FedUpUSA

Archive for January 4th, 2010

Where Are The Damn Handcuffs?

Posted by Karl Denninger

If you’re not mad enough to contemplate the use of your pitchfork and torch after reading this, you are unfit to be an American and should immediately book yourself on a one-way flight – to Yemen.

This is about PPIP – and a game I predicted would be played in March of last year.  Specifically:

Only months after it was started, the U.S. program designed to purge debts of no immediate discernable value from the balance sheets of troubled banks has helped transform the frozen debt into a money-maker as the bonds have rallied. Bank of America Corp. and Citigroup Inc., who received 22 percent of the $418.7 billion American taxpayers loaned to troubled financial institutions, boosted holdings on their trading books of home- loan bonds that lack government guarantees while investors were raising cash for the program, according to Federal Reserve data.

You got that?

Let me ‘splain it in English.

The banks bought bonds that were worthless in the open market, because The Government intended to intentionally overpay for these bonds.

This is exactly what I said would happen in March of 2009:

There’s nothing complicated about this at all.

Buy for 30 cents, sell to the PPIP for 50 cents, pocket a quick (and huge) profit immediately and nobody’s the wiser.

Now here’s the problem.

We were later told that the FDIC would not allow the banks to game the system like this.

That was a lie too.

It’s “absolutely ridiculous” that banks, which were expected to reduce their holding of such volatile mortgage securities, bought them before the government program was running and may now profit, said Michael Schlachter, managing director of Wilshire Associates, the Santa Monica, California-based investment-consulting firm. “Some of them created this mess, and they are making a killing undoing it.”

The people involved need to be indicted for looting the Treasury and Geithner along with Sheila Bair must be removed from office for permitting it, after BOTH said it would not happen.

They lied – period.

Here’s what The Fed’s Dudley said at the time:

His comments add to signs that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to boost debt prices and rid banks of devalued assets to expand lending is stalling, after helping to spark a rally in stocks and bonds. The Federal Deposit Insurance Corp. yesterday delayed a test sale of bad loans held by U.S. banks that had been billed as a tryout for its role.

Well it sure rallied the prices of those assets, but the banks didn’t rid themselves of them.  They instead bought up yet more worthless paper, adding to the trash they were holding, and now are in fact using the speculative gains to record “profits” on securities that still have not and cannot perform as the underlying loans are still not paying as agreed!

I thought The Fed was supposed to REGULATE banks?  You know, when they decide this is how something should happen (or something that should not happen) they then PREVENT IT FROM HAPPENING AND/OR FORCE IT TO STOP?

Lying is an art form but in this case you literally had your pocket picked by Congress so these banksters could intentionally game the system, exactly as I said they would, and instead of REDUCING their holdings of toxic assets THEY ADDED TO THEM!

What happens when, not if, the true “value” (that is, ZILCH!) of these so-called “assets” pokes its head through NOW? 

Back in April of 2009 I posted the following:

And since the banks will apparently get paid (by you the taxpayer) any difference between internal marks and the sale price, not only get to prevent more than a 5% loss off the market price, they do even better as they get to guarantee no more than a 5% loss off their internal mark!

We just keep adding scams on top of scams; if $170 billion stolen from taxpayers to “bail out” banks via AIG isn’t bad enough, this program will be some $500 billion (or more), and that’s not even the total value since some banks have been buying up “distressed” ALT-A liar loans with TARP money in front of this program’s announcement!

I hate it when I’m right.

The question is when Americans will be pissed off enough to do something about being literally robbed blind by the banksters that infest this nation.

A Cautionary Tale

Posted by Karl Denninger

When in the course of human events……

So began a document written over 200 years ago.

But for a very long time, before there were firearms in the hands of the people, there were pitchforks and…..

Yes, that would be torches.

But that is not 200 years ago, or 400, or 1,000.

It is today.

In Iceland.

A land where a handful of banksters robbed the nation and looted its Treasury, then demanded that the public accept paying for the consequences.

The people have risen and declared that these are the acts of a criminal gang.  That the actions that led to this distress were not mistakes, they were instead unindicted and unpunished felonies.  That the people were unwilling and unknowing dupes, not willing participants with equal culpability.

And finally, that they will not pay so the criminal cabal – the international bankster fraternity – will be protected and made whole.

Iceland’s President has said “no”:

“The cornerstone of Iceland’s constitution is that the nation is the highest judge for the validity of law,” Grimsson told reporters at his residence outside the capital Reykjavik today.

Grimsson vetoed the so-called Icesave accord after more than 60,000 of Iceland’s 320,000 inhabitants signed a petition urging him to reject the legislation. His decision means lawmakers must either drop the bill or put the matter to a referendum.

Does anyone know what the laws are governing immigration – to Iceland?

I’m only half-joking.

This is the first President who has acted as a President.  Who has recognized, understood and acted in accordance with the will of the people.

70% of the population appear to oppose bailing out the criminal cabal.

Contrast this with the EESA/TARP legislation. 

By a margin of more than 100:1 and in some districts a margin reported as high as 300:1 The American People called, faxed and emailed their Representatives and Senators, along with the White House, to tell them NOT TO BAIL OUT THE CRIMINAL BANKING CABAL.

Our Congress and President did so anyway.

In Iceland we have seen proof that a strong display of the good old-fashioned torch – with the implied threat of the pitchfork being next – was sufficient for the government to recognize that:

That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.

I am convinced that our nation will not stop being looted by this very same criminal cabal until The People display the torch and reiterate the foundational principal of this Republic – that we, the people, are stating our intention of revoking The Government’s right to exist should it continue to act at the behest of a criminal cabal hellbent and determined on looting every member of society along with the public Treasury.

The choice is yours America. 

You have seen today that forceful yet peaceful demonstration – a clear and unmistakable statement that the principles that underlay The Declaration of Independence remain in full force and effect, and that we, the people are both willing and prepared to enforce them if it becomes necessary – still works.

That you, not the den of vipers, control the ultimate path of legislation in all civilized nations.

When will you, America, be willing to display your torch?

Pimco move to sell gilts raises spectre of a UK sovereign debt crisis

Fears that Britain may be heading for its first sovereign debt crisis since the 1970s hit a new intensity after Pimco, the world’s biggest bond house, declared that it is starting to sell off its holdings of gilts.

By Angela Monaghan and Edmund Conway

The American investment group said it will be a net seller of UK Government bonds this year, at the very point when the Bank of England brings its £200bn programme of purchases to and end and the Treasury attempts to raise unprecedented sums through the capital markets.

The move is doubly embarrassing for the Government because the head of Pimco’s European investment team is Andrew Balls, brother of Schools Secretary Ed Balls, who is mastering the Government’s re-election strategy. The move will be seen as a financial vote of no-confidence in the Government’s handling of the economy.

Paul McCulley, a managing director at Pimco, said: “We are currently cutting back in the US and UK because… supply and demand dynamics are likely to be negatively affected as borrowing rises and central bank buying declines.”

The yield on the benchmark 10-year gilt has leapt from below 3pc to above 4pc in the past year amid concerns about the Government’s capacity to bring its budget back under control, and worries about the coming end of quantitative easing (QE), under which the Bank has been buying massive numbers of gilts. However, UK equities staged a strong start to the year, with the FTSE 100 up 87.46 points to a 16-month high of 5500.34.

The Pimco switch was described by Mike Amey, its portfolio manager in London, as “a significant policy statement”.

“Those areas of the bond market that have had greatest support from central banks will be most vulnerable as that support comes to an end,” he added. Few economists expect the Bank, whose monthly meeting begins tomorrow, to extend the QE scheme beyond February, meaning the private sector will soon be solely responsible for demand for government debt. The gilts market has also been supported by new liquidity rules, which have seen banks buy large gilt holdings to bolster their balance sheets. These purchases, too, are seen as one-off, again implying a sudden drop in demand in the coming months.

Although the QE scheme has had its detractors, it has kept gilt yields down and helped prevent the flow of money in the economy from dropping into “depression territory”, according to economists. Figures from the Bank yesterday showed a welcome 0.3pc rise in the holdings of broad money, M4, by non-financial companies, in November, indicating that the radical policy of pumping cash directly into banks’ balance sheets may now be yielding effects.

Some accuse the Government of failing to lay out extensive enough plans on how to bring the budget deficit back under control, with the major ratings agencies threatening to downgrade the UK’s credit rating unless the next Government provides more ambitious plans for budget reduction. In what was seen as the starting gun for the pre-election battle, Labour yesterday published a document accusing the Conservatives of hiding the full details of its tax and spending plans from the public, sparking a war of words between the parties.

Ron Paul “No Longer Fringe”

Mainstream media and the public are both at long last starting to realize Ron Paul’s ideas no longer fringe. From the LA Times …

For three decades, Texas congressman and former presidential candidate Ron Paul’s extreme brand of libertarian economics consigned him to the far fringes even among conservatives. Not a few times, his views put him on the losing end of 434-1 votes on Capitol Hill.

No longer. With the economy still struggling and political divisions deepening, Paul’s ideas not only are gaining a wider audience but also are helping to shape a potentially historic battle over economic policy — a struggle that will affect everything including jobs, growth and the nation’s place in the global economy.

His warnings on deficits and inflation are now Republican mantras.

And with this year’s congressional election campaign looming, the Texas congressman’s deep-seated distrust of activist government has helped fuel protests such as the tea-party movement, harden partisan divisions in Washington and stoke public fears about federal spending and the deficit.

“People are wondering what went wrong. And they’re not happy with what the government is offering up,” said James Grant, editor of Grant’s Interest Rate Observer, offering an explanation for why seemingly wonkish arguments over interest rate policy and the money supply are spilling over onto ordinary Americans.

And so far, Paul and his fellow conservatives are on the offensive. President Obama and congressional Democrats are repeatedly pledging not to increase the deficit and to begin cutting back soon.

“I think we’re going to be in for more revival of fiscal responsibility,” said William Niskanen of the Cato Institute, who headed the Council of Economic Advisors under President Reagan.

Niskanen sees the Texas Republican’s increasing influence as stemming from the continued economic weakness. “To this extent, Ron Paul gains voice,” he said.

Paul would go a lot further in cutting back the government’s role than even free-marketers like Niskanen support. If Paul had it his way, for instance, he would do away with the Fed entirely. In his bestselling book “End the Fed,” he lambasted the central bank as an “immoral, unconstitutional . . . tool of tyrannical government.”

Such rhetoric might once have been dismissed as extremism. But Paul’s anti-Fed message has drawn broad support because of the central bank’s failure to restrain the flood of cheap money and excessive risk-taking in the years leading up to the financial crisis.

Paul’s ideas are grounded in the work of economic thinkers from an earlier era who focused on problems similar to those besetting the U.S. today.

In particular, Paul is a disciple of Ludwig von Mises, an Austrian theorist born at the end of the 19th century who contended that government intervention in an economy would fail because free markets were better at allocating resources and fueling growth.

Paul contends that Austrian economics explains the most recent financial meltdown: “It says if you inflate too much, if you have no restraint on monetary authorities, you’re going to bring on a crisis.” Now, Paul says, administration policies are leading the country toward disaster.

One By One

Legislative representatives need to be won over one by one by one. We are at critical mass regarding Audit the Fed. However, bankers and the Fed will continue to fight this tooth and nail.

Fiscal issues will be the same slow arduous process with more defeats than victories.

Please keep the pressure on your legislative representatives and strive to do what you can to get rid of the mindless zombies doing the most damage. These are battles that must be fought if there is any hope for our future.

Here are Phone, Fax, and Email numbers from the Online Directory for the 111th Congress.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Carnage Continues: PHK (Who Smells Smoke?)

Posted by Karl Denninger

The “rumor on the street” at the time of the dump in PHK a few days ago was claimed to be a “fat-fingered” trade.

Uh huh.

Let me guess.  We’ve had three fat-fingered days in a row, right?  The first one which was an honest mistake, and now two days of follow-up which were also honest fat-finger mistakes?

Pretty impressive to lose all of the gains since October – in three days.

Of course this isn’t being discussed on CNBS, nor the real reason for it, nor is anyone calling out those who disseminated the “claim” that this was a “fat-finger” mistake originally.

Yeah.

This is high-yield debt by the way.  A PIMCO fund on top of it.  Closed end, and yes, it does trade at a rather insane premium to NAV, but closed-end funds have a habit of doing that.

But gee, here we are in the New Year, the selling continues at ridiculous volumes compared to the historical average, and in a market where the DOW is up 160 points this issue is down another 5% today.

Who’s whistling past the grave here?  If there’s a problem with the constituents in this fund then one has to ask if this is an “isolated incident” or whether it implies some really ugly things around the corner in the credit markets.

If you remember we had “little signals” like this back in 2007 – just before everything went totally to hell.  Anyone remember this?

That’s from 2007.  There were a few “signals” in this fund during that year…. and of course we all know what came next.

If this is fund-specific then why is it showing up in DPO too – erasing all the gains back to JULY?

Uh huh.  A 25% decline in less than 5 days eh?

I’ll go out on a limb here a bit: The “fat finger” claim IS A LIE and there’s something nasty brewing here that, as is the usual practice, has been leaked to certain “privileged” players in the market.

You’re welcome to believe this won’t infest and reflect into the broader marketplace.  I believe, as has been the pattern over the last several years, one ignores signals like this at considerable peril.

You, the ordinary trader and investor, will never be “cut in” on the deal and given the opportunity to get out before the curtains are on fire and people start succumbing to the smoke, and those who both leaked whatever inside information there is and who traded on it will not go to prison for doing so.

Nor will the “mainstream media” investigate this and report on it.  Not on CNBC, not on Bloomberg, not in the Wall Street Journal, NOWHERE.

Your only defense is to look for signals like this and get damn defensive when you see them – right or wrong – because someone who has more information than you do certain as the sun rising in the eastern sky is doing exactly that.

Uhhhhh… Ok, Keep Buying Fools

Posted by Karl Denninger

 Following up on the earlier ticker….  (above)

Congress Raises Debt Ceiling By $290 Billion On December 27, Blows Through It On December 31

You just can’t make this stuff up.   DAILY TREASURY STATEMENT

On December 27th, Congress agreed to raise the debt ceiling by (a mere) $290 Billion in order to fund those, you know, pesky unfunded liabilities like Social Security and keep from officially going over the debt limit. 

Note that Treasury immediately ”issued” $316B worth of those IOUs that day, and “redeemed” $234B.  Of course, this is entirely on paper.

The “debt held by the public”, representing actual T’reasuries sold increased about $90B net.

Total Public debt now stands at $12.311 Trillion.  The official ‘ceiling’ stands at $12.254 Trillion.   Woops.

It’s also worth noting that they made a $15 Billion transfer to the Fannie and Freddie that day as well….but of course, there’s no longer any cap on the taxpayer liability for Fannie and Freddie.