How bad the current financial storm will get? This from Nouriel Roubini, Professor of Economics at the NYU Stern School of Business:
"The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity where excessive leveraging and bubbles were not limited to housing in the U.S. but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.
"At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the U.S. and advanced economies contraction would be short and shallow - a V-shaped six month recession - has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the U.S. and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown, the probability that the outcome could become a decade long L-shaped recession - like the one experienced by Japan after the bursting of its real estate and equity bubble - cannot be ruled out.
"At this point the risk of an imminent stock market crash - like the one-day collapse of 20% plus in U.S. stock prices in 1987 - cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
"A vicious circle of deleveraging, asset collapses, margin calls, and cascading falls in asset prices well below falling fundamentals, and panic is now underway."
NYT call Dr Roubini as Dr Doom, the professor who predicted the current credit crisis two years ago.
Buy gold safe haven, price of gold had drop good time to buy a gold coin or two for safe keeping.
Read disclaimer/comments policy.
Friday, October 17, 2008
Wednesday, October 15, 2008
LIBOR Rate Hardly Moved.
Despite multi trillion liquidity injection to the entire world financial systems the London LIBOR 1 month and 3 months interest rates hardly moved! Banks free and easy lending it's coming to the end sad to say. From now onwards ordinary folks like us getting bank loans will be proved harder then going to planet Mars because banks doesn't even want to lend to one another despite all this mambo jumbo trillion dollars rescue package, maybe the Maltian have some extra dollars to save or spare the earth from this credit crunch and helps earthling from falling to an economic deathly spiral into abyss.
One month LIBOR is normally some small percentage (say 15-30 basis points) above the Fed Funds Rate. It is now 297 basis points above the Fed Fund Rate.The key issue with LIBOR is the huge number of adjustable rate mortgages that are tied to it. Bernanke went on a slash and burn campaign of cutting interest rates from 5.25 all the way to 1.50 (375 basis points) yet LIBOR only picked up about 100 of them.
The current stock market bull run euphoria hardly proves anything to the bankers because the issues of counter parties risk still had not been totally and honestly encountered. Feds will have to ultimately separate the hays from the wheats. FDR during the world first depression in 1930 close down all American banks for one week so that government regulators can assessed the health of individual banks, savage those can be save and bankrupt those can't be savage. Only after that Feds pump in massive liquidity into the financial systems to jump start the economy.
Further more forcing the bankers to start lending facilities it's almost impossible when bank don't even trust one another.
Bloomberg : Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell.The equity stakes the government is purchasing in Citigroup Inc., Morgan Stanley and seven other big institutions come with no guarantee that the investments will spur lending and unfreeze credit markets. Nor do they give the government board seats or any other leverage to demand that that the firms actually use the money to help the economy.``The truth of the matter is, they can't put a gun to their head and say you have to lend this money,'' said Charles Horn, a former official at the Office of the Comptroller of the Currency, part of the Treasury Department, and now a partner at the Mayer Brown law firm in Washington.
Treasury officials acknowledge they can't force banks to get the taxpayer money into the hands of their customers. Instead, officials are betting that the government's investment will create conditions where banks have a greater incentive to earn profits from lending than to hoard money to shore up their balance sheets.``It's in their economic interest,'' said David Nason, the Treasury's assistant secretary for financial institutions, in an interview with Bloomberg Television. ``When you give them a stronger capital position and you also provide a certain amount of government backstop to their funding sources, it's incumbent upon them to go out and continue to lend.
Therefore central bankers will not only need to pump massive amount of liquidity into the market systems they also need to ensure sound lending environment of trust exist before the credit expansion begins. Anything lesser then that will be exercise in futility, markets negative sentiments towards the health of the real economy will simply overwhelmed whatever the central bankers initiatives to jump start the economy. This crisis of confidence in the financial system will take times and years of consistent efforts not a few quarters kind of problems but at least minimum 2 years or more to solve. For banks to starts lending again after the current crisis, at the moment seams impossible to do anything accurately right anyway, Feds will have to concentrate in having the right measures and responsed to bring the American economy to it's feet's again. Sound lending equal sound economy!
Meanwhile gold price it's one of the commodities most stable plus some upward trend compare with others commodities. Gold safe haven characteristics proved the most valuables assets in time of severe economy crisis.
Buy Gold!
Kindly Read Disclaimers/Comments Policy.
One month LIBOR is normally some small percentage (say 15-30 basis points) above the Fed Funds Rate. It is now 297 basis points above the Fed Fund Rate.The key issue with LIBOR is the huge number of adjustable rate mortgages that are tied to it. Bernanke went on a slash and burn campaign of cutting interest rates from 5.25 all the way to 1.50 (375 basis points) yet LIBOR only picked up about 100 of them.
The current stock market bull run euphoria hardly proves anything to the bankers because the issues of counter parties risk still had not been totally and honestly encountered. Feds will have to ultimately separate the hays from the wheats. FDR during the world first depression in 1930 close down all American banks for one week so that government regulators can assessed the health of individual banks, savage those can be save and bankrupt those can't be savage. Only after that Feds pump in massive liquidity into the financial systems to jump start the economy.
Further more forcing the bankers to start lending facilities it's almost impossible when bank don't even trust one another.
Bloomberg : Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell.The equity stakes the government is purchasing in Citigroup Inc., Morgan Stanley and seven other big institutions come with no guarantee that the investments will spur lending and unfreeze credit markets. Nor do they give the government board seats or any other leverage to demand that that the firms actually use the money to help the economy.``The truth of the matter is, they can't put a gun to their head and say you have to lend this money,'' said Charles Horn, a former official at the Office of the Comptroller of the Currency, part of the Treasury Department, and now a partner at the Mayer Brown law firm in Washington.
Treasury officials acknowledge they can't force banks to get the taxpayer money into the hands of their customers. Instead, officials are betting that the government's investment will create conditions where banks have a greater incentive to earn profits from lending than to hoard money to shore up their balance sheets.``It's in their economic interest,'' said David Nason, the Treasury's assistant secretary for financial institutions, in an interview with Bloomberg Television. ``When you give them a stronger capital position and you also provide a certain amount of government backstop to their funding sources, it's incumbent upon them to go out and continue to lend.
Therefore central bankers will not only need to pump massive amount of liquidity into the market systems they also need to ensure sound lending environment of trust exist before the credit expansion begins. Anything lesser then that will be exercise in futility, markets negative sentiments towards the health of the real economy will simply overwhelmed whatever the central bankers initiatives to jump start the economy. This crisis of confidence in the financial system will take times and years of consistent efforts not a few quarters kind of problems but at least minimum 2 years or more to solve. For banks to starts lending again after the current crisis, at the moment seams impossible to do anything accurately right anyway, Feds will have to concentrate in having the right measures and responsed to bring the American economy to it's feet's again. Sound lending equal sound economy!
Meanwhile gold price it's one of the commodities most stable plus some upward trend compare with others commodities. Gold safe haven characteristics proved the most valuables assets in time of severe economy crisis.
Buy Gold!
Kindly Read Disclaimers/Comments Policy.
Tuesday, October 14, 2008
A £516 trillion derivatives 'time-bomb'
Can't help it kind of feeling you may say, last few blogging have seen myself dwelling in the issues of derivatives. How we can whether through this financial turmoil will depends on the process of unwinding those derivatives that put a strangle hold on the financial system worldwide.
Bankrupted Lehman Brothers still had 400 billion of credit default swap (CDS), how and when this derivatives CDS going to unwind it's anybody guess. Like Buffet said he prefer holding cats by it's tail then rather trying to unwind a derivatives business. Who is holding the bags eventually it still anybody guess work, counter parties risk still a worrisome things.
Total derivatives worldwide it's £516 trillion! A massive financial thermonuclear time bombs.
Stock market it's up steeply from Australia to Europe today, do it signify that the current financial turmoil it's done and over. At the Chinese saying said "good things is at the back stage", a lots of issues from counter parties risk to the issues of bank solvency still had not been solved by Central banker. By pumping liquidity to the banking systems only solved one parts of the many problems arises from this credit crunch. The true pictures will come into play when unwinding the massive derivatives time bomb!
Read the following article : A £516 trillion derivatives 'time-bomb'
By Margareta Pagano and Simon Evans.
Buy gold no counter parties risk!
Kindly read Disclaimer/Comments Policy.
Bankrupted Lehman Brothers still had 400 billion of credit default swap (CDS), how and when this derivatives CDS going to unwind it's anybody guess. Like Buffet said he prefer holding cats by it's tail then rather trying to unwind a derivatives business. Who is holding the bags eventually it still anybody guess work, counter parties risk still a worrisome things.
Total derivatives worldwide it's £516 trillion! A massive financial thermonuclear time bombs.
Stock market it's up steeply from Australia to Europe today, do it signify that the current financial turmoil it's done and over. At the Chinese saying said "good things is at the back stage", a lots of issues from counter parties risk to the issues of bank solvency still had not been solved by Central banker. By pumping liquidity to the banking systems only solved one parts of the many problems arises from this credit crunch. The true pictures will come into play when unwinding the massive derivatives time bomb!
Read the following article : A £516 trillion derivatives 'time-bomb'
By Margareta Pagano and Simon Evans.
Buy gold no counter parties risk!
Kindly read Disclaimer/Comments Policy.
Monday, October 13, 2008
Financial Armageddon
Financial Armageddon, serious words indeed. below it;s the except from Micheal Panzner book Financial Armageddon (hopefully Michael won’t mind me posting so much of his text desperate time requires desperate measure as someone said):
Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation’s largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.
Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.
Sound familiar? Here’s some more from Chapter 6 (”Systemic Crisis”)
No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure — not until it’s too late…
-SNIP-
Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity…
-SNIP-
Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems…
-SNIP-
This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first — or point and click — and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.
-SNIP-
A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.
-SNIP-
By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.
-SNIP-
Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace… At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par — “breaks the buck” — because of shaky markets and holdings that turn out to be much riskier than expected.
Chilling the above prediction was unfolding right before our eyes for the pass few months, how far this current financial crisis will go on no one have a clue.
Buy Gold Safe Haven!
Kindly Read Disclaimer/Comments Policy.
Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation’s largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.
Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.
Sound familiar? Here’s some more from Chapter 6 (”Systemic Crisis”)
No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure — not until it’s too late…
-SNIP-
Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity…
-SNIP-
Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems…
-SNIP-
This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first — or point and click — and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.
-SNIP-
A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.
-SNIP-
By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.
-SNIP-
Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace… At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par — “breaks the buck” — because of shaky markets and holdings that turn out to be much riskier than expected.
Chilling the above prediction was unfolding right before our eyes for the pass few months, how far this current financial crisis will go on no one have a clue.
Buy Gold Safe Haven!
Kindly Read Disclaimer/Comments Policy.
Saturday, October 11, 2008
Derivaties Bubble Central Bankers Worst Nightmare.
Did Greenspan policies during his tenure as Feds chief contributed to the present financial mess worldwide? Many analysis pointed at Greeenspan years of low interest rate ( blowing up the housing market bubble ) and his insistence of not regulating the derivatives market ( blowing up the derivatives market to become a multi trillion problem ), will be remember by many of his peers either as by omission or commission in allowing the bankers excessive greed and relentless/shameless way of securinitzation the mortgage loans through Frandie and Fannie Mae. Which contributed greatly on the current credit crisis in the Western world.
Read the following except from The NYT:
"George Soros, the prominent financier, avoids using the financial contracts known as derivatives 'because we don't really understand how they work.' Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential 'hydrogen bombs.'
And Warren E. Buffett presciently observed five years ago that derivatives were 'financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.'
"One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives - exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. "
For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. 'What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so,' Mr. Greenspan told the Senate Banking Committee in 2003. 'We think it would be a mistake' to more deeply regulate the contracts, he added.
"The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.
"If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted."
With a $531 trillion derivatives value, a mere 10% of them turn bad will be enough to turn all of us back to the stone age, that's why Buffet call derivatives market the " financial weapon of mass destruction's". No body really knows how and by what means those derivatives are slice, dice and being sold ultimately to mutual funds, municipals and investors. Besides turning bad the cost of unwinding those derivatives positions will takes months if not years to determine who own what and the amount of loses that carries with it. The unwinding of all these derivatives position will definitely bring us nearer to Financial Armageddon because there are so huge and intertwined across the globes, no nations will be spared from it's effects.
G7 finance ministers will have to deal with these issues above head on if they are serious in solving the current credit crisis. Any effort to undermine or sweep under the carpet the above problem will prolong the problems itself, it's unenviable position definitely, in one hand you strife to stabilised the financial markets yet in reality these so called financial ingenuity call derivatives are hurting the bankers worldwide. No knows exactly how to have a painless unwinding. Even Soros doesn't knows how this derivatives works!
Any effort to bypass the long unwinding process will make many of the banks look like living zombies because without openly realising those loses cause by this toxic derivatives banks cannot function properly, bank solvency headache will be the issues. Ending up like right now whereby bank don't trust banks in short term lending facilities ( high Libor rates ).
"Clive Maund at clivemaund.com says, "Payback time for Wall St and Washington will be when foreign investors fail to turn up at the bond auctions to finance the bailout plan, whose $800+ billion will have to be created out of thin air. So the bonds will have to be monetized, which will mean an immediate spike in inflation, which will cause the rate of corporate bankruptcies to soar as failing companies take down others in a chain reaction because the losses will be highly leveraged by credit default swaps etc. This is the underlying reason why banks won't lend to each other - they can't calculate the counterparty risk. All of this will set off a massive derivatives meltdown that will bring the whole system crashing down"
Tim Wood at FinancialSense.com put it more succintly, who uses it to say "manipulation will ultimately not work" and that it will "make matters worse in the end. Yet, the Fed, the Treasury and the politicians continue to think that they can 'fix' the problem by throwing more money at it. They do not understand that they can't 'fix' this economic crisis. They also do not understand that it is their trying to 'fix' things in the past that has created the current situation."
Everybody knows this time the multi trillion financial markets mess is far bigger then any available rescue plans that the central bankers has. As been said earlier no one knows what to do currently, do you damn; don't do you also damn!
Buy Gold!
Kindly read Disclaimer/Comments Policy.
Read the following except from The NYT:
"George Soros, the prominent financier, avoids using the financial contracts known as derivatives 'because we don't really understand how they work.' Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential 'hydrogen bombs.'
And Warren E. Buffett presciently observed five years ago that derivatives were 'financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.'
"One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives - exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. "
For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. 'What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so,' Mr. Greenspan told the Senate Banking Committee in 2003. 'We think it would be a mistake' to more deeply regulate the contracts, he added.
"The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.
"If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted."
With a $531 trillion derivatives value, a mere 10% of them turn bad will be enough to turn all of us back to the stone age, that's why Buffet call derivatives market the " financial weapon of mass destruction's". No body really knows how and by what means those derivatives are slice, dice and being sold ultimately to mutual funds, municipals and investors. Besides turning bad the cost of unwinding those derivatives positions will takes months if not years to determine who own what and the amount of loses that carries with it. The unwinding of all these derivatives position will definitely bring us nearer to Financial Armageddon because there are so huge and intertwined across the globes, no nations will be spared from it's effects.
G7 finance ministers will have to deal with these issues above head on if they are serious in solving the current credit crisis. Any effort to undermine or sweep under the carpet the above problem will prolong the problems itself, it's unenviable position definitely, in one hand you strife to stabilised the financial markets yet in reality these so called financial ingenuity call derivatives are hurting the bankers worldwide. No knows exactly how to have a painless unwinding. Even Soros doesn't knows how this derivatives works!
Any effort to bypass the long unwinding process will make many of the banks look like living zombies because without openly realising those loses cause by this toxic derivatives banks cannot function properly, bank solvency headache will be the issues. Ending up like right now whereby bank don't trust banks in short term lending facilities ( high Libor rates ).
"Clive Maund at clivemaund.com says, "Payback time for Wall St and Washington will be when foreign investors fail to turn up at the bond auctions to finance the bailout plan, whose $800+ billion will have to be created out of thin air. So the bonds will have to be monetized, which will mean an immediate spike in inflation, which will cause the rate of corporate bankruptcies to soar as failing companies take down others in a chain reaction because the losses will be highly leveraged by credit default swaps etc. This is the underlying reason why banks won't lend to each other - they can't calculate the counterparty risk. All of this will set off a massive derivatives meltdown that will bring the whole system crashing down"
No foreign investors turn up at the auctions to finance the bailout plan! In short nobody want to lent money to Uncle Sam anymore, Feds only had one methods left "create it from thin air".
Not surprisingly the G7 media conference offers little tangible efforts in solving above problems today, questions is, are how the G7 finance ministers going to solve the above problems is it by creating more debts? Creating another debts to cover another debts it's a problems by itself we will as good leave it to another day to discuss it. Whatever financial weapons available( reduce interest rates/pump liquidity into banks ) have been used by the world central banker yet the crisis of confidence and fears in the financial markets hardly subsides instead it went up a few notches!
Tim Wood at FinancialSense.com put it more succintly, who uses it to say "manipulation will ultimately not work" and that it will "make matters worse in the end. Yet, the Fed, the Treasury and the politicians continue to think that they can 'fix' the problem by throwing more money at it. They do not understand that they can't 'fix' this economic crisis. They also do not understand that it is their trying to 'fix' things in the past that has created the current situation."
Everybody knows this time the multi trillion financial markets mess is far bigger then any available rescue plans that the central bankers has. As been said earlier no one knows what to do currently, do you damn; don't do you also damn!
Buy Gold!
Kindly read Disclaimer/Comments Policy.
Thursday, October 9, 2008
The Real Great Depression 1873
Did the current financial tsunami will brought us nearer to the last depression in 192o's. Below article written by Mr.Nelson show something more serious, he make the comparison between the great depression in 1873 and 1920. Results, the great depression in 1873 it's much more severe then the 1920. The 1873 depression was caused by unrelented spending and speculating in the commercial and real estate property, sound like what is happening now, read on..........
By SCOTT REYNOLDS NELSONFrom the issue dated October 17, 2008.
As a historian who works on the 19th century, I have been reading mynewspaper with a considerable sense of dread. While many commentators onthe recent mortgage and banking crisis have drawn parallels to the GreatDepression of 1929, that comparison is not particularly apt. Two yearsago, I began research on the Panic of 1873, an event of some interest tomy colleagues in American business and labor history but probablyunknown to everyone else. But as I turn the crank on the microfilmreader, I have been hearing weird echoes of recent events.
When commentators invoke 1929, I am dubious. According to mosthistorians and economists, that depression had more to do with overlargefactory inventories, a stock-market crash, and Germany’s inability topay back war debts, which then led to continuing strain on British goldreserves. None of those factors is really an issue now. Contemporaryindustries have very sensitive controls for trimming production asconsumption declines; our current stock-market dip followed bankproblems that emerged more than a year ago; and there are no seriousinternational problems with gold reserves, simply because banks nolonger peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-oldgrandmother still calls “the real Great Depression.” She pinched penniesin the 1930s, but she says that times were not nearly so bad as thedepression her grandparents went through. That crash came in 1873 andlasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe. In theAustro-Hungarian Empire, formed in 1867, in the states unified byPrussia into the German empire, and in France, the emperors supported aflowering of new lending institutions that issued mortgages formunicipal and residential construction, especially in the capitals ofVienna, Berlin, and Paris. Mortgages were easier to obtain than before,and a building boom commenced. Land values seemed to climb and climb;borrowers ravenously assumed more and more credit, using unbuilt orhalf-built houses as collateral. The most marvelous spots for sightseersin the three cities today are the magisterial buildings erected in theso-called founder period. But the economic fundamentals were shaky. Wheat exporters from Russiaand Central Europe faced a new international competitor who drasticallyundersold them. The 19th-century version of containers manufactured inChina and bound for Wal-Mart consisted of produce from farmers in theAmerican Midwest. They used grain elevators, conveyer belts, and massivesteam ships to export trainloads of wheat to abroad. Britain, thebiggest importer of wheat, shifted to the cheap stuff quite suddenlyaround 1871. By 1872 kerosene and manufactured food were rocketing outof America’s heartland, undermining rapeseed, flour, and beef prices.The crash came in Central Europe in May 1873, as it became clear thatthe region’s assumptions about continual economic growth were toooptimistic. Europeans faced what they came to call the AmericanCommercial Invasion. A new industrial superpower had arrived, one whoselow costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital,unsure of which institutions were most involved in the mortgage crisis.The cost to borrow money from another bank - the interbank lending rate- reached impossibly high rates. This banking crisis hit the UnitedStates in the fall of 1873. Railroad companies tumbled first. They hadcrafted complex financial instruments that promised a fixed return,though few understood the underlying object that was guaranteed toinvestors in case of default. (Answer: nothing). The bonds had sold wellat first, but they had tumbled after 1871 as investors began to doubttheir value, prices weakened, and many railroads took on short-term bankloans to continue laying track. Then, as short-term lending ratesskyrocketed across the Atlantic in 1873, the railroads were in trouble.When the railroad financier Jay Cooke proved unable to pay off hisdebts, the stock market crashed in September, closing hundreds of banksover the next three years. The panic continued for more than four yearsin the United States and for nearly six years in Europe.
The long-term effects of the Panic of 1873 were perverse. For thelargest manufacturing companies in the United States - those withguaranteed contracts and the ability to make rebate deals with therailroads - the Panic years were golden. Andrew Carnegie, CyrusMcCormick, and John D. Rockefeller had enough capital reserves tofinance their own continuing growth. For smaller industrial firms thatrelied on seasonal demand and outside capital, the situation was dire.As capital reserves dried up, so did their industries. Carnegie andRockefeller bought out their competitors at fire-sale prices. The GildedAge in the United States, as far as industrial concentration wasconcerned, had begun.
As the panic deepened, ordinary Americans suffered terribly. A cigarmaker named Samuel Gompers who was young in 1873 later recalled thatwith the panic, “economic organization crumbled with some primevalupheaval.” Between 1873 and 1877, as many smaller factories andworkshops shuttered their doors, tens of thousands of workers - manyformer Civil War soldiers - became transients. The terms “tramp” and“bum,” both indirect references to former soldiers, became commonplaceAmerican terms. Relief rolls exploded in major cities, with 25-percentunemployment (100,000 workers) in New York City alone. Unemployedworkers demonstrated in Boston, Chicago, and New York in the winter of1873-74 demanding public work. In New York’s Tompkins Square in 1874,police entered the crowd with clubs and beat up thousands of men andwomen. The most violent strikes in American history followed the panic,including by the secret labor group known as the Molly Maguires inPennsylvania’s coal fields in 1875, when masked workmen exchangedgunfire with the “Coal and Iron Police,” a private force commissioned bythe state. A nationwide railroad strike followed in 1877, in which mobsdestroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.
In Central and Eastern Europe, times were even harder. Many politicalanalysts blamed the crisis on a combination of foreign banks and Jews.Nationalistic political leaders (or agents of the Russian czar) embraceda new, sophisticated brand of anti-Semitism that proved appealing tothousands who had lost their livelihoods in the panic. Anti-Jewishpogroms followed in the 1880s, particularly in Russia and Ukraine.Heartland communities large and small had found a scapegoat: aliens intheir midst.
The echoes of the past in the current problems with residentialmortgages trouble me. Loans after about 2001 were issued to first-timehomebuyers who signed up for adjustable rate mortgages they could likelynever pay off, even in the best of times. Real-estate speculators,hoping to flip properties, overextended themselves, assuming that homeprices would keep climbing. Those debts were wrapped in complexsecurities that mortgage companies and other entrepreneurial banks thensold to other banks; concerned about the stability of those securities,banks then bought a kind of insurance policy called a credit-derivativeswap, which risk managers imagined would protect their investments. Morethan two million foreclosure filings - default notices, auction-salenotices, and bank repossessions - were reported in 2007. By thentrillions of dollars were already invested in this credit-derivativemarket. Were those new financial instruments resilient enough to coverall the risk? (Answer: no.) As in 1873, a complex financial pyramidrested on a pinhead. Banks are hoarding cash. Banks that hoard cash donot make short-term loans. Businesses large and small now face apotential dearth of short-term credit to buy raw materials, ship theirproducts, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929.Most important, when banks fall on Wall Street, they stop all thetraffic on Main Street - for a very long time. The protractedreconstruction of banks in the United States and Europe createdwidespread unemployment. Unions (previously illegal in much of theworld) flourished but were then destroyed by corporate institutions thatlearned to operate on the edge of the law. In Europe, politicians foundtheir scapegoats in Jews, on the fringes of the economy. (Americans, onthe other hand, mostly blamed themselves; many began to embrace whatwould later be called fundamentalist religion.)
The post-panic winners, even after the bailout, might be those firms -financial and otherwise - that have substantial cash reserves. Awidespread consolidation of industries may be on the horizon, along witha nationalistic response of high tariff barriers, a decline ininternational trade, and scapegoating of immigrant competitors forscarce jobs. The failure in July of the World Trade Organization talksbegun in Doha seven years ago suggests a new wave of protectionism maybe on the way.
In the end, the Panic of 1873 demonstrated that the center of gravityfor the world’s credit had shifted west - from Central Europe toward theUnited States. The current panic suggests a further shift - from theUnited States to China and India. Beyond that I would not hazard aguess. I still have microfilm to read.
Scott Reynolds Nelson is a professor of history at the College ofWilliam and Mary. Among his books is Steel Drivin’ Man: John Henry, theUntold Story of an American legend (Oxford University Press, 2006).
By SCOTT REYNOLDS NELSONFrom the issue dated October 17, 2008.
As a historian who works on the 19th century, I have been reading mynewspaper with a considerable sense of dread. While many commentators onthe recent mortgage and banking crisis have drawn parallels to the GreatDepression of 1929, that comparison is not particularly apt. Two yearsago, I began research on the Panic of 1873, an event of some interest tomy colleagues in American business and labor history but probablyunknown to everyone else. But as I turn the crank on the microfilmreader, I have been hearing weird echoes of recent events.
When commentators invoke 1929, I am dubious. According to mosthistorians and economists, that depression had more to do with overlargefactory inventories, a stock-market crash, and Germany’s inability topay back war debts, which then led to continuing strain on British goldreserves. None of those factors is really an issue now. Contemporaryindustries have very sensitive controls for trimming production asconsumption declines; our current stock-market dip followed bankproblems that emerged more than a year ago; and there are no seriousinternational problems with gold reserves, simply because banks nolonger peg their lending to them.
In fact, the current economic woes look a lot like what my 96-year-oldgrandmother still calls “the real Great Depression.” She pinched penniesin the 1930s, but she says that times were not nearly so bad as thedepression her grandparents went through. That crash came in 1873 andlasted more than four years. It looks much more like our current crisis.
The problems had emerged around 1870, starting in Europe. In theAustro-Hungarian Empire, formed in 1867, in the states unified byPrussia into the German empire, and in France, the emperors supported aflowering of new lending institutions that issued mortgages formunicipal and residential construction, especially in the capitals ofVienna, Berlin, and Paris. Mortgages were easier to obtain than before,and a building boom commenced. Land values seemed to climb and climb;borrowers ravenously assumed more and more credit, using unbuilt orhalf-built houses as collateral. The most marvelous spots for sightseersin the three cities today are the magisterial buildings erected in theso-called founder period. But the economic fundamentals were shaky. Wheat exporters from Russiaand Central Europe faced a new international competitor who drasticallyundersold them. The 19th-century version of containers manufactured inChina and bound for Wal-Mart consisted of produce from farmers in theAmerican Midwest. They used grain elevators, conveyer belts, and massivesteam ships to export trainloads of wheat to abroad. Britain, thebiggest importer of wheat, shifted to the cheap stuff quite suddenlyaround 1871. By 1872 kerosene and manufactured food were rocketing outof America’s heartland, undermining rapeseed, flour, and beef prices.The crash came in Central Europe in May 1873, as it became clear thatthe region’s assumptions about continual economic growth were toooptimistic. Europeans faced what they came to call the AmericanCommercial Invasion. A new industrial superpower had arrived, one whoselow costs threatened European trade and a European way of life.
As continental banks tumbled, British banks held back their capital,unsure of which institutions were most involved in the mortgage crisis.The cost to borrow money from another bank - the interbank lending rate- reached impossibly high rates. This banking crisis hit the UnitedStates in the fall of 1873. Railroad companies tumbled first. They hadcrafted complex financial instruments that promised a fixed return,though few understood the underlying object that was guaranteed toinvestors in case of default. (Answer: nothing). The bonds had sold wellat first, but they had tumbled after 1871 as investors began to doubttheir value, prices weakened, and many railroads took on short-term bankloans to continue laying track. Then, as short-term lending ratesskyrocketed across the Atlantic in 1873, the railroads were in trouble.When the railroad financier Jay Cooke proved unable to pay off hisdebts, the stock market crashed in September, closing hundreds of banksover the next three years. The panic continued for more than four yearsin the United States and for nearly six years in Europe.
The long-term effects of the Panic of 1873 were perverse. For thelargest manufacturing companies in the United States - those withguaranteed contracts and the ability to make rebate deals with therailroads - the Panic years were golden. Andrew Carnegie, CyrusMcCormick, and John D. Rockefeller had enough capital reserves tofinance their own continuing growth. For smaller industrial firms thatrelied on seasonal demand and outside capital, the situation was dire.As capital reserves dried up, so did their industries. Carnegie andRockefeller bought out their competitors at fire-sale prices. The GildedAge in the United States, as far as industrial concentration wasconcerned, had begun.
As the panic deepened, ordinary Americans suffered terribly. A cigarmaker named Samuel Gompers who was young in 1873 later recalled thatwith the panic, “economic organization crumbled with some primevalupheaval.” Between 1873 and 1877, as many smaller factories andworkshops shuttered their doors, tens of thousands of workers - manyformer Civil War soldiers - became transients. The terms “tramp” and“bum,” both indirect references to former soldiers, became commonplaceAmerican terms. Relief rolls exploded in major cities, with 25-percentunemployment (100,000 workers) in New York City alone. Unemployedworkers demonstrated in Boston, Chicago, and New York in the winter of1873-74 demanding public work. In New York’s Tompkins Square in 1874,police entered the crowd with clubs and beat up thousands of men andwomen. The most violent strikes in American history followed the panic,including by the secret labor group known as the Molly Maguires inPennsylvania’s coal fields in 1875, when masked workmen exchangedgunfire with the “Coal and Iron Police,” a private force commissioned bythe state. A nationwide railroad strike followed in 1877, in which mobsdestroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.
In Central and Eastern Europe, times were even harder. Many politicalanalysts blamed the crisis on a combination of foreign banks and Jews.Nationalistic political leaders (or agents of the Russian czar) embraceda new, sophisticated brand of anti-Semitism that proved appealing tothousands who had lost their livelihoods in the panic. Anti-Jewishpogroms followed in the 1880s, particularly in Russia and Ukraine.Heartland communities large and small had found a scapegoat: aliens intheir midst.
The echoes of the past in the current problems with residentialmortgages trouble me. Loans after about 2001 were issued to first-timehomebuyers who signed up for adjustable rate mortgages they could likelynever pay off, even in the best of times. Real-estate speculators,hoping to flip properties, overextended themselves, assuming that homeprices would keep climbing. Those debts were wrapped in complexsecurities that mortgage companies and other entrepreneurial banks thensold to other banks; concerned about the stability of those securities,banks then bought a kind of insurance policy called a credit-derivativeswap, which risk managers imagined would protect their investments. Morethan two million foreclosure filings - default notices, auction-salenotices, and bank repossessions - were reported in 2007. By thentrillions of dollars were already invested in this credit-derivativemarket. Were those new financial instruments resilient enough to coverall the risk? (Answer: no.) As in 1873, a complex financial pyramidrested on a pinhead. Banks are hoarding cash. Banks that hoard cash donot make short-term loans. Businesses large and small now face apotential dearth of short-term credit to buy raw materials, ship theirproducts, and keep goods on shelves.
If there are lessons from 1873, they are different from those of 1929.Most important, when banks fall on Wall Street, they stop all thetraffic on Main Street - for a very long time. The protractedreconstruction of banks in the United States and Europe createdwidespread unemployment. Unions (previously illegal in much of theworld) flourished but were then destroyed by corporate institutions thatlearned to operate on the edge of the law. In Europe, politicians foundtheir scapegoats in Jews, on the fringes of the economy. (Americans, onthe other hand, mostly blamed themselves; many began to embrace whatwould later be called fundamentalist religion.)
The post-panic winners, even after the bailout, might be those firms -financial and otherwise - that have substantial cash reserves. Awidespread consolidation of industries may be on the horizon, along witha nationalistic response of high tariff barriers, a decline ininternational trade, and scapegoating of immigrant competitors forscarce jobs. The failure in July of the World Trade Organization talksbegun in Doha seven years ago suggests a new wave of protectionism maybe on the way.
In the end, the Panic of 1873 demonstrated that the center of gravityfor the world’s credit had shifted west - from Central Europe toward theUnited States. The current panic suggests a further shift - from theUnited States to China and India. Beyond that I would not hazard aguess. I still have microfilm to read.
Scott Reynolds Nelson is a professor of history at the College ofWilliam and Mary. Among his books is Steel Drivin’ Man: John Henry, theUntold Story of an American legend (Oxford University Press, 2006).
Wednesday, October 8, 2008
Ingots We Trust!
"We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars. " Ambrose Evans-Pritchard.
Nikkei sheds more then 9 points worst record in 21 years and Hang Seng more then 8 points, well our Mr Ambrose is right there are extreme danger out there.......... unless you own gold bars!
Confidence had eroded the equity market worldwide, bank even don't lent to one another ( Libor near to 7% point ). Commercial paper market dried up, good corporation with healthy balance sheet can't get short term loans from banks. Money market frozen, the list can go on and on almost like a funeral procession coming out from the world financial markets.
Nobody seems to be trust anybody and the Russians is talking about having a gold base rubles ............... at last Ingots We Trust!
Buy Gold!
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Sunday, October 5, 2008
Thursday, October 2, 2008
Did Mr Paulson Rescue Himself Or The America Economy?
Paulson’s impressive interest conflicts in the US700billion bailout of Wall Street financial crisis will go down in history as the most obscene acts of human greed, following except was gather from Financial Sense:-
"The actions of Treasury Secretary Paulson since the first outbreak of the Financial Tsunami in August of 2007 have been directed with one apparent guiding aim—to save the obscene gains of his Wall Street and banking cronies. In the process he has taken steps which suggest more than a mild possible conflict of interest. Paulson, who had been chairman of Goldman Sachs from the time of the 1999 Glass-Steagall repeal to his appointment in 2006 as Treasury head, had been one of the most involved Wall Street players in the new securitization revolution of Greenspan. Under Paulson, according to City of London financial sources familiar with it, Goldman Sachs drove the securitization revolution with an endless rollout of new products. As one London banker put it in an off-record remark to this author, “Paulson’s really the guilty one in this securitization mess but no one brings it up because of the extraordinary influence Goldmans seems to have, a bit like the Knights Templar order of old.’ Naming Goldman chairman Henry Paulson to head the Government agency now responsible for cleaning up the mess left by Wall Street greed and stupidity was tantamount to putting the wolf in charge of guarding the hen house as some see it.
Paulson showed where his interests lay. He is by law is the chairman of something called the President's Working Group on Financial Markets, the Government’s financial crisis management group that also includes Fed Chairman Bernanke, the Securities & Exchange Commission head, and the head of the Commodity Futures Exchange Commission (CFTC). That is the reason Paulson, the ex-Wall Street Goldman Sachs banker, is always the person announcing new emergency decisions since last August.
In mid September, in between other dramatic failures including Lehman Bros., and the bailout of Fannie Mae and Freddie Mac, Paulson announced that the US Treasury, as agent for the United States Government, was to bailout the troubled AIG with a staggering $85 billion. The announcement came a day after Paulson announced the Government would let the 150-year old investment bank, Lehman Brothers, fail without Government aid. Why AIG and not Lehman?
What has since emerged are details of a meeting at the New York Federal Reserve bank chaired by Paulson, to discuss the risk of letting AIG fail. There was only one active Wall Street banker present at the meeting—Lloyd Blankfein, chairman of Paulson’s old firm, Goldman Sachs.
Blankfein later claimed he was present at the fateful meeting not to protect his firm’s interests but to ‘safeguard the entire financial system.’ His claim was put in doubt when it later emerged that Blankfein’s Goldman Sachs was AIG’s largest trading partner and stood to lose $20 billion in a bankruptcy of AIG. Were Goldman Sachs to go down with AIG, Secretary Paulson would have reportedly lost $700 million in Goldman Sachs stock options he had, an interesting fact." Read full article here.
Secretary Treasury Paulson to lost US700million if AIG go under! This bailout under the Emergency Stabilization Act it's full with personal greed and cronyism at it's worst, wonder the Feds or Paulson saving Wall Street, themselves or main street the reader will have to decides, history they say it's the best judge but our concern whether how much of history left after this so called bailout failed to deliver.
The price of greed only the gods know meanwhile Buy Gold!
Disclaimer/Comments Policy.
"The actions of Treasury Secretary Paulson since the first outbreak of the Financial Tsunami in August of 2007 have been directed with one apparent guiding aim—to save the obscene gains of his Wall Street and banking cronies. In the process he has taken steps which suggest more than a mild possible conflict of interest. Paulson, who had been chairman of Goldman Sachs from the time of the 1999 Glass-Steagall repeal to his appointment in 2006 as Treasury head, had been one of the most involved Wall Street players in the new securitization revolution of Greenspan. Under Paulson, according to City of London financial sources familiar with it, Goldman Sachs drove the securitization revolution with an endless rollout of new products. As one London banker put it in an off-record remark to this author, “Paulson’s really the guilty one in this securitization mess but no one brings it up because of the extraordinary influence Goldmans seems to have, a bit like the Knights Templar order of old.’ Naming Goldman chairman Henry Paulson to head the Government agency now responsible for cleaning up the mess left by Wall Street greed and stupidity was tantamount to putting the wolf in charge of guarding the hen house as some see it.
Paulson showed where his interests lay. He is by law is the chairman of something called the President's Working Group on Financial Markets, the Government’s financial crisis management group that also includes Fed Chairman Bernanke, the Securities & Exchange Commission head, and the head of the Commodity Futures Exchange Commission (CFTC). That is the reason Paulson, the ex-Wall Street Goldman Sachs banker, is always the person announcing new emergency decisions since last August.
In mid September, in between other dramatic failures including Lehman Bros., and the bailout of Fannie Mae and Freddie Mac, Paulson announced that the US Treasury, as agent for the United States Government, was to bailout the troubled AIG with a staggering $85 billion. The announcement came a day after Paulson announced the Government would let the 150-year old investment bank, Lehman Brothers, fail without Government aid. Why AIG and not Lehman?
What has since emerged are details of a meeting at the New York Federal Reserve bank chaired by Paulson, to discuss the risk of letting AIG fail. There was only one active Wall Street banker present at the meeting—Lloyd Blankfein, chairman of Paulson’s old firm, Goldman Sachs.
Blankfein later claimed he was present at the fateful meeting not to protect his firm’s interests but to ‘safeguard the entire financial system.’ His claim was put in doubt when it later emerged that Blankfein’s Goldman Sachs was AIG’s largest trading partner and stood to lose $20 billion in a bankruptcy of AIG. Were Goldman Sachs to go down with AIG, Secretary Paulson would have reportedly lost $700 million in Goldman Sachs stock options he had, an interesting fact." Read full article here.
Secretary Treasury Paulson to lost US700million if AIG go under! This bailout under the Emergency Stabilization Act it's full with personal greed and cronyism at it's worst, wonder the Feds or Paulson saving Wall Street, themselves or main street the reader will have to decides, history they say it's the best judge but our concern whether how much of history left after this so called bailout failed to deliver.
The price of greed only the gods know meanwhile Buy Gold!
Disclaimer/Comments Policy.
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