Maybe who knows once all is done and dusted these boys will all go back to basics and actually learn something, I was in the Adam Smith building today (making a fool of myself as it goes) but it got me thinking, apparently he believed that moral sentiments and self-interest would always add up to the same thing. The invisible hand cannot operate if there is no society, for precluding a societal construct precludes division of labor, and thus, the efficiency which comes with its manifestation. Now for society to exist, justice is a necessary condition ... For justice to exist in any social setting, individuals must harbor the passions of gratitude and resentment governed by a sense of 'merit' and 'demerit' and finally, as Smith himself would have so vehemently argued, the sense of 'merit' and 'demerit' is almost exclusively engendered by human sympathy. In conclusion, the invisible hand of the market is, at some level, contingent upon the ability of humans to sympathize: Smith's self-interest is indeed in consonance with the notion of sympathy. Im not feelings much of it in todays world, certainly not when I am being constantly insulted, ie french swindeler, rate cuts, low inflation, monoline insurance fraudsters to name the most recent tripe I am asked to swallow. Just to let you know I am one of the working classes, probably lower working classes (foul mouth etc ) who reads the broadsheets and the tabloids and I can assure you me and my fellow dumb down masses just aint that dumb and we aint havent it no more! YOU KNOW THE SONG,, I PREDICT A RIOT, just say when and where and me and my boss and workpals will all be there early with tea and sandwiches!

Ah DOUT THE INVISIBLE HON IS ABOUT TO PUNCH **** OUTTA US ALL !!!
Aye we are doomed but you know what, Im looking forward to it, sick jock chic that I is, oh n bye the way,its different up here, it just england thats gonna crash, cause we still havent caught up with them!

I agree - I think someone may be getting set up?? Could this happen?

We're in the twilight zone now man, anything's possible. Who'd of thought just a year ago that there would be old gaggies queing up outside a bank to get their dosh out and that the taxpayer would fund the get out of jail free card?

Or that Gas prices which are supposed to be going down in the New Year, isstead increase by over 7 times the rate of inflation.
Hang on to your hat (tinfoil for safety) anything can happen.

Nobody Believes That Lone "Lone Trader" Brought Down France's Second-Largest Bank

http://www.larouchepac.com/news/2008/01/24...ces-second.html
January 24, 2008 (LPAC)--Societe Generale, France's No. 2 bank, announced $10 billion in losses today, blaming the bulk of it on one "rogue trader" -- a story which not even the press corps buys.

This morning, the bank's top leadership had to respond to nearly two hours of aggressive questioning from some 100 journalists who attended a press conference called to explain their claim that a lone trader managed to cause the bank to lose 4.9 billion euros ($7.2 bn). Additionally, the bank reported another $3 billion in losses from subprime mortgages and from the U.S. bond insurer Ambac Financial, which had insured all the toxic CDOs held by the bank.

The assembled press were especially eager to hear all about the lone (assassin) trader theory which the bank is pushing. With a straight face, bank officials tried to explain that, on Friday evening, Jan. 18, they had discovered that a small trader had fraudulently taken very high futures trading positions. One of the journalists of a leading economic daily noted that "They take us for real idiots!" It was announced later that prosecutors in Paris had opened an investigation of the trader, identified as Jerome Kerviel.

On Monday, the Societe spokesman said, the bank began to unwind the lone-trader's positions -- which is not only supposed to explain Societe Generale's losses, but also the worldwide stock market collapse at the beginning of this week!

For many months, it was widely rumored that, among French banks, Société Général was probably the worst off. So nobody believes the fairy tale of the loan trader.

If it was a lone trader then the entire bank should be shut down indefinately for being unable to control risk. Who in their right mind would bank with them now?

http://www.nytimes.com/2008/01/24/us/24mayors.html
January 24, 2008
Foreclosures Prompt Cities to Make Plea for Aid

WASHINGTON — Facing a collapse in the subprime mortgage market that has pockmarked their cities with vacant houses and crippled their budgets, the nation’s mayors pleaded Wednesday for a huge infusion of federal aid.

As more than 250 mayors gathered in Washington for the winter meeting of the United States Conference of Mayors, many agreed that the collapse of the subprime market had left a growing problem of vacant houses, depressed property values, tighter credit, and a need to cut services to close municipal budget gaps.

“It’s an economic tsunami that is hitting our cities,” said Mayor Douglas H. Palmer of Trenton, the president of the conference. “We need federal action not six months from now, but within the next 30 days.”

And by 'federal action' what they actually mean is floods of money. Helicopter ben (or B52 Ben) is revving up his engines now.

Who are you trying to kid cgnao-the only thing you hear is the little voices in your head-why don't you just come out and admit it....you're Bruno aren't you

He's not Bruno! He doesn't have the same repetitive syntactic structure as him.

Plus he hasn't said anything remotely like:

"Gold owners can be assured that I will put in a DERISORY LOW OFFER for their gold!"

You are all fools if you dont know who Cgnao is by now........................................



Cgnao is...................................









..............Tyler Durden

As it happens I really think he needs to change his avatar-this would be MILES more appropriate:

Tyler Durden.......... aka Cgano washing away those toxic loans the easy way!




Click to view attachment

Like any major depression or economic collapse in history, the Central Banks have skillfully managed to divert attention away from their own bankrupt monetary shell-game and put forward a patsy for the history books and Hollywood. Enter: Jerome Kerviel.

http://www.nolanchart.com/article1412.html

Now don't get me wrong pluto I agree completely with the whole 'rogue' trader crud-it's cgnao's attempts to allude to being an 'insider in the know' which is both hilarious and quite pitiful. Ah well, better reach for those air-fresheners:

Oops. Someone having a spare billion, or two, or, errrh, 143? Any sheik or SWF up for it?

http://www.bloomberg.com/apps/news?pid=206...&refer=home

i think this money is 143bn to cover the 143 bn losses which the banks had already paid for to make the CdOs worth more. The Biter bit.

So publicly, they can say they are white knights bailing out their insurance friends, when really, they are hiding losses.

143bn my Golden Jackass!

http://news.goldseek.com/GoldenJackass/1201201098.php

no, this is just the losses on interest payments, not capital

I think I might have to sit down - serious?

Well, not quite. the insurance is to cover losses of payments to investors as the result of defaults. So within any one CDO say with 10000 mortgages, lets say 2% have defaulted.

The insurance is to cover the losses incurred on the interest harvest payments to investors because of the defaults.

The insurance is actually the method by which banks could ADD value to the CDO, by covering the higher risk tranches with cheap insurance which the market thought would never be used.

The whole CDO is not likely to default.

Of course, all the models used to create the scam assumed that house housing assets would continue to rise.

This is my understanding having read a few articles, but I am sure the situation is more complicated.

From the same article.

Any sheiks and SWFs, please step forward.

http://business.timesonline.co.uk/tol/busi...icle3248731.ece

Yes, if the insurance doesnt make good the shortfalls in payments to investors, the whole CDO value has to be written down to compensate., and some of these (probably many) have buy back guarantees from the issuing banks if they dont perform.

Nasty Nasty

U.S. Stocks Drop on Credit Concern; JPMorgan, Citigroup Retreat

More interest rate cuts Mr Bernanke please!

This is the beginning of the biggest housing meltdown EVER.

yes, but there are still a fair few on here that just don't see it happening. They are the ones that are going to be really sick as they have had all the info before hand & have chosen to believe government stats instead of using their own eyes & appying some comon sense.

ps - I'm getting a few 1oz debloons soon.

This is extremely scary stuff.

Presumably what they are trying to do is keep this behind the curtain in the hope that it will all pass, and that house prices will stabilise, go back up, IRs come down and therefore fewer defaults, helicoptor the money in, so that it goes back to the banks via debt repayments, and therefore reduce the risks to the banks.

Funny that the banks are not playing ball and reducing their IRs to customers very much. Surely that would be a way of maximising their return? Not necessarily for new loans, but maybe the existing ones.

Or is it that there is so much (fiat) money and therefore no hope of paying it back?

One of the parliamentarians said in parliament that Alliance and Leicester had secured their funding at 7%. Hence no cuts.

And this is the dilemma I guess.
Make big losses by selling at a loss, or make big losses by trying to make a profit and have loads of foreclosures.
Either way their only hope is to cling on and hope it all goes away. Some hope there.

Well, that depends what you mean by "it" - there seem to be very few who don' think we'll see substantial changes to the status-quo soon.

There remains the inflationary/deflationary debate - I don't think that is settled, nor do I think that it can be settled by debate and conjecture (as interesting as that is.)

There also remains a debate about time scales.

I'm particularly interested in attempting to predict the likely availability and terms of mortgage borrowing 1,2,4, and 8 years ahead... since that, and very little other than that, will dictate house prices in future, and - by corollary - fair prices today.

Healthy 25%-40% deposits might be common. Expect house prices to more than halve (inflation-adjusted).

wage or price inflation?

RPI.

They are fighting deflation with inflation. Sorted now?

Believe it or not, I agree... though I'd insist on being clear about what I mean.

I think that the inflation/deflation debate is wrong because it assumes one answer is correct. I don't think that is a valid - mainly because it doesn't take time into consideration. Considering only cash and houses:

In an inflationary outcome, I should buy a house as soon as I can afford repayments.
In a deflationary outcome, I should wait as long as I can put up with before I buy a house.

I don't think either of these represents a sensible interpretation of the current situation. I expect nominal falls in house prices, and for future mortgages to be far smaller than they are today. I also expect this to mean that there will be a substantial reduction in disposable income... and that, during this period, it will be optimal to make purchases. I do expect a severe recession, but I do not expect a depression. I expect that, eventually, there will be a government reaction to the downturn - which will result in an increase in government spending - in an attempt to kick-start the economy... and that, in turn will create inflation.

Loans from the central banks, unlike loans from commercial banks to retail customers, are not inflationary (initially, at least) as the money doesn't enter circulation. When the money enters circulation, then we will see inflation... but - right now - it isn't entirely clear if the money will ever enter circulation... That hangs in the balance - depending upon how banks are regulated in future.

I am anticipating an initial period of rampant RPI inflation, and above normal CPI inflation - with scant wage inflation and small asset price falls... followed by a period of wage deflation, rapid asset price falls and unspectacular, if volatile, CPI. Thereafter I anticipate a period of wage inflation, CPI inflation and remarkably slow asset appreciation. I prefer to think of this as deflationary, since that will happen first.

SocGen clearly had (and in all probability still has) a counterparty problem.

The hedging contracts were not "fake". They were real and the losing party or parties defaulted on their obligations. Consequently, nominal value became real value giving rise to enormous losses.

The rogue trader is just a sacrificial lamb to hide the gravity of the situation.

I URGE you all to protect yourselves NOW.

http://www.ft.com/cms/s/0/bb8d266c-cb75-11...0077b07658.html
Questions over hidden losses at SocGen

By Martin Arnold, Jennifer Hughes and Peter Thal Larsen

Published: January 25 2008 19:13 | Last updated: January 25 2008 19:13

Forensic accounting experts and rival banking executives are queuing up to question Société Générale’s assertion that a rogue trader could single-handedly hide more than €1bn ($1.5bn) of losses from the world’s leading equity derivatives bank.

A rival investment banking executive said it was “inconceivable” that Jérôme Kerviel could, as SocGen says, have built up positions worth about €50bn – more than its own market value – in futures for European equity indices without it triggering large and obvious margin calls (requirements for the bank to put up cash as collateral).

The banking executive said SocGen’s equity derivatives business was so powerful – it generated a third of group profits – that it was known as “the impregnable fortress” and was granted greater flexibility from audit controls than many US or UK banks.

According to people briefed on the fraud, SocGen received, and paid, large margin calls as a result of the falling value of the futures position that Mr Kerviel had assembled.

But if these positions had been properly hedged, this outflow would have been matched by an equivalent cash inflow from the rising value of the bank’s hedges.

As Mr Kerviel is alleged to have created fake hedging contracts that were subsequently cancelled, this would have created a cash shortfall. “Even if he was able to circumvent the normal controls, the deteriorating cash position should have served as a warning sign,” said another rival bank executive.

However, it is possible that the sheer scale of SocGen’s activity in the futures markets meant that the significance of the margin calls on Mr Kerviel’s trades was lost amid the larger figures.

He also only started his latest lossmaking trades on January 7 – two weeks before being caught – so it all happened very quickly.

EDIT typo

US slides into dangerous 1930s 'liquidity trap'
By Ambrose Evans-Pritchard in Davos
Last Updated: 12:29am GMT 25/01/2008

The United States is sliding towards a dangerous 1930s-style "liquidity trap" that cannot easily be stopped by drastic cuts in interest rates, Nobel economist Joseph Stiglitz has warned.

"The biggest fear is that long-term bond rates won't come down in line with short-term rates. We'll have the reverse of what we've seen in recent years, and that is what is frightening the markets," he told the Daily Telegraph, while trudging through ice and snow in Davos.

"The mechanism of monetary policy is ineffective in these circumstances. I'm not saying it won't work at all: it will help the banking system but the credit squeeze is going to go on because nobody trusts anybody else. The Fed is pushing on a string," he said.

The grim comments came as markets continued to suffer wild gyrations, reacting to every sign of contagion spreading to Europe, Asia, and emerging markets.

Wall Street has begun to stabilize on talk of a rescue for the embattled bond insurers, MBIA and Ambac.

The Fed's 75 basis point rate cut allows the banks to replenish their balance sheet by borrowing at short-term rates and lending longer term, playing the credit 'carry trade', hence the 9pc rise in the US financials index yesterday. But confidence remains fragile.

why did I read that in a Michael Bentine potty time voice? Nice One

From my first post on HPC, March 2005:

"Hopefully the above is still the least likely result, primarily because debt deflation is an animal which once released is almost impossible to control. However the likes of Ben Bernanke believe that this time round they can beat the liquidity trap, and in keeping with all intellectual economists, deep down he's itching to be put to the test so that he can immortalise his financial credentials."

If Stiglitz is right then Ben's going to get his chance.

Yes, and it's clear what they will be doing (as outlined in Bernanke's papers): they will buy the whole yield curve like crazy. They will monetize it all. Going to be fun.

In the end, the Dollar will totally and 100% be backed by -- DOLLARS!

It says in todays paper here in Hong Kong that "Eurex alerted Societe Generale in November 2007 about the positions taken by Jerome Kerviel."

Government Rescue Too Little, Too Late

From:
Martin D. Weiss, Ph.D.
Chairman of the Sound Dollar Committee

To:
Mr. Ben Bernanke
Chairman of the Board of Governors of
the United States Federal Reserve

Congresswoman Nancy Pelosi
Speaker of the United States
House of Representatives

Sec. Henry M. Paulson, Jr.
United States Secretary of the Treasury

Re:
Your recent responses to U.S. economic
decline and market turmoil


Dear Mr. Bernanke, Ms. Pelosi, and Mr. Paulson:

I am Chairman of the Sound Dollar Committee, a nonprofit, nonpartisan organization founded a half century ago to promote a stable economy and sound monetary-fiscal policy.

Back in 1960, when we mobilized millions of American citizens to help President Dwight D. Eisenhower balance the federal budget, we won a great national battle.

However, in the years that followed, we lost the war: Balanced budgets have become a faint memory; the strong dollar, a lost dream.

Indeed, it distresses me to say that America's day of financial reckoning is not just coming. In some ways, it has already come and gone.

The breakdown of the greatest asset bubble of all time — the recent housing boom — began over two years ago.

The fires of the subprime mortgage crisis, which quickly enveloped much of the $14 trillion U.S. mortgage market, began over one year ago.

And the credit crunch, strangling new financing to millions of debt-addicted consumers and corporations, began over six months ago.

Today, U.S. home builders are already mired in their greatest depression since the 1930s.

Major money-center banks have already suffered some of their largest losses in modern times.

Consumers have already snapped shut their pocketbooks.

Investors are already stampeding to safety.

Therefore, despite the best intentions, the steps you've taken, — along with any you still planned — may already be too late to prevent economic decline, too late to stop financial turmoil, and too late to break the vicious cycle now emerging between them.

Let's not forget: In every major recession since World War II, financial stresses of the magnitude we're witnessing today appeared only after the economic contraction was in its final stages. That's when corporations finally threw in the towel and filed for bankruptcy. That's when consumers did the same.

This time is very different.

This time, defaults are surging even before the onset of a recession ... even before millions of Americans lose their jobs or see their net worth sink.

So this begs an urgent question:

If we're already seeing blatant and abundant signs of financial stress or distress now, what can we expect in the recession?

In its front-page analysis last week, "Worries That the Good Times Were Mostly a Mirage," The New York Times explained it this way:

"Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn't go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.

"Now, some worry, comes the payback.

"Martin Feldstein, the éminence grise of Republican economists, says he is concerned that the economy 'could slip into a recession and that the recession could be a long, deep, severe one' ...

"First, Wall Street hasn't yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Economy.com ...

"'Part of the big uncertainty'," Raghuram G. Rajan, former chief economist at the International Monetary Fund, said, 'is where the bodies are buried.'

"The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: Despite the recent declines, stock prices and home values have still not returned to historical norms ...

"The price declines will also lead directly to the third big economic problem. Consumer spending kept on rising for the last 16 years largely because families tapped into their newfound wealth, often taking out loans to supplement their income. This increase in debt — as a recent study co-written by the vice chairman of the Fed dryly put it — 'is not likely to be repeated.' So just as rising asset values cushioned the last two downturns, falling values could aggravate the next one."

In short, we are facing a vicious cycle more powerful than anything we've seen in the half-century history of our Sound Dollar Committee:

Debt troubles sinking our economy, and ...
The sinking economy triggering more debt troubles.
Free Markets or Gambling Casinos?

Your predecessors have promoted free markets, and you have done the same. We commend you.

But why have you allowed those same free markets to be transformed into history's greatest gambling casinos?

I'm not referring merely to the credit card marketing frenzy that trapped millions of Americans into 18% debt.

I'm not even stressing the subprime mortgages debacle that's destroying our economy.

Rather, I'm focusing on the gambling casinos that are many times larger — and potentially riskier: The markets for derivatives.

My concerns are many ...

Concern #1. Off the Charts

If these derivatives were just a sideshow in the financial arena, any flare-ups could probably be contained.

But nothing could be further from the facts: By the third quarter of last year, just the derivatives held by U.S. banks alone ballooned to $172.2 trillion in notional value, according to the latest report of the U.S. Comptroller of the Currency.

How did our government let these debts and bets grow so large?

Also by the third quarter, credit default swaps — bets on bond defaults and corporate bankruptcies — surged to nearly $14 trillion. These hardly existed five years ago. And now their notional values are as large as the outstanding value of the entire U.S. mortgage market?!

Concern #2. Off the Radar

If most of these derivatives were traded on regulated exchanges — with standard oversight of each player — they might not be quite as alarming.

But the reality is that 95% of the derivatives are traded over the counter. In other words, they're off-the-radar, one-on-one contracts between two trading partners and no one else.

So I ask:

Do you know where the bodies are buried? Does anyone know?

Do you know what to do — or even what is likely to happen — when trading partners can't pay up on their debts?

Do you recognize the full nature of the threat to the system of a single major default? What about multiple defaults at approximately the same time?

The best metaphor is a street bookie taking daily bets from dozens of high rollers. If just one of his customers doesn't pay up, everything can blow up — not just for the bookie, but for the bookie's bookies as well. That's why he hires hit men to impose discipline.

But in the market for credit swaps, it's each to his own. Regulators have few tools — let alone guns and cement boots. How do they impose the needed discipline? Do they even know who owes what to whom?

Yes, in 1998, when just one derivative player collapsed, the Federal Reserve was able to orchestrate a bailout. But what are you doing about the many big players on the brink of collapse today? How could you possibly rescue them all — not to mention their trading partners? And how could you do it quickly enough?

Concern #3. The Global Derivatives Bubble

I assume you've been coordinating closely with other governments around the world on this crisis, because, globally, the mountain of derivatives is triple the size of the pile-up held by U.S. banks alone.

Instead of just $172.2 trillion, it's $516.4 trillion, according to the mid-year 2007 stats from the Bank of International Settlements.

And globally, credit default swaps are also three times larger than those in the U.S. alone. Instead of $14 trillion, it was $42.6 trillion by mid-year, probably over $45 trillion by year-end.

Even if you are coordinating efficiently with foreign governments, what good is it if no one has a handle on the current state of affairs? What good is it if we have neither the knowledge nor the power to prevent defaults or their consequences?

Concern #4. Safety Nets Failing

Pivotal players in the credit default market are the big U.S. bond insurers such as Ambac and MBIA. When issuers default, these insurers are supposed to provide a tamper-proof safety net.

If these bond insurers were not at risk of losing their triple-A ratings, it might not be of such urgent concern.

But the fact is, Ambac has already lost its triple-A rating from Fitch — a prelude to similar downgrades for other insurers and by other rating agencies. Last week, this already began to set off shock waves that threatened the credit markets. Are you ready for what might come next week or next month?

Have you calculated how much it would take to bail out the bond insurers? Do you realize that, if default rates surge in a recession, it could cost almost as much as you're planning to spend on the entire economic stimulus package?

Plus, do you not see the relationship between bond insurance and credit default swaps? They're essentially the same animal. If one goes down, so does the other.

A key point: The main reason so many big players have been willing to take so much risk with potentially shaky trading partners in the past five years was because they figured they had their backside covered. They had credit default swaps. They had bond insurance.

But if these hedges and insurance policies themselves are going sour, then what?

Are you going to be the insurer of last resort?

And have you considered the fact that the very act of bailing out private companies — driving inflation and interest rates sharply higher — could set off the tripwires on still more defaults?

I have just one fundamental word of advice with respect to all of these questions: Don't do it. It's too risky.

Don't let the U.S. government get dragged down into the quicksand. It's too deep.

Don't bail out the banks, the bond insurers, and the thousands of other gamblers in the derivatives casino. They're too big.

Don't get entangled in the giant web of bets and debts they've created over the years. It's too complex.

Yes, help orchestrate work-outs and coordinate clean-ups. But don't squander taxpayer funds.

If you do, you'll sacrifice the most precious resource we have left — the ultimate viability of the U.S. dollar and credit rating of the U.S. government.

Instead, wait until the excesses of recent decades have been mostly washed out. Then focus your efforts on helping to bring about a true recovery.

No matter how dire the situation may be, it's not the end of the world. We've survived worse, and we're still here. We'll survive this crisis as well.

Sincerely,

Martin D. Weiss, Ph.D., Chairman
Sound Dollar Committee

http://ftalphaville.ft.com/blog/2008/01/29...tives-coverage/


100% correct, guaranteed

Has anyone collated there own information on this? Is this even possible for someone out side of the industry? It would be nice if we had an independent enquiry so to speak...

What are you waiting for? What will your excuse be?

http://www.bloomberg.com/apps/news?pid=206...&refer=home
Bond Insurers May Lose AAA Ratings Before They Get Bailout Plan

Jan. 29 (Bloomberg) -- Bond insurers led by MBIA Inc. and Ambac Financial Group Inc. may lose their top AAA ratings before they benefit from any rescue plan.

http://www.iht.com/articles/2008/01/29/business/29fedFW.php
FED pours $30 billion into market
Published: January 29, 2008

WASHINGTON: The U.S. Federal Reserve, working to combat effects of a serious credit crisis, said Tuesday that it had auctioned $30 billion in funds to commercial banks at an interest rate of 3.123 percent.

The rate was below the U.S. central bank's current target for overnight rates, the so-called fed funds rate, of 3.5 percent.

edit link

http://uk.reuters.com/article/bankingFinan...29?rpc=401&
BofA CEO: Bond Insurer Meltdown a Systemic Risk
Tue Jan 29, 2008 6:02pm GMT

NEW YORK (Reuters) - Any meltdown of a large bond insurer would pose a systemic risk, Bank of America Corp Chief Executive Ken Lewis said at a conference on Tuesday.

The bond insurers, which guarantee more then $2 trillion of securities and are expected to make big payouts on bonds linked to subprime mortgages, are struggling to raise capital and keep their top credit ratings.

surely the issue is that if the banks cannot insure the risk they have to take it back onto there balance sheets and call in the loans if thier articles/fractional lending criteria demands. Can they partially insure the risk if the insurers cannot raise enough capital. Damage limitation?