Financial topics

[John]

Dear Barry,

> This time it is different. I finally read something that backs my
> theory that money does not exist inside banks. I read the Murray
> Rothbard book, "The Mystery of Banking" in which he made a
> statement that confirmed this. Instead, banks create money, not
> lend it or possess it. Instead, they create a massive ponzi
> scheme. Stanford was probably doing what all banks do and maybe
> was more legitimate in doing what he was doing than Citi or BAC.
> You couldn't ask any of them for your money if enough people asked
> them because it doesn't exist. Even their insider game fell apart,
> which is what a credit crunch is. Citi or BAC couldn't any more
> sustain a bank run of over 5% to 10% of their deposits than they
> could withstand an atomic blast on their headquarters. In fact,
> Stanford might have been more legitimate than Citi or
> BAC.

This is really an over-simplification of a very complex situation.

You don't need a bank to create money. It can be done by anyone,
completely legally.

Suppose I have a $1000, and you have nothing. Then we have $1000
between us.

Then suppose I lend you the $1000, and you give me an "IOU $1000" in
return.

Then we now have $2000 between us. I have $1000 in the form of a
security (your IOU), and you have $1000 cash. Thus, we've created
$1000 by "securitizing debt."

Banks do this all the time, of course, and this is the normal way
that governments and banks create money.

Things can even get more complicated. Suppose you borrow another
$1000 from someone else, and also give him an IOU. That other person
then sells your IOU to a fourth person, for $2000. Then, since your
IOU security sold for $2000 on the open market, it means that my
security is also worth $2000, and so now I have $2000, so a lot more
money was created. This was all done without a bank.

What characterizes a credit bubble is an abuse of this process, by
securitizing debts that won't be repaid.

In the example above, if it turns out that you're not going to repay
your debt (i.e., not going to redeem your IOU), then your IOU
security becomes a "toxic asset." I may claim to own $2000 in
assets, but if it's recognized that your IOU is not going to be
redeemed, then I may be forced to use "mark to market" to revalue the
security to zero. At that point, I no longer have $2000 in assets.

The Tulipomania bubble was caused by people buying and selling
certificates good for a tulip that would be delivered the following
spring.

I described what happened a couple of years ago in:

** As foreclosures surge, people ask why mortgage lenders were so lax
** http://www.generationaldynamics.com/cgi ... 28#e070328

> By the later stages of the mania [at the end of 1636] the fusion
> of the <i>windhandel</i> with paper credit created a perfect
> symmetry of insubstantiality: most transactions were for tulip
> bulbs that could never be delivered because they didn't exist and
> were paid for with credit notes that could never be honoured
> because the money wasn't there.

The same kind of thing happened with south sea shares in the South Sea
bubble, with "assignats" (bills of credit based on lands confiscated
from the clergy) in the bankruptcy of the French monarchy, railway
shares in the Panic of 1857, stock shares and foreign bonds in the
crash of 1929, and mortgage-backed securities in the current crisis.

It's really just like anything else. A glass of wine is fine, but a
few bottles of wine can make you an alcoholic. A decent amount of
securitization is fine -- in fact, modern commerce could not exist
without it -- but securitization of bad debts leads to a credit
bubble and crash.

John

[John]

> Nobel Laureate Krugman Says Recession May End ‘This Summer’

> June 8 (Bloomberg) -- The U.S. economy probably will emerge from
> the recession by September, Nobel Prize-winning economist Paul
> Krugman said.

> “I would not be surprised if the official end of the U.S.
> recession ends up being, in retrospect, dated sometime this
> summer,” he said in a lecture today at the London School of
> Economics. “Things seem to be getting worse more slowly. There’s
> some reason to think that we’re stabilizing.”

> http://www.bloomberg.com/apps/news?pid= ... AXvw0Mc3CY

I like to keep track of these things, so that I can re-post them when
they turn out not to be true.

John

[John]

The stock market spiked up this afternoon as a result of Krugman's
speech.

That means that anyone who knew in advance what Krugman was going to
say could have made a bundle.

John

[wvbill]

This is really an over-simplification of a very complex situation.

You don't need a bank to create money. It can be done by anyone,
completely legally.

Suppose I have a $1000, and you have nothing. Then we have $1000
between us.

Then suppose I lend you the $1000, and you give me an "IOU $1000" in
return.

Then we now have $2000 between us. I have $1000 in the form of a
security (your IOU), and you have $1000 cash. Thus, we've created
$1000 by "securitizing debt."

Banks do this all the time, of course, and this is the normal way
that governments and banks create money.

John

Your example is interesting and insightful.

But, the banks don't even need to have the $1,000 to lend it, only a fraction of it depending on the reserve ratio 1:10, I think.

So, if the first party in your example above were a bank and they had $100, they could loan you $1,000 and take your IOU -- they created $900 out of thin air. Only a bank or a counterfeiter can do that.

Bill

[aedens]

Good information to guage ones perception of Money creation and topical points.
http://www.chrismartenson.com/crashcourse

Meanwhile back at the Ranch.

Transatlantic exchange group, and Liquidnet, one of the largest US-based “dark pool” equity trading platforms, have agreed to set up a service that will allow companies to get a better indication of how investors intend to trade their stocks. Under the terms of the agreement, NYSE Euronext-listed companies will be able to see the ratio of intended buy orders against intended sell orders in their company’s stock in the Liquidnet dark pool. FT

So what levity are we seeing? http://thetechnicaltakedotcom.blogspot.com/
And especially now in the era of "too big to fail", it's difficult to see any reason to invest in stocks or even bonds, given government rewriting of bankruptcy law on the fly. "The Obama Administration argued Monday that no court, including the Supreme Court, has the authority to hear a challenge by Indiana benefit plans to the role the U.S. Treasury played in the Chrysler rescue, including the use of “bailout” (TARP) funds. The Indiana debt holders, U.S. Solicitor General Elena Kagan wrote, simply have no right to raise that issue, thus putting it out of the reach of the courts."

Speculation is the only suitable reason to be involved in the markets since they have seen to that fact have thet not? Rule of contract and Law is total bullshit to them. If people cannot learn that some Bank's or Finanancial services cannot be held in healthy suspicion or down right contempt in any era why should anyone complain about the wolves since we elected them? Trade numbers are not that healthy. Given China is basically 75 percent smaller than the United States in Economic scale too many pundits have polluted the press. Name one source to accurate numbers posted from to China anyway? Thought so, not going to happen. Just another new predicated Business cycle so wake up and pay attention.

Any body who assumed green shoots in the EU, or States, or Uncle Ben missed the point in the context to specified region.

by aedens » Wed Apr 08, 2009 1:51 am
China:
Larry Kantor, global head of research at Barclays Capital, also said in the bank's global outlook report that the "green shoots" of recovery have arrived. He said there were signs of a turnaround in parts of Asia and a bottoming out in the US economy.
Ireland:
Brian Lenihan, the finance minister, outlined a grim package of 1930s-style retrenchment, slashing child benefit and allowances for jobseekers. Road and railways projects will be frozen. There will be a cull of junior ministers save costs. Two-thirds of the belt-tightening will come from tax rises. A pension levy of 1pc – imposed in the face of bitter protests in January – will be doubled to 2pc. "These measures will reduce all our living standards. I'm acutely aware of that," Mr Lehinan told the Dail. He said draconian measures were needed to stop the budget deficit spiralling to 13pc of GDP.

Remember this name above and I know, the only part of the world for which He holds me responsible is I and my use of the time given me.
Let us raise a standard to which the wise and honest can repair. <------------------------------ My vain plea for mankind I read a Chapter in
the old testament as I am prone to do at times.

http://www.nytimes.com/2009/06/09/world ... &ref=world

Instead, European leaders are concentrating on passing the long-delayed Lisbon Treaty, to create a European president and foreign minister and simplify decision-making. But the European Commission, the union’s main executive body, “played a zero role in the present crisis. But the treaty has little to say about economic matters. European Central Bank, which sets a major borrowing rate for the 16 nations that use the euro as a common currency.
Remember 50 dollar gold pieces on the west coast and 20 on the east and why? If they had any sense at all the Euro would disband or enable as not to make the same mistake as the United States on regional currency issues. Example in Canada was raising rates to fight speculation in Toronto and at the same time putting farmers and miners into bankruptcy in Vancouver. My business "self employed then" was crushed in 1981 by the Feds to fight inflation so I closed it, and preserved enough capital "saved" to survive to build another before I sold it. Tell me these people are educated and I will kick you squarely in the ass.

Meanwhile Corporate does what to whom, not you to it.
http://www.guardian.co.uk/commentisfree ... nks-reform
Times are no different as below
http://abcnews.go.com/International/Wir ... 068&page=3
Rant Off

[aedens]

Krugman says recession ends this summer. No if he cannot see the obvious at home how can he assume global fractures still spreading. I will consede on the Bond to Equity balances playing out. Many have pointed out in severe stress times equity survived and bonds where crushed. May we see the Equity market rush as the endgame play. We have a few years to go yet on that question to be settled and I do not have the answer other than what happened to them then.
Paul Krugman sees the problem?
The seeds of California's current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state's budget in a straitjacket. Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature.
Reality:
A theory clearly 'too good to check'. State spending in the past two decades, as this Reason Foundation report spells out, has increased 5.37 percent a year (and nearly 7 percent for the past decade), compared to a population-plus-inflation growth rate of 4.38 percent.
http://reason.org/files/a2ec7caccc5d660 ... 6ef5f8.pdf
If the budget growth rate had been limited to the population-inflation growth rate, the state would be sitting on a $15 billion surplus right now. The California tax burden is not unambiguous because it comes from a variety of sources, making it multidimensional, but on almost all measures it is among the highest of the 50 states, in contrast to the theory proposed by Krugman.

http://www.uslaw.com/library/Corporate_ ... ?item=7593

As I see it still, the underlying driver that caused all this erosion was a lengthy period of cheap money. This crisis has a number of critical links in the casual chain, but the big failure is easy monetary policy by the Fed. Also true regional economic stability will be clubbed like a fur seal soon as in the past as some have survived in real time. The one size fits all policy will cause just as much of a mess as the 1980's in sectors.

Just as the investment frauds are not revealed in good times, bad governments are not exposed until recessions. And so too Nobel-prize winning economists.

http://apnews.myway.com/article/2009052 ... .html?fark

California Gov. Arnold Schwarzenegger and Democratic lawmakers are pressing the Obama administration and members of Congress for federal loan guarantees to help the state out of a desperate, multibillion-dollar jam.

[Samir]

Apparently Jeff Frankel sees the labor market a little differently than the pundits claiming the slowing of Jobless claims is a sign of the bottom.

The labor market has NOT yet signaled a turning point

Speaking entirely for myself, I like to look at the rate of change of total hours worked in the economy. Total hours worked is equal to the total number of workers employed multiplied by the average length of the workweek for the average worker. The length of the workweek tends to respond at turning points faster than does the number of jobs. When demand is slowing, firms tend to cut back on overtime, and then switch to part-time workers or in some cases cut workers back to partial workweeks, before they lay them off. Conversely, when demand is rising, firms tend to end furloughs, and if necessary ask workers to work overtime, before they hire new workers. (The hours worked measure improved in April 1991 and November 2001 which on other grounds were eventually declared to mark the ends of their respective recessions.) The phenomenon is called “labor hoarding” and it is attributable to the costs of finding, hiring and training new workers and the costs in terms of severance pay and morale when firing workers.

Unfortunately, as reported by Forbes, pursuing this logic leads to second thoughts about whether the most recent BLS announcement was really good news after all. The length of the average work week fell to its lowest since 1964 ! The graph below shows that, not only did total hours worked decline in May, but the rate of decline (0.7%) was very much in line with the rate of contraction that workers have experienced since September. Hours worked suggests that the hope-inspiring May moderation in the job loss series may have been a monthly aberration. If firms were really gearing up to start hiring workers once again, why would they now be cutting back as strongly as ever on the hours that they ask their existing employees to work? My bottom line: the labor market does not quite yet suggest that the economy has hit bottom.

[mannfm11]

John, you clearly missed my point. There is no money in the banks, only credit in accounts. On top of that, I have loaned plenty of people money and I never felt like I had it after I loaned it to them and quite often I didn't get it back. This entire matter centers around the problems of credit money and the extention of credit. If the banks lost $500 billion and they need a $500 billion infusion of capital, it can only come out of the money supply, which is really nothing more than shifting a bank liability to a bank capital item. The money no longer exists unless the bank issues credit to buy something or makes another loan. If they buy something, they still have to be able to cash the check, something Citi didn't count on. The whole matter revolves around credit and fractional reserve banking and as far as that goes, the system set up under Bretton Wood when you get to international side of this game.

The whole trade matter is assinine as well. The only way you can engage in continued trade deficits is to provide credit to those that are spending more than they make or liquidate assets to foreigners for dollars accepted in trade. We are dealing with a ticking time bomb and the government is trying to put a longer fuse in it, but they are building a bigger bomb. The fractional reserve banking system wrote the economics books, which is why this problem is never addressed. In the meantime they move to more and more control over the rest of us. And, they hire politicians that scheme to steal the money from those that saved it to balance the books of the banks, giving them another round of ammunition to acquire more assets. This is really nothing more than a ponzi scheme to the nth degree enforced by governments who benefit by themselves being able to take more than their fair share of the pie.

Going farther, the money exists when the banks make new loans. Who are the new borrowers? It appears to me they are speculators. Interbank stuff like Fed actions and fed funds only are asset shifts for bank credit. I guess if BAC took $1 billion in treasuries and got credit from the Fed, they could use the $1 billion to speculate. I have read the banks are making money out of their trading activities, which means that if you are I are buying stocks and other paper assets, we are likely playing the opposite side of the equation from those we are dealing with. The corruption grows.

[aedens]

But Summers argued that such an attitude was a political non-starter, particularly as globalization "encourages the development of stateless elites whose allegiance is to global economic success and their own prosperity rather than the interests of the nation where they are headquartered."

Ask any free market in Moscow since there is none since they are now dead. The President clearly understands this. This culture clearly does not think enough. Fix the market, is to acept the consequnces now. According to Illarionov the Russian regime is a KGB regime, and the United States policy toward this regime is worse than appeasement. It is best characterized as retreat. Since the collapse of the USSR all American efforts to improve relations with Russia have come to nothing, says Illarionov, and new initiatives from President Obama are doomed; this is because the Americans fail to recognize the nature of the Russian regime. There is an unwillingness to grasp “the internal logic and intentions of the Russian leadership.”
===================================================================================== UPDATE
---May 28 (Bloomberg) -- From his secret hideaway, BTA Bank’s former Chairman Mukhtar Ablyazov says Kazakhstan’s government caused the default of the nation’s largest lender. Kazakh prosecutors want him for allegedly embezzling the bank’s money. ---

---The biggest losers in the dispute may be investors who poured into the former Soviet state as crude oil rose to a record and the economy grew 10 percent annually for eight years. Now, with petroleum prices down and the recession starving banks of credit, Kazakhstan’s image as a beacon of rising capitalism is being shattered by three banking defaults in six weeks. ---

Last edited by aedens on Thu May 28, 2009 11:24 pm, edited 2 times in total.

==================================================================================== UPDATE

http://online.wsj.com/article/SB124467909278604353.html
Days after Mr. Sadyrkulov shared his views in an interview with The Wall Street Journal in March, his body was found in his burned-out car outside Bishkek. Colleagues call his death a political killing. The government says he died in a car accident.

=====================================================================================
Tue Jun 02, 2009 6:08 pm
Nationwide, there are factories and joint ventures with at least 11 foreign automakers, including General Motors, which opened a $300 million plant near St. Petersburg in November. In general, then-President Vladimir Putin set the stage for this politically driven historical bias when he referred to the collapse of the Soviet Union as the "greatest geopolitical catastrophe of the 20th century." Regarding questions of history, it seems that Medvedev is dutifully following in Putin's footsteps. And this once again demonstrates who is really calling the shots in the country.
You just got to love the Moscow press. All spectrum's of Government to date are the same over sized and over confident China included. These events are going to bite them in the ass sooner or later. As stated fixed capital until October...
http://www.moscowtimes.ru/article/600/42/377681.htm
Nissan is the third carmaker to build a plant in St. Petersburg after Toyota and Ford, prompting Matviyenko to declare at the ceremony that the city had built a copy of Detroit. Think about that Taxpayer before the libtards give it all away.
======================================================================================
Fri Jun 12, 2009 1:09 am
Chinese, for one, are currently on a commodity and used-cargo ship buying spree, choosing to invest their money in hard assets instead of promissory notes. Why? My guess is that they are planning for a long transition period for their economy, away from export-oriented growth and towards domestic development.
For example, they are buying lots of older bulk carriers from the secondary market (66 so far this year vs. a total of 80 in all of 2008), instead of building new ones - even though they possess some of the largest and cheapest shipyards in the world. They will presumably operate these ships for their domestic needs (bulk imports), keeping older tonnage in service that would have otherwise gone to scrap. Global charter rates will remain under pressure, all other things being equal, forcing traditional ship-owners (Norwegians, Danes, Greeks) to stop placing new building orders to Chinese shipyards; the Chinese apparently do not care if they go against their best customers' interests. The interpretation is that they see global trade as much less of a factor in their domestic economy, in the future: over-indebted Americans and Europeans will consume less and save more. This is the question that arises for the future of the global economy.
SD.
Adjust as such to overconfidence and blatant oversupply. As I was reminded it was never about you. Huge disconnect while Rome burns. I stated 40% shift in reduction all politics aside was best guess. I may not be that far off given capacity numbers previously posted to utilization numbers. Good luck be carefull... http://generationaldynamics.com/forum/v ... 1420#p3376
aedens

[Samir]

Italian Police Ask SEC to Authenticate Seized U.S. Treasuries

June 12 (Bloomberg) -- Italy’s financial police said they asked the U.S. Securities and Exchange Commission to authenticate U.S. government bonds found in the false bottom of a suitcase carried by two Japanese travelers attempting to cross into Switzerland.

The bonds, with a face value of more than $134 billion, are probably forgeries, Colonel Rodolfo Mecarelli of the Guardia di Finanza in Como, Italy, said today. If the notes are genuine, the pair would be the U.S. government’s fourth-biggest creditor, ahead of the U.K. with $128 billion of U.S. debt and just behind Russia, which is owed $138 billion.

The seized notes include 249 securities with a face value of $500 million each and 10 additional bonds with a value of more than $1 billion, the police force said on its Web site. Such high denominations would not have existed in 1934, the purported issue date of the notes, Mecarelli said. Moreover, the "Kennedy" classification of the bonds doesn’t appear to exist, he said.

The bonds were seized in Chiasso, Italy. Mecarelli said he expects a determination from the SEC "within a few days."

This can't be good...