Friday 30 April 2010

Squids Go Criminal

Baltic Dry Index. 3329 +126 (April 28.)

LIR Gold Target by 2019: $3,000.

A permanent Governor of the Bank of England would be one of the greatest men in England. He would be a little `monarch` in the City; he would be far greater than the `Lord Mayor.` He would be the personal embodiment of the Bank of England; he would be constantly clothed with an almost indefinite prestige. Everybody in business would bow down before him and try to stand well with him, for he might in a panic be able to save almost anyone he liked, and to ruin almost anyone he liked. A day might come when his favour might mean prosperity, and his distrust might mean ruin.

Walter Bagehot. Lombard Street. 1873.

We open this morning for our May Day holiday weekend, with news that the great vampire squid is now under criminal investigation in America. News sure to increase Goldie’s problems in Europe, once Caesar Rompuy and the myriad of bureaucrats return to work sometime around mid May. Paranoia moves up several notches at the home of the squids. Who’s wired, who’s cooperating, and which phones are safe to use? Did everyone declare all on their taxes? For the clients of course, it’s a double edged sword. While the prospect of Goldman wrongdoing creates the chance that Goldie’s clients might get some of their embarrassing billion dollar losses back, a criminal investigation might mean some or all of them are on tape.

The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards.

Walter Bagehot.

APRIL 29, 2010, 9:41 P.M. ET
Criminal Probe Looks Into Goldman Trading
Federal prosecutors are conducting a criminal investigation into whether Goldman Sachs Group Inc. or its employees committed securities fraud in connection with its mortgage trading, people familiar with the probe say.

The investigation from the Manhattan U.S. Attorney's Office, which is at a preliminary stage, stemmed from a referral from the Securities and Exchange Commission, these people say. The SEC recently filed civil securities-fraud charges against the big Wall Street firm and a trader in its mortgage group. Goldman and the trader say they have done nothing wrong and are fighting the civil charges.

While Greece leads Europe boldly into the brave new age of austerity, both Germany and Britain, among others, will be cutting back and raising taxes starting in the second half of 2010 and into 2011, in the USA a million are about to lose their unemployment benefits, with Goldman estimating that soon that will rise by 400,000 a month. Bad things lie directly ahead, I suspect. Why bailout the banksters and not me, will soon be a populist rallying cry that’s hard to rebut in the face of a Roman style mob. Below, Bloomberg covers the worrying story. The recovery that isn’t, is on the edge of a precipice on both sides of the Atlantic.

Poverty is an anomaly to rich people; it is very difficult to make out why people who want dinner do not ring the bell.

Walter Bagehot.

More Than a Million in U.S. May Lose Jobless Benefits
April 29 (Bloomberg) -- Since the U.S. recession began in December 2007, Congress has extended the length of unemployment benefits for the jobless three times. Now, the lawmakers may have reached their limit.

They are quietly drawing the line at 99 weeks of aid, a mark that hundreds of thousands of Americans have already reached. In coming months, the number of those who will receive their final government check is projected to top 1 million.

It’s a deadline that has rarely been mentioned in recent debates over jobless benefits, in which Republicans have delayed aid because of cost concerns. The deadline hasn’t been lost on Teauna Stephney, a 39-year-old single mother from Bothell, Washington, who said she could become homeless once her $407 weekly checks stop in June.

“What are people like me supposed to do?” said Stephney, who said almost two years of benefits haven’t proved long enough for her to find work after she lost her last job in August 2008. Referring to lawmakers, she said, “I would like them to come and talk to me and spend a day in my shoes.”

-----“We have study after study that shows people are more anxious to get a job after they run out of benefits,” said Representative John Linder of Georgia, the top Republican on the Ways and Means subcommittee with jurisdiction over the unemployment program. “Continuing to extend this isn’t helping them or us.”

Allowing the ranks of those who lose their aid to swell carries risks for Democrats in November’s elections.

“They’re damned if they do and damned if they don’t,” said Stuart Rothenberg, publisher of the Rothenberg Political Report. Voters are “sensitive these days to spending and deficit issues and yet there are going to be people who need help, and if the administration ignores them, they’ll look rather callous.”

Negative ‘Atmospherics’

Baucus said extension legislation would fail in the Senate because of both the deficit and the negative “atmospherics” of lengthening the weeks of aid into triple digits.

“The best thing to do is get this economy turned around” to create jobs, said Baucus.

-----Since the recession began, aid extensions added 53 weeks of assistance to the 46 weeks that had been in place. About 11 million Americans, roughly 70 percent of the nation’s jobless, in March received unemployment checks averaging $320 per week.

The challenge for lawmakers is that while benefits have reached record lengths, so has long-term unemployment. According to the Bureau of Labor Statistics, 44 percent of the jobless have been out of work for at least six months, the biggest share since the government began keeping track in 1948.

3.4 Million

About 3.4 million Americans -- approximately the population of Connecticut -- have been out of work for more than a year, according to a study by the Pew Fiscal Analysis Initiative.
The states, not the federal government, track how many exhaust their unemployment benefits, said U.S. Labor Department spokesman Matthew Wald.

Interviews with state officials found that in New York, 57,000 people have received their last check. In Florida, 130,000 are no longer eligible as are about 30,000 Ohioans.

Those numbers will grow, according to Goldman Sachs Group Inc., which projects that more than 400,000 may soon begin losing benefits every month.

King: Election winner will be out of power for a generation
By Edmund Conway Economics Last updated: April 29th, 2010

Whichever party wins this election will have to inflict such painful austerity measures on the British population that they will soon find themselves out of power for a generation. Not my words, the words of Mervyn King, Bank of England Governor.

Or so says American economist David Hale, who says King confided this with him over lunch last week.

To be precise, he said: “I saw the Governor of the Bank of England last week when I was in London and he told me whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be.” Ouch.

Now, based on precedent, the chances are that King will deny these remarks (and be pretty furious that Hale has blurted them out in an interview in Australia). Moreover, I happen to know King was out of London most of last week (first on holiday, then at the G20 meetings in Washington) so quite when this lunch happened is unclear. Though I understand they certainly have met.

However, leaving this inconsistencies aside, the comments do seem plausible: King has said repeatedly that the Government will need to impose far more ambitious cuts on the deficit than it currently plans. The comments ought to stand as a reminder that although the focus of the election has switched away to bigotgate, and the economic focus worldwide to the eurozone malaise, Britain faces a decade of hurt in the wake of its decade of debt.

The Institute for Fiscal Studies spelt it out earlier this week in typically frank terms. Labour and the LibDem plans imply the biggest squeeze on public services since the 1970s, when the IMF was in town. The Tory plans imply the biggest set of cuts since records began in 1948.

Next, the ex Bank of England Dutchman, Willem Buiter, now dancing away at Citi, suggests that the Fed is the most likely central bank to try "inflationary monetisation of public debt and deficits." Stay long gold and silver, but far from the reach of Uncle Sam and John Bull. That’s a polite way of saying the fiat money, dollar reserve standard is about to end in the Great Inflation. Below Zero Hedge covers Mr. Buiter’s scary analysis. Below that, the link to where it can be found on the new LIR blogsite.

Willem Buiter Issues His Most Dire Prediction Yet: Sees "Unprecedented" Fiscal Crises, US Debt Inflation And Fed Monetization
Submitted by Tyler Durden on 04/29/2010 08:48 -0500

---- Which is why we were very surprised when we read Willem Buiter's latest Global Economic View (recall that he works for Citi now). In it the strategist for the firm that defines the core of the establishment could not be more bearish. In fact, at first we thought that David Rosenberg had ghost written this. Once the apocryphal truthsayers such as Buiter become mainstream within the mainstream, it is only a matter of time before the marginal opinion shifts to match that of those who have been prognosticating doom all along (for all the right reasons). In the below piece, Buiter presents a game theory type analysis, which concludes that the US and other sovereigns will soon be forced into fiscal austerity. Among his critical observations (we recommend a careful read of the entire 68 pages), are that the US is highly polarized, and that the Fed, which is "the least independent of leading central banks" would be willing to implement "inflationary monetisation of public debt and deficits than other central banks." The next step of course would be hyperinflation. And Buiter sees America as the one country the most likely to follow this route. Most troublingly, Buiter predicts that a massive crisis is the only thing that can break the political gridlock in the US in order to fix the broken US fiscal situation. Must read.

Soveregn Debt Problems in Advanced Industrial Countries.

We end for the week with those dodgy Swiss. No it’s not UBS again, playing fast and loose with America’s optional laws, this time it looks like an open and shut case of plagiarism. Heidi is really Adelaide and German, but at least she wasn’t Australian I suppose.

April 29, 2010
The greatest blow to Swiss national pride: Heidi may be German
Switzerland’s international image has been taking a battering. Banking secrecy is a thing of the past. The traditionally tolerant nation has voted to ban minarets. Even Swiss army knives, the Alpine republic’s contribution to global security, are confiscated and binned at airports.
But the Swiss have always been able to count on Heidi. The frisky fictional orphan has been hopping and skipping down mountain slopes ever since Johanna Spyri wrote her children’s book in 1880 — Heidi’s innocence and love of the Alps, her modesty and her love of her grandfather are regarded as quintessentially Swiss.

“Heidi is the most prominent Swiss brand in the world,” says the film producer Lukas Hobi, who is making a 3D film about the pig-tailed heroine, a kind of Avatar with goats.

The problem is that Heidi may in fact be German. According to the German (but Zurich-based) researcher Peter Buettner, Johanna Spyri may have lifted some of the ideas, phrasing and narrative structure from the work of Hermann Adam von Kamp, a 19th-century German from Mülheim, now a smokey un-Heidiesque place. His Adelaide, the Girl from the Alps, was written fifty years earlier and even angry Swiss critics admit that Spyri may have read the book.

“I immediately noticed the same narrative structure: a little girl brought up by her grandfather, who left her homeland and grew unhappy abroad until she could come home,” says Mr Buettner. The name Heidi derives from Adelaide or Adelheid. Some of the vocabulary is very similar. Adelaide picks violets. Heidi gathers up unspecified flowers. Adelaide’s cheeks “glow red”. So too do Heidi’s.

And at least one key scene from the German work re-surfaces in the Swiss classic. In the German version Adelaide is offered a bag of money by her grandfather.

“O, keep it for yourself, said Adelaide. I don’t go shopping. And you give me so much.”

The Swiss classic has an almost identical exchange.

“I really don’t need it grandfather, said Heidi ... take it, take it and put it in the cupboard, you will surely need it.”

Naturally Swiss parents linger on this passage when reading to their children: it may just have been the last time that a Swiss child turned down a cash present from a relative.

So is Heidi about to go the way of other Swiss icons, devalued by the Germans, their more powerful northern neighbours? Tensions are already running high. It has been the Germans who have been most active in cracking open Swiss banking secrecy, buying up apparently stolen files of numbered accounts belonging to tax-dodging German clients. One German minister suggested that Berlin’s role was to act as the US cavalry riding out to bring order among the Apaches. The Swiss did not like the image.

Oh what a tangled web we weave…..

Sir Walter Scott.

At the Comex silver depositories Wednesday, final figures were: Registered 51.17 Moz, Eligible 63.83 Moz, Total 115.00 Moz. The bean counters seem to be on a bender again.


Crooks & Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Yes it’s the great vampire squid again. One pre inquisition, held over article from the infamous Michael Lewis at Bloomberg. Well worth clicking on for the whole hilarious article. The other post inquisition peeling apart the smoke and mirrors aka deception.

“The current political-economic system is simply unsustainable; no economy can afford to pay for four giant zombie financial institutions, two substantial military adventures, a zombie-driven housing market, an exploding health-care bill and Goldman Sachs partners' lifestyle aspirations.”

Martin Hutchinson. November 23 2009

Bond Market Will Never Be the Same After Goldman: Michael Lewis
April 22 (Bloomberg) -- If you happen to be sitting on the Goldman Sachs bond-trading floor life must feel horribly unfair.

You did nothing worse than live by the ethical assumptions of your market -- any money-making event short of obviously illegal is admirable -- and now your own grandfather thinks you’re some kind of monster. Your world feels upside down: What was right is now wrong; what was good is now bad; what once felt like winning now feels like losing.

You are probably wondering: What next? What will the angry rabble -- all those ordinary people who can never really understand your business -- now demand that you explain to them, so they can disapprove of you all over again?

A few possibilities:

No. 1 -- Full knowledge of the inner workings of your proprietary trading desk.
In particular: the moment-to-moment dealings of your correlations traders from late 2004 (when they first exploited American International Group’s idiotic willingness to sell cheap insurance on pools of subprime mortgage loans) until the end of 2007, when they would have taken most of their profits from the total collapse of the subprime bond markets.
Your bosses claim to have lost almost $100 million on the Abacus trade for which your firm is being sued. This seems, to put it mildly, disingenuous. In March 2007, the time of this particular Abacus trade, your prop traders were already short the subprime market. Would they really have taken a naked long position in a deal you helped to construct precisely so that it would fail without offsetting in some other way on their books?

Ritual Sacrifice

Sadly, it will not suffice to offer up Fabrice Tourre as a ritual sacrifice. No one is going to accept a then 27-year-old Frenchman, whose job was apparently to keep sweet the patsies on the other end of your trades, as the world’s authority on your trading positions.
His name isn’t even on the top of the list of Goldman traders listed on the $2 billion Abacus deal for which you are being sued. The name on top of that document is Jonathan Egol. Egol appears to have been the bond trader at the center of your Abacus program. The same Jonathan Egol who told fellow traders in 2006 -- a year before this transaction -- that the subprime market was doomed.

The public eventually will ask: Who is Jonathan Egol and what exactly was his game?

No. 2 -- A far better understanding of your relations with the inaptly named “CDO manager.”

Clearly Clueless

In this case the manager was ACA Management, but there were other CDO managers at least as pliable as ACA. The SEC suit charges you with using ACA as a shill: the end investors in your CDO assumed that it was ACA’s job to figure out whether the bonds inside the CDO were intelligent investments.

But ACA quite clearly had no idea what it was doing -- and you quite clearly understood that.
The telling details here are the e-mails between your French salesman and ACA, in which ACA feels it needs to understand exactly what John Paulson’s interest are in this new CDO. Paulson, who had done a great deal of analysis on the underlying bonds, was of course picking the ones he wanted to see inside the CDO. (Hard to understand why it didn’t disturb you that he was even in the room, by the way, but that’s another conversation.)

The SEC accuses you of lying to ACA, by suggesting Paulson was a long investor in the deal when he was in fact selling the deal short.

Good From Bad

But what’s interesting here is what you appear to take for granted: that ACA has no talent for evaluating the bonds picked by Paulson. After all, if ACA was doing its job it wouldn’t have cared one way or the other what Paulson (then a little-known hedge fund manager) was up to. ACA would have known which bonds were good and which were bad, and picked the good ones.

In their anxiety about Paulson’s motives we can all glimpse their incompetence. They want to know that Paulson has an interest in picking the good ones because they themselves have no clue which ones they are.

But if a CDO manager had no independent ability to select the bonds inside a CDO what, please explain to us, was his financial function? Why did you select ACA to manage your deal?

No. 3 -- A far better sense of why, and when, you ceased completely to concern yourself with the consequences of your actions.

The masses will be curious to know, for instance, how you became blinded to the very simple difference between right and wrong. The more moralistic among them will ask the question mainly to fuel their own outrage; the more tactical will ask the question because they sense that the financial system doesn’t function unless you have the incentive to think in these terms - - and you clearly do not.

How Goldman offloaded its toxic assets
Apr 28, 2010 17:38 EDT
Chris Nicholson finds a particularly damning email in the mountains of evidence released by the Senate investigations committee. It’s written by someone on Goldman Sachs’ European sales desk:

Real bad feeling across European sales about some of the trades we did with clients. The damage this has done to our franchise is very significant. Aggregate loss of our clients on just these 5 trades along is 1bln+. In addition team feels that recognition (sales credits and otherwise) they received for getting this business done was not consistent at all with money it ended making/saving the firm.

Clearly Goldman’s clients aren’t buying what Lloyd Blankfein is selling: the idea that they’re just arm’s length counterparties who know what they want to buy and are just looking for the best price. Illiquid things like CDOs are sold as much as they’re bought, and Goldman’s highly-paid sales team was aggressively going out and selling instruments which were at one point on Goldman’s balance sheet and which wound up cratering in value.

The effects were twofold: firstly, the Goldman clients who got stuck with this nuclear waste when the music stopped were understandably none too impressed with Goldman. And secondly, Goldman managed to stick the losses on those instruments to its clients, rather than taking those losses itself, and as a result its profits were billions of dollars higher than they would otherwise have been.

Was the hit to Goldman’s franchise value a hit worth taking, given the billions of dollars it saved? Probably yes, until the SEC and Carl Levin came along. But clearly the European sales team which was responsible for successfully offloading this nuclear waste wanted to see some part of those billions of dollars in savings for itself. Because, like all Wall Streeters, they care more about their annual bonus than they do about their employer’s franchise value.

Here’s a question, though. Let’s say you work at an investment bank and you’re in charge of a book which includes a $1 billion barrel of toxic nuclear waste. You know that barrel is going to zero sooner or later, and you manage to sell it to some European dupes just in time, for full face value, saving your bank from $1 billion in losses. How much of a bonus, if any, should you get on that deal, and where should the money come from? And should you feel bad about avoiding the losses and sticking them to your clients instead?

Again, it may be said that we need not be alarmed at the magnitude of our credit system or at its refinement, for that we have learned by experience the way of controlling it, and always manage it with discretion. But we do not always manage it with discretion. There is the astounding instance of Overend, Gurney, and Co. to the contrary. Ten years ago that house stood next to the Bank of England in the City of London; it was better known abroad than any similar firm known, perhaps, better than any purely English firm. The partners had great estates, which had mostly been made in the business. They still derived an immense income from it. Yet in six years they lost all their own wealth, sold the business to the company, and then lost a large part of the company`s capital. And these losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better. After this example, we must not confide too surely in long-established credit, or in firmly-rooted traditions of business. We must examine the system on which these great masses of money are manipulated, and assure ourselves that it is safe and right.

Walter Bagehot. Lombard Street. 1873.

Another delightful weekend and in most of Europe a holiday weekend too. For those who can get out into the UK’s countryside, a rare chance to see all kinds of late flowers and blossoms all out at the same time. Our carpets of bluebells are passing their peak. Sadly, in the Gulf of Mexico the ecological disaster seems about to become a catastrophe. We can only hope that God intervenes to drive the oil away from the vulnerable coasts. More on that over the weekend. Starting next week we will begin the daily update of the Dunkirk and the Battle of France page. 70 years ago in 1940, civilization fell to Nazis socialism in a blitzkrieg campaign lasting 37 days. Have a great weekend everyone.

Why A UK Hung Parliament is Likely. Stay long precious Metals.

The monthly Coppock Indicators finished March:

DJIA: +168 UP. NASDAQ: +370 UP. SP500: +196 UP. The great Bull market goes on with the all three continuing higher in positive numbers.


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Thursday 29 April 2010

The Bottomless Pit.

Baltic Dry Index. 3329 +126

LIR Gold Target by 2019: $3,000.

The promise given was a necessity of the past: the word broken is a necessity of the present.

Niccolo Machiavelli

Another day, and two very different disasters dominate. In Europe, the Greek disaster now threatens to cost Germany 25 billion euro. Is the true scale of tiny Greece’s debts now 120 billion Euro? Who knows, each day brings yet another massive escalation of the size of the problem. I can’t wait until we try to uravel the finance black hole of Spain or Italy. Elsewhere, in the Gulf of Mexico, BP’s rig disaster also escalates by the day. Federal Reserve style, the blowout and oil leak has gone from being contained on Friday, to a modest leak of 1,000 barrels a day on Monday, to a worrying leak of 5,000 barrels a day yesterday. A change in winds today is expected to push the oil towards very sensitive shores.

Below, the Telegraph covers the transformation of Greece into Germany’s bottomless pit. From London it’s quite easy to see that the real solution lies in Greece leaving the Euro and restructuring its debt, perhaps by as much as a 50% haircut. Instead the Germans are trying to enforce a suicidal extreme austerity regime on a nation in no mood to accept additional cuts. This is a nation where the airforce pilots just went on strike after all. I suspect that the Greeks know the answer too. I suspect that they just want as much exit cash and good terms as they can get as they head out the door marked exit. Stay long gold and silver, it’s over for the euro as we knew it. The new Euro will either be a slightly harder version of the old Italian Lira or a slimmed down Teutonic Euro-zone operating on a renamed D-Mark. Right now the French leaders of the ECB and IMF plus President Obama, are trying to force Germany into the Lira solution. If Chancellor Merkel holds her nerve, she may yet get to dominate western Europe with the rise of a new international D-Mark.

Most people still believe in a hard day's work, but they also believe that it should be spread out over the course of a week.

Mad Magazine.

EMU domino fears as Spain downgraded, Germany drags feet on rescue
German leaders have agreed in principle to a rescue package of up to €135bn for Greece in emergency talks with EU and IMF officials, but failed to offer any clarity on the conditions for such aid.
By Ambrose Evans-Pritchard, in Berlin Published: 8:10PM BST 28 Apr 2010
Hopes for a respite for Southern Europe's battered bond markets were quickly dashed as Standard & Poor’s downgraded Spain.

Rainer Brüderle, Germany’s economy minister, said the Greek bail-out would be much larger than first thought, acknowledging that Greece cannot hope to tap the private debt markets for three years.

The heads of the European Central Bank and the International Monetary Fund made a joint pilgrimage to Berlin, pleading with lawmakers in the Bundestag to throw their full weight behind rescue efforts before the chain-reaction spreads to Portugal and the rest of the EMU periphery. Their presence as supplicants in Berlin marks the symbolic moment when Germany appears the undisputed master of Europe.

Dominique Strauss-Kahn, the IMF’s chief, said the stability of the eurozone itself is in danger. "We need to act swiftly and strongly,” he said.

German Chancellor Angela Merkel once again refused to give concrete assurances, leaving the markets as wary as ever over the real intentions of Berlin. "This is about the stability of the euro overall, and we won't avoid this responsibility. But the challenge is for Greece to accept an ambitious program," she said.

“Europe risks the biggest coordination failure in modern history,” said David Simmonds, research chief at RBS. The Berlin talks are as vague as ever. “We believe that markets will remain very sceptical.”

-----The Greek debt market came close to disintegration yesterday. Yields on two-year bonds rose briefly to 38pc. “This no longer has anything to do with interest rates: it is a forward contract on the return of the Greek Drachma,” said Charles Dumas, head of Lombard Street Research.

Markets are already looking beyond Greece to Portugal where spreads on 10-year bonds rose to 330 points -- higher than the level that first prompted Athens to invoke aid -- before falling back on pledges of further austerity.

Premier Jose Socrates is to bring welfare cuts planned for 2011 and 2012, accepting that the markets will not give Portugal another year to tackle its deficit of 9.4pc of GDP.
S&P cut Spanish debt one notch to AA with a negative outlook, warning that the fall-out from the housing bust will keep the country trapped in near slump until 2016. It said private sector debt of 178pc of GDP was a major concern.

Daniel Cohn-Bendit, leader of the European Greens, said Europe’s handling of the crisis had been “catastrophic” and rebuked Germany for resorting the “discipline of the whip”.

But Mrs Merkel is treading on eggshells. She faces a crucial election in North Rhine-Westphalia on May 9 that will decide control of the Bundesrat, and risks a court challenge if any rescue breaches the EU’s no `bail-out clause’. David Marsh, author of `The Euro: The Politics of the New Global Currency` said the moment of truth has come when Germany must decide whether to accept the burden of propping up Europe’s southern ring or let Greece fail and endanger its strategic investment in Europe’s post-War order.

“There are some senior figures who would like so see the gangrenous leg of Greece chopped off, to set an example. But they want to avoid leaving any German fingerprints on the blood-stained knife,” he said.

It is far from clear whether Athens will agree to further austerity as strikes hit the country day after day. Andreas Loverdos, Greece’s labour minister, said the EU-IMF team wants further wages cuts. “We cannot accept that.”

Greece knows it can opt for default at any time, setting off an EMU-wide crisis and bringing down Europe’s banks. It also knows that key figures in the Bundestag favour debt restructuring.
“Those who chased high yield by purchasing Greek debt must share the costs,“ said Volker Wissing, chair of Bundestag’s finance committee. Leo Dautzenberg from the Christian Democrats said banks should prepare for a `haircut’ of up to 50pc.

Next, Bloomberg on the rising reality that the best course is to let Greece exit and restructure.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.'

Ludwig von Mises.

Greece Turning Viral Sparks Search for EU Solutions
April 29 (Bloomberg) -- European policy makers may need to stump up as much as 600 billion euros ($794 billion) in aid or buy government bonds if they are to stamp out the region’s spreading fiscal crisis, said economists at JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc.

With Greece’s budget turmoil infecting markets from Rome to Madrid, economists are urging German Chancellor Angela Merkel, European Central Bank President Jean-Claude Trichet and other officials to come up with unprecedented measures. Other steps could see governments guaranteeing bonds and the ECB abandoning collateral rules or reviving unlimited lending to banks, the economists said.

Bonds and stocks plunged across Europe in the past week as Merkel’s government delayed approving a rescue plan for Greece and Standard & Poor’s downgraded Greece, Portugal and Spain. As OECD head Angel Gurria likens the crisis to the Ebola virus, Europe may need to come up with a plan equivalent to the $700 billion Troubled Asset Relief Program deployed by the U.S. after the collapse of Lehman Brothers Holdings Inc.

“It is perhaps time to think of policy options of the last resort in the current sovereign crisis,” said David Mackie, chief European economist at JPMorgan in London. “It may now be time for the euro area to do something much more dramatic in order to prevent the stress from creating another broad-based financial crisis which pushes the region back into recession.”

----Nouriel Roubini, the New York University professor who anticipated the economic collapse of 2008, said yesterday that the national debt crisis that’s spreading out from Greece is a warning sign for countries ranging from the U.S. to Japan and the U.K.

“Greece is just the tip of the iceberg,” Roubini said. “There’s been a massive releveraging of the public sector.”

------A Greek agreement may not be enough to end a crisis that’s ricocheting through all euro-region markets and governments may have to come up with a blanket plan for the bloc as a whole, said Mackie. He calculates that in a worst-case contagion scenario, supporting Spain, Portugal and Ireland and Greece may require aid worth 8 percent of the gross domestic product of the rest of the region. That’s equivalent to about 600 billion euros.

“This is a big number, but the region has the fiscal capacity to backstop both banks and these countries,” said Mackie. Governments also could guarantee each other’s debt for a limited period such as three years, an “attractive form of support because no money is needed up front,” he said.

The ECB may also have a role to play even if the crisis has its roots in fiscal policy. With Greek debt now rated as junk by S&P, the Frankfurt-based central bank may need to dilute its collateral rules again so as it can keep accepting the country’s bonds when making loans, said economists led by Juergen Michels at Citigroup Inc.

Under current rules, Greek bonds will be ineligible at money-market operations if Fitch Ratings and Moody’s Investors Service cut them to junk as well.

-----A default by “rich” Greece on its debt would be the best way to ease the European fiscal crisis and help allay fears of a contagion, said Mark Mobius, who oversees about $34 billion in emerging-market assets as executive chairman of Templeton Asset Management Ltd. Greece should consider restructuring its debt to pay 25 cents to 50 cents for every dollar, helping to cut its debt level to a more sustainable level, he said in an interview with Bloomberg Television in Singapore today.

Elsewhere in Europe, way off the radar screen, Hungary has a similar problem to Greece.

IMF Trust in Hungary Budget Data ‘Distressing,’ Matolcsy Says
By Zoltan Simon
April 29 (Bloomberg) -- The International Monetary Fund’s trust in the credibility of Hungary’s budget data is “distressing,” said Gyorgy Matolcsy, who is the main candidate to become economy minister, according to Heti Valasz.

“It’s distressing that the IMF is a prisoner of the budget figures of the outgoing government,” Matolcsy told the weekly newspaper. “Besides them, everyone is aware that the 3.8 percent budget deficit is unsustainable. Even if they sense this at the IMF, they can’t say it publicly until the new government is formed.”

Incoming Prime Minister Viktor Orban, whose Fidesz party won this month’s elections, has said the government falsified budget data and that the gap may be double the 2010 target. The IMF and the European Union, which gave the bulk of a $26.4 billion bailout in 2008 that helped Hungary avert a default, say the target is “achievable,” though additional measures may be warranted.

The budget gap for this year “belongs to the past” and the new cabinet’s priority will be to jumpstart growth and create jobs in the recession-hit economy, Orban said on April 26. Generating growth is a precondition of further fiscal consolidation, he said.

In oil news, the Gulf of Mexico oil spill gets worse. Below the latest updates from the Houston Chronicle and Wall Street Journal. If the oil enters the Gulf wetlands, the resulting reaction is likely to highly populist and very bad for the offshore drilling industry. BP is probably just days away from a trip through hell.

Well springs third leak; officials raise spill estimate
April 28, 2010, 11:01PM

BP said Wednesday night that a third leak has developed in an undersea oil well and government officials raised their estimate of how much oil is leaking into a growing slick that threatens the Gulf Coast.

Rear Adm. Mary Landry, commander of U.S. Coast Guard District 8, said the government has offered BP access to Defense Department technology that may not be available in the commercial sector in its efforts to address the increasingly serious spill resulting from a deadly drilling rig explosion last week.

Earlier Wednesday, the Coast Guard set fire to portions of the advancing slick, hoping to limit the amount of crude that reaches this particularly vulnerable coastline.

The new leak is near the wellhead 5,000 feet down, and like the other two, is in a now-tangled pipe called a riser that connected the well to the rig on the surface.

Officials have been estimating the well is leaking at least 1,000 barrels, or 42,000 gallons, every day, but on Wednesday night raised the top range to 5,000 barrels.

----A 1,000-member task force with the British oil giant has so far failed to stanch the flow.
The huge slick — estimated to be 600 miles in circumference — began when the Deepwater Horizon drilling rig sank into the Gulf after an apparent blowout sent it up in flames April 20. The rig, owned and operated by Swiss-based Transocean, had been drilling a well at BP's Macondo prospect some 40 miles off the Louisiana coast when the accident occurred. Eleven of 126 workers aboard are presumed dead.

The Mississippi forks in three directions from Venice. Through the river's southern pass, it's about 30 miles to the Gulf — two hours' sail for a large cargo ship.
Teams scrambled to create a buffer zone from the mouth of the Mississippi to Mobile Bay in Alabama, with officials acknowledging in the frankest terms yet that the spill will likely reach shore.

“It's premature to say it's catastrophic. I will say it's very serious,” Landry said earlier Wednesday.

The Coast Guard started a controlled burn of thick, clumpy pockets of crude within the slick late Wednesday afternoon and stopped at nightfall. Weather permitting, burns were to resume this morning.

The process involves boats using 500-foot sections of containment boom to tow oil to remote areas, where the Coast Guard said several thousand gallons of oil would be burned in about an hour.

But a storm system developing in the central U.S. is forecast to bring strong winds from the southeast today, raising concerns that if the burns aren't finished by then, they will send black smoke and a pungent odor of oil toward New Orleans.

-----Walter Chapman, a chemical and biomolecular engineering professor at Rice University, said a controlled burn can help reduce the size of the spill and break up some of the heavier components in the oil.

But sustaining a burn won't be easy with ocean water sapping heat needed to feed the flames. And dense “tar balls,” too heavy to float on the water's surface, will probably not be consumed in the fire and could still wash ashore, Chapman said. “We're still going to see some environmental damage.”

Whatever its size, people in Venice are watching the advancing slick with concern. Steps away from the response staging area are dozens of shrimp boats. Shrimping season opens May 17, but it's possible that the spill could force closures.

-----BP, as owner of the offshore lease where the well was being drilled, is required by a 1990 oil pollution law to cover the costs of regaining control of the well and the cleanup. The company has estimated the effort is costing it $6 million per day.

APRIL 29, 2010
Leaking Oil Well Lacked Safeguard Device
The oil well spewing crude into the Gulf of Mexico didn't have a remote-control shut-off switch used in two other major oil-producing nations as last-resort protection against underwater spills.
The lack of the device, called an acoustic switch, could amplify concerns over the environmental impact of offshore drilling after the explosion and sinking of the Deepwater Horizon rig last week.
The accident has led to one of the largest ever oil spills in U.S. water and the loss of 11 lives. On Wednesday federal investigators said the disaster is now releasing 5,000 barrels of oil a day into the Gulf, up from original estimates of 1,000 barrels a day.

U.S. regulators don't mandate use of the remote-control device on offshore rigs, and the Deepwater Horizon, hired by oil giant BP PLC, didn't have one. With the remote control, a crew can attempt to trigger an underwater valve that shuts down the well even if the oil rig itself is damaged or evacuated.

The efficacy of the devices is unclear. Major offshore oil-well blowouts are rare, and it remained unclear Wednesday evening whether acoustic switches have ever been put to the test in a real-world accident. When wells do surge out of control, the primary shut-off systems almost always work. Remote control systems such as the acoustic switch, which have been tested in simulations, are intended as a last resort.

Nevertheless, regulators in two major oil-producing countries, Norway and Brazil, in effect require them. Norway has had acoustic triggers on almost every offshore rig since 1993.
The U.S. considered requiring a remote-controlled shut-off mechanism several years ago, but drilling companies questioned its cost and effectiveness, according to the agency overseeing offshore drilling. The agency, the Interior Department's Minerals Management Service, says it decided the remote device wasn't needed because rigs had other back-up plans to cut off a well.
The U.K., where BP is headquartered, doesn't require the use of acoustic triggers.

----Tony Hayward, BP's CEO, said finding out why the blowout preventer didn't shut down the well is the key question in the investigation. "This is the failsafe mechanism that clearly has failed," Mr. Hayward said in an interview.

“Paper money eventually returns to its intrinsic value - zero.”


At the Comex silver depositories Wednesday, final figures were: Registered 51.17 Moz, Eligible 63.83 Moz, Total 115.00 Moz.


Crooks & Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

"Thus, our national circulating medium is now at the mercy of loan transactions of banks, which lend, not money, but promises to supply money they do not possess.”

Professor Irving Fisher.

Today, has the WSJ found an honest Wall Street firm? Well, New Jersey Wall Street anyway. Can the Journal put away its Diogenes lamp having found a nice great vampire squid? Below, the firm that turned down Goldman’s invite to create synthetic CDOs designed to fail. The “fabulous Fab” got turned down and sent on his way to ACA. Below that, another Brownian blunder for Britain.

The Duke of Dunstable had one-way pockets. He would walk ten miles in the snow to chisel an orphan out of tuppence.

P.G. Wodehouse.

APRIL 29, 2010
SEC Questions 'Not Us' Firm
Executives of Investment Company Had Rejected Goldman Deal as Too Risky
The Securities and Exchange Commission in recent weeks has questioned executives of a little-known firm that played a key role in the business of arranging mortgage investments, as part of the agency's probe into now-controversial deals struck at the height of the housing bubble.

GSC Group Inc. was one of several firms that helped banks including Goldman Sachs Group Inc. put together deals that allowed investors to bet on the housing market.

The New Jersey investment firm turned down Goldman's request to select assets for the debt deal at the center of the agency's fraud lawsuit against Goldman, according to a person familiar with the matter and an email released by a Senate subcommittee this week. The concern: The deal was too risky for investors, according to the person and the email.

GSC received a subpoena from the SEC last summer and held subsequent discussions with the agency, including in recent weeks, according to an executive at the firm.
"GSC's involvement here is strictly as a witness, and we're cooperating with the SEC," said Daniel Ross, a lawyer for the firm.

----In January 2007, Goldman bankers approached GSC to select mortgage-backed securities for a complex deal known as a synthetic collateralized debt obligation that it was creating at the behest of hedge-fund manager John Paulson, At the time, Mr. Paulson was bearish on the mortgage market, according to an email released this week by a Senate subcommittee questioning Goldman executives and according to the SEC complaint. GSC turned away the business.

"As you know, a couple of weeks ago we had approached GSC to ask them to act as portfolio selection agent for that Paulson-sponsored trade, and GSC had declined given their negative views on most of the credits that Paulson had selected," said the email, from Mr. Tourre in late-January 2007.

Goldman eventually tapped ACA Management LLC to select the securities for the deal, which was named Abacus 2007-AC1. The SEC alleges Goldman and Mr. Tourre didn't inform investors that Mr. Paulson's firm, Paulson & Co., played a role in picking the assets and that Goldman and Mr. Tourre misled ACA about Paulson's position.

The deal quickly lost value, leading to investor losses in excess of $1 billion and gains to Paulson of about $1 billion.

April 29, 2010
Brown’s ‘bigot’ blunder plunges Labour campaign into crisis
Gordon Brown prostrated himself as a “penitent sinner” yesterday after a brush with a voter triggered a calamitous chain of events that threatened to derail Labour on the eve of tonight’s pivotal TV debate.

The Prime Minister spent an unscheduled 45 minutes inside the terraced house of Gillian Duffy apologising to the Labour-supporting widow for insulting her behind her back.

His muttered description of her as a “bigoted woman”, picked up by a microphone as he drove off from their combative but apparently friendly encounter, plunged Labour’s high command into its most serious crisis of the campaign.

Instead of pressing the party’s record on the economy before tonight’s final trial by television, the election machine was reduced to desperate firefighting as Lord Mandelson led a series of Cabinet ministers on to the airwaves. The Business Secretary said that Mr Brown had been wrong to criticise Mrs Duffy, whose mistake, on her way to buy a loaf of bread, had been to buttonhole the Prime Minister over the deficit, immigration and student debts.

A mortified Mr Brown issued six apologies over the next six hours, including one by e-mail to Labour supporters for letting them down. Despite saying sorry to Mrs Duffy over the telephone, he ignored aides and insisted on driving back to Rochdale from Manchester, abandoning his preparation for tonight’s third and final leaders’ debate, to atone in person for his blunder.

He emerged from her house smiling fixedly, saying that he had misunderstood her earlier words.

It is never difficult to distinguish between a Scotsman with a grievance and a ray of sunshine.

P.G. Wodehouse.

Why A UK Hung Parliament is Likely. Stay long precious Metals.

The monthly Coppock Indicators finished March:

DJIA: +168 UP. NASDAQ: +370 UP. SP500: +196 UP. The great Bull market goes on with the all three continuing higher in positive numbers.


Help the LIR fight Banksterism, the EU, and for sound money.
If you can, help the LIR stay around and make a difference. Please make a donation at the PayPal link on the website or better still become a sponsor for what looks like an exciting 2010. Capitalism not banksterism. Many thanks to all who have helped.


Wednesday 28 April 2010

The EU Chernobyl.

Baltic Dry Index. 3203 +183

LIR Gold Target by 2019: $3,000.

“I've fallen, and I can't get up!" Euro-zone captive state.

"We're sending help immediately, Club Med." German dispatcher.

PANIC! While Americans were being entertained yesterday by the effortless Bankster win in the match between the Odious Banksters versus the Loathsome Senators, the Euro-zone fell off a cliff and couldn’t get up. There are cries now for the ECB to use its nuke option and follow the US Fed and the Bank of England and start monetizing the Eurozone governments’ debt. Of course there’s no need (yet) to monetize Germany’s sovereign debt, but their interest rate will rise once the ECB starts monetizing Club Med. Below, the Telegraph covers Europe starting to panic. Stay long precious metals. The great Nixonian error of fiat currency is entering another more disastrous phase on the path to western ruination. Greece is already gone, bring on Portugal and Spain.

"Anything that can go wrong will go wrong." This piece of wisdom, known as Murphy's Law, currently applies extraordinarily well to economic policy in the euro zone.

Der Spiegel.

ECB may have to turn to 'nuclear option' to prevent Southern European debt collapse
The European Central Bank may soon have to invoke emergency powers to prevent the disintegration of southern European bond markets, with ominous signs of investor flight from Spain and Italy.
By Ambrose Evans-Pritchard, International Business Editor

Published: 7:09PM BST 27 Apr 2010

Greece’s fortunes were dealt yet another blow as Standard & Poor’s slashed its credit rating to junk status - BB+ - the first time that has happened to a euro member since the single currency was created, pushing yields on 10-year Greek bonds up to a record 9.73pc.

The credit-rating agency also cut Portugal’s sovereign debt ratings by two notches to A-, as the swirling storm hit the country with full-force.

“We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.

-----Mr Cailloux said the ECB should resort to its “nuclear option” of intervening directly in the markets to purchase government bonds.

This is prohibited in normal times under the EU Treaties but the bank can buy a wide range of assets under its “structural operations” mandate in times of systemic crisis, theoretically in unlimited quantities.

Mr Cailloux added: “This feels like the banking crisis in late 2008 post-Lehman, though it has not yet spread to other asset classes. The ECB will have to act it if does.”

Yields on 10-year Portuguese bonds spiked 48 basis points to 5.67pc, replicating the pattern seen as the Greek crisis started.

Portugal’s public debt will be just 84pc of GDP by the end of this year, far lower than that of Greece, at 124pc. However, its private debt is much higher and data from the IMF shows that its external debt position is worse.

Interest payments on foreign debt will be 8pc of GDP this year. Portugal’s net international investment position is minus 100pc of GDP, the worst in the eurozone.

-----The issue of the ECB buying bonds is a political minefield. Any such action would inevitably be viewed in Germany as a form of printing money to bail out Club Med debtors, and the start of a slippery slope towards in an “inflation union”.

But the ECB may no longer have any choice. There is a growing view that nothing short of a monetary blitz — or “shock and awe” on the bonds markets — can halt the spiral under way.

-----The bond markets are already “pricing in” a default of some kind in Greece, where rates on 2-year debt spiked close to 15pc in panic trading yesterday. The European Commission and the International Monetary Fund both insist that restructuring is out of the question but investors have become cynical after months of EU rhetoric and foot-dragging by Berlin.

The ECB cannot lightly risk a second sovereign crisis erupting, with dangers of a spillover into Spain.

The exposure of Spanish-based banks to Portuguese debt exceeds $80bn, according to the Bank for International Settlements. There were early signs of strain in the Spanish banking system yesterday.

Banks were forced to pay a premium in the domestic “repo” market on fears of counterparty risk, although the Bank of Spain has so far won plaudits for ensuring that banks have large safety buffers.

A good politician is quite as unthinkable as an honest burglar.

H.L. Mencken.

Back across the English Channel, Perfidious Albion would never do anything as foolish as tax and work shy Greece, would they? Below, the Telegraph covers a story LIR readers are all too familiar with. Nine days out from the UK general election, all 3 major parties are still misleading the electorate on the scale of the financial disaster team Blair-Brown’s socialists inflicted on dumbed down Britain. Perhaps it’s why the worst Prime Minister since Lord North lost the American colonies now seems to have virtually given up campaigning to win re-election.

General Election 2010: multi-billion black holes in all three parties' spending plans
Voters are being kept in the dark by all three main political parties, which have failed to disclose the scale of tax rises and public sector cuts required to tackle the financial crisis, Britain’s leading economic forecaster has warned.
By Robert Winnett and Edmund Conway Published: 10:00PM BST 27 Apr 2010

The Institute for Fiscal Studies criticised Labour, the Conservatives and the Liberal Democrats for not being frank with the public about the drastic measures needed to repair the government’s finances.

The institute claimed that the parties have black holes of up to £52 billion in the economic plans they have published as part of the election campaign.

The average family already faces tax rises of more than £500 a year in the face of the £1 trillion deficit. But, according to the IFS, Labour will need to increase taxes by another £7 billion a year under its economic plan and the Conservatives will need to raise taxes by about £3 billion.

A government run by any of the main parties would find it impossible to cut public services as sharply as they have proposed and would have to raise billions more in taxes, it claimed.

Tory plans to cut the deficit by more than £70 billion over the next parliament would result in a squeeze on government spending not seen since the 1920s, figures produced by the institute suggested.

Under Labour and Lib Dem policies, public spending would face the biggest cuts since the 1970s, because they intend to raise more tax than the Conservatives, the IFS calculated.

The damning analysis was released ahead of tomorrow’s final television debate, on the theme of economic affairs. Gordon Brown, David Cameron and Nick Clegg were accused of clashing over peripheral issues so far, while failing to address the major economic problems they will face over the next five years.

The IFS said it was “striking” how reticent the main parties had been in explaining the “defining task of the next administration”. The economists warned that none of the parties had come “anywhere close” to identifying how their spending plans might be achieved.

----The IFS said that welfare benefits may have to be cut, raising the prospect of means-testing for universal payments such as child benefit. Last night, Robert Chote, the director of the IFS, said: “For the voters to be able to make an informed choice, the parties need to explain clearly how they would go about achieving it. Unfortunately, they have not.

-----According to the IFS, the Conservatives have the biggest black hole in their economic plans. Mr Cameron has set out plans to cut borrowing by more than his rivals over the next few years. He has set out public spending cuts of only £11.3 billion and tax rises of about £11 billion. However, there is a £52.4 billion gap in the spending plans, according to the IFS.
The Labour black hole is estimated at £44.1 billion, while the Lib Dems have the smallest unexplained gap, estimated at £34.5 billion.

However, the IFS described some of the Lib Dem plans as “highly speculative”.

Below, the ever excellent analysts at Zero Hedge thinks the UK’s next government is in for a rude, Greek style, awakening. The CDS traders are on to the UK’s politicians weakness, and one way or another the UK’s free lunch is about to come to its end.

Red Lights Flashing For UK Credit Spreads According To CDS Market
By Tyler Durden Created 04/27/2010 - 23:42

The CDS market, as always, is prophetic to the dot: after main deriskers in the past two weeks were Spain, Portugal and France, so far the spread blow out in these markets has materialized like a Swiss watch. Which is why Ambrose Evans-Pritchard better be looking at this week's DTCC data, because the credit market is flashing a bright red warning light over his favorite bankrupt country - the UK (incidentally, the week's largest net derisker, just after Goldman Sachs). Second in order of sovereign implosion - Ireland. The British Isles, at least according to CDS traders who time after time prove they have far more sense than their equity equivalents, are about to become a hotbed of credit activity, and not in a good way.

In other news, China says it is preparing another massive stimulus package. Presumably, when the bean counters in Beijing look at the real economic figures for China, they see the bubble bursting before year end.

China May Announce 4 Trillion Yuan Stimulus, China Business Says

April 26 (Bloomberg) -- China will announce in August a new stimulus package of possibly 4 trillion yuan ($586 billion), the China Business newspaper reported on its Web site, citing unidentified sources.

The plan, from China’s National Development and Reform Commission, will likely cover nine industries including information technology and new energy, the report said.

We end for the day with more on the oil spill that was largely “contained” on Friday, according to the US Coastguard and today is about to become an ecological disaster if it hits sensitive shores.

Spill is near endangered species, fisheries

The growing oil spill in waters near Louisiana is a threat to an astonishing range of life, from endangered sperm whales and sea turtles to migratory birds and prized shrimp and oysters.
With thousands of gallons of crude pouring into the Gulf of Mexico each day, the leading edge of the spill had crept Tuesday within 20 miles of Venice, La. — although forecasts indicate it won't hit the coast before Friday, if at all.

The crude gushing from the rig Deepwater Horizon's well can be diluted quickly in open water, and scientists say it's best to try to contain it in the Gulf. In habitats like marshes and mangroves, oil's effects can be disastrous because it is tougher to remove.

“If this oil reaches the coast, there will be some pretty severe impacts to these habitats,” said Tom Minello, a Galveston-based ecologist for the National Marine Fisheries Service.

Of immediate concern are areas like the Breton Sound on the eastern side of the Mississippi River's mouth. It's one of the most productive fisheries for shrimp and oysters in the nation.

Threat to oysters, shrimp

Louisiana's reefs produce roughly 250 million pounds of oysters and generate $300 million a year for businesses dependent on the harvest, said Mike Voisin, president of oyster processor Motivatit Seafoods in Houma, La.

If the spill moves into the sound, officials could close it to harvesters. The oil might not kill the oysters, but the contamination would strip them of commercial value, Voisin said.

-----The spill also threatens havens for migratory birds. Louisiana has asked the Coast Guard to protect the Pass-a-Loutre Wildlife Management Area near the Mississippi from the spill with floating boom lines.

Also east of the river, brown pelicans, royal terns and laughing gulls are among dozens of species nesting on the Breton and Chandeleur barrier islands.

If oil gets on the birds, cleanup crews will find the islands hard to reach, accessible only by boat.
“It's a pristine area,” said Eugene Turner, a Louisiana State University ecologist. “I can't think of anything good that could come from this.”

The spill is still spreading because Coast Guard and BP crews cannot cap the leaks created by last week's collapse of the Deep­water Horizon.

-----Some environmentalists said more should be done for marine mammals at risk.
A crew spotted three sperm whales in the spill's vicinity this week. Planes dropping chemicals to break down the oil were to avoid the endangered species, which number 300 to 500 in the Gulf.
The area is also the only known spawning ground for the western Atlantic bluefin tuna, a protected species.

Coast Guard may set oil slick on fire
Published: April 27, 2010 at 9:07 PM
HOUSTON, April 27 (UPI) -- An oil slick in the Gulf Mexico has come with 20 miles of the coastline and Coast Guard officials said Tuesday they are considering setting the slick on fire.
The slick resulted from last week's oil rig explosion near Louisiana, which left 11 workers missing and presumably dead. Oil was leaking from a Deepwater Horizon well in the gulf, 50 miles off the Louisiana coast, at a rate of 42,000 gallons a day, officials said.

-----The April 20 spill, though smaller than a huge 1979 spill near Mexico, is already worse than the 1979 Ixtoc 1 leak, if for no other reason than that 11 oil workers' lives were lost, the Houston Chronicle said Tuesday.

However, the 1979 spill released far moil oil into the environment than last week's disaster. The Ixtoc well poured about 140 million gallons of oil into the gulf for 295 days before it was capped. At its current rate, it would take nine years for the Deepwater Horizon spill to match the 1979 spill, the Chronicle reported.

The current oil spill is closer to the U.S. Gulf coast shores, and there is concern it could damage the coastline more than the 1979 spill did, scientists said.

But marine biologists say the clean-up system is better now than it was more than 30 years ago.

"We're better prepared now. If they're able to clean it up out there in the open water, that's the best thing they can do," said Wes Tunnell, a marine biologist with the Corpus Christi Harte Research Institute for Gulf of Mexico studies.

The Deepwater Horizon oil slick is about 80 miles long and 48 miles wide, the Chronicle said. For the most part, the current slick is a thin layer on the water's surface, CNN reported.

A controlled burn, using fireproof booms and conducted only in daylight, could began Wednesday, CNN said.

Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.

Mark Twain.

At the Comex silver depositories Tuesday, final figures were: Registered 51.25 Moz, Eligible 63.90 Moz, Total 115.15 Moz.

Crooks & Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

No great vampire squids today, we’re sated for now with fishy banksters. Well, you didn’t really believe that, did you. Up next, Bloomberg with more on Goldie setting up the clients to buy the “cats and dogs”. Marketeers liked what they saw, they scored it a win for the Odious Banksters.
Goldman Armed Salespeople to Dump Bonds, E-mails Show
April 28 (Bloomberg) -- Goldman Sachs Group Inc., seeking to reduce assets tied to the declining U.S. housing market, urged its sales force in 2006 and 2007 to sell those products to clients, newly disclosed internal e-mails show.

The e-mails, including communications from Chief Executive Officer Lloyd Blankfein, show that employees discussed how to “arm” salespeople to shed bonds the firm found too risky to hold.

The e-mails were released yesterday by Senator Carl Levin in connection with a hearing where current and former managers testified about the firm’s role in the financial crisis.
Levin, the Michigan Democrat who heads the Senate’s Permanent Subcommittee on Investigations, grilled the executives about the firm’s bets against the housing market and its disclosure to clients.

In one of the e-mails, Blankfein asked whether employees were doing enough to sell bonds backed by home loans including subprime mortgages.

“Could/should we have cleaned up these books before and are we doing enough right now to sell off cats and dogs in other books throughout the division,” Blankfein, 55, wrote in an e- mail dated Feb. 11, 2007.

Questioned about the e-mail at yesterday’s hearing, Blankfein told senators that his comment didn’t represent an opinion of the bonds.

“When I use the expression ‘cats and dogs’ I mean miscellaneous stuff,” he said. “This is part of my normal point about aged inventory. Part of the discipline of our business is to manage risk and sell inventory.”

Clients’ Questions

The e-mails show that as early as the fall of 2006 clients were questioning products tied to the mortgage market. On Oct. 19, 2006, Mitchell Resnick sent an e-mail to two colleagues asking whether the firm had material about “how great” BBB bonds tied to home loans were. BBB is a credit rating from Moody’s Investors Service and Fitch Ratings that indicates an asset is two levels above junk.

“A common response I am hearing” from potential investors is “a concern about the housing market and BBB in particular,” Resnick wrote. “We need to arm sales with a bit more. Do we have anything?”

Goldman Sachs Chief Financial Officer David Viniar convened a meeting of mortgage traders and risk managers on Dec. 14, 2006, according to a document prepared by the firm that the Senate panel released yesterday.

‘Net Long’

At the time, Goldman Sachs had a “net long exposure” to the subprime-mortgage market, meaning the bank was betting the market would continue to rise. At the meeting, executives agreed that the firm should “reduce its overall exposure to the subprime mortgage market,” the document said.

Goldman Sachs’s Stacey Bash-Polley sent an e-mail to colleagues six days later with the subject line “Mezz Risk,” a reference to lower tranches of collateralized debt obligations linked to mortgages. Investors in mezzanine tranches are among the first to lose money when the asset starts souring.

“We have been thinking collectively about how to help people move some of the risk,” wrote Bash-Polley, an executive in the Goldman Sachs division that sold bonds. “We need to make sure we arm” salespeople “with our pricing and have them focus on the more difficult positions.”

Targeting Clients

In targeting clients, Bash-Polley wrote that Goldman Sachs should focus on those that “can possibly do larger size at a level that would be attractive when you take into consideration the size of risk we could move.”

“Makes sense to me,” responded Kevin Gasvoda, a Goldman Sachs colleague.

Goldman Sachs Emerges From Senate Showdown Ahead $549 Million
April 28 (Bloomberg) -- Goldman Sachs Group Inc. executives endured more than 10 hours of congressional grilling in one of the most public, and most hostile, political lashings in the firm’s 141-year history. By day’s end, the investment bank’s market value had risen by $549 million.
Senator Carl Levin and members of his Permanent Subcommittee on Investigations said evidence they presented made the case for Congress to pass legislation tightening financial regulation. Goldman Sachs, the world’s most profitable securities firm, was alone among 79 stocks of the Standard & Poor’s 500 Financial Index in posting a gain yesterday.

“We have gone past the point of no return. There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.”

Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland.

Why A UK Hung Parliament is Likely. Stay long precious Metals.

The monthly Coppock Indicators finished March:

DJIA: +168 UP. NASDAQ: +370 UP. SP500: +196 UP. The great Bull market goes on with the all three continuing higher in positive numbers.


Help the LIR fight Banksterism, the EU, and for sound money.
If you can, help the LIR stay around and make a difference. Please make a donation at the PayPal link on the website or better still become a sponsor for what looks like an exciting 2010. Capitalism not banksterism. Many thanks to all who have helped.


Tuesday 27 April 2010

Goodbye Greece?

Baltic Dry Index. 3020 +07

LIR Gold Target by 2019: $3,000.

“When you combine ignorance and leverage, you get some pretty interesting results.”

Warren Buffett.

For the latest on Goldman jump straight to Crooks Corner, but from far away London, it looks to me that God has just switched sides or perhaps it wasn’t “God’s work” after all. From the latest email releases, and I’ve got to think that the Senate committee has yet more damaging emails to release, today’s Bankster v Senator battle of the odious versus the loathsome promises to be riveting TV. If the Chief Squid and the “Fabulous Fab” make any serious errors in front of the “Comité de salut public” it will soon be guillotine time among the great vampire squids back in New York.

“It’s morally wrong to let a sucker keep his money.”

W.C. Fields.

Below, pity the poor tax and work shy Greeks. After years of partying and Lehman style accounting advised by the great vampire squids, they’ve run out of talent and cash and become a hapless football in far away Germany’s domestic politics. Is debt slavery bad or what? Where’s a great vampire squid when you really need one? Below, Germany puts the boot in. Perhaps it wasn’t a good idea last month for Greece to bring up the war and stolen gold.

Merkel Tells Greece, Euro Region That Bailout Isn’t a Done Deal
April 27 (Bloomberg) -- German Chancellor Angela Merkel hit the campaign trail with a warning to Greece and the rest of the euro region that a bailout of the debt-stricken nation isn’t a done deal.

“I’ve said for weeks that Greece must do its homework first,” Merkel said late yesterday, drawing applause from an audience in the town of Soest in North Rhine-Westphalia, where state elections are due on May 9. She said that while Germany is prepared to release funds for debt-stricken Greece, “first I want to see the program.”

-----Merkel dwelled on Greece at yesterday’s rally as her Christian Democrats defend their hold on the state, saying any rescue would have the aim of supporting the euro rather than bailing out a Greek state that lived beyond its means.

“We’re not doing this because we believe Greece needs help,” she said. “We’re doing it because we’re interested in the euro’s stability. We can’t idly stand by when our currency comes under threat.”

-----In Greece, Prime Minister George Papandreou will today brief lawmakers on the economic outlook at 10.30 a.m. local time. Transport workers will hold a strike and the ADEDY civil service union stages a rally at 6.30 p.m. GSEE, Greece’s biggest private-sector union, will also decide on whether to go on strike.

------A defeat for Merkel might wipe out her coalition’s majority in the upper house of the national parliament and hamper her government’s efforts to cut taxes and extend the life of German nuclear power plants.

Merkel told the rally she wants Greece to agree to several years of budget cuts before releasing any German aid. “Greece has put savings measures into effect this year, but one year won’t be enough” to restore confidence in the financial markets, she said.

Below, the next Greece stumbles into view in Club Med. Those hard working, tax paying Germans are just going to have to work a whole lot harder and pay many more taxes if the Portuguese way of life is to be maintained.

Portugal Suffering Greek Contagion Puts Pressure on EU Markets
April 27 (Bloomberg) -- Portugal risks becoming the new Greece.

With a higher debt burden and a slower 10-year growth rate than Greece, Western Europe’s poorest country is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month. Portugal’s credit default swaps show investors rank its debt as the world’s eighth-riskiest, worse than for Lebanon and Guatemala.

-----Portuguese Prime Minister Jose Socrates’ push to convince investors his country will avoid Greece’s fate is being hobbled by an economy that’s expanded less than an annual average of 1 percent for a decade and is reliant on tourism and industries such as cork and pulp.
While Portugal’s public debt of 77 percent of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236 percent of GDP. The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development, according to the Paris-based group’s data.

No Growing

“The reason we’re concerned about Portugal is not because its public sector debt ratios are excessively high, it’s more that the Portuguese economy doesn’t really grow,” said Kenneth Wattret, chief euro region economist at BNP Paribas SA in London.

EU policy makers’ difficulty in containing the Greek crisis is stoking the threat of contagion, just as the near-collapse of Bear Stearns Cos. in 2008 undermined other U.S. banks, exacerbating the credit crisis.

The risk for Portugal is that investors who are trying to protect their portfolios from a Greek-like rout will dump holdings of small euro countries, such as Portugal. Once that happens, surging bond yields could put Portugal in the same spiral that Greece is trying to escape.
‘Conspicuously Vulnerable’

Portugal is among countries that are “conspicuously vulnerable” and may need a bailout, said Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts, in a telephone interview.

Below, don’t just sit there do something! In the panic to get US home sales moving again someone thought up another subsidy ruse. Not to worry, it’s only fiat money after all, and there’s plenty more where that comes from, why not just add it to the national debt. What could possibly go wrong? Sooner or later, and my money is on sooner as in 5 years or less, I suspect that we are about to find out. Stay long gold and silver, but on an allocated basis outside of John Bull and Uncle Sam’s reach. Any idea what a four year old does with a house?

“For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for somebody else.”

Warren Buffett.

Home Tax Credit Called Successful, but Costly
Realtors, home buyers and sellers are rushing to complete sales agreements before the tax credit for home purchases expires this week.

Home buyers must have a deal by April 30 and close by June 30 to qualify for the federal tax break, up to $8,000 for first-timers and $6,500 for those merely moving to a different residence.

Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.
The credit has caused a surge in sales and has been widely lauded for helping to stabilize prices. In places like Lafayette, Ind., where the number of homes sold in March was up 48 percent over last year, real estate agents say they have been inundated with buyers like James and Aubrey Green, students at Purdue University, who said the credit had persuaded them to jump into the market.

“We were happy in our apartment, but $8,000 was just too much to pass up,” said Mr. Green, 29, who shopped furiously with his wife for two months before signing a contract in March to buy a three-bedroom ranch.

“We bid on a couple places that didn’t work out,” he said, “but we always made sure we had a backup plan because we didn’t want to miss the deadline for the credit. And when we finally agreed to a contract, it was this huge relief.”

For every home buyer like the Greens, real estate agents say there are at least three others who collected the credit even though they would have bought without it. That means for each new buyer who was truly lured into the market by the credit, the federal government paid more than $30,000.

In addition to legitimate buyers, tens of thousands of people who collected the credit were not qualified. An audit by the Treasury Department’s inspector general released last year found that hundreds of millions of dollars in credits went to people who had not yet bought homes or who were not first-time home buyers, as the program initially required.

Hundreds of others who received the credit were not old enough to sign a binding contract, the audit found, with some as young as 4 years old.

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

Warren Buffett.

At the Comex silver depositories Monday, final figures were: Registered 51.25 Moz, Eligible 64.22 Moz, Total 115.47 Moz.


Crooks & Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.”

Warren Buffett.

Let the games begin. It’s Bankster v Senator time in Washington D.C. It’s hard to find a side to root for. Below, more on how Goldman treated its “clients.” The US tort bar will pore over every word, nuance, and shifty glance. The great vampire squid seems to have skipped ethics 101, and opted instead for looting rape and pillage, the advanced course. Would you knowingly buy a used car from a present or former great vampire squid? When the salesman from Goldie calls, hang up!!! Governments all around the planet will now be relooking at deals that involved Goldman to see just how bad a deal they made. If it wasn’t so serious this would be really funny.

“First, many in Wall Street – a community in which quality control is not prized – will sell investors anything they will buy.”

Warren Buffett.

Goldman Sachs CDO Labeled ‘Shi**y Deal’ by Montag
April 26 (Bloomberg) -- Thomas Montag, the former head of sales and trading in the Americas at Goldman Sachs Group Inc., called a set of mortgage-linked investments sold by his firm “one shi**y deal,” according to an excerpt from internal e- mails released today by Senate lawmakers.

The transaction was Timberwolf Ltd., a $1 billion collateralized debt obligation holding pieces of other CDOs, according to a statement today from the Permanent Subcommittee on Investigations. The CDO also included optimistic side-bets on the performance of CDOs, or derivatives, in which the firm took the opposite pessimistic side in “many” cases, the panel said.

“Boy that timberwo[l]f was one shi**y deal,” Montag, who is now Bank of America Corp.’s president of global banking and markets, said in a June 22, 2007, e-mail to Daniel Sparks, who ran Goldman Sachs’s mortgage business at the time, according to the panel’s statement. Within five months of Timberwolf’s debut, the CDO had lost 80 percent of its value, and it was liquidated in 2008, according to the panel.

The CDO was among securities that Goldman Sachs sold to clients after deciding the New York-based firm needed to reduce its mortgage holdings, Carl Levin, a Michigan Democrat who leads the panel, said in the statement.

----- Montag, now 53, didn’t respond to a request for comment and Bank of America spokeswoman Jessica Oppenheim had no immediate comment. Blankfein, 55, will tell the panel his firm didn’t wager against clients, according to a prepared text of his remarks.

“We respectfully disagree with Chairman Levin’s statement,” according to an e-mail from Goldman Sachs spokesman Lucas van Praag. “We did not have a big bet against the housing market, as our performance in residential mortgages demonstrates, and we believe we at all times worked appropriately with our clients. We did try to manage our risk, as our shareholders and regulators would expect.”

The Timberwolf CDO was issued in March 2007, following a Goldman Sachs quarter that ended February 2007 in which one department of the bank shifted from $6 billion of bets that mortgage bonds would perform to $10 billion they would default, according to Bloomberg data and information the panel released.

----- Bear Stearns Asset Management, the manager of two hedge funds overseen by Ralph Cioffi whose collapse in June 2007 roiled global markets, was among the buyers, purchasing about $300 million, according to the committee.

Sparks, who left the bank in 2008, in one e-mail urged “personnel working on a potential Korean sale to ‘[g]et ‘er done,’ and sent a mass e-mail to the sales force promising ’ginormous credits’ for selling” the debt, according to Levin’s statement. “A congratulatory e-mail was sent to an employee who sold a number of the securities: ‘Great job … trading us out of our entire Timberwolf Single-A position,’ ” the panel said, potentially referring to $36 million of A rated notes.

“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact.”

Warren Buffett

Why A UK Hung Parliament is Likely. Stay long precious metals.

The monthly Coppock Indicators finished March:

DJIA: +168 UP. NASDAQ: +370 UP. SP500: +196 UP. The great Bull market goes on with the all three continuing higher in positive numbers.


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