Re: Financial topics
Posted: Thu Mar 26, 2009 2:43 am
I did read Johns post, one of his best in awhile. I was listening to something on another page when I decided to use another browser and see if John had posted anything. What I was listening to at the time was right up the alley of what John wrote. I think if you listen to it and then read what John wrote, it will all have meaning. In fact, I think John would really see how much more there was to what he wrote than he realized when he wrote it. Here is the link. It is a guy named Hernando De Soto, like the explorer. I had followed a link to a report on property rights put out by some organization in Europe last week and Mr. De Soto was over that organization, so the man has some legitimacy. In short what he says is that the US in general has property where ownership is recorded and that the paper is also linked to recorded property, but what is in the system, the derivatives are linked to nothing and cannot be managed in the sense of real debt, but instead stand like paper from a banana republic. I guess I had better post the link http://www.mcalvany.com/podcast/?p=69
It is facinating when something like this occurs, when I am listening to something that entirely relates to something else that I am reading. When this mortgage mess started I didn't understand the concept of synthetic CDO's, which to my knowledge are merely Credit default swaps (CDS) and a few other items sold as if they are real debt instruments. They perform like the real thing, but they aren't paid as if they are actual mortgages. Instead, one person is paying another for a right or a guarantee. Thus, I could have bought a CDS and now turn around and buy the toxic waste out of a bank at very little risk at a fraction or I could demand to be paid. Being that the CDO's were being paid, it actually means they owe the counter party the loss, as strange as that may seem. So, if I pretended I had $1 billion in some subprime pool as in a synthetic CDO, someone is actually paying me the insurance premium on an imaginary sum and I am reaping this return on some imaginary sum. But, since the return is in the form of a default swap, the person paying the premium actually has the right to be paid the difference between the face value of the pool and the market value, which suddenly I can realize the form of the problem.
The problem was someone had to pay the buyer of the swap. Was it to be the buyer of the CDO, who also had a loss or was it the originator, like Bear Stearns or Lehman? Maybe this is how AIG ended up with so many of these swaps, the firms had to lay them off on someone once they sold the CDO. I have been thinking there had to be some kind of collusion for so much of the synthetic loss to end up at AIG when in fact it was GS, LEH, MER, BS and Citi that were manufacturing these things as fast as they could move them. Of course, they offered great leverage and promise to hedge funds run by guys whose interest was in making a one year killing gambling with the money of others.
This brings us to the next point, the crookedness that went into this. Obama may have been elected to cover this stuff up. So many of his economic advisors are complicit in this matter it isn't funny, guys like Rubin and Raines, who ran FNMA and paid a lot of lobbyists and Congressmen including Obama to stay in his corner will regulators tried to get a handle on the GSE's. http://www.youtube.com/watch?v=_MGT_cSi7Rs I happen to believe that the entire Wall street game is crooked as far as advice and what they peddle to the public goes. The entire market was literally a buy back in 2000 while dividends on the SPX were under 1.1% at one point, some buy recommendations all the way down to 1 cent on the dollar from peak, or in the case of Enron and WCOM, to zero. There was a company in Europe called Parmalet that went broke in 2003. It was in the Dow index for Europe or at least for Italy and they were using fake financials, where they had I think $2 billion in a BAC account in the Caymans, a total fiction. The audit was a year old and while they were rated AAA, firms were shoving bonds out the door to the day they went broke. I think the whole world would have known where their cash was as far as the multinational banking business goes, yet they all played stupid. Loss to the public in Italy was something on the order of $20 billion. WCOM was a billboard for the Nasdaq if you can recall. Wall Street shoved the bonds out the door as fast as they could. They knew it was a pipe dream and they blamed it on Ebbers. I think the whole scheme was concocted in NYC, not Mississippi. Then there was Enron. Legitimate firm using what amounts to off balance sheet SIV's crafted by Bank of America and one of the NY Banks, I think Citi. Who took the fall? Lay, a reputable business man until he fell for some idea of becoming a trading firm and Arthur Anderson. Very little was done to those connecte to the banks. What about Sandy Weill being caught on the phone or in an email attempting to bribe an analyst with a place in a highly rated kindergarten in return for a strong buy rating on an ATT spinoff which went the way of whale crap, to the bottom. Weill was already getting paid $100 milion a year and evidently it wasn't enough to keep him from enticing an underling to lie.
This brings us to one of the great statements I have read anywhere, that now they are coming with regulations when they aren't needed. This is my contention, that this game isn't going to go to the next inning as far as the creative schemes to finance risk. John made note of some that write about interest rates going up when this rebounds. I have made note of this myself, not in the sense that I think we are going to get out of this, but in the sense that if we did get out of this, what then? If you put a floor under housing with 4% mortgages, how are they going to sell these houses with 7% rates, which is where they would normally be. I doubt we are going to see a 20% subsidy to keep rates at 4% so the housing industry doesn't collapse again. My point is the Fed is trying to inflate on its own and if they succeed, no amount of quantative easing is going to make private lending happen at 4% on risky instruments. The government can't backstop all of it. My other point is that without the old schemes and a new pool of virgin borrowers, lending won't return for a long time. What is left are people that still have jobs and mainly people that weren't so stupid as to borrow and spend every dime they could. They aren't going to make that mistake now. This is basically what John wrote from what I understand and I concur entirely. We are in a mess that we can only get through, not around.
It is facinating when something like this occurs, when I am listening to something that entirely relates to something else that I am reading. When this mortgage mess started I didn't understand the concept of synthetic CDO's, which to my knowledge are merely Credit default swaps (CDS) and a few other items sold as if they are real debt instruments. They perform like the real thing, but they aren't paid as if they are actual mortgages. Instead, one person is paying another for a right or a guarantee. Thus, I could have bought a CDS and now turn around and buy the toxic waste out of a bank at very little risk at a fraction or I could demand to be paid. Being that the CDO's were being paid, it actually means they owe the counter party the loss, as strange as that may seem. So, if I pretended I had $1 billion in some subprime pool as in a synthetic CDO, someone is actually paying me the insurance premium on an imaginary sum and I am reaping this return on some imaginary sum. But, since the return is in the form of a default swap, the person paying the premium actually has the right to be paid the difference between the face value of the pool and the market value, which suddenly I can realize the form of the problem.
The problem was someone had to pay the buyer of the swap. Was it to be the buyer of the CDO, who also had a loss or was it the originator, like Bear Stearns or Lehman? Maybe this is how AIG ended up with so many of these swaps, the firms had to lay them off on someone once they sold the CDO. I have been thinking there had to be some kind of collusion for so much of the synthetic loss to end up at AIG when in fact it was GS, LEH, MER, BS and Citi that were manufacturing these things as fast as they could move them. Of course, they offered great leverage and promise to hedge funds run by guys whose interest was in making a one year killing gambling with the money of others.
This brings us to the next point, the crookedness that went into this. Obama may have been elected to cover this stuff up. So many of his economic advisors are complicit in this matter it isn't funny, guys like Rubin and Raines, who ran FNMA and paid a lot of lobbyists and Congressmen including Obama to stay in his corner will regulators tried to get a handle on the GSE's. http://www.youtube.com/watch?v=_MGT_cSi7Rs I happen to believe that the entire Wall street game is crooked as far as advice and what they peddle to the public goes. The entire market was literally a buy back in 2000 while dividends on the SPX were under 1.1% at one point, some buy recommendations all the way down to 1 cent on the dollar from peak, or in the case of Enron and WCOM, to zero. There was a company in Europe called Parmalet that went broke in 2003. It was in the Dow index for Europe or at least for Italy and they were using fake financials, where they had I think $2 billion in a BAC account in the Caymans, a total fiction. The audit was a year old and while they were rated AAA, firms were shoving bonds out the door to the day they went broke. I think the whole world would have known where their cash was as far as the multinational banking business goes, yet they all played stupid. Loss to the public in Italy was something on the order of $20 billion. WCOM was a billboard for the Nasdaq if you can recall. Wall Street shoved the bonds out the door as fast as they could. They knew it was a pipe dream and they blamed it on Ebbers. I think the whole scheme was concocted in NYC, not Mississippi. Then there was Enron. Legitimate firm using what amounts to off balance sheet SIV's crafted by Bank of America and one of the NY Banks, I think Citi. Who took the fall? Lay, a reputable business man until he fell for some idea of becoming a trading firm and Arthur Anderson. Very little was done to those connecte to the banks. What about Sandy Weill being caught on the phone or in an email attempting to bribe an analyst with a place in a highly rated kindergarten in return for a strong buy rating on an ATT spinoff which went the way of whale crap, to the bottom. Weill was already getting paid $100 milion a year and evidently it wasn't enough to keep him from enticing an underling to lie.
This brings us to one of the great statements I have read anywhere, that now they are coming with regulations when they aren't needed. This is my contention, that this game isn't going to go to the next inning as far as the creative schemes to finance risk. John made note of some that write about interest rates going up when this rebounds. I have made note of this myself, not in the sense that I think we are going to get out of this, but in the sense that if we did get out of this, what then? If you put a floor under housing with 4% mortgages, how are they going to sell these houses with 7% rates, which is where they would normally be. I doubt we are going to see a 20% subsidy to keep rates at 4% so the housing industry doesn't collapse again. My point is the Fed is trying to inflate on its own and if they succeed, no amount of quantative easing is going to make private lending happen at 4% on risky instruments. The government can't backstop all of it. My other point is that without the old schemes and a new pool of virgin borrowers, lending won't return for a long time. What is left are people that still have jobs and mainly people that weren't so stupid as to borrow and spend every dime they could. They aren't going to make that mistake now. This is basically what John wrote from what I understand and I concur entirely. We are in a mess that we can only get through, not around.