EZ READING MONEY MATTERS: World Stock Markets Crash

September 15, 2008

Elaine Meinel Supkis

The Derivatives Beast is a teenager. It isn't very old at all. And like all teens, it is destructive and active at the same time. Now that is has appeared in public, the bankers and the G7 governments must figure out fast, how to defang this Godzilla-sized monster. They can't do it, of course. So now we look at today's news to see exactly how futile the governments and bankers are in the wake of the destruction of this terrible teen. And of course, we have to also examine Mother Nature who has made things much, much worse.

Bear of Little Brains suggested we all watch a famous movie, 'Moby Dick'. All we have to do is think of the Great White Whale as if it were the Derivatives Beast. Its actions are similar. Especially when Ahab dies trying to stab the huge thing to death. When he dies, his arm jerks up and down and the sailors shout that Ahab is waving them onwards to continue fighting the Derivatives Beast. Which, of course, destroys all of them.

Time to talk about other goddesses: the Furies. They are related to the Fates as well as the trio of snake-haired goddesses that live in the Cave of Wealth and Death. The Furies are the ones who teach humans lessons in humility and cautions. They hate 'hubris'.

Sometimes spelled hybris (ancient Greek ὕβρις), is a term used in modern English to indicate overweening pride, self-confidence, superciliousness, or arrogance, often resulting in fatal retribution. In ancient Greece, hubris referred to actions which, intentionally or not, shamed and humiliated the victim, and frequently the perpetrator as well. It was most evident in the public and private actions of the powerful and rich. The word was also used to describe actions of those who challenged the gods or their laws, especially in Greek tragedy, resulting in the protagonist's downfall.

Hubris, though not specifically defined, was a legal term and was considered a crime in classical Athens. It was also considered the greatest sin of the ancient Greek world. That was so because it was not only proof of excessive pride, but also resulted in violent acts by or to those involved. The category of acts constituting hubris for the ancient Greeks apparently broadened from the original specific reference to mutilation of a corpse, or a humiliation of a defeated foe, or irreverent "outrageous treatment" in general.

Nemesis was the goddess of retribution. The Furies punish humans who violate various Libra things. The US has been boasting for quite a while about being #1. As we slide off the cliff, we continue to maintain that we are the rulers of humanity and still #1. Even as we fall further and further behind others, we still pretend we are #1. This year's Olympics is typical: the US got slightly more medals than China. So we are #1. But China got far more gold medals than the US so we are clinging to this #1 position only via bronze medals.

It has come to my attention that all the biggest banking entities that are dying were all celebrated as 'The Best Bankers on Earth' and the CEOs were the most highly paid executives on earth. Now, each one falls just one year or two years after being crowned. Even as various players in this tragic-comedy fall, the others still pound their chests and tell us, they are the best of the best. The idea that all of them are fools and knaves is slowly dawning. People who formerly fawned on these frauds are now giving them all a harder look. Instead of worshipping people who skimmed off vast wealth from a malfunctioning financial system, they are being correctly seen as criminals.

Credit-Default Risk Soars After Lehman Files for Bankruptcy

(Bloomberg) -- Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern that the $62 trillion credit-derivatives market will unravel.

Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

Lehman, the fourth-largest securities firm until last week, has been one of the 10 largest counterparties in the market for credit-default swaps, according to a 2007 report by Fitch Ratings. The market, which is unregulated and has no central exchange where prices are disclosed, has been the fastest- growing type of so-called over-the-counter derivative, according to the Bank for International Settlements.

The goddesses snarl with contempt as they watch the remaining hubristic financial wizards running to the US government for sanctuary. This is a false harbor in a vicious storm. The eye of the economic hurricane is aimed straight at the Federal Government of the United States of America. This is the epic center of the great earthquakes and volcanic eruptions that are destroying global finances! The US itself is the CAUSE of all of this! It is not a haven but a hell! IT is going BANKRUPT! Just like England and Germany went bankrupt thanks to WWI, the US is going bankrupt due to the Cold War and then the War on Terror.

When the WTC complex was destroyed, the US boasted, we would rebuilt it all. It is NOT rebuilt at all. Even the memorial, a simple matter, is still unmade. Not only that, Mother Nature destroyed a major port city which also has not been rebuilt. And this week, an even bigger port city has been laid to waste. And it, too, will not be rebuilt.

How many houses were destroyed this week? ALL of Galveston has been rendered uninhabitable. How many of these had mortgages on them? What we know about the last 35 years of easy, easy credit and how bankers loaded all this onto housing, I would be guessing that around 90% of the housing if not more, the houses destroyed this week had huge mortgages on them. And people won't pay for housing that can't be easily rebuilt. The US government handed out lots of easy money to New Orleans and the entire Gulf after the three major hurricanes of 2005.

This increased the US budget deficits which were titanic during the entire Bush regime's rule. But now, before the hurricane, the US was half a trillion in debt. It can't just go another half a trillion to pay for the many billions in damage to Houston and the Gulf communities. Some of which were totally wiped out to the foundations. And of these, NONE will pay back their mortgages since the US government is the only insurer in case of hurricanes.

Fed Adds Most Reserves Since 9/11 as Banks Hoard Cash

(Bloomberg) -- The Federal Reserve added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, to reverse a surge in borrowing costs sparked by the collapse of Lehman Brothers Holdings Inc.

Fed funds traded as high as 6 percent, or 4 percentage points above the central bank's target rate for overnight loans between banks, according to ICAP Plc, the world's largest inter- dealer broker. The margin was the greatest since Bloomberg began tracking the data in 1998. The rate dropped to as low as 0.5 percent after the Fed added the temporary reserves.

The central bank uses repurchase agreements, or repos, to buy or sell Treasury, mortgage-backed and so-called agency debt for a set period, to help maintain enough money in the system to keep overnight interest rates close to the target. They don't signal a policy shift. Futures show traders boosted odds to 68 percent that the Fed will cut rates when policy makers meet tomorrow to offset financial market turmoil.

The US has no reserves. THIS IS PURE INFLATION. This is funny money made out of thin air. The US has only $60 billion in reserves and has been doling out goodies for a year now. I would suggest, the inability to save Lehman Brothers was due to the Federal Reserve having no more real reserves. China has giant reserves. And increased the banker's reserve ratios...LAST YEAR. The US has done the opposite. Ratios fell to 30-1 or even 80-1 in the case of Fannie Mae.

All of these stupid schemes are to keep interest rates low. This is supposed to create more lending. As I keep pointing out, we hit the 'lending wall'. We can't lend more unless we go into the fatal $0 down, 0% interest and 0% principal paid down systems. This is the system that feeds the Goddess of Inflation with a vengeance.

(MarketWatch) - AIG slumps as insurer rushes to raise capital

Company gets access to $20 bln in assets from insurance subsidiaries

The slump in the stock helped push the Dow Jones Industrial Average down more than 500 points, its biggest one-day drop since the market opened in the wake of the Sept. 11, 2001, terrorist attacks.

AIG has been granted access to $20 billion of assets that are currently held by its insurance subsidiaries, New York State Gov. David Paterson said at a news conference.

The move will allow AIG to use those assets as collateral to borrow cash to fund its day-to-day operations, according to Paterson.

He also said that New York's insurance commissioner, Eric Dinallo, is at the Federal Reserve Bank of New York Monday to ask if the federal government can support AIG to make sure the company has enough financial resources to work through its current problems.

First step: fire all the executives in AIG. Second step: give me a trillion dollars. I will then fund everyone but these funds will be kept in a cave guarded by demonic dogs. Then I will let it all out in dribbles and drabs after bankers give me some blood and chop off an arm or something. This will make the trillion dollars valuable since it will be painful to access. Ah! But this won't happen. These guys want to keep all their ill-gotten gains. I read in the news that the executives who destroyed Fannie Mae and Freddie Mac have to turn over their profits. HAHAHA. True pain.

AIG has no cushion so it will raid the parts of its own organization that has profits. A reader wrote to me and wondered if this means AIG won't honor life insurance contracts. I cannot say if this will be so. Normally, I would say, 'Don't worry' but this was due to the government being solvent. Now that it is also bankrupt, the bankrupt are lending to the bankrupt. The US has had negative savings for over two years. This is the results of such mis-handling of savers. As savers are asked to support the entire system and get no rewards, they vanish. Now, we have systems deep in debt trying to bail out systems deep in debt!

NO banking system can run this way! The fact that we are seeing this is not a good thing. This is defying gravity. It is unnatural and offends Libra no end. And she will throw the kitchen sink at us.

Fed Takes Steps to Aid A.I.G.

The Federal Reserve has asked two investment banks, JPMorgan Chase and Goldman Sachs, to put together at least $70 billion in loans to help prop up the American International Group, the giant insurance company, a person briefed on the matter said Monday. More specific details of the plan could not be learned, but it appears that the Fed was seeking to create a bank-financed credit line for A.I.G. as it sought to avoid a credit rating downgrade that could help trigger its demise.

With the big insurance group, regulators and potential lenders racing time on Monday, Gov. David A. Paterson of New York also announced that the state would allow A.I.G. to borrow $20 billion from its subsidiaries, to help bolster its capital in the face of potentially disastrous credit downgrades.

JP Morgan and Goldman Sachs don't have $70 billion. They are BORROWING $70 billion. This business takes us to the Bank of Japan, the epicenter of the banking crisis. The land of 0-0-0% has flooded the planet with debts. The Japanese carry trade is now unwinding like the shrouds of the dead on Judgement Day. The yen is rising in value against many major currencies. Inflation is raging in Japan. The wheels are falling off of the government of Japan.

Here is the Nikkei at 9pm EDST:

In just one hour, a fall of over 500 points! Wow. Here is the US stock markets today:

Due to interference of the Plunge Protection Team, it took all day to fall the same rate as Japan. This whole business utterly echoes the Great Depression's cycles. Here is a graph that shows clearly how the bubble/bust cycle operates:

Just like back then, once the bubble pops, the actions of the bankers and the government as well as the bell-weather buffoons at the Federal Reserve created this jagged graph. Note all the red lines I added: these were 'rescue operations'. Each one came after a set period of time. About six months apart. Each infusion of new money and new deals would cause the markets to shoot upwards but never to the previous highs. Each high is lower than the previous one. This gives all graphs of recessions and depressions the same graphic lines downwards. Once it hits bottom, it can crawl there for a long time. Assuming all bottoms=bull markets is foolish.

This is because the see-saw decline decimates both bears and bulls. The people with money to speculate with are fewer and fewer and more cautious each cycle. We see the warning flags of this caution in government bond markets. This is the 'rush to safety'. Only in this case, there is no safety since the governments themselves, especially Japan, England and the US, are heading towards bankruptcy. The Japanese do have lots and lots of bonds from the US and England but this simply makes them more vulnerable. For Japan is carrying a huge government debt just like the US and England. The three G7 nations owe collectively almost $30 trillion. This is a lot of money.

Wall St., Not Washington, Steps Up To Help AIG

Treasury Secretary Henry Paulson and his counterparts in Washington are holding fast to their insistence that the government stay out of rescuing another financial firm, even at the peril of another massive meltdown.

In its absence, the private markets are scrambling to find solutions, which was the government's goal all along. (See "A Line In The Sand.")

Monday, Goldman Sachs and JPMorgan Chase prepared to lead a $70 billion to $75 billion lending facility for American International Group , the huge insurance company that is scrambling to shore up its capital base as its stock price dwindles rapidly.

The government had no goal. The government hit its own wall of shame: they can't just create more money without an army of foreign bond holders getting totally fed up and suddenly dumping over $2.5 trillion in US Treasuries onto global markets. The FOREX holdings are absolutely gigantic and this will definitely bankrupt the US government. So they had to reluctantly say, 'No.'

Bush says economy strong enough to handle turmoil

"We are working to reduce disruptions and minimize the impact of these financial market developments on the broader economy," Bush said in the Rose Garden, choosing to address the market turmoil at the top of an appearance with visiting Ghanian President John Kufuor. "The policymakers will focus on the health of the financial system as a whole," Bush said.

His statement seemed to serve notice that the government will not continue to bail out Wall Street, as Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was forced to sell itself to Bank of America, and the world's largest insurance company plans to announce a major restructuring.

"Adjustments in the financial markets can be painful, both for people concerned about their investments and for the employees of the affected firms," the president said. "But in the long run I am confident that our capital markets are flexible and resilient and can deal with these adjustments."

Why can't we just arrest him for crimes against humanity? Put him on trial. Then execute him the same way we executed Saddam. I am certain the Ghanian President came to get more money from us. And the US has been handing out money for years while deep in debt. This faux charity has contributed to the bankruptcy of the US. Instead of telling the truth, we pretend we are a world power. We just gave several billion to the fascistic troublemaker in Georgia, for example.

A New Architecture for the Financial World

For all the drama of the weekend, these were the first steps -- but far from the last -- in finding a fundamentally new architecture for the financial world. The titans of Wall Street have, over the past 72 hours, been forced to reckon with the reality that the financial sector they built is, in its current form, too big, uses too much borrowed money and creates too much risk for the broader economy.

In a weekend of intensive and almost nonstop meetings behind the massive stone facade of the Federal Reserve Bank of New York, Treasury Secretary Henry M. Paulson Jr. and New York Fed President Timothy F. Geithner oversaw a series of meetings that essentially forced the chief executives of every major firm to grapple with a crisis of their own making.
*snip*
However things go on Wall Street and financial capitals around the world today, the reworking of the global financial system will continue apace.

Among the issues likely to be scrutinized: How much of a day-to-day role should the government and regulators take in financial markets? Which agencies should oversee financial institutions? Should the basics of the financial world be rethought?

Paulson has offered a blueprint to overhaul this financial regulation, and Congress plans to take it up next year. The deepening of the financial crisis will almost certainly make that effort more pressing.

Wall Street firms have been allowed to grow with relatively few restrictions; the regulator that oversees their financial soundness, the Securities and Exchange Commission, is historically more focused on protecting investors than preventing a run on a bank. Indeed, the investment banks -- there were, as of March, five major ones, but after this weekend there now appear set to be only three -- agreed voluntarily to that "prudential supervision."

The New World Order is going down in flames. Some conspiracy theorists imagine, the ruling elites wanted this to happen. This is stupid. They never want economic crashes. They want things to grow and grow and to harvest the most for themselves. They HATE shrinking systems. They HATE the chaos this unleashes. They HATE the idea of peasants turning ugly and attacking the rulers. They fear revolutions and want only colonial wars, NOT world wars!

The people pushing for world wars are nuts like Palin who is not a member of the ruling elites. Like Hitler, she comes out of the seething masses below, the Lumpen Proletariate. The fact that there are now only 3 major investment banks left is bad news for the rulers! This means people can focus on just three entities when running about with pitchforks and torches! The rulers would far rather have a larger, united front.

Even worse, former employees of failed banks can end up taking up the revolutionary arms! Another negative.

It is pathetic to see these high-flying, filthy rich executives talking about 'prudential supervision'. I say, put them all in jail where they can be closely supervised. And punished.

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