Saturday 30 October 2010

Weekend Update – October 30 2010

Baltic Dry Index. 2678 - 49 on the week
LIR Gold Target by 2019: $3,000.

It’s our dollar, but it’s your problem”.

US Treasury Secretary John Connally. August 1971.

This weekend, more on the consequences of the Great Nixonian Error. Our failing system of fiat currencies pyramided off of the now dysfunctional fiat dollar reserve standard. To all intents and purposes, America went bust in 1971, and President Nixon bought time by putting America and the world on the current fiat currency system. But that eventually set off the bankster casino capitalist system that itself went bust 2007-2009. Now America is surviving on smoke and mirrors accounting and massive monetisation and market rigging by the Fed. The dollar reserve standard isn’t working anymore, but our leaders and the central banksters aren’t yet ready to face up to reality, and deep in denial are still willing to try yet more of the policies that have already failed. My guess is that after an incredibly bad 2011, we will finally start to address the failed system of fiat money in 2012. Stay long precious metals. Our central bankers know we must return to gold settlement, or just possibly a gold and silver mix, but it represents the complete opposite of everything they have been doing since 1971. 2011s increasing desperation will force a reversal in 2012, I think.

Below, the deepening chaos President Nixon’s blunder has wrought. The hollowed out American economy is no longer strong enough to enforce “It’s our dollar, but it’s your problem”.

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


Cabbage Queue Shows Poverty Challenge as G-20 Gathers in Seoul

Oct. 29 (Bloomberg) -- Housewives pushing baby strollers jostle with gray-haired men in slippers at Seoul’s Shinwon Market as the line stretches to more than 2,000 people. Fewer than half come away with the special offer: a $4 cabbage.

“I’ve never seen anything like this during my 18 years of working here,” said Chin Byung Ho, 58, a traders’ representative, as he yells through a megaphone to control the people demanding the sale start. “What has become of our ordinary people’s lives? We now have to fight over a cabbage?”

While the world leaders who will gather in Seoul for the Nov. 11-Nov. 12 Group of 20 summit are unlikely to see the market scene, their host, South Korean President Lee Myung Bak, plans to spur a discussion of poverty at the meeting. South Korea provides an example: The ranks of the poor have almost doubled as a proportion of the population in nine years.

The G-20, whose members account for 85 percent of global economic output, will draw up an “action plan” to help emerging economies’ development through means that go beyond providing them with cash, Lee told foreign reporters on Oct. 11. Finance Minister Yoon Jeung Hyun said at an Oct. 25 conference that the development issue will be high on the agenda, without providing details.

Policy makers from China to the U.S. are grappling with swelling ranks of the poor. The World Bank estimates that 64 million more people will be pushed into extreme poverty globally this year as a result of the worldwide financial crisis. About 1.4 billion people lived in extreme poverty, defined as less than $1.25 a day, in 2005, the most recent year for which data is available, the World Bank said.

----- The top 20 percent of South Korea’s households earn 7.7 times more than the bottom 20 percent, according to the government. The segment of people living in poverty made up 13 percent of the total population of 49 million in 2009, compared with 7.5 percent in 1990, its data showed.


Irish, Spanish Banks Failing to Kick ECB Habit: Euro Credit

Oct. 29 (Bloomberg) -- Greek, Irish and Spanish banks are falling behind their counterparts across Europe in reducing their dependence on emergency central bank funding because they can’t find investors willing to buy their bonds.

Lenders from those three nations took 61 percent of the loans supplied by the European Central Bank at the end of September, up from 51 percent the previous month, data from their respective central banks show. Overall, the region’s banks cut their funding to 514.1 billion euros ($716 billion), the least since Lehman Brothers Holdings Inc.’s collapse in September 2008, according to ECB figures.

Deutsche Bank AG, HSBC Holdings Plc and Societe Generale SA have sold new debt since regulators stress-tested 91 of the region’s lenders in a bid to rebuild confidence in their creditworthiness. By contrast, bonds of all lenders in Portugal, Ireland and Greece are trading as though junk rated, as are a third of banks in Spain, according to data compiled by Bank of America Corp. Their struggle to sell debt will make it harder for the ECB to curb loans to banks on Europe’s periphery.

“The ECB is going to have to support these smaller banks for many years to come,” said Simon Maughan, an analyst at MF Global Ltd. in London, who has tracked the industry for more than 15 years. “The ECB has to keep these banks alive and hope and pray that the local regulators force them to restructure and make them profitable again.”

Roubini sees US 'fiscal train wreck' ahead

The US economy is a "fiscal train wreck" waiting to happen, US economist Nouriel Roubini warned on Friday.

Published: 10:00AM BST 29 Oct 2010

He painted a bleak outlook for the world's biggest economy in a commentary for the Financial Times, saying while President Barack Obama's stimulus package prevented another depression, it was coming to an end with nothing to take its place.

The economist - one of the first to predict the US housing crash and nicknamed 'Dr Doom' - said the likely path of fiscal policy after next Tuesday’s election will mean the country "experiencing serious fiscal drag just when it needs a further boost".

While he said Mr Obama deserved credit for averting a depression and supporting “growth now” in the face of austerity drives in other nations, including Britain, he claimed stimulus had become a "dirty word" in political circles, including the government.

This left the Obama administration relying solely on the US Federal Reserve to "prevent a double dip recession" with further quantitative easing - stimulus which he believed would have little effect on US growth next year.

He argued that with a gridlock in Congress expected to get worse following next week's elections, President Obama's lack of forward looking action - such as tackling spending of social security and introducing VAT increases - meant he was trapped in a stalemate made worse "by the lack of a reason to act on the deficit".

This put the US on an "unsustainable fiscal course".

Gold Will Outlive Dollar Once Slaughter Comes: John Hathaway

Oct. 29 (Bloomberg) -- The world’s monetary system is in the process of melting down. We have entered the endgame for the dollar as the dominant reserve currency, but most investors and policy makers are unaware of the implications.

The only questions are how long the denouement of the dollar reserve system will last, and how much more damage will be inflicted by new rounds of quantitative easing or more radical monetary measures to prop up the system.

Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable. Such a transition is, by definition, nonlinear. So central-bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offers no guidance on what lies ahead.

It’s amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape. Until there is fundamental monetary reform on an international scale, most economic forecasts aren’t worth the paper on which they are written.

Telltale signs of future trouble aren’t hard to spot. Only a few months ago, Federal Reserve Chairman Ben Bernanke and a chorus of other high-ranking Fed officials were talking about exit strategies from the U.S. central bank’s bloated balance sheet and the financial system’s unprecedented excess liquidity. Now, those same officials are talking about pumping more money into the system to stimulate growth.

Risky Targets

And they’re not alone: Six months ago, the chief economist of the International Monetary Fund, Olivier Blanchard, suggested that raising inflation targets to 4 percent from 2 percent wouldn’t be too risky.

This sort of talk must grate on the nerves of our trading partners, China, India, Russia and others, who have accumulated pyramids of non-yielding Treasury debt. No haven there. Return- free risk may be a better way to put it. And bickering among central bankers over currency manipulation and rising trade tensions doesn’t exactly reinforce one’s confidence in a scenario of sustained economic growth and a return to prosperity.

The prospects for an orderly unwinding of the extreme posture of global monetary policy are zero. Bernanke, Jean- Claude Trichet and Mervyn King, his counterparts in Europe and the U.K. respectively, are huddling en masse upon the most precarious perch in the history of monetary affairs. These alleged guardians of monetary stability, in their attempts to shore up the system, have simply created the incinerator for paper money. We are past the point of no return. Quantitative easing may well become a way of life.

No Freak Occurrence

The consensus investment view seems to be that the credit crisis of 2008 was a freak occurrence, unlikely to repeat. That is wishful thinking. Monetary policy has painted itself into a corner. Based on our present course, there will be more bubbles and more meltdowns.

Financial markets and institutions sense trouble, as reflected in the flight to supposedly safe assets such as Treasuries and corporate-debt instruments with paltry yields, as well as the reluctance to lend by commercial banks. We are stuck in an epic liquidity trap. The irony is, if global central banks succeed in creating inflation, the value of these safe assets will be destroyed. It is a slaughter waiting to happen.

In the pedantic mentality of central bankers, their playbook creates just the right amount of inflation. As inflation accelerates, consumers will spend to get rid of their dollars of diminishing value and spur the economy. Once consumers start spending, it will be time to raise interest rates because a solid foundation for prosperity will have been established, they say.

Slender Thread

But whatever the playbook promises, the capacity of financial markets to overshoot can’t be overestimated. The belief among policy makers and financial markets in the possibility of this sort of fine-tuning is preposterous, but it is the slender thread on which remaining investment and business confidence rests.

The breakdown of the monetary system will be chaotic. When inflation commences, it will be highly disruptive. The damage to fixed-income assets will seem instantaneous. Foreign-exchange markets will become dysfunctional. The economy will become even more fragile and unpredictable.

Gold is an imperfect, but comparatively reliable, market gauge for the extent of current and future monetary destruction. The recent acceleration in the dollar price of the metal to $1,381, a record high in nominal terms, coincided with talk of a new round of quantitative easing and highly visible discord among major nations on trade and currency-valuation issues.

Naysayers’ Bubble

Naysayers point to gold’s price and see a bubble, without understanding that the only acceleration that is taking place is in the rate of decline of paper currency. The Fed is organizing an attack on the dollar’s value, believing that this is the most expedient way to defuse deflationary market forces. The man in the street is unaware, a perfect setup. Inflation can only be successful when the public doesn’t see it coming.

The sudden torrent of commentary on gold isn’t the sign of a bubble. Anti-gold pundits provide a great service to those who grasp this historical moment: They facilitate the advantageous positioning of the one asset most likely to be left standing when the dust settles.

(John Hathaway is a managing director of Tocqueville Asset Management LP in New York. The opinions expressed are his own.)

"To emit an unfunded paper as the sign of value ought not to continue a formal part of the Constitution, nor even hereafter to be employed; being, in its nature, pregnant with abuses, and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of government and to the morals of the people."

Alexander Hamilton.

Have a great weekend everyone.


Friday 29 October 2010

EU Prepares for Greek Default.

Baltic Dry Index. 2748 +21
LIR Gold Target by 2019: $3,000.

Behind the apparent uniformity of the euro currency it is possible to tell the country of origin. Coins are clearly marked. Notes are seemingly identical, but each serial number contains a prefix showing which country issued it.

The serial number also contains a secret clue to the country which issued the note. The clue lies in what is known as the digital root of the serial number. This can be calculated by adding together the digits, then taking the result and adding its digits together again and so on until a single digit is left.

Here's an example. On a note the code reads X50446027856. The X immediately indicates that the note is German, but a second test is to add the digits. So (5+0+4+4+6+0+2+7+8+5+6) gives 47. Add these digits (4+7) gives 11. Finally add these digits (1+1) gives 2, the code number for Germany. Some countries share a code number.

In the insane asylum marked Eurozone, now under the management of the inmates, Germany is pushing a plan to allow for a future Greek default. Of course it’s not called that, and where Greece boldly goes the other PIIGS are sure to follow. What Germany wants, Germany usually gets, the rest will likely just get very much higher interest rates as lenders will now demand an extra premium for lending to Club Med. At some point even the doziest Greek will figure out that exiting the Euro and restructuring outside of it, beats anything on offer staying within it. If I didn’t know better, I’d think that this was some sophisticated German Trojan horse designed to lower the euro in the ongoing international currency wars. They wouldn’t do that would they? Just remember only German Euro notes start with an X. Greek ones start with a Y.

Banks are an almost irresistible attraction for that element of our society which seeks unearned money.

J Edgar Hoover

EU 'haircut' plans rattle bondholders

Investors face large potential losses on eurozone debt under German plans likely to win backing from EU leaders on Friday – risking a boycott of Greek, Irish, and Portuguese bonds.

By Ambrose Evans-Pritchard, and Bruno Waterfield in Brussels Published: 7:37PM BST 28 Oct 2010

Germany has agreed to give the EU's €440bn (£383bn) bail-out fund permanent status rather than letting it expire in 2013 as planned, but only as part of a "Crisis Resolution Mechanism" that forces bondholders to share losses from any future bail-outs. The fund must be anchored in EU law through changes to the Treaties in order to head off legal challenges at Germany's constitutional court.

A draft proposal from Berlin – now serving as a working text for the European Commission – calls for "orderly insolvency" by eurozone countries in trouble. Details are sketchy but this "Chapter 11" for sovereign states would include an extension of debt maturities, a "holiday" on interest payments for as long as needed to let debtors recover, and a suspension of bondholder rights. The blueprint is akin to debt-restucturing schemes used by the International Monetary Fund.

Under a Finnish proposal, there are likely to be "Collective Action Clauses" in all new bond issues to prevent minority bondholders blocking a default deal.

European President Herman van Rompuy will be tasked to draw up a blueprint for the crisis mechanism. There may also be a Sovereign Debt Restructuring Mechanism (SDRM).

Berlin is determined to avoid a repeat of the €110bn bailout for Greece when banks were shielded from losses, leaving eurozone taxpayers facing the full cost.

Silvio Peruzzo, Europe economist at RBS, said talk of "haircuts" for bondholder at this delicate juncture could backfire. "The debt crisis in the eurozone periphery has not been sorted out. These countries need markets to keep buying the bonds, but investors are going to stay away if you open the door to private sector pain," he said.

It is unclear whether the latest bond jitters in Greece, Ireland, and Portugal is linked to growing awareness of the German plans. Each country has its own troubles. Yields on Ireland's 10-year bonds briefly rose to a post-EMU high above 7pc on Thursday, partly due to a stand-off between Dublin and angry funds facing losses on the junior debt of Anglo Irish Bank.

However, EU officials fear that the proposals could make it harder for high-debt states to tap debt markets, risking a self-fulfilling crisis.

On the other side of the world, far away from America’s serial mortgage frauds, Japan is slowing again, even before the impact of any Chinese rare earth elements embargo. With austerity stalking Europe and Japan slowing, and America mired in a growing scandal of mortgage fraud and mortgage security fraud to the point where title to some 65 million homes is clouded if not lost, it looks like all hopes of a global recovery now rest on China and OPEC. We stand on the shores of Dunkirk, looking out for the Chinese and OPEC rescue boats. Something tells me this sequel ends differently.

“----We shall go on to the end. We shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender."

Winston S. Churchill

Oct. 28, 2010, 10:35 p.m. EDT

Japan industrial output slows in September

TOKYO (MarketWatch) — Japan industrial output fell more than expected in September, government data showed Friday, underscoring that the strong yen and global slowdown are taking a toll on the nation’s manufacturers.

Separate government data showed the country remained in the grip of deflation that month, while the national jobless situation in September was also slightly better than expected.

Industrial production fell 1.9% in September from August, marking the fourth-straight month of decline. Output in September was 11.1% above its year-ago level, the Ministry of Economy, Trade and Industry said. The ministry said overall production is showing a weakening trend.

Japan Says No Sign China Resumed Rare Earths Exports

Oct. 29 (Bloomberg) -- Japan said it has no evidence China resumed exports of rare-earth metals, which were disrupted last month during a territorial dispute that soured relations between Asia’s two largest economies.

“As of yesterday, there is no information about new cargo movements,” Chief Cabinet Secretary Yoshito Sengoku told reporters in Tokyo. “The Japanese government intends to use every opportunity to ask China to improve the situation regarding export restrictions.”

Sengoku’s comments come after the New York Times reported that China yesterday ended an unannounced embargo on exports of rare earths to the U.S., Europe and Japan. While customs officials allowed shipments to resume to all three destinations, those to Japan face extra scrutiny and delays, the report said, citing four industry officials it didn’t identify. China had blocked exports to Japan since Sept. 21, and to the U.S. and Europe on Oct. 18, the New York Times said.

China’s customs bureau said today there has never been a cutoff in outbound shipments of rare earths, a group of 17 chemically similar metallic elements including cerium and europium. China has been reviewing export licenses and other paperwork for rare-earth shipments, according to a statement read by an official in the bureau’s news office who declined to be identified. China in July said it was cutting export quotas for rare earths by 72 percent for the second half of the year.

Environmental Damage

Prices of rare earths have climbed as much as sevenfold in the past six months. China controls more than 90 percent of world supply, leading Japan, the U.S. and Germany to seek new supplies. Greenwood, Colorado-based Molycorp Inc. and Sydney- based Lynas Corp. plan to open rare-earth mines in the U.S. and Australia in the next two years.

The 11 digit serial number on every note begins with a prefix which identifies which country issued it.

German notes begin with an X, Greek notes start with a Y, Spain's have a V, France a U, Ireland T, Portugal M and Italy S. Belgium is Z, Cyprus G, Luxembourg 1, Malta F, Netherlands P, Austria N, Slovenia H, Slovakia E and Finland L.

At the Comex silver depositories Thursday, final figures were: Registered 51.93 Moz, Eligible 58.86 Moz, Total 110.79 Moz.


Crooks and Scoundrels Corner.

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

Today, Haliburton, JP Morgan and HSBC bank. Note, all are innocent until convicted in a court of law. In the court of public opinion, well that’s a matter for another day. For a ha’pence worth of real cement and common sense, the Gulf of Mexico and 11 poor souls were lost.

"We had too many people that were working to save the world"

Tony Hayward. CEO BP. 12 May, 2009. Stanford University Graduate School of Business.

Panel Says Firms Knew of Cement Flaws Before Spill

By JOHN M. BRODER Published: October 28, 2010

WASHINGTON — Halliburton officials knew weeks before the fatal explosion of the BP well in the Gulf of Mexico that the cement mixture they planned to use to seal the bottom of the well was unstable but still went ahead with the job, the presidential commission investigating the accident said on Thursday.

In the first official finding of responsibility for the blowout, which killed 11 workers and led to the biggest offshore oil spill in American history, the commission staff determined that Halliburton had conducted three laboratory tests that indicated that the cement mixture did not meet industry standards.

The result of at least one of those tests was given on March 8 to BP, which failed to act upon it, the panel’s lead investigator, Fred H. Bartlit Jr., said in a letter delivered to the commissioners on Thursday. “There is no indication that Halliburton highlighted to BP the significance of the foam stability data or that BP personnel raised any questions about it,” Mr. Bartlit said in his report.

Another Halliburton cement test, carried out about a week before the blowout of the well on April 20, also found the mixture to be unstable, meaning it was unlikely to set properly in the well, but those findings were never sent to BP, Mr. Bartlit found after reviewing previously undisclosed documents.

Although Mr. Bartlit did not specifically identify the cement failure as the sole or even primary cause of the blowout, he made clear in his letter that if the cement had done its job and kept the highly pressurized oil and gas out of the well bore, there would have been no accident.

-----The failure of the cement set off a complex and ultimately deadly cascade of events as oil and gas exploded upward from the 18,000-foot-deep well. The blowout preventer, which sits on the ocean floor atop a well and is supposed to contain a well bore breach, also failed.

-----Mr. Bartlit, who conducted a much-praised investigation of the 1988 Piper Alpha blowout in the North Sea off Britain that killed 167 workers, said the flawed cement was not the whole story. Many human and mechanical failures combined to create the disaster, he said, and backup procedures were skipped or ignored.

What is the crime of robbing a bank compared with the crime of founding one.

Bertolt Brecht

JPMorgan, HSBC sued for alleged silver conspiracy

Wed Oct 27, 2010 6:16pm EDT

* Hundreds of millions in illegal profit alleged

* Triple damages sought in one of two lawsuits

* CFTC proposed new tools to thwart price manipulation

NEW YORK, Oct 27 (Reuters) - JPMorgan Chase & Co (JPM.N) and HSBC Holdings Plc (HSBA.L) were hit with two lawsuits on Wednesday by investors who accused them of conspiring to drive down silver prices, and reaping an estimated hundreds of millions of dollars of illegal profits.

The banks, among the world's largest, were accused of manipulating the market for COMEX silver futures and options contracts from the first half of 2008 by amassing huge short positions in silver futures contracts that are designed to profit when prices fall.

"Defendants reaped hundreds of millions of dollars, if not billions of dollars in profits" from the conspiracy, one of the complaints said.

The respective plaintiffs, Brian Beatty and Peter Laskaris, each said they traded COMEX silver futures and options and contracts, and lost money because of the alleged manipulation.

Beatty lives in Connecticut and Laskaris in New York, court records showed. The lawsuits seek class-action status, damages that may be tripled and other remedies. The defendant banks are major participants in the silver market.

JPMorgan declined to comment. An HSBC spokeswoman had no immediate comment.

The lawsuits were filed one day after the Commodity Futures Trading Commission proposed regulations to give it greater power to thwart traders who try to manipulate prices.

The CFTC began probing allegations of silver price manipulation in September 2008.

"Paper money polluted the equity of our laws, turned them into engines of oppression, corrupted the justice of our public administration, destroyed the fortunes of thousands who had confidence in it, enervated the trade, husbandry, and manufactures of our country, and went far to destroy the morality of our people."

Pelatiah Webster. Political Essays on the Nature and Operation of Money, Public Finances, and Other Subjects (Philadelphia, 1791)

Another weekend and the last weekend before Americans head to the polls next Tuesday. According to the media and pollsters, a very different much more conservative Congress is about to be elected to take power next January. A lively November in the markets lies ahead. Until then, yet another time to enjoy God’s autumn countryside before November’s rains, gales and frosts, turn it into our leafless windswept winter landscape. Time to gather the last of the sweet chestnuts. Have a great weekend everyone.

The monthly Coppock Indicators finished September:

DJIA: +227 Down. NASDAQ: +321 Down. SP500: +221 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. September is the fourth down month in a row.

Thursday 28 October 2010

Clear the Court.

Baltic Dry Index. 2748 +21
LIR Gold Target by 2019: $3,000.

"No one can earn a million dollars honestly."

William Jennings Bryan

Ebenezer Squid and all the lesser squids of 200 West Street, New York City, want their day in court but on their own terms. For more on the Squids’ unbridled power and aspirations to rule the peonage, scroll down to Crooks and Scoundrels Corner. God’s work in High Frequency Trading, it transpires, can’t stand the light of day!

Chicolini here may talk like an idiot and look like an idiot, but don't let that fool you. He really is an idiot.

Groucho Marx.

We open today with the folks in the great white wilderness of Canada, beginning to notice that their southern cousins have gone bust! As their biggest single trading partner that’s a matter great concern. Getting paid for very real, limited supply assets like oil and gas, in very unbacked dodgy US fiat dollars, able to be created at will without limit, is a mug’s game. According to Goldman Sachs, another 4 trillion are about to come surging out of the Fed’s basement computer to pay for Uncle Sam’s profligate lifestyle. At what point is it better to hold on to real assets, rather than Uncle Sam’s pretty pictures of dead US presidents? That point is now rapidly approaching.

Neil Reynolds

The scary actual U.S. government debt

OTTAWA— From Wednesday's Globe and Mail

Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The U.S. is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”

This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible – if not politically impossible.

One way or another, the fiscal gap must be closed. If not, the country’s spending will forever exceed its revenue growth, and no one’s real debt can increase faster than his real income forever.

Prof. Kotlikoff uses “fiscal gap,” not the accumulation of deficits, to define public debt. The fiscal gap is the difference between a government’s projected revenue (expressed in today’s dollar value) and its projected spending (also expressed in today’s dollar value). By this measure, the United States is in worse shape than Greece.


Today, Europe’s dodgy misfit leaders all get to assemble in Brussels for the traditional biannual punch up. While the featherweights get to strut around in the reflected glory of the heavies, the heavies are all terrified that Club Med is about to stick them with a bailout bill again. But first this, Belgium, the British joke upon the French and luckily for the hapless Belgians, without a government for almost 5 months, is in a national panic over the price of French fries, sorry chips, sorry Belgian frites. Happily, no free loaders assembling today in Brussels will be served anything as common as potatoes. Nor will a frites van be anywhere near Europe’s incompetent elite.

"Haggis /n./ Haggis is a kind of stuffed black pudding eaten by the Scots and considered by them to be not only a delicacy but fit for human consumption. The minced heart, liver and lungs of a sheep, calf or other animal's inner organs are mixed with oatmeal, sealed and boiled in maw in the sheep's intestinal stomach-bag.

October 26, 2010, 9:28 AM ET

Belgium in Crisis: Potato Prices Rise

Investors world-wide are braced for rising commodity prices: The cost of sugar is set to surpass the 30-year high recorded earlier this year, while breakfast cereal manufacturers will increase prices to reflect the soaring market value of corn. But for Belgium, the worst is yet to come: The potato market is “firm” and Belgian fries may be set to rise in price.

The Belgian frite is the staple that holds this country together. For the gentleman farmer in the Ardennes to the hipster fashion student of Antwerp, via the suit-wearing Eurocrat in need of sustenance after treaty negotiations that last into the small hours, nothing hits the spot like a large cornet de frites liberally smothered with mayonnaise, ketchup or sauce andalouse –- ideally accompanied by a trappist beer.

However, the crispy exterior and fluffy inside of Belgian fries cannot be achieved with any old potato. The “Bintje” variety is the raw material preferred by the Kingdom’s frites vans and takeaway stands, and the price is rising. Indeed, the Belgapom index — prepared on a weekly basis by eight potato experts based on market prices for Bintje potatoes of over 35mm, plus VAT, ready for immediate delivery and chipping –- has reached €135 per tonne, from just under €120 a month ago. A year ago, a tonne of finest tubers cost just €64.

Behind this rise -– which the 4,500 friteries of Belgium may well end up passing onto consumers -– is a rainy summer, the July heatwave and a bad harvest -– possibly even as bad as the winter of 2006-2007, when potato prices soared to record highs and many revelers chose to finish off Friday nights with a kebab. (Winter prices were also briefly higher than they are now in 2003-2004.)

In a country that hasn’t had a government for 135 days, this latest price rise -– which has prompted the Belgapom experts to change their call on the market to “firm” (offer is smaller or equal to demand) from stable, could severely exacerbate the situation. We’re seeing what happens when France is short of petrol. Imagine Belgium without fries.

Below, snake bit Euroland stumbles its way along towards a breakup. Germany is booming and needs higher interest rates to head off inflation. Club Med is still avoiding work and taxes, and in the case of the revolting French, rioting, and all are looking for a handout from the unloved booming Germans. Perfidious Albion, outside of Euroland but inside the EUSSR, is just hoping to get some of its money back and hoping no one brings up Britain’s massive debt. Given half a chance H.M.’s coalition G, is hoping to export even more austerity to the continent. The Brussels bureaucrats instead want an even bigger budget. No one attending is likely to bring the root cause of our problem, fiat currency, and great vampire squid bankster fraud.

If all else fails, immortality can always be assured by spectacular error.

J. K. Galbraith.

Tax Shortfalls Spur New Doubts on European Recovery

By LANDON THOMAS Jr. Published: October 27, 2010

LONDON — The mathematics of austerity are getting harder.

With economic conditions weaker than expected, tax revenue is coming up short of projections in parts of Europe. As a result, countries struggling with high deficits are now confronting the prospect that they will miss the budget deficit targets forced upon them this year by impatient bond investors.

Greece, for one, looks as if it will run a budget deficit for 2010 greater than the 8.1 percent of gross domestic product it agreed to as part of a rescue package from the International Monetary Fund and the European Union that amounted to more than $150 billion, according to a person briefed on the matter but not authorized to speak about it.

The adjustment, at worst, would result in a deficit of 8.9 percent of Greece’s output, this person said. Normally, such a small difference would not be cause for alarm.

But after the latest upward revision in Greece’s 2009 deficit — to about 15.5 percent from 13.5 percent of output — the miss has spurred investor fears that the Greek government will be unable to close the gap and that Greece may ultimately be forced to restructure its mountain of debt with foreign investors.

As word seeped into the market on Wednesday, Greek 10-year bond yields jumped to 10.3 percent, from 9.3 percent. That more or less reversed what had been an impressive bond market rally, when yields fell from more than 11 percent to just under 9 percent over the last month. The cost of insuring Greek bonds against a possible default also rose.

A spokesman for the Greek finance ministry declined to comment.

France Braces for Strikes in Unions’ Final Stand on Pension Bill

Oct. 28 (Bloomberg) -- France braced for train disruptions, flight cancelations and fuel shortages after unions called for a fifth, and some said final, strike today against President Nicolas Sarkozy’s pension bill, passed by parliament yesterday.

Unions are divided about the course of action after the lower house of parliament yesterday cast its final vote, approving the bill that will raise the minimum retirement age to 62 from 60. The bill must now be vetted by the constitutional court before it is promulgated into law by Sarkozy.

“Since there are no signs that Sarkozy will back down, the challenge for the unions is to find a way to wind down the protests without losing face,” said Guy Groux, an expert on labor movements at Cevipof, a Paris-based political research institute. “It’s clear the protests will peter out.”

Still, France’s largest union, Confederation Generale du Travail, said it will continue to push for concessions until the retirement plan is signed into law. “Until the law is promulgated, we’ll continue to act,” Bernard Thibault, head of the CGT union, said in an interview with newspaper Liberation yesterday. “Then we enter a different stage.”

About 30 percent of flights from Paris’s Charles de Gaulle airport will be canceled today. Trains and local transport will be disrupted and some government offices will be closed. Strikes at oil terminals have left refineries without the necessary crude to process into fuels such as gasoline and diesel. Workers at power plants have threatened to cut electricity production. Demonstrations are planned in cities across the country and unions have called for another day of protests on Nov. 6

Portuguese Budget Talks Stall, Final Passage in Doubt

Oct. 27 (Bloomberg) -- The Portuguese government and the country’s main opposition party broke off talks on the biggest budget cuts since at least the 1970s, possibly jeopardizing passage of the 2011 plan to tame the euro-region’s fourth- biggest deficit.

“There is no possibility of continuing the negotiation process,” Eduardo Catroga, a former finance minister who represented the opposition Social Democratic Party in the talks, said in Lisbon today. “My function from a technical standpoint no longer makes sense.”

The Social Democrats have opposed tax increases in the budget and called for deeper spending cuts. Finance Minister Fernando Teixeira dos Santos and Catroga had been negotiating this week after Portugal’s borrowing costs rose to a euro-era record on Sept. 28 amid Social Democrat threats to oppose the plan. Prime Minister Jose Socrates, lacking a parliamentary majority, needs the largest opposition party to back the budget or abstain for it to be passed.

“This is very, very important especially after the move in Portuguese bonds which was pricing in that an agreement would be finally reached, so it’s the exact opposite of what was expected,” said Ioannis Sokos, a London-based interest-rate strategist at BNP Paribas.

----- The extra yield investors demand to hold 10-year Portuguese bonds rather than German bunds, the European benchmark, climbed 16 basis points to 329 basis points after the announcement, the biggest increase in a month. The spread hit a record 441 basis points in September. The country’s PSI-20 benchmark index dropped 1.3 percent.

The Social Democrats have decided to wait until the day before the budget is due to be voted in parliament for the government to reconsider the opposition group’s proposals, Miguel Relvas, the Social Democratic Party’s secretary-general, said today.

Failure to pass the Portuguese budget “will plunge the country into a profound financial crisis with very serious consequences for our economy, in which we’ll see the channels of financing for our economy blocked,” Teixeira dos Santos said today in comments broadcast by SIC Noticias television. “It’s a very worrisome scenario.”

In Spain, Homes Are Taken but Debt Stays

By SUZANNE DALEY Published: October 27, 2010

MADRID — Manolo Marbán, 59, is still living in his house in Toledo and going to work in the small pink-and-aqua pet grooming shop he bought here in 2006, when he got swept up in Spain’s giddy real estate boom.

But Mr. Marbán does not own either anymore. The bank foreclosed on both properties last April, and he is waiting for the courts to issue the eviction notices. For most Americans facing foreclosure, that is the end of it. But for Mr. Marbán and thousands of others here, it is just the beginning of their troubles. When the gavel falls on his case, he will still owe the bank more than $140,000. “I will be working for the bank for the rest of my life,” Mr. Marbán said recently, tears welling in his eyes. “I will never own anything — not even a car.”

The real estate and banking excesses in Spain were a lot like those in the United States. Construction boomed, prices rose at an astonishing pace and banks gave out loans just as fast, often to customers like Mr. Marbán, who used the equity in his house to finance a mortgage for his shop. But those days are over. Spain now has the highest unemployment rate in the euro zone — 20 percent — and real estate prices are dropping. For many Spaniards, no longer able to pay their mortgages, the fine print in the deals they agreed to years ago is catching up with them.

Not only are Spanish mortgage holders personally liable for the full amount of the loan, but throw in penalty interest charges and tens of thousands of dollars in court fees, and people can end up, like Mr. Marbán, facing a mountain of debt. Bankruptcy is not the answer, either. Mortgage debt is specifically excluded here.

Elsewhere, it’s “every man for himself”, says Bloomberg, the G-20’s policy announcement didn’t even last out a week. Stay long precious metals. Whether our central banksters like it or not, the fiat currency regime is dying killed by profligate politicians and everyone wanting a free lunch.

‘Every Man for Himself’ on Currencies After G-20

Oct. 27 (Bloomberg) -- Finance chiefs from South Korea to South Africa signaled they may act to slow gains in their currencies, just four days after the Group of 20 vowed to soothe trade tensions in the $4 trillion-a-day foreign-exchange market.

Asian currencies fell to a one-week low after Bank of Korea Governor Kim Choong Soo said today that measures to mitigate capital flows could be “useful.” Hours later, the rand dropped as South African Finance Minister Pravin Gordhan said his government will use part of higher-than-expected tax revenue to build foreign reserves as it attempts to weaken the currency.

The shifts suggest G-20 members will keep trying to defend their economies from the slide of the dollar and capital inflows even after the group promised Oct. 23 to refrain from “competitive devaluation” and to increasingly embrace market- determined currencies.

“The G-20 made a vague pledge not to manipulate currencies much, but there was no mechanism to ensure that each country will not keep taking unilateral measures,” said Win Thin, global head of emerging markets strategy at Brown Brothers Harriman & Co. in New York. “It’s every man for himself.”

China’s yuan declined by the most in 22 months after the central bank set the weakest reference rate for the currency since September. Bank Indonesia will “guard” the rupiah at its “fundamental” level of 8,900 to 9,300 against the dollar and buy foreign currencies to limit volatility, Governor Darmin Nasution said today. Bank Negara Malaysia Governor Zeti Akhtar Aziz told Bloomberg Television yesterday she favors a gradual strengthening of the ringgit.

Ideas are more powerful than guns. We would not let our enemies have guns, why should we let them have ideas.


At the Comex silver depositories Wednesday, final figures were: Registered 51.92 Moz, Eligible 58.87 Moz, Total 110.79 Moz.


Crooks and Scoundrels Corner.

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

Below, Ebenezer Squid wants his day in court, but you’re not invited. Do the Great Vampire Squids rule America, or what? We can’t let the public know just how crooked America’s stock markets have become. “Flash crash? What flash crash? Lock that man up and throw away the key”. Goldman’s High Frequency Trading program is apparently so powerful and destructive, that it’s not even shared with God.

"It's morally wrong to allow a sucker to keep his liberty."

WC Fields. With apologies to Ebenezer Squid.

OCTOBER 27, 2010

U.S. Seeks to Shield Goldman Secrets

Goldman Sachs Group Inc. has always closely guarded the secrets of its lucrative high-speed trading system. Now the securities firm is getting a help from an unusual source: federal prosecutors.

Federal prosecutors in Manhattan this week asked a federal district judge to seal the courtroom at the forthcoming trial of a former Goldman computer programmer accused of stealing the firm's computer code. The move was a formal request to empty the courtroom of the general public when details of Goldman's trade secrets are being discussed. The trial is set to start to late November.

Prosecutors also asked that any documents related to Goldman's trading strategies remain under seal.

Such requests are common when proprietary corporate information could be exposed in a trial, lawyers say. This case is unusual in that it involves secrets about a potentially lucrative trading system, rather than, say, ingredients in a soda formula.

Sergey Aleynikov, 40 years old, was arrested by Federal Bureau of Investigation agents in Newark Liberty International Airport on July 3, 2009, and charged with the theft of computer code behind Goldman's high-frequency trading platform. The programmer was indicted in February and has pleaded not guilty.

Motions filed this week by the government and the defense offer a window into arguments that will decide Mr. Aleynikov's fate. Prosecutors are expected to argue that his actions could have harmed Goldman Sachs. A spokesman for the bank declined to comment.

Lawyers for Mr. Aleynikov, whom the indictment alleges uploaded Goldman code to a server in Germany and then downloaded it to his home computers, are expected to contend that the code he took only represented a fraction of the broader strategy and couldn't be used to hurt Goldman's business, court documents suggest.

Earlier this year, Mr. Aleynikov's defense team sought details from the government and Goldman Sachs regarding the bank's high-frequency computer systems. The court denied those requests.

Lead defense attorney Kevin Marino, of the Chatham, N.J., law firm Marino, Tortorella & Boyle, argued in his motion this week that the defense requires access to information about Goldman's trading system to prove Mr. Aleynikov "could not have intended to injure Goldman" by taking the firm's trading code.

The bar for clearing a courtroom can be high, said Sandra McCallion, a lawyer specializing in trade-secret cases for the New York law firm Cohen & Gresser LLP. The government has to show that "this is something that is so secret that it will cause harm to [Goldman] if it were made public," she said.

The arrest of the Goldman programmer helped put high-frequency trading into the spotlight last year. The strategy, in which powerful computers buy and sell securities at ultrafast speeds, has proved lucrative for many traders.

The indictment said Goldman's high-frequency trading operation generated "many millions of dollars in profits per year."

The strategy also has come under heightened scrutiny amid concerns that some high-frequency traders were gaining unfair advantages in the market. The Securities and Exchange Commission has launched an in-depth study of issues surrounding high-speed trading and is considering several proposals to monitor it.

This year, regulators have focused on the role high-frequency traders played in the May 6 "flash crash," when some of the fast-moving firms stepped away from the market during the height of the turmoil.

Court documents filed by the government in July 2009, soon after Mr. Aleynikov's arrest, state that Goldman's strategies involve "sophisticated, high-speed and high-volume trades on various stock and commodities markets."

Prosecutors allege that Mr. Aleynikov transferred a substantial portion of that code to a computer server in Germany. He then downloaded the code to his personal laptop, which he allegedly brought to Chicago, where he had a meeting a firm that had hired him, start-up trading shop Teza Technologies LLC.

Teza became embroiled in its own legal battle following Mr. Aleynikov's arrest. Founder Mikhail "Misha" Malyshev and Teza employees were sued by their former employer, Chicago hedge fund Citadel LLC, for violating agreements not to work for a competitive firm. In mid-October 2009, a Chicago court granted sanctions against Teza.

The Teza case showed how details surrounding a trading strategy can emerge during the course of a trial, including disclosures that the Citadel high-frequency unit pulled in about $1 billion in 2008.

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.

The monthly Coppock Indicators finished September:

DJIA: +227 Down. NASDAQ: +321 Down. SP500: +221 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. September is the fourth down month in a row.


Wednesday 27 October 2010

The Next Lehman.

Baltic Dry Index. 2748 +21
LIR Gold Target by 2019: $3,000.

The same people who caused the last crisis are still in charge. They’ll get us into another. Iceland is taking its ex-prime minister to court for causing the banking crisis. Worse fates await the people who are causing the next crisis. China used to chop off the heads of its failing ministers at the capital’s vegetable market. Maybe we should bring back the practice and globalize it.

Andy Xie. 10.22.2010

More on the next Lehman later, first this. Is Chevron the next BP? After reviewing data from BP’s disaster in the Gulf of Mexico, Chevron has more than doubled it’s worst case estimate of an oil spill off the Shetland Islands. Not to worry though, Chevron says it can’t happen and an “expert from the Health and Safety Committee yesterday told MPs on the Energy Committee that Britain's safety regime is the best in the world.” Luckily, bad weather has halted Chevron’s drilling for now, which is just as well. Were an accident to occur in the winter north of Shetland, there is probably no way of responding to it until the spring or summer. Our world is now playing environmental Russian roulette in its quest for oil. We can only hope that Chevron gets it right.

Shetland drilling could trigger spill worse than BP's

Chevron has admitted its new deepwater drilling campaign off the Shetland Islands could cause an oil spill worse than BP's accident in the Gulf of Mexico.

By Rowena Mason Published: 6:46AM BST 27 Oct 2010

The US oil giant believes that, in a worst-case scenario, the North Sea well could release 77,000 barrels per day – 25pc more than gushed into US waters this year.

Chevron has doubled its worst possible forecast from 35,000 barrels per day, after reviewing all its data in the light of BP's accident.

Richard Cohagan, managing director of Chevron UK, said the high-pressure nature of the area led to the larger estimate.

"Deepwater Horizon has given us a new perspective on how bad things could be," he said. "When we looked at the core pressures and what seismic has shown us might be the producing interval, we calculated what the largest spill rate could be.

"We actually came up with a very large spill rate in that condition of 77,000 barrels - actually more than BP's Macondo."

Chevron is currently drilling the Lagavulin prospect around 160 miles north of the Shetland Islands in 1,569m of water - deeper than BP's ruptured well.

Bad weather conditions recently stopped Chevron's work on Lagavulin for eight days.

Oil companies across the North Sea have been re-examining their operations since BP's Deepwater Horizon rig exploded on April 20, killing 11 men. However, oil companies and an expert from the Health and Safety Committee yesterday told MPs on the Energy Committee that Britain's safety regime is the best in the world.

Below, Bloomberg on the school for Whiplash Willies. Actually, the University course of choice for American lawyers setting out to take on the mortgage fraudsters of Wall Street. The next Lehman’s days are numbered. For more scroll down to Crooks and Scoundrel’s Corner.

A bank is a confidence trick. If you put up the right signs, the wizards of finance themselves will come in and ask you to take their money.

Jules Bertillon. A House of All Nations. 1938. Christina Stead.

Foreclosure Lawyers Go to Gardner’s Farm for Edge on Lenders

Oct. 27 (Bloomberg) -- Consumer lawyers have been traveling to a remote 160-acre farm in the mountains of western North Carolina since 2006 to network, drink Scotch and prepare for legal combat in foreclosure and bankruptcy cases.

They arrive in groups of a dozen or so for a four-day boot camp where they learn how to protect their clients’ assets by exploiting the mistakes of creditors. Attendees these days are especially keen on strategies to fend off mortgage lenders and servicers seeking to seize their clients’ homes.

Their instructor is O. Max Gardner III, a 65-year-old bankruptcy litigator and grandson of a North Carolina governor, who was using flaws in mortgage servicing to stave off lenders years before cases involving shoddy paperwork spurred this month’s investigation of the industry by the attorneys general of all 50 states. He charges $7,775 for the program, which covers 3,000 pages of materials, lodging, food and unlimited wine, beer and single-malt Scotch.

“My time with Max changed the trajectory of my legal career,” Nick Wooten, a 40-year-old Alabama attorney who changed his focus from personal injury to bankruptcy and foreclosure after attending the boot camp in 2007, said in a telephone interview. “Knowledge is power, and one thing he is able to give in his boot camp is a tremendous amount of knowledge about how the other side operates.”

Participants, who are admitted only after a background check confirms that they don’t work for creditors, gain access to a private e-mail distribution list where they share legal strategies, documents and advice. Linda Tirelli, a consumer- bankruptcy attorney in New York and Connecticut and one of the 599 people who have gone through the program, said she feels like she’s now part of a big law firm.

National Issue

While Gardner and some of his graduates have been winning settlements for years, it wasn’t until Ally Financial Inc.’s GMAC Mortgage unit said Sept. 20 it was halting some evictions that foreclosure documentation and the use of robo-signers became a national issue that threatened to stall sales of repossessed homes and gave investors ammunition in their fight to force banks to buy back billions of dollars of mortgage- linked securities.

---- The heart of Gardner’s strategy is to uncover omissions and errors in mortgage securitizations, the process in which thousands of loans are bundled into bonds and sold to investors. Securitizations are plagued by lost promissory notes and missing or inconsistent tracking of changes in loan ownership, Gardner said the interview. Servicers processing default actions papered over the errors with improperly prepared affidavits and after- the-fact assignments of mortgages, he said.

------ One tactic Gardner employs in court is to allow creditors that produce dubious evidence to “dig their own grave.”

“I wouldn’t go in waving documents around,” he said. “The more false documents and inconsistent documents I get the other side to produce, the more legal leverage I have against them.”


We end for today with Greece. Greece puts sovereign debt default back on the EU agenda again. Stay long precious metals. All the fiat currencies are in deep trouble.

Money has no country.

Jules Bertillon. A House of All Nations. 1938. Christina Stead.

Greece reignites Europe debt woes

Europe's debt woes have returned to the fore after Greek premier George Papandreou threw open the door to fresh elections and vowed to liberate the nation from "slavery and surveillance".

By Ambrose Evans-Pritchard Published: 5:49PM BST 26 Oct 2010

Yields on 10-year Greek bonds jumped 31 basis points to 9.57pc and the euro tumbled 2 cents to $1.385 against the dollar as investors awoke to the risk of political upheaval in Greece, not helped by warnings from bond giant PIMCO that Athens will default within three years.

"We have not yet escaped the danger. I am sounding the alarm," said Mr Papandreou.

While he promised to stick to the EU-IMF austerity plan, he threatened to go to the country if upcoming local elections fail to give his socialist PASOK party a clear mandate. "There can no deadlock in democracy, the people have the power to decide," he said.

The main opposition group New Democracy has yet to give a watertight pledge that it would abide by the terms of the EU's €110bn (£97bn) rescue, or the "Memorandum" as it is known.

PASOK itself is fraying at the edges in any case. A socialist rebel candidate from the "anti-Memorandum" bloc leads the polls for the Athens region.

Mr Papandreou is responding with populist gestures, granting pensioners a €300 bonus and rejecting calls by Brussels and his own central bank for further belt-tightening. "There will be no new measures on wage-earners or pensioners, they have paid enough," he said.

The fiscal picture is extremely delicate. Eurostat is expected to raise Greece's budget deficit for 2009 to 15.1pc of GDP from 13.3pc. Public debt will rise to 127pc instead of 115pc, bringing the country closer to a debt compound spiral.

Mohamed El-Erian, chief executive of Pimco, said the EU-IMF package prevents Greece from growing its way out of the crisis and will test political consensus to destruction. He said it would be healthier for both Greece and Europe to opt for orderly debt restructuring.

"To combat depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection or production, we want to create further misdirection- a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end."

Friedrich Hayek, 1933

At the Comex silver depositories Tuesday, final figures were: Registered 52.12 Moz, Eligible 59.10 Moz, Total 111.22 Moz.


Crooks and Scoundrels Corner.

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

Fraudclosuregate takes yet another twist. Is Bank of America the next Lehman?

The reason “many firms file lost note counts as a standard alternative pleading in the [foreclosure] complaint” is because the physical document was deliberately eliminated to avoid confusion immediately upon its conversion to an electronic file.

Florida Bankers Association.

October 26, 2010

Guest Post: How Did the Banks Get Away With Pledging Mortgages to Multiple Buyers?

Washington’s Blog

I’ve repeatedly documented that mortgages were pledged multiple times to different buyers. See this, this and this.

In response, some people (including one of the country’s top bankruptcy lawyers) have told me they don’t buy it.

Specifically, they ask such questions as:

  • With a mortgage sold to two different entities, wouldn’t the income from the mortgage be shown on the books of both entities?
  • Was the interest/principal payments that were made by the homeowner before they stopped being divided between both entities? If so, wouldn’t this have rung alarm bells immediately?
  • If only one was getting it, why didn’t the other entity immediately try to foreclose?
  • If there was one servicer involved, was the servicer covering the difference between what was collected and the payments actually made? If so, how did the servicer do this and still remain in business?
  • If two servicers were involved, why didn’t this come out sooner or were both servicers hiding this fraud?

So I wrote to some of the leading experts on mortgage fraud – L. Randall Wray (economics professor), Christopher Whalen (banking expert with Institutional Risk Analytics), and William K. Black (professor of economics and law, and the senior regulator during the S & L crisis) – to seek their insight.

Chris Whalen told me:

All good points, but the short answer is that nobody may have noticed until now. The issue of substitution and other games played by servicers makes exact tracking of loans problematic. It should show up in the servicers reports and should be caught, but there are a lot of things that go on in loan servicing that nobody talks about. Until about 2006, the GSEs and banks would advance cash and would substitute, but not now. The noble practitioners you heard from are all sincere and want to believe in intelligent design.

-----Professor Black told me:

Double pledges (as they’re typically called, though one could pledge multiple times) are a well known fraud device. It is correct that one of the key purposes of adopting Article 9 of the Uniform Commercial Code (UCC) was to reduce the risk and frequency of this form of fraud. So, double pledges in the modern era require both (A) fraud (on the part of the borrower or purchaser) and incompetence, indifference, or corruption on the part of the original secured lender or their agents if the borrower is the fraudster or the purchasers if they are the fraudsters.

----And professor Wray told me that record-keeping by servicers was terrible, and pointed me to the following article from the Tampa Tribune:

Peter Bakowski, a 58-year-old former Tampa mortgage broker, has admitted orchestrating a Ponzi scheme that involved more than 30 investors and institutions and more than 150 deals, documents show.


Bakowski sold the mortgage assignments to multiple investors, promising high rates of return and using all the money he generated to “keep the scheme afloat,” according to his plea agreement.

Bank of America Sued in Class Action Over Flouting of Foreclosure Rules

Charles Toutant 10-25-2010

Bank of America has been hit with a class action on behalf of homeowners seeking damages for alleged disregard of foreclosure process rules.

The suit, filed Wednesday in federal court in Newark, N.J., accuses Bank of America and two subsidiaries, LaSalle Bank and BAC Home Loans Servicing, of "an undisciplined rush to seize homes" through "pervasive and willful disregard of knowledge, facts and statutes."

Bank of America has filed foreclosure proceedings on many mortgages in New Jersey without holding the necessary rights as the mortgagee or assignee at the time of foreclosure, the suit says.

"Many thousands of foreclosures are plainly void under statute and settled New Jersey case law. Many borrowers never obtain statutorily required notices, and many foreclosure suits are filed entirely based in inaccurate recitations concerning ownership of the mortgage, the note, or the assignment," the suit says.

The putative class in the suit, Beals v. Bank of America, N.A., 10-cv-05427, consists of all named defendants in pending New Jersey foreclosure actions initiated by Bank of America or its affiliates. The complaint includes counts of common-law fraud, breach of the covenant of good faith and fair dealing and violations of the New Jersey Fair Foreclosure Act and Consumer Fraud Act.

"Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and start slitting throats."

H.L Mencken

The monthly Coppock Indicators finished September:

DJIA: +227 Down. NASDAQ: +321 Down. SP500: +221 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. September is the fourth down month in a row.

Tuesday 26 October 2010

USA Mortgages = FRAUD

Baltic Dry Index. 2748 +21
LIR Gold Target by 2019: $3,000.

"It's strange that men should take up crime when there are so many legal ways to be dishonest. “

Al Capone

From sea to shining sea, nothing but a web of fraud. Sadly, with each new revelation, America forfeits its place as leader of the free world. There may be nothing to replace it, but in scandal after scandal a picture of America is emerging of unbridled criminality and a Wall Street bankster attempt to defraud the world. Somewhere after the 1987 stock market crash that unnerved fallen guru Greenspan, and turned him into a serial bubble creator until he created his last bubble that has now bankrupted America, criminal banksters and shysters took over America’s financial industry and paid off the politicians. Stay long precious metals. America’s banks are about to go broke once again, but this time round a furious and deceived US population is unlikely to bail them out. Little wonder the great vampire squids continue to loot the system with telephone number bonuses while they can. The insiders must see total collapse ahead in 2011. Up first, the NY Times on the growing black hole of US mortgages.


The Mortgage Morass

Published: October 26, 2010

The mortgage mess just keeps getting messier. Last week, Bank of America announced that it had performed a “thorough review” of its processes, found nothing amiss and would soon restart 102,000 pending foreclosures. On Sunday, the bank acknowledged that it had in fact found errors in its filings, and would resume foreclosures only in a deliberate manner as new and corrected paperwork was submitted to the courts.

The repeated recalibration cast further doubt on Bank of America’s procedures and the ability of the entire industry to clean up this mess.

The immediate issue is robo-signing, in which employees at Bank of America, JPMorgan Chase and other banks falsely attested to having verified the facts in what may turn out to be hundreds of thousands, or more, court foreclosure filings. That has brought to light other problems, including crucial documents that have been lost or improperly transferred — raising questions about the banks’ legal standing to foreclose as well as the value of securities backed by these mortgages.

The state courts will have to resolve the question of whether banks can foreclose with defective or substitute documents. Courts will also have to rule on any disputes between banks and investors over mortgage securities, a complex and contentious process if it comes to that. The Obama administration needs to do a lot more to get hold of this crisis, before it gets any worse.

Last week, Bank of America also acknowledged receiving a letter from mortgage investors — including Freddie Mac and the Federal Reserve Bank of New York — demanding that it repurchase tens of billions of dollars in problem loans that were bundled into securities.

Investors can demand that banks repurchase loans that did not meet underwriting guidelines or were inadequately vetted or processed. The repurchases are important to taxpayers, because — through Fannie, Freddie and the Fed — the government now owns or backs a large number of problem loans and related securities. If the banks do not take the hit, the taxpayers will.

Fannie and Freddie have increased their repurchase demands on lenders over the past year, but banks are sure to resist large repurchases, setting up more clashes and disruption.

Bank of America has said it does not believe it is at fault for the loans’ poor performance. Freddie Mac and the Fed should push their claims hard.

The Obama administration needs to ensure that the taxpayers’ interests come first. Until now, the White House has focused far more energy on shoring up the banks — a stance that may have made sense in the thick of the financial crisis but is increasingly suspect now.

The administration has called on banks to correct the problems in their foreclosure paperwork. More is needed, including a plan to impose coherence on the increasingly chaotic mortgage system.

The White House needs to work with Congress to ensure that no foreclosures proceed — not just those with questionable paperwork — without homeowners’ first being offered fair and timely loan modifications. The Housing and Urban Development secretary, Shaun Donovan, has promised tougher action, but has been short on details and even refrained from naming the banks that have been laggards in loan workouts.

The administration and federal regulators should also acknowledge the potential hit to banks’ finances from the coming wave of litigation and repurchases. They should be taking precautions right now, say, by initiating more robust monitoring or new stress tests to gauge whether banks need to raise more capital to absorb the costs of any court fights and buying back bad loans.

The markets are relatively calm for now. That is the time to get ahead of problems that are not going away.

Next, the US Treasury cons the US taxpayers ahead of next weeks’ elections. Would you buy a used car from the US Treasury. Any surprise that the recent G-20 finance ministers meeting told the US Treasury Secretary to take a walk.

"We finished the year, and we reported that we had $17 billion of cash sitting at the bank's parent company as a liquidity cushion. As the year has gone on, that liquidity cushion has been virtually unchanged."

Bear Stearns CEO Alan Schwartz. March 12, 2008. Collapsed March 17, 2008

Treasury Hid A.I.G. Loss, Report Says

By MARY WILLIAMS WALSH Published: October 26, 2010

The United States Treasury concealed $40 billion in likely taxpayer losses on the bailout of the American International Group earlier this month, when it abandoned its usual method for valuing investments, according to a report by the special inspector general for the Troubled Asset Relief Program.

In our view, this is a significant failure in their transparency,” said Neil M. Barofsky, the inspector general, in an interview on Monday.

In early October, the Treasury issued a report predicting that the taxpayers would ultimately lose just $5 billion on their investment in A.I.G., a remarkable outcome, since the insurance company was extended $182 billion in taxpayer money in the early months of its rescue. The prediction of a modest loss, widely reported as A.I.G., the Federal Reserve and the Treasury rushed to complete an exit plan, contrasted with an earlier prediction by the Treasury that the taxpayers would lose $45 billion.

“The American people have a right for full and complete disclosure about their investment in A.I.G.,” Mr. Barofsky said, “and the U.S. government has an obligation, when they’re describing potential losses, to give complete information.”

An official of the Treasury disputed Mr. Barofsky’s conclusions, saying the department appropriately used different methods for different purposes. He said the smaller loss was a projection of future events, and the larger one was the result of an audit, which includes only realized gains and losses.

The Treasury will include more information about A.I.G. when it issues its own audited financial statement in November. Because those numbers must pass an auditor’s scrutiny, the loss it reports is likely to grow once again, to more than $5 billion.

Amidst all the Wall Street fraud, in the real world home sales and prices are about to fall once again. 2011 now looks very ugly all round, with a stock market now priced far above reality, relying on dollar depreciation precipitated by the Fed’s next round of fiat money creation.

OCTOBER 26, 2010

Housing Gloom Deepens

Home Sales Rise, but Economists Don't See Prices Bottoming Till Late '11 or '12

Home sales picked up in September, but the long-term picture for housing is growing grimmer, say analysts and economists who are pushing back forecasts for a housing recovery.

Earlier this year, the housing market appeared poised for a turnaround, three years after it peaked. Federal tax credits for buyers spurred a flurry of activity, and the economy was adding jobs. That led some economists to forecast housing would hit bottom and begin to recover this year.

Now, some economists don't see a recovery until late next year or early 2012. "In most markets, the tide seems to be going back out," said Stan Humphries, chief economist at, a real-estate site. "The momentum is easing."

Adding to the mounting worries is the foreclosure crisis. Some banks suspended sales of foreclosed homes late last month to address questions about the integrity of the foreclosure process. If a substantial part of the market freezes for some weeks, that could further crimp sales.

---- The growing pessimism is attributed partly to rising inventory in many markets, a trend that doesn't bode well for prices. The Wall Street Journal's latest quarterly survey of housing-market conditions in 28 major metropolitan areas found inventories of unsold homes were up in 19 markets at the end of the third quarter, compared with a year ago, with especially large increases in San Diego, Los Angeles and Sacramento.

"We'll see some additional price declines," said David Berson, chief economist at PMI Group Inc., a mortgage-insurance company in Walnut Creek, Calif. "The gains we've seen can't be sustained given the current supply situation."

"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."

President F.D. Roosevelt, 1933

At the Comex silver depositories Monday, final figures were: Registered 52.12 Moz, Eligible 59.06 Moz, Total 111.18 Moz.


Crooks and Scoundrels Corner.

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

Some things are too good not to share, and so we gladly feature part of John Mauldin’s latest newsletter. Read on and understand a once great country usurped by thieves, banksters and corrupt politicians. Will American’s take back their country or leave it in the hands of the Ebenezer Squid banksters? With control of the US Treasury and the Fed, don’t under estimate the power of the Squids. Stay long gold and silver. The parasites are now killing off the host.

Why did I take up stealing? To live better, to own things I couldn't afford, to acquire this good taste that you now enjoy and which I should be very reluctant to give up.

Cary Grant. To Catch A Thief.

How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America
--and Spawned a Global Crisis

From John Mauldin’s “Outside the Box” update 25/10/10

For today’s Outside the Box I have something a little different. Michael Hudson has written a book called The Monster about the Mortgage industry, and specifically Ameriquest and Lehman. Someone sent me his introduction and I read it on the plane. I will buy the book. It made me angry. And the new financial regulations don’t address some of the real problem here.

It is an easy read, well written and lots of great quotes and stories. I won’t say enjoy but do take the tine to read and then think about what you just read and about the culture in our country.

How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America-- and Spawned a Global Crisis

Michael W. Hudson

Bait and Switch

A few weeks after he started working at Ameriquest Mortgage, Mark Glover looked up from his cubicle and saw a co-worker do something odd. The guy stood at his desk on the twenty-third floor of downtown Los Angeles's Union Bank Building. He placed two sheets of paper against the window. Then he used the light streaming through the window to trace something from one piece of paper to another. Somebody's signature.

Glover was new to the mortgage business. He was twenty-nine and hadn't held a steady job in years. But he wasn't stupid. He knew about financial sleight of hand—at that time, he had a check-fraud charge hanging over his head in the L.A. courthouse a few blocks away. Watching his coworker, Glover's first thought was: How can I get away with that? As a loan officer at Ameriquest, Glover worked on commission. He knew the only way to earn the six-figure inco me Ameriquest had promised him was to come up with tricks for pushing deals through the mortgage-financing pipeline that began with Ameriquest and extended through Wall Street's most respected investment houses.

Glover and the other twentysomethings who filled the sales force at the downtown L.A. branch worked the phones hour after hour, calling strangers and trying to talk them into refinancing their homes with high-priced "subprime" mortgages. It was 2003, subprime was on the rise, and Ameriquest was leading the way. The company's owner, Roland Arnall, had in many ways been the founding father of subprime, the business of lending money to home owners with modest incomes or blemished credit histories. He had pi oneered this risky segment of the mortgage market amid the wreckage of the savings and loan disaster and helped transform his company's headquarters, Orange County, California, into the capital of the subprime industry. Now, with the housing market booming and Wall Street clamoring to invest in subprime, Ameriquest was growing with startling velocity.

Up and down the line, from loan officers to regional managers and vice presidents, Ameriquest's employees scrambled at the end of each month to push through as many loans as possible, to pad their monthly production numbers, boost their commissions, and meet Roland Arnall's expectations. Arnall was a man "obsessed with loan volume," former aides recalled, a mortgage entrepreneur who believed "volume solved all problems." Whenever an underling suggested a goal for loan production over a particular time sp an, Arnall's favorite reply was: "We can do twice that." Close to midnight Pacific time on the last business day of each month, the phone would ring at Arnall's home in Los Angeles's exclusive Holmby Hills neighborhood, a $30 million estate that once had been home to Sonny and Cher.On the other end of the telephone line, a vice president in Orange County would report the month's production numbers for his lending empire. Even as the totals grew to $3 billion or $6 billion or $7 billion a month—figures never before imagined in the subprime business—Arnall wasn't satisfied. He wanted more. "He would just try to make you stretch beyond what you thought possible," one former Ameriquest executive recalled. "Whatever you did, no matter how good you did, it wasn't good enough."

Inside Glover's branch, loan officers kept up with the demand to produce by guzzling Red Bull energy drinks, a favorite caffeine pick-me-up for hardworking salesmen throughout the mortgage industry. Government investigators would later joke that they could gauge how dirty a home-loan location was by the number of empty Red Bull cans in the Dumpster out back. Some of the crew in the L.A. branch, Glover said, also relied on cocaine to keep themselves going, snorting lines in washrooms and, on occasion, in their cubicles.

The wayward behavior didn't stop with drugs. Glover learned that his colleague's art work wasn't a matter of saving a borrower the hassle of coming in to supply a missed signature. The guy was forging borrowers' signatures on government-required disclosure forms, the ones that were supposed to help consumers understand how much cash they'd be getting out of the loan and how much they'd be paying in interest and fees. Ameriquest's deals were so overp riced and loaded with nasty surprises that getting customers to sign often required an elaborate web of psychological ploys, outright lies, and falsified papers. "Every closing that we had really was a bait and switch," a loan officer who worked for Ameriquest in Tampa, Florida, recalled. " 'Cause you could never get them to the table if you were honest." At companywide gatherings, Ameriquest's managers and sales reps loosened up with free alcohol and swapped tips for fooling borrowers and cooking up phony paperwork. What if a customer insisted he wanted a fixed-rate loan, but you could make more money by selling him an adjustable-rate one? No problem. Many Ameriquest salespeople learned to position a few fixed-rate loan documents at the top of the stack of paperwork to be signed by the borrower. They buried the real documents—the ones indicating the loan had an adjustable rate that would rocket upward i n two or three years—near the bottom of the pile. Then, after the borrower had flipped from signature line to signature line, scribbling his consent across the entire stack, and gone home, it was easy enough to peel the fixed-rate documents off the top and throw them in the trash.

At the downtown L.A. branch, some of Glover's coworkers had a flair for creative documentation. They used scissors, tape, Wite-Out, and a photocopier to fabricate W-2s, the tax forms that indicate how much a wage earner makes each year. It was easy: Paste the name of a low-earning borrower onto a W-2 belonging to a higher-earning borrower and, like magic, a bad loan prospect suddenly looked much better. Workers in the branch equipped the office's break room wi th all the tools they needed to manufacture and manipulate official documents. They dubbed it the "Art Department."

At first, Glover thought the branch might be a rogue office struggling to keep up with the goals set by Ameriquest's headquarters. He discovered that wasn't the case when he transferred to the company's Santa Monica branch. A few of his new colleagues invited him on a field trip to Staples, where everyone chipped in their own money to buy a state-of-the-art scanner-printer, a trusty piece of equipment that would allow them to do a better job of creating phony paperwork and trapping American home owners i n a cycle of crushing debt.

Carolyn Pittman was an easy target. She'd dropped out of high school to go to work, and had never learned to read or write very well. She worked for decades as a nursing assistant. Her husband, Charlie, was a longshoreman.In 1993 she and Charlie borrowed $58,850 to buy a one-story, concrete block house on Irex Street in a working-class neighborhood of Atlantic Beach, a community of thirteen thousand near Jacksonville, Florida. Their mortgage was government-insured by the Federal Housing Administration, so they got a good deal on the loan. They paid about $500 a month on the FHA loan, including the money to cover their home insurance and property taxes.

Even after Charlie died in 1998, Pittman kept up with her house payments. But things were tough for her. Financial matters weren't something she knew much about. Charlie had always handled what little money they had. Her health wasn't good either. She had a heart attack in 2001, and was back and forth to hospitals with congestive heart failure and kidney problems.

Like many older black women who owned their homes but had modest incomes, Pittman was deluged almost every day, by mail and by phone, with sales pitches offering money to fix up her house or pay off her bills. A few months after her heart attack, a salesman from Ameriquest Mortgage's Coral Springs office caught her on the phone and assured her he could ease her worries. He said Ameriquest would help her out by lowering her interest rate and her monthly payments.

She signed the papers in August 2001. Only later did she discover that the loan wasn't what she'd been promised. Her interest rate jumped from a fixed 8.43 percent on the FHA loan to a variable rate that started at nearly 11 percent and could climb much higher. The loan was also packed with more than $7,000 in up-front fees, roughly 10 percent of the loan amount.

Pittman's mortgage payment climbed to $644 a month. Even worse, the new mortgage didn't include an escrow for real-estate taxes and insurance. Most mortgage agreements require home owners to pay a bit extra—often about $100 to $300 a month—which is set aside in an escrow account to cover these expenses. But many subprime lenders obscured the true costs of their loans by excluding the escrow from their deals, which made the monthly payments appear lower. Many borrowers didn't learn they had been tricked until they got a big bill for unpaid taxes or insurance a year down the road.

That was just the start of Pittman's mortgage problems. Her new mortgage was a matter of public record, and by taking out a loan from Ameriquest, she'd signaled to other subprime lenders that she was vulnerable—that she was financially unsophisticated and was struggling to pay an unaffordable loan. In 2003, she heard from one of Ameriquest's competitors, Long Beach Mortgage Company.

Pittman had no idea that Long Beach and Ameriquest shared the same corporate DNA. Roland Arnall's first subprime lender had been Long Beach Savings and Loan, a company he had morphed into Long Beach Mortgage. He had sold off most of Long Beach Mortgage in 1997, but hung on to a portion of the company that he rechristened Ameriquest. Though Long Beach and Ameriquest were no longer connected, both were still staffed with employees who had learned the business under Arnall.

A salesman from Long Beach Mortgage, Pittman said, told her that he could help her solve the problems created by her Ameriquest loan. Once again, she signed the papers. The new loan from Long Beach cost her thousands in up-front fees and boosted her mortgage payments to $672 a month.

Ameriquest reclaimed her as a customer less than a year later. A salesman from Ameriquest's Jacksonville branch got her on the phone in the spring of 2004. He promised, once again, that refinancing would lower her interest rate and her monthly payments. Pittman wasn't sure what to do. She knew she'd been burned before, but she desperately wanted to find a way to pay off the Long Beach loan and regain her financial bearings. She was still pondering whether to take the loan when two Ameriquest representati ves appeared at the house on Irex Street. They brought a stack of documents with them. They told her, she later recalled, that it was preliminary paperwork, simply to get the process started. She could make up her mind later. The men said, "sign here," "sign here," "sign here," as they flipped through the stack. Pittman didn't understand these were final loan papers and her signatures were binding her to Ameriquest. "They just said sign some papers and we'll help you," she recalled.

To push the deal through and make it look better to investors on Wall Street, consumer attorneys later alleged, someone at Ameriquest falsified Pittman's income on the mortgage application. At best, she had an income of $1,600 a month—roughly $1,000 from Social Security and, when he could afford to pay, another $600 a month in rent from her son. Ameriquest's paperwork claimed she brought in more than twice that much—$3,700 a month.

The new deal left her with a house payment of $1,069 a month—nearly all of her monthly income and twice what she'd been paying on the FHA loan before Ameriquest and Long Beach hustled her through the series of refinancings.

----- A long list of mortgage entrepreneurs and Wall Street bankers cultivated the tactics that fueled subprime's growth and its collapse, and a succession of politicians and regulators looked the other way as abuses flourished and the nation lurched toward disaster: Angelo Mozilo and Countrywide Financial; Bear Stearns, Washington Mutual, Wells Fargo; Alan Greenspan and the Federal Reserve; and many more. Still, no Wall Street firm did more than Lehman to create the subprime monster. And no figure or institution did more to bring subprime's abuses to life across the nation than Roland Arnall and Ameriquest….

Email for more.

"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."

Shi Jianxun. China People’s Daily. September 16, 2008

The monthly Coppock Indicators finished September:

DJIA: +227 Down. NASDAQ: +321 Down. SP500: +221 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. September is the fourth down month in a row.