the largest US banks engaged in massive bets with each other on the direction of the future using derivative financial instruments whose value was inferred from the value of some underlying asset, often another pool of derivatives. as you might expect, they thought the future would be like the past. however, it is the unforeseen events that change history, particularly economic history. the revaluation of derivatives is the unforeseen event.
to put the following in perspective, the value of all goods and services produced in the US in one year (GDP) is approximately $11 trillion.
JP morgan Chase as of march 07 had outstanding bets in derivatives totaling $71.7 Trillion . this is an amount equal to more than the entire WORLD economy (they bet the world!). they are able to bet this much by using leverage. JP has leveraged 799% vs its risk based capital.
some others: Citibank: $34.9 trillion, Bank of America: $29.1 trillion. HSBC: $5.6T, Wachovia (walk over ya) $5.4T.
OCC's Quarterly Report on Bank Derivatives Activities
First Quarter 2007(go to pages 13 & 23)
2007-65a.pdf (application/pdf Object)
according to the CIA world factbook: GDP: GWP (gross world product) = $65.95 trillion (2006 est.) An estimated $450 trillion in derivatives have been written in the world. world financial institutions have wagered that the world economy will go on as before, six times over.
These ridiculous and reckless derivatives are insurance policies written without any capital reserves should be declared illegal if they were written without any honest attempt at reserves for potential losses.
if i wrote 1000 insurance policies on my refrigerator breaking down the payout would be many times the value of the fridge when it eventually broke, causing some distortions in my household finances.
furthermore, if the policies were based in money (cookies) i cooked up in the kitchen the demand for the money (cookies) i make would shoot through the roof when the fridge dies since every contract would have to be settled in my cookies (money).
So far, payouts on lehman default protection insurance policies is nearly ten times it's recent market cap. Here are the links:
my refrigerator example is exactly what is going on globally and it is absurd. the dollar has risen solely due to the short squeeze from the settling the fraudulent, unbacked insurance derivatives. the liquidity black hole lets the fed print as it pleases with no immediate ramifications. the printed money is being used to take over corporate america at fire sale prices. this is how ben's helicopter works.
The huge scale of purchases by our government and the private corporation that prints our dollars (the Fed) will eventually lead people to see our money as collateralized by stocks and mortgages. This opens up some very interesting issues. The largest of which is the shift from a fiat (unbacked) currency to one that is arguably backed by the value of people's work since, again, stock prices and mortgage values are ultimately tied to the value of the human effort that sustains them.
What do you call money backed by human labor?
What is happening is a transfer of wealth and a financial coup. the winning side of these contracts is pwning the losing side. This is what jp had on bear, they owned their dumb asses through derivatives. You can see who owned who just by looking who ate who and who is still standing. Problem is there were so many derivatives written that there is no realistic way to settle them. All counterparties probably refused to pony up and said F U see me in court. Then they were forced to do exactly what they were told. The firms on the good side of the derivative trades are taking over every business they can before everyone realizes settling all or most of the fraudulent derivative contracts is not going to happen, and that knowingly betting the world many times over was a forced implosion and a dirty trick.
In order for the scam to continue it is absolutely imperative that the entire world pretend that there are not maybe 4 or 5 times more credit default swap derivatives out there than the value of world gdp. This is the white elephant in the room that no one will mention. Except, in this case, it is more like a trojan white elephant with a short sparking fuse for a tail.
Federal officials set conditions, telling the banks they could not raise their dividends without government permission and could not offer their executives new retirement packages, though the old packages would remain intact.
Now that he [Paulson] has decided to use the $250 billion installment to pump capital directly into the banking system, he is planning to immediately ask Congress for a second installment of $100 billion to buy or insure the assets from institutions....
From the NYTimes and earlier thread discussion regarding dilution:
The preferred stock that each bank will have to issue will pay special dividends, at a 5 percent interest rate that will be increased to 9 percent after five years. The government will also receive warrants worth 15 percent of the face value of the preferred stock....
This sickens my stomach! So everything is back to normal, huh? I mean, injecting a few trillion into the financial system seems to have done the trick. Recession avoided, stock market plunge avoided, but what's the catch? Is it really that easy to brush away leverage? I need some sense here...please.
FWIW, the Wapo piece says Treasury was opposed to direct capital injections throughout TARPs conception:
Bachus answered the objection by saying that the government could take a non-voting stake in the institutions. But opponents in the meeting, including Treasury, were unmoved.
"What is happening is a transfer of wealth and a financial coup. the winning side of these contracts is pwning the losing side. This is what jp had on bear, they owned their dumb asses through derivatives. You can see who owned who just by looking who ate who and who is still standing. Problem is there were so many derivatives written that there is no realistic way to settle them. All counterparties probably refused to pony up and said F U see me in court. Then they were forced to do exactly what they were told. The firms on the good side of the derivative trades are taking over every business they can before everyone realizes settling all or most of the fraudulent derivative contracts is not going to happen, and that knowingly betting the world many times over was a forced implosion and a dirty trick."
When history is written I suspect you will be right. My question has always been is who is on the winning side of these CDS.
"This is the white elephant in the room that no one will mention. Except, in this case, it is more like a trojan white elephant with a short sparking fuse for a tail."
(Emphasizing my own status as a vet)
You've got to be new here. Not that it doesn't need it,but we talk this to death. We love big numbers. Every once in a while we get past the $100T mark, and rarely we even hit infinity.
One hundred percent sure you'll enjoy this. Classic. Berlusconni, Mary-Lou Retton, Franki Valli, Nancy Pelosi gets called a Prima Dona, pratfalls:
The haves and the have nots are the two party system in the US(world). I found this disagreeable but palatable as long as I had opportunity and my kids could expect a good quality of life if they worked hard and received a college education. The haves are breaking the unwritten agreement. They got too greedy and now have lost perspective. Your CNN article was well received and point taken.
Derivatives and numbers over a 100 trillion, yeah, once a number reaches a certain size it becomes meaningless.
I do think it provides leverage and a bargaining position. That's all you need if the other side is already teetering and your threat can send him over the edge.
What I don't get is your motivation and intent? Help me understand that?
Sorry, I was working on a different computer so I posted as anonymous unintentionally, if it matters.
My intent is probably the same as yours, to find the "truth" in all the numbers. I was just trying to express a healthy skepticism of them. (And poke a little fun at the pissing contests).
Now back trying to find an easy way to dual boot vista 64 and xp 32. This is after having tried to install the vista service pack on a disk with errors and multiple conflicts with the service pack. First tries took about 2 full days. Second try took 30 minutes after proper due diligence. Maybe there's a lesson in there for all this high falutin' ("falutin"?) money/power palaver.
Random thought: here we are, all so worried about how to sauce our squirrel, while people (?) are still out there starving each other and killing each other.
Money to build and generously equip thousands and thousands of new schools, with well-paid, exquisitely trained teachers, small teacher-pupil ratios, a full range of enriching and inspiring programs.
Money to revitalize the nation's crumbling inner cities, making them safe and vibrant places for businesses and families and communities to grow.
Money to provide decent, affordable and accessible health care to every citizen, to provide dignity and comfort to the elderly, and protection and humane treatment for the mentally ill.
Money to provide affordable higher education to everyone who wanted it and could qualify for it. Money to help establish and sustain local businesses and family farms, centered in and on the local community, driven by the needs and knowledge of the people in the area, and not by the dictates of distant corporations.
Money to strengthen crumbling infrastructure, to repair bridges, shore up levies, maintain roads and electric grids and sewage systems.
Money for affordable, workable public transport systems, for the pursuit of alternative sources of energy, for sustainable, sensible development, for environmental restoration.
Money to support free inquiry in science, technology, health and other areas -- research unfettered from the war machine and the drive for corporate profit, and instead devoted to the betterment of human life.
Money to support culture, learning, continuing education, libraries, theater, music and the endless manifestations of the human quest to gain more meaning, more understanding, more enlightenment, a deeper, spiritually richer life.
The money for all of this -- and much, much more -- was there, all along. When they said we couldn't have these things, they were lying -- or else allowing themselves to be profitably duped by the high priests of the market cult. When they wanted a trillion dollars -- or three trillion dollars -- to wage a war of aggression in Iraq, they found it. Now, when they want trillions of dollars to save the speculators, fraudsters and profiteers of greed in the global market, they suddenly have it.
Who then can believe that these governments could not have found the money for good schools, health care, and all the rest, that they could not have enhanced the well-being and livelihood of millions of ordinary citizens, and helped create a more just and equitable and stable world -- if they had wanted to?
This is one of the main facts that ordinary citizens around the world should take away from this crisis: the money to maintain, secure and improve the lives of their families and communities was always there -- but their governments, and their political parties, made a deliberate, unforced choice not to use it for the common good. Instead, they subjugated the well-being of the world to the dictates of an extremist cult. A cult of greed and privilege, that preached iron discipline to the poor and the middle-class, but released the rich and powerful from all restrictions, and all responsibility for their actions.
those muppets think that god rolled double sixes ten times in a row, and phew, glad that won't happen again. But in fact the math upon which value at risk and other financial math is built does not reflect reality.
"to put the following in perspective, the value of all goods and services produced in the US in one year (GDP) is approximately $11 trillion."
This is a fallacy. Calling consumption production is a nice tool for economists and politicians but not comforting for those who've read Orwell. When I buy a car, with a loan based on equity in my house, it certainly represents value, and my getting to and fro faster may help me be productive. But using what is in large part wasteful consumer spending as a measurement of the health of the economic system is absurd.
When spending is cut in half next year I hope economists will be forced to use standard dictionary definitions, or maybe they should be cut in half.
"The United States is also expected to guarantee new debt issued by banks for three years "
I can't be the only one who sees the law of unintended consequences raising it's big fat head on this one, can I? remember the Savings and Loan fiasco? Guarantees like this without simultaneous regulation is just asking for the banks to do the wrong (and extremely risky and costly) thing. Might was well profit from it and its unintended consequences before the SHTF.
Now that Paulson and friends have dealt with the wholesale level of our of our credit food chain by such policies as: involuntary (yeah right, you loved it) capital penetrations and guarantees en mass of all bank transactions, their attention is turning to fixing the retail level Paulson will demand that Congress pass the following laws before Election Day to help encourage the American consumers to do what they do best.
Credit Rights Act - America has an ugly history of discriminating against so-called credit risks even to the point of setting up semi-official credit rating agencies to place an arbitrary and totally offensive value on individual Americans credit worthiness. Since all Americans are created equal, this Act will ban all credit discrimination and lock in all Americans credit score at 750 for perpetuity. This Act will also ban as derogatory the following slurs: bankrupt, drunken sailor and over-extended. These slurs will be considered as socially equivalent to those against blacks or Jews. Slurs against Arabs and women (but not Arab women!) will continue to be encouraged.
Homeland Prosperity Act - Home equity is dead money. More than four trillion dollars of potential consumer spending is locked up by deadbeat homeowners who refuse to be patriotic and take HELOCs. This bill will impose an absolute ceiling of 20% of a homes value which will be allowed to go untapped. This percentage will be reviewed annually.
Plasma Promotion Team (PPT) Act - Teams of local merchants will inspect premises of all Americans to ensure compliance with new local ordinances requiring a 64 plasma in every room of every house. The only exceptions will be the grandfathering in of smaller 42 plasmas in closets, bathrooms and stair landings.
American Heroes Proclamation Act- All Americans with a ratio of credit card debt to annual income of more than 50% will receive via e-mail an official certificate proclaiming them true American heroes. Those with 100% or higher ratios will get a photo-op with the President.
Hoarding Prevention Act. - All hoarding accounts (formerly referred to colloquially as savings accounts) are hereby banned. Consumers will be give three months to get this money into play before it is confiscated. Americans with germanic-sounding last names will be watched particularly closely.
*These laws only apply to the lower 90% of Americans for reasons that should be obvious to all.
One of the next shoes to drop will be the loss of the dollar hegemony. IOW, the dollar will no longer be the world's reserve currency.
Judging by Paulson's retreat on TARP, he has been sternly put in his place by leaders of nations like China, Russia, Germany, and Japan. Nations with export surpluses and hefty dollar reserves.
It is those countries who are telling us what to do now. A month ago they warned Hank about what they would do if their agency holdings vaporized. He came up with TARP to bail out their investments.
"Nope, Hank. Sorry, won't work. You need to do what we're doing. Directly recapitalize your banks. Now."
The writing is on the wall. The rest of the first world is, without any fanfare at all, setting us adrift. A la Captain Bligh.
And at this very moment, leaders of those nations (including the EU and BRIC) have put their heads together to determine what combination of currencies and commodities will replace the dollar as the universal measure of wealth.
And they won't ask us if we like it. They'll just announce it one day.
"So long, Bucky. Hope your citizens don't mind a 100% inflation rate."
If insurance company sell insurances more than they can cover, should the accident happen - and happen it did! - according to your philosophy the insurances should be nullified?
I am sure that Morgan and boys would like nothing better than someone to neutralize their position!
Sorry, you cannot change the rules (you made in the first hand) whenever they are to your disadvantage.
Best post on group today . Thats exactly where the middle class is going - Let me hear your balahikas ringing out -
Didn't even take one nuclear bomb to destroy democracy . Millions of wasted lives protecting it . Does anyone believe in what goes around comes around . These pompous thieves need a real dose of what they have given us.
unirealist writes:
One of the next shoes to drop will be the loss of the dollar hegemony. IOW, the dollar will no longer be the world's reserve currency.
and which of those countries will be first to have an open economy that runs a trade deficit large enough for other countries to hold reserves of their currency?
Urealist: "And at this very moment, leaders of those nations (including the EU and BRIC) have put their heads together to determine what combination of currencies and commodities will replace the dollar as the universal measure of wealth."
There are a lot of old maid cards out there... and for the Chinese commercial banks, sustaining the pace of sterilization is not cost-free.
"Since the international value of the dollar has become so unstable, China is faced with the question of what the denominator to monitor changes in its reserves and guide policies to protect their value should be. Alternatives to the US dollar include the euro, various baskets of currencies, gold, or even baskets of commodities. It is not known if China uses any of these alternative denominators. What is clear, however, is that China cannot diversify its reserves out of dollars quickly without putting downward pressure on the international value of its main reserve asset and putting upward pressure on interest rates in the US, which could slow US growth and hence US demand for Chinese exports."
Alternatives: an open capital account, more outward FDI, more internal consumption, less export friendly rebates, higher RMB. all of which take time, unless your hand is forced...
"What is clear, however, is that China cannot diversify its reserves out of dollars quickly without putting downward pressure on the international value of its main reserve asset and putting upward pressure on interest rates in the US, which could slow US growth and hence US demand for Chinese exports."
the author misses the reason why china has accumulated all those reserves in the first place - their currency peg. the reason they cant diversify their reserves is because the reserves come from fx intervention. if they chose to let their currency apreciate then they will export less and have less dollar reserves. if they sell dollars they change the value of their currency. its not about reserve accumulation or the value of their reserves, its about maintaining an export based economy and employment.
rent_to_own writes
Sadly, French car companies are not begging the American treasury for more money to keep a dead business model alive in the face of global competition and shifting product demand, but then, what do you expect of the French?
nope, just french banks begging for dollars from the fed to keep their financial system alive.
Recession avoided, stock market plunge avoided, but what's the catch?
Calm down. The recession will be just as nasty as ever, and unless you've been fed some particularly nasty confinement loaf, you'll probably remember last week's stock market plunge. One day can't erase eight years of stupidity.
The catch is that America's best days are over. This is the last gasp of a dying empire, as it tosses away 250 years of free market dogma down the toilet like a spent cigarette.
History will probably record 1998 or 1999 as the peak of America's economy. The last 8 years have been exposed as a fraud. I wouldn't be surprised if eventually all the GDP growth since Clinton is revised away.
We've reached hard limits on population and economic growth. To properly connect the dots, you need to look at our bankrupt educational system as well as the financial system. A generation of doped-up, spoiled illiterate brats is about to inherit the mess the baby boomers created.
rent_to_own - the ecb had to increase dollar swap like to $620bb in oredr to provide dollars to the euro area banks. they dont have access to dollars and the fed provided them. they will have to sell euro to pay back what will surely be over $1 shortly.
its actually the europen system that is most at risk.
if the headlines read ecb has to provide fed with eur600bb the press and the american haters wouldn't have been able to contain themselves. as it is we just saw the 21st century marshall plan. the us saves your ass again.
central_scrutinizer writes:
you need to look at our bankrupt educational system as well as the financial system. A generation of doped-up, spoiled illiterate brats is about to inherit the mess the baby boomers created.
i agree. get the gov't (obama and bill ayers out of the educating of our youth). get rid of the dpt of education. school vouchers and choice. let private scholls teach literacy and numeracy.
Off topic, but I want to repeat a message I left for Mr. T and all other first time gun owners on an old thread from last night. It seems like people are starting to buy steel jacketed lead to go with their gold and rice and beans.
Hey, wonderful purchase. It may be a boon to you in the coming days.
Now get an experienced friend to take you to a range or pay for a professional for a couple of lessons. That thing is a mighty good tool, but you want to make damned sure that when it comes time to put it to use that you know exactly what you are doing. You want to have drilled its proper and safe use so thoroughly that your aim and fire is smooth and sure, even if you are pissing yourself.
You should no more operate a gun without training than you should drive a car without having learned to do so. Both activities have a high chance of getting the wrong people dead or injured.
Guns are very safe tools when you know what you are doing.
sg-
well, I'm American, and I certainly don't think Paulson has saved my ass - and he certainly cares nothing about the American taxpayer's ass either.
What is happening is the system is freezing - and the dollar is at the nexus of the global financial system. The Fed (actually, depending on your reading of the Fed's balance sheet, the Treasury) is attempting its best to ensure that a system running on dollars does not completely collapse, because with the exception of some agricultural commodities, the U.S. has little to offer but dollars for its debts.
Debts which are to be paid with more debt.
At some point, this won't work anymore. It almost stopped working in the past week, but after throwing literally hundred of billions of dollars around, it looks like the problems will abate - at least for several days, possibly even a couple of weeks.
You do realize that the intense focus of the media on Wall Street is pretty much obscuring what is going on in the real economy, right? And though it hasn't been fashionable in America for a generation, I remain convinced that the real economy is what a financial system is based on, and not vice versa.
Oh, and that hundred billion euro trade deficit with Europe - I'm sure that the Fed was providing dollars out of the goodness of its heart, and not because those goods are in any sense necessary for the American economy. Might want to see who manufactures machine tools these days, for example.
i agree. get the gov't (obama and bill ayers out of the educating of our youth). get rid of the dpt of education. school vouchers and choice. let private scholls teach literacy and numeracy.
Clearly the education system worked wonders for your English skills what with all that fantastic capitalization & spelling you're demonstrating for us. Scholls?
Also, do people really think that wholesale fragmentation of our educational system would really help our economy in the long run? It seems to me that if I'm hiring someone out of high school, I'd would be to my advantage to have at least some basic idea of what that person learned in HS. If a "diploma" can mean anything from 4 years in extended Jesus camp to 4 years at a science & math magnet school, well, I ton of obnoxious regulation & political fights over accreditation.
But hey, this is all way off topic so maybe we should both keep our political opinions to ourselves.
Our public "screw-els" are just training camps to turn our children into good little consumerists tools.
As another poster wrote above, the opportunity cost of all the things this money won't be spent on (roads, bridges, health care) is enormous and will leave a smoldering crater in the landscape for years.
These Wall Street banks that are about to be partially nationalized inflated the housing market using bogus models for creating asset backed securities.
They are the ones who perverted free market systems. The capital injections are a necessary evil at this point to prevent Wall Street from destroying the real economy, which is still occurring as I type this. This has to be done, or they have to be completely nationalized without somehow crashing the system.
I am a dummy and I knew, from the behavior of the banking system in Dec 2007, that every one of the Wall Street banks had huge losses and were severely capital impaired. That means bankrupt, to put it in simpler terms.
Unregulated free market capitalism killed itself, now we have to reestablish reasonably regulated free market banking with taxpayer dollars. That sucks, GET OVER IT!
Any thoughts about the real significance of the oil price run-up before the credit lock-up? Where are all the implosions of the hedge funds or whoever went long and lost their collective asses when the commodity bubble collapsed?????
Was the run up in oil prices a cash extraction advance to fund the next assult on the "system"?
@ kevin de bruxelles: Excellent idea, but I think they have to hurry up. The last monthly figure on the total amount of US consumer debt outstanding showed that it was LESS than the month before. The lame explanation offered was that less cras were sold, so less financing was needed. This is clearly unacceptable. US consumers must, if needs be, be FORCED to spend, FORCED to lend. It saddend my heart to think of all this untapped wealth laying idle in savings accounts, when it could be profitable spent buying Wall Street guys huge bonuses so they can spend it on McCain fundraisers. Come to think of that, how about paying every American $ 1,000 if he votes for McPalin?
Bruce writes:
Any thoughts about the real significance of the oil price run-up before the credit lock-up? Where are all the implosions of the hedge funds or whoever went long and lost their collective asses when the commodity bubble collapsed?????
Was the run up in oil prices a cash extraction advance to fund the next assult on the "system"?
Any thoughts...
Bruce | 10.14.08 - 7:14 am | #
The run up was engineered by GS and MS to attempt to cover their losses. Commodity futures must be regulated. The Commodity Futures Modernization Act of 2000, aka Enron Loophole, must be further amended or repealed and replaced to prevent future speculation.
Oil prices will crash (maybe slowly) now that the Fed has direct authority over those two. Demand destruction at the retail level is extreme, prices are falling too fast. Some oil companies may get burned.
I am a dummy and I knew, from the behavior of the banking system in Dec 2007, that every one of the Wall Street banks had huge losses and were severely capital impaired. That means bankrupt, to put it in simpler terms.
Unregulated free market capitalism killed itself, now we have to reestablish reasonably regulated free market banking with taxpayer dollars. That sucks, GET OVER IT!
I don't think people have a problem with the taxpayer money bailing out the system so much as the fact that Paulson is not making the shareholders feel the full effect of driving their companies into bankruptcy.
Unregulated free market capitalism killed itself, now we have to reestablish reasonably regulated free market banking with taxpayer dollars. That sucks, GET OVER IT!
Why@ ZIRP | 10.14.08 - 7:09 am | #
It was not unregulation but crony capitalism. Free markets never had a chance and maybe are imposssible because their always corrupted. I see no reason to cheer. This is just another step on the road to serfdom because it will be better for us. More power has been concentrated in the hands of a few.
Wouldn't they have hedged against the eventual downdraft following the pump and dropped the net loss on a counterparty?
I'm struggling to figure out who holds the bag on this one....
Bruce | 10.14.08 - 7:33 am | #
You would think so, but their earnings were way down last quarter. I think they ate much of the loss. GS had made the prediction of 200 dollar oil just before it started its decline. Ate their own cooking again, it seems.
My guess is all these dipshits have done is blow the commodities bubble back up. Fule and food, I don't think higher intrest rates are going to do a lot for housing though.
Free markets never had a chance and maybe are imposssible because their always corrupted.
Right, but I remember a time long ago when banking was a stable, boring enterprise that was vastly more regulated and actually contributed to the national welfare. Nobody got multimillion dollar bonuses and anybody who ripped off the system usually did long years in jail. Might have to go back there.
I don't think people have a problem with the taxpayer money bailing out the system so much as the fact that Paulson is not making the shareholders feel the full effect of driving their companies into bankruptcy.
Exactly-- I agree that the financials are critical to the US in much the same way that the steel industry is critical to the US in times of war.
However, if the steel industry is run by incompetents who lose millions of dollars, the solution is not to prop them up with capital injections that are carefully crafted to protect current equity holders and the compensation packages of the incompetents who have been running their companies into the ground.
The solution is to take over the assets, ensure that they are there to withstand the current storm, and then sell them to people who are better equipped to make productive use of them.
The solution is to take over the assets, ensure that they are there to withstand the current storm, and then sell them to people who are better equipped to make productive use of them.
4runner | 10.14.08 - 7:45 am | #
The regulatory system has been gutted by the free market true believers. We couldn't take over one of the mega banks without severe systemic consequences.
You go to war with the army you have not with the one you need.
Warren Buffett got 10% perpetual preferred, plus tremendously valuable warrants, for investing in the cream of the crop, GE and Goldman Sachs. The taxpayers are getting 5% and no warrants for investing in the stinkier banks. That's a direct transfer of wealth from current and future taxpayers to Wall Street fatcats.
I suggested last week that the Paulson should lock in today's ultra-low interest rates on the liability side of the balance sheet by doing a massive 30-year Treasury auction. What he's doing now is the opposite: locking in ultra-low rates on the asset side of the balance sheet. Yes, the rate purportedly rises to 9% after five years, but that still may not be enough to compensate for one or two bank failures and/or long-run inflation. And can anyone doubt that the 9% rate will be renegotiated when the banks cry poverty and donate to Chris Dodd and Barney Frank's campaigns? Locking in low rates on assets takes inflation off the table and leaves default as the only solution to unsustainable government debt. Now, $250 billion of low-rate assets isn't enough to do it, but I suspect this is only the beginning.
They should have listened to the gold bugs. I feel really sorry for them!
If things get that bad, doubt if your physical will be safe anyway. confiscation or a simple cap in prices is all the Gov. needs to do.
I disagree with you. Central Banks around the world have done an about face and are suspending any sales or leases of their reserves. The Chinese and Russians are aggressively adding to their reserves as a hedge to the huge US reserves (bonds, treasuries) they are carrying.
There is already a huge disconnect between the COMEX and LME in favor of new exchanges that "assure" physical settlement in Dubai and Hong Kong with other being developed (Russia and perhaps Central America).
A New exchange has already emerged to obtain physical via E-Bay, Bullionvault.com and http://www.seekbullion.com. Drugs are illegal to sell as well, but that hasn't stopped the importation and sale of drugs into the US for the past 75 years. How hard its it to buy some weed or cocaine?
The massive investments made buy the the super wealthy in the past several months into bullion will dictate that no such "confiscation nor controls" would ever be tolerated. These that are invested are the true power that sit behind the world governments. Think Rothschild, Petro Dollars, etc.
The flood of gold being sent to scrap dealers is staggering. Joe-six-pack is broke and he and his brother are sending in class rings, wedding bands and anything else gold to pay for groceries and fill up the car.
This is sad in the end because the lower and middle glass are effectively giving up the only real asset they have left for essential goods to survive. When this supply is exhausted they will have nothing left.
We are about to see a massive bond failure and perhaps the last great unwind is US Treasuries....Do you really think that the world will continue to pay for the party in the US when its clear that their is no hope of ever being repaid...I think not.
The latest move to nationalize banks worldwide has in fact accelerated the declaration of bankruptcies of nations, Iceland, Turkey, etc.
I didn't see Bush this morning and yet could probably tell you what he said: "Blah blah blah strong blah blah blah necessary blah blah blah confidence blah blah blah blah freedom blah blah blah God Bless America."
Although I know this action is lauded by many economists I am personally saddened to see it.
First, it truly does transfer wealth - it commits future work by US citizens to preserve both the jobs and fortunes of people who are far more highly paid than they are... and under the threat of "do this or you will be hurt even more". I don't think the class split based on wealth has ever been more clear and I don't think cronyism has ever been more abusive, at least in the US.
Second, I do not see anything like the sort of purging or turnover that I believe is needed to establish stability going forward. I saw the beginnings of it, but then I see the attempt to retain existing structure at virtually any price - and I mean virtually any price. Government 'regulation' may follow someday, but add-ons are never very comprehensive or successful.
Third, I now see government taking responsibility for market values of everything from stocks to homes (including oil, soon-to-be-autos, soon-to-be- health care costs) and past experience with that sort of thing has been really bad.
Fourth, I think this bailout worsens, rather than improves chances of a solid economic recovery because it steals future investment to dump into sunk schemes. It denudes government at a time when initiatives in things like infrastructure and alternate energy are needed before we can move beyond the current technology era - and those initiatives are beyond the current generation of private capitalists who now weigh only short-term, even daily, profit.
Steve Liesman just mumbled something about suspending dividends on other preferred (and presumably common). But he was unclear on the details and I cannot find them on the Fed or Treasury's site.
"We regret that we are forced to socialize a few of the profits. Those lousy Democrats had me on my knees. Have no fear, we won't take much real equity, and the losses will all be covered."
i agree. get the gov't (obama and bill ayers out of the educating of our youth). get rid of the dpt of education. school vouchers and choice. let private scholls teach literacy and numeracy.
I sit here at my desk at work---for now---and gawk wide-eyed in utter amazement at the depths to which human beings will go in order to satiate their lust for power and their Midasian greed. Paulson, Bush, Bernanke: soucndrels, one and all. Scumbags of the highest order. Liars who would sell their souls to the devil, who would swear on the lives of their families, that they are telling the truth. But no amount of dissembling or obfuscation can change the laws of nature: reality, in the end, always wins out.
Toxic assets in the tens of TRILLIONS of dollars fill the casks and vaults and safes and basements of the worlds major financial institutions. Worthless pieces of paper that, when exposed to the light of day, will bring the global economy as we know it to its knees. There is no escaping this reality. None. The laws of nature will eventually pull the curtain back on the Oz-like charade that is being played out in Washington and Paris and London and Berlin, and the global economy will shatter.
And so in the intervening days/weeks/months, Paulson and Bush and all of their minions pump trillions of dollars of money into these so-called healthy institutions in order to loosen the credit market so that, at least for the time being, things regain the appearance of a recovery. And an election takes place next month, and the DOW rebounds to about 10,400 give or take, and a few of the largest banks begin easing credit restrictions and reluctance to take on risk, and all seems to be moving in the direction of eventual better times. And yes, recession exists, and the economy is tight, and jobs are lost, but the new President goes on TV and tells the people that, while times are tough, we are a strong people, and we will recover. (Meanwhile Bush and Paulson and their minions have moved to a small island off of the coats of Costa Rica and hired Blackwater to protect them from the rest of the world.)
But soon thereafter, at some unknown moment in time, all of the fake money, the supposed assets and capital that the Bushies have pumped into the system---all of the trillions of dollars in guarantees promised by the countries of the EU to their financial institutions---all of these monies become exposed for what they really are---MORE DEBT. More lies, falsehoods, specters. Trillions of dollars THAT DO NOT IN FACT EXIST, loaned to banks and insurance companies and auto makers in hopes that they, somehow, will be able to make some money and build capital that, at this point, is simply a wraith in the night. But of course this plan fails. It must fail. It is just another layer of the grand ponzy scheme of the millennium, perpetrated on the people of the Earth by a handful of greed-mongering bastards and sons-of-bitches.
By way of metaphor, this situation is akin to building a tower on unsteady ground, and instead of deconstructing the tower and starting again, you simply make the tower taller and claim to the people that this truly is the most wonderous tower in the world, a monument to the strength and resolve of the people. But it must fall. The laws of physics demand it. And the same is true of our current economic joke.
And so I sit here and watch economist after economist, legislator after legislator, president after prime minister after finance minister, claim that the plan will work. And they are all lying.
But it cannot work. It cannot. The laws of nature will win out because they always do. Always.
i have been seeding that conversation too. google my moniker plus derivatives plus haloscan.
lots of the derivatives, like options, will expire worthless, maybe most.
the dearth of straight information makes it only guesswork. like for example wasn't there a dtcc report that while full of mind boggling numbers still was reported the next day to be incomplete.
the problem is even fractions of the admitted numbers are bigger than USS gdp.
so what gives with people avoiding the subject. it's not like there is a conspiracy here. there are big facts here that are too too too too freeegin big NOT to enter into the discussion.
i am amazed by the thought barriers people will defend to keep their minds within the proscribed lines.
Not first?
Will these goof-offs let a day go by without a major announcement?
First?
Yea, has the second coordinated international banking hoocoodanode plan already fallen down (the first being the coord. rate cuts)?
the largest US banks engaged in massive bets with each other on the direction of the future using derivative financial instruments whose value was inferred from the value of some underlying asset, often another pool of derivatives. as you might expect, they thought the future would be like the past. however, it is the unforeseen events that change history, particularly economic history. the revaluation of derivatives is the unforeseen event.
to put the following in perspective, the value of all goods and services produced in the US in one year (GDP) is approximately $11 trillion.
JP morgan Chase as of march 07 had outstanding bets in derivatives totaling $71.7 Trillion . this is an amount equal to more than the entire WORLD economy (they bet the world!). they are able to bet this much by using leverage. JP has leveraged 799% vs its risk based capital.
some others: Citibank: $34.9 trillion, Bank of America: $29.1 trillion. HSBC: $5.6T, Wachovia (walk over ya) $5.4T.
OCC's Quarterly Report on Bank Derivatives Activities
First Quarter 2007(go to pages 13 & 23)
2007-65a.pdf (application/pdf Object)
according to the CIA world factbook: GDP: GWP (gross world product) = $65.95 trillion (2006 est.) An estimated $450 trillion in derivatives have been written in the world. world financial institutions have wagered that the world economy will go on as before, six times over.
These ridiculous and reckless derivatives are insurance policies written without any capital reserves should be declared illegal if they were written without any honest attempt at reserves for potential losses.
if i wrote 1000 insurance policies on my refrigerator breaking down the payout would be many times the value of the fridge when it eventually broke, causing some distortions in my household finances.
furthermore, if the policies were based in money (cookies) i cooked up in the kitchen the demand for the money (cookies) i make would shoot through the roof when the fridge dies since every contract would have to be settled in my cookies (money).
So far, payouts on lehman default protection insurance policies is nearly ten times it's recent market cap. Here are the links:
Lehman's collapse wipes out a company that had a market value of $45.5 billion in February 2007
`Tectonic' Market Shift as Lehman Fails, Merrill Sold (Update1) - Bloomberg.com
The pay-outs on around $400bn of defaulted credit derivatives linked to Lehman Brothers are likely to be higher than anticipated
FT.com / UK - Bad news on Lehman CDS
my refrigerator example is exactly what is going on globally and it is absurd. the dollar has risen solely due to the short squeeze from the settling the fraudulent, unbacked insurance derivatives. the liquidity black hole lets the fed print as it pleases with no immediate ramifications. the printed money is being used to take over corporate america at fire sale prices. this is how ben's helicopter works.
The huge scale of purchases by our government and the private corporation that prints our dollars (the Fed) will eventually lead people to see our money as collateralized by stocks and mortgages. This opens up some very interesting issues. The largest of which is the shift from a fiat (unbacked) currency to one that is arguably backed by the value of people's work since, again, stock prices and mortgage values are ultimately tied to the value of the human effort that sustains them.
What do you call money backed by human labor?
What is happening is a transfer of wealth and a financial coup. the winning side of these contracts is pwning the losing side. This is what jp had on bear, they owned their dumb asses through derivatives. You can see who owned who just by looking who ate who and who is still standing. Problem is there were so many derivatives written that there is no realistic way to settle them. All counterparties probably refused to pony up and said F U see me in court. Then they were forced to do exactly what they were told. The firms on the good side of the derivative trades are taking over every business they can before everyone realizes settling all or most of the fraudulent derivative contracts is not going to happen, and that knowingly betting the world many times over was a forced implosion and a dirty trick.
In order for the scam to continue it is absolutely imperative that the entire world pretend that there are not maybe 4 or 5 times more credit default swap derivatives out there than the value of world gdp. This is the white elephant in the room that no one will mention. Except, in this case, it is more like a trojan white elephant with a short sparking fuse for a tail.
--
\\\\\\|||||||||||||||||||/////////////
the link showing derivatives totals.
http://www.occ.treas.gov/ftp/release/2007-65a.pdf
pages 13 and 23
YouTube - Seinfeld "Reservations"
seinfeld's reservations
kinda like cds...
anybody could write it, but who could deliver.
Does Sheila Bair use her greasy hair as a lubricant when she gets "together" with Ben Bernanke?
WaPo calls it a partial nationalization:
Federal officials set conditions, telling the banks they could not raise their dividends without government permission and could not offer their executives new retirement packages, though the old packages would remain intact.
U.S. Forces Nine Major Banks To Accept Partial Nationalization - washingtonpost.com
"could not offer their executives new retirement packages, though the old packages would remain intact."
Wait until they see the package they will get from their cellmate in prison. It will likely be bigger than they can handle without stiches.
Bush is speaking tomorrow at 8AM EDT. All you market participants make appropriate plans.
More from WaPo article:
Now that he [Paulson] has decided to use the $250 billion installment to pump capital directly into the banking system, he is planning to immediately ask Congress for a second installment of $100 billion to buy or insure the assets from institutions....
It will be refreshing to hear the truth. Wake me up when the coffee is ready. Thanks & good night.
that was kinda sloppily written so i apologize to the inevitable pedants.
From the NYTimes and earlier thread discussion regarding dilution:
The preferred stock that each bank will have to issue will pay special dividends, at a 5 percent interest rate that will be increased to 9 percent after five years. The government will also receive warrants worth 15 percent of the face value of the preferred stock....
5% payout rate on preferred per WSJ that climbs up to 9% years down the road. Remaining slug of dough to be sprinkled accross smaller banks.
This is like Brewster's Millions only now its Paulson's Billions!
This sickens my stomach! So everything is back to normal, huh? I mean, injecting a few trillion into the financial system seems to have done the trick. Recession avoided, stock market plunge avoided, but what's the catch? Is it really that easy to brush away leverage? I need some sense here...please.
FWIW, the Wapo piece says Treasury was opposed to direct capital injections throughout TARPs conception:
Bachus answered the objection by saying that the government could take a non-voting stake in the institutions. But opponents in the meeting, including Treasury, were unmoved.
Otishertz +1 for effort. Thanks for the read.
"What is happening is a transfer of wealth and a financial coup. the winning side of these contracts is pwning the losing side. This is what jp had on bear, they owned their dumb asses through derivatives. You can see who owned who just by looking who ate who and who is still standing. Problem is there were so many derivatives written that there is no realistic way to settle them. All counterparties probably refused to pony up and said F U see me in court. Then they were forced to do exactly what they were told. The firms on the good side of the derivative trades are taking over every business they can before everyone realizes settling all or most of the fraudulent derivative contracts is not going to happen, and that knowingly betting the world many times over was a forced implosion and a dirty trick."
When history is written I suspect you will be right. My question has always been is who is on the winning side of these CDS.
gone fishin;
look at page 23 of the link
http://www.occ.treas.gov/ftp/release/2007-65a.pdf
"This is the white elephant in the room that no one will mention. Except, in this case, it is more like a trojan white elephant with a short sparking fuse for a tail."
(Emphasizing my own status as a vet)
You've got to be new here. Not that it doesn't need it,but we talk this to death. We love big numbers. Every once in a while we get past the $100T mark, and rarely we even hit infinity.
One hundred percent sure you'll enjoy this. Classic. Berlusconni, Mary-Lou Retton, Franki Valli, Nancy Pelosi gets called a Prima Dona, pratfalls:
CNN.com - Page not found
dear anonymous;
1000 thanks
Every time Comrade Paulson and Comrade Bernanke meet it costs me money.
In fact, someone should set up a slave-o-meter that calculates the middle class' indentured servitude per bailout.
Anonymous at 10:14,
I've had 2 BIG glasses of merlot, disclaimer.
The haves and the have nots are the two party system in the US(world). I found this disagreeable but palatable as long as I had opportunity and my kids could expect a good quality of life if they worked hard and received a college education. The haves are breaking the unwritten agreement. They got too greedy and now have lost perspective. Your CNN article was well received and point taken.
Derivatives and numbers over a 100 trillion, yeah, once a number reaches a certain size it becomes meaningless.
I do think it provides leverage and a bargaining position. That's all you need if the other side is already teetering and your threat can send him over the edge.
What I don't get is your motivation and intent? Help me understand that?
Hat tip, Currently Smoking Cannabis:
http://media.timesfreepress.com/img/news/tease/2008/09/24/080924_rescue_plan.jpg
Clearly Ben & Shelia need to address the rumors that Kashkari is their love child.
The Boyz had better have something real good to say ...
This is just about their last chance to get something half right.
If they don't it's stock market, currency, bond and main street Armageddon.
CSC - good catch.
Dawg - why, is the golden child's remaining hair greasy or something? will an aging eddie murphy be able to play him in the movie?
Glad that little crisis was contained.
I had this nightmare we spent enough money on wayward bankers to go to Mars the hard way, the fast way, four or five times over.
doh!
It's way off the scale, a one-in-billions chance,'' said Marriott, a fellow of the Royal Statistical Society.This is absolutely a black swan event.''
from the first I/O , most here knew the ending would'nt be pretty.
how could that be a black swan?
Paulson: Free rent for everybody! Money for failure, forever! Enough bailouts to last until the inauguration on January 20th, 2009!
Then we're out the door.
PonziMonetizaCoruptiCaptislm,
they will all plead ignorance.
...willful ignorance
Gone Fishin'
Sorry, I was working on a different computer so I posted as anonymous unintentionally, if it matters.
My intent is probably the same as yours, to find the "truth" in all the numbers. I was just trying to express a healthy skepticism of them. (And poke a little fun at the pissing contests).
Now back trying to find an easy way to dual boot vista 64 and xp 32. This is after having tried to install the vista service pack on a disk with errors and multiple conflicts with the service pack. First tries took about 2 full days. Second try took 30 minutes after proper due diligence. Maybe there's a lesson in there for all this high falutin' ("falutin"?) money/power palaver.
Random thought: here we are, all so worried about how to sauce our squirrel, while people (?) are still out there starving each other and killing each other.
Money to build and generously equip thousands and thousands of new schools, with well-paid, exquisitely trained teachers, small teacher-pupil ratios, a full range of enriching and inspiring programs.
Money to revitalize the nation's crumbling inner cities, making them safe and vibrant places for businesses and families and communities to grow.
Money to provide decent, affordable and accessible health care to every citizen, to provide dignity and comfort to the elderly, and protection and humane treatment for the mentally ill.
Money to provide affordable higher education to everyone who wanted it and could qualify for it. Money to help establish and sustain local businesses and family farms, centered in and on the local community, driven by the needs and knowledge of the people in the area, and not by the dictates of distant corporations.
Money to strengthen crumbling infrastructure, to repair bridges, shore up levies, maintain roads and electric grids and sewage systems.
Money for affordable, workable public transport systems, for the pursuit of alternative sources of energy, for sustainable, sensible development, for environmental restoration.
Money to support free inquiry in science, technology, health and other areas -- research unfettered from the war machine and the drive for corporate profit, and instead devoted to the betterment of human life.
Money to support culture, learning, continuing education, libraries, theater, music and the endless manifestations of the human quest to gain more meaning, more understanding, more enlightenment, a deeper, spiritually richer life.
The money for all of this -- and much, much more -- was there, all along. When they said we couldn't have these things, they were lying -- or else allowing themselves to be profitably duped by the high priests of the market cult. When they wanted a trillion dollars -- or three trillion dollars -- to wage a war of aggression in Iraq, they found it. Now, when they want trillions of dollars to save the speculators, fraudsters and profiteers of greed in the global market, they suddenly have it.
Who then can believe that these governments could not have found the money for good schools, health care, and all the rest, that they could not have enhanced the well-being and livelihood of millions of ordinary citizens, and helped create a more just and equitable and stable world -- if they had wanted to?
This is one of the main facts that ordinary citizens around the world should take away from this crisis: the money to maintain, secure and improve the lives of their families and communities was always there -- but their governments, and their political parties, made a deliberate, unforced choice not to use it for the common good. Instead, they subjugated the well-being of the world to the dictates of an extremist cult. A cult of greed and privilege, that preached iron discipline to the poor and the middle-class, but released the rich and powerful from all restrictions, and all responsibility for their actions.
404 - Error: 404
those muppets think that god rolled double sixes ten times in a row, and phew, glad that won't happen again. But in fact the math upon which value at risk and other financial math is built does not reflect reality.
Money for affordable, workable public transport systems...
No. Even the most pessimistic estimates are several trillion less than this project alone.
"to put the following in perspective, the value of all goods and services produced in the US in one year (GDP) is approximately $11 trillion."
This is a fallacy. Calling consumption production is a nice tool for economists and politicians but not comforting for those who've read Orwell. When I buy a car, with a loan based on equity in my house, it certainly represents value, and my getting to and fro faster may help me be productive. But using what is in large part wasteful consumer spending as a measurement of the health of the economic system is absurd.
When spending is cut in half next year I hope economists will be forced to use standard dictionary definitions, or maybe they should be cut in half.
Yields on the 10-year Treasury bond rose to 4% in early morning action, the first time it's reached that level since August.
yogi
A car crash creates GDP, Prisons create GDP, Bombs we will never use create GDP ...
Financial hocus pocus has created trillions in GDP ... and now it is all being revalued ... to junk.
"What do you call money backed by human labor?"
Indentured servitude.
If markets are up or stabilize, no more money for bailout from congress. they will want to give it to the next guy.
"The United States is also expected to guarantee new debt issued by banks for three years "
I can't be the only one who sees the law of unintended consequences raising it's big fat head on this one, can I? remember the Savings and Loan fiasco? Guarantees like this without simultaneous regulation is just asking for the banks to do the wrong (and extremely risky and costly) thing. Might was well profit from it and its unintended consequences before the SHTF.
Now that Paulson and friends have dealt with the wholesale level of our of our credit food chain by such policies as: involuntary (yeah right, you loved it) capital penetrations and guarantees en mass of all bank transactions, their attention is turning to fixing the retail level Paulson will demand that Congress pass the following laws before Election Day to help encourage the American consumers to do what they do best.
Credit Rights Act - America has an ugly history of discriminating against so-called credit risks even to the point of setting up semi-official credit rating agencies to place an arbitrary and totally offensive value on individual Americans credit worthiness. Since all Americans are created equal, this Act will ban all credit discrimination and lock in all Americans credit score at 750 for perpetuity. This Act will also ban as derogatory the following slurs: bankrupt, drunken sailor and over-extended. These slurs will be considered as socially equivalent to those against blacks or Jews. Slurs against Arabs and women (but not Arab women!) will continue to be encouraged.
Homeland Prosperity Act - Home equity is dead money. More than four trillion dollars of potential consumer spending is locked up by deadbeat homeowners who refuse to be patriotic and take HELOCs. This bill will impose an absolute ceiling of 20% of a homes value which will be allowed to go untapped. This percentage will be reviewed annually.
Plasma Promotion Team (PPT) Act - Teams of local merchants will inspect premises of all Americans to ensure compliance with new local ordinances requiring a 64 plasma in every room of every house. The only exceptions will be the grandfathering in of smaller 42 plasmas in closets, bathrooms and stair landings.
American Heroes Proclamation Act- All Americans with a ratio of credit card debt to annual income of more than 50% will receive via e-mail an official certificate proclaiming them true American heroes. Those with 100% or higher ratios will get a photo-op with the President.
Hoarding Prevention Act. - All hoarding accounts (formerly referred to colloquially as savings accounts) are hereby banned. Consumers will be give three months to get this money into play before it is confiscated. Americans with germanic-sounding last names will be watched particularly closely.
*These laws only apply to the lower 90% of Americans for reasons that should be obvious to all.
One of the next shoes to drop will be the loss of the dollar hegemony. IOW, the dollar will no longer be the world's reserve currency.
Judging by Paulson's retreat on TARP, he has been sternly put in his place by leaders of nations like China, Russia, Germany, and Japan. Nations with export surpluses and hefty dollar reserves.
It is those countries who are telling us what to do now. A month ago they warned Hank about what they would do if their agency holdings vaporized. He came up with TARP to bail out their investments.
"Nope, Hank. Sorry, won't work. You need to do what we're doing. Directly recapitalize your banks. Now."
The writing is on the wall. The rest of the first world is, without any fanfare at all, setting us adrift. A la Captain Bligh.
And at this very moment, leaders of those nations (including the EU and BRIC) have put their heads together to determine what combination of currencies and commodities will replace the dollar as the universal measure of wealth.
And they won't ask us if we like it. They'll just announce it one day.
"So long, Bucky. Hope your citizens don't mind a 100% inflation rate."
@ otishertz
If insurance company sell insurances more than they can cover, should the accident happen - and happen it did! - according to your philosophy the insurances should be nullified?
I am sure that Morgan and boys would like nothing better than someone to neutralize their position!
Sorry, you cannot change the rules (you made in the first hand) whenever they are to your disadvantage.
Slave-O Meter -
Best post on group today . Thats exactly where the middle class is going - Let me hear your balahikas ringing out -
Didn't even take one nuclear bomb to destroy democracy . Millions of wasted lives protecting it . Does anyone believe in what goes around comes around . These pompous thieves need a real dose of what they have given us.
unirealist writes:
One of the next shoes to drop will be the loss of the dollar hegemony. IOW, the dollar will no longer be the world's reserve currency.
and which of those countries will be first to have an open economy that runs a trade deficit large enough for other countries to hold reserves of their currency?
Urealist: "And at this very moment, leaders of those nations (including the EU and BRIC) have put their heads together to determine what combination of currencies and commodities will replace the dollar as the universal measure of wealth."
There are a lot of old maid cards out there... and for the Chinese commercial banks, sustaining the pace of sterilization is not cost-free.
"Since the international value of the dollar has become so unstable, China is faced with the question of what the denominator to monitor changes in its reserves and guide policies to protect their value should be. Alternatives to the US dollar include the euro, various baskets of currencies, gold, or even baskets of commodities. It is not known if China uses any of these alternative denominators. What is clear, however, is that China cannot diversify its reserves out of dollars quickly without putting downward pressure on the international value of its main reserve asset and putting upward pressure on interest rates in the US, which could slow US growth and hence US demand for Chinese exports."
Asia Times Online :: China News, China Business News, Taiwan and Hong Kong
News and Business.
Alternatives: an open capital account, more outward FDI, more internal consumption, less export friendly rebates, higher RMB. all of which take time, unless your hand is forced...
.
"What is clear, however, is that China cannot diversify its reserves out of dollars quickly without putting downward pressure on the international value of its main reserve asset and putting upward pressure on interest rates in the US, which could slow US growth and hence US demand for Chinese exports."
the author misses the reason why china has accumulated all those reserves in the first place - their currency peg. the reason they cant diversify their reserves is because the reserves come from fx intervention. if they chose to let their currency apreciate then they will export less and have less dollar reserves. if they sell dollars they change the value of their currency. its not about reserve accumulation or the value of their reserves, its about maintaining an export based economy and employment.
What's with TED?
These pompous thieves need a real dose of what they have given us
I don't think anyone here owns a nuclear weapon (yet). Maybe George Soros can check into it.
rent_to_own writes
Sadly, French car companies are not begging the American treasury for more money to keep a dead business model alive in the face of global competition and shifting product demand, but then, what do you expect of the French?
nope, just french banks begging for dollars from the fed to keep their financial system alive.
Happening wide scale now at a location near you :-
Sinfest
Recession avoided, stock market plunge avoided, but what's the catch?
Calm down. The recession will be just as nasty as ever, and unless you've been fed some particularly nasty confinement loaf, you'll probably remember last week's stock market plunge. One day can't erase eight years of stupidity.
The catch is that America's best days are over. This is the last gasp of a dying empire, as it tosses away 250 years of free market dogma down the toilet like a spent cigarette.
History will probably record 1998 or 1999 as the peak of America's economy. The last 8 years have been exposed as a fraud. I wouldn't be surprised if eventually all the GDP growth since Clinton is revised away.
We've reached hard limits on population and economic growth. To properly connect the dots, you need to look at our bankrupt educational system as well as the financial system. A generation of doped-up, spoiled illiterate brats is about to inherit the mess the baby boomers created.
Good luck with that!
rent_to_own - the ecb had to increase dollar swap like to $620bb in oredr to provide dollars to the euro area banks. they dont have access to dollars and the fed provided them. they will have to sell euro to pay back what will surely be over $1 shortly.
its actually the europen system that is most at risk.
if the headlines read ecb has to provide fed with eur600bb the press and the american haters wouldn't have been able to contain themselves. as it is we just saw the 21st century marshall plan. the us saves your ass again.
central_scrutinizer writes:
you need to look at our bankrupt educational system as well as the financial system. A generation of doped-up, spoiled illiterate brats is about to inherit the mess the baby boomers created.
i agree. get the gov't (obama and bill ayers out of the educating of our youth). get rid of the dpt of education. school vouchers and choice. let private scholls teach literacy and numeracy.
Off topic, but I want to repeat a message I left for Mr. T and all other first time gun owners on an old thread from last night. It seems like people are starting to buy steel jacketed lead to go with their gold and rice and beans.
Hey, wonderful purchase. It may be a boon to you in the coming days.
Now get an experienced friend to take you to a range or pay for a professional for a couple of lessons. That thing is a mighty good tool, but you want to make damned sure that when it comes time to put it to use that you know exactly what you are doing. You want to have drilled its proper and safe use so thoroughly that your aim and fire is smooth and sure, even if you are pissing yourself.
You should no more operate a gun without training than you should drive a car without having learned to do so. Both activities have a high chance of getting the wrong people dead or injured.
Guns are very safe tools when you know what you are doing.
obama and bill ayers out of the educating of our youth
The stupidity burns us even more at this time of the day.
Yeah the free market did such a fine job of educating the public over the centuries.
sg-
well, I'm American, and I certainly don't think Paulson has saved my ass - and he certainly cares nothing about the American taxpayer's ass either.
What is happening is the system is freezing - and the dollar is at the nexus of the global financial system. The Fed (actually, depending on your reading of the Fed's balance sheet, the Treasury) is attempting its best to ensure that a system running on dollars does not completely collapse, because with the exception of some agricultural commodities, the U.S. has little to offer but dollars for its debts.
Debts which are to be paid with more debt.
At some point, this won't work anymore. It almost stopped working in the past week, but after throwing literally hundred of billions of dollars around, it looks like the problems will abate - at least for several days, possibly even a couple of weeks.
You do realize that the intense focus of the media on Wall Street is pretty much obscuring what is going on in the real economy, right? And though it hasn't been fashionable in America for a generation, I remain convinced that the real economy is what a financial system is based on, and not vice versa.
Oh, and that hundred billion euro trade deficit with Europe - I'm sure that the Fed was providing dollars out of the goodness of its heart, and not because those goods are in any sense necessary for the American economy. Might want to see who manufactures machine tools these days, for example.
i agree. get the gov't (obama and bill ayers out of the educating of our youth). get rid of the dpt of education. school vouchers and choice. let private scholls teach literacy and numeracy.
Clearly the education system worked wonders for your English skills what with all that fantastic capitalization & spelling you're demonstrating for us. Scholls?
Also, do people really think that wholesale fragmentation of our educational system would really help our economy in the long run? It seems to me that if I'm hiring someone out of high school, I'd would be to my advantage to have at least some basic idea of what that person learned in HS. If a "diploma" can mean anything from 4 years in extended Jesus camp to 4 years at a science & math magnet school, well, I ton of obnoxious regulation & political fights over accreditation.
But hey, this is all way off topic so maybe we should both keep our political opinions to ourselves.
Our public "screw-els" are just training camps to turn our children into good little consumerists tools.
As another poster wrote above, the opportunity cost of all the things this money won't be spent on (roads, bridges, health care) is enormous and will leave a smoldering crater in the landscape for years.
Maybe we should consider to replace the fed with a gold standard?
No.
These Wall Street banks that are about to be partially nationalized inflated the housing market using bogus models for creating asset backed securities.
They are the ones who perverted free market systems. The capital injections are a necessary evil at this point to prevent Wall Street from destroying the real economy, which is still occurring as I type this. This has to be done, or they have to be completely nationalized without somehow crashing the system.
I am a dummy and I knew, from the behavior of the banking system in Dec 2007, that every one of the Wall Street banks had huge losses and were severely capital impaired. That means bankrupt, to put it in simpler terms.
Unregulated free market capitalism killed itself, now we have to reestablish reasonably regulated free market banking with taxpayer dollars. That sucks, GET OVER IT!
Any thoughts about the real significance of the oil price run-up before the credit lock-up? Where are all the implosions of the hedge funds or whoever went long and lost their collective asses when the commodity bubble collapsed?????
Was the run up in oil prices a cash extraction advance to fund the next assult on the "system"?
Any thoughts...
@ kevin de bruxelles: Excellent idea, but I think they have to hurry up. The last monthly figure on the total amount of US consumer debt outstanding showed that it was LESS than the month before. The lame explanation offered was that less cras were sold, so less financing was needed. This is clearly unacceptable. US consumers must, if needs be, be FORCED to spend, FORCED to lend. It saddend my heart to think of all this untapped wealth laying idle in savings accounts, when it could be profitable spent buying Wall Street guys huge bonuses so they can spend it on McCain fundraisers. Come to think of that, how about paying every American $ 1,000 if he votes for McPalin?
Bruce writes:
Any thoughts about the real significance of the oil price run-up before the credit lock-up? Where are all the implosions of the hedge funds or whoever went long and lost their collective asses when the commodity bubble collapsed?????
Was the run up in oil prices a cash extraction advance to fund the next assult on the "system"?
Any thoughts...
Bruce | 10.14.08 - 7:14 am | #
The run up was engineered by GS and MS to attempt to cover their losses. Commodity futures must be regulated. The Commodity Futures Modernization Act of 2000, aka Enron Loophole, must be further amended or repealed and replaced to prevent future speculation.
Oil prices will crash (maybe slowly) now that the Fed has direct authority over those two. Demand destruction at the retail level is extreme, prices are falling too fast. Some oil companies may get burned.
I am a dummy and I knew, from the behavior of the banking system in Dec 2007, that every one of the Wall Street banks had huge losses and were severely capital impaired. That means bankrupt, to put it in simpler terms.
Unregulated free market capitalism killed itself, now we have to reestablish reasonably regulated free market banking with taxpayer dollars. That sucks, GET OVER IT!
I don't think people have a problem with the taxpayer money bailing out the system so much as the fact that Paulson is not making the shareholders feel the full effect of driving their companies into bankruptcy.
Why@ ZIRP writes:
Wouldn't they have hedged against the eventual downdraft following the pump and dropped the net loss on a counterparty?
I'm struggling to figure out who holds the bag on this one....
JP - don't forget senior management. Paulson is treating them with kid gloves, too.
The Icelandic stock exchange is down 76% from last week.
And that doesn't even take into consideration that the krona has been virtually annihilated.
They should have listened to the gold bugs. I feel really sorry for them!
Unregulated free market capitalism killed itself, now we have to reestablish reasonably regulated free market banking with taxpayer dollars. That sucks, GET OVER IT!
Why@ ZIRP | 10.14.08 - 7:09 am | #
It was not unregulation but crony capitalism. Free markets never had a chance and maybe are imposssible because their always corrupted. I see no reason to cheer. This is just another step on the road to serfdom because it will be better for us. More power has been concentrated in the hands of a few.
A pony in every pot.
Wouldn't they have hedged against the eventual downdraft following the pump and dropped the net loss on a counterparty?
I'm struggling to figure out who holds the bag on this one....
Bruce | 10.14.08 - 7:33 am | #
You would think so, but their earnings were way down last quarter. I think they ate much of the loss. GS had made the prediction of 200 dollar oil just before it started its decline. Ate their own cooking again, it seems.
My guess is all these dipshits have done is blow the commodities bubble back up. Fule and food, I don't think higher intrest rates are going to do a lot for housing though.
They should have listened to the gold bugs. I feel really sorry for them!
If things get that bad, doubt if your physical will be safe anyway. confiscation or a simple cap in prices is all the gov. needs to do.
Free markets never had a chance and maybe are imposssible because their always corrupted.
Right, but I remember a time long ago when banking was a stable, boring enterprise that was vastly more regulated and actually contributed to the national welfare. Nobody got multimillion dollar bonuses and anybody who ripped off the system usually did long years in jail. Might have to go back there.
I don't think people have a problem with the taxpayer money bailing out the system so much as the fact that Paulson is not making the shareholders feel the full effect of driving their companies into bankruptcy.
Exactly-- I agree that the financials are critical to the US in much the same way that the steel industry is critical to the US in times of war.
However, if the steel industry is run by incompetents who lose millions of dollars, the solution is not to prop them up with capital injections that are carefully crafted to protect current equity holders and the compensation packages of the incompetents who have been running their companies into the ground.
The solution is to take over the assets, ensure that they are there to withstand the current storm, and then sell them to people who are better equipped to make productive use of them.
The solution is to take over the assets, ensure that they are there to withstand the current storm, and then sell them to people who are better equipped to make productive use of them.
4runner | 10.14.08 - 7:45 am | #
The regulatory system has been gutted by the free market true believers. We couldn't take over one of the mega banks without severe systemic consequences.
You go to war with the army you have not with the one you need.
Warren Buffett got 10% perpetual preferred, plus tremendously valuable warrants, for investing in the cream of the crop, GE and Goldman Sachs. The taxpayers are getting 5% and no warrants for investing in the stinkier banks. That's a direct transfer of wealth from current and future taxpayers to Wall Street fatcats.
I suggested last week that the Paulson should lock in today's ultra-low interest rates on the liability side of the balance sheet by doing a massive 30-year Treasury auction. What he's doing now is the opposite: locking in ultra-low rates on the asset side of the balance sheet. Yes, the rate purportedly rises to 9% after five years, but that still may not be enough to compensate for one or two bank failures and/or long-run inflation. And can anyone doubt that the 9% rate will be renegotiated when the banks cry poverty and donate to Chris Dodd and Barney Frank's campaigns? Locking in low rates on assets takes inflation off the table and leaves default as the only solution to unsustainable government debt. Now, $250 billion of low-rate assets isn't enough to do it, but I suspect this is only the beginning.
(more here)
The regulatory system has been gutted by the free market true believers
That is the new meme, better get used to it.
WC: NYT is report 15% warrants, fwiw.
But I do agree with your tone.
And the brits booted bank execs as part of their deal. Why, oh why didn't we?
Also, that we can't claw back any ceo bonus blood money in this deal is unacceptable.
Excuse me but, I just watched George Bush speak. Can anybody tell me what the fuck he said?
About 3 trillion dollars allocated to the crisis and the TED spread goes down an incredible 0.117.
I'd call that money well spent!
Anonymous writes:
They should have listened to the gold bugs. I feel really sorry for them!
If things get that bad, doubt if your physical will be safe anyway. confiscation or a simple cap in prices is all the Gov. needs to do.
I disagree with you. Central Banks around the world have done an about face and are suspending any sales or leases of their reserves. The Chinese and Russians are aggressively adding to their reserves as a hedge to the huge US reserves (bonds, treasuries) they are carrying.
There is already a huge disconnect between the COMEX and LME in favor of new exchanges that "assure" physical settlement in Dubai and Hong Kong with other being developed (Russia and perhaps Central America).
A New exchange has already emerged to obtain physical via E-Bay, Bullionvault.com and http://www.seekbullion.com. Drugs are illegal to sell as well, but that hasn't stopped the importation and sale of drugs into the US for the past 75 years. How hard its it to buy some weed or cocaine?
The massive investments made buy the the super wealthy in the past several months into bullion will dictate that no such "confiscation nor controls" would ever be tolerated. These that are invested are the true power that sit behind the world governments. Think Rothschild, Petro Dollars, etc.
The flood of gold being sent to scrap dealers is staggering. Joe-six-pack is broke and he and his brother are sending in class rings, wedding bands and anything else gold to pay for groceries and fill up the car.
This is sad in the end because the lower and middle glass are effectively giving up the only real asset they have left for essential goods to survive. When this supply is exhausted they will have nothing left.
We are about to see a massive bond failure and perhaps the last great unwind is US Treasuries....Do you really think that the world will continue to pay for the party in the US when its clear that their is no hope of ever being repaid...I think not.
The latest move to nationalize banks worldwide has in fact accelerated the declaration of bankruptcies of nations, Iceland, Turkey, etc.
I didn't see Bush this morning and yet could probably tell you what he said: "Blah blah blah strong blah blah blah necessary blah blah blah confidence blah blah blah blah freedom blah blah blah God Bless America."
No Worries. Big Mac and Sarah Barracuda are unveiling their economic resurgence plan this afternoon.
Oil was speculated higher. Notice it has crashed since the first day they implemented control over the energy speculators?
All the crazy people can invest in Gold. Me, i will invest in guns, ammo, food and batteries.
"Hey I will trade you some of this here gold for a little bit of food"
Oh-My-Loan Kenobi
You forgot blah blah blah 9-11
Thanks JP.
Note that Buffett got a 100%, not 15%, and he got a subtantial discount on the strike price!
Still not over by what an asshole that CNBC dweeb was to Krugman. "How come you seem so nice on teevee?"
Dissing a Nobel laureate does not make your dick bigger, you sad creep.
Paulson is late. Is he greasing up the Bair Witching Project?
One expects punctuality from half billion dollar treasury secretaries.
Bush forgot to tell the taxpayers Dulce et decorum est pro patria mori.
bloomberg reading from advance copy
Do we now get the $700B back since it only took a $250B equity investment in banks to fix this?
Although I know this action is lauded by many economists I am personally saddened to see it.
First, it truly does transfer wealth - it commits future work by US citizens to preserve both the jobs and fortunes of people who are far more highly paid than they are... and under the threat of "do this or you will be hurt even more". I don't think the class split based on wealth has ever been more clear and I don't think cronyism has ever been more abusive, at least in the US.
Second, I do not see anything like the sort of purging or turnover that I believe is needed to establish stability going forward. I saw the beginnings of it, but then I see the attempt to retain existing structure at virtually any price - and I mean virtually any price. Government 'regulation' may follow someday, but add-ons are never very comprehensive or successful.
Third, I now see government taking responsibility for market values of everything from stocks to homes (including oil, soon-to-be-autos, soon-to-be- health care costs) and past experience with that sort of thing has been really bad.
Fourth, I think this bailout worsens, rather than improves chances of a solid economic recovery because it steals future investment to dump into sunk schemes. It denudes government at a time when initiatives in things like infrastructure and alternate energy are needed before we can move beyond the current technology era - and those initiatives are beyond the current generation of private capitalists who now weigh only short-term, even daily, profit.
uva uvam vivendo varia fit
I started a new thread with the Fed, FDIC, Treasury press release.
Best to all.
Blue tie this morning. He wants us to think he's trustworthy.
Steve Liesman just mumbled something about suspending dividends on other preferred (and presumably common). But he was unclear on the details and I cannot find them on the Fed or Treasury's site.
"We regret that we are forced to socialize a few of the profits. Those lousy Democrats had me on my knees. Have no fear, we won't take much real equity, and the losses will all be covered."
"We regret having to take these actions"
Oh dear.
sg writes:
i agree. get the gov't (obama and bill ayers out of the educating of our youth). get rid of the dpt of education. school vouchers and choice. let private scholls teach literacy and numeracy.
Where to begin with this one?
With Our Powers Combined...
char writes:
All the crazy people can invest in Gold. Me, i will invest in guns, ammo, food and batteries.
So at least one crazy person isn't investing in gold.
Wondrous Stories
I sit here at my desk at work---for now---and gawk wide-eyed in utter amazement at the depths to which human beings will go in order to satiate their lust for power and their Midasian greed. Paulson, Bush, Bernanke: soucndrels, one and all. Scumbags of the highest order. Liars who would sell their souls to the devil, who would swear on the lives of their families, that they are telling the truth. But no amount of dissembling or obfuscation can change the laws of nature: reality, in the end, always wins out.
Toxic assets in the tens of TRILLIONS of dollars fill the casks and vaults and safes and basements of the worlds major financial institutions. Worthless pieces of paper that, when exposed to the light of day, will bring the global economy as we know it to its knees. There is no escaping this reality. None. The laws of nature will eventually pull the curtain back on the Oz-like charade that is being played out in Washington and Paris and London and Berlin, and the global economy will shatter.
And so in the intervening days/weeks/months, Paulson and Bush and all of their minions pump trillions of dollars of money into these so-called healthy institutions in order to loosen the credit market so that, at least for the time being, things regain the appearance of a recovery. And an election takes place next month, and the DOW rebounds to about 10,400 give or take, and a few of the largest banks begin easing credit restrictions and reluctance to take on risk, and all seems to be moving in the direction of eventual better times. And yes, recession exists, and the economy is tight, and jobs are lost, but the new President goes on TV and tells the people that, while times are tough, we are a strong people, and we will recover. (Meanwhile Bush and Paulson and their minions have moved to a small island off of the coats of Costa Rica and hired Blackwater to protect them from the rest of the world.)
But soon thereafter, at some unknown moment in time, all of the fake money, the supposed assets and capital that the Bushies have pumped into the system---all of the trillions of dollars in guarantees promised by the countries of the EU to their financial institutions---all of these monies become exposed for what they really are---MORE DEBT. More lies, falsehoods, specters. Trillions of dollars THAT DO NOT IN FACT EXIST, loaned to banks and insurance companies and auto makers in hopes that they, somehow, will be able to make some money and build capital that, at this point, is simply a wraith in the night. But of course this plan fails. It must fail. It is just another layer of the grand ponzy scheme of the millennium, perpetrated on the people of the Earth by a handful of greed-mongering bastards and sons-of-bitches.
By way of metaphor, this situation is akin to building a tower on unsteady ground, and instead of deconstructing the tower and starting again, you simply make the tower taller and claim to the people that this truly is the most wonderous tower in the world, a monument to the strength and resolve of the people. But it must fall. The laws of physics demand it. And the same is true of our current economic joke.
And so I sit here and watch economist after economist, legislator after legislator, president after prime minister after finance minister, claim that the plan will work. And they are all lying.
But it cannot work. It cannot. The laws of nature will win out because they always do. Always.
dan,
The story of babel was probably an allegory about ancient money lending.
Dispersion of language means no one talked any more due to lack of trust.....
Would not come to agreement and lend eachother anymore.
When does the tower collapse and humanity no longer has to speak BS?
Very much appreciated that Chris Floyd piece.
In this disaster are the seeds of a nascent populism; I doubt very much it can grow again in the polluted soil of 21st century American culture.
But hey, let's see.
1 currency soon,
i have been seeding that conversation too. google my moniker plus derivatives plus haloscan.
lots of the derivatives, like options, will expire worthless, maybe most.
the dearth of straight information makes it only guesswork. like for example wasn't there a dtcc report that while full of mind boggling numbers still was reported the next day to be incomplete.
the problem is even fractions of the admitted numbers are bigger than USS gdp.
so what gives with people avoiding the subject. it's not like there is a conspiracy here. there are big facts here that are too too too too freeegin big NOT to enter into the discussion.
i am amazed by the thought barriers people will defend to keep their minds within the proscribed lines.