Infinite Unknown

The Editor of Expresso in Portugal wanted my take on the recent G-20 communique. Here is my “translation” of the official statement:

1. Now that the growth of debt and derivatives bubbles has stalled, we are committed to using governmental-central bank mechanisms to cover the positions of any of the large private financial institutions whose profits are at risk due to their management of these bubbles and who can use this opportunity to squeeze and acquire smaller rivals at low cost.

2. Our commitment to use derivatives and market interventions to shift investment from the real economy and commodities into a paper economy is firm. We will continue to use centralized governmental mechanisms to subsidize and manage this process.

3. All of the organizations and players who reaped a fortune engineering the debt and derivatives bubbles will be allowed to keep their winnings.

4. We will use this period of consolidation to further centralize the global financial system by enforcing greater centralization of the standards, practices and control of enforcement and regulatory bureaucracies. This increased governmental centralization will be presented as the “fix” for our “problems.”

5. We will continue the move toward one world government and one world currency.

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Tags: bubble, Derivatives, Derivatives market, Economy, financial crisis, G20, Government, Inflation, New World Order, Politics

Nov. 6 (Bloomberg) — The most comprehensive report on unregulated credit-default swaps didn’t disclose bets in the section of the more than $47 trillion market that helped destroy American International Group Inc., once the world’s biggest insurer.

A report by the Depository Trust and Clearing Corp. doesn’t include privately negotiated credit-default swaps that insurers such as AIG, MBIA Inc. and Ambac Financial Group Inc. sold to guarantee securities known as collateralized debt obligations. It includes only a “small fraction” of contracts linked to mortgage securities, according to Andrea Cicione at BNP Paribas SA in London.

New York-based DTCC’s data, released on its Web site Nov. 4, showed a total $33.6 trillion of transactions on governments, companies and asset-backed securities worldwide, based on gross numbers. While designed to ease concerns about the amount of risk banks and investors amassed on borrowers from companies to homeowners, the report may have missed as much as 40 percent of the trades outstanding in the market, Cicione said.

The data are “likely to underestimate the amount of net CDS exposure,” Cicione, who correctly forecast in January that the cost of protecting European companies from default would rise, said in an interview. “A broadening of the coverage to the entire market is what investors really need.”

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Tags: AIG, Banks, Derivatives, Derivatives market, Economy, financial crisis, hedge funds

Hong Kong investors protest Lehman Brothers losses

HONG KONG - Angry Hong Kong investors, some banging gongs and others waving banners, scuffled outside a bank on Friday as frustration mounted over losses tied to investments linked to failed U.S. bank Lehman Brothers.

Several hundred investors, many of them elderly retirees, marched to eight banks which had sold Lehman structured products, including ABN Amro, Standard Chartered, Bank of China, Citic Ka Wah and DBS bank, demanding compensation for their losses.

Some investors tried to barge into a DBS bank branch on Hong Kong island, jostling with security staff who linked arms to form a human barricade.

Lehman Brothers mini-bonds holders scuffle with officials during a protest against various banks which sold them the product in Hong Kong Friday.

“The banks are cheating us,” shouted some investors, while others banged gongs and waved protest banners accusing the banks of misleading investors on the risks involved.

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Tags: Banks, China, Derivatives, Derivatives market, Economy, Hong Kong, Lehman Brothers

Oct. 27 (Bloomberg) — Joseph Ambrosini says the deal looked so easy. JPMorgan Chase & Co. bankers told him there was really no risk. All he had to do was sign a public financing contract, and the bank would give $280,000 to his school district in New Castle, Pennsylvania.

“They basically said, unless the world goes under the sea, we’d be in good shape,” says Ambrosini, the district’s business manager.

In September, Ambrosini says, his 3,400-student district went underwater. On Sept. 25, the week after Lehman Brothers Holdings Inc. collapsed, the New Castle Area School District’s interest rate on $9.7 million of financing arranged by JPMorgan hit 10.6 percent, more than doubling since the month began, as investors demanded skyrocketing returns for municipal debt.

While JPMorgan has been relatively unscathed by the subprime crisis that hit Bear Stearns Cos., Merrill Lynch & Co., Lehman and other Wall Street firms, a little-known part of the largest bank in the U.S. made a tidy profit peddling a different kind of corrosive debt to hundreds of counties and school districts earlier this decade.

As the credit crunch froze lending globally, causing stock markets to plunge, local officials who say they trusted JPMorgan faced a crisis of their own. Wall Street’s drive for profits over the past decade has backfired on towns, cities and counties that borrow in the $2.7 trillion municipal bond market.

Financings arranged by JPMorgan and other banks are forcing hundreds of public agencies to spend billions of dollars they don’t have to pay for increased interest payments and penalties.

No Bailouts

These come in municipal bond and derivative deals that have turned poisonous. Unlike JPMorgan, which has benefited from federal bailouts, the towns and schools the bank has financed have received no help from Washington.

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Tags: Banks, Credit Crisis, credit crunch, Derivatives, Derivatives market, Economy, Government, JPMorgan, Politics, Stock Market, taxpayers, Treasury, U.S., Wall Street

Russia’s financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

S&P has cut its outlook for Russia, which has been propping up the rouble: a man on a phone passes a board displaying currency exchange rates in Moscow Photo: Reuters

Russia’s financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland’s debt before it sought a rescue from the International Monetary Fund.

Moves by Hungary, Ukraine and Belarus to seek emergency loans from the IMF have now set off a dangerous chain reaction across Eastern Europe.

Romania had to raise overnight interest rates to 900pc on Wednesday to stem capital flight, recalling the wild episodes of Europe’s ERM crisis in 1992. The CDS spreads on Ukraine’s debt have topped 2,800, signalling total revulsion by investors.

Rating agency Standard & Poor’s issued a downgrade alert on Russian bonds yesterday, warning that a series of state rescue packages worth $200bn (£124bn) could start to erode the credit-worthiness of the state.

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Tags: debt, Derivatives, Derivatives market, Dmitry Medvedev, financial crisis, Hungary, IMF, Romania, Russia, Standard & Poor's, Ukraine

Oct. 22 (Bloomberg) — Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system.

The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves against losses after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.

“We’ll see the same problems we’ve seen in subprime,” said Alistair Milne, a professor in banking and finance at Cass Business School in London and a former U.K. Treasury economist. “Banks will take substantial markdowns.”

The collapse of Lehman Brothers, Washington Mutual Inc. and the three banks in Iceland prompted Susquehanna Bancshares Inc., a Lititz, Pennsylvania-based lender, to lower the value of $20 million in so-called synthetic CDOs by almost 88 percent last week.

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Tags: Banks, Barclays, Derivatives, Derivatives market, Economy, financial crisis, Iceland, Lehman Brothers, mortgage crisis, Mortgages, Recession, Standard & Poor's, Washington Mutual

Reuters reports: Banks borrow record $437.5 billion per day from Fed (Oct 17, 2008)

CBS NEWS reports one day before 9/11: Pentagon Cannot Account For 2,3 TRILLION Dollars

The Independent: A £516 trillion derivatives time-bomb (Oct.12, 2008)

More articles on the derivatives market: www.infiniteunknown.net/tag/derivatives/

Added: Oct. 01, 2008

Source: YouTube

Tags: Corporate Media, Derivatives, Derivatives market, Dollar, Donald Rumsfeld, Economy, Fed, Federal Reserve, Government, Inflation, mortgage crisis, Mortgages, Pentagon, Politics, Ron Paul, Stock Market, U.S., Wall Street

The problem was never really liquidity.

Says who?

Says Anna Schwartz, co-author of the leading book on the Great Depression, and someone who actually lived through it.

The Wall Street Journal ran an interview with Schwartz last weekend:

Most people now living have never seen a credit crunch like the one we are currently enduring. Ms. Schwartz, 92 years old [but still sharp as a tack], is one of the exceptions. She’s not only old enough to remember the period from 1929 to 1933, she may know more about monetary history and banking than anyone alive. She co-authored, with Milton Friedman, “A Monetary History of the United States” (1963). It’s the definitive account of how misguided monetary policy turned the stock-market crash of 1929 into the Great Depression.

***

Federal Reserve Chairman Ben Bernanke has called the 888-page “Monetary History” “the leading and most persuasive explanation of the worst economic disaster in American history.” Ms. Schwartz thinks that our central bankers and our Treasury Department are getting it wrong again.

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Tags: bailout, Ben Bernanke, Credit Crisis, credit crunch, debt, Derivatives, Derivatives market, Economy, Fed, Federal Reserve, Government, Great Depression, Milton Friedman, Paul Volcker, Politics, Stock Market, Treasury, U.S., Wall Street, Warren Buffet

The $54trillion credit derivatives market faces a delicate test as $360bn worth of contracts on now-defaulted derivatives on Lehman Brothers are due to be settled on Tuesday.

Lehman Brothers’ complex network of derivatives will be settled on Tuesday October 22

Due to the opacity of the market, which is one of the most complex, least regulated and least understood in the global financial system, it is still not clear how many contracts have to be settled or which institutions will take the ultimate hits once the billions of dollars worth of contracts have been unravelled.

The collapse of Lehman Brothers, is expected to trigger credit default swap (CDS) protection pay-outs of about $400bn but because the contracts were sold many times through different counterparties it is not yet known who will be liable.

One commentator said: “This will be the greatest illustration of the follies of Wall Street and how unnecessarily complicated the wild off-track betting became in the past few years.”

Five years ago Warren Buffett, the iconic American investor, warned that the chaotic profusion of derivatives used by companies and hedge funds to fund financial growth were “financial weapons of mass destruction.”

Bankers in the City and on Wall Street are bracing for yet another round of turbulence as the contracts are unwound.

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Tags: Bank of England, Banks, Derivatives, Derivatives market, Economy, Fed, Federal Reserve, Lehman Brothers, Stock Market, Wall Street

Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe.

A team of IMF trouble-shooters rushed to Kiev on Wednesay to draw up a possible standby loan to help Ukraine stabilize its bank after a panic run on deposits this month. Continue reading »

Tags: Argentina, bailout, BNP Paribas, Bulgaria, Credit Crisis, credit crunch, Derivatives, Derivatives market, Economy, Ecuador, financial crisis, Government, Hungary, IMF, mortgage crisis, Mortgages, Pakistan, Politics, Romania, Serbia, Turkey, Ukraine