EASY READING CULTURE OF LIFE NEWS: THE IMF AND THE DERIVATIVES BEAST « Culture of Life News 2
This is the latest IMF GDP growth graph. The redder the country, the greater the growth rate. The green parts are the slow or no growth parts. Note that China is the biggest ‘fast growing’ portion. Europe and the United Kingdom parts [Canada and Australia, for example] are all very slow growing as is Japan. The US grew its GDP but did this via growing our debts. Notice how the graph above shows a sudden surge from a bottom that is the beginning of 2009. Right. Also, the lines of the chart are, blue is the BRIC nations like China and India, grey is the world total and red is the G7 nations. And guess what? The differential in growth rates are supposed to remain? In 1998, they were the same growth rate. But even in this massive decline, are still nearly as wide apart as at the height of the credit bubble! Not good news for us, in the US.
At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.
Nothing is more stressful than this dumb stress test. It is obvious that our entire banking system is under stress. This is why they have been raiding the Treasury and dumping all their garbage into our laps, forcing us to clean up messes they made.
The fiction that our banks are solvent should be strangled in the crib but it won’t die. Instead, we are being forced into believing that all is well and a mere injection of $12 trillion will float everything, again!
While some of the lenders may need extra cash injections from the government, most of the capital is likely to come from converting preferred shares to common equity, the people said. The Federal Reserve is now hearing appeals from banks, including Citigroup Inc. and Bank of America Corp., that regulators have determined need more of a cushion against losses, they added.
By pushing conversions, rather than federal assistance, the government would allow banks to shore themselves up without the political taint that has soured both Wall Street and Congress on the bailouts. The risk is that, along with diluting existing shareholders, the government action won’t seem strong enough.
Who, pray tell, is going to buy all these instruments of financial destruction? I have no idea. Certainly, not the Chinese and even the Japanese won’t float our entire financial system just so they can sell us some Toyotas and Hondas. The mystery as to who is going to own what continues and so, all real investors are running to the exits.
True, many hedge funds bid up the value of banking stocks recently due to the simple fact, the spread between what banks get for lending and what they pay for capitalization, has been at near-record highs, thanks entirely to Helicopter Bernanke and Santa Geithner.
But the banks still have to deal with the Derivatives Beast. And corporate defaults on all those record-sky-high buy up and buy out deals are now beginning to collapse. So far from being less a problem, the derivatives business is beginning to really look very bad indeed.
“The challenge that policy makers will confront is that more will be needed and it’s not clear they have the resources currently in place or the political capability to deliver more,” said David Greenlaw, the chief financial economist at Morgan Stanley, one of the 19 banks that are being tested, in New York.
All the bankers that created all those loans and who helped leverage everything on earth until everything was thrust right off a cliff, have dumped around 80% of this mess onto various governments. These happen to be the exact same governments we see in the above IMF map and graph, that are growing the least. World GDP in the last year was 4.3%. But the major G7 countries were only 2.6%. And the belief that this miserable situation will spring upwards to 2% from the present -4% is sheer lunacy.
This is a 6% rise. We know from previous severe recessions/great depressions that GDP doesn’t suddenly jump 6% in less than 2 years. Indeed, even China’s GDP couldn’t do this feat! The hope is, thanks to the G7 nations buying up all the bad deals made by the bad bankers, we will now see a revival of the sort of happy-go-go-growth of 2000-2006. Only look at the graph at the top of this story!
In 2000, the GDP growth rate was only 3%. It dropped to less than 1% in 2001. Panic set in and the Fed threw the kitchen cusinart at the recession and the GDP grew…to only 2.8%. It never broke above 3% during the entire global trade/property/corporate buy-out boom! The BRIC nations, on the other hand, saw their growth grow from 4.5% in 2001 to over 8% in 2006. This meant, even though both BRIC and G7 doubled their growth, the differential was made even greater. A 2% differential became a 5.5% differential.
How bizarre this is! The first graph shows the collapse in 2009 and then, total recovery in 2011. The rate of recovery is astounding. Amazing and I would suggest, ahistorical. And all, on riding on the Japanese ZIRP system? Remember: this zero interest rate regime in Japan made the Japanese people poorer, not richer. Only made a very few richer.
On top of this, not since the Great Depression, has global GDP growth gone negative! And so, how can this recover faster than the Great Depression? Only if someone makes a sacrifice, say, instead of protecting their own industrial base, allow their auto industry to shrink employment by 90%, for example, while allowing a flood of imports to come in? Indeed! The lessons from the Great Depression are very stark and we didn’t learn from that brush with near-death!
Look at the 5th graph on world trade volume. Again, no recession has come even remotely close to the collapse we are seeing today. Naturally, the IMF thinks it will rapidly resume in 2011 as the US opens wide and lets Asia and others just flood us with their exports again. The very last graph is quite graphic: the G7 will be utterly annihilated. China’s share of world growth will be supreme! The US, Europe and Japan can only hope to eke out less than 1.5% growth while China will be much greater.
As healthy revenues on bond sales have helped banks such as Deutsche Bank bounce back from credit market write-downs, BBVA is struggling to contend with the collapsing Spanish economy, which probably means that its outlook will continue to deteriorate, as will its rival Santander.
During the first quarter of 2009, profits fell 36.0% to 1.2 billion euros ($1.6 billion), as the proportion of bad loans as a total of the bank’s portfolio rose to 2.8%, from 1.1% a year ago, during the quarter, led by Spain where the figure rose to 3.2%. It appears to have been led by a sharp increase in bad loans to the private sector, where bad loans rose to 6.9 billion euros ($9.0 billion), from 1.8 billion euros ($2.4 billion) earlier, 3.7% of the total loan book for the sector. In Mexico, the nonperforming loans rose to 3.6%, from 3.2% at the end of the year, while it rose to 3.9% in the United States.
Spain is in trouble with a default rate that is 3.6% but then, the US is much more than that at nearly 4%! And Spain is in trouble???? Oh, I think I am going to faint. Of course, the US copes with this bad news by twisting the tail of the entire planet via our floating fiat currency! Of course, the more we abuse this, the more likely the floating fiat dollar will turn into the sinking Titanic paper money.
The credit swaps market isn’t the cause of the meltdown, Jasper, 60, said in an interview in his Midtown Manhattan office, on the 23rd floor of the building that also houses the derivative-industry association he co-founded.
HAHAHA. The very biggest financial monster on earth is not the cause of the total collapse of all banking systems? Dream on!
“The issues that you had, that we’re all living with right now, are issues of bad underwriting and probably a regulatory framework that couldn’t keep track of where the risk was,” he said.
HAHAHA. The risks were easy to spot: inside of the very same Derivatives Beast that the bankers created to remove risk! The mere fact that it got so bloated, so fast, was due to them all gaming the system, all betting on never seeing anyone beyond a small, 1.5% or less, going into default. So, of course, this caused them all to lend recklessly and continuously until everyone was way too deep in debt and the defaults began to relentlessly climb! DUH!
Primus is now at the mercy of a market that Jasper laid the foundation for in the mid-1980s by turning interest-rate swap transactions that once took days to negotiate into a standard contract.
This is how ALL debt systems got out of control: people could go online or make a phone call and get $500,000+ loans with no checking, no committee meetings, nothing. All deals were made recklessly, carelessly and swiftly. And like a drunk driver going 100 mph, the bankers drove us all off a cliff.
Debt traders used these as the template for credit-default swaps, where insurance companies, hedge funds and banks used leverage to guarantee at least $2.5 trillion in debt, according to data from the Depository Trust & Clearing Corp. in New York, which runs a central registry that captures most trading.
The Office of the Comptroller of the Currency was supposed to regulate all these sorts of things. But thanks to the Fed Reserve coup in 1913, the business of regulation was handed to the crooks and pirates running the scams. So they scammed everything in sight.
“Tom was the Henry Ford of derivatives,” said Richard Grand-Jean, 66, former managing director of international capital markets at Salomon and now New York-based principal of alternative-investment firm Hall Capital Partners LLC. “He brought mass production and uniform standards to the market.”
Derivatives that American International Group Inc. failed to understand prompted the U.S. government to commit $182.5 billion in loans and capital infusions, said Christopher Whalen, a managing director at Torrance, California-based bank research firm Institutional Risk Analytics….
Jasper got involved in derivatives in 1982, a year after Salomon created the first swap that enabled the World Bank to obtain Swiss and German currencies by exchanging cash flows with Armonk, New York-based International Business Machines Corp.
That was the year where interest rates went to 18% and global banking seized up. The Derivatives Beast was born to deal with this by circumventing the controls and restrictions put up by Volcker when he tried to kill inflation. Inflation in commodities and wages did collapse after this. But debt ballooned and has now totally destroyed everything.
Salomon saw an opportunity to capitalize if it could create an active market for swaps, said Brim, 63, who, with Jasper, completed the firm’s first interest-rate swap. Jasper then led an effort to transfer the product to the trading operations.
“Instead of a cottage industry, with bilateral trades, they did it off the trading floor and that led to a huge business,” said Brim, managing member of Hill Street Capital LLC in New York.
Increasing volumes required a standard contract. In 1985, with representatives from 10 banks at The Breakers resort in Palm Beach, Florida, Jasper helped set the terms. The so-called swaps code that emerged in the months after that meeting laid the groundwork for a master agreement, allowing swaps in virtually any asset class to be traded. Interest-rate and currency derivatives gave way to instruments used to hedge or speculate on commodities, equities and credit.
Jasper also founded and became the first co-chairman of the industry group now known as the International Swaps and Derivatives Association.
According to this lengthy Bloomberg article, Solomon Brothers hired Jasper and he said, they have an AAA rank which meant Jasper’s con game would need no collateral due to anticipating no defaults on corporate debts. Despite several scares when stocks suddenly plunged or the Asian Currency Crisis [caused by games played by these bankers!] rocked the boat, all was well when the Fed and the other G7 conspirators worked hard to engineer a world system that benefited mostly the bankers.
By allowing a host of pirate islands and mountainous kingdoms to become tax cheating havens as well as totally unregulated banking swindles, the bankers could evade all national and even many international regulations. They went totally insane and systematically looted the entire planet. Their incomes outshone all other incomes, totally. They went on a massive global buying spree. Now, they wish to resume this which is why they dumped everything into our laps and are now rewarding each other with immense, obscene bonuses.
Over-the-counter credit default swap contracts – you know, the kind which brought down Bear, Lehman, AIG, etc. – totaled as much as $62 trillion at the end of 2007.
The New York Fed bragged today about how much the CDS totals have been reduced:
Market participants have significantly reduced levels of outstanding CDS trades via multilateral trade terminations (tear-ups) to lower outstanding notional amounts, reducing counterparty credit exposures and operational risk. To date in 2009, tear-ups have eliminated approximately $7 trillion of CDS trade notional amounts, in addition to the $32 trillion eliminated in 2008.
Indeed, DTCC confirms that there are now approximately $25 trillion in outstanding CDS. That’s still almost twice the size of America’s gross domestic product.
These things must be rendered illegal. We can’t have a half-way fix. The monster can and certainly will explode in size the minute these grasping gnomes resume business as usual. Already, we have a new carry trade going on and lending is picking up even as many businesses and people go bankrupt.
“One of the debates is whether the Greenspan doctrine is right,” said Mr Lambert. HAHAHA. Who is debating this? Lambert? HAHAHA…“In the case of the UK, where there’s a statutory target [for inflation], they had no choice but to go along that path. But the crash we’ve been through means we should think about whether that is right and whether the the MPC needs some other points of reference.
Obviously, ignoring both property and corporate borrowing bubbles is stupid. Stop doing this! Begin to use this and ONLY this as the major way of determining interest rates.
“I was on the MPC and we saw house prices shooting up. You thought ‘Crikey’, but you [also] thought what would you have to do to interest rates to stop that, what would that do to the economy and what would that do to hitting the 2pc inflation target. I think we need a debate about that.”
The entire business about ‘what is inflation’ needs very much, to be examined and argued. And not with just a bunch of Keynesian Kops, either. This debate should be conducted online and information from us non-ivory tower peasants should be consulted!
Mr Lambert said the question was whether the country was confident that the policy-making tools at the MPC’s disposal were sufficient to manage interest rates and target inflation successfully to avoid booms and busts in future.
The history of finances is all about booms and busts. The entire excuse for creating the various international agencies, governing bodies, treaties and laws as well as a host of central banks, was to guard against bubbles and thus, prevent crashes.
THIS HAS BEEN A TOTAL FAILURE! Instead, we go from hyperinflation to deathly depressions! When this experiment started, gold was the gold standard. But tricking it and evading it began immediately, in 1914, to pay for reckless wars.
Then, it just got more and more convoluted until NO nation used gold as it currency basis by 1971 and this launched the odious floating currency regime that has pretty much destroyed all global finances and even, global trade. Time to trade it in for a new and better system, or better still, return to an older system.
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