Making Unique Observations in a Very Cluttered World

Saturday, 11 July 2009

Take It to the Bank - Stashing cash in banks is safe again

Reading - Take It to the Bank - Stashing cash in banks is safe again http://online.barrons.com/a...

IF YOU REMAIN SHELL-SHOCKED FROM THE near-obliteration of your stocks, bonds and retirement nest egg by the Great Recession, then -- metaphorically speaking -- have we got a bunker for you. It's called a bank.

Seriously. Assuming no sudden spike in the rate of inflation, your bank is one of the safest places for your principal, owing to an expanded federal-insurance backstop on savings accounts, retirement accounts, trust accounts and certificates of deposit.

Structure your holdings correctly and, as an individual, you can obtain more than $1 million in coverage per bank. A couple can get about $2 million in coverage per bank. (A synopsis of the rules is at http://www.fdic.gov/deposit/deposits/DIfactsheet.pdf.) This means that should your bank go belly-up, your principal and interest below the insured maximum remains safe. (One danger: Bank rates are so low that if the rate of inflation should best them, you might experience a negative real rate of return.)

PRIOR TO THE NEAR-TOTAL COLLAPSE of our financial industry, the Federal Deposit Insurance Corp. covered no more than $100,000 for savings, retirement accounts and irrevocable trust and revocable trust accounts. This added up to a grand total of $400,000 per person per bank and $800,000 for couples. Now, however, until Dec. 31, 2013, these accounts are insured for as much as $250,000 per person, per account. (The FDIC has a calculator on its site called EDIE, or Electronic Deposit Insurance Estimator, to help determine whether you are fully covered at your bank:https://www.fdic.gov/edie/index.html.)

Congress allowed the temporary increase in deposit coverage to avert runs at weakened banks and to restore confidence in the overall system. The new policy seems to be working. Deposits during the first quarter climbed by $82.4 billion, or 1.7%, to $7.5 trillion. There are more than 8,200 financial institutions in the U.S. backed by the Federal Deposit Insurance Corp.

Continue reading - http://online.barrons.com/article/SB124727466034526301.html

Geithner Pushes Derivatives Plan

Reading - Geithner Pushes Derivatives Plan -http://bit.ly/nxYXV

Treasury Secretary Timothy F. Geithner urged lawmakers yesterday to pass the Obama administration's plan to regulate derivatives, the exotic financial instruments that exacerbated the financial crisis.

Geithner told a rare joint meeting of the House Financial Services Committee and House Agriculture Committee that it was crucial that, among other things, derivatives traders keep enough money in reserve to be able to meet their obligations.

American International Group sold many derivative contracts to cover losses on mortgage investments but was not able to pay out the money without tens of billions of dollars in government aid.

But Geithner acknowledged one risk to the administration's plan, given the interconnected and international nature of the derivatives market: Europe might not go along.

"There is a tendency in Europe to try to come up with a European solution to managing risks in these areas," he said. "I'm a little concerned that they want to come up with a separate approach."

Republicans expressed concern that the administration's plan could stunt financial innovation and end up costing U.S. businesses more.

Rep. Jeb Hensarling (R-Tex.) warned that companies would be less likely to use derivatives, which are often used to hedge against risks, if the costs are too onerous. "Less hedging can create less credit, and less credit can create fewer jobs," he said.

In just a few years, trading in derivatives -- which are essentially contracts between two investors betting on whether a stock, bond or other security will go up or down in value -- has mushroomed into the world's largest market, estimated to be in the tens of trillions of dollars.

Both the agriculture committee, which oversees commodities, and the financial services committee, which oversees markets and trading, have laid claim to oversight of derivatives. Yesterday, leaders of both committees expressed broad support for the Obama plan.

"We have expressed a willingness to work together to pass strong, comprehensive and consistent regulation of over-the-counter derivatives," said Collin C. Peterson(D-Minn.), chairman of the agriculture committee.

Separately, the Treasury Department yesterday moved ahead on another of its proposals: beefing up the Securities and Exchange Commission and tightening the rules on selling investments to consumers.

The legislation would give the SEC power to prohibit "sales practices, conflicts of interest and compensation schemes" among money managers that could encourage investors to put their money in unsuitable arrangements.

The legislation would also give the SEC power to pay whistleblowers who warn the agency about financial fraud. The SEC can only do that now for insider-trading violations; the problems such a limitation imposes were highlighted after it became known the agency had been tipped off to the Ponzi scheme orchestrated by Bernard Madoff.

continue reading - http://www.washingtonpost.com/wp-dyn/content/article/2009/07/11/AR2009071100476.html

'The Crash of 2008 and What It Means' by George Soros

Reading - 'The Crash of 2008 and What It Means' by George Soros http://seekingalpha.com/a/36be

Bubbles - Reflexivity & Contamination

“The Crash of 2008 and What it Means”, by George Soros is painfully difficult to read; the concept of reflexivity is not easy to understand; it is abstract and frankly, not very well written. But it has profound implications; it explains an important theory. Equally, it lets you into the mind of a highly successful speculator.

If you take the time to read it, do so not for pleasure. Do so in the quest of knowledge. After plodding through it slowly, and re-reading parts to try and understand what it is all about, I can say I believe I have gained some insight into the world of bubbles and into the marvelous mind of the man I see as the world’s greatest speculator.

First, financial markets do not reflect prevailing conditions accurately; they provide a picture that is always biased or distorted in one way or another. Second, the distorted views held by market participants and expressed in market prices can, under certain circumstances, affect the so-called fundamentals that market prices are supposed to reflect. This two-way circular connection between market prices and the underlying reality I call reflexivity.

Bubbles thus have two components: a trend that prevails in reality and a misconception relating to that trend. The simplest and most common example is to be found in real estate. The trend consists of an increased willingness to lend and a rise in prices. The misconception is that the value of the real estate is independent of the willingness to lend. That misconception encourages bankers to become more lax in their lending practices as prices rise and defaults on mortgage payments diminish. That is how real estate bubbles, including the recent housing bubble, are born. It is remarkable how the misconception continues to recur in various guises in spite of a long history of real estate bubbles bursting.” - George Soros – The Crisis & What to Do About It.

Continue reading -


Government Bets on Positive Spin to Save Failing Banks

Reading - Government Bets on Positive Spin to Save Failing Banks http://bit.ly/anSRO

Just when you thought the U.S. banking system had regained its footing, the reality is that a carefully woven federal-government PR campaign may actually be masking the next phase of the worst financial crisis since the Great Depression.

Indeed, it's what's just out of sight that has some analysts and economists scared to death.

To rebuild public confidence in America's ailing banks the government has greased the system's liquidity wheels, directly injected capital, backstopped and guaranteed loan facilities, lowered banks' cost of funds, changed accounting rules to make balance sheets look better, bestowed passing grades on high profile stress tests and then allowed the propped-up (but still not healthy) banks to pay back government loans.

Analysts and economists question whether this race to instill confidence will outpace rising unemployment and lagging economic data, or will trigger the next phase of the global financial crisis if shaky banks end up snapping borrower lifelines.

The big confidence game began with a single "relief" program. Now, many of the titanic banking system's torpedoed institutions are remaining afloat only because of some rescue programs developed by the U.S. Federal Reserve and U.S. Treasury Department. Deemed absolutely necessary to prevent total financial collapse at the time of their hasty implementation, the legacy of these programs will be their indiscriminate reinforcement of weak links in the banking system and the acceptance of moral hazard. The Trouble With TARP

The granddaddy of all these rescue plans - the Troubled Asset Relief Program, or TARP - is a $700 billion program that was originally designed on fewer than four pages, and that was sold to Congress as a plan to buy toxic assets from sick banks.

That never happened.

continue reading - http://www.globalresearch.ca/index.php?context=va&aid=14311

World Wide Wiretap

Reading - World Wide Wiretap http://bit.ly/8NY7U

World Wide Wiretap
Recent cyber attacks provide pretext for sweeping internet snooping by US government

Last Friday, while most Americans were preparing for a weekend of fireworks and hot dogs, the Obama Administration had an ominous message: they are going ahead with a Bush-era plan to allow the NSA even more power to invade, intercept and analyze the data of anyone visiting a government website, ostensibly to help prevent a major cyber attack.[1] The timing of the announcement, the day before a holiday long weekend, seemed unusual, but less than 24 hours later just such an attack began to unfold on a series of websites in America and South Korea, including those of the White House, Pentagon, New York Stock Exchange, Treasury Department, Secret Service and The Washington Post, amongst others.

The attack itself turns out to have been fairly innocuous[2]--a run of the mill DDOS (distributed denial of service) attack that did not even employ the latest malware--but you wouldn't know that from reading the sensational reporting in the controlled corporate media. The VOA reports that the 'internet attackers' have struck again.[3] "US State Department under cyberattack for fourth day" blares a headline from the AFP.[4]

Blame for the attack is now falling on North Korea, but what North Korea has to gain by taking down The Washington Post's website is anybody's guess (perhaps Kim Jong-il was giving his own pronouncement on the recent revelation that the Post was selling access to high-level politicians to lobbyists for $250,000 a pop[5]). The big winner in this attack, it seems, is the federal government, which has been preparing to unveil an Internet surveillance spy grid for years, but have virtually no mandate to do so from a public that has become tired of invasive government snooping.

Ron Paul to Federal Reserve: HR 1207 Won’t Affect Monetary Policy

Reading - Ron Paul to Federal Reserve: HR 1207 Won’t Affect Monetary Policy http://a2a.me/ZMW

In his opening statement at a hearing entitled “Regulatory Restructuring: Balancing the Independence of the Federal Reserve in Monetary Policy with Systemic Risk Regulation“, held on July 9, 2009 at the House Financial Service Committee’s Subcommittee on Domestic Monetary Policy and Technology, Ron Paul explained that his “Audit the Fed” bill HR 1207 won’t affect the Federal Reserve’s authority to conduct monetary policy as it sees fit. He said, “We are not looking for the Congress to run monetary policy. We just want to know what’s going on.”

Germany ‘Closely Monitoring’ Dollar Bonds for Sale

Reading - Germany ‘Closely Monitoring’ Dollar Bonds for Sale http://bit.ly/bk2Bv

Germany is “closely monitoring” the dollar-denominated bond market for a possible sale, the head of the nation’s debt agency said.

“Dollar bonds are looking more attractive now from the issuer’s perspective than a couple of months ago,” Carl Heinz Daube, head of Germany’s Federal Finance Agency, said today in an interview from Frankfurt. “Nevertheless, there’s still no cost advantage for us at this point. If the price is right, we won’t say no.”

Selling dollar bonds would allow Germany to appeal to a wider range of investors, including money managers in the U.S. who don’t want to take on foreign-exchange risk. The agency issued five-year dollar bonds in 2005, the only time it sold debt denominated in the U.S. currency.

A meeting with U.S. investors suggested there’s “strong” interest in the debt, Daube said.

“I met investors in the U.S. last week and a number of institutional investors seemed to be keen to invest in Germany’s dollar bonds,” he said. “The final decision is with the Ministry of Finance.”

Germany hired banks to sell the five-year securities that come due in 2010 and may do so again should it proceed with a dollar-bond sale, Daube said on June 23.

continue reading - http://www.bloomberg.com/apps/news?pid=20601100&sid=avUL9MsLgM.4

No more greenbacks for China, Brazil and BRIC?

Reading - No more greenbacks for China, Brazil and BRIC? http://bit.ly/35BaU

A Chinese plan to end the hegemony of the US dollar in international trading is gaining support all the other BRIC countries (Russia, Brazil and India) and especially Brazil.

This week at the G-8 Summit, China, Russia and Brazil have been pushing their agenda to develop a new international standard reserve currency to replace the US dollar.

And back in Brazil, Eduardo Lopes, the president of Sindamar, the Santos and Sao Paulo Shipagents Association, has lent his support today to Brazilian President Lula’s bid for a new international currency.

The BRIC governments recently met in Yekaterinburg, Russia to discuss how best for emerging economies, like theirs, to reform international financial institutions to prevent future collapses in the world economy. And high on the agenda was getting rid of the greenback as the basis for international trade contracts.

Lopes, who is also a senior manager for Fertimport (a Santos based shipping agency) said that shippers in the state of Sao Paulo - including chicken, beef and autoparts exporters - were suffering terribly from the "wildly fluctuating exchange rates" between the Brazilian currency, the Real, and the greenback.

Lopes added that in recent years there had been doubts as to whether using the dollar for international trade was beneficial to Brazil or not, especially when trading with China. And the consensus now in Brazil is that it is not.

The Great Shift of 2009 - Top 25 companies 2008 v 2009

Reading - The Great Shift of 2009 - Top 25 companies 2008 v 2009 http://bit.ly/6AkVO

Every once in a while, we stumble upon a chart or table that says it all… here’s one hot off the press:


Oh my, where do we begin? This beast calls for bullet points:

continue reading - http://dailyreckoning.com/the-great-shift-of-2009/

Ron Paul: "The American People Are Going to Demand ... Honest Money

Watching - Ron Paul: "The American People Are Going to Demand ... Honest Money – http://bit.ly/CvOeS