What Does It Really Mean will now be airing live on Tuesday nights at 6pm on Channel 11. This is effectively immediately.
The move to Channel 11 means that now the program will be available metro-wide.
If the duly elected government of Iraq [their parliament has] asks us to remove all of our troops – will we leave? After all, our stated goal is a stable democracy in Iraq. This democracy should be able to run their own country – which should include expelling unnecessary foreign troops from their own soil. The bigger questions are: why won’t we leave and why do we want military bases with a permanent presence?
We are assisting in rebuilding their infrastructure – especially the oil-related type – with taxpayer dollars. This is only fitting since we destroyed it in our urgency to both topple Saddam and fight “illegal enemy combatants” [in most countries they are called criminals and tried under a legal system]. Destroying and rebuilding infrastructure doesn’t make much sense to taxpayers – but those are our taxpayers being bilked.
Our military presence there is a lightning rod. Nobody in power there wants to be closely associated with us. IF military presence ensured Iraq’s security against foreign invasion it might be different. We just imprison thousands of their citizens without any semblance of trials or hearings – just like Saddam.
We should evacuate our troops from Iraq and Afghanistan in that order. We should immediately turn over all citizens to local authorities for speedy hearings, release and/or trials. Foreigners detained for crimes against US personnel should be tried here in US courts. We should submit extradition papers for local attackers. That’s how we deal with other democracies. Isn’t that what we want?
We are finally in the new studio!
We know from a slip of JPM CEO Dimon’s tongue that the cost of the Bear Stearns mugging was $600 Billion! That figure appears nowhere else, but it does explain why the FED’s balance sheet is trash and they need to manufacture new T-Bills to shore up the FED. New T-Bills, in turn, require yet another increase in the debt limit. This assumes, of course, that they are half honest over there, a big assumption.
We also know at least in times of stress the approach is to act now and catch up with remedial legislation to make legal what’s already been done. The lady gets to put her robes back on and be an honest woman. That’s High Finance. Always has been, even when my Dad worked on the periphery of that world.
So, I wonder. Is the whole 700 for AIG? Paulson wants complete discretion and no disclosure.
I know. The numbers boggle the mind. But consider. The characterization of credit derivatives as insurance seems relatively benign, and is misleading. They have some peculiar characteristics.
First, both parties book a profit immediately. In your world and mine one has to be lying. In the Fairy Tale World of High Finance these are contracts with which everyone is a winner! The Princess gets two handsome husbands by kissing just one frog! Mutual profitability is one reason all the major companies used them to “smooth” those marvelous earnings that kept beating expectations by a penny a quarter for years on end. No wonder everyone wanted to be a party or a counter party. “Win Win” takes on new meaning.
Second, the underlying disaster has nothing to do with the total of outstanding derivatives that provide the “insurance.” When Delco went down the derivatives written against a default of Delco bonds exceeded the total of Delco bonds outstanding, and exceeded the total by orders of magnitude. These are pure speculative bets, and the game is more lucrative than the games in Las Vegas. You get to book profits as you go. You don’t even need to hold the actual bonds. Heck, that means you get the handsome princes and don’t need to bother with a frog at all! There are fees all around, for the lawyers, for the bankers, for the cascading “reinsurers” who become counter-parties down a daisy chain for smaller fees, and so forth. While the music played no one worried about balance sheets or ability to perform. No one worried about financial STD. Those dinners at Delmonico’s were scrumptious.
Third, there are two different values for each contract. The first is “mark to computer program” book value, not “mark to market” because there is no market and never has been one. That’s what “hard to value” and Level 3 assets mean. Listen carefully to all those experts telling you how they are going to solve the problem. Invariably they want the new “mark to market” rules suspended. Here’s why:
When Merrill touched off the insolvency crisis by grabbing collateral from two Bear Hedge Funds and actually, horror of horrors, trying to sell it they discovered the bids dropped quickly, first to 40%, then to 10%, then to ZIP, of that book value. Voila. Every bank was insolvent. Someone at Merrill got confused and tried to live the Fairy Tale in real life.
Which brings us to the second value, “notional” value. What makes these contracts WMD’s is not the fact that there is no market. No market merely is the TNT, the bunker buster. Once the bunker is busted one counter-party fails. That in turn, places a real “performance value” loss on the balance sheet of the other, momentarily surviving party. Don’t ask me why this is. I don’t fully understand, but Sinclair says that’s the way it works and he’s more experienced and closer to the nuclear core than am I. It’s on the balance sheet. It’s got to get off. It can’t get off without a BOOM at the value of performance nominally expected no longer possible. This means that a default by Delco of, say 100 Million, triggers leveraged (50 to 1) performance requirements for, say 5 Billion, and if as a result another counter-party fails that triggers leveraged performance requirements on all the outstanding contracts to which it is a party, and on down the line.
This would explain Dimon’s 600 Billion figure for the cleanup of Bear. It explains why no one understands the numbers. It explains why Lehman going down triggered AIG going down. It explains why the numbers AIG needed initially gyrated all over the place. And it would put a figure of 700 Billion just for AIG in the ballpark.
And all of this assumes that there are some underlying assets somewhere, an assumption that is in doubt at least as far as the fantasy collateral underlying Fannie and Freddie guarantees is concerned. (That’s a scandal not yet in the public consciousness.)
WOW!
Paulson must be feeling very helpless for a kid who for years optimistically tossed horse manure in the air looking for a pony, only to find himself in those famous Augean Stables, looking in vain for Hercules. http://en.wikipedia.org/wiki/Augeas
This one explains why NONE of the players is in a position mentally to do anything. The bailout will happen because, as Barney Frank says, what is the alternative? The bailout will fail because, as Barney Frank says, what is the alternative?
The bailout is a complete waste of time, an illusion. The US default is here. We are inside the box, so we only see parts of what is going on.
Prognosis is years of economic sclerosis. Controls. Black markets. Government poking its nose into everything, attempting to limit incomes of those who can and redistribute from the producers, if there are any left, to those who can’t, the non-producers and parasites. In the process those who can will either move away or cheat.
The trend toward the Government owning the means of production becomes more clear by the hour. And you know that in any and all regulatory schemes the regulated do the regulating because they are the only ones half way competent to do so.
I really have to laugh, and cry, as I read all these guys talking about taxpayer money, and what the taxpayer is going to do for this and for that. Really ludicrous is the idea that the taxpayer needs to get options on equity so that if there is a profit the taxpayer shares in it. The taxpayer? No one is about to give me anything. I am not the Government. The taxpayer is not the Government. If there are options they go to the Government, not to you and to me. No one is asking our permission to invest our money as we see fit.
All that apart from the fact that there won’t be a profit because they are hiding trillions of fraudulent paper. This is a Ponzi scheme beyond comprehension.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYXtwpG9mw9g&refer=home
This is it! ULTIMATE GARBAGE DUMPSTER FOR THE WORLD! See below for THE BRIGHT SIDE.
Forget about “taxpayer money.” This can only be handled by slight-of-hand, by magic, by printing new paper to replace the old. We’ll see if and how they imbue the new with confidence and trust. Schacht used next year’s harvest. If we had any gold we could use that. Wanted, a Master Prestidigitator!
They will take all toxic waste, the bulk of which are credit derivatives, and plunk it on the US balance sheet. The total is at least 1200 Trillion, according to BIS. Not just the numbers are astounding, incomprehensible (except in Weimer terms), but the BIS (Bank of International Settlements) number is accelerating exponentially. Less than a year ago the BIS number was 650 Trillion.
This also means there are no theoretical limits on the fiat they can throw into market intervention, whether to push up the nominal value of an index like the DOW, or push down the paper price of gold and silver, wheat or oil (think back door price controls - none of that cumbersome ration book stuff from WW2, not in the digital age.) These interventions, at least when done indirectly through the bullion bank intermediaries, involve derivatives because derivatives give leverage. Lehman’s demise seems to have punched at least a temporary hole in part of the intervention of Cartel system.
Pushing paper or nominal prices around has had disastrous consequences so far. One reason is the speed with which the policy makers change policies. Markets react more quickly than the single human mind, so the manipulators keep playing catch up. Over 1000 hedge funds are on the rocks because they were not able to adapt quickly enough and did not have inside information. There has been at least one major trading and hedge related bankruptcy in the oil market. Sophistication in paper manipulation will not prevent black markets in physical goods. People still want to eat, and they can’t eat T-Bills.
We know from one news report last evening that the bailout, as now proposed, is NOT limited to US institutions.
Why are the numbers accelerating? I am not sure. In metaphorical terms the squirrel cage keeps spinning faster and faster just to stay in place. What I think is going on, though I don’t know how it works, is that the Government at the Treasury and the FED are intervening in all markets, and that each intervention involves the creation of new derivatives. These interventions are a sophisticated form of price controls. They take place through the major Wall Street Banks, partly for historical reasons, partly to hide the intervention. There have been suggestions for some time that intervention also takes place out of London, Japan, the Caymen Islands, and so forth, for the same reasons. So the toxics are stuffed into nooks and crannies everywhere.
They also are “off the books” just as those infamous SIV’s were off Enron’s books. The US Government books cannot be audited, and they lose track of trillions at least at the DOD, DOE, HUD, CIA, and elsewhere, so those “off the books” items may be somewhere on the Treasury’s books. Maybe this whole bailout scam is designed just to put them back on the books. Why back? Again, I am not sure, but that ’s what happened and what precipitated the Enron crash, and there is at least one thread out there suggesting that BIS has ordered the US and the FED to bring the toxics home so implosion may do more limited damage to the rest of the world. The Toxic WMD’s go off in the good old US of A, where they were born. What would give BIS such power I do not know.
A great deal of the waste is parked at JP Morgan Chase which apparently has one of those secret Presidential exemptions, via Negroponte, permitting it to report without compliance, i.e., lie with impunity when doing so is deemed officially, and secretly, in the national interest. The sudden rush of Goldman, Morgan Stanley, and inversely, Merrill, to become commercial banks too reeks of swift changes to simplify the intervention and bailout system.
ON THE BRIGHT SIDE, I keep thinking about the biblical remission of debts, which gets mentioned with little elaboration in the Jubilee http://en.wikipedia.org/wiki/Jubilee_(Christian) and
http://en.wikipedia.org/wiki/Jubilee_(Biblical)
WAMU: Dead Man Walking http://jessescrossroadscafe.blogspot.com/2008/09/washington-mutual-dead-man-walking.html
From the UK Ministry of Inefficiency and Preserving the Status Quo http://jessescrossroadscafe.blogspot.com/2008/09/uk-bans-all-short-selling-of-financial.html
Dollar Will Require A Subsidy of Epic Proportions http://jessescrossroadscafe.blogspot.com/2008/09/dollar-and-its-dominance-is-upper-limit.html
Let me see if I understand. The source of all strength, the world’s most powerful Warrior, its most nurturing Parent, the one institution we knew always would be there when we needed security, or a helping hand, that pillar of strength needs a subsidy! From whom!
If from you and from me, then why do we need Government at all?
By now it ought to be clear that neither of the two Establishment Candidates is competent.
Carly Fiorina, that paragon of leadership, formerly of HP, tells us she knows both McCain and Palin, and neither is competent to take the helm. As an HLS graduate I can tell you that nothing in Harvard Law School prepared Obama for what’s coming. He’s no more competent than you or I and I know enough not to arrogate to myself the omniscience I’d need to solve your challenges for you. Why do we want him to lead us, leaving us to remedy our mistakes and his? Aren’t our mistakes enough for us to handle?
Nor are their advisers competent. The reason is simple. All of them grew up on the milk of Government solutions, the Government is necessary, the Government has all the answers, the Government is there in times of need. Now we see the Government is there in times of crisis too, right in the thick of it.
Government is an abstraction. Individuals make decisions. None of candidates or their advisers trust themselves or the wisdom of the people. They’ve read about “the invisible hand,” but it’s not visible and they don’t believe it! Professor Rogoff does not believe in the invisible hand either.
In this crisis experience is irrelevant, even detrimental. What’s needed is integrity, principle, and an understanding of history, ancient as well as modern. What’s needed is truth, not spin.
Everything Obama and McCain propose is a variation on something that was done in the recent past to address problems that are very very different from what we face today. If you cannot diagnose the disease you cannot prescribe a cure.
This is a derivatives driven crisis. Even the best and brightest do not understand derivatives - not Greenspan, not Paulson, not Bernanke, not Prince who lost his position at Citibank because, like Obama, he was a brilliant lawyer completely out of his depth in the world of computer driven nerd illusions (derivatives are the computer games of finance, just as the joystick guided drones are the computer games of war), not O’Neil, formerly of Merrill, none of the above! ZIP! Not even the nerds who created them understand them.
This is an insolvency crisis, not a liquidity crisis or a credit crisis. It’s an insolvency crisis because those derivatives on the books as assets have no market value. Why? Because they never had any. They were marked to computer program, not to market. There was no market. NOW YOU KNOW WHAT HAPPENS WHEN GRADUATE STUDENTS SPEND THEIR TIME PLAYING DONKEY KONG. Eventually they graduate and go to work for Goldman Sachs! Or, they become advisers to elected officials who run for President!
You need capital to solve an insolvency crisis. Americans are in debt. We have no savings. We have no capital. The banks are insolvent. Now our Government is insolvent. “Deep Pockets” mean nothing when stuffed with toilet paper. The Chinese have savings, but those savings are in dollars!
What does insolvency mean? There are many implications, but first and foremost we all need to recognize that Government is not going to solve this problem because it cannot do so. It is not in a position to solve it. For that you need Baron Munchhausen, and we know he too was a work of fiction.
You soon will see the secondary market for US Treasury Bonds disappear. That means that the Government can issue promises to pay till the cows come home but no one will be able to use them. In other words, neither people nor banks will buy them from each other. You can give the Government $100 and get a bond, which is a promise to pay. But no one will give you $100 for that bond if you want to sell it. That is the position in which the banks and all of us are going to find ourselves. The consequence? Our country is “enronized.” The grand Ponzi scheme ends. The Phoenix burns. And all of us are going to be very very angry. Then, you and I emerge from the ashes, each of us a Phoenix reborn.
Who is going to solve this problem? You are. I am. All of us working together. And the sooner we realize that Government is in the way, the sooner we can begin.
Don’t worry about the details. Those mortgages are dollar mortgages. They are going to become worthless one way or another, either through a valueless currency or through a moratorium, or … What is important is to hang onto your assets, and become as free and clear of debt as possible. Why? Because HARD ASSETS are capital and capital is what’s needed to begin a new system. Gold historically has been the hard asset of choice, but the US Government no longer has any gold. If it did there would be no crisis. The Treasury would simply re-price the gold in Fort Knox and back all of its promises. It won’t do that because it can’t do that. And it can’t do that because for many years now our elected leaders, yours and mine, both Democrat and Republican, have systematically looted the gold. That is only one of an unbelievable number of frauds, most yet to be revealed, but it is the most fundamental fraud of them all.
Trying to solve this crisis with and through Government is going to be slow, ineffective, and painful beyond belief because at every step Government is going to want to be involved, to know what you want to do, and to attempt to license of tax you as you move forward. Government is not, and cannot be a solution. Get rid of it by expecting nothing from it and according it neither respect nor power.
Only you and I can bring change in which we believe. All meaningful and lasting change begins inside, inside you, inside me, and works its way out. All else is illusion.
In response to Ruth Marcus’s op ed:
Why just honesty? Neither of the candidates has integrity. Neither is qualified. Neither is competent.
That is the great tragedy of our system as it functions now. We can do better. We accept what’s plunked on our plates and don’t allow ourselves to walk away.
On war the only difference is whom to bomb and when.
On the economy, neither has a clue. Admittedly most people don’t, but we are supposed to choose between two nincompoops. Why vote at all if voting makes no difference? Better to withhold participation, or vote for a third party so that the new administration has neither a mandate nor legitimacy.
Both, and particularly Obama with his legal training, having no clue, will call in their advisors, who are supposed to have a clue, but don’t. No one alive today has lived through a systemic collapse, so experience is not what is needed.
They will ask their advisors for the options as perceived, then make a decision. This, in an environment in which the best and the brightest, Paulson and Bernanke and the crew from Goldman Sachs, swing from one extreme to another within hours because none actually understand what is going on.
You already know that on the day after the election the new President will address the American people and tell them that not one of his promises can be fulfilled because he’s just reviewed the books and discovered we are insolvent. He simply had no idea! Sorry guys!
Missing are people of principle, people who have some benchmark concept of human nature and how best to live. There are very few of these in politics today.
Our creditors will dictate how we live, not our President or our supine, ignorant and arrogant representatives and senators. While I fear or our country as it enters receivership, I am optimistic that we, the ordinary people, will create a new America, rather than a new Amerika.
Our Sept 11th episode, featuring, Sept 11th.
