Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

Posts Tagged ‘Bernanke

Vultures Circling on US Auto Makers

with 14 comments

0811-016-vultures-on-auto-makers

Ref: 0811-016 of 2008/11/23

 

Wall Street and Private Equity vultures are at it again. They are aided and abetted by Republican senators and its sponsoring media with well orchestrated campaign to cause the death of the United States’ biggest employer – General Motors, Ford and Chrysler.


The vultures are interested in causing deliberate bankruptcies so that all the equity and options owned by United Auto Workers in their respective companies be turned worthless, the pension fund liabilities avoided partly or altogether, the health and insurance benefits to retirees reduced to zero, termination benefits also reduced substantially for want of funds, and the companies so stripped off its statutory liabilities be bought over in Bankruptcy Court for a song.

 

The officials from FED, Treasury, Office of the President, and hosts of senators mainly from Republican Party want to rehearse the events of United Airlines, WorldCom, Bethlehem Steel and lately Lehman Brothers, all of whom were allowed to go bankrupt to the detriment of all its workers and employees

 

Destroy the United Auto Workers…

REASON, all these companies were partly or majority owned by the Employees or Workers, which acted as “eyesore” to the brokers on the Wall Street and predators- Private
Equity firms.

 

The Courts of United States also favor the predators. They also award the companies to those vultures by refusing to let the company liquidated compulsorily, but handing over to bond or debenture holders by allowing writing off the entire equity of the company, so that the employees are not left with any power without money.

 

The whole system sucks – from monetary (FED & Treasury) to Political (Senators and Representatives), to Executive (President) to Judiciary arm (Courts) – all are corrupted by the wily suckers on the Wall Street who use its orchestrated media – in print or television. Day in and out, you tune in to CNBC, NBC, Fox News, CNN or CBS or read Wall Street Journal, Barron’s, Business Week, Forbes who all praise such actions in the name of saving the company and enforcing cost savings.

Even today, the questions are asked – why Lehman Brothers were allowed to fail. Why not Merrill Lynch, Bear Stearns, Morgan Stanley, or even Goldman Sachs?

 

What is so common in rest of four and unique in Lehman Brothers? The answer is LHB was majority owned by employees. The employees or workers are treated like disposable diapers in United States, whatever is the outer façade to describe them.

 

It happened to United Airlines only in recent past…

Why United Airlines was allowed to fail and thrown into bankruptcy court – because it was majority owned by employees. All of their shareholdings were reduced to ZERO by the bankruptcy court and awarded the company to the debt holders who deliberately bought debts to exercise the control. The life time savings of all employees were lost in a flash like homes destroyed in Californian wild fires.

 

The debt holders were given the new equity at most favorable terms and reducing all past equities (majority owned by workers or employees) to Zero value. If the company was still worth, the question arises why UA was not placed by the court on auction block with open and transparent public tender or why was it not sold part by part to realize the best value? The stocks owned by employees were reduced to zero and the new stocks awarded to debt holders in exchange of debt soared to as high as $ 49 from just under few cents.

 

All have been accomplished in the name of free enterprise, freedom, capitalism, efficiency of the capital market, and similar nouns and adjectives. They invent new names, phrases or synonyms from Roget’s Thesaurus.

 

Wall Street Brokers Cheers and Jeers at the Loss of Other People’s Jobs

Whenever a company merges or taken over by a predator, announcements are made to dismiss the thousands of employees in the name of cost cutting exercise and boosting the profits. Wall Street Brokers from Goldman Sachs, Morgan Stanley, Smith Barney, Merrill Lynch, UBS and all down the line, applaud such moves and start recommending the respective stocks by shooting them up by 10% to 50% in a few days.

 

While the thousands of laid off employees live sleepless nights, sobbing until dawn how to meet the mortgages or tuition fees of their kids, the irresponsible brokers and investment bankers on the Wall Street go on celebrating in high profile parties hitting wine or champagne glasses with the shouts of “cheers”. They are interviewed on popular channels like CNBC or Bloomberg by Anchors with glee on their faces.

 

There could not have been better shameless spectacle. Read every take over in the past or mega merger, you will find the same gimmicks all the time.

 

Consign the Wall Street Brokers and Investment Bankers to Guantanamo Bay…

It is therefore highly a celebration event that finally the Wall Street brokers saw what they deserved most. Thousands of Wall Street brokers are now being laid off in worst ever crisis which was their own making. They now realize how it feels like losing a job – celebrating with wine glass or with full glass of tears of their loved ones.

 

There should be no sympathy for all these bankers, Investment bankers and brokers – they should be condemned and consigned to Guantanamo Bay Detention Camp. Osama Bin Laden may have caused pain only once – on 911. But these Wall Street brokers, banks and investment banks are the biggest financial terrorists who cause pains every day to every family in United States.

 

$ 218 Billions charity by Paulson to AIG to help them pay Goldman Sachs, his former company?

And look at the perfidy of Hank Paulson, Treasury Secretary and Ben Bernanke (FED Chief) who have been pouring the billions, even trillions of dollars, into bankrupt banks and brokers for the losses of their offshore arms who never contributed any taxes or employment to the local American Tax Payers.

 

They never asked or justified why the off shore obligations of banks have suddenly become the liability of domestic Americans who have nothing to do with independent off shore operations of those defunct companies.

 

And why does Paulson pays $ 89 billions +$ 129 billions to AIG? Is it because AIG could repay its dues to Goldman Sachs (wild guess is $ 20 billions to $70 billions), a firm of whom he was the President before joining Bush Administration? Yet, the President Bush is so blind and complacent that he can not see the naked truth.

 

Devils’ Donation to Tax Dodgers and Denial to Domestic Tax Paying Corporations.

They are giving hundreds of billions of dollars to “Asset Void Banks with no possibility of Repayment” for the obligations of their off shore operations, the tax dodgers. Same gang is refusing to pay $25 billions to 3 Auto makers – General Motors, Ford, and Chrysler who have been paying billions of dollars of taxes for over 60 years, who have created over 2 million jobs, who have solid assets, who developed thousands of townships, who became the backbone of the American Industrial expansion.

 0811-016-bankruptcy

United Auto Workers may come out in full force to demand full justice and ensure that all the excesses of the past defeating the cause of labor are put to rest. It is now or never for them.

 

NO, this stubborn Paulson and Bernanke say. And the Republican Senators join them – Do not give them $ 25 billions – they are inefficient. As if AIG, Citigroup, JP Morgan Chase, Bank of America who are recipient of over $300 billions were efficient.

 

If these 3 auto makers fail, and 3 million affected Americans are laid off, it will cost $12 Billions per month towards “unemployment allowances” that is over $144 Billions annually, if we consider the recent extension granted by the President Bush. Simple arithmetic – lose $ 25 billions now with full guarantee of repayment or lose $144 billion in a year without any possibility of repayment towards the unemployment allowance alone, loss of tax income if they were gainfully employed is not even counted.


What would you do, if you were the President of United States? 

 

The country is on steep decline. There could be unrest, strong protests, riots, loots, murders, real blood bath on the main streets of United States, if no actions were taken to blunt the attack of the Wall Streeters on the Main Street participants. Can you imagine what happens when 52000 employees of Citi Group and over 2 million direct or indirect employees of 3 Auto makers are suddenly thrown out on the street in just under 7 days? Blue collar workers are normally less tolerant of job losses than white collar employees.

 

It just defies my common sense – how come these VIPs in the White House are pouring hundreds of billions of dollars into bankrupt off shore operations in the form of 100% unsecured advance while denying relatively small but fully secured $25 billions to America’s biggest industry at home – Auto Makers?

 

The present administration has gone absolutely mad, just mad.

 

Kalidas, Hong Kong

Ref: 0811-016 Vultures preying on US Auto Makers

Written by anilselarka

November 24, 2008 at 1:33 am

Ignored Letter to the President Bush Causes $15 Trillion Blow Out

with 9 comments

The letter was received by White House through FEDEX on 25-August-2008. It was neither acted upon nor acknowledged. When the matter of utmost national importance and urgency was received at the White House, they chose to ignore. It shows how bureaucratic and unimaginative the White House officials are. When the nation was sinking, even a small life line was worth taking a chance. But Nay, George W Bush was destined to go down as the worst ever President of the United States in its history, a man who completely ruined and destroyed every fabric of America

Ref: 08-012 of 31-Oct-2008
That’s right. I had the perfect solution to the present problems facing the United States and the world. I sent a letter to the President of the United States of America, Mr. George W Bush, suggesting my complete plan to resolve the problem of not only Sub Prime crisis but also to offer the complete blue print in no uncertain terms to solve the most of the problems that you are hearing day in and out on CNBC, BBC, NBC, ABC , CBS and host of finance specific newspapers around the country and the world.

  

I also wrote that it was time for action for the President Bush, that his last 60 days of Presidency were the most important part of his career, and that he could change the face of America in just under 60 days. It was not the time for relaxation but action. I warned that if he did not take the swift action, the worse days would follow.


I also sent a copy of this letter to the Consul General of United States in Hong Kong for his information so that in case, some bureaucrat ignored the letter, he could have filled in the gap to alert the appropriate authorities. I also gave my full identity.


And the result was disastrous. Within 16 days, the worst things started happening in United States in quick succession. Trillions of dollars were lost in worst ever shake up on Wall Street and Nasdaq, $700 billions package was designed by Paulson and Bernanke who do not know even today, what are the real problems facing the United States, and they go on printing and guaranteeing the bad debts running into trillions of dollars.

 

Here is the full text of my letter (Last two pages of my profile and cover page of my new book are omitted here).

 

Tell me, If you were the President of United States of America, if you were facing the enormous problems, and you got a letter that claimed to redress all vital problems facing the country, what would you have done? Read the letter and acted, at least deliberated, or just ignored and dumped into the dustbin? Vote for it at the end of this article:

 

All Paulson and Bernanke’s Bail Out plan of US$ 700 billions were really not necessary. This plan is not working nor will work in future. It will simply give rise to massive rise in inflation that may see the interest rates climbing to 24% to 30% in less than 18 months.

 

Both Paulson and Bernanke are hell bent upon printing the dollars as way out for current massive problem. They do not know the problem at all – where is the question of looking forward to them for solution. Why Should American Tax payers bear the cost of over US$ 1.5 trillions spent so far and hand over the blank checkbook to these two guys who have run out of common sense and wielding monetary weapons in complete darkness?

 

A copy of My Letter dated 18-Aug-2008 (Received by White House on 25 Aug 2008) is reproduced below with a copy of my letter to addressed to Consul General of United States in Hong Kong.
 

Mr. George W Bush,

The President of the United States of America,
The White House , 1600 Pennsylvania Avenue NW
Washington, DC 20500 USA

Dear Mr. President,
 
  Sub Prime Resolved

The Bible for Recovery of the United States of America

I have solution for not only the sub-prime crisis, but also the most comprehensive economic and political solution for other troubles like falling dollar, rising crude and commodity prices, gold and geo-political crisis in the Middle East. So far as I know from the public knowledge, I am at this point of time, the only person in the world to have complete and speediest solution for the current range of crisis engulfing the United States.

 

First thing first. Who am I? Kalidas is a nickname – my real name is mentioned in the enclosed profile. Briefly, I am a Hindu by religion, borne in Mumbai (India), grew up for 36 years there, currently a Permanent Resident of Hong Kong for over 24 years, a full British Citizen (my sole nationality), and a friend of the United States of America. I have 40 years of combined experience in banking, as stock broker, bond trader, in capital markets, business and finance. I have clean record in all countries of my residence.

Sub Prime Resolved

Sub Prime Resolved

You stand excellent chance to make your last 90 days of Presidency the most memorable event of your political career. What could not be achieved in the past 2700 days of Presidency, would be achieved in just 90 days. Your approval rating could rise to over 90 by the time you would give up your Presidency.


The chances for success will be between 70% to 95% if you implement the suggestions with full conviction. Within next 90 days, before November 4, 2008, the United States will be up and running on all cylinders if you appreciate the solution and take the line of actions suggested.

 
Kindly do not write off the remaining 90 days as a social exercise bidding farewell to old buddies or resign to the fate of helplessness that nothing else can be done anymore. Unlike Katrina, this is a man made crisis and can be resolved by human efforts alone. Your time for action starts now.
 

Ask any member of your cabinet or even great investors. They are all searching for the two ends in highly complex intertwined ball of ropes. No one will come close within 1000 yards to the solution that I have outlined after almost 6 months of day and night efforts.

 

Let me tell you briefly how my entire work is organized in almost 260 pages.
 

Modular design…
My work consists of 18 chapters on each subject of current economic or political troubles. It is in modular design. Each chapter is independent of the other in most cases, except where some correlation exists. Each chapter contains the problem identification, its origin, extent, size and seriousness of the problem, and most importantly, the Solution that is eluding the most. The solution is accompanied separately by Action Plan, Time Line and extent of qualitative and quantitative benefits that can be derived in prescribed time frame. Nothing is left to chance. Everything is target specific. Nothing vague. The report is written in very simple language without any technical cliché – even a person of ordinary intellect can understand it very clearly.

 

Assign each Chapter/Task to concerned Cabinet member or Department for target specific actions within definite time frame. All departments are given specific leads how to proceed so that details could be worked out by them in shortest possible time.

 

No.

Chapter Contents

No. of Pages

For Notes and Comments

01

Sub  Prime  Crisis

·         Need  of  the  hour…  to  diffuse  the  financial  bomb

·         Identification,  Origin  and  the  size  of  the  problem

·         Crux  of  the  problems  to  fix    Foreclosure  and  Collapse  of  Derivatives

·         Suggested  Measures  to  stop  the  creation  of  further  bad  sub-prim e  loans

·         Legality  of  the  foreclosures,  and  how  the  borrowers  exploit  the  lenders.

·         Solution  for  Credit  Crisis  hurting  large  banks  and  brokers…Action  Plan

30

 

02

Reversing  Dollar  Flow

  • Full  range  of  target  specific  measures  to  reverse  the  dollar  flow      
  • There  are  two  m ore  chapters  one  has  to  read  with    Chapter  5,10,  14

06

 

03

Growth  &  Consumer Spending

·         Obsolete    theory  of  consumer  spending  leading  to  growth  in  GDP    

·         Spoilt  consumers  and  excessive  protectionism         

·         Consumers’  exploitation  by  Banks       

06

 

04

Using  Business   Immigration

12

 

05

US Dollar, Euro and Eurodollar

·         Understanding  complex  inter-relationship

·         How US financial system is attacked by a group of nations without even US knowing it

·         Relationship  with  Oil  prices,  how  to  cause  crash  in  oil  prices?

·         How  to  address  trillion  dollar  industry  with  ease  and  effect

·         One more  Parallel  economy and  how  to make the billions  out of it?

12

 

06

FED is not GOD

·         Excessive  reliance  on  FED  for  growth

·         Where the FED fails..?  Role of FED vs.  Treasury

·         FED Chairmanship vs.  American  Presidency

·         How FED creates unemployment?

·         Monetary Policy vs.  Fiscal  Policy

·         $  Carry  trades  in  low  interest  environment

22

 

07

Inflation  &  Growth    Misdirected  policies

·         Inflation, Stagflation, Growth and Expectation

·         Demand, Wage and never  recognized  Derivative induced  inflation

·         Correcting  the  policies

12

 

08

Non-inflationary  growth

·         Absurd  concept and misdirected policies as result

·         Creative  containment  of  inflationary  numbers

6

 

09

Long  Term  Interest  Rate  Policy

·         Ad  hoc  short  term  policy  on  Interest  rates  do  not  work

·         How to make LT Interest Rate policy dynamic?

·         How  to  contain  $  carry  trades  and  derivatives  with  LT  Interest  Policy

10

 

10

Humpty  Dumpty  Dollar  Down

·         How dollar drowns?

·         Dow vs. Dollar    before  10  years  and  now

·         Political  reasons  for  dumping  dollar

·         Political  actions  to  reverse  the  dollar  flow

8

 

11

Off shore to On shore

8

 

12

Introducing  Dynamic  Taxation

·         Americans’  flight  from  on  shore  to  off  shore.

·         Parabola  Structure  of  Taxation.

·         Current  Taxation  and  Rate  Structure    big  negative .

·         How  to  reward  efficiency  in  taxation  to  make  it  more  rewarding

·         How  to  increase  Corporate  tax  revenue  by  reducing  taxes

·         Dynamic  Taxation  policy  with  automatic  adjustment

·         Revising  Individuals  and  Corporate  tax  structure  with  full  tables (32 pages)

·         How US to benefit using Convertible Bonds of troubled borrowers?

·         How to reduce the tax rate and earn the billions more

·         Pro-Active  Taxation  policy

22

Plus 32 pages of Taxation schedule for Corporate and Individuals

13

Reviving  Auto  Industry

·         Funding  Auto industry to retain and increase jobs

·         Funding  Auto sector  via innovative  financing

·         Making  billions of Tax payers’ money  by helping Auto sector

·         Similar policy for Airlines as well

8

 

14

Oil Price

·         Who rockets the oil prices and how?

·         How to contain oil prices?  Relationship  between  ICE  and  NYMEX

·         Relationship  between  Oil  Prices  and  Dollar  at  various  centers

·         Comprehensive  plan  to  manage  and  control  oil  prices

14 

 

15

Where is McKenna’s Gold?

·         Does US have 8134 tons of Gold as claimed?

·         Where the Gold has disappeared? Physical holding does not mean ownership. It is only a custodial holding.

·         Strong  dollar  policy and Gold – Dollar’s downfall

·         How to rebuild real gold reserve on dynamic basis to lend  strength to $

20

 

16

Dealing  with  Islam

·         Understanding  Islam

·         Peace  with  four  “I”    Islam, Iraq, Iran and Israel

·         Difference between Nationalist and Terrorist

·         Complete re-thinking of policy and bringing Islam within the realm of modern era

·         Policy of engagement vs. Confrontation

·         Dealing with Palestine, Lebanon and Israel – possible Action Plan.

·         Retreating from Iraq and engaging in its development.

·         Dealing with Iran and Islam

·         Dealing with Afghanistan and Osama  Bin  Laden

·         How Islamist will surrender terrorism?

·         Ending a war on terror and starting war for peace

16

 

17

US  Should  ….itself 

(Using defense technology for peaceful purpose)

·         Facing natural disasters like flooding, tornado, wild fires using defense technology

·         Converting  killing  machines into most modern weapons for  peaceful use

·         Converting passive military technology into $300 Billions a year export industry using US Army Corp

·         Better read this article in full rather than discussing it here

12

 

18

Misc

 

 

As you can see, the entire plan is very comprehensive. Full facts, figures, data are given in simple yet effective manner. It offers solution and tells the administration what to do rather than what others criticize what should not have been done. It is more directional. Written in the first person style, it is more interactive and evocative. No more beating around the bush – straight talk.

 

If you have interest, please contact me by email. I may not be available in Hong Kong for a few days due to family wedding which will be over by 26August, 2008.. I will provide you full contact details once I see firm interest in the above proposal. I will be in USA for a few days.

 

All the proposed actions can be taken within 45 days, allowing sufficient time for deliberation and discussion. It will be understood by all within minutes.

 

Terms of Engagement
I will disclose my terms of engagement, once I see the interest. If no proposal is received, I will publish my work in the form of a book after a few months. However, in that case, the US will lose first strike advantage, and some erring nations will go scot free. The trillions of dollars inflow and income will be lost. US will never be able to recover from present economic mess in which it is. The worst days will come if no actions are taken now to address the challenge.

 

My fees will be mostly performance based, except certain minimum. It will be based on simple formula.

 

Since this is an unsolicited offer, I do not expect any reply in case there is no interest. However, those who are handling this letter are requested to at least inform the President of the contents.

 

Kalidas
Hong Kong,
18 August, 2008

 

Defrosting the Liquidity Freeze

with 41 comments


Investors’ Appetite for Risk Related Return (RRR)


When one wants to make tons of money, he should be surrounded by thousands of fools
, says an old adage on the stock market. It reiterated itself when Warren Buffet announced investment of $ 5 billions in Goldman Sachs (GS) and $ 3 billions in General Electric (GE) fetching him 10% interest per annum in addition to free warrants convertible into shares for next 5 years at currently depressed prices.

 

It was considered by many as signs of confidence from one of the most revered and legendary investors of all time, Mr. Warren Buffet. No one bothered to ask the investee companies, why was he given the yield of 10% that was normally associated with the junk grade bonds or companies.  Have this bluest of blue chip companies degenerated into junk status? Are they next on line of “Olympic 2008 Parade of Bankrupt financiers?”

 

No one even noticed the rapid transformation of the legendary investor into usurious Money Lender at his advanced age of 78. No one even noticed that there was no real liquidity crisis, but the lenders like Mr. Buffet have lined up on the side line to seek the Risk Related Return (RRR) from the potential borrowers. “Greater the Risk, Higher you Pay” was the simple message displayed on the foreheads of every possible lender.

 

Otherwise, when the FED was willing to lend at meager 1.5%, why should the GS and GE pay up 10% to Mr. Buffet?   Within hours of receiving $ 3 billions from Mr. Buffet, GE rushed to the commercial paper market to raise further money for the payment of wages and salaries, and was glad to see the FED chief Mr. Bernanke dressed up in Santa Clause, disbursing billions more at just 2% (cut to 1.5% on following day). In short, $ 3 billions of Mr. Warren Buffet appear to have “gone with the wind “within hours.

 

What Mr. Warren Buffer announced was misunderstood and misinterpreted by almost everyone on Wall Street, Main Street, Capitol Hill, Fed, and entire community of journalists, analysts, commentators and interviewers. He meant, but did not say it, that the real market rates were extremely high, regardless of billions of dollars being printed in the backyard of Federal Reserve for free distribution later, and that no one was willing to lend unless he was rewarded with the return associated with the risk. (RRR)

 

Across the Atlantic, in London, relatively free market, the LIBOR rates rose to the highest, and yet no one was emerging as lender to lend to even commercial bank.

 

Why lenders look for higher return when the risk increases?

If the lender lends today $100 for just 3% (when the FED rates is only 1.5%), and that loan goes bad, he has to lend it 33 times (100/3) more just to recover the old loan, and that too, provided no new loans going bad.

 

If he had lent at say 24%, and if the loan goes bad, he has to lend only 4 times more to recover his old loans, presuming again all new loans remain good. This is why the local governments have to raise the funds at 20% or more in some cases. That is, there are lenders apart from Mr. Buffett.

 

When the risk profile of large banks have increased to the extent of bankruptcy running into hundreds of billions of dollars, the money market does become very tight, and the lenders withdraw into shelters when the market rates continue to be managed low by FED. The action of the FED to pump the markets with over $900 billions a day before and cutting the rate by 0.5% does not help. The money goes to bankrupt banks that merely set off the new funds against old losses. They do not lend more.

 

Mere injection of liquidity is not enough. The FED has to make it conditional, that if $50 billions are given to say, Citi group, it should deploy funds only for granting new loans or buying the new Commercial papers issued by various corporate business with suitable sub limit so that the money is distributed widely. Supposing, the sub limit is set to $ 500,000 for small businesses to $2 billions for large businesses like General Motors, they can carry on business by paying their employees the wages and salaries.

 

Float a New Bank or use smaller Regional Banks and fund them with $ 200 billions

Bush Administration may extend new loans through new bank or existing smaller banks to small businesses, large corporate entities, and consumers, subject to real tangible security with first lien. Limit the loans up to 25% of their annual sales, so that money rolls over every 3 months at least.  

 

Why avoid large existing banks?

All large banks are saddled with billions of dollars of old bad loans. Most of them are irrecoverable as they have no security backing. They are secondary papers with second lien. The primary security has been foreclosed, seized and sold by the primary lender, with nothing left for secondary holders. By funding these bankrupt banks is like adding fuel to fire. Good money would be thrown after bad money. When the money is scarce, the efforts should be to use the new supply as efficiently as possible.

 

The banks that are almost bankrupt may be asked to transfer deposit and loan accounts (including primary mortgaged loans with first lien (not the secondary derivative papers) to new banks, so that normal business continues.

 

Old banks with billions of dollars of bad loans without security may be merged with each other so that cross obligations are set off against each other. If after this adjustment, they are still unviable, let them die the natural death or hold the talks with debtors to accept only 20% of the outstanding debts repayable in next 5 years. Thus, the liability of the large banks will be reduced to 20% and liquidated @ 4% over next 5 years.

 

Higher Rates are biggest enemy to leveraged derivatives and swaps

We are in the midst of highly leveraged economy. It has to be deleveraged. These derivatives thrived in low interest rates environments where the cost of swap was very low. If the rates rise to reasonable level, even up to 9%, all leveraged transactions will be forced to reverse immediately. At the same time, the Bush Administration may fund the banks Mortgaged loans to consumers at special rate of say 3%, so that their interest cost does not rise. This kind of differential interest scheme may bring immediate stability in the market place.


Higher Rates also help Insurers

Ask AIG – why and where did it lose in billions of dollars, when there were not much claims due to natural calamities, fire, flooding, or death of individuals. They did not lose in their core business.

 

The insurance companies receive free premium income from the insured. They found difficult to invest in higher yield long term treasury or local government bonds or well rated corporate bonds.

 

Mr. Greenspan has effectively killed the market of long term treasury bonds (10 to 30 years) by artificially lowering interest rates or even cancelling 30 years bonds altogether for 4 years (2003 onwards) so that interest servicing cost for the treasury remain artificially low on its massive public debt.

 

When the insurance company found no alternative long term high yielding safe treasury investment they started looking for exotic derivatives that used to give them higher yields, without realizing what they were getting into. The companies like AIG finally started buying highly risk derivatives like CDO, (Collateralized Debt Obligations) CDS (Credit Default Swaps) and CLN (Credit Linked Notes) without realizing the financial risk and legal evaluation of the securities to backed.

 

If the insurance companies had option to invest into say, 6% 10 year bonds or 8% in 30 year bonds, they would not have invested into derivative papers with fake back up securities.

 

Money should have some cost

 

The Money has been printed so much that  the toy homes can be built by the American children with real US dollars. If Paulson and Bernanke prints $1 trillions now, they will have to print  100 Billion $10 Currency Notes with the logo of ex-Presidents. If they are spread on the 8 lane high way in United States,  it will cover 22,600 Miles

 

The economists like Greenspan and Treasury Secretaries like Rupert Rubin or Henry Paulson (from Goldman Sachs) made the money worthless the moment they were issued or created. Their money did not have any cost except 1% to 2% for most of the times. Their theory was that low interest will boost the stock market that will increase GDP (which will increase the value of their stocks held in Goldman Sachs) That low interest necessarily promote growth or GDP was a myth, in fact a blatant lie.

 

Low Rates do not increase GDP or lead to healthy growth

Example,

Look at Japan.. It has been following near Zero interest rate policy since 1994. 14 years have passed and its Nikkei has slumped from 38000 to 9000+ yesterday (lost 75%) with no perceptible growth in real terms. A retiring Japanese with 10 millions yen finds difficult to take care of himself in his last days because he does not earn anything on his life time savings. If he spends, he feels that his savings will be empty in a few years. If he was getting even 6% interest, he would have got interest income of 600,000 yen which he could spend without seeing his savings depleted.

 

Reasonable high Long term rates do encourage savings and increase GDP in real terms

Example,

In country like India, the growth is robust because long term interest rates for Provident fund etc are over 10%. This encourages savings from where the people spend without seeing their savings depleted. The PF amount is invested into long term high yielding Government bonds that assures steady decent income.

 

Look at what happened in USA

And look at what these Greenspan and company did for United States. Often he was applauded for his brilliant management of economy. His philosophy was that the consumers contribute to GDP. So to make them spend more and more, he lowered the interest rates at all the times. That made the consumers to contract more and more debts – credit card, car loans, educational loan, home loans, top up loans on home mortgages and host of other loan products that fatten the banks with usurious interest rates. The loser was American consumer all the time.

 

Look at the signs at large stores selling Car to furniture. No interest for 6 months, no payment for 12 months….etc. This is what happens when the money is free and does not have any cost. The people just become spendthrifts and go bankrupt. If they find difficult to pay – file for bankruptcy – that’s all. It is more like “Payable when able” not, payable on Demand in case of a promissory note.

 

Money, Treasury and Gold

If money does not have cost, they are more like Toilet paper. They can be printed overnight in Bernanke Press. Treasury bonds are also papers – can be printed at the sweet will of President Bush or Paulson or Bernanke.  Papers like Dollar and Treasury bonds can be printed and re-printed like books are reprinted with popular demand. Gold can not be produced artificially – it has to be dug from the ground

 

Why Interest rate will go to 24% to even 30%

If you can not control inflation, control inflation numbers, were the theory, belief and practice of Greenspan. He invented new theory of inflation – Core Inflation and Non –Core inflation which was excluding violent food and energy prices.

 

Goddamn idiot! Food and energy constitute over 40% of household budget. Every family has at least 2 or 3 children, one of two college going young adults, 2 to 4 cars depending on the number of adult members in the family. How could you exclude the cost of Energy (gas for 2 or 3 cars, heating oil, propane or cooking gas for stoves and oven, electricity for cooling or heating home,water and pool) and Food from inflation and adjust your interest rate policy accordingly? This was the disaster. Did Greenpan really know the basics of Economics?

 

When I left stock broking field, the CRB index was 191 – it rose to over 430 recently, that is gain of 240 pts in less than 7 years. This index covers over 17 elements of daily use – from Orange juice to Oil to dairy products and  commodities of daily use. In other words, the inflation rose by 31% per year (240 divide by 7). The United States was having “negative interest rates” by at least 25% for over 7 years in a row.

 

Those rates are now catching up and there is nothing the government can do. The creative management of inflationary numbers (called manipulations in layman’s terms) can not last for ever. You have to pay for it. The pay time has finally come in October 2008.

 

The interest rates in United States have to rise to 24% minimum to weed out all excesses in the system that was built under the lousy regime of Alan Greenspan. May be high interest rates may remain for only 6 months, but that will force everyone to start respecting their own dollar.. The lesson that United States will learn is that “Money is not Free” and do not take it for a free ride.

 

How to defrost the present liquidity freeze?

Stop cutting Interest rates – in fact raise interest rates up to 6% in 6 months in increments of 1% per move. Higher rates will bring out money lenders into the market that will force down the interest rates later with more participation. Currently, their participation in almost NIL

  1. Adopt “differential interest rate policy”.
    1. Fund the banks of their mortgage finance portfolio with cheaper funds @ 2.5% for the time being. (MFR = Mortgage Finance Rates)
    2. Fund the banks of their Credit card portfolio with cheaper funds @ 2.5 % over the 30 year MFR
    3. Other bank borrowings to businesses be permitted @ 3.0 % over 30 Year Mortgage Finance Rate (that is, if MFR is 2.5%, then other commercial borrowings to be 5.5%).
    4. Please note that charging of even 9.5 % interest rate (based on maximum MFR of 6.5%) from FED to banks on commercial borrowing is not excessive. This is the ruling Prime Rate in most of the Asian financial centers and emerging economies.
    5. Bank to customer interest rates may be restricted to 2% over the Fed funds rate for respective category.
    6. Example, if MFR funding is at 2.5%, then the customer lending rate may be 4.5% (2% over 2.5
    7. The idea of allowing only 2% above Fed funds rate is to ensure that the bank does pass on the benefit of the rate cuts in future to every section of the society. Currently, they may pay more but much less than the market rates.
  2. Merge 3 or 4 large banks that have inter-swap positions outstanding.
    This will cancel out cross obligations of each other.
  3. Then Consolidate the fund based external debt (not deposits).
    1. Call the creditors of bad loans to work out discounted solution, agreeing to pay not over 20% of debt outstanding (or more if there is real security,
    2. Extend Federal guarantee to such amount and charge the respective banks guarantee commission @ 2% per annum.
    3. Take some equity for such help or warrants convertible into shares at any time for next 10 years.
    4. The creditors will have no choice but to accept the compromise, otherwise they will lose everything.
      EXAMPLE: If the total bad debt outstanding is $ 50 billions, reach a compromise for $ 10 billions. Extend the Federal Guarantee to $10 Billions and charge the bank guarantee commission @ 2% of guaranteed amount ($200 Millions per year).
  4. After all these adjustments,. Ask the bank to come out with secondary public issue
    1. of which the State may take up 10% of public offer. This will infuse the confidence to investing public
  5. Extend the Tax Cuts as under:
    1. Corporate tax be cut by 5% now, followed by another 3% in second year, 2% in third. Total 10%
    2. The present corporate taxes of 35% is too high for anyone to invest in USA It will come down to 25% in 3 years. (In my proposal it is brought down to 18% in progressive manner)
    3. This will increase the real earnings of the company and boost its stock price, enable raising of new capital and also boost the stock market. There will be real strength in the economy, not paper trading or manipulations that both Paulson and Bernanke are indulging in.
  6. Personal Tax Cut may be extended by reducing the initial tax slabs substantially.
    The initial tax slab be drastically reduced so as to benefit the low wage and middle income wage earners.

  1. While Interest rate may have some negative effect on the market (in fact it will have none, because slightly more interest rate is more desirable than wholesale collapse of financial system),
  2. the lowering of Corporate Tax and Personal Tax will have significant positive effect on the entire range of capital markets throughout the United States.


My Letter to the President Bush was ignored and they blew up over $ 3.5 trillions in 15 days


In my book, I have designed full range of tables of Income Tax for the corporate sector and also Individuals. The plan is so comprehensive that it will be liked by Individuals and corporate alike. Not only that, I have given most valuable suggestions to increase the revenue from other sources, so what is lost in taxation, is more than compensated from the other revenue stream.

I only regret that the no one in the White House paid any attention to my 4 page letter which contained the summary of 18 chapters of blue print for the recovery of United States of America. I had also warned that if the immediate actions were not taken, worse consequences would follow. That was my letter recceived by White House on 25 Aug 2008 and the situation started worsening 15 days later. And you know what happened from second week of September. I had also sent a copy of that letter to the Consul General of Hong Kong for his information and also for proper identifcation purpose.


By not paying any attention to such important letter, at a time when the solution was eluding the nation, the Bush Administration blew up over $ 2.5 trillions in loss of market capitalization and also over $1 trillions in so called “bail out” plans.

 

I would release the letter shortly on this blog site within a few days.


Kalidas, Hong Kong
10-Oct-2008
Article Ref: 08-006

US – A Nation on the Grill

with 24 comments

A true nature of a person or nation comes to the fore, when it comes under extreme duress. A bankrupt person, corporation or a nation tries very hard to project itself as a person of extra ordinary means, contrary to facts, figures and market rumors, and go on shopping spree

This is why billions of dollars are being paid by one bankrupt bank or corporation to the other in take over process lasting only a few hours. No due diligence, no submission of bid to the board, No minority interest, no news out – just black out.

Today’s scenario reflects “blind game”. No one knows about self or other party. The suitor does not know what he has, and the target does not know what it is worth. The vultures circling on the prey, ask for $700 billions with no questions asked. With worsening scenario being played out every day, no one in right mind will ever buy US dollar. Look at the box under Dollar Up and consider the following:


The President of United States, Senators, and Congressmen are stunned at the attack of unknown origin and extreme brutality. This is an act of extortion of $700 billions. Call it “Blackmail of Greenback” if you like.
  • Fannie/Freddie Mae got $200 Bln,
  • AIG $85 Bln,
  • JP Morgan got $59 billions ($30 Bln for taking over Bear Sterns and $29 Bln given to Bear Stearns itself),
  • Washington Mutual Bank (WaMu) was given $230 Bln in last 3 months, all zero now,
  • $673 Blns flooded into the market on Dow’s fateful day losing 778 points, and
  • Billions of others not yet declared but given to host of banks, brokers and investment banks.
  • $700 billions are now planned to be spent to buy the rotten and Zero value assets of the bankrupt banks.
  • Bernanke opened up the empty treasury and also opened up largest currency printing press in the world, working 247365 or 24 x 7 x 365 (24 hours a day, 7 days a week and all 365 days a year) Never before in the history of United States, the dollar was printed with such intensity and also disappearing with the speed of hurricane category 6 into a giant black hole

No foreigner in right frame of his mind would at this point of time buy US dollar against his own currency, be it Euro, Pounds, Yen, Yuan, Aussie Dollar or any damn local currency.

With Dow falling, bonds collapsing, properties dumping, interbank dealing sine die, who is buying the US dollar? Why Euro, the most suitable alternative currency for US dollar is falling, when it should have gone to almost magic 2.00 figure? If any foreigner wants to buy stocks or bonds or $ class assets, he has to sell his own currency and buy $. Then only $ could go up. But when the foreigners are not buying $, in fact, they are dumping dollar assets, who is buying this bankrupt dollar in that case?


About 10 years ago, whenever Dow rose, dollar also used to rise, because foreigners have to buy $ first before buying stocks or bonds. For the last 5 years, especially in last 3 years, dollar is falling while the Dow and Bond rising. This means that there is no demand for $ from overseas, it is only from within. The dollar so printed by FED is being used to manage (or manipulate) various sensitive commodities like Oil and other foreign currencies like Euro.


Who is Buying Dollars, Why and How?

Of course, the Americans by themselves. Not the ordinary resident Americans. They are just naïve and innocent law abiding citizens. The crooks are in the corporate world. Some US institutions, in US and newly floated off shore corporate entities, under the ostensible authority from US administration, are now buying US$ index and shorting Oil (Light Sweet grade) heavily on NYMEX. They appear to have been commissioned to search and destroy the vicious circle of oil price rise which is the major cause of inflation.


This is similar to the practice being adopted during the days of Clinton Administration when the Rupert Rubin was the Treasury Secretary. He was a proponent of strong dollar policy, and during his administration, the Asian crisis unfolded, Enron was created and busted, LTCM with over $1 trillions of exposure to the market was bankrupted. His policies and practice were known as “Rubinomics”. He engineered the rescue package for LTCM with the help of 14 local and foreign banks and brokers, raising $3.6 billion initially to $26 Billions progressively according to market rumors.


After 12 months, this group was disbanded saying that the problem was resolved. Even the best fund manager in the world, can not generate the return of $ 1 trillions or $1000 billions with meager $26 billions of fresh capital, that is, whopping 3846% return annualized. Show me a single fund manager in the world, including George Soros and Julian Robertson (now dead). The losses of $ 1 trillion are still in the system under various names and disguises.


However, both future contracts are subject to physical delivery. So on settlement day, these contracts are reversed by covering the short position in oil, and liquidating the long position in $. This is why during September settlement, there was vicious move to cover the “oil shorts” against $ index, with the result that oil prices spiked up by over $25 in a single day, and dollar slumped against the major constituent currencies like Euro. The contracts were rolled over to October/November by selling the Oil futures again, and buying the $ index. Euro weakened on the following day of its steep rise due to such roll over, and oil fell from $130 to $106 again in just under 2 days.

Another ENRON in the making, this time 20 times larger…
In short, Rubinomics is back. The banks used in these cases appear to be same old players who were and are close to the US administration – CITI, JPMC and BOA. The brokers are also same as before, Goldman Sachs except Salomon Brothers this time which has been bankrupted before in LTCM saga.


The similar situation will develop again with OPEC starting to control the spot market by curtailing production. They already reduced by 500,000 barrels per day. At least that part can not be controlled by the US institutions.


Both Rupert Rubin, former Treasury Secretary and Hank (Henry) Paulson, present Treasury Secretary, who just got the blanket authority to spend $ 700 billions whenever and wherever he wants with no questions asked or for any sort of accountability, are from the only surviving Broker – Goldman Sachs. It is obvious that part of this loot will go to his former colleague to cause the collapse of Oil prices and Euro, British Pounds, Commodity currencies like Aussie dollar, South African Rand, Canadian dollars and Russian ruble. This strategy was employed before while engineering Asian Monetary Crisis.


Myth & Reality of Oil Prices…

When the giant economy in corporate world or Central Banks (Fed in USA) or Treasury department, became very creative (manipulative in layman’s terms) in accounting, and they in the name of “financial engineering” go on inventing methods or products and use any means.

It may be noted that –

  • Oil prices started falling from July onwards. US$ too started climbing from July Onwards
  • The oil prices fall and dollar climbs (euro, GBP, Yen, etc falls) in beginning of the month
  • The position reverses on settlement day due to physical settlement requirements
  • This is why there was sharpest rise in Oil by $25 in a day, and $ fall steeply same way
  • After roll over into November settlement, the oil prices fell again and US$ rose
  • Many honest people believe that rise in oil prices Vs dollar was due to rising demand of oil from emerging economies like China and India. They also believed that recent fall in oil prices were due to fears of recession and demand destruction. These are naïve and puritan people who believe that the world is as pure as gold
  • In reality, we are living in a murky world. No real demand or supply – just paper trading of derivatives and futures – that determine the prices. The entire dollar and oil market is dominated by powerful nations in the Middle East and United States.
  • Off shore entities may have been used in more than 50% of cases to avoid any scrutiny. The funding of $ index is arranged by 3 of top 5 banks in United States

In my opinion, there was no reason for oil prices to go to $145 due to excess demand from China and India. Their consumption is a tiny part of what United States consumes. The prices were going up due to some nations’ collective efforts to punish the United States for its crime in Islamic world. Similarly, the recent fall in Oil prices and rise of dollar was due to the game of poker being played by United States.

 

Most of the Economists only know theories. They never had enough education on the front line of the markets. There is a saying that “Everything is fair in Love and War”. In today’s world, we are in the middle of intense financial war of unimaginable proportion. So do not ask any questions.

 

This is why Henry Paulson got the diplomatic immunity for spending $700 billions. It is therefore very likely that a man worth $700 millions, armed with $700 billions, with diplomatic immunity, and his dear firm Goldman Sachs at his service, the world may be facing lot of unexplainable conduct in the financial market like UFO in physical science. Expect huge manipulations.

Only yesterday, the strongman Arnold Schwarzenegger, the Governor of California, having found his budget delayed for several days, raised a demand of $7 billions before Paulson who has $700 billions in his kitty now.

He will ask – why would not you give me $7 billions for the worthy cause of managing my sunny state, when you are trying to pump in 100 times more into the bankrupt banks and brokers? If you can print $700 billions for them, why not print $300 billions more for the states for much desirable cause?


Kalidas,
Hong Kong
6-Oct-2008

Slaying Tax Payers, Saving Goldman

with 10 comments

Paulson’s Poison and Antidote

 
God saved America once in the Congress, convincingly defeating the motion of $700 Billion Bail out engineered by Paulson, aided by Bernanke and promoted by President Bush. However, the defeat means death of Goldman. So the Paulson is at it again, forcing the naïve President to follow his infamous Bush, Bush, Push Push policy to get the bill passed at any cost, this time through Senate. It is easy to manage 100 Senators in the House of Senate than 435 Congressmen in the House of Representatives.

 

He and Bernanke are showing the Senators the Rocky Mountain of impending economic collapse, with hundreds of carcasses around, each bearing one or the other bank’s name or brokers. These are the banks and brokers who floated the overseas subsidiaries in Bermuda, Cayman Islands, BVI, and host of such “off shore centers” to sell the exotic derivatives leveraged 6 to 7 times, even more- in some cases up to 50 times, into the balance sheets of off shore entities but off the balance sheets of their parents on shore, that is, on American soil. These derivatives were guaranteed later by their parents on shore for a fee – normally 1% to 2% of such transactions.

 

How we got here?
While the incomes were shown by their parents on their balance sheets, resulting into 4 to 5 times the normal profits associated with their normal range of business, boosting stock prices into upper stratosphere. When the troubles arose, and those derivatives started becoming “cancerous”, they transferred the respective assets and liabilities en masse from 2006 onwards, accelerating in 2007 and speeding up to extreme in 2008. These exotic derivatives turned into Toxic Waste with the result that the crisis started unfolding with the speed of hurricane Category 4, upgraded in September to Category 6 when massive force simply uprooted the banks, investment banks and brokers.


Nothing wrong with the regulatory mechanism…
Lot of blames has been heaped on the regulators for not monitoring or ignoring the worrying signs or warning signals. These derivatives did not exist in the books of the parents at all. They were existing in the books of their off shore subsidiaries which would not have been known to the regulators – they are not God after all. The parents did not disclose their onerous liability nor did they mention the extent of their guarantees to overseas subsidiaries to avoid taxes on the American soil.


When those derivatives turned sour or bad or toxic as they now call it, they transferred wholesale all assets and liabilities to the on shore parents as though they were their original creators. They therefore thrust upon the American citizens on shore, the off shore liabilities to which they were least concerned. How could local and domestic Americans be responsible for the business conducted by some one overseas in off shore centers? A bank like HSBC transferred the Assets and Liabilities of their overseas subsidiaries to the parents’ books by $45 Billions in a flash.

 

The question arises, if parents were neither involved nor part of original creation of off shore derivatives, and those off shore entities, popularly known as SIV (Structured Investment Vehicles), later busted with billions of dollars of losses, why should their American Parents be asked to shoulder their liabilities, when those subsidiaries were limited liability corporate entities and could have been allowed to die natural death? These American parents, in order to salvage their own reputations, allowed the transfer of Assets and Liabilities of their off shore subsidiaries.

 

Why Tax Payers should “Bail Out” Off Shore obligations of Parent companies?
The whole concept is outrageous. The local Americans are no way responsible for the actions of some company’s off shore operations. They do not pay taxes, are not governed by American law, do not contribute anything constructive to America, then what for the American Tax payers be asked to bail them out in the name of economy or imminent collapse of financial system? If this is acceptable, then American Tax payers are responsible for any corporation anywhere in the world just because their parents were American at one point of time.

 

Why Goldman always makes Money, when Competitors lose Billions?
In capitalism, it is a game of survival of the fittest. There are two ways of beating the competition – Healthy way and dirty way. In healthy competition, the better of one company rattles with the best of the other. The musical vibration fills the air and everyone dances on the floor.

 
Necessity knows No Law
In dirty competition, one survives by eliminating the other, following the principles of animal kingdom. The big fish eats the smaller one. A few decades ago, the British Courts delivered a unique judgment, that later became a legal idiom “Necessity knows No Law”.  The seamen on a distressed boat survived on the flesh of the other human being. It was neither considered Manslaughter nor Homicide, but the acute necessity that forced the survival of the one at the cost of other.

 

In present financial turmoil of extreme duress, almost all brokers or Investment Banks lost billions every quarter. The likes of Citi Group, UBS, HSBC, RBS (Royal Bank of Scotland) amongst banks having large Investment Banking operation, and Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley amongst brokers, are found losing billions of dollars every quarter EXCEPT Goldman Sach. They have been making money consistently. Even Warren Buffet was convinced that Goldman has the best franchise, management team and business model to make the money consistently.  He opened his check book and gave them $ 5 billions when no one lends even $ 5 millions to other blue chip company or to even a commercial bank.

 

So the question arises, what uniquely places the Goldman and what differentiates it from the other competitors? How come they are always on the right side of the trade, so as to make money all the time in proprietary trading operations? What sets them apart from the other giants  like Lehman, Merrill, Morgan Stanley and Bear Stearns in same line of business?

 

The possible answer is, other brokers were not so close to the US Administration. The Treasury Secretaries like Rupert Rubin (during President Clinton’s Administration) and Hank Paulson, in Bush Administration makes all the difference. Both were ex-Goldman Senior Executives. Goldman is therefore in privileged position to get the  information from close quarters in US administration for over 12 years that other brokers could not or would not.

 

Why Paulson’s plan came only after the death of Bear Stearns and Lehman Brothers and elimination of giant Merrill Lynch from the market place? Why did not he push the plan well in advance to save those brokers under his proposed $700 billion blow out?  Was it his game plan to eliminate entire competition by decimating Bears Stearns and Lehman Brothers, and removing Merrill Lynch from the scene via its take over by Bank of America so as to give him a killing field in the market place?

Congress Says “Nay”, President says I did not hear you! Work again

 

President Bush is latching up Congreemen to bail out the bankrupts
President Bush is latching up Congreemen to bail out the bankrupts

 If you can not Convince, Confuse others. They will come round and agree…

The present mood of the Congressmen is somber. They still do not know what had hit them. They are stunned. The Paulson and Bernanke, so called professionals, joined by the departing President Bush, scare the hell out of them. They employ old technique of con men; do this or you will cause that, showing Ground Zero a few blocks away from Wall Street.

What we need today is not the professionals but a few practical persons having common sense. The intelligentsias have to take back seat for a while. There is a famous saying on the stock market – When in doubt, do nothing. However, the Senators and Congressmen are so scared that they do not want to take responsibility if the situation worsens when no actions were taken. They know nothing, and they feel that they have to do some thing. may be they have to do every thing. These professionals, who made this mess at first instance, could not be wrong all the time, they guess.

President Bush does not want to invalidate his 8 years of record of incompetence. He agrees what is put before him by his Fed Chief Bernanke and Treasury Secretary – Paulson.

So let us see, whether man on the street with lots of common sense wins or the intelligent con men who have paramount influence on the poor law makers.

Wait for only one day, and let us pray God to revisit this wrecked country and bless again for the betterment. Oh God, do not leave us to the devious devils – we do come to the church every Sunday and light the candles. Please protect us from the utter destruction. Amen! 


Kalidas, Hong Kong
October 1, 2008

 

American Common Sense prevails over Wall Street Intelligence

with 22 comments

God Saved Americans’ $700 Billions with Dow’s fall of 778 Points

There is a saying that there could be a delay in God’s regime, never Injustice. Wise man also said that never regret what happened, – it did only for better. My father also taught me when you need to use the common sense, never waste your intelligence. (Use it where it is required)

 

American citizens excelled and finally came on to their own. They said – we can afford to lose 778 points of Dow or 10% of S&P, because they will always retrace, but we can not afford to waste $700 Billions for crazy guy Paulson, that will take generations to get back, if at all. The rejection of Paulson Plan was the victory of American democracy. There could not have been better display, when the Americans saved almost irrecoverable $700 Billions and lost just retraceable 778 points of Dow.

 

Here is the brief virtual conversation between the American Citizens and Paulson, with FED Chief Bernanke and President Bush intervening at times.

President Bush

Fellow Americans, you made terrible mistakes…

American Citizen

Really, who is saying that? You? You never made right decision in last 8 years of Presidency. Yes, we made terrible mistakes, but that was 8 years ago, when we sent you to the White House. What we did today was the right thing to do – to show you the door and never see you again. We would prefer to see the face of “Ugly Betty” to you – at least she will make us laugh. You always made us shed the tears of sorrow, blood and sweat. Please don’t bother me.

Paulson

There will be job losses, unemployment, no credit for cars, homes, banks will not offer you loans…when you asked your Representative to vote against. Look at Dow – down 778 points, S&P down 9% NASDAQ down 10% – you see, we have worst economic situation since 1930 depression era.

American Citizen

Really? Who will lose jobs – the people working at Wall Street? We can afford to lose jobs for a while, because it is limited to my own generation. But giving you a blank checkbook of $700 billions to buy the rotten eggs will make my grand, grand grand, grand grand grand children to pay through the noses.

 

And who will benefit? You and your Goldman Sach? You mentioned that the portfolio of $700 billions will be managed by your Goldman Sach employee. Your GS will charge the exchequer 1% to 2% for next 5, 10 or 30 years to hold these rotten assets till maturity. So your GS will make about $ 7 billions to $ 14 billions per year for next 30 years, and you will go on making money in the GS stocks.

 

And are you saying that this is the worst time since 1930 depression? Are you kidding? The Dow is down to 10,370 today whereas it was just around  3000 in 1987. It has not gone down to even 1987 level, and are you saying that this is the worst economic time since 1930? Better get your figures straight.

 

And dear, these derivatives were all invented in the factory of Goldman Sach and likes, so called “financial engineering”, in off shore centers. Now that they are busting, you bring them on the American soil and ask us to pay for your sins?

Fed’s Bernanke

Brother, you do not know the real problem. All these banks are busting, there is a credit squeeze, the interbank market is dead, GDP will go down, job losses will increase, the economy will contract, there will be problems everywhere.. You should have authorized the passage of bill for $700 billions of which only $250 billions were to be disbursed now, and $100 billions before December under the supervision…You see…

American Citizen

Stop right there. Let me ask you one question. How much money did you pump today into the United States and abroad to ease so called “Liquidity crunch”?

Fed’s Bernanke

Well, about $673 billions were pumped into the system today

American Citizen

Hey wise guy. You pumped $673 billions into the system without any form of authorization from Congress or otherwise, and you wanted my Authorization for just $ 250 billions? Are you out of your mind? How come we get “dumb persons “like you and Greenspan to head the FED empire?”

President Bush

You see, this is fairly complicated. Even I don’t understand. These guys are professionals and experts. You got to believe them…

American Citizen

You were elected as President of United States and you could not understand this basic economics? Why did we give you this beautiful and most powerful nation for management when you did not have even common sense?

 

And you are telling me that these guys are professionals and experts? These are the guys who messed up the whole system, who created CDO, CDS, and CLN etc that finally busted. We are harvesting their sins now and you are saying that we should believe this bald headed Paulson and Bearded Bernanke who have no brains of even 5th class student?

President Bush

Well, I do not know CDO but know WTO and WOT only…

American Citizen

I can understand WTO, but never heard of WOT – have you mis-spelt it?

President Bush

No, No, No. There is no spelling error. WOT = War On Terror. You know these terrorists who scare the hell out of me…

American Citizen

Oh, War on Terror. What are you doing now? Are you not terrorizing me by telling me GDP will go down, jobs will be lost, no money for the cars, homes, health care, Medicare, social security, and no money at the banks too?

President Bush

Well, these are my final 35 days – you may better ask these complicated questions to next President who may be better placed to answer them.

American Citizen

Well, Mr., President, Mr. Bernanke, Mr. Paulson, I got to go…otherwise I will lose job and only you will have to pay me the Unemployment Allowance. I am a good citizen unlike all of you, and do not want to be a burden on the state.

President Bush

Don’t be angry. Did not I send you rebate checks worth $106 billions some time ago?

American Citizen

Yes, I received it, and now you want $700 billions from me? Do you think that your fellow American citizens are stupid?  Are you a President or a Con Man? Get the hell out of here – all of you…Now.

Why did the Dow fall so steeply?

These Wall Street guys spread all rumors, including PIMCO chief – Bill Gross. I was watching the market and Congressional proceedings all night long. The market fell in last 5 minutes when the sellers deluge. They marked down the prices steeply when they saw no bids, It was more like a scene of Bombay Stock Exchange in January, when the brokers marked down the prices steeply for all blue chips, seeing no bids.

 

It should be noted that if there were sellers all around, there were buyers too for whole day except for last 5 minutes. Even on closing bell, Maria of CNBC announced the fall of about 600+ points whereas the last minute update sent the Dow reeling by another 180 points. They were not indicative of meltdown. Who did that? Goldman at the instance of Paulson, to force the Congress to pass the bill a day after?

 

What will happen on Tuesday?

People will have time to think. Wall Street has been manipulating the whole market like a bunch of thugs. They brought down Dow in last few minutes to force the Congress to pass the bill on Thursday, October 2, 2008. They wanted $ 700 billions before September to manipulate the market prices of derivatives, by buying them at very high prices. They will even now lift the short selling ban on 799 financial shares, so that the market could go down further, and these “three Musketeers” could say – We told you so…

 

Asian markets will fall again in the opening trades, but then, might recover. Whatever happens in Asia or Europe, there is a strong possibility that Dow after sliding further by 200 points (10,170), may rebound strongly. The rejection of Paulson Plan is now discounted in the market price. Nothing worse is going to happen. If some bank goes under, let it go. How many banks will they go on resurrecting? These CDO/CDS have spread like Aids virus.”

 

The sudden outbreak of bankruptcy virus is due to the “off shore” liabilities coming “on shore”. They were never seen on the balance sheets of the banks in the past. When they lost money overseas, they jettisoned them to “on shore” parents, like an ocean that always throws the trash on to the shore.

 

The investors have short memory. How many times the investors remembered 1930, 1987 and 2001 in last 5 years? You can count it on finger tips.

 

Frozen Liquidity?  How to counter it?

Let the market rates rise. There are always lenders who want to lend the money if they get higher return for higher risk. Did not Warren Buffet give $ 5 Billions to Goldman Sach by extracting 10% interest on preferred shares? With warrants attached?

 

It was stupid move on the part of Bernanke to pump over $673 billions in the market without any authorization while he was seeking Congress approval for just $250 billions. What the hell is he doing? He is just printing billions of dollars every day with almost no coma, semi colon and full stop? Has he gone mad?  Why does not he recognize that the lenders are just on side line? They do not want to lend in high risk environment by receiving just 2%. If they want higher interest rate for short term, let them have it. Nothing stops. Everything has a price. Let the market determine the interest rates for the time being. Pumping hundreds of billions of dollars will only make the people shun even treasury and go for Gold – which can not be printed.

 

God has finally saved the America. The Americans should be proud of themselves for putting their foot firmly down on the gang of President Bush, Ben Bernanke and Hank Paulson.

 

Kalidas, Hong Kong

September 30, 2008

Written by anilselarka

September 30, 2008 at 6:51 am

Retiring President’s Parting Gift to Paulson

with 16 comments

Buy Rotten Eggs for $700 Billion in 36 days


The first mistake the Americans made 8 years ago was when they forgot to get the incoming President’s head examined. There is always an intense debate for the suitability of any candidate for the coveted post of the President. More emphasis is always given how the next Commander-In-Chief would act in case of exigencies. No one asked them of their basic knowledge of economics except how much taxes would he reduce.

 

Visit any Forex traders or option trader’s website – they give you $ 1 million to play a demo game. Never before any presidential candidate was asked to play such demo game in public debate. Never before any presidential candidate was asked what will you buy if you were given $700 billion of Taxpayer’s money?

 

However, on the historic Sunday, 28th September 2008 to be precise, a bipartisan agreement was arrived at to authorize the President Bush to succumb to the wishes of the Treasury Secretary Hank Paulson to spend $700 Billions of tax payers’ money to buy rotten eggs lying in the vaults of Banks and Brokers in his last 36 days!

 

When a person is dying, his last wishes are asked for by the relatives circling on him just to listen how much he would get if that fellow dies. When a criminal is condemned to death, his last wishes are asked for before his head is shaven off in preparation for his journey to the death. Hank Paulson did not have to have his head shaven off. His wish was $700 Billions – and America’s most retarded President in the history granted the wish to spend $700 Billion in 36 days! He was joined by the chorus of congressmen/women to tell their Commander in Chief – Yes Sir. The President said – I did not hear you! The congressmen raised their pitch – Yes Sir, Yes Sir, Yes Sir.

 

Ask any businessmen or any person of ordinary prudence – would he give his departing employee even $700,000 of authority when he has already resigned and counting his last 30 notice days? Of course No, then how come the President of United States hands over blank checkbook to his Treasury Secretary with unchecked power of $700 billion when he is counting his last 36 days?. If something goes wrong later – Mr. Paulson would say” I have right to remain silent.” Look at the bill you have passed in the Congress. – No questions to be asked. Period.

 

Only a few months ago, the President Bush with great fanfare distributed Tax Rebate checks to American citizens amounting to $106 billions only to withdraw $ 700 billions from their and their future generations’ pocket on today (28 Sept 08) like a conman. During his presidency, over 4000 soldiers lost lives in Iraq, 1000 more in Afghanistan, over a million innocent people died in Iraq, Twin towers of World Trade Centers were destroyed, billions of dollars of budget surplus was converted into whopping deficits, US Dollar dropped by 40%, hurricanes destroyed several cities, wildfires raged in and tons of mud sided in California,  millions lost jobs and homes, oil prices rose from low 30s to high 145, and industries collapsed one by one – from Auto, airlines, healthcare, Medicare, insurance, brokers, investment banks, and banks for only one reason. He was thoroughly incompetent.

 

Now, let us consign all events until today’s night into history, and focus what will or could happen from now on to the financial markets around the world. Here are the posers and possibilities.

 

 

 

 

Q:

Is it a done deal? Will it become a law?

A:

Preliminary agreement is struck. While leaders have agreed, it is not known whether the rank and file senators will vote for the bill. They have been getting angry response from their constituencies to vote against, There have been street protests in California, Anger is building up which may become violent. US is heading towards unrest and then civil war in a few months.

Q:

What will happen to the market?

A:

Paulson wanted to get the bill signed by the President before the world market opens tomorrow. He expects the market to give solid response. However, the market is always an unpredictable beast. World markets do not act on themselves. They wait until the US market opens. Further, the market movement depends on the major brokers. As you are aware, most of the leading Investment banks like Bears Stearns, Lehman Brothers and Merrill Lynch are either in the coffin or ICU. The credit crunch is so much that most of the brokers do not have money to pump into the market and take their proprietary position.

 

However, Goldman Sach and Morgan Stanley, now being banks, will be given billions of dollars to buy into overseas markets, especially near day close, if the markets do not move up strongly in the morning trades.

Q:

Will the bank start lending and reduce the liquidity freeze?

A:

Doubtful. Most banks from Citibank to UBS have raised capital from the market in the form of High coupon (9% to 11%) preference shares in billions of dollars. They will be forced to retire high cost debt, leaving little in their coffer.

 

Further, more and more debts are being generated in the market due to sub prime default that makes more and more derivatives doubtful. The banks will be forced to pay to the counterparty in respect of future obligations. It can not plead that it does not have money. The creditors may sue the banks to either pay or file bankruptcy. There is no chapter 11 for banks, only Chapter 7 and 13 that compulsorily winds up the company.

 

The mistrust has been built into the market so much that the counterparty risk has risen to the highest level. Under these circumstances, the interbank transactions will remain low. The collapsing banks in USA, UK, and rumors of failures in centers like Hong Kong, will continue to make the market difficult for lending.

 

Corporate lending may take a while. The commercial paper market has become like a junk bond market with interest rates running in high single digit to low double digits even for blue chip customers. The real interest rates are perking up.

Q:

What happens to the Equity markets?

A:

They will open high but then retrace after 2 hours, again peaking up near the close due to US funds buying with billions of dollars in blank checks.

 

The real rally may come only after the reaction of the US market. Tuesday may be stronger than Monday, provided no negative news emerges on deal front.

Q:

How  the markets may react?

A:

  • Dollar block country may do best – Hong Kong, Singapore, Taiwan, Korea may choke 3% to 5% gain initially, go down by 3% in correction, to peak up gain near close by another 3% to close at 8% maximum.
  • Japan may gain by 3% to 5%.
  • Sensex may gain 600 points initially, depending on how the Asian markets have reacted, to lose 300 pts, to make up morning losses as soon as London market opens strongly. If London is lower, due to another bank failure, the Sensex may lose steam. US brokers may not be that active in India market. They need more money at home than park them overseas.
  • Dow Jones may chalk up over 400 pts gain because of massive short covering of Index weighted financial shares. If the bill is passed into law on following day in the congress, then all financials will rally.
    • It is possible that the Banks and Brokers may start reporting profits due to write back of excess provisions caused by higher market value manipulations.
    • If in the meanwhile Mark to Market rule is abolished, the bonds may be re valued to par value on HTM or Hold Till Maturity principle. (In this case, ICICI Bank may also benefit in India)
    • Some large hedge funds may fold up due to changing of rule of short selling of shares in the middle of a game. The losses may run into billions of dollars. If they save the banks, the hedge funds get busted. Will Paulson plan save them too?
    • There could be thousand of law suits in UK and USA against authorities from hedge funds, pension funds for losing money due to sudden changing of short selling rules in middle of the game.
  • Bond market may behave differently, Initial rally may fizzle out. The collapse of banking system has just started. British banks, once considered safe may come into more problems. The bank failures are spreading to every where. From USA to across Atlantic – UK, Germany, Belgium (Benelux countries), Hong Kong and more will follow in Asia and Japan. Many have not shown yet where do they stand. Almost all Asian and Japanese banks are saddled with the American CDO, CDS, and Lehman Bonds that run into billions. When Lehman owed over $600 billions, the question arises – to whom? Those who are trying to buy Lehman because by buying them out, the cross entries will be eliminated.
  • The British banks like HSBC may have more losses. If you look at their balance sheets in Yahoo, there are hundreds of billions or even trillions of dollars of transfer between various assets –
    • long term assets were reduced by 800 billions and short term liabilities rose by $1.2 trillions, ($1200 Billions)
    • Long term Investments rose by $ 1 trillions.($1000 Billions)
    • Cash resources depleted by $300 billions.
    • Its capital is just $88 billions against total liabilities of $2.2 trillions or just 3%.
    • In other words, all off balance sheet assets and liabilities of off shore centers have been brought into the main balance sheets. How much of such trillions of dollars is good, we do not know.  See the following link…  http://finance.yahoo.com/q/bs?s=hbc&annual
    • In short the balance sheet severely deteriorated. This applies to almost all banks who have tied up with USA and who bought US banks or brokers 3 to 5 years ago amid lots of fanfare.
  • The dollar index may gain initially.
  • Commodity price may see fall. Metal stocks may fall worldwide again.
  • Gold too may fall initially by 6% to 8% in 2 or 3 sessions. However, the gold is having lot of real strength. After initial euphoria, it may rise again.
  • Oil Prices may fall due to shorting of futures against buying of $ index. The oil prices are bearing the stamp of Rupert Rubin, ex-Goldman Sach Vice President and former Treasury Secretary and now top executive of Citigroup. With blank checkbook in the hands of Paulson, some billions may be given to old colleague to short the oil and strengthen the dollars
    • It may be noted that recent spike in oil price by $25 in single day was due to short covering of oil contracts ahead of settlement on Nynex. Under the current rules, the settlement is subject to physical delivery. So the short sellers have to either buy back the contracts or deliver millions of barrels of oil physically that they do not have.
    • This scenario may be repeated in November. While buying back the September contracts at huge premium, they shorted the November contracts again in roll over exercise. If the oil prices remain strong, expect another major spike in oil prices in November. Oil is now most manipulated market with the use of derivatives.
    • There are all signs that another Enron is in the making, this time, 20 times larger. Which company is used now, is not known.
  • Interest Rates will go much higher and you should not be surprised, if they get into high double digits in less than 6 months. The lower credit rating of US governments by Fitch and others in oveseas countries (Moodys and S&P will not change their loyalty) may again push up the rates.  If the rates does go to even 12%, the US government will have to service their debt of over $13 trillions @ $ 1.5 trillion per year of repeat expenses.

Q:

Does it mean that USA is on recovery path?

A:

Absolutely not. The manipulative effect does not last longer, especially when the trillion dollar scale is considered. The States and Local government who need over $200 billions to manage their state, may raise their ugly head and demand payment when 3 times more money is given to bankrupt banks. USA is receding into civic unrest and Civil war slowly and surely.

Q:

Is there severe discontent among Americans at the current Bail Out plans

A:

Americans are damn angry. They are losing jobs, homes, healthcare, Medicare every thing… They have now converging on the streets with big banners. If the bill is passed into law, they will flare up, and the anger will spread across the nation like a Californian wild fire. Since guns are freely licensed in USA, there is likely to be mayhem and the ordinary civic unrest will escalate into full scale Civil War. They have to ban gun immediately before situation worsens.

 

This may happen swiftly, even before election. We should be very happy that it does not happen; In fact it should not happen or should not be allowed to happen. For the first time, US Administration will have to use bullets on their own soil to kill the American themselves instead of killing millions of peoples abroad in self engineered war of massive scale.

Q:

What should an Investor do now?

A:

This is pet line of CNBC in its advertisement for which they never reply. The present scenario is very unstable, and changes from moment to moment. It is more akin to war. Deal with it as it comes. No planning is going to work, except holding some portion in gold.

Q:

Is there any solution to the present mess?

A:

Of course, yes. The trouble right now is that no one knows what has suddenly happened and why so swiftly. Watch for my book “Sub Prime Resolved”: that contains complete solution and also wait for my next article here – How we got here? Legalizing Parallel Economy”

Q:

Are we to worry about every thing?

A:

No. The problem will take care of itself. For every problem, there are 10 solutions, One has to find it. I have found them, and sent out a letter to appropriate authorities who received them by FEDEX on 25th August, 2008, but they did not reply. Who is by the way Kalidas? Never heard of him.

Kalidas, Hong Kong
29/9/2008

Written by anilselarka

September 29, 2008 at 1:32 pm