This page has been archived and commenting is disabled.
Jim Rickards Discusses Financial Warfare
Jim Rickards, who some may say has gotten a little too much media exposure recently, is on King World News this morning, discussing the presentation he gave to the US Treasury (closed to the public) in which he lectured Tim Geithner on financial warfare, read China, and how flawed trade policies can impact this ever so critical and increasingly tenuous relationship. To be sure, it is better late than never that someone advised the UST on what the right path is. Unfortunately, righting the US(S) Titanic at this point is impossible as it would mean undoing 2 years of flawed actions and policies, and the cost would be unbearable. Another topic touched upon is the recent correction in gold. The price move over the past week should come as no surprise to anyone. On May 19th we noted Goldman's most recent move to a bullish stance in gold, and we concluded that "we may well be in for a gold retracement, at least from a purely
technical standpoint, as Goldman "distributes" its newfound gold
holdings" as Goldman moved to sell its gold to whatever few clients it has left. Sure enough, $70 dollars lower later, Goldman's ever-angrier clients who listened to this most recent horrendous tactical call, are only left with a receipt for a metric ton of KY. The gold move is nothing more than liquidation of real assets to cover margin calls in imaginary ones, such as LBO bonds which have moved from 10 cents on the dollar to par during the melt up, and are now seeing a bidless environment, a groupthink phenomenon of which a plunging FDC is the prime example. Those who have no reason to sell gold should obviously hold right - Rickards notes: "for every seller there is a buyer. The sellers are the daytraders, speculators and people in distress who need to raise cash, buyers could be foreign sovereigns, China, Russia, India, so we could be seeing a move from weak hands into strong hands. I see gold at $2,000 in the short-term, and $5,000 in the long-term." Also discussed is Germany's ban on naked shorting, which Rickards applauds, not so much as a policy move, but as a symbolic stand by European sovereigns against the bullying power of Wall Street, something we fully agree with is long overdue. "Merkel will definitely be supported by others. I know the French were a little but upset that she did it, but they are not upset because she did it, but that she did it first. Sarkozy will join in."
Curiously Rickards is very much against CDS - fair enough, however the problem with that is that eliminating the most natural way to hedge long credit positions (which make no mistake is what CDS really are all about, good luck finding cash bond borrow in some obscure HY name, even with market monopolist Goldman, or especially with Goldman if it has soaked up all the cash shorts) will have an adverse impact on the market one thousand times worse than banning all shorts, not just naked, in equities. On the other hand, just the expectation of a global CDS short, without recourse mechanism to hedge bond exposure, would push the S&P to our very long-term S&P target of approximately 0, as it would immediately force an unwind in that biggest of all uncharted territories, the IR OTC swap market.
Some critical insight from Rickards in terms of European geopolitics is the following: "People get so hung up on economics, and efficient markets, and all that which has been largely discredited at this point. But these are NATO allies. Greece controls the ceiling of the Eastern Mediterranean and the Aegean, they have a very robust military budget. Same thing with Spain. Spain's been a very important NATO ally throughout the cold war, Italy etc. Can you imagine if during the cold war the Soviet Union had undermined all the countries, it would have been the start of World War III. And yet we are letting investment banks do the same thing. We are letting investment banks undermine the finances, cast doubt on the credibility, create civil unrest, riots, death. It's the kind of thing that in a military frontal assault would be repelled, but somehow we let Wall Street attack the countries and do nothing about it. I am glad that someone is finally standing up, and I expect that Merkel will be joined by others. I am not against speculation. Let speculators put up some money, let them do on an exchange, let the pricing be transparent, let them do variation margin... This no money down shadow credit default swap market is completely destructive." A little hyperbolic but you get it.
For those of you who just can't get enough of Jim, you can follow him on twitter @JamesGRickards
Full King World News interview with Jim Rickards can be found here.
»
- 22445 reads
- Printer-friendly version
- Send to friend
- advertisements -
"How do I know? Irwin is my father."
Hey Bro!
Say HI to Mom for me. I'll be late to the Memorial Day cookout - got to clean up some loose ends at the "jobsite"
So the skinny kid (China) that got juiced up on steroids, by free access to the U.S. consumer, is now using economic warfare against the U.S.
What did our Politicos think was going to happen- the Chicoms were going to send them a thank you note ?
The Chicom puppet in North Korea will continue to provide a diversion as China continues to build up its economic and military might.
China is no friend of the U.S.
I said about a week and a half ago that when mentali Ill went to china for a visit that something didnt smell right..He NEVER LEAVES THE country, the last time was in 06 I think..He boards a train and heads to china for one on one talks..It was In the news about a week and a half ago if someone were to dig it up..
The Chicom puppet in North Korea will continue to provide a diversion as China continues to build up its economic and military might.
My working hypothesis is that China, with the actions of NKorea, are an attempt to draw the US into their theatre. Perhaps as a deterrant to an increasingly likely sortie against Iran? Perhaps to engage the only possible place they stand a fair chance of winning the day, short of nuclear exchange? All I know is that NK is China's pet, and it is using it to steal attention, to what grander purpose remains to be seen.
So, how many fronts will this War on Terror (gag) have then? I lose count.
China is no friend of the U.S. ??? Erin Burnett was in china all week !!!!!!!!! would she sellout the usa ??????????? lol !!!!!!!!!!
Cripes, who'da thunk it!!! Is THAT why the call it 'KY' jelly? This conspiracy knows no bounds!!!
Can you imagine if during the cold war the Soviet Union had undermined all the countries, it would have been the start of World War III. And yet we are letting investment banks do the same thing. We are letting investment banks undermine the finances, cast doubt on the credibility, create civil unrest, riots, death. It's the kind of thing that in a military frontal assault would be repelled, but somehow we let Wall Street attack the countries and do nothing about it.
This is the most important part of this piece. We are at war with the banksters. They have hijacked and held hostage the governments of our republic, and they are raping and defrauding the citizenry at their leisure. We have been/are being enslaved. We are being handed whiskey and pox blankets, and told everything is ok.
Is everything ok, for you and yours? Are you ok with this? Are these just words on a page? Is your prison that comfortable? Do you even know what freedom is conceptually?
When will you stand?
This is not about left or right, liberal or conservative, this is about our very right to a representative government, and our sovereign right to make our own tender and craft monetary policy to our nation's benefit.
The choice is yours, and the choice is RIGHT NOW. Which will it be? Will you be a free man or a slave? Time is running out...
There is one, and only one, shot at a peaceful end to this. A solid percentage of the population, 10 or better, has to walk off the job unpaid. No work = No taxes. We bring the country to its knees, hand over the demands, and threaten an apocalyse greater than any bank could imagine if they aren't met. The best part is it all it takes is a vacation...
I thought this was the most flawed part of the piece (which I found far from brilliant)
The banksters, as called above, were instrumental in the defeat of USSR.
What is happening is nothing shocking.
When you allow someone/something to feed and grow on others, by justifying it because of the weakness of those others, it becomes difficult to justify an opposition to that someone/something when they turn on you.
The banks do nothing new. They trained on weaker people with the cheers of many because these weaker deserved.
Now the bankers have grown powerful enough to eat another flesh. How does it come it is suddenly immoral?
Much words against the bankers, the elite on this forum but on what ground? Never told.
The bankers and the elite are moral for that. People, as there are so many on this forum, denuncing them because it is now their turn, are immoral. "It was okay when it was the others, it is not when it's me" is a bit short.
There are some people that raise tigers as housepets, which is fine when they're young. The tiger gets older though, and one day by accident while playing, and rips someone's face and arm off. Well it was bound to happen at some point, right?
Your suggestion is to live with the tiger, knowing full well it will turn on you sooner or later?
No. You get that tiger out the fuck of your apartment, post haste. The zoo, a refuge, a shipping crate to India, or throw it out the window, but get rid of the tiger!
Also...
Nowhere, nowhere, did I condone the past actions of the super wealthy elite royal corpo bankster establishment. If you sir, ever, ever, studied American History you would see plainly that our story is an ongoing saga of confrontation with the aforementioned powers. I will provide a ZeroHedge page list of pertinent quotes and references if you wish, but why should I do research for the willingly ignorant? I never signed on for what is occuring. I signed on for representation of interest in policy both political and monetary, as prescribed by the Constitution. They are clearly and blatantly breaking the laws of this nation, the same laws that I am subject to. I am within my rights, as a citizen and under natural law, to demand that justice be enforced evenly. If not met, and justice lies unenforced, I have the right to see the social contract broken. In such a broken state of law, the only law I am beholden to is their physical means to enforce it, I am under no charter. This is the way of revolution. Get down or lay down.
Doubleplus good answer, Mr. Crab Cake.
Time to revoke a few bankster's corporate charters, if you ask me.
I'll try to keep on the analogy.
Yours is flawed. The tiger has been raised on human flesh. The tiger does not start suddenly to eat human flesh(or maybe only in the mind of the family). The family was used to let him feed on different looking strangers(that might not consider as human but unfortunately for the tiger, if it tastes like a human then that's a human). Not only that, but the family used the tiger to take an advantage on the strangers. They unleashed the tiger on strangers so they can seize the property afterwards. The tiger was praised as a hero.
But one day, strangers run scarce and the tiger is still hungry and it starts to feed on not that stranger people.
I studied the US history. The current issue is that the US cannot maintain the scheme as they were able to in the past.
When Andrew Jackson organized hand outs of Indian lands to the US citizens, it was not a war waged on the US citizens. The US citizens welcomed the move and took their share of the theft.
The main problem is this one: now there is no longer Indians, capability of handing out grows limited and new Indians are to be found.
Bravo!
I love discourse, and I am open to any conversation so long as at the end of it you think I'm wrong.
"But one day, strangers run scarce and the tiger is still hungry and it starts to feed on not that stranger people."
I do like your analogy better. However, I won't budge in my observation that when the tiger starts eating you and yours, it would be best to get rid of the tiger. No?
"The banksters, as called above, were instrumental in the defeat of USSR."
You are soooo wayfully ignorant of history, both global history and US history.
Sorry, dood, but the banksters have financed both, or all, sides in wars going back centuries.
They finance all sides, and reap the majority of profit.
It's an old, old story.
Wise up....
Bullshit, the BIS financed the USSR to bankrupt them says FOFOA. Now the BIS wants to take out the US dollar.
WRONG !!!!
BIS was established in 1930 by BOE, NBK and Hjalmar Schacht personally. BIS became influential during the WWII when capital flows practically stopped. BIS bankrolled Stalins militarization and industrialization, but not the formation of Lenin's USSR. Bolsheviks were granted loans and funds from CHASE MANHATTAN with collateral being a promise of public-private partnership in Chechen and Kyrgyz oil fields. That is why you dont see a transition to industrial society during Lenin's reign an why you probably would not see if Trotsky took the helm as Secretary General of Communist Party. CHASE MANHATTAN was pissed when Stalin began collectivization and, subsequently, industrialization. He than started to drill in the Siberia, which was until then, not considered important. Also the interest Chase acquired in Chechen and Kyrgyz fields, and ports on the Crimean peninsula, were nationalized by The State. BIS did shit for USSR until Stalin modernized it. The only thing Lenin changed was transition of power; which changed from hereditary to electoral. Economy stayed the same [not taking into account nationalization, but no collectivization and central planning]. The reason Chase took interest in providing loans based on non-existing collateral was mainly due to TDRs anti-monopolistic polices concerning Standard Oil. Basically it was either expand or die for SO. Also the principal owners of aforementioned fields, during the Tsars reign, were banks, owned fully, or controlled, by the Rothschild's, who still, at the time, were the principal banking force in the world.
PS.
FOFOA is full of shit on this one.
Spitzer said:
FOFOA said no such thing.
In this post -Hair of the Dog?- he included an excerpt from a letter which he 'found intriguing', which you seem to be referencing.
Mangling the facts only serves to undermine your own credibility, sir.
CB is talking about a totally different era. He's talking about Stalin and Lenin. The Soviet Union collapsed from 1985 through 1991, when the Supreme Soviet finally declared bankruptcy. A lot of the problems that broke up the Soviet Union had to do with their lack of foreign exchange reserves for grain because of the dramatic fall in the price of oil in 1985 and 1986. This caused the various Soviet states to withdraw from central control because they were hungry.
And? That is not because a bank funds both sides in a war they are not instrumental in a victory.
Of course they play all sides as they have the means of and it is the surest way of being on the victor side.
Doesnt mean they were not instrumental in the achievement of victory.
The banksters, as called above, were instrumental in the defeat of USSR
-Just like with Hitler? Come on. banks didn't do jack but profit off the friction, debt and spending. The pope did more on Tuesday.
Remember prescott bush sold nazi war bonds for hitler !!!!!!!!!!!!
You're right, he's right. The bankers endless search for profit has destabilized NATO, their sponsors and prior to today, their muscle. That's why so much about the structure of capitalism, defense, alliances, and banks role in the above are being examined by people like Jim. I don't understand the "it's their turn" comment above whatsoever. The structure of how we conduct capital and the players has changed RADICALLY in 20 years. These aren't small shifts. These are major structural changes without thought or even consent, really.
Crab Cake:
"There is one, and only one, shot at a peaceful end to this. A solid percentage of the population, 10 or better, has to walk off the job unpaid. No work = No taxes. We bring thecountry to its knees ......"
an alternative:
1) 100% of those employed continue to work but change their witholding so that no payroll taxes are taken out.
2) those who make no witholding payments make sure to have the money to pay what is owed at tax time.
3) incomes are retained but the crony capitalist political structure is denied real time funding.
4) some small amounts of tax based cash flows continue in this scenario as the self employed and corporations have no choice but to pay up.
5) imagine the outraged screams of pain from the lower forms of life in DC were this to occur..
that would take the unemploymnet rate to 30 percent
next step..
The IRS already prepared for that. Employers are liable for the tax if they don't properly withhold taxes from their employees checks. Most employers won't go along with your plan, and the ones that do will have liens slapped on their assets.
I've long thought about this, and I believe a disparate work strike is the only way.
It takes action, and making a choice, but it won't cost an individual all that much. Would you be willing to take two months off, and find another job perhaps, TO SAVE YOUR COUNTRY? Big gain, little pain.
The beauty of this plan, non participation, is that it is legal. It's not a single union, or people isolated in one geography, or one sector... No it would be a vast melange of people connected only by the net who just want their government to represent their interests politically, fiscally, and monetarily. How do you crack down on that? Even if they shut down the internet, post strike, that will just advance the movement.
All that is required is for a minority of people to say enough no more. The Tea Party is large enough to do this, but a marriage of disenfranchised left and right coming together on a simple list of demands would be better. (Fed audit, term limits)
No participation for a week starting starting on x day, no work, no paying the mortgage, and no driving or buying unless absolutely necessary. If the demands are not met the strike will go on for another 3 weeks, or longer, and there will be armageddon as the economy crumbles at the hands of corrupt captured politocrats.
No work = No Taxes
So, somebody with some clout want to get this thing going? I'm ready for an unpaid vacation, I've got a lake with some fish in it calling my name, and I want my country back. There is no other way. The establishment is now only responding to blackmail and crisis, we can give them both, peacefully, and win.
News flash: Well over 10% of the workforce is ALREADY out of a job.
Cute.
No I'm, of course, speaking to the taxpaying public, and that a good minority of this group assert civil disobedience in a no participation workstrike that would cut to the quick of sales taxes and income taxes. The banksters are not the only ones who can issue ultimatums, our way will crash the system just as surely as their games with the markets TPTB would have to submit or the charade of a free republic would end. If they chose crackdown on participants (net closure, checkpoints, door to door actions) at least we would know where we stand.
No work No taxes No transactions until we get term limits, free open public money only elections with equal funding and exposure for all parties meeting the criteria and sig counts, an full forensic audit and investigation of the Federal Reserve led by the FBI and William Black. Who can disagree? Let us take a vacation, my people. I'll bring the beer and fishing poles. When would y'all like to do this thing? Any TeaParty peoples, lefty activists, website builders out there who want to take a vacation out there? Let's go Galt for a month, and see how powerful we really are.
I'm already in your camp. I am self-employed and do what I please anyhow. I might point out that your "audience" here is neck-deep in the system. That was plain as day when reading the comments to this post:
Is TD Ameritrade Down?
Go read those comments, Crab Cake. These brave souls here on ZH freaked out that they couldn't access their trading and retirement accounts for 1 lousy, freaking, scary DAY!
Good thread, had a few laughs.
These guys are gonna be crying a lot more soon, when the squid rips their faces off.
I'm self-employed too. Surf has been pumping out front of here lately.
I just don't understand why a gob of them come here to ZH and complain about how broke the system is yet they are upset when they can't play the game. Talk about your dissonance!
news flash flash make it 20%
Easy for me CrabC, at 54 yrs old, I write "Retired" on every stupid form I have to fill out.
I want America back too! And I will fight for it if it comes down to my with friends Mr. Beretta and Mr. Kalashinikov. And I am buying more gold and ammo as my income allows
And I am working each day to get off the grid (ex. ZH!).
I hope youre posting from a proxy, or I think they'll be visiting you shortly under the soon-to-be announced new "war against financial terrorists" legislation.
Why is his position against CDS "curious", TD?
I think ZH should have an editorial meeting on this issue and reexamine it.
ZH didn't appear to even favor Merkel's ban of naked bets on sovereign debt. That was very curious to me.
Add the fact that ZH appears to be generally against loads of "sovereign debt", yet favors making it easier to "hedge" that same, often argued here to be junk, debt...doesn't that make a larger junk market passing risk around like so many unregistered insurance companies?
Isn't that the problem?
ZERO HEDGE, right?
Ditto on that curiousity?
CDS is simply insurance fraud, as is the entire hedging and securitized financial instrument construct.
Nope, time to go back to the old days, when the Fantasy Finance Sector didn't make up the vast majority of the GDP and "economy" -- if it can still be called that.
I won't argue here about your statement re financial instruments, but ill just say Wall St is always the job provider to Main St.
Banks doing well is a trickle down effect. I dont mean banks selling CDOs to unsuspecting MFs or governments who lose people's pensions, but bear with me here:
Local muni needs a loan for major multi-$MM infrastructure project-> is funded by a big bank at favorable rate-> creates jobs for local city/state-> project brings in more people to the local village-> city expands, more growth, more jobs, etc.
How do you think America's boom after WW2 was created? Great car manufacturers (back then) were at their peak, GM was the biggest automaker in the world, the move to Suburbia was going on, everything was being financed by local and national banks, kept decent at fair interest rates.
There will always be booms and busts, and yes you CAN blame it on over-leverage and less regulation on these bankers, but don't claim Main St is able to fend for itself completely with no Wall St because this simply isnt the case.
If you can read this objectively, then i suspect you can at least partially agree to my musings.
ill just say Wall St is always the job provider to Main St.
I don't agree, not the model today. Never has, never will be. However, if you have some evidence to back it up, I'll read it.
Commercial banking, perhaps more of a relationship there.
IPOS...separate matter, nothing trickling down.
Muni bonds....intermediary between debtor and creditor. Different model.
Your musings apply to the banking model 30 years ago going back to WWII. Not today. Today's banking industry is a parasite.
But, I agree. Let's get back to the basics, as it successfully severed the country. But, I'm not giving out medals and a pass for what banking has BECOME in the last 20.
Uhm, I sort of thought that maybe it was the other way around, for the most part, no? Without people working, there would be no casino.
That's exactly right. They wouldn't exist but for the creation and productivity of others.
They are either good intermediaries of growth or parasites on it, taking a bigger piece of other people's money.
Trickle down?! Come on....the opposite. "hands in other people's jam"
We KNOW what they've become.
The problem is it's harder to kill, because they're not just parasites of our production, they're parasites of the
central banking system and government.
That's the problem.
We can't cut off their bailouts from the Fed. We can't pass laws through this Senate.
Parasite model of banking is in charge. They're lost part of the moat and the favor of the people but that's it so far.
Wall Street does this:
1. Markets securities.
2. Trades securities.
3. Advises corporations, institutions, governments, and high net worth individuals.
4. Issues bonds for governments and corporations.
5. Handles Mergers & Acquisitions.
6. Assists in bringing companies to IPO.
7. Occasionally purchases and manages companies directly.
8. Miscellaneous: LBOs, etc.
Yes, it's very important. Yes, it's helluvalot more important than the sideshow in Washington. Is it terribly complicated, all things considered?
Nah. They just deal in paper with stuff written on it, pretty much.
Also, many people are very confused as to what equities (stocks) really are.
When you buy a company's stock and consequently drive up the price, you're not actually "investing" in the company. You're just buying shares of the company stock. The company can use that stock as security against bonds. It also gives the company flexibility, so it can sell its shares if it needs to raise cash for expansion.
There's no direct link between the performance of a company and the price of its stock. If a company goes bankrupt, the shareholders (except for certain classes of stock) end up with bupkis.
I didn't even realize that I still held to the idea that stocks were investments in a company. Thanks. I needed that.
A share of stock is a share of all future profits (paid out as dividends). If there are never any future profits (no dividends), in theory the share is worthless. That's the definition of an investment. (Side note: A share sometimes permits you a "vote" on the direction of the company, if you care.)
Because of tax law changes over the years, companies have reduced dividend payment, and instead attempt to increase the "value" of a stock. In this case, a share of stock is perceived as being more valuable tomorrow, so you can sell it for a "profit". This is more typically considered "speculation", rather than investment. Most stocks today trade based on speculation (not based on their expected perpetual dividend flow).
Because a company often issues new shares, "keeping" some owned by the company itself, these can be used as incentive stocks/options for new employees/executives. Until given away, though, they are "owned" by the company, and are thus part of the market capitalization, and thus can be used as collateral for bonds (because the shares "owned" by the company are part of the corporate assets).
Summary:
"in theory the share is worthless. That's the definition of an investment. "
Unfortunately, than line (taken out of context) may hold true for wayyy too many people!
>> How do you think America's boom after WW2 was created? Great car manufacturers (back then) were at their peak, GM was the biggest automaker in the world, the move to Suburbia was going on, everything was being financed by local and national banks, kept decent at fair interest rates.
Mostly by sustained demand of consumers and government investments. And banks were investing on real economy, not on "maybe" assumptions.
>> yes you CAN blame it on over-leverage and less regulation on these bankers
That's the real issue. With the lack of transparency.
Wrong, wrong, wrong, ZeroPower
The leech must find the host. Main street is the host. You must be drinking your own bathwater.
How many leeches profited from ABCP (and how many Mainstreeters had their skin ripped off ?) and how much did the Canadian government pay for the mortgages they bought from the (insolvent) Canadian banks in the fall of 2008 ?
Canada, like Warren Buffet, operates a good PR department- so ya got fucked, but ya know other people fuck you more than we do, and anyways, ya should have known we was going to fuck ya...
Right and wrong are only relative.... Huh ???
oh, was waiting for this discussion... (grabs some popcorn)
Here are my thoughts on this:
1. This is better than Ben Dover III's piece.
2. "Germany's ban on naked shorting, which Rickards applauds, not so much as a policy move, but as a symbolic stand by European sovereigns against the bullying power of Wall Street, something we fully agree with is long overdue. "Merkel will definitely be supported by others. I know the French were a little but upset that she did it, but they are not upset because she did it, but that she did it first. Sarkozy will join in."
It appeared that there was original commentary to the contrary ridiculing Merkel and her brilliant decision. I noted this unusual perspective for ZeroHedge along with a number of other commentators, but understand that the Tylers are most likely involved in fixed income and therefore are very used to CDS and saw the positive aspects (only reform the negative aspects). I respect this new more clearly stated opinion.
3. "eliminating the most natural way to hedge long credit positions (which make no mistake is what CDS really are all about, good luck finding cash bond borrow in some obscure HY name, even with market monopolist Goldman, or especially with Goldman if it has soaked up all the cash shorts) will have an adverse impact on the market one thousand times worse than banning all shorts, not just naked, in equities.
I believe what you are saying is that corporations have debt and if the long term debt can not be hedged there will be less interest in corporate debt, this could increase volatility impacting both the borrowing interest rate and therefore increasing the WACC and required rate of return for securities - this would decrease securities prices. However, this wouldn't be an issue for covered credit default swaps. I would encourage holding to maturity, but if the buyer of corporate bonds wanted to cover exposure through a CDS there should be no problem if they are covered.
Are you arguing that CDS are being used to hedge the downside in equities as a cheaper option than equity derivatives? How did we function before credit default swaps? Municipalities signing up for these have no idea how they work, and GS and JPM have Madoff with billions in ill-gotten gains.
Your comments on the tie between interest rate swap markets and credit default swap markets and therefore instruments could use additional exploration - not enough of us understand how the two work together. Perhaps risk and return/interest rate charged should go together - Greece is a good example of trying to game a low interest rate that most likely involved CDS. How is that working?
It would appear derivatives are larger than the bond market and equity market put together. The derivatives themselves which are not regulated use so much leverage that they have reversed the cause and effect and actually manipulate price. Understand that a derivative is supposed to react to price movements in the underlying - not the other way around. Just like GS said in court that their software can be used to "manipulate the markets", CDS does the exact same thing.
The banks were bailed out by taxpayers around the world and governments borrowed heavily to bail out the banks. The banks turned around and shorted the same debt that the governments took on to bail them out - that is treacherous and the reason for Merkel's move. The perfect parable to compare this is the scorpion and the frog crossing the river.
The big banks could indeed cause world war III. Check out this link from Mish, "House Committee on Homeland Security". Do not be afraid of a few folks thousands of miles away in a cave - if that was a credible threat we wouldn't have open borders (think about it). Be vigilant in watching the bankers that can now randomly change the denominator in the value of all of your assets and liabilities. This is a great article from Mish, click on the highlighted links in the article to see an excellent link on market oracle as examples of financial terrorism: http://globaleconomicanalysis.blogspot.com/2010/05/house-committee-on-ho...
I still believe in Habeas Corpus, so instead of treating them as enemy combatants with a military trial they should be given a public trial. Countries of the world can sue them at the same time and work together to coordinate the evidence of cross border theft and intimidation. The letter from the Congress woman outlining that she was threatened/warned/advised on her vote for Bernanke is just another example.
Anyone that feels the banks and the tools of the banks should not be regulated is naive or working for the bankers.
How did we function before credit default swaps?
-Agree again. Like I said, ZH needs to reexamine. It's the one position that doesn't go with the others and leads me to conclude as you did.
-munis: CDS also became a tool for domestic fraud. Even more widespread than we know but hidden at the moment by low interest rates.
It would appear derivatives are larger than the bond market and equity market put together. The derivatives themselves which are not regulated use so much leverage that they have reversed the cause and effect and actually manipulate price.
-Agree
Understand that a derivative is supposed to react to price movements in the underlying - not the other way around
-Agree
the scorpion and the frog
How many more times do we need to be stung to figure this out. When people truly understand how much they've pillaged the mainland, perhaps they'll do something. Most of the pillaging is being kept quiet.
Perfectly said, Fraud-Esq!
The endless securitizations, securitized financial instruments (now over four thousand categories of credit derivatives last time I counted, and ain't bothering to count again).
This is the tool which allows for ultra-leveraged speculation -- but not really speculation when they have rigged the show to begin with.
Nope, the Usual Suspects keep begatting the usual tools: Citigroup and the SIV, JPMorgan Chase and the credit default swap, BISTRO, and variations on the CDO, etc., Goldman Sachs' endless machinations and their public-private partnership schemes, Morgan Stanley in their slightly more subtle scams.
As Celante says: Havard, Princeton, Yale, bullets, bombs and banks.
Predatory legislation:
1994: Riegle-Neal Interstate Banking and Branching Act
1995: Private Securities Litigation Reform Act
1999: Gramm-Leach-Bliley Act
2000: Commodity Futures Modernization Act
(and that bankruptcy "reform" bill in 2004)
Good list. True.
That's why I was telling someone above you can NOT compare banks post WWII to "banks" today.
Your list explains it.
They are no longer the banks that we once knew.
We might as well stop calling them banks. They're not banks. No matter how much they remind of of the good things they do, sure, they held onto that book. I don't blame them, it was necessary to being perceived as "needed". This is a propaganda war too. "Hey, small businesses...you need us just the way we are!" Right. bullshit.
They've scaled themselves up to being more important than government agencies, with unlimited pay, who commit fraud everyday on their host nations. Then, the threaten to "go overseas". Let them. Then start declaring war and let's see how their navies float.
They're cancers. No comparison to post WWII banks.
I would say they have succeeded in doing what the Mafia failed to do. The image of the squid on the face of the US (and part of the rest of the world) is very true.
The sad thing is, banks are badly needed by our governments because they maintain the illusion of a sustained economy. But this is all virtual, the real economy is elsewhere. We have gradually let our manufactures move to China and India, and given away our technologies. That was 25 years ago, when we thought we would keep our technological advance. But this is not enough. Now chinese manufactures are steaming and churning out goods at full speed, just like ours did in the 50's. Now it's their turn to build roads, railroads (how come the US still have no high speed trains, when China is building 42 high speed lines ?), etc, while flooding the world with cheap goods.
Meanwhile, banks found out that our rate of growth is too slow for their taste, so they invented schemes to leverage. There is a day when people discover that leveraging indefinitely is nothing more than a legalized Ponzi scheme. That day is when the scheme fails, and that they have to bail out. This can not go on indefinitely.
http://dailycaller.com/2010/01/18/the-frog-the-scorpion-and-goldman-sachs/
This very well reasoned argument completely side steps the root cause of the cancer currently plaguing the holders of debt. If CDS allow lower rates (higher prices) on debt, you then have mis-priced risk. When everyone wakes up to this fact, you have 2008. Its really that simple. Human nature will not allow the accurate pricing of risk with a get out of jail free card.
Until six months ago I didn't know the difference between a credit default swap and a swap meet, but the question posed by others here does seem highly relevant to me in evaluating the necessity, or even the utility, of CDS: How did we manage to get along without them until the last decade or so?
I'm guessing that part of the answer is that investors and institutions were a lot more circumspect about the quality of the various fixed income obligations they took on. They probably relied on their own evaluation as much or more as those of the rating agencies, and to the extent that they did accept rating agency opinion there was likely a demand that it be accurate and unbiased.
When you can't fob off risk instantly by buying insurance that may, or may not, be any good - it doesn't really matter in many cases since it's got the implicit backing of the government and the taxpayer in many cases - you're forced to instead consider an investment's merits, or lack of same, with some gravity before you enter into it.
And if those merits begin to visibly deteriorate then I guess you'd sell pretty quick. As I say, I'm no finance guy, but that seems to me like a mechanism that guarantees fairly instant price discovery, or mark to market, independent of the machinations of bankers and their ilk.
I admit that I find the majority of the structure and operation of modern finance to be a vast drain on the stock of the true wealth of society; it's attention, creativity, and ingenuity, in addition to the incalculable material resources all the paper shuffling and maldistribution of wealth that results.
What's it all produced for us, really? Not a lot, except a GDP that's increasingly weighted towards said paper shuffling over production of real goods and services. I think we're all going to develop a deeper understanding of the value of the financial 'innovation' of the last couple of decades in later years as we come to appreciate the nutritional value of all that paper that's been pushed around for years.
TD - a couple observations:
1) Cramer gets too much media attention. Hollywood actors get too much media attention... Jim Rickards does not.
2)Rickard's quote on price of gold is 2K short term, 5K medium term (not long term) please review the interview.
Nonetheless, you do a great job... please keep it up.
The war is over, and China clearly won. The US has no chance pulling out of this now so at some stage they are going to have to settle their bill with them.
Let's see what the Chinese might want for some debt forgiveness:
1) Hawaii
2) Puerto Rico
3) Leaving Taiwan undefended for a Chinese invasion
????
I know this sounds a bit far out but do remember Churchill tried to give post-war India to Roosevelt in lieu of some of the debt owed to the US.
Anything but our women.....
and our dogs and cats!
China just had one BIG growth spurt.
They're not interested in Hawaii. They're interested in managing internal growth and getting people to stop peeing in pubic.
http://www.chinahush.com/2010/05/19/woman-relieves-herself-in-street-of-...
http://www.chinahush.com/2010/05/15/developers-dragged-sleeping-resident...
http://www.slate.com/id/2254176/
http://www.chinahush.com/2010/05/11/convicted-murderer-set-free-after-vi...
uuh
I don't think we get off that easy. I just hope they are content with California and don't take Washington and Oregon also.
Oh cry me a river! Club Med has no one to blame but themselves. It is long past the time they could play the victim. I feel sorry for the Greek people, but the Greek government lied about it's finances, and spent themselves into the poorhouse. Citizens of Europe, and the rest of the western world for that matter, need to grow up and take some responsibility for their actions for once. If Europe is upset about being "attacked" by banks, they should either try and turn their economies around, or go one step further down the socialist path and legislate the banks out of business. Functioning capital markets means survival of the fittest. Get fit or get eaten.
When you STOP seeing national boundaries, you start seeing everything clearly.
I stopped seeing them years ago and suddenly, everything was clear.
creditors, debtors, central banks, investment banks, corporations and projected military power.
We should create our own map.
oh my...you mean when the Lend Lease Act sends enabling goods to Russia in the early forties (A-bomb, US currency plates, every material imaginable), props them up, and builds a stock used later for Mao you start seeing the players as puppet masters?
!!!!!!!!!
There are no countries, just illusionary BS to stroke yourself with if you are so inclined.
There is Great Game.
".. take some responsibility for their actions .."
Finally, you got something right! Yup, time to put Paulson, Rubin, Greenspan, Levitt, Summers, Geithner, Peterson, Kissinger, et al., in a long line in front of that guillotine (made in France, BTW).
I dont think its as simple as that. EMU was very benefecial to the Germans as they were able to lock their southern european export market into a fixed currency; thereby giving them a great advantage over other export competitors like US and Japan.
When the ECB fixed the conversion rates for countries like Spain they purposefully made those nations much more expensive overnight. On top of that massive profiteering that saw prices rounded up 20 or 30% in some cases. So Germans and French banks poured into the Spanish market offering cheap credit in order to fill the discrepancy between the new high cost of things and the fact Spanish wages did not go up accordingly.
Now the Spanish took the frontloaded bait of EU infrastructure money and perhaps should have seen this all coming but its the politicians all over Europe who have pushed this elitist project on their voters, more or less telling them there is nothing to do but join the euro.
The Spanish have their flaws but they got severely screwed over by EMU. I believe this to be the case across all the PIGS.
Very interesting and believable. The same thing happened in Ireland, though perhaps the Dork of Cork could chime in on this.
Max Keiser with Gerald Celente May 21st
http://maxkeiser.com/2010/05/22/ote55-on-the-edge-with-gerald-celente-21...
Thanks for the link. It's a good one, so far...
You can't bank on Celente's predictions. Commercial real estate defaults were supposed to bring down the house of cards last spring. Still waiting. We know he gets it right a lot. Who is tracking his misses? Just toss your dice at the end of the crap table and hedge the sucker bets on the come out.
Speaking of wars. Is there not a good chance of a currency war, if its not already started? Surely the EU want the euro to go down as it would help the whole euro region, germany for exports, and PIGS for tourism and property.
There's plenty of rumours/reports about the SNB propping up the CHF. Will the Chinese allow their dollar peg to limit their ability to mailulate their euro rate? And what about the US, it certainly could do with a cheaper currency. Then there's the UK.
Could be a huge currency war in the offing.
Well the Us wants the peg un done, china does not and tells us to get our own house in order..Timmy says "they will come around and see that its in there best interest to unpeg" That sounds like a threat to me, no wonder they laughed at him the last time he was there..
We have been in a race to the bottom for currencies for at least the past 2 years.
"Can you imagine if during the cold war the Soviet Union had undermined all the countries, it would have been the start of World War III. And yet we are letting investment banks do the same thing."
=> I think a key reason for the expanding U.S. prosperity after 1945 is that the constraints of the Cold War put limits on the banks and on other oligarchic tendencies that have had so much more free reign during the other, more typical periods of U.S. history. The US gov. had to promote policies that offered opportunity to all, as a response to the lure of communism. And the military-industrial complex trumped banks. Survival required it.
With the end of the Cold War, important constraints on oligarchic tendencies were removed, and now we have what we have. In 1989 I would have never thought that 20 years later the Cold War would in retrospect appear to be a foundation for much of what Americans understood to be their democracy.
I suspect that another factor was that, back then, all the investment banks were privately held partnerships. I think the first one to go public did so in the early 70's and then the Squid was just about the last one to do so in '99.
Privately held banks tend not to take crazy risks or to do blatantly destructive things. But banks that are using nothing but other peoples' money feel no similar compunction to plan for the long term and behave sensibly. If it all goes to hell, they can just fly out with their bonus. And, they'll still probably get another job on Wall Street .
damn, ya see, right there is a really good idea I never had
this site is awesome
the gold take down is not evidence of market manipulation by powerful governmental forces but another sign desperation by the military industrial complex.
gold is in severe and permanent backwardation which in turn spells complete disaster for economies and their financial markets.
the sociopathic frat boys in charge of the orgy will not put away the viagra until they have murdered every woman at the orgy.
the gold take down is not evidence of market manipulation by powerful governmental forces but another sign desperation by the military industrial complex.
splitting hairs ,, wheres the difference ,, the same toxic sore
and chopped off their own dinger
put away the viagra until they have murdered every woman at the orgy.
It's not in backwardation. It just needs to have the same gold leased a few hundred more times. Because nobody is going to audit them until they've made their helpers revolt against them.
I thought Hephasteus was into silver. ;~)
Actually the gold liquidation is a paper liquidation to cover paper losses. Price discovery in gold requires the paper gold to be liquidated. Look for much lower 'paper' gold prices as the real thing decouples.
So to recap, before the big inflation all the wealth denominated in dollars has to pass through dollars to physical gold. It moves out of bonds, paper gold, etc. Price of these instruments drops, value of dollar soars due to sudden demand, price of physical gold goes to a whole new level. Fed printing presses run on overdrive to meet sudden dollar demand, wealth finishes passing through dollars, price of dollars drops again.
New age begins.
Whats in fort knox,west point,new york vaults? Inquiring minds wanna know..They will not allow an audit, so it must show the cards that there holding..Im going to bet that they have, ummmmmm,ahhhhhh, ace's and 8's..
I disagree!
Those who see $2000 or $3000 gold are the same folks who see $300 oil. Okay, for how long? Five minutes? Fifteen seconds?
Nobody has any money, who is going to pay $5000 for gold? Who is going to pay $300 for oil? What can you do with $300 oil that promises a return? What sort of businesses do you have in mind that can offer a profit with a $300 input other than smuggling heroin from Mexico?
We just had $87 oil and the wheels are coming off finance (and gold lost $100/oz). Coincidence?
Central banks are in the credit business, not the gold business. The Treasury needs to sell trillions of debt and would love a weak dollar. Unfortunately, there is no such thing, the dollar/crude trade puts a lower limit on dollar weakness. We have a defacto hard dollar backed by crude oil.
Gold is another short- dollar speculation that is going to fall in line behind other soft assets such as stocks, commercial credit and credit derivatives. U can buy/hold gold if you want but a) don't margin, b) get out of debt generally and c) hold physical.
I suspect gld real value will hold up but nominal price declines will be painful: large holdings will be liquidated on margin as credit unwind gathers force. You can and will go broke waiting for the real value of gld to emerge from any other margin exposure you might have.
Gold is wealth. You don't buy wealth, you earn it.
Well, I do not know where gold will go short term.
I CAN tell you (essay hopefully soon coming from the Rolling Bearing) that IMHO that there are very few investments that are going to work out OK beause of Peak Resources and lack of positive investment opportunities.
Mierda mala viene! Means that most (conventional) investments are NOT going to work in our new era.
Please give me some time to proprerly organize my thoughts and I will splatter them all over ZH and everywhere else I can.
Save more and spend less is my best advice ZH-ers!
'righting the US(S) Titanic at this point is impossible as it would mean undoing 2 years of flawed actions and policies"
Please don't contribute to one sided emotional issues. Two sure ways to start an argument are religion and politics. Surely previous administrations help set the stage that has gotten us here.
Oh goddammit people. Its really fucking simple. Make bonds binary financial instruments which would behave as bonds behave know [leave convertible bonds to be, and the insurance is easy available via options] and have an attached CDS to them. The price of a CDS would be priced into the cupon and the bond would have a built-in-clause which would set minimal recovery rate [say 50%] if the bond defaults [much like tradable indexes]. Binary; CDS-built-in-bonds would make the present argumentation regarding naked CDS invalid. Simply, whenever a bond changes hands so does the protection which is priced in the coupon. CDO e[n] are structured on demand and cash flows on existing bonds. Make coupon payment bi-annual to synchronize with CDS. CPD and bps would be based on yield [as they are now]. The solution is simple, but the solution would take away fees and cash flows [making this solution impossible to implement]. Also, if a sovereign wishes to do so, it can make all bond purchases [primary that is] necessarily syndicated and thus insure that the built-in-CDS behaves like an LCDS. Next, ban tradable indexes since it is impossible to own as much bonds to meet demand, and since aforementioned bond would make shorting impossible. That would make counterpaty risk basically outdated and irrelevant. It would also deleverage the system. Its really simple. Of course if one wishes so, i would be more than happy to provide mathematical description of such a bond so you can proof read it. But as I said, to much is on the line if this is implemented, so i dont think it will ever happen. Now, continue being morons and argue about morality of naked CDS and CDO e[n] ad nauseam; it will not change one goddamn thing; offer solutions which would not be based on a presupposition that the outcome of all actions is a 0 sum game; use game theory for fuck sake; it is the 21st century, and i presume most of you have a high school diploma and a functioning brain.
Oh you Cheeky bastard....
Jackity shit is changing unless people are morally appalled FIRST.
It takes more than one hand to churn this butter.
That said, your hand is fantastic. I read your posts. Keep it coming....
I just C/P what you wrote and I'm holding you to it later!
P.S. I don't agree with this "but the solution would take away fees and cash flows [making this solution impossible to implement]"
In order to agree with that, you'd have to conclude that within any doom-gloom-and bust scenario, the politics will stay the same. It won't! It never does.
2008 was the beginning of something. 2010 was a tiny reform step assuring more shit will go down.
Things change and it's good to be prepared. Your posts are part of that and so is the anger!
P.P.S. I've never junked a post and didn't yours.
The bond market is a useless, unecessary component in the financial system.
They shouldn't even exist.
That is one of the funnier junks I have seen, Heph.
The bond market shouldn't exist. It's simply a way to do things without consent of the people and then put the bill on thier head. What cheeky isn't understanding is that CDS has a purpose. CDS's purpose is to create chaos from it's nonsense. From the nonsense and chaos will come an organization of bill collectors. A group of financial enforcers. Oh goody we already have an organization that's JUST like that. It' called the IMF.
If a money issuer can issue a bond it can issue a bill. A bill goes to enrich the people. A bond goes to enrich the userer. Both a bill and a bond is a promise to pay.
CDS will create a tiered business environment. A polite civilized bank who happens to have default swaps with a violent mean bank that people hate but won't do business with. That way the mob and IMF will never have to have its business cut off. It can always get a piece of the action. This sets up the slide from decent to abuse that is already present anyway. You go from missing a debt payment to paying 30 percent interest to fighting navy seals in your back yard. Then you just go from legit when you need to build up force buy arms rest. To throwing peopl en masse into the grinder when you feel like are sufficiently broken and you can get away with it.
You're watching an assembly line being built which manufacturs victims.
The performance of the XAU was so horrid the last few days, it is obviously forecasting a big dump in gold prices.
Additionally, if the financial system is going to "implode" as GATA predicts, the normal and usual "deleveraging" which accompanies it will obviously decimate gold prices and gold shares, just like 2008.
If only Bill Murphy would stop cheering for the demise of the capital markets, and start promoting global growth and recovery.
Then and only then does gold have a chance to climb higher.
Something tells me that "General Jim" Sinclair's hot line will be flooded with near-suicidal CIGAs next week.
By the way, haven't heard from Eric King lately. Wonder if he's going to interview the CEO of Whole Foods soon? The stock has been relatively unfazed from the PIIGS crisis.
People gonna eat, mayne. Until they don't....
So, as you set it up....
We've got deflation rampant, the equities and commodities dump, and everyone rushes to safety in treasuries; correct?
Robo. My primary question is, what event/or action could/or would create a long squeeze upon the flight to safety in dollars and treasuries; in your opinion? Is it even possible, and what role would gold play in it, if at all?
Up 16 @ 1194. So much for your big dump. Stick to stocks....
I have posted this link to numerous blogs several years ago. It is time to post again.
Learn, and educate yourself. Use check and balances to find the rabbit hole. Follow the money.
The Superclass
http://www.youtube.com/watch?v=LHtNFZ6K0pE
Tyler, one reason CDS are bad is that they are fatally flawed. They are NOT free-market financial instruments. You say they are a "natural way to hedge". But they are either not natural or not a hedge. One or the other. Please read the following... quote start " A credit-default swap is not a free-market financial instrument.Why? Because there is only one reason why a party holds a CDS. They have government permission to overvalue these securities on their balance sheets. CDS are an artifact of incorrect government-mandated accounting (specifically, via the NRSROs).
What is the market value of a CDS? There are two answers, A and B, the wrong answer and the right answer. The wrong answer is: the market value of a CDS is the chance that the credit default will happen, multiplied by the face value of the CDS. X times Y.
The right answer is: the market value of a CDS is the chance that the credit default will happen, multiplied by the chance that the CDS issuer will not default, multiplied by the face value of the CDS. X times Q times Y. So, if you buy a CDS on an IBM bond from AIG, its market value is the face value, times the probability that IBM will go bust, times the probability that, if IBM goes bust, AIG will not go bust. Now, the people who invented these things are not actually stupid. They didn't forget about Q. What they said was: Q is the probability that AIG will go bust. They then said: AIG has an AAA credit rating, which means it will never go bust, with 99.999% probability or whatever. Setting Q to basically equal 1, they then arrived at the desired calculation of value, ie, X times Y.
But this is just bad probability, which makes it bad accounting. The probability that AIG will go bust if IBM goes bust is a conditional probability. X and Q are not independent variables. For one, AIG, having written a lot of these IBM CDS, will lose a lot of money if IBM goes bust. And any event that affects IBM may affect other companies on which AIG has also written swaps.
The CDS buyers also required (or should have required) AIG to collateralize these positions. But collateral, too, is not a magic amulet against counterparty risk. If you've insured $3 billion worth of diamonds, and you only have $100 million to cover them, when the probability that the diamonds are stolen flips from very low to certain, someone will get burned. It's just math. Until capital equals exposure, someone has to end up holding the bag.
Collateralizing an undercapitalized insurance market does not protect the market from insolvency. It just means the market melts down in a flash, as all positions are liquidated - the price of CDS will rise faster than the sellers can buy back their CDS. Someone won't be able to; and whoever holds his CDS will experience the ugly stick of Q. If collateral is centralized through a clearinghouse, that clearinghouse must be able to cover all the diamonds it insures, or the clearinghouse has significant default risk. As we saw in the case of AIG, of course, the problem was solved. Who wound up holding the bag? You, of course, dear taxpayer. And this is why I say that CDS are not a free-market instrument. The Q is all on you.
The basic problem with CDS as a free-market instrument is that, while there is quite a bit of demand for the product of exposure X * Y, there is little or no demand for X * Q * Y. For instance, if you buy an IBM bond and an AIG CDS against it, you have replaced your exposure to an IBM default with exposure to an AIG default.
In reality, no party (except USG) is really so much more financially secure than IBM, that it's worth writing insurance on IBM. The financial product that the market demands is not CDS, but CDS without counterparty risk. This is a useful product indeed, but not a free-market product. No free market can produce any such thing - it takes a fiat-currency issuer. To guarantee IBM's loans risk-free, you would need to cover every dollar of IBM loan with an insurance dollar, which would be ridiculous, unprofitable, stupid, and completely defeat the purpose.
Thus, people buy CDS because (and only because) incorrect accounting principles allow them to incorrectly disregard Q, the probability of the CDS issuer defaulting, thus assigning these securities excessive value on their balance sheets. When they become insolvent as a result of this miscalculation, USG's infinitely-flexible rubber-dollar absorbs the slack, and the Fed becomes the new team sponsor of Manchester United. " end quote. From http://unqualified-reservations.blogspot.com/2010/04/credit-default-swap-and-bullion-banks.html
fuck this hyper trade economy... and all these 'needed' hedge 'tools' that get gamed and exploited
I confess that this flew over my head a bit.
If I can rephrase: CDS is not a free-market instrument, because the contracts would be defunct without government backstops on the insurance companies combined with fraudulent accounting.
Is that correct?
Yes, defunct in that they would not work without the backstop. More like worthless. It would be like buying cheap earthquake insurance knowing the insurance company could never come through if a big one ever hit without the government's help.
Think of CDS as insurance, which is exactly what they are. Think about the types of insurance that you buy. You probably buy home insurance, fire insurance, car insurance etc... You pay a small premium and then if there is ever a fire or a car accident the insurance company pays. This is normal insurance.
Now think about insurance for natural disasters, like earthquakes or hurricanes etc... The premium on these types of insurance is actually quite low. That is because a government bailout is factored into the price. If "the big one" ever hits LA, then the government will step in and clean up the mess. This is fully expected. If it was left up to the insurance companies to do this, then the premium on earthquake insurance would be so high that no one would buy the insurance. Because when "the big one" hits, it affects EVERYONE. So the insurance company has to pay out on ALL CUSTOMERS, not just the random improbable car crash or fire. Same with CDS. The premium would be so high that no one would buy them. The difference is, while we as a society are willing to take on that risk regarding natural disasters, we are not willing to take it on for the banks' gambling habits. That's a big difference. And not just the banks, but all the investment money out there. Why should taxpayers take risk away from the financial world? They are willing to do it with the real world when it comes to natural disasters, but no one ever agreed to do it for manmade disasters that should be priced in from the beginning. So in this sense, the idea of catastrophic insurance in the financial world makes absolutely no sense. The only NATURAL hedge is gold. End of story.Excellent analysis.
This was my understanding of CDS beforehand... I just wanted to make sure that I was on the same page as you.
I personally see no problem with a theoretical free-market CDS, but as you point out, it's likely that the premiums would be too high for it to be in wide use.
I take issue with the term "we as a society..." it's not individuals who make this decision to socialize risks, but the politicians. And the politicians wouldn't be able to make such Utopian promises with any kind of credibility without the divine right provided by the central bank.
Some country, somewhere will eventually go on the gold standard as a means of attracting heavy investment and entrepreneurial activity.
That country may or may not be the United States. It may even be a semi-autonomous zone within a larger country (think the "free zones" in China with even more freedom from authoritarianism).
What used to be sci-fi speculation in terms of solutions to these issues may soon become quite tenable.
Max Keiser explains the counterfeiting on walled street.
http://ia360705.us.archive.org/13/items/MaxKeiserRadio-TheTruthAboutMark...
CNBC breaking ranks on the gold debate..Watch this one as santelli was back in prime condition on Thursday morning for anyone who missed it, FANTASTIC, MUST WATCH VIDEO..8 MINUTES WELL WORTH YOUR TIME...Rick funnier than ever..
http://www.cnbc.com/id/15840232?video=1499179071&play=1
I like that Rick is pressing the issue. When people realize their gold is not their gold (Germany? Hong Kong?) the flight to physical would be epic.
Silver is even worse...
Silver is "common" enough to be big enough to be counterfeited much more. Silver will definitely lead the charge on shattering the lies. It'll crack the armor, then palladium and platinum will open up the crack then gold will come pouring out. But palladium and platinum will likely be a loser when all is said and done.
Trading analysis for next week! Quiet detailed and comprehensive
Enjoy!
http://bostonwealth.blogspot.com/2010/05/morties-weekend-analysis-22may2010.html
I have been advocating a complete ban on CDS. The sole purpose of CDS is to put liquidity where it doesn't belong. Let's use Abacus as an example. If there wasn't an investor willing to take the short side of the Abacus deal the CDO wouldn't have even existed.
The CDS's have allowed too much risk to be originated naked, or not.
All of the sub-prime loans and all the other shitty loans that were originated was because investors were willing to lend to risky people (because they hedged that risk with CDS) SO INVESTORS LENT OUT MONEY TO PEOPLE THEY NEVER SHOULD HAVE LENT MONEY TO BECAUSE THEY HEDGED THAT RISK WITH CDS, WHICH THE TAX PAYER ENDED UP BEING THE COUNTERPARTY BECAUSE THE WHOLE THING WAS BASED ON BULLSHIT.
How about this system...Don't lend to someone if you don't think they can pay you back. If you lend them money and they don't pay you back than tough shit, should have done your mothafuckin' due diligence. I'd bet that system works.
How is CDS the problem?
Average people would not have to give a shit about CDS if Fannie and Freddie could just be euthanized so everyone could buy houses in cash.
CDS are just another kind of security. Just more paper with words on it. You can't really ban a security - it's like regulating speech. A security IS speech.
However, I doubt that there would be much CDS without the government-regulated insurance system and the Federal Reserve backstop. It's just too risky.
No one apparently learned anything from AMBAC etc.
1.----Cheeky Bastard----
A. Comments about Binary Bonds is spot on brilliant. Maybe too simple
and would be too honest. IS this an original idea? If so, wow.
B. Comments about Russia/USSR 1940s-- I would like to read more, any tip on a
book?
2.-----Silver price in Dallas. Called yesterday and the guy is paying $20 over spot
for gold. Kennedy half dollars 40% comes to $18.35 oz, 90% $18.11 oz. Rounds
$19.75 oz. They may call Kennedy halfs "junk silver" but I dont think you will
findfake coins with them--- hint, hint. And they are the best buy for the money
One source for 1.B. is out of print book, but available online: http://www.sweetliberty.org/issues/wars/jordan/01.html
I dont know whether the idea is original or not. I know one sovereign nation does that with all new issues since 2000. But they issue a bond normally, buy a CDS on it and give CDS to primary buyers. So, still, its not the same. I didn't write that post for originality, it is just the most logical approach to the whole issue. The whole thing about naked CDS is ot about risk hedging, its about creating two tier bond market; synthetic bond market [good old CDOs squared, cubed etc etc ] and the one which is most liquid. About books on 1940 USSR; Scribd is your friend, and the database there regarding USSR is more than anyone can chew. The books are all pdf format and free.
I wonder when one of these countries under financial attack decide to launch their own attack. I can imagine Greece, Spain, or Britain turning to their CIA equivalent and telling them to execute Dimon, Paulson, etc. These financial types may very well re-learn an old truth: in war, people die.
I think Rickards is an excellent mediator from the side of gold to the side of fiat.
He gets listened to by the powers that be (TPTB) because he does not go too far. For example he does not talk about options expiry in gold followed by a Treasury Auction, but rather talks about gold moving from weak hands to strong hands etc. He backs off allegations of fraud because he knows about standard of proof which is hard to actually prove in court and which differs between criminal and civil proceedings. He does not make any assumptions about the 8150 tons being encumbered or containing tungsten, but works from the premise that the US actually has the gold fair and square.
TD the jargon you use may be understoood by a lot of traders and Wall St. insiders, but I as sure as hell can't understand what you are talking about when you say,
"..... good luck finding cash bond borrow in some obscure HY name, even with market monopolist Goldman, or especially with Goldman if it has soaked up all the cash shorts) will have an adverse impact on the market one thousand times worse than banning all shorts, not just naked, in equities. On the other hand, just the expectation of a global CDS short, without recourse mechanism to hedge bond exposure, would push the S&P to our very long-term S&P target of approximately 0, as it would immediately force an unwind in that biggest of all uncharted territories, the IR OTC swap market. "
Rickards sees $2000 gold
For some reason it left out the end of my post which was
Rickards sees $2000 gold in the short term which I believe he means the end of this year.
A very tall order !
MERKEL'S NEW BOOK:
http://williambanzai7.blogspot.com/2010/05/angela-merkels-new-book.html
just dont throw me in the brier patch said the rabbit to the fox
Max Keiser with Jim Rickards
http://maxkeiser.com/2010/05/24/goldman-ilk-undeclared-enemies/?utm_sour...
I would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future as well emissions credits