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-- Posted Monday, 24 December 2007 | Digg This Article | Source: GoldSeek.com
In addition, these mortgages, many of which have been sold to foreigners, have internationalized the problem. Foreigners now do not want to do business in the US and who can blame them. This toxic garbage has killed business worldwide. The foreign buys are supposed to get a rising return and now they won’t. We wonder what affect this is going to have on international business? Not only that how will if affect the sale and redemption of US Treasuries and Agency bonds, notes and bills? Foreigners and domestic buyers as well will have to deal with a new set of rules and new political risk. Even though lenders get off the hook they still have to pay the interest on their foreign loans as do hedge funds. How will they do that if rates are frozen? Then all those who wrote derivatives or bought them are stuck as well. We are talking billions of dollars in losses, just to bail out a bunch of crooks. Who is going to buy the $3 billion daily in securities next year that has to be bought by foreigners to keep the US from going under? If the foreigners do not buy, the Fed will have to buy and monetize Treasuries and Agencies every day – how inflationary. If Americans do not slow down buying foreign goods and the current account deficit doesn’t fall and soon, the US will in a couple of years have to default. As we mentioned in the last issue the ECB injected a mind-addling, unfathomable, gigantic $501.50 billion into its banking system. The effort forced the 2-week Euribor down 50 BPS to 4.45%; this follows the previous $1 trillion the 20 major central banks have already thrown into the system since August 9th. Simultaneously the Fed, SNB, the Bank of England and the BOC put in another $50 billion and they will add more until they think the system is fixed, at least for the time being. This is incomprehensible and it is going to get lots worse. That $501.50 billion was offered at 70 BPS less than the commercial cost of short-term money. This sent a clear message that things are so grim in the money markets that it would do anything to unblock the system. Once you have gone nuclear, no one pays much attention to your conventional forces. The BoE efforts got a dismal reply. Its one-month rate only fell 2 PBS to 4.95% and the 3-month rate only eased 4 BPS. On thing you can depend on that we must warn you again on and that is there will be a profound central bank panic sooner or later, and a big bank, broker or hedge fund will go down or the US will officially enter a recession. When that happens everyone will be looking for answers and it will be too late. Manipulating the Fed funds rate by injecting trillions of dollars into the economy is not the answer. Wednesday’s auction, the first of many, received $61.553 billion in bids for $20 billion. The bid to cover was 3.08 to 1, which was very strong; 2 to 1 would be normal. The funds offered rate was 4.65%. If we have to go three to five auctions you can be assured the problem is not going away. A second auction will occur Thursday. If one, or two or three more are needed you will know the Illuminati is still in trouble. That is auctions on January 14th and 28h. If more are needed watch out. Inflation is going go berserk. Housing sales are still not what they seem to be. Disguised discounts in the form of free cars, free furniture, cash rebates, garages, upgraded kitchens, etc. are making it difficult to tell exactly how much buyers are paying for their homes. We reported on this market-distorting tactic two years ago and Fannie Mae and Freddie Mac have demanded reporting of such gifts by lenders. Fannie has warned lenders very vocally again to be bewaring of such practices that are distorting house prices. A builder can hide a discount that might lower the value of other homes it is trying to sell, while a buyer can put a cash rebate toward a down payment. The result is other buyers overpay for nearly homes and the lenders make riskier loans, or loans they otherwise wouldn’t make on the basis of artificially high values. Most discounts are 20%, and on a $400,000 home that is $80,000, or equivalent, that massively distorts prices especially on higher priced homes. This is one of the reasons higher priced homes haven’t come down in value as much as they should have. Lenders and third party buyers are getting screwed as well as Fannie and Freddie. The financial turmoil just keeps getting worse. This week S&P slashed the rating of small bond insurer ACA Capital from triple-A to junk, stating that mortgage-related losses could exceed its $650 million capital cushion by more than $2 billion. ACA has provided guarantees on billions of dollars of securities including $26 billion of CDOs. Since in almost all of these cases the triple A ratings of the guaranteed securities depends on the guarantees, these securities are likely to be subject to writedowns as well, leading to a new wave of additional writedowns at banks and other institutions. But wait—there is more. While ACA is relatively small, S&P yesterday put two large bond insurers—MBIA and Ambac---on negative watch, meaning that it may downgrade their ratings in the near future, although it confirmed their triple A status for now. In addition MBIA, in a surprise move, indicated that it guarantees $8.1 billion of so-called CDOs-squared that have chances of losses. CDOs-squared repackage other CDOs and securities linked to subprime mortgages. If leading bond insurers were downgraded some $2 trillion of insured securities would lose their triple A rating, leading to another surge of massive writedowns at financial institutions throughout the globe along with additional severe credit problems in the world financial system. We suspect that the only reason that S&P didn't downgrade these companies now was their fear of what it would do to the markets. We can't say that we blame them for their reluctance, but that does not change the stark reality of the situation. This is yet another glaring example of the lack of transparency and the completely justified fear that we still don’t know of all the dangers that have still not been exposed to the light of day. Last month alone, even before these new developments were revealed, delinquencies on subprime loans contributed to downgrades on 2,007 CDOs. GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM The world’s third largest gold producer Anglo American Ashanti will close down its hedge book. The program will begin in 2008 due to ever-rising gold prices. This follows announcements by Barrick Gold and Newmont Mining that they will also close their hedge books. At the end of September, hedger hedge books showed $9.1 billion in losses. We can never understand why shareholders have not sued these managements and directors for malfeasance. The banking system is broken. It is going to come down, big-time. The problem has become systemic in nature, and there is now no turning back. Regardless of what the Fed and the other central bankers do to increase the supply of money and credit, the demise of the greatest Ponzi scheme of all time is no longer a question of "if" anymore, only of "when." The cartel-contrived debacle is not going as planned. The final conflagration is going to happen much sooner than the cartel had hoped, because in their greed, they have overreached. Their own covetousness will be the instrument of their destruction. The cartel now faces total and complete annihilation. The reprobate members of the Illuminati's Club Sociopath will get blasted and will be completely knocked out, landing on their evil derrieres with a very irreverent "plunk," as the would-be lords join the peons in their big swirl around a gigantic financial toilet bowl filled to the brim with toxic waste and unbridled avarice. They just could not leave it alone. They refused to purge the system once again, because the chance for yet another bubble, and another big swindle of the public with attendant exorbitant profits, was simply a temptation that they and their greedy little hearts could not pass up. And now they are in some very deep and horrifying trouble, because the subprime fraud and the attendant rate-reset and real estate debacles of Greenspan's Folly have not only impacted mortgages and mortgage bonds, they have disrupted the pillars holding up the entire international banking system, namely, the fractional reserve banking system and the entire multi-hundreds-of-trillions derivatives pyramid. What started out as a controlled demolition of western economies to pave the way for world government has morphed into a gargantuan financial reactor that has just gone critical on a sea of money and credit, only to have the control rods suddenly removed, threatening a thermonuclear meltdown that will destroy everything in its path. The extremely low degree of risk aversion and record low yield spreads that were made possible by ludicrously low interest rates and the ensuing rampant speculation that sent everyone chasing after yields, thereby driving up prices and driving down yields of bonds and derivatives, and that were further made possible by naked derivative insurance for debt in the form of credit default swaps, has now teamed up with a complete loss of confidence in the entire banking system that will make any effort to resurrect the very profitable glory days of credit and liquidity completely impossible. This loss of confidence has been caused by the various frauds, especially in ratings and loan underwriting, that were perpetrated in the subprime swindle, and by the lack of regulation and transparency for reports of financial condition that have made it impossible for bankers to determine who is creditworthy and who is insolvent. So much for Hanky Panky Paulson's much-touted self-regulation. The losses from the various bond and derivative problems will now totally outpace profits, stripping banks of their reserves, leaving only insolvency as the inevitable end product. Banks make money mainly by using rate arbitrage, with the yield spread being enhanced by the fractional reserve multiplier. For instance, a yield spread of 5%, with a fractional reserve multiplier of 8, would produce a 40% rate of return on the capital invested. You can make up your losses pretty fast with those kinds of returns by boosting the amount of capital at play through injections of money and credit into the system. But what if the spread is only 2% due to artificially low levels of risk aversion and the fractional reserve multiplier is only 2 because the lack of confidence is causing banks to hoard their reserves instead of lending money to other banks and other customers, thereby preventing the loan proceeds from the Fed and other central banks from being completely worked through the system. Now your overall yield is only 4%, a drop in the bucket when your SIV's are suffering 90% losses. And here we have the Fed once again on the path to lowering rates again, which will power up speculation and reduce yield spreads. The interbank loan system is frozen with very good reason and that has greatly reduced the fractional reserve multiplier. The resulting low overall yields on investment due to the reduced yield spreads and fractional reserve multipliers greatly increase the amount of money and credit that must be pumped into the system to work off losses and to free up reserves. This rapid increase in money and credit to boost the amount of capital at play will then aggravate already rampant inflation and turn it quickly into hyperinflation or, more correctly, hyper-stagflation. The Fed will then have to move interest rates much higher, into double digits, to keep us from becoming a Banana Republic, or the system will implode as the dollar theoretically could approach almost zero value if the inflation is not arrested. This in turn will cremate what pitiful remnant remains of the real estate market and wildly distort anticipated rates of interest, thereby destroying holders on the wrong end of interest rate swaps. Next, the insurers under credit default swaps who have insured the bankrupted interest rate swap holders against defaulting on their obligations will be vaporized, and the entire world financial system will then do a reenactment of the Hindenburg as it explodes and goes down in flames. The spoiled brats in the cartel are playing with fire, and they are about to get burned. Say goodbye to world government if that happens. Crispy critters can not run a world government and financial system. We wonder if the cartel's denizens have thought about how they are going to explain where all that gold bullion they have been hoarding for centuries came from when they attempt to use it to promote a new world currency and to create a new system out of the chaos left by the old system after it implodes. People will certainly be asking a lot of questions when these sociopaths start buying up distressed assets with all that gold. We know where it came from, and we will be more than happy to explain the origins of their tens of thousands of metric tonnes of gold to everyone else. We can't wait! THE INTERNATIONAL FORECASTER WEDNESDAY 122207(7)_IF P. O. Box 510518, Punta Gorda, FL 33951-0518 An international financial, economic, political and social commentary. Published and Edited by: Bob Chapman E-Mail Addresses: international_forecaster@yahoo.com if_distctr@yahoo.com CHECK OUT OUR WEBSITE www.theinternationalforecaster.com HAPPY HOLIDAY’S - MERRY CHRISTMAS - HAPPY HANUKKAH SEASON’S GREETING FOR A HAPPY NEW YEAR!! December 26th Wednesday - NO ISSUE December 29th Saturday - NO ISSUE NEXT ISSUE January 2nd, 2008 - Wednesday #1 issue (010208(1)_IF "The Technocratic Age is slowly designing an every day more controlled society. The society will be dominated by an elite of persons free from traditional values (!) who will have no doubt in fulfilling their objectives by means of purged techniques with which they will influence the behavior of people and will control and watch the society in all details". " It will become possible to exert a practically permanent watch on each citizen of the world". - Zbigniew Brzezinski, co-founder of Trilateral Commission
-- Posted Monday, 24 December 2007 | Digg This Article | Source: GoldSeek.com
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