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Idiocy is usually described as "endlessly repeating the same process, hoping for a different result". Lawrence Summers, Timothy Geithner, Nancy Pelosi, Joe Biden et al are straining at the leash to get the Bailout Ball rolling once again. The stabilization of the financial sector, as elusive as it has been so far, has become the Holy Grail of Economic salvation. That makes $8.5 Trillion worth of trying and $0 of result. The Knights of the Oval Table are gathered to plan their mission as their beleaguered subjects are trying to batter down the castle gates. It's no small wonder that Geithner wants to get the money out the door as soon as the end of this week.
The most recent report from the Comptroller of the Currency seems to have gone unnoticed in Washington and the press. If banks are not lending because of increased capital requirements in the face of Credit Default Swaps, other derivatives and loan defaults then the report goes a long way in describing exactly why.
Credit Exposure to Capital ratio. Amounts in $Millions
Bank | Assets | Derivatives | Credit Exposure to Capital Ratio |
J.P. Morgan Chase | $1,768,657 | $87,688,008 | 400.2 |
Citi | $1,207,007 | $35,645,429 | 259.5 |
Bank Of America | $1,359,071 | $38,673,967 | 177.6 |
HSBC | $181,587 | $4,133,712 | 664.2 |
The assets comprise largely of Real estate, residential mortgage, student, car and credit card loans. With the rise in defaulting mortgages, delinquent credit card and other debt the problem can only get worse. To recapitalize the banks to the point where exposure is low enough to encourage lending would take trillions and that's before any more fallout from the collapsing economy. Lending also requires creditworthy borrowers, the number of which is in a nosedive. The $165 Trillion in notional derivatives and the associated credit risk related to $15 Trillion in Credit Default Swaps illustrated below is the poison apple that the taxpayer has been forced to bite into.
Bank | Total Credit Derivatives |
J.P. Morgan Chase | $9,177,731 |
Citi | $2,939,783 |
Bank Of America | $2,480,672 |
HSBC | $1,152,948 |
When the "credit crunch" began and Washington began the rush to solve the problem with taxpayer cash, no accounting of this derivative nightmare was ever brought to bear. In all the deliberations and press releases there was not a single mention of the fact that the primary cause of the bank collapse was due to these "instruments of mass destruction". It was widely discussed in the blogosphere but, like the real reasons for invading Iraq, never made it in to the mainstream media. As with Iraq, one would have to assume that the reason was to obfuscate the facts and cajole a shocked public in to accepting as a remedy whatever was proposed by Paulson, Bernanke and Bush. The latter had to be completely aware of the OCC data at the time and to assume that they did not is simply not credible. It would have been completely obvious that $700 Billion would do absolutely nothing to alleviate the crisis. As witnessed in the ensuing months since the TARP bill, how the money was used has been obfuscated and concealed.This was always a scam.
Even as the economic indicators broke one record after another, the recipients of the TARP funds were selling Credit Default Swaps to each other, betting on each other's downfall. They knew the game was up and wanted to profit on the way down as much as they had on the way up. All the major Banks on Wall St. are seeing mounting losses and the failure of one will increase the losses of the other. They are joined at the hip and will fall like a house of cards.
The question begs to be asked, and this is where the cynic in me dominates, what's the plan? When they do fall will the Government nationalize the last one standing for the good of the country and socialize even more of the losses? This would be the coup of the millennium and give birth to a new Governmental paradigm. To have this complete before the economy and society have completely broken down would be a good reason to declare a real National Emergency and declare Martial Law, the legislation, executive orders and infrastructure of which are already in place. How can one not be a cynic when we reflect on what has happened so far?
The numbers are in and the scam stands exposed to those who will look. Which way the story unfolds from here is anyone's guess. But I am ready to bet that Congress will not include the OCC data in the upcoming debate on the next round of cash for the Banks.
“The focus isn’t going to be on the needs of banks; it’s going to be on the needs of the economy for credit,” Lawrence Summers on Face the nation, 19th January. In the same segment, both he and David Axelrod agree that Paulson's use of the first $350 Billion of the TARP money was a failure..
"The point is to get credit flowing again to businesses and families across the country -- that hasn’t happened with the expenditure of the first $350 billion"
The proposal ? Set up an "aggregator" or " Bad" bank in to which Wall St. can pour it's toxic waste or keep it on their balance sheets while being guaranteed by the taxpayer. Looks like the focus is going to be on the banks after all. The fact that the banks would be unloading more than a trillion dollars in worthless junk, paid for by the taxpayer, does not seem to Summers and Axelrod as a particularly bad idea.
The emphasis on getting credit flowing again for car loans, consumer credit and mortgages ony serves to aggravate the basic problem that these pundits seem to be ignoring; Consumers are flat broke and overindebted as it is, they don't need more credit; they need more jobs. The Banks don't need any more free money; they need to be put in to bankruptcy to purge the system of the junk on which they have based their business model. The reason the banks refuse to lend is that they are holding on to the money to cover their accelerating losses. As each company fails, as each debtor loses their job the dominos are falling faster and are obliterating the banking sector.
When the original disastrous TARP was pushed by the Treasury the indispensable actions that were not taken were regulation, revelation of the Banks' balance sheets and oversight as to how the money was being used. Any rational investor would want to know what they were investing in but this minimum requirement was brushed aside in the rush to hand over taxpayer funds. As if this were not enough to start alarm bells ringing the refusal of the Fed and the financial sector recipients to open the books to public scrutiny puts the bailout on the same stage as Bernie Madoff. The latter engaged in fraud to rob his investors just as blatantly as the fraudelent bailout robbed the taxpayers. Now we are expected to believe that, without further ado, repeating the same failed policies is needed to cure the economic woes of the country.
Let's examine the results of similiar policies in Europe.
The U.K, Ireland, France and Germany are among the other victims of the same mistakes. Ireland and the U.K., after pumping billions in to the banking sector, have only succeeded in pushing themselves to the verge of bankruptcy and reduced the available capital to do anything actually constructive. Nicolas Sarkozy succeeded in getting Societe Generale to break even by injecting taxpayer cash . What kind of logic is it that says that this is a good thing ? Any unprofitable company can break even if it receives taxpayer money to blot out the red ink. The fact remains; it is an unprofitable enterprise and, by any interpretation of market rules, should fail to free up more profitable ones.
The formation of the "Bad Bank" will prove to be another miserable failure. The time to call a halt to the madness is long since past and more rational policies need to be coming from Washington before the country goes bankrupt.
Small business owners have stood up and discredited the tax incentives that were meant to convince them to ignore market reality and open the door to new employees. The measures that supposedly address the enormous foreclosure problem seem to change from day to day and only work to the advantage of the banks. Obama and Bush have just signed off on an additional $20 Billion in cash and $118 Billion in asset guarantees for Bank of America which already received $25 Billion last year and is now choking on Merrill Lynch's losses. The President Elect and his new Stimulus Czars are not paying attention and are proceeding to continue the same destructive formula adopted by Paulson.
The media bombardment is in overdrive to convince the public that herein lies the path to salvation. First we had the guarantee that three million jobs would be created out of thin air only to be bumped up to four million. These are nice round media friendly numbers which have no basis in reality. With each passing day the sands are shifting on exactly how the money will be spent. Ben Bernancke' s speech at the London School of Economics on Tuesday confirmed that the emphasis has now shifted to bailing out the banks one more time by buying more toxic assets to clean up their collapsing balance sheets. After seeing $8.2 Trillion vanish in to Insurance, Banking and a moribund auto industry with absolutely no concrete result except for the tightening of credit, the increasing losses of Big Banking and the GM chairman having to queue for his airline ticket, the Fed, backed by Obama, continues to beat the dead horse.
The scariest aspect of this is the speed at which this 18 wheeler disaster is being driven toward the rabbits in the headlights. We haven't yet seen any senators or reps being threatened with the imposition of martial law, but we have seen Obama threaten to veto his own fellow democrats if they do not rubber stamp the proposals he has been instructed to deliver. Nobody has even taken a vote yet and already the gloves are off. Bailout Bill One and the Patriot Act were pushed just as hard. The only legislation that gets the hard sell seems to involve either stealing the taxpayer's money or their rights.
Japan's utter panic was summed up by Akio Mikuni, President of the ratings company Mikuni & Co. when he suggested that "Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession". For good measure.."The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes drastic measures to help bail out the U.S. economy"
China's Central bank governor Zhou Xiaochuan announced that it will allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta and exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations. His tongue in cheek explanation?
"The US dollar is unlikely to be stable next year and later. And the likelihood of the United States issuing more money in the near future adds to the depreciation risk in US-dollar-denominated assets and trade settlements." Source
A previous report describing China's proposed 7 fold increase in Gold reserves is also indicative of its gradual pullback from the doomed dollar.Gold has been slowly rising as investors, previously struck rigid with fear, are now taking a breath and looking at real value. The old adage of Gold being a safe haven is coming back in to play and no amount of gold price manipulation on the exchange is going to change that. With China's announcement of its intention to build up it's reserves to 4000 Tons, we can expect other Treasury Note holders to be thinking along the same lines. This can only lead to a bullish gold market and a collapsing market for Treasuries. Treasury Note doomsayers are a growing community amongst which we can count former Bank of England policymaker, Willem Buiter, who summed up his position thus
"Even the most hard-nosed, Guantanomo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed"
And Barrons is announcing a coming Treasury Bubble Pop..
"Treasuries offer little or no margin of safety if the economy unexpectedly strengthens in 2009, or the dollar weakens significantly, or inflation shows signs of reaccelerating."
Forbes is predicting China's future diversification of it's reserves as Treasury Bills become more of a liability..
"Washington's issuance of mountains of debt to bail out the U.S. economy will only make T-bills less rewarding, putting the dollar's future strength in question. Various economists are saying it will be in China's interest to diversify in the near future."
We can discount the unexpected strengthening of the economy in 2009, but inflation has to rise once those trillions are in the playing field and the dollar will be toast. Bonds, yielding next to nothing, don't exactly present an attractive investment opportunity. The only reason Treasuries have been so attractive up to now was that they were presumed to be a safer harbor than equities, commodities or cash. No amount of "stimulus" plans can fool all the people all the time. After the initial massacre, investors are taking a moment of reflection and taking a more long term approach. We are now in an era of survival and protectionism rules the day.
One could not help but notice the constant emphasis, during and since the Obama campaign, on Climate Change and Green energy programs. The world has a real need to develop more oil independent energy sources and halt the wholesale rape of Mother Earth. However, hearing these pleas from Washington to London from the highest offices in the land only demand more thorough investigation. When one remembers that these same high offices have been responsible for the Iraq War, The Afghanistan War and the destruction of the economy, taking anything at face value is a precarious enterprise.
As in all schemes brought to life by Government office, the first question that begs to be asked is Qui Bono? When a Carbon Tax or a Carbon Cap and Share program is announced the one thing that can be assumed is that it will be designed to make money for those who usually make the money all along. To believe that Washington or London have developed a more altruistic nature and suddenly want to save the world, is to deny decades of Political and economic history. The road to discovering the real truth behind the plan is to follow the money, the players and the science.
On the Change.gov website there was a news release about the Bi-partisan Governors Global Climate Summit in Los Angeles, California. Among the attendees were Governors Rod Blagojevich (IL) and Arnold Schwarzenegger (CA). (The Terminator and The Auctioneer were playing their part in the birthing of the new “impending disaster” just as much as Condi Rice, Bush and Rumsfeld played their part in creating the “Mushroom Cloud” scenario with Iraq). Mr. Obama had prepared a speech to address the conference via video. From the speech:
“Few challenges facing America – and the world – are more urgent than combating climate change. The science is beyond dispute and the facts are clear. Sea levels are rising. Coastlines are shrinking. We’ve seen record drought, spreading famine, and storms that are growing stronger with each passing hurricane season.”
We are presented with a doomsday scenario that seems to pale in to insignificance compared to the current Financial Armageddon which is approaching with ever greater speed. Action must be taken or otherwise we will be paddling canoes to the food shelter next year. The statement is meant to scare the population in to accepting more control over their lives by presenting themselves as the Saviors. The statement is actually a motley collection of disproved assumptions. The consensus on Global Warming is seriously fragmented and former IPCC scientists are coming out of the organization in droves. They attest to political manipulation, gross misrepresentation of scientific studies to comply with the official line and a Heretic hunt for the unbelievers reminiscent of the Dark Ages. Climate skeptics have been likened to “Flat Earthers”. The irony in this is that the Earth was found to be round by using scientific deduction whereas Global Warming has been concocted through the selective manipulation and outright falsification of scientific data.
The recent Global Warming conference in Poznan in Poland was visited by 650 eminent scientific minds to refute the very basis of the Global Warming debate. Though Al Gore had said previously that the facts are in and the debate is over, it would seem he has a long way to go before he convinces everybody. The statements of these scientists have been compiled in to a minority report on the U.S. Senate committee on Environment and Public Works. Here are some of quotes..
“Anyone who claims that the debate is over and the conclusions are firm has a fundamentally unscientific approach to one of the most momentous issues of our time.” - Solar physicist Dr. Pal Brekke, senior advisor to the Norwegian Space Centre in Oslo. Brekke has published more than 40 peer-reviewed scientific articles on the sun and solar interaction with the Earth.
“The models and forecasts of the UN IPCC "are incorrect because they only are based on mathematical models and presented results at scenarios that do not include, for example, solar activity.” - Victor Manuel Velasco Herrera, a researcher at the Institute of Geophysics of the National Autonomous University of Mexico
“The Kyoto theorists have put the cart before the horse. It is global warming that triggers higher levels of carbon dioxide in the atmosphere, not the other way round…A large number of critical documents submitted at the 1995 U.N. conference in Madrid vanished without a trace. As a result, the discussion was one-sided and heavily biased, and the U.N. declared global warming to be a scientific fact,” Andrei Kapitsa, a Russian geographer and Antarctic ice core researcher
“For how many years must the planet cool before we begin to understand that the planet is not warming? For how many years must cooling go on?" - Geologist Dr. David Gee the chairman of the science committee of the 2008 International Geological Congress who has authored 130 plus peer reviewed papers, and is currently at Uppsala University in Sweden.
“Creating an ideology pegged to carbon dioxide is a dangerous nonsense…The present alarm on climate change is an instrument of social control, a pretext for major businesses and political battle. It became an ideology, which is concerning.” - Environmental Scientist Professor Delgado Domingos of Portugal, the founder of the Numerical Weather Forecast group, has more than 150 published articles.
“The [global warming] scaremongering has its justification in the fact that it is something that generates funds.” - Award-winning Paleontologist Dr. Eduardo Tonni, of the Committee for Scientific Research in Buenos Aires and head of the Paleontology Department at the University of La Plata.
Look at the report linked above to see all the observations made on the current debate which Al seems to think has been settled. A group of these scientists also sent a letter dated 14 July this year to the U.N. Secretary General to “ask you to redress the lack of scientific integrity of the UN’s Climate Change Panel (IPCC) and to stop making reactionary and futile ‘Climate Change’ recommendations that hold back the developing world.” As an addendum to the latter data is included that disproves the assertions of the IPCC and exposes grave manipulation and outright fraud. Yes Al, the facts are in and the debate is far from over.
If we assume that Global Warming is indeed a political potpourri of half truths and lies, then we have to see why so much trouble has gone in to its creation. One simple answer? Money. When we look at the campaign donors to Obama’s campaign, you could be forgiven your inevitable cynicism when we see the list contains the biggest players on Wall St. (Click image to enlarge)
JPMorgan Chase, Goldman Sachs, Citigroup and Morgan Stanley have already benefitted enormously from the T.A.R.P... JP Morgan Chase used some of it to buy Washington Mutual for $1.9 Billion and Bear Sterns $1.1 billion. JPMorgan along with Goldman Sachs control the Depository Trust & Clearing Corporation which is responsible for reporting on the derivatives market. Citigroup after receiving Billions in taxpayer money to try and get them out of a hole, have been using the money to create new derivatives that will be overseen by the DTCC. The interdependence between these Wall St. giants and their revolving door with Government power has been amply demonstrated by the policies of Ben Bernanke and Henry Paulson. While there was unlimited money for the banking giants, the taxpayer was ignored and robbed. These are the same players who financed the new administration and packed the ranks of Obama’s transition team with its acolytes. Remember Obama voted without hesitation for the Bailout Bill and encouraged his fellow democrats to do likewise. So what does Obama owe his benefactors?
By ignoring the real science and perpetuating Al Gore’s fraudulent disaster scenario Obama has taken up the torch and will carry it high for the profit of those who bankrolled him in to office. It will come as no surprise that Goldman Sachs has bought in to the Carbon offsets business. That is exactly what it has become; a huge business opportunity that will bring enormous potential for profit. The article sums it up quite succinctly “that banks buying into the offsets business could benefit if a federal carbon-trading system took hold in the United States. President-elect Barack Obama favors such a system, but some experts think that the financial crisis will cause Congress to delay passing a cap-and-trade bill.” So now we can see the dots connecting between a project which started as a “Save the Planet campaign” to a lucrative business venture. Obama’s insistence that Global Warming is top priority only goes to show just how quickly he intends to make good on his deal with Wall St.. Even Al Gore himself has his own investment in the Carbon Trading scam through his firm Generation Investment Management. Everybody except the general public, whose welfare, we are told, is such a top priority, is getting on the latest Investment gravy train. They tapped out the taxpayers by bleeding them until they were dry so now it’s time for a new investment opportunity that will cause untold hardship for the poor, impose a tax burden on industries trying to get to their feet after being knocked flat and inject another poison arrow in to the real economy.
In 3 months, GM and Chrysler will have to become a profit making enterprise by reducing costs to compete with Japanese models. Firstly, profit takes place in a healthy economy not in the grave recession we are in right now. The Japanese, who actually have a very sound business model and make cars that people want to buy, are seeing profits collapsing at an ever increasing rate. Toyota has been making affordable and fuel efficient cars for more than a decade and now GM and Chrysler have to create an equivalent model using $17.4 Billion in 3 months. The U.S. auto industry has just received a stay of execution until March 2009. The real concern in March will not be just how "viable" the industry is but how do we get the loan back. Will the U.S. taxpayer be included at the bankruptcy hearings when the inevitable chapter 11 filing has been handed over ? Judging by the past fiscal irresponsibility of the Government, I wouldn't hold my breath.It will most likely vanish in to the same hole as the $8.2 Trillion thrown at the banking racket.
This whole deal is nothing but Political posturing by Bush and Paulson who would like to finish the year with an illusory aura of fiscal responsibility. They don't want the consequences of the $250 Billion in credit default swaps tied to GM to happen on their watch and prefer to leave it to the next administration. One can only presume that with hedge funds collapsing and economic indicators headed towards uncharted territory, another round of bank failures would leave a bad impression on their otherwise sterling handling of the Economic Crisis. The money could just be given to the auto workers directly to help them after they have lost their jobs. Actually the $8.2 Trillion that Henry and Ben gave away already could have been given to the people who lost their jobs and/or their homes, but it didn't happen that time either. When asked exactly what happened to the money the Fed just refused to disclose the information. But I reckon things will be OK this time around as Paulson said the conditions set out in the loan were to "protect the taxpayers to the maximum extent possible." Bailouts, as has been demonstrated since they started, were never about helping the taxpayer cope with the crisis, but only served to lull a nervous public in to the illusion that something concrete was being done to resolve the problem.
With the waves of destruction brought about by the Global Financial Meltdown there comes a defining moment of obligatory reflection. If such disaster has been visited upon the Globe, what lessons can be learned to dismantle the mechanism that brought it about in the first place? The remedies proposed by Governments the world over are not working as every real economic indicator confirms. The eternal corrupting influence of Money on Government policies and planning have all but guaranteed that whatever methods are employed to redeem the economy from the whale’s mouth, they will be like drops of rain meeting a river. The one overwhelming factor that does not seem to be factored in to the equation is that to get oneself out of a financial mess one needs financial resources. Not the borrowed kind but the saved kind. This is where China holds an Ace.
The U.S. has a real financial shortfall of $53 Trillion which it can never pay back. The U.K. is on the way to destroying its currency and increase its debt as is France. China, on the other hand, is in a very unique position in that it has $1.9 Trillion in foreign currency reserves. This puts it in a very unique position with regards to the rest of the world. While the latter was absorbed in consuming everything that China produced, the Chinese were amassing an enormous cushion of real cash that they can now use to divert the focus away from an export driven economy to one that begins to focus on domestic demand. The economic fundamentals for a recovery in China are more evident than in the rest of the world because there has not been the same credit driven overconsumption that was the driving force for GDP in so many other countries. Even on an individual basis “Household savings climbed 382.7 billion Yuan from the previous month (October 2008).
The Central Economic Work Conference’s $585 Billion stimulus plan addresses several areas that are essential to increasing domestic consumer demand and purchasing power. Housing projects for urban dwelling low-income families, subsidies for low-income rural families, funds for Medical care and education. China is also supporting the Steel, Automotive and telecommunications industries through lowering taxes and encouraging innovation through research and development subsidies. Imports of iron ore are increasing and the steel produced is being stored for future use. The latter point is notable as it presents China with an advantage in manufacturing baseline costs as the fall in shipping and commodity prices has meant that it has built its stockpile at bargain basement prices. The table below shows the investment in the country's fixed assets.
This is real investment with real available money. China saved up for the rainy day and, now it has arrived, can put their resources to work for them. It will take time for China to turn around its gigantic economy but at least they don’t have to worry about paying off an unpayable debt to the rest of the world. While every other country is desperately trying to formulate a rescue plan fueled with an increase in the national debt, China does not have this worry and this will form its primary advantage.
Let's analyse one part of the stimulus plan; Infrastructure. The crash of the housing bubble has created an enormous pool of job hungry construction workers. The latter will be newly employed by the Government, i.e. the taxpayer, i.e. themselves with their own tax dollars going to pay their wages. The one speck in the ointment here that comes to mind is how much of these tax dollars are going to be needed to even just pay the interest on the Government Debt? Assuming we put the latter on the back burner for a while and get on with the business of rebuilding the Economy, the health of suppliers to the construction industry will improve as their tax dollars are recycled back to them as wages. With each newly employed individual comes an extra paycheck, a sum of dollars that can be spent in the real economy. Paying off mortgage debt, car debt and credit card debt are going to remain top priorities. The one snafu here and the big question that needs to be asked is how much will the Government pay all these new employees? Industry standard, union enforced remuneration with benefits will definitely not be on the cards as frugality for the general population as opposed to generosity for the financial population, will be the order of the day. Billions allocated for Medicare and Medicaid will also eat in to the apportioned cash. If the former “wealth” was only obtained by living beyond one’s means then the amount of income needed to get out from under it after being unemployed for months would have to be greater, not less than before. So being employed at low wages by the Government will increase the amount of money brought in to a household but will not be on a level to recreate the Nirvana of yesteryear. Call me cynical but can you say “Iraq Reconstruction”? This reconstruction will be the biggest boondoggle in American history. The same companies involved in the “reconstruction” of Iraq will most likely be the lucky recipients of Government contracts. Halliburton and KBR must be salivating right now as yet more taxpayer dollars will be winging their way to them in 2009. If Iraq was one of the golden opportunities for corruption, think of how much more opportunity there lies in the reconstruction of America.
Emerging markets, dependent on mature market consumption, are teetering on the edge of Bankruptcy as Private capital inflow has been drying up and is forecast to reduce by half next year. The volume of world trade is set to decrease by 2.1%, the biggest drop for 33 years. Oil exporting countries from Venezuela to Russia are seeing revenue crash as demand across the world decreases. Poor countries, on the other hand, have experienced a decrease in the cost of living as food and oil prices drop. In an unforeseen twist of fate, Globalisation has enriched poorer countries and impoverished richer ones.
Greece is in the throes of a revolution as their people mount a massive protest against the country's history of corruption and economic mismanagement. Originally born of the alledged murder of a 15 year old boy by Greek police, the momentum was maintained by deeply rooted history. Is this a sign of things to come ? As economic conditions deteriorate across every continent, blame will be apportioned and it won't be hard to find easy targets. Shortage of food, homelessness, unemployment are now realities for an ever increasing number of people who have never known a life like this before. We are watching our own Governments waste the money we could be using constructively to prepare and mitigate for harder times. Attempts to restore the economic activity of nations through liquidity injections in to failing banks will achieve nothing when the basics of this same economy rely on a volume of activity that was sustained by inflated wealth through credit. The only reason we bought so much stuff was because we could always pay the bill off later.
So it's no big surprise that "We're almost in an air pocket, where we don't have a new global driver of growth." as said by Thomas Mayer, the chief European economist for Deutsche Bank. Sorry Thomas, we're all tapped out. Unrealistic growth was the problem in the first place. Growth of an economy through a regulated monetary system, consumer saving, profits ploughed back in to production, balanced budgets is one thing, but unhinged consumption and imaginary accounting by the Financial "Industry" to inflate wealth was always destined to arrive at cardiac arrest. Financial companies are supposed to provide credit to individuals and real industries to grow the economy. When they discovered that there was money to be made giving loans to anyone who could hold a pen, they officially became usurers. When they opened the casino and took bets on anything that could go one way or another, from the economic health of a country to whether interest rates would go up or down, they opened the gates to their own destruction and consequently that of their victims. Even ordinary citizens got caught up in the act as stocks were bought and sold like candy. We have a Stock market that may as well take it's cue from the atmospheric conditions on Pluto. It certainly has nothing to do with economic realities on the ground.
Lack of regulation and the quest for short term profit at the expense of long term sustainabilty has brought the World to it's knees. A new paradigm is desperately needed to restore sanity to a world gone mad. As we travel the downside we cannot expect the same failed mechanisms to save us. The actions of Governments the world over so far is to try and blow air in to a burst balloon; no matter how hard they blow it will never be able hold it's form. It's time to admit that we have overextended the system to the inevitable breaking point and now the remaining pieces must be reassembled in to something that does not need wizardry to keep it upright.
Pundits the world over are espousing many different analyses and solutions, but in most cases, Economic fundamentals play a minor part in the dialogue. Fortunately there are people like the FDIC chairman, Sheila Bair, who seem to have a grasp on what is actually needed..
"We will dig out of this. And when we do, I hope for a back-to-basics society - where banks and other lending institutions promote real growth and long-term value for the economy, and where American families have rediscovered the peace of mind of financial security achieved through saving and investing wisely. We need to return to the culture of thrift that my mother and her generation learned the hard way through years of hardship and deprivation. Those are lessons learned that the current crisis is teaching us again."
This actually sounds like a good plan. By attacking the traditional energy "devil may care" attitude, the nation would become less dependent on foreign oil as it would by developing new "Green" cars. A well educated, employed population working in an efficient manufacturing infrastructure would increase production and boost exports. But, the question needs to be asked. Where is he going to get the money ?
If the U.S. already owes $63,600,000,000,000 in debt, ($10,600,000,000,000 in National debt and $53,000,000,000,000 in pledges to Social security and other programs) that it has no way of ever paying off, where is it going to get another few Trillion to basically employ itself in to economic prosperity ? The latter, for it to become reality, needs the trust of foreigners to finance yet more profligate spending with no hope of ever receiving the cheque in the mail. China' s patience is wearing thin and absolute panic is starting to set in as witnessed by Jiwei Lou, the chairman of China's largest sovereign wealth fund saying he "does not have the courage" to plow money into Wall Street financials. The latter statement leads on to the logical sequitur that if the U.S. financial sector is two thirds the way out of the window, the U.S. government's financial creditworthiness can't be far behind. Foreign Central Banks have dumped $120 Billion in U.S. agency debt in the last 5 months, 10 year Treasury Bonds are yielding 2.73%, 3 month bonds at .01%. Who's interested in rates like these when, even in the current deflationary phase, we are looking at 2.7% inflation that will inevitably rise as Greenbacks, backed by zip, nada, flood the country like manna from Heaven.
To pay off the National Debt along with all the unfunded social security funds each American Household would have to pony up in the region of $500,000. Does Mr Obama realize this or not ? Surely his "Economic advisers" would have given him the bad news already ? If he had to be told this in the first place, then there would be real reasons to worry about his leadership skills. It would seem that the only plans coming out of Washington these days, regardless of old or new administration, are formulated to address only one thing; keeping the voters thinking that there is a solution that only demands a little pain and continually throwing the same voters' money at the problem will fix it. The recipients amongst the Banking and Auto community know it for what it really is; free handouts from the poor and middle class to the Rich. The truth of the matter is that, in order to rebuild the house, the existing monstrosity needs to be demolished and new foundations laid..this time not just of sand.
Now is the time that the U.S. must start SAVING money instead of spending even more of what it does not have. By sending another 20,000 troops to an already destroyed Afghanistan to pound it even more, maintain the troop presence in Iraq and continue to head towards a confrontation with Iran, Russia, China and Pakistan, he will be wasting hundreds of billions of dollars that could be better spent at home on the people who really need it. Refusing to take this particular fork in the road would be one way of funding his Economic recovery along with abolishing the tax cuts for the rich,( which he promised to do and is now extending them to 2012), closing foreign military bases across the world, bring the troops back home, stop spending billions in blackbag operations trying to subvert democracy across the world and bankrolling Tin Pot dictators from Haiti to Pakistan.
Mr Obama has arrived at the fork in the road and needs to choose wisely. He is staring at a chance, probably the last, to save his country.One path leads to rebuilding her using a realistic economic plan and forming pragmatic geopolitical relationships around the globe. The other continues the course that has been set for him which will bring America to it's knees as inevitably as Rome was brought to hers.
The economy is in crisis because unemployment and overarching debt levels pushed thousands of families in to the untenable situation where they did not earn enough to cover their debts. This burst the real estate bubble inflated by Alan Greenspan, crashed real estate prices, consumer spending and manufacturing. What we are seeing now is the inevitable result of lack of Financial regulation, lax monetary policy and a symbiosis between Government and the Financial industry. The mortgages taken out by buyers had been bundled into complex financial instruments; Mortgage backed securities. The latter along with Credit default swaps and derivatives set the stage for a global financial meltdown. The Glass-Steagal act of 1933 had been conceived to prevent the Banking sector from indulging in high risk investments to protect the depositors of these institutions. This was repealed at the end of the Clinton Administration through the Gramm-Leach-Bliley Act of 1999 which opened the gates to financial destruction. With the stroke of a pen, the financial services sector was given the power to literally bring down an economy .
The most urgent matter for Treasury to address is the toxic derivatives market. The notional amount of outstanding derivatives, as noted by the Bank of International settlements, comes close to $512 trillion. This represents a figure that is impossible to settle and is the real Armageddon which Banks are preparing for by hoarding the cash that they have received through the T.A.R.P..Unless this time bomb is defused by bringing the undeclared positions on the table, the duration and gravity of this crisis can only increase. As the underlying assets of these instruments crumble the Banks' exposure to counterparty risk increases and will lead to the inevitable collapse of even more banks and reduce the availability of investment credit even more. The underlying assets include interest rates, mortgages, foreign exchange rates, credit ratings on companies and even creditworthiness of entire countries. This is the level of insanity that has passed for "Leveraged Investment"
With over $3 trillion of taxpayer money injected in to Banks, insurance companies, commercial paper, Fannie and Freddie what has come back to benefit the dying economy ? A reduction in lending, increased interest rates on credit card payments and further losses for these same institutions. No big surprise as the real economy has never stopped it's nosedive. Does the Treasury really not realise that there is no point in investing in companies that have no chance of redemption ? By handing over Americans' hard earned tax dollars and indebting future generations, the Treasury has been engaging in the biggest transfer of wealth in Human history. The U.S. is now the biggest debtor on the planet and the rest of the world has noticed. China, Japan and the Oil kingdoms that buy U.S. debt are losing faith and it's only a matter of time until they turn off the tap.
In the meantime though, there will be a large increase in job losses in the shipping industry, both on land and on sea. This will only represent a small percentage of the Total unemployment figures around the world but, as the latter is increasing at breakneck speed already, the demand for raw materials will inevitably be dropping. Each factory that closes down, each car that is not sold, each housing start that does not start and each road project cancelled because of restricted public funds, all contribute to this decline and can only be expected to recover when the Economic fundamentals have recovered.
The other factor in the demise of shipping is the denial of Letters of Credit between banks that need to be fulfilled before a vessel leaves port. The general hope within the industry is that once the banking crisis has stabilised and money is flowing again, the Index will recover. But credit market have been getting steadily worse. Economic indicators have become harbingers of doom and Banks are hunkering down to weather the Credit Default Swap and Derivatives storm as well as they can. Astonishingly, Citi, after receiving Billions in taxpayer money to try and get them out of a hole, are now using the money to create new derivatives. Does the entire banking community need to be escorted to Gamblers Anonymous ? The FDIC is reporting that the number of Banks at high risk has been increasing and the number of failed banks has already reached 49 as of 1 October. Banks are also suffering loan and credit card defaults at record and ever increasing levels. Provisions for future losses are increasing and profits are seriously declining or, in most cases, have turned in to huge losses. All of this augurs badly for any Banking recovery anytime soon.
Exposure to Derivatives and CDS's are significantly larger than they were in the same period in 2007, when the system was in a better state and thus the system has started to fall off a precipice with no sign of the bottom in sight. Once fallen, there is no stopping it unless the toxic financial bundles are purged from the system. The lack of will to do this is accelerating the systemic failure. There is not enough money on the planet to cover the derivatives market pure and simple. The Shipping industry is just another cog in the economic machine. As the machine grinds to a halt, the cogs inevitably stop turning.
Not in the sense that has been alluded to in the vacuous electioneering slogans or the tear jerker acceptance speeches. An Economic recovery means that the economy works, not just that the Financial sector is back on track to wreak even more havoc and continue to reap their rewards off of the backs of working people. The electorate is expecting things to go back to the way it was. Big houses, Big cars, Big wages to pay for all the Big and expensive luxuries that are an integral part of the "American Dream". Wasn't it Donald Rumsfeld who said "The American way of life is not up for negotiation!" Such Hubris is the fatal ingredient in the expectations that have been loaded on to Obama's back. Things can never be the same until the way wealth is earned has been changed from the ground up. Gone are the days of borrowing your way to wealth. This was always an unsustainable system.
There is no getting away from the basic fundamentals of a system which marries work, production, saving and growth. Period. Borrowing trillions of dollars from other countries to "jump start" the economy by injecting "liquidity" and "credit" in to it's heart is no cure for the inability of people to borrow even more money. Banks lend money. Banks are the problem. Banks need to be let go in to chapter 11 to detox and then recreated in to something resembling a rational business venture under public scrutiny.People have to earn the money in a functioning economy, pure and simple. Because of the propogation of a credit based economic model, people who actually still have jobs are working, many with 2 or even 3 jobs, for seven days a week in an effort to pay off a mortgage of say, $100,000 while living in a house worth say, $40,000. Is this productive work ? Is this how an economy grows in to a healthy, self sustaing organism ? Obviously not.
If we take it back to the 1950's , after the second World War, we see an entirely different model of consumption and production. People were inclined to save, to put money by for the things that they aspired to. There was a culture of prudence that has dissappeared in modern times. The expectations back then were based on the principle that, if you wanted something, you had to work for it. The idea of going in to debt and paying 20% interest would have seemed insane. The economy could grow under this rational influence. It flourished like a rice paddy after the rain. It fed on the fruits of financial wisdom and a steadier hand on the economic tiller. It was a system where goods were manufactured and surpluses were exported. If there was a need for something, it got "Made in the U.S.A.".
These were more balanced times and market corrections could be made while preserving the integrity of the system because the fundamentals were still extant. What we have now is a system that was deliberately spun out of control for the benefit of the few who controlled the money supply and the means of production. We saw the acceleration headlong in to the miasma of derivatives, credit default swaps, mortgage backed securities and all the rest of the lethal arsenal of the Financial Profiteers. Along with this departure from real money came the search for bigger profits at any cost. Why employ an American worker when you can get 20 exploited foreigners for the same price ? Looks good on a balance sheet and a P/E ratio. But, who makes their money in the stock market ? Not Mabel Jones in Boise, Idaho who's raising 6 children alone after her husband died of work related asbestos poisoning and all the family savings went on medical bills or Joe Kubek in Greensburg, Kansas, whose small farm could not compete with the Agribusiness giants or John Mulzer in Silicon Valley, California, who lost his high paying job in software development and got thrown out of his house with little or no chance of finding another job to get back on his feet. These are the people who need the help, the bailouts, the largesse and the support of their elected officials. If these are not the people who are the absolute number one on the list of priorities right now, then all the flags, the parades and the speeches have been for nothing.
Aided by the occupants of public office who came through the revolving door on Wall St., this rush to riches was instigated with ever increasing ferocity. Paul Volcker and Lawrence Summers both hail from the banking cartel of the Federal Reserve and the World bank. Summers , while working for the World Bank, quite liked the economic savings to be made by exporting toxic waste to third world countries because the population didn't live that long anyway. Volcker was instrumental in deregulating the markets and unleashing the curse of derivatives. Come to think of it, the latter was under the auspices of a Democratic president. Oh yes, these are exactly the guys that are needed to bring sanity back in the front door and kick out Mr Bad from the arena. Barack Obama is telling the American people that it is possible, with some monopoly money, to bring back the good times of credit laden consumption. One, he cannot possibly be serious and two, how long does he think he can continue to take money from other countries without having the means to ever pay it back. By surrounding himself with the omnipresent clique of liars and crooks he has singularly distinguished himself by reneging on his election promises before he's even sworn in. He knows perfectly well what would be required to reconstruct, (not "jump start") the U.S. economy, and Hell will freeze over long before he would ever say it.
It's been way too long since the U.S. brought forth a leader that actually talked sense to the electorate. It is way past time for the U.S to bring forth a leader who will be honest with the electorate; the truth needs to be spoken here. It's way past time for vacuous editorialising, empty promises, cronyism, kleptocracy, apathy, death by television, SUV's, mindless faith in Capitalism, the Free Market and the sincerity of politicians. Something has got to give and Barack Obama needs to level with his fellow citizens and guide them through the bleak future that awaits to collect it's dues.
"Fed unveils $800 billion plan to bolster lending, housing"
This headline adorns the front pages of newspapers this evening. Is it just me or is the Fed getting these plans from cereal boxes at the White House breakfast ? Two or three pieces of cardboard and plastic for Henry and team to assemble in to something before another gruelling day of getting rid of all the money before the other guy takes office in January.How about..."Fed unveils $800 billion plan to bolster mortgage payments, bolster the number of people who won't have to sleep under a highway overpass this Christmas, bolster job creation, bolster reduction of the National Debt "
"The financial markets are not working as we'd like them to work ... and this is an effort to address that situation," said Treasury Secretary Henry Paulson.
The Treasury still seems to be hanging on to the old goal of recreating the failed system it brought to life and which took down most of the world with it. If the financial markets are to work like he'd like them to work then it will do no good whatsoever to give consumers the chance to increase their already smothering debt exposure. The crisis in lending came after the Real Financial crisis; a dying economy, the deflation of the real estate bubble and loss of high paying jobs in manufacturing and Information Technology created the crisis. Consumers cannot borrow themselves back in to prosperity; this was what was encouraged by Greenspan and his successors with disastrous results. Now we are asked to accept that a repetition of the same mistakes will help to make things better ?
It has become obvious at this stage that the Treasury is working overtime to bankrupt the country before they are kicked out of office. There can be no other rational explanation for this. Nobody really knows for certain what Obama will do when he takes over the sinking ship in January and Paulson and Co are doing all they can to funnel the remaining taxpayer money in to the same system that robbed so much of it already. They are getting away with it with hardly a whimper from congress. Ron Paul has been practically the only opposing voice to be heard. I haven't heard of any Police cars arriving outside the Treasury to arrest the occupiers for gross negligence, theft of public funds or abuse of power. On the other hand, I have not heard of any credible impeachment hearings for Bush and Co for crimes against humanity, invasion of a sovereign nation or violation of the Geneva Convention either. But, on an encouraging note, Condi Rice was chased down a New Zealand St on the 26th of July by protestors attempting a citizens arrest for War Crimes, only to be saved by local Police. Rumsfeld has to be careful which countries he visits in case he is served with a War Crimes arrest warrant and poor old Henry Kissinger has equally tedious travel restrictions. But somehow, I doubt if any of the current Washington Mafia will ever hear the sound of a gavel.
Bloomberg reports today that "Citigroup will cover the first $29 Billion of pre-tax losses from the $306 Billion troubled assets pool, in addition to reserves it already set aside.Citigroup will accept 10% of losses above that amount with the Government (ie the taxpayer), responsible for 90%. The Treasury is absorbing $5 Billion in losses and the F.D.I.C. absorbing another $10 Billion. If the portfolio plummets, the Fed will come up with a loan for the remainder." Citigroup has already received $25 Billion under T.A.R.P..
CitiGroup has 185 million credit card accounts worldwide and even before the current stage of the Financial crisis, the increase in losses year on year had surged to 67% with a concurrent increase in accounts 90 days or more past due. Credit defaults are rising and it is inevitable that this major source of income will be reducing all the time. Nothing has occured to enable the credit card debtors to pay back what they owe or to stop the exponential charges which accumulate when payments are overdue. The longer they are overdue, the more difficult to pay the debt back. So we can assume that CitiGroup will be extremely vulnerable on this front and incur more losses.
The above does not include the ever present Pale Horseman of the derivatives world. U.S. Commercial banks alone account for $182.1 trillion in notional derivatives. The frightening thing about this is that only $8.2 trillion is regulated by an Exchange, the rest being over the counter and not subject to any regulation. Mid year 2008, Citibank N.A. held $37.1 Trillion in derivative bets with only 6.6% regulated by an exchange. That makes the derivatives exposure of Citi 5 times the exposure that Lehmans had when it went to the wall. The fallout from that one is still being felt by banks the world over. The danger of these derivatives rises as the economy worsens and who will pick up the bill when the inevitable debacle arrives ? The taxpayer, who should be getting something tangible for their hard earned tax dollars such as a real easing of their debt, a chance to keep their homes, investment in creating real jobs in production, not the publicly funded largesse to Paulson's cronies on Wall St. that they have been subject to so far.
The mal adroit policies of the Treasury continue to take precedent over common sense. This, despite the mea culpas by Paulson himself, admitting that his cunning plan was not improving the situation.Does anyone in Washington even think of the real economy anymore or do they mistakenly assume that they can just throw Fiat Money at Financial Institutions in the hope it will go away ? The ability of the U.S. to continue to throw this money down the drain still relies on the willingness of China, Japan and the Oil kingdoms and they will be seeing the yields on Treasuries slip down to the level where inflation will erode their gains. Gold is making a comeback in reserves as an inflation proof asset. These latter countries also have to deal with their own economic disasters and need to have real money to address the issues, not promises from a fundamentally bankrupt entity to pay them back the money. The growing distance between East and West ogres badly for the U.S.The coalescence of countries into regional blocks, with their associated pragmatism, is a sign of things to come. How the U.S. attacks it's real economic problems will be determined by the wisdom of some and the patience of others. Whichever way you look at it, the U.S. must drastically lower living standards and expectations commensurate with it's debt and existing production infrastructure to rebuild it's competitiveness. The exposure of the U.S. taxpayer to the toxicity of CitiGroup's "Assets" has only served to accelerate this downward trajectory.
What we have seen and what we have received as the remedies to the problem have just been more of the same chicanery that led to the disaster in the first place. We still have the same players, the same crooks and the same "remedies".
Have you ever noticed that the more it changes, the more it remains the same ? Like the French phrase...plus ca change..
We have seen whole industries collapse because they did not take account of the real economy. We have seen the inflation of real estate bubbles, credit bubbles and others too numerous to mention. I remember talking to my mother 3 years ago about the property bubble in Ireland at the time. People were buying houses to beat the band and you were nobody unless you had a property or two. I remember saying to her that this has got to end when the price of property will be too expensive for people to afford and I was right. Property prices took a nosedive and the same people who bet on increased equity and a permanent gravy train were in the can. A roof over someone's head is a basic right in life and should never have been the subject of a speculative game. The moment arrived when a 2 Bedroom semi cost 500,000 Euros. This meant that, to buy the property, you needed two salaries. This meant in turn that a husband and wife had to be both working just to pay the mortgage. This resulted in a whole generation of children who were raised by nurseries and not by their parents. This, in itself, was a bad thing as children need their parents, not just for 20 minutes when they arrive home after traveling 60 miles to work and back and just about have time to tuck the kids in to bed before the manic performance begun again at 0500 the next morning. Is this a life ? No. This was one of the more saddening results of the property game.
The Treasury in America has led the world in the curative process to heal the wounded monster that they had created. The rest of the world has followed suit like lambs to the slaughter. YES, we will guarantee bank deposits, YES we will inject "liquidity" back in to the banks, YES we will regulate the financial markets more, YES, we will ask the IMF to supervise the transactions in derivatives and CDO's and be the Guardian of the Free Market. Who are these guys kidding ? Money does not come out of thin air nor does it grow on trees. Asking the IMF to be the guardian of our economic system goes beyond reasonable credence as it was the latter that sent out the "Economic hitmen" to impoverish and rob any lame duck in the globalised arena. Argentina and several African economies can attest to this.
We have seen in graphic detail just how useless and such a waste of taxpayer money was the TARP, along with the injection of capital in to Banks and financial institutions across the planet . The Banks just took the money and used it to acquire other companies and added the spare change to their ever decreasing balance sheets. Bank execs held multimillion seminars in tropical paradises to discuss the problems that they had created, they gave themselves huge bonuses for the hard work they had done in destroying the wealth of working people, they hoarded all the money for themselves, cranking up interest rates, reducing credit card spending limits to further debilitate the well being of their victims. They have stopped lending to industries because they know exactly what the future holds and want to cover their own behinds before lending any money that might actually boost production and create some jobs. This last point is important as the supply of credit for real production is essential in any truly productive economy. They were only too happy to finance consumption up to now, knowing full well that the moment would arrive when the goose could no longer lay any eggs. At this stage they can at least cook the goose.
Let's face it folks, there is no bailout for the ordinary Joe on the street, there is only free money for the same folks who brought us this disaster and the same folks who have had all politicians in their back pocket for generations. That's it. There is no argument on this. If you have one, I'd love to hear about it
We have had the spectre of "change" foisted upon us during the recent U.S. election, a glimmer of hope, a "change we can believe in" but , hold on a second, the new administration has surrounded itself with the same group of gangsters who engineered the crisis in the first place. the same people who brought us the repeal of the Glass Steagal Act, the same people who brought us the 1999 Gramm-Leach-Bliley Financial Services Modernization Act (FSMA). Details here. All of the preceding legislation designed to remove the restrictions on totally irresponsible financial grifts without any official oversight. These same people are now crafting the new economic policy that is supposed to rescue the economy. Simply put, who are they kidding ?
It seems inevitable that the situation is on a downward plunge towards the abyss and there is nothing that will be done to prevent it. This is policy, not happenstance. We have insiders like Colin Powell and Madeleine Albright and Bernard Kouchner, the French foreign minister warning that America is going to experience an event that will dwarf 9/11 in magnitude and Barack Obama will have to have the "Moral Character" to be able to make unpalatable decisions with regard to the American people. What are we talking about here ? Well, we have to look at what's already in place. Prison camps constructed by Halliburton throughout the U.S., the legal basis for imposing martial law, the continuity of Government plan still active, the return of some brigades of U.S. army soldiers assigned to "civil unrest" duties. Add the pieces up and you know what you see. You don't need a guide here. The powers that be know damn well what's on the horizon; they do not envisage an economic recovery and they only see an opportunity to realize an age old dream of unlimited power and an impoverished population with no choice but to go along or starve.
Alex Jones has always been on the ball with this. World government and the enslavement of the population. A few years ago, one looked at the evidence and thought that Alex was on to something good here, but recently, as I look at it, all the pieces are slotting in to place. We actually have world leaders talking of a "New World Order" right now in front of millions of viewers who are probably hearing the expression for the first time. This just goes to show how efficient the mainstream media has been in spinning information for the masses for the last so many years.
It has arrived at the stage where there is no possibility of real change without a commensurate fundamental change in basic thinking. We need to rid ourselves of the poison of mainstream TV "News", to rid ourselves of patronizing and intellectually insulting "editorials", to rid ourselves of the belief that elections can change the political landscape.
The sad part about this is that Governments realize that the Internet is the last bastion of Free speech, the last refuge of independent news and opinion. Australia has just announced that there will be no free access to the Internet anymore and it reserves the right to remove "political hate speech" from the provided content. Call it what it is; This is Fascism pure and simple . Other countries have been working on this as well, especially in the U.S, where "protecting the children" has been the rallying cry for control over Internet content. Have these people "protected the children" from poverty ? Have they "protected the children" from a seriously sub standard education ? Have they "Protected the children" from a future where they will have no hope of realizing a productive future, as the basis for the latter has been systematically destroyed ? Simple answer: NO.
Gerald Celente predicted today that there would be revolution in America and probably elsewhere as well. Is it any surprise ? How much can populations take ? How much do you have to take from a Man or Woman before they say "ENOUGH".
"U.S. Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets."Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards'' Paulson said today in a speech at the Treasury in Washington. `"This is creating a heavy burden on the American people and reducing the number of jobs in our economy.'""
So scrapping an effort to buy worthless toxic junk didn't turn out to be such a brilliant plan after all. Is Paulson the last to realise that this was always going to be the case ? Surely he must have known; enough people told him well in advance. He knew it all right and proceeded to hand the money over to his pals in Goldman Sachs and J.P. Morgan et al. This was always the plan.
However, Paulson, along with the administration, have finally realised that more and more people are seeing through the TARP snake oil and are looking for someone, yes anyone, to actually tackle the problems of the real economy. Or so we would hope.
"Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit card debt" snip and "is creating a heavy burden on the American people and reducing the number of jobs in the economy."
Hold the Front page already ! Paulson has just had his Eureka moment and realises that without the suckers there is no game. The "Heavy burden" on the American people and people from all over the planet has been placed there by Paulson, and his Wall St buddies ever since they figured out that money was not to be earned but to be invented out of thin air. Illiquidity in this sector was well established but he still handed out hard earned U.S. taxpayer cash for this worthless waste that was running down Wall St..
It's not just the "illiquidity" that is raising the cost and availability of car loans and credit card debt, it is the fact that unemployment is on the rampage along with the wholesale sinking of Industry and the real estate scam. The victims are seen queuing for a bowl of soup, sleeping under a bridge, fastening down the tent at night, pleading with Mortgage lenders to give them a break or just leaving the country,.
The members of the currently employed are hunkering down and getting ready for the worst. The last thing on their minds is a new car or another giant plasma TV. People are beginning to see the light at the end of a tunnel and it's not what they were expecting.
So those responsible for getting the Economy out of the mess are still trying to sell their victims even more debt. What about giving them back their money so they can keep their house ? What about reducing their tax burden so they can maybe start a small company ? What about TELLING lending institutions that he has given taxpayer money to, to cut their debtors a break ? Oh , I forgot about the Help program courtesy of Fannie Mae and Freddy Mac. These guys are so desperate to show the Chinese that they are actually doing something before the G20 summit, to save their own and the Chinese investors' behinds, that they have proposed to reduce monthly payments for people who are 90 days delinquent on their payments. This will only keep the lid on the mortgage backed securities market for a little longer. The reason most of these homeowners are delinquent on their house repayments is bacause they have either lost their job, have had their working hours reduced, have credit card debt spiral out of control as lenders increase the repayment interest or have been coping with the loss of equity on their property, upon which, they took out loans already. The equity is not going to increase, it will decrease. The date of foreclosure is just being delayed and the vultures will swoop in to fight over what's left. The problem cannot be fixed by reducing the mortgage repayments, the delinquency on which is only a symptom. Ignoring the fundamental causes of the problem will only exacerbate it. This has been the case ever since the first rumblings of the crisis and continues to be the modus operandum of the Financial Aristocracy.
In his remarks today, Paulson said that the Bush administration `"has taken the necessary steps to prevent a broad systemic event.'"
The irony is lost on poor Henry.
Bailing out is only worth it if you can remove more water than is coming in, and with every "real economy" report that comes in, the waters rise even faster. General Motors is failing fast because it makes stuff nobody wants to buy. In free market terms that means that it goes to the wall. This is the system that the Fed have stood by for all those years as they put their trust in "Free Market Forces". Have they been blinded to the consequences of their actions and think that the solution to failing banks and manufacturers is to simply give them more money without even looking at their balance sheets. Would you trust Paulson or Bernancke to run your hedge fund ? I wouldn't think so. Let's take a look at exactly how much the bailouts come to so far..
| TARP | $700 billion |
| Bear Stearns | $29 billion |
| Detroit Big Three | $25 billion |
| AIG | $150 billion |
| Fannie and Freddie | $200 billion |
| Mortgage-backed secs. | $144 billion |
| FHA Rescue bill | $300 billion |
| JPM for Lehman | $87 billion |
| Fed’s TAF program | $200 billion |
| Commercial paper | $50 billion |
| Fed currency swaps | $740 billion |
Total: $2.7 Trillion
Not a single dime of the trillions of dollars thrown at the problem so far has led to an improvement in the system that it was meant to fix.
Quarterly losses are mounting, Banks, along with manufacturing, are dumping employees and slashing costs to "Weather out the financial crisis" , as if the same crisis can be cured simply by grabbing their employees' tax dollars and then firing them to reduce costs.
It's the people who are being fired who are the engine of the real economy. They're the ones who buy financial services, sign up to interest bearing mortgages, buy General Motors F 150 pickups and groceries down the local Target or Wall Mart. The Financial sector can do whatever it wants with the free money but none of it will benefit the people whom it was meant for originally.
The U.S. is shooting the final bolt at the problem. I say the Final Bolt because when they go to borrow the money from foreign governments and investors they will see that the well is fast drying up. For several trillions of dollars to be raised the amount of Treasuries that will have to be sold will bring the forces of the Free Market to bear. An overabundance of product brings a consequent reduction in price. Can anyone say "Bond Collapse" ? Every foreign investor currently holding the bonds already bought will find themselves with a serious hole in their collective pockets. Uncle Sam will have just maxed out his credit card. Is this the big talking point at the upcoming G20 summit ? Each and every party will have to come out of this meeting with something. Somehow, the foreign debt of the US will have to be accounted for. China and Japan will want to feel that their foreign reserves are actually worth something. The call for a "New World Order" is back in the headlines and heralds a ground shift in how the world will be run. There is no alternative as the old system has gotten to the point that it can no longer survive. The engine that kept the American Dream alive and pushed the growth of China is now gone as the there are no more Golden eggs to be laid. That Duck was shot a while ago by Alan Greenspan and successive Fed chairmen. Keeping an eye on the 10 Year Treasury yield these days has become a nail biting nightmare.
So with the "Bailing out" of moribund institutions, all that has been achieved here is the certainty that things will get steadily worse. Nothing that has been done so far has reduced unemployment, increased tax revenue, increased the value of real estate or stopped the Soup Kitchen queues getting longer. It has all been for nothing, well except for the Royal Bank of Scotland execs who threw themselves a $300,000 champagne party, no doubt to celebrate their collective genius at managing other people's money.
So why throw even more money at the problem when it obviously is not solving the problem ? In the case of General Motors, the loss in unemployment terms could come to 2.5 million. Gone would be the health care that the company provides it's current and former employees. This would seem like a worthy candidate as the fallout is so great that this company is just "too big to fail". But the system has already failed and the inevitability of more company failures is guaranteed...there is no getting away from this unless the system is turned on it's head. The Real Economy has to drive the Means of Production and not the other way round. There is no point in General Motor's burning through all their savings for another year using more tax payers money if , by the end of that year, there is nobody left to buy their products. This simply amounts to an unbelievably gross waste of money. There is no return on this investment and the only upside is that some of the employees will get to keep their jobs and healthcare a little longer.Thousands of jobs will be lost via mergers and cost cutting schemes anyway.
The only realistic way to save General Motors is to invest in what General Motors actually earns money doing; Selling automobiles. This is not achieved by handing them cash, it is achieved in investing in their customers, who at present, are a fast diminishing commodity. The latter is the indespensable component of the system, not the other way round.There are a lot of other Auto companies out there that offer much better products at a lower price and if GM is not up to the mark it's history anway.
If the $2.7 trillion dollars had been invested in rebuilding America's Economy, i.e. creating jobs for the unemployed, reducing capital gains tax, and thus stimulating real economic growth, repairing infrastructure, renovating derelict factories, keeping people in their homes, keeping them mobile and maintain a disposable income, reducing their tax payments, then the return on the investment would have been greater. A new fair banking system, to replace the current racket that has caused wholesale destruction, could have been organised along the lines of Credit Unions where the customers actually own a part of the institution. This would have heralded a step in the right direction to recovery by basing the economy on real value, not CDO's, MBS's and Derivatives, which is just a way of lighing a fire downwind of you and hoping the wind doesn't change. By doing precisely the opposite, the available capital has been squandered and ended up in the pockets of the same people who are responsible for the mess in the first place. Oh and by the way, American Express has just decided to become a bank and feed at the taxpayer trough. Come on down, the water's just fine. One time only Cash Giveaway ! Get it while we still get to keep it !
It's time to stop the deliberate waste of public money and hold our "Benefactors" to account. The "useless eaters" (Henry Kissinger) are watching their hedge fund being managed by the largest coalition of organised crime in human history.
From their Article.. "Reported estimates of the size of the credit default swap market have so far been based on surveys. These surveys tend to overstate the size of the market due to each party to a trade separately reporting its own side. Thus, when two parties to a single $10 million dollar trade each report their “side” of the trade, the amount reported is $20 million, which overstates the actual size by a factor of two since both reports relate to a single $10 million contract. When examining the outstanding amount of actual contracts registered in the Warehouse (not separately reported “sides”) as of October 9, 2008, credit default swap contracts registered in the Warehouse totaled approximately $34.8 trillion (in US Dollar equivalents). This is down significantly from the approximately $44 trillion that were registered in the Warehouse at the end of April this year."
Well some good news at least it's not the widely reported $54 Trillion, it's just $34.8 Trillion. Now..
"Less than 1% of credit default swap contracts currently registered in the Warehouse relate to particular residential mortgage-backed securities. Mortgage-related index products also have some components relating to residential mortgages and, as a whole, also constitute a relatively small fraction of total credit default swaps registered in the Warehouse."
Well the Mortgage market is in Freefall so we can probably expect 1% of $34.8 Trillion ie $348 Billion at very high risk. So what accounts for the remaining $34,452,000,000 ? We have to assume it's a Mix of ..
Foreign Exchange Contracts
Forwards and Forex Swaps
Currency Swaps
Options
Interest rate Contracts
Forward rate Agreements
Interest Rate Swaps
Options
Equity-linked contracts
Forwards and swaps
Options
Commodity contracts
Gold
Other Commodities
Forwards and Swaps
Options
Credit default swaps
Single name instruments
Multi name Instruments
Unallocated ?
The exposure to destruction by CDS's was never just about exposure to Mortgages. Looking at the list above, it is plain to see that the possible vulnerable flanks are many. The DTCC summary press release neglects to address this. With companies reporting ever increasing losses, unemployment growing at an unforeseen rate and thousands of Funds going broke after trillions were lopped off the top of the Global Stock Market, the collapse can only increase. It is not contained.
There is no mention of the Credit Default Swaps done on the Financial health of entire countries, never mind Giant corporations like General Motors. The writing is on the wall for a huge proportion of the base assets involved and the associated default risk will be increasing alongside them. It's no surprise that the DTCC does not want to explore beyond the Mortgage angle. Everyone knows about the Mortgage crisis, but this was only the precipitating event - itself precipitated by a very ill basic economic base - that knocked over the first domino. The rest have already begun to fall and we see the tide coming in closer every day. This is no time for obfuscation and patronising; we need to know the Real Facts not..
"The idea that the industry lacks a central registry for over-the-counter (OTC) credit default swaps (CDS) is grossly misleading and has resulted in inaccurate speculation on a number of matters, including the overall size of the market, its role in the mortgage crisis, and the size of potential payment obligations under credit default swaps relating to Lehman Brothers. The extent to which such speculation has fueled last week’s market turmoil is difficult to determine."
I think the Market was in turmoil, not because of paranoid speculation, but in reaction to an ever worsening economic outlook, which shows absolutely no sign of getting better anytime soon.
The bank, hit by a huge unauthorised trading scandal at the beginning of the year, said the provisions and write-downs had arisen mainly in its financing and investment divisions." I recall the massive news coverage on the sacrificial lamb that had been chosen by the Bank. This was early 2008. I was very suspicious about this story as it would provide a preemptive cover for derivative and cds losses they had to see coming. I wonder if the list below had anything to do with it ?
| Q2 2008 (€ m) | 2007 (€ m) | |
|---|---|---|
| Société Générale | 473,329 | 487,959 |
| Credit Agricole | 383,995 | 364,178 |
| BNP Paribas | NA | 597,578 |
| Natixis | NA | 202,928 |
| Barclays | 460,423 | 352,133 |
| Deutsche Bank | 1,138,090 | 1,193,131 |
| Credit Suisse | 277,362 | 331,807 |
| UBS | 652,972 | 757,271 |
| * European banks - outstanding trading positions with Lehman Source: JPMorgan estimates, Company data | ||
It was during the Third Quarter that they would have got out their Cheque Books after the Lehman's auction.
The above graph illustrates the price that importers and exporters will pay for shipping. There's no need to be a Financial Analyst to see that that graph has just shot down drastically.
The situation now is that for those shipping companies that can actually get letters of credit are now slowing down their ships to reduce fuel consumption, slashing crew numbers and leaving some of their tonnage in dock with the lights out.
The problem with letters of credit, which are needed before a vessel leaves harbour, is that demands between banks are being denied as banks are not trusting each other. The Libor rate and the interbank lending figures are just another reinforcement of this catastrophic process.
What we are witnessing is the logical consequence of reduced demand, reduced consumer spending and increased unemployment. The Main St problems that seem to constantly elude the Financial sector's prognosticators. The shipping industry themselves are talking about the inevitable upturn. What upturn ? To increase shipping volume and increase the freight costs to a profitable level we need to have..
- Increased Consumer Demand
- Increased Employment
- A functioning global banking system
Remember the basics and you can always have a clearer picture.
This is a quote from an industry spokesman.
"I also think such situations [as the BDI decline] will take at least a couple of months to reverse to normal. The disruptions will continue before trade finance and cargo flows get back to normal levels," Khalid Hashim, managing director of SET-listed Precious Shipping Plc (PSL)
A couple of months ? So we should be just about OK just in time for the New Year. it will be so great watching the Presidential inauguration on my brand new giant plasma screen TV in my $500,000 house, before I go out to my high paying Manufacturing job that Mr Bush kindly brought back from Asia and gave back to me. So what's the assumption here ? That what has taken years of slow motion wholesale economic destruction will be magically turned around in 2 months. The US will have restored it's industrial might, people currently unemployed will have jobs and those eating out of dumpsters and living in the new "Tent Cities" will have got their houses back.
Golly, it just comforts me so much that we have such veritable Captains of Industry steering this half sunken Titanic.
.
One day, Joe meets Sarah, a gainfully employed, pretty blonde with Blue eyes and Joe is in love from the get go. They go out, have fun, both working, money is not a problem. These are the boom days in IT and nobody even dreams that these days will ever end. It's the gravy train and they both have first class tickets all the way. Love turns to thoughts of marriage and Joe and Sarah start to plan for the monumental day. They start to think; well, we'll have to buy a house to raise a family.
So far, so good.
They get engaged and soon after, they approach a mortgage lender. They are both earning good salaries and have no money worries whatsoever..all is good. So, they talk to the mortgage lender and are presented with several options: Interest only mortgage or Adjustable rate mortgage or fixed rate mortgage. Hey, money is not a problem, they have good jobs and have already calculated that they can get by with only Joe's salary. So what the heck, why not go for an adjustable rate mortgage as they will need the lesser repayments at the start of the mortgage to pay for the Nursery,the buggy etc for the child that they so desperately are looking forward to. Sounds good to them. No worries, the adjustable rate mortgage gives them some time to take care of the expenses associated with bringing a child in to the world..they can take up the financial slack with Joe's salary or the rising equity in their property.
All is well so far !
Ok Joe and Sarah have just transitioned from being 2 single people paying rent on apartments to the epitome of the American Dream..they are now Homeowners. Joe continues to work, Sarah continues to work until she is 7 months pregant, the day is close at hand and... All is well so far. Sarah quits working because she wants to bring up their child as her mother raised her. Mom at home and Pop at work bringing in a salary to support his family, buy their food and pay the mortgage. Little Joe is romping around the house happy as a clam and Mom and Pop are living the life. Joe's job still pays well and Sarah does not have to work to keep the family with a roof over their head and food in their bellys. Joe and Sarah, start to think that things are so good, why not add a little luxury to our family; what about a nice TV, a nice SUV, that Dishwasher that they always thought was kinda cool. No worries, these are things that every young couple wants. It's the fruit of their labour. Why not have the good life? Joe is earning enough money with his job that they can afford a little luxury, even if they don't have the cash, they have access to easy credit. the repayments are not high and they have enough leeway to pay the bills. The Dishwasher OK, but the $40000 SUV, well that might pose some problems. But, hey, their property has just increased in value for the original $250,000 they bought it for to the current valuation of $320,000. Boy, that property market is the way to go. Easy money all the way. So, Joe goes to the bank who are more than ready to use the increased equity of their property to give them a loan to buy that new SUV that they really want.
So far , so good.
Six months down the road, Joe hears on the Grapevine, that domestic sales have fallen for the product that his company makes as the unemployment figures have risen and everybody is looking at reducing costs to accomodate the domestic market. So, his company takes the decision to outsource the development side of the business to Asia as this will reduce costs and is good for the remaining employees as this contributes to the overall stability in the company.
So far, not bad.
Meanwhile Joe and Sarah and little Joe are still able to live their good lifestyle thanks to Joe's salary and the loans that thay they have taken out on the equity on their property. All is well but Joe starts to worry a little. If they outsource development to Asia, what's stopping them from outsourcing all the work to Asia ? It would save the company a fortune in salaries and expenses and thus bring bigger profits. But the prevalent feeling in the company is that they prefer having US employees as they get a quality return on their investment. They can afford to outsource some of the work abroad but their customers would prefer to have Americans manning the important posts.
So far Ok but starting to worry.
Unemployment figures rise, domestic spending lowers, foreign debt rises, taxes increase, wars are fought which result in even higher taxes. Now Joe has the same salary but his Tax bill has just incresed and he has less disposable income. The repayments on the loans become tighter, his mortgage has just entered the stage where the teaser rate has passed and now, because of the US domestic economic difficulties, his interest rate is higher than he expected in his initial planning. In the blink of an eye, he now finds himself in the position where his salary is not enough to cover the basics and cover his debts.
So far , becoming worse.
No worries, his property, thank God, has appreciated even more in value and he can take out another loan on his increased equity to cover his debts.The Bank is OK with this as they have nothing to lose. if he defaults on his loans /mortgage, they can just repossess his house and sell it on. So far, so good; but for the banks only. So Joe takes out another loan on the equity on his property and he is at peace once again as he has enough cash to look after his loan repayments and his increased tax bill. The next month, Gas prices go up by $1 a gallon. he drives 40 miles every day to work in a huge 5 litre SUV that does 14 miles per gallon at the Stop sign. All of a sudden his gas bill starts to eat in to the family finances. But he still has some slack because of his loan on the equity on his property. 6 Months later, Joe is listening to CNN and he hears that unemployment has been steadily rising in the US and people have started to default on their mortgages. The foreclosure figures are rising along with the unemployment figures. this is bad news, but not necessarily for him as he still has his job in ACME IT Corp.. Two months later, Joe is told that his job is gone ! It is being outsourced to Asia. Not only are they taking Joe's job away from him, but he has to stay and instruct the Asian that they have flown over , in every aspect of his job responsibility. He will not get his severance pay unless he completes the traing of his replacement. This spells disaster obviously for Joe and Sarah and Little Joe.What will he do now ? He is well qualified and thinks to himself that he can get another similiar job elsewhere but soon discovers that all the other companies in Silicon Valley have been doing the same as ACME IT. There are no more high paying IT jobs to be found !
So far, starting to get really bad !
Joe goes home and tells Sarah the news and the dream starts to fall apart. What will they do without an income coming in to the house to support the family ? The options to borrow more money have just dissappeared as Joe now does not have a job and no real hope of getting an equally high paying one. Sarah decides to get a job but can only find one serving coffee in a local diner as all the high paying jobs have now vanished over to Asia. She is happy because she can earn some money to support the family. So she earns $200 a week but her childcare costs her $100 per week so she is only earning $100 net for a week's work.WHen she worked before having Little Joe, she earned this in one day! But, hey, this is today and one does what one can to get by. Joe get's a job finally working for another IT firm, but on half the salary he used to earn. These are hard times in IT. Little does Joe know that his own government has been granting tax breaks to companies who take American jobs and export them overseas. If he knew , he would be rightly outraged but CNN never mentions this so he is completely oblivious. So now, we have Sarah working for $100 a week and Joe earning $500 a week. Their bills and loan repayments come to $$3500 a week. Obviously an untenable situation. Joe tries to sell the SUV. Because the unemployment and reduction in consumer spending has been accelerating all this time, he ends up selling it for half of what it's worth but is still left with the repayments. He is unable to cancel the debt he has incurred on the SUV, especially with the 20% interest the bank are charging him. To conincide with all this, the interest rate on his mortgage has reset and gone up by 2% which translates to an extra $500 a month to keep his home.
So far, getting worse by the minute!
He now has no SUV, he owes more now before he lost his high paying job and he has less money coming in every week. Little Joe misses his mother and Sarah and Joe have fallen on hard times as they desperately try to hold on to their home and keep the family well fed and warm. This is the minimum that any sane society would guarantee for all it's citizens ? Well... no ! The bills are mounting up and the amount of red ink on the letters they receive gets thicker by the day. Joe's family is now in the Debt Trap. They do not earn enough to pay the debts they owe. They probably do not realise it but they are just one family in hundreds of thousands who have arrived at the same juncture, through the same circumstances.
Things are now really bad !
OK, it's Bankruptcy time. The tried and trusted methed where some one gets to the point where they just cannot afford to keep things going.The Get out of Jail free card, the ultimate pass! Well, sorry, the President changed the bankruptcy laws so you just don't have the option anymore. You just gotta pay up. Well, there's always the option of selling the house and moving in to a small apartment and just paying rent to survive. At least they could get something they could afford and keep themselves not in luxury but fed and warm. Nice plan, but meantime the housing market has been going through a price collapse as there are no more people with high paying jobs who can afford to pay $300,000 on a house. The wealth just does not exist anymore because there are no more high paying jobs in manufacturing or IT. the only well paid people , funnily,enough, are those who work in the same institutions who loaned Joe the money for his home and SUV and Dishwasher. Joe and Sarah are now in the situation where they not only have more debts than income but , even by selling their house, will never have enough to settle their debts. The money they have paid in to the house is now evaporated into the air that pumped up the price of the property in the first place. The "Value" of their property did not increase, but the "Price" did increase because of the clever manipulation of the Banks, The Federal Reserve and Real estate developers. They have suddenly found out that they have been the victims of a hoax pure and simple. The inflating equity that they thought of as wealth was just a whim of an imaginary market. The immovable force of supply and demand had come on the scene and spoiled the party forever. They were now victims of the biggest carpetbaggers of the Century. Joe sells the house at $200,000 but still owes more than $100,000. His Visa card is maxed out, he cannot even qualify for an apartment as his "Credit" rating is now in the toilet. What can he do ? He seeks emergency shelter for himself and his family.Living like this, it's not long before he loses his job. He is the Disillusioned man. He thought the Dream of Wealth and prosperity was for everybody; little did he realise it was only for the few who made it off the backs of people like him. Today, Joe and his family are living in a tent on the outskirts of his town but he is not alone. He knows several of his former colleagues who he used to go out with before he got married, before he and Sarah had Little Joe. They also suffered the same fate. He queues up at the local food shelter to feed his family and has lost all hope. He feels ashamed for having failed to provide for his family. It's not his fault; he was conned in to the ultimate grift; You can live way beyond your means if you leave your commonsense behind. You can profit in a society which makes nothing but consumes endlessly through the magic of "Credit".
The "Credit Crisis" was created by the Financial sector and has reaped and is still reaping untold misery and hardship on Joe and millions of other guys like Joe. Their families have suffered and continue to do so all over the US and elsewhere and have no hope in sight. Meanwhile their own Government has added insult to injury by giving the hard earned money that Joe and the others like him have contributed while they were working, to the very crooks that dumped Joe and his family in the gutter after they bled them dry.
You might think that this story is that of some poor schmuck who didn't manage his money properly, but you would be wrong. This has been the fate, and will continue to be, for millions of people who have fallen prey to the unsupportable dream that has been pushed down our throats for so long and now has finally come back in the form of a nightmare that very very few can wake up from.
So with the election arriving next Tuesday, who among the candidates is going to give the money back to the people who need it most ? Is it going to be Obama ? Doubt it. Even if he wanted to he wouldn't be allowed; if he tried, well, there's always another trip to Dallas.. Mc Cain ? Don't even go there ! The time has truly come when one hears the words of Dr. Martin Luther King..."I have a Dream.." Is anyone listening ?
Asia stocks surge 10 percent after rate cuts
Investors, as a direct result of lower interest rates which reduce the cost of borrowing money, are now quite happy to balance the scales of Risk and investment cost. "Safe havens" are now seen as too safe and not able to generate the giant profits that they are running after. But in their quest for profit, they are about to restart the game which blew up in their faces quite recently. This signals an alarming return to insanity in the stock markets and increases the chances of a complete market meltdown. So what if the Interest rate is cut ? It will not bring any improvement to the real economy as we have seen over the last few months, indeed everything has got steadily worse. Unemployment, foreclosures, reduced consumer spending, falling corporate profits continue to rise unimpeded.
"Markets in Japan, Hong Kong and South Korea rocketed 10-12 percent higher, dragging along commodity prices in the wake of the Federal Reserve's cut in rates to the lowest since June 2004, aimed at softening the blow of a potentially deep U.S. recession."
So by softening the blow, what are we talking about here ? If commodity prices go up as the stock market, who is this good for exactly ? Corporate profit, maybe, but with reduced sales this is wiped out and the net results for practically every industry, except Big Oil and the Arms industry of course, get grimmer and grimmer on each passing day. Rocketing commodity prices certainly do not help the consumer, who IS the real economy; a fact that the Twilight Zoners in Finance seem to have completely missed.
"The avalanche of government measures taken to increase bank liquidity, including $120 billion of currency swap lines opened between the Fed and four developing economies, and global rate cuts have prompted investors to make room in their cash-heavy portfolios for riskier assets. Credit availability and risk taking are essential to the functioning of the financial system."
This illustrates very concisely the madness that passes for Economics these days. If Economics is defined as "the science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind", then what these guys are talking about has nothing to do with "Economics". They are running a scam known as.. "Speculation : An engagement in business transactions involving considerable risk but offering the chance of large gains, esp. trading in commodities, stocks, etc., in the hope of profit from changes in the market price." Is this the kind of policy we want to encourage when we are in A Financial Meltdown in the real economy. If the purpose of all those bailouts with taxpayers' money, the interest rate cuts to "stimulate" the economy, then we are all truly in for an extremely painful reality check.
"Despite the welcome responses to policy actions, risk from slower global growth has not been extinguished and still points to potential underperformance for much of Asia," Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale in Hong Kong.
So the insane response from the Stock Market is actually welcome. No worries then; we have been assured by an Investment banker. Doh ! Aren't these the guys, along with accomodating Governments, who got us all in to this mess? What "Risk" of slower global growth and underperformance is this guy talking about ? Man, that's old news at this stage, it's laready happened and continues to get worse by the day. Does the Real Economy even figure in to this guy's equations ? I think it's beginning to dawn on everyone that the people that have received the Taxpayers' money have really only one purpose in mind and that is to use the money partly to cover their own big mistakes but also to feed the Gamblers Anonymous that make up their ranks. This, indeed, spells doom for the rest of us.
Today, Los Angeles Police Chief William Bratton has instructed his forces to be on high alert during the US elections.
Private security firms (Blackwater ?) have also been engaged for these activities. The argument behind the move is the threat of Islamic fundamentalists attacking US infrastructure to influence the outcome of the election. In his own words he has stated that a Win for Mc Cain would be the preferred result for Osama Bin laden because Obama would better the image the rest of the world has of the United States.The image of "The Great Satan" is the most valuable asset for the Islamic radicals. The fact that Osama Bin Laden is DEAD doesn't seem to register on the Irony scale.
Ok
Now let's see what is really going on here. The general wish of the US population at the moment would indicate that Obama is the popular candidate. This is comforting because if the US population actually preferred Mc Cain over Obama, then God Help us all. Neither will bring any meaningful change when they arrive in Pennsylvania Avenue anyway but it's the illusion that counts here. This is what the electorate are voting on, well besides those folks like the Rascists, the Loony Christian Right, The Soccer moms who like Sarah's lipstick, or the Beer Guzzling Baseball watching couch potatoes that think she has a nice ass.Not that I have anything against Baseball or Beer, but there will always be people who vote based on a serious lack of understanding of even the most basic, if deceptive, garbage coming from the mouths of the candidates. But, hey, that's "Democracy" for you.
Neither will be able to prevent the accelerating Financial destruction of the population. The Rich are already in the lifeboats and the rest of us are still drinking soda at the bar or looking frantically around for a lifejacket. So why the state of high alert as, happened in 2006 and 2004? Could it be because the election is being rigged, and all the evidence is in to support this, and the population realises that they have been had - Again - and will take to the streets like they did in Los Angeles during the Race riots ? Possibly. Most people will be analysing the results and being spoon fed by the Newspeak Corporation telling their viewers that, Golly gee, the winner won in a fair fight and God Bless Democracy;. the American people have spoken.
Fortunately there are people who have come to realise that they have been the victims of the biggest grift in Human History courtesy of Government, Democrat or Republican, no difference. What will they do if Mc Cain wins ? Protest on the street ? We have seen a graphic demonstration in the last few years of exactly what that leads to. Tear Gas, Tasers, Horse charges, Wanton Assault and Battery by the Men In Black, Free speech "Zones", beating up the old and infirm, the very young and the vulnerable ans summary imprisonment.
The power of the people has been steadily eroded financially, morally and constitutionally. there's not much left to take away at this stage but, have no doubt, they want it all and then some. thinking back to all those Halliburton contracted Detention Camps that have been built all across America, you wonder exactly who they are intended for. Certainly not for "Islamic terrorists", they're busy defending their homeland in Afghanistan and Iraq against a murderous assault on their sovereignty by NATO, spear headed by the Moron in Chief's personal muscle. So that leaves the American people themselves. No way I hear you say ! Listen up, as discussed in this blog, a thousand others and online on the Goverment's own website, "President" George W Bush has the legal power to declare martial law at the drop of a hat. That's the facts and there is no denying them. When have Power crazy gangsters, like the aforementioned, made laws that give them Dictatorial power and then just not use them ? Errrr NEVER. This horribly beautiful orchestration of Legal Sleight of Hand has left US citizens completely legally powerless to resist any whim of the Emperor in Chief. Do not think for a second that you have any rights in this matter. Ever heard of Guantanamo ? Well, you, an American cizizen, can be declared an enemy combatant, and shipped over there never to be heard of again. Jose padilla was the test case to disfigure the law of habeus corpus and was acquiesced to by a very accomodating Attorney General and Congress. In fact, most of Bush's power grabs have been achieved by signing statements and executive orders, as did Bill Clinton before him. Congress didn't even get a say. But even when they did, they went along anyway. Patriot Act, Patriot Act 2 etc etc. Another thing to remember here is that the 3rd Infantry’s 1st BCT is now on American soil with a stated mission in "Civilian Unrest" Adios Posse Comitatus.
Rep Brad Sherman spills the Beans
So Police Chief William Bratton, various nationwide police chiefs, National Guard Commanders, Commanding officer of the 3rd Infantry’s 1st BCT.What do you have planned for your fellow citizens to whom you swore a solemn oath to protect from enemies, foreign and Domestic ?
No doubt, we are about to find out.
Money Morning...I like these guys for info, investing advice and analysis.
http://feeds.feedburner.com/USMoneyMorn
Yahoo Business News
http://rss.news.yahoo.com/rss/personalf
Money and Markets
http://www.moneyandmarkets.com/topic/is
Google Business News
http://news.google.fr/nwshp?tab=wn&n
Seeking Alpha..one of my favourites
http://seekingalpha.com/page/feeds?sour
http://online.wsj.com/article/SB1225069
The falling UK Sterling against the dollar is , apparently , Good News. Well, the Economic Geniuses at the the WSJ are now saying that the falling UK currency will boost foreign tourism and make agricultural exports from Britian very attractive to foreigners. It could, in their own words..
"boost exports of U.K. goods and rebalance the economy away from consumer spending, as policy makers have long sought to do."
Well, that's alright then. Go back to sleep, all is well in the UK.
But there is a reason that UK consumer spending is way down, People are broke or soon about to be. Unemployment is soaring and businesses are collapsing everyday. So the shift away from consumer spending is a slam dunk. But exports depend on production. UK Banks are not lending to anybody and won't be either. So farmers have had to cut the crop production as they cannot secure financing for larger crops for export and are currently at risk of being barely able to accomodate Domestic demand, as are farmers in the U.S.. They are in as much of a bind as everyone else; so much for increased exports.
As for foreign tourism, well we would be talking obviosly about American tourists with massive amounts of the greenback in their back pockets ready to spend it all in the land of Tea and Scones. But aren't Americans in a bind at the moment with vastly decreased consumer spending even on basic household items and food, never mind that Holiday in the Rain.
It's rubbish like this in the Mainstream Media that deflect readers away from the reality of what is actually happening. It's amazing the amount of people that one meets that are still under an illusion about what is actually in progress here. One glance at the Dow , just to make sure that is has not totally tanked is enough for everyone to go back to sleep. A strong dollar against the Euro is a signal that all is just dandy with the United States Economy. Move on, nothing happening here has been the order of the day. Why ? If the vast majority of the population were truly to realise exactly what the depth and gravity of this crisis amounts to, there would be lynchings on the streets, as George Bush Sr once alluded to, ( He actually said that "If the American people were to realise what we have done, they would chase us down the street and lynch us"), and a wholesale revolution to get rid of the criminals and their accomplices that got us all in to this mess.
- Close all Banks and Financial institutions now.
- Stop paying taxes.
- Count what's actually left in the public coffers.
- Put all of it in a central fund for now.
- Sack all Governments Now.
- Disband the Stock Exchange.
- Prohibit speculation on commodities that people need to survive.
- Form Local Community Boards across every country in the World.
- Hold Local elections for membership.
- Setup Local funds for each Local Board.
- Distribute the remaining wealth to the local boards.
- Charge the Local boards with one duty and one only: Serve their electorate. Period.
- Form cooperatives between local Boards to use the resources of each for the benefit of all including transport infrastructure and natural resources.
- Count all the Pennies, Yen, Kroner, Dollars, Yuan, etc etc and burn them all. Form a new monetary system , backed by something solid like Gold or Silver (Wait a minute, they used to do that for 5000 years). Do not under any circumstances depeg the currency from the Gold / Silver backing it. (Nixon, you gangster)
- Now reset the counters to Zero and start again.
Let's consider the alternative...
Have no doubt, by the end of this week or the next, life will have changed for good, there will be no going back to the way it was. Period.
If the World is expecting to have it's cake and eat it , forget about it. So what's going to be the logical outcome of such a sytemic failure ?
If we were to play by the old rules, a fight for survival will ensue that will most likely end up in a War. Gee, that's going to help us out of this mess! Until the World realises that this is the time to realise that we need to change, but fundamentally. If we persist in the continuing worthless effort to fix a problem that cannot be fixed, then we just waste all that effort and capital in a fruitless exercise.
We can actually take what's left and make something good out of it if we have the courage and the foresight. But we will have to leave the old ways behind and return to a sustainable model.
So, what's the best way to go from here ?
Do we persist and destroy what's left of our world or do we admit to oursleves that we have been presented an opportunity , via extreme circumstances, to break the mold and start building something that will be actually sustainable ?
The figures above reflect a truly miserable situation in the everyday life of Americans. Before the property is actually foreclosed upon, the utilities would probably been off for 3 months or so. No light, no heat no water.This is the reality that the Fed is ignoring as it hands out money hands over fist to the very organisations that caused this untenable situation.
Not only is the Fed failing to address this misery in their midst, they would actually seem to be actively exacerbating it.
Let's look at what has been going on in the last few days with the Economic stimulus package proposed by Paulson...
So far, the Government handouts have been given to banks with no strings attached such as easing the burden on householders who still just about are in thier home. That decision is totally up to the Banks. They were "encouraged" to help avoid preventable foreclosures. Their unsurpassed generosity in this regard makes Scrooge look like a philanthropist ! Funny, I don't remember any hesitation or malingering when Paulson was trying to get the Bailout Bill out as fast as he could. His main priority was and always will be the Banks and the financial houses, with whom, he has a long standing relationship.
When Sen Richard C Shelby asked "Why aren't you insisting that they not hoard the money?" the only response was that if there were too many strings attached to the financial offerings being made to the banks they might not enroll in the program. Let me get this straight, banks are going to snub their noses at a free handout from the same people they are throwing out of their homes and just might say no because they might have to give a tiny amount of it back ? Please !
So basically what the banks got was an FDIC backed guarantee scheme where the loans were guaranteed by the latter. There was no guarantee that the homeowners would be actually given the funds to help them pay off their mortgage which, in theory, would give the Banks the cushion they were asking for. So the point to take home here is that the taxpayers own money has been taken from them and given freely to the Banks so that they feel all warm and fuzzy while the Homeowners themselves still face the high probability that the Bank will cut them no break at all and end up with a far from warm and fuzzy feeling as they pitch their tent alongside the ever growing numbers of others who have fallen prey to the Credit establishment.
Criminally negligent mortgage packages were used to entice buyers to chain themselves to bricks and mortar while their jobs were being exported overseas.
Adjustable rate mortgaes, Interest Only mortgages were given the heavy sell to overoptimistic buyers who were assured by Governement and Wall St that they had nothing to lose as property could only increase in value.They were set up for the fall as Interest rates were reset just around the time that property values were sliding downhill fast. The owners who had interest only mortgages or ARM's suddenly found themselves with negative equity in their homes and hugely increased monthly payments with no access to more credit to pay the bills.
Adjustable rate mortgages weredesigned to have exactly the same result; Get the Homeowner to leverage himself lighttly at the start with the sting in the tail just far enough away that they would not really think about it.If this sounds like a setup, then you'd be absolutely right. Can you say "Destruction of the Middle Class" .
But the most destructive part of this equation was the packaging up of the Mortgages in to Hedged derivatives, the result of which we are seeing now. But the guys who created and dealt with these Frankensteins have already made their fortunes with them and are not exposed to them anymore. Sure their Bank might fail and bring down a dozen others with it but, Hey, they already have the tickets bought to the Bahamas.
The flight of capital to the dollar has been churning along at breakneck speed over the last week, taking down other currencies with the sole exception of the Japanese Yen. Investors are running home to Mama while waiting to start the Musical chairs again next week and hoping to find one when the music stops.
The Yen is now being seen as a safe currency along with the dollar because nearly every other currency is either totally destroyed or on the way to being so. The kicker for the Japanese is that now, they have just priced themselves out of their already severely crashed exports market.
Investors and governments alike are seeking a cliff ledge to hang on to as all around them is headed to the bottom, which is a long way off yet. Here we have that word again, and it cannot be repeated too often, Derivatives! The Bank of International Settlements latest figures indicate a total of $512 trillion dollars in nominal Outstanding derivatives in all sectors.
Breaking it down we have
- $393 trillion in Interest rate derivatives
- $58 trillion in Credit default swaps
- $56 trillion in currency derivatives
- $71 trillion in UNALLOCATED derivatives
No wonder the panic has set in, everybody knows what is on the horizon but nobody really wants to talk about it.
The flight to the dollar is primarily because of the Dollar denomination of the Derivatives market; if you are going to try and unwind your exposure, you need to have dollars in hand to do it. Dollars are still the currency of world trade in Oil and other commodities so everyone needs to have cash in hand even for the dramatically reduced trade volume that we are seeing right now. US Treasuries are about the most popular "safe" haven investment right now. This has caught nearly every finacial analyst off guard. Stunned is the word actually. How could anyone want to put thier eggs in Uncle Sam's basket ? Was it not Uncle Sam that unleashed this storm on the world ?
Right now, nobody seems to be caring about economic fundamentals as the investing community has turned in to a herd of Wildebeest in the Lion's Den. But , once all of that toxic paper comes home to roost and institutions are falling apart at breakneck speed and the whirlwind unleashed by the Derivatives payback strarts to calm down, then it will be time to look around to see who is left standing. The US cannot as it has no basic soundness whatsoever in it's economic model; just a nation that has consumed more than it could chew and never gave anything back in return except for more debt. China's export driven rise to economic power will have dried up, India will be reduced back to what it was before the outsourcing revolution, most smaller European countries will have gone bankrupt along with Iceland, Pakistan and Argentina and who knows who else.
A new dawn will have arrived and what remains of the old world will have to be transformed to fit the new realities. Basically there is not enough cash on the planet to pay the Piper on this one.
In these days of rapid changes in the Political paradigm, it's becoming obvious that the U.S. has overestimated the confidence it expects from the rest of the world. The fragmentation had already begun but is now accelerating as each country realizes the damage that faith in Uncle Sam's integrity, both financial and moral, can unleash.
From Taipei to Dublin, Governments which are by their nature the largest investors, are abandoning the ship as they realize that their own economies are being dragged down by the biggest economic grift in modern history perpetuated by the United States of America. The past confidence in US backed Bonds and securities is fast deteriorating as the rest of the world realizes that, a country, being an economic entity just like any large corporation, is only as valuable as it’s assets and liabilities.
We have seen this realization come along as Iceland Hungary, South Africa, Pakistan and South Korea are knocking on the IMF front door and looking for a helping hand, much the same as Banks have been doing to their governments ever since the consequences of their insane and greedy actions were finally realized. Leverage, Leverage, Leverage. It has been the new mantra in the Alchemy of creating wealth where there is none. Leverage only signifies risk and risk by it’s definition is not something that you want to pay your grocery bills with every week. Imagine that you would eat or not eat, sleep in your house or on the street, clothe your children or have them freeze all on the turn of a dime in the nefarious and manipulated Ponzi scheme that is the “Investment” world ?
You would not, as your family is your biggest priority and you reduce to the absolute minimum the potential risks to which you are exposed to ensure that they are safe, warm and well fed.
It’s unfortunate for us that Governments the world over were only too happy to go along with the crazies that were running the investment banks, the Hedge funds, the Mutual funds etc etc. Doing so guaranteed them corporate donations and a cushy place on one of their boards after they left the equally corrupt political arena. The revolving door has been spinning ever since there was a government and a merchant.
It was a given that Asia, especially China and Japan, and the Middle east oil kingdoms could not dump the dollar as their foreign reserves and thus their real value was joined at the hip to a Fiat currency. This relationship, while it kept industry flowing and brought forth the industrial might of China and Japan, was always one that was subject to the health of the U.S. and the soundness of it’s economic plinth. The destruction of that plinth and it’s rendering in to dust by deliberate policy decisions by the U.S. financial/government elite has now arrived like a tornado in the faces further East.Japn is now on the brink of collapse as their exports have plummeted and their Yen has also priced itself out of a viable export market as other currencies decline.
From the Asian Investor Online..
“Taiwan's financial regulators reportedly have ordered that nation's insurance companies to pare their holdings of the debt and mortgage-backed securities of Fannie Mae (ticker: FNM), Freddie Mac (FRE) and Ginnie Mae securities, according to a report on the Internet site of Asian Investor magazine.”
The U.S. government has poured billions of its taxpayers’ money in to these institutions for nothing. The value of the securities from these agencies relies on the state of the US housing market which is in its last death throes before ending up as a stain on the carpet. But this is a seminal illustration of the fallacy and bizarre investment logic that is the root core of the mess we find ourselves in today. And deserves an explanatory tale that does not have a happy ending…
Imagine your employer proposed to you that your wages, to feed your family and sleep under a roof, would be based on how many apples his orchard produced every year would you accept the offer Sure there would be years where the sun would shine and the frost go away before the blossoms appeared but there would be other years where the harvest would fail through uncontrollable circumstances.
If you signed up to the deal, your boss is happy and you mistakenly are happy to take the risk because this could mean extra wealth and comfort for your family. You would indeed be crazy to go for an arrangement like this but foreign Governments have been doing it for years because it’s not THEIR money or livelihood that is at stake but that of their “Family” which they are honor bound to protect but have forgotten completely about.
Slowly the realization dawns that the Apple grower has been secretly removing the topsoil from his orchard and selling it to his neighbor at a good profit. The orchard starts to suffer and the crops begin to fail. The apple farmer is still OK because he pays lower wages and makes a profit by selling the topsoil. Since the wages of the employee have been falling, his purchasing power has been falling along with it. Reduced Purchasing power ie consumer spending results in less demand for goods. The healthy response to this should be that prices reduce to enable sellers to continue to operate and purchasing power returns to the consumer.. But what the government has been doing is to interfere in this basic process and pump more liquidity in the form of easy credit in to the money supply. This restores the prices to higher levels as inflation kicks in. So now, the Boss’s employees have to pay for their groceries with borrowed money with its accompanying interest and soon finds himself living beyond his means. The credit companies are happy, the boss is happy but the consumer has just been raped. That happy feeling that the credit companies feel is based on the fact that if the consumer fails to meet his repayments, they can just force him to sell his house and then recuperate their money along with the interest. The Boss is happy that he has used his business to make a lot of profit for himself and his family out of his exploitation of his workforce and no matter what happens in the real economy he will be fine as he has stashed his nest egg away for the rainy days to come. But his hubris is about to be destroyed by his nemesis as his trust in the system of greed and leveraging will come home to destroy him in the form of a Stock Market Crash. Sound familiar yet ?
When you multiply this arrangement 10 million times with the resultant reduced consumer spending, the increased housing inventory, the increased number of people who cannot afford to buy any of this inventory, the increased unemployment because of the reduced demand for goods, the only results are falling house prices and increased poverty. Still not too bad as the creditors can just swipe up the properties and put them on their asset sheet. But as time goes on the value of these assets drops lower. When they were actually high during the real estate bubble, created by the Fed and Treasury working in concert, the Investment companies came up with the most brilliant and the at the same time the most insane virtual wealth creation in financial history. Mortgage backed securities and derivatives which are basically an insurance sold on the value of the underlying asset, in this particular case (and there are many more) the value of property. The extra leverage they could achieve on these creations is on an order of 30% or more. What his means is that the Credit Companies, and by these we are talking about Banks and investments houses etc, have inflated their assets by 30% of their actual value. Now if the real value is the value of a property then what happens when the house price plummets ? The actual loss on the asset sheet is 30 times greater as it would be if they had not leveraged the mortgage in the first place. But greater leverage when times are good means huge profits and bonuses so who are they to complain.
We have seen this asset unwinding over the last year as reality set in and the underlying asset value has deteriorated dramatically because of rising unemployment and poverty. It does not seem a long stretch to say that the Government has deliberately impoverished their own population. But that’s another matter for later..
But back to Taiwan and it’s shunning of “Government backed securities” The Taiwanese government had invested heavily in the latter in the uninformed belief that the American economy was sound and their investments were safe. Just goes to show, you don’t have to be a genius to be a central banker. Governments all over the world bought the same snake oil from Uncle Sam, in part helped by the Godzilla of corporate propaganda and Wall St.. In my own opinion, I think them calling foul now and casting the blame, no matter how well deserved, on the U.S. speaks to their own lack of intelligent forward planning and concern for the welfare of their electorate.
So what we are seeing here is the inevitable disappearance of trust which started out as one between banks, investors and corporations and now has spread to a disappearing trust between nations.
We have seen France call foul on Ireland over Bank deposit guarantees (see http://meltdown101.livejournal.com/8177.h
This weekend, Asia and European nations are sitting down to try and work a way out of the mess between themselves, deliberately excluding the U.S for the moment. Well let’s face it , who would want Uncle Sam at the table ?
I am Irish and think that the Irish Government plan was about as stupid as you could possibly get but, when Nicholas Sarkozy stands up and pretends to be the bastion of Economic Sagesse, well excuse me, I gotta have my say as this galls me.
King Nicholas, you gotta be kidding ! Your hair brained schemes , a la Paulson et Bernanke, are about as idiotic as those of the Irish Prime Minister, Brian Cowen. Ireland DOES NOT HAVE 500 Billion Euros. Period. Ireland needs to spend what money it has in develpong as much independence from foreign supplies of Energy as it can, invest in it's rail infrastructure, stop wasting money on new Highways that nobody will drive along , invest in Wind, Tidal energy which it has in bountiful supply, rid itself of all the accessories of largesse which it only possessed by the grace of easy credit and foreign benefactors, construct a real home grown manufacturing base that supplies the needs of it's population and can stand on it's own two feet without foreign aid.
As each European country polarises itself and realises that , basically, it's on it's own,this is the time to be clever with remaining monetary and labour resources. The latter need to be put in to something that the country will actually receive benefit from, not wasting it trying to recreate the unsustainable circumstances that continue to exact a dear price on the country's population.
La France, no matter what you say, cannot afford either to waste valuable capital on French Banks that have reaped their own whirlwind and duped the French public in to thinking that they were the epitome of The Wise, responsible investors. Why don't you come down, Nicholas, to the South or visit the Banlieus of Paris or Lyon once again, this time without your sneering rascist undercurrents - you won the election already so relax a little - and see where you could actually spend money to help the people you were elected to take care of ? Or are you just another jumped up King of Crony Capitalism, pimped in to power like your buddy (He's still your Buddy Nic, right?) George Bush to do the bidding of the International Banking Cartel ?
The financial rescue flim flams from all European countries are exactly that.It's meant to be a "Confidence" building measure. But Confidence for whom ? Only the Banks and the High Priests of the Cac,Dax and FTSE who see the passing of a comet as something portentious. With every bank in the world trying desperately to cover their bad loan portfolios, their precarious derivative positions, they have no intention, Zip, Nada, of actually putting the money back in to the hands of people who actually need it. It's all for them to cover their own greedy shenanigans. They are only part of the problem, the real problem is that the world was sold the easy credit scam, bolstered strongly by Government disinformation and it's flagrant bastardisation of Economic fundamentals, and the results are evident. You can't have it both ways, It's either a healthy economy with foresight and a responsible Government, or an imaginary one where basic economic principles are blissfully ignored to the eventual detriment of all. So come on Nicholas, step up to the plate, be a Man. Stop blaming others for doing the same idiotic things as you are. Just because Brian Cowen screwed the pooch doesn't mean you don't have a chance to do something constructive. If you are going to stand up and cry foul, at least have the wisdom to suggest something useful and give some hope to the people who elected you.
- Wachovia: $29 Billion
- ING Group NV: $2.2 Billion in asset writedowns. Report to be published soon.
- Northern Trust Corp: $129.4 Million
- Fifth Third: $81 million
- VIST Financial Corp: $4.6 Million
- Sun Life Financial Inc: $396 Million
- JP Morgan Chase: 83% drop in year on year profit. $3.6 Billion writedown in Mortgage assets
- Washington Federal: $39.3 Million
- Credit Suisse: $1.7 Billion
- National City: $729 Million
- Citigroup: $13 billion in write-downs and credit losses
- Allstate Corp: $923 Million on insurance payouts and $1 Billion Investment losses
- Etrade: $50.5 Million
- Merril Lynch: $8.5 Billion
- Colonial Bank Group: $71 Million
What has Wall St to cheer about now ? With the remaing Q3 reports coming out over the next few days Wall St won't be getting much good news to shout about in order to pump up the vapid stock index again. The chips will start to fall as they were always destined to. No more bailouts, no more lies, no more money left to throw down the drain along with what went before. The domino effect has just received more impetus. As I have been saying, each loss and each failure leads to a systemic reaction as every part is shaken. When this butterfly flaps it's wings, it does actually cause a draft on the other side of the World.
Yep, you saw it right.
Assets = 9.93 Trillion Dollars
Derivatives = 182.13 Trillion Dollars
This was at 30 June 2008 for the top 25 commmercial banks and trust companies.
Current exposure is currently a black hole.It has been revealed as each Bank has failed and it was time to pony up the cash. The thing to remember is that the 25 Banks are just one side of the Derivative equation. Like Lehman's , as one falls it takes another dozen with it. Counterparty Risk is a Bitch too.
Pop Quiz: how many of the banks above have gone Pop ? Who's next ?
Current TheStreet.Com Bank ratings..remember, anything under B-..be afraid.
http://www.thestreet.com/screener/index.h
JPMORGAN CHASE BANK NA C+
CITIBANK NATIONAL ASSN D+
BANK OF AMERICA NA B-
WACHOVIA BANK NATIONAL ASSN C- (Being absorebed by Wells Fargo)
HSBC BANK USA NATIONAL ASSN D+
WELLS FARGO BANK NA C
BANK OF NEW YORK B-
STATE STREET BANK&TRUST CO B-
SUNTRUST BANK C-
PNC BANK NATIONAL ASSN B-
MELLON BANK NATIONAL ASSN B
NORTHERN TRUST CO B-
KEYBANK NATIONAL ASSN C-
NATIONAL CITY BANK D
LASALLE BANK NATIONAL ASSN C-
MERRILL LYNCH BANK USA B-
REGIONS BANK C
RBS CITIZENS NATIONAL ASSN C
FIFTH THIRD BANK C
BRANCH BANKING&TRUST CO B-
FIRST TENNESSEE BANK NA D+
LEHMAN BROTHERS COML BK Adios
UNION BANK OF CALIFORNIA NA B-
DEUTSCHE BANK TR CO AMERICAS Unknown
That's a lot of Banks to be scared of. Valuation and ratings are based on real assets and possible exposure to worthless CDO's and Derivatives. Mortgage backed securities are obviously headed for the can. As more companies and Banks fail, the ratings of several of these banks will fall as they take the heat from their crushed companions. When General Motors fails it will take most of these with it because General Motors was one of the top derivative contracts in the market and just how many counterparties that will go to the wall is not exactly known but enough to have everybody scrambling around to save this obviously moribund creature from extinction to literally avoid their own.
Helicopter Ben is loading up the Black Hawk with even more of the Cash that the US just does not have and will be raining it down as the Festive season starts.
This time it's called "An Economic stimulus package". What's he trying to stimulate exactly ? Has Ben discovered a magic formula to cure all economic ills ?
Actually from his own statement..
"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers"
Is there anyone home in the Brain of Bernanke ? By Improving access to credit by consumers, what he really means is that he would like to take taxpayer money and loan it back to the taxpayer at inflated interest. Happy Holidays America ,from Uncle Ben !
A few problems though..
Cash Strapped citizens in the US will not have access to any of this "Credit" as Banks, if they will lend at all, would only lend to people who still actually have jobs and a reasonable chance of keeping them for a while.
Measures to Help improve access to credit by consumers is what got everybody in to this mess in the first place.
What happened to the more than trillion dollars that were already stolen from Main street and given to Wall street Ben ? If it was to have done any good by now,well, we should be on the road to recovery; so why is unemployment rising. housing prices plummeting and an ever increasing amount of people eating out of dumpsters ?
He also said that "it would limit the longer-term impact on the government's budget deficit". Goddam Ben, you had to go to College to come up with that one ? Let me see, by throwing more money down the drain, you are actually reducing the amount of money you have previously thrown down the drain. Go figure. The fact the the mainstream media can print this garbage and still keep a straight face is, unfortunately, a sign of the times.
Now that Helicopter Ben & Co has everyone over a barrel they can talk complete crap and know they will get away with it from a completely dazed and desperate populace. The alarms are sounding but nobody's running out of the building.
Nicholas Sarkozy had already been chosen and groomed since the internal French unrest in predominantly North African suburbs of the large French Cities. He was presented as a figure who was plain spoken and would not tolerate disobedience to the Law.
Not that he was trying to help these people, that was never the point, he wanted to use them and the provoked situation which they became embroiled in to bolster his standing and perception in the eyes of the French people. He gambled on the race card and won.
Now, we are witnessing a nascent fragmentation of this European 5th Column who had sold their souls to Uncle Sam to be part of the big plan.
Berlusconi has just said that , Hey wouldn't it be kind of cool if we had Russia in the EU ?
Sarkozy and Bush are sparring with the definition of the New Financial Order, with George on the one hand, promoting the same Pig just with more Lipstick and Nicholas, on the other hand, hinting that the Pig was never such a great idea in the first place, No wonder Bush cancelled the real meeting until after the US Election.
With the Crisis under way, some leaders are beginning to realise that Uncle Sam won't be of much use to them as they do kind of have to answer to their populations and that Pig just ain't gonna fly no more. Choices are being made and pragmatism hopefully will prevail and Berlusconi has just opened the door. Now, we wait to see who will follow.
Takashi Ushio, head of the investment strategy division at Marusan Securities, was quoted as saying by Reuters news agency.
"Last week people were panicking over the financial system, nobody really knew what would happen. But now it's the real economy."
Yutaka Miura, senior strategist at Shinko Securities Co Ltd, said investors were particularly unnerved by a 1.2% fall in the value of US retail sales between August and September.
"It really confirmed a severe slowdown in the US economy," he told The Associated Press news agency.
If either of these guys needed confirmation that the US was in recession, then they should both be promptly fired and forbidden to manage anyone elses money for the rest of their life. If this is indicative of the abject stupidity that pervades the Investment community, then God Help us all .
This weekend saw the European Union distill their own version of the Mother of All Bailout Bills. A nice new shiny version with leather seats and a turbocharger....The problem: it will not address the fundamental Economic issues that need to be fixed. Without the latter, the former is like giving the addict more Heroin to kill themself rather than commiting them to Rehab.
The Plan:
- "Under the eurozone plan, members pledged to guarantee loans between banks until the end of 2009, and said they would put money into them by buying preference shares"
- Financial managers who are found to be negligent will be "Sanctioned"
Ok, 2 questions arise..
- Where are they going to get the money ?
- What difference will this make in the real economy of you and me ?
MARKET DATA - 10:02 UK
| FTSE 100 | 4157.17up | 225.11 | 5.72% |
| Dax | 4838.60up | 294.29 | 6.48% |
| Cac 40 | 3400.15up | 223.66 | 7.04% |
| Nasdaq | 1649.51up | 4.39 | 0.27% |
| BBC Global 30 | 4512.12up | 78.23 | 1.76% |
But, hold a sec, aren't these the same markets that have been "Rallying" every time Bernanke or Paulson smiled or gave the Banks more of the tapayers money? The reaction in the Stock markets has very little to do with reality. The volume of trading, if boosted, leads to a lot of dealers making a lot of money; That's it.
We will see the Dollar gain strength and possibly an anomalous fall in Gold prices and happy bankers, knowing that they have once again robbed us of capital that should be used for more constructive purposes like creating jobs and saving people from being kicked out of their homes.
Again we are not being told in the Mainstream news about the Elephant in the Parlor......DERIVATIVES
This multitrillion behemoth created by the financial sector over the last years has infested all Bank's asset sheets to an enormous degree.
After Lehman's CDO auction last week, see article (http://meltdown101.livejournal.com/4822.h
Take GM for instance. GM's stability and profit share has been an item upon which trillions of dollars worth of derivatives have been constructed. Now GM is floundering it's way around trying to save it's own ass while the banks who insured against a GM downfall are looking at another very enormous writedown on their balance sheets. This is just one example of how failures across the industrial spectrum can destroy seemingly unrelated parts. The days of the simple economic model has long since vanished and as a result of all this bogus investment packaging by the financial sector, they have signed their own Death Warrant because when the man comes knocking at the Door they have to pay up and pay up enourmously.
But, of course, they are being helped generously by the Taxpayer to soften the blow somewhat. But that's the real tragedy of bailing out banks, guaranteeing their loans, their deposits..it would never be enough to cover them from the Tsunami of Debt calls that are all waiting like Dominoes at their door and , unfortunately, at ours as well. So it will make no real difference if Banks start lending to each other again - they probably will not anyway - because their exposure remains.
My prognostication ?
All these Taxayer capital injections and Equity investments will not add more jobs, more housing construction, more retail sales, an easing of the national Federal debt, ease the absolute panic in China over the amount of garbage they now have in their foreign reserves, change what needs to be changed or help the Average Citizen. Why ? Because the tip of the Derivative Iceberg is rising at an accelerating pace as each domino topples over another ten at each fall. As it continues to rise, we do truly have Godzilla on the rampage. It's only been his baby Brother so far.
