September 26, 2008
Elaine Meinel Supkis
As Libra takes over the Zodiac, all books must be reconciled, all negative and positive numbers must add up to '0'. Paulson's sleep is now being disturbed greatly by the Watchers who love destroying stuff. He is falling apart even as all his beloved, gnomic schemes unwind or disintegrate. The bad news is coming in so thick and fast, I can't keep up with it. So it is time to go back into the past! When in Congress, I discovered virtually no one regulating our nation's business understood even the slightest things about the Derivatives Beast. It is now been unleashed and has broken out of the Cave of Wealth and Death and is in the process of eating all earthly PAPER wealth. So I wish to re-examine this business yet again. See if we can figure this all out.
Over-the-counter (OTC) derivatives
are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is unregulated. According to the Bank for International Settlements, the total outstanding notional amount is $596 trillion (as of December 2007). Of this total notional amount, 66% are interest rate contracts, 10% are credit default swaps (CDS), 9% are foreign exchange contracts, 2% are commodity contracts, 1% are equity contracts, and 12% are other. OTC derivatives are largely subject to counterparty risk, as the validity of a contract depends on the counterparty's solvency and ability to honor its obligations.
Actually, the goofy gnomes of the banking districts stuffed the gullet of the Derivatives Beast so mightily, it grew to over $675 trillion before it broke its chains and went on the rampage. I would suggest, it isn't growing anymore. Indeed, it is totally magical. It is pure numbers. It is magic formulas concocted by expert mathematicians and magicians hired at a PITTANCE by the gnomes. The job of these magicians using magic numbers was simple: devise a method of circumventing Risk. Of course, Risk is the daughter of the very unnatural goddess who is the eldest of them all, Lady Luck. Lady Luck is the builder of the Cave of Wealth and Death. Lady Luck loves random numbers and coincidences. She adores convergences of opportunities. She is also the mother of the Fates and the Furies. And above all, she is the mistress of the goddesses who live in her cave: Inflation and Depression.
As I said in the past, the best way to really understand mystical, mysterious financial instruments is to use mythology and ancient religious beliefs. Just as bankers assign names to instruments they create out of thin air and numbers, I rename them with mythological/magical tags. This shows more clearly, their true dual nature. For just as bankers create OTCs in order to eliminate risk, I know that the Goddess of Risk perks up and sharpens her claws and brushes her teeth in preparation of future dining opportunities! As banking gnomes celebrate hoodwinking Her, She laughs as She licks Her chops. Hoodwinking is an ancient hawking term. The falconer puts this hood over the head of the bird and feeds it while it is blind. This tames the creature so it hunts only for them.
But when gnomes hoodwink Risk, She doesn't care. For She is like all Her sisters: She can see the future! Not with Her eyes but with Her whole being. She lives outside of the human time stream, after all. The only way to deal with Risk is to treat Her with greatest care. One must assume that Risk is standing nearby, ready to unleash death and destruction. The key is to honor Her yet not let Her stop us from taking risks. We won't prosper unless we do things that are dangerous in some fashion. For example, I take a risk when I climb on the roof. I could fall. But I want to fix things on the roof so I take the risk.
It is only dangerous when we pretend there is no risk. Napoleon, when he foolishly decided to go deep into Russia to dispute smaller political matters, ended up rousing the Russian people who chased him and and destroyed him. When Hitler took the risk of a sneak attack on Russia, he suffered the exact same fate. And since History, the goddess who records all our follies, had warned him of the risks, the goddesses had a very big laugh over that misadventure.
They are laughing so hard this week, I fear their sides will split. They can't endure long, such merriment. For the whole Derivatives Beast problem is a clone, a mirror, a replication of the Trusts of the infamous 1929 Great Crash. While I was in Washington, DC, I heard Bernanke, Paulson and the Democrats periodically mention 1929-1933. This infamous timeframe is definitely on many minds. What angers me is, the parallels were obvious years ago. When Congress was busy praising Greenspan for his great foresight and sagacity, the future horrors of his super-low 1% lending was plainly obvious to anyone who had any historical sense.
When I was sitting behind the Sphinx at the hearings this week, I noticed that he was utterly unable to talk about the Great Depression. I figured, he thought that if he spoke in riddles rather than straight, he could fool everyone. I was angry that no one in Congress rose from his or her seat to point a finger at Bernanke and yell, 'You know NOTHING about the Great Depression! You are a fraud!' Certainly, Congress should hold hearings about the Great Depression and what happened back then. To learn about OTC derivatives could be a good history lesson. For OTC derivatives are now history.
Just as the goddesses operate in this odd time/space frame where the past and the present often converge, the creations of the gnomes which are designed to reproduce the past all fail the same way and worse, the same TIME FRAME. Namely, in the well-named Fall. When Libra rules the Zodiac. I was frankly appalled that the House Finance Committee didn't say a peep as both Bernanke and Paulson struggled to place all the blame for the unfolding mess on homeowners unable to pay their mortgages.
This false story is being propagated so that the true authors of this disaster can slip off into the night. But when derivatives were mentioned, it seemed that everyone blanched. Instead of exploring this vital topic further and educating the public, it was dropped.
We saw Washington Mutual go under today. This was due to the OTC markets collapsing. Washington Mutual didn't die because Joe Six Pack didn't pay this month's mortgage bills. After all, we only barely entered into a technical recession in the last 4 or 5 months!
Even though housing prices have fallen, they didn't fall far before everyone noticed we had no banking system! The housing bubble didn't peak until early 2006. By July, 2007, the entire banking system was in total chaos and complete hysteria. I must be the only commentator who noticed this coincided with the sudden end of the Japanese carry trade.
Homeowners don't create credit. Banks create credit. And the top creator of credit on earth last July was Japan. The US was the world's biggest BORROWER. Japan was, along with China and the OPEC nations, the world's biggest CREDITORS. And all of this is tied to the OTC derivatives markets. For big borrowers need cheap lending. And the only way for the biggest borrower of them all to get cheap loans was to create the FACADE of security, ie: risk had to be eliminated somehow. And lo and behold, the bankers found a means.
Once again, for all the new readers here, I will go back to the fundamentals to explain what OTC issues are and why they are the cause...ALONG WITH THE JAPANESE CARRY TRADE....of the suddeness and seriousness of the present crisis.
An interest rate swap is a derivative in which one party exchanges a stream of interest payments for another party's stream of cash flows. Interest rate swaps can be used by hedgers to manage their fixed or floating assets and liabilities. They can also be used by speculators to replicate unfunded bond exposures to profit from changes in interest rates. As such, interest rate swaps are very popular and highly liquid instruments.
*snip*
Being OTC instruments, interest rate swaps can come in a huge number of varieties and can be structured to meet the specific needs of the counterparties. That said, by far the most common are fixed-for-fixed, fixed-for-floating or floating-for-floating. The legs of the swap can be in the same currency or in different currencies. (A single-currency fixed-for-fixed rate swap is generally not possible; since the entire cash-flow stream can be predicted at the outset there would be no reason to maintain a swap contract as the two parties could just settle for the difference between the present values of the two fixed streams; the only exceptions would be where the notional amount on one leg is uncertain or other esoteric uncertainty is introduced).
*snip*
During the life of the swap, the same valuation technique is used, but since, over time, the forward rates change, the PV of the variable-rate part of the swap will deviate from the unchangeable fixed-rate side of the swap. Therefore, the swap will be an asset to one party and a liability to the other.
I highlighted the key issues here: LIABILITIES, REPLICATE UNFUNDED EXPOSURES, HUGE NUMBERS. All these 'swaps' are an asset to one party and a liability to the other. The OTC derivatives markets were very active, very popular and totally insane. Everyone sought to turn these magic number entities which were being replicated while being unfunded and which were huge numbers! Replicating so fast, it took less than 10 years to grow from 1% of the banking system to dwarfing all finances, all values of all things on the entire planet earth!
When it was at a mere $50 trillion, I was yelping in fury. This was not all that long ago. Seven years later, it went up over 10 times. The musical chair game of everyone dancing around the banks which were the chairs and when the music stopped....when merely 2.5% of the homeowners in California defaulted on their loans...we didn't see everyone rush to a bank chair and sit. Instead, all of the chairs collapsed when everyone sat down!
For the gargantuan size of the LIABILITY side of these 'swaps' was like an elephant on each of these chairs. We entered the banking crisis on 7/17/7. Since that date which was one year and two months ago, we have seen a series of rescues which were several-fold: dropping interest rates far below the true rate of inflation, funny money lending by the central bankers to provide capital to banks which no longer had more assets than deficits and a mad rush to try to weaken the yen which should be the world's strongest currency, so that the Japanese carry trade could continue to pour liquidity into equity markets at a very cheap interest overhead.
So I sat in the halls of Congress and listened with fury as the top economic officials fenced with the Congressmen and none of them wanted to discuss either the Japanese carry trade nor its dark connections with the murky OTC markets. Even as both of these were mentioned, they were not examined.
While seeking information about this to exploit, I returned to a fun group of guys: the International Accounting Standards people.
The International Financial Reporting Interpretations Committee (IFRIC)∗ asked the IASB to provide additional guidance on what can be designated as a hedged item. The responses to an exposure draft of proposed guidance (published in September 2007) indicated that diversity in practice existed, or was likely to exist, in the designation of:(a) a one-sided risk in a hedged item, and
(b) inflation in a financial hedged item.
When the derivatives collapse began in 2007, the relevant agencies that were supposed to be monitoring or influencing them were kicked into gear. But do note the Wikipedia entry above: these things are all UNREGULATED. This is why they were juicy tidbits for gnomes to use for nefarious ends. The nefarious end was to transform sub-inflation rate loans from the Bank of Japan into not just profitable lending but worse, to make it replicate like rabbits hopping out of a magician's hat. The reason why I hammer relentlessly on the Japanese carry trade is, it competes with more honest banking. It is a black hole. It is NEGATIVE. So when gnomes go to Japan and then transform this dark-energy borrowing into hot-energy lending outside of Japan, this caused a dramatic change in the monetary landscape.
So long as the status quo of the Japanese sub-inflation borrowing was matched with above-inflation lending, this system created fabulous amounts of money out of thin air. This, in turn, flooded world monetary markets and first, luxuries, property, fine artwork, gold, jewels and other indicators of civilization and good living shot up in value as this flood of new funds flowed into the top tiers of world borrowing. And this money flowed into speculative markets.
This is why the derivatives beast grew. Bankers and investors like Paulson, when he was head of Goldman Sachs, exploited this game to the hilt. This is why Paulson didn't want to talk about this problem with Congress. Instead of strapping him down and waterboarding him so he would tell them how he engineered this mess, everyone was ridiculously polite. Even though chairman Frank snarled at him, he didn't call for Paulson to resign. Nor call for his arrest for fraud and economic depravity.
Note the IASB's talk about 'inflation in a financial hedged item. THE ENTIRE POINT OF ALL OTC GAMES WAS TO INFLATE ALL FINANCIAL HEDGES! And when they ceased inflating, they collapsed in price. For all OTC instruments were...get this...BUBBLES!
Yes, just that: bubbles. All the elements of what defines a financial bubble also defines these here derivative instruments. They were all just bubble machines. When they ran out of water, the soap ceased to make bubbles as it turned to dust.
Here is a report from last spring from the Financial Stability Forum of the G7 nations [which includes Japan]:
Accounting is not the cause of the credit crisis, but it is important that market participants should have confidence in the information presented within financial statements. It is for this reason that the IASB has been monitoring the performance of IFRSs and has moved swiftly to deal with issues highlighted by the credit crisis.We have made good progress in meeting the goals set out in the Financial Stability Forum report of April 2008 and will continue to synchronise our response with that of the global regulatory community.
In April 2008 the Financial Stability Forum published Enhancing Market and Institutional Resilience, a report to the Group of Seven (G7) finance ministers and central bank governors. The report was a result of collaboration by the main international bodies and national authorities in key financial institutions, including the IASB. It set out 67 recommendations, which were endorsed by the G7 on 11 April.
Of the recommendations, three relate specifically to financial reporting:
Off balance sheet items: The IASB should improve the accounting and disclosure standards for off balance sheet vehicles on an accelerated basis and work with other standard-setters toward international convergence.
Fair value in illiquid markets: The IASB should enhance its guidance on valuing financial instruments when markets are no longer active. To this end, it will set up an expert advisory panel in 2008.
HAHAHA. So, this G7-sponsored organization that failed to protect the planet earth from a near-total banking meltdown are still trying to fix what they should have squashed flat 10 years ago? A lot of time was spent in the House hearings with the Sphinx and Gollum, trying to understand the potential value of a lot of dead junk. The IASB is eager to try this, too. Note that they are doing this with things in markets that are NO LONGER ACTIVE!
OK; pretend I want to sell fur coats on the beach in a heat wave in summer. This is the definition of an inactive market. Or if I were to sell houses when a category hurricane is coming ashore. Indeed, I found a house selling for $600,000+ in Galveston which was holding an open house on the same day Hurricane Ike hit. This was an 'inactive market' in spades.
It is simple to price things in an 'inactive market': $0 value. That is it! A few years ago, I nearly bought a house for a dollar but when others heard I wanted it, they wanted it and it sold for a far higher price. Rats.
But in general, today there are many houses for sale including some that are broken debris in Galveston, that are worth nothing. So pricing things that have no market is plain silly. This was talked about at the Bernanke/Paulson hearings. Each time it was mentioned that the $700 billion bail out would 'hold' equity papers of various sorts of levels of 'worth' until the markets improved, never did they talk about the value of the passage of time, itself.
This is a key issue. Time is money! Ask any banker. Ask anyone to lend at 0% for infinity. They will laugh. Except for the Bank of Japan. Again and again, we see this odd structure in the heart of the banking collapse. One major manufacturing export power is using a 0% banking system not for an emergency but for many, many years! In the Nikkei news today, they admit that inflation is over 2.5%. Yet they continue with this fake banking policy.
Back to the G7 IAS rule making business: on January 1, 2001, the International Accounting Standards passed IAS 39. Like the other 'mark to market' rules set by the BIS in Zurich, for example, these G7 rules were designed to make things clearer and more transparent. And stop bankers from making up values out of thin air or assigning values so they could turn dead debits into living assets. As these rules take effect, the international banking system of the G7 nations has collapsed. This is because most of the 'wealth' effects we see vanishing today were fake constructs designed to pour new money made out of thin air into the world's consuming systems. Let's look at this IAS 39 rule business:
The IASB has begun work on replacing IAS 39 Financial Instruments: Recognition and Measurement. As a first step, in March 2008 it published for public comment a discussion paper Reducing Complexity in Reporting Financial Instruments.IAS 39 is generally considered complex and difficult to understand. In addition it contains a number of alternative ways of measuring financial instruments, which can lead to reduced levels of comparability between similar entities.
The rules themselves are complex because the bankers created murky, complex entities and systems that are difficult to set to rules! These things were designed to be nearly impossible to measure or compare. This was done with the aid of computers. Thanks to this innovation, the mathematicians hired from top universities were able to devise very complex formulas which I mock periodically. These things are used to plug in various items which are assigned arbitrary values by the owners of these items. Then the formulas go to work to figure out how to eke some sort of profit out of moving around or selling or betting against or swapping these assigned value items attached to complex formulas. Such as tranches, for example.
To make things murkier, few items have papers attached assigning responsibility for these items existing. As US and other G7 courts begin to sort through a tsunami of defaults, they are finding that reconciling bankruptcy laws with the confused state of most lending paperwork is daunting if not impossible. One of the funniest aspects of all this is the fact that the bankers, themselves, seeing the wave of defaults in the future, begged and bribed Congress into making bankruptcy harder and more draconian.
This meant that most people now have to hire lawyers and fight back to get any relief. The lawyers have discovered the soft underbelly in all these banking procedures and are now hammering away at the whole process. Perhaps the entire concept of bankruptcy will also collapse. If so, this means there might even be a mortgage paying revolt. No one can be forced out of their homes if the papers are a mess!
Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk (Macro Hedging)
IAS 39 allows fair value hedge accounting to be used for a portfolio hedge of interest rate risk (macro hedging) as follows:1. The entity identifies a portfolio of items whose interest rate risk it wishes to hedge. The portfolio may include both assets and liabilities.
2. The entity analyses the portfolio into time periods based on expected, rather than contractual, repricing dates.
3. The entity designates the hedged item as a percentage of the amount of assets (or liabilities) in each time period from step 2. All of the assets from which the hedged amount is drawn must be items (a) whose fair value changes in response to the risk being hedged and (b) that could have qualified for fair value hedge accounting under IAS 39 had they been hedged individually. The time periods must be sufficiently narrow to ensure that all assets (or liabilities) in a time period are homogeneous with respect to the hedged risk – that is, the fair value of each item moves proportionately to, and in the same direction as, changes in the hedged interest rate risk.
4. The entity designates what interest rate risk it is hedging. This risk could be a portion of the interest rate risk in each of the items in the portfolio, such as a benchmark interest rate like LIBOR.
5. The entity designates a hedging instrument for each time period. The hedging instrument may be a portfolio of derivatives (for instance, interest rate swaps) containing offsetting risk positions.
6. The entity measures the change in the fair value of the hedged item (from step 3) that is attributable to the hedged risk (from step 4). The result is recognised in profit or loss and may be presented in one of two ways in the balance sheet:
a. As an adjustment of the carrying amount of the hedged item
b. As a separate line item in the balance sheet. The balance sheet line item depends on whether the hedged item is an asset (in which case the change in fair value is reported in a separate line item within assets) or is a liability (in which case the value change is reported in a separate line item within liabilities). This separate balance sheet line item is presented on the face of the balance sheet adjacent to the related asset(s) or liability(ies).
7. The entity measures the change in the fair value of the hedging instrument and recognises this as a gain or loss in profit or loss. It recognises the fair value of the hedging instrument as an asset or liability in the balance sheet.
8. Ineffectiveness is the difference in profit or loss between the amounts determined in step 6 and step 7.
A change (up or down) in the amounts that are expected to be repaid or mature in a time period will result in ineffectiveness. That ineffectiveness is the difference between (a) the initial hedge ratio applied to the initially estimated amount in a time period and (b) that same ratio applied to the revised estimate of the amount.Demand deposits and similar items with a demand feature (such as a bank's 'core deposits') cannot be designated as the hedged item in a fair value hedge for any period beyond the shortest period in which the counterparty can demand repayment. Thus deposits payable immediately on demand are not eligible for hedge accounting.
Reading these rules shows us that this hedging process is fraught with dangerous opportunities for fraud, padding and passing the buck. The squishy values at the base of this structure is like a swampland. We can't build a secure house on this muck. Time to look at the past:
February 14, 1929: SEES GREAT GAINS IN TRUST BUSINESS;
F.H. Sisson Informs Bankers at Mid-Winter Conference of Public's Growing Interest. SPECULATION IS PROBLEM Officers of Companies Must Guide Investors Amid Cries for "Easy Money," Says A.F. Young. Large Estates Placed in Trust. New Duty to Educate Public. Says Banks Must Advertise. Trust companies and banks in the United States engaged in extending trust service to the investing public experienced in 1928 their best year, Francis H. Sisson, vice president of ...
The trusts were at the heart of the banking collapse in the Great Depression. We didn't simply have a market downturn. We saw global banking die. One major cause was the WWI debts and the mess of the German reparations. Trusts were basically an earlier attempt at creating OTC instruments for investment bankers to use as a tool to drive up the value of various entities by dumping lots of new debts on them. Note the date: midwinter. Now, let's go to the end of the Fall when everything was a total mess:
November 10, 1929: INVESTMENT TRUSTS DEFEND PRACTICES;
Executives Find Justification of Their Policies in Recent Break in Stocks. REPLIES MADE TO CRITICS Decline in Prices of Trusts' Shares Attributed Partly to Speculators. Wall Street's Fall bear market has transformed 1929 from the most successful year in the history of the investment trust movement to the most trying one, according to execu- ...
Exactly like today! The Fed and the government passed draconian rules to stop free trade on Wall Street [but NOT with Asia..hahaha!] and now the investment banks are transforming themselves into regular banks as if this were their Halloween costumes. The 'speculators' are what stock markets are about! This is 'mark to market' with a vengeance. Just like today, the hedge funds and investment bankers pretend to find nothing basically wrong with their very existence. They feel they should be legal.
I say, they are old-fashioned trusts and should, like them, be made illegal.
1929: the Wall Street crash - 1999
This is great while the market is rising since a 1 per cent increase in the value of the stocks provides a 10 per cent return on the speculator’s money. But it leaves a terrible hostage to fortune once the market begins to fall. A fall of 10 per cent will wipe out the speculator’s investment. Any fall greater than 10 per cent will mean they are unable to pay back their loan. They will have to sell. In turn this will reduce prices and so on.In practice as loans were provided on a given rate of interest and the price of stocks was no longer related to dividends, stocks had to rise to pay the brokers and then the banks.
In this situation, standstill leads to collapse. Buying on a loan was not the only financial innovation invented to assuage the lust for speculation. For the first time in the US, investment trusts were organised on a large scale. These trusts held shares in a broad portfolio of firms, they produced nothing except financial speculation. Both the numbers of trusts and their worth grew massively between 1926 and 1929.
These trusts represented an unparalleled opportunity to fleece small investors. Behind each trust stood a sponsoring firm or bank. These organised the trusts and released their shares on to the market.
The sponsoring firm received share options that allowed them to buy shares at their original offer price. If the price increased, as it invariably did, these shares could be immediately sold and enormous profits generated.
For example, +in 1929 Goldman Sachs was at the forefront of the new investment trusts. It launched a series of share issues, such as the Shenandoah Corporation. Oversubscribed sevenfold, its initial securities of $102,500,000 opened at $17.5 before reaching $36. In the crash to come the price fell to 50c.
Do note that Goldman Sachs was a major trust maker. The fact that this band of pirates did it all over again is significant. If any organization deserves to be outlawed, this is one good candidate. This is why Congress should have demanded Paulson's resignation. The very swift growth rate of the trusts is exactly like the lightning-fast growth of the OTC derivatives markets. This is because one is the mirror image of the other.
1929: the Wall Street crash - 1999
The value of the market – then as now– rested on an illusion: its wealth could never be realised. Any attempt to do so would cause the price of shares to collapse. Their value would simply disappear. This is exactly what happened.
The stupid tranches and other SIV and CDO things as well as those OTC derivatives are all nothing in the end for the 'wealth' can't be 'realized' via selling mark to market. Any attempts at selling unleashes this horrific downward spiral backlash. Prices collapse and the value vanishes. Below is a OTC Derivatives contract I want to examine with everyone here:
2004: ABD AGREEMENT OTC-DERIVATIVES
UNDERSIGNED:
1. NAVTEQ B.V., established in Best, hereinafter to as 'the Borrower'.2. ABN AMRO Bank N.V., having its registered office in Amsterdam, the
Netherlands, hereinafter referred to as 'ABN AMRO'HAVE AGREED AS FOLLOWS:
ABN AMRO is prepared, until further notice, to enter into OTC-derivatives with
the Borrower (hereinafter also referred to as "the Client"). However, ABN AMRO
is not obliged to enter into such transactions with the Client ABN AMRO will
assess each transaction separately.OTHER PROVISIONS
- The enclosed ABN AMRO General Provisions governing Derivatives Transactions
("ALGEMENE BEPALINGEN DERIVATENTRANSACTIES MEI 2001") will apply to all
derivatives transactions between the Client and ABN AMRO. By signing this
agreement, the Client declares that he has received a copy of said General
Provisions.- In section 4.1 of the abovementioned ABN AMRO General Provisions governing
Derivatives Transactions for "The costs and expenses" can be read "Reasonable
out-of-pocket costs and expenses"- In section 7.1 of the abovementioned ABN AMRO General Provisions governing
Derivatives Transactions "Unless publicly available" can be read in the
beginning.- Sections 3.2, 8.2.c, 8.2.h, 8.2.n and 9.1.iv of the abovementioned ABN AMRO
General Provisions governing Derivatives Transactions are to be excluded.- In section 8.2 b of the abovementioned ABN AMRO General Provisions governing
Derivatives Transactions a threshold of USD 5.000.000, -- is applicable.- In section 8.2 g of the abovementioned ABN AMRO General Provisions governing
Derivatives Transactions the following is applicable: There is or will be a
change in control with respect to the activities or the business of NAVTEQ
B.V. if through the acquisition, directly or indirectly, by a third party,
of the beneficial ownership of equity securities having the power to elect a
majority of the board of directors of NAVTEQ B.V. or if such third party
otherwise acquires, directly or indirectly, the power to control the policy
making decisions of NAVTEQ B.V.. Such a change shall, in any event, be deemed
to have occurred if the direct or indirect interest of NAVTEQ Corporation in
NAVTEQ B.V. would fall below 50% of shareholder's equity. In addition is to
be read that a merger or demerger has to result, in the opinion of ABN AMRO,
in a materially financial weaker party. The amending of the articles of
association is only prohibited if it would materially impact NAVTEQ B.V.'s
ability to satisfy its obligations hereunder.- In section 11 of the abovementioned ABN AMRO General Provisions governing
Derivatives Transactions has to be read "ABN AMRO will give notice to the
Client of amendments to these General Provisions. The Client will have 30
days to accept the amendments. Otherwise the present provisions remain in
place. Notice shall be sent to: Chief Financial Officer, 222 Merchandise
Mart, Suite 900, Chicago, IL 60654, with a copy to the General Counsel at the
same address."- In addition to the abovementioned ABN AMRO General Provisions governing
Derivatives Transactions the following clauses are in place:- NAVTEQ B.V., intents to use its excess cash to the extent available to pay
down the intercompany obligation on a monthly basis with a monthly average of
at least USD 3.000.000, [ILLEGIBLE] and NAVTEQ B.V. will keep the cross
currency swap (dated in July 2004) to actual USD-level of the intercompany
obligation. The monthly average will be calculated on a 6 months rolling
basis for the first time in January 2005.- NAVTEQ B.V. will not enter into credit agreements with third parties without
the consent of ABN AMRO.- Joint and several liability of NAVTEQ Corporation.
- ABN AMRO also encloses the brochure, "OTC-Derivatives Transactions with THE
Bank" ("OTC Derivatentransacties met DE Bank"). By signing this agreement,
the Client declares that he has received a copy of said brochure.Signature:
Eindhoven, 27 July 2004 Best,_________________2004
ABN AMRO Bank N.V. NAVTEQ B.V.
Branch: Rogen 2-28
I wish I could get the 'OTC-Derivatives Transactions' brochure. Was it bigger than a breadbox but smaller than the Eiffel Tower? I notice that this sounds more like a regular loan! And the bankers are worried about the hedge fund piling more debt on this funky instrument so they have all sorts of hedges, themselves. Time to visit the news today to see if ABN is mentioned. Oh! It is:
ABN sits separate, but Fortis spillover possible
LONDON, Sept 26 (Reuters) - ABN AMRO's core Dutch banking business was bought last year by Belgian-Dutch financial group Fortis but is still sitting as a separate operation in a holding company and will stay there for many months to come.Fortis is not due to get control of the business until around the third quarter of 2009, once the regulatory process concludes.
Fortis was forced to on Friday to deny it had liquidity problems, moving to speed up the sale of assets to boost its balance sheet as worries about its finances sent its shares skidding close to record lows.
Concerns about Fortis should have no impact on ABN's business, but there has been a spillover, ABN said.
HAHAHA. ABN was 'sold' to Fortis last spring. I remember how this was the biggest, biggest deal in town. Last year, it was all the rage and then, due to the banking collapse, had to be put off for a while. But hark! It looks like the 'buyer' isn't exactly solvent! I thought, at that time, this deal was simply another attempt by the bankers to move Japanese carry trade money onto some sort of entity so they could profit from the rise in the stocks of the victim being dumped with more debt.
Oh, and more today's news!
The U.S. Treasury Department's Advisory Committee on the Auditing Profession, led by co-chairs Arthur Levitt, Jr. and Donald T. Nicolaisen, voted today to adopt its Final Report containing more than 30 recommendations to improve the sustainability of the public company auditing profession."The Advisory Committee members, particularly Co-Chairs Levitt and Nicolaisen, have devoted a great amount of effort and time developing the recommendations to sustain a vibrant and robust auditing profession," said Treasury Secretary Henry M. Paulson, Jr. "Their work will contribute to and shape the necessary work of encouraging investor confidence in our financial markets."
Recommendations focused on three specific areas: improving accounting education and strengthening human capital; enhancing auditing firm governance, transparency, responsibility, communications, and audit quality; and increasing audit market competition and auditor choice. For more information, please see the Final Report Fact Sheet.
Secretary Paulson created the committee in May 2007 to examine key issues facing the auditing profession to encourage greater investor confidence. He tapped former Securities and Exchange Commission Chairman Levitt and former SEC Chief Accountant Nicolaisen as co-chairmen to lead the committee.
"The health of the U.S. accounting industry is an essential element in the coming decade of transparency which will impact every business, legislative, and rule-making judgment both domestically and internationally. Reliable numbers from accountants mindful of their public responsibilities are critical to the competitive success of U.S. companies," Co-Chair Levitt said. "The continuing health of auditing firms, both large and small, has been the mandate of a diverse commission representing both industry and investor interests. This final report will provide industry and policymakers with a template for change."
"This is the first study of its kind since enactment of Sarbanes-Oxley and the Committee's work reinforces the critical role of the independent auditor to enabling trust and confidence in our capital markets," said Co-Chair Nicolaisen. "The Committee members brought exceptional intellect and experience to the process and I'm extremely appreciative of their efforts to work toward consensus views. Their recommendations are sound and their enactment will strengthen the auditing profession."
Committee members represented a diverse set of views, including investors, auditors, financial institutions, large and small public companies, lawyers, former regulators, and universities.
Secretary Paulson hosted a conference at Georgetown University in March 2007 to examine ways to improve the competitiveness of U.S. capital markets. Secretary Paulson and conference participants identified financial reporting and investor confidence as major factor in our domestic markets' competitiveness. The Committee held its first meeting in October 2007.
Sad, isn't it? The more light that is thrown on these things, the LESS investor confidence! This paradox eludes the creators of the Derivatives Beast. He is one huge monster! The more light that is shed on the fangs, teeth and tails of this creature, the more frightened the investors! They run away.
The only fix is to kill it. All those qazillion dollars must vanish. Forever. God help us if this gargantuan paper money ever appears in real time and real space! It will utterly annihilate the global monetary systems! We will have NO banks at all!
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