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bpw

Summary Of The Speech By Nigel Jenkinson

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I posted the July speech by Nigel Jenkinson in the hope one or two of you would read it and then join me in a little speculation and research. The fact the BoE are withholding this information seems very curious to me. If it is being contested then fair enough, it should be correct and unbiased. However, there’s no suggestion this is the case and we are all left with the impression the BoE have something to hide. Information perhaps that allows insiders to take precautionary actions denied to the average investor.

If you read the speech you will see that NJ presents a partial analysis of market risks with specific reference to ‘tail end’ events. I interpret this to mean extreme, low probability, events like the concurrence of large-scale sub-prime loan defaults, and the problems with corporate paper and structured investment vehicles. This is of course exactly what is happening day by day and NJ proposed carrying out stress tests on the financial systems to see what the effects of an extreme event would be and whether adequate measures are in place to deal with them. If you read the speech you’ll see there are grounds to suspect the following:

1) The financial models predict the concurrence of loan defaults in the sub-prime, corporate paper, and structured investment vehicle (SIV) markets could cause liquidity problems. This would lead to margin calls, which could cause huge losses in leveraged hedge funds.

2) The USA, UK and ECB are all vulnerable as implied by NJs request for stress testing in each trading block.

3) Failures in one trading block will cascade to others because of the global nature of bank lending, hedge funds and derivatives markets. If the USA falls then all fail at the same time.

4) The banks have insufficient reserves to deal with a tail end event – this is especially true of banks in the USA since the Fed changed the fractional reserving rules in 2003. I gather they are only required to hold 1% of their deposits in cash! To me, this sounds like a scandal that could trigger a global collapse of the dollar. Ironically, foreign banks hold huge dollar reserves that reflect the nub of the problem, i.e. the USA is in debt up to its armpits and doesn’t hold enough dollars in its own accounts.

Now these points to some extent are validated by the events of the past few weeks. Interventions by the ECB and USA Federal Reserve demonstrate there are insufficient dollars on account to deal with people like you and me who cashed in and wanted a safe haven for our hard earned savings. Likewise failures to float corporate paper (company loans) are causing a run on deposits. The question is therefore whether the four points above are correct, and if so, what will happen to markets as the USA and UK mortgage market start to default on loans at an increasing rate. The graph I posted before suggests things can only get worse and the Fed have to choose between morals on the one hand and the desires of rich investors who want an artificially low fed funds rate which has caused rampant high risk speculation on housing.

Edited by bpw

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About a couple of months ago I had some contention with an economist when I posted against an ancient thread on his web site...

I used my own observations and a lot of lessons learnt from here.

I was shocked to get an abusive agresive reply...

But amongst the things I predicted was this market turmoil and for my points I made I drew frome others posting on here...

I was right..

People here saw things ahead of time and we are now entering certain times of uncertainty....

What you say is in all likelhood correct and what happens from here is going to be a mess, turmoil not seen in years..

Kudos for your thoughts....

For it is time to watch it all unravel..

and why did this all happen....?

Global markets aside we had a Chanecellor who wished for a miracle economy and to achieve that he created the Housing boom led credit binge and the financial markets that traded in them..

Chasing a golden egg... Only one with Mastercard or Visa written on them...

What happens next is not set in stone...

But a small studio flat in stabsville will not be worth tomorrow what it is today....

too many people will be hurt in the process..

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About a couple of months ago I had some contention with an economist when I posted against an ancient thread on his web site...

I used my own observations and a lot of lessons learnt from here.

I was shocked to get an abusive agresive reply...

Name and shame him then, and we can all go on his website and be abusive and aggressive back. We don´t let our own get slagged do we?

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Name and shame him then, and we can all go on his website and be abusive and aggressive back. We don´t let our own get slagged do we?

Oh, I won.....

:) he was an economist and we had a reasoned discussion (Me) to his toys thrown clear out of his pram...

I would name him, but it would be to no avail, and he also has my name as he has my email.. So best hadn't..

Also, it was nice to blow his arguments out of the water...

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what point of view did he take and when you say economist do you mean one with pedigree. After all, what is they say if you lined up all the economists.....

Oh, I won.....

:) he was an economist and we had a reasoned discussion (Me) to his toys thrown clear out of his pram...

I would name him, but it would be to no avail, and he also has my name as he has my email.. So best hadn't..

Also, it was nice to blow his arguments out of the water...

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