Global Economy Bursting?

[Randolph Kinney]

Greek PM: society will disintegrate without urgent financial aid

http://www.guardian.co.uk/world/2012/oct/05/greek-prime-minister-society-disintegrate

Antonis Samaras says Greece's democracy is in danger, comparing situation to Germany's pre-war Weimar Republic

 

[Randolph Kinney]

California sees record gas prices as police deal with fuel bandits

http://latimesblogs.latimes.com/lan...-prices-as-police-deal-with-fuel-bandits.html

 

[Terrel L. Shields]

security cameras caught the thief using a credit card. The pump's meter was somehow disabled, and the manager had to check records to show that the gas was taken.
The same people came back during store hours twice, taking 350 gallons on both occasions. Each time there was no indication behind the counter that gas was being pumped.

That's strange. I wonder how they were able to disable the pump counter? That might come in handy some day

Locally gasoline prices are up and down week to week. Diesel took a huge jump up over the weekend.

 

[Randolph Kinney]

New U.S. stress test needed: higher interest rates

http://blogs.reuters.com/breakingviews/2012/10/04/new-u-s-stress-test-needed-higher-interest-rates/

The U.S. Federal Reserve is promising ultra-low interest rates into 2015. Yet the buildup of low-yielding debt on financial firms’ balance sheets means they may suffer badly if rates jump.

Old-timers may still remember 1994, when the Fed jacked up rates by 2.5 percentage points, destabilizing investments that rested on risky foundations. Orange County crumbled under derivative bets, hedge funds imploded and Mexico’s currency collapsed.

Yet rising interest rates can be highly toxic to bonds – especially the kinds that investors like insurance companies, banks, pension funds and the Fed itself have been buying by the bucketload.

But the Fed has only limited power to control interest rates. And sharply higher yields would be far from unusual. For instance, 30-year Treasury bond yields are currently under 3 percent. As recently as last year, they topped 4.5 percent, and in early 2000 they briefly exceeded 6.5 percent. Because of the long maturity, a single percentage point rise in rates would translate into roughly a 20 percent decline in the value of long bonds.

AAA-rated mortgage-backed securities backed by Uncle Sam are also vulnerable. For example, when 10-year Treasury yields rose 1.3 percentage points over four months beginning in October 2010, it shaved about 9 percent off the value of Fannie Mae mortgage bonds.

The FFIEC has suggested banks individually test their holdings’ sensitivity to a 4 percentage point interest rate shock.

 

[Randolph Kinney]

Playing the central banks for suckers

Clearly, Draghi understands markets and the dynamics of speculative finance. When he warned against betting against the euro and European bonds the marketplace took notice. Amazingly, the ECB has gone from being adamantly opposed to pre-committing on rates to openly determined to pre-commit to huge open-ended market interventions and price support operations. After holding out, the ECB finally sold its soul – and the speculators have been giddy.

Bill Gross has been rather open about it: “We’re buying what the Fed and ECB are buying.” And Mr. Gross and others have been buying Spanish and Italian bonds, with a brilliant plan to sell them back to the ECB at higher prices. There’s a very large global contingent keen to place such bets, after similar trades in U.S. Treasuries and MBS have made gazillions.

In the face of alarming economic deterioration, European debt has become a hot commodity. The euro has become a hot currency. Reuters reported Thursday that the euro zone is considering a bond insurance plan. The idea is for the ESM to “guarantee the first 20 to 30% of each new bond issued by Spain.”

From those among us questioning how the euro can trade so resiliently in the face of potential financial and economic calamity, the Draghi Plan has been in the process of transforming Spanish, Portuguese, Italian and other problematic debt into possibly the most appealing speculative asset in the world today. After all, all this paper provides a relatively decent yields (especially in comparison to bunds, Treasuries, or securities funding costs), and now at least the 1-3 year debt enjoys a commitment of open-ended liquidity/price support from the ECB. If the Draghi Plan does transform this debt from a fundamentally attractive short to a must have speculative long in the eyes of the powerful leveraged players, well, then the Draghi Plan truly has been a “game changer.”

 

[Terrel L. Shields]

Soros made a mint betting against the pound....circa 1992

Soro's Big Bet

Where's his money now???

He's sitting with John Paulson and Jacob Rothschild

 

[Big ole Boy]

So ... all you got to know now is what crappy bonds the FED is going to buy and buy those and make big money ....

.... what kind of Anti-Christ is Bernanke ?....... (A North Korean Dictator)

 

[Randolph Kinney]

Taking Hard New Look at a Greenspan Legacy

http://www.nytimes.com/2008/10/09/b...tp&adxnnlx=1349708626-MiEoz59gdveJJGlL7gBkFQ&

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken.

The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.”

 

[Restrain]

Derivatives were designed to sell off parts of a note, or insure against loss on a note. However, the industry has grown to the point that the outstanding derivatives exceed the underlying financial notes by several multiples. In addition, people are buying insurance derivatives on notes that they have no direct financial interest in.

These really need regulation. For example, capping the derivatives at the same financial level as the underlying notes. Right now, the risk level is such that every large financial institution runs the risk that exceeds the losses of the housing collapse.

 

[c w d]

Taking Hard New Look at a Greenspan Legacy

http://www.nytimes.com/2008/10/09/b...tp&adxnnlx=1349708626-MiEoz59gdveJJGlL7gBkFQ&

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who are willing to and are capable of doing so to those who shouldn’t be taking it ,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only twice in a century,” his faith in derivatives remains unshaken.

The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.”

Fixed that for Mr. Greenspan......btw, doesn't seem pharmacists are too reliable either. My bold. And remember Mr. Greenspan, like the stock market where one never loses money until they sell at the wrong times, you're never wrong until you admit that you are and to hell with what everyone else says. Repeat after me, financialization along with derivatives only enriches the financiers who bet against them in the back office while selling them to everyone else in the front office.