Subprime Losses May Reach $400 Billion, Analysts Say
Not very good "risk management."
The theory of risk management is essentially that the more risk that you encounter, the more money that you may make. In the alternative, investing in Triple AAA Corporate Insured Bonds, may pay a lower rate of interest, but they are less risky. Investing in U.S. Treasury's is considered even less riskier. And of course, sans a bank collapse, keeping your money there is even better--up to $100,000 is F.D.I.C. insured and guaranteed.
Making money on the way up out of taking out of our collective pockets, and then losing it is not "risk managemet."
These people won't tell you the truth.
Greed is not prudent "risk-management."
All of these big New York and Chicago Financial Firms knew what they were doing, they just wanted a "piece of the action." Well, looks like they got it.
They want to blame it on "Derivatives." Well, guess what, Derivatives, have a useful purpose as a hedge against commodity and security pricing, but used as an instrument, to leverage and make money, or to use as alleged "counter and contra party" risk, that is inherently risky.
Leveraging your company to the maximum to make maximum profit is not lack of "risk knowldege" it is stupidity.
There are no laws against stupidity.
There should be no laws against us, the public, bailing out your stupidity, either.
Losses from the falling value of subprime mortgage assets may reach $300 billion to $400 billion worldwide, Deutsche Bank AG analysts said.
Wall Street's largest banks and brokers will be forced to write down as much as $130 billion because of the slump in subprime-related debt, according to a report today by New York- based credit analyst Mike Mayo,. The rest of the losses will come from smaller banks and investors in mortgage-related securities.
Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley led more than $40 billion of writedowns as record U.S. foreclosures plundered asset prices. Estimates are rising with Lehman Brothers Holdings Inc. last week predicting losses linked to U.S. mortgages may reach $250 billion over the next five years. Zurich-based Credit Suisse Group in July forecast $52 billion of costs related to mortgage-backed securities.
``We're not out of the woods yet,'' said Mondher Bettaieb- Loriot, who helps manage the equivalent of about $58 billion at Swisscanto Asset Management in Zurich. ``There are more losses to be taken and there's more negative news to come. At some point it will be a buying opportunity but we're not there yet.''
Morgan Stanley analyst Anil Agarwal in Hong Kong today cut his rating on the stock of HSBC Holdings Plc to ``equal-weight'' from ``overweight.'' The London-based lender's $2.1 billion of provisions against its $45 billion mortgage services business may be insufficient, he said.
Deutsche Bank's Mayo expects writedowns at HSBC, UBS AG, Royal Bank of Scotland Group Plc and Barclays Plc to be ``ballpark $5 billion or so'' each, he said.
Subprime Defaults
Subprime borrowers are likely to default on 30 percent to 40 percent of debt, Mayo wrote. Losses on loans to people with poor credit histories may be as much as half the sum lent, Mayo wrote. The forecasts on total writedowns are based on ``seat-of-the- pants'' estimates using losses announced by the biggest securities firms, he said.
Banks and brokers may have to write off $60 billion to $70 billion this year, Mayo wrote. The estimate is based on known charges of $43 billion and expected additional losses of $25 billion. The report didn't include writedowns at Frankfurt-based Deutsche Bank, which were 2.16 billion euros ($3.15 billion) in the third quarter.
Bonds Plunge
Subprime-mortgage bonds have plunged this year. One ABX index linked to securities that initially carried the lowest investment-grade rating has fallen 39 percent in the past month, according to Markit Group Ltd., the London-based index administrator.
About $1.2 trillion of the $10 trillion of outstanding U.S. home loans are considered to be subprime, Mayo said in the note.
Loss rates on about $200 billion of securities based on derivatives linked to subprime debt will run to as high as 80 percent, Mayo wrote.
Commercial banks, government-chartered firms Fannie Mae and Freddie Mac, and mortgage and bond insurers will be affected the most by mortgage losses, which will be about $50 billion in 2008, Lehman Brothers analysts wrote on Nov. 5.
``While this is large relative to historical losses on mortgage portfolios, it is about half the size of losses on corporate portfolios during 2002,'' when long-distance telephone company Worldcom Inc. went bankrupt, Lehman analysts wrote.
Credit-default swaps on the iTraxx Financial Index of 25 European banks and insurance companies increased 3 basis points to 56 basis points. The benchmark reached a record 60 basis points on Aug. 16 when U.S. mortgage lender Countrywide Financial Corp. drew on emergency funding to stay afloat.
The index, a benchmark for the cost of protecting bonds against default, rises when perceptions of credit quality worsen.
Deutsche Bank plans to hold a conference call on subprime debt on Nov. 15, according to the note.
Are we faced with Financial Armageddon?
"The Bloodbath in Credit and Financial Markets Will Continue and Sharply Worsen,"
It is now clear that the delusional hope that the severe credit and liquidity crunch that hit US and global financial markets would ease has been shattered by the events of the last few weeks. This credit crunch is getting much worse and its financial and real fallout will be severe.
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. At stake – in subprime alone – is about a trillion of sub-prime related RMBS and hundreds of billions of mortgage related CDOs. But 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 subprime and near prime credit cards and auto loans where deliquencies are rising and will sharply rise further in the year ahead. And it is spreading to every corner of the securitized financial system that is either frozen or on the way to freeze: CDOs issuance is near dead; the LBO market – and the related leveraged loans market – is piling deals that have been postponed, restructured or cancelled; the liquidity squeeze in the interbank market – especially at the one month to three months maturities - is continuing; the losses that banks and investment banks will experience in the next few quarters will erode their Tier 1 capital ratio; the ABCP and related SIV sectors are near dead and unraveling; and since the Super-conduit will flop the only options are those of bringing those SIV assets on balance sheet (with significant capital and liquidity effects) or sell them at a large loss; similar problems and crunches are emerging in the CLO, CMO and CMBS markets; junk bonds spreads are widening and corporate default rates will soon start to rise. Every corner of the securitization world is now under severe stress, including so called highly rated and “safe” (AAA and AA) securities.
The reality is that most financial institutions – banks, commercial banks, pension funds, hedge funds – have barely started to recognize the lower “fair value” of their impaired securities. Valuation of illiquid assets is a most complex issue; but starting with the November 15th adoption of FASB 157 the leeway that financial institutions have used so far for creative accounting will be much more limited. Valuation of illiquid assets is a most technical issue. But new regulations will limit the ability of financial institutions to put “illiquid” asset in “level 3” securities, i.e. securities where the lack of market prices allows them to use dubious “valuation models” and “unobservable inputs” to value such assets. As suggested by a commentator (Bernard) of my recent blog many Wall Street firms are still playing the game of putting too many assets in the “level 3” bucket of mark-to-model to models that don’t make much sense. As reported by the FT today research by the Bank of England shows that small minor changes of assumptions in these models can lead to changes in the value of “safe” asset of 35%. So even AAA or AA assets may be worth much less than par, as the ABX is telling us. But financial institutions are not using the prices derived from the ABX indices to value most of their sub-prime assets.
As put it by the FT:
“the banks have not yet made write-offs as large as the ABX might imply. Merrill Lynch analysts, for example, calculate that mid-quality ABX debt is on average now trading at 40 cents in the dollar. But these analysts say that Merrill Lynch itself has only written this type of debt down to 63 cents in the dollar – and UBS is still assuming this debt is worth 90 cents. “Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct,” Merrill says.”
This is indeed the message that comes from true market prices that are now indirectly available via the ABX indices. Those prices tell you not only that the mezzanine and equity tranches of subprime CDOs are now worth close to zero; they also tell you that prices for the AAA and AA tranches – that until recently were hovering near par of 100 – are now down to 79 and 50 respectively. Hundreds of billions of subprime RMBS and senior tranches of CDOs are still being evaluated as if they are worth 100 cents on the dollar. What the ABX is telling you is that they are worth much less; thus the losses from subprime alone are an order of magnitude larger than recognized by most firms. But most firms are not using such market prices – or their proxies – to value their illiquid assets.
Indeed, according to a MarketWatch article from September – based on Bernstein Research – many Wall Street firms put an excessive amount of securities in the level 3 bucket that uses unreliable models for valuation.
The share securities in the level 3 is:
15% for Goldman Sachs;
13% for Morgan Stanley;
8% for Lehman Brothers;
7% for Bear Stearns
and only 2% for Merrill Lynch.
No wonder that Merrill has been one of the few firms to report massive losses: it is at least one of the few firms that has come out clean on this valuation game and put only 2% of its assets in the voodoo valuation model bucket; compare that with the 15% put by Goldman or the 13% by Morgan Stanley.
But the forthcoming adoption of FASB 157 (unless current lobbying pressure by interest group forces the postponing of its November 15th adoption) will reduce the ability of financial firms to play such accounting games and tricks.
As explained in three recent white papers by the Center for Audit Quality (CAQ) using the excuse of “illiquidity” to put assets in the model driven valuation bucket is highly inappropriate:
The white paper notes that it is important to distinguish between (1) an imbalance between supply and demand (e.g., fewer buyers than sellers, thereby forcing prices down) and (2) a “forced” or “distressed” transaction. Because persuasive evidence is required in establishing that an observable transaction is forced or distressed, it is not appropriate to assume that all transactions in a relatively illiquid market are forced or distressed.
The SEC, in a 2004 accounting and auditing enforcement release, determined that using a definition of fair value that assumed supply and demand were in reasonable balance was a violation of GAAP and that the registrant should have considered the current market environment, such as imbalances of supply and demand, in the determination of the then-current market value. Further, the SEC objected to the practice of taking a long-term view of the market while ignoring prices quoted by external sources.
Other key points from the draft white paper include the following:
A decline in a market’s transaction volume does not necessarily mean that the market is not active. A market is still considered active if transactions are occurring frequently enough on an ongoing basis to obtain reliable pricing information. When an active market exists, a quoted price provides the best evidence of fair value (Level 1 per Statement 157).
In the absence of an active market for the identical asset, entities often use valuation models. Entities may not ignore available market information or market participant assumptions that are reasonably available without undue cost and effort. Valuation models that use historical default data, or an entity’s own default assumptions, rather than assumptions that marketplace participants would use, are not appropriately using current market participants’ assumptions, even if the default assumptions are “stressed.”
Statement 157 contains disclosure requirements regarding fair value measurements that apply to entities that have adopted Statement 157. Entities that have not yet adopted Statement 157 should consider disclosures required by existing pronouncements (for example, AICPA Statement of Position No. 94-6, Disclosure of Certain Significant Risks and Uncertainties) in situations in which fair value measurements have a significant effect on the financial statements. When an entity that has not adopted Statement 157 measures fair value using significant unobservable inputs, the white paper suggests that the entity may wish to consider disclosures similar to those found in Statement 157.
The message from FASB 157 and the CAQ white papers is clear: using dubious models and accounting tricks to avoid using market prices or proxies for market prices to value illiquid asset is extremely inappropriate. And appropriate disclosure of the methods used to estimate the “fair value” of assets is now a requirement. Note that the proposed Super-conduit is another one of these scheme aimed at parking securities and avoiding having to recognize their true market value. So, the process of recognizing hundreds of billions of losses, not just in sub-prime related assets but across the board of trillions of dollars of securitized assets has barely begun. Thus, you can expect that the ongoing credit crunch will get much worse in the year ahead and its fallout spread from the US to Europe and throughout Asia and the globe. Trillions of dollars of securitized assets that were sliced and diced in the long food chain of securitization are now at some risk. The first crisis of financial globalization and securitization is thus only at its beginning stage.
Look at the info Citigroup just filed with the SEC today: they have $135 BILLION in LEVEL 3 ASSETS. I have a neat idea. Why don't we take every single major financial institution out there and then divide their total Level 3 assets by their equity capital base and make comparisons? This will give us a better idea as to which of them may really remain solvent at the end of the day. Shall we? Let's have a look at Citigroup. Their equity base is $128 billion. Therefore, their Level 3 assets to equity ratio: 105% How about Goldman Sachs? Level 3 assets are $72 billion, equity base is $39 billion. Their Level 3 assets to equity ratio is 185%. Morgan Stanley: $88 billion in Level 3, equity base is $35 billion. Ratio: 251% (WOW!)
Bear Stearns: $20 billion in Level 3, equity base is $13 billion. Ratio: 154% Lehman Brothers: $35 billion in Level 3, $22 billion in equity. Ratio: 159% Merrill Lynch: $16 billion in Level 3, $42 billion in equity. Ratio: 38%
Here is the Level 3 assets to equity ratio summary:
Citigroup 105%
Goldman Sachs 185%
Morgan Stanley 251%
Bear Stearns 154%
Lehman Brothers 159%
Merrill Lynch 38% This becomes very interesting now, doesn't it? Looks to me like Goldman Sachs and Morgan Stanley are by far in the WORST situation among the investment banks. And yet the media is focusing all of their attention on Merrill Lynch---which actually has by far THE LEAST EXPOSURE of all of them. What a joke. As I said before, the media should stop diverting attention and trying to make this into a "Merrill-specific" problem. All of the investment banks are in deep trouble. These numbers should make that extremely evident.
The deception must be exposed.
Nov. 12 (Bloomberg) -- Losses from the falling value of subprime mortgage assets may reach $300 billion to $400 billion worldwide, Deutsche Bank AG analysts said.
Wall Street's largest banks and brokers will be forced to write down as much as $130 billion because of the slump in subprime-related debt, according to a report today by New York- based credit analyst Mike Mayo,. The rest of the losses will come from smaller banks and investors in mortgage-related securities.
Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley led more than $40 billion of writedowns as record U.S. foreclosures plundered asset prices. Estimates are rising with Lehman Brothers Holdings Inc. last week predicting losses linked to U.S. mortgages may reach $250 billion over the next five years. Zurich-based Credit Suisse Group in July forecast $52 billion of costs related to mortgage-backed securities.
``We're not out of the woods yet,'' said Mondher Bettaieb- Loriot, who helps manage the equivalent of about $58 billion at Swisscanto Asset Management in Zurich. ``There are more losses to be taken and there's more negative news to come. At some point it will be a buying opportunity but we're not there yet.''
Morgan Stanley analyst Anil Agarwal in Hong Kong today cut his rating on the stock of HSBC Holdings Plc to ``equal-weight'' from ``overweight.'' The London-based lender's $2.1 billion of provisions against its $45 billion mortgage services business may be insufficient, he said.
Deutsche Bank's Mayo expects writedowns at HSBC, UBS AG, Royal Bank of Scotland Group Plc and Barclays Plc to be ``ballpark $5 billion or so'' each, he said.
Subprime Defaults
Subprime borrowers are likely to default on 30 percent to 40 percent of debt, Mayo wrote. Losses on loans to people with poor credit histories may be as much as half the sum lent, Mayo wrote. The forecasts on total writedowns are based on ``seat-of-the- pants'' estimates using losses announced by the biggest securities firms, he said.
Banks and brokers may have to write off $60 billion to $70 billion this year, Mayo wrote. The estimate is based on known charges of $43 billion and expected additional losses of $25 billion. The report didn't include writedowns at Frankfurt-based Deutsche Bank, which were 2.16 billion euros ($3.15 billion) in the third quarter.
Bonds Plunge
Subprime-mortgage bonds have plunged this year. One ABX index linked to securities that initially carried the lowest investment-grade rating has fallen 39 percent in the past month, according to Markit Group Ltd., the London-based index administrator.
About $1.2 trillion of the $10 trillion of outstanding U.S. home loans are considered to be subprime, Mayo said in the note.
Loss rates on about $200 billion of securities based on derivatives linked to subprime debt will run to as high as 80 percent, Mayo wrote.
Commercial banks, government-chartered firms Fannie Mae and Freddie Mac, and mortgage and bond insurers will be affected the most by mortgage losses, which will be about $50 billion in 2008, Lehman Brothers analysts wrote on Nov. 5.
``While this is large relative to historical losses on mortgage portfolios, it is about half the size of losses on corporate portfolios during 2002,'' when long-distance telephone company Worldcom Inc. went bankrupt, Lehman analysts wrote.
Credit-default swaps on the iTraxx Financial Index of 25 European banks and insurance companies increased 3 basis points to 56 basis points. The benchmark reached a record 60 basis points on Aug. 16 when U.S. mortgage lender Countrywide Financial Corp. drew on emergency funding to stay afloat.
The index, a benchmark for the cost of protecting bonds against default, rises when perceptions of credit quality worsen.
Deutsche Bank plans to hold a conference call on subprime debt on Nov. 15, according to the note.
And, as to be expected, we should conduct "intermarket analysis" before "investing" into the Futures Markets, according to Peregrine Financial Group's editor of their SFO Magazine.
Isn't America great?
A firm that was operating as an alleged Futures Commission Merchant without sufficient financial capital and reserves, is advising us to be careful!
Fun with math!
Showing posts with label pfgbestwatch. Show all posts
Showing posts with label pfgbestwatch. Show all posts
Monday, November 12, 2007
Wednesday, November 7, 2007
Why Supermodel Bundchen, and Hedge Funds Dumping Dollars, China’s plan to diversify their Financial Reserves, and Free Trade, are all bound to fail
Supermodel Bundchen Joins Hedge Funds Dumping Dollars
Gisele Bundchen wants to remain the world's richest model and is insisting that she be paid in almost any currency but the U.S. dollar.
Like billionaire investors Warren Buffett and Bill Gross, the Brazilian supermodel, who Forbes magazine says earns more than anyone in her industry, is at the top of a growing list of rich people who have concluded that the currency can only depreciate because Americans led by President George W. Bush are living beyond their means.
Wait a second: America has shouldered the world’s burden, for almost a half a century, with our global military presence and protection.
We are the world’s leading purchaser of most nation’s goods and services.
Many of the workers in China and the developing third world are paid pennies per hour.
“Free Trade” is not “Open Trade.”
Global Labor Arbitrage” Dismantling America
Economists don’t seem to understand globalization, and that’s a puzzle. Referring to low foreign wages, Dartmouth’s Mr. Slaughter writes:
“Low wages do not necessarily mean low production costs abroad. This is because low wages are mainly a signal of low worker productivity. In much of the world, workers are less productive than their American counterparts because they enjoy less access to the training, tools, ideas, and broad market institutions that are the foundations of high productivity.”
Once upon a time this was true. That was when US employees, working with US capital, technology and business know-how, were producing products to compete in import and export markets against products made by foreign workers, who worked with less capital and inferior technology.
Those were the bygone days of international trade.
Today when a US multinational moves a factory from Ohio to China, the Chinese labor works with the same capital and technology that formerly employed Americans in Ohio.
The Chinese workers are no less productive. Yet, their wage is far lower.
Dartmouth’s Mr. Slaughter is wrong to attribute low Chinese wages to low productivity. The wages are low because of the enormous excess supply of labor that overhangs the Chinese labor market.
Stephen Roach is correct to differentiate between free trade and “global labor arbitrage.” US employers are substituting cheaper foreign labor for US labor in the goods and services that they supply to markets at home and abroad.
The European Union is very anti-competitive. Presumably they need to fill their respective coffers with more money from Microsoft and other of our corporations.
EU slaps Intel with formal antitrust charges
Our anti-Dumping office of the Unites States Commerce Department is flooded with actionable issues for enforcement.
United States International Trade Commission
We could simply stop purchasing China’s goods until the same, or equal amount of our goods are purchased from the Unites States. And down the International line of our trade imbalances with other nations.
We are hardly as overtly aggressive as the E.U. when it comes to alleged “Regulatory and Antitrust” adjudications.
On the surface alone, the alleged Supermodel, Gisele, really wants “Arbitrage” money paid to her, due to the exchange rate ratio, that favors the Euro.
Less one currency = More of another currency. It’s that simple. She just wants some more bucks!
Are we in a boom-bust cycle? Of course.
Our problems are structural and political, certainly the pending news of the dollar’s demise are totally premature.
From the O’Reilly Radar: Exchange Rate and Silicon Valley
What does the ever-declining value of the US dollar mean for Silicon Valley?
The US dollar has been emulating a brick lately. With housing prices plummeting, subprime fallout ongoing, and oil prices soaring, the general economic news is grim but for the occasional "the investment environment is still sound" noises.
What does this mean for Silicon Valley?
At the moment there's not a lot of effect. The valley still has critical masses of experience, capital, and enthusiasm. This means that it's a great place to start a company, turn an invention into a product, and build tomorrow's technology. The valley's investors, from angel through VC into capital markets, have so far largely been or become American. Foreign entrepreneurs are still coming to Silicon Valley to start their companies. So far, innovation has been born, bred, and retired in the US.
As the adage goes: “American catches a cold, and the world dies.”
We are among the largest monetary contributors to the United Nations, the World Bank, and other, basically, corrupt institutions.
Is the European Union similar to the United States, in that is it an integrated set of States in one Federal Liberal Democracy?
It was created with one goal in mind, as a trading and economic vehicle. But they have not integrated with each other, they are anti-competitive, they have no central army, and they certainly don’t share much alike except the Euro.
Ever Closer Union: An Introduction to European Integration
People in a national political system speak the same language, read the same newspapers, and see the same television programs. By contrast, the EU is distant, impersonal, and operates in twenty official languages; there is no European “people,” only European “peoples”; there is no common language or media. But the problem also lies in the politics of European integration. National politicians like to take the credit when things are going well in the EU and blame “Brussels” when things are going badly. Opinion polls constantly show that most Europeans appreciate the underlying advantages of European integration but are uneasy about certain EU policies and developments. Many Europeans either do not know or have forgotten how far Europe has come in the past fifty years. Regardless of the past or of people’s understanding of it, some Europeans would argue that the EU has outlived its usefulness (if it ever had any). Without doubt, some EU policies and programs are dispensable or superfluous.
No matter what side of the immigration debate you may be on—the fact is that the U.S.A. allows for massive immigration so that people may lead more productive and freer lives.
Or they wouldn’t be coming here would they?
Our Democratic set of checks and balances vis-à-vis, the Judicial, the Executive, and the Congressional, set a world example of how we keep a functioning Democracy in check.
If the people don’t want Bush, or any other Party in leadership, we are able to vote them out.
Can the people of China vote out their leaders? Due they have the Rule of Law to enforce contracts?
I am an America “Firster” and my bets are on the United States of America.
Let the World’s nations play by the rules, as well as our own institutions—the Merrill Lynch’s, the Citibank’s, the American National Trading Group’s, the Morgan Stanley’s, the PFG’s, and all of the other large New York and Chicago Financial Firms. They need to perform as they would profess we should do.
The world is perception and perception is the world. If we are perceived, and rightfully so, as not taking care of our own—we will witness more negative economic reports and news.
There are no “perfections” in improper markets by definition. But to let others benefit by our structural inequality built against ourselves is not sustainable and the people of this country will not tolerate it.
Just as perpetual war is not sustainable; neither are perpetual economic, fiscal, monetary, capital market and trade inequities.
Merrill Denies Improper Transactions
NEW YORK -- Merrill Lynch & Co. shares declined 7.9% Friday amid concerns that already deep mortgage-related losses at the investment bank may worsen.
The decline followed a report in The Wall Street Journal that the brokerage giant may have tried to delay taking losses by using off-balance-sheet transactions with hedge funds. The Securities and Exchange Commission is likely to examine the transactions, the Journal reported.
Merrill said it had "no reason to believe that any such inappropriate transactions occurred." The firm added that any such transactions "would clearly violate Merrill Lynch policy." A Merrill spokeswoman said the firm's reported asset values "reflect all of its exposures to collateralized debt obligations, regardless of how they are financed on or off the balance sheet."
Oh really?
Merrill wrote down $7.9 billion of mortgage securities and CDOs for its third quarter. The hit produced a $2.2 billion quarterly loss, and caused the exit of Chief Executive Stan O'Neal.
Deutsche Bank analyst Mike Mayo Friday downgraded Merrill's stock to "hold" from "buy," saying the firm could face $10 billion in further CDO write-downs.
We need fair and enforced transparency across the international spectrum. And we shouldn’t be doing things that are not in our own best economic interests—to be sure.
Charity, after all, starts at home.
The buck stops with us, the people, to demand political securities, and business transparency and reforms.
Gisele Bundchen wants to remain the world's richest model and is insisting that she be paid in almost any currency but the U.S. dollar.
Like billionaire investors Warren Buffett and Bill Gross, the Brazilian supermodel, who Forbes magazine says earns more than anyone in her industry, is at the top of a growing list of rich people who have concluded that the currency can only depreciate because Americans led by President George W. Bush are living beyond their means.
Wait a second: America has shouldered the world’s burden, for almost a half a century, with our global military presence and protection.
We are the world’s leading purchaser of most nation’s goods and services.
Many of the workers in China and the developing third world are paid pennies per hour.
“Free Trade” is not “Open Trade.”
Global Labor Arbitrage” Dismantling America
Economists don’t seem to understand globalization, and that’s a puzzle. Referring to low foreign wages, Dartmouth’s Mr. Slaughter writes:
“Low wages do not necessarily mean low production costs abroad. This is because low wages are mainly a signal of low worker productivity. In much of the world, workers are less productive than their American counterparts because they enjoy less access to the training, tools, ideas, and broad market institutions that are the foundations of high productivity.”
Once upon a time this was true. That was when US employees, working with US capital, technology and business know-how, were producing products to compete in import and export markets against products made by foreign workers, who worked with less capital and inferior technology.
Those were the bygone days of international trade.
Today when a US multinational moves a factory from Ohio to China, the Chinese labor works with the same capital and technology that formerly employed Americans in Ohio.
The Chinese workers are no less productive. Yet, their wage is far lower.
Dartmouth’s Mr. Slaughter is wrong to attribute low Chinese wages to low productivity. The wages are low because of the enormous excess supply of labor that overhangs the Chinese labor market.
Stephen Roach is correct to differentiate between free trade and “global labor arbitrage.” US employers are substituting cheaper foreign labor for US labor in the goods and services that they supply to markets at home and abroad.
The European Union is very anti-competitive. Presumably they need to fill their respective coffers with more money from Microsoft and other of our corporations.
EU slaps Intel with formal antitrust charges
Our anti-Dumping office of the Unites States Commerce Department is flooded with actionable issues for enforcement.
United States International Trade Commission
We could simply stop purchasing China’s goods until the same, or equal amount of our goods are purchased from the Unites States. And down the International line of our trade imbalances with other nations.
We are hardly as overtly aggressive as the E.U. when it comes to alleged “Regulatory and Antitrust” adjudications.
On the surface alone, the alleged Supermodel, Gisele, really wants “Arbitrage” money paid to her, due to the exchange rate ratio, that favors the Euro.
Less one currency = More of another currency. It’s that simple. She just wants some more bucks!
Are we in a boom-bust cycle? Of course.
Our problems are structural and political, certainly the pending news of the dollar’s demise are totally premature.
From the O’Reilly Radar: Exchange Rate and Silicon Valley
What does the ever-declining value of the US dollar mean for Silicon Valley?
The US dollar has been emulating a brick lately. With housing prices plummeting, subprime fallout ongoing, and oil prices soaring, the general economic news is grim but for the occasional "the investment environment is still sound" noises.
What does this mean for Silicon Valley?
At the moment there's not a lot of effect. The valley still has critical masses of experience, capital, and enthusiasm. This means that it's a great place to start a company, turn an invention into a product, and build tomorrow's technology. The valley's investors, from angel through VC into capital markets, have so far largely been or become American. Foreign entrepreneurs are still coming to Silicon Valley to start their companies. So far, innovation has been born, bred, and retired in the US.
As the adage goes: “American catches a cold, and the world dies.”
We are among the largest monetary contributors to the United Nations, the World Bank, and other, basically, corrupt institutions.
Is the European Union similar to the United States, in that is it an integrated set of States in one Federal Liberal Democracy?
It was created with one goal in mind, as a trading and economic vehicle. But they have not integrated with each other, they are anti-competitive, they have no central army, and they certainly don’t share much alike except the Euro.
Ever Closer Union: An Introduction to European Integration
People in a national political system speak the same language, read the same newspapers, and see the same television programs. By contrast, the EU is distant, impersonal, and operates in twenty official languages; there is no European “people,” only European “peoples”; there is no common language or media. But the problem also lies in the politics of European integration. National politicians like to take the credit when things are going well in the EU and blame “Brussels” when things are going badly. Opinion polls constantly show that most Europeans appreciate the underlying advantages of European integration but are uneasy about certain EU policies and developments. Many Europeans either do not know or have forgotten how far Europe has come in the past fifty years. Regardless of the past or of people’s understanding of it, some Europeans would argue that the EU has outlived its usefulness (if it ever had any). Without doubt, some EU policies and programs are dispensable or superfluous.
No matter what side of the immigration debate you may be on—the fact is that the U.S.A. allows for massive immigration so that people may lead more productive and freer lives.
Or they wouldn’t be coming here would they?
Our Democratic set of checks and balances vis-à-vis, the Judicial, the Executive, and the Congressional, set a world example of how we keep a functioning Democracy in check.
If the people don’t want Bush, or any other Party in leadership, we are able to vote them out.
Can the people of China vote out their leaders? Due they have the Rule of Law to enforce contracts?
I am an America “Firster” and my bets are on the United States of America.
Let the World’s nations play by the rules, as well as our own institutions—the Merrill Lynch’s, the Citibank’s, the American National Trading Group’s, the Morgan Stanley’s, the PFG’s, and all of the other large New York and Chicago Financial Firms. They need to perform as they would profess we should do.
The world is perception and perception is the world. If we are perceived, and rightfully so, as not taking care of our own—we will witness more negative economic reports and news.
There are no “perfections” in improper markets by definition. But to let others benefit by our structural inequality built against ourselves is not sustainable and the people of this country will not tolerate it.
Just as perpetual war is not sustainable; neither are perpetual economic, fiscal, monetary, capital market and trade inequities.
Merrill Denies Improper Transactions
NEW YORK -- Merrill Lynch & Co. shares declined 7.9% Friday amid concerns that already deep mortgage-related losses at the investment bank may worsen.
The decline followed a report in The Wall Street Journal that the brokerage giant may have tried to delay taking losses by using off-balance-sheet transactions with hedge funds. The Securities and Exchange Commission is likely to examine the transactions, the Journal reported.
Merrill said it had "no reason to believe that any such inappropriate transactions occurred." The firm added that any such transactions "would clearly violate Merrill Lynch policy." A Merrill spokeswoman said the firm's reported asset values "reflect all of its exposures to collateralized debt obligations, regardless of how they are financed on or off the balance sheet."
Oh really?
Merrill wrote down $7.9 billion of mortgage securities and CDOs for its third quarter. The hit produced a $2.2 billion quarterly loss, and caused the exit of Chief Executive Stan O'Neal.
Deutsche Bank analyst Mike Mayo Friday downgraded Merrill's stock to "hold" from "buy," saying the firm could face $10 billion in further CDO write-downs.
We need fair and enforced transparency across the international spectrum. And we shouldn’t be doing things that are not in our own best economic interests—to be sure.
Charity, after all, starts at home.
The buck stops with us, the people, to demand political securities, and business transparency and reforms.
Friday, November 2, 2007
Our Capital Markets need More Regulation, not Less
Merrill Lynch engaged in deals with hedge funds that may have been designed to delay recognition of losses from mortgage securities. The SEC is likely to investigate. Merrill shares tumbled more than 9%.
What other skeletons are in their closet? Isn't this shameful?
We have heard so much about how our alleged dislosure law reform, made the U.S. Securities and Commodities markets "less competitive."
How Sarbanes-Oxley makes electronic startups less competitive
The legislation may have prevented accounting debacles, but it's also had a chilling and unintended consequence: reducing or eliminating the attractiveness of an IPO as a growth strategy for small electronics
Really?
Has a more transparent and accountable set of laws made the Subprime meltdown any less severe?
Has the Sarbanes-Oxley bill forced Merrill Lynch and other Financial Firms to violate regulations and to leverage themselves, and violate our trust, beyond tolerable risk levels?
Obviously, no. We need more regulation of our capital markets. Not less.
The National Futures Association alleged that Peregrine Financial Group failed to comply with their Compliance Rules.
NFA's BCC issued a Decision to Peregrine accepting Peregrine's settlement offer in which the firm neither admitted nor denied the allegations of the Complaint. The BCC ordered that Peregrine pay a $5,000 fine within thirty days of the date of the Decision. The BCC also ordered that Peregrine adopt, and submit to NFA within thirty days of the date of the Decision, procedures to ensure future compliance with NFA's Compliance Rules as they relate to the supervision of conditioned registrants. Finally, the BCC ordered that Peregrine adopt, and submit to NFA within thirty days of the Decision, procedures to ensure future compliance with all provisions of the Amended Final Order Granting Conditional Registration to Dominick Concilio.
Oh yeah, and have you head about the "Bubble Alert" that we are being warned about? Who is responsible for this mess?
So, yeah, this inflation thing is nothing to worry about. Which is why investors continue to plunk money down in hard assets and buy up dollar-denominated products like oil and gold, both of which surged again to finish another day with those “highest price since Columbus” headlines.
Both gold and oil have gained around 60% in the last two years.
A few years ago, $100-a-barrel crude oil and $1,000 gold would have seemed completely ridiculous. But the markets are on the cusp of grasping the former, and at this rate, the latter isn’t too far off. (Many will say, “c’mon, $1,000 gold is ridiculous,” but admit it - you hesitated before saying that this time.)
As the dollar continues to decline these assets get cheaper for foreigners to buy, but they’re not the only ones, considering the steady demand coming from the U.S. as well. With world economies still in reasonably solid shape, the commodity demand remains strong. “The dollar is falling and is making dollar-denominated assets cheaper so you get gold and crude going up and that’s probably going to keep going for a while,” says Patrick Kerr, president of Oilgasfutures.com, a commodity brokerage.
What he’s been hearing lately — and this might be a “bubble” alert — is that there are many fund managers discussing the idea that people are underallocated in these assets, with too much in equities and bonds. Buying in at $100 oil seems a bit foolhardy, but then again, people said that at $70 and $80 as well (which was a day or two ago, if we remember).
So, let's put this into some kind of perspective--the Financial Firms are complaining that we are not "competitive" because they are over-regulated; while at the same time they have over-leveraged themselves, violate the requisite regulatory guidelines, and expose us, average Americans, to an unprecendeted level of exposure to financial ruin, to no fault of our own.
Isn't it time to regulate the Merrill Lynch's, the Peregrine Financial Group's, the Citibank's, and the rest of the Financial Firms, with more scrutiny and regulations?
What other skeletons are in their closet? Isn't this shameful?
We have heard so much about how our alleged dislosure law reform, made the U.S. Securities and Commodities markets "less competitive."
How Sarbanes-Oxley makes electronic startups less competitive
The legislation may have prevented accounting debacles, but it's also had a chilling and unintended consequence: reducing or eliminating the attractiveness of an IPO as a growth strategy for small electronics
Really?
Has a more transparent and accountable set of laws made the Subprime meltdown any less severe?
Has the Sarbanes-Oxley bill forced Merrill Lynch and other Financial Firms to violate regulations and to leverage themselves, and violate our trust, beyond tolerable risk levels?
Obviously, no. We need more regulation of our capital markets. Not less.
The National Futures Association alleged that Peregrine Financial Group failed to comply with their Compliance Rules.
NFA's BCC issued a Decision to Peregrine accepting Peregrine's settlement offer in which the firm neither admitted nor denied the allegations of the Complaint. The BCC ordered that Peregrine pay a $5,000 fine within thirty days of the date of the Decision. The BCC also ordered that Peregrine adopt, and submit to NFA within thirty days of the date of the Decision, procedures to ensure future compliance with NFA's Compliance Rules as they relate to the supervision of conditioned registrants. Finally, the BCC ordered that Peregrine adopt, and submit to NFA within thirty days of the Decision, procedures to ensure future compliance with all provisions of the Amended Final Order Granting Conditional Registration to Dominick Concilio.
Oh yeah, and have you head about the "Bubble Alert" that we are being warned about? Who is responsible for this mess?
So, yeah, this inflation thing is nothing to worry about. Which is why investors continue to plunk money down in hard assets and buy up dollar-denominated products like oil and gold, both of which surged again to finish another day with those “highest price since Columbus” headlines.
Both gold and oil have gained around 60% in the last two years.
A few years ago, $100-a-barrel crude oil and $1,000 gold would have seemed completely ridiculous. But the markets are on the cusp of grasping the former, and at this rate, the latter isn’t too far off. (Many will say, “c’mon, $1,000 gold is ridiculous,” but admit it - you hesitated before saying that this time.)
As the dollar continues to decline these assets get cheaper for foreigners to buy, but they’re not the only ones, considering the steady demand coming from the U.S. as well. With world economies still in reasonably solid shape, the commodity demand remains strong. “The dollar is falling and is making dollar-denominated assets cheaper so you get gold and crude going up and that’s probably going to keep going for a while,” says Patrick Kerr, president of Oilgasfutures.com, a commodity brokerage.
What he’s been hearing lately — and this might be a “bubble” alert — is that there are many fund managers discussing the idea that people are underallocated in these assets, with too much in equities and bonds. Buying in at $100 oil seems a bit foolhardy, but then again, people said that at $70 and $80 as well (which was a day or two ago, if we remember).
So, let's put this into some kind of perspective--the Financial Firms are complaining that we are not "competitive" because they are over-regulated; while at the same time they have over-leveraged themselves, violate the requisite regulatory guidelines, and expose us, average Americans, to an unprecendeted level of exposure to financial ruin, to no fault of our own.
Isn't it time to regulate the Merrill Lynch's, the Peregrine Financial Group's, the Citibank's, and the rest of the Financial Firms, with more scrutiny and regulations?
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