Latest baseball scores, trades, talk, ideas, opinions, and standings

Archive for the ‘Collateralized Debt Obligations’ Category

>Get A Peak At The Future Of Money

>The G-20 meetings taking place in and around London are not giving us the real story. While President Obama is hobnobbing with rulers and presidents of the world’s most financially — I was going to say powerful, but changed my mind — invested countries, his secretary of the Treasury, Tim Gaithner, is meeting in back rooms with his counterparts from those 20 nations.

And the topic is something that could hurt you financially unless you are prepared with enough assets, food, clothing, gold and housing that you don’t have to rely on money in the bank which won’t be worth too much, anyway. Experts think gold could go up to $5,000 an ounce. Wow!

Larry Edleson is touting gold — because the entire world wants to get off the dollar and create a new currency backed by the International Monetary System and a dollar won’t be worth much.That’s why Obama is depreciating the dollar with all of his targeted spending — outrageous spending, in fact.

If we were all smart, we’d stock up on commodities so we could live for a year without having to go to the grocery store. We’d own our homes so we don’t have to try and pay it off with those inflated dollars, or would you? No, come to think of it. Inflated dollars are fine — in fact if you owed $400,000 on your mortgage and a dollar became worth only a penny, .01 then everything you had to buy to subsist would be out of sight, but fixed debts could be paid off quicker with these cheap dollars. The ones who would be hurt would be those owning property that they thought they would sell — because everything will be different.

Here’s the report, and you decide who’s better off:

What you won’t hear much about, though, will be the secret meetings hidden from the media to forge a radical overhaul of the world’s monetary system.
Attendees at the G-20 meeting will strive to wipe the world’s debt ledgers clean.

The real goal of the G-20 meetings: Creation of a new financial order based upon drastically new units of paper or fiat money to help wipe the world’s debt ledgers clean.

How? By systematically and progressively devaluing existing currencies, especially the U.S. dollar, and re-inflating ALL asset prices.

If the plan shapes up as I think it will, my current target for gold of $2,270 could turn out to be ultra-conservative. Depending on how the new currencies are structured, we could ultimately be looking at $5,000 gold … or even higher!

Over the next few weeks, I recommend you keep your ears tuned to the media for phrases like “new financial architecture” … “new monetary system” … the “rules of the game” … “Bretton Woods II” … and other financial speak. They are essentially the cover words that will ultimately spell a dramatic change in the value of money.

And while the planning stages will occur behind closed doors, already the public cries for a seismic shake-up of the world currency structure are becoming louder and louder …

French President Sarkozy recently declared, “We must rethink the financial system from scratch, as at Bretton Woods” … and that it’s time to “change the rules of the game.”

British Prime Minister Brown touts “a new global financial order,” describing this as a “decisive moment” for the world economy to adopt a “new Bretton Woods.”

European Central Bank council member Ewald Nowotny calls into question the “centrality of the U.S. dollar” and further states that the U.S., Europe, and Asia are developing a “tri-polar global currency system to replace the current dollar-centric reserve structure with more centers of gravity.”

At the recent World Economic Forum, Russia’s Prime Minister Putin explains that “Excessive dependence on a single reserve currency is dangerous for the global economy.”

The People’s Daily, the official newspaper of the Chinese Communist Party and the unofficial mouthpiece of the Beijing government, warns of the threat of a “financial tsunami” and urges action. “The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States.”

On March 19, the United Nations Commission on Reforms of International Finance and Economic Structures, chaired by the 2001 Economics Nobel Prize-winning economist, Joseph Stiglitz, recommended that the dollar be replaced as the world’s reserve currency.

On March 23, the People’s Bank of China (PBOC), China’s central bank, proposed replacing the U.S. dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

Changing the value of a currency is nothing new. Government officials have talked the talk before. Treasury Secretary Donald Regan floated the idea in response to the Latin American debt crisis in 1982. The next year, when the French franc nosedived with three successive devaluations, it was President Francois Mitterrand’s turn to call for “a new Bretton Woods.”

Then, spurred by the emerging-market financial troubles of 1997-98, British Prime Minister Tony Blair opined, “We should not be afraid to think radically and fundamentally … We need to commit ourselves today to build a new Bretton Woods for the next millennium.”

In the past, whenever an international financial crisis crops up, authorities in high places have often referred to a new Bretton Woods “solution” (i.e., changing the value of paper money).

This time, though, given the Great Depression II, it looks like the current generation of leaders is ready to walk the walk. Indeed, they may have no other choice.

Historical Background:
The First Seeds of Major Global Currency Tampering —
The 1933 London Monetary and Economic Conference

The concept of changing the world’s monetary system to wipe bad debts clean and to start anew with a fresh ledger or balance sheet, if you will, is not new.

It dates back to Roman times when emperors successively devalued the Roman denarius to wipe out debts and spark asset inflation.

More recently, emerging economies have engaged in chronic currency devaluations to deal with their mountains of debt. But surprisingly to most analysts, the industrialized world has also tried to “change the rules of the game,” which is central-bank speak for altering the value of paper money.

And interestingly, the most famous historical precedent — almost an exact analogy to today’s emergency G-20 meetings — was a little-known but critically important meeting in 1933, called the London Monetary and Economic Conference.

At the depths of that Great Depression, the world’s leading economic ministers met to find a cure for the global depression … just like they’re doing today.

But when finance ministers, central bankers and government leaders met in London to work out a plan, President Franklin Roosevelt changed his mind at the last minute and refused to attend. By most historical accounts, he had decided that there was no time to bicker with other nations and that action needed to be taken immediately.
Advertisements

>Why Taxpayers Should Bail Out Wall Street

>One stormy morning, Obama leads by nine points in the polls. Here we are, 41 days from election and the tall guy starts sprinting down the track and opens up a 9 point lead over the short, old guy. How long can the young “empty suit” go this fast is anyone’s guess. But unless something is done–and the debates start Friday–the old, stout guy is done. That, despite predictions to the contrary by other pollsters and experts.

Unfortunately, neither the fast “empty suit” or the old, slow guy knows what to do about the proposed Wall Street bailout. The young guy can only read scripts and his handlers are puzzled. Was the old guy right, should we not bail out Wall Street? I think he will say whatever will supercharge his election campaign. We’ll see on Friday. Meanwhile, read on and you decide.
By the way, I don’t believe in polls.

I did enjoy a Washington Post story by Robert Samuelson this morning that said Paulson and Bernanke are rewriting the text books and running scared–“panic” was the operative word. “Paulson’s Panic” was the headline.

I commented that what Americans need most at this time is a better understanding of the markets. Most people think this bailout is just to help the rich guys. Actually, it is meant to protect the people more than help the once rich and fat.

Think of the stock market as a mother. Mothers have kids and they nourish them until they can eat, walk, speak, and blunder on their own. Our markets are our mothers. They are the source of capital for all business in America, so they are the mothers or the source. If we don’t help the moms out, there will be no milk or cash for the kids, the many businesses that are capitalized will fail.

To capitalized means to issue stock that is sold on Wall Street that produces the money needed to move the trucks, pay the workers, and produce the goods–it’s the money that gets main street and rural business going and makes them viable manufacturers, transporters, farmers, and everything else that qualifies for an American business.

There’s a big bully called stupidity, greed, and bad judgment stalking our moms. They will go under if we don’t help. Actually they have “Mom” in a strangle hold. She’s ready to expire. If she does, there won’t be any mother’s milk or financial support for all the kids who have these businesses. If that happens, everyone goes to bed hungry at night because jobs dry up and there aren’t paychecks or money to buy groceries; no money to buy gas or to pay for the heat and lights. That’s called DEPRESSION.

Then government must jump in and create jobs–make work projects like they had in the great depression. My dad was only 24 years old and he had one of those jobs. He made a dollar a day building “a road to nowhere” and our family of five barely survived. No one wants that, so instead of waiting for the big GONG to sound in the sky or depression to hit, we help out Wall Street now instead of bailing out the public later. “Pay me now or pay me later?”

Here’s what I wrote in the Washington Post “comment” slot today. Then I’ll follow with a smart guy’s comments. He explains stuff that may be over all our heads, except those who work in the markets. And I’m not sure how his comments help educate us to the point where we can decide if Congress should do a bailout or not. That’s for you to decide. As you may know, Congress is stymied, almost in a state of rigor mortis. It’s brain damaged and in permanent shock and awe and delay. Of course most of them were that way when they came to Washington, so what else is new?

http://dusanotes@yahoo.com (me):For we the taxpayer, Washington should do something to educate us. Unfortunately, no one in government, the economists, or market gurus really know what’s going on in this financial crisis, much less know how to solve it. I doubt Paulson, Bernanke, or any of the economists advising Congress know what to do and this is creating delay and panic in some quarters including the halls of Congress. No one wants to make a mistake that worsens the problem.

Is it really true that delay is bad for America? Along with others including McCain, initially I argued that the government should not bail out anyone. It is basically against the free enterprise notion that companies live and fail on their own. Then comes along Bernanke and Paulson who are running scared, telling us action today or the crisis will create a depression. What are these two–some kind of socialists? What–we own all the companies in America? I don’t think so…

None of the above does the taxpayer understand, much less believe. Government should not expect support for it’s programs without first telling the public what the **$$!! are the options. We’re smart. We can figure things out. We just need some help re-explaining Free Enterprise 101 and how all this “hurry-up and bail-out ” stuff is germaine to anything.
Don White
PoliticalDisconnect.blogspot.com

Here’s the smart guy’s comments:

DCX2 wrote:
It all starts with bad mortgages that are pooled into Mortgage Backed Securities (MBS) and expands from there. The MBSs are used to create fake capital that can be used for a wide variety of purposes when you don’t have enough money, increasing your leverage.

The first avenue of exploit was structured finance; over-the-counter derivatives that are unregulated. MBSs are collected and sliced into different tranches as part of a Collateralized Debt Obligation (CDO). The upper tranches are low-risk low-yield (they get money back first), and the lower tranches are high-risk high-yield (they get money back last). Knowing that these subprime loans will eventually default, they rig the game so they can skim off the good money with “super senior” tranches and then sell the rest of the junk that won’t ever be paid back in junior tranches. Ta-da, they keep real money and you get imaginary money.

But they didn’t plan on recursion. Sometimes a bunch of CDO slices are combined to create a CDO squared (and, further, CDO cubed, and so on). This is how imaginary money can get a good rating and be sold to institutions who normally only buy real money.

Even further, Fannie Mae and Freddie Mac enjoyed access to a special interest rate discount window. They would take out loans from the discount window, and then buy up MBSs and CDOs that had a better rate of return, and take advantage of the interest rate gap (Alan Greenspan called it a “Big Fat Gap” of profit). Then they would use their profits to lobby Congress and ensure that the Office of Federal Housing Enterprise Oversight (OFHEO) was practically neutered, thus minimizing regulation and oversight.

Finally, we have the Credit Default Swap (CDS) market. Someone (like UBS) would buy a bunch of bad debt (like $1.3b in CDOs) and then would seek insurance from a hedge fund (like Paramax) for an annual premium (like $2m). Since the CDS market is unregulated, there are no capital requirements, so Paramax is ensuring $1.3b with $4.6m. Paramax is now ultra-leveraged and a lot of the money involved is imaginary (both Paramax’s lack of capital to insure the CDO, and the subprime borrowers’ inability to fulfill their obligation)

This gigantic web of financial foolishness created an intense hunger on Wall Street for more MBSs. In order to get more CDOs to tranche up and sell to Fannie/Freddie/UBS/Citibank/Bear Stearns/etc, they need more MBSs, so some lenders lower lending standards so they can feed Wall Street’s hunger. Lenders who don’t lower standards might get knocked off by those who do, so everyone feels compelled to be evil. And with more CDOs out there, there are more hedge funds and insurance companies who can make easy cash off of the insurance scam with nearly zero collateral.

Regulation at any point – keeping sane lending standards, regulating the maximum leverage, monitoring the real risk of CDOs, stopping Fannie/Freddie from exploiting the Big Fat Gap, regulating CDSs to at least require significant capital – could have minimized or even eliminated this problem.

And the solution, contrary to Paulson’s plan, is to make sure people keep paying their mortgages, and to try to sell the foreclosed homes. Then the money will start flowing again, CDOs won’t default, CDSs won’t need to be paid out, and life will return to normal.

9/24/2008 12:57:34 PM

Do you understand more now than you did five minutes ago about what Congress should do with the Bush-Paulson plea for $700 billion?

Read Robert Samuelson’s report in the Washington Post