Friday, April 30, 2010

Working another day for Reagan

The FDIC broke new ground today with the failure of three large banks in Puerto Rico, the first since the S&L debacle of the elder Bush’s regime. These three banks closing will cost us 5.28 Billion USD. They also closed a bank in Everett WA at a cost of 1.37 Billion USD and another in Port Huron MI for a mere 615 million. A state charted bank in Creve Coeur, Missouri cost just chicken feed of 51 million.

Today’s total of 7.3 billion represents almost exactly what Federal government had in revenue today. The Tea Baggers like to squawk about how many days a year they work for the government. They’ll need to work for an extra day next year to pay for this little bit of Reaganomics.

The only growth is in Gulf oil

SELL, that’s the word on Goldman Sachs from the people who rate stocks at Standard & Poors. This follows word from DOJ that they are considering criminal charges unrelated to the civil case brought by the SEC but based on information uncovered by the commission’s investigation. It’s likely that any small amount of digging will unearth enough crime to keep prosecutors busy for years. Even though they measure their bonuses in billions the Wall Street bankers weren’t satisfied with merely doing things that were illegal between 1933 and 1980. Of course during the past eight years no crime at a bank that didn’t involve a mask and gun was prosecuted so why would they hold back.

The carry trade is getting more attention in the economics press with the senior finance regulator in Great Britain giving a somber speech on the danger this practice is creating. "Foreign exchange carry trades are, as far as I can see, of zero value and potentially destabilizing…” so says Lord Turner (wouldn’t Republicans just love to have actual titles) There is at least a trillion USD worth of this pestilence currently on the books. Iceland was a victim of the carry trade, as things got hot capital fled and they were suddenly broke. The entire country came within 30 days of starvation (that’s when the canned herring would have run out).

I personally think there is a lot more misery hidden in the quadrillion USD (a thousand trillion) of derivatives spread across the planet. The financial reform bill would require companies that deal in derivatives to actually have capital reserves. Even modest capital requirements could involve trillions of dollars, hence the tooth and nail fight in the Senate to exempt them.

At the end of the Bush Adm, there was also a lot of Dollar-Dollar carry trade to prop up the banks with the Fed lending them money at zero interest and the banks buying US Treasuries at 3.5%. An awful lot of the money we owe as a nation is owed to Wall Street banks that could only afford to buy our debt because the Fed loaned them money printed in our name at no cost. The Fed has issued 14 Trillion or more in this manner and won’t say to who.

The 1st Qtr GDP was up 3.2% but if you stripped out increases in energy costs provided by Wall Street it would be more like 1% and you need 5% growth to ad any jobs. How bad are things really? One in eight Americans plan to pull the plug on premium TV services or eliminate pay TV altogether. For entertainment we can go down to the beach and watch the oil tide come in. The leak rate is now rumored to be 25,000 barrels/day up from 5000, up from 1000, up from zero with no end in sight. Spill baby, spill. www.prairie2.com

Wednesday, April 28, 2010

Just Fleeing

The Republicans in the Senate are backing down their just say “no” position on the Wall Street reforms after Harry Reid changed his vote to “no” on this morning’s vote to open debate. By doing this Reid is in a position to call for a vote at any moment and he announced that the Senate would remain open for business all night. Republicans would presumably be obliged to attend or read about the vote in the morning. Normally this sort of parliamentary maneuver is not seen in the Senate but since the Republicans have already gone past any imaginary line of decorum that had existed, Harry is taking off the gloves.

There is a growing sense of urgency to create a mechanism for dissolving the Wall Street banks as the world economy threatens to collapse. The Asian markets took another big dip yesterday as the Greek tragedy spread through Portugal and into Spain with S&P downgrading their debt a notch. Spain is in much better shape than Greece but is also much bigger. Portugal, Ireland, Greece and Spain (the PIGS countries) had all been drinking the Chicago School of Economics kool-aid to one degree or another. Nobody knows just how much peril they are really in since it’s unknown how much of their debt is hidden among complicated synthetic financial instruments created by you guessed it; the Wall Street banks.

The Asian markets will open again this evening our time and if they don’t accept the reassurances by the German government that everything will work out fine then things could get ugly. The Wall Street banks have been using the interest free money they have been getting from the Fed to pump up the markets by taking advantage of the carry trade. The carry trade is where you carry cheap money from one country into a country that offers a better return and enjoy profits with no real investment required. The risk to this is a sudden change in currency values which could make you over leveraged. (that’s Wall Street speak for broke) The sudden strengthening of the USD as many people flee the sagging Euro could be such a triggering event.

The only way for an investor to avoid the worst happening is to sell off holdings at any price. This is called a market panic because buyers become scarce no matter how low prices go. The Chicago School says these things don’t happen in a free market because there are no bubbles. They are still saying that and balk at any responsibility for the current depression and basically claim it’s all in our heads. US markets were up today anyway as the Fed confirmed that the free money will continue flow to the Wall Street banks for some time to come. Gold was up worldwide with brisk buying as not everyone is fleeing the Euro to the USD, some are just fleeing. www.prairie2.com

Tuesday, April 27, 2010

Living by the camper/bear rule

The stock markets worldwide took a 2% drop today on news that Standard & Poors became the first bond rating agency to downgrade Greece’s debt to junk status. They are suggesting that investors could expect to get back only 30 cents on the dollar they invested. They also down graded Portugal’s bonds and there are rumors that Spain is next despite the fact that the two are in good shape by comparison.

The supposition is that Greece will take down several large European banks if they default. Germany is waffling on any sort of bailout for political reasons and this is supposedly spooking the bond rating agencies. Greece is crying foul on their downgrade as no decisions have been announced. You should realize that these are the same rating agencies that told European investors that the Collateralized Debt Obligations (CDO’s) Wall Street was selling were AAA rated like US Treasuries when they knew full well they were nearly worthless.

Junk bond status puts huge pressure not only on Greece to accept onerous terms from the IMF reducing Greece to corporate serfdom but is driving all the world markets. The US dollar is up sharply against the Euro and there are people on Wall Street making money from this.

Back in the US there was brisk business in US Treasuries driving down interest rates as investors apply the camper/bear rule. The camper doesn’t need to out run the bear, just the other campers. Foreign investors are betting on the US as the fastest camper but that by no means should be taken as a hopeful outlook on the US’s chances. There are a lot of bears in the woods.

The Republicans voted again today to block debate on the financial reform. They refuse to allow public debate where they could present amendments but insist loudly that the Democrats are somehow playing dirty by not making a deal behind closed doors. This is of course the opposite of what they are constantly saying about how legislation should be done. The flip flop isn’t just a delaying tactic, they know a bill is inevitable and they want to claim in November that they wrote it. Public debate and amendments would make that claim impossible and would reveal every attempt they made to weaken it. They will follow their long tradition of claiming that they were looking out for the voter as they really were doing Wall Street’s bidding. Don’t look back, the bear is gaining.
www.prairie2.com

Monday, April 26, 2010

Medium fish should be nervous

Shares of Goldman Sachs dropped another $5 today as the third shareholder lawsuit was filed in Federal Court. As well as accusing Goldman’s management of breaching fiduciary duties for committing fraud in the sale of the worst possible of bad mortgages and then betting that the same mortgages that Goldman no longer owned would fail, this new suit also accuses CEO Lloyd Blankfein of concealing from shareholders the notification from the SEC of its civil case since last July.

Executives of Goldman seem oblivious that they have done anything wrong. Several were quoted repeating the talking point that the fact that they made money shorting these bad investments proved “that they were pretty smart”. They claim that they haven’t lost any investors since the SEC revelation and it appears they haven’t. Part of that is the investors are locked in for the near future and can’t just leave. Also if you still have your money, you might think they have been doing a good job. Locked in a bank and with robbers and taking their side is where the term Stockholm syndrome came from.

Emails have emerged in evidence of Goldman Sachs rolling in profits during the housing collapse when they had claimed under oath that they had lost money. Their profits came from derivatives or bets against (short selling) the very mortgage backed securities they had been selling to their customers. Their response is that they are being victimized by the Senate Committee that released the messages because they are "cherry picking" only four out of thousands of emails. "if you only cherry pick those pictures of me in the bank brandishing a gun while holding the bag with the $ sign on it, then of course I look like a criminal" They did ultimately take mortgage losses but only after the good mortgages started going bad too, they didn‘t think to short those. It never occurred to them that wrecking the economy might be bad for the business in the long run; but they got their bonuses anyway, so who cares.

The Republicans have filibustered the Wall Street reform bill saying if there is no compromise then they will introduce their own bill. The Senate is 59% Democrats, that whole democracy thing seems to be lost on Republicans. They waved around an alternate to Obama’s budget, but it had no numbers. The alternative to health insurance reform; no Federal regulation and make it possible to avoid all state regulation while preserving their anti-trust exemption (to encourage competition of course). After all, in a free market the small fish should expect to be eaten and medium fish should be nervous. www.prairie2.com

Sunday, April 25, 2010

The life blood of the American economy

The talking point of the Wall Street apologists is that we can't touch Wall Street because they are after all the life blood of the economy. The only blood in these parasites is what they have sucked out of Americans. They destroyed countless business in the eighties with mergers and acquisitions and went on to simply reduce the rest to empty shells with leveraged buyouts. There's a couple of trillion in junk bonds left over from that coming due in 2012 that will sink what's left of the economy.

Wall Street sold our manufacturing base to China and started selling off our municipal infrastructure to foreign investors to keep their cash flow going. When they couldn't make enough doing that, they started selling derivatives based on bad mortgages. They are running out of stuff to steal. A big chunk of what you pay at the gas pump goes to these weasels. Remember when the banks froze up in '08? The first thing that happened was the price of gas went down because they couldn't drive the futures market anymore.

They have been destorying third world countries for decades and they are doing it to us the same way.