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bkkandrew

Peston succinctly portrays the abyss that the US and UK are facing:

and

In particular, the UK is just like a hedge fund - over leveraged, over exposed and over indebted. That is why I was pessimistic on the pound in the spring/summer...

Quotes from:

http://www.bbc.co.uk/blogs/thereport...capitalism.pdf

Spin

^ never mind the cold hard facts!, the market are rallying so everything in the world is perfect

Watching the US markets the last few days has been incredible, there has been absolutley ZERO good news. Even bad news has caused huge surges upward.

There will be pain for many retail investors who are buying into this rally

bkkandrew

^Agreed, the vice-like grip in the real world tightens by the day. I have given up posting articles here that only a month ago would have been attention-grabbing. For instance, we have the 40% of UK businesses considering immediate closure, Woolworths failing to find a buyer out of Administration and UK GDP down over 1% in the 3-months to November alone.

Ho hom, can't say I didn't say so...

Spin

Talking of articles, this ones a cracker. linky

Butterfly

The name of the game is volatility a measure of risk, the index are just reflecting that measure, perfectly normal

what is not normal is when you have constant double digit return for the last 20 years, eventually they reverse and it's brutal

Markets overreact, and like the silly newsletter followers who predict the next rally or next downturn by extrapolating the current situation, they eventually get it wrong

Spin

"Jim Rogers calls most big U.S. banks "bankrupt"

Jim Rogers, one of the world's most prominent international investors, on Thursday (11th Dec 2008) called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded.

Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

Dozens of banks have won infusions from the Troubled Asset Relief Program created in early October, just after the Sept 15 bankruptcy filing by Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research, Stock Buzz). Some of the funds are being used for acquisitions.

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

Rogers said he shorted shares of Fannie Mae (FNM.P: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.P: Quote, Profile, Research, Stock Buzz) before the government nationalized the mortgage financiers in September, a week before Lehman failed.

Now a specialist in commodities, Rogers said he has used the recent rally in the U.S. dollar as an opportunity to exit dollar-denominated assets.

While not saying how long the U.S. economic recession will last, he said conditions could ultimately mirror those of Japan in the 1990s. "The way things are going, we're going to have a lost decade too, just like the 1970s," he said.

Goldman Sachs & Co analysts this week estimated that banks worldwide have suffered $850 billion of credit-related losses and writedowns since the global credit crisis began last year.

But Rogers said sound U.S. lenders remain. He said these could include banks that don't make or hold subprime mortgages, or which have high ratios of deposits to equity, "all the classic old ratios that most banks in America forgot or started ignoring because they were too old-fashioned."

Many analysts cite Lehman's Sept 15 bankruptcy as a trigger for the recent cratering in the economy and stock markets.

Rogers called that idea "laughable," noting that banks have been failing for hundreds of years. And yet, he said policymakers aren't doing enough to prevent another Lehman.

"Governments are making mistakes," he said. "They're saying to all the banks, you don't have to tell us your situation. You can continue to use your balance sheet that is phony.... All these guys are bankrupt, they're still worrying about their bonuses, they're still trying to pay their dividends, and the whole system is weakened."

Rogers said is investing in growth areas in China and Taiwan, in such areas as water treatment and agriculture, and recently bought positions in energy and agriculture indexes.

source

bkkandrew

It is actually worse than this. The effect of the current round of bailouts is perverse. TARP and other plans, such as Brown's debt binge, have the effect of requiring massive bond sales by respective Governments. Without this insatiable thirst for funds, the market that is parking vast sums with an actual negative return on capital for the purpose of US Govt. safety of that capital would otherwise be sat in the very banks that will be next on the bailout list. The fact that they are being starved of these deposits, in turn, makes their bailout requirement all the larger.

A plan that ensures the destruction of the banking system could not have been more dastardly conceived, as it is self-perpetuating. Entity A with $1BN in wholesale funds gets spooked by the prospects at his bank 1, buys T-bills instead, causing bank 1 to need bailing, which requires more T-bills to be sold causing worried entity B to move his $1BN from bank 2 to T-bills, thus causing bank 2 to knock on the FED's door.

How none of our 'enlightened' leaders can't work this spiral of madness out for themselves is beyond me.

GooMaiRoo

Thursday's arrest of Bernard Madoff for fraud will have huge implications for the US financial system. His Ponzi scheme, with losses totalling $50 billion, finally fell apart when investors tried to withdraw $7 billion from his fund last month. His own sons turned him in.

In a just world, the shameless asshole Madoff would end up in a super-max prison being cornholed by gangbangers for the rest of his miserable life:

"Mr. Madoff told the executives he intended to surrender to the authorities in about a week but first wanted to distribute approximately $200 million to $300 million 'to certain selected employees, family and friends.'"

The story didn't make the headlines it deserved, as America's mass media seemed more obsessed with a murder mystery involving Florida mother Casey Anthony.

The real problem is with the types of investors that got screwed. Madfoff was the friggin former chairman of the NASDAQ stock exchange! How many investors, spooked by his arrest, are now trying to withdraw from other funds and corporations? There won't be a run on the insured banks, but there could be a run on many other investment vehicles.

"Madoff's investors included captains of industry, corporations (some of which are publicly traded) that used Madoff almost as a high-yielding cash management account, endowments, universities, foundations and, importantly, many high-profile funds of funds,"

http://www.usatoday.com/money/market...1-madoff_N.htm

bkkandrew

^I am surprised he didn't get a bailout...

Texpat

Maybe we can all just call off all debt and start over ...

Actually, that's what's happening. Those whose life savings have just been wiped out have lost everything to cover the liars, cheats and thieves.

bkkandrew

^But Tex, are you not on some US Government pension?

bkkandrew

This is all from:

Money Beat


Leaving aside the schadenfreude of this, the effect is a further distruction in tangible money. This will only hasten the capitulation of the US financial system.

And then, we must be aware of this:

bkkandrew

More details on bank losses from the Madoff fraud:

BBC NEWS | Business | Two banks exposed to '$50bn con'

Panda

The big joke is on the rest of the world who are silly enough to lend the USA money. The USA floods the world with $USs and borrows $trillions while the $ value is up. That spooks the investors who have been buying $US for security and the $US value takes a big dive. Lenders get paid back in $USs that will only buy a portion of what it did when they lent the money. US exports become more competitive and the internal US economy starts to recover.

The US led recovery will ultimately be paid for by countries other than USA.

So long as the $US remains the worlds default trading currency the US can go on living on debt to the rest of the world and borrow their way out of trouble every time.

bkkandrew

£33 billion fraud 'tip of iceberg'

"Last Modified: 14 Dec 2008
Source: PA News

The investigation into an alleged £33 billion fraud by Wall Street trader Bernard Madoff has been branded "the tip of the iceberg".

The former Nasdaq Stock Market chairman's company collapsed shortly before his arrest on Thursday, leaving investors including Britain's Nicola Horlick worried about big losses.

Mr Madoff, 70, faces a charge of securities fraud following the collapse of Bernard L Madoff Investment Securities. He has been released on bail.

Mr Madoff had a reputation for steady returns which made him popular with investors and led to suspicions from his rivals.

A spokesman for Bramdean Asset Management, of which Ms Horlick is chief executive officer, said: "It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the the Madoff funds in good faith."

The Madoff investments represent 9.5% of the Bramdean Alternatives Limited portfolio.

Steven Philippsohn, senior partner of city firm PCB Litigation and chairman of the Commercial Fraud Lawyers Association, said: "This is the tip of the iceberg and an early example of the news that we are going to get very used to hearing during this recession.

From:

Channel 4 - News - £33 billion fraud 'tip of iceberg'

Tip of the iceberg, eh? I predict that further scandals in NY and, moreover, London of this type will dwarf the Made-Off fraud...

bkkandrew

More Equador 'monster' misery:

Ecuador May Hit ‘True Monsters’ Harder Than Argentina

By Lester Pimentel and Stephan Kueffner

Dec. 15 (Bloomberg) -- Ecuador may saddle investors with the biggest losses in a government bond restructuring since at least World War II after President Rafael Correa fulfilled a two-year pledge to default on debt he calls “illegitimate.”

The country’s three dollar-denominated bonds, with a total face value of $3.9 billion, fell below 25 cents on the dollar following Correa’s announcement on Dec. 12 that he wouldn’t make a $30.6 million interest payment due today, according to JPMorgan Chase & Co.

Investors expect to recover less than the 30 cents that Argentina paid in a 2005 settlement that was the harshest since the war, according to Arturo Porzecanski, an international finance professor at American University in Washington. Correa said in a Dec. 13 radio address that he wants to force a “big discount” on creditors, a group he referred to a day earlier as “true monsters who won’t hesitate to crush the country.”

Bloomberg.com: Exclusive

sabang

The left-leaning government of Ecuador is not popular at all in the USA. Pres. Correa might want to tone down his rhetoric a bit- countries have been invaded for less.

bkkandrew

New $3 Trillion Bailout Is Coming to the Masses: Kevin Hassett


Commentary by Kevin Hassett




Dec. 15 (Bloomberg) -- Pollster Frank Luntz asked a large audience at a conference in Washington last week to raise their hands if they had received a government bailout. While they chuckled and rested their hands on their laps, Luntz made an important observation. Bailout money is snowing down in an unprecedented blizzard, and if the moves fail to stimulate the economy, there will be a lot of angry voters.

Perhaps the same realization moved President-elect Barack Obama’s economic advisers to begin considering a bailout for the masses.

If Luntz asks the same question a few months from now, everyone may well lift their hand.

Bloomberg News last week reported that the chairman- designate of the National Economic Council, Lawrence Summers, had been conferring with conservative icon and Columbia Business School Dean Glenn Hubbard about a housing plan Hubbard designed with Columbia colleague Christopher Mayer. Obama’s economic advisers appear to have embraced the proposal, which is already “on a fast track at the Treasury,” according to the story.

The Hubbard-Mayer plan calls for the government to revive the moribund housing market by providing just about everybody with access to a 30-year fixed-rate mortgage with a 4.5 percent interest rate. That’s almost a full percentage point lower than the average national rate of 5.47 percent currently.

Buyers could borrow as much as 95 percent of the value of the home they purchase. The plan might extend to those with existing mortgages, allowing them to refinance and get the same terms. When either type of deal is complete, the lender will place the loan with Fannie Mae or Freddie Mac.

Splitting the Loss

Anyone refinancing with positive equity in their home would be relatively easy to accommodate. For those with negative equity -- meaning the dollar amount of their mortgage exceeds the value of their house -- Hubbard and Mayer recommend that homeowners and lenders split the loss evenly and start over with a clean mortgage reset to reflect the property’s current market value.

With some forecasts for fourth-quarter gross domestic product growth inching toward negative 8 percent at an annualized rate, drastic policy measures are becoming increasingly palatable.

This mortgage plan is radical, and might just be powerful enough to help turn this troubled economy around.

The bottom line: if you have a mortgage, this plan would put extra money in your pocket.

Imagine, for example, that you have a $500,000 mortgage with a 30-year fixed-rate loan carrying an interest rate of 6.1 percent, the average rate for a fixed 30-year mortgage issued this year. Lowering the interest rate to 4.5 percent would reduce monthly payments by about $500 monthly. Someone with a mortgage of $150,000 would save about $150 a month.

Better Than Rebates

These monthly payments changes are different from tax rebates because they would last for many years. For that reason, consumers would be fairly likely to increase their spending. After all, if your monthly housing expenses just dropped by $400, then adding a new car payment of $300 a month might seem a lot less frightening, even in these difficult times.

These subsidized mortgages should increase the number of home buyers and help push property values back up. There are a lot of problems in the economy, but they all began in the housing sector and it seems likely that staunching the bleeding there is a prerequisite for achieving financial stability.
Make no mistake, this remedy will be costly.

$3 Trillion

Last week’s report suggests that the Obama team may be wary of allowing everyone access to this plan, since it costs so much -- $3 trillion by one recent estimate. One constraint being discussed is to disallow refinancing, limiting the program to home buyers.

The restriction will be impossible to impose, however. All that you would need to do to qualify for the 4.5 percent rate would be to find a “bailout buddy” and agree to purchase each others’ homes with the new low-rate loan. You could then either swap the homes back, or agree to rent the homes to each other for the same fee.

Also, the program will have the largest possible effect on home prices, a key target of the policy, only if borrowers expect it to last a long time. After all, if the person you sell your house to in the future has to borrow at a high interest rate to finance the purchase, then he will offer a lower price. That realization should affect the price you are willing to pay today.

Thus, the cost will be steep for two reasons. It will be tough to limit the new mortgage to home buyers, and the program will have to be sustained for a long time.

In the past, steep costs would have killed such a bill. But in today’s environment, it has almost become a political necessity to give voters their bailout too.
Ladies and gentlemen, grab your bailout buddy, help is on the way.

Bloomberg.com: Opinion

bkkandrew

^If this plan comes to fruition, this would be the equivalent of borrowing against every asset you have, maxing out an unsecured borrowing facilities you have left and putting it on black and watching the wheel spin...

Mr P

Found it!

Andy, good thread.

The other place nearly had me hanging myself. Damn miserable. I've kept in contact with a few of them, but my I've requested my account deleted.

I take-off 31st of Dec, I'll be in BKK New Years Day. Flight price was £150 cheaper than the day before or the day after, got to save money in these times.

Yep, tis' right bad in Blighty. Won't be returning there again.

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