Fri 2010-10-08 20:58 EDT

Foreclosuregate and Obama's "Pocket Veto"

Ellen Brown

Amid a snowballing foreclosure fraud crisis, President Obama today blocked legislation that critics say could have made it more difficult for homeowners to challenge foreclosure proceedings against them. The bill passed the Senate with unanimous consent and with no scrutiny by the DC media. In a maneuver known as a "pocket veto," President Obama indirectly vetoed the legislation by declining to sign the bill passed by Congress while legislators are on recess...By most reports, it would appear that the voluntary suspension of foreclosures is underway to review simple, careless, procedural errors...However, those errors go far deeper than mere sloppiness; they are concealing a massive fraud. They cannot be corrected with legitimate paperwork, and that was the reason the servicers had to hire "foreclosure mills" to fabricate the documents. These errors involve perjury and forgery - fabricating documents that never existed and swearing to the accuracy of facts not known...

Foreclosuregate; Obama's; Pocket Veto.

PRAGMATIC CAPITALISM Mon 2010-09-20 19:18 EDT

7 WAYS TO PLAY DEFLATION

TPC

In this morning's report David Rosenberg cited the non-existent inflation trend in recent years. Rosenberg is of course very negative about the economy, but does provide some excellent thoughts on how to play the current...deflationary environment...

7 Ways; Play Deflation; PRAGMATIC CAPITALISM.

PRAGMATIC CAPITALISM Mon 2010-09-20 09:57 EDT

WHITHER CHINA?

Simon Hunt

In all likelihood, China has entered the most critical and taxing period since the country was reopened to the outside world in the 1970s. Domestically, there are a slew of issues, any one of which could create instability...Few can know the full story of what goes on within the State Council, but there appears to be a battle royal being fought over the real estate sector. There are those within the leadership who are concerned that average home prices have gotten too high for most first-time buyers (see our previous visit report). They want to see average prices fall by 10-20% across the country. Against this group are not just real estate developers but local governments and many others within Beijing...In effect, what is being seen is a battle between central and local governments. In our view, this is a fight that central government cannot afford to lose...against a background of cheap money and plenty of credit, house prices across the country have become unaffordable to most first-time buyers...if these price developments continued unchecked the leadership would risk encountering social instability...we doubt there will be any easing of policy until average house prices fall into the 10-20% range. China is transiting into a very difficult period as focus shifts towards sustainable domestic growth and away from short-term measures to defend the 8% GDP mantra. This transition is occurring when the existing leadership is preparing to give way to the new set in 2012, when social stability could be threatened if there are policy mistakes...

China; PRAGMATIC CAPITALISM.

naked capitalism Wed 2010-09-08 17:27 EDT

Economic consequences of speculative side bets -- The case of naked CDS

Yeon-Koo Che and Rajiv Sethi

...We argue that the existence of naked credit default swaps has significant effects on the terms of financing, the likelihood of default, and the size and composition of investment expenditures. And we identify three mechanisms through which these broader consequences of speculative side bets arise: collateral effects, rollover risk, and project choice...the existence of zero-sum side bets on default has major economic repercussions. These contracts induce investors who are optimistic about the future revenues of borrowers, and would therefore be natural purchasers of debt, to sell credit protection instead. This diverts their capital away from potential borrowers and channels it into collateral to support speculative positions. As a consequence, the marginal bond buyer is less optimistic about the borrower's prospects, and demands a higher interest rate in order to lend. This can result in an increased likelihood of default, and the emergence of self-fulfilling paths in which firms are unable to rollover their debt, even when such trajectories would not arise in the absence of credit derivatives. And it can influence the project choices of firms, leading not only to lower levels of investment overall but also in some cases to the selection of riskier ventures with lower expected returns...

Case; economic consequences; naked capitalism; Naked CDS; speculative side bets.

Satyajit Das's Blog - Fear & Loathing in Financial Products Thu 2010-08-19 16:16 EDT

Grecian Derivative

Satyajit Das

...In the 1990s, Japanese companies and investors pioneered the use of derivatives to hide losses...Since then, the use of derivatives to disguise debt and arbitrage regulations and accounting rules has increased...Italy used a currency swap against an existing Yen 200 billion bond ($1.6 billion) to lock in profits from the depreciation of the Yen. The swap was done at off-market rates...the swap was really a loan where Italy had accepted an off-market unfavourable exchange rate and received cash in return...A key element of the recent Greek debt problems has been the use of derivative transactions to disguise the true level of its borrowing...More recently, similar structures have emerged in Latvia...This follows a series of revelation regrading the use of derivatives by municipal authorities in the U.S., Italy, German, Austria and France where complex bets on interest rates were used to provide funding or cosmetically lower borrowing costs. Many of these transactions resulted in substantial losses and are now in dispute...Normal commercial transactions can be readily disguised using derivatives exacerbating risks and reducing market transparency. Current proposals to regulate derivatives do not focus on this issue...

fears; financial products; Grecian Derivative; loath; Satyajit Das's Blog.

Mon 2010-08-16 12:51 EDT

Nathan Lewis: Where's The Gold?

Nathan Lewis

...there are indications that the seller side of futures contracts (such as Deutsche Bank in April) are having a difficult time making good on their commitments. Second, the information reported by the Comex regarding physical inflows and outflows is looking more and more like a convenient fiction. Third, there is some doubt as to whether there is gold in inventory -- as there absolutely should be -- to match existing warehouse receipts. Fourth, the Comex warehouse is one of the most secure forms of gold investment in the world. If they can't be trusted, what does that say about ETFs, pooled accounts, futures, forwards, options, and all the other forms of "paper gold" out there? Fifth, if it becomes clearer that there is no physical supply to meet physical demand, the dollar price of gold could go much higher.

gold; Nathan Lewis; s.

Tue 2010-08-03 14:34 EDT

Rajiv Sethi: The Economics of Hyman Minsky [2009-12-03]

There has been a resurgence of interest in the economic writings of Hyman Minsky over the past few years, and for good reason...Minsky's theoretical framework combines a cash-flow approach to investment with a theory of financial instability...expectations of financial tranquility are self-falsifying. Stability, as Minsky liked to put it, is itself destabilizing...An essential feature of Minsky's financial instability hypothesis is that a long period of sustained stability gives rise to changes in financial practices which are not conducive to the persistence of stable growth...A sustained period of stability gives rise to optimistic expectations and a rise in speculative financing...if a large number of investments which are prompted by the availability of speculative finance are found to be inept, so that immediate cash flows are significantly lower than expected, then the need for short-term refinancing becomes acute while at the same time banks are less willing to roll over existing debt. A sharp rise in short-term interest rates occurs which can lead to present value reversals, a rush towards liquidity, a plunge in the prices of illiquid assets, both real and financial, and a corresponding drop in new investments...described as a credit crunch, a state of financial distress, or a financial crisis...

2009-12-03; economic; Hyman Minsky; Rajiv Sethi.

naked capitalism Fri 2010-07-23 17:08 EDT

Deficits Do Matter, But Not the Way You Think

L. Randall Wray

In recent months, a form of mass hysteria has swept the country as fear of ``unsustainable'' budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices. What is most troubling is that this shift in focus comes even as the government's stimulus package winds down and as its temporary hires for the census are let go. Worse, the economy is still -- likely -- years away from a full recovery. To be sure, at least some of the hysteria has been manufactured by Pete Peterson's well-funded public relations campaign, fronted by President Obama's National Commission on Fiscal Responsibility and Reform -- a group that supposedly draws members from across the political spectrum, yet are all committed to the belief that the current fiscal stance puts the nation on a path to ruinous indebtedness...[however] the notion of ``fiscal sustainability'' or ``solvency'' is not applicable to a sovereign government -- which cannot be forced into involuntary default on debts denominated in its own currency...If we can get beyond the fears of national insolvency then there are many issues that can be fruitfully discussed. While inflation will not be a problem for many years, price pressures could return some day. Impacts of exchange rate instability are important, at least for some nations. Unemployment is a chronic problem, even at business cycle peaks. Aging does raise serious questions about allocation of resources, especially medical care. Poverty and homelessness exist in the midst of relative abundance. Simply recognizing that our sovereign government cannot go bankrupt does not solve those problems, but it does make them easier to resolve...

Deficit; matter; naked capitalism; Think; way.

zero hedge - on a long enough timeline, the survival rate for everyone drops to zero Fri 2010-07-23 11:01 EDT

Charting The Second Half Economic Slowdown

Goldman's Jan Hatzius...summarizes all the adverse trends that continue to not be priced into stocks. He notes that while the inventory cycle has boosted growth, this artificial rise is now losing steam. Key headwinds facing the economy are that fiscal policy, which has been expansionary, has now become to restrictive; that there has been no overshoot in layoffs for a mean reversion expectation; that the labor market multiplier is very much limited; that while capital spending is just modestly above replacement levels, the large output gap suggests spending should be subdued; the housing overhang is still huge and house prices have further to fall; that there are risks to US from European crisis; that inflation is dropping (and non-existent) even as utilization is low everywhere, which creates a major deflation risk; that the scary budget deficit will destroy any hope for future fiscal stimulus as public debt is surging out of control; lastly, with Taylor-implied Fed rates expected to be negative, the Fed's monetary policy arsenal is non-existent...

chart; dropped; economic slowdown; long; survival rate; Timeline; zero; Zero Hedge.

Social Democracy for the 21st Century: A Post Keynesian Perspective Thu 2010-07-22 16:08 EDT

Money is not a Neutral Veil

Lord Keynes

Neoclassical economics has the erroneous belief that money is neutral...Neoclassical analysis sees economic life in terms of a moneyless, ideal barter system. In this system, money exists but has been introduced merely to make trade easier...[however] John Maynard Keynes' General Theory of Employment, Interest and Money (1936) argued that modern capitalist economies are pre-dominantly monetary systems. The starting point for any sensible economic theory must recognise that monetary factors are crucial to modern economic activity...

21st century; money; Neutral Veil; Post Keynesian Perspective; social democracy.

billy blog Thu 2010-07-15 16:58 EDT

We have been here before ...

The daily rhetoric being used to promote fiscal austerity maybe couched in the urgency of the day but we have heard it all before. In this blog I just reflect on history a little to remind the reader that previous attempts to carve public net spending, based on the ``expectations'' belief government was not going to tax everybody out of existence, failed to deliver. The expected spontaneous upsurge in private activity has never happened in the way the mainstream macroeconomic supply-siders predicted. Further, the chief proponents usually let it out in some way that the chief motivation for their vehement pursuit of budget cuts was to advance their ideological agendas. Of-course, the arguments used to justify the cuts were never presented as political or class-based. The public is easily duped. They have been in the past and they are being conned again now. My role is to keep providing the material and the arguments for the demand-side activists to take into the public debate...

Billy Blog.

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.

Rajiv Sethi Tue 2010-06-15 14:25 EDT

Defenders and Demonizers of Credit Default Swaps

Rajiv Sethi

The recent difficulties faced by Greece (and some other eurozone states) in rolling over their national debt has let some to blame hedge fund involvement in the market for credit default swaps...Leaving aside the question of whether naked CDS trading has been good or bad for Greece, it is worth asking whether there exist mechanisms through which such contracts can ever have destabilizing effects. I believe that they can, for reasons that Salmon and Jones would do well to consider...such contracts allow pessimists to leverage (much more so than they could if they were to short bonds instead). The resulting increase in the cost of borrowing, which will rise in tandem with higher CDS spreads, can make the difference between solvency and insolvency. And recognition of this process can tempt those who are not otherwise pessimistic to bet on default, as long as they are confident that enough of their peers will also do so. This clearly creates an incentive for coordinated manipulation...

Credit Default Swap; defending; demonic; Rajiv Sethi.

Mish's Global Economic Trend Analysis Wed 2010-05-19 15:00 EDT

Retail Sales Rise: Where? Let's Take a Look; Expect Nothing Less Than Panic

Michael Shedlock

...To understand why the Advance Retail Sales report is completely bogus, we must first analyze the Census Bureau Methodology...The published numbers are based on "same store sales". Think about all the companies that have gone bankrupt. Take Circuit City for an example. Gone. The doors are closed. Some of those shoppers went to Best Buy where same store sales rose. Also remember that Best Buy and many other chains closed weak stores. The result: same store sales went up again. Government methodology for reporting retail sales is based on sampling stores in existence. It does not factor in stores not in existence but recently were. Nor does it handle closed stores when the chain is still doing business. Government reporting of retail sales is fatally flawed. To understand what is going on, all one has to look at actual tax data. Heard any rosy numbers from states about sales tax collections?

expectations; Let's take; looking; Mish's Global Economic Trend Analysis; panic; Retail Sales Rise.

Tue 2010-05-18 14:16 EDT

billy blog >> Blog Archive >> The enemies from within

...Unemployment is the major source of poverty whether it be in a advanced or developing country. It is alienating, soul destroying, extends its costs well beyond the individual and the income losses alone dwarf the costs arising from so-called microeconomic inefficiencies. The daily loss of GDP involved in not having all available workers doing something productive is mammoth. It is a no-brainer that it is the large economic problem that should be solved in any country...If the private sector cannot produce enough then there is only one sector left ladies and gentleman who can do the trick!...Given the private sector doesn't want to spend at present -- and you cannot blame them for that given the appalling state of their balance sheets and the very unsteady housing market -- there is a danger that demand will drop further unless the government adds to its stimulus packages...the US is an economy that desperately needs more aggregate demand. The only constraint on employment is the lack of spending and there is no financial constraint that exists in a fiat monetary system that prevents the government from eliminating that demand deficiency...

Billy Blog; blogs Archive; enemies.

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 09:15 EDT

Where Was Goldman's Supplementary Liquidity Provider Team Yesterday? A Recap Of Goldman's Program Trading Monopoly

In addition to having said many things about HFT in general in the last year, over the past 12 months Zero Hedge has focused a lot of attention specifically on Goldman's dominance of the NYSE's Program Trading platform, where in addition to recent entrant GETCO, it has been to date an explicit monopolist of the so-called Supplementary Liquidity Provider program, a role which affords the company greater liquidity rebates for, well providing liquidity (more on this below), and generating who knows what other possible front market-looking, flow-prop integration (presumably legal) benefits. Yesterday, Goldman's SLP function was non-existent. One wonders - was the Goldman SLP team in fact liquidity taking, or to put it bluntly, among the main reasons for the market collapse...Readers are welcome to go back through our archives and acquaint themselves with the NYSE's SLP program, with Goldman's domination of program trading, with Goldman's domination of dark trading venues via the Sigma X suite, with Goldman's domination of flow trading via Redi X, and with Goldman's domination of virtually every vertical of the capital markets, which would be terrific if monopolies were encouraged in the US...We have long claimed that Goldman is the de facto monopolist of the NYSE's program trading platform. As such, it is certainly the case that Goldman was instrumental in either a) precipitating yesterday's crash or b) not providing the critical liquidity which it is required to do, when the time came...

Goldman's Program Trading Monopoly; Goldman's Supplementary Liquidity Provider Team; Recap; Zero Hedge.

Tue 2010-04-27 08:27 EDT

Web of Debt - COMPUTERIZED FRONT RUNNING: ANOTHER GOLDMAN-DOMINATED FRAUD

Ellen Brown

While the SEC is busy investigating Goldman Sachs, it might want to look into another Goldman-dominated fraud: computerized front running using high-frequency trading programs...Wall Street commentator Max Keiser...claims to have invented one of the most widely used programs for doing the rigging. Not that that's what he meant to invent. His patented program was designed to take the manipulation out of markets. It would do this by matching buyers with sellers automatically, eliminating ``front running'' -- brokers buying or selling ahead of large orders coming in from their clients. The computer program was intended to remove the conflict of interest that exists when brokers who match buyers with sellers are also selling from their own accounts. But the program fell into the wrong hands and became the prototype for automated trading programs that actually facilitate front running...Keiser and HSX co-founder Michael Burns applied for a patent for a ``computer-implemented securities trading system with a virtual specialist function'' in 1996, and U.S. patent no. 5960176 was awarded in 1999...The listing for Keiser's patent shows that it has been referenced by 132 others involving automated program trading or HFT...

Computerized Front Running; debt; Goldman-dominated fraud; Web.

Jesse's Café Américain Mon 2010-04-19 18:34 EDT

Goldman Sachs: A Pattern of Organized Criminal Behaviour?

Jesse

Chris Whalen provides some excellent commentary on the Goldman Sachs fraud inquiry by the SEC at the beginning of his weekly newsletter, The Institutional Risk Analyst...``hedge funds often times are merely extensions of the dealers with which they interact. It is often difficult if not impossible to tell where the dealer's interests end and those of the hedge fund begin, especially when the dealer and the fund seem to be working in concert to create securities that are being sold to third parties. This episode is a terrible mess and, to us at least, illustrates why the OTC markets for securities and derivatives need to be regulated out of existence -- or at least into compliance with norms of disclosure and fair dealing that would render such strategies impossible.''

Goldman Sachs; Jesse's Café Américain; Organized Criminal Behaviour; pattern.

Culture of Life News Tue 2010-03-30 16:01 EDT

Empires Must Regulate Trade And Finances

Elaine Supkis

I keep harping on the trade deficit issue since all of the other messes revolve around this misbalance...The `Me, Myself, and I' ethos is self-centered, childish and foolish. It comes out of living inside a major empire. The individual puffs up him or herself and decides, thanks to being fairly free inside of this empire, that the empire is stupid and doesn't need to be coaxed, nurtured or controlled. Instead, various individuals work day and night to evade taxes that support the imperial superstructure. They bribe politicians to allow looting of the purse via inflated war costs, corruption in buying services, tweaking laws so they channel all collective wealth into a few individual pockets, etc...The people are a collective. If they are individuals, they will be eaten by internationalist wolves or other empires that are not individuals. This is a harsh historical lesson: individuals eventually lose to organized groups...Mostly, throughout history, the freest people have been the CITIZENS of an empire (NOT the victims being oppressed by the empire). Free nations exist only in the shadows of an empire...This is why growing and preserving empires is more important than pretending to be an individual who has no ties to anything. Seriously, when major empires fall, the ability to roam the planet at will vanishes pretty fast...

Culture; Empire; finance; Life News; regulate trade.

Fri 2010-03-12 08:38 EST

AlterNet: The Economic Elite Have Engineered an Extraordinary Coup, Threatening the Very Existence of the Middle Class

David DeGraw, Amped Status

It has now become evident to a critical mass that the Republican and Democratic parties, along with all three branches of our government, have been bought off by a well-organized Economic Elite who are tactically destroying our way of life. The harsh truth is that 99 percent of the U.S. population no longer has political representation. The U.S. economy, government and tax system is now blatantly rigged against us...

AlterNet; Economic elite; engineering; exists; Extraordinary Coup; middle class; threatens.

Jesse's Café Américain Tue 2010-03-09 17:42 EST

Are Traders Demanding US Credit Default Swaps Payable in Gold?

Jesse

...I have a great deal of respect and admiration for Janet Tavakoli and her knowledge in this area. If she is seeing a new demand for Credit Default Swaps on the US payable in gold I would credit it since this is her area of expertise and industry connections...if the existence of CDS on the default or downgrade of US sovereign debt payable in gold bullion be true, who would be in a position to stand behind these Credit Default Swaps with any reliability, and what buyer would be in a position to make such a demand of a credible source?

Credit Default Swaps Payable; gold; Jesse's Café Américain; Traders Demand.

Jesse's Café Américain Wed 2010-02-03 20:10 EST

Official World Gold Holdings

Jesse

...Is gold a bubble? As someone who has been a close observer of bubbles for the past ten years the data does not recommend that conclusion. And what makes me even more curious about this point of view is that the very people who for the most part denied the existence of the obvious bubbles in tech, housing, risk, banking and credit, even to the point of absurdity, who could not or would not see a bubble if it perched on the end of their nose, who are card carrying members of the international monied fraternity, are the most vocal in calling gold a bubble with emotional arguments lacking any fundamental data. What's up with that?

Jesse's Café Américain; Official World Gold Holdings.