New Century's Collapse Is The Beginning Not the End

Dead as a dodo 'Silver Certificate' from the heady 1923 issue.
Elaine Meinel Supkis

As funny money displaces serious cash, it is time to review what the Federal Reserve really is and how hedge funds are now going to collapse and pull down our own central bank. It is not a pretty picture. New Century, the dying mortgage processor, is the tip of the Titanic's iceberg. Cold seas ahead.

What is money anyway?

First issued in 1913, in accordance with the Congressional act of the same name, Federal Reserve Notes featured a green seal starting in 1928. This was the only type of currency that, at first, featured the Treasury seal over the large engraved word to the right of the portrait.

Before the Federal Reserve was invented, individual banks issued what were basically IOUs against the holdings of a bank. Companies did this too. Anyone could issue certificates of relative value. This led to bank collapses, runs on banks and depressions. Right on the eve of WWI, our government set up a system that was supposed to never collapse: the Federal Reserve.

I have this morbid fascination with dead currencies. Whether it be ancient Roman coins or paper issued by deceased governments, I love to look at and think about these monies because understanding what money is is life and death, literally. All money has some amount of blood seeped deep within. The minerals, the sufferings of those who prospected for it, who died digging it up, died smelting it in hot hell holes and those who bought it dearly by exploiting child labor or pirates stealing or worse, governments going to war because of money.

Right after the Federal Reserve was invented, they began to issue certificates redeemable for silver. The silver at first, was real. The Reserve held this in 'reserve'---thus the name. But they found that letting things get a bit more flexible meant more money based on the same somewhat smaller and then very much smaller pile of silver, printing these certificates based on the POTENTIAL of having silver enough to pay off all the existing certificates. It never ever occured to them that mobs of frantic people would besiege their banks demanding silver for these quaint scraps of paper!

Here are some fine samples from my own hoard: At the top of the story is a Federal Reserve silver chit. It was issued right before the entire banking system collapsed. It is basically a fraud but no one could tell at the time.

This is an 1899 silver certificate. Back then, there was a raging debate about 'the cross of gold' and Bryant was lecturing across the USA, demanding silver be the basis of our currency values. But the big bankers in NYC wanted gold. And so we got the gold. But in the global bank collapse that ushered in WWI, this certificate became worthless when everyone demanded silver. So the Federal Reserve basically said, the USA government 'owns' everything in the USA: you and me, our taxes, everything, our futures, whatever they wish. And at this time, they instituted the Income Tax which was supposed to be only on the rich (hahahahaha). Ah, the varied schemes that end up being all the same!

And here is a very precious gold certificate! It was recklessly issued by the fools running the Federal Reserve fund. They thought the boom in first, real estate and then stocks and then bonds would be a fundamental basis for generating wealth so they printed up many more certificates for gold than there was gold in the USA. People snatched these certificates up and assumed, like the gold bugs today who buy CERTIFICATES giving them 'value' in some fabled gold stock, these things were worth more than the paper they were printed on.

Then the whole system imploded. Holders of these bills ran to their banks to get their gold out. The banks closed their windows. I remember seeing movies about this horrible year, the year the economic system totally collapsed. It showed people demanding PAPER MONEY. And the banks ran out.

This is beyond stupid. Never in history has any bank or government 'run out of money.' This is because they print this stuff! Germany managed to print money for so fast, the inflation rate nearly hit infinity. No, the people at the banker's doors were all demanding silver or gold.

Instead of being a stable position, after the very wealthy banker, Mr. Mellon, strewed gold certificates all over kingdom come, he fled when the stockmarket collapsed. His bank still exists, by the way. Ahem. Insiders never go down with the ships they launch.

But no one could hold the position for the next five years. In and out they went. They couldn't magic their way to prosperity. Finally, the Keynesian system came along: the government will spend IOUs drawn against future taxes and future earnings and values of everything in the USA and the game took off again with a big push from WWII and the attempted enslavement and looting of half of the earth by Germany and Japan.

Here we go again!

By Bob Ivry

March 12 (Bloomberg) -- Hold on to your assets.The deepest housing decline in 16 years is about to get worse.

As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.

The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.

``The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. ``Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand.''

Many people played Donald Trump, that 'You are FIRED' TV personality who has gone bankrupt in the past and is an evil role model who should be in prison. They thought they could leverage serious loans by getting interest-deferred loans to speculate on properties. The scheme was to roll over these investements before even closing, to get another sap to up the ante and take on a riskier loan. Soon, buildings were being erected so holders of these speculations could sell to each other over and over, flipping properties multiple times. Each one promising to pay the earlier investor once the property closed.

When the last 'buyer' chickened out and left the scene, all the previous 'sales' re-compressed and became worthless. These deals have been collapsing for the last year. Now we are seeing people at the recieving end of all this, the original sellers now must sell their homes because they can't afford their additional mortgages.

On top of that, people are too deeply into debt and this accumlation of debt is now overhanging many households and dwarf any potential value in these holdings. This forces banks to demand a rejiggering of the mortgages and higher interest rates which sink more ships, etc.

Click on the image to see my take on a Marketwatch graph showing the utter collapse of a big mortgage loan enterprise:

New Century is actually an old century scam that is now going to strip a bunch of trusting people of everything they own.

By Alistair Barr & Dan Gallagher, MarketWatch
Last Update: 5:02 PM ET Mar 12, 2007

SAN FRANCISCO (MarketWatch) -- If New Century Financial Corp. files for bankruptcy, shareholders will likely be left with nothing. Other players involved in the rise and fall of the second-largest subprime-mortgage lender may end up in better shape.

New Century (NEW :1.66, -1.55, -48.3% ) said Monday that its lenders have stopped providing financial support, increasing the chances that it will file for bankruptcy. See full story.
Shares of New Century were halted by the New York Stock Exchange on Monday. The stock closed at $3.21 Friday, but Robert Napoli, an analyst at Piper Jaffray, said that the shares will likely be worth nothing.

"We feel downside risk could be to $0," he wrote in a note to investors on Monday.
New Century winners and losers
Losers

Shareholders
Stock will likely be worth $0 if lender files for bankruptcy, according to Piper Jaffray.
Some creditors
New Century pledged its remaining mortgage portfolio to Morgan Stanley – that may leave less for other creditors like Bank of America, Barclays and Credit Suisse.
Home buyers
Some home owners who took out New Century loans are left with payments that are too high. Refinancing is more difficult now.
Winners

New Century executives
Made millions of dollars each selling stock in previous years when the shares were trading higher.
Investment banks
Could benefit from less competition in the subprime mortgage industry.
Citigroup

Was a creditor, but got most of its New Century loans repaid last week -- ahead of some other banks.
Morgan Stanley

Would likely get New Century’s mortgage portfolio in liquidation, but still has exposure to losses.
Some high-profile investors may have been hit hard by New Century's problems. Greenlight Capital, a $4 billion hedge-fund firm run by David Einhorn, owned 6.3% of the company as of last week. Einhorn also was a director at New Century, but resigned last week.

So, the New Century pirate executives will sail off into their rich sunsets, pockets bulging? Like Enron? Arrest them all.

The mortgages will now be forced and the people paying this company monthly money will have to get new loans! From whom, pray tell? The Chinese??? Major banks will take a bath, too. But the hedge funds and the investment bankers will skip town. And Morgan Stanely: do they read my blog? Then who warned them they should clean out all New Century paperwork? Eh?

As usual, the insiders are the rats who jump a sinking ship after gnawing holes in the hull. Einhorn might end up being treated like Lay: arrested and charged but allowed to 'die' at home. Or jump from a window.

Years and years ago, I knew a young investor who wanted to fix old brownstones like I was doing. He bought a nice business building on Flatbush Ave in Park Slope. Before he went to the closing, I warned him to get insurance. He said, 'I'll do that tomorrow. What can happen between now and tomorrow?'

(A secret here: please listen to Cassandra) I sighed and went home which was two blocks from his building. An hour later, I heard a resounding boom! And then a cascading crashing sound. I ran outside and around the corner, the dust was rising over the roof tops.

A man driving down Flatbush avenue had an heart attack and died at the wheel. His car, out of control, careened straight into the building my friend just purchased. The entire thing collapsed, not one brick left standing. My friend lost everything. It was a parking lot for years but then became suddenly worth millions of dollars to developers who were not allowed to tear down old buildings due to the laws protecting brownstones. So the next person to hold this property got very rich.

Einhorn also has a hedge fund.

Tuesday, August 15, 2006

David Einhorn, of Greenlight Capital is one of the most highly respected hedge fund managers around, known for his investment skill and his generous charitable giving. David is known for his bearish stance on Allied Capital (ALD) a business development corporation with assets of over $4 billion controls a significant number of portfolio companies in which it provides debt capital. The accounting and valuation of these companies has been called into question by David for some time...his questions continue to be reflected in the put position that he maintains in Allied Capital in his portfolio.

David was featured in Value Investor Insight, one of my favorite publications, back in March 2005 (subscription required.) He described his process in VII, “We take the traditional value investor’s process and just flip it around a little bit. The traditional value investor asks “Is this cheap?” and then “Why is it cheap?” We start by identifying a reason something might be mispriced, and then if we find a reason why something is likely mispriced, then we make a determination whether it’s cheap”. Greenlight also has a private equity side that was featured in TWST (subscription required.)

So, this guy is 'respected'? So are some whore-house madames. He controls $4 billion in slush funds? And he ran that stupid mortagage business into the shoals and over the falls? Trust me! Anyone who says that can't be trusted. I like his explanation of how he makes money: flipping and flopping or maybe flipping out while belly flopping.

Here is more of his hedging and funding:

Managed by David Einhorn, the Fund boasts annualized returns of 27% going back 10 years, and according to Barron’s was up 23% year-to-date at the end of November. The fund specializes in spinoff situations, and at one point had Motorola spinoff Freescale Semi as its biggest holding. When the stock was bought out in early December in the biggest LBO ever for the tech sector, the fund coined a year-to-date return of 58% on the 30% of its capital that it had committed to the position.

In the March 2005 of issue of Value Investor Inight, Einhorn was quoted as saying: “We take the traditional value investor’s process and just flip it around a little bit. The traditional value investor asks “Is this cheap?” and then “Why is it cheap?” We start by identifying a reason something might be mispriced, and then if we find a reason why something is likely mispriced, then we make a determination whether it’s cheap”

For further insight into Einhorn’s approach to investing, follow the link below to a speech he gave in May of 2006 on how at the time he analyzed Microsoft’s stock.

His insight is all lies. The 'Is this cheap' is refering to Japanese yen. And the tradtional value investor isn't looking for anything that works, he is looking to get rich quick. And nothing is quicker than playing with free money courtesy of the Japanese government which wishes to take over our economy.

Investments in near monoploies is the other road to riches. And making deals with oil-rich rulers who are despots.

Here is more about how JP Morgan outwitted all those poor saps left holding a worthless bag:

- JP Morgan notes that with the funding of new loans now halted due to lender restrictions, they believe NEW has relatively no unencumbered source of operating cash flow from which to satisfy any new margin calls or working capital requirements. Judging from NEW's statement on Feb. 7 that on Dec. 31, 2006 the company had $350M of cash and liquidity, it is easy to see how quickly the $195M remaining from the loan could be used up.

Firm believes NEW has most likely put up the vast majority of its remaining unencumbered assets to secure this $265M financing, and as a result, they believe there will be little if any assets left in the event of liquidation for common shareholders to lay claim to. They continue to view any purchase of NEW shares at this time as highly speculative, and would advise any investors that maintain a position in the common stock to sell those shares.

When the world economic system nearly collapsed before the Japanese put it back on the destructive 'weak yen/strong dollar' track, New Century nearly collapsed. But I read in the money magazines online, assurances it wouldn't go under and encouragement to buy 'at a low price!' and so the stock went briefly up until all the big guys got their asses out the door. Now it slams shut. I consider this insider trading: the media cons people into doing stupid things. I wrote here about this the day the markets began to collapse, warning them about New Century and other hedge-fund propped 'businesses'.

The richest Mexican got this way via monopolies and interlocking cartels and of course, rigging elections.

It's also a sign of the wealth gap in Mexico's monopoly-laden economy./blockquote>
Slim's Telefonos de Mexico SA controls more than 90 percent of the nation's fixed phone lines and made $15.9 billion in 2006; his America Movil SA controls about 70 percent of cell phone service in Mexico and made $21.6 billion.

Diners at Slim's ubiquitous Sanborns restaurants can use Slim's wireless service to connect to Slim's Internet provider and check their holdings through Slim's brokerage, part of Slim's Grupo Financiero Inbursa group. Banking online, they can pay bills to Slim's car insurance company or credit cards for Slim's retail stores, among them Sears Mexico and the Mixup record store chain.

It's an advantage that is not unusual in Mexico, where businesses from beer brewing to television to cement are concentrated in a few hands. As a result, Mexicans pay more than other, wealthier nations for services such as electricity, phones and bank fees.

Time to look into the past again. The very important book about these matters remains Only Yesterday

ONE DAY IN FEBRUARY, 1928, an investor asked an astute banker about the wisdom of buying common stocks. The banker shook his head. "Stocks look dangerously high to me," he said. "This bull market has been going on for a long time, and although prices have slipped a bit recently, they might easily slip a good deal more. Business is none too good. Of course if you buy the right stock you'll probably be all right in the long run and you may even make a profit. But if I were you I'd wait awhile and see what happens."

*snip*

The speculative fever had been intensified by the action of the Federal Reserve System in lowering the rediscount rate from 4 per cent to 3'/2 per cent in August, 1927, and purchasing Government securities in the open market. This action had been taken from the most laudable motives: several of the European nations were having difficulty in stabilizing their currencies, European exchanges were weak, and it seemed to the Reserve authorities that the easing of American money rates might prevent the further accumulation of gold in the United States and thus aid in the recovery of Europe and benefit foreign trade. Furthermore, American business was beginning to lose headway; the lowering of money rates might stimulate it. But the lowering of money rates also stimulated the stock market.

*snip*

The Federal Reserve authorities found themselves in an unhappy predicament. Speculation was clearly absorbing more and more of the surplus funds of the country. The inflation of credit was becoming more and more dangerous. The normal course for the Reserve banks at such a juncture would have been to raise the rediscount rate, thus forcing up the price of money for speculative purposes, rendering speculation less attractive, liquidating speculative loans, and reducing the volume of credit outstanding. But the Reserve banks had already raised the rate (in July) to 5 per cent, and speculation had been affected only momentarily. Apparently speculators were ready to pay any amount for money if only prices kept on climbing. the Reserve authorities had waited patiently for the speculative fever to cure itself and it had only become more violent. Things had now come to such a pass that if they raised the rate still further, they not only ran the risk of bringing about a terrific smash in the market-and of appearing to do so deliberately and wantonly-but also of seriously handicapping business by forcing it to pay a high rate for funds. Furthermore, they feared the further accumulation of gold in the United States and the effect which this might have upon world trade. And the Treasury had a final special concern about interest rates-it had its own financing to do, and Secretary Mellon was naturally not enthusiastic about forcing the Government to pay a fancy rate for money for its own current use. It almost seemed as if there were no way to deflation except through disaster.

*snip*

Meanwhile investment trusts multiplied like locusts. There were now said to be nearly five hundred of them, with a total paid-in capital of some three billion and with holdings of stocks-many of them purchased at the current high prices-amounting to something like two billion. These trusts ranged all the way from honestly and intelligently managed companies to wildly speculative concerns launched by ignorant or venal promoters. Some of them, it has been said, were so capitalized that they could not even pay their preferred dividends out of the income from the securities which they held, but must rely almost completely upon the hope of profits. Other investment trusts, it must be admitted, served from time to time the convenient purpose of absorbing securities which the bankers who controlled them might have difficulty in selling in the open market. Reprehensible, you say? Of course; but it was so easy! One could indulge in all manner of dubious financial practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion.

Gradually the huge pyramid of capital rose.

How about that! What is happening today including the rush from property investments to stocks and then to bonds while a gigantic balloon grows ever bigger, a pyramid of magical paper powers.

Note how the stock market had several severe shake ups and corrections but then shot ever higher as everyone became very giddy thinking they discovered a magical way to get rich quick without making anything useful or sellable in the future. They all thought these games were open-ended and could reach infinity.

Then the Perfect Storm hit. As it will, here. The first shakings of the entire world economic system already knocked down some wine glasses and tipped over the salt shaker.

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Comments

[tahlasimsim]

Found you on a google alert, "barclays wealth managed funds". Very good reading. I hope to do more searches on your blog. To liquidate 100,000 of managed funds with Barclays today, from my information, takes not a few days or a few weeks but a few months. What the hell could they be up to? They prevaricate and smile and use strong language and slither out of commitments at every juncture. Laymen like us just don't know what to do next.

[Elaine Meinel Supkis]

What? They aren't letting people sell except very slowly? Wos.

There are two groups of investors: those on the inside and those on the outside. The outsiders are the ones that get fleeced. But if a system collapses, no one can get out intact.

This is why conservativism of the real sort, namely, careful and cautious people looking forwards to the future realistically, are the only way to go.

[JSmith]

So... buy gold and bury it in the back yard. It's the very essence of conservatism!

[Elaine Meinel Supkis]

Yes, and then 2,000 years later, people can dig it up.

All over Europe and where ever the Roman empire was doing business when the barbarians poured in, there lies hidden gold.

[CK]

Barter is the new black

[DeVaul]

Yep, there is much to be said for barter. I once got my front porch fixed because the carpenters were willing to accept my pottery in exchange for labor. I supplied the wood.

The great thing about barter is the elimination of all middlemen. This is the kind of trade that benefits most honest people. It is simple to understand and there are no dirty tricks, complicated schemes, or hidden confiscations.

[Gold IRA]

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[Silver Certificate]

The minerals, the sufferings of those who prospected for it, who died digging it up, died admixture it in hot hell holes and those who bought it dearly by base adolescent activity or pirates burglary or worse, governments traveling to war because of money.

[Silver Certificate]

This led to coffer collapses, runs on banks and depressions. Right on the eve of WWI, our government set up a arrangement that was declared to never collapse: the Federal Reserve.

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