On Wednesday Nouriel Roubini posted a NYT Op-Ed  predicting that the US dollar was in danger of losing its world reserve currency status to the Chinese Renminbi. On the other hand, Brad Setser noted later that evening  that for the present foreign central banks seem to have a hearty appetite for T-Bills, regardless of what they’ve been saying about them. [UPDATE: Setser’s response to Roubini  is now up.] I outlined my concerns about the constant agencies holdings value we’ve been following here in a comment under that second article, and Brad was kind enough to address that in a reply comment as follows:
May 14th, 2009 at 3:13 pm bsetser responds:
John — Russia was a big seller, but it cannot sell more than it has, and it no longer has any agencies. Chinese sales seem to have slowed a bit (or Chinese sales are offset by someone else buying). I suspect that other central banks were comforted by the fed’s purchases — they know the us isn’t gonna default on something the fed holds a lot of. Signalling. And a dem congress and dem president aren’t hostile to the agencies in the way the Rs are, so there might be more confidence there as well.
And later twist contributed this find  that suggests a bubble forming in T-bill yields. Obviously the situation is still volatile.
Central banks bought a huge $29.341 billion dollars worth of Treasury Debt, eclipsing the old second place figure, that you can see is only four weeks old. They also tucked into a hearty $5.393 billion of new Agency Debt.
The graph of treasuries is now starting to climb a wall again, while after 20 flat weeks the agencies line may be bending up just a bit.
Reggie’s putting his cards on the table  with respect to a powerful indictment of the Fed Stress Tests. I thought this was important enough today to pass it up the line for Implode-O-Meter to consider, but since then it’s gotten thumbs-up from both Doomer V and one of SeekingAlpha’s top commenters, so it probably should go above-the-fold here too.
PARIS, May 14 – The U.S. government’s recent bank stress tests were all about clarity. With hard data and clear facts, they shone a bright light on the shadowy uncertainties of complex financial transactions.
Truly an astonishing performance: Debate? What debate?
In effect the stress tests asked American banks if they had more capital than losses. A better question is whether they have enough capital to stand on their own without a state guarantee. Any hopes that Europe might do better were dashed when its regulators promised to conduct similar tests, to keep the results secret and to avoid singling out individual lenders. That points to a Japanese-style future for Western banks, in which a thinly capitalised system staggers along, insisting on its rude health, while the state follows holding crutches an inch beneath its armpits. If that is the answer, then the stress tests were asking the wrong question.
SAP Audit Committee please take note.
The point is not his shocked disbelief in the tests, but his assertion that he’s got a document with sources and methodology to back up his claims. Simply put, if he’s bluffing or BS’ing there’s enough eyeballs out on this story his claim shouldn’t survive more than a couple of hours. This story is clearly falsifiable so it deserves lusty attack. Here’s the payload, Doomers, please go to it
The full report, complete with sources and methodology is available here, free of charge. I simply ask that you forward it to your local congressman/woman and/or favorite media personality. The Truth shall set you free (or get you locked up, depending upon which side of the Truth you are on): BoomBustBlog.com’s Realistic Recast of SCAP 2009-05-12 14:52:09
Quebec’s provincial legislature is presently holding hearings  into how the manager of their civil service pension monies could have lost so much of them investing in Asset Backed Commercial Paper (ABCP). This should be of intense interest to students of the credit crunch, because it provides a microcosm and early prototype for the subsequent seizing up of the entire world’s private corporate finance system.
Note that Coventree’s faint warning to the Caisse occurred just 5 weeks after the two Bear hedge funds with the ludicrous names blew up. DBRS was the bond rating agency for the ABCP, and failed in much the same way as other raters like S&P and Moody’s would in the following months.
What Quebec’s "National Assembly" is doing this week is performing an autopsy on "patient zero" of the world financial meltdown.
Just in case you have been at a Cistercian retreat since Thursday evening [oops! Friday evening — things have been happening too fast … jm], this article is likely in the top 5 most important pieces the WSJ will ever publish, and the extensive debate that has grown out of it will shape all of our futures.
Citigroup’s capital shortfall was initially pegged at roughly $35 billion, according to people familiar with the matter. The ultimate number was $5.5 billion. Executives persuaded the Fed to include the future capital-boosting impacts of pending transactions.
"Thank you for contacting us regarding "share entitlements". When you purchase stock, they are held in ¿book-entry¿ (electronic) form but in"Street-Name". This provides secure and reliable methods of ownership,without the risks and worries that can be associated with a paper certificate.
Due to a change implemented by the Depository Trust Company (DTC) and approved by the Securities and Exchange Commission (SEC), a physical certificate is "no longer" available through TD AMERITRADE. Your ownership of a security through TD AMERITRADE is maintained electronically in street name at the Depository Trust Company (DTC). from the comment thread of 
The above would seem to be right out of the seal the cockpits, fire all your pilots and outsource to a bunch of Predator drone operators school of corporate safety and soundness. That was a commenter, but the post itself  was even more hair-raising. The assertion there was of a widespread amount of "failure to deliver" in the "repo" market in T-bills themselves in the wake of all the chaos last September. The good new is, what with all the bailouts since September 18th, it can’t possibly be that bad now.
OK, so if I’m reading the below quoted bit from this 2-week-old blog post in The Atlantic  correctly, treasuries are sort of the last bastion of the Commercial Paper model for doing corporate short term finance and a host of other related things. We’re talking here about the pressure of the transmission fluid, as it were. Do we really want to mess around with the liquidity of this market starting May Day?
UPDATE: belated thanks to both twist and the Implode-O-Gang for critical digs on this story. And further thanks to Aaron’s people for their pickup of this post, although of course they had to quote the most egregious typo in the above ("hefty fee" not "heft fee") 😉
"… anyone got some marshmallows?" It’s something of a joke in Canada that Maritimers tend to be a wee bit laid back. It’s not a joke.
Well, it’s been almost 9 years since Love Bug I came zorching out of the Philippines and exactly half a year since Love Bug II, Porche’s stealth short-squeeze against VW, caused chaos among the hedges and other speculators. Do we really want tomorrow to look like another badly dubbed Disney B-movie?
As soon as I heard Part Three of CBC’s The Current on Monday I knew it deserved wide distribution. Doomers should first visit The Current’s show archive for April 27, 2009. What follows is an unauthorized Doom transcript for that third half hour, a lively interview with the prize-winning author of a new exposé on Goldman Sachs, their peer banksters and political accomplices. Canadian Doomers especially note the references to the origins of ABCP and the Goldman alumnus presently leading our central bank.
I recommend listening to the Part Three tape to get the full flavor of the interview. It pretty well stands alone, but I’ve taken the liberty of annotating the text with links to further information on names and terms that may not be immediately obvious to a general audience.
Jon Stewart: Does anybody out there have some damn’d good economic news?
Reporter 1: A big earnings surprise from Goldman Sachs late today. The giant investment firm reported a quarterly profit more than double analysts’ estimates.
Reporter 2: The estimates were over a billion and a half dollars for Goldman.
Jon Stewart: Whoo Hooo!! Recession’s over bejins! … [laughter] … Wall Street is back!! The big dogs are out! [applause] … wait a minute, wait a minute … is this the same Goldman Sachs that took $10 billion in taxpayer bailout money less than 6 months ago? Ah, that’s amazing. Now, just a few months later, turn a $1.5 billion profit. You pull that off you’d think the Treasury Secretary who designed the bailout used to be Goldman’s CEO or some– … [laughter] … oh really, he — [laughter] … oh really, Hank Paulson literally left Goldman Sachs to take the Treasury job. Wow …
AMT: … well that was The Daily Show’sJon Stewart riffing on Goldman Sachs right after the banking giant shocked analysts with a 1st quarter profit of $1.8 billion. More about that in a minute. But to be fair, the company also announced that it wants to pay off half of what Jon Stewart correctly identified as a $10 billion loan from the US government.
He’s right as well on another thing. The relationship between Goldman Sachs and the US federal government is tight and it pretty much has been for as long as the company has been around.
According to David Cay Johnston, that has allowed Goldman Sachs to turn itself into one of the most powerful and influential companies in the US and beyond, able to bend and shape the economic policies of one US administation after another.
The economy is cooling, and more Americans are deciding that "less is more". Not only are many of us giving up the McMansions with the granite countertops and gourmet kitchens, we are giving up the fancy food we used to cook in them as well. Companies are beginning to take notice:
A growing number of food manufacturers are showing the staples in their portfolio a little more love these days in an attempt to remind frugal gourmets of the basics.
How basic? Think butter and canned goods.
Del Monte is rolling out its first television campaign for its canned fruits and vegetables in a decade. The campaign, which is called “Stretch Your Dollar,” not surprisingly stresses a value message, and is aimed at consumers who want to eat healthy on the cheap.
According to Brandweek, Del Monte will spend $2 million on the effort this spring and another $13 million in September. Last year, the company spent only $5 million advertising its shelf-stable fruits and vegetables.
Land o’ Lakes also is going no frills. In recent years, the company has pitched its spreadable butter, but now it’s advertising its basic butter for the first time in 10 years.
Del Monte and Land o’ Lakes are not alone, new ads are airing for a number of products you may not have thought of in years: Hamburger Helper, Kool-Aid drink mix, Spam, and Dinty Moore stew, among others.
… "Wow, that’s even more disturbing" … – about 9:50AM
Today’s third 1/2 hour of The Current (about 9:32 to 9:55 AM across Canada’s time zones) is a must-hear. Streaming audio as it happens by region is available here. This is CBC’s promo for the segment on their site.
And … Earlier this month, banking giant Goldman Sachs shocked Wall Street by posting a 1.8 Billion dollar profit in its first quarter earnings and announcing that it wants to pay off half of the 10-Billion-dollar loan it got from the U.S. Government last fall. We’ll talk to Pulitzer-Prize winning investigative reporter, David Cay Johnston, about the company’s long history and how Goldman Sachs has managed to survive and thrive at almost every turn, shaping decades of American economic policy in the process.
I knew that this segment was going to be special, because they put the promo for it on about a week ago, and it never came up. Well, the lawyers must have finished their work because it’s being broadcast across the country now and … Holy $$@#%!
It’s basically an interview with David Cay Johnson. Let’s just say it didn’t pull any punches. CBC usually has podcasts available shortly after the program. August Dvorak so help me, this thing has got to go up where Google can see it.
UPDATE: Hope you caught the show on air, ’cause looks like that segment’s not going to podcast. Pity
We started this segment with a clip from The Daily Show’s Jon Stewart riffing on Goldman Sachs right after the banking giant shocked analysts with a first quarter profit of 1.8 Billion dollars.
And to be fair, the company also announced that it wants to pay off half of what Jon Stewart correctly identified as a 10-Billion dollar loan from the U.S. Government. And Jon Stewart is right about another thing too. The relationship between Goldman Sachs and the U.S. Federal Government is tight and it pretty much has been for as long as the company has been around.
According to David Cay Johnston, that’s allowed Goldman Sachs to turn itself into one of the most powerful and influential companies in the country …able to bend and shape the economic policies of one U.S. Administration after another.
David Cay Johnston is a Pulitzer-Prize-winning investigative reporter who teaches at Syracuse University’s law school. He’s also the author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bill. He was in Rochester, New York.
In fact, since the financial crisis began, American taxpayers have provided more than $300 billion dollars to more than 450 companies. During that same period, from their government, Canadian banks have not received one penny. 
During the week of (Monday) August 6, 2007, a Bay Street firm nobody had ever heard of called Coventree seized up. Within days, the entire C$32 billion Canadian Asset Backed Commercial Paper (ABCP) industry had ceased to function. ABCP was the Canadian equivalent of America’s $300 billion Auction-Rate Securities (ARS) sector, and its failure was the first significant straw-in-the-wind for the world-wide credit crunch. A committee of bankers flew into Montreal on the following weekend, and basically formalized the freeze under the aegis of what was informally called "The Montreal Accord." This bankers’ committee basically froze the ABCP investors’ C$32 billion for 17 solid months. As early as two weeks after Coventree went down it had become obvious we were in deep, deep doodoo. This article  provides a snap-shot of how things stood 7 months into the crisis.
UPDATE: Things started out pretty down-beat at Doom North, what with a Halifax-origin airplane bound for Cuba being taken hostage by some poor kid demanding to be flown to Cuba. But now there’s news that a South Korean Blogger has been acquitted on charges of saying nasty things about the government, an exercise not that different from what I’m doing here, except without that cloak of anonymity (does obscurity count?), and I can’t even claim the level of home-study this guy achieved 😉
Before his identity was exposed, Mr. Park, as Minerva, had cultivated an aura of mystery, describing himself at times as an old farmer and at others as a former Wall Street financial expert. After he was arrested, many were surprised to learn that he was an unemployed graduate of a two-year community college who spent much of his time at home scouring the Web and reading mail-order books on finance.
Twist found this story (click the pic) from the Christian Science Monitor’s "new economy blog." If you can identify 3 of these "four horsemen of economic doom", you don’t get out enough.
Unlike in the US, where a combination of regulators and anti-fraud law enforcement people forced the perpetrators of ARS to at least commit to making their customers whole within weeks, a quirk of Canadian law allowed our banks to simply walk away from their stated commitment to stand behind this goo. It’s not exactly rocket science, since Monday August 13, 2007, Canadian banks have been receiving a subsidy in the form of their customers’ frozen ABCP assets proportionally equivalent  to what American taxpayers have up to now contributed to their banks.
For many years ABCP commercial paper provided the life’s blood short term financing for dozens and dozens of moderate sized Canadian enterprises like Quebec-based Pharmacie Jean Coutu. I’m not singling out  this particular enterprise, but it’s typical of the sound, careful businesses that suddenly found non-trivial amounts of their short-term cash magically transformed into very long term investments at the beginning of the world-wide credit crisis. As well, private individuals, public service pension funds and other long-term investors had been led to believe that the stuff was about as safe as money-market funds, just with a slightly better yield. Collectively, it is this cohort that has let Harper and Flaherty flit merrily around the world bragging about the soundness of our Banking System. It would only be fair to invest them all into the Order of Canada, but giving them their money back with interest after all this time would likely be even nicer.
Anyway, Welcome to Doom’s Monday Open Thread, where nothing’s off-topic, although Doom Family Values™ strives not to let it get too off-colour 😉
"The red line on there is a simple extrapolation of the trend from the beginning of series through 2000. And in that sort of an approximation, you can see we’ve already had a huge adjustment, as we know. And this index is almost back to where it’s extrapolated trend line would be. …"
"… And the price incentives do work. For first time home buyers of course it’s great. And there have been increases in house sales at these lower prices. We need to get them low enough to have a meaningful speculative interest come into the market to absorb the available inventory, and we’ll see when that happens."
"The liquor being thrown around is of course the analog to the bailout money … [laughter] and if we splash enough bailout money around, over the corpse, maybe it will sit up."
Alex Pollock:[00:00]Welcome ladies and gentlemen to our conference on the deflating bubble part V.     The subtitle "Forecast and Policy Recommendations for the Next 6 Months."
We have an outstanding panel that I’m sure you will find most interesting to listen to. But before that I want to wish you all a happy Saint Patrick’s Day, and it’s being Saint Patrick’s Day, we’re going to start with some Irish music.
Describing creditor violence, Plutarch describes how Sparta’s king Agis IV and his successor Cleomenes III sought to cancel the debts late in the 3rd century BC. The city-state’s creditors murdered Agis, drove Cleomenes to suicide in exile, and killed Sparta’s next leader, Nabis – and then called in Rome to fight against pro-debtor democracies throughout Greece. Livy and other Roman historians describe how a century later, in 133 BC, the Roman Senate responded to the Gracchi Brothers attempt at debt and land reform by pushing the democratic Senators over the cliff to their death, inaugurating a century of bloody civil war. 
OK, that’s one last backward glance at Professor Hudson’s long and thought-provoking article on the financial world’s aggression against Iceland (which until the last few months had been the world’s longest continuously democratic society ). My two previous posts relating to this have moved one of our blogging colleagues and regular Doom reader to send along a fascinating link, but first some background.
Since their video was released 4 years ago, I have been concerned with something that happened in the course of the Q&A session at the Senate Banking Committee’s April 21, 2005 hearing on Regulatory Reform of the Housing Government-Sponsored Enterprises. It was around 1:28:00 – 1:29:30 on the tape that baby-GSE regulator, FHFB Chairman Ronald Rosenfeld, made what to me was a startling assertion. Basically he said that there is no model or procedure available in American business schools for shrinking a business enterprise. I found this astounding, and my first reaction was the typical Richard Daughty exclamation "We’re all $%#*’ing Doomed!"
It was Doom friend Mike Folkerth who sent along this intriguing set of videos, summarizing the work of 86-year-old German amateur monetary theorist Helmut Creutz (home page is in German). I’m embedding the 4 videos (these are in English) that summarize his analysis and prescription (about 1/2 hour total), but it’s just as convenient to go to yokonirami’s YouTube site, where there’s some additional material. To summarize very briefly, Creutz notes that compound interest has been resulting in suicidal wealth concentration and social collapse since around the time of the Book of Job, and that only enlightened money policy to prevent this wealth concentration (by reducing interest rates to zero while not causing inflation — don’t laugh, I think he may be onto something) is going to halt this destructive cycle.
UPDATE: Thanks go to YouTube user yokonirami for passing along a corrected #2 code and the following code for the whole series at one go (hope this works 😉 )
Like in the 1870s, when socialism and communism from guys such as Marx and Ruskin started gaining strength due to that severe downturn, we are entering a period where we need wild ideas to chew over. Here’s one that looks like it deserves at least a glance.
Mike made the point  that most people in developing countries are more exploited and miserable than the typical American, mortgage crisis or not. He has a point. I know just what it means to be able to buy bananas for 69 cents/lb at the local supermarket. It’s just that this level of exploitation seems to be slowly creeping into the middle class of the heartland. There is a famous story about the "boiling frog". The allegorical moral  is that if you put a frog into hot water it will hop out, but if you heat the water slowly it will never take alarm and you can boil it. For years it’s been clear (at least to me) that a similar process was at work with the steadily rising levels of debt in the U.S. The inexorable pressure on families is mostly happening quietly and in private, one payment, one notice at a time. Hopefully Doom can help people see their own stories as part of a larger pattern.
During the course of a Wednesday morning radio interview  with Twist, host Charles Goyette  made an interesting remark. "It’s the buyer’s fault, after all," he said, implying that home buyers, whether investors or homeowners, are grownups and responsible for the obligations they enter into. Regular reader "Mike" made a similar point  earlier when he took me to task for using the "S" word (slavery)  late last month to describe the likely fate of many middle class borrowers should they actually have to pay the principal and interest on the loans they are saddled with now that the bubble has burst. Although my analysis is still very sketchy, I feel the situation for Joe Sixpack is sufficiently serious that the word slavery is not out of the question. Be warned that what follows is going to read more like a sermon than an argument. That the distressed borrowers and their families must not be called to account beyond a certain point, laying aside the practicalities, is simply an aspect of certain "bleeding heart"  tendencies that I will also try to justify.
The Book of Noah (the bits after the Heritage USA thrill ride part at the beginning) provided some timely advice against invading Iraq that nobody really paid attention to. It’s urgent that we all now note that THE BIG GUY HIMSELF came down specifically to register HIS OPINION about stuff like the above:
Then Peter came up and said to him, "Lord, how often shall my brother sin against me, and I forgive him? As many as seven times?"
Jesus said to him, "I do not say to you seven times, but seventy times seven.
"Therefore the kingdom of heaven may be compared to a king who wished to settle accounts with his servants.
When he began the reckoning, one was brought to him who owed him ten thousand talents;
and as he could not pay, his lord ordered him to be sold, with his wife and children and all that he had, and payment to be made.
So the servant fell on his knees, imploring him, ‘Lord, have patience with me, and I will pay you everything.’
And out of pity for him the lord of that servant released him and forgave him the debt.
But that same servant, as he went out, came upon one of his fellow servants who owed him a hundred denarii; and seizing him by the throat he said, ‘Pay what you owe.’
So his fellow servant fell down and besought him, ‘Have patience with me, and I will pay you.’
He refused and went and put him in prison till he should pay the debt.
When his fellow servants saw what had taken place, they were greatly distressed, and they went and reported to their lord all that had taken place.
Then his lord summoned him and said to him, ‘You wicked servant! I forgave you all that debt because you besought me;
and should not you have had mercy on your fellow servant, as I had mercy on you?’
And in anger his lord delivered him to the jailers, till he should pay all his debt. So also my heavenly Father will do to every one of you, if you do not forgive your brother from your heart." – Matthew 18:21-35
Hat to to twist for pointing out the importance of the CounterCurrents article. Professor Hudson has written some really profound stuff, and Doomers should seriously consider reading his whole article and other resources at his personal site.
Give a country a democratic system, and pretty soon the poor will figure out how to use it for their own purposes. Their leader and voice in Thailand was Thaksin Shinawatra, an ex-cop from humble origins who became a telecommunications billionaire. He was a demagogue who cut as many corners in politics as he had in business, but he genuinely did represent the poor, both urban and rural, and they voted for him in their millions. 
OK class, the Mickey Mouse club is adjourned. Just follow the link, sit back and let one of the world’s leading warfare analysts give you a short lecture on class warfare. This could well be the shape of our future, too.