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Methodius

Us Government Credit Rating Will Be Cut

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I spent yesterday afternoon in the heart of the beast, sitting in the very centre of the bond trading floor of perhaps the world's greatest financial company. To my left was the high yield desk - they have shed the name 'junk' - to my right was the investment grade corporate desk, in front were the sovereign debt desks and behind me were the mortgage backed securities traders. Fear hung over the room like a vulture circling over the field of Armageddon. I heard grown men wailing "but Freddies can't do that" and blaspheming "but it's backed by the government for God's sake". They sense that an era is coming to an end but have yet to embrace their nagging fear and doubt. They do not wish to imagine their lives now clad in fine linen, clean and white, being reduced to one of stained rags and hunger, not just for food, but for everything they are about to lose.

The world's central banks are fighting the most important fight in human financial history. Yesterday the Federal Reserve agreed to accept what will become worthless mortgage debt as collateral on loans from investment and commercial banks. What does this actually mean? It means that the United States Federal Reserve, the world's strongest and most revered financial organisation, has capitulated to the beast of international usury and the false prophet 'fair value' in order to temporarily slow the failure of the hedge funds they have so singularly failed to control.

The mortgage backed traders understood this instantaneously, hence their literal cries for help. By allowing these now toxic pools of decaying debt backed by mouldering assets to be exchanged for near limitless quantities of fiat currency, they have set a precedent that will not be able to reverse. How long before they take on the entire outstanding American mortgage debt of 5 trillion or more dollars? Not long now that they themselves have admitted it is worthless - why else would the usurers not be able to find someone else to lend against it? How long will their AAA rating last once the full truth of all of this is known?

They have shed the blood of the economic saints and financial prophets that could have saved them and they will gnaw their tongues for pain in payment.

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Meanwhile, economist Edward Yardeni, formerly still holding to the theory that the economy was OK, has now reversed course. Ditto for economists at JPMorgan Chase and Lehman Brothers. They don't yet call it the Credit Collapse of 2008, as I do. But they see it just the same — and they are beginning to recognize how serious its consequences really are. What they may not yet recognize is that the Credit Collapse of 2008 could attack everyone and everything that depends on debt, including, ultimately, the U.S. government.

And it's moving fast!

Just in the past three months, we've seen the Credit Collapse of 2008 drive a dagger into the markets for prime home mortgages, commercial mortgages, business loans, student loans, credit cards and municipal bonds.

We've seen the credit collapse rip apart little-known-but-important "structured" securities — Residential Mortgage-Backed Securities (RMBS), Commercial Mortgage-Backed Securities (CMBS), Collateralized Debt Obligations (CDOs), Collateralized Loan Obligations (CLOs), Auction Rate Securities (ARS), Credit Default Swaps (CDS), Structured Investment Vehicles (SIVs) and Variable Interest Entities (VIEs).

And just last week, to the shock of federal authorities, the credit collapse struck bonds issued by Fannie Mae and Freddie Mac. Although not backed by the full faith and credit of the U.S. government, these bonds were thought to be immune from the crisis because of their special status as government "sponsored" agencies. But they weren't.

The New York Times puts it this way: "If investors lose confidence in Fannie Mae and Freddie Mac, which have become the only major remaining source of mortgage financing in recent months, Fed officials fear that homes sales and housing prices could plunge further and foreclosures could climb even higher than they already have."

Plus, there's still another, unspoken fear:

If the Credit Collapse of 2008 can slam into the market for government-sponsored bonds, could it not do the same to government agency bonds like Ginnie Maes, which are backed by the full faith and credit of the U.S. government?

Further, if the Credit Collapse of 2008 can hit agency bonds, then, at some point, could it even bring down long-term U.S. Treasury bonds?

Fed officials are afraid to give an answer. They're even afraid to ask the question

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what were you doing on a bond trading floor? Do you work there?

I was once with the beast, now I am an observer. I intend to document its downfall as best as I am able.

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I was once with the beast, now I am an observer. I intend to document its downfall as best as I am able.

Next time you go on a reconnaissance mission, can I join you? ;)

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I spent yesterday afternoon in the heart of the beast, sitting in the very centre of the bond trading floor of perhaps the world's greatest financial company. To my left was the high yield desk - they have shed the name 'junk' - to my right was the investment grade corporate desk, in front were the sovereign debt desks and behind me were the mortgage backed securities traders. Fear hung over the room like a vulture circling over the field of Armageddon. I heard grown men wailing "but Freddies can't do that" and blaspheming "but it's backed by the government for God's sake". They sense that an era is coming to an end but have yet to embrace their nagging fear and doubt. They do not wish to imagine their lives now clad in fine linen, clean and white, being reduced to one of stained rags and hunger, not just for food, but for everything they are about to lose.

The world's central banks are fighting the most important fight in human financial history. Yesterday the Federal Reserve agreed to accept what will become worthless mortgage debt as collateral on loans from investment and commercial banks. What does this actually mean? It means that the United States Federal Reserve, the world's strongest and most revered financial organisation, has capitulated to the beast of international usury and the false prophet 'fair value' in order to temporarily slow the failure of the hedge funds they have so singularly failed to control.

The mortgage backed traders understood this instantaneously, hence their literal cries for help. By allowing these now toxic pools of decaying debt backed by mouldering assets to be exchanged for near limitless quantities of fiat currency, they have set a precedent that will not be able to reverse. How long before they take on the entire outstanding American mortgage debt of 5 trillion or more dollars? Not long now that they themselves have admitted it is worthless - why else would the usurers not be able to find someone else to lend against it? How long will their AAA rating last once the full truth of all of this is known?

They have shed the blood of the economic saints and financial prophets that could have saved them and they will gnaw their tongues for pain in payment.

Sorry, once again, you'll have to spell it out for me. Why were the traders blaspheming if the Fed had just accepted worthless MBSs as collateral? Am I getting confused with some US official org saying that Freddie and Fannie were not backed by government guarantee? (or just confused :huh: )

Peter.

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Sorry, once again, you'll have to spell it out for me. Why were the traders blaspheming if the Fed had just accepted worthless MBSs as collateral? Am I getting confused with some US official org saying that Freddie and Fannie were not backed by government guarantee? (or just confused :huh: )

The values of 'Freddies' and 'Fannies' started to fall before the Federal Reserve made its statement. These bonds, until a few days ago, were priced very close to US treasuries and many banks, pension funds and individuals (via what are called money market accounts in the US) have huge positions. Any weakening of the price of the kind that occurred on Friday is very bad news for that reason alone. Added to that, the market making desks have not priced in much volatility for products of this sort so were caught out badly when the price moved underneath them - inventories running to billions of dollars are entirely common so what seems like a small shift in price can produce big losses. The Federal Reserve clearly decided to take them as collateral to prevent a major sell off - at least that what the people around me were saying. I don't know why they chose to make the statement about not backing the company's debt when they did but I suspect further news on this one soon.

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The values of 'Freddies' and 'Fannies' started to fall before the Federal Reserve made its statement. These bonds, until a few days ago, were priced very close to US treasuries and many banks, pension funds and individuals (via what are called money market accounts in the US) have huge positions. Any weakening of the price of the kind that occurred on Friday is very bad news for that reason alone. Added to that, the market making desks have not priced in much volatility for products of this sort so were caught out badly when the price moved underneath them - inventories running to billions of dollars are entirely common so what seems like a small shift in price can produce big losses. The Federal Reserve clearly decided to take them as collateral to prevent a major sell off - at least that what the people around me were saying. I don't know why they chose to make the statement about not backing the company's debt when they did but I suspect further news on this one soon.

Any thoughts on the UK Gov credit rating?

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Due to a slight moderation delay, I don't think many people saw this. Forgive me for bumping it.

This is an important and well deseved bump IMHO.

Thanks Methodius.

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I spent yesterday afternoon in the heart of the beast, sitting in the very centre of the bond trading floor of perhaps the world's greatest financial company. To my left was the high yield desk - they have shed the name 'junk' - to my right was the investment grade corporate desk, in front were the sovereign debt desks and behind me were the mortgage backed securities traders. Fear hung over the room like a vulture circling over the field of Armageddon. I heard grown men wailing "but Freddies can't do that" and blaspheming "but it's backed by the government for God's sake". They sense that an era is coming to an end but have yet to embrace their nagging fear and doubt. They do not wish to imagine their lives now clad in fine linen, clean and white, being reduced to one of stained rags and hunger, not just for food, but for everything they are about to lose.

Anecdotal, but my sources also say we are looking at carnage. Last week was a turning point. To quote daniel day lewis, there will be blood

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The UK CDS 5y is 15bps, the US is 11bps. Looking at all the sovereigns, these two do not appear to have an especially high spread.

I know that it may be difficult question for someone in the industry but, if you feel able to answer, I would like to ask you what you think the final result of all this will be? Are we look at complete financial carnage and the world becoming a completely different place? Or something less dramatic?

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Anecdotal, but my sources also say we are looking at carnage. Last week was a turning point. To quote daniel day lewis, there will be blood

Anecdotal, but my sources say it isn't carnage at the moment (Europe based)

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I know that it may be difficult question for someone in the industry but, if you feel able to answer, I would like to ask you what you think the final result of all this will be? Are we look at complete financial carnage and the world becoming a completely different place? Or something less dramatic?

JimmyMac,

The numbers would indicate something less dramatic (but they could be wrong) - having said that the equivalent premium for UK 6 months ago was around 2bps, so while the risk of default is very small, it is increasing

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This looks desperate... What are the consequences if/when a bank defaults?

Yesterday the Federal Reserve agreed to accept what will become worthless mortgage debt as collateral on loans from investment and commercial banks.

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This looks desperate... What are the consequences if/when a bank defaults?

When the usurers are unable to repay their loans, the United States government will be left with trillions of dollars of failing mortgages to collect. Unlike Henry 1 of England, they will not be able to solve the problem by castrating the heads of these odious institutions and will, instead, have to write off most, if not all, of the money. The result will be catastrophic.

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When the usurers are unable to repay their loans, the United States government will be left with trillions of dollars of failing mortgages to collect. Unlike Henry 1 of England, they will not be able to solve the problem by castrating the heads of these odious institutions and will, instead, have to write off most, if not all, of the money. The result will be catastrophic.

Sorry for being thick but why use the term "usurers?" I assume you mean "banks" and this is a derogatory terms similar to Eric's "money lenders."

Thanks for excellent post/thread btw!

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JimmyMac,

The numbers would indicate something less dramatic (but they could be wrong) - having said that the equivalent premium for UK 6 months ago was around 2bps, so while the risk of default is very small, it is increasing

I don't mean just with regards to Government default but the whole credit crisis. I mean what do you think the financial world is going to look like in a year's time?

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It means that the United States Federal Reserve, the world's strongest and most revered financial organisation, has capitulated to the beast of international usury

I thought the Federal Reserve were the beast of international usury. How can they capitulate to themselves?

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As the current banking system is a child conceived to fail, if unknowingly at the time, could it not be that the heads of these institutions, the Rothschilds and Rockerfellas of this world realised that all this imaginary money they have created along with the interest cannot be repaid? And therefore could it be that they are simply moving this 'debt' into the public domain where it will be repaid by even higher taxation by us the poor plebs?

Or have I overdosed on the CT stuff people keep posting? :ph34r:

Damo

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this is very interesting. what will happen to the freddies and fannies ? they are as good as gold in the feds eyes... but thats is polishing a turd no one actually is going want them are they! they are just tickets to take out a big loan !

hey banks ?

couldn't hack it in the old banking system try new improved banking system 2.0 solvency lite its like monopoly but the bank will give you an unlimited loan.... great:)

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  • 297 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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