Paulson And The Chamber Of Commerce Death

March 27. 2008

Elaine Meinel Supkis

Paulson gives a speech to the Chamber of Horrors known as the Chamber of Commerce. The failure of this organization and the US Treasury to protect the US economy from destruction wasn't discussed. Instead, schemes to save the non-banking investment groups that are ravaging our economy were promised! And the profound inability to understand why the US is falling off more than one cliff is quite obvious. This blindness is deliberate. They all want something from nothing. They all want risks but safety. Meanwhile, world inflation resumes with a vengeance. And the Iraq war flares up even more and the desire for war with Iran cause world oil prices to resume climbing to the stars.

Remarks by Secretary Henry M. Paulson, Jr on Current Financial and Housing Markets at the US Chamber of Commerce

I am constantly asked how much longer will this take to play out and if this is the worst period of market stress I have experienced. I respond that every period of prolonged turbulence seems to be the worst until it is resolved. And it always is resolved. Our economy and our capital markets are flexible and resilient and I have great confidence in them. I am certain we will work through this situation and go on to new heights as we always do.

As we work our way through this turbulence, our highest priority is limiting its impact on the real economy.
*snip*
Taking this step in a period of stress recognizes the changed nature of our financial system and the role played by investment banks in the post Glass-Steagall world.

Throughout this horror, our rulers keep assuring us that all is well. The ritual remarks are important to them. Since they, themselves, are destroying our nation, they must shove off this realization as much as possible. All is well except for a few glitches! Which they will all fix! Quickly! First of all, the people sitting in the room with Paulson are mostly my age. I remember bad markets in the past. And is this the worst turbulence we have experienced?

I remember the seventies. Back then, we had, since 1966, huge riots that set fire to our inner cities. I watched huge parts of NYC burn to the ground during that time. These riots flared off and on all the way until the 1980's but most were in the same time frame as the Vietnam War. Today, all is silent. True, we now get regular mass murders in our schools. But that started with the Vietnam War, too. But armed uprisings like we saw in the past are gone. So this isn't the 'worst of times'....yet. Paulson's job yesterday was to assure everyone, the spigots for new debts would be opened and kept open. No matter what. The only question is, now to do this?

Of course, it is amazing to me that he can, right off the bat, mention 'post-Glass-Steagall'. This post-Great Depression lawlessness is the root cause of the collapse. But instead of calling for classic banking principals and the re-introduction of the important laws passed in the wake of the Great Depression destroying our banking system, he has other solutions in mind.

Paulson wants to bail out Goldman Sachs, his former home base:

While there has been extraordinary convergence in financial services, one distinction between banks and investment banks remains particularly important - banks have the advantage that they issue deposits that are insured by the Federal government. A properly designed program of deposit insurance greatly reduces the likelihood of liquidity pressures on depository institutions and as a corollary, makes the funding base of these institutions more stable. The trade-off for this subsidized funding is regulation tailored to protect the taxpayers from moral hazard this insurance creates.

For the non-depository institutions that now have temporary access to the discount window, I believe a few constructive steps would enable the Federal Reserve to protect its balance sheet, and ultimately protect U.S. taxpayers.

OK: Paulson seems to think the non-banking investment/speculative houses like Goldman Sachs, want STABILITY. Not risk. As always, the issue between these two yin/yang forces rise to the surface. The hyper-rich investment houses that use offshore banking and offshore tax havens want SECURITY. Of course, the entire reason they get those giant $500 billion bonuses for their collective efforts is due to them taking on 'risk' not playing it safe. The idea of viewing this as Miz Risky versus Miz Safety is easy if we think of this as two females, one dark, the other, light. The light one is an angel and the dark one is a demon. Wealth grows fastest in the dark, with the demons. If one consorts with the wild-haired, crazy, drunken Miz Risky, she can reward one with tremendous profits and wealth pours in. But since she is nutty as hell, she always takes TOO MANY risks! And crashes the car, destroys the economy, falls off of cliffs.

Miz Safety avoids all this. She has small but steady returns. She is incremental, not zooming upwards. She abhors bubbles and is for sobriety. Obviously, she is extremely unpopular with investment bankers who are seeking easy money as fast as possible no matter what.

The role of the government is to govern. Just as the 'governor' of a steam engine regulates the level of steam building up so it doesn't blow up, the reason we have controls on electrical systems to prevent surges which wreck things is simple: surges or build-ups of pressure leads to explosions! The government is not supposed to run out of control. It is, by definition, the controller. It supervises markets, regulates spending, controls relations between parties via laws and courts. It puts up barriers or removes them as it sees fit. It tries to avoid excesses. But of course, being run by corruptible humans, they don't do this. Instead, the temptation to NOT regulate, control or restrict is very high. Various schemes, evasions and tricks are used to increase power and wealth while not doing the simple things that create value-added production.

Often, the element that shoves nations and empires into economic disasters come from one main source: wars. This increases debts, it destroys sectors of trade, economy and even whole infrastructures and masses of humans. Nations that are at war tend to misspend money and take increasing risks. Risks in wars lead to risks in markets. And the risk level rises rapidly.

Miz Risky LOVES wars! She loves bar brawls if she can't instigate wars. She is one of the oldest goddesses. She is the daughter of Lady Luck. She gambles and enjoys 'creative destruction' which for her, means, destroying masses of humanity. The financial houses that are tumbling down the cliff this year all made their fortunes off of one main thing: the US overspending on all levels as we struggle to wage endless wars, run the world's biggest military and not pay for anything as much as possible.

The history of world bubbles and overspending often coincide with wars. Most often, the nations doing this are not having wars on their own territory. It is nearly always on someone else's territory! This is why empires are much more prone to these huge balloon/collapses. Sometimes, there is a time-lag delay. For example, England continued WWI as lower-level wars against the dying Ottoman Empire as both England and France struggled to colonize or control the Middle East. This expense, on top of the WWI expenses, accumulated. British and French trade roared ahead thanks to these many wars across the entire planet but this was NOT paid for except via debt. And the debts were being ladled out by the US and they tried to discharge these debts by flooding the US with one-way trade. The US fended this off and the Great Depression resulted. Wars didn't fade. They increased due to outright looting expeditions. And grew greater and greater until the total conflagration of WWII nearly destroyed a quarter of the planet.

Since then, the build up to further wars was transfered from Japan, Germany and England to the US, Russia and China. The Cold War has been, like all wars, irresponsibly funded. And when Russia and China surrendered, the US, like Britain and France after WWI, launched more wars and invasions of the Middle East. Today, the fighting rages even higher in Iraq. The surge failed utterly and now the violence is again, consuming us. Oil has been nearly totally stopped at Basra. And world oil prices will, due to rising risk, shoot up yet again.

The US has egged the world into putting on even greater restrictions on Iran due to Iran opening its oil bourse and demanding yen and euros for oil. This, too, is going to cause world oil prices to rise. Switzerland just made a gas deal with Iran and the US wants to kill the contract and is, right now, hammering Switzerland on this issue. Meanwhile, inflation rages in the US as the value of our assets and equities collapse. The more we do these things, the worse it will be. But our rulers are intent on doing these things no matter what. Just like in the lead up to WWII.

Paulson:

Second, and perhaps most importantly, the Federal Reserve should have the information about these institutions it deems necessary for making informed lending decisions. The Federal Reserve is currently working to ensure the adequacy of such information. We suggest that the Federal Reserve, the SEC, and the CFTC continue their work of building a robust cooperative framework. Already, at the invitation of the SEC, the Federal Reserve is working alongside their teams within these institutions. These regulators should consider whether a more formalized working agreement should be entered into to reflect these events.

With this added information flow, the Federal Reserve will be better positioned to consider market stability issues like liquidity provisioning and the interconnectedness of financial institutions. The Federal Reserve's participation could also allow for broader consideration of market stability issues by the SEC and the CFTC. This collaborative process will necessarily have a strong focus on liquidity and funding issues.

The combination of these steps should provide the Federal Reserve with a structure and the information that it would need to make liquidity backstop loans during periods of market instability to non-banks. They address the current situation, in which investment banks have temporary access to the discount window. Clearly, many difficult policy questions must also be addressed on a going-forward basis.

I see these remarks as the opening shots in getting the US government, which is rapidly going bankrupt, to provide the protections of the FDIC to non-banking entities that are not even really American but are rather, funnels for moving money to offshore accounts and shoveling money around the planet for profit. These investment houses are very cruel in their moves and will slit the throat of any nation they find non-profitable. They seek maximum returns, not safe returns. Now they want us to protect them while they loot us? Isn't that the definition of insanity? If they want to be secure, they can turn into 'banks' and follow the banking laws we had before we decided to go bankrupt.

The regular banks would not hand out EZ loans to everyone. They asked for all sorts of assurances before lending. But the non-bankers loved to give loans! They didn't keep them, either. And since they were barely or not at all regulated, they could do this with no money down, nothing. And they flooded the markets with EZ money which then caused global inflation and bankruptcies. The US governors didn't regulate all this. They thought, this was making us 'richer'. And the sudden ballooning of values was confirmation that we were getting 'richer'. Well, such banking should be outlawed. Note how letting non-banks hand out loans has turned into a total disaster!

Paulson:

As we work through this period, we will learn through this experience. And the Federal Reserve will learn as it works with financial institutions as they come to the window. It is appropriate that we evaluate that experience in the coming months, and use the lessons of that experience to inform a path forward. Very relevant to this issue is the fact that bank regulation, which applies to institutions with an explicit taxpayer-funded backstop, is fundamentally different from non-bank regulation, which applies to institutions that are not supported by federal deposit insurance. The President's Working Group on Financial Markets will evaluate these issues and their implications for regulation of bank and non-bank financial institutions.

This last sentence is ominous. It means one of two things: the government will regulate these non-banks and force them out of business or it means we will insure these non-banks so they can continue to destroy our financial systems and drive us totally into bankruptcy. Past experience with Paulson and his ilk makes me very gloomy and cross.

They will try the second option just as surely as the sun rises in the East.

Moody’s takes axe to CDO ratings

Moody’s Investors Service unleashed a wave of ratings downgrades and negative outlooks on more than $25bn worth of complex credit products on Wednesday due to continued deterioration in the underlying assets.

The ratings actions, which affected more than 250 tranches from more than 40 deals, were mostly taken on collateralised debt obligations backed by other kinds of complex debt such as mortgage backed bonds or other CDOs.

It has been obvious since July 17, 2007, that the ratings on all the complex debt instruments created by non-banks that are barely regulated, were wrong. And these ratings continue to drop as the markets implode. Back then, we saw how things went off the cliff and they 'stabilized' only slightly as the government tries to rescue these instruments that should NEVER been created in the first place. But the stabilization has failed and they continue to fall.

Click here to see how far the ABX.HE indexes have fallen. And here is a chart I drew up at the very beginning of the huge collapse.:

When I drew that chart in July, they were still up in the 90's range. Today, they have collapsed into the 5-50 pts range and are now taking yet another downturn. So Moody's has to revalue all of them. There are no more real 'AAA' securities. They are all junk. And the fact that the bottom most ratings are near zero but still there is due only to hopeful thinking that the Federal Reserve, now an LLP, will save them.

But they can't be saved if the properties backing them are falling off the cliff. And California, a place where everyone boasted about their wonderful housing wealth, is leading the way downwards. The fall there has picked up its pace this last month:

California freefall: Home prices fell 26% in February

-In the San Fernando Valley, losing a home to foreclosure is now almost as common for families as buying a home. The L.A. Daily News: "During January and February, there were 1,084 foreclosures and 1,335 sales of houses and condos in Valley communities from Glendale to Calabasas, according to the San Fernando Valley Economic Research Center at California State University, Northridge."

"It's bad. It's really bad," market analyst Nima Nattagh told the Daily News.

The California Association of Realtors reports median prices fell 27.2% from year-ago levels in the hard-hit Inland Empire east of Los Angeles, 30.9% in Sacramento, and 39.1% in Santa Barbara County.

On a percentage basis, the California price meltdown is more than three times as severe as the national decline of 8.2% in median prices reported this week by the National Association of Realtors. On an absolute basis, the California meltdown is even more severe: Nationally, prices fell over the past year at a rate of $338 per week; in California, prices fell at a rate of $2,788 per week.

Wealth is no longer pouring into California, it is vanishing. It isn't moving elsewhere, it is vanishing. This is the problem with wealth creation via debt creation. It can work only if there are enough wages involved to keep the payments up that are the basis of this system. If the buyers can't pay the loans, the loans don't find a new home, they VANISH. For these are promises for the future, not existing wealth today. And if the person promising the wealth has no way of repaying, it ceases to exist. And bankers who hand out loans to dead beats are punished by taking the losses. This is why some elementary caution has to be part of the whole concept and system.

Great banking collapses in the past often hinged on wild lending to warring parties who then default on the loans. In this case, the US, wishing to run endless wars and military build ups across the planet, paid for this by bankrupting our economic system. We had to let our creditors flood our markets with goods and we had to have super-cheap interest rates for our war bonds and this depressed savings at home since there are no returns. And this killed our own financial base. Nations that can't save, go bankrupt. Savings is the basis of banking.

The non-banks Paulson wants to rescue have debt/savings ratios that are ridiculous. 90:1 in the red, or carrying derivatives that are more than $100 trillion in the case of J.P. Morgan: impossible. These arcane, baroque systems were devised to hide the harsh fact that these non-bankers have no savings. And they can't be easily put under the FDIC umbrella unless they do nothing but try to save money and sell off their trillions in 'assets'. And this will cause a huge depression. The US can't trick its way out while fighting wars. It needs easy loans at cheap rates. And so it wants the banking system to run down reserves and create more money out of thin air.

Lunch Lady Suffers as Banks Prepare $2 Trillion in Lending Cuts

Credit is drying up as lenders, staggered by losses, try to raise capital and clamp down on financing for a U.S. economy that likely is in recession, economists at Goldman Sachs Group Inc. said in a March 7 report. The supply of credit for businesses and consumers may decline $2 trillion, the report said, equivalent to 7 percent of household, corporate and government debt.

Banks have to restore their savings. Since they are being forbidden to do this the classic way--raising interest rates to attract savings---they are going to find other means to do this. Not lending, in other words. The mismatch between interest rates for savings and lending rates means only the guys running the printing presses, the Fed LLP, will be able to lend. And this causes inflation since the Fed saves nothing. Our reserves are pathetic compared to our debts. The only thing saving us is the climb in the value of gold which boosts the value of Fort Knox. Yet the Fed wants to push down the gold markets so they can make more money via Fed loans! This is the good old 'Horns of Dilemma' yet again. The choices we must make are stark and obvious: either we cease our endless wars or we go bankrupt. Trying to save the system while waging wars that are costing us a fortune and raising the value of commodities, we must stop. It is pretty pathetically simple.

But never mentioned by either our regulators, governments or the media.

Chart from Steven Keene of Australia:

Debt as part of the GNP: the numbers climb going into WWII and then, after that episode of creative destruction, it begins its relentless climb during the Cold War. And now, it is out of control again.

UAE money supply soars to 37%, Bahrain’s 36%

Inflation created by the Bank of Japan LDP and the Federal Reserve LLP continues to flood into the commodity countries. Iran isn't having inflation due to being locked out of the banking system's stream. So money pours in but they can't use it. They collect it. This is a lot of money being held outside the system. But it isn't enough to stop inflation. In the ally countries that are siding with the US/Israeli wars, the inflation caused by rising oil prices due to these wars brought huge benefits and wealth to these countries. But now, it is bringing destruction. Since it isn't being plowed back into value-added commerce, it accumulates. The US as well as the Arab kingdoms spend much of this wealth on housing schemes. This is the easy way out, of course. Build palaces. The flood of wealth from the New World built two things in Europe: wars and palaces. The palaces had such excesses, they had to gild the roofs with gold to use it up. But the poverty of the peasants and surrounding populations increased, not decreased. Not until the Industrial Revolution, did this change.

Soybeans Rise After Argentina Protests; Gold, Crude Oil Advance

Inflation-inspired riots are spreading. After being hammered by the G7 central banks, the commodity markets resumed their march upwards. Obviously, inflation from the central banks producing easy money for the non-banking sector has to go somewhere. And it briefly went into stocks but now has returned to the fundamentals. The very same non-banking investment houses are directly responsible for this. Instead of letting these leeches go bankrupt and thus, the money vanishes, the central bankers are increasing this money in the hopes of keeping the money supply high. Thus, the continuing inflation.

A Northern Rock style crisis is threatening Iceland's entire banking system, writes Iain Dey

Total assets of the banking sector have grown from 96 per cent of gross domestic product at the end of 2000 to eight times Iceland's GDP at the end of 2006.

But it's not all that simple. The high interest rates that Iceland introduced to help curb inflation attracted investment from overseas, and also made it a major haven for currency market investors. Volatility in the Icelandic Kronor precipitated a mini Icelandic financial crisis in 2005. But while credit markets were booming, global investors in the financial markets were quite happy to buy debt from Icelandic institutions, in exchange for the higher yields on offer.

Like the oil nations, Iceland has chosen to try to sop up this flood of easy money from wild lending. And is getting the exact same inflationary forces. Like the Arab oil kingdoms, the population is too small to soak it up as a value-added industrial based system. Only China and India have the populations and only China has the industry to do this. And guess what?

China is winding this DOWN. They are crushing inflation the old-fashioned way: higher interest rates, higher savings ratios, more government regulation of debt creation. They are NOT sopping up the trillion dollars created by the G7 central banks in the last six months. They are parking a lot of money in their FOREX reserves. And now they are turning inwards to cope with public unrest. The US rulers should not rejoice in this. After all, this will leap across the planet and come here!

Unrest grows in Egypt as food prices soar

And inflation in the many dictatorships and despots ruling unruly countries: this is going to cause huge upheavals. The US is frantically lending Pakistan many billions in the hopes that this will prevent revolution there. But the government is corrupt and the military spending is wild. The billions we 'lent' were borrowed from China. And the Dragon is very suspicious and furious with us for it knows the US has been fostering rebellion within China, itself. The Dragon may think, 'Maybe it is time to teach them a lesson.' But Taiwan is being slowly reeled in. China will be patient. Up to a point.

But as we bomb Iraq some more and battle the populace there some more, as Palestinians fight the European and American invaders there, as the wars rage across the Islamic nations, the chances that inflation in these places might lead to rebellion, insurrection and wars is 100% and we won't like the results. It won't be us winning these battles. We lost the 'hearts and minds' part. Next, we will lose the economic values parts.

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Comments

[Paul S]

I have to admit to a morbid humor at watching this whole scandal unfold. The people who caused this mess like to be thought of as bold, risk-taking entrepreneurs, willing to stick their necks out and succeed or fail on their own efforts. UNTIL: they can't carry on with their little charade. THEN: they became Das Kapital style Marxists. They go running to Big Government to bail them out. (Where Mr. Paulson or Mr. Bernanke are standing, taxpayer checkbooks in hand.) And Mr. Bush tells us,'Let the free market sort all this out.' Of course, Bush does not want to admit there is a problem; then he'd have to deal with it. BTW: the Times carried an article about how the accounting firm KPMG phonied up their books so Century Financial could carry on with their reckless loans. Sound familiar? It's Enron revisited. Funny how Wall Street gets bailed out everytime, but when employees lose their retirement funds the attitude is, "Tough bounce pal, you're SOL." Funny how this 'free market' stuff works.

[Anthony]

oh uh, will daddy bail out LEH too?

http://news.yahoo.com/s/nm/20080327/bs_nm/lehman_stock_dc_2

Lehman's stock drops amid rumors

Shares of Lehman Brothers (LEH.N) fell by nearly 10 percent in early New York trading on Thursday on rumors that the fourth largest U.S. investment bank could see a run on the bank similar to what happened to Bear Stearns (BSC.N), traders said.

[Jim B]

Very impressed with your piece on Bush in today's SilverBearCafe. As in extremely.

Thank you,

JB

[Tom]

Thank you for your always-interesting analysis. But what I really want to know is: What do you recommend we DO? Will it just be down and dirty out in the streets? Should we still hedge all of our US dollar savings if we haven't done so already? What actions could the average person take that might make some difference?

[K]

So what do you think? Moody's downgrades + LEH rumors =

Discount window borrowing rises to $37 billion on Wednesday
By Rex Nutting
Last update: 4:31 p.m. EDT March 27, 2008

WASHINGTON (MarketWatch) -- Major investment banks and broker-dealers borrowed $37 billion from the Federal Reserve through the discount window on Wednesday, $8.2 billion more than the previous week. For the entire week, loans to the 20 primary dealers averaged $32.9 billion a day, up $19.5 billion from the previous week's average. The discount window has been open to the primary dealers for only the 10 days since the Fed helped rescue Bear Stearns on March 16. The overnight loans carry an interest rate of 2.50%

[Elaine Meinel Supkis]

Whew, $37 billion? Next week, it will be over $50 billion. And on and on and on. When we pass $2 trillion, we will be half way to the bottom.

What to do?

People ask me this. When a world empire decided to commit economic suicide, the whole world is wrecked. We can't help this. It is the nature of this sort of beast. Investing in whatever is problematic since empires can start world wars.

[rockpaperscizzors]

Reuters
Wall Street drives White House campaign cash flow
Thursday March 27, 6:07 pm ET
WASHINGTON (Reuters) - Eight of the 10 largest donors so far to the U.S. presidential campaigns are Wall Street banks, led by Goldman Sachs, according to research on Thursday from a political watchdog group. Goldman and its executives have pumped $1.7 million into the races, with 70 percent going to Democrats Barack Obama and Hillary Clinton, despite former CEO Henry Paulson's present job as treasury secretary for the Republican Bush administration.

The Center for Responsive Politics said that securities and investment firms altogether have donated about $33 million to presidential campaign coffers, more than any other sector of corporate America, except lawyers, the center said.
After Goldman, top-giving banks are Citigroup, Morgan Stanley, Lehman Brothers, Merrill Lynch and JPMorgan Chase,
http://biz.yahoo.com/rb/080327/usa_politics_campaign_finance.html?.v=3

Presidency sold to the highest bidder, again.

[rockpaperscizzors]

One per cent of Americans now in jail
They used to call it the land of the free, but a new report shows that the United States is nowadays more a nation of the incarcerated. For the first time in history, more than 1 per cent of the US adult population is now behind bars. For minority populations, the rates of imprisonment are much higher....It says that nationwide there are now 1.6 million people in prisons, translating into one in every 99.1 adults. It has never been so high ...

HERE'S THE KICKER: The findings also underline America's position as the most prison-heavy country in the world, far outstripping China, which has the second highest rate of imprisonment as well as Russia, ranked third.
http://www.independent.co.uk/news/world/americas/one-per-cent-of-americans-now-in-jail-790007.html

[Paul S]

What we are aeeing on Wall Street is nothing new. Politicians have always been bribed by the monied, business interests. Teddy Roosevelt was known as a Trust Buster because the same type of underhanded activities were going on then. If you want to read about a real thieving pirate (can't think of a better term to describe him), read about John Rockefeller and the way he grew Standard Oil. The current batch of crooks have nothin' on JD Rockefeller. Re the incarceration rate: maybe (IMHO) if we stopped treating drug abusers like criminals, we'd have space for the violent criminals. I am absolutely certain some people need to be in prison (Attn Wall Street), but I believe alot of people are there who shouldn't be. And for the record, I do not use illegal drugs, do not endorse their use, etc. I just think there are much better ways to treat drug abusers.

[Anthony]

Gotta hand it to the chinese, they have enormous discipline.

http://www.chinaeconomicreview.com/editors/2008/03/21/564/

Not your average Zhou
Rumors of central bank governor Zhou Xiaochuan’s professional demise have been greatly exaggerated. Many believed that Zhou would be replaced during this year’s National People’s Congress (NPC). But China’s desire for stability and a seasoned hand at the helm won out and Zhou was reappointed to his post. He didn’t waste any time getting to business, either. During the NPC he announced that he saw “no need” to use the appreciation of the yuan to fight inflation, while hinting that further interest rate increases might be one of the weapons the PBOC uses fend off rising prices. Shortly after the NPC concluded, the PBOC announced that China would stop checking the sources of foreign exchange for Chinese outbound investments, a move likely to encourage capital outflows and curb excess liquidity. It also raised the reserve requirement ratio 50 basis points to a record 15.5%. The central bank added that it would consider ways to open its domestic financial markets to foreign investments, though no details were provided.

-----

I don't understand why the european doesn't simply raise their interest rate and let euro climb. Their main import is oil. And it's priced in dollar. Their export to rest of world isn't exactly big for their economy. What's the harm?

[Richard]

Thanks for this report; Mr Paulson spoke from the Capital Markets Competitiveness Conference. Have you noticed how Orwellian the government leaders and their speeches are?

The Competitiveness Conference has noting to do with Competitiveness, rather just the opposite, it has to do with Corporatism -- state corporate combined rule over the people.

[Elaine Supkis]

You are totally correct, Richard. I should have noted that. It just seems so obvious. heh.

About Asia: they are still exporting like crazy. No change there. About Europe: they make HUGE exports and are being hammered now due to the strong euro. And Japan and China are flooding Europe with imports.

[Bear of Little Brain]

rockpaperscissors:

"except lawyers". Priceless.

[Elaine Meinel Supkis]

Yes, Rock is right about the lawyers. Heh. Agree with Bear.

[Anthony]

strange things start to happens from Fed opening windows to non bank. (I really think, they can't do what they do without people start wondering if all those treasury worth anything at all.)

this chart:
http://www.princeton.edu/~pkrugman/fedspread.png

and a comment trying to explain the chart.

http://krugman.blogs.nytimes.com/2008/03/21/weird-interest-rates/#comments

13.March 21st,2008 9:07 pm
It appears clear that yields on treasury bills have been driven to near historic lows by a dramatic flight to quality. It also appears that negative repo rates are driven, in part, by increasing numbers of fails and low yields on collateral.

The troubling issue is that it appears possible that the market is beginning to question, in a subtle manner, the QUALITY of U.S. Treasury securities. Over the past few weeks, and prior to the Fed’s “bailout” and liquidity-providing actions, the yield on 90-day t-bills had actually been trading slightly above 2-year note yields. You may recall it caused a trough in the yield curve at 90-days.

Some reasons why the credit quality of U.S. Treasury securities may now become questioned include: (1) the Fed’s acceptance of securities which, in its history, did not meet credit quality guidelines; (2) the acceptance by the Fed of UNCERTAIN amounts of credit risk by accepting the default risk of the securities; (3) the apparent acceptance by the Fed of the legal risk of Bear Stearns, evidenced by the fact that JP Morgan established a “legal reserve” with $6 Billion of the $30 Billion received from the Fed. Until Congress reviews the transaction (hopefully), we can only assume that if the legal liability is in excess of $6 Billion, say $50 Billion as an example, U.S. taxpayers will pay that increased amount. Not surprisingly, as Robert Rubin put it on McNeil & Lehr, there were probably better alternatives, but there was also a need for “quick action”. As usual, that “quick action” resulted in a deterioration of the U.S. government’s balance sheet. At a minimum, it raised the risk level of the balance sheet and thus, Treasury securities.

[Anthony]

hmmm.....

was looking at this pdf. Top derivative trading are interest rate and currency exchange (but both are going crazy right now. Who can predict the value of those derivatives if exchange rate are going every which ways?)

also. the proportion of numbers. Currency derivatives is around $250B. But they are pumping $30, 60, 70B into the system. And people wonder why prices are going all over the place.

I hope the arabs don't get mad and unpeg their currency, we are going to drawn for sure. (oil price, interest rate, currency flight, everything)

http://www.occ.treas.gov/ftp/release/2007-137a.pdf

[Elaine Meinel Supkis]

You are right, Anthony. This level of monetary and lending instability has consequences. One is, it will destroy both the bears AND the bulls.

This is classic, of course. No matter how any government tries to stabilize a system, it will only rock wildly until it stabilizes itself, sometimes but sinking like a rock.

[Elaine Meinel Supkis]

Thanks for the chart, by the way. Yes, it is definitely an 'off the cliff moment.'

[Dutch]

When do they stop? And how many real players are at this poker table? And Elaine, I have a question. Is all this building in Dubai our money?

[Elaine Meinel Supkis]

They won't stop. See my latest post and watch the Kennedy funeral.

And yes, it is money we gave Dubai building all that stuff there.