Perspectives on the global economic meltdown (Jan 26 2010)

[Neshant]

Insurance is also the biggest ponzi scheme which will never pay a fraction of what it takes in.

[Neshant]

Interesting anecdotal evidence with regards to the bank holiday issue I mentioned earlier. I emphasize this remains rumour and nothing more... as yet.

Is An ATM Cash Shortage Coming?
http://www.zerohedge.com/article/atm-ca ... age-coming

[ShivaS]

Insurance is also the biggest ponzi scheme which will never pay a fraction of what it takes in.

Hence lucarative, profitable and will easily clear up the losses of many banks...
this is the alternative to the erstwhile credit card charges which kept many banks solvent (also student loans).
The Americans are coming the Americans are cominf (a la the movie The Russians are coming comedy of 1960s)

[Pranav]

x-post from India and the New World Order thread:

Robert Zoellick, World Bank president, is advocating a return to the gold standard:

Zoellick seeks gold standard debate - http://www.ft.com/cms/s/0/eda8f512-eaae ... ab49a.html

We have discussed earlier in this thread why that would be a very dangerous move (http://forums.bharat-rakshak.com/viewto ... 45#p902245). Essentially, it puts monetary policy in the hands of those who own gold mines and large stocks of gold. Nations would no longer have sovereign control over their monetary policy. The gold standard facilitated the 1929 Great Depression.

Some background on Zoellick:

Zoellick has been associated with the group of Neocons known as the Project for the New American Century (PNAC) (http://en.wikipedia.org/wiki/Project_fo ... an_Century). He was a signatory of the 1998 PNAC letter urging Clinton to remove Saddam Hussein (http://www.newamericancentury.org/iraqclintonletter.htm).

In September 2000, one year before the 9/11 attack, the PNAC published a report "Rebuilding America's Defenses: Strategies, Forces, and Resources For a New Century." Section V of of this report, entitled "Creating Tomorrow's Dominant Force", makes the following observation: "Further, the process of transformation, even if it brings revolutionary change, is likely to be a long one, absent some catastrophic and catalyzing event - like a new Pearl Harbor".

Interestingly, the Executive Director of the Commission that investigated the 9/11 attack, Philip Zelikow, is the coauthor with Zoellick of a large number of books (http://www.amazon.com/s/ref=nb_sb_noss? ... nc=1&ajr=3).

[shyam]

So they expect the banks to fall down?

Not sure. Bank of America is missing from the list banks that are being shorted.

BTW, it is worth listening to Peter Schiff vs Robert Prechtor. These two people are talking about two different scenarios for future disaster

Peter Schiff believes that Fed will continue to print money to bail out government, banks and other entities that cause run away inflation. So, he is betting on investing in commodities.

But Robert Prechtor believes that when crisis happens, human behavior will go excessively in the opposit direction and resort to excessing belt tightening. He expects US to elect people like tea parties that will be fiscally very conservative, that will implement a lot of cuts in government expenses. Fed will bailout only federal treasuries and everything else will be allowed to default (includes munis, states, banks). He even expects that if banks fail, FDIC will not rescue depositors and public will just lose their deposits there by causing huge deflation even when Fed prints a lot of money.

According Prechtor, safest place to keep money are treasury bonds and cash.

[svinayak]

So they expect the banks to fall down?

Not sure. Bank of America is missing from the list banks that are being shorted.

Two big banks are supposed to fail soon

[Christopher Sidor]

China Ratings Agency Downgrades America

You had to see this coming: The Chinese cut our debt rating — again. This time, the Chinese rating agency Dagong reduced our sovereign credit rating from "AA" to "A+". Why? No surprises here either: Quantitative Easing.

There is a link in this article. List of countries holding US Treasury Securities. The data is a bit dated, only till Aug-2010, but well there are some interesting observations from it
1) Japan Held almost as much as US Treasury Securities as did China.
2) India, China, Russia, Luxembourg, Netherlands, Australia decreased the amount of US Treasury Securities that they were holding. All other countries actually increased the amount of US Treasury Securities that they held.
3) The countries which saw a dramatic increase in the amount of US Treasury Securities held are, Denmark an increase of over 100%, Canada an increase of approximately 200% and UK (Great Britian + Island of Man + Channel Islands) a whopping increase of over 300%. Off course data for UK includes the Tax havens and money laundering territories of Island of Man and Channel Islands. So how much of the Treasuries is owned by Britain/England and how much by other sundry characters is not known precisely.

The holdings of China are dwarfed by the combined holdings of the other top 10 countries as on Aug-2010. China holds some 868 Billion USD worth of Securities while the other top 10 countries hold some 2439 Billion USD worth of Securities. Approximately 3 times more.
No wonder China holds no aces or cards by buying so many US Treasury Securities. There is no such thing as a nuclear option for China where these US Treasury Securities are concerned. In fact the concept that China has some hold over US because of its US Treasury Securities purchase is a figment of imagination.

[ramana]

I think prechtor is right 70:30 and Schiff is right 50;50.

The new Congress has Tea Party types in many committees. There is strong disquiet.

[svinayak]

World in Crisis: the End of the American Century
Gabriel Kolko

Contradictions now wrack the world’s fi nancial system, and
a growing consensus exists between those who endorse it and
those who argue that the status quo is both crisis-prone and
immoral. If we are to believe the institutions and personalities
who have been in the forefront of the defense of capitalism,
we are now on the verge of a serious crisis – or if not now,
then in the near future.

The IMF, the Bank for International Settlements, the
British Financial Services Authority, the Financial Times,
and innumerable other mainstream commentators, were
increasingly worried and publicly warned against many
of the fi nancial innovations that have now imploded. Very
conservative individuals and institutions predicted the
upheaval in global fi nances we are today experiencing.
The IMF has taken the lead in criticizing the new
international fi nancial structure, and over the past three
years it has published numerous detailed reasons as to
why that structure has become so dangerous to the world’s
economic stability. Events have confi rmed its prognosis that
complexity and lack of transparency, the obscurity of risks
and universal uncertainty, especially regarding collateralized
debt and loan obligations, would cause a fl ight to security that
will dry up much of the liquidity of banking. As a Financial
Times columnist put it, “fi nancial innovation itself is the
problem.” The ultra-creative system is seizing up because
no one understands where risks are located or how it works.
It began to do so in the summer of 2007 and fi xing it soon
is not very likely.

We are at an end of an era, living through the worst fi nancial
panic in many decades, entering a period of global fi nancial
instability and the decline of the United States’ hegemony. It
is impossible to speculate how long today’s turmoil will last,
but there now exists an uncertainty and lack of confi dence
unparalleled since the 1930s, and this ignorance and fear is
itself a crucial factor. The moment of reckoning for bankers
and bosses has arrived. What is very clear is that losses are
massive and the entire developed world is now experiencing
the worst economic crisis since 1945, one in which troubles
in one nation compound those in others.


All central banks are wracked by dilemmas. They have
neither the resources nor the knowledge, including legal
powers, to remedy the present maelstrom. Although there is
clamor from fi nanciers and assorted operators to bail them
out, the Federal Reserve must also weigh the consequences of
its moves, above all for infl ation. Then there is the question of
“moral hazard.” Is it the Federal Reserve’s responsibility to
save fi nancial adventurers from their own follies? Throughout
August, the American and European central banks plunged
about a half-trillion dollars into the banking system in an
attempt to unfreeze blocked credit and loans that followed the
sub-prime crisis – an event which triggered a “fl ight to safety”
which in turn greatly reduced the banks’ willingness to loan.
In effect, the Federal Reserve relied on the banks to restore
confi dence in the fi nancial system, subsidizing their efforts.
The central banks’ efforts succeeded only very partially and,
in the aggregate, they failed: banks and investors now seek
security rather than risk, and they will sit on their money. The
Federal Reserve privately acknowledges its inability to cope
with an inordinately complex fi nancial structure. European
central bankers are in exactly the same dilemma: they simply
don’t know what to do.

[Pratyush]

Insurance is also the biggest ponzi scheme which will never pay a fraction of what it takes in.

As an Insurance professional. Fully agree with your view.

[nandakumar]

Short Sellers Move Into Financials, Out Of Tech

Short sellers moved into the shares of large financial firms, perhaps sensing the effects of new regulation and an exit from proprietary trading businesses

The short interest in Citigroup (NYSE: C) rose 4.8% to 423.8 million, the largest short position in any stock. Shares short in Wells Fargo (NYSE: WFC) rose 21% to 53.2 million. The short interest in Ambac, which recently went bankrupt rose 14% to 59.2 million. Share short in Bank of NY rose 27% to 21.1 million. Shares short in Synovus Financial were up 9% to 106.9 million. Shares short in KeyCorp rose 9% to 34.6 million

The focus on short sellers, in my view is misleading. On a macro level, for every guy who sells there is also another guy on the other side who buys. so why should the opinion of the guy who thinks that the share price would fall (hence the reasonfor selling even when he doesn't own the stock) rank above that of a guy who thinks it would rise (his sole reason for buying)?
The reason why reporters and analysts get to at all know about the behaviour of guys who have sold shares but do not possess them in the first place (hence the description of such a seller as 'short-seller') is because the stock market/regulators want someone to declare at the time of entering into the transaction that he doesn't intend to give physical delivery (clear proof that he doesn't own them or at least in the requisite quantity).
But the market regulator or the stock exchange never asks some one who goes 'long' (meaning, someone who enters on the 'buy' side) whether he has the bank balance to cover the full value of purchase price. They have always been more concerned about asset prices falling from a manipulative 'squeeze' operation than about a bubble being created by those who go long wihtout having the full financial wherewithal. A case of a naive belief that rising prices are a good thing but a fall represents ruin and desolation.
That apart, the orthodox wisdom is that currency is an universally accepted store of value and hence anything can be converted into it. on the other hand, if some one sells a share but on the settlement date is unable to deliver you can only auction the short-seller's position and settle the transaction in cash. That is because it is only the company that can create fresh shares and hence if someone is unable to fulfill his part of the contract of delivering an certain quantity of shares the only recourse is to settle the transaction in cash.
Incidentally, there have been excellant examples of short sellers being brought to grief. The most recent case was that of German billionaire Adolf Merckle who went short on the Volkswagon stock betting against Porsche which cornered over 75 per cent of the outstanding stock of Volkswagon and ended up commiting suicide.
The moral of the story is that short sellers do not have a monopoly on wisdom.

[Christopher Sidor]

China is restricting the export of rare earth materials. It wants to import those industries/factories, which use these rare earth materials, into China. It wants a repeat of what it successfully did with low cost manufacturing like toys, clothes, etc. So what China is saying that it wants to move up the value chain. From low-tech to high-tech. Nothing wrong in having this dream.

Currently the cost of extracting these rare earth materials is environmentally costly. It takes its toll. For countries willing to serve as substitutes there are the following obstacles
1) To bring mines online takes time. It cannot be done overnight. It also requires money.
2) They have to extract and sell the rare earth at "chinese prices." And on top of it make a profit out of it. If the cost goes up, the corresponding price of finished products which use these rare earth materials also go up. In a low growth economy or an economy in which the median income has not increased much, this is just not doable.

One of such a country is India. Our PM even went to an extent of inviting Japanese companies to explore the various options available in India. The problem is if India does successfully manage to displace China, it becomes a raw material exporter. There will not be any value add in India. Our raw materials and the Japanese value add, with value being added in Japan and not in India. Replace Japan with Germany or Korea and still the picture remains the same.
What India needs to concentrate is extracting these materials for the benefit of local industry or industry and companies which have shop in India. Companies which add value to India, in Indian Stock Markets in Indian Intellectual Property, etc. Otherwise we are not different that Saudi Arabia or Iran or Russia or Chile or Australia, which sell their raw materials for the benefit of outsiders.

[Rahul Mehta]

[quote=]World in Crisis: the End of the American Century
Gabriel Kolko

American century will now BEGIN. US has complete control over oil wells of half Iraq + Saud + Kuwaitm, and will soon loot (or at least destroy) oil wells of Iran. And US has twice the weapons than rest of the world put together. Soon, world such as India + China will pay thru nose for oil and will bleed to death.

===

China is holding US securities and so US has control over China. US hold the nuclear option - it can reduce the value of dollars to pennies and thus wipe out China's savings.

===

When US banks fails, depositors get most money back. The losers are bond owners who are mostly foreigners.

.

[SwamyG]

Insurance is also the biggest ponzi scheme which will never pay a fraction of what it takes in.

As an Insurance professional. Fully agree with your view.

Pratyush:
I have heard horror stories about insurance and seen people all the time whine about insurance companies. Is it just bad or are there some good too? Take auto or health insurance. Don't the insurance help the policy holders with chota mota issues? I pay the health insurance premiums, and get decent health care. I was of the opinion that having insurance eventually reduces the total expenditure - after all co payments, premiums, deductibles ityadi.
As an insurance professional, can you explain more?

Neshant: Don't you have insurance? Auto, Home, Health etc?

[SwamyG]

So they expect the banks to fall down?

Not sure. Bank of America is missing from the list banks that are being shorted.

Two big banks are supposed to fail soon

You said stock markets will fall too Before August 20th. http://forums.bharat-rakshak.com/viewto ... 03#p917003 But DOW has gone up more than 1000 points since then.

[SwamyG]

The only way Banks in US and Europe can recoup their loses is to enter India into the insurance segment which Ombaba wants to be opened further...

Insurance is the most profitable business (P&C, Motor/Car) not CDS

Shivas garu: I remember how Indian mothers constantly harp to their daughters about their attire. Close the pallu, close your legs, close this, close that ityadi. Opening up is a sure sign of invitation to evil people they thought There are sorrows and joys by both closing and opening; but it is wise to close when the vultures are prowling around, no? Opening up when the vultures circle is sure recipe for a gang-bang (if vultures can do that). I think we all appreciate a good balance; not too closed up

I pray to devas and devis, that Indian leaders find guts, spine, spleen or whatever it takes to think long term welfare of the country.

[svinayak]

You said stock markets will fall too Before August 20th. http://forums.bharat-rakshak.com/viewto ... 03#p917003 But DOW has gone up more than 1000 points since then.

I am just passing some information which i get. It is all about possibilities.

[SwamyG]

^^^
From gurus we expect good solid filtered information

[svinayak]

Sometimes there is no time for filteration. But we must go on

[amdavadi]

BOA seems to be in lot of trouble..I am not sure about horse carrage.

Swanyg, still holding apple cart? csco is getting big jolt today.

[ramana]

Some people say cisco was venturing into green/new areas and hence the stumble. The CEO was on CNBC today morning before opening bell and said govt sector not buying was reason for the shortfall.

[Prem]

So they expect the banks to fall down?
Not sure. Bank of America is missing from the list banks that are being shorted.

Two big banks are supposed to fail soon

Both Boa and WFB are solid and gonna be the few biggest players in US . BOA troubles are only in short term. Waise kyee bank hai jo aaj kall pachas pratishat karja maaf kar rahe hai orr aapki aurr karja lene ki ijjat bhi rakh rahe hai. Mamu ke ilava kisi ko nahi batate. Agar ghar vgehra ajad karwana ho to ,baat karo oonse.

[ramana]

WOW!!!
pachas percent karja maafi!

[SwamyG]

amdavadi: Yup, I have no plans to get of apple for now.

The economic crisis has paved way for bank consolidation; the smaller banks have been closing shops and it is they who loan to small businesses. The Big Banks are just trying to hang on till, say, Asia comes and save their backs.

143 small banks have collapsed this year more than the numbers that collapsed in 2008 and 2009.

[svinayak]

Both Boa and WFB are solid and gonna be the few biggest players in US . BOA troubles are only in short term. Waise kyee bank hai jo aaj kall pachas pratishat karja maaf kar rahe hai orr aapki aurr karja lene ki ijjat bhi rakh rahe hai. Mamu ke ilava kisi ko nahi batate. Agar ghar vgehra ajad karwana ho to ,baat karo oonse.

Wachovia is doing a 200k writeoff and new agreement.

[Prem]

WOW!!!
pachas percent karja maafi!

Ek Bookhe Nange Gora dost ki kahani. Desi care for H&D. Galti se maine uske karje ke jamant lee hui thi.
Jaan bachi so lakho payee.. Nahi to bhayya bye bye .

[Prem]

Both Boa and WFB are solid and gonna be the few biggest players in US . BOA troubles are only in short term. Waise kyee bank hai jo aaj kall pachas pratishat karja maaf kar rahe hai orr aapki aurr karja lene ki ijjat bhi rakh rahe hai. Mamu ke ilava kisi ko nahi batate. Agar ghar vgehra ajad karwana ho to ,baat karo oonse.

Wachovia is doing a 200k writeoff and new agreement.

Are they giving 400k loan ?

[Prem]

http://www.businessinsider.com/two-huge ... 90-2010-11
It's popular to argue that the China boom is overhyped, and to say that this is all just redolent of Japan 20 years ago.There are some similarities, but there are also huge differences.
Courtesy of Deutsche Bank, here are two:
First of all, the market today in China isn't nearly as bubblicious as Japan's was
And also, China still was WAY more urbanizing to do before that trends over, which is one reason China can't afford to let the yuan rise much, the way Japan did at the Plaza Accord.
( Chinese Weakness)

[RamaY]

I have heard horror stories about insurance and seen people all the time whine about insurance companies. Is it just bad or are there some good too? Take auto or health insurance. Don't the insurance help the policy holders with chota mota issues? I pay the health insurance premiums, and get decent health care. I was of the opinion that having insurance eventually reduces the total expenditure - after all co payments, premiums, deductibles ityadi.
As an insurance professional, can you explain more?

Neshant: Don't you have insurance? Auto, Home, Health etc?

I worked in Insurance industry for few years... AFAIK

Insurance firms have >30% margins after claims, op-expenses, and agency commissions. In P&C field the claims hover around 20-30% of the total premiums..

Health Insurance appears cost effective when compared to the non-insurance bills people receive from hospitals. If we take the entire cost of health care in the society, Health Insurance is not that cost affective at all.

Life Insurance is the most profitable. Mainly due to discontinued policies.

[ramana]

Obama Debt Comission says:

nation must make sacrifices

Grab your wallets.

Brookings Inst report:

Future is now!!!

[ramana]

A book review of John Le Carre's new novel

Our Kind of Traitor

Note his remarks on Lehman Bros failure.

[amdavadi]

I am going to get bigger mattress tonight...

Whose writing off 200K?

[Airavat]

Federal Reserve creating new asset bubbles

Faber said the central bank is risking the creation of another asset bubble similar to the technology bubble that burst in the past decade and the real estate bubble that led to the financial system collapse in 2008 and 2009.

"Excessive liquidity and dropping dollar bills onto the United States from helicopters like Mr. Ben Bernanke suggested—the problem with that is he doesn't know where the money will flow," he said. "In this case, the excess liquidity flows into emerging economies and precious metals, and new bubbles are building up that at some point in the future will burst. Then you will have another problem on your hands the way you had a problem when the Nasdaq bubble burst and the housing bubble burst."

Mortgage rates are at a record low around 4.23 percent and US companies are carrying about $2 trillion on their balance sheets, yet the economy remains mired in low growth. Critics worry that the Fed's efforts, often referred to as "quantitative easing," are debasing the US dollar and could cause a global trade war. Cheap currency makes exports less expensive, a goal the US is pursuing as it shoulders a $46 billion trade deficit.

[Neshant]

Its not the act of getting insurance that is wrong but the ones selling the insurance that one has to beware of.

What's interesting is that in the next 15 years or so, a whole lot of life policies in the west will be coming due. That will be coupled with a sharp decline in people taking out new policies. The shortfall of suckers paying in has to be made up somewhere.

Now if the books of the insurance companies look anything like AIG or commercial banks, its going to be hard coming up with the money. So a new base of the pyramid has to be laid down with a steady supply of suckers being reeled in to make the payouts in the west. That's where I think India & China come in.

These kinds of financing schemes & scams are rampant. Every financial company is trying to sell worthless paper policies...etc with a claim to a pot of gold at the end of the rainbow when really its a pot of something else when you finally get there.

[SwamyG]

Obama Debt Comission says:

nation must make sacrifices

Grab your wallets.

Brookings Inst report:

Future is now!!!

Finally they are talking about sacrifice. But do the people have stomach for such truth? Wars, two wars - Iraq and Afghanistan - added (and is adding) to their debt. In order to wage war, the country waging war has to either increase the taxes at home or loot the invading countries treasury to increase its own. Then that money could be used for necessities and luxuries in the domestic front and future wars. I am surprised how USA has been getting away from this simple truth, unless there is simpler truth out there.

ps: don't tell me the simpler truth is called - credit

[Neshant]

Obama Debt Comission says:

nation must make sacrifices

Its ridiculous that banking crooks have cleaned up with bailouts & bonuses and now the productive economy is supposed to endure higher taxes to pay for it.

I suggest an additional 25% tax on banking & financing related jobs be applied to close the deficit. Fewer bankers & high rollers will stimulate the economy.

[Hari Seldon]

Been a tad busy of late. Aaj ka D&G roundup from TAE tweets:

Ireland on Brink as ‘Beggar’ for Aid After Losses by Fingleton (The man behind Irish Nationwide) http://bit.ly/azj3vY Irish 10 year at 8.91%

Biggest drop in Britain's wealth for 60 years http://bit.ly/cXSaml The temporarly lull is over, an even bigger crash approaches.

John Taylor: "The Collapse Of Europe Has Begun, The Euro Will Trade Like The Lira In A Few Months" http://bit.ly/awf6pl Via @ZeroHedge

Portugal, Ireland, Spain CDS spreads hit records http://bit.ly/aUWSDI (505, 620 and 294 respectively)

Read the FED's monthly schedule to print $105 Billion by Dec 10 http://bit.ly/d1fm4G

Student protests in the UK are a step in the right direction. The banker elites make off with the loot and the rest of the popn. is stuffed

#Student protests should've taken place at the Bank Of England & Goldman Sachs headquarters in Canary Wharf. That's where the real power is.

The #Protests we have seen across Europe are just the beginning.The social contract has been broken when the elite have open license to loot

Fed Global Backlash Grows http://on.wsj.com/aFIVCb China, Russia and Germany scold FED, so does Sarah Palin.

Yawn. We've been seeing and hearing signs of revolution for way too long now. More of the same, IMHO.

[Neshant]

Here it is again since the mp3 link i provided went dead.

2010: Part 1: Inflation or Deflation? Peter Schiff and Robert Prechter Debate

[paramu]

Matt Taibbi is rolling again...

Matt Taibbi: Courts Helping Banks Screw Over Homeowners

[Rahul Mehta]

Matt Taibbi is rolling again...

Matt Taibbi: Courts Helping Banks Screw Over Homeowners

The foreclosure lawyers down in Jacksonville had warned me, but I was skeptical. They told me the state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase. This "rocket docket," as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and laby­rinthine derivative deals of a type that didn't even exist when most of them were active members of the bench. Their stated mission isn't to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history — an epic mountain range of corporate fraud in which Wall Street megabanks conspired first to collect huge numbers of subprime mortgages, then to unload them on unsuspecting third parties like pensions, trade unions and insurance companies (and, ultimately, you and me, as taxpayers) in the guise of AAA-rated investments. Selling lead as gold, shit as Chanel No. 5, was the essence of the booming international fraud scheme that created most all of these now-failing home mortgages.

A few decades back, this would not have been possible, as person had option of demanding Jury Trial, and Jurors would have sided against leeches aka bankers. But banks ask customers to sign a clause that they are waiving their right for Jury Trial, and Supreme Court judges have upheld that waiver !!! So the 500-600-more cases go to one judge, who is paid to favor the banks. If these cases were going to Jurors, each case would have gone to 12 different Jurors and so these 500 cases would go to say 6000-10000 Jurors. Bribing them would have been impossible for bankers.

Suffices to say that Supreme Court judges of US have enabled bankers to loot by weakening Jury System in US. Solution? Well, I dont waste my time in typing solutions to Americans' problems. I have (120 cr - 5 cr) Indians to worry about, and thats a lot.