Posts Categorized: Jim’s Mailbox

Posted by & filed under Jim's Mailbox.

Dear CIGA Green Hornet,

The Guarino article on Black Scholes model, derivatives in general and market forecast stands on a premise that is totally incorrect.

This article can be characterized as the “Black Hole” thesis. It says that all the bailout funds disappear into some loss entity within the balance sheet of the losing side of the derivative.

If that thesis does not hold then it shifts to a concept that says all these funds revolve back to the Fed as a practice of holding all the free reserves of member banks.

The writer somehow assumes that Motors, AIG and the like are members of the Federal Reserve system.

This writer entirely ignores the swaps done by the Fed to bail out non USA entities by providing dollars to other central banks who in turn use those funds to bail out their own non USA entities.

The writer would be better advised to use the statistic that can be obtained by subscription to www.shadowstats.com.

The writer should know that a loser on a derivative does not hold the funds on account for the winner.

The writer would be well advised to study the history of hyperinflation that always occurs directly in the middle of what appears to be his definition of deflation.

The writer would also be well advised to study what happens to the velocity of money in every hyperinflation scenario as they all occur in a depression economic setting. Velocity in these circumstances explodes. Hyperinflations are currency events and not economic events.

Every cent of bailout funds lies latent in the economy in the hands of the new shadow trillionaires. These shadow trillionaires now have a serious problem. Their enormous wealth is all paper.

The bailout money in all these entities comes in the front door of the loser and goes immediately out the back door to the winner on the derivative. The firms identified as the winner is not the principle on the trade. It is the broker only. You will never know who the principle is, ever.

There is no Black Hole that devours all the bailout money nor does it flow back into the Federal Reserve System.

The article’s conclusions are invalid because the premises supporting those conclusions are totally wrong. There is a complete misunderstanding of what an OTC derivative is.

The article has neither historical understanding of hyperinflation nor the role velocity of money plays. The writer does not understand that hyperinflation is a currency event, not an economic event and stands on confidence in the currency only. Because of this the writer’s conclusions are off the wall.

Please read the following New York Times article. The writer should also read it.

Cuomo Widens His A.I.G. Investigation
March 26, 2009, 6:17 pm

Attorney General Andrew M. Cuomo of New York said Thursday afternoon that he was widening his investigation of the American International Group to examine whether its trading counterparties improperly received billions of dollars in government money from the troubled insurer.

Those counterparties include Goldman Sachs, which received $12.9 billion, as well as Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion.

“Our investigation into corporate bonuses has led us to an investigation of the credit default swap contracts at A.I.G.,” Mr. Cuomo said in a statement. “CDS contracts were at the heart of A.I.G.’s meltdown. The question is whether the contracts are being wound down properly and efficiently or whether they have become a vehicle for funneling billions in taxpayers dollars to capitalize banks all over the world.”

Other counterparties that received money from A.I.G. include Barclays of Britain ($8.5 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), UBS of Switzerland ($5 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).

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Dear Jim,

As you know, these folks have been pretty accurate in past forecasts. This is a link to the March 16 update which includes a frightening chart of what is in store for Americans.

Click here to view the report…

On March 24, an open letter was issued to G20 members with recommendations for mitigating the crisis into a 3-5 year time frame. The call for an IMF audit of Wall Street/Washington, London and Zurich is an eye opener.

Click here to view the report…

If your readers believe the USA chart is even half accurate and don’t convert dollars to gold while there is still time, their future is going to be very uncomfortable.

CIGA Doug

Dear Jim,

Derivatives have destroyed our economic system at nearly every level of the economy.

CIGA Marc

N.C. Judge Blocks Wachovia Shopping Center Foreclosure

North Carolina Judge Blocks Wachovia Foreclosure in Lawsuit Involving Derivative Interest Rate Swap and Alleging Extortion, Fraud, Unfair and Deceptive Trade Practices.

GREENSBORO, N.C., March 26, 2009 (PRNewswire via COMTEX) — A judge in Guilford County, N.C., today entered a preliminary injunction preventing Wachovia Bank, N.A., from foreclosing on a Greensboro shopping center owned by an affiliate of Granite Development, LLC.

The order by Superior Court Judge Richard W. Stone blocks Wachovia from foreclosing on property developed by the Granite affiliate until a trial on claims that Wachovia wrongfully terminated a derivative interest rate "swap" agreement, over Granite’s objection, which was designed to provide a fixed interest rate for permanent financing. Wachovia has argued it is entitled to a $5.48 million termination fee.

The lawsuit, filed by Granite Development affiliates last month and recently amended, asserts Wachovia has engaged in extortion, fraud, and unfair and deceptive practices. It asks that the swap agreement be rescinded or modified and the "contrived and unwarranted" termination fee demanded by Wachovia be declared an unenforceable penalty.

Judge Stone found that there are "serious issues" regarding Wachovia’s right to pursue foreclosure against its customer, and that the Granite affiliate owning the center would suffer irreparable harm if the foreclosure were not prohibited. He also ordered that Wachovia cease efforts to collect rent from shopping center tenants.

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Posted by & filed under Jim's Mailbox.

Dear CIGAs,

This note from CIGA Annette is so timely.

Today, Volcker fell from grace.

The wheel of a lifelong chariot (right action) descended and touched the ground as Paul publicly blessed the utterances of asset value lies to the public with clean audits. That is so WRONG. There is no redeeming aspect of this decision. Paul’s blessings support the permitting of crime. Permission does not make a crime a right act, nor criminals good people.

Yes, Gold is the only lifeline now, as there is no honorable person left amongst the power brokers who have broken the financial world. There is no earned Karma that demands this group be bailed out.

If Volcker is so petrified of what he sees that he would be willing to give up a life of right actions, as he did today, can you imagine what is really out there?

What happened to Death before Dishonor Paul?

Dear Mr. Sinclair,

This is an excellent article from the NYT (June 1987) to remember whenever Mr. Greenspan makes the rounds in the financial press:

TREASURY NOW FAVORS CREATION OF HUGE BANKS
By NATHANIEL C. NASH, Special to the New York Times
Published: Sunday, June 7, 1987

Top officials at the Treasury Department have concluded that the Government should encourage creation of very large banks that could better compete with financial institutions in Japan and Europe.

The Treasury plan, which would permit the acquisition of banks by large industrial companies, was also endorsed by Alan Greenspan, in an interview before President Reagan nominated him this week to be chairman of the Federal Reserve Board.

Mr. Greenspan said the plan would provide multibillion-dollar pools of investment capital for a banking industry that was ”severely undercapitalized.” Mr. Greenspan has declined to be interviewed while he awaits confirmation by the Senate.

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Please also note Mr. Volcker’s opposition to the proposals being floated and later enacted.

Of course Mr. Volcker was replaced shortly thereafter by Mr. Greenspan.

The latest effort they have this most experienced man (Volcker) working on now is a proposal on increasing tax collection…

Gold is truly our only hope.

Best regards,
CIGA Annette

Posted by & filed under Jim's Mailbox.

Dear Jim,

As attested by the following article, Andrew Cuomo is the one true public servant in this whole mess who has the courage to ask the right questions and go after the big fishes.

Best wishes,
CIGA Richard B.

Cuomo Widens His A.I.G. Investigation
New York Times Dealbook, March 16, 2009

Attorney General Andrew M. Cuomo of New York said Thursday afternoon that he was widening his investigation of the American International Group to examine whether its trading counterparties improperly received billions of dollars in government money from the troubled insurer.

Those counterparties include Goldman Sachs, which received $12.9 billion, as well as Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion.

“Our investigation into corporate bonuses has led us to an investigation of the credit default swap contracts at A.I.G.,” Mr. Cuomo said in a statement. “CDS contracts were at the heart of A.I.G.’s meltdown. The question is whether the contracts are being wound down properly and efficiently or whether they have become a vehicle for funneling billions in taxpayers dollars to capitalize banks all over the world.”

Other counterparties that received money from A.I.G. include Barclays of Britain ($8.5 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), UBS of Switzerland ($5 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).

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Posted by & filed under Jim's Mailbox.

Jim,

David Rosenberg on ML’s Squawk Box:

"Mostly everyone likes to talk about how the data have all of a sudden signaled a turn in the economy, retail sales, home sales, yesterday’s durable goods report. We advise caution here because what we have seen is a very aggressive set of seasonal factors, which have made the raw data look extremely strong in the month of February." On GDP he adds "Let’s just say that after the latest data flow, the downward revisions have been so large that first quarter real GDP is now poised to decline at a 7.2% annual rate, which would be not only worse than the 6.3% slide in 4Q but the largest back-to-back contraction in over 50 years. As an example, look at the durables report that came out yesterday — the level of core shipments is actually 0.7% lower in February than we had expected despite the better growth rate (due to the sharp downward revision)."

Anthony Danaher
www.GuildInvestment.com

Posted by & filed under Jim's Mailbox.

Dear Jim,

All I can say to this is hallelujah… let’s get on with the regulation ASAP. This is actually useful information.

Respectfully yours,

Monty Guild
www.GuildInvestment.com

Subject: FW: Gremlins & Soros-interesting write up from our rates strategy team
From Patrick Perrett-Green: Citi Strategy Team

This is a piece that has been sitting in my draft folder for some time. But reading the article by Soros in yesterday’s WSJ gave me the necessary kick to finish it off. So read Gremlins first then his piece on CDS, bear raids and regulation.

GREMLINS

Gremlins was a classic movie released in 1984. Most of you will be familiar with the plot. A man desperate for a Christmas present for his son manages to buy an exceptionally cute fluffy animal called Mogwai from a mysterious Chinese trader. But attached to the sale are conditions. It must be kept away from bright light, it must never be fed after midnight and most important of all it must never be exposed to water.

Of course all these events happen and a host of evil creatures are spawned. Result? Chaos.

And this brings me to CDS.

When CDS were first invented the idea was simple – to give lenders some insurance on loans or securities. A perfectly reasonable idea, in fact quite cute just like Mogwai.

What CDS looked like when they began:

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Unfortunately they morphed into a super traded beast. Instead of being the equivalent of buying fire insurance on your own home they allowed everyone else to bet on the probability that your house would burn down. With that it was naive to believe that there were no arsonists out there.

As the market grew at an exponential pace one got CDOs and CDOs squared based on packages of credit default swaps and even stranger investments. Moreover CDS effectively gave everyone a get out of jail free card. Credit analysis became less rigorous as the concept of the biggest fool came to dominate.

Ultimately CDS gave the credit boom a super steroid injection, driving excesses to new extremes. Unfortunately the majority of participants, and by that I mean banks, investors and regulators had failed to realise that their cute, lovely little Mogwai had not only got soaking wet but had gorged after midnight. When the bubble burst the reality was that CDS had come to look like this – worse still they became a key tool in financial arsonists’ destruction kits. Exempt from short selling restrictions, it can be argued that it was the CDS markets that ultimately lead to the dramatic deaths of Lehman, Bear Stearns and others.

And what they became

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Some will, no doubt, feel that this comparison is unfair. But the majority of those are likely to have their careers intimately related to CDS and turkeys don’t vote for Christmas. Nevertheless, I have little doubt that if CDS were invented today they would probably be banned.

Looking ahead I believe that CDS is a market in terminal decline. As regulation increases, along with disclosure requirements and CDS exposures are forced on to exchanges the market will become increasingly hounded. Turnover will steadily fall. Investors will shy away from them as liquidity shrinks and so on. As they do, a return to the more disciplined approach of proper analysis and making a more simple decision of whether to buy something or not, or make a loan, will gather pace. After all what was so wrong with that approach in the first place?

Ultimately just like in Gremlins, the sun will shine.

Good Luck,
PPG

Dear Jim,

This splendidly delivered 3 minute explanation of the economic policies of Prime Minister Gordon Brown in the UK could be repeated almost verbatim about the current poorly managed US economic situation. The Parliamentarian who delivered the speech, Mr. Daniel Hannan, is clearly a brilliant speaker and he pulls no punches. We expect to hear similar speeches in the US congress about the disastrous economic recovery plan currently being implemented,

the consequences of which have already led to a loss of US global economic and financial status, and the follow on effects of which will lead to immense burdens on unborn generations of Americans.

Respectfully yours,
Monty Guild

 

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Jim,

Is this even possible?

CIGA BJS

Freeze The $1.5 Qaudrillion Derivatives Bubble As The First Step To Recovery
By Webster Tarpley
3-25-9

WASHINGTON, DC — On the eve of the long-awaited London conference of the G-20 nations, we are rapidly descending into the chaos of a Second World Economic Depression of catastrophic proportions. In the year since the collapse of Bear Stearns, we have moved toward the disintegration of the entire globalized world financial system, based on the residual status of the US dollar as a reserve currency, and expressed through the banking hegemony of London, New York, and the US-UK controlled international lending institutions like the International Monetary fund and the World Bank. This is a breakdown crisis of world civilization, prepared over decades by the folly of deindustrialization and the illusions of a postindustrial society, further complicated by the deregulation and privatization of the leading economies based on the Washington Consensus, itself a distillation of the economic misconceptions of the Austrian and Chicago monetarist schools. If current policies are maintained, we face the acute danger of a terminal dollar disintegration and world hyperinflation.

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CIGA BJS,

It was possible two or three years ago, but is no longer a viable option.

The reasons are:

  1. It would take a Presidential Order of an Economic Emergency to put contract law into limbo.
  2. After the Economic Emergency is declared over, the crap will still be there. A Presidential Order of Economic Emergency suspends contract law, but does not evaporate it.
  3. So much money has passed into the hands of the winners (most of the now 9.5 trillion) on the OTC derivatives, the loser would have to admit to the losses still hidden from view by the opaque nature of the OTC derivative.
  4. It would bankrupt most of the banks in the system by recognition of the then "no value" of their assets.
  5. It would require nationalization of practically all the US Fed member banks. The smaller institutions would be write offs.
  6. The US dollar, due to abrogation of contract law, would suffer the pains of hell.
  7. The worst part of all would be that the full faith guarantees of US Treasuries would be drawn into question. Agencies would simply be fried to smithereens.

Conclusion:

This article is academically correct and in a practical market sense impossible.

There simply is no practical solution to this disaster outside of its eventual working through the entire system. No government nor any group of governments with all their printing presses can equal the size of the problem given to us by the madness of the bankster’s greed.

Regards,
Jim

Mr. Sinclair,

I wonder when this will escalate in the USA. I have heard reports that some people are protesting outside Finance companies official’s homes but it doesn’t seem to make news in the US papers. How odd!!

Kindest Regards and appreciation for all you do,
CIGA Jeff

Vandals Hit Home of Ex-Chief of Bank

By JULIA WERDIGIER

Published: March 25, 2009

LONDON — The house of Fred Goodwin, the former chief executive of the ailing Royal Bank of Scotland, was vandalized early Wednesday and windows of his car were smashed.

Mr. Goodwin attracted criticism for keeping his £703,000, or $1 million, pension despite a string of ill-timed acquisitions under his tenure that brought the bank under government control and calls from Prime Minister Gordon Brown to surrender the payment.

At least three windows on the ground-floor level of his house in an affluent suburb of Edinburgh, Scotland, were smashed and a black Mercedes S600 parked in the driveway was vandalized. It is unclear if Mr. Goodwin was in the house at the time.

“We can confirm we attended at an address in Oswald Road at 4.35 a.m. on March 25 and inquiries are ongoing,” a spokeswoman for the Lothian and Borders Police said in a statement. No one has been arrested or charged and the police have asked anyone with information about the incident to step forward, she said.

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Jim,

Dan Norcini as a modern bard or current affairs narrator of history in the making:

"This shift in sentiment away from the Dollar is momentous. It is the rare breed that is able to spot turning points in history while they are indeed occurring. It is generally only after the fact that the majority are able to point a finger at a particular occurrence and state; “history was made here”. Nonetheless, we are getting a ringside seat and observing the events transpire that will alter our way of life here in the United States forever."

Or how unimaginable things just a few months ago, can be said almost "by the way". Truly impressive.

Best as ever,
CIGA Richard M.

"We may be at the beginning of a loss of confidence (in the U.S. dollar reserve system)," he said. "I think there is support for some sort of global reserve system."

Geithner Plan Will Rob US Taxpayers: Stiglitz
Reuters | 24 Mar 2009

The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday.

"The Geithner plan is very badly flawed," Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

U.S. Treasury Secretary Timothy Geithner’s plan to wipe up to US$1 trillion in bad debt off banks’ balance sheets, unveiled on Monday, offered "perverse incentives", Stiglitz said.

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

"Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

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Posted by & filed under Jim's Mailbox.

Dear Mr. Sinclair,

Our Chinese friends do not like the "Dollar Stranglehold."

Here is the original essay from the People’s Bank of China website your posting made reference to.

Best regards,
CIGA Annette

Reform the International Monetary System
Zhou Xiaochuan

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.

Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis again calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.

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Scott R. Cutler
Senior Vice President
NYSE Euronext | 11 Wall Street
New York, New York 10005

March 24, 2009

Dear James:

As you know, since last autumn we have been publicly advocating on your behalf for the reinstatement of a deterrent against abusive short selling. To help address the loss of investor confidence caused by the recent market turmoil, we have consistently called for reinstating some form of the "uptick rule" restriction.

Recently, the Securities and Exchange Commission announced that at its April 8 open meeting, it will consider whether to propose short-sale price-test rules. In response, we have joined with the other U.S. exchanges to develop a modernized application of the former uptick rule. Our joint proposal for the SEC’s consideration, which is outlined in the attached letter, calls for:

  • A modified version of the "uptick rule," in which short selling can be initiated only at a price above the highest prevailing national bid and only on a "passive" basis (i.e., through posting a quote and not by "hitting" a bid).
  • In combination with this updated tick test, a “circuit breaker” that would trigger the application of the tick test only after the price of a stock has experienced a precipitous decline by a certain percentage, perhaps 10 percent.

In making this proposal, we are working to balance the interests of investor protection and the liquidity and efficient operation of the markets. Following its April 8th meeting, the SEC will publish alternatives for addressing short sale restrictions, and will then accept public comment for a 45-60 day period. You are welcome to respond directly to the SEC, or to give us your thoughts for incorporation into the Exchange’s formal comment letter. We welcome your thoughts, and will keep you apprised as this discussion continues.

http://www.nyse.com/pdfs/Uptick_Letter_SEC.pdf

Best regards,

image

Scott R. Cutler
Senior Vice President
NYSE Euronext

 

 

March 24, 2009
The Honorable Mary Schapiro
Chairman
U.S. Securities and Exchange Commission
100 F Street NE
Washington, DC  20549

Dear Chairman Schapiro:

The United States national securities exchanges welcomed the announcement that the Securities and Exchange Commission (the Commission) will consider a proposal to adopt a rule to combat abusive short selling.  Abusive short selling harms investors and the companies listed on our exchanges, and destroys the overall confidence in our capital markets.  Our challenge is to restrict abusive short selling while still permitting liquidity creating short selling that continues our status as the most efficient capital market in the world.  As you know, we worked closely with the Commission to implement new rules and emergency measures to combat abusive short selling during 2008.  We also applaud the Commission for pursuing new restrictions while permitting a full opportunity for comment given the complexity of our markets and the technology that currently supports our markets.  Continuously attacking abusive short selling and other manipulative activities is critical to restoring public confidence in the US equities markets. 

First, let us commend the Commission in its efforts to attack an abusive form of short selling; “naked short selling” in combination with failures to deliver.  On September 17, 2008, 2008, the Commission adopted interim final Rule 204T under Regulation SHO to restrict and penalize brokers and their customers for failures to deliver securities.1  As a result, the number of securities with significant failures to deliver on the “Threshold” lists has decreased by over 95 percent, from over 400 prior to the adoption of the rule to fewer than 20 today.  

More recently, there has been a great deal of discussion around reintroducing old rules that were designed to regulate short selling.  As operators of the US equities markets that applied the original Short Sale Rule (the “Uptick Rule”) in our trading 1 See Exchange Act Release No. 58572 (Sept. 15, 2008); Exchange Act Release No. 58166 (July 15, 2008). systems and enforced broker-dealer compliance with that rule, we are well-positioned to help the Commission to review possible short selling restrictions.  The original Uptick Rule, whereby short selling could occur only when the last sale was at or above the previous sale, operated for a long period of time, is understood by the trading community, and is supported by issuers.  However, the original Uptick Rule would likely prove difficult to implement and enforce in our current penny increment market structure and would not be as prohibitive in today’s market where transaction prices change multiple times in a single second and message traffic has exploded to billions of messages storming down on our markets every day.  As such, we are proposing a slightly altered

and modernized version of the previous Uptick Rule, which we will refer to as the “Modified Uptick Rule.”

The Commission can, we believe, adopt a similar but simple, effective and more prohibitive Short Sale restriction that takes into account how equity trading has changed over the past several years since the original Uptick Rule was eliminated.  The exchanges have worked in a coordinated and unified approach to craft a proposal that will deliver appropriate restrictions on abusive short selling practices.  Under our Modified Uptick Rule, short selling can only be initiated at a price above the highest prevailing national bid by posting a quote for a short sale order priced above the national bid.  As such, the execution of a short sale would occur only at a higher price than the prevailing market at the time of initiation, and only on a passive basis (i.e., short sales cannot hit bids).  This restriction would greatly assist the prevention of manipulative short selling, which is so harmful to the markets.

This Modified Uptick Rule is superior to the original Uptick Rule in several ways. It is conceptually simple, likely to be more effective in dampening downward price pressure, and easier to program into trading and surveillance systems than the original Uptick Rule.  We understand that no solution is perfect but we believe the Modified Uptick Rule that we are proposing is the most effective solution to deal with the faster-moving, post-Regulation NMS trading environment and to reduce downward pressure on stocks created by abusive short selling.  In addition, we believe the most practical and effective way to structure adherence to the Modified Uptick Rule would be similar to oversight of the Trade-Through Rule under Regulation NMS.  In this vein, the Modified Uptick Rule would be a policies and procedures requirement, and brokers would have responsibility for ensuring compliance with the rule before sending a short sale order into the marketplace.  Exchanges could offer order types to assist brokers in performing their compliance duties, but would rely on a broker’s indication that they had performed the required due diligence on the order when so indicated. In combination with the adoption of this Modified Uptick Rule or any short sale price test, we urge the Commission to also adopt a “Circuit Breaker” that would trigger the application of the Modified Uptick Rule only after the price of a stock has experienced a precipitous decline by a certain percentage, perhaps ten percent.  Our national markets and many foreign markets have successfully used circuit breakers on both broad indexes and individual securities for many years.  A Circuit Breaker permits normal market activity while a stock is trading in a natural range and short selling is more likely to benefit the market (by, for example, increasing price discovery and liquidity).  Conversely, a Circuit Breaker will restrict short selling when prices begin to decline substantially and short selling becomes more likely to be abusive and harmful.  The Circuit Breaker is particularly efficient in stable and rising markets because it avoids imposing continuous monitoring and compliance costs where there is little or no corresponding risk of abusive short selling.

We focus here only on the broad concepts of the Modified Uptick Rule and a Circuit Breaker to highlight their importance.  There are, of course, details of the Modified Uptick Rule about which the exchanges can and will comment further.  For example, with respect to the Modified Uptick Rule, the exchanges have views regarding the benefits of bona fide market making in both equities and options markets, and on the need for clear and precise guidance on what constitutes bona fide market making and for an exemption for market makers.  Additionally, we believe firms need to know what policies and procedures they must adopt to promote compliance with the Rule, and whether exchanges can assume that short sale orders have been checked properly for compliance with the Rule.

With respect to the Circuit Breaker, questions exist about the proper reference price for calculating it and about the duration of the Circuit Breaker once triggered.  Also, the network processors must determine how to disseminate an indication that a Circuit Breaker has been triggered and, later, lifted.  The exchanges, member firms, and network processors must also provide estimates of programming and testing requirements for both the Circuit Breaker and the Modified Uptick Rule.  As always, we know the Commission will consider implementing rules in a time-line that carefully balances the risks of the behavior being regulated against the risks of disrupting the very markets that operated efficiently throughout this crisis. 

We applaud the Commission for tackling this important and difficult issue.  Commission leadership and expertise, along with active engagement by investors, issuers, firms, and exchanges, will lead to a positive outcome and help restore investor confidence in the US equities markets.

Sincerely,

_____________________________   _____________________________

Duncan Niederauer, CEO    Robert Greifeld, Pres. & CEO
NYSE Euronext                   The NASDAQ OMX Group, Inc.

_____________________________   _____________________________

Joe Ratterman, CEO          Joseph Rizzello, CEO
BATS Exchange, Inc.          National Stock Exchange

cc:  The Hon. Kathleen L. Casey, Commissioner 
The Hon. Elisse B. Walter, Commissioner 
The Hon. Luis A. Aguilar, Commissioner 
The Hon. Troy A. Paredes, Commissioner 
Dr. Erik R. Sirri, Director, Division of Trading and Markets,

Posted by & filed under Jim's Mailbox.

Jim,

In the same day of the announcement to buy one trillion OTC derivatives from the banks, they are already asking for more than one trillion.

CIGA BJS

Dear CIGA BJS

See the Krugman comments earlier. The problem globally is over one quadrillion. Sure they need more money.

Regards,

Jim

Toxic asset mountain looms over Treasury plan
PPIP may need to at least double in size to tackle troubled loans, securities
By Alistair Barr, MarketWatch
Last update: 5:29 p.m. EDT March 23, 2009

SAN FRANCISCO (MarketWatch) — The Treasury Department’s latest plan to stabilize the financial system targets a formidable mountain of troubled loans and mortgage securities from the real estate boom earlier this decade. Some experts said Monday that more money may be needed to complete the arduous climb.

Between $75 billion and $100 billion of Treasury money will be funneled into the so-called Public-Private Investment Program, or PPIP. Private investors will buy troubled assets alongside the Treasury and will get access to government loans and guarantees, generating $500 billion to purchase toxic assets. It could be expanded to $1 trillion later, Treasury said Monday. See full story.

"Purchasing $1 trillion in toxic assets won’t be enough to solve the banking system’s problems; the program probably needs to be at least twice as large," said Mark Zandi, chief economist at Moody’s Economy.com.

The first half of the plan focuses on loans sitting on bank balance sheets. U.S. banks may be holding as much as $2.5 trillion of toxic assets that haven’t been written down yet, Zandi estimated.

"To cover losses on these assets, the government will ultimately need an additional $300 billion to $400 billion," he added. "The up to $100 billion that officials plan to commit now is a good start, but they will eventually have to ask Congress for more."

The other part of Treasury’s plan targets mainly non-agency residential mortgage-backed securities (those issued by private firms rather than government agencies like Fannie Mae and Freddie Mac) and commercial mortgage-backed securities.

The Legacy Securities Program, as it is known, will incorporate the Federal Reserve’s Term Asset-Backed Securities Loan Facility, or TALF. Investors will get TALF loans to help them buy non-agency residential MBS that were originally rated AAA. Commercial MBS and other asset-backed securities still rated AAA will also be eligible, Treasury said.

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Posted by & filed under Jim's Mailbox.

Jim,

This reverse head and shoulders continuation pattern yields a target of 1300 based on the upside down head at 700 and the neck line at 1000. That difference of 300 added to the neckline yields a pattern based target of 1300 minimum. Thanks to philbond007 for the chart.

CIGA Ken

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Dear Ken,

$1224 then $1650.

Regards,
Jim