Archive - Nov 13, 2010 - Story

The main reason why in a recent Zero Hedge poll the bulk of respondents believed that the next asset class to be purchased by the Fed are municipals, is that the market appears to have finally relented to what pretty much everyone with half a working brain has realized for over almost two years: the very soon, only the Fed's endless bid will be able to withstand the state and city default onslaught. Two main catalysts over the past week, as Zero Hedge highlighted last week, were the now imminent bankruptcy of Harrisburg, and the dramatic deterioration in California's fiscal situation. However, there are other far more important considerations that suddenly have led to a massive blow out in the muni curve, that made even the highly volatile action in the UST curve seem tame in comparison. Citigroup's George Friedlander summarizes the biggest risks to the muni space, of which the number one is the least surprising: what happens when the government removes its crutches... With the entire economy now expressly reliant on constant and endless support of every branch of the US government, as more and more austerity is priced in, assorted asset classes will start feeling the wrath of this long-forgotten concept known as risk. Munis are just the beginning.

From BNO: French Prime Minister François Fillon has offered the government's
resignation, which President Sarkozy has accepted, palace says. Pursuant to Article 8 of the Constitution, Mr. Fillon presented to the president the resignation of the government

In other news, GM IPO - meet "market conditions."

A must read paper from George Selgin and the Cato Institute, which confirms what Zero Hedge has been saying since inception: the Fed must be abolished immediately: "The Federal Reserve System has not lived up to its original promise. Early in its career, it presided over both the most severe inflation and the most severe (demand-induced) deflations in post-Civil War U.S. history. Since then, it has tended to err on the side of inflation, allowing the purchasing power of the U.S. dollar to deteriorate considerably. That deterioration has not been compensated for, to any substantial degree, by enhanced stability of real output... A genuine improvement did occur during the sub-period known as the "Great Moderation." But that improvement, besides having been temporary, appears to have been due mainly to factors other than improved monetary policy. Finally, the Fed cannot be credited with having reduced the frequency of banking panics or with having wielded its last-resort lending powers responsibly. Its record strongly suggests that the Federal Reserve‘s problems go well beyond those of having lacked good administrators. Although it has manifested itself in different ways during different decades, the Fed‘s failure has been chronic. The problems appear to reside with the institution, and not with particular personalities who have been placed in charge of it. Hence the record would not be likely to improve substantially even with complete turnover in the Board of Governors. The only real hope for a better monetary system lies in regime change."

The one-two punch is complete: first Goldman pulls it capital, now the SEC and the US Attorney's office are investigating Harbinger. Is this the proverbial curtains call for Phil Falcone? Accusations are one thing. Accusations accompanied by major LPs pulling capital are usually the last thing.

While reading 13D.com's latest newsletter (one of the best, but Kiril you have a mistake in point 1 w/r/t QE2 - the POMO 17-30 schedule is not 9%, it is 4%), we stumbled across this terrific excerpt from "Memoirs of David Rockefeller", which highlights the exploits of John D. Rockefeller, Sr., the man who out of nothing went on to create the world's biggest and most important company in the history of the world - Standard Oil, and in doing so effectively created the US corporation in its modern form, as well as defining the concept of the monopoly. That he is also the patriarch of the Rockefeller legacy, which has since shaped the face of modern capitalism, is secondary. It is no surprise that during his time, he was viewed in diametrical opposites by the general public - he was either loved or hated, pretty much like all men of relevance. While we will ignore any ethical claims, what we find most fascinating from the below excerpt, is the purported approach which Rockefeller took when creating the Standard Oil monopoly, one which was premised upon "elastic demand" or the same razor-razorblade model of vertical integration that is exhibited best by none other than the company which comes closest to an Std Oil type of monopoly-presence: Apple (and just so there is no confusion, we refer of course to the distributed content, commission-based revenue stream model). Which leads us to a few tangential thoughts, chief among them - is Apple planting the seeds of its own destruction courtesy of its unmitigated success? The 1911 decision to break up the Standard Oil monopoly was as much driven out of economic principles, as one of populist retaliation. It is no wonder that Apple is now the second largest company in the US by market cap... just behind Standard Oil offspring Exxon.

As if the fact that the world economy has once again taken a turn for the worse (rising inflation in China, sinking everything in Europe, endless QE in the US) wasn't enough, that pesky problem of robosigning and fraudclosure just refuses to go away. And even though the major banks are doing their best to remove any reference of this problem, which will eventually be the final nail in the coffin sealing the first truly global great depression, from the mainstream media, here is a sampling of some of the choicest admissions by robosigners, which will continue to serve as the basis for thousands of lawsuits (both RICO and otherwise) to come. While we know that BofA's Reps & Warrantees reserve is woefully underfunded (with everyone and their grandmother now seeking to putback RMBS to BofA, anything less than 'infinity' is underfunded), we hope Bank of America has set up a sufficiently large legal expenses reserve. It will need it.