Anandakos

Credit Default Swaps May Be Playing a Supporting Role in Chrysler Bankruptcy Filings

This was a good analysis until the snarky, egregious reference to "Barry O". And the big banks you enumerated aren't supporting the work-out because they "are doing the bidding of the administration". They're the ones who SOLD those CDS that you've rightly pointed out give the hedgies a perverse incentive to force a bankruptcy.

Given the completely unregulated nature of CDS, there may be twice or even ten times the exposure to CDS issued against Chrysler debt a couple of years ago when the automakers were riding high. Sure, the banks probably BOUGHT CDS to hedge against the ones they sold, but the circle can only go around so many times; somebody will be left without a chair.

The banks have a big incentive to get a work-out; the hedgies have the opposite incentive. This is one time that the banks are the "good guys".

How Does $9000 Gold Sound?

Like Dow 36,000

Interview with Peter Schiff: Reflating the Bubble

396040.

Very well said. Those are exactly the basis of our economic success.

On Apr 24 07:55 PM user396040 wrote:

> This is the argument Andrew Mellon made during the Hoover Administration
> - "liquidate everything." Theoretically, it has some merit. In
> the long run, it is possible that markets would clear at lower prices.
> But, as Harry Hopkins said - "people don't eat in the long run."
> In a democracy, there will always be a strong demand for government
> action to avert a depression. I think the Republicans missed the
> boat last Fall. They could have proposed a simple stimulus - everyone
> subtracts 10% from his 2008 taxes and every state gets a check in
> the amount of $1000 for every person counted in the last census.
>
> Inflation is helpful at a time like this because it makes it easier
> for debtors to pay back their debts and it makes it easier to reduce
> real wages(just refrain from giving raises).
> A strong dollar does not enable us to rebuild our industrial base;
> instead, it makes it impossible for US industry to compete with imports
> unless we go back to imposing high tariffs. The dollar is up a great
> deal against many of our key trading partners in the last year(Canada,
> Mexico, Brazil, UK). A lower dollar would give the industrial part
> of the economy a shot in the arm and automatically increases the
> dollar earnings of multinational companies.
> In the long run, we will need a value added tax, a lower and simpler
> income tax, more money spent on education more effectively(people
> are by far our most important resource). We also desperately need
> some infrastructure upgrades. We need to reduce our dependence on
> oil imports. In the long run, these things - the intelligence and
> resourcefulness of our people, the quality of our infrastructure,
> our energy independence, and a tax system more oriented to taxing
> consumption rather than production - and not a strong dollar or
> the amount of gold buried in our back yards - are the things that
> will make us strong.

Interview with Peter Schiff: Reflating the Bubble

Utilitus,

I agree that what you stated seems sound, but it's not really.

Securities are not "money". Depending on a specific security's liquidity it can be exchanged more or less readily for money. But by so doing the money supply is unchanged. The person who formerly had the security now has the money that the person who now has the security used to have. (Confusing syntax, I know). Net change in money supply: zero.

The fact that securities held by people which have lost value can now be traded for fewer dollars does not reduce the money supply. If anything it actually increases it! What has changed is the VELOCITY of money. That has given us the appearance of deflation.

So flooding the money pool with dollars created to buy previously non-existent government bonds does increase the money supply and will eventually lead to inflation when velocity returns to a more normal rate. We can hope that the inflation is largely limited to the price of assets as it was during the first seven years of this decade. But don't bet on it; the Fed has lost 25 years of credibility in the past few months.


On Apr 27 02:14 PM utilitus wrote:

> Exerpt from Bill Gross' current PIMCO 'Investment Outlook':
>
> "The Dollar – As the center of structured finance and the shadow
> banking system, the dollar was bolstered as it sold paper to the
> rest of the world. To date, its recent strength seems counterintuitive.
> Weakness may more accurately describe its future."
>
> On Apr 24 12:55 PM mavericks wrote:

Interview with Peter Schiff: Reflating the Bubble

Because they will "un-peg"! It's already happening. Most of the Gulf states are beginning to peg to a basket of the dollar, yen, and Euro, because they sell to all three. By pegging their currencies to a basket they can sell oil in any of the three currencies and "convert" it to their own with limited currency risk.

On Apr 24 07:55 AM Freya wrote:

> Yes, it is thought provoking and it will come to pass in some form
> eventually.
>
> I do have a real problem figuring out one of his statements though:
> The USDs collapse is a gimme but when asked what currencies he would
> be in he says " Well, ultimately, a lot of the currencies which are
> currently pegged to the dollar will be very strong, a lot of the
> Asian currencies."
>
> If the USD is going to collapse, how will buying currencies pegged
> to the USD go up? Especially since the USD is a basket of currencies
> to begin with.
>
> It just sounds very, very complicated.
>
> I figure that you should just go with the Resource rich nations and
> their currencies.

Paulson Throws Bernanke Under the Bus, Backs Ken Lewis

Mr. Cowie,

Absolutely spot on. Break them up into regional regulated depository institutions any one of which is forbidden from holding more than 5% of insured deposits in the country and sell off the rest of the tomfoolery to investors with NO GUARANTEES of any kind.

The problem with doing what must be done is that Congress -- both parties -- is riddled with "representatives of the People" sucking the financial industry tit.

On Apr 23 04:42 PM William Cowie wrote:

> Does it sound to you like Lewis is setting up things so his golden
> parachute (with many, many zeroes) won't be blasted as heavily? Earlier
> comments indicate that he's tired of being vilified for a decision
> into which he was coerced.
>
> It's scary to know how bad business decisions are being forced on
> CEO's by governments of both parties, in the name of supposed national
> interest. The key of course is to split up these "too big to fail"
> entities. It is really not that complicated.
>
>
>

How the Gold Game Could End

I Short You,

What are people "filling in their bones" with? I HOPE it's calcium and marrow!

On Apr 19 09:24 AM Ishortyou wrote:

> since the beginning of ancient civilizations gold was seen as a trading
> asset, and like any other asset its price is determined by supply
> and demand, because it is not practical or more difficult to trade
> the real bar of gold the GLD fund was created, this is to supposed
> to be in practical terms 'real gold' but represented as paper in
> the market, you can take it like a dollar pegged to gold like in
> the good old days before the bolshevik of FD Roosevelt depegged it
> to print money and pay post war world debt (what a crook!). Because
> currently they are printing dollar paper massively to give liquidity
> or solvency to a current very recessive market and because the dollar
> is not peg to anything of relative value, many people are filling
> in their bones that a massive inflation is coming due to a worthless
> dollar, if China and Japan dump the treasuries because of this forget
> it god save us all, they will buy gold for sure at least they will
> think that is better than a paper dollar even if it is sitting in
> their coffers at least it shines pretty.

Seething Over Liddy's AIG-Goldman Connection

Mr. Rines,

Do you honestly think that "the citizens" will "take care of one another" if the sort of cataclysmic crash you so gleefully predict occurs? You are a fool if you do.

With the stupendous volume of hateful bile unleashed by the election of an "other" and directed at the poor, at minorities, at immigrants, at LGBT folks, at scientists -- at anyone except religious Caucasian heterosexuals -- you can expect all those guns flying off the shelf to be used on your fellow Americans.

This is not the 1930's when Americans still had a commitment to shared sacrifice and genuine love of country. Today people are motivated by selfish narcissism and filled with raving lunacies from people whose mental circuitry is clearly dysfunctional. Because of the mass media people who have enormous public platforms but no real connection to the world of cause and effect, consequences, and real responsibility can infect impressionable anti-social people on an unprecedented scale. You know who they are and the hateful things they advocate.

Be careful what you wish for. Sometimes fulfillment comes in a pretty box; sometimes it comes in a coffin.

On Apr 17 02:00 PM Jason Rines (iThinkBig) wrote:

> The current economic system will collapse in mid 2011 or early 2012.
> The citizens will flush the 'no-oversite' committees, default on
> the debt, face a couple of tough years and move on. Take care of
> one another in-between. Government's version of 'sharing' is wealth
> contraction across the board when in conjuction with Financial market
> collusion. You as gentlemen will need to take care of neighbors.
> I am doing my part already as some of you will find out soon enough
> - Viva la Liberty.

Scary Unemployment Numbers You Probably Missed

Painfully Aware,

You've made the age old claim that "small business" is the driver of employment in the United States. Three things need to be said to qualify that: first, what do you define as a "small business"? If you include franchises, then you are seriously fudging what "small" means. Franchises are big businesses with decentralized capital; they're not small businesses.

Second, though it's true that small businesses as defined by government and does include franchises do hire more than half of newly hired workers, since more than half fail within the first two years of life, they also destroy most of the jobs lost in the stable economy. The huge spike in unemployment is not primarily a result of small businesses letting people go which happens all the time. Instead it's the result of massive layoffs in large enterprises which are much rarer and sizable.

Third, since franchisers especially are careful to hire only part-time people to avoid the need for benefits, many of their lowest-paid employees are therefore ineligible for unemployment, and therefore do not show up in the UI figures when the "businesses" do fail.

Spare us the whining about the "beneficent small business owner". While many owners of genuine self-developed businesses are generous and ethical to their employees, franchisees are typically exploiters of the first order.

On Apr 11 05:00 PM PainfullyAware wrote:

> Unemployment may be a lagging indicator for a while but there comes
> a point where the "Magnitude" becomes a Contributing Factor.
>
> Tax Revenues, Consumer Spending, Welfare/Unemployment Expenditure
> are first order Contributing Factors from Unemployment.
>
> Budget Short Fall Response, Retail Profits, And Exceeding Safety
> Net Limits are secondary effects.
>
> All I Am Seeing In Governmental Action is "Save The Status Quo";
> Do Not Fix What Is Corrupt.
>
> Employment Increases By Entrepreneurs And Small Biz. The Governmental
> Regulation And Tax Code Is In Direct Opposition To Small Company
> Advantage. Therefore, I do not see any signs that we will have a
> reduction in unemployment unless the Government becomes the "Employer
> Of Last Resort".
>
> The Welfare/Warfare Nanny State Continues To Be The Path Chosen By
> Our "Leaders".
>
> Responsibility And Accountability Have Become Victims Of "Moral Relativism".
>
>
> Live While You Live; The Dark May Not Be The Color Of Pitch When
> The Ramifications Of Actions Come To Light. I doubt the "Sunshine
> Scenario" will last forever. Fear Is A Waring; Panic Is A Construct
> Of An Over Zealous Mind. Panic Makes Predicament.

Let's Hurt the American Financial Services Industry

Morph,

The complications you foresee will not occur if regulated and insured depository institutions are FORBIDDEN from any activity other than taking deposits and making loans up to their statutory capital ratio maximum. Not if they are FORBIDDEN from owning any subsidiary or being owned by a holding company that does unregulated activities. Not if any single institution is FORBIDDEN from holding more than 5% of the total deposits in the United States. Not if they are FORBIDDEN from loaning any amount to unregulated financial institutions. Not if they are FORBIDDEN from packaging their liabilities and selling them as opaque derivatives. Allow them to sell the liabilities one at a time as they used to before Freddie Mac invented the MBS, but prevent them (and Fannie and Freddie) from packaging and selling their liabilities in artificial securities.

In other words, make banking the utility it was until the 1970's and should be again, and let the sort of person who today runs a credit union because he or she is interested in public service run the a bank tomorrow.

At the same time, allow the descendants of investment banks and hedge funds to do what they want with invested money, not loans. And make it very clear that there is no Federal guarantee explicit or implied backing any of those investments. Caveat investor.

This would result in the shrunken financial sector Felix envisions operating at the service of the economy, not as its master.

And a fantastic "unintended consequence" -- well, in truth very much intended -- would be the humbling of a large group egregiously smug and reactionary opportunists. Rick Santelli, I'm lookin' at you and your millionaire trading buddies howling for the blood of poor people who listened to shysters in the mortgage origination business.

Inflation Expectations: A Primer

Tao,

I'm sorry, but I don't buy this widely held opinion. I know it's popular among pro-stimulus economists, but I think they're missing an important point.

It seems pretty obvious to me that the market value of equities is NOT equivalent to "money". It can't circulate. For the owner of a security to utilize that wealth in any way other than an investment, she or he has to sell it to another holder. The original holder now has liquid money to spend as she or he wants, but the new holder has reduced his or her ready funds by the same amount. Thus the amount of circulating money has been unchanged.

Wealth does not equal money. Money is but one special form of wealth.

So, increasing the circulating money supply to "replace" the evanescent wealth evaporated by the meltdown should in fact lead to inflation. Now we may be "lucky" and see that inflation only in the price of the assets propped up. In other words, we may reflate the bubble in assets but not experience rising prices in other areas of the economy. But I'm pretty doubtful that the Fed can pull off that particular legerdemain again.

On Apr 10 06:31 PM Tao wrote:

> Doesn't new money replace all the money that disappeared out of equities
> last year?
>
> Great article.

$200 Oil Is Coming While We Waste a Perfectly Good Crisis (Part 3)

Point one of your guns at your noggin and pull the trigger.


On Apr 08 02:19 PM doubleguns wrote:

> Politicians want crisis. That is when they can get thier political
> agendas down the american peoples throats.

$200 Oil Is Coming While We Waste a Perfectly Good Crisis (Part 3)

LOL! What are these "good reasons to believe"? You heard it on Michael Savage? Was it Sean Hannity? Or maybe O'Rielly?

More likely even it was some anti-science witch doctor in a mega-church entertainment conglomerate.

On Apr 08 12:53 PM Socialism cannot compete! wrote:

> One thing he should research and consider -- there are now good reasons
> to believe that crude is formed by abiotic processes, and is therefore
> not non-renewable.

And There Goes the Dollar

I said the second paragraph incorrectly. It doesn't "cost us less of their money to deliver it", rather it's when they receive the dollars and convert it to their currency, they get less for the dollars.

It costs us the same, it just yields them less.

Apologies for the confusion.

Plus, it was "us" not "use" in the first paragraph.


On Mar 19 03:26 PM Anandakos wrote:

>
> Mr. Abraham,
>
> It is my understanding that during the Great Depression the US was
> a strong net CREDITOR nation. Why would devaluing the dollar be
> of benefit to a creditor? All of a sudden the people who owed us
> money could pay less of their currency to discharge the same debt.
>
>
> Now of course we're a huge net DEBTOR, fortunately in our own currency.
> It makes (short-term) sense for use to devalue, because we pay the
> same nominal amount to our foreign creditors, but it costs us less
> of their money to deliver it.
>
> Of course this is only beneficial in the short term because we have
> to pay more of our devalued dollars for any new products we want
> to buy from them. And, they are less likely to extend us new loans
> in our own currency. Either they'll demand higher interest to cover
> the "default" risk or they'll say, "Sorry, Charlie; you want money
> from me, you borrow it in my currency."
>
> Welcome to the United States of Argentina.
>

And There Goes the Dollar

Mr. Abraham,

It is my understanding that during the Great Depression the US was a strong net CREDITOR nation. Why would devaluing the dollar be of benefit to a creditor? All of a sudden the people who owed us money could pay less of their currency to discharge the same debt.

Now of course we're a huge net DEBTOR, fortunately in our own currency. It makes (short-term) sense for use to devalue, because we pay the same nominal amount to our foreign creditors, but it costs us less of their money to deliver it.

Of course this is only beneficial in the short term because we have to pay more of our devalued dollars for any new products we want to buy from them. And, they are less likely to extend us new loans in our own currency. Either they'll demand higher interest to cover the "default" risk or they'll say, "Sorry, Charlie; you want money from me, you borrow it in my currency."

Welcome to the United States of Argentina.



On Mar 19 12:26 PM Andy Abraham wrote:

> How about they are devaluing the debt that they owe....it is not
> all that complicated.. this was done during the Great Depression..
>