The BP crisis in the Gulf of Mexico has rightfully been analysed (mostly) from the ecological perspective. People’s lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion.
61% Underfunded Illinois Teachers Pension Fund Goes For Broke, Becomes Next AIG-In-Waiting By Selling Billions In CDSSubmitted by Tyler Durden on 06/14/2010 14:47 -0500
“If you were to have faxed me this balance sheet and asked me to guess who it belonged to, I would have guessed, Citadel, Magnetar or even a proprietary trading desk at a bank.” So begins a story by Alexandra Harris of the Medill Journalism school at Northwestern, which, however, does not focus on some exotic product-specialized hedge fund, or some discount window (taxpayer capital) backed prop desk (hedge fund) at a TBTF bank, but instead at the 61% underfunded, $33.7 billion Illinois Teachers Retirement System (TRS), which just happened to lose $4.4 billion in 2009 (a year when, courtesy of America's conversion from capitalism to socialism, the market rose 60%), and 5% in2008. Yet underperformance can be explained. What can not, is that the TRS has now become a shadow AIG. As Harris notes "TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps, insurance-like contracts that guarantee payment in the event of a default, that were blamed in part for the 2008 collapse of Lehman Bros. and bailout of insurance giant American International Group Inc., or AIG." Demonstrating just how far the fund is willing to go in the "for broke" category, knowing full well that if it repeats AIG's implosion, the government will likely bail it out, is the disclosure that a stunning 81.5% of the fund's investments are considered risky - this means it is the fourth-riskiest investment portfolio for a pension fund in the U.S! All it will take is another Flash Crash-like event, or a liquidity crunch, and the 355,000 "full-time, part-time and substitute public school teachers and administrators working outside the city of Chicago" will likely end up with a big, fat donut in their retirement portfolios courtesy of some deranged lunatic, portfolio manager, situated externally at a bank like Goldman Sachs, who in taking a page straight out of Obama's bailout nation, has decided there is no such thing as risk. And to those naive enough to think the TRS is the only such fund which has now gone all-in on "no risk and infinite return", wait until such stories start emerging about every single massively underfunded pension and fully insolvent fund in the US.
“This is another example of regulatory capture at its worst. It is one thing for Wall Street firms to hire SEC staff for their general knowledge and expertise. It is quite another, however, when the leading high frequency trading firm, Getco, reaches into the SEC’s Division of Trading and Markets and hires a senior official who presumably has been close to, or perhaps substantially involved in, a major ongoing Commission review of a broad range of market structure and high frequency trading issues in the equity markets -- a review that should lead to additional rulemakings that will have a direct bearing on Getco’s trading strategies." - Senator Kaufman
"We cant stop here. This is bat country"
In response to the bankers and governments’ global rape, pillaging and plundering of people’s assets and freedoms, we are starting a series of essays that we call “The Liberation Essays” in an attempt to educate the masses about the true nature of the global financial system. We will continue to write our essays until we feel we have achieved our goal of education and eventually liberation from the racketeering firms that call themselves Wall Street and Central Banks. Below we grant you essay No. 1.
The other perspective: "The US Senate has passed its version of financial regulatory reform that will include serious changes, some expected, some not, specific to the OTC derivatives market. The passage of this bill will lead to a compromise bill created jointly by the House and Senate and ultimately President Obama signing it into law before 4th of July barbeques are under way. Although its contents are questionable, getting the bill out of the Senate is a good thing as the Hill will finally be removed from the Street. But as we’ve learned during the entire, multi-year reform process, the devil is really in the details and unfortunately many of the details continue to be a bit hazy. At last check, there were 434 proposed amendments to the Senate bill. Most of these amendments will fall by the wayside now as the Senate was anxious to move the process along, but sorting out and knowing what’s in, what’s out and what replaces what may well require a gaggle of Congressional staffers. Even with the final text made clear, most of us at TABB Group are left trying to decipher the “spirit” of the law."
Here are some Trivial Pursuit questions for you:
1) What is the biggest market in the world for a physical commodity?
2) Is the gold market one of the smallest markets in the world for a physical commodity?
I would guess that you answered:
1) Crude oil.
2) Yes. Gold is one of the smallest commodity markets in the world.
If those were your answers, you are wrong. What everybody believes to be the "tiny gold market" is in fact the world's biggest physically traded commodity market. Let's have a look at some facts. The London Bullion Market Association (LBMA) "over-the-counter" (OTC) gold market trades approximately 90 percent of the world's physical gold trade.
This article was inspired by a conversation in January 2010 with fellow directors of the Gold Anti-Trust Action Committee: Chairman Bill Murphy, Secretary/Treasurer Chris Powell, and Directors Adrian Douglas and Ed Steer. In speaking about the growing role of the exchange traded funds in the precious metals market, it was clear that the disclosure that the precious metals ETFs described below were providing to investors was inadequate. However, was there a material omission under securities law? I found the issues complex. Understanding the commodities markets can seem daunting to someone like myself with a securities background. Meanwhile, the securities markets and related legal and regulatory issues can be unfamiliar to those with a background in commodities. I decided to ask my attorney to help me gather the relevant information into one document to make it easier for GATA supporters and other interested parties—whether from the commodities or securities markets—to examine these issues and to better understand and price these securities. - Catherine Austin Fitts, Solari Report
The leaders of our industry have poured gasoline on the banking crisis and accelerated it completely out of control. It has gotten to the point where legislators and regulators seem to be doing their best to burn the industry down to the ground to rid it of the evils that caused the crisis in the first place. I put this squarely at the feet of our industry's leaders. They ignored common sense, signs, hints, nudges and flat out requests to curb their risk taking to the point where governments now are proposing rules that not only will force institutional break-ups and hurt our industry, but that very well may cripple the capital formulation engine Main Street needs to generate jobs. Talk about cutting off our proverbial nose to spite our face. All that our industry leaders needed to do was come together, highlight the major gaps that led to the subprime crisis and come up with a solution to solve the most egregious issues. Yes -- in order to keep the industry whole and the world sane, some profitable business would need to be eliminated, sacred cows slaughtered and sacrifices made to appease government leaders and stop the gathering hordes from marching down the Street with torches and pitchforks. - Larry Tabb, founder and CEO, TABB Group
Recently the general public had the unpleasant experience of seeing what the real face of Warren Buffett looks like when it comes to derivative reform: a man ready to maim and kill to prevent even a minor loss when it involves controlling what he previously called "weapons of financial mass destruction." Sigh - yet another another hypocrite unmasked. However the battle over derivatives is just beginning. As the attached presentation from erdesk.com indicates, the big banks are not about to let a $55 billion annual revenue stream go away without a massive fight. And despite what Blanche Lincoln thinks, with Financial Reform suddenly stalling hopelessly in yet another indication that Chris Dodd's many years of robbing the middle class blind need to end yesterday, derivatives are not going anywhere in a hurry: with $11 billion in IR, $22 billion in FX, $10 billion in Credit, $10.5 billion in commodities and $1.5 billion in mortgages, most of it split between Goldman, DB, CS, MS and JPM, for anyone to think that the firms who run the world will cede such a core part of their business to the exchanges is naivete defined. We recommend the attached simplified overview to anyone who has a passing interest in not only the fascinating $600+ trillion world of OTC derivatives but of ongoing (futile) attempts to reform it.
Now we know why BRK, CAT and the other big corporates came oozing out of the woodwork last year to defend the OTC derivatives market. JPMorgan (JPM), Goldman Sachs (GS) and the other OTC dealers let Warren Buffett's Berkshire Hathaway (BRK) and the other "AAA" corporates play at the roulette table w/o any chips. Isn't this the man who called OTC derivatives weapons of mass destruction?
Dudley talks theory, avoids practice, when discussing the driving force behind today's market - the biggest asset bubble reflation in history. Although to be fair, Dudley does destroy the concept of efficient markets and notes that when we enter the irrational exuberance everyone piles on the same side of the trade, only to realize there is nobody to sell to when the bubble pops. Dudley says nothing to indicate that Fed pundits are anything beyond theoretical puppets of Wall Street, whose sole purpose is to reflate the market to the highest possible point before recent events catch up with Wall Street surreality. And we quote, courtesy of Geoffrey Batt: state of emergency in Thailand, Kyrgyzstan and parts of South Africa, increasing violence in Iraq and Pakistan, bombing in India, multiple bombings in Russia, imminent Greek default, talk of Iran invasion, Karzai claiming he may join the Taliban, South Korean ship attacked and destroyed, Israel considering using nukes as a preemptive weapon, UK elections, massive banker backlash, and so much more. Yet all investors care about is whether the iPad's WiFi can penetrate 1 inch of drywall (ignoring that by buying apple shares, they are selling life insurance on Steve Jobs), and whether everyone can pretend just long enough that there is nothing moving this market but excess liquidity, before it all unravels with the 1% of the population that has profitted the most long taken profits and relaxing on a beach in a non-extradition Pacific island.
“We Are in a Cabal... Five or Six Players ... Own the Regulatory Apparatus. Everybody Is Afraid to Regulate Them"Submitted by George Washington on 04/01/2010 19:59 -0500
I'm not against derivatives - including credit default swaps. But keeping them secret and hidden is a recipe for disaster ...
The NY Fed's Trading Desk Head Laments The End Of Stupid Leverage And Wants His Derivatives Back (Or Why We Are Stuck With ZIRP For A Long, Long Time)Submitted by Tyler Durden on 03/27/2010 10:12 -0500
In a video conference before the ACI 2010 World Congress in Sydney, Australia, the head of the FRBNY's trading desk, aka, the busiest daytrader over the past year, Brian Sack, demonstrated once again that Fed members are either completely clueless about ongoing market dynamics or are so good at octuple re-reverse psychology, that they make the squid pale in shame and squirt ink in envy.
It is irrefutable. The Bernanke Fed will go down in history as the most wildly successful ever. Nobody in financial history has been able to re-sky stocks in one year after the two largest banks in the country were within a hairsbreadth of imploding. No doubt, he will be trumpeted and hailed as a national hero, for orchestrating the fastest run in retail stocks in world history.