The Gulch Gallery Blog

Don Simmons · at 6:31 AM

International banks get dragged into financial crisis’ « black hole »:

Four triggering factors of a major financial bankruptcy

http://moneyfiles.org/

LEAP/E2020 now estimates that at least one large US financial institution (bank, insurance, investment fund) will file for bankruptcy before February 2008, sparking off bankruptcies among a series of other financial institutions and banks in Europe (in the UK especially), in Asia and in various emerging countries... (page 2)
(En savoir +)

Factor N° 1 - Drastic drop in revenues for banks operating in the US
The CDOs altogether are now dragged into a general confidence crisis, and they represent a large part of bank assets since, in the past few years, large banks from lenders became investors and speculators, like hedge funds… (page 4)
(En savoir +)

Factor N°2 - Slumping value of assets owned by these banks resulting from new US banking regulation (FASB regulation 157)
On November 15, 2007, a regulatory factor, the FASB 157 standard (designed to enhance transparency of financial statements of financial institutions operating in the US) speeds up the pace of financial organisations’ collapses (American and others)… (page 7)
(En savoir +)

Factor N°3 – Increasing weakness of bond insurers
Bond insurers are financial markets’ « supports ». Completely unknown to the public today, their names could soon become as common as the word « subprime » has… (page 9)
(En savoir +)

Factor N°4 – Economic recession in the US
As a complement to our anticipations of the impact of the US economic recession for banks operating in the US, we find it useful to analyse here how much US official statistics have become totally surrealistic… (page 12)
(En savoir +)

Strategic advice / Operational recommendations for the intention of individual investors, corporate treasurers, financial operators(page 15)
(En savoir +)

GlobalEurometre - Results & Analyses
The Europeans seem to make no illusion on the evolution of US policies after the next presidential election, with 65% of the respondents who estimate that G. W. Bush’s successor will not change significantly the American policy… (page 17) (En savoir +)

Don Simmons · at 8:52 AM

NYMEX Light Sweet Crude Oil Futures Prices

Jan 1997 - $25.00
Jan 1998 - $18.00
Jan 1999 - $12.00
Jan 2000 - $25.00
Jan 2001 - $27.00
Jan 2002 - $21.00
Jan 2003 - $31.00
Jan 2004 - $33.00
Jan 2005 - $42.00
Jan 2006 - $63.00
Jan 2007 - $58.00

..... and today we're looking at $98.00

http://www.eia.doe.gov/emeu/international/crude2.html

Don Simmons · at 6:16 AM

U.S. Dollar Could Plunge 90 Percent
http://www.hispanicbusiness.com/news/newsbyid.asp?id=82...

RHINEBECK, N.Y. -- A financial crisis will likely send the U.S. dollar into a free fall of as much as 90 percent and gold soaring to $2,000 an ounce, a trends researcher said.

"We are going to see economic times the likes of which no living person has seen," Trends Research Institute Director Gerald Celente said, forecasting a "Panic of 2008."

"The bigger they are, the harder they'll fall," he said in an interview with New York's Hudson Valley Business Journal.

Celente -- who forecast the subprime mortgage financial crisis and the dollar's decline a year ago and gold's current rise in May -- told the newspaper the subprime mortgage meltdown was just the first "small, high-risk segment of the market" to collapse.

Derivative dealers, hedge funds, buyout firms and other market players will also unravel, he said.

Massive corporate losses, such as those recently posted by Citigroup Inc. and General Motors Corp., will also be fairly common "for some time to come," he said.

He said he would not "be surprised if giants tumble to their deaths," Celente said.

The Panic of 2008 will lead to a lower U.S. standard of living, he said.

A result will be a drop in holiday spending a year from now, followed by a permanent end of the "retail holiday frenzy" that has driven the U.S. economy since the 1940s, he said.

Don Simmons · at 7:50 AM

Delinkage Oil Price From Dollar Under Assessment

By Sven Ridley-Wordich
17 Nov 2007 at 06:20 PM GMT-05:00

RIYADH (ResourceInvestor.com) -- The linkage between high crude oil prices and devaluation of the dollar on the global markets has become one of the issues discussed in the sidelines of the OPEC Summit. During the behind-closed-doors discussions of the OPEC Ministers, Iran and Venezuela have proposed to delink crude oil from dollar denominations. Ministers have been discussing openly, as sources present during the meeting stated, whether oil should continue to be valued in dollars. Iran and Venezuela have already been openly urging members to consider the option. However, as OPEC officials stated after the meeting, even the mentioning of a possibility would currently have a debilitating effect on the position of the dollar. Still, Iran and Venezuela seem to be heading towards an implementation of the idea. Already, most Asian traders are being asked by Iran to have contracts set up in either Euros or Yen. Some negative effects currently hurting the dollar value worldwide could be contributed to the proposal.

Discussions presently seem to be heading towards a possible study of the de-linkage, even that OPEC will not include the option in its statement on Sunday. During other meetings, Saudi Minister of Foreign Affairs, Prince Saud Al Faisal, has warned parties not even to discuss the latter as it is very sensitive. The possible consequences of a move toward the euro or other international currencies could undermine the already very weak position the dollar has. Some financial analysts have repeatedly claimed that the dollar could keep its global position only to the fact that it’s the main currency oil is traded in. Taking this basis away, the dollar could plunge even more.

Most Arab Gulf countries fear the possibility of a further devaluation of the dollar, which will put increased pressure on their overall oil and gas revenues, on which the majority of their international trade is still based. Some OPEC countries have refuted claims that they could have negative impact on the dollar, as the majority of crude oil is manufactured by non-OPEC producers. Al Feisal has stated to the press, showing his concerns, that if such a decision will have to be taken, this only will be possible if non-OPEC countries are involved.

Iranian officials are not complying, however, to the OPEC views, as they have still asked members to consider the option to counter the weak position of dollar. Nigeria, Saudi Arabia and Qatar, all three vastly connected to the American sphere of influence via trade or political-strategic considerations, have refused to take the idea on board.

The idea will not become one of the main issues discussed by OPEC it seems, but developments such as the de-linkage need to be kept in mind for the coming years. In a rational way, the Iranian Venezuelan proposal could be effective and maybe even worthwhile taking. Economically it could support the hard-needed economic diversification projects of the OPEC members, leaving more value in the hands of governments. But as analysts also indicated, it would not only hurt global economy, which is still based on dollar transactions, push down American economic growth, but also have a very negative effect on the developing world. A crude oil sector based on euros will crush most developing countries’ already struggling economic development. Most African countries are energy importers, paying crude oil imports in dollars, while exporting products to Europe extensively. The revenues gained from the latter are needed to improve their own economies. If all will need to be paid in euros, the positive effects of the latter are removed, while higher crude oil prices will hurt directly all sectors in the end.

The obvious other link between the Venezuelan-Iranian proposal is to hurt American policies. A slowdown of the American economy and a weaker dollar is obviously seen by Tehran and Caracas as a nice way of confronting American president George W Bush. Oil is politics, the latter is currently also making headlines in Riyadh.

http://www.resourceinvestor.com/pebble.asp?relid=37958

Don Simmons · at 8:05 AM

by Laura Rowley

Virginia grandmother Ruby Fauntleroy, 74, knew something was wrong when her rent payment bounced shortly after her Social Security check had been direct-deposited into her bank account.

Fauntleroy went to the bank, where a teller told her that the account was frozen following notice of a court judgment and garnishment order by Capital One. Fauntleroy had been trying to pay off this $4,000 credit card debt for years, but dropped her monthly payment to $100 after her husband died and her income declined. Capital One sued, and won a judgment.

"I was just numb, I couldn't believe this could happen," said Fauntleroy. "I told the bank, 'You know nobody is supposed to take a government check,' but they did. I couldn't sleep at night, I couldn't eat. I thought, why are they doing this to me when I was trying to pay [my debt]?"

When Exempt Isn't

Legal aid agencies across the country say they've been flooded with calls from seniors and disabled people whose accounts have been frozen by bill collectors. This is happening even though the federal government specifically prohibits the garnishment of exempt funds such as Social Security and veterans benefits.

In the worst cases, seniors go hungry or without medication because they have no access to funds -- in some cases, for months at a time. "People can really bumble around for months trying to get their accounts unfrozen because the procedures they have to follow are so Byzantine," says Claudia Wilner, attorney with the New York-based Neighborhood Economic Development Advocacy Project (NEDAP), which handles about 200 such cases a year.

In August, three senators asked the inspector general of the Social Security Administration to investigate the extent of the problem, querying the nation's largest banks on how often the practice occurs. The Senate Finance Committee held hearings on the issue in September.

Slow to Respond

The problem comes amid enormous growth in consumer debt, and changes in technology that make it easier and cheaper for creditors to seize bank accounts. Although banks can tell whether an account contains exempt funds before they issue a freeze, they argue that ignoring a restraining order would leave them in contempt of state court.

But even when both the creditor and the bank agree a mistake has been made, bureaucracy can leave seniors in limbo for weeks. Laurie Doran, staff attorney for South Jersey Legal Services, had a client who discovered the levy on her account when she went to buy medication. "They zapped both her savings and checking, and she didn't have access to any funds," says Doran. "She came over from the pharmacy in an absolute panic."

Although attorneys for both the creditor and the bank immediately agreed to lift the freeze, it couldn't be done because the levy officer -- a liaison between the court and the bank -- was unresponsive. It took two weeks to unravel, during which the elderly woman's health deteriorated.

Death by a Thousand Fees

Moreover, some banks are making a profit off these account holders through exorbitant fees. Banks typically charge a non-refundable legal processing fee of $100 to $150 for the freeze itself. Then, when the consumer, unaware of the freeze, pays their bills, they can incur significant overdraft fees.

In one case, Chase Bank froze the checking account of a New York retiree -- whose only income was from Social Security -- following a $920 judgment for an unpaid dental bill. The woman had $929.54 in her account, but the dentist never got anything. "Chase Bank managed to grab the entire account," says her attorney, Jim Baker of the Northern Manhattan Improvement Project.

The 72-year-old wrote nine checks against the account without realizing it had been frozen; several of those checks were presented twice for payment. Chase charged $30 each time. In addition, the bank was debiting 45 cents a month from her account for credit insurance. "Every time the first of month rolled by and Chase couldn't debit its 45 cents, they charged her another $30," says Baker. In four months, the account was empty.

Even when a freeze is lifted and garnished funds are restored, banks often refuse to refund fees. "The banks say they have the right to charge fees because it's a deposit agreement," says Wilner. "They say they are not acting through the legal process, but through a contractual agreement, so the regulatory exemption doesn't apply to them."

Trolling for Delinquencies

The problems are becoming more frequent because of the burgeoning debt collection industry. In 2005, $110 billion in face-value debt was purchased by third-party debt buyers, 90 percent of it credit card receivables, according to the Association of Credit and Collection Professionals.

In New York City, the number of consumer debt cases filed in civil court has grown 300 percent in 5 years, to 320,000 cases in 2006, according to a new report from the Urban Justice Center. Ninety percent were brought by third-party debt buyers. Almost $1 billion in claims were made against New York City residents, and creditors obtained judgments of nearly $800 million, the center estimates.

Once a default judgment goes through, the creditor's attorney sends an electronic information subpoena and restraining notice, which has the same power as a court order. The cost is minimal. "The volume of collection activity is way up," says Baker. "Creditors used to have to have some reason for thinking someone had an account at a specific bank. Now they simply send out a blanket email to every bank in the tri-state area, and say, 'If so-and-so has an account, freeze it.'"

On the consumer side, the problem is compounded by direct deposit: This year, 85 percent of Social Security recipients received their payments electronically, up from 41.5 percent in 1985. Someone who encounters a freeze may have subsequent checks slip into the account before they're able to find their way through the legal maze.

Frozen and Refrozen

Meanwhile, creditors who are rebuffed often turn around and file a new claim for the same debt. New Yorker Waverly Taliaferro, 70, worked for decades as a photographer before retiring in 2001. He and his wife lived off of his Social Security payment and her income. In 2003, when she was laid off, they fell behind on a credit card bill. Their account was frozen in 2006, which Taliaferro discovered on his way to the grocery store. Over the next 23 days, he says, he and his wife survived on a 10-pound bag of brown rice.

After his lawyer was able to remove the freeze, Taliaferro began receiving his check by mail, and paying $23 to a check-cashing service to cash it. Six months later, his attorney told him that Chase Bank had issued a policy not to freeze exempt funds, so Taliaferro opened an account -- and received a $100 bonus from the bank for using direct deposit. The account was frozen 16 days later because it contained non-exempt funds -- what was left of the bonus money from Chase.

"Absolutely nothing will stop that debt buyer from trying to freeze it again," says Taliaferro's attorney, Johnson Tyler of South Brooklyn Legal Services. "When a credit card company sells off a debt, they don't sell it with a red flag that says, 'We tried to collect and she's on Social Security.' It's sold as part of a bundle of debt. We have cases where the debt buyer froze the account three times in a row on a client who is homeless and mentally impaired. A judge ordered them to stop and they still did it."

A Modern-Day Debtors' Prison?

Consumer advocates say Congress should adopt federal legislation modeled after a California law that prohibits a restraint on the first $2,500 of any account into which Social Security funds are directly deposited. "That would simplify things for the banks, and essentially effectuate the whole purpose of what Congress wanted to accomplish with exemption laws," says Tyler.

For her part, Fauntleroy says she's done with credit cards, although she still gets daily offers in the mail. "They keep trying, but I won't bite -- I even got one from Capital One," she says. "Either they're crazy or they think I am!"

Like Fauntleroy, many seniors try to make good on their debts, legal advocates say. "Many of our clients made payments for years until they couldn't do it anymore," says Patricia Duecy, a paralegal with Legal Services of Northern Virginia who worked on Fauntleroy's case. "Some of them did pay them off -- if you looked at what they actually charged, outside of late fees and interest.

"A long time ago the country made a decision that when a person is old or poor, they should have a subsistence income to pay for rent, food, and medicine," Duecy adds. "The money is supposed to be going to their basic needs and not going into the hands of debt collectors. If we can't protect the most vulnerable among us, what are we doing?"

http://finance.yahoo.com/expert/article/moneyhappy/53832;_ylt=Amrh1yvfAiIX5ABZEslCrLhO7sMF

Don Simmons · at 7:52 AM

The Fed Has Wrecked the Stock Market

by Mike Whitney

America is finished, washed up, kaput. Foreign investors and central banks around the world have lost confidence in US markets and are headed for the exits. The dollar is sinking, the country is insolvent, and its leaders are barking mad. Investors are voting with their feet. They've had enough. Capital is flowing to China and the Far East in a torrent. It's "sayonara" downtown Manhattan and "Hello" Tiananmen Square.

The dollar fell another 2 per cent last night, gold soared to $840 per ounce, oil topped $98 per barrel, General Motors reported a $39 billion loss after the market closed on Tuesday, the real estate market continued its downward slide, and the major investment banks are marching in lock-step towards bankruptcy.

The news is all bad. The nation's economic foundation is in shambles. US credibility is shot. Bush and Greenspan have put us on the road to ruin. Now their work is done. We're flat broke.

The catalogue of fiscal ailments now facing the country is too long to list. We'd need a ledger the size of a small encyclopedia. There's been a stampede away from the dollar even though it's already lost over 60 per cent of its value since Bush took office and even though central banks around the world will lose their shirts if it collapses. They don't care. They're getting out while they can.

Cheng Siwei, the vice chairman of China's National People's Congress, announced yesterday that China would continue to diversify its $1.4 trillion reserves away from the dollar to "stronger currencies" like the euro. "Strong currencies"; isn't that Paulson's line? Siwei's comments ignited a firestorm in the currency markets triggering a big blow-off of the greenback. The poor dollar has no place to go now but down, and it's on a greased pole to the bottom. With consumer spending paralyzed by the decline in home equity and frozen wages, and the banks "stuffed to the gills" with over a trillion dollars of mortgage-backed sludge; the prognosis for the hobbled dollar is looking grimmer by the day. The bulging trade deficits and dwindling foreign inflows haven't helped either. The greenback has suddenly become the global pariah; all it needs is a leper's rattle and a tin cup.

The news is no better in the real estate industry either, where the nation's biggest builders are reporting record losses and inventory is backed up 11 months. Sales are off 22 per cent in one year alone. Foreclosures are skyrocketing, jumbo loans (over $417,000) are impossible to get regardless of one's credit history, 40 per cent of all mortgages (subprime, Alt-A, piggyback, reverse amortization, interest-only) have been eliminated, and entire projects in Florida, Arizona, Las Vegas, and California's Central Valley have stopped building altogether. Tens of thousands of unoccupied homes across the Southwest have been reduced to ghost towns. Nothing is selling. The building boom, that began when Alan Greenspan ginned-up the Fed's printing presses in 2002, has turned into the biggest housing bust in American history.

On top of that, the banks are tightening lending standards and shunning potential buyers just when the economy needs a boost in demand. Loan originations are down and bankers are spooked by the gathering storm in the credit markets. That means that home sales will continue to be sluggish, prices will correct more quickly, and the anticipated "soft landing" will turn into a full-blown crash.

New home construction has accounted for 2 out of every 5 new jobs created in the last 5 years. Most of those workers are either delivering pizzas, cleaning bed pans or are lining up at the soup kitchen. The BLS's numbers on employment are bogus. It's just more government bunkum. They're predicated on a "birth-death" model that creates millions of fictitious jobs out of whole cloth. In truth, unemployment is soaring and the most vulnerable and impoverished among us are taking a beating from the housing debacle.

According to the Mortgage Bankers Association of Washington, the total of mortgage loans outstanding in 2006 was $10.9 trillion; $6 trillion of which were transformed into securities (CDOs, MBSs) About $1.5 trillion of those securities are subprime; another $1 trillion Alt-A (nearly as risky) and at least another $1.5 trillion in adjustable rate mortgages (ARMs). At least 20 per cent of these shaky liabilities/securities will default, and yet, no one really knows who is holding them on their books. All of the major financial institutions – the insurance companies, foreign banks, hedge funds, investment banks – have purchased these CDO "roadside bombs" and mixed them in with their other performing loans and hard assets. The projected explosions have already begun to take their toll on the financial giants – Citigroup and Merrill Lynch are just the latest victims; others will follow. The problem can't be fixed with Bernanke's low interest rates. The bad debts are everywhere and must accounted for and written down. That puts us on the threshold of a jarring market-downturn triggered by an unprecedented number of defaults that will rumble through the entire system. Bankruptcies will pop up everywhere at random. It is a blueprint for economic chaos. And it is unavoidable.

The global markets have never seen a financial typhoon of this magnitude before. Mortgage lenders, homeowners, banks, hedge funds, bond insurers, etc. will all either go under or feel the sting of a slumping market.

Many of the major investment banks are already broke; it's clear from their own reporting. Charles Hugh Smith sums it up like this in his recent article "Empire of Debt: The Great Unraveling":

"If their bad bets were marked to market, Citicorp and Merrill Lynch would be declared insolvent. Why? Because they are insolvent – right now. The meaning of insolvency is straightforward: their losses exceed their capital. Recall that these firms list assets of $100 billion (or whatever) but their actual net capital is on the order of 2.5 per cent to 5 per cent – a mere sliver of their stated assets. In other words: a 5 per cent loss of their stated assets wipes them out. The game is now over, and the players shuffling losses can only last a few more days or weeks."

Up to this point, the banks have been able to place a sizeable portion of their "hard-to-value" assets in a Level-3 grab bag, which allowed company accountants to assign a value to those assets according to their own judgment. No more. The new FASB 157 regulation will force the banks to use "market prices" to determine the true value of their holdings. Some analysts believe that these new disclosure rules may result in $200 billion write-downs on assets and require the over-leveraged banks to increase their capital reserves. That will slow down lending and put a wrinkle in the banks' bottom line. In any event, once the law is enacted; we'll see who's "faking" the value of their assets or as Warren Buffett says, "Who's swimming with their clothes off.

Professor Nouriel Roubini summed it up like this:

"The amount of losses that financial institutions have already recognized – $20 billion – is just the very tip of the iceberg of much larger losses that will end up in the hundreds of billions of dollars. Calling this crisis a sub-prime meltdown is ludicrous as by now the contagion has seriously spread to near prime and prime mortgages. And it is spreading to every corner of the securitized financial system that is either frozen or on the way to freeze. The reality is that most financial institutions have barely started to recognize the lower "fair value" of their impaired securities. The credit crunch is getting worse and its financial and real fallout will be severe." (Nouriel Roubini blog.)

The constant drumbeat of bad news is having a numbing affect on Wall Street. Traders' are tight-lipped and downcast. Spirits are sagging. No one likes losing money, and yet, the credit storm shows no signs of letting up anytime soon. Yesterday, the Dow Jones Industrial's took another 360-point pounding before the bell rang. Another day, another bloodbath. The subprime virus has now infected the broader markets leaving the once-brawny financial giants bruised and reeling like Joe Frazier in the Thrilla in Manila. A few more down-days like yesterday and they'll be carrying out hedge funds feet first.

The stock market is looking more and more like a glass pitcher propped up on the edge of a bookshelf. One little bump, and down she goes.

November 10, 2007

http://www.lewrockwell.com/orig8/whitney2.html

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