Daily Digest - Mar 27

Friday, March 27, 2009, 11:43 AM
  • 'I'm having a very good crisis,' says Soros as hedge fund managers make billions off recession
  • In Goldman Sachs We Trust
  • Rahm Emanuel's profitable stint
  • Gregg: U.S. couldn't even join EU due to debt levels
  • Soros Says Commercial Property Values Will Fall 30%
  • UN panel touts new global currency reserve system
  • When Giants Fall Presentation Online
  • Video: Geithner calls for single agency to oversee systemic risks
  • Space storm alert: 90 seconds from catastrophe  


'I'm having a very good crisis,' says Soros as hedge fund managers make billions off recession 

A hedge fund manager who predicted the global credit crunch has said the financial crisis has been 'stimulating' and the culmination of his life's work. 

George Soros, who predicted the global financial crisis twice before, was one of the few people to anticipate and prepare for the current economic collapse.

Mr Soros said his prediction meant he was better able to brace his Quantum investment fund against the gloabal storm.

But other investors failed to take notice of his prediction and his decision to come out of retirement in 2007 to manage the fund made him $US2.9 billion.

And while the financial crisis continued to deepen across the globe, the 78-year-old still managed to make $1.1 billion last year.

'It is, in a way, the culminating point of my life's work,' he told national newspaper The Australian.

Soros is one of 25, top hedge fund managers from across Wall Street who have defied the credit crunch crisis to reap a total of $11.6billion (£7.9bn) last year.

The managers made their profit by trading above the pain in the markets, according to Institutional Investor's Alpha Magazine.

Former maths professor James H. Simons, who has made billions in hedge fund Renaissance Technologies, earned $2.5 billion running computer-driven trading strategies.

And John A. Paulson, who made his fortune by betting against the housing market, came in second earning $2 billion.

The managers made the profit in a year when losses were recorded at two of every three hedge funds and when hedge funds lost an average of 18 percent, according to the New York Times.

Despite the global financial crisis, the combined pay of the top 25 hedge fund managers still managed to top every year before 2006.

Mr. Paulson said his pay was high, partly because he is the largest investor in his fund and that he did not receive a bonus.

He said the the pensions, endowments and other institutions which invest in his fund do not object to the profits he and his team make.

'In a year when all their other investments lost money, we're like an oasis,' he said in the Times.

'We have investors who were invested with Madoff, and they can't thank me enough.'

Alpha Magazine's 2008 Top Moneymakers:

1 - James Simons, Renaissance Technologies Corp, $2.5 billion
2 - John Paulson, Paulson & Co, $2 billion
3 - John Arnold, Centaurus Energy, $1.5 billion
4 - George Soros, Soros Fund Management, $1.1 billion
5 - Raymond Dalio, Bridgewater Associates, $780 million
6 - Bruce Kovner, Caxton Associates, $640 million
7 - David Shaw, D.E. Shaw & Co, $275 million
8 - Stanley Druckenmiller, Duquesne Capital Management, $260 million
9 - (tie) David Harding, Winton Capital Management, $250 million
9 - (tie) Alan Howard, Brevan Howard Asset Management, $250 million
9 - (tie) John Taylor Jr, FX Concepts, $250 million

In Goldman Sachs We Trust

As President Herbert Hoover wrote in his memoir regarding speculation: "There are crimes worse than murder for which men should be reviled and punished." Among them are inaction when our entire nation desperately needs a sign that Washington understands the true dimension of the problem.

Rahm Emanuel's profitable stint

Before its portfolio of bad loans helped trigger the current housing crisis, mortgage giant Freddie Mac was the focus of a major accounting scandal that led to a management shake-up, huge fines and scalding condemnation of passive directors by a top federal regulator.

One of those allegedly asleep-at-the-switch board members was Chicago's Rahm Emanuel-now chief of staff to President Barack Obama-who made at least $320,000 for a 14-month stint at Freddie Mac that required little effort.

Gregg: U.S. couldn't even join EU due to debt levels

The United States wouldn't even be eligible to enter the European Union if it wanted to because of its debt levels, Sen. Judd Gregg (R-N.H.) claimed Thursday.

"We won't even be able to get into the EU if we wanted to," Gregg said this morning on MSNBC, "because our government is so large and so huge."

The European Union's Stability and Growth Pact (SGP) adopted in 1997 requires a budget deficit to be less than three percent, and requires a national debt beneath 60 percent of Gross Domestic Product (GDP).

"We've been lectured by France on the fact that we're not fiscally responsible right now," Gregg, the would-be commerce secretary, noted with incredulity.

According to the Congressional Budget Office, the yearly budget deficit would fall well beyond that threshold in coming years.

Still, Gregg expressed resignation with the likelihood that the Obama administration's proposed budget would emerge successfully from Congress.

"He's in charge, and they've got the votes here in Congress," he said.

Soros Says Commercial Property Values Will Fall 30%

March 26 (Bloomberg) -- Billionaire investor George Soros said U.S. commercial real estate will probably drop at least 30 percent in value, causing further strains on banks.

"Commercial real estate has not yet fallen in value," Soros, speaking at a forum in Washington, said. "It is inevitable, it is written, everybody knows it, there are already some transactions which reflect and anticipate it, so we know, they will drop at least 30 percent."

U.S. commercial real estate values have fallen 30 percent from the 2007 peak as cheap financing disappeared and the recession reduced occupancies, RREFF, the real estate investment unit of Deutsche Bank AG, said yesterday in its 2009 forecast. Total returns in a commercial property index used by pension funds may decline as much as 11 percent this year, the group said.

Soros, 78, said the risk of further declines in property prices is reason for the administration of President Barack Obama to move quickly to recapitalize banks. Soros said Obama acted too slowly on a banking overhaul and should have moved immediately upon taking office.

"At that moment of enthusiasm, fresh out of the gate, he would have gotten that money, and then we could have recapitalized the banks the right way, which would be to draw a line over the existing past accumulated bad assets and create new banks on top of these old banks," Soros said.

‘New Bank, Old Bank'

"Instead of good bank, bad bank, have new bank, old bank and keep the old capital to cover the old assets which are still deteriorating and will continue to deteriorate for several years" because of the coming decline of commercial real estate values, Soros said.

Soros also said that the U.S. may face a new round of inflation should the flow of credit recover because of the large increase in the money supply stemming from the Federal Reserve's purchases of Treasury securities.

U.S. central bankers decided last week to buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion, aiming to lower home-loan and other interest rates.

"In order to make up for the collapse of credit, we are effectively creating money," Soros said. "If and when credit is restarted, you would then have an incredibly swollen monetary base, which, if it were leveraged, you would have an explosion of inflation."

"Right now we are in a period of deflation, but it could easily tip over, where you are facing inflation," Soros said. "You are then faced with the prospect of draining money supply as fast as credit is created."

UN panel touts new global currency reserve system

A UN panel of expert economists pressed Thursday for a new global currency reserve scheme to replace the volatile, dollar-based system and for coordinated steps by rich countries to stimulate their economies.

"A new Global Reserve System -- what may be viewed as a greatly expanded SDR (Special Drawing Rights), with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity," the panel said.

As part of several recommendations to tackle the global financial crisis, the panel also noted recovery would require all developed countries, in the short term, to take "strong, coordinated and effective actions to stimulate their economies."

And it stressed the need to "lay the basis for the long-run reforms that will be necessary if we are to have a more stable and more prosperous global economy and avoid future global crises."

The commission, led by US economist Joseph Stiglitz, a frequent critic of globalization and unbridled free markets, is primarily aimed at finding solutions for developing countries.

On the monetary front, Stiglitz, the 2001 Nobel economics laureate, told a press conference here there was "a growing consensus that there are problems with the dollar reserve system.

He noted that such a system was "relatively volatile, deflationary, unstable and (had) inequity associated with it."

"Developing countries are lending the United States trillions dollars at almost zero interest rates when they have huge needs themselves," Stiglitz noted. "It's indicative of the nature of the problem. It's a net transfer, in a sense, to the United States, a form of foreign aid."

This week, China's central bank chief Zhou Xiaochuan suggested the dollar could be replaced as a reserve currency by an International Monetary Fund (IMF) basket comprising dollars, euros, sterling and yen, saying it would not be easily influenced by individual countries.

But the UN panel warned that a two (or three) country reserve system "may be equally unstable."

It said a new Global Reserve "is feasible, non-inflationary and could be easily implemented, including in ways which mitigate the difficulties caused by asymmetric adjustment between surplus and deficit countries."

Stiglitz said his panel's experts were currently trying "to lay out the conceptual framework of how this might be done."

The issue of the world currency reserve is expected to be raised at the April 2 summit of the G20 club of developed and emerging economies.

On Wednesday IMF managing director Dominique Strauss-Kahn said that talks on a new global reserve currency to replace the US dollar were "legitimate" and could take place "in the coming months."

But US Treasury Secretary Timothy Geithner earlier defended the dollar as a key global reserve currency.

"I think the dollar remains the world's standard reserve currency, I think that's likely to continue for a long period of time," he said.

Among other recommendations, the Stiglitz panel proposed western aid to help developing nations out of the crisis, better market regulation, a reform of central bank practices and of international financial institutions, as well as the creation of a new structure such as a United Nations economic council.

It specifically called for immediate, additional funding for developing countries "just to offset the imbalances and inequities created by the massive stimulus and bail-out measures introduced by advanced industrialized countries."

It said the funds could come through the issuance of SDRs approved by the IMF board in 1997.

SDRs are an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries and support the Bretton Woods fixed exchange rate system.

They are allocated to member countries in proportion to their IMF quotas.

When Giants Fall Presentation Online (Video)

More on robbing the US tax payer and debauching the FDIC and the Fed

The US authorities have no money to fulfil their ambition of stopping large US banks from failing without taking them into public ownership. The $300 bn left in the TARP kitty is all that is available for recapitalising banks, purchasing toxic assets and providing other financial support. Congress has thrown its toys out of the pram and is unwilling to appropriate more funds for the rescue of the banking sector.

As an aside: it is astonishing that Congress and much of the US populace are apoplectic about $165 mn (perhaps $182 mn) of bonuses paid to AIG executives and employees, when $170 billion or so of public money is at risk (and tens of billions probably already gone out of the window) in the rescue of this most undeserving of companies. Perhaps you can only get indignant about what you can comprehend...

The US authorities are reduced to begging, stealing and borrowing the rest of the funds they believe they will need. The two main proximate sources of funds are the FDIC and the Fed. The ultimate sources of funds will be (1) the US tax payer and the beneficiaries of future US spending programs that will have to be cut, (2) the holders of nominally denominated liabilities of the US state, including the monetary liabilities of the Fed and US Treasury bills and bonds.

Owners of dollar-denominated debt instruments will see the real value of their claims on the government eroded by future inflation if, as I expect, the recent and prospective future increases in the US monetary base (driven by credit easing and, in the future also be quantitative easing) cannot be reversed in the future. The main obstacle to such a reversal will be the US fiscal authorities, who are unlikely to let the Fed dump large amounts of US Treasury debt, acquired by the Fed as part of its quantitative easing program, into the markets.

I believe that the raids by the US Treasury on the FDIC and on the Fed are illegitimate and, in the case of the FDIC, quite possibly illegal.


Video: Geithner calls for single agency to oversee systemic risks


Space storm alert: 90 seconds from catastrophe

IT IS midnight on 22 September 2012 and the skies above Manhattan are filled with a flickering curtain of colourful light. Few New Yorkers have seen the aurora this far south but their fascination is short-lived. Within a few seconds, electric bulbs dim and flicker, then become unusually bright for a fleeting moment. Then all the lights in the state go out. Within 90 seconds, the entire eastern half of the US is without power.

A year later and millions of Americans are dead and the nation's infrastructure lies in tatters. The World Bank declares America a developing nation. Europe, Scandinavia, China and Japan are also struggling to recover from the same fateful event - a violent storm, 150 million kilometres away on the surface of the sun.

It sounds ridiculous. Surely the sun couldn't create so profound a disaster on Earth. Yet an extraordinary report funded by NASA and issued by the US National Academy of Sciences (NAS) in January this year claims it could do just that.

Over the last few decades, western civilisations have busily sown the seeds of their own destruction. Our modern way of life, with its reliance on technology, has unwittingly exposed us to an extraordinary danger: plasma balls spewed from the surface of the sun could wipe out our power grids, with catastrophic consequences.

The projections of just how catastrophic make chilling reading. "We're moving closer and closer to the edge of a possible disaster," says Daniel Baker, a space weather expert based at the University of Colorado in Boulder, and chair of the NAS committee responsible for the report.

It is hard to conceive of the sun wiping out a large amount of our hard-earned progress. Nevertheless, it is possible. The surface of the sun is a roiling mass of plasma - charged high-energy particles - some of which escape the surface and travel through space as the solar wind. From time to time, that wind carries a billion-tonne glob of plasma, a fireball known as a coronal mass ejection (see "When hell comes to Earth"). If one should hit the Earth's magnetic shield, the result could be truly devastating.

The incursion of the plasma into our atmosphere causes rapid changes in the configuration of Earth's magnetic field which, in turn, induce currents in the long wires of the power grids. The grids were not built to handle this sort of direct current electricity. The greatest danger is at the step-up and step-down transformers used to convert power from its transport voltage to domestically useful voltage. The increased DC current creates strong magnetic fields that saturate a transformer's magnetic core. The result is runaway current in the transformer's copper wiring, which rapidly heats up and melts. This is exactly what happened in the Canadian province of Quebec in March 1989, and six million people spent 9 hours without electricity. But things could get much, much worse than that.

Worse than Katrina

The most serious space weather event in history happened in 1859. It is known as the Carrington event, after the British amateur astronomer Richard Carrington, who was the first to note its cause: "two patches of intensely bright and white light" emanating from a large group of sunspots. The Carrington event comprised eight days of severe space weather.

There were eyewitness accounts of stunning auroras, even at equatorial latitudes. The world's telegraph networks experienced severe disruptions, and Victorian magnetometers were driven off the scale.

Though a solar outburst could conceivably be more powerful, "we haven't found an example of anything worse than a Carrington event", says James Green, head of NASA's planetary division and an expert on the events of 1859. "From a scientific perspective, that would be the one that we'd want to survive." However, the prognosis from the NAS analysis is that, thanks to our technological prowess, many of us may not.

There are two problems to face. The first is the modern electricity grid, which is designed to operate at ever higher voltages over ever larger areas. Though this provides a more efficient way to run the electricity networks, minimising power losses and wastage through overproduction, it has made them much more vulnerable to space weather. The high-power grids act as particularly efficient antennas, channelling enormous direct currents into the power transformers.

The second problem is the grid's interdependence with the systems that support our lives: water and sewage treatment, supermarket delivery infrastructures, power station controls, financial markets and many others all rely on electricity. Put the two together, and it is clear that a repeat of the Carrington event could produce a catastrophe the likes of which the world has never seen. "It's just the opposite of how we usually think of natural disasters," says John Kappenman, a power industry analyst with the Metatech Corporation of Goleta, California, and an advisor to the NAS committee that produced the report. "Usually the less developed regions of the world are most vulnerable, not the highly sophisticated technological regions."

According to the NAS report, a severe space weather event in the US could induce ground currents that would knock out 300 key transformers within about 90 seconds, cutting off the power for more than 130 million people (see map). From that moment, the clock is ticking for America.

First to go - immediately for some people - is drinkable water. Anyone living in a high-rise apartment, where water has to be pumped to reach them, would be cut off straight away. For the rest, drinking water will still come through the taps for maybe half a day. With no electricity to pump water from reservoirs, there is no more after that.

There is simply no electrically powered transport: no trains, underground or overground. Our just-in-time culture for delivery networks may represent the pinnacle of efficiency, but it means that supermarket shelves would empty very quickly - delivery trucks could only keep running until their tanks ran out of fuel, and there is no electricity to pump any more from the underground tanks at filling stations.

Back-up generators would run at pivotal sites - but only until their fuel ran out. For hospitals, that would mean about 72 hours of running a bare-bones, essential care only, service. After that, no more modern healthcare.

72 hours of healthcare remaining
The truly shocking finding is that this whole situation would not improve for months, maybe years: melted transformer hubs cannot be repaired, only replaced. "From the surveys I've done, you might have a few spare transformers around, but installing a new one takes a well-trained crew a week or more," says Kappenman. "A major electrical utility might have one suitably trained crew, maybe two."

Within a month, then, the handful of spare transformers would be used up. The rest will have to be built to order, something that can take up to 12 months.

Even when some systems are capable of receiving power again, there is no guarantee there will be any to deliver. Almost all natural gas and fuel pipelines require electricity to operate. Coal-fired power stations usually keep reserves to last 30 days, but with no transport systems running to bring more fuel, there will be no electricity in the second month.

30 days of coal left
Nuclear power stations wouldn't fare much better. They are programmed to shut down in the event of serious grid problems and are not allowed to restart until the power grid is up and running.

With no power for heating, cooling or refrigeration systems, people could begin to die within days. There is immediate danger for those who rely on medication. Lose power to New Jersey, for instance, and you have lost a major centre of production of pharmaceuticals for the entire US. Perishable medications such as insulin will soon be in short supply. "In the US alone there are a million people with diabetes," Kappenman says. "Shut down production, distribution and storage and you put all those lives at risk in very short order."

Help is not coming any time soon, either. If it is dark from the eastern seaboard to Chicago, some affected areas are hundreds, maybe thousands of miles away from anyone who might help. And those willing to help are likely to be ill-equipped to deal with the sheer scale of the disaster. "If a Carrington event happened now, it would be like a hurricane Katrina, but 10 times worse," says Paul Kintner, a plasma physicist at Cornell University in Ithaca, New York.

In reality, it would be much worse than that. Hurricane Katrina's societal and economic impact has been measured at $81 billion to $125 billion. According to the NAS report, the impact of what it terms a "severe geomagnetic storm scenario" could be as high as $2 trillion. And that's just the first year after the storm. The NAS puts the recovery time at four to 10 years. It is questionable whether the US would ever bounce back.


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Davos's picture
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Re: Daily Digest - Mar 27

Today I rototilled our garden and expanded it. 50'x80' not including the greenhouse.

The egg stand for my kid to sell eggs is complete.

1/2 a cow has been ordered for the freezer.

I'm now fencing off the interior (Exterior has been done for a while) so we can get sheep, no more lawn mowing and if I can't buy another cow or hunt, hello Lamb Chop.

I have no idea how long before these momos auger the economy in, but I haven't seen anything positive in my reading, I keep thinking that I will wake up from this odyssey, it just keeps getting more and more surreal. I really don't think a pathological suicidal maniac could do less damage.


Take care

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Re: Daily Digest - Mar 27
Davos wrote:

I have no idea how long before these momos auger the economy in, but I haven't seen anything positive in my reading, I keep thinking that I will wake up from this odyssey, it just keeps getting more and more surreal. I really don't think a pathological suicidal maniac could do less damage.


Lucky for you Davos even suicidal maniacs have salvation from the federal goverment. 

Stimulus funds to be used to try to curtail suicide attempts.

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Re: Daily Digest - Mar 27[tt_news]=34529



Beijing Launches Diplomatic Blitz to Steal Obama's Thunder

Publication: China Brief Volume: 9 Issue: 4
February 20, 2009 10:36 AM Age: 34 days
Category: China Brief, Willy’s Corner, China and the Asia-Pacific, Foreign Policy
By: Willy Lam

Beijing has unleashed an unprecedented diplomatic blitz while the new Obama administration battles doubts about its stimulus packages to salvage the struggling American economy. For the first time, both Chinese State President Hu Jintao and Vice-President Xi Jinping were on trips abroad earlier this month—the former to Saudi Arabia and Africa, and the latter to Latin America. It was also the first time that two Politburo members, Xi and Vice-Premier Hui Liangyu, were simultaneously wooing countries in the U.S. backyard. While Xi’s road show included Venezuela, China’s ideological ally, and major trading partners Brazil and Mexico, Hui's itinerary included Argentina and Ecuador (Agence-France Presse [AFP], February 15;, February 9).    

Chinese diplomats and scholars have not given the United States a single mention while briefing the media on the diplomatic juggernaut that seems geared toward consolidating the country’s quasi-superpower status. Yet it is apparent that the trips, which followed hot upon Premier Wen Jiabao’s high-profile visit to Europe, were timed to take advantage of the geopolitical vacuum created by a United States that is bogged down by massive domestic woes. According to foreign affairs expert Chen Xiangyang, the multi-pronged foreign policy initiative would enable China to “seize the high vantage point [in handling] the future world order.” Chen, a scholar at the China Institute of Contemporary International Relations, added that Beijing wanted to “show its hand early” in the chessboard of international relations. “We want to send out China’s voice, maintain China’s image, and extend China’s interests,” he said (Outlook Weekly [Beijing], February 9).




China challenges US global financial leadership


China has made its agenda clear: It wants a stable U.S. dollar, and has even advocated the creation of another global currency altogether. It is leery of protectionism. And it is demanding a larger say in how financial systems are regulated and rescued, while holding back on any promises for new rescue or stimulus measures of its own.

"So far, China has been playing a game set up by other powers. Now China wants to be part of the agenda or rules-setting," said Ding Xueliang, a China expert at Hong Kong's University of Science and Technology.

Whether Beijing has a workable alternative vision for the future of world finance remains to be seen.

But China's growing assertiveness also suggests a sharpening urgency over its vulnerability to the global financial meltdown.

Fearful of any moves that might weaken the dollar and imperil China's estimated $1 trillion in Treasuries and other U.S. government debt, Chinese Premier Wen Jiabao has urged the United States to remain "a credible nation." In other words, Beijing wants Washington to avoid spurring inflation with excessive government spending on bailouts and stimulus packages.

To keep the value of its own currency steady -- some say undervalued -- the Chinese government must recycle its huge trade surpluses. The biggest, most liquid option is U.S. Treasuries. But a weakening dollar saps the value of those investments.

The Chinese "are being hurt more than anyone else by the mismanagement of the dollar," said William Overholt, an expert with Harvard University's Kennedy School of Government.

Underscoring that grievance, earlier this week Zhou, the central bank governor, called for a new global currency to end the dollar's dominance in trade, foreign reserves and commodity pricing.

Echoing proposals that have been debated for years, he urged the International Monetary Fund to create a "reserve currency" based on shares in the organization held by its 185 member nations, known as special drawing rights, or SDRs.

Such a move would "achieve the objective of safeguarding global economic and financial stability," Zhou said in an essay released by the central bank both in English and Chinese.

Given the wariness of most governments toward relinquishing any sovereign control over their currencies, few even in China view Zhou's proposal as likely to catch on anytime soon.

"Nobody believes the current global monetary system will be changed soon. It's more like a warning or signal to America to let them know how important it is to keep the dollar stable," said Ding Xinghao, president of the Shanghai Association of American Studies, a private academic think-tank.

China's stolid and somber president, Hu Jintao, will likely focus on cooperation rather than table pounding when he meets President Barack Obama for the first time at next week's London summit on the financial crisis.

"There is no strong consensus between the U.S. and Europe. They have different policy priorities. The EU is quite weak. There are too many states with different opinions and different policy priorities," said Zheng Yongnian, director of the East Asia Institute at the National University of Singapore. "So it would be easier for the U.S. and China to work together, despite their huge differences."

Still, China is committed to leading a push by the developing world for a greater say in how global finance is regulated and managed.

G-20 members already have agreed that developing countries need a bigger voice in the IMF. But under a system devised 63 years ago, each country's vote is tied to its financial commitments to the institution, which are determined by economic size, currency reserves and openness to trade and capital flows. ..........

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Re: Daily Digest - Mar 27

You are really going regret having those sheep.  They are the most stupid animals out there, and they will constantly be giving you head aches.  Best of Luck

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Re: Daily Digest - Mar 27
Davos wrote:

I have no idea how long before these momos auger the economy in, but ....

I've heard this momos term a few times, but don't understand- wiki and google offers a range of suggestions, but I'm still not making the connection- anyone?

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Re: Daily Digest - Mar 27


Banks lose $9.2B in derivatives trading in 4Q

Mar 27th, 2009 | NEW YORK -- Commercial banks lost $9.2 billion trading derivatives during the fourth quarter as the credit crisis intensified, according to a report released Friday by the Office of the Comptroller of the Currency.

Losses mounted as commercial banks had to take additional write-downs on the value of investments they held, offsetting gains from actual trades.

The collapse of Lehman Brothers Holdings Inc. and the near-failure of American International Group Inc. in September touched off one of the worst parts of the credit crisis, which carried over into the final three months of the year. Credit markets froze up, further pressuring the value of many types of investments.

Derivatives contracts include interest rate and foreign exchange contracts as well as credit default swaps -- a product that is essentially a bet against the performance of other types of investments. Credit default swaps have been at the heart of the credit crisis and a main reason for problems at Lehman and AIG.

The total value of derivatives at commercial banks jumped 14 percent to $200.4 trillion as financial firms changed their operating status to commercial banks after the collapse of Lehman in an effort to stay in business. Among those changing their status were investment banking giants Goldman Sachs Group Inc. and Morgan Stanley.

For the full year, commercial banks recorded their first-ever industrywide loss on derivatives trading, losing $836 million in 2008, compared with revenues of $5.49 billion in 2007, according to the OCC.

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Re: Daily Digest - Mar 27

In our house it stands for the mother of all morons, probably what I'll be calling the sheep, and if they are that stupid then off to the freezer they will go.

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Re: Daily Digest - Mar 27
Davos wrote:

In our house it stands for the mother of all morons, probably what I'll be calling the sheep, and if they are that stupid then off to the freezer they will go.

Or, since you don't have a TV, you can use them to play pong... Check it out:

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Re: Daily Digest - Mar 27

"Banks lose $9.2B in derivatives trading in 4Q"


This derivative market, is it just going to blow up? Are we going to be watching the fed's doing then suddenly hear of these 60-70 trillion dollar losses? Is AIG facing multi-trillion dollar losses due to derivatives? 


Is there a derivative chart where we can see where bets are called etc like the mortgage chart  or is it a random unkown kind of thing? That article made me realize this quadrillion dollar derivative problem could snowball into a monster hoping there is some way to see it coming.

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Re: Daily Digest - Mar 27

Check out Wiltshire Horn Sheep. No Shearing and excellent lean meat!

If the ckickens are free rane they will make your pasture thrive.

Also search on natural sequence farming!



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Re: Daily Digest - Mar 27

Awesome sheep video reistr! I am sure Davos will be inspired.

ok, queue the conspiracy background music......



THE INFLUENCE GAME: 7 big banks seek monopoly

Mar 27th, 2009 | WASHINGTON -- A handful of banks that needed government bailouts after making disastrous bets on over-the-counter derivatives are now seeking monopoly control over dealing in that market.

The banks already control a big part of the multitrillion-dollar derivatives market, but they have to compete with broker-dealers, hedge funds and other players. Many industries use derivatives contracts to reduce risk.

For the banks, exclusive access would mean billions of dollars in revenue from derivatives, such as bets on currency or interest-rate changes. They argue that only federally regulated banks should get to deal in these derivatives.

But if the banks get their way, the change could ripple through the economy, opponents warn. It could raise costs for other types of companies that use these financial contracts to reduce their risks.

"You'd think these people (at the banks) would be humbled and just hope they don't end up in jail," said Dean Baker of the left-leaning Center for Economic and Policy Research. "They don't have any qualms about going to Congress and saying what they want ... and they're still in a position to get a lot of things."

Democrats are crafting legislation designed to avert another financial crisis. The seven banks pushing for a monopoly have proposed language for parts of that legislation and are circulating it in Washington.

Remarks by Treasury Secretary Timothy Geithner at a hearing Thursday suggested that Treasury agrees with at least the broad outlines of the banks' proposal. A Treasury spokesman would not elaborate on Geithner's comments.

The seven banks making the play for control are Deutsche Bank AG, Barclays, JPMorgan Chase & Co., Goldman Sachs Group Inc., Credit Suisse Group, Morgan Stanley and Citigroup Inc. Together, they've received more than $125 billion in bailout money. Some of that money came to them from the bailout given to failed insurance giant American International Group Inc.

The value of over-the-counter derivatives hinges on the value of an underlying figure or commodity -- ranging from currency rate swaps to oil futures and inflation bets. The derivative reduces the risk of loss from the underlying asset. The global business world holds a staggering $600 trillion of these contracts.

If the big banks succeed in their quest, small- and mid-sized derivatives players -- who on their own are unlikely to affect the financial system -- will be cut out. The big banks whose derivatives bets helped unleash a global recession would be the sole dealers.

Stifling competition could "reduce investor confidence or inhibit the stability of the markets and the stability of the economy," said Richard H. Baker, chief executive of the Managed Funds Association, which represent investors who rely on derivatives trades.

The banks referred questions to a public relations firm, Prism Public Affairs, they have hired to help with the derivatives campaign. The banks' representative at Prism said he was unaware of any proposed legislation, saying his role was educational. He said the lobbying was taking place among banks' own lobbyists and at the Securities Industry and Financial Markets Association.

Banks are motivated "exclusively by a shared desire to ensure appropriate oversight," said Cory Strupp, managing director of SIFMA, which lobbies for the big banks and other financial firms.

But this month, SIFMA arranged a briefing for staffers on the House Financial Services Committee that included a presentation from the lawyer who drafted the banks' proposal to exclude non-banks from dealing derivatives. The lawyer, Ed Rosen of Cleary Gottlieb Steen & Hamilton, wouldn't comment, citing client confidentiality.

One species of derivative, the credit-default swap, all but destroyed AIG. Banks that bought those loss-protection contracts faced huge losses -- until the government stepped in with bailouts that now top $180 billion. ..........more........

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Re: Daily Digest - Mar 27

Hello Reistr:


Wow, that was a good video. If they are stupid animals I have names for them already: Ben, Timmy, Paul and Alan.

Take care 

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Re: Daily Digest - Mar 27


Just make sure you have good fencing.  Its worth the extra money trust me, and try to stay away from barb wire fencing because you are going to have a mess on your hands.  I just cant wait till this time next year when your in your first lambing season and your flock triples.  You better come up with some more names, my first rams name was Elvis.

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Re: Daily Digest - Mar 27

Hello Jarhett:

Wow, thanks.

I have surrounded the place with 4 wires of electric fence, it has 3 grounds and I also ran 2 ground wires on the fence should the earth be dry. We have about 1-2 acres fenced off. I went with the Zareba fence that does 20 miles to get 8,400 volts of electricity. We live in the mountains and the bear was sitting on our trash cans and wrecking the chickens free range. I sprayed him with pepper spray, he was back 6 hours later. If it was bear season he'd be in my freezer with the venison.

He doesn't like the fence, when I heard him hit it and blow it was music to my ears. I hope the sheep will back off it instead of run through it...

Take care 

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Re: Daily Digest - Mar 27

The sheep should learn about the fence w/o problem Davos. Folks sometimes get a goat or two to keep the sheep in line and you can try "marking your territory" to keep the bear in his/her place. It helps to let them know who's turff they are on in a language they understand (and no, your wife can't help with this - its a man's business).

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How the Scam Works
How the Scam Works


March 27, 2009 "

Counterpunch" --
Newspaper reports seem
surprised at how high banks are bidding for the junk mortgages that
Treasury Secretary Geithner is now bidding for, having mobilized the
FDIC and Fed to transfer yet more public funds to the banks. Bank
stocks are soaring – thereby bidding up the Dow Jones Industrial
Average, as if the “financial industry” really were part of the
industrial economy.

Why are the very worst offenders – Bank of
America (now owner of the Countrywide crooks) and Citibank the largest
buyers? As the worst abusers and packagers of CDOs, shouldn’t they be
in the best position to see how worthless their junk mortgages are?

turns out to be the key! Obviously, the government has failed to
protect itself – deliberately, intentionally failed to do so – in order
to let the banks pull off the following scam.

Suppose a bank
is sitting on a $10 million package of collateralized debt obligations
(CDOs) that was put together by, say, Countrywide out of junk
mortgages. Given the high proportion of fraud (and a recent Fitch study
found that every package it examined was rife with financial fraud),
this package may be worth at most only $2 million as defaults loom on
Alt-A “liars’ loan” mortgages and subprime mortgages where the mortgage
brokers also have lied in filling out the forms for hapless borrowers
or witting operators taking out mortgages at far more than properties
were worth and pocketing the excess.

The bank now offers $3
million to buy back this mortgage. What the hell, the more they bid,
the more they get from the government. So why not bid $5 million. (In
practice, friendly banks may bid for each other’s junk CDOs.) The
government – that is, the hapless FDIC – puts up 85 per cent of $5
million to buy this – namely, $4,250,000. The bank only needs to put up
15 per cent – namely, $750,000.

Here’s the rip-off as I see
it. For an outlay of $750,000, the bank rids its books of a mortgage
worth $2 million, for which it receives $4,250,000. It gets twice as
much as the junk is worth.

The more the banks holding junk
mortgages pay for this toxic waste, the more the government will pay as
part of its 85 per cent. So the strategy is to overpay, overpay, and
overpay. Paying 15 per cent is a small price to pay for getting the
government to put in 85 per cent to take the most toxic waste off your

The free market at work, financial style.

Hudson is a former Wall Street economist. A Distinguished Research
Professor at University of Missouri, Kansas City (UMKC), he is the
author of many books, including
Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached at [email protected]

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US Backing for World Currency Stuns Markets
Obama : "The reason the dollar is strong right now is because investors
consider the United States the strongest economy in the world with the
most stable political system in the world"
Huh ?
US Backing for World Currency Stuns Markets

Treasury Secretary Tim Geithner shocked global markets by revealing
that Washington is "quite open" to Chinese proposals for the gradual
development of a global reserve currency run by the International
Monetary Fund.
By Ambrose Evans-Pritchard

March 27, 2009 "

The Telegraph" -- - The
dollar plunged instantly against the euro, yen, and sterling as the
comments flashed across trading screens. David Bloom, currency chief at
HSBC, said the apparent policy shift amounts to an earthquake in

"The mere fact that the US Treasury Secretary is
even entertaining thoughts that the dollar may cease being the anchor
of the global monetary system has caused consternation," he said.

Geithner later qualified his remarks, insisting that the dollar would
remain the "world's dominant reserve currency ... for a long period of
time" but the seeds of doubt have been sown.

The markets appear
baffled by the confused statements emanating from Washington. President
Barack Obama told a new conference hours earlier that there was no
threat to the reserve status of the dollar.

"I don't believe
that there is a need for a global currency. The reason the dollar is
strong right now is because investors consider the United States the
strongest economy in the world with the most stable political system in
the world," he said.

The Chinese proposal, outlined this week by central bank governor Zhou Xiaochuan, calls for a "super-sovereign reserve currency" under IMF management, turning the Fund into a sort of world central bank.

idea is that the IMF should activate its dormant powers to issue
Special Drawing Rights. These SDRs would expand their role over time,
becoming a "widely-accepted means of payments".

Mr Bloom
said that any switch towards use of SDRs has direct implications for
the currency markets. At the moment, 65pc of the world's $6.8 trillion
stash of foreign reserves is held in dollars. But the dollar makes up
just 42pc of the basket weighting of SDRs. So any SDR purchase under
current rules must favour the euro, yen and sterling.

has the backing of Russia and a clutch of emerging powers in Asia and
Latin America. Economists have toyed with such schemes before but the
issue has vaulted to the top of the political agenda as creditor states
around the world takes fright at the extreme measures now being adopted
by the Federal Reserve, especially the decision to buy US government
debt directly with printed money.

Mr Bloom said the US is
discovering that the sensitivities of creditors cannot be ignored.
"China holds almost 30pc of the world's entire reserves. What they say
matters," he said.

Mr Geithner's friendly comments about the SDR
plan seem intended to soothe Chinese feelings after a spat in January
over alleged currency manipulation by Beijing, but he will now have to
explain his own categorical assurance to Congress on Tuesday that he
would not countenance any moves towards a world currency.

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Re: Daily Digest - Mar 27

Hello CB: Thanks, I'll make sure I turn off the fence when I do that or I may be calling myself Timmy! Take care

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Re: Daily Digest - Mar 27
FireJack wrote:

"Banks lose $9.2B in derivatives trading in 4Q"


This derivative market, is it just going to blow up? Are we going to be watching the fed's doing then suddenly hear of these 60-70 trillion dollar losses? Is AIG facing multi-trillion dollar losses due to derivatives? 


Is there a derivative chart where we can see where bets are called etc like the mortgage chart  or is it a random unkown kind of thing? That article made me realize this quadrillion dollar derivative problem could snowball into a monster hoping there is some way to see it coming.

I'm curious, too, about what this means.

I'm also just confused about derivatives. It seems like they are insurance policies, right? Not like stocks, where if the value drops, no one gains (unless you were a short seller). But with derivatives, someone gets the money, don't they? The money just goes from one agency to another. Its not like with the toxic assets, either - where you can't get your money back if you foreclose because the property simply isn't worth as much as the loan. Money poofed.

With derivatives, the money doesn't poof - it must go somewhere. Where is it going to?

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Re: Daily Digest - Mar 27

SkylightMT and Firejack - have a listen to this Fresh Air interview with Farnk Partnoy. There is an excellent discussion of the history of derivitives and credit default swaps and the people behind the deregulation of this market - some of whom are right now walking the halls of congress trying to get new legislation passed that will enable even more looting of the treasury - even now!

As for specifics on just who has what and what their exposures might be... I think this is not public information. Remember that this was a completely deregulated market - completely opaque - and the policy of treasury has been not to expose any of the details of this to the public on the notion that to do so might harm public confidence in the banks.

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Re: Daily Digest - Mar 27

Derivatives are just fancy securities; they have a price based on their apparent worth.  If you buy a derivative whose worth is based on say, home loans and a bunch of those mortgages went south, then those derivatives are worth less.  They are called derivatives because someone thought it would be a great idea to strip parts out of individual mortgages and paste them back together.  There's all kinds of flavors, meant for all kinds of investors.

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Re: Daily Digest - Mar 27
reistr wrote:

Or, since you don't have a TV, you can use them to play pong... Check it out:


That was too funny and too cool, too cool!

Thanks for finding/sharing!  Laughing

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Re: Daily Digest - Mar 27


Rising Fear of a Future Oil Shock

Sharp reductions in investments and low
oil prices could curb future supplies by almost eight million barrels a
day within the next five years, according to a study scheduled for
release Friday, the latest warning that the world could face a new
energy shock when the economy picks up.

The report by Cambridge Energy Research Associates, an oil
consulting firm, said that the potential drop in production capacity is
a “powerful and long-lasting aftershock following the oil price

The global slowdown has forced oil companies to slash their
investments, postpone or cancel expansion plans, or delay drilling in
many corners of the world. While some of the biggest companies, like Exxon Mobil and Royal Dutch Shell, say they will keep their investments unchanged this year, many other producers are curbing investments because of the crisis.

The report says about 7.6 million barrels a day of future supplies
are “at risk” of being deferred or canceled, like heavy oil or
deepwater projects, and which could bring total supplies to 101.4
million barrels a day by 2014. Last year, the group projected that
capacity would rise to 109 million barrels a day by then.

“Seven consecutive years of rising oil prices — unprecedented in the
history of the oil industry — have come crashing down, thus burying the
notion that the commodity price cycle was a historical relic,” said the
report, a field-by-field study of production trends.

Many experts have voiced even darker concerns in recent months.
Christophe de Margerie, the chief executive of French oil company
Total, recently said that producers would find it challenging to
bolster supplies even to 90 million barrels a day by the middle of the
next decade as projects get canceled.


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Re: the match king..... AIG

The Match King

By Daily Reckoning Contributor

12/02/04 In 1932, a man who has been coined both "The Sneak" and "a superman of finance," came to a most mysterious death. Dan Ferris gives us a peek into the intriguing life (and death) of…

As a child growing up in Sweden, Ivar Kreuger was known as "The Sneak." Kreuger’s classmates recall the ingenious methods he devised to cheat on tests. Once he climbed in the headmaster’s office and stole exam questions. He then sold the questions to other students.

It should have been no surprise to anyone who knew his childhood nickname, when "The Sneak" was found dead on March 12, 1932.

Kreuger was found in his apartment on Rue 5 Victor Emanuel III in Paris. He lay in bed with a hole in his heart and a 9-millimeter Browning pistol in his left hand.

No shot was heard. No bullet was found.

The official police report said he shot himself in the heart. Someone claiming to be Kreuger bought the gun at the same time that Kreuger was known to have been in a business meeting with two other men. The gun disappeared during the investigation.

Kreuger’s family was denied an autopsy and the body was cremated immediately after arriving in Sweden. His personal diaries were burned. "The Sneak" was dead, and no one would ever know how it happened.

Ivar Kreuger: The Match King

Most people knew Kreuger as "The Match King." A popular movie of that title appeared the year Kreuger was killed. After cornering the market for matches in Sweden, Kreuger had gone around the world, offering huge low-interest loans to bail out ailing countries, in exchange for a monopoly on their match business. Several countries, including France, Germany, Greece and Poland, had been bailed out by Kreuger loans. That’s how he gained control of 65% of global match production.

The tendrils of his empire went around the world. He bought LM Ericsson, trying to gain a foothold in the telecom market. He controlled 30% of global cellulose production. He owned the richest gold mine in the world, and six of the most productive iron mines.

Kreuger’s companies continued to pay dividends even during 1929-32, three years of devastating market losses. His stocks paid dividends of between 16% and 24%, while all of Wall Street was struggling to stay alive. Some called him, "the miracle of the investment world," and "a superman of finance."

Paris police kept the news of Kreuger’s death quiet for five hours, until the New York Stock Exchange closed. The Match King’s empire involved 400 companies, many of which traded on the New York Stock Exchange. It was feared that his death would send the already beleaguered market into a death spiral.

Then "The Sneak" was found out.

Italian bank notes worth $150 million were found in Kreuger’s private vault. The Swedish finance minister took the notes to a private meeting with Benito Mussolini immediately after Kreuger’s death and asked if Kreuger had made a cash-for-monopoly deal with Italy. He had not.

Kreuger tried, but failed, to use the notes to get a loan from a Swedish bank. The bank notes contained the signatures of Italian Finance Minister Antonio Mosconi and another official, Giovanni Boselli. Mussolini took one look at the notes and shouted, "These signatures are forged!" He summoned Mosconi and Boselli to verify the treachery. It wasn’t necessary. The superman of finance had spelled their names wrong.

Investigators were called in to examine hundreds of Kreuger’s accounting ledgers and 150 bags of wastepaper, including 1,900 personal telegrams. The headlines soon revealed, "Kreuger Books are ‘Grossly Wrong,’ Some Assets False." Stock in Kreuger’s companies became worthless, including the $125,000 worth he gave his mistress.

Ivar Kreuger: The irving Trust Company

The Irving Trust Company of New York was named as trustee in the Kreuger bankruptcy. Irving Trust liquidated almost all of Kreuger’s assets. But there were four little companies they didn’t want to liquidate in the United States. Their assets were debentures with a face value of $95 million, now trading for only five cents on the dollar. But the liquidators at Irving Trust were smart. They thought the debentures would go up over time. If that happened, a large capital gains tax would be applied upon sale. The Irving Trust determined to find a way to eliminate the tax burden on what was left of the infamous Ivar Kreuger’s assets.

The prestigious Wall Street firm of Cadwallader, Wickersham and Taft offered a solution. They instructed the firm of Conyers, Dill & Pearman to set up a company called International Match Realization Company, Ltd., and to incorporate it in their home country - Bermuda.

International Match Realization then went into the New York market and bought the debentures for five cents on the dollar. The assets were liquidated a few years later, having risen nine-fold to 45 cents on the dollar, a profit of $38 million, with no capital gains tax on the transaction.

It became one of the most important financial transactions in history, the founding act of the "Switzerland of the Atlantic," as Bermuda would come to be known. Word of the Kreuger transactions - word of Bermuda - got around. American businessman, Cornelius Vander Starr, had built a sizeable global insurance empire. In 1947, Starr wanted to move his non-U.S. headquarters from Cuba, which he viewed as an unstable environment.

He ruled out Panama due to its language barrier, distance from his New York operations, and an unfamiliar legal system. It didn’t take Starr long to find the ultimate resting place of Ivar Kreuger’s legacy, Bermuda. It was English-speaking and close to the United States. Bermuda imposed no corporate, income, dividend or capital gains taxes, and Starr understood the British legal system from time spent in Shanghai.

Starr’s appointed successor is in the news today. Perhaps you’ve heard of him. His name is Maurice "Hank" Greenberg. Greenberg is the chairman and CEO of the company Starr created. Today, Starr’s company has a market value of $159 billion. It is one of the 30 Dow Industrials. The company is American International Group, Inc., better known as AIG.


Dan Ferris
for The Daily Reckoning
December 2, 2004

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Re: Daily Digest - Mar 27


Very funny sheep video.  I had a good laugh with that one.

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Re: Daily Digest - Mar 27

Inflation Nation: A Rap Song of Sorts -- If you can't laugh about it, you'll probably cry...!  :)

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