Financial Armageddon

[MarkP]

From the azcentral linked article:

....According to bankers and others involved, the Magnetar Trade worked this way: The hedge fund bought the riskiest portion of a kind of securities known as collateralized debt obligations -- CDOs. .....

....Magnetar set itself up for a huge win: It placed bets that portions of its own deals would fail.....Along the way, it did something to enhance the chances of that happening....

....The equity bought by Magnetar represented just a tiny fraction of the overall CDO. If it costs, say, $50 million, an entire CDO could be 20 times that, $1 billion. And if the CDO begins to go south and you're smart enough to have taken out enough insurance, you can make hundreds of millions of dollars. ....

....Many of the bankers who worked on these deals personally benefited, earning millions in annual bonuses. The banks booked profits at the outset.....​

And who provided that insurance? AIG, which was recently swept under the rug by the current administration.

 

[az_max]

I found it funny that banks that had avoided the CDOs and one that went against it's own advice bought into the CDOs pushed by Magnetar. Both ended up being bailed out. One by the Japanese ( Mizuho ) and one by the US tax payers (JPMorgan).

Magnetar needed a buyer and some deft financial engineering. It found the answer through its former partner, Alex Rekeda, who had been the banker on Magnetar's first CDO. Rekeda now worked at Mizuho, one of Japan's biggest banks. Mizuho was eager to get into the CDO world. It hired Rekeda in part because he could bring Magnetar's business, according to one CDO manager who worked with him.

JPMorgan had avoided many of the complex financial transactions that decimated the banking industry. As the market grew frothier, JPMorgan pulled back from the CDO business. In 2005, the men who ran JPMorgan's CDO unit told their bosses that they couldn't see how to complete a CDO without sticking the bank with the large top tier, which would not appeal to investors because of its low returns. Other banks dealt with this problem by retaining these CDO layers on their books.

But by mid-2006, JPMorgan joined the herd. It hired bankers to expand its CDO team and got to work.

seeing these investment bankers broke and homeless won't make me feel bad at all.

And there's something definitely wrong with the system when you can bet on both sides of the CDO and make more money by LOSING.

 

[GYM]

And there's something definitely wrong with the system when you can bet on both sides of the CDO and make more money by LOSING.

Why do you think you can't short Greek bonds anymore?

 

[knewsom]

I guess the DOW closed above 11,000 today.... highest it's been since September 2008.

We're ALL GONNA DIIIIIE!!!!!!!

http://www.nytimes.com/2010/04/13/business/13markets.html?hp

 

[MarkP]

I guess the DOW closed above 11,000 today.... highest it's been since September 2008......

Actually the last several years have been very informative on world economics and how it is managed, well at least for me. We have already established that there was and continues to be significant fraud and corruption. Essentially there are no 'Cops'. Prior manipulation is swept under the rug as the government replaces consumer spending, for now.

The DOW did surpass 11,000 but on shallow trading. Greece is solved, or is it?

The Jawbone Continues: Greece

....But once again we see that the magic market pumpers come in with a headline, trumpeted loudly through the planet, that all is saved, when in point of fact nothing at all has actually been done, all designed to goose the markets once again...​

Jobs? How about a jobless recovery. Now how can we have a recovery if there unemployment is increasing and wages are falling? But spending is up slightly? Where is the spending coming from?

Well that is discussed here - Trichet Speaks: Is The US Listening?. Scroll down to the second chart. There is no private sector or organic growth, it is ALL deficit spending. That is how you have a reported positive GDP even as unemployment increases, wages fall and the economy is virtually stagnant. The actual GDP is continuing to decline, same as state tax receipts. Are the false economic signals sustainable? No.

So, we have heard that the DOW 'Discounts the Future'. The future shows no organic growth but DOW 11,000! while fraud and corruption have been magnified. ToutTV says time to get in!

Now why is that? Could it be that the financial sector is pulling in the pigs for slaughter, again? The pigs are the middle class investor. The rich become richer by leading the pigs to slaughter. The political class enables class warfare by blaming low tax rates on the rich for the reason the 'Rich get Richer'. That is so far from the truth because the rich grew rich under higher tax rates. The reality is that the Rich need Pigs to get richer. DOW 11,000 is the bait. The smart investor is gone before the correction. The political class is paid off after the slaughter.

 

[noee]

I guess the DOW closed above 11,000 today.... highest it's been since September 2008.

We're ALL GONNA DIIIIIE!!!!!!!

http://www.nytimes.com/2010/04/13/business/13markets.html?hp

If you're comment is not sarcastic, then it's clear you have no idea what's going on.

 

[MarkP]

Here is another reason the stock market is at 11,000 while the U.S sees increasing unemployment, lower tax revenues and exploding debt.

Stock values are a reflection of corporate global profits, not just US profits. If corportations are moving overseas to reduce cost and increase margins the stock price should also increase. But are higher stock prices a statement on the US economy?

No.

Mish Mailbag: IBM Abandons U.S. Workers

Summary: current tax policy encourages corporations to move overseas. The Obama administration strategy to raise U.S. taxes will speed up the move overseas, further cratering tax revenue.

Yes, DOW is up but it not a reflection of a healthy economic strategy.

 

[MarkP]

Obama has been bought and paid for to look the other way ....... it is why there are no Cops and the fraud continues today. The difference is we are talking Trillions of $$ today, not billions.

Rahm Emanuel and Magnetar Capital: The Definition of Compromised
Naked Capitalism

Magnetar

1) A neutron star with an intense magnetic field, capable of emitting toxic radiation across galaxies
2) A hedge fund, the single market player most responsible for the severity of the 2008 financial crisis, through the toxic instruments it created

Rahm Emanuel

1) White House Chief of Staff
2) Politician selected by Magnetar’s CEO to be sole recipient of his political donations, 2006-2008

Strange as it may seem, nearly three years after the onset of the global financial crisis, its greatest, most destructive, and most profitable “it ought to have been a crime” has gone almost entirely unnoticed........

......Magnetar made billions, some observers contend as much as subprime kingpin John Paulson, whose fund earned over $20 billion on its short strategy.

And the hedge fund’s cagey bet on Rahm? Litowitz and his wife had never before made significant political donations. In 2005, they started giving to Rahm and his PACs, and only PACs connected to Rahm, just before the Magnetar CDO program began, and continued through the first quarter of 2008, when the trade would have started to pay out handsomely. The Litowitzs gave a total of $8,000 to Emanuel and $10,000 to his Our Common Values PAC in May 2005. In 2006 and 2007, they contributed $51,700 to the Democratic Congressional Campaign Committee, while Emanuel was chairman. We have been advised by individuals involved in political fundraising that the amounts given would be considered significant, and the way the payments were distributed across the PACs is sophisticated. Put it another way: this money was not given impersonally.

But this troubling connection should be no surprise. Rahm has long been a favorite of the hedge funds, having raised more money from them than any Senator not running for President. Not surprisingly, he has been a staunch supporter of the financial services industry, and is widely credited with playing a key role in securing passage of the TARP after its initial defeat.

As the Magnetar-Rahm connection highlights, Obama raised more money from financial services players than any previous presidential candidate, so it can hardly be a surprise that he and his minions are happy to give the industry a free pass. Key policy figures maintain that no one was at fault, that there was a pervasive lack of regulation, and there are therefore no bad actors. That party line also means that destructive behavior is and will remain unquestioned, unexamined, uncorrected, and unpunished. .......​

Lack of regulation was not the problem. Regulation is meaningless unless it is enforced.

Corruption was and still is the primary issue.

 

[MarkP]

You have been warned ....


Weekly Initial Unemployment Claims Increase to 484,000
Calculated Risk

..........This is much worse than expected.​

RealtyTrac: March Foreclosure Activity Highest on Record
Calculated Risk


and a very good summary of where we are at and where we are headed:


Death-Spiral Intercept

Well well well....

In essence, White [former chief economist at the Bank of International Settlements (BIS)] was saying: "it’s the debt, stupid." When aggregate debt levels build up across business cycles, economists focused on managing within business cycles miss the key ingredient that leads to systemic crisis. .....​

It seems that Mr. Harrison has it figured out......

....When you boil all this down, however, you get to the following chart :.....

"insert chart"

.........We added more Federal debt than had been accumulated in 217 years in just a little over THREE years - from 2007 to the third month 2010.

The ugly is that this debt load (currently $12.8 trillion, more or less) presents interest expense. If the Fed Funds Target was to reach just five percent, and every bit of the Treasury debt was to be refinanced into overnight obligations at that same 5%, the interest expense alone of the current debt would be $640 billion a year.

If the Treasury was to have to pay a roughly 6% average coupon (reasonably aggressive with a 5% Fed Funds Target) the interest expense would be $768 billion annually.

To put this in perspective that is an amount roughly equivalent to that spent on defense, and is higher than Social Security, Medicare, or all other "mandatory" program spending combined.

It would consume nearly all of Social Security and Medicare tax receipts ($891 billion) or the personal income tax ($915 billion) (ed. All 2009 federal budget numbers)

It is also four times what we spent last year on interest.

There is not a snowball's chance in Hades that the Federal Government can afford that...........​

 

[discopedro]

Mark, it's all Bush's fault and Obama has to spend all this money to fix it!!........hahahahahahahahahahahahahahahaha

 

[rrhyne]

Mark, it's all Bush's fault and Obama has to spend all this money to fix it!!........hahahahahahahahahahahahahahahaha

If you think the problem is with one or other of the two parties, you are part of the problem.

 

[MarkP]

If you think the problem is with one or other of the two parties, you are part of the problem.

X2


Classic Liberals and Conservatives have a lot more in common than they realize

 

[knewsom]

X2


Classic Liberals and Conservatives have a lot more in common than they realize

This... I may actually agree with.

 

[MarkP]

This... I may actually agree with.

You might be a Tea Bagger!

 

[knewsom]

You might be a Tea Bagger!

One of those rich white elitists??? Not on your life. I'm a down-home blue-collar workin' schlub. (who happens to be rich, white, and well-educated.)

 

[discopedro]

If you think the problem is with one or other of the two parties, you are part of the problem.

Duh! Both parties treat us like finger cuffs!

 

[MarkP]

One of those rich white elitists??? ....

You been in NH lately?

 

[knewsom]

Trust me, there are rich white elitists on both sides of the aisle, Mark.

 

[MarkP]

Oh, and those increased "Retail Sales"?

:banghead:

Strategic defaults increase consumer spending

I personally can confirm this to be true. The person is now living in the Philippines with his girlfriend after first cashing out and talking loans against investment property at the CRE peak, then walking away after CRE crashed.

His 'consumer spending' has increased post strategic default.

 

[MarkP]

After repeated management of perception by banks and government, repeated assurances that everything was OK .......


Greece blows up



Nothing is being done about the real issue, debt and fraud. Well that's now completely true. Strategy? More debt! More fraud!