In The News Today

Posted at 5:04 PM (CST) by & filed under In The News.

Dear CIGAs,

These are our financial leaders bequeath to our, not their, grandchildren and the grandchildren of them, all thanks to looking the other way as OTC manufacturers and distributors plied their evil fraudulent trade.


Jim Sinclair’s Commentary

What the OTC derivatives and terrible business does not do to financial entities, attorneys will. When it is all said and done, Wall Street is history killed stone cold dead by the OTC derivative manufacturers and distributors.

RBS Faces 2nd Round Of US Investor Disclosure Suits
By Liz McKenzie

Law360, New York (February 02, 2009) — The Royal Bank of Scotland Group PLC faces another securities class action from U.S. investors alleging that the U.K. clearing bank failed to disclose its exposure to the subprime mortgage market before reporting one of the biggest losses in British banking history.

Filed on Thursday in the U.S. District Court for the Southern District of New York by investor Ferdinand Levy, the lawsuit claims the bank downplayed its risk exposure and issued misleading information to investors about its financial security.

The complaint accuses Edinburgh, Scotland-based RBS and several of its executives of breaching U.S. securities law by failing to properly record losses for impaired assets, failing to acknowledge the extent of impairment of its debt securities portfolio, failing to maintain adequate internal controls and concealing the fact that its capital base was insufficient to withstand the deterioration in the U.S. subprime mortgage market.

Despite assuring investors that its economic outlook was still promising, investors allege that “the dislocation in the financial markets was then having an increasingly severe impact on RBS’ business, which significantly increased the risk level of Series S ADSs [American depositary shares].”

In December 2007 the bank was forced to write down £1.5 billion ($2.18 billion), in great part because of its exposure to the U.S. subprime mortgage market, the suit claims.


Jim Sinclair’s Commentary

Not only is it a bad idea, but we already have a "Bad Bank." That bank is the Federal Reserve with all the crap they hold, having been stuffed by the bailouts.

A bad bank is a very bad idea
By Rolfe Winkler
Updated Monday, February 2nd 2009, 9:48 AM

When rumors surfaced on Wednesday that the Obama administration may create a "bad bank" to buy toxic assets, financial stocks soared. Of course bank shareholders were happy; the plan is likely to be a titanic taxpayer hand-out. It has to be to achieve the administration’s goal of keeping banks in private hands.

To understand the banking crisis, and Obama’s emerging solution, all you need to know is one equation: Assets = Liabilities + Equity. This equation explains why banks are dropping like flies.

A bank’s assets are the loans it makes to borrowers. Its liabilities are the dollars it borrows from lenders and depositors to fund those loans. Shareholder equity is what’s left over.

During the bubble, banks made loans for houses at vastly inflated prices. Say, for instance, a bank lent $1 million to a borrower buying a Miami condo in 2006. The borrower promised to repay $1 million over the life of the loan, so the bank valued this asset at $1 million.

Flash forward to 2009, and the condo is now worth $500,000. The borrower defaults because he’d rather lose the condo than pay a million-dollar mortgage on a property now worth half that.

The bank forecloses on the condo and sells it for what it can get, the current market value of $500,000. The bank’s asset, the loan, has fallen from $1 million, which the borrower owed, to $500,000, the amount recovered. A 50% loss.


Monty Guild’s Commentary

Between Variable Annuities and Derivatives the insurance companies may be more broke than the banks. Their capital may be more impaired, and it may take them longer to get solvent.

If something like an annuity sounds too good to be true… it probably is. How are insurance companies going to be able to meet their commitments to guarantee a 5% return on stocks and bonds for annuity holders, when world markets are down an average of 43% in 2008 and 8% in the first month of 2009? A global depression hitting stock values possibly for one or two more years? The high fees insurance companies took for annuities exacerbates the problem.

This is another big scandal waiting to hit the news.

Jim Sinclair’s Commentary

You think when you call the "Good Hands" you are in a check is forthcoming. All our insurance companies are broke. Thank you one more time to the OTC derivative manufacturers and distributors.

Allstate’s Catastrophe Bonds Face ‘Imminent’ Default (Update3)
By Neil Unmack and Oliver Suess

Feb. 2 (Bloomberg) — A catastrophe bond sold by Allstate Corp. faces “imminent” default following the collapse of Lehman Brothers Holdings Inc., Standard & Poor’s said. It would be only the second such security to fail in a decade.

New York-based S&P downgraded $250 million of debt sold by Allstate’s Willow Re Ltd. to D, the lowest grade, from CC, according to a Jan. 30 statement. Northbrook, Illinois-based Allstate sold the bonds in 2007 to protect against losses caused by U.S. hurricanes.

“The issuer has notified Standard & Poor’s that it will not have sufficient funds to make the scheduled interest payment,” S&P analyst Gary Martucci in New York wrote in the statement.

Insurers started using so-called cat bonds in the 1990s to transfer the risk of claims that could threaten their solvency. Bond investors in Zurich Financial Services AG’s Kamp Re 2005 Ltd. lost money when property damages caused by Hurricane Katrina in 2005 exceeded the threshold that entitled Zurich to keep investor funds to pay insurance claims.

“The market was already pricing Willow Re in the area of 50 cents,” said Christophe Fritsch, head of insurance-linked securities at Axa SA in Paris. “New deals will improve dramatically. Investors will make sure that they will only be exposed to insurance risk and won’t take credit risk.”



Jim Sinclair’s Commentary

Repeated presence of many auditors means only one thing. The last one refused to sign off on the audit. That is fact, jack.

Lehman Brothers saga – 4th auditor appointed
By Francis Chan
Feb 2, 2009

A FOURTH independent auditor in Singapore has been appointed to help deal with investor complaints linked to Lehman Brothers.

The complaints come after investment products from the bankrupt United States investment bank failed late last year.

On Monday, Hong Leong Finance appointed National University of Singapore law professor Hans Tjio to review complaints from its customers who invested in Morgan Stanley’s Pinnacle Notes Series 9 and 10.

The Monetary Authority of Singapore (MAS) said Professor Tjio’s role would be similar to those of three other industry leaders appointed last year to review complaints over the failed structured products.

One of the three, Mr Hwang Soo Jin, who was previously overseeing the complaints-handling process of brokerages that sold the products, will also review cases received at brokerages in relation to Pinnacle 9 and 10, said MAS.

Besides Hong Leong Finance, brokerage firms like DMG & Partners Securities, Kim Eng Securities, OCBC Securities and UOB Kay Hian also sold the notes to retail investors here.


Jim Sinclair’s Commentary

The specs can spec and the Comex manipulators can jiggle, but it is all in vain. Gold is going to

$1064, $1250 and then on to Alf’s price predictions, all of which will be the product of inescapable hyperinflation, a currency event certain to occur.

Chinese Cautious on Treasury Notes
Published: January 31, 2009

LONDON (Reuters) — China’s willingness to continue buying United States Treasury securities in large numbers will depend on its need to protect the value of its foreign investments, the Chinese premier, Wen Jiabao, said Saturday. He also said that a stable yuan is in everyone’s interests.

“Whether we will buy more U.S. Treasury bonds, and if so by how much — we should take that decision in accordance with China’s own need and also our aim to keep the security of our foreign reserves and the value of them,” Mr. Wen said.

His enigmatic remarks, made near the end of a visit to Europe, could raise new concerns about China’s commitment to continue purchasing United States government debt.



Jim Sinclair’s Commentary

Out of the news, but not out of core geopolitical tinder box perma-status.

American Kidnapped in Pakistan
Solecki Is the First Single-National American Kidnapped in Pakistan Since Daniel Pearl in 2002

ISLAMABAD, Pakistan, Feb. 2, 2009 – The head of a U.N. aid office in Pakistan was kidnapped today, the first single-national American kidnapped in Pakistan since Daniel Pearl was abducted and killed in 2002.

John Solecki’s sport utility vehicle was attacked in Chaman Housing, a posh residential area in Quetta, while he was on his way to work at the local U.N High Commissioner for Refugees office, according to officials.

At least one gunman, working with a driver and at least one accomplice, fired into the car, which was not bulletproof, killing Solecki’s driver Syed Hashim, the officials added.

The car then hit a wall and Solecki was hustled out of his vehicle into the kidnappers’ car.

"It’s difficult to establish now whether he was targeted because he was an American, but he was definitely targeted for being a foreigner," a senior intelligence official in Quetta told ABC News.