Too Big To Succeed

Monetary Madness, Part II

"Like today, the Fed helped create a bond market bubble in the 1970s … but then began a panicky retreat in 1979 that helped drive T-bond yields to 13%, T-bill rates to 17% and the prime rate to 21%. Like today, the Fed kept the lid on short-term interest rates in the early 1990s … but then was forced to unleash them in 1994, causing the largest calendar-year decline in bond prices in modern history. And like today, in the first half of the 2000s, the Fed papered over every financial disaster it ran into — only to beat a sudden retreat by letting Lehman Brothers fail. They will do the same thing again — not because of any particular plan, but because they will have no other choice." Continue reading →

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Andrew Huszar: Confessions of a Quantitative Easer

"I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time." Continue reading →

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Lonely Jeremiahs

"Like last time, it’s only now — after the first cracks in the market have begun to show themselves — that other prominent experts are joining his camp. Eight years ago, the epicenter of the bust was the American home market. Now, it’s every bond market on the planet. And ultimately, bonds are more vital and pivotal in the global economy than homes. Why? Because a global bond-price collapse automatically comes with a global interest-rate surge; and sharply higher interest rates directly impact every consumer, every corporation or every government that borrows money. How prominent are the voices now joining Larson’s once-lonely chorus? Judge for yourself." Continue reading →

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How to Make $15.6 Million, Risk-Free

"You can buy CDSs without owning the underlying bond, which is essentially a speculation that McDonald's will default on that bond. Unless, of course, you have influence over the fast-food giant's management. Then it's not a speculation at all. It's a can't-lose trade. That's what Blackstone did. It took out an insurance policy on Codere, persuaded it to default, then collected $15.6 million in payouts. There was never a chance Blackstone would lose money on this arrangement. It was literally a risk-free trade." Continue reading →

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Kirby Cundiff: Why Do Banks Keep Going Bankrupt?

"During the recent crises in Cyprus, proposals were seriously considered to ignore the 100,000 EUR deposit insurance and seize a fraction of even small depositors’ money. Most depositors lost access to their accounts for over a week and large depositors are still likely to lose a large fraction of their assets. Most depositors still believe that deposit insurance will cover any possible losses. If banks are to become more stable, the amount of equity relative to debt in the banking system must be drastically increased to something resembling what it would be without government deposit insurance, central bank subsidies, and treasury bailouts." Continue reading →

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Buried in Fine Print: $57B of FHA Loans Big Banks May Have to Eat

"The nation's four largest banks are holding $57 billion of seriously delinquent loans that they've been slow to move into foreclosure over concerns that the Federal Housing Administration, the government mortgage insurer, will refuse to cover the losses and hit them with damages, according to industry sources. The banks — Bank of America (BAC), Citigroup (NYSE:C), JPMorgan Chase (JPM), and Wells Fargo (WFC) — have assured investors in the footnotes of quarterly filings that the loans are government-insured and therefore pose no threat to their bottom lines, even if they end up in foreclosure." Continue reading →

Continue ReadingBuried in Fine Print: $57B of FHA Loans Big Banks May Have to Eat

Ron Paul: New Fed Boss Same as the Old Boss

"The news that Janet Yellen was nominated to become the next Chairman of the Board of Governors of the Federal Reserve System was greeted with joy by financial markets and the financial press. Wall Street saw Yellen's nomination as a harbinger of continued easy money. Contrast this with the hand-wringing that took place when Larry Summers' name was still in the running. Pundits worried that Summers would be too cautious, too hawkish on inflation, or too close to big banks. The reality is that there wouldn't have been a dime's worth of difference between Yellen's and Summers' monetary policy. No matter who is at the top, the conduct of monetary policy will be largely unchanged." Continue reading →

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China warns US to ‘stop manufacturing crises’ and raise debt ceiling

"Premier Li Keqiang added his voice to concerns that the world’s biggest economy could default on its debt. Mr Li told John Kerry, US secretary of state, that China was paying 'great attention' to the issue of raising America's $16.7 trillion (£10.5 trillion) debt ceiling. China is the largest foreign owner of US debt, holding more than $1.277 trillion in Treasury bills. Mr Li's remarks, published by the state-owned Xinhua News Agency, follow comments by vice finance Minister Zhu Guangyao on Monday that 'the clock is ticking' and any US default would have global repercussions. Mr Kerry [is said to have] made clear to Mr Li that President Barack Obama was 'committed to resolving the issue.'" Continue reading →

Continue ReadingChina warns US to ‘stop manufacturing crises’ and raise debt ceiling

David Stockman Explains The Keynesian State-Wreck Ahead

"'What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank... What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...' He calls this condition 'Sundown in America'." Continue reading →

Continue ReadingDavid Stockman Explains The Keynesian State-Wreck Ahead

Thanks, Bloomberg, for More Nonsense About Gold

"Central bankers from all over the world meet regularly in Switzerland, at the Bank for International Settlements, to 'coordinate' monetary policy. They sit in a big room in front of a fancy table and discuss what they are going to do. Four men control roughly 75% of the entire world money supply: Zhou Xiaochuan, People’s Bank of China, Mario Draghi, European Central Bank, Haruhiko Kuroda, Bank of Japan and Ben Bernanke, US Federal Reserve. Does anyone seriously believe that these four individuals do not operate a common monetary policy? Does anyone believe that any of these individuals have the latitude to go their own way in defiance of the others?" Continue reading →

Continue ReadingThanks, Bloomberg, for More Nonsense About Gold