Posted on 09/20/2007 4:55:46 PM PDT by NYer
"According to some US experts, some US$ 20 trillion in worthless securities exist, putting US and European banks are at risk. Asia should avoid the worse. A new North American currency, the Amero, is making news.">
According to US financial analyst Mike Whitney[1], a mountain of unfunded, unregulated paper worth more than US$ 20 trillion might be out there [2]. Apparently, no one, neither the general public nor professionals on Wall Street, has yet to realise the extent of the hole, a hole of 20 trillion dollars with no market, nor value.
Even if the Federal Reserve were to ease bank reserve and capital requirements, the existing financial system would still be moving towards its worst crisis in 80 years because the problem is not liquidity, but solvency. The situation is such that banks are even scared to lend to one another uncertain about each other’s solvency. Even the London interbank market is not going beyond day to day lending.
Greenspan and speculative financing
The problem arose in the United States where, starting in 1987, the bank lobby—by means of US$ 300 million in contributions—got Congress to do away with the Glass-Steagall Act (officially the Banking Act of 1933) that had been adopted in the wake of the 1929 Wall Street Crisis. President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act.
The original law had been introduced to avoid conflicts of interests between banks and companies that sell stocks and bonds.
Former Federal Reserve Chairman Alan Greenspan was the main proponent of financial liberalisation. Before his appointment to the post, he had served as a corporate director for J.P. Morgan, the first bank to take advantage of liberalisation.
Under his 18-year chairmanship he oversaw the greatest expansion of speculative financing in world history. But now the chicken are coming home to roost like a would-be train wreck that no one can stop, not even the Fed.
If Mike Whitney’s numbers are right, we are on the verge of a meltdown like that of 1929-1930, perhaps worse because of the world’s greater economic interconnectedness.
Lately, the big US financial and banking groups have tried to protect themselves by selling their junk bonds in Europe and Asia.
In Asia equity in most banking and financial institutions is in US securities and US dollar denominations. Most banks are ranked AA or even AAA by so-called independent agencies like Standard & Poors, Moody’s and Fitch. Securities with such ratings are, or perhaps we should say, were considered virtually risk-free.
Theoretically, US pension funds, insurance companies and big foundations are exposed to the uncontrolled offer of atypical securities of the past decades; so should the US financial and banking institutions which created them.
Yet we should not be surprised if those who hold the keys to the corporate are not, nor will ever be, held accountable for their wrongdoing.
Central banks, especially the Federal Reserve, are at the root of the problem because they have known about the overall situation for quite some time. But whomever is in charge of the Fed knows that a solution cannot be had from within.
Amero, North America’s new currency
With a bank crisis looming on the horizon, an odd piece of information is becoming news. As unlikely as it may seem, the United States along with Canada and Mexico, appears to be getting ready to launch a new single currency: the Amero.
With the monetary bubble on the verge of bursting, one solution would be getting rid of the dollar, replaced by a currency, the Amero, to serve a would-be North American Union.
In addition to the United States, Mexico should join such a union and in principle might be even in favour of it. Canada, too, might join, setting aside its aversion to losing its monetary sovereignty, out of concern that its equity in US dollars might simply lose its value.
When US President George W. Bush met then Mexican President Vicente Fox and then Canadian Prime Minister Paul Martin in Waco, Texas, in March 2005, they discussed a North American union.
The idea resurfaced the same year in a report released by the powerful US Council on Foreign Relations, a group that has influenced most US presidents, both Democrat and Republican, and a tri-national task force involving ministerial-level officials.
Wikipedia already sports a page dedicated to the Amero with the photos of prototypes.
A news report on the Amero broadcast on CNBC is also available on Youtube [3].
Similarly, 20 Amero coins can be seen on the Hal Turner Show webpage, with a small D visible, D as in ‘minted in Denver.’ Curiously, the Denver Mint is currently closed to the public, ostensibly for restoration work, till September 28 [4].
Whilst AsiaNews is unable to determine whether there is any basis to such claims, it does seem certain that a plan for a North American union is being developed [5].
Such an entity would have a population almost the size of the European Union, and could adequately respond to the current bank crisis that is bound to end up in a monetary crisis.
However, far from being a simple monetary union, the operation is likely to mean a de facto US annexation of the rest of North America.
For Asia the real point of interest would be economic rather than political since the Americas have been the United States’ backyard for a long time.
Firstly, the Amero would be definitely weaker than the US dollar because it would include the Mexican pesos, which was insolvent not so long ago.
A weaker North American common currency would quickly push the value of the currencies of China and the whole of Asia, which have hitherto been reluctant to do so.
Secondly, converting dollars used outside the United States would raise problems since in Asia as well as in many countries around the world payments in dollars are more common than one might think. In this case the impact of a North American union would also be very significant.
You're confusing a derivative with a debt.
No I’m not.. what do you think is backing that CDO?
And what do you think banks were allowing as collateral on new loans?
That’s right, CDO’s were being viewed as assets by banks who allowed them as collateral, which businesses and others were borrowing against, to go buy more debt obligations... at higher returns, that they rebundled and resold or borrowed against, etc etc etc...
Until now you have a bubble so huge that the only prayer for stopping a global depression is the hope that it unravels very slowly.
Yes you are. You think a CDO is debt?
That’s right, CDO’s were being viewed as assets by banks
A CDO is an asset.
A stock option traded on the CBOE is a derivative. Now explain how a derivative is the same thing as debt.
Dollars will change to something - Ameros is one option. Ever try to put a 1,000 piece jigsaw puzzle together when you didn’t have a picture to follow? The U.S. citizens who care are trying to. The crafters of NAFTA have the picture. Imagine Mexico, U.S. and Canada as one country with one brand new name. One big problem is the three kinds of money - solve that by having only one used by all three. Big worry about some “true Mexicans” that want to stay there - they are afraid of all of this because they want to remain as their own independent country.
A CDO = Collateralized Debt Obligation.. its not cash its a debt obligation. CDO’s backed by mortgage obligations are backed at the end of the day by real estate.. real estate that is not remotely worth in general what was loaned for it.... The people buying the CDO’s weren’t interested in the real estate, all they wanted was the payments.. well guess what? Those payments aren’t coming and the “collateral” backing those debt isn’t remotely worth what the payment promises they bought into said they were.
A CDO is nothing more than an IOU... yes its backed by collateral, but most of that collateral isn’t worth the debt, is tought to take over, costly, and very slow if at all possible to turn back into cash and most the buyers of CDO’s had no idea what was really backing that debt obligation... in fact by that’s why this thing is so pervasive, people can’t even tell what their exposure is....
A bundle of sub prime loans is sold to entity A, entity A, borrows some more money using their CDO as collateral then sells this new debt as a CDO up the chain etc etc etc....
It was a giant ponzi scheme, and its huge.
Having a note from someone who’s never successfully paid off a debt in their life, at 14% interest gets bundled up and sold as part of a CDO to someone who just sees the bundle has a 12 or 14% overall return.... of course the default rate of that bunch is probably going to wind up being 30% or more inside of 5 years... assuming housing prices remain stable... if they fall (as they are doing) it’ll hit much higher rates.
A CDO at the end of the day is the purchase of a debt obligation.... leveraging it to take on more debt is foolishness... but that’s what happened, those loans were then packaged and sold to others, who used them as collateral for other loans... etc etc etc.. and you wind up where we are now, with a huge bubble, where you have more than 20-30 in debt for every 1 dollar in real assets.
There is no such thing as DEBT without RISK, but since the CDO computer modeling and the automated fico scores etc said risk is low, to nill... it just kept going. Of course its not nill, as we are seeing, its actually quite high... and POP goes the weasel.
Have you made any direct inquiries to ‘knowledgeable’ people?
(Snort) Masters of the Frickin’ Universe.......gotta get those yachts, cars, beachfront homes, and babes and bling any which way they can.
I work in the mortgage biz, and while I’ve always been above-board (and made good money doing it,) I have, unfortunately, seen guys that exemplify that poster from “Boiler Room.”
Toddsterpatriot,
You have seriously disappointed me this morning. I was positive that you would have a retort to HamiltonJay’s Post #426. Where’s your smartass mouthfull demanding that he explain something else.
Where did you disappear to? Come on, crawl out from the corner and make some kind of smart remark. I know you’re capable of it.
I answer boiler room cold calls like this: Tell ‘em my aunt left me $500,000 I need to invest. When they are salivating with greed I say “I have to hang up I’m working on a case”——a case?-—”Yes, I’m an FBI telephone investment fraud investigator.” They hang up so fast-—don’t even say good bye (snicker).
A teller warned you about the Amero? LOL!
Yes, that's correct.
CDO’s backed by mortgage obligations are backed at the end of the day by real estate..
You bet.
real estate that is not remotely worth in general what was loaned for it....
Depends on the CDO.
The people buying the CDO’s weren’t interested in the real estate, all they wanted was the payments..
Correct. If they wanted real estate instead of a stream of payments, they'd have bought real estate.
well guess what? Those payments aren’t coming and the “collateral” backing those debt isn’t remotely worth what the payment promises they bought into said they were.
Depends on the CDO.
A CDO at the end of the day is the purchase of a debt obligation
You bet. Just like your individual mortgage is a debt obligation.
Let me know when you figure out that a derivative is different than a debt. Why not use the example of an option from the CBOE? Explain how that's debt. Take your time.
If ignorance is bliss, you must be one happy little guy. LOL!
Todds, let me know when you figure out what derivative means... here’s a hint.. the ROOT of the word is “DERIVE”
Where do you think the value of a derivative comes from?
The only value a derivative backed by mortgage or other loans come from are the CORE value of the asset tied as collateral. Which is why when you unravel most of these bundles, you find there really isn’t much real value behind any of it. There are IOUs that if paid on time and in full may add up to 3 or 4 or more times the face value of the asset backing them, over the entire life of the loan, but the core value is only what the asset can sell for today.
And most of the sub prime (hell most of the mortgage loans made in the last 5-7 years across the board) were for more than the underlying asset is worth when it needs to be liquidated, particuarly rapidly. And that’s not even taking into account the declining housing market. Which nationally we have going on right now.
I know its hard, but THINK ABOUT IT... don’t just regurgitate your 101 stuff, but think about it. A house is worth 100k, thats the price it will bring at market.... a loan is written to ensure total payments of say 350-400k over 20 or 30 years for the stated asset. So that transaciton just created an overall debt obligation or 3-4 to 1 of the real value of the asset under it.
This is fine and dandy for a long term note holder, who actually loaned the 80k for hte property, requiring the buyer to show up with 20k to get the loan. If the buyer keeps to the payment plan, they get their 350-400k over the lifetime of the loan for an initial outlay of 80k... they are protected in that if the buyer doesn’t pay, they get the house bac at a value that sould at least make them whole again.
Now, change the scenario.. buyer buys the 100k property with 0 money down, and agrees to pay 400-450k over the next 20 or 30 years in the mortgage. thats transaction just created a 4+ to 1 debt obligation based on the value of the asset. However the risk of default and protection should it default is now much higher and pronounced.
Now, broker A bundles a bunch of these togther, and markets them saying you’ll get an X% return on your money on this bundle. Hedge fund or other player coughs up the cash to purchase these loans.... USUALLY with highly leveraged money as well. IE, say a 1 Million dollar purchase, may have actually only required 10% of the hedge funds direct money, and the other 900k is borrowed from the bank at some interest rate that ensures 1.8 or 2.7 Million be repaid for it over some amount of time using the loans themselves (CDO) as collateral. (another multiplier of 200-300% on top of the initial 4+ times the original loans were written as
Now, bank that loaned Hedge fund money to buy these mtgs, can now bundle these loans, and sell them to another lender or institution, based on the value of their loan repayment.. and claim that this loan is Collateral backed, as the loan they made originally was backed by the mtgs etc etc etc...
This layering continues until you wind up where you are today, with 1 real dollar of asset backing 20-30 times that much in debt obligation payments.... and guess what? The ponzi scheme falls appart and the whole thing unravels.
You cannot eliminate risk when you loan money... you can diversify to minimize exposures, but loaning money as well as borrowing money has inherit risks. When you wind up with 20 to 30 times the amount of debt obligations as you have real assets supporting them, you’ve left all reality and the idea you have collateral backing you to protect you is just plain laughable.
This is where things are right now, its why folks can’t even effectively tell what and how much their eposure is, because there are so many levels removed from the actual asset at the base of the pyramid, they have no idea what they spent money to buy.
In finance, a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
It's true, some people who bought recently issued CDOs will lose money. That still doesn't turn a derivative into debt. Try again?
I am completely baffled. Please tell me who my friends are you are talking about? Are they imaginary? Do other people see them, because I certainly don’t.
I don't know how I stand can be much more clear, janetgreen. Obviously, it certainly is to you, and a great many others, on both sides of the aisle.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.