Here is the story I was going to publish before I found the secret meetings treasure trove from London. It is now pretty obvious, despite amazing injections from all over the planet and all the central banks, the financial/trade systems are badly broken and this is not getting better, it is getting worse. So we shall look at charts and graphs, the usual way to see this process at work:
Looks to me that only 1% expect to be able to give back money to investors? Wow! And nearly 90% want to have investors give them money! The few remaining parties hope to tread water and see what happens next. Certainly, the only way there can be a flood of money for ‘new funds’ in a world utterly starved of profits is to be capitalized via the central banks. And lord knows, the central bankers are trying this as hard as they can!
Of course, investing in buying stuff doesn’t work unless one can either sell the bonds funding these sales or sell what they buy a short while later to someone else who has even more money to spend. Doing this in the absence of any capital appearing via labor coupled with production, is impossible except if a faux economy is created via someone like Geithner doubling the amounts of money in circulation via buying US Treasuries from a deep in debt government in the US.
The Bank of Japan money machine broke when the yen shot up in value in the last year. In today’s previous article, I reproduced a press release from the Treasury which has Geithner actually mentioning that Japan’s fall in production was directly tied to the yen being strong. Hooray. Maybe, in the next press release, he will also mention that the Japanese carry trade flooded the world with faux dollars which now are self-destructing as all the debts denominated in dollars and euros and pounds vanish as people cease paying their debts.
So, a majority of funds that hope to pick up the pieces are expecting more ‘distressed M&A transactions’? Not even a majority, nearly 100% of them expect this. So they won’t be buying if they are expecting fire sales to increase. Why bother? Prices will be lower tomorrow and tomorrow is another day.
Al Jolson singing while in black face [yes, the US was a very racist society in the past!] This also reminds us that much of the aid for the collapse in the Great Depression maliciously avoided helping minorities.
And more of these guys, despite 89% wanting more funds, expect finding funds to be very hard.
Mergermarket.com is amusing. I like the opening title to this page of their report:
THE CANDY STORE IS OPEN
From 2005 to 2007, leveraged loan issuance skyrocketed, with
outstanding loans reaching nearly $600 billion by the end of 2007
Today, approximately 80% of the loan market is categorized as
“distressed” (trading at a secondary spread of over 1,000 basis points).
This is a seismic change from December 2007 and June 2008, when
only 3% and 13% of loans traded at these levels, respectively. Similarly
the corporate default rate has risen from the grave – moving from near
zero percent in 2007 to a healthy 3.7% in 2008
. The level of leveraged
loan debt currently in default, at over $22 billion, eclipses previously
seen levels for the past 10 years and is only likely to grow. To put this in
perspective, if the default rate reached 9%, as is projected by S&P, the
corresponding amount of defaulted leveraged loans would reach $54
billion. We are likely nowhere near done, and default rates could double
or even rise well into double digits.
If 9% in default translates into $54 billion in losses, this means double digits will be over $100 billion? Would not surprise me. No wonder over 90% of all the dealers think getting funds to buy these things will be next to impossible. And notice the highlighted word at the top: Leveraged loan issuances. This is due to all the barriers and prohibitions of the post-Great Crash of 1929 were overturned and people running outfits like JP Morgan were permitted to run operations based on tremendous leverage.
To reassure each other that these leveraged deals would not implode like in the Great Depression, the Derivatives Beast was born and grew to immense size. It was supposed to trigger a cascade of money to bail out losers if their bets soured.
Instead, it ate up everything and everyone.
The spread on second level loans has shot upwards. This graph clearly shows how things have very suddenly deteriorated. Prices are falling and the spread is rising like a rocket. No free money here nor any safe buys even if it is very cheap. The whole system depends on easy lending.
Ouch! The default rate from the Dot Com Bubble shot up to 10%. But look at the amounts involved in that! Hardly anything compared to today. The amount is almost double today. And this is from Year One of the Great Depression II. And it is 10x worse for a leveraged loan to default.
Leveraged LoanWhat Does Leveraged Loan Mean?
Leveraged loans are loans extended to companies or individuals that already have considerable amounts of debt. Lenders consider these loans to carry a higher risk of default and, as a result, a leveraged loan is more costly to the borrower.Investopedia explains Leveraged Loan
Leveraged loans for companies or individuals with debt tend to have higher interest rates than typical loans. These rates reflect the higher level of risk involved in issuing the loan. In business, leveraged loans are also often used in the leveraged buy-outs (LBOs) of other companies.
Leveraged loans were the main form of wealth-creation of the hedge fund and funny money gnome community. They loved this system and no leveraged loan was sweeter than the sweetest of them all: the damn Japanese carry trade!
So far the Obama Administration’s talk about fixing the economy through buying toxic assets, creating a bad bank, and deploying more TARP funds has left many financiers cold. That’s why some leading Wall Street heavyweights including Thomas Flexner, the global head of real-estate investment banking at Citigroup, Wes Edens, the CEO of Fortress Group, and Barry Sternlicht, CEO of Starwood Capital Group, have been quietly circulating their own proposal. FORTUNE recently obtained a copy.
The idea, as drafted and as articulated by Citigroup’s Flexner, is for the government to create a massive new fund to lend money at a fair price to professional investors — pension funds, hedge funds, private equity funds and endowment funds — for the sole purpose of providing reliable long-term financing to allow these investors to buy the various “toxic assets” in the secondary market that are now frozen on the balance sheets of financial institutions the world over.
HAHAHA. If the Bank of Japan can’t give out the ‘Candy’ as mentioned in the earlier story here, why, Uncle Sam will do it! Why on earth do we prop up criminal operations like Citigroup, Fortress Group, etc.? Why not support drug gangs in Afghanistan? Oops, we do! At least, they have profits! And thus, are capitalized.
These gnomes are ‘quietly’ circulating this rip-off scheme because, if it makes big news like I am trying here to do, it will cause riots.
This is a practitioners’ plan, born of an inviolate belief that the way out of the current crisis is to create a dynamic where frozen assets can be bought and sold and a semblance of normal trading can resume. A version of this idea has surfaced before, most notably in an October 2008 Bloombergcolumn by Sandy Lewis, the onetime Wall Street arbitrageur and son of Cy Lewis, the legendary senior partner of Bear Stearns, where Lewis called for the creation of a Public Value Fund to help spur trading in the toxic assets. But unlike Lewis, Flexner, Edens and Sternlicht are still in the game and have serious Washington connections, especially with Senator Chris Dodd, chairman of the Senate Banking Committee.
I am betting the clowns who Obama chose to be his economic advisors will give this criminal scheme a good look. And I bet Congress would be quite enthusiastic if only they can do this with no one noticing. A ‘Public Value Plan’ sounds like something McDonald would sell. ‘Would you like a super-size drink with your Public Value Plan?’
So, Flexner, Edens and Sternlicht have connections to Dodd and the Democrats? HAHAHA. Someone should tell poor Kos about this.
Flexner is connected to my former Congresswoman and now, new Senator, Gillibrand! Yes, he is very connected. Next is Edens:
Yup, Edens’ garden is has dense hedges of US Congress plants. As well as many interesting trees. His apple trees have many apples and I dare suggest, he is the Snake. I see a total of 250 lobbyists who toil in this Garden of Eden.
“The reality,” he writes, “is that government guarantees substitute the creditworthiness of the United States Treasury for the creditworthiness of underlying borrowers and merely create a broader range of risk-free market alternatives for investors to pick from — you don’t like Treasuries, buy some guaranteed asset-backed paper or perhaps a guaranteed bank bond. Capital is flowing but largely within and among markets that enjoy explicit government backing. Capital is not flowing into unsupported credit sectors where risk is perceived to exist.”
Think of it this way: The credit markets are like a perfectly good neighborhood where housing prices have fallen 50% from their highs. There are reputable landlords around who want to buy these houses at a fair price, spruce them up, rent them out and when the market comes back in a couple of years try to sell them for a profit. They are willing to make a bet that things are close to the bottom and will improve. The problem? They can’t get a mortgage to buy the homes. Not at 6%, not at 10%, not at any reasonable percent.
The new government fund would get banks, hedge funds and other investors what they desperately need, want and can’t find, a reliable source of long-term secured financing to allow them to make the bets using their own equity, to get their desired returns based on a belief that the value of the rogue securities has been driven down to absurdly low levels since there simply is no market for them.
As we saw in the pie charts at the top, these poor investors living in crummy houses that are deteriorating fast due to vandalism, will be able to ‘rent’ the FUTURE TAX VALUES OF ALL AMERICANS and borrow it cheap! And live in their pretty mansions, have pretty prostitutes service them and have pretty yachts and live like lords while we take up all the potential risk that these goofy gnomes won’t default on their cheap loans due to going too deep into debt, gambling??? HAHAHA. No way in hell.
The economic situation continues to erode or perhaps, fall off the cliff. Eh. Japan is going down particularly hard. They would dearly love to see the Japanese carry trade resume, their own fates are tied directly to flooding the planet with faux dollars.
(CNN) — On what was to be a historic day halting all of Toyota’s Japanese assembly lines, the automaker announced late Thursday that it kept one line running.
The late news sent copy editors and reporters to their laptops erasing headlines like “historic shutdown,” but it did little to quell the pain for the tens of the thousands of workers idled across Japan as nearly every Toyota line stopped producing autos and auto-related equipment.
|Toyota Opens Throttle On Cost-Cutting As Record Op Loss Looms
NAGOYA (Nikkei)–Toyota Motor Corp. (7203), which said Friday that it is now girding for a group operating loss of 450 billion yen for the year ending March, is stepping up efforts to quickly stanch the flow of red ink.
Pioneer To End TV Production, Spin Off DVD Development
TOKYO (Nikkei)–Pioneer Corp. (6773) will pull the plug on its loss-ridden television business and shift its DVD player operations to a new venture with Sharp Corp. (6753) in a sweeping overhaul, The Nikkei learned Friday.
Stock Losses Blotting Out Japanese Banks’ Moment In Sun
TOKYO (Nikkei)–Despite having emerged relatively unscathed from the global financial crisis, Japan’s major banks have fallen prey to the stock market downturn and snowballing bad loans.
TOKYO (Nikkei)–The Nikkei index that forecasts consumer spending six months down the road fell 9.3 points to 66.7 in January, hitting a record low for the second straight month.
Below is a 5 part series on You Tube, a standard documentary of the 1929 Stock Market Panic. It is totally US-centric with only a passing mention of the rest of the planet. Still, it is good to watch it as we continue on the same trajectory.
YouTube – 1929 Stock Market Crash (Part 1)
P.O. BOX 483
BERLIN, NY 12022
Make checks out to ‘Elaine Supkis’