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It's an Eminence Front, Dress Yourself to Kill

broadcatching — Mon, 13 Oct 2008 16:20:48 +0000

People Forget....

Inflation and why you need to understand it...

Washington Y Sanchez — Mon, 13 Oct 2008 13:46:14 +0000

I often get into trouble when I operate out of a flawed understanding of a word and/or concept. It can throw you off course and find you supporting or defending something you really shouldn't. As such, I have found an excellent little video to explain the word and concept of inflation, and how it will contribute to a disaster in the US economy within the next few years.

The spider to the fly

ronsims — Mon, 13 Oct 2008 13:16:41 +0000

The US Treasury and Federal Reserve are giving over a trillion dollars to financial institutions. They also intend to invest and assume partial ownership in them as well. Yet, the only thing being promised the American taxpayer is easier credit. Is that a good thing?

Everyone, including my son, who happens to be a junior in college and unemployed, is being inundated by offers for credit cards. Most of my household mail consists of mailers from numerous financial institutions offering me credit cards. They promise low interest rates yet the fine print says that if you make one late payment, they can charge you a usurious 25-30 percent. Credit cards have become so easy to get, but so expensive to manage. The allure of credit cards is appropriately captured by this stanza from the poem Spider to the Fly by Mary Howitt, Will you walk into my parlour?” said the Spider to the Fly, ‘Tis the prettiest little parlour that ever you did spy.

Should we be concerned? In the New York Times article Some Debt Trends Are Good. This Isn’t One of Them, they reported AMERICAN credit card debt is growing at the fastest rate in years, a fact that may signal coming trouble for the banks that issue them. This week the Federal Reserve reported that the amount of revolving consumer credit that is outstanding hit $937.5 billion in November, when seasonally adjusted, up 7.4 percent from a year earlier.” Market Watch in their news piece, Another shoe to drop, says Credit-card debt is on the brink of imploding and will be the next storm to hit the fragile finance industry, an investment research firm predicted this week. The Washington DC think tank, Center for American Progress, believes so. In their report, House of Card, they state, As borrowing in the mortgage market slows, credit card borrowing is accelerating-a dangerous trend because borrowers still face weak income growth. That means the credit card market could eventually run into the same problems that now afflict the subprime mortgage market.

The Center for Responsible Lending, a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth, in its report Pushing the Limit states, During the past few years, the United States has experienced an unprecedented boom in household debt. Although most household debt is in the form of mortgages and home equity lines, credit card debt deserves particular attention. The reason: credit card debt tends to carry high interest rates, large fees and a number of hidden costs, all of which weigh disproportionately on lower income families. They are also concerned about the mortgage refinancing of credit card date. In their report, Risking Homes to Pay Off Credit Cards, The fear of overwhelming credit card debt is driving many Americans to hand their equity back to mortgage lenders in the form of “cash-out”

What are the solutions? The Council on American Progress succinctly summarizes a variety of solutions: implement a credit card safety rating system that can give consumers better information about their credit cards and thus help them make better decisions; and Congress should mandate a higher level of fairness in credit card terms by adopting the Credit Cardholders’ Bill of Rights Act that also bans several of the most abusive credit card practices.

USA Today reports in its article a proposal would limit increases in credit card fees, and rates. The Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Administration are recommending a proposal that would:

Bar issuers from raising interest rates on existing debt, except under certain conditions, such as when a promotional rate expires or when a borrower pays 30 days or more late.
Prohibit issuers from calculating one month of finance charges based on two months’ worth of activity, a punitive practice called double-cycle billing.
Require card issuers to apply monthly payments that exceed the required minimum at least partly to higher-rate card debt. Borrowers often face varying interest rates on credit card debt, for cash advances, balances transferred and purchases.
Bar financial institutions from charging checking-account customers a fee for paying an overdraft - unless the customer has had the chance to opt out of this payment.
Bar financial institutions from charging checking-account customers a fee for paying an overdraft - unless the customer has had the chance to opt out of this payment.

“Do not accustom yourself to consider debt only as an inconvenience; you will find it a calamity.”

- Samuel Johnson

Related information

The Spider and the Fly poem by Mary Howitt
http://tiny.cc/yo4HU
Some Debt Trends Are Good. This Isn't One of Them
http://tiny.cc/jSuTA
Another shoe to drop
http://tiny.cc/g6uKK
House of Card
http://tiny.cc/B8zyu
Problems with Plastic: Credit Card Debt Hits Record High
http://tiny.cc/QiGPz
The Center for Responsible Lending
http://tiny.cc/B4Ww7
Pushing the Limit: Credit Card Debt Burdens American Families
http://tiny.cc/IIaVA
Risking Homes to Pay Off Credit Cards
http://tiny.cc/Gmo5S
Proposal would limit increases in credit card fees, rates
http://tiny.cc/lOrWL

The G7 Meet Over the Weekend to Save the World

fulltakedown — Mon, 13 Oct 2008 12:08:32 +0000

The G7 represent the Economic Super Powers of the world stated over the weekend they would use their powers to prevent further fallout of the financial and banking system. The announcement reminded me of the Justice League animated series I watched as a kid growing up that would work to save the world every morning on Saturdays. The Powerful Myth was an important assurance for the capabilities for the world to handle crisis and evil doers that could potential wreck havoc on the world. My question would be, where these Super Heroes were earlier when the world was crashing in a slow train wreck over previous weeks. The media are now pinpointing the rapid deterioration on the failure to save Lehman in the time of need. The markets have been falling hard last 5 days has seen a fall close to 1900 points and the market is down over 24% in last 3 months .

The Rollercoaster Ride Mostly Down

The ride has been tumultuous, last week's historic fall on Wall Street, which left the broad market 42.5% off its Oct. 9, 2007, all-time high. In just five trading days, the Dow Jones industrial average plunged 1,874 points, which adds up to an 18.2% decline. Both the point and percentage drop were weekly records.

What Started the Collapse

The failure to take necessary steps to save Lehman was the catalyst or the domino that started the rapid deterioration . On Sept 15, Lehman filed for bankruptcy ending 158 years firm on Wall Street. Lehman was in the process of raising funds from investors to shore up the balance sheet during the preceding weekend. Lehman failed to secure an investor to at the eleventh hour and had to file for bankruptcy the following morning. The US financial authorities decided to do nothing and failed to prevent the collapse.

“I never once considered it appropriate to put taxpayer money on the line in resolving Lehman Brothers,” Hank Paulson, Treasury secretary, said the day after Lehman’s demise.

Six months earlier, the Federal Reserve and the Treasury had stepped in to prevent the Bear Stearns from filing for bankruptcy and protected substantial amount of debt for collapsing as well. Lehman had maybe misinterpreted the Treasury and the Fed with the too big to fail mindset that prevent more drastic efforts at the firm. The failure of Lehman lead to further train of events that created more downside pressure on the markets, already on edge, of collapsing even further,

Breaking the Buck

The day after Lehman filed for bankruptcy, the $62bn Reserve Primary Fund, the country’s oldest money market fund, posted on its website: “The value of the debt securities issued by Lehman Brothers Holdings (face value $785m) and held by the Primary Fund has been valued at zero effective as of 4pm New York time today.”

This pushed the value of the assets in the fund to below their $1 per share face value. In other words, the fund had “broken the buck” – an event greatly feared by regulators and fund managers since the start of the credit crisis more than a year before.

Money market funds’ popularity rested on their reputation for being almost as secure as bank deposits. The $3,500bn US money market fund industry is used by banks and companies across the world for their short-term financing needs.

As word of the Reserve Fund’s predicament spread, investors fled. By that weekend, more than $200bn had been pulled from money market funds, by both retail and institutional investors. When other short-term funds, such as prime funds, are included, the amount that was taken out of short-term investments quickly reached $400bn.

That shift brought the funds under heavy pressure to sell into an illiquid market, simply to ensure they had enough cash to pay investors withdrawing their money. For banks, heavily reliant on these investors for their funding needs, it created a spiral of liquidity crises. “It was the straw that broke the camel’s back,” says Joe Lynagh, a portfolio manager at T. Rowe Price, an investment company.

Frozen

The Credit Market have essentially become frozen with the breaking of the buck and literal disappearance of capital when creditor and assets held at Lehman disappeared. The money market safe heaven was longer safe, and money was held more closely and tightly with investors.

“After the failure of Lehman Brothers ... institutional investors have said that they would prefer to stay home,” says Bill Gross of Pimco, the bond fund manager. “Instead of risking their money [it] goes into that figurative mattress.”

The government made some moves and reassurance since them. Treasury announced 700B package to save the market form turmoil after rescuing Freddie and Fannie. The Treasury appointed a 700B man to coordinate the funding. The government or more aptly, Congress dragged itself in the approval of the package creating further uncertainty in the market looking for reassurance and leadership.

The Weekend

There is a sense of urgency and call for coordinated action from the US and the EU to work together to solve the finical crisis. The G7 plans to meet this weekend to hammer out a coordinated effort to address the markets and need for assurance and restore confidence.

“With financial markets worldwide facing growing turmoil, internationally coherent and decisive policy measures will be required to restore confidence in the global financial system,” the International Monetary Fund said last week, warning that a failure to do so would be “costly for the real economy”.

Prof Krugman in NYT piece Moment of Truth states the importance of the addressing the financial crisis and potential threat to the global finical system. Krugman advises the immediate need for the governments to coordinate efforts to solve issues by the weekend before markets open.

Krugman in no uncertain terms:

And the time to act is now. You may think that things can’t get any worse — but they can, and if nothing is done in the next few days, they will.

Soros’ call to action

Soros outlines the need to recapitalize the banking system and strategies to be used to ensure level of confidence, and getting the banks to start functioning in the markets to lend again.

Soros in FT on Scheme to Recapitalize Banking System

It would help restart the economy and likely produce returns for taxpayers comparable to my fund’s. But time is of the essence. The authorities have lost control of the situation because they were constantly lagging behind events. By the time they acted, measures that could have stabilized markets were ineffective. Only by promptly announcing a comprehensive set of measures and executing them vigorously can the situation be brought under control.

Actions speak louder than words.

Westminster in bondage to the City

Sabine McNeill — Mon, 13 Oct 2008 06:23:49 +0000

Here's what Ronald Rankin, publisher of Scottisch Monetary Reform and author of the oldest statistics about the Cash : Credit ratio writes about the current crisis:

Instead of Banks being allowed to CREATE 'money' out of nothing and then convince our Governments to legitimise this with gilt-edged securities, and after that have the audacity to lend it to said Government treasuries plus usurious interest; it must be put right way up where the State (in the name of the people) creates its own money, including debt/credit, and obliges private Banks to borrow from them at a low rate of interest which accrues to the State.

New Rules For October 10, 2008 | Bill Maher

broadcatching — Sun, 12 Oct 2008 22:13:53 +0000

Bill Maher | October 10, 2008 | Nixon Warned of U.S. Becoming Pitiful Helpless Giant

broadcatching — Sun, 12 Oct 2008 22:11:22 +0000

The 56 Trillion Dollar Deficit | Bill Maher Interviews Fmr. Comptroller General David Walker

broadcatching — Sun, 12 Oct 2008 21:56:33 +0000

DAVID WALKER in CNN online:

CNN) -- The Emergency Economic Stabilization Act contains plenty to make lawmakers on the left and right shudder. On the right, it's the apparent abandonment of free-market principles. On the left, it's the absence of punishment for high-flying Wall Street CEO's.

Looking down the middle, what I found downright unnerving was how hard Washington struggled to pass a bill that, in reality, represents less than 1 percent of our current federal financial hole.

Don't get me wrong. Congress and the Bush Administration are to be commended for acting to relieve the credit crunch and trying to minimize any immediate, adverse effect on our economy and by consequence, on American jobs and access to credit.

The ultimate cost of the act should ring up at less than $500 billion, less than the advertised $700 billion because of anticipated proceeds from the government's sale of the assets it will acquire with the appropriated funds.

The nation's real tab, on the other hand, amounted to $53 trillion as of the end of the last fiscal year. That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations -- all according to the government's most recent financial statement of September 30, 2007.
Don't Miss * Fed pumps billions more into banks * Dollar plummets against yen * In Depth: Commentaries

The rescue package and other bailout efforts for Fannie Mae, Freddie Mac, AIG and the auto industry, escalating operating deficits, compounding interest and other factors are likely to boost the tab to $56 trillion or more by the end of this calendar year.

With numbers and trends like this, you might ask, "Who will bail out America?" The answer is, no one but us!

Since we're going to have to save ourselves, recent events could hardly be called encouraging. It took an additional $100 billion in incentives -- some would call them "sweeteners;" others might call them bribes -- to get lawmakers to pass the rescue package. Regardless of what you call these incentives, ultimately the taxpayers will have to pick up the tab, with interest.

The process that was employed to achieve enactment of this bill was hardly a model of efficiency or effectiveness. The original proposal represented an over-reach and under-communication by the administration.

Neither lawmakers nor ordinary citizens had enough information to properly assess the real risks, the need for action and what an appropriate course of action might be. Furthermore, the key players allowed the legislation to be characterized as a $700 billion bailout of Wall Street, which was neither an accurate nor a fair reflection of the legislation.

Passage of the credit-crunch relief provisions in the act was understandable, not just because of what risks and needed actions the Treasury and the Federal Reserve were aware of, but more importantly, because of what policymakers didn't know and eventually might have to address.

Let's face it -- the regular order in Washington is broken. We must move beyond crisis management approaches and start to address some of the key fiscal and other challenges facing this country if we want our future to be better than our past.

A good place to start would be for the presidential candidates to acknowledge our $53 trillion (and growing) federal financial hole and commit to begin to address it. Their endorsement of the need for a bipartisan fiscal future commission along the lines of the one sponsored by Rep. Jim Cooper, D-Tennessee, and Rep. Frank Wolf, R-Virginia, also would make sense.

Any such commission should, at a minimum, address the need for statutory budget controls, comprehensive Social Security reform, a first round of tax reform and a first round of comprehensive health care reform. It should hold hearings both inside and beyond the Beltway. And, its recommendations should be guaranteed to receive an up-or-down vote by Congress if a super-majority of the commission's members can agree on a comprehensive proposal.

Editor's Note: David M. Walker served as comptroller general of the United States and head of the Government Accountability Office (GAO) from 1998 to 2008. He is now president and CEO of the Peter G. Peterson Foundation.
Our fiscal time bomb is ticking, and the time for action is now!
DAVID WALKER

Now Can We Legalize Pot? | Bill Maher | Oct. 10, 2008

broadcatching — Sun, 12 Oct 2008 21:51:25 +0000

Thank God We're Not Stuck in That Horrible Clinton Economy | Real Time With Bill Maher | October 10, 2008

broadcatching — Sun, 12 Oct 2008 21:45:32 +0000

DREAMING- treasury by Mistflower Studio

Joanna — Sun, 12 Oct 2008 14:45:49 +0000

My photograph haven't been listed lately in treasury that made the front page on Etsy. Until last night, or should I say- very early morning today.

Treasury made by Mistflower Studio was posted as front page treasury, I guess about 4am this morning. I'm really excited about it!!! And my print Soft in Red was featured among amazing pieces other from Etsy artists

Here is the screenshot:
[caption id="attachment_70" align="aligncenter" width="303" caption="Dreaming"][/caption]

Dead People Overwhelmingly Support John McCain | Bill Maher | October 3, 2008

broadcatching — Sat, 11 Oct 2008 19:20:39 +0000

Bill Maher | A Travel Guide For Disheartened Americans | 10/10/08

broadcatching — Sat, 11 Oct 2008 19:15:15 +0000

Barack Obama Wants to Steal Your Grandmother | Bill Maher 10/10/08

broadcatching — Sat, 11 Oct 2008 17:44:45 +0000

Oliver Stone w/ Bill Maher "Bush Would Have Died in Vietnam"

broadcatching — Sat, 11 Oct 2008 17:42:58 +0000

UK Government 'ignored Iceland warning'/ Charities may lose

Rainbow Warrior — Sat, 11 Oct 2008 05:51:55 +0000

Charities' fear over failed banks

UK charities say they fear they have lost up to £120 million of funds invested in collapsed Icelandic banks.

UK charities fear they may have lost up to £120m of funds invested in failed Icelandic banks.

The National Council for Voluntary Organisations says at least 60 members have reported funds may be at risk.

The NCVO has met ministers, who are promising to do all they can to protect an estimated £1bn held by charities, UK councils and other bodies in Iceland.

A Treasury delegation is in Reykjavik and the UK and Iceland say they will now work together for a solution.

The group includes officials from the Bank of England and the Financial Services Authority.

'Disconcerting remarks'

The crisis sparked a war of words between London and Reykjavik on Thursday, with Gordon Brown criticising the Icelandic authorities for failing to guarantee UK depositors would get their money back.

Under Iceland's financial regulations, the government is supposed to pay up to £16,000 compensation per account at a total cost of £2.2bn.

A spokesman for Mr Brown said the UK now hoped to work "constructively and co-operatively" with the Icelandic authorities.

Icelandic Prime Minister Geir Haarde had accused the UK of being responsible for the collapse of the country's third largest bank, Kaupthing, after anti-terrorism laws were used to freeze assets in the UK. (Like Iceland is a terrorist.)

Iceland's Prime Minister Geir Haarde said he had received a letter from Gordon Brown

On Friday, Mr Haarde confirmed both countries were working together but said Mr Brown's comments had been "disconcerting" and "not very helpful".

Meanwhile, the UK government has denied claims of "complacency" after it apparently ignored warnings in July about Icelandic banks facing collapse.

Lib Dem peer Lord Oakeshott and Tory MP Michael Fallon both raised the issue with ministers on separate occasions.

They were reassured savers would be protected by law.

A Treasury spokesman said: "As the minister made clear at the time, the Icelandic authorities have a legal obligation to pay out depositors under their existing compensation scheme and we expect them to honour this commitment."

He added it was not the role of the UK government to advise UK residents and citizens of financial institutions around the world, and few people had anticipated the current situation.

Chancellor Alistair Darling, who is in Washington for meetings with other G7 finance ministers and the International Monetary Fund, told the BBC that simply "talking" would not lead to a solution.

'Uncertain position'

Meanwhile, as details of charity deposits emerged, a cancer hospital in Manchester has announced it was the latest victim of the Icelandic bank collapse.

The Christie NHS Foundation Trust, based in Withington is facing losses of £7.5m after depositing the funds with Kaupthing Singer and Friedlander. Up to £6.5m was charity money.

The Cats Protection League said it also had £11.2m deposited in a UK bank owned by the collapsed Kaupthing.
NCVO said City Minister Paul Myners had given no guarantees during their meeting that such assets would be secure, although he was "reassuring".

Chief executive Stuart Etherington said: "He was saying the government would do all it can to ensure the assets of these charities are reunited with them. He was very positive about that.

"What's important is the charities which have been affected by this come forward. If we're going to secure adequate compensation for them, with the strength of the UK government, it's important they come forward."

Some NCVO members which provide services for councils fear they will not be paid if town halls lose money in the crisis.

Most of the charities which have investments in troubled Icelandic banks have not yet been named, but they are thought to include major organisations.

Other charities known to be affected include Naomi House children's hospice in Sutton Scotney, near Winchester, which has £5.7m of deposits invested with KSF

The Physiological Society in London has £523,000 invested with the same bank, and Samaritans has links to KSF because it is the parent company of Investment Managers, which looks after the charity's investment portfolio.

Graham McGeown, of the Physiological Society, said: "This is a difficult time for our organisation. We have £523k tied up in KSF and are not entirely sure if we will get this money back.

"With NCVO we are calling on the government to help protect our money as well as other organisations who may also be involved in the banking crisis." Under the Financial Services Compensation Scheme, charities classified as small businesses are covered for the first £50,000 of any investments.

But it is not clear whether they would benefit from the wider guarantee given to individual savers by the chancellor that they would recover all of their money.

The NCVO's head of campaigns and communications, Louis High, said many of its members were also concerned about local authorities' ability to pay for services.

He said: "For many smaller organisations that rely on this money and have tight financial constraints, non-payment for their work could be disastrous or even spell their death knell."

The organisation has called a sector-wide summit to examine the potential impact of a recession and what can be done to protect charities from financial disaster.

UK 'ignored Iceland warning'

The government has been accused of "complacency" after it apparently ignored warnings in July about Icelandic banks facing collapse.

Lib Dem peer Lord Oakeshott and Tory MP Michael Fallon both raised the issue with ministers on separate occasions.

They were reassured savers would be protected by law.

The Treasury said it was not the government's role to advise savers and ministers had stressed Iceland had a legal obligation to pay compensation.

Lord Oakeshott said: "Alarm bells were ringing all over about the Icelandic banks and the Treasury must have been blind and deaf not to hear them."

But a Treasury spokesman said: "As the minister made clear at the time, the Icelandic authorities have a legal obligation to pay out depositors under their existing compensation scheme and we expect them to honour this commitment."

He said a government delegation was now in Iceland to find a solution to the current situation.

"This is part of the action the Treasury is taking action to ensure the interests of all retail depositors are safeguarded and that legal obligations to UK creditors are honoured."

Prime Minister Gordon Brown reacted with anger on Thursday after the Icelandic government refused to guarantee the deposits of UK citizens with money in three of its biggest banks, following their collapse.

Crisis talks

Under Iceland's financial regulations, the government is supposed to pay up to £16,000 compensation per account at a total cost of £2.2bn.

Mr Brown is angry as the UK has received no assurances from the Icelandic government that they will meet this commitment. Treasury officials have travelled to Iceland for crisis talks on repayment.

Lord Oakeshott, a pension fund manager and former director of Warburg Investment Management, raised the alarm about possible shortfalls in the compensation funds - and the danger of an Icelandic bank collapse - in written questions more than two months ago.

In the first question, he asked how much cash was in the Icelandic compensation fund and if Britain would be left to pick up the bill if there was a shortfall.

He was told by Treasury minister Lord Davies that the liabilities of the UK's Financial Services Compensation Scheme would be limited to "topping-up" funds provided by the country in which the bank is based.

In a second question, he asked: "What steps [have] the United Kingdom financial authorities taken to satisfy themselves, independently of the Icelandic financial authorities, of the solvency and stability of Icelandic banks taking deposits in the United Kingdom and of that of the Icelandic Deposit Guarantees and Investor-Compensation Scheme behind which the United Kingdom Financial Services Compensation Scheme stands as guarantor of last resort?"

Lord Davies, for the government, replied that there was no concern about the liquidity or capital base of Icelandic banks operating in the UK: "All UK-incorporated subsidiaries of Icelandic banks regulated by the Financial Services Authority continue to meet threshold conditions."

Some banks had been allowed to open branches in the UK through a process known as "passporting," which meant they were not regulated by the FSA, explained Lord Davies.

But he added: "The FSA has a regular dialogue with overseas regulators and firms where the firms passport into the UK, to share information about the firms and specifically their UK operations."

'Sky high rates'

He also assured UK citizens with money in Icelandic banks that they would be "protected against any losses in a similar way as if their savings were in a British bank".

On Monday, Lord Oakeshott again quizzed Lord Davies about how much money was in the Icelandic compensation fund and what would happen if it "cannot or will not pay out".

He told peers: "If my cash were in an Icelandic bank I would be very worried indeed: the currency has collapsed, interest rates are sky high and bank liabilities are hundreds of thousands of pounds for each Icelandic citizen. Would the minister be happy if his savings were in an Icelandic bank?"

In contrast to the lengthy and detailed reply he had given in July, Lord Davies said he had not been "fully briefed" on the situation in Iceland.

"It is not for me at the dispatch box to judge whether it is safe to invest in Icelandic banks," he told peers.

"However, the safeguarding of their position will depend on co-ordinated action in which this country must play a leading role."

Speaking earlier on Friday, Lord Oakeshott accused the government and the FSA of ignoring the growing warnings from the City about the position of Icelandic banks, one of which, Icesave, had deposits that were almost the equivalent of Iceland's entire GDP.

"I asked these various, very hard questions and I got a very complacent answer back from the treasury minister, he told the BBC News Channel, adding he had been alerted to problems in Iceland by credit rating agencies, which had downgraded the country's banks.

"The Financial Services Authority is responsible for the security of British savers' money. They should not have trusted the Icelandic banks to look after £5bn of their money," he added.

Minister grilled

The peer said that together with Lib Dem Treasury spokesman Vince Cable, he had put his concerns about the Icelandic banks to the new head of the FSA, Lord Turner, in an hour long meeting on Tuesday, adding Lord Turner had been "very receptive".

Concerns were also raised in July by the Conservative deputy chairman of the Treasury Select Committee, Michael Fallon, who asked junior Treasury minister Kitty Ussher how much money was in the compensation fund, after press reports there was a shortfall.

Ms Ussher told him: "I do not have figures for the Icelandic compensation scheme."

Mr Fallon then asked if she was satisfied that British investors in Icelandic banks are fully guaranteed in the event of a bank collapse.

Ms Ussher replied: "I am satisfied that the law exists to guarantee them, yes."

Mr Fallon: "You are satisfied that the law exists to guarantee them?"

Ms Ussher: "Yes, under a combination of European and British law."

Mr Fallon: "So they will get all their money back?"

Ms Ussher: "That is the legal situation."

Darling calls for action from G7

Britain v Iceland

Iceland's banks dominate papers

katelynjane — Sat, 11 Oct 2008 00:36:45 +0000

This treasury is made by Vernon Bea. Check out the great items (:

What's the history of the '$' sign?

mt330404 — Fri, 10 Oct 2008 18:53:42 +0000

I was browsing some news about our tanking economy today when I suddenly asked myself-- why is the American dollar symbolized by "$"? Here is the answer, according to Wikipedia:

The sign is attested in business correspondence between British North America and Mexico in the 1770s, as referring to the Spanish-Mexican peso.^[1] The piastre was known as "Spanish dollar" in British North America, and in 1785, it was adopted as U.S. currency, together with both the term "dollar" and the $ sign. Interestingly, the first instance of the symbol on U.S.A. currency is on the reverse of a $1 coin first issued in February 2007, under the Presidential $1 Coin Act of 2005.^[2]

The sign's ultimate origins are not certain,^[3] though it is widely accepted that it comes from the Spanish coat of arms, which carries the two Pillars of Hercules and the motto Plus Ultra in the shape of an "S".

The most popular explanation is that the dollar sign derives from the Spanish coat of arms engraved on the Spanish colonial silver coins "Real de a Ocho" ("piece of eight") or Spanish dollar under circulation in the Spanish colonies of America and Asia, as well as in the English Thirteen Colonies and later the U.S. and Canada.
[caption id="" align="aligncenter" width="425" caption="The Pillars of Hercules with "S"-shaped ribbon in the Town Hall of Seville, (Spain) (16th century) Image from Wikipedia"][/caption]
The Spanish coat of arms has two columns (||), which represent the Pillars of Hercules and an "S"-shaped ribbon around each, with the motto "Non Plus Ultra" originally, and later "Plus Ultra".^[4]

In 1492, King Ferdinand II of Aragon put Gibraltar under the new joined rule of the Spanish throne. He adopted the symbol of the Pillars of Hercules and added the Latin phrase Non plus ultra – meaning "and nothing further", indicating "[this is] the end of the (known) world". But as Christopher Columbus in 1492 travelled to the Americas, the saying was changed to Plus Ultra – as there was more out there.^[5] This symbol was especially adopted by Charles V and was a part of his coat of arms as a symbol of his American possessions and riches. When the Spanish conquistadores found gold and silver in the New World, Charles V's symbol was stamped on the coins made from these metals. These coins with the Pillars of Hercules over two hemispheres (columnarios) were spread around America and Europe, and the symbol was ultimately adopted by the country that became the United States and by many of the continent's other independent nations. Later on, salesmen wrote signs that, instead of saying dollar, had this handwritten symbol, and in turn this developed to the simple S with two vertical bars.

The Rich Are Staging a Coup This Morning:

barbpa — Fri, 10 Oct 2008 18:48:05 +0000

A message from Michael Moore

Friends:

Let me cut to the chase. The biggest robbery in the history of this
country is taking place as you read this. Though no guns are being used, 300
million hostages are being taken.

Make no mistake about it: After stealing a half trillion dollars to line the pockets of their war-profiteering backers for the past five years, after lining the pockets of their fellow oilmen to the tune of over a hundred billion dollars in just the last two years, Bush and his cronies -- who must soon vacate the White House -- are looting the U.S. Treasury of every dollar they can grab. They are swiping as much of the silverware as they can on their way out the door.

No matter what they say, no matter how many scare words they use, they are up to their old tricks of creating fear and confusion in order to make and keep themselves and the upper one percent filthy rich. Just read the
first four paragraphs of the lead story in last Monday's New York Times and you can see what the real deal is:

"Even as policy makers worked on details of a $700 billion bailout of
the financial industry, Wall Street began looking for ways to profit from
it. Financial firms were lobbying to have all manner of troubled
investments covered, not just those related to mortgages.

"At the same time, investment firms were jockeying to oversee all the
assets that Treasury plans to take off the books of financial institutions, a
role that could earn them hundreds of millions of dollars a year in fees.
Nobody wants to be left out of Treasury's proposal to buy up bad assets
of financial institutions."

Unbelievable! Wall Street and its backers created this mess and now they are going to clean up like bandits. Even Rudy Giuliani is lobbying for his firm to be hired (and paid) to "consult" in the bailout. The problem is, nobody truly knows what this "collapse" is all about. Even Treasury Secretary Paulson admitted he doesn't know the exact amount that is
needed (he just picked the $700 billion number out of his head!).

The head of the congressional budget office said he can't figure it out nor can he explain it to anyone. And yet, they are screeching about how the end is near! Panic! Recession! The Great Depression! Y2K! Bird flu! Killer bees! We must pass the bailout bill today!! The sky is falling! The sky is falling! Falling for whom?

NOTHING in this "bailout" package will lower the price of the gas you have to put in your car to get to work. NOTHING in this bill will protect you from losing your home. NOTHING in this bill will give you health insurance. Health insurance? Mike, why are you bringing this up? What's this got to do with the Wall Street collapse?

It has everything to do with it. This so-called "collapse" was triggered
by the massive defaulting and foreclosures going on with people's home
mortgages. Do you know why so many Americans are losing their homes? To
hear the Republicans describe it, it's because too many working class idiots
were given mortgages that they really couldn't afford.

Here's the truth: The number one cause of people declaring bankruptcy is because of medical bills. Let me state this simply: If we had had universal health coverage, this mortgage "crisis" may never have happened. This bailout's mission is to protect the obscene amount of wealth that has been accumulated in the last eight years. It's to protect the top
shareholders who own and control corporate America.

It's to make sure their yachts and mansions and "way of life" go uninterrupted while the rest of America suffers and struggles to pay the bills. Let the rich suffer for once. Let them pay for the bailout. We are spending 400 million dollars a day on the war in Iraq. Let them end the war immediately and save us all another half-trillion dollars!

I have to stop writing this and you have to stop reading it. They are
staging a financial coup this morning in our country. They are hoping
Congress will act fast before they stop to think, before we have a chance to
stop them ourselves. So stop reading this and do something -- NOW!
Here's what you can do immediately:

1. Call or e-mail Senator Obama. Tell him he does not need to be sitting there trying to help prop up Bush and Cheney and the mess they've made. Tell him we know he has the smarts to slow this thing down and figure out what's the best route to take. Tell him the rich have to pay for whatever help is offered. Use the leverage we have now to insist on a moratorium on home foreclosures, to insist on a move to universal health coverage, and tell him that we the people need to be in charge of the economic decisions that affect our lives, not the barons of Wall Street.

2. Take to the streets. Participate in one of the hundreds of
quickly-called demonstrations that are taking place all over the country (especially those near Wall Street and DC).

3. Call your Representative in Congress and your Senators. (click here
to find their phone numbers). Tell them what you told Senator Obama.
When you screw up in life, there is hell to pay. Each and every one of you
reading this knows that basic lesson and has paid the consequences of
your actions at some point.

In this great democracy, we cannot let there be one set of rules for the vast majority of hard-working citizens, and another set of rules for the elite, who, when they screw up, are handed one more gift on a silver platter. No more! Not again!

Yours,
Michael Moore

So I appear to be rather lucky...

Molly — Fri, 10 Oct 2008 15:05:46 +0000

...as I've snagged another Treasury! This time, all of the featured items were made by my lovely fellow Etsy Bloggers. So be sure to check it out here.

Fed should be rescuing the "good" firms, not those that are illiquid and insolvent

hardhit — Fri, 10 Oct 2008 13:17:24 +0000

The meltdown in the financial markets can only be described as irrational. There has a loss of confidence in both the banking sector and the government at a time when the only solution requires a collective effort to balance the negativity enveloping us all.

The government has made a lot of wrong moves. The U.S. has spent or committed somewhere around $2 trillion to bailouts and yet, it is hard to see what progress they have achieved... thus their lack of credibility.
What we need is some demonstration of what the U.S. government can do. Perhaps it is time to separate the good firms from the bad and show the public that the U.S. government has the ability to protect and isolate the good banks from this financial crisis.

By first restoring normal lending and business among these good banks... the government will establish a foothold which they can use to target more and more problematic institutions until all are gradually brought into the fold.

If the government can't even rescue the "good" banks which are fundamentally sound... throwing money to rescue those bad firms will never result in anything positive.

TED Spread

disaphorism — Fri, 10 Oct 2008 11:47:22 +0000

The Big Money has an informative article on the all important TED Spread--or the difference between the 3-month LIBOR rate and the T-bill rate.

What explains the big spread? It's due, in part, to all of the toxic assets the Treasury hopes to soak up from the financial system with the $700 billion Congress freed up last week. Lenders in the interbank market need an exceptionally high interest rate to extend credit to banks that may be overexposed to bad assets, pushing the interest rate on interbank loans further above the rate on three-month Treasuries. If the borrowing bank were to fold in the ensuing three months, the lender would find itself snared in the mess.

Simply cream

Merc — Fri, 10 Oct 2008 10:47:55 +0000

Otra selección de regalos de Campodifiore en Etsy. Podéis verlo aquí hasta el lunes 13 de octubre.

Financial Weapons of Mass Destruction: A Perspective

greenewable — Thu, 09 Oct 2008 19:46:49 +0000
[caption id="" align="aligncenter" width="391" caption=" (http://news.bbc.co.uk/2/hi/business/7660409.stm)"][/caption]
"The US government's debts have ballooned so badly the National Debt Clock in New York has run out of digits to record the spiralling figure. The digital counter marks the national debt level, but when that passed the $10 trillion point last month, the sign could not display the full
amount."

There has been a lot of dialogue around the risks associated with derivatives in the financial system. Bill Gross coined the term the Shadow Banking System, Warren Buffett warned of Financial Weapons of Mass Destruction, Bear Stearns unwound and was not allowed to fail in part due to its 13 trillion dollar counter-party exposure. With the Bear Stearns experience behind us, government officials felt that letting Lehman fail would not pose systemic risk to the system. As a precaution though, ISDA opened a special trading session for two hours on September 14th, a Sunday. The 2-4pm trading session that day was set up for counter-parties on both sides of Lehman trades to cross or close out transactions in the event of a bankruptcy filing by that evening at 11:59PM.

Much blame has been placed on sub-prime mortgages, and more sadly some conservatives have lashed out at democrats and the CRA to finger point federally mandated lending to low and moderate income families as the source of all of our woes. This practice, I must admit is less that bad politics, its simple ignorance and idiocy. Predatory lending was not part of the CRA mandate, and it is despicable, but did not on its own bring down the system.

What we have been seeing over the last few weeks is a crisis of confidence. The confidence that you and I have lost, is second to what started this panic. The confidence lost by the American people was initially much less significant than the confidence institutions lost in each other. It was the crisis of confidence in overnight lending, between banks and between banks and the Treasury, prior to the bailout, that got us to whisper about withdrawing cash from our savings accounts and stuffing it under our mattresses.

Today Barry Ritholtz posted a note and a reference to a Financial Times article about the $400 Billion Lehman CDS Unwind. He also made a nice reference to a NYT assault on Greenspan who knew about the growing shadow banking system, but chose to leave it unregulated, defending his decision by saying that the marketability of risk ensures that those willing to take it do, and those unwilling do not.

With amazing vision and great clarity, on May 24th 2004, Martin D. Weiss, Ph.D., published a note in which he said:

Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons. This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counter-parties. Imagine then that a company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company. The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown.

Think back to 2007 when this great unwind started. It began with the initial downgrades of lenders, banks, CDOs, and eventually the bond insurers by the rating agencies. The rating agencies are also to blame, but too often singled out as sole culprits. A large piece of this blame, besides a lack of regulation, does fall on the insurers, who were able and willing to insure just about anything packaged into a blue box with a white ribbon by the Tiffany's of investment banks.

Ironically, despite the poor underwriting of the consumer loans that were made, the poor underwriting of credit insurance that was done at hefty profits, and the poor work by rating agencies, it is more than likely that the unregulated shadow banking (a.k.a. shadow insurance market) is what has led to institutional panic in recent weeks.

The comfort afforded by derivatives, which have been used mostly to insure debt, were a mechanism by which quant-types and physicists at "bulging bracket" investment banks could model products with attractive returns and "minimal" risk. That "low risk" or "low volatility" program encouraged leverage which encouraged more new products, in turn attracting more leverage. Thus, as has been said many times recently, we in the midst of a Great Unwind. While the drops in stock markets around the world in and of themselves have no fundamental correlation to actual earnings, each day the unwind continues creates a larger and more terrifying drain on real spending and real earnings, such that the tail is now wagging the dog.

A recent broadcast I saw, and I apologetically cannot recall the source, acknowledged that the unregulated derivatives market was allowed to perpetuate, because at least in part, it avoided using the word insurance. After a moment of research, I found that in 1997 the International Financial Law Review published a paper saying that:

"If credit derivatives are found to be contracts of insurance, in many jurisdictions they will face strict regulation. David Benton, Patrick Devine and Philip Jarvis of Allen & Overy, London, explain how this interpretation can be avoided"

However, if you spoke to anyone selling CDS, OTC options, or other products over the last decade, I imagine (know) that the word insurance was in their verbal arsenal.

With Lehman behind us, massive amounts of hedge fund assets were frozen, large pools of OTC derivatives back by Lehman failed or were frozen, and just five days before the firm filed bankruptcy, Dick Fuld was gloating over the $20+ billion in assets exceeding liabilities the firm had on its balance sheet. A point that he repeated in his testimony this week in front of the congressional hearing; and a point that sounded more like "this one time at band camp" the more he uttered it.

With the reality that the fed could let firms fail, the reality that a failure can literally happen overnight, and the opacity of counter-party exposure, it is not a surprise that we are now where we are.

What stands to show from my research below, and which admittedly is pure conjecture offered time and time again by others, is that our banking system has been nationalized at least since the S&L crisis. This is likely why Greenspan, Bernake and others felt comfortable with the size of the derivatives marketplace; they were comfortable because the majority of the risk was concentrated by three firms who they were very closely keyed into.

Conservatives are only now hemming an hawing about nationalization of the U.S. banking industry, but looking at the data below, and considering that three U.S. banks account for 92% of the 183 trillion in notional derivatives exposure as of June 2008, it is safe to say that the three firms holding most of the derivatives are all too exposed to fail, and as such are insured survival through the current storm. Also keep in mind that while the derivatives market grew 20 fold over the last 16 years, from 8 trillion to 183 trillion, that the number of deposit institutions has fallen by roughly a third. This has forced massive concentration of the shadow system into a handful of "firms".
[caption id="attachment_695" align="alignnone" width="450" caption="Three Largest Financial Institutions by Notional Derivative Exposure June 30, 2008"][/caption]
A non-stated implied commitment to keeping these firms afloat is not solace for equity holders, as anyone who speculated on FRE or FNM learned. But like Freddie and Fannie before the bailouts, there is a an implied guarantee. These three firms are in fact too large, and too exposed to fail.

This is also more than likely why Bank of America, JP Morgan and Citibank have been so involved in forced mergers and fire sales. (Funny that the fed felt like Lehman had no assets worth keeping American.) While the balance sheets of these three firms are stretched, I think we are finally past the point where we believe that they are public independently run corporations.

The idea which Alan Greenspan propagated: that derivatives have allowed for risks to spread in an efficient manner; must either indicate that he was high, or that he was expressing his implicit guarantee over those institutions holding all of the risk. With the National Debt Clock passing its physical limits, we are at the crossroads where that implicit guarantee has in fact become explicit. The fact that the Nation Debt Clock was built at a time where 10 trillion was inconceivably large is a wonderful analogy for our collective shortsightedness.

[caption id="attachment_719" align="alignnone" width="450" caption="FDIC - Statistics on Depository Institutions Report: Derivatives (1992-2008)"][/caption]
[caption id="" align="alignnone" width="450" caption="Sum in Trillions ($) of U.S. Deposit Institution's Notional Derivative Exposure (1992-2008)"][/caption] [caption id="" align="alignnone" width="450" caption="Notional Derivatives as % of Total Assets (1992-2008)"][/caption] [caption id="" align="alignnone" width="450" caption="Sum of All U.S. Deposit Institutions - National, by Number of Institutions (1992-2008)"][/caption]
Sources:
US debt clock runs out of digits
BBC News, 9 October 2008
http://news.bbc.co.uk/2/hi/business/7660409.stm

Investment Outlook: Pyramids Crumbling
Bill Gross, PIMCO, January, 2008
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/IO+January+2008.htm

Warren Buffet on Derivatives
Warren Buffett, Berkshire Hathaway Annual Report for 2002
http://www.fintools.com/docs/Warren%20Buffet%20on%20Derivatives.pdf

Bear Stearns second brush with bankruptcy
Roddy Boyd, Fortune, May 2, 2008
http://money.cnn.com/2008/05/02/news/companies/bear_stearns.fortune/index.htm

Lehman Risk Reduction Trading Session and Protocol Agreement
ISDA, September 14, 2008
http://www.isda.org/press/press091408lehman.html

Fox News' Baier advanced conservative attacks on CRA, repeated falsehood about Rep. Frank
Media Matters, Oct 7, 2008
http://mediamatters.org/items/200810070033?f=h_latest

Financial WMD
Martin D. Weiss, Ph.D., Money and Markets, May 5, 2004
http://www.moneyandmarkets.com/financial-wmd-8784

Credit Derivatives are Not Insurance
David Benton, Patrick Devine and Philip Jarvis, IFLR, November 1997
http://www.iflr.com/Article.aspx?sid=510168

Lehman exposes faults in credit default swaps
Henny Sender, Financial Times, October 7, 2008
http://www.ft.com/cms/s/0/04733ac8-9408-11dd-b277-0000779fd18c.html

$400 Billion Lehman CDS Unwind?
Barry Ritholtz, The Big Picture, October 09, 2008
http://bigpicture.typepad.com/comments/2008/10/lehman-cds-unwi.html

Deconstructing Greenspan
Barry Ritholtz, The Big Picture, October 09, 2008
http://bigpicture.typepad.com/comments/2008/10/deconstructing.html

US Bank Derivative Exposure
Barry Ritholtz, The Big Picture, August 21, 2008
http://bigpicture.typepad.com/comments/2008/08/us-bank-derivat.html

Stick a Fork in It: Moody's Downgrades 1,923 Subprime RMBS Classes - In Just Two Days
Paul Jackson, HousingWire, April 22, 2008
http://www.housingwire.com/2008/04/22/stick-a-fork-in-it/

Memo to the President-Elect; How Much Capital Does a Bank Need?
The Institutional Risk Analyst, August 21, 2008
http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=301

FDIC: Statistics on Depository Institutions
FDIC, Accessed October 8&9, 2008
http://www2.fdic.gov/sdi/index.asp