11/27/2007
Elaine Meinel Supkis
I hope readers are not annoyed with me talking about death, magic and money. I feel this is a very important facet of finances and should be carefully examined on a regular basis. Today, we discuss the infamous South Sea Bubble, funny names for funny funds that are vapid machines for making money without any solid basis in the future as far as financial increase is concerned. Also, Glass-Steagall was repealed and I talk about why and how. Senator Schumer is now investigating the dumping of SIVs and CDOs into quasi-government lending institutions like the FHLB banks. And Europe screams at China about currency values yet again. So much fun!
SIV Exposure In Rated Funds Drops More Than 40% In Two Months
Standard & Poor's Ratings Services reported today that Structured Investment Vehicle (SIV) exposures in its principal stability-rated funds are down more than 40% during the past two months.We currently assign Principal Stability Fund Ratings (PSFRs) to nearly 500 money market-type funds in the U.S. and Europe. Assets of all funds with our PSFRs now total more than $2 trillion, with 25% (or $500 billion) in the 10 largest rated funds. Approximately 250, or 50% of these rated funds are eligible to purchase CP and other structured investment products.
The 40% plunge isn't the entire problem. It is the last 60% plunge that is irritating our banking and fee-collecting community [aka, 'equity funds']. Fixing things so this 60% doesn't also vanish like all money the Leprechaun gives after you solve a riddle or fall into his clutches out in the heather and wildflowers and mushroom circles when the full moon rises. These sorts of funds were created to make money appear somehow and when the money refuses to appear, they rapidly are seen as will-o-wisps.
They usually take the form of old men who enjoy partaking in mischief. Their trade is that of a cobbler or shoemaker. They are said to be very rich, having many treasure crocks buried during war-time.A farmer or young lad captures a leprechaun and forces him to reveal the location of his buried treasure. The leprechaun assures him that the treasure is buried in an open field beneath a particular ragwort plant. The farmer ties a red ribbon to the plant, first extracting a promise from the leprechaun not to remove the ribbon. Releasing the leprechaun, he leaves to get a shovel. Upon his return he finds that every weed in the field has been tied with an identical red ribbon, thus making it impossible to find the treasure.
I take great pleasure in old tales. They are united in one particular regard: wealth is elusive, wealth comes from dark places haunted by supernatural creatures and forces of nature and wealth is death. Absolutely everyone is convinced that great wealth means great lives. This delusion is very strong in particular when money making ventures that make magic money out of thin air are popular and haven't vanished in a *poof* as it usually does. Right now, we have been in a cultural state of enchantment where we think our various tricky ways of manufacturing the illusion of wealth is real wealth. The case of the SIVs [investment cars that are jerrybuilt] is a clear example of classic Leprechaun magic. The minute you take your eyes off of it, the money vanishes. If you keep the money hidden and don't use it directly, it can be quite 'valuable' but if you need to translate it into anything else, this vanishes. Like the dew on the grass where the fairies flirted with the dwarves and dancing toads the night before.
The big magic trick our financial wizards must now do is re-conjure up this missing money that the Leprechauns gave when the full moon rose. This is proving very difficult indeed. Unlike the night before, people are now quite skeptical about all this and are demanding a true accounting. This is proving to be very expensive and difficult. But they must try some tricks or the banking system will begin to really collapse. More than last summer's major collapse.
Here is a chart showing the top SIV holding groups. Note the tendency towards strange mythological names such as the top one, Gordian Knot. Heh. Right! And then comes a certain Ceres. She is connected to the Underworld just as certainly as any Leprechaun. Nightingale is a good one, too. It probably refers to the famous story of the emperor and the nightingale. He was very rich and wanted a golden mechanical bird covered with jewels that sang both night and day. But it caused him to begin dying and he had to beg the real nightingale to come and save him by singing real music from the heart. Orion is the Great Hunter, one of the earliest constellations to be named by Ice Age humans. Orion is an ancient god of death, of course. In Egypt. Axon is Greek for 'axis'. This is part of the complex system that is the Mill that Grinds Salt and which is also the turning between life and death as well as the axis of the celestial system.
There are also ordinary names for these consortiums creating wealth via SIVs. But the strong desire to latch onto these ancient and mysterious names can't be disregarded. Deep inside, people really do think about these connections and either overtly invoke them or innocently make the equivalent of a Freudian slip. Either way, they don't choose Cupid or Venus. They always gravitate towards the death gods and goddesses.
When I was a young person and read Freud [auf deutsch], I was puzzled about all his discussions about money and death as well as defecation. It didn't make sense. Being young, I thought, 'If only I had money, I won't have to go out into the world and be endangered. I could live in a bubble and be free.' But then, I went off on my own at 16 and lived a very hazardous life, exposed myself to a million dangers and thousands and difficulties. And am very happy I was forced to do this. It gave me something very valuable: a sense of humor, a million stories to bore my children with and a great view of the world and humanity. Money would have blunted all this unless I let go of the money and lived despite it.
Many people need the illusion of wealth in order to live happily. This is because they fear life, imagining it might kill them. Yet, if they fly around a lot or drive fast, expensive cars and do other foolish things, they are very close to death and money can't protect them at all. Organizing one's life so that one can be happy, semi-free and confident in the future means balancing all things including the desire for wealth. Just for example, the wealthiest people on earth are also the most frightened. Surrounded by armed guards and kept isolated from the vast majority of humans, the live in a golden cage that often drives them to madness as we see in many powerful leaders and emperors throughout history.
Back to the list above, showing SIV funds and their parent financial houses: I decided to google some of them for the fun of it. Here is Nightingale Express:
Service Unavailable Click on image to enlarge.
Like the mechanical golden jeweled musical bird, it is broken. Dead. Gone. So I am assuming either it was absorbed in this new fund and is still holding some small value or it reached $0 before it could be saved. Tweet-tweet-croak. Even if the pictures were still up at their web page which I got in its disabled form, it looks god-ugly. Such bad taste should be punished. Why, if they are all about beautifully crafted birds, do they have such a poor esthetic? A mystery.
Next up is the big SIV, Gordian Knot.
Founded in 1988, Gordian Group is an independently owned investment bank based in New York City. Deriving its name from the Gordian Knot, Gordian Group specializes in resolving complex and multi-faceted problems for its clients. With a nationwide practice spanning across all industry lines, Gordian Group provides financial advisory services in distressed and complicated situations. In fact, Gordian Group is most effective in situations that require extra judgment, skills and/or creativity.
King Midas won his throne because he had divine help in knotting his oxen's yoke to a great pole and drove into a feuding kingdom and this so impressed everyone, they voted to make him their king. Midas is the all-purpose icon for wealth and power. Alexander the Great 'solved' the riddle of this magic knot by cutting it brutally by his sword. True to the prophesy, he then went on to conquer the world and then went mad and died suddenly and all his top followers attacked each other and they all eventually fell to the Romans. Who won tremendous wealth and went utterly corrupt and totally insane. I see a pattern here.
The wizards at this knotty little SIV-infested organization fashion themselves to be pretty good at judging things. But alas, they were not so they, being the biggest of them all, is most desperate to be saved by any sleigh of hand-outs they can get. Thus, the secret meetings to create some system whereby their judgements can be rendered more pleasing. This, of course, offends one of the more dangerous goddesses of the Underworld: Libra or the One who has the Sword and Scales. She likes balance and is the divine guide of all good accountants and courts. She is the ultimate yin/yang who determines who goes to hell or heaven. This is why I see these schemes failing. An unbalanced system is trying hard to regain its neutral position. The more we push it out of whack in order to increase false wealth, the more violently She will reset the scales.
Here is a chart at the Gordian Knot web page:Click on image to enlarge.
Isn't it funny that these guys are proud of being vultures who feed off of dead bodies? They glide about the planet, looking for companies going bankrupt. Now they are the hunted, the bodies on the ground! And they don't like this one bit, of course. The cruel logical systems they apply to those in distress suddenly fall to the wayside and they go off begging for salvation, asking to be redeemed, themselves. This is one of the sadder parts of the death/wealth game. These people cannot tolerate losing wealth even if they make it via feeding off of other people's failures. This tends to make me feel kind of heartless about them. Heh.
Here is Sigma, another SIV entity in this chart:
Sigma Financial Corporation stands out as one of the last independent, mid-sized broker/dealers in the Midwest. Since our 1983 inception, Sigma has chosen to maintain a manageable size and a commitment to personal, responsive service. We strive to remain an innovative and customer focused leader fulfilling the licensing, marketing, and product needs of our representatives in the ever changing financial industry. Communication with our representatives is an ongoing function that will exceed industry standards. At Sigma Financial, we make a constant commitment to arm our representatives with the tools and techniques to succeed in this industry.
Sigma is the sign economics professors use to denote balancing the books. Debts versus savings, inflow versus outflow. It is Libra, of course. The Guardian. I used to watch Dr. Who long ago. The Doctor's pet name was Theta Sigma. He, of course, was a very ancient god-being which could interfere anywhere and anytime. Obviously, the SIV Sigma has NOT maintained a 'manageable size.' They are profoundly unbalanced like nearly every possible aspect of our monetary/speculative/banking system today.
WSJ covers the origin of SIVs and the current rescue operation. Too big to fail?
...Assets in SIVs ballooned into the hundreds of billions of dollars globally, but the business remained local, dominated by London-based bankers and lawyers, many of whom had some connection to Citigroup. After the departure of Messrs. Sossidis and Partridge-Hicks, Citigroup's London office launched five more SIVs with names such as Centauri and Dorada. Their combined assets reached $100 billion earlier this year. In 1997, two more bankers left Citigroup for Germany's Dresdner Kleinwort to help arrange an SIV called K2 Corp. Citigroup also earned fees by helping other banks arrange SIVs, such as Tango Finance Ltd., which it set up for Dutch bank Rabobank in 2002.Most of the few dozen SIVs, typically registered in offshore havens such as the Cayman Islands, are managed out of London. Most players attribute the city's dominance to the fact that SIVs are extremely complex, often taking as much as a year to set up, so it is difficult for new players to enter. Because the business started in London, most people with the necessary skills and experience are in the United Kingdom, says Geoff Fuller, an attorney with Allen & Overy LLP in London, who has advised Citigroup and other clients on SIVs and other structured-finance products. "It's a small world where people know who their competitors are," says Mr. Fuller.
Complex as the Gordian Knot, eh? As tricky as the combination on a safe or riddles at various deadly gates, the Sphinx watching over human fates. The K2 fund is yet another of these goofy things I am wasting my time, fretting about. If they weren't so nakedly attached to the magical part of the wealth system, they would barely register on my radar. But since they are very much part of this magical matrix, they intrigue me greatly. One of these SIVs is named after Centauri. The Greek word kentauros could be etymologized as ken - tauros = "piercing bull". Another possible etymology can be "bulls slayer". Some say that the Greeks took the constellation of Centaurus, and also its name "piercing bull", from Mesopotamia, where it symbolized the god Baal who represents rain and fertility, fighting with and piercing with his horns the demon Mot who represents the summer drought.
Another constellation/strange god connected with killing and fertility.
At least one bank representative suggested that Treasury step in with some money to help bail out the firms, the people who attended say. Mr. Steel told the group that wasn't an option: Treasury would only back a private-sector, market-based solution. "We bought the sandwiches, and that's it," Mr. Steel told those assembled.In the room was Nazareth Festekjian, a 15-year Citigroup veteran who runs a group that deals with unusual situations, such as the restructuring of Iraq's debt in 2005. Mr. Festekjian, 46 years old, hadn't known what an SIV was until he received a call several weeks earlier from a government contact asking him to work on a solution.
He and his team came up with the idea to create a fund that could "bridge the gap" in the market by acquiring assets in a way that might give investors more comfort, according to a person familiar with the matter. At the meeting, Mr. Festekjian unveiled his plan, which was printed up in color, says one person who was present.
Over and over again, in the history of money and bubbles, we find the same factors. The 'secret meeting' of the ruling elites anxious to save some death-rattled financial scheme always ends up secret. It can't be an open, public meeting because then people can hear the discussion about the lack of reality of the underlying financial schemes and will panic further. Knowing you are in the clutches of a bunch of death gods and pixies is tough. One has to believe that these are upstanding people and solid, sober organizations representing great value and power.
Here is a snippet from a book published in 1880 in London called 'The Book of Days' which is about historical oddities and interesting people. This chapter is about the infamous South Sea Bubble:
The paperwork of this present bubble was slightly more substantial than this older bubble, of course. But the mentality is the same. The SIVs were cooked up in London and made very, very complex and thus were not easily judged so everyone had to trust the makers of these investments. When the South Sea Bubble burst, everyone ran off to the Bank of England and demanded the Bank fix everything with the expectation, the Bank of England would do some trick that would save the value of the SSB SIVs. The Bank was reluctant but the King of England begged them to back these SSB SIVs.
Interestingly, goldsmiths and bankers who sold or backed these funny SSB SIVs had LENT MONEY BASED ON THEIR VALUE! Thus began the first great run on the British banking system. Identical to today's runs. Indeed, a holiday cut the panic and saved the system from total collapse. The SSB was launched, by the way, by royals seeking to get rid of their debts, interestingly enough. Also, it came right after the collapse of the Mississippi Scheme in France. The fact that this bubble came right on the heels of an identical bubble shows how bubbles are often 'global' rather than 'local'.
The SSB was based on something that was concrete but unreal. A deal to trade without tariffs with Peru via the Spanish Empire which was now bankrupt and desperate for money somehow. Both the French and the British bubbles were focused on the New World because it was unknown and thus, could not easily be physically seen by the investors. On top of this, it was launched quite cynically. The whole point was to pay off the King's debts, not to fund something useful. They searched for something vapid and then launched it.
The present SIV bubble which echoes the ancient one in many particulars is also based on issuing or running debts. Then the directors used this as a basis for creating more debts. But like with the SSB, when this burst, it was due to the realization that the holders who issued debt instruments were not holding a reserve at all, it was all vapid debts that never had a ghost of a chance to be paid into for even 5 years much less, 30 years.
As in this present banking collapse, the government will step in and 'fix' things but the losses will not be remade or repaired. Since the bidding up of all these instruments and the bankruptcy of the bottom most layer of this system are all 'funny money', it will now vanish and the ability to use all this to buy up luxuries and fund government enterprises like colonial wars, will also decline. Indeed, the SSB mess led to the US revolution in a round about way as England struggled to make a profit off of the colonies while waging wars with France up and down the New World.
One of my readers sent a link to a blog that was launched this week, run by a trader in these types of papers. I recently attended a seminar on how to quickly and accurately compute the values of tranches of CDO's. by Evan:
It is pretty clear, by now, that trying to figure out the price of a CDO based on fundamentals is a fool's errand. On the CDS level, how are we supposed to price Lehman's loans against Radian's insurance policies? On the CDO level, how are we to price a tranche of risk over the whole pool?Mathematically, there is an answer. But, as usual, math needs some assumptions. In the seminar I just attended, there was a minor assumption to challenge and three big ones. The little guy was, roughly, "prices and risk can be plotted as Bell curves". It is plainly false, but not so far off that I want to make much of it.
The first, big assumption that the models need is the probability of default of a CDS. There are different models that use the probability of entire default, or partial default, but that doesn't really matter to me. The question I asked myself in the seminar was "How can we get a probability of default of a CDS when we don't know what is in the CDS?"
The second, big assumption needed is the correlation of defaults. The modelers know that if one mortgage lender defaults, the chance of another lender defaulting is much higher than if none had defaulted. Again, there are niceties about how the correlation constant evolves but the question I asked myself was "How do we quantify how well different CDS's are correlated?"
Yes, trying to figure out a price is a fool's errand. Why is this? Just like with the SSB SIVs, the value of anything is whatever people think it is and are willing to pay for it. All things go up and down in value depending on such factors as naked lust, faith in the future or competition with others to hold something while it is popular and rising in value. If SIVs and CDOs were intrinsically valuable like say, oil or food, one can at least have some tangible idea of how one can use these things immediately. Bidding up of artistic items like say, jewels, art or the body parts of saints and the True Cross, are based on desire to hold something of agreed value. Which can collapse in a flash every bit as the value of papers like SIVs collapse.
The latest trick of pooling all these IOUs and then assigning a greater value to the whole was a marketing ploy designed to inflate the perceived value of these instruments and thus, make bigger profits peddling them to outsiders. The veil of mathematical genius thrown over this activity was designed to occlude things sufficiently to allow fraud go undetected. There was NEVER the SLIGHTEST reason to assemble and then chop up a pile of IOUs in the first place. I cannot emphasize this enough! From day one, this was all about FRAUD. The questions Evan asks himself should have been shouted out at the meeting. The meeting was like those stupid Ponzi Scheme meetings people are invited to. Seldom does someone stand up and yell, 'This is ILLEGAL.' I went to such a meeting 35 years ago out of curiosity. I stood up and said that and explained the Ponzi laws and everyone threw me out in a rage. They WANTED the Ponzi scheme to make them rich.
Now, these things pop up like clockwork. The trigger for these schemes are always war, taxes and inflation. When inflation stalks the land, people become anxious to make money one way or another and the government, more than anyone. Since the government and the central bank is directly responsible for the wars, taxes and inflation, they have to pretend it is outside their control. And so bubbles are born just as we see today.
The "B Word" Returns: Backdoor Bailouts of Bankruptcy Candidates
More "B" words: backdoor bailouts, via the FHLB, have been the unrecognized mechanism keeping the credit crisis from worsening. And they're expanding, as East Shore's McCullough explains:The FHLB of New York now is offering "Principal-Deferred Advances" (loans the Home Loan vernacular) which lets borrowers defer principal repayment for up to five years -- with a fixed rate. Some deal.
The Home Loan Banks are GSEs, or government supported enterprises like Fannie Mae or Freddie Mac. Which means in the real politick of government finance, "the U.S. taxpayer is ultimately at risk," says McCullough.
Right now, our government is seeking to save the financial bubble system by nipping and tucking it all into various nooks and crannies run by the government, itself. Even as inflation rages and the populace is being yanked around due to high colonial war costs and a government in arrears, the need to hide all these Ponzi-type SSB SIV schemes rises. The government does collect a form of luxury tax and other taxes off of the speculators who are generating a huge surge in M3 amounts. The inability of the burgesses and yeomen to repay excessive debts on land is classic and will end as these always end: mass bankruptcy and a wave of bank failures leading to evictions from the land and then causing some social dislocations. Putting out new loans to cover the old ones but removing the need to pay the principal is a classic fix that won't fix anything.
For deferring paying off the actual loan means the banking system is starved of cash! Let's backtrack a tad. Banks can create loans out of thin air so long as it as a secure base at roughly 10% of some agreed asset value like say, gold. Then they can loan money which is a piece of paper which then circulates and becomes M3. If too many banks do this while reducing the 10% base to say, 0% which is what a number of countries now allow, we get infinite debt making which causes the M3 to rise rapidly, usually at around 10% a year.
If the overall economy doesn't also grow at this rate, we get a credit squeeze like we see today. On top of this, only if the people getting loans pay off a proportion of the PRINCIPAL, does this money generated by issuing loans, return to the bank's vaults. It is hard to express how this flow works. The main point is, anyone who cannot afford to pay off any part of the principal of a loan is teetering on the edge of bankruptcy and often does go bankrupt.
A $100,000 loan over 30 years is only $3,333 a year in principal. Banks set up loan rates that are front-loaded so one does not pay off hardly ANY principal the first 10 years. Only after paying off 50% of the cost of interest, does one begin to pay off the loan itself. This protects the banks from defaults. So even if, over time, the one paying the loan might default, it matters less and less to the banks and after 20 years, hardly bothers the banks at all if they have to seize the property.
Things go very bad if a bank issues mortgages and loans that have monthly payments that are too low so that the payments do not double the interest being paid before the principal. This is a huge financial hole! If your payments are only $300 a month with an interest-only payment schedule but with a interest and principal payment, it is $600 a month, then this means that half of the interest on the loan is being paid per annum compared to the older, more secure loans where the interest is paid off swiftly via the front-loading mechanism created by sober bankers working with governments interested in fiscal soundness.
Everyone should have a place to live but there is no right for home ownership. The deal for granting loans for buying properties is an ancient scheme honed over the centuries. The property holding business is a civilized process whereby kings and conquerers are forced to hand over property to their subjects in order to gain money easily. This is why the process of home ownership is tightly bound to the creation of national banks and the increase in money supply. When kings and their armies first conquer masses of people [who then are called 'peasants' or 'you, slave, get to work'] they usually own everything and no one has any say about this transfer of ownership.
But over time, the people slowly regain power of ownership. This onerous process is what we call, the real estate market. All the land being traded this way was once the homes of various conquered native populations and the ultimate holder of all lands is the government which is why they have land taxes, etc.
So we are seeing the process of transfering labor wealth to the banks and then, to the government, breaking down due to excessive debt and a too-rapid growth in M3 rates which we call 'inflation.'
What is the Federal Home Loan Bank of Boston? Simply put, it is a bank for banks. Cooperatively owned by more than 450 New England financial institutions, the Bank provides reliable access to wholesale credit for these members and other qualified borrowers.While consumers cannot get a loan directly from us, it's very likely that the community bank nearest them is a member that can meet their credit needs.
First they dumped these interest-only mortgages that don't pump new funds into banks, into quasi-governmental organizations called Freddie Mac and Fannie Mae. Then, as these began to sink under the stresses of trying to hold bad loans that had no cushion at all due to no extra payment for principal from day one, the frantic search for new places to put these poorly-funded loans is growing. As usual, organizations set up to encourage home owning are located and then swamped. This process proceeds under the government's control, quietly and secretively. The US mythology of home ownership which was based on the division of Indian lands after they were cleared, very brutally, by the military. To hold these lands, the government virtually gave them away to all and sundry. So long as they paid taxes and fees.
But that was 100 years ago. The suburban boom was when states and counties opened up previous government-owned lands and sold them to developers so the economy could grow. As these sorts of land vanish, the price of property rises relentlessly. Which is OK so long as the economic well being of the people rise, too! This is where we see problems begin. The US working class wages have not gone up much at all, the upper class has seen high rises but the bottom has stagnated for many years. Wealth did increase via the simple method of driving out all women who once stayed home and cared for the family base while having children, now they are all working even when having infants. This doubled incomes for the last, critical 30 years of economic stagnation. So we had the illusion of growing incomes but this was due to doubling the family unit work force.
I am an example of this. My mother and mother in laws all got to stay home and raise babies before going to work when the children were past grade school. I, on the other hand, couldn't afford to be out of work for TWO WEEKS after having a baby! I managed to make enough money freelancing to work at home while my children were very small but by 6 years of age, I had to run off and work all over the place again. This process of driving young mothers into the work force relentlessly has now finished and the income stagnation has resumed. This is why the last 7 years has been most dangerous. The increase in spending was due 100% to a gigantic leap forwards in debt accumulation.
This cannot continue as we see in the news. England is rapidly banging up against its own debt ceiling and there is a huge increase in single-mother births so the family unit is being made doubly poor even as government expenses are very great and growing...due to these mothers having only one or no income coupled with imperial pretensions of the ruling elites of Britain.
Schumer's Letter on FHLB Loans
Sen. Charles Schumer, a New York Democrat, urged regulators to examine potential risks posed by a sharp increase in lending by the Federal Home Loan Bank of Atlanta to Countrywide Financial Corp., the nation's biggest mortgage lender. The following is his letter to regulators.
So this business of dumping all these mathematically obtuse instruments into a quasi-governmental agency is now being investigated by Parliament? Or rather, Congress? How very much like in 1700! As always, these desperate devices are investigated. If they are not, the entire system goes into a further tailspin. Of course, Congress will be unable to deal with the underlying causes which stretch back in time and are a massive cultural and social force. But we must understand the deeper underpinnings of these financial disasters! For trying to fix or prevent them is a top priority item for any government that doesn't want to vanish under history's dark waves!
Shumer's letter continues here:
According to the most recent SEC filings, FHLB Atlanta had made $51.1 billion in advances to Countrywide Bank, representing 37 percent of the Bank's total outstanding advances as of September 30, 2007 and far exceeding advances made to the next largest borrower. Countrywide had pledged $62.4 billion of mortgages as collateral for the FHLB advances, representing 78 percent of its total mortgage loans held for investment at the bank.I find these numbers alarming as reports continue to emerge about how Countrywide's reckless and predatory lending practices were a leading contributor to today's foreclosure crisis. Moreover, it is my understanding that Countrywide's loans held for investment at the bank have been far from immune from the credit deterioration that has resulted from unsound lending.
Countrywide reportedly held $27 billion of "pay option ARMs" as of September 30, 2007, accounting for over one-third of the loans held for investment by the bank. Countrywide's option ARMs were (and may still be) often underwritten with less than full documentation – according to UBS Warburg data prepared for the Wall Street Journal, 91 percent of Countrywide's option ARMs underwritten in 2006 were "low doc." It has been reported that delinquencies on Countrywide's pay option ARMS are skyrocketing, jumping nearly 75 percent in the last quarter.
In the first place, any sort of interest-only scheme must be declared illegal. Period. It is bad enough that credit cards are run this way! Now, everything is run this way. And if we have no savings and we run everything on an interest-only scheme, there is no money flowing back into the banking system and it collapses! All we need is for only 10% of the indebted loans to go into arrears and the system is dead. Even a 1% in arrears is a huge negative flow if there is no positive flow from principal, the system collapses if this goes on year after year. 1% a year in negative flow, over 30 years which is the life of most modern mortgages, is a shocking 30% default rate!
Fed Plans Tonic in Form Of Extensions on Loans; Investors Still Unnerved
The Fed said it would extend loans for longer-than-usual terms to its network of Wall Street bond dealers to ease funding pressure on banks through year end.
This is yet another trick to fix banking messes caused by not paying off principal on loans while also having inflation. So, unable to pay much of anything, the length of the loan grows and grows so its baleful effects now reach like a dark shadow, far into the future? But time is money! The connection between time and money is critical! We could all have infinite loans that go forever and grow forever but this is impossible! The US right now is experimenting in this bizarre concept. Infinite debt accumulation is our government's spending plan for the last 40 years. Inflation is the obvious side effect of this sort of irresponsibility. The example our government has set has infected all minds. Schumer should hold a hearing about all this. But he won't.
Banks' capital needs could end up tying them in knots
At some banks, capital ratios are dropping fast. UBS, a Swiss bank, has seen its tier-one ratio (which divides a bank's risk-weighted assets by its core capital) fall from 12.3% at the end of the second quarter to 10.6%. At Citigroup the tier-one capital dropped to 7.3% in the third quarter, down from 7.9% in the previous one. It remains comfortably above the 6% threshold that American regulators use to define institutions as well capitalised. But as expectations of further write-downs grow, it and others with deteriorating capital ratios will be under pressure to reverse the trend.There are a number of ways for banks to improve things. They can suspend share buybacks. Or sell non-core assets: Merrill Lynch's stake in Bloomberg, a financial-information provider, looks eminently disposable. They can cut dividends: expectations are growing that Citigroup will do so. In more extreme cases, they could issue new shares: the bond insurers, which depend on impeccable credit ratings and are important for the health of the banking system, may have no choice but to raise capital. One, French-owned CIFG, has been promised $1.5 billion.
Note how, after extending increasing loans that pay no principal, the banking system is now losing its base? These banks are now falling into danger zones set up by the government to prevent banking collapses. I wish the government was more honest about their role in all this, of course. They are the biggest practitioners of not paying off debts, after all! Selling off assets to fix this is why markets go down. People buying stocks now use loans a lot to do this. If bad loans are forcing financial giants to sell off these assets while the investors who normally buy cannot due to a lack of loans, etc. We get declining values, a falling market and a recession. Which the Fed then tries to evade via cutting interest rates which then discourages savings or paying off debts which is a vicious, not virtuous, cycle.
Trichet, Juncker to Press China on Faster Appreciation of Yuan
The visit signals European policy makers' mounting impatience as their trade deficit with the world's fastest- growing economy swells by $20 million an hour. It follows French President Nicolas Sarkozy's own trip to Beijing. Europe's complaint is that while the yuan has risen almost 3 percent against the dollar since mid-August, it has weakened 7 percent against the euro.
Europe won't fix the trade problem if they have to use the old tools of tariffs and barriers because they are big on the 'free trade' issue. The EU was founded to form an internal trade block. This was done because the various empires that had trade deals with lands they conquered and colonized over hundreds of years nearly totally collapsed after WWII bankrupted these empires. Then the EU decided to make the whole planet their trade block. This attempt at re-expanding their dominion has hit an Asian rock. Asia is expanding. Europe is beginning to contract under force of China and Japan's expansions.
The decline in the dollar has become ``life threatening'' for Airbus SAS, the world's largest planemaker, Chief Executive Officer Tom Enders said Nov. 22.Economic growth in China, India and Russia is helping sustain a global expansion as the U.S. economy, the world's largest, slows, the International Monetary Fund said Oct. 17. The fund expects China's gross domestic product to expand 10 percent next year as growth in Europe slows to 2.1 percent from 2.5 percent.
The trade gap of the 13 euro nations with China ballooned 25 percent to a record 70 billion euros in the eight months through August. China is now the EU's second-biggest trading partner after the U.S. and accounts for 5.5 percent of the region's exports and 14 percent of imports. That is prompting European governments to become more outspoken on the yuan.
The Chinese news makes nearly no mention of this. They did sign a big contract for some Airbuses so the French President has undermined poor Trichert's demands that China raise the value of the yuan. And why can't he go to DC and demand we protect the dollar? Commanding the sea to retreat or come in, this is what the moon does, not a mere human. Trichert and others want the present currency game to continue. It is as much fun as any SSB SIV game. It makes many people very, very rich. But they want it to be manipulated for other ends such as trade. Money cannot serve two masters. Either the Bank of Europe must play the same currency game as Asia or they can stop trade. Which is their threat. But it means killing European trade with Asia, a serious problem.
``A great country must have a strong currency,'' Sarkozy said in Beijing on Nov. 25, 2007.
HAHAHA. That is so funny. The Chinese listen to all this with impressive self-control. They are quite aware of the history of European finances. They discuss this between themselves all the time. I would suggest, the Chinese are history buffs who really want to understand the past. After the French empire collapsed after WWII and under pressure from colonial uprisings such as in Vietnam and Algieria, had to join with Germany to create a sound currency. If a powerful currency is a sign of greatness, then the Europeans should be HAPPY they have this wonderful thing! Not run off to the Chinese to scream about this.
This unseemly behavior belittles Europe and it is a huge loss of face in the East. I would suggest they shut up and start reading Chinese history and Japanese history. Or read my news service. The fact that the American empire does this too is very pathetic. We should fix our own affairs and shut up or we can act like international babies and be irresponsible and stupid. It is obvious which choice is the better.
Also we must take note of a funny horns of dilemma moment here: Europe is frightened that the Airbus orders will decline due to the euro being strong but this week, China artfully signed a huge Airbus contract. So China can always tear this up if the Europeans make too much trouble for the Dragon in its little dark cave. The Europeans know this and hope that China ignores their public pleas. I suspect they have this backroom deal going. One that is very secret. What do these bankers and negotiators say in private? We can only guess. I suspect they apologize to the Chinese and say, 'We must do this for political reasons.'
But Chinese patience will end. Everyone can see this. They can't be the world's financial and industrial engine while also being the villain for all the woes of the dying empires to the West.
Gold continues to climb ever higher
Gold futures traded higher early Monday, as weakness in the U.S. dollar underpinned demand for the precious metal. Gold for December delivery rose $3.80 at $828.50 an ounce on the New York Mercantile Exchange.
Gold continues to climb as all the major currencies of the greatest economies battle each other to see who can be the wimpiest and weakest currency on earth. This grinding battle for crummiest currency is generating huge fortunes even as it undermines global banking and warps international trade. Since some parties are winning this game, they want it to continue. The losers won't stop, either. The losers imagine they can win in the end, somehow. I suspect, via violent military corrections which we call 'wars.' In the 1930's both Germany and Japan were in terrible financial binds which pushed them rapidly into wars which they initiated.
After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill's effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.
On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19 administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov. 4, and Clinton signs it into law later that month.
Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, "You're buying the government?"
Citibank is now being bought out not just by the Saudis but now by the UAE today. $7 billion infusion is keeping this thing afloat a while longer and note that the Muslim overlords now have a large controlling interest. This is due to them having sovereign wealth funds which are NOT SIVs but SWFs. And the SSB was an SIV not a SWF. The Industrial Revolution was a SWF. Which is why China, undergoing an Industrial Revolution, has SWFs. Note, too, how the big financial houses that are in trouble today, spent a FORTUNE corrupting our politicians so they would change the rules so these same clowns could make up SIVs and then sell them to gullible investors. So the death of Glass-Steagall is directly connected to the financial meltdown we are seeing today.
Culture of Life News Main Page
"Es braust ein Ruf wie Donnerhall,
wie Schwertgeklirr und Wogenprall:
Zum Rhein, zum Rhein, zum deutschen Rhein!
Wer will des Stromes Hüter sein?
Lieb Vaterland magst ruhig sein,
lieb Vaterland magst ruhig sein:
Fest steht und treu die Wacht,
die Wacht am Rhein!
Fest steht und treu die Wacht,
die Wacht am Rhein!"
After reading this latest entry by Elaine, I feel that I will need to learn the above song to sing loudly when accosted in public on transit platforms by panhandlers as I have become the American version of Franz Biberkopf as filmed by R.W. Fassbinder.
vielen Dank
Posted by: Shawntoh | November 27, 2007 at 01:01 PM
Ja, wir sind in Fassbinderlande.
Wie glücklich!
Well, the mess we got ourselves in does have its humorous side.
Posted by: Elaine Supkis | November 27, 2007 at 03:35 PM
Well, it looks like Ron Paul's campaign has just run aground on the sharp rocks of the New American Century.
His latest speech proposes that we not tax gasoline so that American citzens can have cheap gas again. Good grief. So much for the Constitutional platform.
There is no constitutional right to cheap gas.
There is no constitutional right to drive a car.
There is no constitutional right to own a car.
Pandering to the obsession of the American people for cheap gasoline will solve nothing, and Ron Paul does not mention how the federal and state taxes on gasoline will be replaced (or is this another tax cut! yippee!).
To pay for this loss of revenue, we would need to immediately decommission 90% of our military. Has Ron Paul proposed this as a cost saving measure? No?
So far Ron Paul's "plan", as stated in his own speech, is to increase the federal debt.
It's funny what a sudden cash infusion of over 4 million dollars can do to a man. I think Elaine is right. The rich simply go insane.
Posted by: DeVaul | November 27, 2007 at 05:23 PM
Headline: Ron Paul is a conservative.
Posted by: Big | November 27, 2007 at 06:03 PM
Yes, conservatives in general do not favor taxation as a way to control people.
Posted by: John | November 27, 2007 at 07:08 PM
Taxing is not essentially a way to control people. No one should be allowed to own more than 20 times the wealth they need to sustain themselves. If they are permitted to own vast sums, they will simply be controlling the rest of us.
Power is either with the people, or it is with someone else who owns too much. How hard is it to understand that? What fools are we to be taken for?
Posted by: blues | November 27, 2007 at 08:01 PM
Elaine,
With control of the economic system and much of politics in the hands of a few Jews/Zionists, what chances do you give at there being a backslash against the normal Jewish citizens of America/Britain. As someone with many Jewish friends, I feel that through the selfish and sociopathic behavior of a minority of Jews, that those who are moral are going to pay for their brethren's behavior.
With your historical knowledge, could this be what happened in Germany to spark such hatred.
Thanks,
Posted by: Truth | November 27, 2007 at 08:20 PM
Progressive taxation is of utmost importance to avoid aristocratic societies. We no longer have progressive taxation. Taxation also helps to avoid economic speculation. In fact some argue that a stock transaction tax would be beneficial to avoid bubbles. Increasing taxation on real-estate gains would also avoid bubbles, as it would reduce speculation.
Economist Michael Hudson www.michael-hudson.com has talked about this quite often.
The common ground between left and right libertarians is when it comes to how tax revenue is wasted due to cronyism.
The solution to this is to give the money back to the people, ALL of the people, proportional to how much they earn. The negative income tax concept, which essential ends up being a Basic Income Guarantee, is the fair solution. Abolishing taxes, or having a non-progressive flat-tax or sales tax is the unfair solution because it negatively affects the lower income groups, while helping the higher income groups by lowering their marginal tax rates.
With more money in the hands of the people who actually spend money ( lower income), rather than those who speculate, then real industry can develop to produce products based on NEED rather than conspicuous consumption items like HUMMERS and GUCCI purses.
Since we know that trickle-down doesn't work, and we know that class divides increase violence in societies, the goal of a government for and by the people ( not the rich) should be to keep the difference between rich and poor within 10-20x.
Hey, it could be more if the differential was based on what is good for society. If a group develops a cure for AIDS. They can get 25x. Increase engine efficiency to 90%...30x. etc.
The point being that Google, ONLY an advertising company should not be worth 1/5 of a Trillion dollars.
Posted by: Big | November 27, 2007 at 08:47 PM
Clarification,
" The solution to this is to give the money back to the people, ALL of the people, proportional to how much they earn."
This wasn't well written.
Obviously at a certain income, the tax owed would exceed the tax credit.
Posted by: Big | November 27, 2007 at 09:28 PM
John,
"Conservatives do not favor taxation as a way of controlling people."
Very interesting statement you made there.
Who are we trying to control in Iraq? In Afghanistan? What is the cost of this attempt at controlling others? Who pays for it and how?
Are conservatives, the architects of this massive control attempt, paying for it out of their own pockets, such as would happen in a "free market" economy, or are they taking the taxes we pay for Social Security, Medicare, roads, schools, welfare for single mothers with minor children, disaster relief programs, medical research programs, and any other thing that might help ordinary Americans and applying THAT to this regional control project?
I wonder. Where oh where does the money come from?
Posted by: DeVaul | November 27, 2007 at 09:55 PM
Ron Paul is, like many people. unable to understand true international trade and politics.
We must raise taxes on gasoline. A great deal. Until we FIX THE TRADE DEFICIT. Oil is a huge component in our trade deficit. And much of this, we BURN. Talk about stupid.
We can't afford to do this and the only way to stop the wasting of this resource and our debts growing greater, we must discourage frivolous use and driving big, fat gas guzzlers is a primary example of waste and stupidity.
We cannot live the 'cheap gas' lifestyle any longer. Indeed, stopping this is #1, #2 and #3 priority items for the gas guzzling USA.
But then, no candidates have much to offer in this regard. Virtually no one recognized oil importation as a major cause of our economic woes.
Posted by: Elaine Supkis | November 27, 2007 at 11:48 PM
Elaine: Our society(at least since WW2) has been built on cheap energy. Without cheap, abundant energy suburbia is doomed. I think we are seeing the beginning of this. Also, we have let our railroad system deteriorate. Big mistake! How much must a gallon of gas cost to truly slow usage?
Posted by: ragman | November 28, 2007 at 09:12 AM
"I hope readers are not annoyed with me talking about death, magic and money."
Not at all - it's the most amusingh aspect of your blog (which has had a regrettably single-topic focus in recent months.)
So I was hoping for some magical-numberology today; alas, I depart disappointed.
(Any bets on how soon M. Sarkozy will send the Karchers into the banlieus?)
Posted by: JSmith | November 28, 2007 at 10:25 AM
Here's a hoot!
Posted by: Frank | November 28, 2007 at 12:31 PM
Rubin is a brass farthing, eh?
Smith, one thing about my service here: my money articles make me money. You have read me for years and years and never donated a penny.
Posted by: Elaine Supkis | November 28, 2007 at 02:27 PM
>You have read me for years and years and never donated a penny.
True. But I don't do paypal.
Post your address & I'll send you a check.
Posted by: JSmith | November 28, 2007 at 02:58 PM
So fun article is! I know more from it.
Posted by: Moncler Donna | January 03, 2012 at 06:00 PM