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Monday, March 30, 2009

DISTURBING DEVELOPMENTS (GEITNER PLAN)

Is there anything in this auction plan that prohibits the sellers to finance the buyers? After all, the sellers are big banks and that's what they are designed to do: finance profitable enterprise.

What if a bank A enters a contract with a financial entity B, such that for every dollar that B spends at the auction, A offers it a free dollar in credit with loose return requirement. Then B carries practically zero risk and is interested in gobbling as much of the toxic asset as possible, driving the auction price way beyond the fair value (whatever that is). For every extra dollar that is spent at the auction, bank A collects 12 dollars from the government, so the dollar it gave away (to B) is not a factor. Both sides are pulling an arbitrage of a lifetime, at the expense of the taxpayer. The price could easily go even above 100 cents on a dollar. Of course, this would attract unwanted scrutiny and public outrage, so the parties (banks and government) instead would just agree on mutually acceptable prices. To make it a “success”, Geithner would have to agree on banks' asking price, just like the initial TARP plan: direct subsidy to the banks, only under the cover of the “auction-fair-value” fig leaf and with fewer strings attached, it seems.

So what would preclude such a scenario? Even if banks are prohibited to finance the buyers directly, isn't there always a way to create the same contract through multiple intermediaries and complex derivative instruments? Too difficult? As long as it's legal, with hundreds of billions of free dollars on the table, the smart people of Wall St. will surely not miss the chance.

Watch this video particularly towards the end:




Saturday, March 7, 2009

Is the financial community double dipping the Bail Out money?

One of the central themes of the current financial crisis is the mismanagement of Credit Default Swaps (CDS). CDS policies were issued indiscriminately without setting aside adequate reserves to cover potential claims.



CDS’s are insurance contracts that enabled banks to acquire the assets, collateralized debt obligations or CDO’s, which now supposedly have all become toxic. A CDS was supposed to protect the banks against a default of a CDO. If a CDO went bad/toxic the issuer of CDS insurance would pay the bank the full value of the CDO.

AIG is the biggest issuer of these insurance policies (CDS) for which it had insufficient reserves to be able to cover if all the claims started pouring in.



Well, unfortunately the claims started pouring in due to the defaults of CDO’s (toxic assets) that these CDS policies covered.

To stop AIG from going bankrupt on account of its inability to pay all these claims, the government bailout so far has given them $300 billion of tax payers’ money with no end in sight.

This $300 billion is rapidly used to satisfy the claims that financial institutions, including banks have on these policies.



Unless of course the banks were so stupid not to insure their risky Collateralized Debt Obligations CDO’s by taking out CDS policies,these CDO’s are covered. So why are so many of these CDO’s toxic?

So if the now roughly $300 billion bailout of AIG is used to pay the claims on credit default swaps to the banks. And those same banks are being propped up by a trillion dollar government bailout package because initially the banks would not be able to collect the credit default swap claims from a bankrupt AIG when in fact they can because the government is paying AIG the money to do so.

Is someone here double dipping? Or is something more sinister going on, like the AIG money going somewhere else?

Bou van Kuyk

Saturday, February 21, 2009

THE MARKET “EXPERTS” SPEAK OUT

On the bail out no less! Are you kidding me? CNBC the cable program that supposedly helped people navigate the markets while their proxy’s were profiting from it.



Just look at some of their line up! Jim Cramer, Rick Santelli, Mark Haines.

What do you think Cramer was all about? He lured na├»ve, inexperienced investors into buying his “favorite” stocks. “After hours” of course so they would not influence the market during the day. That’s right “after hours”, that is the key to this scam. The market still functions perfectly well “after hours” when the market is still in full swing for another two or three hours but without the big institutional investors, it is called extended hours so volume is lower and it is easier to manipulate.



Have you ever looked at a price of one of the stocks Cramer recommended “after hours” on his show? The price went up you will say of course and it did, but when did that price go up and who drove it up and when. Whenever I looked at the price of a stock he was recommending on a real time basis, even while his serenading of the stock was in progress, the price of that stock had already risen to such absurd proportions that I never bothered to get in.

That was the key! The stock had performed perfectly benign during the day but mysteriously rose in after hours trading even before Cramer recommended it! How is that possible you ask. Well first of all the program is taped earlier in the day, there is problem number one, number two I am convinced that these recommendations were designed to help “buddies” who happened to be in the stocks to make a profit or recoup their losses and get out. It is referred to as “pump and dump”

The stock market has since collapsed; I guess that takes care of Cramer.

Then there is Rick Santelli at the commodities exchange, leaving his caffeinated demeanor aside for the moment, we all thought that was his enthusiasm for the anal job he performed day in and day out. This guy managed to “explain” the wild fluctuations in the oil and other commodity prices by somehow relating them to supply and demand of oil and commodities, when all the while these prices were driven by derivatives! The supply and demand of derivatives determined the prices of these commodities which is why they tanked just like the economy when derivatives were identified as lethal weapons!



It took a CBS program like 60 minutes to explode the myth when they aired a program explaining the erratic swings in the price of oil and tied them to the supply and demand of derivatives driven by speculators; not the supply and demand of oil itself. In fact the price of oil should have come down during the period during which it went up to $140 if it had been based on the demand for real oil, the commodity.



The price of commodities and oil has since collapsed, I guess that takes care of Santelli

And now Haines has joined these idiots by pontificating about Obama’s housing plan, and how it teaches the American people bad behavior. Haines, a so called market “expert” who not once warned his viewers about the impending implosion of the entire housing market two years ago and its consequences. He did not understand the symptoms and never saw it coming! But he does understand the “bad” consequences of Obama’s plan? Be serious!

Where do these people find the nerve to preach to the people they have misguided for years; how dare they criticize a plan proposed by a man who has the best for American people at heart; have they no shame! They clearly have no knowledge of the market so what gives them the right to use their huge platform in such a ruthless and irresponsible manner?

They reveal themselves for what they are, low level followers and “crooks” but certainly not the sophisticated opinion makers that they try to make themselves out to be.

Tuesday, January 13, 2009

How to save $7,000

The Parallel, Enron and The current Financial Crisis.



I was watching 60 minutes the other evening which aired an episode about the rise and fall of oil prices and why they managed to go up and down in the erratic way that they did. Derivatives, the dirty word of our time came up again and again as the explanation for the apparent disconnect between energy prices and the supply and demand of energy.
The demand and supply for energy derivatives drove the price for energy up and down NOT the demand and supply for energy itself.

What was even more interesting and something I had forgotten about was that Enron was the “inventor” of these energy derivatives and had lobbied for the deregulation of the energy markets. This prompted me to revisit the Enron Story that I had read years ago and which is popularly referred to as “The smartest guys in the room”.



And this is where I noticed the parallel between the current financial crisis and the collapse of Enron. The familiar statement “fool me once shame on you, fool me twice shame on me” applies perfectly here.

What struck me most was the sharp contrast between the action taken against the Enron chief executives and those taken against the executives of the current perpetrators even though many of the events show an uncanny parallel. Not to speak about the negligence of our current pompous congressional pontificators who were all there at that time indignantly questioning the Enron executives but never recognized the identical symptoms that caused the current malaise.

Yet to state that what the banking executives did to cause the demise of an entire nation was not far different from what the Enron executives did is an understatement.

Enron misled their stock holders about the company’s performance, so did the banks. They wiped out their shareholders equity and their employees 401k’s, so did the banks.

Enron used special purpose vehicles to hide losses, so did the banks. For example the Merrill Lynch transaction referred to as the “Lone Star Transaction” where Merrill sold a CDO at inflated prices to a special purpose vehicle which they financed with a loan from themselves. Most CDO’s were issued through special purpose vehicles taking the debt of the books of the banks. Most derivatives (CDO’s) on the banks books were artificially inflated, so were Enron’s



Enron’s Auditors Arthur Andersen and the Lawyers signed off on many of these Enron transactions, so did the auditors of the Banks. Worse, the rating agencies which the investment community relies on for valuing and rating debt were hand in glove with the banks and issued “flawed” ratings.

Enron artificially inflated energy prices through manipulation of the energy markets, so did the commodity exchanges and Warburg. How else can one explain a swing in energy prices of over 300% within three months?

The Enron executives “raped” the company thru bonuses and stock options, so did the banks. The banks with their collective reckless behavior put the lively hood of the entire planet at risk, Enron did not.

There is something really fishy in all this. What the Enron Executives did was considered to be criminal and they were sent to prison for extended periods of time. Why not the banking folks who have endangered an entire global economy with their unethical and reckless behavior?

It appears to me that there is a secret brotherhood that is protecting the “Wall Street” financial community. All the exact same things that Enron pioneered were replicated and imitated by Wall Street without impunity. The Special purpose vehicles pioneered by Enron’s CFO Andrew Fastow were subsequently used to issue CDO’s to take debt of the banks books and or distort valuations of existing assets, just like Enron did. It was a crime then, why not now?

Observing a Wall Street firm like Warburg taking over Enron trading, Enron’s most successful and profitable entity, within days of the Enron bankruptcy at a rock bottom price, reinforces the notion that there was a conspiracy in Wall Street to bring down a bunch of arrogant Texans that were beginning to threaten Wall Street’s monopoly. Especially considering that no one on Wall Street (Warburg) was prosecuted for not honoring Energy futures trade contracts with Enron Trading. Defaulting on these contracts is illegal in the futures markets and accelerated Enron’s insolvency and subsequent bankruptcy.

Why are there no congressional hearings on the scale of Enron for all those “crooked” bank executives that artificially inflated the world’s standard of living and threatened it with a bogus energy crisis? Are the people who are supposed to protect us from all these criminals afraid that we will see them for what they are? A criminally negligent bunch of pedantic pontificators.

There must be some mysterious invisible hand protecting Wall Street that we do not understand.

Given the uncanny parallel of events then and now, either the Executives of Wall Street should be prosecuted, punished and jailed, or the jail sentences of Skilling, Fastow et al should be greatly reduced. What was criminal then should be criminal now.