Daily Digest

Daily Digest - October 13

Tuesday, October 13, 2009, 9:42 AM
  • Building the Great Pyramid: The Global Financial Crisis Explained
  • Takes More Than Real Change to Dial this Phone: Geithner's Records 
  • All this points, unfortunately, to a bigger crisis soon. 
  • Banks to come clean on mortgage valuations, sending recovery hype down the drain
  • U.S. states suffer "unbelievable" revenue shortages 
  • US policymakers playing with fire as the dollar continues to tumble 
  • Dutch Seize Bank After Run on Assets 
  • Treasury Bond Rally Fails the Asset-Bubble Test: Caroline Baum 
  • Bankers Will Follow Hedge Funds to Switzerland: Matthew Lynn
  • A Dollar Rout or More Bernanke Trickery? 
  • Gold hits record high close to $1,064 
  • The REAL Battle Over America's Banking System 
  • Prof. Roland Horne, “The Future of Oil” (Video)

Economy

Building the Great Pyramid: The Global Financial Crisis Explained (Rajiv B.)

This article was accepted as evidence and published by the British Parliament, House of Commons, Treasury Committee. When the financial crisis erupted at the end of September 2008, there was an unusual sense of incredible panic among banking executives and government officials. These two establishment groups are known for their conservative, understated approach and, above all, their stiff upper lip. Yet at the time they appeared to the public running about like headless chickens. It was chaos. A state of complete chaos. Within a few weeks, however, decisions were made and everything seemed to returned to normal and back under control. The British Prime Minister Gordon Brown even famously remarked that the government “saved the world.”

Takes More Than Real Change to Dial this Phone: Geithner's Records (David M.)

He has spoken with them immediately after hanging up with President Barack Obama and before heading up to Capitol Hill, between phone calls with senators and after talking with the Federal Reserve chairman, according to a review by The Associated Press of seven months of his appointment calendars. It's appropriate for Treasury officials to keep in touch with those who work in the markets every day, particularly when the economy and the markets are so fragile," Treasury spokesman Andrew Williams said. What the calendars show, however, is that only a select few can call the treasury secretary.

All this points, unfortunately, to a bigger crisis soon. (David M.)

Just over one year, it is rather depressing to see that nothing has really changed and, to the contrary, if anything has, it is for the worse. The most striking item, of course, is the continued dominance of politicians by bankers. Banks are universally seen - including by bankers - as being at the heart of the problem, and having created the crisis through reckless behavior and worse. And yet, after having being bailed out at a staggering cost, in a highly asymmetrical way (the losses were socialised, but not the banks), not only have they managed to eliminate the likelihood of any meaningful regulatory change, but more importantly they have managed to maintain the fiction that finance was the reason for earlier prosperity.

Banks to come clean on mortgage valuations, sending recovery hype down the drain (Claire S.)

The four biggest U.S. banks by assets may have to take writedowns on $55 billion of mortgage- collection contracts after marking them up by $11 billion in the second quarter, casting a shadow over earnings.

U.S. states suffer "unbelievable" revenue shortages (Denise)

"It's crazy. It's really just unbelievable," said Scott Pattison, executive director of the National Association of State Budget Officers, and called the states' revenue situations "close to unprecedented." Most states had been pessimistic in forecasting their tax revenues for the 2010 fiscal year, Pattison said. So far, collections have fallen below even those low targets.

US policymakers playing with fire as the dollar continues to tumble (pinecarr)

If inflation isn't a problem, why are investors turning their backs on the dollar? The answer, I think, relates to increased frustration with the dollar's role as the world's reserve currency. Reserve currencies become reserve currencies for good reason. They're trusted and universally acceptable. Sometimes, trust slips away, particularly if the nation issuing the reserve currency has an incentive to abuse its reserve currency status.

Dutch Seize Bank After Run on Assets (Vinny A.)

The Dutch central bank shuttered DSB Bank NV, a struggling consumer and mortgage lender, after a run by depositors that followed a call from a consumer group to pull money out of the controversial institution. The government said it would begin an investigation into what happened at the bank, a privately owned institution with reported assets of some €8 billion ($11.77 billion). The DSB seizure was described by the government as a one-off situation unconnected with last year's financial crisis. However, it dealt a further blow to a financial system hit hard by a global credit crunch that resulted in the nationalization of former financial giant Fortis and in multi-billion-euro state bailouts for ING Groep NV and insurer Aegon NV.

Treasury Bond Rally Fails the Asset-Bubble Test: Caroline Baum (Vinny A.)

Bubble sightings are proliferating by the day, and with interest rates near zero, it’s not hard to understand why. Easy money leads to excess credit creation, which eventually produces inflation in goods and services prices or some type of asset bubble. Whether these sightings are real or imagined, on the mark or off-base, is another matter.

Bankers Will Follow Hedge Funds to Switzerland: Matthew Lynn (Vinny A.)

Geneva? Zurich? Perhaps even Zug, Switzerland? Between deciding whether to be long or short of the dollar, or pondering whether we are in the middle of a bear rally or a new bull market, London’s hedge funds also need to decide which Swiss canton they want to move to.

A Dollar Rout or More Bernanke Trickery? (Vinny A.)

Consumer credit is falling fast. In July, consumer credit plunged by $19 billion, followed by an August drop of $12 billion, a 5.8 percent annual rate. Credit card spending decreased by nearly $10 billion in August, while non-revolving debt, including auto loans, fell by $2 billion. Credit has shrunk for 7 consecutive months, the longest period of decline since 1991. The banks have shrugged off their commitment under the TARP program to increase lending to consumers and businesses. They've either deposited their excess reserves with the Fed, where they earn interest, or invested them in the equities markets for better returns. The bottom line: Credit is shrinking and the economy is slipping further into deflation.

Gold hits record high close to $1,064 (Vinny A.)

The price of gold forged a record high close to 1,064 dollars an ounce here on Tuesday as the dollar sank against the euro. In morning trade on the London Bullion Market, gold struck 1,063.95 dollars an ounce, the highest level ever recorded.

The REAL Battle Over America's Banking System (Vinny A.)

The battle to reform the American banking system needs to include reimposing the barrier between investment banking and depository banking (Glass-Steagall), pay incentives based on what is best for Americans and not just the top executives, the end of too big to fail, and other changes which are frequently discussed by financial writers. These are vital issues.

Energy

Prof. Roland Horne, “The Future of Oil” (Video) (jrf29)

An excellent and informative lecture recorded at Stanford University. Roland Horne, Thomas Davies Barrow Professor in the School of Earth Sciences at Stanford University, discusses the future of oil.

5 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
Joined: Jul 30 2009
Posts: 4064
Re: Daily Digest - October 13

1) Asian central banks to restrain gains in currencies

"More Asian central banks yesterday signalled they would intervene to curb gains in their currencies against the faltering US dollar, fearing uncertain worldwide recovery and slower growth in their economies."

2) Now even SmartMoney has an article called 4 Ways to Short the U.S. Dollar

3) Steep losses pose crisis for pensions

"The losses were typical of what pension funds suffered around the country. State and local government officials had predicted before the crisis they would have $3.6 trillion in their accounts by now, according to the Center for Retirement Research at Boston College. Today, they are $1.2 trillion short of that mark."

4) The U.S. dollar fell 0.8% versus the Canadian dollar to C$1.0275, despite ideas Canadian authorities may soon intervene for the first time in a decade to stem the Canadian currency's rise.

5) Intervention suspected as dollar suffers

"Renewed weakness in the U.S.

dollar on Tuesday pushed the Thai baht and Philippine peso

towards last week's multi-month highs, triggering fresh

official intervention to curb their strength. The Singapore dollar rose but its gains were also limited

by suspected official dollar-buying, a day after the monetary

authority kept its zero appreciation policy intact and sounded

wary on the economic outlook."

6) CIT debt swap struggles, bankruptcy looms

"One investor that would take a hit in a CIT bankruptcy is the U.S. government. The United States' Troubled Asset Relief Program invested $2.3 billion in CIT in December and much or all of that could be lost if the company files for bankruptcy, analysts said."

7) Capmark Financial bankruptcy due soon: source

"Capmark, based in Horsham, Pennsylvania, has three main commercial real estate businesses: lending and mortgage banking, investments and funds management and servicing. It had more than $288 billion in commercial real estate loans as of June 30.

The company has about $20 billion in liabilities, of which about $10 billion are at Capmark Bank. It has about $8 billion in debt at the holding company level that is associated with the leveraged buyout."

8) Ohio has 8 percent spike in Medicaid enrollment

"Medicaid now insures nearly 2 million Ohioans - nearly 1 in 5 state residents. Most of the new enrollees fell into poverty as the result of a lost job or cut hours."

9) State Revenues Continue Sharp Drop Bigger Budget Deficit Feared For 2010-2011 (California)

10) The Next Big Bailout? FHA Facing "Cataclysmic" Default Rates

"The FHA's portfolio is exploding [and] the taxpayer is now on the hook for 100% of the losses."

How big of a hook? The FHA's mortgage portfolio is now approaching $1 trillion. You can't assume all those mortgages will default but you can assume the FHA's exposure will only grow in the months ahead as politicians continue to look for ways to support the housing market (especially in an election year.)

In other words, FHA is looking very much like the "new Fannie Mae.""

11) Humboldt Bay's economy and the harbor district's future

"The pulp mill closure meant the loss of the monthly ships, and lost tariffs caused the harbor district budget deficit to increase from $500,000 to $750,000. Although we trimmed the budget deficit to somewhere between $300,000 and $500,000 in the current fiscal year (2009-2010), our trajectory would indicate insolvency and the need to reorganize under Chapter 9 of the bankruptcy code in 2013 or 2014. Our prospects for digging out of the hole with ship traffic have diminished to near zero."

12) NY's 'private' affair

"State close to leasing out major public-works deals to investors

Faced with a $3 billion deficit, the state is about to roll out a plan to lease to private investors everything from schools to bridges -- and it could result in new costs for New Yorkers, sources told The Post."

13) Nathan's Economic Edge has a long piece on derivatives

"Estimates run as high as $1.4 Quadrillion (!) for the notional value of the world’s derivatives. Prior to 1990 there was basically no market whatsoever. The only agency to track a portion of the U.S.’s derivatives is the OCC (Office of the Comptroller of Currencies). They only track a PORTION of the derivatives and only those held by commercial banks. Here’s their quarter 2 report:"

 

$1.4 Quadrillion in derivatives?...even more scary than

Richsal's picture
Richsal
Status: Member (Offline)
Joined: Aug 26 2009
Posts: 1
Re: Daily Digest - October 13

Sax, Thanks for always giving great information. I look for your post first on the internet each day.

 

One1776's picture
One1776
Status: Bronze Member (Offline)
Joined: Jan 24 2009
Posts: 52
Re: Daily Digest - October 13

Dollar Being Abandon for Yen and Euro

"Ben Bernanke's dollar crisis went into a wider mode yesterday as the greenback was shockingly upstaged by the euro and yen, both of which can lay claim to the world title as the currency favored by central banks as their reserve currency."

"Over the last three months, banks put 63 percent of their new cash into euros and yen -- not the greenbacks -- a nearly complete reversal of the dollar's onetime dominance for reserves, according to Barclays Capital. The dollar's share of new cash in the central banks was down to 37 percent -- compared with two-thirds a decade ago."

"Fed boss Ben Bernanke may be forced to raise rates in order to restore faith in the dollar — and help bring the euro and the yen back to earth."

"Currently, dollars account for about 62 percent of the currency reserve at central banks -- the lowest on record, said the International Monetary Fund."

"Bernanke could go down in economic history as the man who killed the greenback on the operating table." (New York Post Article)

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Dollar is Sub 76

With the dollar breaking 76 (75.57 at the time of this post) it should be a great day for the equity markets tomorrow!Sealed 

PraySam's picture
PraySam
Status: Bronze Member (Offline)
Joined: May 26 2008
Posts: 26
Re: Daily Digest - October 13

I too am grateful for these links you put in each day SaxPlayer. You have some real obscure but informational sites in there. Although, I think this reading may contribute to my insomnia. Most of those I know in happy ignorance of the crisis are sleeping well. Do I pity them or envy them? Hmmm..

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