Quotes Albert Edwards, Bill Buckler, Alan Greenspan,William Buiter, Mr Mantega ( Brazil’s Finance Minister ), Ben Davies & Ambrose Evans-Pritchard

Cannot believe that i´m quoting Greenspan without making the usual jokes about his "wisdom"......... ;-)

Fast unheimlich das man mal ohne Häme Greenspan zitieren kann...... ;-)

Albert Edwards via ZH

Central bankers, by pursuing policies that allowed the middle classes to borrow against rising asset prices, kept them consuming despite the stagnation of their incomes and hence disguised the effect of government policies that allowed the rich to acquire virtually all of the gains in GDP growth.

And in the process of “robbing” the middle classes and now still attempting to keep asset prices artificially high, they are also robbing our children of the ability to buy a house at an affordable price. Yet central bankers still see QE as key to maintaining the illusion of prosperity and stoking consumer spending

Bill Buckler via ZH

"Ninety-seven percent of all existing Treasury debt has been created since August 15, 1971! Ninety-three percent of it has been created since Mr Volcker “saved” the paper Dollar in late 1979! Please note that the gain in Treasuries and the loss in the US Dollar almost exactly cancel out.

Please note also that even the biggest gain in these paper markets fades into insignificance against Gold’s rise."And here is the answer all the "gold bugs" have been waiting for: "The paper money “price” of Gold will last as long as the attempt to make paper money “work” lasts. In the end, Gold will no longer have a “price” because it has reverted to its role as MONEY. Whenever and wherever that happens, that nation can return to the production of wealth - rather than “money”."

Alan Greenspan via The Reformed Broker

Mr. Greenspan replied that he’d thought a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities “simply don’t pan out,” as Mr. Malpass characterized Mr. Greenspan. “He’d concluded that gold is simply different,” Mr. Malpass wrote. At one point Mr. Greenspan spoke of how, during World War II, the Allies going into North Africa found gold was insisted on in the payment of bribes. Said the former Fed chairman: “If all currencies are moving up or down together, the question is: relative to what? Gold is the canary in the coal mine. It signals problems with respect to currency markets. Central banks should pay attention to it.”

William Buiter via FT Alphaville

…even the fiscally best-positioned G7 countries, Germany and Canada, face major fiscal challenges. Germany would not be able to join the Euro Area today if it were not a member already, because it fails to meet the deficit criterion (no more than 3% of GDP) and the debt criterion (no more than 60% of GDP) – in the case of the public debt to GDP ratio, by a significant and growing margin. Indeed, the aggregate Euro Area fails both criteria by wide margins, and of the 16 individual member states, only Luxembourg and Finland qualify on both criteria…

With QE 2.0 now finally on the table & spreading "competitive devaluations" ( timing wasn´t bad... see Update)around the globe i think you should give the Ludwig von Mises reference via John Hussman a second look....

Da ja nun auch endlich offiziell QE 2.0 angekündigt worden ist und weltweit ein finaler Abwertungswettlauf ( Timing hätte schlechter sein können...siehe Update )in Sachen Währungen um sich greift ( und dabei rasant an Fahrt gewinnt ) kann es nicht schaden noch einmal einen Blick auf das Ludwig von Mises Zitat via John Hussman zu werfen....

UPDATE:

Ambrose Evans-Pritchard Telegraph

States accounting for two-thirds of the global economy are either holding down their exchange rates by direct intervention or steering currencies lower in an attempt to shift problems on to somebody else, each with their own plausible justification. Nothing like this has been seen since the 1930s.

Brazil’s finance minister Mr Mantega via FT Alphaville

Mr Mantega, Brazil’s finance minister, declared earlier this month that the Brazilian real was caught up in ‘a silent war’ in currency markets, as nations compete to speed up their economic recoveries by putting their exporters at an advantage…

Ben Davies Ft Alphaville

Within a single week 25 nations have deliberately slashed the values of their currencies. Nothing quite comparable with this has ever happened before in the history of the world. This world monetary earthquake will carry many lessons.

Got GOLD ? ;-)

Bernanke vs Greenspan

Amazing that everybody wants to believe that Ben "Core" Bernanke has become an inflation hawk over night..... The only reason this guy is talking tough is that the $ is crashing further and the ECB is forcing him to act. But so far the Fed din´t act and i refuse to believe it until i see it confirmed from at least three sources.... :-) Especially in the face of the ongoing recession....... Disclosure : I´m with Mish´s definition on Inflation ( see Inflation: What the heck is it? ) . It seems i´m not the only one who is sceptical... Make sure you read the rant from Tim / The Mess That Greenspan Made Fisher: Silly interest rate talk

Überraschend das irgendeiner zumindest auf dieser Welt die Aussagen von Ben "Core" Bernanke in Sachen Inflationsbekämpfung für bare Münze nimmt..... Der einzige Grund warum praktisch über Nacht der Falke in Ihm erwacht zu sein scheint ist wohl der EZB zu verdanken die die Fed zum Handeln zwingen wird um einen totalen Kollaps des $ zu verhindern. Ich glaube aus Erfahrung keinerlei Rethorik die aus den Mündern von US Notenbänkern kommt und bin gespannt ob den hohlen Phrasen ausnahmsweise auch mal Taten folgen werden. Glaube das erst wenn ich das von mindestens drei unabhängigen Quellen bestätigt bekomme..... :-) Besonders dann nicht wenn die Erhöhungen im Angesicht einer üblen Rezession erfolgen. Hinweis : Bekanntermaßen sehe ich die Definition von Inflation wie Mish ( siehe Inflation: What the heck is it? ) . Sieht ganz so aus als wenn nicht nur ich der einzige ist der eine gewisse Skepsis an den Tag legt..... Empfehle hier den Rundumschlag von Tim / The Mess That Greenspan Made Fisher: Silly interest rate talk

via Calculated Risk Tim Duy: Fed Between a Rock and ...

Bottom Line: The Fed has no one to blame for their predicament but themselves. Bernanke & Co. cut rates too deeply, fighting a battle against deflation that never was. Now they are backed into a corner; either raise rates and risk upsetting a very fragile economy, or stay the path and risk the inflationary consequences.

AMEN!

Alan Bernanke.......

It took the Fed only one quarter to reverse almost 50 percent of the past 2 years of rate increases. But this is what happens when all your models are so out of touch with reality & you are ignoring your duty for oversight. I think if there will be any rate increases in the distant future they will start with well telegraphed measured 0,125 % steps...... I assume that it is more likely that Elvis is still alive than that the Fed will ever orchestrate an emergency rate hike..... Unfortunately i havn´t found a broker that is willing to accept that bet :-) The next question will be if the Greenbag is on its way to become the new currency for the next wave of carry trades.....

Die Fed hat binnen eines Quartals bis Ende Januar vermutlich die Hälfte ihrer Zinserhöhungen zurückgenommen für die sie in ihrem mühseligen Normalisierungsprozess ( 0,25% Schritte ) zwei Jahre gebraucht hat. Eine echt reife Leistung. Das ist aber wohl der Preis dafür das man vollkommen an der Realität vorbeilebt und sich nach Modellen richtet die aus der Steinzeit stammen. Zudem hätte ein Großteil des Wahnsinns vermieden werden können wenn die Fed Ihrer Aufsichtspflicht nachgekommen wäre und die meisten der durchgeknallten Darlehensfinanzierungen nicht durchgewunken hätte. Ich befürchte schon jetzt das sich die Fed im nächsten Zinserhöhungszyklus (irgendwann in 10 Jahren) zu gewaltigen Zinsschritten von 0,125% entschließen wird.... Zudem ist wohl wahrscheinlicher das Elvis lebt als das die Fed jemals eine ausserplanmäige Zinserhöhung initiieren wird.. Leider haben ich noch kein Wettbüro gefunden das diese Wette entgegennimmt..... :-) Die nächste Etappe wird wohl sein das der Greenback die neue Carry Trade Währung werden könnte....

From panic to penicillin - Bernanke, blogged Ft Alphaville

Less Than Respectful Commentary on the Fed Put and Fiscal Rescue Efforts Naked Capitalism

Five Things You Need to Know: Emergency Rate Cut, What It Means and What to Do Minyanville

Greenspan Put Is Dead. Long Live Greenspan Put: Caroline Baum Bloomberg

The Fed Blinked: Now, What? Herb Greenberg

Bernanke Blinks Mish

Desperate measures Economist

Es riecht nach Verzweiflung FT Deutschland

Time to remember this great chart from Minyanville showing how stupid the case "Don´t fight the Fed" is...

Höchste Zeit sich den wunderbaren Chart von Minyanville anzusehen der einmal mehr eine angebliche Börsenweisheit "Don´t fight the Fed" entzaubert.....

Lots of the mess can be blamed on Greenspan but as shown in this excellent piece The Education of Ben Bernanke from the NYT ( Hat tip to Hellasious from Sudden Debt ) i doubt that Bernanke would have done much differently.... Especially after the latest actions......

Sicher kann ein Großteil des aktuellen Unheils Greenspan angelastet werden aber dieser großartige Bericht The Education of Ben Bernanke der NYT ( Dank an Hellasious von Sudden Debt zeigt eindeutig das Bernanke wohl ganz ähnlich gehandelt hätte ( siehe Aktion gestern ) .......

Bernanke is also firmly opposed to the notion that central banks should raise rates to prick bubbles in the stock market or elsewhere. In a paper written at the height of the dot-com mania, in late 1999, Bernanke and his friend Gertler argued that it is virtually impossible to identify a bubble before it pops.....

Bernanke made a small contribution to a problem that would blossom in a big way on his watch. In the aftermath of the 2001 recession, inflation was at its lowest level in decades. Though consumer prices were rising, Bernanke feared a possible bout of deflation — the potentially devastating phenomenon in which prices drop, leading to lessened business activity and then still lower prices and so forth. This occurred during the Depression and also in Japan in the 1990s. Bernanke’s argument provided a major element of support to Greenspan for keeping interest rates low

But as a goldbug/bull you gotta love these guys......

Aber als Goldbulle muß man solche Typen einfach lieben.....

More Greenspan Bashing

Compare this with the exclusive view from Greenspan Alan Greenspan explains the roots of the mortgage crisis If you can stand more from Greenspan click here or watch the following video

Vergleicht das mit den doch bedenklichen Aussagen von Greenspan......Alan Greenspan explains the roots of the mortgage crisis Wenn Ihr noch mehr von Greenspan vertragen könnt klickt bitte hier oder seht einfach das folgende Video



Fed Shrugged as Subprime Crisis Spread NYT

bigger / größer

Fed, Greenspan & Bernanke Bashing Part XXII......

Enjoy! Viel Spaß!



Open Letter to Federal Reserve Chairman Ben S. Bernanke From: Eric Janszen / iTulip

Greenspan Cartoon

With the trouble just beginning and more and more people waking up i ´ll bet that the credibility of almost all central banks will take a significant hit. But when you have to fund big deficits like the US the problem is getting worse.....

Nachdem der Ärger gerade erst begonnen hat und immer mehr Leute aufwachen ist es nicht gewagt zu prognostizieren das das Vertrauen in die Zentralbanken ( auch ausserhalb der "Bloggerwelt" und den "Goldbugs") rund um den Globus erheblich leiden wird. Das ganze wird besonders für die Staaten zum Problem die hohe Defizite wie z.B. die USA finanzieren müssen....

Hat tip to New York City Housing Bubble & The Mess That Greenspan Made

John Steward Is Nailing Greenspan And The Fed / A Must See

Very telling if you have to watch the "Comedy Central" to get good business news coverage and someone who is willing to ask the obvious..... Make sure you also watch the Fed Cartoon Special

Ist es nicht bedenklich das man erst den "Comedy Central" einschalten muß um mal vernünftige Fragen zu hören..... Laßt Euch in diesem Zusammenhang nicht das Fed Cartoon Special entgehen

Fed Cartoon Special :-)

After Bernanke has "pulled a Greenspan" i think it is time for some Fed cartoons. And often enough there is a little bit of truth in there..... ;-)

If you want something rational about the Fed i suggest to read The Fed: Magical Fairies and Pixie Dust from Hussman or just watch this Chart from Minyanville.

On top of this the post Dollar = Confetti? comes to mind..... Please check the comments for other cartoons, quotes and links.

Nachdem Bernanke gestern nun den "Greenspan gemacht" hat kann es nicht schaden eine Kollektion in Sachen Fed Cartoons auszugraben. Und oft genug verbirgt sich ja in diesen Bildern zumindest ein Fünkchen Wahrheit.... ;-)

Wer es etwas rationeller liebt dem lege ich The Fed: Magical Fairies and Pixie Dust von Hussman bzw. diesen Chart von Minyanville ans Herz.

Keine Ahnung warum mir spontan zu dem Thema noch das Posting Dollar = Confetti? einfällt......... Für weitere Cartoons, Zitate und Links bitte in den Kommentaren stöbern

Thanks to Orangequant

Thanks to Wall Street Follies

Thanks to Cox & Forkum

The following one has nothing direct to do with the Fed but......

Der nachfolgende Cartoon hat zwar nichts direkt mit der Fed zu tun, aber......

Unmasking Greenspan Vol. XXIII....

SCHADENFREUDE! I can´t wait to see his new book (already at a 34% discount) to become a major flop. This guy is the most overrated person in the financial history. But this will change very soon. The timing couldn't have been much worse. For more "Greenspan Watch" i recommend Tim´s blog The Mess That Greenspan Made .

Tut mir leid, aber ich kann meine Schadenfreude nicht wirklich unterdrücken. Ich kann es nicht erwarten zu sehen wie das neues Buch ( bereits jetzt mit einem Abschlag von 34% zu erhalten) von "Easy Al" in den Regalen verstaubt oder aber zumindest in alle Einzelteile zerlegt wird. Das Timing hätte schlechter nicht sein können. Der wohl am meisten überschätze Notenbänker aller Zeiten (wird sich sicher in Rekordgeschwindigkeit ändern). Mehr über die Entzauberung von Greenspan findet Ihr regelmäßig auf The Mess That Greenspan Made

Taken from Bush, Bernanke and a bad bailout / Fleckenstein
Of course, as the mortgage-for-anyone-with-a-pulse party was in full bloom, Greenspan was busy cheerleading. In a speech April 8, 2005, Greenspan extolled the virtues of sublending:

"With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . . As we reflect in the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial-services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. . . . This fact underscores the importance of our roles as policymakers, researchers, bankers and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers."

Naturally, it was not until after the debacle unfolded that Greenspan warned banks about imprudent lending standards.

> Another example of how the times have changed is the fact that the book from Hyman Minsky is only available within within 4 to 6 weeks. If you want to buy it now you have to buy a used one and pay at least $167,85 / 34% premium....... ;-)

> Ein praktisches Beispiel das zeigt wie sehr sich die Zeiten geändert haben ist die Tatsache das für das Buch von Hyman Minsky zur Zeit Lieferfristen von 4-6 Wochen in Kauf genommen werden müssen. Wenn man es sofort kaufen möchte muß man auf ein gebrauchtes Exemplar zurückgreifen und mindestens $167,85 / 34% Aufschlag zahlen..... ;-)

> The NYT is reporting in "Greenspan Blogs? Not for Long!" that Greenspan has shut down his blog to promote his new book after only one post....

> Passend dazu berichtet die NYT in "Greenspan Blogs? Not for Long! " das Greenspan seinen Blog zur Promotion seines Buches nach nur einem Post eingestampft hat ......

Stephen Roach Bashing Central Banks / Bloomberg Interview

Looks like he has recovered from his blip when he went bullish in 2006 Even Roach is bullish, so is it time to sell? ..... Welcome back ;-)

Click on the headline to start the interview.

Sieht ganz so aus als wenn er seine kurze optimistischen Phase aus dem Jahr 2006 Even Roach is bullish, so is it time to sell? überwunden hat.... ;-)

Klickt bitte auf die Überschrift um das Video zu starten.

Hardly a Bailout / Hussman

Excellent sober analysis what the Fed and other Central Banks have done as you would expect from Hussman. There has been lots of confusion and misreporting what really happened last week. Click on the headline to read the entire piece. In combination with Mish´s take you should get a 360 degree view of the implications from this massive injection.

Wie man das von Hussman erwarten kann einer erstklassige nüchterne Analyse was genau von Seiten der Notenbanken in der letzten Woche veranstaltet worden ist. Klickt bitte auf die Überschrift um den kompletten Report zu lesen. Um das Bild abzurunden empfiehlt sich Obendrein Mish´s Post
The Federal Reserve did exactly what it was supposed to do on Friday.

As I've noted before, under most conditions, the Federal Reserve is irrelevant in the sense that (since the early 1990's when reserve requirements were removed on all but demand deposits) there is no longer a link between bank reserves and the volume of lending in the banking system. However, the Fed certainly has a role to play during bank runs and other crises where the demand for the monetary base soars.

That's exactly what the Fed did on Friday. Contrary to the apparent belief of investors, the Fed did not shift its policy, nor did it “bail out” the mortgage-backed securities market by “buying” them from banks.

What actually happened is that the Federal Funds rate shot to about 6% on Friday morning, and the FOMC brought it down to its target rate by entering into 3-day repurchase agreements . The banks sold securities to the Fed on Friday, and are obligated to buy them back from the Fed on Monday at the sale price, plus interest. Such open market operations are designed to ease the immediate demand for liquidity, and to give the banks and dealers more time to find buyers in the open market for the securities they are trying to liquidate.

This was not a major policy shift. Again, it was an effort to keep the Federal Funds rate at the current target of 5.25%, in the face of demand for base money that was pushing the Fed Funds rate to 6%.

These repurchase (RP) agreements fall into three increasingly broad “tranches:” 1) Treasury securities, then 2) federal agency debt, and finally 3) mortgage backed securities issued or fully guaranteed by federal agencies. “Today's RPs were of this type,” noted The Federal Reserve Bank of New York , which conducts the Fed's open market operations. So the Fed was not taking in the toxic, leveraged, exotic stuff.

Economist Steven Cecchetti concurs, “A quick look at the history of these temporary open market operations shows that they have been taking mortgage-backed securities as collateral for repo for some time. The quantities have normally been small (between $100 mil and $2 bil) but they have been doing it. So this is not what I would call an ‘intervention in the mortgage-backed securities market.' And it is not unusual.”

> SCHADENFREUDE that Greenspan new book is hitting the shelves just at the time his legacy is almost gone to zero.......

> Kann mit meiner SCHADENFREUDE nicht wirklich hinterm Berg halten das just zu Zeiten wenn von seinem Glanz der Lack komplett abgesplittert ist sein Buch die Regale entern wird.....

Now, the size of the operation ($38 billion) was unusual, as was the scale with which the Fed allowed dealers to submit mortgage-backed securities as collateral, rather than simply Treasury and agency securities. My impression is that in doing so, the Fed had no intent of “bailing out” the mortgage backed market, or of creating a huge “moral hazard” by absorbing losses for the irresponsible behavior of lenders. Rather, the Fed had to allow submission of mortgage-backed securities because that's what the banks actually own, and it's precisely the collateral for which the banks can't find a buyer.

Look at Treasury bill yields – they're dropping sharply again because investors are scrambling for default-free securities as a safe haven. Banks and dealers have no problem selling those puppies on the open market, so there's no reason to enter a Fed repo to do it. But banks have drawers full of the mortgage-backed stuff that they can't get rid of, so the Fed bought them more time by allowing them to post those securities as collateral for 3 days. Most likely, the Fed will have to do it again on Monday, but in any event, these are not securities that are going into the “investments” column of the Fed's balance sheet. They are simply collateral taken for short-term credit extended. The Fed does not assume a risk of loss unless the bank defaults on the repurchase agreement with the Fed

A few interesting details – in the midst of Friday morning's panic, banks would have liked to have done more. At the 8:25 AM operation, $31 billion of securities were submitted by the banks for repo, and $19 billion were accepted by the Fed. At 10:55 AM, $41 billion were submitted, and just $16 billion were accepted. But by 1:50 PM, the scramble for funds had eased somewhat - $11 billion were submitted, and $3 billion were accepted.

Given that about $1.4 trillion of interest-only adjustable-rate mortgages were issued in 2005 and 2006, and hundreds of billions in sub-prime mortgages are already delinquent, a $38 billion repurchase operation by the Fed, where the securities posted as collateral have to be bought back by the banks unless the banks default, is hardly a “rescue operation.”

The Fed has an interest in stabilizing the banking system and the real economy. It has no interest in taking the private sector's loss for the irresponsible lending practices of recent years, nor in saving overly aggressive hedge funds from the losses on their leveraged bets. Again, the Fed did exactly what it was supposed to do on Friday. There will inevitably be enormous losses taken as a result of mortgage defaults – but don't assume it will be the Fed that takes them.

Kass: Four to Blame for the Subprime Mess

i´m glad that greenspan is alive and well and that he can/must see that his legacy is going down day by day. i´m pretty sure that when the slump is over in a few year (or longer) that his reputation as "the greatest central banker of all time" will no longer stand.

ich bin wirklich froh das greenspan das noch zu lebzeiten erleben muß. sein vermächtnis wird wohl noch auf jahre wirken. ich bin mir ziemlich sicher das nachdem die scherben irgendwann zusammengekehrt sind seine reputation als angeblich" bester zentralbänker aller zeiten" nicht länger bestand haben wird. bitte unbedingt sein reden lesen.....spätetens da dürfte der lack ab sein.....

There are four main culprits responsible for the expanding subprime debacle that threatens to upset the 'Goldlicks' scenario so many are trumpeting. I've listed them in descending order of importance -- and ranked by school grade!:

Culprit #1: Former Federal Reserve Chairman Alan Greenspan was no smarter than a fifth grader.

Greenspan did two big things wrong.

First, the former Fed chairman took interest rates far too low and maintained those levels for far too long a period in the early 2000s, well after the stock market's bubble was pierced. (Stated simply, he panicked).

The Fed's very loose monetary policy served to encourage the new, marginal and non-traditional home buyer -- the speculator and the investor, not the dweller -- to embark on a speculative orgy in home purchases not seen in nearly a century. ...

Second, Greenpsan suggested -- at just the wrong time and at the very bottom of the interest rate cycle -- that homeowners retreat from traditional, fixed rate mortgages and turn to more creative and floating rate mortgages -- interest only, adjustable option ARMs, negative amortization, etc.

He said this in February 2004 at a Credit Union National Association 2004 Governmental Affairs Conference:

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

thanks to http://themessthatgreenspanmade.blogspot.com/

One year later Greenspan continued the same mantra and cited the social benefits of the financial industry's innovation as reflected in the proliferation of the subprime mortage market.

"A brief look back at the evolution of the consumer finance market reveals that the financial services industry has long been competitive, innovative, and resilient. Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country. With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10% of the number of all mortgages outstanding, up from just 1% or 2% in the early 1990s...(now over 20% )

We must conclude that innovation and structural change in the financial services industry has been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. Without these forces, it would have been impossible for lower-income consumers to have the degree of access to credit markets that they now have. This fact underscores the importance of our roles as policymakers, researchers, bankers, and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers. "

But even as Greenspan was taking interest rates to levels that encouraged the egregious use of mortgage debt and exhorting the opportunities in creative and variable mortgage financing, there were some smart cookies out there who recognized the risks; here are quotes from two of the smartest who warned of the danger in the mortgage market.

"When I took economics in World War II, and we were studying the Great Depression, one of the reasons given were all the interest-only loans that came due. They were an indication of an economy getting into unsound lending. Ever since then it's been a rule that when you go into interest-only loans, you're very substantially increasing the risk of default. "

-- L. William Seidman. Former Chairman of the Federel Deposit Insurance Corporation and Chairman of the Resolution Trust Corporation

Our own Robert Marcin put it even more precisely (and vividly) in his prescient warning back in mid-2005.

"If Greenspan had a clue (remember, he didn't have one in the tech bubble, or aybe he did), he would jawbone the banking industry to tighten or even strangle lending standards for residential real estate. He should not kill the entire economy to slow the real estate markets. Now that bag people can buy condos in Phoenix with no down payments, maybe the Fed should get involved. You can't expect mortgage bankers to do anything; they get paid to lend money. But like Greenspan's unwillingness to raise margin rates in 1999, I expect him to do nothing until the market declines. Then, the taxpayers will be on the hook for the stupidities of the real estate speculators. Remember, I expect a sequel to the RTC in the future. "

-- Robert Marcin, Making Money Before Housing Crumbles.

Greenspan will go untouched and will continue to give speeches at $200,000 a pop.

Culprit #2: Irrational lenders like Novastar, New Century, Fremont General, Option One, Accredited Home, OwnIt Mortgage Solutions and others were no smarter than a sixth grader.

Many of these mono-line subprime lenders grew from nothing to originating billions of dollars of mortgage loans almost overnight. Their rush to lend and helter skelter growth relied on the candor of the mortgagees and not on common sense, prudent lending or reasonable underwriting standards.

The growth in subprime-only originators was irrational, but the industry will now be rationalized and the marginal lenders will go bankrupt. And, in the fullness of time, the more diversified lenders will benefit from their demise.

Culprit #3: Wall Street was no smarter than a seventh grader.
The role of the brokerage community in the packaging, warehousing and trading of mortgage securities is immense, with about a 60% share of the mortgage financing market. After tax shelter abuses in the early 1980s, junk(y) bonds in the late 1980s, overpriced technology stocks and ludicrous IPOs and disingenuous research reports in the late 1990s, one would think that Wall Street had learned its lesson.

It has not.

Defending the indefensible -- despite the "policing" of the SEC and Gov. Spitzer's initiatives -- remains Wall Street's credo. Time and time again, the major brokerage firms exist for the purpose of selling product (stocks and bonds), not for providing objective research or for the commitment to client's profitability. The higher a market surges, the easier it is for Wall Street to peddle, and package, junk.

The magnitude of the potential gains are always too attractive and tempting particularly as product demand swells into another cycle excess, as it did in subprime. Astonishingly, even the obligatory emergency conference calls intended to persuade investors that all is well were superficial and failed to disclose the inherent conflicts that each and every multiline brokerage has.

thnaks to http://www.itulip.com/

The major brokerages will be litigated against -- again. They will pay large fines but will proceed in business until the next bubble -- which they will also capitalize on.

Culprit #4: The rating agencies were no smarter than an eighth grader.
The little-known secret in the subprime market is that the principal ratings agencies have been lax in their downgrades of subprime paper and securitizations. This should not be considered a surprise, because like their Wall Street brethren, they prosper from the rising tide of credit issuances. In doing so, like a teacher who has turned his back on a boisterous and disobedient class, those recalcitrant agencies -- Moody's, Fitch and S&P -- have ignored the erosion in credit quality and abetted the rush and market share taking of subprime lending.

According to Jim Grant's Interest Rate Observer, downgrades at Moody's were even with upgrades in 2005. In 2006, downgrades/upgrades rose slightly to 1.19 to 1; this compares to the historical downgrade/upgrade ratio of 2.5 to 1. Importantly, until downgrades are issued by the agencies, investors routinely carry their investments at cost, or par -- downgrades force investments to mark to market ... and sell.

The rating agencies will likely go unscathed because they always do.

amen!

read also

"I Hear Nothing! I Know Nothing!" from tim http://tinyurl.com/2ahvxs

"The Blame Game " from mish http://tinyurl.com/yr9q3m

click on the labels and skip the first/this one to read more

Derivatives Trading Soars to $370 Trillion / buffets "weapon of mass destruction"

as is wrote before. i´m waiting for the first real stresstest. i think that the derivatives are like buffet said "financial weapons of mass destruction". watch this stat and i have problems with the generall thinking that the counterpart always pays for the (false) "security"

.....wie ich schon vorher beschrieben habe warte ich auf den ersten realen stresstst. ich teile die meinung von buffet das es sich hier um "massenvernichtungswaffen" handelt. guckt euch die folgende statistik an und fragt euch ob sichergestellt ist das in panikzeiten diese versicherung nicht ne leere versprechung ist.(weil z.b. der hedgefonds untergeht).

Here we learn that hedge funds account for 32 percent of credit-default swap sellers and 28 percent of buyers, up from 15 percent and 16 percent in 2004, according to a British Bankers' Association report last month




it is also scray that the derivates exceeds often the amount of underlying assets like gold, stocks, bonds etc.


Credit-default swaps also are used by money managers as a cheaper and quicker alternative to buying and selling bonds. When Delphi Corp. filed for bankruptcy on Oct. 8, there were $20 billion of credit-default swaps related to its $2 billion of bonds (10xlarger!)


more on derivatives/derivaten

http://immobilienblasen.blogspot.com/2006/09/shadows-of-debt-economist.html
http://immobilienblasen.blogspot.com/search?q=creditinnovation
http://immobilienblasen.blogspot.com/2006/08/credit-default-swap-chaos.html
http://immobilienblasen.blogspot.com/search?q=hedgefunds+derivatives

dank an mish und sein http://www.markettradersforum.com/forum1/

http://tinyurl.com/yctych
Nov. 17 (Bloomberg) -- The use of derivatives grew at the fastest pace in eight years during the first half of 2006, boosting earnings at securities firms and reducing costs for investors.

The face value of derivatives based on corporate bonds, currencies, interest rates, commodities and stocks jumped 24 percent to $370 trillion, according to the Bank for International Settlements. It was the biggest percentage rise since the bank began keeping records in 1998.

Trading in credit-default swaps, the fastest-growing derivatives market, helped spur record earnings for banks including New York-based Morgan Stanley and Goldman Sachs Group Inc. At London-based Barclays Capital derivatives accounted for more than 60 percent of revenue and profit, Chief Executive Officer Bob Diamond said in May. http://immobilienblasen.blogspot.com/search?q=hedgefunds+derivatives

``The pace of growth is going to have continued unabated in the second half of the year,'' ....

The amount of outstanding credit-default swap contracts jumped to $20.3 trillion from $13.9 trillion at the end of last year, ....... The securities are financial instruments based on bonds and loans that are used to bet on an increase or decrease in indebtedness.

Investors who buy the contracts are paid the face value of the underlying debt in exchange for the defaulted notes should the company fail to adhere to debt agreements. A decline in the cost of the contracts indicates an improvement in the perception of credit quality; an increase signals deterioration.

Contracts Cheaper
Banks and hedge funds say it's cheaper and easier to use the contracts than buying or selling the underlying securities. ....

Within the credit derivatives market, trading on indexes based on groups of companies soared as much as 86 percent, the report said.

``Greater standardization, deeper liquidity and more efficient pricing'' is helping to boost trading, said Sunil Hirani, chief executive officer of New York-based Creditex Group Inc., one of the brokers that matches buyers and sellers in the market. ``The number of participants will continue to grow.''

Greenspan Comments
Alan Greenspan, the former chairman of the Federal Reserve, has been saying since 2002 that derivatives reduce risks by making financial markets resilient to shocks. In May he told a Bond Market Association gathering in New York that derivatives are the most significant change on Wall Street ``in decades.'' make sure you read the other insights from alan g! (about housing, hedge funds, savingsrate etc..) and you know why i´m with buffet......
http://immobilienblasen.blogspot.com/search?q=interview+alan+greenspan


picture: thank to tim http://themessthatgreenspanmade.blogspot.com/

The rapid growth of derivatives is also raising concerns that their ease of use may lead to market abuse such as insider trading related to leveraged buyouts, after unusual price changes occurred prior to the announcement of takeovers in the U.S.

.....Trading in derivatives overall grew 24 percent in the first six months, compared with 5 percent in the second half of 2005, the BIS said.

Interest-rate swaps, which make up 70 percent of the derivatives market, rose the most in Europe, growing 27 percent in the first half compared with 18 percent in the U.S., the report said.

The outstanding amounts of derivatives (All numbers in $trillion).
End-June 2005 End-Dec 2005 End-June 2006
Interest rates 204.7 211.97 262.3
Credit 10.2 13.9 20.3
Equity 4.5 5.7 6.7
Commodities 2.9 5.4 6.4
Foreign Exchange 31 31.3 38.1
Unallocated 27.9 29.1 36

make sure oyu read the credit bubble bulletin from the great doug noland http://tinyurl.com/wymb6

scroll down to the last part Derivatives “Insurance”: