that it is causing internal problems that are not fixable. Prices are rising broadly in the USEconomy, since the nation imports everything. Too bad then nation cannot import leaders for government, the financial sector, economic counsel, regulatory bodies, debt rating agencies. While you are at it, import a free press network system.
NEGATIVE BORROWING COSTS FOR MONEY
If one can achieve investment gains on par with the rise in prices, then borrowing money at a rate considerably below the current of rising prices is surely worth the risk. The cost of borrowing money at the Fed Funds 2.25% rate serves as a benchmark. If one uses the official Consumer Price Inflation index, then something close to a 4% CPI is the prevailing figure. The ‘Real Cost of Money’ is Minus 1.75% but only one resorts to a bogus CPI figure posted. But wait! The USGovt reported CPI is the biggest elaborate joke ever played upon the US public. Its purpose is to minimize Social Security annual increases, to limit federal pension lifts, to offer low phony inflation adjustments to many other statistics like economic growth (GDP), and to maintain a charade for selling USGovt debt wrapped in USTreasurys at low yield. The divergence of the CPI from reality is a story in itself.
Rely upon the Shadow Govt Statistics measures in what follows. They remove nonsense, gimmickry, false lifts from corrupt hedonic adjustments. The USGovt figures are the most corrupt in the world, of any nations. The SGS folks offer a shadow of great value. Below, the true Consumer Price Inflation is shown as raging near 12%, as its divergence from the baseline false statistic is widening steadily. This means the cost of borrowing money at the Fed Funds 2.25% rate is over 9% lower than the CPI. So money really costs MINUS 9%, which breeds speculation, and rewards it heavily. This differential is astonishing in its magnitude. Borrowing money is not only incredibly cheap, it will soon be even cheaper. Both ends will pull the differential wider, even lower rates and even higher CPI in future months. The USFed is not finished cutting interest rates, as conditions will keep it responding in desperate fashion on the defensive. The valid CPI figure is still trending up. By year end 2008, possibly the Real Cost of Money in the US might Minus 12%. That fuels speculation and a broad attempt to seek effective inflation hedges in protection. And speculators like energy and precious metals traditionally. It is a no-brainer!
Michael Lewis is global head of commodities research at DeutscheBank. He made a quote recently that caught my attention, exactly the point made above. He said,
“The sudden price pull-back across the precious metal complex during March has raised concerns that the bull run in this sector has drawn to a close. We disagree. We believe weakness in the US dollar has not been exhausted and with US real interest rates expected to move deeper into negative territory, we are maintaining our bullish outlook towards gold and silver prices.”
Bear in mind that some significant new money goes directly into hidden caverns of bank core holdings, providing relief to the bankers, but not yet enabling any grand overflow into the system. My conjecture, soon perhaps to be verified, is that the big banks are borrowing money on a grand scale and speculating in crude oil and natural gas contracts. The Senators from the State of Oil running the White House will hardly stand in the way. They might assist the effort, even as they decry the higher energy prices. Duplicity is not new to this team. The pendulum might soon swing from energy contracts to gold contracts. A Battle Royal might ensue as some banks in the field fight to survive, while other banks close to the corrupt leadership fight to continue the corrupted support mechanisms for the USDollar. The former will buy gold in whatever form, while the latter will sell gold paper.
THE MESSAGE IS CLEAR: WITH NEGATIVE BORROWING COSTS, GOLD RISES IN A BIG POWERFUL WAY. IT ALWAYS HAS IN SUCH CONDITIONS, AND ALWAYS WILL. THE NEGATIVE COST OF MONEY WILL BECOME EVEN LOWER NEGATIVE IN TIME.
By the way, import prices taken in by the USEconomy are rising at a 14.8% annual rate, dominated by crude oil. China though is raising prices uniformly and regularly on exported items. Finally, the pendulum has swung, whereby the US is importing inflation. For 25 years, the USEconomy exported inflation to Asia. Trade deficits were packaged in the form of debt securities, lapped up by Asians. If truth be known, the Asians have practically stopped buying USTreasurys from the US system for over two years. In recent months, higher Asian costs have been passed on to US customers who purchase finished Asian products. Compounding the problem is the potential of looming sales of US$-based bonds by Asians. They are eager to ramp up their Sovereign Wealth Funds, to invest in meaningful concepts like energy, metals, and the properties that contain them. SWFunds have turned their noses up at more garbage debt securities from the US. So far, mortgage bonds are identified as rubbish. In time, foreigners will begin to regard US corporate debt and USTreasury debt as rubbish too. Most debt securities issued from the United States is subprime by any definition that incorporates the ongoing recession.
MONEY SUPPLY GROWTH BEYOND ECONOMIC BASIS
If the USEconomy endures a float of an increasing amount of money, above and beyond what the economy itself can justify, then overflow occurs. With the overflow comes a powerful mixture of imbalances, bubbles, contortions, disruptions, and crises. Greenspan committed the Original Sin back in 1994 by permitting the money supply to grow, with only a queer blind eye kept trained on the CPI. The rampant money supply growth is now feeding the energy market prices. It has fed the gold market also in recent years, and will continue to do so. The excess of money must flow into something, since it is not flowing into strong industrial plant, viable business capital, and functional economic foundation. It is flowing into the parade of sick bubbles endemic to the USEconomy. In the late 1990 decade it was stocks that rose in a bubble then busted. In the 2000 decade it was housing and mortgage bonds that rose in a pair of connected bubbles, then busted. Now it is flowing into energy and precious metals.
Below, the Money Supply rate is shown as raging over 17% on the broad M3 measure. This means immediately that the monetary aggregate is growing at least 16% faster than the USEconomy. However, given the corrupt nature of the Gross Domestic Product statistic, courtesy of the USGovt, the money supply is expanding much faster than actual economic growth, like 19% to 20% faster. Some call the difference between the monetary growth rate and the economic growth rate to be the ’Real Inflation Rate’ since adjusted for baseline growth necessities. As the funding requirements continue for the damaged bank assets, for the mortgage bonds, for the housing loan renegotiations, look for the monetary aggregate to continue in this upward trajectory. The central bankers, past and present, are even joining the fight to lay blame at the feet of their contemporaries. A circus sideshow has developed.
By the way, the euro money supply is growing in the neighborhood of 12% annually. That spurs bubble growth in Europe, along with speculative flow into energy and precious metals. That fact that euro monetary growth is 6% below US$ monetary growth means the USDollar will continue to fall relative to the euro.
OVER-ARCHING USDOLLAR FACTORS
Basic forces are at work. The speculative movement will continue to respond positively to the giveaway of money. The USDollar will continue to respond negatively to rabid money supply growth. Expect new arenas to respond to the rampant money supply growth, since its destinations cannot be controlled. Its direction can only be steered, encouraged, and directed to follow trends. Therefore, for these two reasons, the USDollar is falling into crisis mode. Gold & silver respond in opposite fashion, rising in price. Unless and until the cost of money and the growth of money return to normalcy, the USDollar will continue down steadily, and precious metals will continue up steadily in price.
The US financial system is in tatters. The failure of the financial networks to report this story is yet another travesty heaped upon the US public, which is slowly grasping the gravity of the situation. They see the home foreclosure signs. They see the rising gasoline prices. They read about the suspicious Wall Street play on key stories. They see the job losses, and Chinese labels on many finished products. They see the drop in interest rates, but the system continuing to break down. They continue to deal with mortgage rate resets, the next big round to involve Exploding Adjustable Rate Mortgages this summer. These will feature the Negative Amortization loans, the Option ARMs, the Hybrid ARMs, and much more. Watch California sink into a morass.
The US financial system has several pillars, all either underwater or tilting toward insolvency. Vicious cycles have begun to work their powerful wreckage, rendering solution as extremely elusive and difficult. The breakdown must run its course. The momentum to unwind 15 to 20 years of abuse will take many years more.
USGovt is running huge federal deficits, to grow worse as recession worsens
US trade deficit is widening, as is the corresponding Current Account Deficit
US bank system is in technical insolvency, with negative non-borrowed core assets
Nearly 10% of homeowners have negative equity in homes, to reach 20% by year end
US car industry is reeling from higher gasoline costs, and piglike SUV emphasis
US airline industry is reeling from higher jet fuel costs, and strangled networks
US truckers are being squeezed, as highway actions are on the rise
The United States is tragically entering a gradual state of failure, from insolvency, corruption, and indescribably horrible economic counsel. An astronomical rise in USGovt federal deficits could occur in the next few months. Capitalism has failed in an historical spectacle of catastrophe. The nation has lost its legitimate income sources from industry. The nation has relied upon inflation contraptions and financial engineering devices for two decades. The exotic devices have blown up in our faces. The reflection upon the USDollar is certain to continue. Recent adoptions of broader US Federal Reserve lending facilities has given a cup of water, a piece of bread, and a peptalk to a crippled man burdened by a 150-lb backpack of debt even as Wall Street thieves empty his pockets of loose money and all pension receipts. To accept that the worst is over is an exercise in stupidity, naivety, and further con game victimizations. The more realistic story is that the United States is entering a failed state condition. In that respect, it is in a race with Mexico, which again is covered with an update in the April issue of the Hat Trick Letter. The trade surplus driven by Mexican oil exports is fast vanishing, exacerbated by a huge rise in imported gasoline.
If you do not believe the claim of a failed state, watch the abandonment of mortgages rise to alarming levels, watch the reaction to closure of gasoline stations from lack of profit potential, watch the horrendous list of job losses across the broad spectrum of the USEconomy, watch the continued magnificent declines in US housing prices, watch the next rounds of personal bankruptcies as credit cards no longer keep them afloat, watch the next round of mortgage bond losses for big banks, and watch the foreign reaction to amplified USTreasury Bond auctions to cover the growing federal debt. The word crisis will be used to cover much more than the falsely reported subprime mortgage problem, which is a mortgage bust in a total sense.
FRAUD BY USGOVT, WALL STREET & THE S.E.C.
The official USGovt economic statistics are by far the most corrupt in the world, the land of Institutionalized Dishonesty. The latest episode centered upon Bear Stearns should have demonstrated that amply. Will any investigation be done of the JPMorgan raid, using USFed credit, designed with phony price points? Will any investigation be done of the massive option put contracts hastily approved and bought on the exchanges, $50 below the BSC current price, with a mere five days to go? No! Of course not, especially not in a land whose governing bodies conform to the guidelines of the Fascist Business Model. View the bounces, intrigue, and drama behind the Bear Stearns BSC stock price movement as a colossal sanctioned corrupt raid and insider manipulation that will stand as a punctuation mark on US stock fraud. Regard it as a successful attempt by insiders, both management and well heeled professionals, to steal pension money from Bear Stearns employees past and present. Regard it as a second chapter to the mortgage fraud story itself.
The Congressional query into the JPMorgan and Bear Stearns interplay was more a window dressing than anything else. The members of Congress are outmatched by savvy slick thieves, who not only operate in circles beyond the comprehension of legislators, but also speak in a language over their heads as well. Much of the big bank executive testimony was lies mixed with falsely represented hearsay as an effective distraction. The Securities & Exchange Commission cannot very well investigate what it approved to begin with under extraordinarily suspicious surroundings. The SEC approved option put contracts so far out of the money, with so little time left before expiration, that they must have been part of the game played. The losers are stockholders, the investment community, and the US financial sector reputation still in a nosedive from mortgage bond fraud. By the way, prosecution for the mortgage bond fraud creeps slowly along. It was interrupted by the Spitzer side show, whose story might be only half true.
NEXT UGLY BIZARRE TWIST
Fanny Mae properties will be a mainstream concept before long. The New Resolution Trust Corp will feature a mortgage bond cemetery (to buy failed bonds, to bury them deep), and a mortgage finance centrifuge (to spread a mortgage fund recycle). The third function to assist in renegotiated loans will not involve any incremental ownership of property titles, but it will add notably to the USGovt federal deficit. The bond cemetery and mortgage centrifuge will require that Fannie Mae & Freddie Mac, the dynamic corrupt fat bankrupt duo, to own title on a very long list of properties. Decisions will eventually be made NOT to dump the properties on the market for sale. The concept of earning an income from rent will be recognized. The shareholders of FNM and FRD will benefit from a dividend earned from home rentals. Why sell in a depressed housing market when rents are on an upward trend?
The road to serfdom will involve the USGovt through its corrupt, insolvent, and revived mortgage apparatus to becoming the biggest national homeowners in the land. What an embarrassment! But watch for how the story is spun! If alive today, Thomas Jefferson would spit in the eye of the president, the Treasury Secretary, the USFed Chairman, the Congressional leaders, and any Wall Street CEO who crossed his path!!!
What's "Good" for "Broad and Wall St." certainly hasn't (continues) been for ?Main St.".
By: pelicanbrief114 19 May 2008, 09:44 PM EDT Msg. 721840 of 723348 Jump to msg. # Who Knew "What"
The Anatomy of the Rape and Pillage by the "Cartel and Their Brethren"!!
Bear Stearns Buy-Out... 100% Fraud This article is about how Bear Stearns stock was artificially collapsed so that illegal insider traders would make billions and J.P. Morgan would be paid $55 billion of US tax payer money to shore up themselves and buy Bear Stearns at bankruptcy prices.
Massive buying of puts and shorting stock in Bear Stearns
On March 10, 2008, the closing price of Bear Stearns
was 70. The stock had traded at 70 eight weeks earlier.
On or prior to March 10, 2008 requests were made to the
options exchanges to open new April series of puts with
exercise prices of 20, and 22.5, and a new March series with
an exercise price of 25.
Their requests were accommodated and new series
were opened for trading March 11, 2008.
Since there was very little subsequent trading in the
calls with exercise prices of 20, 22.5 or 25, it
is certain that the requests were made with the
intentions of buying substantial amounts of the puts.
There was, in fact, massive volumes of puts purchased
in those series which opened on March 11, 2008.
For example: between March 11-14 inclusive, there
were 20,000 contracts traded in the April 20s, 3700
contracts traded in the April 22.5s, and 8000 contracts
traded in the April 25s. In the March 25s, there were
79,000 contracts traded between March 11-14, 2008.
Question: Why did the options exchanges not open the
far out of the money puts for trading the first time that
Bear Stearns stock hit 70, when the April and March options
had far more time to expiration? Certainly if the requesters
were legitimate hedgers or speculators, their buying the
March and April puts with 2 and 3 months to expiration
was more reasonable.
Answer: The insiders were not ready to collapse the stock and
did not request the exchanges to open the new series when Bear
Stearns first hit 70..
Second Request and Accommodation
On or prior to March 13, 2008, an additional request
was made of the options exchanges to open more
March and April put series with very low exercise prices.
These new March put options would have just
five days of trading to expiration. The exchanges
accommodated their requests, knowing that the intentions
of the requesters were to buy puts. They indeed bought
massive amounts of puts. For example the March 20 puts
traded nearly 50,000 contracts (i.e. contracts to sell 5
million shares at 20). The March 15s traded 9600, the March
10s traded 13,000 and the March 5s traded 6300 all on
March 14 (the first day of trading of the new March series).
The introduction of those far-out-of-the-money put series
in the April and March months immediately before the crash
provided a vehicle whereby extreme leverage was available
to the insiders. In other words if an insider had $100,000 and
he knew that Morgan would buy Bear Stearns at 2, he
could make 5-10 times more on the $100,000 by buying the
newly introduced March puts. This is so because the soon to
expire far out-of-the-money puts were far cheaper than the
July or October out-of-the-money puts. And that is why the
illegal inside traders requested the exchanges to introduce
the far out-of-the-moneys just days before the crash.
But this scenario has serious implications. This means
that the deal was already arranged on March 10 or before.
That contradicts the scenario that is promoted by SEC
Chairman Cox, Fed Boss Bernanke, Bear CEO Schwartz,
Jamie Dimon of J.P. Morgan (who sits on the board of
directors for the New York Federal Reserve Bank) and
others that false rumors undermined the confidence in
Bear Stearns making the company crash, notwithstanding
their adequate liquidity days before.
I would say that the deal was arranged months before
but the final terms and times were not determined until
maybe March 7-8, 2008.
On March 14, 2008, the April 17.5s, the 15s, the 12.5s and
the 10s traded 15,000 contracts combined. Each put
gives the right to sell 100 shares. So for example,
these 15,000 April puts gave the purchaser(s) the
right to sell 1.5 million shares at prices between 10
and 17.5. Those purchasers expected to make profits
on 1.5 million shares because they knew the deal was
coming at $2.00.
That is the only plausible explanation for anyone
to buy puts with five days of life remaining with strike
prices far below the market price.
So there were requests, during the period of
March 10-13, to the exchanges to open the March
and April series for buying massive amounts of
extremely out-of-the-money puts, which were
accommodated by the options exchanges. Did the
Exchanges aid and abet the insider trading scheme?
We are not able to have a strong opinion on that idea.
Media statements of adequate liquidity.
However, Reuters, on March 10, 2008 was citing
Bear Stearns sources that there was no liquidity
crisis and that there was no truth to the
speculation of liquidity problems.
And none other than the Chairman of the Securities
and Exchange Commission on March 11, 2008 was
stating that "we have a good deal of comfort with
the capital cushion that these firms have".
We even had the "mad" Jim Cramer proclaiming on
March 11, 2008 that all is well with Bear Stearns and
that the viewers should hold on to their Bear Stearns.
And on March 12, 2008, Alan Schwartz CEO of Bear
Stearns was telling David Faber of CNBC that there
was no problem with liquidity and that "We don't see
any pressure on our liquidity, let alone a liquidity
The fact that the requests were made on March 10
or earlier that those new series be opened and those
requests were accommodated together with the
subsequent massive open positions in those newly
opened series is conclusive proof that there were
some who knew about the collapse in advance,
while Reuters, Cox, Schwartz and Cramer were telling
the public that there was no liquidity problem.
This was no case of a sudden development on the
13 or 14th, where things changed dramatically making
it such that they needed a bail-out immediately.
The collapse was anticipated and prepared for, even
while the CEO of Bear Stearns and the SEC Chairman
of the SEC were making claims of stability.
What was the reason that Cramer, Cox and Schwartz
were all promoting Bear Stearns immediately before
its collapse. That will be speculated upon for years to come.
Cramer has admitted that "truth" was not his friend
and that he manipulated stocks to influence investors
behavior. Was this one of his acts?
But no apologies from Cramer as he claims now that
he was referring to keeping money in Bear Stearns Bank
not in Bear Stearns stock.
Proof of Insider Trading:
To prove the case of illegal insider trading, all the
Feds have to do is ask a few questions of the persons
who bought puts on Bear Stearns or shorted stock
during the week before March 17, 2008 and before.
All the records are easily available.
If they bought puts or shorted stock, just ask them why.
What information did they have access to which the
CEO and the SEC did not have? Where did they get the
info? Why aren't Cramer and Cox, Dimon, Bernanke,
Geithner, Paulson, Faber and Schwartz subject to a bit of
prosecutorial pressure to get to the bottom of this.
Maybe the buyers of puts and short sellers of stock
just didn't believe Reuters, Cox, Schwartz, Cramer and
Faber and went massively short anyway, buying puts that
required a 70% drop in a week. Maybe they had better
information than Schwartz or Cox. If they did, then that's
a felony, with the profits made subject to forfeiture.
April 4, 2008 Congressional Hearings on the
Bear Stearns Bail-out.
I watched both sessions and drew the following
In the first session there were the following witnesses.
Bernanke of the Federal Reserve Board, Cox from
the SEC, Geithner representing the New York Reserve
Bank and an incidental player Mr. Steel from the Treasury.
The only Senators that seem to be willing to attack
these bankers were Bunning, Tester, Menedez and
All the rest were useless and very respectful.
All witnesses did their best to keep their stories
consistent but they did slip up a bit.
They all agree that the bail-out was necessary without
any proof that it was.
They all agreed that what caused the cash liquidity to
dry up within one day was the rumor mongers.
Apparently it is claimed that some people have the
ability to start false rumors about Bear Stearns' and
other banks liquidity, which then starts a "run on
the bank" . These rumor mongers allegedly were able
to influence companies like Goldman Sachs to
terminate doing business with Bear Stearns,
notwithstanding that Goldman et al.
believed that Bear Stearns balance sheet was in good
shape. (Goldman between March 11-14 warned their
average customers that Bear Stearns stock was "hard
to borrow" for shorting due to the fact that other
customers had used up all of the stock available for
borrowing for short sales) .
That idea that rumors caused a "run on the bank" at
Bear Stearns is 100% ridiculous. Perhaps that's the
reason why every witness were so guarded and hesitant
and looked so strained in answering questions.
Loans to J.P. Morgan total $55 billion from FED
The Private New York FED lent $25 billion to Bear Stearns
(described as the primary facility by James Dimon)
and another $30 billion to J.P. Morgan (described as the
secondary facility by James Dimon). So the bail-out cost
was $55 billion not the $30 billion that is promoted. This
was revealed at the second session of the Senate hearings in
a James Dimon response to a question from Senator Reed.
Who gets the $55 billion? J.P. Morgan received the money on a
loan pledging Bear Stearns assets valued at $55 billion.
$29 billion is non-recourse to Morgan.
Effectively the FED received collateral appraised by Bear
Stearns at $55 billion for a loan to J.P. Morgan of
$55 billion. That's a loan to value of 100%.
If the value of the secondary facility of $30 billion
($29 billion of which is non recourse) is worth only
$15 billion when all is said and done, then J.P. Morgan
has to pay back only $1 billion of the $30 billion received
and keeps the $14 billion the the Fed loses. If the $25
billion primary facility is worth only $15 billion when all
is said and done, J.P. Morgan has to pay $10 billion of
the $25 billion received. If J.P Morgan can not pay, then
the Fed loses the $10 billion.
If after all is said and done, the $25 billion primary
assets or the $30 billion secondary assets are sold for
more that $25 billion or the $30 billion respectively, the
difference goes to J.P. No matter how you cut it,
J.P. Morgan wins.
If the $55 billion assets turn out to be worth only $20
billion when all is said and done, J.P. Morgan owes $1
billion on the $30 billion and the difference between
$25 billion and the value received on the primary facility.
The best the FED can do is get their money back with
interest and the worse they can do is lose
about $25 -$40 billion.
The FED would have been far better to just buy the
By: pelicanbrief114 28 May 2008, 11:41 AM EDT Msg. 725640 of 726161 Jump to msg. # On the Path to
Hyperinflationary conditions and the Fiat currency graveyard?
A subject broached in recent past.
With M3 running north of 20% annualized, it's apparent that the "Bearded One" and the Global "Cartel's" remain fixated on the excessive creation of "Junk", which in turn is in essence, the Inflation (Beast) creating/supporting exorbitant price increases throughout many every day necessities such as Food; Oil/Gas; Utilities; Healthcare etc....etc....
Loss of Purchasing Power as well as Lower Standards of Living remain at the forefont.
Are "Weimer" conditions the Ultimate Consequence?
Only in time will we know.
Weimar Inflation in America James Turk
Probably almost everyone is familiar with the hyperinflationary episode that engulfed Germany after the First World War. That nation’s economy was crippled by monetary problems that resulted in dreadful personal hardships, even though up to that time Germany had achieved one of the highest living standards in the world.
The newly formed German government, named for the city where their constitution was drafted after the Kaiser’s abdication in 1918, kept pumping up the money supply. The process started relatively slowly, but quickly the pace of money creation accelerated.
The Weimar government was paying its bills on credit – just like Zimbabwe is now doing. The Weimar government was issuing currency in exchange for valuable goods and services that it was receiving, and the vendors of those goods and services accepted the newly issued currency in the expectation that they would be able to exchange it for goods and services of like value. However, they soon realized that they were deluding themselves. Prices were rising rapidly, with the consequence that a flight from the currency into commodities and other tangibles began.
There was no discipline on the creation of new currency, with the result that it was being issued to excess. Within a few short years, the German government eventually destroyed the Reichsmark, the currency it had been issuing, making the words Weimar Germany synonymous with hyperinflation, economic collapse, deprivation and personal hardship. All the wealth saved in Reichsmarks was wiped out.
For example, in his classic book, “Paper Money”, penned three decades ago under the pen name of Adam Smith, George J.W. Goodman recounts the story of Walter Levy, an internationally known German-born oil consultant in New York. Levy told him: “My father was a lawyer, and he had taken out an insurance policy in 1903. Every month he had made the payments faithfully. It was a 20-year policy, and when it came due, he cashed it in and bought a single loaf of bread.”
The following photo is from an insightful book by Bernd Widdig entitled “Culture and Inflation in Weimar Germany”. This photo shows one way in which people coped with rising prices.
As the inflation worsened, people sold whatever they could to survive. Widdig succinctly describes it in the caption to the above photo as follows: “The impoverished middle class has to sell its cherished possessions.”He should have correctly stated though that it was the “newly impoverished middle class”. They only became destitute after the inflation had destroyed their savings and ability to maintain their standard of living.
Sadly, the problems of Weimar Germany are now appearing in the US. To survive the impact of rising prices, Americans today – like Germans did eight decades ago – are selling cherished possessions, as explained in a recent story by Associated Press entitled “Americans unload prized belongings to make ends meet”. The full article is available at the following link: abcnews.go.com/Business/Economy/story?id=4750846&page=1
AP explains how some Americans are trying to cope with the ravages of inflation: “To meet higher gas, food and prescription drug bills, they are selling off grandmother's dishes and their own belongings. Some of the household purging has been extremely painful - families forced to part with heirlooms.” It is indeed no doubt painful, just as it was for the Germans in the photograph above, who surely must have been putting on a brave face for the photographer.
Confirmation of the AP story came a few days later on May 14th from an article in the Washington Post, which reported: “Nearly seven in 10 Americans are worried about maintaining their standard of living, as concern has spiked higher in just the past five months, according to a new Washington Post-ABC News poll. Soaring consumer prices are a major challenge, with many people struggling under the weight of the rising costs of fuel, food and health care. The poll shows that the weak economy and rising prices are high among voters' concerns, and contribute to a souring national mood in this presidential election year. More than eight in 10 said the country has veered pretty seriously off-track, and a separate poll released yesterday by ABC showed economic anxiety at its highest level on record since 1981. Overall, 68 percent of people surveyed in the new Post-ABC poll said they were concerned about their ability to keep up their lifestyles, a jump of 17 percentage points since December. The increase cuts across party and income lines.”
Crude oil is $132. Corn is $6.The cost of everything is rising. Inflation is worsening, and it’s not hard to understand why. M3, the total quantity of dollars, is now growing by 17% per annum. Weimar inflation has arrived in America.
The Federal Reserve is following the footsteps of the central bank in Weimar Germany. It is the same path taken by many central banks that have issued countless fiat currencies based on nothing but government promises. It is the path to the fiat currency graveyard, and the once almighty US dollar – which long ago used to be “as good as gold”, just like the Reichsmark once held that same exalted title – is knocking at the graveyard’s gate.
This insight about the importance of gold and shortcomings of fiat currency is not suprising, nor is it new. Here is what Rep. Howard Buffett, father of Wall Street legend Warren Buffett, had to say on May 4, 1948. “Our finances will never be brought into order until Congress is compelled to do so. Making our money redeemable in gold will create this compulsion.”
Absent that compulsion, the dollar is going the way of the Reichsmark. Don’t count on the US government to do the right thing and make the dollar redeemable into gold. Instead, take those steps necessary to protect yourself and your family to prepare for the dollar’s inflationary collapse. Buy gold. Buy silver. Avoid the US dollar.
"History never repeats itself, but sometimes it rhymes". - Mark Twain