FedUpUSA

Archive for March, 2010

King World News: This Could Be The Biggest Fraud in The History Of The World

(This is a MUST LISTEN!)
In this interview with GATA we continue the saga after just having interviewed Andrew Maguire, the whistleblower out of London. This gives a short and long-term view down the rabbit hole through the eyes of 3 of the GATA board members. GATA was so heavily involved not only in breaking the news at the CFTC meeting about the the metals manipulation but also at the same time quite possibly uncovering the largest fraud in history. The Gold Anti-Trust Action Committee was organized in January 1999 to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities. The committee arose from essays by Bill Murphy, a financial commentator, and by Chris Powell, a newspaper editor in Connecticut, published at Murphy’s Internet site, lemetropolecafe.com. In this GATA Roundtable we will have Bill Murphy, Chris Powell and Adrian Douglas.

Bill Murphy, at 1:40:
“six years ago my car was stolen, my website was hacked, and I was beat up with brass knuckles”

US Papers have been “bought”. Mainstream news did not have one word of this historic fraud! “All my news and radio interviews have been cancelled when I stated I had a bombshell to explain”.

Audio Listen Here..  (please be patient, their server seems to be overloaded)

Irish Banks Need $43 Billion in New Capital as “Worst Fears Have Been Surpassed”

Inquiring minds note Ireland’s finance minister is shocked to discover Irish Banks Need $43 Billion in New Capital on account of ‘Appalling’ Lending.

Ireland’s banks need $43 billion in new capital after “appalling” lending decisions left the country’s financial system on the brink of collapse.

“Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin yesterday. “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come.”

The agency aims to cleanse banks of toxic loans, the legacy of plunging real-estate prices and the country’s deepest ever recession. In all, it will buy loans with a book value of 80 billion euros ($107 billion), about half the size of the economy.

“The information that has emerged from the banks in the course of the NAMA process is truly shocking,” Lenihan said.

Dublin-based Allied Irish needs to raise 7.4 billion euros to meet the capital targets, while cross-town rival Bank of Ireland will need 2.66 billion euros. Anglo Irish Bank Corp., nationalized last year, may need as much 18.3 billion euros. Customer-owned lenders Irish Nationwide and EBS will need 2.6 billion euros and 875 million euros, respectively.

“The regulator is taking the bank system by the scruff of the neck,” said James Forbes, senior equity strategist at Irish Life Investment Managers in Dublin. “Allied Irish has a lot of work to do to avoid majority state ownership, Bank of Ireland less so.”

Ireland may not be able to afford to pump more money into the banks. The budget deficit widened to 11.7 percent of gross domestic product last year, almost four times the European Union limit, and the government spent the past year trying to convince investors the state is in control of its finances.

“The bank losses, awful as they are, represent a one-off hit. It’s water under the bridge,” said Ciaran O’Hagan, a Paris-based fixed-income strategist at Societe Generale SA. “What’s of more concern for investors in government bonds is the budget deficit. Slashing the chronic overspending and raising taxation by the Irish state is vital.”

Economic Hit Parade

US: States have $5.17 Trillion in Pension Obligations, Gap is $3.23 Trillion; State Debt as Share of GDP

China: 10 Signs of Speculative Mania

Spain, UK, Japan, Greece: Eurozone Structural Problems; Spain’s Economic Woes; Pain In Britain; Deflation Persists In Japan

US, Canada: California USA vs. Ontario Canada – Which State (Province) Is In Worse Shape? Canadian Banks vs. US Banks Comparison

Australia: Money Madness In Oz

Is any major country in good shape?

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

The Ugly Truth If You’re Looking For Work

Posted by Karl Denninger

A post on the forum jogged me on this Ticker that I was writing months ago and never finished…. and pushed it back to the top of the line.  This is an echo of a topic I’ve raised a couple of times on Blogtalk as well, from my experience as a CEO and the “negotiator in chief” with health insurance companies during that time.

First, let me tell you how health insurance actually works from the employer perspective, because most people simply don’t understand this.

You probably have a line on your pay stub that says something like “Health Insurance: $100″ or similar.  You think that’s what it costs on your “group plan.”

You’re wrong.

The rules for deductibility of insurance expenses provided to employees are relatively simple but have profound implications.  Specifically:

• Employers cannot charge differential deductions.  That is, if I am going to hit your check for $50, I must hit everyone’s check for $50.  (I can have two deductions – one for “individual” and one for “family” coverage, but I can’t charge two individuals different deduction rates.)

• The majority of the actual expense for any particular person must exceed half of the total for the premiums to be deductible by the business from a tax perspective – that is, for the business to pay them with pre-tax dollars.

But in point of fact employees are individually rated.  That is, a 20 year old male with no medical problems – that is, in excellent health – might cost $200 a month in premiums.  The same policy with the same coverage for a morbidly obese 60 year old woman on multiple medications for chronic conditions might cost $1,000 – or more.

The law says I cannot deduct more than $100 a month or I can’t write off the cost of the insurance against gross income (that is, I can’t take the expense pre-tax.)  The law also says I can’t discriminate.  Therefore, if I want to deduct the premium expenses (in total) pretax I cannot deduct more than $100 monthly for “health insurance.”

Now consider the 20 year old kid.  He costs me, the employer, $100 for health benefits (he pays the other half.)  But the obese woman costs me $900 – nine times as much!

The law says that I cannot ask you certain questions when you come in for an interview.  For instance, I cannot ask if you have dependents, I cannot ask about your intention to have children (if you’re a woman) and a whole host of other topics.  It is explicitly unlawful for me to make such inquiries, as they evidence potential for me to engage in illegal discrimination in hiring.

But if you think this sort of decision-making doesn’t go on – when the impact is over $8,000 per year between two employees in cost to the employer – you’re nuts.  It most certainly does.

The law in this case is outrageous.  What many call “discrimination” is in fact nothing more than a cold economic calculation.  If I am hiring someone to do a job that pays $20/hour, that is, $40,000 in gross wages for 2,000 man-hours of work annually, a “hidden” embedded cost differential in hiring of $9,600 ($800/mo in embedded health insurance cost!) is a 25% increase in the cost of employing one person .vs. the other.  To make it “unlawful” for employers to consider legitimate costs that one employee imposes .vs. another is ridiculous – but it is, in fact, the law.

So here’s the deal folks: While I can’t ask you about your health status nor if you have dependents, nothing prohibits you from putting that information on your resume if it is to your advantage – and it is, if you are in excellent health and have no dependents.

Will this matter? 

In this economy you better believe it.  This has been true forever, but it has become even more true with the passage of Obama’s “Health Care” law.

So if you’re unemployed and have these cost-impacting facts in your favor, make damn sure you list them. 

An employer cannot ask about this, nor can you realistically discuss this in an interview, but absolutely nothing prohibits you from listing this as a “personal attribute” on your resume.

If nothing else, in a tie-breaking circumstance it will get you the interview you need to have a shot at the job.

PS: Whatever you do, don’t lie.  Prohibited topic of discussion or not, any false statement on a resume is a perfectly-legal cause for you to be fired for cause, and not only does that cost you your job it also makes you ineligible for unemployment!

Don’t Invest In Ridiculously-Rigged (And Thin) Markets

Posted by Karl Denninger

Janet Tavakoli has written an interesting piece over at Huffington Post related to the gold market and a potential cornering attempt:

First, let your greed overcome all regard for the stability of the global market, and overcome your aversion to illegal activities.

….

Pump up the gold story. Get your friends to tell retail investors to buy some gold every month. Get your buddies in the financial business to offer exchange traded gold funds (ETFs) that claim to buy physical gold. This will sound safe to retail investors, but in fact, the ETFs are very risky. This will serve your purpose when you are ready to start a panic. These particular ETFs will allow the “gold” to be commingled with the custodian’s gold, and the custodian can lease out the gold. Moreover, the “gold” custodian can give it to a sub custodian that the manager doesn’t know. The sub custodian can give it to yet another sub custodian unknown to the original custodian. The manager will never audit the gold, and the gold is not “allocated” to a particular investor. Since this is an “exchange traded” gold fund, investors will probably assume the gold is regulated by the Commodities Futures Trading Commission (CFTC), but it isn’t. By the time investors wake up to the probability that there is very little actual gold backing their investment, your plan will be ready to execute.

That could be a problem, right?

Zerohedge has run a piece of alleged manipulation of the market (specifically, selling short an insane number of contracts – which would obligate you to deliver – when you have no possible way to do so.)  This, however, isn’t necessarily manipulation per-se, nor is the assertion that these are “financial” (that is, we trade ‘em for money, not to actually buy or sell physical gold) assets false.  They in fact are; if I sell short a S&P 500 Futures Contract I can assure you that I do not deliver a basket of 500 stocks to the buyer if I’m right (or wrong!)

However, the elements of a scam – which could be the intended outcome – are indeed present.  The person buying or selling a futures contract can have either the intent of actually taking (or making) physical delivery or they can be a pure speculator on price, intending to execute the opposite trade prior to expiration (and thus pocketing either a profit or a loss thereupon.)  So long as the person executing a futures trade is required to post margin on all underwater positions nightly (and provided the market is honest, they are) the “pressure” on them as the market moves the wrong way tends to force correction toward the mean – and is counter-cyclical against imbalances.

But the buyer of an ETF is likely in a different circumstance.  Unlike the sophisticated speculator (like me) who buys and sells futures contracts on things like the S&P 500, currencies, gold and even oil without the intent to take delivery of a thousand barrels of crude in my driveway (that would be kinda messy, especially if the barrels were not included – and they’re not!) many if not most ETF purchasers are under the belief that they are buying actual physical gold or silver that someone is holding for them in a vault somewhere. 

The problem, of course, is that the so-called “gold” might not actually exist. 

For a futures contract with a time-certain expiration this is not a terribly-large problem, since the “discovery date” of the seller’s inability to produce (should you buy a contract and actually notice delivery) has a date on it by which you may demand (and expect) perfected delivery of an actual gold bar.  If there’s a “fail” there the results would be both dramatic and immediately-recognized.

ETFs are a different matter entirely.  These commonly are held for years, dramatically beyond the expiration cycle of the futures markets.  They also are often bought and held by people who believe they are actually holding metal – that is, as a hedge against things like currency debasement or even geopolitical collapse.

What happens if Janet’s scenario is correct?

Panic, that’s what.  A global market meltdown in which a handful of huge banks (who are very, very short in the futures market) suddenly get assigned for delivery – and yet they don’t have, and cannot acquire, enough physical gold to make delivery, because their open interest (in aggregate) exceeds the free supply available to trade.

This bankrupts these large dealers.  It also bankrupts the ETFs, who suddenly are “discovered” as having “leased” out all their gold – that is, they’re holding worthless paper promises to replenish their depository written by someone who has unfortunately become insolvent.

The “gold bugs” (those who hold physical metal) are of course very happy by this course of events, as the “spot” price would go to the moon – instantly.

Is this what’s going on?

Who knows. 

It certainly is the allegation and the number of people running stories that lead you to this conclusion over the last few months has reached a fever pitch.

But before buying into this story on either side be aware that when this was attempted by the Hunt Brothers with silver (and it was nearly the same path that Janet outlines in her article) the CFTC and other “regulators” in the market came in and changed the rules.  The danger here can be extreme, as most people with physical metal (the only people who will benefit if there is a monstrous spike in price – if you’re holding an ETF you will in fact likely get nothing!) cannot dispose of it fast enough to take advantage before the inevitable collapse on the back side of the cornering attempt occurs.

When the Hunt Brothers attempted this silver went from $11/oz to nearly $50 in less than four months – but two months later it had collapsed to below the original $11 price, with much if it happening in a literal single day.

I’ll stay away from this one – the criminals have proved that they can intentionally falsify the valuation of trillions of dollars in “assets” on balance sheets and otherwise cheat with wild abandon, but nobody will bring charges.  There is no reason to believe that you or I will be the ones who are able to get through the tiny little door if indeed this is the game that is being run, and every reason to believe that instead of the starry-eyed profits you dream of you will instead suffer a monstrous loss.

I’ll instead grab my  and watch the pretty fireworks.

Todd Harrison Refuses To Drink The Kool-Aid With “Ten Reasons Why This Is Not A Bull Market”

Submitted by Tyler Durden

Minyanville’s Todd Harrison is the latest to jump on the bandwagon for whom a “sideways or slightly down market” is not a victory for the bulls. In fact, Todd is outright bearish, and harkens to his prophetic call from September 2008 (oddly, a time when CNBC programming was far more balanced yet when everyone still thought the worst was behind us and Dick Bove had just issued a buy rating on Lehman, not to mention that every phone call from David Einhorn was being tapped under the guidance of the powers that be). Harrison prefaces: “Kevin Cassidy, a senior credit analyst at Moody’s, recently referenced the $700 billion in risky high-yield corporate debt on the horizon and offered, “An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this.” Minyanville offered a similar assessment entering September 2008 as $871 billion of corporate debt was set to mature into year-end. We opined there were two plausible scenarios; a credit cancer that would chew through the financial body, or a car crash that would crack the system under the weight of an indebted world.” Todd was spot on back then. Will he be right again?

From Minyanville:

1. Questions remain on a Greek aid package in front of €20 billion in debt that comes due in April and May. This dynamic is not bound by borders; should an accord be reached, as expected, the approach will be tested when the next “lifeguard” begins to drown. See A Five-Step Guide to Contagion.
2. New health care legislation could add hundreds of billions of dollars to already yawning budget deficits. That chasm can only close through upward taxation or austerity initiatives; neither is pro-growth and both drain consumption. This, of course, comes at a time when the “interconnectedness” of governments and markets has never been higher.

3. State budgets are cracking and a recent report from the Pew Center estimates unfunded pension liabilities are an eye-popping $452 billion. While I expect a Federal bailout package, as discussed in January, it’s akin to moving money from one pocket to the other. For more, read Ten Themes for 2010.

4. Social mood is tenuous at best and deteriorating at worst. As The Great Divide continues to evolve — Red States vs. Blue States, Main Street vs. Wall Street, Have’s vs. Have Not’s — societal acrimony has evolved into social unrest in some parts of the world, and economic hardship is pointing an unfortunate needle towards geopolitical conflict.

5. Complacency abounds, as measured by traditional volatility measures such as the VXO. While we’ve witnessed prolonged periods of subdued volatility (2004-2006) and healthy debates rage regarding the indicative validity of this measure, risk premiums are at levels last seen in June 2008 — a few short months before the financial crisis arrived.

6. From Google (GOOG)-China to USA-Toyota (TM) to EU-Greece, the seeds of protectionism continue to sow. That posturing is on the opposite end of “globalization” on the prosperity spectrum.
7. While the “stated’ unemployment rate hovers just below 10%, almost one-in-five Americans is underemployed; that means they’re not working, stopped looking, working below their abilities or working part-time because they can’t find full-time employment.

8. From an economic perspective, interest rates have one way to go, price-to-earnings multiples never troughed, and debt-to-GDP ratios will approach or exceed 100% in all G7 countries by 2014, with the exception of Germany and Canada, according to John Lipsky at the IMF.

9. The Congressional Oversight Panel warns that commercial real estate losses at banks alone could reach $300 billion starting in 2011. Almost half of those loans are concentrated at smaller institutions with total assets under $10 billion, and those are the same banks that account for almost half of all small business loans. See also What to Expect from the Commercial Real Estate Crisis.

10. It’s easy to forget about the housing crisis; in terms of “what matters now,” this concern almost feels passé. We must remember that massive amounts of residential mortgage backed securities are mis-marked at best and toxic at worst, sitting on the balance sheets of private and public institutions and by extension in bank accounts across America. This is in addition to the manifestation of under-water mortgages (negative equity) and foreclosure trends throughout the land.

Harrison’s conclusion and near-term views:

Do I think the system is broken beyond repair? No, I believe there will be massive opportunities once we’ve taken the medicine of debt destruction so long as calmer heads prevail. Also read The Great Expression.

That could take another five to seven years but it’s difficult to foretell; a lot depends on how we navigate a multi-linear dynamic that includes currency readjustments, the evolution of credit, $500 trillion of global derivatives, two-sided regulatory reform, the shifting social mood, geopolitical fragility, and trade relations.

Is it possible we “echo” higher before that comeuppance arrives? Sure; these aren’t natural markets anymore and we must respect both sides of the financial equation. Given the path we take trumps the destination we arrive at, there’s only one way we can reconcile these seemingly disparate data points: Carefully, and one step at a time.

If you asked me for my near-term opinion, I would offer that the tape tops out before quarter-end under S&P 1200, consistent with the path of maximum frustration as fund managers reach for performance. Remember, when S&P 1150 was surmounted, a lot of shorts covered, removing a natural layer of forward demand. From there, we’ll monitor the second quarter flows, which should help shape the tape into the beginning of April.

We certainly agree with Harrison’s observations. And a quick note: it is not our desire to see the market crash. Far from it. We just know too well that castles can not be built in the air. And that for a true economic recovery to commence, with or without the participation of the market, everything that has been done so far since the days of September 2008 has to be undone. Alas, with each passing day, this is becoming more and more impossible, while the day of correction is getting closer and closer: there is only so far any physical system can move away from a state of equilibrium before it resets. As the recent swap spread inversion demonstrated, unpredictable events will pop up increasing more often as the Fed’s central planning doctrine become the de facto norm for market control. And one of these days, the next “side effect” will be one which even a supercluster of SPARC computers mutually front running each other will be unable to resolve.

Self-Dealing Analytics: Politicians Are Crooks!

Posted by Karl Denninger