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The Bank Bailout of 2008 was Unnecessa

September 17, 2018

The Bank Bailout of 2008 was Unnecessary

Photo Source Xavier | CC BY 2.0

This week marked 10 years since the harrowing descent into the financial crisis — when the huge investment bank Lehman Bros. went into bankruptcy, with the country’s largest insurer, AIG, about to follow. No one was sure which financial institution might be next to fall.

The banking system started to freeze up. Banks typically extend short-term credit to one another for a few hundredths of a percentage point more than the cost of borrowing from the federal government. This gap exploded to 4 or 5 percentage points after Lehman collapsed. Federal Reserve Chair Ben Bernanke — along with Treasury Secretary Henry Paulson and Federal Reserve Bank of New York President Timothy Geithner — rushed to Congress to get $700 billion to bail out the banks. “If we don’t do this today we won’t have an economy on Monday,” is the line famously attributed to Bernanke.

The trio argued to lawmakers that without the bailout, the United States faced a catastrophic collapse of the financial system and a second Great Depression.

Neither part of that story was true.

Still, news reports on the crisis raised the prospect of empty ATMs and checks uncashed. There were stories in major media outlets about the bank runs of 1929.

No such scenario was in the cards in 2008. Unlike 1929, we have the Federal Deposit Insurance Corporation. The FDIC was created precisely to prevent the sort of bank runs that were common during the Great Depression and earlier financial panics. The FDIC is very good at taking over a failed bank to ensure that checks are honored and ATMs keep working. In fact, the FDIC took over several major banks and many minor ones during the Great Recession. Business carried on as normal and most customers — unless they were following the news closely — remained unaware.

…click on the above link to read the rest of the article…

Alarm Bells Sounded on Wall Street’s Derivatives

February 22, 2018

Alarm Bells Sounded on Wall Street’s Derivatives

Andy Green, Managing Director, Economic Policy , Center for American Progress

Andy Green, Managing Director,  Economic Policy Center for  American Progress

On February 14, the week after the Dow Jones Industrial Average experienced two separate days of more than 1,000-point losses, the House Financial Services’ Subcommittee on Capital Markets, Securities and Investment convened a hearing to discuss various legislative proposals to return to the wild west era of derivatives trading on Wall Street. (Many, including Wall Street On Parade, believe that we’ve never left that era – the risks have simply been hidden behind a dark curtain. See related articles below.)

One lonely voice for sanity on the witness panel, which was stacked with industry trade groups, was Andy Green, Managing Director at the Economic Policy Center for American Progress. Green’s written testimony stated that the legislative proposals “slice, dice, or otherwise poke holes – sometimes large holes – in the firewalls placed in the derivatives markets by post 2008 reforms….”

Green also reminded the Congressional members present that the “unregulated OTC derivatives market was at the heart of the 2007-2008 financial crisis, which cost 8.7 million Americans their jobs, 10 million families their homes, and eliminated 49 percent of the average middle-class family’s wealth compared with 2001 levels.”

Green provided a litany of the derivative horrors that led to panic and financial contagion during the financial crisis. The collapse of the giant insurer AIG from credit default swap derivatives and its role as counterparty to some of Wall Street’s largest banks. (In response to the AIG collapse, the U.S. government bailed out the company to the tune of $185 billion. Half of the bailout money effectively went in the front door of AIG and then out the backdoor to the big Wall Street banks and hedge funds that had used AIG as their counterparty to guarantee their bets on Credit Default Swaps.)

…click on the above link to read the rest of the article…

Wikileaks Reveals IMF Plan To “Cause A Credit Event In Greece And Destabilize Europe”

April 2, 2016

Wikileaks Reveals IMF Plan To “Cause A Credit Event In Greece And Destabilize Europe”

One of the recurring concerns involving Europe’s seemingly perpetual economic, financial and social crises, is that these have been largely predetermined, “scripted” and deliberate acts.

This is something the former head of the Bank of England admitted one month ago when Mervyn King said that Europe’s economic depression “is the result of “deliberate” policy choices made by EU elites.  It is also what AIG Banque strategist Bernard Connolly said back in 2008 when laying out “What Europe Wants”

To use global issues as excuses to extend its power:
  • environmental issues: increase control over member countries; advance idea of global governance
  • terrorism: use excuse for greater control over police and judicial issues; increase extent of surveillance
  • global financial crisis: kill two birds (free market; Anglo-Saxon economies) with one stone (Europe-wide regulator; attempts at global financial governance)
  • EMU: create a crisis to force introduction of “European economic government”

This morning we got another confirmation of how supernational organizations “plan” European crises in advance to further their goals, when Wikileaks published the transcript of a teleconference that took place on March 19, 2016 between the top two IMF officials in charge of managing the Greek debt crisis – Poul Thomsen, the head of the IMF’s European Department, and Delia Velkouleskou, the IMF Mission Chief for Greece.

In the transcript, the IMF staffers are caught on tape planning to tell Germany the organization would abandon the troika if the IMF and the commission fail to reach an agreement on Greek debt relief.

More to the point, the IMF officials say that a threat of an imminent financial catastrophe as the Guardian puts it, is needed to force other players into accepting its measures such as cutting Greek pensions and working conditions, or as Bloomberg puts it, “considering a plan to cause a credit event in Greece and destabilize Europe.”

…click on the above link to read the rest of the article…

The “Terrifying Prospect” Of A Triumph Of Politics Over Economics

March 9, 2016

The “Terrifying Prospect” Of A Triumph Of Politics Over Economics

The Triumph of Politics

 All of life’s odds aren’t 3:2, but that’s how you’re supposed to bet, or so they say. They are not saying that so much anymore, or saying that history rhymes, or that nothing’s new under the sun. More and more theys seem to be figuring out that past economic and market experiences can’t be extrapolated forward – a terrifying prospect for the social and political order.

 Consider today’s realities:

Global economies have grown to their current scale thanks to a glorious secular expansion of worldwide credit – credit unreserved with bank assets and deposits; credit extended to brand new capitalists; credit that can never be extinguished without significant debt deflation or hyper monetary inflation

Economies no longer form sufficient capital to sustain their scales or to justify broad asset values in real terms

Markets cannot price assets fairly in real terms without risking significant declines in collateral values supporting them and their underlying economies

Politicians that used to anguish (rhetorically) over the right mix of potential fiscal policies, ostensibly to get things back on track (as if somehow finding the right path would have actually been legislated into existence), have come to realize the limits of their power to have a meaningful impact

Monetary authorities have become the only game in town,assassinating all economic logic so they may juggle public expectations in the hope – so far successfully executed – that neither man nor nature will be the wiser.

The good news for policy makers is that man remains collectively unaware and vacuous; the bad news is that nature abhors a vacuum. The massive scale of economies relative to necessary production (not to mention already embedded systemic leverage) suggests this time is truly different.

…click on the above link to read the rest of the article…

Striking Admission By Former Bank Of England Head: The European Depression Was A “Deliberate” Act

March 2, 2016

Striking Admission By Former Bank Of England Head: The European Depression Was A “Deliberate” Act

Once again we find that it is only after they leave their official posts that central bankers finally tell the truth.

Last night, it was Alan Greenspan who blasted the state of the economy, saying that “we’re in trouble basically because productivity is dead in the water” and when asked if he is optimistic going forward, Greenspan replied “no, I haven’t been for quite a while.”

Then on Sunday, the former head of the BOE, Mervyn King, warned that another aspect of the global economy, namely the financial system whose structural problems remain untouched since the financial crisis have been untouched, is “certain to have another crisis.

“To be sure, warnings by former central bankers who are more responsible about the current global mess sound as nothing but revisionist bullshit. And yet, it was what King said today at the launch of his new book that left us surprised.

As the Telegraph reports today, according to the former head of the Bank of England Europe’s economic depression “is the result of “deliberate” policy choices made by EU elites. Mervyn King continued his scathing assault on Europe’s economic and monetary union, having predicted the beleaguered currency zone will need to be dismantled to free its weakest members from unremitting austerity and record levels of unemployment.

King also said he could never have envisaged an economic collapse of the depths of the 1930s returning to Europe’s shores in the modern age. But, he added, the fate of Greece since 2009 – which has suffered a contraction eclipsing the US depression in the inter-war years – was an “appalling” example of economic policy failure, he told an audience at the London School of Economics.

“I never imagined that we would ever again in an industrialised country have a depression deeper than the United States experienced in the 1930s and that’s what’s happened in Greece.

…click on the above link to read the rest of the article…

Chesapeake’s AIG Moment: Energy Giant Faces $1 Billion In Collateral Calls

February 26, 2016

Chesapeake’s AIG Moment: Energy Giant Faces $1 Billion In Collateral Calls

Back on February 10, when looking at Carl Icahn’s darling Chesapeake, whose stock had plunged to effectively record lows on imminent bankruptcy concerns, we said that for anyone brave enough to take the plunge, the “Trade of the Year” would be to go long a specific bond, the $500 million in 3.25s of March 2016 which were maturing in just over a month, and which on February 10 were yielding 300% at a price of 80.5 cents on the dollar.

And then, just two days later, in an unexpected turn, Chesapeake announced that contrary to public opinion, the troubled energy giant “is planning to pay $500 million of debt maturing in March, using a combination of cash on hand and other liquidity that may include its credit line, according to a person with knowledge of the matter.” The issue referenced was precisely the bond that was our “trade of the year.”

To be sure, the bond promptly surged, even as the stock priced tumbled, on what was seen as a very bondholder-friendly action (and thus to the detriment of shareholders) and hit a price of 95 cents while the stock tumbled by 15%, generating a 30% return for anyone who had decided to go along. At that moment we urged anyone in the trade to take their profits and go home, taking a few weeks, or the rest of 2016, off.

A quick update since then shows that those same bonds are currently trading effectively at par (99.25 cents)…

… suggesting that the risk of a near-term Chesapeake bankruptcy may be gone for now.

But is it truly off the table?

Sadly, we think that despite the brief hiccup in optimism, CHK’s troubles are about to get worse, even if this particular bond is ultimately repaid, for one simple reason: in its 10-K filed yesterday, Chesapeake announced that it has just reached its own “AIG moment.”

…click on the above link to read the rest of the article…

Withdrawals Of Gold From NY Fed Jump To 20 Tons In September, Total 276 Tons Since 2014

October 31, 2015

Withdrawals Of Gold From NY Fed Jump To 20 Tons In September, Total 276 Tons Since 2014

First it was Germany who redeemed 120 tons of physical gold in 2014; then it was the Netherlands who “secretly” redomiciled 122 tons of gold; then this past May, we learned that Austria would be the third “core” European nation to repatriate most of its offshore gold, held primarily in the Bank of England, redepositing it in Vienna and Switzerland.

Thanks to the latest NY Fed data released yesterday, we now know that beginning in 2014 and continuing through yesterday, the gold “bleeding” from the vault located 90 feet below street level at 33 Liberty Street (and which may or may not be connected by a tunnel to the JPM gold vault located just across the street at 1 Chase Manhattan Plaza) is not only continuing but accelerating.

As the chart below shows, while central banks assure the population that there is nothing to worry about when it comes to paper money, and in fact it is the evil ISIS terrorists who plot and scheme to crush the benevolent Fed with their terroristy “gold dinars” and if not that then their made in Hollywood propaganda movies, they have been quietly pulling gold from the biggest centralized depository of global gold in the world: the New York Federal Reserve.

According to the latest just released monthly update of foreign official assets held in custody at the NY Fed, in July the total holdings of foreign earmarked, i.e., physical, gold declined to just over $8 billion when evaluated at the legacy “price” of $42.22 per ounce. In ton terms, this means that after declining below 6000 tons in January, for the first time since FDR’s infamous gold confiscation spree…

… the total physical gold held at the NY Fed dropped another 19.9 tons in September, down to 5,919.5 tons.

This was a doubling in gold withdrawals from 10 tons in August, and
is the highest withdrawal since January.

…click on the above link to read the rest of the article…

The Next Financial Crisis Won’t be Like the Last One

September 15, 2015

The Next Financial Crisis Won’t be Like the Last One

It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets.

Central banks are like generals: they tend to fight the last war. The Great Financial meltdown of 2008 was centered in too big to fail, too big to jailtransnational banks and other financial entities with enormous exposure to collateral risk (such as subprime mortgages), highly leveraged bets and counterparty risk (the guys who were supposed to pay off your portfolio insurance vanish in a puff of digital smoke, leaving you to absorb the loss).

In response, the central banks and treasuries of the major economies “did whatever it took” to save the private banking sector from insolvency and collapse. In effect, central banks launched a multi-pronged bailout of banks and other financial heavyweights (such as AIG) and hastily constructed a clumsy and costly Maginot Line to protect the now-indispensable private banks from a similar meltdown.

The problem with preparing to fight the last war is that crises arise not from what is visible to all but from what is largely invisible to the mainstream.

The other factor is what’s within the power of central banks to fix and what’s beyond their power to fix. Correspondent Mark G. and I refer to this as the set of problems that can be solved by printing a trillion dollars. It’s widely assumed that virtually any problem can be fixed by printing a trillion dollars (or multiple trillions) and throwing it at the problem.

Yes, the looming student-loan debacle can be fixed by printing a trillion dollars and paying down a majority of the existing student debt.

…click on the above link to read the rest of the article…

 

 

 

Olduvai IV: Courage
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