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Even the Fed Can’t Value Financials’ Risk
Without trust, the financial system cannot work. The regulators and Federal Reserve have done nothing to assuage these concerns. Instead they’ve shifted all trust onto their own shoulders: the defining bull argument for the market and economy is that “the Fed will save us”, or “don’t fight the Fed.”
As powerful as it may be, the Fed is not the market. And since the Fed failed to restore trust in the system by forcing all bad debts to light, the financial world has grown increasingly volatile and broken as investors grow increasingly distrustful of the system and begin to pull their money from it: investors have pulled $266 billion from stock based mutual funds since January 2008.
Nowhere is the lack of trust more apparent than in the financial sector. Indeed, it was a lack of trust between banks (inter-bank lending) that caused the credit markets to jam up in 2008, which resulted in the Crash.
That lack of trust continues to this day. In the post-Lehman collapse, instead of forcing real derivative and credit risk out into the open, the Federal Reserve and regulators instead suspended accounting standards and allowed financial firms (and other corporate entities) to continue to lie about the true state of their balance sheets.
As a result of this, the financial sector remains rife with fraud and impossible to accurately value (how can you value a business that is lying about its balance sheet?).
Those times in which a company was forced to value its assets at market prices have always seen said values losing 80%+ value in short order: consider Washington Mutual, which sported a book value north of $70 billion right up until it was sold for… $2 billion.
This type of fraud is endemic in the system. Indeed, we got a taste of just how problematic a lack of transparency can be with MF Global’s bankruptcy, in which a firm with $42 billion in assets lost over 80% of its value since August only to reveal in bankruptcy that it had stolen over $700 million worth of clients’ money.
Report: MF Global Exec Admits to Using Client Money
MF Global, the futures brokerage that imploded this week after facing a run on the bank, reportedly admitted to regulators it used client money in an apparent violation of government rules and Wall Street practices.
According to The Associated Press, an unnamed executive from the New York-based firm that is led by former Goldman Sachs chief Jon Corzine made the admission Monday morning after regulators discovered some $700 million went missing.
That MF Global engaged in fraud and stole clients’ money is noteworthy. However, the far more important issue is: HOW did this company receive primary dealer status from the NY Fed this year?
The Primary Dealers are the banks that actively engage in day to day activities with the New York Fed regarding the Fed’s monetary policies. Primary Dealers also participate in US Treasury auctions.
Put another way, Primary Dealers are the most elite, well-connected financial firms in the world. They have unequal access to both the Fed and the US Treasury Dept. In order for MF Global to have attained this status it must have passed through a review by:
1) The New York Fed
2) The SEC
This is not a quick nor superficial process. According to the NY Fed’s own site:
Upon submission of a formal application, a prospective primary dealer can expect at least six months of formal consideration by the New York Fed. That consideration may include, among other things, on-site reviews of front, middle, and back office operations, review of compliance programs and discussions with compliance and credit risk management staff, discussions with senior management about business plans, financial condition, and the ability to meet FRBNY’s business needs, review of financial information, and consultation with primary supervisors and regulators.
MF Global passed through all of these reviews to became a primary dealer in February 2011. Today, a mere nine months later, the firm is in Chapter 11 and has admitted to stealing clients’ funds to maintain liquidity.
These developments reveal, beyond any doubt, that financial oversight in the US is virtually non-existent. This returns to my primary point: that trust has been lost in the system. And until it is restored, the system will remain broken.
A final note on this: the NY Fed is the single most powerful entity in charge of the Fed’s daily operations. How can any investor believe that the Fed can manage the system and restore trust when the NY Fed granted MF Global primary dealer status a mere nine months before the latter went bankrupt?
If the NY Fed cannot accurately audit a financial firm’s risks during a six month review, then there is NO WAY an ordinary investor can do so.
With that in mind, the banking system remains at HUGE risk as NO ONE, not even the Fed, knows the true exposure on financials’ balance sheets. The Fed couldn’t even accurately assess MF Global, a $40 BILLION company. How could it assess JP Morgan or the TBTFs!?!?!
The reality is that 2008 was just the warm-up. We’re now heading into the Second Round of the GREAT CRISIS: the Sovereign Default round in which entire countries will go bust. By the time this mess ends, we’re facing systemic failure, bank holidays, debt defaults, and more.
So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We're literally at most a few months, and very likely just a few weeks from Europe's banks imploding.
On that note, if you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
Best of all, this report is 100% FREE. To pick up your copy today simply go to: http://www.gainspainscapital.com and click on the OUR FREE REPORTS tab.
Good Investing!
Graham Summers
PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years or the best most profitable strategy for individual investors looking to profit from the upcoming US Debt Default, my reports covers it.
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Still, " As powerful as it may be, the Fed is not the market. " sounds Great !
Call a spade a spade. The NY Fed is nothing but a Goldman Sachs good ole boy network. Corzine was a Goldman Sachs good ole boy and recall Turbo bailed out Goldman 100 cents on the dollar out of AIG, not to mention the insider trading the old Goldman exec did with Goldman stock with his insider knowledge of the bailout. There is probably not enough years left in the life of Earth to count how many years of prison should be assessed these bankers within the NY Fed.
So did the Fed and SEC observe government bonds as risk free assets, including those of Greece and Italy?
I'm sure there is more to it than that, but could it be that governments and people just can't valuate risk appropriately until it is too late?
how can you put a value on somethig thats worthless like the federal reserve note.
or all the federal reserve notes.
You could start with your house
Shut up and prosecute. This includes securitization (MERS) and mafia laundering all the way down to liars loans - demand state attorney generals and local prosecutors do the same. Throw the bums out that won't prosecute.
That will bring trust back.
Graham! Sheesh. The NY Fed is not in the business of accurately auditing a financial firm’s risks. Dude. Wake up. When Timmay was head of the NY Fed, he stated several times in major speeches just before Bear went bye-bye that what Bear and Lehman and everyone else was doing was actually REDUCING systemic risk.
Jubilee anyone?
Somebody get Dick Bove on the speaker phone...
Great analysis. Same story since 900 on the S&P. But thanks.
Will the Fed bailout Cali?
<<The State Controller announced this week that last month state revenues were off by a stunning $810 million. This is hard to fathom even for a state as large as California. I think it is important to analyze the condition and vital signs of the state to fully understand the future trends of the real estate market. It is clear that the upcoming years will look nothing like the past.>>
http://www.doctorhousingbubble.com/manic-california-state-budget-project...
The private analysts threw in the towel assessing bank financials some time ago. I guess even the Fed can't penetrate the black box. Only God knows the true amount of voodoo shit hidden in that box...at least for now.
RIGHT ON! The article supports what Inflection Point has been saying all along:
THE ROOT OF OUR SOCIAL, ECONOMIC, MILITARISTIC WOW'S IS AN EVIL, MONETARY SYSTEM. EVERYTHING ELSE IS A SYMPTOM OR AN ACTION THAT SUPPORTS IT. AT THE HEART OF THIS SYSTEM ARE THE CENTRAL BANKS; THE FED, THOSE WHO CONTROL IT AND THEIR DISHONEST, DEBT BASED MONETARY POLICIES. AS SUCH; REGULATIONS, LAWS, THE CAPTURE OF GOVERNMENT AND REGULATORS, AND THE SUSPENSION OF ACCOUNTING RULES IS FOR THEIR BENEFIT. AN ACCOUNT OF THE PEOPLE HAS NO PLACE IN IT. INDEED, IF THE PEOPLE WERE ITS PRIMARY CONCERN, THE WORLD WOULD BE MORE FREE, LESS VIOLENT AND MORE PROSPEROUS.
THE PRIVATELY HELD FED IS THE TOP REGULATOR OF ITS TBTF OWNERS AND MEMBER BANKS. IT'S CREATION OF MONEY OUT OF THIN AIR; LOANED, AT INTEREST, TO THE SOVEREIGN AND ITS FRACTIONAL RESERVE SYSTEM IS THE MOST INSIDIOUS OF CRIMINAL PONZIS FOR WHICH ALL ITS FAUX REGULATIONS AND FINANCIAL MISALLOCATIONS FOLLOW.
THE FED'S FIAT PETRO-DOLLAR AND IT’S DEBT SLAVERY ECONOMIC MODEL, IS THE MOST POWERFUL CENTRALIZING FORCE KNOWN. IT IS THE GENESIS OF FUNDING FOR THE ELITE MONEY POWER, THEIR CONTRIVED SCHEMES OF CONTROL, AND A SYSTEM OF INCREASING DEBT AND GLOBAL WAR.
TO FREE OURSELVES, RESTORE FREE MARKET CAPITALISM AND REESTABLISH OUR CONSTITUTIONAL REPUBLIC, WE MUST FIRST ELIMINATE THE MOST PERNICIOUS CORRUPTING FORCE OF ALL.
END THE FED!
See:
Money Power And The Central Bank: Life Is But A MEME
END THE FED: THE FIRST STEP IN RESTORING OUR CONSTITUTIONAL REPUBLIC
14 Reasons Why We Should Nationalize The Federal Reserve
Also see how Banksy has drawn upon WB7's work:
Even the Fed Can’t Value Financials’ Risk
"it was a lack of trust between banks"
Like, when is a 50% mandated debt write-down not a credit event?
Yup, like "you will accept this loss voluntarily", with the emphasis on voluntarily.
Wonder what the future quid pro quo for that little miracle is gonna cost us?
In order for MF Global to have attained this status it must have passed through a review by:
1) The New York Fed
2) The SEC
Let's not stop there Mr Summers. The MF'ing Global scandal isn't just egg on the face for the Fed and SEC... there's a truck load of battery-farmed eggs been firing non-stop from a machine gun into the pompous faces of Regulators since 2007 for their totally incompetent, or is it totally corrupt, Regulatory system.
In addition to the asleep at the wheel morons at the NY Fed and SEC over the MF Scandal we have;
3) The CME "highy regulated"
4) The CTFC "self regulating"
Yes another 2 big sleepies/turkeys at the wheel in this 4-way regulatory train/turkey wreck. In fact the CME claims to monitor participants on a daily basis including that client funds are seperated (see article)
http://seekingalpha.com/article/306068-cme-is-legally-liable-for-mf-glob...
So we have no less than 4 comatose (or corrupt) regulatory bodies spouting to regulate and gobbing off to consumers about safeguarding client funds all with lorry loads of egg dripping down their over-paid faces onto their expensive suits across their desks and all over their files of regulations
The only matter left is for a mob of plucked and fleeced investors to take these lame ducks out to tar and feather them
5 ) The give-a-fuck Big 4 auditors
Yes you'd think the Auditor(Accountancy profession would have cleaned up their act by now, at least since Enron ...but nope, still hired crones of the system (of Govt) and of their paymasters (the Exec Board)
Accountancy as a profession is toast in the few years ahead.. their greed is bigger than their brains
....the firms blow themselves up, then morph into something else with what looks like a respectable name over the door. Like cockroaches, you just can't entirely rid yourself of these bagmen.
you can get rid of these roaches if you rid yourself of their protection racket, Govt
it is Govt that makes it compulsory by Law for companies to have audits (for our "protection" no less). Like the Legal profession the Accountancy profession has been built up on the bac of the mushroom cloud of Laws the West (and its efficiency and productivity) has been buried and strangled in
Zero Govt = Zero Law/Lawyers & Accountants & Regulators ...the free market is far more refreshing than we can imagine
when and where has it occurred? three examples.
lol.
The Fed is so powerful they can make or break any financial institution and almost any sovereign nation. The entity is so powerful they scoff at puny humans who want to "End the Fed" because how does one kill it? We know that CONgress supposedly has the power but that's never going to happen. So, who has a big enough army of dragon slayers to take it on?
10,000 Zher's is a good start and add to the list the Alt market folks and the survivalblog folks and that site and this site and that other site over there.. etc...
Alot of the sites end up leading to similiar minded folks and is a rather large chain of them going around, I would say at least 500 atm.. Those numbers start adding up and you eventually have a shitload of like minded folks who are very pissed off irked irratated want Justice in one way shape or form...
Zh is most likely one of the top 20 Fed watched internet sites.. Gotta look for them bomb wielding gun toting american hating americans ya know!
So asking for a large amount of dragonslayers is easy if you follow all the sites that link each other and therein you find our solutions as well.
just getting them all together on the same subject is the irratating part..
Sorry for mispelling, I dont really care to spell check atm and am to lazy:(
Easy Peasy Lemon Squeezy to End the Fed
soon as taxpayers stop paying tax. No Tax = No Govt. Everything else (inc The Fed and WS Banks) hangs on that slim fragile thread of tax
the peoples salvation is in the hands of the people. Pay No Tax. Game Over
Sorry, after the "trust the NY Fed" i just rolled off and started to barf, because I was laughing so hard.
He's exactly right, the fox essentially is guarding the henhouse. No one is regulating the big players or friends of the big players. In fact the SEC and other govt. entities are acting like they are in cahots with the firms. The executive from MF global admits that they used 700 million of client money which is against the law, he should be arrested.
"That MF Global engaged in fraud and stole clients’ money is noteworthy. However, the far more important issue is: HOW did this company receive primary dealer status from the NY Fed this year?"
The Government, and the FED, have been engaging in fraud and stealing their clients money (taxpayers) for a long time now.
Not too surprising they looked the other way when MF Global did it, after all, it was an old Goldman Sachs crony Corzine in charge.
NO TRUST is exactly right.
bank holiday anyone?
http://expose2.wordpress.com
http://rt.com/usa/news/roubini-sachs-global-mf-861/