Federal Reserve losing control

[Pazdispenser]

From anti's Onion post:

"After eight years of relatively sane fiscal policy under the Democrats, we have reached a point where, just a few weeks ago, President Clinton said that the national debt could be paid off by as early as 2012," Rahway, NJ, machinist and father of three Bud Crandall said. "That's not the kind of world I want my children to grow up in."

I used to think the Onion was hilarious. Now I just cry.

[ninakat]

March 18, 2008

Nefarious Market Manipulation
by Randy

As I wrote in my Sunday post: Tumultuous Week Ahead, the Plunge Protection Team (PPT) certainly has been busy.

Yesterday, the team bailed out/monetized Bear Stearns debts with $30 Billion of public money (and I'm sure we'll see plenty more where that came from).

Today, not to be outdone by the previous day's activities, the nefarious market manipulators (PPT) pulled out all stops and their orchestrated manipulation operation was synched up perfectly to the FOMC announcement -- and was so extreme/blatant (across all spectrums), that I nearly fell ill from disgust.

Specific Examples of their Manipulation:

FOMC Rate announcement took place today at 2:15PM EST and the cut was 75bp.

To anyone with a working brain, the results of a significant rate cut like this should be dollar negative and gold positive (right?) Well look at the charts below -- especially after the FOMC announcement

US DOLLAR INDEX CHART -- Note the Dollar's increase after 2:15 PM



(...)

I guess the next question is: Will their incessant nefarious manipulation schemes work? Will they be able to re-instill confidence and liquid, well-functioning financial markets?

My thoughts are: They will not fix a thing, but will merely prolong the inevitable agony...

[Trifecta]

The spinners doing the spining

http://news.bbc.co.uk/1/hi/business/7305039.stm
FSA probes 'false' share rumours
FSA HQ
The Financial Services Authority issued a warning to traders
The UK's financial watchdog, the FSA, is investigating whether rumours have been deliberately spread to undermine the value of bank shares.

It said it would "not tolerate" traders starting "false" rumours about firms to make cash from dealing in their shares.

HBOS, whose shares fell as much as 17% at one stage on Wednesday, denied rumours of funding difficulties.

And the Bank of England also denied that any UK banks were in trouble, and said it had had no meetings with banks.


There has been a series of completely unfounded rumours about UK financial institutions in the London market over the last few days, sometimes accompanied by short-selling
UK Financial Services Authority

Robert Peston on bank meeting

An HBOS spokesman said: "There has been a series of rumours in the market today. A number of ill-founded and malicious rumours about the UK banking system in the markets.

"These rumours have not a shred of substance whatsoever. They are lies."

[slow_dazzle]

I have been watching this build since the middle of last year and the speed at which the economic situation is disintegrating has accelerated within the last few weeks. It is now impossible to see anything except a complete meltdown. I could post story after story after story, many by respected analysts, who are all saying the same thing: the crisis is not a credit freeze, it is not a liquidity problem, it is a problem of insolvency. IOW the monetary system is now bankrupt.

This was predicted several years ago but those who dared to say it were scorned. Well people, they were absolutely correct. The collapse they predicted is in full swing and all the fancy financial wrapping up, to create hallucinated wealth, is unravelling.

[freemason9]

I have been watching this build since the middle of last year and the speed at which the economic situation is disintegrating has accelerated within the last few weeks. It is now impossible to see anything except a complete meltdown. I could post story after story after story, many by respected analysts, who are all saying the same thing: the crisis is not a credit freeze, it is not a liquidity problem, it is a problem of insolvency. IOW the monetary system is now bankrupt.

This was predicted several years ago but those who dared to say it were scorned. Well people, they were absolutely correct. The collapse they predicted is in full swing and all the fancy financial wrapping up, to create hallucinated wealth, is unravelling.

I've been watching it build, albeit from a different perspective. I won't pretend to be an economist, but it seems to me that our economy is a consumer economy; in recent decades, it has become increasingly reliant on consumer spending for growth. Since around 2000 (and, in a more general sense, 1980) consumer spending has become increasingly reliant
upon credit to maintain habitual spending patterns; wages have stagnated and, in many cases, actually decreased. At the same time, taxation has shifted from the progressive income-based rates to more regressive forms; and, of course, energy and health care costs have skyrocketed, and inflation is extremely high (much, much higher than the government's official rate of around 3.7%).

When equity stopped growing on their homes--and began dropping--it removed the last remaining source of credit for consumers to draw from. Gasoline prices skyrocketed, and Bush's program to focus on ethanol production diverted cropland and forced food prices upwards. Health care continued its double-digit rate increases.

The perfect storm, in other words. Consumers ran out of money and credit, and the economy is grinding to a halt; the downward spiral has begun. We have passed the critical point.

Actions taken by the Fed or the Treasury that do not affect average wages or after-tax income will have NO net affect on the economy's plunge--so far, that action has been to protect Wall Street.

[Byrne]

Over in merry old england, the bank of England chief met today with head honchos from the UK banks.

The BBC News report says:

20/3/08
King may give more help to banks
Bank of England governor Mervyn King

The Bank of England is considering a request by Britain's big five banks to reform the way it provides them with emergency funding.

Governor Mervyn King has told bank bosses he is sympathetic to appeals for more help, the BBC has learned.

The banks want to be able to use a wider range of collateral, including mortgages, for Bank of England loans.

Robert Peston, the BBC Blogger says:

Although the Governor of the Bank, Mervyn King, asked them not to divulge what they discussed, I have learned he signalled - for the first time - that he was sympathetic to their request that in an emergency they should be able to swap a wider range of assets, including their mortgages, for loans from the Bank of England.

The chief executives of the UK banks believe that they would be much less vulnerable to damaging speculation about their financial health if the Bank of England announced it was prepared to make good any hole in their finances stemming from the current crisis in banking markets.

It is understood that the Bank is examining whether it can provide support similar to the what the US Federal Reserve provides to banks through its so-called discount window.

The Fed's recently reformed discount arrangements allow US banks and security houses to exchange their mortgages for emergency funds.

Bankers believe it will take the Bank of England a few weeks to finalise the details of new support arrangements.

The 'emergency/damaging speculation' has been storyboarded as the short-selling of HBOS shares - the drop in shares has (now) been blamed on a few rogue traders spreading rumours, but on the first day of trading after whatever rumour/story was disseminated, the HBOS shares had to be suspended:

In an extraordinary day on the stockmarket, shares in the country's biggest mortgage lender were suspended for five minutes in early trading as its shares plunged almost 20% amid speculation it was facing a Northern Rock-style liquidity crisis.

The Bank of England took the unusual step of publicly denying talk that it was cancelling staff holidays over Easter and convening emergency meetings to discuss a bank in crisis. The Bank rubbished rumours ripping through the City as "fantasy".

The efforts by the authorities to ensure that HBOS, which looks after the savings of more Britons than any other bank, was not subjected to any further damaging rumours demonstrates the concern that financial institutions - and the entire financial system - can be destabilised by wild speculation.

The words failed to prevent HBOS being the biggest faller in the FTSE 100 yesterday, though the losses were stemmed at 7%. The shares, held by more than 2 million retail investors, fell 34p to 446.5p after dropping to a low of 398p.

There were wild gyrations in other bank shares prices. The FTSE 100 closed 60 points lower at 5545. Sterling dropped to an 11-year low on the foreign exchanges when measured against a basket of currencies. London's perceived vulnerability to the global credit crunch and anticipation of lower interest rates meant the pound's trade-weighted index fell to 93.1 - its lowest since January 1997.

So instead of the nasty rumours about the bank with the most savers in Britain collapsing, we have the nice rumour that all the kerfuffle is only because a few city boys were trying to make a quick 50.4p.

I don't believe the 'city boy' rumour was the origin of the HBOS share drop (& I betcha no FSA admonishments are dealt out), I think it must've been the revelation of HBOS's weak liquidity position, however that is comprised.

Interesting to see what happens the other side of Semana Santa.....

[Trifecta]

Double posted

The OCC Assassinated Spitzer for the sake of a quick buck they also fucked us all.

http://www.brasschecktv.com/page/291.html

[between two lines]

Thank you for the reply, please check private messages. hope to hear from you soon

[ninakat]

More on the current dollar manipulation, with an interesting insight into why the dollar went UP after the Fed rate cut last week, and therefore why commodities (oil, grain, gold, etc.) went DOWN, when the opposite should have happened. Entire article is worth reading, but I've pulled out a few choice segments:

The Fed-Engineered Commodities Cave-In
by Alex Wallenwein

(...)

Why Did the Dollar Bounce?

One piece in the puzzle may well be the following blog entry recounting what the ECB's Bini Smaghi was quoted as saying by Dennis Gartmann.

"The author of The Gartman Letter referred to comments made by ECB executive board member Bini Smaghi in September, when he detailed how such an intervention could play out:

Step One: Monitoring and assessing exchange rate markets and developments, with a focus on underlying fundamentals.
Step Two: Discussing these developments with other major players to assess currency developments and policies.
Step Three: Making public statements on the situation.
Step Four: Intervening in the foreign exchange markets.

Since verbal interventions have already begun, we are between steps three and four, with actual interventions due next, Mr. Gartman said. Mr. Smaghi has set the table for central banks and their governments around the world, he added."

In other words, the dollar bounced for the sole reason that the Fed and the rest of the world finally performed what is known as a currency intervention. The other central banks agreed to buy dollars. Nothing new, here.

Everything Is Still the Same

The end result of all of the above is that nothing has really changed - except for the thus-far undisclosed international dollar-support action. Other than that, everything is still the same.

So, what was the real point of these actions? If the only change that has any kind of teeth was the coordinated dollar-support action, why did the world's central banks not disclose that?

Answer: Because everybody knows that such action would prop up the dollar and probably result in a correction in the commodities markets. Under those conditions, the battered US Fed would not be able to stand there and accept the adulation of the cheering masses as the "hero who saved the markets."

It's a con-man's trick, through and through.

The dollar's short-term reversal is being pointed to as proof that the Fed's actions "saved the day" while in truth it was the otherwise typical, very un-dramatic, and common-sense currency intervention that did the job. At the same time, one of the Fed's owner banks was able to buy up a competitor at fire-sale prices while benefiting from Fed-injected taxpayer money (i.e., the $30 billion "loaned" to Bear Stern's balance sheet).

The self-defecating, bootlicking, sycophantic financial press hails this as the next best thing to Jesus' second coming, of course. More sober observers can only shake their head at the gullibility of consumers of what goes under the name of "financial news."

(...)

Just look past the smoke, break some of the mirrors, and reality looks exactly the way it did before Bernie staged this rehabilitation of the Fed's image as an institution that can "save" the markets.

Of course, none of this even addresses the issue of what ultimate effect yet another rescue action really has on the economy. It can only make things worse in the long run - and that's what the Fed's real raison d'etre seems to be:

Destroy the world's largest, most powerful economy so the US can be "integrated" with other nations in the western hemisphere - but do it slowly, so nobody can point the finger at one particular Fed action and go lynch the bastards. In other words: plausible deniability. That way, at least, that pesky thing called a "Constitutions" that some hopelessly backwards Americans still believe in no longer needs to be paid lip service to.

At least, that appears to be the plan.

Got gold?

[ninakat]

The Financial Destruction Of The Average Man

Author: Jim Sinclair

This weekend’s meeting of four heads of central banks communicates the size of the OTC derivative disaster. It is a system that is broken. A bailout will require the printing of trillions of dollars worth of monetary stimulation making Bernanke’s helicopter drop look like chump change.

The dollar number of pending derivative bankruptcies is the size of the mountain of garbage paper issued by just those who are to be bailed out. That number is greater than the total world economies.

There simply isn’t enough money in the world for central banks to buy up the mountain of worthless paper sold by those who need bailouts; all of which made fortunes for their directors, officers and key people.

When an OTC derivative fails to perform, notional value becomes real value.

The notional value of all OTC derivatives exceeds $500 trillion.

Credit default swaps (OTC derivatives) alone account for over $20 trillion dollars of notional value and are failing. Major dealers in these items, Lehman and JP Morgan, had their debt downgraded last week.

Maintaining the AAA rating on debt of public companies primarily issuing default swaps as credit guarantees is a sick JOKE of fabrication. This is a JOKE that in all probability will lead to litigation that destroys the rating companies.

You can be absolutely sure that all the biggies have their money out.

No one mentions these firms being bailed out are the ones who created this disaster, making billions for their economic sin. You can be sure the big boys have their money out of the now on-the-rocks international institutions.

No one mentions that bailing out the bankers will leave the average man victimized and paying for the pleasure of the economic rape.

Meanwhile Derivative Traders (salesmen of perdition, not traders) and their hedge fund managers are all in Greenwich Connecticut with their hundreds of millions and billions, now retired playing tennis on their indoor courts at their waterfront mansions as the mess deepens.

Litigation against the officers and directors of these international banking firms, both against the biggies personally as well as the company, will make the biggies occupation one of defending against litigation for the rest of their lives.

For those biggies in these companies who trust no one and therefore have wives with no money will lose everything. Some of them I know. What goes around certainly comes around.

Litigation against OTC derivatives are slam-dunk victories for the injured plaintiffs. The biggies will pay.

This is the greatest act in history of “Public Be Damned” and “Let them Eat Cake.” It will not come about because in the USA it is already the hottest political potato.

The problem is that the plan of the US legislative is down right STUPID. It is an embarrassment that legislators are so publicly moronic when it comes to economics.

The problem that no one is focusing on right now is the tracking of the mortgage itself to the structured product, which has broken down. That means in these items many can’t connect the underlying mortgage to the structured investment product (derivative).

So far courts have held that the only entity that can foreclose is the entity that actually lent the money. The average guy does not know that with an attorney to protect him he has a free house!

The entity that actually lent the money has sold the mortgage and been paid. Therefore where is the incentive for original lender to foreclose? The answer is there is none. Bankers do not help bankers in the same way that sharks do not help sharks.

Conclusion:

Because of the unthinkable size of the problem it is impossible to construct a Resurrection Trust to buy all these worthless and never to be anything but worthless items.

Should any item surface to do this it will destroy all the National currency of the central banks that participate.

If there were an attempt to construct such an entity with the cooperation of the USA, the US dollar would go much lower than .5200. Gold would go to many thousands of US dollars.

Anyone who last week assumed the problem was over and we would be improving from there on out is simply nuts.

[ninakat]

Main Street Standing Up to Wall Street

video of NYC Bear Stearns protest

[isachar]

Nina, thanks for posting that article from Sinclair.

The whole financial system is now being supported by little more than a wink and a nod.

The rating agencies ratings are a joke, and the bond insurer's have about as much ability to perform as six-year old proudly holding a piggy bank stuffed with monopoly money.

I'd love to see an analysis of public and private pension fund and state/local treasury holdings/exposure to the various toxic financial instruments. Only a few have stepped forward to reveal their exposure, and where they have done so, it has been quite substantial.

So far good-times Ben, like his predecessor and mentor, good-times Al, is able to keep the party going by serving up some of that low interest firewater and trading public cash for worthless, toxic, scrip. The party will continue for now since it is not in the interest of those whose interests matter when such things are considered for the music to stop.

Regards

No illegetimi carbarundum (or something like that).

[ninakat]

I'd love to see an analysis of public and private pension fund and state/local treasury holdings/exposure to the various toxic financial instruments. Only a few have stepped forward to reveal their exposure, and where they have done so, it has been quite substantial.

Howdy isachar -- yeah, I'd be very interested in the status of the pension funds especially, since so many people are expecting their retirement funds to be there in the coming years. If by a miracle the funds are still there, they'll likely be worth very little because of hyperinflation. Same deal with social security funds, no doubt.

And, yeah, don't let the damn bastards get to you... or, better yet, fuck the bastards.

[antiaristo]

.

George Soros, in the Financial Times.
Moderate words, apocalyptic prediction.

False ideology at the heart of the financial crisis
By George Soros
Published: April 2 2008 18:11 | Last updated: April 2 2008 18:11

The proposal from Hank Paulson, US Treasury secretary, for reorganising government regulation of financial institutions misses the point. We need new thinking, not a reshuffling of regulatory agencies. The Federal Reserve has long had authority to issue rules for the mortgage industry but failed to exercise it. For the past 25 years or so the financial authorities and institutions they regulate have been guided by market fundamentalism: the belief that markets tend towards equilibrium and that deviations from it occur in a random manner. All the innovations – risk management, trading techniques, the alphabet soup of derivatives and synthetic financial instruments – were based on that belief. The innovations remained unregulated because authorities believe markets are self-correcting.

Regulators ought to have known better because it was their intervention that prevented the financial system from unravelling on several occasions. Their success has reinforced the misconception that markets are self-correcting. That in turn allowed a bubble of excessive credit to develop, which extended through the entire financial system. When the subprime mortgage crisis erupted it revealed all the weak points. Authorities, caught unawares, responded to each new disruption only after it occurred. They lacked the ability to foresee them because they were in the thrall of the market fundamentalist fallacy. They need a new paradigm. Market participants cannot base their decisions on knowledge, or what economists call rational expectations. There is a two-way, reflexive interaction between the participants’ biased views and misconceptions and the real state of affairs. Instead of random deviations, reflexivity may give rise to initially self-reinforcing but eventually self-defeating boom-bust sequences or bubbles.

Instead of reshuffling regulatory agencies, the authorities ought to prepare for the next shoes to drop. I shall mention only two. There is an esoteric financial instrument called credit default swaps. The notional amount of CDS contracts outstanding is roughly $45,000bn. To put it into perspective, that is about equal to half the total US household wealth and about five times the national debt. The market is totally unregulated and those who hold the contracts do not know whether their counterparties have adequately protected themselves. If and when defaults occur, some of the counterparties are likely to prove unable to fulfil their obligations. This prospect hangs over the financial markets like a sword of Damocles that is bound to fall, but only after some defaults have occurred. That must have played a role in the Fed’s decision not to allow Bear Stearns to fail. One possible solution is to establish a clearing house or exchange with a sound capital structure and strict margin requirements to which all existing and future contracts would have to be submitted. That would do more good in clearing the air than a grand regulatory reorganisation.

The other issue is rising foreclosures. About 40 per cent of the 6m subprime loans outstanding will default in the next two years. The defaults of option-adjustable-rate mortgages and other mortgages subject to rate reset will be of the same order of magnitude but occur over a longer period. With single family home sales running at an annual rate of 600,000, foreclosures will overwhelm the market and cause prices to overshoot on the downside. This will swell the number of homeowners with negative equity who may be tempted to turn in their keys. The fall in house prices will become practically bottomless until the government intervenes. Cutting foreclosures should be a priority but the measures so far are public relations exercises.

The Bush administration has resisted using taxpayers’ money because of its market fundamentalist ideology. Apart from a bipartisan fiscal stimulus, it has left the conduct of policy largely to the Fed. Yet taxpayers’ money will be needed to reduce foreclosures. Two proposals by Democrats in Congress strike a balance between the right to foreclosure and discouraging the exercise of that right. One would modify the bankruptcy laws allowing judges to modify the terms of mortgages on principal residences. Another would provide Federal Housing Administration guarantees that would enable mortgage holders to be paid off at 85 per cent of the current appraised value. These proposals will not solve the housing crisis, but go to the heart of the issue. They should be given serious consideration.

http://www.ft.com/cms/s/0/cb619d4a-00c0 ... ck_check=1

[isachar]

anti, nina,

We're in that in-between time. This is the period when those who believe the current conditions will be worked through with some damage but leaving the overall structure intact will prevail - chiefly by unloading private failures onto the unsuspecting public through the agency of their elected officials and the FED.

And it will work well enough for as long as the FED and the PPT (market manipulators on behalf of the financial elite) can continue to provide enough juice, smoke and mirrors.

Presently, it is in the interests of the financial elites to minimize, or maintain the illusion that the problems don't exist. They do this by ignoring the fundamentally unsound bond insurers and the fictions the ratings agencies promulgate, and lack of ability to perform by counterparties - among other things.

The Bear Strearns buyout (an engineered hostile takeover negotiated by the FED and Treasury) by JPM facilitated by $30 billion of public lubrication in the form of FED assurances has worked so far.

This has provided the necessary fig leaf and has also broken down whatever barriers existed to prevent govt support of private un-regulated financial institutions.

In other words, the Greenwich crowd, as well as Wall St. now have virtually unfettered access to the unlimited power of the printing press to manufacture paper money - ultimately backed by taxpayer largess. We the People are now the lender of last resort to the same bankers who stole the cookies, charged us for the privelege of doing so, mortgaged and then collateralized the cookie jar and financed the batter, bowl, spoon and mixer through a pyramid scheme.

Where/how.when does it all come undone? It will be obvious after the fact, but the financial system still has a fair amount of resiliency - if only because too many have an interest in maintaining the fiction that it is still viable.

In reality it lies in tatters and what might ultimately manage to push it over the edge could come from anywhere.

I suspect substantial increases in the unemployment rate (real as well as the fictional 'official' statistics) could do it. Unemployed people can't continue to make payments on their home mortgages (on which many are upside down on already). Nor can they continue making their credit card and car payments or buy more big screen tv's and refrigerators and other large, medium and small consumer purchases.

For these households/families/individuals just paying for the basics of food, heat, lights, transportation and shelter will become problematic.

Others will pull back on spending, while investment will languish causing further retrenchment. The chances of something approaching a Depression-scale economic pull back are as high as they've been since the late 1920's. The only thing holding this back at the current time is the illusion of Ben Bernanke, his printing press, his index finger in the dike, and the real off-loading (socialization) of all the toxic financial crap the investment banks and bond insurers have generated onto the public at large.

Which would create the perfect storm of inflation plus recession/depression.

If commercial real estate begins to experience something similar to what has and is occuring with residential, this would make this scenario far more likely to occur.