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Fintan
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Joined: 18 Jan 2006
Posts: 3906
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 Posted: Fri Nov 07, 2008 10:03 pm Post subject: |
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| Quote: | Why the jobs report is so ominous
By Anthony Karydakis - November 7, 2008
NEW YORK (Fortune) -- Not only did the economy lose a massive 240,000
jobs in the non-farm sector, but the previously reported declines
of 159,000 in September and 73,000 in August were revised sharply
lower to 284,000 and 127,000 respectively as well. As a result, the
economy has now lost a total of 1.2 million jobs since the beginning of the
year, with nearly half of those losses occurring in the last three months
alone, pointing to an acceleration in the pace of erosion in labor markets.
Other bad signs:
1) By way of comparison, in the 2001 recession and the period of sluggish
growth that immediately followed in 2002-03, the unemployment rate
reached a peak of only 6.3%, in June 2003. So, we have already
exceeded that mark and, given that we are still in the early phase of the
current recession, the unemployment rate should be expected to push
toward the 7.5% range over the next 3 to 6 months, and possibly higher.
2) Given that the surveys that the BLS conducts take place during the
week that includes the 12th of the month, many of the corporate layoff
announcements that have made headlines in recent weeks were not
captured in the October data. As a result, we should look for further
sizable job losses to be posted in the employment reports for November
and December - and beyond - as companies continue to adjust to the
bleak economic environment.....
http://money.cnn.com/2008/11/07/news/economy/karydakis_jobs.fortune/?postversion=2008110715 |
It's amazing the double-take in the above article. It admits that the
'official' unemployment stat of 159,000 in September was later revised
to 284,000. But it doesn't question the figure of 240,000 for October!!
The unrevised September figure was only 56% of the revised figure!
That's typical of Gov. manipulation of the incoming bad stats.
Extrapolate that and the 240,000 figure for October becomes 427,000.
And that's on the 'official' bullshit unemployment calculation basis.
And excludes the recent financial services sector layoffs.
Here's the real deal from Shadow Stats:
Hard realities in blue.
Government bullshit in red.
So, when you figure it all in, and project recessionary development,
the U.S. is on track for 20% to 25% real unemployment in mid-2009.
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Hombre
Joined: 07 Jan 2008
Posts: 899
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| Posted: Sun Nov 09, 2008 9:38 am Post subject: Re: uieres |
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| James D wrote: | Hombre, dude , what the fuck is your truck with Hugo Chavez?
Do your issues with him deserve another thread?
¿Quieres aclarar? |
Interesting! And the title of the thread is? And he is a cog in the title is he not? Something about imploding ah am I missing something here? Cog may not be the word, maybe PUPPET is better suited for the man. WTF do I know about it all anyway!
It's ridiculous to have to resort to 1st grade discussion given this day and age, but I must admit I appreciate your concern.
Cheers,
Hombre'
PS. The Russian's, ah, I mean PUTIN IS COMING. Nasty Nuke accident yesterday was it not! Imploding indeed. |
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Hombre
Joined: 07 Jan 2008
Posts: 899
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| Posted: Sun Nov 09, 2008 9:58 am Post subject: |
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Though another log on the IMPLOSION FIRE would be proper. Hopefully no objections:
| Quote: | By Denis Dyomkin
ST PETERSBURG, Russia, Nov 7 (Reuters) - Russian President Dmitry Medvedev ordered police on Friday to stamp out any social unrest or crime arising from the global financial crisis.
"We have a stable state ... We do not need a return to the 1990s when everything was boiling and seething," Medvedev told a meeting of senior officials.
"The law enforcement agencies should keep track of what is happening," he said.
"And if someone tries to exploit the consequences of the financial crisis ... they should intervene, bring criminal charges. Otherwise, there won't be order." |
Things seem to be on track for Putin's return.
| Quote: | The longest economic boom in a generation has helped the Kremlin maintain political stability but some analysts say the financial crisis could give rise to a wave of social unrest.
Russia's benchmark RTS <IRTS> stock exchange has fallen about 70 percent since May, making it one of the worst performers among emerging economies.
High oil prices which fueled Russia's economic boom have fallen from a peak of over $140 in July to just over $60 now.
The impact on ordinary people so far has been limited, partly because share ownership is not widespread and few people have private pensions. But firms in some sectors have started laying off staff. |
There's that pesky USA INDUCED rise of the DOLLAR fall of the OIL price again. Just to keep those that get any funny ideas about a change in pecking status rooted in reality. 
| Quote: | EXTREMISM
Russian Interior Minister Rashid Nurgaliyev told Medvedev at the meeting, in Russia's second city of St Petersburg, that higher unemployment could lead to a rise in crime.
He also said there was a risk of greater extremism and racial tension centred on the millions of immigrants working in Russia, most of them from former Soviet republics.
"The mounting consequences of the world financial crisis could well have an unpredictable effect," he said. "Anti-crisis groups have been set up in the regions ... to intercept any early indications of destabilisation."
Analysts say the financial crisis poses no political threat to the Kremlin for the time being because opposition parties are too weak and divided to mount a serious challenge. |
Don't worry what's a few hundred thousands pissed off starving people gonna do anyway!  Are the RUSSIANS NERVOUS of the pending IMPLOSION? Putin and others have the white horse fit for the ride all that's left is the newly forged armor!
http://www.forexyard.com/reuters/popup_reuters.php?action=2008-11-07T150628Z_01_L7619406_RTRIDST_0_FINANCIAL-RUSSIA-UNREST-PIX-TV
Hombre' |
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James D
Joined: 16 Dec 2006
Posts: 438
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| Posted: Mon Nov 10, 2008 5:29 am Post subject: |
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| Quote: | | Hombre:It's ridiculous to have to resort to 1st grade discussion given this day and age, but I must admit I appreciate your concern. |
Careful dude or you might find yourself really impressing yourself and no one else!
This who's-who of NWO isn't exactly obvious and is very open to discussion and debate.
However, I think I misunderstood your stance on Hugo Chavez.
That move with the gold mine is pure brilliance - it had me rolling with laughter!
In the circus of international politics Hugo Chavez is great entertainment value.
I wonder what He'll call Obama - Mr. ??????
Playboy lifestyle? Maybe, but all that 'Robin Hood' like robbing of the rich and giving to the poor, doesn't strike me as very NWO stooge'ish.
When he read Noam Komsky at the U.N. that did ring my alarm bells, but I think in the "CIA Fakes" style of NWO stooge'ness, he was/is perhaps a bit misled/misinformed/unknowingly perpetrated - it can happen to the best of us!
Cheers and I'd appreciate some of your concern too, if you'd condescend to enlightning us.  |
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Hombre
Joined: 07 Jan 2008
Posts: 899
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| Posted: Mon Nov 10, 2008 7:15 am Post subject: |
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The only light I can shed is the garden variety kind, sold mostly at discount stores on the bottom shelf no less. I above all others no my limitations best.
I'm not a know it all and have never claimed to be, yet I find humor in all of the transparent BULLSHIT being slug about. I just thought I'd play along, and given what I know about reality I JUST ASSUMED NO ONE WOULD NOTICE. Maybe it was I who was mistaken. That said it goes without saying that I appreciate debate on topics of interest. This one for example is in my opinion
a might bit " OVERDONE " The detail is a bit overwhelming to say the least yet at the same time I feel it's interesting to discuss.
Who gives a flying phuck about Putin or Hogo boss Chavez? That was the whole point. When I think of RUSSIA I think of nuclear accidents and wooden icbm's being paraded before the people and passed off as real shit. When I think of Hugo NOTHING SERIOUS comes to mind. So why are they in the MSM's trained sight so often. That's what interests me the most. I guess I find it odd that there really are that many people who can't see the trees for the forest. A pity I think.
EXAMPLE of something similar in nature. Yesterday I was taking a break from raking leaves while channel surfing the football games. I happened upon the movie " FLIGHT 93 " A few scenes from the biggest can of corn I have ever seen in my entire life. There was a scene where the passengers( I'VE NEVER SEEN IT BEFORE ) were talking on sky-phones and saying over and over " MY WIFE JUST SAID TWO PLANES HIT THE WORLD TRADE CENTER " It must have been said 10-12 times. No I'm not kidding " my wife said two planes " over and over again and again.
I was left in a Plane daze saying in my head over and over with each stroke of the rake " TWO PLANES " " TWO PLANES " Kind of like " PUTIN and HUGO " " PUTIN and HUGO "
That kind of stuff cause me to scratch my head and wonder if any of this stuff is real! What's up with the constant pounding of the same old tired shit over and over? Doesn't the obvious desire to imprint the message have anyone asking questions about what's really going on? It does me but maybe I'm a bit slow or maybe just a bit paranoid.
Didn't it used to be Vicente' Fox? I had the opportunity to meet this guy and listen to him speak a while back, I PASSED. Not interested which should go far to explain my feeling about the NWO and all that surrounds the hype of such a thing.
Hombre' |
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atm
Joined: 16 Apr 2006
Posts: 2696
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| Posted: Tue Nov 11, 2008 11:05 am Post subject: |
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| Quote: |
Asian economists warn Barack Obama policies could make downturn worse
Senior Asian economists fear the incoming US administration of Barack Obama could drag their economies deeper into the global downturn with protectionist policies.
By Thomas Bell in Jakarta
Last Updated: 3:43PM GMT 11 Nov 2008
http://www.telegraph.co.uk/news/newstopics/uselection2008/barackobama/3440467/Asian-economists-warn-Barack-Obama-policies-could-make-downturn-worse.html
Ammar Siamwalla, one of Thailand's leading economists, said that recessions in the West will hit Thailand's export dependent economy next year.
"The best that can be expected [from this weekend's summit of world leaders] is for them to go against protectionism," he said. "Given the recent change in the US, that's a little bit worrisome."
Many in Asia fear Mr Obama, who struck a protectionist tone during the campaign, will adopt policies designed to protect American jobs.
That in turn would impose more "made in America" problems on export dependent Asian economies already struggling with the fallout from the Wall Street crisis.
"I think protectionism will increase," said Anton Gunawan, chief economist at Indonesia's Bank Danamon.
The concerns were raised as finance ministers from the Group of 20 (G20) rich world and developing economies prepare to meet in Washington on Saturday.
The G20 was created in 1999 to contain the Asian financial crisis, which began in Thailand in 1997. This time around, regional economists fear that south east Asia's relatively healthy economies will catch a dose of "American flu".
The credit crunch has already made it difficult to finance trade. "There should be some kind of co-ordination to guarantee trade financing," said Mr Gunawan. Indonesian coffee and Thai sugar exports have been hit in recent weeks by fears that buyers will default on payments for the goods they receive.
Grim memories of the Asian financial crisis hang heavily over the region. Many are still resentful of the painful conditions they were forced to accept from the International Monetary Fund in exchange for loans.
In Indonesia, the crisis was severe enough to topple the 30-year-old dictatorship of General Suharto in 1998. The country has the region's largest economy and is the only one that will be represented at the G20.
This time around, according to Bank Danamon's Mr Gunawan, the country is in a much better position. "Indonesia probably learnt a lesson from 1998, got policies in place and got the banking sector relatively sound," he said.
Thailand's banks, having been so badly burnt, are now relatively conservative. "We don't have all these derivatives and financial mumbo-jumbo that could get us into trouble," said Dr Siamwalla. "The conditions of the banks are – famous last words – reasonably good."
Many Asian governments have a far larger cushion of foreign reserves than they did in ten years ago.
"Nobody wants to be close to the IMF," said Mr Gunawan, recalling the bitter experiences of the 1990s.
Although the region is braced for job losses in manufacturing it is still expecting to grow. Mr Gunawan expects growth in Indonesia, with a population of 240 million people, to slow from 6.1 per cent this year to 5 per cent in 2009.
The G20 meeting will concentrate on the world's biggest economies, and many expect it will give scant attention to emerging countries such as Indonesia.
But as Dominque Strauss-Khan, the chief of the IMF has said, in 2009 emerging economy growth "is the only growth that we will have".
Therefore, he said, "The say of emerging countries will be bigger than in other situations".
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atm 
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Hombre
Joined: 07 Jan 2008
Posts: 899
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| Posted: Tue Nov 11, 2008 9:01 pm Post subject: |
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Well my take is that plenty of the PTB are getting their panties in a twist over the current Environment, sure this had to eventually come into balance but it's far far from over.
Here's a link to the latest commodity carnage.
http://money.cnn.com/data/commodities/
I want to see $40.00 Oil and something tells me it's gonna happen early 09. Some econ 101 guru's are talking about the coming INFLATION. An impossibility given the current state of said economy so I'd be wary of Economists even those from Asia.
Let's wait about 18 mos when the Oil companies start showing red ink and saying they can't afford to drill or produce. So goes the cycle.
The actual business of Oil and the pricing thereof is mere myth they haven't a clue how much they produce or how much anyone really uses on a daily basis.
QUOTE:While there is no official tally of OPEC production, several members — including Algeria, Qatar, the United Arab Emirates and Kuwait — have signaled in recent days that they had begun paring their production. CLOSED QUOTE:
Here's the reality of how these Cartels actually work.
QUOTE:Various reports also suggested that Saudi Arabia, the cartel’s kingpin, had warned some Asian customers that it would pare exports by 5 percent next month.
So far, OPEC producers have announced cuts totaling about 1.1 million barrels a day, less than the 1.5 million barrels a day that the cartel agreed to last month. According to estimates by PFC Energy, a consulting firm, however, producers have actually trimmed their production by only about 800,000 barrels a day.
Despite these efforts, slower consumption has continued to weigh on oil markets, pushing prices down on Tuesday to their lowest level since March 2007. CLOSED QUOTE:
In reading the article you'll read where the fall in demand has painted a far worse global economic picture that first thought. Just basing that on Oil demand isn't very good reporting by the writer, especially if he doesn't mention the over valued $147.00 per barrel high that was fictitious and chiefly the result of speculation and nothing to do with demand. If demand has fallen in correlation/conjunction with current Oil prices than indeed the World economy is in deep recession. I'm not buying that in any way shape or form. I will however adhere strictly to the old " SUPPLY vs DEMAND " model which is playing out in earnest despite what any economists has to say.
Read the rest as a few hacks from the usual houses try to justify Oil's slide and what OPEC should do. They need to try and sell this crap in a different package. This one is old and worn completely out.
http://www.nytimes.com/2008/11/12/business/worldbusiness/12oil.html?partner=rss&emc=rss
Hombre' |
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coalraker
Joined: 20 Jan 2007
Posts: 497
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Hombre
Joined: 07 Jan 2008
Posts: 899
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| Posted: Wed Nov 12, 2008 4:29 pm Post subject: Re: War for Oil and it's History |
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Something that should be required viewing, very accurate in my opinion. Well done coalraker and I agree very relevant if not 100% spot on.
Something I'm currently looking into is the G8 and a feeling that I get about them trying to use certain commodities as currency, I'm hoping they fail in that regard but won't hold my breath. For now it looks as if the US has called the dogs off where Oil is concerned even though it's only temporary. They allowed it to go too far this time and had much to do with the pull back in consumer spending. Gas expense doubled in 3 months time this summer and that has come home to roost in a big big way.
That said, it's hard for me to believe that they could underestimate the severity of $100.00 Oil let alone $140 Oil on the economy, but it looks as if they did. Was that on purpose? Think about this:
Why is the United States Government dragging it's feet in dealing with the auto makers? The answer to this should be crystal clear to everyone. Hamstring a major cog of Oil usage on the planet. Hinder them from cleaner burning vehicles by allowing receivership and effectively keep them mired in old outdated technology that runs on gas refined from Oil which is denominated in US DOLLARS.
One thing that everyone I've talked to has failed to mention or think about is this question. How much does the US and Other Governments stand to make from these bailout programs? What assets and deployment of capital are they and will they focus on? Their puppeteer did a 180 today and I can guarantee that wasn't of his own accord. ( JMHO )
Well done raker!
Hombre' |
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bri
Joined: 16 Jun 2006
Posts: 2244
Location: Capacious Creek
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| Posted: Fri Nov 21, 2008 3:28 am Post subject: |
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one step back? Not too far back...
| Quote: | The Swedish parliament late on Thursday (20 November) adopted the Lisbon treaty by a sweeping majority, becoming the 23rd EU country to ratify the text.
The treaty was passed by 243 votes against 39 at 23:30 local time, with 13 abstentions and 54 deputies absent from the 349-seat legislature, the Riksdag.
The opposition Left Party and Green Party had tried to build a 48-vote blocking minority to put off ratification for one year. But the four parties in the centre-right government coalition and the main Social Democrat opposition party pushed through the EU document.
The long debate, which started at noon and saw 36 members take the floor, concentrated on Sweden's collective labour agreements and transfer of sovereignty.
"Why can't Sweden ask for a legally-binding exemption for the collective bargaining model?" Left Party deputy Hans Linde asked, Swedish daily Aftonbladet reports.
"This is by far the biggest shift in power since we joined the EU," he added, comparing the Lisbon text - which patched together bits of the defunct EU constitution - to "Frankenstein's Monster."
"Sometimes, people must follow what they believe is right. Today, I cannot follow the moderate line," government coalition Moderate Party rebel Anne-Marie Palsson said.
Swedish collective labour agreements - in which workers' groups agree pay with employers - came to the fore in a European Court of Justice verdict in 2007. The court ruled in favour of Latvian company Laval in a case concerning the town of Vaxholm, clearing the way for cheap eastern European labour to enter the Nordic country.
"This issue has nothing to do with the Lisbon treaty," Moderate Party member Goran Lennmaker said, according to Svenska Dagbladet.
"[The treaty] means that the EU will go some way towards being more democratic and transparent," Social Democrat deputy Sven-Erik Osterberg added, referring to Lisbon-envisaged plans to give more law-making powers to the European Parliament.
"Sweden is one of the countries that would lose most of the influence if the Lisbon treaty is not adopted," Swedish EU minister Cecilia Malmstrom said, pointing out that Sweden will lose seats in the European legislature under the existing Nice treaty.
Final four
The Swedish result comes after Ireland voted No to Lisbon in a referendum in June. A small crowd of anti-Lisbon campaigners protested outside the Swedish embassy in Dublin on Thursday, saying the Irish government should have told Sweden the treaty is dead.
The Czech Republic is awaiting a constitutional court verdict on 25 November before resuming parliamentary ratification. A German constitutional court verdict is expected in early 2009.
The Polish president has refused to sign off on the treaty unless Ireland overturns its No. |
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Fintan
Site Admin
Joined: 18 Jan 2006
Posts: 3906
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| Posted: Fri Nov 21, 2008 10:25 pm Post subject: |
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Looks like gold is making a bid to break out of the
box created by the Central Bank's manipulation.
It's not going to be easy. Every fiat money central
bank is forcing down the price of gold's "currency."
| Quote: | Gold gets another lift on global economic worries
1:07 PM, November 21, 2008
For months, the gold market has been in a tug of war between two
camps: Hedge funds and other institutional investors and speculators
have been bailing out of gold futures contracts to raise cash, while
individual investors have been hungry buyers of gold coins and bars.
The sellers had prevailed for most of the last six weeks, driving the metal
down to near $700 an ounce by Nov. 13, from $900 in late September.
Now it looks like the buyers finally are gaining the upper hand. Gold
futures rose $43.10 to $791.70 an ounce in New York today, the highest
price since Oct. 16.
The World Gold Council reported this week that net retail investment
demand for gold (such as for coins and bars) jumped 121% in the third
quarter ended Sept. 30 from a year earlier, to 232 tons.
With concerns about the global economy worsening, "What you’re seeing
is people moving into gold as part of the 'flight to quality,' " said Stephen
Platt, a commodities analyst at Archer Financial Services in Chicago.
"We’re selling everything we can pull in," said Ken Edwards, a partner
at gold dealer California Numismatics in Inglewood. Despite the battering
in the gold futures market in recent months, demand for physical gold,
such as coins, "has been completely one way," he said. If anything,
lower prices have fueled more demand, he said.
Many buyers, Edwards said, are figuring that global governments’
unprecedented efforts to pump money into the financial system will
inevitably lead to higher inflation down the road -- even if the immediate
concern of central bankers is deflationary pressures as consumer
spending slumps.
"What I hear from [investors] is that they think deflation is a short-term
issue," Edwards said.
Gold futures hit a record high of $1,004 an ounce in March, then began to
tumble as the dollar rallied. This time around, gold is gaining even though
the dollar remains strong.
http://latimesblogs.latimes.com/money_co/2008/11/for-months-the.html |
I love this reader comment to
the above LA Times report:
| Quote: | Gold isn't under pressure on the Comex just because hedge funds are
desperately selling anything and everything to get their hands on
enough cash to satisfy redemptions. The selling pressure is at least
equally coming from the concerted efforts of the bullion banks, and
other "interested parties" in New York, carrying water for the US
Treasury and the Fed in an attempt to supress the price of gold.
Their intention in doing so is to prevent a "flight to quality" by those
who understand that the US$ is, most assuredly, NOT a safe haven
currency. There is no such thing in the universe of fiat currencies.
While the US$ may, for the moment, trade at a premium to most
other paper currencies, that means nothing when paper currencies
are compared to something of innate value, such as gold.
Those who understand the game being played at the Comex will
take advantage of the golden opportunity (no pun intended) that
presently exists. That is, they will take delivery of physical gold at the
Comex, and either keep it, or sell it into the huge demand for physical
that exists everywhere BUT the Comex.
Such an arbitrage opportunity is too lucrative to remain unexploited.
TaoJones |
Gold Stocks are moving up too:
| Quote: | Canada Stocks Rally, Pare Week’s Drop, as Barrick Gold Surges
By John Kipphoff
Nov. 21 (Bloomberg) -- Canadian stocks rose, rebounding from the worst
selloff since 1987, as mining and energy companies climbed with gold and
oil prices and slower-than- forecast inflation boosted the chance of lower
borrowing costs. Barrick Gold Corp. rose a record 30 percent as gold
prices surged, capping their best weekly gain since September..... |
And the gold link to commodities is breaking down:
| Quote: | Gold and Oil Part Ways
by David Gaffen - November 21, 2008
Gold and oil have diverged in the last few days. The harsh,
uncompromising selling has engulfed most assets this week,
including stocks, commercial mortgage-backed securities, oil,
and grains. But somebody forgot to tell the gold market.
Gold traded on the New York Mercantile Exchange closed at $791.80 an
ounce Friday, its highest close in more than a month, gaining $43.10,
swimming against the rest of the tide in the markets. For the week, gold
gained 6.7%, and investors are considering the possibility that the tight
movements between gold and oil may have broken.
It could signal that these commodities might be reverting to their old
relationship, where gold and oil generally move independently of one
another. “I’d almost given up on gold, because amid all these crises, etc.,
gold couldn’t even rally to a new high,” says Sean Peche, manager at
BlueAlpha Investment Advisory Limited. “Now, all of a sudden it’s
decoupled from oil. Oil has collapsed in a heap and now seeing a big
move in gold.”
The two commodities were linked through the early part of 2008. Oil and
gold were the beneficiaries of massive funds available to asset managers,
who jumped from one asset class to another over a period of several
months. Stocks peaked in October 2007, gold hit its peak in March 2008,
and oil peaked in July 2008.
Beginning Wednesday, though, gold and oil have walked different paths.
The price of crude fell through $50, while gold curiously rebounded, in
part on news of increased retail demand from retail investors. “For oil at
this juncture it’s this specter of extremely sluggish demand,” says Jon
Nadler, senior analyst at Kitco Bullion Dealers. “With gold, there’s a bit of
a safe-haven component, and some of the statistics from the World Gold
Council were fairly encouraging to players.”
http://blogs.wsj.com/marketbeat/2008/11/21/gold-and-oil-part-ways/ |
But gold buyers should beware of attempting short-term profit
plays. The Central Wankers are well cpable of luring buyers in to then
hammer them in a contrived reversal. Their PsyWar games against
gold speculators are legendary.
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atm
Joined: 16 Apr 2006
Posts: 2696
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kiwikeith
Joined: 25 Sep 2006
Posts: 37
Location: Perth, Australia
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| Posted: Sun Nov 23, 2008 2:59 am Post subject: |
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| Quote: | A tsunami of hope or terror?
As the world slips into recession, it is also on the brink of a synthetic CDO cataclysm that could actually save the global banking system.
It is a truly great irony that the world’s banks could end up being saved not by governments, but by the synthetic CDO time bomb that they set ticking with their own questionable practices during the credit boom. |
http://www.businessspectator.com.au/bs.nsf/Article/A-tsunami-of-hope-or-terror-LHRJP
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Fintan
Site Admin
Joined: 18 Jan 2006
Posts: 3906
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| Posted: Sun Nov 23, 2008 6:38 pm Post subject: |
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Very, very interesting article KiwiKeith.
Worth posting in full.
I think any mass transfer back to the banking sector -as outlined below-
could well be halted by a wave of litigation claiming fraud by the banks.
| Quote: | A tsunami of hope or terror?
Commentary byAlan Kohler
7:28 AM, 19 Nov 2008
As the world slips into recession, it is also on the brink of a synthetic
CDO cataclysm that could actually save the global banking system.
It is a truly great irony that the world’s banks could end up being saved
not by governments, but by the synthetic CDO time bomb that they set
ticking with their own questionable practices during the credit boom.
Alternatively, the triggering of default on the trillions of dollars worth of
synthetic CDOs that were sold before 2007 could be a disaster that tips
the world from recession into depression. Nobody knows, but it won’t be a
small event.
A synthetic CDO is a collateralised debt obligation that is based on credit
default swaps rather physical debt securities.
CDOs were invented by Michael Milken’s Drexel Burnham Lambert in the
late 1980s as a way to bundle asset backed securities into tranches with
the same rating, so that investors could focus simply on the rating rather
than the issuer of the bond.
About a decade later, a team working within JP Morgan Chase invented
credit default swaps, which are contractual bets between two parties
about whether a third party will default on its debt. In 2000 these were
made legal, and at the same time were prevented from being regulated,
by the Commodity Futures Modernization Act, which specifies that
products offered by banking institutions could not be regulated as futures
contracts.
This bill, by the way, was 11,000 pages long, was never debated by
Congress and was signed into law by President Clinton a week after it
was passed. It lies at the root of America’s failure to regulate the debt
derivatives that are now threatening the global economy.
Anyway, moving right along – some time after that an unknown bright
spark within one of the investment banks came up with the idea of putting
CDOs and CDSs together to create the synthetic CDO.
Here’s how it works: a bank will set up a shelf company in Cayman
Islands or somewhere with $2 of capital and shareholders other than the
bank itself. They are usually charities that could use a little cash, and
when some nice banker in a suit shows up and offers them money to sign
some documents, they do.
That allows the so-called special purpose vehicle (SPV) to have
“deniability”, as in “it’s nothing to do with us” – an idea the banks would
have picked up from the Godfather movies.
The bank then creates a CDS between itself and the SPV. Usually credit
default swaps reference a single third party, but for the purpose of the
synthetic CDOs, they reference at least 100 companies.
The CDS contracts between the SPV can be $US500 million to $US1
billion, or sometimes more. They have a variety of twists and turns, but it
usually goes something like this: if seven of the 100 reference entities
default, the SPV has to pay the bank a third of the money; if eight
default, it’s two-thirds; and if nine default, the whole amount is repayable.
For this, the bank agrees to pay the SPV 1 or 2 per cent per annum of the
contracted sum.
Finally the SPV is taken along to Moody’s, Standard and Poor’s and Fitch’s
and the ratings agencies sprinkle AAA magic dust upon it, and transform
it from a pumpkin into a splendid coach.
The bank’s sales people then hit the road to sell this SPV to investors. It’s
presented as the bank’s product, and the sales staff pretend that the bank
is fully behind it, but of course it’s actually a $2 Cayman Islands company
with one or two unknowing charities as shareholders.
It offers a highly-rated, investment-grade, fixed-interest product paying a
1 or 2 per cent premium. Those investors who bother to read the fine
print will see that they will lose some or all of their money if seven, eight
or nine of a long list of apparently strong global corporations go broke. In
2004-2006 it seemed money for jam. The companies listed would never
go broke – it was unthinkable.
Here are some of the companies that are on all of the synthetic CDO
reference lists: the three Icelandic banks, Lehman Brothers, Bear
Stearns, Freddie Mac, Fannie Mae, American Insurance Group, Ambac,
MBIA, Countrywide Financial, Countrywide Home Loans, PMI, General
Motors, Ford and a pretty full retinue of US home builders.
In other words, the bankers who created the synthetic CDOs knew
exactly what they were doing. These were not simply investment products
created out of thin air and designed to give their sales people something
from which to earn fees – although they were that too.
They were specifically designed to protect the banks against default by
the most leveraged companies in the world. And of course the banks
knew better than anyone else who they were.
As one part of the bank was furiously selling loans to these companies,
another part was furiously selling insurance contracts against them
defaulting, to unsuspecting investors who were actually a bit like “Lloyds
Names” – the 1500 or so individuals who back the London reinsurance
giant.
Except in this case very few of the “names” knew what they were buying.
And nobody has any idea how many were sold, or with what total face
value.
It is known that some $2 billion was sold to charities and municipal
councils in Australia, but that is just the tip of the iceberg in this country.
And Australia, of course, is the tiniest tip of the global iceberg of synthetic
CDOs. The total undoubtedly runs into trillions of dollars.
All the banks did it, not just Lehman Brothers which had the largest
market share, and many of them seem to have invested in the things as
well (a bit like a dog eating its own vomit).
It is now getting very interesting. The three Icelandic banks have
defaulted, as has Countrywide, Lehman and Bear Stearns. AIG has been
taken over by the US Government, which is counted as a part-default,
and Freddie Mac and Fannie Mae are in “conservatorship”, which is also a
part default – a 'part default' does not count as a 'full default' in
calculating the nine that would trigger the CDS liabilities.
Ambac, MBIA, PMI, General Motors, Ford and a lot of US home builders
are teetering.
If the list of defaults – full and partial – gets to nine, then a mass transfer
of money will take place from unsuspecting investors around the world
into the banking system. How much? Nobody knows, but it’s many trillions.
It will be the most colossal rights issue in the history of the world, all at
once and non-renounceable. Actually, make that mandatory.
The distress among those who lose their money will be immense. It will
be a real loss, not a theoretical paper loss. Cash will be transferred from
their own bank accounts into the issuing bank, via these Cayman Islands
special purpose vehicles.
The repercussions on the losers and the economies in which they live, will
be unpredictable but definitely huge. Councils will have to put up rates to
continue operating. Charities will go to the wall and be unable to continue
helping those in need. Individual investors will lose everything.
There will also be a tsunami of litigation, as dumbfounded investors try to
get their money back, claiming to have been deceived by the sales
people who sold them the products. In Australia, some councils are
already suing the now-defunct Lehman Brothers, and litigation funder, IMF
Australia, has been studying synthetic CDOs for nine months preparing
for the storm.
But for the banks, it’s happy days. Suddenly, when the ninth reference
entity tips over, they will be flooded with capital. It’s possible they will
have so much new capital, they won’t know what to do with it.
This is entirely uncharted territory so it’s impossible to know what will
happen, but it is possible that the credit crunch will come to sudden and
complete end, like the passing of a tornado that has left devastation in its
wake, along with an eerie silence.
http://www.businessspectator.com.au/bs.nsf/Article/A-tsunami-of-hope-or-terror-LHRJP |
Here's an analysis of the situation by
the largest litigation funder in Australia
| Quote: | SYNTHETIC, SINGLE TRANCHE, NON SUB-PRIME,
COLLATERALIZED DEBT OBLIGATIONS REFERENCED
TO MULTIPLE, CORPORATE DEFAULTS
By Hugh McLernon - 23 September 2008
Introduction
1. As can be seen from the topic, this is an area infested with jargon.
2. The wizards who created financial derivatives commenced their work by
creating a completely new language for themselves and their investors.
3. In their new world, black has become white and up has become down.
The meaning of words has become what the author wants them to mean.
4. In this world, artifice reigns over substance. Remember the general
definition of “jargon” is “obscure and often pretentious language marked
by circumlocutions and long words”. By way of example I give you the
“bankruptcy remote vehicle” which is a topic to which I shall return.
5. Remember too, that the definition of “circumlocution” is “the use of an
unnecessarily large number of words to express an idea”.
6. In many CDO documents one needs to trawl through 15 to 20
definitions in order to understand a single phrase.
7. Warren Buffett is best known for his description of derivatives as
“weapons of mass financial destruction” but, around the same time as he
made that comment, he also pointed to the circumlocution of derivative
documentation – “and CDO squareds – I figured out on a CDO squared
you have to read 750,000 pages to understand the instruments that were
underneath it.”
8. Buffett seems to me to be a straight talker and the arch enemy of
circumlocution. I think he arrived at his weapon of mass financial
destruction comment, in large part, because of their complication.
9. The best known sub prime CDO in Australia is the Federation CDO
promoted by Lehman Brothers. I have tried to reverse engineer that CDO
and I can vouch for Buffett’s number. The federation CDO includes
tranches from forty different residential mortgage backed securities which
in turn sit above tens of thousands of residential mortgages. No one in
their right mind would try to carry out a full due diligence on such a
structure.
10. As will become apparent from what follows, I believe that jargon has
played its usual role in synthetic CDO’s ie.. to obfuscate and to leave the
reader in a position where he must rely, almost totally, upon the author.
My Premise
11. I will seek to persuade you that these synthetic CDOs are not financial
instruments at all but, are rather complicated gambling tickets.
12. My secondary premise is that these particular CDOs represent the
final chapter in the derivative story – history will see them as the last and
most artificial effort of the derivative engineers.
13. To make good these premises I will first outline the players and their
structures.
The Promoter
14. The promoters of synthetic CDOs are generally international
investment and trading banks. Not all of the banks but most of them -
including some here in Australia.
15. The banks essentially lend their reputation to the deal. Not even the
most sophisticated investor would read all of the documents involved in
any given synthetic CDO so the reputation of the promoter is paramount.
16. The promoter structures the CDO. It pays the bills.
17. All of the Wall Street investment banks and many others, including;
Royal Bank of Scotland, ANZ, Westpac, Barclays were involved as
promoters in these transactions.
18. The promoter employs the lawyers to prepare the documentation, the
spin doctors to spread the story and the muscle to ensure that regulators
did not intervene.
[SNIP]
120. It may turn out to be the case that the amount of CDS and CDO
issued during 2007 doubled from the previous year (which must mean
that 10’s of trillions of dollars of business were done in the area in 2007
alone) precisely for this reason.
121. These factors will make the rating agencies more and more
susceptible to claim from those who lost money during this process.
122. We do not know yet whether the banks set up back to back
arrangements with their synthetic CDO’s. i.e.. did they hold the principal
position so that they will get the major windfall which is about to occur or
did they pass that on to others in CDS transactions so that the bank
adopted a central position between both groups of investors.
123. If this occurred then the banks will not be the big winners from the
failure of the CDO’s- that benefit will have been passed on to the back to
back investors.
124. The banks will suffer however if investors at the front end are able
to upset their transactions and the bank is unable to avoid the back end
of the transaction.
125. No matter who are the winners and losers out of this mess it is a
debacle which will be with us for the next decade as the CDO & CDS
transactions come to their full term.
[SNIP]
Third and last update on diversification report.
Hugh McLernon 11/11/08
1. Our first three reports on this matter paint a gloomy and deteriorating
position.
2. It remains the case that all but 5 of the 32 companies reported upon
are likely, and in some cases certain, to fail in one way or another.
3. The 5 companies that should escape the financial disaster presently
engulfing all financial markets are: Credit Suisse, Goldman Sachs, JP
Morgan, Citigroup and UBS. There are some others that may escape.
4. The U.S regulators have done all (or perhaps, nearly all) in their power
to prevent these companies from defaulting – in many cases, they have
forced companies to be taken over by other, more robust, companies.
5. It may well be the case, however, that the problems are simply too
large and too entrenched to be capable of massage. Readers also need to
keep in mind that these are but 32 of some 6 or 7 hundred companies
which have been included in the default baskets of synthetic Australian
CDO’s.
Many of the other companies carry on business in the financial arena and
occupy the second ring out from the epicentre occupied by the 32
companies referred to in our earlier reports.
6. A new problem is now emerging – who will decide which companies
have failed and who will report upon their demise. Lehman Brothers is now
gone – it was one of the major promoters, and its interest in antipodean
CDO’s has no doubt waned.
7. This is our last report on this topic because the next six months will tell
the tale – there will either be sufficient company defaults to destroy the
value of all synthetic Australian CDO’s or the likelihood will be that the
CDO’s will limp on to maturity with partial, but not sufficient, defaults so
that their holders are paid out upon that maturity.
8. It is now apparent that fraud has been a hallmark of many of these
corporate failures. This being the case, it is impossible to say that the full
financial picture is available on all of the companies.
9. Company 1 – American International Group (Insurer) – in mid
September 2008 the US Government lent US$85billion to AIG. The loan
carries interest at about 12.5%. It is thought that most of the loan has
been drawn down. In return for the loan, the government received an
80% position in the company. Leading up to this point, the company
shares had fallen by 91% in the previous year. The shares are now
trading at US$2.11 (Document 2). Management has said that it will begin
selling assets as quickly as possible to clear the debt. There is serious
doubt as to whether the prices received for these assets will be sufficient
to clear the debt and it is likely that the company will eventually be wound
up. On October 7 Moody’s downgraded AIG from A3 to A2 and revised its
outlook on AIG to negative (Document 1). On 8 October 2008 the US
government agreed to advance a further US $38 billion in addition to the
US $85 billion (Document 3). AIG has been “bailed out” by the US
Government – it is not yet in default but may go into default if its asset
sales do not enable it to repay the US$123 Billion lent to it by the
government. As at 10 November 2008 the size of the bailout has grown to
US$150BN! (Document 4). It now appears that unless the US Government
fails then AIG will not fail.
10. Company 2 – AMBAC (Bond Insurer) – at the time of our last report
on 27 June 2008, AMBAC was trading at US$1.61. Over the following
months the share price went as high as US$9.00 but has now fallen back
to $US1.67 (Document 6). In mid September, Moody’s placed the ratings
of AMBAC and its subsidiaries on review for a downgrade. This was based
on the ongoing losses arising from the sub-prime crisis (Document 5). The
AMBAC share price is heading towards zero as it continues to
haemorrhage money from the sub-prime crisis. It is likely to fail. On 6
October 2008, the company announced a write-down of $401Million for
the month of August. If this company suffers a further downgrading,
which appears likely, then it will not have sufficient funds to cover its
obligations (Document 5). Ambac lost $2.43BN in the third quarter
(Document 7) and had its rating cut by 4 steps to BAAA1 by Moody’s
(Document 8 ). Ambac is alleging fraud by others (Document 9) and is
itself being sued. (Document 9A). Short of a government bailout this
company seems terminal.
11. Company 3 – Bear Stearns (Investment Bank) – This company was
taken over by JP Morgan. If JP Morgan were to fail, then this would
probably constitute two defaults, ie: one for JP Morgan and one for Bear
Stearns. (refer company 16 below). Bear Sterns has been purchased by
JP Morgan- it has not defaulted on its debt – its future is now dependant on
the future of JP Morgan.
12. Company 4 – Beazer (Home Builder) – Since our last report this
company along with all of the other major US home builders under went a
revival.
From about mid July 2008 through to mid September 2008 the share price
appreciated from around $3.50 to around $9. By 10 November 2008 the
price had fallen back to $2.88. (Document 10). In the meantime Beazer
was under investigation by the Securities and Exchange Commission in
relation to its accounting procedures. The SEC alleges that the company
fraudulently altered its earnings and it improperly recorded $100 million
of revenue in 2006. (Document 11). This company is likely to fail.
13. Company 5 - Centex (Home Builder) - This company saw its share price
rise from $12 in mid July to around $18 in mid September. By 10
November 2008 it had fallen to $10.85. (Document 12). On 8 October
2008 Moody’s downgraded all of Centex’s rating because of problems the
company was having with its credit. (Document 13)......
FULL PDF AT:
http://www.imf.com.au/get_pdf.asp?docid=CDO_10 |
_________________
Minds are like parachutes.
They only function when open. |
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Robert
Joined: 07 Feb 2006
Posts: 292
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| Posted: Mon Nov 24, 2008 10:13 am Post subject: |
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Could be good.
Litigation=publicity=possible increase in mass education=outlined enemy=action
Meanwhile Gold is hauling nicely.
R |
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