Global financial system implosion begins

[elbows]

Its hard to get to the bottom of the reality of the Fed because of the number of people stateside who are rabid fed-haters.

Now Im not exactly tring to defend the Fed, there is little doubt that the whole global financial system is based on unsound foundations and has been misused by some to reap huge rewards. But it always cracks me up when people go on about how the fed & friends have been robbing them, because they dont seem to realise how much of the worth of the USA and its citizens is fiction. If these people got what they wanted, got to the bottom of matters, they would likely find themselves far poorer than they have been, its not just the rich who have benefitted from decades of giggery pokery.

 

[A Dashing Blade]

An interesting article here, under the title: Failing US Banks seized by regulators.

You missed out this bit . . .

Here is the deal.
. . .
The FCC had all records on criminals like Paulson, Geithner, Ruben, Summers & others engaging in that illegal activity. But all the records of those illegal trades were destroyed when WTC 7 was brought down by thermite on 9/11!

911 was a public snuff film used to shock the public and enact the end of the Bill of Rights & invasion of oil bearing countries, & make money for private companies like Halliburton, (stock from 10 to 50 a share)!

By destroying the WTC, they were able to cover up theft of gold bullion & destroy illegal financial transaction records performed just prior to the attacks
. . .

But hey, you decide!

 

[david dissadent]

S&P upgrades its lose project on Alt A and subprime

The changes affect the projected losses on the collateral securing outstanding subprime transactions as follows:

•2005 vintage losses have increased to approximately 14.00% from approximately 10.50%;
•2006 vintage losses have increased to approximately 32.00% from approximately 25.00%; and
•2007 vintage losses have increased to approximately 40.00% from approximately 31.00%.
The changes affect the projected losses on the collateral securing outstanding Alt-A transactions as follows:

•2005 vintage losses have increased to 10.00% from 7.75%;
•2006 vintage losses have increased to roughly 22.50% from 17.30%; and
•2007 vintage losses have increased to approximately 27.00% from 21.00%.

Link this is an important part of what the press calls "toxic waste" the MBS CDOs that the banks hold as assets that turn out to be worth a lot less than they were. For the subprime stuff the 2007 vintage issuance has increased 10%. This will affect the banks capitalisation but I dont know if the assumptions made when the government aided them included these kinds of losses or were only those on the scale of the earlier S&P assumptions.

Thinking on it, they are assuming 50% of all subprime houses bought in 2007 will default.

 

[elbows]

I wait with interest to see if this year holds to my vague idea that there may be some sort of seasonal pattern to 'big events that shake the world'. Ive not done anything like enough research or anything scientific, but this century so far often leads me to ponder whether shit tends to hit the fan in September or October.

Also still rather too early to tell quite how much impact the flu pandemic is going to have - could be just a little, but still has the potential to make a big difference.

 

[david dissadent]

but this century so far often leads me to ponder whether shit tends to hit the fan in September or October.

That is actualy quite a comon idea, although it tends to come from the last century.

 

[kyser_soze]

Link this is an important part of what the press calls "toxic waste" the MBS CDOs that the banks hold as assets that turn out to be worth a lot less than they were. For the subprime stuff the 2007 vintage issuance has increased 10%. This will affect the banks capitalisation but I dont know if the assumptions made when the government aided them included these kinds of losses or were only those on the scale of the earlier S&P assumptions.

Thinking on it, they are assuming 50% of all subprime houses bought in 2007 will default.

What I don't get is why anyone still listens to S&P or Moodys now anyway - it's their turning a blind eye/having appalling risk assessment to CDOs and the rest of it that's partially repsonsible for the mess...

 

[Giles]

What I don't get is why anyone still listens to S&P or Moodys now anyway - it's their turning a blind eye/having appalling risk assessment to CDOs and the rest of it that's partially repsonsible for the mess...

What I don't get is why supposedly intelligent people blatantly ignored the reality of these bundles of dodgy mortgages, and just kidded themselves that by some magic process, the bundling together of 10,000 loans to people with bad credit ratings and no or little income, somehow altered them from 10,000 bad risks to one pretty good risk.

When someone first explained to me how this bollox actually worked, I laughed in disbelief.

Sure the credit rating firms have a share of the blame, but come on!

It doesn't require a genius or any special insight to think, a bundle of loans to people who really SHOULDN'T have been lent more than the price of a cup of coffee, is not a good investment.

The idea seemed to be that by bundling the loans up and selling them on, you spread the risk and can safely assume that only a small percentage will go bad.

Of course, this doesn't take into account an economic downturn, in which case they ALL go bad as lots of people lose their jobs, the houses plunge in value and the borrowers ALL cannot re-finance elsewhere. All at the same time.

D'oh, did no-one consider this?

Giles..

 

[newharper]

What I don't get is why anyone still listens to S&P or Moodys now anyway - it's their turning a blind eye/having appalling risk assessment to CDOs and the rest of it that's partially repsonsible for the mess...

You are quite right, but they have to pretend, otherwise people will start to ask about Emperor's clothes.

The banking system is built on smoke and mirrors and to be fair, when well regulated, it has worked by the definitions of the system.

 

[elbows]

Indeed, faith, confidence and trust are vital parts of an economic system, probably more important than whether the entire system is an insane distorted fantasy built on misguided foundations.

 

[Dr Jon]

What I don't get is why supposedly intelligent people blatantly ignored the reality of these bundles of dodgy mortgages, and just kidded themselves that by some magic process, the bundling together of 10,000 loans to people with bad credit ratings and no or little income, somehow altered them from 10,000 bad risks to one pretty good risk.

When someone first explained to me how this bollox actually worked, I laughed in disbelief.

It seems to me that this was pretty much the last trick left in the box.

By the end of the 90's, it was clear that resource shortages were set to derail the capitalist gravy train within a decade or so. The dodgy finance bubble was the last chance for the con-artists and money jugglers to feather their nests before the whole system crashed and burned.

 

[hipipol]

Unless I am very much mistaken it would appear that fuck all has changed
Issuance of sub-investment grade paper (what used to be called Junk, but that was just tooooo honest) has just gone thru a mad resurgance
Its true that the appetite forstructured credit products is very low, BUT, we have people like Goldmans beefing up their distressed debt desks - they broke some of it, but are keeping a lot - they are not the only ones to see that TCI (The Chirldrens Fund - an extremely aggressive and interventionist hedge fund keen on debt for equity swaps - buy debt that looks like its going to default, squeeze the company when they need more cash to continue trading into swapping this debt for equity, hey presto, you own the firm for a fraction of its value) have had their best year ever
Its like a cartoon cat trying to plug all the holes the water is pouring thru, whatever the bGovts do, a new loophole will be found
It aint the meltdown yet, but I suspect over the next few years we will see greater intervention in the West so the money will just move to other centres

 

[david dissadent]

Deflaition still looms.

Telegraph article.

Trade data from Asia are flashing warning signals again. Korea's exports were down 28.3pc in May, reversing the April rebound. Malaysia has slipped to -26pc, and India has touched a new low of -33pc.

US freight data is getting worse, not better. The Association of American Railroads said traffic was down 22pc in the third week of May from a year earlier. Canadian freight was down 34pc.

Stephen Roach, Morgan Stanley's Far East chief, fears an "Asian Relapse", saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.

Asia is in deep trouble if consumer spending does not pick up in the west, but we are maxed out and headed for retirment. They will have to grow their own consumers. On the plus side this could mean increased social benefits in many countries to reduce peoples dependence on savings, things like health care and pensions.

e strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more.

Maxed out the credit cards and now having to start paying bills in a hurry.

David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. "The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop," he said.

This this and this again. Retiring baby boomers and huge massive gaps in the funding of US pensions plus the evaporation of worth of housing nest eggs is the story that was always was going to turn this from a problem of a loss of banks capital* in losses in the housing markets to a long term (perhaps decades long) problem with the global economy.

The Fed's "monetary multiplier" ended last week at 0.867, half its average of 1.7 over the last decade. The credit mechanism is still broken. This is what happened in Japan in its Lost Decade

The be fair to Germany the US is haunted by its 1930s deflation and the Germans by its 20 inflation. Different beasts stalk the nightmares of economic planners.


Obviously many other people disagree quite alot with this view...


*is capital the right term?

 

[yield]

Interesting article DD. I'm still not seeing the green shots people are talking about.

This crisis is not over.
FT. July 13 2009

Since the financial crisis began, these macroeconomic imbalances have corrected significantly. However, they have not disappeared. My own judgment is that we have seen about two-thirds of the necessary adjustment. Believing – as some do – that the credit crisis is over when these economic imbalances remain is akin to a doctor believing the patient has been cured when he still has the symptoms of the disease.

...

Unless I am very much mistaken it would appear that fuck all has changed
Issuance of sub-investment grade paper (what used to be called Junk, but that was just tooooo honest) has just gone thru a mad resurgance
Its true that the appetite forstructured credit products is very low, BUT, we have people like Goldmans beefing up their distressed debt desks...

Through the alchemy of finance some of the distressed debt has become AAA again.
Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds
July 8 (Bloomberg)

Two years after the credit markets began to seize up, costing the world’s biggest financial institutions $1.47 trillion in writedowns and losses, banks are again taking so- called structured finance securities and turning them into new debt investments with top credit ratings. While the Morgan Stanley deal is the first to involve CDOs of loans, banks have been doing the same with commercial mortgage-backed securities in recent weeks.

 

[Jessiedog]

By the end of the 90's, it was clear that resource shortages were set to derail the capitalist gravy train within a decade or so. The dodgy finance bubble was the last chance for the con-artists and money jugglers to feather their nests before the whole system crashed and burned.

Aye!

This this and this again. Retiring baby boomers and huge massive gaps in the funding of US pensions plus the evaporation of worth of housing nest eggs is the story that was always was going to turn this from a problem of a loss of banks capital* in losses in the housing markets to a long term (perhaps decades long) problem with the global economy.

Bingo!

Through the alchemy of finance some of the distressed debt has become AAA again.


"Morgan Stanley Plans to Turn Downgraded Loan CDO Into AAA Bonds
July 8 (Bloomberg)"

Moodys (understandably)?

Standard and Poor (not them, of course, us!)?

Fitch (or was it filtch?)?

Hahahahahahahaha!




And here we go again.......

.....for a fee of only GBP 20,000,000.....

.....we will slap a "AAA" on yer latest, rebundled and rotting dogmeat.

And all will be well, 'cos AIG will insure it.


It beggars belief!





Woof

 

[david dissadent]

It beggars belief!

Belief has beggered us.


Still the US house is to hear that the bailout could eventualy total $23 trillion from a senior official incharge of the TARP.

Bloomberg

July 20 (Bloomberg) -- U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.

The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.

“TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.

Barofsky’s estimates include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs.

Others question his accounting and point out the US tax payer should also have money coming back.

Barofsky said the TARP inspector general’s office has 35 ongoing criminal and civil investigations that include suspected accounting, securities and mortgage fraud; insider trading; and tax investigations related to the abuse of TARP programs.

Fingers in the till.

 

[ymu]

What I don't get is why supposedly intelligent people blatantly ignored the reality of these bundles of dodgy mortgages, and just kidded themselves that by some magic process, the bundling together of 10,000 loans to people with bad credit ratings and no or little income, somehow altered them from 10,000 bad risks to one pretty good risk.

When someone first explained to me how this bollox actually worked, I laughed in disbelief.

Sure the credit rating firms have a share of the blame, but come on!

It doesn't require a genius or any special insight to think, a bundle of loans to people who really SHOULDN'T have been lent more than the price of a cup of coffee, is not a good investment.

The idea seemed to be that by bundling the loans up and selling them on, you spread the risk and can safely assume that only a small percentage will go bad.

Of course, this doesn't take into account an economic downturn, in which case they ALL go bad as lots of people lose their jobs, the houses plunge in value and the borrowers ALL cannot re-finance elsewhere. All at the same time.

D'oh, did no-one consider this?

Giles..

It's easy. You just pretend that if everyone works in their own best interests, things will work out. Salesmen will sell more if you pay them commission. Traders will make the bad debt look good if you pay them commission. Ratings Agencies won't ask awkward questions if you pay them commission. And so you create a bubble in exactly the same asset that the original bad debt was secured on.

Then you find out that everyone else has been as moronic as you were. Oops.

 

[david dissadent]

Californias two largest pension funds have had close too $100 billion in losses.

Link. They plan to spread these loses over 30 years and seem to think we are in a V shaped recession. If these plans dont work out millions of state employees will be facing much barer retirements than they have planned for. Id guess private pension funds will be in a similar state.
Current plans by the state include massive budget cuts in the tens of billions of dollars so that will be wage cuts and retrenchments.


Californias problems are only the most widely told story of the great many states with huge budget gaps across the US. Many states are imposing wage cuts and fulough days on workers. (I think I seen New Jersey with an $8 billion budget shortfall.)

Michigans unemployment is now above 15% and the US in general is rather close too 10% (those figures are massaged anyway).

http://money.cnn.com/2009/07/17/new...yment_report/index.htm?postversion=2009071711

All the talk we now here is of the 'new normal', that is that high unemployment and low growth are the new normal that the old normal (2007 and before) is over.

The UKs employment figures are still falling. Grim times.

 

[goebfwai]

Profits driving stocks a sign of danger

Rick Wolff: Upswing in stocks comes from profits due to cutbacks and concessions, worse is yet to come
Richard Wolff says workers have to get organized and change their strategic objectives. They have to contend for control of the companies they work for.

Video interview:
http://therealnews.com/t/index.php?...=74&jumival=4054&updaterx=2009-07-28+01:36:36

 

[newbie]

There's a rather long, but very interesting, backgrounder about Goldman Sachs here, including, on the last page, an exploration of their next big earner, carbon credit trading.

If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time.
.
.
Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe — but capandtrade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private taxcollection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it,"

 

[mears]

Californias two largest pension funds have had close too $100 billion in losses.

Link. They plan to spread these loses over 30 years and seem to think we are in a V shaped recession. If these plans dont work out millions of state employees will be facing much barer retirements than they have planned for. Id guess private pension funds will be in a similar state.
Current plans by the state include massive budget cuts in the tens of billions of dollars so that will be wage cuts and retrenchments.


Californias problems are only the most widely told story of the great many states with huge budget gaps across the US. Many states are imposing wage cuts and fulough days on workers. (I think I seen New Jersey with an $8 billion budget shortfall.)

Michigans unemployment is now above 15% and the US in general is rather close too 10% (those figures are massaged anyway).

http://money.cnn.com/2009/07/17/new...yment_report/index.htm?postversion=2009071711

All the talk we now here is of the 'new normal', that is that high unemployment and low growth are the new normal that the old normal (2007 and before) is over.

The UKs employment figures are still falling. Grim times.

The days of fat pension packages for state workers in places like CA is over. They will have to get an IRA or a 401k like the rest of working America.

Welcome to the real world!

 

[chainsaw cat]

So the contract they were under should be torn up then? Can I tear mine up because I don't like it?

I just don't understand the hostility people like you have towards paying for services you make use of. You say the rest of working America blah blah blah - but you are happily paying for the pensions and other benefits of every worker involved in every enterprise you are a consumer of. Why single out public sector workers? Is it only civilian public sector workers? Are you against decent benefits as part of the package for, say, Marines too?

 

[mears]

There's a rather long, but very interesting, backgrounder about Goldman Sachs here, including, on the last page, an exploration of their next big earner, carbon credit trading.

Goldman Sachs had to re-make themselves during the darkest days of the the credit crisis into a commercial bank. They had access to capital thanks to the US government via the TARP which helped them stay in business. Goldman Sachs represents the best and brightest on Wall Street and they failed to recognize the coming economic crisis in 2007. Their reputation has been tarnished.

They have payed back their TARP funds and warrants however. And if they don't make money on carbon credit trading some firm in London or Beijing will take advantage. There will always be a place for companies like Goldman Sachs in our interconnected globalized economic system.

 

[mears]

So the contract they were under should be torn up then? Can I tear mine up because I don't like it?

I just don't understand the hostility people like you have towards paying for services you make use of. You say the rest of working America blah blah blah - but you are happily paying for the pensions and other benefits of every worker involved in every enterprise you are a consumer of. Why single out public sector workers? Is it only civilian public sector workers? Are you against decent benefits as part of the package for, say, Marines too?

I am not sure which contract you refer to, but you can send me a link.

Pensions are a thing of the past. Most workers in the western world no longer have access to pension programs. Private sector workers can't rely on the benevolence of their employers to provide pensions and health care benefits when they retire. Nor can the private sector support such programs for those in the public sector. In this economy you need to plan for your own needs, don't expect your boss or politicians to do it for you.

 

[Barking_Mad]

There will always be a place for companies like Goldman Sachs in our interconnected globalized economic system.

For the greedy man there is never enough. You know, for once in my life i actually want to see these dispicable, greedy mother fuckers swing from a lamp post. Im not poroud of it, but they are just scumbags of the highest order, parasites feeding off the back of other men.

 

[Gmart]

When the bankers came running complaining of their losses, we should have said to them what they have been saying to other companies who are on the brink of bankruptcy - ie let them go under.

Unfortunately the government was unable to do that, thru fear that the economy would collapse.

Certainly they were worried that people would be going to the ATM's and being unable to withdraw money - which would have precipitated a panic.

So I don't blame GB and others for giving in to the blackmail of the bankers.

However the banks are now refusing to lend out funds and plenty of companies are going to the wall because the bankers want to pay the government back so that they can get back to their old (unregulated) ways.

This is understandable - the bankers are not likely to change their spots - and the government has failed to regulate them - so we will go round the roundabout one more time - and the government will prob have to bail them out again.

Solution:

Enable the ability to sue the credit rating agencies.
Separate the investment banks from the high street banks (if possible)
Ensure that the government can just back deposits up to a certain amount (they already do this)
Widen the ability to hold stocks and shares so that the system is not so unstable.

Don't expect the bankers to look out for anyone other than themselves - it is not in their nature and like the scorpion and the frog they will not change.

Any expectation that they will, will end up in disappointment at best - and an authoritarian nightmare at worst. (And it still wouldn't work!)

 

[yield]

Enable the ability to sue the credit rating agencies.

California Public Employees Retirement System Sues Over Ratings of Securities
NYTimes July 14, 2009

Separate the investment banks from the high street banks (if possible)

Glass-Steagall Act
Signed into law by President F.D. Roosevelt in 1933.
Repealed under President Clinton in 1999.

For the greedy man there is never enough. You know, for once in my life i actually want to see these dispicable, greedy mother fuckers swing from a lamp post. Im not poroud of it, but they are just scumbags of the highest order, parasites feeding off the back of other men.

I agree.

 

[Dr Jon]

For the greedy man there is never enough. You know, for once in my life i actually want to see these dispicable, greedy mother fuckers swing from a lamp post. Im not poroud of it, but they are just scumbags of the highest order, parasites feeding off the back of other men.

Although hanging would be quite a gratifying spectacle, I favour cashing 'em in for transplantable organs: get "Value from Vermin."

 

[mears]

When the bankers came running complaining of their losses, we should have said to them what they have been saying to other companies who are on the brink of bankruptcy - ie let them go under.

Unfortunately the government was unable to do that, thru fear that the economy would collapse.

Certainly they were worried that people would be going to the ATM's and being unable to withdraw money - which would have precipitated a panic.

So I don't blame GB and others for giving in to the blackmail of the bankers.

However the banks are now refusing to lend out funds and plenty of companies are going to the wall because the bankers want to pay the government back so that they can get back to their old (unregulated) ways.

This is understandable - the bankers are not likely to change their spots - and the government has failed to regulate them - so we will go round the roundabout one more time - and the government will prob have to bail them out again.

Solution:

Enable the ability to sue the credit rating agencies.
Separate the investment banks from the high street banks (if possible)
Ensure that the government can just back deposits up to a certain amount (they already do this)
Widen the ability to hold stocks and shares so that the system is not so unstable.

Don't expect the bankers to look out for anyone other than themselves - it is not in their nature and like the scorpion and the frog they will not change.

Any expectation that they will, will end up in disappointment at best - and an authoritarian nightmare at worst. (And it still wouldn't work!)

I like your post and I think you have some solid proposals. I think performance pay is a big issue in banking. Bankers were taking dumb risks to drive up the balance sheets because it was those risks that brought in the fat profits and huge bonuses. If it goes wrong they still made millions in the good years so what do they care? This sad display of risk management almost brought down the financial system.

I think bankers need a paying system where they are rewarded years out for performance. You get a big bonus if the institution is healthy in three years, not a bonus for making big numbers in one quarter.

What strikes me as amusing are the models implemented by banks which had home prices rising forever. What a bunch of clowns.

 

[chainsaw cat]

I am not sure which contract you refer to, but you can send me a link.

Pensions are a thing of the past. Most workers in the western world no longer have access to pension programs. Private sector workers can't rely on the benevolence of their employers to provide pensions and health care benefits when they retire. Nor can the private sector support such programs for those in the public sector. In this economy you need to plan for your own needs, don't expect your boss or politicians to do it for you.

Knob. You take a job with a pay package that includes a pension, that's part of your contract.


I can't say to my boss 'look, 48 hour weeks are a thing of the past in my opinion, I think I'll just do 10 til 3 from now on but oh, can I have the same pay? Ta.'

 

[Jessiedog]

Goldman Sachs had to re-make themselves during the darkest days of the the credit crisis into a commercial bank. They had access to capital thanks to the US government via the TARP which helped them stay in business. Goldman Sachs represents the best and brightest on Wall Street and they failed to recognize the coming economic crisis in 2007. Their reputation has been tarnished.

They have payed back their TARP funds and warrants however. And if they don't make money on carbon credit trading some firm in London or Beijing will take advantage. There will always be a place for companies like Goldman Sachs in our interconnected globalized economic system.

Jolly good!


Back to business as usual then.

"Roll up! Roll up!"





Woof