CDO-SIV Mess Explained
Discussion of Housing Bubble, US Dollar, Debt, Trade Deficit, Oil, Gold, Consumer Spending, Central Banks, Inflation, Outsourcing and the Bleak Future of the US economy
This Blog and/or the articles contained within have been referenced, linked or quoted in: Businessweek online, WSJ Online, Dollar Collapse, Safehaven, Silverbear Cafe, Financial Armageddon, Yahoo & Google Finance -- among many other blogs & web-pages... Thanks for stopping in for a read!
Below you will find several snippets from a superb Greg Palast article, former investigator of financial fraud, and the author of the New York Times bestsellers Armed Madhouse and The Best Democracy Money Can Buy.
Bottom Line: Greg shows that it's not very wise to make waves against powerful interests and Governor Spitzer just learned it the hard way...
The $200 billion bail-out for predator banks and Spitzer charges are intimately linked
While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.
Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.
This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.
Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer...
Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and its variants including loans with teeny “introductory” interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage lender, accounting for one in five home loans, a large chunk of these ‘sub-prime.’
‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’ under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.
But when the Bush regime took over, Countrywide and its banking brethren were told to party hearty – it was OK now to steer’m, fake’m, charge’m and take’m.
But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to...
Instead of regulating the banks that had run amok, Bush’s regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of “federal pre-emption,” Bush-bots ordered the states to NOT enforce their consumer protection laws.
Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called “securitization.”
What that means is that they took a bunch of junk mortgage loans about to go down the toilet and re-packaged them into “tranches” of bonds which were stamped “AAA” - top grade - by bond rating agencies. These gold-painted turds were sold as sparkling safe investments to US school district pension funds and town governments in Finland (really).
When the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses. Countrywide’s top man, Angelo Mozilo, will ‘earn’ a $77 million buy-out bonus this year on top of the $656 million - over half a billion dollars – he pulled in from 1998 through 2007.
But there were rumblings that the party would soon be over. Angry regulators, burned investors and the weight of millions of homes about to be boarded up were causing the sharks to sink. Countrywide’s stock was down 50%, and Citigroup was off 38%, not pleasing to the Gulf sheiks who now control its biggest share blocks.
Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went bankrupt. Who? That’s Carlyle as in Carlyle Group. James Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and presidents than you can count.
The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure – and got to keep the Grinning’s house. There was no ‘quid’ of a foreclosure moratorium for the ‘pro quo’ of public bailout. Not one family was saved – but not one banker was left behind.
Every mortgage sharking operation shot up in value. Mozilo’s Countrywide stock rose 17% in one day. The Citi sheiks saw their company’s stock rise $10 billion in an afternoon.
And that very same day the bail-out was decided – what a coinkydink! – the man called, ‘The Sheriff of Wall Street’ was cuffed. Spitzer was silenced.
Do I believe the banks called Justice and said, “Take him down today!” Naw, that’s not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was “Wall Street Declares War on Spitzer” - made clear to Bush’s enforcers at Justice who their number one target should be. And it wasn’t Bin Laden.
Bush, Spitzer said right in the headline, was the “Predator Lenders’ Partner in Crime.” The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.
Spitzer wrote, “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably.”
But now, the Administration can rest assured that this love story – of Bush and his bankers - will not be told by history at all – now that the Sheriff of Wall Street has fallen on his own gun.
A note on “Prosecutorial Indiscretion.”
Click here to read the entire article
I've been quite busy with family obligations this weekend--therefore haven't been able to post up any thoughts. Hope you enjoy these videos anyway. Regards
WH Press Sec NOT ALLOWED to talk about the Dollar
Recession: The Movie
Zuckerman: Recession barely begun. Will last years.
The Schiff Has Hit The Fan
Recession Fears Widespread
The Fed is trying to consolidate its power base
March 27 (Bloomberg) -- America's financial system faces its biggest overhaul since the Great Depression as officials weigh lessons from the credit-market rout and the near collapse of Bear Stearns Cos.
Federal Reserve policy makers are redefining which companies are vital to the flow of credit, an area once the sole domain of commercial banks, and which institutions pose risks to the entire economy if they fail. Treasury Secretary Henry Paulson said in a speech yesterday that the Fed should broaden its oversight to include Wall Street investment firms, now regulated by the Securities and Exchange Commission.
Former regulators predict the changes will see the Fed accrue influence at the expense of the SEC, which was created by President Franklin Roosevelt to make rules for dealers and stock exchanges. The Fed is taking almost $30 billion in assets off Bear Stearns's balance sheet to encourage JPMorgan Chase & Co. to buy the firm, even though Bear's main supervisor is the SEC.
``This is tectonic,'' said Ralph Ferrara, a former general counsel at the SEC, and now a partner at Dewey & LeBoeuf LLP in Washington. ``We no longer want to have a balkanized response to a national crisis.''
The Federal Reserve, a private banking institution authorized by Congress to loan money created from nothing and charge interest for doing so, is already a powerful, rouge institution that operates without Congressional oversight. Should we now hand them more power?
The Fed's latest “unprecedented” act of lending money directly to investment banks (swapping treasuries for valueless garbage) and their recent creation of the a) Term Auction Facility b) Term Securities Facility and c) Primary Dealer Credit Facility are all confirmation as to: 1) where their loyalties lie (not the people), and 2) their mischievous, manipulative, rouge ways of supporting their brethren.
Additionally, the bailout of a private company (Bear Stearns) with US taxpayer money, without Congress's approval, is unfathomable -- Who is in control of these guys (shareholders? -- see my note towards bottom of post)
So, the question of the day: does the dog (our government) wag the tail (fed) or does the tail (fed) wag the dog (government)? I think the answer is crystal clear...
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation,(i.e., the "business cycle") the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.
Thomas Jefferson, President of the United States 1801-1809
I believe that banking institutions are more dangerous to our liberties than standing armies.
We have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world - no longer a government by free opinion,no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men.
Woodrow Wilson, President of the United States 1913-1921
(Note: Federal Reserve’s controlling stock is owned by: Rothschild Banks of London and Berlin, Lazard Brothers Bank of Paris, Israel Moses Sieff Banks of Italy, Warburg Bank of Hamburg and Amsterdam, Lehman Brothers Bank of New York, Kuhn Loeb Bank of New York, Chase Manhattan Bank of New York and Goldman Sachs Bank of New York)
I think Dr. Schoon said it best in his latest, must read article: The Die Is Cast The Cast Will Die
" The banker's credit money system is now everywhere as are their resultant unsustainable debts; and those who profit by that system, the bankers (and the corporations that grew up around them) now control the media, the political process, and the agencies charged with overseeing and regulating the economy - the US Federal Reserve Bank, the SEC, the US Treasury, and indeed the US government itself: the Presidency, the Congress, and the Supreme Court."
Thanks to Bernanke, Paulson and the deal to bail out Bear Stearns (BS) with our taxpayer money, the CEO of BS just sold $61M of his stock (all he owned) -- the "rats" are bailing ship!
Bear Stearns Cos. Chairman James Cayne on Thursday dumped his entire stake in the embattled investment bank for $61 million (€38.6 million), as it appears closer to a takeover by JPMorgan Chase & Co.
This smells bad for BS...
A very fine gentleman I know runs his own economic website in the hope of creating an awareness of our fragile economic condition. He has spent much of his retired life meeting and discussing the issues with many of our Gvt leaders and is always open to new suggestions/solutions to our problems.
Take some time to poke around his site. There you will find many eye-opening statistics such as the ones below.
Foreign ownership percentages of Selected US Industries:
Article below also from his site Economy In Crisis
America in is a major state of decline. Few realize its causes & the source of our problems. This email alert will highlight one main reason for our inability to be able to compete, our inability to support ourselves, and for our rapidly declining living standard -- N.A.F.T.A.
The Truth About Nafta And Its Disastrous Effects
Few are aware that NAFTA (North American Free Trade Agreement) has rendered us uncompetitive in the world, has destroyed our industrial base, caused us to outsource most of our production, and killed most of our good manufacturing jobs.
For political reasons, Clinton, Obama, and McCain have not discussed this true picture.
Imagine if Congress enacted a special law only for the state of Michigan that:
Cafferty File: Shaky Economy March 18, 2008
California Economic Crash
Jim Rogers -- Abolish The Fed (3-19-08)
Marc Faber: Bernanke is gold buyers best friend (3-19-08)
Tribute To Peter Schiff -- Well Done -- Watch!
Additionally, I received this message via email from APMX just yesterday:
Due to the OVERWHELMING demand for precious metals, our online ordering system has been unable to keep up with our customers’ needs. We have had to disable the APMEX ordering system to allow us ample time to upgrade our site to accommodate the increased demand. We apologize for this temporary problem. In the mean time, we will be accepting telephone orders for the following items only as we have them available:1 ounce Gold American Eagles1 ounce Gold Canadian Maple Leafs1 Ounce Gold Krugerrands100 oz Silver BarsMisc Generic .999 Fine Silver90% Coin SilverDuring this time, we will have a minimum order of $5,000. We regret we have had to make this drastic change to our ordering process and rest assured, we are working expeditiously to correct the problem. As soon as we have our new site up and running, we will notify you via e-mail when you can again place orders online.
Or how about this one:
OK, if there is such a supply shortage, why did PM prices crash this last week?
It was a PPT manipulated paper smack-down (through engineered margin call selling of futures, options, etc – to fry the longs, destroy prices and signal an end to the commodity boom) that has changed none of the underlying precious metals supply/demand/inflation-hedge/flight-to safety fundamentals.
But it did provide a great buying opportunity – could be a very good time to back up the truck and load up w/physical…
Take a look at who is taking advantage of this smack-down:
Asia jewellers on buying spree as price sinks-- It probably won’t be too long before PM prices regain their footing..
Jewellers across Asia rushed to buy gold on Thursday after prices tumbled more than $100 an ounce since spiking to a record above $1,000 an ounce this week, pushing up premiums in key bullion trading centres. Gold fell more than 2 percent to hit a 1-month low of $920.30 an ounce as funds sold bullion after pushing up the price to a lifetime high of $1,030.80 on Monday.
Superb comment from a reader at a PM blog I routinely visit -- summarizes the situation perfectly: Somebody took advantage of a short trading week to slam PMs - on options expiration week (saving the shorts' shorts!) - and by the same token make a "double-top" appear out of the blue - to signal "an end to the commodities bull" and "an end to the bearish dollar" - based on NO REAL PHYSICAL TRADING - just "PAPER"...
With our manipulation discussion out of the way, what about the credit crisis being resolved?
Goldman, Lehman Rating Outlook Cut to Negative by S&P (Update3)
March 21 (Bloomberg) -- Goldman Sachs Group Inc., the biggest U.S. securities firm, and smaller rival Lehman Brothers Holdings Inc. had their credit-rating outlook cut to negative by Standard & Poor's, which said Wall Street banks' profits may fall as much as 30 percent in the coming year.
``Our current expectation is that net revenue could decline'' at least 20 percent for independent securities firms, S&P said in a statement today.
Or this one:
The crisis in the credit markets is threatening to engulf one of the largest commercial finance companies in the United States.
The CIT Group, a century-old company that lends money to small businesses and midsize corporations, drew on $7.3 billion of emergency bank credit lines on Thursday, causing its shares and bonds to plummet.
CIT, whose businesses range from making student loans to financing purchases of airplanes and railroad cars, announced that it would try to sell some assets or businesses to raise cash and repay its debts. Analysts said the tightening credit squeeze could drive the entire company into the arms of a bidder.
The developments at CIT suggest that the credit troubles that felled Bear Stearns this week continue to spread, despite efforts by the Federal Reserve to encourage banks to lend to other financial companies.
There are 93 US companies at risk of defaulting on $53 billion in debts, a new report shows, marking a 50 percent jump since last June, when the credit crisis started. Many of these debt-laden companies were involved in giant leveraged buyouts.
Standard & Poor’s ‘‘weakest links’’ report is forecasting that 75 US companies will default on their debts in the next 12 months. Of the 93 companies at risk, more than half were involved in takeovers by big-name private equity firms, including Boston’s Thomas H. Lee Partners, Bain Capital, and J.W. Childs Associates.
The sectors worst hit are media and entertainment, and consumer and retail. Many of the names are familiar to consumers, like Uno Restaurant Holdings Corp., the Boston-based pizza restaurant group; Linens ‘n Things Inc., the home goods chain; and Univision Communications Inc., the Spanish-language television and radio company.
‘‘This is just the beginning,’’ said Diane Vazza, managing director and head of Global Fixed Income Research at Standard and Poor’s in New York. For companies struggling with debt payments, she said, ‘‘There’s no way in a slowing economy, potentially a recessionary economy, to grow out of that.’’
I could go on with additional links to illustrate the depths of this credit crisis, but I think you get the point—the recent smoke and mirrors caused by PPT market manipulation has solved nothing. Our banking system is still insolvent and the fed is pumping money into a bottomless pit.
BOTTOM LINE: A one or two day turn around for stocks and commodities means little.
NOTHING, absolutely nothing regarding underlying fundamentals has changed from last week, except the titanic has taken on a bit more water, and the captain is desperately trying to reassure us by saying -- "it's only a small leak and lifeboats (PM's) won't be needed."
Go ahead and trust the captain -- but at your own peril...
OK, my doom and gloom is out of the way -- how about some closing funnies?
Regards and happy easter to all!
Though not usually my style to just copy & paste an article, this one was just too good not to share, and it falls directly in line with what I've been writing about recently. Anyway, I picked it up over at Jim Sinclairs MineSet -- a highly recommended site with a wealth of info.
FROM TRADER DAN:
Looks like I picked a helluva time to try to take a vacation!
Adam Smith in his classic, "An Inquiry into the Nature and Causes of the Wealth of Nations". Speaks of what he terms, "the invisible hand". This is the sum total of individual human decisions each working for their own self-interest which form the market. Adam never lived long enough to see the NOT-SO-INVISIBLE hand of the US monetary authorities whose "footprint" in the once-upon-a-time freely traded gold market have become so obvious that only an idiot could miss seeing it. When the monetary authorities stated that they would do "everything possible" to prevent a meltdown of the US financial system, take them at their word - that everything includes a government ordered takedown of the gold market which cannot be allowed to trade in any manner, shape or form which would cast contempt on their heavy handed intervention into the US financial markets. After all, in our new LA-LA land, gazillions of additional liquidity being force fed into the system have no effect whatsoever on the domestic currency and are absolutely and completely harmless to its long term well being. That being the case, who needs gold anyway?
If you fall for this "Pin the Tail on the Gold Donkey" BS being foisted upon the mindless dolts who actually drink the purple kool-aid being served up by these unscrupulous profiteers, then shame on you. Do you think because Pauslon and Bernanke go out and wave their magic wands that they have fixed the systemic flaws plaguing the US financial landscape and that by papering over this wall of shame and deceit they cam make it all go away overnight?
We have indeed entered a new age - one in which we now have an ELEVENTH BILL OF RIGHTS in the US CONSTITUTION - "NO BEAR MARKET IN US EQUITIES IS PERMITTED BY GOVERNMENT EDICT IN ORDER THAT THE RIGHT OF THE US CITIZEN TO AN EVER-RISING STOCK MARKET BE NOT IMPEDED".
Heaven help us all - we are witnessing the entrenchment of the new aristocracy - the banking system and those that run it. They can damn well do whatever they please and screw the consequences to themselves since their entrenched cronies will make certain that they are bailed out and rescued from their own insatiable greed and recklessness at the expense of our children and grandchildren.
When I read the commentary of some writers whom I have come to immensely respect applauding the Fed for their actions and admitting that they have become "temporary socialists", until the crisis passes, I have to cringe because the game is over for those who love free markets. Why should my children have to pay for the greed of Wall Street?
Let them fail - then and only then will we ever have any sanity and prudence return to our banking system. If my parents or yours chose to make stupidly irrational and idiotic business decisions and as a result, ran their businesses into the ground, would we expect to see Paulson and Bernanke show up at their doors with a bucket full of freshly minted dollars to bail them out? Fat chance! Oh I get it - only "those too big to fail" get bailed out while those who play by the rules and run honest businesses are doomed to suffer the consequences of their own choices.
As I wrote in my Sunday post: Tumultuous Week Ahead, the Plunge Protection Team (PPT) certainly has been busy.
Yesterday, the team bailed out/monetized Bear Stearns debts with $30 Billion of public money (and I'm sure we'll see plenty more where that came from).
Today, not to be outdone by the previous day’s activities, the nefarious market manipulators (PPT) pulled out all stops and their orchestrated manipulation operation was synched up perfectly to the FOMC announcement -- and was so extreme/blatant (across all spectrums), that I nearly fell ill from disgust.
Specific Examples of their Manipulation:
FOMC Rate announcement took place today at 2:15PM EST and the cut was 75bp.
To anyone with a working brain, the results of a significant rate cut like this should be dollar negative and gold positive (right?) Well look at the charts below—especially after the FOMC announcement
US DOLLAR INDEX CHART—Note the Dollar’s increase after 2:15 PM
SPOT GOLD—Note the fall in gold price after 2:15 PM (down > $20)
How about the DOW sell-off immediately after the 2:15 announcement (investors were disappointed with a 75bp cut—they expected 1%) and the PPT rescue, and huge rally later in the day?
S&P Chart below is nearly identical to the DOW above
We have a “free market" economy/society?
Come on, cut us a break — We may act like sheep sometimes, but we're not stupid, and your manipulation operation was obvious to anyone with a heartbeat.
I guess the NY Times was spot on with their article yesterday:
Fed Acts to Rescue Financial Markets. (Snippets below)
The New York Fed, which runs the Fed’s daily market operation and has long been the Federal Reserve’s primary channel for dealing with Wall Street...
In a potentially even bigger move, the Federal Reserve also announced its biggest commitment yet to lend money to struggling investment banks. The central bank said its new lending program would make money available to the 20 large investment banks that serve as “primary dealers” and trade Treasury securities directly with the Fed.
Much like a $200 billion loan program the Fed announced last Tuesday, this program will essentially allow the government to hold as collateral a wide variety of investments that include hard-to-sell securities backed by mortgages (My 2 cents--Worthless Toxic Waste). But Fed officials told reporters on Sunday night that the new program would have no limit on the amount of money that can be borrowed. (Did he just say “NO LIMIT”???)
“The Federal Reserve, in close consultation with the Treasury, is working to promote liquid, well-functioning financial markets, which are essential for economic growth,” he said. “These steps will provide financial institutions with greater assurance of access to funds.”
I guess the next question is: Will their incessant nefarious manipulation schemes work? Will they be able to re-instill confidence and liquid, well-functioning financial markets?
My thoughts are: They will not fix a thing, but will merely prolong the inevitable agony...
But for today, Bernanke's Prayers were answered...
Please post up your thoughts/comments on the issue.
Christopher Cox (Chairman of the Securities and Exchange Commission)
Walter Lukken (Chairman of the Commodity Futures Trading Commission)
Well today, Secretary Paulson let it be known to the world that they are worried, and stated they will stop at nothing to calm the markets:
Treasury Secretary Paulson Says Administration Will Act to Calm Chaotic Economy
WASHINGTON (AP) -- The Bush administration will "do what its takes" to stabilize chaotic markets and minimize the economic damage, Treasury Secretary Henry Paulson said Sunday after a tumultuous week capped by the government rescue of a teetering investment bank.
All eyes now are on Wall Street as leading financial advisers prepared for a Monday meeting with President Bush and the Federal Reserve weighs another deep interest rate cut Tuesday to stem even more deterioration.
The treasury chief sidestepped questions about what would have happened if the Fed had not ridden to the rescue, whether other firms are on shaky ground and the possibility of additional bailouts similar to Bear Stearns'.
At the same time, however, Paulson sought to send a calming message that the administration is on top of the turbulent situation. "The government is prepared to do what it takes to maintain the stability of our financial system," he said. "That's our priority
As if the Bear Stearns problem wasn't enough to deal with this weekend, it now looks as if Goldman Sachs will report huge write-downs early next week.
As the former chairman and chief executive of Goldman Sachs, I imagine the PPT leader (Secretary Paulson) is monitoring the situation very closely…
Goldman Sachs to reveal $3bn hit
Goldman Sachs, Wall Street's most powerful investment bank, will this week announce asset writedowns worth about $3bn (£1.5bn), its biggest jolt to date from the crisis threatening to engulf the world's financial markets.
Goldman, which has largely thrived amid the turmoil elsewhere on Wall Street, is expected to report a fall in first-quarter earnings of about 50 per cent. The write-down will underline how the financial turbulence is now affecting even the most stellar performers.
With this said, I believe we will likely see Wall Street take an “E-Ticket” ride next week – potentially one of the wildest rides ever.
You see, the indexes are so incredibly close to extreme downside support levels that the PPT will fight tooth and nail to prevent a break below support.
If we do happen to fall below key support—automated sell signals will kick in from around the Globe—potentially creating a selling panic/free-fall. Example: Next downside support on the DOW is 11,630 (S&P and Nasdaq look very similar)
|The Gross National Debt|
If passed, this new $10.2 Trillion cap should hold us to ~ Jan 09, but what then?
Why don’t we just raise it to $100 Trillion and be done with it for a few years? Are they scared they might send the wrong signal in doing so?
Come-on, they aren’t fooling anyone… The hole is already far too deep and there are only 2 ways out of this mess: #1) Default or #2) Hyperinflation… I think we all know which route was selected...
House seeks debt limit increase to $10.2 trillion
WASHINGTON (Reuters) - The government's debt limit would be raised to $10.2 trillion under a budget plan for next year approved by the U.S. House of Representatives.
The House's fiscal 2009 budget, which passed on Thursday, would increase U.S. borrowing authority by $385 billion from the current limit of $9.815 trillion, according to the House Budget Committee
Congress last approved an increase in Washington's borrowing authority last September, increasing the credit limit by $850 billion.
Some lawmakers recently have estimated that the Treasury Department could bump up against the current $9.815 trillion limit either shortly after November presidential and congressional elections or early next year, depending on revenues and economic performance.
Lastly, allow me to share with you some snippets from a fantastic Christopher Laird article (from http://www.prudentsquirrel.com/), as Mr. Laird understands the current situation far better than most.
Gold Says That Central Banks Fail To Stop World Deleveraging
Right now, we are looking at the precipice of a total world financial collapse. When the stock markets finally let go, people will wake up to the reality of world financial bankruptcy. Millions of people will lose much of their retirement savings, in a super world stock crash, and you will again see stories about people refusing to open their 401k statements because they don’t want to see how far down they are. That’s what happened right after the Tech crash. Well, think of that episode as merely a taste of what is to come.
I am not exaggerating. To date, the US and EU central banks have put up an astounding $2.5 trillion worth of money to their respective banks and bond markets. They are doing this to prevent a total banking collapse. So far, they are barely staving off a massive wave of bank failures world wide, but particularly in the US and the EU region.
Unfortunately, the ones really on the hook for all this coming market collapse will be the big retirement funds, as they are the ones invested in all these bubbly world asset and financial markets. That shoe will drop.
Bond and securitized debt chaos
We are not going to detail the many stories about how the bond and credit markets are collapsing. But, suffice it to say that many huge credit markets are literally frozen. Whether it’s the mortgage derivative securities, a $3 trillion plus market, or the US GSE markets, something like $ 7 trillion in size (this is Fannie and Freddie and such), or municipal bond markets, $10 or more trillion, and if you can believe this, or even the US treasury secondary market (already existing US T bonds that are sold between investors), these credit markets are freezing up in a big way.
Securitized debt markets new
Just to make a comment on this, the securitized debt market is fairly new. This is where large investors bought big packages of mortgages, or whatever kind of debt you can imagine like credit cards or student loans, that were securitized and sold off. There are many types of these, like CDOs, MBS, SIVs, etc. (CDO – Collateralized Debt Obligations, MBS – Mortgage Backed Securities, SIVs – Structured Investment Vehicles).
This type of lending became a standard in the last ten years, and has effectively absorbed the entire world lending market for everything from corporate bonds to municipal bonds to credit cards to mortgages.
Being a new and very complicated market, and utterly gigantic, the treasuries and central banks have stated that they don’t understand them well enough to try and solve all the problems. The Fed, the ECB, and the BIS have all commented that they don’t understand this new securitized world debt market that has taken over all credit worldwide. This is not a good thing – to put it mildly.
What I am trying to say is that this entire new, huge, world credit apparatus is now imploding.
Gold says central banks are failing this time
Gold has risen in tandem with the credit crisis because the central banks are falling behind the world credit deleveraging since August. If the gold markets felt that the central banks had a handle on the credit crisis and world financial meltdown, ie that cutting rates would work to stop financial deleveraging and economic contraction, then gold would not rise as much.
This time, gold is clearly giving a verdict that Central Banks are failing to reflate a massive world deleveraging, that markets are going to unwind no matter what the CBs attempt to do.
If central banks fail to reflate credit and financial markets, then the only alternative for world governments is big deficits. More programs to bail out banks, more central bank $ trillions to try to stem the losses...Effectively, more debasement of world currencies.
If central banks could succeed in stopping the world deleveraging, and stop the massive financial hemorrhaging on every consumer’s balance sheet, every financial institution’s balance sheets, then gold would not rise as much as it has. If gold expected things to normalize, and gold expected that central banks could escape outright monetization of problem markets this time, gold would not be rising as much as it is now. Gold is up 50% since August, when the credit crisis and world deleveraging began.
Clearly, gold has decided that central banks have lost control of the situation, and the only alternative is more interest rate cuts, which makes borrowing cheaper and is economically stimulative, but lowers the value of currencies. On top of interest rate cuts, central banks are now doing outright bailouts, which also devalue currencies. Outright bailouts are monetization.
World economy credit driven
The trouble is, none of these central bank efforts seem to be working. New big credit markets are freezing up each week. The already frozen ones are not recovering either. Given the fact that our world economy is primarily credit driven, what do you think that means for the next several years for the world economy? I’ll let you answer that yourself.
What is happening in general is that financial and asset markets are deleveraging. The general world economic situation can be regarded this way, as deleveraging, and it won’t be a bad oversimplification. All this borrowing that went into bidding up world financial and asset markets is now going to be unwound. I read a banker’s comment around September that ‘The credit unwinding will not be denied.’
That appears to be exactly what is happening.
USD, Yen, Euro, gold
If you agree with this, then what is the prognosis going forward for the Yen, Euro, and USD? And thusly for gold?
In a nutshell, the central banks will attempt to stop the deleveraging. They have failed so far, and will continue to fail. As the economic contraction worldwide gets more and more painful, they will make more big efforts to stop the deleveraging that ‘will not be denied.’
At some point, I expect one of the central banks among the ECB or BOJ to give up on the reflation efforts (to counteract the deleveraging.) At some point, they will realize that the efforts to stop the deleveraging is futile, and only adding to public debt, and just making things worse.
At that point, everything just finishes unwinding rapidly. It will be very very scary for everyone and every country. The implications are really rather staggering.
Which is why the central banks are fighting this deleveraging as hard as they are now. In fact, the Fed would have cut interest rates faster, but they risk cutting the ground from the USD. Their hands are tied to a significant degree.
The ECB will be forced to cut this year, otherwise the Euro continues its painful strengthening. The Fed has basically no choice but to continue cutting. The alternative would be collapsing stock markets. That will likely happen anyway.
Maxed out this time
Basically, the only solution to massive unwinding of credit, theoretically, is to get borrowing and economic activity to start growing again. That way, world consumers would then start buying everything and, if the economies recover, then the present leverage out now can be carried forward.
But that is not happening, is it?
Why is it not happening? Why are lower interest rates failing to restart things? Because, this time, unlike 2001, people cannot borrow any more. They have already borrowed all they can. This time, cutting interest rates will not work to revive economies. The only other option is government spending, and or using currencies to stimulate things. Using currencies to keep things going will fail because the deleveraging worldwide is way too vast.
If cutting interest rates will not work to revive economies this time, then the deleveraging will continue relentlessly. It is that simple.
And, why are the bond markets freezing, and such? Because lenders of all types, who bought all the securitized debt, now realize that the present levels of debt in every sector, public and private, cannot be kept up. So, then, why do new lending? Everybody is maxed out. The reason for the collapse of the credit markets is also that simple.
The only thing standing in the way of a total world financial collapse right now is all this massive emergency lending by central banks to financial institutions. That means that, when enough big investors realize there will be no economic recovery from cutting interest rates this time, the stock markets will finally collapse big. I expect this to happen sometime this year, election or no election. The problems are just too big.
For the full article, please click link: Gold Says That Central Banks Fail To Stop World Deleveraging
Bottom Line: Things are going to get much worse before they get better and this upcoming week could be the beginning of “the much worse to come”…
As I pen this message, World markets are starting to open with downward pressure (due to ongoing credit turmoil), while the dollar continues its slide into the abyss. Meanwhile, Gold/Silver are up almost ~ 1%.
Hold on to your hats!
Billionaire Jim Rogers Flees The Coming Collapse
The inevitable collapse of the dollar
Death of the U.S. Dollar
Ditching the Doomed Dollar
Ron Paul on Cavuto: Fed's $200 Billion Injection--a sign of desperation
Jim Rogers on CNBC: ABOLISH THE FEDERAL RESERVE and Bernanke
America: Freedom to Fascism
Clearly, regardless of what the talking heads are trying to hoodwink us to believe, our US financial system has enormous problems that will ultimately require massive doses of Fed assistance—at the expense of our Dollar and standard of living.
We’ve already seen Central Banks inject over $1 Trillion since August, but you need not worry—the presses are warm now, but nowhere near overheating --in due course. there will be much more printing to follow.
I was initially thinking, come March 18th, we would likely see a 50bp cut by the Fed, but after today’s fiasco with Bear Stearns I’m now leaning towards a full 100bp (1%) cut. In the process, we may have to wave goodbye to the once almighty dollar as it falls off the cliff and into the abyss.
Bottom line: The Plunge Protection Team, headed by Treasury Secretary Paulson (former chairman and chief executive of Goldman Sachs) has no choice but to cut big and inject large (bailout); else they may witness the foundation of the world’s financial system collapsing around them—spawning the biggest economic depression ever seen.
These guys (justifiably) are scared shitless...
Bear Stearns went on life support Friday, forced to accept an extraordinary bailout package after being deserted by the clients and counterparties at the heart of the 85 year-old Wall Street firm's business.
Triggering a sell-off throughout the financial sector, Bear shares slumped 47% to $30, their biggest one-day drop in at least two decades.
Bear said the rescue consists of getting short-term financing from the Fed, through J.P. Morgan, after its liquidity "deteriorated significantly" during the past 24 hours.
"The financial system supervisors are attempting to prevent this company's problems and the perception of problems from rippling through the system to other financial players," David Hendler, an analyst at CreditSights, wrote in a note to investors. "Given Bear Stearns' huge impact in the mortgage, derivatives and funding markets, we sense that a salvation acquisition is the most likely possibility."
Bear's crisis is the latest sign that the U.S. financial system is cracking under the weight of a global credit crunch that was sparked by last year's subprime mortgage meltdown. The Fed has slashed interest rates and central banks have injected roughly $1 trillion into the banking system since then, but the crunch continues.
The Fed's decision to bail out a brokerage firm recalls other financial crises in which authorities tried to limit turmoil by propping up institutions including Penn Central, Continental Illinois, Orange County, California and hedge fund Long-Term Capital Management.
"What is different this time is that the dominoes are falling in so many different sectors, markets, industries and countries -- all at the same time and there is yet no end in sight," said Sherry Cooper, chief economist at BMO Capital Markets.
Bear's situation turned dire this week by growing concerns that it's struggling to trade with some counterparties. Some market participants have been worried about Bear's exposure to the dwindling mortgage business and its holdings of securities backed by home loans.
Trading is the lifeblood of brokerage firms, so when counterparties pull back trouble often ensues.
The New York Fed said its board unanimously backed the JP Morgan plan. "The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system."
Bear Stearns Posts First Loss in 84 Years
NEW YORK (AP) -- Bear Stearns Cos., the No. 5 U.S. investment bank, said Thursday a bigger-than-expected write-down in its mortgage portfolio caused the first quarterly loss in the company's 84-year history.
Chief Executive James Cayne, under pressure like other chief executives on Wall Street, warned in November that the investment bank would take a $1.2 billion writedown from subprime-related investments and fixed-income trading. And, like rival firms, the losses ended up being much steeper.
Bear Stearns Collapse Reveals Crisis in Confidence
The contrarian --As the nation arguably draws closer to a possible financial meltdown than at any time in the past 79 years, it may no longer be relevant to question whether or not we are actually "in a recession."
As a matter of fact, it is becoming increasingly apparent that the Federal Reserve may be running out of thumbs with which to plug the emerging holes in the dike.
And it is not necessarily encouraging that the president found it necessary to assure the public, in a televised address from the Economic Club of New York, today, that the economy will bounce back.
The package of proposals unveiled yesterday by the Treasury Department, incidentally, have been described as only involving a greater degree of self-policing by the financial industry, and have been characterized by critics as being too little and too late.
Further underlining the seriousness of the situation, the president's address was followed a little later today by a televised speech from Federal Reserve Board Chairman, Ben Bernanke, discussing the credit crunch and the its origination in the orgy of sub-prime mortgage originations.
Today's crisis swirls around Bear Stearns, a leading global investment banking, securities trading and brokerage firm, in business since 1923. Alan Schwartz, president and chief executive officer of The Bear Stearns Companies Inc., said, "Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity. We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated."
CNBC reported this morning that the problems resulted from a run on the firm by its customers.
As a result, the company's stock plummeted as much as 40% today and the Fed quickly enlisted the services of JPMorgan Chase & Co. to provide an emergency loan facility and presumably to execute the purchase of certain Bear Stearns assets at steep discounts.
The general situation is generating considerable controversy over whether it is proper for the Fed to bail out institutions that abused their fiduciary responsibilities and borrowers that took on excessive credit under ill advised terms. Questions are also being raised over potential favoritism on the part of the Fed, especially as pertaining to its tapping of JPMorgan Chase & Co. to take over some of Bear Stearns' assets at bargain basement prices.
Bear Stearns' bailout has echoes of 1907 panic
BOSTON (MarketWatch) -- Over a century after John Pierpont Morgan single-handedly staved off a potential run on U.S. banks -- by forcing rivals to come together to save their own -- his name is also linked to the latest bailout of a teetering financial institution.
Before there even was a Federal Reserve, financier J.P. Morgan during the panic of 1907 played a key role in preventing a potential disaster for financial markets. Now, J.P. Morgan Chase & Co. is working with the Fed to help save Bear Stearns by providing it with emergency financing…
Of course, this isn't the first time the Fed has joined hands with Wall Street to orchestrate a bailout.
The most recent case was its role in saving Long Term Capital Management. The hedge fund, run by some of the best and brightest from Wall Street and academia, was undone by leverage during the credit shakeout in the late 1990s.
Similarly, investment banks and hedge funds in the latest credit crisis have also been burned by the use of leverage. Several institutions have already been overwhelmed by margin calls triggered by plunging values in mortgages and other bond assets.
There are also some parallels to the financial panic in 1907, which was triggered by an unwillingness of some New York banks to make loans -- unwillingness that spread across the country. Stock investors were anxious over market declines, the economy was in the grips of a recession, and lending was tight.
So, what are the impacts of another Bailout?
Inflation, falling dollar and a much lower US standard of living… It’s that simple!
As one of my favorite inflation writers (the Mogambo Guru) likes to say: "We're all friggen Doomed"!
Pretty accurate reporting: Inflation is a threat, prices are rising fast, the dollar is falling hard (record lows), and the US economy is faltering, but they completely fail to address the underlying reason for many of these problems--too much cheap/easy credit used to blow up the housing bubble (a bubble engineered by Greenspan to replace the popped tech/stock market bubble), followed by excessive monetary printing/injections to bail out our collapsing banking/financial system -- a valiant effort to keep the game going a bit longer.
I'm afraid however, as the economic fallout from our massive housing/credit bubble continues, Gvt bailouts will pick up steam...
The inflation wave we're seeing today (early 08) is merely just the beginning... I suggest you hold on to your hats and wallets--because this thing is going to get quite nasty over the coming months/years.
We already know the Federal Home Loan Bank (FHLB--created by Congress during the early days of FDR's administration to shore up failing banks and provide money for housing) covertly provided a massive (public money) lifeline to Bankrupt Countrywide late last year, now the Fed & PPT are doing more of the same, but in a more overt and massive scale.
FHLB Loans to Countrywide
FHLB Atlanta had, according to the most recent filings with the Securities and Exchange Commission (SEC) made advances to Countrywide of 51.1 billion as of September 30 of this year. The company, widely regarded as the largest mortgage lender in the U.S., had pledged 62.4 billion of mortgages as collateral for the advances. These transactions represent 37 percent of the FHLB's total advances as of the end of the third quarter and 78 percent of Countrywide's total portfolio of mortgage loans.
Fed Plans to Lend $200 Billion to Banks
Scrambling to ease the strain on the credit market, the Federal Reserve announced a $200 billion program on Tuesday that would allow financial institutions, including the nation’s major investment banks, to borrow ultra-safe Treasury money by using some of their riskiest investments as collateral. Wall Street responded with a rally, with the Dow Jones industrials surging more than 400 points.
This was the central bank’s second effort in a week to unfreeze the nation’s panicky credit markets, where investors have become too frightened to finance even conservative debt offerings, which in turn has caused a cash squeeze at seemingly solid financial institutions.
Stock markets soared after the announcement, fell back in midday trading and then regained momentum in the afternoon. At the close, the Dow industrials were at 12,156.81, a gain of 416.66, or 3.6 percent. It was the biggest one-day point gain for the Dow since July 2002. The Standard & Poor’s 500-stock index was up 3.7 percent, and the Nasdaq composite index gained 4 percent.
The Fed normally lends Treasury securities to banks for just a few hours. Under the new program, money will be lent for 28 days and the central bank will accept nongovernment mortgage-backed securities — the source of the current crisis in the credit markets — as collateral. The Fed will require that the assets, which are linked to soured home loans, have a premium credit rating.
The new program, dubbed the Term Securities Lending Facility, will effectively allow strapped financial institutions to hand over potentially damaged securities to the government in exchange for either cash or easily traded Treasury securities, some of the safest in the market.
“If these institutions are able to extend out more credit as a result of this, it may take more pressure of the housing market and mortgage quality,” said Mark Zandi, chief economist at Moody’s Economy.com.
But Mr. Zandi said he was skeptical that the Fed’s actions would address the root of the current problems in the credit market.
“I don’t think it helps determine the appropriate price for these securities,” he said. “It doesn’t solve the underlying problem of mortgage delinquencies and defaults, which could at some time threaten the Triple-A securities.”
The Fed will lend the Treasuries through weekly auctions that begin March 27. The government will also accept mortgage-backed securities issued by government-sponsored companies like Fannie Mae and Freddie Mac.
Last week, the central bank said it would offer up to $100 billion through a new auction program that allows financial firms to take out loans at wholesale rates.
On Tuesday, the Fed also increased currency swap lines with the European Central Bank and the Swiss National Bank, to $30 billion and $6 billion. That is an increase of $10 billion for the European Central Bank and $2 billion for the Swiss bank.
Well folks, I think we're merely seeing the first stages of the bailouts I wrote about last weekend: Final US Economic End-Game.
Much more to come as the dollar is printed/injected to oblivion