Defusing A $5.5T Run On The Banks

New York Post ^ | February 15, 2009 | Michael Gray

[CutePuppy]

The Post hit the nail right on the head when it reported exclusively last September that the US narrowly averted a crash of the financial markets, it was recently revealed.

In the days after the Lehman Brothers bankruptcy, there was a run on the country's money market funds as investors feared the bonds held by the funds would collapse - which The Post reported in a Sept. 21 story entitled "Almost Armageddon."

Rep. Paul Kanjorski, of the House Finance Committee, confirmed the bank run recently.

.....

[CutePuppy]

What is uncanny, though, is how close to September 11 (2008) it did happen - Lehman’s bankruptcy and AIG “receivership”, the final nail in this financial chain reaction before credit freeze / cash crunch, happened around September 14.

Then again, there are always Occam’s Razor explanations.

[Prospero]

WHO? That is the question everyone is dancing around...

Precisely. What no one seems to be considering is what the h"ll was going through the former President's head when he was standing in the White House Rose Garden that afternoon last September.

Say what you want about GW, you can bet your nads he was thinking Coordinated Attack on the Financial System, LONG considered a HIGH PROBABILITY target in the WOT.

This was MUCH bigger than Soros. This was Saudi AND Chinese. Think China, who holds/held most US paper.

[DaisyCutter]

I have no doubt that there were some games being played by individuals and individual institutions, but calling it an orchestrated collapse when the underlying causes go back over a decade...

I was moving additional assets during that time frame to protect myself from what was coming. I really rather doubt I was the only one.

AIG was tied to the Lehman failure. Those two events were going to occur in close proximity no matter when it actually happened.

[CutePuppy]

Dollar is a relatively stranger "animal" because currencies are relative to each other.

Dollar actually went higher against most other currencies since the crisis unfolded and Treasury and Fed started pouring dollars to sustain liquidity... The reasons are that despite potential future inflationary pressures we are still in mostly deflationary environment; other governments are pouring their money (relative to their GDPs) as well; and relative safety of dollar-denominated investments created Treasuries bubble (which is just now starting to burst).

Since dollar is relative its movement can only be expressed and understood in relative terms. Similar to reason why price of gold didn't fall along with other metals (like platinum) but stayed about the same (due to "flight to safety" demand for physical gold).

[CutePuppy]

I understand. It’s clearly a matter of proximity (financial institutions are ever more interdependent and susceptible to financial “cold”) but it’s also, and significantly. a matter of velocity.

Velocity games have been played and Feds’ response to them starting with Bear Stearns in February / March 2008.

[Mamzelle]

I guess we don’t get to know WHICH investors and HOW MANY of them there were?

[ottbmare]

I think it was VERY clever of a mere puppy to have figured this out. Good dog! Do you want some bacon?

[iopscusa]

Yeah why not more info on the MOFO’s that made the largest moves of $$ into/outof the market during that period? We do live with a transparent government filled with the sainted public servants, don’t we? And we wonder why there is so much tinfoil-ism!

[CutePuppy]

It is in “Advanced Puppy 101”... I have had better treats, but bacon will do fine, thank you.

[Southack]

"In the days after the Lehman Brothers bankruptcy, there was a run on the country's money market funds as investors feared the bonds held by the funds would collapse..."

Have you ever stopped to ask: Why do money market funds exist?

I mean, why don't normal savings or checking accounts simply pay the higher interest rates of Money Market accounts?

Well kids, the *answer* is that Money Markets are designed to ... get this ... circumvent existing banking regulations.

Money Market funds are riskier. To mitigate risk, operators must rapidly liquidate the money market investments at the first whiff of trouble.

And when one Money Market fund liquidates assets, the rest take notice!

Mass runs are not out of the question. Such is the way of the world when circumventing banking regulations.

[ottbmare]

OK, if bacon isn’t that big a thrill for you anymore, you can have a squirrel.

[CutePuppy]

Risk compensation, of course. The news of Reserve Primary MMF "breaking the buck" on September 16, 2008 could have been the impetus for redemptions and, as you mentioned, these things tend to create panic and feed on themselves.

Financial systems are global, intertwined and fragile, and when conditions exist that could create panic (natural or artificial / "man-made") there can be immense financial and/or political reward.

"Mass runs are not out of the question," but are pretty rare. IIRC, last massive one was in 1998. It doesn't prove the conspiracies, but there are and have been people who specialize in profiting from these disasters and crises.

[CutePuppy]

Now you are talking... and I get to have fun catching and dressing it, too.

[FromLori]

Thank you for the kind comment. I wanted to share with you another way of looking at this.

Here may be a clue. Soros, J C Flowers and John Paulson all run HUGE hedge funds. They “bought” Indy Mac bank recently with Michael Dell. Probably got tax loss carry forwards forever plus govt money.

Schumer slimed Indy Mac back in October which then caused a run on the bank and it imploded. My guess is it was heavily shorted by those three hedge funds with the help from others.

WE HAVE BEEN FINANCIALLY DISARMED Trafalgar (for Atlas)

Much commentary on the trillion-plus “stimulus package” has noted its wastefulness and expansion of government power into every crevice of an individual citizen’s life. But no one has caught what should be blindingly obvious: We have unilaterally disarmed ourselves of the financial power to wage war. The cost of this bill surpasses the total outlay of the combined wars in Iraq and Afghanistan and will serve as the irrefutable excuse for Obama’s previously-expressed desire to de-weaponize our military. As the bill’s costs mount - in welfare payments, health expenses, union kickbacks and more - we will simply be unable to summon the financial strength to answer attacks on our country.

Combine this with the soon-to-come ending of sanctions against Syria and Iran, and the nationalization of our banks which can then freely convert to sharia finance models, and the situation is clear: Less than a month into Obama’s presidency, the United States has already surrendered to radical Islam.

Posted by Pamela Geller on Sunday, February 15, 2009 at 02:47 PM in FINANCIAL CRISIS ‘08: DEMOCRAT POLICY COMES HOME TO ROOST

http://atlasshrugs2000.typepad.com/atlas_shrugs/

[FromLori]

http://www.efinancialnews.com/archive/tag/John_Paulson

http://indy-mac.blogspot.com/2008/12/unlimited-hedge-fund-withdrawals-john.html

(Newser) - Some Wall Street hedge-fund managers earned billions betting against the market last year, with the top of the class, John Paulson, shaking loose $3.7 billion, the New York Times reports. With the US median family income at $60,500, the booty embarrassed even some of his Wall Street peers. “It’s not illegal,” said Pimco’s CIO. “But it’s ugly.” More »
More about: Wall Street • subprime mortgages • hedge fund •

http://ceoworld.biz/ceo/2009/01/03/a-review-on-indymac-anf-imb-management-holdings/

[CutePuppy]

Thanks for bringing up John Paulson, the “quiet man” in this meltdown.

John Paulson was one of the biggest beneficiaries of financial meltdown, using [then] little-understood strategy of buying massive quantities of CDS “insurance” (without underlying CDOs) and short-selling financial institutions.

http://fundrace.huffingtonpost.com/neighbors.php?type=name&lname=Paulson&fname=John

John A Paulson
President
Paulson & Co, Inc.

$25,000 Updated Q4/2007
New York NY Donation to Democratic Senatorial Campaign Committee

$2,300 Updated Q3/2007
Donation to Citizens For Arlen Specter

$2,300 Updated Q1/2008
Donation to Friends Of Max Baucus

$2,300 Updated Q1/2008
Donation to Lautenberg For Senate

$2,300 Updated Q3/2007
Rudy Giuliani

$2,300 Updated Q1/2008
Donation to Friends Of Senator Carl Levin

$2,300 Updated Q4/2007
Donation to Friends Of Dick Durbin Committee

$2,300 Updated Q3/2007
Donation to Citizens For Arlen Specter

$2,300 Updated Q1/2008
Donation to Friends Of Max Baucus

$2,300 Updated Q1/2008
Donation to Lautenberg For Senate

$2,300 Updated Q4/2007
Mitt Romney

$2,300 Updated Q1/2008
Donation to Friends Of Senator Carl Levin

$2,300 Updated Q4/2007
Donation to Friends Of Dick Durbin Committee

$1,000 Updated Q1/2008
Donation to Virginia Foxx For Congress

$1,000 Updated Q4/2007
Donation to Managed Funds Association Political Action Committee

Articles below are worth reading in their entirety :

*****
http://www.cnbc.com/id/28814840/print/1/displaymode/1098/
The Man Who Made Too Much
January 23, 2009

.....
Paulson is smart enough to know that at this particular moment in history, the less he’s heard from, the better. The simple reason: He is not suffering. In an era in which losers are universal and making a profit seems somehow shady, Paulson is the most conspicuous of Wall Street’s winners. Paulson & Co.’s funds (with an estimated $36 billion under management and growing by the day) were up a staggering $15 billion as the markets teetered in 2007; one fund gained 590 percent, another 353 percent. All this reportedly garnered him a personal payday of $3.7 billion, among the biggest in history. In 2008, his funds didn’t climb nearly as much but were still successful enough to put him at the very top of his profession. By scoring returns of this magnitude, Paulson has dwarfed the success of George Soros, whose currency trades in the 1990s made him so much money that he has spent much of the rest of his career atoning for them.

Paulson makes no apologies. During our conversation in his conference room, he describes in detail how he pulled off the greatest financial coup in recent history—a two-year bet that the calamity we are now experiencing would take place. It was a megatrade involving dozens of financial instruments, along with prescient wagers that banks like Lehman Brothers would eventually go under.
.....

*****
http://www.cnbc.com/id/26885945/print/1/displaymode/1098/
Guess What? The Man Who Shorted Subprime Is RICHER (Pt 1)
September 25, 2008

.....
Earlier in his career, Greene won and lost a real estate fortune, and when his portfolio rebuilt itself, he didn’t want to get burned again. He wanted a hedge.

So two years ago, he “borrowed” an idea from his friend (at the time), hedge fund giant John Paulson. Paulson told Greene he was starting a fund where investors could short the subprime market though credit default swaps.
.....

Three weeks later, Bear Stearns collapsed.

Then a funny thing happened. While the rest of the market became illiquid, in Greene’s corner of the universe trading ramped up. “It’s the craziest thing,” he says. “We’re in a time where there’s record illiquidity, but in these positions, starting about four or five months ago, they became completely liquid. I was able to obtain on every one of these positions multiple offers.” He thinks that happened as investment houses started to clean up their books post-Bear.

But one night last week he didn’t get any sleep. Suddenly it looked like “Mother Merrill” might go under, and Greene still had a lot of money tied up with swaps there.
.....

*****
http://online.wsj.com/public/article/SB120036645057290423.html?mod=todays_us_page_one
Trader Made Billions on Subprime
John Paulson Bet Big on Drop in Housing Values; Greenspan Gets a New Gig, Soros Does Lunch
JANUARY 15, 2008

.....
Also key: Mr. Paulson didn’t turn bearish too early. Some close students of the housing market did just that, investing for a downturn years ago — only to suffer such painful losses waiting for a collapse that they finally unwound their bearish bets. Mr. Paulson, whose investment specialty lay elsewhere, turned his attention to the housing market more recently, and got bearish at just about the right time.

Word of his success got around in the world of hedge funds — investment partnerships for institutions and rich individuals. George Soros invited Mr. Paulson to lunch, asking for details of how he laid his bets, with instruments that didn’t exist a few years ago. Mr. Soros is famous for another big score, a 1992 bet against the British pound that earned $1 billion for his Quantum hedge fund. He declined to comment.
.....

*****
http://online.wsj.com/public/article/SB120036270913390155.html
In Beverly Hills, A Meltdown Mogul Is Living Large
JANUARY 15, 2008

.....
Relaxing at his 40,000-square-foot mansion, Palazzo di Amore, Jeff Greene reflects on a stellar 12-month run. He snatched the estate out of receivership for $35 million in a bidding war. He got married in a spectacular wedding here with boxer Mike Tyson as his best man. And he is up more than half a billion dollars on a bet that the housing market would crater.

He may have lost a friend in the process: John Paulson, a hedge-fund manager who devised what proved to be a wildly profitable strategy for betting against risky mortgages.
.....

Yet two years ago, an undercurrent of concern about the economy had begun to trouble him. Recalling the pain of losing his first fortune, he consulted a range of smart people in search of a way to hedge his bets. One was Mr. Paulson, whom he’d met decades earlier in New York’s Hamptons, the same playground of the affluent where he later met Ms. Chan.

Mr. Paulson was convinced the market for risky “subprime” home loans would implode. He outlined a sophisticated securities trade he was crafting for a new hedge fund. It involved derivatives — contracts whose value shifts with some other asset’s value — and would need an investment bank’s participation. The bank would have to be convinced that a mere individual, as opposed to an institution, qualified to be a counterparty in such a transaction. Mr. Greene says he asked Mr. Paulson, “Can I do this trade myself?” and was told, “You’ll never get approved.”
.....

His hedge-fund friend, Mr. Paulson, didn’t want other investors duplicating his trades. “When I mentioned to him that I had already done some of this on my own, he kind of was surprised and seemed to be upset,” Mr. Greene says, adding that Mr. Paulson didn’t allow him into his new fund.

Mr. Greene says he wishes he could have invested in the fund as well as doing his own trades. He also holds out hope for their friendship. Mr. Paulson, he says, “did send me a nice card on my wedding.”
.....

[M-cubed]

Where is the DOW headed? Are we going to see 6,000 <<

Yup!....Cant tell u exactly when though..its like being on 100 mile dirt road and u see your gas tank registering empty.....U know your gonna run out of gas...U just don't know what mile marker it will be at

[CutePuppy]

Schumer slimed Indy Mac back in October which then caused a run on the bank and it imploded. My guess is it was heavily shorted by those three hedge funds with the help from others.

Small correction:
Schumer slimed IndyMac in July of 2008. Now, IndyMac was heavily shorted before that, but it was pretty much dead by the time Schumer hit it with "disclosure".

Here is the big difference, if Chuck kept his mouth shut - the run on the banks would NOT happen, IndyMac would be quietly sold to one or two other banks with the help of FDIC / Treasury / Fed without taxpayers' losses (estimated to be approximately $8B for IndyMac to FDIC) and banking customers' panic that helped set the mood for hair-trigger panic response and run on the bank to any negative banking news, whether factual or fabricated, in the aftermath. Financial system and the economy, after all, is about confidence.

See Anatomy of Morgan Stanley Panic on how false rumors played into attempts to bring down US financial system, one financial institution after another.

One of the "plagues" during the Great Depression were systemic "bear raids" on the banks, the equivalent of arson in the financial system. Bernanke, as a student of Great Depression, understands that providing liquidity to the banks is a means of possibly stopping or helping prevent abuse of practice.