naked capitalism Sun 2010-08-22 09:32 EDT

Auerback: News Flash-- China Reduces US Treasury Holdings, World Does Not Come To an End

Marshall Auerback

In a post titled ``China Cuts US Treasury Holdings By Record Amount,'' Mike Norman makes the excellent observation that while China is moving its money out of Treasuries, interest rates are hitting record lows. In other words, the sky still isn't falling. So, Mike wonders, ``Where is the Debt/Doomsday crowd?'' He rightly concludes: ``They're nowhere to be found because they can't explain this. This is a `gut punch' to them. Their whole theory is out the window. They just don't understand or don't want to understand, that interest rates are set by the Fed...PERIOD!!!''...Also of note today: Tokyo's Nikkei QUICK News reports that the #309 10-year Japanese benchmark government bond, the current benchmark, traded to a yield of 0.920% Tuesday morning, down 2.5 basis points from yesterday's close. This is the lowest yield since August 13, 2003. This, from a country with a public debt-to-GDP ratio of 210%!...These are facts. Inconvenient for those who like to perpetuate the lie that the US or Japan faces imminent national insolvency as a means of justifying their almost daily attacks on proactive fiscal policy...

Auerback; China reducing; comes; ending; naked capitalism; News Flash; Treasury holds; world.

Minyanville Sat 2010-08-21 10:33 EDT

How Pimco Is Holding American Homeowners Hostage

David Stockman

...According to Bill Gross ...the American economy can be saved only through ``full nationalization'' of the mortgage finance system and a massive ``jubilee'' of debt forgiveness for millions of underwater homeowners...As overlord of the fixed-income finance market [Pacific Investment Management Co. (Pimco)] generates billions annually in effort-free profits from its trove of essentially riskless US Treasury securities and federally guaranteed housing paper. Now Pimco wants to swell Uncle Sam's supply of this no-brainer paper even further -- adding upward of $2 trillion per year of what would be ``government-issue'' mortgages...This final transformation of American taxpayers into indentured servants of HIDC (the Housing Investment & Debt Complex) has been underway for a long time, and is now unstoppable because all principled political opposition to Pimco-style crony capitalism has been extinguished...At the heart of the matter is the statist Big Lie trumpeting the alleged public welfare benefits of the home-ownership society and subsidized real estate finance...the congregates of the HIDC lobby -- homebuilders, mortgage bankers, real estate brokers, Wall Street securitizers, property appraisers and lawyers, landscapers and land speculators, home improvement retailers and the rest -- have gotten their fill at the Federal trough. But the most senseless gift -- the extra-fat risk-free spread on Freddie and Fannie paper -- went to the great enablers of the mortgage debt boom, that is, the mega-funds like Pimco...there isn't a shred of evidence that all of this largese serves any legitimate public purpose whatsoever, and plenty of evidence that the HIDC boom has been deeply destructive...there are upward of 15-20 million American households that can't afford their current mortgages or will be strongly disinclined to service them once housing prices take their next -- and unpreventable -- leg down. But Pimco's gold-coast socialism is exactly the wrong answer. Rather than having their mortgages modified or forgiven, these households should be foreclosed upon, and the sooner the better...

Holding American Homeowners Hostage; Minyanville; PIMCO.

zero hedge - on a long enough timeline, the survival rate for everyone drops to zero Thu 2010-08-19 16:25 EDT

Commercial Real Estate Lobby Ask For Taxpayer Aid To Help Recapitalize Banks Saddled With Billions In Underwater CRE Loans

The problem that nobody is talking about, yet everyone continues keeping a close eye on, namely the trillions in commercial real estate under water, is quietly starting to reemerge. In the attached letter from the Commercial Real Estate lobby, it reminds politicians that the hundreds of billions in loans that mature in the next several years won't roll on their own, and we see the first inkling of the lobby asking congress for much more taxpayer aid, in this case in the form of Shelley Berkley's proposed legislation...

billions; Commercial Real Estate Lobby Ask; dropped; Help Recapitalize Banks Saddled; long; survival rate; taxpayer aid; Timeline; Underwater CRE Loans; zero; Zero Hedge.

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.

Thu 2010-08-19 16:04 EDT

The AIG Bailout Scandal

William Greider

The government's $182 billion bailout of insurance giant AIG should be seen as the Rosetta Stone for understanding the financial crisis and its costly aftermath. The story of American International Group explains the larger catastrophe not because this was the biggest corporate bailout in history but because AIG's collapse and subsequent rescue involved nearly all the critical elements, including delusion and deception. These financial dealings are monstrously complicated, but this account focuses on something mere mortals can understand--moral confusion in high places, and the failure of governing institutions to fulfill their obligations to the public. Three governmental investigative bodies have now pored through the AIG wreckage and turned up disturbing facts--the House Committee on Oversight and Reform; the Financial Crisis Inquiry Commission, which will make its report at year's end; and the Congressional Oversight Panel (COP), which issued its report on AIG in June. The five-member COP, chaired by Harvard professor Elizabeth Warren, has produced the most devastating and comprehensive account so far. Unanimously adopted by its bipartisan members, it provides alarming insights that should be fodder for the larger debate many citizens long to hear--why Washington rushed to forgive the very interests that produced this mess, while innocent others were made to suffer the consequences. The Congressional panel's critique helps explain why bankers and their Washington allies do not want Elizabeth Warren to chair the new Consumer Financial Protection Bureau...

AIG bailout scandal.

Phil's Favorites - By Ilene Thu 2010-08-19 15:58 EDT

Time for a New, New Deal?

Phil of Phil's Stock World

...The Big Lie being told by the right is that we can solve our problems by cutting spending and (ROFL) lowering taxes...Of course, let's keep in mind that the $1.5Tn the government spends directly employs 2.7M people and millions more indirectly so, for every person you cut, make sure you add back $20,000 a year for unemployment benefits and administration (or are we going to throw them all on the street?)...the real glove-across-your-face insult to your intelligence comes when they try to tell you that giving tax breaks to the rich and to corporations will help...US Corporations only paid a grand total of $138Bn in taxes in 2009 (6.5% of all taxes collected)...US Corporations have done nothing but outsource America's future for decades and it is time for the bottom 99% of the income earners (those earning less than $250,000 a year) to wake up and smell the class warfare that is being waged against them. How can we even begin to entertain the idea of cutting government and cutting government spending when the sum total contribution of Big Business America represents a rounding error in our national budget?...When private business fails to expand, when the budgets cannot be balanced because 25% of the population is unable to make income tax contributions due to loss of jobs and homes -- then a wise man knows when it is time to step in and let the Government fill the void. Not with more bailouts to the rich who, like Reagan's deficit ``are big enough to care for themselves'' but with bold programs that invest in the future of this country and utilize the skills and labor of this country and make America strong and independent...

Ilene; new; new deal; Phil's Favorites; Time.

naked capitalism Tue 2010-08-17 12:40 EDT

Guest Post: Why Clearninghouses Are a Maginot Line Against Systemic Risk

Warren Turbeville

As discussed in ECONNED and on this blog, clearinghouses are not a solution to the systemic risk posed by credit default swaps, since there is no way to have a CDS counterparty post adequate margin and have the product be viable (to put it more simply, adequate margin make CDS uneconomic). ..I am one of the few people around who knows something about the clearing business and theory and is not employed by an investment bank or clearinghouse. At the end of my career on Wall Street, I was hired to perform a financial autopsy of the special purpose derivatives clearinghouse set up by California as part of an innovative power market structure. It had failed in the state's power crisis of 2001-02. Observing the tremendous systemic risk generated by using conventional clearing techniques for all but straightforward derivatives, I embarked on a seven year quest. I formed a company that designed a mathematical, IT and legal structure to provide a transparent and orderly system to manage the risks of those derivatives which shouldn't be cleared conventionally. Imagine my surprise when the banks decided against using the system...

Clearninghouses; Guest Post; Maginot Line; naked capitalism; systemic risk.

Jesse's Café Américain Mon 2010-08-16 16:09 EDT

Chris Whalen: Nothing Has Changed Because It's The Fraud and Corruption, Stupid

Jesse

...The dirty little secret of the Dodd-Frank legislation is that by failing to curtail the worst abuses of the OTC market in structured assets and derivatives, a financial ghetto that even today remains virtually unregulated, the Congress and the Fed are effectively even encouraging securities firms to act as de facto exchanges and thereby commit financial fraud. Allowing securities firms to originate complex structured securities without requiring SEC registration is a vast loophole that Senator Christopher Dodd (D-CT) and Rep. Barney Frank (D-MA) deliberately left open for their campaign contributors on Wall Street. But it must be noted these same firms have a captive, client relationship with the Fed and other regulators as well, thus a love triangle may be the most apt metaphor...a recent key supervisory officer appointment by the Federal Reserve Bank of New York (FRBNY)...choice of Sarah Dahlgren as Head of Supervision...Ms Dahlgren has been at the center of many of the Federal Reserve's most embarrassing failures in the area of bank supervision and in particular with respect to the failure of American International Group (AIG)...

change because; Chris Whalen; corruption; fraud; Jesse's Café Américain; Stupid.

Mon 2010-08-16 13:54 EDT

Could The US Become Another Ireland? >> The Baseline Scenario

Peter Boone and Simon Johnson

As Greece acts in an intransigent manner, refusing to act decisively despite deep fiscal difficulties, the financial markets look on Ireland all the more favorably. Ireland is seen as the poster child for prudent fiscal adjustment among the weaker eurozone countries...Ireland's perceived ``success'' is partly due to its draconian fiscal cuts...Ireland's difficulties arose because of a massive property boom financed by cheap credit from Irish banks...Today roughly 1/3 of the loans on the balance sheets of banks are non-performing or ``under surveillance''...The government...guaranteed all the liabilities of banks and then began injecting government funds...it is planning to buy the most worthless assets from banks and pay them government bonds in return. Ministers have also promised to recapitalize banks than need more capital. The ultimate result of this exercise is obvious: one way or another, the government will have converted the liabilities of private banks into debts of the sovereign (i.e., Irish taxpayers)...The government is gambling that GDP growth will recover to over 4% per year starting 2012 -- and they still plan further major expenditure cutting and revenue increasing measures each year until 2013...The latest round of bank bailouts (swapping bad debts for government bonds) dramatically exacerbates the fiscal problem...

Baseline Scenario; Becomes; Ireland.

Mon 2010-08-16 12:56 EDT

Help:How to research U.S. corporations - SourceWatch

This Guide, consisting of this main article and three more in-depth sub-articles, is designed to help researchers and activists gather essential information on any type of U.S.-based company, whether small or large, privately held or publicly traded. The resources listed here are all, in one way or another, part of the public record. The first part covers leading sources of basic information on companies of all kinds. The second part focuses on information sources relating to the key relationships every company must have in order to function. The final part shows you how to gather information about a company's "social responsibility" record. Together, these sections will help you find all the basic information needed to support efforts to get companies to do the right thing. Happy hunting!...

help; research U.S. corporations; SourceWatch.

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.

RollingStone.com: Matt Taibbi | Taibblog Sat 2010-08-07 21:06 EDT

Are We In a Recession or Not? [Summers versus Romer]

Matt Taibbi

...Obama's economic team...has seen two fairly major resignations...[Council of Economic Advisers chairwoman Christina Romer] and budget director Pete Orszag...neither of them got along with Larry Summers...Most of the DC chatter class seems to have interpreted the dual resignations as a sign of the ascendant power of the Summers-Geithner axis within the Obama White House...Romer was the Obama administration official who was loudest in her advocacy of a much bigger stimulus, with the idea that the administration's economic strategy should have been based around creating jobs and shaving unemployment as quickly as possible...she was really the only person close to Obama's economic inner circle who isn't a former Clintonite or Rubinite and isn't either a former Wall Street banker or, like Geithner, a public-sector tool of Wall Street...Not that Christina Romer was a savior...but she was at least not completely a Wall Street pod job -- she was pretty much the last inner-circle adviser who wasn't, and now she's gone...

com; Matt Taibbi; Recession; rollingstone; Summers versus Romer; Taibblog.

Sat 2010-08-07 20:18 EDT

Wall Street's Big Win | Rolling Stone Politics

Matt Taibbi

...Obama and the Democrats boasted that the bill is the "toughest financial reform since the ones we created in the aftermath of the Great Depression" -- a claim that would maybe be more impressive if Congress had passed any financial reforms since the Great Depression, or at least any that didn't specifically involve radically undoing the Depression-era laws...What it was, ultimately, was a cop-out, a Band-Aid on a severed artery. If it marks the end of anything at all, it represents the end of the best opportunity we had to do something real about the criminal hijacking of America's financial-services industry. During the yearlong legislative battle that forged this bill, Congress took a long, hard look at the shape of the modern American economy -- and then decided that it didn't have the stones to wipe out our country's one --dependably thriving profit center: theft...Dodd-Frank was never going to be a meaningful reform unless these two fateful Clinton-era laws -- commercial banks gambling with taxpayer money, and unregulated derivatives being traded in the dark -- were reversed...Republican and Democratic leaders were working together with industry insiders and deep-pocketed lobbyists to prevent rogue members like Merkley and Levin from effecting real change...Geithner acted almost like a liaison to the financial industry, pushing for Wall Street-friendly changes on everything...Without the Volcker rule and the --Lincoln rule, the final version of finance reform is like treating the opportunistic symptoms of AIDS without taking on the virus itself. In a sense, the failure of Congress to treat the disease is a tacit admission that it has no strategy for our economy going forward that doesn't involve continually inflating and reinflating speculative bubbles...

Rolling Stone political; Wall Street's Big Win.

naked capitalism Fri 2010-08-06 19:34 EDT

Auerback: The Real Reason Banks Aren't Lending

Marshall Auerback

...there is a widespread belief that government fiscal stimulus has run up against its ``limits'' on the grounds of ``fiscal sustainability'' and the need to retain ``the confidence of the markets''. Consequently, goes this line of reasoning, as private credit conditions improve the private sector must pick up the baton of growth where the public sector leaves off. If this proves insufficient, there is room for an expansion of monetary policy via ``quantitative easing``...The premise is that the central bank floods the banking system with excess reserves, which will then theoretically encourage the banks to lend more aggressively in order to chase a higher rate of return. Not only is the theory plain wrong, but the Fed's fixation on credit growth is curiously perverse, given the high prevailing levels of private debt...credit growth follows creditworthiness, which can only be achieved through sustaining job growth and incomes. That means embracing stimulatory fiscal policy, not ``credit-enhancing'' measures per se, such as quantitative easing, which will not work. QE is based on the erroneous belief that the banks need reserves before they can lend and that this process provides those reserves. But as Professor Scott Fullwiler has pointed out on numerous occasions, that is a major misrepresentation of the way the banking system actually operates...We would like to see the Obama Administration at least begin to make the case that fiscal stimulus, whether via tax cuts or direct public investment, is still required to generate more demand and employment...deficit cutting per se, devoid of any economic context, is not a legitimate goal of public policy for a sovereign nation. Deficits are (mostly) endogenously determined by the performance of the economy. They add to private sector income and to net financial wealth. They will come down as a matter of course when the economy begins to recover and as the automatic stabilizers work in reverse...

Auerback; Lends; naked capitalism; real reason Bank.

naked capitalism Thu 2010-08-05 20:07 EDT

Andy Xie on China's Empty Apartments

...Recent articles in media have illustrated how out of line prices are with incomes and rental yields...Chinese officialdom is worried about the social implications of overpriced housing...[Andy Xie reports] that the number of vacant apartments in China, the result of speculative warehousing (purchased as an investment but kept vacant) plus new construction languishing unsold is much greater than commonly realized...Justin Weleski: ``the Chinese housing market is incredibly nuanced. Many/most Western analyses, however, are extremely superficial and do not take into account the very unique circumstances and customs of Chinese society.'' ...a lot of these vacant apartments are owned by overseas Chinese planning their retirement, and not for speculation. If you add up the 50 million plus overseas Chinese, you have a pretty sizable pool of money and influence...China is not a renter friendly society...many people are forced to buy apartments, at riduculously price, just for the hope that their child can go to a good school...

Andy Xie; China's Empty Apartments; naked capitalism.

Wed 2010-08-04 20:58 EDT

Knives Out for Elizabeth Warren >> naked capitalism

Yves Smith

It should come as no surprise that a financial services industry powerful enough to water down meaningful reform in the US and internationally (Basel III rules were weakened to allow, for instance, that mortgage servicing rights be included in regulatory capital calculations) would probably have its way in blocking the nomination of Elizabeth Warren as head of the new consumer finance protection agency. Let's face it: the plan to deep six the consumer watchdog was set when it was changed from being an independent body as originally proposed and instead moved into the Fed, the most bank friendly and arguably the least industry expert of the US bank regulators. It might have had a hope of being effective had it been housed at the FDIC, which does not like cleaning up bank messes and therefore is less prone to swallow industry BS than the other Federal bank overseers, but it is now clearly meant to be a mere election time talking point...

Elizabeth Warren; knives; naked capitalism.