Sun 2010-10-10 11:56 EDT

The Federal Reserve's Relevance Test - Project Syndicate

Joseph E. Stiglitz

...as investors look outside the US for higher yield, the flood of money out of the dollar has bid up exchange rates in emerging markets around the world. Emerging markets know this, and are upset -- Brazil has vehemently expressed its concerns -- not only about the increased value of their currency, but that the influx of money risks fueling asset bubbles or triggering inflation. The normal response of emerging-market central banks to bubbles or inflation would be to raise interest rates -- thereby increasing their currencies' value still more. US policy is thus delivering a double whammy on competitive devaluation -- weakening the dollar and forcing competitors to strengthen their currencies...

Federal Reserve's Relevance Test; Project Syndicate.

Fri 2010-06-18 10:37 EDT

Monetary Economics Review

Pablo Gabriel Bortz

Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, W. Godley and M. Lavoie, Palgrave/Macmillan, London, 2007...Acknowledging the existence of a complex institutional structure that includes households, firms, banks and governments (sometimes separated from the Central Bank), "our aspiration is to introduce a new way in which an understanding can be gained as to how these very complicated systems work as a whole"...the "new way" referred above is currently known as Stock-Flow Consistent modelling (SFC)...The main bid of Godley and Lavoie (G&L, from now on) is to show (successfully, one could note) that the SFC models make it necessary to fully articulate an accounting structure, avoiding "black holes", gaining in consistency, accuracy, and providing a common framework for the comparison of different models...one gets really convinced that it is the type of approach that makes it possible to analyse a great number of elements and complexities of the real world, as much as one wishes!...G&L adopt an institutional classification (households, firms, banks, government and the central bank). All the models presented in the book start with a "balance sheet" matrix, where all the assets and liabilities of each sector are described...

Monetary Economics Review.

Wed 2010-05-19 13:23 EDT

Conspiracy of Banks Rigging States Came With Crash (Update1)

...a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks... rigged bids on auctions for so-called guaranteed investment contracts, known as GICs, according to a Justice Department list that was filed in U.S. District Court in Manhattan on March 24 and then put under seal. Those contracts hold tens of billions of taxpayer money...The workings of the conspiracy -- which stretched from California to Pennsylvania and included more than 200 deals involving about 160 state agencies, local governments and non- profits -- can be pieced together from the Justice Department's indictment of CDR, civil lawsuits by governments around the country, e-mails obtained by Bloomberg News and interviews with current and former bankers and public officials. "The whole investment process was rigged across the board," said Charlie Anderson, who retired in 2007 as head of field operations for the Internal Revenue Service's tax-exempt bond division. "It was so commonplace that people talked about it on the phones of their employers and ignored the fact that they were being recorded." Anderson said he referred scores of cases to the Justice Department when he was with the IRS. He estimates that bid rigging cost taxpayers billions of dollars...

Banks Rigging States Came; conspiracy; Crash; Update1.

naked capitalism Thu 2010-05-13 18:21 EDT

An Analysis of the Thursday Meltdown

...Contrast the reports at the Times and the Wall Street Journal, that the officialdom is pouring through the records and is still puzzled after a full three days on the case, versus this analysis produced by a lone sell-side analyst (who sadly must remain anonymous) roughly 24 hours after the implosion...``...it was not a sudden, random surge of volume from a fat finger that overwhelmed the market. It was a steady onslaught of selling that pressured the market lower in order to catch up with the carnage taking place in the credit markets and the currency markets...this episode exposed structural flaws in how a trade is implemented (think orphaned algo orders) and it exposed the danger of leaving market making up to a network of entities with no mandate to ensure the smooth and orderly functioning of the market (think of the electronic market makers and high freqs who can pull bids instantaneously as opposed to a specialist on the floor who has a clearly defined mandate to provide liquidity).''

Analysis; naked capitalism; Thursday Meltdown.

zero hedge Sun 2010-05-09 09:45 EDT

The Day The Market Almost Died (Courtesy Of High Frequency Trading)

A year ago, before anyone aside from a hundred or so people had ever heard the words High Frequency Trading, Flash orders, Predatory algorithms, Sigma X, Sonar, Market topology, Liquidity providers, Supplementary Liquidity Providers, and many variations on these, Zero Hedge embarked upon a path to warn and hopefully prevent a full-blown market meltdown. On April 10, 2009, in a piece titled "The Incredibly Shrinking Market Liquidity, Or The Black Swan Of Black Swans" we cautioned "what happens in a world where the very core of the capital markets system is gradually deleveraging to a point where maintaining a liquid and orderly market becomes impossible: large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades. When the quant deleveraging finally catches up with the market, the consequences will likely be unprecedented, with dramatic dislocations leading the market both higher and lower on record volatility." Today, after over a year of seemingly ceaseless heckling and jeering by numerous self-proclaimed experts and industry lobbyists, we are vindicated...absent the last minute intervention of still unknown powers, the market, for all intents and purposes, broke. Liquidity disappeared. What happened today was no fat finger, it was no panic selling by one major account: it was simply the impact of everyone in the HFT community going from port to starboard on the boat, at precisely the same time...It is time for the SEC to do its job and not only ban flash trading as it said it would almost a year ago, but get rid of all the predatory aspects of high frequency trading, which are pretty much all of them...HFT killed over 12 months of hard fought propaganda by the likes of CNBC which has valiantly tried to restore faith in our broken capital markets. They have now failed in that task too. After today investors will have little if any faith left in the US stocks, assuming they had any to begin with. We need to purge the equity market structure of all liquidity-taking parasitic players. We must start today with High Frequency Trading...

courtesy; day; dies; high frequency trade; Market; Zero Hedge.

zero hedge Sun 2010-05-09 09:42 EDT

Themis' Take: May 6, 2010 -- The Day That Will Change Market Structure

...The story is not a key-punch error. The story is a failed market structure. The market failed today. The market melted down and ``liquidity providers'' quickly pulled all bids. According to today's Wall Street Journal, high frequency firm, Tradebot, closed down its computer systems completely, as did New Jersey's own Tradeworx,...To make matters worse, while some high frequency firms shut down yesterday and pulled their bids, as we warned they would do for over a year and a half, other high frequency firms turned from being liquidity providers to liquidity demanders, as they turned around and indiscriminately hit bids...The market action of May 6th has demonstrated that our equity market has major systemic risks built into it...The price discovery process ceased to exist. High frequency firms have always insisted that their mini-scalping activities stabilized markets and provided liquidity, and on May 6th they just shut down. They pulled the plug, as we always said they would, and they even admit it in the papers this morning...This is not an isolated incident, and it will happen again.

2010; 6; Change Market Structure; day; take; Themis; Zero Hedge.

zero hedge Sun 2010-05-09 09:25 EDT

Dissecting The Crash

Here are two accounts dissecting in detail the events from yesterday. One is from Dan Hinckley at Wild Analytics, the second from Dan O'Brien. ...The idea that it was a 'fat finger' error is ludicrous; unless the fat finger hit every market in the world virtually simultaneously. Liquidity simply left the world financial markets for about four minutes this afternoon. The bids just vanished...In one second more or less someone (and yes, under these circumstances, human beings take control of the machines) made the decision to pull the bids on every equity in the S&P, every financial futures contract, every FX contract in every market in the world. This kind of thing just doesn't happen in a pure auction environment; there just isn't a tight enough communication link between the parties to allow the decisions to propagate within the same second -- even with HFT algorithms. No. Some human made the decision to pull the bids; all of them, all at once. If that is not a condemnation of the concentration of financial power and the systematic risk it engenders I don't know what is...How does all of this happen? Well, you can thank the Federal Reserve... 1) The Fed prints fake money out of thin air... 2) Large banks and hedge funds borrow money from the Fed at near-ZERO interest rates... 3) These institutions buy Treasuries with a guaranteed 4% return, thus guaranteeing the banks massive and risk-free profits on the backs of the middle class (remember, you're not allowed to earn an interest rate on your savings accounts!)... 4) These institutions then swap Treasuries with the Fed for cash... 5) These same institutions (banks) then take the cash and gun the stock market higher with its FREE MONEY from the government...I meant free money from you. By the way, were you asked to vote on this? Frankly, it's better than free money - they're being PAID to do this... 6) Banks pay the very clown-posse that cause the 2008 crash (and today's) the largest bonuses...EVER...with your tax dollars.

Crash; dissecting; Zero Hedge.

The Money Game Tue 2010-03-09 17:38 EST

Speculators Bid Up AMBAC CDS, As Fears Of A Municipal Default Wave Proliferate

Here's the latest from DebtWire: The CDS market is signaling increased fears that Ambac operating company Ambac Assurance will enter receivership within the year as fear of a municipal bond crisis spreads...

AMBAC CDS; fears; Money game; Municipal Default Wave Proliferate; Speculative bid.

zero hedge Wed 2010-02-03 16:00 EST

Russia Urged China To Dump Its Fannie, Freddie Holdings Before GSE Bailout

This is how the cold war will look like in the post-Lehman era (when all the debt risk is held on the public balance sheet): one country urging another to sell a third's bonds. According to Hank Paulson's soon to be released memoir, Russia had urged China to sell its GSE holdings in August 2008 "in a bid to force a bailout of the largest U.S. mortgage-finance companies." China refused... That time. Of course, what has transpired since is that China, through the Fed custodial account, has rotated a vast majority of its GSE holdings into Treasuries, in essence doing just what Pimco's Bill Gross has been doing since the beginning of 2009: offloading hundreds of billions of Fannie and Freddie bonds straight to the Federal Reserve.

Dump; Fannie; Freddie Holdings; GSE bailout; Russia Urged China; Zero Hedge.

zero hedge Fri 2010-01-15 17:46 EST

Is The Mysterious "Direct Bidder" Simply China Executing 'Quantitative Easing' On Behalf Of The Federal Reserve?

...we make the claim that the Fed has now informally offloaded the Treasury portion of Quantitative Easing to China, which does so via the elusive Direct Bid. It also explains why the Fed has generically been much less worried about TSY purchases under Q.E. (a mere $300 billion out of a total $1.7 trillion in monetization). It does beg the question of just how much Chinese holdings of US Debt truly are, as this number is likely hundreds of billions higher than the disclosed $799 billion...if there is indeed an implicit understanding between Bernanke and his Chinese colleagues, it means that not only the housing market (via Agency and MBS security purchases), but the Treasury market as well, are both manipulated beyond recognition and implies that broad securities are massively overvalued due to the stealth purchasing of core "riskless" assets by the US and China, as investors look higher in the cap structure for yield. Lastly, implications for world trade are great, as Asian countries will have to deal not only with the Chinese behemoth, which will constantly seek to keep its currency as low as possible, thus exacerbating the rest of Asia's foreign trade balances, but that of the US itself. The immediate implication is that China (or the US for that matter) will likely not reflate their currencies out of their own volition any time in the foreseeable future. Look for a much weaker dollar in the coming months.

behalf; Direct bidders; Federal Reserve; mysteriously; Quantitative Easing; Simply China Executing; Zero Hedge.

Tue 2009-09-22 08:39 EDT

HSBC bids farewell to dollar supremacy - Telegraph

Ambrose Evans-Pritchard

The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC..."The dollar looks awfully like sterling after the First World War," said David Bloom, the bank's currency chief.

dollar supremacy; HSBC bids farewell; Telegraph.

Fri 2009-09-04 19:05 EDT

Lehman downfall triggered by UK and US mix-up

*** Communication breakdown revealed in first-hand accounts of bank collapse *** Blame game goes on as G20 ministers prepare for crucial London talks A breakdown in communications at the highest level between the US and the UK led to the shock collapse of the investment bank Lehman Brothers in September last year, a Guardian/Observer investigation has revealed. The downfall of Lehman, which triggered the biggest banking crisis since the Great Depression, came after a rescue bid by the high street bank Barclays failed to materialise. In London, the Treasury, the Bank of England and the Financial Services Authority all believed that the US government would step in with a financial guarantee for the troubled Wall Street bank.

Lehman downfall triggered; mixed; UK.

Tue 2009-02-24 00:00 EST

Mish's Global Economic Trend Analysis: Website Allows Job Seekers To Bid On Low Pay

bid; low pay; Mish's Global Economic Trend Analysis; Website Allows Job Seekers.

Mon 2008-11-03 00:00 EST

Guest Commentary

The Credit Crisis Endgame, by Paul Amery (PrudentBear); ``the cost of insuring against a US government default has risen by 25 times in little over a year''; ``Signs of strain in the US Treasury market are already there...poor bid-to-cover ratios, and long tails''; Reinhart, Rogoff "Forgotten History of Domestic Debt"

guest commentary.

Tue 2008-07-08 00:00 EDT

Mish's Global Economic Trend Analysis: Indymac Says "No Bids On Its Mortgage Loan Portfolio"

bid; Indymac Says; Mish's Global Economic Trend Analysis; Mortgage Loan Portfolio.