Dear Friends,
Here is further proof, if you still need any at this point, that illustrates the mentality that currently exists on Wall Street and the subsequent swath of destruction that these huge banks leave in their tracks. I pulled out two portions that catch the essence of the article.
Here is the first excerpt in a classic case of stating the obvious. It reminds us of the guy that jumps off a multi-story building and as he passes each floor on the way down is heard to be saying, “So far, so good.”
"The securities provided higher rates relative to other short-term investments, she said. “While it was working, it was attractive.”"
Here is the second excerpt: The gist is, we will sell you some stuff that can make you money, but in the event it does not and you lose on it, we can buy the same stuff back at a big discount (after we took your money). Oh and by the way, if you need more money, we will be happy to lend that to you as well. Heads, we win; tails you lose! One has to also then wonder how Citi would value these things on their books if they bought them!
"Hawaii last year rejected as “sorely lacking” an offer by Citigroup to buy the $1.1 billion in securities at an unspecified discount, according to Randall Nishiyama, Hawaii’s deputy attorney general. The bank also offered to lend the state as much as $572 million at 3.85 percentage points above the federal funds rate, according to a loan term sheet obtained by Bloomberg News.,
Federal funds, which are the cost of overnight loans between banks, were quoted at 0.16 percent yesterday, less than a 10th of what the bonds Thompson sold are generating for the state in interest. Hawaii is earning 1.8 percent on the debt, which continues to pay interest despite the decline in market value, Kami said."
Citigroup’s Auction-Rate Bonds Freeze $1 Billion in Hawaii Cash
By Christopher Palmeri
March 4 (Bloomberg) — Two years after the auction-rate bond market froze, Hawaii has lost about $250 million in market value on $1 billion in student-loan securities sold by a single Citigroup Inc. broker as a cash substitute that the state has had difficulty unloading.
Hawaii purchased half of the securities for its short-term treasury account from Honolulu broker Pete Thompson, 60, in the eight months before the market collapsed, according to Scott Kami, an administrator at the state finance department.
The transactions came while Citigroup was increasing brokerage commissions and traders were being told to “make sure all hands are on deck” and “do whatever is necessary” to dispose of auction-rate bonds as the $330 billion market began to fail, according to a 2008 U.S. Securities and Exchange Commission complaint against the New York-based bank in a separate case related to sales of the debt.
“I was shocked,” state Representative Karl Rhoads said of his reaction when a constituent informed him last year that Hawaii was stuck with the auction-rate securities. “I didn’t believe it. We’re a small state, only 1.3 million people,” Rhoads said in a telephone interview.
Hawaii’s frozen-cash crunch complicates efforts by Governor Linda Lingle, 56, to close a $1.2 billion budget deficit as tourism revenue has fallen during the worst recession since the 1930s. She has proposed eliminating 800 state jobs, with teachers being told to stay home without pay for 17 days from November 2009 to May of this year.
Trader Dan’s Commentary
This story (thanks to our ever vigilant internet reader CIGA JB Slear) has one of those slapstick comedy moments in it: Remember the movie “Blazing Saddles?” There is a scene in the movie where the new sheriff in town, played by Cleavon Little, holds a gun to his own head and threatens the townspeople that the sheriff (Cleavon Little) is going to get it unless they throw down their guns. The scene is hilarious.
This is exactly what the citizens of Greece are doing right now. They are in effect saying:
STOP AND HELP ME RIGHT NOW or I WILL BURN DOWN MY OWN COUNTRY!
Just wait until some brave political leader here in the US actually begins to call for sharp cuts in government spending to attempt to get the fiscal US house in order. The riots and destruction will begin in earnest should this entitlement-minded generation come to believe that there is a serious chance that such cuts will become reality. For now, here in the US, it’s the exact opposite – “We don’t need no stinking budget cuts.”
Violent protests hit Greece as German backing sought
Mar 5 10:03 AM US/Eastern
Greek police clashed with demonstrators protesting sweeping budget cuts Friday as the government sought support from Germany to help it avoid default, only to be told not to expect a single cent.
Police fired tear gas after a union leader was struck and hurt by youths, an AFP reporter on the scene said, during protests against sweeping new budget and spending cuts announced Wednesday.
The violence erupted as Greek Prime Minister George Papandreou was to meet German Chancellor Angela Merkel later Friday, with Germany critical to any eurozone effort to help Greece restore its market credibility and already signalling it was not prepared to offer financial assistance.
Parliament meanwhile approved the budget and spending cuts worth 4.8 billion euros (6.5 billion dollars) announced by Papandreou on Wednesday as he sought to secure EU backing.
Papandreou told Germany’s Frankfurter Allgemeine newspaper he was "not asking for money" but other forms of support.
