Gollum Sachs Cannibal Vultures Eat Own SIVs

November 29, 2007

Elaine Meinel Supkis

Cannibalistic Goldman Sachs vultures are eating their own hedge funds that are in trouble. This way, the mess, the stinking entrails, won't be seen by others. The US banking system sees record profit falls. Japan sees inflation but refuses to raise interest rates at all. And the yen falls which is making the Japanese happy. You see, they can't fix their pesky depression! Even when there is inflation! Meanwhile, we look at many financial messes like the Florida pension fund that stopped a run by closing the barn door. Or the Chinese buying more of our banking systems while they announce their FOREX reserves have reached the one and a half trillion dollar level next month! Aren't they naughty?

Vulture Capitalism by C K Liu:

Vulture restructuring is a purging cure for a malignant debt cancer. The reckoning of systemic debt presents regulators with a choice of facing the cancer frontally and honestly by excising the invasive malignancy immediately or let it metastasize through the entire financial system over the painful course of several quarters or even years and decades by feeding it with more dilapidating debt.

But the strategy of being your own vulture started with Goldman Sachs, the star Wall Street firm known for its prowess in alternative asset management, producing spectacular profits by manipulating debt coming and going amid unfathomable market anomalies and contradictions during years of liquidity boom.

As usual from Mr. Liu, a very good synopsis of the mess created by the biggest banks, lenders and investment houses. He even mentions Japan as the ultimate source of much of the funny money, for that alone, this is a stellar article. Nor does he blame China. Again, bravo! I also like his 'Vulture Capitalism.' I drew a cartoon of vultures discussing a dead vulture and wondering if they should eat it. Referring, of course, to these hedge fund chiefs. For they are pirates, hell hounds and of course, vultures. They not only smell out dead bodies, money being very connected with death, they also eat themselves. This would be more like Cronos eating his sons until Zeus killed him. Then Zeus had a big headache and out sprang his Valkyrie daughter, Athena. Athena became the goddess of trade and manufacturing. But I digress, as usual.

A number of readers like the notion of calling Goldman Sachs, 'Gollum Sachs'. This is a good name for them. They are an army of grasping Smeagols, storming the walls and sacking cities. Leaving smoldering ruins and everyone in bankruptcy including ultimately, the USA. They are NOT clever traders. Oh, no, Precioussss. They are MANIPULATORS of the entire system. They and only they can get rich coming and going because everything will go their way since they control the LEVERS OF POWER. This is where Liu's analysis fails to fully appreciate the power of Gollum and the Rings of Invisibility. Whenever Paulson appears in public or Rubin is in the news, I remind everyone where these guys were spawned. Who they owe allegiance to. All financially sensitive sectors of the public system of government is thoroughly infested with an army of Gollums seeking gold, yessss. And they can cannibalize even themselves if they must. For they control the flow of information in many ways as well as the actual levers of power.

I can't make Bernanke do anything. Otherwise, he would be over my knee and getting a good spanking. But Gollum Sachs has complete control over him. If they say they need cheap interest loans and they don't care if we go into a terrible deflationary cycle, they point to Japan and say, 'Look! The speculators, investment bankers and exporter are getting richer and richer the worse the depression there is!' And so we are getting a copy cat version. Low interest rates don't help me if I am saving money, by the way. This merely means I get no return on savings. As the average Japanese has had no return on savings for over a decade and won't see any for the next 10,000 years if the government and the Gollums there get their own way.

For any given move in interest rates, the downside is bigger than the upside to give a built-in loss for a short position with negative convexity, thus producing losses. For positive convexity, the upside is bigger than the down side, thus giving short positions an advantage. Morgan Stanley’s short positions allegedly turned against them by negative convexity; at least that was how they explained the loss. Some analysts think there must be more than meets the eye, assuming Morgan management itself even knows. The people who put on the bad trades were fired and are not now there to answer questions.

It is one thing to lose money, but it is quite another to lose money without knowing why and how.

HAHAHA. Another thing about magic is how all things are like lightning bolts. And the nature of Widdershins: the upside is small but the downside is great. Yet people are content with this for some reason. The game of betting on the downside has been irresistible because of this peculiarity. As for losing money and not knowing how or why: this is all part of the secrecy and darkness business of making money out of thin air. We can't look closely or the Leprechaun will make the pot of gold vanish like morning dew! Instead of a deep understanding of underlying economic principals and the web of economic influence, these guys simply try out various magic spells to see what gets conjured out of thin air. If money appears, they are happy. They don't want to look too closely into the darker corners because they know they will find out, this is all a fraud or terribly destabilized and getting worse every time they throw a new spell.

I will note here that 90% of the systems, make it 99.9% of the systems in collapse this last 4 months were all created and promoted in the last 2 years at the tail end of the last Federal Reserve rescue of our deep-in-debt economy. The horrifying fact here is that also, 99.9% of these schemes are also poorly understood by their creators and on top of this, the lack of understanding how money can vanish as well as grow, is a severe problem. This is because these guys like to imagine they are rational adults who have figured out fancy computer/mathematical model systems that are INFALLIBLE.

This takes us back to the Gods: hubris. Hubris is the human tendency to go wildly out of control. Especially when dealing with magic or money. Athena in particular, had a bad temper and if her gaze turns towards over-extended, over-ambitious humans, she would throw a counter spell and turn them into spiders or some other creature. The management of Morgan Stanley [the president resigned today, turned into a spider by Athena, I assume} didn't know what was going on because they just wanted more money.

Once there was a fisherman who caught a magical fish. 'If you return me to the sea, I will grant you every wish,' said the scale clad lord of the deep. The fisherman told his wife and she wished for a better house. Each day, the man was forced to go to the sea and ask the fish for fancier houses, more servants and more power. Each time, the fish granted the wish but the seas became increasingly stormy. Then, if a violent hurricane, the fisherman had to ask the fish to make his wife a god.

All the wishes instantly reversed and she was back in the shack by the sea. And this is how great wealth works. Goldman Sachs imagines they have evaded this fate. They continue to use the Federal Reserve to their own ends which will end our empire. But they don't care because they can't see this, they go to the sea and demand more money, cheaper money, total power, rule of the earth! Their fall will be a shattering mess. For all of us.

This is why it is dangerous to short this organization. They control too many things and have enough pull to push things their way and they don't care how messed up this will be for our general welfare and the health of our nation.

Short gold in '08, Goldman says

But the 2008 top trades list, drawn up by Goldman's global markets team, suggests investors short gold priced in U.S. dollars in order to capitalize on a gradual relaxation of credit concerns in the financial sector over the coming months and as an avenue to benefit from the prospect of the U.S. dollar stabilizing. Bullion has been one of the main beneficiaries of the financial turmoil that began in August as investors sought alternative stores of value to the weakening U.S. dollar.

(A short sale occurs when the seller borrows a stock, commodity or currency and sells it, expecting the price to fall. If it does, the seller buys it at the lower price to replace the commodity that was borrowed.) The team anticipates that the greenback, which had a tough time in 2007 against global currencies including the Canadian dollar and the euro, will find its footing next year as the U.S. Federal Reserve Board cuts interest rates and thereby lowers the risk of a recession, and the U.S. trade balance improves further.

Quite frankly, the dollar can't drop forever against the euro. Expecting this to continue forever is silly. Expecting gold to shoot up tremendously is also silly. There is no way the manipulators of currencies and other things will allow this unless they want it to happen. Then it will happen. If Goldman Sachs is announcing gold will be shorted, they will do this. If they have to get a central bank to dump more gold to encourage this, this will also happen. One feature of modern speculation seems to be the notion that doing this on debt money is the way to go. This is why all those pesky rules forbidding this were weakened or repealed. It is more fun to risk nothing and make 10X the profits rather than be stodgy and invest savings. Hell, doing anything with 'savings' is supposed to be very stupid. And the entire system has been reset to reward people speculating using loans rather than rewarding savings at any level.

This is why we are in a liquidity crisis. If all the giant speculators all the way down to the littlest investors are all using loans to play games, we get this vapid bubble based on debts and all these parties want CHEAP loans to do this. So we see interest rates drop. If interest rates were at Japan's level, the biggest investment houses hope to use that for years and years as their investing platform. They have to kill the inflation of gold and oil, first. As well as suppress wages and curtail the purchasing power of the working classes.

They don't mind the working classes going into debt too. But they expect THEM to pay up or else. This is why the Gollums in the Sachs organization worked hard to pass laws preventing full bankruptcy protection! They know they can't have 0.5% interest loans if everyone grabs at this and then goes bankrupt! So all the losers will be wrung out of the system and unable to ever get credit again while the winners can take this depression money and use it overseas playing markets, etc. Also, gambling on relative values of currencies, we mustn't forget that, no, Precioussss.

The desire to hedge by playing currency games is very strong. This means all systems, while depressed, will also be vulnerable to collapse as the big investment houses, gorged as vultures on a battlefield, will target various currencies for storming in and out of a country that can't stop them. China, for example, has the world's biggest barrier to this sort of thing. But they are most unusual. Ditto, Japan.

China's Wealth Fund Seeks to Stabilize Equity Markets

China Investment Corp., the nation's $200 billion sovereign wealth fund, signaled it may invest in stocks rocked by subprime mortgage defaults.

``CIC wants to be a stabilizing force in the international capital markets,'' Chairman Lou Jiwei told a conference in Beijing today. He then cited a ``recent example'' in which a similar fund invested in a financial institution with subprime losses, without identifying the two parties.

I have said before, the goal of the Chinese is for stability. In the end, that is. This is their general cultural tendency which is punctuated by hysterical collapses like the Maoist episode. Can China kill off the lovely Risky who loves instability, wild swings and dangerous trends? Stability is Safety who likes predictability and respectability. Risky is a tramp and Safety is a girl next door. Who likes to bake cookies for orphans. Risky loves unprotected sex.

I will note also that the Dragon is taking over investment houses that are in a subprime mess. This is amusing. Citibank is rapidly being taken over by foreign powers, for example.

China's Ping An Pays $2.7 Billion for Stake in Fortis

Ping An Insurance (Group) Co. bought a 4.2 percent stake in Fortis, Belgium's biggest financial-services company, for 1.81 billion euros ($2.7 billion) in the largest overseas acquisition by a Chinese insurer.

Fortis rose the most in 4 1/2 years in Brussels trading on the purchase, which makes Ping An its biggest investor. China's state-owned companies spent almost $17 billion on overseas financial purchases in 2007, buying stakes in Barclays Plc, Bear Stearns Cos., Blackstone Group and Standard Bank Group Ltd.

They are going after gold-standard operations now. The Chinese are NOT doing this with loans. This gives them a hard core advantage over the guys who are using loans to get rich quick. Namely, when things go bad, the Chinese may lose some money but they won't go bankrupt. They can hold and hold until the bad time passes, they don't have to have fire sales or go to Bernanke to save them from folly. This power is not a small deal. It is life and death. They can deal with bad times better than people who are in debt.

Indeed, the US imagines the Chinese can't afford to lose us so they will save us no matter how much we run around in the dark with Risky, on the freeway, dodging semi trucks. Over time, the Chinese will literally own us. This is significant, as readers here know perfectly well.

The market value of Ping An, located in the southern Chinese city of Shenzhen, stands at $98.6 billion. The rally in China's shares, the world's best performing stock market, turned Beijing- based PetroChina Co. into the world's biggest company by market capitalization and made Industrial & Commercial Bank of China Ltd. the largest bank.

The US stock market flounders about in rough seas while the magic fish in China swims up to the surface to ask us if we want to make a wish. The idea that China, not the US, has the world's best performing stock market is a reversal we try to ignore. Even as Goldman Sachs and all the others are rushing over there to partake in all this, the wealth this is creating is enabling China to increase its sovereign wealth systems that are being used to buy up all these same people. This is because China is not using loans to do this, they are using real wealth gained from their markets.

China Life, based in Beijing, is also on the prowl to diversity. The world's largest insurer by market value is ``very interested'' in buying foreign banks, Board Secretary Liu Ting said yesterday.

``Overseas banks are looking very attractive after the subprime crisis brought their share prices down,'' said Liu at a briefing in Beijing. ``This provides great opportunities for China Life and is a very worthwhile option for us to consider.''

Citigroup Inc., the largest U.S. bank by assets, has tumbled 42 percent in New York amid mounting credit market losses, leading to the departure of Chief Executive Officer Charles Prince.

Citigroup, which until July was the world's biggest bank by market value, this week said it's receiving a $7.5 billion cash infusion from Abu Dhabi to shore up its capital.

All the real vultures who are Arab and Chinese are watching the biggest banking houses in the US die. And they are already swooping down to feast on the carcasses. Not Goldman Sachs. Goldman Sachs is eating itself in order to stay alive, remember?

China Currency Reserves Rise to Record $1.46 Trillion

Zhang Xiaoqiang, deputy head of the National Development and Reform Commission, gave the Oct. 31 figure at an investment conference in Beijing today. The reserves were $1.43 trillion a month earlier. They're the world's biggest.

The trade surplus jumped to $27 billion last month, stoking tensions with the U.S. and Europe and threatening to fuel decade-high inflation. China's government has urged banks to rein in lending and this month raised the proportion of deposits that they must set aside as reserves for the ninth time this year, to 13.5 percent.

So....China has the world's mega, big, gigantic, God-awful-godzillian sized FOREX reserves that are now about $1 1/2 trillion? And they are cutting LENDING? While the US is ENCOURAGING lending? And we are up to our eyeballs in debts? And our own investors are using debts to invest? Like, we need more of this? Let's remember the story here: capitalism is all about competition. And the prize is PROFITS. Not debt accumulation. If debts build up, this is bad in the long run and all competitions are marathons, not short sprints. The rabbit may win the half-way point in the race but will be beaten by the turtle using sovereign wealth.

Back to the top story, Banks as vulture investors

The Federal Deposit Insurance Corporation, which monitors risk in the banking system, tracks bank holdings of MBS but not specifictranches of CDOs. It has no information on which banks hold CDOs and how much, since such instruments are held by the finance subsidiaries of bank holding companies, off the banks' balance sheets. Asian investors, particularly those in Japan, had been eager to seek off-shore assets yielding more than the near zero or even negative interest rates offered at home. Many Japanese as well as foreign investors participated in currency ''carry trade'' to arbitrage interest rate spreads between the Japanese yen and other higher interest rate currencies and assets denominated in dollars, fueling a liquidity boom in US markets. The US trade deficit fed the US capital account surplus as the surplus trade partners found that they could not convert the dollars they earned from export to the US into local currencies without suffering an undesirable rise in money supply. The trade surplus dollars went into the US credit market.

Actually, Japan has seen a huge rise in money supply! But little of this ends up in the hands of the Japanese consumers. This is how Japan enforces its great depression that has the peculiar side effect of making its export industries the strongest on earth. Mr. Liu does notice the role Japan has played in creating this monster debt bubble. It is the 'carry trade.'

ON THE RADAR: Flat CPI Would Not Necessarily Spark Rate Hike

TOKYO (Nikkei)--The core consumer price index for October is expected to be flat year on year, which would make it the first time in nine months for the gauge to move out of negative territory. However, a better CPI reading would not necessarily be regarded as a supportive factor for an interest rate hike by the Bank of Japan, because the recent increase in consumer prices is largely thought to be due to higher crude oil prices.
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Stocks: Surge In Morning On Higher U.S. Stocks, Weaker Yen

TOKYO (Kyodo)--Tokyo stocks rose over 2 percent Thursday morning due to an overnight surge on Wall Street and the yen's fall relative to other major currencies.
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Once again, my analysis is now being admitted to be right by the Japanese themselves. They are no longer bothering to hide the fact that the weak yen makes them richer and more powerful. Note how the top article pretends they are still worried about deflation. But the second article betrays that idea. Note how, even with inflation, the Bank of Japan will not raise interest rates. Nope. That would kill the carry trade and in particular, stop the money flow that is making Japan very rich via trade.

Japan Shows First Inflation Signs as CPI Rises 0.1%

Falling prices in Japan have hindered plans by the central bank to raise interest rates from 0.5 percent, the lowest among major economies. October's gain probably won't be enough to spur a rate increase as the U.S. economic slowdown and financial- market turmoil cloud the outlook for growth.

``Normally this report would provide support for the Bank of Japan,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo, who forecasts an August rate increase. ``But the CPI numbers aren't strong enough to wipe out rising risks surrounding the U.S. and global economy.''

HAHAHA. Every pebble in the road brings the Japanese bank to a total halt. There is always a problem preventing them from raising rates from the lowest and longest the earth has ever seen. This should fool no one at this point. Only, it still fools people! I am amazed by this but then, the Japanese are experts at saying lies with a straight face.

Deputy Governor Toshiro Muto said this month that the U.S. housing recession and market woes make it ``difficult'' to decide when to raise rates. Mizuho Securities Co., UBS AG and Goldman Sachs Group this month postponed predictions for the next rate increase from the first quarter of 2008 to at least the third quarter.

``Financial markets will keep gyrating, probably more frequently than we've seen,'' said Yasunari Ueno, chief market economist at Mizuho. ``It'll take time before fears about a credit crunch and economic recession ease and markets regain a more optimistic outlook.''

Isn't this very clever? The Japanese banking system depends on the US banking system to stop gyrating? This means they can sit there forever at this absurd interest rate! And why is our system out of control?

Because of the carry trade, the tsunami of easy money from the Bank of Japan flooding into our economic system! So this won't stop unless we stop it. And we could do this but Goldman Sachs and the others borrowing this money to gamble love this so they are eager to keep it rolling!

``The progress toward stamping out deflation has stagnated,'' Economic and Fiscal Policy Minister Hiroko Ota said today. She said oil contributed most of October's gain and the government needs to watch the effect of higher energy costs on consumer sentiment and corporate profits.

Another funny gem! Oh, how hard are the Japanese elites trying to stamp out deflation? They are doing this by...raising the sales tax! And depressing wages. And cutting funds to the lower classes. Starving the elderly and school children. Yes, they are battling deflation, all right. Every possible trick to prevent anyone from getting any money that might eke into the consumer system! Right! Hiroko probably practices every morning in her bathroom, trying to say such hilarous statements with a sincere face. And it works.

Wages declined in nine of the 10 months to September and mid-year bonuses, about 10 percent of a worker's annual income, dropped for the first time in three years.

Seiji Nakamura, a Bank of Japan policy maker, said on Nov. 22 that companies ``are extremely cautious about raising prices'' because Japanese consumers have built up a ``strong resistance'' to increases after years of deflation.

Consumers have LESS INCOME. So they 'resist' sales because they MUST! And the government knows this. Pretending consumers are doing this willfully is part of the Samurai code---'Blame the peasants for all problems.' A top Korean company just closed down all their outlets in Japan because they can't make money there. This is the other good side to this fake depression. Japan wants as few imports as possible. This is better than all the other Fortress Japan schemes! Not only do they prevent competition and imports, they get the world to feel SORRY for them as they ruthlessly do this! Neat trick. And the Goldman Sachs people have noticed this and are very eager to imitate this.

I am very certain they want this model for us. This is why I am so alarmed with what is developing and want to stop them.

US bank earnings plunge in third quarter

US bank earnings plunged nearly 25 per cent in the third quarter, falling below $30bn for the first time since 2003 as the sagging US housing market hit profits, according to government data.

Net income for banks in the period fell to $28.7bn, down $9.4bn from last year driven by a steep increase in provisions for loan losses and a drop in non-interest income, according to the Federal Deposit Insurance Corporation.

Loan loss provisions rose $9.2bn, or 122 per cent, to $16.6bn compared to the same period a year earlier, as banks anticipated more homeowners would default on mortgages and home equity loans.

When the Japanese banking collapse happened, they were very woeful. But by 1997, they hit on a new scheme. One aspect was to increase their FOREX reserves until it was the biggest on earth. The other was to depress wages and consumers and thus, switch the country into enforced savings and then the kisser: GIVE NO INTEREST TO SAVERS! Ha. This confiscation of the savings of the workers was a stunning success and now is being kept running in the teeth of workers sending savings out of the country. Indeed, this weakens the yen so it is encouraged!

This is also untenable. And the Chinese are countering it. US banks are going off the same cliff Japanese banks flew off of back in 1993. Unlike the Japanese banks which were protected by the government, US banks will be bought by Asians and Arabs. In every particular, we do almost what the Japanese have done but we leave out the 'Do NOT Let Foreign Devils Take Over!' part.

Municipal Bond Deals Squeezed By Credit Crisis

The widening credit crunch is making it harder for cities and school systems to get money for buildings, ballparks and other vital projects from the $2.5 trillion market for municipal bonds, a sector of Wall Street that rarely sees trouble.

That is leaving them with a tough choice: either put off the projects, or pay higher interest rates on their bonds, a cost that ultimately would fall on the backs of taxpayers.

Another similarity to Japan: we are increasingly unable to do public projects. Too much has been done on debts while taxes have not kept up. Japan, the UK and the USA have all done this more than any other nations. This credit crisis developed when these three nations swore, there was virtually NO inflation. This obvious lie is revealed when we look at the increase in debts and how the ability to pay has deteriorated. I would imagine the IMF should be saying something about all this. Another funny detail is, Japan has a huge debt like the US but also has a huge FOREX reserve unlike the US. We have to keep in mind how Japan differs and why we must be careful to not imitate the wrong parts.

Florida suspends withdrawals from state investment fund

Florida today suspended withdrawals from a state investment fund after cities, counties and school boards -- fearful of the fund's financial stability -- withdrew $3.5 billion in just one day.

The State Board of Administration -- the governor, attorney general and chief financial officers -- voted unanimously to at least temporarily halt a run on the fund, which has reported withdrawls totalling $10 billion in the past several weeks. That's more than one-third of the fund's assets of $28 billion.

This is the beginning of another house of cards collapsing. Pension funds are very vulnerable to big-investor fraud schemes. The people running these funds are both trusting and inexperienced compared to the vultures and cannibals running the pirate fund schemes. They can't wait to unload crummy deals onto pension funds! This is fun! Now we see yet another run on a financial institution. This banking crisis is far from done. And I can't see how super-cheap money will save us from this since this was caused by super-cheap money in the first place! Pensions should be able to bank their money in a bank and collect off of CDs that pay a good rate! But these don't exist anymore.

Avoiding a Recession

By PETER MORICI

Near term, the Federal Reserve should further lower short-term interest rates to ensure sound businesses have access to credit at reasonable terms. As needed, it should buy 10- and 20-year Treasury securities to keep down long-term interest rates.

Treasury should organize, for immediate action by Congress or through the private sector, a three-year program to permit homeowners, who can make payments, to convert ARMs to fixed-rate 6.5 percent mortgages. That would require federal guarantees or subsidizing private insurance, and such intervention is usually not desirable, but the economy is in a crisis.

Finally, if China insists on subsidizing U.S. purchases of yuan to finance exports, the U.S. government can tax conversion of dollars into yuan to ensure those exports are sold at market prices in the United States. Washington could use the revenue to pay off the bonds held by Peoples Bank of China.

This Counterpunch article is a classic: blame China. Demand cheap credit. Tell Bernanke to buy our own bonds, the Gollum Sachs head of the Treasury can sell these to the Federal Reserve which has no reserves. Reserves are both gold AND OTHER CURRENCIES. This clown wants to keep rates low for a long time? And the fix for homeowners by making those 2% teaser rates reset to 6.5% won't fix anything. The homeowners took the teaser rates because they couldn't afford regular rates of 4.75% at that time! The Santa Claus economy can run some more but the train has left the station as far as those helpless homebuyers who bought recklessly are concerned.

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Comments

[John T]

Although I enjoy your articles they always leave me wondering what the average person can do? Any suggestions?

[aa2]

John T.. I'll let Elaine answer for herself.. but for me I am mainly in treasuries and Japanese stocks, have been since august. Just going short term t-bills. Waiting to see what shakes out.

[www.aboutdifficultpeopleatwork.info]

How do you cope with a job you don't like because of the people?