naked capitalism Thu 2010-04-01 19:57 EDT

Top ten reasons you know China has a financial bubble on its hands

Edward Harrison

Edward Chancellor, author of the seminal book on financial speculation and manias ``Devil Take The Hindmost,'' is now turning his eyes to China. He sees a number of red flags which point to excess in China...The trouble is that China today exhibits many of the characteristics of great speculative manias. The aim of this paper is to describe the common features of some of the great historical bubbles and outline China's current vulnerability...Is China in a bubble blow-off top like Japan post-Plaza accord? I say yes. I believe anyone who thinks this will not end badly is in for a rude awakening.

Financial bubble; handing; know China; naked capitalism; reasons; Top.

naked capitalism Fri 2010-03-19 19:57 EDT

NY Fed Under Geithner Implicated in Lehman Accounting Fraud Allegation

Quite a few observers, including this blogger, have been stunned and frustrated at the refusal to investigate what was almost certain accounting fraud at Lehman. Despite the bankruptcy administrator's effort to blame the gaping hole in Lehman's balance sheet on its disorderly collapse, the idea that the firm, which was by its own accounts solvent, would suddenly spring a roughly $130+ billion hole in its $660 balance sheet, is simply implausible on its face. Indeed, it was such common knowledge in the Lehman flailing about period that Lehman's accounts were sus that Hank Paulson's recent book mentions repeatedly that Lehman's valuations were phony as if it were no big deal. Well, it is folks, as a newly-released examiner's report by Anton Valukas in connection with the Lehman bankruptcy makes clear. The unraveling isn't merely implicating Fuld and his recent succession of CFOs, or its accounting firm, Ernst & Young, as might be expected. It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations...

Geithner Implicated; Lehman Accounting Fraud Allegation; naked capitalism; NY Fed.

zero hedge Thu 2009-12-17 10:37 EST

Is Selling US CDS A Risk-Free Way To Short The Dollar?

There has been much conjecture on whether using CDS is an effective way to hedge against US default risk. Many theoreticians, especially those of the post-March lows variety, have sprung up and are speculating that buying Credit Default Swaps on the US is ultimately a futile and pointless endeavor. The main argument: a US default would likely mean that interconnected dealers won't recognize contracts on a US default event, as they themselves will be out of business. Even if they continued to exist, like cockroaches in a postapocalyptic world, the collateral which backs derivatives is mostly US Treasurys: the same obligations that would end up being massively impaired...the US CDS seller syndicate could easily be one of the key sources of dollar short funding: with sellers pocketing euros and immediately going to market and selling dollars...a dollar-short unwind would probably have repercussions in the US CDS market. Not only would the dollar spike, but paradoxically US credit risk would probably widen dramatically...any unwind at the heart of the prevalent risk trade now: the massive dollar carry, would impact virtually every investment product, quite possibly in self-referential feedback loops. If correct, it merely shows how much more the Fed has at stake in keeping the dollar depressed than merely getting mom and pop to buy Amazon at $130/share. Losing control of the carry trade will be the systemic equivalent of allowing Lehman's book to be marked-to-market: a potentially complete collapse in systemic confidence, which would have such far ranging implications as the $300 trillion interest rate derivative market. And when sudden volatility reaches this product universe which is 6 times bigger than world GDP, the events from last year will seem like a dress rehearsal.

CDS; Dollar; Risk-Free Way; sell; short; Zero Hedge.

Wed 2009-12-16 12:30 EST

James Grant Mourns the Loss of the Gold Standard - WSJ.com

...There's no business value in financial safety when the government bails out the unsafe. And by bailing out a scandalously large number of unsafe institutions, the government necessarily puts the dollar at risk...Collateralize the dollar--make it exchangeable into something of genuine value. Get the Fed out of the price-fixing business. Replace Ben Bernanke with a latter-day Thomson Hankey. Find--cultivate--battalions of latter-day Hellmans and set them to running free-market banks. There's one more thing: Return to the statute books Section 19 of the 1792 Coinage Act...

com; gold standard; James Grant mourns; losses; WSJ.

naked capitalism Wed 2009-12-16 12:13 EST

``Values and Rules''

Satyajit Das

Wall Street Revalued: Imperfect Markets and Inept Central Bankers by Andrew Smithers (2009) The Road to Financial Reformation: Warnings, Consequences, Reforms by Henry Kaufman (2009) In a sense, this crisis is about values (the prices paid for many assets) and the rules (regulations governing financial markets). It is also about rules (rigid model based formulations of price) and values (ethics or the lack thereof). These two books provide different perspectives on the issues...

naked capitalism; rules; valued.

Jesse's Café Américain Tue 2009-12-01 22:16 EST

Draining the Swamp: The Fed's Tri Party Repo Machine

Jesse

A triparty repo transaction is a transaction among three parties: a cash lender acting on behalf of all holders of dollars (the Fed), a borrower that will provide collateral (dodgy debt holder in shaky financial condition), and a clearing bank, most likely a primary dealer like J.P. Morgan, which is only too happy to collect its fees as an agent of the Fed... This is the method of obtaining toxic assets from the books of non-primary dealers, and providing stability and liquidity from the aggregate value of all dollar holders to cover the misdeeds of diverse financial institutions and other favored parties. In other words, the Fed is draining the financial debt swamp and toxic waste dumps into your basement, if you hold Federal Reserve Notes.

drain; Fed's Tri Party Repo Machine; Jesse's Café Américain; swamping.

The Guardian World News Wed 2009-11-25 10:31 EST

What was really behind the crash?

John Cassidy

In an exclusive extract from his new book, John Cassidy explains why the huge salaries of Wall Street bosses created a culture that helped trigger the financial crisis...In the wake of last year's crash, even some top bankers have conceded that Wall Street remuneration schemes lead to excessive risk-taking...But without direct government involvement, the effort to reform Wall Street compensation won't survive the next market upturn. For although the financial sector as a whole has an interest in controlling rampant short-termism and irresponsible risk-taking, individual firms have an incentive to hire away star traders from any rivals that have introduced pay limits. Compensation reforms, therefore, are bound to break down. In this case, as in many others, the only way to reach a socially desirable outcome is to enforce compliance. And the only body that can do that is the government.

Crash; Guardian World News; really.

zero hedge Thu 2009-11-19 10:42 EST

Fannie Mae Seriously Delinquent Rate Hockeysticks to 4.45% From 1.57% In Prior Year

The FNM "seriously delinquent" rate has gone parabolic, increasing by roughly 5% sequentially and just under 300% YoY. As mere text will simply not do this metric justice, please enjoy this chart of the dataset from Blytic. It tells you all you need to know about the Fed's containment of the housing problem. The August seriously delinquent single-family number comprised of a 2.87% non-credit enhanced delinquencies and a very bothersome 11.52%, consisting of credit enhanced loans. The deterioration of FNM's book however did not stop it from increasing the size of its book. In September Fannie's total book of business hit $3.242 trillion, up from $3.229 trillion in August and $3.079 trillion in the prior year.

1; 4; 45; 57; Fannie Mae Seriously Delinquent Rate Hockeysticks; prior years; Zero Hedge.

Mon 2009-10-12 09:24 EDT

FORA.tv - Nassim Nicholas Taleb: A Crazier Future

The Future Has Always Been Crazier Than We Thought with Nassim Nicholas Taleb.Author Nassim Nicholas Taleb discusses his book, The Black Swan in relation to predicting the future, learning from the consequences of the unknown, and the power of randomness.

Crazier Future; FORA; Nassim Nicholas Taleb; TV.

Mish's Global Economic Trend Analysis Mon 2009-10-12 09:22 EDT

One Hand Clapping Theory Analyzed

Michael Shedlock

Numerous people have asked me to comment on Chris Martenson's article The Sound of One Hand Clapping - What Deflationists May Be Missing. Chris Writes: ...``Trillions in probable and provable losses quietly exist, out of sight, on the balance sheets of the Federal Reserve and other financial institutions. If they ever come out of hiding and onto the books, I think the deflationists will be proven correct beyond all doubt. But let me ask this: What prevents the authorities from simply storing them out of sight forever?...I am now wondering if they cannot keep this up indefinitely.'' ...In a credit based economy, the odds of a sustainable rebound without bank credit expanding, and consumers participating is not very good. Even if one mistakenly assumes that the recent rally is a result of pretending, should we count on sustained success now more so than a measurement of stock prices in April of 1930, or any of Japans' four 50% rallies? I think not. Pretending cannot accomplish much other than prolonging the agony for decades. This is the message of Japan. Moreover, the US is arguably is worse shape than Japan because our problems are unsustainable consumer debt, high unemployment, and massive retail sector overcapacity. Those are structural problems that no amount of pretending in the world can possibly cure. In due time, the market will focus on those problems.

hand clapping theory analyzed; Mish's Global Economic Trend Analysis.

Tue 2009-10-06 21:14 EDT

TraderFeed: Featured Book Look: Dear Mr. Buffett by Janet Tavakoli

Only when the tide goes out do you discover who's been swimming naked," Warren Buffett once observed. Janet Tavakoli's book Dear Mr. Buffett is less about the Oracle From Omaha than the various naked swimmers in the recent financial markets. The essence of her argument is that the recent financial turmoil is not the result of unpredictable black swan events; rather, it is the consequence of out and out malfeasance on the part of those who take risk and those who are charged with regulating it.

Featured Book Look; Janet Tavakoli; Mr. Buffett; TraderFeed.

Tue 2009-09-22 08:17 EDT

Guest Post: Sarkozy, Stiglitz & capitalism's inherent contradictions

Swedish Lex

The French Commission on the Measurement of Economic Performance and Social Progress presented its final Report written by Stiglitz and other leading economists at an event at la Sorbonne earlier today. The contents of Report is already being discussed widely but at least as relevant are the politics surrounding the Commission's Report and how France intends to use it to spearhead economic reform at home and abroad...at least in France, the financial crisis is alive and will be used to promote reform...Governments need to modify their behavior, first by changing how they account for the situation in society by including questions about the overriding purposes of society and public policy; ``our certitudes have evaporated, everything has to be put into question and re-invented''. Current methodologies fail to take externalities into account with the risk of booking developments as progress while, in reality, the opposite is true. Growth has in some regards destroyed more than it has achieved.

capitalism's inherent contradictions; Guest Post; Sarkozy; Stiglitz.

Bogarty Files Sun 2009-09-20 14:22 EDT

Bogarty Files: The Postmodern Explanation

...Every time there is a gap between what appears to be reality, and what mainstream seems to believe, I get this uneasy feeling. Is it me, I wonder, am I missing something?...I ordered a few books on postmodernism...So now everything is starting to make sense. This is the Obama strategy -- the ``Geithner plan''. While I'm busy studying the balance sheets of the banks, unemployment data etc. they acted, creating a new reality, one without another great depression. Are the banks insolvent? What is insolvency? My definition or Ken Lewis's? There is no universal meaning for insolvent, there is no transcendental signified, just some archaic meaning handed down to us. We don't have to accept it, we can define it anyway we want, especially if another great depression hinges on its meaning...

Bogarty Files; Postmodern Explanation.

Bank-Implode! Sun 2009-09-20 12:22 EDT

Bank-Implode! >> Blog Archive >> Exclusive -- Wells Fargo's Commercial Portfolio is a ticking time bomb

In order to sort through the disaster that is Wells Fargo's (quote: WFC) commercial loan portfolio, the bank has hired help from outside experts to pour over the books... and they are shocked with what they are seeing. Not only do the bank's outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank...According to sources currently working out these loans at Wells Fargo, when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer's risk premium by writing credit default swap contracts against these subordinate bonds...should the junior tranches eventually default, then the bank is on the hook.

bank implode; blogs Archive; exclusive; ticking time bomb; Wells Fargo's commercial portfolio.

naked capitalism Thu 2009-09-17 09:46 EDT

``How China Cooks Its Books''

We've commented from time to time on dubious Chinese data releases. But this report from Foreign Policy reports on an interest aspect: that the statistics are not manipulated only in the normal bureaucratic manner (fudging them) but also by getting companies to change behavior so it can be tallied in a more flattering fashion....unemployment is likely 40 to 50 million, as opposed to the widely reported 20 to 30 million; the statistical manipulations are a surprisingly broad-based initiative.

books; China Cooks; naked capitalism.

Language Log Wed 2009-09-16 18:57 EDT

Language Log >> Google Books: A Metadata Train Wreck

.This is almost certainly the Last Library, after all. There's no Moore's Law for capture, and nobody is ever going to scan most of these books again. So whoever is in charge of the collection a hundred years from now -- Google? UNESCO? Wal-Mart? -- these are the files that scholars are going to be using then. All of which lends a particular urgency to the concerns about whether Google is doing this right...you need good metadata. And Google's are a train wreck: a mish-mash wrapped in a muddle wrapped in a mess.

Google Books; Language Log; Metadata Train Wreck.