"[W]e’ll offer our hand in a solution, but not because we’re doing it gladly, but actually to enable policymakers to do something so that we -- I’ll say it frankly -- so that we don’t have a meltdown.” -- Deutsche Bank AG CEO Josef Ackermann, at a 6/29 Berlin conference expressing his view on the necessity of preventing a Greek default -- as quoted by Bloomberg
Dear All,
In its most recent issue Grant's Interest Rate Observer points out that Fidelity Cash Reserves, the largest U.S. money-market mutual fund, has forty-five percent of its assets ($117 billion) invested in Europe. It is not alone. Compelled by the Fed's low interest rate policy to seek higher yield outside the U.S. (and incur incremental risk that makes sense only if its managers expect to be backstopped by the U.S. government) the five largest U.S. money-market mutual funds assets have on average, 41% of their assets invested in European debt. In 1971 U.S. Treasury Secretary John Connally quipped to a European delegation concerned about exchange rates that the American dollar "may be our currency, but it's your problem." As the repository of vast sums of American capital and the subject of untenable U.S. held credit default swaps, Europe today is our problem. Accordingly, the Fed has become the Continent's shadow central bank. WSJ: Fed Extends Lending Program for Central Banks
The New York Times managed once again to not only miss a story's essence, but provide erroneous information in the process. NYTimes: DealBook. The bio of this particular piece's author, Jesse Eisinger, states that he works for an outfit that produces "investigative journalism." Andrew Ross Sorkin, DealBook's editor spends most of his time sugar-coating the darkest side of finance. His Too Big To Fail, a largely fictional account of the financial crisis, evolved into a childish made-for-television whitewash of Wall Street sociapathy.
Kudos to the Times at least for its surface scratching:
"Another way taxpayers coddle the biggest banks is by implicitly guaranteeing their derivatives business"
What happened to the rest of the story?
As to this information presented by the newspaper: "JPMorgan...had $79 billion worth of derivatives on its books in the first quarter." -- No, they did not. According to the Office of the Comptroller of the Currency, JPMorgan had $79 trillion worth of derivatives on its books in the first quarter of 2011. Perhaps the actual number is so incomprehensible to the writer, editor and other folks at the Times that it slipped past whatever fact-checking protocol the paper has in place. Their carelessness with this very particular and critical number reveals their cluelessness as to its significance. There is quite a difference between 79 billion and 79 trillion -- in this case the difference between an insolvent banking system and a solvent one.
OTC derivatives are the intractable root of the financial collapse and the New York Times either doesn't understand it or won't report it.
Casey Research has published an interview with Edwin Viera, who I heard speak at the CMRE (Committee for Monetary Research and Education) dinner in New York last fall. He is a brilliant student of monetary history to whom attention should be paid: The U.S. Monetary System and Descent into Fascism; An Interview with Dr. Edwin Viera
"...[T]he...percentage of debt required to finance the government at this point – is...running around 46%....once that number gets over around 40-41%, that's the end....[I]n every big example of hyperinflation since the French Revolution, that number is apparently the tipping point on the rollercoaster. You’ve gone over the top, and now gravity takes over and down you go to the bottom. They can't stop the thing. So we're now at 46%, at least it was on the 12th of May, 46%, and it doesn’t seem to me there's any will or intelligence in Congress to correct this."
And with good reason...Reuters Investigation: U.S. 'kept true size of China's holdings hidden from U.S. view'
Austerity is only for the little people: Charles Hugh Smith: Greece Is a Kleptocracy
The trend...
FT: Central Banks see dollar seen losing global reserve status over next 25 years 25 years? They're off by a decade at the very least.
Humans are often conditioned to hold a societal value so dear that any facts that stand in its way are reflexively dismissed without critical thought: NYTimes: Even for Cashiers, College Pays Off. Times columnist David Leonhardt is a well intentioned chap who apparently did not receive the memo that the world about which he is writing is deceased. In fact the entire thrust of his analysis is rear-view. Sure -- for generations college was a good deal for people. Mr. Leonhardt though lives in an America that has since collapsed and his analysis, driven by confirmation bias, relies on stale math. To wit, "[A] comparison of college with other investments...found that college tuition in recent decades has delivered an inflation-adjusted return of more than 15%." That's all well and good, but entirely irrelevant and backward-looking. The same could have been said in 2000 as a justification for investing in NASDAQ stocks. The returns "in recent decades" would have been of no help going forward.