CREDIT SPREADS EQUALS BANKER PROFITS

santa_and_snidely_whiplash_3

Another video, this time, I try to explain why bankers love credit spreads more than they love dear, old mom.  They do poorly when there is less than 1% differential but stuff their pockets when it is over 4% differential.  This is why they are so very happy to let us all refinance our homes with ‘cheaper’ mortgages but these are at record spreads, yet again!

The Associated Press: Obama: Timing right for millions to refinance

President Barack Obama says millions of Americans can save money by refinancing their homes and taking advantage of record low rates on fixed mortgages.

Speaking at the White House, Obama on Thursday emphasized that that average rates on 30-year fixed-rate mortgages have dropped to 4.78 percent. That is the lowest rate on record.

Said the president: “People can really take advantage of this.”

Obama is our #1 salesman.  So was Bush and his daddy, Clinton and the genial Reagan. Jimmy Carter was not a salesman!  He wanted us to save money, pay higher interest rates, close our trade deficit and make ourselves less dependent on foreign energy suppliers.  We hated this.  We want our Presidents to all be Santa Claus.

But behind every Santa lurks Snidely Whiplash.  This is the guy who wants us to be paying him lots and lots of interest money on lots and lots of debts.  The principal owed only matters to him if we default.  Then, he has to pay it.  Or at least, this is the theory.   In actuality, he goes off to our Santa President and Santa Federal Reserve and demands they take up the bad loans and pay off the principal or else, he will kill our entire economy and plunge the entire planet into chaos!

Wells Fargo Posts Record First Quarter, Sparks Rally (Update5) – Bloomberg.com

 Wells Fargo & Co., the second- biggest U.S. home lender, reported a record first-quarter profit that beat the most optimistic Wall Street estimates, sparking a rally in bank shares on speculation that the industry’s slump has ended.

Net income rose 50 percent to about $3 billion from $2 billion a year earlier, the San Francisco-based lender said today in a preliminary earnings report. Profit of about 55 cents a share was more than double the average estimate of analysts surveyed by Bloomberg. The acquisition of Wachovia Corp., whose overdue home loans helped cut Wells Fargo’s stock price in half this year, is exceeding expectations, the statement said.

The results add to evidence of a banking rebound after Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp. reported gains for January and February. Lenders benefited from a surge in home loans as interest rates fell below 5 percent, and President Barack Obama said today U.S. refinancings rose 88 percent in March. Wells Fargo closed $100 billion of mortgages in the quarter, with an equal amount waiting to be completed.

Gold is plunging due to everyone rushing to the real gold rush: bankers have been recapitalized by seizing yet more of our future taxes.  All the Santa Presidents cut taxes so we ran our government in the red, really badly.  But interest rates dropped, so we didn’t care!  Let’s look at some Fed Reserve graphs:

ALFRED: ALFRED Graph

housing-bubble-and-bank-profit-squeeze

Notice the periods when there were profit squeezes!  They coincide with recessions!  I see something developing here.  The Fed dealt with the very short little recession last time by deliberately widening the spread between what bankers get from the Fed and then, what they charge us!  The 2003-2004 spread was THE BIGGEST IN HISTORY!

picture-22

This graph covers my entire life.  From 1970 to 1985, there was only one period when the Fed fund rate was much lower than the mortgage rate.  But this created much greater inflation!  The banks flooded the currency markets from 1974-1978 and this created hyperinflation.  So the Fed rate had to make up for this differential flood of money and shot up to 18%, a record for the last 100 years!

Banks had to content themselves with making only a 1.5% or less spread differential until 1992.  Then, the spread widened to incredible size.  Greenspan, in alarm, raised interest rates and kept them at a fairly high level which was over the present rate for mortgages!  Then, the very small post-Dot Com bubble collapse recession panicked Greenspan and to help the ‘conservatives’ win an election and to make a very unpopular Bush more popular, Greenspan dropped rates from 5% down to 1% while the bankers barely dropped their rates at all.  This created a massive bubble because all the bankers were in hysterics, to grant loans to anyone and everyone who came a-knocking.

The profits were fabulous!  Everyone was happy.  But this also created, yet again, inflation.  Look at how, each time the rates were dropped by the Fed, it had to be jerked very violently upwards until it met the mortgage rate.  The need to capitalize banks via cheating has grown so ridiculous, the only way the banks can stay afloat, anymore, is to have this utterly ridiculous differential.

This is a TRANSFER OF WEALTH.  Why can’t the Fed lend us money at 0.5%?  It won’t, of course.  We reap virtually NO BENEFITS from the 0.5% lending.  We are paying through the nose compared to the bankers.  Who are now getting richer, faster, thanks to this immense boon.  This differential won’t go to the government or the Federal Reserve.  It goes to the bonuses of the gnomes.

What is worse, this is OUR FUTURE TAX REVENUES!


REFILE-CDS volumes strong as Big Bang changes debut | Markets | US Markets | Reuters

U.S. credit default swap trading volumes were robust on Wednesday, easing concerns that an array of changes in pricing conventions and contract terms could dry up liquidity or bifurcate the market, traders said.

A slew of changes, dubbed the “Big Bang,” were introduced that fix trading start and end dates on CDS contracts and require a greater upfront cost for entering into a trade.

They were designed to standardize trades and make them easier to insert into a central clearing house, which is viewed as key to removing systemic risks posed by the failure of a large CDS counterparty.

The credit default swap business is also booming and for the same reason: all losses are being subsidized and insured by the US taxpayers. On top of this, all these deals are being leverage by fake 0% loans.  There is no incentive to be careful.  The gnomes have to rush about and settle these crummy deals so they can dump the entire mess into our laps before we can pull ourselves together and prevent this.

If the cure for the Derivatives Beast was simply to open a trading center, this could have been done with little Sturm und Drang, eh?  Why was this so hard in the first place?  Well, it was hard because someone had to pay for all the losses.  Since the dealers have finally been able to strong arm central banks and the governments of the G7 into bankrolling the deals or leveraging losses via cheap loans, now they are ready to ‘deal’.  This is as fake as Potemkin’s pretty villages in southern Russia.

Here is a letter from December, sent to the SEC by a new group trying to open a new derivatives exchange:

IDX Capital Open Letter to the SEC Regarding Credit Derivatives Reform, Regulation… | Reuters

IDX Capital Open Letter to the SEC Regarding Credit Derivatives Reform, Regulation and Transparency NEW YORK, March 24 /PRNewswire/ — IDX Capital, a market leader in electronic trading of credit default swaps, announced today that it has submitted a petition to the SEC regarding central clearing and regulation of credit derivatives. Industry spokesman and IDX Capital CEO Jamie Cawley wrote the letter and commented “we have been an outspoken proponent of regulatory oversight and execution transparency since our founding in 2006. We strongly support the SEC’s recent efforts to promote central counterparty clearing of credit default swaps.”…

“From public outcry over compensation in AIG’s Financial Products Group to calls for legislative action in Washington to recent efforts to open clearinghouses for CDS, the message is clear: we must reform the way credit derivatives are traded and we must do it now,” states the IDX chief executive.

“I call on other market participants to embrace a dialogue with regulators and at the same time, to embrace the electronification of this asset class so that we can prevent future events that threaten systemic risk.” The firm’s proprietary technology platform, IDX Live, is an order driven, java-based electronic trading platform with full straight through processing (STP) capabilities and a transparent order book.

The derivatives market has to be open and the reason this was not done earlier was simple: the 5 biggest players are also the five biggest investment banks and they hold over 90% of these derivatives and much, much preferred to do all this business with each other, only, verbally, or via email.  With no one checking the numbers.  This way, it could always be profitable since they could set all the terms to be profitable, no matter what reality was.

The Bank of International Settlements in Switzerland forced them to open a market for these CDOs, etc.  Just a small percentage of these tranches were to be ‘sold’ to dealers in an open market to determine the value of the 90% of the not-for-sale tranches.  This proved to be a total disaster when we discovered, the true value of these tranches was not 100% of value but often, between only 3%-at best—only 40% of the value assigned.

This, in a nutshell, was the trigger that has caused all the biggest players to fall off a Derivatives Cliff.  They have been saved only by cheating, again. This is why this victory is not real.  

IDX Capital Launches Fixed Prices and ‘Aggressor-Only’ Model to Credit Derivatives Trading

NEW YORK, Dec. 6 /PRNewswire/ — IDX Capital (http://www.idxcap.com), an interdealer broker (IDB) of credit derivatives swaps (CDS) operating in the over-the-counter (OTC) market announced the launch and opening of its operations in New York today, with trading arrangements in place with some of the largest dealers.

Unlike other IDBs that only operate on a voice-brokered basis, IDX Capital is the first IDB to offer the dealer community live, electronic trading of credit derivatives in conjunction with Aggressor-Only commissions via its hybrid trading platform, IDX Live. Through its technology solutions, the company will streamline the process of credit derivatives trade settlement, speed up the completion of trades, the result of which lowers clients’ transaction costs.

In the current CDS marketplace, most trades are based on “subjective” price quotes, as opposed to firm, real-time live prices at the moment a trade is to be conducted. IDX Capital has chosen to pioneer the method of using only executable firm pricing for its trades via IDX Live, its electronic platform which will produce a broader view of current market pricing. These methods together will boost market participant confidence and provide the CDS market with the greater recognition it deserves.

Aggressor only? HAHAHA. Sounds like a market made for SHORT SELLERS!  I bet, if this market works in such s a fashion,the army of hedge fund shorties and some naked gnomes will rush into this new betting parlor to play rough.  They love doing things live and in fast motion!  Then, the herd instinct gets to bellow at full gallop.  Doing quiet trades behind the scenes will be replaced with people literally yelling, yammering and howling orders and counter orders.  And the biggest houses will have to finagle and figure out where they can scam this new system and twist it to their own purposes which is to have all the profits drain out of all other systems and end up flowing, with little effort, into their own hot little paws.

Loan losses to exceed Great Depression levels, analyst says – Apr. 6, 2009

Mike Mayo of Calyon Securities gave the banking industry an “underweight” rating, citing “the ongoing consequences” of banks’ increased risk-taking.

“The seven deadly sins of banking include greedy loan growth, gluttony of real estate, lust for high yields, sloth-like risk management, pride of low capital, envy of exotic fees, and anger of regulators,” Mayo said in the report.

These “sins” created front-load earnings and pushed costs further down the line, Mayo said. Now those costs are appearing and many of the current problems being experienced are only midstream, he added.

Sins?  Why, this is the linchpin for modern American fiance!  The Federal Reserve will twist and turn, to enable this!  The US profits no longer come from manufacturing, it comes from ripping off people via financial magic tricks.  Below is a really great blog with lots of wonderful graphs, I pulled up just one as an example:

Jobs & ‘Trade’ Data Update Mar09    Contact Bob, About CIA

  • Continuous Improvement Associates uses the lens of systems thinking to facilitate exponential process improvement and strategic alignment. 

Irrational belief in the infallibility of the “free market” and “free trade” has led to devastating offshoring of good-paying manufacturing and IT jobs.  This has undermined the US economy, leading to its collapse. Nationally, policies continue to be a disaster for Mfg Jobs, IT Jobs, and Advanced Technology Products “trade”. I explain why both stimulus and trade policy reform are necessary.

The accompanying undermining of US wages is largely responsible for The 9/22/08 Economic Crisis … collapsing demand has inevitably led to a collapsing economy. Yes, financial fraud and speculation precipitated the debacle, but the economy has become more and more unstable as U.S. wages have been systematically undermined.

picture-52

Many a deluded person at the top has told us all, we just have to innovate new jobs and all will be well.  We have innovated ourselves to death and jobs are leaving faster and faster.  This last decade, we were told, we could all be bankers! But all the finance jobs are now moving overseas at an astonishing rate.  We can’t win this race unless we change the venue, the shape of the track and shoot the referee.

The bottom line is simple: we don’t need to refinance our homes.  We don’t need cheap interest rates.  We don’t need more lending spent on buying stuff.  We need manufacturing, value-added labor systems with goodly amounts going to the workers so they have more money to spend and we have to ELIMINATE, not just reduce during a bad, bad recession, we must ELIMINATE our trade deficit.  I am happy Bob agrees with me.

By the way, the other day, when Gollum Sachs was yapping in DC, the news media mentioned ‘hecklers’ but didn’t show ANY pictures or mention ANY names because the news media is full of lying bastards. I finally learned who these enterprising women were!  Below is a video of what they did to Blankfein:

YouTube – codepinkaction’s Channel

US billionaire Warren Buffett sees investment firm Berkshire Hathaway downgraded | Business | guardian.co.uk

US billionaire Warren Buffett‘s investment firm Berkshire Hathaway has been downgraded by Moody’s, the ratings agency.

Citing damage from tumbling shares in the insurance business, Moody’s lowered its credit rating on Berkshire by two notches to Aa2, from AAA.

Berkshire has already lost its top credit rating at rival agency Fitch, which pointed to its reliance on its 78-year-old founder, known as the Sage of Omaha.

For over a year, the media droned on and on about how great and mighty Buffett was and how smart he was, etc, etc, and so on…HAHAHA.  Down the rabbit hole he goes!  An Aa2 rating STINKS.  Now, he has to pay a much higher interest rate for loans just like you or me!  Welcome to reality, Warren.

Treasury Weighs Investment in Life Insurers – washingtonpost.com

The Treasury Department is considering opening another front in the effort to manage the financial crisis, saying that some life insurance companies qualify for a potential investment of taxpayer dollars.

Treasury has determined that a small number of insurers are eligible for funds under the Troubled Assets Relief Program, and it is evaluating their requests on a case-by-case basis using the same criteria it applies to banks.

“These are among the hundreds of financial institutions in the . . . pipeline that will be will be reviewed and funded as appropriate on a rolling basis,” Treasury spokesman Andrew Williams said yesterday by e-mail.

The goverment is the banker of last resort for 75% of our housing loans.  The banker of last resort for 75% of our banking capitalization and reserve ratios.  And now, 75% of our insurance system. I would suggest, we sweep away all the middlemen and dump them into a very deep hole, about 12 trillion feet deep, feed them to the Derivatives Beast.  And have our government be our bank, directly!  What a novel idea, yes?

YouTube – AWESOME Circus trick!! (Трюк с козой НЕВЕРОЯТНО)

And the banks are doing monkey handstands on the back of the Federal Reserve which is walking a tight rope.

UPDATE 1-US to delay bank test results for earnings-source | Reuters

The U.S. Treasury Department is planning to delay the release of any completed bank stress test results until after the first-quarter earnings season to avoid complicating stock market reaction, a source familiar with Treasury’s discussions said on Tuesday.

The Treasury is still talking about how results of the regulatory stress tests on the 19 largest U.S. banks will be released, and may disclose them as summary results that are not institution-specific, the source said.

The government is testing how the largest banks would fare under more adverse economic conditions than are expected in an attempt to assess the firms’ capital needs. The tests are due to be completed by the end of April, but Treasury has said they may be finished before then.

The source, speaking anonymously because the Treasury has not made a final decision on what to disclose, said officials do not want any test results released before the earnings season wraps up for most U.S. banks on April 24.

The banks passed with flying colors.  Since they and the government are basically one and the same now, this is an exercise in futility.  Since BOTH are very deep in the red and have no capital, anymore, I would say, BOTH are bankrupt.

ΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

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6 Comments

Filed under free trade, money matters

6 responses to “CREDIT SPREADS EQUALS BANKER PROFITS

  1. Pingback: CREDIT SPREADS EQUALS BANKER PROFITS « Culture of Life News

  2. spanky

    Can someone explain how the profits earned by the banks on the interest rate differential=our future tax revenues?

  3. it jobs are very much in demand these days because of technology boom;’:

  4. i like it jobs because it is a high paying job and you work in an air conditioned office -‘~

  5. Excellent post. I was checking continuously this blog and I’m impressed! Extremely useful information specially the last part🙂 I care for such information a lot. I was seeking this certain info for a very long time. Thank you and best of luck.

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