Worthless CDOs and the Sphinx

5/28/2008

Elaine Meinel Supkis

Some readers here have suggested I not talk about the elections because it conflicts with dearly held beliefs. Just as some readers want to force me into supporting the strange conspiracy stories about the WTC, I have to choose my own road. This is because my view of history isn't just from looking at the past but from being able to see the future to some degree. For the truth lies in a strange place which I call 'the Outer Darkness'. As we watch wealth being changed or even vanishing, it is important to understand that reality has many strands, many levels and TIME IS NOT STRAIGHT FORWARDS. The intersection of time/space and the human collective is of tremendous interest to me. For we all swim in a sea we made ourselves over a million years. And understanding the undercurrents, spotting sharks, looking at surface weather is all very important if one wishes to sail these turbulent seas! This is why I constantly throw out fishing lines and reel in sometimes astonishing information. For the true news is---where are we going? Not, how can I profit from this. For knowing the destination is life and death. Money will be useless if we have WWIII. Only the knowledge how to use sword and shield, horse and spear, how to organize an army using only early iron age weapons will be useful in the future if we have WWIII. Now, back to today's economic news:

A DEBT END FOR BANKS
INSURERS FACE DEFAULTS

Battered investment banks trying to dump billions in soured mortgage securities are being challenged by struggling insurance companies that claim such efforts could cause them further pain.

It's a battle that pits large financial firms like UBS, Merrill Lynch and Citigroup against insurers MBIA, Ambac and others. These insurers, which the industry refers to as "monolines," provide specialty insurance used to protect investors from losses on various types of debt securities.

At issue is a type of protection that banks have obtained against defaults that is now preventing them from purging portions of their holdings of arcane mortgage securities known as collateralized debt obligations.
Under the terms of this protection, the banks need approval from the monolines in order to unwind these securities - and obtaining that OK is proving difficult in some cases.
*snip*
"Clearly, liquidation into this market is tough but holding on long term might not be your best case," said Joe Messineo, who runs a New York-based structured finance consulting firm. "Not many people envisioned the magnitude of this would come down to documents."
*snip*
Although there are hardly any buyers for CDO paper, the banks would be able to unwind the CDOs and essentially purchase the assets that comprise the complex debt structures - a move that might allow them to better assess the value of the assets and at least eliminate the fees associated with holding onto the debt as CDOs.

The US has had banking collapses in the past. From the inception of the US as a free, sovereign country, our ancestors who were every bit as smart as we are, have had banking collapses. Struggling to figure out the riddle of the Money Sphinx, every generation has to walk through the stinging desert to where She lounges on her divine divan. Like Libra, She also lives at the Gates of Death. The painting I did a number of years ago expresses Her position in this celestial matrix. The earth is seen from afar as it is in the heavens. The riddle at the top is about time and evolution. The wall paper of Her chambers is the back of the dollar which has the All Seeing Eye of the Pyramid of Power. This Pyramid was built by Pharaohs in order to sail past the Gates of Death intact with all their golden hoard. This way, they hoped to cheat Death. Of course, their riches moved forwards in time only until thieves could figure out where the gold was hidden and thus, remove it. We can only imagine the shock of the dead Pharaohs when they actually passed through the Eye of the Needle to discover not one bit of wealth could follow them.

The nature of wealth is dual: there is natural wealth which is bounded by the limits of Nature. Then there is imaginary wealth as dollars are imaginary. The assessed value of anything is imaginary. This is particularly true of the futures markets. We have had futures markets since the Late Middle Ages. It was invented by the seafaring Venetians. Since distant trade was uncertain at best, the knowledge about the condition of ships, caravans and other matters was valuable. For the traders raised money by selling shares of RISK. This risk was so great, the profits from successful trade ventures were astronomical. The invention of the telescope was due to a desire of merchants to climb a tower and scan the horizon to see if their ships were actually coming in. Or even more important, if a RIVAL ship was coming in. This was communicated to the market square where the value of goods such as silks, peppers, spices and other exotic goods fluctuated wildly depending on wether or not ships came into port.

On top of this, insurance was invented early on. The profits from hazardous trade were enormous. But the destruction of wealth when ships sank or failed to find a safe port or the hazards of wars that were constantly breaking out and of course, pirates---all of this made life extremely insecure. And frankly, although we all love making profits based on risk, we dislike losses that have to be paid when there is a failure. So the insurers fixed this by offering a bet that if the ships succeeded, the insurer kept the fee paid by the merchant who feared losses. If there was a loss, the insurer would pay for these losses. NOT the loss of PROFIT but the LOSS OF PRINCIPAL which was the original investment.

Back to the nature of wealth and its intimate relation with death: if insurers remove ALL risk and worse, if insurers guarantee profits in addition to covering for loss of capital, we get this peculiar situation whereby this removal of risks INCREASE RISKS. Namely, the risk of total collapse of the financial matrix supporting this impossible situation. No one deserves to earn a penny in profit on a system that has zero risk. The Holy Grail of all investors and their employees is to discover a scheme, a system that has absolutely no risk yet pours NEW money into their pockets nonstop without fail. First of all, such a system is obviously inflationary. The need to have more and more money to outrun the inflation caused by a system that has had all its risks removed is a treadmill caused by the nature of the system.

We see this clearly as the capitalist system goes through endless cycles. Every time we have gone through a cycle of wealth creation/value destruction, the survivors swear they will never do this again. Yet it happens again and again. Some theorists have this 'generational' concept whereby each generation makes the same mistakes. This is certainly part of the cycle's dynamics. But beyond this, I see older generations joining in with the younger to make the same mistakes all the time. It is deeper or rather, more embedded in human psychology: we all want something for nothing. We all want no risk but want to be rewarded for taking risks and frankly, we love to be risky as much as possible. And we love infinity. This combination insures that we will fall into the same trap over and over again. So the problem is to control the urge to do these things so monotonously. Let's look at an older article about the CDOs that are causing the world's entire banking system to collapse:

CDO History Repeating Itself: Liquidity Crunch Looms: Kevin Depew from Minyanville explains CDOs:

OK, so what are we really talking about here with these so-called CDOs?

CDOs were created in 1987 by bankers at Drexel Burnham Lambert. Wait a minute. Did you say Drexel Burnham Lambert?

Isn't that the same firm that was driven into bankruptcy in 1990 due to illegal trading in junk bonds driven by Drexel employee Michael Milken?

And did you say they were created in 1987? The same year the market crashed? And wasn't the 1980s known as the "Decade of Greed"?

Yes, yes, yes, yes and yes.

So let's see if we got this right. Today, in 2007, the market for securities that were created in the "Decade of Greed" by a firm that was only a short time later forced into bankruptcy due to illegal trading in high-risk bonds is grinding to a halt?

From the inception of the Floating Currency when the regulator of wealth creation, gold, was banished, we have seen a host of spawn born. These creatures all come from the same mother. When gold was finally slain, the Portals to the Outer Darkness yawned wide. When we look at all the charts and graphs running from 1914 to today, we see clearly that everything took off right after the Floating Currency was created. Going back to the painting at the top of this story, we see the Sphinx as a winged woman/lion who judges any who try to pass Her. For She is a chimera. Virgo and Leo combined with Libra: a powerful combination. When we look at the Pyramids we see lines of sphinxes along with a giant sphinx, the most famous sculpture on earth. The Pharaoh who demanded this thing be carved wanted his face on the sphinx. This is because he hoped he would be the Controller, the Guardian of the wealth hidden in the Pyramids. The ancient Greeks and Minoans were the ones to combine the Egyptian sphinxes with Virgo and Libra to create the modern concept. They also, unlike the Egyptians, made most of their profits off of sea-bourne trade.

Many an empire has grown due to trade but once grown, fallen into disrepair by ending trade. Many empires have sunk their own navies and locked the doors to outsiders. This eliminates risks. But it kills profits and eventually the economic system rots as the only profits to be made are via oppressing workers and peasants.

Back to today: in 1987, these toxic, stupid, utterly worthless CDOs were invented by criminals. The system was set up to be a perpetual money machine. Note the time frame: 20 years exactly for these things to finally crash to earth and destroy all the accumulated value set up within their system! This is definitely a 'generational dynamic' here. Like a time bomb set 20 years ago, everyone piled into these CDOs and the monoline insurers who were supposed to reduce risk to 0%. Then, it crashed. Just as the Fed was set up in 1914 in order to prevent a panic/depression and then exactly 20 years later, there it was: the worse panic/depression in US history up to that point in time! This is NOT ACCIDENTAL. The very system set up by the Fed to prevent this was the CAUSE. To this day, no one working within the Fed understands this. Instead of giving the whole matter a very hard, cold look, Bernanke has decided, based on his very faulty premises, that the Fed was the only ones able to stop this collapse and the magic way was simple: just inflate the currency by increasing lending no matter what.

We have to learn a very harsh collective lesson now as this faulty, fatal nostrum is being crudely applied. As we see global inflation and the shifting of wealth from the very poor to the very rich accelerating, we have to recognize that the solutions are the problem! The CDOs should have never been created in the first place. The fact that they were invented, grew and then the ripe fruit blew up 20 years later should alert us to the idea that the CONCEPT was evil. This is a very old thing: the Tree of Life is, when you eat the fruit, the Tree of Death. Adam and Eve were eternal and could talk to God. But when he told them to not eat the fruit of the Tree of Life, the Tree of Knowledge of Good and Evil, they ignored this and did it anyway, being risk lovers. And they earned death for the Tree reversed itself instantly. Instead of easy living, Adam and Eve had to work the land and struggle to survive. Their knowledge grew due to this but the fundamental impulse remained: the children of Adam and Eve want a life at the Garden of Eden and will play every trick possible to regain this. Using knowledge especially the deeper sciences. We hope to regain our innocence so we can enjoy ourselves mindlessly.

The Drexel Burnham Lambert bankers listened to the snake, Milken, and set into motion a system that brought in great wealth. Now, it is in reverse and is destroying wealth. The lesson here is obvious: these safe systems set up by bankers will ALL fail. Unless they are not profitable, then they can live in a static world. But the bankers want dynamism, not stasis. So they must accept the risks and pay for this, not pass the buck. The present system is passing the buck to the working classes. In the form of massive global inflation. Last year, the bankers all were celebrating the seeming lack of inflation and the massive growth in wealth. Last July, they were certain we were finally entering the Garden of Eden. Only they were walking over the bodies of the starving, the dying, the masses who were being locked out of not just the Garden of Eden but even the 'weaving and sowing' world outside of Eden.

The arrogance that some people can be very rich and don't have any obligations to the surrounding populations is something that infuriates me. We are not singular, alone. For the very first Pharaohs had to learn this harsh lesson! They thought they could exploit the labor of the milling masses to build huge pyramids, huge sphinxes and then sail off into eternity with all the wealth for themselves alone...THEY WERE WRONG. For quickly, the masses retaliated and the pyramids were looted and the wealth re-entered the stream of life. Perhaps some of the gold in the bridge in my mouth comes from this golden hoard! It is scattered. And this is good for this is how things grow and are dynamic.

And dynamism is wealth. Money hoarded is meaningless, it is DEATH. When money moves, it lives. And money can live only if there is also risk that has to be paid in full, not cheated. The biggest financial entity on earth is the Derivatives Beast. And it was spawned at the same time as the CDO critter. And like it, the thing ballooned to amazing size. As it grows, the risks it supposed to displace grows. For it has to be balanced! Risk cannot be banished, it is displaced. The more it is displaced, the more destructive it becomes. And when the books have to be balanced, it blows up. For the only way to get rid of it is to make it VANISH. And the poor can't make it vanish. Only the rich can do this. And in their desperation, the rich will try to unload this mess onto the poor while sailing off into eternity with their infernal infinite wealth.

Where they meet the Sphinx.

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Comments

[Blunt Force Trauma]

"Some readers here have suggested I not talk about the elections because it conflicts with dearly held beliefs."

That's just ridiculous. As though it were some sort of religion and your opinion may sway them or their need or desire to sway others.

Simple rule: if they don't agree with the content, then they shouldn't read it. It's like watching a TV show or listening to the radio. Turn it off. When did people become so helpless in their decisions?

[Buffalo Ken]

yeah blunt force trauma, i agree with you.

[K]

Way off topic...

Elaine,
I saw a bit on the MSM today about a spike in teen pregnancy and couldn't help but speculate that it might be related to soaring gas prices. Maybe a bit of a stretch but my DH who grew up in a tiny town said the only thing to do their was drink and screw. Can you recall anything about a historic relationship between $$$s and teen pregnancy? I'm just wondering if teens are turning to cheap entertainment, since the job market is tight, and maybe going to the mall/movies/restaurant isn't happening as much.

[Canuck]

Canada set to “nip in the bud” alternative monetary transactions or is this setting the stage for precious metals confiscation?

“Starting later this year, Canadian dealers of precious metals and stones - both real and digital - must register with the government.”

http://tinyurl.com/4wqqq6

The next attack on gold has begun

http://tinyurl.com/5tdz5z

[Elaine Meinel Supkis]

Just me grousing, everyone. Sorry about that. Will try to avoid this.

Sex is cheap thrills. The teen pregnancies are simple: no money for contraceptives and abortions. Period.

About the registration process: THANK YOU, CANUCK! Here it is, everyone! I said this would happen! They want to know what we are hoarding so they can seize it.

[greg]

I do notice that you have placed your own image in the sphynx's mirror

:)

[hakan with the reindeer]

Whoaa... look at this:
http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm

"Richard W. Fisher
Storms on the Horizon
Remarks before the Commonwealth Club of California
San Francisco, California
May 28, 2008

We know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid."

He seems to have read your blog Elaine :-)

[blues]

Uh Oh. Magic number day.

[Elaine Meinel Supkis]

Yes, Hakan. I am certainly not the only one aware of the dangers.

Yes, blues. Heh.

[Royal Dutch]

About the registration process: THANK YOU, CANUCK! Here it is, everyone! I said this would happen! They want to know what we are hoarding so they can seize it.

They will not have to seize it, people will give it to them willingly, like many Mr. Chamberlains, once in the desert Moses called for a division as the people fled Egypt.

[calvino]

Fisher has voted twice against the bearded clam and his lackey boy Mishkin (good riddance) eating soiled toilet paper at the bottom of the CDO pool. The filthy clam has destroyed half of the equity of the Fed. One more shit eating expedition, and there will be no balance sheit left to swap for CDO's.

[Elaine Meinel Supkis]

Yes, I was too tired last night to finish the story about the latest resignation in the Fed. Will have a LOT to say about that and the 'registration' stuff. Strange things are afoot.

[Paul S]

I would like to respectfully disagree with those who think we should ignore content to which one doesn't agree. I believe it helps to know what one's adversaries are saying and thinking. Example: I--in short bursts--will listen to slimy, corporate, phony sleazeballs like Limbaugh and Hannity. And I have to admit, I THOROUGHLY enjoyed myself yesterday listening to them try to smear Scott McClellan and his tell all book, "What Happened". Rats who can't stand the light of day. I knew it all along. HAHA I sincerely hope rumors that their ratings are plummeting are true.

[Elaine Meinel Supkis]

They are paid to spout the Party Line. When there is a punch bowl out and Santa Claus is handing out toys, people believe the elves like those two guys.

Then, when the punch turns out to be poison and Santa becomes Satan, the audience flees for their lives.

As for listening to me: all my life, people have run the other way. HAHAHA. Off the cliff, if that is the only exit. I don't mind this at all.

We make our own choices!

Another thing: looks like most of the Federal reserve chairs are going or gone and NONE are being filled. Until Volcker takes over. The expectation is, he will run the show again and will strangle inflation the same way he did back in the Carter years. Most people hate this, of course. They want Santa.

[Chris Q.]

Elaine has got the gate and we've been hanging about the back door again. Another garden on Monday.

[Paul S]

The talk fascists were singing a different tune when the Clinton tell-all books came out. These guys are shameless.

[Elaine Meinel Supkis]

Yes, they are all paid by people who have an interest in running the US for their own nefarious ends.

[GK]

Elaine, heard any gossip about when the Derivative market is planned to blow?

http://georgewashington2.blogspot.com/2008/06/derivatives-market-is-unwinding.html

The Derivatives Market is Unwinding!

A couple of months ago, a financial analyst who sells derivatives told me that fears about a meltdown in the derivatives market were unfounded.

Yesterday, he told me - with a very worried look - "THE DERIVATIVES MARKET IS UNWINDING!"

What does this mean? What are derivatives and why should you care if the market is unwinding?

Well, it turns out that the reason that Bear Stearns was about to go belly-up before JP Morgan bought it is that it had held trillions of dollars in derivatives, which were about to go south. (The reason that JP Morgan was so eager to buy Bear Stearns is that it was on the other side of these derivative contracts -- if Bear Stearns had gone under, JP Morgan would have taken a huge hit. But the way the derivative agreements were drafted, a purchase by JP Morgan canceled the derivative contracts, so that JP Morgan didn't experience huge losses. That is probably why the Fed was so eager to broker - and fund - the shotgun marriage. JP Morgan is a much larger player, and if Bear's failure had caused the derivatives hit to JP Morgan, it probably would have rippled out to the whole financial system and potentially caused an instant depression).

[supra youth]

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