Dear CIGAs,
A comment on today’s Treasury plans for financing private investments in defunct OTC derivatives:
"Giving money and power to government is like giving whiskey and car keys to teenage boys."
– P.J. O’Rourke, Civil Libertarian
Jim Sinclair’s Commentary
Sorry Paul, There is no practical solution
Having paid out OTC derivative winners to the tune of $9.5 trillion, it is too late to erase the mess. That could only have been done prior to Lehman being flushed on purpose. After Lehman went, ALL the dominoes fell.
Sorry, Paul Krugman, you are right on almost everything with one exception: There is no practical solution as it all has gone too far. The winners are too lopsided now versus the losers on the OTC derivative and are protected by contract law.
Keep in mind that an OTC derivative is an unfunded special performance contract.
Under the law the ONLY way to cancel contracts is the US government declaring by Presidential Order an Economic Emergency, an act he will not do. An Economic Emergency Declaration is when there is no solution, and is considered a Draconian surrender to circumstances.
G-20 Must Freeze The $1.5 Quadrillion Derivatives Bubble As The First Step To World Economic Recovery
By Webster Tarpley
3-22-9
(Highlights from the article)
"That cause is unquestionably the $1.5 quadrillion derivatives bubble. Derivatives have provoked the downfall of Bear Stearns, Countrywide, Northern Rock, Lehman Brothers, AIG, Merrill Lynch, and Wachovia, and most other institutions which have succumbed. Derivatives have made J.P. Morgan Chase, Bank of America, Citibank, Wells Fargo, Bank of New York Mellon, Deutsche Bank, Société Générale, Barclays, RBS, and money center banks of the world into Zombie Banks."
"Krugman is right: "zombie ideas" rule Obama’s Washington. The Fed’s TALF amounts to subsidies for securitization, meaning more derivatives. The derivatives bailout was pioneered by Gordon Brown, Alistair Darling, and Mervyn King in the case of Northern Rock. These efforts are doomed to costly futility. The $1.5 quadrillion derivatives bubble is comparable to the black holes of astrophysics, those artifacts of gravity collapse which will irresistably suck in all matter that comes near them. It compares to a world GDP of a mere $55 trillion, itself a figure inflated by financial speculation."
"The derivatives are the black holes of financial engineering, and can easily consume all the physical wealth and all the money in the world, and still be bankrupt. Gordon Brown’s demand of $500 billion for the IMF is enough to bankrupt several nations, but pitifully inadequate to deal with the derivatives. They can only be dealt with by re-regulation — a quick freeze, leading to extinction and permanent illegality. We reject Brown’s IMF world derivatives dictatorship."
"Derivatives pose the question of fictitious capital — financial instruments created outside of the realm of production, and which destroy production. In 1931-2, fictitious capital appeared as tens of billions of dollars of reparations imposed on Germany, plus the war debts owed byBritain and France to the United States. These debts strangled world production and world trade. Bankers and statesmen tried desperately to maintain these debt structures. But US President Herbert Hoover proposed the Hoover Moratorium of 1931-1932, a temporary freeze on all these payments. The Lausanne Conference of June 1932 was the last chance to wipe out the debt permanently. But the Lausanne Conference failed to act decisively, and passed the buck. By the end of 1932, there was near-universal default on reparations and war debts anyway. And by January 1933, Hitler had seized power. We urge the London G-20 to defend world civilization against derivatives. It is time to lift the crushing weight of derivatives from the backs of humanity before the world economy and the major nations collapse into irreversible chaos and war, as seen during the 1930s."
Despair over financial policy
March 21, 2009, 7:12 am
The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.
The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.
To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.
But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.
Jim Sinclair’s Commentary
OTC derivatives bury two credit unions.
Oh excuse me, toxic assets did it.
Recall my suggestions to those in credit unions? Nothing has changed.
US Seizes Two Major Credit Unions
By MARCY GORDON
The National Credit Union Administration said it has taken over and put into conservatorship the two corporate credit unions, U.S. Central Federal Credit Union, based in Lenexa, Kan., and Western Corporate Federal Credit Union, in San Dimas, Calif. U.S. Central has about $34 billion in assets while Western Corporate, known as WesCorp, has an estimated $23 billion in assets.
A conservatorship enables the government to operate a financial institution. Corporate credit unions provide financing and investment services to the much larger population of retail credit unions. Some of the 28 corporate credit unions in the U.S. have sustained steep losses on paper from the depressed value of the mortgage-linked securities they hold.
The NCUA, which oversees some 7,800 federally insured credit unions, said it "will continue to take any and all steps necessary to preserve a well-functioning system of corporate credit unions and to protect the assets of (retail credit unions) and their members during the … financial market dislocation."
The financial services provided by the two corporate credit unions "will continue uninterrupted" and there will be no direct impact on the 90 million members of retail credit unions nationwide, the NCUA said in a news release.
Jim Sinclair’s Commentary
The Treasury will fix nothing by planning to make soft loans to finance one trillion dollars worth of OTC derivative purchases.
The dirt will certainly be in the details of the financing that you will never see.
This is creative (as in creative accounting) if nothing else and it is nothing else.
Geithner Relies on Investors for $1 Trillion Plan
By Rebecca Christie and Robert Schmidt
March 23 (Bloomberg) — The Obama administration unveiled its plan to remove toxic assets from the books of the nation’s banks, betting that it can revive the U.S. financial system without resorting to outright nationalization.
The plan is aimed at financing as much as $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasury’s remaining bank-rescue funds. The Public-Private Investment Program will also rely on Federal Reserve financing and Federal Deposit Insurance Corp. debt guarantees, the Treasury said in a statement in Washington.
Barely two months after President Barack Obama took office, he and Treasury Secretary Timothy Geithner are staking much of the new administration’s economic credibility on the theory that removing the devalued loans and securities from banks’ balance sheets will help them start lending again and resuscitate the economy.
The Standard & Poor’s 500 Stock Index rose 4.4 percent to 802.43 at 12:42 p.m. in New York, and the S&P 500 Financials Index jumped 9.3 percent. Yields on benchmark 10-year Treasury notes were little changed at 2.65 percent.
Because the program depends on private investors stepping up, it may be weeks or months before it’s clear whether the approach will work. “You will start to see this buying up the assets” shortly after private asset managers are chosen by May, Austan Goolsbee, a member of the White House Council of Economic Advisers, said in an interview with Bloomberg Television.
Jim Sinclair’s Commentary
The French get it!
French unions delay decision and vow more action
Friday, March 20, 2009
By Tamora Vidaillet
French unions said on Friday they would keep up pressure on President Nicolas Sarkozy after up to 3 million people joined protests over the economic crisis.
But the unions held off deciding on a possible new round of strikes until a meeting planned for March 30.
The turnout at a day of rallies and demonstrations in cities across France on Thursday was the largest at any protest since Sarkozy’s election in May 2007. The demonstrators challenged the government’s response to the crisis.
Representatives from eight unions told a news conference that while they had yet to decide on how they would proceed, they were united in their will to make their voices heard.
"What counts in today’s message is the affirmation by all unions that there will be a united follow-up to yesterday’s movement," said Maryse Dumas, second-in-charge at the powerful CGT trade union.
Jim Sinclair’s Commentary
Oh yeah, here are some more OTC derivatives to bail out.
You think they did not securitize commercial real estate?
Defaulting Commercial Properties Hit Banks on Vacancy-Rate Rise
By Ari Levy and Daniel Taub
March 23 (Bloomberg) — U.S. banks, battered by record losses from the worst housing slump since the Great Depression, now must weather increasing loan delinquencies from owners of skyscrapers and shopping malls.
The country’s 10 biggest banks have $327.6 billion in commercial mortgages, which face a wave of defaults as office vacancies grow and retailers and casinos go bankrupt. A projected tripling in the default rate would result in losses of about 7 percent of total unpaid balances, according to estimates from analysts at research firm Reis Inc.
Commercial property prices are down almost 20 percent in the past year, and with the global recession worsening, there’s “significant stress” in the market, said William Schwartz, a credit analyst at DBRS Inc. in New York. Moody’s Investors Service is reviewing the financial strength ratings of 23 regional lenders, as “these losses are likely to meaningfully weaken the capital position of many banks in 2009,” said Managing Director Robert Young in New York.
Jim Sinclair’s Commentary
There is no line in the sand of where a state goes from being capable to failed. It is a process all media has to spin, or so it appears.
Where Pakistan is concerned the process has gone beyond repair.
Pakistan is a FUBAR Taliban state.
Pakistan ‘perilously close’ to being failed state
NEW DELHI (AFP) — Pakistan is "perilously close" to becoming a failed state and is already "pretty dysfunctional," a senior Indian government official has said.
Home Minister P. Chidambaram also voiced fears that the rise of the Taliban in neighbouring Pakistan could have a spillover effect on India.
"I do not think it (Pakistan) is a failed state but if it does not arrest the decline, it is perilously close to becoming one," he said in an interview on India’s CNN-IBN network to be aired late Monday.
"It is pretty dysfunctional today," Chidambaram said.
Asked if India has a stake in ensuring stable civilian rule in Pakistan, he replied: "Of course a stable civilian democratic government means that we know who we are dealing with and there are checks and balances."
He added that the rise of the Taliban in Pakistan "will encourage fundamentalists in India to imitate them, and number two the Taliban could become a sponsor of terror in India."
Jim Sinclair’s Commentary
The entire Federal Reserve and Treasury program in terms of the predictable result is described below:
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
–Thomas Jefferson
Some might say that financiers work, but today’s crowd is better described as scheming. That cannot be considered work in terms of Jeffersonian Democracy.
Nothing has taken place by chance since Lehman’s flushing.
Gold is very much a part of the plan.
The results of the flushing of Lehman could have been accurately predicted by my dog Mia.
Jim Sinclair’s Commentary
This is so true that it is not in the least bit funny. It is so sad that we accept that all our elected officials and CEOs of major companies are devout criminals without any redeeming human value.
What else is there to say?
Jim Sinclair’s Commentary
Not that it will make any difference, but deluging the gatekeepers with our disdain for their lack of consideration of the level playing field seems appropriate. Lack of the uptick rule favors the few at the cost to the many due to a strong and over financed lobby. It is another wrong so lightly taken.
Dear Mr. Rivera,
Thank you for your comment on the uptick rule. The Commission has announced that it will consider proposals relating to short sale price tests at an open meeting scheduled for April 8, 2009. The meeting will be webcast from the SEC’s website at www.sec.gov/news/openmeetings.shtml.
Should the Commission vote to publish a proposal for comment, a comment file for the rulemaking will be created once the proposal is published by the Commission. Your comment will be placed in that file.
Sincerely,
Adam P. Knapp
Office of Investor Education and Advocacy
U.S. Securities and Exchange Commission
(202) 551-6551
Jim Sinclair’s Commentary
Auto companies that refuse to discount their inventory to cost or below, but choose rather to store (all of them) in hard times and wait for an economic pickup that will not come in later 2009 are not worthy of being called business people.
Jim Sinclair’s Commentary
The innocence of the banksters?
This is just too wrong.
Toxic assets are OTC derivatives on real estate mortgages, credit cards, auto loans, or basically anything securitized.
Whomever they quote here is either a pawn, dope, or bankster.
Note how careful the interviewee is when he called a real estate loan "the makings of" and stops there. The media is feeding the public with a con-job that would make AIG and Madoff proud.
What this article would infer is that the banksters are not responsible, while in fact, this is ALL the doing of the OTC derivative manufacturers and distributor banksters. The modern name for these parasitic scoundrels is BANKSTERS.
So What’s A Toxic Asset?
A Closer Look At The Financial Black Holes That Are Clogging Up The Nation’s Credit Flow
March 23, 2009
(CBS) The Obama administration rolled out a plan Monday that could facilitate the purchase of up to $1 trillion worth of toxic assets from struggling banks in an effort to clean up their balance sheets and get them to start lending again.
So what exactly are these toxic assets, which have caused such huge problems in our financial system?
Every time you see foreclosure signs littering neighborhoods, you’re probably looking at the makings of a toxic asset, reports CBS News correspondent Bianca Solorzano.
"Toxic assets are the ones that nobody wants to touch because they’re just considered too dangerous," Doug Rediker, of New America Foundation, told CBS News.
Jim Sinclair’s Commentary
Please note the Formula takes you through to this point when there is no further international lenders and the US must (as is the case now) turn inwards on itself to raise capital. The beard right now is the Fed buying Treasury debt.
Soon there may be nobody left to lend to America
Irwin Stelzer
From The Sunday Times
March 22, 2009
Anyone who thought Ben Bernanke and his Federal Reserve Board colleagues were out of ammunition received a rude, or pleasant, shock last week. Rude, if you worry that a few extra trillions sloshing around the economy might one day trigger a wave of inflation; pleasant, if you worry that the economy is sinking fast, and the Obama administration and Congress haven’t a clue what to do about it.
The Fed plans to buy $300 billion of Treasury IOUs in the next six months (more to come if needed), pour $1.45 trillion into the mortgage market, and keep interest rates close to zero for “an extended period”. There’s more in the Fed’s “do whatever it takes” arsenal if these steps don’t bring interest rates down so people can borrow more cheaply to buy houses, cars and other durable goods. But so far, so good: interest rates on 30-year mortgages fell below 5%. Whether that will encourage enough creditworthy borrowers to sop up the huge inventory of unsold homes, much less trigger new construction, is difficult t
Jim Sinclair’s Commentary
There is ONE simple cause of this crisis and that is OTC derivatives. This presentation is yet another in the long line of STRATEGIC DENIAL.
By refusal to face the real problem there will be no solution at all. The result of this denial is hyper-inflation.
The result of hyper inflation is that Alf Fields will be more correct on gold than I will be at my $1650 projection prior to January 14th 2011. My target will probably come a lot prior to that date.
My Plan for Bad Bank Assets
The private sector will set prices. Taxpayers will share in any upside.
By TIMOTHY GEITHNER
The American economy and much of the world now face extraordinary challenges, and confronting these challenges will continue to require extraordinary actions.
No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk. Those decisions have caused enormous suffering, and much of the damage has fallen on ordinary Americans and small-business owners who were careful and responsible. This is fundamentally unfair, and Americans are justifiably angry and frustrated.
The depth of public anger and the gravity of this crisis require that every policy we take be held to the most serious test: whether it gets our financial system back to the business of providing credit to working families and viable businesses, and helps prevent future crises.
Jim Sinclair’s Commentary
The newest acronym you need to add to your vocabulary is TBTF – Too Big To FAIL.
Everything TBTF so far has been bailed out directly or indirectly.
Everything TBTF will be bailed out directly or indirectly.
The final solution will be the dissolution of the US dollar. There is no other possibility.
Half of auto suppliers facing bankruptcy
By ED BRAYTON 3/23/09 6:36 AM
Automotive News reports on a new study that concludes that half of all U.S. auto supply companies potentially face bankruptcy in 2009, with devastating results for the American economy:
More than half of the top U.S. auto parts suppliers could file for bankruptcy protection in 2009 with at least one million job losses, according to a study by global consultants A.T. Kearney.
Those suppliers, which ship parts directly to automakers, are pressured from above by production cuts by the automakers and from below by increasingly fragile companies that supply them with components, the study found.
Four major suppliers declared bankruptcy in 2008. The Treasury Department established a $5 billion fund to help auto suppliers last week, but that was far short of the $18.5 billion the industry was seeking.
Jim Sinclair’s Commentary
Inheriting a Narco State south of the border is overshadowed by all the other shadows created in the last 8 years.
There is no question that oil production has peaked even if there is no peak yet in oil production from avowed enemies of the West. That is to say that the enemies with oil production seem too continually grow.
Mexican Drug Cartel Violence Spills Over, Alarming U.S.
TUCSON — Sgt. David Azuelo stepped gingerly over the specks of blood on the floor, took note of the bullet hole through the bedroom skylight, raised an eyebrow at the lack of furniture in the ranch-style house and turned to his squad of detectives investigating one of the latest home invasions in this southern Arizona city.
A 21-year-old man had been pistol-whipped throughout the house, the gun discharging at one point, as the attackers demanded money, the victim reported. His wife had been bathing their 3-month-old son when the intruders arrived.
“At least they didn’t put the gun in the baby’s mouth like we’ve seen before,” Sergeant Azuelo said. That same afternoon this month, his squad was called to the scene of another home invasion, one involving the abduction of a 14-year-old boy.
This city, an hour’s drive north of the Mexican border, is coping with a wave of drug crime the police suspect is tied to the bloody battles between Mexico’s drug cartels and the efforts to stamp them out.