Archive for November, 2008

The End – by Michael Lewis

Here’s an excellent essay – though rather long, by Michael Lewis. He was one of the visionaries who first started to uncover the outright fraud in MBS and CDO markets. He foresaw the end, and is now writing a follow-up (several years later) now that the end is here. Don’t worry if you don’t understand the nuts and bolts of the technicals – there’s a lot of good material in here.

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

via Leavitt Brothers: Essays


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The story of Christ's birth is a story of promise, hope, and a revolutionary love.

So, what happened? What was once a time to celebrate the birth of a savior has somehow turned into a season of stress, traffic jams, and shopping lists.

And when it's all over, many of us are left with presents to return, looming debt that will take months to pay off, and this empty feeling of missed purpose. Is this what we really want out of Christmas?

What if Christmas became a world-changing event again?

Welcome to Advent Conspiracy.

via Advent Conspiracy

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Fed Auction failed Monday

This is going to keep me awake tonight.

The Fed auctioned $150 billion in short-term paper on Monday, and got 16 bidders. They sold just $12 billion.

What does this mean? It means that people with cash (ie, banks) prefer to keep the cash (earning zero percent) rather than buy paper from the Federal Reserve at a non-zero interest rate.

The banks have the cash, and they’re going to sit on it. They don’t trust the Federal Reserve (our central bank) any more than you or I do. We are hopelessly screwed here, folks.

Press Release:

Release Date: November 12, 2008
For release at 10:00 a.m. EST

On November 10, 2008, the Federal Reserve conducted an auction of $150 billion in 17-day credit through its Term Auction Facility. This was a forward auction designed to provide term funding over year-end–the awarded loans will settle on December 22, 2008. Following are the results of the auction:

Stop-out rate: 0.528 percent

Total propositions submitted: $12.629 billion
Total propositions accepted: $12.629 billion
Bid/cover ratio: 0.08

Number of bidders: 16

The awarded loans will mature on January 8, 2009. The stop-out rate shown above will apply to all awarded loans.

Institutions that submitted winning bids will be contacted by their respective Reserve Banks by 11:30 a.m. EST on November 12, 2008. Participants have until 12:30 p.m. EST on November 12, 2008, to inform their local Reserve Bank of any error.

leraconteur summed it up:

In a [Central Bank] CB, fiat, interest bearing money system, the CB’s lend out liquidity into the market so that banks will lend. If there is no demand (0.08 bid to cover), then the banks have no need to lend, thus there is 1) no credit demand and 2) banks are sitting on their cash, hoarding it. Yes, they have the cash. But they aren’t lending it and money/debt creation ceases. You cannot force banks to lend.

If the short end of the T-Bill auction has median and low bids of zero, and with an EFF of 22 to 29 bips this is no surprise, then it makes more sense to keep the cash.

Think of US Dollars, Federal Reserve Notes, FRN’s as zero coupon T-Bills of infinite maturity. Thus the capital flight is to the very lowest end of the curve, the US Dollar.

This, by the way, takes GDP/MZM, velocity of money or creation of a new $1 of GDP by $X of debt, ratio closer and closer to 1.00. When it drops BELOW 1.00, you get Iceland in a matter of 72 hours, or more or less instantaneously. You will just hear rumours of all kinds of crazy shit happening, your friends on holiday overseas will be told that merchants won’t accept dollars or their credit card, shipment en route on the oceans will LITERALLY turn around (see Circuit City and Sony), banks will close, ATM’s run dry, the stock market craters to 20% of last weeks values, and before you can react, it has happened.

The only ‘not-so-f***ed’ solution, I believe, is a diversified portfolio of useful, ‘blue collar’ skills, lead, brass, steel, PM in hand, CHF and JPY. Although I doubt if the last 3 will be useful if TSHTF in a big way.

via How Do You Spell [Ticker] – MarketTicker Forums

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Worried yet? You should be. Weep for the shortest lived super power ever. Weep for your country, for it has quickly and quietly imploded. The United States of America is bankrupt.

Don’t believe me? Read the paper title Is the United States Bankrupt? by Laurence J. Kotlikoff of the FEDERAL RESERVE BANK OF ST. LOUIS.

via [ The Financial Ninja ]: Really Scary Fed Charts: NOV, US Bankrupt?

(Click through to see the paper, and to see some really scary charts)

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At its core, the Bernanke Twist is a direct effort to try and support prices; to stop destructive debt deflation. We are in uncharted territory though. The Fed is not just trying to game the market in US government debt. It’s trying to support the entire asset-backed debt market.

Which is particularly risky when the the Fed is effectively supporting those prices by positioning itself as a risk sump.

No wonder, as Krugman says, Fed officials are “nervous”. This is an all-out gamble.

via FT Alphaville » Blog Archive » Fed capitulates: the central bank is broken

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