Black Monday 2: Economic Boogaloo

[profloater]

This morning's headline reads "Jobless Claims Post Biggest Fall Since April," which you'd think would be good economic news. And yet Dow futures are down 38.

Using the wacky logic of stock market analysts, I'll attribute the drop to the fact that this somehow makes QE3 less likely.

Maybe higher jobless means lower wage claims, lower jobless means wages "hikes" to follow? Why are all rises alsways "hikes" and all falls "tanks"?

[Ara Pacis]

This morning's headline reads "Jobless Claims Post Biggest Fall Since April," which you'd think would be good economic news. And yet Dow futures are down 38.

Using the wacky logic of stock market analysts, I'll attribute the drop to the fact that this somehow makes QE3 less likely.

Depends on why. Some states have cut off unemployment extensions in the last month due to changes crossing a threshold in unemployment numbers (themselves suspect). This may have compelled more people to stay at low paying jobs and/or endure employee abuse rather look take time off to look for work or refuse to be abused and end up let go.

[peteshimmon]

Lots of sound and fury about LIBOR but for
a subject about numbers do we get any?
Nooooooo!

How many banks were involved for one. And
was the rate affected by whole percentage
points or just hundredths of points. As
the calculation discarded the top and bottom
four submissions it would seem they expected
some mischief anyway!

[Extravoice]

I've seen a few articles about the LIBOR scandal, and agree that there hasn't beem much meat to them. I'm hoping that "investigations are ongoing."

IIRC, the LIBOR rate is tied to many variable loan rates in the US, from mortgages to credit cards. If you listen carefully, you can actually hear the class-action lawyers salivating.

[publius]

Here's a long economist article on Lie-bor:

http://www.economist.com/node/21558281

Barclays is the name we know, but there are around 20 big banks that have been named in various allegations and investigations. I just saw something about some Deutschebank officials had resigned presumably over involvement in this.

As the article notes, there were two types of rigging going on. One amounted to just a few basis points -- there's your number, Pete, a few hundreths of a percentage point -- but this amounted to tens of millions in profit (or reduced loss) per day for the banks involved in their own trades. This was just the banks rigging the numbers a bit to help their own trades.

The second type of rigging came later after the Crisis started and amounted to 30 - 40 basis points (0.3 - 0.4 percentage points) and this was to make the interbank market look healthier than it actually was, and this may be the one the central banks themselves had "requested" the banks undertake to make the market more stable.

While none of ours have been officially named there are rumors swirling around about which of our, American, TBTF banks had their fingers in this cookie jar, and even rumors that Helicopter and the boys were making "requests" of this type.

[peteshimmon]

Thanks. So the whole lot them in effect.
It always amazes me these days how e-mails
are available to illustrate any shenanigans.
Just cannot lose them can they!

[profloater]

Monday Morning and Spanish borrowing back up at 7% says the news.

[publius]

Looks like we may have another MF Global on our hands, although smaller:

http://uk.reuters.com/article/2012/0...8I9DWC20120709

The firm's owner attempted suicide and accounting irregularaties were discovered which are being investigated. That much is confirmed. Rumor is that about $220M in customer funds are missing.

[Ara Pacis]

Not to mention that other banker, from Georgia, on the run with $17 million. They seem to think he may be trying to get to South America.

[publius]

http://www.reuters.com/article/2012/...r&dlvrit=56943

$220M of segregated customer funds are missing. The guy was forging bank documents in required reports to the National Futures Association via some scheme where he intercepted the documents in the mail. They got suspicious and he attempted suicide when he realized the jig was up. He's in a coma now.

He'd been running this little scheme for about two years, and the CTFC gave the firm a clean bill of health as recently as January, 6 months ago.

[publius]

Oh, and there's a story out that the Fed knew LIBOR was being manipulated as far back as 2007, with the NY Fed holding meetings about it.

And one of the big shots at the ECRI (Economic Cycle Research Institute, sort of a private NBER, which officially calls recessions) just told Bloomberg that the US is probably in recession now. That is, the official start of the next official recession is now.

[publius]

And another one, San Bernardino, bites the dust, filing Chap. 9.

As I've said many times, there's going to be weeping, wailing, and gnashing of teeth. I get the feeling that many of our modern generation just aren't familiar with the concept of "there's no money". They'll soon get the concept knocked into their heads. As we've discussed before, there's a generational aspect of all this. The people who remember the last depression have died off and the lessons they learned have been forgotten, and thus the current generation gets into the same trouble their grand- and great-grandparents did and has to learn the same lessons again. The hard way.

[peteshimmon]

News item about the city of Baltimore suing
Barclays over the LIBOR thing. Well thats as
expected I suppose. But the images to support
the story! A few derelict buildings, a rough
looking road, some poor blighter proceding
along. Come on, if they wanted any pictures
I am sure there are many comfortable looking
streets around.

[publius]

That's just the tip of the iceberg, Pete. This thing may be the biggest lawsuit cornucopia in history, exceeding the tobacco orgy. Word is about 50 state attorneys general are looking into filing lawsuits themselves on behalf of their states. No matter which way they rigged LIBOR, high or low, somebody can claim losses. And since LIBOR underlies so many financial structures, the number of potential claims is astronomical. One estimate by the Financial Times is there are about 900,000 potential lawsuits out there.

[profloater]

LIBOR: Lawyers in biggest Orgy Racket: Maybe the lawyers will also learn "there's no money".
In Spain, miners are marching to Madrid, will arrive soon. Spanish government must punish miners to qualify for bank rescue, just how popular can bankers get?

[publius]

The San Bernardino bankruptcy plot thickens. There is now a criminal investigation into whether city officials forged certain financial documents to hide how bad things were getting.

[HenrikOlsen]

When will people learn that the time to stop digging is before they're trapped in the bottom of the hole.

[profloater]

When will people learn that the time to stop digging is before they're trapped in the bottom of the hole.

I think that's because the decision takers don't see themselves as being in the hole that is being dug. It's "Let's you and him pay for our mistakes"

[Extravoice]

I don't want to drift too far into politics, but suspect that it is usually often more along the lines of, "If we can just get past this problem, we'll be okay going forward."
Sometimes they really think they are doing the best for the company or town, and sometimes they are just trying to keep their jobs.

It is, however, a slippery slope when you start "bending" the rules. The results have demonstrated time and again in both the public and private sectors.

[profloater]

Capital (net) still leaving spain at about 100 B Euros per month, increasing about 10 B Euros per month like sand out of an hourglass.
http://ftalphaville.ft.com/blog/2012/07/11/1080121/

[Ara Pacis]

When will people learn that the time to stop digging is before they're trapped in the bottom of the hole.

Maybe they think they can dig all the way through and come out in China. Of course, they'll actually come out at the bottom of the Pacific Ocean, but like a lot of people, they won't realize their underwater until it's too late and then they end up all wet.

I should mix metaphors more often.

[publius]

It is, however, a slippery slope when you start "bending" the rules. The results have demonstrated time and again in both the public and private sectors.

Indeed. That them is expressed in the old saw that goes something like, "Oh what a tangled web we weave when we first practice to deceive."

You start out with a little thing, a little lie, or little act of theft. Then you have to tell more and bigger lies and commit even more crimes to cover up the previous ones. And then before you know it, you're up to your eyeballs in it, too deep to get out. That process can lead to very serious crimes, including murder.

And then there's the phenomenom of the "Bezzle", coined by Galbraith IIRC (or some other imminent economist back in that day), and derived from word "embezzlement". His point was that during any economic boom there's always some corruption and cheating going on, a little skimming off the top. When business is booming, there are giant flows of money going all around and people began to skim a little of that flow by hook and crook.

Nobody notices or, better really cares to notice, when that flow is large and times are good. Everybody is partying. Come the bust and the flow starts drying up and everyone gets stingy, carefully auditing every penny. The Bezzle is uncovered.

An analogy would be a bountiful harvest. When the carts and wagons are overflowing, nobody really cares about someone sneaking and helping themselves to a little of the contents. But come slim pickin's and they watch every little kernel of grain.

[Ara Pacis]

Indeed. That them is expressed in the old saw that goes something like, "Oh what a tangled web we weave when we first practice to deceive."

You start out with a little thing, a little lie, or little act of theft. Then you have to tell more and bigger lies and commit even more crimes to cover up the previous ones. And then before you know it, you're up to your eyeballs in it, too deep to get out. That process can lead to very serious crimes, including murder.

And then there's the phenomenom of the "Bezzle", coined by Galbraith IIRC (or some other imminent economist back in that day), and derived from word "embezzlement". His point was that during any economic boom there's always some corruption and cheating going on, a little skimming off the top. When business is booming, there are giant flows of money going all around and people began to skim a little of that flow by hook and crook.

Nobody notices or, better really cares to notice, when that flow is large and times are good. Everybody is partying. Come the bust and the flow starts drying up and everyone gets stingy, carefully auditing every penny. The Bezzle is uncovered.

An analogy would be a bountiful harvest. When the carts and wagons are overflowing, nobody really cares about someone sneaking and helping themselves to a little of the contents. But come slim pickin's and they watch every little kernel of grain.

Perhaps that's why they're so intent on re-inflating and getting everything moving again, lest bean-counters start counting beans.

[profloater]

If we trust the internet more than the banks, then the surge of one to one banking and investing might usher in the new age of entrepreneurship by private finance and peer rating, it could be a revolution.

[HenrikOlsen]

In Greece they're already experimenting with alternative currencies, if one of them seriously takes off, they might end up dropping out of the Euro from below.

[Ara Pacis]

In Greece they're already experimenting with alternative currencies, if one of them seriously takes off, they might end up dropping out of the Euro from below.

I think one of them is (translating to english as best I can) called the Currency for Hellenic Identifying People by the Pecuniary Investment & Trade Agency. These are currently intended to be used only in a Domestic Investment Provision Service (bank system) such as the Hellenic Underwriters Mutual Markets Unified System (a recently established regional commerce organization of retailers). I don't know how well it will take off, but I think the idea of PITA CHIPs in DIPS such as HUMMUS could work.

;-)

[HenrikOlsen]

From the link, it's systems of Internet coordinated bartering chips, i.e. step one in inventing currency. They currently have one TEM equivalent to one Euro, but it would be fairly simple to decouple if they gain critical mass of users.

[publius]

Something very interesting has just been discovered and made public. The US Treasury has granted China, through their own central bank, the equivalent of primary dealer status. This was done some time back in mid-2011, or at least that's when China first started availing themselves of that status.

For any lurkers not aware, a primary dealer is an entity given the privilege of dealing directly with the US Treasury in bond auctions. This is usually given only to the biggest (TBTF) banks, not foreign officials. To be a primary dealer, you've got to be able to scare up tens of billions per week for T auctions, and are required to bid. In return you get all sorts of privileges. And, you also get to deal directly with the Fed in open market operations.

At any rate, this the first time in history a foreign government has ever been given this status, and funny it's China. THe reason for this is, well, Uncle needs China to keep buying his debt, and China probably demanded something extra. There is some evidence that China may have started selling, just enough to get Uncle's attention, in the period before being granted the PD status.

China gets to eliminate the middleman, and avoid paying fees to Wall Street banks, as well as being to able to act as middlemen themselves, making the same profit the other PD banks do by buying Ts on behalf of clients.

There's no telling what all is going on at the international financial level, things we don't know about, but this is probably evidence that China is in the driver's seat.

[Delvo]

http://www.huffingtonpost.com/2012/0...n_1682580.html

It says new house construction has increased, but doesn't mention whether or not it's at significantly lower prices than a few years ago, the last time construction was happening at this rate.

[Ara Pacis]

http://www.huffingtonpost.com/2012/0...n_1682580.html

It says new house construction has increased, but doesn't mention whether or not it's at significantly lower prices than a few years ago, the last time construction was happening at this rate.

It doesn't say bow big or expensive the houses are, which might be interesting to know.