Elaine Meinel Supkis
The Plunge Protection Team holds more meetings. They are desperate to find some Hail Mary play to save their financial houses from destruction as the SIVs now go off the cliff. Meanwhile, China is strengthening their Asian trade complex and are working towards creating an Asia-centric economic system.
The collapse of confidence in Merrill Lynch & Co. after the world's biggest brokerage lost six times more than it forecast earlier this month helps explain why Treasury Secretary Henry Paulson's attempt to rescue SIVs is troubled.
Paulson's plan, announced last week, may do little to address the lack of transparency that has roiled global fixed- income markets since July 31, when two hedge funds managed by Bear Stearns Cos. went bankrupt following losses on securities tied to subprime mortgages. Investors aren't willing to rely on estimates by Wall Street traders to value these bonds and there's no central trading system or exchange. Fitch Ratings says the value of SIVs, which own more than $320 billion of bonds, fell to 73 percent as of Sept. 28 from 100 percent in July.
``Continuing to mask transparency by means of rearranging risk without actually offloading or recognizing the true value of that risk is not going to help anyone,'' said Joseph Mason, an associate professor of business at Drexel University in Philadelphia and a former financial economist at the Office of the Comptroller of the Currency.
There are supposedly around $400 billion SIVs swimming about the planet, most of which are drowning. $400 billion, to put things in perspective, is what we spent on killing Iraqis and stealing oil in Iraq for about 3 years. I remember when Bush fired the Treasury Secretary when he warned this war would cost us $200 billion. This sum is big, by the way. Just as the Iraq war is bankrupting the US government, so will this global SIV fund mess. As each one sinks beneath the waves, the others take on more water.
It certainly was a cool trick for all the financial houses to create these funds. We forget why. When the stock market suddenly collapsed in 1987 and a number of banks went down along with a host of savings & loans, the US had to bail out a huge number of rich financial houses and some of the more outrageous financiers went to prison (fraud, of course) and to fix this, the Federal Reserve decided to allow a new form of financing that involved creating out-of-the-bank entities which we now call 'hedge funds'. They were supposed to go bankrupt in bad times but NOT pull down the huge houses because they would be seperate entities.
This solution has a huge flaw: because they can go bankrupt with no effect on the big entities spawning these hedge funds, they became very reckless and spawned a host of these creatures, every week, more and more were created. A lot of thought went into creating as many variations on various fund types as possible. On top of this, since they believed their risks were hardly visible, they could float BBB funds that carried high risks but even higher interest rates. Soon, everyone rushed out and poured a lot of money into these BBB funds hoping to get super-rich, super-fast.
Standard & Poor's, calling the loss ``startling,'' cut its rating on Merrill's senior unsecured debt to A+ from AA-. Fitch and Moody's Investors Service also lowered their ratings on the company.
The cost to protect against a default in Merrill's bonds doubled the past two weeks. Credit-default swaps used to speculate on the company's creditworthiness or hedge against losses, have climbed 46 basis points since Oct. 10 to 88 basis points, according to CMA Datavision in London. A basis point is 0.01 percentage point.
What went wrong with this fix created 15 years ago is easy to see: no one is fooled by the big financial houses distancing themselves from the creatures they have spawned. Enraged investors are demanding they get their investments back, more or less intact, from these hedge funds that were sold on false pretences, false promises. Early on in this collapse, around February, the big houses made all sorts of promises that they would protect the basic funds even if they were unable to pay any profits at all. But the rapid collapse of these funds and the huge sums required to pay back investors who gained nothing but now stand to lose everything, has put the biggest financial houses in Europe and America into a tail spin.
Every week, we read about write offs of billions of dollars by these giants. But they still are barely scratching the surface. If the total sum to be written off is around $400 billion, this means the end of the financial houses just as surely as the collapse in loans to Europe and then the stok market drew shutters down on many big finanical houses and we had the Great Depression.
Click here to see an article I wrote in August 22, 2007, talking about Bernanke and the push to get him to drop interest rates for these financial giants. And here is the cartoon from back then:
Click here to see the actual ABX-HE carnage this week. One ABX-HE BBB 06-2 dropped from 100.94 to a horrible low of 24.64 this year. The difference in price bid has shrunk this week to .64 difference. This isn't 0.00 yet but it is near some sort of basement where I doubt it will rise again.
The devil-may-care attitude is being replaced with a devil-take-the-hindmost panic. Bernanke is anxious to keep everyone going in a herd in the right direction but of course, this army of white-eyed fearful bulls are now running riot over savers, the dollar and world monetary values. As my cartoon from two months ago shows, they just wanted to have Santa give them endless goodies or else. And Santa know that they can do terrible things if they are not saved. So we go from being told, these guys are geniuses and should be admired to looking at them as poor babies who need the Nanny State to save them.
Always, the laissize faire system turns out to be anything but laissize and more, a matter of who has a liasson with whom. Namely, the rich control the levers of power and use this to bail themselves out of messes they created. At everyone else's expense. This is why government controls are necessary. The government sponsors these people.
Treasury Secretary Hank Paulson -- yes, the same gentleman who assured us in the spring that subprime issues were contained -- led the charge. He's gathered the biggest players on the street, from Citigroup Inc. to J.P. Morgan Chase & Co. to Bank of America Corp. as part of his posse to curtail contagion.
We're all in this together, he argued, so now is the time to stand together in unity.
For better. Or for worse.
This is an interesting article by the guys at Minyanville up on Market Watch. It amuses me because these obviously very smart and talented young people there suddenly figured out the obvious: there really is a 'plunge protection team'. This is code for 'politically connected powerful people who have huge financial stakes in keeping bubbles going no matter what.' They often fail in their mission but they try, oh, do they ever try. Always, the goal is to keep bubbles inflated, not preventing bubbles in the first place.
If we look at the news stories about who is meeting with Paulson, the head honcho of this gang, the biggest financial octopus house in America being Goldman Sachs, it is obvious who the members of this PPT are. Many of these people have been around a long, long time. We even know from history, they ran around the collapsing stock market in October, 1929, trying to prop it up. We know that after the 1913 panic, they ran off to Jekyll Island to start the Federal Reserve which is a private banking consortium.
We used to huddle in hushed tones and talk about "the invisible hand" or the "plunge protection team." We did so for fear of being called conspiracy theorists or, worse, unpatriotic. The thought that there was a hidden force seemed bizarre. I was taught that nobody was bigger than the market. Most certainly, if there were games being played, it would eventually come out.
Still, some of my most trusted and widely respected sources confided in me that they saw it as well. They did so in confidence, as Wall Street is a small place where credibility is the gateway of continuity. I, too, held my tongue for fear of retribution or consequence. Even still, to this day, there are folks that will view this column as financial sacrilege.
In school, many are taught that there is no such thing as a PPT. The fiction is, the markets are King. Of course, the teachers point out that the PPT fails regularly to stop plunges but this doesn't mean they dont' exist. It merely means, they can't stop full-scale panics. We are in the middle of one such panic right now. And the PPT is working day and night including making money appear like magic in order to bail themselves out of quite a few fixes. But now it is obvious, they must bite some bullets or this will get much worse.
So...each time they are finally forced to admit to losses, they have Plan B: a most cunning plan, as Baldrick often assures Blackadder. This plan involves the PPT telling everyone, these loses are FINAL. There are no more losses. This obvious lie is then disseminated throughout the media just as they did this same trick in November, 1929. The second and even more important lie is to tell investors to hang on and not panic or sell. This is not only 'fraud' but also part of Plan C: dumping lousy investments so the PPT participants can sail off, intact, while less connected people drown.
Always, after the stock market begins a big decline leading to a 30%-75% loss, we see a second hump, a second, brief peak. This is where the PPT tells everyone, 'Stocks are a bargain! Now is the time to buy!' But then, when it becomes obvious that a recession/depression is now here, everyone gives up and begins selling starting with the marginal investors who use loans to bet on stocks.
Insulated from this mess, the biggest houses will hunker down and wait out the clock, hoping their connections and reserves will carry them through the storm.
So what now gives this topic license for discussion? Paulson, who recently said, matter-of-factly, that there is indeed a Working Group on Financial Markets in force and at play. Further, he has openly held discussions with Wall Street firms and hedge fund managers in an attempt to gain leverage in the financial equation.
And I hope Minyanville figures out what they are plotting: to save their own skins at the expense of EVERYONE ELSE. And I do mean 'everyone' here. If the dollar dies, if the US government goes bankrupt, if millions are homeless or lose medical care or jobs or starve to death or if this causes WWIII, they don't care. So long as they are protected. They hated Roosevelt as he, a member of the uppermost echalons of the ruling class, struggled to keep the lower classes from rioting, revolution and terrorism, they hated him sharing any wealth with the laboring classes. They felt, he should heed only their delicate needs and dainty tastes.
Many of these people openly admired Hitler. Bush's grandpa was one of Hitler's bankers well into WWII. Some of the PPT wanted to get rid of Roosevelt entirely via military coup. But the Republican move to drive out WWI vets camping in DC, demanding their bonus pay so they could survive due to loss of jobs, made this impossible. The military didn't consider the GOP to be their best buddy or rather, the lower ranks were very sour on the idea of keeping the GOP in power via military fiat.
Right now, the biggest financial houses are now banking on Hillary Clinton and are hoping she will talk like a Democrat but rule like a Republican like her husband before her. If there is any candidate they dislike the most, it is Ron Paul. He is a libertarian who knows of their existence and talks about them, to their tremendous irritation.
The Chinese are increasingly irritated with all the financial machines run by the EU/US/UK empire. The Institute for International Finance is just one part of this machine. Like the International Monetary Fund, the World Bank, the Bilderberger Group or the UN Security Council, it is designed to keep the powerful empires of yore in power. Namely, the guys who lost WWI and WWII plus the winners who run to the USA for salvation. All these guys who were chopping up the Chinese, Indian and Ottoman empires as well as all of the New World and Africa, now want stability. Meaning, they stay on top and everyone else on the bottom stays put. That is, China, India, the various parts of the Ottoman Empire and Africa as well as South and Central America. Deutsche Bank enabled these SIVs and CDOs and ABX-HE funds, etc, to flourish. Now they want fiscal responsiblity...a euro too little and a day too late.
Many people can play the financial games set up by the PPT people because this is fun and for about 5 years out of 10, it works. Knowing when to run away is important. This is why we need people who have seen more than 30 years of market gaming to understand what is going on. Better still, an understanding of history is much better.
I hope everyone reading this understands, my goal here is to write history as it happens. This is why I go global all the time and refer back to the past a lot. I wish to save the United States, not sink it. I have no interest in saving myself, I want to save this nation and all other nations. I want China to get its due and it is owed a lot, an awful lot. I want Europe safe, the fact that they have been overwhelmed by not one by two world wars that were hideously destructive is reason enough for me to want peace there! Russia, I want strong, not weak. A weak Russia is even more dangerous than a weak Ottoman Empire or a weak China 200 years ago: destabilizing everything.
I subscribe to the notion that we can all become stronger, together. This means the PPT can't bail itself out at the expense of retirees, workers, children, other countries, other investors. They have a responsiblity which they always drop in favor of lining their own nests. Thus, I call them 'traitors.'
Thus far, the SIV crisis has been almost exclusively contained among big institutional investors; the impact of SIVs on money market funds could be a development that brings the SIV problems into the lives of retail investors. As of Oct. 12, Bank of America's Columbia Cash Reserve fund appeared to hold securities issued by at least five other SIVs, according to a list of holdings published on the fund's website. Asscher Finance, Axon Financial Funding, Cullinan Finance, Five Finance, Sedna Finance and Whistlejacket Capital all appear on the fund's list of holdings, and all appear on lists of SIVs published by rating agencies.
Because the public sees money market funds as very conservative investments, banks will almost always step in to support them and ensure that investors in them don't take a loss on their original investment in the fund. Bank of America's Goldstein says that investors in the Columbia Cash Reserves fund have not suffered such a loss. He adds that the vast majority of the SIV securities held in Bank of America money market funds have high credit ratings.
These are all 'conservative' investments only in fiction. At no point since the Dot Com collapse, have these been anything but Risky, the wench that runs amok and does dangerous things. While pretending to be sober and sane, our mighty PPT guys were really flirting with the Dark Bitch, Risky. They knew the real rate of inflation and knew the only way to make a profit was to beat the real rate of inflation. In 2004, the nominal rate was set by the Fed at slightly more than 1%. But in reality, it was roaring along at 5%. The excuse was the WTC collapse: the Fed had to keep the ball rolling no matter how inflationary and they could do this only if they lied about inflation.
The oil and gold markets shot upwards and are still rising, proof that inflation is raging. They always do this in inflationary cycles. The high credit ratings given to Risky's SIVs set up by the biggest financial houses was fictional from day one. This is because the real rate of return is totally fictional due to lying about both the interest rates and inflation. This is why the PPT guys working in Europe and America came up with this madcap scheme to depress the value of gold via propaganda, lying about gold having any value at all, and via selling huge amounts of gold to keep the market flooded. Only they also flooded the market with easy term money! So a lot of this flowed into the oil and gold markets. Talk about funny! HAHAHA.
As I keep saying, the PPT is more like the Mayberry Cops of yore. They are clowns who refuse to understand how their games play in the end. They just want more money for themselves.
JP Morgan Chase also manages large money market funds. Just under 5% of the assets held by its $103 billion Prime Money Market fund are securities issued by SIVs. JP Morgan Chase (Charts, Fortune 500) declined to comment.
As of Sept. 30, Fidelity's $305 billion of money market funds had 2.3% of their holdings - or about $7 billion - in SIV debt securities, according to company spokesman Alexi Maravel. The SIVs in question are Asscher Finance, Beta Finance, Centauri Corp., Dorada Finance, Cullinan Finance, K2 Finance, Links Finance and Nightingale Finance. Fidelity's Maravel says: "We can state unequivocally that Fidelity's money market funds continue to provide safety and security for our clients' cash investments. We continue to invest in money market securities of the highest quality, and our clients continue to have full access to their holdings to invest as they wish."
Fidelity got mad at me for talking about their dates with Risky. They want everyone to think they don't go to Risky's bar and grill and get totally drunk there so she can pick their pockets. There are no more 'higher quality' securities: all are now insecure and unstable due to the gigantic mountain of Risky schemes that are now on fire like the overpriced, badly designed houses in California. Even that fake castle in Malibu burned to the ground.
'Retire RICH!'----In turbulent times, resist the urge to mess with your retirement plan and you'll come out ahead.
With dreary news coming out of the banking and real estate scenes almost daily, and the dreaded "r" word (as in recession) getting tossed around, roller-coaster madness is the new normal in the stock market.
It's a scary situation. But it doesn't have to wreck your retirement.
The single most important thing you can do in a turbulent market is stick to your 401(k) game plan - that means contributing regularly and definitely not panicking and selling.
In fact, if you had stayed the course when the stock market was tanking in July and August, you actually would have made a far better return on your money than if the stock market had stayed flat - or even increased modestly.
This message was brought to you by one of the members of the PPT! They want you to hold! DON'T SELL. They do the selling, not the little people hoping to become RICH when they RETIRE! Hang on, the roller coaster will carry you through, the PPT wants us to know. As usual. This is how they operate. They need everyone else to stay aboard the Titanic while they frantically row off in their life rafts.
The fourth China-ASEAN Expo (CAEXPO), slated for Oct. 28-31, will focus on port development, official sources said here.
This annual event will be held in Nanning, capital of Guangxi Zhuang Autonomous Region, featuring topics ranging from port development and cooperation between China and ASEAN, social development and poverty eradication, cooperation over power for homes and businesses, to cooperation and sustainable development in forestry, said Zheng Junjian, deputy secretary-general of the Secretariat for China-ASEAN Expo.
Meanwhile, China continues to develop its alternative markets. It is preparing to take center stage and history is 100% on China's side: we are exhausted, the EU/US/UK empire is deep in debt. The numbers are totally against us: no longer can we export energy, we are now trying to make Canada and Mexico a part of this system whereby their oil is ours and we can use it to keep power. But China is racing ahead of us here. Their overhang is much smaller, much smaller than ours. Japan's overhang is the worst of all the former empires and England is a close mirror.
China and the 10 ASEAN members are speeding up tariff reduction to facilitate the establishment of the China-ASEAN free trade zone.
China's average tariff on ASEAN goods has been slashed from 9.9 percent to 5.8 percent and will further drop to 2.4 percent by 2009. By the time the free trade zone is established, 93 percent of products from ASEAN countries will be tariff-free.
China aims to establish free trade zone with Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand by 2010. Free trade zones with Vietnam, Laos, Cambodia and Myanmar are expected to be in place by 2015.
Zhang Xiaoqin, secretary general of China-ASEAN Expo Secretariat, said China and ASEAN have seen fast growth in bilateral trade in recent years.
According to Zhang, China-ASEAN trade volume was 160.8 billion U.S. dollars last year, while in the first eight months this year, bilateral trade amounted to 127.95 billion U.S. dollars. The bilateral trade volume between China and ASEAN is expected to reach 190 billion U.S. dollars this year.
Rate of growth matters. If the US, Europe and Japan all grow at less than 2% a year and China grows at 10% a year, in 20 years, China will be on top. The US and Japan worry a lot about this. But becoming mired in a morass of debt, depression and job losses as well as crushing the populace at large, is a totally stupid way of going about saving ourselves from destruction. China is not heaven but it is also not hell. It is a classic 'up and coming' capitalist state. It looks no different than Germany in 1900 or Britain in 1850 or the US after WWI-the Vietnam War. Pollution and too-fast growth are endemic to capitalist growth.
This new trade sphere being built by China is part of their political sphere. They keep trying to bring Japan into this sphere but Japan keeps running back to the other, older empire. This has the potential to turn into a big military clash as the EU/US/UK empire tries to keep Japan on their side despite Japan acting much more like China than any ally.
ANALYSIS: Embattled Consumer Credit Industry Keeps Its Eye On Credia
TOKYO (Nikkei)--The consumer finance industry, which once enjoyed high profitability, is beset by troubles -- requests from their borrowers for refunds of overpaid interest, growing difficulty in fundraising and tighter restrictions due to a change in the moneylending law. The harsh environment has even forced one publicly traded firm to file for bankruptcy.
Foreign Stock/Currency Investment Trusts Grow Apace In April-Sept
TOKYO (Nikkei)--There is a growing tendency for investors to prefer investment trusts focusing on foreign stocks and currencies rather than those dealing in domestic stocks and bonds.
Japan's SIVs are growing, not shrinking. Indeed, the entire economic mess here is totally different from the one in Asia. We would like to think that our situation is global. It is most certainly not. This is why the recent banking collapse didn't so much as turn a hair in Asia. Japan has no credit for people at the consumer level because they don't want consumption in the first place. The need to enforce this depression in order to keep the Bank of Japan's carry trade with the West going is all-important. When talking about any financial games here in the West, we must remember the carry trade and how the Japanese are moving heaven and earth to keep it intact.
Orders for big-ticket manufactured goods unexpectedly fell again in September, raising new worries about how much harm a severe housing slump and credit crunch are causing the overall economy.
The Commerce Department reported Thursday that orders for durable goods dropped 1.7 percent last month following an even bigger 5.3 percent plunge in August. It marked the first back-to-back declines in more than a year and took economists by surprise. They had forecast new orders would rebound by 1.5 percent in September.
There is no doubt we are in a recession. All the important indicators have been trending in this direction for some time now. This post-9/11 boom was fake and frankly, quite weak considering the 1% interest rates handed out by Greenspan. This is actually the Dot Com Bubble Pop, part II. They hope to have a part III. But I doubt this will be possible.