Weekend Economists, October 24-26, 2008

[Demeter]

Welcome all to WE, a place of solitude and contemplation.

Imagine yourself in one of those airless British clubs for the elite, with morrocan leather wing chairs and heavy velvet drapes through which a watery sunlight streams to illuminate the dust motes floating in Brownian motion about the nodding heads of newspaper readers and nappers....

A cheery fire warms the room to blood temperature, the drinks are potent and the sandwiches have no redeeming features, being made of entirely natural ingredients including lots of fat and calories. The library is open.

We will (I hope) be able to take a step back, figure out how we got here, where to go next, and develop a real good reason for leaving this sanctuary, come Monday. Enjoy!

U.S. FUTURES & MARKETS INDICATORS
NASDAQ FUTURES-----------------------------S&P FUTURES

[Demeter]

1. AFTER HOURS: Late-traded stocks steady after dayside tumble

http://www.marketwatch.com/news/story/stocks-slip-evening-session-after/story.aspx?guid={89868DB5-0DC3-46CB-A15B-673D0FC7E897}&siteid=yahoomy



By Carla Mozee, MarketWatch

LOS ANGELES (MarketWatch) -- Late-traded stocks lost ground Friday evening, extending dayside declines driven once again by worries about global recession.
The Nasdaq 100 After-Hours Indicator fell 5 points, or 0.4%, to 1,197.13.

Among volume movers, shares of Microsoft Corp. fell 0.4% to $21.89, adding to their regular session loss of 1.6%. Late Thursday, the company posted better-than-expected quarterly results that were aided by brisk sales of video-game consoles and software. Microsoft also trimmed its current-quarter outlook, but not as much as had been expected by Wall Street....

[Demeter]

2. FUTURES MOVERS: Oil drops 11% on week as demand concerns persist

http://www.marketwatch.com/news/story/oil-drops-11-week-opec/story.aspx?guid=%7B6F142BD4%2D9B32%2D449E%2DA948%2DDD31F5D9E622%7D&dist=TNMostRead




OPEC agrees to cut output quota, but prices still finish at a 17-month low

By Myra P. Saefong, Moming Zhou & Steve Goldstein, MarketWatch

Last update: 4:28 p.m. EDT Oct. 24, 2008

SAN FRANCISCO (MarketWatch) -- Crude-oil futures tumbled Friday to close at their lowest level in 17 months, down 11% for the week, as a production cut by some of the world's key oil producers failed to ease concerns over a slowdown in oil demand.

"The market isn't interested in supply issues with world demand the question," said Darin Newsom, a senior analyst at DTN.

The Organization of the Petroleum Exporting Countries will slash its oil production quota of 28.8 million barrels per day by 1.5 million barrels, beginning November 1, as the world's financial crisis dampened demand for energy, the cartel said Friday at a meeting in Vienna.

Crude for December delivery closed at $64.15 per barrel on the New York Mercantile Exchange, down $3.69, or 5.4% for the session to lose 11.1% for the week. That was the lowest closing price for a front-month futures contract since May 31, 2007.

In electronic trading on Globex, the contract touched a low of $62.65.

Prices have lost more than $80, or 56%, from their record high above $147 a barrel hit in July.
Crude's losses came amid broad declines in other commodities and in global stock markets...

[Demeter]

4. Investors suffer as US ethanol boom dries up

http://www.ft.com/cms/s/8531a8a2-9fa7-11dd-a3fa-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8531a8a2-9fa7-11dd-a3fa-000077b07658.html%3Fnclick_check%3D1&_i_referer=http%3A%2F%2Fview.ed4.net%2Fv%2FG8OTZZ%2FX8B8Q%2FUDY1QZ%2F3CWTA%2F&nclick_check=1

By Kevin Allison in San Francisco and Stephanie Kirchgaessner in Washington

Published: October 21 2008 23:22 | Last updated: October 21 2008 23:22

Investors, such as Microsoft’s Bill Gates, are sitting on billions of dollars in losses after buying into the corn-based ethanol industry that George W. Bush embraced as the ans wer to US energy woes.

Six of the biggest publicly traded US ethanol producers have lost more than $8.7bn in market value since the peak of the boom in mid-2006 and the beginning of this month, according to an analysis by the Financial Times. The boom followed a 2005 law requiring refiners to mix billions of gallons of the biofuel with petrol....

[antigop]

3. Press Releases Stearns Bank, National Association Acquires the Insured Deposits of Alpha Bank & T

From the FDIC website
http://www.fdic.gov/news/news/press/2008/pr08106.html

Alpha Bank and Trust, Alpharetta, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Stearns Bank, National Association, St. Cloud, Minnesota, to assume the insured deposits of Alpha Bank & Trust.

The two branches of Alpha Bank & Trust will open on Monday, October 27, 2008 as Stearns Bank, N.A. Depositors of the failed bank will automatically become depositors of Stearns Bank, N.A. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.

[Demeter]

5. Musical Interludes, Courtesy of the Capitol Steps

http://www.capsteps.com/sounds/economy-monstercash.rm

"Monster Cash"

http://www.capsteps.com/sounds/subprime2.rm

"Subprime Mortgage Holders"

[bemildred]

6. I think we are fucked.

I see lots of things, when I look at charts, that are down well over 50%. There will be no new bubble any time soon, it's all going to be meat and potatoes and make sure to get sleep when you can.

[Demeter]

15. I'd Rather Not Have Another Bubble

I'd rather have a real, boring, dependable economy.

[bemildred]

16. Well, true.

But it's going to be a big adjustment. Gambling is very addictive, and a lot less work than being productive. But I agree with your point. I was just pointing out that the old game is not going to work anymore.

[Demeter]

18. You Can Say That Again!

It hasn't really been "working" for anyone except crooks for years!

[truedelphi]

33. Er, cabbage and potatoes, I would think

The days of steak and a sixty buck cigar are fleeting away, unless you are in the repo business, that is.

[Enthusiast]

104. These people have loads

put away in foreign bank accounts like in Switzerland and and the Cayman Islands banks. They were so enriched from the Iraq War and the high price of oil that they will never hurt.

[Demeter]

106. Oh, They Can Be Hurt

Anybody can be hurt. The quickest way to a pirate's pain is devaluing his loot. There are many ways to see that overseas dollars lose their value, while protecting those at home....Then there's criminal prosecutions, or even revocation of citizenship for treasonous activities, if it comes to that.

[bemildred]

112. Wall Street wives had the richer, now they're a bit poorer

A lot of people are being hurt.

Reporting from Edison, N.J. -- Mona Mond had a plan -- and it didn't include Wall Street going haywire and giving up a three-bedroom house with a half-acre yard for a small apartment.

She'd married a man with a career on Wall Street, and at the very least she was going to live in a house, preferably brand new, with a Jacuzzi in her bedroom and a pool in that yard. There'd be a maid -- and no skimping, no worrying that any day Amar, her husband, would lose his job.

The Monds would retire early with $10 million to $12 million in a rock-solid retirement account that would spew off enough interest to keep them going until . . . well . . . they actually got old.

---

"I'm so angry," says Mona, who is 32 and about to have a second child. "We are living so tight, and we feel so limited. I wanted a big nice house. . . . This was planned."

http://www.latimes.com/news/printedition/front/la-na-wallstreetwives25-2008oct25,0,6851558.story

[truedelphi]

114. Don't cry for her, Mona Mond-a!! n/t

[Demeter]

7. Fuld and other Lehman executives subpoenaed

http://www.ft.com/cms/s/febe376a-9c9d-11dd-a42e-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Ffebe376a-9c9d-11dd-a42e-000077b07658.html%3Fnclick_check%3D1&_i_referer=http%3A%2F%2Fview.ed4.net%2Fv%2FG8OTZZ%2FX8B8Q%2FUDY1QZ%2F3CWTA%2F&nclick_check=1


By Greg Farrell and Joanna Chung in New York

Published: October 17 2008 23:57 | Last updated: October 17 2008 23:57

Dick Fuld, Lehman Brothers chief executive, is among 12 executives who have received subpoenas related to federal investigations into the events leading up to the company’s bankruptcy filing last month, according to a person familiar with the matter.

Prosecutors, based in three New York area jurisdictions, are trying to determine whether top managers at the now-bankrupt firm misled the public about its financial condition and some of the securities it sold during the past nine months...

[Demeter]

10. AIG to freeze ex-chief’s $19m payment

http://www.ft.com/cms/s/52834016-a08b-11dd-80a0-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F52834016-a08b-11dd-80a0-000077b07658.html%3Fnclick_check%3D1&_i_referer=&nclick_check=1

By Joanna Chung and Francesco Guerrera in New York

Published: October 23 2008 00:01 | Last updated: October 23 2008 00:01

AIG is to freeze about $19m in compensation payments to Martin Sullivan, the former chief executive of the stricken insurance group, it was revealed on Wednesday night.

Andrew Cuomo, the New York attorney general, said the group, which was rescued by the US government last month, has also agreed to freeze about $600m of deferred compensation and bonuses due to executives of AIG Financial Products, whose losses precipitated the group’s collapse...

[truedelphi]

117. One thing that I have been musing over

Whereas you and I and other Du "researchers" would watch the DVD "The Brightest Men in The Room" about Enron, or read "False Profits" and our reaction would be horror and consternation at these abuses, other Ammeicans with jobs in the financial secter were reading these books as
GAME PLANS !

[Demeter]

8. Fed takes $2.7bn paper loss on Bear

http://www.ft.com/cms/s/bc104618-a163-11dd-82fd-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fbc104618-a163-11dd-82fd-000077b07658.html%3Fnclick_check%3D1&_i_referer=&nclick_check=1


By Francesco Guerrera in New York

Published: October 24 2008 01:43 | Last updated: October 24 2008 01:43

The Federal Reserve on Thursday said it had suffered a $2.7bn paper loss on the $29bn portfolio of toxic assets it took over from Bear Stearns in March as part of JPMorgan Chase’s government-brokered takeover of the stricken investment bank.

News of the unrealised losses, revealed in a filing that also showed that American Insurance Group has already used up three-quarters of a $123bn Fed loan, could fuel the political and public backlash over the use of government funds to rescue financial institutions...

[Demeter]

9. S&P slashes NY Times rating to junk

http://www.ft.com/cms/s/61c60086-a158-11dd-82fd-000077b07658,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F61c60086-a158-11dd-82fd-000077b07658.html%3Fnclick_check%3D1&_i_referer=&nclick_check=1

By Andrew Edgecliffe-Johnson in New York

Published: October 24 2008 00:36 | Last updated: October 24 2008 00:36

Standard & Poor’s slashed its rating on the New York Times Company by three notches to junk on Thursday after the publisher reported fresh impairment charges, a quarterly underlying loss and a review of its dividend policy.

The decline in print advertising revenues that has dogged US newspapers accelerated in the third quarter as the economy worsened, said Janet Robinson, chief executive. Visibility about future advertising bookings was “limited”, she added..


OH DEAR! SO GLAD I NO LONGER DEPEND ON THEM FOR INCOME!

[snot]

37. i just hope it occurs to them that

their resistance to reporting much of the most impt. news may have contributed to their decline.

[Dr.Phool]

40. I lowered their coverage to junk years ago.

And that was before they added David Brooks and Bill Kristol.

[Demeter]

11. The Fed may boldly go where no Fed has gone before

http://www.dailyreckoning.com/Issues/2008/DR102408.html


*** The FOMC is meeting next week and the general consensus is that they will indeed cut rates. Really, how could they not? But some speculate that they will go where no Fed has gone before: below 1%.

“Everyone at the Fed has pretty much told you they’re going to cut,” said Rich Yamarone, director of economic research at Argus Research. “They’re in kitchen sink mode now. Rate cuts, fiscal stimulus, bailouts – they’re throwing in everything they can right now.”

However, there’s a chance that lowering rates below 1% won’t even make a blip on the radar in the United States’ struggling economy...rate cuts just aren’t as important as they once were.

“It’s a window dressing, only a psychological weapon,” said Sung Won Sohn, economics professor at Cal State University Channel Islands. “Right now, the problem isn’t the cost of the Fed’s money, it’s that the existing money supply isn’t circulating. The pipelines are clogged.”

[Demeter]

12. Bloodbath

http://www.nakedcapitalism.com/2008/10/bloodbath.html


I had warned readers against assuming that because we had a bounce in the equity markets, that life would soon return to normalcy ("It Isn't Over Until the Fat Lady Sings" QUOTE: Roubini now foresees a deep recession of at least two years' duration. That does not appear to be part of the newfound stock market cheer. Given Roubini's success in calling this credit crisis, I'd be loath to take a long-term bet against him). But I didn't expect a rout like this, particularly with no looming news trigger.

The yen has gone to 91. The Nikkei was down over 9%, most other Asian markets down 7%, Continental markets down over 10%, but have reverted to down a mere 7% plus. A more aggressive than expected production cut by OPEC has done nothing to stem the fall of oil, down 5%. Gold has fallen below (and a reader who sometimes laments the fact that he runs a gold fund noted that he had been watching trading this week hawkishly, and it had withstood attempts to drive it below that level). US stock futures trading has been restricted because it has fallen below 6%, its daily limit.

From the Wall Street Journal:

European shares tumbled Friday as fears of a long and deep recession grew, with the auto sector slumping after profit warnings from Renault and Peugeot-Citroen as well as weak results from Swedish truck maker Volvo.

The pan-European Dow Jones Stoxx 600 index dropped below 200 for the first time since mid 2003, falling 9.0% to 189.87. Among regional markets, the U.K. FTSE 100 Index dove 8.73% to 3730.78 and the German DAX 30 Index dropped 10% to 4068.43. The French CAC 40 index was down 10.2% at 2974.95, with Peugeot-Citroen among the biggest decliners, falling 14.1%.


And the credit market news is taking a gloomy turn again. From Bloomberg:

The cost of borrowing in dollars may rise as increasing prospects of a global recession prompts banks to hoard cash even after policy makers injected record amounts of the U.S. currency into financial markets.

The London interbank offered rate, or Libor, that banks charge for overnight loans in dollars may climb 4 basis points to 1.25 percent today, according to Jan Misch, a money-market trader at Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank. It increased for the first time in 10 days yesterday. The three-month lending rate for Hong Kong dollars, known as Hibor, rose for the second day, gaining 5 basis points to 3.29 percent.

``The level of activity in the money markets remains significantly below standard norms and subject to sporadic abnormalities that can only be a function of illiquidity,'' said Charles Diebel, head of European rates strategy at Nomura International Plc in London.


Now I want to know how Nouriel Roubini saw this coming. He went into what reader Dwight called Defcon One yesterday.

Marshall Auerbach e-mailed, saying (as we have) that the Fed is making matters worse:

All that's left is the Fed buying longer-term Treasury securities to attempt to flatten the curve, get mortgage rates down, and add reserves. This will flood the market with reserves that now pay interest. so they can do this without a zero interest rate policy.

Their theory is that with more reserves bank will lend more, which is not the case, both in theory and in practice, as Japan proved not long ago.

Instead of the Fed buying longer term securities, the Treasury should simply stop issuing them and issue more bills. The Treasury not issuing longer term securities is functionally the same as the Treasury issuing them and then the Fed buying them, but with a lot fewer transactional costs.

[Demeter]

13. Hedge funds discovered not to be an “asset class” after all

http://allaboutalpha.com/blog/2008/10/23/hedge-funds-discovered-not-to-be-an-asset-class-after-all/

One of the great cosmic tragedies in the past few years was the sad demotion of Pluto from a planet to a mere “planetoid”. After decades enjoying the exalted status of a true planet, the poor thing was summarily dumped by a vote of non-confidence from the International Astronomical Union in 2006. Yeah, we know - everyone shed a tear for Pluto that year. But it turns out the little ice ball was never a planet anyway, but just part of the Kuiper Belt, a ring of various flotsam and jetsam circling the solar system.

Despite being referred to as an “asset class” by the popular media for over a decade, hedge funds may someday meet the same fate. The issue is not that they are large enough - or even that their returns are high enough. Rather, the issue is that they simply fail to meet a number of key criteria for a “true” asset class - most notably the essential ability to coalesce around a central unifying return driver.

Alan Dorsey’s book Active Alpha (listed in our recommended books section) contains a great litmus test to determine what is and isn’t a true asset class. The entire book (minus a few critical pages) can be viewed online here.

Dorsey says that asset classes must meet 8 criteria:

The first is that it must have an “intrinsic value“. In other words it must provide a return that is not “speculative” and must have an “implicit rate of return”. On this basis, argues Dorsey, currency is not an asset class because currency does not provide any intrinsic value. Instead, any returns from currency investing are purely “speculative” in nature. Real Estate, on the other hand, does have an intrinsic value - the present value of all future cash flows produced by it. While the strategies pursued by hedge funds (such as merger arb) may have an intrinsic value (merger insurance), hedge funds in general deliver no common and defining intrinsic value.

The second is that it must provide “adequate liquidity“. As the media has been reporting ad nauseam recently, hedge funds don’t excel at providing investor liquidity. And one could easily argue that making them liquid would remove their illiquidity premium and thus remove part of what defines a hedge fund.

The third test is that it should have a low correlation with other asset classes. While many traditional asset classes have relatively high correlations (e.g. small cap US equities and large cap US equities), one of the very rationale behind demarcated asset classes is to exploit the benefits of diversification when combining them. Hedge funds score well on this measure since they have a relatively low correlation to other asset classes.

Fourth, Dorsey says that the constituents in a true asset class are homogeneous. Many traditional asset classes contain funds or individual securities with great similarity. Hedge funds, alas, are the financial equivalent of that bar in Star Wars with all the weird-looking, odd-ball aliens.

He argues that the risk of a true asset class is “estimable“. As we now know all too well, the “fat tails” in hedge fund returns make it very difficult to estimate their true risk. In other words, their volatility is itself volatile. (Mind you, Black Swans live in equity markets too.)

He says that in true asset classes, “structures and regulation are not impediments to investing”. Obviously, many hedge funds fail to qualify on this measure as well.

Seventh, Dorsey says that in order for an investment category to qualify as a true asset class, there must be a “large pool of talented managers”. There are thousands of hedge fund managers in the world. But, by definition, only a few that can exploit each unique return driver argues Dorsey. Hedge funds, after all, aim to exploit unique and yet-unexploited market anomalies.

Finally, Dorsey says that there must be passive benchmark available that tracks the performance of the asset class in aggregate. This is perhaps the most contentious issue in the hedge fund industry today. Can hedge fund returns - themselves an active strategy - be replicated with a passive index?

If hedge funds delivered pure alpha, their aggregate return should, in theory, be zero each year. Alpha is, after all, a zero-sum game. But hedge funds produce positive returns in most years. Critics say this is due to simple equity beta seeping into their returns (e.g. Q3, 2008). So if hedge funds are really just packagers of market beta (along with other betas and perhaps some alpha), then it’s the beta, not the hedge fund itself, that should be the basic unit of analysis for portfolio construction.

In fact, most traditional asset classes don’t fit the mold either. So why not throw out the entire concept of “asset classes” while we’re at it?

As it turns out, this is exactly what Dorsey concludes too:

“The inclusion of factor analysis in order to more accurately appraise both the independent and the interrelated attributes of all traditional and alternative investments helps to move beyond the definition of asset class and its rigidity…

“As alternative investment strategies blur and overlap, and ability to compare identical return drivers across disparate strategies is critical for an investor’s success and ability to construct an efficient portfolio of alternative investments.”

As a financial “Kuiper Belt”, hedge funds lack the gravity required to coalesce as a singular point in space. As a result, they are spread out around the financial system. On the other hand, traditional asset classes are big, well recognized and visible with the naked eye. But they only exist at one point in space. But at the end of the day, the debate over Pluto ’s status and Alan Dorsey’s minimization of traditional asset classes both go to show that traditional labels die hard.

[Demeter]

14. Depression Diary

Depression Diary
By TBMStaff


Benjamin Roth was born in New York City in 1894 and moved shortly thereafter to Youngstown, Ohio. He received a law degree and moved back to Youngstown after serving as an Army officer during World War I. When the stock market crashed in 1929, he had been practicing law for approximately 10 years, largely representing local businesses. After nearly two years, he began to grasp the magnitude of what had happened to American economic life, and in June 1931, he began writing down his impressions in a diary that he maintained intermittently until he died in 1978. His perceptions and experiences have a chilling similarity to our own era, and The Big Money believes that Roth's words—though they are 75 years old—have much to teach us today; we'll be serializing several excerpts.

Here is the first installment:

June 5, 1931. Immediately after the 1929 crash the speculators rushed in to buy "bargains" but were badly mistaken because the market kept going down and down even tho' industrial leaders kept on assuring the people that everything was fine and the worst was over. At the present time the newspapers are urging people to buy these "bargains" but opinion is much divided as to whether or not the bottom has been reached.

Investments in real estate and mortgages fared almost as badly as stocks. Since 1929 foreclosure by the banks has been the order of the day. Day after day real estate can be bought for the price of the first mortgage and there are no bidders except the bank which holds the first mortgage. In this way the banks are becoming the holders of huge quantities of real estate.

The worst feature about real estate in a depression is that it is illiquid and cannot be sold at any price. If it is free of mortgage the owner may hold on until normal times. But in most cases it is subject to mortgage; he cannot collect his rent from the tenants, cannot pay on his mortgage or taxes and eventually loses his equity by the foreclosure route.

June 15, 1931. Stocks continue to go lower and lower and dividends are being slashed right and left. For over a year now people have been buying stocks at what they think are bargain prices. These prices are much below 1929 but there is no way to tell if they have reached bottom. Only the blue chip stocks are still high. It seems there should be no rush to buy bargains in a panic. The opportunities are many and the period is often protracted. The best time to buy, of course, is when the panic is almost over. My guess is that we haven't seen the end yet.



July 30, 1931. Magazines and newspapers are full of articles telling people to buy stocks, real estate etc. at present bargain prices. They say that times are sure to get better and that many big fortunes have been built this way. The trouble is that nobody has any money. On account of numerous bank failures, the few people who have money are afraid to spend it and are buying government securities. From the extreme of speculation in 1929, people have now turned to the extreme of caution. In my own case I find it a problem to take in enough to pay expenses and there is nothing left for investment.

August 5, 1931. The town is stunned by the news that The Home Savings and Loan Co. has suspended payments and would demand 60 days notice of withdrawals. This is followed quickly by similar announcements from The Federal Savings and Loan Co. and The Metropolitan Savings and Loan Co. All of these loan companies paid 5 ½% on savings deposits and earned their money by lending on real estate. With the coming of the depression people stopped payments on their mortgages; mortgages became frozen and the banks had no ways to get cash. Mortgages are a safe investment but cannot be liquidated quickly and are not a good investment for a bank which has agreed to pay out its deposits on demand. For the past three days these institutions have been besieged by hysterical depositors demanding their money.

--------------------------------------------------------------------------------

Source URL: http://tbm.thebigmoney.com/articles/history-lesson/2008/10/23/depression-diary

[Demeter]

26. The Pain on Main

http://www.financialarmageddon.com/2008/10/the-pain-on-main.html

Back in the Great Depression years of the 1930s, unemployed writers, like unemployed steelworkers, were in need of jobs, and so the New Deal's Works Progress Administration, which put all sorts of Americans back to work, did so for writers as well -- 6,500 of them in the Federal Writers' Project at approximately $20 a week. Among other things, the FWP's writers produced a series of classic guide books to American cities and states, still enjoyable to read today. (Richard Wright and John Cheever were among the crew who, for example, did The WPA Guide to New York City.) FWP workers also gathered more than 10,000 first-person oral histories of ordinary -- yet extraordinary -- Americans, relatively few of which were ever published.

Almost 30 years ago, the writer Ann Banks collected 80 of these into a deeply moving memory piece of a book entitled First-Person America. When you read through it, one thing likely to strike you about its narratives from our last spectacular economic meltdown was how many of the speakers didn't distinguish between the 1920s and the 1930s, between, that is, "the roaring twenties" of the "Jazz Age" and the Great Depression era. For lots of them, it was all tough times. As Banks wrote in her introduction: "For most of the people in this book, the Depression was not the singular event it appears in retrospect. It was one more hardship in lives made difficult by immigration, world war, and work in low-paying industries before the regulation of wages and hours. Though they spoke of living through bad times, those interviewed by the Federal Writers seldom mentioned the Depression itself."

This came to my mind recently as I read in the Washington Post about a category of crime I hadn't known existed: desperate people in a money crunch, often behind on loan payments to car dealerships, who torch their cars and then try to collect insurance on them (usually by claiming they were stolen). Washington police estimate hundreds of such cases in their region just in the past two years. Though the numbers of such attempted frauds may now be on the rise, it's a phenomenon that hardly began with the collapse of Bear Stearns, or the tanking of the stock market, or the global credit crunch that followed. I was left wondering how many people this time around won't make much of a distinction between the blow-out 1990s, the Bush years in which the President, in response to the 9/11 attacks, asked Americans to head for Disney World and shop till they drop, and the disaster that is now almost certain to follow and haunt us all.

As more people today are behind on car loans than ever before, we undoubtedly can brace ourselves for a rise in car burnings in the years ahead, just as we are already seeing a rise in all kinds of extreme acts, including suicides, as ever more Americans have their homes foreclosed and face the reality of eviction. As Nick Turse, author of The Complex: How the Military Invades Our Everyday Lives, points out, if you search carefully through local news reports nationwide, you can already see where we're heading, and it isn't pretty. Not one bit.

[DemReadingDU]

27. This is interesting

Because it is difficult to find anyone old enough to remember, it's nice to see a diary being published about the way it was during the 1930's depression.

[snot]

38. v. interesting -- wish they'd included a lot more.

[Demeter]

44. I Guess We'll Have to Buy the Book!

[Demeter]

17. A Record Number of Buyers Cannot Take Delivery of the US Treasuries that They 'Own'

http://jessescrossroadscafe.blogspot.com/2008/10/buyers-of-treasuries-cannot-take.html


He who sells what isn't his'n
Must buy it back or go to Prison.
Daniel Drew

Naked short selling and float and reserve plays are causing a record 'failures to deliver' in the US Treasuries markets. Some of this may be a 'kiting' scheme in which the sellers are playing an aribtrage against the slight fees and penalties versus returns on price distortions and extremes in volatility.

Or it might be a case of selling and using the same thing so many times as collateral that you don't really know what is your actual condition, solvent or insolvent. We can think of several (roughly nine) derivative and instrument laden banks that are utterly insolvent if forced to deliver their net obligations.

The Fed cannot even regulate its own products among its own dealer circles. What could possibly possess anyone to believe that they can do this with any other product in a larger, less exclusive market?

There are system breakdowns that have caused signficant spikes in failures, such as the widespread technical failures following the distruptions caused by 911.

But we are not aware of any massive computer system failures and shutdowns at this time. This may be a case of when the going gets tough, the frat boys bend the rules until they break, and then line up for a slap on the wrist from dad's business associates.

Is this because of the failures of Lehman and Bear Stearns and AIG? Hard to believe but we have an open mind. Transparency builds confidence more effectively than rhetoric and empty promises.

Who are the responsible parties? Let's have a list of the prime offenders of this market. We might *not* be surprised at who is failing to deliver what they sell. It might be an indication that they are in trouble. Oops, perhaps that is why we can't have it.

We suspect the Fed is turning a 'blind eye' to this activity. But more transparency would be helpful to alleviate that concern.

And do not be surprised when other things that you think that you are buying or think you own fail to show up.

There are some who see an approaching 'fail to deliver' spike at the COMEX and they may be right. There were some who believed that LTCM was short 400 tons of gold at the time of its failure, and that several central banks stepped in to depress price and increase supply to alleviate the potential shock on counterparties.

Replay in progress? It could get interesting if it is.



Stand and Deliver: Significant Fails in the US Treasury Market - 10 Oct 2008


Delivery failures plague Treasury market
Total hit a record $2.29 trillion as of Oct. 1
By Dan Jamieson
October 19, 2008

The credit crisis is causing a growing number of delivery failures with Treasury securities.

The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).

The outstanding U.S. public debt is $10.3 trillion.

"Current levels are at historic levels," said Rob Toomey, managing director of the Securities Industry and Financial Markets Association's funding and government and agency securities divisions. "There's been significant flight to quality" with the market turmoil, he said.

With the strong demand for Treasury securities, "some of the entities that bought Treasuries are not making them available in the market, which is the traditional way to get them," Mr. Toomey said.

Unlike some past bouts with high failure rates that involved particular bond issues, the current high fails involve all types of maturities, he said. (Such as in the 2001-2003 market crash - Jesse)

This month, New York- and Washington-based SIFMA came out with a set of best practices to reduce failed deliveries.

This year, the New York Fed revised its own Treasury market trading guidelines. Its guidelines, originally released last year, warned that short-sellers "should make deliveries in good faith." (And all good boys and girls should remain pure until they are married - Jesse)

LACK OF LIQUIDITY

Chronic failures can increase illiquidity problems in the market and expose market participants to losses in the event of counterparty insolvency, according to the New York Fed.

"There is a question about there being some impact on liquidity if last for a long period," Mr. Toomey said.

Many retail investors also own Treasury securities, either directly or indirectly. The Treasury market is also an important fixed-income benchmark, so any liquidity problems can affect all participants.

In extreme cases, chronic fails could cause participants to limit their trading in secondary markets, the New York Fed said.

"Who wants to buy what they're not going to get?" said Susanne Trimbath, a market researcher with STP Advisory Services LLC of Santa Monica, Calif. In a September research paper, she estimated that based on failure rates in 2007 and 2008, the cost to investors from failed deliveries is about $7 billion annually. (Pays for the facials - Jesse)

The cost arises because sellers don't have access to their money. In addition, the federal government loses $42 million a year in lost revenue, and the states miss out on an additional $270 million in revenue due to excessive claims of tax-exempt income on state-tax-free Treasury securities, Ms. Trimbath said.

She and researchers at the New York Fed said that some delivery failures are intentional. (We're shocked, shocked! - Jesse)

As with naked shorting of stocks, naked shorting of Treasuries "allows you to avoid the borrowing costs," Ms. Trimbath said.

"There can be circumstances in a low-rate environment where it's cheaper to fail" than deliver, Mr. Toomey said. Such an environment also reduces incentives to act as a lender of securities, he said.

A 2005 study by the New York Fed confirmed that episodes of persistent settlement fails are often related to market participants' lack of incentive to avoid failing. (Thanks for the kind of knowledge that most mothers, teachers, and adults over the age of 25 could have told us for free, propeller heads - Jesse)

"We've got to get the , the Fed and SIFMA in there to force" Treasury traders to deliver securities, Ms. Trimbath said. (That ought not to be hard. We hear the Fed has people on premise every day with most of the probable perpetrators - Jesse)

The Department of the Treasury has a buy-in rule for the cash markets, but the repurchase markets rely on contracts, Mr. Toomey said. Currently there are no penalties for failures, and regulators to date have not required disclosure whether the dealer or the client fails to deliver. (Self regulation at its finest. Sounds like the honor system my neighbor uses to sell tomatoes in the summer from a box in her front yard. Except for the most part the people here in our neighborhood are not greedy, self-centered, shameless, hedonistic shits - Jesse)

By industry convention, fails are generally allowed to roll over until they are eventually closed out, Ms. Trimbath said.

SCRUTINY

She said that scrutiny by the SEC and the Fed, and widespread investigations into short-selling practices, are driving the industry to rein in questionable practices with Treasuries. (Apparently with 'great success,' Borat, given the record number of fails - Jesse)

Mr. Toomey said that one of SIFMA's best-practices suggestions is to require that extra margin be provided by the party that is underwater due to a failed delivery. (Wrist slap by fines is a real deterrent - Jesse)

SIFMA also said that it is establishing a Treasury fails monitoring committee, with representatives from the Fed and Treasury.

The committee will alert the market "when marketwide mitigation, remediation and the attention of management is warranted" because of a high level of fails, SIFMA said in a statement.

[DemReadingDU]

28. I called Vanguard today and was told

Vanguard doesn't use a third party to purchase Treasuries. Vanguard buys Treasuries directly from GOV. for the mutual funds.

[Hugin]

19. I've got my Port in one hand... My Weekly-reader in the other... In my teeth is clenched a...

Bubble Pipe.

Oh, please tell me these comfy looking wingbacks are fine Corinthian Leather.

[Demeter]

20. Why, I Believe They Must Be!

This is a faith-based economy, after all.

[Demeter]

21. Roubini Foresees Possible Market Shutdown

http://www.nakedcapitalism.com/2008/10/roubiini-foresees-possible-market.html


After the Fed, ECB,, Bank of England, and other central banks took unprecedented measures over the last month to restore liquidity and recapitalize banks, Nouriel Roubini sounded slightly less gloomy. He had deemed that the authorities has avoided a systemic financial meltdown, but a nasty, protracted recession was in the offing.

It appears that Roubini has reversed himself with his latest remarks He now says systemic risks are increasing due to hedge fund margin calls, redemptions, and liquidations, and the authorities may be forced to close financial markets. Note that this is not a new line of thought. During the turmoil of the last month, particularly the week of October 6, some professional investors were quietly discussing the possibility of short-term market closures.

From Bloomberg (hat tip readers Dwight, Saboor):

Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. ``There will be massive dumping of assets'' and ``hundreds of hedge funds are going to go bust,'' he said....

``Systemic risk has become bigger and bigger,'' Roubini said at the Hedge 2008 conference. ``We're seeing the beginning of a run on a big chunk of the hedge funds,'' and ``don't be surprised if policy makers need to close down markets for a week or two in coming days,'' he said.....

Italian Prime Minister Silvio Berlusconi roiled international markets on Oct. 10, first saying world leaders were discussing shutting down global financial exchanges, and then saying he didn't mean it.

``In a fairly Darwinian manner, many hedge funds will simply disappear,'' Roman said, speaking at the same event as Roubini...

``Things are getting very ugly also in the emerging markets,'' Roubini said. ``The usual saying is when the U.S. sneezes, the rest of the world catches a cold. Unfortunately, this time around the U.S. is not just sneezing, it has a severe case of chronic and persistent pneumonia. It's becoming a mess in emerging markets.''

Developing nations' borrowing costs jumped to the highest in six years today as Belarus joined Hungary, Ukraine and Pakistan in seeking a bailout from the International Monetary Fund to help weather frozen money markets and a slump in commodities. Argentina risks defaulting for the second time this decade.

``There are about a dozen emerging markets that are now in severe financial trouble,'' Roubini said. ``Even a small country can have a systemic effect on the global economy,'' he added. ``There is not going to be enough IMF money to support them.''

Roubini, a former senior adviser to the U.S. Treasury Department, earlier this month said that the world's biggest economy will suffer its worst recession in 40 years.

``This is the worst financial crisis in the U.S., Europe and now emerging markets that we've seen in a long time,'' Roubini said. ``Things will get much worse before they get better. I fear the worst is ahead of us.''

I'M SURPRISED IT HASN'T HAPPENED, MYSELF. MAYBE BUSH WILL PUSH THAT OFF ONTO OBAMA, TOO.

[Demeter]

22. Posted Just for Tansy Gold and Other Anti-Randites (dig the title!)

http://www.nakedcapitalism.com/2008/10/greenspan-shrugged-now-says-regulation.html


Greenspan Shrugged, Now Says Regulation is Necessary


Now that Greenspan has thrown in the towel, the free market ideologues have lost one of their most loyal advocates. From Bloomberg:

Former Federal Reserve Chairman Alan Greenspan called for tighter regulation of financial companies, distancing himself from the free-market culture that he helped to create.

Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony to the House Committee on Oversight and Government Reform. Other rules should address fraud and settlement of trades, he said. Greenspan's office released the text ahead of the hearing scheduled for 10 a.m. in Washington....

Today, the former chairman asked: ``What went wrong with global economic policies that had worked so effectively for nearly four decades?'' During his term at the Fed's helm, Greenspan repeatedly warned lawmakers against inhibiting markets, such as by tightening oversight of certain types of derivatives.

Greenspan, reiterated his ``shocked disbelief'' that financial companies failed to execute sufficient ``surveillance'' on their trading counterparties to prevent surging losses. The ``breakdown'' was clearest in the market where securities firms packaged home mortgages into debt sold on to other investors, he said.

Shocked, shocked? Greenspan really has no sense of irony.

[truedelphi]

35. Greenspan says,

``What went wrong with global economic policies that had worked so effectively for nearly four decades?''

Well, I would guess is that perhaps the 1999 Banking Reform Act with its insidious provisions stripping away so many protections had its hand in the debacle now underway.

Those protections were created in the 1930's so that the public would always always avoid a second major Depression. Once those protections were scrapped, the "freer" market of 2000 on allowed the Four Horsemen of Sub prime mortgages, SIV's, credit default swaps and the fact that few people could even understand all the provisions of the 1999 BAnking Reform Act, so how could the watchdogs protect us? The Act was so overly and comprehensively convoluted that untangling its legalisms was a job not even the most wary of Public Interest LAwyers could undertake.

[bemildred]

43. Voodoo economics did not "work effectively" for four decades.

That is another myth that needs to be debunked. It's like saying that sub-prime loans "worked effectively" for five years, it mis-states what was going on, which was living beyond ones means by borrowing.

[Demeter]

107. True! SOmething That Works Effectively Leaves Something Other Than Wreckage Behind

Look at what the New Deal left behind: trees, bridges, buildings, books, paintings, audio recordings, state and national parks, museums, Social Security, dams, electrification, this list is by no means exhaustive!

And afterwards: the GI bill, the Marshall Plan, NASA

And people thought, saved, used what they had efficiently, and became better people.

Can anybody swimming with the tide in business or government from the Reagan to Bush years make the same claim?

[Demeter]

23. CDS Too Risky for CME Trading, Key Members Say

A POSSIBLE CLUE TO THE FUTURE?

http://www.nakedcapitalism.com/2008/10/cds-too-risky-for-cme-trading-key.html


In theory, moving credit default swaps from over the counter trading to exchange trading should reduce systemic risk. Exchanges fail far less often than individual institutions, and when they do, the damage has less propensity to propagate into a systemic event.

As keen as the authorities are to get the big, opaque CDS market on a safer platform, obstacles remain. For a host of reasons, outstanding CDS cannot be migrated onto an exchange, but newly written CDS designed to fit certain parameters could be (in theory, old contracts could be "novated" in favor of new ones). CDS suitable for exchange trading would have to be far more standardized. How to simplify the offerings has yet to be sorted out.

The most valuable element of moving CDS to an exchange, as far as lowering systemic risk is concerned, is centralized clearing, since if anyone defaults, the counterparty is the exchange, not an individual firm. Thus regulators have been moving forward as quickly as possible to set up a central clearinghouse. In particular, the CME Group proposed acting as a clearlinghouse, which means that its members would absorb the losses if any counterparty failed. Some rival proposals suggested setting up a new clearinghouse, which is a much sounder design, but would take longer to implement.

However, some savvy and influential and savvy CME members are now objecting to the idea, arguing that the additional risk of CDS clearing on top of their existing CME obligations is more than the members can realistically support. Moreover, they contend that putting together CDS and futures under the same umbrella is too much risk in one venue, and will increase, not reduce systemic risk.

Note that CME Group (along with Citadel) is one of four groups vying to handle the CDS clearing function. However, CME appeared to be the frontrunner. Note that this wrinkle does not imperil the idea, but means there may be more speedbumps down the road.

This development suggests that the rush to get a CDS exchange (or at least a clearinghouse) up and running is being moved forward with such haste that some risks are not being assessed properly.

The article is a bit geeky, but is useful in setting forth some of the risks in CDS trading.

From Bloomberg (hat tip reader Steve):

Electronic trading pioneer Thomas Peterffy says a plan by CME Group Inc. to guarantee credit- default swaps could put his entire $4 billion company at risk.

CME Group's proposal to use its existing clearinghouse to clear swaps would require exchange members such as Peterffy's Interactive Brokers Group Inc. to bail out a failed trader. Those companies have put up $101 billion to guarantee the futures and options now cleared by CME.

``It would be a great mistake,'' said Peterffy, 64, a Hungarian immigrant whose company executes 14 percent of the world's equity options. ``Mixing the two types of funds will jeopardize the entire financial system'' set up to guarantee futures trades, he said.

Peterffy, whose concern is shared by CME Group members including Penson GHCO Chief Executive Officer Chris Hehmeyer, is balking at a plan that CME developed amid pressure from the Federal Reserve to create a safety net for risky credit-default trades, now traded on an over-the-counter basis. Failed investment bank Lehman Brothers Holdings Inc. was among the top 10 dealers in the $55 trillion CDS market.

CME Group announced its CDS clearing plan Oct. 7, saying it would reduce counterparty risk and offer the market a ``key turning point.'' A rival proposal by Intercontinental Exchange Inc. would avoid the issue raised by Peterffy by creating a separate clearinghouse to segregate its futures and credit-swaps business.

A clearinghouse, capitalized by its members, all but eliminates the risk of trading-partner default by being the buyer for every seller and the seller for every buyer. It employs daily mark-to-market pricing and liquidates positions of traders who can't pay their margin.

In OTC markets, traders rely on their counterparty to make good on their agreements. A trader with a cleared OTC position could put other CME member firms at risk of making up a shortfall if the trader couldn't cover the losses. CME's clearinghouse hasn't ever suffered a default...

Peterffy said he doubts that the exchange will be able to determine CDS pricing because they trade infrequently.

``There is no assurance once the buyer or seller goes bust you can liquidate those positions near the price'' that was settled upon the day before, Peterffy said. Interactive Brokers has as much as $1 billion pledged to equity and derivative exchanges, including CME Group, to fund trader shortfalls.

Credit-default swaps pay buyers face value for the underlying securities or cash equivalent should the company fail to keep to its debt agreements.

``I can see why people would be concerned by the CME's model,'' Penson GHCO's Hehmeyer said.

CDS pricing will still come from voice and electronically executed over-the-counter trades, said David Rutter, deputy CEO of ICAP Plc's electronic broking unit. Although most of these swaps trade daily, prices are not always available in all swaps, he said.

``The clearinghouse is potentially compromised if you don't have really good, independent and reliable mark-to-market information,'' Rutter said.

The amount of money traders must have on deposit, known as margin, is the main way clearinghouses insure against losses. CME Group will require higher margin to trade CDS than futures, Taylor said.

To set futures margins, CME Group tallies a trader's total potential portfolio loss in one day and uses that amount to derive the margin rate. For CDS contracts, CME Group will add up the potential portfolio losses over two to five days, and use that amount to set the margin rate, Taylor said.

Margin calls on CDS contracts could be a greater risk than with futures, said Howard Simons, a strategist at Bianco Research LLC in Glenview, Illinois.

``You have highly correlated systemic risk,'' he said. ``We have whole industries where if one's in trouble, all of them are in trouble.''

When Lehman went bankrupt last month, the cost of credit swaps on Morgan Stanley rose almost six-fold.

The CME Group risk committee, composed of the banks and hedge funds that capitalize its clearinghouse, will have to approve any new contracts cleared by the exchange. Taylor declined to comment on the risk committee.

[Demeter]

24. UBS, Merrill Said to Ask Asia Bankers to Fly Economy (Update4)

A COLD BREEZE BLOWS THROUGH OUR GENTEEL CLUB, AND THE OCCUPANTS SHUDDER! WHAT HORROR!

http://www.bloomberg.com/apps/news?pid=20601087&sid=azGlZTlJTw1k&refer=home

By Cathy Chan

Oct. 22 (Bloomberg) -- Merrill Lynch & Co., UBS AG and JPMorgan & Chase Co. are telling senior bankers in Asia to fly coach on short-haul flights and reduce non-essential travel as they step up cost cuts, officials at the firms said.

UBS advised bankers this month to travel economy class for flights of up to five hours, two officials at the biggest Swiss bank said, asking not to be identified because it's an internal policy. Merrill employees have been told to travel economy for flights of as much as three hours since mid-September, two executives at the firm said.

The world's largest banks and securities firms are trimming costs to survive the credit-market meltdown that toppled Lehman Brothers Holdings Inc. and forced Merrill Lynch to sell itself to Bank of America Corp. The financial-services industry has cut more than 140,000 jobs since a surge in subprime mortgage delinquencies began to roil global debt markets in 2007.

``Investment banking has almost disappeared in this market, and with revenue shrinking severely, it's sensible to cut every single type of cost they can,'' said Renault Kam, a senior portfolio manager at Atlantis Investment Management in Hong Kong, which oversees $5 billion. ``We haven't seen the worst yet.''

JPMorgan, the biggest U.S. bank, has requested senior bankers fly economy on flights of less than three hours since late August, said an official who declined to be identified.

Fly Cheaper, Less

Royal Bank of Scotland Plc, which ceded majority control to the U.K. government this month, in an Oct. 16 memo asked workers worldwide to fly economy on regional routes and to cut back on travel, said an RBS banker who's seen the document. RBS spokeswoman Hui Yukmin declined to comment.

HSBC Holdings Plc's Asia unit asked its Hong Kong department heads and branch managers to cut travel expenses by 15 percent to 20 percent next year, two officials at the bank said, citing a Sept. 23 memo sent by Chief Operating Officer Jon Addis.

HSBC is recommending China Eastern Airlines Corp., the country's third-biggest carrier, over Hong Kong Dragon Airlines Ltd. for business trips to Shanghai, the memo said, according to the people. Europe's biggest bank by market value cut 1,100 jobs at its global banking and markets division last month.

A round-trip business class ticket from Hong Kong to Shanghai with Dragonair costs HK$6,110 ($788) excluding tax, almost double the best coach fare. An economy class traveler on China Eastern pays HK$2,650.

[Demeter]

25. Robert Samuelson Displays Bad Logic Skills In the Washington Post

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=10&year=2008&base_name=robert_samuelson_displays_bad

Robert Samuelson desperately wants to cut Social Security and Medicare. To advance this agenda, he is pushing nonsense to young people, telling them that they should be furious about their parents and grandparents' Social Security and Medicare (seriously).

While young people have ample grounds to be angry at people like Samuelson and his wealthy friends who have rigged the rules to shift the bulk of the country's wealth into their pockets (e.g. the $700 billion bank bailout), it is close to lunacy to be angry at their parents and grandparents for getting their modest Social Security benefits. Of course Medicare is getting expensive, but that is because papers like the Washington Post protect the interests of the insurance industry and the drug companies, thereby making health care far more expensive in the United States than anywhere else in the world.

The reality is that most seniors will have almost nothing in retirement other than their Social Security and Medicare. This is largely because media outlets like the Washington Post touted the stock and housing bubbles and were largely closed to those issuing warnings of the disasters that these bubbles would cause. Most people therefore acted based on the views presented to them by the ill-informed "experts" whose voices were (and are) transmitted by these media outlets.

The basic story is that Samuelson is anxious to beat up on the victims of this disaster, but is too cowardly to mention the powerful (including his employer) who were really responsible.

--Dean Baker

[Dr.Phool]

29. J.K. Galbraith on Moyers right now.

TIVO the replay later.

[DemReadingDU]

30. Debt Rattle, October 24 2008: Shot to Rippons

posted by Ilargi at http://theautomaticearth.blogspot.com/
Debt Rattle, October 24 2008: Shot to Rippons

Ilargi: The losses in Asia and Europe are so large that there's no telling whether Wall Street will be open for trade by the end of the day. A fall of 1100 points before 2 PM EDT will trigger an automatic 1-hour trading halt. Pre-market stock futures trading was suspended when they reached their daily limit.

Still, I don’t think it’s wise to focus on Lower Manhattan too much. At noon, Wall Street was down "only" 4%, and there's always a chance that somehow the downfall can be mitigated, although it's getting hard to see how it could be achieved. Hey, at least there's a beautiful excuse here to spend more of your money on heroic rescues. Does Paulson still need to announce the next plan, or can he just implement the next trillion dollar blowout sight unseen?

No matter how the Dow fares, it'll be a weekend to remember. And I don't think American stocks will be the main story.

On the international front, there are many miles of dams and dikes about to burst. Denmark joins the list of trouble with a desperate rate hike; Romania does the same. ING Groep loses another 20%, even though it got $14 billion last week. Sterling and the Euro keep plunging (which makes Europeans happy). The Yen is heading for the skies beyond infinity, which takes enormous additional amounts of credit out of the markets, a much bigger issue than you might think.

The IMF announces a plan to help developing nations, but even if we were to assume that they have noble intentions -which we don't-, it is too little too late. The Fund is now talking to perhaps a dozen countries at the same time, and it can't seem to conclude any deals. It doesn't want to, it won't, and it can't. There'll be token amounts handed out, but only to countries that agree to give up what can basically be labeled their sovereignty.

The Fed’s huge dollar swap injections included only the "richest economies" (it's starting to get funny just to write that). For all the rest, it's every man for himself. So now the poorer nations face steeply rising interest rates on their loans. Not good. East Asian stock exchanges lost $860 billion this week, and they come with an $80 billion rescue plan. Anybody got a calculator?

I don't think the world markets have ever had a Black and Blue Sunday, but they could see a first. Investors have lost all confidence in Russia, and even though it has huge foreign reserves, there is a breaking point in every system. However, I still doubt that Russia will be exposed as the weakest link.

There is simply no way that all the holes around the planet can be plugged for much longer; it's a matter of days now. Trillions of dollars 'worth' of global equity value have vanished today alone, regardless of Wall Street. We have started down the path towards the worst financial crisis in history, an unprecedented event. Don't listen anymore to anyone anywhere saying there 'might' be a recession. This is a depression, and it will be much worse than the Great One.

How it will unfold is impossible to predict, but one thing is for sure: the rich will attempt to save themselves at the cost of the poor. And that should be a wake-up message for all of you. Politicians and bankers everywhere will keep insisting that their particular economy is in better shape than the others; they will continue to say this until it is no longer credible. I just see Canada's central banker and Treasury secretary pull that very rabbit from the same old hat. No matter that personal debt in Canada is higher than in the US, I guess. Politics and economics are faith-based systems.

Politicians lie; it's an integral part of their job description. It gets them votes. You vote for the guy and gal with a happy tale.

The problem with that is that it prevents their countries from preparing for what is the real, instead of the imaginary, future. And that in turn is a deadly threat for the poorer people within their societies, as well as the poor elsewhere in the world. The sense of entitlement of the middle classes, those who are not among the poor, is being maintained at unrealistic fantasy levels, and for an unrealistic length of time. The proof in the pudding: today’s report that US existing home sales numbers are up. You have to wonder what these folks are thinking. 98% are digging themselves into a hole for life.

Our societies, all of them, need to spread their remaining wealth, because if they don't, they will fall apart. The poverty this crisis will unload upon our lands will make that inevitable. You either share, or you face street fighting men. Over 90% of the 'money' that makes the world go round is make believe, and it's being renditioned and disappeared at lightning speed, to never be heard from again.

In a sense, that's a very healthy development. Yet, the way we are approaching it to date will not end well for many of us. Forget the Wall Street "bloodbath". Unless we change our ways real soon, we are talking real physical bloodbaths.

click to read related articles from around the world...
http://theautomaticearth.blogspot.com/2008/10/debt-rattle-october-24-2008-shot-to.html

[Demeter]

45. I Can't Fault His Conclusiions, But I Despair That Anyone Will Listen and Act

before large numbers of dead people accumulate in the streets. That's just where McCain wants us to go, too. What a sick sick idiot.

[DemReadingDU]

31. Generational Dynamics Web Log for 24-Oct-2008

posted by John J. Xenakis at http://www.generationaldynamics.com/cgi-bin/D.PL?s=InRzoK&d=ww2010.weblog

Roubini: The situation is "sheer panic," as hundreds of hedge funds are going bust

Policy makers may need to close markets for one or two weeks.

I've been sick for the last few days, but that's nothing compared to how sick hedge fund investors must be feeling.

Emmanuel Roman, CEO of GLG, Europe's biggest hedge fund, can't be feeling too well these days. Speaking at a hedge fund conference in London on Thursday, Roman said that 25-30% of the world's 8,000 hedge funds would disappear "in a Darwinian process." He added, "This will go down in the history books as one of the greatest fiascos of banking in 100 years."

Speaking at the same conference, New York University Professor Nouriel Roubini agreed, saying that, "We've reached a situation of sheer panic. There will be massive dumping of assets'' hundreds of hedge funds are going to go bust.

Roubini added, "Systemic risk has become bigger and bigger. We're seeing the beginning of a run on a big chunk of the hedge funds. ... Don't be surprised if policy makers need to close down markets for a week or two in coming days."

This scenario would be the generational panic and crash that Generational Dynamics has been predicting for years. (See "List of major Generational Dynamics predictions" for more information about Generational Dynamics predictions.)

As I've said many, many times, from the point of view of Generational Dynamics, if you go back through history, there are many small or regional recessions. But since the 1600s there have been only five major international financial crises: the 1637 Tulipomania bubble, the South Sea bubble of the 1710s-20s, the bankruptcy of the French monarchy in the 1789, the Panic of 1857, and the 1929 Wall Street crash.

These are called "generational crashes" because they occur every 70-80 years, just as the generation of people who lived through the last one have all disappeared, and the younger generations have resumed the same dangerous credit securitization practices that led to the previous generational crash. After each of these generational crashes, the survivors impose new rules or laws to make sure that it never happens again. As soon as those survivors are dead, the new generations ignore the rules, thinking that they're just for "old people," and a new generational crash occurs.

It's now been 79 years since the last generational panic and crash, so we're probably overdue for the next one.

What would one of these look like today? Here's how I've described it in the past:

"A generational crash is an elemental force of nature, like a tsunami.

You'll have millions or even tens of millions of Boomers and Generation-Xers in countries around the world, never having seen anything like this before, and in a state of total mass panic, trying to sell all at once. Computer systems will crash or will be clogged for hours, or perhaps even for a day or two. People who had hoped to get out just as the collapse is occurring will be totally screwed, and will lose everything. Brokers and other institutions will go bankrupt."

This sounds a lot like the kind of thing that Roubini is predicting.

A lot of investors don't realize this, but my expectation for a major "panic event" is similar to mainstream predictions of a "capitulation event."

Art Cashin is a very well known (and, I'm told, well beloved) analyst, working on the floor of the stock exchange. He appears frequently on TV, and on Thursday morning he appeared on CNBC before the market opened.

Art Cashin is a major proponent of the "capitulation" theory, and in this interview, he gave details about what he expects:

"Q: We're feeling the bottom again, Art. What's going to happen?

Cashin: I would love for a little bit of an up move today - maybe go up to 8750 or 8800 -- that would be a textbook Elliott Wave move -- and then you'd get that big washout / selloff. I was hoping for it by the end of this week, guess it's going to be pushed into next week. A dramatic climax looks like it's very near at hand here.

Q: Yikes! That could be scary. I guess if it was early November, that's not much different than making a low in October, is it Art?

Cashin: Well, in 1929, you made the low on November 4. I prefer to keep them in October. ,,,

I'm looking for a climactic bottom, down from here obviously, and that could carry through for several months , and then maybe in May, we'll get to know the full effect of the recession, and see how things look them. ...

I don't want to scare anybody. You could get an overtrade, You retest the original lows around 7850, you could go to 7400, you could go to 7000, you could even overtrade that. But it will be quick. Get your basket out, and be ready to catch the bargains when they come your way."

As I've pointed out before, this is a major mainstream view, and to a certain extent, it agrees with what I'm expecting (a generational panic and crash, as described above). This is the kind of thing that happened in 1987, and Cashin is expecting it to happen again.

When you drill down into the "capitulation" concept, you get something that's very strange. There's a large, amophous group of investors who are slowly selling their stocks, bring the market down. At some point, this amorphous group will become completely discouraged, they'll panic, sell off everything else, and "capitulate." Once this amorphous group of investors have sold everything off, then they won't push the market down any more, and the market will go up again.

The problem is: Who are the investors in this amorphous group? All the investors listen to these arguments on CNBC, so none of them is going to simply give up and capitulate at any time. So who are the pundits talking about with the capitulation message?

I'm trying to imagine what kind of person would see the market fall, and would say, "I'm not going to take a chance on losing any more money, so I'm going to get out of the market."

Generally speaking, the only person who might say that is someone from the Silent generation. They were running things in 1987, and this is exactly what happened. These Silent top-level managers simply decided to get out of the market, all at one time, at a time when the market was underpriced, and they ended up losing out in the rally.

But you can see where I'm going next -- the Silents are gone. I can't imagine a Boomer or Gen-Xer saying, "I'm not going to take a chance on losing any more money, so I'm going to get out of the market." (The exception, of course, is Boomers and Gen-Xers who read this web site.)

So this explains why there's a capitulation concept at all, why it applied in 1987, and why it doesn't apply at all today.

And so, getting back to what Cashin said, he and I are expecting roughly the same thing, a "panic event," but the differences in our views have to do with the aftermath:

* The Silent Generation led the selloff in 1987, and managed it very carefully, based on their memories of the Great Depression, so there really was no major emotional panic.

The Boomers and Gen-Xers today will be quite different, since they have no previous experience. They'll experience total panic, completely unlike the Silents in 1987.

* Although a relief rally at some point is possible, the long-term trend of the market will be to continue downward, for the next 3-4 years.

It's interesting that if you take all three people -- Nouriel Roubini, Art Cashin, and myself -- we're all expecting some major, cataclysmic event, but we all differ on the reasons for it, and what will happen afterwards. And although I would be reluctant to name a specific date for this event, it's clear that Roubini thinks it's coming very soon, and Cashin expects it within the next week.

From the point of view of Generational Dynamics, this will be one of the major events in history. From Tulipomania in the 1600s to the 1929 crash, there have been a series of five generational panics and crashes that will never be forgotten. We're now very close to the sixth one.

http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e081024#e081024

[phrigndumass]

32. Adding my rec while I still can, with a promise to come back Sunday :)

This thread is an awesome Sunday morning read, along with foo-foo coffee and my hair in knots :)

:hi:

[xocet]

34. The most recent reason for...

being in this particular economic position is illustrated by the following video:

http://www.youtube.com/watch?v=z-dYwPcJc9w.


Bad economic assessments by self-interested and ideological leaders are a significant part of the cause. Choosing new leaders who are open to examining the economic system that is used is a good first step to preventing this situation from recurring.

[gopbuster]

36. My prediction for next week.....

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25106391

[Hugin]

39. I was just now putting together my forecast for the next time frame...

It's not nearly as creative as yours though. :lol:

In fact, mine is fairly dire.

I'm thinking about forming a new pool around it.

It goes like this... Since the Treasury is as of Monday going to begin buying Commercial Paper (CP) A.K.A. The
Junk Bonds these huge unregulated Corporations use to pay for pesky things like Peon Payroll and HVAC. I see a
rally in the works for the next couple of weeks, due to the fact the arrogant 1-%ers will have been freed from
their fiscal obligations to their own workforce.

King Henry will have essentially converted all of the sub-prime financials workforce into unregulated Federal Employees.

Think of the money this frees up for Management to gamble with... Yes, I see a rally maybe even back up past the
11000 range. Just in time for the election in the beginning of November.

Mark these words.

[bemildred]

41. I don't doubt he will try.

Whether it will work, or work quickly, is another question.

I was thinking this morning. We have had these debacles in 1987, 2001, 2008, each time worse. Is this really any way to run an economy? Socialism and regulation may be boring, but isn't that what you REALLY want? Are famine and poverty and depression really the right answer to economic boredom?

[Hugin]

58. Of course, in the long run this move will only make the final fall worse.

But, none of TPTB have any foresight much longer than the next quarter or as in this case... The next election.

They really and truly act like addicts, their minds consumed with how to get the next fix.

Buying the Commercial Paper now is going to make the Obama Administration's work even more difficult. As I said above,
it pays for day to day operations and should it be deemed necessary to curtail it... Well, look for the Brown-shirts
to wave an ugly bony finger toward the results in future campaigning.

*sigh* I'm with you, I could sure use a boring and reasonably profitable regulated Economy geared to serve the Middle
Class. I miss stability.

[bemildred]

73. Very like gambling addicts, which is largely what "playing the market" is.

Keep on gambling for bigger stakes when you win, and chase the pot when you lose, until you are flat broke and can't borrow any more.

[gopbuster]

54. lol..saw that and thought it quite humorous....

FWIW...I think you are right for at least a bear market slow "relief" (would appear some here don't like that word) rally, but for some other added technical & fundamental reasons as well.

Money is gathering on the sidelines waiting to go to work and one spot we are starting to see positive money flow move into is the Utilities sector. There are other sectors that will see suport as well. We may see a hard spike down early next week to test the bottom again (intraday) and if it moves through it will get bought back up hard and then we can continue to build up off of this most recent bottom for a little while. I'm thinking this all will take place and start holding the base by next Wed or so.

The other scenario is we cup down towards the most recent bottom for a slow test and then continue flat with possible slow momentum build for a little.

Of course longer term I still think we will could be looking at the 5000-7000 area but I see that being decided over a longer term timeframe. It won't happen all at once as some here may presume. Simple supply and demand dynamics will not allow it to + it is in the MM's and PPT best interest to keep this thing as controlled as possible. They only make money the more orderly it flows in an up,down scenario.

Just some quick initial thoughts and my opinion.

[Hugin]

59. Yes, I agree with what you're saying here.

None of the fundamentals have really changed, they've only found other short term means of pumping money into
the failing financial apparatus.

It's like smearing dry wall compound on the hole in the Titanic. It only serves to annoy the fish.

[gopbuster]

55. Just of interest.....

A couple bellwhether type stocks in the Utilities and Natural gas sector are starting to wind up off of their bottoms...CHK, FPL and I'm sure there are others. I'm sure you are aware of this but just passing it along as something to watch as they may start picking up steam. Bigcharts has a pretty good performing/non performing sectors listings. The money has got to go somewhere!


http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=chk&sid=0&o_symb=chk&x=0&y=0

[gopbuster]

64. This should help to support the Financials in a stock market sense

I can't help but to think it will as they comment on any balance sheet improvements within the news releases'.

http://www.marketwatch.com/news/story/us-treasury-letting-banks-announce/story.aspx?guid=%7B0DB412A9%2D0E6D%2D40A9%2D9C33%2D82662BD93BA2%7D&dist=morenews




U.S. Treasury letting banks announce equity injections: WSJ
By Wallace Witkowski
Last update: 4:45 p.m. EDT Oct. 24, 2008
Comments: 6
SAN FRANCISCO (MarketWatch) -- The U.S. Treasury will let individual banks announce their participation in its equity injection program, foregoing an earlier plan where the Treasury would have announced which banks were participating, The Wall Street Journal reported late Friday on its Web site, citing people familiar with the matter. The Treasury was expected to announce that 22 banks were participating in the injections. Capital One Financial Corp. (COF:
Capital One Financial Corporation
(COF:

COF 35.30, -0.41, -1.1%) and SunTrust Banks Inc. (STI:
SunTrust Banks, Inc


STI 35.11, -1.09, -3.0%) are among the 22 banks on the list, according to the Journal. End of Story

[Dr.Phool]

42. My forecast for the next week to 10 days.

http://www.weather.com/outlook/travel/businesstraveler/local/34690?lswe=34690&lwsa=WeatherLocalUndeclared&from=whatwhere

:evilgrin:

[Demeter]

46. Goood Morning, Weekenders!

Are we all present and accounted for? (that's a little joke, son)

I'll be posting at random times during the weekend from the never-ending email file. Please feel free to add to our store of concentrated knowledge!

Anybody getting snow yet?

[gopbuster]

56. Hey Demeter...no snow..

sunny side up please!

I'll try not to crash your thread ...lol

[kickysnana]

63. Predicting flurries in N MN on Sunday. Today is glorious.

The Clinic next door is giving free flu shots, pumpkins, jumpropes and kettlecorn 10-2.

[Demeter]

47. `Out of Control' CEOs Spurned Davos Warnings on Risk (Update1)

http://www.bloomberg.com/apps/news?pid=20601109&sid=a9wVqOPk.T_4&refer=home



By A. Craig Copetas

Oct. 24 (Bloomberg) -- Once upon a time, the World Economic Forum was the ultimate Wall Street jamboree. Now, in the riptide of the worst financial crisis since the Great Depression, WEF officials and delegates say many of the chief executive officers who gathered in Davos, Switzerland, over the last five years didn't listen to warnings from their peers. Davos organizers also say they failed to play tough with the financial-industry bosses, opting to accept their funding and let them turn Davos into a rave-up for Wall Street excesses.

``The partying crept in,'' says Klaus Schwab, the 70-year- old WEF founder and executive chairman. ``We let it get out of control, and attention was taken away from the speed and complexity of how the world's challenges built up.''

The fallout has left the WEF riddled in buyer's remorse, with officials throughout the organization asking what they have wrought and, like Wall Street, whether they offered too much of a good thing.

Schwab says the delegates treated him like ``Cassandra'' whenever he questioned the logic of their wisdom on asset-price bubbles in housing, stocks and other financial instruments.

WEF Chief Operating Officer Kevin Steinberg says the vast sums of money that rolled in from Wall Street celebrities for marquee billing in Davos contributed to complacency among forum organizers and often obliged them to publicly massage the viewpoints, wishes and status of their superstar guests. ``We catered to what the financial leaders wanted: solo speaking slots, luxury hotels and VIP treatment we wouldn't afford anyone else,'' Steinberg, 38, says. ``We gave them a soapbox. It was all political. We try to minimize the politics, but can't.''

`Psychological Denial'

In his office outside Geneva, about a three-hour drive from Davos and overlooking the French Alps, Schwab says the WEF began issuing warnings in 2003 to investment banks, insurance companies and hedge funds about the systemic risk gnawing at the foundation of the global economy.

``But the financial community didn't listen,'' Schwab says. ``They were told that any serious look at the economic fundamentals showed that we were in an unstable situation. It was denial, total psychological denial.''

For next year, Schwab says his goal is to transform Davos into the ``Bretton Woods of the new millennium,'' a meeting targeted at establishing a fresh set of global rules for commercial and financial relations, much as the original Bretton Woods conference in New Hampshire did in the summer of 1944.

Ending the Merrymaking

As for the merrymaking, Schwab vows ``it won't happen again.'' Unlike Bretton Woods, companies will still pay as much as $750,000 each in annual fees to send executives to Davos.

``It was clear irresponsibility on their part and it's more damning than anyone can imagine,'' says Steinberg, who has been with the WEF for more than a decade. The former McKinsey & Co. management consultant supervises the forum's finance-industry delegates.

``By 2003, the over-leveraging of the system was a serious topic of conversation, but the some 60 of WEF's corporate members from the financial world never had an understanding of how big a problem it was,'' Steinberg adds. ``We had assembled the world's greatest economic experts to confer with them, and the financial community was not aware of that expertise.''

In 2005, Schwab says WEF's delegates from Wall Street were eyebrow-deep in booming markets, easy money and intense pressure to take greater risks, borrow more and seek higher returns.

One of WEF's sessions that year was ``Spotting the Next Bubble Before It Bursts.'' Goldman Sachs Group Inc. CEO Lloyd Blankfein ran the meeting with Syron, then CEO of Freddie Mac, the now-discredited U.S. government-sponsored mortgage buyer and reseller that along with Fannie Mae in September required a $200 billion U.S. government bailout.

Spotting Bubbles

The Blankfein-Syron mission: ``Spotting where and when the next bubbles are likely to occur and how we can get better at spotting and resisting bubbles,'' according to the program.

Yet Wall Street ignored the solutions offered at the meeting, says WEF Senior Director W. Lee Howell, 44, whose office created the session.

``I often wonder how many members were actually listening to what was being said,'' Howell says. ``I know the American financial community didn't show up in Davos to listen.''

Another ``bubble'' session the following January looked at real estate and was led by Stephen Roach, then Morgan Stanley's chief economist, who now is chairman of Morgan Stanley Asia Ltd.

``A sharp decline in housing prices could have a tremendous impact on the global economy; in the U.S. alone, 40 percent of new jobs since 2001 have been related to the housing sector. With low interest rates and excess liquidity, other bubbles may follow,'' the program read.

As Steinberg tells it, Wall Street arrived in Davos with a ``divide-and-conquer strategy'' that focused on using WEF to woo new clients and ``launch sales campaigns'' instead of ``collectively taking action to mitigate the evident systemic risk.''

Steinberg says there were scores of ``intelligent people'' raising storm flags in Davos for the last five years.

In 2007, former U.S. Treasury Secretary Lawrence Summers warned of complacency. He returned to the village in 2008 to say ``a cascading loss of confidence'' threatened to paralyze the global economy, comparing the market mood with the economic sentiment that prevailed just before World War I.

Guidance was offered by monetary-policy makers such as European Central Bank President Jean-Claude Trichet and Bundesbank President Axel Weber as well as economic wise men, including Yale University Professor Robert Shiller, U.S. Congressman Barney Frank and World Bank Director of Governance and Anti-Corruption Daniel Kaufmann. Such advice was swatted away by American confidence salesmen such as Michael Klein, co- president of Citigroup Inc.'s investment-banking unit, and David Rubenstein, managing director at the Carlyle Group buyout firm.

``I warned them all about global risk and the abusive nature of their actions, but they had no incentive to change,'' says Kaufmann, recalling his seven years as a global leader at Davos. ``And why should they have listened to us? I see it with my 10- year-old daughter, who scolds me because I don't put the garbage in the correct bin. Let's not delude ourselves. It's impossible to teach old dogs and investment bankers new tricks unless you change the incentive structure.''

The `Animals'

``It was all laid out in Davos,'' says WEF delegate Daniel Loeb, 46, owner of Third Point LLC, a New York-based hedge fund. ``The investment bankers got so caught up in competing with each other that they used the place to schmooze, instead of actually learning about what was going on in the world.''

[Demeter]

49. Citing the Biggest Losers: Post Shows Why Fed Missed the Bubble

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=10&year=2008&base_name=citing_the_biggest_losers_post

The Post gave an excellent illustration of how the economics profession managed to almost completely miss the housing bubble and the inevitable disaster that would be caused by its collapse. An article on Greenspan's acknowledgment that he made some mistakes cites Frederick Mishkin, a Columbia University professor and former Federal Reserve Board governor.

Mishkin is an interesting person to turn to as an authority. In 2006, Mr. Mishkin did an analysis of Iceland's economy in which he concluded that "the sources of financial instability that triggered financial crises in emerging market countries in recent years just are not present in Iceland."

At the time, Iceland had a current account deficit of 15 percent of GDP. The report claimed that this deficit was not necessarily a big problem, arguing that Iceland's system of inflation targeting provided the stability that allowed it to sustain current account deficits of this magnitude.

In the current economic crisis, Iceland's economy has been hit harder than any other wealthy country. Its banking system has completely collapsed and it has been desperately seeking a bailout from Russia or the IMF.

It would be difficult to imagine someone being more wrong about Iceland's economy than Mr. Mishkin, yet this does not damage his standing in the profession at all. Unlike custodians, cab drivers, or dishwashers, economists are not held accountable for their job performance. They can be wrong on everything they do every day of the week, and still be viewed as respected authorities by the Washington Post, and other media outlets, as well as members of Congress and others in policy positions.

This fact also supplies the answer to Alan Greenspan's claim that explosive situations like the housing bubble could not be seen:

"The Federal Reserve had as good an economic organization as exists ...If all those extraordinarily capable people were unable to foresee the development of this critical problem . . . we have to ask ourselves: Why is that? And the answer is that we're not smart enough as people. We just cannot see events that far in advance."

In fact, the problem is not that "we" cannot see events that far in advance. The problem is that the Federal Reserve Board and the economics profession as a whole functions more like a fraternity than a real forum for debate and truth seeking. Those whose views are taken seriously mimic the views of those with status and power within the profession, they do not think independently.

The failure of the economics profession to recognize the bubble and the harm that it would cause was due to the sociology of the profession. For any competent economist, the bubble was easy to see and the damage that its collapse would cause was entirely predictable.



--Dean Baker

[Demeter]

50. Mortgage Threat From Hedge Funds Irks Democrats By BARRY MEIER

http://www.nytimes.com/2008/10/25/business/25mortgage.html?_r=1&ref=business&oref=login


Several Democratic lawmakers lashed out Friday at hedge funds that have threatened to block attempts to renegotiate mortgages for struggling homeowners.

At least two funds, Greenwich Financial Services and Braddock Financial, have told banks that they may take legal action if loans are renegotiated in a way that hurts the funds’ financial interests.

Many hedge funds have purchased securities backed by mortgages. The New York Times reported Friday that Greenwich Financial and Braddock Financial, and possibly other funds, were resisting attempts to renegotiate the loans.

Several Democratic lawmakers, including Representative Barney Frank of Massachusetts, sent a letter to William Frey, the chief executive of Greenwich Financial, and Harvey B. Allon, the head of Braddock, asking them to testify about their positions at a hearing next month before the House Financial Services Committee. Mr. Frank heads that panel.

In their letter, the lawmakers expressed outrage that funds were threatening to block the renegotiation of troubled home loans. The letter also urged the funds to voluntarily withdraw their opposition.

“For the hedge fund industry, which has flourished from much of the past decade, to take steps so actively in opposition to what is currently in the national interest is deeply troubling,” the letter stated.

The clash highlights the type of conflicts that are likely to intensify as government intervention in the mortgage market widens. The Bush administration is working on a plan under which the government would absorb some of the losses resulting from modifying home loans.

[gopbuster]

80. Demeter...do you understand how BOA and Countrywide were able

to work their loan modification program without effecting any of the MBS pool investors?

I saw something to the effect that State AG's were involved and someone said this serves to trump any lawsuits by those investors. Does this sound right? If so, I would assume those investors are pretty well sunk. Not that they aren't already...lol...but

It sounds like this is going to be a real problem.

[Demeter]

82. Sorry, I Have No Details

It seems they can figure out a way, if a big enough gun is put to their heads...

Perhaps it had something to do with the way Countrywide processed the original loans.

[gopbuster]

90. Here is some more buried in a couple articles.....

http://money.cnn.com/2008/01/11/news/companies/countrywide_personal/index.htm

As for investors in mortgage-backed securities, restructuring of loans may help those investments as well. Taylor suggested that with portfolios "crashing and burning" now, some modifications of the loans may be able to help investors retrieve some return on the investment.

"Investors are happy about this," Taylor said, "If Bank of America can modify the loans, at least the investment is not a total loss."


This is really good news. Considering:


http://loanworkout.org/2008/10/bank-of-america-brand-seriously-infected-by-countrywide-loans/

The size of the mortgage servicing unit that the former Countrywide Financial, now Bank of America controls is gargantuan. Just In 2006 Countrywide financed 20% of all mortgages in the United States, at a value of about 3.5% of United States GDP, a proportion greater than any other single mortgage lender and also held the nation’s largest mortgage servicing portfolio of $1.35 trillion.

[Demeter]

94. They Must Have the Paperwork in House to Be Able to Do Anything

[Dr.Phool]

52. I'm present, but I'm scooting out of here for the week in about 1/2 hour.

Me and the wife headed over to St. Augustine for the day, then up to Jacksonville to catch the Browns game tomorrow. I hope the Jags show some mercy on the clowns. Then up to South Carolina for the rest of the week.

I have the laptop, and if I can pilfer my dads neighbor's wireless signal, I'll check in from time to time.

Watch out for the bears and the freepers. Don't crash anything without me.

Bye. :hi:

[gopbuster]

57. Have a safe trip Doc! nt

[Hugin]

61. Have a good trip...

As we learned from AnneD, there are many free/low-cost WiFi access points lurking out there. (I just saw one at
an Oil Change place.)

So, we'll be expecting to hear from you!

Take it easy.

:hi:

[Demeter]

48. States' Tax Receipts Fell Sharply in Latest Quarter

http://online.wsj.com/article/SB122488665240868147.html

State tax receipts were down sharply during the most recent quarter, representing what is likely to be their biggest decline in more than six years, according to a new report that highlights a widening fiscal crisis in state government.

The Center for Budget and Policy Priorities surveyed data from revenue departments for 15 states that had available figures, and found the median state experienced an inflation-adjusted 5.5% decline in total tax revenue during the quarter that ended in September. Total revenue was down in 14 of the 15 states, after adjusting for inflation.



The organization, a liberal think tank based in Washington, estimates states will face a total budget gap of $100 billion by fiscal 2010, which starts in the middle of next year, or about 15% of their budgets.

The decline in state tax receipts has potentially broad economic significance. The federal government is expected to keep spending relatively steady to prop up the failing economy. But states generally have rules requiring balanced budgets, and so must either cut spending or raise taxes -- both the opposite of what many economists, including some deficit hawks, say is needed during the current economic downturn.

In addition, states often take measures that exacerbate the difficulties created by the recession, such as tightening Medicaid eligibility at a time when workers lose their jobs and health insurance.

Cuts in state spending "will take demand out of the overall economy and worsen the economic downturn," said Nicholas Johnson, co-author of the Center's new paper and director of the group's State Fiscal Project. "Furloughing teachers, or cutting reimbursements to Medicaid providers, or cutting grants to nonprofit social-service providers or raising tuition at public colleges, these are all things that take dollars out of families' pockets, and that's money they can't spend in their local economies."

The new report found that states reported a median, inflation-adjusted decline of 7.3% in sales-tax revenue, driven by the drop in consumer spending. Personal income-tax revenue, which had kept growing until recently, was down 2% in the median state, after being adjusted for inflation, the report found. The drop in personal income taxes was driven by mounting job losses, which last month increased at the fastest pace in five years, according to the Labor Department.

The state reporting the biggest decline in tax revenue was Washington, which had an inflation-adjusted drop of 11.3%.

More broadly, the report found that 39 states have publicly announced budget problems for the current fiscal year or are projecting them for next year.

In California, for example, officials are looking to plug an estimated $3 billion shortfall this year -- out of a total budget of $103 billion, said H.D. Palmer, a spokesman for the state's Department of Finance. In Pennsylvania, Gov. Ed Rendell last month ordered a statewide 4.25% cut in most departmental budgets.

Chris Edwards, director of tax-policy studies at the libertarian Cato Institute, said the recession should prompt states to tighten their belts and overhaul programs. "Private companies do it all the time, and I think it's beneficial," he said. "Recessions come and go -- we survive."

AND THE REASON WHY MICHIGAN IS SHOWING POSITIVE GROWTH--BEEN IN "RECESSION" SINCE 2001, MAJOR FINANCIAL ADJUSTMENTS TO DEPRESSION-MODE OPERATIONS ALREADY OCCURRED, AND GOP BEING BROWBEATEN INTO RAISING REVENUES AFTER 12 YEARS OF ENGLER (AND BUSH AFTER) GIVING IT ALL AWAY.

[Demeter]

51. Stocks: A Bear Case (for retirement investing)

http://www.portfolio.com/views/blogs/market-movers/2008/10/24/stocks-a-bear-case?tid=true


If stocks fall, that means they're cheaper than they were. And if they've gotten cheaper, they must be a better investment, right? That's the gist of a blog entry from Jim Surowiecki today.

But that's not necessarily how this is going to play out. It's true that stocks have been a good long-term investment in the past, but that doesn't make them a good long-term investment in the future, even if they are looking cheap(ish) these days. And to understand why, it's worth looking at a very old-fashioned indicator: the stock market's dividend yield.

As Steve Waldman rightly points out, the vast majority of investors aren't speculators trying to maximize their net worth. Instead, they're trying to maintain their standard of living post-retirement:

Our current system does not serve savers well, because our markets offer inadequate ways of purchasing claims on future consumption (as opposed to claims on future production).

But for many decades, it was fair to assume that stock dividends, in aggregate, would rise more or less in line with the cost of living. When you bought a stock portfolio, you were buying a payments stream -- one which, you could be reasonably sure, would increase steadily over time. As such, some stock-market investors actually liked it when stocks went down, because that meant that buying future payments had just gotten cheaper, and you could buy more of them.

In the late 70s and early 80s, the S&P 500's dividend yield was over 5%, and it was not uncommon to find retirees living off their dividends. Even though the stock market was at depressed levels at the time, it had actually proved to be a perfectly good investment, because many shareholders cared only about the amount of their dividends, not the price of their stocks.

Then, however, things began to change. Stock prices started to rise much more quickly than dividends, making that future earnings stream much more expensive. And good stock market investments turned out to be not those which reliably paid a bit more in dividends than they had the previous year, but rather those which had increased the most in price. An entire stock-market sector -- tech stocks -- was created on the tacit understanding that most of them would pay no dividends at all, most of the time. And the most admired man in the stock market, Warren Buffett, also abjured dividends entirely.

In the mid-1990s, about the time that Alan Greenspan first started warning about "irrational exuberance", dividend yields dropped below 2% for the first time, and they stayed there even through the dot-com bust. People had long since stopped buying stocks for their dividends: now, they were investing in the expectation of future capital gains.

A stock portfolio wasn't something you could live off, any more: the only way to do that would be to sell it down over time. Equities might still be permanent capital from a corporate-finance point of view, but from the point of view of an individual investor, they were bought only to be sold, at a higher level, in the future, to someone else.

This worked for a long time. As defined-contribution pension plans replaced defined-benefit schemes, and as a generalized unanimity emerged that stocks were the first best place to put retirement savings, the flow of money into the stock market was more than healthy enough to keep prices rising and to justify people's faith that they would continue to do so indefinitely.

But if stock prices start falling year after year, then it will become increasingly apparent that it's not reasonable to expect long-term capital gains. Yes, stock prices have generally risen over the long term. But for most of the decades in question, people never really expected them to do so.

There's a word for an asset class which everybody expects to continue to rise in perpetuity: a bubble. And although stocks are down a long way from their highs, the idea of stocks as something to buy today and sell for more money tomorrow is so deeply ingrained in the national psyche that a few months of market volatility is nowhere near enough to erase it.

So consider this possibility: that stocks will continue to fall until their dividend yield reverts to its long-term historical mean, somewhere around 3.5%. At that point, people will start buying them not for capital gains but for income, and I think it's reasonable to expect a stock-market floor at roughly that level. From then on in, both prices and dividends would be expected to rise at roughly the same pace as national GDP.

Of course, there would still be volatility. But that doesn't mean that there's likely to be "exceptional performance in the future," in Surowiecki's words. Indeed, stock-market performance might be downright mediocre. Which might not be such a bad thing.

[gopbuster]

53. Hedge Fund Redemptions Are Driving This Market

Hedge Fund Redemptions Are Driving This Market
You need to understand the staggering amount of money in play.
By Jeff Bagley
THESTREET.COM — 4:30 PM ET 10/24/08

The newspapers blame the weakening economy and somber earnings forecasts for the sharp selloffs we've been experiencing. Declining earnings and recession fears play into the declines, to be sure, but the real story -- which does not get the headlines it truly deserves -- is the mass liquidation that is occurring within the highly leveraged hedge fund community.

The mind-boggling size of the redemptions -- resulting in the need to sell at any price, especially if leverage is involved -- renders obsolete even the most seasoned professional's playbook. Gaming investor sentiment and using valuation as a guide have proved to be folly in the face of the avalanche of forced selling.

The good news is that valuations will matter eventually, and the incredible amount of cash that is currently on the sidelines will be put to work. For now, though, it is imperative that investors realize that the selling we are seeing now is not the work of rational human beings. Rather, it is the result of the largest deleveraging in financial history.
Half a Trillion?

The numbers are staggering. Although estimates vary, the total size of the hedge fund industry was about $1.8 trillion at the end of the third quarter, with about a third of that controlled by funds of funds, which are notorious for their itchy trigger fingers. Redemptions in August and September were substantial, at about $60 billion according to Eurekahedge, with most of the money coming out of long/short equity funds.

more....https://news.fidelity.com/news/news.jhtml?cat=Opinion&articleid=200810241630STREETCMREALTIME_10444240&IMG=N



Im hearing this is what has been the culprit in the drop in gold as well...liquidating and raising cash

[Demeter]

70. Oil Too, No Doubt. They're CAshing in Everything to Cover Themselves

a going out of business sale, for the folks who have driven everybody else out of business with their tricks.

[gopbuster]

74. Yup.....cash and consolidation will be king going forward until the next bubble

can be found.

[gopbuster]

60. Dow Jones Renewable Energy Index looks beaten up pretty good

Might be worth keeping an eye on this as it appears to be cupping into a possible bottoming area.
See which individual stocks may start to perform.

All this money coming to the sidelines will have to eventually start going somewhere and this may end up being one of the places.

http://bigcharts.marketwatch.com/industry/bigcharts%2Dcom/focus.asp?bcind_ind=0583&bcind_sid=3233450

The Utilities and Natural gas producers are another area where positive money flow is holding.

Two co' appearing to be starting to wind up off of their possible bottoms are FPL, and CHK in their respective industries.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=FPL&sid=0&o_symb=FPL&x=0&y=0

Bigcharts looks to have a good industries sector watch listings

http://bigcharts.marketwatch.com/industry/bigcharts%2Dcom/

Another area will be healthcare co's to look for strength. One co I'm looking at is MMC with their Mercer consulting sub. Very diversified in other risk management consulting as well. They were competing with AIG in some areas but were NOT exposed to like what AIG was. MMC does not write insurance, strictly risk management consulting. Now that AIG is somewhat blackballed this may free up MMC for growth.

[Hugin]

62. I remain Bullish on Alternative Renewables, also.

I hope during this welcome respite in Energy costs which has appeared people don't lose their new found
motivation to work as hard as ever to diversify Energy production.

Let's not let crisis be the driving force!

[gopbuster]

67. Here might be an interesting little company to follow

A-Power Energy Provides a Follow up QA to its October 15th Conference Call
SHENYANG, China, Oct. 20 /Xinhua-PRNewswire-FirstCall/ -- A-Power Energy
Generation Systems, Ltd. (Nasdaq: APWR) ("A-Power"), would like to provide, as a
follow up to the management conference call on Wednesday, October 15, a summary
of the most common questions received from investors since that call and
management's responses to those questions.
Question: Will A-Power buy back stock?
Management's Response: We believe the stock is currently undervalued and are
discussing the opportunity to repurchase stock with our lawyers. We will make an
announcement if and when a stock repurchase program is implemented.
Question: How soon do you expect to hire a new CFO?
Management's Response: We are in the process of interviewing several CFO
candidates and are being highly selective on who we hire. Based on our
aggressive search campaign, hope to bring on a new full time CFO in the next 30
to 60 days.
Question: Does the company have any current plans to raise additional capital
in the equity markets?
Management's Response: No. A-Power has sufficient cash on its balance sheet, a
cash flow positive business and no debt. We are continuously evaluating new
opportunities that will be accretive to earnings, although as of today, we have
no plans to raise additional capital in the equity markets.
Question: How many distributed generation projects have you completed and how
many contracts currently make up the backlog of over $800 million?
Management's Response: A-Power has completed 13 distributed generation projects
to-date and has 10 additional contracts in process which provide for a backlog
of over $800 million. This does not include a recently signed MOU in Thailand
for a potential $300 million distributed generation project. The Thai project
will be added to our backlog once it is turned into a contract. As mentioned in
Mr. Lu's prepared statement in the call last Wednesday, the Thai MOU is expected
to be turned into a contract within the next 30 days.

more...........http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25088195

Looks like it's starting to cup into a bottom too.

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=APWR&sid=0&o_symb=APWR&x=0&y=0

[gopbuster]

65. Stocks to Watch (earnings) for Monday:

Verizon, Humana, Fidelity
By MarketWatch
Last update: 8:24 p.m. EDT Oct. 24, 2008
Comments: 14
SAN FRANCISCO (MarketWatch) -- Among the companies whose shares are expected to see active trade in Monday's session are Verizon Communications Inc., Humana Inc., and Fidelity National Information Services Inc.

more....http://www.marketwatch.com/news/story/stocks-focus-monday/story.aspx?guid=%7B87854E66%2D3648%2D4F31%2D9BEA%2DDC0F9A5D85CA%7D

[antigop]

66. So when will banks give loans?

http://www.nytimes.com/2008/10/25/business/25nocera.html

“Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”

It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked that question. It came toward the end of an employee-only conference call that had been largely devoted to meshing certain divisions of JPMorgan with its new acquisition, Washington Mutual.

Which, of course, it also got thanks to the federal government. Christmas came early at JPMorgan Chase.

The JPMorgan executive who was moderating the employee conference call didn’t hesitate to answer a question that was pretty politically sensitive given the events of the previous few weeks.
...
In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans.

[gopbuster]

68. Yep....they will use the money in an attempt to recoup losses on the investment

side of their balance sheets IMO

[gopbuster]

69. I other words,.. I'm not expecting the bubble ,bust cycle to change

The losses in toxic mortgage securities are only one facet of all the investment vehicles out there that banks and other financial institutions can use to make money. Both on the long and short side. They will find another securities avenue to pump to make up for their losses over time while slowly the credit market works itself out.

They may/will have to do it in a more regulated market though.

[DemReadingDU]

71. US pension benefit agency loses $5 billion

10/24/08 PBGC Chief Questioned on Investment Practices

The head of the U.S. Pension Benefit Guaranty Corporation said that his agency is facing a shortfall because it has lost nearly $5 billion in stock investments at a time when more companies are inadequately funding their pension plans, forcing the PBGC to take them over.

"PBGC has faced many challenges, including economic contraction in certain industries that traditionally have provided defined-benefit pensions," PBGC Director Charles Millard testified before the House Education and Labor Committee Friday.

PBGC reported earlier this week a $3.12 billion loss in equity investment during the 11 months ended August 2008. Those losses increased by roughly $1.7 billion in September alone, bringing the fiscal year 2008 total stock investment loss to $4.79 billion, according to documents released by the agency.

more...
http://online.wsj.com/article/SB122486911340367147.html?mod=googlenews_wsj

[snot]

109. Strikes me as strange

or at least interesting. They apparently hiked UP the stock portion of their portfolio to 45% a little over a year ago -- not v. good timing, that -- based on "consultation with an independent consultant."

THEN, notwithstanding that substantial percentage, they still expect to be DOWN no more than 7% for 2008. Under current conditions, that sounds pretty optimistic to me.

[gopbuster]

72. My stock market analysis for next week........

Friday was either a setup for a move into a final capitulation scenario or simply liquidation for traders that don't want to go long over the weekend. Fridays are not always a good gauge.

I'm sticking by my MACD approx. 15 day V bottom as, historically it hasn't failed.
See linear MACD here:

http://stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=3&mn=0&dy=0&id=p24698925914&a=113364392&listNum=23

Monday will be day 12

Everybody is looking for capitulation right now to get this over with. What we don't know is just how deep it will go. What we do know:

We do know there are buyers under 8000

We do at know at this area right here the buying has been weak and the MM's need to find the buyers at what ever area it takes. MM's play both the long and the short side of the market in order to position themselves to make money. As well as the big boys. It is in thier best interest to get this over with for the relief rally back up. The MM's are also sitting on a lot of shares at already incremental levels in preparation for a cycle back up. A controlled process is what they like to see and have a hand in, they make better money this way.

We do know we have hedge fund liquidation taking place as well as BOTH margin calls in the sell down scenario and the stronger hedge funds who have been selling gold and other asset to increase their cash positions, sitting on the sidelines to take advantage of buying opportunity on the long side.

We do know that there are institutions out there who have no other choice but to re- allocate their holdings, repositioning themselves as needed which can help to support this market as the perceived bargains in certain sectors present themselves. This helps to mitigate the hedge fund liquidation as they snap them up on the way down.

We do know that at 7882 we are extremely stretched to the down side within the context of supply and demand dynamics at this point in time.

What I think we will see, worst case, is a move down to test the 7882 with a possible penetration below. 7197 is 100% Fib and the intraday low 10/2002. This would be a total wash out. I don't see that happening at this point in time.


http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25017049


It will most likely recover at the 7400-7600 area, hopefully above.

Either way I'm sticking by my call that this will be over by Wed or Thurs of next week for the near term.

If I'm wrong I'll be the idiot! And this is certainly only one possible scenario. The other would be we continue to cup and go fairly flat with slow accumlation until either the next shoe drops or we work up out.

[Demeter]

75. Credit doors are closing

http://www.iht.com/articles/2008/10/05/business/views06.php


A crucial source of financing for companies and banks is making some ominous grinding sounds. The market for commercial paper, which is high-quality, short-term debt, shrank by a record $95 billion last week, to $1.6 trillion, according to the U.S. Federal Reserve. That's down from nearly $2 trillion before the credit crunch.

Meanwhile, interest rates on this normally inexpensive debt are skyrocketing. Borrowers had to pay 4.5 percent to borrow for one month in the CP market late last week, up from 3 percent Tuesday. Also, the market is essentially closed to all but the very strongest borrowers, and even they can't borrow money for more than a couple of months.

That is a big problem for companies that need to refinance outstanding CP that is coming due - which happens often, since maturities in this market only range from overnight to 270 days.

Partly, the CP market's problems are caused by recent problems in the world of money market mutual funds. Investors pulled a lot of cash out of those funds in mid-September, after several revealed losses. Those funds are usually big buyers of CP, but they had to cut back on their purchases.

That problem diminished somewhat when the U.S. government announced an insurance program for money fund investors on Sept. 19. The CP market's more recent woes have additional causes. First, investors' willingness to bear risk continues to decline throughout the financial markets. There is little interest in making loans to financial firms; the fall in their issuance of CP accounted for the bulk of the market's contraction. These borrowers are stuck on the sidelines until demand returns and interest rates fall.

But that may take time. Lenders have also been shunning corporate debt in favor of less risky government issues. And the U.S. Treasury has ramped up its sales of short-term debt. It recently issued $440 billion to finance the Federal Reserve's emergency lending programs. It may issue a lot more now that its $700 billion bank rescue plan has been approved by Congress.

All this government borrowing may be crowding out corporate borrowers. If so, the Treasury could find itself with an unpleasant paradox; its attempts to stabilize the debt markets may aggravate their problems. - Robert Cyran and Dwight Cass

[Demeter]

76. From 3 Weeks Ago: Cramer: It's a Worldwide Crash

http://www.informationclearinghouse.info/article20951.htm



By Jim Cramer
10/06/08 - 11:49 AM EDT
This post appeared earlier today on RealMoney.


Here it is, the dawning of the selloff that will finally put us at levels where ... we will sell off again.

For two years the credit markets have been submerged under central bank happy talk and a sense that the worries were about inflation. You can see why in the outlines of the institutions that are failing now.

The problem is the Europeans got stuck fighting the inflationary war that ended in July. Rates are ridiculously high in Europe vs. the crunching of debt that is happening and will continue to happen.

In our country, the "Fundamentals are Sound" group at Treasury, and the "Whip Inflation Now" group at the Federal Reserve couldn't switch fast enough either.

But boy, are they great at public relations. There has been remarkable awe at how well Treasury, the Fed and the FDIC are handling the crisis.

It seems very misplaced. Some of it is pure economic ignorance. Fed Chairman Ben Bernanke studied the Depression, or so they say, and knew more about how to stop it than anyone. Actually, he knew less than anyone, and he and his merry band of governors and presidents presided over the deflationary destruction of Western finance with a bias toward -- are you ready? --inflation. Yes, that's still their bias. We were able to jump-start the economy in 2003 with rates as low as 1%. But our rates are twice that now even though we are in a deflationary spiral, not an inflationary one. We should be printing money left and right here but Bernanke is Hoover and we all know it now.

There's another sainted figure, who I guess must call the media all the time to burnish his image. That's Tim Geithner, the Federal Reserve Bank of New York president, who is supposed to be the eyes and ears of the Fed. We learn from The New York Times Monday that Geithner was the genius behind the "not too big to fail" decision to keep Lehman out of the Federal Reserve system. That was brilliant. We had rescued Bear, but not twice-its-size Lehman, perhaps because the watchdog/press hound Geithner didn't understand the complexity of Lehman's book, or because it was time to mete out punishment to the worst banker on earth, Dick Fuld.

And I thought the guy had a handle on it. I was fooled, but unlike Geithner, I would have had to call Fuld a liar, and you can't do that without subpoena power and a bunch of sources who would betray him. I knew only the people who surrounded him, and they told me everything was fantastic, just a little slow.

Of course, we know the truth now. The Fed has been put out to pasture, a victim of being theoretical, not practical, an organization that simply didn't take seriously those of us who warned them in person and on TV. What did they think, we made it up for ratings? Is that what they thought? You think I, a reputed bull, want to go on TV and scream that they knew nothing? I would rather recommend Colgate(CL Quote - Cramer on CL - Stock Picks), but given the crisis it sure seemed worth waking them up.

Even as late as the summer, the Fed thought for sure the price of iron and copper meant more than the implosion of housing-based finance.

Now along comes Sheila Bair and Hank Paulson, who alternately want us to believe that everything is sound (with public pronouncements that the worry is misplaced) and that there is a list of obscure banks that might have to be taken over.

Then Paulson comes to the Capitol and says the truth, that the Western world of finance is going to break, and Bair seizes Washington Mutual and tries to seize Wachovia(WB Quote - Cramer on WB - Stock Picks), no doubt to save Citigroup(C Quote - Cramer on C - Stock Picks), which could have risen, done an equity offering and joined Bank of America(BAC Quote - Cramer on BAC - Stock Picks), JPMorgan(JPM Quote - Cramer on JPM - Stock Picks) and Wells Fargo(WFC Quote - Cramer on WFC - Stock Picks) as the new titans of finance.

Of course, either the FDIC doesn't know the tax law changed to make it so if Wells bought WB it wouldn't have to pay taxes on ordinary income for years, or was oblivious to the imminent passage of TARP.

This, plus the disintegration of Lehman, which then left Morgan Stanley (MS Quote - Cramer on MS - Stock Picks) and Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) in the hands of the shorts, was too much for everyone, and now no one lends to banks and it makes no sense to them, and no one wants commercial paper because it makes no sense to them.

Which is where we are this morning, in a worldwide crash that will leave us with gigantic institutions that we have never heard of, with balance sheets that are ridiculously large that must fall, and a hedge fund community that has lost control of its asset base.

And in this moment we are supposed to be buyers?

I say let it fall without me. I say keep selling industrials unless they yield more than 4%.

I say it is no longer in the hands of the central banks. It is in the hands of rational people making rational decisions to get out before more institutions fail, more hedge funds liquidate, and still lower prices are upon us.

At the time of publication, Cramer was long JPMorgan Chase, Morgan Stanley and Goldman Sachs.

[Demeter]

77. Russia's Crash `Pretty Much the Same' as 1929, Micex Chief Says

http://www.bloomberg.com/apps/news?pid=20601085&sid=a0Z7o9gkFaoA&refer=europe


By William Mauldin and Ellen Pinchuk

Oct. 8 (Bloomberg) -- The 67 percent decline in Russian equities this year resembles the U.S. stock market crash of 1929 because of the damaging effect of highly leveraged investors, the head of Russia's Micex Stock Exchange said.

Russian stocks have suffered three days of declines greater than 14 percent in the last month, (Sept)spurred in part by leveraged investors reducing their holdings after margin calls from their brokers. Speculators making bets with borrowed money also contributed to the 1929 stock-market crash in the U.S.

``It's pretty much the same thing,'' Micex Chief Executive Officer Alexei Rybnikov said today in an interview. Besides the level of leverage of domestic and foreign investors in the Russian market, Rybnikov cited the lack of long-term money from institutions and the absence of government pension reform as contributing to the market collapse.

``We don't have any long-term money here,'' he said. ``We need to sit down and think about what we need to do long term to make the Russian financial system more stable.''

Following the collapse of 1929, Regulation T required U.S. investors to purchase stock only when the amount of equity in their accounts makes up 50 percent of the purchase price. Russia's Federal Financial Markets Service on Sept. 26 increased the level of equity required for stock purchases to 50 percent from the previous level of 25 percent, the lowest of any major emerging market except for South Africa....The ruble- denominated index is down 67 percent from its May high, hurt by a withdrawal of cash from risky emerging markets, a drop in crude prices, and capital flight following the beginning of Russia's war with Georgia on Aug. 8.

The Micex Index currently trades at a price-to-earnings ratio of 3.9, compared with a ratio of almost 14 in May, according to data compiled by Bloomberg.

``Most of the Russian blue chips are extremely undervalued,'' Rybnikov said. ``The market will certainly find its bottom at some point.''

To contact the reporter on this story: William Mauldin in Moscow at [e-mail].

[Demeter]

78. Map of the week: The mystery of the missing opium (The Next Bubble?)

http://www.bbc.co.uk/blogs/thereporters/markeaston/2008/10/map_of_the_week_the_mystery_of.html


Mark Easton 8 Oct 08, 11:27 AM GMT

It's a mystery that has got British law enforcement officials and others across the planet scratching their heads. Put bluntly, enough heroin to supply the world's demand for years has simply disappeared. The United Nations Office on Drugs and Crime (UNODC) describes the situation as "a time bomb for public health and global security".

This week's Map of the Week comes courtesy of the UNODC. It shows their latest estimate of opium production in Afghanistan - another bumper year.



A crop of 7,700 tonnes will produce around 1,100 tonnes of heroin - it basically works on a 7:1 ratio.The mystery is that the global demand for heroin is less than half that. In other words, Afghanistan only needs to produce 3,500 tonnes to satisfy every known heroin user on the planet.

Look at the graph, though.



For the past three years, production has been running at almost twice the level of global demand.The numbers just don't add up.

There are two credible theories.

Theory 1: A large and undocumented market has opened up in countries which don't want to admit the problem. Russia has long been in denial over the scale of its heroin problem and the same may be true in emerging drug markets like Iran, Turkmenistan and Kazakhstan.

The Iranians are certainly increasingly anxious about the opium fields on their doorstep. Border guards and police have been involved in deadly shoot-outs with smugglers with experts suggesting that there are now a million heroin users in Iran.

But the over-supply is so great that it is hard to conceive of it all disappearing in to the blood-streams of new addicts in Tehran and Ashgabat.

Theory 2: Vast quantities of heroin and morphine are being stockpiled. Antonio Maria Costa, head of the UNODC is convinced that is the only explanation. In a recent bulletin he issues an urgent order: 'Find the missing opium.' "As a priority, intelligence services need to examine who holds this surplus, where it may go, and for what purpose" he says. "We know little about these stockpiles of drugs, besides that they are not in the hands of farmers."

Further credibility is given to the stockpiling theory in that 'farm-gate' prices for opium remain pretty stable at about $70 per kilo.

So where are the thousands of tonnes of drugs that the UNODC describe as a "time bomb"?

Well a clue, perhaps, comes from a senior law enforcement official who told me that British undercover teams in Afghanistan are reporting seizures of "enormous quantities of precursors".

Precursors are the chemicals required to turn base opium into heroin. The intelligence suggests that, rather than export opium to established drug laboratories in, for example, eastern Turkey, smugglers are processing the crop in Afghanistan.

The likelihood is that vast quantities of heroin are being warehoused somewhere close to the fields where the opium grows.

But there is another mystery surrounding the heroin market at the moment. If the international drug cartels are so awash with product that they are prepared to risk hiding billions of dollars worth, why are there shortages on some British streets?

That is the peculiar state of affairs revealed in Drugscope's recent trends survey.

"Some areas are experiencing outright shortages or shortages of good quality heroin. The quality of street heroin had dropped in 12 of the 20 town and cities surveyed, with five areas - Penzance, Cardiff, north London, Luton and Birmingham - noticing a shortage of the drug on the streets" the report says.

The field-work, conducted in July and August, finds shortages had typically been in place for two months - a longer stretch than is usual in a market well known for its peaks and troughs.

The Serious Organised Crime Agency (SOCA) believes the heroin shortage in some parts of the country could have been sparked by a rise in the price of UK wholesale heroin. "Current intelligence suggests that some criminal groups are having difficulty getting hold of what they perceive to be good quality heroin."

One theory is that smugglers are using new routes, increasingly distributing heroin through East Africa.The switch in tactics may have led to a temporary pause in supply which is being felt in the UK.

But very few would claim the shortages are the result of police activity. The Drugscope survey concludes that "street level drug enforcement had little long-term impact on illegal drug markets." At best, operations only disrupt the flow of drugs for a few days or weeks and merely displace drug use and drug dealing for a short time.

One serious anxiety is that the economic downturn will herald a new wave of drug misuse.The recession in the 80s coincided with the British heroin epidemic. In the US it was crack cocaine.

It is not just that people turn to drugs to blot out the misery of a downturn. If the crisis pushes up unemployment, it is likely that, deprived of a legitimate way to make a living, some may turn to an illegitimate source.

Perhaps a global downturn is what the drug cartels, with their huge stockpiles of heroin, have been waiting for.

Update: 16:10

Since posting this article the Serious Organised Crime Agency has been in touch.

SOCA has a number of undercover operatives in southern Afghanistan. They tell me this: "Whilst the cultivation and production of opium in Afghanistan is in decline, intelligence suggests there is considerable stockpiling of narcotics by Afghan criminal networks in order to control prices in the growing markets in Russia, China and within the local region."

I also understand that Nato's top operations commander is calling for more aggressive tactics against the opium trade in Afghanistan. US General John Craddock will tell Defence Ministers gathering in Budapest that troops should focus on "high-end" targets like drug dealers and laboratories.

Some Nato ministers, however, are concerned that any crackdown would prompt a violent backlash against allied troops.

[gopbuster]

81. Ha! Well if you believe Micheal Ruppert..now we know why the BFEE

and others wanted to salvage AIG. They now have control of the Opium market as well.



http://books.google.com/books?id=ezyLJrAu1SIC&pg=PA57&lpg=PA57&dq=AIG+heroin&source=web&ots=gfsSkKYygy&sig=mndHtCTMav0zyXu1NA45RcsWtOo&hl=en&sa=X&oi=book_result&resnum=1&ct=result

[Demeter]

83. How Very Intriguing!

I do love a good conspiracy---and I am becoming a believer, as far as BushCo is involved.

I always wondered if the opium trade wasn't the only thing that ever got the US (BushCo) army into Afghanistan in the first place. It certainly wasn't to hunt for Bin Ladin. Kharzai must have made a deal with the devil. I hope he lives to regret it and make it right.

[gopbuster]

85. Here is ...

in depth Ruppert article on this. Its part 2 of a multi-part and I didn't search around for the other parts:

http://www.fromthewilderness.com/free/ciadrugs/part_2.html

[Demeter]

87. You Know, I Appreciate the Recommendations

but this doesn't reduce my inbox any.....

[gopbuster]

91. ???? huh? I don't understand what you are saying?

[Demeter]

93. My Computer Crashed in May

and I had hundreds of emails from economic reports that I'm still going through. I'm down to 32 but they are the longer, meatier kind of newsletters. I sort through and post the best articles in this format for Stock Market Watch readers who need something to do on weekends....

But thank you for the posts. I really do appreciate them, even though my inner McCain wants to grumble!

[Hugin]

98. It's Demeter's way of a complement.

Demeter is saying that your posting of interesting articles isn't helping to reduce Demeter's backlog of e-mails because
they're being read by Demeter, now.

By all means, keep on posting these tidbits, though!

I read most of them even if I don't comment.

[gopbuster]

101. LOL...ok... I understand. I was a little confused

I thought maybe he had a little more time for discussion but that's ok and was really just passing them along to him since he sounded interested.

I would hate to think No Discussion Allowed..lol

I also assume it's ok for others to post things on topic as well.

I wouldn't want to upset our host and I certainly appreciate what he's doing.

I read everything here too.

[Hugin]

103. Discussion is absolutely allowed and encouraged!

Being that Economics is such a wide ranging topic it's hard to drift too far from it... I'm personally a big
fan of lateral and tangential thinking. As long as a line can be drawn from the events of the day to the point
or article being conveyed by a post then it's all fair game. Take last Week's sub-thread on Hard Times Recipes for
example.

There are no hard and fast rules, other than Demeter is not to touch the guillotine.

Oh, and there's a moratorium on flames... If you disagree with something, state your opinion and move on.

[Demeter]

110. Ah, Darn! I WANT to Be Working the Equipment, Prag!

Surely you've heard this joke before:

A priest, a rabbi, and an engineer (no doubt Polish, like Andrzej Tadeusz Bonawentura Kościuszko, since Poland seems to produce so many) were waiting their turn at the guillotine during France's Reign of Terror.

The priest requested that he lie face up, to see his God. And when the blade fell, it stopped just short of touching his neck. "It's a miracle!" the rabble cried, and the priest was set free.

So the rabbi makes the same request, reciting his prayers as the signal is given to release the blade of death, and again the guillotine stops short. The rabbi is released into exile.

The engineer makes the same request, to lie face up on Madame Guillotine. Just before the blade is released, he cries:"Wait a minute! I see what the problem is!"



After all, I've got to use all that training and degree for SOMETHING! Being a goddess simply isn't enough!

[DrDebug]

116. Karzai is the brother of THE heroin dealer of Afghanistan

The choice for Hamid Karzai was a very logical one because he was a former consultant for UNOCAL ( http://www.sourcewatch.org/index.php?title=Hamid_Karzai ) who wanted to create an oil and gas line across Afghanistan and he is the brother of Ahmed Wali Karzai whom is rumored to be one of the largest - if not the largest - opium dealer of Afghanistan ( See MSM sources: http://www.nytimes.com/2008/10/05/world/asia/05afghan.html?ref=asia http://www.iht.com/articles/2008/10/04/asia/05afghan.php )

Pseudo-development in Karzai's Afghanistan

by Marc W. Herold
Departments of Economics and Women's Studies
Whittemore School of Business & Economics
University of New Hampshire

POSTED MARCH 7, 2006 --



Welcome to the "new" Afghanistan, and please, ladies and gentlemen proceed up these golden stairways.

(...)

The forms taken by pseudo-development in Kabul are many and grotesque: construction of luxury hotels (photo above of elevator in the new Kabul City Center), shopping malls and ostentatious "corrupto-mansions,"1 grinding poverty amidst opulence, pervasive insecurity, lock-down and deserted streets at night, an opium and foreign monies-financed consumption boom, pervasive corruption, alcohol and prostitutes for the foreign clientele, and the long list of "Kabul's finest" - foreign ex-pats2, a bloated NGO-community, carpetbaggers and hangers-on of all stripes, money disbursers, neo-colonial administrators, opportunists, imported Chinese and Soviet Republic prostitutes, imported Thai masseuses in the Mustafa Hotel, bribed politicians and local power brokers, facilitators, beauticians (of the city planner or aesthetician types), members of the development establishment, do-gooders, mercenaries, fortune-hunters, enforcers, etc.3

(...)

As the glittering new palaces of consumption were opening up in Kabul, another story was unfolding. In December 2006, the Kabul police authorities were destroying and removing small shops of poor families in the Pol-e-Bagh Amoni area near the Serena Hotel. The authorities wanted to have the area cleared so as to allow safer access by roads, since the Serena is where visiting dignitaries frequently stay. Karzai's police moved in and smashed small shopping stalls, dumping them into the Kabul River.



(...)

Predictably, little changed outside Kabul, where the country remains ruled by local warlords, "rented" power brokers, drug kingpins, and the Taliban. The old warlords have not been sent into retirement, but merely shuffled around among top provincial jobs or cabinet posts. Kandahar's infamous Gul Agha Sherzai -- once labeled "the U.N.'s warlord of the year" was removed from Kandahar, given a ministerial post, and then sent off to be governor of Nangarhar province.31 Ismael Khan and Rashid Dostum were brought in from their regional fiefs to take a place in the Karzai cabinet, whereas other local kingmakers and U.S. favorites such as Hazrat Ali (Nangarhar) and Mohammad Atta (Mazar) continue with "business as usual" in their regional empires. Mohammad Yusuf Pashtun was transferred from being Minister of Urban Development to the post of governor of Kandahar, but the real power in Kandahar is Wali Ahmad Karzai, the president's drug-trafficking younger brother.

(...)

http://www.cursor.org/stories/emptyspace2.html

[AntiFascist]

118. An even deeper tinfoil hat theory...

about why opium is being stockpiled is that some catastrophic event is being planned that will require large supplies of morphine. You know how Republicans are threatening to "test" Obama...

[tama]

108. Drug cartell

called CIA/DEA.

[DemReadingDU]

79. Naomi Wolf film: The End of America

In a stunning indictment of sweeping policy changes during the Bush years, best-selling author Naomi Wolf makes a chilling case that American democracy is under threat. Investigating parallels between our current situation and the rise of dictators and fascism in once-free societies, Wolf uncovers a number of deeply unsettling similarities-from the use of paramilitary groups and secret prisons to the targeted suspension of the rule of law. With this galvanizing call to arms based on her recent book, she urges regular citizens to take back our legacy of freedom and justice. 75 minutes

http://www.snagfilms.com/films/watch/the_end_of_america/

Excellent, everyone should take the time to watch this

[Demeter]

84. Payrolls sink 159,000, worst job loss in 5 years/Hidden unemployment rises to 11%, highest in 14 yea

http://www.marketwatch.com/news/story/payrolls-fall-159000-september-worst/story.aspx?guid=%7b413F55F5-BFCA-4E68-9F94-9B695466A681%7d&dist=msr_17&print=true&dist=printMidSection

Main Street was really hurting even before Wall Street's latest illness, the government reported Friday. The U.S. economy lost 159,000 jobs in September, the worst since March 2003, the Labor Department reported Friday. The economy has now lost 760,000 jobs this year, further evidence that the economy was in a recession even before the financial market crisis of the past few weeks.

"Whatever the government might or might not do to try to bail out the financial system, a consumer-led recession is upon us, and it promises to be a serious one," wrote Josh Shapiro, economist for MFR Inc.

The unemployment rate was steady at 6.1% as expected, with 9.5 million Americans looking for work, the government said. An alternative measure of unemployment that includes discouraged workers rose from 10.7% to 11%, the highest since April 1994. The official unemployment rate will probably crest near 7%, said Stuart Hoffman, chief economist for PNC. Job losses in September were worse than expected and double the average monthly loss this year. Economists surveyed by MarketWatch were forecasting payrolls to fall 110,000.

Total hours worked in the economy fell by 0.5% in September and are now down 2% in the past year. The average workweek fell to a record-low 33.6 hours.

The number of people working part-time because no full-time job was available rose by 337,000 to 6.1 million. That figure is up by 1.6 million in the past year.


Job losses were widespread across industries. Of 274 industries, 38.1% were hiring in September, down from 44.7% in August, the weakest since July 2003.. Among broad sectors, only education and health services and government created jobs in September...

[snot]

124. "consumer-led" -- like it was our idea.

[Demeter]

86. A Little Problem With Capitalism By Thomas Walkom

http://www.thestar.com/article/507302


The financial crisis gripping the U.S. isn't an anomaly. We just have short memories
Sep 27, 2008

What's happening now on Wall Street is seen as a new story. It is not. It is a very old one.

Karl Marx wrote about it; so did John Maynard Keynes. More recently, tycoon George Soros has pronounced on it, as has the redoubtable Economist, a decidedly pro-free market financial magazine.

This old story is quite simple: Capitalism is unstable. It is an economic system that can be ruthlessly productive. But is also one of wheels within wheels – internal contradictions Marx called them – that can, and regularly do, spin out of control.

Marx, a German philosopher suffering from boils, saw these contradictions as opportunities; he figured that capitalism's self-destruction would lead to a better world.

Keynes, a British economist who liked to speculate in foreign currency over his morning tea and toast, saw them as problems that could destroy a world he rather liked. The welfare state edifice that bears his name was designed in the post-1945 period to, literally, save capitalism from itself.

Banks would be regulated to keep financiers from scamming the economy into the ground. Labour unions would be encouraged, in order to give workers a stake in the status quo and inoculate them against radical politics.

The rich would agree to government tax-and-spend policies, knowing that – in the end – it's always better to feed the poor than have them slit your throat.

It was a giant, unspoken bargain – forced by the Depression of the `30s, tempered by war and hammered into shape under the threat of Communism.

For a long time, it worked.

But the great bargain could never resolve those inconsistencies inherent in the world economy. Over time, new forces came into play....MORE AT LINK

Thomas Walkom writes on political economy. His regular column appears Wednesday and Saturday.

[Demeter]

88. The Subprime SubThread

http://www.time.com/time/business/article/0,8599,1847053,00.html

Maybe We Should Blame God for the Subprime Mess

Has the so-called Prosperity gospel turned its followers into some of the most willing participants — and hence, victims — of the current financial crisis? That's what a scholar of the fast-growing brand of Pentecostal Christianity believes. While researching a book on black televangelism, says Jonathan Walton, a religion professor at the University of California at Riverside, he realized that Prosperity's central promise — that God will "make a way" for poor people to enjoy the better things in life — had developed an additional, dangerous expression during the subprime-lending boom. Walton says that this encouraged congregants who got dicey mortgages to believe "God caused the bank to ignore my credit score and blessed me with my first house." The results, he says, "were disastrous, because they pretty much turned parishioners into prey for greedy brokers."

Others think he may be right. Says Anthea Butler, an expert in Pentecostalism at the University of Rochester in New York: "The pastor's not gonna say, 'Go down to Wachovia and get a loan,' but I have heard, 'Even if you have a poor credit rating, God can still bless you — if you put some faith out there , you'll get that house or that car or that apartment.' " Adds J. Lee Grady, editor of the magazine Charisma: "It definitely goes on, that a preacher might say, 'If you give this offering, God will give you a house.' And if they did get the house, people did think that it was an answer to prayer, when in fact it was really bad banking policy." If so, the situation offers a look at how a native-born faith built partially on American economic optimism entered into a toxic symbiosis with a pathological market.

Although a type of Pentecostalism, Prosperity theology adds a distinctive layer of supernatural positive thinking. Adherents will reap rewards if they prove their faith to God by contributing heavily to their churches, remaining mentally and verbally upbeat and concentrating on divine promises of worldly bounty supposedly strewn throughout the Bible. Critics call it a thinly disguised pastor-enrichment scam. Other experts, like Walton, note that for all its faults, the theology can empower people who have been taught to see themselves as financially or even culturally useless to feel they are "worthy of having more and doing more and being more." In some cases the philosophy has matured with its practitioners, encouraging good financial habits and entrepreneurship.

But Walton suggests that a decade's worth of ever easier credit acted like a drug in Prosperity's bloodstream. "The economic boom '90s and financial overextensions of the new millennium contributed to the success of the Prosperity message," he wrote recently on his personal blog as well as on the website Religion Dispatches. And not positively. "Narratives of how 'God blessed me with my first house despite my credit' were common. Sermons declaring 'It's your season to overflow' supplanted messages of economic sobriety," and "little attention was paid to ... the dangers of using one's home equity as an ATM to subsidize cars, clothes and vacations."

With the bubble burst, Walton and Butler assume that Prosperity congregants have taken a disproportionate hit, and they are curious as to how their churches will respond. Butler thinks some of the flashier ministries will shrink along with their congregants' fortunes. Says Walton: "You would think that the current economic conditions would undercut their theology." But he predicts they will persevere, since God's earthly largesse is just as attractive when one is behind the economic eight ball.

A recent publicly posted testimony by a congregant at the Brownsville Assembly of God, near Pensacola, Fla., seems to confirm his intuition. Brownsville is not even a classic Prosperity congregation — it relies more on the anointing of its pastors than on Scriptural promises of God. But the believer's note to his minister illustrates how magical thinking can prevail even after the mortgage blade has dropped. "Last Sunday," it read, "You said if anyone needed a miracle to come up. So I did. I was receiving foreclosure papers, so I asked you to anoint a picture of my home and you did and your wife joined with you in prayer as I cried. I went home feeling something good was going to happen. On Friday the 5th of September I got a phone call from my mortgage company and they came up with a new payment for the next 3 months of only $200. My mortgage is usually $1,020. Praise God for his Mercy & Grace."

And pray that the credit market doesn't tighten any further.


http://www.sundayherald.com/news/heraldnews/display.var.2457240.0.smoke_mirrors_and_how_a_handful_of_missed_mortgage_payments_started_the_global_financial_crisis.php


Smoke, mirrors ... and how a handful of missed mortgage payments started the global financial crisis

GLOBAL FINANCIAL CRISIS, PART 4: How we got here

-Iain Macwhirter traces the history of financial mismanagement, fraud and complex mathematics that combined to culminate in a run on – and the collapse of – some of the world’s biggest banks


LAST WEEK, something happened which I never expected to see in my lifetime. There was a general run on the entire British banking system, something that hasn't happened before, even in wartime. Ordinary people started moving their money around from bank to bank in fear that they might lose their cash. Millions of pounds were flowing across the Irish sea for the safe haven of the Irish government's recently-announced 100% depositor guarantee. The UK's banks were on the verge of losing public trust, and public trust is the one thing that banks need to survive.

We are witnessing what the commentator Martin Wolf of the Financial Times calls "the disintegration of the financial system". But how did we get here? How did a few dodgy sub-prime mortgages in American inner cities lead to what is beginning to look like the collapse of capitalism?

This is the great unanswered question in the midst of this extraordinary crisis, as banks implode one after the other across the world. We hear endless talk these days about "de-leveraging", "derivatives", "collateralised debt obligation" and "credit default swaps" most of which is completely incomprehensible - and very often designed to be. A lot of what has been going on is essentially fraudulent. But underneath all the jargon is a fundamental truth about banking: that it is based on a kind of confidence trick. It's called "fractional reserve banking". Alone among commercial institutions, banks are allowed to create value out of nothing - in other words, they are allowed to lend out money they don't have...The bankers knew perfectly what they were doing - the former Bank of England governor, Sir Eddie George, told a Commons Select Committee two years ago that the housing boom was "unsustainable" but that he and Gordon Brown deliberately inflated it to prevent a recession. Unfortunately, it got a bit out of hand.

The other problem with central banks always cutting interest rates was that this encourages the banks to stop behaving themselves. Huge institutions, including Lehman Brothers and HBOS, started to think they were invincible, masters of the universe, "too big to fail"...Banks like Northern Rock stopped bothering about the boring business of attracting deposits from savers and started borrowing money on the international money markets to fund ever more ludicrous mortgage lending - such as their 125% so-called "suicide" loans. Northern Rock was still selling these "together" loans six months after it was nationalised.

This confidence that central banks would ride to the rescue led banks to take bigger and bigger risks. Instead of lending 10 times the value of its underlying assets, investment banks including Lehman started lending out 30 times their asset value. This is called leveraging, and allowed the hedge funds and private equity groups financed by Lehman to go on buying sprees across corporate world. They were getting colossal quantities of almost free money.

"Leveraged buy-outs" (LBOs) became the name of the corporate game. Groups of investors would get together, target a company - for instance, the AA in the UK - borrow to buy it, load it up with more debt, sell it, and move on.

Hedge funds flipped multi-billion companies the way amateur property speculators in California flipped houses.

But it was all based on credit, and the dark side of credit is debt. All of this leveraging works only as long as the underlying assets retain their value. Using leverage seemed like free money. But when assets decline in value, the ugly side of debt appears in the form of "de-leveraging".

If a bank has loaned out 30 times its assets, it has loaned out £3 trillion on the basis of only £100bn in reserves. If those assets lose half their value, the bank finds itself in the hole to the tune of £1.5trn.

Greatly simplified, this is what has happened in the last year. A class of complex paper assets called "securities", which are based on the value of residential mortgages, started to lose their value as US house prices started to slide. The banks suddenly stopped trading these mortgage-backed securities because they were afraid of the potential losses that might show up if they did.

These assets included the now-infamous sub-prime loans - money lent to Americans who couldn't possibly pay, in what was essentially fraudulent behaviour - which were packaged up into "collateralised debt obligations" and sold on to other banks and governments who didn't really know what they were buying....MORE AT LINK--GOOD SUMMARY!

[Demeter]

89. Get Your Dollars Out Now! FAST!!!By Adrian Salbuchi

http://www.globalresearch.ca/index.php?context=va&aid=10430

03/10/08 "Global Research" -- - The events of the last two weeks have clearly revealed that the global financial, monetary and banking system imposed on the world by the power structures promoting "globalization" is fundamentally flawed, unviable and immoral in its effects upon the most all of Mankind. After allowing a small cabal of shady characters to illegitimately accumulate vast amounts of wealth and power over markets, corporations, industries, media, armed forces and entire nations, like the World Trade Center towers on 9/11, this entire System is now in free-fall, collapsing into itself in one massive implosion.

This loathsome and unjust Global Power System was designed and implemented over the past seven decades by the geopolitical and geoeconomic strategic planners serving the New World Order power structures, most notably its network of discrete, low-profile but highly powerful private think tanks, such as the Council on Foreign Relations (CFR, founded in New York in 1919), The Trilateral Commission (founded in 1973), The Bilderberg Conference (formed in Holland in 1954), and others like the Cato Institute, American Enterprise Institute (AEI), and the notorious Neo-con Project for a New American Century (PNAC) (1).

Considering the enormous complexity of the process that is taking place right now; the vast amounts of information we are bombarded with every minute of the day, and the apparent difficulty in foreseeing just how this global crisis will finally be resolved, we would summarize certain important aspects and key data which we believe will help us put together this veritable jig-saw puzzle, so that we may begin to fathom what the true face of this horrendous creature euphemistically called "globalization", is really like. As Argentine citizens, we have a huge advantage over other peoples including US citizens when it comes to understanding and coping with this kind of crisis. I say this because in our own lifetimes we have suffered in Argentina all of what is now happening globally - albeit on a much smaller scale in our case. We've seen this movie... We've been there, and done that... We've been pushed and dragged through the entire hysterical hocus-pocus of inflation, hyperinflation, systemic banking collapses, currency changes, Debt Bond Swaps, Mega-Debt Bond Swaps, financial "armouring", banking holidays, freezing of bank accounts, etc., etc... And we have also suffered the end-results: bank bail-outs paid for by taxpayers (or through inflation, or through the confiscation of savings), disappearance of pension funds, destruction of job posts and overall impoverishment of the population.

So, take a clue from our thirty years' experience in "financial meltdowns": GO GET YOUR DOLLARS OUT FROM YOUR BANK NOW, AND DO IT FAST!!!!

MUCH MORE AT LINK....:tinfoilhat:

[Hugin]

96. Oh, my...

:tinfoilhat:

[Demeter]

92. Bail Out the Homeowners! Why Paulson's Plan is a Fraud By Paul Craig Roberts

http://www.informationclearinghouse.info/article20930.htm




03/10/08 "ICH " -- - Is the Paulson bailout itself as big a fraud as the leveraged subprime mortgages?

Yesterday, here on CounterPunch, I discussed the bailout as proposed and noted that the proposal cannot succeed if it impairs the US Treasury’s credit standing and/or the combination of mark-to-market and short-selling permits short-sellers to prosper by driving more financial institutions into bankruptcy.

A reader’s comment and an article by Yale professors Jonathan Kopell and William Goetzmann raise precisely this question of the fraudulence of the Paulson package.

As one reader put it,“We have debt at three different levels: personal household debt, financial sector debt and public debt. The first has swamped the second and now the second is being made to swamp the third. The attitude of our leaders is to do nothing about the first level of debt and to pretend that the third level of debt doesn't matter at all.”

The argument for the bailout is that the banks will be free of the troubled instruments and can resume lending and that the US Treasury will recover most of the bailout costs, because only a small percentage of the underlying mortgages are bad. Let’s examine this argument.

In actual fact, the Paulson bailout does not address the core problem. It only addresses the problem for the financial institutions that hold the troubled assets. Under the bailout plan, the troubled assets move from the banks’ books to the Treasury’s. But the underlying problem--the continuing diminishment of mortgage and home values--remains and continues to worsen.

The origin of the crisis is at the homeowner level. Homeowners are defaulting on mortgages. Moving the financial instruments onto the Treasury’s books does not stop the rising default rate.

The bailout is focused on the wrong end of the problem. The bailout should be focused on the origin of the problem, the defaulting homeowners. The bailout should indemnify defaulting homeowners and pay off the delinquent mortgages. As Koppell and Goetzmann point out, the financial instruments are troubled because of mortgage defaults. Stopping the problem at its origin would restore the value of the mortgage-based derivatives and put an end to the crisis.

This approach has the further advantage of stopping the slide in housing prices and ending the erosion of local tax bases that result from foreclosures and houses being dumped on the market. What about the moral hazard of bailing out homeowners who over-leveraged themselves? Ask yourself: How does it differ from the moral hazard of bailing out the financial institutions that securitized questionable loans, insured them, and sold them as investment grade securities? Congress should focus the bailout on refinancing the troubled mortgages as the Home Owners’ Loan Corp. did in the 1930s, not on the troubled institutions holding the troubled instruments linked to the mortgages. Congress needs to back off, hold hearings, and talk with Koppell and Goetzmann.Congress must know the facts prior to taking action. The last thing Congress needs to do is to be panicked again into agreeing to a disastrous course.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions. He can be reached at: [e-mail]

[tama]

113. Fits

Economics, based on dogma of greed and selfishness, is a religion.

[Demeter]

95. Wishing the Insomniacs a Good Read, I'm Off Until Sunday

Stop in around lunchtime for whatever new stuff has come in over the transom...

[Hugin]

97. Laters, Demeter.

:hi:

[gopbuster]

99. A fun break from reading.....(chartgame)

http://chartgame.com

[Hugin]

100. Fixed.

http://chartgame.com/
:)

[gopbuster]

102. Oh I see..thanks! nt

[DemReadingDU]

105. BBC: Failure or fraud

10/24/08
As the global banking crisis deepens, a flood of multi-million dollar lawsuits is beginning to shed light into some of the darkest corners of international finance.

The BBC's Michael Robinson investigates these cases and what they reveal about the present disaster.

Some cases claim to show how well-known banks protected their profits by deceiving investors.

Others accuse top bank executives of using insider information to sell personal shareholdings before bad news about their bank was revealed.

The legal papers claim that the system that should independently rate the risk of investments was compromised.

While policymakers struggle to prevent a rerun of the Great Depression of the 1930s, these cases help highlight what some now call the greatest failure of regulation in modern financial history.

click to hear audio, 23 minutes
http://www.bbc.co.uk/worldservice/documentaries/2008/10/081022_failure_or_fraud.shtml

[Demeter]

111. Yup. All Part of that Vast, Right-Wing Conspiracy

which Hillary backed so quickly away from, I thought her pantsuit was on fire.

[Joe Chi Minh]

115. The debt bubble seems to have been a "racket", as per the definition cited

and enlarged upon by Smedley Butler:

"A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small 'inside' group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes."

In this case, of course, it seems to be at least the beginning of the end-game of the class war. And we'd imagined the rout inflicted on us by corporatism couldn't get much worse.

Heck, the son of one of the architects of this latest major, market-deregulation crisis, Margaret Thatcher, is arguably a convicted racketeer. Or rather, he settled a civil, racketeering-lawsuit in the US for an undisclosed sum. Can't have the Thatcher escutcheon sullied by such a matter, what with his mother being such a darling of the US Republicans. Does the tree grow far from the fallen apple?

[antigop]

119. Global financial storm hits Persian Gulf

http://online.wsj.com/article/SB122501263428669773.html

The global financial storm rolled across the Persian Gulf on Sunday, as Kuwait's central bank guaranteed bank deposits and cobbled together a hasty bailout for one of the country's largest banks.

The Kuwait intervention is the first bank rescue in the oil-rich Gulf, which until now had seemed relatively immune to the current crisis. It came as local markets across the region continued their steep selloffs. With oil prices down more than 50% from their July highs, the explosive, petroleum-fueled growth of the Gulf now looks suddenly vulnerable at the same time as international and local investors are pulling back sharply.

Saudi Arabia, in an apparent bid to ease the fallout of the global credit crisis on its citizens, said it would funnel some $2.3 billion in loans to low-income borrowers. And in Dubai, real-estate brokers in the Mideast boomtown said they are seeing signs of price weakness for the first time in years, as financing dries up and speculators bow out of the once red-hot market.

Property investors "are not finding buyers," says Tanya Vodenicharova, a property consultant at Dubai real-estate broker 9 Properties. A significant property-market correction in Dubai could crimp government finances, slowing or halting the debt-fueled economic expansion.

[Demeter]

120. They’re Shocked, Shocked, About the Mess By GRETCHEN MORGENSON

http://www.nytimes.com/2008/10/26/business/26gret.html?_r=1&ref=business&oref=slogin



MY poor, overtaxed, smoke-and-mirrors meter gave out altogether when Christopher Cox, chairman of the Securities and Exchange Commission, took his turn on the committee’s hot seat. His agency had allowed Wall Street firms to load up on leverage without increasing its oversight of them. But he said on Thursday that the credit crisis highlights “the need for a strong S.E.C., which is unique in its arm’s-length independence from the institutions and persons it regulates.”

He said that with a straight face, too.

There was more. Mr. Cox went on to suggest that his hapless agency should begin regulating credit-default swaps.

This, recall, is that $55 trillion market at the heart of almost every big corporate failure and near-collapse of recent months. Trading in these swaps, which offer insurance against debt defaults, exploded in recent years. As the market for the swaps grew, so did the risks — and the interconnectedness — among the firms that traded them.

During the years when these risks were ramping up unregulated, Mr. Cox and his crew were silent on the swaps beat.

How exasperating. After all the time and taxpayer money spent trying to resolve the financial crisis, we’re still in the middle of the maelstrom. The S.& P. 500-stock index was down 40.3 percent for the year at Friday’s close.

Yes, the problems are global, and made more complex by Wall Street’s financial engineers. And a titanic deleveraging process like the one we are in, where both consumers and companies must cut their debt loads, is never fun or over fast.

Still, as the stock market continues to grind lower, something more may be at work. And that something centers on trust and credibility, which have been lacking in corporate and government leadership in recent years.

Like the boy who cried wolf, corporate and regulatory officials have issued a lot of hogwash over the years. Until recently, investors were willing to believe it. Now they may not be so easily gulled.

Companies, even those in cyclical businesses, routinely told investors that the reason they so regularly beat their earnings forecasts was honest hard work — and not cookie-jar accounting. They were believed.

Politicians proclaiming that the economy was strong and that the crisis would not spread kept our trust.

Brokerage firms insisting that auction-rate securities were as good as cash won over investors — and, as we all know now, that market froze up.

Wall Street dealmakers were fawned over like all-knowing superstars, their comings and goings celebrated. No one doubted them.

Banks engaging in anything-goes lending practices assured shareholders that safety and soundness was their mantra. They, too, got a pass.

Directors who didn’t begin to understand the operational complexities of the companies they were charged with overseeing told stockholders that they were vigilant fiduciaries. Investors suspended their disbelief.

And regulators, asserting that they were policing the markets, convinced investors that there was a level playing field.

Is it any surprise that virulent mistrust seems to own the markets now?

Janet Tavakoli, a finance industry consultant who is president of Tavakoli Structured Finance, said the stock market’s gyrations are a result of a severe lack of confidence in the very officials who are charged with cleaning up the nation’s mess.

“It is not enough to throw money at a problem; you also have to use honesty and common sense,” Ms. Tavakoli said. “In fact, if you leave out the last two, you are wasting taxpayers’ money.”

What Ms. Tavakoli means by common sense is a plan that will force institutions to get a fix on what their holdings are actually worth.

“If you are going to hand out capital, you have to first revalue the assets or take over so that you can force a mark to market,” she said. “Force restructurings, mark down the assets to defensible levels and let the market clear.”

She also suggests that financial regulators impose a form of martial law, allowing them to rewrite derivatives contracts that bind counterparties to terms they may not even comprehend.

“If I were queen of the world, I would wade in there with a small army of people and just start straightening out these books,” she said. “Start stripping them down and simplifying contracts so people can start to understand what they own. It would be unprecedented, but so is everything else we are doing.”

THAT move, which would begin the much-needed healing process for investors, would be unprecedented in another way. It might get the people who run our companies and our regulatory agencies into the business of telling the truth.

Naïve, I know. But something to wish for — I’d like to give my hypocrisy meter a breather.

[Demeter]

121. The Price of Optimism By DAVID LEONHARDT

http://www.nytimes.com/2008/10/26/magazine/26wwln-lede-t.html?ref=business



On a recent morning in Manhattan, a friend of mine walked into his bank, carrying his briefcase. He went up to the teller’s window and asked to withdraw thousands of dollars of his savings, which the teller handed over in $100 bills. He then walked home, holding his briefcase a little more tightly than usual, and put his money in a drawer.

Was he being a little paranoid? He knew that he was. His savings were guaranteed by the Federal Deposit Insurance Corporation, which, as government officials have been reminding us lately, has never failed to cover a bank deposit in its 70 years of existence. Cash in a drawer comes with no such guarantee. If there’s a house fire, the money is gone. But my friend figured that even if his savings were at no real risk of disappearing at the bank, they might become unavailable to him for some period of weeks or moths, were the financial crisis to keep worsening. He didn’t like that idea. So he was willing to give up a few months of interest — meager interest, to be sure — in exchange for a sense of control. Given all of the once-unthinkable events that had already happened, it was hard to know what might come next.

For the better part of the past two decades, Americans have been living in a state of willful optimism about our financial future. It is probably fair to date the start of this period to the late 1980s, when the stock market took off and the Soviet empire began to unravel. Since then, our default attitude toward the economy has been to believe that, one way or another, things will work out.

Companies began ditching their pension plans, forcing workers into riskier 401(k)s. But, really, how risky could they be? They were invested mainly in the stock market, one of the most profitable investment vehicles in the history of mankind. We became so comfortable with Wall Street, in fact, that we moved money out of boring old F.D.I.C.-insured accounts and into uninsured mutual funds. Many people simply stopped saving altogether. So did the federal government in the last several years, despite the enormous Medicare and Social Security bills that are just around the corner. We told ourselves that everything would be fine, because the alternative seemed so implausible....


At times over the past several weeks, the country has certainly gone too far in the other direction. Our binge of optimism has been followed by bouts of deep pessimism, which is a dangerous combination. It’s the stuff of bank runs, stock-market crashes and once-in-a-century economic downturns. Finding the right middle ground — in which we neither hoard our way into a deep recession nor spend our way into bankruptcy — will not be easy. But it’s also not impossible. Economic mores can change.

Well into the 1940s, Americans wondered whether the hard times had really ended. They spent the next few decades behaving as if the country’s prosperity depended on their actions. They saved money, which provided the capital for the great postwar boom and also paid for their retirement. Then came the change, and many of us began to assume that prosperity was an inalienable part of life, regardless of what we did. We failed to be sufficiently afraid of the alternative. A little fear can often be a healthy thing.

David Leonhardt is an economics columnist for The Times and a staff writer for the magazine.

[Demeter]

122. Greed a deadly sin for the economy Paul Sheehan

On July 30 Hans Redeker, head of foreign exchange strategy at BNP Paribas, Europe's biggest investment bank, predicted: "The Aussie is going down, big time."

Back then - it already seems like a long time ago - the Australian dollar was sitting majestically at 97 cents to the US dollar, which was taking a battering. But the Aussie did, indeed, go down, big time. Within three months it had crashed by 33 per cent to US65.5 cents. Now Redeker has issued another warning to Australia. We'll get to that. But first, let's look at his track record.

December 2006: Redeker predicted a sharp recession in the United States, saying the condition of its housing market was worse than the experts were stating and the flow-on effects would be much worse than predicted. That was almost two years ago. He was right.

January 2008: He predicted the Aussie dollar was facing two years of decline, and expected to see it fall to 66 cents. He was right. He also predicted a rise in financial market volatility, higher inflation worldwide, higher interest rates in Asia, weakening demand for Australia's minerals exports from China, and a weaker sharemarket in China, all of which would drive down the Australian dollar. Since then, the Shanghai sharemarket has crashed 50 per cent from its peak.

October 2008: Two weeks ago Redeker repeated his claim that abundant foreign money had been available to Australia and too much of it had been spent on real estate, creating a speculative bubble: "The easy money went straight into real estate ... Australia will now have to generate 4 per cent of GDP to meet payments to foreign holders of its assets. This is twice as high as the burden faced by the US."

After the Australian Reserve Bank slashed key interest rates by 1 percentage point, Redeker also told London's Telegraph that he was concerned about what the Australian Government may do. "Yes, Australia has a fiscal surplus, but that does not offer as much protection as people think. If the Government boosts spending further, the current account deficit will spiral out of control."

And what has the Rudd Government just done? Boost spending.

There was certainly no discussion of the current account deficit spinning out of control, or Australia's excessive debt, when the Prime Minister, Kevin Rudd, launched his $10 billion economic stimulus package last week, nor any from the Opposition Leader, Malcolm Turnbull, who offered in-principle bipartisan support.

It gets worse. Redeker continued: "There is a risk, however remote, that Australia could face some of the foreign funding difficulties we have seen in Iceland."

Iceland! Iceland was the most leveraged economy in the developed world when it became the first economy to be bankrupted by the credit crisis. You do not want to be mentioned in the same sentence as Iceland unless the discussion is fishing or blondes.

After quoting Redeker, the Telegraph's global business columnist, Ambrose Evans-Pritchard, weighed in with his own commentary: "The immediate problem for Australia's banks is that they gorged on offshore US dollar markets to fund expansion because the interest costs were lower. They were playing ... on a huge scale with leverage ... European banks face much the same problem as dollar liabilities come back to haunt, but Australian lenders have pushed their luck even further."

Gabriel Stein, of Lombard Street Research, weighed in with this, after noting that Australian household debt had reached 177 per cent of gross domestic product, almost a world record: "It is amazing that in the midst of the biggest commodity boom ever seen they have still been unable to get a current account surplus. They have been living beyond their means for 10 years. What worries me is that productivity growth has been very low: they have been coasting after their reforms in the 1990s."

The global financial world is watching the Australian dollar because it holds a key to the great unanswered question of this uncertain era: will the global market punish a currency for its declining interest yield? Or will it reward a currency because of the soundness of its economy? Central banks are acutely interested in the answer.

Evans-Pritchard thinks the early signs are hopeful that the answer is the good one, that nations will be rewarded for having sound economies. But he does not believe Australia can escape the consequences of excess: "Australia has allowed its net foreign liabilities to reach 60 per cent of GDP during a decade-long boom, twice the level of the US. The country will, in effect, have to pay 4 per cent of GDP in the form of rents to foreign asset-holders as the bill for such extravagance falls due."

The bill is falling due. Earlier in the year Australians travelling in Europe would have paid about $1.50 for every euro spent. Today they need $2.10. The Aussie dollar is weak again, despite all the luck of the China boom. This raises a number of awkward questions. Did the lucky country became the greedy country? Did it fail to sufficiently embark on a program of nation-building during the resources boom? Was most of the bonus redistributed as tax cuts, which were spent chasing bigger mortgages, bigger homes, new cars and general consumption, stimulating short-term economic growth but not enough on long-term productivity and higher savings?

During 17 years of unbroken economic expansion and a 10-year commodities boom, it took a lot of people, borrowing a lot of money, taking a lot of unproductive risk, to get to where we are today: a nation with excessive debt and excessive vulnerability to external circumstances barely within our control.


This story was found at: http://www.smh.com.au/articles/2008/10/19/1224351052160.html

[Demeter]

123. That's All for This Edition from Me, Folks. Talk Amongst Yourselves!

And have a safe, calm and happy week before the election!

[KoKo]

125. Kick.......Good links here.....thanks!

[KoKo]

126. Kick for good links, articles....thanks!