London Irvine Report, October 14, 2008
The New System Built on Slime.
To read at the website: http://www.globalprofiles.net/about.asp?page_id=2
London Betting Odds. McCain 5/1. Obama 1/6.
The credit boom is built on the sands of banknotes and deposits. It must collapse.”
“If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders.”
Ludwig von Mises.
It is day two of our new hybrid financial system founded on socialist slime. The old corrupt, fiat currency, crony derivatives gambling-bankers system built on fraud, has reinvented itself as a state funded, fiat currency, crony derivatives gambling banking system, but this one rests on socialist slime. Slime creeps. Slime grows slowly at first, but left to its own devices, from a small beginning slime takes over just about everything. The shock and awe of all socialist bailouts, will leave many others looking for their own bailout when times get hard and they face their own financial disaster. What’s good enough for LTCM, Goldman, Morgan, RBS, HBOS and co. is damn sure good enough for me, when it’s my turn to fail in the general economy. Pension plan just blow up in current conditions, no worries, bung in some more taxpayer cash and make the poor pensioners whole. Why them and not me! I want my piece of the taxpayer pie too! Of course, like AIG the banks also will be back for more. We haven’t seen anything yet. These bailouts were put into place in political panic, without any disclosure of “the truth, the whole truth, and nothing but the whole truth,” regarding tier two and tier three assets, let alone those quietly burning away in off balance sheet SIVs. A great many more scandals still lie ahead in the cleansing of the quadrillion dollar derivatives cesspit.
For now though, the great global relief rally is in full hue and cry. We will all get rich by leveraging up volatility to the max. If memory serves me right, they had many false bottoms in the decade of the 1930s. Many euphoric rallies only to collide with what was going on in the real economy. This has all of the signs of history repeating.
Below, corrupt central banking enters the death throes. No amount of funny money is going to revive global real estate markets that were pyramided off a giant securitised US real estate Ponzi scheme. The shop till you drop, borrow and spend, world’s greatest consumption binge, built up off that Ponzi scheme has passed away. Voodoo economics will not bring it back to life.
The best way to help the poor is not to become one of them
Lang Hancock – Australian Mining Magnate
Bail-out to change the face of banking
Financial services in Britain have changed forever after the state seized control of two of the country’s biggest banks in an unprecedented £37bn bail-out that brings an end to the era of easy credit and bumper bonuses.
By Philip Aldrick and Katherine Griffiths Last Updated: 12:05AM BST 14 Oct 2008
Economists forecast massive state regulation that will reduce the once buccaneering banking industry to little more than a utility, like gas and electricity. Restrictions on lending policies and tighter demands on risk management are expected to restrain growth and limit shareholder returns.
“The world is going to be very different,” said Willem Buiter, a former member of the Bank of England’s Monetary Policy Committee. “Appropriately so, as the old system collapsed, having caused imprudent lending and encouraged reckless borrowing. Banking will probably get supervised rather more tightly than some of the utilities now.”
In a dark day for the City, the Government seized 57pc of Royal Bank of Scotland in return for injecting £15bn of equity and £5bn of preference shares. The merger of HBOS and Lloyds TSB will proceed on new terms, but the taxpayer will own 43.5pc of the combined group after HBOS raises £8.5bn in equity from the Government and £3bn in preference shares, and Lloyds gets £4.5bn in equity and £1bn in preference shares.
Three board members at RBS and two at Lloyds/HBOS will be appointed by the Government, which has begun to dictate lending policy. Using its new mandate, the Government insisted both groups “maintain small business and mortgage lending to at least 2007 levels with the marketing of competitively priced loan products”.
As European leaders adopted similar measures to kick-start the global money markets, Gordon Brown said: “We must now put in place new structures and rules for the future. This cannot simply be a short-term rescue to paper over the cracks. Only a surgical approach that gets to the root of the problem will ensure the problems do not return.”
Bankers said Britain’s crippling dependency on the money markets was over, bringing an end to the rampant profit growth of recent years. For the public, it means the end of cheap credit, such as 125pc mortgages.
Credit Suisse estimates that £550bn of outstanding consumer loans are funded via the money markets, accounting for 40pc of consumer loan growth. A decade ago loan books were entirely supported by deposits.
Gerard Lyons, chief economist at Standard Chartered, added: “Bankers will now need to behave like they used to behave – with more sensible funding.” Reflecting the scale of the change, Financial Services Authority chief executive Hector Sants said: “Today signals the end of easy money.”
With bank profits slashed and their stakes vastly diluted, shareholders are facing significantly lower returns, although they have been invited to claw back the equity that the Government is providing in RBS and Lloyds/HBOS. Dividends are being suspended in RBS and Lloyds/HBOS until the preference shares are repaid, which could take five years.
Below, the shabby truth of the old broken order the central bankers created and supported, and which got us into mess we are in today. On fiat money, as Ben Bernanke likes to point out, more can always be created at will at virtually no cost and tossed from helicopters if need be. Why would City fat cats have acted any other way?
“The final outcome of the credit expansion is general impoverishment.”
Ludwig von Mises.
Greed that fuelled the crash: How city fat cats took home £17bn bonuses… as their banks crumbled
By Sam Fleming and Benedict Brogan Last updated at 2:30 AM on 14th October 2008
The scale of City greed was laid bare tonight on the day taxpayers handed British banks an historic £37billion lifeline.
As the seeds of the current financial crisis were being sown, bosses awarded themselves a record £17billion in bonuses.
The extent of the Square Mile’s reward system left MPs seething hours after Gordon Brown unveiled his unprecedented nationalisation of two of the nation’s biggest banks.
The Prime Minister called time on a bonus culture blamed for encouraging the risk-taking that brought the global financial system to brink of collapse.
However, it emerged that this year billions have been showered on the very bankers and traders at fault. The sheer scale of the payouts underlined the importance of Mr Brown’s pledge to end the ‘rewards for failure’ during what he called the ‘Age of Irresponsibility’.
—-But startling figures showed Mr Brown’s bank bail out will mean the biggest increase in debt by any peacetime government, equivalent to £10,000 for every man, woman and child in the country or more than £40,000 for every family.
Lenders including state-owned Northern Rock refused to pass on a 0.5 percentage point cut in interest rates to cash-strapped lenders - even as the Government pledged to ensure a good deal for borrowers.
There were calls for the Lloyds TSB/HBOS merger to be abandoned amid claims it would reduce consumer choice while feather-bedding jobs in Alistair Darling’s Scottish constituency.
Below, Euroland joins in crony central bank rescue of friends and family. No Bilderberger left behind.
Money has no country.
Jules Bertillon. A House of All Nations. 1938. Christina Stead.
Europe stuns with €1.5 trillion bank rescue, as France plays role of saviour
Germany, France, Italy, Spain, Holland and Austria have joined forces to launch the greatest bank bail-out in history, offering over €1.5 trillion in guarantees and fresh capital in a “shock and awe” blitz to halt the credit panic.
By Ambrose Evans-Pritchard Last Updated: 9:01PM BST 13 Oct 2008
The move – unveiled simultaneously in the six states to maximise the show of unity – throws the full weight of the eurozone behind global efforts to stem the crisis.
The move gave a tremendous boost to bourses across Europe, lifting the Euro Stoxx index by 9.53pc in the biggest one-day rally ever.
The pan-European plan – totalling over $2 trillion, or £1.17 trillion – completes the third leg of a dramatic restructuring of finance across the Western world. Sovereign states have now absorbed the brunt of the credit risk in half the global economy.
—-”The French state will not let a single bank fail. We have to unblock the interbank market because money has stopped circulating, but it is a reasonable bet that by offering this guarantee, it won’t actually be needed,” he said, unveiling a French package worth €320bn in guarantees for fresh interbank loans and a €40bn bank rescue fund.
Sarkozy has emerged as the statesman of the hour, shaping events as others dithered. He appears to have understood intuitively that credit paralysis would set off a dangerous downward spiral.
Germany’s rescue package totals €500bn, far bigger in per capita terms than America’s scheme. The bulk is to guarantee interbank lending, while €100bn is for a stabilisation fund to recapitalise banks and cover losses – with strict pay limits for executives.
“We have placed the first foundation stone of a new financial order,” said chancellor Angela Merkel, underlining that nothing would ever be the same again in banking.
She also warned that the US government’s “massive support” for the Detroit car industry would create a major headache for Germany’s producers, who are already struggling. BMW said yesterday that it would idle plants in Leipzig, Regensburg and Munich as demand fell.
Italy’s finance minister Giulio Tremonti said Rome would provide as much money “as necessary” to stabilise credit markets. Italy’s plan includes the injection of up to €40bn in fresh capital into the banks on a “case by case” basis, through preference shares.
The Netherlands is offering a €200bn guarantee; Austria is putting up €100bn, as is Spain – as a “preventive measure”. Debts issued before the end of next year will be guaranteed for five years under all the national plans.
Diplomats say the world owes a great deal to France’s finance minister, Christine Lagarde. A former chair of the US law firm Baker McKenzie and a friend of US Treasury Secretary Hank Paulson, she has been a bridge between the EU and Washington, helping to end the transatlantic sniping that has damaged market confidence over the past year. The close co-operation is in stark contrast to the catastrophic rift in October 1931, when France set off a wave of US bank defaults by pulling its gold out of New York.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3191459/Europe-stuns-with-1.5-trillion-bank-rescue-as-France-plays-role-of-saviour.html
Below, the US government reverses itself in less than a week and jumps aboard the European socialist bank bailout. When virtually free money is being passed out, even capitalist bankers pass through the door marked socialist.
Wall Street is always the same: only the pockets change.
Jesse Livermore.
Treasury Said to Invest $125 Billion in U.S. Banks
By Robert Schmidt and Peter Cook
Oct. 14 (Bloomberg) — The Bush administration will invest about $125 billion in nine of the biggest U.S. banks, including Citigroup Inc. and Goldman Sachs Group Inc., in the government’s latest attempt to shore up confidence in the financial system.
The proposed cash injections in exchange for preferred shares are part of a $700 billion rescue approved by Congress and follow similar moves by European leaders to unfreeze credit markets by helping beleaguered banks. The other companies are Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., said people briefed on the plan.
“They’ve decided they need to do something drastic and this is drastic,” said Gerard Cassidy, a bank analyst at RBC Capital Markets in Portland, Maine.
The purchases represent a new approach for Treasury Secretary Henry Paulson, who first promoted a bailout targeted at illiquid mortgage-related assets. The urgency for a more immediate infusion has grown as banks struggle to regain the confidence of investors, counterparties and clients after bad loans caused more than $635 billion of writedowns across the industry. Paulson will discuss his plan at a press conference at 8:30 a.m. today in Washington.
The prospect of government support sent stocks higher around the world. The Standard & Poor’s 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance. Asian stocks also surged, with the Nikkei 225 Stock Average jumping 13.4 percent, the most ever.
`Big Wallop’
“The government has gone to Plan B and it packs a big wallop,” said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each, people said.
The government will obtain its stakes with a type of security designed not to dilute the value of common shares.
None of the nine banks getting government money was given a choice about it, said people familiar with the plans. All of the banks involved will have to submit to compensation restrictions as mandated by Congress, people said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0DqEDw4VVzE&refer=home
Even Australia got in on the new wave of socialism sweeping the west, doling out taxpayer largess to pensioners, home buyers and families. The race to hyper-inflation has gone global. The race to national bankruptcy has begun. The voters among the targeted group of course, know how to vote at the next election. Bad money continues driving out good. Stay long gold and silver.
Always back the horse named self-interest, son. It’ll be the only one trying.
Jack Lang - Labour Premier of Australia.
Rudd to Spend A$10.4 Bln to Guard Australian Economy
By Gemma Daley
Oct. 14 (Bloomberg) — Australia will give pensioners, home buyers and families A$10.4 billion ($7.3 billion) in a spending package to boost the economy as the global financial crisis freezes credit and slows growth.
Prime Minister Kevin Rudd will use half the government’s estimated budget surplus to encourage consumer spending and bolster the economy, which grew at the slowest pace in more than three years in the second quarter as the housing market slumped, retail sales dropped and stock markets tumbled.
“This strategy will strengthen the national economy and support Australian households, given the risk of a deep and prolonged global economic slowdown,” Rudd told reporters in Canberra today.
The spending package follows moves this week by Rudd and his Treasurer Wayne Swan to guarantee all deposits and “term wholesale funding” among the nation’s banks. They also doubled the government’s investment in residential mortgage securities to A$8 billion in a bid to unlock credit. Australia’s central bank pre-empted global interest-rate cuts last week.
“This package could boost economic growth by 0.9 percentage point in the fourth quarter of this year and the first quarter of 2009,” said Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne.
http://www.bloomberg.com/apps/news?pid=20601080&sid=aob0P5PzdxZ4&refer=asia
Unsurprisingly, the collateral damage of the new skewed system started to appear almost immediately. Below, the Yen carry trade gets a new lease on life, crude oil soars, and everyone in the world gets access to the unlimited dollar pit of the Fed.
You know the difference between involvement and commitment don’t you? In a meal of bacon and eggs, the chicken is involved, the pig is committed.
Richard Pratt – Australian Billionaire
Yen Falls Against Euro as Bank Rescue Supports Carry Trades
By Stanley White and Ron Harui
Oct. 14 (Bloomberg) — The yen fell for a second day against the euro as increased support for banks by European and the U.S. governments encouraged investors to add to holdings of high-yielding assets funded in the Japanese currency.
The yen also slid against the Australian and New Zealand dollars, two favorites of so-called carry trades, as people briefed on the U.S. plan said the Treasury will buy stakes in banks including Citigroup Inc. and JPMorgan Chase & Co. The euro and the pound rose against the dollar after European countries committed $1.8 trillion to guarantee bank loans.
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=acrpzUjyTI3o
Oil Rises for a Second Day as Governments Move to Support Banks
By Christian Schmollinger
Oct. 14 (Bloomberg) — Crude oil rose in New York, heading for its biggest two-day gain in three weeks, as governments in the U.S. and Europe acted to stem the worst financial crisis since the 1930s.
Oil followed stock markets higher as the Bush administration plans to in inject about $125 billion into nine major U.S. banks in a push to restore confidence. The International Energy Agency last week said global oil demand this year will grow at the slowest pace since 1993 as economies slide into a recession.
“We had a big bounce in the equity market so there is some hope that we’ve reached a bottom,” said Toby Hassall, a research analyst with Commodity Warrants Australia Ltd. in Sydney. “At the moment the market is just reacting to sentiment day to day. The underlying economic situation is not going to be supportive for prices.”
Crude oil for November delivery rose as much as $2.49, or 3.1 percent, to $83.68 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $83.18 a barrel at 12:38 p.m. Singapore time. Oil has climbed 7.1 percent in the past two days, the most since Sept. 22.
Prices, which are down 3.1 percent from a year ago, have dropped 44 percent from the record $147.27 a barrel reached on July 11.
http://www.bloomberg.com/apps/news?pid=20601090&sid=a3YohreGMJ04&refer=france
An unlimited guarantee requires unlimited access to financing …
Posted on Monday, October 13th, 2008 by bsetser
Over the weekend, the countries of the G-7 indicated that they would do “whatever it takes” to prevent another Lehman-style bankruptcy. They pledged to “use all available tools to support systemically important financial institutions and prevent their failure. ”
Many European banks need access to short-term dollar financing to support their dollar assets, as we discovered after Lehman default’s led to a run on money market funds. Today, the Fed and the major European central banks made sure that any European bank that needs dollars will get dollars:
“The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment. Funds will be provided at a fixed interest rate, set in advance of each operation. Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction. Accordingly, sizes of the reciprocal currency arrangements (swap lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be increased to accommodate whatever quantity of U.S. dollar funding is demanded.”
Emphasis added.
Any word, when over-used, loses its impact — but this really is unprecedented.
The US and the major European central banks have effectively agreed to lend without limit to make good on their pledge to avoid a systemic bank failure. All major financial institutions in the G-10 ultimately now have access — through their national central bank — to the Fed. This isn’t quite a global lender of last resort (in dollars) but it is close. Banks are different than countries, so the analogy is imprecise — but back when emerging economies had trouble rolling over their short-term dollar debts during the crises of 97-98, the G-7 never pledged to lend “any amount” needed.
Lending to countries through institutions like the IMF isn’t collateralized — but it also was never unconditional.
—–Step 1 is to guarantee against failure — or at least the kind of failure that leads to losses for unsecured creditors. If such guarantees are credible — and money market funds stop losing funds, so they have money to lend — that should guarantee that any systemically important institution can borrow the funds it needs to repay its maturing short-term debts, no matter how troubled its balance sheet. Short-term bank debt would be as good as short-term Treasury debt.
Below a reality check on the real world still heading into global recession. The great central bank, busted-banker bailout is now destabilising commodity markets but is unlikely to set off a new bubble in homes.
U.K. Home Sales Fall to Lowest Since at Least 1978, RICS Says
By Svenja O’Donnell
Oct. 14 (Bloomberg) — U.K. home sales fell in September to the lowest level in at least three decades, led by London, as the financial crisis prompted price drops across the nation, the Royal Institution of Chartered Surveyors said.
Estate agents and surveyors sold an average of 11.5 homes last month, the lowest level recorded since the series began in 1978, RICS said in an e-mailed report today. In London, the figure was 8.3. The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 84, compared with 82 in August.
—-Prices declined further in London, Wales, the North, the North West and the East Midlands, and the price balance fell to the lowest on record in Scotland, RICS said.
—–Consumers have pared spending as weakening house prices and the slowing economy squeezes incomes. Sales in U.K. shops open at least a year fell an annual 1.5 percent in September, the British Retail Consortium, which represents 80 percent of stores, said in a separate report today. Clothing, footwear, furniture and household goods led the drop.
—–Economic growth stalled in the second quarter, ending the longest stretch of uninterrupted expansion in a century. The International Monetary Fund predicts the U.K. economy will contract 0.1 percent next year after forecasting growth of 1.6 percent six months ago.
http://www.bloomberg.com/apps/news?pid=20601085&sid=aZX0a3R.mszI&refer=europe
Reinhart Cotton Losses May Force Sale After Trading Cash Crunch
By Yi Tian
Oct. 14 (Bloomberg) — Paul Reinhart Inc., one of the biggest U.S. cotton merchants, told farmers last month it faced a “severe liquidity crisis” after suffering “significant losses” when futures prices jumped to a 12-year high in March.
An “unexpected, historic run-up” in cotton led to margin calls on futures contracts, stripping the company of “virtually all available cash,” R. Dale Grounds, president of Richardson, Texas-based Reinhart, said in a Sept. 23 letter sent to farmers. In the six days ended March 5, cotton jumped 15 percent, prompting a government probe of potential market manipulation.
Reinhart, which began as a Swiss cotton importer in 1788, was considering selling its assets to competitor Allenberg Cotton Co., according to a copy of the letter provided to Bloomberg News by a farmer who received it and asked not to be identified. Grounds, reached by telephone Oct. 10, confirmed the letter was sent and said it “stands for itself.” He declined further comment. Tommy Malone, chief operating officer of Cordova, Tennessee-based Allenberg, also declined to comment.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aP1l7qfdFUKY&refer=home
Copper, Oil Lead Commodity Climb as Equities Jump on Bank Plans
By Glenys Sim and Catherine Yang
Oct. 14 (Bloomberg) — Copper headed for the biggest two- day gain since at least 1986 and crude oil rose, leading an advance in commodities as equities jumped after governments agreed to support banks and flood the financial system with cash.
Gold advanced for the first time in three days, soybeans extended a gain from a 13-month low, and corn increased. Stocks climbed worldwide, driving the MSCI World Index to its biggest two-day gain on record, after the U.S. said it will invest about $125 billion in nine banks.
“It was an unprecedented move and a necessary move to restore confidence from depositors in these institutions,” Simon Rose, chief executive officer of Dahlman Rose & Co., said in a Bloomberg Television interview today. “It’s not only what the U.S. is doing, but certainly a concerted effort globally in order to restore significant confidence in the banking system.”
Commodity prices measured by the CRB index gained 3 percent yesterday after plunging 20 percent in the past two weeks on a worsening global economic growth outlook as banks failed and credit markets froze.
http://www.bloomberg.com/apps/news?pid=20601012&sid=aiEFTuG9Ebro&refer=commodities
OCTOBER 14, 2008
‘Smart Money’ Stays on the Sides
Hedge-Fund Chiefs Like Cohen, Paulson Move to Cash to Ride Out Storm
Some hedge-fund titans have yanked most of their money out of the stock market, a bearish sign amid Monday’s euphoria and an indication of how the hedge-fund business is changing amid chaos.
In recent days, Steven Cohen, the hedge-fund manager who runs the $14 billion SAC Capital Advisors, moved about half his funds, or about $7 billion, into money-market and other short-term securities, eliminating much of his fund’s exposure to the stock market, says a person close to the fund. Mr. Cohen plans on sitting on the sidelines for the rest of the year — trading a small portfolio himself but keeping shuttered most of the stock portfolios of his other managers.
Israel Englander, who runs the $14 billion Millennium Partners fund, has shifted about $6 billion from the stock market into cash, a person close to the fund says.
Meanwhile, John Paulson, manager of $35 billion Paulson & Co. — who made a spectacularly successful bet against the housing market last year — has much of his fund in cash equivalents.
The retrenchment by Wall Street’s “smart money” crowd is part of a larger effort by hedge funds that have put a total of as much as $400 billion into cash equivalents recently, according to David Kostin, an analyst at Goldman Sachs Group Inc.
Of course, much of the smart money has been wrong in the credit crisis. Many hedge funds have lost big money in the past year. That said, Messrs. Paulson, Cohen and Englander have fared better than most: Mr. Paulson’s main fund is up about 20% this year; Mr. Englander’s main fund is down 0.5%; and Mr. Cohen’s main fund is down more than 9% through September. This compares with a 29% loss in the Dow Jones Industrial Average, year to date.
Goldman’s Mr. Kostin says some hedge funds are being forced to sell to meet investor redemptions. For their part, Messrs. Cohen and Englander have moved to cash because of extreme market chaos and investor panic, according to people familiar with their thinking.
http://online.wsj.com/article/SB122394318763531045.html
For now, no one expects the euphoric socialist bank bailout to go wrong. Gordon Brown has single handedly saved the western world from greed, theft, fraud and deceit in the gambling banks run by spivs. What could possibly go wrong? We end for the day with the rising nagging worry, what if it does go wrong and countries have to raise the money to pay for it? If a global recession lies ahead, paying for it will very likely prove all too difficult for too many countries, large and small . National bankruptcy will loom for some. Meanwhile right across the economy, others will also be looking for another state rescue, the expectation is now there that they have a right to expect it. I suspect that we have entered a sophisticated game of musical chairs. It now pays more than ever to know the controller of the music.
OCTOBER 14, 2008
Next Move in European Bailouts: Paying for Them
Governments’ Bets on Banking Systems Begin to Lift Markets and Ease Lending, but Expose State Finances to Risk
Now that governments across Europe have stepped in with bold plans to bail out their banking systems, they are facing a new challenge: How to pay for it all.
The U.K., Germany, France, Spain and Italy on Monday provided further details of measures that will see their governments spend tens of billions of pounds and euros on stakes in struggling banks and offer hundreds of billions more in guarantees aimed at helping banks borrow the money they need to do business. The U.S. followed suit late Monday, telling the nation’s top financial institutions in a meeting in Washington that it would buy preferred equity stakes in those banks, and lift the insurance limits for non-interest bearing bank deposit accounts, among other measures.
But even as markets rose sharply on news of the concerted efforts, economists were fretting about the potential effect on taxpayers and government finances.
In essence, governments are making massive bets on the futures of their banking systems. If the plans work and banks do well, taxpayers could profit as the value of the government stakes rises. But if banks suffer further losses, governments could see their national debts grow and credit ratings fall as they are forced to pay up on guarantees. That, in turn, could boost governments’ cost of borrowing, discourage private investment and put the brakes on economic growth.
“It’s incredibly risky,” said Simon Johnson, a professor at MIT and former chief economist of the International Monetary Fund. “You don’t really know the losses that these [banks] are going to have.”
—– For the most part, Europe’s larger governments are in a position to absorb even extreme bank losses. In Germany, a theoretical loss of all of the €480 billion in capital injections and guarantees would raise the country’s net national debt to around 75% of gross domestic product, from around 56% now.
Countries whose public debts already exceed 100% of GDP, such as Italy, might have bigger problems coping with such losses, Mr. Gros said. Smaller countries that are home to large banks could also face difficulties. Switzerland, for example, is home to one of Europe’s largest banks, UBS AG, which has already suffered some $42 billion in write-downs on bad investments.
Banks that participate in the plans won’t get a free ride. Governments intend to charge participating banks for the guarantees, and will also have a say in dividend policies and executive pay. Germany, for example, will charge a fee of at least 2% annually of the amount guaranteed. The U.K. will charge 0.50% plus the cost of default insurance on a bank’s debt.
http://online.wsj.com/article/SB122387888344928121.html
Assuming in the rather unlikely event that this gambling bankers rescue plan actually works as intended, and somehow we avoid the global recession and return the world to boom after a pause of about a year, what then? My guess is that all the shock and awe, newly created money out of thin air, sets off the great hyper-inflation. Trillions of new cash gets multiplied up through by the system to chase scarce natural resources that don’t get magically multiplied up to match the new cash.
Stay long physical gold and silver. I suspect our magic socialist bailouts have only bought us time. I rather doubt that Gordon Brown has saved the world, whatever the spin. The example of tiny Iceland is a warning to all. Hocus-pocus banking there imploded in less than a month taking the Icelandic fiat currency with it. Assuming that those warning of a major recession ahead are likely to be right, we have only bought time to get forward to next year’s even bigger set of problems. Q1 09 is all too likely to be brutal, though don’t tell the PPT, who for now represents the buyer of last resort for slimming down risky stock positions. Central bankers are giving certain hedge funds a walk, if they are wise enough to take it.
For this week, more euphoria at first, aided by the full moon and the PPT, then the battle of the index option settlements. The last battle of the old corrupt regime. Watch and enjoy, the financial world’s equivalent of the last cavalry charge. Next week, the slime system starts in earnest. What have we just done, to future generations?
Each success only buys an admission ticket to a more difficult problem.
Henry Kissinger.
Sunspot cycle 24. With sunspot cycle 25, the next two global cooling cycles perhaps. The new “Dalton Minimum?” Almost a year now with low sunspots numbers, and counting. http://en.wikipedia.org/wiki/Dalton_Minimum
Smoothed sunspot numbers (SSN). Oct. 0.9. The end of cycle 23.
Sunspot cycle 24: Nov 1.7. Dec 10.1. Jan 3.4. Feb 2.2. Mar 9.3 April 2.9. May: 2.9. June 3.1. July 0.5. August 0.5. Sep 1.1
At the Comex silver depositories, the figures finished Monday as follows: Registered 83.90 Moz, Eligible 50.25 Moz, Total 134.16. Moz.
The NYSE WIN system is now flat. The NASDAQ system is also flat. We will wait for better market conditions to resume trading the system. More details on the WIN system are available at link below.
http://website.lineone.net/~audluk/tocframe.htm
The monthly Coppock Indicators finished September:
DJIA: -116 down. NASDAQ: -107 down. SP500: -137 down. All 3 indicators reversed in November 07, ending long term buy signals and have now dropped to negative numbers and are still accelerating to the downside.
This week’s featured link:
No stock of the week this week. It doesn’t feel the right time to jump back in to stocks. In current conditions, good news from good companies is unlikely to be noticed. Crony bank capitalism died last week, but we are still not yet sure exactly what is replacing it and how it works on the ground. Today the full moon. Later this week, index options expiration. Possibly this week, details of which hedge funds and others blew up. If letters of credit really have frozen, spot trading in commodities will become one of the first casualties. This is a critical time of capital and wealth protection. There will be time enough later to make informed judgments on our evolving new world socialist order.
A Personal Disclosure.
Over the last few months, many of the stocks we’ve linked to have made some interesting moves. Possibly because of the LIR link, more likely because of the underlying company and good management. Going forwards, I expect the commodities demand cycle to last another couple of decades due the economic rise of Asia . But the immediate economic picture looks very threatening.
To me owning most stocks at this time offers a poor risk-reward balance, accordingly I will sit out developments in cash and precious metals stocks. This summer looks particularly dangerous for longs, with the unfortunate possibility of more major large international financial companies failing. Accordingly beginning yesterday July 7, I have started liquidation of my remaining holdings. There ought to be ample opportunity to re-enter the market nearer the year end, when the result of the US election will be known, and hopefully by then, the end of the credit crisis in 2009 will be coming into view.
Junior resource companies are not suitable for everyone, but for those who are interested in that sector, we aim to provide companies of merit. As the new century unfolds and natural resource demand soars, I think, that there will be big money to be made from prudent investment in the sector. As always, it’s important to do one’s own due diligence if thinking about making an investment. No one has more at risk in an investment than you do yourself.
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