GREENSPAN SAYS HE KNEW ABOUT ABUSES IN SUBPRIME LENDING BUT FAILED TO FORSEE THEIR PARALYZING MARKET EFFECTS UNTIL LATE 2005

GREENSPAN SAYS HE KNEW ABOUT ABUSES IN SUBPRIME LENDING BUT FAILED TO FORSEE THEIR PARALYZING MARKET EFFECTS UNTIL LATE 2005
Thu Sept 13 2007 12:30:11 ET

Former Federal Reserve Chairman Alan Greenspan admits he "didn't really get it" that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place. Greenspan, who led the U.S. Federal Reserve Bank through 18 years and four presidents, speaks to Lesley Stahl in his first major interview, to be broadcast on 60 MINUTES Sunday, Sept. 16 (7:00-8:00 PM, ET/PT) on the CBS Television Network.

Greenspan says he knew about the questionable subprime lending tactics that gave loans to homebuyers and investors with low adjustable interest rates that could rise precipitously, but not the severe economic consequences they posed. "While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late," he tells Stahl. "I really didn't get it until very late in 2005 and 2006."

Even though one of the Federal Reserve governors raised a red flag on those lending practices, Greenspan says there was little he could do. "Well, it was nothing to look into particularly because we knew there was a number of such practices going on, but it's very difficult for banking regulators to deal with that," says Greenspan.

Several of Greenspan's former Federal Reserve governors have since said that Greenspan's policy of lowering interest rates for three consecutive years early in the decade was wrong because it opened the door for the subprime lenders. They think he kept rates too low for too long. "They are mistaken," Greenspan tells Stahl. "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," he says.

Some believe today's market slide -- U.S. stocks have lost significant ground over the past few months -- could have been slowed had the current Federal Reserve Chairman Ben Bernanke lowered interest rates like Greenspan did early in the decade. Would he act as dramatically and quickly now as he did then if he were the current chairman as some believe? "I'm not sure that's true," says Greenspan. "We were dealing in an environment back there where inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can't do that anymore... I'm not certain I would have done anything different [if he was the chairman today]," he tells Stahl. "I think [Bernanke] is doing an excellent job."

Historic Highs for the EURO

Oil Hits $80 a Barrel for First Time...


DOLLAR DECLINES TO RECORD LOW AGAINST THE EURO...

http://www.bloomberg.com/apps/news?pid=20601009&sid=a8HmfchzkP2Q&refer=bond ....Dollar May Fall as $700 Billion of Debt Matures

Senate panel okays $850 billion debt increase

The Senate Finance Committee on Wednesday approved an $850 billion increase in U.S. borrowing authority to $9.815 trillion in order to avoid a default as the government nears its credit limit of $8.965 trillion.

The committee approved the bill on a voice vote and it clears the way for the full Senate to take action most likely by early October. As of last Friday, the federal debt stood at $8.923 trillion and Treasury Secretary Henry Paulson has been urging Congress to act quickly to avoid unnerving financial markets that are already jittery over rising mortgage foreclosures.

It will be the fifth increase in the U.S. credit limit since President George W. Bush took office in 2001 when the U.S. debt stood at $5.6 trillion.

Mortgage Lender's Bankruptcy May Threaten Thousands of Homeowners -

Thousands of homeowners face an "imminent risk" of losing their homes because of clashes between American Home Mortgage Investment Corp. and its former financial backers, according to Freddie Mac, a government-chartered housing financier.

In documents filed with the U.S. Bankruptcy Court in Wilmington, Del., Freddie Mac said it seized $7 million that homeowners sent to American Home to cover principal and interest payments, property taxes and insurance just before the company's Aug. 6 collapse. American Home quit making payments to tax authorities and insurance companies Aug. 24.

Freddie Mac said 4,547 loans valued at nearly $797 million are at stake. It said it doesn't have the loan files necessary to pay insurance premiums and property taxes on them, however.

Fed Liquefaction Pushes August M3 Growth Towards 14%

Fed Liquefaction Pushes August M3 Growth Towards 14%

This afternoon's money supply release showed seasonally-adjusted M2 for the week-ended August 27th up by $64.9 billion to $7.400 trillion. M2 now has risen by $111.1 billion for the last two weeks, rising at an annualized fortnight growth rate of 48.2%.

Depending on the large time deposit numbers due for release on Friday (tomorrow) afternoon, annual M3 growth for August could jump to 14.0%, up from July's 13.0%, and up from my early August estimate of 13.6% made last week.

Despite the Fed coming close to its formal 5.25% fed funds target in the last couple of days, the liquidity crisis continues, and the financial markets remain extremely unstable and dangerous. Once again, watch the dollar!

Additional detail will follow this weekend.

Renaissance raising new fund to trade futures

Renaissance raising new fund to trade futures
Wed Sep 5, 2007 11:31 AM ET

NEW YORK, Sept 5 (Reuters) - Renaissance Technologies Corp. is raising its third quantitative hedge fund, this one specializing in trading futures and designed to handle up to $50 billion, a source familiar with matter said.

Renaissance, which is managed by mathematics professor-turned-financier James Simons, recently began sending out offering documents for the fund, the source said.

Long Island, New York-based Renaissance, which industry publication Alpha Magazine listed as the world's sixth-largest hedge fund group as of May 2007, continues to raise money for its second fund, the Renaissance Institutional Equities Fund (RIEF), which is now over $26 billion.

Its first fund, Medallion, which has about $6 billion, has been one of the most successful funds in the hedge fund world, but is closed to new investors.

Renaissance declined to comment. Private investment firms like hedge funds are barred by regulators from discussing fundraisings in the media on the view that this may entice ordinary people to invest in what are considered risky vehicles for sophisticated investors. News of the fundraising was reported by the Financial Times on Wednesday.

The fundraising comes at a time when many "quant" funds, which employ rapid-fire trading methods using computer driven models, took big hits during the market gyrations of the last month in particular.

Now some have recovered at least some lost territory as they reconfigured their models. The RIEF fund, which was down almost 9 percent by mid-August, bounced back and is now up about a half percent for August, the source said. Final figures aren't in yet.

It is all but clear whether investors will pony up $50 billion for the new fund, which would make it by far the world's biggest hedge fund.

In its offering documents, Renaissance said its RIEF fund was designed to handle up to $100 billion, but the fund is so far nowhere near that size and it is not clear whether it ever will be.

Is China quietly dumping US Treasuries?

Is China quietly dumping US Treasuries?
By Ambrose Evans-Pritchard

Last Updated: 6:55pm BST 05/09/2007

A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.

· China threatens `nuclear option' of dollar sales

Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.

"This comes as a big surprise and it is definitely worrying," said Hans Redeker, currency chief at BNP Paribas.

"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros," he said.

While the greenback has been resilient over recent weeks - even regaining something of a 'safe-haven' role as banks scrambled to buy the currency to cover dollar debts - most experts believe that America's $850bn current account deficit will eventually cause the dollar to resume its relentless slide.

David Powell, an economist at IDEAglobal in New York, pointed the finger at Beijing as the main suspect in the sudden bond flight this summer.

In a client note entitled "Has China started to dump US Treasuries?", he said the sales appear to coincide with early moves by Beijing to launch its new $300bn sovereign wealth fund.

The scheme is part of the government's plan to diversify it $1,340bn reserves from bonds (mostly in the US) to a broader portfolio of investments and a better yield.

If so, the switch comes at a very delicate time, just as tempers flair on both sides of the Pacific over China's policy of holding down yuan by currency intervention. A bill in Congress calls for punitive tariff sanctions of 27.5pc against Chinese imports, and there has been a growing outcry over contaminated pet food and lead-tainted toys.

Two top advisers to the Chinese government gave strong hints in August that Beijing should use its estimated $900bn holdings of US Treasuries and agency bonds as a "bargaining chip", words taken as an implicit threat to trigger as US bond crash if provoked.

The Chinese government has since put out an official statement clarifying that it has no intention in taking such an irresponsible step, which would in any case backfire by devaluing China's remaining holding.

Mr Powell said the switch out of Treasuires was a purely commercial decision. "If if turns out that the Chinese are behind this, it is merely an attempt to increase returns on investment. It has nothing to do with settling protectionist scores," he said.

Any evidence that China was pulling out would risk setting off an unstoppable stampede, which is why such a policy would never be announced. It holds the world's biggest pool of resrves, followed by Japan.

Robin Bhar, a metals analyst at UBS, said there was little evidence yet that Asian central banks were switching heavily into gold. Most of the recent buying of gold has been on the COMEX futures markets, the playground of hedge funds.

Central banks tend to buy their bullion in London at the AM and PM fixings, leaving a footprint that is visible to experts. They seem to have been largely absent from the market so far.

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=OFUSXC05QVVI1QFIQMFSFGGAVCBQ0IV0?xml=/money/2007/09/05/bcnchina105.xml

Billions bet on catastrophe

Sunday, August 26, 2007

$4.5b bet on another 9/11 within 4 weeks

Updates
'Bin Laden' Options Trades Have Wall Street Whispering
Tell Congress to Stop the March to War with Iran
Cara's Commentary: The "Terrorism Put"
Betting on a crash?
US Opposition Political Leaders Issue Urgent False Flag Terror Warning
Or
US Opposition Political Leaders Issue Urgent False Flag Terror Warning
Congressman: Stock Market Will Eventually Collapse
Or
Congressman: Stock Market Will Eventually Collapse
---
Related
Mystery trader bets market will crash by a third
The Fed: Something big is going to happen
---
August 26, 2007

$4.5 billion options bet on catastrophe within four weeks

Anybody have a clue as to what these 'investors' are expecting?

The two sales are being referred to by market traders as "bin Laden trades" because only an event on the scale of 9-11 could make these short-sell options valuable.

There are 65,000 contracts @ $750.00 for the SPX 700 calls for open interest. That controls 6.5 million shares at $750 = $4.5 Billion. Not a single trade. But quite a bit of $$ on a contract that is 700 points away from current value. No one would buy that deep "in the money" calls. No reason to. So if they were sold looks like someone betting on massive dislocation. Lots of very strange option activity that I haven't seen before.

The entity or individual offering these sales can only make money if the market drops 30%-50% within the next four weeks. If the market does not drop, the entity or individual involved stands to lose over $1 billion just for engaging in these contracts!

Clearly, someone knows something big is going to happen BEFORE the options expire on Sept. 21.

THEORIES:

The following theories are being discussed widely within the stock and options markets today regarding the enormous and very unusual activity reported above and two stories below. Those theories are:

1) A massive terrorist attack is going to take place before Sept. 21 to tank the markets, OR;

2) China, reeling over losing $10 Billion in bad loans to the sub-prime mortgage collapse presently taking place, is going to dump US currency and tank all of Capitalism with a Communist financial revolution. Either scenario is bad and the clock is ticking. The drop-dead date of these contracts is September 21. Whatever is going to happen MUST take place between now and then or the folks involved in these contracts will lose over $1 billion for having engaged in this activity.

"$1.78 Billion Bet that Stock Markets will crash by third week in September Anonymous Stock Trader Sells 10K Contracts on EVERY S&P/Y "Strike" Shorts Stocks "in the money" effectively selling all his SPY holdings for cash up front without pressuring the market downward.

This is an enormous and dangerous stock option activity. If it goes right, the guy makes about $2 Billion. If he's wrong, his out of pocket costs for buying these options will exceed $700 Million!!! The entity who sold these contracts can only make money if the stock market totally crashes by the third week in September.

Bear in mind that the last time anyone conducted such large and unusual stock option trades (like this one) was in the weeks before the attacks of September 11.

Back then, they bought huge numbers of PUTS on airline stocks in the same airlines whose planes were involved in the September 11 attacks.

Despite knowing who made these trades, the Securities and Exchange Commission NEVER revealed who made the unusual trades and no one was ever publicly identified as being responsible for the trades which made upwards of $50 million when the attacks happened.

The fact that this latest activity by a single entity gambles on a complete collapse of the entire market by the third week in September, seems to indicate someone knows something really huge is in the works and they intend to profit almost $2 Billion within the next four weeks from whatever happens! This is really worrisome."