Generational Dynamics Forum - New Site

> Question number three was from someone who asked if they should go
> to the bank and take out their cash and how to do it. I advised
> them to call the bank and speak to someone who they are familiar
> with about what they would like to do. I mentioned that any
> withdrawal over $10,000 will likely trigger a SAR (Suspicious
> Activity Report) and that will be on file in Federal government
> database in Detroit for something like 7 years. I advised them to
> speak with the rep at the bank to confirm that. I warned them not
> to go to various branches and try to withdraw amounts less than
> $10,000 in order to avoid an SAR as that is called "Structuring"
> and is a federal crime. I told them that the bank would not
> likely have the amount of cash on hand that they were looking to
> withdraw or may not be wanting to give it up due to liquidity
> concerns, but that perhaps the bank could order the cash and have
> it available for pickup the next day. They aborted the
> conversation before I was able to explain that Federal Reserve
> notes are partially backed by junk now that the Fed has exchanged
> their good collateral out through the TSLF, and that t-bills are
> probably the better option. Although, at this late date I am not
> really sure whether there would be enough time to establish a
> treasury direct account and I do not really know whether having a
> bank hold treasury bills is 100% safe. I think so but am just not
> sure as I never considered that option.

This is correct for the most part. But any withdrawal of cash over $10,000 triggers a CTR (Currency Transaction Report), not necessarily an SAR. The CTR is automatic. As far as the SAR, policies are probably a moving target. Engaging in structuring will almost certainly generate an SAR, I would think. As I remember, that is what supposedly put Spitzer under the microscope to begin with.

Just to demonstrate the sort of thing I am talking about:
http://www.bloomberg.com/apps/news?pid= ... refer=home

Bloomberg wrote: ``This decrease primarily reflects the industry's efforts to reduce risk by tearing up economically offsetting transactions and demonstrates the industry's ongoing commitment to reduce risk and enhance operational efficiency,'' ISDA Chief Executive Officer Robert Pickel said in the statement. ``We expect to see more effects of this over time.''

12% of the credit-default market went *poof* in the last few days, just by figuring out the easiest mutually canceling-out orders and re-exchanging them. I expect more of this, not just in the CDS market, but all the derivatives markets. (Since not all of them are exchange-traded, it's much harder to figure out whether such has happened in OTC derivatives already.) As much of that market as they *can* make disappear, they *will*, and as fast as they can manage it -- because if that market implodes, they want the exposure to be as small as possible. I strongly suspect that a lot more than 12% can be made to disappear in this fashion.

catfishncod wrote:Just to demonstrate the sort of thing I am talking about:
http://www.bloomberg.com/apps/news?pid= ... refer=home

Bloomberg wrote: ``This decrease primarily reflects the industry's efforts to reduce risk by tearing up economically offsetting transactions and demonstrates the industry's ongoing commitment to reduce risk and enhance operational efficiency,'' ISDA Chief Executive Officer Robert Pickel said in the statement. ``We expect to see more effects of this over time.''

12% of the credit-default market went *poof* in the last few days, just by figuring out the easiest mutually canceling-out orders and re-exchanging them. I expect more of this, not just in the CDS market, but all the derivatives markets. (Since not all of them are exchange-traded, it's much harder to figure out whether such has happened in OTC derivatives already.) As much of that market as they *can* make disappear, they *will*, and as fast as they can manage it -- because if that market implodes, they want the exposure to be as small as possible. I strongly suspect that a lot more than 12% can be made to disappear in this fashion.

Just to clarify, Credit Default Swaps are OTC derivatives. I think the article states somewhere that it is a dealer market. Clearly, you will see more of this unwinding over time. As I stated last night in another post, "Another is the 1 quadrillion notional value derivatives problem, all denominated in US dollars, the world reserve currency. The unwinding of the derivatives bubble is likely to feed deflation and credit contraction/aversion, and so is a factor that Japan did not have to contend with." What this article is apparently trying to claim is that derivatives can be unwound with no ancillary effects. In some cases, this would be nearly true in that the only effects of decreasing trading volume would be reduced income and profits to the financial industry, which makes lucrative commissions on the sale of these products. Somewhere around 25% of the value of the S&P 500 index is in the financial industry and that value has been disappearing rapidly. In addition, New York State income tax receipts from the financial industry have fallen to the point where the state could be facing bankruptcy in the near future. In other cases, since the derivatives are marked to model, the unwind will cause changes in balance sheets in cases where the models have inaccurately forecast the effects of the offsets on balance sheets. While the fact that the financial system has been brought closer to deflation at the same time this unwinding has occurred is not proof that it is causing deflation, it seems pretty likely that is what is occurring. Any disorderly unwinding will almost certainly do that, and that is what Bernanke and Paulson are worried about.

Two things heard today on Bloomberg tv, within 30 seconds of each
other:

(*) The credit markets are crashing.

(*) Look at the market indexes! Up over 2 1/2% today!!

Did these people even graduate from junior high school? Can they not
see any contradiction here?

Incidentally, the credit markets ARE crashing. The TED spread is
over 3%, a historic high.

http://www.bloomberg.com/apps/cbuilder? ... EDSP%3AIND

Bank lending rates are soaring. We'll have to see if the Bailout of
the World (BOTW) fixes the problem.

John

http://www.usnews.com/blogs/capital-com ... -myth.html

Is the Credit Crisis a Myth?

September 25, 2008 10:14 AM ET | James Pethokoukis | Permanent Link

What credit crisis? That's the question being asked by the antibailout
crowd in the blogosphere. These folks point to an analysis written by
economist Robert Higgs where he points to various measures of lending
activity and finds them fairly robust. Here is the problem: Those
measures are from August. How do the credit markets look right now?

First, this from economist Mike Darda at MKM Partners, who is checking
his Bloomberg today rather than looking at moldy data from last
month:

Despite only a minor decline for stocks yesterday, the credit
markets have continued to crash. The TED spread (3-month Libor to
3-month T-bills) mushroomed to 316 bps this morning after rising
back to 300 bps yesterday, record highs. The Libor/OIS spread also
is at record highs. Two-and-five-year swap spreads also exploded,
with two-year swap spreads now above 160 bps, an occurrence not
seen in the two decades that we have data.

And this from market strategist Ed Yardeni:

In the money markets, they are bowing down to King Cash according
to this morning's FT: "Bankers estimate that 90 per cent of
lending in the commercial paper market is being pushed through on
a day-to-day basis, rather than on a monthly or longer basis, as
tensions show no sign of easing. Money market funds are also
selling existing commercial paper in favor of Treasury bills. That
is preventing lower-rated companies from being able to roll into
new paper, leading to concerns that they will be forced to fall
back on pre-agreed lines of credit with their banks. While
injections of liquidity from central banks have helped lower
overnight rates, longer dated rates have been rising."

---------

My explanation: There's less and less money in the world every day,
and banks are scrambling to get whatever is left over. The Bailout
of the World will not supply even a fraction of the money necessary
to restore the credit bubble to its former glory. The deflationary
spiral continues to accelerate, and sooner or later even the
investors will grasp that.

John

What does "credit market crashing" mean? No more credit cards? No more student loans? No more mortgages?

Just curious.

Witchiepoo wrote:What does "credit market crashing" mean? No more credit cards? No more student loans? No more mortgages?

Just curious.

It means all of the above, if you don't have the very highest credit rating, and even then,
you'll be paying sky-high interest rates.

It's very hard to get credit now, but in a while it'll be almost impossible.

John

John wrote: My explanation: There's less and less money in the world every day,
and banks are scrambling to get whatever is left over. The Bailout
of the World will not supply even a fraction of the money necessary
to restore the credit bubble to its former glory. The deflationary
spiral continues to accelerate, and sooner or later even the
investors will grasp that.

John

The way I see it is that there is still a lot of junk money, but the market doesn't want junk money anymore. On the other hand, there is a shortage of quality money, and the market has decided that it wants quality money. In a sense, the problem has been compounded because junk money has effectively contaminated some of the quality money due to the proliferation of various vehicles where monies of various types are mixed together. One simple example of that is money market funds. When some money market funds dropped below parity last week and market participants began bailing out of them, they were effectively saying that they do not want this contaminated money. A lot of the money in those funds may have been perfectly OK at that time. A few months ago, when the ABCP markets locked up, there was a movement out of ABCP to money markets. What a lot of participants did not realize was that many money market funds are chock full of ABCP. Another example would be the derivatives that are marked to model. As I think you have pointed out many times on the website, these illiquid derivates are mixtures of various quality debt instruments and often times "marked to myth" with the values generally overstated. That makes it appear that there are more assets on balance sheets than really exist. As I understand it, when those derivatives get wiped out, the overstated values on the balance sheets get wiped out too.

Higgenbotham wrote: The way I see it is that there is still a lot of junk money, but the market doesn't want junk money anymore. On the other hand, there is a shortage of quality money, and the market has decided that it wants quality money. In a sense, the problem has been compounded because junk money has effectively contaminated some of the quality money due to the proliferation of various vehicles where monies of various types are mixed together. One simple example of that is money market funds. When some money market funds dropped below parity last week and market participants began bailing out of them, they were effectively saying that they do not want this contaminated money. A lot of the money in those funds may have been perfectly OK at that time. A few months ago, when the ABCP markets locked up, there was a movement out of ABCP to money markets. What a lot of participants did not realize was that many money market funds are chock full of ABCP. Another example would be the derivatives that are marked to model. As I think you have pointed out many times on the website, these illiquid derivates are mixtures of various quality debt instruments and often times "marked to myth" with the values generally overstated. That makes it appear that there are more assets on balance sheets than really exist. As I understand it, when those derivatives get wiped out, the overstated values on the balance sheets get wiped out too.

I like that distinction between "money" and "junk money." The interesting thing about junk money is that
it does you no good to have it, but it does you plenty of harm to have it, as it destroys your balance sheet.

John

John wrote:I like that distinction between "money" and "junk money." The interesting thing about junk money is that it does you no good to have it, but it does you plenty of harm to have it, as it destroys your balance sheet.

John

Having junk money on your balance sheet is kind of like being a slumlord who owns a lot of beat up junky houses full of deadbeat tenants. If the slumlord goes to a bank to get a loan to buy more slum property, the banker (in normal times) will drive by the houses listed on the balance sheet and decide that said balance sheet does not constitute worthy collateral to make a loan on, and that any future purchases by the slumlord likely will not either. On the other hand the "new " banker (in the abnormal times of the past few years) made a subprime loan, folded it into a derivative product, and sold the derivative product to someone who has never driven by the slumlord's property and has no idea where it is, except that now some of it is in default and payments are not being received. Meanwhile, Ben Bernanke and Hank Paulson, who have also never driven by these slum properties, are trying to convince the American taxpayer that we should provide money so that they can buy these properties, and maybe even make some money on them.