The Latest Reincarnation Of Repo 105 - With End Of Quarter "Deleveraging" Over, Primary Dealer Repoable Assets SurgeSubmitted by Tyler Durden on 04/20/2010 00:16 -0500
One of the take home lessons from the Lehman Repo 105 scam is that Primary Dealers will do everything in their power to dispose of assets in any way possible at end of quarter time in order to make their leverage ratios palatable to investors and rating agencies. A week ago, taking a hint from the WSJ, we observed how for the week ended March 31, total Primary Dealer assets plunged by $34 billion in just one week: from March 24 to March 31. For this EOQ asset window dressing hypothesis to be confirmed, we needed to see a corresponding spike in asset in the week immediately following March 31. Sure enough, using Treasury data of Primary Dealer holdings, we observe precisely that, and then some. In the week ended April 7, total Primary Dealer assets exploded by $53 billion to the highest level seen in 2010, or $300 billion, a stunning 21% increase in total assets in just one week! This is also the highest total level of PD asset holdings since June 10, 2009. What do primary dealers do with these assets? They either repo them out back to the Fed directly, or via the Tri-Party Repo System, or via some other off balance sheet conduit, using the cash proceeds to go elbow deep in risky assets and purchase every stock imaginable (having given the impression the week before that they are all prudent fiduciaries who don't "gamble" with other people's money). If you were wondering where the surge in buying interest came from in the first few days of April, wonder no more. Furthermore, as PDs would be careful about negative carry on the repo rates, it would be expected that the one security they would buy the most of, would be T-Bills with their next to nothing interest rates... Which is exactly what happened: PD T-Bill holdings surged from a mere $12.6 billion at March 31 to $44.4 billion on April 7. PDs no longer need Repo 105 - they do all their EOQ window dressing directly in the open market.
John Paulson was the big swinging dick who created Abacus. He is Teflon on that one. Consider OneWest.
In the video below, it appears that Steve Liesman of CNBC has access to deposition or other facts in the SEC case. Perhaps he has been talking to Paolo Pellegrini, Paulson’s former head trader who is believed to be a key witness for the SEC. We have found no one else that is reporting on case specifics beyond what was in the SEC complaint. Liesman reports that the Abacus 2007-AC1 deal was somewhat unique in that it was Paulson’s only CDO that used a neutral third party manager to select collateral (ACA management) or “bespoke” deal. Pauslon did other CDO deals where they picked the collateral directly and it was disclosed as such. What is not clear is if Paulson’s economic interest in those deals failing was also properly disclosed. The implication is if Goldman loses this case it will not lead to a precedent that will spread to many other CDOs.
"Although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a 'bet against our clients.'"
That claim, from Goldman's letter to its shareholders,
is easily refuted. The S.E.C. has brought fraud charges on one of
Goldman deals known as synthetic subprime mezzanine collateralized debt
obligations, or CDOs. While most of these deals remain shrouded in
secrecy, one of them, Anderson Mezzanine Funding 2007, Ltd.
lays out its blueprint in sufficient detail so that we can pinpoint how
and why this transaction's failure was never in doubt.
" in 2007 the liabilities of Barclays exceeded the UK’s GDP, the liabilities of Deutsche Bank stood at 80% of Germany’s GDP, and the liabilities of Fortis were several times larger than the GDP of its home country, Belgium ... such financial institutions may not just be “too big to fail”, but in fact “too big to exist” ... It was irrational to let Lehman Brothers fail, but it happened. Those who bet on that failure earned a substantial amount of money. So why not bet on a possible irrationality of European decision-making? "
Presentation By David Yerushalmi Suing The Fed On Grounds AIG Takeover Was Illegal Money Laundering SchemeSubmitted by Tyler Durden on 04/15/2010 16:41 -0500
Some time ago, the law office of David Yerushlami, which a week ago filed a lawsuit in the Federal District Court challenging the constitutionality of Obamacare, sued the Fed over its takeover of AIG claiming the entire transaction was illegal and was in essence a money laundering scheme. Below we present the powerpoint presentation prepared by the law firm. Here is how Yerushalmi explains his motive: "The Law Offices of David Yerushalmi, P.C. presents an online PowerPoint presentation fully narrated illustrating rather graphically just how Timothy Geithner, who was then (Sept. 2008) the president of the Federal Reserve Bank of New York, orchestrated the illegal acquisition of 77.9% of AIG's equity and voting rights. As the presentation makes clear, while the FED certainly had authority to loan AIG billions and to take all of the company's assets as collateral, which it did, it had no legal authority to acquire nearly 80% of AIG's shares and voting rights. But this is exactly what it did when it created with great fanfare what is called the AIG Credit Facility Trust." Attached also is a latter by David to SIGTARP Barofsky, discussing the same.
There is very little chance that economists will improve their models because ...
According to Michael Hudson, government debt in Greece is just the first in a series of European debt bombs that are set to explode. Read his excellent comment and listen to his interview On The Edge with Max Keiser where he says the latest health care reform was a giveaway to private health insurers and governments around the world are committing economic suicide by adopting IMF austerity measures while they pile on more debt.
The ECB just disclosed that it will continue accepting sub-A rated debt as collateral post January 1, 2011, as was widely speculated, merely to facilitiate funding needs of countries which are getting increasingly lower-rated by the rating agencies. Furthermore, the ECB has made it clear that this whole exercise is merely for optical purposes: "The new haircuts will not imply an undue decrease in the collateral available to counterparties." What is notable, however, is that the ECB has highlighted it will no longer accept non euro-denominated collateral after 2010. This is not good for countries which plan on syndicating dollar-denominated debt, as has been recently the case for Portugal, and, currently, Greece. Although in Greece's case we tend to think the country doesn't give a rat's behind about whether new issuance will be eligible, andis much more focused on just avoiding default.
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.
William Black: "If The Obama Administration Continues This Way, It's Going To Have A Record Disaster At The Mid-term Elections"Submitted by Tyler Durden on 04/04/2010 15:51 -0500
In this must watch Real News Network interview with William Black, the outspoken critic of all that is wrong and broken with the current system spares no words to once again denounce the (purposeful) ineffectiveness of the administration, and rightfully predicts that with Obama's current track record of inactivity in dealing with the corruption and criminality at the nexus of finance and politics, there will be a massive loss for Democrats at the upcoming mid-term elections. In Black's words: "We knew as soon as we saw Summers and Geithner that the finance side of the administration would be a disaster, but we hoped that political side would be preeminent and say a) this is substantively wrong to continue get in bed with finance and b) it's terrible politics. The democratic party will be crushed if it does this. The political side has failed to get involved. This is one of those rare things where doing the right thing is really good politics, so support candidates that will actually do the right thing. And if the Obama administration continues this way, it's going to have a record disaster at the mid-term elections. There's going to be a massive loss of democratic seats."
Jim Grant Takes On David Rosenberg And The Bond Bulls, Warns The Fed Chairman: "Watch Your Back Ben Bernanke, Cycles Turn"Submitted by Tyler Durden on 04/03/2010 13:25 -0500
In one of the most erudite, intelligent, and insightful conversations on the Bond bull/bear debate, David Rosenberg and Jim Grant go all out at each other, trading blows in this "Great Debate" which is a must see by all. As we pointed out yesterday, Grant is very bearish on bonds, and in a self-made prospectus has decided to downgrade the US, since the rating agencies, which have long been thoroughly incompetent, corrupt and afraid to disturb the status quo, will not do so until it is too late. Jim's point is simple: you can't resolve massive debt with more debt, and says Treasuries, which he calls "certificates of confiscation" are a surefire way to lose one's money. He points to the record supply of US Treasuries, makes fun of the SEC (who doesn't), and in a stunning move, cautions the Fed Chairman, whose ongoing dollar debasement, was once considered treason by the US. His conclusion: "watch your back, Ben Bernanke. Cycles turn" could not have come at a more opportune time. As a contrarian, Rosenberg discusses the McKinsey report looking at sovereign debt, and the Reinhart and Rogoff studies on debt default and highlights that there is a major disconnect between theoretical applications of sovereign default models and practice: in essence the US is still deleveraging as private debt is decreasing and public debt is surging but to a slower degree. In essence, David claims, the second largest monthly debt issuance in March of $333 billion is merely a side effect of ongoing deleveraging, which is a leading and/or coincident indicator of deflation: an environment in which the long bond thrives (Japan is a good reference point).
Lockyer Redux: "Unfair To Compare Cali With Greece" But Fair To Scapegoat Cali's Problems On Speculators... Just Like GreeceSubmitted by Tyler Durden on 03/30/2010 16:56 -0500
As we expected, Bill Lockyer has decided to go the media circus route. He won't be the first (G-Pap already did that. We have not heard much from him ever since it was uncovered that the biggest speculator in Greek CDS was Greek Post Bank), and he certainly won't be the last (there are about 49 other bankrupt states in America). But at least the Greeks were consistent - blah blah CDS = satan blah. From the attached clip, please someone explain in plain English just what it is that Lockyer is trying say: "If someone is in the market concurrently marketing risk claiming that there's some risk associated with these issues I don't know to what extent it affects investor perceptions and nervousness that might cause yields to increase. That's the question - we are not making any allegations." uh...................what? Did the Red Hot Chili Peppers, like, infiltrate the Cali Capitol and infuse the HVAC with legalized marijuana? Is the question how dare someone disclose that an investment may actually fall in value (and why)? Hold on, isn't the Connecticut AG suing the rating agencies for not doing just that?
Dear Chief Financial Officer:
We are currently reviewing your Form 10-K for fiscal year ended__. In our effort to better understand the decisions you made in determining the accounting for certain of your repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets, we ask that you provide us with information relating to those decisions and your disclosure.
With regard to your repurchase agreements, please tell us whether you account for any of those agreements as sales for accounting purposes in your financial statements. If you do, we ask that you:
The credit rating agencies have given both China and the U.S. credit warnings. How can the U.S. prevent a downgrading? Hint: it won't be from a reduction in spending.