Jim Sinclair’s Commentary
In order for intervention to be effective it must be focused on the heart of the problem. Lacking that, no solution is possible. This is as true in finance as it is in crack cocaine or alcoholism.
How Overhauling Derivatives Died
DECEMBER 26, 2009
By RANDALL SMITH and SARAH N. LYNCH
Lobbying by Wall Street has blunted efforts to step up regulation on derivatives trading by carving out exceptions or leaving the status quo in place.
Derivatives took blame for some of the worst debacles of the financial crisis. But a year after regulators and critics began calling for an overhaul in the way they are traded, some efforts have been shelved and others have been watered down.
The two main issues concerning regulators were trading and clearing of swaps, which allow investors to bet on or hedge movements in currencies, interest rates and many other things. Swaps generally trade privately, leaving competitors and regulators in the dark about the scope of their risks. In November 2008, the chairman of the Senate Agriculture Committee proposed forcing all derivatives trading onto exchanges, where their prices could be publicly disclosed and margin requirements imposed to insure that participants could make good on their market bets.
But a financial-overhaul bill passed by the House of Representatives on Dec. 11 watered down or eliminated these requirements. The measure still allows for voice brokering and allows dealers to use alternatives to public exchanges.
A lawyer for one big Wall Street dealer said in an interview that the rollback from the first proposals in Congress was the result of an "educational" process by dealers and customers that resulted in "a grudging recognition" that many uses of derivatives didn’t fit such a strict approach. At one point, House agriculture chairman Collin Peterson (D., Minn.) said he suspected dealers had dispatched their customers to lobby Capital Hill.
Jim Sinclair’s Commentary
A thought for the New Year:
The concept that the US Fed will withdraw from buying the debt of the USA certainly does not square with their Christmas gift to Fanny and Freddie.
Think of the impact of foreign buyer on US Treasury paper. If they will not buy it themselves anymore, why should we?
Once something like this is started, ending it is impossible under present circumstances.
Fannie Mae and Freddie Mac receive unlimited future funds from taxpayers to stay afloat
NEW YORK (AP) — The government has handed its ATM card to beleaguered mortgage giants Fannie Mae and Freddie Mac.
The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat. Already, taxpayers have shelled out $111 billion to the pair, and a senior Treasury official said losses are not expected to exceed the government’s estimate this summer of $170 billion over 10 years.
Treasury Department officials said it will now use a flexible formula to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors. Under the formula, financial support would increase according to how much each firm loses in a quarter. The cap in place at the end of 2012 would apply thereafter.
By making the change before year-end, Treasury sidestepped the need for an OK from a bailout-weary Congress.
While most analysts say the companies are unlikely to use the full $400 billion, Treasury officials said they decided to lift the caps to eliminate any uncertainty among investors about the government’s commitments. But the timing of the announcement on a traditionally slow news day raised eyebrows.
Jim Sinclair’s Commentary
When you see the real statistics and are not overwhelmed by the Management of Perspective Economics propaganda, it can scare the hell out of you.
We’re Screwed!
ShadowStats.com founder John Williams explains the risk of hyperinflation. Worst-case scenario? Rioting in the streets and devolution to a bartering system.
Thursday, December 31, 2009
By Phil Maymin
Do you believe everything the government tells you? Economist and statistician John Williams sure doesn’t. Williams, who has consulted for individuals and Fortune 500 companies, now uncovers the truth behind the U.S. government’s economic numbers on his Web site at ShadowStats.com. Williams says, over the last several decades, the feds have been infusing their data with optimistic biases to make the economy seem far rosier than it really is. His site reruns the numbers using the original methodology. What he found was not good.
Maymin: So we are technically bankrupt?
Williams: Yes, and when countries are in that state, what they usually do is rev up the printing presses and print the money they need to meet their obligations. And that creates inflation, hyperinflation, and makes the currency worthless.
Obama says America will go bankrupt if Congress doesn’t pass the health care bill.
Well, it’s going to go bankrupt if they do pass the health care bill, too, but at least he’s thinking about it. He talks about it publicly, which is one thing prior administrations refused to do. Give him credit for that. But what he’s setting up with this health care system will just accelerate the process.
Where are we right now?
In terms of the GDP, we are about halfway to depression level. If you look at retail sales, industrial production, we are already well into depressionary. If you look at things such as the housing industry, the new orders for durable goods we are in Great Depression territory. If we have hyperinflation, which I see coming not too far down the road, that would be so disruptive to our system that it would result in the cessation of many levels of normal economic commerce, and that would throw us into a great depression, and one worse than was seen in the 1930s.
Jim Sinclair’s Commentary
Central bank madness should never have started. Now the FDIC is the Resolution Trust and the US Federal Reserve is the Bad Bank as it holds all the Lehman and Bear Sterns type crap paper on its now highly impaired balance sheet..
Central Problem: the Central Bank
By ROBERT KLEIN AND GEORGE REISMAN
The Federal Reserve’s easy-money madness must end.
PRESIDENT BARACK OBAMA HEADS the list of Americans who believe that the continuing financial crisis should be blamed on excessive risk-taking by bankers who had an unbridled desire to make money in mortgages. These would-be reformers want stronger government regulation of the bankers to make sure that nothing like this ever happens again.
In a recent 60 Minutes interview, Obama blamed "fat cat bankers" for causing the crisis, putting America through its "worst economic year…in decades." He went on to chide Wall Street banks for "fighting tooth and nail" the new regulations he believes would be vital in preventing future …
Jim Sinclair’s Commentary
Back to the future.
U.S. Charges Suspect in Attempted Terrorist Attack on Plane
By SCOTT SHANE and ERIC LIPTON
Published: December 26, 2009
Despite the billions spent since 2001 on intelligence and counterterrorism programs, sophisticated airport scanners and elaborate watch lists, it was something simpler that averted disaster on a Christmas Day flight to Detroit: alert and courageous passengers and crew members.
During 19 hours of travel, aboard two flights across three continents, law enforcement officials said, Umar Farouk Abdulmutallab bided his time. Then, just as Northwest Flight 253 finally began its final approach to Detroit around noon on Friday, he tried to ignite the incendiary powder mixture he had taped to his leg, they said.
There were popping sounds, smoke and a commotion as passengers cried out in alarm and tried to see what was happening. One woman shouted, “What are you doing?” and another called out, “Fire!”
And then history repeated itself. Just as occurred before Christmas in 2001, when Richard C. Reid tried to ignite plastic explosives hidden in his shoe on a trans-Atlantic flight, fellow passengers jumped on Mr. Abdulmutallab, restraining the 23-year-old Nigerian.
Jim Sinclair’s Commentary
If it is true it is scary. If it is not true it is scarier.
Pakistan: US Men Had Maps of Nuclear Power Site
By THE ASSOCIATED PRESS
Published: December 26, 2009
ISLAMABAD (AP) — Police are trying to determine whether five Americans detained in Pakistan had planned to attack a complex that houses nuclear power facilities, authorities said Saturday.
The young Muslim men, who are from the Washington, D.C., area, were picked up in Pakistan earlier this month in a case that has spurred fears that Westerners are traveling to the South Asian country to join militant groups.
Pakistani police and government officials have made a series of escalating and, at times, seemingly contradictory allegations about the men’s intentions, while U.S. officials have been far more cautious, though they, too, are looking at charging the men.
A Pakistani government official alleged Saturday that the men had established contact with Taliban commanders and planned to attack sites in Pakistan. Earlier, however, local police accused the men of intending to fight in Afghanistan after meeting militant leaders.
