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Global financial system implosion begins

Some claim it was engineered and following the money trail it can be seen, even from their correspondence and internal memos/policies, who actually benefited and how it came to be, seeing as it [Fed] was in private hands...
 
Oh absolutely, there was a huge transfer of wealth from the working and middle classes to controlling elites following a long period of the govt turning a blind eye to shady practices amongst the big players. I think then as now the downturn was the point where the wealth transfer was 'locked in', i.e. the point where ordinary people learned that they were expected to foot the bill.
 
More solids on collision course for the air-con:
According to Credit Suisse, $1,000bn (£694bn, €772bn) of Alt-A and Option ARM mortgages – the dubious loans used to propel home sales through the final years of the housing bubble – are scheduled to have their interest rates reset from now through to summer of 2011
...
The scale of the problem is massive. There are approximately 3m Alt-A loans totaling $1,000bn outstanding, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland. Alt-A loans, made to borrowers who fell between subprime and prime status, represent 20 per cent of the current mortgage market
...
Sue Troll, credit analyst at T Rowe Price, who in 2006 forecast the subprime meltdown, describes Option ARM mortgages as “subprime on steroids with their underlying quality in many instances having been worse than subprime, despite involving higher quality borrowers”. She says approximately 80 per cent were low- or no-documentation
Click to expand...
:eek:

link
 
'So, what are your qualifications for leading a major bank?'

Banker A: 'I went to Eton'
Banker B: 'I'm a sociopath'
Banker C: 'I'm a sociopath who went to Eton'
 
I just spotted an interesting piece in Energy Bulletin:
... Those who understood that oil was going to start running out one day spread themselves along a spectrum of just when this unhappy event would happen. Pessimists saw the decline of oil production beginning in 3 to 5 years, optimists said 10, 20 or 30 years, and most of the world's peoples did not have the faintest clue that the oil was ever going to run out. Things were so simple 18 months ago.

In 2007, however, it was revealed that a collection of realtors, appraisers, mortgage brokers, bankers, builders, financiers, insurers, securities raters and assorted others had been making lots of money by selling houses to people who could not afford them and then dumping the tainted mortgages on the world's banking system. When all the dust from these revelations settled, it looked as if many of the world's banks had suffered grievous if not fatal damage and what could turn out to be the greatest economic downturn of modern times had been set loose...
Click to expand...
Original article here.

I have wondered for some time whether the money-juggling thieves knew peak oil was just around the corner? It certainly looks as though they deliberately set out to rip us off for all they could get before the shit hit the fan..

:eek: :mad:
 
Another difficulty on the horizon is food prices. Ranged over a typical basket of goods, it's been running at about 15% over the past couple of years. I suspect that will continue over the next few years also due to bank lending drying up, rising commodity prices, farming cost increases (energy, fertiliser etc). In an era of increasing unemployment/underemployment, stagnating, even deflating wages, pensions and benefits, this could cause a lot of hardship. So if you have a garden or window space people might want to consider turning it over to food production and applying for a council allotment. Potatoes can be grown in a big tubs on your window sill, as can pepper and tomatoes in a sunny window. You don't even need to buy seeds for a lot of things. Got some spare potatoes that are starting to sprout? Plant those sprout side up, and in a few months time reap the harvest. Had a tasty tomato for lunch? Save the seeds and plant them to grow your own. Likewise with peppers, chillis etc. Cloves of garlic can be planted to grow more. Seeds from your apple can be germinated in a tub with some moist tissue in the fridge and then grown on. Any money you can save by growing as much as you can yourself like the Cubans will prove a Godsend. Of course if you can afford it, make sure you continue to support your local greengrocer. Any surplus grow-your-own that you can't use in cooking can be sold, given away, donated to charity and also be frozen and turned into jams, home made wine, pickles, chutneys, preserves etc.
 
Fruitloop said:
Oh absolutely, there was a huge transfer of wealth from the working and middle classes to controlling elites following a long period of the govt turning a blind eye to shady practices amongst the big players. I think then as now the downturn was the point where the wealth transfer was 'locked in', i.e. the point where ordinary people learned that they were expected to foot the bill.
Click to expand...

Yes but also large banks getting their hands on smaller ones etc. It was an unbelievable free-for-all because the particular interests were let to run the general ones much more than it's usually the case in Capitalism, so the room for abuse was devastatingly enormous...

The state abdicated its responsibilities almost completely ["markets are clever and will take care of it all.... eventually, if we just do not interfere"...] and now we have something similar to the tune of unbelievable numbers of billions still going to these guys unchecked, as if the markets are intelligent enough to be long-term oriented and caring:rolleyes: and will not do what they just did, like out of 700 billion of the first package 10% went into their hard earned bonuses.:eek: Well, they did work really hard - for themselves, ruining the economy in the process...:rolleyes: Who can possibly suspect that any longer?

But wait! The sheer idiocy of the state, thanx to ideological, market-fundamentalist blinkers is unimaginable, as it is letting it go on unchecked!!!!!!!!!!! It is happening all over again... What a feast!!!!

But the populus is only passively watching this carnage, this feeding frenzy, as if they are far removed from it all and have nothing to do with it, so absolutely no sign of shouting from the windows "I'm mad and I'm not gonna take it any more!!!!", decending on the Wall Street and the White House or just charging down Broadway demanding they be taken care of similarly to the corporations or summat...

I mean, in Sweden, when it happened the state first protected the little man, then took a stake in the banks etc. and some hands-on management took them out of their misery.

But how can Bush and now Obama simply trust those who took us down the Misery Lane to do anything different, with money showers coming down from the sky and no strings attached, when they have proven themselves totally untrustworthy and greedy beyond imagination? F**king nuts in Washington and elsewhere!!!!

Moreover, it seems one could liken it to a scene after the lion pack kill: because the head lion and his right hand man, the alleged "leaders of the pack", haven't yet [still!!!] arrived at the kill - the lionesses are going bonkers, no thinking at all, fearing there's no tomorrow, no another kill... "It's not the lack of control, it's too much control of the state, too much legislation" states an arrogant or completely idiotic twat [possibly both], with a straight face, as they keep doing the same old same old to the tune of self-destruction... Marvellous...:rolleyes:
 
Dr Jon said:
I have wondered for some time whether the money-juggling thieves knew peak oil was just around the corner? It certainly looks as though they deliberately set out to rip us off for all they could get before the shit hit the fan..

:eek: :mad:
Click to expand...

A frightening and all too plausible possibility Dr Jon. Thanks for that link.

The following might be "loon" territory I don't know, however, a couple of months ago I noticed a correlation: - Out of curiosity I graphed the declining share prices of the falling banks against the rise of oil price over the same period. With the exception of Northern Rock for obvious reasons (having crashed a year before), there was a very close inverse relationship. The price of oil crashed as soon as the bailouts of the banks began. Make of that what you will.

Try it yourself - Reuters gives you all the tools you need.
 
Am I missing something, or wouldn't you expect oil prices to fall with demand when global incomes suffer as a result of a recession?

The high prices of last summer were nothing more than a speculative bubble. The true price of pumping a barrel of oil in Iran is something like $8US a barrel, and the known reserves are still immense, even with increasing global demand.

IMO we will reach peak oil well before running out becomes an issue, simply because alternative energy sources will replace it, and our use of it gets more efficient.
 
Yeah, nothing suspicious about that. Much of the oil price spike was speculative, and was quickly knocked on the head when a real drop in demand happenned. The worrying thing now is that the low oil price, and low availability of debt, means that investment in new production has dropped right down, so existing decline rates will start making themselves more felt.

Fried: By definition we will reach Peak before it runs out - roughly half the oil we'll ever pump will be after the peak, assuming we try and get it all.
 
Before running out becomes an issue, though. As in oil production will not be limited by the total amount of oil available in geological terms but by the demand for it, much like coal.
 
A poster called "Red" stuck this on one one Cynicus' missives.


Interesting.


Not a long term solution, but interesting.



I'd like to suggest (others hopefully have other suggestions or can build on/alter this one) Before examining the strategies and outcomes for each possibility, lets outline the the bare facts - that there are creditors (the West) and debtors (the East), we can assume that the creditors will want to be paid back somehow at some time.

Now, possibilities, strategies & outcomes...

If they are paid back via trade then the West has to develop surpluses via a long road of reform, which seems so unlikely as to be not feasable. Which begs the question - What will happen if the West simply cannot pay back what it owes? Do we automatically defer to War as the most likely outcome, as the East will want something for all its hard labour, and the most obvious form of compensation would be the reluctantly ceded assets of the debtors - trinkets like industry, gold reserves and fundamental things like land & countries - the ultimate form of collateral.

So what are the chances of Wen Jiabao & Obama, Brown et al. sitting down and collaborating toward a mutually satisfactory outcome that doesn't end in tears? Well, I'd have to say that the word collaboration in this sense would be contingent upon the their various strengths and weaknesses and interdependances - or how they rate as 'Top Trumps' cards if you like...

Real wealth and economic might would rate very highly (because it can be used to buy all the other contingencies - however crudely/effectively) in detemining countries 'Top Trump' ratings, so China would rate very highly. The US and UK would have a rapidly diminishing score here. But the US, UK & allies have a traditionally hegemonic geopolitical & cultural role in the world with important strategic alliances, which is still very powerful and surely must take time to weaken... So they would score considerably higher than China here.
There are more important categories for scoring each country/alliances Top Trump worth of course (such as military force), but I think those are the most pertinent to the first phase of possible outcomes...

From my understanding, the most important contingent factor presently however, upon which all collaborative efforts hinge is as CE says - the importance of the Dollar. It won't benefit China to have a worthless dollar, so they will be willing to collaborate to the extent to which that doens't happen - to my mind it would have to be a holder of $US with nothing to lose to start a run on the $... And looking at the major holders of US$'s who's that going to be? Who holds large enough reserves to start a run on the dollar? And what would be the response of those who had most to lose as a result? - Would the big players with most to lose not just shore up the currency by buying the stuff which was coming onto the market? That must make sense than just letting it go into freefall, and risk the collapse of 'everything'!

Now, I believe that the US is using this situation to prevent the collapse of everything either with or without the conscious approval of the major holders of US$'s, and as a result it is happy issuing trillion $ bailouts... Faced with the choice of the collapse of everything they don't have much choice after all...

So, lets assume for a moment that there won't be a $ (or UK pound) collapse for the reasons outlined above... (I think this a very real possibility unless someone can convince me otherwise)

Then what happens?

There are a myriad of possibilities here, but the facts still stay the same - there are debtors and creditors, and the debtors must pay at some point... How do the Top Trumpers do that collaboratively? There has to be a devaluation of the West's worth - this is absolutely true, but how and over what timeframe?

I do appreciate the absurdity of the current economic crisis as ellucidated so elloquently by CE, and I also appreciate how fragile the situation appears to be, but when you examine the contingent factors supporting collaboration against the collapse of everything, I believe you must end up concluding that there is life in the old dog yet... In the face of seemingly so much adversity, its how we wind her down & let her go gracefully which is the real challenge for humanity...

I look forward to reading other peoples' opinions and views on how things might play out...

Just finally... Given that the only constant thing in life is change, and that a boom in species dominance within its ecosystem precedes its collapse, it might be fair to take Jeffrey Sachs comment that the world is bursting at the seams and build on it with the conjecture that we our demise as a species is imminent. But it doesn't necessarily mean that the economic crisis will precipitate it... There are plenty more flies in the ointment...!
Click to expand...

http://cynicuseconomicus.blogspot.com/2009/02/yes-bankers-bear-responsibility-but-now.html




The threat of all out war may help temper the panic of leaders of the major economies - for a while.



Woof
 
Hmmmmm, some inaccuracies here but...

China's Investment



As if we needed something else to concern ourselves with, the Is-China-Going-To-Start-Selling-Treasuries worry mill is cranking up... again. It seems every once in awhile - and more so lately - the financial pundits begin to climb the China wall of worry.
And it's not an unreasonable question: Last year, China became the biggest foreign holder of U.S. securities, when it plunked down almost $66 billion for them in October alone.
With that big of a stick, some believe that China could bring down the U.S. without ever setting foot here.
Others feel it already is, by artificially setting the rate at which its currency is tied to the dollar. Still others feel that we are worrying needlessly, and we have nothing to worry about, as China has few other choices.
Will China continue to buy Treasuries? What will happen when it stops and starts buying something else? Or worse - what if it starts dumping U.S. debt?
The answers to these questions may surprise you. But first, let's see if we can get our hands around the size of China's problem.
The World's Biggest Cash Pile
Make no mistake: it's a much bigger problem for China than it is for us.
When you're sitting on the biggest mountain of surplus cash in the world, what do you do with it? This is the roughly $2 trillion dollar question that Chinese central bank officials have to wrestle with.
And the problem just keeps getting bigger. For the first three quarters of 2008, China's foreign exchange reserves increased by a whopping $377 billion. That's $10 billion more than the same period in 2007.
Why does it continue to buy them? The simple reason is that is has to, because of its exchange rate policy. In order to keep the value of the Chinese yuan from appreciating versus the dollar, China's central bank must buy U.S. dollars in massive quantities. And rather than just sitting on the physical currency - which pays zero interest - it buys foreign securities.
What percentage of China's foreign reserves is held in U.S. Treasuries?
No one knows for sure, but analysts generally believe the figure could be as high as 70%. That would put China's U.S. debt paper pile at around $1.4 trillion.
So what are China's options if it wants to "diversify" its holdings?
The short answer is: not many... not many at all.
China's Investment Options


  • All the gold in the world...
What about gold? That one's easy: it's estimated that all the physical gold in the world that's ever been produced amounts to roughly 140,000 tons (worth about $4.5 trillion dollars using $1,000 an ounce). About 75% of that is either in coins or jewelry... not available to China, or to any other government.
The new gold available each year is miniscule: about 2,600 tons (almost $83 billion dollars worth) of new gold is being mined and refined annually, increasing the total supply by 2% per year.
You can see that China's problem - if it wants to invest in gold as a diversification strategy - is that there isn't enough available for sale. 30,000 tons are held in various government central bank vaults. Privately held bullion amount to about 20,000 tons.
Any major purchase of gold on the open market - which is where China would have to buy it - would drive up its price. To put this in perspective: China buys enough U.S. treasuries in one month to pay for all the gold mined in a year everywhere in the world.
So we can throw gold onto the "won't pile"...

  • Other foreign currencies...
As of the end of 2008, the value of all Eurodollars in circulation exceeded the value of U.S. dollars. Since then, the Euro has fallen 8% against the dollar. Other world currencies have suffered similar fates.
Assuming China sold their dollars and bought a basket of currencies, it would clearly have lost money on its investment. The reason is that the global economic crisis deepened, other countries have flocked to the dollar as the only safe haven investment... driving it up in value against all other comers. This will likely continue to be the case. Another one for the "won't pile"...

  • Private Sector Bonds...
Way too risky. Most companies have been severely affected by the global economic slowdown. Their balance sheets have decimated credit ratings across the board, reducing much of the available corporate debt to well below investment grade.
Back to Square One
In summary...
1. Will China continue to buy U.S. Treasuries? Yes.

  • If fact, purchases of U.S. debt by China will likely continue to increase for the foreseeable future, as it continues its policy of propping up the Yuan. By fixing its currency to the dollar and by buying them, it keeps both strong, thereby protecting its investment.
2. What will happen when it stops and starts buying something else? Forget it.

  • There IS nothing else that's as good of an investment as the U.S. dollar.
3. Would it start dumping U.S. Treasuries? Not a Chance.

  • China central bankers might as well all strap on six-shooters and begin firing them at their feet. It would reduce the value of the Yuan, something China can't afford.
For better or worse, China and the U.S. are inextricably linked in an incestuous financial relationship. We need China to buy our debt to finance our annual federal budget deficit, and China needs to buy dollars to prop up its currency.
And it's in both countries' best interest to see that things stay that way for a long time.
Good investing,
Dave Fessler
Click to expand...
 
Crispy said:
... By definition we will reach Peak before it runs out - roughly half the oil we'll ever pump will be after the peak, assuming we try and get it all.
Click to expand...
Before the peak surely? :confused:
Diminishing returns, EROEI, etc., will mean that much of the remaining 50% is effectively unrecoverable.
All this is much better covered in another thread.
 
Tyler gets me a job as a waiter, after that Tyler's pushing a gun in my mouth and saying the first step to eternal life is you have to die.
 
Social Collapse Best Practices
The following talk (transcript below) was given by Soviet emigre Dimitry Orlov, author of Reinventing Collapse, on February 13, 2009, at Cowell Theatre in Fort Mason Center, San Francisco. Will perhaps give some helpful pointers and signposts re challenges that may be ahead if the economic shockwaves don't dissipate and the stimulus packages fail to have any constructive effect, both in the US and beyond.

http://cluborlov.blogspot.com/2009/02/social-collapse-best-practices.html
 
Friedman said:
Before running out becomes an issue, though. As in oil production will not be limited by the total amount of oil available in geological terms but by the demand for it, much like coal.
Click to expand...

On the contrary, it looked very much like we were about to get to the stage where supply did not keep up with demand. This is why the likes of the IEA changed their tune last year. And was also behind much of the speculation which caused oil price to go massive.

Now that demand has been severely curtailed by the recession/depression, the immediate danger of demand exceeding supply is stalled, oil price slumps, but as Crispy warns, this makes the problem worse later because there wont be so much investment in new supply.

If the economy ends up being dead for decades, then you may very well be right that demand never exceeds supply, but not because there is lots of spare supply, just because demand has died.
 
Dr Jon said:
I have wondered for some time whether the money-juggling thieves knew peak oil was just around the corner? It certainly looks as though they deliberately set out to rip us off for all they could get before the shit hit the fan..
Click to expand...

Thats not quite how I see it. I think that those at the top have had a mixture of awareness about peak oil and a 'lets carry on with business as usual for as long as possible' attitude for decades now. Any ripping off was done over the course of the party decades, not a last minute panic.

Over recent years the oil supply crunch started to loom large, and Im sure that did not help business sentiment towards the future, or the price of oil. And these things likely increased the chance of recession, helped the house of cards start to fall with the banking crisis, kept future expectations in check.

As soona s the oil price started to rise sharply I expected recession, because graphs from the past seem to show a correlation between oil price spikes and recession.
 
Friedman said:
Before running out becomes an issue, though. As in oil production will not be limited by the total amount of oil available in geological terms but by the demand for it, much like coal.
Click to expand...
No. Not all oil is equal - either in quality or ease of extraction. Production is very much limited by the amount which remains, because when the only stuff left is in tar sands and oil shale it gets a lot harder and more expensive to extract. You get much less net energy out because of all the energy that went into extracting it. Some oil reserves aren't currently exploitable because it takes more energy to extract than you'd get back from the end product.

http://en.wikipedia.org/wiki/Oil_depletion
 
Hear about the Russian Oligarchs getting knocked down a peg or 2:

http://news.bbc.co.uk/1/hi/business/7892356.stm

The number of Russian billionaires was cut to 49 from 101 in 2008 by the global downturn, according to Russian business magazine Finans.

The financial crisis has cut the combined fortune of the 10 richest Russians by 66% to $75.9bn, the magazine says.
Click to expand...

The new number one oligarch had good timing, the previous number one was on the wrong side of the deal:

Mikhail Prokhorov, 43-year old technology and mining tycoon, tops the rich list with $14.1bn (£9.9bn).

He sold most of his assets last year just before the financial crisis.

In April 2008, Mr Prokhorov sold his 25% share of the world's leading palladium and nickel producer Norilsk Nikel to Mr Deripaska.

"Thanks to his successful exit from Norilsk Nikel just before the economic collapse, Prokhorov has earned himself the reputation of a guru," Finans said.

Oleg Deripaska fell to eighth place with $4.9bn.
Click to expand...
 
Yep. At work, we had an oligarch as a client and the company for the project has just gone into liquidation. Luckily, we still have other clients.
 
elbows said:
Thats not quite how I see it. I think that those at the top have had a mixture of awareness about peak oil and a 'lets carry on with business as usual for as long as possible' attitude for decades now. Any ripping off was done over the course of the party decades, not a last minute panic.

Over recent years the oil supply crunch started to loom large, and Im sure that did not help business sentiment towards the future, or the price of oil. And these things likely increased the chance of recession, helped the house of cards start to fall with the banking crisis, kept future expectations in check.

As soona s the oil price started to rise sharply I expected recession, because graphs from the past seem to show a correlation between oil price spikes and recession.
Click to expand...
That the dawning of peak oil would spark a financial collapse is well understood. People like Colin Campbell have been saying this for years.

What I was referring to was the more recent wave of plunder, what I call "timebomb finance". Products and practices which were blatantly unsustainable and unstable.
 
Dr Jon said:
I see that Cynicus is now describing UK as the new Zimbabwe:
Its Official - The UK Government is Now Bankrupt

Financially as well as morally it would seem...
:eek: :(
Click to expand...

As usual I can't help but agree with him. Especially when he's talking about stuff like the furore over bankers' bonuses being just another red herring to distract people from the real problem, namely the black hole into which our whole country is currently being shovelled; not by bankers but by the government. We're buying deckchairs on the Titanic and calling it an investment ffs, and at the risk of mixing metaphors it's not strategic German towel placement we should be worried about :(
 
elbows said:
Hear about the Russian Oligarchs getting knocked down a peg or 2:

http://news.bbc.co.uk/1/hi/business/7892356.stm



The new number one oligarch had good timing, the previous number one was on the wrong side of the deal:
Click to expand...

Russia has won $25bn in loans from China in return for agreeing to supply oil from new fields in eastern Siberia for the next 20 years as Moscow seeks funds to see its oil industry through the financial crisis.

Transneft, Russia's oil pipeline monopoly, said on Tuesday China had agreed to lend it $10bn (€8bn, £7bn) and Rosneft, Russia's state-controlled oil giant, $15bn in return for 20 years worth of oil supplies.

Igor Sechin, Russia's energy tsar and first deputy prime minister, told reporters as he left Beijing after the deal was signed that Russia agreed to supply China with 15m tonnes of oil a year, or 300,000 barrels a day, for the next 20 years.
Click to expand...

http://money.ninemsn.com.au/article.aspx?id=753527
 
http://www.guardian.co.uk/business/gallery/2008/jun/04/creditcrunch.banking?picture=334588063

Bob Diamond, the highest-paid director on Barclays' board, defended the bonus culture in the City as the former deputy prime minister, John Prescott, started on online campaign to stop the Royal Bank of Scotland paying out £1bn in bonuses
Click to expand...

The Bank of England governor, Mervyn King, said the Bank was prepared to cut interest rates below 1% and use 'unconventional measures' to dig the economy out of the 'deep recession'
Click to expand...

:rolleyes:

The latest gloves-off documentary to hit screens predicts a global meltdown as vital fuel runs out

A Crude Awakening
http://video.google.com/videoplay?docid=-665674869982904386
Click to expand...
 

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