There was a move afoot at the recently concluded G20 finance ministers meeting to slap a version of the so-called Tobin Tax on major financial institutions around the globe. This tax would be imposed on each and every financial transaction.
I normally do not support new taxes, but this tax was so small it would not be noticeable to individuals traders, but it would be noticeable to the big financial players who trade madly like Goldman Sachs.
British Prime Minister Gordon Brown advocated the tax on financial transactions to support inevitable future bank rescues. I agree with Mr. Brown's statement:
"It cannot be acceptable that the benefits of success in this sector are reaped by the few, but the costs of its failures are borne by all of us. There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards."
Many European nations, such as Germany and France, are in favor of such a tax. The emerging nations such as China and Brazil have no real objection to it.
But - you guessed it - the tax proposal was shot down by the United States. Treasury secretary Tim-the tax cheat-Geithner nearly had a hissy-fit as he voiced his strong opposition to the tax.
And once again, we see that US economic policies are run by Wall Street. Gawd forbid Tim, that a tax be imposed on Goldman and the boyz -- instead of executives getting a $50 million bonus, they may have to settle for a $49.9 million bonus. Poor babies!
This attitude of the United States toward any sort of meaningful financial reform continues to lower the status of the country daily in the eyes of the rest of the world.....
Just follow the dollar on its downward path into the abyss.....
Tuesday, November 10, 2009
Friday, November 6, 2009
The Treasury Market Bubble
Recall how the US banks bolstered their balance sheets by swapping the putrid toxic mortgage backed debt for US Treasuries?
To me it seemed like a bad idea at the time, but now it seems like a looming disaster.
It looks quite possible that the price of the Treasuries could head south quite dramatically, taking the banks' capital positions down there with it. Aside from seeing more insolvent banks, the real problem is that this would reduce credit flow to business, risking a double dip recession.
The Fed has been propping up the wobbly-looking US Treasury market by purchasing over $750 billion of Treasuries so far. The problem now is that the Fed plans to stop its shopping spree at the end of the month, taking away a substantial amount of support for the price.
Don't forget too that the Chinese are losing their appetite for the stuff as well. If both parties were to stop buying bonds then prices would fall fast.
John Paulson, the owner of hedge fund Paulson and Co has made billions from successfully shorting the US housing market and the UK banks. He has a good eye for something that is about to implode. He told Bloomberg that, "shorting long-term US debt is the only attractive bet going at the moment".
He went on to say, "I always like to think about assets that are likely to experience a breakdown; the only thing I am really comfortable with right now is US treasury securities and US agency mortgage-backed securities...I think they are overpriced and make attractive shorts."
By keeping the Fed funds rate at close to 0%, banks have virtually no choice but to borrow cheap dollars to buy Treasuries and other assets. Traders within the banks have been having a party with it.
Gillian Tett, the assistant editor of the Financial Times wrote this week about a recently retired banker who gave her an interview about what's going on behind banking's pinstriped exterior. He said, "Highly leveraged short term trades are back in vogue as players jostle to load up. When money is virtually free, they feel stupid of they don't leverage up. Any sense of control has been thrown out of the window."
US banks now have nearly 15% of their bank holdings in Treasuries. This has risen rapidly in the last eighteen months from $1.1 trillion to $1.5 trillion. Interest rates will have to start rising at some point, and when they do the banks will be stuck between a rock and a hard place. Their Treasury assets fall in value as the amount they have to pay on their deposits rises.
Despite this conundrum, banks are still leveraged an amazing 10 times the value of their equity. So a 2% fall in the price of Treasuries would be amplified ten times. Bear in mind that US banks have a stack of money in other less "safe" investments as well, such as commercial property. These could fall even faster. On top of this, 43% of total bank assets are in the form of real estate loans, which are not exactly bomb-proof either.
In an article in SafeHaven, Daniel Aaronson and Lee Markowitz discuss this situation really well, and sign off their article with the chilling conclusion. They wrap it up by saying "It is feasible that even without loan losses, the entire banking system would be insolvent if Treasury yields rise high enough."
To me it seemed like a bad idea at the time, but now it seems like a looming disaster.
It looks quite possible that the price of the Treasuries could head south quite dramatically, taking the banks' capital positions down there with it. Aside from seeing more insolvent banks, the real problem is that this would reduce credit flow to business, risking a double dip recession.
The Fed has been propping up the wobbly-looking US Treasury market by purchasing over $750 billion of Treasuries so far. The problem now is that the Fed plans to stop its shopping spree at the end of the month, taking away a substantial amount of support for the price.
Don't forget too that the Chinese are losing their appetite for the stuff as well. If both parties were to stop buying bonds then prices would fall fast.
John Paulson, the owner of hedge fund Paulson and Co has made billions from successfully shorting the US housing market and the UK banks. He has a good eye for something that is about to implode. He told Bloomberg that, "shorting long-term US debt is the only attractive bet going at the moment".
He went on to say, "I always like to think about assets that are likely to experience a breakdown; the only thing I am really comfortable with right now is US treasury securities and US agency mortgage-backed securities...I think they are overpriced and make attractive shorts."
By keeping the Fed funds rate at close to 0%, banks have virtually no choice but to borrow cheap dollars to buy Treasuries and other assets. Traders within the banks have been having a party with it.
Gillian Tett, the assistant editor of the Financial Times wrote this week about a recently retired banker who gave her an interview about what's going on behind banking's pinstriped exterior. He said, "Highly leveraged short term trades are back in vogue as players jostle to load up. When money is virtually free, they feel stupid of they don't leverage up. Any sense of control has been thrown out of the window."
US banks now have nearly 15% of their bank holdings in Treasuries. This has risen rapidly in the last eighteen months from $1.1 trillion to $1.5 trillion. Interest rates will have to start rising at some point, and when they do the banks will be stuck between a rock and a hard place. Their Treasury assets fall in value as the amount they have to pay on their deposits rises.
Despite this conundrum, banks are still leveraged an amazing 10 times the value of their equity. So a 2% fall in the price of Treasuries would be amplified ten times. Bear in mind that US banks have a stack of money in other less "safe" investments as well, such as commercial property. These could fall even faster. On top of this, 43% of total bank assets are in the form of real estate loans, which are not exactly bomb-proof either.
In an article in SafeHaven, Daniel Aaronson and Lee Markowitz discuss this situation really well, and sign off their article with the chilling conclusion. They wrap it up by saying "It is feasible that even without loan losses, the entire banking system would be insolvent if Treasury yields rise high enough."
Tuesday, November 3, 2009
Gold Is King Everywhere But in the US, Where Goldman Is King
There was major news out this week as the International Monetary Fund (IMF) announced that they were selling 200 tons of gold to the Reserve Bank of India. India has joined China and other nations around the globe in diversifying out of the US dollar.
There are only 203.3 tons of gold left that the IMF wants to sell. Look for China, who is trying to get rid of dollars as fast as they can, to be an anxious buyer and step up to the plate and purchase the remaining gold.
The key takeaway here is that many nations, particularly in Asia, realize that the US dollar is quickly turning to toilet paper as the Fed continues to print trillions of dollars out of thin air.
It seems that the only people who don't "get" the appeal of gold are the economists and the numbskulls on Wall Street and in Washington, who still consider gold to be a "barbarous relic". Obviously the Asians do NOT think so.
Instead of doing something wise and prudent in the US, instead here we have the "every man for himself, get rich quick mentality" and just f___ everybody else.
The poster child for the "new" America is once again Goldman Sachs. Traders at Goldman Sachs made $100 million in profits on 36 of the 65 days of the third quarter. And - they recorded only one daily trading loss in the third quarter. This is an impossibility in a normal, non-rigged market!
According to the investigative report from McClatchey, in 2006 and 2007 Goldman Sachs KNOWINGLY distributed $40 billion in supposed AAA mortgage-backed securities that their 'snake oil salesmen' sold to investors such as pensions funds and foreign banks around the globe.
Meantime, Goldman KNEW these securities were really worth something between dead carp and dog s___. And they "bet" massively against their own customers in the CDS (credit default swaps) market without telling the clients who bought that junk they were doing that.
In the old America, this would be considered out and out fraud.
But in the new America, luckily for Goldman Sachs, it has run the executive branch of the US government (and much of the legislative branch) for years. So there is nothing to fear.
What the hell has happened to this country?
There are only 203.3 tons of gold left that the IMF wants to sell. Look for China, who is trying to get rid of dollars as fast as they can, to be an anxious buyer and step up to the plate and purchase the remaining gold.
The key takeaway here is that many nations, particularly in Asia, realize that the US dollar is quickly turning to toilet paper as the Fed continues to print trillions of dollars out of thin air.
It seems that the only people who don't "get" the appeal of gold are the economists and the numbskulls on Wall Street and in Washington, who still consider gold to be a "barbarous relic". Obviously the Asians do NOT think so.
Instead of doing something wise and prudent in the US, instead here we have the "every man for himself, get rich quick mentality" and just f___ everybody else.
The poster child for the "new" America is once again Goldman Sachs. Traders at Goldman Sachs made $100 million in profits on 36 of the 65 days of the third quarter. And - they recorded only one daily trading loss in the third quarter. This is an impossibility in a normal, non-rigged market!
According to the investigative report from McClatchey, in 2006 and 2007 Goldman Sachs KNOWINGLY distributed $40 billion in supposed AAA mortgage-backed securities that their 'snake oil salesmen' sold to investors such as pensions funds and foreign banks around the globe.
Meantime, Goldman KNEW these securities were really worth something between dead carp and dog s___. And they "bet" massively against their own customers in the CDS (credit default swaps) market without telling the clients who bought that junk they were doing that.
In the old America, this would be considered out and out fraud.
But in the new America, luckily for Goldman Sachs, it has run the executive branch of the US government (and much of the legislative branch) for years. So there is nothing to fear.
What the hell has happened to this country?
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