Defaulting banks - where will it stop?

[David Guyatt]

Riots & War?

Is the Spooky One finding interviewees who mention war?

http://www.telegraph.co.uk/finance/globa...warns.html

Help Ireland or it will exit euro, economist warns

A leading Irish economist has called on Dublin to threaten withdrawal from the euro unless Europe's big powers do more to rescue Ireland's economy.

By Ambrose Evans-Pritchard
Last Updated: 10:17PM GMT 18 Jan 2009

"This is war: countries have to defend themselves," said David McWilliams, a former official at the Irish central bank.

"It is essential that we go to Europe and say we have a serious problem. We say, either we default or we pull out of Europe," he told RTE radio.

"If Ireland continues hurtling down this road, which is close to default, the whole of Europe will be badly affected. The credibility of the euro will be badly affected. Then Spain might default, Italy and Greece," he said.

Mr McWilliams, a former UBS director and now prominent broadcaster, has broken the ultimate taboo by evoking threats to precipitate an EMU crisis, which would risk a chain reaction across the eurozone's southern belt, where yield spreads on state bonds are already flashing warning signals. The comments reflect growing bitterness in Dublin over the way the country has been treated after voting against the EU's Lisbon Treaty.

"If we have a single currency there are obligations and responsibilities on both sides. The idea that Germany and France can just hang us out to dry, as has been the talk in the last couple of days should not be taken lying down," he said.

Mr McWilliams cited the example of New York's threat to default in 1975. President Gerald Ford "blinked" at the 11th hour and backed a bail-out to prevent broader damage.

As yet, there is no public support for withdrawal from the euro. A Quantum poll published by the Irish Independent yesterday found that 97pc reject such a radical move. Three-quarters are in favour of a national government, an idea floated by Unilever's ex-chief Niall Fitzgerald.

"The economic disaster we are facing is unlike anything which has happened in my lifetime. It is a national crisis and needs a government of national unity," Mr Fitzgerald said.

Mr McWilliams said EMU was preventing Irish recovery. "The only way we can win this war is by becoming, once again, an export country. We can do what we are doing now, which is to reduce our wages, throw more people on the dole and suffer a long contraction. The other model is what the British are doing. Britain is letting sterling fall so that the problem becomes someone else's. But we, of course, have ruled this out by our euro membership.
"We are paying twice for the euro: once on the exchange rate and once more on the interest rate," he said.

"By keeping with the current policy, the state is ensuring that Ireland turns itself into a large debt-repayment machine. Is this the sort of strategy to win wars? " he said.

Ah, McWilliams is former UBS. In my personal experience that particular Swiss bank has a very comfortable groin-stroking relationship with Britain's Spooksters.

I'm just musing out loud, but could it be that our Ambrose is Catholic in inclination and is also part of the Vatican spook machine that does for the CIA? The UBS very much is a Vatican ally.

Our Ambrose went to school at Malvern College. One notable Old Malvernian was James Jesus Angleton. As indeed was Aleister Crowley. At the end of WWII J J Angleton had the distinction of being the OSS/CIA Vatican desk officer and was the one who learned of the homosexual proclivities of the then Pope -- a very useful tidbit of information for blackmail purposes one imagines...

[David Guyatt]

Jan, Jim Rogers is all over the Indy this morning with similar tales of despair. When will anyone in power move to regulate Hedge Fundsters who short sell and then talk the price lower?

According to the scumbag speculators - who should be strung up and shot - the Pound Sterling is finished... kaput... dead as the dodo....

http://www.dailymail.co.uk/news/article-...w-low.html

Sterling's finished, says Soros partner as the pound plunges to new low

By Nicola Boden and Bill Condie
Last updated at 4:28 PM on 20th January 2009

Sterling plunged to a seven-year low against the dollar today as one of the world's top investors warned the currency was 'finished'.

The pound fell more than two cents to hit a low of $1.3965 as traders reacted to the Government's latest multi-billion bailout of the banking system.

It is the first time sterling has dropped below $1.40 since mid-2001 and is on track for its biggest one-day percentage fall against the dollar since late 1992.

Less than a year ago, it was still trading at $2. Today, it was also down against the euro and the Japanese yen.

Jim Rogers, who made his fortune when he founded the Quantum Fund with billionaire George Soros, warned investors they should start dumping the pound.

He said: 'I would urge you to sell any sterling you might have. It's finished. I hate to say it, but I would not put any money in the UK.'

Maurice Pomery from IdeaGlobal in London added: 'The British economy is in deep trouble and investors are in no mood to hang around and wait for a pick up.

'Some are becoming increasingly disturbed by the cost of all this and how it will ever get repaid.'

The latest plunge came as new figures showed inflation fell for the first time ever in the run-up to Christmas, raising the dreaded prospect of deflation.

The Consumer Price Index, which measures the annual rate of inflation, fell at its fastest rate since the 90s recession between November and December, down a whole percentage point to 3.1 per cent.

Huge high street sales and the Government's temporary VAT cut helped push it down from 4.1 per cent in November, the Office for National Statistics said.

The drop, although not as large as analysts had expected, heightened fears deflation is round the corner if the Government's second banking bailout fails.

A Treasury minister has already warned the scheme to use taxpayers' money to insure the 'toxic' bank debts could last nine years.

Lord Myners told the House of Lords last night that it needed to 'take the financial markets through this economic downturn and through and beyond the next cycle.

'So we are probably talking about policy durations of not less than five years, probably not longer than eight or nine years.'

The Retail Prices Index, which includes mortgage interest payments, also fell dramatically, down from three per cent to 0.9 - its fastest drop for 28 years.

Graeme Leach, chief economist at the Institute of Directors, said: 'Inflation is most definitely yesterday's story.

'Unless the huge stimulus from the VAT reduction, record low interest rates, a falling pound and the collapse in the oil price begin to take effect soon, the UK will be staring deflation in the face.'

CPI is still well above the Government's target of two per cent but has fallen significantly from its 5.2 per cent peak last September just as the credit crisis began.

The ONS said the cut in VAT had the biggest effect on inflation, knocking one per cent off CPI in December, with greater early Christmas discounting adding to the fall.

Two-thirds of all shops passed on the temporary 2.5 per cent reduction launched by the Government in November.

Cut-price promotions have already seen a huge deflation on clothing and footwear, down 10.3 per cent in December, its lowest level since official records began in 1997.

[David Guyatt]

The market rumour is that the FSA is going to ban short selling again.

Well okay.

Only a few billion were knocked off stock price yesterday to the taxpayers detriment, so no real harm done then -- and the decision to allow naked shorting to recommence was clearly in the interest of running an "orderly market".

If Sid james were alive today he'd make a "Carry On" film about this. How about "Carry On Speculating"? Or "Carry On Creaming It Off"? :eviltongue:

[Jan Klimkowski]

Northern Rock staff will this week receive 10 per cent of their salary as a reward for their “dedication” to the nationalised bank.

The majority of the bank’s 4,500 staff are in line for the bonus, which was approved by the Treasury last year.

Liberal Democrat Treasury spokesman Vince Cable said the payout to staff at the rescued bank was indefensible. He said: “This is bringing the worst of the City bonus culture into a public body. This is an extraordinary action from a state-owned bank which still owes billions to taxpayers.When millions of people are facing pay cuts or even unemployment, this is indefensible. The Government should step in to stop this now.”

However Gordon Brown defended the agreement.

http://business.timesonline.co.uk/tol/bu...561473.ece



I love the smell of bullshit in the morning.

Bring it on!

[Jan Klimkowski]

If Sid james were alive today he'd make a "Carry On" film about this. How about "Carry On Speculating"? Or "Carry On Creaming It Off"? :eviltongue:

Carry On Screwing the Sheeple!

heep:heep:heep:

[Peter Lemkin]

Bailout This!
The Stabilization of the Financial Sector: The Holy Grail of Economic Salvation

by Andrew Hughes


Global Research, January 27, 2009


Idiocy is usually described as "endlessly repeating the same process, hoping for a different result". Lawrence Summers, Timothy Geithner, Nancy Pelosi, Joe Biden et al are straining at the leash to get the Bailout Ball rolling once again. The stabilization of the financial sector, as elusive as it has been so far, has become the Holy Grail of Economic salvation. That makes $8.5 Trillion worth of trying and $0 of result. The Knights of the Oval Table are gathered to plan their mission as their beleaguered subjects are trying to batter down the castle gates. It's no small wonder that Geithner wants to get the money out the door as soon as the end of this week.

The most recent report from the Comptroller of the Currency seems to have gone unnoticed in Washington and the press. If banks are not lending because of increased capital requirements in the face of Credit Default Swaps, other derivatives and loan defaults then the report goes a long way in describing exactly why.

Credit Exposure to Capital ratio. Amounts in $Millions
Bank
Assets
Derivatives
Credit Exposure to Capital Ratio

J.P. Morgan Chase
$1,768,657
$87,688,008
400.2

Citi
$1,207,007
$35,645,429
259.5

Bank Of America
$1,359,071
$38,673,967
177.6

HSBC
$181,587
$4,133,712
664.2


The assets comprise largely of Real estate, residential mortgage, student, car and credit card loans. With the rise in defaulting mortgages, delinquent credit card and other debt the problem can only get worse. To recapitalize the banks to the point where exposure is low enough to encourage lending would take trillions and that's before any more fallout from the collapsing economy. Lending also requires creditworthy borrowers, the number of which is in a nosedive. The $165 Trillion in notional derivatives and the associated credit risk related to $15 Trillion in Credit Default Swaps illustrated below is the poison apple that the taxpayer has been forced to bite into.
Bank
Total Credit Derivatives

J.P. Morgan Chase
$9,177,731

Citi
$2,939,783

Bank Of America
$2,480,672

HSBC
$1,152,948


When the "credit crunch" began and Washington began the rush to solve the problem with taxpayer cash, no accounting of this derivative nightmare was ever brought to bear. In all the deliberations and press releases there was not a single mention of the fact that the primary cause of the bank collapse was due to these "instruments of mass destruction". It was widely discussed in the blogosphere but, like the real reasons for invading Iraq, never made it in to the mainstream media. As with Iraq, one would have to assume that the reason was to obfuscate the facts and cajole a shocked public in to accepting as a remedy whatever was proposed by Paulson, Bernanke and Bush. The latter had to be completely aware of the OCC data at the time and to assume that they did not is simply not credible. It would have been completely obvious that $700 Billion would do absolutely nothing to alleviate the crisis. As witnessed in the ensuing months since the TARP bill, how the money was used has been obfuscated and concealed.This was always a scam.

Even as the economic indicators broke one record after another, the recipients of the TARP funds were selling Credit Default Swaps to each other, betting on each other's downfall. They knew the game was up and wanted to profit on the way down as much as they had on the way up. All the major Banks on Wall St. are seeing mounting losses and the failure of one will increase the losses of the other. They are joined at the hip and will fall like a house of cards.

The question begs to be asked, and this is where the cynic in me dominates, what's the plan? When they do fall will the Government nationalize the last one standing for the good of the country and socialize even more of the losses? This would be the coup of the millennium and give birth to a new Governmental paradigm. To have this complete before the economy and society have completely broken down would be a good reason to declare a real National Emergency and declare Martial Law, the legislation, executive orders and infrastructure of which are already in place. How can one not be a cynic when we reflect on what has happened so far?

The numbers are in and the scam stands exposed to those who will look. Which way the story unfolds from here is anyone's guess. But I am ready to bet that Congress will not include the OCC data in the upcoming debate on the next round of cash for the Banks.

The tables didn't transfer - so original is here

It all seems [to me] to just be an exercise in PR - change the image', but not the underlying anything.....even Obama's endless repetition of 'change' was just a big PR event - bordering on propaganda. I still hope I'll be proven wrong. He is saying better things than W, but so far I haven't seen much change happen...only change in the tone and words....sadly. [yes, there have been some small changes - small being the operative word].:ridinghorse:

[Jan Klimkowski]

Key elements of a good piece of spin are that it be superficially plausible, and able to withstand at least some critical analysis.

Mandy is now speaking such complete and utter bollox that one wonders if he expects anyone to believe him. Or whether he has such contempt for us that he really doesn't care....

His claim that "the borrowing does not worry me" is right up there with the stupidest words ever uttered by a politician.

Ever.

And ever.

Mandelson vows to take on the doomsters
Mark Milner
guardian.co.uk, Friday 20 February 2009 16.33 GMT Article history

Business secretary Lord Mandelson vowed to keep fighting the economic "doomsters", as he explained his vision to make UK a world leader in the low-carbon economy today.

At the end of a week in which he hit the headlines with a remarkable attack on the chief executive of Starbucks, Mandelson reiterated that the British economy was not spiralling downwards.

"There has been a lot of talking Britain down lately, and not only from coffee-shop owners. I understand the severity of our economic circumstances as well as anyone, believe me," Mandelson told business leaders in north-west England.

"But as of today, I'm going to take on the doomsters and only talk Britain up. I do not underestimate the economic difficulties we face in this country. But the UK's open and dynamic economy is a huge asset. We have some of the best-growing small firms in the world and some of the smartest and most skilled workers. Our regulatory environment is efficient and business friendly."

Speaking to the Guardian ahead of the speech, a combative Mandelson outlined plans to make Britain a competitive player in the global low-carbon economy.

It was vital to identify the technologies that would drive future business growth and have the research and development capabilities to give British industry a competitive advantage, he said. "When I talk about a new industrial activism, I mean aligning government policies that have an impact on business, creating a stable framework of policy within which the private sector can take commercial decisions."

That did not mean creating "some Soviet-style national plan" that would replace decisions by companies with those of ministers, and government picking winners and losers, he insisted. "The government can't stand back, it has an essential role to play."

Mandelson said the development of Britain's industrial base was even more important in the light of what had happened in the financial services sector.

"The banks will recover and restore their international standing and the City of London will reclaim its international role but equally we have to rebalance the economy and diversify.

"Britain is the sixth biggest manufacturing economy. We have to maintain our position in international markets ... identifying new technology drivers and emerging markets that will give us a strong industrial future."

The government's role was to provide a stable framework – "It's not about replacing the market or substituting for the private sector," he said.

The government will hold a summit next month where it will explain how the UK can move to a low-carbon future.

Mandelson warned that just creating a market for low-carbon products and services is not enough. The UK must also ensure it has the capacity to supply that demand, with a domestic supply base that could then win business in international markets.

He said Britain would face increasing competition from emerging economies, but could also thrive in that larger global economy. "We have to prepare for that, we have to prepare more actively."

Responding to concerns about the level of public borrowing, Mandelson said Britain was starting from a relatively low base compared to the US or other European countries of a similar size to the UK.

"The borrowing does not worry me … as long as we have made proper provision for what we are spending; as long as we have medium-term plans in place to rebalance public finances and reduce this borrowing over time."

http://www.guardian.co.uk/business/2009/...-doomsters

[David Guyatt]

His claim that "the borrowing does not worry me" is right up there with the stupidest words ever uttered by a politician.

Maybe he means it doesn't worry him personally, as he's alright Jack? :evil:

[Jan Klimkowski]

Genesis skewers Phil Gramm's risible attempts to save his reputation (and that of Greenspan and Paulson):

Posted by Karl Denninger at 00:11
Phil Gramm's Evisceration

The Wall Street Journal has an interesting opinion piece by none other than Phill Gramm this weekend. It begins thus:

"The debate about the cause of the current crisis in our financial markets is important because the reforms implemented by Congress will be profoundly affected by what people believe caused the crisis."

Oh good. You intend to talk about what people believe caused this crisis, instead of what did cause it?

Fantastic Phil. This is going to be amusing.

I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.

Politicization of mortgage lending?

You mean to tell me that the creation of 2/28, 3/27 and OptionARM loans was the result of politicization of mortgage lending?

Oh boy, this is a good one.

The 2001 recession was brought on when a speculative bubble in the equity market burst, causing investment to collapse.

The speculative bubble in the equity market burst Mr. Gramm because the companies in the Internet space were making knowingly inflated statements about their prospects for growth and in fact factually incorrect statements about demand growth after the first "burst" of adoption of the technology took place.

This is not conjecture, it is a fact - a fact that I outlined several times leading up to the bust. It was the reason that I, as CEO of MCSNet, refused to finance any of my equipment, refused to take any debt whatsoever in the operation and expansion of my enterprise and refused to get involved in what I knew for a fact was a game of Russian Roulette - with five bullets.

Nonetheless I was able to operate that company with greater than a 40% pretax operating margin for more than five years, while at the same time having 100% ownership and payment for every piece of hardware we had - all of it paid for in cash. I'll take it. That's called an honest profit which is something that fewer than 1% of the firms in that space could lay claim to.

Buyers bought houses they couldn't afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.

There's the money quote right there.

Banks made loans they knew could not be repaid on the original terms, and thus were not mortgages - they were rental contracts. They sold them to consumers under false pretenses; a mortgage is an amortized loan that leads to ownership of the underlying real estate. A loan that is intended to be refinanced, terminated or abrogated at some date in the future is not a mortgage, it is a lease.

Consumers did not buy houses they knew they couldn't afford, they were sold those houses and the mortgage that came with them. That sales job was performed by people who by your own admission knew that the mortgage was never going to be paid under the original terms on its face - that doing so was a mathematical impossibility.

Mr. Gramm, as someone who claims to understand finance, you of all people should know that the law of exponents does not permit the fanciful view you claim bankers had above to be the case.

Advancement in income is a known, published fact - the government puts out this number for personal income (annualized) every month. It is not possible for home prices to continually advance at a rate that exceeds the growth in personal income, and to the extent that it does, compounding (that is, the mathematical law of exponents) guarantees that a collapse will eventually take place.

GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with.

Psst: Northern Rock and Iceland. I rest my case.

Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies.

That same Federal Reserve then proceeded to remove all reserve requirements through various machinations with sweeps and most recently lobbied for (and got, in the EESA) authority to set reserve levels to zero!

Never mind that this "authority" has been roundly abused by issuing "23A Exemption" letters like Girl Scout Cookies at a kid's convention to anyone who asks, thereby eliminating the supposed "regulation" and "oversight" that they were supposed to maintain over financial institutions.

In point of fact several of the firms that failed, including Wachovia, received 23A Exemption letters supposedly for the benefit of their stability. In fact each of those 23A letters explicitly says that they are in the public interest, as granting them requires such a finding How did that work out, exactly?

Does "boom" count as success or "in the public interest"?

And yet, with the notable exception of Mr. Greenspan's warning about the risk posed by the massive mortgage holdings of Fannie and Freddie, regulators seemed unalarmed as the crisis grew.

That's right! GLB - your law Mr. Gramm, as it bears your name - gave power to an organization that immediately abused it and refused to discharge its duties. Yet there was no check and balance in that legislation, no "stick" to go with the "carrot", and the consequence was disaster.

The ultimate cause of the "blow-off top" in housing prices was excessive leverage. So was the underlying cause of the business failures in the banking and finance system.

Every single one of the firms that has failed - Fannie, Freddie, AIG, Lehman and Bear Stearns - was operating with more than double the previously-lawful limit of 14:1 leverage at the time of their collapse.

All of them.

That limit was removed due to explicit lobbying by Henry Paulson (then in charge of Goldman Sachs) in front of Congress and the SEC in 2004 - after being rejected on the very same request in 2000.

The fact of the matter, Mr. Gramm, is that absent excessive leverage credit bubbles cannot grow to a dangerous size. Leverage limits prohibit that growth by constraining the ability to grow a balance sheet beyond what tangible capital will reasonably support. The housing bubble, LBO bubble, commercial real-estate bubble and consumer credit bubble had all reached their limit under the previous leverage ratio caps around the 2004 time frame, and so the banking industry went to Congress and the SEC and asked for it to be removed, claiming that they were "better able to manage risk."

We now know that this was a fancifully-false assertion; all removing the leverage limits did was give the bankers the ability to skim off a few hundred billion more for their homes in the Hamptons and yachts while ordinary Americans were sold loans that the bankers knew could not possibly be repaid on their original terms.

Mr. Gramm, you are rapidly making a total fool of yourself. Do you remember this quote?

"You've heard of mental depression; this is a mental recession," he said, noting that growth has held up at about 1 percent despite all the publicity over losing jobs to India, China, illegal immigration, housing and credit problems and record oil prices. "We may have a recession; we haven't had one yet."

"We have sort of become a nation of whiners," he said. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline" despite a major export boom that is the primary reason that growth continues in the economy, he said.

"We've never been more dominant; we've never had more natural advantages than we have today," he said. "We have benefited greatly" from the globalization of the economy in the last 30 years.

Still trying to duck responsibility for what you've done, eh Phil?

You might get a pass from the "mainstream media", but you sure as hell won't get one from me. I suspect those who have seen fully half of their 401k and IRA money disappear in a puff of smoke or have lost their job and/or home won't be as charitable as The Journal was in publishing your crass attempt at historical revisionism either.

http://market-ticker.org/archives/817-Ph...ation.html

[Jan Klimkowski]

Just been nosing about in the parts of Karl Denninger's Ticker Forum that requires one to have a user account, and it seems that there's been massive central bank intervention in the foreign exchange markets in the past week or so. This intervention has received next to no coverage in the MSM.

The people discussing it on Ticker Forum are those who have genuine market knowledge and understanding.

One hypothesis they're exploring is that Eastern Europe - as Mike Whitney suggested last week - is about to blow, and the EU may step in to "save" its banks. NB the toxic east European assets are largely owned by western European banks, and are only toxic because of the stupidity of western banks in creating a bubble in the East.

This would explain some of the desperate "new financial world order" and "responsible banking" rhetoric uttered by Brown, Merkel & Sarkozy over the weekend.

Of course, to butcher my metaphors, the politicians are closing the stable door after the fat cats have fled with the real money.....

:ridinghorse::ridinghorse: