weekend commentary - "The Financial World Changed This Week"
(snip)"The world changed this week…and most people have no idea
Last week this was my call:
“I continue to believe that next week will be the week that shakes the financial world at its foundation.”
I believed it happened on Sunday evening.
Although it may not seem like it on the surface.. yet… I believe that the “temporary structural I-beam” that has supported our financial system for the past 8 months CRACKED on Sunday night with the bankruptcy of Capmark Financial. Capmark was THE ring leader in the Commercial Real Estate derivatives markets. Two days later GMAC declared they needed many more billions from the government. CIT will likely go down this weekend [ just filed for bankruptcy - sic].
But the key to all this is that the Commercial Real Estate Derivative market is now IMPLODING. Everyone talks about the imploding Credit Default Swaps at AIG…which were bad but they are dwarfed by the derivatives related to Commercial Real Estate.
The Commercial Real Estate derivatives are the largest and most structured of all the derivative products. Just look at this 2007 presentation at a Mortgage Bankers Conference and you can see the insanity of these structured products.
http://wallstreetexaminer.com/forums...2068_thumb.png
Capmark (with major help from their Goldman Sachs part owner) was the ringleader, organizer and conductor of the Commercial Real Estate derivative market. Although they claim to have a world wide portfolio of $288B, they were also a major component of the secret off shore “special purpose entity” placement of these products.
Here are just some of the majorly structured derivative products in Commercial Real Estate.
CDO’s
Conduit CMBS
ConduitREIT
REITWhole Loan
FixedREIT
TrupsCRE
CDOsWhole Loan
Fixed or FloatingCTLC
MBS Large Loan FloatersB-Notes
FixedCRE CDOs
Rake Bonds
FixedCTLB-Notes
Fixed or FloatingRake Bonds
Fixed or FloatingMezzanine Loans
My call that this week will mark the END of the cabal will be proved out over the next few weeks/months."(snip)
from
Re: weekend commentary - "The Financial World Changed This Week"
Re: weekend commentary - "The Financial World Changed This Week"
Investing in nothing and producing nothing. If we do like they do in China and execute a few it will put a stop to it all.
Chinese execution van
http://techvixen.com/files/2009/04/c...an-300x218.jpg
Now before you beading hearts start crying remember the compassion and value you put on the lives of those that keep you from wearing a burka. Don't think of them as people just objects
Quote:
Regarding veterans who are disabled and unable to work, Zerbe says that it goes too far to attach the same loss to those soldiers as to soldiers who have died. He feels that the Stiglitz and Bilmes analysis has “too narrow a view of life, way too production orientated.” Zerbe argues that just because these disabled soldiers can’t work doesn’t mean that they place no value on living.
Re: weekend commentary - "The Financial World Changed This Week"
I thought it was a little odd that there was so much financial news on for a Sunday morning.
I saw something a few weeks ago ( I think it was Burnakie's last news conference)... that Commercial Properties will start defaulting like residential ones have. There is already legislation in the works for some type of bail out or government backed program to alleviate the problem.
But, they economic recovery we were supposedly showing was based on government spending alone and there is no money flowing anywhere else as people aren't spending and banks refuse to lend anything. So do you guys think there will be another big government bailout?
Is it even possible for the government to rack up a bigger deficit? Esp when the three biggest banks to the best of my knowledge haven't paid back that TARP money yet?
Re: weekend commentary - "The Financial World Changed This Week"
^^^ not only is it possible, but the US gov't / Treasury has already 'signed up' to cover somewhere between 7 and 9 trillion worth of FDIC losses, Fannie / Freddie losses, central bank currency swap losses, and who knows how many other 'gov't backstop' losses which receive little attention in mainstream financial media but which could make the TARP program losses seem small in comparison. Future bailout additions by the US gov't / treasury would only add to these existing commitments.
Also Deo you are indeed correct that the US dollar has now taken over at least part of the Japanese Yen's role as a 'carry trade' currency. This virtually guarantees high volatility versus other currencies as well as susceptibility to increasing manipulation by both foreign central banks as well as hedge funds and speculators.
~
Re: weekend commentary - "The Financial World Changed This Week"
by 'coincidence', commentator Gary North just addressed this issue ...
(snip)"WHY DEFAULT WILL COME
You know about the unfunded off-budget liabilities of the Social Security and Medicare programs. If you don't know the numbers, go here.
You know about the size of the on-budget Federal debt. If not, go here.
You presumably know about the size of the officially estimated deficits in the on-budget account: at least $900 billion a year until 2019. If not, go here.
Voters are oblivious. They do not care about anything beyond their next paycheck. Investors are oblivious. They do not care beyond the next quarterly report. Congress is oblivious. They do not care beyond the next election.
Am I saying that Congress has a longer-term perspective than investors? Yes. But why? Because investors believe two things: (1) the existing price of any asset reflects the best judgment of the smartest investors; (2) they will be smarter than all these other investors when it comes time to sell and buy gold.
The average American faces his day of reckoning on the first of every month. Congress faces its day of reckoning in November of even-numbered years. Investors do not believe that they, individually, will ever face a day of reckoning. They think they are smarter than the smartest guys in the room, or else they think Ben Bernanke is, and all those other FED economists are, who will see the crisis coming next time and will take steps to evade it.
Congress also thinks that the FED's economists will find ways to evade the day of reckoning.
Investors and politicians are united. They trust the ability of central banks to evade the costs of political promises. This has been true since 1694, when Parliament granted a monopoly over money to the Bank of England. Parliament wanted a lender of last resort. That was what the head of the Bank of England promised.
The political promises of every nation rest on faith in central banking. The politicians and the investors are united in a confession of faith. This confession of faith rests on an assumption: with fiat money, there can be a free lunch, indefinitely. Every school of economic opinion except the Austrian School also affirms this.
There is a problem with this confession. It is not true. There is no such thing as a free lunch. Fiat money is counterfeit money. It does not create wealth. It destroys wealth.
Congress has promised money. It has also promised wealth. Congress will default on at least one of these promises.
We are back to my original two questions: (1) How? (2) When?
Default has four major forms. We need to consider all of them.
1. OUTRIGHT DEFAULT
This scenario assumes that the central bank refuses to buy the government's debt. This has not happened since 1694.
At some point, the government will not be able to find buyers at low interest rates. Rates will rise. The economy will sink into a depression. Revenues will decline. Expenditures will rise. The government will not be able to pay all of its obligations. So, it will raise taxes. The depression will get worse. Revenues will again fall.
Investors will know that the government is likely to default. No credit-rating service will have the courage to downgrade the government's debt, but rates will rise as if they had. The government will reach the day of reckoning. It will default on all of its debts.
Every institution that has government debt in its portfolio will suffer a loss. Its share price will fall. The depression will get worse. Insurance companies will be hit hard. The largest banks, which swapped their toxic debt with the FED at face value in late 2008 will find that they own the most toxic debt of all.
Foreign central banks will refuse to buy any more American Treasury debt. Technically, their portfolios fall to the extent that they held Treasury debt. Then those governments must decide. Should those banks be allowed to inflate to overcome these losses?
The inverted pyramid of debt will topple. The great default will produce the great depression. Unemployment will rise. Depositors will finally go to their ATMs to draw out currency. The banks will default: no withdrawals of currency.
The division of labor will contract. Everyone will get much poorer.
Because a default on all Treasury debt would have such widespread consequences – immediate consequences – economists have argued that this will not be allowed to happen. The central bank will buy the debt. But if it does, at some point it must stop buying or else create hyperinflation. Hyperinflation has the same consequence as default and deflation: a contraction in the division of labor.
I know of only one economist who predicts an outright default: Jeffrey Rogers Hummel. On August 3, 2009, he published an article on the free market site, Library of Economics and Liberty: "Why Default on U.S. Treasuries is likely." His argument is simple: the only alternative is the Zimbabwe option: hyperinflation.
He goes through the numbers. He makes an impressive case. He does not discuss the level of interest rates that would bring on the crisis, but at some point, the Treasury will have to offer high rates unless the FED intervenes.
He says that the welfare state is going to die, all over the world. I think he is correct. I am not convinced that outright default is likely – not before much higher price inflation arrives.
The strategy of the FED is the same as the strategy of Congress: kick the can.
SELECTIVE DEFAULT
Hummel admits that selective default is a possibility. I think it is more than a possibility. I think it is likely. He writes:
The Zimbabwe option illustrates that other potential outcomes, however unlikely, are equally unprecedented and dramatic. We cannot utterly rule out, for instance, the possibility that the U.S. Congress might repudiate a major portion of promised benefits rather than its debt. If it simply abolished Medicare outright, the unfunded liability of Social Security would become tractable. Indeed, one of the current arguments for the adoption of nationalized health care is that it can reduce Medicare costs. But this argument is based on looking at other welfare States such as Great Britain, where government-provided health care was rationed from the outset rather than subsidized with Medicare. Rationing can indeed drive down health-care costs, but after more than forty years of subsidized health care in the United States, how likely is it that the public will put up with severe rationing or that the politicians will attempt to impose it? And don't kid yourself; the rationing will have to be quite severe to stave off a future fiscal crisis.
The rationing will have to be severe. The promises will not come true.
INFLATION
There are two forms: mass (up to 50% per annum) and hyper (the sky's the limit).
Mass inflation seems more likely over the next decade. If the world's central banks can coordinate the expansion of money, thereby funding the national welfare states, the public will not be able to escape. They will pay the inflation tax.
The ways around this are limited to investing in real goods: commodities, small farms, used goods stores, small-town real estate. Not many people will see this in time. Of those who do, few will take action. These escape hatches are for people who are hedging against default. The average voter has no financial reserves. Of the 20% who do have reserves, 80% will be stuck in conventional investments. They will believe the Establishment's Keynesian line. "The government can fix it if you just hang on."
Inflation means the erosion of money. It means a hidden default on the political promises. Why hidden? Because the politicians will blame speculators. They will not blame the Federal Reserve for having bankrolled their promises.
CONCLUSION
Ultimately, it is either the great depression or the Zimbabwe option. Ludwig von Mises called this the crack-up boom. It means the destruction of money and the collapse of the division of labor. It would mean devastation.
I think central banks will at some point refuse to fund governments any longer. They will bail out the largest banks instead. Foreign politicians may force hyperinflation on their central banks, as agents of the government. But as long as the Federal Reserve System maintains its selective independence, it will not adopt hyperinflation as a policy. That would not be in the interest of the largest banks. It would also not be in the interest of central bankers. Their retirement promises would die. "(snip)
Re: weekend commentary - "The Financial World Changed This Week"
So you chose to ignore executing the bastards wild trivializing the deaths in Iraq. I'm glad you are no longer part of the problem.
Re: weekend commentary - "The Financial World Changed This Week"
"Investors will know that the government is likely to default. No credit-rating service will have the courage to downgrade the government's debt, but rates will rise as if they had. The government will reach the day of reckoning. It will default on all of its debts."
I've started to really worry about this as the deficit is getting really out of control... China's going to cut us off sooner or later. LOL. Plus, even as bad as things are... the current interest rate is WAY below inflation. So the bank is going to pay out to lend money? That doesn't work!
I know one doesn't have to do with the other but the cards are starting to stack.
Re: weekend commentary - "The Financial World Changed This Week"
Quote:
Originally Posted by
Gia2608
China's going to cut us off sooner or later.
The one and true China will not cut US off.