Warning of Total collapse of the system unless Washington acts

What's Dead (Short Answer: All Of It)

Just so you have a short list of what's at stake if Washington DC doesn't change policy here and now (which means before the collapse in equities comes, which could start as soon as today, if the indicators I watch have any validity at all.  For what its worth, those indicators are painting a picture of the Apocalypse that I simply can't believe, and they're showing it as an imminent event - like perhaps today imminent.)

• All pension funds, private and public, are done.  If you are receiving one, you won't be.  If you think you will in the future, you won't be.  PBGC will fail as well.  Pension funds will be forced to start eating their "seed corn" within the next 12 months and once that begins there is no way to recover.
  
• All annuities will be defaulted to the state insurance protection (if any) on them.  The state insurance funds will be bankrupted and unable to be replenished.  Essentially, all annuities are toast.  Expect zero, be ecstatic if you do better.  All insurance companies with material exposure to these obligations will go bankrupt, without exception.  Some of these firms are dangerously close to this happening right here and now; the rest will die within the next 6-12 months.  If you have other insured interests with these firms, be prepared to pay a LOT more with a new company that can't earn anything off investments, and if you have a claim in process at the time it happens, it won't get paid.  The probability of you getting "boned" on any transaction with an insurance company is extremely high - I rate this risk in excess of 90%.
  
• The FDIC will be unable to cover bank failure obligations.  They will attempt to do more of what they're doing now (raising insurance rates and doing special assessments) but will fail; the current path has no chance of success.  Congress will backstop them (because they must lest shotguns come out) with disastrous results.  In short, FDIC backstops will take precedence even over Social Security and Medicare.
  
• Government debt costs will ramp.  This warning has already been issued and is being ignored by President Obama.    When (not if) it happens debt-based Federal Funding will disappear.  This leads to....
  
• Tax receipts are cratering and will continue to.  I expect total tax receipts to fall to under $1 trillion within the next 12 months.  Combined with the impossibility of continued debt issue (rollover will only remain possible at the short duration Treasury has committed to over the last ten years if they cease new issue) a 66% cut in the Federal Budget will become necessary.  This will require a complete repudiation of Social Security, Medicare and Medicaid, a 50% cut in the military budget and a 50% across-the-board cut in all other federal programs.  That will likely get close.
  
• Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest).  If you have a 401k, or what's left of it, or an IRA, consider it locked up in Treasuries; it's not yours any more.  Count on this happening - it is essentially a certainty.
  
• Any firm with debt outstanding is currently presumed dead as the street presumption is that they have lied in some way.  Expect at least 20% of the S&P 500 to fail within 12 months as a consequence of the complete and total lockup of all credit markets which The Fed will be unable to unlock or backstop.  This will in turn lead to....
  
• The unemployed will have 5-10 million in direct layoffs added within the next 12 months.  Collateral damage (suppliers, customers, etc) will add at least another 5-10 million workers to that, perhaps double that many.  U-3 (official unemployment rate) will go beyond 15%, U-6 (broad form) will reach 30%. 
  
• Civil unrest will break out before the end of the year.  The Military and Guard will be called up to try to stop it.  They won't be able to.  Big cities are at risk of becoming a free-fire death zone.  If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get.
  

The good news is that this process will clear The Bezzle out of the system.

The bad news is that you won't have a job, pension, annuity, Social Security, Medicare, Medicaid and, quite possibly, your life.

It really is that bleak folks, and it all goes back to Washington DC being unwilling to lock up the crooks, putting the market in the role it has always played - that of truth-finder, no matter how destructive that process is.

Only immediate action from Washington DC, taking the market's place, can stop this, and as I get ready to hit "send" I see the market rolling over again, now down more than 3% and flashing "crash imminent" warnings.  You may be reading this too late for it to matter.

http://market-ticker.org/archives/852-Whats-Dead-Short-Answer-All-Of-It.html

http://market-ticker.org/

http://www.dailyreckoning.com/dividend-drop-off-when-cushions-turn-to-rocks/ "the nation's five largest railroads have put more than 30% of their boxcars – 206,000 in all – into storage." Yikes! A third less volume!

Cramer admits nationalization may cause revolution

http://video.mainstreet.com/msvideo/10465571/cramer-nationalization-would-crush-america.html#10465571 Cramer nationalization would wipe out insurance and pose social threat

Asian central banks are abandoning a six-month campaign of defending their currencies, reversing course to cheapen exports that are falling the most in a decade.... http://www.bloomberg.com/apps/news?pid=20601087&sid=a92NeP7O8ogk&refer=home

"We are doing things now that are potentially very inflationary," he said. Buffett called on Congress to unite behind President Barack Obama, comparing the economic crisis to a military conflict that needs a commander-in-chief. "Patriotic Americans will realize this is a war," he said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=azL2a7n4_.Wc&refer=home

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ1kcJ7y3LDM&refer=home Global Financial Assets Lost $50 Trillion Last Year, ADB Says

http://www.mainstreet.com/article/smart-spending/bargains/deals/no-cash-no-problem-bartering-booms-online Barter Booms online

Currency Performance of Emerging Markets weakens

FROM RGE * YTD Currency performance as of Mar 6, 2009: Worst-performers->S.Korea (-18.7%), Malaysia (-7.3%), Singapore (-7%). Depreciated->India (-5.8%), Thailand (-3.6%), Indonesia (-5.9%), Philippines (-2.5%), Pakistan (-2%), Taiwan (-5.6%), Hong Kong (-0.08%), China (-0.2%), Vietnam (+0.1%)

Causes:

* Slowing capital flows: Heightened global risk aversion and investor redemption from EMs, bond and equity sell-off by FIIs and capital outflows from Asia; liquidity crunch amid money market turmoil; strengthening of USD. Unwinding of foreign currency debt by domestic entities; unwinding of carry trade. Aggressive interest rate cuts and low possibility of allowing appreciation in near-term are also deterring inflows. FDI is showing signs of easing amid global credit crunch. External bank borrowing and capital raising activity in international capital markets have also taken a hit

* Easing external balances: exports are contracting in all emerging Asian countries due to global recession, with most exports bound to US/EU. EMs are slowing significantly and China's imports for re-export are also slowing. Commodity price correction is hurting exports of Malaysia, Indonesia, Vietnam which benefited from 2008's commodity boom. High oil and commodity prices and strong domestic demand in 2008 had also put pressure on commodity importers. But countries with stronger FDI prospects and/or stronger fiscal and current a/c positions are less vulnerable to currency depreciation than their peers. Also, imports contracting (slowing industry, imports for re-exports, consumer demand) greater than exports in some countries is containing risks to the trade deficit

* Central Banks: To prevent large currency depreciation, central bank intervention in FX markets like India, S.Korea, Thailand, Philippines, Indonesia has increased in recent months leading to a decline in forex reserves. For countries with smaller reserves, intervention might be limited ahead. Some central banks also injecting dollar liquidity, arranging USD swap agreements with Fed and introducing other restrictions on converting currency in domestic markets. Some central banks are also easing foreign capital inflows, restricting USD outflow and currency conversion. Contracting exports is also causing several Asian central banks shift to depreciation bias to support growth esp. as interest rates cuts are approaching low levels in many countries with risk of deflation and are ineffective to stimulate lending, and size of fiscal stimulus is constrained by fiscal deficit in many countries

* Risks: Currencies will face downwards pressure since exports will continue to contract through most of 2009 and foreign investor risk aversion will also continue esp. as risks to Asian growth escalate. FDI, remittances and debt inflows incl. bank borrowings will be hit more than expected. Depreciation bias will instead raise import cost for firms and consumers, and impact trade balance and import inflation

Outlook:

* With many currencies (most notably KRW and INR) having already reverted back to where they stood at the start of 2002, the pressure on currencies shouldn't prove as extreme from here on

* ANZ: Although risk aversion and debt redemptions remain an immediate hurdle for KRW, USD-KRW will lead USD-AXJ lower later in 2009. Singapore's monetary policy to re-centre and widen the S$NEER policy band would pave way for further gains in USD-SGD. Further gains are assured in USD-TWD with staggering drop in exports, record contraction in GDP, and bleak outlook

* Scotia: Depreciation trend will be reversed in the latter part of 2009 if China resists internal pressures to devalue the renminbi; Fiscal stimulus, rising savings will limit capital outflows that have pressured the exchange rates; Developing Asia may be convinced they cannot rely on export-led growth models; implications of the U.S. financing requirements

* Morgan Stanley: AXJ currencies most vulnerable amid significant risks to growth and capital outflows in near-term but will rally once global economy bottoms; fiscal rather than monetary stimulus (rate cuts) to contain crisis and slowdown will support the currencies. Sharp depreciation of currencies against USD (except those with large current a/c surpluses) has caused dislocations in balance sheets of many companies and countries with external liabilities

* Standard Chartered: Given the fundamentals are solid and growth prospects are bright, KRW, PHP, INR, IDR to lead the rally in AXJ currencies in H2-2009 just as they led the AXJ currency correction in 2008. Small, open economy currencies such as SGD, MYR, TWD,THB, VND will weaken on slowing growth, capital outflows, global recession

* Credit Suisse: Countries most exposed to G-3 (Taiwan, Singapore, Malaysia, S.Korea) will witness more depreciation relative to those less exposed to G-3 (India, Indonesia, China, Philippines, Thailand)

* ABN Amro (not online): Taiwan, Malaysia, Thailand will perform better due to current a/c surplus, lower capital dependence; India, S.Korea, Vietnam will weaken as high import bill impacts current a/c deficit

* DBS: Singapre dollar is facing the strongest technical pressure to depreciate, based on the recession and the fact that Singapore manages its currency against the euro which has also weakened

 

Mar 7, 2009

Gordon Brown vows to end shadow banking system and tax havens

http://www.telegraph.co.uk/news/newstopics/politics/gordon-brown/4949859/Gordon-Brown-calls-for-morality-in-financial-system.html
Mr Brown said the new rules were about "building rewards on long term results."

He also pledged to "bring tax havens and the shadow banking system into the regulatory net."

http://www.youtube.com/watch?v=-r_-QRKyu6g Kucinich Bill nationalize the fed

Taleb gets Angry on Risk Metrics

FDIC does not have enough funds to cover deposit insurance, Bair admits

FDIC's Bair warns on bank deposit insurance fund

By MARCY GORDON – 23 hours ago

WASHINGTON (AP) — The head of the Federal Deposit Insurance Corp. has warned that the fund insuring Americans' bank deposits could be wiped out this year without the money the agency is seeking in new fees from U.S. banks and thrifts.

FDIC Chairman Sheila Bair acknowledged, in a letter to bank CEOs, that the new increased fees and hefty emergency premium the agency voted to levy last week will bring a "significant expense" to banks, especially amid a recession and financial crisis when their earnings are under pressure.

"We also recognize that assessments reduce the funds that banks can lend in their communities to help revitalize the economy," Bair wrote.

But given the accelerating bank failures that have been depleting the deposit insurance fund, she said, it "could become insolvent this year."

"Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative," Bair wrote in the letter dated Monday to the chief executives of the nation's 8,305 federally insured banks and thrifts.

The industry, especially smaller community banks, has said the new insurance fees will place an extra burden on an already struggling sector. A federal banking regulator said last week the new premiums will unfairly burden smaller banks that didn't contribute to the financial crisis with reckless lending.

As loan defaults have soared, reflecting the ravages of rising unemployment and sliding home prices, bank failures have cascaded and sapped billions out of the fund that insures regular accounts up to $250,000. The fund now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.

The FDIC now expects that bank failures will cost the insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. There have been 16 bank collapses already this year, following 25 in 2008 — which included two of the biggest savings and loans, Washington Mutual Inc. and IndyMac Bank.

The new insurance fees are meant to raise $27 billion this year to replenish the fund.

Bair said the plan protects bank depositors as well as taxpayers, because it likely means the FDIC won't have to go to the Treasury Department and tap public money to replenish the insurance fund.

Bair has not ruled out that possibility for a short-term loan, but said she doesn't expect to take the more drastic action of using its $30 billion long-term credit line with Treasury — something that has never been done.

"Some have suggested that we should turn to taxpayers for funding," she said in her letter to the bank executives. "But banks — not taxpayers — are expected to fund the system, and I believe Congress would look skeptically on such a course of action."

Furthermore, she said, turning to taxpayers "could open up a whole new debate about the degree of government involvement in the affairs of insured banks."

The FDIC plan puts new charges on a battered industry while the Obama administration is seeking to pump as much as $750 billion in additional federal aid into ailing banks under its financial rescue plan. The FDIC, as a regulatory agency charged with protecting the insurance fund, acts independently from the administration.

The new emergency premium, to be collected from all federally insured institutions on Sept. 30, will be 20 cents for every $100 of their insured deposits. That compares with an average premium of 6.3 cents paid by banks and thrifts last year.

The FDIC also raised the regular insurance premiums for banks to between 12 and 16 cents for every $100 in deposits starting in April, up from a range of 12 to 14 cents.

Copyright © 2009 The Associated Press. All rights reserved.

http://www.google.com/hostednews/ap/article/ALeqM5gv3IJ-X4AJ-eO5sSEq0_QIz7NWogD96NC25O2

Next Generation Investment Banking, US collapse predicted, Indians cannot create plumbing system

AnalysisBoston Consulting GroupChandy Chandrashekhar, Alenka Grealish, Philippe Morel and Shubh SaumyaMar 04, 2009    http://www.bcg.com/impact_expertise/publications/files/Next_Generation_Investment_Bank_March_2009.pdf

MOSCOW — If you're inclined to believe Igor Panarin, and the Kremlin wouldn't mind if you did, then President Barack Obama will order martial law this year, the U.S. will split into six rump-states before 2011, and Russia and China will become the backbones of a new world order.

Panarin might be easy to ignore but for the fact that he is a dean at the Foreign Ministry's school for future diplomats and a regular on Russia's state-guided TV channels. And his predictions fit into the anti-American story line of the Kremlin leadership..... http://www.foxnews.com/story/0,2933,504384,00.html

http://www.bloomberg.com/apps/news?pid=20601109&sid=aErNiP_V4RLc&refer=home India Failing to Control Open Defecation Blunts Nation's Growth

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Foreign-Exchange Turnover Dropped ‘Sharply’ in 2008, BIS Says

Foreign-Exchange Turnover Dropped 'Sharply' in 2008, BIS Says

By Kim-Mai Cutler

March 2 (Bloomberg) -- Trading in the world's three leading currency pairs fell by about 50 percent on electronic-broking services in the last quarter as volatility climbed to a record, the Bank for International Settlements said.

"Activity levels dropped sharply across the board," Paola Gallardo and Alexandra Heath, analysts at the Basel, Switzerland-based BIS, wrote in a report released yesterday. "Market makers may have been less willing to quote on electronic platforms to avoid being caught by adverse price movements, thereby driving activity through phone transactions."

Currency fluctuations became more exaggerated after Lehman Brothers Holdings Inc.'s Sept. 15 bankruptcy drove investors to sell riskier assets and repay loans. Volatility implied by dollar-yen options expiring in one month, a measure of expectations for future currency moves, rose to 41.79 percent on Oct. 24, the highest level since Bloomberg began compiling the data in December 1995.

Increased volatility can deter traders by making profits more difficult to predict. Firms that rely on electronic transactions, such as proprietary and prime brokerage accounts, may have scaled back foreign-exchange trading in line with other asset classes, the BIS said. Quantitative trading may have fallen as computer-based models failed to capture the changing market environment, according to the bank.

"Some forms of trading activity, such as automated trading, which rely on electronic execution methods and are based on rules designed to work in normal conditions, may be abandoned at times of high volatility," the bank said.

Money-Market Squeeze

The BIS said bid-ask spreads, or the difference between the best buying and selling prices, more than doubled between September and December as turnover fell. Euro-dollar is the most actively traded currency pair, followed by dollar-yen and pound- dollar, the BIS said in its triennial survey published in 2007.

As currency trading volumes slumped, short-term dollar funding needs for banks outside the U.S. became "acute" as financial institutions hoarded cash, freezing money markets, in the wake of Lehman's bankruptcy, BIS analysts Patrick McGuire and Goetz von Peter wrote in a separate study released yesterday.

Before the credit crisis erupted in August 2007, financial institutions accumulated positions in foreign-denominated assets that led to a short-term dollar funding gap for major European banks of between $1.1 trillion and $1.3 trillion, the report said. Institutions met their funding needs by borrowing from central banks and money markets, the BIS said.

The cost of three-month dollar loans rose to 332 basis points more than the Federal Reserve's target rate on Oct. 10, the biggest difference since at least 1984, as short-term funding markets dried up.

"The crisis has shown how unstable banks' sources of funding can become," the BIS said. "When heightened credit risk concerns crippled these sources of short-term funding, the chronic U.S. dollar funding needs become acute."

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

Last Updated: March 1, 2009 16:07 EST

Rogers Long Sugar Civil Unrest in US

CNBC: Roubini on Banking Transformation http://www.cnbc.com/id/15840232?video=1047735517&play=1

Arsonists Torch Berlin Porsches, BMWs on Economic Woe

http://www.bloomberg.com/apps/news?pid=20601109&sid=auZeM63nrgzo&refer=home Arsonists Torch Berlin Porsches, BMWs on Economic Woe (Update1)

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Rick Santelli CNBC sets stage for capitalist coup

http://www.cnbc.com/id/15840232?video=1039849853

SEC Charges R. Allen Stanford, Stanford International Bank for Multi-Billion Dollar Investment Scheme

SEC Charges R. Allen Stanford, Stanford International Bank for Multi-Billion Dollar Investment Scheme FOR IMMEDIATE RELEASE 2009-26 Washington, D.C., Feb. 17, 2009 — The Securities and Exchange Commission today charged Robert Allen Stanford and three of his companies for orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program.   Additional Materials Litigation Release No. 20901 SEC Complaint   Stanford's companies include Antiguan-based Stanford International Bank (SIB), Houston-based broker-dealer and investment adviser Stanford Group Company (SGC), and investment adviser Stanford Capital Management. The SEC also charged SIB chief financial officer James Davis as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action. Pursuant to the SEC's request for emergency relief for the benefit of defrauded investors, U.S. District Judge Reed O'Connor entered a temporary restraining order, froze the defendants' assets, and appointed a receiver to marshal those assets. "As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors." Rose Romero, Regional Director of the SEC's Fort Worth Regional Office, added, "We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world." The SEC's complaint, filed in federal court in Dallas, alleges that acting through a network of SGC financial advisers, SIB has sold approximately $8 billion of so-called "certificates of deposit" to investors by promising improbable and unsubstantiated high interest rates. These rates were supposedly earned through SIB's unique investment strategy, which purportedly allowed the bank to achieve double-digit returns on its investments for the past 15 years. According to the SEC's complaint, the defendants have misrepresented to CD purchasers that their deposits are safe, falsely claiming that the bank re-invests client funds primarily in "liquid" financial instruments (the portfolio); monitors the portfolio through a team of 20-plus analysts; and is subject to yearly audits by Antiguan regulators. Recently, as the market absorbed the news of Bernard Madoff's massive Ponzi scheme, SIB attempted to calm its own investors by falsely claiming the bank has no "direct or indirect" exposure to the Madoff scheme. According to the SEC's complaint, SIB is operated by a close circle of Stanford's family and friends. SIB's investment committee, responsible for the management of the bank's multi-billion dollar portfolio of assets, is comprised of Stanford; Stanford's father who resides in Mexia, Texas; another Mexia resident with business experience in cattle ranching and car sales; Pendergest-Holt, who prior to joining SFG had no financial services or securities industry experience; and Davis, who was Stanford's college roommate. The SEC's complaint also alleges an additional scheme relating to $1.2 billion in sales by SGC advisers of a proprietary mutual fund wrap program, called Stanford Allocation Strategy (SAS), by using materially false historical performance data. According to the complaint, the false data helped SGC grow the SAS program from less than $10 million in 2004 to more than $1 billion, generating fees for SGC (and ultimately Stanford) of approximately $25 million in 2007 and 2008. The fraudulent SAS performance was used to recruit registered investment advisers with significant books of business, who were then heavily incentivized to reallocate their clients' assets to SIB's CD program. The SEC's complaint charges violations of the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act, and registration provisions of the Investment Company Act. In addition to emergency and interim relief that has been obtained, the SEC seeks a final judgment permanently enjoining the defendants from future violations of the relevant provisions of the federal securities laws and ordering them to pay financial penalties and disgorgement of ill-gotten gains with prejudgment interest. The Commission acknowledges the assistance and cooperation of the Financial Industry Regulatory Authority (FINRA) in connection with this matter. The SEC's investigation is continuing. The Commission acknowledges the assistance and cooperation of the Financial Industry Regulatory Authority (FINRA) in connection with this matter. FINRA independently developed information through its examination and investigative processes that contributed significantly to the filing of this enforcement action. # # # For more information, contact: Rose Romero, Regional Director Steve Korotash, Associate Regional Director, Enforcement SEC's Fort Worth Regional Office (817) 978-3821     http://www.sec.gov/news/press/2009/2009-26.htm

East European Economies meltdown as US capitalism collapses, more fraud discovered in Standford

We wrapped ourselves in an intellectual security blanket sewn together by our brightest economists and many of their mathematically gifted progeny, the Ph.D. "quants" of Wall Street. We were taken in, as we so often are, by an inflated belief in our own powers. And hubris--as always--was rebuked with catastrophe.

Is It Capitalism's Fault?     http://www.realclearpolitics.com/printpage/?url=http://www.realclearpolitics.com/articles/2009/02/the_end_of_american_capitalism.html

Given the amount of time that the SEC and the media have been sniffing around his operation, today's fraud charges can't have come as much surprise to Allen Stanford. And given that he owns banks in many different jurisdictions (the FT has found entities not only in the US and Antigua, but also New Zealand, Switzerland, Colombia, Ecuador, Mexico, Peru, Venezuela, and, of course, Panama), as well as what Matthew Goldstein calls "a number of private jets", one expects that at this point his contingency plan is well underway.    http://seekingalpha.com/article/121037-stanford-the-manhunt-begins

The China bulls have commented approvingly on the growth in loans in China, seeing it as a sign of pending recovery, along with an upswing in stock prices. We've pointed out that economist and China commentator Michael Pettis has heard quite a few reports that many of these loans were in fact sham transactions to meet government targets.

And now it gets even better. One analyst estimates that more than 1/3 of the total "new" lending (assuming that the loans were truly extended) may have gone into the stock market.

http://www.nakedcapitalism.com/2009/02/so-much-for-stimulus-chinese-loans.html

http://danskeresearch.danskebank.com/link/Meltdown17022009/$file/Meltdown17022009.pdf In conclusion, the crisis in Central & Eastern Europe (CEE) is getting out of hand and investors are aggressively exiting CEE markets. The most likely outcome is a very sharp fall in economic activity across the region. Pressure on CEE markets will probably continue until either the EU and/or the IMF intervene decisively.