Federal Reserve losing control

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Federal Reserve losing control

Postby antiaristo » Mon Oct 29, 2007 6:54 am


Last week some $75 million of "fed funds" (that is, interbank overnight credit) was transacted at a rate of 15%, and "a bunch" went through in the low to mid 7s.

No, I didn't mistype that. You can find the actual data at this link.

Originally I, and everyone else, assumed that the "high" was an error. A bad print. That there was no chance this was "real".

It was.

Yes, "EFF" (effective fedfunds) was right where "it should be" according to The Fed - across all transactions.

Now let's think about this one for a minute here folks.

"Someone" transacted a $75 million overnight loan that they needed to meet reserve requirements at an absolutely outrageous interest rate - about what you pay for credit card money. A bunch of "someone else's" transacted a bunch at 7-7.5%.

They had the discount window available to them at 50 bips of penalty to EFF, which is a direct overnight loan from The Fed, but didn't use it.

Are you going to try to tell me that some banks actually paid nearly 10% more as an interest rate than they had to?

On what planet are we having this discussion?

There is only one possible explanation for this particular behavior - The Fed would not take the alleged "collateral" these institutions tried to put up, and the market didn't think it was worth much either, even on an overnight basis, and as such "the market" priced the interest rate similar to how Guido would for your "short-term" loan!

This raises the spectre of something truly terrifying in the credit markets -

The Fed may be inches away from losing control over the FF Rate entirely!

Indeed, for those transactions, they already have!

The implications of this, if it spreads, are truly terrifying. We are not talking about a three sigma event, a four sigma, or a five sigma.

We are talking about the equivalent of Financial Armageddon in the credit markets.

Sensing this possibility, a whole bunch of someones put on a bunch of options on the FF Futures contracts that are so far out of the "mainstream" of conventional thinking that they have zero chance of paying off unless a major dislocation event occurs.

These weren't just "idle speculators" either - they were risk management desks, repo desks and, of course, once they started to get bought hard, speculators who piled in behind them.

This sort of trade is so far out of the realm of "normal" that it deserves notice.

Unlike the options trades on the SPY (and other markets) - aka the "Bin Laden" trades that I wrote about - this is not some wild "unnamed" person putting these on.

These are the risk managers and repo desks that handle transactions in the credit markets every single day.

When they start freaking out like this, you goddamn well better sit up and take notice!

Note that back in August we didn't see shit like this. Yeah, that was bad. But even in the worst moments of August, nobody got such a wild hair up their ass that they thought The Fed would lose control of the overnight lending rate!

The little press that this did get put it out there as a "no ease" play. Uh uh.

That is a dislocation play guys and gals.

Think about this for a minute. If you think the Fed is going to cut rates, you wouldn't want to be on that side of the trade. It doesn't pay well enough. You want to be on the other side. So if the belief here is simply that someone is in big trouble and "Ben will ride to the rescue", you take the opposite position.

This bet is more akin to "The Fed loses control entirely and Effective Fed Funds trades radically higher irrespective of what Bernanke does, because nobody trusts anyone anymore - not even overnight."

In other words, this bet is one that the credit markets will go supercritical.

And it wasn't made by just one firm, one speculator, or one guy.

A few months ago I pointed out that every big equity market dump - every last one of them - has started in the credit markets. It always starts there, simply because of the volume of business transacted and the sensitivity to problems. In the equity markets one company can go "boom" and it doesn't mean much. But in the credit markets "systemic risk" - that is, a refusal to trust people as a foundational principle - once it takes hold is very, very difficult to tamp back down.

There is only one way to fix this in the credit world, and that is to force ALL of the off-balance sheet bullshit back ON balance sheets, to force ALL credit derivatives and structured credit to trade through public exchanges and to force ALL marks to be to market - anything less simply must be recorded as a "zero" until you can get an actual transaction to mark against!

That, by the way, is what I've been calling for - in the petition, in my letter to Bush, in my writings for months.

Unfortunately Hank Paulson, Ben Bernanke, The Fed as an institution and everyone else are going in exactly the opposite direction - more obfuscation, more mendacity, more myth.

We are at extreme risk here.

I do not have a way to assign a potential time, day, or event to an impending supercritical dislocation.

All I can do is note that there are market participants out there who are deathly afraid that it is going to happen and soon; they have placed their bets and spent a goodly amount of money doing it.

They smell it, and they're the ones that are close enough to the action to know about it.

What you do, with your own risk exposure, given the upcoming Fed Meeting, is up to you.


Still, there is always (gallows) humour....

Junk Debt Crisis: “Lake Tahoe Housewife To Blame”

June 27 – Following months of housing crisis, delinquency, default, foreclosure, rising bond yields, widening credit spreads and freak atmospheric conditions, Wall Street has finally announced the identity of the culprit responsible: Mrs. Margaralene Wozniak of Maple Terrace, Lake Tahoe. Mrs. Wozniak, 87, lies at the heart of the once profitable partnership between subprime lenders and Wall Street brokerage firms that is now toboganning crazily toward a frenzied charnel-house of blood-letting horror. Since the beginning of 2006, almost all US mortgage companies have closed or declared bankruptcy – and Mrs. Wozniak is to blame, according to industry experts.

The manic slaughter-orgy has only just begun. As home prices collapse, mortgage defaults and overripe newspaper headlines portending imminent disaster shoot into the stratosphere, bond investors who financed the housing boom stand to lose as much as $480 quadrillion in CDOs backed solely by a mortgage on Mrs. Wozniak’s trailer. A number of large investment banks and hedge funds have already quite literally imploded after gambling – unprofitably, as it turns out – on claims on Mrs. Wozniak’s Placerville residence.

The subprime industry – and investor losses – would never have become quite so huge without 320 million independent mortgage brokers in California and a regulatory regime that has been described by some as mildly sub-optimal.

“Even with explanations, Mrs. Wozniak never really understood what type of loans she was getting,” says Lavinia Twonk, formerly with Toxique Funding of Pasadena. “She thought she’d won a Zimmer frame.”

The sales job was made easier with exotic mortgages such as so-called no-doc docs, which enable borrowers to get multi-billion dollar loans without having to supply evidence of income or savings, or for that matter even documents. Verbal agreements on the part of the mortgage salesman, at which the borrower is not actually required to be present, are sufficient in California law.

Californian lenders subsequently sold the loans to major brokerage firms, who in turn packaged them into CDOs and sold them to eager pension funds, normally whilst laughing uproariously. The role of the rating agencies has now been called into question.

Leading industry analysts suggest that the agencies have failed to disclose the true risk of CDOs, which are a type of sub-strain of the Ebola Zaire virus. A typical CDO causes an investor’s internal parts to liquefy – typically during a broader-based market crisis - and then detonate violently. Holders of the investment grade portion of CDOs, rated ‘Super Lovely’ by agency Duff and ‘Angel Delight’ by rival Substandard and Poor, are deemed only moderately likely to have their major organs forcibly removed by anonymous surgeons. Holders of second-tier ‘Mezzanine’ tranches, rated ‘Ocean breeze’ by Duff and ‘Fields of soft, waving grass’ by Poor, run a slightly higher risk of holders being tossed over a cliff onto jagged rocks. The ‘Equity’ tranches, hitherto variously rated ‘Piquant’ and ‘Saucy’ carry a fairly high risk of holders having their body parts crushed with small hammers and then being ripped apart by choreographed attack dogs. Jeff Venal of ratings agency Happytime No Clouds Gorgeous Summerbuns, speaking on condition of anonymity, said he wasn’t concerned about accusations of graft and conflict of interest, not least because he had a ‘First Lien’ claim against Mrs. Wozniak’s kidneys.

Independent consultants suggest that institutional buyers may have repeated the errors of previous eras and been sold virulent rubbish by overzealous Wall Street brokers. Twyla Verbinsky, fixed-income portfolio manager of the Carson City Retirement Programme, says she decided to buy equity tranches after a free sample fell out of her breakfast cereal. “I got even more interested because a broker told me they would be absolutely delightful. From that point on, I was hooked.” She says the investment is worth the risk because the Retirement Programme may be able to get higher returns than from the zero coupon perpetual bonds it was sold last year. The fund is relying on advice from bankers selling the CDOs, says Ms. Verbinsky. “As a fiduciary investor, I obviously have to trust everybody, and particularly Wall Street salespeople.”

http://thepriceofeverything.typepad.com ... crisi.html
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Postby anothershamus » Mon Oct 29, 2007 1:12 pm

This is potentially huge! If the dollar crashes, chaos would ensue!
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Postby 11:11 » Mon Oct 29, 2007 2:05 pm

Damn, I have no idea what that first article is saying. Can someone translate?
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Postby antiaristo » Mon Oct 29, 2007 4:45 pm

11:11 wrote:Damn, I have no idea what that first article is saying. Can someone translate?

Hi Susan,
It's saying that the Fed is losing control of US interest rates.

The first piece of evidence is what some banks have had to pay for overnight money. The evidence is there in the data (link in original post). Interbank rates are supposed to be set by the Fed (with tiny fractional variations) but they are not. Some banks are doing their own thing - at FIFTEEN PERCENT.

The second piece of evidence is that market insiders are betting against the consensus. They are staking their OWN money on a bet that any reduction by the Fed will be followed by a RISE in market rates.

That's the dislocation the author is talking about.

If that happens there will be NO confidence in the financial markets. All of those lenders who rely on wholesale funding will be absolutely fooked. VERY VERY VERY serious.

Here's a couple of charts as of today's close. They relate to "investment grade" CDOs, which are wholesale market instruments. They SHOULD sell for close to 100, but they don't.

Just look at what has happened these last two weeks:


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Postby 11:11 » Mon Oct 29, 2007 5:07 pm

Oh, that is interesting, anti. I seem to remember a certain political candidate talking about the Fed losing control and the market determining what would happen. This seems to be confirming what he said.

For me, banking is a confusing (criminal) game. I've watched in amazement as one bank bails out another with worthless paper backing up other worthless paper. Methinks the jig is up.

What's gonna happen when the veil lifts and everyone realizes the elites have stolen all the money?
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Postby antiaristo » Mon Oct 29, 2007 6:36 pm

11:11 wrote:Oh, that is interesting, anti. I seem to remember a certain political candidate talking about the Fed losing control and the market determining what would happen. This seems to be confirming what he said.

For me, banking is a confusing (criminal) game. I've watched in amazement as one bank bails out another with worthless paper backing up other worthless paper. Methinks the jig is up.

What's gonna happen when the veil lifts and everyone realizes the elites have stolen all the money?

Here's a taste, from Karl Denninger:

Monday, October 29, 2007
(Hyper)inflated Monday (And A Farewell For Now)
No fancy alliterations today.

This morning I woke to find that gold had retreated a bit as had oil, but both were sitting near "nosebleed" territory.

The dollar, which was pummelled overnight, had also retreated from the brink a bit.

The equity markets - indeed, all the markets - are acting like a junkie pounding on the door of the drug dealer and demanding another fix. That fix, of course, is more rate cuts - and not just one either.

One now, one in December, more more more. The "consensus" of market watchers is that "the market" needs - natch - demands - a FFR of 3.5% or less by early next year.

More than 100 bips down from here!

Have you noticed the instability in equities lately? Huge moves on silly rumors? You think? Why? Because the markets are now acting just like that jacked-up junkie, and therein lies the problem.

As a junkie goes from the first stages of dependence on drugs to death, the drug becomes less effective. What required one "dose" of heroin soon requires two, then four, then eight to get the same effect. The "buzz" doesn't come if you don't feed the veins with ever-more of the drug.

Drug addicts are known to have a "self-titrating" function that gets quickly wired into the brain. That is, they have a desired "high" that they wish to reach, and they will increase the dose of whatever their favorite drug is as tolerance builds to maintain the same "buzz".

Yet somewhere out there lurks systemic toxicity. See, the body can only process so much drug. At some point you reach a critical point and essential functions - heartbeat, brain function, breathing - get interfered with to the point that they shut down. And as you use drugs for a longer period of time, that corner lurks ever closer, as your body's systems are damaged and thus their ability to handle "shocks" of the drug decreases.

As this "coffin corner" approaches the junkie has only two choices - detox or die.

Many junkies fail to realize this in time, take one too many shots, and expire.

Thus it will be with the markets. Gold. Oil, to a lesser extent. The Credit Markets. Equities. And not just here in the United States; China, India, Japan.

Yet nobody on CNBullShit, other than Rick Santelli, are telling the truth. All of the CNBullShit crew look like they're having an orgasm every time the DOW prints green - or is that, instead, the hop-up of someone mainlining cocaine?

How long before the response is a heart attack instead of a buzz?

Adding to the "mainline" rush is the Yen carry trade. Like a bunch of schizoid idiots the Yen/Dlr cross bounces these days in lockstep with the S&P - in fact, you pretty much don't need to watch the S&P during the trading day - just watch the Yen/Dlr cross and you've got your S&P chart. That's pathological - yet it is exactly what has been going on now for more than two months.

As if that all is not enough, we have CountrySlide (CFC) as our prime example from Friday. Announcing a loss twice what the street expected, the stock took off on a rocket ride of more than 30% - higher. Huh? The company put on a brave face claiming they had seen "the trough" and that they'd make money next quarter.

Does anyone remember that last quarter they said the same thing? That while they were missing expectations, 3Q would be better and they'd make more? DID THEY? No, they instead reported a horrendous loss!

But crack junkies have short memories, their brains being addled by drugs. So instead of remembering that last quarter Mozillo and Sanbol promised profits and prosperity, and instead delivered losses and ruin, they hit the buy - instead of the sell - button.

Anecdotes are that The Fed is concerned about the markets being "unstable".

Well, Ben, wake the fuck up, ok?


If so, why don't you DO SOMETHING Ben? Like, oh, you know, come out and say - in public - "no more drugs!"

I am simply amazed that anyone would be "shocked" at the results of their own actions, when they were (and are) so utterly predictable. Poole claims he's "puzzled" by the action of the DX? I'm not - in fact, did I not predict before the cutting began that the currency markets were warning The Fed not to cut rates by its reaction after the "August Surprise"? Indeed I did. Since I'm nowhere near arrogant enough to believe I'm "the smartest guy in the room" others - including those claimed PhDs at The Fed - had to see this too, no?

If you want to see how markets behave that can't be shorted, go see China. Well, what do you think you tried to do when you cut the discount rate while the index option guys were "pinned" and unable to hedge their exposure?

Feeding a junkie more dope? What do you think you did when you cut rates by 50 bips on the back of a bad job print - one which you admit you didn't believe!

What do you call granting every bank in the land who asks an exemption to the last vestige of banking regulations intended to prevent systemic damage, not to mention tacitly approving a plan to hide even more off balance sheet - instead of doing your job as a bank regulator and demanding that these institutions fully disclose and consolidate their SIVs and such before you give them any forbearance?

We have evidence that certain "favored sons" were tipped off to the discount rate cut ahead of time, yet nobody cares. The FedFunds cut in September? The futures moved before the release, suggesting that someone was told ahead of time of that move too.

And then The Fed "worries" about an unstable financial market?


Why do I get the image of a "fireman" who is the very arsonist that the fire department is trying to hunt down?

Now if rate cuts would actually save the economy from recession I would support them. But they will not.

The problem in the markets and economy is not general softness - a natural business cycle playing out, and one that can be ameliorated to some extent with interest rate cuts.

It is fraud, avarice, speculative excess and cheating.

It is off-balance-sheet vehicles that are stuffed with tens or even hundreds of billions of now-worthless paper that is "marked" at 90, 95, even 100 cents on the dollar. None of it is worth wiping shit off your asshole, but its all priced as if it were pure sovereign debt.

It is false ratings, models that intentionally made up data not in evidence (e.g. "liar loans"), appraisal shopping and more.

It is speculative froth based on the cock and bull story that we can make something out of nothing; that we can take shit, spread it on bread, and sell it as a sandwich, duping people into believing it is ham and cheese so they'll pay good money for it.

Much of this - including the inflated appraisal pressure - was complained about as early as 2001! In fact there is a signed petition from hundreds, if not thousands, of property appraisers that was sent to Congress before the bubble really got going! Was anything done about it, even though this conduct - influencing appraisals - is explicitly illegal?


There's no future in a path of incessant theft, deception and fraud - only ruin for the American economy.

Debasing the currency instead of rooting out fraud and forcing crap into the clear where it can be seen kills everyone who buys fuel or food, and of course we all do, even though the "official inflation statistics" ignore such things.

Worse, it encourages even more fraud. The token prosecutions such as going after Martha Stewart are how we keep "the masses" from rioting in the streets. Would Goldman ever be subpoenaed, say much less indicted, over such a thing?

What do you think?

The cheap blue jeans and computers, made with sweatshop child labor in China are nice but they don't make up for the pain you take as a consumer - you can't eat your pants - or monitor.

Never mind the humanitarian factors.

We've all been turned into debt zombies by a consumerism-driven view that so long as your credit card has more room its all ok - and if it doesn't, just go steal your home's equity and spend that.

Never mind that the truth is that our government has done the same thing with our Social Security system's funds - spent 'em - and so the only possible redemption you had as an individual was to use your home - paid for with a clear deed - as your retirement income. But we've all spent that now, haven't we?

What happens when we're 65 and find out that Social inSecurity has no money? Benefits are cut, our 401ks and IRAs are taxed (despite promises not to), and home equity is gone?

Now what?

You keep working - until you die or are unable, at which point you have the ignobility of being shoved into a Medicare nursing home, where you can pound on the "call" button for hours before someone comes to find out that you pissed yourself.



In fact, quite likely.

All because the junkie needs another fix.

Because we, as a people, won't get off our fat asses and put a stop to this shit. Because we, instead of doing the right thing, mainlined our house!

There is absolutely no doubt that the "American Dream" is going to play out like this.

"We The People" have insured it.

The edge has been reached and exceeded.

We, collectively, have refused to call for the problems to be addressed and reversed. We have refused to vote for people who promise bread and circuses, when in fact they have no bread and the circus elephant has long since expired and rotted away. CNBullShit cheers the commission of a felony on national television because it produces a big stock-market rally.

We refuse to stop being pigs.

We're going to pay for that foolishness, and soon.

1,287 signatures on the petition.

That's all. Just 20 over the weekend since I told the system to send the last batch Friday around the noon hour.

While a very few of you who read this blog have signed, most have not.

And on balance, none of you have managed to get 10 of your friends to sign.

That's a fact guys and dolls. The numbers don't lie!

When - not if - the wheels come off - and it will be soon - I don't want to hear the crying, bitching, moaning and whining. I will not feed the hungry; I have given people the ability to catch fish, but they do not wish to pick up the rod, attach some bait, and stick it in the water, along with passing on the knowledge to others so they can fish too.

They want fish handed to them instead.

My answer to that request is simple - NO.

In 2005 (look at my other blog) I opined on the coming financial crash in America, driven by the wild-eyed Baby Boomer demands for ever more when we simply do not have the ability to pay. None of that is a surprise. What is somewhat of a surprise is that we ran into this wall first, although, in hindsight, I should have seen it coming.

This is what we face guys and gals, THEN we will get what I prognosticated in the above post in my other blog:
Your house is going to go down in value by 30-50%. If you bought it after 2003, you will be underwater for certain. If you have more out in mortgage(s) and HELOC(s) than its 2003 value, you will be paying for an asset that is worth less than you owe. That's a fact. If you are forced to move in that situation, you will be rendered bankrupt. Congratulations.
The stock market will collapse. The S&P will see 800 again. Believe it. It will come. Perhaps not tomorrow, but it will happen. It is inevitable. It could be far worse. We could see 500 on the S&P 500. If you don't get a crash, it will only be because your money will be worthless; a 1500 S&P with a 50% devaluation of your purchasing power is the same as a 750 S&P - and buys just as much. That's the game being run. It won't work - we'll get a devalued currency and a market crash - the worst of all worlds.
We will get a deep, long recession. Believe it. It is coming. I know you don't want to hear it, but its true. It is inevitable. It could have been a deep, sharp but short recession, but Bernanke and the Federal Government will not make the right choices and you, collectively, have not put any material amount of pressure on them to do the right thing. Count on that. As a result, the next decade is going to suck.
Foreigners will not come in and save our markets and assets. There are other parts of the world that haven't mortgaged their futures. Oh sure, China and India have problems - big ones - in their own asset bubbles. But they, along with the Japanese, at least save some of their incomes. They've got the base to build from. We do not. The "hot money" will go where it can earn a return and where there's something to build ON. That's not the United States any more. All we have are 6,000 nuclear weapons.
Inflation will ramp. Severely. Our cheap Chinese goods days are over. You will be paying twice what you have for those "cheap imported items." Not tomorrow, but in the next couple of years. At the same time, you will also be paying $5/gallon for gasoline and double what you pay now for heating and air conditioning, and your food costs will double. Again (they've already doubled once over the last five years - both food and energy.)
For the first time in modern history your children will have a lower standard of living than you have enjoyed. Materially so. In fact, it won't even be close. Your children's futures are fucked. Do you teach your children to be good little consumers? You pamper their every whim? Buy 'em $50 designer jeans? $100+ "Air Jordans"? $200 MP3 players? $500 iPhones? You - or your parents if they're boomers and you're younger - have insured their pain, both through your own actions and what you've taught them. The boomers are pigs; I know as my parents, who do not "need" the social "safety nets", nonetheless scream like stuck pigs that they're "entitled" to them. Proof? Medicare Part D. 'Nuff said. Bottom line - the Boomers don't care if they fuck their grandkids, so long as they "get theirs." That's the majority view. Welcome to America, land of the bought vote and the consumer pig. Woe be to your kids when the credit card limit is hit.
I will continue to comment on the markets from time to time. Right here. When I feel like it, and have time.

The daily writeups?

No more.

Maybe a technical every day or three. If I feel like it.

For now the forum stays.

For two hours+ of my time a day on The Ticker and videos, I asked for little - just that those of you who read this, and find it of value, put in the time and effort to "make me broke" with all the faxes I had to send to lawmakers.

An act that, if it is ever accomplished, will actually solve the problem.

I know it will work because I've done it before. It works. Been there, done that, have the T-shirt and know that its effective. And in any event - even if I'm totally full of crap about effectiveness - what am I asking for here? 60 seconds of your time?

There are those who have said I have no "right" to ask for such a thing. Ok, fair enough. But nobody else has a right to ask, say much less demand, that I provide this service. I don't charge for it, I in fact ask nothing.

Don't ask about a subscription newsletter. There won't be one. The "fee" for the last six months was one minute of your time. I'm not doing this for money; I'm doing this to try to solve a problem. Yours. Mine. My daughter's. Your son's. Personal profit from subscriptions never was and never will be the goal.

Either you are Citizens of this Republic or you are leaches. Being a leach has become institutionalized, inbred and popular. It is taught to you as a kid from your first day in Government School when your pencils and paper were confiscated by the teacher and put into a pile, to be doled out for "less fortunate."

I'm not providing any more free blood to be sucked, and I can't be paid to feed leaches.

You had your fix of morphine, now show me why there should be more forthcoming.

1,287 signatures.


Over 31,000 unique people read The Ticker every month.

Out of that, only 4% of you could be bothered to take 60 seconds out of your day and click your mouse - in two weeks time.


Facts are what they are.

Until I see commitment from those who have taken for six months - commitment to do something other than take, day after day - I am backing off.

60 seconds, it would appear, was too much to ask.

Enjoy the next few days or weeks in the markets kids.

Please, go long. All of you.

Its the "one true CNBC way." It may even pay off. For a while.

I know what's coming, and I'm going to watch with bemusement, just as I did in '99 and 2000.

What I won't do is provide analysis and commentary - at enormous cost in my personal time - to more than 30,000 who clearly think its worth reading, when only 4% of them will lift a finger to protect their children's future - and their own.

No technical tonight, or tomorrow - you're on your own going into The Fed meeting.

I wish you the best of luck.

I'm going diving.

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Postby vigilant » Mon Oct 29, 2007 6:56 pm

Maybe its just me, but I am having trouble with the premise that the same people that print and control all the greenbacks have lost control of it. I realize that there are a lot of American dollars in circulation that they cannot control day by day, but when a slide occurs that goes against them a little bit, they simply hedge their bets in a different currency or in a different direction. When you print the money, its all monopoly money to you........
The whole world is a stage...will somebody turn the lights on please?....I have to go bang my head against the wall for a while and assimilate....
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Postby 11:11 » Mon Oct 29, 2007 7:17 pm

Rate cuts or increases won't fix it. Detox or die, is right. We have to get rid of fiat money, and cancel all the debt. Get ready to go tribal. It beats feudal.

When I fist learned about fiat and the central banks (1980), at an evening lecture, I said to myself, "man, the whole system is going to crash". Now it is.
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Postby ninakat » Mon Oct 29, 2007 7:24 pm

The sky has already fallen
by Ambrose Evans-Pritchard

http://blogs.telegraph.co.uk/business/a ... fallen.htm

Woe betide Wall Street if the Fed fails to slash rates dramatically over the Winter, starting on October 31.

Woe betide the dollar if it does.

This has been stated by others over the past few months and underscores how the Fed has inserted itself squarely between a rock and a hard place. It seems to be choosing the rock (lowering interest rates) though, and that means the dollar will continue to go down... way down.
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Postby antiaristo » Mon Oct 29, 2007 8:20 pm


And why is it choosing the rock?
Could it be that the hard place is even worse?

Yup. Fraid so.

Here's the big secret.


Credit Default Swaps.

The banks have purchased "risk insurance" on the loans they have made.

If the borrower defaults, the insurer pays out.*

That's a HUGE liability at this point in time, and has grown IMMENSELY during the past two weeks. Look at those two graphs I posted above.

Who's stuck with it?

Wait for it.... the hedge funds! :lol: :lol: :lol:

They're bust already, and hiding out in (Her Majesty's) Cayman Islands.


But the banks are valuing those loans as though the insurance is bulletproof!

I've said many times. All the losses are hiding out in that huge ($440 Trillion), UNREGULATED derivatives volcano. Hiding in plain view.

Can't you see it?

*In many respects this is simply a continuation of the fraud at Lloyds of London (money for risk), by the same cast of characters.
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markit charts

Postby vigilant » Mon Oct 29, 2007 9:12 pm


I read a lot of stock market charts and I am interested in the source of your charts. Can you provide links to these charts?
The whole world is a stage...will somebody turn the lights on please?....I have to go bang my head against the wall for a while and assimilate....
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Postby antiaristo » Tue Oct 30, 2007 11:20 am


This is the main page with current prices:


This is for the graphs:

http://www.markit.com/information/produ ... raphs.html

And a bonus, some good commentary

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Postby antiaristo » Wed Oct 31, 2007 8:21 pm


I'm sure everybody knows about this. No doubt its all over the news bulletins.

Economy Logs Brisk 3.9 Percent Growth
Wednesday October 31, 5:10 pm ET
By Jeannine Aversa, AP Economics Writer
Economy Grows at Brisk 3.9 Percent Pace in Summer, Best Performance in 18 Months

WASHINGTON (AP) -- The economy picked up speed in the summer, growing at a brisk 3.9 percent pace, the fastest in 1 1/2 years and an impressive performance even as a credit crunch plunged the housing market deeper into turmoil.


There's something funny going on, though.
The GDP deflator used was 0.8%.

The deflator is a measure of inflation, i.e. the amount of constant $ GDP solely attributable to price changes.

In the first half it was 3.4%
In 2006 it was 3.2%
In 2005 it was 3.2%
In 2004 it was 2.9%

It looks to me as though they have "accidentally" used the number for a single quarter. 0.8% quarterly equals 3.3 or 3.4 percent annualised.

That means that third quarter GDP growth was not 3.9%, as your television is screaming at you.

Rather it was 1.4% or less.

That's why the Fed cut rates.

But they are prepared to pull a stunt like this, purely for the headline?????
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Postby ninakat » Wed Oct 31, 2007 9:30 pm

antiaristo, yeah those "brisk" growth numbers looked really fishy to me and I appreciate your analysis and explanation (and previous postings too). It's just incredible how much bs we're supposed to believe. I guess they're trying to squeeze every last penny out of the system before it crashes.
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Postby antiaristo » Thu Nov 01, 2007 11:52 am

ninakat wrote:antiaristo, yeah those "brisk" growth numbers looked really fishy to me and I appreciate your analysis and explanation (and previous postings too). It's just incredible how much bs we're supposed to believe. I guess they're trying to squeeze every last penny out of the system before it crashes.


Here's one explanation I've found (no link)

In GDP math, sometimes one plus one equals zero
By Rex Nutting, MarketWatch

Last Update: 1:56 PM ET Oct 31, 2007Print E-mail Subscribe to RSS Disable Live Quotes

WASHINGTON (MarketWatch) — As odd as it sounds, the government reported that inflation was at a four-decade low in the third quarter, primarily because import oil prices rose so much.

If you don’t understand that, welcome to the confusing world of national income accounting, where up sometimes is down, and where sometimes one plus one can equal zero.

The simple explantion:
Because of the way the government counts and reports the numbers, real-life inflation was understated and growth was overstated.
The economy didn’t really grow 3.9%, and inflation really wasn’t 0.8%. The numbers aren’t as good as they look.

The economy grew 4.7% in cash terms.
But how much of that was inflation (not "core inflation" but ALL inflation including oil and food), how much was real growth?

You live in the US.
You are in a better position to judge than me.

But I'm pretty sure inflation is NOT at its lowest in four decades.

I'm pretty sure that real growth was a LOT less than 3.9%.

And judging by the market today, I'd say a lot of other people are taking a second look at this figure.
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