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Defaulting banks - where will it stop? - Peter Presland - 12-03-2010
Jan Klimkowski Wrote:I'm happy to stand with the 93% of Icelanders and the Greek protestors who are telling the IMF and bankers where to shove it.
HERE HERE !! - and three bloody cheers to that!
... but what of our own cowed, fearful and quiescent population?
Still escaping to an unavoidable babble of 'reality' TV celebrity entertainments and looking as determined as ever to allow themselves to remain 'protected' by Banksters Spooks Policemen and their Politician Enablers.
The prospects of ANY serious popular rebellion against all this crap looks to me to remain on a par with that of a snowball in Hell.
I just watched the BBC six O'clock News (a rare event for me). Guess what dominated it?
Answer: Just 2 items taking up 20 of the 30 allotted minutes.
1. Those wicked Muslim prisoners in our jails forcibly converting poor innocent white native prisoners to Islam - I kid you not. It seems TPTB have decided that a little more Muslim hatred needs to be stirred up.
2. An extended report on a pending exhibition and BBC program about 'The greatest Royal love story of all time' - Queen Victoria and Albert - with lots of coy, knowing looks and smiling titillating innuendo from Ms Fiona Bruce.
I really do wonder what planet the BBC News editors inhabit - actually I know EXACTLY. They well understand what is required of them and they deliver.
Defaulting banks - where will it stop? - Keith Millea - 16-03-2010
http://www.counterpunch.org/
March 15, 2010
Geithner and Bernanke's Possibly Criminal Roles
Lehman Brothers Scandal Rocks the Fed
By MIKE WHITNEY
After a year-long investigation, court-appointed bank examiner Anton Valukas has produced a deadly 2,200 page report which details the activities that led to the Lehman Brothers bankruptcy. The report is a keg of dynamite. The question now is whether anyone in government has the nerve to light the fuse. Valukas provides powerful evidence that Lehman executives were involved in “balance sheet manipulation” by implementing an arcane accounting procedure called “Repo 105” which masked the bank's true financial condition from investors and regulators.
According to Valukas, Lehman was “Unable to find a United States law firm that would provide it with an opinion letter permitting the true sale accounting treatment" using Repo 105. So, Lehman executives went outside of the country in an effort to enlist the support of a London law firm that would approve the procedure.
It is impossible to overstate the significance of Valugas's findings. The report exposes the opaque but central role of the repo market which provides essential short-term loans for financial institutions. (Lehman used repos to conceal the full extent of its collapse, by dint of the amount of leverage it was using, meaning the pitiful asset anchor tethered to a vast zeppelin of debt) More importantly, it shows the cozy and, very probably criminal relationship between the country's main regulatory bodies and the Wall Street behemoths. The activities of the New York Fed (NYFRB), which at the time was headed by Timothy Geithner, is particularly suspect in this regard. The report should trigger an immediate Congressional investigation, probing the whole affair and most importantly the role of the Fed.
Naked Capitalism's Yves Smith, who has apparently sifted through all 2,200 pages of the report, has done some first-rate analysis of the details. Here's an excerpt from her Friday posting:
"Quite a few observers... have been stunned and frustrated at the refusal to investigate what was almost certain accounting fraud at Lehman. ....The unraveling isn’t merely implicating Fuld (Lehman’s CEO) and his recent succession of CFOs, or its accounting firm, Ernst & Young, as might be expected. It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abettingLehman in accounting fraud and Sarbox violations....
“We need to demand an immediate release of the e-mails, phone records, and meeting notes from the NY Fed and key Lehman principals regarding the NY Fed’s review of Lehman’s solvency. If, as things appear now, Lehman was allowed by the Fed’s inaction to remain in business, when the Fed should have insisted on a wind-down .....
“…at a minimum, the NY Fed helped perpetuate a fraud on investors and counterparties. This pattern further suggests the Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large.
“And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets. If so, he is not fit to be Treasury secretary or hold any office related to financial supervision and should resign immediately." (Naked Capitalism)
Repeat: "Accounting fraud", "collusion", "aiding and abetting." This is strong language from a woman who spent than 25 years in the financial services industry, alternately working at Goldman Sachs, McKinsey & Co., and Sumitomo Bank. Smith typically chooses her words carefully and is not easily given to hyperbole. Yves Smith again: "Here is the part of the report that discussed how the Fed aided and abetted Lehman misconduct:“We need to demand an immediate release of the e-mails, phone records, and meeting notes from the NY Fed and key Lehman principals regarding the NY Fed’s review of Lehman’s solvency. If, as things appear now, Lehman was allowed by the Fed’s inaction to remain in business, when the Fed should have insisted on a wind-down .....
“…at a minimum, the NY Fed helped perpetuate a fraud on investors and counterparties. This pattern further suggests the Fed, which by its charter is tasked to promote the safety and soundness of the banking system, instead, via its collusion with Lehman management, operated to protect particular actors to the detriment of the public at large.
“And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets. If so, he is not fit to be Treasury secretary or hold any office related to financial supervision and should resign immediately." (Naked Capitalism)
“The Examiner [that’s Valukas] questioned Lehman executives and other witnesses about Lehman’s financial health and reporting, [and] a recurrent theme in their responses was that Lehman gave full and complete financial information to Government agencies, and that the Government never raised significant objections or directed that Lehman take any corrective action.
“So get this: even though Lehman dressed up its accounts for the great unwashed public, it did not try to fool the authorities. Its games playing was in full view to those charted with protecting investors and the financial system.
"So what transpired? The SEC (which has never had much expertise in credit markets -- a major regulatory problem) handed assessing Lehman over to the Fed, which bent over backwards to give it a clean bill of health." (Naked Capitalism)
“So get this: even though Lehman dressed up its accounts for the great unwashed public, it did not try to fool the authorities. Its games playing was in full view to those charted with protecting investors and the financial system.
"So what transpired? The SEC (which has never had much expertise in credit markets -- a major regulatory problem) handed assessing Lehman over to the Fed, which bent over backwards to give it a clean bill of health." (Naked Capitalism)
"Newly released report on the collapse of Lehman Brothers ... sheds surprising new light on Lehman’s dealings with the New York Fed. Lehman engaged in a series of transactions with the New York Fed that were similar to the ones that drew criticism from the bankruptcy court examiner who investigated its collapse. The examiner, Anton R. Valukas, drew no conclusions about the transactions with the Fed, and focused instead on deals that were known inside Lehman as “Repo 105.”
But the report by Mr. Valukas nonetheless raises fresh questions about the role of the New York Fed in supporting Lehman during the frantic months leading up to its collapse. It suggests that Lehman executives believed the Fed would be able to help the bank avert disaster and provide it with a business opportunity.
“Bernanke and Co. may have ‘saved the day’ ” a Lehman executive, Geoffrey Feldkamp, wrote in an e-mail message to a colleague in March 2008, according to the report. Neither Ben Bernanke, the chairman of the Federal Reserve, nor Treasury officials saved Lehman, of course. But it was that month that the Fed started a special lending program open to Wall Street banks like Lehman that could not borrow directly from it. The Fed also lowered its standards for the kinds of collateral that it would accept against such short-term loans.
“Lehman, desperate for financing, seized its chance. It packaged billions of dollars of troubled corporate loans into an investment called Freedom CLO. Then, in a series of transactions, it shifted Freedom back and forth to the New York Fed, in exchange for cash. Those moves helped make Lehman look healthier.
“Essentially, Lehman was able to temporarily warehouse illiquid investments that were worrying its investors at the New York Fed in return for cash. The Fed created this facility immediately after the near collapse of Bear Stearns. Some suspect that other banks engaged in similar maneuvers.
A spokesman for the New York Fed said the loan facility was created to help the entire financial system and prevent the problems at one bank from cascading. The collateral accepted from Lehman met the Fed’s standards, he added. A third party valued it, the Fed accepted it and then reduced prices to limit the risk." ("Fed Helped Bank Raise Cash Quickly", Eric Dash, New York Times)
The excerpt from the NY Times deserves a second reading. The so-called lending facility that the Fed set up was called the Primary Dealer Credit Facility or PDCF. It was established to provide short-term lending for financial institutions after the secondary market froze and banks became reluctant to lend to each other. The Fed arbitrarily (and, perhaps, illegally) expanded the rules for "only" accepting the highest rated bonds and securities as collateral, and became (what zero hedge calls) "the enabler of last resort". The Fed's willingness to take any manner of mortgage-backed sludge in exchange for US Treasuries turned out to be the lifeline for underwater banks whose vaults were loaded with the worthless paper. This is why Fed keeps resisting demands for an independent audit, because it would prove that Bernanke "knowingly" paid huge sums of money for dodgy assets. But the report by Mr. Valukas nonetheless raises fresh questions about the role of the New York Fed in supporting Lehman during the frantic months leading up to its collapse. It suggests that Lehman executives believed the Fed would be able to help the bank avert disaster and provide it with a business opportunity.
“Bernanke and Co. may have ‘saved the day’ ” a Lehman executive, Geoffrey Feldkamp, wrote in an e-mail message to a colleague in March 2008, according to the report. Neither Ben Bernanke, the chairman of the Federal Reserve, nor Treasury officials saved Lehman, of course. But it was that month that the Fed started a special lending program open to Wall Street banks like Lehman that could not borrow directly from it. The Fed also lowered its standards for the kinds of collateral that it would accept against such short-term loans.
“Lehman, desperate for financing, seized its chance. It packaged billions of dollars of troubled corporate loans into an investment called Freedom CLO. Then, in a series of transactions, it shifted Freedom back and forth to the New York Fed, in exchange for cash. Those moves helped make Lehman look healthier.
“Essentially, Lehman was able to temporarily warehouse illiquid investments that were worrying its investors at the New York Fed in return for cash. The Fed created this facility immediately after the near collapse of Bear Stearns. Some suspect that other banks engaged in similar maneuvers.
A spokesman for the New York Fed said the loan facility was created to help the entire financial system and prevent the problems at one bank from cascading. The collateral accepted from Lehman met the Fed’s standards, he added. A third party valued it, the Fed accepted it and then reduced prices to limit the risk." ("Fed Helped Bank Raise Cash Quickly", Eric Dash, New York Times)
When the PDCF first opened for business, the Wall Street tycoons could see that their friend at the Fed was riding to the rescue. Lehman boss Dick Fuld, who could not conceal his delight, crowed, “The Federal Reserve’s decision to create a lending facility for primary dealers and permit a broad range of investment-grade securities to serve as collateral improves the liquidity picture and, from my perspective, takes the liquidity issue for the entire industry off the table.”
Indeed. Economist and author Michael Hudson summed it up like this for CounterPunch:
"Today, there’s only one market for junk: the Federal Reserve, which has lent $1.3 trillion in cash for trash, no questions asked. This amount exceeds the forecast Obama medical care plan for the next decade. No money for health insurance, but all for the junk-mortgage lenders."
Is there really any doubt that Tim Geithner at the New York Fed, or Bernanke knew that Lehman was trading its junk assets to finance its ongoing operations? Doesn't that in-itself constitute a cover up or "intentionally" misleading investors? And, if Lehman was exchanging garbage to feign solvency, then it seems likely that the other investment giants were engaged in the same type of charade. (Which implies that the ratings agencies were culpable, as well) Here again is the crucial excerpt from the Valukas report which suggests that--at the very least--the NY Fed (Geithner) was involved in a vast cover-up which eventually ended in the nation's largest bankruptcy followed by a global market crash.
"The Examiner questioned Lehman executives and other witnesses about Lehman’s financial health and reporting, a recurrent theme in their responses was that Lehman gave full and complete financial information to Government agencies, and that the Government never raised significant objections or directed that Lehman take any corrective action.......Although various Government agencies had information that raised serious questions about Lehman’s reported liquidity and about the sufficiency of its capital and liquidity to withstand stress scenarios, the agencies generally limited their activities to collecting data and monitoring.
“After March 2008 when the SEC and FRBNY BEGAN ONSITE DAILY MONITORING of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress-testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank.5753 The FRBNY developed two new stress scenarios: ‘Bear Stearns’ and ‘Bear Stearns Light.’ 5754 Lehman failed both tests.5755 The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed.5756 However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed.5757 It does not appear that any agency required any action of Lehman in response to the results of the stress testing." (My emphasis.)
This is the huge scandal: collusive government officials who operate as de facto agents for an industry saturated with corruption and conflicts of interest. Connived at the coverup of Lehman’s true position because he doesn't work for the 10 million people who are now standing in unemployment lines, or the 35 million people who are now on food stamps, or the 6 million people who have lost their homes to foreclosure, or the hundreds of millions of people who have seen the home equity evaporate, their retirement funds plunge and their hopes for the future dashed so that a handful of insatiable landsharks could fatten their bank accounts in the Cayman Islands. “After March 2008 when the SEC and FRBNY BEGAN ONSITE DAILY MONITORING of Lehman, the SEC deferred to the FRBNY to devise more rigorous stress-testing scenarios to test Lehman’s ability to withstand a run or potential run on the bank.5753 The FRBNY developed two new stress scenarios: ‘Bear Stearns’ and ‘Bear Stearns Light.’ 5754 Lehman failed both tests.5755 The FRBNY then developed a new set of assumptions for an additional round of stress tests, which Lehman also failed.5756 However, Lehman ran stress tests of its own, modeled on similar assumptions, and passed.5757 It does not appear that any agency required any action of Lehman in response to the results of the stress testing." (My emphasis.)
Michael Hudson, the ex-Wall Street economist and author of Super Imperialism: The Economic Strategy of the American Empire put the Lehman case into perspective with observations he made to me via e mail on Sunday. I think it summarizes the big picture admirably:
“When predators have exhausted the economy, they turn on each other. The result is financial cannibalism. After all, who else is it possible to get money from in today's negative equity environment?
“If the media are missing anything, it’s that the game is over. The financial institutions are taking their money and running. They know it's over. And the only source of cashing out is the US Treasury and Fed.
“My solution:There is an easy place to start, that can take only a few weeks. That is to look at the Fed's $1.3 trillion in cash-for-trash swaps. If these prove to be junk mortgages for which the Fed has given good US Treasury bonds, at the proverbial taxpayer expense, then the Fed and Treasury administrators should have criminal charges brought against them, the accounting firms of the companies pledging these junk mortgages and other financial junk should be closed down and RICO charges brought, and the banks themselves should be wiped out. I have urged the appropriate Washington oversight committee to open an investigation along these lines."
Well said, Dr Hudson! If investigators can prove that the Fed exchanged US treasuries for MBS securities and other toxic assets that they knew were worth less than the amount they provided via short-term loans,(repos) then it is reasonable to assume that the Bernanke's quantitative easing (QE) program operated under the same guidelines. That means, that the $1.25 trillion QE program--which was supposed to extend credit to consumers and businesses--was actually a scam designed to transfer a gigantic load of capital to the very people who gamed the system and precipitated the biggest financial meltdown since the Great Depression. Without question, that misallocation of capital has deepened the recession and sent unemployment skyrocketing. We need to get to the bottom of this.“If the media are missing anything, it’s that the game is over. The financial institutions are taking their money and running. They know it's over. And the only source of cashing out is the US Treasury and Fed.
“My solution:There is an easy place to start, that can take only a few weeks. That is to look at the Fed's $1.3 trillion in cash-for-trash swaps. If these prove to be junk mortgages for which the Fed has given good US Treasury bonds, at the proverbial taxpayer expense, then the Fed and Treasury administrators should have criminal charges brought against them, the accounting firms of the companies pledging these junk mortgages and other financial junk should be closed down and RICO charges brought, and the banks themselves should be wiped out. I have urged the appropriate Washington oversight committee to open an investigation along these lines."
Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com
Defaulting banks - where will it stop? - Jan Klimkowski - 18-03-2010
This one's a bellylaugh all round:
:dancing2:
Quote:Germany mulls sending spies to Wall Street
By Daniel Tencer
Thursday, March 18th, 2010 -- 2:28 pm
Many in Europe see currency speculation as 'economic terrorism'
Germany's finance minister says his government is considering sending spies to London and New York to monitor the activities of currency speculators.
Finance Minister Wolfgang Schaeuble told the German Parliament on Tuesday that may have to send spies to the world's two most important financial centers "to set up surveillance of who is getting together with whom for which kinds of speculative processes, and where,” according to a report at Bloomberg.
The move comes in the wake of Greece's debt crisis. Many European politicians and analysts blamed the crisis on currency speculation and credit default swaps, which they say caused the cost of servicing Greece's debt to jump this year, forcing the country into severe spending cuts that have led to a wave of protests and riots across the country. Greece's debt crisis, in turn, has caused the euro to plummet in value.
"A market frenzy in recent weeks saw traders make bets worth billions of dollars against the euro and on the chances of Greece not repaying its massive debts. Those market worries have undermined the currency," AP reported last week.
Schaeuble's remarks come after news reports last month that Spain had ordered its intelligence service to investigate “whether attacks by investors and the aggressiveness of some Anglo-Saxon media are being driven by market forces and challenges facing the Spanish economy, or whether there is something more behind this campaign,” in the words of Spanish Prime Minister Jose Zapatero.
The trend reflects a growing sense in European politics that many financial activities being pursued by large international banks and investors are harmful to national economies, and perhaps should be outlawed.
But the US government is resisting this sort of rhetoric. Europe and the United States have been embroiled in an increasingly bitter fight over how much to rein in the financial sector after the collapse of 2008. European finance ministers have called for restricting currency speculation, credit default swaps as well as hedge funds, which often bet against currencies. But the US contingent, led by Treasury Secretary Tim Geithner, has been resisting calls for such dramatic moves.
Yet even in the US, the bets placed against the euro have raised some alarm. The New York Times notes that "the Justice Department’s antitrust division is said to be examining whether at least four hedge funds colluded on a bet against the euro last month."
TIME TO TORTURE CURRENCY SPECULATORS?
Economist Vanessa Rossi told Bloomberg that Germany's intelligence agency could use the same tools used in fighting terrorist funding and money laundering to go after currency speculators.
“Within continental Europe there are those that do think that financial speculators are sort of terrorists,” she said. “In their lexicon it is economic terrorism, so they may view this as more serious than the US or UK.”
At times, that view has taken extreme forms. Earlier this month, Luxembourg's finance minister, who heads the European Union's group of finance ministers, said financial markets were "blackmailing" the euro zone with their bets, and metaphorically threatened currency traders with torture.
“We have the instruments of torture in the basement,” he said, “and we’ll show them when it’s necessary."
The plan to send spies to London and Wall Street is "sinister and silly,” Philip Whyte of the Centre for European Reform told Bloomberg. He added that the idea reflects “a longstanding paranoia about the Anglo-Saxon model of capitalism.”
http://rawstory.com/2010/03/germany-mulls-spies-wall-street/
Defaulting banks - where will it stop? - Jan Klimkowski - 03-04-2010
Meanwhile Zero Hedge and various insiders at the Ticker Forum are getting very excited about an extraordinary Fed meeting scheduled for Monday.
Quote:Advance Notice of a Meeting
under Expedited Procedures
It is anticipated that a closed meeting of the Board of Governors of the Federal Reserve System at 11:30 a.m. on Monday, April 5, 2010, will be held under expedited procedures, as set forth in section 26lb.7 of the Board's Rules Regarding Public Observation of Meetings, at the Board's offices at 20th Street and C Streets, N.W., Washington, D.C. The following items of official Board business are tentatively scheduled to be considered at that meeting.
Meeting date: April 5, 2010
To Be Discussed: Review and determination by the Board of Governors of the advance and discount rates to be charged by Federal Reserve Banks.
A final announcement of matters considered under expedited procedures will be available in the Board's Freedom of Information and Public Affairs Offices and on the Board's Web site following the closed meeting.
One much discussed scenario is that the Fed has unwittingly revealed its huge exposure on MBSs and the other trash it bought in the last two years. Crucially, this exposure is now shown to be unhedged.
And the very strong rumour is that various major speculators and hedge funds are going after the Fed as soon as markets reopen.
The fact that the Fed's (hidden) balance sheet is junk is not major breaking news. However, the disclosures revealed as part of the Maiden Lane 1 reports (see Zero Hedge piece below) seem to mean that the Emperor's butt naked status can no longer be ignored by the markets.
It would be highly appropriate to see the hedge funds, amoral and unproductive parasites feeding on the flesh of global market capitalism, devour the Beast itself.
Lots of balls are in the air. Methinks the Magician will have to pull a major sleight of hand to keep them up there....
Quote:Why Is The Fed Actively Managing A $25 Billion Maiden Lane MBS Portfolio When Its $2.4 Trillion SOMA Holdings Have A $1 Billion DV01? (And Are Unhedged)
An interesting thing happened when we were combing through the Fed's Maiden Lane 1 portfolio. After going through holding after holding of crap, that would make junk indignant if one were to call the Fed's adopted holdings of muni CDS, Subprime mezz bonds, and Agency CMO such, we ended up looking at the rate hedges section. As is disclosed by the Fed, the FRBNY holds 5000 TYM0 puts, 3825 TYH0 puts, short 4000 FVH0, short 7828 TYH0, short 2240 USH0, and is short a bunch of euro positions. Also, the interest rate exposure is in thousands so the Fed has about 3 trillion in notional swap exposure. Now Maiden Lane is supposed to be an adopted, run off (or, as Geithner likes to boast, run on) portfolio, presumably without active management. Which is why we were surprised by the presence of the TYH0 and TYM0 positions: these did not exist at the time the Fed created Maiden Lane I! In fact TYM0 did not exist until March of 2009!
Fair enough - we now know that the Fed is paying Blackrock with our money to manage the interest rate exposure on its Maiden Lane I positions, just so JPM could get a steal on Bear Stearns (oh yeah, and Jamie Dimon is furious today that the Fed not only bailed him but gave him Bear on a silver platter). This means that the Fed paying Larry Fink several million a year to put on some interest rate hedges and some various futures. And for what - to avoid a blow up in a $25 billion portfolio?
What about the bigger picture?
As Jefferies points out today:
Quote:One has to ask why the SOMA is spending all this effort with Blackrock to hedge interest rate risks in a $25 billion MBS portfolio when it’s holding $1.25 trillion of MBS assets, plus a trillion of long dated Agency debentures and Treasuries. There is a billion dollars a basis point of interest rate risk in the SOMA.
You read that right, while the Fed is pretending to care about interest rate concerns in an increasing rate environment and is hedging ML1, it has one billion DV01 risk for its house bailout package. This is a stunning number: the second rates commence creeping higher, you can kiss all that profit on TARP and what not not only goodbye, but the losses on the SOMA books will likely destroy America. And yes Virginia, it is negatively convex: once rates start creeping wider, they will accelerate faster and faster until everything escapes the control of Ben Bernanke.
Ron Paul, Alan Grayson, and every other activist in the Congress and the Senate should immediately ask the Fed why is Ben Bernanke hedging its ML1 IR exposure, while leaving its SOMA exposure completely unprotected even when the DV01 is about 100 times greater!!! A 1% move in rates would lead to a $100 billion loss for taxpayers. Should we have a failed auction, or go back to Paul Volcker times and have the 10 year hit over 10%... well, you do the math.
Going back to Jefferies:
Quote:I think this whole move on transparency opens up way too many avenues for attack on our venerable Federal Reserve. It’s the most complicated time in monetary policy history and Congress is now on a warpath. This is not good for independence and it’s not good for credibility. Based on what I see the Fed will have tough questions to answer on its management of the SOMA account after this release. And if they are pushed into a corner on interest rate hedging because of this, it gets very interesting…..hedging 1bio/bp basically amounts to one thing - asset sales! Good luck trading.
One can now see why Tom Hoenig has been the voice of reason: unless the IR risk is promptly offloaded to private hands before rates begin creeping higher, and impact a portfolio of rate sensitive products, never before as concentrated as it is now in the clutches of the Federal Reserve, the mindblowing DV01 on America's assets will lead the country to a prompt, and very negatively convex bankruptcy, long before China realizes it should stop bidding on our auctions.
And to simply for those who may be a little confused by the jargon: the Fed's lapdog BlackRock is hedging that which is irrelevant: the smallest portion of the Fed's rate exposure. But because Tim Geithner has a penchant of appearing on TV and saying how well Maiden Lane is performing, the Fed has decided to protect against a major hike in rates. Yet that which is truly relevant, the Fed's nearly $2.4 trillion in holdings of MBS, Agency and Treasuries is completely unhedged. Good luck finding the counterparty that would be willing to put on a $200 trillion gross notional interest rate swap with the Fed. (or maybe one already exists, and since it is off balance sheet for the Fed nobody would ever have a clue. That counterparty would have America by the proverbial testicles). If rates do go up, and if the System Open Market Account holdings are unhedged, hyperinflation Catch 22 - here we come (oh yes, and the Federal Reserve is now a ticking time bomb, which can only be defused by forced asset sales which would be a prelude to wholsesale tightening and an S&P back to 666). Good luck trading indeed.
http://www.zerohedge.com/article/why-fed-actively-managing-25-billion-maiden-lane-mbs-portfolio-when-its-24-trillion-soma-hol
Defaulting banks - where will it stop? - Jan Klimkowski - 10-04-2010
What is the Bank of International Settlements trying to tell us? :listen:
Yup. There is massively more debt than there is either money or capacity to pay that debt. :vroam:
Quote:Bank Of International Settlements Sees US Debt/GDP At Over 400% By 2040
It's one thing to hear fringe bloggers raving breathlessly against the collision course that the US economy is on. It is something else to see the Bank of International Settlements call for the baseline projection for US debt/GDP to hit over 400% by 2040. And this excludes the bankrupt GSEs, bankrupt Social Security, and the soon to be bankrupt Medicare.
In a must read report, the BIS (of the central bankers' central bank) provides the much needed segue to the work of Reinhart and Rogoff, and in not so many words confirms that the entire developed world is now bankrupt on a discounted basis. With Debt/GDP ratios for virtually everyone expected to jump to over 400% in the bank's baseline scenario, it is no surprise why the Dow may well hit 1 quadrillion on nothing but Weimar and Zimbabwean ponzification, before it crashes instantaneously to zero. We exaggerate about the quadrillion, we do not exaggerate about the sovereign default.
The current and previous administrations have doomed this country, just as all other administrations of the developed world have done the same, in order to bail out the banking system, in the greatest fatally flawed private-public risk transfer experiment ever attempted. Those who will walk out of it with virtually infinite wealth are about 0.1% of the US population (the same people who tell you now that all is well, and that their bonuses are fully justified). Those who won't, and will end up doing bad things to the aforementioned cohort, is everyone else. And the "everyone else" is getting angrier by the day, as they realize just how massive the wealth transfer scam truly is... if only they could tear themselves away from the iCrap, watching Tiger Woods' nonsensical Nike ads, or glower in schadenfreude as Simon Cowell rips another wanna be singer from head to toe.
Some key snippets fromn the BIS report:
Quote:Should we be concerned about high and sharply rising public debts? Several advanced economies have experienced higher levels of public debt than we see today. In the aftermath of World War II, for example, government debts in excess of 100% of GDP were common. And none of these led to default. In more recent times, Japan has been living with a public debt ratio of over 150% without any adverse effect on its cost. So it is possible that investors will continue to put strong faith in industrial countries’ ability to repay, and that worries about excessive public debts are exaggerated. Indeed, with only a few exceptions, during the crisis, nominal government bond yields have fallen and remained low. So far, at least, investors have continued to view government bonds as relatively safe.
But bond traders are notoriously short-sighted, assuming they can get out before the storm hits: their time horizons are days or weeks, not years or decades. We take a longer and less benign view of current developments, arguing that the aftermath of the financial crisis is poised to bring a simmering fiscal problem in industrial economies to boiling point. In the face of rapidly ageing populations, for many countries the path of pre-crisis future revenues was insufficient to finance promised expenditure.
There is no need to repeat just how horrendous the fiscal deficit picture is. Yet we will:
Quote:Overall fiscal balances have been deteriorating sharply – by 20–30 percentage points of GDP in just three years. And, unless action is taken almost immediately, there is little hope that these deficits will decline significantly in 2011. Even more worrying is the fact that most of the projected deficits are structural rather than cyclical in nature. So, in the absence of immediate corrective action, we can expect these deficits to persist even during the cyclical recovery.
Based on a very comprehensive data set, Reinhart and Rogoff (2009a) report that three years after a typical banking crisis the absolute level of public debt is on average about 86% higher than prior to the crisis. In those countries where the crisis was most severe, debt almost trebled. This time around, several countries are beyond this historical average: Ireland with increases in public debt of 98% between 2007 and 2009; and the United Kingdom with projected rises of 111% by 2011. Meanwhile, the United States and Spain – with projected increases of 75% and 78%, respectively, by 2011 – are not far behind.
We doubt that the current crisis will be typical in its impact on deficits and debt. The reason is that, in many countries, employment and growth are unlikely to return to their pre-crisis levels in the foreseeable future.8 As a result, unemployment and other benefits will need to be paid for several years, and high levels of public investment might also have to be maintained
(lots of graphs at zero hedge link)
Well, one little comment - essentially at this point the entire world is bankrupt. Yet the bankers will keep on trending the market higher and higher on ever declining volumes, to perpetuate the illusion that things are getting better. If that means that GETCO will quote a market of 1,000,000 x 1,000,000,000 for 2 shares of SPY at some point in the future, we would not be surprised. It is merely an artifice for the financial kleptocrats to cash out from as high a point as possible as they try to sucker ever greater numbers of people into the parabolic phase of the ponzi. Yet the numbers don't lie. No matter what Obama does, no matter how he spins the CBO data, or how much healthcare reform is presented as revenue generating, the final outcome is now certain, and it involves the chain bankruptcies of every developed nation. And since the developed world is merely a cheap source of commodities and processed products for the developed world, the BRICs of the world will be next.
Previously, few dared to discuss the ponzi openly. With the BIS now getting into the fray, the issue of sovereign insolvency is now front and center. Of course, few will dare to forecast when the great unravelling will begin. And neither will we, suffice to say that as more and more people read disclosure such as the above, coming from the most legitimate of financial institutions, the more people will awake to the true cataclysm that has now enveloped Western society, which if the Roman empire was any indication, is in last days. Except unlike the Roman case study, the barbarians are not at the gate: they represent 90% of the population of America itself and are already inside the gate. And they are getting angrier with each passing day.
http://www.zerohedge.com/article/bank-international-settlements-sees-us-debtgdp-over-400-2040
Defaulting banks - where will it stop? - Jan Klimkowski - 18-04-2010
Zero Hedge's reading of CDS trades suggests France is next in the cross hairs of, ahem, perfectly rational free market global capitalism.
Quote:If CDS Traders Are Right, France Is Next Up For A Sovereign Shakedown (As Are Spain And Portugal); Greece Long Forgotten
Submitted by Tyler Durden on 04/17/2010 22:43 -0500
Dubai France Germany Greece Japan Net Notional Portugal Primary Market
CDS traders were prescient in snapping up Greek and Dubai CDS long before anyone else realized the risk these countries are in (well, more like Goldman selling CDS to some very close clients, wink wink). In exchange for figuring out what it took cash bond holders months to understand, these 'speculators' made a lot of money and in the process got branded as quasi-sovereign terrorists. Well, Greece can sleep well: according to the latest DTCC CDS data (for the week ended April 9), CDS specs have completely deserted Greece, which saw the single biggest amount of Net Notional CDS decrease, to just over $8 billion, a reduction of $367 million in the prior week (which means all the widening in Greek spreads is now, and has been, just cash bond sales, precisely what Zero Hedge has claimed all along). CDS traders are now focusing their attention on the one country which has so far slipped under everyone's radar, yet which we disclosed is more on the hook in terms of Southern European exposure than even Germany: France, with $781 billion in total claims. Should Greece topple the PIIGS dominoes, France will implode. And this is precisely what CDS traders are betting on now, taking advantage of absurdly tight France CDS levels. Also, just in case they are wrong on France, Spain and Portugal, not surprisingly, round out the top three names in which Net Notional saw the largest increase. Also not surprisingly, Japan rounds out the top 5 deriskers.
http://www.zerohedge.com/article/if-cds-traders-are-right-france-next-sovereign-shakedown-are-spain-and-portugal-greece-long-
If French workers start suffering salary cuts, losing their jobs and their pensions to "Anglo-Saxon capitalism", their response will make the Greek riots look like a Girl Guides' tea party.
French cops will contribute to the ratcheting up of tension. Les flics love cracking pretty young heads with batons.
I remember seeing an environmental protest in the French Pyrenees with a bunch of young greens chained up to trees and machinery at a logging mill. They were passive - classic civil disobedience. Les flics started salivating in sadistic anticipation: their prey had chained itself up the better to receive a good beating. A few Gallic warcries later, the cowards duly and bloodily delivered the thrashing.
The application of widespread economic Shock Therapy to the "developed" world is a new, if inevitable, chapter in Their lust for Power and Control.
They probably think it's going to be a cakewalk. I suspect it will bring Khaos and Anarchy.
But then Khaos and Anarchy may be the ultimate aim of the Sponsors.
Defaulting banks - where will it stop? - Jan Klimkowski - 18-04-2010
JP Morgan man speak with forked tongue:
Quote:JPMorgan chief warns of overregulation: report
(Reuters) - The head of JPMorgan Chase & Co (JPM.N) in a German newspaper interview on Sunday turned against the possibility of stricter bank regulation and asked for better access for bankers to politicians.
"When profits fall too sharply then capital will move somewhere else, where there is more money to be earned, for example non-regulated markets," Chief Executive Jamie Dimon said in the German mass circulation Sunday paper Welt am Sonntag.
"The question is, is that what regulators want?," said Dimon who heads the second-largest U.S. bank.
Dimon has been an outspoken critic of the Obama administration's proposed financial regulatory reforms, particularly of a proposed bailout fee on big banks which he has called a "punitive bank tax".
In the German interview, he also said the banking industry could do with more influence on politicians.
Both the industry and government wanted what was best for their country and the economic system but there were areas where the banks lacked possibilities to demonstrate their arguments to politicians and supply them with the right facts, he said.
http://www.reuters.com/article/idUSTRE63H1D120100418
According to JP Morgan man, charging the banks a fee for their bailout with taxpayer money is a "punitive bank tax", and there wouldn't be a problem if bankers "had better access" to politicians.
Defaulting banks - where will it stop? - Mark Stapleton - 19-04-2010
Mr. Dimon lives in a bubble.
Defaulting banks - where will it stop? - Magda Hassan - 19-04-2010
A tulip bubble?
Defaulting banks - where will it stop? - Mark Stapleton - 19-04-2010
Magda Hassan Wrote:A tulip bubble?
