Wednesday, April 28, 2010

Deaf, Dumb, And Blind

Perhaps it is just the cynic in me, but I find it a bit "odd" that the S&P debt rating agency that downgraded Greece and Portugal's debt yesterday did so mid morning in the USA when the "debt crisis" is on the other side of the Atlantic Ocean. One is left to wonder if this PIIGS debt downgrade was "timed" to coincide with a huge debt auction by the US Treasury this week, and used to force demand for it up via the inevitable rush to the safe-haven of US Government debt.

Hey, it's just an observation, but shouldn't a downgrade of debt in the Euro zone be announced while the European markets were wide open, instead of just as they were about to close? Considering how this debt downgrade would positively affect those large US banks that have "bet against" Greek debt, the timing of the downgrade announcement makes perfect sense. Toss in the US Treasury debt auction of a record $129 BILLION this WEEK, and it makes even more sense.

The effects of this debt downgrade, by New York based S&P, were as obvious as they were predictable. The equities markets tanked, and the bond market soared. A perfect storm to support the Treasury's bond auctions was created by this debt downgrade. Call me a cynic, yes I am, but the timing of this announcement was no mere coincidence.

Goldman Sachs is up on Capitol Hill getting bashed over the head by Senator Levin and his investigations committee, and the S&P ratings agency [no doubt in the pocket of Goldman Sachs] downgrades European debt [which Goldman Sachs has bet heavily against]. The stock markets [reputedly rigged by Goldman Sachs] go into free fall, and the US Treasury Markets [of which Goldman Sachs is a primary dealer] soar...

The whole day smelled of dead fish. This is until the Gold market suddenly roared to life in response to the debt downgrade and the fear that erupted in the equity markets. It was quite remarkable to witness, particularly on Options Expiration Day. The CRIMEX was left with the smell of napalm in the air as their efforts to beat the Gold market down below $1150 at the open went up in smoke as Gold rose throughout the afternoon into the $1170s. Stunning!

Unfortunately for the tiny Silver market, the CRIMEX goons were able to prey on the white metals industrial demand and beat it down and cap it in an effort to squash the options holders. Their efforts failed for the most part, as Silver was able to close over the key 18 handle. If you ever need proof at how small and easily manipulated the Silver market is, today was the day.

In the Euro, Swiss franc, and the UK pound, Gold and Silver hit new all-time highs yesterday. This is very significant, and will put a floor under Dollar based prices of Gold and Silver. Remarkably, to many yesterday, Gold's rise in the face of a fast rising Dollar was shocking. It should not have been. The Dollar may be, presently, the least ugly of the currency sisters, but it is no safe-haven...nor are it's debt related assets. Gold is quickly becoming the "currency of choice" in the global markets. The Gold cartel's ability to "control" the price of Gold, and Silver, is quickly dissipating. Upon the not too distant announcement of debt downgrades to California's state debt, or it's bankruptcy, the US Dollar will shrivel, and the cap on Gold will be extinguished.

I fully expect the sh*t to hit the fan in the US debt markets by July of this year.

Every effort will be mustered by the CRIMEX goons here to halt Golds ascent. The barometer of TRUTH must not be allowed to burst.

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
-Alan Greenspan, 1966 - “Gold and Economic Freedom” Originally published in “The Objectivist,” a newsletter service of Ayn Rand.

ECB may have to turn to 'nuclear option' to prevent Southern European debt collapse
By Ambrose Evans-Pritchard
Greece’s fortunes were dealt yet another blow as Standard & Poor’s slashed its credit rating to junk status - BB+ - the first time that has happened to a euro member since the single currency was created, pushing yields on 10-year Greek bonds up to a record 9.73pc.

The credit-rating agency also cut Portugal’s sovereign debt ratings by two notches to A-, as the swirling storm hit the country with full-force.

“We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.

“The ECB has been side-lined in the Greek crisis so far but do you allow a bond crash in your region if you are the lender-of-last resort? They may have to act as contagion spreads to larger countries such as Italy. We started to see the first glimpse of that today.”

Mr Cailloux said the ECB should resort to its “nuclear option” of intervening directly in the markets to purchase government bonds.

This is prohibited in normal times under the EU Treaties but the bank can buy a wide range of assets under its “structural operations” mandate in times of systemic crisis, theoretically in unlimited quantities.

Mr Cailloux added: “This feels like the banking crisis in late 2008 post-Lehman, though it has not yet spread to other asset classes. The ECB will have to act it if does.”

I hope many of you had the opportunity to watch yesterday's Goldman Sach's inquisition on Capitol Hill. If there's a more arrogant bunch of "financiers" on the planet, please inform me of them. "Conflict of interest" is not in these monkeys vocabulary, nor is the concept of an honest answer. Though all swore to tell the whole truth, obfuscation and stonewalling seemed to be their preferred definition of "the truth". Deaf, dumb, and blind, these banksters "doing God's work" insisted they have done no wrong, swindled nobody, and merely provide for the needs of their "customers". Uh..., whatever.

Goldman Sachs should by hung before the world as the poster children of what is wrong with Wall Street today. Their best interests a greed, and your interests as a customer are irrelevant. May they soon go down in flames.

If you are interested in catching up on yesterdays Goldman inquisition follow the links below from C-span. Bring some popcorn:

Goldman CEO: "Clients shouldn't care what our views are"
Goldman Sachs CEO Lloyd Blankfein told a Senate panel that there was no conflict of interest in their dealings involving mortgage-securities and that they had no obligation to tell clients about their business practices. Yesterday, the Senate Governmental Affairs Subcommittee asked current and former executives about their duty to clients and the ethics of betting against the housing market, despite also selling mortgage-linked securities.
Panel 1: Opening Statements Panel 1: Q & A Panel 2 Panel 3

I don't want to discuss it. For an ultra quick peek at the Deaf, Dumb, and Blind executives at Goldman Sachs, this brief video montage is priceless, Delay, Delay, Delay: Goldman Sachs' Time-Wasting Strategy .

The single most watched highlight of the Goldman inquisition is most likely this clip of Sen. Carl Levin beating one of the Goldman monkeys over the head with one of his "sh*tty" securities:

Video: Sen. Carl Levin beats up Goldman Sachs, drops the S-bomb
Michigan Sen. Carl Levin beat the crap out of a former Goldman Sachs Mortgages Department head this week in one of the more entertaining political exchanges to ever air on CSPAN.

With words, of course. The most colorful of which I can't publish here. But wouldn't you know it -- the good Sen. Levin was merely quoting a Goldman Sachs e-mail.

One poor Daniel Sparks probably really wishes he never got.

For an excellent written summation of the Goldman Sacks inquisition, the Wahington Post summed it up most eloquently:

Two planets collide for three hearings on Goldman
By Steven Pearlstein
It was as if people from different planets had finally come together in the Dirksen Senate Office Building for Tuesday's big hearing on Goldman Sachs and its role in fomenting the financial crisis.
From Planet Washington were the members of the Senate's Permanent Subcommittee on Investigations, aging and slightly rumpled politicians of varying sophistication who had spent several months tutoring themselves about the fine points of synthetic CDOs and who only wanted the aliens before them to acknowledge how much havoc they had wreaked on the markets and the economy.

Their questions sounded more like speeches, their speeches more like questions, as they waved around copies of some of the tens of thousands of revealing documents and e-mails subpoenaed by the committee staff.

Sitting opposite were four brilliant young men from Planet Wall Street, each impeccably tailored in dark suits, white shirts and subtly colored ties, and each sporting that one-day growth of facial hair that holds some mysterious attraction to females in Lower Manhattan. Tutored by Goldman's army of lawyers, the four responded to each question with a question -- "What paragraph are you referring to?" "Do you mean the firm as a whole or just our group?" -- or with a parry suggesting that the question was based on false premises or a misunderstanding of how things worked.

The Fab Four made clear that there was no such thing as a bad deal or a crappy security, only mispriced risks. Nor were there winners and losers, only willing buyers and sellers. Concepts such as fairness, loyalty, shame and greed simply had no meaning on Planet Wall Street.

Finally, after five frustrating hours of talking past each other, everyone simply gave up. A new, slightly older and more accommodating panel of Goldman aliens was ushered in, followed finally by the firm's chief executive. The results were largely the same: The issues were never really joined, the conflicting viewpoints never resolved, the full story never told.

Much of the hearing focused on how Goldman went from having billions of dollars of exposure to the subprime mortgage market in the first half of 2006 to posting big profits from the implosion in that same market by the second half of 2007.

The more benign way to look at this dramatic rebound is that it speaks to Goldman's knack for anticipating the market and its willingness to break from the Wall Street herd. Many of us may be jealous of Goldman's success or suspicious of exactly how it came, but surely we are all better off than if Goldman had remained long on mortgages, tumbled into insolvency and required a big taxpayer bailout.

On the other hand, Tuesday's hearing highlighted two big fallacies in much of the current thinking about financial markets.

The first misconception is that having the ability to hedge positions on everything from copper prices to asset-backed securities is unquestionably good for the markets and the economy. Certainly it's useful if farmers can lock the price of their harvest before they plant their seeds, or if pension funds protect themselves from sudden increases or decreases in interest rates.

But as we learned from Tuesday's hearing, the ease with which a firm like Goldman can hedge against losses from esoteric financial instruments can make an investment bank rather sloppy about the securities it underwrites and distributes, or for which it serves as market maker. Indeed, that seems to be exactly what happened at Goldman, according to the documentary evidence uncovered by Sen. Carl Levin and his subcommittee staff.

Although Goldman analysts and traders had private doubts about the quality of the subprime mortgages coming out of lenders such as Washington Mutual and New Century Financial, the bank was more than willing to underwrite and make markets in securities based on those mortgages. Without the ability to hedge so easily and cheaply, Goldman and other investment banks might have been more careful about the securities they created and traded, and buyers would have been more careful about the ones they bought.

The other big fallacy is that investment banks that underwrite securities are actually standing behind them. What we learned on Tuesday is that when Goldman Sachs lends its good name to a new offering and sends its vaunted sales force out to peddle it to some teachers' retirement fund in Omaha or a savings bank in Bavaria, it doesn't actually mean that Goldman thinks people should buy it.

In fact, there's a good possibility that Goldman knows it's a dog, or suspects that the market is about to tank, and has already lined up a big customer who wants to short the entire issue. And as Goldman sees it, the firm has no legal or ethical obligation to inform those buyers of its views or its conflicting interests.

There was a time when issuers would pay a premium to have Goldman Sachs underwrite their securities, just as there was a time when investors would pay a premium to buy into a Goldman-sponsored offering.

Today, Goldman has fully monetized the value of its reputation, and anyone who pays such a premium is a fool.

My final thoughts?

Did they uncover any "crimes"? Not really, but they'd make you think twice about dong business with these crooks. I don't think Goldman's golden boys did much to prop up the public perception of them, but then 98% of the public didn't even watch it.

Did you see the people in the audience dressed in prison stripes with Goldman executives names on them holding pink signs that said "SHAME" on them? That was the high point of the whole proceedings...LOL!

What interested me is how the Senators looked past the FACT that there was, at the time, a demand for the "junk" CDOs and MBSs. This goes back to the mantra that "interest rates were kept too low for too long". Groups of investors were looking for higher yields on fixed income assets, subprime offered it and had a good record of returns...up until the bubble burst.

Really, the whole financial crisis was brought about because the "old fashioned" way of "earning income" on fixed assets...compounding interest...was extinct because of the [Fed sponsored] too low interest rates. The too low rates forced investors AND savers into riskier investment vehicles, seeking better returns on their money. I was getting .5% interest on my savings account when I emptied it and bought Silver at $6.35 an ounce in 2005. The nations pension funds chose mortgage backed securities...DOINK!

But the point is...a nation's "wealth" comes from it's "savings". A river of "savings" was diverted by Wall Street, with the aid of Government sponsored low interest rates, into assets that were far to risky for "fixed income" investors seeking higher yields than the "savings rate" offered. What, and who, really should be investigated is JPMorgan. They are behind the biggest bond scam in the history of finance. With JPMorgan's help, the government has artificially kept interest rates low. JPMorgan's derivatives book is over $50 TRILLION, and the majority of it is bond derivatives. JPMorgan's left hand has been buying bonds from it's right hand for the last 10-12 years to give the illusion of demand for US Treasuries...forcing/propping up bond prices up and yields down. When that bubble bursts, and the bond market is The Mother Of ALL Bubbles, the Depression that Obama has so proudly "averted" will be upon us.

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