In The News Today

Posted at 8:51 PM (CST) by & filed under In The News.

Dear CIGAs,

It is not if, nor when, nor is it beckoning, but is the fact of present time. In the Fiscal sense the West is already ruined, will stay ruined and will not recover to even a part of its formal greatness. Asia is on the rise and Africa will benefit from their thirst for raw materials. What a contrast to what was only five years ago. It is amazing how greed and ego has ruined what so many sacrificed so much for. Face the facts – for the West it is over. It would be even more obvious except for the fact that the West is so proficient at military science and industry.

The Fat Cats took it all, and now the regular guys have to pay for Wall Street’s gain. The OTC derivative problem is as bad as ever and hangs over the Western world like a vampire waiting to suck blood out of any being it can get its hands on. There are more than a quadrillion reasons to be petrified. Sometimes I wish I did not understand these types of things.

Lies are so common that the sheeple themselves have lost the virtue of truth. Did you see Paulson being grilled and looking like he was about to expire with a heart attack? Did you notice he was wearing a CASIO watch probably borrowed from one of his kids? He is not wearing his gold watch so he must be a regular guy. Bernanke did not look much better.

How anyone can rationally make fun of "This is it and it is now" boggles my mind. No one can be that glib without being on somebody’s payroll. Who fights gold from $248 and still thinks they are right? Well, two guys, I guess.

Fiscal ruin of the Western world beckons
For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.
By Ambrose Evans-Pritchard
Published: 5:40PM BST 18 Jul 2009

Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap.

A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year.

Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go. "The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb", said the Teachers Union of Ireland.

Nobody is spared. Social welfare payments must be cut 5pc, child benefit by 20pc. The Garda (police), already smarting from a 7pc pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc.

"Something has to give," said Professor Colm McCarthy, the report’s author. "We’re borrowing €400m (£345m) a week at a penalty interest."

No doubt Ireland has been the victim of a savagely tight monetary policy – given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base.

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Jim Sinclair’s Commentary

The demands to take the brown paper wrapping off the Good Ole Boy financial giveaway is getting louder and louder.

All of a sudden Ron Paul is looking like a MODERATE, as well as vindicated.

TARP Watchdogs Criticize Treasury Over Transparency
JULY 22, 2009, 3:47 P.M. ET
By MICHAEL R. CRITTENDEN

WASHINGTON — The U.S. Treasury Department continues to fall flat on providing transparency of its financial-rescue efforts, leaving taxpayers with too little information on billions in investments, the three program watchdogs offered in unified criticism Wednesday.

"Treasury’s default position should always be to require more disclosure rather than less and to provide [the American taxpayers] as much information about what is being done with their money," Neil Barofsky, special inspector general for the Troubled Asset Relief Program, said in remarks before a U.S. House panel.

Mr. Barofsky was echoed by the Government Accountability Office and Prof. Elizabeth Warren, chairman of the Congressional Oversight Panel. The three are tasked with overseeing the $700 billion rescue effort and uniformly raised concerns Wednesday about the Treasury’s reluctance to open up program decisions to the light of day.

A key criticism surrounds how the Treasury plans to value billions of dollars in warrants it received from banks in return for government aid. Thomas McCool, a director of the GAO, said the Treasury has provided only "limited" information on its process for setting warrant prices.

"It has yet to provide the level of transparency…that would address questions about whether the department is getting the best price for taxpayers," Mr. McCool said.

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Jim Sinclair’s Commentary

If CIT fails it will be Lehman phase two. Instead of breaking the financial world this one will break Middle America.

CIT Poses Lehman-Like Risk
By DONNA CHILDS and SAMEER BHATIA | A Dow Jones Newswires column

The implications of the capital crisis of CIT Group Inc. fill 24-hour news coverage and yet credit default swaps are near record lows and the markets appear calm, a peculiar disconnect given the events that followed Lehman Brothers’ bankruptcy. What gives?

The century-old lender narrowly avoided a bankruptcy filing this week when it obtained $3 billion in loan commitments from its bondholders. Tuesday, documents filed with the Securities and Exchange Commission laid out steps that it will take to avoid bankruptcy, though it warned that any misstep likely would lead to a Chapter 11 filing. Who has correctly gauged the risk CIT poses to institutions, markets and the economy – the media, the markets or the government?

The market judged Lehman a serious matter. In the days preceding Lehman’s bankruptcy, credit default spreads spiked. The Markit iTraxx Europe Senior Financials Credit Default Swap Index spread rose from 94 on Sept. 12 last year to 147 three days later, the date Lehman filed bankruptcy. The index spread peaked on March 6 this year, reaching 199, but it has since retreated to 114.

It appears anomalous that CDS spreads are near historic lows, despite a possible imminent collapse of an important commercial lender. So why haven’t spreads moved significantly despite the media’s scrutiny of CIT’s crisis?

The likely reason is that markets clearly understood the systemic financial risk posed by Lehman’s more than $350 billion counterparty exposure yet don’t grasp the risks posed by CIT’s exposure to the manufacturing, retail and commercial real estate sectors.

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Jim Sinclair’s Commentary

Mark my words, these guarantees which the government thinks will never be called upon, will be.

Ginnie Debt May Swell to $1 Trillion on Down Payments (Update1)
By Jody Shenn

July 22 (Bloomberg) — Mortgage bonds guaranteed by U.S. agency Ginnie Mae will probably swell to $1 trillion by the end of 2010 because borrowers with low down payments or credit scores can only qualify for government-insured loans, Bank of America Corp. analysts said.

The Federal Housing Administration, which insures loans with down payments as low as 3.5 percent and has no credit-score requirements, is “the only source of funding for these leveraged borrowers,” Ankur Mehta and Ohmsatya Ravi, the New York-based analysts, wrote in a report yesterday.

Debt explicitly backed by the U.S. through Ginnie Mae, formally known as the Government National Mortgage Association, climbed to $680 billion as of June 30 from $360 billion two years earlier, asrecord home-price declines caused the collapse of the “non-agency” mortgage-bond market and tougher standards at banks, mortgage insurers and mortgage-finance companies Fannie Mae and Freddie Mac, the analysts said.

Increased reliance on the government by higher-risk borrowers may cause the U.S. losses. Senator Richard Shelby, an Alabama Republican said in January the FHA “poses a significant risk to taxpayers.”

Further Ginnie Mae growth will be fueled by more borrowers using FHA loans to buy homes or to refinance, either to tap home equity or to lower their payments, the analysts wrote. Lenders package those mortgages into bonds backed by Ginnie Mae, which offers buyers of mortgage bonds composed of loans backed by other agencies guarantees of timely principal and interest payments. FHA loans charge 1.75 percent upfront and 0.55 percent annually for home-loan insurance.

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Jim Sinclair’s Commentary

Pandora’s Box of rescues has been opened. Once opened it cannot be closed again. The legislative is already active, first complaining, now trying to rescue the Chrysler and GM dealers that were dumped, and next they will be drafting legislation to give away money.

Fannie & Freddie: The most expensive bailout
Efforts to use the troubled mortgage finance firms to fix housing market problems are likely to push the taxpayer bill for Fannie & Freddie above $100 billion.
By Chris Isidore, CNNMoney.com senior writer
July 22, 2009: 3:17 PM ET

NEW YORK (CNNMoney.com) — The first big government bailout of the financial crisis — the takeover of mortgage finance giants Fannie Mae and Freddie Mac — is poised to be the most expensive and complicated to complete.

Since Congress essentially wrote a blank check to the Treasury Department in July 2008 to do what needed to be done to inject capital into the two firms, Fannie (FNM,Fortune 500) has received $34.2 billion of direct government support while Freddie (FRE, Fortune 500) has received $51.7 billion.

While that’s lower than the $117.5 billion poured into insurer AIG (AIG, Fortune 500) by the Federal Reserve and the $200 billion given to the nation’s largest banks through the Troubled Asset Relief Program, or TARP, the current cost of the Fannie and Freddie bailouts dwarfs original estimates from a year ago

When Congress was debating the bailout of Fannie and Freddie last July, the official estimate from the Congressional Budget Office was that a bailout would most likely cost taxpayers $25 billion, with only a 5% chance of the price tag reaching $100 billion between them.

In addition, both Fannie and Freddie are likely to need billions of dollars more after they report second quarter results in the coming weeks. Experts believe the cost will only continue to rise in the next year.

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Jim Sinclair’s Commentary

Two entities that handle these types of funds for mining are the China Africa Fund and the China Trade Bank. Which one depends on if the Chinese are minority or majority participants in a project.

China to deploy foreign reserves
By Jamil Anderlini in Beijing
Published: July 21 2009 19:09 | Last updated: July 21 2009 19:09

Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country’s premier, said in comments published on Tuesday.

“We should hasten the implementation of our ‘going out’ strategy and combine the utilisation of foreign exchange reserves with the ‘going out’ of our enterprises,” he told Chinese diplomats late on Monday.

Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports.

The “going out” strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China.

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Jim Sinclair’s Commentary

That certainly did not take long. See yesterday’s comment on Standard and Poors rating reductions.

U.S. releases new credit rating rules to curb power
Tue Jul 21, 2009 8:42pm EDT
By Patrick Rucker

WASHINGTON (Reuters) – The Treasury Department said on Tuesday it hopes new disclosure and conflict of interest rules will curb the power of credit rating agencies that have been blamed for fueling the recent financial crisis.

The Treasury sent an 18-page draft bill to Congress that would prevent credit rating agencies from consulting for the companies they are responsible for evaluating.

Shares of Moody’s and McGraw Hill, parent of Standard & Poor’s, extended losses after the announcement.

The Securities and Exchange Commission would have new powers to regulate the industry and companies would have to disclose when they go "ratings shopping" in two other provisions of the plan.

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Jim Sinclair’s Commentary

This story and the impact on the real economy is far from over. Expensive loans mean higher rates for borrowers at just the wrong time for most.

CIT to Shrink to Avoid Bankruptcy Court
Lender Outlines Plans to Avoid Chapter 11, Including Sales of Healthy Units Like Utah Bank
BY SERENA NG
JULY 22, 2009

CIT Group Inc. on Tuesday mapped out more of its restructuring plan that, if successful, would likely reduce the beleaguered lender to a shadow of its former self.

Documents filed with the Securities and Exchange Commission detailed several steps the company plans to take as it seeks to stay out of bankruptcy court. But the century-old lender hedged the news with a strong caveat that a failure to complete any of the steps likely would lead to a Chapter 11 filing.

The filings showed how dire CIT’s financial position had become in the days leading up to a last-minute rescue …

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Jim Sinclair’s Commentary

Even the Dark Side gets it right sometimes.

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Jim Sinclair’s Commentary

Ok, it is Detroit, but watch this spread as states, municipalities, towns, and hamlets go broke.

Then watch the legislative move with rescue packages now that the Treasury and Fed has opened the door. It will not be closed and the dollar will be damned.

Detroit Schools on the Brink
Shrinking District Heads Toward Bankruptcy to Gain Control of Its Costs
By ALEX P. KELLOGG

DETROIT — Detroit’s public-school system, beset by massive deficits and widespread corruption, is on the brink of following local icons GM and Chrysler into bankruptcy court.

[Detroit School] Associated Press

Students of Detroit’s Guyton Elementary School ring the bell for entrance in April. Guyton is one of 29 Detroit schools slated to close.

A decision on whether to file for protection under federal bankruptcy laws will be made by the end of summer, according to Robert Bobb, Detroit Public Schools’ emergency financial manager. Such a filing would be unprecedented in the U.S. Although a few major urban school districts have come close, none has gone through with a bankruptcy, according to legal and education experts.

But in Detroit — where U.S. Education Secretary Arne Duncan dubbed the school system a "national disgrace" this spring — lawmakers and bankruptcy experts see few alternatives, given the deep financial challenges confronting the district and the state.

"Am I optimistic that they can avoid it…? I am not," says Ray Graves, a retired bankruptcy judge who has been advising Mr. Bobb in recent weeks.

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Jim Sinclair’s Commentary

This started in the Bush Administration as a trickle, but looks like it might well go to 100% of the states.

There is a lot of Wall Street made whole and everything else goes to hell behind the stuffing of Washington’s supremacy.

Palin to feds: Alaska is sovereign state
Constitutional rights reasserted in growing resistance to Washington
Posted: July 20, 2009 11:08 pm Eastern
By Chelsea Schilling

Gov. Sarah Palin has signed a joint resolution declaring Alaska’s sovereignty under the Tenth Amendment to the Constitution – and now 36 other states have introduced similar resolutions as part of a growing resistance to the federal government.

Just weeks before she plans to step down from her position as Alaska governor, Palin signed House Joint Resolution 27, sponsored by state Rep. Mike Kelly on July 10, according to a Tenth Amendment Center report. The resolution "claims sovereignty for the state under the Tenth Amendment to the Constitution of the United States over all powers not otherwise enumerated and granted to the federal government by the Constitution of the United States."

Alaska’s House passed HJR 27 by a vote of 37-0, and the Senate passed it by a vote of 40-0.

According to the report, the joint resolution does not carry with it the force of law, but supporters say it is a significant move toward getting their message out to other lawmakers, the media and grassroots movements.

Alaska’s resolution states:

Be it resolved that the Alaska State Legislature hereby claims sovereignty for the state under the Tenth Amendment to the Constitution of the United States over all powers not otherwise enumerated and granted to the federal government by the Constitution of the United States.

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Jim Sinclair’s Commentary

The BS earnings are coming to an end while banks face lousy business that will end many.

Wells Fargo Says Bad Loans Rise in Second Quarter; Shares Drop
By Ari Levy

July 22 (Bloomberg) — Wells Fargo & Co., the biggest U.S. home lender this year, said bad loans jumped in the second quarter as the recession made it harder for borrowers to keep up with payments. The shares dropped 5 percent in early trading.

Assets no longer collecting interest climbed 45 percent to $18.3 billion as of June 30 from the first quarter, the San Francisco-based bank said today in a statement. The increase was disclosed as Wells Fargo reported second-quarter net income soared 81 percent to a record $3.17 billion.

Wells Fargo added to credit reserves amid a 26-year high in unemployment and rising commercial real estate delinquencies. While the acquisition of Wachovia Corp. in January bolstered deposits and home lending, the bank must stanch losses from defaults in California and a portfolio of option adjustable-rate mortgages, ranked among the riskiest loans issued during the housing boom.

“We’re not out of the woods in terms of credit quality,” said Jennifer Thompson, an analyst at Portales Partners LLC in New York. She has a “hold” rating on Wells Fargo, because “with the company more exposed to some higher-risk markets, I’d rather wait for a better entry point,” Thompson said.

The increase in bad assets was tied to Wachovia loans, the difficulty of liquidating holdings, the cost of loan modifications and the deterioration of commercial real estate, Wells Fargo said. Nonaccrual loans jumped $5.3 billion from March 31.

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Morgan Stanley Loss Misses Estimates on Debt Costs (Update1)
By Christine Harper

July 22 (Bloomberg) — Morgan Stanley reported a bigger second-quarter loss than analysts expected as costs to repay the U.S. government and charges from an improvement in the firm’s own debt overwhelmed revenue.

The loss from continuing operations was $159 million, or $1.37 a share, compared with earnings of $689 million, or 61 cents, in the same period a year earlier, the New York-based company said today in a statement. The average estimate of 19 analysts surveyed by Bloomberg was for a 54-cent loss. The results include a $2.3 billion accounting charge related to tighter credit spreads.

Chief Executive Officer John Mack raised $6.9 billion by selling stock in the quarter, paid $10 billion and an $850 million dividend to the U.S. government and took control of Citigroup Inc.’s Smith Barney brokerage division. All three of Morgan Stanley’s divisions lost money, while rising stock and bond markets fueled profits at competitors, including record earnings of $3.4 billion at Goldman Sachs Group Inc.

“If there was ever a time when these banks should exceed on the upside in terms of their results, it should be now,” said Matt McCormick, a banking-industry analyst at Bahl & Gaynor Inc. in Cincinnati, which manages $2.3 billion, before the results. “Like it or not, many people are comparing them to the banks that came out with strong results and saying, ‘Why can’t they be more like Goldman?’”

Net Income

Net income applicable to Morgan Stanley, which included a $308 million gain from discontinued operations, was $149 million in the quarter, down from $1.14 billion a year earlier.

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Jim Sinclair’s Commentary

Remember when I told you the US Fed was bailing out the world by creating dollars out of electronic thin air?

Here is the Fed dancing around just that question.

 

Jim Sinclair’s Commentary

Good news. This would limit the problem to only one quadrillion, one thousand, one hundred forty four trillion.

If you list new OTC derivatives with a CLEARING HOUSE FUNCTION GOING FORWARD THEY ARE NO LONGER OTC DERIVATIVES, THEY ARE LISTED DERIVATIVES.

US SEC, CFTC detail clampdown on OTC derivatives
Wed Jul 22, 2009 11:28am EDT
By Kevin Drawbaugh and Christopher Doering

WASHINGTON, July 22 (Reuters) – Over-the-counter derivatives markets, a "dark corner" of the U.S. financial system, would face much greater public and government scrutiny under proposals detailed by regulators on Wednesday.

As part of a broad push by the Obama administration to reshape financial regulation, the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission outlined an OTC derivatives crackdown.

In addition, Deputy Treasury Secretary Neal Wolin said in a speech that next week the Treasury will deliver draft legislation on the regulation of over-the-counter derivatives.

CFTC Chairman Gary Gensler told the House Financial Services Committee in a hearing that all derivatives dealers should face capital, margin, conduct and record-keeping rules.

He urged bankruptcy law changes to protect against derivatives dealer insolvencies and position limits for CFTC-regulated OTC derivatives that affect price discovery.

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Jim Sinclair’s Commentary

What rocket scientist just figured this out? Bernanke, step up to unlimited QE or a new Chairman will be coming in.

Fed Has Become ‘Embroiled’ in Politics, Poole Says
By Vincent Del Giudice and Max Raskin

July 22 (Bloomberg) — The Federal Reserve is “embroiled” in politics and has “stretched beyond reason” its authority to make loans, said William Poole, who served as president of the St. Louis Fed from 1998 to 2008.

“ I don’t think independent can mean the Fed can do whatever it wants under any circumstance,” Poole, a senior economic adviser to Palo Alto, California-based Merk Investments LLC, said in an interview today on Bloomberg Radio. “The Fed has chosen to make loans to certain firms and not others.”

Traditionally, central banks “deal in government securities,” and control “overall liquidity” and “overall interest rates,” Poole said. The Fed is “embroiled in fundamentally political questions,” he said.

In the aftermath of last year’s credit market collapse, the Fed instituted a series of emergency lending programs. Fed policy makers decided at their meeting June 24 to maintain plans to buy as much as $1.75 trillion of Treasuries and housing debt to lower interest rates.

The central bank “has not made loans of this sort since the Great Depression,” Poole said. “The Federal Reserve has responded very aggressively to this crisis we are living through” and “has doubled its balance sheet.”

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Jim Sinclair’s Commentary

The final chapter of CIT is still too played out. If CIT does not make it you can double this number on percentages.

Ch. 7 bankruptcies jump 58 percent
By Thomas Grillo
Monday, July 20, 2009 – Added 2d 1h ago

Chapter 7 bankruptcy filings in Massachusetts surged 58 percent in the second quarter from the same months last year, according a new report from The Warren Group.

“The dramatic jump in bankruptcy filings shows just how hard it has been for consumers to keep up with their bills in this tough economy,” said Timothy M. Warren Jr., CEO of The Warren Group, in a statement.

A total of 4,489 filers sought protection under Chapter 7 of the U.S. bankruptcy code from April through June, up from 2,839 during the same months in 2008. The number of filings was also 36.6 percent higher than the first quarter of 2009, when 3,285 consumers sought Chapter 7 protection.

The number of second quarter filings was higher than each of the previous five quarters. There were 7,774 filings under Chapter 7 in the first half of 2009, a nearly 36 percent increase from 5,722 last year.

A Chapter 7 bankruptcy filing is the most common option for individuals who are seeking relief from their debts and accounted for 82 percent of bankruptcy filings tracked by The Warren Group in Massachusetts during the second quarter of 2009.

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Jim Sinclair’s Comment

This is very serious considering that Israel WILL make a serious miscalculation.

U.S. Could Extend "Nuclear Umbrella" Around Iran, Clinton Warns
Wednesday, July 22, 2009

U.S. Secretary of State Hillary Clinton today said her nation would consider extending nuclear protection to its Middle Eastern allies if Iran continued its disputed nuclear activities, Agence France-Presse reported (see GSN, July 21).

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Jim Sinclair’s Commentary

This is what was asked when the Talking Heads interrupted the live hearings:

Ron Paul questions Ben Bernanke on definition of inflation
07/21/2009