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New York Fed On Shadow Banking
The chart below demonstrates vividly why any attempt to restart the securitization machine is doomed to fail.
Another interesting discussion is the consistent decline of leverage at primary dealers (see p.10).
And here is the Fed's prescient observations on leverage and liquidity:
Financial crises tend to be preceded by marked increases of leverage.
The fluctuations of credit in the context of secured lending expose the fallacy of the "lump of liquidity" in the financial system. The language of "liquidity" suggests a stock of available funding in the financial system which is redistributed as needed. However, when liquidity dries up, it disappears altogether rather than being re-allocated elsewhere. When haircuts rise, all balance sheets shrink in unison, resulting in a generalized decline in the willingness to lend. In this sense, liquidity should be understood in terms of the growth of balance sheets (i.e. as a flow), rather than as a stock.
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REPOST; but this needs to get some attention http://www.youtube.com/watch?v=Gkf8VG3HL_8
It's just the Kucinich - Barofsky thing again. Pretty good if you haven't seen it.
fuck it, i don't have C-Span here in Europe ... i stumbled upon this video like half an hour ago .... and, when i think about what is said in that video, i don't understand why was i so surprised in the first place .. oh well .. fuck it now ...
I just saw it for the first time myself..Cheeky thanks for the link.
While I was there I checked out this Greyson and Bernanke piece.
http://www.youtube.com/watch?v=00ECLxK2YTs&NR=1
2:47 minutes in Bernanke testifies that they are extending credit to americans. What gives?
Bernanke lied. Thats the only thing he knows how to do. And considering that, with Barofsky's testimony, he was caught in a flat out lie, just think about how many other thing has he kept beneath public sight, or buried them in some dark chamber under the FEDs building .... but it seems to me that, people just don't care about this sort of thing, and not just average joes, but professional likewise, like some sort of over saturation came into the game and made everyone dull and not interested in this .. well, all i can do is provide information, nothing more ...
umm...
http://www.c-span.org/
what i meant was as a channel ... but thanks
Eehhh. it's o.k. but i'd rather see a cat fight between Barney Frank and Neil Barofsky. One calling the other a Botox Queen would liven things up.
Can printing ever produce inflation or merely some strange hybrid of hyperinflation/stagflation?
good question. i have a feeling we are gonna find out.
regarding the post, I am not sure how the chart shows why securitization will never be restarted, it just shows activity has been dwindling for a while.
i bet if home prices start rising (in nominal terms) someone will securitize some jumbo RMBS. institutional investors are dumb and have very short memories.
now, whether securitization SHOULD be restarted or not, i would weigh in and say "no fucking way". in fact we should end GSE securitization as well - loans should be held on balance sheet, period.
And if securitization is to start back up they need to require the underwriter to hold a significant chunk of the collateral, say 15-20% so you know the loans are not complete shit.
Dudley says the Fed can pay interest on reserves now so that will keep inflation in check. %^&^&&FGGH*^^$%^&
Project Mayhem forecasts deflation + currency crisis.
Step 1: Forget everything you ever learned about monetary theory.
Step 2: Perform a thought experiment where $100 Trillion new dollars are printed; THEY DON'T NEED TO BE PUT INTO CIRCULATION; postulate the impact to the credibility / buying power of existing dollars.
Step 3: Answer these questions: Is it rational to accept old prices for goods and services going forward? Why or why not?
Step 4: Imagine you are a debt holder of the country above. Are you willing to continue to accept the old returns on your debt going forward? Why or why not?
Step 5: If printing $100 Trillion is bad, why is printing merely $1 or maybe $3 or $4 Trillion OK? If printing $100 Trillion is OK, why not just print $1,000 Trillion?
i think it is a weird lesser of two evils in that if the casino's bank is busted by $2million and they are allowed to cook up $200,000 new chips out of thin air, everyone still wants to keep playing and ignores it (figuring that the $2mil will get paid eventually) and the inflation isn't really felt nearterm at all since it will trickle out
Ben is bluffin that there is no other game in town and might be right
<<Ben is bluffin that there is no other game in town and might be right>>
An incredible wind fall awaits the owner of any new casino. It's only a matter of time before a ground breaking ceremony takes place. I just hope to recognize the moment when the spade of dirt is truned...
To paraphrase, "the mere existence of new dollars can be inflationary"?
I agree.
its not if it CAN be inflationary, it is that it IS inflationary ...
A good report but about 3 years past due. Soros wrote about this in 1985 in The Alchemy of Finance, Chapter 3, The Credit and Regulatory Cycle - it's simply a product of his theory of reflexivity of which the last 5 years has been a case study.
and yes Andy, you are correct. THIS is why the dollar is rallying during de-leveraging. NOT because of a flight to quality but because the borrowers who are short dollars are paying back their loans thus fewer in the system. a flight to quality would imply more owners of dollars (like 2YR notes or gold), this is simply a function of fewer shorts.
G Edward Griffin (who is inflation monger) wrote in The Creature from Jekyll Island, Chapter 10, The Mandrake Mechanism, "It is difficult for Americans to come to grips with the fact that their total money supply is backed by nothing but debt, and it is even more mind boggling to visualize that, if everyone paid back all that was borrowed, there would be no money left in existence.... In short all money would disappear"
that is what's happening.. money is vanishing. the Fed has only "printed" a fraction of what has evaporated
My visualization of this is of a farmer during the dust bowl, pouring buckets of water on a couple of plants surrounded by desolation with a giant dark cloud of an approaching black blizzard approaching.
http://www.youtube.com/watch?v=0PX9CwwOx_U
What's funny is that they are so close to the beans without spilling them. The liquidity flood, followed by the credit seizure, is a tried-and-true plan - not an accident.
Whatever the NY Fed might propose, it's guaranteed to be a Fox guarding the FoxHouse. How far will they go to quell the growing public unrest?
If god was a banker he would bring churches public so that he could securitize the revenue from the collection plate : )
Adrian Burridge
CanadianInvestors.com
Tyler,
I agree that its a good paper.
Unfortunately, neither Bernanke, Geithner, Summers or most economists seem to be following the de-leveraging advice:
http://www.washingtonsblog.com/2009/07/economists-have-acted-like-team-d...
The debate = bull or bear market rally. Neither!!!
The aristocracy is taking the market high so there is plenty of room on the down side to make a gazillion more on the way down.
If you controlled everything, would you want to take it back down at 800 or 1000, or 1100?
The problem is that the FED is fighting with the Keynesians.
Everybody wants to be in the short end of the curve (O/N - 2yr). After that, they get killed because:
1) Supply keeps coming - lower price, higher yields
2) Lenders want to stay as liquid as possible - shorten duration
3) Longer debt rollovers get killed with the higher rates, when the economy is not producing returns to pay for them. This squeezes lenders more, who loaned on asset values that are worth fractions.
Securitization won't work to cure these problems because no one knows what assets are worth until......yikes!
Apocalypse Now-
You want the truth? You can't handle the truth...
The real shadow banking system is the International Bank of Settlements. Their regulation change applied to US banks in November of 2007 and it caused the credit destruction and economic misery we are going through. This is definitely worth the quick read - See: http://www.rense.com/general85/tower.htm
"While banks in developing nations were being penalized for falling short of the BIS capital requirements, large international banks managed to escape the rules, although they actually carried enormous risk because of their derivative exposure. The mega-banks succeeded in avoiding the Basel rules by separating the "risk" of default out from the loans and selling it off to investors, using a form of derivative known as "credit default swaps."
However, it was not in the game plan that U.S. banks should escape the BIS net. When they managed to sidestep the first Basel Accord, a second set of rules was imposed known as Basel II. The new rules were established in 2004, but they were not levied on U.S. banks until November 2007, the month after the Dow passed 14,000 to reach its all-time high. The economy was all downhill from there. Basel II had the same effect on U.S. banks that Basel I had on Japanese banks: they have been struggling ever since to survive.8
Basel II requires banks to adjust the value of their marketable securities to the "market price" of the security, a rule called "mark to market."9 The rule has theoretical merit, but the problem is timing: it was imposed ex post facto, after the banks already had the hard-to-market assets on their books. Lenders that had been considered sufficiently well capitalized to make new loans suddenly found they were insolvent. At least, they would have been insolvent if they had tried to sell their assets, an assumption required by the new rule. Financial analyst John Berlau complained:
"The crisis is often called a 'market failure,' and the term 'mark-to-market' seems to reinforce that. But the mark-to-market rules are profoundly anti-market and hinder the free-market function of price discovery... . In this case, the accounting rules fail to allow the market players to hold on to an asset if they don't like what the market is currently fetching, an important market action that affects price discovery in areas from agriculture to antiques."10
Imposing the mark-to-market rule on U.S. banks caused an instant credit freeze, which proceeded to take down the economies not only of the U.S. but of countries worldwide. In early April 2009, the mark-to-market rule was finally softened by the U.S. Financial Accounting Standards Board (FASB); but critics said the modification did not go far enough, and it was done in response to pressure from politicians and bankers, not out of any fundamental change of heart or policies by the BIS.
BIS is already autonomous from national governments, they want a world government and have been calling for a centralized world bank (them), and are promoting a world currency to be issued by BIS. They are not subject to laws or taxes and have their own police force.
Watch "The International", a pretty good movie.
They will never be able to print as fast as wealth is disappearing. Hence deflation. Once leverage controls are established, watch out for the downfall.
The true measurement of money supply is the supply of money * turnover. The Fed has increased the money supply by 100%, and the turnover of that money has dropped by 100%. Bottom line: The (dynamic) supply of money has remained constant. When you factor in wealth destruction that has taken place in the last 12 months, the picture gets fugly ugly.
measurement of money supply as it applies to the US is "money" and "credit". Credit is collapsing faster than money is being printed...thus deflationary effect despite printing press in action.
I correct myself. Rather than wealth destruction, we have experienced a revaluation of assets and other wealth from levels of insane overvaluation to something approaching real world market values.
No, wealth destruction. Do you owe any less on your mortgage, car payment, kids tuition, etc...
Apocalypse Now-
Great points and I am in the deflation camp temporarily.
However, I see a real risk of hyper-inflation on the horizon related to a currency crisis, a crisis of confidence in the Dollar and our image in the world. This would fit what the BIS wants, to encourage the US into a new world currency.
Wealth may not actually be destroyed in a deflation/recession/contraction - wealth is often transferred in a zero sum game, guess who.
Credit is the lifeblood of the economy, the bankers are at the center pulling the levers. As you mention, the velocity or turnover has dropped because banks have agreed amongst themselves not to lend to those not connected(they actually receive interest for parking their risk free reserves at the fed instead of loaning out to businesses that need it).
The comment above about leverage on balance sheets is true but read the link that explains how the big banks are exempted - the leverage isn't being used to loan out - it's being used so the banks can speculate (hedge fund with US taxpayer guaranteed backing?), drive the markets in a direction, position for the opposite movement, and then reverse the news hype (ala Cramer's pump & dump). This is how they caused the first great depression (coordinated easy credit then extremely tight credit). See Kucinich complain about this: http://www.youtube.com/watch?v=Gkf8VG3HL_8
Telling quote from Ayn Rand: "When you see that trading is done, not by consent, but by compulsion -- when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see money flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed."
If someone was able to secure the account names on the Swiss bank accounts, I am sure you would find most of the world's influence peddlers and politicians that have been bought by the bankers - a payoff here would have a higher risk of being caught.
Leverage controls? When are those coming? Have you seen Goldman's balance sheet lately? They are adding, not taking away, leverage.
US banks will not see limits on their leverage for the foreseeable future, if ever.
Clive Owen
The trailer looks good.
http://www.youtube.com/watch?v=ILj3HlaoOCg
It all comes back to what is the "end game"
It is a good movie. You have to pay attention.
Yes it does look good. Here's an interesting quote from the movie:
[In explaining the "true" nature of banking in the world] The IBBC is a bank. Their objective isn't to control the conflict, it's to control the debt that the conflict produces. You see, the real value of a conflict, the true value, is in the debt that it creates. You control the debt, you control everything. You find this upsetting, yes? But this is the very essence of the banking industry, to make us all, whether we be nations or individuals, slaves to debt.
Outside of "conspiracy" sites, this one might have the most readers who would understand what they were portraying in the movie.
I'd advise researching the International Bankers first, to have a general idea of the frame of reference.
/agree
Though the big 'secret' in the public BIS data is actually the existence of hundreds of trillions in interest rate swaps -- not credit default swaps.
whoa! rense.com touches tendrils (not shoots) with zerohedge --- freaky in a nitrous-oxide fixing sort of way.
Hi Anony. i put a topic in the "Credit Forum" here titled: "The International: Is it Live or is it Memorex". So, maybe since you've seen the movie, you can comment.
The title I made for the forum said it all for me.
Thank you!
This is tantamount to an admission that the Fed's money printing is too small to combat debt deflation, deleveraging and credit reduction. SInce our economy runs on credit, that will keep economic activity low until the total private debt is manageable. Since it stands at $42T, and $15T would be manageable, we have to destroy (deleverage) $27T of debt. Assuming we retire debt at 8% per year, that's at least 12+ years.
Unless the Fed starts printing money in the $30T+ range, serious inflation can't get started. Although inflation is the goal of the Fed, I don't think that much money printing is politically possible. Besides it must happen while the babyboomers retire, and start consuming their Social Security and Medicare, which means the government will corner the market on new credit creation.
Your entire statement conflates money and credit and as such is completely irrelevant.
He is right. You are wrong. We use something called "debt based currency" or fiat currency. Look it up. Credit is money under this system. End of story
Yep.. Fractional banking is a debt based system.
I know fiat money is debt-based, but your statement amounts to an admission that what we use as "money" has no ability to perform the "store of value" function ascribed to money, and therefor is not money at all. Is that what you want to do?
If credit is money, then can credit be used as the basis for fractional-reserve lending ad infinitum? This is essentilly an infinite-leverage system. Did anyone ever tell the common folks that the money is not a store of wealth?
How on earth can the fed get away with printing trillions out of thin air? That's simply insane
"$15T would be manageable,"
Says who? The Fed wants the existing 42T to be kept, plus added on to.
Serfdom forever through debt. Without debt, you can't own the population.
This paper provides further documentation that our economy was destroyed by Lehman Brothers, Goldman Sachs, Merrill Lynch, Bear Stearns and Morgan Stanley.
The smoking gun phrase from the FED's latest Beige Book, for the insane pumping we've seen over and over again:
Enter the CONfidence Man on TV and the continued Invisible Hand orders; sounds too early to go all-in short.
Good find. It would be nice if sometime in my lifetime someone blew the lid off that scandal. There is no doubt in my mind the Fed pumped up the equity markets, Bernanke refers to the stock market repeatedly.
The graph says "previous three months," and then it only goes
thru Sep-08. All this shows is that issuers realized they were
over their heads back then … in a another universe far, far way.
Thanks for posting this!
The money "printed" is from future obligations and tax generation. Like...wayyyyyyyyyy into the future they will be paying for all this...as in like Bladerunner future.
What has been "acting" like money in lieu of the printed money-type is CREDIT. In the US credit is money-hence the derivative affect of creating 1,000,000 "borrowable and spendable" dollars per 20,000 in deposits.
All this credit has been parading as money and creating inflation in asset worth(homes,oil etc.)
So of course in default, all that credit goes to money heaven and all we have left is "printed",remaining asset worth(asset value is also storage of money and AAA rated credit.
Credit loss has killed the velocity of money churn-and any printed money is just filling in the shotgun holes made by the money(asset vals,derivatives and credit) disappearing to heaven. The stock markets alone have lost 20 trillion(used to be 33 trillion but let's count the rally positively.) The FED/Treasury/Congress has "printed" and injected supposedly close to 7-8 trillion. That's still way off the mark in the available credit money available to the public and business. The banks are squatting on it because they know it's worth much more as cash in a deflationary environment than lent out to an increasing unstable(default-wise) public.
I dunno-I see deflation in a big, big way. Watch the bond vigilantes in action tomorrow.