Thursday, March 05, 2009

Blowin' Smoke

The use of smoke as a device to cloak tactical manuvers from observation by an enemy is a time honored practice that has been in use for over two thousand years. The Obama administration is now doing the same.

This recent spate of media BS about Rush Limbaugh v Michael Steele, truth commission on Bush crimes, naming the Obama mutt, swing/jungle jim sets for the Obama heirs, congressional investigation on terrorist interrogations, Michele's arms, Michele's shoulders and Michele's ass is nothing more than blowing smoke at the US citizenry. The media is trying to get our attention away from the 3 trillion dollar gorilla in the elevator.

Who is responsible for our economy going south?

I see this as an act of war. Economic war perhaps, but war nonetheless.

Where. Did. 550. Billion. Dollars. Go. In. 2. Hours.

Let's break it down.
A billion people did not withdraw $550 each after receiving phone calls from their broker.
A million people did not withdraw $550,000 each after receiving secret email instructions.
Ten thousand people did not withdraw $55,000,000 each after attending a seance.

But a hundred or so? Maybe a hundred financial managers responsible for an average of $5.5 billion each? Maybe even less. What finally spooked them?

Why is there so little interest in this by the media? Not only was the system spooked, it was swindled.

Then there's this. I am interested in any feedback by someone who knows markets and how this can happen so quickly. Was the $550 billion just a mistaken number given out by a frightened, confused Congressman?

From the Congressional Joint Economic Committee - September 2008

Introduction. During the week of September 13-20, 2008, the United States confronted the worst global financial crisis in almost a century. Credit markets, which are the circulatory system of the U.S. economy, seized up. The Federal Reserve was unable to revive credit markets through massive liquidity injections. Share prices plummeted, and a run began on money market mutual funds.

[...] Secretary Paulson asked Congress to authorize the Treasury to purchase and liquidate up to $700 billion of impaired financial assets from financial institutions. Both credit and equity markets had a favorable initial response, but the subsequent reaction was less positive.

Underlying Causes. The primary cause for this global financial crisis was the popping of the U.S. housing bubble in the second quarter of 2006 and the subsequent steep decline in U.S. housing prices. Falling housing prices revealed speculative excesses and unsound lending practices in housing markets. During the bubble years, the federal government encouraged depository institutions and mortgage bankers through various affordable housing and community reinvestment regulations to extend subprime residential mortgage loans to low income families. Investment banks securitized these subprime mortgage loans into
subprime residential mortgage-backed securities (RMBS) and subprime collateralized mortgage obligations (CMOs). Investment banks sold subprime RMBS and tranches of subprime CMOs to financial institutions around the world. After the U.S. bubble popped, many subprime borrowers could not refinance their existing loans. Default and foreclosure rates on these subprime mortgage loans skyrocketed.

A number of mistaken government policies and misaligned private incentives helped to inflate the U.S. housing bubble and contributed to vulnerabilities of the alternative financial system. Two previous Republican JEC studies documented these policy mistakes and private incentive factors in detail.

[The first study is "The U.S. Housing Bubble and the Global Financial Crisis: Housing and Housing-Related Finance", JEC Study, 110th Cong., 2nd sess., May 2008, found here. The second study is "The U.S. Housing Bubble and the Global Financial Crisis: Vulnerabilities of the Alternative Financial System", JEC Study, 110th Cong., 2nd sess., May 2008, found here.]

During the last three decades, financial services deregulation increased competition and eroded the excess profits that independent investment banks had traditionally earned from brokerage services and the underwriting of debt and equity securities. To increase fee income, independent investment banks began to underwrite increasingly complex structured credit products, including subprime RMBS and CMOs.

Independent investment banks also sought to increase their spread income (i.e., the difference between the income from financial assets in proprietary portfolios and the interest expense on borrowed funds). From the early 1990s through 2007, independent investment banks funded a large increase in the size of their proprietary portfolios through short-term debt (i.e., repurchase agreements, commercial paper, and secured and unsecured lines of credit with commercial banks).

[...]To achieve the high returns on equity to which independent investment banks were accustomed, the leverage ratios at independent investment banks ballooned relative to the average leverage ratio at commercial banks and saving institutions. At the end of the first quarter in 2008, the leverage ratios at Morgan Stanley, Lehman Brothers, Merrill Lynch, and Goldman Sachs were 31.8, 30.7, 27.5, and 26.9, respectively, compared with an average of 8.8 for all U.S. commercial banks and savings institutions. [emphasis mine ~Sig94]

Okay, I can grok this. It's the old greed factor. These bastards were not satisfied with industry standard profits; that wasn't good enough to justify big seven figure bonuses. And of course the government regulators whores who were tasked to keep an eye on these bastards did not do their jobs. The ex-Congressmen and ex-government officials hired by the finacial industry as lobbyists saw to that.

From 1998 to 2008 over $2.5 BILLION DOLLARS was spent by insurance companies, commercial banks, securities companies, accounting forms and private equities firms in lobbying activites and campaign contributions.

I want names!
Where are the names?
Why aren't the names of these bastards sitting on the front page of the newspaper in front of me during breakfast so I can dream about finding them and kicking their greedy asses into mudholes?
Why aren't reporters from ABCNBCCBSFOXCNN dancing around these greedy bastards like fruit flies around a rotten bananna?
Why aren't reporters and TV camera crews taking video footage of these greedy bastards running to their Lexus' with their heads tucked under the collars of their expensive cashmere coats like fat bloated turtles?
I want names! Not smoke! Names!

This report goes on for 12 pages. AIG flounders, Lehman bites the dust, Bank of America acquires Merril Lynch, yada yada. Credit dries up big time. Financial institutions start hoarding whatever liquidity they have. Within a few days the interest rates charged between banks increases by over 200%, from 2% to 6.4%. Interest earned by short term treasury notes drop precipitiously as banks scramble for stable funds - from 1.37% on 12 SEP 08 down to 0.75% on 18 SEP 09 with a stop at 0.07% in between.

On the first day of trading in 2008, the Dow opened up at 13,264.82.
Today it closed at 6,594.44.

I want names!

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