OT: Wim Hof, the Iceman

From BBC's Outlook program.

He can withstand extreme cold. A full marathon in the arctic circle with only shorts and sandals, bath in ice cubes, climbing Mt. Everest in shorts and without oxygen. He will be doing another marathon, this time in Sahara, without water, and he thinks what matters most is the will power.


(I think he is a direct descendant of Neanderthals.)

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Regulators Want to Regulate Derivatives.. Good Luck with That

If career bankers don't understand complex financial products of their own creation (see my previous post), do you think politicians and bureaucrats understand?

Regulators seek tighter oversight of derivatives
(10/7/09 AP via Yahoo Finance)

"WASHINGTON (AP) -- As two federal regulators asked a House panel to tighten proposed legislation imposing new oversight on derivatives, Republican lawmakers contended the measure already could eliminate jobs and stifle companies' ability to manage risks.

"A potent new coalition of about 170 companies that use derivatives -- including Boeing Co., Caterpillar Inc., Ford Motor Co., General Electric Co. and Shell Oil Co. -- is lobbying Congress to make the case that legislative proposals to regulate the complex financial instruments could severely increase costs for corporate America.

""The end-user community has been constantly knocking on my door," Rep. Frank Lucas, an Oklahoma Republican, said Wednesday at a Financial Services Committee hearing.

"Companies of all kinds use derivatives to hedge against risks -- airlines ensuring against spikes in fuel prices, for example. At the same time, the complex products have become a growing vehicle for financial speculation and ballooned into a $600 trillion global trade. Regulators say they pose a threat to the stability of the financial system."

(You can read the rest of the article by clicking on the link above.)

Opponents contend that the proposed regulation would raise the cost of capital by requiring large collateral from companies that use the derivatives for their operations.

I see a problem from a slightly different angle.

What would the government regulators do when the counterparties renege on the derivative contracts, and those counterparties happen to be foreign entities? Or worse, foreign government entities? How do they enforce the regulation across the border? Do they have jurisdiction? (Short answer is No.)

Chinese government-sponsored corporations come to mind. They are threatening to default on commodity derivatives now, and they already defaulted on the forex derivatives last year (see this post from Tavakoli Structured Finance, Inc., link was from Jesse's Cafe Americain).

And their counterparties? I read somewhere long time ago that 10 biggest players in the world in derivatives trading get 90% of the business. It's not hard to guess who, and many of them are U.S. banks.

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John Thain: No One Understood CDOs

including himself. Should have said that clearly years ago. This from the Business Insider:

John Thain Admits He Didn't Understand Merrill's Risks
(John Carney, 10/7/09 The Business Insider)

"The bankers and traders dealing in CDOs didn't understand what they were doing, John Thain said in a recent speech.

"“To model correctly one tranche of one CDO took about three hours on one of the fastest computers in the United States. There is no chance that pretty much anybody understood what they were doing with these securities. Creating things that you don’t understand is really not a good idea no matter who owns it,” the former Merrill Lynch chief executive said in a speech this month, according to Financial News."

To be fair, as the writer points out, Thain, former CEO of New York Stock Exchange before he landed on Merrill Lynch, seemed to be clueless to begin with, without saying so explicitly. In his January 2008 conference call, as quoted in the article, Thain said:

It’s very hard to get much more detail to that other than -- unless you actually run the individual positions. The only thing I would say is we believe that we are being conservative on these marks and we think that at the levels that they are marked, we will in fact be able to sell them and/or that they represent value at where they are marked.

Translation: I haven't a clue but I do believe these marks are good enough and we can sell them to equally clueless suckers, umm, buyers.

The Business Insider article concludes:

"We think it's good news that Thain is now emphasizing the knowledge problem when it came to banking--highly paid, well-educated people at the top of their field just didn't understand the credit derivative products they were buying and selling. This is important as much of our financial reform seems to ignore this problem, focusing instead on fixing incentives in compensation."

Good news? They are still buying and selling. Not just that, securitization is back again, assembling legacy CDOs of dubious quality and slapping some form of insurance on the assemblage, and voila, AAA-rated debt security is reborn (read the article about Morgan Stanley's new old effort). So what changed? Not much.

The new buyers - big institutional buyers - (probably they were old buyers, too) must know that they are buying things that they don't quite understand, as Thain says, and that they are risky. But most importantly, they now know there's always a backstop somewhere (the Federal Reserve anyone?), some mechanism to dump their losses on to the least organized stakeholders, i.e. taxpayers who get the privilege to pay for the mistakes but zero chance of participating on the upside.

(Sure, some banks returned TARP money with interest, but was that money refunded to the taxpayers, however small? Noooo.)

"It also undermines the idea that the Fed--or any other regulator--will be able to properly assess the risk of these kinds of derivatives."

They won't be able to. That's why they are fixating on compensation. They cannot even address incentives, because it's their very policy of easy money that distorts incentives. Add the various government backstops ("too big to fail", loan guarantees, etc.) to that, and the government regulators (so called) are just as guilty and complicit as the bankers in creating the mess we're in.

So who DID understand CDOs? Anyone?

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ABC: Is the U.S. Preparing to Bomb Iran?

According to ABC News, Pentagon seems to be getting ready to bomb Iran, with bunker-busting bomb on accelerated development and procurement.

Is the U.S. Preparing to Bomb Iran? (10/6/09 ABC News)

"Is the U.S. stepping up preparations for a possible attack on Iran's nuclear facilities?

"The Pentagon is always making plans, but based on a little-noticed funding request recently sent to Congress, the answer to that question appears to be yes.

"First, some background: Back in October 2007, ABC News reported that the Pentagon had asked Congress for $88 million in the emergency Iraq/Afghanistan war funding request to develop a gargantuan bunker-busting bomb called the Massive Ordnance Penetrator (MOP). It's a 30,000-pound bomb designed to hit targets buried 200 feet below ground. Back then, the Pentagon cited an "urgent operational need" for the new weapon.

"Now the Pentagon is shifting spending from other programs to fast forward the development and procurement of the Massive Ordnance Penetrator. The Pentagon comptroller sent a request to shift the funds to the House and Senate Appropriations and Armed Services Committees over the summer.

"The notification was tucked inside a 93-page "reprogramming" request that included a couple hundred other more mundane items.

"Why now? The notification says simply, "The Department has an Urgent Operational Need (UON) for the capability to strike hard and deeply buried targets in high threat environments. The MOP is the weapon of choice to meet the requirements of the UON." It further states that the request is endorsed by Pacific Command (which has responsibility over North Korea) and Central Command (which has responsibility over Iran). "

By the way, the Senate passed the $636 billion defense bill today, with 1 Democratic Senator (Feingold) and 6 Republican Senators (including John McCain) opposing. With troop increase in Afghanistan increasingly likely, the war planning of the U.S. government is shifting into high gear.

(A kiss of death to the stock market rally since March, or will the "irrational" market jump up on the news?)

Senate Passes $636 Billion Military Bill (10/6/09 Antiwar.com)

"The Senate today voted 93-7 in favor of the $636 billion defense appropriations bill to provide funding to the US military over the fiscal year beginning this month.

"The bill includes $128.2 billion in funding for the wars in Iraq and Afghanistan and bars President Obama from transferring any of the suspects at Guantanamo Bay to the US for trials.

"Two of the Senators voting against the bill, Sens. McCain and Feingold, objected to the $2.5 billion in continued funding for C-17 military aircraft. The Pentagon has said it doesn’t want the aircraft, and the Obama Administration has sought to cancel the funding for them.

"Sen. Feingold was the only Democrat to vote against the bill. The six Republicans included Sens. McCain, Enzi, Coburn, Demint, Barrasso, and Graham."

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Australia Shines

The sun is shining bright on "Down Under".

The country didn't go into recession in the current global downturn; its stock market is hitting the 14-month high, its currency is also hitting the 14-month high after the central bank RAISED the interest rate. Businesses are bullish on the future growth, and consumers are spending. Unlike EU and the U.S., real estate values have INCREASED this year.

That's what a healthy, growing economy does, I think.

Australia Helped by Rate Increase as Stocks Advance
(10/7/09 Bloomberg)

"Oct. 7 (Bloomberg) -- Mining companies and brewers are benefiting from an Australian economy that is growing so fast the central bank suddenly raised interest rates, buoying the currency and giving global investors another reason to favor Down Under among the world’s hottest markets.

"“If you bought stocks that you thought were exposed to economic growth, you can feel more confident that you made the right decision,” said Matlock, manager of the International Equity Fund at Huntington, which oversees $15 billion. “What the Australian central bank is tacitly saying is we’re pretty confident our economy is on firm-enough footing to withstand an increase in rates.”

"Australia raised its benchmark rate yesterday, becoming the first country in the so-called Group of 20 nations to boost borrowing costs since the start of the credit crisis, after it avoided a recession and Reserve Bank Governor Glenn Stevens said the “risk of serious economic contraction” had passed. Gross domestic product will rise 0.7 percent this year, bucking the 3.4 percent slide for advanced economies, the International Monetary Fund said last week."

Analysts and fund managers there think Australia has both the growing domestic industry that supplies to increasingly confident consumers and the export industry that produces what people in the growth region (mostly China and Asia) wants.

There are those, as featured in the Bloomberg article, who think the central bank raised the rate too soon with the economy still not on a sound footing. However, as many traders of stock markets know, it's the reaction to the news that matters, at least for now. Judging by the reaction of the Australian stock market to both the rate hike and the strength of Australian dollar, they like what they see down there.

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Officials Deny UK Independent Report

Officials denied the Independent's report (see my yesterday's post) that the Gulf states, along with China, Japan, Russia and France, will phase out the pricing of oil in US dollars over the next 9 years and substitute with the basket of currencies and gold.

Officials deny UK media report on move from dollar
(10/6/09 AP via Yahoo Finance)

"LONDON (AP) -- The dollar fell Tuesday towards year lows against the euro and the yen after a report that Arab states and other countries were contemplating an end to the U.S. currency's role in the pricing oil.

"The selling was stoked by an article in Britain's "Independent" newspaper that said secret meetings were taking place between Arab states, China, Russia, Japan and France, to end dollar dealings for oil and moving instead to a basket of currencies, including the euro, the yen and the Chinese yuan.

"Officials in several of the countries either denied talks or said they had no knowledge."

"Kuwait's oil minister, Sheik Ahmed Al Abdullah Al Sabah, said there have been no talks on the topic among Gulf oil ministers. "At our level, no," he said. "I didn't even dream about it."

"And the head of the United Arab Emirates' central bank, Sultan Nasser al-Suweidi, said the Gulf nation has no plans to stop pricing oil in dollars. "There has been no meeting ... whatsoever," he told The Associated Press, adding that the dollar "will continue as the price for oil.""

"At our level"? That's interesting.

The Independent's story could be false, although Robert Fisk is a highly respected journalist.

Regardless, U.S. dollar took the beating overnight in London, and the weakness continues in the U.S. forex market. The U.S. dollar index (DXY) now stands at 76.33 at 1:59 PM EST, recovering from the day's low at 76.103 after the London forex went offline at 12:00PM EST. Right now, only New York is open for forex trading.

We will find out how Sydney and Tokyo treat U.S. dollar when they come online at 5:00 PM EST and 7:00 PM EST respectively.

In the meantime, gold shot up $26 to a new high of $1,043. It's currently trading at $1,036, on the recovering US dollar.

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UK Independent: The demise of the dollar

Following up on my previous post, here's the article by Robert Fisk at U.K. Independent:

The demise of the dollar (Robert Fisk, 10/6/09 Independent)

"In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

"Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

"The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years."

Read the rest of the article by clicking on the link above.

That sudden jump in price of gold, silver, and natural gas in early September was indeed telling us something. Maybe.

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Oil Is to Stop Being Priced in US Dollar??

Drudge Report headline (4:00pm PST):

ARAB STATES LAUNCH SECRET MOVES WITH CHINA, RUSSIA, FRANCE TO STOP USING DOLLAR FOR OIL TRADING... DEVELOPING...

Rick Santelli of CNBC apparently broke the news earlier, and I found the video (around 1:30 mark). Santelli is saying the UK's Independent will break the news tomorrow.

Now, on Sunday I posted this about IMF: "IMF the De Facto Global Central Bank Printing Fiat Money". The power that be seems to have planned everything.

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OT: Saturday Night Live Does Obama

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McDonald's Does the Louvre

McDonald's restaurant and McCafe will open in the Louvre museum in Paris, France, next month. The horror, the horror... the French are livid.

McDonald's restaurants to open at the Louvre (10/4/09 Telegraph UK)

"Lovers of France's two great symbols of cultural exception – its haute cuisine and fine art – are aghast at plans to open a McDonald's restaurant and McCafé in the Louvre museum next month.

"America's fast food temple is celebrating its 30th anniversary in France with a coup -the opening of its 1,142nd Gallic outlet a few yards from the entrance to the country's Mecca of high art and the world's most visited museum.

""This is the last straw," said one art historian working at the Louvre, who declined to be named. "This is the pinnacle of exhausting consumerism, deficient gastronomy and very unpleasant odours in the context of a museum," he told the Daily Telegraph.

"Didier Rykner, head of The Art Tribune website found the idea "shocking".

""I'm not against eating in a museum but McDonald's is hardly the height of gastronomy," he said, adding that it was a worrying mixture of art and consumerism. "Today McDonald's, tomorrow low-cost clothes shops," he said."

To the French horror, Starbucks opened a cafe near the museum last year. And now McDonald's. What is the world coming to?!

What's really amusing, against these protestations from the cultured French, is that France is the biggest market for McDonald's outside the U.S.:

"However, even if there were a last-minute u-turn at the Louvre, statistics suggest the battle of Le Big Macs has already been lost. France has become McDonald's biggest market in the world outside of the US, according to the chain. While business in traditional brasseries and bistros is in freefall, the fast food group opened 30 new outlets last year in France and welcomed 450 million customers – up 11 per cent on the previous year."

The French are free not to patronize McDonald's or Starbucks if they so detest. I don't like Starbucks coffee myself. It just tastes like burnt coffee. I used to frequent McDonald's in European cities when I was there, not as a place to eat but as a convenient bathroom stop.

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Mark Twain: October and the Stock Market

"October. This is one of the peculiarly dangerous months to speculate in stocks. Others are November, December, January, February, March, April, May, June, July, August, and September." - Mark Twain (in Pudd'nhead Wilson's Calendar For 1894 October entry)

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IMF the De Facto Global Central Bank Printing Fiat Money

that's the SDR (Special Drawing Right).

THE IMF CATAPULTS FROM SHUNNED AGENCY TO GLOBAL CENTRAL BANK (Ellen Brown, 10/1/09 Web ot Debt)

“A year ago,” said law professor Ross Buckley on Australia’s ABC News last week, “nobody wanted to know the International Monetary Fund. Now it’s the organiser for the international stimulus package which has been sold as a stimulus package for poor countries.”

"The IMF may have catapulted to a more exalted status than that. According to Jim Rickards, director of market intelligence for scientific consulting firm Omnis, the unannounced purpose of last week’s G20 Summit in Pittsburgh was that “the IMF is being anointed as the global central bank.” In a CNBC interview on September 25, Rickards said, “They’ve issued debt for the first time in history. They’re issuing SDRs. The last SDRs came out around 1980 or ’81, $30 billion. Now they’re issuing $300 billion. When I say issuing, it’s printing money; there’s nothing behind these SDRs.”

IMF is doing WHAT? Issuing the SDRs backed by... nothing?

So I looked and found the following article from no other than IMF itself. And I learned that the SDRs are not only backed by nothing (it's nothing more than a "concept"), but IMF is giving them away for free.

IMF Injecting $283 Billion in SDRs into Global Economy, Boosting Reserves (Glenn Gottselig, 8/28/09 IMF Survey Online)

"With much of the world still mired in recession, the IMF took action to bolster its members’ reserves through an allocation of SDRs, or Special Drawing Rights.

"The allocation, equivalent to $250 billion, was made on August 28 and will be followed by an additional, albeit much smaller, allocation of $33 billion on September 9. With the two allocations totaling roughly $283 billion, the outstanding stock of SDRs would increase nearly ten-fold to total about $316 billion.

"There are no notes or coins denominated in SDRs, nonetheless the SDR does play a role as an interest-bearing international reserve asset. The allocation of SDRs by the IMF boosts member countries’ reserves because SDRs can be turned into usable currencies. Once the SDRs have been added to a member country’s official reserves, the country can voluntarily exchange its SDRs for hard currencies, such as the U.S. dollar, euro, yen, or pound sterling, through voluntary trading arrangements with other IMF member countries."

What is the SDR? IMF explains as follows:

"The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members."

In other words, it's a form of debt, which allows the holder to lay a claim on the "freely usable currencies of IMF members". Much like the U.S. Treasury debt, which is backed by nothing but the government's promise to give the holder a claim on the future money that the U.S. government will collect from hapless taxpayers. The value of the SDR is currently determined by a basket of four currencies, Euro, British Pound, Japanese Yen, and U.S. Dollar, and the SDR pays interest at 0.25%.

Now these $316 billion newly minted claims on four IMF member currencies have been already distributed throughout the world. It is another wealth transfer, as "$110 billion of the combined allocations will go to emerging market and developing countries, including over $20 billion to low-income countries." (IMF)

Out of nothing, the IMF member countries (just about every country in the world) have been given free claims to four leading currencies that are freely exchanged in the world market. (Here's the table that shows the SDR allocations.)

How could this not be highly inflationary?

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Matt Taibbi: Bad, Bad Goldman Lobbying Against Naked Short-Selling

Matt Taibbi, who wrote "Great American Bubble Machine" for Rolling Stones Magazine in June detailing Goldman Sachs' central role (as he sees it) in the booms and busts since the Great Depression, has another story coming up that will look at the history of Bear Stearns and Lehman Brothers collapses.

One of his focus seems to be naked short-selling, which SEC is now supposedly moving to ban. In the article that appeared in Lewrockwell.com (originally on True/Slant), he attacks naked short-selling as "crime" and lobbying of the Senate by Goldman Sachs against naked short-sale ban "disgraceful" and "hilarious" (borrowing the words probably from the Senate aids who gave him the Goldman's 'fact sheet'.):

An Inside Look at How Goldman Sachs Lobbies the Senate
(Matt Taibbi, 10/3/09 Lewrockwell.com)

After reading his article, several questions popped in my mind. Here, I want to discuss two of them in particular:

Question No.1: Did naked short-selling cause the crash in Bear Stearns and Lehman Brothers share prices?

For that matter, did it cause the huge drop in share prices in companies like Morgan Stanley, Wells Fargo, Citigroup, Bank of America, AIG, GE, and Goldman Sachs over 8 months from September 2008 to March 2009, when the market finally bottomed (for now)?

Andy Kessler wrote a very interesting article that appeared on Wall Street Journal in March. He thinks the bear raids, which caused the financial stocks to plummet and thus brought down the entire stock market, were done not by short-selling (naked or not) but by going naked long on CDS (Credit Default Swaps) that these financial firms held on their CDO and MBS. The article didn't get much publicity, but I think he is right on the money:

Have We Seen the Last of the Bear Raids? (Andy Kessler, 3/26/2009 Wall Street Journal)
"In a typical bear raid, traders short a target stock -- i.e., borrow shares and then sell them, hoping to cover or replace them at a cheaper price. Once short, traders then spread bad news, amplify it, even make it up if they have to, to get a stock to drop so they can cover their short.

"This bear raid was different. Wall Street is short-term financed, mostly through overnight and repurchasing agreements, which was fine when banks were just doing IPOs and trading stocks. But as they began to own things for their own account (MBSs, CDOs) there emerged a huge mismatch between the duration of their holdings (10- and 30-year mortgages and the derivatives based on them) and their overnight funding. When this happens a bear can ride in, undercut a bank's short-term funding, and force it to sell a long-term holding.

"Because these derivatives were part of the banks' reserve calculations, if you could knock down their value, mark-to-market accounting would force the banks to take more write-offs and scramble for capital to replace it. Remember that Citigroup went so far as to set up off-balance-sheet vehicles to own this stuff. So Wall Street got stuck holding the hot potato making them vulnerable to a bear raid.

"You can't just manipulate a $62 trillion market for derivatives. So what did the bears do? They looked and found an asymmetry to exploit in those same credit default swaps. If you bid up the price of swaps, because markets are all linked, the higher likelihood (or at least the perception based on swap prices) of derivative defaults would cause the value of these CDO derivatives to drop, thus triggering banks and financial companies to write off losses and their stocks to plummet." [emphasis is mine]

Question No.2: Does Matt Taibbi really think the purpose of Goldman's lobbying effort is to prevent the lawmakers from enacting the ban on naked short-selling?

I don't think Goldman Sachs cares one way or another if naked short-selling is restricted, because that's not how they maneuver the market. CDS is one very effective and less costly way to manipulate the value of the underlying assets, and thus affecting the share price of a company who holds those assets. More bang for the buck (i.e. leveraged). If politicians' attention is focused on naked short-selling, all the better, as long as there are unregulated, OTC derivatives markets. Have you heard anything going on to regulate the CDS market? There was some talk right after Lehman's collapse and AIG's rescue by the Fed/Treasury, but since then, zero. Zip. Nada.

Also, do you remember the ex-Goldman Sachs employee who was arrested just before the Fourth of July weekened, which burst open the high-frequency trading practiced most successfully by Goldman Sachs? Have we heard anything about it recently? No. Despite the demonstrable injury to small retail investors and professional investors, the talk of regulating or banning the practice died off almost completely. And here we are, making issues with naked short-selling which may or may not have caused the crash?

Goldman's lobbying actually reminds me of the supporters of the Senator Aldrich's bill to establish the Federal Reserve. When that bill died with the change of administration (Taft out, Woodrow Wilson in), a new bill was drawn up by (no other than) Glass that was basically the same as the old Aldrich bill (Owen-Glass bill, which was enacted as Federal Reserve Act in 1913). What did the supporters and co-conspirators of the central bank do? They vehemently opposed the passage of the bill. They lobbied against it. The perception was created that since the bankers were opposing, they must be really afraid of creation of the new powerful regulator (the Fed). The bill was passed, to the great benefit to the member banks, particularly large New York banks.

I smell a similar thing going on with Goldman Sachs lobbying against naked short-selling.

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If You Were Watching Treasury Auction Last September

...you might have been able to get the @#$% out of the stock market in time.

As I was looking for next week's treasury auction information at TreasuryDirect.gov for my other blog, it occurred to me, for some unknown reason, to take a look at CMB (Cash Management Bill) auctions, if any, in September 2008. Since I started tracking the Treasury auctions and Fed's open market operations in May, I know there are CMB auctions done for the Federal Reserve use, and not for the government use.

I wish I had checked these auctions when they were taking place in September 2008.

Here are the CMB auctions under the SFP (Supplementary Financing Program), which was initiated by the Treasury Department at the request from the Federal Reserve on September 17, 2008, the day A.I.G. was bailed out by the Federal Reserve:

September 17, 2008: 35-day CMB, $40 billion (Primary Dealer: $18.68 billion)
September 18, 2008: 76-day CMB, $30 billion (Primary Dealer: $20.58 billion)
September 18, 2008: 20-day CMB, $30 billion (Primary Dealer: $15.43 billion)
September 19, 2008: 45-day CMB, $30 billion (Primary Dealer: $20.47 billion)
September 19, 2008: 59-day CMB, $30 billion (Primary Dealer: $19.60 billion)
September 24, 2008: 7-day CMB, $40 billion (Primary Delaer: $18.34 billion)
September 25, 2008: 34-day CMB, $40 billion (Primary Dealer: $23.98 billion)
September 26, 2008: 101-day CMB, $60 billion (Primary Dealer: $33.60 billion)
September 30, 2008: 15-day CMB, $45 billion (Primary Dealer: $34.05 billion)

September Total: $345 billion

Of that, Primary Dealers absorbed $204.73 billion, 59.3% of the total issue.

On September 4, 2008, the Federal Reserve's balance sheet was $935 billion.

On October 2, 2008, it swelled to $1,274 billion.

(Currently, it stands at $2,179 billion, the level attained since early November 2008.)

At that time, the news focus was on the gyrating stock market and the political front (Fannie and Freddie effectively nationalized, Lehman Brothers bankrupted, AIG effectively nationalized, short sale ban on financial stocks, bank bailout bill pushed by then-Treasury Secretary Paulson and the Fed chairman Bernanke - for more on those hectic days, see my "What the @#$% Happened" series of posts in the "In case you missed" box of the blog). The focus was more on the bank bailout bill as the month progressed, and many analysts, economists, pundits were busy hyping the bill as the savior and cure-all.

"What would happen if we DIDN'T pass this bill?? It would be a DISASTER!!"

was a scream I often heard in certain cable network (that starts with C and ends with C).

We all know what exactly happened the moment the bill was passed: the stock market took a nosedive and kept on diving for 8 trading days.

That caught many investors, big and small, off-guard, myself included. For many people, their portfolios took a huge dent in a very short time.

But if I had paid attention instead to the almost frantic auctions of CMB in September, I could have sensed that things were not well at all, and it was not just the matter of AIG if they needed to raise over $300 billion in such a hurry. I would have probably get out of my long positions, and even bought short ETFs.

This year, the stock market swooned on October 1 on a larger volume, and continued to go down the next day. Many analysts and pundits as well as traders are calling an imminent sizeable correction, if not outright crash (though some do); perhaps they are doing it so that they wouldn't be accused of being caught off-guard yet again, after one year.

This time, however, at least one thing is different: the Treasury Department wasn't frantically raising money via CMB in September.

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OT: Who Was Michelle Obama's Speech Writer?

He/she should have checked some basic facts before letting Michelle speak in front of International Olympic Committee in Copenhagen...

From LRC Blog at Lewrockwell.com.

Michelle the First Fibber (Lew Rockwell, 10/2/09 LRC Blog)

Writes Jonathan O’neal:

Michelle Obama lied the whole time in her Olympics pitch. Big surprise, huh? She refers at one point to the time that she watched, from her father’s lap as Carl Lewis broke all of the records. Carl Lewis is only 3 years older than Michelle Obama, and his career took off around 1981. I assume that she was referring to the 1984 Olympics. This would have made Michelle a twenty-year-old college student, sitting in her father’s lap and dreaming of becoming an Olympic athlete. Late start, huh? Next, we’ll hear about how her helicopter was fired upon during the ‘88 Olympics, and she was forced to make an emergency landing while under intense sniper fire.

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IMF Wants to Collect from Banks

If you've been deriding those who mentions NWO (New World Order; Mr. Kissinger's remark after 2:00 mark) as "conspiracy nuts", it's staring right in your face if you care to recognize. The so-called conspiracy is not done in some dark, smoke-filled back room. It's in your face.

IMF, an institution no developing country wanted to deal with any more before the financial crisis and the global recession triggered by it, is back to wheeling and dealing. The crisis has been God-sent for their raison d'être; it clearly revitalized the institution, with funds pouring in from China, Japan, and Russia, dispensing money and austerity programs again to countries who suddenly found themselves facing insolvency.

Feeling confident that it is finally becoming what it was designed back in 1944 in Bretton Woods, IMF has started to talk like the global central bank.

IMF presses for tax on banks' risky behaviour (10/2/09 Guardian UK)

"The International Monetary Fund today threw its weight behind a new tax on the global financial sector designed to limit risky speculative behaviour and help the world's poorest countries.

"Dominique Strauss-Kahn, the IMF's managing director, said banks and other big financial institutions were responsible for systemic risk and it was only right that they provided resources to mitigate those threats to the world economy."

With due respect (meaning I don't have much respect), I disagree with Strauss-Kahn's assessment that banks and financial institutions were responsible for systemic risk. The ones who were truly responsible were the central banks, and one in particular, the U.S. Federal Reserve, and politicians who need central banks to print money for their grandiose government policies and projects. Mr. Strauss-Kahn was the Finance and Economy Minister under Lionel Jospin's cabinet from 1997 to 1999, and has been the Managing Director of IMF since November 2007.

And who will define what the "risky behavior" is? IMF bureaucrats under the direction of member countries' politicians?

And why should IMF direct banks to help the world's poorest countries? Whatever tax is assessed on banks' activities, it will ultimately be paid by the taxpayers of mostly developed countries where those "risky" banks reside. It will be paid either through increased fees for bank transactions, or through outright bailout.

That will be on top of the extra burdens that the taxpayers are straddled with in the form of "stimulus" programs, new taxes, and bank bailouts.

The finance minister of Brazil, host to 2016 Olympics, expressed support for IMF as 'central bank':

Brazil would support "central bank" role for IMF (10/2/09 Reuters)

"ISTANBUL, Oct 2 (Reuters) - Brazil would support the International Monetary Fund acting as a kind of global central bank, offering liquidity and currency swaps, Brazilian Finance Minister Guido Mantega said on Friday.

"Such a role for the IMF would be part of increasing coordination in global policy and efforts to fix economic imbalances between countries, Mantega told reporters at the semiannual meeting of the IMF in Istanbul."

What the hell is "economic imbalances between countries"? That some countries are richer than the other? Is that something bad?

Toward the end of the article,

"The idea of the IMF effectively becoming a global central bank is one of many ideas for radical reform informally discussed by officials and academics around the world over the past year."

Sorry. That idea may seem "radical", but it's hardly new. As I said earlier, that was exactly the original intent when IMF was created along with what has become World Bank in 1944 at Bretton Woods. (For more on the subject, I highly recommend The Creature from Jekyll Island: A Second Look at the Federal Reserve)

You know what's next: global currency. Oh wait, they have been talking about that for quite some time already (China wants one and UN wants one). Maybe they have already picked the name for the currency then. Oh wait again, John Maynard Keynes already picked the name: it's "Bancor".

Technocrats in regional and global organizations like EU, IMF, World Bank are increasingly dictating how we live our lives. If you are not a 'globalist' and if you still insist on national sovereignty (not to mention regional or local sovereignty), you might be accused of being a "racist", a popular word these days to describe any opposition to official policies.

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Chicago Lost Olympic Bid

despite promo by the U.S. Presidential couple + Oprah..

Rio de Janeiro will host 2016 Summer Olympic, the first ever in South America.



First round: Madrid 28, Rio 26, Tokyo 20, Chicago 18 (Chicago out)

Second round: Rio 46, Madrid 29, Tokyo 20 (Tokyo out)

Third round: Rio 66, Madrid 32 (Madrid out)

(Vote counts from Reuters "WRAPUP 3-Olympics-Rio win 2016 Games as IOC rebuff Obama", 10/2/09)

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What Difference Does A Year Make?

not much, really...

These are from the headlines from Investor's Business Daily newspaper on October 2nd, 2008, describing what transpired on October 1st:

Dow Jones Industrial Average ended at 10,831, S&P 500 at 1,161, and Nasdaq at 2,069.

(Nasdaq has come back to that level after one year. Dow and S&P about 11-12% below.)

Mortgage Rescue Returns To Senate; House Vote Friday

(After one year, not much of a rescue for homeowners whose mortgages are underwater.)

Buffett Will Buy $3 Bil GE Stake

(GE was $22 stock. Now it is $16. Mr. Buffett is under water on GE, though it is more than made up by his investment in Goldman Sachs.)

Factory Index Hits A 7-Year Low: Sept's ISM manufacturing index dived 6.4 points to 43.5, the lowest since Oct. '01.

(Today's market dive is also because of lower ISM number, although it is now in 50s.)

Automakers' Sept. Sales Plunge

(Same this year. September sales plunged. Cash for clunkers articifially propped up the number during the summer.)

Army General David McKiernan, commander of NATO forces in Afghanistan stressing the need for more troops and aids

(It is now General McChrystal, but he is asking exactly the same thing, and the president, then and now, is taking time thinking about it.)

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Obama's Economic Advisor Jokes: President Was Born In Kenya

The president's economic advisor Austan Goolsbee won the "DC's Funniest Celebrity" contest last night.

Top Obama adviser jokes that the president was born 'in a village in Kenya' (10/1/09 Washington Examiner)

The article has the video (originally posted at Politico) of the funniest guy in Washington DC.

Some choice moments as cited in the article:

Goolsbee said that veterans of the Obama campaign "share this bond, and we came here because we knew that the president had a lot of things to do. Number one on the list, we wanted to make sure -- all the Clinton people got their jobs back -- that we were going to do something to help the country."

"The president, I'm happy to say, is still pretty much the same regular guy that he always was in Chicago, and that makes me feel good."

(I wonder what's regular in Chicago means these days...)

"Look," Goolsbee joked, "I'm not saying that in 1961 we were, like, separated at birth -- in a village in Kenya -- what I'm saying is that we're friends."

"When we came in office, it was not that fun of a time to be here in the economy," Goolsbee said. "But it was OK, because as we took office, it was an all-star team of economists and we basically knew what to do -- panic -- what we were coming in, was let's react the right way when things happen -- AAAAAAAAARGH! -- let's just sort it out and start from the fundamentals -- how do we throw money at this problem? -- and the thing is, most of the lessons aren't recent…so we kind of had to go back and look at the old textbooks -- Karl Marx, Trotsky -- "

(The inner voice sounds more plausible than the 'tatemae' - Japanese word for 'pretence, facade'.)

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Neil Hennesey: 10-Year Bull Market Has Begun

and Dow will double, for sure.

Looking at this headline at Yahoo Finance, I thought to myself: OK, this is as most diametrically opposed to my fundamental outlook as can be, SO I'D BETTER WATCH THE VIDEO.

The interviewer looks just as incredulous as anyone who's gone through the market since September 2008. The interviewee is Neil Hennesey, Chief Investment Officer of long-only Hennesey Funds.

Let's examine his thesis. He says there is nowhere else for the money (he cites "the sideline money" of $9.5 TRILLION) go to. Investors got burned by leveraged investments, and yields on long-term Treasury notes and bonds are low (3% for 10-year note, 4% for 30-year bond). Companies are slashing employment, increasing productivity, and will have a better bottom line.

So, his call is partly based on improved bottom line due to cost cutting, and mostly on the assumption that there is nowhere else for the investors to go but the stock market to get a decent return.

(How about gold?)

For the first day of October 2009 (and in a 10-year bull market according to Mr. Hennesey), Dow is down 172 points (1.75%) to 9540 at 1:25 PM EST. Auspicious start. (But then, September started with 181-point dump on Dow. What do I know at this point?)

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John Paulson (IndyMac + CIT )= FDIC Disaster

Let's do some arithmetic.

Add this:

FDIC is backstopping the mortgage losses at IndyMac Bank (now OneWest Bank), and IndyMac Bank is hell-bent on foreclosing the properties, as in:
Is FDIC Killing Short Sales? (Active Rain, September 09)

To this:

Creditors of CIT Group is mulling the merger of CIT with IndyMac Bank, as in:
John Paulson mulls CIT and IndyMac merger: report (9/29/09, Reuters via Yahoo Finance)

Then multiply it by the common denominator:

John Paulson, a hedge fund billionaire

And the product is:

Potential huge profit for Paulson and his co-investors in IndyMac and CIT, and potential huge loss to taxpayers (because FDIC is already broke).

John Paulson's firm is one of the large creditors to CIT Group; it is also one of the private investors who are behind OneWest Bank that bought IndyMac from FDIC back in April this year. IndyMac Bank's press release lists the following entities as OneWest Bank investors:

Steven Mnuchin (former Goldman Sachs exec)
entities advised by

• J.C. Flowers & Co. LLC,
• Paulson & Co.,
• MSD Capital, L.P.,
• Stone Point Capital LLC,
• SSP Offshore LLC and
• SILAR MCF-I LLC

OneWest bank president Terry Laughlin is a former Merrill-Lynch, Fleetboston, and Mellon Bank executive.

IndyMac-CIT merger talk is simply a rumor at this point, may or may not be true. CIT share jumped on the news on Tuesday, surging 31% to close at $2.20. Then, this news broke after hours, and the stock took a nose-dive on Wednesday, plunging 45% to $1.16:

CIT near plan to turn over co to bondholders: sources
(9/29/09 Reuters via Yahoo Finance)

"NEW YORK (Reuters) - CIT Group Inc (NYSE:CIT - News) is nearing a plan that likely would hand the commercial lender over to its bondholders, sources familiar with the matter said on Tuesday.

"CIT was preparing an exchange offer that would eliminate up to 40 percent of its more than $30 billion in outstanding debt, said the sources, who did not wish to be identified because they were not authorized to make public comments about the deal.

"The plan would offer bondholders new debt secured by CIT assets, as well as nearly all of the equity in a restructured company, one source said.

"If not enough bondholders agreed to the plan, the company could seek to restructure in bankruptcy court, the source said. This would result in one of the largest Chapter 11 bankruptcy-court filings in U.S. history."

As structured, the current offer will practically hand over the entire company to the bondholders. I have a feeling that the bond holders will refuse, and force the company to go through Chapter 11 so that they can pick apart CIT's assets. Then, the bondholders, including John Paulson, will discuss the merger of thus restructured CIT and IndyMac (now OneWest), combining troubled mortgages and troubled commercial loans to create a potent money making machine for them. Fully backstopped by FDIC (i.e. taxpayers).

The Treasury Department, FDIC, and the Federal Reserve have all refused to help CIT, the largest lender in the United States that lends to small and mid-sized businesses for more than 100 years. Like they've done many times since last March when Bear Stearns went down, they are picking who's to survive and who's to die.

October 1st is the deadline for CIT to present a restructuring plan to its lenders.

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