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Bill Lockyer, Furious That California Is Riskier Than Kazakhstan, Sends Angry Letters To Goldman et al About State CDS Trades; (Or The Greek CDS Scapegoating Campaign - Animal Style)
Do you see what happens Larry when you sell CDS on California? You get a Greek-style scapegoating campaign. Cali's State Treasurer Bill Lockyer, exasperated at his impotence to sell $2 billion in GO bonds, has resorted to the last option: sending angry missives and trying to make a media circus out of it. It is now all Goldman's fault that California is bankrupt, just because it dares to make a market in Cali CDS. Ring a bell? It worked miracles for Greece, whose bonds are now tumbling a day after everyone said Greek issues were resolved. Also, we can't wait to uncover, just like in the Greek case, that the biggest buyer of Cali CDS is PIMCO, CalPERS, TCW, Western, Oaktree, or some other California-based fund. Now that would be even funnier than Cali considered a more worthless "asset" than Kazakhstan. At least their potassium deposits are best in region.
From Bill Lockyer's letter, attached below:
Dear Mr. Blankfein:
I write to request information about your firm's market activities related to credit default swaps on municipal bonds in general, and State of California general obligation (GO) bonds specifically.
The State never has defaulted on a debt service payment in its history. Small wonder.
Credit default swaps (CDS) amount to insurance against default. Yet, despite the security-plus backing of California GOs, and our spotless record of paying our debt on time and in full, market participants actively buy and sell credit default swaps (CDS) on our bonds. In fact, my office has information that indicates CDS on the State's GO bonds may rank No.1 in dollar value among all municipal issuers. We also have information that indicates your firm, which sells California GO bonds, may participate in the municipal CDS market.
Data reported in the news media and other sources show that the prices, or spreads, on California CDS wrongly brand our bonds as a greater risk than those issued by such nations as Kazakhstan, Croatia, Bulgaria and Thailand. The perception of risk could adversely affect the price of our bonds when we go to market. That makes the CDS market important to our taxpayers. That is why I want to fully understand the municipal CDS market in general, the market for California CDS, and [Goldman's] role in these markets.
[and much more ridiculousness]
*With apologies to In-N-Out purists. What Lockyer should do, instead of following G-Pap retarded startegy of scapegoating and focusing on what is completely irrelevant even as his state burns, is nationalize the hamburger chain and IPO it (using Goldman of course). That would immediately resolve all budget problems the state has through the year 3000.
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MUNI-MAYHEM:
http://williambanzai7.blogspot.com/2010/03/muni-mayhem.html
Yea, and citizens have always paid their mortgages. It's a great investment.
If the solvency of California is such a good bet Lockyer should be able to convince CALPERS to write those CDS contracts to satiate hungry speculator demand. I mean you can't lose right? Keep collecting those premiums...like taking candy from a baby!
Put some money where that mouth is Bill.
I am sure that CALPers and many other state investment vehicles would love to make several markets themselves, including default. All sorts of things could be done differently with that kind of market position. Too bad the same doesn't hold true for the government of the state of California where Hobson's choice rules the day.
"Hungry speclator demand" for such a wise and time-tested innovative financial product. LOL Yes sireee, something that never existed ten or fifteen years ago, but now we must certainly provide the product that satiates the demand, no matter how ill-advised or destructive to society as a whole. Heck, there's profit to be made by way of fees and such, and you don't even have to get all icky and sweaty like most work. Yep, keep it up guys. Y'all are on the cutting edge. Something to really be proud of and tell your grandkids about. Welcome to the great casino at the heart of the church of greed. Never consider the CEO who makes 600 times his workers pay, but sock it to the poor and working classes that struggle and die becasue of austerity measures. After all, the bond markets demand it.
-CA is having trouble paying it's bills because, as far as anyone can tell, it's outstanding obligations are greater than it's incoming revenue.
-Because of this situation there is greater, not a lesser likelihood of CA defaulting on the interest and/or principal payments it owes on it's outstanding bonds.
-CDSs are a way for CA bond holders to hedge against default and yes, it is also a means by which speculators can take the other side of that hedge or bet on a default.
-The CDS market has become popular in recent years because the government protected duopoly of Moody's & S&P have failed miserably in doing their job vis-a-vis keeping on top of increasing credit risk. CDSs have a much better recent track record in terms of conveying accurate information about default risk than the rating agencies do.
-If CA officials truely believe that the CDS market has got it all wrong and that there is no real increased risk of the state defaulting, they should take advantage of the situation (since they could use the cash and all) and write or encourage related or sympathetic parties to write that insurance themselves and pocket the premiums.
-That CA spends beyond it's means (it's real problem) does not have anything to do with the CDS market.
That's as simple as I can make it without resorting to sock puppets.
duplicate
That letter is suitable for framing.
Love your argument, Mercury. Stop making sense.
My guess is that the yield rally in munis is just getting started. Put your rally cap on and your glove over your nose and buy those CDS.
http://www.filemagazine.com/thecollection/archives/images/thumb/DSC_9113EditBWsmall.jpg
I think he needs to demand war reparations from Mexico.
LOL
I think it's the other way around. If Cali doesn't pay Mexico protection money, those big bad drug dealers will surge over the border and invade LA.
Please go directly to Hollywood to collect the $200 Billion. Do not stop in San Diego for tacos and beer.
The current toll is far higher than 200b CD. Far higher.
OK, then half the invading force can stop for tacos and beer, since the payoff will be even higher.
Taco Bell is on me boys. But you still gotta pay for your own beer and broads. :>)
Actually, if you dig a little deeper you'll discover that the horde already has those markets covered through the third derivative, played a variety of ways.. Hence the mad dash to meet the terms of conversion. :-D
Just wait. He might do it after all.
Do not forget, CA has the largest in USA illegal mexican population enjoying very generous welfare, school, medical, and other endless state benefits. I even do not mention about all this endless fraud.
As a side note, I own CA GO bonds paying me 8.5% during the last 27 years. They never missed a payment. But later last year, I tried to sell them. My broker told me "no bids". I will continue to collect my payments...
How many years left on that gold mine? With no bids, it sounds like no one wants to sift through the tailings. Seriously, are they 30 year or 40 year (or possibly more) GO bonds?
At 8.5% you've received three times your initial investment in interest payments so far. If they go toes up, will you consider yourself as having done well?
About my CA muni bonds.
I got then in 1983 when R. Reagan was our President and PV was our FED Chairman. Originally, they were 12.5% muni and were AAA MBIA insured. 7 years ago, 70% of them were called back with a good premium. The rest were reissued as 8.5%. They are good until Aug. 2023. They were originally 40 years bonds.
No major complains so far. I am just stating the facts.
I understand you're not complaining. Neither would I. Can the reissued bonds be called?
Like I asked, if they were to go toes up and default, would you consider the entire experience to have been worth it. I'm not being sarcastic here, just talking to an investor who is holding shaky paper and wondering how the investor feels about the possibility of default. I would appreciate if you let me know your thinking.
I bought a very small amount ($10,000) of GM bonds 10 years ago (knowing they were a bit shaky) and of course you know where they are now. I received 7% for each of those ten years so I figured I just about broke even on the entire mess (not considering inflation or I would be crying in my pillow) and I get to write off the loss.
Thoughts?
Theoretically they could draft a Welfare Reparations Bill...
I'm just not sure whether they should send it to Washington DC or Mexico D.F.
Never defaulted, maybe, but you did pay your employees with IOU's for a while. That's certainly not something to be proud of.
Well at least the IOUs finally got paid with interest. Illinois just let's the bills accumulate in the in-basket.......$ 9 billion at last count.
Blankfein hasn't been releasing public statements lately. I would imagine he has to be at least a little concerned about the number of entities finally, one way or the other, putting Goldman in their crosshairs.
He and the wife have been in Paraguay overseeing the furnishing of the ranch.
Wow, you can raise your credit rating by sending angry letters to 85 Broad St. NY. ??
comical, truly comical. Clearly the problems in CA are of someone elses making.
Mr Lockyer is right , but wrong to expect honor amonst thieves.
How is he "right," exactly? I think most of your fellow readers would beg to differ. Anyone who knows anything about California knows only too well that it's far less creditworthy than Kazakhstan or Greece.
And (just in this one rare case) you can't fault Goldman for betting against Cali. It's a no-brainer trade, and has the added benefit that it just might force California to confront its insane fiscal policies sooner rather than later.
Fine, but GS made money at both ends. Do you think California got into this mess without seeking professional advice? They are thieves.
Quit picking on Kazakhstan. They at least had a team in the Tour de France last year. They took both 1st and 3rd! US does not have its shit together to do that. Kazakhstan has their shit together more than California, bad reference point.
:-)
California's tour de france winner is a convicted child molester!
This is fucking hilarious. The banana-republic US state vs. the vampire squid. This might be the first time in my life I've felt even the slightest hint of possible receptivity to feeling a twinge of compassion for Golden Sacks.
Unfortunately, comedy aside, this and last Friday's Waxman/Stupak witch hunt against AT&T and other companies that made legally obligatory SEC filings in response to their disguised tax bill health care "reform" bill would seem to indicate a rapidly accelerating game of political grandstanding to demonize businesses engaged in lawful (and in the case of the SEC filings, mandatory) conduct. That, in turn, puts the whole nation three steps closer to banana republic status. No wonder Obama is friendly with Hugo Chavez. In this kind of environment, any stock trading at a PE above 3 seems overvalued.
+1
Seriously, ZH should revive Celebrity Death Match...
FINANCIAL ARMAGEDDON EDITION !!
This week!...
Banana-Republic California vs. The Vampire Squid!
http://www.youtube.com/watch?v=yKs8ft0dBss
Could Calfiornia take them by just defaulting on all their Squid related liabilities?
LOL
Announcer # 1 - "You know Nick, acid can be very hazardous to your health."
Announcer # 2 - "Tell me about it. I barely made it through the 60's myself."
I can relate to that statement.
Regular visitor to the In-N-Out chain. Family owned,and hugely successful. Nationalizing the company and offering state sponsorded franchises could do it for California. It would serve In-N-Out right - I have been trying to buy a franchise for years. Mr. President, please give me a few stores.
Another reason they call it the state of fruit and nuts. Oh, and Moonbeam Brown wants to be governor.
I know Jerry from the 70's. He's Jesuit educated and no dummy, and in many ways not main stream, hence the moonbeam logo.
Its no wonder kids grow up pissed off when they find out grown-ups lie in such stupid ways.
What? Grown ups lie? Does that mean that the man porking mom isn't Santa Claus?
Dad, mom's got a secret.
i'm lovin it
WOOOO In-N-Out Burger I like!
When everyone realizes the retard in charge is too busy blaming others for his shit and not taking responsibility and fixing the problem, Cali's credit spreads will widen and the CDS' will go higher..higher..and higher...
agree with madmax....well stated
same letter, same circus.. boa, jpm, gs, c,..
http://www.treasurer.ca.gov/cds/
Who starts a letter 'I write' or 'I am writing'?
I mean, seriously, you just don't do it.
Ahhnold Schwarzenegger
The Governantor of Calickflornia
Mr. Satan
Chairman of the Board & Ceo
Goldman Sachs & Co.
85 Broad St.
New York, NY 10004
Dear Mr. Satan,
In reference to my lacky, Billy Locked-ears letter to you, I would like you to respond as soon as possible. Your answer should be what I want to hear or I will be forced to Hollywood CGI your current address and send you straight to hell in 3-D IMax. Don't misunderestimate the power of the Governator.
I belief Calijfornial is the gradest state in the nation. We have buildings we can sell and our IOU's are second to none.
Ahhnold
Terminator of all Satans
"Calickflornia"
Brilliant!
And if you good people of Calickfiornia entrust your state government to me I promise to restore fiscal sanity and stability and end this ruinous age of special interest governance. bwwaahaaahaaa. Thanx Howard!
I know it's just a fantasy, but I really want to see the movie Howard. Ahhnold kicking Lord Bank Fiend's ass around the movie screen, and then throwing him into the pits of hell would be pretty cool. I'm thinking the folks who did the film on Sparta, was it called "300?"
I think we rework the Terminator straight to the banksters who have superpower robots that try to destroy Ahhnold, but he crushes them one by one and then moves on to Bernanke, Geithner, lobbyists, congressmen, senators, et. al. All in 3-D Imax glory! In the end, the people are freed from the clutches of the evildoers and the corporate person is no longer allowed.
Yup--one big fantasy.
Sounds like the grist for a contemporary novel on the summer "must read" list for vacationers.
What shall we call it? All suggestions appreciated and I'll get right on it.
The Last Action Hero who went Commando while Chasing the Preadators who gave the US a Raw Deal, causing the End of Days.
http://www.schwarzenegger-interactive.com/movies.html
OUTSTANDING.
MsCreant,
Have you been perusing the pumping iron porn?
Ya. Not the Highlander type, in role anyway.
While retaining Total Recall of our days playing at Conan the Barbarian with our fellow Twins remembering all of the lessons from our Kindergarten Cop. Ya. While folks get a latte from Linda on the Dante's Peak created by some folks who decided they wanted to be Bone Collectors.
Howard, to answer your question, how about; "Dante's Latte"?
Or holding him out over the edge of the cliff:
"Lloyd, you know this is my weak arm" "Remember when I said I would kill you last?"
Sully as Lloyd. HA!
Bill is a very political animal. He was also state Attorney General a few years back, and played heavy politics in his prosecutorial pursuits.
dear bill,
don't you have clue yet, we make our money on the spread, we need liquidity and news to create an imbalance in spread, we also our losing our hold on prop trading in equities, thus, it just happens to be your turn to help us make our q2 bonus, don't worry, it will end in 6-8 weeks
enjoy the sunshine
lloyd
"This isn't fun anymore!!!"
Yup... sums it up.
It's a blast being Santa Claus for thirty years. Especially with someone else's money, and 'til the credit cards melt.
Come November, California will legalize marijuana. And tax sales, of course. Home-grown remedy.
Very likely. And putting the federal government into a serious quandary. Would Congress then also legalize marijuana, and admit that the "drug war" of the last 30 years has been our nation's shame, pogrom, Orwellian nightmare and Vietnam all rolled into one, while seriously pissing off a lot of the red states that genuinely believe in this form of prohibition (Texas likely among them)? Or continue enforcing the current laws and spark a political crisis with its most populous state, most gross-profitable state (any measure), and one of the most reliably Democratic?
That could actually be the spark that really starts secession talk.
My feeling is The War on <Lots of Things> is largely a stealth employment program.
In so many ways, yes. Police and prison guards directly. Makers of police equipment indirectly. Licensed pharmaceutical manufacturers whose products often cater to much the same people as the illegal street versions, but have government blessing and IP protection. Substance abuse treatment facilities and counselors. Insurance company employees who can charge you more for perceived greater risk. Etc. etc. ad infinitum.
Max - Welcome to the present day version of what I call faith based governance.
I don't understand - can you explain?
I view it more as petty-fascism based economics.
If drugs are made illegal to the point of requiring stiff prison terms there will be an explosive growth in prisons, which will lead to more building of prisons, corrections workers and prison industries, will lead to greater liquidity in the "on the left economy", which will lead to whatever, which will do whatever.. Faith based governance of the "private" banking system with "public" governance. Call it whatever you want, but almost everything government does is an attempt to influence events across various spectrum's. Ultimately, plunder or false philanthropy with various degrees of window dressing.
Thanks. I agree with your concept, I simply didn't get that concept from the label.
More of a historical fact than feeling. After the repeal of
prohibition the FBI was made redundant so Hoover set out
to demonize the killer weed and viola the g(string)men were
back in business!
This is easy. Let the Feds make it legal, but individual states get to decide. The first states to adopt (I'm thinking ag states) are the first ones to start some substantial recovery. New jobs, new companies, new taxes, new products, new energy resource, new fabrics, the benefits go on and on.
And, don't forget, a much more cost-effective source of ethanol than corn, soy, cane or switchgrass.
even with the barriers to entry, I'm seriously considering setting up a grow house. this thing will pass by at least 6%, and given the that pothead in chief doesn't seem all that concerned with the doobification of California, it would probably be the best cash crop around. THC for the 420 crowd, and biodiesel consumables for the tree huggers.
That would be logical.
Feel bad for the newly incarcerated looking at 10 to 15 and suddenly its all legal and taxed at 79%.
Estimated $1.4 billion in new tax revenues. Prices to drop.
http://fdlaction.firedoglake.com/2010/03/30/poll-legalize-tax-marijuana-...
So, back up a second... What actually happened in the auction this week? Did it fail, or he just didn't like the coupon? I don't see a bit of news about it.
I agree with him, how can you speculate on default of somebody who is already bankrupt?
Lemmie see.. You could buy or sell, call or put, or a variety of swap-stop-spread whatnot: Citi, Fannie, Freddie, AIG, Lehman.. or the State of California in a whole host of ways and means. There are many more, but this should provide some fertile ground for an exploration of your question.
Lloyd, you dumb-ass cue-ball. Where do we go from here?
Dear Mr Lockyer
Though you may feel insulted that your state is assumed to be riskier than Kazakhstan, you might want consider the following facts -
Kazakhstan has the equivalent of $16bn of outstanding debt, all of it denominated in Tenge.
The GDP of the country is approx $175 bn
I hope this might explain why the credit risk is lower than for California.
If you are still confused, I suggest you get another job.
Warm regards,
The market
It also has unpaved streets, illiterate humans, and no decent health care. what is your point?
Are you talking about California or Kazakhstan? It wasn't clear.
now that is funny.
i refer to Kazakhstan.
wtf exists in California?
i have never been there, but i assumed some basic standards.
The information that sovereign/state CDS prices convey is the likelihood of the government being able to pay off it's debts. What wonderful people Californians are or how close they've managed to come to social utopia is not measured by this particular pricing mechanism.
I'm just stirring the pot.
Fact is, Lloyd isn't smart enough.
California varies a lot depending where you are. Of course, some parts are amazing. Other parts are amazingly bad.
One surprise that many Americans get when traveling is that the nicer parts of many "third world countries" are pretty nice, and little different from what they're used to at home.
I had a graduate school classmate from Kazakhstan. She was better educated and frankly more fun to be around than many other classmates from the US. I have another friend in my profession from an area that's now Russia but next door to Kazakhstan. Same comments. The US doesn't always have the superiority it thinks that it has. Among other things, our pervasive television and pathetic public schools have created quite a trio of generations of people who think they're brilliant and important and beautiful but are rarely even one of those three.
LOL
California or Kazakhstan?
The poor dumb illiterates are dying happily while Cali is having a Chinese Fire Drill. I say let the loose cannon start shooting and maybe he'll get lucky.
(moved up)
What should those three points (for the record, they aren't totally correct), have to do with the credit risk of a country or regional government?
Forget about 9mm Beretta 92F, Goldman really needs to load up on Mk 211 round tungsten core
Ummm - sure. Why not. Let's go a step further and get them some nukes. That way they can have true WMDs, not merely "financial weapons of mass destruction" as some Nebraska suburbanite once put it. Then we can bring in Jeb and declare preemptive war on GS.
I still can't get over the fact that their answer to the debt is to sell more munis. The mandated autoinsurance/pension/HMO muni scam has reached its end.
CDS is Xanax to the muni's heroin. Just mix the two and drift off into an everlasting nap, Cali.
"The In-N-Out Burger is On Camrose"
I guess shafting CA is doing God's work?
In this case, yes.
Lockyer does not understand that is the amount of bonds outstanding that are pushing his CDS spreads. The bigger the calendar the bigger the CDS spread. It is a price that issues will have to pay. If he cut the states deficit and reduced the short fall the spreads would narrow.
Get into your head Lockyer, you are driving the spread, not Goldman.
The state of affairs once more reminding folks how silly it sounds when we hear; "The reason we are going to hell in a hand basket is because folks would dare to speculate in markets". Apparently some folks never knew that the real mechanisms that drive the markets are not only built upon the concept of speculation, but through that process enforced discipline, among other things. What a novel and illuminating concept all this must be for the treasurer of the State of California.
Of course Lockyer understands what's going on. This is a misdirection feint.
"Look, the bogeyman. I swear to God, it was the bogeyman, disguised as Darth Blankfein. Honest to God, cross my heart and hope to die if I'm lying."
jinx
Bill will have the last laugh on all of us when Pelosi convinces Obama to have the Feds guarantee California's debt.
This will happen sooner than we think. And no, you will not be getting In-and-Out burgers as compensation for your increased tax burdens...get used to eating sh** from your Overlords.
Possibly, and then half a dozen of the reddest "red states" will say F U to Congress and, again, things will get interesting.
Bingo. There is no way - zero possibility - that other states (esp. SOLVENT states) will stand for distribution of federal (collective) funds to individual insolvent/bankrupt states.
30+ states have already passed sovereignty declarations for exactly this reason.
If the feds bailout CA (or any other state), it will mean the beginning of the end of the union... no doubt about it.
They open the door on this and you will have 49 other states line up at the door for their piece of the action. Good luck not doling it out as being excluded from "free money" would cause a populist anger in the state that doesn't get to take part in the largess of Zimbabwe Ben. It's an all or nothing game on an official guarantee. Now if I was Pelosi I would pressure Zimbabwe Ben to just buy the trash, get to do it hidden from the public.
Californians voted in the majority for Proposition 187, the 1994 Save Our State ballot initiative.* It passed with 59% of the vote. The state initiative, to end California tax money being used for mandatory welfare for illegal aliens, was over turned by a single Federal judge. The last time I looked, that judge got/gets her power from Washington, DC. So much for representation.
Now, it looks as if California is helpless to control its finances or reputation from the likes of the Obamas and the Goldmans. All Californians are to do is to shut up and pay the bills. Always pay! Luckily for the Goldmans, that perpetual billionaire bailee that rides the backs of the taxpayers while gaming risk and helping create these situations, big bucks can now be made on California bonds.
For the Goldmans, it’s like having their corporate-socialism cake and eating it, too. No problem that all these things also effect the makeup of the California State legislature—a legislature that has become the greatest welfare-rubber-stamper in California history—a legislature now approximately one-fourth Hispanic and minority-led.
In Los Angeles City alone, of a total population of 3,694,820, 46.53% is Hispanic, or 1,719,073. The city is 29.75% White, or 1,099,188.
http://losangeles.areaconnect.com/statistics.htm
The blame for much of California’s plight, therefore, rests with the federal government.
*The federal government, by overturning Proposition 187, forced Californians to pay public benefits for millions of illegals—including health care. The Mexican American Legal Defense Fund (MALDEF) sued California (among its many winning suits across the nation) over illegal aliens receiving government privileges in 1995 to get Proposition 187 overturned. And won. The rationale for overturning the people's vote was that by denying privileges to illegals, Californians were unconstitutionally regulating immigration that MALDEF claimed was a federal matter. If immigration is a “federal matter,” should not payment of the bills be a “federal matter”? Acorn, anyone?)
The parcel tax went straight to teacher raises and pensions only to be needed again , "to save our schools". (some with 15% white students)
+1000
And for anyone who doesn't think these illegals are voting I've got news for you, they are voting in droves.
delete me
I caught the Big Labowski reference...
Anyone else?
Sorry. Dubs.
HAHA News just released that Greece already asking for Euro $20 Billion more by May ROFLMAO when does the corruption and ridiculousness end?
This is just incredible. If I where Bill, I would have resigned before sending such a letter to a BHC like Goldman. To blame Goldman for the poor sales of California debt is a clear sign of desperation. Also, everyone knows that past performance has no bearing on new issuance.
Or perhaps its more than this, perhaps it is something deeper more emotional, like JEALOUSY!
Bill, translation; "Its just not fair", "Lloyd you have the FED to bail you out, you insolvent upstart, I want the same deal", or I will, um, "CRY", and send you a nastygram.
Mark Beck
Why does that remind me of a certain Sheila Bair? Not very reassuring.
Spotless record of paying their debts? IOU's anyone? Try submitting an invoice to the State for payment, they generally take 8 months to pay. California is operating on a ponzi scheme, with the now shattered expectation of ever increasing residential hyperinflation ("growth") to fund its grandiose salaries, benefits and pensions, while being a greatly bloated do nothing inefficient bogged down bureaucracy the likes of which I have not seen since my extensive travels to India.
Dear Bill and friends:
Money-games depend on trust which, in turn, depends on freedom...from transparency.
Perplexing perhaps, but not a contradiction to GS.
One day there may be re-education camps to teach that freedom only exists relevant to freedom from something.
California’s broke. And now that the state of California can no longer pay the healthcare bill for all the millions of illegals, there’s a big surprise coming to the other 49 with Obamacare. We all get to pay now.
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